Rajdeep Capital & Housing Finance Ltd, ... vs Assessee

BEFORE S/SHRI B.R.BASKARAN (AM) AND SANJAY GARG, (JM) सव ी बी.आर.बा करन, लेखा सद य एवं ी संजय गग , या यक सद य के सम

आयकर अपील सं./I.T.A. No.1178/Mum/2011 ( नधा रण वष / Assessment Year : 2007-08)

M/s Rajdeep Capital and बनाम/ Income Tax Officer, Housing Finance Ltd., Vs. Ward 9(3)(4), 33 New Shopping Centre, Mumbai. New Govt. Colony, Bandra (E), Mumbai-400054 (अपीलाथ /Appellant) .. ( यथ / Respondent)

थायी ले ख ा सं . /जीआइआर सं . /PAN/GIR No. :AAACR4836Q

अपीलाथ ओर से / Appellant by Shri Bhupendra Shah यथ क# ओर से/ Respondent by Shri Love Kumar

सन ु वाई क# तार'ख / Date of Hearing : 3.3.2015 घोषणा क# तार'ख /Date of Pronouncement : 11.3.2015

आदे श / O R D E R

Per B.R.BASKARAN, Accountant Member:

The assessee has filed this appeal challenging the order dated 18- 10-2010 passed by Ld CIT(A)-20, Mumbai and it relates to the assessment year 2007-08. The assessee is aggrieved by the decision of Ld CIT(A) in confirming the addition of the difference between the interest accrued and the interest actually offered for taxation.

2. We heard the parties and perused the record. We notice that the assessee is engaged in the business of financing. It classified certain loan assets as "Non Performing Assets" (NPA). Accordingly, the assessee did 2 ITA. No.1178/Mum/2011

not offer the interest accrued on the NPA as income, though the assessee had quantified and reported the same. Since the assessee is following mercantile system of accounting, the AO took the view that the interest accrued on the NPA is also assessable as income and accordingly assessed the difference amount of interest of Rs.15,26,961/-. In the appellate proceedings, the Ld CIT(A) noticed that the assessee was not registered as "Non Banking Financial Company"" (NBFC) by the Reserve Bank of India (RBI) or as Housing Finance Co by the National Housing Bank. Further, the Ld CIT(A) noticed that the Hon'ble Supreme Court, in the case of Southern Technologies Ltd Vs. JCIT (320 ITR 577) has held that the directions issued by RBI or the accounting system followed by the assessee would not determine the taxable income. The Ld CIT(A) also took the support of the decisions rendered in the case of CIT Vs. Shiv Prakash Janakraj and Co. P Ltd (222 ITR 583)(SC) and CIT Vs. Sarabai Holdings P Ltd (307 ITR 89)(SC) to observe that the income accrued to the assessee cannot be wiped out by unilateral action. Accordingly, the Ld CIT(A) upheld the addition made by the AO.

3. The Ld. A.R submitted that the assessee's business is financing and some of the loans given by it has become sticky. Hence, as per the prudential norms, it did not account for the interest income, since the recovery of principal itself was in doubt. Though the assessee was not registered with National Housing Bank, yet it has followed the prudential norms guidelines issued by it. The Ld A.R also placed reliance on the decision of co-ordinate bench of Tribunal rendered in the case of Smt. Madhu Gupta Vs. DCIT (2006)(8 SOT 691)(Mum) and submitted that the Tribunal has held that the interest on sticky loans could not be assessed on accrual basis.

4. On the contrary, the Ld D.R placed strong reliance on the decision of Ld CIT(A).

3 ITA. No.1178/Mum/2011 5. On a careful consideration of rival submissions, we notice that the assessee has classified its Loan assets portfolio as "Performing" and "Non Performing" assets and it has chosen not to offer the interest accrued on non-performing assets. The admitted fact that the assessee is not registered either with RBI or with National Housing Bank as a finance company. We understand that the classification of assets as either Performing or Non-Performing on the basis of default committed by the borrower in payment of two quarterly installments. Thus, it is seen that the Prudential norms prescribe only a rough criteria with regard to the classification of assets and the same cannot automatically be adopted to classify a loan asset as "Sticky Loan asset". Before us, the assessee has not furnished any detail as to how it has classified the loan assets as NPA. the period of default etc. In our view, the mere classification as NPA would not be of any help under the Income tax Act, unless the assessee was able to satisfy the AO that the loan asset as become a Sticky loan. In the instant case, the assessee has failed to prove the same. Hence, we do not find any infirmity in the order of Ld CIT(A).

6. In the result, the appeal filed by the assessee is dismissed.

Pronounced accordingly in the open court on 11th March, 2015 in the

presence of both the parties.

घोषणा खुले यायालय म+ ,दनांकः11th March, 2015 को क# गई ।

sd sd (संजय गग /SANJAY GARG) ( बी.आर.बा करन / B.R. BASKARAN) या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER

th मंब ु ई Mumbai: 11 March,2015.

व. न.स./ SRL , Sr. PS 4 ITA. No.1178/Mum/2011

आदे श क !"त$ल%प अ&े%षत/Copy of the Order forwarded to :

1. अपीलाथ / The Appellant

2. यथ / The Respondent.

3. आयकर आय4 ु त(अपील) / The CIT(A)- concerned

4. आयकर आयु4त / CIT concerned

5. 5वभागीय त न7ध, आयकर अपील'य अ7धकरण, मुंबई / DR, ITAT, Mumbai concerned

6. गाड फाईल / Guard file.

आदे शानुसार/ BY ORDER, true copy सहायक पंजीकार (Asstt. Registrar) आयकर अपील'य अ7धकरण, मुंबई /ITAT, Mumbai