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TMI Blog2015 (5) TMI 924X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in appreciating the provisions of section 145 of the I.T. Act, 1961, in its correct perspective . 4. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred while delivering the judgment has allowed the appeal of the assessee bank by placing reliance on its own decision in the ACIT, Circle-3, Nanded Vs. Osmanabad Janata Sahakari Bank Ltd. in ITA No. 795/PN/2011 vide order dated 31/08/2012. However, the above decision has not been accepted by the Department and an appeal u/s. 260A has been filed by the CIT, Aurangabad with the Hon'ble High Court of Bombay Bench at Aurangabad, vide lodging No. 1613/2013 dated 15/01/2013. 5. The order of the CIT(A) be vacated and that of AO be restored. 6. The appellant craves to add, alter, amend, substitute or delete any of the grounds urged herein above as and when found necessary. 3. When the appeal was called for hearing, a letter issued by the Liquidator dated 06.04.2015 was placed on record, in which it was pointed out that the assessee bank was suffering from financial crisis since last seven years and now t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... para 3.1 at pages 3 to 11 of the appellate order. The CIT(A) after deliberating upon the issue, allowed the claim of assessee, in view of the ratio laid down by the Pune Bench of the Tribunal in ACIT Vs. Osmanabad Janta Sah. Bank Ltd., in ITA No.795/PN/2011, relating to assessment year 2007 -08, order dated 31.08.2012. 7. The Revenue is in appeal against the order of CIT(A). 8. The learned Authorized Representative for the assessee pointed out that the issue in the present appeal is squarely covered by the different orders of Pune Bench of the Tribunal. 9. The learned Departmental Representative for the Revenue placed reliance on the order of Assessing Officer and pointed out that the appeal is pending before the Hon'ble Bombay High Court. 10. We find that the issue is squarely covered in favour of the assessee by the ratio laid down by the Pune Bench of the Tribunal in ACIT Vs. Osmanabad Janta Sah. Bank Ltd. (supra) and in ACIT vs. The Omerga Janta Sahakari Bank Ltd. vide order in ITA No.350/PN/2013 dated 31.10.2013. The Tribunal considered the judgement of the Hon'ble Delhi High Court in the case of M/s Vasisth Chay Vyapar Ltd., 330 ITR 440 (Del) as well as the judgem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As, which as per the Revenue was liable to be taxed on accrual basis in line with mercantile system of accounting adopted by the assessee therein. The assessee, on the other hand, contended that having regard to the guidelines issued by RBI regarding accounting of interest on NPAs, no interest income accrued in respect of NPAs and tha t the same was to be taxed only on receipt basis. The Tribunal observed that the question of taxability of interest on NPAs classified by RBI, was considered by the Hon'ble Delhi High Court in the case of M/s Vasisth Chay Vyapar Ltd. (supra) wherein after considering the decision of the Hon'ble Supreme Court in the case of Southern Technologies Ltd. (supra) it was held that interest income relatable to NPAs 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. (supra) is worthy of notice :- "8. We have heard the rival contentions and carefully perused the record. The question of taxability of interest on NPAs has been considered by the Hon'ble Delhi High Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f sale or rendering of service even though payments are made by installments. 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 determinable. 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 recognized". 8.2 The Delhi High Court also considered the decision rendered in the following cases: i) CIT vs. Elgi Finance Ltd., 293 ITR 357 (Mad) ii) CIT vs. KKM Investments (Cal) - SLP dismissed by Supreme Court (310 ITR 4) iii) CIT vs. Motor Credit Co (P) Ltd., 127 ITR 572 (Mad) iv) UCO Bank vs. CIT 237 ITR 889 (SC) v) CIT vs. Shoorji Vallabhdas & Co 46 ITR 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 recognized in terms of the Prudential Norms, even though the same deviated from mercantile system of accounting and/or section 45 (sic. 145) of the Income Tax Act. It can be said, therefore, that the Apex Court approved the 'real income' theory which is engrained in the Prudential Norms for recognition of revenue by NBFC". 9. The Hon'ble Supreme Court in the case of M/s Southern Technologies Ltd (Supra) dissected the matter into two parts viz., a) Income Recognition and b) permissible deduction/exclusions under the Income Tax Act. In so far as income recognition is concerned, the Hon'ble Supreme Court held that Section 145 of the Income Tax Act has no role to play and the Assessing Officer has to follow Reserve Bank of India directions 1998, since by virtue of 45Q of the Reserve Bank of India Act, an overriding effect is given to the directions of Reserve Bank of India visà- vis income recognition principles in the Companies Act 1956. In so far as computation of income under the Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. Hence Sec.45 Q of the RBI Act shall have overriding effect over the income recognition principle followed by cooperative banks also. Hence the Assessing Officer has to follow the Reserve Bank of India directions 1998, as held by the Hon'ble Supreme Court. 10.1 Based on the prudential norms, the assessee herein did not admit the interest relatable to NPA advances in its total income. The Hon'ble Delhi High Court in the case of Vasisth Chay Vyapar Ltd (Supra) has held that the interest on NPA assets cannot be said to have accrued to the assessee. In this regard, the following observations of Hon'ble Delhi High Court in the above cited case are relevant: "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". The said decision of the Hon'ble Delhi High Court is equally applicable to the issue in our hands. Accordingly we do not find any infirmity with the decision of the learned CIT (A) in holding that the interest income relatable on NPA advances did not accrue to the assessee. Accordingly we uphold his order." 10. Following ..... X X X X Extracts X X X X X X X X Extracts X X X X
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