The Dy. Commissioner of Income Tax, Jalandhar V. The Nawanshahr Central Co-op Bank Ltd, Nawanshahr

ITA 61/ASR/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5766 (ITAT-AMRITSAR)
• Duration Of Justice: 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2013-2014
• Appeal Filed On: 30-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S S KANWAL
• Keywords: Business expenditure; Bad and doubtful debts
• Section: 145; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. T. S. KAPOOR, ACCOUNTANT MEMBER AND SH. N. K. CHOUDHRY, JUDICIAL MEMBER I.T.A. NO. 61/(ASR)/2017 ASSESSMENT YEAR: 2013-14 PAN: AAAAT4125G THE DY. C. I. T. CIRCLE-II, JALANDHAR. VS. THE NAWANSHAHR CENTRAL CO-OP. BANK LTD. NAWANSHAHR, DISTT. DOABA. (APPELLANT) (RESPONDENT) APPELLANT BY : SH. S. S. KANWAL (D. R.) RESPONDENT BY: SH. RAKESH JOSHI (ADV.) DATE OF HEARING: 24.10.2017 DATE OF PRONOUNCEMENT: 03.01.201 8 ORDER PER T. S. KAPOOR (AM): THIS IS AN APPEAL FILED BY REVENUE AGAINST THE ORDE R OF LD. CIT(A), JALANDHAR, DATED 16.12.2016 FOR ASST. YEAR: 2013-14 . 2. THE GROUNDS OF APPEAL TAKEN BY REVENUE ARE REPRO DUCED BELOW: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN DELETING TH E ADDITION OF RS. 1,13,35,169/- MADE BY THE A.O. ON ACCOUNT OF DISALL OWANCE OF INTEREST ON NON PERFORMING ASSETS.' 1(A). THAT WHILE DELETING HE ABOVE ADDITION OF RS. 1,13,35,169/-LD. CIT(A) HAS ERRED ON FACTS AS WELL AS IN LAW BY IGNORING TH E FACT THAT THE ASSESSEE IS NEITHER FOLLOWING MERCANTILE* SYSTEM OF ACCOUNTI NG NOR CASH SYSTEM OF ACCOUNTING AND IS IN FACT FOLLOWING A MIXED/HYBRID SYSTEM OF ACCOUNTING, WHICH IS NOT A RECOGNIZED SYSTEM OF ACCOUNTING. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN DELETING THE AD DITION OF RS. 34,00,000/- MADE BY THE A.O. ON ACCOUNT OF DISALLOWANCE OF PROV ISION AGAINST STANDARD ASSETS. ITA NO. 61(ASR)/2017 ASSESSMENT YEAR: 2013-14 2 1(A). THAT WHILE DELETING THE ABOVE ADDITION OF RS. 34,00,000/-LD. CIT(A) HAS ERRED ON FACTS AS WELL AS IN LAW BY IGNORING TH E FACT THAT THIS DISALLOWANCE WAS MADE BY THE A.O. IN THE LIGHT OF P ROVISIONS OF SECTION 36(L)(VIIA) OF THE INCOME TAX ACT, 1961 WHEREIN ONL Y PROVISIONS IN CASE OF BAD AND DOUBTFUL DEBTS HAS BEEN MENTIONED AS ALLO WABLE WHEREAS IN ASSESSEES CASE THE PROVISION PERTAINS TO STANDARD ASSETS 3. IT IS PRAYED THAT THE ORDER OF THE LD.CIT(A) BE SET-ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 4. THAT THE APPELLANT REQUESTS FOR LEAVE TO ADD OR AMEND OR ALTER THE GROUNDS OF APPEAL BEFORE THE APPEAL IS HEARD AND DI SPOSED OFF. 3. AT THE OUTSET, THE LD. AR SUBMITTED THAT THE ISS UES INVOLVED IN THIS CASE ARE SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE HON'BLE TRIBUNAL IN ITA NO. 652/ASR/2015, 604&605/A SR/2016 IN THE CASE OF M/S JALANDHAR CENTRAL COOPERATIVE BANK LTD. AND ALSO COVERED BY THE ORDER OF THE TRIBUNAL IN THE CASE OF M/S PUN JAB GRAMIN BANK AND MOGA CENTRAL COOPERATIVE BANK LTD. VIDE ORDER DATED 04.10.2017 AND 15.03.2017 RESPECTIVELY. 4. THE LD. AR SUBMITTED THAT THE ISSUES INVOLVED AR E ADDITIONS ON ACCOUNT OF PROVISION OF INTEREST ON NON PERFORMING ASSETS AND DISALLOWANCE OF PROVISIONS AGAINST STANDARD ASSETS. 5. THE LD. DR FAIRLY ACCEPTED THAT THE ISSUES ARE C OVERED IN FAVOUR OF THE ASSESSEE. 6. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE TH OUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT THE ASSESSING OFFICE R HAS DISALLOWED THE PROVISIONS WHICH THE ASSESSEE HAS MADE ON STANDARD ASSETS AND HAS ALSO MADE ADDITION ON ACCOUNT OF INTEREST ON NON PERFORM ING ASSETS WHICH THE ASSESSEE HAD NOT TAKEN INTO ACCOUNT. WE FIND TH AT THESE ISSUES ARE ITA NO. 61(ASR)/2017 ASSESSMENT YEAR: 2013-14 3 SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE O RDERS OF THE TRIBUNAL IN THE CASE OF M/S PUNJAB GRAMIN BANK AND ALSO IN T HE CASE OF MOGA CENTRAL COOPERATIVE BANK. THE FINDINGS OF THE HON'B LE TRIBUNAL IN THE CASE OF MOGA CENTRAL COOPERATIVE BANK ARE REPRODUCE D BELOW: 6. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE THOUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT THE ISSUE INVOLVED I N THESE APPEALS, IS REGARDING NON DECLARATION OF INTEREST INCOME ON NON PERFORMING ASSETS BY THE ASSESSEE. THE HON'BLE AMRITSAR BENCH IN THE CAS E OF JALANDHAR CENTRAL CO-OPERATIVE BANK LTD. VIDE ITS ORDER DATED 20.01.2 017 HAS DISMISSED THE APPEALS FILED BY REVENUE AND SIMILARLY IN THE CASE OF KAPURTHALA CENTRAL CO-OPERATIVE BANK LTD., THE AMRITSAR BENCH HAS AGAI N DISMISSED THE APPEALS FILED BY REVENUE ON SIMILAR ISSUE. THE HON' BLE CHANDIGARH BENCH VIDE ITS ORDER DATED 03.01.2017 IN ITA NO. 526/CHD/ 2013 HAS ALSO DISMISSED THE APPEAL FILED BY REVENUE UNDER SAME FA CTS AND CIRCUMSTANCES. WHILE DISMISSING THE APPEAL, THE HON 'BLE TRIBUNAL HAS DISCUSSED THE CASE LAW OF HON'BLE SUPREME COURT IN THE CASE OF STATE BANK OF TRAVANCORE AND HAS HELD THAT IT HAS BEEN OVERRUL ED BY THE APEX COURT ITSELF IN THE CASE OF UCO BANK LTD. (SUPRA) AND THE REFORE THE GRIEVANCE OF THE REVENUE IS NOT JUSTIFIED. FOR THE SAKE OF COMPL ETENESS THE DECISION OF THE HON'BLE CHANDIGARH BENCH OF TRIBUNAL IN THE CAS E OF LUDHIANA CENTRAL CO-OPERATIVE BANK LTD. THE FINDINGS OF HON'BLE TRIB UNAL AS CONTAINED FROM PARA 13 ARE REPRODUCED BELOW: 13. WE FIND THAT THE ISSUE OF ACCOUNTING FOR INTER EST ON STICKY LOANS/NPAS, HAS BEEN DEALT WITH IN A NUMBER OF DEC ISIONS BOTH BY THE APEX COURT AND VARIOUS HIGH COURTS AND TRIBUNAL S ALSO, WHEREIN AFTER APPLYING THE REAL INCOME THEORY, TH E PRESCRIBED ACCOUNTING STANDARD ISSUED BY ICAI ON REVENUE RECOG NITION, AS-9, THE ACCOUNTING PRACTICE OF THE ASSESSEE RELATING TO INTEREST ON STICKY LOANS AND THE RBI GUIDELINES RELATING TO ACCOUNTING FOR INTEREST ON NPAS, IT WAS HELD THAT SUCH INCOME WAS TAXABLE IN THE YEAR OF RECEIPT ONLY, WHEN ITS REALIZATION BECOMES REASONAB LY CERTAIN. 14. THE APEX COURT IN THE CASE OF UCO BANK, CALCUTT A VS. CIT, WEST BENGAL (1999) 4 SUPREME COURT CASES 599 APPROVED TH E RECEIPT BASIS OF ACCOUNTING FOR INTEREST ON LOANS WHOSE REC OVERY WAS DOUBTFUL, HOLDING 10 THE SAME TO BE IN ACCORDANCE W ITH ACCOUNTING PRACTICE AND IN CONFORMITY WITH THE METHOD PRESCRIB ED UNDER SECTION 145 OF THE ACT. THE RELEVANT FINDINGS OF THE APEX C OURT ARE AS FOLLOWS: WE HAVE TO CONSIDER WHETHER INTEREST ON A LOAN WHO SE RECOVERY IS DOUBTFUL AND WHICH HAS NOT BEEN RECOVER ED BY THE ASSESSEE-BANK FOR THE LAST THREE YEARS BUT HAS BEEN KEPT IN A SUSPENSE ACCOUNT AND HAS NOT BEEN BROUGHT TO T HE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE, CAN BE INCLUDED I N THE ITA NO. 61(ASR)/2017 ASSESSMENT YEAR: 2013-14 4 INCOME OF THE ASSESSEE FOR THE ASSESSMENT YEAR 1981 -82. IT IS THE CASE OF THE ASSESSEE THAT IN RESPECT OF LOAN S WHICH ARE ADVANCED BY IT TO VARIOUS CUSTOMERS, RECOVERY OF SO ME LOANS IS VERY DOUBTFUL. IT IS DOUBTFUL WHETHER EVEN THE I NTEREST ON THE LOANS ADVANCED WILL BE RECOVERED FROM THE CUSTO MER. IN SUCH CASES, THE INTEREST CALCULATED ON THE LOAN AMO UNT IS CREDITED IN A SUSPENSE ACCOUNT. THIS AMOUNT IS NOT BROUGHT TO THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE-BANK BECAUSE THESE ARE AMOUNTS WHICH ARE NOT LIKELY TO BE REALIZ ED BY THE BANK. HENCE THEY DO NOT FORM A PART OF THE REAL INC OME OF THE BANK. IF AND WHEN ANY SUCH AMOUNT OR A PART OF IT I S RECOVERED, IT IS INCLUDED IN THAT ASSESSMENT YEAR I N THE TOTAL INCOME OF THE ASSESSEE FOR THE PURPOSE OF PAYMENT O F INCOME- TAX. THE METHOD OF ACCOUNTING WHICH IS FOLLOWED BY THE ASSESSEE-BANK IS MERCANTILE SYSTEM OF ACCOUNTING. H OWEVER, THE ASSESSEE CONSIDERS INCOME BY WAY OF INTEREST PE RTAINING TO DOUBTFUL LOANS AS NOT REAL INCOME IN THE YEAR IN WHICH IT ACCRUES, BUT ONLY WHEN IT IS REALIZED. A MIXED METH OD OF ACCOUNTING IS THUS FOLLOWED BY THE ASSESSEE-BANK. T HIS METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE IS IN ACCORDANCE WITH ACCOUNTING PRACTICE. IN SPICER AND PEGLER'S PRACTICAL AUDITING THE RELEVANT PASSAGE OCCURRING A T PAGE 186-187 HAS BEEN REPRODUCED IN THE MINORITY JUDGMEN T OF THIS COURT IN STATE BANK OF TRAVANCORE V. COMMISSIO NER OF INCOME-TAX, KERALA [(1986) 158 ITR 102 AT P.I2O]. I T IS AS FOLLOWS: 'WHERE INTEREST HAS NOT BEEN PAID, IT IS S OMETIMES LEFT OUT OF ACCOUNT ALTOGETHER. THIS PREVENTS THE P OSSIBILITY OF IRRECOVERABLE INTEREST BEING CREDITED TO REVENUE, A ND DISTRIBUTED AS PROFIT. ON THE OTHER HAND, THIS TREA TMENT DOES NOT RECORD THE ACTUAL STATE OF THE LOAN ACCOUNT, AN D IN THE CASE OF BANKS AND OTHER CONCERNS WHOSE BUSINESS IT