2023 (3) TMI 812 - AT - Income Tax

Tribunal quashes Tax Commissioner's orders for 2016-17 & 2017-18 assessments, assessee's appeals allowed.

The tribunal quashed the Principal Commissioner of Income Tax's revisionary orders for assessment years 2016-17 and 2017-18, as the Assessing Officer had ... Revision u/s 263 - PCIT was of the view that AO has not made any enquiry with regard to the (1) interest on non-performing assets (2) deferred payment receipt on guarantee commission - HELD THAT:- On the issue of interest on non-performing assets the coordinate bench [2022 (4) TMI 1509 - ITAT MUMBAI] has categorically held that that the issue is squarely covered in case of the assessee by the decision of the honourable Supreme Court in case of CIT Vs. Vasisth Chay Vyapar Ltd, [2018 (3) TMI 56 - SUPREME COURT] wherein it has been held that non-performing assets on which no interest was received and possibility of recovery of capital was almost nil, possibility of recovery of interest is also nil, it could not be treated that such income has accrued to the assessee. Therefore, no income in the form of interest on non-performing assets could have been added in the hands of the assessee. Interest on perpetual bonds the coordinate Bench has also held that the issue is adequately enquired by the AO and further that interest paid on bonds are wholly and exclusively for the purposes of the business and allowable as deduction under section 36 (1) (iii) of the Act. It was further held that the assessee is a nationalized bank and there is no question of assessee investing in perpetual bonds other than for banking businesses. Accordingly, respectfully following the decision of the coordinate bench, we do not find any reason to sustain the order passed by the principal Commissioner of income tax, Mumbai for A.Y. 2016-17, under section 263 of the Act. Accordingly, we quash the revisionary order. Appeal of assessee allowed. Issues Involved:1. Interest on Non-Performing Assets (NPA)2. Deferred payment receipt of guarantee commission3. Loss on sale of assets to Asset Reconstruction Company (ARC)4. Interest on Perpetual Bonds5. Provision and Contingency (Provision for NPA) treatment while computing Book ProfitDetailed Analysis:Interest on Non-Performing Assets (NPA):The learned Principal Commissioner of Income Tax (Pr. CIT) held that the provisions of section 43D read with Rule 6EA apply to NPAs which are more than 180 days. The assessee argued that Rule 6EA applies to all NPAs regardless of their age and that interest on NPAs should be taxed only upon realization. The Pr. CIT's decision was based on the view that the Assessing Officer (AO) failed to make adequate inquiries into the matter, thus rendering the assessment order erroneous and prejudicial to the interest of the Revenue. However, the appellate tribunal referred to a coordinate bench decision in a similar case involving Dena Bank, where it was held that interest on NPAs should not be treated as accrued income if the recovery of capital itself is doubtful. The tribunal found that the AO had taken a possible view based on the Supreme Court's decision in CIT Vs. Vasisth Chay Vyapar Ltd., and thus quashed the Pr. CIT's order.Deferred Payment Receipt of Guarantee Commission:The Pr. CIT held that the AO's assessment was erroneous in not taxing the deferred payment receipt of guarantee commission. The assessee contended that the commission was offered for taxation on a cash basis, which is a permissible method. The tribunal noted that the AO had adopted one of the possible views and had made adequate inquiries. Therefore, the tribunal quashed the Pr. CIT's order on this issue as well.Loss on Sale of Assets to Asset Reconstruction Company (ARC):The Pr. CIT found the AO's assessment erroneous for not adding back the loss on the sale of assets to ARC while computing taxable income. The assessee argued that no such loss was claimed as no assets were sold to ARC. The tribunal observed that the Pr. CIT's order was based on surmises and conjectures and that the AO had adequately examined the issue. Consequently, the tribunal quashed the Pr. CIT's order on this matter.Interest on Perpetual Bonds:The Pr. CIT held that the AO erred in allowing interest on perpetual bonds without examining whether the bonds qualified as borrowings under section 36(1)(iii) of the Act. The assessee argued that the interest on perpetual bonds is an allowable expenditure. The tribunal referred to the coordinate bench's decision, which held that the AO had adequately inquired into the matter and that the interest paid on bonds was wholly and exclusively for business purposes. Therefore, the tribunal quashed the Pr. CIT's order on this issue.Provision and Contingency (Provision for NPA) Treatment while Computing Book Profit:The Pr. CIT held that the AO erred in not adding back provisions for NPAs while computing book profits under section 115JB of the Act. The assessee argued that such provisions need not be added back as they are written off. The tribunal found that the AO had added the entire provisions and contingencies debited to the Profit & Loss Account while computing book profits. The tribunal also noted that the provisions of section 115JB are not applicable to nationalized banks. Therefore, the tribunal quashed the Pr. CIT's order on this issue.Conclusion:The tribunal quashed the Pr. CIT's revisionary orders for both assessment years 2016-17 and 2017-18, holding that the AO had made adequate inquiries and adopted permissible views on all disputed issues. The appeals filed by the assessee were allowed.