The Guntur District Co-Operative Central Bank Ltd., Tenali V. The, ACIT, Guntur

CO 36/VIZ/2016

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 3746 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 9 month(s) 26 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 06-04-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 10-06-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: DEBAKUMAR SONOWAL
• Section: 143(3); 194C; 145; 37; 263; 154

Judgement Text

ITA NO.75 /VIZAG/2016 M/S. THE GUNTUR DISTRICT CO-OP. CENTRAL BANK,TENALI 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . .. . . . . . ' , % BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./I.T.A.NO.75/VIZAG/2016 ( / ASSESSMENT YEAR: 2008-09) ACIT, CIRCLE - 1(1) GUNTUR M/S. THE GUNTUR CO - OPERATIVE CENTRAL BANK TENALI [PAN NO. AAATT6101H ] ( ' / APPELLANT) ( ()' / RESPONDENT) C.O. NO.36/VIZAG/2016 ./I.T.A.NO.75/VIZAG/2016 ( / ASSESSMENT YEAR: 2008-09) M/S. THE GUNTUR CO - OPERATIVE CENTRAL BANK TENALI ACIT, CIRCLE - 1(1) GUNTUR ( ' / APPELLANT) ( ()' / RESPONDENT) / APPELLANT BY : SHRI DEBA KUMAR SONOWAL, DR / RESPONDENT BY : SHRI G.V.N. HA RI, AR / DATE OF HEARING : 02.04.2018 / DATE OF PRONOUNCEMENT : 0 6.04.2018 ITA NO.75 /VIZAG/2016 M/S. THE GUNTUR DISTRICT CO-OP. CENTRAL BANK,TENALI 2 / O R D E R PER D.S. SUNDER SINGH, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-1, {CIT(A)}, G UNTUR VIDE ITA NO.97/CIT(A)-1/GNT/2014-15 DATED 30.9.2015 FOR THE ASSESSMENT YEAR 2008-09. THE CROSS OBJECTION FILED BY THE ASSESSEE IS IN SUPPORT OF THE ORDER PASSED BY THE CIT(A). 2. FIRST ISSUE IN THIS APPEAL IS DELETION OF ADDITI ON MADE BY THE A.O. ON ACCOUNT OF PROVISION FOR OVERDUE INTEREST. IN T HIS CASE, THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE INCOME T AX ACT, 1961 (HEREINAFTER CALLED AS 'THE ACT') ON 12.11.2002 DET ERMINING THE TOTAL INCOME OF ` 1,89,85,700/-. SUBSEQUENTLY, THE COMMISSIONER OF INCOME TAX(CIT), GUNTUR HAS TAKEN UP THE CASE FOR REVISION U/S 263 OF THE ACT AND SET ASIDE THE ORDER PASSED U/S 143(3) DATED 18/ 11/2010 OF THE ACT WITH A DIRECTION TO EXAMINE THE TAXABILITY OF PROVI SION FOR OVERDUE INTEREST. THE A.O. GIVEN EFFECT TO THE ORDER OF TH E LD. CIT(A) BY ORDER U/S 143(3) R.W.S. 263 OF THE ACT BY AN ORDER DATED 27.3.2014 AND IN THE CITED ORDER, THE A.O. MADE THE ADDITION OF ` 24,49,34,000/- RELATING TO THE PROVISION FOR OVERDUE INTEREST. ITA NO.75 /VIZAG/2016 M/S. THE GUNTUR DISTRICT CO-OP. CENTRAL BANK,TENALI 3 3. THE ASSESSEE DEBITED A SUM OF ` 24,49,34,000/- TOWARDS PROVISION FOR OVERDUE INTEREST. THE OVERDUE INTEREST IS RELA TED TO THE INTEREST ACCRUED ON LOANS AND ADVANCES GIVEN BY THE ASSESSEE BANK WHICH BECAME NON PERFORMING ASSET(NPA). THE ASSESSEE CRED ITED THE INTEREST TO PROFIT & LOSS ACCOUNT AS INCOME AND THE REVERSED THE SAME AND DEBITED TO THE PROFIT & LOSS ACCOUNT AS PROVISION F OR