Accrued Interest on NPAs Taxable Where Assessee Extends Fresh Credit, Overriding RBI Prudential Norms
1. The Core Dispute: RBI Norms vs. Commercial Reality
The assessee, a Non-Banking Financial Company (NBFC), claimed that interest on certain loans was not taxable because the underlying advances had been classified as Non-Performing Assets (NPAs) under the RBI Prudential Norms. The assessee argued that since recovery was doubtful, the income had not “accrued” under the Real Income Theory.
The AO’s Action: The Assessing Officer (AO) rejected this claim, particularly for corporate borrowers.
The Critical Fact: The Revenue discovered that during the same financial year in which the assessee claimed the old loans were non-recoverable (NPAs), it had voluntarily extended significant additional credit to those same corporate borrowers.
2. Legal Analysis: Substance Over Form
The court examined whether the regulatory requirement of the RBI could be used as a “shield” to avoid tax on income that, in reality, was being treated as realizable by the lender.
I. Method of Accounting vs. Regulatory Norms (Section 145)
While Section 145 governs the method of accounting (mercantile vs. cash), the court held that RBI Prudential Norms are primarily for regulatory purposes (to ensure financial stability and protect depositors). They are not determinative of taxability under the Income-tax Act.
II. The “Conduct of Assessee” Test
The court ruled that the assessee’s own conduct was the best evidence of its confidence in the borrowers:
Prudent Businessman Standard: No prudent businessman would advance fresh loans to a party if they genuinely believed earlier advances to that same party were irrecoverable.
Commercial Reality: By extending fresh credit, the assessee demonstrated that it viewed the relationship as commercially sound. This undermined the assertion that the accrued interest was “hypothetical” or “unrealizable.”
III. Real Income Theory (Section 5)
The “Real Income Theory” excludes from tax only that income which has no realistic chance of being received.
The Holding: The theory does not apply when the lender continues to transact with the borrower as if they are solvent. In such cases, the interest represents real income that has accrued in the mercantile system.
3. Final Ruling: Additions Confirmed
The Tribunal and the Court distinguished between different categories of loans based on the assessee’s actual behavior.
Verdict: Write-offs were allowed for individual borrowers where no fresh credit was given. However, additions were sustained for corporate borrowers where the assessee continued extending fresh credit.
Conclusion: The interest on these specific NPAs was taxable as real income, as the assessee’s assertion of distress was contradicted by its own commercial actions.
Key Takeaways for NBFCs and Banks
Avoid Contradictory Actions: Classifying a loan as an NPA for tax benefits while simultaneously sanctioning fresh limits to the same borrower is a major “red flag” for tax audits.
RBI Guidelines are Not Absolute: Following RBI guidelines for your Balance Sheet does not automatically guarantee the same treatment for your Income Tax Return (ITR).
Document Uncertainty: If you claim interest is non-taxable due to NPA status, ensure you have evidence of recovery proceedings or legal distress, rather than continuing a healthy commercial relationship.
HIGH COURT OF TELANGANA
Pact Securities & Financial Services Ltd
v.
Deputy Commissioner of Income-tax*
P.Sam Koshy and SUDDALA CHALAPATHI RAO, JJ.
WRIT PETITION No. 22827 of 2009
JANUARY 30, 2026
Karthik Ramana Puttamreddy, Learned counsel for the Petitioner. K.Sudhakar Reddy, Learned Standing Counsel for the Respondent.
ORDER
P.Sam Koshy, J.- Heard Mr. Karthik Ramana Puttamreddy, learned counsel for the petitioner; and Mr. K.Sudhakar Reddy, learned Standing Counsel for Income Tax Department appearing on behalf of the respondents.
