TMI Blog2017 (1) TMI 1255X X X X Extracts X X X X X X X X Extracts X X X X ..... other law for the time being inforce. In “M/s Vasisth Chay Vyapar Ltd.” (2010 (11) TMI 88 - Delhi High Court ), it has been held that when an NBFC classifies an asset as a Non-performing Asset in accordance with the directions issued the Reserve Bank of India, it is legitimate to infer that the interest income thereon is not accrued, even though the NBFC is following the mercantile system of accounting. Interalia, “M/s Southern Technologies Ltd.” (2010 (1) TMI 5 - SUPREME COURT OF INDIA ) has been distinguished “in M/s Vasisth Chay Vyapar Ltd.” (supra). Apropos the applicability of section 43D of the I.T. Act, it is on record that during the proceedings before the ld. CIT(A), the assessee, by way of submission dated 17.09.2015, the assessee had stated that the assessee had been confirmed by the Headquarter of the Punjab State Co-operative Bank , to be a scheduled bank. This position has not been disputed. - Decided against revenue - I.T.A No. 652/ASR/2015 And ITA Nos. 604 & 605/ASR/2016 - - - Dated:- 20-1-2017 - Shri A. D. Jain, Judicial Member And Shri T. S. Kapoor, Accountant Member Revenue by : Shri Bhawani Shankar, DR. Assessee by : Shri . Dinesh Sarna, AR. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /purchase/construction of immovable property; that the assessee bank is also not a public Financial Institution u/s 4 of the Companies Act, 1956; that the bank is also not a scheduled bank; that the assessee is following the mercantile system of accounting and so, it has to show income/receipts on accrual basis; that the assessee did not provide the details of individual debtors and percentage of interest regarding the NPAs, therefore, an average interest rate of 12% was being applied for the purpose of assessment; that section 43D of the Act provides for taxation of income of bad or doubtful debts in the year in which they are credited by the Public Financial Institution or the scheduled bank or the State Financial Corporation or the State Industrial Investment Corporation or the public company, to its P L a/c for that year, or in the year in which it is actually received, whichever is earlier; that in section 43D, Co-operative Bank or Co-operative Society engaged in the business of banking has not been mentioned; that if the intention of the legislature was to include such entities, they would have been clearly mentioned in section 43D; that as such, the assessee was not entitl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Infrastructure Development Corporation Ltd. (supra) and M/s Southern Technologies Ltd. vs. JCIT , 320 ITR 577 (SC), it has been held that interest on sticky loans /NPAs has to be recognized as income, since co-operative banks do not fall within the purview of section 43D of the I.T. Act; that section 43D of the Act includes only scheduled banks within its purview, whereas the assessee bank is not such a bank; that section 43D of the I.T. Act is the statutory provision in the I.T. Act regarding recognition of income from sticky loans and only the categories of business laid down in section 43D would be able to recognize interest on sticky loans, on receipt basis; that the assessee is not included in such categories of business and hence, it is required to account for interest on sticky loans as its income; that even if it did not make entries in its books of account for the interest on NPAs, such interest would be required to be accounted for as income. 5. While deleting the addition made, the ld. CIT(A) has observed as follows: 5.3 On careful consideration of the rival contentions and the judicial pronouncements relied upon decisions by the assessee co-operative society ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt its case. In the circumstances, I do not agree with the Assessing Officer's view on the issue and therefore the addition made deserves to be deleted. 5.4 In view of the above stated facts and circumstances of the case, I am of the opinion that the Assessing Officer is not justified in making an addition of ₹ 2.03,46,480/- to the returned income of the assessee on account of accrued interest on NPAs. The addition of ₹ 2,03.46,'480/- made by the Assessing Officer by treating accrued interest on NPAs as income of the assessee is, therefore, directed to be deleted. In the result, ground No. 1 of appeal taken by the assessee is allowed. 6. It remains an undisputed fact that the assessee co-operative bank has been following the mercantile system of accounting, except with regard to interest pertaining to NPAs. As noted by the ld. CIT(A), this position stands accepted by the department in the earlier years. The assessee has been following the RBI guidelines in this matter. Its method of accounting is entirely in accordance with the RBI guidelines. The RBI guidelines need to be mandatorily followed by the assessee. Moreover, this method of accounting, ado ..... X X X X Extracts X X X X X X X X Extracts X X X X
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