Vardhaman (Mahila) Co-op Urban Bank Limited , Hyderabad V. Asst. Commissioner of Income Tax, Circle-14(1), Hyderabad

ITA 1038/Hyd/2019

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 7449 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-01-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-B
• Next Hearing Date: 07-01-2021
• Assessment Year: 2015-2016
• Appeal Filed On: 24-06-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bad and doubtful debts; Set aside
• Section: 145; 263; 143(3); 43D; 191

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD (THROUGH VIDEO CONFERENCE) BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER I.T.A. NO. 1038/HYD/2019 ASSESSMENT YEAR: 2015-16 VARDHAMAN (MAHILA) CO-OP. URBAN BANK LTD., HYDERABAD [PAN: AABAT6711D] VS ASST.COMMISSIONER OF INCOME TAX, CIRCLE-14(1), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : NONE FOR REVENUE : SHRI ROHIT MUJUMDAR, DR DATE OF HEARING : 07-01-2021 DATE OF PRONOUNCEMENT : 19-01-2021 O R D E R PER BENCH : THIS ASSESSEES APPEAL FOR AY.2015-16 ARISES FROM TH E CIT(A)-6, HYDERABADS ORDER DATED 01-03-2019 PASSED IN CASE NO.10182/2017-18/B2/CIT(A)-6, IN PROCEEDINGS U/S.14 3(3) OF THE INCOME TAX ACT, 1961 [IN SHORT, THE ACT]. 2. THE ASSESSEES ONLY GRIEVANCE RAISED IN THE INSTAN T APPEAL CHALLENGES BOTH THE LOWER AUTHORITIES ACTION ADDING I NTEREST ON NPAS OF RS.15,04,061/- I.E., INTEREST RECEIVABLE ON N ON- ITA NO. 1038/HYD/2019 :- 2 -: PERFORMING ADVANCES BUT NOT RECEIVED DURING THE COURS E OF ASSESSMENT AS AFFIRMED IN THE LOWER APPELLATE ORDER. 3. LEARNED DEPARTMENTAL REPRESENTATIVE FAILS TO DISPUTE TH AT WE ARE DEALING IN AY.2015-16 DEALING WITH THE CASE O F THE ASSESSEE/CO-OPERATIVE URBAN BANK. THE LEGISLATURE HAS INCLUDED A CO-OPERATIVE BANK AS COVERED U/S.43D(A) O F THE ACT VIDE FINANCE ACT, 2017 W.E.F. 01-04-2018 ONLY. MEANI NG THEREBY THAT THE SAID AMENDMENT DOES NOT CARRY RETROSPECTI VE EFFECT. THIS TRIBUNALS CO-ORDINATE BENCHS DECISION THE TALIPARAMBA CO-OPERATIVE BANK LTD., VS. ITO, ITA NO.35/COCH/2018, DT.13-03-2019, DELETES THE VERY NATUR E OF ADDITIONS OF INTEREST ON NPAS IN VIEW OF THE FOREGOING STATUTORY AMENDMENT AS FOLLOWS: 2. THE FACTS OF THE CASE ARE THAT THE ASSESSMENT I N THIS CASE OF FOR A.Y. 2013-14 WAS COMPLETED U/S 143(3) ON 28.3.2 016 DETERMINING A TOTAL INCOME AT RS.28,25,030/-. ON PERUSAL OF REC ORDS, IT WAS NOTICED THAT THE ASSESSMENT ORDER WAS PRIMA FACIE E RRONEOUS IN SO FAR AS IT WAS PREJUDICIAL TO THE INTEREST OF REVENU E. 2.1 THE CIT FOUND THAT DEDUCTION OF RS. 7,26,695/- U/S 43D IN PROFIT & LOSS ACCOUNT FOR THE PREVIOUS YEAR RELEVANT TO AY 2013-14 WAS ALLOWED WHICH WAS NOT IN ACCORDANCE WITH THE PROVIS IONS OF SECTION 43D. SECTION 43D GIVES SPECIAL PROVISION IN CASE OF INCOME OF PUBLIC FINANCIAL INSTITUTIONS OR A SCHEDULED BANK OR A STA TE FINANCIAL CORPORATION OR A STATE INDUSTRIAL INVESTMENT CORPOR ATION, PUBLIC COMPANIES ETC. IT WAS NOTICED THAT THE ASSESSEE DOE S NOT BELONG TO ANY OF THESE CATEGORIES MENTIONED ABOVE. HOWEVER, T HIS WAS ALLOWED BY THE ASSESSING OFFICER WHICH IS ERRONEOUS AND PRE JUDICIAL TO THE INTEREST OF REVENUE. BEFORE THE CIT, THE LD. AR REL IED ON DECISIONS RENDERED IN THE CASES OF ALLIED MOTORS P. LTD., VS. CIT (1997) 139 CTR 0364(SC); CIT VS.CHANDULAL VENICHAND (1994) 209 ITR 7(GUJ) AND CIT VS. SRI JAGANNATH STEEL CORPORATION (1991) 191 ITR 676(CAL.). THE LD. AR ALSO STATED THAT SECTION 43D(A) WAS AMENDED BY T HE FINANCE ACT, 2017 WHERE CO.OP. BANKS HAVE ALSO BEEN INCLUDED FOR THIS DEDUCTION U/S.43D WITH EFFECT FROM 01.04.2018. CIT WAS OF THE VIEW THAT THE LEGISLATURE HAD MADE IT AMPLY CLEAR BY STATING THAT THE PROVISIONS ARE ITA NO. 1038/HYD/2019 :- 3 -: RETROSPECTIVE. THEREFORE, CONSIDERING THE FACT THAT THIS DEDUCTION IS AVAILABLE ONLY FROM 01.04.2018 AS PER THE AMENDMENT , THE CIT HELD THAT THE ASSESSING OFFICER'S ACTION IN ALLOWING DED UCTION WAS BOTH ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E. HENCE THE ASSESSMENT WAS SET ASIDE WITH A DIRECTION TO THE AS SESSING OFFICER TO CONSIDER THIS ALLOWABILITY OF THE DEDUCTION AFRESH, AFFORDING SUFFICIENT OPPORTUNITY TO THE ASSESSEE TO OFFER SUBMISSIONS. 3. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE U S. THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER HAD ALLOWED TH E CLAIM OF THE ASSESSEE ON EXAMINATION AND VERIFICATION OF THE CLA IM AND RECORDS, MERELY BECAUSE THE VIEW OF THE PRINCIPAL COMMISSION ER OF INCOME TAX IS DIFFERENT ON THE ISSUE, IS NO GROUND TO INVOKE P OWERS UNDER SECTION 263 OF THE INCOME TAX ACT. THE LD. AR SUBMITTED THA T THE ASSESSEE IS A CO-OPERATIVE BANK GOVERNED AND CONTROLLED BY RESE RVE BANK OF INDIA TO WHICH THE PRUDENTIAL NORMS OF REVENUE ARE APPLICABLE AND HENCE, IS ELIGIBLE FOR DEDUCTION UNDER SECTION 43D EVEN THOUGH IT IS NOT LISTED IN THE SCHEDULE MAINTAINED BY RESERVE BANK O F INDIA. IN SUPPORT OF THIS, THE LD. AR RELIED ON THE DECISION IN THE CASE OF CIT AURANGABAD VS. PEOPLES CO-OPERATIVE BANK AND OTHERS (ITA NOS. 53,54,58 & 68 OF 2014. HIGH COURT OF JUDICATOR OF B OMBAY, BENCH AT AURANGABAD) AND OTHER DECISIONS ON THIS POINT. THE LD. AR ALSO SUBMITTED THAT SECTION 43D OF THE INCOME TAX ACT HA D BEEN AMENDED SUBSEQUENTLY BY FINANCE ACT 2017, BY INCLUDING THER EIN THE WORDS 'CO-OP. BANKS' FOR THE PURPOSE OF DEDUCTION WITH EF FECT FROM 01/04/2018. THOUGH THIS AMENDMENT WAS DONE BY FINAN CE ACT 2017, THIS BEING AS AMENDMENT TO REMEDY THE UNINTEN DED GRIEVANCES CAUSED TO THE CO-OP. BANKS, THE SAME SHOULD BE TREA TED AS RETROSPECTIVE IN OPERATION. THE LD. SUBMITTED THAT THIS VIEW WAS SUPPORTED BY THE DECISION IN THE CASE OF ALLIED MOT ORS (P) LTD., VS. CIT (1997) 139 CTR 0364 (SC). 