2. The instant writ petition under Article 226 of the Constitution of India has been filed by the petitioner seeking the following relief, viz.,
” to issue a Writ of Certiorari or any other appropriate writ or order or direction quashing the order of the Income Tax Appellate Tribunal in ITA No.612/H/07, dated 16.11.2007 as confirmed in M.A.No.60/H/08, dated 6.6.2008 as illegal, arbitrary and contrary to the NonBanking Finance Companies Prudential Norms (RBI) Directions, 1998 and declare that the loans advanced to Prathima Estates Limited, Elgen (India) Limited and Netxcell Limited have became non performing assets in accordance with the said circular and consequently the interest income accrued thereon cannot be added as income taxable for the year 2003-04 in the Petitioner’s assessment under Income Tax Act, 1961 and pass such order or orders as the Hon’ble Court may deem fit and proper in the circumstances of the case.”
3. The facts of the case are that the petitioner is a Non-Banking Financial Services (NBFC) registered with the Reserve Bank of India (for short ‘RBI’). In accordance with the RBI directions issued in the year 1998 which was subsequently amended on 31.03.2003, the petitioner classified certain loans as Non-Performing Assets (NPAs) whenever the interest on such loans remained overdue for a period of 6 months or more. Following these mandatory RBI guidelines and also in compliance with Accounting Standard-9 issued by the Institute of Chartered Accountants of India (ICAI), the petitioner for the assessment year 2003-04 claimed that interest income amounting to Rs.15,54,453/- accrued from M/s. Prathima Estates Limited should not be treated as taxable income since the underlying loan had qualified as an NPA due to interest remaining outstanding for more than six months.
4. Additionally, the petitioner sought to write-off interest amounts that had been accrued in earlier assessment years and had been duly offered to tax at that time specifically Rs.61,890/-from M/s. Elgen (India) Limited, Rs.96,969/- from M/s. Netxcell Limited, Rs.1,47,778/- from Mr. T.Harish Rao, and Rs.2,26,209/-from Mr. G.Yeshwant Rao, on the grounds that these amounts had remained outstanding and unpaid for a period exceeding six months, thereby rendering them uncollectible and justifying their treatment as written-off amounts in accordance with the established norms for recognition of income from NPAs.
5. The respondent No.1 / Deputy Commissioner of Income Tax rejected the petitioner’s claim, stating that the assets had not become NPAs and that the RBI notification came into force only from 31.3.2003. On appeal, the Commissioner of Income Tax (Appeals) partly allowed by write-off of interest from T. Harish Rao and G. Yeshwant Rao, but confirmed the additions related to M/s. Prathima Estate Limited, M/s. Elgen India Limited and M/s. Netxcell Limited on the ground that fresh loans were given to these entities thereby disqualifying them from being treated as NPAs. The Income Tax Appellate Tribunal, Hyderabad, Bench ‘B’ (for short ‘ITAT’) dismissed both the miscellaneous applications filed by the petitioner seeking reconsideration vide order dated 06.06.2008.
6. Subsequently, the petitioner was unable to file an appeal under Section 260A of the Income Tax Act, 1961 (for short ‘the Act’) within the prescribed period due to office relocating and mixing up of papers. Therefore, the petitioner had approached this Court by way of the instant writ petition seeking quashing of the ITAT’s orders and declare that the loans in question are NPA’s and the interest income thereon is not taxable.
7. Learned counsel for the petitioner contended that although the statutory remedy of appeal under Section 260A of the Act was available and required to be filed within 120 days from the date of receipt of the ITAT’s order. However, the petitioner was prevented from filing such appeal within the prescribed period due to relocation of office and in that process important papers including the ITAT’s order got mixed up with other documents and could not be traced despite diligent efforts. The misplaced documents were only located while preparing returns for the assessment year 200910. Further, the learned counsel for the petitioner relied upon a judgment of the Hon’ble Supreme Court in Commissioner of Customs & Central Excise v. Hongo India (P.) Ltd. [2009] 315 ITR 449 (SC) which held that tribunal has no power to condone delay beyond the statutory period of 120 days under Section 260A of the Act. Therefore, petitioner has no other remedy, but to approach this Hon’ble Court under Article 226 is the only remedy to seek redressal of his grievance.
