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TMI Blog2011 (5) TMI 1148X X X X Extracts X X X X X X X X Extracts X X X X ..... ortization of the investment claimed by the assessee. The addition may please be deleted. 3. The ld. CIT(A) has erred in maintaining the addition of Rs. 62,665/- being the contribution to Jila Sahakari Sangh. The payment being statutory should have been allowed in full. 4. The ld. CIT(A) should have allowed the claim of the assessee in respect of deduction of Rs. 7,12,500/- 3. Rival contentions have been heard and records perused. 4. The facts, in brief, are that the assessee is a co-op. society having a license from Reserve Bank of India (RBI) and is doing the banking business. During the course of scrutiny assessment, the AO found that over due interest shown in the balance sheet represents the interest which has accrued but not received. The AO also found that the specific advance to which such interest income pertains having not been classified as non-performing assets. It was claimed by the assessee that such interest could not be credited to the profit and loss account as per the guidelines of the RBI. The AO held that under the Income-tax Act, 1961, the assessee is entitled for deduction u/s 36(1)(viia) and it is required to account for all the income which is ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounts, the interest portion is credited to the interest account and is shown in the Income Exp.Account. Thus, the assessee is showing the income correctly as per the norms prescribed by the RBI. All the banks are required to follow the same system of accounting as per the circular of the RBI. We are herewith filing the accounting norms prescribed by the RBI which will clarify the matter. The ld. AO has confused the charging of interest on NPA accounts and the provision for doubtful debts u/s 36(1)(viia). There is no question of any double deduction. The bad debts would not be allowed to be written off when there is a provision made u/s 36(1)(viia). Thus, there is no relation between the provision made towards the bad debts and the interest accrued on NPA accounts. In this connection, we would like to draw your Honour s kind attention to the judgment of the Hon'ble Supreme Court in the case of UCO Bank vs. CIT, reported in 237 ITR p. 889, which lays down the proposition that in the case of banks and financial institutions, interest on sticky advances not taken in the P L account but taken to a separate suspense account is accepted mode of treatment of notional income in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circulars cited ld. Authorized Representative in the various orders referred by him pertains to the assessment year prior to assessment year 1979-80, wherein as per Circular No. 41/4-6/D of 1952 dated 6th October, 1952, interest on stikey advance was held to be not liable to tax. He further drew our attention to the CBDT Instruction No.1186 of 1978, wherein earlier circular dated 6th October, 1952, was withdrawn with immediate effect and it was clarified that interest on doubtful debts credited to a suspense account by the banking companies is includible in the taxable income. It was further stressed that all pending assessments may be completed keeping in view the said instructions and an immediate review be undertaken and remedial action by way of initiation of proceeding u/s 147(b) or Section 263 be taken in respect of assessments which have been completed by not including such interest in the taxable income in accordance with the Board s earlier instructions. In view of these circulars, which have also been quoted by the Hon'ble Supreme Court in the case of UCO Bank (supra), contention of the ld. CIT DR was that even in respect of interest on stikey advances, which accrued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of Income-tax Act, 1961,, therefore, under Income- tax Act, 1961, income is to be computed as per provisions of Income-tax Act and not as per guidelines issued by RBI for income recognition and classification of advances as bad and doubtful debts. 10. In view of the above discussion, we are inclined to agree with the ld. CIT DR that after coming into Board s circular dated 20th June, 1978, w.e.f. assessment year 1978- 79, interest on doubtful debts is liable to be taxed and that new procedure has also been laid down vide circular of October 9, 1984, even w.e.f. assessment year 1979-80. In the instant case before us, the relevant assessment year under consideration is 2007-08 to which latest circular dated 9th October, 1984, is applicable, therefore, interest accrued to the assessee s Bank in respect of doubtful advances even though not credited to Profit and loss account are liable to be brought to tax net if it pertains to the initial three years of the advances and if there is any actual receipt after three years that portion is also liable to tax. 11. In the result, this ground of the assessee s appeal is dismissed. 12. Next grievance relates to addition of Rs. 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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