“Did the Income Tax Appellate Tribunal (ITAT) fall into
error in holding that the sum of ` 2,53,15,466/- brought to
tax on account of notional interest was not justified.”
2. The assessee herein had advanced certain amounts to various
concerns, i.e. M/s Jindal Equipment Leasing & Consultancy Services Ltd.
and Mansarovar Investment Ltd. during the previous year relevant to
assessment year 1997-98. Interest was accrued on the said loans upto
ITA 107/2012 Page 1 of 9
assessment year 1998-99. Further, the Petitioner had advanced interest
bearing loans to M/s Goswami Credits & Investment Ltd. during the
previous year relevant to assessment year 1999-2000. Interest was
accrued on the said loan till assessment year 2001-02. The assessee had
not received interest for more than six months from its said debtors. As a
Non-Banking Financial Company (NBFC) the assessee is bound by
directions of the Reserve Bank of India. Such directions, require NBFCs
to declare such advances as Non Performing Assets (NPA), when accrued
interest on them is not paid by the debtor for six months, continuously.
The assessee therefore treated the advances to its debtors as ICD, as NPA,
and did not show interest income, which it said, was unrealizable. The
Assessing Officer (AO), however, added interest as the assessee’s income
holding that it had “accrued” to it even if it was actually unpaid as the
assessee followed the mercantile system of accounting. The CIT (A)
affirmed the AO’s order. The ITAT deleted such interest income.
Source: Indian Kanoon