ITO, Ward-1, Nalgonda V. The Nalgond District Co-op Central Bank Limited, Nalgonda

ITA 689/HYD/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2645 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-04-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 27-02-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 07-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K J RAO
• Assessee Lawyers: S RAMA RAO
• Keywords: Bad and doubtful debts; Reassessment proceedings
• Section: 133A; 147; 148; 6; 56; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NOA. 689, 690 & 691/HYD/2013 ASSESSMENT YEARS: 2007-08, 2008-09 & 2009-10 INCOME TAX OFFICER, WARD 1, NALGONDA. VS. THE NALGONDA DISTRICT COOPERATIVE CENTRAL BANK LTD., NALGONDA. PAN AAEFT 3490M (APPELLANT) (RESPONDENT) REVENUE BY : SHRI K.J. RAO ASSESSEE BY : SHRI S. RAMA RAO DATE OF HEARING : 23-03-2017 DATE OF PRONOUNCEMENT : 07-04-2017 O R D E R PER S. RIFAUR RAHMAN, A.M.: THESE THREE APPEALS ARE PREFERRED BY REVENUE AGAIN ST ORDERS OF CIT(A) V, HYDERABAD, ALL DATED, 28/01/2013 FOR AY S 2007-08 TO 2009-10. AS IDENTICAL ISSUES ARE INVOLVED, THESE AP PEALS WERE CLUBBED AND HEARD TOGETHER, THEREFORE A COMMON ORDE R IS PASSED FOR THE SAKE OF CONVENIENCE. 2. TO DISPOSE OF THESE APPEALS, WE REFER TO THE FAC TS FROM AY 2007-08. 3. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE IS A COOPERATIVE SOCIETY REGISTERED UNDER COOPERATIVE SO CIETIES ACT, 1964 AND IS ENGAGED IN BANKING BUSINESS. FOR THE AY 2007 -08, ASSESSEE FILED ITS RETURN OF INCOME ADMITTING INCOME OF RS. 1,77,240/- AFTER 2 ITA NOS. 689, 690 & 691/H/13 THE NALGONDA DISTRICT COOPERATIVE CENTRAL BANK LTD. , NALGONDA CLAIMING DEDUCTION U/S 80P AT RS. 7,42,82,192/-. A SURVEY U/S 133A WAS CONDUCTED ON 30/03/2010. CONSEQUENT TO SURVEY, THE CASE WAS REOPENED U/S 147 AND NOTICE U/S 148 WAS ISSUED AND SERVED. IN RESPONSE TO NOTICE U/S 148, ASSESSEE FILED A REVISE D RETURN OF INCOME ON 21/04/2010 IN WHICH ASSESSEE WITHDREW THE DEDUCT ION U/S 80P AND ADMITTED LOSS OF RS. 12,97,11,438/-. DURING THE COU RSE OF REASSESSMENT PROCEEDINGS, AO NOTICED THAT THERE WER E SOME DEFICIENCIES AND DISCREPANCIES IN THE BOOKS OF ACCO UNT MAINTAINED. THE CASE WAS SUBJECTED TO SPECIAL AUDIT U/S 142(2A) BY THE AO. BASED ON THE SPECIAL AUDIT FINDINGS, ASSESSMENT WAS COMPLETED DETERMINING THE INCOME AT RS. 8,97,31,422. 4. AGGRIEVED WITH THE ABOVE ORDER, ASSESSEE PREFERR ED AN APPEAL BEFORE THE CIT(A). BASED ON THE SUBMISSIONS MADE BY THE ASSESSEE, CIT(A) HAS ALLOWED THE CLAIMS OF THE ASSESSEE U/S 3 6(1)(VIIA), INTEREST ON NPAS AND OUTSTANDING LIABILITY OF DIVIDEND. 5. AGGRIEVED WITH THE ABOVE ORDER, REVENUE IS IN AP PEAL BEFORE US. 6. THE REVENUE HAS RAISED EIGHT GROUNDS OF APPEAL. GROUND NOS. 1 & 8 ARE GENERAL IN NATURE, HENCE, NEED NO ADJUDICAT ION. 7. GROUND NOS. 2, 3 & 4 ARE RELATING TO DEDUCTION U /S 36(1)(VIIA). THE FACTS RELATING TO THIS ISSUE ARE, AO OBSERVED THAT ASSESSEE IS A COOPERATIVE SOCIETY, RUNNING BUSINESS OF BANKING AN D HAS NOT OBTAINED ANY LICENCE FROM RBI. HE NOTED THAT ASSESS EE HAS CLAIMED AN AMOUNT OF RS. 14,61,92,529/- AS DEDUCTION U/S 36 (1)(VIIA) TOWARDS BAD AND DOUBTFUL DEBTS IN THE COMPUTATION OF INCOME , I.E., 10% RURAL ADVANCES. WITH REGARD TO THE DISCUSSIONS ON NECESSI TY TO HAVE A LICENCE FROM RBI TO RUN A BANKING BUSINESS, AO OPIN ED THAT ASSESSEE IS A COOPERATIVE SOCIETY AND CARRYING ON BANKING BU SINESS AND REGISTERED UNDER AP STATE COOPERATIVE SOCIETIES ACT , 1964 BUT, NOT OBTAINED LICENCE TO CARRY OUT BANKING BUSINESS U/S 22 OF THE BANKING 3 ITA NOS. 689, 690 & 691/H/13 THE NALGONDA DISTRICT COOPERATIVE CENTRAL BANK LTD. , NALGONDA REGULATION ACT, 1949. HE FURTHER OPINED THAT STATUS OF THE ASSESSEE IS A COOPERATIVE SOCIETY CARRYING ON THE BUSINESS OF B ANKING, THEREFORE, THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION U/S 36(1 )(VIIA) OF THE ACT. ACCORDINGLY, DISALLOWED THE AMOUNT CLAIMED BY THE A SSESSEE UNDER THE SAID SECTION. 