Shri Mahila Sewa Sahakari Bank Ltd., Ahmedabad V. The ACIT, (OSD), Circle-10, Ahmedabad

ITA 62/AHD/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 85846 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 13-02-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 09-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MK SINGH
• Assessee Lawyers: R C SHAH
• Keywords: Bad and doubtful debts
• Section: 145; 139

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD .., , BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ./ I.T.A. NO. 62/AHD/2014 ( / ASSESSMENT YEAR : 2010-11) SHRI MAHILA SEWA SAHAKARI BANK LTD. 109, SAKAR-II, OPP.TOWN HALL ELLISBRIDGE, AHMEDABAD / VS. THE ASST.CIT (OSD) CIRCLE-10 AHMEDABAD-380 009 ./ ./ PAN/GIR NO. : AAWFS 8845 D ( # / APPELLANT ) .. ( $% # / RESPONDENT ) #& / APPELLANT BY : SHRI R.C. SHAH, AR $% #'& / RESPONDENT BY : SHRI M.K. SINGH, SR.DR ()'* / DATE OF HEARING 13/02/2015 +,-.'* / DATE OF PRONOUNCEMENT 27/03/2015 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE LD.COMMISSIONER OF INCOME TAX(APPEALS)-XVI, AHMEDAB AD (CIT(A) IN SHORT) DATED 13/12/2013 PERTAINING TO ASSESSMEN T YEAR (AY) 2010-11. THE ASSESSEE HAS RAISED THE FOLLOWING REVISED GROUN DS OF APPEAL:- 1. THAT THE C.I.T.(APPEALS) ERRED IN CONFIRMING THE A DDITION OF RS.172.73 LACS, BEING INTEREST ON N.P.A. ACCOUNTS N OT CREDITED TO ITA NO.62/AHD/2 014 SHRI MAHILA SEWA SAHKARI BANK LTD. VS. ACIT (OSD) ASST.YEAR 2010-11 - 2 - P&L ACCOUNT. IT IS SUBMITTED THAT HAVING REGARD TO THE FACTS OF THE CASE AND JUDICIAL DECISIONS, THE ADDITION OF RS.172 73000 BE DELETED. 2. THAT THE C.I.T.(APPEALS), WHILE CONFIRMING THE ADDI TION OF RS.172.73 LACS, ERRED IN NOT FOLLOWING THE DECISIONS OF THE H ONOURABLE I.T.A.T., AHMEDABAD ITSELF IN THE CASES OF SARDARGANJU MERCAN TILE CO- OP.BANK LTD. V. A.C.I.T. AND KARNAVATI CO-OP.BANK L TD. V. D.C.I.T. THOUGH IN THE LATER DECISION, THE DECISION OF THE H ONOURABLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. RELIED UPON BY HIM IN A WRONGFUL MANNER WAS DULY CONSIDERE D AND DISTINGUISHED AND THEREBY CAUSING GREAT HARDSHIP AN D INJUSTICE TO THE APPELLANT AND, THEREFORE, THE APPELLANT BE AWAR DED SUCH COST/COMPENSATION AS MAY APPEAR TO BE JUST TO THE H ONOURABLE MEMBERS. 2. THE ONLY EFFECTIVE GROUND IS AGAINST THE CONFIRM ATION OF ADDITION OF RS.1,72,73,000/- BEING INTEREST ON N.P.A. ACCOUNTS NOT CREDITED TO P&L ACCOUNT. 3. BRIEFLY STATED FACTS ARE THAT THE CASE OF THE A SSESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S.143( 3) OF THE INCOME TAX ACT,1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRAMED VIDE ORDER DATED 28/02/2013, THEREBY THE ASSESSING OFFICER (AO IN SHORT) MADE ADDITION ON ACCRUED INTEREST ON NPAS AMOUNTING TO R S.1,72,73,000/-. AGAINST THIS, THE ASSESSEE FILED AN APPEAL BEFORE T HE LD.CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DISMISS ED THE APPEAL. NOW, THE ASSESSEE IS FURTHER IN APPEAL BEFORE US. ITA NO.62/AHD/2 014 SHRI MAHILA SEWA SAHKARI BANK LTD. VS. ACIT (OSD) ASST.YEAR 2010-11 - 3 - 4. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT T HE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F COORDINATE BENCH (ITAT B BENCH AHMEDABAD) RENDERED IN THE CASE OF DCIT VS. SURAT NATIONAL CO-OPERATIVE BANK LTD. IN ITA NO.2793/AHD/ 2012 FOR AY 2009-10, ORDER DATED 23/08/2013. THE LD.COUNSEL FO R THE ASSESSEE HAS PLACED RELIANCE ON THE JUDGEMENT OF HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF RAMBHAI L.PATEL V. CIT REPO RTED AT (2001) 252 ITR 846 (GUJ.) IN SUPPORT OF THE CONTENTION THAT TH E GUIDELINES ISSUED BY THE RBI HAS BINDING FORCE. HE SUBMITTED THAT AS P ER THE RBI GUIDELINES, THE INTEREST ACCRUED ON NON-PERFORMING ASSETS (NPA) CANNOT BE SUBJECTED TO TAX. HE HAS ALSO PLACED RELIANCE ON T HE DECISION OF THE COORDINATE BENCH (ITAT B BENCH PUNE) RENDERED IN THE CASE OF ASST.CIT VS. SOLAPUR SIDDHESHWAR SAHAKARI BANK LTD. IN ITA NOS.2220 AND 2221/PN/2013 FOR AYS 2009-10 & 2010-11, ORDER D ATED 31/10/2014. HE DREW OUR ATTENTION TOWARDS PARA-10 OF THE SAID D ECISION OF THE COORDIANTE BENCH OF PUNE. FURTHER, THE LD.COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE DECISION OF COORDINATE BENCH (ITAT A BENCH PUNE) RENDERED IN THE CASE OF ASST.CIT VS. THE OMER GA JANTA SAHAKARI BANK LTD. IN ITA NO.350/PN/2013 FOR AY 2007-08, ORD ER DATED 31/10/2013. THE LD.COUNSEL FOR THE ASSESSEE PLACE D RELIANCE ON THE DECISION OF COORDINATE BENCH (ITAT B BENCH AHMED ABAD) RENDERD IN THE CASE OF SARDARGANJ MERCANTILE CO-OP.BANK LTD. V S. ACIT IN ITA NO.2426/AHD/2012 FOR AY 2009-10, ORDER DATED 15/02/ 2013. THE ITA NO.62/AHD/2 014 SHRI MAHILA SEWA SAHKARI BANK LTD. VS. ACIT (OSD) ASST.YEAR 2010-11 - 4 - LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE FACT S ARE IDENTICAL TO THE FACTS IN THE CASE OF SARDARGANJ MERCANTILE CO-OP.B ANK LTD. VS. ACIT(SUPRA). HE FURTHER RELIED ON THE DECISION OF THE COORDINATE BENCH (ITAT B BENCH CHANDIGARH) RENDERED IN THE CASE OF ASST.CIT VS. PUNJAB STATE CO-OP.BANK LTD. REPORTED AT (2013) 34 TAXMANN.COM 128 (CHANDIGARH TRIB.), ORDER DATED 06/03/2013. THE LD.COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT ON THE PRINCIPLES OF INCOME RECOGNITION AS PER GUIDELINES OF THE RBI, THE INTEREST INCOME IS R EQUIRED TO BE OFFERED FOR TAXATION ON CASH BASIS AND NOT ON ACCRUAL BASIS. 4.1. ON THE CONTRARY, LD.SR.DR SHRI M.K.SINGH SUPPO RTED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESS EE IS A CO-OPERATIVE BANK AND GUIDELINES OF RBI RELIED UPON BY THE LD.CO UNSEL FOR THE ASSESSEE ARE IN RESPECT OF SCHEDULED BANKS. HE SUBMITTED TH AT THE RATIO LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF SOUTHERN T ECHNOLOGY LTD. ( 320 ITR 577) IS APPLICABLE ON THE FACTS OF THE PRESENT CASE. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE LD.CIT(A) HAS DECIDED THIS ISSUE I N PARAS-3.2 TO 3.11 OF HIS ORDER, BY OBSERVING AS UNDER:- 3.