8. Learned counsel for the petitioner further contended that the ITAT erred in distinguishing the loans advanced to M/s. Prathima Estate Limited, M/s. Elgen India Limited and M/s. Netxcell Limited from those advanced to Mr. T.Harish Rao and Mr. G.Yeshwant Rao. He submitted that all these loans qualify as Non-Performing Assets (NPAs) under RBI’s prudential norms issued in the year 1998, as amended in the year 2003, which mandates that any assets where interest or loan installments remained overdue for six months or more must be classified as an NPA. However, the ITAT, while accepting this principle for the loans to Mr. T.Harish Rao and Mr. G.Yeshwant Rao incorrectly rejected the same classification for the other loans merely on the ground that fresh advances were made to these borrowers. Therefore, the learned counsel for the petitioner contended that this distinction has no basis in the RBI circular or Accounting Standard-9 issued by the ICAI both of which do not recognize subsequent advances as a disqualifying factor for NPA classification.
9. Learned counsel for the petitioner further contended that the RBI’s directions are mandatory and must be followed by all NonBanking Finance Companies (NBFCs) registered with the RBI failing which their license to carry on business could be cancelled. The classification of assets as NPAs is governed exclusively by RBI norms and these norms are independent of the method of accounting adopted by the assessee. He submitted that the Income Tax Act does not define “non-performing asset” and therefore, the RBI’s definition and criteria must be applied. The tests for determining whether interest income from NPAs should be taxed are distinct from the tests applied for claiming bad debts under the Income Tax Act. He submitted that the ITAT conflated these two concepts and erroneously applied the bad debt test while considering the taxability of interest income from NPAs.
10. Learned counsel for the petitioner argued that it is a well settled principle of law that income tax can only be levied on real income and not on notional income. Interest income that accrues on NPAs is merely a book entry and does not represent real income unless and until it is actually realized. The RBI Circular and Accounting Standard-9 explicitly provide that when interest on NPAs is actually received it must be recognized as income by reversing the relevant accounting entries. Therefore, until such realization taxing accrued interest on NPAs would amount to taxing notional income which is impermissible under the Income Tax Act.
11. Lastly, the learned counsel for the petitioner contended that the ITAT ought to have followed its own earlier decision in the petitioner’s case for assessment year 2001-2002 (I.T.A.No.1217 of 2003, dated 27.9.2006), where it had accepted the petitioner’s classification of similar loans as NPAs and held that accrued interest thereon was not taxable. That the learned counsel for the petitioner submitted that the petitioner had been consistently following since the assessment year 1996-97 as noted in the ITAT’s own order. He submitted that by departing from this consistent view without any justifiable reason and by introducing an extraneous test of subsequent advances not recognized by RBI or ICAI, the ITAT committed a error of law. Thus, the learned counsel for the petitioner prays that this Hon’ble Court may quash the impugned orders of the ITAT and declare that the loans to M/s. Prathima Estates Limited, M/s. Elgen (India) Limited and M/s. Netxcell Limited are NPAs and that the interest income accrued thereon cannot be taxed for the assessment year 2003-04.
12. Per contra, the learned Senior Standing Counsel for the Income Tax Department contended that the classification of certain advances as non-performing assets was not justified. In the case of M/s. Prathima Estates Ltd., it was argued that the assessee maintained two accounts (LA-301A and LA-301) for the same party where one account was classified as a performing asset, while the other was claimed to be non-performing asset. He submitted that such inconsistent treatment of accounts for the same party was not permissible. Furthermore, despite claiming that account LA-301 was a non-performing asset with no interest received, the assessee had advanced a fresh loan of Rs.12,50,000/- and showed payment of interest within five days, which demonstrated that the claim of non-performance was a make believe story.
