The Dy. CIT, Circle- 5(3), Ahmedabad V. The Saurashtra Co.Op. Bank Ltd., Ahmedabad

ITA 690/AHD/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 6216 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 21-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S N SOPARKAR
• Keywords: Question of law; Bad and doubtful debts; Notional interest
• Section: 145; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH AHMEDABAD BEFORE, SHRI S. S. GODARA, JUDICIAL MEMBER AND SHRI AMARJIT SINGH , ACCOUNTANT MEMBER ITA NO. 690/AHD/2016 (ASSESSMENT YEAR : 2012-13) DY. COMMISSIONER OF INCOME-TAX, CIRCLE-5(3), AHMEDABAD APPELLANT VS. THE SAURASHTRA CO-OP BANK LTD., OPP. BHINDBHANJAN HANUMA, NIKOL ROAD, BAPUNAGAR, AHMEDABAD - 380024 RESPONDENT PAN: AAATT5544J /BY REVENUE : SHRI MUDIT NAGPAL, SR. D.R. /BY ASSESSEE : SHRI S. N. SOPARKAR, A.R. /DATE OF HEARING : 31.01.2018 /DATE OF PRONOUNCEMENT : 31.01.2018 ORDER PER S. S. GODARA, JUDICIAL MEMBER THIS REVENUES APPEAL FOR ASSESSMENT YEAR 2012-13, A RISES AGAINST THE CIT(A)-5, AHMEDABADS ORDER DATED 12.01.2016, IN CAS E NO. CIT(A)-5/DCIT CIR.5(3)/131/2014-15, REVERSING ASSESSING OFFICERS ACTION DISALLOWING/ADDING AN AMOUNT OF RS.83,45,400/- ON ACCOUNT OF ACCRUED I NTEREST ON BAD AND DOUBTFUL ITA NO. 690/AHD/16 (DCIT VS. THE SAURASHTRA CO-OP B ANK LTD.) A.Y. 2012-13 - 2 DEBTS/NPAS, IN PROCEEDINGS U/S.143(3) OF THE INCOME TAX ACT, 1961, HEREINAFTER THE ACT. 2. WE COME TO THE ABOVE SOLE SUBSTANTIVE ISSUE OF A DDITION ON ACCOUNT OF ACCRUED INTEREST ON BAD AND DOUBTFUL DEBTS/NPAS. TH E ASSESSING OFFICER CONCLUDED IN ASSESSMENT ORDER DATED 11.02.2015 THAT SECTION 43D OF THE ACT R.W. RULE 6EA WOULD NOT APPLY IN CASE OF THE ASSESSE E BANK AS IT IS NOT A SCHEDULED BANK AS CLASSIFIED TO THIS EFFECT BY THE RESERVE BANK OF INDIA. HE WAS OF THE OPINION THAT SECTION 43D COVERS ONLY SCHEDUL ED BANK. HE FURTHER CONCLUDED THAT THE ASSESSEE HAD ALSO NOT BEEN ABLE TO ESTABLISH THE CLEAR-CUT CAUSE OF UNCERTAINTY TOWARDS REALIZATION OF OUTSTAN DING DUES IN QUESTION INCLUDING PRINCIPLE AND INTEREST AMOUNT. ALL THIS REASONING RESULTED IN THE IMPUGNED ADDITION OF RS.83,45,900/- BEING MADE IN A SSESSEES HANDS. THE CIT(A) DELETES THE IMPUGNED ADDITION BY OBSERVING AS UNDER: DECISION: 3.5. I HAVE CONSIDERED THE FACTS OF THE CASE AND SU BMISSION MADE BY THE APPELLANT. IN THIS CASE ASSESSMENT U/S.!43(3) WAS M ADE ON 11.03.2015 AFTER MAKING ADDITION OF RS.83,45,400/- ON ACCOUNT OF ACC RUED INTEREST ON NON- PERFORMING ASSETS. THE ASSESSING OFFICER HAS MADE A DDITION ON THE GROUND THAT THE APPELLANT BEING A SCHEDULED BANK, THE PROVISION OF SECTION 43D WERE NOT APPLICABLE, THE REAL INCOME THEORY WAS NOT APPLICAB LE IN VIEW OF MERCANTILE METHOD OF ACCOUNTING AND THE UNCERTAINTY OF INCOME WAS NOT ESTABLISHED. 3.6. THE AO HAS MADE THE ADDITION IN THE NATURE OF ACCRUED INTEREST ON BAD AND DOUBTFUL DEBTS (NPA) ON THE GROUND THAT SUCH IN TEREST WAS ACCRUED AS PER THE PROVISIONS OF SECTION 145 OF THE I. T. ACT AS T HE APPELLANT WAS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. 3.7. IT HAS BEEN OBSERVED BY THE AO THAT THE APPELL ANT BANK HAS SHOWN THE NPA UNDER THE HEAD OF 'LOANS AND ADVANCES' AND THE BANK HAS NOT SHOWN THE INTEREST THEREUPON IN THE P & L ACCOUNT. THE AO FUR THER OBSERVED THAT ALTHOUGH THE APPELLANT WAS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING IN GENERAL, BUT SO FAR AS INTEREST ON NPA IS CONCERNED , IT HAS BOOKED THE INCOME ON RECEIPT BASIS ONLY. THE AO FURTHER OBSERVED THAT SINCE THE NPAS HAVE NOT BEEN WRITTEN OFF BY THE APPELLANT BANK AND IT HAD T HE RIGHT TO RECOVER THE PRINCIPAL AMOUNT AS WELL AS THE INTEREST THEREUPON ON ACCRUAL BASIS AS PER THE MERCANTILE SYSTEM OF ACCOUNTING FOLLOWED BY IT. THU S, THE INTEREST INCOME OUGHT TO HAVE BEEN RECOGNIZED AS INCOME ASSESSABLE FOR TH E YEAR UNDER CONSIDERATION. ITA NO. 690/AHD/16 (DCIT VS. THE SAURASHTRA CO-OP B ANK LTD.) A.Y. 2012-13 - 3 THUS, THE AO HAS MADE THE ADDITION OF SUCH NOTIONAL INTEREST INCOME. THE AO ALSO OBSERVED THAT THE NORMS AND PROCEDURE LAID DOW N BY THE RBI WERE IN ORDER TO REGULATE EFFECTIVE CONDUCT OF THE BUSINESS AND TO CONTROL THE MANDATORY ASPECTS OF THE COMPANY. HENCE, THOSE OPERATES IN TH E DIFFERENT FIELD AND THESE RBI DIRECTIONS DO NOT OVERRIDE THE PROVISIONS OF I. T. ACT, SINCE THE I. T. ACT IS AN INDEPENDENT CODE IN ITSELF. HE ALSO RELIED UPON THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF STATE BANK OF TRAVANCO RE VS. CIT (SUPRA). 3.8. ON THE OTHER SIDE, THE APPELLANT HAS CLAIMED T HAT THE INTEREST ON THE NPA HAS NOT ACCRUED AT ALL FOR THE REASON THAT THE RECO VERY OF THE PRINCIPAL AMOUNT ITSELF WAS IN DOUBT, WHEN THE NPA ACCOUNT WAS DOUBT FUL AND STICKY AS PER THE CATEGORIZATION PRESCRIBED BY THE RBI THEN THE INTER EST IS NOT REQUIRED TO BE PROVIDED AT ALL IN THE P & L ACCOUNT. IT ALSO RELIE D UPON THE RBI CIRCULAR OF JULY 02, 2012. AS PER THE CIRCULAR, THE APPELLANT B ANK WAS NOT REQUIRED TO MAKE PROVISION OF INTEREST ON NPA ACCOUNT. THIS CIRCULAR WAS IN CONFORMITY WITH THE SUPREME COURT JUDGMENT IN THE CASE OF UCO BANK. THE APPELLANT RELIED UPON THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE O F UCO BANK VS. ACIT [237 ITR 889] WHICH WAS AFTER THE JUDGMENT IN THE C ASE OF STATE BANK OF TRAVENCORE ON WHICH THE AO HAS RELIED UPON. THE APP ELLANT ALSO STATED THAT THE INTEREST WAS SAID TO HAVE ACCRUED ONLY WHEN RIGHT T O RECEIVE IS ESTABLISHED. IN THE CASE OF NPA, THE RECOVERY OF PRINCIPAL AMOUNT I TSELF WAS IN DOUBT. THEREFORE, INTEREST ON SUCH DOUBTFUL AMOUNT CANNOT BE SAID TO HAVE BEEN ACCRUED AS PER THE PROVISIONS OF SECTION 145 OF I. T. ACT. IT HAS ALSO RELIED UPON THE JUDGMENT OF BOMBAY HIGH COURT IN THE CASE OF ST ATE BANK OF INDIA (SUPRA), ITAT, AHMEDABAD IN THE CASE OF MANILA SEVA SAHAKARI BANK LTD. AND SARDARGANJ MERCANTILE CO-OP, BANK LTD. (SUPRA). FUR THER, RELIANCE WAS ALSO PLACED ON THE RECENT JUDGMENT OF HON'BLE BOMBAY HIG H COURT IN THE CASE OF CIT VS. DEVGIRI NAGRIK SAHAKARI BANK LTD. IN ITA NO . 