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TMI Blog2022 (12) TMI 1544X X X X Extracts X X X X X X X X Extracts X X X X ..... rnavati Co-op. Bank Ltd. [ 2011 (11) TMI 367 - ITAT AHMEDABAD] the assessee, a co-operative bank, was following mercantile system of accounting. It had neither credited in profit and loss account nor offered for taxation amount of interest that had accrued on non-performing assets [NPA] - ITAT held that in view of clear provisions of section 43D, the Assessing Officer was wrong in adding accrued interest on NPA to income of assessee Thus, we hold that Ld. CIT(Appeals) has not erred in facts and in law in deleting the additions made in the hands of the assessee on account of accrued interest on NPA. Disallowance of deduction u/s. 36(l)(viia) on provision for bad and doubtful debts - AO disallowed the claim of deduction of the assessee on the ground that section 36(1)(viia) of the Act applies only in cases where assessee has given rural advances - CIT(A) deleted addition - HELD THAT:- In the case of Kodungallur Town Co-op Bank Ltd. [ 2016 (7) TMI 1413 - ITAT COCHIN] a Cooperative Bank is entitled to claim deduction of bad debts provided in first part of clause (viia)(a) of section 36(1) being 7.5 per cent of total income and same cannot be denied linking it to rural advances. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is a co-operative bank and during the course of assessment proceedings, the AO asked the assessee as to why interest accrued on NPA has not been offered for taxation by the assessee in the return of income. The assessee submitted that the assessee is a co-operative bank and was following the Prudential Norms Directions issued by the Reserve Bank of India and the accounting standards notified by the Central Government. The assessee further submitted that once there is a doubt regarding the realisation of the principal amount itself, it cannot be said that the interest on such amount accrued to the assessee even under the mercantile system of accounting. However, the AO did not agree with the contentions of the assessee and added a sum of 2,70,87,263/- as interest which accrued on NPAs as taxable income in the hands of the assessee on accrual basis. 5. In appeal, Ld. CIT(Appeals) allowed the appeal of the assessee by following the decision of CIT (A)-1, Rajkot dated 08-07-2014 in the case of Gondal Nagrik Saharakari Bank Ltd. passed inter-alia relying on the decision of ITAT Ahmedabad in the case of Karnavati Cooperative Bank 17 Taxmann 239, which decision has also been follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er tax on balance interest. The addition was made on ground that assessee was following mercantile system of accounting and, hence, whole amount of accrued interest had to be brought to tax. In fact, assessee had been consistently following cash method of accounting recognizing income in respect of asset qualified as bad and doubtful debt (NPA) as per RBI guideline in view of provision of sections 145 and 43D.The ITAT held, following the case of Asstt. CIT v. Osmanabad Janta Sahari Bank Ltd. [2013] 32 taxmann.com 229 (Pune - Trib.), that assessee could offer to tax amount of interest received from bad and doubtful debts (NPA) on actual receipt basis as per RBI guideline, even though assessee was following mercantile system of accounting. In the case of Karnavati Co-op. Bank Ltd.[2012] 17 taxmann.com 239 (Ahd.), the assessee, a co-operative bank, was following mercantile system of accounting. It had neither credited in profit and loss account nor offered for taxation amount of interest that had accrued on non-performing assets [NPA].The Assessing Officer held that assessee was required to credit accrued interest on NPA to its profit and loss account and by not doing so it had infrin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing the assessee s appeal, the Ld. CIT(Appeals) made the following observations: 3.3.4 Decision of Ground of Appeal No.3 Having considered the facts and circumstances of the case and rival contentions I find that the AO has applied the decision of Hon'ble Supreme Court in the case of Catholic Syrian Bank Ltd. which in my view is distinguishable from facts of the instant case. The Hon'ble Supreme Court in the cited case was concerned with the issue whether the bank could avail of deduction of u/s. 36(1)(vii) and u/s. 36(1)(viia) simultaneously, and whether these amounted to double deduction. The Hon'ble Supreme Court has held that once an assessee has claimed a deduction of provision of bad debts under clause (viia) then by virtue of provision of clause (viia) the assessee could claim deduction of bad debts return off only to the extent of excess of right off over the amount standing to the credit in the account created under clause (viia) of section 36. From the above judgment of the Hon'ble Supreme Court the AO has inferred that deduction u/s.36(1 )(viia) is specifically for banks having rural branches and has concluded that the deduction u/s.36(1 )(viia) is not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xmann.com 205 (Cochin - Trib.), a Cooperative Bank is entitled to claim deduction of bad debts provided in first part of clause (viia)(a) of section 36(1) being 7.5 per cent of total income and same cannot be denied linking it to rural advances. In the case of ING Vysya Bank Ltd[2014] 42 taxmann.com 303 (Bangalore - Trib.), the ITAT held that in order to allow assessee's claim under section 36(1)(viia), what has to be seen by Assessing Officer is as to whether provision for bad and doubtful debts (PBDD) is created irrespective of whether it is in respect of rural or non-rural advances by debiting profit and loss account and, to extent PBDD is so created, assessee is entitled to deduction subject to upper limit of deduction laid down in said section. In view of the above discussion and various judicial precedents on the subject, it is clear that the benefit of section 36(1)(viia) of the Act is available irrespective of whether the provision is created in respect of rural advances are not, subject to the prescribed limit specified in the said section. 11. In view of the above, ground number 2 of the Department s appeal is dismissed. 12. In the combined result, the appeal of the D ..... 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