2016 (7) TMI 308 - AT - Income Tax

Tribunal partially allows appeal, directs deletion of overdue interest on NPA, dismisses grounds on Agricultural Credit & section 234B.

The Tribunal partly allowed the appeal filed by the assessee, directing the deletion of the addition of Rs. 8,26,20,529/- on account of interest overdue ... Addition on account of interest overdue on NPA - Held that:- Since the Tribunal has already decided the issue in favour the assessee by deleting the disallowance of overdue interest on NPA in A.Yrs. 2008-09 and 2009-10, therefore, following the order of the Tribunal in assessee’s own case in the preceding 2 years and in absence of any contrary material brought to our notice by the Ld. Departmental Representative against the order of the Tribunal, the order of the CIT(A) on this issue is set aside and the grounds raised by the assessee are allowed Interest on Agricultural Credit Stabilisation Fund added as income of the Bank - Held that:- At the above ground has been decided against the assessee by the order of the Tribunal for A.Yrs. 2008-09 and 2009-10. In view of the above submission of the Ld. Counsel for the assessee the ground of appeal by the assessee is dismissed. Issues Involved:1. Addition of Rs. 8,26,20,529/- on account of interest overdue on NPA.2. Deletion of interest on Agricultural Credit Stabilisation Fund of Rs. 58,41,228/-.3. Levy of interest charged u/s.234B.Detailed Analysis:1. Addition of Rs. 8,26,20,529/- on account of interest overdue on NPA:The assessee, a Cooperative society engaged in banking business, challenged the addition of Rs. 8,26,20,529/- made by the AO on account of interest overdue on NPA. The AO had disallowed the overdue interest on NPA while completing the assessment for the year 2010-11. The CIT(A) confirmed this addition, which led to the appeal before the Tribunal.The Tribunal noted that identical issues had been decided in favor of the assessee in previous assessment years 2008-09 and 2009-10. The Tribunal had previously deleted such disallowances, referencing its own decisions and the Hon’ble Bombay High Court's ruling in CIT vs. M/s KEC Holdings Limited, which approved the proposition that interest income on NPAs is not recognizable on an accrual basis.In the present case, the Tribunal reiterated that the assessee's method of not recognizing interest income on NPAs until actually received was in compliance with RBI guidelines. These guidelines prescribe that interest on NPAs should not be accounted as income but shown separately under 'Interest Receivable Account' on the 'Property and Assets' side of the Balance-Sheet and a corresponding amount under the 'Overdue Interest Reserve Account' on the 'Capital and Liabilities' side.The Tribunal found that the assessee's depiction in financial statements was in adherence to statutory requirements and did not justify treating the interest on NPAs as accrued income. Consequently, the Tribunal set aside the CIT(A)'s order and directed the AO to delete the addition of Rs. 8,26,20,529/-.2. Deletion of interest on Agricultural Credit Stabilisation Fund of Rs. 58,41,228/-:The assessee also sought deletion of Rs. 58,41,228/- added as income of the Bank on account of interest on Agricultural Credit Stabilisation Fund. The Tribunal noted that this issue had been decided against the assessee in the previous assessment years 2008-09 and 2009-10. Therefore, following the earlier decisions, the Tribunal dismissed this ground of appeal.3. Levy of interest charged u/s.234B:The assessee contested the levy of interest charged under section 234B. The Tribunal held that the charging of interest u/s.234B is mandatory and consequential in nature. Hence, this ground was dismissed.Conclusion:The appeal filed by the assessee was partly allowed. The Tribunal directed the deletion of the addition of Rs. 8,26,20,529/- on account of interest overdue on NPA, while the grounds related to the deletion of interest on Agricultural Credit Stabilisation Fund and the levy of interest u/s.234B were dismissed. The order was pronounced in the open court on 06-05-2016.