Alavi Co Op Bank Ltd Baroda v. The Dy Cit Circle 5 Baroda

In The Income Tax Appellate Tribunal D Bench Ahmedabad Before Shri S S Godara Judicial Member Shri Pradip Kumar Kedia Accountant Member I T A No 2267 Ahd 2014 Assessment Year 2007 08 Alavi Co Op Bank Ltd Chokhandi Wardi Baroda 390 017 Vs Deputy Commissioner Of Income Tax Circle 5 Aayakar Bhavan Race Course Circle Baroda Pan Gir No Aaaaa 0966 A Appellant Respondent Appellant By Shri Samir Parikh Ar Respondent By Shri V K Singh Sr Dr Date Of Hearing 06 12 2017 0 Date Of Pronouncement 08 12 2017 O R D E R Per Pradip Kumar Kedia Am The Captioned Appeal Has Been Filed At The Instan Ce Of The Assessee Against The Order Of The Commissioner Of Income Tax Appeals V Baroda Cit A In Short Dated 27 05 2014 In The Matter Of Assessment Order Passed By The Assessing Officer Ao Under S 143 3 R W S 263 Of Ita No 2267 Ahd 2014 Alavi Co Op Bank Ltd Vs Dcit Asst Year 2007 08 2 The Income Tax Act 1961 Hereinafter Referred To A S The Act Dated 11 03 2013 Relevant To Assessment Year Ay 2010 11 2 In Its Appeal The Assessee Has Impugned The C Hargeability Of Interest On Non Performing Assets Npas Amounting To Rs 28 94 629 On Accrual Basis 3 Briefly Stated The Assessee Is Engaged In Bank Ing Business In Co Operative Sector It Was Observed By The Ao In The Scrutiny Assessment That During The Financial Year Fy 2006 07 Relevan T To Ay 2007 08 The Assessee Has Declared An Amount Of Rs 28 94 629 U Nder The Head Interest On Npa Receivable Directly In The Balance Sheet Without Routing It Through The P L Account As A Result The Afo Resaid Interest Amount Has Not Been Considered For Computing The Profits A Nd Gains Of Business Or Profession The Ao Observed That Assessee Ordin Arily Follows Mercantile System Of Accounting Whereby The Aforesa Id Interest Amount On Npa Stands Accrued As Income In View Of Section 145 Of The Act He Accordingly Inflated The Total Income To The Afores Aid Extent While Framing The Assessment 4 Aggrieved The Assessee Preferred Appeal Before The Cit A Without Any Success 5 Further Aggrieved The Assessee Preferred Appeal Before The Tribunal Ita No 2267 Ahd 2014 Alavi Co Op Bank Ltd Vs Dcit Asst Year 2007 08 3 6 The Ld Ar For The Assessee At The Outset Submi Tted That In Respect Of Interest On Non Performing Debtors Advances The Assessee Has Offered Interest Income As And When It Has Received Such In Terest In Departure With Accrual System Of Accounting The Ld Ar Submi Tted That This Is For The Reason That Interest Cannot Be Said To Have Acc Rued Where The Principal Amount Itself Is Found To Be Non Performing And Dou Btful Of Recovery In Terms Of The Rbi Guidelines The Ld Ar Adverted Ou R Attention To The Decision Of The Honble Gujarat High Court In The C Ase Of Pr Cit Vs Shri Mahila Sewa Sahakari Bank Ltd 2016 72 Taxmann Co M 117 Guj Where After Considering The Rbi Act And Cbdt Circcu Lar The Honble Gujarat High Court Has Decided The Issue In Favour Of Assessee The Ld Ar Accordingly Submitted That The Addition So Ma De Requires To Be Reversed 7 The Ld Dr On The Other Hand Relied Upon The Or Ders Of The Cit A And Ao 8 We Find That The Honble Gujarat High Court In T He Case Of Shri Mahila Sewa Sahakari Bank Ltd Supra Clearly Held That Interest On Npas Is Not Taxable On Accrual Basis In View Of The Guidelines Of The Rbi Similar View Has Been Taken By The Honble Bombay H Igh Court In The Case Of Cit Vs Deogiri Nagari Sahkari Bank Ltd In It Appeal No 53 Of 2014 And Ors Therefore We Find Merit In The Ple A Of The Assessee That Ita No 2267 Ahd 2014 Alavi Co Op Bank Ltd Vs Dcit Asst Year 2007 08 4 In View Of The Rbi Guidelines While The Interest In Come On Npas Are Required To Be Recognized But Need Not To Be Offere D To Tax Irrespective Of The Mercantile System Of Accounting The Interest Income On Npa Therefore Cannot Be Said To Have Accrued To The Ass Essee Per Se 9 In Consonance With The Decision Of The Honble J Urisdictional High Court We Find Merit In The Appeal Of The Assessee Therefore The Ao Is Directed To Delete The Additions Made On Account Of Interest On Npas 10 In The Result Appeal Of The Assessee Is Allowe D This Order Pronounced In Open Court On 08 12 2017 Sd Sd S S Godara Pradip Kumar Kedia Judicial Member Accountant Member Ahmedabad Dated 08 12 2017 4 T C Nair Sr Ps Copy Of The Order Forwarded To 1 The Appellant 2 The Respondent 3 567 8 Concerned Cit 4 8 The Cit A V Baroda 5 9 67 670 5 Dr Itat Ahmedabad 6 Guard File By Order 9 True Copy Dy Asstt Registrar Itat Ahmedabad