13. Similarly, in the case of M/s. Elgen (India) Ltd. and M/s. Netxcell Ltd., the learned Senior Standing Counsel pointed out that the petitioner had made multiple fresh advances during the financial year on 12.12.2002, 15.01.2003, 28.03.2003 and 31.03.2003 for M/s. Elgen India Ltd., and on five occasions for M/s. Netxcell Ltd. Further, he argued that no prudent businessman would advance further loans to a debtor if there were genuine concerns about recovering the principal or interest from earlier advances. The fact that the assessee continued to extend credit to these parties clearly indicated that the debtors were financially sound and capable of servicing their obligations thereby negating the classification of these advances as non-performing assets.
14. Lastly, the learned Senior Standing Counsel contended that according to the RBI’s Prudential Norms and Accounting Standard-9, advances can only be classified as non-performing assets if the assessee could not recover principal or interest continuously for six months or more. However, in the present case the pattern of fresh advances made by the assessee throughout the same financial year demonstrated that there was no genuine difficulty in recovery. Therefore, he contended that the prudential norms and accounting standards cited by the assessee were not applicable and the interest on these advances should be recognized as income for the purpose of the Income Tax Act.
15. Having heard the contentions put forth on either and on perusal of records, the questions of law that arise for consideration in the present case are:-
| 1) | Whether the instant Writ Petition under Article 226 of the Constitution is maintainable when an alternative statutory remedy of appeal under Section 260A of the Act was available to the petitioner, and whether the petitioner has adequately explained the delay in approaching this Court? |
| 2) | Whether the ITAT erred in law in holding that loans advanced to M/s. Prathima Estates Limited, M/s. Elgen (India) Limited, and M/s. Netxcell Limited could not be classified as NonPerforming Assets on the ground that fresh advances were made to these borrowers during the relevant financial year? |
| 3) | Whether the conduct of the petitioner in making fresh advances to the same borrowers during the financial year 2002-03 is relevant and material for determining whether the earlier loans had truly become Non-Performing Assets under the RBI’s Prudential Norms and Accounting Standard-9? |
| 4) | Whether the principle that income tax can only be levied on real income and not on notional income extends to a situation where the assessee voluntarily continues a commercial relationship with the borrower by extending fresh credit? |
16. With regard to the first question of law, the Bench is of considered opinion that the petitioner has admitted that an alternative remedy of appeal under Section 260A of the Act was available, which provided for an appeal to the High Court against the order of the Income Tax Appellate Tribunal on any substantial question of law within a period of 120 days from the date of receipt of the order. However, the petitioner failed to avail this statutory remedy within the prescribed time limit and has now sought to invoke writ jurisdiction as a substitute for the appellate remedy that has been allowed to lapse. The explanation offered by the petitioner that important legal documents were misplaced during office relocation and could not be traced for nearly a year until the preparation of returns for assessment year 2009-2010, is wholly unsatisfactory and reflects serious administrative lapses and also lack of due diligence on the part of a petitioner engaged in financial services. To permit such an approach would undermine the carefully structured appellate framework under the Income Tax Act and encourage litigants to ignore statutory timelines. In the absence of exceptional circumstances such as lack of jurisdiction, violation of principles of natural justice or manifest arbitrariness, this Court is not inclined to entertain the present Writ Petition merely because the petitioner has allowed the statutory limitation period to expire due to its own negligence.
