ACIT-CIRCLE-7, Nagpur V. M/S ARVIND SAHAKARI BANK LTD, Nagpur

ITA 376/NAG/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1660 (ITAT-NAGPUR)
• Duration Of Justice: 1 year(s) 10 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 18-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R R KHANDELWAL
• Assessee Lawyers: NARENDRA KANE
• Keywords: Bad and doubtful debts
• Section: 145

Judgement Text

1 ITA NOS.376&377/NAG/2013 IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. I.T.A. NOS 376 & 377 /NAG/201 ASSESSMENT YEARS : 2009 - 10 & 2010 - 11. ASSTT. COMMISSIONER OF INCOME - TAX, ARVIND SAHAKARI BANK LTD., CIRCLE - 7, NAGPUR. VS. MAIN ROAD, KATOL. APPELLANT. RESPONDENT. APPELLANT BY : SHRI R.R. KHANDELWAL. RESPONDENT BY : SHRI NARENDRA KANE. DATE OF HEARING : 16 - 07 - 2015 DATE OF PRONOUNCEMENT : 16 TH SEPT. , 2015 O R D E R PER SHAMIM YAHYA, A.M. . THESE APPEALS BY THE REVENUE ARE DIRECTED AGAINST THE ORDER OF LEARNED CIT(APPEALS) - II, NAGPUR FOR ASSESSMENT YEARS 2009 - 10 AND 2010 - 11 RESPECTIVELY. SINCE THE ISSUES ARE COMMON, APPEALS WERE HEARD TOGETHER. THESE HAVE BEEN CONSOLIDATED AND DISPOSED OF BY THIS COMMON ORDER. 2 THE COMMON ISSUES RAISED ARE AS UNDER : 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) WAS RIGHT IN HOLDING THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION OF ` 2,12,523/ - FOR A.Y. 2009 - 10 AND ` 2,03,585/ - FOR A.Y. 2010 - 11 U/S 36(1)(VIIA) OF THE I.T. ACT, 1961? 2 ITA NOS.376&377/NAG/2013 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) WAS RIGHT IN HOLDING THAT ACCRUAL INTEREST OF ` 27,03,083/ - FOR A.Y. 2009 - 10 AND ` 45,87,193/ - FOR A.Y. 2010 - 11 IS NOT INCOME OF THE ASSESSEE? SINCE THE FACTS ARE ID ENTICAL, WE ADJUDICATE THE ISSUES WITH REFERENCE TO FACTS AND FIGURES OF ASSESSMENT YEAR 2009 - 10. 3. IN THIS CASE RETURN OF INCOME DECLARING INCOME OF RS. 59,69,115/ - WAS FILED ON 30 - 09 - 2009. THE APPELLANT IS A COOPERATIVE SOCIETY ENGAGED IN THE BUSINE SS OF BANKING ACTIVITY / COOPERATIVE BANK. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTED BY THE LD.AO THAT THE APPELLANT HAS MADE A CLAIM OF DEDUCTION AMOUNTING TO RS. 2,12,523/ - U/S 36(1)(VIIA) OF THE ACT. THE LD.AO ANALYZED THE PROVISIONS O F SECTION 36(1)(VIIA) AND STATED THAT SUCH DEDUCTION IS AVAILABLE EITHER TO A SCHEDULED BANK OR NON SCHEDULED BANK OR CERTAIN TYPES OF COOPERATIVE BANKS. HE FURTHER CONCLUDED THAT THE APPELLANT IS NOT EITHER A SCHEDULED BANK OR A COOPERATIVE BANK. HE EXA MINED THE CLAIM OF THE APPELLANT AND CAME TO THE CONCLUSION THAT THE APPELLANT IS NOT A NON - SCHEDULED BANK EITHER. IT IS STATED BY THE LD.AO THAT A NON SCHEDULED BANK AS EXPLANATION (I) TO SECTION 36(1)(VIIA) MEANS THAT IT IS A BANKING COMPANY AS DEFINED UNDER THE BANKING REGULATION ACT, 1949 WHICH REFERS TO ANY 