Real income principle denies accrual of NPA interest, while amortised held-to-maturity premium remains deductible.

The Tribunal applied earlier orders in the assessee's own case to sustain restriction of deduction for provision for bad and doubtful debts under section 36(1)(viia). It held that interest on non-performing asset accounts did not accrue on a real income basis, having regard to RBI prudential norms and the doubtful nature of recovery, and allowed the claim. It also allowed amortised premium on held-to-maturity securities, following settled treatment under banking guidelines and prior Tribunal rulings. Relief was thus granted on the NPA interest and premium amortisation claims, while the bad debt provision restriction was upheld.

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Issues: (i) Whether the deduction for provision for bad and doubtful debts could be restricted to the amount provided in the books under section 36(1)(viia) of the Income-tax Act, 1961; (ii) Whether interest on non-performing asset accounts was taxable on accrual basis; (iii) Whether amortised premium on held-to-maturity securities was allowable as a deduction.

Issue (i): Whether the deduction for provision for bad and doubtful debts could be restricted to the amount provided in the books under section 36(1)(viia) of the Income-tax Act, 1961.

Analysis: The issue was treated as covered against the assessee by earlier orders in the assessee's own case for prior assessment years. Following those binding and consistent decisions, no separate interference was called for.

Conclusion: Decided against the assessee.

Issue (ii): Whether interest on non-performing asset accounts was taxable on accrual basis.

Analysis: The issue was held to be governed by the principle that income on NPAs does not accrue when, applying RBI prudential norms and the real income concept, recovery itself is doubtful. The Tribunal followed its earlier decision in the assessee's own case and preferred the view favourable to the assessee where non-jurisdictional High Courts had taken divergent positions.

Conclusion: Decided in favour of the assessee.

Issue (iii): Whether amortised premium on held-to-maturity securities was allowable as a deduction.

Analysis: The claim was held allowable in line with earlier Tribunal orders in the assessee's own case and the settled treatment of premium amortisation on held-to-maturity government securities under the applicable banking guidelines.

Conclusion: Decided in favour of the assessee.

Final Conclusion: The appeal succeeded only in part, with relief granted on the interest on NPAs and amortised premium claims, while the restriction of deduction for provision for bad and doubtful debts was sustained.

Ratio Decidendi: Where RBI prudential norms govern income recognition, interest on NPAs does not accrue on a real income basis, and consistent prior decisions in the assessee's own case warrant following the settled treatment for deduction issues already covered.

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