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TMI Blog2015 (3) TMI 603X X X X Extracts X X X X X X X X Extracts X X X X ..... ch was favourable to the assessee was to be followed in view of the reasoning laid down by the hon'ble Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973 (1) TMI 1 - SUPREME Court] and, thus the Tribunal decided the issue in favour of the assessee. Assessee is a Co-operative Bank carrying on banking business in terms of a license granted by RBI and is not a ‘scheduled bank’ included in second schedule of RBI so as to fall within the scope of section 43D of the Act - in Commissioner of Income tax Versus Vasisth Chay Vyapar Ltd. & others [2010 (11) TMI 88 - Delhi High Court] it was held that 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 not “accrued”- thus, there was no infirmity with the decision of the CIT(A) in holding that the interest income relatable on NPA advances did not accrue to the assessee – Decided against revenue. - ITA Nos.2220 & 2221/PN/2013 - - - Dated:- 31-10-2014 - SHRI G.S. PANNU AND MS. SUSHMA CHOWLA, JJ. For the Appellant : Shri Mazhar Akram For the Respondent : Shri Pramod Shingte ORDER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the Assessing Officer, interest income on non-performing assets advances accrued to the assessee and accordingly, he brought to tax such interest income of ₹ 53,88,043 for the assessment year 2009-10 and ₹ 38,36,285 for the assessment year 2010-11 respectively, which is the subject-matter of dispute before us. 4. The learned Commissioner of Income-tax (Appeals) disagreed with the Assessing Officer, and thus the Revenue is in appeal before us. At the time of hearing, it was a common point between the parties that an identical controversy has been considered by the Pune Bench of the Tribunal in the case of Asst. CIT v. Omerga Janta Sahakari Bank Ltd. vide order in I.T. A. No. 350/PN/2013 dated October 31, 2013. In the said precedent, the Tribunal considered the judgment of the hon'ble Delhi High Court in the case of CIT v. Vasisth Chay Vyapar Ltd. [2011] 330 ITR 440 (Delhi) as well as the judgment of the hon'ble Madras High Court in the case of CIT v. Sakthi Finance Ltd. [2013] 352 ITR 102 (Mad), which had expressed divergent views with respect to the issue of accrual of interest income on non- performing assets advances ; and, following the proposition that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therein. The assessee, on the other hand, contended that having regard to the guidelines issued by the Reserve Bank of India regarding accounting of interest on non-performing assets no interest income accrued in respect of non-performing assets and that the same was to be taxed only on receipt basis. The Tribunal observed that the question of taxability of interest on non-performing assets classified by the Reserve Bank of India, was considered by the hon'ble Delhi High Court in the case of CIT v. Vasisth Chay Vyapar Ltd. [2011] 330 ITR 440 (Delhi) wherein after considering the decision of the hon'ble Supreme Court in the case of Southern Technologies Ltd. v. Joint CIT [2010] 320 ITR 577 (SC) it was held that interest income relatable to non-performing assets was not includible in total income on accrual basis since the same did not accrue to the assessee. The following discussion by the Visakhapatnam Bench of the Tribunal in the case of The Durga Cooperative Urban Bank Ltd. is worthy of notice : 8. We have heard the rival contentions and carefully perused the record. The question of taxability of interest on non-performing assets has been considered by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entives, interest etc., revenue recognition is postponed to the extent of uncertainty involved. In such cases, it may be appropriate to recognise revenue only when it is reasonably certain that the ultimate collection will be made. Where there is no uncertainty as to ultimate collection, revenue is recognised at the time of sale or rendering of service even though payments are made by instalments. 9.3 When the uncertainty relating to collectability arises subsequent to the time of sale or the rendering of the service, it is more appropriate to make a separate provision to reflect the uncertainty rather than to adjust the amount of revenue originally recorded. 9.4 An essential criterion for the recognition of revenue is that the consideration receivable for the sale of goods, the rendering of services or from the use of others of enterprise resources is reasonably deter minable. When such consideration is not determinable within reasonable limits, the recognition of revenue is postponed. 9.5 When recognition of revenue is postponed due to the effect of uncertainties, it is considered as revenue of the period in which it is properly recognised. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the ground that the provision of non-performing assets was not in the nature of expenditure or loss but more in the nature of a reserve, and thus not deductible under section 36(1)(vii) of the Act. The Assessing Officer, however, did not bring to tax ₹ 20,34,605 as income (being income accrued under the mercantile system of accounting). The dispute before the apex court centered around deductibility of provision for non-performing assets. After analysing the provisions of the Reserve Bank of India Act, their Lord ships of the apex court observed that in so far as the permissible deductions or exclusions under the Act are concerned, the same are admissible only if such deductions/exclusions satisfy the relevant conditions stipulated therefor under the Act. To that extent, it was observed that the prudential norms do not override the provisions of the Act. However, the apex court made a distinction with regard to income recognition and held that income had to be recognised in terms of the prudential norms, even though the same deviated from mercantile system of accounting and/or section 145 of the Income-tax Act. It can be said, therefore, that the apex court approved the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e changed unless the Assessing Officer comes to the conclusion that such change would result in understatement of profits. However, here is the case where the Assessing Officer has to follow the Reserve Bank of India Directions 1998 in view of section 45Q of the Reserve Bank of India Act. Hence, as far as income recognition is concerned, section 145 of the Income-tax Act has no role to play in the present dispute.' 10. Turning to the facts of the case before us, the assessee herein is a co-operative bank and it is not in dispute that it is 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 Companies Act. The hon'ble Supreme Court has held in the case of Southern Technologies Ltd. v. Joint CIT [2010] 320 ITR 577 (SC), that the provision of 45Q of the Reserve Bank of India Act has an overriding effect vis-a-vis income recognition principle under the Companies Act. Hence section 45Q of the Reserve Bank of India Act shall have overriding effect over the income recognition principle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive based on the judgment of the hon'ble Madras High Court in the case of CIT v. Sakthi Finance Ltd. [2013] 352 ITR 102 (Mad). The controversy before the hon'ble Madras High Court related to non-recognition of interest income on non-performing assets by the assessee following the Reserve Bank of India guidelines. The hon'ble Madras High Court took the view that the judgment of the hon'ble Supreme Court in the case of Southern Technologies Ltd. v. Jt. CIT [2010] 320 ITR 577 (SC) also applied to the income recognition norms provided by the Reserve Bank of India and therefore it held the interest income on non-performing assets is liable to be taxed on accrual basis and not in terms of the Reserve Bank of India's guidelines. But the hon'ble Delhi High Court in the case of CIT v. Vasisth Chay Vyapar Ltd. [2011] 330 ITR 440 (Delhi) has taken a view that Southern Technologies Ltd. v. Joint CIT [2010] 320 ITR 577 (SC) case did not apply to the income recognition norms prescribed by the Reserve Bank of India. Ostensibly, there is divergence of opin ion between the hon'ble Delhi High Court and the hon'ble Madras High Court as noted by the hon'ble Madras ..... X X X X Extracts X X X X X X X X Extracts X X X X
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