ACIT., Circle-1, Warangal, Warangal V. Andhra Pradesh Gramena Vikas Bank, Warangal

ITA 1771/HYD/2014

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0338 (ITAT-HYDERABAD)
• Duration Of Justice: 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 25-03-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 21-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G APARNA RAO
• Assessee Lawyers: T UMAKANTH
• Keywords: Business income; Depreciation; Bad and doubtful debts
• Section: 43B; 142(1); 37; 28

Judgement Text

ITA NOS.1772 & 1777 OF 2014 AP GRAMEEN VIKAS BANK W ARANGAL PAGE 1 OF 13 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER & SMT.ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 1771/HYD/2014 (ASSESSMENT YEAR: 2010-11) ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE -1, WARANGAL VS. ANDHRA PRADESH GRAMEENA VIKAS BANK, WARANGAL PAN: AAAJA 1351 N (APPELLANT) (RESPONDENT) ITA NO.1777/HYD/2014 (A.Y 2010-11) ANDHRA PRADESH GRAMEENA VIKAS BANK, WARANGAL PAN: AAAJA 1351 N VS. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE -1, WARANGAL (APPELLANT) (RESPONDENT) FOR REVENUE : SMT. G. APARNA RAO, DR FOR ASSESSEE : SHRI T. UMAKANTH DATE OF HEARING : 25/03/2015 DATE OF PRONOUNCEMENT : /04/2015 O R D E R PER SMT. ASHA VIJAYARAGHAVAN, J.M. THESE ARE CROSS APPEALS PREFERRED BOTH BY THE REVE NUE AND THE ASSESSEE AGAINST THE ORDER OF THE LD CIT (A)-VI , HYDERABAD, DATED 26.08.2014 PASSED FOR A.Y 2010-11. ITA NO. 1771/HYD/2014 2. BRIEFLY STATED, THE ASSESSEE IS A REGIONAL RURAL BANK DEEMED TO BE A COOPERATIVE SOCIETY FOR THE PURPOSE OF INCOME ITA NOS.1772 & 1777 OF 2014 AP GRAMEEN VIKAS BANK W ARANGAL PAGE 2 OF 13 TAX ACT, 1961 UNDER THE REGIONAL RURAL BANKS ACT NO .21 OF 1976 IS IN THE BUSINESS OF BANKING AND FILED ITS RETURN OF INCOME FOR A.Y 2010-11 ON 07.10.2010 DECLARING AN INCOME OF RS.1,22,51,93,517. THE RETURN OF INCOME WAS PROCESS ED U/S 143(1) IN THE PRELIMINARY STAGE. THE CASE WAS SELEC TED FOR SCRUTINY AND ACCORDINGLY NOTICES U/S 142(1) AND 143 (2) WERE ISSUED AND SERVED. WHILE COMPLETING THE ASSESSMENT ORDER, THE TOTAL INCOME WAS DETERMINED AT RS.142,04,20,490 ON ACCOUNT OF THE FOLLOWING ADDITIONS: 1. DISALLOWANCE OF BROKE N PERIOD INTEREST RS.5,59,70,000 2. DISALLOWANCE OF AMORTIZATION PROVIDED ON GOVT. SECURITIES RS.6,63,76,000 3 DISALLOWANCE OF PROVISION FOR GRATUITY RS.5,61,93,000 4 INTEREST ON NPA RS.1,36, 22,000 5 DISALLOWANCE CLAIM TOWARDS STAFF FRAUDS RS. 28,68,000 6 DISALLOWANCE OF PROVISION FOR AUDIT FEES RS.1,60,659 3. AGGRIEVED THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT (A). BROKEN PERIOD INTEREST 4. WITH RESPECT TO BROKEN PERIOD INTEREST, WHILE COMPU TING THE TOTAL INCOME OF THE ASSESSEE, THE ASSESSING OFFICER MADE THE DISALLOWANCE OF CLAIM OF DEDUCTION TOWARDS INTEREST PAID IN ACQUISITION OF SECURITIES ON THE GROUND THAT INVEST MENT IN HELD TO MATURITY (HTM) SECURITIES AMOUNTED TO CAPITAL EXPEN SES. IT WAS OBSERVED BY THE ASSESSING OFFICER THAT, THOUGH THIS ISSUE IS COVERED BY THE DECISIONS OF CIT(A) FOR THE A.YS. 20 07-08 & 2008- ITA NOS.1772 & 1777 OF 2014 AP GRAMEEN VIKAS BANK W ARANGAL PAGE 3 OF 13 09, FURTHER APPEAL , WAS MADE BY THE DEPARTMENT. THE ASSESSING OFFICER ALSO RELIED ON THE MASTER CIRCULAR BY RBI, AND CIRCULAR NO.665 ISSUED BY CBDT AND THE DECISION OF SUPREME COURT IN THE CASE OF VIJAYA BAN K LTD. VS. CIT (187 ITR 541) TO SUBSTANTIATE HIS OPINION THAT THE BROKEN PERIOD INTEREST OF RS.5,59,70,000/- PAID BY THE ASS ESSEE IN PURCHASE OF HTM SECURITIES, IS NOT AN ALLOWABLE REV ENUE EXPENSES. HENCE, THE DISALLOWANCE. 5. BEFORE THE CIT (A), THE ASSESSEE OBJECTED TO SU CH DISALLOWANCE AND HAS CONTENDED THAT BY ASSESSING TH E INTEREST RECEIVED ON DUE DATE, WITHOUT DEDUCTING THE BROKEN PERIOD INTEREST PAID, AMOUNTS TO DOUBLE TAXATION. IT WAS A LSO SUBMITTED THAT ACCORDING TO AS 13, READ WITH THE I.T. ACT, 19 61, THE PRE- ACQUISITION ELEMENT OF INTEREST CANNOT BE INCLUDED IN THE COST OF INVESTMENT, AS SUCH THE BROKEN PERIOD INTEREST IS T O BE TREATED AS REVENUE EXPENSES. THE APPELLANT ALSO SUB MITTED THAT THE SAID ISSUE HAS BEEN DECIDED BY CIT(A)-VI, HYDERABAD IN FAVOUR OF ASSESSEE, WHICH WAS ALSO UPHELD BY HON 'BLE ITAT, HYDERABAD 'A' BENCH VIDE ITS ORDER DATED 13.03.2014 IN ITA NO.610/HYD/2013. THUS, ON THE LINES OF THE DECISION OF THE ITAT IN ITA NO.610/HYD/2013 IT WAS HELD BY THE CIT (A) THAT THE BROKEN PERIOD OF INTEREST OF RS.5,59,70,00 0 IS AN ALLOWABLE EXPENSE. 6. THE ASSESSEE PREFERRED APPEAL BEFORE US. WE FIND THAT ISSUE IS COVERED BY COORDINATE BENCH DECISION IN IT A NO.610/HYD/2013. RESPECTFULLY FOLLOWING THE SAME, W E DISMISS THIS GROUND RAISED BY THE REVENUE. ITA NOS.1772 & 1777 OF 2014 AP GRAMEEN VIKAS BANK W ARANGAL PAGE 4 OF 13 DISALLOWANCE OF AMORTIZATION PROVIDED ON GOVT. SECURITIES 7. THE ASSESSEE HAD CLAIMED A SUM OF RS. 6,63,76,00 0 TOWARDS AMORTIZATION OF PREMIUM PAID ON GOVERNMENT SECURITIES. THE AO DISALLOWED IT STATING THAT THERE WAS, NO PROVISION IN THE ACT FOR SUCH A CLAIM. AS PER