TaxTMI 
TaxTMI 
2017 (1) TMI 255
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....n fund. b) Rs. 2,58,127/- on account of contingency fund. c) Rs. 26,14,907/- on account of overdue interest provision. 4. The Hon'ble Pr. Commissioner of Income Tax-1 erred in directing to A.O. to make addition of Rs. 89,26,118/- on account of claim of interest on NPA in the profit and loss account. 5. The addition made by CIT at Rs. 89,26,118/- out of interest on NPA is unjustified, unwarranted and bad in law. 2. We find that there is a delay of 296 days in this case. The reasonable cause attributed for the delay has been submitted as under : In the case of assessee, order u/s 263 of LT Act 1961 has been passed dated 17/03/2015, The order passed uls 263 of LT Act 1961 has been served on assessee on 02/04/2015, The due date of submission of appeal against order passed uls 263 of LT Act 1961 was 02/06/2015. Assessee had forwarded documents for preparation of appeal to the office of Chartered Accountant, V.S. Jadhao & Associates in mid of April 2015. The documents. were handed over for preparation of appeal to Smt. Shruti S. Joshi. She had misplaced and mixed up the papers with other documents on her table and it had escaped from her at....
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....pital in nature which should have been disallowed by the assessing officer. (ii) An amount of Rs. 89,26,118/- on account of interest capitalized had been debited by the assessee to its P & L A/c. During scrutiny, it was stated by the assessee that interest receivable on loans given was credited to P & L A/c. However, since same was not actually received during the year, the same was debited to P & L A/c under the head 'interest capitalized'. Since the bank followed mercantile system of accounting, the amount of Rs. 89,26,118/- debited to P & L A/c under the head 'interest capitalised' should have been disallowed. This has not been done by the assessing officer while passing order u/s 143(3) of I.T. Act. (iii) In the balance sheet, under the head 'other liabilities', there was overdue interest provision of Rs. 2,13,14,261/- as on 31.03.2010 whereas corresponding figure of the proceeding year was Rs. 1,86,99,354/-. Thus there was an increase in overdue interest by Rs. 26,14,907/- which should have been disallowed. The same has not been disallowed by the assessing officer. 5. Upon receipt of assessee's submission, learned CIT held as under : i) On the iss....
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....ceived during the year and hence the provision has been made. On this issue also no details and evidences have been furnished. In order that a fair opportunity is available to the assessee to justify its claim under the provisions of Section 37( I), I deem it tit to set aside this matter to the tile of the assessing officer who shall provide an opportunity of being heard to the assessee and examine its claim under the provisions of Section 3 7( I). The assessee shall make his submission along wi th necessary evidence before the assessing officer. 6. Thereafter learned CIT made the following concluding remarks : " In sum, the assessing officer is directed to make an addition of Rs. 89,26,118/- being expenses debited to the P & L A/c not allowable u/s 37(1) of the IT Act, 1961 and on remaining issues the matter is set aside to the file of the assessing officer who shall examine and decide the same under the provisions of the Act." 7. Against the above order, the assessee is in appeal before the ITAT. 8. We have heard both the counsel and perused the records. Learned counsel of the assessee's submissions are summarised as under : Ground No. 1 & 2: Jurisdicti....
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....to assessee as debt itself is doubtful there is no case for such addition. C) Interest on NPA accounts is not credited to Profit & Loss Account. Contra entry is made in Balance Sheet as compliance for information to be disclosed in financial statement. D) The issue is covered in favour of assessee by the decision of Hon'ble ITAT, Nagpur Bench, Nagpur. Reliance on: i) ITA No.233/Nag/2013 for Asstt. Year 2009-10 vide order dated 05/06/2015 in case of The Washim Urban Co-op. Bank Ltd. 3. Gr. No 4: Addition at Rs. 89,26,118/- in respect to interest capitalized on NPA Account. A) Details of amount written off as bad debit. B) Ledger Account of Customers. C) Ledger account of interest capitalized. D) The assessee had declared accrued interest income in past Asstt. Years and debited the same to account of various debtors. The debtors have become bad and chances of recovery are grim and doubtful. The assessee has written off amount of interest debited to account of parties by writing off same in Profit & Loss A/c and giving credit of same to the account of debtors. The aforesaid claim of assessee is thus c....
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.... of the assessee's submission as above and decide as per law expounded by the Hon'ble Apex Court in the case of CIT vs. TRF Ltd. (supra). 12. As regards the disallowance of provision of Rs. 26,14,907/- on account of overdue interest, it has been submitted that the same is in respect of NPA advances. It has been submitted that it is settled proposition of law that the interest income relatable to NPA is not includible on accrued basis. It has further submitted that this issue is covered in favour of the assessee by the decision of ITAT, Nagpur Bench in ITA No.233/Nag/2013 for Asstt. Year 2009-10 vide order dated 05-06-2015 in the case of The Washim Urban Co-op. Bank Ltd. We find that in the aforesaid case the ITAT has held as under : "6. In the light of the above factual and legal arguments raised before us, we have to address the controversy that whether the assessee is eligible for the exception as prescribed under section 43D of I.T. Act. At the outset, we may like to refer the decision of Karnavati Co-op Bank Ltd. 114 ITR (Trib.) 175 (Ahm) wherein the issue was identical that whether interest on accrual basis in respect of non performing assets (NPA) of a cooperative....
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.... cannot be stated as an accounting policy - which by its very nature is to be applied uniformly, except where it is stated in broad terms, bearing the necessary ingredients of the qualifying criterion, i.e. existence of a reasonable certainty as to ultimate realization at the time of raising the claim or even as at the end of the accounting period. Clearly, the same would require an assessment of the relevant facts, and income to that extent shall not be recognized unless there is reasonable certainty of realization. The same would necessarily require examination of the facts and circumstances of each case, and taking a decision having regard thereto. This stands endorsed by the Hon'ble Apex court in the case of Southern Technologies Ltd. (supra). The adopted accounting policy, i.e., recognizing income on NPA accounts only subject to realization, does not serveas a valid qualifying category as there could be other mitigating factors, making it reasonable to expect realization despite the account being a NPA. Further, on facts, it is found that there has been in fact recognition of income, and the assessee's claim is only qua ' provision for bad and doubtful debts' with reference to....