8. DURING THE APPEAL PROCEEDINGS, ASSESSEE SUBMITTE D BEFORE THE CIT(A) AS BELOW: 5.4 IT IS THE CONTENTION OF THE APPELLANT THAT THEY HAVE BEEN IN THE BANKING BUSINESS ON THE DATE OF COMMENCEMENT OF THE BANKING REGULATION ACT AND AS PER THE STIPULATIONS THEREIN, THEY HAD APPLIED FOR A LICENSE TO CONTINUE THEIR BANKING BUS INESS. HOWEVER, THE RESERVE BANK NEITHER GRANTED ANY LICEN SE NOR REJECTED THEIR PLEA AS PER THE PROVISIONS MENTIONED ABOVE. THE APPELLANT FURTHER CONTENDED THAT THEIR BANKING FUNC TIONS ARE BEING MONITORED BY THE RESERVE BANK OF INDIA AND STATUTOR Y INSPECTIONS, AUDIT BY THE NABARD UNDER SECTION 35 O F THE BANKING REGULATION ACT AND THEY ARE ALSO COMPLYING TO THE NORMS FRAMED BY THE RBI BY SUBMITTING VARIOUS RETURNS OF MAINTENANCE OF SLR'S. IN SUPPORT OF THE CONTROL EXERCISED BY TH E RBI ON THEIR BANKING BUSINESS, THE APPELLANT SUBMITTED A LETTER DATED 02.09.2005 FROM THE RBI QUESTIONING THE APPELLANT'S DEFAULT IN MAINTAINING THE STATUTORY LIQUIDITY RATIO (SLR) ON TWO INSTANCES, ON 17TH MAY 2005 AND 27TH MAY, 2005. FROM THIS, THE APPELLANT SUBMITS THAT THEIR BUSINESS OF BANKING WAS DONE IN ACCORDANCE WITH THE REGULATIONS FRAMED BY THE RBI AND GRANTING OF LICENSE FROM 20.04.2010 HAS NOTHING TO DO AWAY WITH THE BUS INESS OF THE APPELLANT, BEING CARRIED OUT FROM THE YEAR 1917. FU RTHER, THE APPELLANT ALSO QUOTED THE PROVISIONS OF SECTION 36( 1)(VIIA) AND CLAIMED THAT THE BENEFIT OF THE PROVISION OF SECTIO N 36(1)(VIIA) IS TO ALL COOPERATIVE BANKS AND NO CONDITION SET OUT A BOUT THE LICENSE ISSUED BY THE RBI. 9. CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, CIT (A) HAS ALLOWED THE GROUND RAISED BY THE ASSESSEE BY MAKING FOLLOWING OBSERVATIONS: 5.5 I HAVE GONE THROUGH THE ASSESSMENT ORDER, SUBMI SSIONS OF THE APPELLANT AND THE RELEVANT PROVISIONS OF BAN KING REGULATION ACT. AS THE APPELLANT WAS FORMED AS COOP ERATIVE SOCIETY, THE ACTIVITIES OF SOCIETY ARE REGULATED AN D SUPERVISED BY STATE REGISTRARS OF CO-OPERATIVE SOCIETIES AND AS I T IS FUNCTIONING AS COOPERATIVE BANK, THE ACTIVITIES ARE GOVERNED BY 4 ITA NOS. 689, 690 & 691/H/13 THE NALGONDA DISTRICT COOPERATIVE CENTRAL BANK LTD. , NALGONDA RESERVE BANK ALSO. THE REGISTRARS OF CO-OPERATIVE S OCIETIES OF THE STATES EXERCISE POWERS UNDER THE RESPECTIVE CO- OPERATIVE SOCIETIES ACT OF THE STATES IN REGARD TO INCORPORAT ION, REGISTRATION, MANAGEMENT, AMALGAMATION, RECONSTRUCT ION OR LIQUIDATION. THE BANKING RELATED FUNCTIONS, SUCH AS ISSUE OF LICENSE TO START NEW BANKS / BRANCHES, MATTERS RELA TING TO INTEREST RATES, LOAN POLICIES, INVESTMENTS, PRUDENTIAL EXPOS URE NORMS ETC. ARE REGULATED AND SUPERVISED BY THE RESERVE BANK OF INDIA UNDER THE PROVISIONS OF THE BANKING REGULATION ACT, 1949( AACS). ACCORDING TO PART V BANKING REGULATIONS ACT, THE PR OVISIONS OF BANKING REGULATION ACT WOULD APPLY TO THE COOPERATI VE SOCIETY AS THEY APPLY TO OR IN RELATION TO, BANKING COMPANIES WITH CERTAIN MODIFICATIONS. THESE PROVISIONS, AS IN FORCE FROM T IME TO TIME, SHALL APPLY TO AND IN RELATION TO COOPERATIVE SOCIE TY AS THEY APPLY TO BANKING COMPANIES. THE PROVISION CATEGORICALLY M ENTIONS THAT COOPERATIVE SOCIETIES ARE TERMED AS COOPERATIVE BAN KS FOR THE PURPOSE OF SEC.56A. THEREFORE, THE PROVISIONS OF BA NKING REGULATION ACT CATEGORICALLY MENTION THAT THE COOPE RATIVE SOCIETIES ARE GOVERNED BY THE SAID LAWS. IT IS ALSO MENTIONED IN CLAUSE (A) OF THE SAID SECTION 56 WITH REFERENCE TO A BANKING COMPANY AS UNDER: 'THE PROVISIONS OF THIS ACT, AS IN FORCE FROM THE T IME BEING, SHALL APPLY TO, OR IN RELATION TO COOPERATIVE SOCIETY AS THEY APPLY TO, OR IN RELATION TO BANKING COMPANIES SUBJECT TO THE FOL LOWING MODIFICATIONS NAMELY: A) THROUGHOUT THIS ACT, UNLESS THE CONTEXT OTHERWIS E REQUIRES I) REFERENCES TO A 'BANKING COMPANY' OR 'THE COMPANY' OR 'SUCH COMPANY' SHALL BE CONSTRUED AS REFERENCE TO A COOPE RATIVE BANK II) REFERENCES TO 'COMMENCEMENT OF THIS ACT' SHALL BE CONSTRUED AS REFERENCES TO COMMENCEMENT OF THE BANKING LAWS ( APPLICATION TO COOPERATIVE SOCIETY) ACT, 1965 (23 OF 1965). ' 5.6 THEREFORE, ACCORDING TO SEC.56 OF BANKING REGUL ATION ACT 1949, A COOPERATIVE SOCIETY IS TO BE TERMED AS A BA NKING COMPANY FOR THE PURPOSE OF THE SAID ACT AND THE PRO VISIONS OF THE SAID ACT APPLY TO A COOPERATIVE SOCIETY AS THEY APP LY TO A BANKING COMPANY. THEREFORE, THE PROVISIONS OF THE BANKING R EGULATION ACT APPLY TO THE ASSESSEE SOCIETY. EVEN AS PER THE MARATHE COMMITTEE REPORT ON LICENSING OF NEW URBAN CO-OPERA TIVE BANKS, 1992. ONCE AN APPLICATION IS MADE, THE SOCIETY CAN CARRY ON THE BANKING BUSINESS TILL SUCH TIME, THE SAID APPLICATI ON FOR RECOGNITION HAS BEEN REJECTED BY THE APPROPRIATE AU THORITY. IN THE CASE ON HAND, THE APPELLANT DID NOT RECEIVE ANY COM MUNICATION FROM THE RESERVE BANK OF INDIA REJECTING SUCH APPLI CATION. 5.7 ACCORDING TO THE PROVISIONS OF 5.5(1)(I) AND 5. 