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Income Tax Appellate Tribunal, KOLKATA ‘C’ BENCH, KOLKATA
Before: Sri J. Sudhakar Reddy & Sri S.S. Godara]
order : April 26th, 2019 O R D E R Per J. Sudhakar Reddy, AM :- This appeal filed by the revenue is directed against the order of the Learned Commissioner of Income Tax (Appeals) - 7, Kolkata, (ld. CIT(A)) passed u/s. 250 of the Income Tax Act, 1961, (the ‘Act’), dt. 30/01/2018, for the Assessment Year 2014-15.
After hearing rival contentions, we find that the assessee is a non-banking financial corporation (NBFC) and it has no recognised interest income from non- performing asset (NPA). The Assessing Officer calculated notional interest @ 12% on the said amount of Rs. 60,76,61,152/- and added as income interest of Rs.7,29,19,338/- on the ground that the same has accrued to the assessee. He referred to Section 43D of the Act and held that as a NBFC does not fall within the purview of Section 43D of the Act. He held that the interest income on sticky loans have to be recognised on accrual basis. On appeal, the ld. First Appellate Authority applied the real income theory and deleted the addition.
Aggrieved, the revenue is in appeal before us.
Assessment Year: 2014-15 M/s. Gajraj Commercial Pvt. Ltd 4. The undisputed fact is that the advance to the five concerns in question totalling to Rs.60,76,61,152/- are sticky loans, and are NPAs. The issue is whether the interest on NPA can be brought to tax. The Hon’ble Delhi High Court in the case of Commissioner of Income-tax v. Vasisth Chay Vyapar Ltd. [2011] 196 Taxman 169 (Delhi) held that interest on NPAs cannot be brought to tax by applying real income theory. It is well settled that notional income cannot be brought to tax. Hence we find not infirmity in the order of the ld. First Appellate Authority and uphold the same. Section 43D of the Act, referred to by the Assessing Officer has no relevance to the case on hand. This section gives certain concessions to certain category of assessees. It does not lay down anything contrary to the real income theory. Recently the Hon’ble Bombay High Court in the case of Pr.CIT vs. Bajaj Finance Ltd. in of 2017; judgment dt. 2nd April, 2017, held that: “Even though the special provision in s. 43D for taxing interest income on NPAs on receipt basis does not apply to NBFCs, it does not mean that NBFCs have to offer interest on bad or doubtful debts to tax on accrual basis. Such interest is not taxable on the real income theory”
Respectfully following the decision of the Hon’ble Bombay High Court, dismiss this appeal of the revenue.
In the result, appeal of the revenue is dismissed. Kolkata, the 26th day of April, 2019. Sd/- Sd/- [S.S. Godara] [J. Sudhakar Reddy] Judicial Member Accountant Member Dated :26.04.2019 {SC SPS} Assessment Year: 2014-15 M/s. Gajraj Commercial Pvt. Ltd Copy of the order forwarded to: 1. M/s. Gajraj Commercial Pvt. Ltd 37A, Bentinck Street Room No. 314 Kolkata – 700 001 2. Deputy Commissioner of Income Tax, Circle-6(1), Kolkata 3. CIT(A)- 4. CIT- , 5. CIT(DR), Kolkata Benches, Kolkata.