The Dy. Commr. Of Income Tax, Cir.-1(2), RAJKOT-GUJARAT V. Gondal Nagarik Sahakari Bank Ltd., GONDAL

ITA 504/RJT/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8906 (ITAT-RAJKOT)
• Duration Of Justice: 2 year(s) 3 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 14-10-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MJ RANPURA
• Keywords: Bad and doubtful debts
• Section: 14A; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT [CONDUCTED THROUGH E-COURT AT AHMEDABAD] BEFORE SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER !# I.T.A. NO.504/RJT/2015 ( / ASSESSMENT YEAR : 2012-13) DY. CIT, CIR 1(2), RAJKOT. # VS. GONDAL NAGARIK SAHAKARI BANK LTD. SAMARPAN, MANDVI CHOWK, GONDAL. $ # % & # PAN/GIR NO. : AAAAG 4131 H ( !$' / APPELLANT ) .. ( ($' # RESPONDENT ) !$') # APPELLANT BY : SHRI PRAVEEN VERMA, SR. D.R. ($'*) / RESPONDENT BY : SHRI M. J. RANPURA, A.R. + ,*-. / DATE OF HEARING 03/01/2018 /012*-. / DATE OF PRONOUNCEMENT 16/01/2018 3# O R D E R PER MAHAVIR PRASAD, JUDICIAL MEMBER: THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-1, RAJKOT, VIDE APPEAL NO. CIT(A)-I/RJT/0264/14-15 DATED 28/07/2015 FOR THE AS SESSMENT YEAR (AY) 2012-13, ON THE FOLLOWING GROUNDS: 1. THE LEARNED CIT(APPEAL) HAS ERRED IN MAKING DELETION OF ADDITION OF RS.34,73,904/- ON ACCOUNT OF ACCR UED INTEREST ON NPA ACCOUNT. 2. THE LEARNED CIT(APPCAL) HAS ERRED IN MAKING DEL ETION OF ADDITION U/S.14A OF RS.19,04,830/-. 3. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE L D. CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED . ITA NO. 504/RJT/2015 DCIT VS. GONDAL NAGRIK SAHAKARI BANK LTD. ASST.YEAR 2012-13 - 2 - 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI ALS ON RECORD ARE AS UNDER:- THE APPELLANT IS A CO-OPERATIVE SOCIETY, AND ENGAGE D IN THE BUSINESS OF BLANKING AND GOVERNED BY THE BANKING RE GULATION ACT, 1949 AS APPLICABLE TO CO-OPERATIVE SOCIETIES. THE APPELL ANT IS AN URBAN CO- OPERATIVE BANK. REGULAR BOOKS OF ACCOUNT ARE MAINTA INED AND ARE AUDITED AS PER THE PROVISION OF GUJARAT CO-OPERATIVE SOCIET IES ACT AS ALSO U/S.44AB OF THE INCOME-TAX ACT, 1961. IT HAD FILED ITS RETURN OF INCOME ON 26.07.2012 SHOWING THEREIN INCOME OF RS.2,59,94, 100/-. THE AO, VIDE ORDER U/S.143(3) OF THE ACT DATED 11.03.2015 A SSESSED THE TOTAL INCOME AT RS.3,13,72,830/-, WHEREIN HE MADE THE ABO VE ADDITIONS/DISALLOWANCES. 2.1 IN THIS CASE, APPELLANT MADE FOLLOWING SUBMISSI ON: '(A) THE AO VIDE PARA 3.1 OF THE ASSESSMENT ORDER A LLEGED THAT NPA'S INTEREST WHICH WAS DUE AS PER MERCANTILE SYST EM AND AS PER PROVISIONS OF SECTION 145 OF THE ACT SHOULD HAVE BE EN SUBJECTED TO TAX ACCRUAL BASIS. HE FURTHER ALLEGED THAT EXEMPTIO N OF INTEREST INCOME IN RELATION TO THE NPA IS AVAILABLE ONLY TO THE SCHEDULE BANKS AND NOT TO THE CO-OPERATIVE BANK. HE THUS VID E PARA 3.6 OF THE ASSESSMENT ORDER HELD THAT ACCRUED INTEREST OF RS.34,73,904/- IS PART OF TAXABLE INCOME AND ACCORDINGLY ADDED TO THE TOTAL INCOME. (B) DURING THE ASSESSMENT PROCEEDINGS IN RESPONSE T O SHOW CAUSE NOTICE DATED 02.01.2015 THE APPELLANT VIDE IT S LETTER DATED 09.01.2015 EXPLAINED THE REASONS FOR NOT BRINGING T HE ACCRUED INTEREST ON NPA TO TAX. THE AO VIDE PARA 3(A) OF TH E ASSESSMENT ORDER REPRODUCED THE SAME. INTEREST ON ADVANCES UND ER THE CATEGORY OF DOUBTFUL/LOSS ADVANCES WERE NOT CONSIDE RED AS THE RECOVERY ITSELF WAS IS IN QUESTION, THERE WAS NO AN TICIPATION OF RECEIPT OF ANY INTEREST ON SUCH NON PERFORMING ASSE T. HOWEVER, THE ITA NO. 504/RJT/2015 DCIT VS. GONDAL NAGRIK SAHAKARI BANK LTD. ASST.YEAR 2012-13 - 3 - AO IN TOTAL DISREGARDS TO THE SETTLED PROPOSITION O F LAW, ALLEGED THAT INTEREST ON NPA OF RS.34,73,904/ - IS REQUIRED TO BE OFFERED TO TAX IN VIEW OF PROVISIONS OF SECTION 5 R.W.S SECTIO NS 43D AND 145 OF THE ACT. THE OBSERVATION OF THE AO IS TOTALLY ERRON EOUS AND THEREFORE DISALLOWANCE MADE ON MISINTERPRETATION OF LEGAL POSITION IS TOTALLY UNJUSTIFIED AND DESERVES TO BE DELETED, MAY KINDLY BE DELETED. (C) IT IS ALSO SUBMITTED THAT IN THE CASE OF BANKIN G COMPANIES, ANY INTEREST ACCRUED ON ADVANCES CLASSIFIED AS NON- PERFORMING IS TAXED IN THE YEAR IN WHICH THE SAME IS ACTUALLY RECEIVED. THE THEORY OF ONLY REAL INCOME IS TO BE TAXED IS A SETT LED TAW AND THEREFORE NOTWITHSTANDING THE APPELLANT HAS BEEN FO LLOWING MERCANTILE SYSTEM