M/s. Shri Yashwant Sahakari Bank Ltd., Kolhapur V. Income-tax Officer,

ITA 2146/PUN/2013

• Counselvise Citation: 214624514 RSA 2013
• Duration Of Justice: 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 10-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S P WALIMBE
• Keywords: Source of fund; Bad and doubtful debts
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 2146/PN/2013 (ASSESSMENT YEAR 2009-10) SHRI YASHWANT SAHAKARI BANK LTD., KUDITRE (KUMBHI-KASARI), TAL : KARVEER, DIST : KOLHAPUR PAN NO.AAAAS9341P .. APPELLANT VS. ITO, WARD-1(2), KOLHAPUR .. RESPONDENT ASSESSEE BY : SHRI PRAMOD SHINGTE REVENUE BY : SHRI S.P. WALIMBE DATE OF HEARING : 21-04-2014 DATE OF PRONOUNCEMENT : 23-04-2014 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 30-10-2013 OF THE CIT(A), KOLHAPUR FOR A.Y. 2009-10 . 2. GROUND OF APPEAL NO.1 BY THE ASSESSEE READS AS U NDER : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LOWER AUTHORITIES HAVE ERRED IN DISALLOWING THE DEDUC TION FOR INCOME EARNED ON SPECIFIC BUSINESS AS PER SECTION 36(1)(VIII) OF THE I.T. ACT, 1961 AND FURTHER ERRED IN CONSIDERING A SUM OF RS.80,000/- AS EXCESS DEDUCTION BY REJECTING APPELLANTS CONTENTION IN THI S REGARD. 2.1 THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBMITTED THAT ALTHOUGH A SPECIFIC GROUND WAS TAKEN BEFORE THE CIT (A) AS PER GROUND OF APPEAL NO.5 THE SAME REMAINED TO BE ADJUDICATED BY THE LD.CIT(A). THE LD. DEPARTMENTAL REPRESENTATIVE ALSO FAIRLY CON CEDED THAT THE SAID GROUND REMAINED UNADJUDICATED INADVERTENTLY BY THE LD.CIT(A). 2 2.2 IN VIEW OF THE ABOVE SUBMISSION BY BOTH THE SID ES, WE SET-ASIDE THE ISSUE TO THE FILE OF THE LD.CIT(A) FOR ADJUDICA TION. GROUND OF APPEAL NO. 1 IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOS ES. 3. GROUND OF APPEAL NO.2 BY THE ASSESSEE READS AS U NDER : 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LOWER AUTHORITIES HAVE ERRED IN MAKING THE DISALLOWAN CE FOR A SUM OF RS.57,65,957/- BEING INTEREST ACCRUED ON NON-PERFORMI NG ASSET (NPA). 3.1 FACTS OF THE CASE, IN BRIEF ARE THAT THE ASSESS ING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT INTE REST RECEIVABLE AND ACCRUED ON NPAS AMOUNTING TO RS.57,65,957/- HAS NEI THER BEEN CREDITED NOR OFFERED FOR TAXATION BY THE ASSESSEE IN THE PRO FIT AND LOSS ACCOUNT. ON BEING QUESTIONED BY THE ASSESSING OFFICER IT WAS SUBMITTED THAT PROVISIONS FOR NPA ARE MADE AS PER PRUDENTIAL GUIDE LINES OF RBI. GUIDELINES REGARDING PROVISIONS FOR DEBTS AND NPA H AVE BEEN MADE AS A MEASURE OF PRUDENCE. BY SUCH PROVISIONING, THE BAN K IS CUSHIONED FROM UNNECESSARY SHOCK IF CERTAIN DEBTS TURNED BAD. THE GUIDELINES ISSUED BY RBI ARE MANDATORY ON THE BANKS WHICH ARE UNDER SUPE RVISION OF THE RBI. WHEN THE PRINCIPAL AMOUNT ITSELF IS OF DOUBTFUL REC OVERY, THE INTEREST CANNOT BE ACCRUED. 3.2 IT WAS FURTHER SUBMITTED THAT QUESTION OF TAXA BILITY OF INTEREST ON NPAS WAS CONSIDERED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF VASISTH CHAY VYAPAR LTD ITA 552/2005 WHEREIN THE HO NBLE DELHI HIGH COURT TOOK INTO ACCOUNT THE DECISION RENDERED BY THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD 320 JTR 577. THE ASSESSEE ALSO RELIED ON THE DECISION IN THE CAS E OF UCO BANK V/S CIT (1999) 237 ITR 889 ACCORDING TO WHICH INTEREST, WHICH IS 3 TRANSFERRED TO THE SUSPENSE ACCOUNT AND NOT BROUGHT TO PL A/C BY THE COMPANY IS NOT TO BE TREATED AS INCOME. IT WAS ARGU ED THAT THE INCOME TAX ACT ALSO RECOGNIZES THIS SYSTEM OF ACCOUNTING I N THE PROVISIONS OF SECTION 43D WHICH NEEDS TO BE APPRECIATED IN ITS TR UE SPIRIT IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3.3 REJECTING THE EXPLANATION GIVEN BY THE ASSESSE E, THE ASSESSING