Ratnagiri Dist. Central Co-Op. Bank Ltd., Kolhapur V. ACIT, Ratnagiri Circle, Ratnagiri

ITA 386/PUN/2012

• Counselvise Citation: 38624514 RSA 2012
• Duration Of Justice: 2 year(s) 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 18-12-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 27-02-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VERMA
• Assessee Lawyers: SUSHANT S PHADNIS
• Keywords: Business expenditure; Question of law; Bad and doubtful debts; Condonation of delay; Revenue expenditure
• Section: 143(3); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.386/PN/2012 (ASSESSMENT YEAR: 2005-06) RATNAGIRI DISTRICT CENTRAL CO-OPERATIVE BANK LTD., SAHAKAR BHAVAN, JAWAHAR PATH, DIST. RATNAGIRI. PAN: AAACR8690Q . APPELLANT VS. THE ASST. COMMISSIONER OF INCOME TAX, RATNAGIRI CIRCLE, RATNAGIRI. . RESPONDENT APPELLANT BY : SHRI SUSHANT S. PHADNIS RESPONDENT BY : SMT. M.S. VERMA, CIT DATE OF HEARING : 22-12-2014 DATE OF PRONOUNCEMENT : 20-01-2015 ORDER PER SUSHMA CHOWLA, JM: THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF CIT(A), KOLHAPUR DATED 16.01.2009 RELATING TO ASSESSMENT YEAR 20 05-06 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME-TAX ACT . 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AN D IN LAW THE ASSESSING OFFICER HAS ERRED IN LAW AND ON MERIT IN MAKING ADDITIONS OF RS.58,41,016/- TOWARDS PROVISION FO R LOSS ON GOVT. SECURITIES. 2. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AN D IN LAW THE ASSESSING OFFICER HAS ERRED IN LAW AND ON MERIT IN MAKING ADDITIONS OF RS.49,53,000/- TOWARDS PROVISION FOR NPA. 3. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AN D IN LAW THE ASSESSING OFFICER HAS ERRED IN LAW AND ON MERIT IN MAKING ADDITIONS OF RS.56,37,000/- TOWARDS PROVISION FO R ITA NO.386/PN/2012 RATNAGIRI DIST. CENTRAL CO-OP. BANK LTD. 2 STANDARD ASSETS WHICH WERE MADE AS PER DIRECTIONS O F R.B.I. 4. THE ASSESSEE CRAVES FOR LEAVE TO ADD, AMEND, ALTER OR D ELETE ANY OF THE GROUNDS OF APPEAL WITH THE PERMISSION OF T HE HONBLE TRIBUNAL. 3. THE PRESENT APPEAL IS FILED AFTER A DELAY OF 1023 DAYS . THE ASSESSEE HAS MOVED AN APPLICATION FOR CONDONATION OF DELAY IN FILING THE PRESENT APPEAL LATE AND ALSO FILED AN AFFIDAVIT IN THIS R EGARD. THE CONTENTION OF THE ASSESSEE VIDE THE AFFIDAVIT WAS THAT THE ORDER OF THE CIT(A) WAS RECEIVED ON 11.03.2009 AND ON THE SAME DAY, NO TING WAS PUT WITH THE ASST. MANAGER, ACCOUNTS, WHO DISCUSSED THE ISSUE WITH THE TAX CONSULTANT AND TAKEN ACTION ACCORDINGLY. THE C ONSULTANT OF THE ASSESSEE WAS SHRI V.V. JOSHI, WHO HAD ALSO ATTENDED T HE PROCEEDINGS BEFORE THE CIT(A) AND SINCE NOTHING WAS HEARD FROM HIS OFFICE, NO ACTION WAS TAKEN FOR FILING THE APPEAL. HOWEVER, DUR ING THE COURSE OF FILING THE APPEAL FOR SUBSEQUENT YEARS, IT WAS NOT ED THAT THE ISSUE INVOLVED IN THE APPEAL WAS FULLY SETTLED BY THE CBDT S CIRCULAR AND THE ASSESSEE WAS ENTITLED TO THE CLAIM OF DEDUCTION IN RESPECT OF AMORTIZATION OF PREMIUM ON SECURITIES AND PROVISION MADE IN RESPECT OF RURAL ADVANCES. THE ASSESSEE WITH THE HELP OF THE CON SULTANT, FILED THE APPEAL BEFORE THE TRIBUNAL. HOWEVER, THERE WAS A DE LAY OF 1023 DAYS IN FILING THE APPEAL BEFORE THE TRIBUNAL. 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVE NUE STRESSED THAT THERE WAS NO MERIT IN THE CONDONATION AP PLICATION FILED BY THE ASSESSEE AND THE APPEAL OF THE ASSESSEE SHOULD BE DISMISSED. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. ADMITTEDLY, THE ASSESSEE HAS FILED THE PRESENT APPEAL AFTE R A DELAY OF 1023 DAYS. THE EXPLANATION OF THE ASSESSEE BY WAY OF AFFID AVIT FILED BY THE DY. GENERAL MANAGER OF THE ASSESSEE BANK IS THAT TH OUGH THE ORDER ITA NO.386/PN/2012 RATNAGIRI DIST. CENTRAL CO-OP. BANK LTD. 3 OF CIT(A) WAS RECEIVED ON 11.03.2009 BUT THE APPEAL AGAINST THE SAID ORDER COULD NOT BE FILED IN TIME BECAUSE OF IN-ACTION OF TH E CONSULTANT OF THE ASSESSEE BANK. THE ASSESSEE FURTHER CLAIMED THAT IT HAD FORWARDED THE APPELLATE ORDER ON RECEIPT, TO THE ASST. MA NAGER, ACCOUNTS, FOR HANDING OVER THE SAME TO THE CONSULTANT. HOWEVER, NO ACTION WAS TAKEN BY THE CONSULTANT IN THIS REGARD AND FILI NG OF THE APPEAL WAS DELAYED. HOWEVER, WHILE FILING THE APPEAL FOR THE SUBSEQUENT YEARS, IT CAME TO THE NOTICE OF THE ASSESSEE THAT THE APPEAL FOR THE PRESENT ASSESSMENT YEAR WAS NOT FILED BY THE TA X CONSULTANT. IN VIEW OF THE ISSUE BEING COVERED BY THE CBDTS CIRCULAR THEREAFTER, THE ASSESSEE HAS FILED THE PRESENT APPEAL, AFTER A DELAY OF 1023 DAYS. IN THE TOTALITY OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND MERIT IN THE PLEA OF THE ASSESSEE WHEREIN, THE ASSESSEE WAS PREVENTED BY SUFFICIENT CAUSE IN NOT FILING THE APPEAL IN TIME. FURTHER, THE ISSUE OF PREMIUM ON AMORTIZATION IS COVERED IN FAVOUR OF THE ASS ESSEE. CONSEQUENTLY, WE CONDONE THE DELAY OF 1023 DAYS IN FILING T HE APPEAL LATE BEFORE THE TRIBUNAL AND PROCEED TO DECIDE THE APPEA L AFTER HEARING THE LEARNED AUTHORIZED REPRESENTATIVES. 