11 OF THE BANKING REGULATION ACT AS MODIFIED BY PART-V OF THE ACT, THE 5 ITA NOS. 689, 690 & 691/H/13 THE NALGONDA DISTRICT COOPERATIVE CENTRAL BANK LTD. , NALGONDA CLAUSES ARE ONLY PROHIBITORY CLAUSES RESTRICTING EN TRY OF COOPERATIVE SOCIETIES INTO THE SUB CLAUSE OF COOPER ATIVE BANK. ON THE QUESTION OF COOPERATIVE SOCIETIES NOT GRANTED L ICENSE BY THE RBI, PART-V, SECTION 56 OF THE BANKING REGULATION A CT STATES; 'PROVIDED THAT NOTHING IN CL.(B) OF SUB SECTION (1) SHALL BE DEEMED TO PROHIBIT A COOPERATIVE SOCIETY CARRYING O N BUSINESS AS A COOPERATIVE BANK AT THE COMMENCEMENT OF THE BANKI NG LAWS ACT 1965 (23 OF 1965) OR A COOPERATIVE BANK WHICH H AS COME INTO EXISTENCE AS A RESULT OF THE DIVISION OF ANY OTHER COOPERATIVE SOCIETIES CARRYING ON BUSINESS AS A COOPERATIVE BAN K, OR THE AMALGAMATION OF TWO OR MORE COOPERATIVE SOCIETIES C ARRYING ON BANKING BUSINESS AT THE TIME COMMENCEMENT OF THE BA NKING LAWS (APPLICABLE TO COOPERATIVE SOCIETIES ) ACT, 1965 OR AT ANY TIME THEREAFTER; OR A PRIMARY BANK WHICH BECOMES A PRIMA RY COOPERATIVE BANK AFTER SUCH COMMENCEMENT FROM CARRY ING ON BANKING BUSINESS UNTIL IT IS GRANTED A LICENSE IN P URSUANCE OF THIS SECTION OR IS, BY A NOTICE IN WRITING, NOTIFIED BY THE RESERVE BANK OF INDIA THAT THE LICENSE CANNOT BE GRANTED TO IT', 5.8 FROM THE READING OF SEC.22, IT IS CLEAR THAT ON CE A COOPERATIVE SOCIETY CARRYING ON THE BUSINESS MAKES AN APPLICATION, IT CAN CONTINUE TO DO BANKING BUSINESS UNLESS IT IS PROHIBITED TO CARRYON THE BUSINESS OF BANKING. THER EFORE, THE ASSESSING OFFICER IS NOT JUSTIFIED IN MENTIONING TH AT WITHOUT LICENSE THE APPELLANT CANNOT CARRYON BUSINESS OF BA NKING. 5.9 THE CLAIM OF THE APPELLANT THAT THEY ARE FOLLOW ING THE NORMS STIPULATED BY THE RBI IN RUNNING THEIR BANKING ACTI VITIES IS ALSO EVIDENCED FROM THE LETTER OF THE RBI, DATED 02.09.2 005 TO THE APPELLANT BANK. THE DEPOSITS REQUIRED UNDER SUB-SEC TION (2) OF SECTION 11 OF THE BANKING REGULATION ACT 1949 TO BE MADE WITH THE RESERVE BANK BY A BANKING COMPANY ARE SLRS. BAN KS ARE REQUIRED TO SUBMIT TO RBI BEFORE 20TH OF EVERY MONT H A RETURN (FOR VIII) SHOWING THE AMOUNT OF SLR HELD ON ALTERN ATE FRIDAYS DURING IMMEDIATE PRECEDING MONTH WITH PARTICUIARS O F THEIR DTL IN INDIA ON SUCH FRIDAYS (PUBLIC HOLIDAYS PRECEDING WORKING DAY). THE STATUTORY AUDITORS SHOULD VERIFY AND CERTIFY TH AT ALL ITEMS OF OUTSIDE LIABILITIES, AS PER BANK'S BOOKS HAD BEEN D ULY COMPLIED BY THE BANK AND CORRECTLY REFLECTED UNDER DTL/NDTL IN THE FORTNIGHTLY/MONTHLY STATUTORY RETURNS SUBMITTED TO RBI. AS THE APPELLANT IS FURNISHING THE REQUIRED RETURNS TO RBI , THE RBI REFERRED TO THE PROVISIONS OF SECTION 24 OF BANKING REGULATION ACT, 1949 (AACS) AND WARNED ABOUT THE DEFAULT COMMI TTED BY THE APPELLANT ON THE MAINTENANCE OF SLRS. 5.10 WITH THIS DISCUSSION, IT IS CLEAR THAT THE APP ELLANT ESTABLISHED BEFORE COMMENCEMENT OF THE BANKING REGU LATION ACT, 1949 HAS BEEN ENGAGED IN THE 'ACTIVITY OF BANK ING AND IS FOLLOWING THE NORMS PRESCRIBED FOR COOPERATIVE BANK S. THE GRANT 6 ITA NOS. 689, 690 & 691/H/13 THE NALGONDA DISTRICT COOPERATIVE CENTRAL BANK LTD. , NALGONDA OF LICENSE FROM 20.04.2010 BY RBI TO THE APPELLANT HAS NOTHING TO DO WITH THE BANKING ACTIVITY CONDUCTED BY THE APPEL LANT, AS RBI AT NO POINT OF TIME HAD OBJECTED TO THE ACTIVITY OF TH E APPELLANT IN WRITING AS PRESCRIBED UNDER SECTION 22(2) OF THE BA NKING REGULATION ACT, 1949. THEREFORE, THE APPELLANT HAS TO BE TREATED AS COOPERATIVE BANK AND NOT JUST A COOPERATIVE SOCI ETY. 6. HAVING HELD SO, THE ISSUE FOR CONSIDERATION WITH REFERENCE TO THE ASSESSMENT MADE FOR THE SUBJECT ASSESSMENT YEAR IS THE ALLOWABILITY OF DEDUCTION CLAIMED U/S 36(1)(VIIA) B Y THE APPELLANT. IN THE RETURN OF INCOME, THE APPELLANT CLAIMED RS.4 ,24,65,201/- AS DEDUCTION U/S 36(1)(VIIA) TOWARDS PROVISIONS FOR BAD AND DOUBTFUL DEBTS. THE ASSESSING OFFICER FOLLOWING HER OBSERVATION THAT THE APPELLANT IS A COOPERATIVE SOCIETY AND HAD NOT OBTAINED A LICENSE TO BE TREATED AS A COOPERATIVE BANK, DISALL OWED THE CLAIM MADE U/S 36(1)(VIIA). HOWEVER, ONCE THE APPELLANT I S TREATED AS A COOPERATIVE BANK, THERE IS NO POINT OF DISALLOWING THE CLAIM OF DEDUCTION UNDER SECTION 36(1)(VIIA), WHICH READS AS UNDER: 'IN RESPECT OF ANY PROVISION FOR BAD AND DOUBTFUL D EBTS MADE BY- (A) A SCHEDULED BANK [NOT BEING [* * *] A BANK INCO RPORATED BY OR UNDER THE LAWS OF A COUNTRY OUTSIDE INDIA] OR A NON -SCHEDULED BANK [OR A COOPERATIVE BANK OTHER THAN A PRIMARY AG RICULTURAL CREDIT SOCIETY OR A PRIMARY CO-OPERATIVE AGRICULTUR AL AND RURAL DEVELOPMENT BANK] AN AMOUNT [NOT EXCEEDING SEVEN AN D ONE-HALF PER CENT] OF THE TOTAL INCOME (COMPUTED BEFORE MAKI NG ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VIA) AND A N AMOUNT NOT EXCEEDING [TEN] PERCENT OF THE AGGREGATE AVERA GE ADVANCES MADE BY THE RURAL BRANCHES OF SUCH BANK COMPUTED I N THE PRESCRIBED MANNER. 