Relief to SBI: ITAT holds Unrealized Interest on Borrower Accounts Classified as Non-Performing Accounts to be Non-Taxable [Read Order]

The Income Tax Appellate Tribunal ( ITAT ), Mumbai Bench, has recently , in  the appeals filed before it,  while granting relied to  SBI, held that unrealized interest on borrower accounts classified as non- performing accounts are non- taxable.

The aforesaid observation was made by the Mumbai ITAT, when cross appeals was filed before it by the assessee, M/S State Bank Of India (SBI) ,as well as the Revenue, as directed against the order dated 30/01/2018, passed by the CIT(Appeals), Mumbai [CIT(A)], for A.Y.2015-16.

The brief facts of the case were that the assessee, M/s State Bank of Bikaner and Jaipur, now merged with the State Bank of India, was a public sector banking company, engaged in banking, treasury operations and other retail services. The assessee had filed its return of income for the year under consideration, on 27/11/2015, declaring the total income at Rs.886,28,73,010/, and  the return of income filed by the assessee was selected for scrutiny , with statutory notices under the Income Tax Act, 1961 being issued and complied with.

Thereafter, considering the submission and verification of the details, the  A.O. assessed the total income at Rs.3747,05,83,560/, and made certain addition/disallowances , leaving  the assessee aggrieved. And on further appeal, the CIT(A) allowed partly in favour of the assessee, making both the assessee as well as the Revenue aggrieved to prefer the instant appeals before the Mumbai ITAT by way of raising grounds their respective grounds of appeal.

The primary ground of the assessee’ appeal being with regard  to the addition of Rs. 3,86,10,180/- in respect of unrealized interest on borrower accounts classified as non-performing accounts under RBI directions, it was submitted by  Shri Jeet kamadar &  Shri Ninad Patade , the counsels for the assessee that the same being  one of the recurring issues in the case of the assessee itself, wherein it had been earlier decided in favour of the assessee by the Tribunal for A.Y.2008-09 vide the order dated 03/02/2020 in ITA No. 3644 and 4563/Mum/2016. On the other hand, Shri Kailash Kanojia,the Departmental Representative on behalf of the Revenue relied on the order of the lower authorities.

Hearing the opposing contentions of either sides and perusing the materials available on record, the ITAT Bench consisting of Kavitha Rajagopal, the Judicial Member, and Om Prakash Kant, the Accountant Member, commented as follows :

“We have heard the rival submission of the parties on the issue in dispute and perused the relevant material on record. The Ld. A.O. held that since the assessee is maintaining its books of accounts on accrual basis, the income in respect of bad and doubtful debt was required to be taxed on accrual basis except for the exceptions provided under rule 6EA of Income-Tax rules, 1962 read with Section 43D of the Act.”

“ The Ld. A.O. rejected the claim of the assessee that exceptions should be provided as per RBI guidelines and accordingly he added the amount of Rs.3,86,10,180/-being the interest on NPA/NPI not recognized by the assessee as income in view of RBI guidelines ignoring the provision of section 43D read with rule 6 EA of rules. The Ld. CIT(A) following the decision of his predecessor in the case of the assessee for A.Y.2014-15 , has confirmed the addition”, they added.

Further commenting, the ITAT said that “We find that identical issue has been adjudicated by the Tribunal in the case of the assessee for A.Y. 2008-09”, observing that  the disputed addition of interest income was deleted in that case by the ITAT Tribunal itself, thereby allowing the assessee's appeal.

Thus, allowing the assessee’s appeal in the instant case too, the Mumbai ITAT finally held as under :

“Since the issue-in-dispute before us ,of taxability of interest on Non-peforming assets/Account, is exactly identical to what has been decided by the Tribunal , respectfully following the finding of the Tribunal, being a binding precedent, the finding of the Ld. CIT(A) on the issue-in-dispute is set aside and the Ld. A.O. is directed to delete the addition-in-dispute.”

To Read the full text of the Order CLICK HERE

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