2023 (10) TMI 1129 - AT - Income Tax

Revenue appeal dismissed on NPA interest receivable; net claim adjustment matter remanded for fresh adjudication due to Rule 46-A non-compliance

Dy. Commissioner of Income Tax, Circle-II Versus M/s The Muktsar Central Co-operative Bank Ltd. Muktsar

ITAT Amritsar dismissed revenue's appeal regarding interest receivable on Non-Performing Assets, upholding CIT(A)'s decision based on RBI guidelines and ... Interest receivable relatable to Non-Performing Assets - CIT(A) allowed the relief related to interest receivable on NPA - HELD THAT:- The issue is well adjudicated by the ld. CIT(A). The entire issue is covered by the RBI guideline in respect of accounting of policies on NPA which is duly covered by the AS-9. In our considered view, we do not intervene in the order of the ld. CIT(A). Accordingly, the ground of the revenue is dismissed. Not allowing the net claim made in ROI on account of adjustment in income and expenditure through Memorandum of Changes (MOC’s) made by the Statutory Auditors during finalisation of financial statements - CIT(A) had not adjudicated details related to claim of deduction submitted as assessee has not submitted formal application under Rule 46-A of the Income Tax Rules, 1962 for admission of additional evidence and accordingly confirmed the additions made by the ld. AO - HELD THAT:- In the interest of substantial justice and fairness to both the rival parties, as also that adjudication of this issue will require enquiries and verification of the facts, we are inclined to set aside the appellate order passed by ld. CIT(A) and restore the matter back to the file of ld. CIT(A) for fresh adjudication on merits and in accordance with law. The ld. CIT(A) is directed to pass detailed, reasoned and speaking order after making such enquiries and verifications as he may deem fit. CIT(A) shall give proper and adequate opportunity of being heard to the assessee in accordance with principles of natural justice in accordance with law, and evidence/explanations submitted by assessee in its defence shall be admitted by ld. CIT(A) in the interest of justice Issues Involved:1. Taxability of interest receivable on Non-Performing Assets (NPA).2. Deduction claim for adjustments in income and expenditure through Memorandum of Changes (MOC).3. Higher deduction for provision for bad and doubtful debts under section 36(1)(viia) of the Income Tax Act, 1961.4. Admissibility of additional evidence under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963.Summary:Issue 1: Taxability of Interest Receivable on NPAThe revenue contended that the CIT(A) erred in allowing relief of Rs. 5,64,17,644/- related to interest receivable on NPAs, arguing that the assessee failed to establish that the interest was not taxable. The assessee maintained that as per RBI guidelines and Accounting Standard-9 (AS-9), interest on NPAs should be recognized on a receipt basis due to uncertainty in collection. The Tribunal upheld the CIT(A)'s decision, stating that the issue is well adjudicated by the CIT(A) and covered by RBI guidelines and AS-9. The appeal of the revenue on this ground was dismissed.Issue 2: Deduction Claim for Adjustments in Income and Expenditure through MOCThe assessee claimed a net deduction of Rs. 85,11,141/- in the ITR for A.Y. 2014-15 based on adjustments made by the statutory auditors through MOC. The CIT(A) did not allow this claim, citing the absence of a formal application under Rule 46-A for admission of additional evidence. The Tribunal accepted the additional evidence under Rule 29 and remitted the matter back to the CIT(A) for fresh adjudication on merits, directing the CIT(A) to provide a detailed, reasoned, and speaking order after necessary enquiries and verifications.Issue 3: Higher Deduction for Provision for Bad and Doubtful DebtsThe assessee's claim for a higher deduction of Rs. 18,80,80,712/- under section 36(1)(viia) was not allowed by the CIT(A). During the hearing, the assessee withdrew this ground.Issue 4: Admissibility of Additional EvidenceThe Tribunal allowed the submission of additional evidence under Rule 29, noting that the assessee was prevented by sufficient cause from presenting it earlier. The CIT(A) was directed to admit and adjudicate the additional evidence on merits.Conclusion:The appeal of the revenue was dismissed, and the appeal of the assessee was allowed for statistical purposes, with directions for fresh adjudication by the CIT(A) on the issues of deduction for adjustments through MOC and the admissibility of additional evidence.