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Principal Commissioner of Income Tax - 5 Versus Sarangpur, Co. Op. Bank Ltd

2017 (6) TMI 352 - GUJARAT HIGH COURT

Addition on account of accrued interest on NPAs - Tribunal confirming the order of the CIT(A) which held that assessee bank is not liable to be taxed on the notional interest on non performing assets based upon the accrual accounting theory - interest on NPAs non taxable on accural basis - Held that:- This very question came to be considered at length and decided by the Division Bench of this Court in the case of Principal Commissioner of Income-tax-5 v. Shri Mahila Sewa Sahakari Bank Ltd. [ 201 .....

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rise in common background. Facts may be noticed from Tax Appeal No. 324 of 2017. 2. The appeals are filed by the revenue challenging the judgement of Income Tax Appellate Tribunal dated 27.7.2016. The following questions are presented for our consideration. (A)Whether Appellate Tribunal is right in law and on facts in confirming the order of the CIT(A) which held that assessee bank is not liable to be taxed on the notional interest on non performing assets based upon the accrual accounting theor .....

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NPAs is taxable on accrual basis? 3. Respondent-assessee is a co-operative bank. The issue pertains to taxing the notional interest on nonperforming assets of the bank on accrual basis. The revenue contends that since the respondent-assessee follows mercantile system of accounting, the moment interest on advances accrue, they become taxable. The Bank on the other hand contends that the recovery of principal sum itself is doubtful the accounts have become non-performing therefore there is no que .....

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d inter alia submitted that interest on NPA was not charged as mandatorily stipulated under Income Recognition and Asset Classification norms of the Reserve Bank of India. It has also been submitted that the CBDT circular bearing F.No.201/21/84-ITA-II dated 9.10.1984 issued under section 119 of the Act for all banking and non banking financial companies stating that if the interest has not been received for three years, the same will not be taxed as an income even on accrual basis even if intere .....

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which transacts the business of banking in India. Part V of the Banking Regulation Act bears the heading Application of the Act to Cooperative Societies. Section 56 thereof provides that the provisions of the Act, as in force for the time being, shall apply to, or in relation to cooperative societies as they apply to, or in relation to banking companies subject to the modifications stated thereunder. Clause (a) of section 56, to the extent the same is relevant for the present purpose, provides t .....

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e, the expression banking company would take within its sweep a co-operative bank. The Assessing Officer has thereafter entered into a discussion on the provisions of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, which provides for enforcement of security interest of banks and financial institutions and has observed that in the instant case, no material has been brought on record by the assessee to prove its efforts made in a bid to rec .....

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