OF ACCOUNTING, THE APPELLANT COULD BE TAXED ON THE REAL INCOME AND NOT ON THE HYPOTHETICAL INCOME. SO FAR AS NON- PERFORMING ADVANCES ARE CONCERNED (I.E . ADVANCES CATEGORIZING UNDER DOUBTFUL AND LOSS ADVANCES) IT IS SUBMITTED T HAT RECOVERIES OF INTEREST ON SUCH ACCOUNTS IS EXTREMELY LOW AND POSS IBILITIES OF RECOVERING PRINCIPAL AMOUNT IS ALSO REMOTE. THE APP ELLANT SUBMITS THAT NEVERTHELESS THERE IS LEGAL RIGHT TO RECEIVE I NTEREST ON SUCH ADVANCES THERE ARE GROUND REALITIES WHICH DO NOT PE RMIT ENFORCEMENT OF SUCH RIGHT. IF SUCH INTEREST ON NPA IS INCLUDED IN THE ACCOUNTS, THE FINANCIAL RESULT WOULD GIVE DISTO RTED PICTURE OF AFFAIRS OF THE APPELLANT'S BANK. INCOME-TAX IS A LE VY ON INCOME. NO DOUBT, THE INCOME-TAX ACT TAKES INTO ACCOUNT TWO PO INTS OF TIME AT WHICH THE LIABILITY TO TAX IS ATTRACTED, VIZ., THE ACCRUAL OF THE INCOME OR ITS RECEIPT; BUT THE SUBSTANCE OF THE MAT TER IS THE INCOME. IF INCOME DOES NOT RESULT AT ALL, THERE CANNOT BE A TAX, EVEN THOUGH IN BOOK-KEEPING, AN ENTRY IS MADE ABOUT A 'HYPOTHET ICAL INCOME', WHICH DOES NOT MATERIALIZE. WHERE INCOME HAS, IN FA CT, BEEN RECEIVED AND IS SUBSEQUENTLY GIVEN UP IN SUCH CIRCU MSTANCES THAT IT REMAINS THE INCOME OF THE RECIPIENT, EVEN THOUGH GI VEN UP, THE TAX MAY BE PAYABLE. WHERE, HOWEVER, THE INCOME CAN BE S AID NOT TO HAVE RESULTED AT ALL, THERE IS OBVIOUSLY NEITHER AC CRUAL NOR RECEIPT OF INCOME, EVEN THOUGH AN ENTRY TO THAT EFFECT MIGH T, IN CERTAIN CIRCUMSTANCES, HAVE BEEN MADE IN THE BOOKS OF ACCOU NT. IN THIS CONNECTION RELIANCE IS PLACED ON THE FOLLOWING DECI SIONS. ITA NO. 504/RJT/2015 DCIT VS. GONDAL NAGRIK SAHAKARI BANK LTD. ASST.YEAR 2012-13 - 4 - HON'BLE SUPREME COURT OF INDIA IN THE CASE OF UCO B ANK VS. CIT 237 ITR 889; HON'BLE SUPREME COURT OF INDIA IN THE CASE OF CIT VS. SHOORJI VALLABHDAS & CO. 46 ITR 144; HON'BLE HIGH COURT OF CALCUTTA IN THE CASE OF ANZ GRINDLAYS BANK LTD. VS. CIT 250 ITR 125; (D) THE APPELLANT FURTHER SUBMITS THAT PROVISIONS O F SECTION 145 ARE SUBJECT TO MANDATE OF ACCOUNTING STANDARDS I IS SUED U/S.145(2) OF THE ACT, WHICH PRESCRIBES THAT ACCOUNTING POLICI ES ADOPTED BY THE APPELLANT SHOULD BE SUCH SO AS TO REPRESENT TRU E AND FAIR VIEW OF THE AFFAIRS OF THE BUSINESS IN THE FINANCIAL STA TEMENTS. IN THE NAME OF COMPLIANCE WITH SECTION 145(1) OR OTHER SEC TION, IT IS NOT OPEN FOR ANYONE TO FORCE ADOPTION OF ACCOUNTING POL ICIES WHICH GIVE A DISTORTED PICTURE. FURTHER, THE APPELLANT IS CONSISTENTLY FOLLOWING THE METHOD OF RECOGNIZING INTEREST ON NPA ONLY WHEN IT IS REALIZED. THE SAME ALSO PERMITTED AND APPROVED T REATMENT IN THE ACCOUNTING STANDARD 9 'REVENUE RECOGNITION' ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. AS PER SAID STANDARD, ONE FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, WHEN THERE IS UNCERTAINTY INVOLVED IN THE ULTIMATE RECOVERY OF RE VENUE, REVENUE IS TO BE RECOGNIZED ONLY IN THE YEAR IN WHICH THE S AME IS RECOVERED. (E) SUB-SECTION (1) OF SECTION 145 OF THE INCOME TA X ACT, 1961 PROVIDES THAT SUBJECT TO SUB-SECTION (2), INCOME CH ARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSI ON' SHALL BE COMPUTED IN ACCORDANCE WITH SYSTEM OF ACCOUNTING RE GULARLY EMPLOYED BY THE ASSESSES. SUB-SECTION (2) OF THE SA ID SECTION HAS GIVEN POWER TO THE CENTRAL GOVERNMENT TO NOTIFY FRO M TIME TO TIME ACCOUNTING STANDARDS TO BE FOLLOWED BY ANY CLASS O F ASSESSEE OR IN RESPECT OF ANY CLASS OF INCOME. IN EXERCISE OF THIS POWER CONFERRED BY SUB-SECTION (2), THE CENTRAL GOVERNMENT HAS HITH ERTO NOTIFIED TWO ACCOUNTING STANDARDS, WHICH IS REQUIRED TO BE F OLLOWED BY ALL ASSESSEE FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. IT IS SUBMITTED THAT NOWHERE IN SUCH ACCOUNTING STANDARDS, IT IS PR ESCRIBED THAT FUNDAMENTAL PRINCIPLE OF ACCOUNTING, I.E. PRUDENCE SHOULD NOT BE FOLLOWED. PRUDENCE SUGGESTS THAT ALL KNOWN LIABILITIES AND LO SS ARE TO BE PROVIDED FOR AND INCOME SHOULD BE ACCOUNTED FOR IN THE ITA NO. 504/RJT/2015 DCIT VS. GONDAL NAGRIK SAHAKARI BANK LTD. ASST.YEAR 2012-13 - 5 - INCOME STATEMENT IF THERE-IS CERTAINTY REGARDING IT S ULTIMATE COLLECTIONS. SINCE, BANKING INDUSTRIES ARE COMPLETE LY GOVERNED BY THE RBI, RBI'S GUIDELINES HAVE TO BE FOLLOWED IRRES PECTIVE OF ACCOUNTING STANDARDS AND THAT IS ALSO PERMITTED BY THE ICAI BY PRESCRIBING THAT ACCOUNTING TREATMENT SUGGESTED