TaxTMI 
TaxTMI 
TaxTMI 
2022 (8) TMI 1346
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....me is not in line with the provisions of section 43D of the Act read with Rule 6EA of the Income-tax Rules, 1962. GENERAL 2. The Appellant craves leave and reserves its right to vary, amend, alter and/or add to the grounds of appeal and to produce such oral and documentary evidence and file such compilation of documents as may be necessary at the time of hearing of the appeal." 3. The fact in brief is that return of income declaring total income of Rs. 46,71,80,98,310/-. The assessee revised its return of income on 31.03.2012 declaring total income of Rs.46,46,21,35,560/-. The assessment u/s 143(3) of the Act was finalized on 12.03.2014 determining the total income at Rs.87,24,41,88,318/-. Subsequently, the case was reopened u/s 147 of the Act and noticed u/s 148 was issued on 31.03.2017. During the course of reassessment the A.O noticed that as Section 43D r.w. Rule 6EA interest is not to be offered for taxation with respect to advances which have become non-performing assets for a period of 180 days or more, however, the assessee has recognized such interest on the non performing assets for a period of 90 days or more as per guidelines of RBI. On query the assessee explained....
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....e assessee in their reply had submitted before the AO that the interest on NPA which had not been offered to tax u/s 43D r.w.r.6EA is Rs.6,88,36,167/-. The AO, therefore added the amount of Rs.6,83,36,167/- being claim of interest on NPA made by the assessee. In this ground of appeal, what has been disputed by the assessee is that the guidelines of Reserve Bank of India prescribed recognition of the assets being NPA when the period of default is 90 days or more and that the provisions of section 430 of the Act which stipulates recognition of income by way of interest in relation to such categories of all bad or doubtful debts having regard to the guidelines issued by the RBI in relation to such debts The appellant mainly seeks to contend that what would prevail is RBI guidelines in relation to section 430 of the Act and not the Rule CEA of the Rules. In regard to such contention of the appellant, it is stated that the provisions of section 430 stipulates that "the income by way of interest in relation to such categories of bad or doubtful debts as may be prescribed having regard to the guidelines issued by the Reserve Bank of India in relation to such debts." Therefore, what can be....
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....have regard to the real income theory. In this regard, it is stated that any theory of this kind cannot apply which makes the implementation of a prescribed rule in I.T. Rules, 1962 as inapplicable or redundant. The appellant has further contended that Rule 6EA cannot expand the scope of section 43D. In this regard, it is stated that Rule GEA has been prescribed so as to apply the provision of section 43D correctly. Any askewed interpretation which leads to redundancy of any rule prescribed under the law, will lead to the conclusion that such interpretation is incorrect and flawed and not the concerned rule or provision of the Act. It is also noted that section 43D was introduced by Finance Act, 1991 with a view to improve the viability of the banks, public financial institutions, and as per that section the interest on sticky loans has to be charged only in the year in which interest is actually received or charged to profit and loss account, whichever is earlier. As per that section, the category of bad and doubtful debts [sticky loans] was to be prescribed in the IT Rules having regard to the guidelines issued by the RBI in relation to such debts. In 1992, the Rule 6EA was frame....
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.... period of 90 days even as per RBI guidelines. Therefore, the contention of the assessee in respect of accrual of income and thereby the real income theory would not be relevant in view of the extant provisions of section 430 r.w.r.6EA of the Rules. In respect of the decision of Hon'ble Apex Court in the case of UCO Bank Ltd. vs. CIT (supra), it is stated that the same is not in respect of Section 43D/Rule 6EA of Rules. The assessee has also contended and justified its stand based on clause (e) of Rule 6EA. In respect of the same, it is stated that on facts the irrecoverability of debt has not been proved. Neither the facts nor surrounding circumstances resulting into difficulties in enforcing and realizing of the securities have been proven on facts. If that would have been the situation, then such debts could not be included for the purposes of (a) to (d) and resultantly should have been taken to section 36(1)(vii)/(via) of the Act. In view of the facts and circumstances of the case and discussion hereinabove, the contentions and submissions of the assessee are not found to be acceptable and are therefore, rejected. Ground No.2 of the appeal is accordingly, dismissed. 5. Dur....
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....bmissions and perused the materials available on record including the detailed paper book filed by the assessee. The facts stated hereinabove remain undisputed and hence the same are not reiterated for the sake of brevity. It is not in dispute before the lower authorities that the loan accounts had become sticky and doubtful of recovery. The only contention of the revenue is that section 43D of the Act read with Rule 6BA of the Rules permits accounting of interest income on receipt basis only if the loan account had become overdue for more than six months, whereas in the instant case, it is more than three months but less than six months as on 31.3.2010. The loan account becoming overdue and becoming sticky was never disputed. The next issue is whether the prudential norms of RBI for income recognition would override the provisions of the IT Act. This issue has been addressed by the Hon'ble Supreme Court in the case of Southern Technologies Ltd supra in the context of allowability of deduction towards 'Provision for NPA. We find that the same decision clearly stated that the interest income on NPA accounts should not be recognized on accrual basis which is in line with RBI ....
