THE DCIT, CIRCLE - 2(1), Vijayawada V. M/s Gandhi Co-operative Urban Bank Limited., Vijayawada

ITA 706/VIZ/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2109 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-01-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 11-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: I SARISH KUMAR
• Keywords: Revised return
• Section: 145

Judgement Text

ITA NO.706/VIZAG/W2013 M/S. GANDHI CO-OPERATIVE URBAN BANK LIMITED, VIJAYA WADA 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , ' BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./ I.T.A.NO.706/VIZAG/2013 ( / ASSESSMENT YEAR : 2010-11) DCIT, CIRCLE-2(1), VIJAYAWADA VS. M/S. GANDHI CO-OPERATIVE URBAN BANK LIMITED VIJAYAWADA [ PAN: AAAAT8072G] ( / APPELLANT) ( / RESPONDENT ) / APPELLANT BY : SHRI I. SARISH KUMAR, DR '# / RESPONDENT BY : SHRI C. SUBRAHMANYAM, AR ' / DATE OF HEARING 18.01.2016 ' / DATE OF PRONOUNCEMENT : 28.01.2016 / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE REVENUE, IS DIRECTED AGAI NST THE ORDER OF CIT(A), VIJAYAWADA DATED 3.9.2013 FOR THE ASSESSMEN T YEAR 2010-11. ITA NO.706/VIZAG/W2013 M/S. GANDHI CO-OPERATIVE URBAN BANK LIMITED, VIJAYA WADA 2 2. THE BRIEF FACTS OF THE CASE, ARE THAT THE ASSESS EE IS A CO-OPERATIVE BANK, WHICH IS ENGAGED IN THE BUSINESS OF BANKING, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010-11 ON 14.10.201 0 DECLARING A TOTAL INCOME OF RS.4,89,67,030/-. THE ASSESSEE AGAIN FIL ED A REVISED RETURN ON 20.1.2012 DECLARING A TOTAL INCOME OF RS.4,05,84,25 0/-. THE RETURN OF INCOME WAS PROCESSED U/S 143(1) OF THE INCOME-TAX A CT, 1961 (HEREINAFTER CALLED AS THE ACT) ON 25.5.2001. SUBSEQUENTLY, T HE CASE WAS SELECTED FOR SCRUTINY THROUGH CASS AND ACCORDINGLY, NOTICE U/S 1 43(2) OF THE ACT DATED 25.8.2011 WAS ISSUED. IN RESPONSE TO THE NOTICE, T HE ASSESSEES AUTHORIZED REPRESENTATIVE APPEARED FROM TIME TO TIME AND FURNI SHED THE INFORMATION AND DOCUMENTS CALLED FOR. DURING THE COURSE OF ASS ESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO CLARIFY, WHETHER INTEREST ON NPA WAS CREDITED TO THE PROFIT & LOSS ACCOUNT OR NOT. IF NOT THE ASSES SEE WAS REQUESTED TO GIVE THE REASONS FOR THE SAME. IN REPLY, THE ASSESSEE H AS FILED A LETTER DATED 24.12.2012 AND STATED THAT IT HAS NOT CREDITED INTE REST ON NPA TO THE PROFIT & LOSS ACCOUNT. THE ASSESSEE FURTHER SUBMITTED THA T IT IS FOLLOWING THE METHOD OF ACCOUNTING AS PER THE ACCOUNTING STANDARD S REGULARLY, WHEREIN THE INCOME ON NPA IS OFFERED ON THE BASIS OF ACTUAL REALIZATION RATHER THAN ON ACCRUAL BASIS. THE ASSESSEE FURTHER SUBMITTED T HAT BEING A CO-OPERATIVE BANK BOUND TO FOLLOW THE GUIDELINES ISSUED BY THE R BI ACCORDINGLY, INCOME RECOGNITION WAS MADE AS PER THE RBI GUIDELINES. TH E A.O. AFTER CONSIDERING THE EXPLANATIONS OF THE ASSESSEE ADDED THE INTEREST ON NON PERFORMING ASSETS AND COMPLETED THE ASSESSMENT. WHI LE DOING SO, THE A.O. WAS OF THE OPINION THAT THE GUIDELINES OF RBI CANNOT OVER RIDE THE MANDATORY PROVISIONS OF THE INCOME TAX ACT 1961. T HE A.O. FURTHER OBSERVED THAT SECTION 145 OF THE ACT WAS AMENDED W. E.F. 1.4.1997 WHEREIN, THE ASSESSEE NEED TO FOLLOW EITHER MERCANT ILE OR CASH SYSTEM BUT ITA NO.706/VIZAG/W2013 M/S. GANDHI CO-OPERATIVE URBAN BANK LIMITED, VIJAYA WADA 3 NOT MIXED SYSTEM OF ACCOUNTING. THE A.O. FURTHER W AS OF THE OPINION THAT AS PER THE AMENDED PROVISIONS OF SECTION 43D OF THE ACT, INTEREST ON NON PERFORMING ASSETS SHALL BE CHARGEABLE TO TAX IN THE PREVIOUS YEAR IN WHICH IT IS CREDITED BY THE BANKS TO THE PROFIT & LOSS AC COUNT. WITH THESE OBSERVATIONS MADE ADDITIONS TO INTEREST ON NPAS. 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT AS PER THE RBI GUIDELINES, INTEREST ON NPAS NEED NOT BE RE COGNIZED ON ACCRUAL BASIS. THE ASSESSEE FURTHER SUBMITTED THAT IT IS F OLLOWING METHOD OF ACCOUNTING AS PER THE ACCOUNTING STANDARD PRESCRIBE D FOR COOPERATIVE BANKS WHEREIN, THE INTEREST ON NPAS WAS OFFERED ON THE BASIS OF ACTUAL REALIZATION RATHER THAN ON ACCRUAL BASIS. THE ASSE SSEE FURTHER SUBMITTED THAT AS PER SECTION 5 OF THE INCOME-TAX ACT, 1961 O NLY REAL INCOME NEEDS TO BE TAXED WHEREAS THE INTEREST ON NPAS BEING NOTI ONAL INCOME NEED NOT BE TAXED ON ACCRUAL BASIS. THE ASSESSEE FURTHER SU BMITTED THAT THE CIRCULAR NO.201/21/84 DATED 9.10.1984 WAS APPLICABLE EVEN FO R THE ASSESSMENT YEAR UNDER CONSIDERATION, AFTER THE AMENDED PROVISI ONS OF SECTION 145 OF THE ACT, AS PER THE DECISION OF HONBLE ALLAHABAD H IGH COURT IN THE CASE OF CIT VS. KAILASH AUTO FINANCE LTD. REPORTED IN 320 I TR 394. THE CIT(A) HOWEVER, AFTER CONSIDERING THE EXPLANATIONS FURNISH ED BY THE ASSESSEE, DELETED THE ADDITIONS MADE BY THE A.O. TOWARDS INTE REST ON NPAS. WHILE DOING SO, THE CIT(A) WAS OF THE OPINION THAT THE IN TEREST ON NPA HAS NOT BEEN REALLY ACCRUED TO THE ASSESSEE. WHEN, THE RECOV ERY OF THE PRINCIPAL OUTSTANDING ITSELF WAS DOUBTFUL, THE RECOVERY OF IN TEREST ON SUCH DOUBTFUL ADVANCES IS HIGHLY IMPOSSIBLE. THE CIT(A), FURTHER , WAS OF THE OPINION THAT ONCE THERE IS A DOUBT REGARDING THE REALIZABILITY O F THE PRINCIPAL AMOUNT ITSELF, IT CANNOT BE SAID THAT THE INTEREST ON SUCH AMOUNT ACCRUED TO THE ITA NO.706/VIZAG/W2013 M/S. GANDHI CO-OPERATIVE URBAN BANK LIMITED, VIJAYA WADA 4 ASSESSEE EVEN UNDER THE MERCANTILE SYSTEM OF ACCOUN TING. AGGRIEVED BY THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 4. THE LD. D.R. SUBMITTED THAT THE CIT(A) WAS ERRED IN DELETING THE INTEREST