Assistant Commissioner of Income-tax, V. Shankarrao Mohite Patil Sahakari Bank Ltd., Solapur

ITA 2219/PUN/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8463 (ITAT-PUNE)
• Duration Of Justice: 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 23-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bad and doubtful debts
• Section: 260A; 145

Judgement Text

INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 2219/PN/2013 (ASSESSMENT YEAR : 2010-11) ACIT, CIRCLE-1, SOLAPUR .. APPELLANT VS. SHANKARRAO MOHITE PATIL SAHAKARI BANK LTD., A/P. AKLUJ, TAL : MALSHIRAS, SOLAPUR - 413101 PAN NO. AAAAS1270P .. RESPONDENT ASSESSEE BY : SHRI SUNIL GANOO DEPARTMENT BY : SHRI RAJESH DAMOR DATE OF HEARING : 30-10-2014 DATE OF PRONOUNCEMENT : 31-10-2014 ORDER PER R.S. PADVEKAR, JM : THIS APPEAL IS FILED BY THE REVENUE CHALLENGING THE IMPUGNED ORDER OF THE LD.CIT(A)-III, PUNE DATED 21- 10- 2013 FOR THE A.Y. 2010-11. THE REVENUE HAS TAKEN T HE FOLLOWING GROUNDS IN THE APPEAL : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE HON'BLE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.58,17,443/- MADE BY THE A.O., ON ACCOUNT OF INTEREST RECEIVABLES ON STICKY LOANS/ADVANCES. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE HON'BLE CIT(A) HAS ERRED IN HOLDING THA T THE PROVISIONS OF SECTION 43D ARE APPLICABLE TO THE ASS ESSEE- BANK. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE HON'BLE CIT(A) ERRED IN APPRECIATIN G THE PROVISIONS OF SECTION 145 OF THE I.T. ACT, 1961, IN ITS CORRECT PERSPECTIVE. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE HON'BLE CIT(A) ERRED WHILE DELIVERI NG THE JUDGMENT HAS ALLOWED THE APPEAL OF THE ASSESSEE-BAN K BY PLACING RELIANCE ON ITS OWN DECISION IN THE ACIT, CIRCLE-3, NANDED VS. OSMANABAD JANATA SAHAKARI BANK LTD., IN ITA NO. 795/PN/2011 VIDE ORDER DATED 31/08/2012. HOWEVER, 2 THE ABOVE DECISION HAS NOT BEEN -ACCEPTED BY THE DEPARTMENT AND AN APPEAL U/S. 260A HAS BEEN FILED B Y THE CIT, AURANGABAD WITH THE HON'BLE HIGH COURT OF BOMB AY BENCH AT AURANGABAD, VIDE LODGING NO. 1613/2013 DATED 15/01/2013. 2. FACTS PERTAINING TO THE ISSUE ARE NARRATED HEREINUNDER FROM THE IMPUGNED ORDER AS THE LD.CIT(A ) HAS NOTED THE FACTS IN PRECISE WAY. THE ASSESSEE IS A C O- OPERATIVE SOCIETY ENGAGED IN THE BANKING BUSINESS. IT FILED ITS RETURN OF INCOME ON 05.09.2010 DECLARING TOTAL INCOME OF RS.2,85,69,970/-. DURING THE COURSE OF ASSESSMEN T PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE I NTEREST RECEIVABLE ON NPA HAD NOT BEEN CREDITED TO THE PROF IT AND LOSS ACCOUNT BUT HAD BEEN REFLECTED IN THE BALANCE SHEET AS CONTRA ITEM. IN THE BALANCE SHEET, THE ASSESSEE HAD SHOWN OVERDUE INTEREST ON NPA AT RS.1,29,36,614/-. THE AS SESSEE WAS ASKED TO FURNISH THE DETAILS OF INTEREST RECEIV ABLE ON NPA DURING THE YEAR. IT WAS CLARIFIED BY THE BANK T HAT THE INTEREST RECEIVABLE ON STICKY LOANS AMOUNTED TO RS.58,17,443/- BUT THE SAME WAS NOT CREDITED TO THE P & L ACCOUNT IN VIEW OF THE RBI INSTRUCTIONS THAT INCOME SHOULD BE RECOGNIZED ONLY AS AND WHEN RECEIVED. IT WAS CONTENDED THAT THIS SYSTEM HAD BEEN CONSISTENTLY FO LLOWED BY THE BANK FROM YEARS TOGETHER. 2.1 THE ASSESSING OFFICER, HOWEVER, DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE, AS IN HIS OPINION THE A SSESSEE WAS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING W HICH MANDATED THAT THE ACCRUED INTEREST SHOULD BE OFFERE D TO TAX. HE NOTED THAT AS PER CBDT CIRCULAR F.NO. 201/8 1/84- ITA-LL DATED 09.10.1984, ONLY WHEN INTEREST ACCRUED ON BAD AND DOUBTFUL ADVANCES REMAINS UNRECOVERABLE 3 CONSECUTIVELY FOR 3 PREVIOUS YEARS, SUCH INTEREST S HALL NOT FORM PART OF THE TAXABLE INCOME OF THE BANKING COMP ANY IN THE FOURTH YEAR. FURTHER, HE NOTICED THAT THE STICK Y ADVANCES ARE INCLUSIVE OF SUBSTANDARD AND DOUBTFUL ADVANCES, WHICH INDICATED THAT THE INTEREST HAD NOT REMAINED UNRECOVERABLE 'FOR THE LAST 03 CONSECUTIVE YEARS. FURTHER, THE ASSESSEE HAS NOT FURNISHED THE BIFURCA TIONS OF INTEREST THAT HAD REMAINED/UNRECOVERABLE FOR THE LA ST 03 YEARS. HE THEREFORE HELD THAT THE ASSESSEE HAD CONTRAVENED THE PROVISION OF SEC. 43D OF THE INCOME TAX ACT AND THE INTEREST OF NPA AMOUNTING TO RS.58,17,4 43/- WAS ASSESSABLE AS INCOME ON ACCRUABLE BASIS. 