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TMI Blog2023 (7) TMI 292X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 263 of the Act is without jurisdiction and bad-in¬law. 1.2. The learned PCIT erred in initiating the proceedings under section 263 of the Act without appreciating that the learned AO during the course of original assessment proceedings had made necessary enquiry and verification, before allowing the claim in relation to both the issues under consideration viz. interest on non-performing asset ('NPA') and claim of deduction under section 36(1 )(viii) of the Act. 1.3. The learned PCIT ought to have appreciated that the proceedings under section 263 of the Act cannot be initiated on interpretational issues based on mere difference in opinion from the position adopted by the learned AO. 2. Ground 2: Challenging taxability of Interest on NPA: 2.1. The learned PCIT erred in holding that interest on NPA is taxable on accrual basis disregarding the well-settled principle of real income theory as has consistently been upheld in the Appellant's own case by the Appellate Authorities in the earlier years. 2.2. The learned PCIT erred in not appreciating that the contentions raised to hold that interest on NPA is taxable viz non-applicability of section 43D and accrual/mercant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not arise. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing of the appeal, so as to enable the Hon'ble Tribunal to decide this appeal according to law." 3. Learned senior counsel places on record the Assessing Officer's sec. 143(3) r.w.s. 263 consequential assessment dated 31.03.2023 not disallowing / adding its corresponding claim of sec. 36(1)(viii) deduction. He therefore sought not to press the above latter issue subject to all just exceptions. Ordered accordingly. 4. Both the learned representatives next invited our attention to the PCIT's revision directions qua the instant former issue of accrual of income on assessee's nonperforming assets "NPAs" as under : 5. We find from a perusal of the case file that the instant sole issue of taxability of assessee's interest income regarding it's NPAs advances on accrual basis is no more res integra since the matter appears to have travelled up to hon'ble jurisdictional high court. Learned senior counsel invited our attention to pages 171 to 226 in assessee's paper book inter alia comprising of hon'ble jurisdictional high court's d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction of interest on advances which had become non performing assets ("NPA" for short). The Assessing Officer disallowed the claim relying on such disallowance for the earlier assessment years which were on the ground that the assessee which was following the mercantile system of banking had to pay tax on interest on accrual basis. 3.2 The issue eventually reached the Tribunal. The Tribunal, by the impugned judgment, allowed the assessee's claim, upon which, the Revenue has filed this appeal. 4. Learned counsel for the Revenue submitted that the assessee had to offer the interest income to tax on accrual basis. The special provision for taxing interest income on NPAs on the basis of receipt has been made under Section 43D of the Income Tax Act, 1961 ("the Act" for short) which does not apply to NBFC. By necessary implication, therefore, the legislature desired that such benefit would be restricted only to such of the entities as are referred to in Section 43D of the Act. 5. On the other hand, learned counsel for the assessee brought to our notice several judgments of the different High Courts holding that on the principle of real income theory, interest on NPAs cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ict with the Income Tax Act, 1961, the Hon'ble Supreme Court has held in the case of UCO Bank that the interest income would have been brought to the Profit and Loss Account provided it was actually realized, that in case of Nationalized Bank it treated something which is doubtful, and therefore, kept it in a suspense account, was held to be a permissible exercise. In respect of the loans which are advanced, recovery of some of them if considered doubtful, then, even the interest on the loans advanced may not be realized. That is how the amount is not brought to the profit and loss account because they are not likely to be realized by the bank or a NBFC as well. It is permissible therefore to disclose or to show them as income in assessment year in which either the interest amount or part of it is recovered. The Tribunal in this case, namely, of the assessee before us, has precisely followed this course. We do not find that the course permitted and upheld by the Tribunal is in any way in conflict with any legal provisions or the settled principles. Rather as held by us, it is in accordance with the same. Once the view taken by the Tribunal was possible and in the given facts an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances of the case. 7. Mr. Koteswara Rao further quoted the applicability of "ICDS" i.e., Income Computation and Disclosure Standards from the impugned assessment year onwards that the Assessing Officer had admittedly not examined the taxability of assessee's interest income on NPAs advances on accrual basis not only in light thereof as well as going by CBDT's circular no.10/2017 dated 23.03.2017. 8. We have given our thoughtful consideration to the vehement rival stands and find no merit in the Revenue's arguments. We first of all note from a perusal of the case file with the able assistance coming from the assessee's side represented by the learned senior counsel that the Assessing Officer had indeed issued his sec.143(2) notice dated 27.09.2019 as well as sec.142(1) notice dated 11.11.2019 specifically raising the issue of Income Computation and Disclosure Standards "ICDS" compliance. The assessee had duly replied the same highlighting the fact before the Assessing Officer that the interest income regarding the impugned NPA advances amounting to Rs.41,86,00,000/- could neither be assessed on accrual principle nor as per the recently introduced "ICDS". All these show ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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