Assistant Commissioner of Income-tax,, v. The Pandharpur Merchant's Co.op. Bank Ltd.,, Solapur

ITA 1354/PUN/2014 | 2010-2011
Pronouncement Date: 28-11-2014 | Result: Dismissed

Appeal Details

RSA Number 135424514 RSA 2014
Assessee PAN AAAAT3135A
Bench Pune
Appeal Number ITA 1354/PUN/2014
Duration Of Justice 5 month(s) 1 day(s)
Appellant Assistant Commissioner of Income-tax,,
Respondent The Pandharpur Merchant's Co.op. Bank Ltd.,, Solapur
Appeal Type Income Tax Appeal
Pronouncement Date 28-11-2014
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 28-11-2014
Assessment Year 2010-2011
Appeal Filed On 26-06-2014
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A PUNE BEFORE SHRI G.S. PANNU ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA JUDICIAL MEMBER ITA NO.387/PN/2014 (ASSESSMENT YEAR : 2010-11) ASSTT. COMMISSIONER OF INCOME TAX CIRCLE- 1 SOLAPUR. . APPELLANT VS. RATANCHAND SHAH SAHAKARI BANK LTD. BAZAR PETH TAL. MANGALWEDHA DIST.- SOLAPUR. PAN : AAAAT3135A . RESPONDENT ITA NO.389/PN/2014 (ASSESSMENT YEAR : 2009-10) ASSTT. COMMISSIONER OF INCOME TAX CIRCLE- 1 SOLAPUR. . APPELLANT VS. RATANCHAND SHAH SAHAKARI BANK LTD. BAZAR PETH TAL. MANGALWEDHA DIST.- SOLAPUR. PAN : AAAAT3135A . RESPONDENT ITA NO.418/PN/2014 (ASSESSMENT YEAR : 2009-10) ASSTT. COMMISSIONER OF INCOME TAX CIRCLE- 2 SOLAPUR. . APPELLANT VS. BRAMHADEODADA MANE SAHAKARI BANK LTD. 113-A SIDDHESHWAR PETH OPP. ZILLA PARISHAD SOLAPUR 413 001. PAN : AAAAY0048H . RESPONDENT ITA NO.875/PN/2014 (ASSESSMENT YEAR : 2009-10) ASSTT. COMMISSIONER OF INCOME TAX CIRCLE- 1 SOLAPUR. . APPELLANT VS. THE PANDHARPUR MERCHANTS CO-OP. BANK LTD. MAHAVIR NAGAR LAXMI PATH PANDHARPUR DIST.- SOLAPUR. PAN : AAAAT3361I . RESPONDENT ITA NOS.2220 & 2221/PN/2013 C.O. NO.100/PN/2014 (ARISING OUT OF ITA NO.875/PN/2014) (ASSESSMENT YEAR : 2009-10) THE PANDHARPUR MERCHANTS CO-OP. BANK LTD. MAHAVIR NAGAR LAXMI PATH PANDHARPUR DIST.- SOLAPUR. PAN : AAAAT3361I . CROSS OBJECTOR VS. INCOME TAX OFFICER WARD 1(2) SOLAPUR. . APPELLANT IN APPEAL ITA NO.1354/PN/2014 (ASSESSMENT YEAR : 2010-11) ASSTT. COMMISSIONER OF INCOME TAX CIRCLE- 1 SOLAPUR. . APPELLANT VS. THE PANDHARPUR MERCHANTS CO-OP. BANK LTD. MAHAVIR NAGAR LAXMI PATH PANDHARPUR DIST.- SOLAPUR. PAN : AAAAT3361L . RESPONDENT ITA NO.1540/PN/2014 (ASSESSMENT YEAR : 2009-10) DY. COMMISSIONER OF INCOME TAX CIRCLE- 2 SOLAPUR. . APPELLANT VS. LOKMANGAL CO-OP. BANK LTD. 193 GOLDPINCH PETH SOLAPUR 413 007. PAN : AAAAL0119J . RESPONDENT C.O. NO.101/PN/2014 (ARISING OUT OF ITA NO.1540/PN/2014) (ASSESSMENT YEAR : 2009-10) LOKMANGAL CO-OP. BANK LTD. 193 GOLDPINCH PETH SOLAPUR 413 007. PAN : AAAAL0119J . CROSS OBJECTOR VS. ASSTT. COMMISSIONER OF INCOME TAX CIRCLE-2 SOLAPUR. . APPELLANT IN APPEAL ITA NOS.2220 & 2221/PN/2013 ITA NO.1541/PN/2014 (ASSESSMENT YEAR : 2010-11) DY. COMMISSIONER OF INCOME TAX CIRCLE- 2 SOLAPUR. . APPELLANT VS. LOKMANGAL CO-OP. BANK LTD. 193 GOLDPINCH PETH SOLAPUR 413 007. PAN : AAAAL0119J . RESPONDENT C.O. NO.102/PN/2014 (ARISING OUT OF ITA NO.1541/PN/2014) (ASSESSMENT YEAR : 2010-11) LOKMANGAL CO-OP. BANK LTD. 193 GOLDPINCH PETH SOLAPUR 413 007. PAN : AAAAL0119J . CROSS OBJECTOR VS. ASSTT. COMMISSIONER OF INCOME TAX CIRCLE-2 SOLAPUR. . APPELLANT IN APPEAL ITA NO.1930/PN/2014 (ASSESSMENT YEAR : 2010-11) DY. COMMISSIONER OF INCOME TAX CIRCLE- 2 SOLAPUR. . APPELLANT VS. BRAHMADEODADA MANE SAHAKARI BANK LTD. 113-A SIDDESHWAR PETH SOLAPUR 413 001. PAN : AAAAY0048H . RESPONDENT C.O. NO.103/PN/2014 (ARISING OUT OF ITA NO.1930/PN/2014) (ASSESSMENT YEAR : 2010-11) BRAHMADEODADA MANE SAHAKARI BANK LTD. 113-A SIDDESHWAR PETH SOLAPUR 413 001. PAN : AAAAY0048H . CROSS OBJECTOR VS. DY. COMMISSIONER OF INCOME TAX CIRCLE-2 SOLAPUR. . APPELLANT IN APPEAL ITA NOS.2220 & 2221/PN/2013 DEPARTMENT BY : SHRI B. C. MALAKAR ASSESSEE BY : SHRI S. N. PURANIK DATE OF HEARING : 25-11-2014 DATE OF PRONOUNCEMENT : 28-11-2014 ORDER PER G. S. PANNU AM ALL THE CAPTIONED APPEALS AND THE CROSS-OBJECTIONS PERTAIN TO DIFFERENT ASSESSEES FOR VARIED ASSESSMENT YEARS BUT SINCE SO ME OF THE ISSUES INVOLVED ARE COMMON THEY HAVE BEEN CLUBBED AND HEARD TOGETH ER AND A CONSOLIDATED ORDER IS BEING PASSED FOR THE SAKE OF CONVENIENCE A ND BREVITY. 2. SINCE THE SINGULAR ISSUE INVOLVED IN THE CAPTION ED APPEALS OF THE REVENUE IS SIMILAR THE REVENUES APPEAL IN THE CAS E OF LOKMANGAL CO-OP. BANK LTD. FOR ASSESSMENT YEAR 2009-10 VIDE ITA NO.1 540/PN/2014 IS TAKEN AS THE LEAD CASE IN ORDER TO APPRECIATE THE CONTROVERS Y. THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST AN ORDER OF THE COMMISS IONER OF INCOME TAX (APPEALS)-III PUNE DATED 30.05.2014 WHICH IN TURN HAS ARISEN FROM AN ORDER DATED 28.11.2011 PASSED BY THE ASSESSING OFFICER U/ S 143(3) OF THE INCOME- TAX ACT 1961 (IN SHORT THE ACT). 3. IN THIS APPEAL THE FOLLOWING GROUNDS OF APPEAL HAVE BEEN RAISED BY THE REVENUE :- 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE HON'BLE CIT(A) HAS ERRED IN DELETING THE ADDITI ON OF RS.26 11 750/- MADE BY THE A.O. ON ACCOUNT OF INTEREST ON NON PERFORMI NG ASSETS (NPA) U/S. 43D OF THE I.T ACT. 1961. 2) THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT THE ASSESSEE IS A CO-OPERATIVE BANK AND NOT A SCHEDULED BANK. 3) THE LEARNED CIT(A) IS OUGHT TO HAVE HELD THAT TH E PROVISIONS OF SECTION 43D ARE ONLY APPLICABLE TO FINANCIAL INSTIT UTIONS AND A SCHEDULED BANK. THUS THE ASSESSEE BEING A NON-SCHEDULED BA NK COULD NOT TAKE THE BENEFIT OF SECTION 43D OF THE ACT. THEREFORE THE L EARNED CIT(A) ON THIS COUNT ITSELF OUGHT TO HAVE DISMISSED THE APPEAL OF THE AS SESSEE CONFIRMING THE ADDITION MADE BY THE A.O. ITA NOS.2220 & 2221/PN/2013 4) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LEARNED CIT(A) ERRED IN APPRECIATING THE PROVISIONS OF SECT ION 145 OF THE I.T. ACT 1961 IN ITS CORRECT PERSPECTIVE. THE LEARNED CIT(A) OUGH T TO HAVE HELD THAT THE PROVISIONS OF SECTION 145 PERMITS THE ASSESSEE T O EITHER FOLLOW MERCANTILE SYSTEM OF ACCOUNTING OR CASH SYSTEM OF ACCOUNTING. THE ASSESSEE IS NOT PERMITTED TO USE THE MIXED OR HYBRID SYSTEM OF ACCO UNTING. THUS ON THIS COUNT ITSELF THE LEARNED CIT(A) SHOULD HAVE UPHELD THE ADDITION MADE BY THE AO ON ACCOUNT OF INTEREST ON NPA. 5) THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT THE HON'BLE SUPREME COURT IN SOUTHERN TECHNOLOGIES LIMI TED VS. JCIT 320 ITR 577 (SC) HAS HELD THAT THE RBI DIRECTIONS UNDER RBI ACT ARE PRUDENTIAL NORMS BUT HAVE NOTHING TO DO WITH COMPUTATION OF TAXABILI TY OF PROVISIONS OF NPA UNDER THE I.T.ACT 1961. EVEN THOUGH THE RBI DIRE CTIONS DEVIATE FROM THE ACCOUNTING PRACTICE AS PROVIDED BY THE COMPANIES AC T THEY DO NOT OVERRIDE THE PROVISIONS OF I.T.ACT 1961. RBI DIRECTIONS AND INCOME TAX ACT 1961 OPERATE IN DIFFERENT FIELDS. THEREFORE THE ORDER O F THE AO DESERVES TO BE UPHELD. 6) THE LEARNED CIT(A) OUGHT TO HAVE HELD THAT THE A SSESSEE DOES NOT SATISFY THE TWO CONDITIONS IN THE CBDT'S CIRCUL AR NO.F-201/81/84 ITA-II DATED 09/10/1984 AND HENCE COULD NOT AVAIL THE BENEFITS OF THE CIRCULAR. THE APPELLANT HEREIN REPRODUCES THE TWO CONDITIONS OF THE CIRCULAR. (A) THE ASSESSEE SHOULD BE BANKING COMPANY. (B) SUCH INTEREST SHOULD HAVE REMAINED UNCOVERED FO R CONSECUTIVELY THREE PREVIOUS YEARS. 7) THE LEARNED CIT(A) ERRED IN PLACING RELIANCE ON THE DECISION OF ITAT IN THE CASE OF ACIT CIRCLE-3 NANDED VS. OSMA NABAD JANATA SAHAKARI BANK LTD. IN ITA NO.795/PN/2011 ORDER DATED 31/08/2 012 WHEREIN IT IS HELD THAT PROVISIONS OF SECTION 43D WERE APPLICABLE IN T HE CASE OF ASSESSEE CO- OPERATIVE BANK UNLESS ACCRUED INTEREST WAS ROUTED T HROUGH P & L ACCOUNT. HOWEVER THE ABOVE DECISION HAS NOT BEEN ACCEPTED B Y THE CIT AURANGABAD AND APPEAL U/S. 260A HAS BEEN FILED WITH THE HON'BL E HIGH COURT OF BOMBAY BENCH AT AURANGABAD VIDE LODGING NO.1613/2013 DATE D 15/01/2013. FURTHER APPEALS U/S. 260A HAVE ALSO BEEN FILED BY THE HONB LE CIT-IV PUNE IN THE CASE OF SAMARATH SAHAKARI BANK LTD. SOLAPUR FOR A. Y. 2007-08 AND A.Y. 2008-09 (LODGING NO.626 OF 2013). 8) THE ORDER OF THE CIT(A) BE VACATED AND THAT OF T HE AO BE RESTORED. 9) THE APPELLANT CRAVES TO ADD ALTER AMEND SUBST ITUTE OR DELETE ANY OF THE GROUNDS URGED HEREIN ABOVE AS AND WHEN F OUND NECESSARY. 4. ALTHOUGH REVENUE HAS RAISED MULTIPLE GROUNDS OF APPEAL BUT THE ONLY GRIEVANCE IS AGAINST THE ORDER OF THE CIT(A) IN DEL ETING AN ADDITION OF RS.26 11 750/- MADE BY THE ASSESSING OFFICER REPRES ENTING INTEREST ON NON PERFORMING ASSETS (NPAS). 5. BRIEFLY PUT THE CONTROVERSY CAN BE SUMMARIZED A S FOLLOWS. THE ASSESSEE IS A NON-SCHEDULED CO-OPERATIVE BANK CARRY ING ON BANKING BUSINESS ITA NOS.2220 & 2221/PN/2013 IN TERMS OF A LICENSE ISSUED BY RESERVE BANK OF IND IA (RBI) AND IS THUS GOVERNED BY CIRCULARS OF RBI RELATING TO PRUDENTIAL NORMS INCOME RECOGNITION ASSET CLASSIFICATION PROVISIONING AND OTHER RELATED MATTERS. IN TERMS OF SUCH PRUDENTIAL NORMS OF RBI ASSESSEE DID NOT ACCOUNT FOR INTEREST RELATING TO NON-PERFORMING ASSETS (NPAS) I.E. ADVAN CES TO CUSTOMERS WHICH HAVE BEEN CLASSIFIED AS NPAS IN TERMS OF THE RBI GU IDELINES. THE ASSESSING OFFICER WAS OF THE OPINION THAT INTEREST INCOME EVE N IN RELATION TO SUCH NPAS WAS LIABLE TO BE INCLUDED IN THIS YEARS TOTAL INCO ME HAVING REGARD TO THE MERCANTILE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASS ESSEE. ACCORDING TO THE ASSESSING OFFICER PROVISIONS OF SECTION 43D OF THE ACT WHICH PRESCRIBE THAT INTEREST INCOME RELATABLE TO NPAS CLASSIFIED AS PER THE RBI GUIDELINES SHALL BE CHARGED TO TAX IN THE YEAR IN WHICH IT IS CREDITED OR RECEIVED BY THE ASSESSEE WHICHEVER IS EARLIER WAS NOT APPLICABLE TO THE ASS ESSEE SINCE THE ASSESSEE WAS NOT A SCHEDULED BANK OR ANY OTHER ENTITY PRESCR IBED IN SECTION 43D OF THE ACT. THUS AS PER THE ASSESSING OFFICER INTEREST INCOME ON NPA ADVANCES ACCRUED TO THE ASSESSEE AND ACCORDINGLY HE BROUGHT TO TAX SUCH INTEREST INCOME OF RS.26 11 750/- FOR ASSESSMENT YEAR 2009-1 0 WHICH IS THE SUBJECT- MATTER OF DISPUTE BEFORE US. 6. IN RESPONSE TO AN APPEAL PREFERRED BY THE ASSESS EE THE CIT(A) DISAGREED WITH THE ASSESSING OFFICER AND DELETED TH E ADDITION. AGAINST THE AFORESAID DELETION BY THE CIT(A) REVENUE IS IN APP EAL BEFORE US. 7. AT THE TIME OF HEARING IT WAS A COMMON POINT BE TWEEN THE PARTIES THAT AN IDENTICAL CONTROVERSY HAS BEEN CONSIDERED BY THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. THE OMERGA JANTA S AHAKARI BANK LTD. VIDE ORDER IN ITA NO.350/PN/2013 DATED 31.10.2013. IN T HE SAID PRECEDENT THE TRIBUNAL CONSIDERED THE JUDGEMENT OF THE HONBLE DE LHI HIGH COURT IN THE CASE OF M/S VASISTH CHAY VYAPAR LTD. 330 ITR 440 (DEL) AS WELL AS THE JUDGEMENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. SAKTHI FINANCE LTD. ITA NOS.2220 & 2221/PN/2013 (2013) 31 TAXMANN.COM 305 (MADRAS) WHICH HAD EXPRE SSED DIVERGENT VIEWS WITH RESPECT TO THE ISSUE OF ACCRUAL OF INTEREST IN COME ON NPA ADVANCES. IN THE ABSENCE OF ANY JUDGEMENT OF THE JURISDICTIONAL HIGH COURT A VIEW WHICH WAS FAVOURABLE TO THE ASSESSEE WAS FOLLOWED BY THE TRIBUNAL AND THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE IN VIEW OF TH E REASONING LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. VE GETABLE PRODUCTS LTD. (1973) 88 ITR 192 (SC). THE RELEVANT DISCUSSION IN THE ORDER OF THE TRIBUNAL DATED 31.10.2013 (SUPRA) IS REPRODUCED AS UNDER :- 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. IN SO FAR AS THE APPLICABILITY OF SECTION 43D OF THE ACT TO T HE ASSESSEE IS CONCERNED THERE IS A CONVERGENCE OF OPINION BETWEEN THE ASSES SEE AND THE REVENUE TO THE EFFECT THAT THE SAME IS NOT APPLICABLE TO THE A SSESSEE. OSTENSIBLY ASSESSEE IS A CO-OPERATIVE BANK CARRYING ON BANKING BUSINESS IN TERMS OF A LICENSE GRANTED BY RBI AND IS NOT A SCHEDULED BANK INCLUDED IN SECOND SCHEDULE OF RBI SO AS TO FALL WITHIN THE SCOPE OF S ECTION 43D OF THE ACT. NOTABLY SECTION 43D OF THE ACT PRESCRIBES THAT INT EREST INCOME ON SUCH CATEGORIES OF BAD AND DOUBTFUL DEBTS AS PRESCRIBED BY THE RBI GUIDELINES SHALL BE CHARGEABLE TO TAX IN THE YEAR IN WHICH SUCH INTE REST INCOME IS CREDITED BY THE ASSESSEE IN THE PROFIT AND LOSS ACCOUNT OR IN T HE YEAR OF ACTUAL RECEIPT WHICHEVER IS EARLIER. SINCE ASSESSEE IS NOT AN ENT ITY COVERED WITHIN THE SCOPE OF SECTION 43D OF THE ACT THE PRESENT CONTROVERSY CANNOT BE ADJUDICATED IN THE LIGHT OF SECTION 43D OF THE ACT AND IT IS LIABLE T O BE DECIDED ON GENERAL PRINCIPLES AS TO WHETHER THE IMPUGNED INCOME HAS AC CRUED TO THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. 9. IN THIS CONNECTION WE FIND THAT THE VISAKHAPATN AM BENCH OF THE TRIBUNAL IN THE CASE OF THE DURGA COOPERATIVE U RBAN BANK LTD. (SUPRA) HAS CONSIDERED AN IDENTICAL CONTROVERSY. THE ASSES SEE BEFORE THE VISAKHAPATNAM BENCH WAS A CO-OPERATIVE BANK OPERATI NG UNDER A LICENSE ISSUED BY RBI BUT WAS NOT A SCHEDULED BANK SO AS TO FALL WITHIN THE SCOPE OF SECTION 43D OF THE ACT. THE ISSUE RELATED TO TAXAB ILITY OF INTEREST INCOME RELATING TO NPAS WHICH AS PER THE REVENUE WAS LIAB LE TO BE TAXED ON ACCRUAL BASIS IN LINE WITH MERCANTILE SYSTEM OF ACCOUNTING ADOPTED BY THE ASSESSEE THEREIN. THE ASSESSEE ON THE OTHER HAND CONTENDE D THAT HAVING REGARD TO THE GUIDELINES ISSUED BY RBI REGARDING ACCOUNTING O F INTEREST ON NPAS NO INTEREST INCOME ACCRUED IN RESPECT OF NPAS AND THAT THE SAME WAS TO BE TAXED ONLY ON RECEIPT BASIS. THE TRIBUNAL OBSERVED THAT THE QUESTION OF TAXABILITY OF INTEREST ON NPAS CLASSIFIED BY RBI W AS CONSIDERED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF M/S VASISTH CHAY VY APAR LTD. (SUPRA) WHEREIN AFTER CONSIDERING THE DECISION OF THE HONBLE SUPRE ME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) IT WAS HELD THAT INTEREST INCOME RELATABLE TO NPAS WAS NOT INCLUDIBLE IN TOTAL INCOME ON ACCRU AL BASIS SINCE THE SAME DID NOT ACCRUE TO THE ASSESSEE. THE FOLLOWING DISCUSSI ON BY THE VISAKHAPATNAM BENCH OF THE TRIBUNAL IN THE CASE OF THE DURGA COOP ERATIVE URBAN BANK LTD. (SUPRA) IS WORTHY OF NOTICE :- 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFUL LY PERUSED THE RECORD. THE QUESTION OF TAXABILITY OF I NTEREST ON NPAS HAS BEEN CONSIDERED BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF M/S ITA NOS.2220 & 2221/PN/2013 VASISTH CHAY VYAPAR LTD (SUPRA); WHEREIN THE HON'BL E DELHI HIGH COURT TOOK INTO ACCOUNT THE DECISION RENDERED BY TH E HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD (SUP RA). IN THE CASE OF M/S VASISTH CHAY VYAPAR LTD THE ASSESSEE THEREIN W AS A NON BANKING FINANCIAL COMPANY AND IT WAS ALSO BOUND BY THE PRU DENTIAL NORMS DIRECTIONS ISSUED BY THE RESERVE BANK OF INDIA FOR INCOME RECOGNITION AND ASSET CLASSIFICATION. THE ASSESSEE DID NOT INCL UDE THE INTEREST INCOME RELATABLE TO NPA ASSETS IN ITS TOTAL INCOME. THE ASSESSING OFFICER HOWEVER ADDED THE SAID INTEREST AS THE IN COME OF THE ASSESSEE BY HOLDING THAT IT HAD ACCRUED TO THE AS SESSEE EVEN IT WAS NOT REALIZED AS THE ASSESSEE WAS FOLLOWING MERCANTI LE SYSTEM OF ACCOUNTING. THE LEARNED CIT (A) AFFIRMED THE ORDER OF THE ASSESSING OFFICER. HOWEVER THE ITAT DELETED THE AFORESAID IN COME. HENCE THE REVENUE PREFERRED APPEAL BEFORE THE HON'BLE DELHI H IGH COURT. 8.1 AFTER HEARING THE RIVAL SUBMISSIONS THE HON'BL E DELHI HIGH COURT TOOK NOTE OF SEC.45Q OF RESERVE BANK OF INDIA ACT WHICH READS AS UNDER: CHAPTER IIIB TO OVERRIDE OTHER LAWS. 45Q. THE PROVISIONS OF THIS CHAPTER SHALL HAVE EFFE CT NOTWITHSTANDING ANYTHING INCONSISTENT THEREWITH CONTAINED IN ANY OTHER LAW FOR THE TIME BEING IN FO RCE OR ANY INSTRUMENT HAVING EFFECT BY VIRTUE OF ANY SUCH LAW. THE HIGH COURT TOOK NOTE OF THE FACT THAT THE PROVI SION OF 45Q OF RESERVE BANK OF INDIA HAS OVERRIDING EFFECT OVER AN Y OTHER LAW. THEN THE HON'BLE HIGH COURT ALSO CONSIDERED ACCOUNTING S TANDARD AS-9 ON REVENUE RECOGNITION AND ALSO EXTRACTED FOLLOWING RELEVANT PORTION FROM THE SAID ACCOUNTING STANDARD: 9. EFFECT OF UNCERTAINTIES ON REVENUE RECOGNITION 9.1 RECOGNITION OF REVENUE REQUIRES THAT REVENUE IS A MEASURABLE AND THAT AT THE TIME OF SALE OR THE REND ERING OF THE SERVICE IT WOULD NOT BE UNREASONABLE TO EXPECT ULT IMATE COLLECTION. 9.2 WHERE THE ABILITY TO ASSESS THE ULTIMATE COLLEC TION WITH REASONABLE CERTAINTY IS LACKING AT THE TIME OF RAIS ING ANY CLAIM E.G. FOR ESCALATION OF PRICE EXPORT INCENTIVES I NTEREST ETC. REVENUE RECOGNITION IS POSTPONED TO THE EXTENT OF U NCERTAINTY INVOLVED. IN SUCH CASES IT MAY BE APPROPRIATE TO R ECOGNIZE REVENUE ONLY WHEN IT IS REASONABLY CERTAIN THAT THE ULTIMATE COLLECTION WILL BE MADE. WHERE THERE IS NO UNCERTAI NTY AS TO ULTIMATE COLLECTION REVENUE IS RECOGNIZED AT THE T IME OF SALE OR RENDERING OF SERVICE EVEN THOUGH PAYMENTS ARE MADE BY INSTALLMENTS. 