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TMI Blog2015 (11) TMI 1626X X X X Extracts X X X X X X X X Extracts X X X X ..... , are that the assessee is a Co-operative Bank filed its return of income for the assessment year 2009-10 on 29.9.2009 declaring total income of ₹ 1,96,45,690/-. The return was processed u/s 143(1) of the Income-Tax Act, 1961 (hereinafter called as the Act ) on 23.10.2010. The case was selected for scrutiny and notice u/s 143(2) of the Act dated 19.8.2010 was issued. In response to notice issued u/s 143(2) of the Act, the assessee s Authorised Representative Shri T.S. Ram Mohan Rao appeared from time to time and furnished the information/documents called for. The assessing officer, after examining the books of accounts and other information furnished, completed the assessment u/s 143(3) of the Act and determined total income at ₹ 3,72,77,956/- as against the returned income of ₹ 1,96,45,690/-, thereby made additions towards interest on Non- Performing Assets (NPAs), provision for education fund, provision for bad and doubtful debts, etc. 3. Aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the CIT(A), the assessee challenged the additions made by the assessing officer on account of interest on NPAs. The CIT(A), after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er hand, the Authorised Representative of the assesse, strongly supported the order of the CIT(A). The A.R. further submitted that in banking business sometimes a particular loan become sticky and the recovery of principal itself is in doubtful, therefore recognizing interest on NPAs is not correct. The A.R. further submitted that assessee being a co-operative bank is bound to follow the regulative instructions of RBI and as per the guidelines issued by the RBI to cooperative banks all co-operative banks should follow prudential norms for income recognition, asset classification and provisioning. The assessee being a co-operative bank bound to follow the guidelines issued by the RBI, has recognized the interest on NPAs on receipt basis. The A.R. further submitted that the assessee is following this system of accounting for recognition of interest on NPAs consistently from the past several years. Therefore, the A.O. is not correct in bringing to tax the interest on NPAs on accrual basis. The A.R. further submitted that guidelines issued by the RBI are over ride the provisions of the Incometax Act. Therefore, the assessee is bound to follow the guidelines issued by the RBI rather th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 Honible 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding that the interest income relatable on NPA advances did not accrue to the assessee. Accordingly we uphold his order. Following the aforesaid discussion, which has been rendered on an identical issue under similar circumstances, we find no reasons to interfere with the ultimate conclusion of the CIT(A) in deleting the impugned addition relating to interest income in respect of NPAs. 9. The Hon ble Supreme Court of India, in the case of UCO Bank Vs. CIT had an occasion to consider the issue. The Hon ble Supreme Court, while dealing with similar issue held as under: The method of accounting which is followed by the assessee-bank is mercantile system of accounting. However, the assessee considers income by way of interest pertaining to doubtful loans as not real income in the year in which it accrues, but only when it is realised. A mixed method of accounting is thus followed by the assessee-bank. This method of accounting adopted by the assessee is in accordance with accounting practice. Up to the asst. yr. 1978-79, the CBDT's circular of 6th Oct., 1952 would be applicable; while from the asst. yr. 1979-80, the CBDT's circular of 9th Oct., 1984 is made ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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