TMI Blog2017 (6) TMI 822X X X X Extracts X X X X X X X X Extracts X X X X ..... after subjected to tax and it is not a charge on P&L A/c. Therefore, the above outstanding liability cannot be treated as income of the assessee. Accordingly, we uphold the decision of the CIT(A) and dismiss the ground raised by the revenue in all the AYs under consideration. Disallowance not obtained the license from the RBI to run the bank as per the provision of section 22 of the Banking Regulation Act, 1949 - Held that:- CIT(A) has not brought complete facts on record in his findings. Therefore, it needs to be examined properly by the lower authorities, hence, we remit this issue back to the file of the CIT(A) for further verification and adjudication of the issue. Accordingly, this ground is allowed for statistical purposes. - ITA Noa. 689, 690 And 691/Hyd/2013 - - - Dated:- 7-4-2017 - SHRI D. MANMOHAN, VICE PRESIDENT, AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER For The Revenue : Shri K.J. Rao For The Assessee : Shri S. Rama Rao ORDER PER S. RIFAUR RAHMAN, A.M.: These three appeals are preferred by revenue against orders of CIT(A) V, Hyderabad, all dated, 28/01/2013 for AYs 2007-08 to 2009-10. As identical issues are involved, these appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive society carrying on the business of banking, therefore, the assessee is not entitled for deduction u/s 36(1)(viia) of the Act. Accordingly, disallowed the amount claimed by the assessee under the said section. 8. During the appeal proceedings, assessee submitted before the CIT(A) as below: 5.4 It is the contention of the appellant that they have been in the banking business on the date of commencement of the Banking Regulation Act and as per the stipulations therein, they had applied for a license to continue their banking business. However, the Reserve Bank neither granted any license nor rejected their plea as per the provisions mentioned above. The appellant further contended that their banking functions are being monitored by the Reserve Bank of India and statutory inspections, Audit by the NABARD under section 35 of the Banking Regulation Act and they are also complying to the norms framed by the RBI by submitting various returns of maintenance of SLR's. In support of the control exercised by the RBI on their banking business, the appellant submitted a letter dated 02.09.2005 from the RBI questioning the appellant's default in maintaining the Statutory Liqu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing, shall apply to, or in relation to cooperative society as they apply to, or in relation to banking companies subject to the following modifications namely: a) Throughout this Act, unless the context otherwise requires I) references to a 'banking company' or 'the company' or 'such company' shall be construed as reference to a Cooperative Bank ii) references to 'commencement of this Act' shall be construed as references to commencement of the banking laws (application to cooperative society) Act, 1965 (23 of 1965). 5.6 Therefore, according to sec.56 of Banking Regulation Act 1949, a cooperative society is to be termed as a banking company for the purpose of the said act and the provisions of the said act apply to a cooperative society as they apply to a banking company. Therefore, the provisions of the Banking Regulation Act apply to the assessee society. Even as per the Marathe Committee report on licensing of new Urban Co-operative Banks, 1992. once an application is made, the society can carry on the banking business till such time, the said application for recognition has been rejected by the appropriate authority. In the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and certify that all items of outside liabilities, as per bank's books had been duly complied by the bank and correctly reflected under DTL/NDTL in the fortnightly/monthly statutory returns submitted to RBI. As the appellant is furnishing the required Returns to RBI, the RBI referred to the provisions of section 24 of Banking Regulation Act, 1949 (AACS) and warned about the default committed by the appellant on the maintenance of SLRs. 5.10 With this discussion, it is clear that the appellant established before commencement of the Banking Regulation Act, 1949 has been engaged in the 'activity of banking and is following the norms prescribed for cooperative banks. The grant of license from 20.04.2010 by RBI to the appellant has nothing to do with the banking activity conducted by the appellant, as RBI at no point of time had objected to the activity of the appellant in writing as prescribed under Section 22(2) of the Banking Regulation Act, 1949. Therefore, the appellant has to be treated as cooperative bank and not just a cooperative society. 6. Having held so, the issue for consideration with reference to the assessment made for the subject Assessment year is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 188 of the paper book. He further submitted that in this AY since there is no profit earned by the assessee, assessee has not claimed deduction u/s 36(1)(viia) considering the fact that net result will also be a loss. However, he submitted that assessee is eligible to claim deduction u/s 36(1)(viia). He submitted that assessee is a cooperative society running a business of banking. As per the submissions already made before the CIT(A), assessee was granted letter of approval from RBI vide its letter dated 06/12/2010. Hence, it is a legally running banking business as per the provisions of Banking Regulation Act and it is eligible to claim deduction u/s 36(1)(viia). He relied on the decision of coordinate bench of ITAT, Hyderabad in the case of M/sAP Grameena Vikas Bank, Warangal in ITA Nos. 715 1293/Hyd/2015 and ITA No. 752/Hyd/2015 for AYs 2011-12 and 2012- 13 vide order dated 27/01/2017 (where one of the Member is signatories). 13. Considered the rival submissions and perused the material facts on record. It is noted from the record that AO has denied deduction u/s 36(1)(viia) observing that assessee is a cooperative society and not registered with RBI, therefore, it is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or this, assessee objected by submitting that income recognition should be based on record of recovery and therefore unrealized income should not be taken to P L A/c. However, in certain cases, where the State Cooperative Act/Rules/Audit Manual provide for taking such unrealized interest to the income head in the profit loss a/c, it is necessary for such cooperative banks to make full provisioning for equivalent amount by charging to P L A/c. For this proposition, assessee relied on the following case laws: 1. CIT Vs. Syndicate Bank, 261 ITR 528 2. CIT Vs. Indian Equipment Leasing Ltd., 293 ITR 350 3. CIT Vs. Kailash Auto Finance Ltd., 320 ITR 394 4. Mercantile Bank India Vs. CIT, 283 ITR 84 However, AO rejected the submissions of the assessee by observing that Assessee had not followed RBI prudential norms. 15. In the appeal proceedings, based on the submissions of the assessee and relying on various case laws, CIT(A) has allowed the assessee s claim of deduction of interest on NPAs. 16. Aggrieved, revenue is in appeal before us. 17. Ld. DR agreed that this issue was squarely covered against the department by various decisions of the Courts while ld. AR re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the A.O. is not correct in taxing the interest on NPAs on accrual basis. 7. We have gone through the reason given by the CIT(A) as well as the case laws relied upon by the assessee. The A. R. of the assessee at the time of hearing submitted that the issue is squarely covered by the decision of ITAT Visakhapatnam bench in the case of DClT Vs. Durga Co-operative Urban Bank Ltd. (supra). We have examined the case law referred by the A.R. in the light of the facts of the present case and find that the ITAT, Visakhapatnam bench in the above mentioned case on similar facts held the issue in favour of the assessee. The relevant portion is reproduced 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 Reserve Bank of India Act has a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dential norms, the assessee herein did not admit the interest relatable to NPA advances in its total income. The Hon'ble Delhi High Court in the case of Vasisth Chay Vyapar Ltd (Supra) has held that the interest on NPA assets cannot be said to have accrued to the assessee. In this regard, the following observations of Han 'ble Delhi High Court in the above cited case are relevant: What to talk of interest; even the principle 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. Following the aforesaid discussion, which has been rendered on an identical issue under similar circumstances, we find no reasons to interfere with the ultimate conclusion of the CIT(A) in deleting the impugned addition relating to interest income in respect of NPAs. 9. The Honb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lic interest. It is a beneficial power given to the Board for proper administration of fiscal law so that undue hardship may not be caused to the assessee and the fiscal laws may be correctly applied. Hard cases which can be properly categorised as belonging to a class, can thus be given the benefit of relaxation of law by issuing circulars binding on the taxing authorities. If the Board has considered it necessary to lay down a general test for deciding what is a doubtful debt, and directed that ITOs 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 s. 119. Such a circular is binding under s. 119. The circular of 9th Oct., 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. 10. Considering the facts and circumstances of the case and also applying the ratios of the judgements discussed above, we are of the view that interest on a loan whose recovery is doubtful and which has not been recovered by the assessee-bank, but has been kept in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laimed deduction u/s 80P and to deny deduction u/s 36(1)(viia) considering assessee is only a cooperative society, not a banking company. However, assessee has withdrawn deduction u/s 80P and assessee has proved that assessee even though a cooperative society, is running a banking business as per the provisions of Banking Regulation Act. Hence, this ground of appeal is mere submission and hence, need no adjudication. 25. In AY 2009-10, the revenue has raised the following ground: 4. The ld. CIT(A) erred in allowing the claim of the assessee with regard to interest on investments. 26. The AO noticed that in P L A/c assessee has claimed expenditure of ₹ 6,19,84,000/- towards interest on investments under the head contingent charges . On enquiry, assessee has submitted vide letter dated 19/08/2011 as under: It was only contra entry, debiting the interest on investment and crediting to Flexi Deposit Societies made to rectify the mistake committed in passing of entries during the final audit. The same was also mentioned in the allege to schedule No. 15, statement showing the yearly P L A/c for the year 2008-09. However, AO did not accept the submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X
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