17. The Supreme Court in Asstt. Commissioner (CT) LTU v. Glaxo Smith Kline Consumer Health Care Ltd GSTL 305 (SC)/(2020) 19 SCC 681, in paragraph Nos.14, 16, 18 and 19, has held as under:
“14. In the backdrop of these facts, the central question is: Whether the High Court ought to have entertained the writ petition filed by the respondent? As regards the power of the High Court to issue directions, orders or writs in exercise of its jurisdiction under Article 226 of the Constitution of India, the same is no more res integra. Even though the High Court can entertain a writ petition against any order or direction passed/action taken by the State under Article 226 of the Constitution, it ought not to do so as a matter of course when the aggrieved person could have availed of an effective alternative remedy in the manner prescribed by law (see Baburam Prakash Chandra Maheshwari v. Antarim Zila Parishad [Baburam Prakash Chandra Maheshwari v. Antarim Zila Parishad, AIR 1969 SC 556] and also Nivedita Sharma v. COAI [Nivedita Sharma v. COAI, (2011) 14 SCC 337 : (2012) 4 SCC (Civ) 947] ). In Thansingh Nathmal v. Supt. of Taxes [Thansingh Nathmal v. Supt. of Taxes, AIR 1964 SC 1419], the Constitution Bench of this Court made it amply clear that although the power of the High Court under Article 226 of the Constitution is very wide, the Court must exercise selfimposed restraint and not entertain the writ petition, if an alternative effective remedy is available to the aggrieved person. In para 7, the Court observed thus: (Thansingh Nathmal case [Thansingh Nathmal v. Supt. of Taxes, AIR 1964 SC 1419], AIR p. 1423)
“7. Against the order of the Commissioner an order for reference could have been claimed if the appellants satisfied the Commissioner or the High Court that a question of law arose out of the order. But the procedure provided by the Act to invoke the jurisdiction of the High Court was bypassed, the appellants moved the High Court challenging the competence of the Provincial Legislature to extend the concept of sale, and invoked the extraordinary jurisdiction of the High Court under Article 226 and sought to reopen the decision of the taxing authorities on question of fact. The jurisdiction of the High Court under Article 226 of the Constitution is couched in wide terms and the exercise thereof is not subject to any restrictions except the territorial restrictions which are expressly provided in the Articles. But the exercise of the jurisdiction is discretionary: it is not exercised merely because it is lawful to do so. The very amplitude of the jurisdiction demands that it will ordinarily be exercised subject to certain selfimposed limitations. Resort to that jurisdiction is not intended as an alternative remedy for relief which may be obtained in a suit or other mode prescribed by statute. Ordinarily the Court will not entertain a petition for a writ under Article 226, where the petitioner has an alternative remedy, which without being unduly onerous, provides an equally efficacious remedy. Again the High Court does not generally enter upon a determination of questions which demand an elaborate examination of evidence to establish the right to enforce which the writ is claimed. The High Court does not therefore act as a court of appeal against the decision of a court or tribunal, to correct errors of fact, and does not by assuming jurisdiction under Article 226 trench upon an alternative remedy provided by statute for obtaining relief. Where it is open to the aggrieved petitioner to move another tribunal, or even itself in another jurisdiction for obtaining redress in the manner provided by a statute, the High Court normally will not permit by entertaining a petition under Article 226 of the Constitution the machinery created under the statute to be bypassed, and will leave the party applying to it to seek resort to the machinery so set up.””
(emphasis supplied)
16. Indubitably, the powers of the High Court under Article 226 of the Constitution are wide, but certainly not wider than the plenary powers bestowed on this Court under Article 142 of the Constitution. Article 142 is a conglomeration and repository of the entire judicial powers under the Constitution, to do complete justice to the parties. Even while exercising that power, this Court is required to bear in mind the legislative intent and not to render the statutory provision otiose. In a recent decision of a three-Judge Bench of this Court in ONGC v. Gujarat Energy Transmission Corpn. Ltd. [ONGC v. Gujarat Energy Transmission Corpn. Ltd., (2017) 5 SCC 42 : (2017) 3 SCC (Civ) 47], the statutory appeal filed before this Court was barred by 71 days and the maximum time-limit for condoning the delay in terms of Section 125 of the Electricity Act, 2003 was only 60 days. In other words, the appeal was presented beyond the condonable period of 60 days. As a result, this Court could not have condoned the delay of 71 days. Notably, while admitting the appeal, the Court had condoned the delay in filing the appeal. However, at the final hearing of the appeal, an objection regarding appeal being barred by limitation was allowed to be raised being a jurisdictional issue and while dealing with the said objection, the Court referred to the decisions in Singh Enterprises v. CCE [Singh Enterprises v. CCE, (2008) 3 SCC 70], CCE v. Hongo (India) (P) Ltd. [CCE v. Hongo (India) (P) Ltd. , (2009) 5 SCC 791], Chhattisgarh SEB v. CERC [Chhattisgarh SEB v. CERC, (2010) 5 SCC 23] and Suryachakra Power Corpn. Ltd. v. Electricity Deptt. [Suryachakra Power Corpn. Ltd. v. Electricity Deptt. , (2016) 16 SCC 152 : (2017) 5 SCC (Civ) 761] and concluded that Section 5 of the Limitation Act, 1963 cannot be invoked by the Court for maintaining an appeal beyond maximum prescribed period in Section 125 of the Electricity Act.