9.3 WHEN THE UNCERTAINTY RELATING TO COLLECTABILITY ARISES SUBSEQUENT TO THE TIME OF SALE OR THE RENDERING OF THE SERVICE IT IS MORE APPROPRIATE TO MAKE A SEPARATE PROVISION TO REFLECT THE UNCERTAINTY RATHER THAN TO ADJUST THE AMOUNT OF REV ENUE ORIGINALLY RECORDED. 9.4 AN ESSENTIAL CRITERION FOR THE RECOGNITION OF R EVENUE IS THAT THE CONSIDERATION RECEIVABLE FOR THE SALE OF G OODS THE RENDERING OF SERVICES OR FROM THE USE OF OTHERS OF ENTERPRISE RESOURCES IS REASONABLY DETERMINABLE. WHEN SUCH CONSIDERATION IS NOT DETERMINABLE WITHIN REASONABLE LIMITS THE RECOGNITION OF REVENUE IS POSTPONED. ITA NOS.2220 & 2221/PN/2013 9.5 WHEN RECOGNITION OF REVENUE IS POSTPONED DUE TO THE EFFECT OF UNCERTAINTIES IT IS CONSIDERED AS REVENU E OF THE PERIOD IN WHICH IT IS PROPERLY RECOGNIZED. 8.2 THE DELHI HIGH COURT ALSO CONSIDERED THE DECISI ON RENDERED IN THE FOLLOWING CASES: I) CIT VS. ELGI FINANCE LTD. 293 ITR 357 (MAD) II) CIT VS. KKM INVESTMENTS (CAL) SLP DISMISSED B Y SUPREME COURT (310 ITR 4) III) CIT VS. MOTOR CREDIT CO (P) LTD. 127 ITR 572 (MAD) IV) UCO BANK VS. CIT 237 ITR 889 (SC) V) CIT VS. SHOORJI VALLABHDAS & CO 46 ITR 144 (SC) VI) GODHRA ELECTRICITY CO. LTD. VS.CIT 225 ITR 746 VII) CIT VS. GOYAL M G GASES (P) LTD. 303 ITR 159 (DEL) VIII) CIT VS. EICHER LTD. ITA NO.431/2009 DATED 15 .7.2009 (DEL) 8.3 AFTER CONSIDERING THE ACCOUNTING STANDARD 9 AND THE VARIOUS CASE LAW LISTED ABOVE THE HON'BLE DELHI HIGH COURT HELD THAT THE INTEREST ON NPA ADVANCE CANNOT BE TREATED AS ACCRU ED TO THE ASSESSEE. 8.4 BEFORE THE DELHI HIGH COURT THE REVENUE TOOK S UPPORT OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F SOUTHERN TECHNOLOGIES LTD (SUPRA). THE DELHI HIGH COURT CONS IDERED THE SAID DECISION OF HON'BLE APEX COURT AND EXPLAINED THE SA ME AS UNDER: WE HAVE ALREADY HELD THAT EVEN UNDER THE INCOME TA X ACT INTEREST INCOME HAD NOT ACCRUED. MOREOVER THIS SUB MISSION OF MR. SABHARWAL IS BASED ENTIRELY ON THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGY (S UPRA). NO DOUBT IN FIRST BLUSH READING OF THE JUDGMENT G IVES AN INDICATION THAT THE COURT HAS HELD THAT RESERVE BAN K OF INDIA ACT DOES NOT OVERRIDE THE PROVISIONS OF THE I NCOME TAX ACT. HOWEVER WHEN WE EXAMINE THE ISSUE INVOLVED THEREIN MINUTELY AND DEEPLY IN THE CONTEXT IN WHICH THAT HAD ARISEN AND CERTAIN OBSERVATIONS OF THE APEX COURT C ONTAINED IN THAT VERY JUDGMENT WE FIND THAT THE PROPOSITION AD VANCED BY MR.SABHARWAL MAY NOT BE ENTIRELY CORRECT. IN THE CASE BEFORE THE SUPREME COURT THE ASSESSEE A NBFC DEBITED RS.81 68 516 AS PROVISION AGAINST NPA IN THE PROFIT AND LOSS ACCOUNT WHICH WAS CLAIMED AS DEDUCTION IN TER MS OF SECTION 36(1) (VII) OF THE ACT. THE ASSESSING OFFICER DID NOT ALLOW THE DEDUCTION CLAIMED AS AFORESAID ON THE GRO UND THAT THE PROVISION OF NPA WAS NOT IN THE NATURE OF EXPENDITU RE OR LOSS BUT MORE IN THE NATURE OF A RESERVE AND THUS NOT D EDUCTIBLE UNDER SECTION 36(I)(VII) OF THE ACT. THE ASSESSING OFFICER HOWEVER DID NOT BRING TO TAX RS.20 34 605/- AS INC OME (BEING INCOME ACCRUED UNDER THE MERCANTILE SYSTEM O F ACCOUNTING). THE DISPUTE BEFORE THE APEX COURT CENTERED AROUND DEDUCTIBILITY OF PROVISION FOR NPA. AFTER ANALYZING THE PROVISIONS OF THE RESERVE BANK OF INDIA ACT THEIR LORDSHIPS OF THE APEX COURT OBSERVED THAT IN SO FAR AS THE PERMISSIBLE DEDUCTIONS OR EXCLUSIONS UNDER THE ACT ARE CONCERNED THE SAME ARE ADMISSIBLE ONLY IF SUCH DEDUCTIONS/EXCLUSIONS SATISFY THE RELEVANT CONDITIO NS STIPULATED THEREFORE UNDER THE ACT. TO THAT EXTENT IT WAS OBSERVED THAT THE PRUDENTIAL NORMS DO NOT OVERRIDE THE PROVISIONS OF THE ACT. HOWEVER THE APEX COURT MADE A DISTINCTION WITH REGARD TO INCOME RECOGNITION AND HELD THAT INCOME HAD TO BE RECOGNIZED IN TERMS OF THE PRUDENT IAL NORMS EVEN THOUGH THE SAME DEVIATED FROM MERCANTIL E ITA NOS.2220 & 2221/PN/2013 SYSTEM OF ACCOUNTING AND/OR SECTION 45 (SIC. 145) O F THE INCOME TAX ACT. IT CAN BE SAID THEREFORE THAT THE APEX COURT APPROVED THE REAL INCOME THEORY WHICH IS ENGRAINE D IN THE PRUDENTIAL NORMS FOR RECOGNITION OF REVENUE BY NBFC . 9. THE HON'BLE SUPREME COURT IN THE CASE OF M/S SOU THERN TECHNOLOGIES LTD (SUPRA) DISSECTED THE MATTER INTO TWO PARTS VIZ. A) INCOME RECOGNITION AND B) PERMISSIBLE DEDUCTION/EXC LUSIONS UNDER THE INCOME TAX ACT. IN SO FAR AS INCOME RECOGNITION IS CONCERNED THE HON'BLE SUPREME COURT HELD THAT SECTION 145 OF THE INCOME TAX ACT HAS NO ROLE TO PLAY AND THE ASSESSING OFFICER HAS T O FOLLOW RESERVE BANK OF INDIA DIRECTIONS 1998 SINCE BY VIRTUE OF 4 5Q OF THE RESERVE BANK OF INDIA ACT AN OVERRIDING EFFECT IS GIVEN TO THE DIRECTIONS OF RESERVE BANK OF INDIA VIS--VIS INCOME RECOGNITION PRINCIPLES IN THE COMPANIES ACT 1956. IN SO FAR AS COMPUTATION OF INC OME UNDER THE INCOME TAX ACT IS CONCERNED (WHICH INVOLVES DEDUCT ION OF PERMISSIBLE DEDUCTIONS AND EXCLUSIONS) THE ADMISSIBILITY OF SUC H DEDUCTIONS SHALL BE GOVERNED BY THE PROVISIONS OF THE INCOME TAX ACT . THE RELEVANT OBSERVATIONS OF THE HON'BLE SUPREME COURT ARE EXTRA CTED BELOW: APPLICABILITY OF SECTION 145 40. AT THE OUTSET WE MAY STATE THAT IN ESSENCE RBI DIRECTIONS 1998 ARE PRUDENTIAL/PROVISIONING NORMS ISSUED BY RB I UNDER CHAPTER IIIB OF THE RBI ACT 1934. THESE NORMS DEAL ESSENTIALLY WITH INCOME RECOGNITION. THEY FORCE THE NBFCS TO DISCLOSE THE AMOUNT OF NPA IN THEIR FINANCIAL ACCOU NTS. THEY FORCE THE NBFCS TO REFLECT TRUE AND CORRECT PROFI TS. BY VIRTUE OF SECTION 45Q AN OVERRIDING