OFFICER ADDED THIS AMOUNT TO ASSESSEE'S INCOME ON T HE GROUND THAT IN THE MATTERS OF INCOME-TAX PROCEEDINGS, PROVISIONS OF TH E INCOME-TAX ACT SUPERSEDE ALL OTHER LAWS. GUIDELINES FRAMED BY THE RBI HAVE TO BE APPLIED ONLY TO THE EXTENT PERMITTED BY THE INCOME- TAX ACT. RBI GUIDELINES HAVE BEEN ISSUED UNDER DELEGATED LEGISLA TION FOR THE PURPOSE OF EFFECTIVE SUPERVISION AND CONTROL OF MONETARY AN D CREDIT SYSTEM AND TO SUPERVISE AND EXERCISE CONTROL ON BANKS AND NBFC S. RBI GUIDELINES WOULD NOT OVERRIDE THE MANDATORY PROVISIONS OF SECT ION 145 AND ACCRUAL OF INCOME UNDER SECTION 5. SINCE THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THE INTEREST INCOME FROM ASSE TS INCLUDING NPAS HAS TO BE ASSESSED TO TAX ON ACCRUAL BASIS. THE ASSESSING OFFICER HAS ALSO FOLLOWED THE CBDT GUIDELINES IN INSTRUCTION NUMBER 17/2008 DATED 26/ 11/2008, WHICH CLARIFIES THAT - (XII) UNDER SECTION 145 OF THE ACT, INCOME UNDER THE HEAD 'S 'PROFIT AND GAINS OF BUSINESS' OR 'INCOME FROM OTHER SOURCE S' IS REQUIRED TO BE COMPUTED IN ACCORDANCE WITH EITHER CASH OR ME RCANTILE SYSTEM OF ACCOUNTING, REGULARLY EMPLOYED BY THE ASS ESSEE. UNDER THE RBI GUIDELINE AND THE INDIAN COMPANIES ACT, 195 6, BANKS HAVE TO FOLLOW THE MERCANTILE SYSTEM OF ACCOUNTING AND PREPARE ACCOUNTS ON ACCRUAL BASIS. THE ASSESSING OFFICERS S HOULD ENSURE THAT THIS SYSTEM IS STRICTLY FOLLOWED BY THE BANKS (IN RESPECT OF ALL SOURCES OF INCOME) 4 THE AO ACCORDINGLY MADE ADDITION OF RS.57,65,957/- TO THE TOTAL INCOME OF THE ASSESSEE. 4. BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE BANK CANNOT DO ACCOUNTING AND PRESENTATION OF FINAL STATEMENTS IN OTHER WAY THAN PRESCRIBED AND DIRECTED BY RBI GUIDELINES. RBI HAS PRESCRIBED THE METHOD AND STYLE OF ACCOUNTING OF INTEREST ON NPA A CCOUNTS. ACCORDINGLY THE INTEREST WHICH IS NOT REALIZED IS N OT TAKEN TO CURRENT INCOME. FURTHER IT WAS STATED THAT WHEN COOPERATIVE BANKS WERE TAKEN OUT FROM THE PURVIEW OF SECTION 80P FROM FINANCIAL YEAR 2006-07, CONSEQUENTIAL AMENDMENT WAS NOT MADE IN THE SECTION 43D WHICH IS A SPECIAL PROVISION FOR RECOGNIZING INTEREST INCOME O F BANKS. 5. HOWEVER, THE CIT(A) WAS ALSO NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE AND UPHELD THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER : 8. I HAVE GONE THROUGH VARIOUS CASE LAWS CITED BY TH E APPELLANT. DEDUCTION FOR INTEREST ON NPAS IS NOT ALLOWED BY ANY CLAUSE OF SECTION 36 OR ANY OTHER PROVISIONS OF THE ACT. APPELLANTS HAVE BE EN CLAIMING IT CITING RBI NORMS. THE BANK MAKES PROVISIONS FOR DOUBTFUL ASSETS, NPAS AND LOSS ASSETS, AND THESE CATEGORIES ARE SEPARATED BY THE PERI OD FOR WHICH PARTICULAR LOAN HAS BEEN SERVICED. IF THE INSTALLMENT ON A LOAN HAS NOT BEEN RECEIVED FOR SPECIFIED NUMBER OF QUARTERS, IT IS CONSIDERED AS NPA. IF THE LOAN HAS NOT BEEN SERVICE FOR A LONGER PERIOD, IT IS CATEGORIZED AS LOSS ASSET AND SO ON. THE CATEGORY OF LOSS ASSET IS THE ONLY CATEGORY WHICH FALLS INTO THE DEFINITION OF BAD DEBTS AS DESCRIBED IN SECTION 35(1)(VII) OF THE INCOME-TAX ACT. THE OTHER CATEGORIES FOR WHICH P ROVISIONING IS DONE I.E. DOUBTFUL ASSETS AND NPAS HAVE NOT YET GONE BAD. TH AT IS WHY NO DEDUCTION IS AVAILABLE IN ANY SECTION OF THE ACT IN R ESPECT OF INTEREST ON NPA. SINCE THERE IS A POSSIBILITY THAT THE DEBT CAN GO BAD, THE RBI GUIDELINES ALLOW THE BANK TO APPROPRIATE PART OF ITS PROFIT BY MAKING A PROVISION IN RESPECT OF SUCH ASSETS WHICH WILL BE UTILIZE D IN CASE THE DEBT TURNS BAD. THE PROVISION HOWEVER, IS NOT OF 100% OF TH E DEBT BUT A FRACTION OF THESE DEBTS. THIS IS EVIDENT THAT THE DEBT IS NOT YET A BAD DEBT. RBI GUIDELINES ARE ONLY DISCLOSURE NORMS. THEY HAVE NOT HING TO DO WITH COMPUTATION OF TOTAL TAXABLE INCOME UNDER THE INCOM E-TAX ACT. WHEN A LOAN IS GRANTED BY BANK AND FINANCIAL INSTITUTIONS, TH ERE IS AN AGREEMENT BETWEEN THE LENDER AND THE BORROWER REGARDING TERMS AND CONDITIONS OF THE SERVICE OF LOAN AND INTEREST. THE CONDITIONS INCLU DE CLAUSES REGARDING PAYMENT OF INSTALLMENTS AND AS PER THESE CLAUSES THE LEN DER CREDITS ITS 5 BOOKS AND DEBITS THE ACCOUNT OF BORROWER. THE INTEREST ACCRUES AS PER THE TERMS AGREED BETWEEN THE LENDER AND BORROWER. NO W AS A PRUDENCE, TO TAKE CARE OF UNFORESEEN CIRCUMSTANCES OF A LOAN TUR NING BAD, RBI PRESCRIBES GUIDELINES FOR CREATING PROVISION OUT OF THE PROFIT OF THE BANKS AND FINANCIAL INSTITUTIONS WHICH ARE REGULATED BY THE RBI ACT, BANKING REGULATIONS ACT AND PRUDENTIAL GUIDELINES ISSUED BY TH E RBI WHICH ARE MANDATORY ON THE BANKS AND FINANCIAL INSTITUTIONS. BUT THESE GUIDELINES MAY OR MAY NOT SUPERCEDE THE PROVISIONS OF IT ACT IN C OMPUTING INCOME OF AN ASSESSEE ON WHICH TAX HAS TO BE PAID. UNLESS OTHERWI SE PROVIDED IN THE IT ACT, THE INTEREST INCOME SHOULD ACCRUE AS PER T HE AGREEMENT BETWEEN LENDER AND BORROWER. JUST AS IN THE MATTER OF PRESENTATION OF IT ACCOUNTS AND BALANCE SHEET, THE BANK HAS TO MANDATORIL Y FOLLOW RBI GUIDELINES, IN THE MATTER OF COMPUTATION OF INCOME I T HAS TO FOLLOW THE PROVISIONS OF IT ACT. 9. NOW, IN THE CASE OF VASISTH CHAY VYAPAR LTD., WHICH WAS A NON- BANKING FINANCIAL INSTITUTION BOUND BY PRUDENTIAL N ORMS DIRECTIONS ISSUED BY THE RBI FOR INCOME RECOGNITION AND ASSET CLASSI FICATION, THE HON'BLE DELHI HIGH COURT TOOK NOTE OF SECTION 45Q O F THE RBI ACT WHICH READS AS UNDER : ' CHAPTER IIIB TO OVERRIDE OTHER LAWS. 45Q. THE PROVISIONS OF THIS CHAPTER SHALL HAVE EFFE CT NOTWITHSTANDING ANYTHING INCONSISTENT THEREWITH CONTAINED IN ANY OT HER LAW FOR THE TIME BEING IN FORCE OR ANY INSTRUMENT HAVING EFFECT BY V IRTUE OF ANY SUCH LAW.' THE HIGH COURT TOOK NOTE OF THE FACT THAT THE PROVISION OF SECTION 45Q OF RBI ACT HAS OVERRIDING EFFECT OVER ANY OTHER LAW. TH EN THE HON'BLE HIGH COURT CONSIDERED ACCOUNTING STANDARD AS-9 OF REVENUE RECOGNITION AND HAS ALSO CONSIDERED SOME OTHER CASES OF VARIOUS HIGH COURT S AND HON'BLE SUPREME COURT. IN THE CASE OF SOUTHERN TECHNOLOGIES L TD 320 ITR 577 SC, THE HON'BLE SUPREME COURT HELD THAT BY VIRTUE OF SEC TION 45Q, AN OVERRIDING EFFECT IS GIVEN TO THE DIRECTIONS OF THE R BI VIS-A-VIS INCOME RECOGNITION PRINCIPLES IN THE COMPANIES ACT 1956. IN SO FAR AS COMPUTATION OF INCOME UNDER THE INCOME-TAX ACT IS CO NCERNED, THE ADMISSIBILITY OF SUCH DEDUCTIONS SHALL BE GOVERNED BY TH E PROVISIONS OF THE INCOME-TAX ACT. THE CONCLUSION OF ALL THE ABOVE DISCUSSIONS IS THAT SINCE THE ASSESSEE IS IN THIS LINE OF BUSINESS HAVE TO MAINTAIN BOOKS OF ACCOUNTS AS PER PRUDENTIAL GUIDELINES ISSUED BY RBI UNDER CHAPTER IIIB OF THE RBI ACT ACCORDING TO WHICH INTEREST ON NPA HAS TO BE DEBITED IN INTEREST RE CEIVABLE ACCOUNT AND CREDITED TO OVERDUE INTEREST RESERVE ACCOUNT WITH OUT CARRYING THE INTEREST THROUGH PROFIT AND LOSS ACCOUNT AND SINCE AS PE R SECTION 45Q, PROVISIONS OF CHAPTER IIIB SUPERSEDE ALL THE ACTS, THERE FORE, INTEREST ON NPAS WILL NOT BE CREDITED TO PROFIT AND LOSS ACCOUNT AND THEREFORE WILL NOT FORM PART OF INCOME OF THE ASSESSEE. HOWEVER, THE ABOVE DECISION, WAS DELIVERED IN THE CASE OF A NON-BANKING FINANCIAL COMPANY, AND IT HAS NO APPLICATION IN THE CASE OF A CO-OPERATIVE BANKS AS THE FOLLOWING DISCUSSION WILL SHOW. IF WE REFER TO THE RBI ACT 1934, WE FIND THAT CHAPTER IIIB OF THE ACT DEALS WIT H PROVISIONS RELATING NON-BANKING INSTITUTIONS RECEIVING DEPOSITS AND FINANCI AL INSTITUTIONS, AND THESE PROVISIONS OVERRIDE ALL OTHER ACTS BY VIRTUE OF SECTION 45Q THEREIN. THE CHAPTER IIIB STARTS WITH SECTIONS 45H AND ALSO INCLUDES SECTION 45 Q. CHAPTER IIIB READS AS UNDER: 6 'I(CHAPTER IIIB PROVISIONS RELATING TO NON-BANKING INSTITUTIONS REC EIVING DEPOSITS AND FINANCIAL INSTITUTIONS 45H. CHAPTER IIIB NOT TO APPLY IN CERTAIN CASES. THE PROVISIONS OF THIS CHAPTER SHALL NOT APPLY TO T HE STATE BANK OR A BANKING COMPANY AS DEFINED IN SECTION 5 OF THE 2[BA NKING REGULATIONS ACT, 1949] OR 3[A CORRESPONDING NEW BANK AS DEFINED IN CLAUSE (DA) OF SECTION 5 OF THAT ACT OR A SUBSIDIARY BANK AS DEFIN ED IN THE STATE BANK OF INDIA (SUBSIDIARY BANKS) ACTS, 1959] OR 4[A REGI ONAL RURAL BANK OR A CO-OPERATIVE BANK] OR A PRIMARY AGRICULTURAL CRED IT SOCIETY OR A PRIMARY CREDIT SOCIETY]: PROVIDED THAT FOR THE PURPOSE OF THIS CHAPTER, THE 5[TAMIL NADU INDUSTRIAL INVESTMENT CORPORATION LIMITED] SHALL NO T BE DEEMED TO BE A BANKING COMPANY.' 45Q. THE PROVISIONS OF THIS CHAPTER SHALL HAVE EFFE CT NOTWITHSTANDING ANYTHING INCONSISTENT THEREWITH CONTAINED IN ANY OT HER LAW FOR THE TIME BEING IN FORCE OR ANY INSTRUMENT HAVING EFFECT BY VIRTUE OF ANY SUCH LAW.' 10. THUS, THE VERY FIRST SECTION OF CHAPTER IIIB, I.E. SECTION 45H CLARIFIED THAT PROVISIONS OF CHAPTER IIIB WILL NOT APPLY TO A C O-OPERATIVE BANK. SINCE CHAPTER IIIB IS NOT APPLICABLE TO CO-OPERATIVE BANKS, THEREFORE SECTIONS 45Q WHICH IS PART OF CHAPTER IIIB WILL NOT BE APPLICABLE TO CO- OPERATIVE BANKS AND IN RESPECT OF CO-OPERATIVE BANKS T HE CHAPTER IIIB WILL NOT OVERRIDE THE IT ACT. THE DECISION OF HONBL E DELHI HIGH COURT IN THE CASE OF VASISTH CHAY VYAPAR LTD (SUPRA) WILL HAVE NO APPLICATION IN THE CASE OF CO-OPERATIVE BANKS AS THE SAID ASSESSEE WAS AN NBFC WHICH HAD THE BENEFIT OF SECTION 45Q. THIS IS DUE TO THE REASON T HAT THE SAID DECISION WAS BASED ON THE OVERRIDING POWER OF CHAPTER IIIB OVE R OTHER ACTS AND THE CHAPTER IIIB IS APPLICABLE IN THE CASE OF NBFC. B UT THIS OVERRIDING POWER OF CHAPTER IIIB IS NOT AVAILABLE IN THE CASE OF CO-OPERATIVE BANKS. 11. APPELLANT HAS RAISED THE POINT THAT INTEREST INCOM E SHOULD BE RECOGNIZED IN THE SPIRIT OF SECTION 43D AND COOPERATI VE BANK SHOULD BE GIVEN BENEFIT OF THIS SECTION. THIS CONTENTION HAS NO L EGAL FORCE. SECTION 43D IS SPECIAL PROVISION APPLICABLE IN CASE OF PUBLIC F INANCIAL INSTITUTIONS, SCHEDULED BANKS ETC. AND DOES NOT APPLY ON THE APPELLA NT WHICH IS A COOPERATIVE BANK. APPELLANT'S CONTENTION HAS NO BASIS I N SAYING THAT SINCE BENEFIT OF SECTION SOP WAS WITHDRAWN, IT SHOULD BE COVERED U/S 43D. THERE IS NO LEGAL BACKING FOR THIS CONTENTION. THE DE CISION OF UCO BANK U/S CIT (SUPRA) IS ALSO IN RESPECT OF SCHEDULED BANK AND WILL NOT APPLY IN CASE OF THE APPELLANT. 12. IN VIEW OF THE ABOVE DISCUSSION AND REASONING, IT I S HEREBY HELD THAT THE ASSESSING OFFICER HAS RIGHTLY ADDED THE ACCRUED INTE REST ON NPA TO THE INCOME OF THE APPELLANT COOPERATIVE BANK. THE ADDIT ION IS CONFIRMED AND GROUND TAKEN BY THE APPELLANT ARE REJECTED. 5.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASS ESSEE IS IN APPEAL BEFORE US. 7 6. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET S UBMITTED THAT THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY T HE DECISIONS OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. DHARMVIR SAMBHAJI URBAN CO-OP. BANK LTD. VIDE ITA NO.2010/PN/2012 ORD ER DATED 27-09- 2013 FOR A.Y. 2009-10 AND IN THE CASE OF ACIT VS. T HE OMERGA JANTA SAHAKARI BANK LTD. VIDE ITA NO.350/PN/2013 ORDER DA TED 31-10-2013 FOR A.Y. 2007-08. HE ACCORDINGLY SUBMITTED THAT TH IS BEING A COVERED MATTER THE ISSUE SHOULD BE DECIDED IN FAVOUR OF THE ASSESSEE. 7. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND WHILE SUPPORTING THE ORDER OF THE CIT(A) RELIED ON THE DE CISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. SAKTHI FIN ANCE LTD. REPORTED IN 352 ITR 102 AND THE DECISION OF THE AHMEDABAD BE NCH OF THE TRIBUNAL IN THE CASE OF THE SARANGPUR CO.OP BANK LT D. VS. DCIT VIDE ITA NO.529 AND 530/AHD./2013 ORDER DATED 21-06-2013 FOR A.YRS. 2007-08 AND 2009-10. 8. THE LD. COUNSEL FOR THE ASSESSEE IN HIS REJOINDE R SUBMITTED THAT THE TRIBUNAL AFTER CONSIDERING THE DECISIONS OF VAR IOUS HIGH COURTS AND SUPREME COURT INCLUDING THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF SAKTHI FINANCE LTD. (SUPRA) HAS TAKE N A CONSCIOUS VIEW HOLDING THAT INTEREST ON NPA ACCOUNT CANNOT BE ADDE D TO THE TOTAL INCOME OF THE ASSESSEE ON NOTIONAL BASIS. FURTHER, WHEN D IVERGENT VIEW ARE THERE ON THE IDENTICAL ISSUE THE VIEW WHICH IS FAVOURABLE TO THE ASSESSEE HAS TO BE FOLLOWED. HE ACCORDINGLY SUBMITTED THAT IN VIEW OF THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF DHARMVIR SAMBHAJI 8 URBAN CO-OP. BANK LTD. (SUPRA) THE ISSUE HAS TO BE DECIDED IN FAVOUR OF THE ASSESSEE. 9. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAV E ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND AN IDEN TICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN THE CASE OF THE OMERGA JA NTA SAHAKARI BANK LTD. (SUPRA). WE FIND THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND DISMISSED THE APPEAL FILED BY THE REVE NUE BY OBSERVING AS UNDER : 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSION S. IN SO FAR AS THE APPLICABILITY OF SECTION 43D OF THE ACT TO THE A SSESSEE IS CONCERNED, THERE IS A CONVERGENCE OF OPINION BETWEEN THE ASSESSEE A ND THE REVENUE TO THE EFFECT THAT THE SAME IS NOT APPLICABLE TO THE ASSESSEE. OSTENSIBLY, ASSESSEE IS A CO-OPERATIVE BANK CARRYING ON BANKING BUSIN ESS 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 SECTI ON 43D OF THE ACT. NOTABLY, SECTION 43D OF THE ACT PRESCRIBES THAT INTERE ST INCOME ON SUCH CATEGORIES OF BAD AND DOUBTFUL DEBTS AS PRESCRIBED BY T HE 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 ASSESSEE IS NOT AN ENTITY COVERED WITHIN THE SCOPE OF SECTION 43D OF THE ACT, THE PRESENT CONTROVERSY CANNOT BE ADJUDICATED IN THE LIGHT OF SEC TION 43D OF THE ACT, AND IT IS LIABLE TO BE DECIDED ON GENERAL PRINCIPLE S AS TO WHETHER THE IMPUGNED INCOME HAS ACCRUED TO THE ASSESSEE DURING THE Y EAR UNDER CONSIDERATION. 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 BEF ORE THE VISAKHAPATNAM BENCH WAS A CO-OPERATIVE BANK OPERATING UNDER A LICENSE ISSUED BY RBI BUT WAS NOT A SCHEDULED BANK SO A S TO FALL WITHIN THE SCOPE OF SECTION 43D OF THE ACT. THE ISSUE RELATE D TO TAXABILITY OF INTEREST INCOME RELATING TO NPAS, WHICH AS PER THE REV ENUE WAS LIABLE TO BE TAXED ON ACCRUAL BASIS IN LINE WITH MERCANTILE SYSTE M OF ACCOUNTING ADOPTED BY THE ASSESSEE THEREIN. THE ASSESSEE, ON THE OTHE R HAND, CONTENDED THAT HAVING REGARD TO THE GUIDELINES ISSUED BY RBI REGARDING ACCOUNTING OF INTEREST ON NPAS, NO INTEREST INCOME ACC RUED 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 COURT IN THE CASE OF M/S VASISTH CHAY VYAPAR LTD. (SUPRA) WHEREIN AFT ER CONSIDERING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) IT WAS HELD THAT INTEREST INC OME RELATABLE TO NPAS WAS NOT INCLUDIBLE IN TOTAL INCOME ON ACCRUAL BA SIS SINCE THE SAME 9 DID NOT ACCRUE TO THE ASSESSEE. THE FOLLOWING DISCUSSION BY THE VISAKHAPATNAM BENCH OF THE TRIBUNAL IN THE CASE OF TH E DURGA COOPERATIVE URBAN BANK LTD. (SUPRA) IS WORTHY OF NOTI CE :- 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFUL LY PERUSED THE RECORD. THE QUESTION OF TAXABILITY OF INTEREST ON NPA S HAS BEEN CONSIDERED BY THE HON'BLE DELHI HIGH COURT IN THE CA SE OF M/S VASISTH CHAY VYAPAR LTD (SUPRA); WHEREIN THE HON'BLE DELHI HIGH COURT TOOK INTO ACCOUNT THE DECISION 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 WAS A NON BANKING FINA NCIAL COMPANY AND IT WAS ALSO BOUND BY THE PRUDENTIAL NORMS DIRECTI ONS ISSUED BY THE RESERVE BANK OF INDIA FOR INCOME RECOGNITION AND ASSET CLASSIFICATION. THE ASSESSEE DID NOT INCLUDE THE INTEREST INCOME RELATAB LE TO NPA ASSETS IN ITS TOTAL INCOME. THE ASSESSING OFFICER, HOWEVER, ADD ED THE SAID INTEREST AS THE INCOME OF THE ASSESSEE BY HOLDING THAT IT HAD ACCRUED TO THE ASSESSEE EVEN IT WAS NOT REALIZED AS THE ASSESSEE WAS FOLL OWING MERCANTILE SYSTEM OF ACCOUNTING. THE LEARNED CIT (A) AFFIRMED THE ORDER OF THE ASSESSING OFFICER. HOWEVER, THE ITAT DELETED THE AFORESAID INCOME. HENCE THE REVENUE PREFERRED APPEAL BEFORE THE HON'B LE DELHI HIGH COURT. 8.1 AFTER HEARING THE RIVAL SUBMISSIONS, THE HON'BLE DE LHI HIGH COURT TOOK NOTE OF SEC.45Q OF RESERVE BANK OF INDIA ACT WHI CH READS AS UNDER: CHAPTER IIIB TO OVERRIDE OTHER LAWS. 45Q. THE PROVISIONS OF THIS CHAPTER SHALL HAVE EFFECT NOTWITHSTANDING ANYTHING INCONSISTENT THEREWITH CONTAI NED IN ANY OTHER LAW FOR THE TIME BEING IN FORCE OR ANY IN STRUMENT HAVING EFFECT BY VIRTUE OF ANY SUCH LAW. THE HIGH COURT TOOK NOTE OF THE FACT THAT THE PROVI SION OF 45Q OF RESERVE BANK OF INDIA HAS OVERRIDING EFFECT OVER ANY OTHER L AW. THEN THE HON'BLE HIGH COURT ALSO CONSIDERED ACCOUNTING STANDARD AS-9 ON REVENUE RECOGNITION AND ALSO EXTRACTED FOLLOWING RELEVANT P ORTION FROM THE SAID ACCOUNTING 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 RENDER ING OF THE SERVICE, IT WOULD NOT BE UNREASONABLE TO EXPECT ULTIM ATE COLLECTION. 9.2 WHERE THE ABILITY TO ASSESS THE ULTIMATE COLLECTION WITH REASONABLE CERTAINTY IS LACKING AT THE TIME OF RAISIN G ANY CLAIM, E.G., FOR ESCALATION OF PRICE, EXPORT INCENTIVES, INT EREST ETC., REVENUE RECOGNITION IS POSTPONED TO THE EXTENT OF UNCERTAINTY INVOLVED. 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 COLLECTI ON, REVENUE IS RECOGNIZED AT THE TIME OF SALE OR RENDERING OF SERVI CE EVEN THOUGH PAYMENTS ARE MADE BY INSTALMENTS. 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 REFL ECT THE UNCERTAINTY RATHER THAN TO ADJUST THE AMOUNT OF REVE NUE ORIGINALLY RECORDED. 10 9.4 AN ESSENTIAL CRITERION FOR THE RECOGNITION OF REV ENUE IS THAT THE CONSIDERATION RECEIVABLE FOR THE SALE OF GOODS, TH E RENDERING OF SERVICES OR FROM THE USE OF OTHERS OF ENTERPRISE RESOURCE S IS REASONABLY DETERMINABLE. WHEN SUCH CONSIDERATION IS NO T DETERMINABLE WITHIN REASONABLE LIMITS, THE RECOGNITI ON OF REVENUE IS POSTPONED. 9.5 WHEN RECOGNITION OF REVENUE IS POSTPONED DUE TO T HE EFFECT OF UNCERTAINTIES, IT IS CONSIDERED AS REVENUE OF THE PE RIOD 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 SUPR EME 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) LTD., 303 ITR 159 (DE L) 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 TREATED AS ACCRUED TO THE ASSE SSEE. 8.4 BEFORE THE DELHI HIGH COURT, THE REVENUE TOOK SU PPORT OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD (SUPRA). THE DELHI HIGH COURT CONSID ERED THE SAID DECISION OF HON'BLE APEX COURT AND EXPLAINED THE SAME AS UNDER: WE HAVE ALREADY HELD THAT EVEN UNDER THE INCOME TA X ACT, INTEREST INCOME HAD NOT ACCRUED. MOREOVER, THIS SUBMISSI ON OF MR. SABHARWAL IS BASED ENTIRELY ON THE JUDGMENT OF THE SU PREME COURT IN THE CASE OF SOUTHERN TECHNOLOGY (SUPRA). NO DOUBT, IN FIRST BLUSH, READING OF THE JUDGMENT GIVES AN INDIC ATION THAT THE COURT HAS HELD THAT RESERVE BANK OF INDIA ACT D OES NOT OVERRIDE THE PROVISIONS OF THE INCOME TAX ACT. HOWEVER, WHEN WE EXAMINE THE ISSUE INVOLVED THEREIN MINUTELY AND DE EPLY IN THE CONTEXT IN WHICH THAT HAD ARISEN AND CERTAIN OBSERVAT IONS OF THE APEX COURT CONTAINED IN THAT VERY JUDGMENT, WE FIND THAT THE PROPOSITION ADVANCED BY MR.SABHARWAL MAY NOT BE ENTI RELY CORRECT. IN THE CASE BEFORE THE SUPREME COURT, THE ASSESSEE A NBFC DEBITED RS.81,68,516 AS PROVISION AGAINST NPA IN THE PROFIT AND LOSS ACCOUNT, WHICH WAS CLAIMED AS DEDUC TION IN TERMS OF SECTION 36(1) (VII) OF THE ACT. THE ASSESSING OFFICER DID NOT ALLOW THE DEDUCTION CLAIMED AS AFORESAID ON THE G ROUND THAT THE PROVISION OF NPA WAS NOT IN THE NATURE OF EXPENDI TURE OR LOSS BUT MORE IN THE NATURE OF A RESERVE, AND THUS NOT DED UCTIBLE 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 DEDUCT IBILITY OF 11 PROVISION FOR NPA. AFTER ANALYZING THE PROVISIONS OF THE RESERVE BANK OF INDIA ACT, THEIR LORDSHIPS OF THE A PEX COURT OBSERVED THAT IN SO FAR AS THE PERMISSIBLE DEDUCTIO NS OR EXCLUSIONS UNDER THE ACT ARE CONCERNED, THE SAME AR E ADMISSIBLE ONLY IF SUCH DEDUCTIONS/EXCLUSIONS SATIS FY THE RELEVANT CONDITIONS STIPULATED THEREFORE UNDER THE ACT. TO THAT EXTENT, IT WAS OBSERVED THAT THE PRUDENTIAL NO RMS DO NOT OVERRIDE THE PROVISIONS OF THE ACT. HOWEVER, THE APEX COURT MADE A DISTINCTION WITH REGARD TO INCOME RECOGNITIO N AND HELD THAT INCOME HAD TO BE RECOGNIZED IN TERMS OF THE PRUDENT IAL NORMS, EVEN THOUGH THE SAME DEVIATED FROM MERCANTIL E SYSTEM OF ACCOUNTING AND/OR SECTION 45 (SIC. 145) O F 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 SUPREME COURT IN THE CASE OF M/S SOUTH ERN TECHNOLOGIES LTD (SUPRA) DISSECTED THE MATTER INTO TWO PARTS VIZ., A) INCOME RECOGNITION AND B) PERMISSIBLE DEDUCTION/EXCLU SIONS UNDER THE INCOME TAX ACT. IN SO FAR AS INCOME RECOGNITION IS CON CERNED, THE HON'BLE SUPREME COURT HELD THAT SECTION 145 OF THE INCOME T AX 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 R ESERVE BANK OF INDIA VIS--VIS INCOME RECOGNITION PRINCIPLES IN THE COMPAN IES ACT 1956. IN SO FAR AS COMPUTATION OF INCOME UNDER THE INCOME TAX AC T IS CONCERNED, (WHICH INVOLVES DEDUCTION OF PERMISSIBLE DEDUCTIONS AND EXCLUSIONS) THE ADMISSIBILITY OF SUCH DEDUCTIONS SHALL BE GOVERNED BY T HE PROVISIONS OF THE INCOME TAX ACT. THE RELEVANT OBSERVATIONS OF THE HON'BLE SUPREME COURT ARE EXTRACTED BELOW: APPLICABILITY OF SECTION 145 40. AT THE OUTSET, WE MAY STATE THAT IN ESSENCE RBI DIR ECTIONS 1998 ARE PRUDENTIAL/PROVISIONING NORMS ISSUED BY RBI U NDER CHAPTER IIIB OF THE RBI ACT, 1934. THESE NORMS DEAL E SSENTIALLY WITH INCOME RECOGNITION. THEY FORCE THE NBFCS TO DISC LOSE THE AMOUNT OF NPA IN THEIR FINANCIAL ACCOUNTS. THEY FORC E THE NBFCS TO REFLECT TRUE AND CORRECT PROFITS. BY VIRTUE OF SECTION 45Q, AN OVERRIDING EFFECT IS GIVEN TO THE DIRECTIONS 1998 V IS--VIS INCOME RECOGNITION PRINCIPLES IN THE COMPANIES AC T, 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 AC T IS ONLY IN THE MATTER OF INCOME RECOGNITION AND PRESENT ATION OF FINANCIAL STATEMENTS. THE ACCOUNTING POLICIES ADOPTE D BY AN NBFC CANNOT DETERMINE THE TAXABLE INCOME. IT IS WELL SETTLED THAT THE ACCOUNTING POLICIES FOLLOWED BY A COMPANY CAN BE CHANGED UNLESS THE AO COMES TO THE CONCLUSION THAT SUCH CHANGE W OULD RESULT IN UNDERSTATEMENT OF PROFITS. HOWEVER, HERE IS THE CASE WHERE THE AO HAS TO FOLLOW THE RESERVE BANK OF INDI A DIRECTIONS 1998 IN VIEW OF SECTION 45Q OF THE RESER VE BANK OF INDIA ACT. HENCE, AS FAR AS INCOME RECOGNITION IS C ONCERNED, SECTION 145 OF THE IT ACT HAS NO ROLE TO PLAY IN TH E PRESENT DISPUTE. 12 10. TURNING TO THE FACTS OF THE CASE BEFORE US, THE ASSE SSEE HEREIN IS A COOPERATIVE BANK AND IT IS NOT IN DISPUTE THAT IT IS A LSO GOVERNED BY THE RESERVE BANK OF INDIA. HENCE THE DIRECTIONS WITH REGA RD TO THE PRUDENTIAL NORMS ISSUED BY THE RESERVE BANK OF INDIA ARE EQUALLY A PPLICABLE TO THE ASSESSEE AS IT IS APPLICABLE TO THE COMPANIES REGISTERED UN DER THE COMPANIES ACT. THE HON'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 SHALL 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 NORMS, THE ASSESSEE HEREIN D ID NOT ADMIT THE INTEREST RELATABLE TO NPA ADVANCES IN ITS TOTAL I NCOME. THE HON'BLE DELHI HIGH COURT IN THE CASE OF VASISTH CHAY VYAPAR LT D (SUPRA) HAS HELD THAT THE INTEREST ON NPA ASSETS CANNOT BE SAID TO HAVE ACCRUED TO THE ASSESSEE. IN THIS REGARD, THE FOLLOWING OBSERVATIONS OF HO N'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 LE GITIMATE MOVE TO INFER THAT INTEREST INCOME THEREUPON HAS NOT ACCRUED. THE SAID DECISION OF THE HON'BLE DELHI HIGH COURT IS E QUALLY 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. 10. 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 OF THE CIT(A) IN DELETING THE IMPUGNED ADDITION RELATING TO INTEREST INCOME IN RESP ECT OF NPAS. 11. SO, HOWEVER, THE LEARNED DEPARTMENTAL REPRESENTA TIVE HAS SUBMITTED THAT THE HONBLE MADRAS HIGH COURT IN THE C ASE OF CIT VS. SAKTHI FINANCE LTD., (2013) 31 TAXMANN.COM 305 (MAD RAS) 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 DEPARTMENTAL RE PRESENTATIVE FURTHER POINTED OUT THAT THE HONBLE MADRAS HIGH COU RT 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 HAVE CAREFULLY CO NSIDERED THE SUBMISSIONS PUT-FORTH BY THE LEARNED DEPARTMENTAL REPRE SENTATIVE BASED ON THE JUDGEMENT OF THE HONBLE MADRAS HIGH CO URT IN THE CASE OF SAKTHI FINANCE LTD. (SUPRA). THE CONTROVERSY BEFORE THE HONBLE MADRAS HIGH COURT RELATED TO NON-RECOGNITION OF INTEREST IN COME ON NPAS BY THE ASSESSEE FOLLOWING THE RBI GUIDELINES. THE HONBLE MADR AS HIGH COURT TOOK THE VIEW THAT THE JUDGEMENT OF THE HONBLE SUP REME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) ALSO APPLIED TO THE INCOME RECOGNITION NORMS PROVIDED BY RBI AND THEREFORE IT H ELD THE INTEREST INCOME ON NPAS IS LIABLE TO BE TAXED ON ACCRUAL BASIS A ND NOT IN TERMS OF RBIS GUIDELINES. BUT THE HONBLE DELHI HIGH COURT I N THE CASE OF M/S VASISTH CHAY VYAPAR LTD. (SUPRA) HAS TAKEN A VIEW THAT SOUTHERN TECHNOLOGIES LTD. (SUPRA) CASE DID NOT APPLY TO THE IN COME RECOGNITION NORMS PRESCRIBED BY RBI. OSTENSIBLY, THERE IS DIVERGENC E OF OPINION BETWEEN THE HONBLE DELHI HIGH COURT AND THE HONBL E MADRAS HIGH COURT AS NOTED BY THE HONBLE MADRAS HIGH COURT IN IT S ORDER. 13 12. IN SO FAR AS, PRESENT CASE IS CONCERNED THERE IS NO J UDGMENT OF THE JURISDICTIONAL HIGH COURT. WE ARE FACED WITH TWO CO NTRARY JUDGMENTS OF THE NON-JURISDICTIONAL HIGH COURT. IN SUCH A SITUATI ON, WE ARE INCLINED TO PREFER A VIEW WHICH IS FAVOURABLE OF THE ASSESSEE FOLLOW ING THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE O F CIT VS. VEGETABLE PRODUCTS LTD. (1973) 88 ITR 192 (SC). 13. THEREFORE, IN VIEW OF THE AFORESAID DISCUSSION, WE ARE INCLINED TO FOLLOW 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. 9.1 RESPECTFULLY FOLLOWING THE DECISION OF THE COOR DINATE BENCH OF THE TRIBUNAL IN THE CASE OF THE OMERGA JANTA SAHAKA RI BANK LTD. (SUPRA) WE DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. WE ACCORDINGLY SET-ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OF FICER TO DELETE THE ADDITION OF RS.57,65,957/- BEING INTEREST ACCRUED O N NPA. THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 23-04-2014. SD/- SD/- (R.S. PADVEKAR) (R.K. PAN DA) JUDICIAL MEMBER ACCOUN TANT MEMBER PUNE DATED: 23 RD APRIL, 2014 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. CIT(A), KOLHAPUR 4 CIT, KOLHAPUR 5. THE D.R, B PUNE BENCH 6. 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