TMI Blog2016 (12) TMI 1475X X X X Extracts X X X X X X X X Extracts X X X X ..... rinciple of mutuality and therefore not eligible for benefit under section 80P of the Act. The assessee has also failed to fulfill the conditions as laid down in sub-clause (4) of section 80P to avail the benefit of section 80P of the Act. - Decided against assessee Accrual of interest - Disallowance of overdue interest - Assessee treated the interest amount not received for more than 90 days as sticky loans and the interest which is accrued and already credited is reversed by creating reserve account and debiting the same as expenditure - Held that:- interest on a loan whose recovery is doubtful and which has not been recovered by the assessee-bank, but has been kept in a suspense account and has not been brought to the P&L a/c of the assessee, could not be included in the income of the assesse. The CIT(A) rightly deleted the additions towards interest on NPAs. There is no error or infirmity in the order of CIT(A). Accordingly, we direct the A.O. to delete the additions made towards interest on NPAs. See DCIT v. The Gandhi Co-op Urban Bank Ltd. [2015 (11) TMI 1626 - ITAT VISAKHAPATNAM] - Decided in favour of assessee - I.T.A.No.137/Vizag/2012, I.T.A.No.473&474/Vizag/2012, C.O. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23(i) of the Banking Regulation Act 1949. 9. For effecting repairs or improvements to houses or adding to their premises or construction of new houses. 10. For discharge of prior debts. 11. For liquidation of old debts which a member is unable to do with the help of a long term loan. 12. To carry out and discharge such duties, functions and business which are usually carried on by a Bank or a Banker. 3. The assessee society filed a return of income by claiming deduction u/s 80P of the Income Tax Act, 1961 (hereinafter called as 'the Act'). In the assessment order, the A.O. has asked the assessee why the claim made u/s 80P of the Act should not be disallowed in view of section 80P(4) of the Act. It was submitted before the A.O. that the assessee society runs on mutuality concept and a person cannot earn income from himself and thus surplus is not taxable. It is further submitted that it is a housing society giving loans to its members, none of its activities are in the nature of banking business. The assessing officer after considering the explanation of the assessee, he has noted that assessee received interest on advances from its members and also f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has submitted that the assessee is a Co-operative society and is eligible for exemption u/s.80P(2) of the Act. The A.O. as well as Ld. CIT(A) have failed to consider the fact that the Reserve Bank of India has not granted license to the assessee to carry banking business, therefore the assessee cannot be considered as a bank as per clause (4) of section 80P. In support of his arguments, he relied on the following case laws:- 1) ITO v. Bhamhanath Credit Souharda Sahakari Ltd. [(2015) 45 CCH 101 (Panaji Trib.)] 2) ITO v. KPTC and HESCOM Employees Co-op Credit Society Ltd. [(2015) 45 CCH 93 (Bang. Trib.)] 3) Sikar Sahakari Bhoomi Vikas Bank Ltd. v. ITO [(2015) 42 ITR 176 (Jaipur Trib.)] 4) ITO v. Shree Siddeshwar Souhardha Sahakari Niyamit [(2015) 44 CCH 403 (Bang. Trib.)]. 7. On the other hand, the Ld. D.R. has submitted that the assessee society is existed only for doing the banking business and therefore, it has to be considered as a Co-operative Bank under the provisions of section 80(4) of the Act. The assessee s object itself provides for carry out banking business including acceptance of the deposits from others, who are non-members and to m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rposes of this sub-section, (a) co-operative bank and primary agricultural credit society shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949); (b) primary co-operative agricultural and rural development bank means a society having its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities.] As per the above sub-clause (4) to section 80P, any assessee to avail the benefit under section 80P(2)(a)(i), that assessee should be a primary agricultural credit society or a primary cooperative agricultural and rural development bank. Income tax Act has not defined cooperative bank. As per part V of the Banking Regulation Act, 1949 the Primary Agricultural Credit Society means a cooperative society : (i) the primary object or principal business of which is to provide financial accommodation to its members for agricultural purposes or for purposes connected with agricultural activities (including the marketing of crops); and (ii) the bye-laws of which do not permit admission of any other cooperative society as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee is carrying its activities on the principles of mutuality or not. In the present case, by considering the objects of the assessee and also activities carried out by the assessee, it cannot be said that the assessee is working on the basis of principle of mutuality and therefore not eligible for benefit under section 80P of the Act. The assessee has also failed to fulfill the conditions as laid down in sub-clause (4) of section 80P to avail the benefit of section 80P of the Act. 12. So far as