Accrued interest on NPAs not taxable as income under s. 43D read with Rule 6EA; Revenue appeal dismissed

ITAT Pune dismissed the Revenue's appeal against deletion of addition on account of accrued interest on NPAs. Relying on its earlier decision in the assessee's own case for AY 2011-12 and other similar rulings, the Tribunal held that such accrued interest on NPAs does not constitute taxable income. It confirmed that, in view of s. 43D r/w Rule 6EA, interest on NPAs is not chargeable to tax on an accrual basis. Finding no infirmity in the order of the CIT(A), ITAT upheld the relief granted to the assessee and rejected all grounds raised by the Revenue.

---

---

Issues:
Whether the CIT(A) was justified in deleting the addition made on account of accrued interest on NPA in the facts and circumstances of the case.

Analysis:
The appeal pertains to the Revenue challenging the order of the Commissioner of Income Tax (Appeals) for the assessment year 2014-15. The main issue revolves around the treatment of accrued interest on Non Performing Assets (NPA) by the assessee, a Co-operative Society engaged in banking. The Assessing Officer (AO) contended that the interest accrued on NPA should be included in the income of the assessee as per section 43D r.w. Rule 6EA. The AO rejected the assessee's explanation based on RBI guidelines and added the accrued interest to the income. The CIT(A), however, relying on the decision of the Bombay High Court, held that interest accrued on NPAs is not taxable. The Revenue challenged this decision before the Appellate Tribunal.

The Tribunal noted that the issue raised by the Revenue had been previously decided in favor of the assessee in earlier years by the same Tribunal. The Tribunal referred to past orders where it was held that accrued interest on NPA is not chargeable to tax. The Tribunal emphasized that since there was no contrary order to the findings, the chargeability of accrued interest on NPA was deemed invalid under the law. The Tribunal also cited relevant case law and decisions supporting the non-taxability of accrued interest on NPAs.

In light of the consistent decisions and precedents, the Tribunal upheld the order of the CIT(A) and dismissed the appeal of the Revenue. The Tribunal concluded that the accrued interest on NPA is not chargeable to tax under section 43D r.w. Rule 6EA. The grounds raised by the Revenue were therefore dismissed, and the appeal was ultimately rejected.

In summary, the Tribunal affirmed the CIT(A)'s decision to delete the addition made on account of accrued interest on NPA, based on established legal principles and precedents. The judgment reiterates that interest accrued on NPAs is not taxable, aligning with previous rulings on similar issues. The appeal by the Revenue was dismissed, confirming that the accrued interest on NPA is not chargeable to tax under the relevant provisions.

---