53 OF 2014 DATED 22/01/2015. THE APPELLANT HAS ALSO RELIED UPON ON THE JUDGEMNET IN THE CASE OF PRAGATI CO-OP. BANK LTD. (ITA NO.872/AHD/2012) D ATED 21.08.2015. RELIANCE IS ALSO PLACED ON THE JUDGEMENT IN THE CAS E OF URBAN CO-OP. BANK LTD. (ITA NO.471 OF 2013 DATED 30.06.2014) OF HON'B LE KAMATAKA HIGH COURT. 3.9. HAVING CONSIDERED THE FACTS AND SUBMISSIONS, I T IS UNDISPUTED THAT THE APPELLANT BANK HAS CATEGORIZED THE NPA OUT OF ITS L OANS AND ADVANCES AS PER THE NORMS PRESCRIBED IN THE RBI CIRCULAR WHICH IS M ANDATORY TO BE DONE. IT IS NEEDLESS TO MENTION THAT SUCH STICKY LOANS HAVE BEE N TREATED AS NPA ONLY FOR THE REASON THAT THE REPAYMENTS OF THE PRINCIPAL AND INTEREST THEREUPON WAS NOT BEING PAID BY THE BORROWERS TO THE APPELLANT BANK. THUS, IT CANNOT BE SAID THAT THE INTEREST PERTAINING TO THOSE NPAS WOULD CERTAIN LY BE REALIZED FROM SUCH DEFAULTING CUSTOMERS. ON SUCH NPAS, EVEN THE RECOVE RY OF DUES WAS DOUBTFUL AND HI SUCH CIRCUMSTANCES, IT WOULD NOT BE JUSTIFIE D IF THE NOTIONAL INTEREST IS WORKED OUT UPON SUCH NPAS AND THE APPELLANT BANK IS PAID THE TAXES THEREUPON. IN THIS REGARD, THE CONCEPT OF REAL INCO ME THEORY ALSO COMES TO THE RESCUE OF THE APPELLANT. ITA NO. 690/AHD/16 (DCIT VS. THE SAURASHTRA CO-OP B ANK LTD.) A.Y. 2012-13 - 4 3.10. CONSIDERING THE VARIOUS DECISIONS AND JUDGMEN TS INCLUDING THE EARLIER JUDGMENT GIVEN IN THE CASE OF STATE BANK OF TRAVANC ORE ON WHICH AO RELIED UPON, THE HON'BLE APEX COURT IN THE CASE OF UCO BAN K VS. CIT [237 ITR 889] HAS OBSERVED THAT THE NOTIONAL INTEREST UPON THE ST ICKY LOANS CANNOT BE TAXED. FOR READY REFERENCE, THE HEAD NOTES OF THE JUDGMENT IS REPRODUCED AS UNDER.- 'SECTION 5, READ WITH SECTION 119 AND 145, OF THE I NCOME TAX ACT, 1961 - INCOME -ACCRUAL OF- ASSESSMENT YEAR 1981-82 - WHETH ER IN VIEW OF CBDT CIRCULAR, DATED 9-10-1984, INTEREST ON A LOAN WHOSE RECOVERY IS DOUBTFUL AND WHICH HAS NOT BEEN RECOVERED BY ASSESS EE-BANK FOR LAST THREE YEARS BUT HAS BEEN KEPT IN A SUSPENSE ACCOUNT AND HAS NOT BEEN BROUGHT TO PROFIT AND LOSS ACCOUNT OF ASSESSEE, CAN NOT BE INCLUDED IN INCOME OF ASSESSEE - HELD YES - WHETHER CBDT CIRCUL AR DATED 9-10- 1984 IS IN CONFLICT WITH PROVISIONS OF SECTION 145 - HELD NO. SECTION 119 OF THE INCOME - TAX ACT, 1961 - CENTRAL BOARD OF DIRECT TAXES - POWER TO ISSUE CIRCULARS ETC. - WHETHER, SI NCE BOARD HAS CONSIDERED IT NECESSARY TO LAY DOWN A GENERAL TEST FOR DECIDING WHAT IS A DOUBTFUL DEBT IN CIRCULAR DATED 9-10-1984 AND DIREC TED THAT ALL ITOS SHOULD TREAT SUCH AMOUNTS AS NOT FORMING PART OF IN COME OF ASSESSEE UNTIL REALIZED, THIS DIRECTION BY WAY OF A CIRCULAR CANNOT BE CONSIDERED AS TRAVELLING BEYOND POWERS OF BOARD UNDER SECTION 119 AND SUCH A CIRCULAR IS BINDING UNDER SECTION 1 1 9 - HELD, YES . CIRCULARS AND NOTIFICATIONS - CBDT CIRCULAR NO. 41( V-6), DATED 6-10- 1952, CBDT CIRCULAR DATED 30/06/195, CBDT CIRCULAR NO. 1186, DATED 20/06/1978 AND CBDT CIRCULAR NO. F 201/21/84/TTA-II DATED 9-10- 1984.' 3.11. SUBSEQUENTLY, THE HON'BLE IT AT 'B' BENCH, AH MEDABAD IN THE CASE OF SARDARGANJ MERCANTILE CO-OP. BANK LTD. VS. ACIT IN ITA NO. 2426/AHD/2012 DT. 15/02/2013 HAVING CONSIDERED THE UCO BANK DECIS ION, RBI GUIDELINES HAS DECIDED THE ISSUE IN FAVOUR OF THE APPELLANT BANK B Y STATING THAT NO INTEREST ON THE NPA IS CHARGEABLE TO TAX. THE HON'BLE ITAT HAS OBSERVED THAT THE PROVISIONS OF SECTION 43D IS NOT APPLICABLE AS THE APPELLANT HAS NOT CREDITED THE INTEREST IN P & L ACCOUNT BUT SHOWN IN THE ASSET AN D LIABILITIES SIDE IN THE BALANCE SHEET DIRECTLY AND ALSO NOT RECEIVED ACTUAL LY. RELEVANT PORTION OF THE DECISION IS REPRODUCED AS UNDER. '4. NOW THE ASSESSEE IS BEFORE US. LD. COUNSEL FOR THE APPELLANT CONTENDED THAT THE ASSESSEE IS A COOPERATIVE BANK E NGAGED IN CARRYING ON BANKING BUSINESS. DURING A.Y. 2009-10, THE ASSES SEE PASSED BOOK ENTRY FOR INTEREST OFRS.1,58,897/-ON NPA ACCOUNT BY DEBITING TO TIME BARRED INTEREST RECEIVABLE ACCOUNT AND CREDITING TO PROVISION FOR TIME BARRED INTEREST. BOTH THE ACCOUNTS ARE REFLECTED IN THE BALANCE SHEET ON THE ASSETS SIDE AND LIABILITY SIDE. NO SUCH INTERES T IS CREDITED TO P&L ACCOUNT AS INCOME. HE FURTHER RELIED RBI MASTER CIR CULAR UPDATED ITA NO. 690/AHD/16 (DCIT VS. THE SAURASHTRA CO-OP B ANK LTD.) A.Y. 2012-13 - 5 30.06.2007, -WHEREIN IT WAS POLICY AS PER THE RBI G UIDELINE INCOME FROM NON PERFORMING ASSETS IS NOT RECOGNIZED ON ACCRUAL BASIS BUT IS BOOKED AS INCOME ONLY WHEN IT IS ACTUALLY RECEIVED. THEREF ORE, BANKS SHOULD NOT TAKE TO INCOME ACCOUNT INTEREST ON NON-PERFORMING A SSETS ON ACCRUAL BASIS. HE FARTHER HAS DRAWN OUR ATTENTION ON THE PA GE NO.5 OF THE PAPER BOOK WHICH IS BALANCE SHEET FOR A.Y. 09-10 WHICH SH OWS THAT THE APPELLANT HAD SHOWN THIS INTEREST PROVISION NPA IN ASSET SIDE AND LIABILITY SIDE AND NOT CREDITED IN THE P&L ACCOUNT. THE APPELLANT FURTHER ARGUED THAT UCO BANK V. CIT, 237ITR 889, WHEREIN IT WAS HELD THAT THE QUESTION WHETHER INTEREST EARNED WHAT HAVE COME TO BE KNOWN AS 'STICKY' LOANS, CAN BE CONSIDERED AS INCOME OR NOT UNTIL ACTUAL REALIZATION, IS A QUESTION WHICH MAY ARISE BEFORE S EVERAL INCOME TAX OFFICER EXERCISING JURISDICTION IN DIFFERENT PARTS OF THE COUNTRY. UNDER THE ACCOUNTING PRACTICE, INTEREST WHICH IS TRANSFERRED TO THE SUSPENSE ACCOUNT AND NOT BROUGHT TO THE P & L A/C. OF THE CO MPANY IS NOT TREATED AS INCOME. HE FURTHER ARGUED THAT IN CASE OF CIT VS . STATE BANK OF INDIA 262 ITR 662-668, WHCGEIN HON'BLE BOMBAY HIGH COURT HAS ANSWERED IN FAVOUR OR ASSESSEE AND AGAINST THE REVENUE. THER EFORE, HE REQUESTED TO DELETE THE ADDITION. AT THE OUTSET, ID. SR. D.R. RELIED UPON THE ORDER OF THE CIT(A) AND A.O. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE APPELLANT IS MAKING THE PROVISION OF INTEREST AS PER THE GUIDELINES ISSUED BY THE R.B.I. HOWEVER, SAME HAS N OT BEEN CREDITED IN THE P&L ACCOUNT AS IT WAS NOTIONAL HAD NOT RECEIVED ACTUALLY BY IT. SECTION 43 IS ALSO NOT APPLICABLE AS ASSESSEE HAS N OT CREDITED IN THE P&L ACCOUNT BUT SHOWN IN THE ASSETS AND LIABILITY SIDE IN THE BALANCE SHEET DIRECTLY AND ALSO NOT RECEIVED ACTUALLY. THUS, WE H AVE CONSIDERED VIEW THAT THE CIT(A) WAS NOT JUSTIFYING IN CONFIRMING TH E ADDITION. ACCORDINGLY, THE ASSESSEE'S APPEAL IS ALLOWED. ' 3.12. THEREAFTER, THE HON'BLE IT AT *C' BENCH, AHME DABAD IN THE CASE OF SHRI MANILA SEVA SAHAKARI BANK LTD. VS. ACIT (OSD) CIRCL E - 10, IN ITA NO. 62/AHD/2014 DATED 27/03/2015, AFTER CONSIDERING THE JUDGMENT OF UCO BANK, OTHER IT AT DECISIONS AND RBI GUIDELINES HAS ALSO D ECIDED THIS ISSUE IN FAVOUR OF THE APPELLANT BANK. THE RELEVANT PORTION OF THE DECISION IS REPRODUCED AS UNDER:- '5.1. HOWEVER, WE FIND THAT UNDER THE IDENTICAL FAC TS, 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 TIM E OF HEARING, IT WAS A COMMON POINT BETWEEN THE PARTIES THAT AN IDENTICAL CONTROVERSY HAS ITA NO. 690/AHD/16 (DCIT VS. THE SAURASHTRA CO-OP B ANK LTD.) A.Y. 2012-13 - 6 BEEN CONSIDERED BY THE PUNE BENCH OF THE TRIBUNAL I N 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 PRECED ENT, THE TRIBUNAL CONSIDERED THE JUDGEMENT OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF MS VASISTH CHAY VYAPAR LTD., 330 ITR 440 (DEL) AS W ELL AS THE JUDGEMENT OF THE HON'BLE MADRAS HIGH COURT IN THE C ASE OF CIT VS. SAKTHI FINANCE LTD., (2013) 31 TAXMANN.COM 305 (MAD RAS), WHICH HAD EXPRESSED DIVERGENT VIEWS WITH RESPECT TO THE ISSUE 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 FAVOURABLE TO THE ASSESSEE WAS TO BE FOLL OWED IN VIEW OF THE REASONING LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. VEGETABLE PRODUCTS LTD., (1973) 88 ITR 192 (SCC G AND, THUS THE TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF THE ASSESSE E. 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 SUBMISSI ONS. IN SO FAR AS THE APPLICABILITY OF SECTION 43D OF THE ACT TO T HE ASSESSEE IS CONCERNED, THERE IS A CONVERGENCE OF OPINION BETWEE N THE ASSESSEE AND THE REVENUE TO THE EFFECT THAT THE SAME IS NOT APPL ICABLE 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 DOUBT FUL 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 DECI DED 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 U RBAN BANK LTD. (SUPRA) HAS CONSIDERED AN IDENTICAL CONTROVERSY. TH E ASSESSEE BEFORE THE VISAKHAPATNAM BENCH WAS A COOPERATIVE BANK OPERATIN G 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 ISSUE RELA TED TO TAXABILITY OF INTEREST INCOME RELATING TO NPAS, WHICH AS PER THE REVENUE WAS LIABLE TO BE TAXED ON ACCRUAL BASIS IN LINE WITH MERCANTIL E SYSTEM OF ACCOUNTING ADOPTED BY THE ASSESSEE THEREIN. THE ASSESSEE, ON T HE OTHER HAND, CONTENDED THAT HAVING REGARD TO THE GUIDELINES ISSU ED BY RBI REGARDING ACCOUNTING OF INTEREST ON NPAS, NO INTEREST INCOME ACCRUED IN RESPECT OF ITA NO. 690/AHD/16 (DCIT VS. THE SAURASHTRA CO-OP B ANK LTD.) A.Y. 2012-13 - 7 NPAS AND THAT THE SAME WAS TO BE TAXED ONLY ON RECE IPT BASIS. THE TRIBUNAL OBSERVED THAT THE QUESTION OF TAXABILITY O F INTEREST ON NPAS CLASSIFIED BY RBI, WAS CONSIDERED BY THE HON'BLE DE LHI HIGH COURT IN THE CASE OF M/S VASISTH CHAY VYAPAR LTD. (SUPRA) WH EREIN AFTER CONSIDERING THE DECISION OF THE HON'BLE SUPREME COU RT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) IT WAS HELD THAT INTEREST INCOME RELATABLE TO NPAS WAS NOT INCLUDIBLE IN TOTAL INCOM E ON ACCRUAL BASIS SINCE THE SAME DID NOT ACCRUE TO THE ASSESSEE. THE FOLLOWING DISCUSSION BY THE VISAKHAPATNAM BENCH OF THE TRIBUNAL IN THE C ASE OF THE DURGA COOPERATIVE URBAN BANK LTD. (SUPRA) IS WORTHY OF NO TICE: - '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 C ASE OFM/S VASISTH CHAY VYAPAR LTD (SUPRA); WHEREIN THE HON'BLE DELHI HIGH COURT TOOK INTO ACCOUNT THE DECISION RENDERED BY THE HON'BLE S UPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD (SUPRA). IN THE C ASE OF M/S VASISTH CHAY VYAPAR LTD, THE ASSESSEE THEREIN WAS A NON BAN KING FINANCIAL COMPANY AND IT WAS ALSO BOUND BY THE 'PRUDENTIAL NO RMS DIRECTIONS' ISSUED BY THE RESERVE BANK OF INDIA FOR INCOME RECO GNITION AND ASSET CLASSIFICATION. THE ASSESSEE DID NOT INCLUDE THE I NTEREST INCOME RELATABLE TO NPA ASSETS IN ITS TOTAL INCOME. THE AS SESSING OFFICER, HOWEVER, ADDED THE SAID INTEREST AS THE INCOME OF T HE ASSESSEE BY HOLDING THAT IT HAD 'ACCRUED' TO THE ASSESSEE EVEN IT WAS NOT REALIZED AS THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACC OUNTING. THE LEARNED CIT (A) AFFIRMED THE ORDER OF THE ASSESSING OFFICER. HOWEVER, THE IT AT DELETED THE AFORESAID INCOME. HENCE THE R EVENUE PREFERRED APPEAL BEFORE THE HON 'BLE DELHI HIGH COURT. 8.1 AFTER HEARING THE RIVAL SUBMISSIONS, THE HON'BL E DELHI HIGH COURT TOOK NOTE OFSEC.