Hyderabad bench of Income Tax Appellate Tribunal, while confirming the orders of the lower authorities, observed that since the assessee is unscheduled bank Section 43D of the Income Tax Act would not be applicable and it had to recognize its income on the NPAs on question on accrual basis.
Assessee in the present case was an unscheduled bank engaged in the business of banking activity has duly filed its returns of income during the assessment year.
On assessment the assessee was asked to furnish the details of interest accrued on nonperforming assets. Assessee replied that as per the mandatory guidelines of the Reserve Bank of India (RBI) he has not recognized interest on non-performing assets on accrual basis. The Assessing Officer (AO) has dismissed the contention of the assessee. He was of the opinion that since the assessee is following mercantile system of accounting, it should have recognized interest on NPA on accrual basis as per the provisions of the Income Tax Act and accordingly he made the addition of 15.50 lakhs.
After hearing the rival submissions the division bench consists of Judicial Member S.S.Godara and Accountant Member Pradip Kumar Kedia observed that, the same issue has been concluded by the co-ordinate bench in favour of the Revenue. In the light of the material facts it was held that the assessee was an unscheduled bank and they following the RBI regulations and guidelines. It is specified in one of the guidelines of RBI about the income recognition of unscheduled banks.
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