3.1 THE LD. AR SUBMITTED THAT THE ASSESSEE WAS FOLL OWING MERCANTILE SYSTEM OF ACCOUNTING AS PER THE LAID OUT PROCEDURE AND WAS PROVIDING INTEREST ON NON-PER FORMING ASSETS, AS PER THE PROC EDURE LAID OUT BY RESERVE BANK OF INDIA AS EVIDENT FROM ACCOUNTS AND HENCE, WAS ELIGIBLE FOR DEDUCTIONS UNDER SECTION 43D AS PROVID ED THEREIN. FOR THIS, THE LD. AR RELIED ON THE DECISION IN THE CASE OF UCO BANK, CALCUTTA VS.CIT ( 1999) 45 CC 599 (SC) READ WITH CI RCULAR NO: F- 201/81/84 ITA-II DATED 09/10/1984. THUS, IT WAS SUB MITTED THAT THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION UNDER SECTI ON 43D EVEN IF IT NOT A 'SCHEDULED BANK'. FURTHER, THE LD. AR RELIED ON THE FOLLOWING CASE LAWS: 1. CIT VS. CANFIN HOMES LTD. (347 ITR 382) (KAR.) ITA NO. 1038/HYD/2019 :- 4 -: 2. THE SINDAGI URBAN CO-OP. BANK VS. DEPARTMENT OF INCOME TAX (ITA NO.1530/BANG/2013 DATED 05/03/2015) (ITAT, BANGALOR E) 3. DY.CIT VS. THE SAURASHTRA CO-OP. BANK LTD. (ITA NO. 690/AHD/2016 DATED 31/01/2018 (ITAT, AHMEDABAD) 4. DY. CIT VS. GONDAL NAGARIK SAHAKARI BANK (ITA NO . 504/RJT/2015 DATED 16/01/2018 (ITAT, RAJKOT). 4. THE LD. DR RELIED ON THE ORDER OF THE CIT. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. IN THIS CASE, THE MAIN CONTENTION OF THE LD. AR IS THA T THE ASSESSEE IS A CO-OPERATIVE BANK AND PROVISIONS OF SECTION 43D(G) IS APPLICABLE AND THE ASSESSEE IS ENTITLED FOR DEDUCTION OF INTEREST ON STICKY LOANS. THE PROVISIONS OF SECTION 43D(G) WAS INSERTED BY FINANC E ACT, 2017 WHICH IS CLARIFICATORY AND SHOULD BE APPLIED. AS SUCH, IT WAS SUBMITTED THAT THE ASSESSEE CANNOT BE DENIED THE APPLICABILITY OF PROVISIONS OF SECTION 43D(G) OF THE ACT. AN IDENTICAL ISSUE WAS C ONSIDERED BY AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF KARN AVATI CO-OP. BANK LTD. VS. DCIT (2012) (134 ITD 486) WHEREIN IT WAS HELD THAT INTEREST ON STICKY ADVANCES/NPA ADVANCES CANNOT BE BROUGHT TO TAX. THE PROVISIONS OF SECTION 43D ARE APPLICABLE TO CO- OPERATIVE BANKS ALSO. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE AS UNDER: 'SEC. 43D IS IN CONTRAST WITH THE FUNDAMENTAL PRINCIPLE OF ACCOU NTANCY. THE CARDINAL PRINCIPLE OF MERCANTILE SYSTEM OF ACCOUNTA NCY IS THAT AN INCOME IS TO BE SHOWN IN THE BOOKS OF ACCOUNT ON AC CRUAL BASIS. THE PRINCIPLE IS THAT IT IS IMMATERIAL WHETHER IT WAS A CTUALLY RECEIVED OR NOT, BUT IF AN INCOME IS EXPECTED TO BE RECEIVED, T HEN IT SHOULD BE BROUGHT TO BOOKS OF ACCOUNT AS AN INCOME ACCRUED TO THE ASSESSEE. CONTRARY TO THIS RECOGNIZED PRINCIPLE, THIS SECTION HAS PRESCRIBED THAT AN INCOME BY WAY OF INTEREST SHALL BE CHARGEABLE TO TAX IN THE PREVIOUS YEAR IN WHICH IT IS CREDITED. THE OTHER DE VIATION FROM THE SAID ACCEPTED PRINCIPLE OF