TMI Blog2018 (5) TMI 264X X X X Extracts X X X X X X X X Extracts X X X X ..... ntial banking norms, embodied in its directions to banking and non banking entities, were as binding as accounting standards under Section 145 of the Income Tax Act, and reflection of income on notional basis, did not reflect the realistic assessment of real income - Decided in favour of assessee - ITA 107/2012 & CM APPL. 9127/2018 - - - Dated:- 1-5-2018 - MR. S. RAVINDRA BHAT AND MR. A. K. CHAWLA JJ. Appellant Through: Ms. Vibhooti Malhotra, Advocate. Respondent Through: Mr. Ajay Vohra, Sr. Adv. with Ms. Kavita Jha, Mr. Vaibhav Kulkarni and Mr. Udit Naresh, Advocates. S. RAVINDRA BHAT, J. 1. The following question of law was framed in this appeal, under Section 260A of the Income Tax Act, 1961: Did the Income Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue argues that in respect of the three entities, the decision not to reflect revenue recognition, and treat the interest payable as NPA could not be allowed and the ITAT erred in holding that under RBI s norms, the revenue recognition method adopted was in order. It was highlighted that there was cross shareholding of three entities which were given the credit facility which sets them apart from normal defaulting debtors. It was also submitted that the financial health of the three debtor companies was not essentially sound; furthermore, nearly 40% of the amounts advanced by the assessee were to the three companies. As such the revenue had a right to hold that the transactions were not at arms s length and therefore, the explanation that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Norms (Reserve Bank) Directions 1998. Section 45Q of the RBI Act, which starts with non-obstante Clause, reads as under:- Chapter IIIB to override other laws. 45Q. The provisions of this Chapter shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law . 16. It is not in dispute that on the application of the aforesaid provisions of the RBI and the directions, the ICD advanced to M/s Shaw Wallace by the assessee herein had become NPA. It is also not in dispute that the assessee company being NBFC is bound by the aforesaid provisions. Therefore, under the aforesaid provisions, it was mandatory on the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration receivable for the sale of goods, the rendering of services or from the use of others of enterprise resources is reasonably determinable. When such consideration is not determinable within reasonable limits, the recognition of revenue is postponed. 9.5 When recognition of revenue is postponed due to the effect of uncertainties, it is considered as revenue of the period in which it is properly recognized. 17. In this scenario, we have to examine the strength in the submission of learned counsel for the Revenue that whether it can still be held that income in the form of interest though not received had still accrued to the assessee under the provisions of Income Tax Act and was, therefore, exigible to tax. Our answer is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ready been referred to above. (2) In the instant case, the assessee company being NBFC is governed by the provisions of RBI Act. In such a case, interest income cannot be said to have accrued to the assessee having regard to the provisions of section 45Q of the RBI and Prudential Norms issued by the RBI in exercise ITA 139/2008, ITA 466/2008, ITA 537/2008, ITA 408/2003 of its statutory powers. As per these norms, the ICD had become NPA and on such NPA where the interest was not received and possibility of recovery was almost nil, it could not be treated to have been accrued in favour of the assessee. 6. The Division Bench also noted and applied the reasoning in Southern Technologies v Jt. Commissioner of Income Tax 320 ITR 577, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Sections 30 to 43D of the IT Act, unless such Losses/ Expenses are expressly or by necessary implication disallowed by the Act. Therefore, even applying the theory of Real Income, a debit which is expressly disallowed by Explanation to Section 36 (1) (vii), if claimed, has got to be added back to the total income of the assessee because the said Act seeks to tax the real income which is income computed according to ordinary commercial principles but subject to the provisions of the IT Act. Under Section 36 (1) (vii) read with the Explanation, a write off is a condition for allowance. If real profit is to be computed one needs to take into account the concept of write off in contradistinction to the provision for doubtful debt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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