TMI Blog2014 (11) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... his account it is clearly stated though a particular income is due to him but it is not possible to recover the same, then it cannot said to have been accrued and the said amount cannot be brought to tax - the contention of the revenue that in respect of non-performing assets even though it does not yield any income as the assessee has adopted a mercantile system of accounting, he has to pay tax on the revenue which has accrued notionally is without any basis. The assessee also pointed out certain mistakes in the computation of interest, the CIT(A) has directed the AO to compute the quantum of interest to be allowed correctly, by considering the submissions put forth by the assessee in this regard - This direction of the CIT(A) cannot be construed as remitting back the substantive issue to the AO, as he has only directed the Assessing Officer to compute the quantum correctly – thus, there was no infirmity in the order of the CIT(A) – Decided against revenue. Provision for Non-Performing Assets ('NPA') – Mandatory requirement of RBI Guidelines to follow mercantile system of accounting fulfilled or not - Held that:- Section 36(1)(viia) of the Act provides for allowance of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cieties (PACS's) at subsidised rates. For Assessment Year 2007-08, the assessee filed its return of income on 2.11.2007 declaring total income of ₹ 1,64,86,170. The case was selected for scrutiny and the assessment was completed under section 143(3) of the Income Tax Act, 1961 ( hereinafter referred to as 'the Act') dt.23.12.2009, wherein the income of the assessee was determined at ₹ 9,59,42,620, as against the returned income of ₹ 1,64,86,170 in view of the following additions / disallowances thereto :- i. Addition to interest income : ₹ 6,99,73,139. ii. Provision for NPA : ₹ 1,50,00,000. iii. Provision for Audit Cost : ₹ 4,00,000. iv. Disallowance u/s.40(a)(ia) of the Act : ₹ 17,38,322 2.2 Aggrieved by the order of assessment for Assessment Year 2007-08 dt.23.12.2009,the assessee preferred an appeal before the CIT(Appeals), Hubli. The learned CIT (Appeals) vide order dt.29.12.2011 disposed off the assessee's appeal allowing the assessee partial relief, deleting the aforesaid additions / disallowances, even while giving certain directions to the Assessing Officer in respect of some of the issues. 3. Aggri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act w.e.f. 1.4.1997, banks are required to follow the mercantile system of accounting. Revenue has also raised the issue that the learned CIT (Appeals) cannot remand the issue in question back to the Assessing Officer and by doing so, the learned CIT (Appeals) has travelled beyond the powers vested in him under the Act. 5.2 In the course of assessment proceedings, the Assessing Officer observed that the assessee is following the hybrid system of accounting, which is in contravention of the provisions of section 145 of the Act. As per the Assessing Officer, in terms of section 145 of the Act, the income chargeable under the head 'profits and gains from business and profession' shall be computed in accordance with either cash or Mercantile System of Accounting regularly employed by the assessee. The Assessing Officer observed that the assessee is accounting for the interest on receipt basis and others on accrual basis. In support of his view, the Assessing Officer placed reliance on the decision of the ITAT, Chennai in the case of JCIT V India Equipment Leasing Ltd. (2008) 296 ITR (AT) 177. In that view of the matter, the Assessing Officer held that interest which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oses of computation of income under the normal provisions of the Act. It was submitted that in accordance with the provisions of section 145 of the Act, the assessee is required to follow either the cash system or mercantile system of accounting, but cannot follow the hybrid system of accounting. The learned Departmental Representative submitted that the RBI Guidelines relied on by the assessee having nothing to do with the accounting system for recognising taxable income as per the Income Tax Act, 1961 as they operate in different fields. 5.5 Per contra, the learned Authorised Representative of the assessee supported the order of the learned CIT (Appeals) and placed reliance on the following judicial pronouncements :- (i) CIT V Urban Co-op. Bank Ltd. [ ITA No.471 of 2013 (Kar. High Court) ] dt.30.6.2014. (ii) Shiva Sahakari Bank Niyamitha (ITA No.257/Bang/2007) of ITAT, Bangalore. 5.6.1 We have heard both parties and perused and carefully considered the material on record, including the judicial decisions placed reliance upon. It is not in dispute that the assessee is in the business of banking and is governed by the Banking Regulations Act, 1949. The question for cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee has adopted a mercantile system of accounting, he has to pay tax on the revenue which has accrued notionally is without any basis. In that view of the mater, the second substantial question frame is answered against, the revenue and in favour of the assessee. 5.6.2 We find that the facts of the case on hand before us and the question of law raised in the above referred case are identical and therefore respectfully following the decision of the Hon'ble High Court of Karnataka in the case of Urban Co-operative Bank Ltd. (supra), we decide the issue in favour of the assessee. Consequently, grounds raised by revenue at S.Nos.3 and 5 are dismissed. 5.7 As regards the contention raised by revenue that the learned CIT (Appeals) has travelled beyond the powers vested in him under the I.T. Act, 1961, by remitting the issue back to the file of the Assessing Officer, we do not concur with the contention of revenue. As per an appreciation of the material on record, we find that the learned CIT (Appeals) has rendered a finding that the interest income should be allowed in the light of the decision of the Hon'ble Apex Court in the case of UCO Bank Ltd. in 237 ITR 889. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee's claim for deduction under the head Provision for NPAs . The Assessing Officer did not allow the assessee's claim for the reason that it was not written off in the books of account, as is required by section 36(1)(viia) of the Act. The learned Authorised Representative of the assessee contended that the provision for NPAs was made as per the RBI's Guidelines, which are binding on the assessee and therefore it should be allowed as a deduction under the Act. It was submitted that provision for NPAs is made only when recovery is difficult or may not be possible and therefore the same should be allowed as deduction. 6.3.2 Section 36(1)(viia) of the Act provides for allowance of any provision for bad and doubtful debts. Although the assessee has used the nomenclature for the provision as Provision for NPAs , but in pith and substance the provision has been created for bad and doubtful debts and in doing so, the assessee has followed the RBI Guidelines. In the light of the above discussions of this issue and the decision of the Hon'ble Apex Court in the case of UCO Bank Ltd. (supra), we concur with and do not find it necessary to interfere with the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee had not deducted TDS from certain payments made towards computer consultancy, hired vehicles, building rent and pigmy commission, and therefore disallowed them by invoking the provisions of section 40(a)(ia) of the Act. 8.3 On appeal, the assessee submitted that it had already paid TDS on building rent payments. The learned CIT (Appeals) held that since the assessee has already paid the TDS on building rent, any further deduction would amount to double deduction and directed the Assessing Officer to verify the details of TDS payments and to charge applicable interest. 8.4 In support of the grounds raised, the learned Departmental Representative assailed the decision of the learned CIT (Appeals) in directing the Assessing Officer to call for details of TDS payments made after the completion of assessment as being beyond the power vested in him under the Act. 8.5 We have heard both the learned Departmental Representative for revenue and the learned Authorised Representative of the assessee and have perused and carefully considered the material on record. While it is seen from the record that the Assessing Officer's disallowance u/s.40(a)(ia) of the Act was for non- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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