EFFECT IS GIVEN TO TH E DIRECTIONS 1998 VIS--VIS INCOME RECOGNITION PRIN CIPLES IN THE COMPANIES ACT 1956. THESE DIRECTIONS CONSTITUTE A CODE BY ITSELF. HOWEVER THESE DIRECTIONS 1998 AND THE IT ACT OPERATE IN DIFFERENT AREAS. THESE DIRECTIONS 1998 H AVE NOTHING TO DO WITH COMPUTATION OF TAXABLE INCOME. THESE DIRECTIONS CANNOT OVERRULE THE PERMISSIBLE DEDUCTIONS OR TH EIR EXCLUSION UNDER THE IT ACT. THE INCONSISTENCY BETWEEN THESE DIRECTIONS AND COMPANIES ACT IS ONLY IN THE M ATTER OF INCOME RECOGNITION AND PRESENTATION OF FINANCIAL ST ATEMENTS. THE ACCOUNTING POLICIES ADOPTED BY AN NBFC CANNOT DETERMINE THE TAXABLE INCOME. IT IS WELL SETTLED TH AT THE ACCOUNTING POLICIES FOLLOWED BY A COMPANY CAN BE CH ANGED UNLESS THE AO COMES TO THE CONCLUSION THAT SUCH CHA NGE WOULD RESULT IN UNDERSTATEMENT OF PROFITS. HOWEVER HERE IS THE CASE WHERE THE AO HAS TO FOLLOW THE RESERVE BANK OF INDI A DIRECTIONS 1998 IN VIEW OF SECTION 45Q OF THE RESER VE BANK OF INDIA ACT. HENCE AS FAR AS INCOME RECOGNIT ION IS CONCERNED SECTION 145 OF THE IT ACT HAS NO ROLE TO PLAY IN THE PRESENT DISPUTE. 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 WIT H REGARD TO THE PRUDENTIAL NORMS ISSUED BY THE RESERVE BANK OF INDI A ARE EQUALLY APPLICABLE TO THE ASSESSEE AS IT IS APPLICABLE TO T HE COMPANIES REGISTERED UNDER THE COMPANIES ACT. THE HON'BLE SUP REME COURT HAS HELD IN THE CASE OF SOUTHERN TECHNOLOGIES LTD (SUPR A) THAT THE PROVISION OF 45Q OF RESERVE BANK OF INDIA ACT HAS A N OVERRIDING EFFECT VIS--VIS INCOME RECOGNITION PRINCIPLE UNDER THE CO MPANIES ACT. HENCE SEC.45 Q OF THE RBI ACT SHALL HAVE OVERRIDING EFFEC T 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 HON'BLE SUPREME COURT. 10.1 BASED ON THE PRUDENTIAL NORMS THE ASSESSEE HE REIN DID NOT ADMIT THE INTEREST RELATABLE TO NPA ADVANCES IN ITS TOTAL INCOME. THE ITA NOS.2220 & 2221/PN/2013 HON'BLE DELHI HIGH COURT IN THE CASE OF VASISTH CHA Y VYAPAR LTD (SUPRA) HAS HELD THAT THE INTEREST ON NPA ASSETS CA NNOT BE SAID TO HAVE ACCRUED TO THE ASSESSEE. IN THIS REGARD THE F OLLOWING OBSERVATIONS OF HON'BLE DELHI HIGH COURT IN THE ABO VE CITED CASE ARE RELEVANT: WHAT TO TALK OF INTEREST EVEN THE PRINCIPLE AMOUN T ITSELF HAD BECOME DOUBTFUL TO RECOVER. IN THIS SCENARIO IT WAS LEGITIMATE MOVE TO INFER THAT INTEREST INCOME THEREUPON HAS NO T ACCRUED. THE SAID DECISION OF THE HON'BLE DELHI HIGH COURT I S EQUALLY APPLICABLE TO THE ISSUE IN OUR HANDS. ACCORDINGLY WE DO NOT FI ND 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 ASS ESSEE. ACCORDINGLY WE UPHOLD HIS ORDER. 10. 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. 11. SO HOWEVER THE LEARNED DEPARTMENTAL REPRESENT ATIVE HAS SUBMITTED THAT THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. SAKTHI FINANCE LTD. (2013) 31 TAXMANN.COM 305 (MADRAS) HA S DIFFERED WITH THE JUDGEMENT OF THE HONBLE DELHI HIGH COURT IN THE CA SE OF M/S VASISTH CHAY VYAPAR LTD. (SUPRA) ON A SIMILAR ISSUE I.E. RELATI NG TO INTEREST INCOME ON NPAS. THE LEARNED DEPARTMENTAL REPRESENTATIVE FURTHER POI NTED OUT THAT THE HONBLE MADRAS HIGH COURT FOLLOWED THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) IN HOLDI NG THAT INTEREST ON NPAS WAS ASSESSABLE TO TAX ON ACCRUAL BASIS. WE HAVE CA REFULLY CONSIDERED THE SUBMISSIONS PUT-FORTH BY THE LEARNED DEPARTMENTAL R EPRESENTATIVE BASED ON THE JUDGEMENT OF THE HONBLE MADRAS HIGH COURT IN T HE CASE OF SAKTHI FINANCE LTD. (SUPRA). THE CONTROVERSY BEFORE THE HONBLE M ADRAS HIGH COURT RELATED TO NON-RECOGNITION OF INTEREST INCOME ON NPAS BY THE A SSESSEE FOLLOWING THE RBI GUIDELINES. THE HONBLE MADRAS HIGH COURT TOOK THE VIEW THAT THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF SOUTHER N TECHNOLOGIES LTD. (SUPRA) ALSO APPLIED TO THE INCOME RECOGNITION NORM S PROVIDED BY RBI AND THEREFORE IT HELD THE INTEREST INCOME ON NPAS IS LI ABLE TO BE TAXED ON ACCRUAL BASIS AND NOT IN TERMS OF RBIS GUIDELINES. BUT TH E HONBLE DELHI HIGH COURT IN THE CASE OF M/S VASISTH CHAY VYAPAR LTD. (SUPRA) HA S TAKEN A VIEW THAT SOUTHERN TECHNOLOGIES LTD. (SUPRA) CASE DID NOT APP LY TO THE INCOME RECOGNITION NORMS PRESCRIBED BY RBI. OSTENSIBLY T HERE IS DIVERGENCE OF OPINION BETWEEN THE HONBLE DELHI HIGH COURT AND TH E HONBLE MADRAS HIGH COURT AS NOTED BY THE HONBLE MADRAS HIGH COURT IN ITS ORDER. 12. IN SO FAR AS PRESENT CASE IS CONCERNED THERE I S NO JUDGMENT OF THE JURISDICTIONAL HIGH COURT. WE ARE FACED WITH T WO CONTRARY JUDGMENTS OF THE NON-JURISDICTIONAL HIGH COURT. IN SUCH A SITUA TION WE ARE INCLINED TO PREFER A VIEW WHICH IS FAVOURABLE OF THE ASSESSEE FOLLOWIN G THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. VEGETA BLE PRODUCTS LTD. (1973) 88 ITR 192 (SC). 13. THEREFORE IN VIEW OF THE AFORESAID DISCUSSION WE ARE INCLINED TO FOLLOW THE DECISION OF OUR CO-ORDINATE BENCH IN THE CASE OF THE DURGA COOPERATIVE URBAN BANK LTD. (SUPRA) AND ACCORDINGLY THE ORDER OF THE CIT(A) IS LIABLE TO THE AFFIRMED. WE HOLD SO. 14. IN THE RESULT THE APPEAL OF THE REVENUE IS DIS MISSED. ITA NOS.2220 & 2221/PN/2013 8. IT WAS ALSO A COMMON POINT BETWEEN THE PARTIES B EFORE US THAT THE FACTS AND CIRCUMSTANCES IN THE PRESENT CASE ARE IDENTICAL TO THOSE CONSIDERED BY US IN THE CASE OF THE OMERGA JANTA SAHAKARI BANK LTD. (SUPRA) AND THUS FOLLOWING THE SAID PRECEDENT THE PRESENT CLAIM OF T HE ASSESSEE DESERVES TO BE UPHELD. THUS THE ORDER OF THE CIT(A) IS HEREBY AF FIRMED AND THE REVENUE HAS TO FAIL ON THIS ASPECT. 9. IN THE RESULT APPEAL OF THE REVENUE VIDE ITA NO .1540/PN/2014 FOR ASSESSMENT YEAR 2009-10 IS DISMISSED. 