IS TO ADVANCE MONEY, IT IS USUAL TO FIND THE INTEREST IS REGULARLY CHARGED UP, BUT WHEN ITS RECOVERY IS DOUBTFUL, THE AMOUNT THEREOF IS EITHER FULLY PROVIDED AGAINST OR TAKEN T O THE CREDIT OF AN INTEREST SUSPENSE ACCOUNT AND CARRIED FORWARD AND NOT TREATED AS PROFIT UNTIL ACTUALLY RECEIVED.' SIMILAR LY, REFERRING TO INTEREST ON DOUBTFUL DEBTS, SHUKLA AND GREWAL ON ADVANCED ACCOUNTS, NINTH EDITION AT PAGE 1089 STATE AS FOLLOWS: 'INTEREST ON DOUBTFUL DEBTS SHOULD BE DEBI TED TO THE LOAN ACCOUNT CONCERNED BUT SHOULD NOT BE CREDITED T O INTEREST ACCOUNT. INSTEAD, IT SHOULD BE CREDITED TO INTEREST SUSPENSE ACCOUNT. TO THE EXTENT THE INTEREST IS RECEIVED IN CASH, THE INTEREST SUSPENSE ACCOUNT SHOULD BE TRANSFERRED TO INTEREST ACCOUNT; THE REMAINING AMOUNT SHOULD BE CLOSED BY T RANSFER TO THE LOAN ACCOUNT. THIS TREATMENT ACCORDS WITH TH E 11 PRINCIPLE THAT NO ITEM SHOULD BE TREATED AS INCOME UNLESS IT HAS BEEN RECEIVED OR THERE IS A REASONABLE CERTAINT Y THAT IT WILL BE REALIZED. (VIDE STATE BANK OF TRANVACORE V. CIT [SUPRA]) THE ASSESSEE'S METHOD OF ACCOUNTING, THEREFORE, TRANSFERRING THE D OUBTFUL DEBT TO AN INTEREST SUSPENSE ACCOUNT AND NOT TREATI NG IT AS ITA NO. 61(ASR)/2017 ASSESSMENT YEAR: 2013-14 5 PROFIT UNTIL ACTUALLY RECEIVED, IS IN ACCORDANCE WI TH ACCOUNTING PRACTICE. UNDER SECTION 145 OF THE INCOME-TAX ACT, 1961, INCO ME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUS INESS OR PROFESSION OR INCOME FROM OTHER SOURCES' SHALL BE C OMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULAR LY EMPLOYED BY THE ASSESSEE; PROVIDED THAT IN A CASE W HERE THE ACCOUNTS ARE CORRECT AND COMPLETE BUT THE METHOD EM PLOYED IS SUCH THAT IN THE OPINION OF THE INCOME- TAX OFFI CER, THE INCOME CANNOT PROPERLY BE DEDUCED THEREFROM, THE COMPUTATION SHALL BE MADE IN SUCH MANNER AND ON SUC H BASIS AS THE INCOME-TAX OFFICER MAY DETERMINE. IN T HE PRESENT CASE THE METHOD EMPLOYED IS ENTIRELY FOR A PROPER DETERMINATION OF INCOME. (EMPHASIS SUPPLIED BY US) 15. FURTHER THE APEX COURT ALSO REFERRED TO THE CBD T CIRCULAR DATED 9T H OCTOBER 1984 STATING THAT INTEREST ON LOANS ON WHICH THERE HAS BEEN NO RECOVERY FOR 3 YEARS WILL BE SUBJECTED TO T AX ON RECEIPT BASIS, AND HELD AS FOLLOWS: THE QUESTION WHETHER INTEREST EARNED, ON WHAT HAVE COME TO BE KNOWN AS 'STICKY' LOANS, CAN BE CONSIDERED AS IN COME OR NOT UNTIL ACTUAL REALIZATION, IS A QUESTION WHICH M AY ARISE BEFORE SEVERAL INCOME TAX OFFICERS EXERCISING JURIS DICTION IN DIFFERENT PARTS OF THE COUNTRY. UNDER THE ACCOUNTIN G PRACTICE, INTEREST WHICH IS TRANSFERRED TO THE SUSPENSE ACCOU NT AND NOT BROUGHT TO THE PROFIT AND LOSS ACCOUNT OF THE COMPA NY IS NOT TREATED AS INCOME. THE QUESTION WHETHER IN A GIVEN CASE SUCH 'ACCRUAL' OF INTEREST IS DOUBTFUL OR NOT, MAY ALSO BE PROBLEMATIC. IF, THEREFORE, THE BOARD HAS CONSIDERE D IT NECESSARY TO LAY DOWN A GENERAL TEST FOR DECIDING W HAT IS A DOUBTFUL DEBT, AND DIRECTED THAT ALL INCOME TAX OFF ICERS SHOULD TREAT SUCH AMOUNTS AS NOT FORMING PART OF TH E INCOME OF THE ASSESSEE UNTIL REALIZED, THIS DIRECTION BY W AY OF A CIRCULAR CANNOT BE CONSIDERED AS TRAVELLING BEYOND THE POWERS OF THE BOARD UNDER SECTION 119 OF THE INCOME TAX ACT. SUCH A CIRCULAR IS BINDING UNDER SECTION 119. THE CIRCULAR OF 9TH OF OCTOBER, 1984, THEREFORE, PROVID ES A TEST FOR RECOGNIZING WHETHER A CLAIM FOR INTEREST CAN BE TRE ATED AS A DOUBTFUL CLAIM UNLIKELY TO BE RECOVERED OR NOT. THE TEST PROVIDED BY THE SAID CIRCULAR IS TO SEE WHETHER, AT THE END OF THREE YEARS, THE AMOUNT OF INTEREST HAS, IN FACT, B EEN RECOVERED BY THE BANK OR NOT. IF IT IS NOT RECOVERE D FOR A PERIOD OF THREE YEARS, THEN IN THE FOURTH YEAR AND ONWARDS THE CLAIM FOR INTEREST HAS TO BE TREATED AS A DOUBT FUL CLAIM WHICH NEED NOT BE INCLUDED IN THE INCOME OF THE ASS ESSEE UNTIL IT IS ACTUALLY RECOVERED. 16. THIS VIEW WAS REAFFIRMED IN A LATER JUDGMENT BY THE APEX COURT IN MERCANTILE BANK LTD., VS. CIT, BOMBAY CITY-III ( 2006) 5 SSC 221. ITA NO. 61(ASR)/2017 ASSESSMENT YEAR: 2013-14 6 17. FURTHER THE ISSUE OF TAXABILITY OF INTEREST ON NPA ACCOUNTS ON RECEIPT BASIS BY COOPERATIVE BANKS HAS BEEN DEALT W ITH BY VARIOUS HIGH COURTS, WHEREIN IT WAS HELD THAT THE ASSESSEE WAS BOUND BY RBI GUIDELINES TO ACCOUNT FOR SUCH INTEREST ON RECE IPT BASIS AND BY VIRTUE OF THE PROVISIONS OF SECTION 45Q OF THE RBI ACT, THE RBI GUIDELINES HAD AN OVERRIDING EFFECT OVER OTHER ACTS INCLUDING THE INCOME TAX ACT, 1961. 18. THE GUJARAT HIGH COURT IN THE CASE OF PR.CIT-5 VS. SHRI MAHILA SEWA SAHAKARI BANK LTD. (TAX APPEAL NO.531 OF 2015 DATED 5.8.2016 ,RELYING UPON THE DECISION OF THE APEX COU RT IN SOUTHERN TECHNOLOGIES LIMITED VS JCIT, COIMBATORE,(2010) 320 ITR 577,HELD THAT SO FAR AS INCOME RECOGNITION WAS CONCERNED EVE N THE AO HAD TO FOLLOW THE RBI DIRECTIONS,1998 IN VIEW OF SECTIO N 45Q OF THE RBI ACT AND SECTION 145 OF THE INCOME TAX ACT HAD NO RO LE TO PLAY IN THE SAME. THE HONBLE COURT HELD AT PARA 20 TO 23 OF IT S ORDER AS FOLLOWS: 20. SECTION 45Q FINDS PLACE IN CHAPTER IIIB OF THE RBI ACT. THUS, THE PROVISIONS OF CHAPTER IIIB OF THE RBI ACT HAVE AN OVERRIDING EFFECT QUA OTHER ENACTMENTS TO THE EXTEN T THE SAME ARE INCONSISTENT WITH THE PROVISIONS CONTAINED THER EIN. IN ORDER TO REFLECT A BANK'S ACTUAL FINANCIAL HEALTH I N ITS BALANCE SHEET, THE RESERVE BANK HAS INTRODUCED PRUDENTIAL 1 3 NORMS FOR INCOME RECOGNITION, ASSET CLASSIFICATION AND PR OVISIONING FOR ADVANCES PORTFOLIO OF THE CO-OPERATIVE BANKS. T HE GUIDELINES PROVIDED THEREUNDER ARE MANDATORY AND IT IS INCUMBENT UPON ALL CO-OPERATIVE BANKS TO FOLLOW THE SAME. INSOFAR AS INCOME RECOGNITION IS CONCERNED, CLAUSE 4.1.1 OF THE CIRCULAR PROVIDES THAT THE POLICY OF INCOME REC OGNITION HAS TO BE OBJECTIVE AND BASED ON THE RECORD OF RECOVERY . INCOME FROM NON-PERFORMING ASSETS (NPA) IS NOT RECOGNISED ON ACCRUAL BASIS BUT IS BOOKED AS INCOME ONLY WHEN IT IS ACTUALLY RECEIVED. THEREFORE, BANKS SHOULD NOT TAKE TO INCOME ACCOUNT INTEREST ON NON-PERFORMING ASSETS ON ACCRUA L BASIS. THUS, IN VIEW OF THE MANDATE OF THE RBI GUIDELINES THE ASSESSEE CANNOT RECOGNISE INCOME FROM NON-PERFORMIN G ASSETS ON ACCRUAL BASIS BUT CAN BOOK SUCH INCOME ON LY WHEN IT IS ACTUALLY RECEIVED. THUS, THIS IS A CASE WHERE AT THE THRESHOLD, THE ASSESSEE, IN VIEW OF THE RBI GUIDELI NES, CANNOT RECOGNIZE INCOME FROM NPA ON ACCRUAL BASIS. THIS IS, THEREFORE, A CASE PERTAINING TO RECOGNITION OF INCO ME AND NOT COMPUTATION OF THE INCOME OF THE ASSESSEE. 21. THE SUPREME COURT IN SOUTHERN TECHNOLOGIES LIMITED (SUPRA) HAS HELD THAT THE 1998 DIRECTIONS ARE ONLY DISCLOSURE NORMS AND HAVE NOTHING TO DO WITH COMPUTATION OF TO TAL INCOME UNDER THE IT ACT OR WITH THE ACCOUNTING TREA TMENT. THE 1998 DIRECTIONS ONLY LAY DOWN THE MANNER OF PRESENTATION OF NPA PROVISION IN THE BALANCE SHEET OF AN NBFC. THE COURT HAS REFERRED TO THE DEVIATIONS BETW EEN THE RBI DIRECTIONS AND THE COMPANIES ACT AS FOLLOWS: ITA NO. 61(ASR)/2017 ASSESSMENT YEAR: 2013-14 7 '42. BROADLY, THERE ARE THREE DEVIATIONS: (I) IN THE MATTER O F PRESENTATION O F FINANCIAL STATEM ENTS UNDER SCHEDULE VI TO THE COMPANIES ACT; (II) IN NOT RECOGNIZING THE 'INCOME' UNDER THE MERCANTIL E SYSTEM O F ACCOUNTING AND ITS INSISTENCE TO FOLLOW CASH SYSTEM WITH RESPECT TO ASSETS CLASSIFIED AS 14 NPA AS PER ITS NORMS; (III) IN CREATING A PROVISION FOR ALL NPAS SUMMARILY AS AGAINST CREATING A PROVISION ONLY WHEN THE DEBT IS DOUBTFUL O F RECOVERY UNDER THE NORMS OF THE ACCOUNTING STANDARDS ISSUED BY THE INSTITUTE O F CHARTERED ACCOUNTANTS OF INDIA. THESE DEVIATIONS PREVAIL OVER CERTAIN PROVISIONS OF THE COMPANIES ACT, 1956 TO PROTECT THE DEPOSITORS IN TH E CONTEXT O F INCOME RECOGNITION AND PRESENTATION O F THE ASSETS AND PROVISIONS CREATED AGAINST THEM. THUS, T HE P&L ACCOUNT PREPARED BY NBFC IN TERMS O F THE RBI DIRECTIONS, 1998 DOES NOT RECOGNIZE 'INCOME FROM NP A' AND, THEREFORE, DIRECTS A PROVISION TO BE MADE IN T HAT REGARD AND HENCE AN 'ADD BACK'. IT IS IMPORTANT TO NOTE THAT 'ADD BACK' IS THERE ONLY IN THE CASE O F PROVISIONS. [EMPHASIS SUPPLIED]' 22. THEREFORE, IN TERMS OF THE ABOVE DECISION, WHER E AN ASSESSEE MAKES PROVISION FOR NPA AND SEEKS DEDUCTION OF SUCH AMOUNT UNDER SECTION 36(1)(VII) O R SECTION 37 OF THE ACT, THEN IN THE COMPUTATION OF INCOME, THE RBI GUIDELINES WOULD HAVE NO ROLE TO PL AY, AND HENCE, AN ADD BACK. INSOFAR AS INCOME RECOGNITION IS CONCERNED, THE SUPREME COURT HAS HEL D THUS: 'APPLICABILITY OF SECTION 145 57. AT THE OUTSET, WE MAY STATE THAT IN ESSENCE THE RBI DIRECTIONS, 1998 ARE PRUDENTIAL/PROVISIONING NORMS ISSUED BY RBI UNDER CHAPTER III-B O F THE RBI ACT, 1934. THESE NORMS DEAL ESSENTIALLY WITH INCOME RECOGNITION. THEY FORCE THE NBFCS TO DISCLOSE THE AMOUNT O F NPA IN THEIR FINANCIAL ACCOUNTS. THEY FO RCE THE NBFCS TO REFLECT 'TRUE AND CORRECT' PROFITS. BY VIRTUE O F SECTION 45-Q, AN OVERRIDING EFFECT IS GI VEN TO THE RBI DIRECTIONS, 1998 VIS-A-VIS 'INCOME RECOGNIT ION' PRINCIPLES IN THE COMPANIES ACT, 1956. THESE DIRECTIONS CONSTITUTE A CODE BY ITSELF. HOWEVER, TH ESE RBI DIRECTIONS, 15 1998 AND THE IT ACT OPERATE IN DIFFERENT AREAS. THESE RBI DIRECTIONS, 1998 HAVE ITA NO. 61(ASR)/2017 ASSESSMENT YEAR: 2013-14 8 NOTHING TO DO WITH COMPUTATION O F TAXABLE INCOME. THESE DIRECTIONS CANNOT OVERRULE THE 'PERMISSIBLE DEDUCTIONS' OR 'THEIR EXCLUSION' UNDER THE IT ACT. THE INCONSISTENCY BETWEEN THESE DIRECTIONS AND THE COMPANIES ACT IS ONLY IN THE MATTER OF INCOME RECOGNITION AND PRESENTATION O F FINANCIAL STATEMEN TS. THE ACCOUNTING POLICIES ADOPTED BY AN NBFC CANNOT DETERMINE THE TAXABLE INCOME. IT IS WELL SETTLED TH AT THE ACCOUNTING POLICIES FOLLOWED BY A COMPANY CAN B E CHANGED UNLESS THE AO COMES TO THE CONCLUSION THAT SUCH CHANGE WOULD RESULT IN UNDERSTATEMENT OF PROFI TS. HOWEVER, HERE IS THE CASE WHERE THE AO HAS TO FOLLO W THE RBI DIRECTIONS, 1998 IN VIEW O F SECTION 45-Q O F THE RBI ACT. HENCE, AS FAR AS INCOME RECOGNITION IS CONCERNED, SECTION 145 OF THE IT ACT HAS NO ROLE TO PLAY IN THE PRESENT DISPUTE.' THUS, INSOFAR AS INCOME RECOGNITION IS CONCERNED, T HE COURT HAS HELD THAT EVEN THE ASSESSING OFFICER HAS TO FOLLOW THE RBI DIRECTIONS, 1998 IN VIEW OF SECTION 45Q OF THE RBI ACT AND THAT AS FAR AS INCOME RECOGNITIO N IS CONCERNED, SECTION 145 OF THE INCOME TAX ACT, HAS N OT ROLE TO PLAY. 23. IN THE LIGHT OF THE ABOVE DISCUSSION WHAT EMERG ES IS THAT WHILE DETERMINING THE TAX LIABILITY OF AN ASSESSEE, TWO FACTORS WOULD COME INTO PLAY. FIRSTLY , THE RECOGNITION OF INCOME IN TERMS OF THE RECOGNIZE D ACCOUNTING PRINCIPLES AND AFTER SUCH INCOME IS RECOGNIZED, THE COMPUTATION THEREOF, IN TERMS OF TH E PROVISIONS OF THE INCOME TAX ACT, 1961. INSOFAR AS THE COMPUTATION OF TAXABILITY IS CONCERNED, THE SAME IS SOLELY GOVERNED BY THE PROVISIONS OF THE INCOME TAX ACT AND THE ACCOUNTING PRINCIPLES HAVE NO ROLE TO P LAY. HOWEVER, RECOGNITION OF INCOME STANDS ON A DIFFEREN T FOOTING. INSOFAR AS INCOME RECOGNITION IS CONCERNED , IT WOULD BE THE RBI DIRECTIONS WHICH WOULD PREVAIL IN VIEW OF THE PROVISIONS OF SECTION 45Q OF THE RBI AC T AND SECTION 145 WOULD HAVE NO ROLE TO PLAY. HENCE, THE ASSESSING OFFICER HAS TO FOLLOW THE RBI DIRECTIONS. 19. FURTHER RELYING UPON THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF CIT VS. VASISTH CHAY VYAPAR LTD. (20 11) 330 ITR 440, THE COURT HELD THAT THE AO HAS TO FOLLOW R BI DIRECTIONS ON REVENUE RECOGNITION, AND HELD AS FOLL OWS: 25. THE DISTINCTION DRAWN BY THE DELHI HIGH COURT IS THAT WHILE THE ACCOUNTING POLICIES OF ADOPTED BY TH E NBFC CANNOT DETERMINE THE TAXABLE INCOME. HOWEVER, INSOFAR AS INCOME RECOGNITION IS CONCERNED, THE ITA NO. 61(ASR)/2017 ASSESSMENT YEAR: 2013-14 9 ASSESSING OFFICER HAS TO FOLLOW THE RBI DIRECTIONS, 1998 IN VIEW OF SECTION 45Q OF THE RBI ACT. THAT INSOFAR AS INCOME RECOGNITION IS CONCERNED, SECTION 145 OF THE INCOME TAX ACT, 1961 HAS NO ROLE TO PLAY . 20. THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. DE OGIRI NAGARI SAHAKARII BANK LTD. & OTHERS, 379 ITR 241 RE ITERATED THE ABOVE PROPOSITION BY HOLDING AT PARA 9 OF ITS O RDER AS FOLLOWS : 9. THE INCOME TAX APPELLATE TRIBUNAL HAS REFERRED THE CASE OF M/S. VASISTH CHAY VYAPAR LIMITED 330 ITR 440 (DELHI). IN THIS CASE, THE REVENUE RELIED U PON THE DECISION OF THE HON'BLE SUPREME IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. SUPRA. THE LEARNED INCOM E TAX APPELLATE TRIBUNAL HAS REPRODUCED THE OBSERVATIONS MADE BY THE DELHI HIGH COURT WHILE REFERRING THE SAID CASE OF M/S SOUTHERN TECHNOLOGIE S LIMITED SUPRA. THE ASSESSEE HEREIN BEING A COOPERATIVE BANK ALSO GOVERNED BY THE RESERVE BANK OF INDIA AND THUS THE DIRECTIONS WITH REGARD TO THE PRUDENTIAL NORMS ISSUED BY THE RESERVE BANK OF INDI A ARE EQUALLY APPLICABLE TO THE CO-OPERATIVE BANKS. T HE HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LIMITED SUPRA HELD THAT, PROVISIONS OF SECTION 45Q OF RESERVE BANK OF 17 INDIA ACT HAS AN OVERRIDING EFFECT VIS-A-VIS INCOME RECOGNITION PRIN CIPLE UNDER THE COMPANIES ACT. HENCE, SECTION 45Q OF THE RBI ACT SHALL HAVE OVERRIDING EFFECT OVER THE INCOM E RECOGNITION PRINCIPLE FOLLOWED BY COOPERATIVE BANKS . HENCE, THE ASSESSING OFFICER HAS TO FOLLOW THE RESE RVE BANK OF INDIA DIRECTIONS 1998, AS HELD BY THE HON'B LE SUPREME COURT. 21. FURTHER RELYING UPON THE DECISION OF THE APEX C OURT IN THE CASE OF UCO BANK, CALCUTTA AND MERCANTILE BANK LTD. (SUPRA) IT ALLOWED THE ASSESSEES APPEAL. 22. IT IS EVIDENT FROM THE ABOVE THAT THE ISSUE REG ARDING TAXABILITY OF INTEREST ON NPAS IS SETTLED IN FAVOU R OF THE ASSESSEE AS BEING TAXABLE IN THE YEAR OF RECEIPT. 23. THE GRIEVANCE OF THE REVENUE THAT THE HON'BLE S UPREME COURTS DECISION IN THE CASE OF STATE BANK OF TRAVA NCORE (SUPRA) APPLIES TO THE PRESENT CASE, WE FIND IS MIS PLACED, SINCE AS POINTED OUT ABOVE BY THE LD. COUNSEL OF TH E ASSESSEE, IT HAS BEEN OVERRULED BY THE APEX COURT I TSELF IN THE CASE OF UCO BANK LIMITED (SUPRA) WHEREIN IT WAS POINTED OUT BY THE APEX COURT THAT WHILE RENDER ING THE JUD GMENT IN THE CASE OF STATE BANK OF TRAVANCORE (SUPRA), THE C IRCULAR DATED 9.10.1984 HAD NOT BEEN BROUGHT TO THE NOTICE OF THE COURT, NOR THE SUBSEQUENT DECISION OF THE APEX COUR T IN THE ITA NO. 61(ASR)/2017 ASSESSMENT YEAR: 2013-14 10 CASE OF K.P.VARGHESE VS. ITO (1981) 131 ITR 597 (SC ). THE RELEVANT EXTRACTS OF THE DECISION IN UCO BANK LIMIT ED ARE REPRODUCED HEREUNDER: 'THERE ARE, HOWEVER, TWO DECISIONS OF THIS COURT WHICH HAVE BEEN STRONGLY RELIED UPON BY THE RESPONDENTS IN THE PRESENT CASE. THE FIRST DECISION IS THE MAJORITY JUDGMENT IN THE STATE BANK OF TRAVANCORE V. COMMISSIONER OF INCOME- TAX, KERALA (1986 (158) ITR 102) DECIDED BY A BENCH OF THREE JUDGES OF THIS COURT BY A MAJORITY OF TWO TO ONE. T HIS JUDGMENT DIRECTLY DEALS WITH INTEREST ON 'STICKY ADVANCES' WHICH HAVE BEEN DEBITED TO THE CUSTOMER BUT TAKEN TO THE INTEREST SUSPENSE ACCOUNT BY A BANKING COMPANY. THE MAJORITY JUDGMENT HAS REFERRED TO THE CIRCULAR OF 6TH OF OCTOBER, 1952 AND ITS WITHDRAWAL BY THE SECOND CIRCULAR OF 20TH OF JUNE, 1978. THE MAJORITY APPEARS TO HAVE PROCEEDED ON THE BASIS THAT BY THE SECOND CIRCULAR OF 20TH OF JUNE, 1978 THE CENTRAL BOARD HAD DIRECTED THAT INTEREST I N THE SUSPENSE ACCOUNT ON 'STICKY' ADVANCES SHOULD BE INCLUDIBLE IN THE TAXABLE INCOME OF THE ASSESSEE AN D ALL PENDING CASES SHOULD BE DISPOSED OF KEEPING THE SE INSTRUCTIONS IN VIEW. THE SUBSEQUENT CIRCULAR OF 9T H OF OCTOBER, 1984 BY WHICH, FROM THE ASSESSMENT YEAR 1979-80 THE BANKING COMPANIES WERE GIVEN THE BENEFIT OF THE CIRCULAR OF 9TH OF OCTOBER, 1984, DO ES NOT APPEAR TO HAVE BEEN POINTED OUT TO THE COURT. WHAT WAS SUBMITTED BEFORE THE COURT WAS, THAT SINCE SUCH INTEREST HAD BEEN ALLOWED TO BE EXEMPTED FOR MORE THAN HALF A CENTURY, THE PRACTICE HAD TRANSFORMED ITSELF INTO LAW AND THIS POSITION SHOULD NOT HAVE B EEN DEVIATED FROM. NEGATIVING THIS CONTENTION, THE COUR T SAID THAT THE QUESTION OF HOW FAR THE CONCEPT OF RE AL INCOME ENTERS INTO THE QUESTION OF TAXABILITY IN TH E FACTS AND CIRCUMSTANCES OF THE CASE, AND HOW FAR AN D TO WHAT EXTENT THE CONCEPT OF REAL INCOME SHOULD INTERMINGLE WITH THE ACCRUAL OF INCOME, WILL HAVE T O BE JUDGED 'IN THE LIGHT OF THE PROVISIONS OF THE ACT, THE PRINCIPLES OF ACCOUNTANCY RECOGNISED AND FOLLOWED, AND FEASIBILITY'. THE COURT SAID THAT THE EARLIER CIRCULARS BEING EXECUTIVE IN CHARACTER CANNOT ALTER THE PROVISIONS OF THE ACT. THESE WERE IN THE NATURE OF CONCESSIONS WHICH COULD ALWAYS BE PROSPECTIVELY WITHDRAWN. THE COURT ALSO OBSERVED THAT THE CIRCULA RS CANNOT DETRACT FROM THE ACT. THE DECISION OF THE CONSTITUTION BENCH OF THIS COURT IN NAVNITLAL C. JA VERI V. K.K. SEN (SUPRA), OR THE SUBSEQUENT DECISION IN K.P. VARGHESE V. 19 INCOME TAX OFFICER (SUPRA) ALSO DO N OT APPEAR TO HAVE BEEN POINTED OUT TO THE COURT. SINCE THE LATER CIRCULAR OF 9.10.1984 WAS NOT POINTED OUT TO THE COURT, THE COURT NATURALLY PROCEEDED ON THE ITA NO. 61(ASR)/2017 ASSESSMENT YEAR: 2013-14 11 ASSUMPTION THAT THE BENEFIT GRANTED UNDER THE EARLI ER CIRCULAR WAS NO LONGER AVAILABLE TO THE ASSESSEE AN D THOSE CIRCULARS COULD NOT BE RESORTED TO FOR THE PU RPOSE OF OVERCOMING THE PROVISIONS OF THE ACT. INTERESTIN GLY, THE CONCURRING JUDGMENT OF THE SECOND JUDGE HAS NOT DEALT WITH THIS QUESTION AT ALL BUT HAS DECIDED THE MATTER ON THE BASIS OF OTHER PROVISIONS OF LAW. ' 24. THEREFORE, THE CONTENTION OF THE REVENUE THAT T HE DECISION IN THE CASE OF STATE BANK OF TRAVANCORE (SUPRA) APP LIES TO THE ASSESSEES CASE IS DISMISSED. 25. THE ARGUMENT OF THE LEARNED D.R. THAT THE DECIS ION OF THE DELHI HIGH COURT IN THE CASE OF VASISTH CHAY VYAPAR LTD. (SUPRA) WOULD NOT APPLY TO THE ASSESSEES CASE SINC E THE ASSESSEE IS A COOPERATIVE SOCIETY WHILE IN THE CASE OF VASISTH CHAY VYAPAR LTD. (SUPRA), THE ASSESSEE WAS A NBFC, IS ALSO DISMISSED SINCE THE PR INCIPLE ENUNCIATED BY THE DE LHI HIGH COURT IN VASISTH CHAY VYAPAR LTD. (SUPRA) HAS BEEN FOLLOWED IN THE CASE OF SHRI MAHILA SEWA SAHAKARI BANK LTD. (SUPRA) BY THE HON'BLE GUJARAT HIGH COURT AND VARIOUS OTHER DECISIONS CITED BY THE ASSESSEE BEFORE US ,AND THE ASSESSEE IN ALL THOSE CASES BEING A COOPERATIVE BANK, THE DE CISION RENDERED THEREIN SQUARELY APPLIES TO THE CASE OF TH E ASSESSEE. 26. THE ARGUMENT OF THE LEARNED D.R. THAT THE ASSES SEE IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING IS AL SO DISMISSED SINCE THIS ASPECT HAS BEEN DEALT WITH BY 20 VARIOUS HIGH COURTS REFERRED TO ABOVE WHEREIN THEY HAVE CATEGORICALLY HELD THAT EVEN FOLLOWING THE MERCANTI LE SYSTEM OF ACCOUNTING THE INTEREST ON NPA ACCOUNT CANNOT BE SAID TO HAVE ACCRUED IN THE IMPUGNED YEAR SINCE THE RECOVER Y OF THE SAME WAS IMPOSSIBLE AND EVEN OTHERWISE FOR THE PURP OSE OF INCOME RECOGNITION THE RBI DIRECTIONS, 1998, HAD TO BE FOLLOWED IN VIEW OF SECTION 45Q OF THE RBI ACT. 27. IN THE LIGHT OF THE ABOVE DISCUSSION WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A),HOLDING THE INTEREST ON NPA S AS TAXABLE IN THE YEAR OF RECEIPT , SO AS TO WARRANT I NTERFERENCE. 28. IN THE RESULT THE APPEAL OF THE REVENUE IS DISM ISSED. THEREFORE FOLLOWING THE ABOVE JUDICIAL PRECEDENTS, WE DO NOT FIND ANY MERIT IN THE GROUNDS TAKEN BY REVENUE. 7. IN VIEW OF THE ABOVE, THE APPEALS FILED BY REVEN UE ARE DISMISSED. IN VIEW OF THE ABOVE JUDICIAL PRECEDENTS, GROUND N O. 1 OF REVENUES APPEAL IS DISMISSED. ITA NO. 61(ASR)/2017 ASSESSMENT YEAR: 2013-14 12 NOW COMING TO GROUND NO. 2 REGARDING PROVISIONS AG AINST THE STANDARD ASSETS, WE FIND THAT THE SAME IS ALSO COVE RED IN FAVOUR OF ASSESSEE BY THE ORDER OF THE HON'BLE TRIBUNAL IN TH E CASE OF PUNJAB GRAMIN COOPERATIVE BANK. FOR THE SAKE OF COMPLETENE SS, THE FINDINGS OF THE HON'BLE TRIBUNAL ARE REPRODUCED BELOW: 12. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE THROUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT THE ISSUE OF PROVISI ON FOR DOUBTFUL DEBTS ON STANDARD ASSETS IS COVERED IN FAVOUR OF ASSESSEE BY THE ORDER OF THE TRIBUNAL DATED 22.06.2016 FOR ASSESSMENT YEAR: 2008 -09, WHEREIN THE APPEAL OF THE REVENUE WAS DISMISSED WHICH WAS FILED BY REVENUE ON SIMILAR GROUNDS. THE RELEVANT FINDINGS OF THE TRIBU NAL AS CONTAINED IN PARA 8 ONWARDS ARE REPRODUCED BELOW. 8. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE THROUGH THE MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE H AD CREATED A PROVISION OF RS. 50,00,000/- WHICH INCLUD ED A SUM OF RS. 13,25,000/- AS PROVISIONS FOR BAD AND DOUBTF UL DEBTS AND THE BALANCE AMOUNT OF RS. 36,75,000/- WAS PROVI SION AGAINST STANDARD ASSETS AND THE ENTIRE AMOUNT WAS C LAIMED AS DEDUCTION UNDER SECTION 36(1)(VIIA) OF THE ACT. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE PROVI SIONS MADE BY THE ASSESSEE AGAINST STANDARD ASSETS WAS A CONTINGENT LIABILITY AND WHICH WAS NOT ALLOWABLE AS BUSINESS EXPENDITURE. THE LD. CIT(A), HOWEVER, ALLOWED RELIE F TO THE ASSESSEE BY HOLDING THAT THE CLAIM OF THE ASSESSEE FALL INTO THE MAIN PROVISIONS OF SECTION 36(1)(VIIA). TO RESO LVE THE DISPUTE IT IS IMPORTANT TO VISIT THE PROVISIONS OF SECTION 36(1)(VIIA) OF THE ACT AND WHICH FOR THE SAKE OF CO NVENIENCE ARE REPRODUCED BELOW. 36(1)(VIIA) IN RESPECT OF ANY PROVISION FOR BAD AN D DOUBTFUL DEBTS MADE BY (A) A SCHEDULED BANK [NOT BEING A BAN K INCORPORATED BY OR UNDER THE LAWS OF A COUNTRY OUTS IDE INDIA] OR A NON-SCHEDULED BANK OR A CO-OPERATIVE BANK OUTS IDE INDIA] OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND R URAL DEVELOPMENT BANK, AN AMOUNT NOT EXCEEDING SEVEN AND ONE- HALF PERCENT OF THE TOTAL INCOME (COMPUTED BEFORE M AKING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VI-A) AND A N AMOUNT NOT EXCEEDING TEN PERCENT OF THE AGGREGATE A VERAGE ADVANCES MADE BY THE RURAL BRANCHES OF SUCH BANK COMPUTED IN THE PRESCRIBED MANNER. PROVIDED THAT A SCHEDULE BANK OR A NON-SCHEDU LED BANK REFERRED TO IN THIS SUB-CLAUSE SHALL, AT ITS OPTION , BE ALLOWED IN ANY OF THE RELEVANT ASSESSMENT YEARS DEDUCTION I N RESPECT OF ANY PROVISION MADE BY IT FOR ANY ASSETS CLASSIFI ED BY THE ITA NO. 61(ASR)/2017 ASSESSMENT YEAR: 2013-14 13 RESERVE BANK OF INDIA AS DOUBTFUL ASSETS OR LOSS AS SETS IN ACCORDANCE WITH THE GUIDELINES ISSUED BY IT IN THIS BEHALF, FOR AN AMOUNT NOT EXCEEDING FIVE PERCENT 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 ASSES SMENT YEARS COMMENCING ON OR AFTER THE 1 ST DAY OF APRIL, 2003 AND ENDING BEFORE THE 1 ST DAY OF APRIL, 2005, THE PROVISIONS OF THE FIRST PROVISO SHALL HAVE EFFECT AS IF FOR THE WORDS FIVE PERCENT, THE WORDS TEN PERCENT HAD BEEN SUBSTITUTED. PROVIDED ALSO THAT A SCHEDULED BANK OR A NON- SCHEDULED BANK REFERRED TO IN THIS SUB-CLAUSE SHALL, AT ITS O PTION, BE ALLOWED A FURTHER DEDUCTION IN EXCESS OF THE LIMITS SPECIFIED IN THE FOREGOING PROVISIONS, FOR AN AMOUNT NOT EXCE EDING THE INCOME DERIVED FROM REDEMPTION OF SECURITIES IN ACC ORDANCE WITH A SCHEME FRAMED BY THE CENTRAL GOVERNMENT. PROVIDED ALSO THAT NO DEDUCTION SHALL BE ALLOWED UN DER THE THIRD PROVISO UNLESS SUCH INCOME HAS BEEN DISCLOSED IN THE RETURN OF INCOME UNDER THE HEAD PROFITS AND GAINS BUSINESS OR PROFESSION. FROM THE ABOVE PROVISIONS IT CAN BE SEEN THAT DEDUCTION U/S 36(1) (VIIA) OF THE ACT IS ALLOWED IN RESPECT O F PROVISIONS FOR BAD AND DOUBTFUL DEBTS. THIS SECTION DOES NOT DIFFERENTIATE BETWEEN PROVISION ON BAD ASSETS AND P ROVISION ON STANDARD ASSETS. THIS DEDUCTION EXCLUSIVELY ALLO WS DEDUCTION IN RESPECT OF PROVISION FOR BAD AND DOUBT FUL DEBTS TO THE EXTENT MENTIONED IN THE VARIOUS CLAUSES OF S UB-SECTION (1) OF SECTION 36 OF THE ACT. THE DEDUCTION UNDER S ECTION 36(1)(VIIA) OF THE ACT IS ALLOWED ONLY IN RESPECT O F CERTAIN SPECIFIC CATEGORIES OF ASSESSEE MENTIONED IN THE CL AUSE LIKE BANKS, FINANCIAL INSTITUTIONS, ETC. WHO ARE IN BUSI NESS OF LENDING MONEY. IT IS NOT ALLOWED EVEN TO NON-BANKIN G FINANCIAL INSTITUTIONS SINCE THEY ARE NOT INCLUDED IN THIS CLAUSE. IT IS SEEN THAT THOUGH SECTION 36(1) (VII) STATES THAT DEDUCTION FOR PROVISION IS ALLOWABLE IN RESPECT OF PROVISION FOR BAD AND DOUBTFUL DEBTS, THE COMPUTATION OF SUCH DED UCTION IS MADE WITH REFERENCE TO TOTAL INCOME OF THE SPECIFIE D BANKS BASED UPON QUANTUM OF AVERAGE ADVANCES. THE DEDUCTI ON OF THE PROVISIONS IS NEITHER LIMITED TO THE QUANTUM OF BAD DEBTS IN THE BOOKS NOR IS COMPUTED WITH REFERENCE TO THE QUANTUM OF STANDARD ASSETS. THE DEDUCTION IN THIS CLAUSE RE FERS TO ALLOWABLE PROVISIONS OF ANTICIPATED DEFAULT ON THE LOANS AND ADVANCES MADE IN RESPECT OF TOTAL ASSETS INCLUDING STANDARD ASSETS AND THE CLAIM OF THE ASSESSEE DOES NOT FALL INTO THE PROVISO TO SECTION 36(1) (VIIA) AS THE PROVISO DEAL S WITH FURTHER DEDUCTION FOR PROVISIONS ON BAD AND DOUBTFU L DEBTS. THE CLAIM OF THE ASSESSEE IS COVERED IN THE MAIN PR OVISIONS OF SECTION 36(1)(VIIA) OF THE ACT. THE LD. CIT(A) HAS PASSED A ITA NO. 61(ASR)/2017 ASSESSMENT YEAR: 2013-14 14 VERY EXHAUSTIVE AND SPEAKING ORDER AND WE DO NOT FI ND ANY INFIRMITY IN THE SAME. THEREFORE FOLLOWING THE ABOVE TRIBUNAL ORDER, WE DO NOT SEE ANY INFIRMITY IN THE ORDER OF LD. CIT(A). 13. IN VIEW OF THE ABOVE FACT AND CIRCUMSTANCES THE GROUNDS OF APPEAL RAISED BY REVENUE IN ITA NO. 580 & 569 ARE DISMISSE D. IN VIEW OF THE ABOVE PRECEDENTS THE GROUND NO. 2 I S ALSO DISMISSED. 7. IN NUTSHELL, THE APPEAL FILED BY REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 03.01.2018 SD/- SD/- (N. K. CHOUDHRY) (T. S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 03.01.2018. /GP/SR. PS . COPY OF THE ORDER FORWARDED TO: (1) THE ASSESSEE: (2) THE (3) THE CIT(A), (4) THE CIT, (5) THE SR DR, I.T.A.T., TRUE COPY BY ORDER