TMI Blog2015 (5) TMI 924X X X X Extracts X X X X X X X X Extracts X X X X ..... - made by the A.O, on account of interest on Non Performing Assets u/s.43D of the Income Tax Act, 1961. 2. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) has erred in holding that the provisions of section 43D are applicable to Financial Institutions and a Scheduled Bank. Thus, the assessee being a non scheduled bank could not take the benefit of section 43D of the Income Tax Act, 1961. 3. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in appreciating the provisions of section 145 of the I.T. Act, 1961, in its correct perspective . 4. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred while delivering the judgment has allowed the appeal of the assessee bank by placing reliance on its own decision in the ACIT, Circle-3, Nanded Vs. Osmanabad Janata Sahakari Bank Ltd. in ITA No. 795/PN/2011 vide order dated 31/08/2012. However, the above decision has not been accepted by the Department and an appeal u/s. 260A has been filed by the CIT, Aurangabad with the Hon'ble High Court of Bombay Bench at Aurangabad, vide lodging No. 1613/2013 dated 15/01/2013. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivable on the assets side. It was further pointed out by the assessee before the CIT(A) that the statement made by the Assessing Officer was incorrect and in support, annual report of the bank for the year ending 31.03.2009 was placed before the CIT(A). Further claim of the assessee before the CIT(A) was that the said entries were made as per norms of RBI and reliance was placed on series of decisions. The written submissions of the assessee are reproduced under para 3.1 at pages 3 to 11 of the appellate order. The CIT(A) after deliberating upon the issue, allowed the claim of assessee, in view of the ratio laid down by the Pune Bench of the Tribunal in ACIT Vs. Osmanabad Janta Sah. Bank Ltd., in ITA No.795/PN/2011, relating to assessment year 2007 -08, order dated 31.08.2012. 7. The Revenue is in appeal against the order of CIT(A). 8. The learned Authorized Representative for the assessee pointed out that the issue in the present appeal is squarely covered by the different orders of Pune Bench of the Tribunal. 9. The learned Departmental Representative for the Revenue placed reliance on the order of Assessing Officer and pointed out that the appeal is pending before the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e year under consideration. 9. In this connection, we find that the Visakhapatnam Bench of the Tribunal in the case of The Durga Cooperative Urban Bank Ltd. (supra) has considered an identical controversy. The assessee before the Visakhapatnam Bench was a Co-operative Bank operating under a license issued by RBI but was not a 'scheduled bank' so as to fall within the scope of section 43D of the Act. The issue related to taxability of interest income relating to NPAs, which as per the Revenue was liable to be taxed on accrual basis in line with mercantile system of accounting adopted by the assessee therein. The assessee, on the other hand, contended that having regard to the guidelines issued by RBI regarding accounting of interest on NPAs, no interest income accrued in respect of NPAs and tha t the same was to be taxed only on receipt basis. The Tribunal observed that the question of taxability of interest on NPAs classified by RBI, was considered by the Hon'ble Delhi High Court in the case of M/s Vasisth Chay Vyapar Ltd. (supra) wherein after considering the decision of the Hon'ble Supreme Court in the case of Southern Technologies Ltd. (supra) it was held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.2 Where the ability to assess the ultimate collection with reasonable certainty is lacking at the time of raising any claim, e.g., for escalation of price, export incentives, interest etc., revenue recognition is postponed to the extent of uncertainty involved. In such cases, it may be appropriate to recognize revenue only when it is reasonably certain that the ultimate collection will be made. Where there is no uncertainty as to ultimate collection, revenue is recognized at the time of sale or rendering of service even though payments are made by installments. 9.3 When the uncertainty relating to collectability arises subsequent to the time of sale or the rendering of the service, it is more appropriate to make a separate provision to reflect the uncertainty rather than to adjust the amount of revenue originally recorded. 9.4 An essential criterion for the recognition of revenue is that the consideration receivable for the sale of goods, the rendering of services or from the use of others of enterprise resources is reasonably determinable. When such consideration is not determinable within reasonable limits, the recognition of revenue is postponed. 9.5 When recogniti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20,34,605/- as income (being income accrued under the mercantile system of accounting). The dispute before the Apex Court centered around deductibility of provision for NPA. After analyzing the provisions of the Reserve Bank of India Act, their Lordships of the Apex Court observed that in so far as the permissible deductions or exclusions under the Act are concerned, the same are admissible only if such deductions/exclusions satisfy the relevant conditions stipulated therefore under the Act. To that extent, it was observed that the Prudential Norms do not override the provisions of the Act. However, the Apex Court made a distinction with regard to Income Recognition and held that income had to be recognized in terms of the Prudential Norms, even though the same deviated from mercantile system of accounting and/or section 45 (sic. 145) of the Income Tax Act. It can be said, therefore, that the Apex Court approved the 'real income' theory which is engrained in the Prudential Norms for recognition of revenue by NBFC . 9. The Hon'ble Supreme Court in the case of M/s Southern Technologies Ltd (Supra) dissected the matter into two parts viz., a) Income Recognition and b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve bank and it is not in dispute that it is also governed by the Reserve Bank of India. Hence the directions with regard to the prudential norms issued by the Reserve Bank of India are equally applicable to the assessee as it is applicable to the companies registered under the Companies Act. The Hon'ble Supreme Court has held in the case of Southern Technologies Ltd (Supra), that the provision of 45Q of Reserve Bank of India Act has an overriding effect vis- -vis income recognition principle under the Companies Act. Hence Sec.45 Q of the RBI Act shall have overriding effect over the income recognition principle followed by cooperative banks also. Hence the Assessing Officer has to follow the Reserve Bank of India directions 1998, as held by the Hon'ble Supreme Court. 10.1 Based on the prudential norms, the assessee herein did not admit the interest relatable to NPA advances in its total income. The Hon'ble Delhi High Court in the case of Vasisth Chay Vyapar Ltd (Supra) has held that the interest on NPA assets cannot be said to have accrued to the assessee. In this regard, the following observations of Hon'ble Delhi High Court in the above cited case are relevant: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ween the Hon'ble Delhi High Court and the Hon'ble Madras High Court as noted by the Hon'ble Madras High Court in its order. 12. In so far as, present case is concerned there is no judgment of the Jurisdictional High Court. We are faced with two contrary judgments of the non-jurisdictional High Court. In such a situation, we are inclined to prefer a view which is favourable of the assessee following the judgement of the Hon'ble Supreme Court in the case of CIT vs. Vegetable Products Ltd. (1973) 88 ITR 192 (SC). 13. Therefore, in view of the aforesaid discussion, we are inclined to follow the decision of our co-ordinate Bench in the case of The Durga Cooperative Urban Bank Ltd. (supra) and accordingly the order of the CIT(A) is liable to the affirmed. We hold so. 14. In the result, the appeal of the Revenue is dismissed. 11. In view of the ratio laid down by the Pune Bench of the Tribunal in ACIT Vs. Osmanabad Janta Sah. Bank Ltd. (supra) and in ACIT vs. The Omerga Janta Sahakari Bank Ltd. (supra), we uphold the order of CIT(A) in holding that the interest on NPAs is not taxable in the hands of the assessee for the captioned assessment year. Consequently, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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