TMI Blog2015 (4) TMI 760X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. In Karnavati Co-op. Bank Ltd.[2011 (11) TMI 367 - ITAT AHMEDABAD], the ITAT Ahmedabad Bench held that provisions of Sec.43D of the Act are applicable to Cooperative Banks also. In view of the same, respectfully following the decision of the Hon’ble Jurisdictional High Court in Canfin Homes Ltd., the Revenue’s appeal is dismissed. - Decided against the revenue. - I.T.A. No.1530/Bang/2013 - - - Dated:- 5-3-2015 - Shri N.V. Vasudevan And Shri Jason P. Boaz JJ. For the Appellant : Shri P. Dhivahar, JCIT (D.R) For the Respondent : Shri Sandeep C, C.A. ORDER Per Shri Jason P. Boaz, A.M. : This is an appeal by the Revenue against the order dt.17.9.2013 of CIT (A), Belgaum, relating to A. Y. 2011-11. The grounds of appeal raised by Revenue read as follows : 1. The CIT (A) erred in law and on facts, in deleting the addition of ₹ 10,49,668/- on account of accrued interest on loans which are classified as Non-performing Assets relying on the Karnataka Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to certain categories of assessees. According to Assessing Officer those provisions were not applicable to a cooperative bank. 04. On appeal by the assessee, CIT (A) following the decision of the Hon'ble Supreme Court in the case of UCO Bank v. CIT (1999) 237 ITR 889, which was followed by the Hon'ble Karnataka High Court in the case of JCIT v. Canfin Homes Ltd (2011) 5 TaxCorp (DT) 49593, held that interest on non-performing assets cannot be treated as income accrued to an assessee. The CIT (A) was also of the view that the provisions of Sec.43D of the Act were applicable to cooperative banks and in this regard relied on the decision of Ahmedabad Bench of ITAT in the case of Karnavati Cooperative Bank v. DCIT (2012) 14 ITR (Trib) 175. 05. Aggrieved by the order of CIT (A), Belgaum dt.17.9.2013 for Assessment Year 2010-11, the Revenue has preferred the present appeal before the Tribunal. 06. The learned DR relied on the order of the Assessing Officer and reiterated the stand of the Revenue as reflected in the grounds of appeal filed before the Tribunal. 07. The learned counsel for the assessee while relying on the order of CIT (A) also filed before us a copy of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s notified under section 46 of the said Act, and -State industrial investment corporations which are Government companies as per section 617 of the Companies Act, 1956 and which are engaged in providing long term finance for industrial projects and approved by the Central Government under Sec.36(1)(viii) of the Act. As per section 43D in the cases of above said institutions interest on sticky advances [falling under Health Codes 4 to 8] as per the guidelines issued by the Reserve Bank of India will be charged to tax either in the year in which the relevant interest is credited to the profit and loss account or the year of actual receipt of interest, whichever is earlier. Thus, so long as the interest is not received and so long as credits in respect of such interest are confined to interest suspense account , such interest amounts will not be treated as income of the assessee in view of the nonobstante clause of section 43D even though the assessee is following mercantile system of accounting. 10. In Karnavati Co-op. Bank Ltd. Vs. DCIT (2012) 14 ITR (Trib) 175 (Ahmedabad), the ITAT Ahmedabad Bench held that provisions of Sec.43D of the Act are applicable to Cooperative Banks al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eylenders and banks, the CBDT has issued a Circular dt. 6th Oct., 1952, providing that where interest accruing on doubtful debts is credited to a suspense account, it need not be included in assessee s taxable income, provided the ITO is satisfied that recovery is practically improbable. The CBDT under s. 119 has power to issue circulars in exercise of its statutory powers. If the Board considers it necessary to lay down certain rules and then direct the sub-ordinate authorities, such directions are required to be followed and such circular would be binding on the Department unless and until held as ultra vires by a Court of law. The Board has powers to relax the severity or the strictness of law and the authorities are required to follow those instructions. As of now the law as laid down is that in terms of CBDT circular the interest is to be added as income only when actually received or credited in respect of the sticky advances while making assessment for a financial institution. It can safely be concluded that by the insertion of a special provision to tax interest income in the case of public financial institution, etc. s. 43D has to be applied in its letter and spirit. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon ble Supreme Court is on a different set of facts. The second decision relied upon by the learned DR is that of Chennai Bench of the Tribunal in the case of India Equipment Leasing Ltd., which is on the same set of facts as before us, as it was held in favour of the Revenue. Coming to the decisions relied upon the learned AR, we ITA No.257/B/12 find that the decision of the Jurisdictional High Court in the case of Canfin Homes Ltd., is also on the same set facts as before us and is binding on this tribunal. In the said decision, at para 8 of the order, the Hon ble High Court has held as under : Therefore, it is clear if an assessee adopts mercantile system of accounting and in his accounts he shows a particular income as accruing, whether that amount is really accrued or not is liable to bring the said income to tax. His accounts should reflect true and correct statement of affairs. Merely because the said amount; accrued was not realized immediately cannot be a ground to avoid payment of tax. But, if in his account it is clearly stated that though a particular income is due to him but is not possible to recover the same, then it cannot be said to have been accrued and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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