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2017 (1) TMI 778 - AT - Income TaxAssessment of income - Interest on loans categorized as NPA - accrual basis or receipt basis - Held that - 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 - Held that - The undisputed facts in the present case are that the assessee is a cooperative bank registered under the Punjab State Government Cooperative Act. Undeniably, the assessee is following the mercantile system of accounting and as per its Revenue Recognition policy for the impugned year, the income and expenditure were to be accounted for on accrual basis, except interest income from non-performing assets, NPA s, which was to be accounted for on receipt basis. It is also not disputed that this accounting policy, for interest earned on NPAs, was being followed consistently by the assessee in the past also. Further the fact that the assessee has been accounting for this interest as per the RBI guidelines and as per the guidelines prescribed by Punjab State Cooperative Limited, the apex bank of the assessee, is also not disputed. We find that the issue of accounting for interest on sticky loans/NPA s, has been dealt with in a number of decisions both by the Apex Court and various High Courts and Tribunals also, wherein after applying the Real Income Theory , the prescribed Accounting Standard issued by ICAI on Revenue Recognition, AS-9, the accounting practise of the asseessee relating to interest on sticky loans and the RBI guidelines relating to accounting for interest on NPA s, it was held that such income was taxable in the year of receipt only, when its realisation becomes reasonably certain. - Decided in favour of assessee
Issues Involved:
1. Deletion of addition made by bringing to tax the interest on loans categorized as Non-Performing Assets (NPA) on an accrual basis as against receipt basis claimed by the assessee. Detailed Analysis: Issue 1: Deletion of Addition of Interest on NPAs The primary issue in this appeal concerns the deletion of an addition amounting to ?3,02,82,000/- made by taxing the interest on loans categorized as NPAs on an accrual basis, contrary to the receipt basis claimed by the assessee. Facts and Arguments: The assessee appealed to the CIT (Appeals), arguing that the addition was unwarranted as the interest on NPAs was accounted for on a receipt basis per RBI prudential norms. The CIT (Appeals) agreed, noting that the assessee's method was consistent with RBI guidelines and the Accounting Standards issued by the Institute of Chartered Accountants of India. The CIT (Appeals) also referenced the Delhi High Court's decision in CIT Vs. Vasisth Chay Vyapar Ltd., which supported the assessee's stance. Tribunal's Findings: The Tribunal also cited the Gujarat High Court's decision in Pr.CIT-5 Vs. Shri Mahila Sewa Sahakari Bank Ltd., which held that RBI guidelines on income recognition must be followed, and section 145 of the Income Tax Act had no role in this context. This view was further supported by the Bombay High Court in CIT Vs. Deogiri Nagari Sahakarii Bank Ltd., which reiterated that RBI guidelines had an overriding effect over the Income Tax Act concerning income recognition. The Tribunal dismissed the Revenue's reliance on the State Bank of Travancore decision, noting that it had been overruled by the Supreme Court in UCO Bank Limited. The Tribunal also rejected the argument that the Delhi High Court's decision in Vasisth Chay Vyapar Ltd. was inapplicable to the assessee, clarifying that the principles enunciated applied to cooperative banks as well. Conclusion: Order:
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