Assistant Commissioner of Income-tax,, v. Janata Sahakari Bank Ltd.,, Solapur

ITA 386/PUN/2014 | 2009-2010
Pronouncement Date: 29-04-2015 | Result: Dismissed

Appeal Details

RSA Number 38624514 RSA 2014
Assessee PAN AAAAJ0251F
Bench Pune
Appeal Number ITA 386/PUN/2014
Duration Of Justice 1 year(s) 2 month(s)
Appellant Assistant Commissioner of Income-tax,,
Respondent Janata Sahakari Bank Ltd.,, Solapur
Appeal Type Income Tax Appeal
Pronouncement Date 29-04-2015
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 29-04-2015
Assessment Year 2009-2010
Appeal Filed On 28-02-2014
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A PUNE BEFORE M S SUSHMA CHOWLA JUDICIAL MEMBER BEFORE M S SUSHMA CHOWLA JUDICIAL MEMBER AND SHRI R.K. PANDA ACCOUNTANT MEMBER ITA NO. 386 /PN/2014 ASSESSMENT YEAR: 2009 - 10 THE COMMISSIONER OF INCOME TAX CIRCLE - 1 SOLAPUR . APPELLANT VS. JANATA SAHAKARI BANK LIMITED GANDHI CHOWK A/P KURDUWADI GANDHI CHOWK A/P KURDUWADI TAL. MADHA DIST. SOLAPUR . RESPONDENT PAN: AAAAJ0251F A PPELLANT BY : S MT. ANURADHA U. RAVI RESPONDENT BY : NONE DATE OF HEARING : 15 - 0 4 - 201 5 DATE OF PRONOUNCEMENT : 29 - 0 4 - 201 5 ORDER PER SUSHMA CHOWLA J M : THIS APPEAL FILED BY THE REVENUE IS AGAINST THE ORDER OF CIT(A) - II I PUNE DATED 0 3 .1 2 .201 3 RELATING TO ASSESSMENT YEAR 2009 - 10 PASSED UNDER SECTION 143(3) OF THE INCOME - TAX ACT. 2 . THE REVENU E HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE HON'BLE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.25 8 3 0 45/ - MADE BY THE A.O ON ACCOUNT OF INTEREST ON NON PERFORMING ASSETS U/S.43D OF THE INCOME TAX ACT 1961. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE HON'BLE CIT(A) HAS ERRED IN HOLDING THAT THE PROVISIONS OF SECTION 43D ARE APPLICABLE TO FINANCIAL INSTITUTIONS AND A SCHEDULED BANK. THUS THE ASSESSEE BEING A N ON SCHEDULED BANK COULD NOT TAKE THE BENEFIT OF SECTION 43D OF THE INCOME TAX ACT 1961. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE HON'BL E CIT(A) ERRED IN APPRECIATING THE PROVISIONS OF SECTION 145 OF HON'BL E CIT(A) ERRED IN APPRECIATING THE PROVISIONS OF SECTION 145 OF THE I . T. ACT 1961 IN ITS CORRECT PERSPECTIVE . ITA NO . 386 /PN/20 14 JANATA SAHAKARI BANK LTD. 2 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE HON'BLE CIT(A) ERRED WHILE DELIVERING THE JUDGMENT HAS ALLOWED THE APPEAL OF THE ASSESSEE BANK BY PLACING RELIANCE ON ITS OWN DECISION IN THE ACIT CIRCLE - 3 F NANDED V S. OSMANABAD JANATA SAHAKAR I BANK LTD. IN ITA NO. 795/PN/2011 VIDE ORDER DATED 31/08/2012. HOWEVER THE ABOVE DECISION HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND AN APPEAL U/S. 260A HAS BEEN FILED BY THE CIT AURANGABAD WITH THE HON'BLE HIGH COURT OF BOMBAY BENCH AT AURANGABAD VIDE LODGING NO. 1613/2013 DATED 15/01/2013. 