18. A priori, we have no hesitation in taking the view that what this Court cannot do in exercise of its plenary powers under Article 142 of the Constitution, it is unfathomable as to how the High Court can take a different approach in the matter in reference to Article 226 of the Constitution. The principle underlying the rejection of such argument by this Court would apply on all fours to the exercise of power by the High Court under Article 226 of the Constitution.
19. We may now revert to the Full Bench decision of the Andhra Pradesh High Court in Electronics Corpn. of India Ltd. [Electronics Corpn. of India Ltd. v. Union of India, 2018 SCC OnLine Hyd 21 : (2018) 361 ELT 22], which had adopted the view taken by the Full Bench of the Gujarat High Court in Panoli Intermediate (India) (P) Ltd. v. Union of India [Panoli Intermediate (India) (P) Ltd. v. Union of India, 2015 SCC OnLine Guj 570 : AIR 2015 Guj 97] and also of the Karnataka High Court in Phoenix Plasts Co. v. CCE [Phoenix Plasts Co. v. CCE, 2013 SCC OnLine Kar 10432 : (2013) 298 ELT 481]. The logic applied in these decisions proceeds on fallacious premise. For, these decisions are premised on the logic that provision such as Section 31 of the 2005 Act, cannot curtail the jurisdiction of the High Court under Articles 226 and 227 of the Constitution. This approach is faulty. It is not a matter of taking away the jurisdiction of the High Court. In a given case, the assessee may approach the High Court before the statutory period of appeal expires to challenge the assessment order by way of writ petition on the ground that the same is without jurisdiction or passed in excess of jurisdiction — by overstepping or crossing the limits of jurisdiction including in flagrant disregard of law and rules of procedure or in violation of principles of natural justice, where no procedure is specified. The High Court may accede to such a challenge and can also non-suit the petitioner on the ground that alternative efficacious remedy is available and that be invoked by the writ petitioner. However, if the writ petitioner chooses to approach the High Court after expiry of the maximum limitation period of 60 days prescribed under Section 31 of the 2005 Act, the High Court cannot disregard the statutory period for redressal of the grievance and entertain the writ petition of such a party as a matter of course. Doing so would be in the teeth of the principle underlying the dictum of a three-Judge Bench of this Court in ONGC [ONGC v. Gujarat Energy Transmission Corpn. Ltd., (2017) 5 SCC 42 : (2017) 3 SCC (Civ) 47] In other words, the fact that the High Court has wide powers, does not mean that it would issue a writ which may be inconsistent with the legislative intent regarding the dispensation explicitly prescribed under Section 31 of the 2005 Act. That would render the legislative scheme and intention behind the stated provision otiose.
18. Therefore, for the aforesaid reasons and also taking into consideration the judgment of the Hon’ble Supreme Court in Glaxo Smith Kline Consumer Health Care Ltd (supra), the first question of law stands decided in favour of the Revenue and against the petitioner.
