Notional interest on NPA recorded in books and routed through Balance-sheet as per the guidelines of RBI cannot be taxed in the hands of the bank:

AO made an addition in respect of Interest on NPA (Non-performing asset) account. The Hon’ble ITAT observed that the assessee, a Co-operative bank, passed a book entry in respect of interest on NPA by debiting “Interest receivable on NPA a/c” and crediting “Muddat Viti Vyaj Anamat a/c”. Both these accounts were reflected in the Balance-sheet on the asset side and liability side respectively. Such a provision was made as per guidelines issued by RBI. The profit and loss account was not credited at all since it was a notional entry and no such interest was actually received. Even Section 43 was not applicable since the P&L account was not credited and such interest was directly shown in Balance-sheet. Hence, it was held that such interest can’t be taxed in the hands of the assessee.