5. THE ORDER OF THE CIT(A) BE VACATED AND THAT OF AO BE RESTORED. 6. THE APPELLANT CRAVES TO ADD ALTER AMEND SUBSTITUTE OR DELETE ANY OF T HE GROUNDS URGED HEREIN ABOVE AS AND WHEN FOUND NECESSARY. 3 . DESPITE SERVICE OF NOTICE NONE APPEARED ON BEHALF OF THE ASSESSEE NOR ANY APPLICATION WAS MOVED FOR ADJOURNMENT . HENCE W E PROCEED TO DECIDE THE PRESENT APPEAL AFTER HEARING THE LEARNED DEPAR TMENTAL REPRESENTATIVE FOR THE REVENUE. 4. THE ONLY ISSUE RAISED IN THE PRESENT APPEAL IS AGAINST THE DELETION OF ADDITION MADE ON ACCOUNT OF INTEREST RECEIVABLE ON STICKY LOANS / ADVANCES. THE REVENUE IS ALSO AGGRIEVED BY THE ORDER OF CIT(A) IN HOLDING THAT THE PROVISIONS OF SECTION 43D OF THE ACT WERE APPLICABLE TO NON - SCHEDULED BANKS SINCE THE SAID PROVISIONS WERE APPLICABLE TO FINANCIAL INSTITUTIONS AND SCHEDULED BANKS. 5 . BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSESSEE WAS ENGAGED IN THE BANKIN G BUSINESS GOVERN ED UNDER BANKING REGULATIONS 1949 AND HAD DECLARED INCOME FROM THE SAID BUSINESS AND ALSO INCOME FROM INVESTMENTS. THE ASSESSING OFFICER NOTED FROM THE DETAILS OF THE INTEREST RECEIVED ON ADVANCES CREDITED TO THE PROFIT & LOSS ACCOUNT AN D THE STATEMENT OF NPA PREPARED UNDER ICA I NORMS PRESCRIBED BY THE RBI THAT THE BANK HAD NOT CONSIDERED THE INTEREST RECEIVABLE ON ADVANCES / NON PERFORMING ASSETS (NPAS) AS INCOME FOR TAXATION THOUGH THE SAME WERE REFLECTED IN THE BALANCE SHEET AS CONTRA ITEM. THE INTEREST RECEIVABLE ON STICKY LOANS RELATABLE TO THE YEAR UNDER CONSIDERATION WAS RS. 25 83 045/ - . THE EXPLANATION OF THE ASSESSEE IN THIS REGARD WAS THAT THE INTEREST RECEIVABLE ON STICKY LOANS WERE NOT CREDITED TO THE PROFIT & LOSS ACCOUNT ITA NO . 386 /PN/20 14 JANATA SAHAKARI BANK LTD. 3 IN VIEW OF THE NORMS PRESCRIBED BY RBI THAT THE SAID INCOME SHOULD BE RECOGNIZED ONLY AS AND WHEN THE SAME IS RECEIVED WHICH SYSTEM OF ACCOUNTING WAS REGULARLY FOLLOWED BY THE ASSESSEE. THE ASSESSING OFFICER REJECTING THE CONTENTION OF THE ASSESSEE OBSERVE D THAT SINCE THE ASSESSEE WAS FOLLOWIN G MERCANTILE SYSTEM OF ACCOUNTING THE ACCRUED INTEREST ON SUCH NPAS / STICKY LOANS SHOULD BE OFFERED TO TAX. RE LIANCE WAS PLACED ON THE CBDTS CIRCULAR NO.201/81/84 /ITA - II DATED 09.10.1984 FOR THE PROPOSITION THAT O NLY WHEN THE INTEREST ACCRUED ON BAD & DOUBTFUL ADVANCES REMAINED UN - RECOVERABLE FOR CONS ECUTIVE THREE PREVIOUS YEARS THEN SUCH INTEREST W OULD NOT FORM PART OF TAXABLE INCOME OF THE BANKING COMPANY IN THE FOURTH YEAR. THE ASSESSING OFFICER NOTED THAT THE SAID ADVANCES OF THE ASSESSEE WERE INCLUSIVE OF SUB - STANDARD DOUBTFUL LOANS WHICH MEANT THAT THE INTEREST HAD NOT REMAINED UN - RECOVERABLE FOR THE LAST THREE CONSECUTIVE PREVIOUS YEARS HENCE THE CONTENTION OF THE ASSESSEE WAS REJECTED BY THE ASSESSING OFFICER AND THE ASSESSING OFFICER HELD THE ASSESSEE TO HAVE CONTRAVENED THE PROVISIONS OF SECTION 43D OF THE ACT AND THE INTEREST ON SUCH STICKY LOANS WAS HELD TO BE INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. 