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE IN THE LIGHT OF SUBMISSIONS MADE BY THE APPELLANT , THE ARGUMENTS TAKEN BY THE ASSES SING OFFICER AND THE MATERIAL AVAILABLE ON RECORDS. THE ARGUMENTS TAKEN BY THE AP PELLANT INDICATE THAT THE ADDITION MADE BY THE ID A O IS BEING CHALLENGED ON FOLLOWING GROUNDS:- ITA NO.62/AHD/2 014 SHRI MAHILA SEWA SAHKARI BANK LTD. VS. ACIT (OSD) ASST.YEAR 2010-11 - 5 - > THAT PROVISION OF SEC 43D ARE NOT APPLICABLE IN ITS CASE FOR DISCLOSING ANY INTEREST ON ACCRUAL BASIS ON NPAS. > THAT HON'BLE JURISDICTIONAL TRIBUNAL IN THE CAS E OF KARNAVATI CO OP BANK HAS HELD THAT NO INTEREST ON ACCRUAL BASIS ON NPAS CAN BE TAXED EVEN IN CASES OF UNSCHEDULED BANKS. > THAT IT IS MANDATORY UPON APPELLANT NOT TO CHARG E INTEREST ON ACCRUAL BASIS IN VIEW OF RB1 GUIDELINES. > THAT FOLLOWING THE THEORY OF REAL INCOME, TAXAB ILITY OF ANY NOTIONAL INCOME LIKE ACCRUED INTEREST ON NPAS WOULD NOT ARISE. > THAT CREDIT OF INCOME DISCLOSED AS INTEREST INC OME IN SUBSEQUENT YEARS BE ALLOWED AGAINST ADDITION MADE IN THE CURRENT YEAR. > THAT CBDT CIRCULAR BEARING F NO. 201/21/84-ITA- II DATED 9-10-1984 IS APPLICABLE IN ITS CASE WHEREIN IT HAS BEEN HELD THA T INTEREST ON ACCRUAL BASIS WILL NOT BE TAXED IF NOT RECEIVED FOR THREE YEARS E VEN THOUGH CREDITED TO 'INTEREST SUSPENSE ACCOUNT'. 3.3 THE ISSUE REGARDING THE APPLICABILITY OF SECTION 43 D AND THE ARGUMENT THAT HON'BLE JURISDICTIONAL TRIBUNAL IN THE CASE OF KARN AVATI CO OP BANK HAS HELD THAT NO INTEREST ON ACCRUAL BASIS ON NPAS CAN BE TAXED EVEN IN CASES OF UNSCHEDULED BANKS HAS BEEN EXAMINED. BEFORE PROCEEDING FURTHER IT IS CONSIDERED NECESSARY TO BRIEFLY EXAMINE THE STATUTORY PROVISIONS OF SECTION 43D AND EXPLANATION (II) OF CLAUSE (VIIA) OF SECTION 36 OF THE ACT. SPECIAL PROVISION IN CASE OF INCOME OF PUBLIC FINAN CIAL INSTITUTIONS, PUBLIC COMPANIES, ETC. 43D. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTA INED IN ANY OTHER PROVISION OF THIS ACT,- (A) IN THE CASE OF A PUBLIC FINANCIAL INSTITUTION O R A SCHEDULED BANK OR A STATE FINANCIAL CORPORATION OR A STATE INDUSTRIAL INVESTM ENT CORPORATION, THE INCOME BY WAY OF INTEREST IN RELATION TO SUCH CATEGORIES OF BAD O R DOUBTFUL DEBTS AS MAY BE PRESCRIBED HAVING REGARD TO THE GUIDELINES ISSUED B Y THE RESERVE BANK OF INDIA IN RELATION TO SUCH DEBTS; (B) IN THE CASE OF A PUBLIC COMPANY, THE INCOME BY WAY OF INTEREST IN RELATION TO SUCH CATEGORIES OF BAD OR DOUBTFUL DEBTS AS MAY BE PRESC RIBED HAVING REGARD TO THE GUIDELINES ISSUED BY THE NATIONAL HOUSING BANK IN R ELATION TO SUCH DEBTS, ITA NO.62/AHD/2 014 SHRI MAHILA SEWA SAHKARI BANK LTD. VS. ACIT (OSD) ASST.YEAR 2010-11 - 6 - SHALL BE CHARGEABLE TO TAX IN THE PREVIOUS YEAR IN WHICH IT IS CREDITED BY THE PUBLIC FINANCIAL INSTITUTION OR THE SCHEDULED BANK OR THE STATE FINANCIAL CORPORATION OR THE STATE INDUSTRIAL INVESTMENT CORPORATION OR THE PUBL IC COMPANY TO ITS PROFIT AND LOSS ACCOUNT FOR THAT YEAR OR, AS THE CASE MAY BE, IN WH ICH IT IS ACTUALLY RECEIVED BY THAT INSTITUTION OR BANK OR CORPORATION OR COMPANY, WHIC HEVER IS EARLIER. EXPLANATION.-FOR THE PURPOSES OF THIS SECTION,- (A) 'NATIONAL HOUSING BANK' MEANS THE NATIONAL HOUS ING BANK ESTABLISHED UNDER SECTION 3 OF THE NATIONAL HOUSING BANK ACT, 1987 (5 3 OF 1987); (B) 'PUBLIC COMPANY' MEANS A COMPANY,- (I) WHICH IS A PUBLIC COMPANY WITHIN THE MEANING O F SECTION 394 OF THE COMPANIES ACT, 1956(1 OF 1956); (II) WHOSE MAIN OBJECT IS CARRYING ON THE BUSINES S OF PROVIDING LONG-TERM FINANCE FOR CONSTRUCTION OR PURCHASE OF HOUSES IN INDIA FOR RES IDENTIAL PURPOSES; AND (III) WHICH IS REGISTERED IN ACCORDANCE WITH THE HO USING FINANCE COMPANIES (NHB) DIRECTIONS, 1989 GIVEN UNDER SECTION 30 AND SECTION 31 OF THE NATIONAL HOUSING BANK ACT, 1987 (53 OF 1987); (C) 'PUBLIC FINANCIAL INSTITUTION' SHALL HAVE THE M EANING ASSIGNED TO IT IN SECTION 4A95 OF THE COMPANIES ACT, 1956 (1 OF 1956); (D) 'SCHEDULED BANK' SHALL HAVE THE MEANING ASSIGNE D TO IT IN CLAUSE (II) OF THE EXPLANATION TO CLAUSE (VIIA) OF SUB-SECTION (1) OF SECTION 36; (E) 'STATE FINANCIAL CORPORATION' MEANS A FINANCIAL CORPORATION ESTABLISHED UNDER SECTION 3 OR SECTION 3A OR AN INSTITUTION NOTIFIED UNDER SECTION 46 OF THE STATE FINANCIAL CORPORATIONS ACT, 1951 (63 OF 1951); (F) 'STATE INDUSTRIAL INVESTMENT CORPORATION' MEANS A GOVERNMENT COMPANY WITHIN THE MEANING OF SECTION 61796 OF THE COMPANIES ACT, 1956 (1 OF 1956), ENGAGED IN THE BUSINESS OF PROVIDING LONG-TERM FINANCE FOR INDUSTR IAL PROJECTS.] EXPLN. (II) OF CLAUSE ( VIIA) OF SECTION 36 ITA NO.62/AHD/2 014 SHRI MAHILA SEWA SAHKARI BANK LTD. VS. ACIT (OSD) ASST.YEAR 2010-11 - 7 - 'SCHEDULED BANK' MEANS THE STATE BANK OF INDIA CONSTITUTED UNDER THE STATE BANK OF INDIA ACT, 1955 (23 OF 1955), A SUBSIDIARY BANK AS DEFINED IN THE STATE BANK OF INDIA (SUBSIDIARY BANKS) ACT, 1959 (38 OF 1959), A CORRES PONDING NEW BANK CONSTITUTED UNDER SECTION 3 OF THE BANKING COMPANIES (ACQUISITI ON AND TRANSFER OF UNDERTAKINGS) ACT, 1970 (5 OF 1970), OR UNDER SECTI ON 3 OF THE BANKING COMPANIES (ACQUISITION AND TRANSFER OF UNDERTAKINNS) ACT, 198 0 (40 OF 1980), OR ANY OTHER BANK BEING A BANK INCLUDED IN THE SECOND SCHEDULE T O THE RESERVE BANK OF INDIA ACT, 1934 (2 OF 1934) 77[***];] 3.4 A PERUSAL OF THE ABOVE STATUTE INDICATES THAT SECTION 43D RWS EXPLN. (II) OF CLAUSE (VIIA) OF SECTION 36 PRESCRIBES EXEMPTION FROM DISCLOSURE OF INTEREST INCOME ON ACCRUAL BASIS ONLY TO THOSE ENTITIES WHICH ARE C OVERED BY THE SAID SECTION. THE AO HAS CLEARLY BROUGHT EVIDENCE ON RECORD TO INDICATE THAT THE APPELLANT BANK BY VIRTUE OF BEING AN CO OP BANK DOES NOT FALLS WITHIN THE DE FINITION OF ENTITIES WHICH ARE COVERED BY THE ABOVE INDICATED STATUTE OR TO SAY IT IS NOT A SCHEDULED B ANK. THE APPELLANT ON ITS PART HAS ALSO NOT BEEN ABLE TO CON TROVERT WITH ANY COGENT EVIDENCE THE POSITION TAKEN BY THE A O. THUS, IT BECOMES A N UNDISPUTED FACT OF THIS CASE THAT THE APPELLANT IS NOT A SCHEDULED BANK AND CONSEQUEN TLY PROVISIONS OF SECTION 43D RWS EXPLN. (II) OF CLAUSE (VIIA) OF SECTION 36 WOULD NOT BE APPLICABLE IN ITS CASE. IT IS A SETTLED PRINCIPLE OF LAW LAID DOWN BY HONOURABLE APEX COURT AND REITERATED BY SEVERAL HIGH COURTS THAT IF THE PROVISIONS OF LAW A RE UN AMBIGUOUS AND CLEAR THEN NO INTERPRETATION IS TO BE APPLIED. HON'BLE APEX COURT IN THE CASE OF SMT TARULATA SHYAMV VS GIT (1977) 108 ITR 345 OBSERVED THAT 'TO US THERE APPEARS NO JUSTIFICATION TO DEPART FROM THE NORMAL RULE OF CONSTRUCTION ACCO RDING TO WHICH THE INTENTION OF LEGISLATURE IS PRIMARILY TO BE GATHERED FROM THE WO RDS USED IN THE STATUTE'. IN THE SAID CASE, THE COURT OBSERVED VIEWS OF ROWLATT J IN CASE OF 'CAPE BRANDY SYNDICATE' THAT IN A TAXING ACT ONE HAS TO LOOK MERELY AT WHAT IS CLEARLY SAID. THERE IS NO ROOM FOR ANY INTENDMENT, THERE IS NO EQUITY ABOUT THE TAX, T HERE IS NO PRESUMPTION AS TO A TAX. NOTHING IS TO BE READ IN, NOTHING IS TO BE APPLIED. ONE CAN ONLY LOOK FAIRLY AT THE LANGUAGE USED.' AGAIN IN THE CASE OF PADMA SUNDARR AO VS STATE OF TAMILNADU (2002) 255 ITR 147 AND ALSO IN THE CASE OF PRAKASHNATH KHANNA VS CIT (2004) 266 ITR 1 (SC) HON'BLE APEX COURT OBSERVED THAT 'ONCE IT IS S HOWN THAT THE CASE OF THE ASSESSEE COMES WITHIN THE LATTER OF THE LAW, HE MUST BE TAXE D, HOWEVER GREAT THE HARDSHIP MAY APPEAR TO THE JUDICIAL MIND TO BE'. IT IS FURTHER S EEN THAT IN SEVERAL OTHER JUDGEMENTS AS IN THE CASES QUOTED AT 40 ITR 142(SC), 72 ITR 28 6(SC), 222 ITR 831 (GUJ) ETC. IT HAS BEEN HELD TIME AND AGAIN THAT ONCE THE PROVISIO NS OF A STATUTE ARE CLEAR, NO MEANINGS OR INTENTIONS ARE REQUIRED TO BE ATTACHED THEREIN AND THAT THEY HAVE BE FOLLOWED IN THE LETTER AND SPIRIT. IT HAS BEEN H ELD THAT AN INTERPRETATION OF LAW IS TO BE ATTEMPTED ONLY WHEN THE STATUTE SUFFERS FROM ANY AMBIGUITY. UNDER THE CIRCUMSTANCES, THE ARGUMENT THAT PROVISIONS OF SECT ION 43D ARE APPLICABLE IN ITA NO.62/AHD/2 014 SHRI MAHILA SEWA SAHKARI BANK LTD. VS. ACIT (OSD) ASST.YEAR 2010-11 - 8 - APPELLANTS CASE SQUARELY FAILS AS THE LAW EXPLICITL Y PROHIBITS BENEFIT OF SECTION 43D TO INELIGIBLE ENTITIES. NEEDLESS TO SAY IN ELIGIBLE ENTITIES HERE WOULD MEAN THOSE TAX PAYERS WHO DO NOT FALL WITHIN THE CLEAR AMBIT OF TH AT SECTION. 