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2013 (11) TMI 1328 - AT - Income TaxEligibility of interest expense u/s 36(1)(viii) of the Income Tax Act – Held that:- Unless and until all the ingredients specified in Explanation (e) to section 36(1)(viii) are satisfied, the transaction will not fall within the reach of long term finance. If the transactions are not considered as 'Longterm Finance', there is no question of any deduction being given under section 36(1)(viii) of the Act since the claim gets ousted at the threshold – Relying upon the judgment in the case of CCE v. Harichand Shrigopal[2010 (11) TMI 13 - SUPREME COURT OF INDIA ], wherein it has been held that a person who claimed exemption or concession, is required to establish clearly that he was covered by the provision concerned and in the case of doubt or ambiguity, benefit would go to the State - finding of the Assessing Officer that interest on short term deposits was not eligible for the deduction under section 36(1)(viii), which were confirmed by the CIT(A), is in accordance with law - Deposits can never be treated on par with loans or advances. Therefore, interest on deposits will never fall within the definition of long term finance given in Explanation (e) to section 36(1)(viii) of the Act – Decided against the Assessee. Disallowance u/s 43D of the Income Tax Act - By virtue of Sec.43D, it was necessary to offer such interest income, only when interest was realized - Assessee had advanced a sum of Rs. 300 lakhs, as term loan to M/s. NEPC Micon Ltd., who had failed to repay the installments due from 01.04.1997. Assessee had classified the dues as Non-Performing Asset in its books based on Reserve Bank of India guidelines. Assessee had not shown any accrual of interest on such term loan in its accounts. Assessing Officer was of the opinion that since it was following mercantile system of accounting, it was mandatory to show the accrued interest. As per the Assessing Officer, RBI guidelines were only for the purpose of supervision, and management of non banking financial companies and was not relevant for ascertaining income under the Income Tax Act – Held that:- No doubt that assessee had not charged in its books of accounts any interest on the loans classified by it as non performing assets. It is not a case where assessee had credited such interest and then claimed write off. Assessee might have been following mercantile system of accounting. However, the prudential norms prescribed by RBI, for non banking financial Company under section 45 Q of the RBI Act, made it obligatory for the assessee to classify the loans on which interest was not received for a period exceeding six months, as non-performing assets. Once it was so classified, interest could not be charged in its accounts and taken as income – Assessee’s contention is also fortified by the decision in the case of CIT v. Elgi Finance Ltd [2007] [2007 (6) TMI 180 - MADRAS High Court] – Decided in favor of Assessee.
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