OVERDUE INTEREST, AS THE INTEREST WAS NOT REALIZED FROM THE DEBTORS WHO BECAME DEFAULTERS. IN EFFECT, THE ASSESSEE HAS NOT OFFERED THE INTERES T INCOME ACCRUED OR NON-PERFORMANCE ASSETS (NPA) IN THE YEAR UNDER CONS IDERATION. THE A.O. WAS OF THE VIEW THAT AS PER THE SYSTEM OF ACCO UNTING FOLLOWED BY THE ASSESSEE, IT HAS RIGHTLY OFFERED THE OVERDUE IN TEREST AS INCOME BY CREDITING TO THE P&L ACCOUNT. THE A.O. WAS OF THE VIEW THAT IT IS INCORRECT TO DEBIT THE PROVISION FOR OVER DUE INTER EST TO PROFIT AND LOSS ACCOUNT AND THE SAME IS NOT ALLOWABLE WITHIN THE SC OPE OF SECTION 36 OR 37 OF THE ACT, HENCE, DISALLOWED AND ADDED BACK TO THE INCOME. 4. AGGRIEVED BY THE ORDER OF THE A.O., THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD. CIT(A) ALLOWED THE AP PEAL OF THE ASSESSEE FOLLOWING THE REAL INCOME THEORY AND THE DECISION O F HONBLE SUPREME COURT IN THE CASE OF UCO BANK VS. CIT 237 ITR 889. THE LD. CIT(A) HELD THAT CONCEPT OF REAL INCOME IS CERTAINLY APPLI CABLE IN JUDGING WHETHER THERE HAS BEEN INCOME OR NOT, WHETHER THE I NCOME IS REALLY ITA NO.75 /VIZAG/2016 M/S. THE GUNTUR DISTRICT CO-OP. CENTRAL BANK,TENALI 4 ACCRUED OR ARISEN TO THE ASSESSEE MUST BE IN THE LI GHT OF THE REALITY OF SITUATION. THE TAX MUST BE ON THE REAL INCOME BUT NOT ON THE NOTIONAL INCOME. HENCE, MERE MAKING CREDIT TO THE OVERDUE I NTEREST TO THE P&L ACCOUNT AS INCOME ON OVERDUE INTEREST BASED ON DEBT WAIVER SCHEME ANNOUNCED BY THE GOVERNMENT OF INDIA AND ADDING THE OVERDUE INTEREST TO THE NOTIONAL INCOME IS NOT AT ALL JUSTIFIABLE BE CAUSE NO INCOME HAS BEEN RECEIVED ON DATE AND TAX MUST BE ON THE REAL I NCOME BUT NOT ON THE NOTIONAL INCOME. ACCORDINGLY, THE LD. CIT(A) D ELETED THE ADDITION MADE BY THE A.O., HENCE, THE REVENUE FILED APPEAL B EFORE THIS TRIBUNAL. 5. DURING THE APPEAL HEARING, THE LD. A.R. ARGUED T HAT ASSESSEE IS A CO-OPERATIVE BANK FOLLOWING THE PRUDENTIAL NORMS IS SUED BY THE RESERVE BANK OF INDIA (RBI) FOR RECOGNIZING THE INCOME. AS PER THE PRUDENTIAL NORMS OF RBI, THE INTEREST ON NPA IS RECOGNISED ON ACTUAL RECEIPT BASIS BUT NOT ON ACCRUAL BASIS. THE LD. A.R. ARGUED THAT IT IS THE PRACTICE OF THE BANK AND APPROVED BY THE RBI IN THE PRUDENTIAL NORMS TO DEBIT INTEREST TO THE INDIVIDUAL DEBTOR AND DERECOGNIZE T HE INCOME ACCORDINGLY. THE ASSESSEE FURTHER STATED THAT IT HAS ACCOUNTED T HE INTEREST SUBSEQUENTLY ON RECEIPT BASIS AND OFFERED THE SAME TO THE INCOME. THE LD. A.R. ALSO SUBMITTED THAT THE ASSESSEE IS FOLLOW ING THE SAME METHOD OF ACCOUNTING FOR SO MANY YEARS, WHICH HAS BEEN ACC EPTED BY THE DEPARTMENT. THE LD. A.R. RELIED ON THE ORDERS OF T HIS TRIBUNAL IN THE ITA NO.75 /VIZAG/2016 M/S. THE GUNTUR DISTRICT CO-OP. CENTRAL BANK,TENALI 5 CASE OF DISTRICT CO-OPERATIVE CENTRAL BANK, ELURU V S. ITO WARD-2, ELURU IN ITA NOS.49 & 50/VIZAG/2012, THE COORDINATE BENC H OF THIS TRIBUNAL ALLOWED THE APPEAL OF THE ASSESSEE FOLLOWING THE DE CISION OF HONBLE HIGH COURT OF GUJARAT IN THE CASE OF PRINCIPAL COMM ISSIONER OF INCOME TAX VS. MAHILA SEVA SAHAKARI BANK LTD. 140 DTR 113. PER CONTRA THE LD.DR SUPPORTED THE ORDER OF THE AO. 6. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE ASSESSEE IS A DISTRICT CENTRAL CO-OPERATIVE BANK, W HICH IS GOVERNED BY THE RBI DIRECTIONS. AS PER THE RBI PRUDENTIAL NORM S, THE ASSESSEE IS NOT RECOGNIZING THE INCOME RELATING TO THE NPA. NPA IS A DEBT, IN WHICH THERE IS NO REPAYMENT OF INSTALMENTS FOR SPECIFIED PERIOD OF TIME. IN THIS CASE, THE RECOVERY OF PRINCIPAL ALSO DOUBTFUL. THE REFORE, THE RBI HAS ISSUED DIRECTIONS AS STATED BY THE LD. A.R. TO DEBI T THE INTEREST TO THE INDIVIDUAL DEBTOR AND DERECOGNIZE THE INCOME. THE SAME PRACTICE IS BEING FOLLOWED BY THE CO-OPERATIVE BANKS THROUGH OU T THE COUNTRY. 7. ON THE SIMILAR FACTS, THIS TRIBUNAL HAS DELETED THE ADDITIONS RELATING TO THE OVERDUE INTEREST IN THE CASE OF DIS TRICT CO-OPERATIVE CENTRAL BANK, ELURU VS. ITO WARD-2, ELURU IN THE OR DER CITED (SUPRA) FOLLOWING THE DECISION OF. HONBLE HIGH COURT OF GU JARAT IN THE CASE OF ITA NO.75 /VIZAG/2016 M/S. THE GUNTUR DISTRICT CO-OP. CENTRAL BANK,TENALI 6 PRINCIPAL COMMISSIONER OF INCOME TAX VS. MAHILA SEV A SAHAKARI BANK LTD. 140 DTR 113. HONBLE HIGH COURT WITH REGARD TO RECOGNITION OF INCOME IN PARA NO.19 TO 23 HELD AS UNDER: 1 9. SECTION 45Q OF THE RBI ACT, WHICH IS RELEVANT FOR THE PRESENT PURPOSE, READS THUS: '45-Q. CHAPTER III-B TO OVERRIDE OTHER LAWS.THE PR OVISIONS OF THIS CHAPTER SHALL HAVE EFFECT NOTWITHSTANDING ANYTHING INCONSISTENT THEREW ITH CONTAINED IN ANY OTHER LAW FOR THE TIME BEING IN FORCE OR ANY INSTRUMENT HAVING EFFECT BY VIRTUE OF ANY SUCH LAW.' 20. SECTION 45Q FINDS PLACE IN CHAPTER IIIB OF THE RBI ACT. THUS, THE PROVISIONS OF CHAPTER IIIB OF THE RBI ACT HAVE AN OVERRIDING EFFECT QUA O THER ENACTMENTS TO THE EXTENT THE SAME ARE INCONSISTENT WITH THE PROVISIONS CONTAINED THEREIN. IN ORDER TO REFLECT A BANK'S ACTUAL FINANCIAL HEALTH IN ITS BALANCE SHEET, THE RESERVE BANK HAS INTRODUCED PRUDENTIAL NORMS FOR INCOME RECOGNITION, ASSET CLASSIFICATION AND PROVIS IONING FOR ADVANCES PORTFOLIO OF THE CO- OPERATIVE BANKS. THE GUIDELINES PROVIDED THEREUNDER ARE MANDATORY AND IT IS INCUMBENT UPON ALL CO-OPERATIVE BANKS TO FOLLOW THE SAME. INSOFAR AS INCOME RECOGNITION IS CONCERNED, CLAUSE 4.1.1 OF THE CIRCULAR PROVIDES THAT THE POLICY OF I NCOME RECOGNITION HAS TO BE OBJECTIVE AND BASED ON THE RECORD OF RECOVERY. INCOME FROM NON-PE RFORMING ASSETS (NPA) IS NOT RECOGNISED ON ACCRUAL BASIS BUT IS BOOKED AS INCOME ONLY WHEN IT IS ACTUALLY RECEIVED. THEREFORE, BANKS SHOULD NOT TAKE TO INCOME ACCOUNT INTEREST ON NON-P ERFORMING ASSETS ON ACCRUAL BASIS. THUS, IN VIEW OF THE MANDATE OF THE RBI GUIDELINES THE AS SESSEE CANNOT RECOGNISE INCOME FROM NON- PERFORMING ASSETS ON ACCRUAL BASIS BUT CAN BOOK SUC H INCOME ONLY WHEN IT IS ACTUALLY RECEIVED. THUS, THIS IS A CASE WHERE AT THE THRESHO LD, THE ASSESSEE, IN VIEW OF THE RBI GUIDELINES, CANNOT RECOGNISE INCOME FROM NPA ON ACC RUAL BASIS. THIS IS, THEREFORE, A CASE PERTAINING TO RECOGNITION OF INCOME AND NOT COMPUTA TION OF THE INCOME OF THE ASSESSEE. 