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TMI Blog2014 (12) TMI 1367X X X X Extracts X X X X X X X X Extracts X X X X ..... essment Year 2007-08 [ 2014 (11) TMI 94 - ITAT BANGALORE] , we uphold the order of the learned CIT (Appeals) in allowing the assessee's claim of deduction on account of provision for NPA. - I.T.A. No.894/Bang/2012 - - - Dated:- 3-12-2014 - SHRI RAJPAL YADAV AND SHRI JASON P BOAZ, JJ. Appellant By : Dr. P.K. Srihari, Addl. CIT (D.R) Respondent By : Shri V. Srinivasan, C.A. ORDER Shri Jason P. Boaz, J. This appeal by Revenue is directed against the order of the Commissioner of Income Tax(Appeals), Hubli dt.11.05.2012 for Assessment Year 2008-09. 2. The facts of the case, briefly, are as under :- 2.1 The assessee is a District Central Co-operative Bank, controlled by the Apex Bank of Govt. of Karnataka, and is engaged in providing loans to Primary Agricultural Co-op. societies (PACS s) at subsidised rates. For Assessment Year 2008-09, the assessee filed its original return of income on 26.09.2008. A revised return of income was filed on 26.2.2009 declaring total income of ₹ 41,15,660. The case was selected for scrutiny and the assessment was completed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leave to add, alter, amend or delete any other grounds on or before the hearing of appeals. The Revenue has also filed amended grounds for those raised at S.Nos.3 5 (supra) which are as under :- 3. The CIT (Appeals), Hubli erred in allowing the appeal of the assessee in respect of addition of ₹ 2,33,08,318 made on account of accrued interest on loans and advances. 5. The CIT (Appeals), Hubli erred in allowing the provisions for NPA of ₹ 1,37,31,000. This action of CIT (Appeals) renders the order perverse in so far as he has given a direction contrary to the provisions of section 36(1)(viia)(a) of the IT Act. 4. Grounds raised at S.Nos.1, 2, 7 and 8 are general in nature and therefore no adjudication is called for thereon. 5. Addition to Interest Income : ₹ 2,33,08,318. 5.1 The grounds raised at S.Nos.3 and 4 and amended ground No.3 relate to the issue of interest income. In these grounds, revenue is aggrieved by the order of the learned CIT (Appeals) in deleting the additions made on account of accrued interest on loans and advances without appreciating that after the amendment to section 145 of the Act w.e.f. 1.4.1997, banks are re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... haring mechanism whereby the effective rate of interest on the advances was only 7.5% as against 9% adopted by the Assessing Officer. The learned CIT (Appeals), agreeing with the assessee's contention that the issue is covered by the decision of the Hon'ble Apex Court in the case of UCO Bank Ltd. (supra), allowed the assessee s appeal on this issue. 5.4 Revenue is aggrieved by the order of the learned CIT (Appeals) on this issue. The learned Departmental Representative placing strong support on the order of assessment, submitted that the assessee has to follow the provisions of section 145 of the Act for the purposes of computation of income under the normal provisions of the Act. It was submitted that in accordance with the provisions of section 145 of the Act, the assessee is required to follow either the cash system or mercantile system of accounting, but cannot follow the hybrid system of accounting. The learned Departmental Representative submitted that the RBI Guidelines relied on by the assessee having nothing to do with the accounting system for recognising taxable income as per the Income Tax Act, 1961 as they operate in different fields. 5.5 Per contra, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... His accounts should reflect true and correct statement of affairs. Merely because the said amount accrued was not realised immediately cannot be a ground to avoid payment of tax. But, if in his account it is clearly stated though a particular income is due to him but it is not possible to recover the same, then it cannot said to have been accrued and the said amount cannot be brought to tax. In the instant case we are concerned with a nonperforming asset. As the definition of non-performing asset shows an asset becomes non-performing when it ceases to yield income. Non-performing asset is an asset in respect of which interest has remained unpaid and has become past due. Once a particular asset is shown to be a non-performing asset, then the assumption is it is not yielding any revenue. When it is not yielding any revenue, the question of showing that revenue and paying tax would not arise. As is clear from the policy guidelines issued by the National Housing Bank, the income from non-performing asset should be recognized only when it is actually received. That is what, the Tribunal held in the instant case. Therefore, the contention of the revenue that in respect of nonperforming a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esentative, we find that this issue was considered and adjudicated upon in the decision of the co-ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2007-08 in ITA No.889/Bang/2012 dt.10.10.2014 wherein at paras 6.3.1 and 6.3.2 thereof it has been held as under :- 6.3.1 We have heard the rival contentions and perused and carefully considered the material on record, including the judicial decisions cited and relied on. The issue raised is with reference to the assessee's claim for deduction under the head Provision for NPAs . The Assessing Officer did not allow the assessee's claim for the reason that it was not written off in the books of account, as is required by section 36(1)(viia) of the Act. The learned Authorised Representative of the assessee contended that the provision for NPAs was made as per the RBI s Guidelines, which are binding on the assessee and therefore it should be allowed as a deduction under the Act. It was submitted that provision for NPAs is made only when recovery is difficult or may not be possible and therefore the same should be allowed as deduction. 6.3.2 Section 36(1)(viia) of the Act provides for all ..... X X X X Extracts X X X X X X X X Extracts X X X X
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