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2011 (8) TMI 178 - HC - Income TaxBusiness income Vs. Other sources - Deduction u/s 36(1)(viii) - Whether income from non-performing assets should be assessed on cash basis and not on mercantile basis despite the assessee maintaining mercantile system of accounting - in the case of the very same assessee [2010 (7) TMI 971 - KARNATAKA HIGH COURT] held that in respect of any special reserve created by any financial corporation which is engaged in providing long term finance for industrial or agricultural development or infrastructure facility in India, an amount not exceeding 40 per cent of the total income computed before making any deduction under these clauses and Chapter VI-A carry to such reserve account - Decided in favor of the assessee Regarding method of accounting - it is clear the requirement of complying with cash or mercantile system of accounting is subject to the directions to be issued by the Central Government in the matter of accounting standards - Income from non-performing asset (NPA) may not be recognized merely on the basis of accrual. An asset becomes non-performing when it ceases to yield income - The income from NPAs, therefore, should be recognized only when it is actually received - it is clear, if an assessee adopts mercantile system of accounting and in his accounts he shows a particular income as accruing, whether that amount is really accrued or not is liable to bring the said income to tax - As is clear from the policy guidelines issued by the National Housing Bank, the income from non-performing asset should be recognised only when it is actually received - Decided in favor of the assessee
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