3. THE ASSESSEE CARRIED THE ISSUE BEFORE THE LD.CIT (A). THE LD.CIT(A) FOLLOWING THE DECISION OF THE ITAT, P UNE IN THE CASE OF ACIT, CIRCLE-3, NANDED VS. OSMANABAD JA NTA SAHAKARI BANK LTD., IN ITA NO.795/PN/2011, DATED 31 -08- 2012 DELETED THE ADDITION MADE BY THE AO. NOW THE REVENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD . THE LD. COUNSEL SUBMITTED THAT THE ISSUE STANDS SQU ARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE FOLLOWING DECISIONS : 1. ACIT, CIRCLE-3, NANDED VS. OSMANABAD JANTA SAHAKARI BANK LTD., IN ITA NO.795/PN/2011, DATED 31 -08- 2012 2. ACIT, CIRCLE-3, NANDED VS.OMERGA JANTA SAHAKARI BANK LTD., IN ITA NO.350/PN/2013 & CO NO.61/PN/2013 , DATED 31-10-2013. 4.1 IN THE CASE OF OSMANABAD JANTA SAHAKARI BANK LT D. (SUPRA) THE TRIBUNAL HELD AS UNDER : 4 5. WE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES A ND PERUSED THE RECORD. WE FIND THAT THE IDENTICAL ISS UE HAS BEEN CONSIDERED BY THE ITAT, VISAKHAPATNAM BENCH, I N THE CASE OF DCIT, VIJAYAWADA VS. THE DURGA COOPERAT IVE URBAN BANK LTD., VIJAYAWADA, IN ITA.NO.511/VIZAG/20 10 DATED 10.03.2011. IN THE SAID CASE ALSO, IT WAS NO TICED BY THE ASSESSING OFFICER THAT ASSESSEE DID NOT INCL UDE THE INTEREST OF RS.18,26,306/- ON THE NPA ADVANCES. AG AIN THE ISSUE OF APPLICABILITY OF SECTION 43D WAS CONSI DERED TO THE NON-SCHEDULED BANKS. THE TRIBUNAL PLACED ITS H EAVY RELIANCE ON THE DECISION OF THE HONBLE HIGH COURT OF DELHI IN THE CASE OF VASHIST CHAY VYAPAR LTD. [330 ITR 44 0 (DEL.)], IN WHICH THE HONBLE DELHI HIGH COURT HAS CONSIDERED THE DECISION IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. [320 ITR 577 (SC)]. THE TRIBUNAL FINALLY HELD THAT THE INTEREST INCOME RELATABLE TO NPA ADVA NCES DID NOT ACCRUE TO THE ASSESSEE. 6. AN IDENTICAL VIEW HAS BEEN TAKEN BY THE ITAT, AHMEDABAD BENCH IN THE CASE OF KARNAVATI COOPERATIV E BANK LTD. VS. DY.CIT [134 ITD 486 (AHMEDABAD)]. IN THE CASE OF KARNAVATI COOPERATIVE BANK LTD. (SUPRA), TH E TRIBUNAL HAS CONSIDERED THE PROVISIONS OF SECTION 4 3D AND ITS APPLICATION TO THE NON-SCHEDULED BANKS. THE RE ASONS GIVEN BY THE TRIBUNAL IN THE CASE OF KARNAVATI COOP ERATIVE BANK LTD. (SUPRA) FOR HOLDING THAT INTEREST ON THE STICKY ADVANCES/NPA ADVANCES CANNOT BE BROUGHT TO TAX BY FOLLOWING THE DECISION IN THE CASE OF UCO BANK (SUP RA), WHICH IS AS UNDER: 15.1. ON CAREFUL ANALYSIS OF THIS SECTION OUR FIRS T OBSERVATION IS THAT SECTION 43D IS IN CONTRAST WITH THE FUNDAMENTAL PRINCIPLE OF ACCOUNTANCY. THE CARDINAL PRINCIPLE OF MERCANTILE SYSTEM OF ACCOUNTANCY IS TH AT AN INCOME IS TO BE SHOWN IN THE BOOKS OF ACCOUNT ON AC CRUAL BASIS. THE PRINCIPLE IS THAT IT IS IMMATERIAL WHETH ER IT WAS ACTUALLY RECEIVED OR NOT, BUT IF AN INCOME IS EXPEC TED TO BE RECEIVED, THEN IT SHOULD BE BROUGHT TO BOOKS OF ACCOUNT AS AN INCOME ACCRUED TO THE ASSESSEE. CONTRARY TO T HIS RECOGNIZED PRINCIPLE, THIS SECTION HAS PRESCRIBED T HAT AN INCOME BY WAY OF INTEREST SHALL BE CHARGEABLE TO TA X IN THE PREVIOUS YEAR IN WHICH IT IS CREDITED. THE WORD S CREDITED AND ACTUALLY RECEIVED HAS BEEN HIGHLIG HTED HEREINABOVE WHILE REPRODUCING THE SECTION IN QUESTI ON. THE OTHER DEVIATION FROM THE SAID ACCEPTED PRINCIPL E OF ACCOUNTANCY IS THAT AN INCOME BY WAY OF INTEREST SH ALL BE CHARGEABLE TO TAX IN THE PREVIOUS YEAR IN WHICH IT IS ACTUALLY RECEIVED. THE ACT SAYS THAT THE INCIDENCE OF CREDIT OR ACTUALLY RECEIVED, WHICHEVER IS EARLI ER IS TO BE TAKEN INTO ACCOUNT FOR THE PURPOSE OF CHARGEABILITY OF INCOME BY WAY OF INTEREST. SIMULTANEOUSLY, IT IS NOTEWORTHY THAT THIS SECTION IS AN OVERRIDING SECTI ON BECAUSE THE OPENING WORD IS NOTWITHSTANDING ANYTHI NG TO THE CONTRARY CONTAINED IN ANY OTHER PROVISIONS OF T HIS ACT. THEREFORE, IN SPITE OF ANYTHING CONTAINED IN THE AC T, THE PROVISIONS OF THIS SECTION SHALL OVERRIDE THOSE PRO VISIONS. ONCE THE STATUTE HAS CATEGORICALLY MADE A LAW IN RE SPECT OF PUBLIC FINANCIAL INSTITUTIONS THAT INTEREST IS C HARGEABLE TO TAX EITHER IN THE YEAR IN WHICH CREDITED OR ACTUALL Y RECEIVED, WHICHEVER IS EARLIER, THEN IT IS COMPULSO RY TO ABIDE BY THE SAID RULE. ACCORDING TO US, NO SCOPE I S LEFT WITH THE REVENUE AUTHORITIES TO IGNORE THESE PROVIS IONS DUE TO UNAMBIGUOUS USE OF LANGUAGE IN THE SECTION. 