COMMISSIONER OF INCOME TAX Vs. ELGI FINANCE LTD

JUDGEMENT

(1.) THIS appeal is filed under Section 260A of the Income Tax Act, 1961 by the Revenue, against the order of the Income Tax Appellate Tribunal, Madras Bench -B, Madras in I.T.A. No. 361(Mds)/2002 dated 12.12.2002. On 01.12.2003, this Court admitted the appeal and formulated the following substantial question of law: Whether in the facts and circumstances of the case, the Tribunal was right in deleting the interest accrued on 'non -performing assets'

(2.) THE facts leading to the above substantial question of law are as under: The assessee is a company engaged in the business of leasing, finance and hire purchase. The relevant assessment year is 1998 -99 and the corresponding accounting year ended on 31.03.1998. The assessee company filed its Return of loss for the said assessment year on 30.11.1998 admitting a loss of Rs. 10,25,985/ -. The Return of loss was processed under Section 143(1)(a) of the Income -tax Act ('Act' in short) on 30.03.1999 determining a total income of Rs. 6,28,470/ -. The assessment was revised on 10.10.2000 determining a loss of Rs. 10,25,985/ -. Later, the assessment was taken up for scrutiny and the Assessing Officer issued notice under Section 143(2) of the Act. The Assessing Officer noticed that in the profit and loss account for the previous year and in the memo of the total income prepared for income -tax purpose for the year ending thereof, the assessee had not admitted the interest accrued on a transaction in respect of hire purchase, leasing, bill discounting, short term loan etc. So, the Assessing Officer proposed to bring the accrued interest on those items to tax as income of the assessee relating to the assessment year. The assessee offered detailed explanation stating that treating of interest accrued on those items as income are not justified because according to the classification suggested by the Reserve Bank, those assets are to be treated as Non -Performing Assets. The assessee company being a Non -Banking Finance Company, is bound to follow the mandatory guidelines issued by the Reserve Bank of India regarding the classification of assets, recognition of income and norms for making provisions. The assessee submitted that as per the guidelines issued by the Reserve Bank of India, the income pertaining to Non -Performing Assets should not be considered as income. But the Assessing Officer did not accept the submission. The Assessing Officer found that the assessee company is following mercantile system of accounting and therefore both the income as well as the expenditure should be accounted on accrual basis. Further, the Assessing Officer was of the opinion that the guidelines issued by the Reserve Bank of India was for the purpose of financial discipline and investor production and not for any change to be brought in the method of accounting. Finally, the Assessing Officer rejected the contention and completed the assessment under Section 143(3) of the Act and determined the total income at Rs. 2,78,83,950/ -. Aggrieved by the order, the assessee filed an appeal to the Commissioner of Income -tax (Appeals). The C.I.T.(A) dismissed the appeal filed by the assessee and confirmed the order of the Assessing Officer. Aggrieved, the assessee filed an appeal to the Income -tax Appellate Tribunal ('Tribunal' in short). The Tribunal was of the view that the lower authorities have erred in treating the interest on Non -Performing Assets as income of the assessee company for the assessment year 1998 -99 and hence directed the Assessing Officer to delete the said interest from the computation of the taxable income and allowed the appeal filed by the assessee. Hence the present tax case.

(3.) LEARNED Senior Counsel appearing for the assessee submitted that the issue now stands covered against the Revenue by this Court's unreported judgment in the case of Commissioner of Income -tax v. India Equipment Leasing Ltd., Madras in T.C.(A) Nos. 744 and 349 of 2004 dated 24.09.2004. Hence the order of the Tribunal is in accordance with law.