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TMI Blog2015 (9) TMI 1768X X X X Extracts X X X X X X X X Extracts X X X X ..... end otherwise. Admittedly upon fulfilling all the necessary conditions of the RBI, the assessee bank has been duly notified as a non schedule bank and hence being a non schedule bank it is entitled to deduction u/s 36(1)(viia) - Decided in favour of assessee. Accrual of income on interest - interest accrued of non performing assets of the bank - AO has opined that the same is taxable on accrual basis - HELD THAT:- We find that the ratio from the Durga Urban Cooperative Bank Ltd. decision [ 2011 (3) TMI 1552 - ITAT VISAKHAPATNAM] is clearly applicable on the facts of this case. We further note that Hon ble Delhi High Court in Vasistha Chay Vyapar Ltd. [ 2010 (11) TMI 88 - DELHI HIGH COURT] in similar case has duly expounded that the assessee is correct in not recognizing interest accrued on the NPA. The ratio has been followed by the Tribunal in the order as above. We further note that similar view was taken in the case of CIT v/s M/s. Deogiri Nagari Sahakari Bank Ltd. [ 2015 (1) TMI 1218 - BOMBAY HIGH COURT] Since the facts are identical, we hold that interest on NPA had not accrued to the assessee. Decided in favour of assessee. - Shri Mukul K. Shrawat, Judicial Member And Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non scheduled bank and would therefore not eligible for deduction u/s 36(l)(viia). In view of the same he held the appellant to be not eligible for deduction under the said section and therefore its claim of Rs. 2,12,523/-was rejected. 4. It was also noted by the Ld.AO that the appellant has not declared / recognized interest on accrual basis on NPAs. He considered the submission made by the appellant and came to the conclusion that neither RBI norms nor the accounting standards stop accrual interest income on NPAs. He based his findings on the judgment of Hon'ble Apex Court in the case of Southern Technologies Ltd. Vs. JCIT wherein it was held that the RBI directions issued under RBI Act do not override the provisions of Income tax Act and that the RBI directions and the Income tax Act operating different fields. He further noted that the form no. 3CD of Tax Audit Report showed that the method of accounting followed by the appellant is mercantile and also that the tax audit report mentions that interest on NPAs is accounted for on cash basis and that the tax audit report is bad in law to the extent that hybrid system of accounting is not permitted in view of the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has also taken into consideration the ratio of the Apex Court in Southern Technologies Ltd. And that of the Delhi High Court in the case of Vasisthan Chay Vyapar Ltd. (supra) reported in 330 CTR 440 (Del). Respectfully following the above judicial pronouncements, I hold that the AO has not justified in disallowing ₹.27,03,083/-as income of the appellant being interest accrued on NPAs. This ground is therefore allowed. 7. Now against the above order, Revenue is in appeal before us. 8. We have heard both the counsel and perused the records. As regards the first issue of eligibility of the assessee for deduction u/s 36(1)(viia) we may first gainfully refer to provisions of section 36(1)(viia). The same is as under : [(viia) in respect of any provision for bad and doubtful debts made by (a) a scheduled bank [not being a bank incorporated by or under the laws of a country outside India] or a non-scheduled bank 49[or a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank], an amount 50[not exceeding seven and one-half per cent] of the total income (computed before making any deduction under this clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se requires,- (i) Reference to a banking company or the company or such company shall be construed as references to a co-operative bank; (ii) Reference to commencement of this Act shall be construed as reference to commencement of the Banking Laws(Application to Cooperative Societies) Act, 1965 (23 of 1965); (b) in section 2, the words and figures the Companies Act, 1956 (1 of 1956) and shall be omitted; (c) in section 5,- 1 [(i) after clause (cc), the following clauses shall be inserted, namely:-etc: Thus the act itself makes it so clear that the words Banking Company referred to in section 5(d) of the act means and includes a CoOperative bank. I quote section 5 of the banking regulation act 1949: 5. Interpretation.-,9[ln this Act], unless there is anything repugnant in the subject or context,- 10[(a) approved securities means-- (i) securities in which a trustee may invest money under clause (a), clause (b), clause (bb), clause (c) or clause (d) of section 20 of the Indian Trusts Act, 1882 (2 of 1882); (ii) such of the securities authorised by the Central Government under clause (f) of section 20 of the Indian Trusts Act, 1882 (2 of 1882), as may be prescribed; ] (b) banking means ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the banking regulation act and I quote non-scheduled bank means banking company as defined in clause (c) of section 5 of the Banking Regulation Act 1949. It necessarily follows that once a bank has been declared and notified as a non scheduled bank under the banking Regulation Act 1949 by the Reserve bank of India, it is entitled to deduction U/S 36(1) (viia) of the said IT act. . The present Appellant being duly notified as a Non-Scheduled Bank by the Reserve Bank of India is therefore entitled to deduction u/s 36 (1) .(viia) of the act. It is therefore respectfully prayed that the addition made on this ground by the learned Assessing Officer on the grounds that the Appellant Bank is not a non-scheduled bank, may kindly be deleted. 10. Upon careful consideration we note that the AO has made the disallowance u/s 36(1)(viia) by holding that the assessee bank is neither a scheduled bank nor a non schedule bank nor a cooperative bank. Now from the finding of the learned CIT(Appeals) above and the submission of the learned counsel of the assessee it transpires that a conjoined reading of the Banking Regulation Act and the Companies Act makes it clear that all cooperative banks operatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court are extracted below: Applicability of Section 145 40. At the outset, we may state that in essence RBI Directions 1998 are Prudential/Provisioning Norms issued by RBI under Chapter'iJIB of the RBI Act, 1934. These Norms deal essentially with Income Recognition. They force the NBFCs to disclose the amount of NPA in their financial accounts. They force the NBFCs to reflect true and correct profits. By virtue of Section 45Q, an overriding effect is given to the Directions 1998 vis-a-vis Income Recognition principles in the Companies Act, 1956. These Directions constitute a code by itself. However, these Directions 1998 and the IT Act operate in different areas. These Directions 1998 have nothing to do with computation of taxable income. These Directions cannot overrule the 'permissible deductions or their exclusion under the IT Act. The inconsistency between these Directions and Companies Act is only in the matter of Income Recognition and presentation of Financial Statements. The Accounting policies adopted by an NBFC cannot determine the taxable income. It is well settled that the Accounting Policies followed by a company can be changed unless the AO comes to the concl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into consideration the ratio of the Apex Court in Southers Technologies Ltd., and that of the Delhi High Court in the case of Vasistha Chay Vyapar Ltd. (supra) reported in 330 CTR 440 (Del.) Respectfully following the above judicial pronouncements, I hold that the AO has not justified in disallowing ₹ 27,03,083/-as income of the appellant being interest accrued on NPAs. This ground is therefore allowed. Against the above order, Revenue is in appeal before us. 12. Having heard both the counsel and perusing the record, we find that the ratio from the above Tribunal decision is clearly applicable on the facts of this case. We further note that Hon ble Delhi High Court in similar case has duly expounded that the assessee is correct in not recognizing interest accrued on the NPA. The ratio has been followed by the Tribunal in the order as above. We further note that similar view was taken by Hon ble jurisdiction High Court in the case of CIT v/s M/s. Deogiri Nagari Sahakari Bank Ltd., ITA no.53 OF 2014, judgment dated 22nd January 2015. Since the facts are identical, respectfully following the precedents, we hold that interest on NPA had not accrued to the assessee. Accordingly, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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