TMI Blog2016 (2) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of ₹ 1,00,10,642/- made on account of interest on Non Performing Assets, when the assessee is following the mercantile system of accounting? 2. Whether on the facts and circumstances of the case, the Ld.CIT(A) was justified in deleting the addition of ₹ 1,00,10,642/- made on account of interest on Non Performing Assets, when the Hon ble Supreme Court in the case of Southern Technologies Ltd. vs. JCIT (2010) 320 ITR 527, has held that guidelines of RBI to banking institutions cannot override 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... though the bank may not offer the correct income in profit and loss account but it has to compulsorily offer it for the purpose of taxation. He submitted that it is trite law that the directions of the RBI cannot be accepted to override the statutory provisions of I.T. Act. Since the department has not accepted the decision given by 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 case of CIT Vs. Deogiri Nagari Sahakari Bank Ltd. and others reported in 379 ITR 24 and submitted that the Hon ble High Court after considering the decision of Hon ble Delhi High Court in the case of Vasisth Chay Vyapar Ltd. reported in 330 ITR 440 and the decision of Hon ble Supreme Court in the case of Southern Technologies Ltd. reported in 320 ITR 577 has held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 directed to delete the additions on the interest of sticky advances, on the NP A made by the Assessing Officer. 5. Being aggrieved by the order of the Commissioner of Incometax Appeals), the Revenue preferred separate appeals in each case before the Income-tax Appellate Tribunal, Pune Bench A Pune. The learned Income-tax Appellate Tribunal has confirmed the decision of the Commissioner of Income-tax (Appeals) and dismissed the appeals of the Revenue. Thus, the Revenue has filed the aforesaid appeals 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 se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reproduced the observations made by the Delhi High Court while referring the said case of Southern Technologies Ltd. (supra). The assessee herein being a co-operative 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 shall have the overriding effect over the income recognition principle followed by co-operative banks. Hence, the Assessing Officer has to follow the Reserve Bank of India Directions, 1998, as held by the hon'ble Supreme Court. 10. The honourable apex court in the case of UCO Bank's case (supra) had an occasion to consider the nature of the Central Board of Direct Taxes Circular and the hon'ble apex court has thus held that the Board has power, inter alia, to tone down the rigour of the law and ensure a fair enforcement of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... what is a doubtful debt, and directed that all Income-tax Officer's should treat such amounts as not forming part of the income of the assessee until realized, this direction by way of a circular cannot be considered as travelling beyond the powers of the Board under section 119 of the Income-tax Act. Such a circular is binding under section 119. The Circular of October 9, 1984, therefore, provides a test for recognising whether a claim for interest can be treated as a doubtful claim unlikely to be recovered or not. The test provided by the said 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 of interest on a 'sticky' loan, the notional interest which is transferred to a suspense account pertaining to doubtful loans would not be i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeks 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 reported in [2006] 283 ITR 84 (SC) ; [2006] 5 SCC 221, where similar question was raised before the apex court. The question was whether the assessee is liable to be taxed under the Income-tax Act, 1961, in respect of the interest on doubtful advances credited to the interest suspense account. In this case, UCO Bank's case (supra) was also referred and the hon'ble apex court has allowed the appeal to the extent of question raised as aforesaid. Furthermore, the respondent co-operative banks, as 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) ; [2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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