6. THE CIT(A) IN TURN RELYING O N THE RATIO LAID DOWN BY THE PUNE BENCH OF THE TRIBUNAL IN ACIT VS. OSMANABAD JANTA SAH. BANK LTD. IN ITA NO.795/PN/2011 RELATING TO ASSESSMENT YEAR 2007 - 08 ORDER DATED 31.08.2012 HELD THAT THE INCOME FROM NPAS SHOULD NOT BE ASSESSED ON MERCANTILE BASI S . D ESPITE THE ASSESSEE MAINTAINING MERCANTILE SYSTEM OF ACCOUNTING IT ALSO HELD THAT THE PROVISIONS OF SECTION 43D OF THE ACT WERE APPLICABLE ONLY TO THE EXTENT THE INTEREST WAS ACTUALLY RECEIVED. THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAD DIREC TLY TAKEN THE INTEREST RECEIVABLE ON NPAS TO INTEREST RECEIVABLE ACCOUNT ON THE ASSET SIDE OF THE BALANCE SHEET AND CORRESPONDING LIABILITY WAS CREATED BY DEBITING INTEREST OVERDUE RESERVE ACCOUNT AND SINCE THE SAME WAS NOT INCLUDED IN THE INTEREST SHOWN A S RECEIVED IN THE PROFIT & LOSS ACCOUNT THE ASSESSING ITA NO . 386 /PN/20 14 JANATA SAHAKARI BANK LTD. 4 OFFICER WAS DIRECTED TO DELETE THE ADDITION MADE ON ACCOUNT OF INTEREST RECEIVABLE ON NPAS AMOUNTING TO RS.25 83 045/ - . 7. THE REVENUE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 8. WE FIND THAT THE IS SUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE RATIO LAID DOWN BY THE PUNE BENCH OF THE TRIBUNAL IN ACIT VS. OSMANABAD JANTA SAH. BANK LTD. (SUPRA) AND IN ACIT VS. THE OMERGA JANTA SAHAKARI BANK LTD. VIDE ORDER IN ITA NO.350/PN/2013 DATED 31.10.2 013. THE TRIBUNAL CONSIDERED THE JUDGEMENT OF THE HONBLE DELHI 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. (2013) 31 TAXMA NN.COM 305 (MADRAS) WHICH HAD EXPRESSED DIVERGENT VIEWS WITH RESPECT TO THE ISSUE OF ACCRUAL OF INTEREST INCOME ON NPA ADVANCES; AND FOLLOWING THE PROPOSITION THAT IN THE ABSENCE OF ANY JUDGEMENT OF THE JURISDICTIONAL HIGH COURT THERE BEING CONTRARY JUD GEMENTS OF THE NON - JURISDICTIONAL HIGH COURTS A DECISION WHICH WAS FAVOURABLE TO THE ASSESSEE WAS TO BE FOLLOWED IN VIEW OF THE REASONING LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. VEGETABLE PRODUCTS LTD. (1973) 88 ITR 192 (SC) AND TH US THE TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. 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 SUBMISSIONS. IN SO FAR AS THE APPLICABILITY OF SECTION 43D OF THE ACT TO THE ASSESSEE IS CONCERNED THERE IS A CONVERGENCE OF OPINION BETWEEN THE ASSESSEE AND THE REVENUE TO THE EFFECT THAT THE SAME IS NOT APPLICABLE TO THE ASSESSEE. 