TMI Blog2013 (12) TMI 413X X X X Extracts X X X X X X X X Extracts X X X X ..... d AS-9 issued by ICAI - Interest income on bad and doubtful debts does not accrue at all. Whether the interest on bad and doubtful debts, the overdue interest of Rs. 2,40,61,848.00 accounted by the Assessee but transferred to Overdue interest can really said to have accrued and realizable – Held that:- Following Godhra Electricity Co Ltd v CIT [1997 (4) TMI 4 - SUPREME Court] - Income charged to tax is the income that is received or is deemed to be received in India in the previous year relevant to the year for which assessment is made or on the income that accrues or arises or is deemed to accrue or arise in India during such year - The computation of such income is to be made in accordance with the method of accounting regularly employ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ejudicial to the interests of the revenue for the following reasons: A) The assessee was allowed provision created on doubtful debts amounting to Rs. 41.41 lakhs though the same is not allowable. B) An amount of Rs. 18.43 lakhs being provision for bad and doubtful debts was allowed. C) The assessee was allowed an amount of Rs. 2.40 crores being reversal of amount on expenditure side by making a 'provision', which is not allowable. 4. Therefore, the CIT issued a show cause letter on 08/12/2011 to the assessee. 5. In response to the show cause notice, as regards point A) mentioned as above, the AR of the assessee submitted as under: "We have followed option (ii) of the Master Circular and hence has recognized an amount of Rs. 41.4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee a cooperative bank as per proviso (a) to provisions of section 36(1)(viia), falls under 'other than' a primary agricultural credit society of a primary cooperative agricultural and rural development bank. Hence, the provisions claimed u/s 36(1)(viia) towards bad and doubtful debts are not allowable. Further, it is also noticed that the deduction claimed at Rs. 18,43,318/- is when 'Loss' was claimed by the assessee i.e. when the income was at "NIL" the claim of deduction was computed before making deduction under this clause and Chapter - VIA which is not allowable. Therefore, the CIT was of the opinion that the order passed by the Assessing Officer is erroneous and as such the Assessing Officer is directed to revise the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T, therefore, directed the Assessing Officer to enhance the order u/s 143(3) passed on 29/12/2009 by an amount of Rs. 2,40,61,848/- and an amount of Rs. 18,43,318/- both being provisions created. 11. Aggrieved the Assessee is on appeal before us and has raised the following grounds of appeal: "1. The order u/s 263 dt. 26/03/2012 of the learned CIT-III, Hyderabad is erroneous both in law and on facts of the case. 2. The learned CIT-III grossly erred in directing for the disallowance of Rs. 2,40,61,848/-, the overdue interest on bad and doubtful debts or NPAs, without having regard to the claim of the appellant that such interest in the case of a 'cooperative bank' is not covered by the provisions of sec. 43D, in particular, having take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing P L and crediting the reserve for overdue interest. According to the Assessee interest income on bad and doubtful debts does not accrue at all. Hence the same was excluded from the P L by transferring it to reserve for overdue interest. 13. The Madras high Court in the case of CIT v ELGI Finance Ltd (293 ITR 357) held that the assessee was justified in not recognizing interest income from non-performing assets in consonance with the notification issued by the RBI and AS-9 issued by ICAI and, as there was no accrual of such income during the relevant year. Similar view was held by the Delhi High Court in the case of CIT vs. Vasisth Chay Vyapar Ltd. (330 ITR 440 Del). The Apex Court in the case of Godhra Electricity Co Ltd v CIT (225 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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