Interest on doubtful debts credited to suspense account by banks need not be included in taxable income. - Income Tax - 1186/CBDT

INSTRUCTION NO. 1186/CBDT Dated : June 8, 1978 Section(s) Referred: 147 ,263 Statute: Income - Tax Act, 1961 Attention is invited to Board's circular No.41(V-6)D of 1952 dated 6th October 1952 wherein it was clarified that interest on doubtful debts credited to a suspense account by banks need not be included in the taxable income provided the ITO is satisfied that the recovery of the loan is practically improbable. 2. The Board, vide its letter F.No.207/16/71-ITA.II dated 29th November 1972 informed the commissioner, Delhi-I that interest on doubtful debts credited to suspense account by Industrial Finance Corporation of India should not be included in the taxable income. This view was reiterated in the cases of various other financial institutions. The Revenue Audit, however did not agree with the views expressed by the Board and objected to the exclusion of such interest from the total income. 3. The Board have recently received a number of representations from other State financial corporations/institutions seeking exemption of interest on such accounts from inclusion in the total income. The matter has therefore been re-examined in consultation with the Ministry of law. The board have been advised that where accounts are kept on mercantile basis interest thereon is taxable irrespective of whether the interest is credited to suspense account or to interest account. The Kerala High Court has also expressed the same view in the case of State Bank of Travancore Vs.CIT, Kerala, includible in the taxable income. 4. In view of this circulars No.41(V-6) D of 1952 dated 6th October 1952 and clarifications issued in cases of financial institutions are withdrawn with immediate effect. All pending assessments may be completed keeping action by way of initiation of proceedings u/s.147(b) or sec.263 may be taken in respect of assessments which have been completed in accordance with the Board's Instruction and clarifications referred to in paras 1 and 2 above.