TaxTMI 
TaxTMI 
TaxTMI 
2026 (2) TMI 270
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...., arbitrary and contrary to the Non-Banking Finance Companies Prudential Norms (RBI) Directions, 1998 and declare that the loans advanced to Prathima Estates Limited, Elgen (India) Limited and Netxcell Limited have became non performing assets in accordance with the said circular and consequently the interest income accrued thereon cannot be added as income taxable for the year 2003-04 in the Petitioner's assessment under Income Tax Act, 1961 and pass such order or orders as the Hon'ble Court may deem fit and proper in the circumstances of the case." 3. The facts of the case are that the petitioner is a Non-Banking Financial Services (NBFC) registered with the Reserve Bank of India (for short 'RBI'). In accordance with the RBI directions issued in the year 1998 which was subsequently amended on 31.03.2003, the petitioner classified certain loans as Non-Performing Assets (NPAs) whenever the interest on such loans remained overdue for a period of 6 months or more. Following these mandatory RBI guidelines and also in compliance with Accounting Standard-9 issued by the Institute of Chartered Accountants of India (ICAI), the petitioner for the assessment year 2003-04 claimed ....
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....e to relocation of office and in that process important papers including the ITAT's order got mixed up with other documents and could not be traced despite diligent efforts. The misplaced documents were only located while preparing returns for the assessment year 2009-10. Further, the learned counsel for the petitioner relied upon a judgment of the Hon'ble Supreme Court in Commissioner of Income Tax vs. Hongo India Private Limited (315 ITR 449) which held that tribunal has no power to condone delay beyond the statutory period of 120 days under Section 260A of the Act. Therefore, petitioner has no other remedy, but to approach this Hon'ble Court under Article 226 is the only remedy to seek redressal of his grievance. 8. Learned counsel for the petitioner further contended that the ITAT erred in distinguishing the loans advanced to M/s. Prathima Estate Limited, M/s. Elgen India Limited and M/s. Netxcell Limited from those advanced to Mr. T. Harish Rao and Mr. G. Yeshwant Rao. He submitted that all these loans qualify as Non-Performing Assets (NPAs) under RBI's prudential norms issued in the year 1998, as amended in the year 2003, which mandates that any assets where intere....
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....39;s classification of similar loans as NPAs and held that accrued interest thereon was not taxable. That the learned counsel for the petitioner submitted that the petitioner had been consistently following since the assessment year 1996-97 as noted in the ITAT's own order. He submitted that by departing from this consistent view without any justifiable reason and by introducing an extraneous test of subsequent advances not recognized by RBI or ICAI, the ITAT committed a error of law. Thus, the learned counsel for the petitioner prays that this Hon'ble Court may quash the impugned orders of the ITAT and declare that the loans to M/s. Prathima Estates Limited, M/s. Elgen (India) Limited and M/s. Netxcell Limited are NPAs and that the interest income accrued thereon cannot be taxed for the assessment year 2003-04. 12. Per contra, the learned Senior Standing Counsel for the Income Tax Department contended that the classification of certain advances as non-performing assets was not justified. In the case of M/s. Prathima Estates Ltd., it was argued that the assessee maintained two accounts (LA-301A and LA-301) for the same party where one account was classified as a performi....
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....n law in holding that loans advanced to M/s. Prathima Estates Limited, M/s. Elgen (India) Limited, and M/s. Netxcell Limited could not be classified as Non-Performing Assets on the ground that fresh advances were made to these borrowers during the relevant financial year? 3) Whether the conduct of the petitioner in making fresh advances to the same borrowers during the financial year 2002-03 is relevant and material for determining whether the earlier loans had truly become Non-Performing Assets under the RBI's Prudential Norms and Accounting Standard-9? 4) Whether the principle that income tax can only be levied on real income and not on notional income extends to a situation where the assessee voluntarily continues a commercial relationship with the borrower by extending fresh credit? 16. With regard to the first question of law, the Bench is of considered opinion that the petitioner has admitted that an alternative remedy of appeal under Section 260A of the Act was available, which provided for an appeal to the High Court against the order of the Income Tax Appellate Tribunal on any substantial question of law within a period of 120 days from the date of....