ACCOUNTANCY IS THAT AN I NCOME BY WAY OF INTEREST SHALL BE CHARGEABLE TO TAX IN THE PREVIOUS YEAR IN WHICH IT IS ACTUALLY RECEIVED. THE ACT SAYS THAT THE INCIDENCE OF 'CREDIT' OR 'ACTUALLY RECEIVED', WHICHEVER IS EARLIER IS TO BE TAKEN INTO ACCOUNT FOR THE PURPOSE OF CHARGEABILITY OF INCOME BY WAY OF IN TEREST. SIMULTANEOUSLY, IT IS NOTEWORTHY THAT THIS SECTION IS AN OVERRIDING SECTION BECAUSE THE OPENING WORDS ARE 'NOTWITHSTAND ING ANYTHING TO THE CONTRARY CONTAINED IN ANY OTHER PROVISIONS OF T HIS ACT'. THEREFORE, IN SPITE OF ANYTHING CONTAINED IN THE ACT, THE PROV ISIONS OF THIS SECTION SHALL OVERRIDE THOSE PROVISIONS. ONCE THE STATUTE H AS CATEGORICALLY MADE A LAW IN RESPECT OF PUBLIC FINANCIAL INSTITUTI ONS THAT INTEREST IS CHARGEABLE TO TAX EITHER IN THE YEAR IN WHICH CREDI TED OR ACTUALLY RECEIVED, WHICHEVER IS EARLIER, THEN IT IS COMPULSO RY TO ABIDE BY THE SAID RULE. NO SCOPE IS LEFT WITH THE REVENUE AUTHOR ITIES TO IGNORE THESE PROVISIONS DUE TO UNAMBIGUOUS USE OF LANGUAGE IN TH E SECTION. AS FAR ITA NO. 1038/HYD/2019 :- 5 -: AS THE STATUS OF THE ASSESSEE IS CONCERNED, THE AO HAS STATED THAT THE ASSESSEE-BANK IS A CO-OPERATIVE BANK. UNDISPUTEDLY, THE ASSESSEE IS ALSO GOVERNED BY THE RBI GUIDELINES. VIDE AN EXPLN. (D) R.W.S. 36(I)(VIIA) ANNEXED TO S. 430 THE DEFINITION OF THE ENTITIES INCORPORATED BY THE SECTION HAVE BEEN DEFINED AND IN THE ABSENCE OF ANY CONTRARY MATERIAL, IT IS HEREBY HELD THAT THE ASSESSEE IS CO VERED BY ONE OF THE ENTITIES, HENCE THE PROVISIONS OF S. 43D ARE TO BE APPLIED. NEXT ISSUE IS THAT WHETHER A CIRCULAR HAVING EFFECT OF RELAXING R IGOUR OF LAW CAN BE TREATED AS INCONSISTENT WITH THE PROVISIONS OF A ST ATUTE. IN ORDER TO AID PROPER DETERMINATION OF THE INCOME OF MONEYLENDERS AND BANKS, THE CBDT HAS ISSUED A CIRCULAR DT. 6TH OCT., 1952, PROV IDING THAT WHERE INTEREST ACCRUING ON DOUBTFUL DEBTS IS CREDITED TO A SUSPENSE ACCOUNT, IT NEED NOT BE INCLUDED IN ASSESSEE'S TAXABLE INCOM E, PROVIDED THE ITO IS SATISFIED THAT RECOVERY IS PRACTICALLY IMPRO BABLE. THE CBDT UNDER S.119 HAS POWER TO ISSUE CIRCULARS IN EXERCIS E OF ITS STATUTORY POWERS. IF THE BOARD CONSIDERS IT NECESSARY TO LAY DOWN CERTAIN RULES AND THEN DIRECT THE SUB-ORDINATE AUTHORITIES, SUCH DIRECTIONS ARE REQUIRED TO BE FOLLOWED AND SUCH CIRCULAR WOULD BE BINDING ON THE DEPARTMENT UNLESS AND UNTIL HELD AS ULTRA VIRES BY A COURT OF LAW. THE BOARD HAS POWERS TO RELAX THE SEVERITY OR THE S TRICTNESS OF LAW AND THE AUTHORITIES ARE REQUIRED TO FOLLOW THOSE IN STRUCTIONS. AS OF NOW THE LAW AS LAID DOWN IS THAT IN TERMS OF CBDT C IRCULAR THE INTEREST IS TO BE ADDED AS INCOME ONLY WHEN ACTUALL Y RECEIVED OR CREDITED IN RESPECT OF THE 'STICKY ADVANCES' WHILE MAKING ASSESSMENT FOR A FINANCIAL INSTITUTION. IT CAN SAFELY BE CONCL UDED THAT BY THE INSERTION OF A SPECIAL PROVISION TO TAX INTEREST IN COME IN THE CASE OF PUBLIC FINANCIAL INSTITUTION, ETC. S. 43D HAS TO BE APPLIED IN ITS LETTER AND SPIRIT.' 