TMI Blog2016 (7) TMI 308X X X X Extracts X X X X X X X X Extracts X X X X ..... ORDER Per R. K. Panda, AM This appeal filed by the assessee is directed against the order dated 06-06-2014 of the CIT(A)-III, Pune relating to Assessment Year 2010-11. 2. In grounds of appeal No.1 and 2 the assessee has challenged the order of the CIT(A) in confirming the addition of ₹ 8,26,20,529/- made by the AO on account of interest overdue on NPA. 3. Facts of the case, in brief, are that the assessee is a Cooperative society incorporated under the provisions of Maharashtra Cooperative Societies Act, 1960 and is carrying on banking business under license from RBI as a Cooperative Bank. The assessee filed its return of income on 24-09-2010 declaring total income of ₹ 20,17,46,710/-. The AO while completing the assessment made addition of ₹ 8,26,20,592/- by disallowing the overdue interest on NPA. 4. In appeal the Ld.CIT(A) confirmed the addition made by the AO for which the assessee is in appeal before us. 5. The Ld. Counsel for the assessee at the outset submitted that identical issue has been decided in favour of the assessee by the Tribunal in ITA No.495/PN/2012 order dated 29-09-2014 for A.Y. 2008-09. Following the above decision the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to non-recognition of income of ₹ 47,01,85,366/- in respect of advances/loans to customers, which have been classified as NPAs. 5. The controversy with respect to non-recognition of income on accrual basis relatable to the NPAs is no longer res integra but the same has already been adjudicated in favour of the assessee by 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 and also other subsequent decisions of the Pune Bench of the Tribunal. Apart therefrom, the Hon ble Bombay High Court in the case of CIT vs. M/s KEC Holdings Limited vide Income Tax Appeal No.221 of 2012 dated 11.06.2014 has also approved the proposition that the interest income on NPAs is not recognizable on accrual basis. The aforesaid matrix is not challenged by the Revenue also. So however, in the present case, the case setup by the Revenue is that assessee had indeed credited such income in its Profit Loss Account and there is an equivalent amount of Provision made by the assessee by way of debit in the Profit Loss Account. In essence, the stand of the Revenue is that the impugned income, though relatable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - Sheet under the heading Interest Receivable , with sub-headings On Society Loans and On Individual Loans . 8. Due to the aforesaid depiction in financial statements, the case of the Revenue is that the interest on NPAs have been credited in the Profit Loss Account and thus its accrual has been accepted by the assessee; and that the contra entry by way of debit in the Profit Loss Account is to be understood as a mere Provision and, since a Provision is not an allowable deduction, the amount of ₹ 47,01,85,366/- has been added to the total income. 9. The claim of the assessee is that it is incorrect to say that it has created a Reserve/Provision in respect of the Overdue Interest on NPAs. It is explained that instead of netting of the interest on loans, the bank has shown the gross interest on credit side of the Profit Loss Account and on the debit side of the Profit Loss Account the amount of interest on NPAs has been separately shown. It is further pointed out that amount on the debit side of the Profit Loss Account is not appearing as a Provision. Further, even in the Balance-Sheet, it is pointed out that amount of ₹ 82,81,68,339/- on the Li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of interest on N.P.A. which is in accordance with the Accounting Standard [AS] 9 issued by the I.C.A.I. 6. The bank most respectfully submits that as on 31/03/2008 it had 214 branches. At the time of preparation of consolidated Profit and Loss Account and Balance Sheet as on 31/03/2008 [the copies of which are filed before the various tax authorities] solely with a view to make a disclosure of Gross Interest that would have been received by the bank, the interest on N.P.A. is disclosed on credit side of the Profit and Loss Account and a contra entry is made on debit side under the head Interest Paid. This accounting treatment does not by any logic convert the interest on N.P.A. in to interest accrued within the meaning of the provisions of the I.T. Act 1961 or cannot be called as recognition of income by the bank. 7. The interest on N.P.A. advances can never be recognized as income accrued to the bank merely by placing reliance in isolation on the presentation of Profit and Loss Account and dehors of entries in the Balance Sheet which show that the same is simultaneously debited to Interest Receivable on N.P.A. Account [on Asset side] and a contra credit entry i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of the Master Circular on Income Recognition, Asset Classification, Provisioning Other Related Matters issued by the RBI on 4th July, 2004 in chapter 4 of Income Recognition in para 4.5.1 it is advised that the accrued interest in relation to NPAs should be computed and shown separately, though not accounted as income of the bank for the relevant period. Further, in para 4.5.3, with a view to ensuring uniformity in accounting the accrued interest in respect of both the performing and non-performing assets, the RBI guidelines inter-alia, prescribe that interest accrued in respect of NPAs should not be debited to borrowal accounts but shown separately under Interest Receivable Account on the Property and Assets side of the Balance-Sheet and corresponding amount shown under the Overdue Interest Reserve Account on the Capital and Liabilities side of the Balance-Sheet. In-fact, as a preface in para 4.5.3 the RBI has laid down that the aforesaid guideline be adopted notwithstanding the existing provisions in the respective State Co-operative Societies Act. Notably, the Balance- Sheet format prescribed under the Third Schedule to the Banking Regulation Act, 1949 (as app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Items (i) to (xvi) prescribed therein. For our purpose, it would suffice to examine Item (i) of the amounts deductible, which reads as under :- (i) all interest accrued and accruing on amounts of overdue loans (except in overdue amounts of loans against fixed deposit, gold, etc. 15. The aforesaid would show that while constructing its Profit Loss Account to arrive at its net Profit or Loss, a Co-operative Society is required to show interest accrued/accruing on amounts of Overdue Loans separately. This is precisely what has been done by the assessee in the present case. The aforesaid requirement of the manner of construction of Profit Loss Account, prescribed under the Rules of the Maharashtra Cooperative Societies Act, 1960, has prompted the assessee to draw up its Profit Loss Account in the manner we have noted above qua the interest on NPAs. Therefore, it cannot be accepted that the manner or presentation of account which ostensibly is in compliance with the statutory provisions governing the assessee, can be a factor to evaluate assessability or otherwise of an income. In our considered opinion, it would inappropriate to be merely guided by a presentation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, on Grounds of Appeal No.1 and 2 assessee succeeds. The Ground of Appeal No.3 is only an alternative Ground raised, in case assessee does not succeed on Grounds of Appeal No.1 and 2. Since assessee has succeeded on Grounds of Appeal No.1 and 2, Ground of Appeal No.3 is dismissed as infructuous. 5. Following the aforesaid precedent in the assessee s own case for the assessment year 2008-09, we set aside the impugned order of the Commissioner (Appeals) and direct the Assessing Officer to delete the addition of ₹ 7,88,22,858/-. Thus, with respect to Ground of appeal no.1, the assessee succeeds. 8. Since the Tribunal has already decided the issue in favour the assessee by deleting the disallowance of overdue interest on NPA in A.Yrs. 2008-09 and 2009-10, therefore, following the order of the Tribunal in assessee s own case in the preceding 2 years and in absence of any contrary material brought to our notice by the Ld. Departmental Representative against the order of the Tribunal, the order of the CIT(A) on this issue is set aside and the grounds raised by the assessee are allowed. 9. Ground of appeal No.3 by the assessee reads as under : 3. Appellant prays ..... X X X X Extracts X X X X X X X X Extracts X X X X
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