21. THE SUPREME COURT IN SOUTHERN TECHNOLOGIES LTD. (S UPRA) HAS HELD THAT THE 1998 DIRECTIONS ARE ONLY DISCLOSURE NORMS AND HAVE NOTHI NG TO DO WITH COMPUTATION OF TOTAL INCOME UNDER THE IT ACT OR WITH THE ACCOUNTING TREA TMENT. THE 1998 DIRECTIONS ONLY LAY DOWN THE MANNER OF PRESENTATION OF NPA PROVISION IN THE BALANCE SHEET OF AN NBFC. THE COURT HAS REFERRED TO THE DEVIATIONS BETWEEN THE RBI DIRECTIO NS AND THE COMPANIES ACT AS FOLLOWS: '42. BROADLY, THERE ARE THREE DEVIATIONS: ( I ) IN THE MATTER OF PRESENTATION OF FINANCIAL STATEMEN TS UNDER SCHEDULE VI TO THE COMPANIES ACT; (II) IN NOT RECOGNISING THE 'INCOME' UNDER THE MERCANTIL E SYSTEM OF ACCOUNTING AND ITS INSISTENCE TO FOLLOW CASH SYSTEM WITH RESPECT TO AS SETS CLASSIFIED AS NPA AS PER ITS NORMS; ( III ) IN CREATING A PROVISION FOR ALL NPAS SUMMARILY AS A GAINST CREATING A PROVISION ONLY WHEN THE DEBT IS DOUBTFUL OF RECOVERY UNDER THE NOR MS OF THE A CCOUNTING STANDARDS ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. THESE DEVIATIONS PREVAIL OVER CERTAIN PROVISIONS OF THE COMPANIES ACT, 1956 TO PROTECT THE DEPOSITORS IN THE CONTEXT OF INCOME RECOGNITION AND PRESENTATION OF THE ASSETS AND PROVISIONS CREATED AGAINST THEM. THUS, THE P&L ACCO UNT PREPARED BY NBFC IN TERMS OF ITA NO.75 /VIZAG/2016 M/S. THE GUNTUR DISTRICT CO-OP. CENTRAL BANK,TENALI 7 THE RBI DIRECTIONS, 1998 DOES NOT RECOGNISE 'INCOME FROM NPA' AND, THEREFORE, DIRECTS A PROVISION TO BE MADE IN THAT REGARD AND HENCE AN 'ADD BACK'. IT IS IMPORTANT TO NOTE THAT 'ADD BACK' IS THERE ONLY IN THE CASE OF PROVIS IONS.' [EMPHASIS SUPPLIED] 22. THEREFORE, IN TERMS OF THE ABOVE DECISION, WHERE A N ASSESSEE MAKES PROVISION FOR NPA AND SEEKS DEDUCTION OF SUCH AMOUNT UNDER SECTION 36 (1)(VII) OR SECTION 37 OF THE ACT, THEN IN THE COMPUTATION OF INCOME, THE RBI GUIDELINES WOULD HAVE NO ROLE TO PLAY, AND HENCE, AN ADD BACK. INSOFAR AS INCOME RECOGNITION IS CONCERNED, T HE SUPREME COURT HAS HELD THUS: 'APPLICABILITY OF SECTION 145 57. AT THE OUTSET, WE MAY STATE THAT IN ESSENCE THE RBI DIRECTIONS, 1998 ARE PRUDENTIAL/PROVISIONING NORMS ISSUED BY RBI UNDER C HAPTER III-B OF THE RBI ACT, 1934. THESE NORMS DEAL ESSENTIALLY WITH INCOME RECOGNITIO N. 