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 INSTRUMENT H AVING EFFECT BY VIRTUE OF ANY SUCH LAW'. THE HIGH COURT TOOK NOTE OF THE F ACT THAT THE PROVISION OF 45Q OF RESERVE BANK OF INDIA HAS OVERRIDING EFFE CT OVER ANY OTHER LAW. THEN THE HON'BLE HIGH COURT ALSO CONSIDERED AC COUNTING STANDARD 'AS-9' ON 'REVENUE RECOGNITION' AND ALSO EXTRACTED FOLLOWING RELEVANT PORTION FROM THE SAID ACCOUNTING STANDARD: 9. EFFECT OF UNCERTAINTIES ON REVENUE RECOGNITION ITA NO. 690/AHD/16 (DCIT VS. THE SAURASHTRA CO-OP B ANK LTD.) A.Y. 2012-13 - 8 9.1 RECOGNITION OF REVENUE REQUIRES THAT REVENUE IS A MEASURABLE AND THAT AT THE TIME OF SALE OR THE RENDERING OF TH E SERVICE, IT WOULD NOT BE UNREASONABLE TO EXPECT ULTIMATE 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, INTEREST ET C., REVENUE RECOGNITION IS POSTPONED TO THE EXTENT OF UNCERTAINTY INVOLVED. IN SUCH CASES, IT MAY BE APPROPRIATE TO RECOGNIZE REVENUE ONLY WHEN IT IS REASONABLY CERTAIN THAT THE ULTIMATE COLLECTION -WILL BE MADE. WHERE T HERE IS NO UNCERTAINTY AS TO ULTIMATE COLLECTION, REVENUE IS RECOGNIZED AT THE TIME 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 REVENUE ORIGINA LLY 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 RE SOURCES IS REASONABLY DETERMINABLE. WHEN SUCH CONSIDERATION IS NOT DETERM INABLE WITHIN REASONABLE LIMITS, THE RECOGNITION OF REVENUE IS PO STPONED. 9.5 WHEN RECOGNITION OF REVENUE IS POSTPONED DUE TO THE-EFFECT OF UNCERTAINTIES, IT IS CONSIDERED AS REVENUE OF THE P ERIOD IN WHICH IT IS PROPERLY RECOGNIZED'. 8.2 THE DELHI HIGH COURT ALSO CONSIDERED THE DECISI ON RENDERED IN THE FOLLOWING CASES; I) CIT(A) VS. ELGI FINANCE LTD., 2 93ITR 357 (MAD) II) CITVS. KKMINVESTMENTS (CAL) - SLP DISMISSED BY SUPR EME COURT (310 ITR 4) HI) CIT VS. MOTOR CREDIT CO (P) LTD., 127 IT R 572 (MAD) IV) UCO BANK VS. CIT 237 ITR 889 (SC) V) CIT VS. SHOORJ I VALIABHDAS & CO 46 (TR 144 (SC) VI) GODHRA ELECTRICITY CO. LTD., VS. CIT 225 ITR 746 VII) CITVS. GOYAL MG GASES (P) LTD., 303 ITR 15 9 (DEL) VIII) CITVS. EICHERLTD., 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 THE A SSESSES, 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: ITA NO. 690/AHD/16 (DCIT VS. THE SAURASHTRA CO-OP B ANK LTD.) A.Y. 2012-13 - 9 'WE HAVE ALREADY HELD THAI EVEN UNDER THE INCOME TA X ACT, INTEREST INCOME HAD NOT ACCRUED. MOREOVER, THIS SUBMISSION O F MR. SABHARWAL IS BASED ENTIRETY ON THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGY (SUPRA). NO DOUBT, IN FIRST BLU SH, READING OF THE JUDGMENT GIVES AN INDICATION THAT THE COURT HAS HEL D THAT RESERVE BANK OF INDIA ACT DOES NOT OVERRIDE THE PROVISIONS OF TH E INCOME TAX ACT. HOWEVER, WHEN WE EXAMINE THE ISSUE INVOLVED THEREIN MINUTELY AND DEEPLY IN THE CONTEXT IN WHICH THAT HAD ARISEN AND CERTAIN OBSERVATIONS OF THE APEX COURT CONTAINED IN THAT VERY JUDGMENT, WE FIND THAT THE PROPOSITION ADVANCED BY MR,SABHARWAL MAY NOT BE ENT IRELY CORRECT. IN THE CASE BEFORE THE SUPREME COURT, THE ASSESSEE A N BFC 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 IT A NO.62/ AHD/2014 SHRI MANILA SEWA SAHKARI BANK LTD. VS. ACIT (OSD) ASST.Y EAR - 2010-11 - 19 - DEDUCTION CLAIMED AS AFORESAID ON THE GROUND T HAT THE PROVISION OF NPA WAS NOT IN THE NATURE OF EXPENDITURE OR LOSS BU T MORE IN THE NATURE OF A RESERVE, AND THUS NOT DEDUCTIBLE UNDER SECTION 36(I)(VII) 'OF THE ACT. THE ASSESSING OFFICER, HOWEVER, DID NOT BRING TO TA X RS.20,34,605/- AS INCOME (BEING INCOME ACCRUED UNDER THE MERCANTILE S YSTEM OF ACCOUNTING). THE DISPUTE BEFORE THE APEX COURT CENT ERED AROUND DEDUCIBILITY OF PROVISION FOR NPA. AFTER ANALYZING THE PROVISIONS OF THE RESERVE BANK OF INDIA ACT, THEIR LORDSHIPS OF THE A PEX COURT OBSERVED THAT IN SO FAR AS THE PERMISSIBLE DEDUCTIONS OR EXC LUSIONS UNDER THE ACT ARE CONCERNED, THE SAME ARE ADMISSIBLE ONLY IF SUCH DEDUCTIONS/EXCLUSIONS SATISFY THE RELEVANT CONDITIO NS STIPULATED THEREFORE UNDER THE ACT. TO THAT EXTENT, IT WAS OBSERVED THAT THE PRUDENTIAL NORMS DO NOT OVERRIDE THE PROVISIONS OF THE ACT. HOWEVER, THE APEX COURT MADE A DISTINCTION WITH REGARD TO 'INCOME RECOGNITI ON' AND HELD THAT INCOME HAD TO BE RECOGNIZED IN TERMS OF THE PRUDENT /A NORMS, EVEN, THOUGH THE SAME DEVIATED FROM MERCANTILE SYSTEM OF ACCOUNTING AND/OR SECTION 45 (SIC. 145) OF THE INCOME TAX ACT. IT CAN BE SAID, THEREFORE, THAT THE APEX COURT APPROVED THE 'REAL INCOME' THEO RY WHICH IS ENGRAINED IN FIE PRUDENTIAL NORMS FOR RECOGNITION O F 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/EXCLUSIONS UNDER THE INCOME TAX ACT. IN SO FAR AS INCOME RECOGNITION IS CONCERN ED, THE HON'BLE SUPREME COURT HELD THAT SECTION 145 OF THE INCOME T AX ACT HAS NO ROLE TO PLAY AND THE ASSESSING OFFICER HAS TO FOLLOW RES ERVE BANK OF INDIA DIRECTIONS 1998, SINCE BY VIRTUE OF45Q OF THE RESER VE 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 COMP ANIES ACT 1956. IN SO FAR AS COMPUTATION OF INCOME UNDER THE INCOME TA X ACT IS CONCERNED, (WHICH INVOLVES DEDUCTION OF PERMISSIBLE DEDUCTIONS AND EXCLUSIONS) THE ADMISSIBILITY OF SUCH DEDUCTIONS SHALL BE GOVERNED BY THE PROVISIONS OF ITA NO. 690/AHD/16 (DCIT VS. THE SAURASHTRA CO-OP B ANK LTD.) A.Y. 2012-13 - 10 THE INCOME TAX ACT. THE RELEVANT OBSERVATIONS OF TH E HONBLE SUPREME COURT ARE EXTRACTED BELOW: ''APPLICABILITY OF SECTION 145. 