Notional interest on NPAs not taxable on accrual basis where binding precedent and RBI income-recognition norms applied.

Notional interest on non-performing assets in the hands of a co-operative bank was held not taxable on accrual basis where the bank followed the mercantile system, because a prior binding Division Bench ruling had already applied RBI income-recognition norms and the CBDT circular issued under section 119 to the same issue. The Court rejected the Revenue's reliance on Southern Technologies as insufficient to displace that settled position. As the appeals raised no substantial question of law in view of the earlier decision, they were dismissed.

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Issues: Taxability of notional interest on non-performing assets in the hands of a co-operative bank on accrual basis, and whether the appeals raised any substantial question of law in view of the binding earlier decision of the same Court.

Analysis: The dispute concerned addition of notional interest on NPAs where the assessee bank followed the mercantile system of accounting. The Court noted that the very question had already been considered and decided in an earlier Division Bench judgment holding that interest on NPAs, in the context of RBI income recognition norms and the CBDT circular issued under section 119 of the Income-tax Act, 1961, was not liable to be taxed on accrual basis in the manner urged by the Revenue. The Court also noted that the Revenue's reliance on Southern Technologies did not alter the position already settled by the binding decision of this Court. In that view, no substantial question of law arose.

Conclusion: The appeals failed and were dismissed, leaving the assessee with the benefit of the earlier ruling that notional interest on NPAs was not taxable on accrual basis in these appeals.

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