6.1 THEREFORE, THE AO IS DIRECTED TO ALLOW THE CLAI M OF 36(1)(VIIA) MADE AT RS. 4,24,65,201/- TO THE APPELL ANT AND ACCORDINGLY THE GROUND NO. 2 IS ALLOWED IN FAVOUR O F THE APPELLANT. 10. AGGRIEVED WITH THE ABOVE ORDER, REVENUE IS IN A PPEAL BEFORE US. 11. LD. DR SUBMITTED THAT CIT(A) ALLOWED THE ASSESS EES CLAIM OF DEDUCTION U/S 36(1)(VIIA), FOR WHICH CLAIM WAS MADE BY THE ASSESSEE FOR THE FIRST TIME IN THE RETURN FILED IN RESPONSE TO NOTICE U/S 148. HE FURTHER SUBMITTED THAT ASSESSEE HAS NOT RAISED ANY GROUND OF APPEAL BEFORE CIT(A). CIT(A) HAS ALLOWED THIS DEDUCTION SU O-MOTO. LD. DR FURTHER SUBMITTED THAT ASSESSEE CAN CLAIM DEDUCTION U/S 36(1)(VIIA) UPTO THE EXTENT IT HAS CREATED THE PROVISION FOR BA D AND DOUBTFUL DEBTS 7 ITA NOS. 689, 690 & 691/H/13 THE NALGONDA DISTRICT COOPERATIVE CENTRAL BANK LTD. , NALGONDA IN THEIR BOOKS OF ACCOUNT, AS HELD BY THE COORDINAT E BENCH OF ITAT, HYDERABAD BENCH IN THE CASE OF ACIT VS. M/S ANDHRA PRADESH GRAMEENA VIKAS BANK IN ITA NO. 610/HYD/2013 FOR AY 2009-10, ORDER DATED 12/08/2015. 12. LD. AR SUBMITTED THAT ASSESSEE HAS MADE AN ADDI TIONAL GROUND OF APPEAL BEFORE THE CIT(A) TO CLAIM DEDUCTION U/S 36(1)(VIIA) AND ALSO MADE WRITTEN SUBMISSION, WHICH IS PLACED ON RE CORD AT PAGES 181 TO 188 OF THE PAPER BOOK. HE FURTHER SUBMITTED THAT IN THIS AY SINCE THERE IS NO PROFIT EARNED BY THE ASSESSEE, ASSESSEE HAS NOT CLAIMED DEDUCTION U/S 36(1)(VIIA) CONSIDERING THE FACT THAT NET RESULT WILL ALSO BE A LOSS. HOWEVER, HE SUBMITTED THAT ASSESSEE IS E LIGIBLE TO CLAIM DEDUCTION U/S 36(1)(VIIA). HE SUBMITTED THAT ASSESS EE IS A COOPERATIVE SOCIETY RUNNING A BUSINESS OF BANKING. AS PER THE S UBMISSIONS ALREADY MADE BEFORE THE CIT(A), ASSESSEE WAS GRANTE D LETTER OF APPROVAL FROM RBI VIDE ITS LETTER DATED 06/12/2010. HENCE, IT IS A LEGALLY RUNNING BANKING BUSINESS AS PER THE PROVISI ONS OF BANKING REGULATION ACT AND IT IS ELIGIBLE TO CLAIM DEDUCTIO N U/S 36(1)(VIIA). HE RELIED ON THE DECISION OF COORDINATE BENCH OF ITAT, HYDERABAD IN THE CASE OF M/SAP GRAMEENA VIKAS BANK, WARANGAL IN ITA NOS. 715 & 1293/HYD/2015 AND ITA NO. 752/HYD/2015 FOR AYS 2011 -12 AND 2012- 13 VIDE ORDER DATED 27/01/2017 (WHERE ONE OF THE ME MBER IS SIGNATORIES). 13. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. IT IS NOTED FROM THE RECORD THAT AO HAS DENIED DEDUCTION U/S 36(1)(VIIA) OBSERVING THAT ASSESSEE IS A COOPER ATIVE SOCIETY AND NOT REGISTERED WITH RBI, THEREFORE, IT IS NOT ELIGI BLE TO CLAIM SUCH DEDUCTION. BASED ON THE SUBMISSIONS OF THE ASSESSEE , CIT(A) HAS ALLOWED THE ASSESSEES CLAIM OF DEDUCTION U/.S 36(1 )(VIIA) CONSIDERING THE FACT THAT ASSESSEE IS CONTINUED TO BE A COOPERA TIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING WITH EFFECT FROM 1917, SUBSEQUENT TO AMENDMENT IN BANKING REGULATION ACT, AS PER WHIC H, ASSESSEE HAS 8 ITA NOS. 689, 690 & 691/H/13 THE NALGONDA DISTRICT COOPERATIVE CENTRAL BANK LTD. , NALGONDA APPLIED FOR LICENCE BEFORE RBI WHICH WAS NOT RECEIV ED BY THE ASSESSEE UNTIL 06/12/2010, CONSIDERING THE FACT THA T RBI HAS ISSUED LICENCE TO ASSESSEE SUBSEQUENTLY IT HAS CONTINUED T O BE CONSIDERED AS COOP. SOCIETY IN BANKING BUSINESS. TO CLAIM DEDU CTION U/S 36(1)(VIIA), AS PER THE PROVISIONS, ASSESSEE HAS TO CREATE PROVISION FOR BAD AND DOUBTFUL DEBTS IN ITS BOOKS OF ACCOUNT, EVEN THOUGH, IT IS ELIGIBLE TO CLAIM DEDUCTION U/S 36(1)(VIIA), WHICH WAS UPHELD BY VARIOUS HIGH COURTS AND IN PARTICULAR, COORDINATE B ENCH OF THIS TRIBUNAL. AR SUBMITTED THAT SINCE ASSESSEE HAS INCU RRED LOSS DURING THIS AY, IT COULD NOT CLAIM DEDUCTION U/S 36(1)(VII A). HOWEVER, WE HAVE NOTICED THAT ASSESSEE HAS CLAIMED 36(1)(VIIA) DEDUCTION @ 10% ON RURAL ADVANCES IN ITS COMPUTATION OF INCOME AND CARRIED FORWARD THE LOSS FROM BUSINESS. WE FIND THAT INFORMATION OF PROVISION FOR BAD AND DOUBTFUL DEBTS ARE NOT PLACED ON RECORD BEFORE US. THEREFORE, IT IS APPROPRIATE TO REMIT THE MATTER BACK TO THE FILE OF AO WITH A DIRECTION TO FIND OUT WHETHER ASSESSEE HAS CREATED ANY PROVIS ION FOR BAD AND DOUBTFUL DEBTS AND IF SO, FOLLOWING THE JUDICIAL PR ONOUNCEMENTS, HE IS DIRECTED TO ALLOW DEDUCTION U/S 36(1)(VIIA) TO THE EXTENT ASSESSEE HAS CREATED PROVISION FOR BAD AND DOUBTFUL DEBTS IN ITS BOOKS OF ACCOUNT. ACCORDINGLY, GROUNDS ARE ALLOWED FOR STATISTICAL P URPOSES. 