IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH “B”, KOLKATA
[Before Hon’ble Sri N.V.Vasudevan, JM & Hon’ble Sri M.Balaganesh, AM]
Assessment Year : 2001-02
A.C.I.T., Circle-6, Vs West Bengal Infrastructure Development Finance Corporation, Kolkata
Facts of the Case
The assessee had not recognized as income interest that has to receive on loans that it had lent because these loans had become non-performing assets(NPA), within the meaning of the Prudential norms laid down in Non-Banking Financial Companies Prudential Norms (Reserve bank) Directions, 1998 (Prudential Norms). As per the aforesaid norms income on non- performing assets shall be recognized only when it is actually realized.
The AO rejected the claim of the assessee and considered a sum of Rs.1,24,31,423/- which was interest on NPA which was not recognized by the assessee as income in the books of accounts. The AO was of the view that the prudential norms of Reserve Bank of India are not binding when it comes to computing the total income under the Income Tax Act, 1961. AO also referred to his order in A.Y.2002-03 on similar issue that had come for consideration in assessee’s own case and the issue was held against the assessee. It was also held in the earlier year that the provision of section 43D of the Act will also not apply in the case of the assessee.
On appeal by the assessee the CIT(A) following the decision of the Hon’ble ITAT in assessee’s own case for A.Y.2002-03 in ITANo.395/Kol/2006 order dated 25.08.2006 deleted the addition made by the AO
In terms of section 43D of the Act interest in respect of non-performing assets is chargeable to tax in the year in which such interest is credited to the profit and loss account or the year in which this is actually received whichever is earlier. The categories of bad or doubtful debts interest in respect of which is covered by section 43D have been prescribed by rule 6EA of the IT Rules 1962. The assessee’s NPA falls within the purview of Rule 6EA.
We are of the view that in the instant case due to uncertainty in collection there was no accrual of income having regard to the real income theory which is engrained in the RBI’s prudential norms for recognition of revenue as held by the Hon’ble Delhi High Court in Vasisth Chay Vyapar Ltd. As such, the assessee did not account for such interest. The judgment of the Hon’ble Supreme Court in State Bank of Travancore’s case (supra) actually supports the assessee. In that case, it was held that the concept of real income was certainly applicable in judging whether there had been income or not.