3.5 COMING TO THE ARGUMENT THAT HON'BLE JURISD ICTIONAL TRIBUNAL IN THE CASE OF KARNAVATI CO OP BANK HAS LAID DOWN THAT PROVISIONS OF SEC 43D ARE APPLICABLE IN THE CASE OF UNSCHEDULED BANKS HAS BEEN EXAMINED AND IT' IS NOTED THAT THE APPELLANT HAS MISINTERPRETED AND INADEQUATELY APPRECIATED THE OBS ERVATION OF HON'BLE TRIBUNAL IN THE SAID CASE. IT IS PERTINENT TO POINT OUT AT THI S STAGE THE OBSERVATIONS OF THE HON'BLE TRIBUNAL IN THE SAID CASE '....AS FAR AS THE STATUS OF THE ASSESSEE IS CONCER NED, THE ASSESSING OFFICER HAS STATED THAT THE ASSESSEE-BANK IS A CO-OPERATIVE BAN K. UNDISPUTEDLY, THE ASSESSEE IS ALSO GOVERNED BY THE RBI GUIDELINES. VIDE AN EXPLAN ATION (D) R.W.S. 36(1)(VIIA) ANNEXED TO SECTION 43-D THE DEFINITION OF THE ENTIT IES INCORPORATED BY THE SECTION HAVE BEEN DEFINED AND IN THE ABSENCE OF ANY CONTRAR Y MATERIAL, WE HEREBY HOLD THAT THE ASSESSEE IS COVERED BY ONE OF THE ENTITIES, HEN CE THE PROVISIONS OF SECTION 43-D ARE TO BE APPLIED.' A PERUSAL OF THE ABOVE CLEARLY SHOWS THAT HON'BLE T RIBUNAL HAS NOT LAID DOWN ANY RATIO REGARDING APPLICATION OF PROVISION OF SEC 43D IN RESPECT OF UNSCHEDULED BANKS. WHAT THE HON'BLE TRIBUNAL ACTUALLY OBSERVED IN THE CITED CASE WAS THAT IN THE ABSENCE OF ANY CONTRARY MATERIAL, BEING MADE AVAILA BLE FOR KIND CONSIDERATION OF HON'BLE TRIBUNAL, IN THAT CASE IT WAS A PRESUMPTION THAT THE APPELLANT IN THAT CASE I.E. KARNAVATI CO OP BANK WAS COVERED BY PROVISIONS OF SEC 43D. THUS, THE HON'BLE TRIBUNAL DID NOT LAY DOWN ANY RATIO REGARDING APPLI CABILITY OF SECTION 43D IN RESPECT OF ALL UNSCHEDULED BANKS. 3.6 IT IS EQUALLY IMPORTANT TO POINT OUT AT THIS STAGE THAT ON SIMILAR FACTS ON THE ISSUE OF TAXABILITY OF ACCRUED INTEREST ON NPAS IN THE CASE OF ONE SARANGPUR CO OP BANK FOR A Y 2007-08 & 2009-10, WHERE ON IDENTICAL ADDIT ION MADE BY THE A O WAS CONFIRMED BY THE UNDERSIGNED VIDE ORDERS DATED 24-1-2013 WHIC H WAS CHALLENGED BY THE APPELLANT BEFORE THE HON'BLE TRIBUNAL. IN ITS O RDER BEARING ITA NO 529 & 530/AHD/2013 DATED 21-6-2013 HON;BLE TRIBUNAL HAS IN PARA-5 OF THEIR IMPUGNED ORDER HAVE OBSERVED THAT WHAT IS FUNDAMENTAL TO THI S CONTROVERSY IS THE STATUS OF THE APPELLANT AS TO WHETHER IT IS A SCHEDULED BANK OR N OT. THUS THE HON'BLE TRIBUNAL HAS REMITTED THE ISSUE BACK TO THE FILE OF THE A O WITH FOLLOWING REMARKS :- ITA NO.62/AHD/2 014 SHRI MAHILA SEWA SAHKARI BANK LTD. VS. ACIT (OSD) ASST.YEAR 2010-11 - 9 - '.....WITH THESE BRIEF BACKGROUNDS, WE HAVE HEARD B OTH THE SIDES. ALTHOUGH THE ASSESSEE IS BEFORE US FOR THE SECOND TIME, BUT STIL L WE FEEL THAT SOME OF THE AREAS OF THE DISPUTE HAVE REMAINED UNANSWERED. FIRST QUESTIO N WHICH IS YET TO BE ADDRESSED IS WHETHER THE ASSESSEE IS A SCHEDULED BANK OR NOT. IN THIS REGARD, THE ASSESSEE IS EXPECTED TO PLACE ON RECORD THE REQUISITE EVIDENCE, THROUGH WHICH IT CAN BE ASCERTAINED THAT THE ASSESSEE FALLS UNDER ANY OF TH E CATEGORY AS PRESCRIBED IN EXPLANATION TO SECTION 43D OF THE ACT. BECAUSE OF T HIS REASON, WE HEREBY DIRECT THE ASSESSEE TO OBTAIN THE REQUISITE CERTIFICATE FROM T HE CONCERNED AUTHORITY CLEARLY MENTIONING THE STATUS OF THE ASSESSEE-BANK, AND PLA CE THE SAME BEFORE THE AO......' FROM A PLAIN READING OF THE ABOVE, IT CLEARLY TRANS PIRES THAT THE HON'BLE TRIBUNAL HAS APPRECIATED THE ARGUMENT THAT PROVISIONS OF SEC TION 43D WOULD NOT BE APPLICABLE TO THE APPELLANT IF IT IS NOT A SCHEDULE D BANK. CONSEQUENTLY, THE ARGUMENT OF THE APPELLANT FOR NOT OFFERING INTEREST INCOME O N ACCRUAL BASIS FAILS ON THIS ACCOUNT. 3.7 COMING TO THE NEXT ARGUMENT OF THE APPELLANT THAT I NTEREST ON NPAS HAS NOT BEEN OFFERED ON ACCRUAL BASIS IN VIEW OF MANDATORY RBI G UIDELINES, IT IS SEEN THAT THE ISSUE IS NOW EVENLY SETTLED IN FAVOUR OF REVENUE BY THE D ECISION OF HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. 320 ITR 5 77 DT 11-1-2010 IN THE CITED CASE THE APPELLANT HAD TAKEN AN ARGUMENT THAT INTER EST ON NPAS WAS NOT CHARGED IN VIEW OF MANDATORY RBI GUIDELINES. HON'BLE SUPREME COURT HAVE HELD THAT RBI GUIDELINES HAVE NOTHING TO DO WITH THE TAXABILITY O F AN INCOME OTHERWISE PERMISSIBLE UNDER THE I T ACT. THUS, THE HON'BLE CO URT HAS HELD AS UNDER :- '....31. RBI DIRECTIONS, 1998 HAVE BEEN ISSUED UNDE R SECTION 45JA OF RBI ACT. UNDER THAT SECTION, POWER IS GIVEN TO RBI TO ENACT A REGU LATORY FRAMEWORK INVOLVING PRESCRIPTION OF PRUDENTIAL NORMS FOR NBFCS WHICH AR E DEPOSIT TAKING TO ENSURE THAT NBFCS FUNCTION ON SOUND AND HEALTHY LINES. THE PRIM ARY OBJECT OF THE SAID 1998 DIRECTIONS IS PRUDENCE, TRANSPARENCY AND DISCLOSURE . SECTION 45JA COMES UNDER CHAPTER III-B WHICH DEALS WITH PROVISIONS RELATING TO FINANCIAL INSTITUTIONS, AND TO NON-BANKING INSTITUTIONS RECEIVING DEPOSITS FROM TH E PUBLIC. THE SAID 1998 DIRECTIONS TOUCH VARIOUS ASPECTS SUCH AS INCOME RECOGNITION; A SSET CLASSIFICATION; PROVISIONING, ETC. AS STATED ABOVE, BASIS OF THE 1998 DIRECTIONS IS THAT ANTICIPATED LOSSES MUST BE TAKEN INTO ACCOUNT BUT EXPECTED INCOME NEED NOT BE TAKEN NOTE OF. THEREFORE, THESE DIRECTIONS ENSURE CASH LIQUIDITY FOR NBFCS WHICH AR E NOW REQUIRED TO STATE TRUE AND CORRECT PROFITS, WITHOUT PROJECTING INFLATED PROFIT S. THEREFORE, IN OUR VIEW, RBI . DIRECTIONS, 1998 DEAL ONLY WITH PRESENTATION OF NPA PROVISIONS IN THE BALANCE SHEET OF AN NBFC. IT HAS NOTHING TO DO WITH THE COMPUTATI ON OR TAXABILITY OF THE PROVISIONS FOR NPA UNDER THE INCOME-TAX ACT. ITA NO.62/AHD/2 014 SHRI MAHILA SEWA SAHKARI BANK LTD. VS. ACIT (OSD) ASST.YEAR 2010-11 - 10 - 32. PRIOR TO RBI DIRECTIONS, 1998, ADVANCES WERE ST ATED NET OF PROVISIONS FOR NPAS/BAD AND DOUBTFUL DEBTS. THEY WERE SHOWN