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TMI Blog2015 (2) TMI 196X X X X Extracts X X X X X X X X Extracts X X X X ..... the business of banking. It has obtained license from the Reserve Bank of India as a co-operative bank. For the relevant assessment year it has filed its return of income. During the assessment proceedings u/s 143(3) of the Income-tax Act, 1961[hereinafter referred to as 'the Act'], the Assessing Officer (AO) observed from the profit and loss account, that the assessee-co-operative society has debited Rs. 21,55,40,752/- towards interest paid o deposits and P.A. commission. After considering the break-up of the interest paid to individuals, co-operative societies and Urban Banks, he observed that the interest paid in excess of Rs. 10,000/- on time deposits to individuals is Rs. 1,68,13,729/-. The assessee submitted that the aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est on loans/advances is concerned, the assessee is following mixed system of accounting regularly and systematically since many long years and that there is no change in the method of accounting during the year. It was submitted that the bank is required to account interest on loans and advances on receipt basis under the Karnataka Co-operative Societies Act to ensure effective credit control and recover procedures of the bank. The AO was, however, not convinced with the assessee's contention and held that in order to arrive at the correct taxable income as per the Income-tax Act, the interest receivable on loans and advances/investments but not credited to profit and loss account has to be added. Thereafter, on perusal of the balance shee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e preferred appeals before the CIT(A) for both the assessment years, who partly allowed the same and against the relief given by the CIT(A), the Revenue is in appeal before us while the assessee is in appeal against confirmation of the addition by the CIT(A). 4. As far as the assessee's appeal is concerned, the ground Nos.1 to 5 are against the confirmation of the disallowance u/s 40(a)(ia) of the Act for non deduction of tax at source in respect of interest paid to the members in excess of Rs. 10,000/-. 4.1 At the time of hearing, the learned counsel for the assessee submitted that this issue is covered by the decision of the co-ordinate Bench of the Tribunal in the case of The Bagalkot District Central Co-op. Bank vs. JCIT in ITA No.157 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .1 Though the learned Departmental Representative supported the orders of the authorities below, submitted that the issue needs verification by the AO and therefore the AO may be directed to consider the issue de novo. 5.2 Having regard to the rival contentions and the material on record, we find that gratuity actually paid by the assessee cannot be disallowed u/s 36(1)(v) or u/s 40(a)(ia) of the Act. However, the assessee's contention that gratuity has been paid to the retired employees has not been verified by any of the authorities below. In view of the same, we deem it fit and proper to remit this issue to the file of the AO for limited purpose of verification as to whether gratuity has actually been paid to the employees. However, if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present case, the AO as well as the CIT(A) have discussed the provisions of sec.43D of the Act. According to him, sec.43D has been introduced by the Legislature in order to grant benefit to scheduled banks and since the assessee is not in the list of scheduled banks, provisions of sec.43D are not applicable and the benefit available u/s 43D cannot be extended to the assessee herein. 8.1 The learned counsel for the assessee, on the other hand, submitted that as per banking regulations and guidelines, interest on NPA has to be recognized only on receipt basis and the Hon'ble Supreme Court in the case of UCO Bank has clearly held that interest accrued on sticky advances which was not brought into profit and loss account but taken into se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nancial institutions, public companies etc. The said section was substituted by the Finance Act, 1999 w.e.f. 01/04/2000 providing that in case of public financial institutions mentioned in the said section, interest in relation to such categories of bad or doubtful debts as may be prescribed having regard to the guidelines issued by the Reserve Bank of India, shall be charged to tax in the previous year in which it is credited by such institutions to its profit and loss account for that year or in the year in which it is actually received by the institution or bank or corporation or company whichever is earlier. Admittedly, the assessee is not falling in any of the categories of public financial institutions stated in the said section. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X
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