THE A SSESSING OFFICER, AN AMOUNT OF RS.6,63,76,000/- WAS DEBITED TO PROFIT & LOSS ACCOUNT TOWARDS AMORTIZATION OF THE PREMIUM PA ID, FOR THE PERIOD OF PURCHASE TO DATE OF MATURITY, ON ACQUIRING THE SECURITIES CLASSIFIED AS HELD TO MATURITY(HTM) AND THE CLAIM OF ASSESSEE DOES NOT FALL WITHIN THE AMBIT OF PROVISIONS OF SECTION 35D OF THE I.T. ACT. THE ASSESSING OFFIC ER ALSO OBSERVED THAT THE HTM CATEGORY SECURITIES ARE HELD AS INVESTMENTS AND NOT AS STOCK-IN-TRADE, HENC E, THE APPRECIATION OR DEPRECIATION, IN THEIR VALUE DOES N OT HAVE ANY REVENUE IMPLICATIONS. ASSESSING OFFICER HAD OBSERVE D THAT, IRRESPECTIVE OF ACCOUNTING PRACTICES FOLLOWED BY TH E ASSESSEE, WHETHER CERTAIN EXPENSES CAN BE CLAIMED OR NOT, IS DECIDED ONLY AS PER THE PROVISIONS OF I.T. ACT, BUT NOT THE GUIDELINES ISSUED BY RBI AND THE ASSESSEE IS CO NFUSED ABOUT THE SECTION UNDER WHICH THE SAID PREMIUM IS AMORTIZED. ACCORDINGLY, THE CLAIM WAS DISALLOWED AN D BROUGHT TO TAX. 8. BEFORE THE CIT (A), THE ASSESSEE OBJECTED FOR SU CH ADDITION AND SUBMITTED THAT, WHEN THERE IS NO SPECIFIC PROVI SION UNDER INCOME TAX ACT, 1961, THE TAX LIABILITY OF CERTAIN SUM HAS TO BE DECIDED IN ACCORDANCE WITH ACCOUNTING PRACTICES AND AS ITA NOS.1772 & 1777 OF 2014 AP GRAMEEN VIKAS BANK W ARANGAL PAGE 5 OF 13 PER AS 26, READ WITH I.T.ACT, 1961, THE PREMIUM PAI D ON GOVERNMENT SECURITIES IS AN INTANGIBLE ASSET, WHOSE LIFE CAN BE ASCERTAINED AND THE SAME SHOULD BE WRITTEN OFF, OVER THE USEFUL LIFE OF THE ASSET. IT WAS ALSO SUBMITTED THA T THIS ISSUE HAS BEEN COVERED BY THE DECISION OF CIT(A), VIJAYAW ADA AND CIT(A)-VI, HYDERABAD FOR EARLIER YEARS, WHICH WERE UPHELD BY ITAT, HYDERABAD, VIDE ITS ORDER DATED 13.03.2014 IN ITA NO. 610/HYD/2013. 9. THE ASSEESSEE HAS PREFERRED APPEAL BEFORE US. WE FIND THAT THE ISSUE IS COVERED BY THE COORDINATE BENCH D ECISION IN ITA NO.610/HYD/2013 DATED 13.03.2014. RESPECTFULLY FOLLOWING THE SAME, WE DISMISS THE GROUND OF THE RE VENUE. PROVISION FOR GRATUITY 10. WHILE COMPUTING THE TOTAL INCOME OF THE ASSESSE E, THE AO DISALLOWED THE CLAIM OF THE ASSESSEE FOR AN AMOUNT OF RS. 5,61,93,000 /- BEING THE AMOUNT CONTRIBUTED TO THE GRATUITY FUND DURING THE YEAR. WHILE MAKING THE DISALLOWANCE, THE AO WAS OF THE OPINION THAT THE ASSESSEE BANK DID NOT HAVE AN APPROVAL FOR MAINTAINING THE GRATUITY CONTRIBUTION FUND. IT WAS FURTHER OBSERVED BY THE AO THAT ASSESSEE HAS NOT OBTAINED PERMISSION FOR APPROVED GRATUITY FUND AND IF PROVISION IS NOT MADE TOWARDS APPROVED GRATUITY FUND, THE