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 SECTION 43D OF THE ACT. NOTABLY SECTION 43D OF THE ACT PRESCRIBES THAT INTEREST 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 INTEREST INCOME IS CREDITED BY THE ASSESSEE IN THE PROFIT AND LOSS ACCOUNT OR IN THE YEAR OF ACTUAL RECEIPT WHICHEVER IS EARLIER. SINCE ASSESS EE IS NOT AN ENTITY 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 TO BE DECIDED ON GENERAL PRINCIPLES AS TO WHETHER THE IMPUGNED INCOME HAS ACCRUED TO THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. ITA NO . 386 /PN/20 14 JANATA SAHAKARI BANK LTD. 5 9. IN THIS CONNECTION WE FIND THAT THE VISAKHAPATNAM BENCH OF THE TRIBUNAL IN THE CASE OF THE DURGA COOPERATIVE URBAN BANK LTD. (SUPRA) HAS CONSIDERED AN IDENTICAL CONTROVERSY. THE ASSESSEE BEFORE THE VISAKHAPATNAM BENCH WAS A CO - OPERATIVE BANK OPERATING 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 TAXABILITY OF INTEREST INCOME RELATING TO NPAS WHICH AS PER THE REVENUE WAS LIABLE TO BE TAXED ON ACCRUAL BASIS IN LINE WITH MERCANTILE SYSTEM OF ACCOUNTING ADOPTED BY THE ASSESSEE THEREIN. THE ASSESSEE ON THE OTHER HAND CONTENDED THAT HAVING REGARD TO THE GUIDELINES ISSUED BY RBI REGARDING ACCOUNTING OF INT EREST 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 WAS CONSIDERED BY THE HONBLE DELHI HIGH COU RT IN THE CASE OF M/S VASISTH CHAY VYAPAR LTD. (SUPRA) WHEREIN AFTER CONSIDERING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) IT WAS HELD THAT INTEREST INCOME RELATABLE TO NPAS WAS NOT INCLUDIBLE IN TOTAL INCO ME ON ACCRUAL BASIS SINCE THE SAME DID NOT ACCRUE TO THE ASSESSEE. THE FOLLOWING DISCUSSION BY THE VISAKHAPATNAM BENCH OF THE TRIBUNAL IN THE CASE OF THE DURGA COOPERATIVE URBAN BANK LTD. (SUPRA) IS WORTHY OF NOTICE : - 8. WE HAVE HEARD THE RIVAL CONTENT IONS AND CAREFULLY PERUSED THE RECORD. THE QUESTION OF TAXABILITY OF INTEREST ON NPAS HAS BEEN CONSIDERED BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF M/S VASISTH CHAY VYAPAR LTD (SUPRA); WHEREIN THE HON'BLE DELHI HIGH COURT TOOK INTO ACCOUNT THE DECISIO N RENDERED BY THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD (SUPRA). IN THE CASE OF M/S VASISTH CHAY VYAPAR LTD THE ASSESSEE THEREIN IN THE CASE OF M/S VASISTH CHAY VYAPAR LTD THE ASSESSEE THEREIN WAS A NON BANKING FINANCIAL COMPANY AND IT WAS ALSO BOUND BY THE PRUDENTIAL NORMS DIRECTIONS ISSUED BY THE RESERVE BANK OF INDIA FOR INCOME RECOGNITION AND ASSET CLASSIFICATION. THE ASSESSEE DID NOT INCLUDE THE INTEREST INCOME RELATABLE TO NPA ASSETS IN ITS TOTAL INCOME. THE ASSESSING OFFICER HOWEVER ADDED THE SAID INTEREST AS THE INCOME OF THE ASSESS EE BY HOLDING THAT IT HAD ACCRUED TO THE ASSESSEE EVEN IT WAS NOT REALIZED AS THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THE LEARNED CIT (A) AFFIRMED THE ORDER OF THE ASSESSING OFFICER. HOWEVER THE ITAT DELETED THE AFORESAID INCOME. HEN CE THE REVENUE PREFERRED APPEAL BEFORE THE HON'BLE DELHI HIGH COURT. 