The Mayani Urban Co Op. Bank Ltd., Sangli V. ITO, Ward-3, Satara

ITA 262/PUN/2013

• Counselvise Citation: 26224514 RSA 2013
• Duration Of Justice: 2 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 09-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 28-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B C MALAKAR
• Keywords: Capital asset; Opportunity of being heard; Question of law; Bad and doubtful debts
• Section: 143(3)

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 NO.262/PN/2013 (ASSESSMENT YEAR : 2009-10) THE MAYANI URBAN CO-OP. BANK LTD., A/P MAYANI, TAL. KHANAPUR, DIST. SANGLI. PAN : AAAAT7489H . APPELLANT VS. INCOME TAX OFFICER, WARD (3), SATARA. . RESPONDENT ASSESSEE BY : MR. NIKHIL PATHAK DEPARTMENT BY : MR. B. C. MALAKAR DATE OF HEARING : 09-02-2015 DATE OF PRONOUNCEMENT : 31-03-2015 ORDER PER G. S. PANNU, AM THE CAPTIONED APPEAL BY THE ASSESSEE IS DIRECTED AG AINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-III, PUNE DATED 09.11.2012 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 16.09.2011 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, ASSESSEE HAS RAISED THE FOLLOWIN G GROUNDS OF APPEAL :- 1] THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISA LLOWANCE OF RS.1,82,000/- MADE BY THE LEARNED A.O. IN RESPECT O F EXPENDITURE CLAIMED IN THE NATURE OF AMORTIZATION OF PREMIUM PA ID ON GOVT. SECURITIES CLASSIFIED AS 'HELD TO MATURITY' WITHOUT APPRECIATING THAT AS PER LAW, THE ADDITION IS NOT JUSTIFIED. 1.1] THE LEARNED CIT(A) ERRED IN HOLDING THAT - A. THE GOVT. SECURITIES CLASSIFIED BY THE ASSESSEE BANK AS 'HELD TO MATURITY' WERE IN THE NATURE OF CAPITAL ASSETS A ND HENCE, THE SAME HAD TO BE VALUED AT COST. B. THE PREMIUM PAID OVER AND ABOVE THE FACE VALUE O F THE SECURITIES AT THE TIME OF PURCHASE WAS TO BE INCLUD ED AS A PART ITA NO.262/PN/2013 OF THE COST OF SECURITIES AS THE SAID SECURITIES WE RE IN THE NATURE OF 'HELD TO MATURITY' SECURITIES. C. THE RBI GUIDELINES DO NOT OVERRIDE THE INCOME TA X ACT AND HENCE, THE TREATMENT GIVEN BY THE ASSESSEE IN THE F ORM OF AMORTIZATION OF PREMIUM PAID IN RESPECT OF GOVT. SE CURITIES, THOUGH IN LINE WITH THE RBI GUIDELINES IS NOT ALLOW ABLE UNDER THE INCOME TAX ACT. 1.2] THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED T HAT - A. ALL THE SECURITIES HELD BY A BANK ARE TO BE TREA TED AS STOCK IN TRADE FOR INCOME TAX PURPOSES AND HENCE, THE GOVT. SECURITIES HELD BY THE ASSESSEE BANK WERE IN THE NATURE OF STO CK IN TRADE AND NOT CAPITAL ASSETS. B. THE TREATMENT OF AMORTIZATION OF PREMIUM PAID OV ER AND ABOVE THE FACE VALUE AT THE TIME OF PURCHASE OVER THE PER IOD OF MATURITY WAS IN LINE WITH THE RBI GUIDELINES AND TH E ACCOUNTING METHOD CONSISTENTLY FOLLOWED BY THE ASSESSEE BANK A ND HENCE, THE SAME WAS JUSTIFIED. C. THE AMORTIZATION OF PREMIUM PAID IN RESPECT OF ' HTM' SECURITIES WAS AN ALLOWABLE DEDUCTION IN VIEW OF THE CBDT INST RUCTION NO.17 OF 2008 DATED 26.11.2008 AND HENCE, THE DISAL LOWANCE UPHELD BY THE LEARNED CIT(A) IS NOT JUSTIFIED. 