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2015 (6) TMI 1098 - AT - Income TaxEntitlement for interest on NPA as provided under section 43D - whether interest on accrual basis in respect of non performing assets (NPA) of a cooperative bank are to be taxed or not? - Held that:- We may like to refer the decision of Karnavati Co-op Bank Ltd. (2011 (11) TMI 367 - ITAT AHMEDABAD ) wherein the issue was identical and as held that in a situation when the assessee is a Cooperative bank, however, governed by RBI guide lines then the provisions of section 43D is to be applied. Even the ITAT, Pune Bench in the case of Omerga Janta Sahakari Bank Ltd. [2014 (12) TMI 355 - ITAT PUNE ] has held that the assessee, a Cooperative bank, operating under the license from RBI and governed by the Circulars of Reserve Bank of India is entitled for relief. On the basis of those circulars, the said Cooperative Bank had not accounted for the interest income of NPA. It was held that interest income relatable to NPA was not includible on accrual basis since the interest income had not accrued to the assessee in that period. Both the Tribunals have also discussed a decision of Hon’ble Supreme Court pronounced in the case of Southern Technologies Ltd. (2010 (1) TMI 5 - SUPREME COURT OF INDIA ) as expressed that in essence RBI directions were prudential norms issued which deals essentially in respect of recognition of income. The guidelines were in respect of NBFCS to disclose the amount of NPA in their financial accounts. By virtue of section 45Q an overriding effect is given to said directions vis-a-vis principles of income recognition. The Hon’ble Court has observed that the accounting policies adopted by NBFC cannot determine the taxability of income. It was held that the Assessing Officer has to consider the directions of Reserve Bank of India as per section 45Q of Reserve Bank of India Act and examine the issue as per the prudential norms issued by RBI in connection with the income recognition of a bank. The Court has also commented that in such a situation the provisions of section 145 had no role to play. We, therefore, hold that the decisions as cited before us squarely cover the issue in favour of the assessee.
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