CIT v. Sakthi Finance Ltd. - Taxpublishers.in

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The Tax Publishers2013 TaxPub(DT) 0947 (Mad-HC) : (2013) 053 (I) ITCL 0275 : (2013) 352 ITR 0102 : (2013) 258 CTR 0433 : (2013) 214 TAXMAN 0021 : (2013) 086 DTR 0059 Income Tax Act, 1961 --IncomeChargeability Accrue interest assets--Assessee was a non-banking financial company (NBFC). During assessment proceeding assessing officer made addition of accrued interest on Non Performing Assets (NPA). Commissioner (Appeals) deleted addition on ground that accrued interest as NPA was not chargeable to tax. Tribunal also held that no addition could be made in respect of unrealised accrued interest on NPA as loan was classified as accrual. Held : NoE acceptable. There was nothing on record to indicate that interest was unrealised, matter is therefore, remanded back to decide afresh. Mere characterisation of an account as a NPA would not by itself be sufficient to say that there is uncertainty as regards realizability of income or interest income thereon. Accrual of interest is a matter of fact to be decided separately for each case on the basis of examination of the facts and circumstances. The same would require an assessment of the relevant facts and circumstances of each case. Only by assessment of facts and circumstances, the Authority could arrive at a decision whether there is uncertainity of the interest accrued on NPA. Only when there is uncertainity of realizability of income or interest income then it is not chargeable to tax. The system of accounting followed only recognises it bringing the income to books. The adopted accounting policy i.e., recognising income on NPA accounts only subject to realisation does not serve as a standard category. [Para 18] In the present case, assessing officer has not recorded findings whether there is any uncertainty in collection of income. There is nothing to indicate that the 'interest income' is non-recoverable. Individual ledger accounts of the borrower are to be examined. The Commissioner (Appeals) and the Tribunal had not considered the matter in the light of the decision of the Hon'ble Supreme Court in the case of Southern Technologies Ltd. Matter has to be considered in the light of the observations in case of Southern Technologies Ltd. [Para 19] For the fore-going reasons, the Orders of the Tribunal are set aside and the matters are remitted back to the assessing officer for consideration of the matter afresh in the light of law laid down by the Supreme Court in Southern Technologies Ltd.'s case and above observation and pass orders. [Para 20] Income Tax Act, 1961 Section 4 IN THE MADRAS High Court s. R. Banumathi & K. Ravichandra Baabu, J.J. CIT v. Sakthi Finance Ltd. T.C. (A) Nos. 282 & 283 of 2007 A.Ys. 1999-2000 and 2000-01 12 February, 2013 Appellant by : N.V. Balaji SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 0947 (Mad-HC) : (2013) 053 (I) ITCL 0275 : (2013) 352 ITR 0102 : (2013) 258 CTR 0433 : (2013) 214 TAXMAN 0021 : (2013) 086 DTR 0059

Income Tax Act, 1961

--IncomeChargeability Accrue interest assets--Assessee was a non-banking financial company (NBFC). During assessment proceeding assessing officer made addition of accrued interest on Non Performing Assets (NPA). Commissioner (Appeals) deleted addition on ground that accrued interest as NPA was not chargeable to tax. Tribunal also held that no addition could be made in respect of unrealised accrued interest on NPA as loan was classified as accrual. Held : NoE acceptable. There was nothing on record to indicate that interest was unrealised, matter is therefore, remanded back to decide afresh.

Mere characterisation of an account as a NPA would not by itself be sufficient to say that there is uncertainty as regards realizability of income or interest income thereon. Accrual of interest is a matter of fact to be decided separately for each case on the basis of examination of the facts and circumstances. The same would require an assessment of the relevant facts and circumstances of each case. Only by assessment of facts and circumstances, the Authority could arrive at a decision whether there is uncertainity of the interest accrued on NPA. Only when there is uncertainity of realizability of income or interest income then it is not chargeable to tax. The system of accounting followed only recognises it bringing the income to books. The adopted accounting policy i.e., recognising income on NPA accounts only subject to realisation does not serve as a standard category. [Para 18] In the present case, assessing officer has not recorded findings whether there is any uncertainty in collection of income. There is nothing to indicate that the 'interest income' is non-recoverable. Individual ledger accounts of the borrower are to be examined. The Commissioner (Appeals) and the Tribunal had not considered the matter in the light of the decision of the Hon'ble Supreme Court in the case of Southern Technologies Ltd. Matter has to be considered in the light of the observations in case of Southern Technologies Ltd. [Para 19] For the fore-going reasons, the Orders of the Tribunal are set aside and the matters are remitted back to the assessing officer for consideration of the matter afresh in the light of law laid down by the Supreme Court in Southern Technologies Ltd.'s case and above observation and pass orders. [Para 20]

Income Tax Act, 1961 Section 4

IN THE MADRAS High Court

s. R. Banumathi & K. Ravichandra Baabu, J.J.

CIT v. Sakthi Finance Ltd.

T.C. (A) Nos. 282 & 283 of 2007

A.Ys. 1999-2000 and 2000-01

12 February, 2013

Appellant by : N.V. Balaji