5 (II) STATUS OF ASSESSEE FOR THE PURPOSE OF APPLICAT ION SECTION 43-D. AS FAR AS THE STATUS OF THE ASSESSEE IS CONCERNED, THE ASSESSING OFFICER HAS STATED THAT THE ASSESSEE-BANK IS A CO-OPERATIVE BANK. UNDISPUTEDLY, THE ASSESSEE IS AL SO GOVERNED BY THE RBI GUIDELINES. VIDE AN EXPLANATION (D) R.W.S. 36(1)(VIIA) ANNEXED TO SECTION 43-D THE DEFI NITION OF THE ENTITIES INCORPORATED BY THE SECTION HAVE BE EN DEFINED AND IN THE ABSENCE OF ANY CONTRARY MATERIAL , WE HEREBY HOLD THAT THE ASSESSEE IS COVERED BY ONE OF THE ENTITIES, HENCE THE PROVISIONS OF SECTION 43-D ARE TO BE APPLIED. (III) APPLICABILITY OF CBDT CIRCULAR. NEXT ISSUE IS THAT WHETHER A CIRCULAR HAVING EFFECT OF RELAXING RIGOUR OF LAW CAN BE TREATED AS INCONSISTE NT WITH THE PROVISIONS OF A STATUTE. IN ORDER TO AID PROPER DETERMINATION OF THE INCOME OF MONEY LENDERS AND BA NKS, THE CENTRAL BOARD OF DIRECT TAXES HAS ISSUED A CIRC ULAR DATED OCTOBER 6, 1952, PROVIDING THAT WHERE INTERES T ACCRUING ON DOUBTFUL DEBTS IS CREDITED TO A SUSPENS E ACCOUNT, IT NEED NOT BE INCLUDED IN ASSESSEES TAXA BLE INCOME, PROVIDED THE INCOME TAX OFFICER IS SATISFIE D THAT RECOVERY IS PRACTICALLY IMPROBABLE. THE CBDT U/S.11 9 OF THE I.T.ACT HAS POWER TO ISSUE CIRCULARS IN EXERCIS E OF ITS STATUTORY POWERS. IF THE BOARD CONSIDER IT NECESSAR Y TO LAY DOWN CERTAIN RULES AND THEN DIRECT THE SUB-ORDINATE AUTHORITIES, SUCH DIRECTIONS ARE REQUIRED TO BE FOL LOWED AND SUCH CIRCULAR WOULD BE BINDING ON THE DEPARTMEN T UNLESS AND UNTIL HELD AS ULTRA VIRES BY A COURT OF LAW. THE BOARD HAS POWERS TO RELAX THE SEVERITY OR THE STRIC TNESS OF LAW AND THE AUTHORITIES ARE REQUIRED TO FOLLOW THOS E INSTRUCTIONS AS HELD IN THE CASE OF C.B. GAUTAM VS. UNION OF INDIA 108 CTR 304 (SC) & 110 CTR 179 (SC); NAVNI TLAL C.ZAVERI 56 ITR 198(SC) AND K.P.VARGHESE 131 ITR 59 7 (SC). IN THE LAND-MARK DECISION, THE HON'BLE SUPREME COUR T IN THE CASE OF UCO BANK VS. CIT (1999) 237 ITR 889 (SC ) HAS THEREFORE HELD, FIRST, THAT A BENEFICIAL CIRCUL AR IS NOT TO BE TREATED AS INCONSISTENT WITH THE PROVISIONS OF S TATUTE AND BINDING ON THE AUTHORITIES. SECOND, THAT IN RES PECT OF INTEREST ON STICKY ADVANCES INTEREST INCOME IS TO BE TAXED ONLY WHEN ACTUALLY RECEIVED AS PRESCRIBED BY CBDT CIRCULAR. HOWEVER, IN THE PAST AN INTERESTING TURN HAD TAKEN PLACE BY AN ORDER OF THE HONBLE KERALA HIGH COURT IN THE CASE OF STATE BANK OF TRAVANCORE REPORTED IN 110 ITR 336 (KER.), WHEREIN IT WAS HELD THAT THE ASSESSEE, A BA NKING COMPANY, DID NOT CREDIT IN ITS ACCOUNT THE INTEREST THAT HAD ACCRUED ON STICKY ADVANCES BECAUSE THE ASSESS EE FELT THAT THE INTEREST COULD NOT TO BE REALISED. IT CREDITED THE INTEREST TO A SEPARATE ACCOUNT KNOWN AS INTERE ST SUSPENSE ACCOUNT. ON REFERENCE, THE HON'BLE COURT HAS HELD THAT THERE WAS AN ACCRUAL OF INCOME LIABLE TO INCOME- TAX AND THE ASSESSEE WAS NOT JUSTIFIED IN NOT CREDI TING THE INTEREST INCOME ON SUCH STICK ADVANCES IT ITS ACC OUNTS. HOWEVER, LATER ON AT THE HON'BLE APEX COURT WHILE PRONOUNCING THE JUDGMENT OF THE SAID STATE BANK OF TRAVANCORE VS. CIT REPORTED IN (1986)158 ITR 102(SC ), THERE WERE HON'BLE THREE JUDGES PRESIDING THE COURT , OUT OF WHICH HONBLE TWO JUDGES WERE IN THE OPINION THA T THE 6 INTEREST ON STICKY ADVANCES WAS RIGHTLY TREATED A S INCOME WHICH HAD ACCRUED TO THE APPELLANT. THERE WA S A DESCENDING NOTE BY ONE OF THE HON'BLE JUDGE AND COMMENTED THAT WHETHER AN INCOME ON RECEIPT BASIS O R ON ACCRUAL BASIS, IT IS THE REAL INCOME AND NOT ANY HYPOTHETICAL INCOME WHICH MAY HAVE THEORETICALLY ACCRUED, I.E. SUBJECT TO TAX UNDER THE ACT. NEVERTH ELESS, THAT DECISION WAS NOT FOLLOWED WHILE DECIDING THE A PPEAL OF UCO BANK (SUPRA) BY THE HON'BLE THREE JUDGES OF THE SUPREME COURT, ALREADY DISCUSSED BY US SUPRA. WE, THEREFORE SUMMARIZE THAT AS OF NOW THE LAW AS LAID DOWN IN UCO BANK IS THAT IN TERMS OF CBDT CIRCULAR THE I NTEREST IS TO BE ADDED AS INCOME ONLY WHEN ACTUALLY RECEIVE D OR CREDITED IN RESPECT OF THE STICKY ADVANCES WHILE MAKING ASSESSMENT FOR A FINANCIAL INSTITUTION. (IV) INTERPRETATION OF THE LANGUAGE OF THE STATUTE : WE HAVE REPRODUCED VERBATIM THE PROVISIONS OF SECTI ON 43-D OF THE I.T.ACT AND EXPRESSED AN OPINION THAT I F THE STATUTE HAS USED THE TERMINOLOGY FOR THE CHARGEABIL ITY OF INTEREST ON THE BASIS WHEN CREDITED OR ACTUALLY RECEIVED, THEN IN OUR OPINION NO AMBIGUITY HAS BEE N LEFT BY THE STATUTE. IF THE STATUTE IS SO CLEAR THAT AN INTERPRETATION CAN EASILY BE MADE, THEN THAT EXACT MEANING SHOULD BE GIVEN TO THE LANGUAGE OF THE SECT ION. FOR THIS LEGAL PROPOSITION WE PLACE RELIANCE ON KES HAVJI RAVJI AND COMPANY VS. CIT 183 ITR 01 (SC), WHEREIN IT WAS HELD AS UNDER: AS LONG AS THERE IS NO AMBIGUITY IN THE STATUTORY LANGUAGE, RESORT TO ANY INTERPRETATIVE PROCESS TO U NFOLD THE LEGISLATIVE INTENT BECOMES IMPERMISSIBLE. THE SUPPOSED INTENTION OF THE LEGISLATURE CANNOT THEN B E APPEALED TO WHITTLE DOWN THE STATUTORY LANGUAGE WHI CH IS OTHER-WISE UNAMBIGUOUS. IF THE INTENDMENT IS NOT IN THE WORDS, IT IS NOWHERE ELSE. THE NEED FOR INTERPRETAT ION ARISES WHEN THE WORDS USED IN THE STATUTE ARE, ON T HEIR OWN TERMS, AMBIVALENT AND DO NOT MANIFEST THE INTEN TION OF THE LEGISLATURE. WHEN WORDS ACQUIRE A PARTICULAR MEANING OR SENSE BECAUSE OF THEIR AUTHORITATIVE CONSTRUCTION BY SUPE RIOR COURTS, THEY ARE PRESUMED TO HAVE BEEN USED IN THE SAME SENSE WHEN USED IN SUBSEQUENT LEGISLATION IN THE SA ME OR SIMILAR CONTEXT. TO SAY THAT THE COURT COULD NOT RESORT TO THE SO-CA LLED EQUITABLE CONSTRUCTION OF A TAXING STATUTE IS NOT TO SAY THAT, WHERE A STRICT LITERAL CONSTRUCTION LEADS TO A RESULT NOT INTENDED TO SUBSERVE THE OBJECT OF THE LEGISLAT ION, ANOTHER CONSTRUCTION, PERMISSIBLE IN THE CONTEXT, S HOULD NOT BE ADOPTED. IN THIS RESPECT, TAXING STATUTES AR E NOT DIFFERENT FROM OTHER STATUTES. WE CAN THEREFORE SAFELY DRAW A CONCLUSION THAT BY T HE INSERTION OF A SPECIAL PROVISION TO TAX INTEREST IN COME IN THE CASE OF PUBLIC FINANCIAL INSTITUTION, ETC. SECT ION 43-D HAS TO BE APPLIED IN ITS LETTER AND SPIRIT. IT IS P ERTINENT TO MENTION THAT LATER ON, IN THE CASE OF CIT VS. BANK OF AMERICA S.A. 262 ITR 504 (BOM) THE QUESTION OF INTE REST ON STICKY LOANS WAS DECIDED IN FAVOUR OF THE ASSE SSEE AND HELD THAT THE QUESTION IS TO BE ANSWERED IN FAV OUR OF THE ASSESSEE FOLLOWING THE DECISION OF UCO BANK REP ORTED AT 237 ITR 889(SC) :: 240 ITR 355 (SC). LIKEWISE, I N AN 7 ANOTHER CASE OF CIT VS. STATE BANK OF INDIA 262 ITR 662 (BOM.) AGAIN IT WAS HELD THAT THE AMOUNT CREDITED T O THE INTEREST SUSPENSE ACCOUNT WAS NOT TAXABLE FOLLOWING THE DECISION PRONOUNCED IN THE CASE OF UCO BANK (SUPRA) . (V) JUDGEMENT IN FAVOUR OF REVENUE : FROM THE SIDE OF THE REVENUE AN ORDER OF THE TRIBUN AL HAS BEEN VEHEMENTLY RELIED UPON AND THIS IS THE BASIC R EASON OF THE ELABORATE DISCUSSION MADE HEREINABOVE SO AS TO UNFOLD THE CONTROVERSY. IN THE SAID DECISION OF THE TRIBUNAL, VIZ. JT.CIT V/S. INDIA EQUIPMENT LEASING LTD. (2008)111 ITD 37 (CHENNAI), THE RESPECTED CO-ORDINA TE BENCH HAS EXPRESSED THAT QUOTE PRIOR TO INSERTION OF SECTION 43D WITH EFFECT FROM 1-4-1991, RECOGNITION OF INCOME WAS ON THE BASIS OF CIRCULAR OF 9-101984. IT SAID THAT FOR FIRST THREE YEARS THE INCOME MAY BE TAKEN ON ACCRUAL BASIS AND FROM 4TH YEAR ONWARDS, THE INCOME IN RESPECT OF DOUBTFUL DEBTS WAS TO BE RECOGNIZED ON R ECEIPT BASIS. SINCE THE INCOME WAS TO BE ASSESSED FOR FIRS T THREE YEARS ON ACCRUAL BASIS, PROVISIONS OF SECTION 43D W ERE INSERTED IN THE ACT. CIRCULAR NO.621, DATED 19-12-1 991 GIVES THE LEGISLATIVE INTENTION STATING THAT SECTIO N 43D WAS INSERTED WITH A VIEW TO IMPROVING THE VIABILITY OF BANKS, PUBLIC FINANCIAL INSTITUTIONS ETC., SO AS TO PROVID E THAT INTEREST ON STICKY LOANS SHALL BE CHARGED TO TAX ON LY IN THE YEAR IN WHICH THE INTEREST IS ACTUALLY RECEIVED OR CREDITED TO THE PROFIT AND LOSS ACCOUNT. THIS BENEFIT WAS EX TENDED WITH EFFECT FROM 1-4-2000 IN THE CASE OF PUBLIC COM PANIES ENGAGED IN LONG-TERM FINANCING OF HOUSING PROJECTS APPROVED BY NATIONAL HOUSING BANKS. THE LEGISLATURE IN THEIR WISDOM DID NOT EXTEND THE SAME BENEFIT TO NBF CS WHICH HAS BEEN GIVEN TO SCHEDULED BANKS, PUBLIC FIN ANCIAL INSTITUTIONS, ETC. THE PROVISIONS OF SECTION 43D AS STOOD AT RELEVANT TIME CONTAINED AN EXPRESSION 'THE INCOME B Y WAY OF INTEREST IN RELATION TO SUCH CATEGORIES OF BAD O R DOUBTFUL DEBTS AS MAY BE PRESCRIBED HAVING REGARD TO THE GUIDELINES ISSUED BY THE RBI IN RELATION TO SUCH DE BTS'. THIS EXPRESSION CONTINUES TO EXIST IN THE NEWLY SUB STITUTED SECTION 43D APPLICABLE WITH EFFECT FROM 1-4-2000. T HIS SHOWS THAT THE RBI GUIDELINES IN RESPECT OF SCHEDUL ED BANKS, PUBLIC FINANCIAL INSTITUTIONS ETC., WERE NOT SUFFICIENT FOR RECOGNITION OF INCOME ON CASH BASIS FOR THE PUR POSES OF INCOME-TAX. THE INCOME OF SUCH ASSESSEES WAS DETERMINED AS PER CIRCULAR DATED 9-10-1984. BECAUSE OF THIS REASON, SECTION 43DWAS INSERTED IN THE STATUTE . RBI GUIDELINES IN CASE OF NBFC ARE FOR THE PURPOSE OF C ONTROL AND SUPERVISION WITH RESPECT TO PUBLIC INTEREST AND VIABILITY OF THE NBFC. THE GUIDELINES NEVER INTENDE D FOR TAKING THE INTEREST INCOME ACCRUED AS PER SECTION 5 OUT OF THE SCOPE OF THE ACT. IF THE CONTENTION OF ASSESSEE WAS ACCEPTED, IT WOULD AMOUNT TO INSERTION OF 'NBFC' IN SECTION 43D, THAT TOO BY A GUIDELINE ISSUED FOR DIFFERENT P URPOSES BY AN AUTHORITY OTHER THAN THE PARLIAMENT IN OTHER WORDS, THE DOCTRINE OF 'CASUS OMISSUS' WILL DEEM TO HAVE B EEN APPLIED WHICH IS CONTRARY TO LAW OF LAND.UNQUOTE. THE BASIC REASON FOR DIRECTING TO ASSESS THE ACCRUED IN TEREST ON NPA WAS THE RBI GUIDELINES ISSUED ONLY FOR SCHED ULED BANKS, PUBLIC FINANCIAL INSTITUTIONS AND NOT FOR NB FC. THE OBSERVATION OF THE RESPECTED TRIBUNAL WAS THAT IF T HE CONTENTION OF THE ASSESSEE WAS TO BE ACCEPTED, THEN IT