TMI Blog2018 (4) TMI 631X X X X Extracts X X X X X X X X Extracts X X X X ..... /Vizag/2016 And C.O. No.36/Vizag/2016 - - - Dated:- 6-4-2018 - SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER For The Appellant : Shri Deba Kumar Sonowal, DR For The Respondent : Shri G.V.N. Hari, AR ORDER PER D.S. SUNDER SINGH, Accountant Member: This appeal filed by the revenue is directed against order of the Commissioner of Income Tax (Appeals)-1, {CIT(A)}, Guntur vide ITA No.97/CIT(A)-1/GNT/2014-15 dated 30.9.2015 for the assessment year 2008-09. The cross objection filed by the assessee is in support of the order passed by the CIT(A). 2. First issue in this appeal is deletion of addition made by the A.O. on account of provision for overdue interest. In this case, the assessment was completed u/s 143(3) of the Income Tax Act, 1961 (hereinafter called as 'the Act') on 12.11.2002 determining the total income of ₹ 1,89,85,700/-. Subsequently, the Commissioner of Income Tax(CIT), Guntur has taken up the case for revision u/s 263 of the Act and set aside the order passed u/s 143(3) dated 18/11/2010 of the Act with a direction to examine the taxability of provision for overdue interest. The A.O. g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive Bank following the prudential norms issued by the Reserve Bank of India (RBI) for recognizing the income. As per the prudential norms of RBI, the interest on NPA is recognised on actual receipt basis but not on accrual basis. The Ld. A.R. argued that it is the practice of the bank and approved by the RBI in the prudential norms to debit interest to the individual debtor and derecognize the income accordingly. The assessee further stated that it has accounted the interest subsequently on receipt basis and offered the same to the income. The Ld. A.R. also submitted that the assessee is following the same method of accounting for so many years, which has been accepted by the department. The Ld. A.R. relied on the orders of this Tribunal in the case of District Co-operative Central Bank, Eluru Vs. ITO Ward-2, Eluru in ITA Nos.49 50/Vizag/2012, the coordinate bench of this Tribunal allowed the appeal of the assessee following the decision of Hon ble High Court of Gujarat in the case of Principal Commissioner of Income Tax Vs. Mahila Seva Sahakari Bank Ltd. 140 DTR 113. Per contra the Ld.DR supported the order of the AO. 6. We have heard both the parties, perused the materials ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake to income account interest on non-performing assets on accrual basis. Thus, in view of the mandate of the RBI Guidelines the assessee cannot recognise income from nonperforming assets on accrual basis but can book such income only when it is actually received. Thus, this is a case where at the threshold, the assessee, in view of the RBI Guidelines, cannot recognise income from NPA on accrual basis. This is, therefore, a case pertaining to recognition of income and not computation of the income of the assessee. 21. The Supreme Court in Southern Technologies Ltd. (supra) has held that the 1998 Directions are only disclosure norms and have nothing to do with computation of total income under the IT Act or with the accounting treatment. The 1998 Directions only lay down the manner of presentation of NPA provision in the balance sheet of an NBFC. The court has referred to the deviations between the RBI Directions and the Companies Act as follows: '42. Broadly, there are three deviations: ( i) in the matter of presentation of financial statements under Schedule VI to the Companies Act; ( ii) in not recognising the income under the mercantile system ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be changed unless the AO comes to the conclusion that such change would result in understatement of profits. However, here is the case where the AO has to follow the RBI Directions, 1998 in view of Section 45-Q of the RBI Act. Hence, as far as income recognition is concerned, Section 145 of the IT Act has no role to play in the present dispute. Thus, insofar as income recognition is concerned, the court has held that even the Assessing Officer has to follow the RBI Directions, 1998 in view of section 45Q of the RBI Act and that as far as income recognition is concerned, section 145 of the Income-tax Act, has not role to play. 23. In the light of the above discussion what emerges is that while determining the tax liability of an assessee, two factors would come into play. Firstly, the recognition of income in terms of the recognised accounting principles and after such income is recognised, the computation thereof, in terms of the provisions of the Income-tax Act, 1961. Insofar as the computation of taxability is concerned, the same is solely governed by the provisions of the Income-tax Act and the accounting principles have no role to play. However, recognitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 an overriding effect vis- - vis income recognition principle under the Companies Act. Hence Sec.45 Q of the RBI Act shall have overriding effect over the income recognition principle followed by cooperative banks also. Hence the Assessing Officer has to follow the Reserve Bank of India directions 1998, as held by the Honible Supreme Court. 10.1 Based on the prudential 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 Hon'ble Delhi High Court in the above cited case are relevant: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 12. This Tribunal has deleted the additions relating to the overdue interest in the case of District Co-operative Central Bank, Eluru Vs. ITO Ward-2, Eluru in the order cited (supra) following the decision of. Hon ble High Court of Gujarat in the case of Principal Commissioner of Income Tax Vs. Mahila Seva Sahakari Bank Ltd. 140 DTR 113 as under: 28. Since the facts are identical, respectfully following the view taken by the Hon ble Gujarat High Court in the case of Sri Mahila Sewa Sahakari Bank Limited (supra) and the other decisions cited supra, we hold that the interest on NPA is to be recognized on actual receipt basis but not on accrual basis. Accordingly, we set aside the orders of the lower authorities and delete the addition. The appeal of the assessee o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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