Real income principle governs taxability of sticky advance interest, which is taxable only on receipt in the stated framework.

Interest on sticky advances or non-performing assets of a co-operative bank was treated as taxable only on receipt, not on mere accrual, where the special statutory and circular framework and the real income principle applied. The Tribunal noted that coordinate bench decisions had already supported this approach, and that the assessee had not credited the amount to the profit and loss account. In the absence of contrary material, the addition made on that account was deleted and the revenue challenge failed.

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Issues: Whether interest on sticky advances or non-performing assets of a co-operative bank was taxable on accrual basis or only on receipt basis, and whether the CIT(A) was justified in deleting the addition made on that account.

Analysis: The dispute concerned the taxability of interest on doubtful advances in the hands of a co-operative bank not treated as a scheduled bank. The Tribunal noted that the issue had already been decided by coordinate benches in favour of the assessee, and that the governing approach in such cases was to apply the special rule for interest on sticky advances along with the principle of real income. It was also noticed that the assessee had not routed the amount through the profit and loss account, and that no contrary material was shown to disturb the view taken by the CIT(A). The reasoning relied on the settled position that interest on sticky advances is taxable only when actually received or otherwise brought to tax under the applicable special regime.

Conclusion: The addition on account of interest on sticky advances or NPA was rightly deleted, and the issue was decided in favour of the assessee.

Final Conclusion: The revenue challenge failed, and the appellate order deleting the impugned addition was sustained.

Ratio Decidendi: Interest on sticky advances or non-performing assets of a banking assessee is not to be taxed on mere accrual where the special statutory and binding circular framework requires recognition on receipt or credited basis in line with the real income principle.

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