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 45-Q, AN OVE RRIDING EFFECT IS GIVEN TO THE RBI DIRECTIONS, 1998 VIS--VIS'INCOME RECOGNITION' PRIN CIPLES IN THE COMPANIES ACT, 1956. THESE DIRECTIONS CONSTITUTE A CODE BY ITSELF. HOWEV ER, THESE RBI DIRECTIONS, 1998 AND THE IT ACT OPERATE IN DIFFERENT AREAS. THESE RBI DI RECTIONS, 1998 HAVE NOTHING TO DO WITH COMPUTATION OF TAXABLE INCOME. THESE DIRECTIONS CAN NOT OVERRULE THE 'PERMISSIBLE DEDUCTIONS' OR 'THEIR EXCLUSION' UNDER THE IT ACT. THE INCONSISTENCY BETWEEN THESE DIRECTIONS AND THE COMPANIES ACT IS ONLY IN THE MAT TER OF INCOME RECOGNITION AND PRESENTATION OF FINANCIAL STATEMENTS. THE ACCOUNTIN G POLICIES ADOPTED BY AN NBFC CANNOT DETERMINE THE TAXABLE INCOME. IT IS WELL SET TLED THAT THE ACCOUNTING POLICIES FOLLOWED BY A COMPANY CAN BE CHANGED UNLESS THE AO COMES TO THE CONCLUSION THAT SUCH CHANGE WOULD RESULT IN UNDERSTATEMENT OF PROFITS. H OWEVER, HERE IS THE CASE WHERE THE AO HAS TO FOLLOW THE RBI DIRECTIONS, 1998 IN VIEW O F SECTION 45-Q OF THE RBI ACT. HENCE, AS FAR AS INCOME RECOGNITION IS CONCERNED, S ECTION 145 OF THE IT ACT HAS NO ROLE TO PLAY IN THE PRESENT DISPUTE.' THUS, INSOFAR AS INCOME RECOGNITION IS CONCERNED, T HE COURT HAS HELD THAT EVEN THE ASSESSING OFFICER HAS TO FOLLOW THE RBI DIRECTIONS, 1998 IN V IEW OF SECTION 45Q OF THE RBI ACT AND THAT AS FAR AS INCOME RECOGNITION IS CONCERNED, SECTION 145 OF THE INCOME-TAX ACT, HAS NOT ROLE TO PLAY. 23. IN THE LIGHT OF THE ABOVE DISCUSSION WHAT EMERGES IS THAT WHILE DETERMINING THE TAX LIABILITY OF AN ASSESSEE, TWO FACTORS WOULD COME IN TO PLAY. FIRSTLY, THE RECOGNITION OF INCOME IN TERMS OF THE RECOGNISED ACCOUNTING PRINCIPLES AN D AFTER SUCH INCOME IS RECOGNISED, THE COMPUTATION THEREOF, IN TERMS OF THE PROVISIONS OF THE INCOME-TAX ACT, 1961. INSOFAR AS THE COMPUTATION OF TAXABILITY IS CONCERNED, THE SAME IS SOLELY GOVERNED BY THE PROVISIONS OF THE INCOME-TAX ACT AND THE ACCOUNTING PRINCIPLES HAVE N O ROLE TO PLAY. HOWEVER, RECOGNITION OF INCOME STANDS ON A DIFFERENT FOOTING. INSOFAR AS IN COME RECOGNITION IS CONCERNED, IT WOULD BE THE RBI DIRECTIONS WHICH WOULD PREVAIL IN VIEW OF T HE PROVISIONS OF SECTION 45Q OF THE RBI ACT AND SECTION 145 WOULD HAVE NO ROLE TO PLAY. HEN CE, THE ASSESSING OFFICER HAS TO FOLLOW THE RBI DIRECTIONS. 8. HONBLE GUJARAT HIGH COURT HAS CONSIDERED TH E DECISION OF HONBLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES AND HELD THAT ITA NO.75 /VIZAG/2016 M/S. THE GUNTUR DISTRICT CO-OP. CENTRAL BANK,TENALI 8 SECTION 45Q OF THE RBI ACT SHALL HAVE OVERRIDING EF FECT OVER THE INCOME RECOGNITION. THE HONBLE HIGH COURT HAS CONSIDERED THE ISSUE WITH REGARD TO THE METHOD OF ACCOUNTING APPLIED FOR RECO GNIZING THE INCOME AND HELD THAT THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE IS IN ACCORDANCE WITH THE ACCOUNTING PRACTICE. 9. THE ASSESSEE ALSO RELIED ON THE DECISION OF HON BLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. DEOGIRI NAGARI SAHAKA RI BANK LTD. (2015) 128 DTR (BOM) 0209 HEAD NOTES, WHICH READS AS UNDER : INCOME-ACCRUAL-INTEREST ON STICKY ADVANCES-ASSESSEE BEING A CO-OPERATIVE BANK ALSO GOVERNED BY THE RBI AND THUS THE DIRECTION S WITH REGARD TO THE PRUDENTIAL NORMS ISSUED BY THE RBI ARE EQUALLY APPLI CABLE TO THE CO- OPERATIVE BANKS-TRIBUNAL WAS THEREFORE JUSTIFIED IN DELETING ADDITION ON ACCOUNT OF INTEREST ON STICKY ADVANCES UCO BANK V S. CIT(1999) 154 CTR (SC) 88:(1999)4SCC 599 AND MERCANTILE BANK LTD. VS. CIT (2006) 202 CTR (SC) 457 : (2006) 5 SCC 221 FOLLOWED. 