By TIOL News Service

AHEMDABAD, MAY 10, 2018: THE ISSUE BEFORE THE TRIBUNAL IS - Whether NPAs themselves being non recoverable, interest receivable on them should not be taxed on accrual basis. YES IS THE ANSWER.

Facts of the case:

The Revenue Department preferred present appeal challenging the action of CIT(A) in deleting the addition made by AO towards interest earned on non-performing assets on accrual basis, in view of the guidelines of RBI.

Tribunal held that,

++ it is seen that an identical issue came up for adjudication before Gujarat High Court in the case of Principal CIT vs. Shri Mahila Sewa Sahakari Bank Ltd wherein it was held that interest on non-performing assets is not taxable on accrual basis accounted for in the books having regard to the guidelines of the RBI. Further, the recent decision of Supreme Court in the case of CIT vs. Vasisth Chay Vyapar Ltd has fortified this view by holding that, where no interest was received by the bank on money advanced and possibility of recovery was almost NIL, and where amounts advanced were classified as NPAs as per prudential norms issued by RBI, the interest could not be treated to have accrued in favour of assessee and was therefore not exigible to tax.

(See 2018-TIOL-682-ITAT-AHM)