DCIT,Circle-, Parwanoo V. The Jogindra Central Co-Operative Bank Ltd., Solan

ITA 290/CHANDI/2020

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 3221 (ITAT-CHANDIGARH)
• Duration Of Justice: 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2016-2017
• Appeal Filed On: 30-06-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VISHAL DAHIYA
• Keywords: Bad and doubtful debts
• Section: 145; 37; 154; 2; 143(3); 43D; 13; 119; 20

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH B, CHANDIGARH !'#, $ !% ', ' ' ( ) * +, !% BEFORE: SMT.DIVA SINGH, JUDICAL MEMBER AND SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER ./ ITA NO.290/CHD/2020 / ASSESSMENT YEAR : 2016-17 THE D.C.I.T., CIRCLE PARWANOO, THE JOGINDRA CENTRAL COOPERATIVE BANK LTD., RAJGARH ROAD, SOLAN, DISTT. SOLAN (HP) ./PAN NO: AAAAJ8590P /APPELLANT /RESPONDENT /ASSESSEE BY : SHRI VISHAL MOHAN, ADV. ! / REVENUE BY : SHRI VISHAL DAHIYA, CIT /DATE OF HEARING : 31.05.2021 /DATE OF PRONOUNCEMENT: 08.06. 2021 (HEARING THROUGH WEBEX) /ORDER PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER : THE ABOVE APPEAL HAS BEEN PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF IN COME TAX (APPEALS ) [IN SHORT THE LD.CIT(A)] , SHIMLA DATED 20.02.2020 RELATING TO ASSESSMENT YEAR 2016-17, PA SSED ITA NO.290 /CHD/2020 A.Y. 2016-17 PAGE 2 OF 18 U/S 250(6)) OF THE INCOME TAX ACT, 1961 (HEREINAFTE R REFERRED TO AS ACT. 2. THE SOLITARY ISSUE IN THE PRESENT APPEAL RELATE S TO ADDITION MADE OF INTEREST ON STICKY LOANS/NPAS AMOU NTING TO RS.3,29,01,484/- WHICH STOOD DELETED IN FIRST AP PEAL BY THE LD.CIT(A) FOLLOWING THE DECISION OF THE COORDIN ATE BENCH OF ITAT CHANDIGARH BENCH ON IDENTICAL ISSUE. THE F ACTS IN BRIEF, ARE THAT THE ASSESSEE IS A COOPERATIVE BANK ENGAGED IN BANKING ACTIVITIES AND COVERED UNDER NON-SCHEDULED BANK AS DEFINED IN BANKING REGULATION ACT, 1949. THE ASSESS EE IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. FOR THE IMPUGNED YEAR THE ASSESSEE HAD FILED ITS RETURN OF INCOME DECLARING INCOME OF RS.6,83,55,320/-. IN THE ASSESS MENT FRAMED U/S 143(3) OF THE ACT AN ADDITION WAS MADE T O THE TOTAL INCOME OF INTEREST ACCRUED ON NPAS/STICKY LO ANS, AMOUNTING TO RS.3,2,91,484/- WHICH HAD NOT BEEN ACCOUNTED FOR BY THE ASSESSEE IN ITS PROFIT & LOSS ACCOUNT FOR THE YEAR. THE ASSESSEE HAD CONTENDED BEFORE THE AO THAT THIS INTEREST HAD NOT BEEN SHOWN FOLLOWING RBI GUID ELINES, WHICH CLAIM WAS DISMISSED BY THE AO STATING THAT SI NCE THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNT ING THE INTEREST INCOME ON NPAS NEEDED TO BE INCLUDED IN IT S TOTAL INCOME. ITA NO.290 /CHD/2020 A.Y. 2016-17 PAGE 3 OF 18 3. THE MATTER WAS CARRIED IN APPEAL BEFORE THE CIT( A), WHO ON NOTING THAT IDENTICAL ISSUE HAD BEEN DECIDED BY THE ITAT CHANDIGARH BENCH IN THE CASE OF KANGRA CENTRAL COOPERATIVE BANK LTD., DHARAMSHALA IN ITA NO.323 & 324/CHD/2016 DATED 09.01.2018, IN FAVOUR OF THE ASS ESSEE, DELETED THE ADDITION MADE BY THE AO. THE RELEVANT F INDINGS OF THE LD.CIT(A) AT PARA 5.2 OF HIS ORDER ARE AS UN DER: 5.2 GROUND NO. 2 & 3: ARE INTER RELATED AND HENCE T AKEN UP TOGETHER. THE FACTS OF THE CASE, THE ORDER OF TH E A.O. UNDER APPEAL AND THE SUBMISSION OF THE APPELLANT HA VE BEEN PERUSED. A SIMILAR ISSUE HAS BEEN DECIDED BY T HE ITAT IN ITA NOS 323 & 324/CHD/2016 DATED 09.01.2018 IN T HE CASE OF THE KANGRA CENTRAL COOPERATIVE BANK LTD. CI VIL LINES DHARAMSHALA AND HELD AS UNDER- BOTH THE CAPTIONED APPEALS RELATE TO THE SAME ASSES SES AND HAVE BEEN FILED BY THE REVENUE AGAINST SEPARATE ORD ERS OF THE LD. COMMISSIONER OF INCOME TAX(APPEALS), PA!AMP UR (HEREINAFTER REFERRED TO AS 'C!T(APPEALS) DATED 23. 12.2015. IT WAS COMMON GROUND BETWEEN BOTH THE PARTIES THAT THE ISSUE INVOLVED IN BOTH THE APPEALS WAS COMMON. THEY WERE THEREFORE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY WAY OF THIS COMMON ORDER. THE SOLE ISSUE IN THE PRESENT APPEALS PERTAINS TO T HE TAXABILITY OF INTEREST ON LOANS CATEGORIZED AS NPA' S/STICKY LOANS WHETHER ON ACCRUALBASISASCONTENDED BY THE REVENUE OR ON RECEIPT BASIS AS CLAIMED BY THE ASSSE SSEE. BRIEF FACTS RELEVANT TO THE CASE ARE THAT THE ASSES SES IS A CO-OPERATIVE SOCIETY, HAVING OPERATIONS AS A NON SCHEDULED BANK. DURING ASSESSMENT PROCEEDINGS FOR T HE IMPUGNED ASSESSMENT YEARS, THE ASSESSING OFFICER NO TED THAT THE ASSESSES HAD SHOWN NON PERFORMING ASSETS (HEREINAFTER REFERRED TO AS NPA'S) ON WHICH NO INTE REST INCOME HAD BEEN CREDITED/RECOGNIZED, THOUGH THE ASS ESSES ITA NO.290 /CHD/2020 A.Y. 2016-17 PAGE 4 OF 18 WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. ON B EING CONFRONTED WITH THE SAME, THE ASSESSEE CONTENDED TH AT INTEREST ON NPA'S WAS BEING ACCOUNTED FOR ON RECEIP T BASIS CONSISTENTLY IN THE PAST A/SO FOLLOWING THE ACCOUNT ING STANDARD-9 RELATING TO REVENUE RECOGNITION PRESCRIB ED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, WH ICH REQUIRED INCOME TO BE RECOGNIZED ONLY ON BECOMING CERTAIN. IT WAS ALSO CONTENDED THAT THE METHOD FO LLOWED BY THE ASSESSEE WAS IN CONSONANCE WITH THE GUIDELINES ISSUED BY THE RESERVE BANK OF INDIA FROM TIME TO TIME. REL IANCE WAS ALSO PLACED ON VARIOUS COURTS' DECISIONS. THE ASSESSING OFFICER AFTER CONSIDERING THE ASSESSEE'S REPLY HELD THAT IT WAS REQUIRED TO ACCOUNT FOR INTEREST ON STICKY LOANS/NPA'S ON ACCRUAL BASIS SINCE IT FOLLOWED THE MERCANTILE SYSTEM OF ACCOUNTING. THE ASSESSING OFFI CER, THEREFORE, COMPUTED THE INTEREST ON THE NPA'S AND A DDED THE SAME TO THE INCOME OF THE ASSESSES. 5. THE MATTER WAS CARRIED IN APPEAL BEFORE THE ID. CIT (APPEALS) WHO ALLOWED THE ASSESSES 'S APPEALS FOLLOWING THE DECISION OF THE I.T.A.T, PUNE BENCH IN THE CASE OF ACIT VS USMANABAD JANTA SAHKARI BANK LTD. IN ITA NO. 795/PN/2011 DATED 31.08.2012 AND THE DECISION OF TH E I.T.A.T. CHANDIGARH BENCH IN THE CASE OF AC IT VS. PUNJAB STATE COOPERATIVE BANK LTD. [2013] 143 ITD 0571, HO LDING THAT THE PROVISIONS OF SECTION 43D OF THE INCOME TA X ACT, 1961 WHICH ALLOWED INTEREST ON BAD AND DOUBTFU L DEBTS AS PRESCRIBED IN THE GUIDELINES ISSUED BY THE RBI, TO BE ACCOUNTED FOR ON RECEIPT BASIS IN CASE OF PUBLIC FI NANCIAL INSTITUTIONS, PUBLIC COMPANIES ETC., TO BE APPLICAB LE IN THE CASE OF THE ASSESSEE ALSO AGGRIEVED BY THE SAME, THE REVENUE HAS COME UP IN APPEAL BEFORE US, RAISING T HE FOLLOWING IDENTICAL GROUND IN BOTH THE APPEA LS. '1. ON THE FACTS AND IN THE CIRCUMSTANCES, THE ID. CIT(A) HAS ERRED IN DELETING THE ADDITIONS OF RS.23,65.26,600/ - MADE BY THE AO ON ACCOUNT OF INTEREST INCOME NOT DECLARE D BY THE ASSESSEE ON NPA'S/STICKY LOANS ON ACCRUAL BASIS AS THE ASSESSES BANK HAS BEEN FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING REGULARLY. 7. DURING THE COURSE OF HEARING BEFORE US, ID. COUN SEL OF THE ASSESSEE AT THE OUTSET DREW OUR ATTENTION TO TH E FACT THAT THEI.T.A. 7', CHANDIGARH BENCH HAD DEALT WITH IDENTICAL ISSUE IN THE CASE OF THE DCIT VS. THE LUDHIANA CENT RAL CO-OP. BANK LTD., IN ITA NO 526/CHD/2013 DATED 03.01.2017,HOLDINGTHATINTEREST ON STICKY LOANS/NPA' S WAS ITA NO.290 /CHD/2020 A.Y. 2016-17 PAGE 5 OF 18 TO BE SUBJECTED TO TAX ON RECEIPT BASIS. COPY OF TH E SAID ORDER WAS PLACED BEFORE US. 8. THE ID. DR FAIRLY AGREED THAT THE ISSUE WAS COVE RED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT CHANDIGARH BENCH IN THE CASE OF LUDHIANA CENTRAL COOPERATIVE BANK LTD.(SUPRA). 9. IN VIEW OF THE ABOVE, WE FIND NO REASON TO INTERFER E IN THE ORDER OF THE ID. CIT(A). THE I.T.A.T. CHANDIGARH BE NCH HAS, WE FIND, IN THE CASE OF LUDHIANA CENTRAL CO-OP. BAN K LTD., (SUPRA),CATEGORICALLY HELD THAT IN THE CASE OF ASSE SSEES, BEING CO-OPERATIVE BANKS, THE INTEREST ON STICKY LO ANS/ NPA'S HAS TO BE BROUGHT TO TAX ON RECEIPT BASIS. TH E I.T.A.T., WHILE RENDERING THIS JUDGMENT, HAS NOTED THAT IN A NUMBER OF DECISIONS OF HIGH COURTS AND THE APEX COURT, IT HAS BEEN HELD THAT INTEREST ON STICKY LOANS IS TO BE ACCOUNT ED FOR ON RECEIPT BASIS FOLLOWING THE REAL INCOME THEORY', T HE PRESCRIBED ACCOUNTING STANDARD AS-9 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, THE RB I GUIDELINES RELATING TO ACCOUNTING FOR INTEREST ON N PA'S AND THE ACCOUNTING PRACTICE OF THE ASSESSEES.. FURTHER IT HAS TAKEN NOTE OF THE DECISION OF THE GUJARAT HIGH COUR T IN THE CASE OF PR. CIT-5 VS. SHRI MAHILA SEWA SAHKARI BANK LTD. WHICH HELD THAT SO FAR AS INCOME RECOGNITION W AS CONCERNED THE ASSESSING OFFICER HAD TO FOLLOW THE R BI DIRECTIONS, 1998, IN VIEW OF SECTION 4SQ OF THE RBI ACT, WHICH PROVIDED THAT THE POLICY OF INCOME RECOGNITIO N HAS TO BE OBJECTIVE AND BASED ON THE RECORD OF RECOVERY AN D THAT INCOME FROM NON PERFORMING ASSETS IS NOT TO BE RECOGNIZED ON ACCRUAL BASIS BUT ONLY WHEN IT IS ACT UALLY RECEIVED. FURTHER TAKING NOTE OF THE DECISION OF TH E HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. DE OGIRI NAGARI SAHAKARI BANK LTD. & OTHERS, 379 ITR 241, TH E I.T.A.T HELD THAT THE ISSUE OF TAXABILITY OF INTERE ST ON NPA'S WAS SETTLED IN FAVOUR OF THE ASSESSES AS BEIN G TAXABLE IN THE YEAR OF RECEIPT. THE RELEVANT FINDIN GS OF THE ITAT AT PARA 13-27 OF THE ORDER IS AS UNDER: ' 13. WE FIND THAT THE ISSUE OF ACCOUNTING FOR INTER EST ON STICKY LOANS/NPA'S, HAS BEEN DEALT WITH IN A NUM BER OF DECISIONS BOTH BY THE APEX COURT AND VARIOUS HIG H COURTS AND TRIBUNALS ALSO, WHEREIN AFTER APPLYING T HE 'REAL INCOME THEORY', THE PRESCRIBED ACCOUNTING STANDARD ISSUED BY ICAI ON REVENUE RECOGNITION, AS- 9, THE ACCOUNTING PRACTISE OF THE ASSEESSEE RELATING T O INTEREST ON STICKY LOANS AND THE RB! GUIDELINES REL ATING ITA NO.290 /CHD/2020 A.Y. 2016-17 PAGE 6 OF 18 TO ACCOUNTING FOR INTEREST ON NPA'S, IT WAS HELD TH AT SUCH INCOME WAS TAXABLE IN THE YEAR OF RECEIPT ONLY , WHEN ITS REALISATION BECOMES REASONABLY CERTAIN. 14. THE APEX COURT IN THE CASE OF UCO BANK, CALCUTT A VS. CIT, WEST BENGAL (1999) 4 SUPREME COURT CASES 599 APPROVED THE RECEIPT BASIS OF ACCOUNTING FOR IN TEREST ON LOANS WHOSE RECOVERY WAS DOUBTFUL, HOLDING THE SAME TO BE IN ACCORDANCE WITH ACCOUNTING PRACTICE A ND IN CONFORMITY WITH THE METHOD PRESCRIBED UNDER SECT ION 145 OF THE ACT. THE RELEVANT FINDINGS OF THE APEX C OURT ARE AS FOLLOWS : ' WE HAVE TO CONSIDER WHETHER INTEREST ON A LOAN WH OSE RECOVERY IS DOUBTFUL AND WHICH HAS NOT BEEN RECOVER ED BY THE ASSESSEE-BANK FOR THE LAST THREE YEARS BUT H AS BEEN KEPT IN A SUSPENSE ACCOUNT AND HAS NOT BEEN BROUGHT TO THE PROFIT AND LOSS ACCOUNT OF THE ASSES SEE, CAN BE INCLUDED IN THE INCOME OF THE ASSESSEE FOR T HE ASSESSMENT YEAR 1981-82. IT IS THE CASE OF THE ASSESSEE THAT IN RESPECT OF LOANS WHICH ARE ADVANCE D BY IT TO VARIOUS CUSTOMERS, RECOVERY OF SOME LOANS IS VERY DOUBTFUL. IT IS DOUBTFUL WHETHER EVEN THE INTE REST ON THE LOANS ADVANCED WILL BE RECOVERED FROM THE CUSTO MER, IN SUCH CASES, THE INTEREST CALCULATED ON THE LOAN AMO UNT IS CREDITED IN A SUSPENSE ACCOUNT. THIS AMOUNT IS NOT BROUGHT TO THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE-BANK BECAUSE THESE ARE AMOUNTS WHICH ARE NOT LIKELY TO BE REALIS ED BY THE BANK. HENCE THEY DO NOT FORM A PART OF THE REAL INC OME OF THE BANK. IF AND WHEN ANY SUCH AMOUNT OR A PART OFIT IS RECOVERED, IT IS INCLUDED IN THAT ASSESSMENT YEAR IN THE TOTAL INCOME OF THE ASSESSES FOR THE PURPOSE OF PAYMENT OF INCOME-TAX. THE METHOD OF ACCOUNTING WHICH IS FOLLOWED BY THE A SSESSEE- BANK IS MERCANTILE SYSTEM OF ACCOUNTING. HOWEVER, T HE ASSESSEE CONSIDERS INCOME BY WAY OF INTEREST PERTAI NING TO DOUBTFUL LOANS AS NOT REAL INCOME IN THE YEAR IN WH ICH IT ACCRUES, BUT ONLY WHEN IT IS REALISED A MIXED METHO D OF ACCOUNTING IS THUS FOLLOWED BY THE ASSESSEE-BANK. T HIS METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE IS IN ACCORDANCE WITH ACCOUNTING PRACTICE- IN SPICER AND PEGLER'S PRACTICAL AUDITING THE RELEVANT PASSAGE OCCURRING A T PAGE 186- 1B7 HAS BEEN REPRODUCED IN THE MINORITY JUDGMENT OF THIS COURT IN STATE BANK OF TRAVANCORE V. COMMISSIONER OF INCO ME-TAX, KERALA 1(1986) 158ITR102ATP.I2O]. IT IS AS FOLLOWS: 'WHERE INTEREST HAS NOT BEEN PAID IT IS SOMETIMES L EFT OUT OF ACCOUNT ALTOGETHER. THIS PREVENTS THE POSSIBILITY O F ITA NO.290 /CHD/2020 A.Y. 2016-17 PAGE 7 OF 18 IRRECOVERABLE INTEREST BEING CREDITED TO REVENUE, A ND DISTRIBUTED AS PROFIT. ON THE OTHER HAND THIS TREAT MENT DOES NOT RECORD THE ACTUAL STATE OF THE LOAN ACCOUNT, AN D IN THE CASE OF BANKS AND OTHER CONCERNS WHOSE BUSINESS IT IS TO ADVANCE MONEY IT IS USUAL TO FIND THE INTEREST IS REGULARLY CHARGED UP, BUT WHEN ITS RECOVERY IS DOUBTFUL, THE AMOUNT HEREO F IS EITHER FULLY PROVIDED AGAINST OR TAKEN TO THE CREDIT OF AN INTEREST SUSPENSE ACCOUNT AND CARRIED FORWARD AND NOT TREATE D AS PROFIT UNTIL ACTUALLY RECEIVED.' SIMILARLY, REFERRING TO INTEREST ON DOUBTFUL DEBTS, SHUKLA AND GREWAL ON ADVANCED ACCOUNTS, NINTH EDITION AT PAGE 1089 STATE AS FOLLOWS: 'INTEREST ON DOUBTFUL DEBTS SHOUL D BE DEBITED TO THE LOAN ACCOUNT CONCERNED BUT SHOULD NOT BE CRE DITED TO INTEREST ACCOUNT. INSTEAD IT SHOULD BE CREDITED TO INTEREST SUSPENSE ACCOUNT. TO THE EXTENT THE INTEREST IS REC EIVED IN CASH, THE INTEREST SUSPENSE ACCOUNT SHOULD BE TRANSFERRED TO INTEREST ACCOUNT; THE REMAINING AMOUNT SHOULD BE CLOSED BY T RANSFER TO THE LOAN ACCOUNT. THIS TREATMENT ACCORDS WITH THE P RINCIPLE THAT NO ITEM SHOULD BE TREATED AS INCOME UNLESS IT HAS B EEN RECEIVED OR THERE IS A REASONABLE CERTAINTY THAT IT WILL BE REALISED. (VIDE STATE BANK OF TRANVACORE V. CIT [SUPRA]) THE ASSESSEE'S METHOD OF ACCOUNTING, THEREFORE, TRANSFERRING: THE DOUBTFUL DEBT TO AN INTEREST SUSPENSE ACCOUNT AND NOT TREATING IT AS PROFIT UNTI L ACTUALLY RECEIVED, IS IN ACCORDANCE WITH ACCOUNTING PRACTICE. UNDER SECTION 145 OF THE INCOME-TAX ACT, 1961, INCO ME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUS INESS OR PROFESSION OR INCOME FROM OTHER SOURCES' SHALL B E COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTIN G REGULARLY EMPLOYED BY THE ASSESSEE; PROVIDED THAT I N A CASE WHERE THE ACCOUNTS ARE CORRECT AND COMPLETE BU T THE METHOD EMPLOYED IS SUCH THAT IN THE OPINION OF THE INCOME- TAX OFFICER, THE INCOME CANNOT PROPERLY BE DEDUCED THEREFROM, THE COMPUTATION SHALL BE MADE IN SUCH MANNER AND ON SUCH BASIS AS THE INCOME-FAX OFF ICER MAY DETERMINE. IN THE PRESENT CASE THE METHOD EMPLO YED IS ENTIRELY, FOR A PROPER DETERMINATION OF INCOME. ' (EMPHASIS SUPPLIED BY US) FURTHER THE APEX COURT ALSO REFERRED TO THE CBDT CIRCULAR DATED 9 TH OCTOBER 1984 STATING THAT INTEREST ON LOANS ON WHICH THERE HAS BEEN NO RECOVERY FOR 3 YEA RS ITA NO.290 /CHD/2020 A.Y. 2016-17 PAGE 8 OF 18 WILL BE SUBJECTED TO TAX ON RECEIPT BASIS, AND HELD AS FOLLOWS : 'THE QUESTION WHETHER INTEREST EARNED, ON WHAT HAVE COME TO BE KNOWN AS 'STICKY' LOANS, CAN BE CONSIDER ED AS INCOME OR NOT UNTIL ACTUAL REALIZATION, IS A QUE STION WHICH MAY ARISE BEFORE SEVERAL INCOME TAX OFFICERS EXERCISING JURISDICTION IN DIFFERENT, PARTS OF THE COUNTRY UNDER THE ACCOUNTING PRACTICE, INTEREST WHICH IS TRANSFERRED TO THE SUSPENSE ACCOUNT AND NOT BROUGHT TO THE PROFIT AND LOSS ACCOUNT OF THE COMPANY IS NOT T REATED AS INCOME. THE QUESTION WHETHER IN A GIVEN CASE SUC H 'ACCRUAL' OF INTEREST IS DOUBTFUL OR NOT. MAY ALSO BE PROBLEMATIC. IF, THEREFORE, THE BOARD HAS CONSIDERE D IT NECESSARY TO LAY DOWN A GENERAL TEST FOR DECIDING W HAT IS A DOUBTFUL DEBT, AND DIRECTED THAT ALL INCOME TA X OFFICERS SHOULD TREAT SUCH AMOUNTS AS NOT FORMING P ART OF THE INCOME OF THE ASSESSEE UNTIL REALIZED, THIS DIR ECTION BY WAY OF A CIRCULAR CANNOT BE CONSIDERED AS TRAVEL LING BEYOND THE POWERS OF THE BOARD UNDER SECTION 119 OF THE INCOME TAX ACT. SUCH A CIRCULAR IS BINDING UNDER SE CTION 119. THE CIRCULAR OF 9TH OF OCTOBER, 1984, THEREFOR E, PROVIDES A TEST FOR RECOGNISING WHETHER A CLAIM FOR INTEREST CAN BE TREATED AS A DOUBTFUL CLAIM UNLIKEL Y TO BE RECOVERED OR NOT. THE TEST PROVIDED BY THE SAID CIR CULAR IS TO SEE WHETHER, AT THE END OF THREE YEARS, THE AMOU NT OF INTEREST HAS IN FACT, BEEN RECOVERED BY THE BANK OR NOT. IF IT IS NOT RECOVERED FOR A PERIOD OF THREE YEARS, TH EN IN THE FOURTH YEAR AND ONWARDS THE CLAIM FOR INTEREST HAS TO BE TREATED AS A DOUBTFUL CLAIM WHICH NEED NOT BE INCLU DED IN THE INCOME OF THE ASSESSEE UNTIL IT IS ACTUALLY RECOVERED.' THIS VIEW WAS REAFFIRMED IN A LATER JUDGMENT BY THE APEX COURT IN MERCANTILE BANK LTD., VS. CIT, BOMBAY CITY-ILL (2006) 5 SSC 221. FURTHER THE ISSUE OF TAXABILITY OF INTEREST ON NPA ACCOUNTS ON RECEIPT BASIS BY COOPERATIVE BANKS HAS BEEN DEALT WITH BY VARIOUS HIGH COURTS, WHEREIN IT WAS HELD THAT THE ASSESSEE WAS BOUND BY RBI GUIDELINES TO ACCOUNT FOR SUCH INTEREST ON RECEIPT BASIS AND BY V IRTUE OF THE PROVISIONS OF SECTION 45Q OF THE RBI ACT, TH E RBJ GUIDELINES HAD AN OVERRIDING EFFECT OVER OTHER ACTS INCLUDING THE INCOME TAX ACT, 1961. THE GUJARAT HIGH COURT IN THE CASE OF PR.CIT-5 VS. SHRI MAHILA SEWA SAHAKARI BANK LTD. (TAX APPEAL NO.531 O F ITA NO.290 /CHD/2020 A.Y. 2016-17 PAGE 9 OF 18 2015 DATED 5.8.2016, RELYING UPON THE DECISION OF T HE APEX COURT IN SOUTHERN TECHNOLOGIES LIMITED VS JCIT , COIMBATORE, (2010) 320 ITR 577,HELD THAT SO FAR AS INCOME RECOGNITION WAS CONCERNED EVEN THE AO HAD TO FOLLOW THE RBI DIRECTIONS, 1998 IN VIEW OF SECTION 45Q OF THE RBI ACT AND SECTION 145 OF THE INCOME TAX ACT H AD NO ROLE TO PLAY IN THE SAME. THE HON'BLE COURT HELD AT PARA 20 TO 23 OF ITS ORDER AS FOLLOWS : SECTION 45Q FINDS PLACE IN CHAPTER IIIB OF THE RBI ACT. THUS, THE PROVISIONS OF CHAPTER IIIB OF THE RBI ACT HAVE AN OVERRIDING EFFECT QUA OTHER ENACTMENTS TO THE EX TENT THE SAME ARE INCONSISTENT WITH THE PROVISIONS CONTA INED THEREIN. IN ORDER TO REFLECT A BANK'S ACTUAL FINANC IAL HEALTH IN ITS BALANCE SHEET, THE RESERVE BANK HAS INTRODUCED PRUDENTIAL NORMS FOR INCOME RECOGNITION, ASSET CLASSIFICATION AND PROVISIONING FOR ADVANCES PORTFOLIO OF THE COOPERATIVE BANKS. THE GUIDELINES PROVIDED THEREUNDER ARE MANDATORY AND IT IS INCUMBE NT UPON ALL CO-OPERATIVE BANKS TO FOLLOW THE SAME. INS OFAR AS INCOME RECOGNITION IS CONCERNED, CLAUSE 4.1.1 OF THE CIRCULAR PROVIDES THAT THE POLICY OF INCOME RECOGNI TION HAS TO BE OBJECTIVE AND BASED ON THE RECORD OF RECO VERY INCOME FROM NON-PERFORMING ASSETS (NPA) IS NOT RECOGNISED ON ACCRUAL BASIS BUT IS BOOKED AS INCOME ONLY WHEN IT IS ACTUALLY RECEIVED. THEREFORE, BANKS SHOU LD NOT TAKE TO INCOME ACCOUNT INTEREST ON NON-PERFORMING A SSETS ON ACCRUAL BASIS. THUS, IN VIEW OF THE MANDATE OF T HE RBI GUIDELINES THE ASSESSEE CANNOT RECOGNISE INCOME FRO M NON-PERFORMING ASSETS ON ACCRUAL BASIS BUT CAN BOOK SUCH INCOME ONLY WHEN IT IS ACTUALLY RECEIVED. THUS , THIS IS A CASE WHERE AT THE THRESHOLD, THE ASSESSEE, IN VIE W OF THE RBI GUIDELINES, CANNOT RECOGNISE INCOME FROM NPA ON ACCRUAL BASIS. THIS IS, THEREFORE, A CASE PERTAININ G TO RECOGNITION OF INCOME AND NOT COMPUTATION OF THE IN COME OF THE ASSESSEE. THE SUPREME COURT IN SOUTHERN TECHNOLOGIES LIMITED (SUPRA) HAS HELD THAT THE 1998 DIRECTIONS ARE ONLY DISCLOSURE NORMS AND HAVE NOTHING TO DO WITH COMPUT ATION OF TOTAL INCOME UNDER THE IT ACT OR WITH THE ACCOUN TING TREATMENT. THE 1998 DIRECTIONS ONLY LAY DOWN THE MA NNER OF PRESENTATION OF NPA PROVISION IN THE BALANCE SHEET OF AN NBFC. THE COURT HAS REFERRED TO THE DEVIATIONS BETW EEN THE RBI DIRECTIONS AND THE COMPANIES ACT AS FOLLOWS : 42. BROADLY, THERE ARE THREE DEVIATIONS: ITA NO.290 /CHD/2020 A.Y. 2016-17 PAGE 10 OF 18 (I) IN THE MATTER OF PRESENTATION OF FINANCIAL STAT EMENTS UNDER SCHEDULE VI TO THE COMPANIES ACT; IN NOT RECOGNISING THE 'INCOME' UNDER THE MERCANTIL E SYSTEM OF ACCOUNTING AND ITS INSISTENCE TO FOLLOW C ASH SYSTEM WITH RESPECT TO ASSETS CLASSIFIED AS NPA AS PER ITS NORMS IN CREATING A PROVISION FOR ALL NPAS SUMMARILY AS A GAINST CREATING A PROVISION ONLY WHEN THE DEBT IS DOUBTFUL OF RECOVERY UNDER THE NORMS OF THE ACCOUNTING STANDARD S ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. THESE DEVIATIONS PREVAIL OVER CERTAIN PROVISIONS OF THE COMPANIES ACT, 1956 TO PROTECT THE DEPOSITORS IN TH E CONTEXT OF INCOME RECOGNITION AND PRESENTATION OF T HE ASSETS AND PROVISIONS CREATED AGAINST THEM. THUS, THE P&L ACCOUNT PREPARED BY NBFC IN TERMS OF THE RBI DIRECTIONS, 19 98 DOES NOT RECOGNISE 'INCOME FROM NPA' AND, THEREFORE, DIR ECTS A PROVISION TO BE MADE IN THAT REGARD AND HENCE AN 'A DD BACK'. IT IS IMPORTANT TO NOTE THAT 'ADD BACK' IS T HERE ONLY IN THE CASE OF PROVISIONS. [EMPHASIS SUPPLIED]' 22. THEREFORE, IN TERMS OF THE ABOVE DECISION, WHER E AN ASSESSEE MAKES PROVISION FOR NPA AND SEEKS DEDUCTIO N OF SUCH AMOUNT UNDER SECTION 36(1)(VII) OR SECTION 37 OF THE ACT, THEN IN THE COMPUTATION OF INCOME, THE RBI GUI DELINES WOULD HAVE NO ROLE TO PLAY, AND HENCE, AN ADD BACK. INSOFAR AS INCOME RECOGNITION IS CONCERNED, THE SUPREME COU RT HAS HELD THUS: 'APPLICABILITY OF SECTION 145 57 AT THE OUTSET, WE MAY STATE THAT IN ESSENCE THE RBI DIRECTIONS, 1998 ARE PRUDENTIAL/PROVISIONING NORMS ISSUED BY RBI UNDER CHAPTER LLL-B OF THE RBI ACT, 1934. TH ESE NORMS DEAL ESSENTIALLY WITH INCOME RECOGNITION. THE Y FORCE THE NBFCS TO DISCLOSE THE AMOUNT OF NPA IN THEIR FI NANCIAL ACCOUNTS. THEY FORCE THE NBFCS TO REFLECT 'TRUE AND CORRECT' PROFITS. BY VIRTUE OF SECTION 45-Q, AN OVERRIDING E FFECT IS GIVEN TO THE RBI DIRECTIONS, 1998 VIS-A-VIS 'INCOME RECOGNITION' PRINCIPLES IN THE COMPANIES ACT, 1956. THESE DIRECTIONS CONSTITUTE A CODE BY ITSELF. HOWEVER, TH ESE RBI DIRECTIONS, 1998 AND THE IT ACT OPERATE IN DIFFEREN T AREAS. THESE RBI DIRECTIONS, 1998 HAVE NOTHING TO D O WITH COMPUTATION OF TAXABLE INCOME. THESE DIRECTIONS CAN NOT OVERRULE THE 'PERMISSIBLE DEDUCTIONS' OR 'THEIR EXC LUSION' UNDER THE IT ACT THE INCONSISTENCY BETWEEN THESE DIRECTIO NS AND ITA NO.290 /CHD/2020 A.Y. 2016-17 PAGE 11 OF 18 THE COMPANIES ACT IS ONLY IN THE MATTER OF INCOME R ECOGNITION AND PRESENTATION OF FINANCIAL STATEMENTS. THE ACCOU NTING POLICIES ADOPTED BY AN NBFC CANNOT DETERMINE THE TA XABLE INCOME. IT IS WELL SETTLED THAT THE ACCOUNTING POLI CIES FOLLOWED BY A COMPANY CAN BE CHANGED UNLESS THE AO COMES TO THE CONCLUSION THAT SUCH CHANGE WOULD RESULT IN UNDERST ATEMENT OF PROFITS. HOWEVER, HERE IS THE CASE WHERE THE AO HAS TO FOLLOW THE RBI DIRECTIONS, 1998 IN VIEW OF SECTION 45-Q OF THE RBI ACT. HENCE, AS FAR AS INCOME RECOGNITION IS CONCERN ED, SECTION 145 OF THE IT ACT HAS NO ROLE TO PLAY IN THE PRESEN T DISPUTE.' THUS, INSOFAR AS INCOME RECOGNITION IS CONCERNED, T HE COURT HAS HELD THAT EVEN THE ASSESSING OFFICER HAS TO FOL LOW THE RBI DIRECTIONS, 1998 IN VIEW OF SECTION 45Q OF THE RBI ACT AND THAT AS FAR AS INCOME RECOGNITION IS CONCERNED, SEC TION 145 OF THE INCOME TAX ACT, HAS NOT ROLE TO PLAY. 23. IN THE LIGHT OF THE ABOVE DISCUSSION WHAT EMERG ES IS THAT WHILE DETERMINING THE TAX LIABILITY OF AN ASSESSEE, TWO FACTORS WOULD COME INTO PLAY. FIRSTLY, THE RECOGNITION OF I NCOME IN TERMS OF THE RECOGNISED ACCOUNTING PRINCIPLES AND A FTER SUCH INCOME IS RECOGNISED, THE COMPUTATION THEREOF, IN TERMS OF THE PROVISIONS OF THE INCOME TAX ACT, 1961 . INSOFAR AS THE COMPUTATION OF TAXABILITY IS CONCERN ED, THE SAME IS SOLELY GOVERNED BY THE PROVISIONS OF THE IN COME TAX ACT AND THE ACCOUNTING PRINCIPLES HAVE NO ROLE TO P LAY. HOWEVER, RECOGNITION OF INCOME STANDS ON A DIFFEREN T FOOTING. INSOFAR AS INCOME RECOGNITION IS CONCERNED, IT WOUL D BE THE RBI DIRECTIONS WHICH WOULD PREVAIL IN VIEW OF THE P ROVISIONS OF SECTION 45Q OF THE RBI ACT AND SECTION 145 WOULD HAVE NO ROLE TO PLAY HENCE, THE ASSESSING OFFICER HAS TO FO LLOW THE RBI DIRECTIONS. FURTHER RELYING UPON THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF CIT VS. VASISTH CHAY VYAPAR LTD. (20 11) 330 ITR 440, THE COURT HELD THAT THE AO HAS TO FOLL OW RBI DIRECTIONS ON REVENUE RECOGNITION, AND HELD AS FOLL OWS: '25. THE DISTINCTION DRAWN BY THE DELHI HIGH COURT IS THAT WHILE THE ACCOUNTING POLICIES OF ADOPTED BY THE NBFC CANN OT DETERMINE THE TAXABLE INCOME. HOWEVER, INSOFAR AS INCOME RECOGNIT ION IS CONCERNED, THE ASSESSING OFFICER HAS TO FOLLOW THE RBI DIRECTIONS, 1998 IN VIEW OF SECTION 45Q OF THE RBI ACT THAT INS OFAR AS INCOME RECOGNITION IS CONCERNED, SECTION 145 OF THE INCOME TAX ACT, 1961 HAS NO ROLE TO PLAY.' THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. DEOGIRI NAGARI SAHAKARII BANK LTD- & OTHERS, 3 79 ITR 241 ITA NO.290 /CHD/2020 A.Y. 2016-17 PAGE 12 OF 18 REITERATED THE ABOVE PROPOSITION BY HOLDING AT PARA 9 OF ITS ORDER AS FOLLOWS : '9. THE INCOME TAX APPELLATE TRIBUNAL HAS REFERRED THE CASE OF M/S. VASISTH CHAY VYAPAR LIMITED 330 ITR 440 (DELHI ). IN THIS CASE, THE REVENUE RELIED UPON THE DECISION OF THE H ON'BLE SUPREME IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. SUPRA. THE LEARNED INCOME TAX APPELLATE TRIBUNAL HA S REPRODUCED THE OBSERVATIONS MADE BY THE DELHI HIGH COURT WHILE REFERRING THE SAID CASE OF M/S SOUTHERN TECHNOLOGIES LIMITED SUPR A. THE ASSESSES HEREIN BEING A COOPERATIVE BANK ALSO GOVER NED BY THE RESERVE BANK OF INDIA AND THUS THE DIRECTIONS WITH REGARD TO THE PRUDENTIAL NORMS ISSUED BY THE RESERVE BANK OF INDI A ARE EQUALLY APPLICABLE TO THE CO-OPERATIVE BANKS. THE HON'BLE S UPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LIMITED SUPRA HELD THAT, PROVISIONS OF SECTION 45Q OF RESERVE BANK OF INDIA ACT HAS AN OVERRIDING EFFECT VIS-A-VIS INCOME RECOGNITION PRIN CIPLE UNDER THE COMPANIES ACT HENCE, SECTION 45Q OF THE RBI ACT SHA LL HAVE OVERRIDING EFFECT OVER THE INCOME RECOGNITION PRINC IPLE FOLLOWED BY COOPERATIVE BANKS. HENCE, THE ASSESSING OFFICER HAS TO FOLLOW THE RESERVE BANK OF INDIA DIRECTIONS 1998, AS HELD BY T HE HON 'BLE SUPREME COURT. ' FURTHER RELYING UPON THE DECISION OF THE APEX COURT IN THE CASE OF UCO BANK, CALCUTTA AND MERCANTILE BANK LTD. (SUPRA) IT ALLOWED THE ASSESSEE'S APPEAL. IT IS EVIDENT FROM THE ABOVE THAT THE ISSUE REGARDI NG TAXABILITY OF INTEREST ON NPA'S IS SETTLED IN FAVOU R OF THE ASSESSEE AS BEING TAXABLE IN THE YEAR OF RECEIPT. THE GRIEVANCE OF THE REVENUE THAT THE HON'BLE SUPRE ME COURT'S DECISION IN THE CASE OF STATE BANK OF TRAVA NCORE (SUPRA) APPLIES TO THE PRESENT CASE, WE FIND IS MIS PLACED, SINCE AS POINTED OUT ABOVE BY THE LD. COUNSEL OF TH E ASSESSEE, IT HAS BEEN OVERRULED BY THE APEX COURT I TSELF IN THE CASE OF UCO BANK LIMITED (SUPRA) WHEREIN IT WAS POINTED OUT BY THE APEX COURT THAT WHILE RENDERING THE JUDGMENT IN THE CASE OF STATE BANK OF TRAVANCORE (S UPRA), THE CIRCULAR DATED 9.10.1984 HAD NOT BEEN BROUGHT T O THE NOTICE OF THE COURT, NOR THE SUBSEQUENT DECISION OF THE APEX COURT IN THE CASE OF K.P.VARGHESE VS. ITO (1981) 13 1 ITR 597 (SC). THE RELEVANT EXTRACTS OF THE DECISION IN UCO BANK LIMITED ARE REPRODUCED HEREUNDER : 'THERE ARE, HOWEVER, TWO DECISIONS OF THIS COURT WH ICH HAVE BEEN STRONGLY RELIED UPON BY THE RESPONDENTS IN THE PRESENT ITA NO.290 /CHD/2020 A.Y. 2016-17 PAGE 13 OF 18 CASE. THE FIRST DECISION IS THE MAJORITY JUDGMENT I N THE STATE BANK OF TRAVANCORE V. COMMISSIONER OF INCOME- TAX, KERALA (1986 (158) ITR 102) DECIDED BY A BENCH OF T HREE JUDGES OF THIS COURT BY A MAJORITY OF TWO TO ONE. T HIS JUDGMENT DIRECTLY DEALS WITH INTEREST ON 'STICKY AD VANCES' WHICH HAVE BEEN DEBITED TO THE CUSTOMER BUT TAKEN T O THE INTEREST SUSPENSE ACCOUNT BY A BANKING COMPANY. THE MAJORITY JUDGMENT HAS REFERRED TO THE CIRCULAR OF 6 TH OF OCTOBER, 1952 AND ITS WITHDRAWAL BY THE SECOND CIRC ULAR OF 20TH OF JUNE, 1978. THE MAJORITY APPEARS TO HAVE PROCEEDED ON THE BASIS THAT BY THE SECOND CIRCULAR OF 20TH OF JUNE, 1978 THE CENTRAL BOARD HAD DIRECTED THAT I NTEREST IN THE SUSPENSE ACCOUNT ON ''STICKY' ADVANCES SHOUL D BE INCLUDIBLE IN THE TAXABLE INCOME OF THE ASSESSEE AN D ALL PENDING CASES SHOULD BE DISPOSED OF KEEPING THESE INSTRUCTIONS IN VIEW. THE SUBSEQUENT CIRCULAR OF 9T H OF OCTOBER, 1984 BY WHICH, FROM THE ASSESSMENT YEAR 19 79-80 THE BANKING COMPANIES WERE GIVEN THE BENEFIT OF THE CIRCULAR OF 9TH OF OCTOBER, 1984 DOES NOT APPEAR TO HAVE BEE N POINTED OUT TO THE COURT. WHAT WAS SUBMITTED BEFORE THE COURT WAS, THAT SINCE SUCH INTEREST HAD BEEN ALLOWE D TO BE EXEMPTED FOR MORE THAN HALF A CENTURY, THE PRACTICE HAD TRANSFORMED ITSELF INTO TAW AND THIS POSITION SHOUL D NOT HAVE BEEN DEVIATED FROM. NEGATIVING THIS CONTENTION , THE COURT SAID THAT THE QUESTION OF HOW FAR THE CONCEPT OF REAL INCOME ENTERS INTO THE QUESTION OF TAXABILITY IN TH E FACTS AND CIRCUMSTANCES OF THE CASE, AND HOW FAR AND TO WHAT EXTENT THE CONCEPT OF REAL INCOME SHOULD INTERMINGLE WITH THE ACCRUAL OF INCOME, WILL HAVE TO BE JUDGED 'IN THE L IGHT OF THE PROVISIONS OF THE ACT, THE PRINCIPLES OF ACCOUNTANC Y RECOGNISED AND FOLLOWED, AND FEASIBILITY'. THE COUR T SAID THAT THE EARLIER CIRCULARS BEING EXECUTIVE IN CHARA CTER CANNOT ALTER THE PROVISIONS OF THE ACT. THESE WERE IN THE NATURE OF CONCESSIONS WHICH COULD ALWAYS BE PROSPEC TIVELY WITHDRAWN. THE COURT ALSO OBSERVED THAT THE CIRCULA RS CANNOT DETRACT FROM THE ACT. THE DECISION OF THE CONSTITUTION BENCH OF THIS COURT IN NAVNITLAL C. JA VERI V. K.K. SEN (SUPRA), OR THE SUBSEQUENT DECISION IN K.P . VARGHESE V. INCOME TAX OFFICER (SUPRA) ALSO DO NOT APPEAR TO HAVE BEEN POINTED OUT TO THE COURT. SINCE THE LA TER CIRCULAR OF 9.10.1984 WAS NOT POINTED OUT TO THE CO URT:, THE COURT NATURALLY PROCEEDED ON THE ASSUMPTION THAT TH E BENEFIT GRANTED UNDER THE EARLIER CIRCULAR WAS NO L ONGER AVAILABLE TO THE ASSESSEE AND THOSE CIRCULARS COULD NOT BE RESORTED TO FOR THE PURPOSE OF OVERCOMING THE PROVI SIONS OF THE ACT. INTERESTINGLY, THE CONCURRING JUDGMENT OF THE SECOND JUDGE HAS NOT DEALT WITH THIS QUESTION AT AL L BUT ITA NO.290 /CHD/2020 A.Y. 2016-17 PAGE 14 OF 18 HAS DECIDED THE MATTER ON THE BASIS OF OTHER PROVIS IONS OF LAW.' THEREFORE, THE CONTENTION OF THE REVENUE THAT THE D ECISION IN THE CASE OF STATE BANK OF TRAVANCORE (SUPRA) APP LIES TO THE ASSESSEE'S CASE IS DISMISSED. THE ARGUMENT OF THE LEARNED D.R. THAT THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF VASISTH CHAY VYAPAR LTD. (SUPRA) WOULD NOT APPLY TO THE ASSESSEE'S CASE SINC E THE ASSESSEE IS A COOPERATIVE SOCIETY WHILE IN THE CASE OF VASISTH CHAY VYAPAR LTD. (SUPRA), THE ASSESSEE WAS A NBFC, IS ALSO DISMISSED SINCE THE PRINCIPLE ENUNCIA TED BY THE DELHI HIGH COURT IN VASISTH CHAY VYAPAR LTD. (S UPRA) HAS BEEN FOLLOWED IN THE CASE OF SHRI MAHILA SEWA SAHAKARI BANK LTD. (SUPRA) BY THE HON'BLE GUJARAT H IGH COURT AND VARIOUS OTHER DECISIONS CITED BY THE ASSE SSEE BEFORE US , AND THE ASSESSEE IN ALL THOSE CASES BEI NG A COOPERATIVE BANK, THE DECISION RENDERED THEREIN SQU ARELY APPLIES TO THE CASE OF THE ASSESSEE. THE ARGUMENT O F THE LEARNED D.R. THAT THE ASSESSEE IS FOLLOWING THE MER CANTILE SYSTEM OF ACCOUNTING IS ALSO DISMISSED SINCE THIS A SPECT HAS BEEN DEALT WITH BY VARIOUS HIGH COURTS REFERRED TO ABOVE WHEREIN THEY HAVE CATEGORICALLY HELD THAT EVE N FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING THE I NTEREST ON NPA CANNOT BE SAID TO HAVE ACCRUED IN THE YEAR S INCE THE RECOVERY OF THE SAME WAS IMPOSSIBLE AND EVEN OTHERWISE FOR THE PURPOSE OF INCOME RECOGNITION THE RB! DIRECTIONS, 1998, HAD TO BE FOLLOWED IN VIEW OF SEC TION 45Q OF THE RBI ACT. 27. IN THE LIGHT OF THE ABOVE DISCUSSION WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A),HOLDING THE INTEREST ON NPA 'S AS TAXABLE IN THE YEAR OF RECEIPT, SO AS TO WARRANT INTERFERENCE. 10. THE ISSUE INVOLVED IN THE PRESENT APPEALS BEING IDENTICAL TO THAT DECIDED BY THE I T.A.T. IN THE C ASE OF THE LUDHIANA CENTRAL CO-OP. BANK LTD.,(SUPRA), THE DECISION RENDERED THEREIN WOULD SQUARELY APPLY TO THE PRESENT CASES, FOLLOWING WHICH WE HOLD THAT THE INTEREST ON STICKY LOANS/NPA'S HAS TO BE TAXED ON RECEIPT BASIS. W E, THEREFORE, UPHOLD THE ORDER OF THE CIT(A) AND DISMISS THE GRO UND RAISED BY THE REVENUE. 11. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ITA NO.290 /CHD/2020 A.Y. 2016-17 PAGE 15 OF 18 4. AGGRIEVED BY THE SAME, THE REVENUE HAS COME UP I N APPEAL BEFORE US RAISING THE FOLLOWING GROUND: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) HAS ERRED IN DELETING AN ADDITION OF RS.3,29,01,484/- WHICH WAS SUBSEQUENTLY ENHANCED A T RS.4,22,04,069/- BY THE A.O. U/S 154 OF THE ACT BY HOLDING THAT INTEREST ON STICKY LOANS7NPAS IS TO BE TAXED ON RECEIPT BASIS WHEREAS THE ASSESSEE ITSELF HAS STATE D THAT IT IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTIN G. 2. IT IS PRAYED THAT THE ORDER OF THE LD CIT(A) BE SET -ASIDE AND THAT OF THE A.O. RESTORED. 3. THE APPELLANT CRAVES LEAVE TO ADD ANY OTHER GROUND OF APPEAL WHICH MAY ARISE AT THE TIME OF HEARING. 5. BEFORE US, THE LD. DR RELIED UPON THE ORDER OF T HE AO CONTENDING THAT THE INTEREST ON NPAS NEEDED TO BE I NCLUDED IN THE INCOME OF THE ASSESSEE SINCE THE SAME STOOD ACCRUED AND WAS THE INCOME OF THE ASSESSEE AS PER MERCANTIL E SYSTEM BEING FOLLOWED BY THE ASSESSEE. 6. THE LD.COUNSEL FOR THE ASSESSEE, ON THE OTHER HA ND, RELIED UPON THE ORDER OF THE LD.CIT(A). 7. WE HAVE HEARD BOTH THE PARTIES AND HAVE ALSO GON E THROUGH THE ORDER OF THE LD.CIT(A). WE HAVE NOTED T HAT THE LD.CIT(A) HAS DECIDED THE ISSUE IN FAVOUR OF THE AS SESSEE ON NOTING THAT IDENTICAL ISSUE HAD BEEN ADJUDICATED BY THE ITAT CHANDIGARH BENCH IN THE CASE OF KANGRA CENTRAL COOP ERATIVE ITA NO.290 /CHD/2020 A.Y. 2016-17 PAGE 16 OF 18 BANK LTD., DHARAMSHALA (SUPRA).WE HAVE GONE THROUGH THE SAID DECISION REPRODUCED IN THE ORDER OF THE LD.CIT (A) AND FIND THAT THE ISSUE IN THE SAID CASE WAS IDENTICAL RELATING TO ADDITION MADE OF INTEREST ON STICKY LOANS ON ACCRUA L BASIS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING . THE ITA T HAD HELD THE SAME TO BE TAXABLE ON RECEIPT BASIS FOLLOW ING ITS DECISION IN THE CASE OF LUDHIANA CENTRAL COOPERATIV E BANK LTD. IN ITA NO.526/CHD/2013,WHEREIN IT NOTED, THAT THE JUDGEMENT OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF PR.CIT-5 VS SHRI MAHILA SEWA SAHKARI BANK LTD AND T HE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS DEO GIRI NAGARI SAHAKARI BANK LTD & OTHERS 379 ITR 241 ,WAS FOLLOWED. THE LD. DR HAS BEEN UNABLE TO DISTINGUISH THE SAID CASE BEFORE US, NOR HAS HE BROUGHT TO OUR NOTICE ANY CON TRARY JUDGMENT OF ANY HON'BLE HIGH COURT OR THE HON'BLE A PEX COURT ON THE ISSUE. 8. IN VIEW OF THE SAME SINCE ADMITTEDLY THE ISSUE S TANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THE ITAT CHANDIGARH BENCH IN THE CASE OF KANGRA CENTRAL COOP ERATIVE BANK LTD., DHARAMSHALA (SUPRA) WE SEE NO R EASON TO ITA NO.290 /CHD/2020 A.Y. 2016-17 PAGE 17 OF 18 INTERFERE IN THE ORDER OF THE LD.CIT(A) WHO HAS DEL ETED THE ADDITION SO MADE FOLLOWING THE SAID DECISION . THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE, THEREFORE, DIS MISSED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. SD/- SD/- (DIVA SINGH) (ANNAP URNA GUPTA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER DATED: 08 TH JUNE, 2021 * * / COPY OF THE ORDER FORWARDED TO : / THE APPELLANT / THE RESPONDENT / CIT ( )/ THE CIT(A) , , +,-. / DR, ITAT, CHANDIGARH - / GUARD FILE / BY ORDER, / ASSISTANT REGISTRAR ITA NO.290 /CHD/2020 A.Y. 2016-17 PAGE 18 OF 18