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2017 (10) TMI 1605 - AT - Income TaxAccrual of income - taxability of interest on NPA s - Non declaration of interest income on non performing assets - HELD THAT - As in the case of Jalandhar Central Co-operative Bank Ltd. 2017 (1) TMI 1255 - ITAT AMRITSAR has dismissed the appeals filed by revenue and similarly in the case of Kapurthala Central Co-operative Bank Ltd., 2017 (7) TMI 1418 - ITAT AMRITSAR has again dismissed the appeals filed by revenue on similar issue The issue regarding taxability of interest on NPA s is settled in favour of the assessee as being taxable in the year of receipt. As decided in THE LUDHIANA CENTRAL LUDHIANA CO-OP. BANK LTD. 2017 (1) TMI 778 - ITAT CHANDIGARH argument of the learned D.R. that the decision of the Delhi High Court in the case of Vasisth Chay Vyapar Ltd. 2010 (11) TMI 88 - DELHI HIGH COURT would not apply to the assessee s case since the assessee is a cooperative society while in the case of Vasisth Chay Vyapar Ltd. (supra), the assessee was a NBFC, is also dismissed since the pr inciple enunciated by the Delhi High Court in Vasisth Chay Vyapar Ltd. (supra) has been followed in the case of Shri Mahila Sewa Sahakari Bank Ltd. 2016 (8) TMI 377 - GUJARAT HIGH COURT and various other decisions cited by the assessee before us ,and the assessee in all those cases being a cooperative bank, the decision rendered therein squarely applies to the case of the assessee. Argument of the D.R. that the assessee is following the mercantile system of accounting is also dismissed since this aspect has been dealt with by 20 various High Courts referred to above wherein they have categorically held that even following the mercantile system of accounting the interest on NPA account cannot be said to have accrued in the impugned year since the recovery of the same was impossible and even otherwise for the purpose of Income Recognition the RBI Directions, 1998, had to be followed in view of section 45Q of the RBI Act. We find no infirmity in the order of the CIT(A),holding the interest on NPA s as taxable in the year of receipt , so as to warrant interference. - Decided against revenue.
Issues Involved:
1. Non-declaration of interest income on non-performing assets (NPA) by the assessee. 2. Applicability of the Supreme Court's decision in the State Bank of Travancore case. 3. Relevance of RBI guidelines and their overriding effect on the Income Tax Act. 4. Consistency with previous Tribunal and High Court decisions. Issue-wise Detailed Analysis: 1. Non-declaration of interest income on non-performing assets (NPA) by the assessee: The primary issue in these appeals is whether the assessee was required to account for interest accrued on NPAs. The Tribunal referenced previous decisions, including those of the Hon'ble Amritsar Bench in the cases of Jalandhar Central Co-operative Bank Ltd. and Kapurthala Central Co-operative Bank Ltd., and the Chandigarh Bench in Ludhiana Central Co-operative Bank Ltd., which held that the assessee was not required to account for interest accrued on NPAs. This was based on the principle that such income is taxable only in the year of receipt when its realization becomes reasonably certain. 2. Applicability of the Supreme Court's decision in the State Bank of Travancore case: The Revenue argued that the CIT(A) ignored the Supreme Court's decision in State Bank of Travancore vs. CIT, Kerala. However, the Tribunal noted that this decision had been overruled by the Supreme Court itself in the case of UCO Bank Ltd., which approved the receipt basis of accounting for interest on loans whose recovery was doubtful. The Tribunal emphasized that the method of accounting transferring doubtful debt to an interest suspense account and not treating it as profit until actually received is in accordance with accounting practice. 3. Relevance of RBI guidelines and their overriding effect on the Income Tax Act: The Tribunal highlighted that various High Courts, including the Gujarat High Court in Pr. CIT, Rajkot vs. Jivan Commercial Co-operative Bank Ltd., have held that the RBI guidelines on income recognition must be followed by cooperative banks. These guidelines mandate that income from NPAs is not recognized on an accrual basis but only when actually received. The Tribunal cited Section 45Q of the RBI Act, which provides that RBI guidelines have an overriding effect over other enactments, including the Income Tax Act. 4. Consistency with previous Tribunal and High Court decisions: The Tribunal referenced multiple precedents, including decisions by the Apex Court in UCO Bank, Calcutta vs. CIT, West Bengal, and Mercantile Bank Ltd. vs. CIT, Bombay City-III, which affirmed that interest on NPAs should be taxed on a receipt basis. Additionally, the Tribunal mentioned the Delhi High Court's decision in CIT vs. Vasisth Chay Vyapar Ltd. and the Bombay High Court's decision in CIT vs. Deogiri Nagari Sahakarii Bank Ltd., which supported the view that RBI guidelines must be followed for income recognition. Conclusion: The Tribunal concluded that the issue of taxability of interest on NPAs is settled in favor of the assessee, being taxable in the year of receipt. The Tribunal dismissed the Revenue's appeals, affirming that the CIT(A)'s order holding interest on NPAs as taxable in the year of receipt was correct and warranted no interference. Final Order: The appeals filed by the Revenue were dismissed, and the order was pronounced in the open court on 04.10.2017.
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