CHARGED ON THE NPAS, WHEN THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THE LD. D.R. FURTHER SUBMITT ED THAT THE GUIDELINES ISSUED BY THE RBI CANNOT OVER RIDE THE PROVISIONS O F THE INCOME-TAX ACT, 1961, AS SECTION 145 OF THE ACT, MANDATES THAT THE ASSESSEES EITHER TO FOLLOW MERCANTILE OR CASH SYSTEM OF ACCOUNTING. THE LD. D.R. FURTHER SUBMITTED THAT AS PER THE BOARD INSTRUCTION NO.17 O F 2008 DATED 26.11.2008, IT WAS MANDATORY ON THE PART OF ALL BAN KS INCLUDING CO-OP BANKS TO FOLLOW THE MERCANTILE SYSTEM OF ACCOUNTING AND PREPARE ACCOUNTS ON ACCRUAL BASIS. THEREFORE, THE A.O. HAS RIGHTLY M ADE THE ADDITIONS AND HIS ORDER SHOULD BE UPHELD. 5. ON THE OTHER HAND, THE LD. A.R. OF THE ASSESSEE STRONGLY SUPPORTED THE ORDER OF THE CIT(A). THE A.R. FURTHER SUBMITTE D THAT THE ISSUE INVOLVED IN THIS APPEAL I.E. TAXABILITY OF INTEREST ON NON P ERFORMING ASSET WAS SQUARELY COVERED BY THE DECISION OF ITAT, VISAKHAPA TNAM IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009-10. THE A.R. FURTHER SUBMITTED THAT THE ASSESSEE IS A COOPERATIVE BANK, IS BOUND T O FOLLOW THE REGULATIVE INSTRUCTIONS OF RBI AND AS PER THE GUIDELINES ISSUE D BY THE RBI, ALL COOPERATIVE BANKS SHOULD FOLLOW PRUDENTIAL NORMS FO R INCOME RECOGNITION, ASSET CLASSIFICATION AND PROVISIONING. THE ASSESSE E BEING A COOPERATIVE BANK BOUND TO FOLLOW THE GUIDELINES ISSUED BY THE R BI, HAS RECOGNIZED THE INTEREST ON NPAS ON ACTUAL RECEIPT BASIS. THEREFOR E, REQUESTED TO UPHELD THE ORDER OF THE CIT(A). ITA NO.706/VIZAG/W2013 M/S. GANDHI CO-OPERATIVE URBAN BANK LIMITED, VIJAYA WADA 5 6. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. THE ASSESSEE IS A COOPERATIVE BANK REGULARLY FOLLOWING CASH SYST EM OF ACCOUNTING FOR INTEREST ON NON PERFORMING ASSET. AS STATED BY THE LD. A.R., THE ASSESSEE IS BOUND TO FOLLOW THE GUIDELINES ISSUED BY THE RBI FOR INCOME RECOGNITION, ASSET CLASSIFICATION AND PROVISIONING. AS PER THE PRUDENTIAL NORMS FOR INCOME RECOGNITION, NO BANK IS ALLOWED TO RECOGNIZE INTEREST ON NPA ON ACCRUAL BASIS. THEREFORE, THE ASSESSEE BEING A CO-O PERATIVE BANK, BOUND BY RBI DIRECTIVES, HAS NOT RECOGNIZED INTEREST ACCRUED TO THE NON PERFORMING ASSETS. THE A.O. WAS OF THE OPINION THAT THE ASSESS EE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THEREFORE, IT SHO ULD RECOGNIZE THE INTEREST RELATABLE TO NPAS ON ACCRUAL BASIS. WE DO NOT SEE ANY MERITS IN THE ARGUMENTS OF THE A.O. FOR THE REASON THAT WHEN THE PRINCIPAL AMOUNT ITSELF IS IN DOUBTFUL OF RECOVERY, IT CANNOT BE SAI D THAT ANY INTEREST ACCRUED ON SUCH DOUBTFUL ADVANCES IS RECOVERABLE. THE ASSE SSEE IS FOLLOWING THE ESTABLISHED METHOD OF ACCOUNTING AND RECOGNIZED THE INTEREST ON NPAS ON ACTUAL RECEIPT BASIS; THEREFORE, THE A.O. IS NOT CO RRECT IN TAXING THE INTEREST ON NPAS ON ACCRUAL BASIS. 