10 . THIS TRIBUNAL IN THE CASE OF GANDHI CO-OPERATIVE UR BAN BANK LIMITED IN ITA NO.469/VIZAG/2012 DATED 30.11.2015 H AS CONSIDERED THE SIMILAR ISSUE AND ALLOWED THE INTEREST ON NON-PERFO RMING ASSETS. THE RELEVANT EXTRACT OF THIS TRIBUNAL IN PARA NO.7 TO 1 0 IS EXTRACTED AS UNDER: 7. WE HAVE GONE THROUGH THE REASON GIVEN BY THE CIT (A) AS WELL AS THE CASE LAWS RELIED UPON BY THE ASSESSEE. THE A.R. OF THE ASSESSEE AT THE TIME OF HEARING SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF ITAT VISAKHAPATNAM BENCH IN THE CASE OF DCIT VS. DURGA CO-OPERATIVE UR BAN BANK LTD. (SUPRA). WE HAVE EXAMINED THE CASE LAW REFERRED BY THE A.R. IN THE LIGHT OF THE FACTS OF THE PRESENT CASE AND FIND THAT THE ITAT, VISAKHAPATNAM BENCH IN THE ABOVE MENTIONED CASE ON SIMILAR FACTS HELD THE ISSUE IN FAVOUR OF T HE ASSESSEE. THE RELEVANT PORTION IS REPRODUCED AS UNDER: 10. TURNING TO THE FACTS OF THE CASE BEFORE US, TH E ASSESSEE HEREIN IS A COOPERATIVE BANK AND IT IS NOT IN DISPUTE THAT IT I S ALSO GOVERNED BY THE RESERVE BANK OF INDIA. HENCE THE DIRECTIONS WITH RE GARD TO THE PRUDENTIAL ITA NO.75 /VIZAG/2016 M/S. THE GUNTUR DISTRICT CO-OP. CENTRAL BANK,TENALI 9 NORMS ISSUED BY THE RESERVE BANK OF INDIA ARE EQUALL Y APPLICABLE TO THE ASSESSEE AS IT IS APPLICABLE TO THE COMPANIES REGIS TERED UNDER THE COMPANIES ACT. THE HON'BLE SUPREME COURT HAS HELD I N 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 RECO GNITION PRINCIPLE UNDER THE COMPANIES ACT. HENCE SEC.45 Q OF THE RBI ACT SHALL H AVE OVERRIDING EFFECT OVER THE INCOME RECOGNITION PRINCIPLE FOLLOWED BY C OOPERATIVE BANKS ALSO. HENCE THE ASSESSING OFFICER HAS TO FOLLOW THE RESER VE BANK OF INDIA DIRECTIONS 1998, AS HELD BY THE HON I 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 HONBLE DELHI HIGH COURT IN THE CASE OF VASISTH CHAY VYAPAR LTD. (SUPRA) HAS HELD THAT THE INTEREST ON NPA ASSETS CANNOT BE SAID TO H AVE ACCRUED TO THE ASSESSEE. 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 AMOUN T ITSELF HAD BECOME DOUBTFUL TO RECOVER. IN THIS SCENARIO IT WAS LEGITIM ATE MOVE TO INFER THAT INTEREST INCOME THEREUPON HAS NOT '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 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 ASS ESSEE. ACCORDINGLY WE UPHOLD HIS ORDER. 