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TMI Blog2012 (12) TMI 1021X X X X Extracts X X X X X X X X Extracts X X X X ..... , the income from NPA should be recognized only when it is actually received - the contention of the revenue that in respect of NPA even though it does not yield any income as the assessee has adopted a mercantile system of accounting, he has to pay tax on the revenue which has accrued notionally is without any basis - Decided in favor of assessee X X X X Extracts X X X X X X X X Extracts X X X X ..... before the CIT(A) stating that the assessee, being bound by the RBI guidelines, has been recognizing the interest receivable on loans and advances which are doubtful (non performing assets) on receipt basis. It was submitted that this system of accounting is being followed by the assessee for the several years in the past and the same has been accepted by the Revenue Department. According to the assessee, the mercantile system of accounting does not create income but it only requires accounting of income which has become due but not received, but such income should be expected to be received in normal course of business. According to the assessee, as per sec. 145 of the Income-tax Act, only the real income and not the notional income is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... system of accounting or cash system of accounting but cannot follow the mixed system of accounting. He submitted that the Reserve Bank of India guidelines are only for the effective supervision, management and control of managerial and credit system of accounting and not for recognizing the income accrued u/s per sec. 5.of IT Act. In support of this contention, the learned DR placed reliance upon the decision of the Tribunal at Chennai in the case of JCIT Vs. India Equipment Leasing Ltd. reported in 111 TTJ 250 (Chennai). He also placed reliance upon the decision of the Hon'ble Supreme Court in the case of Southern Technologies Ltd. Vs. JCIT reported in 320 ITR 577 (SC) for the proposition that the RBI directions have nothing to do with acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... different from accrual and hence in each case, the assessee has to prove that interest is not recognized or taken into account due to uncertainty in calculation of the income and it is for the AO accept the claim of the assessee under the IT Act or not to accept it, in which case there will be added- back even under the real income theory. It was also observed that the Income-tax Act is tax on real income i.e the profits arrived at on commercial principles subject to the provisions of Act but a provision for doubtful debts is only a notional expense which is a debit to the P & L account which is expressly disallowed by explanation to sec. 36(1)(vii) which if claimed has got to be added back to the total income of the assesse because Act see ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to avoid payment of tax. But, if in his account it is clearly stated that though a particular income is due to him but is not possible to recover the same, then it cannot be said to have been accrued and the said amount cannot be brought to tax. In the instant case we are concerned with a non performing asset. As the definition of non performing asset shows an asset becomes non performing when it ceases to yield income. Non performing asset is an asset in respect of which interest has remained unpaid and has become past due. Once a particular asset is shown to be a non performing asset then the assumption is it is not yielding any revenue. When it is not yielding any revenue, the question of showing that revenue and paying tax would not ari ..... X X X X Extracts X X X X X X X X Extracts X X X X
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