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TMI Blog2022 (9) TMI 833X X X X Extracts X X X X X X X X Extracts X X X X ..... 000/- per person Rs. 4107176/- II) Interest above Rs. 10,000/- per person Rs. 7396057/- The Learned CIT Appeal has erred in confirming disallowance of Rs.17227362/- out of the disallowance of Rs.63602481/- made by the AO, the breakup of which is as under:- i) Interest on Saving Bank Account Rs. 6973450/- vi) Interest on CDS (Compulsory Deposit Account) Rs.1676968/- vii) Interest on RD (Recurring Deposits) Rs.1180887/- viii) Interest in FDR's - Non Members Rs.7396057/- Rs. 17227362/- 2. That the AO has erred in facts and law in making addition of Rs. 5220914/- on account of interest on non-performing assets and the Learned CIT has further erred in confirming the said addition. 3. That the AO has erred in facts and law in disallowing the amount on Rs. 192041/- on account of amortization of premium on Government Securities and the Learned CIT appeal has further erred in confirming the said addition." 3. Brief facts if the case are that, the assessee is a co-operative society carrying on the business of providing credit and deposits facilities. The assessee filed return of income declaring the total income of Rs. 1,76,68,630/-. The case of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not on compulsory deposits and there is no liability to deduct TDS on interest. Further submitted that, the said fact has been accepted by the Ld. A.O while framing assessment order of the assessee bank for the Assessment Year 2014-15 and no addition was made in the said assessment order. Further contended that, the deduction of TDS on interest the interest paid on recurring deposit was introduced by the Government w.e.f 1st June 2015 only, which is having prospective effect, which is not applicable for the year under consideration. Therefore submitted that, the said addition of Rs. 11,80,882/- deserves to be deleted. Further, brought to our notice that the Ld. A.O has accepted the said propositions and not made any addition in the assessment order of the assessee bank for Assessment Year 2014-15. In so far as, interest paid on FDRs non members amounting to Rs. 73,96,057/- is concerned, the Ld. Counsel for the assessee fairly submitted that, the applicable rate of interest is 30% not 100%. Therefore, submitted that, the Ld.CIT(A) has committed an error by imposing interest at 100%. Further, also contended that the addition made by the A.O on account of accrued interest of NPA confi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est above Rs. 10,000/- paid to staff members. Rs. 14,69,730/- b. Interest above Rs. 10,000/- paid to others Rs. 48,90,136/- c. Interest on which TDS has been deducted Rs. 10,36,191 Rs. 73,96,057/- 13. It is found that the Ld.CIT(A) has confirmed the about disallowance of Rs. 73,96,054/- on the ground that the same has been disallowed for the AY 2014-15, immediately succeeding assessment year under consideration. The Ld. Counsel for the assessee fairly submitted that the Section 40(a)(ia) of the Act was amended vide Finance Act, 2014 whereby the disallowance in respect of default in payment of TDS in case of payments to residents has been restricted to 30% instead of 100%, and since the amendment is curative in nature and have been made to remove the undue hardships to the assessee, therefore, submitted that the disallowance of 100% of the expenditure may be restricted to 30%. The Ld. DR has not objected for the same, therefore, the disallowance of 100% made by the CIT(A) has been restricted to 30% in view of the amendment vide Finance Act 2014 to Section 40(a)(ia) of the Act. Accordingly, the disallowance made by the A.O in respect of defaulting payment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e recognized only when there is some reasonable certainty about the receipt of the income. We, further, find that this view is also supported by the decisions, as mentioned above. We find that in the case of CIT Vs. Elgi Finance Ltd. 293 ITR 357, Hon'ble Madras High Court has held that interest on non- performing asset is not to be recognized in light of the RBI notification and accounting standard 9 issued by the Institute of Chartered Accountant of India. 8. In the light of aforesaid discussion and precedents. We do not find any infirmity in the order of Ld. CIT(A). Accordingly, we uphold the same." In view of above, at the very outset, we may point out that the AO wrongly mentioned that the guidelines of RBI and Circulars are not binding upon the income tax authorities as urban cooperative banks are bound to follow income recognition policy decided by the RBI and when RBI has made it clear that cooperative banks should not take to income account interest on performing assets on accrual basis, then it is not appropriate for the cooperative banks to recognise interest on nonperforming assets as their income on national basis. Therefore, basis of the action of the AO is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctfully take cognizance of the judgment of coordinate bench of Delhi 'H' Bench dated 21.6.13 in asessee's own group cooperative bank case (supra) wherein it has been expressly held that as per RBI guidelines, the interest on NPA is not to be recognized and also as per Accounting Standard 9 issued by Institute of Chartered Accountants of India, that income is to be recognised only when there is some reasonable certainly about the receipt of income. In view of above, we have no reason to take a deviated view from the order of the Tribunal (supra) and therefore, we are unable to see any valid reason to interfere with the conclusion of the first appellate authority and thus, we uphold the same. Accordingly, ground no. 1 of the revenue being devoid of merits is dismissed." 19. In view of the facts and circumstances, by relying on the above ratio, we are of the opinion that the assessee who is into banking activities has to follow RBI Guidelines and we do not find any error with the assessee in offering the interest on NPA for taxation in the assessment year relevant to such financial year of recovery. The Ld. A.O/CIT(A) have committed an error in disallowing Rs. 52,20,914/- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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