11. AN IDENTICAL ISSUE CAME UP FOR CONSIDERATION BE FORE THE ITAT PUNE BENCH IN THE CASE OF VAIDYANATH URBAN CO-OP. BANK L TD. VS. CIT IN ITA NO.413/PN/2014 DATED 31.3.2015, WHEREIN THE ITAT UN DER SIMILAR SET OF FACTS HELD AS UNDER: 10. TURNING TO THE FACTS OF THE CASE BEFORE US, TH E 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 ASSESSEE AS IT IS APPLICABLE TO T HE COMPANIES REGISTERED UNDER THE COMPANIES ACT. THE HONBLE 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 AN OVERRIDING EFFECT VIS--VIS INCOME RECOGNITION PRINCIPLE UNDER THE COMPANIES ACT. HENCE SEC.45 Q OF THE RBI ACT SHALL HAVE OVERRI DING EFFECT OVER ITA NO.75 /VIZAG/2016 M/S. THE GUNTUR DISTRICT CO-OP. CENTRAL BANK,TENALI 10 THE INCOME RECOGNITION PRINCIPLE FOLLOWED BY COOPER ATIVE BANKS ALSO. HENCE THE ASSESSING OFFICER HAS TO FOLLOW THE RESER VE BANK OF INDIA DIRECTIONS 1998, AS HELD BY THE HON'BLE SUPREME COU RT. BASED ON THE PRUDENTIAL NORMS, 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 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 FO LLOWING OBSERVATIONS OF HON'BLE DELHI HIGH COURT IN THE ABO VE 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 INFER THAT INTEREST INCOME THERE UPON HAS NOT 'ACCRUED'. THE SAID DECISION OF THE HON'BLE DELHI HIGH COURT I S EQUALLY APPLICABLE TO THE ISSUE IN OUR HANDS. ACCORDINGLY W E 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.' 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 O F THE CIT(A) IN DELETING THE IMPUGNED ADDITION RELATING T O INTEREST INCOME IN RESPECT OF NPAS. 12. THIS TRIBUNAL HAS DELETED THE ADDITIONS RELAT ING TO THE OVERDUE INTEREST IN THE CASE OF DISTRICT CO-OPERATIVE CENTR AL BANK, ELURU VS. ITO WARD-2, ELURU IN THE ORDER CITED (SUPRA) FOLLOWING T HE DECISION OF. HONBLE HIGH COURT OF GUJARAT IN THE CASE OF PRINCI PAL COMMISSIONER OF INCOME TAX VS. MAHILA SEVA SAHAKARI BANK LTD. 140 D TR 113 AS UNDER: 28. SINCE THE FACTS ARE IDENTICAL, RESPECTFULLY FOL LOWING THE VIEW TAKEN BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF SRI MAHIL A SEWA SAHAKARI BANK LIMITED (SUPRA) AND THE OTHER DECISIONS CITED SUPRA, WE HOL D THAT THE INTEREST ON NPA IS TO BE RECOGNIZED ON ACTUAL RECEIPT BASIS BUT NOT ON ACCRU AL BASIS. ACCORDINGLY, WE SET ITA NO.75 /VIZAG/2016 M/S. THE GUNTUR DISTRICT CO-OP. CENTRAL BANK,TENALI 11 ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND DELET E THE ADDITION. THE APPEAL OF THE ASSESSEE ON THIS GROUND IS ALLOWED. 13. SINCE THE FACTS ARE IDENTICAL, RESPECTFULLY FOL LOWING THE VIEW TAKEN BY THIS TRIBUNAL, WE HOLD THAT THE ADDITION CANNOT BE MADE ON OVERDUE INTEREST RELATING TO THE NPA. ACCORDINGLY, WE UPHO LD THE ORDER OF THE CIT(A) AND ALLOW THE APPEAL OF THE ASSESSEE. 14. THE SECOND ISSUE IN THIS APPEAL IS RELATED TO T HE ADDITION U/S 40(A)(IA) OF THE ACT. THE CIT IN THE REVISION U/S 263 OF THE ACT, FOUND THAT THE ASSESSEE HAS MADE THE PAYMENT OF ` 21,46,000/- TO M/S. D.Y. SYSTEMS, HYDERABAD AND ` 3,79,000/- TO M/S. TECHNO DEMO OFFICE AUTOMATION SYSTEMS, GUNTUR. BOTH THE PAYMENTS WERE MADE FOR COMPUTERIZATION. BUT THE ASSESSEE HAS NOT DEDUCTED THE TDS, WHICH REQUIRED TO BE DEDUCTED U/S 194C OF THE ACT. THERE