No Addition since Interest has Accrued to the Assessee but has not been Realized: ITAT [Read Order]

ITAT-kolkata-taxscan

The Income Tax Appellate Tribunal in its recent order ruled that no additions can be made since interest has accrued to the assessee but has not been realized.

The bench comprising of Judicial Member S.S.Viswanethra Ravi and Accountant Member Waseem Ahmed was hearing an appeal filed by the assessee.

In instant case assessee is a NBFC carrying on the business of financing and trading in shares and securities and was registered with RBI. During its business assessee was advanced a loan of 95 lakh to M/s ISG Traders Ltd. out of it Rs.19 lakhs has claimed interest expense payable to assessee after deducting TDS in M/s ISG Traders Ltd. but assessee did not recognized its income in its books of account.

When it was the turn of assessee, he submitted that the interest income has accrued to it but it has never been received from the M/s ISG Traders Ltd. Therefore, the income was not recognized in its books of account. The AO was not satisfied with the contention of assessee made the addition of Rs. 19 lacks as undisclosed interest income of assessee and added to the total income of assessee.

Aggrieved assessee preferred appeal before the CIT (A) and they confirmed the action of AO was correct.

Again assessee carried the matter before the tribunal. While hearing both the parties’ contention and perused the documents the tribunal bench stated that assessee did not include the interest in its income on the ground that the amount of loan given to M/s ISG Traders Ltd., was Non-performing asset (NPA) and also added that as per the Non-Banking Financial Companies Prudential Norms (Reserve Bank of India) no income of interest on NPA can be identified in the books of account.

The bench also opinioned that various courts have held that interest income on NPA cannot be recognized. Finally the tribunal held that the income of interest indeed has accrued to the assessee but has not been realized. While applying the rule of real theory income the tribunal held that the addition for the amount of interest income cannot be sustained in the hands of assessee.

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