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Issues involved:
The judgment involves issues related to the correctness of the order of the Commissioner of Income-tax (Appeals) regarding the addition of interest income on loans, the application of accounting methods by a co-operative society, and the interpretation of relevant legal provisions and circulars. Issue 1: Accounting Methodology and Interest Income on Loans The Assessing Officer required the assessee, a co-operative society engaged in banking, to compute assessable income based on the mercantile system of accounting. The assessee argued that it followed regulations under the Karnataka State Co-operative Societies Act and RBI guidelines, recognizing interest income only when received, especially on doubtful debts. The AO rejected this, citing amendments to section 145 of the Income-tax Act and the inapplicability of certain provisions to cooperative banks. The CIT(A) upheld the AO's decision, but the Tribunal set aside the order, emphasizing the need to consider the Supreme Court's ruling in UCO Bank v. CIT and to exclude interest income not pertaining to the current year but accounted for on a receipt basis. Issue 2: Applicability of Supreme Court Ruling and Co-operative Bank Status The assessee contended that it should be treated on par with commercial banks post the amendment to section 80P of the Act in 2006. However, the CIT(A) disagreed, stating that the cooperative bank remained distinct from a commercial bank. The Tribunal, while allowing the appeal for statistical purposes, directed a reevaluation of the interest income determination in line with the UCO Bank case and exclusion of income not relevant to the current year but accounted for based on receipts. This judgment highlights the importance of adhering to accounting principles, considering legal provisions, and applying relevant judicial precedents in determining taxable income, especially in the context of co-operative societies engaged in banking activities.
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