2024 (5) TMI 1497 - AT - Income Tax

Revenue's appeal dismissed as bad debts deletion under section 36(1)(viia) and non-performing asset interest treatment upheld

Income Tax Officer Ward-2, Bhandara Versus The Bhandara Urban Co-operative Bank Ltd.

ITAT Nagpur upheld CIT(A)'s deletion of additions regarding bad and doubtful debts under section 36(1)(viia) and accrued interest on non-performing ... Deduction u/s 36(1)(viia) - CIT (A) deleted the addition on account of bad and doubtful debts - HELD THAT:- We find that this issue has been decided in favour of the assessee in the case of Arvind Sahakari Bank Ltd [2015 (9) TMI 1768 - ITAT NAGPUR] - The issue is also covered by the decision of Bhandara District Central Co-operative Bank Ltd [2016 (2) TMI 1387 - ITAT NAGPUR] for the assessment year 2010-11, wherein the Tribunal has decided this issue against the Revenue and in favour of the assessee. Addition towards accrued interest on non-performing - CIT(A) deleted addition - HELD THAT:- We find that the issue is covered in favour of the assessee by the judgment of CIT v/s Deogiri Nagari Sahakari Bank Ltd. [2015 (1) TMI 1218 - BOMBAY HIGH COURT] and Arvind Sahakari Bank Ltd [2015 (9) TMI 1768 - ITAT NAGPUR] decided in favour of the assessee wherein as expounded that the assessee is correct in not recognizing interest accrued on the NP - respectfully following the same, we decline to interfere with the well-reasoned and cogent order passed by the learned CIT (A) and dismiss the ground no.2, raised by the Revenue. Issues Involved:1. Disallowance of deduction under Section 36(1)(viia) of the Income Tax Act, 1961.2. Addition made on account of accrued interest on Non-Performing Assets (NPAs).Detailed Analysis:1. Disallowance of Deduction under Section 36(1)(viia):The Revenue challenged the order of the learned Commissioner of Income Tax (Appeals) [CIT(A)], who had deleted the disallowance of Rs. 1,94,57,134 claimed by the assessee, a Co-operative Bank, under Section 36(1)(viia) of the Income Tax Act, 1961. The Assessing Officer (AO) had initially disallowed this deduction on the grounds that the bank did not qualify as a 'primary co-operative bank' as per the definitions provided in the Banking Regulation Act, 1949, and the NABARD Act, 1981. The CIT(A) found that the issue had been previously decided in favor of the assessee in subsequent assessment years, supported by judicial precedents from the ITAT Nagpur Bench and a list from the RBI identifying the assessee as a District Central Co-operative Bank. The Tribunal upheld the CIT(A)'s decision, noting that the issue was covered by the Tribunal's prior decisions and various judicial precedents, including those from the High Courts and the Supreme Court, which supported the assessee's entitlement to the deduction under Section 36(1)(viia).2. Addition on Account of Accrued Interest on NPAs:The second issue pertained to the addition of Rs. 1,43,97,123 made by the AO for accrued interest on NPAs, which the assessee had not recognized as income based on RBI's prudential norms. The CIT(A) had allowed the assessee's appeal, relying on judicial precedents that supported the non-recognition of interest on NPAs as per RBI guidelines, which have an overriding effect on income recognition principles. The Tribunal noted that this issue was also covered by prior decisions, including those of the Hon'ble Bombay High Court and the ITAT, which had consistently held that interest on NPAs does not accrue to the assessee for tax purposes. The Tribunal, therefore, upheld the CIT(A)'s order, dismissing the Revenue's appeal on this ground as well.Conclusion:The Tribunal dismissed the Revenue's appeal in its entirety, affirming the CIT(A)'s order that allowed the deduction under Section 36(1)(viia) and excluded the accrued interest on NPAs from taxable income. The Tribunal's decision was based on established judicial precedents and the lack of any distinguishing facts presented by the Revenue to warrant a different conclusion.