9911796707
TMI Blog2012 (10) TMI 1222X X X X Extracts X X X X X X X X Extracts X X X X ..... law and against the facts and circumstances of the case. 2. That the learned Commissioner of Income-tax (Appeals) erred in law and on facts in confirming the addition of ₹ 48,81,411/- ignoring the submission of the appellant that amount has not been properly arrived yet. 3. That the learned Commissioner of Income-tax (Appeals) erred in law and on facts in holding that the sum of Rs, 44,71,000/- being interest receivable on loans that are doubtful of recovery is liable to be included in the Total Income. 4. That the learned Commissioner of Income-tax (Appeals) erred in law and on facts in not directing the Assessing Officer to follow the binding Circular # F.201/21/84-ITA-II dated 09.10.1984. 5. That the learned Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l basis. Interest on advances, receipt of commission, rent on safe deposit lockers etc., were accounted for on cash basis. The AO was of the view that as per the provisions of section 145 of the Income-tax Act, 1961 ("the Act"), the assessee has to either follow cash or mercantile system of accounting. It cannot follow hybrid or mixed system of accounting. The AO therefore called upon the assessee to compute the correct assessable income on the basis of mercantile system of accounting. 4. In reply, the assessee submitted that it was governed by the Karnataka State Co-operative Societies (KSCS) Act, 1959, KSCS Rules, 1960, besides Banking Regulation Act ,1949. The assessee pointed out that as per KSCS Act, 1959 r.w. KSCS Rules, 1960, all e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 889 (SC), wherein it was held that the Circular referred to above was binding and interest due on loans which were doubtful of recovery need not be recognized as income. 5. The AO however rejected the claim of the assessee and computed the income of the assessee from business by observing as follows:- "5.6 The explanation of the assessee has been considered. Section 145 has been amended w.e.f. April 1, 1997 (AY 1997-98) so as to permit only cash or mercantile system of accounting. The hybrid system of accounting is no longer permitted. Further the Act has been amended wef April 1, 1991 so far as the income by way of interest in relation to certain categories of bad and doubtful debts in case of public financial institutions and sch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 Income from Business 3,07,85,349" 6. On appeal by the assessee, the CIT(Appeals) upheld the order of the AO. Before the CIT(A), the assessee had reiterated the submissions that only real income can be brought to tax and in this regard relied on the decision of the Hon'ble Supreme Court in the case of UCO Bank (supra). The assessee also submitted that it is not correct to say that since the assessee society is not a scheduled commercial bank; the ratio laid down in the decision of the Hon'ble Supreme Court in the case of UCO Bank (supra) is not applicable to the assessee's case. It was contended by the assessee that co-operative banks had to be treated at par with commercial banks after the amendment to the provisions of section 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even as per the mercantile system of accounting, interest income need not be offered to tax, if they pertain to debts, the recovery of which itself is doubtful. In other words, it is the plea of the assessee that the ratio laid down by the Hon'ble Supreme Court in the case of UCO Bank (supra) should be taken cognizance of while taxing interest income even under the mercantile system of accounting and even where the Assessee is a co-operative bank. Apart from the above, it is also the claim of the assessee that interest income credited to the profit & loss account on receipt basis not only includes interest income pertaining to financial year 2007-08, but also includes the previous financial years. It is the claim of the assessee that in so ..... X X X X Extracts X X X X X X X X Extracts X X X X
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