19. With regard to the second and third question of laws are concerned, we are of the considered opinion that ITAT has not committed any error of law in distinguishing between different categories of loans based on the actual conduct of the petitioner. The petitioner’s primary contention is that all loans where interest remained overdue for six months or more must be classified as Non-Performing Assets under the RBI’s Prudential Norms and that the RBI guidelines do not recognize subsequent advances as a disqualifying factor. However, this Court is of the view that while the RBI guidelines prescribe objective criteria for NPA classification, the determination of taxable income under the Income Tax Act must necessarily take into account the commercial reality and the actual conduct of the parties. The ITAT has rightly observed that no prudent businessman would advance fresh loans to a borrower if there were genuine concerns about the recovery of principal or interest from earlier advances. The material on record clearly establishes that the petitioner made substantial fresh advances during the financial year 2002-2003: Rs.12,50,000 to M/s. Prathima Estates Limited (with interest payment shown within five days), Rs.10,48,000 in four separate tranches to M/s.Elgen (India) Limited and Rs.19,40,000 in five separate tranches to M/s. Netxcell Limited. This pattern of continuing commercial engagement is wholly inconsistent with the claim that the borrowers were unable to service their debt obligations and that the earlier loans had truly become doubtful of recovery. The petitioner’s conduct in extending significant additional credit to these very same borrowers during the same financial year in which it claimed that earlier loans had become non-performing clearly demonstrates that the petitioner itself had confidence in the creditworthiness and financial soundness of these borrowers. The ITAT’s approach of examining the totality of facts and the substance of the transaction, rather than merely applying the RBI guidelines in a mechanical manner is legally sound and ensures that the determination of taxable income is based on economic reality rather than accounting formalism. Accordingly, the second and third questions of law also stands decided in favour of the Revenue and against the petitioner.
20. Finally, with regard to the fourth question of law, we are again of the considered opinion that the petitioner has strongly relied upon the principle that income tax can only be levied on real income and not on notional income and has contended that interest income accruing on Non-Performing Assets is merely a book entry that does not represent real income unless actually realized. While this Bench acknowledges that the principle of taxing real income is indeed a fundamental tenet of income tax law, the application of this principle must be contextual and fact-specific.
21. In the present case, the conduct of the petitioner in making fresh advances to the very same borrowers whom it claims were unable to service their existing debt completely undermines the assertion that the interest income was merely notional and wholly unrealizable. If the petitioner genuinely believed that these borrowers were in financial distress and unable to pay interest on existing loans, thereby rendering the accrued interest notional and uncollectible then the petitioner would not have exposed itself to further credit risk by extending substantial additional loans to the same borrowers. The fact that the petitioner chose to make fresh advances and in the case of M/s.Prathima Estates Limited, even received interest payment within five days clearly establishes that the petitioner expected to recover not only the fresh advances but also the earlier dues including the accrued interest. This demonstrates that the interest income represented real accrued income and not merely a notional amount. Furthermore, while the RBI’s Prudential Norms permit non-recognition of interest income on non-performing assets for regulatory purposes these norms are primarily prescribed to ensure that financial institutions maintain adequate capital buffers and do not present an inflated picture of profitability. However, prudential norms prescribed by the RBI for regulatory purposes are not automatically determinative of taxable income under the Income Tax Act, as the two regulatory regimes serve different purposes. The factual distinction between the loans to Mr. T.Harish Rao and Mr. G.Yeshwant Rao, where no fresh advances were made and the ITAT accepted the NPA classification, and the loans to M/s.Prathima Estates Limited, M/s.Elgen (India) Limited, and M/s.Netxcell Limited, where substantial fresh advances were made, fully justifies the different treatment accorded by the ITAT. Therefore, the last question of law also stands decided in favour of the Revenue and against the petitioner.
22. Therefore, for all the aforesaid reasons, this Bench finds that the present Writ Petition is liable to be dismissed both on the ground of maintainability as well as on merits.
23. The writ petition is accordingly dismissed. The orders passed by the Income Tax Appellate Tribunal dated 16.11.2007, and 06.06.2008, are hereby upheld and confirmed.
24. As a sequel, miscellaneous petitions pending if any, shall stand closed. However, there shall be no order as to costs.