Non-performing asset interest follows receipt-based taxation, while eligible bank provisions and co-operative society deductions remain available.

Interest on non-performing assets of a co-operative bank is recognised on receipt basis where RBI directions require that treatment and the bank consistently follows it; the extension of Section 43D treatment to co-operative banks is described as curative and retrospective. Provisions for non-performing assets qualify for deduction under Section 36(1)(viia) where the claims are within the computed eligible amounts and supporting factual findings remain uncontroverted. Deduction under Section 80P(2)(c)(ii) is also described as available to a co-operative society, including a co-operative bank, consistent with earlier-year treatment.

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Issues: (i) Whether deductions claimed for provisions for non-performing assets were allowable under Section 36(1)(viia); (ii) Whether accrued interest on non-performing assets was taxable on accrual basis in the hands of a co-operative bank; (iii) Whether deduction under Section 80P(2)(c)(ii) was allowable to the co-operative bank.

Issue (i): Whether deductions claimed for provisions for non-performing assets were allowable under Section 36(1)(viia).

Analysis: The deductions actually claimed for provisions were below the amounts computed as eligible deductions. The first appellate authority's factual findings, based on the remand report and the record, remained uncontroverted.

Conclusion: The deductions under Section 36(1)(viia) were allowable. This issue is decided in favour of the assessee.

Issue (ii): Whether accrued interest on non-performing assets was taxable on accrual basis in the hands of a co-operative bank.

Analysis: The bank was bound by RBI directions requiring interest on non-performing assets to be recognised on receipt basis, and had consistently followed that method. The amendment extending Section 43D treatment to co-operative banks was regarded as curative and retrospective, removing the distinction between scheduled and non-scheduled co-operative banks for this purpose.

Conclusion: Interest on non-performing assets was taxable on receipt basis and not on accrual basis. This issue is decided in favour of the assessee.

Issue (iii): Whether deduction under Section 80P(2)(c)(ii) was allowable to the co-operative bank.

Analysis: The deduction had been allowed in earlier years, and the position that it was available to a co-operative society including a co-operative bank was not controverted.

Conclusion: The deduction under Section 80P(2)(c)(ii) was allowable. This issue is decided in favour of the assessee.

Final Conclusion: The deletions and deductions sustained by the first appellate authority remain effective for all the assessment years concerned.

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