WOULD AMOUNT TO INSERTION OF NBFC IN SECTION 43-D OF THE I.T.ACT. AS AGAINST THAT, AS FAR AS THE ASSESSE E IS CONCERNED, IT IS AN ACCEPTED FACT THAT THE ASSESSEE IS A 8 COOPERATIVE BANK AND NOT A NON-BANKING FINANCIAL COMPANY AND THIS NOTEWORTHY DISTINCTION HAS ALREADY BEEN APPRECIATED BY US IN ONE OF THE PARAGRAPHS ABOVE. THERE IS ONE MORE DECISION OF THE HONBLE APEX COUR T WHICH IS YET TO BE MENTIONED WHILE DISCUSSING THE ARGUMENTS RAISED FROM THE SIDE OF THE REVENUE. A DECISION IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. VS. JT. CIT 320 ITR 577 (SC) HAS BEEN CITED BUT THE FUNDAME NTAL DIFFERENCE IS THAT THE ISSUE BEFORE THE HONBLE COU RT WAS IN RESPECT OF PROVISION FOR NPA AND DEBITED TO P&L ACCOUNT BY A NBFC. THE SAID PROVISION WAS UNDISPUTEDLY MADE BY THE SAID NBFC AS PER THE PRUDENTIAL NORMS MADE BY T HE RESERVE BANK. THEREFORE WE WANT TO MAKE IT CLEAR TH AT THE QUESTION FOR CONSIDERATION BEFORE THE HONBLE C OURT WAS THAT IF A PROVISION FOR DOUBTFUL DEBT IS MADE T HEN WHAT WILL BE THE LEGAL POSITION OF THE APPLICABILIT Y OF EXPLANATION TO SECTION 36(1)(VII) OF THE I.T. ACT. FOR THE SAKE OF READY REFERENCE, RELEVANT PARAGRAPH FROM TH E HELD PORTION IS REPRODUCED BELOW: THE INCOME-TAX IS A TAX ON REAL INCOME, I.E., T HE PROFITS ARRIVED AT ON COMMERCIAL PRINCIPLES SUBJECT TO THE PROVISIONS OF THE ACT. THEREFORE, IF BY THE EXPLANA TION TO SECTION 36(1)(VII) A PROVISION FOR DOUBTFUL DEBT IS KEPT OUT OF THE AMBIT OF BAD DEBT WHICH IS WRITTEN OFF, THEN ONE HAS TO TAKE INTO ACCOUNT THE EXPLANATION IN COMPUTING T HE TOTAL INCOME UNDER THE INCOME-TAX ACT FAILING WHICH ONE CANNOT ASCERTAIN THE REAL PROFITS. THE PROVISION FO R NON- PERFORMING ASSETS DEBITED IN THE PROFIT AND LOSS AC COUNT UNDER THE RESERVE BANK DIRECTIONS OF 1998 IS ONLY A NOTIONAL EXPENSE AND, THEREFORE, THERE WOULD BE ADD BACK TO THAT EXTENT IN THE COMPUTATION OF TOTAL INCOME U NDER THE INCOME-TAX ACT. THEREFORE THE DISTINCTION CAN EASILY BE DRAWN THAT IN THE APPEAL BEFORE US THE QUESTION IS ACCRUAL OF INTERES T INCOME ON STICKY LOAN BUT IN THIS CITED DECISION THE QUEST ION BEFORE HE APEX COURT WAS ABOUT THE ADMISSIBILITY OF PROVISION MADE IN RESPECT OF DOUBTFUL DEBTS. (VI) CONCEPT OF REAL INCOME APPROVED IN THE CASE OF BANKING BUSINESS: BEFORE US, THE THEORY OF REAL INCOME HAS ALSO BEE N ARGUED AND IN SUPPORT A DECISION OF HON'BLE COURT PRONOUNCED IN THE CASE OF CIT VS. GODHRA ELECTRICIT Y CO. 225 ITR 746 (SC). IN SHORT, THE VIEW EXPRESSED WAS THAT IF INCOME DOES NOT RESULT AT ALL, THERE CANNOT BE A NY TAX AND THAT IF AN INCOME HAS NOT MATERIALIZED, THEN ME RELY AN ENTRY MADE ABOUT A HYPOTHETICAL INCOME BY FOLLOW ING BOOK KEEPING METHODS, THE LIABILITY TO TAX CANNOT B E ATTRACTED. NOW AT PRESENT THE SITUATION IS THAT THE HON'BLE MA DRAS HIGH COURT IN THE CASE OF CIT VS. ELGI FINANCE LTD. 293 ITR 357 (MAD.) HAS TAKEN A VIEW THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF LEASE, FINANCE A ND HIRE PURCHASE AND THAT THE PRINCIPLE OF ACCRUAL COM ES INTO PLAY WITHOUT INCOME WAS RECOGNIZED AND THAT THE ASSESSEE HAD CLASSIFIED ITS ASSETS ON THE BASIS OF NOTIFICATION ISSUED BY R.B.I. AND FOUND THAT CERTAI N ASSETS CAME UNDER THE CATEGORY OF NPA AND THAT FROM SUCH N PA THE ASSESSEE HAD NOT RECOGNIZED ANY INCOME IN CONSONANCE WITH THE NOTIFICATION ISSUED BY RBI AND AS-9 ISSUED BY ICAI AND THAT THE ASSESSEE WAS JUSTIFIED IN NOT 9 RECOGNIZING SUCH INCOME. THE COURT HAD FURTHER EXPR ESSED THAT THERE WAS NO OCCASION TO CONSIDER WHETHER THE PRINCIPLE OF ACCRUAL WOULD ARISE OR NOT, NEVERTHELE SS, THE INTEREST FROM SUCH NPA WOULD BE TAXED IN THE APPROP RIATE ASSESSMENT YEAR ON THE BASIS OF ACTUAL RECEIPT. IT IS WORTH TO MENTION THAT FOR THIS DECISION, THE HON'BLE MADR AS HIGH COURT HAS RELIED UPON AN ANOTHER DECISION OF THE SA ME HIGH COURT PRONOUNCED IN THE CASE OF JT.CIT VS. IND IA EQUIPMENT LEASING LTD. 293 ITR 350. 7. IN THE CASE BEFORE US, ADMITTEDLY, ASSESSEE HAS DIRECTLY TAKEN THE INTEREST TO THE BALANCE SHEET AN D IT IS NOT ROUTED THROUGH THE PROFIT & LOSS ACCOUNT. MOR EOVER, THE ISSUE OF THE TAXABILITY OF THE INTEREST ON THE STICKY LOSSES/ADVANCES, IS COVERED IN FAVOUR OF THE ASSESS EE BY THE DECISION OF THE COORDINATE BENCHES IN THE CASE OF THE DURGA COOPERATIVE URBAN BANK LTD., VIJAYAWADA (SUPR A) AND KARNAVATI COOPERATIVE BANK LTD. (SUPRA). WE FI ND NO REASON TO INTERFERE WITH THE REASONED ORDER OF THE LD. CIT(A) AND ACCORDINGLY THE SAME IS CONFIRMED. IN T HE RESULT, THE REVENUES GROUND IS DISMISSED. 4.2 IN THE CASE OF OMERGA JANTA SAHAKARI BANK LTD., (SUPRA), IDENTICAL ISSUE HAS AGAIN CONSIDERED BY TH E TRIBUNAL AND HELD AS UNDER: WE FIND THAT THE IDENTICAL ISSUE HAS BEEN CONSIDER ED BY THE ITAT, A BENCH, PUNE IN THE CASE OF THE OMERGA J ANTA SAHAKARI BANK LTD., OSMANABAD (SUPRA). THE OPERATI VE PART OF THE REASONING AND FINDING IN THE SAID DECIS ION IS AS UNDER: 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. IN SO FAR AS THE APPLICABILITY OF SECTION 43D OF TH E ACT TO THE ASSESSEE IS CONCERNED, THERE IS A CONVERGENCE O F OPINION BETWEEN THE ASSESSEE AND THE REVENUE TO THE EFFECT THAT THE SAME IS NOT APPLICABLE TO THE ASSES SEE. OSTENSIBLY, ASSESSEE IS A CO-OPERATIVE BANK CARRYIN G ON BANKING BUSINESS IN TERMS OF A LICENSE GRANTED BY R BI AND IS NOT A SCHEDULED BANK INCLUDED IN SECOND SCHEDU LE OF RBI SO AS TO FALL WITHIN THE SCOPE OF SECTION 43D O F THE ACT. NOTABLY, SECTION 43D OF THE ACT PRESCRIBES TH AT INTEREST INCOME ON SUCH CATEGORIES OF BAD AND DOUBT FUL DEBTS AS PRESCRIBED BY THE RBI GUIDELINES SHALL BE CHARGEABLE TO TAX IN THE YEAR IN WHICH SUCH INTERES T INCOME IS CREDITED BY THE ASSESSEE IN THE PROFIT AN D LOSS ACCOUNT OR IN THE YEAR OF ACTUAL RECEIPT, WHICHEVER IS EARLIER. SINCE ASSESSEE IS NOT AN ENTITY COVERED W ITHIN THE SCOPE OF SECTION 43D OF THE ACT, THE PRESENT CONTRO VERSY CANNOT BE ADJUDICATED IN THE LIGHT OF SECTION 43D O F THE ACT, AND IT IS LIABLE TO BE DECIDED ON GENERAL PRIN CIPLES AS TO WHETHER THE IMPUGNED INCOME HAS ACCRUED 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 URBAN BANK LTD. (SUPRA) HAS CONSIDERED AN IDENTICAL CONTROVERSY. THE ASSESSEE BEFORE THE VISAKHAPATNAM BENCH WAS A CO-OPERATIVE BANK OPERATI NG UNDER A LICENSE ISSUED BY RBI BUT WAS NOT A SCHEDU LED 10 BANK SO AS TO FALL WITHIN THE SCOPE OF SECTION 43D OF THE ACT. THE ISSUE RELATED TO TAXABILITY OF INTEREST I NCOME RELATING TO NPAS, WHICH AS PER THE REVENUE WAS LIAB LE TO BE TAXED ON ACCRUAL BASIS IN LINE WITH MERCANTILE S YSTEM OF ACCOUNTING ADOPTED BY THE ASSESSEE THEREIN. THE ASSESSEE, ON THE OTHER HAND, CONTENDED THAT HAVING REGARD TO THE GUIDELINES ISSUED BY RBI REGARDING ACCOUNTING OF 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 CLAS SIFIED BY RBI, WAS CONSIDERED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF M/S VASISTH CHAY VYAPAR LTD. (SUPRA) WH EREIN AFTER CONSIDERING THE DECISION OF THE HONBLE SUPRE ME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SU PRA) IT WAS HELD THAT INTEREST INCOME RELATABLE TO NPAS WAS NOT INCLUDIBLE IN TOTAL INCOME ON ACCRUAL BASIS SINCE T HE SAME DID NOT ACCRUE TO THE ASSESSEE. THE FOLLOWING DISC USSION BY THE VISAKHAPATNAM BENCH OF THE TRIBUNAL IN THE C ASE OF THE DURGA COOPERATIVE URBAN BANK LTD. (SUPRA) IS WO RTHY 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 HI GH COURT IN THE CASE OF M/S VASISTH CHAY VYAPAR LTD (S UPRA); WHEREIN THE HON'BLE DELHI HIGH COURT TOOK INTO ACCO UNT THE DECISION RENDERED BY THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD (SUPRA). IN T HE CASE OF M/S VASISTH CHAY VYAPAR LTD, THE ASSESSEE T HEREIN WAS A NON BANKING FINANCIAL COMPANY AND IT WAS ALSO BOUND BY THE PRUDENTIAL NORMS DIRECTIONS ISSUED B Y THE RESERVE BANK OF INDIA FOR INCOME RECOGNITION AND AS SET CLASSIFICATION. THE ASSESSEE DID NOT INCLUDE THE IN TEREST INCOME RELATABLE TO NPA ASSETS IN ITS TOTAL INCOME. THE ASSESSING OFFICER, HOWEVER, ADDED THE SAID INTEREST AS THE INCOME OF THE ASSESSEE BY HOLDING THAT IT HAD ACCR UED TO THE ASSESSEE EVEN IT WAS NOT REALIZED AS THE ASSESS EE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THE LEAR NED CIT (A) AFFIRMED THE ORDER OF THE ASSESSING OFFICER . HOWEVER, THE ITAT DELETED THE AFORESAID INCOME. HEN CE THE REVENUE PREFERRED APPEAL BEFORE THE HON'BLE DEL HI HIGH COURT. 8.1 AFTER HEARING THE RIVAL SUBMISSIONS, THE HON'BL E DELHI HIGH COURT TOOK NOTE OF SEC.45Q OF RESERVE BA NK OF INDIA 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 CON TAINED IN ANY OTHER LAW FOR THE TIME BEING IN FORCE 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 ANY OTHER LAW. THEN THE HON'BLE HIGH COURT ALSO CONSIDERED ACCOUNTING STANDARD AS-9 ON REVENUE RECOGNITION AND ALSO EXTRACTED FOLLOWING RELEVANT PORTION FROM THE SAID ACCOUNTING STANDARD: 9. EFFECT OF UNCERTAINTIES ON REVENUE RECOGNITION 11 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 EXP ECT ULTIMATE COLLECTION. 9.2 WHERE THE ABILITY TO ASSESS THE ULTIMATE COLLEC TION WITH REASONABLE CERTAINTY IS LACKING AT THE TIME OF RAISING ANY CLAIM, E.G., FOR ESCALATION OF PRICE, EXPORT IN CENTIVES, INTEREST ETC., REVENUE RECOGNITION IS POSTPONED TO THE EXTENT OF UNCERTAINTY INVOLVED. IN SUCH CASES, IT M AY BE APPROPRIATE TO RECOGNIZE REVENUE ONLY WHEN IT IS REASONABLY CERTAIN THAT THE ULTIMATE COLLECTION WIL L BE MADE. WHERE THERE IS NO UNCERTAINTY AS TO ULTIMATE COLLECTION, REVENUE IS RECOGNIZED AT THE TIME OF SA LE OR RENDERING OF SERVICE 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 REFLECT THE UNCERTAINTY RATHER THAN TO ADJUST THE AMOUNT OF REVENUE ORIGINALLY RECORDED. 9.4 AN ESSENTIAL CRITERION FOR THE RECOGNITION OF R EVENUE IS THAT THE CONSIDERATION RECEIVABLE FOR THE SALE O F GOODS, THE RENDERING OF SERVICES OR FROM THE USE OF OTHERS OF ENTERPRISE RESOURCES IS REASONABLY DETERMINABLE. WH EN SUCH CONSIDERATION IS NOT DETERMINABLE WITHIN REASO NABLE 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 RE VENUE 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 BY 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 DELH I HIGH COURT HELD THAT THE INTEREST ON NPA ADVANCE CANNOT BE TREATED AS ACCRUED TO THE ASSESSEE. 8.4 BEFORE THE DELHI HIGH COURT, THE REVENUE TOOK SUPPORT OF THE DECISION OF THE HON'BLE SUPREME COUR T IN THE CASE OF SOUTHERN TECHNOLOGIES LTD (SUPRA). THE DELHI HIGH COURT CONSIDERED THE SAID DECISION OF HON'BLE APEX COURT AND EXPLAINED THE SAME AS UNDER: 12 WE HAVE ALREADY HELD THAT EVEN UNDER THE INCOME TA X ACT, INTEREST INCOME HAD NOT ACCRUED. MOREOVER, THI S SUBMISSION OF MR. SABHARWAL IS BASED ENTIRELY ON TH E JUDGMENT OF THE SUPREME COURT IN THE CASE OF SOUTHE RN TECHNOLOGY (SUPRA). NO DOUBT, IN FIRST BLUSH, READI NG OF THE JUDGMENT GIVES AN INDICATION THAT THE COURT HAS HELD THAT RESERVE BANK OF INDIA ACT DOES NOT OVERRIDE TH E PROVISIONS OF THE INCOME TAX ACT. HOWEVER, WHEN WE EXAMINE THE ISSUE INVOLVED THEREIN MINUTELY AND DEE PLY IN THE CONTEXT IN WHICH THAT HAD ARISEN AND CERTAIN OBSERVATIONS OF THE APEX COURT CONTAINED IN THAT VE RY JUDGMENT, WE FIND THAT THE PROPOSITION ADVANCED BY MR.SABHARWAL MAY NOT BE ENTIRELY CORRECT. IN THE CA SE BEFORE THE SUPREME COURT, THE ASSESSEE A NBFC DEBIT ED 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 GROUND THAT THE PROVISION OF NPA WAS NOT IN THE NAT URE OF EXPENDITURE OR LOSS BUT MORE IN THE NATURE OF A RES ERVE, AND THUS NOT DEDUCTIBLE UNDER SECTION 36(I)(VII) OF THE ACT. THE ASSESSING OFFICER, HOWEVER, DID NOT BRING TO TA X RS.20,34,605/- AS INCOME (BEING INCOME ACCRUED UNDE R THE MERCANTILE SYSTEM OF ACCOUNTING). THE DISPUTE B EFORE THE APEX COURT CENTERED AROUND DEDUCTIBILITY OF PRO VISION FOR NPA. AFTER ANALYZING THE PROVISIONS OF THE RESE RVE BANK OF INDIA ACT, THEIR LORDSHIPS OF THE APEX COUR T 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, TH E APEX COURT MADE A DISTINCTION WITH REGARD TO INCOME RECOGNITION AND HELD THAT INCOME HAD TO BE RECOGNI ZED IN TERMS OF THE PRUDENTIAL NORMS, EVEN THOUGH THE SAME DEVIATED FROM MERCANTILE SYSTEM OF ACCOUNTING AND/O R SECTION 45 (SIC. 145) OF 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 SOUTHERN TECHNOLOGIES LTD (SUPRA) DISSECTED THE MAT TER INTO TWO PARTS VIZ., A) INCOME RECOGNITION AND B) PERMISSIBLE DEDUCTION/EXCLUSIONS UNDER THE INCOME T AX 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 ASSESSIN G OFFICER HAS TO FOLLOW RESERVE BANK OF INDIA DIRECTI ONS 1998, SINCE BY VIRTUE OF 45Q OF THE RESERVE BANK OF INDIA ACT, AN OVERRIDING EFFECT IS GIVEN TO THE DIRECTION S OF RESERVE BANK OF INDIA VIS--VIS INCOME RECOGNITION PRINCIPLES IN THE COMPANIES ACT 1956. IN SO FAR AS COMPUTATION OF INCOME UNDER THE INCOME TAX ACT IS CONCERNED, (WHICH INVOLVES DEDUCTION OF PERMISSIBLE DEDUCTIONS AND EXCLUSIONS) THE ADMISSIBILITY OF SUC H DEDUCTIONS SHALL BE GOVERNED BY THE PROVISIONS OF T HE INCOME TAX ACT. THE RELEVANT OBSERVATIONS OF THE HO N'BLE SUPREME COURT ARE EXTRACTED BELOW: APPLICABILITY OF SECTION 145 13 40. AT THE OUTSET, WE MAY STATE THAT IN ESSENCE RBI DIRECTIONS 1998 ARE PRUDENTIAL/PROVISIONING NORMS I SSUED BY RBI UNDER CHAPTER IIIB OF THE RBI ACT, 1934. THE SE NORMS DEAL ESSENTIALLY WITH INCOME RECOGNITION. THE Y FORCE THE NBFCS TO DISCLOSE THE AMOUNT OF NPA IN TH EIR FINANCIAL ACCOUNTS. THEY FORCE 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 OPERA TE IN DIFFERENT AREAS. THESE DIRECTIONS 1998 HAVE NOTHING TO DO WITH COMPUTATION OF TAXABLE INCOME. THESE DIRECTION S CANNOT OVERRULE THE PERMISSIBLE DEDUCTIONS OR TH EIR EXCLUSION UNDER THE IT ACT. THE INCONSISTENCY BETW EEN THESE DIRECTIONS AND COMPANIES ACT IS ONLY IN THE M ATTER OF INCOME RECOGNITION AND PRESENTATION OF FINANCIAL