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....lear that although the power of the High Court under Article 226 of the Constitution is very wide, the Court must exercise self-imposed restraint and not entertain the writ petition, if an alternative effective remedy is available to the aggrieved person. In para 7, the Court observed thus: (Thansingh Nathmal case [Thansingh Nathmal v. Supt. of Taxes, AIR 1964 SC 1419], AIR p. 1423) "7. Against the order of the Commissioner an order for reference could have been claimed if the appellants satisfied the Commissioner or the High Court that a question of law arose out of the order. But the procedure provided by the Act to invoke the jurisdiction of the High Court was bypassed, the appellants moved the High Court challenging the competence of the Provincial Legislature to extend the concept of sale, and invoked the extraordinary jurisdiction of the High Court under Article 226 and sought to reopen the decision of the taxing authorities on question of fact. The jurisdiction of the High Court under Article 226 of the Constitution is couched in wide terms and the exercise thereof is not subject to any restrictions except the territorial restrictions which are expressly provided in....
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.... other words, the appeal was presented beyond the condonable period of 60 days. As a result, this Court could not have condoned the delay of 71 days. Notably, while admitting the appeal, the Court had condoned the delay in filing the appeal. However, at the final hearing of the appeal, an objection regarding appeal being barred by limitation was allowed to be raised being a jurisdictional issue and while dealing with the said objection, the Court referred to the decisions in Singh Enterprises v. CCE [Singh Enterprises v. CCE, (2008) 3 SCC 70], CCE v. Hongo (India) (P) Ltd. [CCE v. Hongo (India) (P) Ltd., (2009) 5 SCC 791], Chhattisgarh SEB v. CERC [Chhattisgarh SEB v. CERC, (2010) 5 SCC 23] and Suryachakra Power Corpn. Ltd. v. Electricity Deptt. [Suryachakra Power Corpn. Ltd. v. Electricity Deptt., (2016) 16 SCC 152 : (2017) 5 SCC (Civ) 761] and concluded that Section 5 of the Limitation Act, 1963 cannot be invoked by the Court for maintaining an appeal beyond maximum prescribed period in Section 125 of the Electricity Act. 18. A priori, we have no hesitation in taking the view that what this Court cannot do in exercise of its plenary powers under Article 142 of the Consti....
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....on Corpn. Ltd., (2017) 5 SCC 42 : (2017) 3 SCC (Civ) 47] In other words, the fact that the High Court has wide powers, does not mean that it would issue a writ which may be inconsistent with the legislative intent regarding the dispensation explicitly prescribed under Section 31 of the 2005 Act. That would render the legislative scheme and intention behind the stated provision otiose. 18. Therefore, for the aforesaid reasons and also taking into consideration the judgment of the Hon'ble Supreme Court in Glaxo Smith Kline Consumer Health Care Private Limited (supra), the first question of law stands decided in favour of the Revenue and against the petitioner. 19. With regard to the second and third question of laws are concerned, we are of the considered opinion that ITAT has not committed any error of law in distinguishing between different categories of loans based on the actual conduct of the petitioner. The petitioner's primary contention is that all loans where interest remained overdue for six months or more must be classified as Non-Performing Assets under the RBI's Prudential Norms and that the RBI guidelines do not recognize subsequent advances as a disqualify....
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....ic. 21. In the present case, the conduct of the petitioner in making fresh advances to the very same borrowers whom it claims were unable to service their existing debt completely undermines the assertion that the interest income was merely notional and wholly unrealizable. If the petitioner genuinely believed that these borrowers were in financial distress and unable to pay interest on existing loans, thereby rendering the accrued interest notional and uncollectible then the petitioner would not have exposed itself to further credit risk by extending substantial additional loans to the same borrowers. The fact that the petitioner chose to make fresh advances and in the case of M/s. Prathima Estates Limited, even received interest payment within five days clearly establishes that the petitioner expected to recover not only the fresh advances but also the earlier dues including the accrued interest. This demonstrates that the interest income represented real accrued income and not merely a notional amount. Furthermore, while the RBI's Prudential Norms permit non-recognition of interest income on non-performing assets for regulatory purposes these norms are primarily prescribe....