GRATUITY PAYABLE IS NOT ALLOWED U/S 40A(7) OF THE IT ACT. 11. BEFORE THE CIT (A), THE ASSESSEE RAISED OBJECTI ON ON SUCH DISALLOWANCE, VIDE THE GROUNDS OF APPEAL RAISED IN THIS ITA NOS.1772 & 1777 OF 2014 AP GRAMEEN VIKAS BANK W ARANGAL PAGE 6 OF 13 REGARD. AS PER THE ASSESSEE, THE AO WAS UNDER WRONG BELIEF THAT APPELLANT BANK SHOULD BE RECOGNIZED FOR THE PURPOSE OF CONTRIBUTING TO THE GRATUITY FUND, WHICH IS NOT CORRECT. IT HAS BEEN CLARIFIED THAT THE AMOUNTS WERE ACTUALLY PAID, DURING THE YEAR, AS PER THE ACTUARIAL VALUES AND AS REQUIRED B Y STATUTE AND THE HIGH LIABILITY ARISEN ON ACCOUNT OF MERGER OF V ARIOUS LOCAL GRAMEENA BANKS WITH THE ASSESSEE BANK. THE PROOF FO R THE PAYMENT OF RS. 5,61,93,000/- TO M/S. SBI LIFE INSUR ANCE CO. LTD., WHICH IS AN APPROVED FUND BY IRDA, WAS FURNIS HED AND REQUESTED FOR ALLOWING THE CLAIM ON PAYMENT BASIS. THE ASSESSEE ALSO FURNISHED THE WORKING OF THE QUANTUMS TOWARDS THE LIABILITY. 12. THE CIT (APPEALS)-VI, HYDERABAD AFTER CONSIDERI NG THE GROUNDS OF APPEAL AND ALSO THE DOCUMENTARY EVIDENCE AS DETAILED BELOW. 1) CERTIFICATE OF REGISTRATION NO.L11, DT.29/03/20 01 ISSUED BY IRDA 2) RECEIPT SHOWING THE PAYMENT OF GRATUITY AMOUNT BEFORE FILING OF THE RETURN AS PER THE PROVISIONS O F SECTION 43B OF THE I.T. ACT, 1961. ALLOWED THE APPEAL ON THIS GROUND. 13. AGGRIEVED THE REVENUE HAS FILED APPEAL BEFORE U S. 14. WE HEARD BOTH THE PARTIES. THE CONFLICT BETWEEN SECTION 40A(7) AND SECTION 43B HAS BEEN CONSIDERED BY THE H ON'BLE CALCUTTA HIGH COURT IN THE CASE OF SREE KAMAKHYA TEA CO. (P) LTD. (SUPRA) AND THE RELEVANT PORTION OF THE JUDGMENT IS REPRODUCED BELOW (EXTRACTED FROM HEAD NOTE AT PAGE 718 TO 199 ITR) : 'UNDER SECTION 36(1)(VA), DEDUCTION IS ALLOWED IN R ESPECT OF ANY SUM PAID BY THE ASSESSEE AS AN EMPLOYER BY WAY OF ITA NOS.1772 & 1777 OF 2014 AP GRAMEEN VIKAS BANK W ARANGAL PAGE 7 OF 13 CONTRIBUTION TOWARDS AN APPROVED GRATUITY FUND, AS DEFINED IN SECTION 2(5) OF THE ACT, CREATED BY THE EMPLOYER FOR THE EXCLUSIVE BENEFIT OF HIS EMPLOYEES UNDER AN IRREVOCABLE TRUST. AFTER THE INSERTION OF SECTION 4 0A(7), FOR CLAIMING DEDUCTION FOR GRATUITY PAYMENT, THE ASSESS EE WAS REQUIRED TO FULFIL THE CONDITIONS LAID DOWN IN SECTION 40A(7) AND WITHOUT FULFILLING THE CONDITIONS LAID D OWN THEREIN, NO ASSESSEE WAS ENTITLED TO DEDUCTION UNDER 36(1)(V). THIS HAS UNDERGONE A CHANGE AFTER THE INSERTION OF SECTION 43B FOR AND FROM THE ASSESSMEN T YEAR 1984-85. THE PROVISION OF SECTION 43B(B) ARE RELEVANT AND APPOSITE