Non-performing asset interest remains untaxed until credited or received, while unsupported disallowances require evidence and fair notice.
Interest on loan accounts treated as non-performing assets is taxable only on credit to the profit and loss account or actual receipt; interest neither recognised nor credited is not taxable. A supplier payment cannot be characterised as bogus merely because the supplier failed to comply with a notice, without evidence corroborating the transaction. A deduction for dividend distribution requires a factual processing basis and procedural notice before disallowance. Commission expenditure cannot be meaningfully verified where notice information omits payee identities; proper payee particulars and relevant ledger records are required for fresh determination.
Issues: (i) Whether unrecognised interest on loan accounts classified as non-performing assets was taxable under section 43D read with rule 6EA despite not being credited as income; (ii) Whether a supplier payment could be disallowed as bogus without corroborative evidence of any transaction; (iii) Whether deduction under section 80M could be disallowed without a show-cause notice or a recorded processing disallowance; and (iv) Whether commission payments could be treated as unexplained expenditure when the information supplied did not identify the concerned payees.
Issue (i): Whether unrecognised interest on loan accounts classified as non-performing assets was taxable under section 43D read with rule 6EA despite not being credited as income.
Analysis: The applicable framework under section 43D and rule 6EA, read with the regulatory treatment of non-performing assets, permits taxation of such interest when it is credited to the profit and loss account or actually received. The interest was not recognised or credited in the books in accordance with the applicable regulatory directions.
Conclusion: Interest unrecognised on non-performing assets and not credited in the books was not taxable; the deletion of the addition is sustained in favour of the assessee.
Issue (ii): Whether a supplier payment could be disallowed as bogus without corroborative evidence of any transaction.
Analysis: The proposed disallowance rested solely on non-compliance with a notice issued to the alleged supplier. The record did not establish the nature of the payment or contain corroborative material showing that a transaction had occurred, and no contrary evidence was produced to support the disallowance.
Conclusion: The supplier payment could not be treated as bogus in the absence of corroborative evidence; the deletion is sustained in favour of the assessee.
Issue (iii): Whether deduction under section 80M could be disallowed without a show-cause notice or a recorded processing disallowance.
Analysis: The record did not show a disallowance during return processing or a consequential demand, despite the assessment premise that such a disallowance had occurred. Further, the show-cause notice did not raise the deduction claimed under section 80M, while the deduction was claimed against dividend distributed by the assessee.
Conclusion: The disallowance under section 80M lacked a factual and procedural basis; the deletion is sustained in favour of the assessee.
Issue (iv): Whether commission payments could be treated as unexplained expenditure when the information supplied did not identify the concerned payees.
Analysis: The information provided in the notice contained only transaction descriptions and amounts, without names, addresses, or PANs of the alleged payees. This prevented meaningful identification and verification of the payments. The record also reflected incomplete investigation by the Revenue and non-cooperation by the assessee.
Conclusion: The addition relating to commission payments is set aside and remitted for fresh adjudication after disclosure of proper payee data and production of relevant ledger records.
Final Conclusion: The deletions relating to non-performing asset interest, the alleged bogus supplier payment, and the section 80M deduction remain undisturbed, while the commission-expenditure issue requires fresh determination on properly disclosed information and evidence.