8.1 AFTER HEARING THE RIVAL SUBMISSIONS THE HON'BLE DELHI HIGH COURT TOOK NOTE OF SEC.45Q OF RESERVE BANK OF INDIA ACT WHICH READS AS UNDER: CHAPTER IIIB TO OVERRIDE OTHER LAWS. 4 5Q. THE PROVISIONS OF THIS CHAPTER SHALL HAVE EFFECT NOTWITHSTANDING ANYTHING INCONSISTENT THEREWITH CONTAINED IN ANY OTHER LAW FOR THE TIME BEING IN FORCE OR ANY INSTRUMENT HAVING EFFECT BY VIRTUE OF ANY SUCH LAW. THE HIGH COURT TOOK NOTE OF THE FACT T HAT THE PROVISION OF 45Q OF RESERVE BANK OF INDIA HAS OVERRIDING EFFECT OVER ANY OTHER LAW. THEN THE HON'BLE HIGH COURT ALSO CONSIDERED ACCOUNTING STANDARD ITA NO . 386 /PN/20 14 JANATA SAHAKARI BANK LTD. 6 AS - 9 ON REVENUE RECOGNITION AND ALSO EXTRACTED FOLLOWING RELEVANT PORTION FROM THE SAID ACCOUNTI NG 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 RENDERING OF THE SERVICE IT WOULD NOT BE UNREASONABLE TO EXPECT ULTIMATE COLLECTION. 9.2 WHERE THE ABILITY TO ASSESS THE ULTIMATE COLLECTION WITH REASONABLE CERTAINTY IS LACKING AT THE TIME OF RAISING ANY CLAIM E.G. FOR ESCALATION OF PRICE EXPORT INCENTIVES INTEREST ETC. REVENUE RECOGNITION IS POSTPONED TO THE EXTENT OF UNCERTAINTY IN VOLVED. IN SUCH CASES IT MAY BE APPROPRIATE TO RECOGNIZE REVENUE ONLY WHEN IT IS REASONABLY CERTAIN THAT THE ULTIMATE COLLECTION WILL BE MADE. WHERE THERE IS NO UNCERTAINTY AS TO ULTIMATE COLLECTION REVENUE IS RECOGNIZED AT THE TIME 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 UNCERT AINTY RATHER THAN TO ADJUST THE AMOUNT OF REVENUE ORIGINALLY RECORDED. 9.4 AN ESSENTIAL CRITERION FOR THE RECOGNITION OF REVENUE IS THAT THE CONSIDERATION RECEIVABLE FOR THE SALE OF GOODS THE RENDERING OF SERVICES OR FROM THE USE OF OTHERS OF ENTERPRISE 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. 9.5 WHEN RECOGNITION OF REVENUE IS POSTPONED DUE TO THE EFFECT OF UNCERTAINTIES IT IS CONSIDERED AS REV ENUE OF THE PERIOD IN WHICH IT IS PROPERLY RECOGNIZED. 8.2 THE DELHI HIGH COURT ALSO CONSIDERED THE DECISION RENDERED IN THE FOLLOWING CASES: I) CIT VS. ELGI FINANCE LTD. 293 ITR 357 (MAD) II) CIT VS. KKM INVESTMENTS (CAL) SLP DISMISSED BY 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) L TD. 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 T REATED AS ACCRUED TO THE ASSESSEE. 8.4 BEFORE THE DELHI HIGH COURT THE REVENUE TOOK SUPPORT OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN ITA NO . 386 /PN/20 14 JANATA SAHAKARI BANK LTD. 7 TECHNOLOGIES LTD (SUPRA). THE DELHI HIGH COURT CONSIDERED THE SAID DECISION OF HON'BLE APE X COURT AND EXPLAINED THE SAME AS UNDER: WE HAVE ALREADY HELD THAT EVEN UNDER THE INCOME TAX ACT INTEREST INCOME HAD NOT ACCRUED. MOREOVER THIS SUBMISSION OF MR. SABHARWAL IS BASED ENTIRELY ON THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGY (SUPRA). NO DOUBT IN FIRST BLUSH READING OF THE JUDGMENT GIVES AN