ITAT directs readjudication on interest in respect of loans which have become Non-Performing Assets [Read Order]

The Income Tax Appellate Tribunal ( ITAT ), Bangalore bench directed readjudication on interest in respect of loans which have become Non Performing Assets.

The assessee, Belur Urban Co-operative Bank Ltd.is a co-operative society registered under the Karnataka Co-operative Societies Act, 1959.After filing the return of income the assessee case was selected for scrutiny .

During the course of assessment proceedings, the AO reconciled the interest income and interest expenses on accrual basis and assessment was completed under section 143(3) of the Act on 12.12.2019 by determining the total income of Rs.31,17,724/-. The AO made an addition of Rs.36,60,891/- on account of difference in interest income on accrual basis.

The Assessing Officer invoked the provisions of section 14A stating that the assessee has not discharged the onus of evidencing the source of investment is from own funds. Accordingly the assessing officer made a disallowance of Rs.458.866 crores towards interest paid and Rs.17.37 crores towards administration expenses after adjusting the suo moto disallowance made by the assessee

Aggrieved, the assessee filed further appeal before the CIT( A ) who dismissed the appeal  Thereafter the assessee filed a second appeal before the tribunal.

During the proceedings Mahesh R. Uppin, Counsel for assesee argued that there was a mistake in submission before the lower authorities. It was stated that the state government has not stood as a guarantor for the reimbursement of interest which is not recovered in respect of loans which has become Non-Performing Assets ( NPAs ). Further submitted that  some of the interests were recovered and duly offered to tax in the year of receipts.

Ganesh R Ghale, Counsel for Revenue, supported the orders of the AO and CIT( A ).

The tribunal observed that if the interest income has accrued, the same is to be brought to tax in the year of accrual though it is received in the subsequent year.Further principal amount itself has not been recovered much less the interest on the same. Consequently, the interest on these NPAs is never accounted for since there is no right to receive the same in the relevant year.

After reviewing the facts and records, the single member bench of George George K, ( Vice President ) directed readjudication on interest in respect of loans which have become Non Performing Assets along with  provide the necessary proof to show that interest which is not accounted for in the books of accounts is on the NPAs which is not recoverable.

Hence  the matter was restored to the file of the Assessing officer.

To Read the full text of the Order CLICK HERE

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