TaxTMI 
TaxTMI 
2014 (11) TMI 94
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....) dt.23.12.2009, wherein the income of the assessee was determined at Rs. 9,59,42,620, as against the returned income of Rs. 1,64,86,170 in view of the following additions / disallowances thereto :- i. Addition to interest income : Rs. 6,99,73,139. ii. Provision for NPA : Rs. 1,50,00,000. iii. Provision for Audit Cost : Rs. 4,00,000. iv. Disallowance u/s.40(a)(ia) of the Act : Rs. 17,38,322 2.2 Aggrieved by the order of assessment for Assessment Year 2007-08 dt.23.12.2009,the assessee preferred an appeal before the CIT(Appeals), Hubli. The learned CIT (Appeals) vide order dt.29.12.2011 disposed off the assessee's appeal allowing the assessee partial relief, deleting the aforesaid additions / disallowances, even while giving certain directions to the Assessing Officer in respect of some of the issues. 3. Aggrieved by the order of the CIT(Appeals), Hubli dt.29.12.2011 for Assessment Year 2007-08, Revenue has preferred this appeal before Tribunal raising the following grounds :- "1. The order of the Commissioner of Income Tax (Appeals), Hubli, is bad in law. 2. The order of the Commissioner of Income Tax (Appeals), Hubli, is opposed to law and not on the fa....
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....s, the Assessing Officer observed that the assessee is following the hybrid system of accounting, which is in contravention of the provisions of section 145 of the Act. As per the Assessing Officer, in terms of section 145 of the Act, the income chargeable under the head 'profits and gains from business and profession' shall be computed in accordance with either cash or Mercantile System of Accounting regularly employed by the assessee. The Assessing Officer observed that the assessee is accounting for the interest on receipt basis and others on accrual basis. In support of his view, the Assessing Officer placed reliance on the decision of the ITAT, Chennai in the case of JCIT V India Equipment Leasing Ltd. (2008) 296 ITR (AT) 177. In that view of the matter, the Assessing Officer held that interest which is accrued on loans and advances is to be treated as income for the relevant assessment year and accordingly brought the amount of Rs. 6,99,73,139 to tax in the assessee's hands. 5.3.1 On appeal before the learned CIT (Appeals), the assessee submitted that being bound by RBI Guidelines in this regard, it has been recognising the interest receivable on loans and adva....
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.... on by the assessee having nothing to do with the accounting system for recognising taxable income as per the Income Tax Act, 1961 as they operate in different fields. 5.5 Per contra, the learned Authorised Representative of the assessee supported the order of the learned CIT (Appeals) and placed reliance on the following judicial pronouncements :- (i) CIT V Urban Co-op. Bank Ltd. [ ITA No.471 of 2013 (Kar. High Court) ] dt.30.6.2014. (ii) Shiva Sahakari Bank Niyamitha (ITA No.257/Bang/2007) of ITAT, Bangalore. 5.6.1 We have heard both parties and perused and carefully considered the material on record, including the judicial decisions placed reliance upon. It is not in dispute that the assessee is in the business of banking and is governed by the Banking Regulations Act, 1949. The question for consideration before us is whether the interest accrued on NPAs, which are doubtful of being recovered, should be recognised as income on accrual basis or on receipt basis. We find that this issue has been considered by the Hon'ble Karnataka High Court in the case of Urban Co-operative Bank Ltd. (supra). In that case, the question of law before the Hon'ble High Court was ....
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....referred case are identical and therefore respectfully following the decision of the Hon'ble High Court of Karnataka in the case of Urban Co-operative Bank Ltd. (supra), we decide the issue in favour of the assessee. Consequently, grounds raised by revenue at S.Nos.3 and 5 are dismissed. 5.7 As regards the contention raised by revenue that the learned CIT (Appeals) has travelled beyond the powers vested in him under the I.T. Act, 1961, by remitting the issue back to the file of the Assessing Officer, we do not concur with the contention of revenue. As per an appreciation of the material on record, we find that the learned CIT (Appeals) has rendered a finding that the interest income should be allowed in the light of the decision of the Hon'ble Apex Court in the case of UCO Bank Ltd. in 237 ITR 889. In this light of this finding, the learned CIT (Appeals) has rendered a decision on the substantive issue raised in the grounds of appeal. It appears that since the assessee also pointed out certain mistakes in the computation of interest, the learned CIT (Appeals) has directed the Assessing Officer to compute the quantum of interest to be allowed correctly, by considering the....
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...., which are binding on the assessee and therefore it should be allowed as a deduction under the Act. It was submitted that provision for NPAs is made only when recovery is difficult or may not be possible and therefore the same should be allowed as deduction. 6.3.2 Section 36(1)(viia) of the Act provides for allowance of any provision for bad and doubtful debts. Although the assessee has used the nomenclature for the provision as "Provision for NPAs", but in pith and substance the provision has been created for bad and doubtful debts and in doing so, the assessee has followed the RBI Guidelines. In the light of the above discussions of this issue and the decision of the Hon'ble Apex Court in the case of UCO Bank Ltd. (supra), we concur with and do not find it necessary to interfere with the decision of the learned CIT (Appeals) in allowing the assessee's claim of deduction on account of provision for NPA. Consequently the grounds raised at S.Nos.6 & 7 are dismissed. 7. Provision for Audit Cost. 7.1 The ground raised at S.No.8, challenges the action of the order of the learned CIT (Appeals) in allowing the provision for Audit Fees amounting to Rs. 4,00,000. In the c....