the decision relied on by the assessee in the case of Bhamhanath Credit Souharda Sahakari Ltd. (supra) is concerned, the assessee is a cooperative society registered as cooperative society, providing credit facilities to its members and not registered with the RBI, therefore the Coordinate Bench of this Panaji Tribunal held that the benefit under section 80P(2)(a)(i) cannot be denied by following the decision of Hon ble Karnataka High Court in the case of Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha, Bagalkot. The above decision of the Coordinate Bench of this Tribunal has no application to the facts of the present case. So far as other cases relied on by the assessee have a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oordinate Bench of the Tribunal and decided in favour of the assessee by following the decision of another Coordinate Bench in the case of Durga Cooperative Urban Bank (supra) and also the decision of Hon ble Supreme Court in the case of UCO Bank v. CIT. The relevant portion of the order is as follows:- 6. We have heard both the parties and perused the materials available on record. The assessee is a co-operative bank, regularly following mixed system of accounting, wherein it is following cash system for recognizing interest on loans and advances and mercantile system of accounting for other expenditures. As stated by the A.R., the assessee is bound to follow the guidelines issued by the RBI for income recognition, asset classification and provisioning. Therefore, the assessee following the guidelines issued by the RBI did not recognize the interest accrued to the NPAs. The A.O. was of the opinion that since, the assessee is following mercantile system of accounting, it should recognize the interest relatable to NPAs, therefore, made the additions. The CIT(A), by relied upon the judgement of the ITAT, Hyderabad bench in the case of TCI Finance Ltd. Vs. ACIT (2004) 91 ITD 573 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iple amount itself had become doubtful to recover. In this scenario it was legitimate move to infer that interest income thereupon has not accrued . The said decision of the Hon'ble Delhi High Court is equally applicable to the issue in our hands. Accordingly we do not find any infirmity with the decision of the learned CIT (A) in holding that the interest income relatable on NPA advances did not accrue to the assessee. Accordingly we uphold his order. 8. An identical issue came up for consideration before the ITAT Pune Bench in the case of Vaidyanath Urban Co-op. Bank Ltd. Vs. CIT in ITA No.413/PN/2014 dated 31.3.2015, wherein the ITAT under similar set of facts held as under: 10. Turning to the facts of the case before us, the assessee herein is a cooperative 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e present case, the assessment was made on the basis of the CBDT's circular of 9th Oct., 1984, since the assessment pertains to asst. yr. 1981-82 to which the circular of 9th Oct., 1984, is applicable. Under sub-s. (2) of s. 119, without prejudice to the generality of the Board's power set out in sub-s. (1), a specific power is given to the Board for the purpose of proper and efficient management of the work of assessment and collection of revenue to issue from time to time general or special orders in respect of any class of incomes or class of cases setting forth directions or instructions, not being prejudicial to assessees, as the guidelines, principles or procedures to be followed in the work relating to assessment. Such instructions may be by way of relaxation of any of the provisions of the sections specified there or otherwise. The Board thus has power, inter al/a, to tone down the rigour of the law and ensure a fair enforcement of its provisions, by issuing circulars in exercise of its statutory powers under s. 119 which are binding on the authorities in the administration of the Act. Under s. 119(2)(a), however, the circulars as contemplated therein cannot be adve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee is eligible for exemption under section 80P(2)(a)(i) of the Act. The very same issue has been considered by us in the Assessment Year 2008-09. In view of our above decision, the assessment years under consideration also, the assessee is not eligible for exemption under section 80P(2)(a)(i) of the Act. We, therefore reverse the order of the Ld. Commissioner of Income Tax (Appeals) and the ground raised by the Revenue is allowed. 20 So far as issue in respect of overdue interest is concerned, the assessee was not pressed this ground before the Ld. Commissioner of Income Tax (Appeals), therefore this ground raised by the Revenue is dismissed. 21. So far as the provision in respect of NPA is concerned, the Ld.Commissioner of Income Tax (Appeals) directed the Assessing Officer to verify and decide accordingly, hence, we find no infirmity in the order of the Ld. Commissioner of Income Tax (Appeals) on this issue. 22. In so far as statutory reserve of ₹ 10,000/- is concerned, which was not pressed before the Ld. Commissioner of Income Tax (Appeals), therefore the same is dismissed. 23. So far as, Cross Objections filed by the assessee for the Assessment Ye ..... X X X X Extracts X X X X X X X X Extracts X X X X
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