IN THE CONTEXT OF THE PROVISI ONS OF SECTION 36(1)(V). SECTION 43B HAS OVERRIDING EFFECT OVER THE PROVISIONS OF SECTION 40A(7). UNDER THE PROVISIONS OF SECTION 43B, A DEDUCTION IN RESPECT OF ANY SUM PAYA BLE BY THE ASSESSEE AS AN EMPLOYER BY WAY OF CONTRIBUTION INTER ALIA TO A GRATUITY FUND IS TO BE ALLOWED IN COMPUTI NG THE BUSINESS INCOME OF THAT PREVIOUS YEAR IN WHICH SUCH SUM HAS BEEN ACTUALLY PAID BY HIM.' 15. SECTION 43B PERMITS A DEDUCTION IN RESPECT OF A NY PAYMENT BY WAY OF' CONTRIBUTION TO A PROVIDENT FUND OR SUPERAN NUATION FUND OR ANY OTHER FUND FOR THE WELFARE OF EMPLOYEES IN THE YEAR IN WHICH THE LIABILITY IS ACTUALLY DISCHARGED. WE MAY, HOWEVER, ADD THAT CLAUSE (VA) HAS BEEN INSERTED IN SUB-SECTION (1) OF SECTION 36 BY THE FINANCE ACT, 1987. THE EFFECT OF THE AMENDMENT IS THAT NO DEDUCT ION WILL BE ALLOWED IN THE ASSESSMENT OF THE EMPLOYER UNLESS SUCH CONTR IBUTION IS PAID TO THE FUND ON OR BEFORE THE DUE DATE. THE DUE DATE IN THE CONTEXT MEANS THE DATE BY WHICH AN EMPLOYER IS REQUIRED TO CREDIT THE CONTRIBUTION TO THE EMPLOYEES' ACCOUNT UNDER THE PROVISIONS OF ANY LAW OR THE TERMS OF THE CONTRACT OF SERVICE OR OTHERWISE. 16. IN THE PRESENT CASE THE APPELLANT HAS NOT MADE ANY PROVISION FOR GRATUITY U/S.40A(7) AS ON 31-03-2010 AS THE TOTAL A MOUNT HAS BEEN PAID ON 31-03-2010 AND ACCORDINGLY THE SAID PAYMENT O F GRATUITY OF RS.5,61,93,000/- IS AN ALLOWABLE DEDUCTION U/S.43B OF THE I.T.ACT, 1961. ITA NOS.1772 & 1777 OF 2014 AP GRAMEEN VIKAS BANK W ARANGAL PAGE 8 OF 13 17. RELIANCE IS PLACED ON THE DECISION OF THE HON'BLE ANDHRA PRADESH HIGH COURT, IN THE CASE OF HITECH(INDIA) (P ) LTD. (SUPRA) HAVE HELD THAT: 'THE SECOND PROVISION IMPOSES A FURTHER RESTRICTION ON THE ALLOWABILITY OF DEDUCTION OF ANY SUM REFERRED TO IN CLAUSE (B). IT PROVIDES THAT UNLESS SUCH SUM HAS ACTUALLY BEEN PAID IN CASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTH ER MODE ON OR BEFORE THE DUE DATE, IT SHALL NOT BE ALLOWED AS DEDUCTION. FOR THIS PURPOSE, THE DEFINITION OF 'DUE DATE' AS G IVEN IN THE EXPLANATION TO CLAUSE (VA) OF SUB-SECTION (1) OF SE CTION 36 IS ADOPTED. SUB-CLAUSE (X) OF CLAUSE (24) OF SECTION 2 INCLUDES WITHIN THE MEANING 'INCOME' ANY SUM RECEIVED BY THE ASSESSEE FROM HIS EMPLOYEES AS CONTRIBUTIONS TO ANY PROVIDENT FUND OR SUPERANNUATION FUND OR OTHER FUND SET UP UNDER THE PROVISIONS OF THE EMPLOYEES STATE INSURAN CE ACT, 1948, OR ANY OTHER FUND FOR THE WELFARE OF SUCH EMP LOYEES. THUS, IT IS CLEAR THAT THE EMPLOYEES CONTRIBUTION