7. THE A.R. OF THE ASSESSEE, AT THE TIME OF HEARING , SUBMITTED THAT THE ISSUE INVOLVED IN THIS APPEAL IS SQUARELY COVERED B Y THE DECISION OF ITAT, VISAKHAPATNAM BENCH IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009-10. WE HAVE EXAMINED THE CASE LAWS RELIED UPON BY THE A.R. IN THE LIGHT OF THE FACTS OF THE PRESENT CASE AND FIND THA T THE COORDINATE BENCH OF THIS TRIBUNAL, IN ASSESSEES OWN CASE FOR THE ASSES SMENT YEAR 2009-10, HAS CONSIDERED THE ISSUE AND DELETED THE ADDITIONS TOWA RDS INTEREST ON NPAS. THE RELEVANT PORTION IS REPRODUCED AS UNDER: ITA NO.706/VIZAG/W2013 M/S. GANDHI CO-OPERATIVE URBAN BANK LIMITED, VIJAYA WADA 6 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ASSESSEE IS A CO-OPERATIVE BANK, REGULARLY FOLL OWING MIXED SYSTEM OF ACCOUNTING, WHEREIN IT IS FOLLOWING CASH SYSTEM FOR RECOGNIZING INTEREST ON LOANS AND ADVANCES AND MERCANTILE SYSTEM OF ACCOUNTING FOR OTHER EXPENDITU RES. AS STATED BY THE A.R., THE ASSESSEE IS BOUND TO FOLLOW THE GUIDELINES ISSUED B Y THE RBI FOR INCOME RECOGNITION, ASSET CLASSIFICATION AND PROVISIONING. THEREFORE, THE ASSESSEE FOLLOWING THE GUIDELINES ISSUED BY THE RBI DID NOT RECOGNIZE THE INTEREST AC CRUED TO THE NPAS. THE A.O. WAS OF THE OPINION THAT SINCE, THE ASSESSEE IS FOLLOWING M ERCANTILE SYSTEM OF ACCOUNTING, IT SHOULD RECOGNIZE THE INTEREST RELATABLE TO NPAS, TH EREFORE, MADE THE ADDITIONS. THE CIT(A), BY RELIED UPON THE JUDGEMENT OF THE ITAT, H YDERABAD BENCH IN THE CASE OF TCI FINANCE LTD. VS. ACIT (2004) 91 ITD 573 AND ALSO TH E HONBLE MADRAS HIGH COURT JUDGEMENT IN THE CASE OF CIT VS. ANNAMALAI FINANCE LTD. (2005) 275 ITR 451, HELD THAT WHEN THE PRINCIPAL AMOUNT ITSELF IS DOUBTFUL OF REC OVERY, IT CANNOT BE SAID THAT ANY INTEREST ACCRUED ON SUCH PRINCIPAL AMOUNT IS RECOVE RABLE. AS THE APPELLANT IS FOLLOWING THE ESTABLISHED METHOD OF ACCOUNTING AND RECOGNIZIN G THE INTEREST ON NPAS AT THE TIME OF REALIZATION, THE A.O. IS NOT CORRECT IN TAXING T HE INTEREST ON NPAS ON ACCRUAL BASIS. 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 ASSES SEE AT THE TIME OF HEARING SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF ITAT VISAKHAPATNAM BENCH IN THE CASE OF DCIT VS. DURGA CO-OPERATIVE URBAN BANK LTD. (SUPRA). WE HAVE EXAMINED THE CASE LAW REFERRED BY THE A.R. IN THE LIGHT OF THE F ACTS OF THE PRESENT CASE AND FIND THAT THE ITAT, VISAKHAPATNAM BENCH IN THE ABOVE MENTIONE D CASE ON SIMILAR FACTS HELD THE ISSUE IN FAVOUR OF THE ASSESSEE. THE RELEVANT PORT ION 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 DISPUTE THAT IT I S ALSO GOVERNED BY THE RESERVE BANK OF INDIA. HENCE THE DIRECTIONS WITH REGARD TO THE