2015 (9) TMI 744 - AT - Income Tax

Tribunal affirms deletion of accrued interest on NPA as per RBI guidelines & court precedents

The Tribunal upheld the CIT(A)'s decision to delete the addition of accrued interest on Non Performing Assets (NPA) based on RBI guidelines and past ... Addition on interest taxed on accrual basis on Non Performing Assets(NPA) - CIT(A) deleted the addition - Held that:- As decided in CIT vs. Coimbatore Lakshmi Inv.& Finance Co.Ltd. [2009 (11) TMI 560 - Madras High Court] the principle of 'accrual of income' comes into play only when the income was recognised. In the present case, the assessee has classified its assets on the basis of the notification issued by the Reserve Bank of India and found that the appellant under the category of nonperforming assets. From such non-performing assets, the assessee had not recognised any income in concealing the notification issued by the RBI. Therefore, the assessee was justified in not recognising the income as such. Once that was the case, there was no occasion to consider whether the principle of 'accrual' would arise or not. Also see Shri Mahila Sewa Sahakari Bank Ltd Versus The Asst. CIT (OSD) [2015 (4) TMI 672 - ITAT AHMEDABAD ] - Decided in favour of assessee Issues:1. Addition of interest taxed on accrual basis on Non Performing Assets (NPA) - Deletion of addition by CIT(A)2. Upholding of Assessing Officer's order by CIT(A)3. Appeal against CIT(A) order by RevenueAnalysis:Issue 1: Addition of interest taxed on accrual basis on Non Performing Assets (NPA) - Deletion of addition by CIT(A)The case involved an appeal by the Revenue against the order of the Ld. Commissioner of Income Tax(Appeals) regarding the addition of accrued interest on NPA and disallowance of bad debts. The Assessing Officer made an addition of Rs. 16,01,362 on account of accrued interest on NPA. The CIT(A) partly allowed the appeal, deleting the addition made on account of accrued interest on NPA. The Revenue contended that the CIT(A) was not justified in deleting the addition. However, the assessee's counsel argued that the issue was decided in favor of the assessee by the Hon'ble High Court of Madras in a similar case. The CIT(A) observed that the appellant followed the RBI guidelines and did not recognize the interest in the Profit & Loss account. The CIT(A) accepted the contentions of the assessee and deleted the addition, stating that the interest on NPAs was being offered in the year of realization. The Tribunal upheld the CIT(A)'s decision based on the judgment of the Hon'ble High Court of Madras and a similar case decided in favor of the assessee by the ITAT 'C' Bench, Ahmedabad.Issue 2: Upholding of Assessing Officer's order by CIT(A)The Revenue raised grounds of appeal against the CIT(A)'s order, contending that the CIT(A) should have upheld the Assessing Officer's order. However, the CIT(A) had considered the submissions of the assessee and decided in favor of the assessee based on the RBI guidelines and past practices of the appellant in recognizing interest on NPAs only upon realization. The Tribunal, following the precedent set by the Hon'ble High Court of Madras and a similar case, upheld the CIT(A)'s decision to delete the addition of accrued interest on NPA.Issue 3: Appeal against CIT(A) order by RevenueThe Revenue's appeal against the CIT(A)'s order was dismissed by the Tribunal. The Tribunal found no reason to interfere with the CIT(A)'s decision as it was in line with the judgment of the Hon'ble High Court of Madras and a previous decision by the ITAT 'C' Bench, Ahmedabad. The Tribunal concluded that the appeal by the Revenue stands dismissed, upholding the CIT(A)'s order.In conclusion, the Tribunal upheld the CIT(A)'s decision to delete the addition of accrued interest on NPA based on the RBI guidelines and past practices of the appellant, in line with the judgments of the Hon'ble High Court of Madras and a similar case decided by the ITAT 'C' Bench, Ahmedabad.