RECEIVED BY THE EMPLOYER WOULD BE 'INCOME' IN HIS HANDS AND THA T WOULD BE ALLOWED AS PERMISSIBLE DEDUCTION UNDER CLAUSE (V A) OF SUB- SECTION (1) OF SECTION 36 IN COMPUTING THE BUSINESS INCOME UNDER SECTION 28 PROVIDED THE ASSESSEE CREDITS THE SAME TO THE RELEVANT FUND. UNDER SECTION 43B, THE SUM REFER RED TO IN CLAUSE (B) OF SECTION 43B IS TREATED DIFFERENTLY, A S IT RELATES TO THE SUM PAYABLE BY THE ASSESSEE AS AN EMPLOYER WHIC H INCLUDES THE EMPLOYER'S CONTRIBUTION AS WELL AS EMP LOYEES' CONTRIBUTION,. IF SUCH CONTRIBUTIONS WHICH ARE PAYA BLE TO ANY PROVIDENT FUND OR SUPERANNUATION FUND OR ANY FUND A RE PAID WITHIN THE DUE DATE, THE EMPLOYER WILL BE ABLE TO A VAIL OF THE BENEFIT OF DEDUCTION UNDER SECTION 43B. 18. HENCE WE DISMISS THE GROUND OF THE REVENUE. STAFF FRAUDS 19. IN COMPUTING THE TOTAL INCOME, . THE ASSESSING OFFICER DISALLOWED THE AMOUNTS OF RS.28,68,000J- CLAIMED AS PROVISION FOR STAFF FRAUDS, ON THE GROUND THAT PROV ISION FOR FRAUDS CANNOT BE EQUATED WITH PROVISION FOR BAD AND DOUBTFUL DEBTS, AND FRAUDS WERE NOT LET OFF OR WRITTEN OFF N ORMALLY AND ITA NOS.1772 & 1777 OF 2014 AP GRAMEEN VIKAS BANK W ARANGAL PAGE 9 OF 13 THE EMBEZZLED MONEY USUALLY RECOVERED. IT WAS ALSO OBSERVED BY THE ASSESSING OFFICER THAT ONLY CERTAIN PROVISIO NS AS PRESCRIBED BY I. T. ACT ARE ALLOWED, AND PROVISION FOR STAFF FRAUDS, NOT INCLUDED IN SUCH ALLOWABLE PROVISIONS A ND BROUGHT THE AMOUNT OF RS.28,68,000 TO TAX. 20. THE ASSESSEE OBJECTED FOR SUCH DISALLOWANCE AND IT WAS CONTENDED THAT LOSS THROUGH EMBEZZLEMENT BY EMPLOYE ES IS AN EXPENDITURE, AND IS EXPRESSLY ALLOWABLE U/S 37 O F THE I.T . ACT. IT WAS ALSO SUBMITTED THAT THE SAID ISSUE WAS SUBJECT MATTER OF APPEAL AND ORDERS OF CIT(A) AND ITAT, SUP PORTED THE VIEW OF THE ASSESSEE , AND RELIED ON THE ORDER OF ITAT 'A' BENCH, HYDERABAD IN ITA NO.610/HYD/2013 DATED 13.03.2014. / 21. RESPECTFULLY FOLLOWING THE DECISIONS OF THE ITA T ON THE ISSUE IN ASSESSEES OWN CASE, CIT (A) WAS OF THE OPINION THAT THE PROVISIONS FOR STAFF FRAUDS IS AN ALLOWABLE EXPENDI TURE AND ACCORDINGLY THE ADDITION OF RS.28,68,000 WAS ORDERE D TO BE DELETED. 22. RESPECTFULLY FOLLOWING THE DECISION OF THE COOR DINATE BENCH IN ITA NO.610/HYD/2013, DATED 13.03.2014, THE GROUND OF THE REVENUE IS DISMISSED. 23. IN THE RESULT, APPEAL IN ITA NO.1771/HYD/2013 F OR THE ASSESSMENT YEAR IS DISMISSED. ITA NOS.1772 & 1777 OF 2014 AP GRAMEEN VIKAS BANK W ARANGAL PAGE 10 OF 13 ITA NO.1777/HYD/2014 24. IN THE ASSESSEES APPEAL, ASSESSEE IS AGITATED ON THE ADDITION ON ACCOUNT OF TREATING THE UNREALIZED INTE REST ON NPAS, AS INCOME AMOUNTING TO RS.1,36,22,000. WHILE COMPUT ING THE TOTAL INCOME OF THE ASSESSEE, THE AO INCLUDED THE UNREALIZED INTEREST ON NON-PERFORMING ASSETS (NPA) TO THE EXTE NT OF RS.1,36,22,000 AS INCOME AND BROUGHT TO TAX ON THE GROUND THAT THE INTEREST ON NPA WAS CREDITED IN THE BOOKS OF AC COUNTS, IN ACCORDANCE WITH THE MERCANTILE SYSTEM OF ACCOUNTS, AS PER WHICH THE RECEIPTS ARE REQUIRED TO BE ACCOUNTED IN BOOKS OF ACCOUNTS, IRRESPECTIVE OF DATES, WHEN SUCH AMOUNTS ARE RECEIV ED. 25. AS COULD BE SEEN FROM THE INFORMATION BROUGHT O N RECORD, THE ASSESSEE IS CONSISTENTLY FOLLOWING THE METHOD O F RECOGNIZING THE INTEREST ON NPA, AS PER THE PRUDENTIAL NORMS OF INCOME RECOGNITION AS ISSUED BY THE RBI AND ACCORDINGLY HA S NOT INCLUDED SUCH INTEREST AS ITS INCOME. THE JUDICIAL DECISIONS IN THIS REGARD HAS UPHELD THE BROAD ARGUMENT THAT WHEN THE RECOVERY OF PRINCIPAL AMOUNT ITSELF HAS BECOME DOUB TFUL, IT CANNOT BE SAID THAT INTEREST ON SUCH AMOUNTS ACCRUE D AS INCOME TO THE BANKS. THE ORDER DATED 29.04.2013 PASSED BY THE ITAT HYDERABAD BENCH IN ASSESSEES OWN CASE FOR A.Y 2007 -08 AND 2008-09 WAS IN FAVOUR OF THE ASSESSEE. HOWEVER, IT MAY BE RELEVANT TO REFER TO THE DECISION OF THE ITAT HYDER ABAD A BENCH FOR A.Y 2009-10 DATED 13.03.2014 IN ITA NO.610/HYD/ 2013 IN ASSESSEES OWN CASE WHEREIN ITAT FOLLOWING THE DECI SION OF THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHN OLOGIES ITA NOS.1772 & 1777 OF 2014 AP GRAMEEN VIKAS BANK W ARANGAL PAGE 11 OF 13 (320 ITR 577) WHICH WAS NOT CONSIDERED BY ITAT IN I TS ORDER DATED 29.04.2013 HAS HELD AS UNDER: AS REGARDS GROUND NO.5 RELATING TO ADDITION MADE B Y THE AO TOWARDS ACCRUED INTEREST ON NON-PERFORMING ASSETS, WE FIND THAT THE TRIBUNAL HAS CONSIDERED TH IS ISSUE IN ASSESSEES CASE AT PARAS 13 TO 17 OF ITS O RDER AND HAS HELD IT IN FAVOUR OF THE ASSESSEE. HOWEVER, WE FIND THAT THE TRIBUNAL HAS NOT CONSIDERED THE DECIS ION OF THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHER N TECHNOLOGIES REPORTED IN 320 ITR 577 WHEREIN IT HAS BEEN HELD THAT THE RBI DIRECTIVES WERE ONLY IN THE CONTEXT OF PRESENTATION OF NPAS IN THE BALANCE SHEE T AND THE BALANCE SHEET OF NBFC HAS NOTHING TO DO WIT H THE TAXABLE INCOME, WHICH HAS TO BE COMPUTED AS PER THE PROVISIONS OF THE I.T. ACT. THOUGH THE DECISION OF THE HON'BLE SUPREME COURT IS DATED 11.01.2010 THE SAME HAS NOT BEEN CONSIDERED BY THE TRIBUNAL AND HENCE, THE FINDING OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.YS 2007-08 AND 2008-09 CANNOT BE FOLLOWED. IN VIE W OF THE SAME, THIS GROUND OF APPEAL OF THE REVENUE I S ALLOWED. 