STATEMENTS. THE ACCOUNTING POLICIES ADOPTED BY AN N BFC CANNOT DETERMINE THE TAXABLE INCOME. IT IS WELL SET TLED THAT THE ACCOUNTING POLICIES FOLLOWED BY A COMPANY CAN BE CHANGED UNLESS THE AO COMES TO THE CONCLUSION THAT SUCH CHANGE WOULD RESULT IN UNDERSTATEMENT OF PROFITS. HOWEVER, HERE IS THE CASE WHERE THE AO HAS TO FOLLO W THE RESERVE BANK OF INDIA DIRECTIONS 1998 IN VIEW OF SE CTION 45Q OF THE RESERVE BANK OF INDIA ACT. HENCE, AS FAR AS INCOME RECOGNITION 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 BAN K OF INDIA. HENCE THE DIRECTIONS WITH REGARD TO THE PRUD ENTIAL NORMS ISSUED BY THE RESERVE BANK OF INDIA ARE EQUAL LY APPLICABLE TO THE ASSESSEE AS IT IS APPLICABLE TO T HE COMPANIES REGISTERED UNDER THE COMPANIES ACT. THE HON'BLE SUPREME COURT HAS HELD IN THE CASE OF SOUTH ERN 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 COMPANIE S 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 HE REIN DID NOT ADMIT THE INTEREST RELATABLE TO NPA ADVANCE S IN ITS TOTAL INCOME. THE HON'BLE DELHI HIGH COURT IN THE C ASE OF VASISTH CHAY VYAPAR LTD (SUPRA) HAS HELD THAT THE INTEREST ON NPA ASSETS CANNOT BE SAID TO HAVE ACCRU ED TO THE ASSESSEE. IN THIS REGARD, THE FOLLOWING OBSERVA TIONS OF HON'BLE DELHI HIGH COURT IN THE ABOVE CITED CASE AR E 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 THERE UPON HAS NOT ACCRUED. THE SAID DECISION OF THE HON'BLE DELHI HIGH COURT I S EQUALLY APPLICABLE TO THE ISSUE IN OUR HANDS. ACCOR DINGLY WE DO NOT FIND ANY INFIRMITY WITH THE DECISION OF T HE 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. 14 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 RE SPECT OF NPAS. 11. SO, HOWEVER, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT THE HONBLE MADRA S HIGH COURT IN THE CASE OF CIT VS. SAKTHI FINANCE LT D., (2013) 31 TAXMANN.COM 305 (MADRAS) HAS DIFFERED WIT H THE JUDGEMENT OF THE HONBLE DELHI HIGH COURT IN TH E CASE OF M/S VASISTH CHAY VYAPAR LTD. (SUPRA) ON A SIMILA R ISSUE, I.E. RELATING TO INTEREST INCOME ON NPAS. T HE LEARNED DEPARTMENTAL REPRESENTATIVE FURTHER POINTED OUT THAT THE HONBLE MADRAS HIGH COURT FOLLOWED THE DEC ISION OF THE HONBLE SUPREME COURT IN THE CASE OF SOUTHER N TECHNOLOGIES LTD. (SUPRA) IN HOLDING THAT INTEREST ON NPAS WAS ASSESSABLE TO TAX ON ACCRUAL BASIS. WE HAVE CA REFULLY CONSIDERED THE SUBMISSIONS PUT-FORTH BY THE LEARNED DEPARTMENTAL REPRESENTATIVE BASED ON THE JUDGEMENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF SAKTHI FINANCE LTD. (SUPRA). THE CONTROVERSY BEFORE THE H ONBLE MADRAS HIGH COURT RELATED TO NON-RECOGNITION OF INT EREST INCOME ON NPAS BY THE ASSESSEE FOLLOWING THE RBI GUIDELINES. THE HONBLE MADRAS HIGH COURT TOOK THE VIEW THAT THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) ALSO APP LIED TO THE INCOME RECOGNITION NORMS 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 THE HONBLE DELHI HIGH COURT IN TH E CASE OF M/S VASISTH CHAY VYAPAR LTD. (SUPRA) HAS TAKEN A VIEW THAT SOUTHERN TECHNOLOGIES LTD. (SUPRA) CASE DID NO T APPLY TO THE INCOME RECOGNITION NORMS PRESCRIBED BY RBI. OSTENSIBLY, THERE IS DIVERGENCE OF OPINION BE TWEEN THE HONBLE DELHI HIGH COURT AND THE 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 TWO CONTRARY JUDGMENTS OF THE NON-JURISDICTION AL HIGH COURT. IN SUCH A SITUATION, WE ARE INCLINED TO PRE FER A VIEW WHICH IS FAVOURABLE OF THE ASSESSEE FOLLOWING THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF 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-ORDIN ATE BENCH IN THE CASE OF THE DURGA COOPERATIVE URBAN BA NK LTD. (SUPRA) AND ACCORDINGLY THE ORDER OF THE CIT(A ) IS LIABLE TO THE AFFIRMED. WE HOLD SO. 4.3 ON PERUSAL OF THE GROUNDS TAKEN BY THE REVENUE, WE FIND THAT IN GROUND NO.4 THE REVENUE HAS STATED TH AT DEPARTMENT HAS NOT ACCEPTED THE DECISION IN THE CAS E OF 15 OSMANABAD JANTA SAHAKARI BANK LTD. (SUPRA). BUT IT IS NOT BROUGHT TO OUR NOTICE THAT THE SAID DECISION HAS BE EN REVERSED BY THE HONBLE JURISDICTIONAL HIGH COURT. AS THE POSITION OF LAW STANDS AS IT IS, WE THEREFORE CONFI RM THE ORDER OF THE LD.CIT(A) AND GROUNDS TAKEN BY THE REV ENUE ARE DISMISSED. 5. IN THE RESULT, REVENUES APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 31-10-2014. SD/- SD/- (R.K. PANDA) (R.S. PADVE KAR) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE DATED: 31 ST OCTOBER, 2014 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. CIT(A)-III, PUNE 4. CIT-III, PUNE 5. THE D.R, A PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // ASSISTANT REGISTRAR, ITAT, PUNE BENCHES, PUNE