Youth Development Co.op Bank Ltd., Kolhapur V. Assistant Commissioner of Income-tax,

ITA 2161/PUN/2013

• Counselvise Citation: 216124514 RSA 2013
• Duration Of Justice: 10 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 12-12-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P S NAIK
• Assessee Lawyers: C V DESHPANDE
• Keywords: Question of law; Cost of acquisition; Bad and doubtful debts; Revised return; Capital expenditure
• Section: 143(3); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NOS.2161 & 2162/PN/2013 (ASSESSMENT YEAR : 2007-08 & 2009-10) YOUTH DEVELOPMENT CO-OP. BANK LTD., 1429/G, POORNIMA APARTMENT, LAXMIPURI, KOLHAPUR. PAN : AAAAY1180G . APPELLANT VS. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE- 1, KOLHAPUR. . RESPONDENT ASSESSEE BY : MR. C. V. DESHPANDE DEPARTMENT BY : MR. P. S. NAIK DATE OF HEARING : 21-10-2014 DATE OF PRONOUNCEMENT : 29-10-2014 ORDER PER G. S. PANNU, AM THE CAPTIONED TWO APPEALS HAVE BEEN PREFERRED BY TH E SAME ASSESSEE AND CERTAIN ISSUES INVOLVED ARE COMMON, THEREFORE, THEY HAVE BEEN CLUBBED AND HEARD TOGETHER AND A CONSOLIDATED ORDER IS BEIN G PASSED FOR THE SAKE OF CONVENIENCE AND BREVITY. 2. BOTH THE APPEALS ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), KOLHAPUR DATED 29.10.2013 WHI CH, IN TURN, HAS ARISEN FROM SIMILARLY WORDED ASSESSMENT ORDERS DATED 28.12 .2011 PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT) PERTAINING TO THE ASSESSMENT YEARS 2007-08 AND 2009 -10 RESPECTIVELY. 3. SINCE THE ISSUES INVOLVED IN BOTH THE APPEALS AR E SIMILAR, WE MAY REFER TO THE APPEAL FOR ASSESSMENT YEAR 2007-08 AS THE LE AD CASE. THE APPELLANT BEFORE US IS A CO-OPERATIVE BANK ENGAGED IN THE BUS INESS OF BANKING AS PER A LICENSE GRANTED BY THE RESERVE BANK OF INDIA. THE FIRST ISSUE IN THE APPEAL FOR ASSESSMENT YEAR 2007-08 IS WITH REGARD TO THE ACTIO N OF THE INCOME-TAX ITA NOS.2161 & 2162/PN/2013 AUTHORITIES IN RESTRICTING THE DEDUCTION CLAIMED BY THE ASSESSEE U/S 36(1)(VIIA) OF THE ACT TO THE ACTUAL AMOUNT OF PROVISION MADE I N THE BOOKS OF ACCOUNT FOR BAD AND DOUBTFUL DEBTS AMOUNTING TO RS.30,00,000/- AS AGAINST THE ASSESSEES CLAIM FOR DEDUCTION OF RS.31,17,265/-. 4. ON THIS GROUND, IT WAS A COMMON POINT BETWEEN TH E PARTIES THAT SIMILAR ISSUE HAD COME UP BEFORE THE TRIBUNAL IN THE CASE O F SHRI MAHALAXMI CO-OP. BANK LTD. VS. ACIT VIDE ITA NO.1658/PN/2011 DATED 2 9.10.2013 WHEREIN THE ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE. A COP Y OF THE SAID PRECEDENT HAS ALSO BEEN PLACED ON RECORD. 5. IN VIEW OF THE SAID PRECEDENT, THE AFORESAID ISS UE IS LIABLE TO BE DECIDED AGAINST THE ASSESSEE. SO HOWEVER, IN ORDER TO IMPA RT COMPLETENESS TO THE ORDER ON THIS ASPECT, A BRIEF DISCUSSION IS NECESSA RY. THE ASSESSEE IS A CO- OPERATIVE BANK ENGAGED IN THE BUSINESS OF BANKING A ND IN TERMS OF SECTION 36(1)(VIIA) OF THE ACT, IT IS ENTITLED TO CLAIM DED UCTION IN RESPECT OF ANY PROVISION FOR BAD AND DOUBTFUL DEBTS MADE ON ACCOUN T OF AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF THE ASSESSEE BANK. SECTION 36(1)(VIIA) OF THE ACT PROVIDES THAT SUCH DEDUCTION SHALL NOT EXCEED 7.5% OF THE TOTAL INCOME (COMPUTED BEFORE MAKING ANY DEDUCT ION UNDER THIS CLAUSE AND CHAPTER VI-A OF THE ACT) AND AN AMOUNT NOT EXCE EDING 10% OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCH ES OF THE BANK. BY RELYING ON SECTION 36(1)(VIIA) OF THE ACT, ASSESSEE BEING A CO-OPERATIVE BANK, CLAIMED A DEDUCTION OF RS.31,17,265/- IN ITS RETURN OF INCOME ON ACCOUNT OF BAD AND DOUBTFUL DEBTS RELATING TO THE ADVANCES MAD E BY THE RURAL BRANCHES. IT WAS NOTICED THAT AS AGAINST THE CLAIM OF RS.31,1 7,265/- MADE IN THE RETURN OF INCOME, ASSESSEE HAD MADE A PROVISION FOR BAD AND D OUBTFUL DEBTS OF RS.30,00,000/- ONLY IN THE BOOKS OF ACCOUNT. FOR T HE SAID REASON, ASSESSEES CLAIM FOR DEDUCTION U/S 36(1)(VIIA) OF THE ACT WAS RESTRICTED TO THE EXTENT OF PROVISION FOR BAD AND DOUBTFUL DEBTS MADE IN THE AC COUNT BOOKS I.E. ITA NOS.2161 & 2162/PN/2013 RS.30,00,000/- AND THE BALANCE OF RS.1,17,265/- WAS DISALLOWED. IN THE CASE OF SHRI MAHALAXMI CO-OP. BANK LTD. (SUPRA) THE TRIB UNAL, AFTER CONSIDERING THE RIVAL STANDS AS ALSO THE VARIOUS AUTHORITIES CITED AT BAR, CAME TO CONCLUDE THAT THE DEDUCTION SOUGHT TO BE CLAIMED BY THE ASSESSEE U/S 36(1)(VIIA) OF THE ACT WAS LIABLE TO BE RESTRICTED TO THE EXTENT OF THE PR OVISION FOR BAD AND DOUBTFUL DEBTS ACTUALLY MADE IN THE ACCOUNT BOOKS. THE RELE VANT DISCUSSION CONTAINED IN THE ORDER OF THE TRIBUNAL DATED 29.10.2013 (SUPR A) IS REPRODUCED HEREINAFTER IN ORDER TO APPRECIATE THE REASONING WEIGHING WITH THE TRIBUNAL FOR COMING TO SUCH CONCLUSION :- 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. WE HAVE ALSO ANXIOUSLY PERUSED THE AUTHORITIES CITED AT BAR IN ORDER TO DETERMINE THE CONTROVERSY ON HAND. THE RELEVANT PORTION OF SECTIO N 36(1)(VIIA) OF THE ACT, AS APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERAT ION I.E. A.Y. 2008-09 READS AS UNDER : - [(VIIA) [IN RESPECT OF ANY PROVISION FOR BAD AND D OUBTFUL DEBTS MADE BY (A) A SCHEDULED BANK [NOT BEING [* * *] A BANK INCO RPORATED BY OR UNDER THE LAWS OF A COUNTRY OUTSIDE INDIA] OR A NON -SCHEDULED BANK [OR A CO-OPERATIVE BANK OTHER THAN A PRIMARY A GRICULTURAL CREDIT SOCIETY OR A PRIMARY CO-OPERATIVE AGRICULTUR AL AND RURAL DEVELOPMENT BANK], AN AMOUNT [NOT EXCEEDING SEVEN A ND ONE- HALF PER CENT] OF THE TOTAL INCOME (COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VIA) AND AN AMOUNT NOT EXCEEDING [TEN] PER CENT OF THE AGGREGATE AVERA GE ADVANCES MADE BY THE RURAL BRANCHES OF SUCH BANK CO MPUTED IN THE PRESCRIBED MANNER : 10. A BARE PERUSAL OF AFORESAID SECTION CLEARLY BR INGS OUT THAT THE DEDUCTION SPECIFIED THEREIN IS IN RESPECT OF ANY P ROVISION FOR BAD AND DOUBTFUL DEBTS MADE BY.. AN ELIGIBLE ASSESSEE. THE PRESEN CE OF THE AFORESAID EXPRESSION IN THE SECTION SUPPORTS THE PLEA OF THE REVENUE, WHICH IS TO THE EFFECT THAT THE DEDUCTION ALLOWABLE UNDER SECTION 3 6(1)(VIIA) OF THE ACT IS IN RESPECT OF THE PROVISION MADE BY THE ASSESSEE. IN OUR CONSIDERED OPINION, THE JUDGEMENT OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF STATE BANK OF PATIALA (SUPRA) CLEARLY COVERS THE CO NTROVERSY IN FAVOUR OF THE REVENUE AND BELIES THE INTERPRETATION SOUGHT TO BE CANVASSED BY THE ASSESSEE. IN THE CASE BEFORE THE HONBLE HIGH COURT , ASSESSEE-BANK HAD ORIGINALLY FILED ITS RETURN OF INCOME FOR ASSESSMEN T YEAR 1985-86 CLAIMING DEDUCTION UNDER SECTION 36(1)(VIIA) OF THE ACT AT R S.1,90,36,000/-. AFTER FILING OF THE RETURN THE PROVISIONS OF SECTION 36(1)(VIIA) OF THE ACT WERE AMENDED BY FINANCE ACT, 1985 WHEREBY DEDUCTION WAS ENHANCED TO 10% OF THE PROFIT OR 2% OF THE AGGREGATE AVERAGE ADVANCES MADE BY RURAL BRANCHES OF THE BANK, WHICHEVER WAS HIGHER. ON ACCOUNT OF THE AMENDED PRO VISIONS, ASSESSEE FILED A REVISED RETURN OF INCOME ON 24.04.1986 ENHANCING THE CLAIM FOR DEDUCTION FROM RS.1,90,36,000/- TO RS.1,94,21,000/-. THE ASSE SSING OFFICER RESTRICTED THE DEDUCTION UNDER SECTION 36(1)(VIIA) OF THE ACT TO RS.1,90,36,000/- ONLY AND DISALLOWED THE BALANCE ON THE GROUND THAT IN THE BO OKS OF ACCOUNT PERTAINING ITA NOS.2161 & 2162/PN/2013 TO THE RELEVANT ASSESSMENT YEAR, ASSESSEE HAD MADE A PROVISION FOR BAD AND DOUBTFUL DEBTS OF RS.1,90,36,000/- ONLY. THE ASSESS EE ARGUED THAT THE PROVISION OF RS.1,90,36,000/- WAS MADE IN THE BALAN CE-SHEET FINALIZED ON 14.02.1985 WHICH WAS AS PER THE UNAMENDED PROVISION S OF SECTION 36(1)(VIIA) OF THE ACT AND THAT IN VIEW OF THE AMENDMENT OF SEC TION 36(1)(VIIA) OF THE ACT PERMITTING HIGHER CLAIM OF DEDUCTION, THE ASSESSEE COULD NOT HAVE POSSIBLY MADE THE HIGHER PROVISION IN THE BALANCE-SHEET FINA LIZED ON A PRIOR DATE, BUT IT MADE UP THE SHORTFALL BY MAKING AN ADEQUATE PROVISI ON IN THE BALANCE-SHEET OF THE SUBSEQUENT ASSESSMENT YEAR. ON THIS BASIS, I T WAS SOUGHT TO BE MADE OUT THAT THERE WAS SUBSTANTIAL COMPLIANCE WITH THE REQUIREMENT OF LAW OF MAKING PROVISION FOR BAD AND DOUBTFUL DEBTS AND THE REFORE ASSESSEE JUSTIFIED THE CLAIM OF DEDUCTION FOR THE COMPLETE AMOUNT OF R S.1,94,21,000/- AND NOT RESTRICTED TO RS.1,90,36,000/-. THE CIT(A) AS WELL AS THE TRIBUNAL NEGATED THE PLEA OF THE ASSESSEE AND ACCORDINGLY, THE MATTER WA S CARRIED BEFORE THE HONBLE PUNJAB & HARYANA HIGH COURT. THE HONBLE HI GH COURT REFERRED TO THE PROVISIONS OF SECTION 36(1)(VIIA) OF THE ACT AND OB SERVED THAT ..THE DEDUCTION ALLOWABLE UNDER THE ABOVE PROVISIONS IS I N RESPECT OF THE PROVISION MADE AND FURTHER WENT ON TO HOLD THAT ..MAKING O F A PROVISION FOR BAD AND DOUBTFUL DEBTS EQUAL TO THE AMOUNT MENTIONED IN THI S SECTION IS MUST FOR CLAIMING SUCH DEDUCTION. IN VIEW OF THE AFORESAID JUDGEMENT OF THE HONBLE PUNJAB & HARYANA HIGH COURT, IN OUR VIEW, THE POSIT ION SOUGHT TO BE CANVASSED BY THE ASSESSEE DESERVES TO BE REPELLED. WE REPRODUCE HEREINAFTER THE RELEVANT PORTION OF THE ORDER OF TH E HONBLE HIGH COURT, WHICH READS AS UNDER :- 5. SEC.36(1)(VIIA) OF THE ACT AS APPLICABLE TO THE ASST. YR. 1985-86, READS AS UNDER : IN RESPECT OF ANY PROVISION FOR BAD AND DOUBTFUL D EBTS MADE BY A SCHEDULED BANK [NOT BEING A BANK APPROVED BY THE CE NTRAL GOVERNMENT FOR THE PURPOSES OF CL.(VIIIA) OR A BANK INCORPORATED BY OR UNDER THE LAWS OF A COUNTRY OUTSIDE INDIA] OR A NON -SCHEDULED BANK, AN AMOUNT NOT EXCEEDING TEN PER CENT OF THE TOTAL INCO ME (COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND C HAPTER VI-A) OR AN AMOUNT NOT EXCEEDING TWO PER CENT OF THE AGGREGA TE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF SUCH BANK, C OMPUTED IN THE PRESCRIBED MANNER, WHICHEVER IS HIGHER. 6. A BARE PERUSAL OF THE ABOVE SHOWS THAT THE DEDUC TION ALLOWABLE UNDER THE ABOVE PROVISIONS IS IN RESPECT OF THE PRO VISION MADE. THEREFORE, MAKING OF A PROVISION FOR BAD AND DOUBTF UL DEBTS EQUAL TO THE AMOUNT MENTIONED IN THIS SECTION IS A MUST FOR CLAIMING SUCH DEDUCTION. THE TRIBUNAL HAS RIGHTLY POINTED OUT THA T THIS ISSUE STANDS FURTHER CLARIFIED FROM THE PROVISO TO CL.(VII) OF S .36(1) OF THE ACT, WHICH READS AS UNDER : PROVIDED THAT IN THE CASE OF AN ASSESSEE TO WHICH CL.(VIIA) APPLIES, THE AMOUNT OF THE DEDUCTION RELATING TO ANY SUCH DEBT O R PART THEREOF SHALL BE LIMITED TO THE AMOUNT BY WHICH SUCH DEBT OR PART THEREOF EXCEEDS THE CREDIT BALANCE IN THE PROVISION FOR BAD AND DOU BTFUL DEBTS ACCOUNT MADE UNDER THAT CLAUSE. 7. THIS ALSO CLEARLY SHOWS THAT MAKING OF PROVISION EQUAL TO THE AMOUNT CLAIMED AS DEDUCTION IN THE ACCOUNT BOOKS IS NECESSARY FOR CLAIMING DEDUCTION UNDER S. 36(1)(VIIA) OF THE ACT. THE TRIBUNAL HAS DISTINGUISHED VARIOUS AUTHORITIES RELIED UPON BY TH E ASSESSEE WHEREIN DEDUCTIONS HAD BEEN ALLOWED UNDER VARIOUS PROVISION S WHICH ALSO REQUIRED CREATION OF RESERVE AFTER THE ASSESSEE HAD CREATED SUCH RESERVE IN THE ACCOUNT BOOKS BEFORE THE COMPLETION OF THE ASSESSMENT. ITA NOS.2161 & 2162/PN/2013 IT HAS BEEN CORRECTLY POINTED OUT THAT IN ALL THOSE CASES, RESERVES/PROVISIONS HAD BEEN MADE IN THE BOOKS OF A CCOUNT OF THE SAME ASSESSMENT YEAR AND NOT OF THE SUBSEQUENT ASSE SSMENT YEAR. 8. IN THE PRESENT CASE, THE ASSESSEE HAS NOT MADE A NY PROVISION IN THE BOOKS OF ACCOUNT FOR THE ASSESSMENT YEAR UND ER CONSIDERATION, I.E., 1985-86, BY MAKING SUPPLEMENTARY ENTRIES AND BY REVISING ITS BALANCE SHEET. THE PROVISION HAS BEEN MADE IN THE B OOKS OF ACCOUNT OF THE SUBSEQUENT YEAR. 9. WE ARE, THEREFORE, SATISFIED THAT THE TRIBUNAL W AS RIGHT IN HOLDING THAT SINCE THE ASSESSEE HAD MADE A PROVISIO N OF RS.1,19,36,000 FOR BAD AND DOUBTFUL DEBTS, ITS CLAI M FOR DEDUCTION UNDER S. 36(1)(VIIA) OF THE ACT HAD TO BE RESTRICTE D TO THAT AMOUNT ONLY. SINCE THE LANGUAGE OF THE STATUTE IS CLEAR AND IS N OT CAPABLE OF ANY OTHER INTERPRETATION, WE ARE SATISFIED THAT NO SUBS TANTIAL QUESTION OF LAW ARISES IN THIS APPEAL FOR CONSIDERATION BY THIS COU RT. 11. IN VIEW OF THE AFORESAID INTERPRETATION OF SECT ION 36(1)(VIIA) OF THE ACT BY THE HONBLE PUNJAB & HARYANA HIGH COURT, THE ORD ERS OF THE LOWER AUTHORITIES DESERVE TO BE UPHELD INASMUCH AS THE AS SESSEE HAS NOT MADE A PROVISION FOR BAD AND DOUBTFUL DEBTS IN THE BOOKS O F ACCOUNT EQUAL TO THE AMOUNT OF DEDUCTION SOUGHT TO BE CLAIMED UNDER SECT ION 36(1)(VIIA) OF THE ACT, AND THEREFORE, IN OUR VIEW, THE LOWER AUTHORITIES W ERE JUSTIFIED IN RESTRICTING THE DEDUCTION TO RS.50,00,000/-, BEING THE AMOUNT OF PR OVISION ACTUALLY MADE IN THE BOOKS OF ACCOUNT. 12. THE LEARNED COUNSEL FOR THE ASSESSEE HAS CITED CERTAIN DECISION IN SUPPORT OF HIS PROPOSITION THAT THE CLAIM OF DEDUCT ION UNDER SECTION 36(1)(VIIA) OF THE ACT IS NOT LINKED TO MAKING OF A PROVISION I N THE ACCOUNT BOOKS. AT THE OUTSET, WE MAY OBSERVE THAT THE DECISIONS RELIED UP ON BY THE ASSESSEE ARE OF VARIOUS BENCHES OF THE TRIBUNAL AND NOT OF ANY HIGH COURT. THEREFORE, THE JUDGEMENT OF THE HONBLE HIGH COURT IN THE CASE OF STATE BANK OF PATIALA (SUPRA), WHICH IS CONTRARY TO THE DECISIONS OF THE TRIBUNAL RELIED UPON BY THE ASSESSEE; AND BEING SOLITARY JUDGEMENT OF A HIGH CO URT, IS REQUIRED TO BE APPLIED, HAVING REGARD TO THE ESTABLISHED NORMS OF JUDICIAL DISCIPLINE. FOR THE SAID REASON, WE REFRAIN FROM DISCUSSING EACH OF THE DECISIONS OF THE TRIBUNAL RELIED BY THE ASSESSEE BEFORE US. 13. THE OTHER PLEA OF THE ASSESSEE WAS THAT THE CON TENTS OF THE CBDT CIRCULAR DATED 26.11.2008 (SUPRA) IS CONTRARY TO TH E PROVISIONS OF SECTION 36(1)(VIIA) OF THE ACT AND THEREFORE THE SAME SHOUL D BE DISREGARDED. IN OUR VIEW, THE FOLLOWING EXPLANATION IN RESPECT OF SECTI ON 36(1)(VIIA) OF THE ACT RENDERED BY THE CBDT IN CIRCULAR DATED 26.11.2008 ( SUPRA) BY WAY OF PARA 2(III)(B) AS UNDER :- (B) THE DEDUCTION FOR PROVISION FOR BAD AND DOUBTF UL DEBTS SHOULD BE RESTRICTED TO THE AMOUNT OF SUCH PROVISIO N ACTUALLY CREATED IN THE BOOKS OF THE ASSESSEE IN THE RELEVANT YEAR OR T HE AMOUNT CALCULATED AS PER PROVISIONS OF SECTION 36(1)(VIIA) , WHICHEVER IS LESS. IS IN LINE WITH THE INTERPRETATION OF THE SECTION R ENDERED BY THE HONBLE PUNJAB & HARYANA HIGH COURT AND CANNOT BE SAID TO BE CONTR ARY TO THE PROVISIONS OF THE ACT. THEREFORE, THE RELIANCE PLACED BY THE LOWE R AUTHORITIES ON THE CBDT CIRCULAR DATED 26.11.2008 (SUPRA) CANNOT BE FAULTED . 14. BEFORE PARTING, WE MAY REFER TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CATHOLIC SYRIAN BANK LTD. (SUP RA) RELIED UPON BY THE ASSESSEE AND ALSO THE DECISION OF OUR CO-ORDINATE B ENCH IN THE CASE OF JAYSINGPUR UDGAON SAHAKARI BANK LTD. (SUPRA). WE HA VE CAREFULLY PERUSED THE SAID DECISION AND FOUND THAT THE ISSUE BEFORE T HE HONBLE SUPREME COURT ITA NOS.2161 & 2162/PN/2013 IN THE CASE OF CATHOLIC SYRIAN BANK LTD. (SUPRA) WA S QUITE DIFFERENT; AND, IN ANY CASE NONE OF THE OBSERVATIONS OF THE HONBLE SU PREME COURT RUN CONTRARY TO THE PRONOUNCEMENT OF THE HONBLE PUNJAB & HARYAN A HIGH COURT IN THE CASE OF STATE BANK OF PATIALA (SUPRA) TO THE EFFECT THAT MAKING OF A PROVISION FOR BAD AND DOUBTFUL DEBTS EQUAL TO THE AMOUNT MENT IONED IN SECTION 36(1)(VIIA) OF THE ACT IS MUST FOR CLAIMING SUCH DE DUCTION. THEREFORE, THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CATHOLIC SYRIAN BANK LTD. (SUPRA) DOES NOT HELP THE ASSESSEE IN THE PRES ENT CONTROVERSY BEFORE US. FURTHER, EVEN IN THE CASE OF JAYSINGPUR UDGAON SAHA KARI BANK LTD. (SUPRA), THE TRIBUNAL HAS MERELY SET-ASIDE THE MATTER FOR AD JUDICATION AFRESH BACK TO THE FILE OF THE ASSESSING OFFICER AND IT DOES NOT C ONTAIN ANY POSITIVE FINDING WITH RESPECT TO THE CONTROVERSY BEFORE US. 15. IN THE RESULT, CONSIDERING THE AFORESAID DISCUS SION, IN OUR VIEW, THE ORDERS OF THE AUTHORITIES BELOW ON THIS ASPECT ARE LIABLE TO BE UPHELD. WE HOLD SO. 6. FOLLOWING THE AFORESAID PRECEDENT AND IN VIEW OF THE CONVERGENCE IN THE STAND OF BOTH THE PARTIES THAT THE FACTS AND CIRCUM STANCES IN THE PRESENT CASE ARE IDENTICAL TO THOSE CONSIDERED BY THE TRIBUNAL I N THE CASE OF SHRI MAHALAXMI CO-OP. BANK LTD. (SUPRA), THE ISSUE RAISED BY THE A SSESSEE IS LIABLE TO BE DISMISSED. WE HOLD SO. 7. THE SECOND ISSUE RELATES TO THE CLAIM OF THE ASS ESSEE FOR DEDUCTION OF RS.5,30,941/- REPRESENTING AMORTIZATION OF PREMIUM PAID ON GOVERNMENT SECURITIES. IN THIS CONTEXT, IT WAS A COMMON POINT BETWEEN THE PARTIES THAT SIMILAR ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASS ESSEE BY THE PUNE BENCH OF THE TRIBUNAL IN THE FOLLOWING DECISIONS : (I) SH RI MAHALAXMI CO-OP. BANK LTD. VS. ACIT VIDE ITA NO.162/PN/2013 DATED 16.04.2014; AND, (II) DCIT VS. KALLAPPANNA AWADE ICHALKARANJI JANTA SAHAKARI BANK LTD. VIDE ITA NO.449/PN/2012 DATED 05.08.2013. 8. ON THIS ASPECT, WE FIND THAT THE TRIBUNAL IN THE CASE OF SHRI MAHALAXMI CO-OP. BANK LTD. (SUPRA) IN ITS ORDER DATED 16.04.2 014 HAS CONSIDERED A SIMILAR ISSUE AND FOLLOWING THE DECISION OF THE MUM BAI BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. BANK OF RAJASTHAN LTD. VIDE IT A NO.3238/MUM/2011 DATED 09.09.2011, THE ISSUE HAS BEEN DECIDED IN FAV OUR OF THE ASSESSEE. THE ITA NOS.2161 & 2162/PN/2013 RELEVANT DISCUSSION CONTAINED IN THE ORDER OF THE M UMBAI BENCH OF THE TRIBUNAL IN THE CASE OF BANK OF RAJASHTAN LTD. (SUP RA) IS AS UNDER :- 9. THE AMORTIZED AMOUNT OF PREMIUM PAID FOR SECURI TIES HELD UNDER HTM CATEGORY AMOUNTING TO RS.11.77 CRORES WAS CLAIMED BY THE ASSESSEE AS DEDUCTION IN ITS COMPUTATION OF TOTAL I NCOME. THE SAME, HOWEVER, WAS DISALLOWED BY THE ASSESSING OFFICER HOLDING THA T THE EXPENDITURE INCURRED ON PREMIUM PAID FOR SECURITIES HELD UNDER HTM CATEG ORY WAS A CAPITAL EXPENDITURE NOT ALLOWABLE AS DEDUCTION. HE HELD THA T THE SAID SECURITIES WERE IN THE NATURE OF INVESTMENT AND NOT STOCK IN TRADE. ON APPEAL, THE LEARNED CIT(APPEALS) DELETED THE DISALLOWANCE MADE BY THE A O ON THIS ISSUE. BESIDES RELYING ON HIS OWN ORDER IN ASSESSEE'S OWN CASE ON A SIMILAR ISSUE FOR THE EARLIER YEAR, THE LEARNED CIT(APPEALS) ALSO RELIED ON CBDT INSTRUCTION NO. 17/2008 DATED 26-11-2008 PUBLISHED IN 220 CTR (STAT UTE) PAGE 41. HE HELD THAT THE ASSESSEE COMPANY WAS BOUND TO CLASSIFY ITS INVESTMENT AS PER RBI GUIDELINES DATED 16-10-2010 AND AS PER THE SAID GUI DELINES, INVESTMENT CLASSIFIED UNDER HTM CATEGORY WAS REQUIRED TO BE CA RRIED AT ACQUISITION COST UNLESS IT WAS MORE THAN THE FACE VALUE. HE HELD THA T THE PREMIUM ON SUCH INVESTMENTS WAS ALSO REQUIRED TO BE AMORTIZED OVER THE PERIOD REMAINING TO MATURITY. HE HELD THAT THE CLAIM OF THE ASSESSEE TH US WAS AS PER RBI GUIDELINES AND CBDT INSTRUCTION WHICH CLARIFIED THA T PREMIUM AMORTIZED OVER THE PERIOD REMAINING TO MATURITY WAS LIABLE TO BE A LLOWED AS DEDUCTION. 10. AT THE TIME OF HEARING BEFORE US, THE LEARNED R EPRESENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THIS ISSUE IS ALSO SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE VARIOUS ORDERS OF THE TRIBUNAL PASSED IN ASSESSEE'S OWN CASE FOR EARLIER YEARS. COPIES OF THE SAID ORDERS A RE PLACED ON RECORD BEFORE US AND A PERUSAL OF THE SAME SHOWS THAT IN ONE OF S UCH ORDERS DATED 22ND DEC., 2010 PASSED IN ASSESSEE'S OWN CASE FOR ASSESS MENT YEARS 2002-03 TO 2006-07, THE COORDINATE BENCH OF THIS TRIBUNAL HAS DIRECTED THE AO TO ALLOW THE PREMIUM AMORTIZED BY THE ASSESSEE OVER THE PERI OD REMAINING TO MATURITY HOLDING THAT THE SAME WAS CLAIMED AS PER THE RELEVA NT RBI GUIDELINES AND EVEN THE CBDT HAS ISSUED INSTRUCTIONS TO ALLOW THE SAME. RESPECTFULLY FOLLOWING THE SAID ORDER OF THE TRIBUNAL IN ASSESSE E'S OWN CASE FOR EARLIER YEARS, WE UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE AND DISMISS GROUND NO . 