Non-performing asset interest follows real income principles, while disclosed but inadmissible bad-debt claims do not automatically attract penalty.

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....Interest on non-performing assets of a co-operative bank is not taxable on notional accrual where recovery is uncertain and RBI prudential norms govern recognition, notwithstanding mercantile accounting. Reversal of a provision for bad and doubtful debts on an asset becoming performing is not deemed business income where it is neither recovery of an allowed bad debt nor remission of a loss, expenditure or trading liability. Provisions for standard assets may qualify for deduction as bad-debt provisions, subject to the statutory ceiling; rural advances must be computed using month-end outstanding balances, and fresh provisions cannot be netted against write-backs. Quantification requires fresh verification. Penalty does not arise merely because a disclosed deduction claim fails for lack of a book provision, absent concealment or inaccurate particulars.....