The Pune Bench of Income Tax Appellate Tribunal (ITAT) has granted relief to Bajaj Finance holding that the interest income on non-performing assets (NPA) could not be taxed on accrual basis.
The issue in the appeal filed by assessee, Bajaj Finance Limited was that the Principal Commissioner of Income Tax (PCIT) had erred in holding that interest on NPA was taxable on accrual basis disregarding the well-settled principle of real income theory as has consistently been upheld in appellant’s own case by the Appellate Authorities in the earlier years.
Percy Pardiwalla on behalf of the assessee submitted that the Assessing Officer had failed to carry-out detailed enquiries for the purpose of assessing the assessee’s interest income on NPAs on accrual basis in light of the recently introduced Income Computation and Disclosure Standards applicable from the impugned assessment year onwards.
He contended that the interest income regarding the impugned NPA advances could neither be assessed on accrual principle nor as per the recently introduced Income Computation and Disclosure Standards (ICDS).
B. KoteswaraRao, on behalf of the revenue quoted the applicability of ICDS 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 circular No.10/2017 dated 23.03.2017.
The two member Bench of Satbeer Singh Godara,(Judicial Member) and GD Padmahshali, (Accountant Member) allowed the appeal filed by the assessee observing that, “This is indeed coupled with the clinching fact that a perusal of Income Computation and Disclosure Standards “ICDS No.IV” dealing with “Revenue Recognition” itself makes it clear that ,in case of conflict between the provisions of Income tax Act, 1961 and this Income Computation and Disclosure Standards “ICDS”; the provisions of the Act shall prevail to that extent.”
The Bench further held that the CBDT’s circular issued in tune with the foregoing Income Computation and Disclosure Standards (ICDS) also would not apply once the assessee was not required to recognize its accrued interest on NPAs as income on accrual basis.
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