TMI Blog2011 (8) TMI 178X X X X Extracts X X X X X X X X Extracts X X X X ..... aking 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. In other words, in computing the total income, no deduction under that clause as well as under Chapter VII has to be made. To such deduction, one has to find out what is the total income and then, an amount not exceeding 40 per cent of the total income could be deducted from the taxable income under the heading 'Profits and gains'. In view of the stand taken by this Court in the aforesaid appeal in the case of the assessee. we do not see any justification to take any other view other than what is been held in that case. Therefore, the substantial question of law No. 1 is answered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as notified, under sub-section (2), have not been regularly followed by the assessee the Assessing Officer may make an assessment in the manner provided in section 144." 5. A reading of the aforesaid provision makes it very clear that section 145(1) is subject to the provisions of sub-section (2). Sub-section (2) provides that the Central Government may notify in the Official Gazette from time to time accounting standards to be followed by any class of assessees or in respect of any class of income. Therefore, 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. After the amendment to section 145 the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. NPA is an asset in respect of which interest has remained unpaid and has become 'past due'. An amount is to be treated as 'past due' when it remains unpaid for 30 days beyond the due date. Interest on NPAs should not be booked as income if such interest has remained outstanding for more than six months on and from March 31, 1995. In fact this question arose for consideration before the Apex Court in the case of State Bank of Travancore v. CIT [1996] 158 ITR 102/24 Taxman 337 where it has been held that, the concept of reality of the income and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch circulars are meant for ensuring proper administration of the statute and, they are designed to mitigate the rigours of the application of a particular provision of the statute in certain situations by applying a beneficial interpretation of the provision in question. 8. Therefore, 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. His accounts should reflect true and correct statement of affairs. Merely because the said amount accrued was not realised immediately cannot be a ground to avoid payment of tax. But, if in his account it is clearly stated though a particular i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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