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TMI Blog2015 (8) TMI 267X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 3. Whether the learned CIT(A) erred in not appreciating the ratio of Hon'ble Supreme Court judgment in Southern Technologies Limited Vs. JCIT 320 ITR 577 (SC) which says that the RBI directions under RBI Act are prudential norms and have nothing to do with computation of taxability of provisions of NPA under the Income Tax Act, 1961, cannot override the provisions of the Income Tax Act, 1961. 4. The appellant craves to add, alter, amend, substitute or delete any of the grounds urged herein above as and when found necessary." 3. Facts of the case, in brief, are that the assessee is a cooperative society engaged in the business of banking and the provisions of Banking Regulation Act, 1949 are applicable as the RBI has issued the license. The assessee filed its return of income on 22-09-2010 declaring total income of Rs. 34,28,370/-. During the course of assessment proceedings the AO while verifying the details of NPA observed from the balance sheet of the assessee that an amount of Rs. 46,62,323/- has been shown as interest receivable on NPA account on the asset side of the balance sheet. Similarly a contra entry "NPA interest reserve account" was shown in the liability sid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) the Revenue is in appeal before us. 8. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Pune Bench of the Tribunal in the case of Osmanabad Janata Sahari Bank Ltd (Supra) has decided an identical issue in favour of the assessee after considering the decision of the Hon'ble Supreme Court in the case of Southern Technologies Ltd. (Supra) which has been followed by the Ld.CIT(A). We find the Pune Bench of the Tribunal in the case cited (Supra) while deciding the issue in favour of the assessee has observed as under : "5. We heard the rival submissions of the parties and perused the record. We find that the identical issue has been considered by the ITAT, Visakhapatnam Bench, in the case of DCIT, Vijayawada vs. The Durga Cooperative Urban Bank Ltd., Vijayawada, in ITA.No.511/Vizag/2010 dated 10.03.2011. In the said case also, it was noticed by the Assessing Officer that assessee did not include the interest of Rs. 18,26,306/- on the NPA advances. Again the issue of applicability of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Act, the provisions of this section shall override those provisions. Once the Statute has categorically made a law in respect of public financial institutions that interest is chargeable to tax either in the year in which credited or actually received, whichever is earlier, then it is compulsory to abide by the said Rule. According to us, no scope is left with the Revenue Authorities to ignore these provisions due to unambiguous use of language in the Section. (ii) Status of assessee for the purpose of application Section 43-D. As far as the status of the assessee is concerned, the Assessing Officer has stated that the assessee-bank is a co-operative bank. Undisputedly, the assessee is also governed by the RBI guidelines. Vide an explanation (d) r.w.s. 36(1)(viia) annexed to section 43-D the definition of the entities incorporated by the section have been defined and in the absence of any contrary material, we hereby hold that the assessee is covered by one of the entities, hence the provisions of section 43-D are to be applied. (iii) Applicability of CBDT Circular. Next issue is that whether a Circular having effect of relaxing rigour of law can be treated as inconsiste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich Hon'ble two Judges were in the opinion that the interest on "sticky advances" was rightly treated as income which had accrued to the appellant. There was a descending note by one of the Hon'ble Judge and commented that whether an income on receipt basis or on accrual basis, it is the real income and not any hypothetical income which may have theoretically accrued, i.e. subject to tax under the Act. Nevertheless, that decision was not followed while deciding the appeal of UCO Bank (supra) by the Hon'ble three Judges of the Supreme Court, already discussed by us supra. We, therefore summarize that as of now the law as laid down in UCO Bank is that in terms of CBDT Circular the interest is to be added as income only when actually received or credited in respect of the "sticky advances" while making assessment for a financial institution. (iv) Interpretation of the language of the statute : We have reproduced verbatim the provisions of section 43-D of the I.T.Act and expressed an opinion that if the statute has used the terminology for the chargeability of interest on the basis when "credited" or "actually received", then in our opinion no ambiguity has been left by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so as to unfold the controversy. In the said decision of the Tribunal, viz. Jt.CIT v/s. India Equipment leasing Ltd. (2008)111 ITD 37 (Chennai), the Respected Co-ordinate Bench has expressed that quote " Prior to insertion of section 43D with effect from 1-4-1991, recognition of income was on the basis of circular of 9- 101984. It said that for first three years the income may be taken on accrual basis and from 4th year onwards, the income in respect of doubtful debts was to be recognized on receipt basis. Since the income was to be assessed for first three years on accrual basis, provisions of section 43D were inserted in the Act. Circular No.621, dated 19-12- 1991 gives the legislative intention stating that section 43D was inserted with a view to improving the viability of banks, public financial institutions etc., so as to provide that interest on sticky loans shall be charged to tax only in the year in which the interest is actually received or credited to the profit and loss account. This benefit was extended with effect from 1-4-2000 in the case of public companies engaged in long-term financing of housing projects approved by National Housing Banks. The Legislature in thei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd debited to P&L Account by a NBFC. The said provision was undisputedly made by the said NBFC as per the prudential norms made by the Reserve Bank. Therefore we want to make it clear that the question for consideration before the Hon'ble Court was that if a provision for doubtful debt is made then what will be the legal position of the applicability of Explanation to section 36(1)(vii) of the I.T. Act. For the sake of ready reference, relevant paragraph from the held portion is reproduced below: " The income-tax is a tax on "real income", i.e., the profits arrived at on commercial principles subject to the provisions of the Act. Therefore, if by the Explanation to section 36(1)(vii) a provision for doubtful debt is kept out of the ambit of bad debt which is written off, then one has to take into account the Explanation in computing the total income under the Income-tax Act failing which one cannot ascertain the real profits. The provision for non-performing assets debited in the profit and loss account under the Reserve Bank Directions of 1998 is only a notional expense and, therefore, there would be add back to that extent in the computation of total income under the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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