13.1 APPEAL IN SUBSEQUENT AYS 2008-09 AND 2009-10, FOR AY 2008- 09 ISSUES ARE MATERIALLY IDENTICAL AND IN AY 2009-1 0 ASSESSEE HAS EARNED PROFIT IN THIS AY. THEREFORE, THE GROUNDS RA ISED IN THESE AYS ARE ALLOWED FOR STATISTICAL PURPOSES AND ACCORDINGL Y, AO IS DIRECTED TO ALLOW DEDUCTION AS PER THE ABOVE DIRECTIONS. 14. AS REGARDS GROUND NO. 5 RELATING TO DEDUCTION O F INTEREST WHICH WAS NOT REALIZED ON NPAS, THE FACTS ARE ASSESSEE HA S CLAIMED DEDUCTION OF RS. 21,24,83,477/- BEING INTEREST ON L OANS AND ADVANCES WHICH HAS BECOME NPA. AO OBSERVED THAT AS ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THE BASIS FOR REDU CING THIS AMOUNT FROM TOTAL INTEREST WAS NOT PROPER. FOR THIS, ASSES SEE OBJECTED BY 9 ITA NOS. 689, 690 & 691/H/13 THE NALGONDA DISTRICT COOPERATIVE CENTRAL BANK LTD. , NALGONDA SUBMITTING THAT INCOME RECOGNITION SHOULD BE BASED ON RECORD OF RECOVERY AND THEREFORE UNREALIZED INCOME SHOULD NOT BE TAKEN TO P&L A/C. HOWEVER, IN CERTAIN CASES, WHERE THE STATE COO PERATIVE ACT/RULES/AUDIT MANUAL PROVIDE FOR TAKING SUCH UNRE ALIZED INTEREST TO THE INCOME HEAD IN THE PROFIT & LOSS A/C, IT IS NEC ESSARY FOR SUCH COOPERATIVE BANKS TO MAKE FULL PROVISIONING FOR EQU IVALENT AMOUNT BY CHARGING TO P&L A/C. FOR THIS PROPOSITION, ASSESSE E RELIED ON THE FOLLOWING CASE LAWS: 1. CIT VS. SYNDICATE BANK, 261 ITR 528 2. CIT VS. INDIAN EQUIPMENT LEASING LTD., 293 ITR 350 3. CIT VS. KAILASH AUTO FINANCE LTD., 320 ITR 394 4. MERCANTILE BANK INDIA VS. CIT, 283 ITR 84 HOWEVER, AO REJECTED THE SUBMISSIONS OF THE ASSESSE E BY OBSERVING THAT ASSESSEE HAD NOT FOLLOWED RBI PRUDENTIAL NORMS . 15. IN THE APPEAL PROCEEDINGS, BASED ON THE SUBMISS IONS OF THE ASSESSEE AND RELYING ON VARIOUS CASE LAWS, CIT(A) H AS ALLOWED THE ASSESSEES CLAIM OF DEDUCTION OF INTEREST ON NPAS. 16. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. 17. LD. DR AGREED THAT THIS ISSUE WAS SQUARELY COVE RED AGAINST THE DEPARTMENT BY VARIOUS DECISIONS OF THE COURTS WHILE LD. AR RELIED ON THE ORDERS OF CIT(A) AND RELIED ON THE FOLLOWING CA SE LAWS: 1. ACIT VS. SINGADI URBAN COOP. BANK LTD., [2015] 5 9 TAXMANN.COM 78 (BANGALORE TRIB.) 2. NANDED DISTRICT CENTRAL COOPERATIVE BANK LTD., [ 2015] 57 TAXMANN.COM 422 (PUNE TRIB.) 3. ACIT VS. SUNDERLAL SAWJI URBAN COOP BANK LTD., [ 2014] 42 TAXMANN.COM 392 (PUNE TRIB.) 4. DCIT VS. THE GANDHI COOP URBAN BANK LTD., ITA NO . 469/VIZAG/2012, ORDER DTD. 30/11/2015. 5. SOLAPUR DISTRICT CENTRAL COOP BANK LTD., [2014] 52 TAXMANN.COM 258 (PUNE TRIB.) 6. CIT VS. SHRI BASAVESHWARA SAHAKARI BANK, [2016] 74 TAXMANN.COM 21 (KAR.) 7. DAPOLI URBAN COOP BANK LTD., ITA NOS. 367 & 484/ PN/2014, ORDER DATED 24/04/2014. 10 ITA NOS. 689, 690 & 691/H/13 THE NALGONDA DISTRICT COOPERATIVE CENTRAL BANK LTD. , NALGONDA 8. UCO BANK VS. CIT, [1999] 104 TAXMAN 547 (SC) 18. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD AS WELL AS THE CASES CITED BY LD. AR. TH E ISSUE IS SQUARELY COVERED AGAINST THE DEPARTMENT AND IN FAVOUR OF THE ASSESSEE IN THE AFORESAID MENTIONED CASES. IN THE CASE OF DCIT VS. THE GANDHI COOP URBAN BANK LTD., (SUPRA), THE VIZAG BENCH OF ITAT, ON SIMILAR ISSUE, OBSERVED AS UNDER: 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIALS AVAILABLE ON RECORD. THE ASSESSEE IS A CO-OPERATIVE BANK, REGULARLY FOLLOWING MIXED SYSTEM OF ACCOUNTING, WHE REIN IT IS FOLLOWING CASH SYSTEM FOR RECOGNIZING INTEREST ON L OANS AND ADVANCES AND MERCANTILE SYSTEM OF ACCOUNTING FOR OT HER EXPENDITURES. AS STATED BY THE A.R., THE ASSESSEE I S BOUND TO FOLLOW THE GUIDELINES ISSUED BY THE RBI FOR INCOME RECOGNITION, ASSET CLASSIFICATION AND PROVISIONING. THEREFORE, T HE ASSESSEE FOLLOWING THE GUIDELINES ISSUED BY THE RBI DID NOT RECOGNIZE THE INTEREST ACCRUED TO THE NPAS. THE A.O. WAS OF THE O PINION THAT SINCE, THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, IT SHOULD RECOGNIZE THE INTEREST RELATABLE TO NPAS, THEREFORE, MADE THE ADDITIONS. THE CIT(A), BY RELIED UPON THE JUDGEMENT OF THE ITAT, HYDERABAD BENCH IN THE CASE OF TCI FINANC E LTD. VS. ACIT (2004) 91 ITO 573 AND ALSO THE HON'BLE MADRAS HIGH COURT JUDGEMENT IN THE CASE OF CIT VS. ANNAMALAI FINANCE LTD. (2005) 275 ITR 451, HELD THAT WHEN THE PRINCIPAL AMOUNT IT SELF IS DOUBTFUL OF RECOVERY, IT CANNOT BE SAID THAT ANY IN TEREST ACCRUED ON SUCH PRINCIPAL AMOUNT IS RECOVERABLE. AS THE APP ELLANT IS FOLLOWING THE ESTABLISHED METHOD OF ACCOUNTING AND RECOGNIZING THE INTEREST