2024 (12) TMI 977 - AT - Income Tax

Cooperative bank's provision for overdue interest allowed under section 43D following RBI guidelines

Asstt. Commissioner of Income Tax Akola Circle, Akola Versus Asstt. Commissioner of Income Tax Akola Circle, Akola, Dist. Buldhana

ITAT Nagpur dismissed revenue's appeal regarding disallowance of provision for overdue interest claimed by a cooperative bank. The tribunal upheld ... Disallowance of provision claimed of overdue interest - HELD THAT:- Disallowance of provision for overdue interest is identical to the issue decided [2024 (5) TMI 1497 - ITAT NAGPUR] and in the background of the facts and circumstances of the present case, we find no infirmity in the order passed by the learned CIT(A) which we hereby upheld by dismissing the grounds of appeal raised by the Revenue. During the course of hearing, the learned Departmental Representative submitted that the Department is moving before the Hon’ble Jurisdictional High Court to challenge the order but we are not impressed by the above submissions of the learned D.R. since there is no order till date reversing the settled jurisprudence. There is no scope to tinker with the cogent and judicious findings of the learned CIT(A). We further draw support from the provisions of section 43D which permits income by way of interest in relation to bad and doubtful debts shall be chargeable to tax as per guidelines of Reserve Bank of India. The said provision has been made applicable to Co–operative Bank from the assessment year 2017–18. However, since the same is a beneficial provision, the same may be permitted to apply retrospectively. The provision is a non–abstante one and hence has an overriding effect upon section 145 of the Act. Appeal filed by the revenue is dismissed. Issues Involved:1. Deletion of disallowance of the provision claimed for overdue interest.2. Applicability of Section 45(1) of the Income Tax Act.3. Application of the concept of real income as per Board Circular No. 201/21/84.Issue-wise Detailed Analysis:1. Deletion of Disallowance of the Provision Claimed for Overdue Interest:The primary issue revolves around the deletion of the disallowance of the provision claimed for overdue interest amounting to Rs. 2,91,38,000. The assessee, a Co-operative Bank, had initially debited an amount of Rs. 11,17,33,000 in the profit and loss account for the assessment year 2008-09 due to overdue interest provision on NPA (Non-Performing Asset) accounts. This amount was added back in the assessment. In subsequent years, the reversal of this provision was credited to the profit and loss account and claimed as a deduction in the computation of income. The learned CIT(A) allowed this deduction, referencing previous ITAT decisions that supported the assessee's claim that the reversal of interest provision should not be added to the income, as it had already been assessed in earlier years, thus avoiding double assessment.2. Applicability of Section 45(1) of the Income Tax Act:The Revenue contended that the learned CIT(A) erred by not appreciating the provisions of Section 45(1) of the Income Tax Act, which pertains to the chargeability of capital gains. However, the learned CIT(A) and the Tribunal found that the issue at hand was not about capital gains but about the recognition of income on NPA accounts, which had been previously adjudicated in favor of the assessee. The Tribunal upheld the CIT(A)'s decision, indicating that the provisions of Section 45(1) were not applicable to this specific context.3. Application of the Concept of Real Income as per Board Circular No. 201/21/84:The Revenue also argued that the learned CIT(A) failed to apply the concept of real income as provided in Board Circular No. 201/21/84. The Tribunal, however, noted that the issue of accrued interest on NPA accounts had been consistently adjudicated in favor of the assessee in similar cases. The Tribunal referenced judgments from the Hon'ble Bombay High Court and other Tribunal decisions, which established that interest on NPA accounts does not accrue in a real sense and should not be taxed until actually realized. The Tribunal concluded that the CIT(A)'s decision to allow the deduction was in line with established jurisprudence and the concept of real income.Conclusion:The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order to delete the addition of Rs. 2,91,38,000 related to overdue interest provision on NPA accounts. The Tribunal relied on precedents that supported the assessee's position that such interest should not be recognized as income until actually received, thereby aligning with the concept of real income. The Tribunal also noted that the provisions of Section 43D, which allow for the taxation of interest on bad and doubtful debts as per RBI guidelines, support the CIT(A)'s decision. The appeal was dismissed, and the CIT(A)'s findings were upheld, reinforcing the principle that interest on NPAs does not accrue until realized.