10. AT THIS STAGE WE MAY NOTICE THAT IN THE BALANC E OF THE CAPTIONED APPEALS PREFERRED BY THE REVENUE THE ISSUE INVOLVE D IS WITH REGARD TO THE NON-RECOGNITION OF INTEREST INCOME ON NPAS. THE AF ORESAID DISPUTE INCLUDING THE FACTS AND CIRCUMSTANCES IS IDENTICAL TO THAT C ONSIDERED BY US IN THE EARLIER PARAS IN THE CASE OF LOKMANGAL CO-OP. BANK LTD. (SU PRA) FOR ASSESSMENT YEAR 2009-10. THEREFORE OUR DECISION IN THE CASE OF LO KMANGAL CO-OP. BANK LTD. (SUPRA) FOR ASSESSMENT YEAR 2009-10 SHALL APPLY MUT ATIS-MUTANDIS IN ALL THE OTHER APPEALS OF THE REVENUE. 11. RESULTANTLY ALL THE CAPTIONED APPEALS OF THE R EVENUE ARE DISMISSED. 12. NOW WE MAY TAKE-UP THE CROSS-OBJECTIONS PREFER RED BY THE ASSESSEE IN RELATION TO SOME OF THE CAPTIONED APPEALS BY THE RE VENUE. FIRSTLY WE MAY TAKE-UP C.O. NO.101/PN/2014 WHICH IS IN RELATION TO APPEAL OF THE REVENUE IN THE CASE OF LOKMANGAL CO-OP. BANK LTD. VIDE ITA NO. 1540/PN/2014 FOR ASSESSMENT YEAR 2009-10 WHEREIN ASSESSEE HAS RAISE D THE FOLLOWING GROUNDS OF APPEAL :- 1. CIT(A) HAS ERRED IN NOT CONSIDERING THE DECISIO N OF PUNE ITAT IN CASE OF OMERGA JANATA SAHAKARI BANK LTD WHEREIN PUNE BENCH HAS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE THOUGH SECTION 43D IS NOT APPLICABLE BEING NON-SCHEDULED BANK. ITA NOS.2220 & 2221/PN/2013 2. CIT (A) HAS ERRED IN CONFIRMING THE ADDITION OF RS. 3 13 855/- INTEREST ON SECURITIES PURCHASED FOR THE PERIOD PR IOR TO DATE OF PURCHASE RECEIVED BY BANK AND PAID TO CONCERN FROM WHOM SECURITIES WERE PURCHASED. CROSS OBJECTOR PRAYS FOR DELETION OF ADDITION. 3. CROSS OBJECTOR PRAYS TO UPHOLD THE DECISION OF CIT(A) ON NON-ADDITION OF INTEREST ON NPA (GROSS) AMOUNT SUBJECT TO MODIFICATION AS GROUND NO. 1. 4. CROSS OBJECTOR PRAYS FOR JUST AND EQUITABLE RELI EF. 13. IN SO FAR AS GROUND OF APPEAL NOS.1 AND 3 OF TH E CROSS-OBJECTION ARE CONCERNED THE SAME ARE DISPOSED-OFF BY WAY OF OUR DECISION IN THE APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2009-10. THE ONLY OTHER GROUND REMAINING IN THE CROSS-OBJECTION IS WITH REGARD TO AN ADDITIO N OF RS.3 13 855/- MADE BY THE ASSESSING OFFICER AND WHICH HAS SINCE BEEN SUST AINED BY THE CIT(A). THE SAID ADDITION IS ON ACCOUNT OF THE INTEREST ON SECU RITIES PURCHASED BY THE ASSESSEE WHICH HAS BEEN PAID TO THE SELLER OF THE SECURITIES AND CORRESPONDS TO THE PERIOD PRIOR TO THE DATE OF PURCHASE BY THE ASSESSEE BANK. 14. IN THIS CONTEXT RELEVANT FACTS ARE THAT ASSESS EE HAD EFFECTED PURCHASES OF GOVERNMENT SECURITIES FROM SECONDARY MARKET ON 2 8.12.2008. OSTENSIBLY INTEREST ACCRUING ON SUCH SECURITIES UPTO 28.12.200 8 WAS TO THE ACCOUNT OF THE SELLER AND FOR THE BALANCE PERIOD I.E. FROM 29.12.2 008 TO 31.03.2009 IT WAS THE INCOME OF THE ASSESSEE. ASSESSEE RECEIVED INTEREST FOR THE TOTAL PERIOD OF SIX MONTHS WHICH AMOUNTED TO RS.6 24 372/- AND THE INT EREST PERTAINING TO PERIOD UPTO 28.12.2008 WAS RS.3 13 855/-. CONSIDERING THA T THE INTEREST OF RS.3 13 855/- BELONGED TO THE SELLER OF SECURITIES ASSESSEE HAD PAID THIS AMOUNT TO THE SELLER AT THE TIME OF PURCHASE OF SEC URITIES. THE SAID AMOUNT OF RS.3 13 855/- WAS DEBITED TO INTEREST RECEIVABLE AC COUNT AND ON RECEIPT OF INTEREST OF RS.6 24 372/- SAME WAS CREDITED TO THE INTEREST RECEIVABLE ACCOUNT AND THE BALANCE REMAINING IN THE SAID ACCO UNT I.E. RS.3 10 517- WAS CREDITED TO THE PROFIT & LOSS ACCOUNT AS INCOME. IN THE BANKING PARLANCE THE PAYMENT OF RS.3 13 855/- MADE BY THE ASSESSEE TO TH E SELLER OF SECURITIES ON ACCOUNT OF INTEREST UPTO 28.12.2008 IS COMMONLY REF ERRED AS BROKEN PERIOD ITA NOS.2220 & 2221/PN/2013 INTEREST. THE ASSESSING OFFICER DIFFERED WITH THE ASSESSEE WITH RESPECT TO THE TREATMENT OF BROKEN PERIOD INTEREST OF RS.3 13 85 5/- PAID ON PURCHASE OF THE GOVERNMENT SECURITIES. AS PER THE ASSESSING OFFICE R SUCH BROKEN PERIOD INTEREST FORMED AN INTEGRAL PART OF THE COST OF SE CURITIES AND THAT SUCH COMPOSITE CONSIDERATION CANNOT BE BIFURCATED INTO BROKEN PERIOD INTEREST AND COST OF SECURITIES EVEN THOUGH THE DIFFERENCE BETWE EN THE FACE VALUE OF THE SECURITIES AND THE PURCHASE PRICE WAS BASICALLY ON ACCOUNT OF THE BROKEN PERIOD INTEREST. THE ASSESSING OFFICER HELD THAT BROKEN PERIOD INTEREST CANNOT BE SEGREGATED AND CLAIMED AS DEDUCTION BY TH E ASSESSEE BANK FOR THE REASON THAT SUCH EXPENDITURE WAS TO BE UNDERSTOOD A S A CAPITAL OUTLAY. THE ASSESSING OFFICER FURTHER HELD THAT SUCH EXPENDITUR E HAS TO BE DEALT WITH AT THE TIME OF SALE OF SECURITIES AND NOT IN THE YEAR OF P URCHASE OF SECURITIES. IN COMING TO HIS CONCLUSION THE ASSESSING OFFICER REL IED UPON THE RATIO OF THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF VIJAYA BANK LTD. VS. CIT 187 ITR 541 (SC) AS ALSO THE JUDGEMENT OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. BANK OF RAJASTHAN LTD. 316 ITR 391. 