Dismissing the appeal of the revenue the Court held that ; Under section 45Q of the RBI Act read with the NBFCs Prudential Norms (Reserve Bank) Directions 1998, it was mandatory on the part of the assessee not to recognize the interest on the ICD as it had become a NPA. The assessee was bound to compute income having regard to the recognized accounting principles set out in Accounting Standard AS-9. AS-9 provides that if there are uncertainties as to recognition of revenue, the revenue should not be recognized. Accordingly, the argument of the revenue that the interest on the NPA can be said to have accrued despite it being a NPA is not acceptable.
CIT v. Vasisth Chay Vyapar ( 2018) 253 Taxman 401 / 301 CTR 263/ 163 DTR 169/ (2019) 410 ITR 244 ( SC) Editorial : Order in CIT v. Vasisth Chay Vyapar (2011) 238 CTR 142 / 330 ITR 440 / 196 Taxman 169 / 49 DTR 300 (Delhi)(HC)
S. 5 : Scope of total income – Income – Accrual – Interest – Interest on Inter-Corporate Deposits ( ICDs) which had become non performing asset ( NPA) in terms of prudential norms by RBI , having not accrued not assessable on “accrual” basis, in the hands of non -banking financial company [ S. 145 ]