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TMI Blog2017 (1) TMI 1255X X X X Extracts X X X X X X X X Extracts X X X X ..... income for A.Y. 2011-12, at an income of Rs. 5,62,00,080/-. The case was selected for scrutiny. The AO framed assessment at an income of Rs. 60,65,46,560/-, making an addition of Rs. 2,0,3,46,480/- on account of interest on NPAs on accrual basis. The ld. CIT(A), by virtue of order dated 17.09.2015, allowed the appeal of the assessee. Aggrieved, the department is in appeal. 3. The Department has submitted in the grounds of appeal raised, that the ld. CIT(A) has erred in deleting the addition correctly made by the AO holding that the interest due on Non Performing Assets was taxable, as the Co-operative Bank, assessee, was following the mercantile system of accounting except with regard to the interest pertaining to NPAs; that the ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing the mercantile system of accounting and so, it has to show income/receipts on accrual basis; that the assessee did not provide the details of individual debtors and percentage of interest regarding the NPAs, therefore, an average interest rate of 12% was being applied for the purpose of assessment; that section 43D of the Act provides for taxation of income of bad or doubtful debts in the year in which they are credited by the Public Financial Institution or the scheduled bank or the State Financial Corporation or the State Industrial Investment Corporation or the public company, to its P & L a/c for that year, or in the year in which it is actually received, whichever is earlier; that in section 43D, Co-operative Bank or Co-operative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he RBI guidelines could not override the provisions of said section; that it was held that since the assessee had followed the mercantile system of accounting, the interest income on NPAs would be assessed to tax on accrual basis; that it was noted that Accounting Standard 1 & 2, had been issued by the Instituted of Chartered Accountants of India; that this view was also supported by the decision in "CIT vs. T.N.Power Finance and Infrastructure Development Corporation Ltd.", 280 ITR 491,(Mad), wherein, it was held that the RBI guidelines cannot override the mandatory provisions of section 36(1)(viia) of the I.T. Act; that as such, the contention of the assessee that interest on sticky loans was not to be considered as income, was not accept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icial pronouncements relied upon decisions by the assessee co-operative society and by Assessing Officer, it has been noticed that the Assessing Officer has made impugned addition as the assessee is following mercantile system of accounting as per which the income for a particular year has to be accounted for as and when accrued irrespective of the year of receipt. However, it is to be appreciated that the assessee has very specifically put it on record that the method of accounting of the assessee co-operative society is mercantile except with respect to interest pertaining to NPA as the assessee cooperative society has followed overriding guidelines issued by the RBI. It has been submitted that the said position has been accepted by the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Limited Vs. JCIT reported at (2010) 320 ITR 577 (SC). In my further opinion, the judicial pronouncements relied upon by the Assessing Officer are distinguishable on facts. However, the decisions relied upon by the assessee support its case. In the circumstances, I do not agree with the Assessing Officer's view on the issue and therefore the addition made deserves to be deleted. 5.4 In view of the above stated facts and circumstances of the case, I am of the opinion that the Assessing Officer is not justified in making an addition of Rs. 2.03,46,480/- to the returned income of the assessee on account of accrued interest on NPAs. The addition of Rs. 2,03.46,'480/- made by the Assessing Officer by treating accrued interest on NPAs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chay Vyapar Ltd." (supra). 8. Apropos the applicability of section 43D of the I.T. Act, it is on record that during the proceedings before the ld. CIT(A), the assessee, by way of submission dated 17.09.2015, the assessee had stated that the assessee had been confirmed by the Headquarter of the Punjab State Co-operative Bank , to be a scheduled bank. This position has not been disputed. 9. In view of the above, we find that the grievance of the department is without any force. The order of the ld. CIT(A) is a well versed reasoned detailed order, requiring no interference whatsoever at our hands. The same is, accordingly, confirmed. 10. As noted at the beginning of this order, all the three appeals involve the same common issue. That bein ..... X X X X Extracts X X X X X X X X Extracts X X X X
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