15. THE CIT(A) HAS ALSO AFFIRMED THE AFORESAID STAN D OF THE ASSESSING OFFICER. THE CIT(A) FOLLOWED THE JUDGEMENT OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF BANK OF RAJASTHAN LTD. (SUPRA) WHICH HAD DISSENTED FROM THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN T HE CASE OF AMERICAN EXPRESS INTERNATIONAL BANKING CORPORATION VS. CIT 258 ITR 601 (BOM) BY RELYING ON THE HONBLE SUPREME COURT IN THE CASE OF VIJAYA BANK LTD. (SUPRA). AGAINST SUCH DECISION OF THE CIT(A) ASSESSEE IS IN APPEAL BY WAY OF CROSS- OBJECTION BEFORE US. 16. AT THE TIME OF HEARING IT WAS A COMMON POINT B ETWEEN THE PARTIES THAT THAT HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V S. HDFC BANK LTD. 107 DTR 140 (BOM) HAS HELD THAT THE BROKEN PERIOD INTE REST IS ALLOWABLE AS A DEDUCTION. IT IS ALSO NOTEWORTHY THAT THE HONBLE BOMBAY HIGH COURT IN THE ITA NOS.2220 & 2221/PN/2013 CASE OF HDFC BANK LTD. (SUPRA) CONSIDERED THE DECIS IONS OF THE HONBLE SUPREME COURT IN THE CASE OF VIJAYA BANK LTD. (SUPR A) AS ALSO THAT OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF BANK OF RAJASTHAN LTD. (SUPRA) AND THEREAFTER IT HAS UPHELD THE STAND OF THE ASSE SSEE THAT BROKEN PERIOD INTEREST IS ALLOWABLE AS A DEDUCTION. IN VIEW OF THE AFORESAID AUTHORITATIVE PRONOUNCEMENT BY THE HONBLE BOMBAY HIGH COURT WE FIND NO JUSTIFICATION TO UPHOLD THE STAND OF THE INCOME-TAX AUTHORITIES. FO LLOWING THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF HDFC BANK LTD. (SUPRA) WE HEREBY SET-ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE AS SESSING OFFICER TO DELETE THE IMPUGNED ADDITION. 17. IN THE RESULT C.O.NO.101/PN/2014 IN THE CASE O F LOKMANGAL CO-OP. BANK LTD. IS ALLOWED. 18. NOW WE MAY TAKE-UP C.O. NO.102/PN/2014 WHICH I S IN RELATION TO APPEAL OF THE REVENUE IN THE CASE OF LOKMANGAL CO-O P. BANK LTD. VIDE ITA NO.1541/PN/2014 FOR ASSESSMENT YEAR 2010-11. THE S AID CROSS-OBJECTION ARISES FROM THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-III PUNE DATED 30.05.2014 WHICH IN TURN HAS ARISEN FROM AN ORDER DATED 30.12.2012 PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE A CT. 19. IN THIS CROSS-OBJECTION ASSESSEE HAS RAISED TH E FOLLOWING GROUNDS OF APPEAL :- 1. CIT(A) HAS ERRED IN NOT CONSIDERING THE DECISIO N OF PUNE ITAT IN CASE OF OMERGA JANATA SAHAKARI BANK LTD. WHEREI N PUNE BENCH HAS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE THOUGH SECTION 43D IS NOT APPLICABLE BEING NON-SCHEDULED BANK. 2. CIT (A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.17 58 867/- INTEREST ON SECURITIES PURCHASED FOR THE PERIOD PR IOR TO DATE OF PURCHASE RECEIVED BY BANK AND PAID TO CONCERN FROM WHOM SECURITIES WERE PURCHASED. CROSS OBJECTOR PRAYS FOR DELETION OF ADDITION. ITA NOS.2220 & 2221/PN/2013 3. CROSS OBJECTOR PRAYS TO UPHOLD THE D ECISION OF CIT(A) ON NON-ADDITION OF INTEREST ON NPA (GROSS) AMOUNT SUBJECT TO MODIFICATION AS GROUND NO. 1 4. CROSS OBJECTOR PRAYS FOR JUST AND EQUITABLE RELI EF. 20. IN THIS CROSS-OBJECTION IT WAS A COMMON POINT BETWEEN THE PARTIES THAT THE FACTS AND CIRCUMSTANCES ON THIS ASPECT ARE PARI-MATERIA TO THOSE CONSIDERED BY US IN THE CROSS-OBJECTION OF THE ASSE SSEE FOR ASSESSMENT YEAR 2009-10 IN THE EARLIER PARAS. THEREFORE OUR DECIS ION IN RELATION TO THE AFORESAID ISSUES IN THE CROSS-OBJECTION FOR ASSESSM ENT YEAR 2009-10 WOULD APPLY MUTATIS MUTANDIS IN THIS YEAR ALSO. FOLLOWING THE SAME ASSESSEE SUCCEEDS IN ITS CROSS-OBJECTION FOR ASSESSMENT YEAR 2010-11 ALSO. 21. IN THE RESULT C.O.NO.102/PN/2014 IN THE CASE O F LOKMANGAL CO-OP. BANK LTD. IS ALSO ALLOWED. 22. NOW WE MAY TAKE-UP C.O. NO.103/PN/2014 WHICH I S IN RELATION TO APPEAL OF THE REVENUE IN THE CASE OF BRAHMADEODADA MANE SAHAKARI BANK LTD. VIDE ITA NO.1930/PN/2014 FOR ASSESSMENT YEAR 2 010-11. THE SAID CROSS- OBJECTION ARISES FROM THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)- III PUNE DATED 08.08.2014 WHICH IN TURN HAS ARIS EN FROM AN ORDER DATED 15.03.2013 PASSED BY THE ASSESSING OFFICER U/S 143( 3) OF THE ACT. 23. IN THIS CROSS-OBJECTION ASSESSEE HAS RAISED TH E FOLLOWING GROUNDS OF APPEAL :- 1. CIT(A) HAS ERRED IN NOT CONSIDERING THE DECISION OF PUNE ITAT IN CASE OF OMERGA JANATA SAHAKARI BANK LTD WHEREIN PUNE BENCH HAS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE THOUGH SECTION 43D IS NOT APPLICABLE BEING NON-SCHEDULED BANK. 2. CIT (A) HAS ERRED IN CONFIRMING THE D ISALLOWANCE OF RS.3 70 913/- PREMIUM WRITTEN OFF ON HTM SECURIT IES. CROSS OBJECTOR PRAYS FOR DELETION OF SAID DISALLOWA NCE. 3. CROSS OBJECTOR PRAYS TO UPHOLD TH E DECISION OF CIT(A) ON NON-ADDITION OF INTEREST ON NP A (GROSS) AMOUNT SUBJECT TO MODIFICATION AS GROUND NO. 1 ITA NOS.2220 & 2221/PN/2013 4. CROSS OBJECTOR PRAYS FOR JUST AND EQUITABLE RELI EF. 24. IN SO FAR AS GROUND OF APPEAL NOS.1 AND 3 OF TH E CROSS-OBJECTION ARE CONCERNED THE SAME ARE DISPOSED-OFF BY WAY OF OUR DECISION IN THE APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2009-10. 25. THE ONLY OTHER REMAINING GROUND IN THE CROSS-OB JECTION IS WITH REGARD TO THE ACTION OF THE CIT(A) IN CONFIRMING THE DISALLOW ANCE OF RS.3 70 913/- REPRESENTING AMORTIZATION OF PREMIUM PAID ON ACQUIS ITION OF HELD TO MATURITY (HTM) SECURITIES. 26. IN THIS CONTEXT BRIEF FACTS ARE THAT BEFORE TH E CIT(A) ASSESSEE CLAIMED DEDUCTION OF RS.3 70 913/- ON ACCOUNT OF AMORTIZATI ON OF PREMIUM PAID ON GOVERNMENT SECURITIES IN THE CATEGORY OF INVESTMENT S HELD TO MATURITY (I.E. HTM). THE SAID PREMIUM REPRESENTED THE EXCESS OF A CQUISITION COST OVER THE FACE VALUE OF THE SECURITIES AND THE CLAIM OF THE A SSESSEE WAS THAT THE SAME WAS TO BE AMORTIZED OVER THE REMAINING PERIOD OF MA TURITY OF THE SECURITIES. THE CLAIM OF THE ASSESSEE WAS BASED ON THE MASTER C IRCULAR DATED 12.07.2006 ISSUED BY THE RESERVE BANK OF INDIA. TH E CIT(A) DID NOT ACCEPT THE PLEA OF THE ASSESSEE AND SUSTAINED THE DISALLOW ANCE OF RS.3 70 913/-. AGAINST SUCH A DECISION OF THE CIT(A) ASSESSEE IS IN APPEAL BY WAY OF CROSS- OBJECTION BEFORE US. 27. IT WAS A COMMON POINT BETWEEN THE PARTIES THAT THE SAID ISSUE IS NO LONGER RES-INTEGRA AND HAS BEEN ADJUDICATED IN FAVOUR OF THE ASSESSEE BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF HDFC BANK LTD. (SUPRA). THE HONBLE BOMBAY HIGH COURT REFERRED TO ITS EARLIER D ECISION IN THE CASE OF CIT VS. LORD KRISHNA BANK LTD. (2014) 107 DTR 138 (BOM) AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. IN VIEW OF THE AFORESAI D THE ORDER OF THE CIT(A) IS SET-ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO DELETE AN ADDITION OF ITA NOS.2220 & 2221/PN/2013 RS.3 70 913/- REPRESENTING AMORTIZATION OF PREMIUM PAID ON HTM SECURITIES. THUS THE GROUND OF THE ASSESSEE IS ALLOWED. 