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TMI Blog2011 (5) TMI 321X X X X Extracts X X X X X X X X Extracts X X X X ..... e was not accounted for in the books of account - In the case of CIT v. Vasisth Chay Vyapar Ltd. (2010 -TMI - 202354 - Delhi High Court)and this theory of 'real income' was discussed in detail. That was also a case of NBFC where loan/advance given by the said assessee had become NPA and keeping in view the guidelines of the RBI interest was not treated as accrued - Decided in favour of the assessee X X X X Extracts X X X X X X X X Extracts X X X X ..... ?" 2. The facts which are necessary to determine as to whether the aforesaid question of law as proposed is a substantial question of law arising for consideration or not, may now be noted. 3. The assessee had given interest bearing loans to the following parties, which is reflected in the balance-sheet for the period ending 31st March, 2003. Rs. 1. Jindal Equipment Leasing and Consultancy Services Ltd. 7,32,72,000 2. Mansarovar Investment Ltd. 5,10,17,630 3. Goswamis Credits and Investment Ltd. 1,14,97,427 13,57,87,057 4. Further, it was contended in the notes attached with the return that certain loans given by the company have become a non-performing asset (NPA) and as per the NBFC Prudential Norms (RBI) Directions, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g and Consultancy Services Ltd. and Mansarovar Investment Ltd. were advanced in the financial year 1996-97 and the assessee accounted for accrued interest on the loan till the financial year 1997-98. As the amount of interest for the financial year 1997-98 remained outstanding for more than six months, the advances became NPA as per the definition of the NBFC's Prudential Norms (RBI) Directions, 1998. As regards the loans given to Goswamis Credits and Investment Ltd. it was stated that the loan was given in the financial year 1998-99 and the assessee accounted for accrued interest on this loan till the financial year 2000-01 and since the interest for the financial year 2000-01 remained outstanding for more than six months, the advances bec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy and issue directions from time to time to all or any of the NBFCs relating to income recognition and accounting standards, etc., and on the basis of it, stated that a NBFC is bound to follow the policy determined by the RBI, which has issued the NBFC's Prudential Norms (RBI) Directions, 1998, according to which interest or any other charges on NPA shall be recognised only when it is actually realised. 5. It is clear from the above that the submission of the assessee before the authorities below that since the recoverability of the principal amount of loan itself was doubtful, a decision was taken as a prudent businessman and interest income was not accounted for in the books of account. As per the assessee, under these circumstances, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and this theory of "real income" was discussed in detail. That was also a case of NBFC where loan/advance given by the said assessee had become NPA and keeping in view the guidelines of the RBI interest was not treated as accrued. After taking note of various judgments on the subject, the question was answered in favour of the assessee and against the Revenue. The legal position is summarised in paragraph 17 of the said judgment which reads as under (pages 448-49) : "In this scenario, we have to examine the strength in the submission of learned counsel for the Revenue that whether it can still be held that income in the form of interest though not received had still accrued to the assessee under the provisions of the Income-tax Act and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... already been referred to above. (2) In the instant case, the assessee-company being NBFC is governed by the provisions of the RBI Act. In such a case, interest income cannot be said to have accrued to the assessee having regard to the provisions of section 45Q of the RBI Act and Prudential Norms issued by the RBI in exercise of its statutory powers. As per these norms, the ICD had become NPA and on such NPA where the interest was not received and possibility of recovery was almost nil, it could not be treated to have been accrued in favour of the assessee." 7. The aforesaid judgment clearly applies to the present case as well. Following that judgment, we are of the view that no substantial question of law arises in these appeals and ar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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