6. THE ISSUE RAISED VIDE GROUND OF APPEAL NO.1 IS AGAINST THE PROVISION FOR LOSS ON GOVERNMENT SECURITIES. 7. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT, DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD DEBITED RS.58,41,016 /- ON ACCOUNT OF LOSS ON HELD TO MATURITY (IN SHORT HTM) OF GOVE RNMENT SECURITIES. THE ASSESSEE WAS ASKED TO EXPLAIN THE NATUR E OF THE TRANSACTION AND ALSO TO SUBMIT UNDER WHICH SECTION, SUCH PROVISION WAS CLAIMED AS DEDUCTION. IN REPLY, THE ASSESSEE SUBMITT ED THAT THE SAID PROVISION WAS MADE AS PER THE GUIDELINES ISSUED BY T HE RBI AND NABARD. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE INV ESTMENT IN ITA NO.386/PN/2012 RATNAGIRI DIST. CENTRAL CO-OP. BANK LTD. 4 GOVERNMENT SECURITIES WAS TO BE REALIZED EITHER AT THE T IME OF MATURITY OR AT THE TIME OF ITS SALE. IN THE FACTS OF THE PRESENT C ASE WHEREIN, THERE WAS NO TRANSFER, THE SAID LOSS WAS NOT ALLOWABLE AS DEDUCTION, AS PER THE ASSESSING OFFICER. 8. THE CIT(A) OBSERVED THAT THE SECURITIES HELD BY THE A SSESSEE WERE PERMANENT INVESTMENT AS THEY WERE NOT HELD FOR TRADING, B UT WERE HELD UP TO MATURITY. WHERE THE SECURITIES WERE PERMANENT INVES TMENT, THEN THE SAME ARE TO BE DECLARED AT PURCHASE PRICE, UN LIKE THE TRADING ASSETS OR STOCK, FOR WHICH THE BANK COULD ADOPT THE MET HOD OF ACCOUNTING BASED ON COST OR MARKET VALUE. THE CIT(A) FU RTHER OBSERVED THAT THE GUIDELINES FRAMED BY THE RBI AND NABA RD MAY BE BINDING ON THE BANKS, BUT WERE NOT BINDING UNDER THE IN COME TAX LAWS. IN VIEW THEREOF, THE DISALLOWANCE MADE BY THE ASSES SING OFFICER WAS UPHELD BY THE CIT(A). 9. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSES SEE POINTED OUT THAT THE SAID PREMIUM ON AMORTIZATION IS SQUARELY CO VERED BY THE CBDTS CIRCULAR NO.17/2008, DATED 26.11.2008. 10. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REV ENUE HAS PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED TH E RECORD. THE ISSUE ARISING IN THE PRESENT APPEAL IS IN RELATION TO T HE PROVISION MADE ON ACCOUNT OF AMORTIZATION OF SECURITIES KNOWN HELD T O MATURITY. THE CASE OF THE REVENUE WAS THAT THE SAID SE CURITIES WERE HELD AS INVESTMENTS AND CONSEQUENTLY, THE PURCHASE COS T WAS TO BE ADOPTED AND THERE WAS NO BASIS FOR ADOPTING THE MARKET VALUE OF THE SAID ASSETS AND BOOKING THE LOSS IN THE VALUE OF SECURITIES AT THE CLOSE OF THE YEAR. THE CLAIM OF THE ASSESSEE ON THE OTHER HAN D WAS THAT, IN ITA NO.386/PN/2012 RATNAGIRI DIST. CENTRAL CO-OP. BANK LTD. 5 VIEW OF THE GUIDELINES FRAMED BY THE RBI AND NABARD, THE SAID ENTRIES WERE MADE IN THE BOOKS OF ACCOUNT WHICH RESULTED IN LOSS OF RS.58,41,016/- WHICH WAS BOOKED AS AN EXPENDITURE FOR TH E YEAR UNDER CONSIDERATION. 12. WE FIND SIMILAR ISSUE OF THE ALLOWABILITY OF PREMIUM ON AMORTIZATION OF HTM SECURITIES, AROSE BEFORE PUNE BENCH OF THE TRIBUNAL IN PUNE DISTRICT CENTRAL CO. OPERATIVE BANK LTD. VS. ADDL.CIT IN ITA NO.1796/PN/2013, RELATING TO ASSESSMENT YEAR 2009 -10 AND VIDE ORDER DATED 28 TH NOVEMBER 2014, IT WAS HELD AS UNDER:- 10. WE FIND THAT A SIMILAR ISSUE OF ALLOWABILITY OR DEDUCTION ON ACCOUNT OF AMORTIZATION OF PREMIUM EXPENDITURE FO R HTM SECURITIES AROSE BEFORE PUNE BENCH OF THE TRIBUNAL I N ASSESSEES OWN CASE IN ITA NO.1795/PN/2013 RELATING TO ASSESSME NT YEAR 2008-09 VIDE ORDER DATED 22.09.2014 WHEREIN, IT WAS HELD AS UNDER:- 2.1 THE ONLY ISSUE REMAINS IS WITH REGARD TO DISALLOWANCE MADE BY THE ASSESSING OFFICER OF RS.2,20,68,302/- CLAIMED BY THE ASSESSEE AS AMORTIZATION OF PREMIUM EXPENDITURE FOR HTM SECURITIES BY PAYMENT OF OVER AND ABOVE THE VALUE OF SUCH SECURITIES. THE LEAR NED AUTHORIZED REPRESENTATIVE HAS POINTED OUT THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY ORDER OF THE H ONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. HDFC BANK L TD. (2014) 366 ITR 505 (BOM), WHEREIN THE HONBLE BOMBAY HIGH COURT ON SIMILAR ISSUE, HELD AS UNDER: AS FAR AS QUESTION (C) IS CONCERNED, WE FIND THAT A N IDENTICAL QUESTION OF LAW WAS FRAMED AND ANSWERED IN FAVOUR OF THE ASSESSEE BY THIS COURT IN ITS JUDGM ENT DATED JULY 4, 2014, IN INCOME TAX APPEAL NO.1079 OF 2012, CIT V. LORD KRISHNA BANK LTD. (NOW MERGED WITH HDFC BANK LTD.) (2014) 366 ITR 416 (BOM). MR. SURESH KUMAR FAIRLY STATED THAT QUESTION (C) REPRODUCED ABOVE IS COVERED BY THE SAID ORDER. IN VIEW THEREOF, WE ARE OF THE VIEW THAT EVEN QUESTION (C) DOES NOT ARISE ANY SUBSTANTIAL QUESTION OF LAW THAT REQUIRES AN ANSWER FROM US. AND A SIMILAR VIEW HAS BEEN TAKEN BY ITAT, PUNE A BENCH IN THE CASE OF DY.CIT VS. KALLAPPANNA AWADE ICHALKARANJI JANATA SAHAKARI BANK LTD. IN ITA NO.449/PN/2012 AND ANOTHER BY OBSERVING AS UNDER: 10. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ITA NO.386/PN/2012 RATNAGIRI DIST. CENTRAL CO-OP. BANK LTD. 6 ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND AN IDENTICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN THE CASE OF NAHSIK MERCHANT COOPERATIVE BANK LTD. (SUPRA). WE FIND THE TRIBUNAL HAS DISCUSSED THE ISSUE AND DISMISSED THE GROUNDS RAISED BY THE REVENUE BY HOLDING AS UNDER : 4. AFTER GOING THROUGH RIVAL SUBMISSIONS AND MATERIAL ON RECORD WE FIND THAT WITH THE ADVENT OF SECTION 80P(4) W.E.F. A.Y, 2007-08 HAS CLOSED THE DOORS FOR COOPERATIVE BANKS FOR CLAIMING THE BENEFIT OF DEDUCTION U/S.80P(2)(A)(I) FROM THIS TOTAL INCOME. HOWEVER, THE COOPERATIVE SOCIETY SHOULD NOW BE ENTITLED TO BE ASSESSED AS NORMAL BANKING COMPANY. THE CLAUSE (4) INSERTED IN SECTION 80P HAS TAKEN AWAY THE BENEFIT OF THE ERSTWHILE DEDUCTION AVAILABLE TO COOPERATIVE SOCIETY IN CARRYING ON BUSINESS OF BANKING OR PROVIDING CREDIT FACILITY TO ITS MEMBERS. THE NEW CLAUSE (4) INSERTED BY THE FINANCE ACT, 2006 W.E.F. 01- 04-2007 READS AS UNDER: ' THE PROVISION OF THE SECTION WAS NOT IN RELATION TO ANY COOPERATIVE BANK OTHER THAN AGRICULTURAL CREDIT SOCIETY OR PRIMARY COOPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK'. 5. THE INTENTION OF THE PROVISION MAY BE DERIVED MORE PRECISELY FROM RELEVANT PARA 166 OF THE BUDGET SPEECH WHICH STATED THAT : 'CO- OPERATIVE BANKS, LIKE ANY OTHER BANK, ARE LENDING INSTITUTIONS AND SHOULD PAY TAX ON THEIR PROFITS, PRIMARY AGRICULTURAL CREDIT SOCIETIES (PACS) AND PRIMARY COOPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK (PCARDB) STAND ON A SPECIAL FOOTING AND WILL CONTINUE TO BE EXEMPT UNDER SECTION 80P OF THE INCOME TAX ACT. HOWEVER, I PROPOSE TO EXCLUDE ALL OTHER CO- OPERATIVE BANKS FROM THE SCOPE OF THAT SECTION'. ACCORDINGLY, SECTION 80P IS TO BE AMENDED TO GIVE EFFECT TO THE ABOVE PROPOSAL. IT IS ALSO PROPOSED TO AMEND SECTION 2(24) TO PROVIDE THAT PROFITS AND GAINS OF BUSINESS OF BANKING (INCLUDING PROVIDING CREDIT FACILITIES) CARRIED ON BY A CO-OPERATIVE SOCIETY WITH ITS MEMBERS SHALL BE INCLUDED IN THE DEFINITION OF 'INCOME' (WITH EFFECT FROM 1ST APRIL, 2007)'. 6. COOPERATIVE BANK UNLIKE OTHER COMMERCIAL BANKS ARE SUBJECTED TO DUAL CONTROL FROM BOTH RBI AS WELL AS FROM STATE COOPERATIVE DEPARTMENT. THE ACCOUNTING TREATMENT FOR A COOPERATIVE BANK IS THEREFORE A RESULT OF ITA NO.386/PN/2012 RATNAGIRI DIST. CENTRAL CO-OP. BANK LTD. 7 GUIDELINES FROM BOTH THE CONTROLLING AUTHORITIES. ORDINARILY A DEDUCTION IS NOT AVAILABLE TO AN ASSESSEE UNLESS SPECIFICALLY PROVIDED UNDER THE ACT. THIS IS IRRESPECTIVE OF ACCOUNTING TREATMENT PROVIDED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS. BUT AT THE SAME TIME IT WAS WELL SETTLED THAT DEDUCTION EXPRESSLY MENTIONED UNDER THE ACT ARE NOT EXHAUSTIVE AND PROFIT IS TO BE DERIVED ACCORDING TO ORDINARY COMMERCIAL PRINCIPLES. AS PER THE EXTANT RBI GUIDELINES DATED 01-07-2009 THE INVESTMENT PORTFOLIO OF THE BANKS IS REQUIRED TO BE CLASSIFIED UNDER 3 CATEGORIES VIZ., HELD THE MATURITY HTM), HELD FOR TRADING (HFT) AND AVAILABLE FOR SALE (AFS). THE VALUE OF EACH KIND OF INVESTMENT IS TO BE DONE IN THE FOLLOWING MANNER: SR.NO. CLASSIFICATION VALUATION NORMS OF INVESTMENT. 1.. 2.. 3.. 7. IN PARA (VII) OF THE CBDT INSTRUCTION NO.17 OF 2008 DATED 26.11.2008, ON 'ASSESSMENT OF BANK - CHECK LIST FOR DEDUCTION, STATES AS UNDER: 'AS PER RBI GUIDELINES..' 