Taxation of NPA interest follows realisation basis where RBI prudential norms and CBDT circular govern sticky advances.

Interest accrued on non-performing assets of a co-operative bank was held not taxable until actually realised, applying the jurisdictional High Court view that sticky advances governed by RBI prudential norms and the CBDT circular do not warrant accrual-based taxation. The tribunal noted the issue was identical to the assessee's earlier year and that the Revenue's relied-upon decision had been distinguished on facts. Following the binding precedent, the accrued interest on NPAs was not liable to disallowance, and the Revenue's challenge failed.

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Issues: Whether interest accrued on non-performing assets was liable to disallowance in the hands of a co-operative bank.

Analysis: The issue was identical to the one decided in the assessee's own earlier year. The jurisdictional High Court had held that interest on sticky advances governed by RBI prudential norms and the CBDT circular is not to be brought to tax until actually realised, and had distinguished the decision relied upon by the Revenue on the facts. Following that binding view, no disallowance was warranted on the accrued interest on NPAs.

Conclusion: The disallowance of interest accrued on NPAs was not sustainable and the Revenue's challenge failed.

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