01 December 2012
ABC ltd is NBFC. The company hasn't credited interest of rs 30 lakhs due on certain loans a/c which had become npa in its p/l a/c. As per NBFC (RBI) norms which is binding on the company, intrest or discount or any othr chrges on NPA shall be recognised as income only when they realised. Can AO make addition of such interest on the ground tht assessee , bng a company follows mercantile sys of accounting. or in any other way does AO can make addition ??
03 December 2012
The answer to this question is given in DIT v. Brahamputra Capital Financial Services Ltd. (2011) 335 ITR 182 (Delhi).
The NBFC is bound by the NBFC Prudential Norms which states that interest on NPA shall be recognized only when it is actually realised.
The Delhi High Court held that it was prudent decision on part of the assessee that the interest on the non-performing asset, whose recovery was doubtful, was not accounted for in the books of account. Also the assessee was bound by The RBI guidelines, which required the said treatment of the interest income.
The High Court held that there was no real accrual of interest income in the hands of the assessee and it would not be chargeable to tax.
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