ON NPAS AT THE TIME OF REALIZATION, TH E A.O. IS NOT CORRECT IN TAXING THE INTEREST ON NPAS ON ACCRUAL B ASIS. 7. WE HAVE GONE THROUGH THE REASON GIVEN BY THE CIT (A) AS WELL AS THE CASE LAWS RELIED UPON BY THE ASSESSEE. THE A . R. OF THE ASSESSEE AT THE TIME OF HEARING SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF ITAT VISAKHAPAT NAM BENCH IN THE CASE OF DCLT VS. DURGA CO-OPERATIVE URBAN BA NK LTD. (SUPRA). WE HAVE EXAMINED THE CASE LAW REFERRED BY THE A.R. IN THE LIGHT OF THE FACTS OF THE PRESENT CASE AND FIND THAT THE ITAT, VISAKHAPATNAM BENCH IN THE ABOVE MENTIONED CASE ON SIMILAR FACTS HELD THE ISSUE IN FAVOUR OF THE ASSESSEE. THE RELEVANT PORTION IS REPRODUCED AS UNDER: '10. TURNING TO THE FACTS OF THE CASE BEFORE US, TH E ASSESSEE HEREIN IS A COOPERATIVE BANK AND IT IS NOT IN DISPU TE THAT IT IS ALSO GOVERNED BY THE RESERVE BANK OF INDIA. HENCE THE DI RECTIONS 11 ITA NOS. 689, 690 & 691/H/13 THE NALGONDA DISTRICT COOPERATIVE CENTRAL BANK LTD. , NALGONDA WITH REGARD TO THE PRUDENTIAL NORMS ISSUED BY THE R ESERVE BANK OF INDIA ARE EQUALLY APPLICABLE TO THE ASSESSEE AS IT IS APPLICABLE TO THE COMPANIES REGISTERED UNDER THE COMPANIES ACT . THE HON'BLE SUPREME COURT HAS HELD IN THE CASE OF SOUTH ERN TECHNOLOGIES LTD (SUPRA), THAT THE PROVISION OF 45Q OF RESERVE BANK OF INDIA ACT HAS AN OVERRIDING EFFECT VIS-A-VI S INCOME RECOGNITION PRINCIPLE UNDER THE COMPANIES ACT. HENC E SEC.45Q OF THE RBI ACT SHALL HAVE OVERRIDING EFFECT OVER THE I NCOME RECOGNITION PRINCIPLE FOLLOWED BY COOPERATIVE BANKS ALSO. HENCE THE ASSESSING OFFICER HAS TO FOLLOW THE RESERVE BAN K OF INDIA DIRECTIONS 1998, AS HELD BY THE HONBLE SUPREME COU RT. 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 ASSET S CANNOT BE SAID TO HAVE ACCRUED TO THE ASSESSEE. IN THIS REGAR D, THE FOLLOWING OBSERVATIONS OF HON'BLE DELHI HIGH COURT IN THE ABOVE CITED CASE ARE RELEVANT: '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 ACCRUE TO THE ASSESSEE. ACCORDINGLY WE UPHOLD HIS O RDER. ' 8. AN IDENTICAL ISSUE CAME UP FOR CONSIDERATION BEF ORE THE ITAT PUNE BENCH IN THE CASE OF VAIDYANATH URBAN CO-OP. B ANK LTD. VS. CIT IN ITA NO,413/PN/2014 DATED 31.3.2015, WHER EIN THE ITAT UNDER SIMILAR SET OF FACTS HELD AS UNDER: '10. TURNING TO THE FACTS OF THE CASE BEFORE US, TH E ASSESSEE HEREIN IS A COOPERATIVE BANK AND IT IS NOT IN DISPU TE THAT IT IS ALSO GOVERNED BY THE RESERVE BANK OF INDIA. HENCE THE DI RECTIONS WITH REGARD TO THE PRUDENTIAL NORMS ISSUED BY THE R ESERVE BANK OF INDIA ARE EQUALLY APPLICABLE TO THE ASSESSEE AS IT IS APPLICABLE TO THE COMPANIES REGISTERED UNDER THE COMPANIES ACT THE HON'BLE SUPREME COURT HAS HELD IN THE CASE OF SOUTH ERN TECHNOLOGIES LTD (SUPRA), THAT THE PROVISION OF 45Q OF RESERVE BANK OF INDIA ACT HAS AN OVERRIDING EFFECT VIS-A-VI S INCOME RECOGNITION PRINCIPLE UNDER THE COMPANIES ACT. HEN CE SEC. 45Q OF THE RBI ACT SHALL HAVE OVERRIDING EFFECT OVER TH E INCOME RECOGNITION PRINCIPLE FOLLOWED BY COOPERATIVE BANKS ALSO. HENCE THE ASSESSING OFFICER HAS TO FOLLOW THE RESERVE BAN K OF INDIA DIRECTIONS 1998, AS HELD BY THE HON'BLE SUPREME COU RT. 12 ITA NOS. 689, 690 & 691/H/13 THE NALGONDA DISTRICT COOPERATIVE CENTRAL BANK LTD. , NALGONDA BASED ON THE PRUDENTIAL NORMS, THE ASSESSEE HEREIN DID NOT ADMIT THE INTEREST RELATABLE TO NPA ADVANCES IN ITS TOTAL INCOME. THE HON'BLE DELHI HIGH COURT IN THE CASE OF VASISTH CHAY VYAPAR LTD (SUPRA) HAS HELD THAT THE INTEREST ON NPA ASSET S CANNOT BE SAID TO HAVE ACCRUED TO THE ASSESSEE. IN THIS REGAR D, THE FOLLOWING OBSERVATIONS OF HAN 'BLE DELHI HIGH COURT IN THE ABOVE CITED CASE ARE RELEVANT: WHAT TO TALK OF INTEREST; EVEN THE PRINCIPLE AMOUNT ITSELF HAD BECOME DOUBTFUL TO RECOVER. IN THIS SCENARIO IT WAS LEGITIMATE MOVE TO INFER THAT INTEREST INCOME THEREUPON HAS 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 ACCRUE TO THE ASSESSEE. ACCORDINGLY WE UPHOLD HIS O RDER. ' FOLLOWING THE AFORESAID DISCUSSION, WHICH HAS BEEN RENDERED ON AN IDENTICAL ISSUE UNDER SIMILAR CIRCUMSTANCES, WE FIND NO REASONS TO INTERFERE WITH THE ULTIMATE CONCLUSION O F THE CIT(A) IN DELETING THE IMPUGNED ADDITION RELATING TO INTEREST INCOME IN RESPECT OF NPAS. 9. THE HONBLE SUPREME COURT OF INDIA, IN THE CASE O F UCO BANK VS. CIT HAD AN OCCASION TO CONSIDER THE ISSUE. THE HONBLE SUPREME COURT, WHILE DEALING WITH SIMILAR ISSUE HEL D AS UNDER: 'THE METHOD OF ACCOUNTING WHICH IS FOLLOWED BY THE ASSESSEE- BANK IS MERCANTILE SYSTEM OF ACCOUNTING. HOWEVER, T