PRUDENTIAL NORMS ISSUED BY THE RESERVE BANK OF INDIA ARE EQUALLY APPLICABLE TO THE ASSESSEE AS IT IS APPLICABLE TO THE COMPANIES REGISTERED UNDER THE CO MPANIES ACT. THE HON'BLE SUPREME COURT HAS HELD IN THE CASE OF SOUTHERN TECH NOLOGIES LTD (SUPRA), THAT THE PROVISION OF 45Q OF RESERVE BANK OF INDIA ACT H AS AN OVERRIDING EFFECT VIS-- VIS INCOME RECOGNITION PRINCIPLE UNDER THE COMPANIE S ACT. HENCE SEC.45 Q OF THE RBI ACT SHALL HAVE OVERRIDING EFFECT OVER THE IN COME RECOGNITION PRINCIPLE FOLLOWED BY COOPERATIVE BANKS ALSO. HENCE THE ASSES SING OFFICER HAS TO FOLLOW THE RESERVE BANK OF INDIA DIRECTIONS 1998, AS HELD BY THE HON I 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 INC OME. THE HONBLE DELHI HIGH COURT IN THE CASE OF VASISTH CHAY VYAPAR LTD. (SUPR A) HAS HELD THAT THE INTEREST ON NPA ASSETS CANNOT BE SAID TO HAVE ACCRU ED TO THE ASSESSEE. IN THIS REGARD, 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 LEGITIM ATE MOVE TO INFER THAT INTEREST INCOME THEREUPON HAS NOT 'ACCRUED'. ITA NO.706/VIZAG/W2013 M/S. GANDHI CO-OPERATIVE URBAN BANK LIMITED, VIJAYA WADA 7 THE SAID DECISION OF THE HON'BLE DELHI HIGH COURT I S 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 ASSESSEE. ACCORD INGLY WE UPHOLD HIS ORDER. 8. AN IDENTICAL ISSUE CAME UP FOR CONSIDERATION BEF ORE THE ITAT PUNE BENCH IN THE CASE OF VAIDYANATH URBAN CO-OP. BANK LTD. VS. CIT I N ITA NO.413/PN/2014 DATED 31.3.2015, WHEREIN THE ITAT UNDER SIMILAR SET OF FA CTS 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 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 INDIA ARE EQUALLY APPLICABLE TO THE ASSESSEE AS IT IS APPLICABLE TO T HE COMPANIES REGISTERED UNDER THE COMPANIES ACT. THE HONBLE 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--VIS INCOME RECOGNITION PRINCIPLE UNDER THE COMPANIES ACT. HENC E SEC.45 Q OF THE RBI ACT SHALL HAVE OVERRIDING EFFECT OVER THE INCOME RECOGNITION PRINCIPLE FOLLOWED BY COOPERATIVE BANKS ALSO. HENCE THE ASSESSING OFFICER HAS TO FOLLOW THE RESERVE BANK OF INDIA DIRE CTIONS 1998, AS HELD BY THE HON'BLE SUPREME COURT. BASED ON THE PRUDENTIAL NORMS, THE ASSESSEE HEREIN DID NOT ADMIT THE INTEREST RELATABLE TO NPA ADVANCES IN ITS TOTAL INC OME. 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 A CCRUED TO THE ASSESSEE. IN THIS REGARD, THE FOLLOWING OBSERVATIONS OF HON'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 WE DO NOT FI ND 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 ORDER.' FOLLOWING THE AFORESAID DISCUSSION, WHICH HAS BEEN RENDERED ON AN IDENTICAL ISSUE UNDER SIMILAR CIRCUMSTANCES, WE FIN D NO REASONS ITA NO.706/VIZAG/W2013 M/S. GANDHI CO-OPERATIVE URBAN BANK LIMITED, VIJAYA WADA 8 TO INTERFERE WITH THE ULTIMATE CONCLUSION OF THE CI T(A) IN DELETING THE IMPUGNED ADDITION RELATING TO INTEREST INCOME IN RESPECT OF NPAS. 9. THE HONBLE SUPREME COURT OF INDIA, IN THE CASE OF UCO BANK VS. CIT HAD AN OCCASION TO CONSIDER THE ISSUE. THE HONBLE SUPREM E COURT, WHILE DEALING WITH SIMILAR ISSUE HELD AS UNDER: THE METHOD OF ACCOUNTING WHICH IS FOLLOWED BY THE ASSESSEE-BANK IS MERCANTILE SYSTEM OF ACCOUNTING. HOWEVER, THE ASSES SEE CONSIDERS INCOME BY WAY OF INTEREST PERTAINING TO DOUBTFUL LO ANS AS NOT REAL INCOME IN THE YEAR IN WHICH IT ACCRUES, BUT ONLY WH EN IT IS REALISED. A MIXED METHOD OF ACCOUNTING IS THUS FOLLOWED BY THE ASSESSEE-BANK. THIS METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE IS IN ACCORDANCE WITH ACCOUNTING PRACTICE. UP TO THE ASST. YR. 1978-79, T HE CBDT'S CIRCULAR OF 6TH OCT., 1952 WOULD BE APPLICABLE; WHILE FROM T HE ASST. YR. 1979- 80, THE CBDT'S CIRCULAR OF 9TH OCT., 1984 IS MADE A PPLICABLE. IN THE PRESENT CASE, THE ASSESSMENT WAS MADE ON THE BASIS OF THE CBDT'S CIRCULAR OF 9TH OCT., 1984, SINCE THE ASSESSMENT PE RTAINS TO ASST. YR. 1981-82 TO WHICH THE CIRCULAR OF 9TH OCT., 1984, IS APPLICABLE. UNDER SUB-S. (2) OF S. 119, WITHOUT PREJUDICE TO THE GENE RALITY 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 W ORK OF ASSESSMENT AND COLLECTION OF REVENUE TO ISSUE FROM TIME TO TIME GE NERAL OR SPECIAL ORDERS IN RESPECT OF ANY CLASS OF INCOMES OR CLASS OF CASES SETTING FORTH DIRECTIONS OR INSTRUCTIONS, NOT BEING PREJUDICIAL T O ASSESSEES, AS THE GUIDELINES, PRINCIPLES OR PROCEDURES TO BE FOLLOWED IN THE WORK RELATING TO ASSESSMENT. SUCH INSTRUCTIONS MAY BE BY WAY OF RELA XATION OF ANY OF THE PROVISIONS OF THE SECTIONS SPECIFIED THERE OR O THERWISE. THE BOARD THUS HAS POWER, INTER AL/A, TO TONE DOWN THE RIGOUR OF THE LAW AND ENSURE A FAIR ENFORCEMENT OF ITS PROVISIONS, BY ISS UING CIRCULARS IN EXERCISE OF ITS STATUTORY POWERS UNDER S. 119 WHICH ARE BINDING ON THE AUTHORITIES IN THE ADMINISTRATION OF THE ACT. UNDER S. 119(2)(A), HOWEVER, THE CIRCULARS AS CONTEMPLATED THEREIN CANN OT BE ADVERSE TO THE ASSESSEE. THUS, THE AUTHORITY WHICH WIELDS THE POWER FOR ITS OWN ADVANTAGE UNDER THE ACT IS GIVEN THE RIGHT TO FOREG O THE ADVANTAGE WHEN REQUIRED TO WIELD IT IN A MANNER IT CONSIDERS JUST BY RELAXING THE RIGOUR OF THE LAW OR IN OTHER PERMISSIBLE MANNERS AS LAID DOW N IN S. 119. THE POWER IS GIVEN FOR THE PURPOSE OF JUST, PROPER AND EFFICIENT MANAGEMENT OF THE WORK OF ASSESSMENT AND IN PUBLIC INTEREST. IT IS A BENEFICIAL POWER GIVEN TO THE BOARD FOR PROPER ADMI NISTRATION OF FISCAL LAW SO THAT UNDUE HARDSHIP MAY NOT BE CAUSED TO THE ASSESSEE AND THE FISCAL LAWS MAY BE CORRECTLY APPLIED. HARD CASES WH ICH CAN BE PROPERLY CATEGORISED AS BELONGING TO A CLASS, CAN THUS BE GI VEN THE BENEFIT OF RELAXATION OF LAW BY ISSUING CIRCULARS BINDING ON T HE TAXING AUTHORITIES. IF THE BOARD HAS CONSIDERED IT NECESSARY TO LAY DOWN A GENERAL TEST FOR DECIDING WHAT IS A DOUBTFUL DEBT, AND DIRECTED THAT ALL ITOS SHOULD TREAT SUCH AMOUNTS AS NOT FORMING PART OF THE INCOME OF T HE ASSESSEE UNTIL ITA NO.706/VIZAG/W2013 M/S. GANDHI CO-OPERATIVE URBAN BANK LIMITED, VIJAYA WADA 9 REALIZED, THIS DIRECTION BY WAY OF A CIRCULAR CANNO T BE CONSIDERED AS TRAVELLING BEYOND THE POWERS OF THE BOARD UNDER S. 119. SUCH A CIRCULAR IS BINDING UNDER S. 119. THE CIRCULAR OF 9TH OCT., 198 4, THEREFORE, PROVIDES A TEST FOR RECOGNISING WHETHER A CLAIM FOR INTEREST C AN BE TREATED AS A DOUBTFUL CLAIM UNLIKELY TO BE RECOVERED OR NOT. 10. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO APPLYING THE RATIOS OF THE JUDGEMENTS DISCUSSED ABOVE, WE ARE OF THE VI EW THAT I NTEREST ON A LOAN WHOSE RECOVERY IS DOUBTFUL AND WHICH HAS NOT BEEN RECOVER ED BY THE ASSESSEE-BANK, BUT HAS BEEN KEPT IN A SUSPENSE ACCOUNT AND HAS NOT BEEN BR OUGHT TO THE P&L A/C OF THE ASSESSEE, COULD NOT BE INCLUDED IN THE INCOME OF TH E ASSESSE. THE CIT(A) RIGHTLY DELETED THE ADDITIONS TOWARDS INTEREST ON NPAS. TH ERE IS NO ERROR OR INFIRMITY IN THE ORDER OF CIT(A). ACCORDINGLY, WE DIRECT THE A.O. T O DELETE THE ADDITIONS MADE TOWARDS INTEREST ON NPAS. 8. IN VIEW OF THIS AND ALSO APPLYING THE RATIO OF T HE COORDINATE BENCH DECISION, WE ARE OF THE OPINION, THAT INTEREST ON N PA, WHOSE RECOVERY IS DOUBTFUL AND WHICH WAS NOT RECOVERED BY THE ASSESSE E BANK, BUT HAS BEEN KEPT IN A SUSPENSE ACCOUNT AND HAS NOT BEEN CREDITE D INTO THE PROFIT & LOSS ACCOUNT, CANNOT BE INCLUDED IN THE INCOME OF THE AS SESSEE FOR THE YEAR UNDER CONSIDERATION. THE CIT(A), RIGHTLY DELETED T HE ADDITIONS MADE BY THE A.O. TOWARDS INTEREST ON NPAS. THERE IS NO ERROR OR INFIRMITY IN THE ORDER PASSED BY THE CIT(A). THEREFORE, WE DIRECT THE A.O . TO DELETE THE ADDITIONS TOWARDS INTEREST ON NPA. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 28 TH JAN16. SD/- SD/- (. ) ( . ) ( V. DURGA RAO ) ( G. MANJUNATHA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER + /VISAKHAPATNAM: / / DATED : 28.01.2016 VG/SPS ITA NO.706/VIZAG/W2013 M/S. GANDHI CO-OPERATIVE URBAN BANK LIMITED, VIJAYA WADA 10 ' 1+ 2+/ COPY OF THE ORDER FORWARDED TO :- 1. / THE APPELLANT THE DCIT, CIRCLE-2(1), VIJAYAWADA 2. '# / THE RESPONDENT M/S. THE GANDHI CO-OPERATIVE URBAN BANK LIMITED, D.NO.29-36-21, MUSEUM ROAD, GOVERNORPET, VIJAYAWADA -2. 3. 4 / THE CIT, VIJAYAWADA 4. 4 () / THE CIT (A), VIJAYAWADA 5. + ' 9, ' 9 , + / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // => 9 ( SR.PRIVATE SECRETARY ) ' 9 , + / ITAT, VISAKHAPATNAM