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TMI Blog2013 (8) TMI 476X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of section 43D of the Act override other provisions of the Act and said provisions are applicable in the case of assessee, being Scheduled Bank. Once the loans had become NPAs and the assessee had opted to account for the interest on such NPAs only on recovery of the same, the law recognizes such treatment of interest on NPAs as valid in view of the provisions of section 43D of the Act - No addition - Decided against Revenue. - ITA No. 1112/Chd/2010 & ITA No. 776/Chd/2011 - - - Dated:- 6-3-2013 - T. R. Sood And Sushma Chowla , JJ. For the Appellant : Amarveer Singh. For the Respondent : M. R. Sharma. ORDER:- PER : Ms. Sushma Chowla Both the appeal are by the Revenue against separate orders of CIT(A) dated 31.5.2010 and 27.5.2011 relating to Assessment years 2007-08 and 2008-09 against the order passed u/s 143(3) of the Act. 2. Both the appeals filed by the Revenue relating to the same assessee on similar issues were heard together and are being disposed off by this consolidated order for the sake of convenience. Reference is made to the facts in ITA No. 1112/Chd/2010 in order to dispose off the issue. 3. The Revenue has raised the following gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was liable to show interest on the said loans @ 12% as it was following mercantile system of accounting. The auditor in their method of accounting had reported that the assessee was following mercantile system of accounting except income on NPAs was accounted on cash basis. Rejecting the explanation of the assessee and in view of the clarification of the ld. counsel for the assessee on 24.12.2009, the said loans were held to be part of NPAs and thus interest @ 12% of amount of loans of ₹ 32.88 crores amounting to ₹ 3,94,62,336/- was included as income of the assessee. Further out of fee paid to the auditors, a sum of ₹ 3.00 lakhs relating to financial year 2006-07 was disallowed. 6. The CIT(A) allowed the claim of the assessee vide para 8 of the appellate order observing as under:- 8 After considering rival contentions, I find that the AO has mentioned in the assessment order that the amount of loan had not been recovered and despite this finding, an addition of interest was made on the entire amount of the loan without giving any relief for NPA. The loans advanced have become non performing assets as per norms fixed by the RBI. It has also been observed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r instructions of the RBI, the bank was not required to provide for the interest on the said loans on accrual basis, particularly where the assessee had filed claims by way of Court case/s and no amount had been recovered from the above said parties. The assessee had treated the said loans as bad and doubtful debts and as such claims not to have provided for interest on those loans as even the principal was not recoverable. Thus the income on the said loans, even if treated as the income of the assessee, would be entitled to deduction u/s 36(1)(vii) of the Act. Further the assessee during the year under consideration had declared income of ₹ 1,28,16,757/- on account of interest on loans as a result of one time settlement or under the waiver scheme of the bank. 11. Perusal of the details of loans and advances as tabulated in para 3 of the assessment order reveals that in respect of party No. 1, BIFR had declared company as sick unit on 10.7.2006 and the settlement in the case was approved on 10.9.2009. Similarly in respect of party No.2, dispute was pending before the court and the company had opted for special settlement scheme on 31.12.2007. However, during this year the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame is received or not. However, in respect of the interest due on NPAs special provisions are provided under section 43D of the Act, which is non obstante clause and in case of NPAs i.e. the debts recovery of which had become bad, interest is to be provided on this recovery, i.e. the year in which it is actually received by the institution or the bank or other body or when it is charged to the Profit Loss Account whichever is earlier. The provisions of section 43D of the Act override other provisions of the Act and said provisions are applicable in the case of assessee, being Scheduled Bank. Once the loans had become NPAs and the assessee had opted to account for the interest on such NPAs only on recovery of the same, the law recognizes such treatment of interest on NPAs as valid in view of the provisions of section 43D of the Act. 15. In view of the above said provision of the Act we find no merit in the order of the Assessing Officer in charging interest on NPAs in the case of the assessee during the period under consideration. We find support from the ratio laid down in Karnavati Co. op. Bank Ltd. (supra). Upholding the order of CIT (Appeals) we dismiss the grounds of appe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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