TMI Blog2012 (10) TMI 1222X X X X Extracts X X X X X X X X Extracts X X X X ..... eous in law and against the facts and circumstances of the case. 2. That the learned Commissioner of Income-tax (Appeals) erred in law and on facts in confirming the addition of ₹ 48,81,411/- ignoring the submission of the appellant that amount has not been properly arrived yet. 3. That the learned Commissioner of Income-tax (Appeals) erred in law and on facts in holding that the sum of Rs, 44,71,000/- being interest receivable on loans that are doubtful of recovery is liable to be included in the Total Income. 4. That the learned Commissioner of Income-tax (Appeals) erred in law and on facts in not directing the Assessing Officer to follow the binding Circular # F.201/21/84-ITA-II dated 09.10.1984. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t income on investments and expenditure are account for on accrual basis. Interest on advances, receipt of commission, rent on safe deposit lockers etc., were accounted for on cash basis. The AO was of the view that as per the provisions of section 145 of the Income-tax Act, 1961 ( the Act ), the assessee has to either follow cash or mercantile system of accounting. It cannot follow hybrid or mixed system of accounting. The AO therefore called upon the assessee to compute the correct assessable income on the basis of mercantile system of accounting. 4. In reply, the assessee submitted that it was governed by the Karnataka State Co-operative Societies (KSCS) Act, 1959, KSCS Rules, 1960, besides Banking Regulation Act ,1949. The ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the Hon ble Supreme Court in the case of UCO Bank v. CIT 237 ITR 889 (SC), wherein it was held that the Circular referred to above was binding and interest due on loans which were doubtful of recovery need not be recognized as income. 5. The AO however rejected the claim of the assessee and computed the income of the assessee from business by observing as follows:- 5.6 The explanation of the assessee has been considered. Section 145 has been amended w.e.f. April 1, 1997 (AY 1997-98) so as to permit only cash or mercantile system of accounting. The hybrid system of accounting is no longer permitted. Further the Act has been amended wef April 1, 1991 so far as the income by way of interest in relation to certa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14,97,80,702 6. The total income is computed as under: Income from banking as per return i.e., Income from banking Activities 2,60,32,417 Less: Interest income offered on cash basis Interest credited to I E account on cash basis 14,50,27,770 (-) 11,89,95,353 Add: Interest income on accrual basis 14,97,80,702 Income from Business 3,07,85,349 6. On appeal by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. The ld. DR relied on the order of the CIT(Appeals). 9. We have considered the rival submissions. From a perusal of the order of the AO, it is clear that the interest income received by the assessee has been determined by him by considering the difference between interest receivable on loans as on 31.3.2007 and interest receivable on loans as on 31.3.2008 and added the same to the interest credited to the income expenditure account on cash basis. It is not in dispute before us that in view of the provisions of section 145 of the Act, the assessee has to account for interest income on accrual basis since the assessee was following mercantile system of accounting. It is the plea of the assessee that even as per the mercant ..... X X X X Extracts X X X X X X X X Extracts X X X X
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