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TMI Blog2016 (3) TMI 275X X X X Extracts X X X X X X X X Extracts X X X X ..... e is a co-operative bank, which is engaged in the business of banking, filed its return of income for the assessment year 2010-11 on 14.10.2010 declaring a total income of ₹ 4,89,67,030/-. The assessee again filed a revised return on 20.1.2012 declaring a total income of ₹ 4,05,84,250/-. The return of income was processed u/s 143(1) of the Income-Tax Act, 1961 (hereinafter called as the Act ) on 25.5.2001. Subsequently, the case was selected for scrutiny through CASS and accordingly, notice u/s 143(2) of the Act dated 25.8.2011 was issued. In response to the notice, the assessee s authorized representative appeared from time to time and furnished the information and documents called for. During the course of assessment proceedings, the assessee was asked to clarify, whether interest on NPA was credited to the profit loss account or not. If not the assessee was requested to give the reasons for the same. In reply, the assessee has filed a letter dated 24.12.2012 and stated that it has not credited interest on NPA to the profit loss account. The assessee further submitted that it is following the method of accounting as per the accounting standards regularly, wherein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such doubtful advances is highly impossible. The CIT(A), further, was of the opinion that once there is a doubt regarding the realizability of the principal amount itself, it cannot be said that the interest on such amount accrued to the assessee even under the mercantile system of accounting. Aggrieved by the CIT(A), the revenue is in appeal before us. 4. The Ld. D.R. submitted that the CIT(A) was erred in deleting the interest charged on the NPAs, when the assessee is following mercantile system of accounting. The Ld. D.R. further submitted that the guidelines issued by the RBI cannot over ride the provisions of the Income-Tax Act, 1961, as section 145 of the Act, mandates that the assessee s either to follow mercantile or cash system of accounting. The Ld. D.R. further submitted that as per the board instruction no.17 of 2008 dated 26.11.2008, it was mandatory on the part of all banks including Co-op Banks to follow the mercantile system of accounting and prepare accounts on accrual basis. Therefore, the A.O. has rightly made the additions and his order should be upheld. 5. On the other hand, the Ld. A.R. of the assessee strongly supported the order of the CIT(A). The A.R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment year 2009-10, has considered the issue and deleted the additions towards interest on NPAs. The relevant portion is reproduced as under: 6. We have heard both the parties and perused the materials available on record. The assessee is a co-operative bank, regularly following mixed system of accounting, wherein it is following cash system for recognizing interest on loans and advances and mercantile system of accounting for other expenditures. As stated by the A.R., the assessee is bound to follow the guidelines issued by the RBI for income recognition, asset classification and provisioning. Therefore, the assessee following the guidelines issued by the RBI did not recognize the interest accrued to the NPAs. The A.O. was of the opinion that since, the assessee is following mercantile system of accounting, it should recognize the interest relatable to NPAs, therefore, made the additions. The CIT(A), by relied upon the judgement of the ITAT, Hyderabad bench in the case of TCI Finance Ltd. Vs. ACIT (2004) 91 ITD 573 and also the Hon ble Madras High Court judgement in the case of CIT Vs. Annamalai Finance Ltd. (2005) 275 ITR 451, held that when the principal amount itself is do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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. 8. An identical issue came up for consideration before the ITAT Pune Bench in the case of Vaidyanath Urban Co-op. Bank Ltd. Vs. CIT in ITA No.413/PN/2014 dated 31.3.2015, wherein the ITAT under similar set of facts held as under: 10. Turning to the facts of the case before us, the assessee herein is a cooperative 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 (Supra), that the provision of 45Q of Reserve Bank of India Act has an overriding effect vis- -vis income recognition principle under the Companies Act. Hence Sec.45 Q of the RBI Act shall have overriding eff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of 9th Oct., 1984, is applicable. Under sub-s. (2) of s. 119, without prejudice to the generality of the Board's power set out in sub-s. (1), a specific power is given to the Board for the purpose of proper and efficient management of the work of assessment and collection of revenue to issue from time to time general or special orders in respect of any class of incomes or class of cases setting forth directions or instructions, not being prejudicial to assessees, as the guidelines, principles or procedures to be followed in the work relating to assessment. Such instructions may be by way of relaxation of any of the provisions of the sections specified there or otherwise. The Board thus has power, inter al/a, to tone down the rigour of the law and ensure a fair enforcement of its provisions, by issuing circulars in exercise of its statutory powers under s. 119 which are binding on the authorities in the administration of the Act. Under s. 119(2)(a), however, the circulars as contemplated therein cannot be adverse to the assessee. Thus, the authority which wields the power for its own advantage under the Act is given the right to forego the advantage when required to wield it i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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