5.1 THIS DECISION WAS FOLLOWED BY THE RAJKOT BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. GONDAL NAGARIK SAHAKARI BANK I N ITA 504/RJT/2015 DATED 16/1/2018. THE SAME VIEW WAS TAK EN BY THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF THE SINDAGI URBAN CO- OPERATIVE BANK VS. DEPARTMENT OF INCOME TAX IN ITA NO. 1530/BANG/2013 DATED 05/03/2015 WHEREIN IT WAS HELD AS UNDER: '8. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RI VAL SUBMISSIONS. SECTION 43D OF THE ACT IS REPRODUCED BELOW: 43-D: SPECIAL PROVISION IN CASE OF INCOME OF PUBLIC FINANCIAL INSTITUTIONS, PUBLIC COMPANIES ETC. - NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT,- (A) IN THE CA SE OF A PUBLIC FINANCIAL INSTITUTION OR A SCHEDULED BANK OR A SLATE FINANCIA L CORPORATION OR A STATE INDUSTRIAL INVESTMENT CORPORATION, THE INCOME BY WA Y OF INTEREST IN RELATION TO SUCH CATEGORIES OF BAD OR DOUBTFUL DEBTS AS MAY BE PRESCRIBED HAVING REGARD TO THE GUIDELINES ISSUED BY THE RESERVE BANK OF INDIA IN RELATION TO ITA NO. 1038/HYD/2019 :- 6 -: SUCH DEBTS; (B) IN THE CASE OF A PUBLIC COMPANY, TH E INCOME BY WAY OF INTEREST IN RELATION TO SUCH CATEGORIES OF BAD OR D OUBTFUL DEBTS AS MAY BE PRESCRIBED HAVING REGARD TO THE GUIDELINES ISSUED B Y THE NATIONAL HOUSING BANK IN RELATION TO SUCH DEBTS, SHALL BE CHARGEABLE TO TAX IN TIN, PREVIOUS YEAR IN WHICH IT IS CREDITED BY THE PUBLIC FINANCIA L INSTITUTION OR THE SCHEDULED BANK OR THE STATE FINANCIAL CORPORATION O R THE STATE INDUSTRIAL INVESTMENT CORPORATION OR THE PUBLIC COMPANY TO ITS PROFIT AND LOSS ACCOUNT FOR THAT YEAR OR, AS THE CASE MAY BE, IN WHICH IT I S ACTUALLY RECEIVED BY THAT INSTITUTION OR BANK OR CORPORATION OR COMPANY, WHIC HEVER IS EARLIER. 9. SECTION 43D OF THE ACT WAS BROUGHT IN BASICALLY INTENDED TO OVERCOME THE DECISION OF THE SUPREME COURT IN STATE BANK OF TRAV ANCORE VS. CIT 158 ITR 102 (SC) WHEREIN IT WAS HELD THAT INTEREST ON DOUBT FUL ADVANCES CREDITED TO 'INTEREST SUSPENSE ACCOUNT' AND NOT TRANSFERRED TO 'PROFIT AND LOSS ACCOUNT' SHOULD BE CONSIDERED AS ACCRUED ACCORDING TO THE ME RCANTILE SYSTEM OF ACCOUNTING AND WAS TAXABLE AS SUCH. THE BENEFIT OF EXCEPTION FROM THE SAID SUPREME COURT'S DECISION WAS GIVEN THROUGH SECTION 43D TO PUBLIC FINANCIAL INSTITUTIONS AS DEFINED IN SECTION 4A OF THE COMPAN IES ACT, 1956 SCHEDULED BANKS AS PER EXPLN. (II) TO SECTION 36(I)(VIIA) OF THE ACT, STATE FINANCIAL CORPORATIONS ESTABLISHED UNDER SECTION 3 OR 3A OF T HE STATE FINANCIAL CORPORATIONS ACT, 1951 AND INSTITUTIONS NOTIFIED UN DER SECTION 46 OF THE SAID ACT, AND STATE INDUSTRIAL INVESTMENT CORPORATIONS W HICH ARE GOVERNMENT COMPANIES AS PER SECTION 617 OF THE COMPANIES ACT, 1956 AND WHICH ARE ENGAGED IN PROVIDING LONG TERM FINANCE FOR INDUSTRI AL PROJECTS AND APPROVED BY THE CENTRAL GOVERNMENT UNDER SEC.36(I)(VIII) OF THE ACT. AS PER SECTION 43D IN THE CASES OF ABOVE SAID INSTITUTIONS INTERES T ON STICKY ADVANCES FALLING UNDER HEALTH CODES 4 TO 8 AS PER THE GUIDELINES ISS UED BY THE RESERVE BANK OF INDIA WILL BE CHARGED TO TAX EITHER IN THE YEAR IN WHICH THE RELEVANT INTEREST IS CREDITED TO THE PROFIT AND LOSS ACCOUNT OR THE YEAR OF ACTUAL RECEIPT OF INTEREST, WHICHEVER IS EARLIER. THUS, SO LONG AS THE INTEREST IS NOT RECEIVED AND SO LONG AS CREDITS IN RESPECT OF SUCH INTEREST ARE CONFINED TO 'INTEREST SUSPENSE ACCOUNT', SUCH INTEREST AMOUNTS WILL NOT B E TREATED AS INCOME OF THE ASSESSEE IN VIEW OF THE NON- OBSTANTE CLAUSE OF SEC TION 430 EVEN THOUGH THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG.' 5.1 RELIANCE IS ALSO PLACED ON THE DECISION OF THE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. CANFIN HOMES LTD. (2012) (347 I TR 382) WHEREIN IT WAS HELD AS UNDER: 'IN STATE BANK OF TRAVANCORE V. CIT [1986] 158 TTR 102 (SC) THE SUPREME COURT HELD THAT THE CONCEPT OF REA LITY OF THE INCOME AND THE ACTUALITY OF THE SITUATION ARE RELEVANT FACTORS WHICH GO TO THE MAKING UP OF ACCRUAL OF INCOME BUT ONCE ACCRUAL TAKES PLACE A ND INCOME ACCRUES, THE SAME CANNOT BE DEFEATED BY ANY THEORY OF REAL INCOM E. SECTION 145(1) OF THE INCOME-TAX ACT, 1961, IS SUBJECT TO THE PROVISIONS OF SUB-SECTION (2). SUB- SECTION (2) PROVIDES THAT THE CENTRAL GOVERNMENT MA Y NOTIFY IN THE OFFICIAL ITA NO. 1038/HYD/2019 :- 7 -: GAZETTE FROM TIME TO TIME ACCOUNTING STANDARDS TO B E FOLLOWED BY ANY CLASS OF ASSESSES OR IN RESPECT OF ANY CLASS OF INCOME. T HEREFORE, THE REQUIREMENT OF COMPLYING WITH CASH OR MERCANTILE SYSTEM OF ACCO UNTING IS SUBJECT TO THE DIRECTIONS TO BE ISSUED BY THE CENTRAL GOVERNMENT I N THE MATTER OF ACCOUNTING STANDARDS. AFTER THE AMENDMENT TO SECTIO N 145 THE BOARD HAS ISSUED ACCOUNTING STANDARDS TO BE FOLLOWED BY WAY O F A NOTIFICATION NO. S.O. 69(E), DATED JANUARY 25, 1996. CLAUSE 6 DEFINES 'AC CRUAL' FOR THE PURPOSE OF PARAGRAPHS 1) TO (5) IN THE ACCOUNTING STANDARDS. ' ACCRUAL' REFERS TO THE ASSUMPTION THAT REVENUE AND COSTS ORE ACCRUED, THAT IS, RECOGNISED AS THEY ARE EARNED OR INCURRED (AND NOT AS MONEY IS RECEIVE D OR PAID) AND RECORDED IN THE FINANCIAL STATEMENTS OF THE PERIODS TO WHICH THEY RELATE. IN THIS CONTEXT THE GUIDELINES DATED APRIL 28,1995, WERE ISSUED BY THE NATIONAL HOUSING BANK WITH REFERENCE TO NON-PERFORMING ASSETS. THEY STATE THE POLICY ON INCOME RECOGNITION TO BE OBJECTIVE SHOULD BE BASED ON RECORD OF RECOVERY. INCOME FROM A NON- PERFORMING ASSET MAY NOT BE RECO GNISED MERELY ON THE BASIS OF ACCRUAL. AN ASSET BECOMES NON-PERFORMING W HEN IT CEASES TO YIELD INCOME. THE INCOME FROM NON-PERFORMING ASSETS, THER EFORE, SHOULD BE RECOGNISED ONLY WHEN IT IS ACTUALLY RECEIVED. A NON -PERFORMING ASSET IS AN ASSET IN RESPECT OF WHICH INTEREST HAS REMAINED UNP AID AND HAS BECOME 'PAST DUE'. AN AMOUNT IS TO BE TREATED AS 'PAST DUE' WHEN IT REMAINS UNPAID FOR 30 DAYS BEYOND THE DUE DATE. INTEREST ON THE NON-PERFO RMING ASSETS SHOULD NOT BE LOOKED UPON AS INCOME IF SUCH INTEREST HAS REMAI NED OUTSTANDING FOR MORE THAN SIX MONTHS ON AND FROM MARCH 31,1995. THEREFOR E, IF AN ASSESSEE ADOPTS THE MERCANTILE SYSTEM OF ACCOUNTING AND IN H IS ACCOUNTS HE SHOWS A PARTICULAR INCOME AS ACCRUING, WHETHER THAT AMOUNT IS REALLY ACCRUED OR NOT, IT IS LIABLE TO TAX. HIS ACCOUNTS SHOULD REFLECT TH E TRUE AND CORRECT STATEMENT OF AFFAIRS. MERELY BECAUSE THE AMOUNT ACCRUED BUT W AS NOT REALISED IMMEDIATELY THAT CANNOT BE A GROUND TO AVOID PAYMEN T OF TAX. BUT, IF IN HIS ACCOUNT IT IS CLEARLY STATED THAT THOUGH A PARTICUL AR INCOME IS DUE TO HIM IT IS NOT POSSIBLE TO RECOVER IT, IT CANNOT BE SAID HAVE ACCRUED AND THE AMOUNT CANNOT BE BROUGHT TO TAX. ONCE A PARTICULAR ASSET I S SHOWN TO BE A NON- PERFORMING ASSET THE ASSUMPTION IS THAT IT IS NOT Y IELDING ANY REVENUE. WHEN IT IS NOT YIELDING ANY REVENUE, THE QUESTION OF SHO WING THAT REVENUE AND PAYING TAX WOULD NOT ARISE. HELD ACCORDINGLY, DISMI SSING THE APPEAL, THAT THE TRIBUNAL WAS RIGHT IN HOLDING THAT INCOME FROM NON- PERFORMING ASSETS SHOULD BE ASSESSED ON CASH BASIS AND NOT ON MERCANT ILE BASIS DESPITE THE ASSESSEE FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNT ING.' 5.2 IN VIEW OF THE ABOVE DISCUSSIONS, WE ARE OF THE VIEW THAT THERE ARE JUDGMENTS IN FAVOUR OF THE ASSESSEE ON THE ISSU E OF APPLICABILITY OF SECTION 43D(G) OF THE ACT TO THE CO-OPERATIVE BA NKS. IN VIEW OF THIS, WE ARE OF THE OPINION THAT THE ORDER PASSED BY THE ASSESSING OFFICER IS NOT ERRONEOUS AND PREJUDICIAL TO THE INTERESTS O F THE REVENUE FOR THE ITA NO. 1038/HYD/2019 :- 8 -: PURPOSE OF INVOKING JURISDICTION U/S. 263 OF THE AC T. ACCORDINGLY, WE QUASH THE ORDER PASSED BY THE CIT U/S. 263 OF THE I .T. ACT. WE ADOPT THE ABOVE EXTRACTED DETAILED REASONING MUTATIS MUTANDIS AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED ADDITION. 4. THIS ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH JANUARY, 2021 SD/- SD/- (LAXMI PRASAD SAHU) (S.S.G ODARA) ACCOUNTANT MEMBER JUDICIAL MEM BER HYDERABAD, DATED: 19-01-2021 TNMM ITA NO. 1038/HYD/2019 :- 9 -: COPY TO : 1.VARDHAMAN (MAHILA) CO-OP. URBAN BANK LTD., C/O.S.DAGA & CO., CHARTERED ACCOUNTANTS, 403, PAIGA H PLAZA, BASHEER BAGH, HYDERABAD. 2.THE ASST.COMMISSIONER OF INCOME TAX, CIRCLE-14(1) , HYDERABAD. 3.CIT(APPEALS)-6, HYDERABAD. 4.PR.CIT-6, HYDERABAD. 5.D.R. ITAT, HYDERABAD. 6.GUARD FILE.