ACIT, Aurangabad V. M/s Samarth Sahakari Bank Ltd, Jalna

ITA 2354/PUN/2012

• Counselvise Citation: 235424514 RSA 2012
• Duration Of Justice: 1 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 29-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K MODI
• Keywords: Bad and doubtful debts
• Section: 143(3); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHE B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO.2354/PN/2012 (ASSESSMENT YEAR : 2009-10) ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE-1, AURANGABAD. . APPELLANT VS. M/S SAMARTH SAHAKARI BANK LTD., 1 ST FLOOR, PHULE MARKET, KADBI MANDI, JALNA. PAN : AABAS8051R . RESPONDENT DEPARTMENT BY : SHRI A. K. MODI ASSESSEE BY : SMT. SHUBHADA KOPPA ORDER PER G. S. PANNU, AM THE CAPTIONED APPEAL BY THE REVENUE IS DIRECTED AG AINST AN ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), AURANGABA D DATED 14.09.2012 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 22.0 7.2011 PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT), PERTAINING TO THE ASSESSMENT YEAR 2009-10. 2. IN THIS APPEAL, THE SOLITARY DISPUTE RAISED IS W ITH REGARD TO THE ACTION OF THE CIT(A) IN DELETING AN ADDITION OF RS.12,91,511/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST INCOME RELATING TO NON PERFORMING ASSETS (IN SHORT NPAS). 3. BRIEFLY PUT THE CONTROVERSY IN THIS APPEAL CAN B E SUMMARIZED AS FOLLOWS. THE RESPONDENT-ASSESSEE IS A CO-OPERATIVE BANK CARR YING ON BANKING BUSINESS IN TERMS OF A LICENSE ISSUED BY RESERVE BA NK OF INDIA (RBI). THE ASSESSEE, BEING A CO-OPERATIVE BANK OPERATING UNDER LICENSE FROM RBI, IS GOVERNED BY CIRCULARS OF RBI RELATING TO PRUDENTIAL NORMS, INCOME ITA NO.2354/PN/2012 A.Y. 2009-10 RECOGNITION, ASSET CLASSIFICATION, PROVISIONING AND OTHER RELATED MATTERS. IN TERMS OF SUCH PRUDENTIAL NORMS OF RBI, ASSESSEE DID NOT ACCOUNT FOR INTEREST RELATABLE TO NPAS I.E. ADVANCES TO CUSTOMERS WHICH WERE CLASSIFIED AS NPAS IN TERMS OF THE PRUDENTIAL NORMS OF RBI. THE ASSES SING OFFICER WAS OF THE OPINION THAT INTEREST INCOME EVEN IN RELATION TO SU CH NPAS WAS LIABLE TO BE INCLUDED HAVING REGARD TO THE MERCANTILE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE. AS PER THE ASSESSING OFFICER, THE PROVIS IONS OF SECTION 43D OF THE ACT, WHICH PROVIDES THAT INTEREST INCOME RELATABLE TO NPAS CLASSIFIED AS PER THE RBI GUIDELINES SHALL BE CHARGED TO TAX IN THE YEAR IN WHICH IT IS ACCOUNTED FOR BY THE ASSESSEE OR ON RECEIPT, WHICHEVER IS EARLIER WAS NOT APPLICABLE TO THE ASSESSEE, SINCE THE ASSESSEE WAS NOT A SCHEDULED BA NK. NOTABLY, SECTION 43D OF THE ACT PRESCRIBES THAT IN CASE OF PUBLIC FI NANCIAL INSTITUTION, OR A SCHEDULED BANK OR A STATE FINANCIAL CORPORATION OR A STATE INDUSTRIAL INVESTMENT CORPORATION, INCOME BY WAY OF INTEREST I N RELATION TO SUCH CATEGORIES OF BAD OR DOUBTFUL DEBTS AS MAY BE PRESC RIBED HAVING REGARD TO THE GUIDELINES ISSUED BY THE RBI OR IN CASES OF PUBLIC COMPANIES, INCOME BAY WAY OF INTEREST IN RELATION TO SUCH CATEGORIES OF DEBTS AS MAY BE HAVING REGARD TO THE GUIDELINES ISSUED BY THE NATIONAL HOUSING BANK SHALL BE CHARGEABLE TO TAX IN THE PREVIOUS YEAR IN WHICH SUCH INCOME IS CREDIT ED BY THE AFORESAID PRESCRIBED ENTITIES TO THEIR PROFIT AND LOSS ACCOUN T OR IN THE YEAR WHEN IT IS ACTUALLY RECEIVED, WHICHEVER IS EARLIER. THE ASSES SING OFFICER NOTED THAT ASSESSEE WAS NOT AN ENTITY PRESCRIBED IN SECTION 43 D OF THE ACT AND THEREFORE THE ASSESSEE HAVING FOLLOWED THE MERCANTILE SYSTEM OF ACCOUNTING DID NOT HAVE THE OPTION OF ACCOUNTING FOR INTEREST INCOME R ELATING TO NPAS ADVANCES ON RECEIPT BASIS. THEREFORE, ACCORDING TO THE ASSE SSING OFFICER, INTEREST ON NPAS ACCRUED TO THE ASSESSEE AND ACCORDINGLY, HE BR OUGHT TO TAX SUCH INTEREST INCOME OF RS.12,91,511/-. 4. THE LEARNED CIT(A) DISAGREED WITH THE ASSESSING OFFICER, AND THUS THE REVENUE IS IN APPEAL BEFORE US. AT THE TIME OF HEA RING, IT WAS A COMMON POINT ITA NO.2354/PN/2012 A.Y. 2009-10 BETWEEN THE PARTIES THAT AN IDENTICAL CONTROVERSY H AS BEEN CONSIDERED BY THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. THE OMERGA JANTA SAHAKARI BANK LTD. DATED 31.10.2013. THE DETAILED DISCUSSION IN THE CASE OF THE OMERGA JANTA SAHAKARI BANK LTD. (SUPRA) IS REPR ODUCED AS UNDER :- 5. APART FROM THE AFORESAID, THE CITA(A) HAS RELIE D UPON THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE C ASE OF WESTERN MAHARASHTRA DEVELOPMENT CORPORATION LTD. VS. DCIT, (2008) 114 TTJ 54 (PUNE) AND ALSO THE JUDGEMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF M/S VASISTH CHAY VYAPAR LTD., 330 ITR 440 (DEL) TO HOLD THAT INTEREST INCOME ON NPAS WAS NOT TAXABLE ON ACCRUED BASIS. THE CIT( A) HAS ALSO REFERRED TO AND RELIED UPON THE DECISION OF THE PUNE BENCH OF T HE TRIBUNAL IN THE CASE OF OSMANABAD JANTA SAH. BANK LTD. VS. ACIT, ITA NO.795 /PN/2011 DATED 31.08.2012 WHEREIN FOLLOWING THE DECISION OF THE VI SAKHAPATNAM BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. THE DURGA COOPERAT IVE URBAN BANK LTD. IN ITA NO. 511/VIZAG/2010 DATED 10.03.2011 ON A SIMILA R CONTROVERSY, IT HAS BEEN HELD THAT INTEREST INCOME RELATABLE TO NPAS IS NOT TAXABLE ON ACCRUAL BASIS. 6. FOR ALL THE ABOVE REASONS, THE CIT(A) DELETED TH E ADDITION OF RS.19,24,030/- MADE BY THE ASSESSING OFFICER. AGAI NST THE AFORESAID DECISION, REVENUE IS IN APPEAL BEFORE US. 7. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATI VE HAS PLACED RELIANCE ON THE JUDGEMENT OF THE HONBLE SUP REME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. VS. ACIT, (2010) 320 ITR 577 (SC) SUBMITTED THAT THE INCOME ON NPAS IS LIABLE TO BE TAXED IN TERMS O F THE MERCANTILE SYSTEM OF ACCOUNTING ADOPTED BY THE ASSESSEE AND THAT THE TAX ABILITY OF SUCH INCOME WOULD NOT BE GOVERNED BY THE PRUDENTIAL NORMS PRESC RIBED BY RBI BECAUSE RBI GUIDELINES CANNOT OVERRIDE THE PROVISIONS OF TH E ACT. ACCORDINGLY, IT WAS CONTENDED THAT INTEREST INCOME RELATABLE TO NPAS WA S RIGHTLY ASSESSED BY THE ASSESSING OFFICER AND IT WAS CONTENDED THAT THE ORD ER OF THE CIT(A) AND ALSO THE PRECEDENTS NOTED BY THE CIT(A) IN HIS ORDER. T HE LEARNED COUNSEL ALSO POINTED OUT THAT THEREIN SO FAR AS THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) R ELIED UPON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE, THE SAME HAS BEEN DIST INGUISHED BY THE CIT(A) FOLLOWING THE JUDGEMENT OF THE HONBLE DELHI HIGH C OURT IN THE CASE OF M/S VASISTH CHAY VYAPAR LTD. (SUPRA). THE LEARNED COUN SEL HAS ALSO REFERRED TO THE PAPER BOOK TO POINT OUT THAT THOUGH THE ASSESSE E WAS NOT A SCHEDULED BANK YET IT WAS OPERATING UNDER A LICENSE GRANTED B Y RBI AND IT WAS BOUND AND GOVERNED BY THE PRUDENTIAL NORMS ISSUED BY RBI FOR INCOME RECOGNITION, ASSET CLASSIFICATION, PROVISIONING AND OTHER RELATE D MATTERS AND A COPY OF SUCH RBI CIRCULAR DATED 01.07.2008 PLACED AT PAGES 23 TO 42 OF THE PAPER BOOK. 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, 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 ITA NO.2354/PN/2012 A.Y. 2009-10 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. 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: ITA NO.2354/PN/2012 A.Y. 2009-10 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 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 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 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 ITA NO.2354/PN/2012 A.Y. 2009-10 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 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 ITA NO.2354/PN/2012 A.Y. 2009-10 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. 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 ITA NO.2354/PN/2012 A.Y. 2009-10 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. 5. FOLLOWING THE AFORESAID PRECEDENT IN THE CASE OF THE OMERGA JANTA SAHAKARI BANK LTD. (SUPRA) THE SAID GROUND OF APPEA L RAISED BY THE REVENUE IS DISMISSED. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH FEBRUARY, 2014. SD/- SD/- (SHAILENDRA KUMAR YADAV) (G . S. PANNU) JUDICIAL MEMBER ACCOUNT ANT MEMBER PUNE, DATED : 24 TH FEBRUARY, 2014 SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A), AURANGABAD; 4) THE CIT, AURANGABAD; 5) THE DR, B BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// SR. PRIVATE SECRETARY I.T.A.T., PUNE