AT NET FIGURE (ADVANCES LESS PROVISIONS FOR NPAS) AND THE AMOUNT OF PROVISION FO R NPA WAS SHOWN IN THE NOTES TO THE ACCOUNTS ONLY. SUCH PRESENTATION OF NPA PROVISI ON WARRANTED DISCLOSURE. THEREFORE, PARA 9(1) OF RBI DIRECTION, 1998 STIPUL ATES THAT EVERY NBFC SHALL SEPARATELY DISCLOSE IN ITS BALANCE SHEET THE PROVIS ION FOR NPAS WITHOUT NETTING THEM FROM THE INCOME OR AGAINST THE VALUE OF ASSETS. THA T, THE PROVISION FOR NPA SHOULD BE SHOWN SEPARATELY ON THE LIABILITIES SIDE OF THE BAL ANCE SHEET UNDER THE HEAD 'CURRENT LIABILITIES AND PROVISIONS' AND NOT AS A DEDUCTION FROM 'SUNDRY DEBTORS/ ADVANCES'. THEREFORE, RBI HAS TAKEN A POSITION AS A MATTER OF DISCLOSURE, WITH WHICH WE AGREE, THAT IF AN NBFC DEDUCTS A PROVISION FOR NPA FROM 'S UNDRY DEBTORS/LOANS AND ADVANCES', IT WOULD AMOUNT TO NETTING FROM THE VALU E OF ASSETS WHICH WOULD CONSTITUTE BREACH OF PARA 9 OF RBI DIRECTIONS, 1998. CONSEQUEN TLY, NPA PROVISIONS SHOULD BE PRESENTED ON THE 'LIABILITIES SIDE' OF THE BALANCE SHEET UNDER THE HEAD 'CURRENT LIABILITIES AND PROVISIONS' AS A DISCLOSURE NORM AN D NOT AS ACCOUNTING OR COMPUTATION OF INCOME NORM UNDER THE INCOME-TAX ACT . AT THIS STAGE, WE MAY CLARIFY THAT THE ENTIRE THRUST OF RBI DIRECTIONS. 1998 IS O N , PRESENTATION OF NPA PROVISION IN THE BALANCE SHEET OF AN NBFC. PRESENTATION/DISCLOSU RE IS DIFFERENT FROM COMPUTATION/TAXABILITY OF THE PROVISION FOR NPA. TH E NATURE OF EXPENDITURE UNDER THE INCOME-TAX ACT CANNOT BE CONCLUSIVELY DETERMINED BY THE MANNER IN WHICH ACCOUNTS ARE PRESENTED IN TERMS OF 1998 DIRECTIONS. THERE AR E CASES WHERE ON FACTS COURTS HAVE TAKEN THE VIEW THAT THE SO-CALLED PROVISION IS IN EFFECT A WRITE OFF. THEREFORE, IN OUR VIEW, RBI DIRECTIONS, 1998, THOUGH DEVIATE FROM ACCOUNTING PRACTICE AS PROVIDED IN THE COMPANIES ACT, DO NOT OVERRIDE THE PROVISION S OF THE INCOME-TAX ACT. SOME COMPANIES, FOR EXAMPLE, TREAT WRITE OFFS OR EXPENSE S, OR LIABILITIES AS CONTINGENT LIABILITIES. FOR EXAMPLE, THERE ARE COMPANIES WHICH DO NOT RECOGNIZE MARK-TO-MARKET LOSS ON ITS DERIVATIVE CONTRACTS EITHER BY CREATING RESERVE AS SUGGESTED BY ICAI OR BY CHARGING THE SAME TO THE P&L ACCOUNT IN TERMS OF AC COUNTING STANDARDS. CONSEQUENT/Y, THEIR PROFITS AND RESERVES AND SURPLU S OF THE YEAR ARE PROJECTED ON THE HIGHER SIDE. CONSEQUENTLY, SUCH LOSSES ARE NOT ACCO UNTED IN THE BOOKS, AT THE HIGHEST, THEY ARE MERELY DISCLOSED AS CONTINGENT LIABILITY I N THE NOTES TO ACCOUNTS. THE POINT WHICH WE WOULD LIKE TO MAKE IS WHETHER SUCH LOSSES ARE CONTINGENT OR ACTUAL CANNOT BE DECIDED ONLY ON THE BASIS OF PRESENTATION. SUCH PRESENTATION WILL NOT BIND THE AUTHORITY UNDER THE INCOME-TAX ACT. ULTIMATELY, THE NATURE OF TRANSACTION HAS TO BE EXAMINED. IN EACH CASE, THE AUTHORITY HAS TO EXAMIN E THE NATURE OF EXPENSE/LOSS. SUCH EXAMINATION AND FINDING THEREON WILL NOT DEPEND UPO N PRESENTATION OF EXPENSE/LOSS IN THE FINANCIAL STATEMENTS OF THE NBFC IN TERMS OF TH E 1998 DIRECTIONS. THEREFORE, IN OUR VIEW, THE RBI DIRECTIONS, 1998 AND THE INCOME-T AX ACT OPERATE IN DIFFERENT FIELDS. ITA NO.62/AHD/2 014 SHRI MAHILA SEWA SAHKARI BANK LTD. VS. ACIT (OSD) ASST.YEAR 2010-11 - 11 - 33. THE QUESTION STILL REMAINS AS TO WHAT IS THE NA TURE OF 'PROVISION FOR NPA' IN TERMS OF RBI DIRECTIONS, 1998. IN OUR VIEW, PROVISI ON FOR NPA IN TERMS OF RBI DIRECTIONS, 1998 DOES NOT CONSTITUTE EXPENSE ON THE BASIS OF WHICH DEDUCTION COULD BE CLAIMED BY NBFC UNDER SECTION 36(1)(VII). PROVIS ION FOR NPAS IS AN EXPENSE FOR PRESENTATION UNDER 1998 DIRECTIONS AND IN THAT SENS E IT IS NOTIONAL. FOR CLAIMING DEDUCTION UNDER THE INCOME-TAX ACT, ONE HAS TO GO B Y THE FACTS OF THE CASE (INCLUDING THE NATURE OF TRANSACTION), AS STATED AB OVE. ONE MUST KEEP IN MIND ANOTHER ASPECT. REDUCTION IN NPA TAKES PLACE IN TWO WAYS, NAMELY, BY RECOVERIES AND BY WRITE OFF. HOWEVER, BY MAKING A PROVISION FO R NPA, THERE WILL BE NO REDUCTION IN NPA. SIMILARLY, A WRITE OFF IS ALSO OF TWO TYPES, NAMELY, A REGULAR WRITE OFF AND A PRUDENTIAL WRITE OFF. [SEE ADVANCES ACCOU NTS BY SHUKLA, GREWAL, GUPTA, CHAPTER 26, PAGE 26.50] IF ONE KEEPS THESE CONCEPTS IN MIND, IT IS VERY CLEAR THAT RBI DIRECTIONS, 1998 ARE MERELY PRUDENTIAL NORMS. T HEY CAN ALSO BE CALLED AS DISCLOSURE NORMS OR NORMS REGARDING PRESENTATION OF NPA PROVISIONS IN THE BALANCE SHEET. THEY DO NOT TOUCH UPON THE NATURE OF EXPENSE TO BE DECIDED BY THE ASSESSING OFFICER IN THE ASSESSMENT PROCEEDINGS.... .' 3.8 THE ARGUMENT OF THE APPELLANT REGARDING THE APPLICA BILITY OF DECISIONS DELIVERED BY HON'BLE APEX COURT, JURISDICTIONAL HIGH COURT AN D THE JURISDICTIONA! TRIBUNAL IN RESPECT OF THE INTEREST ON NPAS NOT BEING TAXABLE I N VIEW OF THE REAL INCOME THEORY HAVE ALSO BEEN ANALYSED. IT IS SEEN THAT PRINCIPAL RELIANCE HAS BEEN PLACED UPON THE DECISION IN THE CASE OF GODHARA ELECTRICITY 225 ITR 746 DT 3/9/97 . WITHOUT PREJUDICE TO THE FACT THAT FACTS OF GODHRA ELECTRICITY AND CU RRENT APPEAL ARE CLEARLY DISTINGUISHED IT IS NOTED THAT WE NOW LEAVE THE BEN EFIT OF A DIRECT AND INCIDENTALLY SUBSEQUENT DECISION OF HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. 320 ITR 577 DT 11-1-2010. AFTER C OMPREHENSIVELY ANALYZING VARIOUS FACETS OF INCOME VIZ A VIZ METHOD OF ACCOUN TING AND ALSO PROVISIONS OF IT ACT PARTICULARLY CONCERNING NPA'S, HON'BLE APEX COU RT HAS THUS HELD AS UNDER :- ' .....ON THE ISSUE OF REAL INCOME THEORY THEORY OF 'REAL INCOME' 34. AN INTERESTING ARGUMENT WAS ADVANCED BEFORE US TO S AY THAT A PROVISION FOR NPA, UNDER COMMERCIAL ACCOUNTING, IS NOT AN 'INCOME ' HENCE THE SAME CANNOT BE ADDED BACK AS IS SOUGHT TO BE DONE BY THE DEPARTMEN T. IN THIS CONNECTION, RELIANCE WAS PLACED ON 'REAL INCOME THEORY'. 