FORE, THE CIT HAS DIRECTED THE A.O. TO EXAMINE THE ISSUE WITH REGARD TO THE PAYMENT MADE FOR COMPUTERIZING RECORDS. THE A.O. WHILE PASSING THE ORDER U/S 143(3) R.W.S. 263 OF THE ACT MADE THE ADDITION U/S 40(A)(I A) OF THE ACT. 15. AGGRIEVED BY THE ORDER OF THE A.O., THE ASSESSE E WENT ON APPEAL BEFORE THE CIT(A) AND THE LD. CIT(A) FOLLOWING THE ORDER OF THE SPECIAL BENCH OF THIS TRIBUNAL, VISAKHAPATNAM IN M/S. MERIL YN SHIPPING AND ITA NO.75 /VIZAG/2016 M/S. THE GUNTUR DISTRICT CO-OP. CENTRAL BANK,TENALI 12 TRANSPORTS AND ALLOWED THE APPEAL OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL B EFORE THIS TRIBUNAL. 16. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. IN THIS CASE, THE ASSESSEE HAS MADE THE PAYMENTS FOR COMPUT ERIZATION TO THE EXTENT OF ` 21,46,000/- TO M/S. D.Y. SYSTEMS, HYDERABAD AND ` 3,79,688/- TO M/S. TECHNO DEMO OFFICE AUTOMATION SY STEMS, GUNTUR. THE ASSESSEE REQUIRED TO DEDUCT THE TDS U/S 194C OF THE ACT BUT FAILED TO DEDUCT THE TAX AT SOURCE. THEREFORE, THE A.O. M ADE ADDITION U/S 40(A)(IA) OF THE ACT AND THE LD. CIT(A) DELETED THE ADDITION FOLLOWING THE DECISION OF SPECIAL BENCH IN THE CASE OF M/S. MERIL YN SHIPPING AND TRANSPORTS, VISAKHAPATNAM VS. ADDL. CIT RANGE-1, VI SAKHAPATNAM. NOW THE ISSUE IS SETTLED BY BY THE HONBLE SUPREME COURT IN THE CASE OF PALAM GAS SERVICE V. COMMISSIONER OF INCOME-TAX, [2017] 81 TAXMANN.COM 43 (SC) AND HELD THAT THE WORD 'PAYABL E' OCCURRING IN SECTION 40(A)(IA) NOT ONLY COVERS CASE S WHERE AMOUNT IS YET TO BE PAID BUT ALSO THOSE CASES WHERE AMOUNT HAS ACTUALLY BEEN PAID . THEREFORE, WE SET ASIDE THE ORDER OF THE CIT(A) AND ALLOW THE APPEAL OF THE REVENUE. ITA NO.75 /VIZAG/2016 M/S. THE GUNTUR DISTRICT CO-OP. CENTRAL BANK,TENALI 13 CROSS OBJECTION NO.36/VIZAG/2016: 17. GROUND NO.1 IS WITH REGARD TO THE PROVISION MAD E FOR OVERDUE INTEREST. SINCE WE HAVE ALREADY DISMISSED THE APPE AL OF THE REVENUE, THE CROSS OBJECTION FILED BY THE ASSESSEE IS SUSTAI NED. 18. THE SECOND ISSUE IS WITH REGARD TO THE ADDITION MADE U/S 40(A)(IA) OF THE ACT. SINCE WE ALLOWED THE APPEAL OF THE REV ENUE IN THE PRECEDING PARAGRAPHS, THE CROSS OBJECTION OF THE ASSESSEE ON THIS ISSUE IS DISMISSED. 19. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS ALSO P ARTLY ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 6 TH APR18. SD/- SD/- ( . ) ( . .. . . . . . ' ) (V. DURGA RAO) (D.S. SUNDER SINGH) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 06.04.2018 VG/SPS ITA NO.75 /VIZAG/2016 M/S. THE GUNTUR DISTRICT CO-OP. CENTRAL BANK,TENALI 14 )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT THE ACIT, CIRCLE-1(1), GUNTUR. 2. / THE RESPONDENT M/S. THE GUNTUR DISTRICT CO-OPE RATIVE CENTRAL BANK LIMITED, CENTRAL OFFICE, BOSE ROAD, TENALI-522 002. 3. + / THE PR. CIT, GUNTUR 4. + ( ) / THE CIT (A)-1, GUNTUR 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM