TMI Blog2018 (11) TMI 1716X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance to the extent of expenditure debited is concerned, the same is also covered by the decision of the Iqbal M Chagala [ 2014 (7) TMI 1111 - ITAT MUMBAI] . Accordingly, we modify the order of the ld. CIT(A) in this regard and direct the A.O. to give effect to the case laws as mentioned above in the computation. Accrual of income - Addition being interest on non-performing asset received from - HELD THAT:- Assessee has claimed that it is an NBFC (Non Banking Finance Company). It has not accounted for interest on loan given to Portfolio Fashions Pvt Ltd as it has become a NPA (Non Performing asset) and the assessee following the RBI guidelines on prudential norms for income recognition on NPA has not accounted for the interest as the loan has become the NPA. A.O. has rejected the same by doubting the assessee s claim of being an NBFC and further holding that in view of the mercantile system of accounting and the loan appearing in the balance sheet of the assessee it was incumbent upon the assessee to account for the interest on accrual basis. We find that as against the above the ld. CIT(A) has given a finding that the assessee is duly registered with RBI as an NBFC. Fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordance with the direction of the ITAT special bench as above. Both the counsel fairly agreed to this proposition. Revenues appeal: 5. One common issue raised is whether the ld. CIT(A) was correct in granting relief the disallowance u/s.14A. 6. Since the facts are common we are referring to facts and figures from A.Y. 2009- 10. 7. Brief facts are that the assessee company is an investment company belonging to JSW Group. Search/ Survey Actions were conducted on 16.03.2011 in the case of various JSW Group Companies. Subsequently the assessee's case was subjected to search assessment u/s 153C rws 143(3) of the Act for period AY 2005-06 to 2011-12. For AY 2009-10, the assessee filed return of income u/s.139 of the Act on 24.09.2009 declaring total Income of ₹ 7,44,25,350/- under Normal Provisions and Book Profits u/s.115JB of the Income Tax Act, 1961 of ₹ 28,45/10,771/-. In the computation of income, assessee had made disallowance u/s.14A of ₹ 4,99,70,601/-. Subsequently, in response to notice u/s.153C assessee filed return of income on 23.01.2012 declaring income of ₹ 9,09,67,430/- under no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the ld. CIT(A) held as under : 7.3 The facts of case and submission of appellant's AR have been considered. It is 'noticed that AO has simply retained disallowance made u/s 14A in the original assessment order. In the original assessment order the AO had applied Rule 8D after rejecting appellants contention and made disallowance of ₹ 6,67,36,468/- out of interest expenses applying Rule 8D(ii) in addition to demat expenses of ₹ 42,250/-disallowed by appellant thereby making total disallowance u/s. 14A of ₹ 6,67,78,718/-. The disallowance under Rule 8D(ii) and 8D(iii) has been computed with reference to average exempt income generating assets worth ₹ 164,42,43,832/-. It is also noticed that the disallowance of interest included a sum of ₹ 26,02,513/- being interest attributable to interest free advances made by appellant. In the return filed in response to notice u/s 153C, admittedly, appellant has accepted Revenue's contention regarding applicability of Rule 8D and itself disallowed sum of ₹ 4,04,70,096/-. It is the contention of appellant that while considering interest expenses for disallowance under Rule 80(ii), t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,902/- as opening and closing value of such investments. The figures adopted by AO are apparently incorrect as the same are even more than total investments appearing in balance sheet. Prima facie the correct values of opening and closing investments in shares are 117,48,93,814/- and ₹ 117,48,13,953/- which should be adopted for computation of disallowance.: 7.4 Regarding the other contention regarding limiting disallowance under third limb of rule 8D, i.e. 0.5% of average investment generating exempt income to actual administrative expense debited to P L Account, it is noticed that in the original assessment order which has been followed by AO in subsequent order, no disallowance has been made under this head. Appellant has disallowed a sum of ₹ 9,17,015/- being the total of administrative expenses debited to profit and loss account. The issue is not disputed as the AO has neither rejected appellants stand nor made any disallowance. 7.5 AO is directed to recompute the disallowance u/s14A applying Rule 8D as above and grounds of appeal are disposed off accordingly as partly allowed., 9. Against the above order, the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. CIT(A) granted relief to the assessee by holding as under: 9.2 The facts of the case and submission made by AR have been examined. Assessee has furnished certificate No 1-00527 dated 27.12.2013 issued by RBI, Ahmedabad Regional Office which has been issued in lieu of original certificate No 05.06289 dated 1.04.2004 issued by RBI, Kolkata Regional Office granting registration to appellant to carry on the business of non-banking financial institution in support of its claim that it is indeed a Non-Banking Finance Company registered with Reserve Bank of India since 1.04.2004 and hence at the relevant time bound by directions of RBI. 9.3 It is the argument of appellant that as per prevailing RBI guidelines in respect of NBFCs, interest income in respect of NPAs was to be recognized only upon actual realisation. Appellant has further claimed that the loan in the name of Portfolio Fashions Pvt Ltd had become NPA during FY 2007-08 in so far as interest had become past due for more than six months and hence it had to stop recognition of any interest income in respect of said NPA as per RBI guidelines which were binding despite following accrual system ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of unpaid interest, when the instalment is overdue for more than six months or on which interest amount remained past due for six months; ( c) a bill which remains overdue for six months; ( d) the interest in respect of a debt or the income on receivables under the head 'other current assets* in the nature of short term loans/advances, which facility remained overdue for a period of six months; ( e) any dues on account of sale of assets or services rendered or reimbursement of expenses incurred, which remained overdue for a period of six months; 9.5 From the above, it is agreeable that per guidelines of RBI, the appellant which was a registered NBFC, no interest income was to be recognised in its accounts in respect of loan to Portfolio Fashions which had become NPA due to interest becoming past due six months during FY 2007-08. Appellant claims that the interest income has been recognised in FY 2008-09 pertaining to AY 2009-10 upon receipt of same as issue of preference shares on 30.03.2009 and offered to tax in AY 2009-10. However, the next issue is whether, RBI guidelines override pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sht Chay Vyapar Limited 330 ITR 440 and Hon'ble Madras High Court in the case of CIT vs Elgi Finance Limited 293 ITR 357. 9.6 In view of the above, the addition of ₹ 49,10,349/- made by AO as interest on NPA on accrual basis is deleted. As a corollary credit for TDS deducted in respect of said sum will only be allowed in the year in which the income has been included in the taxable income. This ground of appeal is therefore allowed. 15. We have heard both the counsel and perused the records. We find that the assessee has claimed that it is an NBFC (Non Banking Finance Company). It has not accounted for interest on loan given to Portfolio Fashions Pvt Ltd as it has become a NPA (Non Performing asset) and the assessee following the RBI guidelines on prudential norms for income recognition on NPA has not accounted for the interest as the loan has become the NPA. The A.O. has rejected the same by doubting the assessee s claim of being an NBFC and further holding that in view of the mercantile system of accounting and the loan appearing in the balance sheet of the assessee it was incumbent upon the assessee to account for the interest on accr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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