Interest on bad & doubtful debts kept in reserve account eligible for deduction u/s. 43D

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IN THE ITAT MUMBAI BENCH ‘L’

American Express Bank Ltd.

v.

Additional Commissioner of Income-tax

IT APPEAL NO. 5374 (MUM.) OF 2001

INT. T.A. NO. 97 (MUM.) OF 2001

[ASSESSMENT YEAR 1998-99]

AUGUST 10, 2012

 

Mere crediting of the interest to a reserve cannot be said to be an incidence by which the said interest could be charged to tax. Whatever has been recovered by the assessee has been shown as income. Therefore, the assessee is entitled to claim of such interest under the provisions of section 43D and the claim of the assessee cannot be rejected simply on the ground that interest had been credited on such type of debts in the reserve account. However, for the verification of the figures, the Assessing Officer is directed to see that what has actually received by the assessee during the year has been offered to tax. Thus, the matter is restored to the file of the Assessing Officer for such verification. This ground of the assessee is allowed for statistical purposes in the manner aforesaid.

The inclusion of aforesaid amount of interest in the taxable interest was challenged by the assessee on the basis of proviso to section 5 of the Interest-tax Act read with section 43D according to which interest on such non-performing assets was to be charged to interest tax only in the year in which the said interest is credited to the profit and loss account or in the year of receipt, which is earlier. It is already noted that section 43D is applicable to the case of the assessee and interest can only be charged to the extent it is actually received during the year.

It has already been mentioned that interest on non-performing assets as described in section 43D can be assessed only in a condition that either they are credited to profit and loss account or it is actually received. In the present case of the assessee since interest is not credited on such assets to the profit and loss account, therefore, whatever interest is actually received on such assets is taxable. The same principle will be applicable to interest tax also.