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....t institution or bank or corporation or company, whichever is earlier." It is categorically provided in the provisions of section 43D that income by way of interest in relation to bad and doubtful debts to be prescribed in accordance with guidelines issued by the RBI. The section 43D was introduced by the Finance Act, 1991 as per the section the category of bad and doubtful debts to be prescribed in the Income Tax Rules having regard to the guidelines issued by the RBI in relation to such debts. In 1992 the Rules 6E was framed and as per RBI guidelines the norms for categorization of advances as NPA were those advances which remained over due for more than 6 months. The RBI has revised the guideline from time to time and made changes in the period of overdue of advances for categorization of NPA. During the year under consideration the RBI has reduced the period to 90 days for categorization of interest on sticky loan as NPA, however, similar changes was not made to Rule 6EA. After considering the provisions of Sec. 43D and judicial findings as supra we consider that norms for categorization of bad and doubtful debts had to be prescribed considering the guidelines issued by the RB....
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....for the purposes of section 36(1)(iii) as the right to redeem these bonds does not lie with the lender at any given point of time?" Ground No. 2 to 4: 7. During the course of assessment the A.O also noticed that assessee has claimed interest expenditure u/s 36(1)(iii)of the Act in respect of perpetual bonds issued by the assessee bank. The details of such Perpetual Debt Instruments (IPDI) are as under: Sr. No. Series Allotment Date Book Value (Rs.) Date of repayment Amount of repayment (Rs.) 1. DAG06RRB August 9, 2006 233,00,00,000 August 9, 2016 233,00,00,000 2. DJA07RB1 January 15, 2007 18,00,00,000 April 30, 2017 18,00,00,000 3. DJA08RB1 October 1, 2008 500,00,00,000 April 30, 2018 500,00,00,000 4. DSP06RRB September 13, 2006 550,00,00,000 September 13, 2016 500,00,00,000 1301,00,00,000 1301,00,00,000 On query the assessee explained that these bonds have been issued to various insurance companies, mutual fund provident fund and individuals. It is also explained that these bonds were in the nature of debentures and have superior claim over equity and cumulative preference shares of the bank. They have fixed the in....
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.... claimed that it has discretion to exercise the call option for such bonds as per applicable guidelines. The Appellant also claimed that the interest paid to the bond holders unlike dividend income was not exempt as per provision of the Act and the bondholders accordingly had offered the interest receipts as their income. The Appellant claimed that as per RBI Guidelines, the Perpetual Bond were treated as Tier I capital subject to certain conditions The investors do not get the right to redeem the bonds at any given point of time Only the issuing company can buy back the bonds from the investors Therefore, even if subsequently borrower buys back these bonds, it will not alter the nature and character of these bonds because it is the borrower and not the lender who has every right in such bonds to redeem it Further, in the appellant's case, monies borrowed by issuance of IPDIs have been disclosed in Schedule 4 of the balance sheet as "Borrowings" and the interest paid on the said bonds is debited to the Profit and Loss Account of the year by the appellant. The IPDI holders/lenders are not entitled to participate in the management of the affairs of the appellant and neither are t....
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....Petitioner had paid interest on the capital, provided by the Government. On the question of whether the interest paid by the Petitioner can be regarded as deductible under section 36(1)(ii) of the IT Act, on facts, the High Court held that (a) the capital was not borrowed by the Petitioner, but was only provided by the Government, (b) there was no obligation on the Petitioner to repay the capital provided by the Government as per provisions of the Road Transport Corporation Act, 1950, and (c) hence, the interest paid on the capital, though termed as interest, would not be allowable as deduction under section 36(1)(ii) of the IT Act. The facts of aforesaid case are distinguishable as the assessee has borrowed money and it cannot be treated as provided by lenders. Further even though the terms of the IPDIs are perpetual in nature, as per the terms of the issue, all IPDIs are redeemed either at the first available opportunity or within a short while thereafter. This is mainly because if the Appellant fails to redeem the IPDIs at regular intervals, the subsequent issues of IPDIs would not be subscribed by the investors. Thus, in actual practice, the IPDIs are not perpetual as the inten....
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....ad Transport Corporation referred by the ld. D.R. in his argument was placed. By referring this case the ld. Counsel contended that fact of the case of the assessee are distinguishable from the facts of the case of Pepsu Road Transport Corporation. She stated that in the case of Pepsu Road Transport Corporation, it was the statutory requirement that the corporation shall pay interest on the capital borrowed from the central & state Government at such rates as may be fixed by the Government. In that case the capital of the corporation was to be provided by the Central & State Government whereas in the case of the assessee there was no such statutory requirement and assessee has issued debt instruments without any compulsory requirement of contribution. The ld. Counsel has also referred decision of ITAT, Cochin in the case of Kerala Road Transport Corporation Vs. ITO 34 TTJ 101. 10. Heard both the sides and perused the material on record. The A.O has disallowed the claim of interest made u/s 36(1)(iii) by treating the perpetual bond as equity in nature. In support of his finding the A.O has placed reliance on the observation of the Pr. CIT made in the order u/s 263 in the case of th....