INDICATION THAT THE COURT HAS HELD THAT RESERVE BANK OF INDIA ACT DOES NOT OVERRIDE THE PROVISIONS OF THE INCOME TAX ACT. HOWEVER WHEN WE EXAMINE THE ISSUE INVOLVED THEREIN MIN UTELY AND DEEPLY IN THE CONTEXT IN WHICH THAT HAD ARISEN AND CERTAIN OBSERVATIONS OF THE APEX COURT CONTAINED IN THAT VERY JUDGMENT WE FIND THAT THE PROPOSITION ADVANCED BY MR.SABHARWAL MAY NOT BE ENTIRELY CORRECT. IN THE CASE BEFORE THE SUPREME COURT TH E ASSESSEE A NBFC DEBITED RS.81 68 516 AS PROVISION AGAINST NPA IN THE PROFIT AND LOSS ACCOUNT WHICH WAS CLAIMED AS DEDUCTION IN TERMS OF SECTION 36(1) (VII) OF THE ACT. THE ASSESSING OFFICER DID NOT ALLOW THE DEDUCTION CLAIMED AS AFORESAID ON THE GROUND THAT THE PROVISION OF NPA WAS NOT IN THE NATURE OF EXPENDITURE OR LOSS BUT MORE IN THE NATURE OF A RESERVE AND THUS NOT DEDUCTIBLE UNDER SECTION 36(I)(VII) OF THE ACT. THE ASSESSING OFFICER HOWEVER DID NOT BRING TO TAX RS.20 34 605/ - AS INCOME (BEING IN COME ACCRUED UNDER THE MERCANTILE SYSTEM OF 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 CONDITIONS DEDUCTIONS/EXCLUSIONS SATISFY THE RELEVANT CONDITIONS STIPULATED THEREFORE UNDER THE ACT. TO THAT EXTENT IT WAS OBSERVED THAT THE PRUDE NTIAL 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 PRUDENTIAL NORMS EVEN THOUGH THE SAME DEVIATED FROM MERCANTILE SYSTEM OF ACCOUNTING AND/OR SECTION 45 (SIC. 145) OF THE INCOME TAX ACT. IT CAN BE SAID THEREFORE THAT THE APEX COURT APPROVED THE REAL INCOME THEORY WHICH IS ENGRAINED IN THE PRUDENTIAL NORMS FOR RECOGNITION OF REVENUE BY NBFC. 9. THE HON'BLE SUPRE ME COURT IN THE CASE OF M/S SOUTHERN TECHNOLOGIES LTD (SUPRA) DISSECTED THE MATTER INTO TWO PARTS VIZ. A) INCOME RECOGNITION AND B) PERMISSIBLE DEDUCTION/EXCLUSIONS UNDER THE INCOME TAX ACT. IN SO FAR AS INCOME RECOGNITION IS CONCERNED THE HON'BLE SUPREM E COURT HELD THAT SECTION 145 OF THE INCOME TAX ACT HAS NO ROLE TO PLAY AND THE ASSESSING OFFICER HAS TO FOLLOW RESERVE BANK OF INDIA DIRECTIONS 1998 SINCE BY VIRTUE OF 45Q 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 INCOME UNDER THE INCOME TAX ACT IS CONCERNED (WHICH INVOLVES DEDUCTION OF PERMISSIBLE DEDUCTIONS AND EXCLUSIONS) THE ADMISSIBILITY OF S UCH DEDUCTIONS SHALL BE GOVERNED BY THE PROVISIONS OF THE INCOME TAX ACT. THE RELEVANT OBSERVATIONS OF THE HON'BLE SUPREME COURT ARE EXTRACTED BELOW: APPLICABILITY OF SECTION 145 ITA NO . 386 /PN/20 14 JANATA SAHAKARI BANK LTD. 8 40. AT THE OUTSET WE MAY STATE THAT IN ESSENCE RBI DIRECTIONS 1998 ARE PRUDENTIAL/PROVISIONING NORMS ISSUED BY RBI 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 ACCOUNTS. THEY FORCE THE NBFCS TO REFLECT TRUE AND CORRECT PROFITS. BY VIRTUE OF SECTION 45Q AN OVERRIDING EFFECT IS GIVEN TO THE DIRECTIONS 1998 VIS - - VIS INCOME RECOGNITION PRINCIPLES 