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TMI Blog2019 (3) TMI 1853X X X X Extracts X X X X X X X X Extracts X X X X ..... y advances/NPA advances cannot be brought to tax. The provisions of section 43D are applicable to Co-operative Banks also. We are of the view that there are judgments in favour of the assessee on the issue of applicability of section 43D(g) of the Act to the Co-operative Banks. In view of this, we are of the opinion that the order passed by the Assessing Officer is not erroneous and prejudicial to the interests of the Revenue for the purpose of invoking jurisdiction u/s. 263 of the Act. Accordingly, we quash the order passed by the CIT u/s. 263 of the I.T. Act. - Decided in favour of assessee. - S/SHRI CHANDRA POOJARI, AM AND GEORGE GEORGE K., JM For the Assessee : Shri Arun Raj, Adv. For the Revenue : Smt. A.S. Bindhu, Sr. DR ORDER Per CHANDRA POOJARI, AM: The appeal filed by the assessee is directed against the order of the CIT, Kozhikode passed u/s. 263 of the I.T. Act dated 14/12/2017 and pertains to the assessment year 2013-14. 2. The facts of the case are that the assessment in this case of for A.Y. 2013-14 was completed u/s 143(3) on 28.3.2016 determining a total income at ₹ 28,25,030/-. On perusal of records, it was noticed that the assessment order was prima facie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision in the case of CIT Aurangabad Vs. Peoples Co-operative Bank and others (ITA Nos. 53,54,58 68 of 2014. High Court of Judicator of Bombay, Bench at Aurangabad) and other decisions on this point. The Ld. AR also submitted that section 43D of the Income tax Act had been amended subsequently by Finance Act 2017, by including therein the words Co-op. banks for the purpose of deduction with effect from 01/04/2018. Though this amendment was done by Finance Act 2017, this being as amendment to remedy the unintended grievances caused to the Co-op. Banks, the same should be treated as retrospective in operation. The Ld. Submitted that this view was supported by the decision in the case of Allied Motors (P) Ltd., Vs. CIT (1997) 139 CTR 0364 (SC) . 3.1 The Ld. AR submitted that the assessee was following mercantile system of accounting as per the laid out procedure and was providing interest on non-per forming assets, as per the procedure laid out by Reserve Bank of India as evident from accounts and hence, was eligible for deductions under section 43D as provided therein. For this, the Ld. AR relied on the decision in the case of UCO Bank, Calcutta Vs.CIT ( 1999) 45 CC 599 (SC) read wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into account for the purpose of chargeability of income by way of interest. Simultaneously, it is noteworthy that this section is an overriding section because the opening words are notwithstanding anything to the contrary contained in any other provisions of this Act . Therefore, in spite of anything contained 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. No scope is left with the Revenue authorities to ignore these provisions due to unambiguous use of language in the section. As far as the status of the assessee is concerned, the AO has stated that the assessee-bank is a co-operative bank. Undisputedly, the assessee is also governed by the RBI guidelines. Vide an Expln. (d) r.w.s. 36(i)(viia) annexed to s. 430 the definition of the entities incorporated by the section have been defined and in the absence of any contrary material, it is hereby held that the assessee is covered by one of the entities, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elines issued by the Reserve Bank of India in relation to such debts; (b) in the case of a public company, the income by way of interest in relation to such categories of bad or doubtful debts as may be prescribed having regard to the guidelines issued by the National Housing Bank in relation to such debts, shall be chargeable to tax in tin, previous year in which it is 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 profit and loss account for that year or, as the case may be, in which it is actually received by that institution or bank or corporation or company, whichever is earlier. 9. Section 43D of the Act was brought in basically intended to overcome the decision of the Supreme Court in State Bank of Travancore Vs. CIT 158 ITR 102 (SC) wherein it was held that interest on doubtful advances credited to interest suspense account and not transferred to profit and loss account should be considered as accrued according to the mercantile system of accounting and was taxable as such. The benefit of exception from the said Supreme Court's decision was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a Notification No. S.O. 69(E), dated January 25, 1996. Clause 6 defines accrual for the purpose of paragraphs 1) to (5) in the accounting standards. Accrual refers to the assumption that revenue and costs ore accrued, that is, recognised as they are earned or incurred (and not as money is received or paid) and recorded in the financial statements of the periods to which they relate. In this context the guidelines dated April 28,1995, were issued by the National Housing Bank with reference to non-performing assets. They state the policy on income recognition to be objective should be based on record of recovery. Income from a nonperforming asset may not be recognised merely on the basis of accrual. An asset becomes non-performing when it ceases to yield income. The income from non-performing assets, therefore, should be recognised only when it is actually received. A non-performing asset is an asset in respect of which interest has remained unpaid and has become past due . An amount is to be treated as past due when it remains unpaid for 30 days beyond the due date. Interest on the non-performing assets should not be looked upon as income if such interest has remained outstanding ..... X X X X Extracts X X X X X X X X Extracts X X X X
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