26. RESPECTFULLY FOLLOWING THE DECISION OF THE ITAT HYDERABAD, IN ASSESSEES OWN CASE, THE CIT (A) HAD NO HESITATI ON IN HOLDING THAT UNREALIZED INTEREST ON NPAS CONSTITUTE INCOME TO THE ASSESSEE ON THE PRINCIPLE THAT THE RBI DIRECTIVES W ERE ONLY IN THE CONTEXT OF PRESENTATION OF NPAS IN BALANCE SHEET AN D PRESENTATION OF BALANCE SHEETS HAVE NOTHING TO DO W ITH TAXABLE INCOME, WHICH HAS TO BE COMPUTED AS PER THE PROVISI ONS OF THE INCOME TAX ACT. ACCORDINGLY, THE CIT (A) HELD THAT THE ADDITION OF RS.1,36,22,000 IS HELD TO BE SUSTAINABLE. ITA NOS.1772 & 1777 OF 2014 AP GRAMEEN VIKAS BANK W ARANGAL PAGE 12 OF 13 27. ON APPEAL, THE LD COUNSEL FOR THE ASSESSEE SUBM ITTED A CHART SHOWING THE ISSUES INVOLVED AND DETAILS OF CO VERED JUDGEMENTS/CIRCULARS AS FOLLOWS: JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE O F UNITED COMMERCIAL BANK OF INDIA VS. CIT (240 ITR 35 5) ORDER OF THE HON'BLE HIGH COURT OF JUDICATURE AT HY DERABAD FOR THE STATE OF TELANGANA AND STATE OF ANDHRA PRAD ESH IN I.T.T.A NO.566 OF 2014 DATED 4.9.2014 IN THE CASE O F ANDHRA PRADESH GRAMEENA VIKAS BANK, WARANGAL FOR TH E A.Y 2007-08. ORDER PASSED BY THE ITAT HYDERABAD IN ITA NO.1121 & 1459/HYD/2011 FOR A.Y 2007-08 AND 2008-09 RESPECTIV ELY. TCI FINANCE LTD VS. ACIT (2004) 9 ITD 573 (HYD.) CIT VS. ANNAMALAI FINANCE LTD (2005) 275 ITR 451 (M AD.) CIT VS. DURGA COOP. URBAN BAN K LTD (ITA NO.511/VIZAG/2010 DATED 10.03.2011) CIT VS. VASIASTH CHAY VYAPAR LTD, DELHI HIGH COURT DATED 29.11.2010. 28. THE LD COUNSEL FOR THE ASSESSEE PARTICULARLY ST RESSED ON THE DECISION OF THE UNITED COMMERCIAL BANK VS. CIT (240 ITR 355 (S.C). 29. HOWEVER, WE ARE BOUND BY THE ORDER OF THE COORD INATE BENCH OF THE ITAT AND HENCE CONFIRM THE ORDER OF TH E CIT (A) ON THIS ISSUE AND DISMISS THE ASSESSEES APPEAL. ITA NOS.1772 & 1777 OF 2014 AP GRAMEEN VIKAS BANK W ARANGAL PAGE 13 OF 13 30. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH APRIL, 2015. S D/ - S D/ - (P.M. JAGTAP) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 17 TH APRIL, 2015. VNODAN/SPS COPY TO: 1. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE -1, WARAN GAL 2. ANDHRA PRADESH GRAMEENA VIKAS BANK, H.NO.2-5-8/1 OL D BUS DEPOT ROAD, RAMNAGAR, HANAMKONDA, WARANGAL 3. THE CIT(A)-VI HYDERABAD 4. THE CIT VI HYDERABAD 5. THE DR, ITAT, HYDERABAD 6. GUARD FILE BY ORDER