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2022 (12) TMI 1373 - AT - Income TaxIncome recognition - Addition of interest income on Non Performing Assets - As per AO provisions of sec. 43D r.w. Rule 6EA of I T Rules has prescribed a period of six months of irregularity for classifying loans as non-viable or sticky loan and period for determining an asset as NPA should be considered as 6 months or more and not 90 days - HELD THAT:- We notice that an identical issue has been adjudicated by the Tribunal in favour of the assessee in the assessee’s own case in AY 2010-11 [2022 (8) TMI 1346 - ITAT MUMBAI] bank had no option but follow the RBI guidelines to make a provision for unrealized interest on the NPA by debiting profit and loss account. In the case of DCIT Vs. Karur Vysya Bank [2017 (4) TMI 566 - ITAT CHENNAI] Chennai dated 29.03.2017 held that it becomes necessary to read down such rules so that it is in consonance with the RBI regulation or prudential norms for recognizing income - Also decided in ROYAL BANK OF SCOTLAND N.V. AND VICE-VERSA [2016 (11) TMI 665 - ITAT KOLKATA] CIT(A) is not justified in substituting the limit for recognizing of interest on account of NPA to 180 days from 90 days in view of the clear provisions of Sec. 43D(a) that in the case of public financial institutions or schedule bank or a state financial corporation or a State Industrial Investment Corporation, the income by way of interest in relation to such categories of bad and doubtful debt as may be prescribed having regard to the guidelines issued by the RBI in relation to such debts - we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the addition. Disallowance of claim of bad debts relating to Credit card business - As per AO credit card is essentially a kind of “payment service” offered by the assessee and hence it would not fall under the definition of banking business, thus cannot claim the bad debts in respect of credit card business as it fails to comply with the conditions prescribed in sec. 36(2) - CIT-A deleted addition - HELD THAT:- It can be noticed that the RBI itself states that the credit card dues are in the nature of unsecured loans or non-priority sector personal loans. When it is considered as a form of giving “loans”, it cannot be said that the credit card business does not form part of banking business. Hence it is a case of lending money in the ordinary course of business of money lending. Accordingly, it satisfies the condition prescribed u/s 36(2) of the Act and hence the same is allowable as deduction u/s 36(1)(vii) of the Act as “bad debts”, as it is written off in the books of account as bad. Accordingly, we do not find any infirmity in the decision taken by Ld CIT(A) on this issue. Disallowance of interest paid on perpetual bonds - AO held that the perpetual bonds issued by the assessee is in the nature of “equity capital” and accordingly held that the interest claimed thereon is not allowable as deduction u/s 36(1)(iii) - CIT-A deleted addition - HELD THAT:- As decided in own case [2022 (8) TMI 1346 - ITAT MUMBAI] merely that RBI recognizes to treat the said debt instruments as additional Tier/Capital would not change the nature of Innovative Perpetual Debt Instruments which were of the nature of long term borrowings and the interest paid was debited to the profit and loss account. These debt instruments were also redeemed on different dates as discussed supra in this order, therefore, we don't find any reason to interfere in the decision of ld. CIT(A), accordingly, this ground of appeal of the revenue is dismissed.
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