TaxTMI 
TaxTMI 
2018 (5) TMI 264
X X X X Extracts X X X X
X X X X Extracts X X X X
....ought to tax on account of notional interest was not justified." 2. The assessee herein had advanced certain amounts to various concerns, i.e. M/s Jindal Equipment Leasing & Consultancy Services Ltd. and Mansarovar Investment Ltd. during the previous year relevant to assessment year 1997-98. Interest was accrued on the said loans upto assessment year 1998-99. Further, the Petitioner had advanced interest bearing loans to M/s. Goswami Credits & Investment Ltd. during the previous year relevant to assessment year 1999-2000. Interest was accrued on the said loan till assessment year 2001-02. The assessee had not received interest for more than six months from its said debtors. As a Non-Banking Financial Company (NBFC) the assessee is bound ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sted the arguments of the revenue. It was pointed out that the present appeal had been decided against the assessee earlier. Its appeal by special leave was tagged to the revenue's appeals against the decision of this court in Commissioner of Income Tax v. Vishisht Chay Vyapar Ltd. 330 ITR 440. In that decision (Vishisht Chay Vyapar) the division bench had ruled that RBI's prudential banking norms, embodied in its directions to banking and non banking entities, were as binding as accounting standards under Section 145 of the Income Tax Act, and reflection of income on notional basis, did not reflect the realistic assessment of real income. It was submitted that the Supreme Court, which also required this court to review its previous order, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nciples. The accounting principles which the assessee is indubitably bound to follow are AS-9. Relevant portion of the said accounting stand reads as under:- 9. Effect of Uncertainties on Revenue Recognition 9.1 Recognition of revenue requires that revenue is measurable and that at the time of sale or the rendering of the service it would not be unreasonable to expect ultimate collection. 9.2 Where the ability to assess the ultimate collection with reasonable certainty is lacking at the time of raising any claim, e.g., for escalation of price, export incentives, interest etc., revenue recognition is postponed to the extent of uncertainty involved. In such cases, it may be appropriate to recognize revenue only when....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ld discuss the matter in the light of the provisions of Income Tax Act and to examine as to whether in the given circumstances, interest income has accrued to the assessee. It is stated at the cost of repetition that admitted position is that the assessee had not received any interest on the said ICD placed with Shaw Wallace since the assessment year 1996-97 as it had become NPAs in accordance with the Prudential norms which was entered in the books of accounts as ITA 139/2008, ITA 466/2008, ITA 537/2008, ITA 408/2003 well. The assessee has further successfully demonstrated that even in the succeeding assessment years, no interest was received and the position remained the same until the assessment years 2006-07. Reason was adverse financia....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that the IT Act is a tax on "real income", i.e., the profits arrived at on commercial principles subject to the provisions of the IT Act. Therefore, if by Explanation to Section 36 (1) (vii) a provision for doubtful debt is kept out of the ambit of the bad debt which is written off then, one has to take into account the said Explanation in computation of total income under the IT Act failing which one cannot ascertain the real profits. This is where the concept of "add back" comes in. In our view, a provision for NPA debited to P&L Account under the 1998 Directions is only a notional expense and, therefore, there would be add back to that extent in the computation of total income under the IT Act. 39. One of the contentions raised on beh....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Directions 1998 are Prudential/ Provisioning Norms issued by RBI under Chapter IIIB of the RBI Act, 1934. These Norms deal essentially with Income Recognition. They force the NBFCs to disclose the amount of NPA in their financial accounts. They force the NBFCs to reflect "true and correct" profits. By virtue of Section 45Q, an overriding effect is given to the Directions 1998 vis-a-vis "income recognition" principles in the Companies Act, 1956. These Directions constitute a code by itself. However, these Directions 1998 and the IT Act operate in different areas. These Directions 1998 have nothing to do with computation of taxable income. These Directions cannot overrule the "permissible deductions" or "their exclusion" under the IT Act. Th....