TaxTMI 
TaxTMI 
TaxTMI 
2017 (7) TMI 144
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....uing upon NPAs, by applying Rule 6EB of the Income Tax Rules, 1962 which the assessee claims is contrary to the directions issued by the National Housing Bank under Section 30A read with 36 of the National Housing Bank Act, 1987, in the given facts and circumstances of the case." 3. The background facts are that HUDCO is a public sector undertaking engaged primarily in providing long-term finance for construction of houses for residential purposes or undertaking housing and urban development programmes in the country. Each of the returns filed by HUDCO for the aforementioned AYs was selected for scrutiny and an assessment order under Section 143(3) was passed under Section 143(2) of the Act. The issue concerns treatment of the interest corresponding to bad and doubtful debts known as Non-Performing Assets ('NPAs') in banking terminology. 4. For AY 2005-06, the Assessee claimed deduction in respect of Rs. 54,13,48,468/- accrued on classified NPAs according to the guidelines of National Housing Bank ('NHB') issued with effect from 31st March, 2005. In the said guidelines, the debts or loan in respect of which interest had not been received beyond a period of more than 90 days were ....
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.... the Act and were binding on HUDCO. Specific reference is drawn to Section 36 of the NHB Act which states that the provisions of Chapter V relating to 'housing finance institutions receiving deposits' would "have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law". 10. Mr. Kumar submitted that the CIT(A) as well as the ITAT overlooked the real income theory and erred in holding that the de-recognition of interest corresponding to the NPAs would have to be in terms of Rules only. He pointed out that Section 43D(b) itself requires de-recognition of interest to be prescribed "having regard to" the guidelines issued by the NHB in relation to such debts. While Rule 6EB was amended to make it consistent with the guidelines, fresh guidelines issued with effected from 31st March, 2005 did not result in the corresponding amendment to the Rules. This was only done as a matter of course. He urged that a purposive construction had to be adopted and the Rules had to be interpreted in any manner beneficial to the Assessee. 11. Mr Rahul Chaudhary, learned Senior Counsel for the R....
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....14. Further, the relevant provisions of the NHB Act which have a bearing on the present issue read thus: "30A. Power of the National Housing Bank to determine policy and issue directions.- (1) If the National Housing Bank is satisfied that, in the public interest or to regulate the housing finance system of the country to its advantage or to prevent the affairs of any housing finance institution being conducted in a manner detrimental to the interest of the depositors or in a manner prejudicial to the interest of the housing finance institutions, it is necessary or expedient so to do, it may subject to the provisions of sub-section (5) of section 5, determine the policy and give directions to all or any of the housing finance institution relating to income recognition, accounting standards, making of proper provision for bad and doubtful debts, capital adequacy based on risk weights for assets and credit conversion factors for off balance-sheet items and also relating to deployment of funds by a housing finance institution or a group of housing finance institutions or housing finance institutions generally, as the case may be, and such housing finance institutions shall be bound ....
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....e revised? In other words, is it an instance of incorporation of the NHB guidelines into Rule 6EB by reference? In this context, the expression "having regard to" is relevant. 18. In Rajesh Kumar v. DCIT (2006) 287 ITR 91, the Supreme Court was considering the ambit of the expression "having regard to" under Section 142(2A) of the Act which empowers the AO to direct an audit of the accounts of an Assessee. The Supreme Court held that factors like the nature of accounts; complexity of accounts and interest of the revenue were an important criteria but "are not exhaustive" and that while carrying a special audit "regard must be had also to the factors enumerated therein together with all factors relevant for the exercise of that power." 19. Going by the above interpretation of the Supreme Court, it appears that the expression "having regard to" occurring in Section 43D(b) of the Act does not imply that the Rules thereunder have to be identical to the NHB guidelines. The expression is used as not "in accordance with" but "having regard to". It cannot be said that the NHB guidelines have to be treated as having been incorporated into Rule 6EB in the sense that every amendment or modi....
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.... effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law", it was held that it was a case where the AO had to follow the 1998 RBI Directions since as far as income recognition was concerned, Section 145 of the Act had "no role to play". 22. In the present case, there is no doubt that Section 36 of the NHB Act states that the provisions of Chapter V of the NHB Act would have the effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. However, Section 30A of the NHB Act under which directions are issued by NHB to housing financial institutions, etc. does not contain a non-obstante clause. It is not meant to override Section 43D(b) of the Act in the matter of computation of taxable income. 23. Section 43D of the Act read with Rule 6EB is a complete Code in itself. There is an element of discretion for the rule making authority to follow or not to follow the NHB guidelines as and when they are revised. The purpose of classification of debts as NPA by the NHB and the purpose for non-recognition of income for the purposes....