TaxTMI 
TaxTMI 
TaxTMI 
2015 (3) TMI 603
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....the solitary dispute relates to an addition of Rs. 53,88,043 for the assessment year 2009-10 and Rs. 38,36,285 for the assessment year 2010-11 respectively made by the Assessing Officer on account of interest income on non-performing asset advances. Briefly put, the controversy can be summarised as follows. The assessee is a non-scheduled co-operative bank carrying on banking business in terms of a licence issued by the Reserve Bank of India (RBI), and is thus governed by circulars of the Reserve Bank of India relating to prudential norms, income recognition, asset classification, provisioning and other related matters. In terms of such prudential norms of the Reserve Bank of India, the assessee did not account for interest relating to non-performing assets (NPAs) i.e., advances to customers which were classified as non-performing assets in terms of the Reserve Bank of India guidelines. The Assessing Officer was of the opinion that interest income even in relation to such non-performing assets was liable to be included in this year's total income, having regard to the mercantile system of accounting followed by the assessee. As per the Revenue, the provisions of section 43D of ....
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....nue to the effect that the same is not applicable to the assessee. Ostensibly, the assessee is a co-operative bank carrying on banking business in terms of a licence granted by the Reserve Bank of India and is not a 'scheduled bank' included in the second schedule of the Reserve Bank of India so as to fall within the scope of section 43D of the Act. Notably, section 43D of the Act prescribes that interest income on such categories of bad and doubtful debts as prescribed by the Reserve Bank of India guidelines shall be chargeable to tax in the year in which such interest income is credited by the assessee in the profit and loss account or in the year of actual receipt, whichever is earlier. Since the assessee is not an entity covered within the scope of section 43D of the Act, the present controversy cannot be adjudicated in the light of section 43D of the Act, and it is liable to be decided on general principles as to whether the impugned income has accrued to the assessee during the year under consideration. 9. In this connection, we find that the Visakhapatnam Bench of the Tribunal in the case of Durga Co....
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.... income relatable to non-performing assets in its total income. The Assessing Officer, however, added the said interest as the income of the assessee by holding that it had "accrued" to the assessee even it was not realised as the assessee was following mercantile system of accounting. The learned Commissioner of Income-tax (Appeals) affirmed the order of the Assessing Officer. However, the Income-tax Appellate Tribunal deleted the aforesaid income. Hence the Revenue preferred appeal before the hon'ble Delhi High Court.' 8.1 After hearing the rival submissions, the hon'ble Delhi High Court took note of section 45Q of the Reserve Bank of India Act which reads as under : "45Q. Chapter IIIB to override other laws.- The provisions of this Chapter shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law'. The High Court took note of the fact that the provision of section 45Q of the Reserve Bank of ....
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.... Finance Ltd. [2007] 293 ITR 357 (Mad) (ii) CIT v. KICM Investment Ltd. (Cal)-SLP dismissed by the Supreme Court [2009] 310 ITR (St.) 4 (iii) CIT v. Motor Credit Co. P. Ltd. [1981] 127 ITR 572 (Mad) (iv) UCO Bank v. CIT [1999] 237 ITR 889 (SC) (v) CIT v. Shoorji Vallabhdas and Co. [1962] 46 ITR 144 (SC) (vi) Godhra Electricity Co. Ltd. v. CIT [1997] 225 ITR 746 (SC) (vii) CIT v. Goyal M G Gases (P) Ltd. [2008] 303 ITR 159 (Delhi) (viii) CIT v. Eicher Ltd. (I. T. A. No. 431 of 2009 dated July 15, 2009) [2010] 320 ITR 410 (Delhi) 8.3 After considering the Accounting Standard 9 and the various case law listed above, the hon'ble Delhi High Court held that the interest on non-performi....
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.... provisions of the Act. However, the apex court made a distinction with regard to "income recognition" and held that income had to be recognised in terms of the prudential norms, even though the same deviated from mercantile system of accounting and/or section 145 of the Income-tax Act. It can be said, therefore, that the apex court approved the "real income" theory which is engrained in the prudential norms for recognition of revenue by NBFC'. 9. The hon'ble Supreme Court in the case of Southern Technologies Ltd. v. Joint CIT [2010] 320 ITR 577 (SC) dissected the matter into two parts viz.,(a) income recognition and (b) permissible deduction/ exclusions under the Income-tax Act. In so far as income recognition is concerned, the hon'ble Supreme Court held that section 145 of the Income-tax Act has no role to play and the Assessing Officer has to follow the Reserve Bank of India Directions 1998, since by virtue of section 45Q of the Reserve Bank of India Act, an overriding effect is given to the directions of the Reserve Bank of India vis-a-vis income recognition principles in the Companies Act, 1956. In so fa....
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....th regard to the prudential norms issued by the Reserve Bank of India are equally applicable to the assessee as it is applicable to the companies registered under the Companies Act. The hon'ble Supreme Court has held in the case of Southern Technologies Ltd. v. Joint CIT [2010] 320 ITR 577 (SC), that the provision of 45Q of the Reserve Bank of India Act has an overriding effect vis-a-vis income recognition principle under the Companies Act. Hence section 45Q of the Reserve Bank of India Act shall have overriding effect over the income recognition principle followed by co-operative banks also. Hence the Assessing Officer has to follow the Reserve Bank of India Directions 1998, as held by the hon'ble Supreme Court. 10.1 Based on the prudential norms, the assessee herein did not admit the interest relatable to non-performing assets advances in its total income. The hon'ble Delhi High Court in the case of CIT v. Vasisth Chay Vyapar Ltd. [2011] 330 ITR 440 (Delhi) has held that the interest on non-performing assets cannot be said to have accrued to the assessee. In this regard, the following observatio....
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....ras High Court took the view that the judgment of the hon'ble Supreme Court in the case of Southern Technologies Ltd. v. Jt. CIT [2010] 320 ITR 577 (SC) also applied to the income recognition norms provided by the Reserve Bank of India and therefore it held the interest income on non-performing assets is liable to be taxed on accrual basis and not in terms of the Reserve Bank of India's guidelines. But the hon'ble Delhi High Court in the case of CIT v. Vasisth Chay Vyapar Ltd. [2011] 330 ITR 440 (Delhi) has taken a view that Southern Technologies Ltd. v. Joint CIT [2010] 320 ITR 577 (SC) case did not apply to the income recognition norms prescribed by the Reserve Bank of India. Ostensibly, there is divergence of opin ion between the hon'ble Delhi High Court and the hon'ble Madras High Court as noted by the hon'ble Madras High Court in its order. 12. In so far as, present case is concerned there is no judgment of the jurisdictional High Court. We are faced with two contrary judgments of the non-jurisdictional High Court. In such a situation, we are inclined to prefer a view which is fav....