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 HAVE NOTHING TO DO WITH COMPUTATION OF TAXABLE INCOME. THESE DIRECTIONS CANNOT OVERRULE THE PERMISSIBLE DEDUCTIONS OR THEIR EXCLUSION UNDER THE IT ACT. THE INCONSISTENCY BETWEEN THESE DIRECTIONS AND COMPANIES ACT IS ONLY IN THE MATTER OF INCOME RECOGNITION AND PRESENTATION OF FINANCIAL STATEMENTS. THE ACCOUNTING POLICIES ADOPTED BY AN NBFC CANNOT DETERMINE THE TAXABLE INCOME. IT IS WELL SETTLED THAT THE ACCOUNTING POLICIES FOLLOWED BY A COMPANY C AN BE CHANGED UNLESS THE AO COMES TO THE CONCLUSION THAT SUCH CHANGE WOULD RESULT IN UNDERSTATEMENT OF PROFITS. HOWEVER HERE IS THE CASE WHERE THE AO HAS TO FOLLOW THE RESERVE BANK OF INDIA DIRECTIONS 1998 IN VIEW OF SECTION 45Q OF THE RESERVE BANK OF IND IA ACT. HENCE AS FAR AS INCOME RECOGNITION 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 WITH REGARD TO THE PRUDENTIAL NORMS ISSUED BY THE RESERVE BANK OF INDIA ARE EQUALLY APPLICABLE TO THE NORMS ISSUED BY THE RESERVE BANK OF INDIA ARE EQUALLY APPLICABLE TO THE ASSESSEE AS IT IS APPLICABLE TO THE COMPANIES REGISTERED UNDER THE COMPANIES ACT. THE HO N'BLE SUPREME COURT HAS HELD IN THE CASE OF SOUTHERN TECHNOLOGIES LTD (SUPRA) THAT THE PROVISION OF 45Q OF RESERVE BANK OF INDIA ACT HAS AN OVERRIDING EFFECT VIS - - VIS INCOME RECOGNITION PRINCIPLE UNDER THE COMPANIES ACT. HENCE SEC.45 Q OF THE RBI ACT SHA LL HAVE OVERRIDING EFFECT 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 NO RMS THE ASSESSEE HEREIN DID NOT ADMIT THE INTEREST RELATABLE TO NPA ADVANCES IN ITS TOTAL INCOME. THE HON'BLE DELHI HIGH COURT IN THE CASE OF VASISTH CHAY VYAPAR LTD (SUPRA) HAS HELD THAT THE INTEREST ON NPA ASSETS CANNOT BE SAID TO HAVE ACCRUED TO THE AS SESSEE. IN THIS REGARD THE FOLLOWING OBSERVATIONS OF HON'BLE DELHI HIGH COURT IN THE ABOVE CITED CASE ARE RELEVANT: WHAT TO TALK OF INTEREST EVEN THE PRINCIPLE AMOUNT ITSELF HAD BECOME DOUBTFUL TO RECOVER. IN THIS SCENARIO IT WAS LEGITIMATE MOVE TO IN FER THAT INTEREST INCOME THEREUPON HAS NOT ACCRUED. THE SAID DECISION OF THE HON'BLE DELHI HIGH COURT IS EQUALLY APPLICABLE TO THE ISSUE IN OUR HANDS. ACCORDINGLY WE DO NOT FIND 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 ASSESSEE. ACCORDINGLY WE UPHOLD HIS ORDER. ITA NO . 386 /PN/20 14 JANATA SAHAKARI BANK LTD. 9 10. FOLLOWING THE AFORESAID DISCUSSION WHICH HAS BEEN RENDERED ON AN IDENTICAL ISSUE UNDER SIMILAR CIRCUMSTANCES WE FIND NO REASONS TO INTERFE RE 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 REPRESENTATIVE HAS SUBMITTED THAT THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT V S. SAKTHI FINANCE LTD. (2013) 31 TAXMANN.COM 305 (MADRAS) HAS DIFFERED WITH THE JUDGEMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF M/S VASISTH CHAY VYAPAR LTD. (SUPRA) ON A SIMILAR ISSUE I.E. RELATING