'COMPANY' WHICH TRANSACTS THE BUSINESS OF BANKING IN INDIA. THE LD.AO FURTHER CONCLUDED THAT THE COMPANY HAS BEEN DEFINED IN SECTION 5( D) OF 1949 ACT TO MEAN ANY COMPANY AS DEFINED IN SECTION 3 OF THE COMPANIES ACT AND DOES NOT INCLUDE COOPERATIVE BANK IN THE DEFINITION OF COMPANY .. HE FURTHER NOTED THAT THE COOPERATIVE BANK IS NOT A COMPANY AND HENCE CANNOT BE A NON SCHEDULED BANK AND WOULD THEREFORE NOT ELIG IBLE FOR DEDUCTION U/S 36( L)(VIIA). IN VIEW OF THE SAME HE HELD THE APPELLANT TO BE NOT ELIGIBLE FOR DEDUCTION UNDER THE SAID SECTION AND THEREFORE ITS CLAIM OF RS. 2,12,523/ - WAS REJECTED. 4. IT WAS ALSO NOTED BY THE LD.AO THAT THE APPELLANT HAS NOT DECLARED / RECOGNIZED INTEREST ON ACCRUAL BASIS ON NPAS. HE CONSIDERED THE 3 ITA NOS.376&377/NAG/2013 SUBMISSION MADE BY THE APPELLANT AND CAME TO THE CONCLUSION THAT NEITHER RBI NORMS NOR THE ACCOUNTING STANDARDS STOP AC CRUAL INTEREST INCOME ON NPAS. HE BASED HIS FINDINGS ON THE JUDGMENT OF HON'BLE APEX COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. VS. JCIT WHEREIN IT WAS HELD THAT THE RBI DIRECTIONS ISSUED UNDER RBI ACT DO NOT OVER RIDE THE PROVISIONS OF INCOME TAX ACT AND THAT THE RBI DIRECTIONS AND THE INCOME TAX ACT OPERATING DIFFERENT FIELDS. HE FURTHER NOTED THAT THE FORM NO. 3CD OF TAX AUDIT REPORT SHOWED THAT THE METHOD OF ACCOUNTING FOLLOWED BY THE APPELLANT IS 'MERCANTILE' AND ALSO THAT THE TAX AUDIT RE PORT MENTIONS THAT INTEREST ON NPAS IS ACCOUNTED FOR ON CASH BASIS AND THAT THE TAX AUDIT REPORT IS BAD IN LAW TO THE EXTENT THAT HYBRID SYSTEM OF ACCOUNTING IS NOT PERMITTED IN VIEW OF THE PROVISIONS OF SECTION 145 OF THE ACT. IN VIEW OF THE SAME THE L D.AO ADDED AN AMOUNT OF RS. 27,03,083/ - AS INCOME OF THE APPELLANT BEING INTEREST ACCRUED ON NPAS. 5. UPON ASSESSEES APPEAL, AS REGARDS THE FIRST ISSUE AS TO WHETHER THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION U/S 36(1)(VIIA) THE LEARNED CIT(APPEALS) DE CIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER : I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE WRITTEN SUBMISSIONS OF THE APPELLANT. SECTION 5 OF THE BANKING REGULATION ACT 1949 RWS 56 OF THE SAID ACT MAKES IT VERY CLEAR THA T ALL COOPERATIVE BANKS UNDER THE DIRECT SUPERVISION AND REGISTRATION OF THE RBI ARE COMPANIES WITHIN THE MEANING OF SECTION 5(C) OF THE BANKING REGULATION ACT 1949. THE RBI DECIDES, AS TO WHETHER A CERTAIN BANK IS A SCHEDULED BANK OR NON SCHEDULEDDDDDDDDD DD BANK. IN CASE OF THE APPELLANT IT HAS BEEN DULY REGISTERED AND APPROVED BY RBI AS A NON - SCHEDULED BANK AND HAS BEEN SO NOTIFIED AS SUCH ALONGWITH SEVERAL OTHER BANKS. THE LIST OF SUCH NON SCHEDULED BANK IS AVAILABLE AT THE WEBSITE OF RBI, THE COPY OF WH ICH HAS BEEN FURNISHED BY THE APPELLANT DURING THE COURSE OF APPELLATE PROCEEDINGS. THERE IS MERIT