THE PR COMMISSIONER OF INCOME TAX vs. SHREE SHANTAPPANNA MIRAJI URBAN

IN THE HIGH COURT OF KARNATAKA DHARWAD BENCH

DATED THIS THE 30TH DAY OF JANUARY, 2018

PRESENT

THE HON’BLE MRS. JUSTICE S. SUJATHA

AND

THE HON’BLE MR. JUSTICE JOHN MICHAEL CUNHA

I.T.A.NO.100041/2017

BETWEEN:

(BY SRI Y V RAVIRAJ, ADVOCATE)

AND

SHREE SHANTAPPANNA MIRAJI URBAN CO-OP BANK LTD., GURUWAR PETH, CHIKKODI, DIST: BELAGAVI. ... RESPONDENT

THIS APPEAL IS FILED UNDER SECTION 260A OF THE INCOME TAX ACT, 1961, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTION OF LAW STATED ABOVE, ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, PANAJI BENCH, PANAJI IN ITA NO.132/PNJ/2017 DATED 16.06.2017 AND CONFIRM THE ORDER PASSED BY THE ASST.COMMISSIONER OF INCOME TAX, CIRCLE-1, BELAGAVI.

THIS APPEAL COMING ON FOR ORDERS THIS DAY, S.SUJATHA J., DELIVERED THE FOLLOWING:

: 2 : JUDGMENT This appeal is filed by the Revenue under Section 260-A of the Income Tax Act, 1961 (‘the Act’ for short), challenging the order dated 16.06.2017 passed by the Income Tax Appellate Tribunal, Panaji Bench, Panaji (‘the Tribunal’, for short) in ITA No.132/PNJ/2017 relating to the assessment year 2011-12 raising the following substantial question of law: “Whether on the facts and in the circumstances of the case and in law the Tribunal is right in deleting the additions made by the assessing authority on account of accrued interest on loans which are classified as “Non-performing Assets”, ignoring the provisions of Section 43D of the Income Tax Act, 1961 amended w.e.f. 01.04.2000 which provides for certain benefit to the certain class of assessees but does not provide such benefit to the respondent bank and more particularly when the respondent is following mercantile system of accounting?”

: 3 : 2. The issue involved in this appeal is no more res-integra in view of the judgment of this Court in Commissioner of Income Tax and another V/s Canfin Homes Ltd. (2012) 347 ITR 382 (Karn), wherein it is held as follows: “Therefore, it is clear, if an assessee adopts the mercantile system of accounting and in his accounts he shows a particular income as accruing, whether that amount is really accrued or not is liable to bring the said income to tax. His accounts should reflect true and correct statement of affairs. Merely because the said amount accrued was not realized immediately cannot be a ground to avoid payment of tax. But, if in his account it is clearly stated though a particular income is due to him but it is not possible to recover the same, then it cannot be said to have been accrued and the said amount cannot be brought to tax. In the instant case, were are concerned with a non-performing asset shows an asset becomes non-performing when it ceases to yield income. Non-performing asset is an asset in respect of which interest has remained unpaid and has become past due. Once a particular asset is shown to be a non-performing asset, then the assumption is it is not yielding any revenue. When it is not yielding any revenue, the question

: 4 : of showing that revenue and paying tax would not arise. As is clear from the policy guidelines issued by the National Housing Bank, the income from non-performing asset should be recognised only when it is actually received. That is what the Tribunal held in the instant case. Therefore, the contention of the Revenue that in respect of non- performing assets even though it does not yield any income as the assessee has adopted a mercantile system of accounting, he has to pay tax on the revenue which has accrued notionally is without any basis. In that view of the matter, the second substantial question framed is answered against, the Revenue and in favour of the assessee.”

: 5 : asset and accordingly the substantial question of law is answered against the Revenue.

Sd/- JUDGE

Sd/- JUDGE

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