28. IN THE RESULT C.O.NO.103/PN/2014 IN THE CASE O F BRAHMADEODADA MANE SAHAKARI BANK LTD. IS ALLOWED ALSO. 29. NOW WE MAY TAKE-UP C.O. NO.100/PN/2014 WHICH I S IN RELATION TO APPEAL OF THE REVENUE IN THE CASE OF THE PANDHARPUR MERCHANT CO-OP. BANK LTD. VIDE ITA NO.875/PN/2014 FOR ASSESSMENT YEAR 20 09-10. THE SAID CROSS- OBJECTION ARISES FROM THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)- III PUNE DATED 04.02.2014 WHICH IN TURN HAS ARIS EN FROM AN ORDER DATED 14.12.2011 PASSED BY THE ASSESSING OFFICER U/S 143( 3) OF THE ACT. 30. IN THIS CROSS-OBJECTION ASSESSEE HAS RAISED TH E FOLLOWING GROUNDS OF APPEAL :- 1. CROSS OBJECTOR PRAYS THAT COMMISSIONER APPEALS ORDER ON THE ISSUE OF DELETION OF NPA INTEREST; DELETION OF GR OSS NPA INTEREST DELETION MAY PLEASE BE UPHELD TAKING INTO CONSIDERATION PUN E ITAT DECISION IN CASE OF OMERGA JANATA SAHAKARI BANK LTD. 2. CIT(A) HAS ERRED IN CONFIRMING DISALLOWANCE OF E MPLOYEES CONTRIBUTION OF PROVIDENT FUND OF RS.56 328.50 PAID BEFORE DUE DATE OF FILING OF RETURN. 31. IN SO FAR AS GROUND OF APPEAL NO.1 OF THE CROSS -OBJECTION IS CONCERNED THE SAME IS DISPOSED-OFF BY WAY OF OUR DECISION IN THE APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2009-10. 32. THE ONLY OTHER GROUND REMAINING IN THE CROSS-OB JECTION IS WITH RESPECT TO THE ACTION OF THE CIT(A) IN NOT ALLOWING ASSESSE ES CLAIM FOR ALLOWANCE OF EMPLOYEES CONTRIBUTION TO THE PROVIDENT FUND OF RS. 56 328.50. THE CLAIM FOR DEDUCTION HAS BEEN DENIED BY THE CIT(A) ON THE GROU ND THAT THE EMPLOYEES CONTRIBUTION TO THE PROVIDENT FUND AMOUNTING TO RS. 56 328.50 HAS BEEN ITA NOS.2220 & 2221/PN/2013 DEPOSITED BELATEDLY. THE STAND OF THE ASSESSEE IS THAT THOUGH THE PAYMENT OF EMPLOYEES CONTRIBUTION TO THE PROVIDENT FUND IS DEL AYED HOWEVER THE SAME HAS BEEN DEPOSITED BEFORE THE DUE DATE OF FILING OF RETURN PRESCRIBED U/S 139(1) OF THE ACT. ON THIS BASIS IT IS SOUGHT TO BE CONTENDED THAT THE AFORESAID AMOUNT CANNOT BE DISALLOWED BY INVOKING SECTION 43B OF THE ACT. THE LD. REPRESENTATIVE SUBMITTED THAT THE CIT(A) DID NOT AL LOW THE PLEA OF THE ASSESSEE ON THE GROUND THAT EMPLOYEES CONTRIBUTION TO THE PROVIDENT FUND IS LIABLE TO BE TREATED AS INCOME OF THE ASSESSEE IN T ERM OF SECTION 2(24)(X) READ WITH EXPLANATION TO SECTION 36(1)(VA) OF THE ACT AN D THEREFORE SUCH AN EXPENSE CAN ONLY BE ALLOWED TO BE DEDUCTED IF IT HAS BEEN P AID WITHIN DUE DATE DEFINED IN EXPLANATION BELOW CLAUSE (VA) OF SUB-SECTION (1) OF SECTION 36 OF THE ACT. IN COMING TO SUCH CONCLUSION THE CIT(A) FOLLOWED THE JUDGEMENT OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF GUJARAT STATE ROA D TRANSPORT CORPORATION (TAX APPEAL NOS.637/2013 1711 & 2577/2009 925 94 9 965 1655 2365 2378 & 2644/2010 AND 814/2011) DATED 26.12.2013. 33. AT THE TIME OF HEARING THE LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT SUBSEQUENT TO THE DECISION OF THE CI T(A) THE HONBLE BOMBAY HIGH COURT HAS CONSIDERED AN IDENTICAL ISSUE IN THE CASE OF CIT VS. GHATGE PATIL TRANSPORTS LTD. (2014) 368 ITR 749 (BOM). A S PER THE HONBLE BOMBAY HIGH COURT THE PAYMENT OF EMPLOYEES CONTRIBUTION T O THE PROVIDENT FUND WAS ALSO SUBJECT TO THE PROVISIONS OF SECTION 43B OF TH E ACT AND THEREFORE THE ASSESSEE WAS TO BE ALLOWED THE BENEFIT OF AMENDMENT INSERTED W.E.F. 01.04.2004 BY WAY OF THE FIRST PROVISO. AFTER CONS IDERING THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. ALOM E XTRUSIONS LTD. 319 ITR 306 (SC) THE HONBLE BOMBAY HIGH COURT HELD THAT E VEN THE EMPLOYEES CONTRIBUTION TO THE PROVIDENT FUND PAID BEYOND THE RESPECTIVE DUE DATES BUT BEFORE THE DUE DATE APPLICABLE FOR FURNISHING OF RE TURN OF INCOME U/S 139(1) OF THE ACT WOULD NOT SUFFER THE DISALLOWANCE U/S 43B OF THE ACT. IN VIEW OF THE AFORESAID JUDGEMENT OF THE HONBLE BOMBAY HIGH COUR T WE FIND NO REASON TO ITA NOS.2220 & 2221/PN/2013 SUSTAIN THE STAND OF THE CIT(A) WHICH IS BASED ON A DIFFERENT VIEW EXPRESSED BY THE HONBLE GUJARAT HIGH COURT. THE HONBLE BOM BAY HIGH COURT BEING THE JURISDICTIONAL HIGH COURT THE VIEW LAID DOWN B Y THE HONBLE BOMBAY HIGH COURT IS REQUIRED TO BE FOLLOWED BY US. AS A CONSE QUENCE WE SET-ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICE R TO ALLOW ASSESSEES CLAIM FOR DEDUCTION OF RS.56 328.50 REPRESENTING EMPLOYEE S CONTRIBUTION TO THE PROVIDENT FUND DEPOSITED BEFORE THE DUE DATE OF FIL ING OF RETURN PRESCRIBED U/S 139(1) OF THE ACT. THUS ASSESSEE SUCCEEDS ON THIS ASPECT ALSO. 34. IN THE RESULT C.O.NO.100/PN/2014 IN THE CASE O F THE PANDHARPUR MERCHANT CO-OP. BANK LTD. IS ALLOWED ALSO. 35. RESULTANTLY WHEREAS THE CAPTIONED APPEALS BY T HE REVENUE ARE DISMISSED THE RESPECTIVE CROSS-OBJECTIONS OF THE A SSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH NOVEMBER 2014. SD/- SD/- (SUSHMA CHOWLA) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE DATED: 28 TH NOVEMBER 2014. SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-III PUNE; 4) THE CIT-III PUNE; 5) THE DR A BENCH I.T.A.T. PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T. PUNE