TMI Blog2021 (2) TMI 416X X X X Extracts X X X X X X X X Extracts X X X X ..... der dated 01-03-2019 passed in case No.10182/2017-18/B2/CIT(A)-6, in proceedings u/s.143(3) of the Income Tax Act, 1961 [in short, the Act ]. 2. The assessee s only grievance raised in the instant appeal challenges both the lower authorities action adding interest on NPAs of ₹ 15,04,061/- i.e., interest receivable on non- performing advances but not received during the course of assessment as affirmed in the lower appellate order. 3. Learned departmental representative fails to dispute that we are dealing in AY.2015-16 dealing with the case of the assessee/co-operative urban bank. The legislature has included a co-operative bank as covered u/s.43D(a) of the Act vide Finance Act, 2017 w.e.f. 01-04-2018 only. Meaning thereby that the said amendment does not carry retrospective effect. This tribunal s co-ordinate bench s decision The Taliparamba Co-operative Bank Ltd., Vs. ITO, ITA No.35/Coch/2018, dt.13-03-2019, deletes the very nature of additions of interest on NPAs in view of the foregoing statutory amendment as follows: 2. The facts of the case are that the assessment in this case of for A.Y. 2013-14 was completed u/s 143(3) on 28.3.2016 determining a total inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is not listed in the schedule maintained by Reserve Bank of India. In support of this, the Ld. AR relied on the decision in the case of CIT Aurangabad Vs. Peoples Co-operative Bank and others (ITA Nos. 53,54,58 68 of 2014. High Court of Judicator of Bombay, Bench at Aurangabad) and other decisions on this point. The Ld. AR also submitted that section 43D of the Income tax Act had been amended subsequently by Finance Act 2017, by including therein the words Co-op. banks for the purpose of deduction with effect from 01/04/2018. Though this amendment was done by Finance Act 2017, this being as amendment to remedy the unintended grievances caused to the Co-op. Banks, the same should be treated as retrospective in operation. The Ld. Submitted that this view was supported by the decision in the case of Allied Motors (P) Ltd., Vs. CIT (1997) 139 CTR 0364 (SC). 3.1 The Ld. AR submitted that the assessee was following mercantile system of accounting as per the laid out procedure and was providing interest on non-per forming assets, as per the procedure laid out by Reserve Bank of India as evident from accounts and hence, was eligible for deductions under section 43D as provided t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the previous year in which it is actually received. The Act says that the incidence of 'credit' or actually received , whichever is earlier is to be taken into account for the purpose of chargeability of income by way of interest. Simultaneously, it is noteworthy that this section is an overriding section because the opening words are notwithstanding anything to the contrary contained in any other provisions of this Act . Therefore, in spite of anything contained in the Act, the provisions of this section shall override those provisions. Once the statute has categorically made a law in respect of public financial institutions that interest is chargeable to tax either in the year in which credited or actually received, whichever is earlier, then it is compulsory to abide by the said rule. No scope is left with the Revenue authorities to ignore these provisions due to unambiguous use of language in the section. As far as the status of the assessee is concerned, the AO has stated that the assessee-bank is a co-operative bank. Undisputedly, the assessee is also governed by the RBI guidelines. Vide an Expln. (d) r.w.s. 36(i)(viia) annexed to s. 430 the definition of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inancial corporation or a State industrial investment corporation, the income by way of interest in relation to such categories of bad or doubtful debts as may be prescribed having regard to the guidelines issued by the Reserve Bank of India in relation to such debts; (b) in the case of a public company, the income by way of interest in relation to such categories of bad or doubtful debts as may be prescribed having regard to the guidelines issued by the National Housing Bank in relation to such debts, shall be chargeable to tax in tin, previous year in which it is 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 profit and loss account for that year or, as the case may be, in which it is actually received by that institution or bank or corporation or company, whichever is earlier. 9. Section 43D of the Act was brought in basically intended to overcome the decision of the Supreme Court in State Bank of Travancore Vs. CIT 158 ITR 102 (SC) wherein it was held that interest on doubtful advances credited to interest suspense account and not transferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counting is subject to the directions to be issued by the Central Government in the matter of accounting standards. After the amendment to section 145 the Board has issued accounting standards to be followed by way of a Notification No. S.O. 69(E), dated January 25, 1996. Clause 6 defines accrual for the purpose of paragraphs 1) to (5) in the accounting standards. Accrual refers to the assumption that revenue and costs ore accrued, that is, recognised as they are earned or incurred (and not as money is received or paid) and recorded in the financial statements of the periods to which they relate. In this context the guidelines dated April 28,1995, were issued by the National Housing Bank with reference to non-performing assets. They state the policy on income recognition to be objective should be based on record of recovery. Income from a non- performing asset may not be recognised merely on the basis of accrual. An asset becomes non-performing when it ceases to yield income. The income from non-performing assets, therefore, should be recognised only when it is actually received. A non-performing asset is an asset in respect of which interest has remained unpaid and has become ..... X X X X Extracts X X X X X X X X Extracts X X X X
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