1.3] WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE AS SESSEE SUBMITS THAT THE HTM SECURITIES WERE ALSO PART OF THE STOCK IN TRADE OF THE ASSESSEE BANK AND HENCE, THE SAID SECURITIES SHOULD HAVE BEE N VALUED AT COST OR MARKET PRICE WHICHEVER IS LESS AND THE RESULTANT LOSS TO THE ASSESSEE SHOULD HAVE BEEN ALLOWED. 2] THE LEARNED CIT(A) ERRED IN UPHOLDING THE ACTION OF THE LEARNED A.O. IN RESTRICTING THE DEDUCTION U/S 36(1)(VIIA) TO RS.54, 95,000/- AS AGAINST THE DEDUCTION OF RS.83,33,864/- CLAIMED BY THE ASSE SSEE BANK. 2.1] THE LEARNED CIT(A) ERRED IN HOLDING THAT - A. THE PROVISION ON STANDARD ASSETS OF RS.58,000/- MADE BY THE ASSESSEE BANK IN LINE WITH THE RBI GUIDELINES WAS N OT AN ALLOWABLE DEDUCTION U/S 36(1)(VIIA) ON THE GROUND T HAT THE SAID PROVISION WAS IN RESPECT OF FULLY RECOVERABLE ADVAN CES AND HENCE, IT WAS NOT IN THE NATURE OF PROVISION FOR BA D AND DOUBTFUL DEBTS AS CONTEMPLATED U/S 36(1)(VIIA) OF THE ACT. B. THE PROVISION ON OVERDUE INTEREST OF RS. 22,00,0 00/- MADE BY THE ASSESSEE BANK WAS NOT ALLOWABLE U/S 36(1)(VIIA) ON THE GROUND THAT THE SAID PROVISION WAS IN RESPECT OF OV ERDUE INTEREST, THE RECOVERY OF WHICH WAS NOT DOUBTFUL AN D HENCE, IT WAS NOT IN THE NATURE OF PROVISION FOR BAD AND DOUB TFUL DEBTS AS CONTEMPLATED U/S 36(1)(VIIA) OF THE ACT. C. THE PROVISION ON OVERDUE INTEREST OF RS. 22,00,0 00/- MADE BY THE ASSESSEE BANK WAS NOT ALLOWABLE U/S 36(1)(VIIA) ON THE GROUND THAT ONLY THE PROVISIONS IN RESPECT OF ADVAN CES MADE BY THE BANK ARE ALLOWABLE U/S 36(1)(VIIA) WHEREAS THE PROVISION FOR OVERDUE INTEREST WAS NOT COVERED UNDER THE PROVISIO NS OF 36(1)(VIIA) OF THE ACT. 2.2] THE LEARNED CIT(A) FAILED TO APPRECIATE THAT T HE DEDUCTION U/S 36(1)(VIIA) WAS ALLOWABLE TO THE ASSESSEE BANK IN R ESPECT OF THE ITA NO.262/PN/2013 PROVISION ON STANDARD ASSETS OF RS. 58,000/- AND PR OVISION OF RS.22,00,000/- ON ACCOUNT OF OVERDUE INTEREST AND H ENCE, THERE WAS NO REASON TO DISALLOW THE SAME. 2.3] THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED T HAT THE PROVISION ON OVERDUE INTEREST MADE BY THE ASSESSEE BANK WAS ALSO IN THE NATURE OF PROVISION FOR DOUBTFUL DEBTS AND HENCE, THE SAME WA S COVERED UNDER THE PROVISIONS OF SECTION 36(1)(VIIA) AND HENCE, TH E CLAIM OF THE ASSESSEE SHOULD HAVE BEEN ALLOWED. 3] WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE ASSE SSEE SUBMITS THAT IN CASE, THE CLAIM OF THE ASSESSEE IN RESPECT OF DEDUC TION U/S 36(1)(VIIA) IN RESPECT OF OVERDUE INTEREST IS NOT ACCEPTABLE, T HE ASSESSEE SUBMITS THAT THE INTEREST INCOME OF RS.22,00,000/- SHOULD N OT HAVE BEEN ASSESSED AS INCOME OF THE ASSESSEE 4] THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. 3. IN SO FAR AS THE GROUND OF APPEAL NOS.1 TO 1.3 A RE CONCERNED, THE SUBSTANTIVE ISSUE RELATES TO THE ACTION OF THE LOWE R AUTHORITIES IN MAKING A DISALLOWANCE OF RS.1,82,000/- IN RESPECT OF A DEDUC TION CLAIMED BY THE ASSESSEE ON ACCOUNT OF AMORTIZATION OF PREMIUM PAID ON GOVERNMENT SECURITIES CLASSIFIED AS HELD TO MATURITY (HTM). 4. ON THIS ASPECT, IT WAS A COMMON POINT BETWEEN TH E PARTIES THAT SIMILAR DISALLOWANCE WAS MADE BY THE INCOME-TAX AUTHORITIES IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2007-08, WHICH CAME UP BEFORE THE TRIBUNAL IN ITA NO.261/PN/2013 DATED 16.09.2014 WHEREIN THE DIS ALLOWANCE HAS BEEN DELETED. A COPY OF THE SAID ORDER HAS ALSO BEEN PL ACED ON RECORD. 5. FOLLOWING THE AFORESAID PRECEDENT, THE ORDER OF THE CIT(A) IS SET-ASIDE ON THIS ASPECT AND THE ASSESSING OFFICER IS DIRECTE D TO DELETE THE ADDITION OF RS.1,82,000/-. THUS, ASSESSEE SUCCEEDS ON GROUND O F APPEAL NOS.1 TO 1.3. 6. IN SO FAR AS THE GROUND OF APPEAL NOS.2 TO 2.3 A RE CONCERNED, THE SAME RELATES TO THE ACTION OF THE INCOME-TAX AUTHORITIES IN RESTRICTING THE DEDUCTION ITA NO.262/PN/2013 CLAIMED BY THE ASSESSEE U/S 36(1)(VIIA) OF THE ACT TO RS.54,95,000/- AS AGAINST RS.83,33,864/- CLAIMED BY THE ASSESSEE BANK. 7. AT THE TIME OF HEARING, THE LD. REPRESENTATIVE F OR THE ASSESSEE FURNISHED A WRITTEN COMMUNICATION OF THE ASSESSEE B ANK DATED 09.01.2015 STATING THAT THE ASSESSEE BANK DOES NOT WISH TO PRE SS THE GROUND OF APPEAL NOS.2 TO 2.3 RELATING TO DISALLOWANCE OF THE DEDUCT ION U/S 36(1)(VIIA) OF THE ACT AS CONFIRMED BY THE CIT(A). IN VIEW OF THE AFORESA ID, THE GROUND OF APPEAL NOS.2 TO 2.3 ARE DISMISSED AS NOT PRESSED. 8. THE ONLY GROUND REMAINING FOR CONSIDERATION IS G ROUND OF APPEAL NO.3 WHICH IS TO THE EFFECT THAT THE INTEREST INCOME OF RS.22,00,000/- ON NON PERFORMING ASSETS (IN SHORT NPAS) IS NOT ASSESSAB LE AS INCOME IN THE YEAR UNDER CONSIDERATION. IN THIS CONTEXT, BRIEF FACTS ARE THAT ASSESSEE IS A CO- OPERATIVE BANK CARRYING ON BANKING BUSINESS IN TERM S OF A LICENSE ISSUED BY THE RESERVE BANK OF INDIA (RBI). IN THE RETURN OF INCOME FILED, ASSESSEE CLAIMED DEDUCTION U/S 36(1)(VIIA) OF THE ACT ON ACC OUNT OF THE PROVISION FOR BAD AND DOUBTFUL DEBTS OF RS.83,33,864/-. THE ASSESSIN G OFFICER RESTRICTED THE DEDUCTION CLAIMED TO THE EXTENT OF RS.54,95,000/- I .E. TO THE EXTENT ASSESSEE HAD MADE A CORRESPONDING PROVISION FOR BAD AND DOUB TFUL DEBTS BY WAY OF A DEBIT TO THE PROFIT & LOSS ACCOUNT. ASSESSEE CARRI ED THE MATTER IN APPEAL BEFORE THE CIT(A) PROFESSING THAT THE PROVISION FOR OVERDUE INTEREST RS.22,00,000/- AND NPA PROVISION ON STANDARD ASSETS RS.58,000/- ALSO BE CONSIDERED AS PROVISION MADE IN THE ACCOUNT BOOKS W HICH WERE ELIGIBLE FOR CALCULATING THE ALLOWABLE DEDUCTION U/S 36(1)(VIIA) OF THE ACT. THIS ASPECT OF THE MATTER WAS ALSO DECIDED AGAINST THE ASSESSEE BY THE CIT(A) AND THE SAID ACTION OF THE CIT(A) HAS BEEN ACCEPTED BY THE ASSES SEE AS IT HAS NOT PRESSED GROUND OF APPEAL NOS.2 TO 2.3 BEFORE US. HOWEVER, AN ALTERNATE PLEA BY WAY OF GROUND OF APPEAL NO.3 HAS BEEN RAISED, WHEREBY A SSESSEE CONTENDS THAT ITA NO.262/PN/2013 THE INCOME WITH RESPECT TO THE INTEREST ON OVERDUE ADVANCES I.E. RS.22,00,000/- IS NOT ASSESSABLE ON ACCRUAL BASIS B UT IS LIABLE TO BE TAXED AS AND WHEN RECEIVED. THE CASE MADE OUT BY THE ASSESS EE IS THAT INTEREST ON NPAS CLASSIFIED AS PER RBI NORMS IS NOT ASSESSABLE ON ACCRUAL BASIS BUT IS LIABLE TO TAXED AS AND WHEN RECEIVED. THIS PLEA WA S NOT RAISED BEFORE THE LOWER AUTHORITIES BUT IT HAS BEEN RAISED FOR THE FI RST TIME BEFORE THE TRIBUNAL BY WAY OF GROUND OF APPEAL NO.3. 9. THE LD. REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE AFORESAID PLEA INVOLVES A POINT OF LAW ON WHICH THE RELEVANT FACTS ARE ALREADY AVAILABLE ON RECORD AND THEREFORE SUCH A PLEA IS ADMISSIBLE F OR ADJUDICATION FOLLOWING THE PARITY OF REASONING LAID DOWN BY THE HONBLE SUPREM E COURT IN THE CASE OF NATIONAL THERMAL POWER CO. LTD. VS. CIT, 229 ITR 38 3 (SC). APART THEREFROM, IT HAS ALSO BEEN POINTED OUT THAT AN IDENTICAL CONT ROVERSY HAS BEEN CONSIDERED BY THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF TH E SOLAPUR DISTRICT CENTRAL CO-OP. BANK LTD. VS. ACIT VIDE ITA NO.495/PN/2012 D ATED 29.09.2014 IN FAVOUR OF THE ASSESSEE. 10. THE AFORESAID FACTUAL MATRIX BROUGHT OUT BY THE LD. REPRESENTATIVE FOR THE ASSESSEE HAS NOT BEEN DISPUTED BY THE LD. DEPAR TMENTAL REPRESENTATIVE. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS. AT THE OU TSET, WE MAY NOTE THAT THE AFORESAID PLEA BEING RAISED BY THE ASSESSEE IS ESSENTIALLY A QUESTION OF LAW RELATING TO RECOGNITION OF INCOME ON ACCOUNT OF INTEREST ON NPAS CLASSIFIED AS PER RBI GUIDELINES. THE CONTROVERSY RELATING TO NON-RECOGNITION OF INCOME ON ACCRUAL BASIS RELATABLE TO NPAS IS NO LONGER RES-INTEGRA, AND THE SAME HAS ALREADY BEEN ADJUDICATED IN FAVOUR OF THE ASSESSEE BY THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. THE OMERGA JANTA S AHAKARI BANK LTD. VIDE ORDER DATED 31.10.2013 AND ALSO OTHER SUBSEQUENT DE CISIONS OF THE PUNE ITA NO.262/PN/2013 BENCH OF THE TRIBUNAL. APART THEREFROM, THE HONBL E BOMBAY HIGH COURT IN THE CASE OF CIT VS. M/S KEC HOLDINGS LIMITED VIDE INCOM E TAX APPEAL NO.221 OF 2012 DATED 11.06.2014 HAS ALSO APPROVED THE PROPOSI TION THAT THE INTEREST INCOME ON NPAS CLASSIFIED AS PER RBI NORMS IS NOT R ECOGNIZABLE ON ACCRUAL BASIS. IN THIS BACKGROUND, WE THEREFORE DEEM IT FI T AND PROPER TO ADMIT THE AFORESAID FRESH PLEA RAISED BY THE ASSESSEE FOR ADJ UDICATION AS IT IS RELEVANT TO DETERMINE THE APPROPRIATE TAX LIABILITY OF THE ASSE SSEE. IN COMING TO SUCH DECISION, WE ARE GUIDED BY THE PRINCIPLES LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF NATIONAL THERMAL POWER CO. LTD . (SUPRA). 12. THE PLEA OF THE ASSESSEE IS THAT THE INTEREST I NCOME OF RS.22,00,000/- WHICH HAS BEEN CREDITED IN THE PROFIT & LOSS ACCOUN T IS RELATABLE TO THE NPAS CLASSIFIED AS PER RBI NORMS. ACCORDING TO THE ASSE SSEE THOUGH SUCH INCOME HAS BEEN CREDITED IN THE PROFIT & LOSS ACCOUNT, IS NOT TO BE ASSESSED ON ACCRUAL BASIS INASMUCH AS ASSESSEE HAS DULY CREATED A PROVISION BY WAY OF EQUIVALENT DEBIT IN THE PROFIT & LOSS ACCOUNT. A S IMILAR SITUATION IN THE CASE OF A COOPERATIVE SOCIETY CARRYING ON BANKING BUSINESS UNDER A LICENSE ISSUED BY RBI WAS CONSIDERED BY THE PUNE BENCH OF THE TRIBUNA L IN THE CASE OF THE SOLAPUR DISTRICT CENTRAL CO-OP. BANK LTD. (SUPRA). THE RELEVANT DISCUSSION IN THE ORDER OF THE TRIBUNAL READS AS UNDER :- 11. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS. AS NOTED EARLIER, THE CRUX OF THE CONTROVERSY IS WITH REGARD TO ASSES SEES CLAIM THAT INCOME WITH RESPECT TO THE INTEREST ON NPAS CLASSIFIED AS PER R BI NORMS IS NOT ASSESSABLE ON ACCRUAL BASIS BUT IS LIABLE TO BE TAXED AS AND W HEN RECEIVED. AS PER THE REVENUE, IN THE PRESENT CASE, ASSESSEE HAS CREDITED GROSS INTEREST IN ITS PROFIT & LOSS ACCOUNT WHICH IS INCLUSIVE OF THE INT EREST RELATABLE TO THE NPAS, AND CREDITING OF SUCH INTEREST IN THE PROFIT & LOSS ACCOUNT SHOWS THAT ASSESSEE HAS PERCEIVED SUCH INCOME TO HAVE BEEN ACC RUED, BECAUSE ASSESSEE IS FOLLOWING THE MERCANTILE SYSTEM OF ACCO UNTING. 12. UNDISPUTEDLY, THE ASSESSEE BANK IS FOLLOWING TH E MERCANTILE SYSTEM OF ACCOUNTING. HOWEVER, WITH REGARD TO THE RECOGNITIO N OF INCOME ON NPAS, IT HAS APPLIED THE RBI GUIDELINES WHICH SAY THAT SUCH INCOME IS NOT TO BE RECOGNIZED ON ACCRUAL BASIS BUT IS TO BE RECOGNIZED AS INCOME ONLY WHEN IT IS ACTUALLY RECEIVED. THE RBI GUIDELINES ALSO PRESCRIB E THE MANNER IN WHICH THE INTEREST IN RELATION TO NPAS IS TO BE SHOWN IN THE ANNUAL FINANCIAL STATEMENTS. ITA NO.262/PN/2013 IN TERMS OF THE MASTER CIRCULAR ON INCOME RECOGNITI ON, ASSET CLASSIFICATION, PROVISIONING & OTHER RELATED MATTERS ISSUED BY THE RBI ON 4 TH JULY, 2004 IN CHAPTER 4 OF INCOME RECOGNITION IN PARA 4.5.1 IT IS ADVISED THAT THE ACCRUED INTEREST IN RELATION TO NPAS SHOULD BE COMPUTED AND SHOWN SEPARATELY, THOUGH NOT ACCOUNTED AS INCOME OF THE BANK FOR THE RELEVANT PERIOD. FURTHER, IN PARA 4.5.3, WITH A VIEW TO ENSURING UNIFORMITY I N ACCOUNTING THE ACCRUED INTEREST IN RESPECT OF BOTH THE PERFORMING AND NON- PERFORMING ASSETS, THE RBI GUIDELINES INTER-ALIA, PRESCRIBE THAT INTEREST ACCR UED IN RESPECT OF NPAS SHOULD NOT BE DEBITED TO BORROWAL ACCOUNTS BUT SHOWN SEPAR ATELY UNDER INTEREST RECEIVABLE ACCOUNT ON THE PROPERTY AND ASSETS SI DE OF THE BALANCE-SHEET AND CORRESPONDING AMOUNT SHOWN UNDER THE OVERDUE I NTEREST RESERVE ACCOUNT ON THE CAPITAL AND LIABILITIES SIDE OF T HE BALANCE-SHEET. IN-FACT, AS A PREFACE IN PARA 4.5.3 THE RBI HAS LAID DOWN THAT THE AFORESAID GUIDELINE BE ADOPTED NOTWITHSTANDING THE EXISTING PROVISIONS IN THE RESPECTIVE STATE CO- OPERATIVE SOCIETIES ACT. NOTABLY, THE BALANCE-SHEE T FORMAT PRESCRIBED UNDER THE THIRD SCHEDULE TO THE BANKING REGULATION ACT, 1 949 (AS APPLICABLE TO CO- OPERATIVE SOCIETIES) SPECIFICALLY REQUIRES THE BANK S TO SHOW OVERDUE INTEREST RESERVE AS A DISTINCT ITEM ON THE CAPITAL AND LIA BILITIES SIDE OF THE BALANCE- SHEET. THUS, IT IS EVIDENT THAT OVERDUE INTEREST R ESERVE ACCOUNT CANNOT BE REGARDED AS A RESERVE OR A PART OF THE OWNED FUND S OF THE BANK, AS IT IS NOT CREATED OUT OF THE REAL INCOME RECEIVED BY THE BANK . 13. AS A COMPLIANCE TO THE AFORESAID RBI GUIDELIN ES, WE FIND THAT THE ASSESSEE HAS NOT DEBITED THE INTEREST ON NPAS TO TH E ACCOUNTS OF THE RESPECTIVE BORROWALS BUT IT HAS BEEN SHOWN SEPARATE LY UNDER INTEREST RECEIVABLE ACCOUNT ON THE PROPERTY AND ASSETS SI DE OF THE BALANCE-SHEET. AND CORRESPONDING AMOUNT HAS BEEN SHOWN UNDER OVER DUE INTEREST RESERVE ACCOUNT ON THE CAPITAL AND LIABILITIES SIDE OF T HE BALANCE-SHEET. THUS, THE DEPICTION IN THE BALANCE-SHEET IS IN ADHERENCE TO T HE PRESCRIPTION CONTAINED IN THE BANKING REGULATION ACT, 1949 (AS APPLICABLE TO CO-OPERATIVE SOCIETIES), A STATUTE UNDER WHICH ASSESSEE IS BOUND TO CARRY OUT ITS BANKING BUSINESS. 14. NOW, WE MAY COME TO THE PLEA OF THE REVENUE WIT H REFERENCE TO THE DEPICTION OF IMPUGNED INTEREST ON NPAS IN THE PROFI T & LOSS ACCOUNT PREPARED BY THE ASSESSEE. AS HAS BEEN SUCCINCTLY NOTED BY U S IN THE EARLIER PARAS, ASSESSEE HAS CREDITED ITS PROFIT & LOSS ACCOUNT WIT H GROSS INTEREST WHICH, INTER-ALIA, INCLUDES THE IMPUGNED INTEREST ON NPAS. ON THE DEBIT SIDE, ASSESSEE HAS SHOWN THE IMPUGNED INTEREST ON NPAS UN DER THE HEADING INTEREST PAID AND SUB-HEADINGS OVERDUE INTEREST FROM SOCIETY LOANS AND OVERDUE INTEREST FROM INDIVIDUAL LOANS. THE ASSE SSEE IS A SOCIETY REGISTERED UNDER THE MAHARASHTRA CO-OPERATIVE SOCIETIES ACT, 1 960 AND IT IS ALSO GOVERNED BY THE MAHARASHTRA CO-OPERATIVE SOCIETIES RULES, 1961. SECTION 65 OF THE MAHARASHTRA SOCIETIES ACT, 1960 DEALS WITH A SCERTAINMENT AND APPROPRIATION OF PROFITS BY A SOCIETY. SUB-SECTION (1) OF SECTION 65 OF THE MAHARASHTRA CO-OPERATE SOCIETIES ACT, 1960 LAYS DOW N THAT A SOCIETY SHALL CONSTRUCT ITS RELEVANT ANNUAL FINANCIAL STATEMENTS TO ARRIVE AT ITS CONSEQUENT NET PROFIT OR LOSS IN THE MANNER PRESCRIBED. SUCH MANNER IN RELATION TO THE CALCULATION OF NET PROFITS HAS BEEN PRESCRIBED IN R ULE 49-A OF THE MAHARASHTRA CO-OPERATIVE SOCIETIES RULES, 1961. RULE 49-A PRES CRIBES THAT A SOCIETY SHALL CALCULATE THE NET PROFITS BY DEDUCTING FROM THE G ROSS PROFITS FOR THE YEAR THE ITEMS (I) TO (XVI) PRESCRIBED THEREIN. FOR OUR PUR POSE, IT WOULD SUFFICE TO EXAMINE ITEM (I) OF THE AMOUNTS DEDUCTIBLE, WHICH R EADS AS UNDER :- (I) ALL INTEREST ACCRUED AND ACCRUING ON AMOUNTS O F OVERDUE LOANS (EXCEPT IN OVERDUE AMOUNTS OF LOANS AGAINST FIXED D EPOSIT, GOLD, ETC. ITA NO.262/PN/2013 15. THE AFORESAID WOULD SHOW THAT WHILE CONSTRUCTIN G ITS PROFIT & LOSS ACCOUNT TO ARRIVE AT ITS NET PROFIT OR LOSS, A CO-O PERATIVE SOCIETY IS REQUIRED TO SHOW INTEREST ACCRUED/ACCRUING ON AMOUNTS OF OVERDU E LOANS SEPARATELY. THIS IS PRECISELY WHAT HAS BEEN DONE BY THE ASSESSE E IN THE PRESENT CASE. THE AFORESAID REQUIREMENT OF THE MANNER OF CONSTRUC TION OF PROFIT & LOSS ACCOUNT, PRESCRIBED UNDER THE RULES OF THE MAHARASH TRA CO-OPERATIVE SOCIETIES ACT, 1960, HAS PROMPTED THE ASSESSEE TO D RAW UP ITS PROFIT & LOSS ACCOUNT IN THE MANNER WE HAVE NOTED ABOVE QUA THE I NTEREST ON NPAS. THEREFORE, IT CANNOT BE ACCEPTED THAT THE MANNER OR PRESENTATION OF ACCOUNT WHICH OSTENSIBLY IS IN COMPLIANCE WITH THE STATUTOR Y PROVISIONS GOVERNING THE ASSESSEE, CAN BE A FACTOR TO EVALUATE ASSESSABILITY OR OTHERWISE OF AN INCOME. IN OUR CONSIDERED OPINION, IT WOULD INAPPROPRIATE T O BE MERELY GUIDED BY A PRESENTATION IN THE ANNUAL FINANCIAL STATEMENTS TO INFER ASSESSEES PERCEPTION THAT AN INCOME HAD ACCRUED, WITHOUT CONSIDERING THE ENTRIES MADE IN THE FINANCIAL STATEMENTS IN TOTO. IN THE PRESENT CASE, IT IS QUITE CLEAR THAT ASSESSEE HAS DRAWN UP ITS ANNUAL FINANCIAL STATEMENT IN COMP LIANCE WITH THE REQUIREMENTS OF THE STATUTES UNDER WHICH IT FUNCTIO NS AND/OR IS INCORPORATED. THEREFORE, THE ISSUE WITH REGARD TO NON-RECOGNITION OF INCOME ON NPAS IS REQUIRED TO BE ADJUDICATED HAVING REGARD TO THE REL EVANT LEGAL POSITION AND NOT ON THE BASIS OF THE PRESENTATION IN THE ANNUAL FINA NCIAL STATEMENTS. AT THIS STAGE, WE MAY ALSO REFER TO THE JUDGEMENT OF THE HO NBLE SUPREME COURT IN THE CASE OF CIT VS. SHOORJI VALLABHDAS & CO., (1962 ) 46 ITR 144 (SC) FOR THE PROPOSITION THAT A MERE BOOK KEEPING ENTRY CANNOT B E ASSESSED AS INCOME UNLESS IT CAN BE SHOWN THAT INCOME HAS ACTUALLY RES ULTED. IN THE PRESENT CASE, THE CREDITING OF GROSS INTEREST IN THE PROFIT & LOS S ACCOUNT, WHICH INCLUDES INTEREST ON NPAS CANNOT BE TAKEN AS A PROOF THAT SU CH INCOME HAS ACCRUED TO THE ASSESSEE UNLESS THE STATUTORY GUIDELINES APPLIC ABLE ON THE SAID SUBJECT ARE IGNORED. OBVIOUSLY, WHEN THE BANKING INSTITUTI ONS FOLLOWING MERCANTILE SYSTEM ACCOUNTING ARE PERMITTED TO TREAT THE INCOME ON NPAS AS ASSESSABLE ON RECEIPT BASIS, SUCH A POSITION CANNOT BE IGNORED IN THE CASE OF PRESENT ASSESSEE MERELY BECAUSE OF A PRESENTATION IN THE AN NUAL FINANCIAL STATEMENTS. EVEN OTHERWISE, WE NOTICE THAT THE RBI GUIDELINES P ERMIT THAT INTEREST INCOME ON NPAS BE PARKED IN A SUSPENSE ACCOUNT AND IT IS N OT NECESSARY THAT IT HAS TO BE BROUGHT TO THE PROFIT & LOSS ACCOUNT BY THE A SSESSEE. HOWEVER, IN THE PRESENT CASE, AS SEEN EARLIER, ASSESSEE HAS CREDITE D THE GROSS AMOUNT OF INTEREST ON CREDIT SIDE OF THE PROFIT & LOSS ACCOUN T AND SIMULTANEOUSLY SHOWN ON THE DEBIT SIDE OF THE PROFIT & LOSS ACCOUNT, THE AMOUNT OF INTEREST ON NPAS. IN OTHER WORDS, INSTEAD OF NETTING OF THE INTEREST THE TWO AMOUNTS HAVE BEEN SHOWN SEPARATELY ONE ON THE CREDIT SIDE AND OTHER O N THE DEBIT SIDE. THE NET EFFECT OF THE SAID PRESENTATION IS THE SAME. THERE FORE, IN OUR VIEW, THE LOWER AUTHORITIES HAVE MISGUIDED THEMSELVES IN REJECTING THE CLAIM OF THE ASSESSEE FOR NON-RECOGNITION OF INTEREST INCOME ON NPAS. 16. IN VIEW OF THE AFORESAID, WE SET-ASIDE THE ORDE R OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS. 47,01,85,366/-. THUS, ON GROUNDS OF APPEAL NO.1 AND 2 ASSESSEE SUCCEEDS. TH E GROUND OF APPEAL NO.3 IS ONLY AN ALTERNATIVE GROUND RAISED, IN CASE ASSESSEE DOES NOT SUCCEED ON GROUNDS OF APPEAL NO.1 AND 2. SINCE ASS ESSEE HAS SUCCEEDED ON GROUNDS OF APPEAL NO.1 AND 2, GROUND OF APPEAL N O.3 IS DISMISSED AS INFRUCTUOUS. 13. THE LD. REPRESENTATIVE FOR THE ASSESSEE HAS REL IED UPON THE AFORESAID PRECEDENT TO SAY THAT A SUM OF RS.22,00,000/- IS NO T ASSESSABLE AS INCOME OF ITA NO.262/PN/2013 THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION AS IT IS RELATABLE TO INTEREST ON NPAS CLASSIFIED AS PER RBI NORMS. IN-PRINCIPLE, WE FIND NO REASON TO REPUDIATE THE PLEA RAISED BY THE ASSESSEE WHICH IS SUPPORTED BY THE AFORESAID PRECEDENT. SO HOWEVER, WE FIND THAT THE SAID PLEA WAS NOT RAISED BEFORE THE LOWER AUTHORITIES AT ANY STAGE AND THEREFORE THERE WAS NO OCCASION FOR THE INCOME-TAX AUTHORITIES TO VERIFY SUCH A CLAIM. THE REFORE, WE DEEM IT FIT AND PROPER TO RESTORE THE MATTER BACK TO THE FILE OF TH E ASSESSING OFFICER WHO SHALL VERIFY THE CLAIM OF THE ASSESSEE IN THE LIGHT OF TH E DECISION OF THE TRIBUNAL IN THE CASE OF THE SOLAPUR DISTRICT CENTRAL CO-OP. BAN K LTD. (SUPRA). NEEDLESS TO SAY, THE ASSESSING OFFICER SHALL ALLOW THE ASSES SEE A REASONABLE OPPORTUNITY OF BEING HEARD AND THEREAFTER PASS AN O RDER IN LINE WITH THE DECISION OF THE TRIBUNAL IN THE CASE OF THE SOLAPUR DISTRICT CENTRAL CO-OP. BANK LTD. (SUPRA). THUS, ON THIS ASPECT, ASSESSEE SUCCEEDS FOR STATISTICAL PURPOSES. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED ON 31 ST MARCH, 2015. SD/- SD/- (SUSHMA CHOWLA) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 31 ST MARCH, 2015. SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-III, PUNE; 4) THE CIT-III, PUNE; 5) THE DR B BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE