NPA interest reversal under RBI norms does not by itself exclude income or create a tax deduction under the Income-tax Act.

Interest on advances that was reversed in the books after accounts became non-performing assets under RBI prudential norms was not permitted to be excluded from taxable income under the Income-tax Act, 1961. The Act was treated as a self-contained code, so RBI accounting directions could not by themselves create a tax deduction or override statutory conditions. Because the assessee had not written off the amount as a bad debt under Section 36(1)(vii), and the claim was not supported by Section 43D, the reversed interest remained taxable. The court also noted that any claim had to be made through the proper statutory route, such as a revised return or timely adjustment.

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Issues: Whether interest relating to non-performing assets, reversed in the books in accordance with RBI norms, could be excluded from taxable income for the relevant assessment year and whether such amount could be claimed as a deduction or treated as a bad debt.

Analysis: The assessee had originally credited interest on advances on accrual basis, but later sought to reverse the amount when the advances became non-performing assets under RBI prudential norms. The Court held that while RBI guidelines bind banking companies for accounting purposes, assessment under the Income-tax Act, 1961 must be made in accordance with the Act itself. The Act is a self-contained code, and a deduction cannot be claimed unless it is specifically provided for. The assessee had not written off the amount as a bad debt under Section 36(1)(vii) of the Income-tax Act, 1961, and the claim was not supported by Section 43D of the Income-tax Act, 1961. The Court also noted that the assessee could have pursued the appropriate statutory remedy by revised return or other timely claim.

Conclusion: The claim to exclude the reversed NPA interest from taxable income was held not permissible, and the assessee was not entitled to deduction on the basis asserted.

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