3 OF THE REVENUE'S APPEAL. 9. FOLLOWING THE AFORESAID PRECEDENT, IN OUR VIEW, ASSESSEE HAS TO SUCCEED ON ITS CLAIM FOR DEDUCTION OF RS.5,30,941/- REPRESENTING AMORTIZATION OF PREMIUM PAID ON GOVERNMENT SECURITIES. ACCORDIN GLY, WE SET-ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICE R TO ALLOW THE DEDUCTION OF RS.5,30,941/-. THUS, ASSESSEE SUCCEEDS ON THIS ASP ECT ALSO. 10. THE LAST ISSUE IN THIS APPEAL RELATES TO AN ADD ITION OF RS.1,93,04,446/ ON ACCOUNT OF INTEREST ON NON PERFORMING ASSETS (IN SH ORT NPAS). AS NOTED EARLIER, ASSESSEE IS A CO-OPERATIVE BANK CARRYING O N BANKING BUSINESS IN TERMS ITA NOS.2161 & 2162/PN/2013 OF A LICENSE ISSUED BY RESERVE BANK OF INDIA (RBI). THEREFORE, ASSESSEE IS GOVERNED BY THE CIRCULARS AND GUIDELINES ISSUED BY THE RBI, IN PARTICULAR RELATING TO PRUDENTIAL NORMS, INCOME RECOGNITION, A SSET CLASSIFICATION, PROVISIONING AND OTHER RELATED MATTERS. IN TERMS O F SUCH PRUDENTIAL NORMS OF RBI, ASSESSEE ASSERTS THAT IT DID NOT RECOGNIZE INT EREST INCOME ON ACCOUNT OF NPAS I.E. THE LOANS/ADVANCES TO CUSTOMERS WHICH HAV E BEEN CLASSIFIED AS NPAS FOLLOWING THE PRUDENTIAL NORMS OF RBI. THE PE RTINENT DISPUTE RELATES TO NON-RECOGNITION OF INCOME OF RS.1,93,04,446/- IN RE SPECT OF ADVANCES/LOANS TO CUSTOMERS, WHICH HAVE BEEN CLASSIFIED AS NPAS. 11. THE CONTROVERSY WITH RESPECT TO NON-RECOGNITION OF INCOME ON ACCRUAL BASIS RELATABLE TO THE NPAS IS NO LONGER RES INTEGRA BUT THE SAME HAS ALREADY BEEN ADJUDICATED IN FAVOUR OF THE ASSESSEE BY THE D ECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. THE OMERGA JANTA SAHAKARI BANK LTD. VIDE ORDER IN ITA NO.350/PN/2013 DATED 31.10.2013. IN THE SAID PRECEDENT, THE TRIBUNAL CONSIDERED THE JUDGEMENT OF THE HONBL E DELHI HIGH COURT IN THE CASE OF M/S VASISTH CHAY VYAPAR LTD., 330 ITR 440 ( DEL) AS WELL AS THE JUDGEMENT OF THE HONBLE MADRAS HIGH COURT IN THE C ASE OF CIT VS. SAKTHI FINANCE LTD., (2013) 31 TAXMANN.COM 305 (MADRAS), W HICH HAD EXPRESSED DIVERGENT VIEWS WITH RESPECT TO THE ISSUE OF ACCRUA L OF INTEREST INCOME ON NPA ADVANCES; AND, FOLLOWING THE PROPOSITION THAT IN TH E ABSENCE OF ANY JUDGEMENT OF THE JURISDICTIONAL HIGH COURT, THERE BEING CONTR ARY JUDGEMENTS OF THE NON- JURISDICTIONAL HIGH COURTS, A DECISION WHICH WAS FA VOURABLE TO THE ASSESSEE WAS TO BE FOLLOWED IN VIEW OF THE REASONING LAID DO WN BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. VEGETABLE PRODUCTS LTD ., (1973) 88 ITR 192 (SC) AND, THUS THE TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE RELEVANT DISCUSSION IN THE ORDER OF THE TRIBUNAL DA TED 31.10.2013 (SUPRA) IS REPRODUCED AS UNDER :- 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. IN SO FAR AS THE APPLICABILITY OF SECTION 43D OF THE ACT TO T HE ASSESSEE IS CONCERNED, ITA NOS.2161 & 2162/PN/2013 THERE IS A CONVERGENCE OF OPINION BETWEEN THE ASSES SEE AND THE REVENUE TO THE EFFECT THAT THE SAME IS NOT APPLICABLE TO THE A SSESSEE. OSTENSIBLY, ASSESSEE IS A CO-OPERATIVE BANK CARRYING ON BANKING BUSINESS IN TERMS OF A LICENSE GRANTED BY RBI AND IS NOT A SCHEDULED BANK INCLUDED IN SECOND SCHEDULE OF RBI SO AS TO FALL WITHIN THE SCOPE OF S ECTION 43D OF THE ACT. NOTABLY, SECTION 43D OF THE ACT PRESCRIBES THAT INT EREST INCOME ON SUCH CATEGORIES OF BAD AND DOUBTFUL DEBTS AS PRESCRIBED BY THE RBI GUIDELINES SHALL BE CHARGEABLE TO TAX IN THE YEAR IN WHICH SUCH INTE REST INCOME IS CREDITED BY THE ASSESSEE IN THE PROFIT AND LOSS ACCOUNT OR IN T HE YEAR OF ACTUAL RECEIPT, WHICHEVER IS EARLIER. SINCE ASSESSEE IS NOT AN ENT ITY COVERED WITHIN THE SCOPE OF SECTION 43D OF THE ACT, THE PRESENT CONTROVERSY CANNOT BE ADJUDICATED IN THE LIGHT OF SECTION 43D OF THE ACT, AND IT IS LIABLE T O BE DECIDED ON GENERAL PRINCIPLES AS TO WHETHER THE IMPUGNED INCOME HAS AC CRUED TO THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. 9. IN THIS CONNECTION, WE FIND THAT THE VISAKHAPATN AM BENCH OF THE TRIBUNAL IN THE CASE OF THE DURGA COOPERATIVE U RBAN BANK LTD. (SUPRA) HAS CONSIDERED AN IDENTICAL CONTROVERSY. THE ASSES SEE BEFORE THE VISAKHAPATNAM BENCH WAS A CO-OPERATIVE BANK OPERATI NG UNDER A LICENSE ISSUED BY RBI BUT WAS NOT A SCHEDULED BANK SO AS TO FALL WITHIN THE SCOPE OF SECTION 43D OF THE ACT. THE ISSUE RELATED TO TAXAB ILITY OF INTEREST INCOME RELATING TO NPAS, WHICH AS PER THE REVENUE WAS LIAB LE TO BE TAXED ON ACCRUAL BASIS IN LINE WITH MERCANTILE SYSTEM OF ACCOUNTING ADOPTED BY THE ASSESSEE THEREIN. THE ASSESSEE, ON THE OTHER HAND, CONTENDE D THAT HAVING REGARD TO THE GUIDELINES ISSUED BY RBI REGARDING ACCOUNTING O F INTEREST ON NPAS, NO INTEREST INCOME ACCRUED IN RESPECT OF NPAS AND THAT THE SAME WAS TO BE TAXED ONLY ON RECEIPT BASIS. THE TRIBUNAL OBSERVED THAT THE QUESTION OF TAXABILITY OF INTEREST ON NPAS CLASSIFIED BY RBI, W AS CONSIDERED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF M/S VASISTH CHAY VY APAR LTD. (SUPRA) WHEREIN AFTER CONSIDERING THE DECISION OF THE HONBLE SUPRE ME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) IT WAS HELD THAT INTEREST INCOME RELATABLE TO NPAS WAS NOT INCLUDIBLE IN TOTAL INCOME ON ACCRU AL BASIS SINCE THE SAME DID NOT ACCRUE TO THE ASSESSEE. THE FOLLOWING DISCUSSI ON BY THE VISAKHAPATNAM BENCH OF THE TRIBUNAL IN THE CASE OF THE DURGA COOP ERATIVE URBAN BANK LTD. (SUPRA) IS WORTHY OF NOTICE :- 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFUL LY PERUSED THE RECORD. THE QUESTION OF TAXABILITY OF I NTEREST ON NPAS HAS BEEN CONSIDERED BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF M/S VASISTH CHAY VYAPAR LTD (SUPRA); WHEREIN THE HON'BL E DELHI HIGH COURT TOOK INTO ACCOUNT THE DECISION RENDERED BY TH E HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD (SUP RA). IN THE CASE OF M/S VASISTH CHAY VYAPAR LTD, THE ASSESSEE THEREIN W AS A NON BANKING FINANCIAL COMPANY AND IT WAS ALSO BOUND BY THE PRU DENTIAL NORMS DIRECTIONS ISSUED BY THE RESERVE BANK OF INDIA FOR INCOME RECOGNITION AND ASSET CLASSIFICATION. THE ASSESSEE DID NOT INCL UDE THE INTEREST INCOME RELATABLE TO NPA ASSETS IN ITS TOTAL INCOME. THE ASSESSING OFFICER, HOWEVER, ADDED THE SAID INTEREST AS THE IN COME OF THE ASSESSEE BY HOLDING THAT IT HAD ACCRUED TO THE AS SESSEE EVEN IT WAS NOT REALIZED AS THE ASSESSEE WAS FOLLOWING MERCANTI LE SYSTEM OF ACCOUNTING. THE LEARNED CIT (A) AFFIRMED THE ORDER OF THE ASSESSING OFFICER. HOWEVER, THE ITAT DELETED THE AFORESAID IN COME. HENCE THE REVENUE PREFERRED APPEAL BEFORE THE HON'BLE DELHI H IGH COURT. 8.1 AFTER HEARING THE RIVAL SUBMISSIONS, THE HON'BL E DELHI HIGH COURT TOOK NOTE OF SEC.45Q OF RESERVE BANK OF INDIA ACT WHICH READS AS UNDER: CHAPTER IIIB TO OVERRIDE OTHER LAWS. ITA NOS.2161 & 2162/PN/2013 45Q. THE PROVISIONS OF THIS CHAPTER SHALL HAVE EFFE CT NOTWITHSTANDING ANYTHING INCONSISTENT THEREWITH CONTAINED IN ANY OTHER LAW FOR THE TIME BEING IN FO RCE OR ANY INSTRUMENT 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 AN Y OTHER LAW. THEN THE HON'BLE HIGH COURT ALSO CONSIDERED ACCOUNTING S TANDARD AS-9 ON REVENUE RECOGNITION AND ALSO EXTRACTED FOLLOWING RELEVANT PORTION 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 REND ERING OF THE SERVICE, IT WOULD NOT BE UNREASONABLE TO EXPECT ULT IMATE COLLECTION. 9.2 WHERE THE ABILITY TO ASSESS THE ULTIMATE COLLEC TION WITH REASONABLE CERTAINTY IS LACKING AT THE TIME OF RAIS ING ANY CLAIM, E.G., FOR ESCALATION OF PRICE, EXPORT INCENTIVES, I NTEREST ETC., REVENUE RECOGNITION IS POSTPONED TO THE EXTENT OF U NCERTAINTY INVOLVED. IN SUCH CASES, IT MAY BE APPROPRIATE TO R ECOGNIZE REVENUE ONLY WHEN IT IS REASONABLY CERTAIN THAT THE ULTIMATE COLLECTION WILL BE MADE. WHERE THERE IS NO UNCERTAI NTY AS TO ULTIMATE COLLECTION, REVENUE IS RECOGNIZED AT THE T IME OF SALE OR RENDERING OF SERVICE EVEN THOUGH PAYMENTS ARE MADE BY INSTALLMENTS. 9.3 WHEN THE UNCERTAINTY RELATING TO COLLECTABILITY ARISES SUBSEQUENT TO THE TIME OF SALE OR THE RENDERING OF THE SERVICE, IT IS MORE APPROPRIATE TO MAKE A SEPARATE PROVISION TO REFLECT THE UNCERTAINTY RATHER THAN TO ADJUST THE AMOUNT OF REV ENUE ORIGINALLY RECORDED. 9.4 AN ESSENTIAL CRITERION FOR THE RECOGNITION OF R EVENUE IS THAT THE CONSIDERATION RECEIVABLE FOR THE SALE OF G OODS, THE RENDERING OF SERVICES OR FROM THE USE OF OTHERS OF ENTERPRISE RESOURCES IS REASONABLY DETERMINABLE. WHEN SUCH CONSIDERATION IS NOT DETERMINABLE WITHIN REASONABLE LIMITS, THE RECOGNITION OF REVENUE IS POSTPONED. 9.5 WHEN RECOGNITION OF REVENUE IS POSTPONED DUE TO THE EFFECT OF UNCERTAINTIES, IT IS CONSIDERED AS REVENU E OF THE PERIOD IN WHICH IT IS PROPERLY RECOGNIZED. 8.2 THE DELHI HIGH COURT ALSO CONSIDERED THE DECISI ON RENDERED IN THE FOLLOWING CASES: I) CIT VS. ELGI FINANCE LTD., 293 ITR 357 (MAD) II) CIT VS. KKM INVESTMENTS (CAL) SLP DISMISSED B Y SUPREME COURT (310 ITR 4) III) CIT VS. MOTOR CREDIT CO (P) LTD., 127 ITR 572 (MAD) IV) UCO BANK VS. CIT 237 ITR 889 (SC) V) CIT VS. SHOORJI VALLABHDAS & CO 46 ITR 144 (SC) VI) GODHRA ELECTRICITY CO. LTD., VS.CIT 225 ITR 746 VII) CIT VS. GOYAL M G GASES (P) LTD., 303 ITR 159 (DEL) VIII) CIT VS. EICHER LTD., ITA NO.431/2009 DATED 15 .7.2009 (DEL) 8.3 AFTER CONSIDERING THE ACCOUNTING STANDARD 9 AND THE VARIOUS CASE LAW LISTED ABOVE, THE HON'BLE DELHI HIGH COURT HELD THAT THE ITA NOS.2161 & 2162/PN/2013 INTEREST ON NPA ADVANCE CANNOT BE TREATED AS ACCRU ED TO THE ASSESSEE. 8.4 BEFORE THE DELHI HIGH COURT, THE REVENUE TOOK S UPPORT OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F SOUTHERN TECHNOLOGIES LTD (SUPRA). THE DELHI HIGH COURT CONS IDERED THE SAID DECISION OF HON'BLE APEX COURT AND EXPLAINED THE SA ME AS UNDER: WE HAVE ALREADY HELD THAT EVEN UNDER THE INCOME TA X ACT, INTEREST INCOME HAD NOT ACCRUED. MOREOVER, THIS SUB MISSION OF MR. SABHARWAL IS BASED ENTIRELY ON THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGY (S UPRA). NO DOUBT, IN FIRST BLUSH, READING OF THE JUDGMENT G IVES AN INDICATION THAT THE COURT HAS HELD THAT RESERVE BAN K OF INDIA ACT DOES NOT OVERRIDE THE PROVISIONS OF THE I NCOME TAX ACT. HOWEVER, WHEN WE EXAMINE THE ISSUE INVOLVED THEREIN MINUTELY AND DEEPLY IN THE CONTEXT IN WHICH THAT HAD ARISEN AND CERTAIN OBSERVATIONS OF THE APEX COURT C ONTAINED IN THAT VERY JUDGMENT, WE FIND THAT THE PROPOSITION AD VANCED BY MR.SABHARWAL MAY NOT BE ENTIRELY 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 DEDUCTION IN TER MS OF SECTION 36(1) (VII) OF THE ACT. THE ASSESSING OFFICER DID NOT ALLOW THE DEDUCTION CLAIMED AS AFORESAID ON THE GRO UND THAT THE PROVISION OF NPA WAS NOT IN THE NATURE OF EXPENDITU RE OR LOSS BUT MORE IN THE NATURE OF A RESERVE, AND THUS NOT D EDUCTIBLE UNDER SECTION 36(I)(VII) OF THE ACT. THE ASSESSING OFFICER, HOWEVER, DID NOT BRING TO TAX RS.20,34,605/- AS INC OME (BEING INCOME ACCRUED UNDER THE MERCANTILE SYSTEM O F ACCOUNTING). THE DISPUTE BEFORE THE APEX COURT CENTERED AROUND DEDUCTIBILITY OF PROVISION FOR NPA. AFTER ANALYZING THE PROVISIONS OF THE RESERVE BANK OF INDIA ACT, THEIR LORDSHIPS OF THE APEX COURT OBSERVED THAT IN SO FAR AS THE PERMISSIBLE DEDUCTIONS OR EXCLUSIONS UNDER THE ACT ARE CONCERNED, THE SAME ARE ADMISSIBLE ONLY IF SUCH DEDUCTIONS/EXCLUSIONS SATISFY THE RELEVANT CONDITIO NS STIPULATED THEREFORE UNDER THE ACT. TO THAT EXTENT, IT WAS OBSERVED THAT THE PRUDENTIAL NORMS DO NOT OVERRIDE THE PROVISIONS OF THE ACT. HOWEVER, THE APEX COURT MADE A DISTINCTION WITH REGARD TO INCOME RECOGNITION AND HELD THAT INCOME HAD TO BE RECOGNIZED IN TERMS OF THE 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 ENGRAINE D IN THE PRUDENTIAL NORMS FOR RECOGNITION OF REVENUE BY NBFC . 9. THE HON'BLE SUPREME COURT IN THE CASE OF M/S SOU THERN TECHNOLOGIES LTD (SUPRA) DISSECTED THE MATTER INTO TWO PARTS VIZ., A) INCOME RECOGNITION AND B) PERMISSIBLE DEDUCTION/EXC LUSIONS UNDER THE INCOME TAX ACT. IN SO FAR AS INCOME RECOGNITION IS CONCERNED, THE HON'BLE SUPREME COURT HELD THAT SECTION 145 OF THE INCOME TAX ACT HAS NO ROLE TO PLAY AND THE ASSESSING OFFICER HAS T O FOLLOW RESERVE BANK OF INDIA DIRECTIONS 1998, SINCE BY VIRTUE OF 4 5Q OF THE RESERVE BANK OF INDIA ACT, AN OVERRIDING EFFECT IS GIVEN TO THE DIRECTIONS OF RESERVE BANK OF INDIA VIS--VIS INCOME RECOGNITION PRINCIPLES IN THE COMPANIES ACT 1956. IN SO FAR AS COMPUTATION OF INC OME UNDER THE INCOME TAX ACT IS CONCERNED, (WHICH INVOLVES DEDUCT ION OF PERMISSIBLE DEDUCTIONS AND EXCLUSIONS) THE ADMISSIBILITY OF SUC H DEDUCTIONS SHALL BE GOVERNED BY THE PROVISIONS OF THE INCOME TAX ACT . THE RELEVANT OBSERVATIONS OF THE HON'BLE SUPREME COURT ARE EXTRA CTED BELOW: APPLICABILITY OF SECTION 145 ITA NOS.2161 & 2162/PN/2013 40. AT THE OUTSET, WE MAY STATE THAT IN ESSENCE RBI DIRECTIONS 1998 ARE PRUDENTIAL/PROVISIONING NORMS ISSUED BY RB I UNDER CHAPTER IIIB OF THE RBI ACT, 1934. THESE NORMS DEAL ESSENTIALLY WITH INCOME RECOGNITION. THEY FORCE THE NBFCS TO DISCLOSE THE AMOUNT OF NPA IN THEIR FINANCIAL ACCOU NTS. THEY FORCE THE NBFCS TO REFLECT TRUE AND CORRECT PROFI TS. BY VIRTUE OF SECTION 45Q, AN OVERRIDING EFFECT IS GIVEN TO TH E DIRECTIONS 1998 VIS--VIS INCOME RECOGNITION PRIN CIPLES IN THE COMPANIES ACT, 1956. THESE DIRECTIONS CONSTITUTE A CODE BY ITSELF. HOWEVER, THESE DIRECTIONS 1998 AND THE IT ACT OPERATE IN DIFFERENT AREAS. THESE DIRECTIONS 1998 H AVE NOTHING TO DO WITH COMPUTATION OF TAXABLE INCOME. THESE DIRECTIONS CANNOT OVERRULE THE PERMISSIBLE DEDUCTIONS OR TH EIR EXCLUSION UNDER THE IT ACT. THE INCONSISTENCY BETWEEN THESE DIRECTIONS AND COMPANIES ACT IS ONLY IN THE M ATTER OF INCOME RECOGNITION AND PRESENTATION OF FINANCIAL ST ATEMENTS. THE ACCOUNTING POLICIES ADOPTED BY AN NBFC CANNOT DETERMINE THE TAXABLE INCOME. IT IS WELL SETTLED TH AT THE ACCOUNTING POLICIES FOLLOWED BY A COMPANY CAN BE CH ANGED UNLESS THE AO COMES TO THE CONCLUSION THAT SUCH CHA NGE WOULD 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 RECOGNIT ION IS CONCERNED, SECTION 145 OF THE IT ACT HAS NO ROLE TO PLAY IN THE PRESENT DISPUTE. 10. TURNING TO THE FACTS OF THE CASE BEFORE US, THE ASSESSEE HEREIN IS A COOPERATIVE BANK AND IT IS NOT IN DISPUTE THAT IT IS ALSO GOVERNED BY THE RESERVE BANK OF INDIA. HENCE THE DIRECTIONS WIT H REGARD TO THE PRUDENTIAL NORMS ISSUED BY THE RESERVE BANK OF INDI A ARE EQUALLY APPLICABLE TO THE ASSESSEE AS IT IS APPLICABLE TO T HE COMPANIES REGISTERED UNDER THE COMPANIES ACT. THE HON'BLE 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 A N OVERRIDING EFFECT VIS--VIS INCOME RECOGNITION PRINCIPLE UNDER THE CO MPANIES ACT. HENCE SEC.45 Q OF THE RBI ACT SHALL HAVE OVERRIDING EFFEC T 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 HE REIN 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 F OLLOWING OBSERVATIONS OF HON'BLE DELHI HIGH COURT IN THE ABO VE 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 LEGITIMATE MOVE TO INFER THAT INTEREST INCOME THEREUPON HAS NO T 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 FI ND 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. 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 RESPECT OF NPAS. ITA NOS.2161 & 2162/PN/2013 11. SO, HOWEVER, THE LEARNED DEPARTMENTAL REPRESENT ATIVE HAS SUBMITTED THAT THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. SAKTHI FINANCE LTD., (2013) 31 TAXMANN.COM 305 (MADRAS) HA S DIFFERED WITH THE JUDGEMENT OF THE HONBLE DELHI HIGH COURT IN THE CA SE OF M/S VASISTH CHAY VYAPAR LTD. (SUPRA) ON A SIMILAR ISSUE, I.E. RELATI NG TO INTEREST INCOME ON NPAS. THE LEARNED DEPARTMENTAL REPRESENTATIVE FURTHER POI NTED OUT THAT THE HONBLE MADRAS HIGH COURT FOLLOWED THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) IN HOLDI NG THAT INTEREST ON NPAS WAS ASSESSABLE TO TAX ON ACCRUAL BASIS. WE HAVE CA REFULLY CONSIDERED THE SUBMISSIONS PUT-FORTH BY THE LEARNED DEPARTMENTAL R EPRESENTATIVE BASED ON THE JUDGEMENT OF THE HONBLE MADRAS HIGH COURT IN T HE CASE OF SAKTHI FINANCE LTD. (SUPRA). THE CONTROVERSY BEFORE THE HONBLE M ADRAS HIGH COURT RELATED TO NON-RECOGNITION OF INTEREST INCOME ON NPAS BY THE A SSESSEE FOLLOWING THE RBI GUIDELINES. THE HONBLE MADRAS HIGH COURT TOOK THE VIEW THAT THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF SOUTHER N TECHNOLOGIES LTD. (SUPRA) ALSO APPLIED TO THE INCOME RECOGNITION NORM S PROVIDED BY RBI AND THEREFORE IT HELD THE INTEREST INCOME ON NPAS IS LI ABLE TO BE TAXED ON ACCRUAL BASIS AND NOT IN TERMS OF RBIS GUIDELINES. BUT TH E HONBLE DELHI HIGH COURT IN THE CASE OF M/S VASISTH CHAY VYAPAR LTD. (SUPRA) HA S TAKEN A VIEW THAT SOUTHERN TECHNOLOGIES LTD. (SUPRA) CASE DID NOT APP LY TO THE INCOME RECOGNITION NORMS PRESCRIBED BY RBI. OSTENSIBLY, T HERE IS DIVERGENCE OF OPINION BETWEEN THE HONBLE DELHI HIGH COURT AND TH E HONBLE MADRAS HIGH COURT AS NOTED BY THE HONBLE MADRAS HIGH COURT IN ITS ORDER. 12. IN SO FAR AS, PRESENT CASE IS CONCERNED THERE I S NO JUDGMENT OF THE JURISDICTIONAL HIGH COURT. WE ARE FACED WITH T WO CONTRARY JUDGMENTS OF THE NON-JURISDICTIONAL HIGH COURT. IN SUCH A SITUA TION, WE ARE INCLINED TO PREFER A VIEW WHICH IS FAVOURABLE OF THE ASSESSEE FOLLOWIN G THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. VEGETA BLE 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. 14. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. 12. SINCE IT WAS A COMMON POINT BETWEEN THE PARTIES THAT THE FACTS AND CIRCUMSTANCES IN THE PRESENT CASE ARE IDENTICAL TO THOSE CONSIDERED BY US IN THE CASE OF THE OMERGA JANTA SAHAKARI BANK LTD. (SU PRA), FOLLOWING THE SAID PRECEDENT THE PRESENT CLAIM OF THE ASSESSEE DESERVE S TO BE UPHELD. THEREFORE, WE SET-ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS.1,93,04,446/-. THUS, ASSESSEE SUCCEEDS ON THIS GROUND ALSO. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR A SSESSMENT YEAR 2007-08 IS PARTLY ALLOWED. ITA NOS.2161 & 2162/PN/2013 14. IN SO FAR AS THE ISSUES RAISED IN THE APPEAL FO R ASSESSMENT YEAR 2009- 10 ARE CONCERNED, THEY ARE SIMILAR TO THOSE CONSIDE RED BY US IN THE APPEAL OF ASSESSEE FOR ASSESSMENT YEAR 2007-08 IN EARLIER PAR AGRAPHS. THEREFORE, OUR DECISION IN RELATION TO ASSESSMENT YEAR 2007-08 WOU LD APPLY MUTATIS-MUTANDIS IN THE APPEAL FOR ASSESSMENT YEAR 2009-10 ALSO. TH US, APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2009-10 IS ALSO PARTLY ALLOWED. 15. RESULTANTLY, BOTH THE CAPTIONED APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH OCTOBER, 2014. SD/- SD /- (SUSHMA CHOWLA) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 29 TH OCTOBER, 2014. SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A), KOLHAPUR; 4) THE CIT, KOLHAPUR; 5) THE DR B BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE