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2012 (11) TMI 351 - AT - Income TaxNon-charging of interest on non-performing advances on accrual basis - CIT(A) deleted the addition - assessee is a financial institution owned by the Government of Gujarat - Held that:- The interest on sticky loan which has accrued on the NPA were not accounted for in the profit and loss account by the assessee and as per the guidelines of the RBI such interest was chargeable in the accounting year in which it is credited to the P&L account for that year or when it was actually received by that institution whichever is earlier, as the provisions of the Act. In this case, the assessee neither have credited the interest to the profit and loss account of the relevant accounting period nor has actually received the same, and therefore the said addition was rightly deleted by the CIT(A) - in favour of assessee. Rejection of books of accounts - Held that:- Various observations of the statutory auditors were mainly in respect of system of accounting, procedural lapses and internal checks and controls. The management of the assessee has claimed that it had complied with all such observations of the statutory auditors and the same were reflected in the directors’ report in point no.III at page no.8 of the annual accounts of the assessee. On similar facts, the accounts books of the assessee were accepted by the department in the earlier years as well as in the subsequent assessment year 2006- 2007 - AO without bringing any material deficiencies in the books of the accounts to show as to how the appellant’s profit for the relevant period cannot be ascertained correctly on the basis of the books of accounts maintained by wrongly invoking the provisions of section 145(3) - in favour of assessee. Disallowance of depreciation - leased assets - Held that:- the Revenue have not gone into the terms and conditions of the lease agreements entered into by the assessee-company. There is no finding by the AO that these lease were only finance lease and not operating lease - set aside the issue to the file of the AO with direction to decide the issue afresh relying on Asea Brown Boveri Ltd. Versus AFCI [2004 (10) TMI 325 - SUPREME COURT OF INDIA] wherein held that in case of finance lease, it is the lessee who, for all practical purposes, is the owner of the assets - in favour of assessee for statistical purposes. Disallowance of penal interest - Held that:- Perusal of the Resolution no. JNV-1099-2023-A of the Govt. of Gujarat, Finance Department has prescribed rates of interest on loans for the public sector undertakings, which is clearly in the nature of “penal interest” and not in the nature of penalty. The assessee is in the business of finance and interest was paid by the assessee-company on account of late payment of amount payable to the State Government. There is no infringement of law and there is no act on the part of the assessee which can be said to be against the public policy. The penal interest in the nature of finance charges for late payment of instalment/amount could not be equated with penalty imposable due to some infringement of law. The use of the word “penal interest” as a nomenclature does not mean any penalty for infringement of law - in favour of assessee.
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