HE ASSESSEE CONSIDERS INCOME BY WAY OF INTEREST PERTAINING TO D OUBTFUL LOANS AS NOT REAL INCOME IN THE YEAR IN WHICH IT ACCRUES, BUT ONLY WHEN IT IS REALISED. A MIXED METHOD OF ACCOUNTING IS THU S FOLLOWED BY THE ASSESSEE-BANK. THIS METHOD OF ACCOUNTING ADOPTE D BY THE ASSESSEE IS IN ACCORDANCE WITH ACCOUNTING PRACTICE. UP TO THE ASST. YR. 1978-79, THE CBDT'S CIRCULAR OF 6TH OCT., 1952 WOULD BE APPLICABLE; WHILE FROM THE ASST. YR. 1979-80, THE CBDT'S CIRCULAR OF 9TH OCT., 1984 IS MADE APPLICABLE. IN THE PRESEN T CASE, THE ASSESSMENT WAS MADE ON THE BASIS OF THE CBDT'S CIRC ULAR OF 9TH OCT; 1984, SINCE THE ASSESSMENT PERTAINS TO ASST. Y R. 1981-82 TO WHICH THE CIRCULAR OF 9TH OCT., 1984, IS APPLICABLE . UNDER SUB-SO (2) OF S. 119, WITHOUT PREJUDICE TO THE GENERALITY OF THE BOARD'S POWER SET OUT IN SUB-S. (1), A SPECIFIC POWER IS GI VEN TO THE BOARD FOR THE PURPOSE OF PROPER AND EFFICIENT MANAGEMENT OF THE WORK OF ASSESSMENT AND COLLECTION OF REVENUE TO ISSUE FR OM TIME TO TIME GENERAL OR SPECIAL ORDERS IN RESPECT OF ANY CL ASS OF INCOMES OR CLASS OF CASES SETTING FORTH DIRECTIONS OR INSTR UCTIONS, NOT BEING PREJUDICIAL TO ASSESSEES, AS THE GUIDELINES, PRINCIPLES OR PROCEDURES TO BE FOLLOWED IN THE WORK RELATING TO A SSESSMENT. SUCH INSTRUCTIONS MAY BE BY WAY OF RELAXATION OF AN Y OF THE 13 ITA NOS. 689, 690 & 691/H/13 THE NALGONDA DISTRICT COOPERATIVE CENTRAL BANK LTD. , NALGONDA PROVISIONS OF THE SECTIONS SPECIFIED THERE OR OTHER WISE. THE BOARD THUS HAS POWER, INTER AIIA, TO TONE DOWN THE RIGOUR OF THE LAW AND ENSURE A FAIR ENFORCEMENT OF ITS PROVISIONS , BY ISSUING CIRCULARS IN EXERCISE OF ITS STATUTORY POWERS UNDER S. 119 WHICH ARE BINDING ON THE AUTHORITIES IN THE ADMINISTRATIO N OF THE ACT. UNDER S.119(2)(A), HOWEVER, THE CIRCULARS AS CONTEM PLATED THEREIN CANNOT BE ADVERSE TO THE ASSESSEE. THUS, TH E AUTHORITY WHICH WIELDS THE POWER FOR ITS OWN ADVANTAGE UNDER THE ACT IS GIVEN THE RIGHT TO FOREGO THE ADVANTAGE WHEN REQUIR ED TO WIELD IT IN A MANNER IT CONSIDERS JUST BY RELAXING THE RIGOU R OF THE LAW OR IN OTHER PERMISSIBLE MANNERS AS LAID DOWN IN S. 119 . THE POWER IS GIVEN FOR THE PURPOSE OF JUST, PROPER AND EFFICI ENT MANAGEMENT OF THE WORK OF ASSESSMENT AND IN PUBLIC INTEREST. I T IS A BENEFICIAL POWER GIVEN TO THE BOARD FOR PROPER ADMINISTRATION OF FISCAL LAW SO THAT UNDUE HARDSHIP MAY NOT BE CAUSED TO THE ASS ESSEE AND THE FISCAL LAWS MAY BE CORRECTLY APPLIED. HARD CASE S WHICH CAN BE PROPERLY CATEGORISED AS BELONGING TO A CLASS, CA N THUS BE GIVEN THE BENEFIT OF RELAXATION OF LAW BY ISSUING C IRCULARS BINDING ON THE TAXING AUTHORITIES. IF THE BOARD HAS CONSIDE RED IT NECESSARY TO LAY DOWN A GENERAL TEST FOR DECIDING W HAT IS A DOUBTFUL DEBT, AND DIRECTED THAT ITOS SHOULD TREAT SUCH AMOUNTS AS NOT FORMING PART OF THE INCOME OF THE ASSESSEE U NTIL REALIZED, THIS DIRECTION BY WAY OF A CIRCULAR CANNOT BE CONSI DERED AS TRAVELLING BEYOND THE POWERS OF THE BOARD UNDER S. 119. SUCH A CIRCULAR IS BINDING UNDER S. 119. THE CIRCULAR OF 9 TH OCT., 1984, THEREFORE, PROVIDES A TEST FOR RECOGNISING WHETHER A CLAIM FOR INTEREST CAN BE TREATED AS A DOUBTFUL CLAIM UNLIKEL Y TO BE RECOVERED OR NOT. 10. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO APPLYING THE RATIOS OF THE JUDGEMENTS DISCUSSED ABO VE, WE ARE OF THE VIEW THAT INTEREST ON A LOAN WHOSE RECOVERY IS DOUBTFUL AND WHICH HAS NOT BEEN RECOVERED BY THE ASSESSEE-BANK, BUT HAS BEEN KEPT IN A SUSPENSE ACCOUNT AND HAS NOT BEEN BR OUGHT TO THE P&L ETC OF THE ASSESSEE, COULD NOT BE INCLUDED IN THE INCOME OF THE ASSESSE. THE C!T(A) RIGHTLY DELETED THE ADDI TIONS TOWARDS INTEREST ON NPAS. THERE IS NO ERROR OR INFIRMITY IN THE ORDER OF C!T(A). ACCORDINGLY, WE DIRECT THE A.D. TO DELETE T HE ADDITIONS MADE TOWARDS INTEREST ON NPAS. AS THE ISSUE UNDER CONSIDERATION SIMILAR TO THE ABO VE CASE, FOLLOWING THE DECISION OF THE VIZAG BENCH IN THAT CASE, WE DI RECT THE AO TO DELETE THE ADDITION MADE TOWARDS INTEREST ON NPAS. ACCORDINGLY, THIS GROUND IS ALLOWED IN ALL THE AYS UNDER CONSIDERATIO N. 14 ITA NOS. 689, 690 & 691/H/13 THE NALGONDA DISTRICT COOPERATIVE CENTRAL BANK LTD. , NALGONDA 19. AS REGARDS GROUND NO. 6 RELATING TO LONG OUTSTA NDING LIABILITY OF DIVIDEND PAYABLE, AO OBSERVED THAT IN SCHEDULE XV I OF THE BALANCE SHEET, ASSESSEE IS CARRYING A LIABILITY OF RS. 5,27 ,149/- TOWARDS DIVIDEND PAYABLE. ON A QUERY, ASSESSEE EXPLAINED VI DE LETTER DATED 20/09/2010 THAT DIVIDEND DECLARED BY THE BANK ABOUT 10 YEARS AGO IS STILL PAYABLE TO MEMBERS OF THE BANK BECAUSE THE ME MBERS ARE NOT TRACEABLE. CONSIDERING THE ABOVE FACT, THE AO TREAT ED THE ABOVE LIABILITY AS CEASED TO EXIST AND, THEREFORE, THE SA ME WAS TREATED AS INCOME AND BROUGHT TO TAX IN THE AY UNDER CONSIDERA TION. 20. ON APPEAL BEFORE THE CIT(A), THE CIT(A) BASED O N THE SUBMISSIONS OF THE ASSESSEE HELD THAT DIVIDEND IS A PPROPRIATION AND IT IS NOT A CHARGE ON P&L A/C, THEREFORE, SUBJECTIN G THE AMOUNT OF DIVIDEND PAYABLE TO TAX LEADS TO DOUBLE TAXATION. ACCORDINGLY, HE DELETED THE ADDITION MADE BY THE AO ON THIS COUNT. 21. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE I S IN APPEAL BEFORE US. 22. CONSIDERING THE RIVAL SUBMISSIONS AND PERUSED T HE MATERIAL FACTS ON RECORD. WE ARE IN AGREEMENT WITH THE LD. A R THAT DIVIDEND IS APPROPRIATION OF PROFIT AFTER SUBJECTED TO TAX AND IT IS NOT A CHARGE ON P&L A/C. THEREFORE, THE ABOVE OUTSTANDING LIABILITY CANNOT BE TREATED AS INCOME OF THE ASSESSEE. ACCORDINGLY, WE UPHOLD T HE DECISION OF THE CIT(A) AND DISMISS THE GROUND RAISED BY THE REV ENUE IN ALL THE AYS UNDER CONSIDERATION. 23. GROUND NO. 7 IS AS FOLLOWS: THE LD. CIT(A) OUGHT TO HAVE UPHELD THE DISALLOWANC ES MADE BY THE AO SINCE THE ASSESSEE HAS NOT OBTAINED THE L ICENSE FROM THE RBI TO RUN THE BANK AS PER THE PROVISION OF SEC TION 22 OF THE BANKING REGULATION ACT, 1949. 24. IT WAS AGREED BY THE LD. DR THAT THIS GROUND R AISED CONSIDERING THE FACT THAT ASSESSEE HAS ORIGINALLY CLAIMED DEDUC TION U/S 80P AND TO 15 ITA NOS. 689, 690 & 691/H/13 THE NALGONDA DISTRICT COOPERATIVE CENTRAL BANK LTD. , NALGONDA DENY DEDUCTION U/S 36(1)(VIIA) CONSIDERING ASSESSEE IS ONLY A COOPERATIVE SOCIETY, NOT A BANKING COMPANY. HOWEVE R, ASSESSEE HAS WITHDRAWN DEDUCTION U/S 80P AND ASSESSEE HAS PROVED THAT ASSESSEE EVEN THOUGH A COOPERATIVE SOCIETY, IS RUNNING A BAN KING BUSINESS AS PER THE PROVISIONS OF BANKING REGULATION ACT. HENCE , THIS GROUND OF APPEAL IS MERE SUBMISSION AND HENCE, NEED NO ADJUDI CATION. 25. IN AY 2009-10, THE REVENUE HAS RAISED THE FOLLO WING GROUND: 4. THE LD. CIT(A) ERRED IN ALLOWING THE CLAIM OF TH E ASSESSEE WITH REGARD TO INTEREST ON INVESTMENTS. 26. THE AO NOTICED THAT IN P&L A/C ASSESSEE HAS CLA IMED EXPENDITURE OF RS. 6,19,84,000/- TOWARDS INTEREST O N INVESTMENTS UNDER THE HEAD CONTINGENT CHARGES. ON ENQUIRY, AS SESSEE HAS SUBMITTED VIDE LETTER DATED 19/08/2011 AS UNDER: IT WAS ONLY CONTRA ENTRY, DEBITING THE INTEREST ON INVESTMENT AND CREDITING TO FLEXI DEPOSIT SOCIETIES MADE TO RECTIFY THE MISTAKE COMMITTED IN PASSING OF ENTRIES DURING THE FINAL AUDIT. THE SAME WAS ALSO MENTIONED IN THE ALLEGE TO SCHEDU LE NO. 15, STATEMENT SHOWING THE YEARLY P&L A/C FOR THE YEAR 2 008-09. HOWEVER, AO DID NOT ACCEPT THE SUBMISSION OF THE AS SESSEE AND DISALLOWED. 27. ON APPEAL BEFORE THE CIT(A), THE CIT(A) AFTER C ONSIDERING THE SUBMISSIONS OF THE ASSESSEE HELD THAT DURING FY 200 7-08 AN AMOUNT OF RS. 6,19,84,000/- RECEIVED FROM GOVT. OF INDIA T OWARDS DISBURSEMENT TO PACS UNDER RELIEF PACKAGE TO THE R URAL FARMERS AND THE MONEY WAS SO RECEIVED WAS KEPT WITH APCOB. THIS AMOUNT WAS CREDITED TO P&L A/C WRONGLY AS INCOME FOR THE AY 20 08-09 INSTEAD OF SHOWING IT AS A LIABILITY TOWARDS PACS IN THE BALAN CE SHEET. AS THIS IS APPARENT MISTAKE POINTED OUT BY THE AUDITOR DURING THE YEAR, THE CREDIT ENTRY WRONGLY MADE IN PREVIOUS AY WAS RECTIFIED BY PASSING DEBIT ENTRY DURING THE YEAR WITH THE SAME AMOUNT. 28. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. IN OUR CONSIDERED VIEW, CIT(A) HAS NOT B ROUGHT COMPLETE 16 ITA NOS. 689, 690 & 691/H/13 THE NALGONDA DISTRICT COOPERATIVE CENTRAL BANK LTD. , NALGONDA FACTS ON RECORD IN HIS FINDINGS. THEREFORE, IT NEE DS TO BE EXAMINED PROPERLY BY THE LOWER AUTHORITIES, HENCE, WE REMIT THIS ISSUE BACK TO THE FILE OF THE CIT(A) FOR FURTHER VERIFICATION AND ADJUDICATION OF THE ISSUE. ACCORDINGLY, THIS GROUND IS ALLOWED FOR STAT ISTICAL PURPOSES. 29. IN THE RESULT, APPEALS IN AYS 2007-08 AND 2008- 09 ARE DISMISSED AND APPEAL IN AY 2009-10 PARTLY ALLOWED F OR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 7 TH APRIL, 2017. SD/- SD/- (D. MANMOHAN) (S. RIFAUR RAHMAN ) VICE PRESIDENT A CCOUNTANT MEMBER HYDERABAD, DATED: APRIL, 2017. KV COPY TO:- 1) ITO, WARD 1, NEAR RAILWAY UNDER BRIDGE, HYDERA BAD ROAD, MARRIGUDA POST, NALGONDA 508 001.. 2) THE NALGONDA DISTRICT COOPERATIVE CENTRAL BANK L TD., NALGONDA. 3) CIT(A) - V, HYDERABAD 4 CIT - VI, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE