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TMI Blog2017 (3) TMI 1819X X X X Extracts X X X X X X X X Extracts X X X X ..... on'ble Bombay High Court, reproduced above, primacy has been given to Section 45Q of the RBI Act. We are, therefore, of the opinion that interest on NPA could not have been added to the income of the assessee. In taking this view, we are also fortified by the judgment in the case of CIT v. Shri Siddeswar Co-operative Bank Ltd. [ 2016 (6) TMI 1129 - KARNATAKA HIGH COURT] where their Lordship had made an analysis of the provisions considering the importance of prudential norms of RBI based on Vol.I of Tannans Banking Law Practice in India. We, therefore, delete such an addition. Provision for bad debt - only pleading of the assessee is that it should be given a chance for working out average aggregate rural advance for the purpose of application of Section 36(1)(viia) - HELD THAT:- CIT(Appeals) himself noted at para 6.4 of his order that when figures of aggregate average advances are correctly furnished by the assessee, the deduction of provision can be re-worked and allowed. Considering these facts, we are of the opinion that the matter can be revisited by the Assessing Officer. We set aside the orders of the lower authorities with regard to disallowance of provision for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad and doubtful debts and disallowance of ex-gratia payment to employees who were not covered by payment of Bonus Act. Ld.counsel also submitted that for assessment year 2009-10, there was one other ground which he was pressing, on disallowance of employees gratuity related payment to LIC. Grounds other than on the above issues having not been pressed are dismissed. 3. Appeal for assessment year 2007-08 is first taken up for disposal. 4. The assessee, a co-operative bank, headquartered in Tiruchirapalli, had filed return of income originally on 12.11.2007 admitting NIL income. The assessment was completed under Section 143(3) of the Income-tax Act, 1961 (in short 'the Act') accepting the NIL income determined by the assessee. Thereafter the said assessment was set aside by CIT, Trichy, invoking his power under Section 263 of the Act. In the fresh assessment proceedings, assessee claimed exemption from tax on the basis of principle of mutuality. However, the Assessing Officer was not impressed. He completed the assessment disallowing the claim of ex-gratia payment made by the assessee to its employees, and the claim for deduction for provision for bad debts in excess o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the judgment of Hon'ble Bombay High Court in the case of CIT v. Deogiri Nagiri Sahakari Bank Ltd. (379 ITR 24), interest on non-performing assets, which was not accrued or treated as income by the assessee, could not be thrusted on the assessee, on the basis of principles of accrual. . 9. Insofar as disallowance of the provision for bad debt was concerned, the Ld. A.R. submitted that the assessee was unable to work out such provision in accordance with Section 36(1)(viia) of the Act due to paucity of time. According to him, the Ld. CIT(Appeals) himself had pointed out that if assessee was able to show the provision to have been made in accordance with Section 36(1)(viia) of the Act, to that extent the claim could be considered. As per the Ld. A.R., if assessee was granted one more chance, it would correctly work out the average aggregate rural advance and the claim under Section 36(1)(viia) of the Act. 10. Insofar as payment of ex-gratia was concerned, Ld. A.R. submitted that this was paid to employees who were not covered under the Payment Bonus Act and was necessarily incurred for the purpose of business and to maintain cordial relationship with the employees. 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Joint CIT reported in [2010] 320 ITR 577 (SC) ; [2010] 2 SCC 548. 7. The learned counsel for the respondent-co-operative banks submit that the issues involved in the above appeals are no more res integra in view of the decision rendered by the hon'ble Supreme Court in the case of UCO Bank v. CIT reported in [1999] 237 ITR 889 (SC) ; [1999] 4 SCC 599. 8. Learned counsel for respondent submits that the learned Tribunal has rightly dismissed the appeals of the Revenue by confirming the order passed by the Commissioner of Income-tax (Appeals). There is no substantial question of law involved in these appeals and, thus, all the appeals are liable to be dismissed. 9. The Income-tax Appellate Tribunal has referred the case of Vasisth Chay Vyapar Ltd. [2011] 330 ITR 440 (Delhi). In this case, the Revenue relied upon the decision of the hon'ble Supreme Court in the case of Southern Technologies Ltd. (supra). The learned Income-tax Appellate Tribunal has reproduced the observations made by the Delhi High Court while referring the said case of Southern Technologies Ltd. (supra). The assessee herein being a co-operative bank also governed by the Reserve Bank of India and thu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suspense account will be decided in the light of the Board's earlier Circular dated October 6, 1952, as the said circular was withdrawn only in June, 1978. The new procedure under the Circular of October 9, 1984, will be applicable for and from the assessment year, 1979-80. All pending disputes on the issue should be settled in the light of these instructions. Therefore, up to the assessment year 1978-79, the Central Board of Direct Taxes's Circular of October 6, 1952 would be applicable; while from the assessment year 1979-80, the Central Board of Direct Taxes's Circular of October 9, 1984 is made applicable. In the present case, the assessment was made on the basis of the Central Board of Direct Taxes's Circular on October 9,1984, since the assessment pertains to the assessment year 1981-82 to which the Circular of October 9, 1984, is applicable . . . If, the Board has considered it necessary to lay down a general test for deciding what is a doubtful debt, and directed that all Income-tax Officer's should treat such amounts as not forming part of the income of the assessee until realized, this direction by way of a circular cannot be considered as travelling b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the fourth year onwards it will be treated as interest on a doubtful loan and will be added to the income only when it is actually received . . . There is no inconsistency or contradiction between the circular so issued and section 145 of the Income-tax Act. In fact, the circular clarifies the way in which these amounts are to be treated under the accounting practice followed by the lender. The circular, therefore, cannot be treated as contrary to section 145 of the Income-tax Act or illegal in any form. It is meant for a uniform administration of law by all the Income-tax authorities in a specific situation and, therefore, validly issued under section 119 of the Income-tax Act. As such, the circular would be binding on the department . . . The relevant circulars of Central Board of Direct Taxes cannot be ignored. The question is not whether a circular can override or detract from the provisions of the Act ; the question is whether the circular seeks to mitigate the rigour of a particular section for the benefit of the asses see in certain specified circumstances. So long as such a circular is in force it would be binding on the departmental authorities in view of the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... self noted at para 6.4 of his order that when figures of aggregate average advances are correctly furnished by the assessee, the deduction of provision can be re-worked and allowed. Considering these facts, we are of the opinion that the matter can be revisited by the Assessing Officer. We set aside the orders of the lower authorities with regard to disallowance of provision for bad and doubtful debts and remit the issue back to A.O. to consider afresh in accordance with law. Assessee is directed to furnish the information called for by the Assessing Officer with regard to average aggregate rural advances of its rural branches correctly. 15. Ground no.3 is allowed for statistical purposes. 16. Coming to the claim of ex-gratia payment, it is not disputed that these payments were made to the employees of the assessee, who were not covered by payment of bonus under Bonus Act. It is also not the case of the Revenue that the employees of the assessee, who were paid the ex-gratia, were shareholders or persons entitled for share of profits or dividend. This being the case, in our opinion, such ex-gratia to employees who were not covered under the payment of Bonus Act, could not be c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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