35. WE FIND NO MERIT IN THE ABOVE CONTENTION. IN THE CASE OF POONA ELECTRIC SUPPLY CO. LTD. V. CLT[1965] 57 ITR 521, THIS IS WHAT THE SUPREME COURT HAD TO SAY : ITA NO.62/AHD/2 014 SHRI MAHILA SEWA SAHKARI BANK LTD. VS. ACIT (OSD) ASST.YEAR 2010-11 - 12 - '. . . INCOME-TAX IS A TAX ON THE REAL INCOME, I.E. , THE PROFITS ARRIVED AT ON COMMERCIAL PRINCIPLES SUBJECT TO THE PROVISIONS OF THE INCOME- TAX ACT. THE REAL PROFIT CAN BE ASCERTAINED ONLY BY MAKING THE PERMISSIBLE DEDUCTIO NS. THERE IS A CLEAR CUT DISTINCTION BETWEEN . . . THE REAL PROFITS AND STAT UTORY PROFITS. THE LATTER ARE STATUTORILY FIXED FOR A SPECIFIED PURPOSE.' [EMPHASIS SUPPLIED] (P. 530) 36. TO THE SAME EFFECT IS THE JUDGMENT OF THE BOMBA Y HIGH COURT IN THE CASE OF CWT V. BOMBAY SUBURBAN ELECTRIC SUPPLY LTD. [1976] 103 ITR 384, WHERE IT WAS OBSERVED AS UNDER: '. . . INCOME-TAX IS A TAX ON THE REAL INCOME, I.E. , PROFITS ARRIVED AT ON COMMERCIAL PRINCIPLES SUBJECT TO THE PROVISIONS OF THE INCOME- TAX ACT, 1961. THE REAL PROFITS CAN BE ASCERTAINED ONLY BY MAKING THE PERMISSIBLE DEDUC TION. . . '. [EMPHASIS SUPPLIED] (P. 391) 37. THE POINT TO BE NOTED IS THAT THE INCOME-TAX AC T IS A TAX ON 'REAL INCOME', I.E., THE PROFITS ARRIVED AT ON COMMERCIAL PRINCIPLES SUBJECT TO THE PROVISIONS OF THE INCOME- TAX ACT. THEREFORE, IF BY EXPLANATION TO SECTION 36 (1)(VII) A PROVISION FOR DOUBTFUL DEBT IS KEPT OUT OF THE AMBIT OF THE BAD DEBT WHICH IS WRITTEN OFF THEN, ONE HAS TO TAKE INTO ACCOUNT THE SAID EXPLANATION IN COMPUTATION OF TOTAL INCOME UNDER THE INCOME- TAX ACT FAILING WHICH ONE CANNOT ASCERTAIN THE REAL PROFITS. THIS IS WHERE THE CONCEPT OF 'ADD BACK' COMES IN. IN OUR VIEW, A PROVISION FO R NPA DEBITED TO P&L ACCOUNT UNDER THE 1998 DIRECTIONS IS ONLY A NOTIONAL EXPENS E AND, THEREFORE, THERE WOULD BE ADD BACK TO THAT EXTENT IN THE COMPUTATION OF TOTAL INCOME UNDER THE INCOME-TAX ACT. 38. ONE OF THE CONTENTIONS RAISED ON BEHALF OF NBFC BEFORE US WAS THAT IN THIS CASE THERE IS NO SCOPE FOR 'ADD BACK' OF THE PROVISION A GAINST NPA TO THE TAXABLE INCOME OF THE ASSESSEE. WE FIND NO MERIT IN THIS CONTENTIO N. UNDER THE INCOME-TAX ACT, THE CHARGE IS ON PROFITS AND GAINS, NOT ON GROSS RECEIP TS (WHICH, HOWEVER, HAS PROFITS EMBEDDED IN IT). THEREFORE, SUBJECT TO THE REQUIREM ENTS OF THE INCOME-TAX ACT, PROFITS TO BE ASSESSED UNDER THE INCOME-TAX ACT HAVE GOT TO BE REAL PROFITS WHICH HAVE TO BE COMPUTED ON ORDINARY PRINCIPLES OF COMMERCIAL ACCOU NTING. IN OTHER WORDS, PROFITS HAVE GOT TO BE COMPUTED AFTER DEDUCTING LOSSES/EXPE NSES INCURRED FOR BUSINESS, EVEN THOUGH SUCH LOSSES/EXPENSES MAY NOT BE ADMISSIBLE U NDER SECTIONS 30 FU 43D OF THE INCOME-TAX ACT, UNLESS SUCH LOSSES/EXPENSES ARE EXP RESSLY OR BY NECESSARY IMPLICATION DISALLOWED BY THE ACT. THEREFORE, EVEN APPLYING THE THEORY OF REAL INCOME, A DEBIT WHICH IS EXPRESSLY DISALLOWED BY EX PLANATION TO SECTION 36(1)(VII), IF CLAIMED, HAS GOT TO BE ADDED BACK TO THE TOTAL INCO ME OF THE ASSESSEE BECAUSE THE C 3ID ACT SEEKS TO TAX THE 'REAL INCOME' WHICH IS INCOME COMPUTED ACCORDING TO ORDINARY COMMERCIAL PRINCIPLES BUT SUBJECT TO THE PROVISIONS OF THE INCOME-TAX ACT. UNDER ITA NO.62/AHD/2 014 SHRI MAHILA SEWA SAHKARI BANK LTD. VS. ACIT (OSD) ASST.YEAR 2010-11 - 13 - SECTION 36(1)(VII) READ WITH THE EXPLANATION, A 'WR ITE OFF' IS A CONDITION FOR ALLOWANCE. IF 'YEA/PROFIT' IS TO BE COMPUTED ONE NE EDS TO TAKE INTO ACCOUNT THE CONCEPT OF 'WRITE OFF' JN CONTRADISTINCTION TO THE 'PROVISION FOR DOUBTFUL DEBT'..,..' AN EXAMINATION OF THE ABOVE DECISION CLEARLY POSTUL ATES THAT HON'BLE APEX COURT HAS HELD THAT THERE IS NO MERIT ON THE CONTENTION THAT UNDER COMMERCIAL ACCOUNTING INTEREST ON NPAS CANNOT BE CHARGED. FOLLOWING ITS OWN DECISION IN THE CASE OF PUNA ELECTRICITY SUPPLY CO 57 UTR 121 OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF BOMBAY SUBURBAN ELE. SUPPLY LTD 103 ITR 384 IT WAS HELD THAT '....INCOME TAX ACT IN THE TAX OF REAL INCOME I.E. THE PROFITS ARRIVED AT ON COMMERCIAL PRINCIPLES SUBJECT TO THE PROVISIONS OF THE I T ACT. ....' IN VIEW OF THE ABOVE RATIO LAID DOWN BY HON'B LE APEX COURT AND IN RESPECTFUL COMPLIANCE TO V.IE SAM E IT IS HELD THAT THE DECISIONS RELIED UPON BY THE APPELLANT BANK POSSIBLY DO NOT C OME TO ITS RESCUE. IT IS WORTHWHILE TO MENTION THAT THE ABOVE DECISION OF HON'BLE APEX TAKES PRECEDENCE OVER OTHER DECISIONS INCLUDING ITS OWN DECISION IN THE CASE OF GODHRA ELECTRICITY AS THE SAME IS LATEST AND DIRECT ON THE ISSUE AT HAND. 3.9 A PERUSAL OF THE SUBMISSIONS MADE BY THE APPELL ANT INDICATES THAT IT HAS ALTERNATIVELY ARGUED THAT IN THE EVENT OF ITS APPEA L NOT BEING ALLOWED, THE ASSESSING OFFICER BE DIRECTED TO ALLOW HIM THE CREDIT OF INTE RESTS ON THE NPA'S DISCLOSED AS INCOME IN THE SUBSEQUENT YEAR. THUS IT HAS BEEN INF ORMED THAT IN THE SUBSEQUENT YEAR APPLICANT HAS SHOWN INTEREST INCOME EARNED ON SUCH NPAS AND THAT CREDIT THEREOF SHOULD BE ALLOWED. AT THE OUTSET IT IS PERTINENT TO NOTE THAT THE ABOVE ARGUMENT OF THE APPELLANT IS DIFFICULT TO BE ENTERTAINED AS THE SAM E HAS NOT BEEN RAISED BY WAY OF ANY GROUNDS OF APPEAL, WHICH HAVE BEEN REPRODUCED SUPRA AT PARA-2.1 ABOVE. AS FAR AS DISCLOSURE OF INCOME IN A RETURN OF INCOME AND ANY MODIFICATION IN RESPECT OF SUCH DISCLOSED INCOME IN A RETURN OF INCOME IS CONCERNED , IT IS SEEN THAT THE PROCEDURE FOR THE SAME IS PRESCRIBED U/S. 139 OF THE ACT. THERE I S NO PROVISION UNDER THE ACT, OF THE TYPE REQUESTED BY THE APPELLANT, TO ALLOW DEDUCTION OF INCOME OF A PARTICULAR YEAR AGAINST ANY OTHER INCOME. CONSEQUENTLY, THE ARGUMEN T OF THE APPELLANT FOR CREDIT OF INCOME OFFERED SUBSEQUENTLY DESERVES TO BE REJECTED AND HENCE IS REJECTED. 3.10 THE ARGUMENT OF THE APPELLANT THAT CBDT CIRCUL AR DT 9-10-1984 SUPRA, IS APPLICABLE IN ITS CASE AND THAT THE SAME IS BINDING UPON THE A O HAS BEEN EXAMINED AND FOUND TO BE UNTENABLE. IT IS A SETTLED PRINCIPL E OF LAW THAT THE CIRCULARS, NOTIFICATIONS ISSUED BY THE CBDT ARE PART OF DELEGA TED OR SUBORDINATED LEGISLATION. IT IS ALSO AN EQUALLY SETTLED PRINCIPLE OF LAW THAT TH E PARENT LEGISLATION CANNOT BE OVERRIDE THROUGH THE DELEGATED LEGISLATION VIJ CIRC ULARS AND NOTIFICATIONS. THE PROVISIONS OF SECTION 43D ARE CLEAR AND THEREFORE T HE SAME CANNOT BE OVERRIDDEN BY A ITA NO.62/AHD/2 014 SHRI MAHILA SEWA SAHKARI BANK LTD. VS. ACIT (OSD) ASST.YEAR 2010-11 - 14 - CIRCULAR. WITHOUT PREJUDICE IT IS SEEN THAT THE STA TUTORY PROVISIONS WERE BROUGHT TO ACT MUCH LATER THEN THE SAID CIRCULAR (WHICH WAS ISSUED IN 1984) AND THEREFORE THE SAID CIRCULAR IN ANY CASE WOULD NOT HAVE ANY EFFECT OR B INDING FORCE UPON THE A O. IT IS A TRITE LAW THAT A CIRCULAR ISSUED PRIOR TO INTRODUCT ION OF PARENT STATUTE WOULD HAVE NO RELEVANCE OR BINDING FORCE UPON THE A O. CONSEQUENT LY, THE ARGUMENT OF THE APPELLANT THAT THE A O IS BOUND BY THE CBDT CIRCULA R FAILS. 3.11 IN VIEW OF THE DISCUSSIONS MADE IN THE PRECEDING PA RAGRAPHS, IT IS HELD THAT THE ADDITION OF RS.1,72,73,000/- MADE BY THE A O ON ACC OUNT OF ACCRUED INTEREST ON NPAS IS BASED UPON CORRECT UNDERSTANDING OF THE CONTEMPO RARY STATUTORY PROVISIONS AND JUDICIAL CITATIONS AND DO NOT REQUIRES ANY FURTHER INTERFERENCE. THE APPELLANT ON ITS PART HAS NOT BEEN ABLE TO EFFECTIVELY DEMONSTRATE W ITH ANY COGENT EVIDENCE THAT THE ADDITION WAS UNWARRANTED CONSEQUENTLY, THE ADDITION OF RS. 1,72,73,000/- MAD E BY THE A O ON ACCOUNT OF ACCRUED INTEREST ON NPAS IS C ONFIRMED AND THE GROUND OF APPEAL NO., 1 RAISED IS DISMISSED. 