Bajaj Finance Limited Vs PCIT-3 (ITAT Pune)
ITAT Pune held that it is settled legal position that interest on (Non-Performing Assets) NPAs cannot be taxed on accrual basis.
Facts- Assessee mainly contested that the learned PCIT erred in holding that interest on NPA is taxable on accrual basis disregarding the well-settled principle of real income theory as has consistently been upheld in the Appellant’s own case by the Appellate Authorities in the earlier years.
Conclusion- Delhi High Court in case of CIT Vs. Vasisth Chay Vyapar Ltd. held that interest on NPAs cannot be taxed on accrual basis.
Learned DR could hardly pinpoint any distinction on facts or law, as the case may be, in the assessment year under consideration. Faced with this situation, we adopt judicial consistency to affirm the CIT(A)’s detailed discussion relating to the impugned sole disallowance of accrued interest income on NPAs. Ordered accordingly.
FULL TEXT OF THE ORDER OF ITAT PUNE
This assessee’s appeal for assessment year 2017- 2018, arises against the PCIT, Pune-3, Pune’s Din and Order No. ITBA/REV/F/REV5/2021-22/1042100179(1), dated 30.03.2022, involving proceedings u/s. 143(3) of the Income Tax Act, 1961 (in short “the Act”).
Heard both the parties. Case file perused.
2. The assessee pleads the following substantive ground in the instant appeal :
”1. Ground I: Challenging the validity of revision proceedings under section 263 of the Act
1.1 The learned PCIT failed to appreciate that the assessment order passed by the Assistant Commissioner of Income Tax, Circle 8, Pune (hereinafter referred to as learned AO) under section 143(3) of the Act was neither erroneous nor prejudicial to the interest of the revenue and thus, the order under section 263 of the Act is without jurisdiction and bad-in-law.
1.2 The learned PCIT erred in initiating the proceedings under section 263 of the Act without appreciating that the learned AO during the course of original assessment proceedings had made necessary enquiry and verification, before allowing the claim in relation to both the issues under consideration viz. interest on non-performing asset (‘NPA’) and claim of deduction under section 36(1 )(viii) of the Act.
1.3 The learned PCIT ought to have appreciated that the proceedings under section 263 of the Act cannot be initiated on interpretational issues based on mere difference in opinion from the position adopted by the learned AO.
2. Ground 2: Challenging taxability of Interest on NPA:
2.1. The learned PCIT erred in holding that interest on NPA is taxable on accrual basis disregarding the well-settled principle of real income theory as has consistently been upheld in the Appellant’s own case by the Appellate Authorities in the earlier years.
2.2 The learned PCIT erred in not appreciating that the contentions raised to hold that interest on NPA is taxable viz non-applicability of section 43D and accrual/mercantile method of accounting has been dealt in detail in the preceding years by the Appellate Authorities in the Appellant’s own case and the issue has been put to rest since the Department has elected not to file further appeal against the favourable orders of the Appellate Authorities.
2.3 The learned PCIT erred in holding that the decision of the Hon’ble Bombay High Court in the Appellant’s own case (ITA No. 237 and 485 of 2017) and the decision of the Hon’ble Supreme Court in the case of Vashisth Chay Vyapar Ltd (410 ITR 244) is not applicable post introduction of ICDS-IV.
2.4 The learned PCIT ought to have appreciated that the principle laid down by the Hon’ble Courts in the aforesaid decisions is based on the interpretation of the provisions of the Act and it is explicitly stated in the preamble to ICDS-IV that in case of any conflict, the provisions of the Act shall prevail.
2.5 The learned PCIT erred in ignoring the Department’s position before the Hon’ble Delhi High Court in the case of Chamber of Tax Consultants v. Union of India [W.P.(C) 5595/2017 & CM APL 23467/2017], in relation to the Interest on NPA vis-a-vis ICDS IV, wherein the Department has accepted that interest on NPA cannot be taxed basis the well-established principles of real income theory, even after introduction of ICDS IV.
2.6 Without prejudice to the above, if the interest on NPA is held to be taxable, the learned PCIT erred in not directing the learned AO to correspondingly allow deduction for the interest so taxed as bad debts under the proviso to section 36(1)(vii) in accordance with the amendments brought in light of ICDS-IV in the said provision.
3. Ground 3: Challenging re-verification of claim of deduction under section 36(1)(viii)
3.1 The learned PCIT erred in directing the learned AO to re-verify the claim of deduction under section 36(1)(viii) in relation to long-term infrastructure finance without appreciating that the learned AO specifically inquired into such claim and sought the basis as well as computation for arriving at the amount of deduction under the said provision.
3.2 The learned PCIT ought to have appreciated that the learned AO enhanced the amount of deduction under section 36(1)(viii) in the original assessment order in light of the income assessed at a higher amount and hence, the question of the learned AO having not applied his mind does not arise.
The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing of the appeal, so as to enable the Hon’ble Tribunal to decide this appeal according to law.”
3. Learned senior counsel places on record the Assessing Officer’s sec. 143(3) r.w.s.263 consequential assessment dated 31.03.2023 not disallowing / adding its corresponding claim of sec.36(1)(viii) deduction. He therefore sought not to press the above latter issue subject to all just exceptions. Ordered accordingly.
4. Both the learned representatives next invited our attention to the PCIT’s revision directions qua the instant former issue of accrual of income on assessee’s non-performing assets “NPAs” as under :
