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TMI Blog2023 (2) TMI 810X X X X Extracts X X X X X X X X Extracts X X X X ..... ier year income was shown on actual basis wrongly. Tribunal held that such a claim of the assessee is not permissible under the provisions of the Act. Further, Tribunal held that assessee had also not written off the NPAs as bad debts under Section 36(1)(vii) of the Act. Therefore, there was no question of writing off such interest as a bad debt. In the hearing today, appellant has referred to Section 21 of the Banking Regulation Act, 1949 and submits that under sub-section (1) thereof, all banking companies are bound to follow policy of the RBI so determined. Therefore, assessee being a banking company had to comply with the RBI guidelines. Also in case M/s. Motor Industries Company [ 1983 (2) TMI 251 - SUPREME COURT] and submits that in that case under the Kerala General Sales Tax Act, 1963, Supreme Court had pointed out a way to overcome such a difficulty. Further reference has been placed on the decision of the Supreme Court in UCO Bank [ 1999 (5) TMI 3 - SUPREME COURT] to contend that it is always open to the Central Board of Direct Taxes (CBDT) to issue instructions under Section 119 of the Act to remove any difficulty in which event such instructions would be binding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounting year ? c. Whether a deduction from net profit on account of a provision made in respect of interest pertaining to non-performing assets is permissible under Section 28 of the IT Act ? d. Whether a debit to the interest account and credit to a suspense account can be considered as writing off a bad debt under the provisions of Section 36(1)(vii) of the IT Act ? 4. Appellant before us is the State Bank of India (cause title amended vide the order dated 03.01.2018 in ITTAMP.No.785 of 2017). For the assessment year 1999-2000, it was assessed by the assessing officer vide the assessment order dated 19.03.2002 passed under Section 143(3) of the Act. 5. In the course of the assessment proceedings, it was found that assessee had accounted gross interest earned net of unrealised income of previous year on advances identified as Non-Performing Assets (NPAs) for the first time during the year as per norms laid down by the Reserve Bank of India (RBI). Assessee had submitted interest of Rs.4,48,06,822.00 which was reversed during the year relatable to certain borrowings which had become NPAs. As per the guidelines of RBI, interest on NPAs was required to be qua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of deduction in the year of realization of mistake is in order. It may be noted here that it was a case of excess collection of interest and there was a duty cast upon the bank to refund the excess interest whereas in the instant case interest on NPAs was earlier declared as income on accrual basis and though it has not become bad in all respects, the entry was sought to be reversed only because of RBI guidelines. The assessee has furnished the circular letter of the RBI containing consolidated instructions/guidelines on matters relating to prudential norms on income recognition In the circular dated 4th July, 2002, the RBI has consolidated all the instructions issued earlier. Paras 3.2, 3.2.1 and 3.2.2 of the Circular read as under: 3.2. Reversal of income 3.2.1. If any advance, including bills purchased and discounted becomes NPA as at the close of any year, interest accrued and credited to income account in the corresponding previous year, should be reversed or provided for if the same is not realized. This will apply to Government guaranteed accounts also. 3.2.2. In respect of NPAs, fees, commission and similar income that have accrued should cease to accrue i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year to be taken into consideration. However, once the income of that year is properly recorded the assessee cannot reduce the income from the subsequent years computation on the ground that in the earlier year income was shown on accrual basis wrongly and thus the income of this year gets reduced if set off is permitted. In the given example, it could be seen that the assessee is not claiming any expenditure against the current year income but seeking reduction of current year's income though even according to the assessee such income accrued in the year under consideration. In our considered opinion, such a claim is not permissible. In the immediately preceding year, the assessee having declared income on the accrual basis, the only course open to the assessee to derecognise the income is to treat the same as baddebt by following the RBI norms. Our view is supported by the decision of Apex Court in the case of State Bank of Travancore (158 ITR 102) as well as the decision of ITAT, Delhi Bench in the case of Poysha Oxygen (P) Ltd., (91 ITD 616). Admittedly, the assessee ha not written off the impugned sum as bad-debt u/s 36(1)(vii) of the Act and in fact the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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