4.0 IN THE RESULT, THE APPEAL IS DISMISSED. 5.1. HOWEVER, WE FIND THAT UNDER THE IDENTICAL FACT S, THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT VS. SOLA PUR SIDDHESHWAR SAHAKARI BANK LTD. IN ITA NOS.2220&221/PN/2013 FOR AYS 2009-10 & 2010-11 (SUPRA) HAS EXAMINED THE ISSUE THOROUGHLY B Y HOLDING AS UNDER:- 4. THE LEARNED CIT(A) DISAGREED WITH THE ASSESSING OFFICER, AND THUS THE REVENUE IS IN APPEAL BEFORE US. AT THE TIME OF HEAR ING, IT WAS A COMMON POINT BETWEEN THE PARTIES THAT AN IDENTICAL CONTROVERSY H AS BEEN CONSIDERED BY THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. THE OMERGA JANTA SAHAKARI BANK LTD. VIDE ORDER IN ITA NO.350/PN/2013 DATED 31.10.2013. IN THE SAID PRECEDENT, THE TRIBUNAL CONSIDERED THE JUD GEMENT OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF M/S VASISTH CHAY VY APAR LTD., 330 ITR 440 (DEL) AS WELL AS THE JUDGEMENT OF THE HON'BLE MADRA S HIGH COURT IN THE CASE OF CIT VS. SAKTHI FINANCE LTD., (2013) 31 TAXMANN.C OM 305 (MADRAS), WHICH HAD EXPRESSED DIVERGENT VIEWS WITH RESPECT TO THE I SSUE OF ACCRUAL OF INTEREST INCOME ON NPA ADVANCES; AND, FOLLOWING THE PROPOSIT ION THAT IN THE ABSENCE OF ANY JUDGEMENT OF THE JURISDICTIONAL HIGH COURT, THERE BEING CONTRARY JUDGEMENTS OF THE NON-JURISDICTIONAL HIGH COURTS, A DECISION WHICH WAS ITA NO.62/AHD/2 014 SHRI MAHILA SEWA SAHKARI BANK LTD. VS. ACIT (OSD) ASST.YEAR 2010-11 - 15 - FAVOURABLE TO THE ASSESSEE WAS TO BE FOLLOWED IN VI EW OF THE REASONING LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF CI T VS. VEGETABLE PRODUCTS LTD., (1973) 88 ITR 192 (SC) AND, THUS THE TRIBUNAL DECIDED THE ISSUE IN FAVOUR 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 SUBMI SSIONS. IN SO FAR AS THE APPLICABILITY OF SECTION 43D OF THE ACT TO THE ASSESSEE IS CONCERNED, THERE IS A CONVERGENCE OF OPINION BETWEEN THE ASSES SEE AND THE REVENUE TO THE EFFECT THAT THE SAME IS NOT APPLICAB LE TO THE ASSESSEE. OSTENSIBLY, ASSESSEE IS A CO-OPERATIVE BANK CARRYIN G 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 AS TO F ALL WITHIN THE SCOPE OF SECTION 43D OF THE ACT. NOTABLY, SECTION 43D OF THE ACT PRESCRIBES THAT INTEREST INCOME ON SUCH CATEGORIES OF BAD AND DOUBTFUL DEBTS AS PRESCRIBED BY THE RBI GUIDELINES SHALL BE CHARGEABL E TO TAX IN THE YEAR IN WHICH SUCH INTEREST INCOME IS CREDITED BY THE AS SESSEE IN THE PROFIT AND LOSS ACCOUNT OR IN THE YEAR OF ACTUAL RECEIPT, WHICHEVER IS EARLIER. SINCE ASSESSEE IS NOT AN ENTITY COVERED WITHIN THE SCOPE OF SECTION 43D OF THE ACT, THE PRESENT CONTROVERSY CANNOT BE ADJUD ICATED IN THE LIGHT OF SECTION 43D OF THE ACT, AND IT IS LIABLE TO BE D ECIDED ON GENERAL PRINCIPLES AS TO WHETHER THE IMPUGNED INCOME HAS AC CRUED TO THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. 9. IN THIS CONNECTION, WE FIND THAT THE VISAKHAPATN AM BENCH OF THE TRIBUNAL IN THE CASE OF THE DURGA COOPERATIVE URBAN BANK LTD. (SUPRA) HAS CONSIDERED AN IDENTICAL CONTROVERSY. TH E ASSESSEE BEFORE THE VISAKHAPATNAM BENCH WAS A CO-OPERATIVE BANK OPE RATING UNDER A LICENSE 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, WHI CH AS PER THE REVENUE WAS LIABLE TO BE TAXED ON ACCRUAL BASIS IN LINE WITH MERCANTILE SYSTEM OF ACCOUNTING ADOPTED BY THE ASSE SSEE THEREIN. THE ASSESSEE, ON THE OTHER HAND, CONTENDED THAT HAVING REGARD TO THE GUIDELINES ISSUED BY RBI REGARDING ACCOUNTING OF IN TEREST ON NPAS, NO INTEREST INCOME ACCRUED IN RESPECT OF NPAS AND THAT THE SAME WAS TO BE TAXED ONLY ON RECEIPT BASIS. THE TRIBUNAL OBSERV ED THAT THE QUESTION OF TAXABILITY OF INTEREST ON NPAS CLASSIFIED BY RBI , WAS CONSIDERED BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF M/S VAS ISTH CHAY VYAPAR LTD. (SUPRA) WHEREIN AFTER CONSIDERING THE DECISION OF THE HON'BLE ITA NO.62/AHD/2 014 SHRI MAHILA SEWA SAHKARI BANK LTD. VS. ACIT (OSD) ASST.YEAR 2010-11 - 16 - SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) IT WAS HELD THAT INTEREST INCOME RELATABLE TO NPAS WAS NOT INCLUDIBLE IN TOTAL INCOME ON ACCRUAL BASIS SINCE THE SAME DID NO T ACCRUE TO THE ASSESSEE. THE FOLLOWING DISCUSSION BY THE VISAKHAPA TNAM BENCH OF THE TRIBUNAL IN THE CASE OF THE DURGA COOPERATIVE URBAN BANK LTD. (SUPRA) IS WORTHY OF NOTICE:- '8. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFUL LY PERUSED THE RECORD. THE QUESTION OF TAXABILITY OF INTEREST ON NPAS HAS BEEN CONSIDERED BY 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 REN DERED BY THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD (SUPRA). IN THE CASE OF M/S VASIST H CHAY VYAPAR LTD, THE ASSESSEE THEREIN WAS A NON BANKING FINANCIAL COMPANY AND IT WAS ALSO BOUND BY THE 'PRUDENTIAL NO RMS 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 S AID INTEREST AS THE INCOME OF THE ASSESSEE BY HOLDING T HAT IT HAD 'ACCRUED' TO THE ASSESSEE EVEN IT WAS NOT REALIZED AS THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNT ING. THE LEARNED CIT (A) AFFIRMED THE ORDER OF THE ASSESSING OFFICER. HOWEVER, THE ITAT DELETED THE AFORESAID INCOME. HEN CE THE REVENUE PREFERRED APPEAL BEFORE THE HON'BLE DELHI H IGH COURT. 8.1 AFTER HEARING THE RIVAL SUBMISSIONS, THE HON'BL E DELHI HIGH COURT TOOK NOTE OF SEC.45Q OF RESERVE BANK OF INDIA ACT WHICH READS AS UNDER: 'CHAPTER IHB TO OVERRIDE OTHER LAWS. 45Q. THE PROVISIONS OF THIS CHAPTER SHALL HAVE EFFE CT NOTWITHSTANDING ANYTHING INCONSISTENT THEREWITH CON TAINED IN ANY OTHER LAW FOR THE TIME BEING IN FORCE OR ANY IN STRUMENT HAVING EFFECT BY VIRTUE OF ANY SUCH LAW'. ITA NO.62/AHD/2 014 SHRI MAHILA SEWA SAHKARI BANK LTD. VS. ACIT (OSD) ASST.YEAR 2010-11 - 17 - THE HIGH COURT TOOK NOTE OF THE FACT THAT THE PROVI SION OF 45Q OF RESERVE BANK OF INDIA HAS OVERRIDING EFFECT OVER ANY OTHER LAW. THEN THE HON'BLE HIGH COURT ALSO CONSIDERED AC COUNTING STANDARD 'AS-9' ON 'REVENUE RECOGNITION' AND ALSO E XTRACTED FOLLOWING RELEVANT PORTION FROM THE SAID ACCOUNTING STANDARD: 9. EFFECT OF UNCERTAINTIES ON REVENUE RECOGN ITION 9.1 RECOGNITION OF REVENUE REQUIRES THAT REVENUE IS A MEASURABLE AND THAT AT THE TIME OF SALE OR THE REND ERING OF THE SERVICE, IT WOULD NOT BE UNREASONABLE TO EXPECT ULT IMATE COLLECTION. 9.2 WHERE THE ABILITY TO ASSESS THE ULTIMATE COLLEC TION WITH REASONABLE CERTAINTY IS LACKING AT THE TIME OF RAIS ING ANY CLAIM, E.G., FOR ESCALATION OF PRICE, EXPORT INCENTIVES, I NTEREST ETC., REVENUE RECOGNITION IS POSTPONED TO THE EXTENT OF U NCERTAINTY INVOLVED. IN SUCH CASES, IT MAY BE APPROPRIATE TO R ECOGNIZE REVENUE ONLY WHEN IT IS REASONABLY CERTAIN THAT THE ULTIMATE COLLECTION WILL BE MADE. WHERE THERE IS NO UNCERTAI NTY AS TO ULTIMATE COLLECTION, REVENUE IS RECOGNIZED AT THE T IME OF SALE OR RENDERING OF SERVICE EVEN THOUGH PAYMENTS ARE MADE BY INSTALLMENTS. 9.3 WHEN THE UNCERTAINTY RELATING TO COLLECTABILITY ARISES SUBSEQUENT TO THE TIME OF SALE OR THE RENDERING OF THE SERVICE, IT IS MORE APPROPRIATE TO MAKE A SEPARATE PROVISION TO REFLECT THE UNCERTAINTY RATHER THAN TO ADJUST THE AMOUNT OF REV ENUE ORIGINALLY RECORDED. 9.4 AN ESSENTIAL CRITERION FOR THE RECOGNITION OF R EVENUE 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 REVENUE OF TH E PERIOD IN WHICH IT IS PROPERLY RECOGNIZED'. ITA NO.62/AHD/2 014 SHRI MAHILA SEWA SAHKARI BANK LTD. VS. ACIT (OSD) ASST.YEAR 2010-11 - 18 - 8.2 THE DELHI HIGH COURT ALSO CONSIDERED THE DECIS ION RENDERED IN THE FOLLOWING CASES; I) CIT VS. ELGI FINANCE LTD., 293ITR 357 (MAD) II) CIT VS. KKM INVESTMENTS (CAL) - SLP DISMISSED B Y 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 VALIABHDAS & CO 46 (TR 144 (SC) VI) GODHRA ELECTRICITY CO. LTD., VS. CIT 225 ITR 74 6 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 TREATED AS 'ACCRUED' TO TH E ASSESSES, 8.4. BEFORE THE DELHI HIGH COURT, THE REVENUE TOOK SUPPORT OF THE 'DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD (SUPRA). THE DELHI HIGH COURT CONS IDERED THE SAID DECISION OF HON'BLE APEX COURT AND EXPLAINED THE SA ME AS UNDER: 'WE HAVE ALREADY HELD THAT EVEN UNDER THE INCOME TA X ACT, INTEREST INCOME HAD NOT ACCRUED. MOREOVER, THIS SUB MISSION OF MR. SABHARWAL IS BASED ENTIRETY ON THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGY (S UPRA). NO DOUBT, IN FIRST BLUSH, READING OF THE JUDGMENT GIVE S AN INDICATION THAT THE COURT HAS HELD THAT RESERVE BAN K 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 VE RY 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 ITA NO.62/AHD/2 014 SHRI MAHILA SEWA SAHKARI BANK LTD. VS. ACIT (OSD) ASST.YEAR 2010-11 - 19 - DEDUCTION CLAIMED AS AFORESAID ON THE GROUND THAT T HE PROVISION OF NPA WAS NOT IN THE NATURE OF EXPENDITU RE OR LOSS BUT MORE IN THE NATURE OF A RESERVE, AND THUS NOT D EDUCTIBLE UNDER SECTION 36(I)(VII) 'OF THE ACT. THE ASSESSING OFFICER, HOWEVER, DID NOT BRING TO TAX RS.20,34,605/- AS INC OME (BEING INCOME ACCRUED UNDER THE MERCANTILE SYSTEM OF ACCOU NTING). THE DISPUTE BEFORE THE APEX COURT CENTERED AROUND DEDUCTIBILITY OF PROVISION FOR NPA. AFTER ANALYZING THE PROVISIONS OF THE RESERVE BANK OF INDIA ACT, THEIR LORDSHIPS OF THE APEX COURT OBSERVED THAT IN SO FAR AS THE PE RMISSIBLE DEDUCTIONS OR EXCLUSIONS UNDER THE ACT ARE CONCERNE D, THE SAME ARE ADMISSIBLE ONLY IF SUCH DEDUCTIONS/EXCLUSI ONS SATISFY THE RELEVANT CONDITIONS STIPULATED THEREFOR E UNDER THE ACT. TO THAT EXTENT, IT WAS OBSERVED THAT THE PRUDE NTIAL NORMS DO NOT OVERRIDE THE PROVISIONS OF THE ACT. HOWEVER, THE APEX COURT MADE A DISTINCTION WITH REGARD TO 'INCOME REC OGNITION' AND HELD THAT INCOME HAD TO BE RECOGNIZED IN TERMS OF THE PRUDENT/A NORMS, EVEN, THOUGH THE SAME DEVIATED FRO M 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 EN GRAINED IN FIE PRUDENTIAL NORMS FOR RECOGNITION OF REVENUE BY NBFC'. 9. THE HON'BLE SUPREME COURT IN THE CASE OF M/S SOU THERN TECHNOLOGIES LTD (SUPRA) DISSECTED THE MATTER INTO TWO PARTS VIZ., A) INCOME RECOGNITION AND B) PERMISSIBLE DEDUCTION/EXC LUSIONS UNDER THE INCOME TAX ACT. IN SO FAR AS INCOME RECOGNITION IS CONCERNED, THE HON'BLE SUPREME COURT HELD THAT SECTION 145 OF THE INCOME TAX ACT HAS NO ROLE TO PLAY AND THE ASSESSING OFFICER HAS T O FOLLOW RESERVE BANK OF INDIA DIRECTIONS 1998, SINCE BY VIRTUE OF 4 5Q OF THE RESERVE BANK OF INDIA ACT, AN OVERRIDING EFFECT IS GIVEN TO THE DIRECTIONS OF RESERVE BANK OF INDIA VIS-A-VIS INCOME RECOGNITION PRINCIPLES IN THE COMPANIES ACT 1956. IN SO FAR AS COMPUTATION OF INC OME UNDER THE INCOME TAX ACT IS CONCERNED, (WHICH INVOLVES DEDUCT ION OF PERMISSIBLE DEDUCTIONS AND EXCLUSIONS) THE ADMISSIBILITY OF SUC H DEDUCTIONS SHALL BE GOVERNED BY THE PROVISIONS OF THE INCOME TAX ACT . THE RELEVANT OBSERVATIONS OF THE HON'BLE SUPREME COURT ARE EXTRA CTED BELOW: 'APPLICABILITY OF SECTION 145 ITA NO.62/AHD/2 014 SHRI MAHILA SEWA SAHKARI BANK LTD. VS. ACIT (OSD) ASST.YEAR 2010-11 - 20 - 40. AT THE OUTSET, WE MAY STATE THAT IN ESSENCE RBI DIRECTIONS 1998 ARE PRUDENTIAL/PROVISIONING NORMS ISSUED BY RB I 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 ACCOU NTS. THEY FORCE THE NBFCS TO REFLECT 'TRUE AND CORRECT' PROFI TS. BY VIRTUE OF SECTION 45Q, AN OVERRIDING EFFECT IS GIVEN TO TH E DIRECTIONS 1998 VIS-A-VIS 'INCOME RECOGNITION' PRINCIPLES IN T HE COMPANIES ACT, 1956. THESE DIRECTIONS CONSTITUTE A CODE BY ITSELF. HOWEVER, THESE DIRECTIONS 1998 AND THE IT A CT OPERATE IN DIFFERENT AREAS. THESE DIRECTIONS 1998 HAVE NOTH ING TO DO WITH COMPUTATION OF TAXABLE INCOME. THESE DIRECTION S CANNOT OVERRULE THE 'PERMISSIBLE DEDUCTIONS' OR 'THEIR EXC LUSION' UNDER THE IT ACT. THE INCONSISTENCY BETWEEN THESE D IRECTIONS AND COMPANIES ACT IS ONLY IN THE MATTER OF INCOME R ECOGNITION AND PRESENTATION OF FINANCIAL STATEMENTS. THE ACCOU NTING POLICIES ADOPTED BY AN NBFC CANNOT DETERMINE THE TA XABLE INCOME. IT IS WELL SETTLED THAT THE ACCOUNTING POLI CIES FOLLOWED BY A COMPANY CAN BE CHANGED UNLESS THE AO COMES TO THE CONCLUSION THAT SUCH CHANGE WOULD RESULT IN UNDERST ATEMENT OF PROFITS. HOWEVER, HERE IS THE CASE WHERE THE AO HAS TO FOLLOW THE RESERVE BANK OF INDIA DIRECTIONS 1998 IN VIEW O F 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 ASSESSES HEREIN IS A COOPERATIVE BANK AND IT IS NOT IN DISPUTE THAT IT I S ALSO GOVERNED BY THE RESERVE BANK OF INDIA. HENCE THE DIRECTIONS WITH RE GARD TO THE PRUDENTIAL NORMS ISSUED BY THE RESERVE BANK OF INDI A ARE EQUALLY APPLICABLE TO THE ASSESSES AS IT IS APPLICABLE TO T HE COMPANIES REGISTERED UNDER THE COMPANIES ACT. THE HON'BLE SUP REME COURT HAS HELD IN THE CASE OF SOUTHERN TECHNOLOGIES LTD (SUPR A), THAT THE PROVISION OF 45Q OF RESERVE BANK OF INDIA ACT HAS A N OVERRIDING EFFECT VIS-A-VIS INCOME RECOGNITION PRINCIPLE UNDER THE CO MPANIES ACT. HENCE SEC.45 Q OF THE RBI ACT SHALL HAVE OVERRIDING EFFECT OVER THE INCOME RECOGNITION PRINCIPLE FOLLOWED BY COOPERATIV E BANKS ALSO. HENCE THE ASSESSING OFFICER HAS TO FOLLOW THE RESER VE BANK OF INDIA DIRECTIONS 1998, AS HELD BY THE HON'BLE SUPREME COU RT. ITA NO.62/AHD/2 014 SHRI MAHILA SEWA SAHKARI BANK LTD. VS. ACIT (OSD) ASST.YEAR 2010-11 - 21 - 10.1 BASED ON THE PRUDENTIAL NORMS, THE ASSESSEE HE REIN 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 OBSERVA TIONS OF HON'BLE DELHI HIGH COURT IN THE ABOVE CITED CASE ARE RELEVA NT: 'WHAT TO TALK OF INTEREST, EVEN THE PRINCIPLE AMOUN T ITSELF HAD BECOME DOUBTFUL TO RECOVER. IN THIS SCENARIO IT WAS LEGITIMATE MOVE TO INFER THAT INTEREST INCOME THEREUPON HAS NO T 'ACCRUED'. THE SAID DECISION OF THE HON'BLE DELHI HIGH COURT I S EQUALLY APPLICABLE TO THE ISSUE IN OUR HANDS. ACCORDINGLY W E 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 A CCRUE TO THE ASSESSEE. ACCORDINGLY WE UPHOLD HIS ORDER.' 10. FOLLOWING THE AFORESAID DISCUSSION, WHICH HAS B EEN RENDERED ON AN IDENTICAL ISSUE UNDER SIMILAR CIRCUMSTANCES, WE FIND NO REASONS TO INTERFERE WITH THE ULTIMATE CONCLUSION OF THE CIT(A ) IN DELETING THE IMPUGNED ADDITION RELATING TO INTEREST INCOME IN RE SPECT OF NPAS. 11. SO, HOWEVER, THE LEARNED DEPARTMENTAL REPRESENT ATIVE HAS SUBMITTED THAT THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. SAKTHI FINANCE LTD., (2013) 31 TAXMANN.COM 305 (MAD RAS) HAS DIFFERED WITH THE JUDGEMENT OF THE HON'BLE DELHI HI GH COURT IN THE CASE OF M/S VASISTH CHAY VYAPAR LTD. (SUPRA) ON A S IMILAR ISSUE, I.E. RELATING TO INTEREST INCOME ON NPAS. THE LEARNED DE PARTMENTAL REPRESENTATIVE FURTHER POINTED OUT THAT THE HON'BLE MADRAS HIGH COURT FOLLOWED THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) IN HOLDING TH AT INTEREST ON NPAS WAS ASSESSABLE TO TAX ON ACCRUAL BASIS. WE HAVE CAR EFULLY CONSIDERED THE SUBMISSIONS PUT-FORTH BY THE LEARNED DEPARTMENT AL REPRESENTATIVE BASED ON THE JUDGEMENT OF THE HON'BLE MADRAS HIGH C OURT IN THE CASE OF SAKTHI FINANCE LTD. (SUPRA). THE CONTROVERSY BEF ORE THE HON'BLE MADRAS HIGH COURT RELATED TO NON-RECOGNITION OF INT EREST INCOME ON NPAS BY THE ASSESSEE FOLLOWING THE RBI GUIDELINES. THE HON'BLE MADRAS HIGH COURT TOOK THE VIEW THAT THE JUDGEMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) ALSO ITA NO.62/AHD/2 014 SHRI MAHILA SEWA SAHKARI BANK LTD. VS. ACIT (OSD) ASST.YEAR 2010-11 - 22 - APPLIED TO THE INCOME RECOGNITION NORMS PROVIDED BY RBI AND THEREFORE IT HELD THE .INTEREST INCOME ON NPAS IS L IABLE TO BE TAXED ON ACCRUAL BASIS AND NOT IN TERMS OF RBI'S GUIDELINES. BUT THE HON'BLE DELHI HIGH COURT IN THE CASE OF M/S VASISTH CHAY VY APAR LTD. (SUPRA) HAS TAKEN A VIEW THAT SOUTHERN TECHNOLOGIES LTD. (S UPRA) CASE DID NOT APPLY TO THE INCOME RECOGNITION NORMS PRESCRIBED BY RBI. OSTENSIBLY, THERE IS DIVERGENCE OF OPINION BETWEEN THE HON'BLE DELHI HIGH COURT AND THE HON'BLE MADRAS HIGH COURT AS NOTED BY THE H ON'BLE MADRAS HIGH COURT IN ITS ORDER. 12. IN SO FAR AS, PRESENT CASE IS CONCERNED THERE I S NO JUDGMENT OF THE JURISDICTIONAL HIGH COURT. WE ARE FACED WITH TWO CO NTRARY JUDGMENTS OF THE NON-JURISDICTIONAL HIGH COURT. IN SUCH A SIT UATION, WE ARE INCLINED TO PREFER A VIEW WHICH IS FAVOURABLE OF TH E ASSESSEE FOLLOWING THE JUDGEMENT OF THE HON'BLE SUPREME COURT IN THE C ASE OF CIT VS. VEGETABLE PRODUCTS LTD. (1973) 88 ITR 192 (SC). 13. THEREFORE, IN VIEW OF THE AFORESAID DISCUSSION, WE ARE INCLINED TO FOLLOW THE DECISION OF OUR CO-ORDINATE BENCH IN THE CASE OF THE DURGA COOPERATIVE URBAN BANK LTD. (SUPRA) AND ACCORDINGLY THE ORDER OF THE CIT(A) IS LIABLE TO THE AFFIRMED. WE HOLD SO. 14. IN THE RESULT, THE APPEAL OF THE REVENUE I S DISMISSED.' 5. SINCE IT WAS A COMMON POINT BETWEEN THE PA RTIES THAT THE FACTS AND CIRCUMSTANCES IN THE PRESENT CASE ARE IDENTICAL TO THOSE CONSIDERED BY US IN THE CASE OF THE OMERGA JANTA SAHAKARI BANK LTD. (SU PRA), FOLLOWING THE SAID PRECEDENT THE PRESENT CLAIM OF THE ASSESSEE DESERVE S TO BE UPHELD. THUS, THE ORDER OF THE CIT(A) IS HEREBY AFFIRMED AND THE REVE NUE HAS TO FAIL ON THIS ASPECT. 6. IN THE RESULT, BOTH THE APPEALS OF THE REV ENUE ARE DISMISSED. 5.2. WE ALSO FIND THAT THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF SARDARGANJ MERCANTILE CO-OP.BANK LTD. VS. ACIT ( SUPRA) HAS DELETED ADDITION BY OBSERVING AS UNDER:- ITA NO.62/AHD/2 014 SHRI MAHILA SEWA SAHKARI BANK LTD. VS. ACIT (OSD) ASST.YEAR 2010-11 - 23 - 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL ON RECORD. THE APPELLANT IS MAKING THE PROVISION O F INTEREST AS PER THE GUIDELINES ISSUED BY THE R.B.I. HOWEVER, SAME HAS NOT BEEN CREDITED IN THE P&L ACCOUNT AS IT WAS NOTIONAL HAD NOT RECEIVED ACTUALLY BY IT. SECTION 43 IS ALSO NOT APPLICABL E A ASSESSEE HAS NOT CREDITED IN THE P&L ACCOUNT BUT SHOWN IN THE AS SETS AND LIABILITY SIDE IN THE BALANCE SHEET DIRECTLY AND AL SO NOT RECEIVED ACTUALLY. THUS, WE HAVE CONSIDERED VIEW THAT THE C IT(A) WAS NOT JUSTIFYING IN CONFIRMING THE ADDITION. ACCORDINGLY , THE ASSESSEES APPEAL IS ALLOWED. 6. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOW ED. 5.3 THE HONBLE COORDINATE BENCH HAS NOTED THAT TH ERE IS A DIVERGENT VIEW BETWEEN THE HONBLE DELHI HIGH COURT IN THE CA SE OF M/S.VASISTH CHAY VYAPAR LTD. REPORTED AT 330 ITR 44 0(DELHI AND THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. SAKTHI FIN ANCE LTD. REPORTED AT (2013) 31 TAXMANN.COM 305 (MAD.), IN RESPECT OF AP PLICATION OF THE JUDGEMENT OF THE HONBLE APEX COURT RENDERED IN THE CASE OF SOUTHERN TECHNOLOGY LTD.(SUPRA) ON INCOME RECOGNITION NORMS PRESCRIBED BY R.B.I. THE HONBLE COORDINATE BENCH IN VIEW OF THE FACT THAT THERE WERE DIVERGENT VIEWS OF HONBLE DELHI HIGH COURT AND HO NBLE MADRAS HIGH COURT, APPLIED THE RATIO OF THE HONBLE SUPREME CO URT IN THE CASE OF CIT VS. VEGETABLE PRODUCTS LTD. REPORTED AT (1973) 88 I TR 192 (SC). IN THE PRESENT CASE ALSO, THERE IS NO JUDGEMENT BY THE HON BLE JURISDICTIONAL HIGH COURT, THEREFORE FOR THE SAME REASONING, WE DE CIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND THE AO IS HEREBY DIRECTE D TO DELETE THE ADDITION. THUS, GROUND OF ASSESSEES APPEAL IS ALL OWED. ITA NO.62/AHD/2 014 SHRI MAHILA SEWA SAHKARI BANK LTD. VS. ACIT (OSD) ASST.YEAR 2010-11 - 24 - 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE COURT ON FRIDAY, THE 27 TH DAY OF MARCH, 2015 AT AHMEDABAD. SD/- SD/- ( .. ) ( ) ( N.S. SAINI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 27/ 03 /2015 2*..,(.../ T.C. NAIR, SR. PS !'#$%&' &$ / COPY OF THE ORDER FORWARDED TO : 1. # / THE APPELLANT 2. $% # / THE RESPONDENT. 3. 345 6 / CONCERNED CIT 4. 6 ( ) / THE CIT(A)-XVI, AHMEDABAD 5. 7(8$45 , *45. , 3 / DR, ITAT, AHMEDABAD 6. 8:;<) / GUARD FILE. ! / BY ORDER, %7$ //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 16.3.15 (DICTATION-PAD 9- P AGES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER .. 19.3.2015 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.27.3.15 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 27.3.15 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