IN THE SUBMISSION OF THE APPELLANT THAT EXPLANATION TO SECTION 36(1)(VIIA) OF THE ACT AT CLAUSE (I) LEAVES THE DEFINITION OF A NON - SCHEDULED BANK TO THE BANK ING REGULATION ACT AND A NON SCHEDULED BANK MEANS BANKING COMPANY AS DEFINED IN SECTION 5(C) OF THE BANKING REGULATION ACT. THUS IT IS CLEAR THAT ONCE A BANK HAS BEEN DECLARED AND NOTIFIED AS A NON SCHEDULED BANK UNDER THE BANKING REGULATION ACT BY THE RBI , IT IS ENTITLED TO DEDUCTION U/S 36(1)(VIIA) OF THE ACT. IN VIEW OF THE SAME IT IS HELD THAT THE APPELLANT WOULD BE ENTITLED TO CLAIM A DEDUCTION OF ` .2,12,523/ - U/S 36(1)(VIIA) OF THE ACT. 6. AS REGARDS THE SECOND ISSUE OF DISALLOWANCE OF ` .27,03,083 AS INCOME OF THE ASSESSEE BEING INTEREST ACCRUED ON NPAS, LEARNED CIT(APPEALS) CONSIDERED THE ORDERS OF ITAT, VISHAKHAPATNAM BENCH IN THE CASE OF CIT VS. DURGA CO - OPERATIVE URBAN BANK 4 ITA NOS.376&377/NAG/2013 (ITA NO. 511/VIZAG/2010) AND ALSO THE HONBLE DELHI HIGH COURT DECISION IN THE CASE OF VASISTH CHAY VYAPAR LTD. 330 CTR 440. CONSIDERING THE ABOVE, LEARNED CIT(APPEALS) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER : ON PERUSAL OF THE ABOVE JUDGMENT CLEARLY ESTABLISHES THAT THE FACTS OF THE CASE ARE IDEN TICAL TO THE CASE LAW QUOTED ABOVE. THE HONBLE TRIBUNAL HAS ALSO TAKEN INTO CONSIDERATION THE RATIO OF THE APEX COURT IN SOUTHERN TECHNOLOGIES LTD. AND THAT OF THE DELHI HIGH COURT IN THE CASE OF VASISTHAN CHAY VYAPAR LTD. (SUPRA) REPORTED IN 330 CTR 440 (DEL). RESPECTFULLY FOLLOWING THE ABOVE JUDICIAL PRONOUNCEMENTS, I HOLD THAT THE AO HAS NOT JUSTIFIED IN DISALLOWING ` .27,03,083/ - AS INCOME OF THE APPELLANT BEING INTEREST ACCRUED ON NPAS. THIS GROUND IS THEREFORE ALLOWED. 7. NOW AGAINST THE ABOVE ORDER , REVENUE IS IN APPEAL BEFORE US. 8. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. AS REGARDS THE FIRST ISSUE OF ELIGIBILITY OF THE ASSESSEE FOR DEDUCTION U/S 36(1)(VIIA) WE MAY FIRST GAINFULLY REFER TO PROVISIONS OF SECTION 36(1)(VIIA). THE SAME IS AS UNDER : [( VIIA ) IN RESPECT OF ANY PROVISION FOR BAD AND DOUBTFUL DEBTS MADE BY ( A ) A SCHEDULED BANK [NOT BEING A BANK INCORPORATED BY OR UNDER THE LAWS OF A COUNTRY OUTSIDE INDIA] OR A NON - SCHEDULED BANK 49 [OR A CO - OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CO - OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK], AN AMOUNT 50 [NOT EXCEEDING SEVEN AND ONE - HALF PER CENT] OF THE TOTAL INCOME (COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VIA) AND AN AMOUNT NOT EXCEEDING 51 [TEN] PER CENT OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF SUCH BANK COMPUTED IN THE PRESCRIBED MANNER : [ PROVIDED THAT A SCHEDULED BANK OR A NON - SCHEDULED BANK REFERRED TO IN THIS SUB - CLAUSE SHALL, AT ITS OPTION, BE ALLOWED IN ANY OF THE RELEVANT ASSES SMENT YEARS, DEDUCTION IN RESPECT OF ANY PROVISION MADE BY IT FOR ANY ASSETS CLASSIFIED BY THE RESERVE BANK OF INDIA AS DOUBTFUL ASSETS OR LOSS ASSETS IN ACCORDANCE WITH THE GUIDELINES ISSUED BY IT IN THIS BEHALF, FOR AN AMOUNT NOT EXCEEDING FIVE PER CENT OF THE AMOUNT OF SUCH ASSETS SHOWN IN THE BOOKS OF ACCOUNT OF THE BANK ON THE LAST DAY OF THE PREVIOUS YEAR:] [ PROVIDED FURTHER THAT FOR THE RELEVANT ASSESSMENT YEARS COM - MENCING ON OR AFTER THE 1ST DAY OF APRIL, 2003 AND ENDING BEFORE THE 1ST DAY OF APRI L, 2005, THE PROVISIONS OF THE FIRST PROVISO SHALL HAVE EFFECT AS IF FOR THE WORDS FIVE PER CENT, THE WORDS TEN PER CENT HAD BEEN SUBSTITUTED :] [ PROVIDED ALSO THAT A SCHEDULED BANK OR A NON - SCHEDULED BANK REFERRED TO IN THIS SUB - CLAUSE SHALL, AT ITS OPTION, BE ALLOWED A FURTHER DEDUCTION IN EXCESS OF THE LIMITS SPECIFIED IN THE FOREGOING PROVISIONS, FOR AN AMOUNT NOT EXCEEDING THE INCOME DERIVED FROM REDEMPTION OF SECURITIES IN ACCORDANCE WITH A SCHEME FRAMED BY THE CENTRAL GOVERNMENT: PROVIDED ALSO T HAT NO DEDUCTION SHALL BE ALLOWED UNDER THE THIRD PROVISO UNLESS SUCH INCOME HAS BEEN DISCLOSED IN THE RETURN OF INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. ] [EXPLANATION. FOR THE PURPOSES OF THIS SUB - CLAUSE, RELEVANT ASSESSMEN T YEARS MEANS THE FIVE CONSECUTIVE ASSESSMENT YEARS COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 2000 AND ENDING BEFORE THE 1ST DAY OF APRIL, 2005;] 5 ITA NOS.376&377/NAG/2013 9. IN THIS REGARD WE REFER HEREUNDER THE WRITTEN SUBMISSIONS OF THE LEARNED C OUNSEL OF THE ASSESSEE : SIR,PART V OF THE BANKING REGULATION ACT 1949 SPECIFICALLY PROVIDES FOR THE APPL I CABILIT Y OF THE BANKING RE GULATION ACT TO ALL CO - OPERATIVE BANKS AND I QUOTE : [PART V: APPLICATION OF THE ACT TO CO - OPERATIVE BANKS 56. ACT T O APPLY TO CO - OPERATI V E SOCIETIES SUBJECT TO MODIFICATIONS . - THE PROVISIONS O F T H I S ACT , AS IN FORCE FOR THE TIME BEING , SHALL APPLY TO , OR IN RELATION T O C OOPERATIVE SOCIETIES AS THEY APPL Y TO , OR IN RELATION TO BANKING COMPANIES, . SU BJECT TO THE FOLLOWING MOD IF ICAT I ONS , NAMELY: - (A) THROUGHOU T THI S ACT , UNLESS THE CONTE X T OTHER W ISE REQUIRES , - (I) REFERENCE TO A BANKING COMPANY OR THE COMPANY OR SUCH COMPANY SHALL BE CONSTRUED AS REFERENCES TO A CO - OPERATIVE BANK; 6 ITA NOS.376&377/NAG/2013 . (II) REFERENCE TO 'COMMENCEMENT OF THIS ACT' SHALL BE CONSTRUED AS REFERENCE TO CO M M E NCEMENT OF THE BANKING LAWS(APPLICATION TO CO - OPERATI V E SOCIETIES) ACT, 1 965 (23 OF 1965) ; (B) IN SE CTI ON 2 , THE WORDS AND FIGURES 'THE COMPANIES ACT , 1956 (1 O F 1956 ) AND' SH A L L B E OMITTED ; ( C ) IN SECTION 5 , - L[( I) A F TER CLAUSE ( CC ), THE FOLLO W ING C L AUSES SHALL BE INSERTED , NAMELY: - ETC: THUS THE ACT ITSELF MAKES IT SO CLEAR THAT THE WORDS 'BANKING COMPANY' REFERRED TO IN SECTION 5( D) OF THE ACT MEANS AND INCLUDES A CO - OPERATIVE BANK. I QUOTE SECTION 5 OF THE BANKING REGULATION ACT 1 949: 5. INTERPRETATION. - ,9 [LN THIS ACT] , UNLESS THERE IS ANYTHING REPUGNANT IN THE S UBJECT OR CONTEXT, - 10[(A) 'APPROVED SECURITIES' MEANS -- (I) SECURITIES IN WHICH A TRUSTEE MAY IN V EST MONEY UNDER CLAUSE (A) , CLAUSE (B), CLAUSE (BB), CLAUSE (C) OR CLAUSE ( D) OF SECTION 20 OF THE INDIAN TRUSTS ACT , 1882 (2 OF 1882 ); (II) SUCH OF THE SECURITIES AUTHORISED BY THE CENTRAL GOVERNMENT UNDER CLAUSE (F) OF SECTION 20 OF THE INDIAN TRUSTS ACT, 1882 (2 OF 1882), AS MAY BE PRESCRIBED; ] (B) 'BANKING' MEANS THE ACCEPTING, FOR THE PURPOSE OF LENDING OR INVESTMENT, OF DEPOSITS OF MONEY FROM THE PUBLIC, REPAYABLE ON DEMAND OR OTHERWISE, AND WITHDRAWAL BY CHEQUE, DRAFT , ORDER OR OTHERWISE; (C) 'BANKING COMPANY' MEANS ANY COM PANY WHICH TRANSACTS THE BUSINESS OF BANKING 11 [IN INDIA]; THUS SECTION 5 READ WITH SECTION 56 OF THE 1949 ACT ITSELF MAKES IT VERY CLEAR THAT ALL CO - OPERATIVE BANKS OPERATING UNDER THE DIRECT SUPERVISION AND REGISTRATION OF THE RBI ARE COMPANIES WITHIN THE MEANING OF SECTION 5(C) OF THE BANKING REGULATION ACT 1949. IT IS FURTHER RESPECTFULLY SUBMITTED THAT IT IS THE RESERVE BANK OF INDIA WHO IS THE FINAL ARBITER AS TO WHICH BANKS ARE SCHEDULED BANKS AND WH ICH ARE NON - SCHEDULE BANKS, (BOTH 7 ITA NOS.376&377/NAG/2013 FORMING PART OF ITS OWN SCHEDULES AND DULY NOTIFIED BY IT FROM TIME TO TIME) AND ONCE IT RECOGNISES A CO - OPERATIVE BANK AS A NON - SCHEDULED BANK AND SO NOTIFIES THE SAME, THE INCOME TAX DEPARTMENT CANNOT CHALLENGE THE AUTHORITY OF THE RBI OR ITS DIRECTIVES. FOR THE SAKE OF PROPRIETY IT IS FURTHER RESPECTFULLY ' SUBMITTED THAT THE APPELLANT BANK I . E ARVIND SAHAKARI BANK LIMITED, KATOL HAS BEEN DULY REGISTERED AND APPROVED BY THE RESERVE BANK OF INDIA AS A NON SCHEDULE D BANK AND HAS BEEN SO NOTIFIED AS SUCH ALONG WITH 2000 ODD OTHER SUCH BANKS IN INDIA. THE DETAILED LIST IS PUBLISHED BY THE RESERVE BANK OF INDIA ON ITS WEBSITE AND CAN BE SEEN AND VERIFIED BY ANYONE AT THE RESERVE BANK OF INDIA WEBSITE, AND I QUOTE T HE INTERNET LINK AS HTTP://RBIDOCS.RBI . ORG/RDOCS/CONTENT/PDFS/NONSCHEDULEDCOOP.PDF. THE DETAILED LIST IS BEING ATTACHED HERE WITH AS WELL, AS A PROOF OF THE APPELLANT BANK BEI NG RECOGNISED AND NOTIFIED AS A NON - SCHEDULED BANK. THUS IT IS RESPECTFULLY SUBMITTED THAT ONCE THE RESERVE BANK OF INDIA RECOGNISES AND NOTIFIES A CO - OPERATIVE BANK AS A NON SCHEDULED BANK, (IT BEING THE FINAL ARBITER IN THIS REGARD) THE LEARNED ASSE SSING OFFICER CANNOT CHALLENGE THE AUTHORITY OR THE JURISDICTION OF THE RESERVE BANK OF INDIA IN THIS CONNECTION. THE APPELLANT BANK FULFILLED ALL THE NECESSARY CONDITIONS OF THE APEX BANK, APPLIED FOR BEING REGISTERED AS A NON - SCHEDULED BANK, IT WAS DULY NOTIFIED AS A NON - SCHEDULED BANK AND HENCE BEING A NON - SCHEDULED BANK IT IS ENTITLED TO DEDUCTION U/S 36(1) (VIIA) OF THE INCOME TAX ACT . IT MAY BE FURTHER STATED THAT EXPLANATION TO SECT ION 36 (1) (VIIA) OF THE IT ACT AT CLAUSE (I) LEAVES THE DEFINITION OF A NON - SCHEDULED BANK TO THE BANKING REGULATION ACT AND I QUOTE' NON - SCHEDULED BANK' MEANS BANKING COMPANY AS DEFINED IN CLAUSE (C) OF SECTION 5 OF THE BANKING REGULATION ACT 1949. IT NECESSARILY FOLLOWS THAT ONCE A BANK HAS BEEN DECLARED AND NOTIFIED AS A NON SCHEDULED BANK UNDER THE BANKING REGULATION ACT 1949 BY THE RESERVE BANK OF INDIA, IT IS ENTITLED TO DEDUCTION U/S 36(1) (VIIA) OF THE SAID IT ACT . . THE PRESENT APPELLANT BE ING DULY NOTIFIED AS A NON - SCHEDULED BANK BY THE RESERVE BANK OF INDIA IS THEREFORE ENTITLED TO DEDUCTION U/S 36 (1) . (VIIA) OF THE ACT. IT IS THEREFORE RESPECTFULLY PRAYED THAT THE ADDITION MADE ON THIS GROUND BY THE LEARNED ASSESSING OFFICER ON THE GR OUNDS THAT THE APPELLANT BANK IS NOT A NON - SCHEDULED BANK, MAY KINDLY BE DELETED. 8 ITA NOS.376&377/NAG/2013 10. UPON CAREFUL CONSIDERATION W E NOTE THAT THE AO HAS MADE THE DISALLOWANCE U/S 36(1)(VIIA) BY HOLDING THAT THE ASSESSEE BANK IS NEITHER A SCHEDULED BANK NOR A NON SCHEDULE BANK NOR A COOPERATIVE BANK. NOW FROM THE FINDING OF THE LEARNED CIT(APPEALS) ABOVE AND THE SUBMISSION OF THE LEARNED COUNSEL OF THE ASSESSEE IT TRANSPIRES THAT A CONJOIN ED READING OF THE BANKING REGULATION ACT AND THE COMPANIES ACT MAKES IT CLEAR THAT ALL COOPERATIVE BANKS OPERATING UNDER THE DIRECT SUPERVISION AND REGISTRATION OF RBI ARE COMPANIES WITHIN THE MEANING OF SECTION 5(C) OF THE BANKING REGULATION ACT, 1949. TH E ASSESSEE BANK I.E. ARVIND SAHAKARI BANK LTD., KATOL HAS BEEN DULY REGISTERED AND APPROVED BY THE RESERVE BANK OF INDIA AND HAS BEEN SO NOTIFIED AS PER THE LIST SUBMITTED BY THE LEARNED COUNSEL OF THE ASSESSEE. THIS IS A LIST PUBLISHED BY RESERVE BANK OF INDIA ON ITS WEBSITE. THIS HAS NOT BEEN DOUBTED AS TO ITS VERACITY. THUS WE AGREE WITH THE LEARNED COUNSEL OF THE ASSESSEE THAT ONCE THE RESERVE BANK OF INDIA RECOGNIZES AND NOTIFIES A COOPERATIVE BANK AS A NON SCHEDULED BANK, THE REVENUE CANNOT CONTEND OT HERWISE. ADMITTEDLY UPON FULFILLING ALL THE NECESSARY CONDITIONS OF THE RBI, THE ASSESSEE BANK HAS BEEN DULY NOTIFIED AS A NON SCHEDULE BANK AND HENCE BEING A NON SCHEDULE BANK IT IS ENTITLED TO DEDUCTION U/S 36(1)(VIIA) OF THE I.T. ACT. ACCORDINGLY WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LEARNED CIT(APPEALS). HENCE WE UPHOLD THE SAME. 10. AS REGARDS THE SECOND ISSUE, THE INTEREST ACCRUED OF NON PERFORMING ASSETS OF THE BANK, THE AO HAS OPINED THAT THE SAME IS TAXABLE ON ACCRUAL BASIS. IN THIS REGARD T HE AO FURTHER PLACED RELIANCE ON THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. 320 ITR 577. UPON ASSESSEES APPEAL, LEARNED CIT (APPEALS) REFERRED TO THE 9 ITA NOS.376&377/NAG/2013 ITAT VISHAKHAPATNAM BENCH DECISION IN THE CASE OF CIT VS. DURGA URBAN COOPERATIVE BANK LTD. (SUPRA) WHICH READ AS UNDER : 9. THE HON'BLE SUPREME COURT IN THE CASE OF M/S SOUTHERN TECHNOLOGIES LTD (SUPRA) DISSECTED THE MATTER INTO TWO PARTS VIZ., A) INCOME RECOGNITION AND B) PERMISSIBLE DEDUCTION/EXCLUSIO NS 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 TO FOLLOW RESERVE BANK OF INDIA DIRECTIONS 1998, SINCE B Y VIRTUE OF 45Q OF THE RESERVE BANK OF INDIA ACT, AN OVERRIDING EFFECT IS GIVEN TO THE DIRECTIONS OF RESERVE BANK OF INDIA VIS - A - 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 SUCH DEDUCTIONS SHALL BE GOVERNED BY THE PROVISIONS OF THE INCOME TAX ACT. THE RELEVANT OBSERVATIONS OF THE HON'BLE SUPREME COURT ARE EXTRACTED BELOW: 'APPLICABILITY OF SECTION 145 40. AT THE OUTSET, WE MAY STATE THAT IN ESSENCE RBI DIRECTIONS 1998 ARE PRUDENTIAL/PROVISIONING NORMS ISSUED BY RBI UNDER CHAPTER ' IJIB OF THE RBI ACT, 1934. THESE NORMS DEAL ESSENTIALLY WITH IN COME RECOGNITION. THEY FORCE THE NBFCS TO DISCLOSE THE AMOUNT OF NPA IN THEIR FINANCIAL ACCOUNTS. THEY FORCE THE NBFCSTO REFLECT 'TRUE AND CORRECT' PROFITS. BY VIRTUE OF SECTION 45Q, AN OVERRIDING EFFECT IS GIVEN TO THE DIRECTIONS 1998 VIS - A - VIS 'INC OME RECOGNITION' PRINCIPLES 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 HAVE NOTHING TO DO WITH COMPUTATION OF TAXABLE INCOME. THESE DIRECTIONS CANNOT OVERRULE THE 'PERMISSIBLE DEDUCTIONS' OR 'THEIR EXCLUSION' UNDER THE IT ACT . THE INCONSISTENCY BETWEEN THESE DIRECTIONS AND COMPANIES ACT IS ONLY IN THE MATTER OF INCOME RECOGNITION AND PRESENTATION OF FINANCIAL STATEMENTS. TH E ACCOUNTING POLICIES ADOPTED BY AN NBFC 10 ITA NOS.376&377/NAG/2013 CANNOT DETERMINE THE TAXABLE INCOME. IT IS WELL SETTLED 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 FOLLOW THE RESERVE BANK OF INDIA DIRECTIONS 1998 IN VIEW OF SECTION 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 BANK OF . INDIE. HENCE THE DIRECTIONS WITH REGARD TO THE PRUDENTI AL NORMS ISSUED BY THE RESERVE BANK OF INDIA ARE EQUALLY APPLICABLE TO THE ASSESSEE AS IT IS APPLICABLE TO THE COMPANIES REGISTERED UNDER THE COMPANIES ACT. THE HON 'BLE SUPREME COURT HAS HELD IN THE CASE OF SOUTHERN TECHNOLOGIES LTD (SUPRA), THAT THE PROVISION OF 45Q OF RESERVE BANK OF INDIA ACT HAS AN OVERRIDING EFFECT VIS - A - VIS INCOME RECOGNITION PRINCIPLE UNDER THE COMPANIES ACT. HENCE SEC . 45 Q OF THE RBI ACT SHALL HAVE OVERRIDING EFFECT OVER THE INCOME RECOGNITION PRINCIPLE FOLLOWED BY COOPERA TIVE 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 HEREIN DID NOT ADMIT THE INTEREST RELATABLE TO NPA ADVANCES IN ITS TOTAL INCOME. THE HON'BLE DELHI HIGH COURT IN THE CASE OF VASISTHCHAYVYAPAR LTD (SUPRA) HAS HELD THAT THE INTERESTON NPA ASSETS CANNOT BE SAID TO HAVE ACCRUED TO THE ASSESSEE. IN THIS REGARD, THE FOLLOWING OBSERVATIONS OF HON'BLE DELHI HIGH COURT IN THE ABOVE CITED CASE ARE RELEVANT: 'WHAT TO TALK OF INTEREST, EVEN THE PRINCIPLE AMOUNT ITSELF HAD BECOME DOUBTFUL TO RECOVER. IN THIS SCENARIO IT WAS LEGITIMATE MOVE TO INFER THAT INTEREST INCOME THEREUPON HAS NOT 'ACCRUED'. THE SAID DECISION OF T HE HON 'BLE DELHI HIGH COURT IS EQUALLY APPLICABLE TO THE ISSUE IN OUR HANDS. ACCORDINGLY WE DO NOT FIND 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 ASSESSEE. ACCORDINGLY WE UPHOLD HIS ORDER. 11 ITA NOS.376&377/NAG/2013 11. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISSED. 11. CONSIDERING THE ABOVE, LEARNED CIT(APPEALS) HELD AS UNDER : ON PERUSAL OF THE ABOVE JUDGMENT CLEARLY ESTABLISHES THAT THE FACTS OF THE CASE ARE IDENTICAL TO THE CASE LAW QUOTED ABOVE. THE HONBLE TRIBUNAL HAS ALSO TAKEN INTO CONSIDERATION THE RATIO OF THE APEX COURT IN SOUTHERS TECHNOLOGIES LTD., AND THAT OF THE DE LHI HIGH COURT IN THE CASE OF VASISTHA CHAY VYAPAR LTD. (SUPRA) REPORTED IN 330 CTR 440 (DEL.) RESPECTFULLY FOLLOWING THE ABOVE JUDICIAL PRONOUNCEMENTS, I HOLD THAT THE AO HAS NOT JUSTIFIED IN DISALLOWING ` 27,03,083/ - AS INCOME OF THE APPELLANT BEING INT EREST ACCRUED ON NPAS. THIS GROUND IS THEREFORE ALLOWED. AGAINST THE ABOVE ORDER, REVENUE IS IN APPEAL BEFORE US. 12. HAVING HEARD BOTH THE COUNSEL AND PERUSING THE RECORD, WE FIND THAT THE RATIO FROM THE ABOVE TRIBUNAL DECISION IS CLEARLY APPLICABLE ON THE FACTS OF THIS CASE. . WE FURTHER NOTE THAT HONBLE DELHI HIGH COURT IN SIMILAR CASE HAS DULY EXPOUNDED THAT THE A SSESSEE IS CORRECT IN NOT RECOGNIZING INTEREST ACCRUED ON THE NPA. THE RATIO HAS BEEN FOLLOWED BY THE TRIBUNAL IN THE ORDER AS ABOVE. WE FURTHER NOTE THAT SIMILAR VIEW WAS TAKEN BY HONBLE JURISDICTION HIGH COURT IN THE CASE OF CIT V/S M/S. DEOGIRI NAG ARI SAHAKARI BANK LTD., ITA NO.53 OF 2014, JUDGMENT DATED 22 ND JANUARY 2015. SINCE THE FACTS ARE IDENTICAL, RESPECTFULLY FOLLOWING THE PRECEDENTS, WE HOLD THAT INTEREST ON NPA HAD NOT ACCRUED TO THE ASSESSEE. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN T HE ORDER OF LEARNED CIT(APPEALS). ACCORDINGLY WE UPHOLD THE SAME. 1 3 . IN THE RESULT, THE APPEALS FILED BY THE REVENUE STAND DISMISSED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 16 TH DAY OF SEPT. 2015. SD/ SD/ (MUKUL K. SHRAWAT) ( SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER. NAGPUR, DATED: 16 TH SEPT. 2015. 12 ITA NOS.376&377/NAG/2013 COPY OF ORDER FORWARDED TO : 1. THE ASSESSEE. 2. REVENUE. 3. THE CIT(A) 4. THE CIT, NAGPUR. 5. THE D.R., ITAT, NAGPUR. 6. GUARD FILE. TRUE COPY. BY ORDER WAKODE ASSISTANT REGISTRAR, ITAT, NAGPUR