AI Drafter 
TaxTMI 
TaxTMI 
2022 (12) TMI 1373
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....forming asset (NPA). The RBI has prescribed a period of 90 days for determining a loan as irregular and consequently "NPA". The AO noticed that the provisions of sec. 43D r.w. Rule 6EA of I T Rules has prescribed a period of six months of irregularity for classifying loans as non-viable or sticky loan. The AO accordingly took the view that the period for determining an asset as NPA should be considered as 6 months or more and not 90 days as mentioned in the Circular of RBI. Accordingly, the AO held that the above said interest income is assessable to tax and according added Rs.5.05 crores to the total income of the assessee and the Ld CIT(A) also confirmed the same. 4. We heard the parties on this issue and perused the record. We notice that an identical issue has been adjudicated by the Tribunal in favour of the assessee in the assessee's own case in AY 2010-11 in ITA No.3215/Mum/2019, vide its order dated 22.08.2022. The relevant discussions made by the Tribunal are extracted below:- "6. Heard both the sides and perused the material on record. The assessee has recognized the amount of interest attributable on sticky advances as NPA for a period of 90 days or more as p....
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....becoming NPA is not disputed by the revenue, the recognition of income is to be done only on receipt basis which is in consonance with the real income theory. In these circumstances and respectfully following the decisions of Hon'ble Delhi High Court in 330 ITR 440 and various other decisions refered to supra, we hold that the interest income on NPA accounts should not be assessed on mercantile basis and the same is to be taxed only on receipt basis. Accordingly, the grounds raised by the assessee are allowed." We have also perused the provision of Sect. 43D of the Act which are reproduced as under: "43D. Notwithstanding anything to the contrary contained in any other provision of this Act,- (a) in the case of a public financial institution or a scheduled bank or "[a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank or] a State financial corporation or a State industrial investment corporation "[or a deposit taking non-banking financial company or a systemically important non-deposit taking non-banking financial company] the income by way of interest" in relation to such cate....
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.... 43D(a) that in the case of public financial institutions or schedule bank or a state financial corporation or a State Industrial Investment Corporation, the income by way of interest in relation to such categories of bad and doubtful debt as may be prescribed having regard to the guidelines issued by the RBI in relation to such debts. Therefore, both the ground of appeals of the assessee are allowed." Following the above said decision of the co-ordinate bench, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the addition of Rs.5.05 crores referred above. 5. We shall now take up the appeal filed by the revenue. The first issue relates to the disallowance of claim of bad debts relating to Credit card business. The assessee had claimed bad debts of Rs.47.63 crores in respect of its credit card business. The AO took the view that credit card is essentially a kind of "payment service" offered by the assessee and hence it would not fall under the definition of banking business. Hence the AO held that the assessee cannot claim the bad debts in respect of credit card business as it fails to comply with the conditions prescribed in sec. 36(2), viz.....
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....3. Interest rates and other charges:- Credit card dues are in the nature of non-priority sector personal loans and as such upto June 30, 2010, banks were free to determine the rate of interest on credit card dues ..... It can be noticed that the RBI itself states that the credit card dues are in the nature of unsecured loans or non-priority sector personal loans. When it is considered as a form of giving "loans", it cannot be said that the credit card business does not form part of banking business. Hence it is a case of lending money in the ordinary course of business of money lending. Accordingly, it satisfies the condition prescribed u/s 36(2) of the Act and hence the same is allowable as deduction u/s 36(1)(vii) of the Act as "bad debts", as it is written off in the books of account as bad. Accordingly, we do not find any infirmity in the decision taken by Ld CIT(A) on this issue. 7. The next issue relates to disallowance of interest paid on perpetual bonds. The AO held that the perpetual bonds issued by the assessee is in the nature of "equity capital" and accordingly held that the interest claimed thereon is not allowable as deduction u/s 36(1)(iii) of the Act.....