8. THE ITAT, MUMBAI BENCH, IN THE CASE OF ACIT VS. THE BANK OF RAJASTHAN LTD. (2011) TIOL-35-ITAT-MUMBAI, HAS HELD THAT IN CASE OF BANKS, THE PREMIUM PAID IN EXCESS OF FACE VALUE OF INVESTMENTS CLASSIFIED UNDER HTM CATEGORY WHICH HAS BEEN AMORTISED OVER THE PERIOD TILL MATURITY IS ALLOWABLE AS REVENUE EXPENDITURE SINCE THE CLAIM IS AS PER RBI GUIDELINES AND CBDT ALSO HAS DIRECTED TO ALLOW SUCH PREMIUM. IT HAS ALSO BEEN HELD IN THE CASE OF CATHOLIC SYRIAN BANK LTD. VS. ACIT THAT AMORTIZATION ON PURCHASE OF GOVERNMENT SECURITIES WAS MADE AS PER PRUDENTIAL NORMS OF THE RBI AND SAME WAS ALLOWABLE DEDUCTION. IN VIEW OF ABOVE, ASSESSEE WAS JUSTIFIED IN CONTENDING FOR AMORTIZATION OF PREMIUM PAID IN EXCESS OF FACE VALUE OF SECURITIES HELD TO MATURITY (HTM) CATEGORY OR PERIOD REMAINING TILL MATURITY WAS FOUND REASONABLE BY THE CIT(A). ACCORDINGLY ADDITION OF RS.17,91,659/- MADE BY THE ASSESSING OFFICER BY DISALLOWING AMOUNT TOWARDS AMORTIZATION OF GOVERNMENT SECURITIES (HMT) WAS DELETED. THIS REASONED FACTUAL AND LEGAL FINDING OF THE CIT(A) NEEDS NO ITA NO.386/PN/2012 RATNAGIRI DIST. CENTRAL CO-OP. BANK LTD. 8 INTERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME. 9. AS A RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 10.1 RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE AGAINST THE ABOVE CITED DECISION WE FIND NO INFIRMITY IN THE ORDER OF THE LD.CIT(A) DELETING THE ADDITION. ACCORDINGLY, THE ORDER OF THE LD.CIT(A) IS UPHELD AND THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 2.2 NOTHING CONTRARY HAS BEEN BROUGHT TO OUR KNOWLED GE ON BEHALF OF THE REVENUE. FACTS BEING SIMILAR, SO FO LLOWING THE SAME REASONING WE HOLD THAT IN CASE OF BANKS, THE PREMIUM PAID IN EXCESS OF FACE VALUE OF INVESTMENTS CLASSIFIED UNDER HTM CATEGORY WHICH HAS BEEN AMORTI SED OVER THE PERIOD TILL MATURITY IS ALLOWABLE AS REVENUE EXPENDITURE SINCE THE CLAIM IS AS PER RBI GUIDELINES AND CBDT ALSO HAS DIRECTED TO ALLOW SUCH PREMIUM. IN VIEW OF ABOVE, THE ASSESSEE IS JUSTIFIED IN CONTENDING THAT THE AMORTIZATION OF PREMIUM IN EXCESS OF FACE VALUE SECU RITIES AS HTM, PERIOD REMAINING DIFFERENCE WAS FOUND REASON ABLE. ACCORDINGLY, THE DISALLOWANCE OF RS.2,20,68,302/- MADE BY THE ASSESSING OFFICER CLAIMED AS AMORTIZATION OF PRE MIUM EXPENDITURE FOR HTM SECURITIES BY PAYMENT OF PREMIU M OVER AND ABOVE THE FACE VALUE OF SUCH SECURITIES IS DIREC TED TO BE ALLOWED. 11. THE HONBLE BOMBAY HIGH COURT IN CIT VS. HDFC BANK (SUPRA) HELD THAT THE ASSESSEE THEREIN WAS ENTITLED TO DEDUCTION WITH RESPECT TO THE DIMINUTION IN THE VALUE OF INVEST MENTS AND AMORTIZATION OF PREMIUM ON INVESTMENTS HELD TO MATUR ITY ON THE GROUND OF MANDATE OF THE RBI GUIDELINES. THE ISSUE RAISED IN THE PRESENT APPEAL IS IDENTICAL TO THE ISSUE BEFORE THE P UNE BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMEN T YEAR 2008-09 AND HONBLE BOMBAY HIGH COURT IN CIT VS. HDFC BANK (SUPRA). WE HOLD THAT AMORTIZATION OF PREMIUM EXPENDIT URE FOR SECURITIES HELD TO MATURITY IN VIEW OF RBI GUIDELINES ARE ALLOWABLE BUSINESS EXPENDITURE IN THE CASE OF ASSESSEE . THE GROUNDS OF APPEAL NO.1 AND 2 RAISED BY THE ASSESSEE A RE THUS, ALLOWED. 13. WE FURTHER FIND THAT THE HONBLE BOMBAY HIGH COURT IN CIT VS. HDFC BANK LTD., IN INCOME TAX APPEAL NO.330 OF 2012, VIDE ORDER DATED 23.07.2014, ON A SIMILAR ISSUE ON ACCOUNT OF DEDUCTIO N WITH RESPECT TO DIMINUTION IN THE VALUE OF INVESTMENT AND AMORT IZATION OF PREMIUM ON INVESTMENT HELD TO MATURITY ON THE GROUND OF MANDATE ITA NO.386/PN/2012 RATNAGIRI DIST. CENTRAL CO-OP. BANK LTD. 9 BY THE RBI GUIDELINES, AFTER CONSIDERING THE DECISION OF TH E HONBLE SUPREME COURT IN SOUTHERN TECHNOLOGIES VS. JCIT, (2010) 32 0 ITR 577 (SC), HAD DISMISSED THE APPEAL FILED BY THE REVENUE HO LDING THAT NO SUBSTANTIAL QUESTION OF LAW HAD ARISEN IN THE INSTANT APPEAL. 14. THE ISSUE ARISING IN THE PRESENT APPEAL IS IDENTICAL TO THE ISSUE DECIDED BY THE PUNE BENCH OF THE TRIBUNAL (SUPRA) AND HON BLE BOMBAY HIGH COURT (SUPRA), AND FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT THE ASSESSEE IS ENTITLED TO THE D EDUCTION OF RS.58,41,016/- BEING THE PREMIUM ON AMORTIZATION OF SECUR ITIES. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE CLA IM OF THE ASSESSEE AND DELETE THE ADDITION OF RS.58,41,016/-. THE GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE IS THUS, ALLOWED. 15. THE ISSUE ARISING IN THE GROUND OF APPEAL NO.2 IS AGAINST THE ADDITION MADE ON ACCOUNT OF PROVISION FOR INTEREST ON NPAS . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFIC ER NOTED FROM THE BALANCE SHEET THAT A SUM OF RS.49,53,000/- WAS S HOWN AS INTEREST RECEIVABLE ON NPAS ACCOUNT ON THE ASSETS SIDE AND CONTRA ENTRY OF NPA INTEREST RESERVE ACCOUNT WAS MADE ON THE LIABILITIES SIDE. THE CONTENTION OF THE ASSESSEE WAS THAT THE INTEREST A CCRUED ON NPAS WAS NOT CREDITED TO THE PROFIT & LOSS ACCOUNT, BUT DIREC TLY TAKEN TO THE BALANCE SHEET. THE ASSESSING OFFICER SHOW CAUSED THE ASS ESSEE AS TO WHY SUCH INTEREST ACCRUED ON NPAS SHOULD NOT BE TREAT ED AS INCOME OF THE ASSESSEE, SINCE IT WAS FOLLOWING THE MERCANTILE SYSTEM O F ACCOUNTING. IN REPLY, THE ASSESSEE SUBMITTED THAT INTER EST ON NPAS WAS TO BE TREATED AS INCOME FOR THE YEAR OF ACTUAL RECE IPT. FOR THE PROPOSITION, THE ASSESSEE RELIED ON VARIOUS DECISIONS, RBI I NSTRUCTIONS AND THE CBDTS CIRCULAR DATED 19.10.1984. THE SAID PRO VISION WAS MADE ON ACCOUNT OF THE GUIDELINES OF THE RBI AND NABARD, WHICH WAS ITA NO.386/PN/2012 RATNAGIRI DIST. CENTRAL CO-OP. BANK LTD. 10 NOT ALLOWED BY THE ASSESSING OFFICER HOLDING THAT THE GUIDELIN ES OF RBI AND NABARD WERE NOT BINDING UNDER THE INCOME TAX LAWS . THE CIT(A) UPHELD THE ORDER OF ASSESSING OFFICER. 16. WE FIND THAT SIMILAR ISSUE OF ALLOWABILITY OF THE PROVISION MAD E ON ACCOUNT OF INTEREST ON NPAS, AROSE BEFORE PUNE BENC H OF THE TRIBUNAL IN THE CASE OF SHRI YASHWANT SAHAKARI BANK LTD. V S. ITO IN ITA NO.356/PN/2014 RELATING TO ASSESSMENT YEAR 2006-0 7 VIDE ORDER DATED 28.04.2014, IT WAS HELD AS UNDER:- 4. AT THE TIME OF HEARING, IT WAS A COMMON POINT BET WEEN THE PARTIES THAT AN IDENTICAL CONTROVERSY HAS BEEN CONSI DERED BY THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. T HE OMERGA JANTA SAHAKARI BANK LTD. ORDER DATED 31.10.2013. IN T HE SAID PRECEDENT, THE PUNE BENCH OF THE TRIBUNAL HAS CONSIDE RED THE JUDGEMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF M/S VASISTH CHAY VYAPAR LTD., 330 ITR 440 (DEL) AS WELL AS T HE CONTRARY JUDGEMENT OF THE HONBLE MADRAS HIGH COURT I N THE CASE OF CIT VS. SAKTHI FINANCE LTD., (2013) 31 TAXMANN.COM 3 05 (MADRAS) WITH RESPECT TO THE ISSUE OF ACCRUAL OF INTER EST INCOME ON NPAS ADVANCES. AFTER A DETAILED DISCUSSION AND FOLLOWI NG THE PROPOSITION THAT IN THE ABSENCE OF ANY JUDGEMENT OF THE JURISDICTIONAL HIGH COURT, THERE BEING TWO CONTRARY J UDGEMENTS OF THE NON-JURISDICTIONAL HIGH COURTS, A DECISION WHICH WAS FAVOURABLE TO THE ASSESSEE WAS TO BE FOLLOWED IN VIEW OF THE PARITY OF REASONING LAID DOWN BY THE HONBLE SUPREME C OURT IN THE CASE OF CIT VS. VEGETABLE PRODUCTS LTD., (1973) 88 I TR 192 (SC), AND ACCORDINGLY, BY FOLLOWING THE RATIO OF THE JUD GEMENT OF THE HONBLE DELHI HIGH COURT THE ISSUE WAS DECIDED IN F AVOUR OF THE ASSESSEE. THE RELEVANT DISCUSSION IN THE ORDER OF THE TRIBUNAL DATED 31.10.2013 (SUPRA) IS REPRODUCED AS UNDER :- 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS . IN SO FAR AS THE APPLICABILITY OF SECTION 43D OF THE ACT TO THE ASSESSEE IS CONCERNED, THERE IS A CONVERGENCE OF OPI NION BETWEEN THE ASSESSEE AND THE REVENUE TO THE EFFECT THAT THE SAME IS NOT APPLICABLE TO THE ASSESSEE. OSTENSIB LY, ASSESSEE IS A CO-OPERATIVE BANK CARRYING ON BANKING BUSINESS IN TERMS OF A LICENSE GRANTED BY RBI AND I S NOT A SCHEDULED BANK INCLUDED IN SECOND SCHEDULE OF RBI SO A S TO FALL WITHIN THE SCOPE OF SECTION 43D OF THE ACT. NO TABLY, SECTION 43D OF THE ACT PRESCRIBES THAT INTEREST INCO ME ON SUCH CATEGORIES OF BAD AND DOUBTFUL DEBTS AS PRESCRI BED BY THE RBI GUIDELINES SHALL BE CHARGEABLE TO TAX IN THE Y EAR IN WHICH SUCH INTEREST INCOME IS CREDITED BY THE ASSESS EE IN THE PROFIT AND LOSS ACCOUNT OR IN THE YEAR OF ACTUA L RECEIPT, WHICHEVER IS EARLIER. SINCE ASSESSEE IS NOT AN ENTIT Y COVERED WITHIN THE SCOPE OF SECTION 43D OF THE ACT, T HE ITA NO.386/PN/2012 RATNAGIRI DIST. CENTRAL CO-OP. BANK LTD. 11 PRESENT CONTROVERSY CANNOT BE ADJUDICATED IN THE LI GHT OF SECTION 43D OF THE ACT, AND IT IS LIABLE TO BE DECIDE D ON GENERAL PRINCIPLES AS TO WHETHER THE IMPUGNED INCOME H AS ACCRUED TO THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. 9. IN THIS CONNECTION, WE FIND THAT THE VISAKHAPATNA M BENCH OF THE TRIBUNAL IN THE CASE OF THE DURGA COOPE RATIVE URBAN BANK LTD. (SUPRA) HAS CONSIDERED AN IDENTICAL CONTROVERSY. THE ASSESSEE BEFORE THE VISAKHAPATNAM BENCH WAS A CO-OPERATIVE BANK OPERATING UNDER A LICE NSE ISSUED BY RBI BUT WAS NOT A SCHEDULED BANK SO AS TO FALL WITHIN THE SCOPE OF SECTION 43D OF THE ACT. THE ISS UE RELATED TO TAXABILITY OF INTEREST INCOME RELATING TO NPAS, WHICH AS PER THE REVENUE WAS LIABLE TO BE TAXED ON AC CRUAL BASIS IN LINE WITH MERCANTILE SYSTEM OF ACCOUNTING AD OPTED BY THE ASSESSEE THEREIN. THE ASSESSEE, ON THE OTHER HAND, CONTENDED THAT HAVING REGARD TO THE GUIDELINES ISSUED BY RBI REGARDING ACCOUNTING OF INTEREST ON NPAS, NO INT EREST INCOME ACCRUED IN RESPECT OF NPAS AND THAT THE SAME WAS TO BE TAXED ONLY ON RECEIPT BASIS. THE TRIBUNAL OBS ERVED THAT THE QUESTION OF TAXABILITY OF INTEREST ON NPAS CLASSIFIED BY RBI, WAS