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2016 (2) TMI 36 - ITAT PUNE

2016 (2) TMI 36 - ITAT PUNE - TMI - Addition on account of interest on Non Performing Assets - assessee is following the mercantile system of accounting - CIT(A) deleted the addition - Held that:- As decided in Unclaimed dividend in Deogiri Nagari Sahakari Bank Ltd. [2015 (1) TMI 1218 - BOMBAY HIGH COURT] question amounts to excess provisions for dividend made by the Assessee on an earlier occasion which has been reversed by the Assessee in the year under consideration and transferred to a reser .....

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. PANDA, AM : This appeal filed by the Revenue is directed against the order dated 12-03-2014 of the CIT(A)-V, Pune relating to Assessment Year 2010-11. The assessee has filed the Cross Objection against the appeal filed by the Revenue. For the sake of convenience these were heard together and are being disposed of by this common order. 2. The grounds raised by the Revenue are as under : 1. Whether on the facts and circumstances of the case, the Ld.CIT(A) was justified in deleting the addition o .....

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erride the provisions of I.T. Act? 3. The appellant craves leave to add, amend or alter any of the above grounds of appeal. 3. Facts of the case, in brief, are that the assessee is a cooperative society engaged in the business of banking. It filed its return of income on 13-09-2010 declaring total income of ₹ 80,02,320/-. During the course of assessment proceedings, the AO noticed after comparing the balance sheet of the preceding year that there was increase in interest in NPA amounting t .....

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per section 5 of the I.T. Act only real income needs to be taxed. Relying on various case laws it was argued that NPA interest was only notional income and therefore the same was not required to be taxed. 4. However, the AO was not satisfied with the explanation given by the assessee. According to him the prudential norms issued by the RBI could not regulate taxability of such income in the hands of the assessee. The AO further noted that the assessee has not furnished the details of each NPA a .....

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al the Ld.CIT(A), following the decision of the Pune Bench of the Tribunal in the case of ACIT Vs. The Omerga Janta Sahakari Bank Ltd. vide order dated 31-10-2013, deleted the addition on account of interest on NPAs. 6. Aggrieved with such order of the CIT(A) the Revenue is in appeal before us. 7. The Ld. Departmental Representative strongly opposed the order of the CIT(A). He submitted that the decision of Hon ble Supreme Court in the case of Southern Technologies Vs. JCIT reported in 320 ITR 1 .....

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the CIT(A) on similar issue in the case of Bajaj Auto Finance Ltd. for A.Y. 2007-08 and Pavana Sahakari Bank Ltd. for A.Y. 2010-11 and since the department has preferred further appeal before the Hon ble Bombay High Court in the case of Rajgurunagar Sahakari Bank Ltd. for A.Yrs. 2008-09 and 2009-10, therefore, the order of the CIT(A) should be reversed and that of the AO be restored. 8. The Ld. Counsel for the assessee on the other hand filed the decision of Hon ble Bombay High Court in the cas .....

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ed by the RBI are equally applicable to cooperative societies. The provisions of section 45Q of the RBI Act, 1934 have an overriding effect, vis-à-vis income recognition under the Companies Act and hence the section 45Q of the RBI Act, 1934 shall have the overriding effect over the income recognition principle followed by cooperative societies. Hence, the AO has to follow the RBI directions. It was accordingly held that the deletion of the additions on account of interest on sticky advanc .....

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d. (Supra) deleted the addition made by the AO. We find an identical issue had come up before the Hon ble Bombay High Court in the case of Deogiri Nagari Sahakari Bank Ltd. and other connected appeals reported in 379 ITR 24. The Hon ble High Court has decided the issue and dismissed the appeal filed by the Revenue by observing as under : 3. The common issue involved in all these appeals relating to the assessment year as mentioned in the aforesaid table about the deletion of the additions on acc .....

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t, regarding interest on sticky advances. The Assessing Officer has also held that the Central Board of Direct Taxes Circular No. F. 201/ 81/84 ITA-II, dated October 9, 1984, is applicable only to banking companies and not to non -scheduled banks and co-operative banks. 4. Being aggrieved by the same, the assessee/above co-operative banks preferred appeals separately before the Commissioner of Incometax (Appeals). The Commissioner of Income-tax (Appeals), vide his orders in all the appeals has d .....

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als challenging the legality and correctness of the order passed by the Income-tax Appellate Tribunal. 6. The learned counsel, Mr. Alok Sharma, appearing for the appellants-Revenue submits that, the assessee in all these cases are the co-operative banks and not scheduled banks, therefore, the special provisions of section 43D of the Income-tax Act will not be applicable to them. Learned counsel further submits that, in view of the provisions of section 145 of the Income-tax Act, the assessee-co- .....

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do not override the provisions of the Income-tax Act and they are operating in different fields. The learned counsel for the appellants-Revenue, lastly, submits that the learned Tribunal ought to have held that the assessee co-operative bank does not satisfy the conditions of the Central Board of Direct Taxes Circular No. F. 201/81/84/ITAT, dated October 9, 1984, and, therefore, could not avail of the benefits of the circular. On the basis of the aforesaid submissions, the learned counsel furth .....

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s submit that the issues involved in the above appeals are no more res integra in view of the decision rendered by the hon'ble Supreme Court in the case of UCO Bank v. CIT reported in [1999] 237 ITR 889 (SC) ; [1999] 4 SCC 599. 8. Learned counsel for respondent submits that the learned Tribunal has rightly dismissed the appeals of the Revenue by confirming the order passed by the Commissioner of Income-tax (Appeals). There is no substantial question of law involved in these appeals and, thus .....

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perative bank also governed by the Reserve Bank of India and thus the directions with regard to the prudential norms issued by the Reserve Bank of India are equally applicable to the co-operative banks. The hon'ble Supreme Court in the case of Southern Technologies Ltd. (supra) held that the provisions of section 45Q of the Reserve Bank of India Act has an overriding effect visa- vis income recognition principle under the Companies Act. Hence, section 45Q of the Reserve Bank of India Act sha .....

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law and ensure a fair enforcement of its provisions, by issuing circular in exercise of its statutory powers under section 119 of the Act which are binding on the authorities in the administration of the Act, it is a beneficial power given to the Board for proper administration of fiscal law so that undue hardship may not be caused to the assessee and the fiscal laws may be correctly applied. Further, a similar issue was raised about interest accrued on a sticky" loan which was not recover .....

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s realised. A mixed method of accounting is thus followed by the assessee-bank. This method of accounting adopted by the assessee is in accordance with accounting practice . . . The assessee's method of accounting, transferring the doubtful debt to an interest suspense account and not treating it as profit until actually received, is in accordance with accounting practice ... up to the assessment year 1978-79 the taxability of interest on doubtful debts credited to suspense account will be d .....

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t year 1979- 80,the Central Board of Direct Taxes's Circular of October 9, 1984 is made applicable. In the present case, the assessment was made on' the basis of the Central Board of Direct Taxes's Circular on October 9" 1984, since the assessment pertains to the assessment year 1981-82 to which the Circular of October 9, 1984, is applicable ... If, the Board has considered it necessary to lay down a general test for deciding what is a doubtful debt, and directed that all Income .....

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id circular is to see whether, at the end of three years, the amount of interest has, in fact, been recovered by the bank or not. If it is not recovered for a period of three years, then in the fourth year and onwards the claim for interest has to be treated as doubtful claim which need not be included in the income of the assessee until it is actually recovered. . . . In the present case, the circulars which have been in force are meant to ensure that while assessing the income accrued by way o .....

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ed system of accounting by which such interest is included in its income only when it is actually received. Looking to the method of accounting so adopted by the assessee in such cases, the circulars which have been issued are consistent with the provisions of section 145 and are meant to ensure that assessees of the kind specified who have to account for all such amounts of interest on doubtful loans are uniformly given the benefit under the circular and such interest amounts are not included i .....

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n a doubtful loan. But if after three years the payment of interest is not received, from the fourth year onwards it will be treated as interest on a doubtful loan and will be added to the income only when it is actually received ... There is no inconsistency or contradiction between the circular so issued and section 145 of the Income-tax Act. In fact, the circular clarifies the way in which these amounts are to be treated under the accounting practice followed by the lender. The circular, ther .....

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the Act; the question is whether the circular seeks to mitigate the rigour of a particular section for the benefit of the assessee in certain specified circumstances. So long as such a circular is in force it would be binding on the departmental authorities in view of the provisions of section 119 to ensure a uniform and proper administration and application of the Income-tax Act." 11. The learned counsel for the respondent has placed reliance in a case of Mercantile Bank Ltd. v. CIT report .....

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understood by section 43C of the Income-tax Act on the scheduled bank. 12. Learned counsel for the appellants-Revenue placed reliance on the judgment in the case of Southern Technologies Ltd. v. Joint CIT reported in [2010] 320 ITR 577 (SC) ; [2010] 2 SCC 548. However, this judgment pertains to non-banking financial companies. UCO Bank's case (supra) and Mercantile Bank (supra) case squarely applies to the facts of the present case and issues involved. We, therefore, do not find it necessar .....

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