40. AT THE OUTSET, WE MAY STATE THAT IN ESSENCE RBI DIRECTIONS 1998 ARE PRUDENTIAL/PROVISIONING NORMS ISSUED BY RBI UNDER C HAPTER IIIB OF THE RBI ACT, 1934. THESE NORMS DEAL ESSENTIALLY WITH IN COME RECOGNITION. THEY FORCE THE NBFCS TO DISCLOSE THE AMOUNT OFNPA I N THEIR FINANCIAL ACCOUNTS. THEY FORCE THE NBFCS TO REFLECT 'TRUE AND CORRECT' PROFITS. BY VIRTUE OF SECTION 45Q, AN OVERRIDING EFFECT IS GIVE N TO THE 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 ACT OPERATE IN DIFFERENT AREAS. THESE DIRECTIONS 1998 HAVE NOTHING TO DO WITH COMPUTATION OF TAXABLE INCOME. THESE DIRECTIONS CANNOT OVERRULE THE 'PERMISSIBLE D EDUCTIONS' OR 'THEIR EXCLUSION' UNDER THE IT ACT. THE INCONSISTENCY BETW EEN THESE DIRECTIONS AND COMPANIES ACT IS ONLY IN THE MATTER OF INCOME R ECOGNITION AND PRESENTATION OF FINANCIAL STATEMENTS. THE ACCOUNTIN G POLICIES ADOPTED BY AN NBFC CANNOT DETERMINE THE TAXABLE INCOME. IT IS WELL SETTLED THAT THE ACCOUNTING POLICIES FOLLOWED BY A COMPANY CAN B E CHANGED UNLESS THE AO COMES TO THE CONCLUSION THAT SUCH CHANGE WOU LD RESULT IN UNDERSTATEMENT OF PROFITS. HOWEVER, HERE IS THE CAS E WHERE THE AO HAS TO FOLLOW THE RESERVE BANK OF INDIA DIRECTIONS 1998 IN VIEW OF SECTION 45Q OF THE RESERVE BANK OF INDIA ACT. HENCE, AS FAR AS INCOME RECOGNITION IS CONCERNED, SECTION 145 OF THE IT ACT HAS NO ROLE TO PLAY IN THE PRESENT DISPUTE'. 10. TURNING TO THE FACTS OF THE CASE BEFORE US, THE 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 SUPREME COURT HAS HELD IN THE CASE OF SOUTHERN TECHNOLOGIES LTD (SUPRA), THAT THE PROVISION OF 45Q OF RESERVE BANK OF INDIA ACT HAS AN OVERRIDING EFFECT VIS-A-VIS INCOME RECOGNITION PRINCIPLE UNDER THE COMPANIES ACT HENCE SEC.45 Q OF THE RBI ACT SHALL HAVE OVERRIDING EFFECT OVER THE INCOM E RECOGNITION PRINCIPLE FOLLOWED BY COOPERATIVE BANKS ALSO. HENCE THE ASSESSING OFFICER HAS TO FOLLOW THE RESERVE BANK OF INDIA DIR ECTIONS 1998, AS HELD BY THE HON'BLE SUPREME COURT. 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 ITA NO. 690/AHD/16 (DCIT VS. THE SAURASHTRA CO-OP B ANK LTD.) A.Y. 2012-13 - 11 THE ASSESSEE. IN THIS REGARD, THE FOLLOWING OBSERVA TIONS 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 NOT 'ACCRU ED'. THE SAID DECISION OF THE HON'BLE DELHI HIGH COURT IS EQUALLY APPLICABLE TO THE ISSUE IN OUR HANDS. ACCORDINGLY WE DO NOT FIND ANY INFIRMITY WITH THE DECISION OF THE LEARNED CIT (A) IN HOLDING THAT THE INTEREST INCOME RELATABLE ON NPA ADVANCES DID NOT ACCRUE TO THE ASS ESSEE. ACCORDINGLY WE UPHOLD HIS ORDER.' 10. FOLLOWING THE AFORESAID DISCUSSION, WHICH HAS B EEN RENDERED ON AN IDENTICAL ISSUE UNDER SIMILAR CIRCUMSTANCES, WE FIN D 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 HIGH COURT IN THE CASE OFM/S VASISTH CHAY VYAPAR LTD. (SUPRA) ON A SIMILAR ISSUE , I.E. RELATING TO INTEREST INCOME ON NPAS. THE LEARNED DEPARTMENTAL R EPRESENTATIVE FURTHER POINTED OUT THAT THE HON'BLE MADRAS HIGH CO URT FOLLOWED THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F SOUTHERN TECHNOLOGIES LTD. (SUPRA) IN HOLDING THAT INTEREST ON NPAS WAS ASSESSABLE TO TAX ON ACCRUAL BASIS. WE HAVE CAREFUL LY CONSIDERED THE SUBMISSIONS PUT-FORTH BY THE LEARNED DEPARTMENTAL R EPRESENTATIVE BASED ON THE JUDGMENT OF THE HON'BLE MADRAS HIGH CO URT IN THE CASE OF SAKTHI FINANCE LTD. (SUPRA). THE CONTROVERSY BEFORE THE HON'BLE MADRAS HIGH COURT RELATED TO NON-RECOGNITION OF INTEREST I NCOME ON NPAS BY THE ASSESSEE FOLLOWING THE RBI GUIDELINES. THE HON' BLE MADRAS HIGH COURT TOOK THE VIEW THAT THE JUDGEMENT OF THE HON'B LE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) ALSO APPLIED TO THE INCOME RECOGNITION NORMS PROVIDED BY RBI AND THEREF ORE IT HELD THE . INTEREST INCOME ON NPAS IS LIABLE TO BE TAXED ON AC CRUAL BASIS AND NOT IN TERMS OF RBI'S GUIDELINES. BUT THE HON'BLE DELHI HI GH COURT IN THE CASE OFM/S VASISTH CHAY VYAPAR LTD. (SUPRA) HAS TAKEN A VIEW THAT SOUTHERN TECHNOLOGIES LTD. (SUPRA) CASE DID NOT APPLY TO THE INCOME RECOGNITION NORMS PRESCRIBED BY RBI. OSTENSIBLY, THERE IS DIVER GENCE OF OPINION BETWEEN THE HON'BLE DELHI HIGH COURT AND THE HON'BL E MADRAS HIGH COURT AS NOTED BY THE HON'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 SITUAT ION, WE ARE INCLINED TO PREFER A VIEW WHICH IS FAVOURABLE OF THE ASSESSEE F OLLOWING THE ITA NO. 690/AHD/16 (DCIT VS. THE SAURASHTRA CO-OP B ANK LTD.) A.Y. 2012-13 - 12 JUDGEMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. VEGETABLE PRODUCTS LTD. (1973) 88ITR 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 C1T(A) IS LIABLE TO THE AFFIRMED. WE HOLD SO. 14. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED.' 5. SINCE IT WAS A COMMON POINT BETWEEN THE PARTIES 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. (SUPRA), FOLLOWING THE SAID PRECEDENT THE PRESENT CLAIM OF THE ASSESSE E DESERVES TO BE UPHELD. THUS, THE ORDER OF THE CIT(A) IS HEREBY AFF IRMED AND THE REVENUE HAS TO FAIL ON THIS ASPECT. 6. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE A RE 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:- '5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE APPELLANT IS MAKING THE PROVISION OF IN TEREST AS PER THE GUIDELINES ISSUED BY THE R.B.I. HOWEVER, SAME HAS N OT BEEN CREDITED IN THE P&L ACCOUNT AS IT WAS NOTIONAL HAD NOT RECEIVED ACTUALLY BY IT. SECTION 43 IS ALSO NOT APPLICABLE A ASSESSEE HAS NO T CREDITED IN THE P&L ACCOUNT BUT SHOWN IN THE ASSETS AND LIABILITY SIDE IN THE BALANCE SHEET DIRECTLY AND ALSO NOT RECEIVED ACTUALLY. THUS, WE H AVE CONSIDERED VIEW THAT THE CIT(A) WAS NOT JUSTIFYING IN CONFIRMING TH E ADDITION. ACCORDINGLY, THE ASSESSEE'S APPEAL IS ALLOWED. 