CONSIDERED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF M/S VASISTH CHAY VYAPAR LTD. (SUPRA) WHERE IN AFTER CONSIDERING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) IT WA S HELD THAT INTEREST INCOME RELATABLE TO NPAS WAS NOT INCLUDIBLE IN TOTAL INCOME ON ACCRUAL BASIS SINCE THE S AME DID NOT ACCRUE TO THE ASSESSEE. THE FOLLOWING DISCUSSI ON BY THE VISAKHAPATNAM BENCH OF THE TRIBUNAL IN THE CASE O F THE DURGA COOPERATIVE URBAN BANK LTD. (SUPRA) IS WORTHY O F NOTICE :- 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULLY PERUSED THE RECORD. THE QUESTION OF TAXABILITY OF INTEREST ON NPAS HAS BEEN CONSIDERED B Y THE HON'BLE DELHI HIGH COURT IN THE CASE OF M/S VASISTH CHAY VYAPAR LTD (SUPRA); WHEREIN THE HON'BLE DELHI HIGH COURT TOOK INTO ACCOUNT THE DECISION RENDERED BY THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD (SUPRA). IN THE CASE OF M/S VASISTH CHAY VYAPAR LTD, THE ASSESSEE THEREIN WAS A NON BANKING FINANCIAL COMPANY AND IT WAS ALSO BOUND BY THE PRUDENTIAL NORMS DIRECTIONS ISSUED BY THE RESERVE BANK OF INDIA FOR INCOME RECOGNITION AND ASSET CLASSIFICATION. THE ASSESSEE DID NOT INCLUDE THE INTEREST INCOME RELATABLE TO NPA ASSETS IN ITS TOTAL INCOME. THE ASSESSING OFFICER, HOWEVER, ADDED THE SAID INTEREST AS THE INCOME OF TH E ASSESSEE BY HOLDING THAT IT HAD ACCRUED TO THE ASSESSEE EVEN IT WAS NOT REALIZED AS THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THE LEARNED CIT (A) AFFIRMED THE ORDER OF THE ASSESSING OFFICER. HOWEVER, THE ITAT DELETED THE AFORESAID INCOME. HENCE THE REVENUE PREFERRED APPEAL BEFORE THE HON'BLE DELHI HIGH COURT. ITA NO.386/PN/2012 RATNAGIRI DIST. CENTRAL CO-OP. BANK LTD. 12 8.1 AFTER HEARING THE RIVAL SUBMISSIONS, THE HON'BLE 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 EFFECT 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 SU CH LAW. THE HIGH COURT TOOK NOTE OF THE FACT THAT THE PROVI SION OF 45Q OF RESERVE BANK OF INDIA HAS OVERRIDING EFFEC T OVER ANY OTHER LAW. THEN THE HON'BLE HIGH COURT ALSO CONSIDERED ACCOUNTING STANDARD AS-9 ON REVENUE RECOGNITION AND ALSO EXTRACTED FOLLOWING RELEVANT PORTION FROM THE SAID ACCOUNTING STANDARD: 9. EFFECT OF UNCERTAINTIES ON REVENUE RECOGNITION 9.1 RECOGNITION OF REVENUE REQUIRES THAT REVENUE IS A MEASURABLE AND THAT AT THE TIME OF SALE OR THE RENDERING OF THE SERVICE, IT WOULD NOT BE UNREASONABLE TO EXPECT ULTIMATE COLLECTION. 9.2 WHERE THE ABILITY TO ASSESS THE ULTIMATE COLLECTION WITH REASONABLE CERTAINTY IS LACKING AT THE TIME OF RAISING ANY CLAIM, E.G., FOR ESCALATION OF PRIC E, EXPORT INCENTIVES, INTEREST ETC., REVENUE RECOGNITION IS POSTPONED TO THE EXTENT OF UNCERTAINTY INVOLVED. IN SUCH CASES, IT MAY BE APPROPRIATE TO RECOGNIZE REVENUE ONLY WHEN IT IS REASONABLY CERTAIN THAT THE ULTIMATE COLLECTION WILL BE MADE. WHERE THERE IS NO UNCERTAINTY AS TO ULTIMATE COLLECTION, REVENUE IS RECOGNIZED AT THE TIME OF SALE OR RENDERING OF SERVIC E EVEN THOUGH PAYMENTS ARE MADE BY INSTALMENTS. 9.3 WHEN THE UNCERTAINTY RELATING TO COLLECTABILITY ARISES SUBSEQUENT TO THE TIME OF SALE OR THE RENDERIN G OF THE SERVICE, IT IS MORE APPROPRIATE TO MAKE A SEPARATE PROVISION TO REFLECT THE UNCERTAINTY RATHER THAN TO ADJUST THE AMOUNT OF REVENUE ORIGINALLY RECORDED. 9.4 AN ESSENTIAL CRITERION FOR THE RECOGNITION OF REVENUE IS THAT THE CONSIDERATION RECEIVABLE FOR THE SALE OF GOODS, 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 ITA NO.386/PN/2012 RATNAGIRI DIST. CENTRAL CO-OP. BANK LTD. 13 REVENUE OF THE PERIOD IN WHICH IT IS PROPERLY RECOGNIZED. 8.2 THE DELHI HIGH COURT ALSO CONSIDERED THE DECISION RENDERED IN THE FOLLOWING CASES: I) CIT VS. ELGI FINANCE LTD., 293 ITR 357 (MAD) II) CIT VS. KKM INVESTMENTS (CAL) SLP DISMISSED BY SUPREME COURT (310 ITR 4) III) CIT VS. MOTOR CREDIT CO (P) LTD., 127 ITR 572 (MAD) IV) UCO BANK VS. CIT 237 ITR 889 (SC) V) CIT VS. SHOORJI VALLABHDAS & CO 46 ITR 144 (SC) VI) GODHRA ELECTRICITY CO. LTD., VS.CIT 225 ITR 746 VII) CIT VS. GOYAL M G GASES (P) LTD., 303 ITR 159 (DEL) VIII) CIT VS. EICHER LTD., ITA NO.431/2009 DATED 15.7.2009 (DEL) 8.3 AFTER CONSIDERING THE ACCOUNTING STANDARD 9 AND THE VARIOUS CASE LAW LISTED ABOVE, THE HON'BLE DELHI HIGH COURT HELD THAT THE INTEREST ON NPA ADVANCE CANNOT BE TREA TED AS ACCRUED TO THE ASSESSEE. 8.4 BEFORE THE DELHI HIGH COURT, THE REVENUE TOOK SUPP ORT OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD (SUPRA). THE DELHI HIGH COURT CONSIDERED THE SAID DECISION OF HON'BLE APEX COURT A ND EXPLAINED THE SAME AS UNDER: WE HAVE ALREADY HELD THAT EVEN UNDER THE INCOME TAX ACT, INTEREST INCOME HAD NOT ACCRUED. MOREOVER, THIS SUBMISSION OF MR. SABHARWAL IS BASED ENTIRELY ON THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGY (SUPRA). NO DOUBT, IN FIRST BLUSH, READING OF THE JUDGMENT GIVES AN INDICATION THAT THE COURT HAS HELD THAT RESERVE BANK OF INDIA ACT DOES NOT OVERRIDE THE PROVISIONS OF THE INCOME 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 CONTAINED IN THAT VERY JUDGMENT, WE FIND THAT THE PROPOSITION ADVANCED 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 TERMS OF SECTION 36(1) (VII) OF THE ACT. THE ASSESSING OFFICER DID NOT ALLOW THE DEDUCTION CLAIMED AS AFORESAID ON THE GROUND THAT THE PROVISION OF NP A WAS NOT IN THE NATURE OF EXPENDITURE OR LOSS BUT MOR E IN THE NATURE OF A RESERVE, AND THUS NOT DEDUCTIBLE UNDER SECTION 36(I)(VII) OF THE ACT. THE ASSESSING OFFICER, HOWEVER, DID NOT BRING TO TAX RS.20,34,605/- AS INCOME (BEING INCOME ACCRUED UNDER THE MERCANTILE SYSTEM OF ACCOUNTING). THE DISPUTE BEFORE THE APEX COURT CENTERED AROUND DEDUCTIBILITY OF PROVISION FOR NPA. AFTER ANALYZING ITA NO.386/PN/2012 RATNAGIRI DIST. CENTRAL CO-OP. BANK LTD. 14 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 CONDITIONS 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 PRUDENTIAL NORMS, EVEN THOUGH THE SAME DEVIATED FROM MERCANTILE SYSTEM OF ACCOUNTING AND/OR SECTION 45 (SIC. 145) OF THE INCOME TAX ACT. IT CAN BE SAID, THEREFORE, THAT THE APEX COURT APPROVED THE REAL INCOME THEORY WHICH IS ENGRAINED IN THE PRUDENTIAL NORMS FOR RECOGNITION OF REVENUE BY NBFC. 9. THE HON'BLE SUPREME COURT IN THE CASE OF M/S SOUTHERN TECHNOLOGIES LTD (SUPRA) DISSECTED THE MATTER INTO TWO PARTS VIZ., A) INCOME RECOGNITION AND B) PERMISSIBLE DEDUCTION/EXCLUSIONS 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 PLA Y AND THE ASSESSING OFFICER HAS TO FOLLOW RESERVE BANK OF INDIA DIRECTIONS 1998, SINCE BY VIRTUE OF 45Q OF T HE 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 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 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 ACCOUNTS. THEY FORCE THE NBFCS TO REFLECT TRUE AND CORRECT PROFITS. BY VIRTUE OF SECTION 45Q, AN OVERRIDING EFFECT IS GIVEN TO THE DIRECTIONS 1998 VIS--VIS INCOME 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 ITA NO.386/PN/2012 RATNAGIRI DIST. CENTRAL CO-OP. BANK LTD. 15 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. THE ACCOUNTING POLICIES ADOPTED BY AN NBFC 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 INDIA. HENCE THE DIRECTIONS WITH REGARD TO THE PRUDENTIAL 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), THA T THE PROVISION OF 45Q OF RESERVE BANK OF INDIA ACT H AS AN OVERRIDING EFFECT VIS--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 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 HEREIN DID NOT ADMIT THE INTEREST RELATABLE TO NPA ADVANCES IN ITS TOTAL INCOME. THE HON'BLE DELHI HIGH COURT IN THE CASE OF VASISTH CHAY VYAPAR LTD (SUPRA) HAS HELD THAT THE INTEREST ON 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 THE 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. ITA NO.386/PN/2012 RATNAGIRI DIST. CENTRAL CO-OP. BANK LTD. 16 10. FOLLOWING THE AFORESAID DISCUSSION, WHICH HAS BEE N RENDERED ON AN IDENTICAL ISSUE UNDER SIMILAR CIRCUMST ANCES, WE FIND NO REASONS TO INTERFERE WITH THE ULTIMATE CON CLUSION OF THE CIT(A) IN DELETING THE IMPUGNED ADDITION RELATI NG TO INTEREST INCOME IN RESPECT OF NPAS. 11. SO, HOWEVER, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. SAKTHI FINANCE LTD., (2013) 31 TAXMANN.COM 305 (MADRAS) HAS DIFFERED WITH THE JUDGEMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF M/S VASISTH CHAY VYAPAR LTD. (SUPRA) ON A SIMILAR ISSU E, I.E. RELATING TO INTEREST INCOME ON NPAS. THE LEARNED DEPARTMENTAL REPRESENTATIVE FURTHER POINTED OUT THAT THE HONBLE MADRAS HIGH COURT FOLLOWED THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) IN HOLDING THAT INTEREST ON NPAS WAS ASSESSABLE TO TAX ON ACCRUAL BASIS. WE HAVE CAREF ULLY CONSIDERED THE SUBMISSIONS PUT-FORTH BY THE LEARNED DEPARTMENTAL REPRESENTATIVE BASED ON THE JUDGEMENT O F THE HONBLE MADRAS HIGH COURT IN THE CASE OF SAKTHI FINAN CE LTD. (SUPRA). THE CONTROVERSY BEFORE THE HONBLE MADRAS HIGH COURT RELATED TO NON-RECOGNITION OF INTEREST IN COME ON NPAS BY THE ASSESSEE FOLLOWING THE RBI GUIDELINES. TH E HONBLE MADRAS HIGH COURT TOOK THE VIEW THAT THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) ALSO APPLIED TO THE INCOME RECOGNITION NORMS PROVIDED BY RBI AND THEREFO RE IT HELD THE INTEREST INCOME ON NPAS IS LIABLE TO BE TAXED ON ACCRUAL BASIS AND NOT IN TERMS OF RBIS GUIDELINES. B UT THE HONBLE DELHI HIGH COURT IN THE CASE OF M/S VASISTH CH AY VYAPAR LTD. (SUPRA) HAS TAKEN A VIEW THAT SOUTHERN TECHNOLOGIES LTD. (SUPRA) CASE DID NOT APPLY TO THE INC OME RECOGNITION NORMS PRESCRIBED BY RBI. OSTENSIBLY, THE RE IS DIVERGENCE OF OPINION BETWEEN THE HONBLE DELHI HIGH COURT AND THE HONBLE MADRAS HIGH COURT AS NOTED BY THE HONBLE MADRAS HIGH COURT IN ITS ORDER. 12. IN SO FAR AS, PRESENT CASE IS CONCERNED THERE IS NO JUDGMENT OF THE JURISDICTIONAL HIGH COURT. WE ARE FA CED WITH TWO CONTRARY JUDGMENTS OF THE NON-JURISDICTION AL HIGH COURT. IN SUCH A SITUATION, WE ARE INCLINED TO PREFER A VIEW WHICH IS FAVOURABLE OF THE ASSESSEE FOLLOWING THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. VEGETABLE PRODUCTS LTD. (1973) 88 ITR 192 (SC). 13. THEREFORE, IN VIEW OF THE AFORESAID DISCUSSION, W E ARE INCLINED TO FOLLOW THE DECISION OF OUR CO-ORDINATE BE NCH IN THE CASE OF THE DURGA COOPERATIVE URBAN BANK LTD. (SU PRA) AND ACCORDINGLY THE ORDER OF THE CIT(A) IS LIABLE TO T HE AFFIRMED. WE HOLD SO. 14. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ITA NO.386/PN/2012 RATNAGIRI DIST. CENTRAL CO-OP. BANK LTD. 17 5. SINCE IT WAS A COMMON POINT BETWEEN THE PARTIES T HAT THE FACTS AND CIRCUMSTANCES IN THE PRESENT CASE ARE IDE NTICAL TO THOSE CONSIDERED BY US IN THE CASE OF THE OMERGA JANTA SA HAKARI BANK LTD. (SUPRA), FOLLOWING THE AFORESAID PRECEDENT THE PRES ENT CLAIM OF THE ASSESSEE DESERVES TO BE UPHELD. WE HOLD SO. 6. IN THE RESULT, FOLLOWING THE AFORESAID PRECEDENT, THE ORDER OF THE CIT(A) IS SET-ASIDE AND THE ASSESSING OFFICER IS D IRECTED TO DELETE THE ADDITION OF RS.7,82,267/-. 17. THE ISSUE IN THE PRESENT APPEAL IS IDENTICAL TO THE ISSU E BEFORE THE TRIBUNAL IN SHRI YASHWANT SAHAKARI BANK LTD. VS. ITO (S UPRA). FOLLOWING THE SAME PARITY OF REASONING, WE DIRECT THE ASSES SING OFFICER TO DELETE THE ADDITION OF RS.49,53,000/- MADE ON ACCOUNT O F PROVISION FOR INTEREST ON NPAS. THE GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE IS THUS, ALLOWED. 18. THE ISSUE IN GROUND OF APPEAL NO.3 RAISED BY THE ASSES SEE IS AGAINST THE ADDITION OF RS.56,37,000/- TOWARDS PROVISION FOR STANDARD ASSETS WHICH WERE ALSO MADE AS PER THE GUIDELINES OF RBI. 19. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSES SEE AT THE TIME OF HEARING POINTED OUT THAT THE ISSUE RAISED VIDE GRO UND OF APPEAL NO.3 IS SQUARELY COVERED AGAINST THE ASSESSEE BY THE O RDER OF PUNE BENCH OF THE TRIBUNAL IN THE SINDHUDURG DIST. CENTRAL CO-OP BANK LTD. VS. ITO, IN ITA NO.617/PN/2011, RELATING TO ASSESSMENT YEAR 2007-08. THE TRIBUNAL VIDE ORDER DATED 02.03.2012 HELD AS UNDER: - 29. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSION S. IN OUR VIEW, THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS COR RECTLY APPRECIATED THE POSITION AND SUSTAINED THE DISALLOWANC E FOLLOWING THE JUDGMENT OF THE HONBLE SUPREME COURT THE CASE OF SOUTHERN TECHNOLOGIES LTD. VS.JCIT (2010) 320 ITR 577 (SC) . THE HONBLE SUPREME COURT HAS CLEARLY POINTED OUT THAT CLAIM FOR DEDUCTION OF AN EXPENDITURE IS LIABLE TO BE GOVERNED BY THE PROVISIONS OF THE ACT AND NOT MERELY ON ACCOUNT OF THE RBI GUIDELINES. IN OUR VIEW, THE RATIO OF THE JUDGMENT OF THE HONBLE SUPREME COURT TH E CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) CLEARLY APPLIES TO T HE PRESENT CASE AND THE CLAIM OF THE ASSESSEE HAS BEEN RIGHTLY REJECTED BY THE LOWER AUTHORITIES. THUS, ON THIS GROUND, ASSESSEE HAS TO FAIL. ITA NO.386/PN/2012 RATNAGIRI DIST. CENTRAL CO-OP. BANK LTD. 18 20. THE ISSUE OF DEDUCTION CLAIMED ON ACCOUNT OF PROVISION FO R STANDARD ASSETS IS IDENTICAL TO THE ISSUE BEFORE THE TRIBU NAL IN THE SINDHUDURG DIST. CENTRAL CO-OP BANK LTD. VS. ITO (SUPRA). IN VIEW OF THE ADMISSION OF THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE, WE HOLD THAT THE ASSESSEE IS NOT ENTITLED TO T HE CLAIM OF RS.56,37,000/- BOOKED ON ACCOUNT OF PROVISION FOR STANDARD ASSETS. THE GROUND OF APPEAL NO.3 RAISED BY THE ASSESSEE IS THUS, DISMISSED. 21. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 20 TH DAY OF JANUARY, 2015. SD/- SD/- (G.S. PANNU) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 20 TH JANUARY, 2015. GCVSR COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A), KOLHAPUR; 4) THE CIT, KOLHAPUR; 5) THE DR A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE