TaxTMI 
TaxTMI 
2023 (7) TMI 292
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.... the interest of the revenue and thus, the order under section 263 of the Act is without jurisdiction and bad-in¬law. 1.2. The learned PCIT erred in initiating the proceedings under section 263 of the Act without appreciating that the learned AO during the course of original assessment proceedings had made necessary enquiry and verification, before allowing the claim in relation to both the issues under consideration viz. interest on non-performing asset ('NPA') and claim of deduction under section 36(1 )(viii) of the Act. 1.3. The learned PCIT ought to have appreciated that the proceedings under section 263 of the Act cannot be initiated on interpretational issues based on mere difference in opinion from the position adopted by the learned AO. 2. Ground 2: Challenging taxability of Interest on NPA: 2.1. The learned PCIT erred in holding that interest on NPA is taxable on accrual basis disregarding the well-settled principle of real income theory as has consistently been upheld in the Appellant's own case by the Appellate Authorities in the earlier years. 2.2. The learned PCIT erred in not appreciating that the contentions raised to ....
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....ssessment order in light of the income assessed at a higher amount and hence, the question of the learned AO having not applied his mind does not arise. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing of the appeal, so as to enable the Hon'ble Tribunal to decide this appeal according to law." 3. Learned senior counsel places on record the Assessing Officer's sec. 143(3) r.w.s. 263 consequential assessment dated 31.03.2023 not disallowing / adding its corresponding claim of sec. 36(1)(viii) deduction. He therefore sought not to press the above latter issue subject to all just exceptions. Ordered accordingly. 4. Both the learned representatives next invited our attention to the PCIT's revision directions qua the instant former issue of accrual of income on assessee's nonperforming assets "NPAs" as under : 5. We find from a perusal of the case file that the instant sole issue of taxability of assessee's interest income regarding it's NPAs advances on accrual basis is no more res integra since the matter appears to have travelled up to hon'ble jurisdictional high court....
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....ound:- 3.1 Respondent assessee is a Non Banking Finance Company ("NBFC" for short). Respondent filed return of income for the assessment year 2009-10 in which the assessee had claimed deduction of interest on advances which had become non performing assets ("NPA" for short). The Assessing Officer disallowed the claim relying on such disallowance for the earlier assessment years which were on the ground that the assessee which was following the mercantile system of banking had to pay tax on interest on accrual basis. 3.2 The issue eventually reached the Tribunal. The Tribunal, by the impugned judgment, allowed the assessee's claim, upon which, the Revenue has filed this appeal. 4. Learned counsel for the Revenue submitted that the assessee had to offer the interest income to tax on accrual basis. The special provision for taxing interest income on NPAs on the basis of receipt has been made under Section 43D of the Income Tax Act, 1961 ("the Act" for short) which does not apply to NBFC. By necessary implication, therefore, the legislature desired that such benefit would be restricted only to such of the entities as are referred to in Section 43D of the ....
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....ected itself in law or its order can be termed as perverse warranting interference in our appellate jurisdiction. We find that the view taken by the Tribunal accords with the Reserve Bank of India guidelines and which are not in any way in conflict with the Income Tax Act, 1961, the Hon'ble Supreme Court has held in the case of UCO Bank that the interest income would have been brought to the Profit and Loss Account provided it was actually realized, that in case of Nationalized Bank it treated something which is doubtful, and therefore, kept it in a suspense account, was held to be a permissible exercise. In respect of the loans which are advanced, recovery of some of them if considered doubtful, then, even the interest on the loans advanced may not be realized. That is how the amount is not brought to the profit and loss account because they are not likely to be realized by the bank or a NBFC as well. It is permissible therefore to disclose or to show them as income in assessment year in which either the interest amount or part of it is recovered. The Tribunal in this case, namely, of the assessee before us, has precisely followed this course. We do not find that the course pe....
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....in the instant case. He placed strong reliance on Malabar Industrial Co. Ltd. vs. CIT [2000] 243 ITR 83 (SC) and PCIT vs. Paville Projects Pvt. Ltd. [2023] 149 taxmann.com 115 (SC) that the PCIT has rightly invoked sec.263 revision jurisdiction in the facts and circumstances of the case. 7. Mr. Koteswara Rao further quoted the applicability of "ICDS" i.e., Income Computation and Disclosure Standards from the impugned assessment year onwards that the Assessing Officer had admittedly not examined the taxability of assessee's interest income on NPAs advances on accrual basis not only in light thereof as well as going by CBDT's circular no.10/2017 dated 23.03.2017. 8. We have given our thoughtful consideration to the vehement rival stands and find no merit in the Revenue's arguments. We first of all note from a perusal of the case file with the able assistance coming from the assessee's side represented by the learned senior counsel that the Assessing Officer had indeed issued his sec.143(2) notice dated 27.09.2019 as well as sec.142(1) notice dated 11.11.2019 specifically raising the issue of Income Computation and Disclosure Standards "ICDS" compliance. The assessee had duly re....
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....the Assessee Company to the proposed revision as mentioned in the written submissions and the Assessment record are verified and examined. The contention of the assessee dealt with as under. a. Verification made by the Assessing Officer during Assessment Proceedings i. During the Personal hearing, the Senior Tax head of the Company drew attention to the Point no 4 in the Annexure to the Notice issued u/s 142(1) dated 11.11.2019. which reads as "Note on the Taxability of Interest accrued on NPA" The reply filed by the Assessee dated 18.11.19 stated that a. The Assessee being NBFC Governed by RBI is mandatorily required to follow the RBI directions. As per this The interest from defaulting customers is to be recognized only on receipt basis. Document 2 b. The issue is settled in favour of Assessee by 1. Hon'ble Supreme Court in the case of Vasisth ChayVyapar Ltd 410 ITR 244 2. Hon'ble Bombay High Court in the Assessee's Own Case for A Ys 2009-10 and 2011-12 3. Hon'ble ITAT Pune decisions in Assessee's own case. The Issue raised by the AO and the reply given by the Assessee are totally silent on Why the ICDS guidelines for Income re....
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....Interest on NPA as mandated by ICDS IV cannot be considered to have been decided by this decision. c. Revision cannot be invoked by Change of Opinion: As demonstrated above, the Assessing Officer has i. Deviated from the Income Recognition method given by the ICDS IV brought in by the Income Tax Act, 1961 to be effective from Y 17-18. ii. Has not caused any verification about the eligibility of the Assessee under Section 36(1)(viii). Hence, any view taken by him on these issues in the Assessment order is one which is unsustainable in the eyes of law and cannot be considered to be a legally valid opinion. Applying the Correct provisions of the Act cannot be considered as change of opinion. INCOME Contenti-PARTMENT 06 In view of the above, the contentions raised by the Assessee about the assumption of jurisdiction u/s 263 are not tenable. All the Case law Cited by the Assessee do not come to its rescue in view of the above. 5. Issues raised in the Revision Proceedings: Having dealt with the Objections of the Assessee Company to the Revision Proceedings, now the Issues in the Revision are discussed. 5.1. Income from ....
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....d "Profits and gains of business or profession" or Page 9 of 19 BAJAJ LTD. Document 5 .3 "Income from other sources". 2. This notification shall apply to the assessment year 2017-18 and subsequent assessment years. ICDS-IV deals with revenue recognition. Income Computation and Disclosure Standard IV relating to revenue recognition Preamble This Income Computation and Disclosure Standard is applicable for computation of income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" and not for the purpose of maintenance of books of accounts. In the case of conflict between the provisions of the Income-tax Act, 1961 ('the Act') and this Income Computation and Disclosure Standard, the provisions of the Act shall prevail to that extent. Scope 1(1) This Income Computation and Disclosure Standard deals with the bases for recognition of revenue arising in the course of the ordinary activities of a person from (i) the sale of goods; NCO मूली (ii) the rendering of services; TAX DEPARTMENT (iii) the use by others of the person's resources yieldi....
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....ce transaction costs incurred in reaching the stage of completion, resulting in the determination of revenue, expenses and profit which can be attributed to the proportion of work completed. Income Computation and Disclosure Standard on construction contract also requires the recognition of revenue on this basis. The requirements of that Standard shall mutatis mutandis apply to the recognition of revenue and the associated expenses for a service transaction. However, when services are provided by an Page 11 of 19 FI Document 7 indeterminate number of acts over a specific period of time, revenue may be recognised on a straight line basis over the specific period. 7. Revenue from service contracts with duration of not more than ninety days may be recognised when the rendering of services under that contract is completed or substantially completed. The Use of Resources by Others Yielding Interest, Royalties or Dividends 8. (1) Subject to sub paragraph (2), interest shall accrue on the time basis determined by the amount outstanding and the rate applicable. (2) Interest on refund of any tax, duty or cess shall be deemed to be ....
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....ourt order, it appears that the contention sought to be canvassed is not correct. The same is reproduced for clarity. "84. In ICDS-IV accrual of interest is dealt with as under:- "8. (1) Subject to sub-paragraph (2), interest shall accrue on the time basis determined by the amount outstanding and the rate applicable. (2) Interest on refund of any tax, duty or cess shall be deemed to be the income of the previous year in which such interest is received." कà¥à¤°à¥‹à¤· लो दणà¥à¤¡ 85. This clause is applicable in myriad situations including for Banks, lenders, financial institutions, loan agreements etc., NBFCs are just one facet of business where this clause is applicable. This is challenged on the ground that non-performing assets of NBFCs would also become taxable on accrual basis even though such interest is not recoverable. The Respondent has clarified in Circular No. 10 of 2017 that such income has to be applied on accrual basis and deduction, if any, can be claimed only under Section 36 (1)(vii) of the Act. The Respondent further submits that this provision is in line with....
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....ssee in the same very year immediately on its recognition (and even without passing through its books), then it would be first Page 14 of 19 BAJAJ F Document 10 recognised as revenue and then allowed as a deduction under S. 36(1)(vii) of the Act, including in the case of NBFCs. However, in this process, the tax department would have information about the income which is so written off and keep a track of the said sum then realised. Therefore, there is no enlargement of scope of income or any deviation from the principles laid down by the Hon'ble Supreme Court." 87. Since there is no challenge to Section 36(1) (vii), para 8 (1) ICDS-IV cannot be held to be ultra vires the Act. This is to create a mechanism of tracking unrecognized interest amounts for future taxability, if so accrued. In fact the practice of moving debts which the bank or NBFC considers irrecoverable to a suspense account is a practice which makes the organisations lose track of the same. The justification by the Respondent clearly demonstrates that this is a matter of a larger policy and has the backing of Parliament with the enactment of 36 (1) (vii). The ....