TO INTEREST INCOME ON NPAS. THE LEARNED DEPART MENTAL REPRESENTATIVE FURTHER POINTED OUT THAT THE HONBLE MADRAS HIGH COURT FOLLOWED THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) IN HOLDING THAT INTEREST ON NPAS WAS ASSESSABLE TO TAX ON ACCRUAL BASIS. WE H AVE CAREFULLY CONSIDERED THE SUBMISSIONS PUT - FORTH BY THE LEARNED DEPARTMENTAL REPRESENTATIVE BASED ON THE JUDGEMENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF SAKTHI FINANCE LTD. (SUPRA). THE CONTROVERSY BEFORE THE HONBLE MADRAS HIGH COURT RELATED TO NON - RECOGNITION OF INTEREST INCOME ON NPAS BY THE ASSESSEE FOLLOWING THE RBI GUIDELINES. THE HONBLE MADRAS HIGH COURT TOOK THE VIEW THAT THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) ALSO APPLIED TO THE I NCOME RECOGNITION NORMS PROVIDED BY RBI AND THEREFORE IT HELD THE INTEREST INCOME ON NPAS IS LIABLE TO BE TAXED ON ACCRUAL BASIS AND NOT IN TERMS OF RBIS GUIDELINES. BUT THE HONBLE DELHI HIGH COURT IN THE CASE OF M/S VASISTH CHAY VYAPAR LTD. (SUPRA) HAS TAKEN A VIEW THAT SOUTHERN TECHNOLOGIES LTD. LTD. (SUPRA) HAS TAKEN A VIEW THAT SOUTHERN TECHNOLOGIES LTD. (SUPRA) CASE DID NOT APPLY TO THE INCOME RECOGNITION NORMS PRESCRIBED BY RBI. OSTENSIBLY THERE IS DIVERGENCE OF OPINION BETWEEN THE HONBLE DELHI HIGH COURT AND THE HONBLE MADRAS HIGH COURT AS NOTED BY THE H ONBLE MADRAS HIGH COURT IN ITS ORDER. 12. IN SO FAR AS PRESENT CASE IS CONCERNED THERE IS NO JUDGMENT OF THE JURISDICTIONAL HIGH COURT. WE ARE FACED WITH TWO CONTRARY JUDGMENTS OF THE NON - JURISDICTIONAL HIGH COURT. IN SUCH A SITUATION WE ARE INCLINE D TO PREFER A VIEW WHICH IS FAVOURABLE OF THE ASSESSEE FOLLOWING THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. VEGETABLE PRODUCTS LTD. (1973) 88 ITR 192 (SC). 13. THEREFORE IN VIEW OF THE AFORESAID DISCUSSION WE ARE INCLINED TO FOL LOW 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 DISMISSED. 9. IN VIEW OF THE RATIO LAID DOWN BY THE PUNE BENCH OF THE TRIBUNAL IN ACIT VS. OSMANABAD JANTA SAH. BANK LTD. (SUPRA) AND IN ACIT VS. THE OMERGA JANTA SAHAKARI BANK LTD. (SUPRA) WE UPHOLD THE ORDER OF CIT(A) IN HOLDING THAT THE INTEREST ON NPAS IS NOT TAXABLE IN T HE HANDS OF THE ASSESSEE FOR THE CAPTIONED ITA NO . 386 /PN/20 14 JANATA SAHAKARI BANK LTD. 10 ASSESSMENT YEAR. CONSEQUENTLY THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE DISMISSED. 10 . IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISSED . ORDER P RONOUNCED ON THIS 29 TH DAY OF APRIL 201 5 . SD/ - SD/ - ( R.K. PANDA ) ( SUSHMA CHOWLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE DATED: 29 TH APRIL 2015 GCVSR COPY OF THE ORDER IS FORWARDED TO : - 1) THE DEPARTMENT; 2) THE ASSESSEE; 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 BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T. PUNE