6. IN THE RESULT, THE ASSESSEE'S APPEAL IS ALLOWED. ' 5.3 THE HON'BLE COORDINATE BENCH HAS NOTED THAT THE RE IS A DIVERGENT VIEW BETWEEN THE HON'BLE DELHI HIGH COURT IN THE CASE OF M/S. VASISTH CHAY VYAPAR LTD. REPORTED AT 330ITR 44 Q(DE LHI AND THE HON 'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. SAKTH I FINANCE LTD. REPORTED AT (2013) 31 TAXMANN.COM 305 (MAD.), IN RE SPECT OF APPLICATION OF THE JUDGMENT OF THE HON'BLE APEX COU RT RENDERED IN THE CASE OF SOUTHERN TECHNOLOGY LTD. (SUPRA) ON INCOME RECOGNITION NORMS PRESCRIBED BY R.B.I. THE HON 'BLE COORDINATE BENCH IN VIEW OF THE FACT THAT THERE WERE DIVERGENT VIEWS OF HON 'BLE DELHI H IGH COURT AND HON 'BLE MADRAS HIGH COURT, APPLIED THE RATIO OF THE HO N 'BLE SUPREME COURT IN THE CASE OF CIT VS. VEGETABLE PRODUCTS LTD . REPORTED AT (1973) 88 ITR 192 (SC). IN THE PRESENT CASE ALSO, THERE IS NO JUDGEMENT BY THE HON 'BLE JURISDICTIONAL HIGH COURT, THEREFORE FOR T HE SAME REASONING, ITA NO. 690/AHD/16 (DCIT VS. THE SAURASHTRA CO-OP B ANK LTD.) A.Y. 2012-13 - 13 WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND THE AO IS HEREBY DIRECTED TO DELETE THE ADDITION. THUS, GROUND OF AS SESSEE'S APPEAL IS ALLOWED. ' 3.13. RECENTLY, HON'BLE BOMBAY HIGH COURT IN THE C ASE OF CIT VS. M/S. DEOGIRI NAGARI SAHAKARI BANK LTD. IN INCOME TAX APP EAL NO. 53 OF 2014 AND OTHERS DATED 22/01/2015 HAS DISMISSED THE REVENUE A PPEALS ON THE IDENTICAL ISSUE WITH THE FOLLOWING OBSERVATIONS:- '8. LEARNED COUNSEL FOR RESPONDENT SUBMITS THAT, LEARNED TRIBUNAL HAS RIGHTLY DISMISSED THE APPEALS OF THE REVENUE BY CONFIRMING THE ORDER PASSED BY THE CIT(A). THERE IS NO SUBSTANTIAL QUESTION OF LAW INVOLVED IN THESE APPEALS AND THUS ALL THE APPEALS ARE LIABLE TO BE DISMISSED. 9. THE INCOME TAX APPELLATE TRIBUNAL HAS REFERRED T HE CASE OF M/S. VASISTH CHAY VYAPAR LIMITED 330ITR 440(DELHI). IN THIS CASE, THE REVENUE RE LIED UPON THE DECISION OF THE HON'BLE SU PREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. SUPRA. THE LEA RNED INCOME TAX APPELLATE TRIBUNAL HAS REPRODUCED THE OBSERVA TIONS MADE BY THE DELHI HIGH COURT WHILE REFERRING THE SAID CASE OF M/S.SOUTHERN TECHNOLOGIES LIMITED SUPRA. THE ASSESSEE HEREIN BEI NG A COOPERATIVE BANK ALSO GOVERNED BY THE RESERVE BANK OF INDIA AND THUS THE DIRECTIONS WITH REGARD TO THE PRUDENTIAL NORMS ISSUED BY THE R ESERVE BANK OF INDIA ARE EQUALLY APPLICABLE TO THE CO-OPERATIVE BAN KS. THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOG IES LIMITED SUPRA HELD THAT, PROVISIONS OF SECTION 45 Q OF RESERVE B ANK OF INDIA ACT HAS AS AN OVERRIDING EFFECT VIS-A-VIS INC OME RECOGNITION PRINCIPLE UNDER THE COMPANIES ACT. HENCE, SECTION 45Q OF THE RBI ACT SHALL HAVE OVERRIDING EFFECT OVER THE INCOME RECOGN ITION PRINCIPLE FOLLOWED BY CORPORATIVE BANKS,. HENCE, THE ASSESSIN G OFFICER HAS TO FOLLOW THE RESERVE BANK OF INDIA DIRECTIONS 1998, A S HELD BY THE HON 'BLE SUPREME COURT. 10. THE HONOURABLE APEX COURT IN THE CASE OF UCO BA NK CASE (SUPRA) HAD AN OCCASION TO CONSIDER THE NATURE OF C BDT CIRCULAR AND HON'BLE APEX COURT HAS THUS HELD THAT BOARD HAS POW ER, INTER ALIA, TO TONE DOWN THE RIGOUR OF THE LAW AND ENSURE A FAIR E NFORCEMENT OF ITS PROVISIONS, BY ISSUING CIRCULAR IN EXERCISE OF ITS STATUTORY POWERS UNDER SECTION 119 OF THE ACT AND WHICH ARE BINDING ON THE AUTHORITIES IN THE ADMINISTRATION OF THE ACT, IT IS BENEFICIAL POWER G IVEN TO THE BOARD FOR PROPER ADMINISTRATION OF FISCAL LAW SO THAT UNDUE H ARDSHIP MAY NOT BE CAUSED TO THE ASSESSEE AND THE FISCAL LAWS BE CORRE CTLY APPLIED. FURTHER A SIMILAR ISSUE WAS RAISED ABOUT INTEREST ACCRUED O N A 'STICKY' LOAN WHICH WAS NOT RECOVERED BY THE ASSESSEE BANK FOR TH E LAST THREE YEARS AND TRANSFERRED TO THE SUSPENSE ACCOUNT, WOULD OR W OULD NOT BE INCLUDED IN THE INCOME OF THE ASSESSEE FOR THE PARTICULAR AS SESSMENT YEAR. HON'BLE ITA NO. 690/AHD/16 (DCIT VS. THE SAURASHTRA CO-OP B ANK LTD.) A.Y. 2012-13 - 14 APEX COURT HAS OBSERVED THAT: 'THE METHOD OF ACCOUN TING WHICH IS FOLLOWED BY THE ASSESSEE BANK IS MERCANTILE SYSTEM OF ACCOUNTING. HOWEVER, THE ASSESSEE CONSIDERS INCOME BYWAY OF INT EREST PERTAINING TO DOUBTFUL LOANS AS NOT REAL INCOME IN THE YEAR IN WH ICH IT ACCRUES, BUT ONLY -WHEN IT IS REALIZED, A MIXED METHOD OF ACCOUN TING IS THUS FOLLOWED BY THE ASSESSEE-BANK. THIS METHOD OF ACCOUNTING ADO PTED BY THE ASSESSEE IS IN ACCORDANCE WITH ACCOUNTING PRACTICE. THE ASSESSEE'S METHOD OF ACCOUNTING, TRANSFERRING THE DOUBTFUL DEB T TO AN INTEREST SUSPENSE ACCOUNT AND NOT TREATING IT AS PROFIT UNTI L ACTUALLY RECEIVED, IS IN ACCORDANCE WITH ACCOUNTING PRACTICE UP TO ASSESS MENT YEAR 1978-79 THE TAXABILITY OF INTEREST ON DOUBTFUL DEBTS CREDIT ED TO SUSPENSE ACCOUNT WILL BE DECIDED IN THE LIGHT OF THE BOARD'S EARLIER CIRCULAR DATED 6-10- 1952, AS THE SAID CIRCULAR WAS WITHDRAWN ONLY IN JU NE, 1978. THE NEW PROCEDURE UNDER THE CIRCULAR OF 9-10-1984 WILL BE A PPLICABLE FOR AND FROM THE ASSESSMENT YEAR, 1979-80. ALL PENDING DISP UTES ON THE ISSUE SHOULD BE SETTLED IN THE LIGHT OF THESE INSTRUCTION S. THEREFORE, UP TO THE ASSESSMENT YEAR 1978-79, THE CBDT'S CIRCULAR OF 6-1 0-1952 WOULD BE APPLICABLE; WHILE FROM THE ASSESSMENT YEAR 1979-80, THE CBDT'S CIRCULAR OF 9- 10-1984 IS MADE APPLICABLE. IN THE P RESENT CASE, THE ASSESSMENT WAS MADE ON THE BASIS OF THE CBDT'S CIRC ULAR ON 9-10- 1984, SINCE THE ASSESSMENT PERTAINS TO THE ASSESSME NT YEAR 1981-82 TO WHICH THE CIRCULAR OF 9-10-1984 IS APPLICABLE. IF, THE BOARD HAS CONSIDERED IT NECESSARY TO LAY DOWN A GENERAL TEST FOR DECIDING WHAT IS A DOUBTFUL DEBT, AND DIRECTED THAT ALL ASSESSING OFFI CER'S SHOULD TREAT SUCH AMOUNTS AS NOT FORMING PART OF THE INCOME OF THE AS SESSEE UNTIL REALIZED, THIS DIRECTION BY WAY OF A CIRCULAR CANNOT BE CONSI DERED AS TRAVELING 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 9-10- 1984, THEREFORE, PROVIDES A TEST FOR RECOGNIZING WH ETHER A CLAIM FOR INTEREST CAN BE TREATED AS A DOUBTFUL CLAIM UNLIKEL Y TO BE RECOVERED OR NOT. THE TEST PROVIDED BY THE SAID CIRCULAR IS TO S EE WHETHER, AT THE END OF THREE YEARS, THE AMOUNT OF INTEREST HAS, IN FACT , BEEN RECOVERED BY THE BANK OR NOT. IF IT IS NOT RECOVERED FOR A PERIOD OF THREE YEARS, THEN IN THE FOURTH YEAR AND ONWARDS THE CLAIM FOR INTEREST HAS TO BE TREATED AS DOUBTFUL CLAIM WHICH NEED NOT BE INCLUDED IN THE IN COME OF THE ASSESSEE UNTIL IT IS ACTUALLY RECOVERED. IN THE PRESENT CASE , THE CIRCULARS WHICH HAVE BEEN IN FORCE ARE MEANT TO ENSURE THAT WHILE A SSESSING THE INCOME ACCRUED BY WAY OF INTEREST ON A 'STICKY' LOAN, NO TIONAL INTEREST WHICH IS TRANSFERRED TO A SUSPENSE ACCOUNT PERTAINING TO DOU BTFUL LOANS WOULD NOT BE INCLUDED IN THE INCOME OF THE ASSESSEE, IF FOR T HREE YEARS SUCH INTEREST IS NOT ACTUALLY RECEIVED. THE VERY FACT THAT THE AS SESSEE, ALTHOUGH GENERALLY USING A MERCANTILE SYSTEM OF ACCOUNTING, KEEPS SUCH INTEREST AMOUNTS IN A SUSPENSE ACCOUNT AND DOES NOT BRING TH ESE AMOUNTS TO THE P&L A/C GOES TO SHOW THAT THE ASSESSEE IS FOLLOWING A MIXED SYSTEM OF ACCOUNTING BY WHICH SUCH INTEREST IS INCLUDED IN IT S INCOME ONLY WHEN IT IS ACTUALLY RECEIVED. LOOKING TO THE METHOD OF ACCO UNTING SO ADOPTED BY THE ASSESSEE IN SUCH CASES, THE CIRCULARS WHICH HAV E BEEN ISSUED ARE ITA NO. 690/AHD/16 (DCIT VS. THE SAURASHTRA CO-OP B ANK LTD.) A.Y. 2012-13 - 15 CONSISTENT WITH THE PROVISIONS OF SECTION 145 AND A RE MEANT TO ENSURE THAT ASSESSEES OF THE KIND SPECIFIED WHO HAVE TO AC COUNT FOR ALL SUCH AMOUNTS OF INTEREST ON DOUBTFUL LOANS ARE UNIFORMLY GIVEN THE BENEFIT UNDER THE CIRCULAR AND SUCH INTEREST AMOUNTS ARE NO T INCLUDED IN THE INCOME OF THE ASSESSEE UNTIL ACTUALLY RECEIVED IF T HE CONDITIONS OF THE CIRCULAR ARE SATISFIED. THE CIRCULAR OF 9-10-1984, ALSO SERVES ANOTHER PRACTICAL PURPOSE OF LAYING DOWN A UNIFORM TEST FOR THE ASSESSING AUTHORITY TO DECIDE WHETHER THE INTEREST INCOME WHI CH IS TRANSFERRED TO THE SUSPENSE ACCOUNT IS, IN FACT, ARISING IN RESPEC T OF A DOUBTFUL OR 'STICKY' LOAN. THIS IS DONE BY PROVIDING THAT NON-R ECEIPT OF INTEREST FOR THE FIRST THREE YEARS WILL NOT BE TREATED AS INTERE ST ON A DOUBTFUL LOAN. BUT IF AFTER THREE YEARS THE PAYMENT OF INTEREST IS NOT RECEIVED, FROM THE FOURTH YEAR ONWARDS IT WILL BE TREATED AS INTEREST ON A DOUBTFUL LOAN AND WILL BE ADDED TO THE INCOME ONLY WHEN IT IS ACTUALL Y RECEIVED. THERE IS NO INCONSISTENCY OR CONTRADICTION BETWEEN THE CIRCU LAR SO ISSUED AND SECTION 145 OF THE INCOME TAX ACT, IN FACT, THE CIR CULAR CLARIFIES THE WAY IN WHICH THESE AMOUNTS ARE TO BE TREATED UNDER THE ACCOUNTING PRACTICE FOLLOWED BY THE LENDER. THE CIRCULAR, THEREFORE, CA NNOT BE TREATED AS CONTRARY TO SECTION 145 OF THE INCOME TAX ACT OR IL LEGAL IN ANY FORM. IT IS MEANT FOR A UNIFORM ADMINISTRATION OF LAW BY ALL TH E INCOME-TAX AUTHORITIES IN A SPECIFIC SITUATION AND, THEREFORE, VALIDLY ISSUED UNDER SECTION 119 OF THE INCOME TAX ACT. AS SUCH, THE BOM BAY HIGH COURT CIRCULAR WOULD BE BINDING ON THE DEPARTMENT. THE RE LEVANT CIRCULARS OF CBDT CANNOT BE IGNORED. THE QUESTION IS NOT WHETHER A CIRCULAR CAN OVERRIDE OR DETRACT FROM THE PROVISIONS OF THE ACT; THE QUESTION IS WHETHER THE CIRCULAR SEEKS TO MITIGATE THE RIGOUR O F A PARTICULAR SECTION FOR THE BENEFIT OF THE ASSESSEE IN CERTAIN SPECIFIE D CIRCUMSTANCES. SO LONG AS SUCH A CIRCULAR IS IN FORCE IT WOULD BE BINDING ON THE DEPARTMENTAL AUTHORITIES IN VIEW OF THE PROVISIONS OF SECTION 11 9 TO ENSURE A UNIFORM AND PROPER ADMINISTRATION AND APPLICATION OF THE IN COME TAX ACT. ' 11. THE LEARNED COUNSEL FOR RESPONDENT HAS PLACED R ELIANCE IN A CASE OF MERCANTILE BANK LTD., BOMBAY VS. THE COMMISSIONER O F INCOME TAX, BOMBAY CITY HI REPORTED IN (2006) 5 SCC 221, WHERE SIMILAR QUESTION WAS RAISED BEFORE THE APEX COURT. THE QUESTION WAS WHETHER THE ASSESSEE IS LIABLE TO BE TAXED UNDER INCOME TAX ACT , 1961 IN RESPECT OF THE INTEREST ON DOUBTFUL ADVANCES CREDITED TO THE I NTEREST ON DOUBTFUL ADVANCES CREDITED TO THE INTEREST SUSPENSE ACCOUNT. IN THIS CASE, THE UCO BANK'S CASE (SUPRA) WAS ALSO REFERED AND THE HON 'B LE APEX COURT HAS ALLOWED THE APPEAL TO THE EXTENT OF QUESTION RAISED AS AFORESAID. FURTHERMORE, THE RESPONDENT COOPERATIVE BANKS, AS U NDERSTOOD BY SECTION 43 OF THE INCOME TAX ACT ON THE SCHEDULED B ANK. 12. LEARNED COUNSEL FOR THE APPELLANTS/REVENUE PLAC ED RELIANCE ON THE JUDGMENT IN THE CASE OF SOUTHERN TECHNOLOGIES L TD. VS. JOINT COMMISSIONER OF INCOME TAX, COIMBATORE REPORTED IN 2010 (2) SCC 548. HOWEVER,THIS JUDGMENT PERTAINS TO NON BANK ING FINANCIAL ITA NO. 690/AHD/16 (DCIT VS. THE SAURASHTRA CO-OP B ANK LTD.) A.Y. 2012-13 - 16 COMPANIES, UCO BANK CASE (SUPRA) AND MERCANTILE BANK (SUPRA) CASE SQUARELY APPLIES TO THE FADS OF THE PRESENT CASE AN D ISSUES INVOLVED. WE THEREFORE, DO NOT FIND IT NECESSARY TO INTERFERE IN THE JUDGMENT OF THE APPELLATE TRIBUNAL. WE HOLD THAT NO SUBSTANTIAL QUE STION OF LAW ARISES IN THESE APPEALS. 13. SO FAR AS INCOME TAX APPEAL NOS. 53/2014 AND 54 /2014 ARE CONCERNED, THE ISSUE WAS ALSO RAISED IN THE APPEALS BEFORE THE TRIBUNAL WITH REGARD TO THE ADDITION MADE BY THE ASSESSING O FFICER REPRESENTING THE FORFEITED DIVIDEND. THE LEARNED TRIBUNAL HAS RI GHTLY DEALT WITH THIS ISSUE AND OBSERVED THAT, UNCLAIMED DIVIDEND IN QUES TION AMOUNTS TO EXCESS PROVISIONS FOR DIVIDEND MADE BY THE ASSESSEE ON AN EARLIER OCCASION WHICH HAS BEEN REVERSED BY THE ASSESSEE I N THE YEAR UNDER CONSIDERATION AND TRANSFERRED TO A RESERVE AC COUNT. THE PROVISIONS OF DIVIDEND MADE EARLIER WAS NOT A CHARG E ACTION PROFITS BUT IT WAS APPROPRIATION OF THE PROFITS AVAILABLE POST TAXATION. WE FIND NO ERROR IN THE AFORESAID OBSERVATIONS. FURTHERMORE, I N THE APPEALS AS MENTIONED ABOVE, THE REVENUE HAS ONLY CHALLENGED TH E DELETION OF THE ADDITIONS ON ACCOUNT OF THE INTEREST ON STICK ADVAN CES. 3.14. ON THE IDENTICAL ISSUE, THERE ARE NUMBER OF O THER DECISIONS OF VARIOUS AUTHORITIES IN FAVOUR OF THE CO-OPERATIVE BANKS STA TING THAT INTEREST ON NPA IS NOT CHARGEABLE ON ACCRUAL BASIS IN THE CASE OF CO-O PERATIVE BANKS. FEW OF SUCH DECISIONS ARE CITED AS UNDER:- DCIT VS. SURAT NATIONAL CO-OP. BANK LTD [I TA NO. 2793/AHD/2012 DATED 23/08/2013 BY HON'BLE ITAT B' BENCH, AHMEDAB AD] ACIT VS. THE OMERGA JANTA SAHAKARI BANK LT D. [ITA NO. 350/PN/2013 DATED 31/10/2013 BY HON'BLE ITAT 'A' BE NCH, PUNE] ACIT VS. PUNJAB STATE CO-OP. BANK LTD. [20 13] 34 TAXMANN. COM 128 (CHANDIGARH TRIBUNAL) DATED 06/03/2013. KARNAVATI CO-OP BANK LTD. VS. DCIT, (ITAT AHMEDABAD) IN ITA NO. 2939/AHD/2010 DT. 30/11/2011 3.15 IN VIEW OF THE AFORESAID DISCUSSION, IT IS OBS ERVED THAT FOR THE NOTIONAL INTEREST INCOME ON ACCRUAL BASIS ON THE NPAS, CANNO T BE BROUGHT TO TAX. FURTHER, THE JURISDICTIONAL IT AT IN THE CASE OF KA RNAVATI CO-OP. BANK LTD. HAS HELD THAT NO INTEREST ON ACCRUAL BASIS ON NPAS CAN BE TAXED EVEN IN CASES OF UNSCHEDULED BANKS. IT WAS ALSO OBSERVED THAT AS PER THE RBI GUIDELINES DATED 02/07/2012 OF WHICH RELEVANT PARA IS REPRODUCED FOR READY REFERENCE AS UNDER ALSO STATES THAT IT WAS MANDATORY UPON THE APPELLAN T TO NOT TO CHARGE THE INTEREST ON ACCRUAL BASIS. '3. INCOME RECOGNITION ITA NO. 690/AHD/16 (DCIT VS. THE SAURASHTRA CO-OP B ANK LTD.) A.Y. 2012-13 - 17 3.1. INCOME RECOGNITION POLICY 3.1.1.THE POLICY OF INCOME RECOGNITION HAS TO BE OB JECTIVE AND BASED ON THE RECORD OF RECOVERY. INTERNATIONALLY INCOME FROM NON - PERFORMING ASSETS (NPA) IS NOT RECOGNIZED ON ACCRUAL BASIS BUT IS BOO KED AS INCOME ONLY WHEN IT IS ACTUALLY RECEIVED. THEREFORE, THE BANKS SHOULD N OT CHARGE AND TAKE TO INCOME ACCOUNT INTEREST ON ANY NPA.' 3.16. FURTHER, FOLLOWING THE THEORY OF REAL INCOME, QUESTION OF TAXABILITY OF ANY NOTIONAL INCOME LIKE ACCRUED INTEREST ON NPA WOULD NOT ARISE, MORE PARTICULARLY WHEN THE RECOVERY OF THE PRINCIPAL LOA N AMOUNT IS DOUBTFUL. EVEN THE HON'BLE SUPREME COURT IN THE CASE OF UCO BANK, DISTINGUISHING THE JUDGMENT OF STATE BANK OF TRAVANCORE HAS HELD THAT THE CIRCULARS ISSUED EARLIER WERE NOT APPLICABLE IN VIEW OF SECTION 43D SUBSTITU TED W.E.F. 01/04/2000 AND THE SAID SECTION REQUIRES TO FOLLOW RBI GUIDELINES AND TO TAX INTEREST ON NPA ACCOUNT ONLY WHEN REALIZED. FURTHER, THE HON'BLE BO MBAY HIGH COURT IN THE CASE OF CIT VS. DEVGIRI NAGRIK SAHAKARI BANK LTD. ( SUPRA) HAS TREATED THE COOPERATIVE BANKS AS SCHEDULED BANKS. IN PARA - 11 OF THE JUDGMENT, THEY HAVE OBSERVED AS UNDER.- 'FURTHERMORE, THE RESPONDENT CO-OPERATIVE BANKS AS UNDERSTOOD BY SECTION 43D OF THE ACT ARE THE SCHEDULED BANKS.' 3.17 IN VIEW OF THE AFORESAID DISCUSSION, THE APPEL LANT BANK IS NOT LIABLE TO BE TAXED ON THE NOTIONAL INTEREST ON THE NPAS BASED UP ON THE ACCRUAL ACCOUNTING THEORY AND RESPECTFULLY FOLLOWING THE JUDGMENTS OF HON'BLE SUPREME COURT IN THE CASE OF UCO BANK AND JURISDICTIONAL IT AT IN TH E CASE OF SHRI MAHILA SEVA SAHAKARI BANK LTD. AND SARDARGUNJ MERCANTILE CO-OP. BANK LTD. BESIDES RECENT JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE O F DEVGIRI NAGRI SAHAKARI BANK LTD. AND DECISIONS OF VARIOUS OTHER AUTHORITIE S, THE ADDITION MADE BY THE AO IS FOUND UNJUSTIFIED, AND HENCE, THE SAME IS DEL ETED. 3. HEARD BOTH THE PARTIES REITERATING THEIR RESPECT IVE STANDS. CASE FILE PERUSED. THERE IS NO DISPUTE ABOUT THE CORRECTNESS O F FIGURES AT LEAST SO FAR AS THE IMPUGNED SUM OF RS.83,45,400/- QUA ACCRUED INTEREST ON BAD AND DOUBTFUL DEBTS/NPAS IS CONCERNED. LEARNED DEPARTMENTAL REPRE SENTATIVE STRONGLY SUPPORTS ASSESSING OFFICERS ABOVE FINDINGS THAT SE CTION 43D OF THE ACT WOULD NOT COVER THE ASSESSEES CASE AS IT IS NOT A SCHEDU LED BANK AS PER THE MARKET REGULATOR THE RESERVE BANK OF INDIAS CLASSIFICATIO N. WE FIND NO MERIT IN REVENUES INSTANT ARGUMENT. LEARNED AUTHORIZED REPR ESENTATIVE QUOTES BEFORE US HONBLE JURISDICTIONAL HIGH COURTS RECENT JUDGM ENT IN PCIT VS. SHRI MAHILA SEVA ITA NO. 690/AHD/16 (DCIT VS. THE SAURASHTRA CO-OP B ANK LTD.) A.Y. 2012-13 - 18 SAHAKARI BANK LTD. (2017) 395 ITR 324 (GUJ) UPHOLDING THIS TRIBUNALS CO- ORDINATE BENCHS ORDER (SUPRA) THAT ONCE THE ASSESS EE BANK HAD NOT RECOGNIZED ANY INCOME AS PER RBI GUIDELINES ISSUED U/S.45Q OF THE RESERVE BANK OF INDIA ACT, 1934, PROVISIONS OF CHAPTER III THEREOF WOULD HAVE AN OVERRIDING EFFECT OVER ALL OTHER LAWS INCLUDING THE INCOME TAX ACT, 19 61. HONBLE JURISDICTIONAL HIGH COURT THEREFORE HAS REJECTED REVENUES TWIN ID ENTICAL ARGUMENTS THEREIN (SUPRA) AS ADOPTED BY THE ASSESSING OFFICER WHILST MAKING THE IMPUGNED ADDITION IN THE INSTANT CASE. WE MAKE IT CLEAR THA T THE REVENUE HAS NOT DRAWN ANY DISTINCTION ON FACTS OR LAW QUA THE ABOVE HONB LE JURISDICTIONAL HIGH COURTS JUDGMENT. WE THEREFORE SEE NO REASON TO INTERFERE WITH THE LEARNED CIT(A)S ORDER DELETING THE IMPUGNED ADDITION. 4. THIS REVENUES APPEAL IS DISMISSED. [PRONOUNCED IN THE OPEN COURT ON THIS THE 31 ST DAY OF JANUARY, 2018.] SD/- SD/- ( AMARJIT SINGH ) (S. S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD: DATED 31/01/2018 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- / REVENUE 2 / ASSESSEE ! / CONCERNED CIT 4 !- / CIT (A) ( )*+ ,--. . /0 / DR, ITAT, AHMEDABAD 1 +23 45 / GUARD FILE. BY ORDER / . // . /0