BY GOVERNING BODY SHALL PREVAIL OVER ACCOUNTING TREATMENT SUGGES TED, BY ANY ACCOUNTING STANDARDS. (F) FURTHER, IT MAY BE SUBMITTED THAT THE TAX IS LE VIED ONLY ON REAL INCOME, IN A SCENARIO THAT INTEREST ON NON-PER FORMING ASSET IS DOUBTFUL OF RECOVERY DUE TO ADVERSE FINANCIAL SI TUATION OF BORROWER, IT IS LEGITIMATE MOVE TO INFER THAT INTER EST FROM SUCH NON- PERFORMING GROWERS IS NOT ACCRUED IN THE YEAR TO WH ICH IT RELATED AND NOT EXIGIBLE TO TAX, IRRESPECTIVE OF THE FACT T HAT ASSESSEE FOLLOWED MERCANTILE SYSTEM OF ACCOUNTING. RELIA NCE IS PLACED ON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE, OF CIT V. VASISTH CHAY VYAPAR LTD [2010-TIOL-781-HC-DEL-IT]. IT IS FURTHER SUBMITTED THAT IT IS ILLUSORY TO TAKE CREDI T FOR INTEREST INCOME WHEN PRINCIPAL, ON WHICH SUCH INTEREST IS DE PENDENT, IS ITSELF IN DOUBT. TO TAKE INTEREST ON SUCH NON-PE RFORMING ADVANCES IN THE SCOPE OF TAXABLE INCOME IS PATENTLY AGAINS T THE THEORY OF REAL INCOME. THE HONBLE SUPREME COURT OF INDIA IN THE CASE, OF UCO BANK VS. CIT [SUPRA] HELD THAT IN VIEW OF CBDT CIRCULAR, DATED 9-10-1984, INTEREST ON A LOAN WHOSE RECOVERY IS DOUBTFUL AND WHICH HAS NOT BEEN RECOVERED BY ASSESSEE BANK FOR Y EARS BUT HAS BEEN KEPT IN A SUSPENSE ACCOUNT AND HAS NOT BEEN BR OUGHT TO PROFIT AND LOSS ACCOUNT OF ASSESSEE, CANNOT BE INCLUDED IN INCOME OF ASSESSEE. FURTHER RELIANCE IS ALSO PLACED ON THE DE CISION OF THE HON'BLE SUPREME COURT OF INDIA IN THE CASE OF MERCA NTILE BANK LTD. VS. CIT [2006] 153 TAXMAN 97, WHEREIN, THE APE X COURT HELD THAT IN VIEW OF DECISION OF SUPREME COURT IN UCO BA NK V. CIT ASSESSEE WOULD NOT LIABLE TO BE TAXED IN RESPECT OF INTEREST ON DOUBTFUL ADVANCES CREDITED TO INTEREST SUSPENSE ACC OUNT. (G) FURTHER WITHOUT PREJUDICE TO THE ABOVE, IN VIEW OF THE FACT THAT BANK HAS BEEN FOLLOWING PRACTICE OF RECOGNIZIN G INTEREST ON NPAS ONLY ACTUAL REALIZATION BASIS AND THE DEPARTME NT HAS ACCEPTED ABOVE, THERE SEEMS NO REASON WHY DIFFERENT TREATMENT ITA NO. 504/RJT/2015 DCIT VS. GONDAL NAGRIK SAHAKARI BANK LTD. ASST.YEAR 2012-13 - 6 - WAS GIVEN IN THE ASSESSMENT AS THERE WAS NO NEW FAC TS EMERGED DURING THE YEAR. IT IS TRUE THAT PRINCIPLE OF RES J UDICATA DOES NOT APPLY TO INCOME TAX PROCEEDING, BUT AT THE SAME TIM E IT IS ALSO WELL-ESTABLISHED THAT THERE OUGHT TO BE UNIFORMITY AND CONSISTENCY WHEN THE FACTS AND CIRCUMSTANCES ARE IDENTICAL. (H) FURTHER AFTER CONSIDERING THE CBDT'S CIRCULAR A S WELL AS THE DECISIONS OF UCO BANK (SUPRA), KARNAVATI CO-OP BANK LTD AND OTHERS HON'BLE JURISDICTIONAL ITAT RAJKOT BENCH IN ITA NO.481/RJT/2011DELETED THE DISALLOWANCE. (I) IN APPELLANT'S OWN CASE LD. CIT(A)-1, RAJKOT V IDE ORDER DATED 08.07.2014 IN APPEAL NO. CIT(A)-I/RJT/0239/13 -14 FOR IMMEDIATE PRECEDING ASSESSMENT YEAR DELETED THE ADD ITION. (J) RELIANCE IS ALSO PLACED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: ITAT PUNE BENCH 'A' IN THE CASE OF ACIT V. OSMANABA D JANTA SAH. BANK LTD. [2013] 32 TAXMANN.COM 229 (PUNE-TRIB.) WH EREIN IT HAS BEEN HELD THAT: '5 WE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND P ERUSED THE RECORD. WE FIND THAT THE IDENTICAL ISSUE HAS BEEN CONSIDERED B Y THE ITAT VISAKHAPATNAM BENCH, IN THE CASE OF DY.CIT V. DURGA CO-OPERATIVE URBAN BANK LTD., [IT APPEAL NO.511/VIZ AG/2010), DATED 10-03-2011. IN THE SAID CASE ALSO, IT WAS NOT ICED BY THE ASSESSING OFFICER THAT ASSESSEE DID NOT INCLUDE THE INTEREST OF RS.18,26,306/- ON THE NPA ADVANCES. AGAIN THE ISSUE OF APPLICABILITY OF 43D WAS CONSIDERED TO THE NON-SCHE DULED BANKS. THE TRIBUNAL PLACED ITS RELIANCE ON THE DECISION OF THE. HON'BLE HIGH COURT OF DELHI IN THE CASE OF CIT V. VASISTH C HAY VYAPAR LTD. [2011] 330 ITR 440/196 TAXMAN 169/[2010] 8 TAX MAN.COM 145 IN WHICH THE HONBLE DELHI HIGH COURT HAS CONSI DERED THE DECISION IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. V. JT. CIT [2010] 320 ITR 577/187 TAXMAN 346 (SC). THE TRIBUNA L FINALLY HELD THAT THE INTEREST INCOME RENTABLE TO NPA ADVAN CES DID NOT ACCRUE TO THE ASSESSES. ITA NO. 504/RJT/2015 DCIT VS. GONDAL NAGRIK SAHAKARI BANK LTD. ASST.YEAR 2012-13 - 7 - 6. AN IDENTICAL VIEW HAS BEEN TAKEN BY THE ITAT, AHMED ABAD BENCH IN THE CASE OF KARNAVATI CO-OP. BANK LTD. V. DY.CIT [2012] 134 ITD 486/17 TAXMANN.COM 239. IN THIS CASE THE TR IBUNAL HAS CONSIDERED THE PROVISIONS OF SECTION 43D AND ITS AP PLICATION TO THE NON-SCHEDULED BANKS. THE REASONS GIVEN BY THE TRIBU NAL IN THE CASE OF KARNAVATI CO-OP. BANK LTD. (SUPRA) FOR HOLD ING THAT INTEREST ON THE STICKY ADVANCES/NPA ADVANCES CANNOT BE BROUGHT TO TAX BY FOLLOWING THE DECISION IN THE CASE OF UCO BANK ( SUPRA), WHICH IS AS UNDER: '15.1 ON CAREFUL ANALYSIS OF THIS SECTION OUR FIRST OBSERVATION IS THAT SECTION 43D IS IN CONTRAST WITH THE FUNDAMENTA L PRINCIPLE OF ACCOUNTANCY. THE CARDINAL PRINCIPLE OF MERCANTILE S YSTEM OF ACCOUNTANCY IS THAT, AN INCOME IS TO BE SHOWN IN TH E BOOKS OF ACCOUNT ON ACCRUAL BASIS. THE PRINCIPLE IS THAT IT IS IMMATERIAL WHETHER IT WAS ACTUALLY RECEIVED OR NOT, BUT IF AN INCOME IS EXPECTED TO BE RECEIVED, THEN IT SHOULD BE BROUGHT TO BOOKS OF ACCOUNT AS AN INCOME ACCRUED TO THE ASSESSEE. CONTR ARY TO THIS RECOGNIZED PRINCIPLE, THIS SECTION HAS PRESCRIBED T HAT AN INCOME BY WAY OF INTEREST SHALL BE CHARGEABLE TO TAX IN THE P REVIOUS YEAR IN WHICH IT IS CREDITED. THE WORDS 'CREDITED' AND 'ACT UALLY RECEIVED' HAS BEEN HIGHLIGHTED HEREINABOVE WHILE REPRODUCING THE SECTION IN QUESTION. THE OTHER DEVIATION FROM THE SAID ACCEPTE D PRINCIPLE OF ACCOUNTANCY IS THAT AN INCOME BY WAY OF INTEREST SH ALL BE CHARGEABLE TO TAX IN THE PREVIOUS YEAR IN WHICH IT IS ACTUALLY RECEIVED. THE ACT SAYS THAT THE INCIDENCE OF 'CREDI T' OR 'ACTUALLY RECEIVED', WHICHEVER IS EARLIER IS TO BE TAKEN INTO ACCOUNT FOR THE PURPOSE OF CHARGEABILITY OF INCOME BY WAY OF INTERE ST. SIMULTANEOUSLY, IT IS NOTEWORTHY THAT THIS SECTION IS AN OVERRIDING SECTION BECAUSE THE OPENING WORD IS 'NOTWITHSTANDIN G ANYTHING TO THE CONTRARY CONTAINED IN ANY OTHER PROVISIONS OF T HIS ACT'. THEREFORE, IN SPITE OF ANYTHING CONTAINED IN THE AC T, THE PROVISIONS OF THIS SECTION SHALL OVERRIDE THOSE PROVISIONS. ON CE THE STATUTE HAS CATEGORICALLY MADE A LAW IN RESPECT OF PUBLIC FINAN CIAL INSTITUTIONS THAT INTEREST IS CHARGEABLE TO TAX EITHER IN THE YE AR IN WHICH CREDITED OR ACTUALLY RECEIVED, WHICHEVER IS EARLIER , THEN IT IS COMPULSORY TO ABIDE BY THE SAID RULE. ACCORDING TO US, NO SCOPE IS LEFT WITH THE REVENUE AUTHORITIES TO IGNORE THESE P ROVISIONS DUE TO ITA NO. 504/RJT/2015 DCIT VS. GONDAL NAGRIK SAHAKARI BANK LTD. ASST.YEAR 2012-13 - 8 - UNAMBIGUOUS USE OF LANGUAGE IN THE SECTION. (II) STATUS OF ASSESSEE FOR THE PURPOSE OF APPLICAT ION SECTION 43-D. AS FAR AS THE STATUS OF THE ASSESSEE IS CONCERNED, THE ASSESSING OFFICER HAS STATED THAT THE ASSESSEE-BANK IS A COOP ERATIVE BANK. UNDISPUTEDLY, THE ASSESSEE IS ALSO GOVERNED BY THE RBI GUIDELINES. VIDE AN EXPLANATION (D) R.W.S. 36(I)(VIIA) ANNEXED TO SECTION 43-D THE DEFINITION OF THE ENTITIES INCORPORATED BY THE SECTION HAVE BEEN DEFINED AND IN THE ABSENCE OF ANY CONTRARY MATERIAL , WE HEREBY HOLD THAT THE ASSESSEE IS COVERED BY ONE OF THE ENT ITIES, HENCE THE PROVISIONS OF SECTION 43-D ARE TO BE APPLIED. (III) APPLICABILITY OF CBDT CIRCULAR. NEXT ISSUE IS THAT WHETHER A CIRCULAR HAVING EFFECT OF RELAXING RIGOUR OF LAW CAN BE TREATED AS INCONSISTENT WITH T HE PROVISIONS OF A STATUE. IN ORDER TO AID PROPER DETERMINATION OF T HE INCOME OF MONEY LENDERS AND BANKS, THE CENTRAL BOARD OF DIREC T TAXES HAS ISSUED A CIRCULAR DATED OCTOBER 6, 1952, PROVIDING THAT WHERE INTEREST ACCRUING ON DOUBTFUL DEBTS IS CREDITED TO A SUSPENS E ACCOUNT, IT NEED NOT BE INCLUDED IN ASSESSEE'S TAXA BLE INCOME, PROVIDED THE INCOME TAX OFFICER IS SATISFIED THAT RECOVERY IS PRACTICALLY IMPROBABLE. THE CBDT U/S.119 OF THE I.T . ACT HAS POWER TO ISSUE CIRCULARS IN EXERCISE OF ITS STATUTO RY POWERS. IF THE BOARD CONSIDER IT NECESSARY TO LAY DOWN CERTAIN RULES AND THEN DIRECT THE SUBORDINATE AUTHORITIES, SUCH DIRECTIONS ARE REQUIRED TO BE FOLLOWED AND SUCH CIRCULAR WOULD BE BINDING ON THE DEPARTMENT UNLESS AND UNTIL HELD AS ULTRA VIRUS BY A COURT OF LAW. THE BOARD HAS POWERS TO RELAX THE SEVERITY OR THE S TRICTNESS OF LAW AND THE AUTHORITIES ARE REQUIRED TO FOLLOW THOSE IN STRUCTIONS AS HELD IN THE CASE OF C.B. GAUTAM V. UNION OF INDIA 1 08 CTR 304 (SC) & 110 CTR 179 (SC); NAVNITLAL C. ZAVERI 56 ITR 198 (SC) AND K.P. VARGHESE 131 ITR 597 (SC). IN THE LAND-MARK DECISION, THE HON'BLE SUPREME COUR T IN THE CASE OF UCO BANK V. CIT [1999] 237 ITR 889 (SC) HAS THER EFORE HELD, FIRST, THAT A BENEFICIAL CIRCULAR IS NOT TO BE TREA TED AS INCONSISTENT ITA NO. 504/RJT/2015 DCIT VS. GONDAL NAGRIK SAHAKARI BANK LTD. ASST.YEAR 2012-13 - 9 - WITH THE PROVISIONS OF STATUTE AND BINDING ON THE A UTHORITIES. SECOND, THAT IN RESPECT OF INTEREST ON 'STICKY ADVA NCES' INTEREST INCOME IS TO BE TAXED ONLY WHEN ACTUALLY RECEIVED A S PRESCRIBED BY CBDT CIRCULAR. HOWEVER, IN THE PAST AN INTERESTING TURN HAD TAKEN PLACE BY AN ORDER OF THE HON'BLE KERALA HIGH COURT IN THE CASE OF STATE BANK OF TRAVANCORE REPORTED IN 110 ITR 336 (KER.), WHERE IN IT WAS HELD THAT THE ASSESSEE, A BANKING COMPANY, DID NOT CREDI T IN ITS ACCOUNT THE INTEREST THAT HAD ACCRUED ON 'STICKY ADVANCES' BECAUSE THE ASSESSEE FELT THAT THE INTEREST COULD NOT TO BE REA LIZED. IT CREDITED THE INTEREST TO A SEPARATE ACCOUNT KNOWN AS 'INTERE ST SUSPENSE ACCOUNT'. ON REFERENCE, THE HON'BLE COURT HAS HELD THAT THERE WAS AN ACCRUAL OF INCOME LIABLE TO INCOME-TAX AND THE A SSESSEE WAS NOT JUSTIFIED IN NOT CREDITING THE INTEREST INCOME ON S UCH 'STICK ADVANCES' IT ITS ACCOUNTS. HOWEVER, LATER ON AT THE HON'BLE APEX COURT WHILE PRONOUNCING THE JUDGMENT OF THE SAID ST ATE BANK OF TRAVANCORE V. CIT REPORTED IN [1986] 158 ITR 102 (S C), THERE WERE HON'BLE THREE JUDGES PRESIDING THE COURT, OUT OF WHICH HON'BLE TWO JUDGES WERE IN THE OPINION THAT THE INT EREST ON 'STICKY ADVANCES' WAS RIGHTLY TREATED AS INCOME WHICH HAD A CCRUED TO THE APPELLANT. THERE WAS A DESCENDING NOTE BY ONE OF TH E HON'BLE JUDGE AND COMMENTED THAT WHETHER AN INCOME ON RECEI PT BASIS OR ON ACCRUAL BASIS, IT IS THE REAL INCOME AND NOT ANY HYPOTHETICAL INCOME WHICH MAY HAVE THEORETICALLY ACCRUED, I.E. S UBJECT TO TAX UNDER THE ACT. NEVERTHELESS, THAT DECISION WAS NOT FOLLOWED WHILE DECIDING THE APPEAL OF UCO BANK (SUPRA) BY THE HON' BLE THREE JUDGES OF THE SUPREME COURT, ALREADY DISCUSSED BY U S SUPRA. WE, THEREFORE SUMMARIZE THAT AS OF NOW THE LAW AS LAID DOWN IN UCO BANK IS THAT IN TERMS OF CBDT CIRCULAR THE INTEREST IS TO BE ADDED AS INCOME ONLY WHEN ACTUALLY RECEIVED OR CREDITED I N RESPECT IF THE 'STICKY ADVANCES' WHILE MAKING ASSESSMENT FOR A FIN ANCIAL INSTITUTION. (IV) INTERPRETATION OF THE LANGUAGE OF THE STATUTE: WE HAVE REPRODUCED VERBATIM THE PROVISIONS OF SECTI ON 43-D OF THE I.T. ACT AND EXPRESSED AN OPINION THAT IF THE STATU TE HAS USED THE ITA NO. 504/RJT/2015 DCIT VS. GONDAL NAGRIK SAHAKARI BANK LTD. ASST.YEAR 2012-13 - 10 - TERMINOLOGY FOR THE CHARGEABILITY OF INTEREST ON TH E BASIS WHEN CREDITED OR ACTUALLY RECEIVED, THEN IN OUR OPIN ION NO AMBIGUITY HAS BEEN LEFT BY THE STATUTE. IF THE STAT UTE IS SO CLEAR THAT AN INTERPRETATION CAN EASILY BE MADE, THEN THAT EXA CT MEANING SHOULD BE GIVEN TO THE LANGUAGE OF THE SECTION. FOR THIS LEGAL PROPOSITION WE PLACE RELIANCE ON KESHAVJI RAVJI AND COMPANY VS. CIT 183 ITR 01(SC), WHEREIN IT WAS HELD AS UNDER: AS LONG AS THERE IS NO AMBIGUITY IN THE STATUTORY LANGUAGE, RESORT TO ANY INTERPRETATIVE PROCESS TO UNFOLD THE LEGISLA TIVE INTENT BECOMES IMPERMISSIBLE. THE SUPPOSED INTENTION OF TH E LEGISLATURE CANNOT THEN BE APPEALED TO WHITTLE DOWN THE STATUTO RY LANGUAGE WHICH IS OTHERWISE UNAMBIGUOUS. IF THE INTENDMENT I S NOT IN THE WORDS, IT IS NOWHERE ELSE. THE NEED FOR INTERPRETAT ION ARISES WHEN THE WORDS USED IN THE STATUTE ARE, ON THEIR OWN TER MS, AMBIVALENT AND DO NOT MANIFEST THE INTENTION OF THE LEGISLATUR E. WHEN WORDS ACQUIRE A PARTICULAR MEANING OR SENSE BE CAUSE OF THEIR AUTHORITATIVE CONSTRUCTION BY SUPERIOR COURTS , THEY ARE PRESUMED TO HAVE BEEN USED IN THE SAME SENSE WHEN U SED IN SUBSEQUENT LEGISLATION IN THE SAME OR SIMILAR CONTE XT. TO SAY THAT THE COURT COULD NOT RESORT TO THE SO-CALLED 'EQUITA BLE CONSTRUCTION' OF A TAXING STATUTE IS NOT TO SAY THAT, WHERE A STR ICT LITERAL CONSTRUCTION LEADS TO A RESULT NOT INTENDED TO SUB- SERVE THE OBJECT OF THE LEGISLATION, ANOTHER CONSTRUCTION, PERMISSIB LE IN THE CONTEXT, SHOULD NOT BE ADOPTED. IN THIS RESPECT, TAXING STAT UTES ARE NOT DIFFERENT FROM OTHER STATUTES.' WE CAN THEREFORE SAFELY DRAW A CONCLUSION THAT BY T HE INSERTION OF A SPECIAL PROVISION TO TAX INTEREST INCOME IN THE C ASE OF PUBLIC FINANCIAL INSTITUTION, ETC. SECTION 43-D HAS TO BE APPLIED IN ITS LETTER AND SPIRIT. IT IS PERTINENT TO MENTION THAT LATER O N, IN THE CASE OF CIT V. BANK OF AMERICA S.A. 262 ITR 504 (BOM) THE Q UESTION OF INTEREST ON 'STICKY LOANS'' WAS DECIDED IN FAVOUR OF THE ASSESSEE AND HELD THAT THE QUESTION IS TO BE ANSWERED IN FAV OUR OF THE ASSESSEE FOLLOWING THE DECISION OF UCO BANK REPORTE D AT 237 ITR 889(5C) :: 240 ITR 355 (SC). LIKEWISE, IN AN ANOTHE R CASE OF CIT V. STATE BANK OF INDIA 262 ITR 662 (BOM.) AGAIN IT WAS HELD THAT ITA NO. 504/RJT/2015 DCIT VS. GONDAL NAGRIK SAHAKARI BANK LTD. ASST.YEAR 2012-13 - 11 - THE AMOUNT CREDITED TO THE INTEREST SUSPENSE ACCOUN T WAS NOT TAXABLE FOLLOWING THE DECISION PRONOUNCED IN THE CA SE OF UCO BANK (SUPRA). (V) JUDGMENT IN FAVOUR OF REVENUES FROM THE SIDE OF THE REVENUE AN ORDER OF THE TRIBUNAL HAS BEEN VEHEMENTLY RELIED UPON AND THIS IS THE BASIC REASON OF THE ELABORATE DISCUSSION MAD E HEREINABOVE SO AS TO UNFOLD THE CONTROVERSY. IN THE SAID DECISI ON OF THE TRIBUNAL, VIZ. JT.CIT V. INDIA EQUIPMENT LEASING LT D. [2008] 111 ITD 37 (CHENNAI), THE RESPECTED CO-ORDINATE BENCH H AS EXPRESSED THAT QUOTE ' PRIOR TO INSERTION OF SECTION 43D WITH EFFECT FROM 1-4- 1991, RECOGNITION OF INCOME WAS ON THE BASIS OF CIR CULAR OF 9-10- 1984. IT SAID THAT FOR FIRST THREE YEARS THE INCOME MAY BE TAKEN ON ACCRUAL BASIS AND FROM 4TH YEAR ONWARDS, THE INCOME IN RESPECT OF DOUBTFUL DEBTS WAS TO BE RECOGNIZED ON RECEIPT BASI S. SINCE THE INCOME WAS TO BE ASSESSED FOR FIRST THREE YEARS ON ACCRUAL BASIS, PROVISIONS OF SECTION 43D WERE INSERTED IN THE ACT. CIRCULAR NO. 621, DATED 19-12-1991 GIVES THE LEGISLATIVE INTENTI ON STATING THAT SECTION 43D WAS INSERTED WITH A VIEW TO IMPROVING T HE VIABILITY OF BANKS, PUBLIC FINANCIAL INSTITUTIONS ETC., SO AS TO PROVIDE THAT INTEREST ON STICKY LOANS SHALL BE CHARGED TO TAX ON LY IN THE YEAR IN WHICH THE INTEREST IS ACTUALLY RECEIVED OR CREDITED TO THE PROFIT AND LOSS ACCOUNT. THIS BENEFIT WAS EXTENDED WITH EFFECT FROM 1-4-2000 IN THE CASE OF PUBLIC COMPANIES ENGAGED IN LONG-TER M FINANCING OF HOUSING PROJECTS APPROVED BY NATIONAL HOUSING BANKS . THE LEGISLATURE IN THEIR WISDOM DID NOT EXTEND THE SAME BENEFIT TO NBFCS WHICH HAS BEEN GIVEN TO SCHEDULED BANKS, PUBL IC FINANCIAL INSTITUTIONS, ETC. THE PROVISIONS OF SECTION 43D AS STOOD AT RELEVANT TIME CONTAINED AN EXPRESSION 'THE INCOME BY WAY OF INTEREST IN RELATION TO SUCH CATEGORIES OF BAD OR DOUBTFUL DEBT S AS MAY BE PRESCRIBED HAVING REGARD TO THE GUIDELINES ISSUED B Y THE RBI IN RELATION TO SUCH DEBTS'. THIS EXPRESSION CONTINUES TO EXIST IN THE NEWLY SUBSTITUTED SECTION 43D APPLICABLE WITH EFFEC T FROM 1-4- 2000. THIS SHOWS THAT THE RBI GUIDELINES IN RESPECT OF SCHEDULED BANKS, PUBLIC FINANCIAL INSTITUTIONS ETC., WERE NOT SUFFICIENT FOR RECOGNITION OF INCOME ON CASH BASIS FOR THE PURPOSE S OF INCOME- TAX. THE INCOME OF SUCH ASSESSEES WAS DETERMINED AS PER CIRCULAR DATED 9-10-1984. BECAUSE OF THIS REASON, SECTION 43 D WAS INSERTED ITA NO. 504/RJT/2015 DCIT VS. GONDAL NAGRIK SAHAKARI BANK LTD. ASST.YEAR 2012-13 - 12 - IN THE STATUTE. RBI GUIDELINES IN CASE OF NBFC ARE FOR THE PURPOSE OF CONTROL AND SUPERVISION WITH RESPECT TO PUBLIC I NTEREST AND VIABILITY OF THE NBFC. THE GUIDELINES NEVER INTENDE D FOR TAKING THE INTEREST INCOME ACCRUED AS PER SECTION 5 OUT OF THE SCOPE OF THE ACT. IF THE CONTENTION OF ASSESSEE WAS ACCEPTED, IT WOULD AMOUNT TO INSERTION OF NBFC IN SECTION 43D, THAT TOO BY A GUI DELINE ISSUED FOR AFFERENT PURPOSES BY AN AUTHORITY OTHER THAN TH E PARLIAMENT. IN OTHER WORDS, THE DOCTRINE OF 'CASUS OMISSUS' WILL D EEM TO HAVE BEEN APPLIED WHICH IS CONTRARY TO LAW OF LAND. 'UNQ UOTE THE BASIC REASON FOR DIRECTING TO ASSESS THE ACCRUED INTEREST ON NPA WAS THE RBI GUIDELINES ISSUED ONLY FOR SCHEDULED BANKS, PUB LIC FINANCIAL INSTITUTIONS AND NOT FOR NBFC. THE OBSERVATION OF THE RESPECTED TRIBUNAL WAS THAT IF THE CONTENTION OF THE ASSESSEE WAS TO BE ACCEPTED, THEN IT WOULD AMOUNT TO INSERTION OF 'NBFC' IN SECTION 43-D OF THE I.T. ACT. AS AGAINST THAT, AS FAR AS TH E ASSESSEE IS CONCERNED, IT IS AN ACCEPTED FACT THAT THE ASSESSEE IS A COOPERATIVE BANK AND NOT A NON-BANKING FINANCIAL COMPANY AND TH IS NOTEWORTHY DISTINCTION HAS ALREADY BEEN APPRECIATED BY US IN ONE OF THE PARAGRAPHS ABOVE. 'THERE IS ONE MORE DECISIO N OF THE HON'BLE APEX COURT WHICH IS YET TO BE MENTIONED WHI LE DISCUSSING THE ARGUMENTS RAISED FROM THE SIDE OF THE REVENUE. A DECISION IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. V. JT. CIT 3 20 ITR 577 (SC) HAS BEEN CITED BUT THE FUNDAMENTAL DIFFERENCE IS TH AT THE ISSUE BEFORE THE HON'BLE COURT WAS IN RESPECT OF PROVISIO N FOR NPA AND DEBITED TO P&L ACCOUNT BY A NBFC. THE SAID PROVISIO N WAS UNDISPUTEDLY MADE BY THE SAID NBFC AS PER THE PRUDE NTIAL NORMS MADE BY THE RESERVE BANK. THEREFORE WE WANT TO MAKE IT CLEAR THAT THE QUESTION FOR CONSIDERATION BEFORE THE HON'BLE C OURT WAS THAT IF A PROVISION FOR DOUBTFUL DEBT IS MADE THEN WHAT WIL L BE THE LEGAL POSITION OF THE APPLICABILITY OF EXPLANATION TO SEC TION 36(1)(VII) OF THE IT. ACT. FOR THE SAKE OF READY REFERENCE, RELEV ANT PARAGRAPH FROM THE HELD PORTION IS REPRODUCED BELOW: 'THE INC OME-TAX IS A TAX ON 'REAL INCOME', I.E., THE PROFITS ARRIVED AT ON COMMERCIAL PRINCIPLES SUBJECT TO THE PROVISIONS OF THE ACT. TH EREFORE, IF BY THE EXPLANATION TO SECTION 36(I)(VII) A PROVISION FOR D OUBTFUL DEBT IS KEPT OUT OF THE AMBIT OF BAD DEBT WHICH IS WRITTEN OFF, THEN ONE HAS TO TAKE INTO ACCOUNT THE EXPLANATION IN COMPUTING T HE TOTAL INCOME UNDER THE INCOME-TAX ACT FALLING WHICH ONE CANNOT A SCERTAIN THE ITA NO. 504/RJT/2015 DCIT VS. GONDAL NAGRIK SAHAKARI BANK LTD. ASST.YEAR 2012-13 - 13 - REAL PROFITS. THE PROVISION FOR NON-PERFORMING ASSE TS DEBITED IN THE PROFIT AND LOSS ACCOUNT UNDER THE RESERVE BANK DIRE CTIONS OF 1998 IS ONLY A NOTIONAL EXPENSE AND, THEREFORE, THERE WO ULD BE ADD BACK TO THAT EXTENT IN THE COMPUTATION OF TOTAL INCOME U NDER THE INCOME- TAX ACT.' THEREFORE THE DISTINCTION CAN EASILY BE D RAWN THAT IN THE APPEAL BEFORE US THE QUESTTION IS ACCRUAL OF INTERE ST INCOME ON STICKY LOAN BUT IN THIS CITED DECISION THE QUESTION BEFORE THE APEX COURT WAS ABOUT THE ADMISSIBILITY OF PROVISION MADE IN RESPECT OF DOUBTFUL DEBTS, (VI) CONCEPT OF REAL INCOME APPROVE D IN THE CASE OF BANKING BUSINESS: BEFORE US, THE THEORY OF 'REAL IN COME' HAS ALSO BEEN ARGUED AND IN SUPPORT A DECISION OF HON'BLE CO URT PRONOUNCED IN THE CASE OF CIT V. GODHRA ELECTRICITY CO.225 ITR 746 (SC). IN SHORT, THE VIEW EXPRESSED WAS THAT IF INCOME DOES NOT RESULT AT ALL, THERE CANNOT BE ANY TAX AND THAT IF AN INCOME HAS NOT MATERIALIZED, THEN MERELY AN ENTRY MADE ABOUT A HYP OTHETICAL INCOME BY FOLLOWING BOOK KEEPING METHODS, THE LIABI LITY TO TAX CANNOT BE ATTRACTED. NOW AT PRESENT THE SITUATION I S THAT THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT V. ELG I FINANCE LTD. 293 ITR 357 (MAD.) HAS TAKEN A VIEW THAT THE ASSESS EE IS A COMPANY ENGAGED IN THE BUSINESS OF LEASE, FINANCE A ND HIRE PURCHASE AND THAT THE PRINCIPLE OF ACCRUAL COMES IN TO PLAY WITHOUT INCOME WAS RECOGNIZED AND THAT THE ASSESSEE HAD CLA SSIFIED ITS ASSETS ON THE BASIS OF NOTIFICATION ISSUED BY R.B.I . AND FOUND THAT CERTAIN ASSETS CAME UNDER THE CATEGORY OF NPA AND T HAT FROM SUCH NPA THE ASSESSEE HAD NOT RECOGNIZED ANY INCOME IN C ONSONANCE WITH THE NOTIFICATION ISSUED BY RBI AND AS-9 ISSUED BY ICAI AND THAT THE ASSESSEE WAS JUSTIFIED IN NOT RECOGNIZING SUCH INCOME. THE COURT HAD FURTHER EXPRESSED THAT THERE WAS NO OCCAS ION TO CONSIDER WHETHER THE PRINCIPLE OF ACCRUAL WOULD ARI SE OR NOT, NEVERTHELESS, THE INTEREST FROM SUCH NPA WOULD BE T AXED IN THE APPROPRIATE ASSESSMENT YEAR ON THE BASIS OF ACTUAL RECEIPT. IT IS WORTH TO MENTION THAT FOR THIS DECISION, THE HON'BL E MADRAS HIGH COURT HAS RELIED UPON AN ANOTHER DECISION OF THE SA ME HIGH COURT PRONOUNCED IN THE CASE OF JT.CIT V. INDIA EQUIPMENT LEASING LTD. 293 ITR 350.' 7. IN THE CASE BEFORE US, ADMITTEDLY, ASSESSEE HAS DIRECTLY TAKEN THE INTEREST TO THE BALANCE SHEET AND IT IS NOT ROU TED THROUGH THE ITA NO. 504/RJT/2015 DCIT VS. GONDAL NAGRIK SAHAKARI BANK LTD. ASST.YEAR 2012-13 - 14 - PROFIT AND LOSS ACCOUNT. MOREOVER, THE ISSUE O F THE TAXABILITY OF THE INTEREST ON THE STICKY LOSSES/ADV ANCES IS COVERED IN FAVOUR OF THE ASSESSES BY THE DECISION OF THE COORD INATE BENCHES IN THE CASE OF THE DURGA CO-OPERATIVE URBAN BANK LTD., (SUPRA) AND KARNAVATI CO-OP, BANK LTD. (SUPRA). WE FIND NO REA SON TO INTERFERE WITH THE REASONED ORDER OF THE LD.CIT(A) AND ACCORD INGLY THE SAME IS CONFIRMED. IN THE RESULT, THE REVENUE'S GROUND I S DISMISSED. HON'BLE ITAT PUNE BENCH 'A', PUNE IN THE CASE OF ACIT, CIRCLE-3, VS. SAMARTH URBAN CO-OPERATIVE, BANK LTD., IN ITA.NO.1558/PN/2011 HAS TAKEN SIMILAR VIEW. HON'BLE ITAT PUNE BENCH 'B' IN THE CASE OF DCIT V S. LAXMI URBAN CO OPERATIVE BANK LTD., IN ITA NO.351/PN/2013 . (J) CONSIDERING THE FACTS AND SUBMISSION AS ABOVE T HE ADDITION MADE BY THE AO IS TOTALLY UNJUSTIFIED ON FACTS AS A LSO IN LAW AND DESERVES TO BE DELETED AND MAY KINDLY BE DELETED.' 3. AGAINST THE SAID ORDER APPELLANT PREFERRED APPEA L BEFORE THE LD. CIT(A) WHO PARTLY ALLOWED THE APPEAL OF THE APPELLA NT. 4. NOW APPEAL IS BEFORE US. 5. WE HAVE GONE THROUGH THE RELEVANT RECORD AND IMP UGNED ORDER. IN THIS CASE, ASSESSEE CITED AN ORDER OF COORDINATE BE NCH AND STATED THAT SIMILAR ADDITIONS WERE ALLOWED BY THE CO-ORDINATE B ENCH IN ASSESSEES OWN CASE AND CITED AN ORDER OF COORDINATE BENCH IN ITA NO.504/RJT/2015 FOR ASST. YEAR 2012-13. IN THIS CASE, APPELLANT IS A CO-OPERATIVE SOCIETY IS ASSESSED TO TAX AND ENGAGED IN THE BUSINESS OF BANK ING AND GOVERNED BY THE BANKING REGULATION ACT, 1949. RETURN OF INCOME FOR ASSESSMENT YEAR UNDER CONSIDERATION WAS E-FILED DECLARING TOTAL INC OME AT ITA NO. 504/RJT/2015 DCIT VS. GONDAL NAGRIK SAHAKARI BANK LTD. ASST.YEAR 2012-13 - 15 - RS.2,59,94,100/-. THE AO VIDE ORDER U/S.143(3) OF T HE ACT DATED 11.03.2015 ASSESSED THE TOTAL INCOME OF RS.3,13,72, 830/-. IT IS ALSO HELD THAT IN THE CASE OF BANKING COMPANI ES, ANY INTEREST ACCRUED ON ADVANCES CLASSIFIED AS NON-PERFORMING IS TAXED IN THE YEAR IN WHICH THE SAME IS ACTUALLY RECEIVED. THE THEORY OF ONLY REAL INCOME IS TO BE TAXED IS A SETTLED LAW AND THEREFORE NOTWITHSTANDING THE APPELLANT HAS BEEN FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THE APPELLANT COULD BE TAXED ON THE REAL INCOME AND NOT ON THE HY POTHETICAL INCOME. 6. SO FAR AS GROUND RELATED TO DELETION OF ADDITION U/S.14A IS CONCERNED. ASSESSEE STATED THAT THE AO HAS NOT MADE ANY SUCH OBSERVATION TO THIS EFFECT THAT HE WAS NOT SATISFIE D WITH THE CORRECTNESS OF THE CLAIM. HE JUST MECHANICALLY WORKED OUT THE DISA LLOWANCE. SECTION 14A HAS NOT CONFIRMED SPECIFIC POWER TO THE AO TO ASSUME THAT A PART OF THE EXPENDITURE MUST HAVE NEC ESSARILY BEEN INCURRED TO EARN EXEMPTED INCOME WHICH HE CAN ESTIMATE AND D ISALLOW. THE AO HAS NO AUTHORITY TO ESTIMATE THE EXPENDITURE WHICH THE APPELLANT WOULD HAVE, IN HIS OPINION, INCURRED IN RELATION TO THE E XEMPTED INCOME. 7. LD. AR CITED OUR CO-ORDINATE BENCH DECISION, ITA T HELD AS FOLLOWS: A PERUSAL OF CASE FILED REVEALS THAT THE REVENUES TWIN SUBSTANTIVE GROUNDS SEEK TO REVIVE ADDITION OF ACCRUED INTEREST ON NPA ACCOUNT OF RS,44,65,000/- AND SECTION 14A DISALLOWANCE OF RS.1 3,45,281/-; RESPECTIVELY. BOTH PARTIES STATED THE OUTSET THAT T HE SAME ARE COVERED BY OUR FINDINGS ON BOTH THE ISSUES IN PRECEDING ASSESS MENT YEARS FORMING PART OF THIS VERY ORDER. WE APPRECIATE THIS FAIR SU BMISSION AND DECIDE ITA NO. 504/RJT/2015 DCIT VS. GONDAL NAGRIK SAHAKARI BANK LTD. ASST.YEAR 2012-13 - 16 - BOTH ISSUES IN ASSESSEE'S FAVOUR. REVENUE'S APPEAL ITA NO.542/RJT/14 IS REJECTED. THESE FIVE REVENUE'S APPEALS ITA NOS. 540, 541, 558 , 559 & 542/RJT/2014 ARE DISMISSED AND ASSESSEE'S C ROSS OBJECTION NO.5/RJT/2015 IN ITA NO.559/RJT/2014 IS ALLOWED FOR STATISTICAL PURPOSES ORDERED ACCORDINGLY. 8. SINCE IN THE PAST SIMILAR ADDITIONS WERE DELETED BY THE CIT(A) AND THEREAFTER CONFIRMED BY THE HONBLE ITAT BENCH. WE ARE NOT INCLINED TO INTERFERE IN THE ORDER PASSED BY THE LD. CIT(A). IN OUR CONSIDERED OPINION, LD. CIT(A) HAS PASSED DETAILED AND REASONED ORDER W HICH DOES NOT REQUIRE ANY KIND OF INTERFERENCE AT OUR END. 9. IN THE RESULT, APPEAL FILED BY THE DEPARTMENT IS DISMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 16 / 01 /201 8 SD/- SD/- ( ) 4 5 ( N.K. BILLAIYA ) ( MAHAVIR PRASAD ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 16/01/2018 PRITI YADAV, SR. PS ITA NO. 504/RJT/2015 DCIT VS. GONDAL NAGRIK SAHAKARI BANK LTD. ASST.YEAR 2012-13 - 17 - # COPY OF THE ORDER FORWARDED TO : 1. !$' / THE APPELLANT 2. ($' / THE RESPONDENT. 3. 67- + 8- / CONCERNED CIT 4. + 8- 4!5 / THE CIT(A)-1, RAJKOT. 5. 9:;-67 !.!672 ! / DR, ITAT, AHMEDABAD 6. ;<=, # GUARD FILE. / BY ORDER, (9-- //TRUE COPY// / !'# ( DY./ASSTT.REGISTRAR) #$ %, / ITAT, AHMEDABAD 1. DATE OF DICTATION 10/01/2018. 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 16/01/2018 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S .. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S. 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER