TaxTMI 
TaxTMI 
2013 (9) TMI 1083
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.... has accrued interest on NPA account of Rs. 1,32,49,730/- and out of which the assessee has actually received Rs. 1,30,58,733/- and same has been offered to tax. The assessee did not offer Rs. 1,90,997/- in respect of accrued interest on NPA account. The AO made the addition of Rs. 1,90,997/- by observing that as the assessee is following mercantile system of accounting and the accrued interest on NPA has to be brought to tax. The AO also declined to accept the argument of the assessee that assessee has been consistently following cash method of accounting recognising income in respect of assets qualified as bad and doubtful (NPA) as per RBI guidelines in view of the provisions of section 145 and section 43D. The Ld.CIT(A) deleted the addition following the decision of the ITAT, Pune in the case of ACIT, Circle- 3, Nanded Vs. Osmanabad Janata Sahari Bank Ltd. vide ITA No.795/PN/2011 dated 31-08-2012. Now the Revenue is in appeal before us. 4. We have heard the parties. We find that the issue stands covered in favour of the assessee by the decision of this Bench in the case of Osmanabad Janata Sahari Bank Ltd (Supra). The operative part of the finding and reasonings of the Tribunal....
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.... interest shall be chargeable to tax in the previous year in which it is actually received. The Act says that the incidence of 'credit' or "actually received", whichever is earlier is to be taken into account for the purpose of chargeability of income by way of interest. Simultaneously, it is noteworthy that this section is an overriding section because the opening word is "notwithstanding anything to the contrary contained in any other provisions of this Act". Therefore, in spite of anything contained in the Act, the provisions of this section shall override those provisions. Once the Statute has categorically made a law in respect of public financial institutions that interest is chargeable to tax either in the year in which credited or actually received, whichever is earlier, then it is compulsory to abide by the said Rule. According to us, no scope is left with the Revenue Authorities to ignore these provisions due to unambiguous use of language in the Section. (ii) Status of assessee for the purpose of application Section 43-D. As far as the status of the assessee is concerned, the Assessing Officer has stated that the assessee-bank is a cooperative bank. Undisputedly, the....
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....the interest to a separate account known as "interest suspense account". On reference, the Hon'ble Court has held that there was an accrual of income liable to income-tax and the assessee was not justified in not crediting the interest income on such "stick advances" it its accounts. However, later on at the Hon'ble Apex Court while pronouncing the judgment of the said State Bank of Travancore vs. CIT reported in (1986)158 ITR 102(SC), there were Hon'ble three Judges presiding the Court, out of which Hon'ble two Judges were in the opinion that the interest on "sticky advances" was rightly treated as income which had accrued to the appellant. There was a descending note by one of the Hon'ble Judge and commented that whether an income on receipt basis or on accrual basis, it is the real income and not any hypothetical income which may have theoretically accrued, i.e. subject to tax under the Act. Nevertheless, that decision was not followed while deciding the appeal of UCO Bank (supra) by the Hon'ble three Judges of the Supreme Court, already discussed by us supra. We, therefore summarize that as of now the law as laid down in UCO Bank is that in terms of CBDT Cir....
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....following the decision of UCO Bank reported at 237 ITR 889(SC) :: 240 ITR 355 (SC). Likewise, in an another case of CIT vs. State Bank of India 262 ITR 662 (Bom.) again it was held that the amount credited to the interest suspense account was not taxable following the decision pronounced in the case of UCO Bank (supra). (V) Judgement in favour of Revenue : From the side of the Revenue an order of the Tribunal has been vehemently relied upon and this is the basic reason of the elaborate discussion made hereinabove so as to unfold the controversy. In the said decision of the Tribunal, viz. Jt.CIT v/s. India Equipment leasing Ltd. (2008)111 ITD 37 (Chennai), the Respected Co-ordinate Bench has expressed that quote " Prior to insertion of section 43D with effect from 1-4-1991, recognition of income was on the basis of circular of 9-10-1984. It said that for first three years the income may be taken on accrual basis and from 4th year onwards, the income in respect of doubtful debts was to be recognized on receipt basis. Since the income was to be assessed for first three years on accrual basis, provisions of section 43D were inserted in the Act. Circular No.621, dated 19-12-1991 giv....
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....ee is a cooperative bank and not a nonbanking financial company and this noteworthy distinction has already been appreciated by us in one of the paragraphs above. There is one more decision of the Hon'ble Apex Court which is yet to be mentioned while discussing the arguments raised from the side of the Revenue. A decision in the case of Southern Technologies Ltd. vs. Jt. CIT 320 ITR 577 (SC) has been cited but the fundamental difference is that the issue before the Hon'ble Court was in respect of provision for NPA and debited to P&L Account by a NBFC. The said provision was undisputedly made by the said NBFC as per the prudential norms made by the Reserve Bank. Therefore we want to make it clear that the question for consideration before the Hon'ble Court was that if a provision for doubtful debt is made then what will be the legal position of the applicability of Explanation to section 36(1)(vii) of the I.T. Act. For the sake of ready reference, relevant paragraph from the held portion is reproduced below: " The income-tax is a tax on "real income", i.e., the profits arrived at on commercial principles subject to the provisions of the Act. Therefore, if by the Explanation to s....
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.... pronounced in the case of Jt.CIT vs. India Equipment Leasing Ltd. 293 ITR 350." 7. In the case before us, admittedly, assessee has directly taken the interest to the Balance Sheet and it is not routed through the Profit & Loss Account. Moreover, the issue of the taxability of the interest on the sticky losses/advances, is covered in favour of the assessee by the decision of the coordinate Benches in the case of The Durga Cooperative Urban Bank Ltd., Vijayawada (supra) and Karnavati Cooperative Bank Ltd. (supra). We find no reason to interfere with the reasoned order of the Ld. CIT(A) and accordingly the same is confirmed. In the result, the Revenue's ground is dismissed." 4.1 We therefore find no reason to interfere with the order of the Ld.CIT(A) and accordingly we confirm the same on this issue. 5. Ground No.2 by the Revenue reads as under : "2. Whether on the facts and in the circumstances of the case, the CIT(A) is correct in holding that the forfeited amount of the dividend is not an income of the assessee u/s.28 of the Act." 6. The AO has observed that the assessee has forfeited an amount of Rs. 9,21,129/- on account of dividend payable which is shown in the liability....
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....amounts to excess provision of dividend which has been reversed by the assessee in the order under appeal and there is no transfer to Reserve Fund account. The Ld.CIT(A) also relied on the decision of ITAT, Delhi in the case of Gulshan Mercantile Urban Cooperative Bank Ltd. vide ITA No.4981/Del/2010 order dated 29-04-2011 allowed the claim of the assessee deleting the addition. 7. We have heard the parties. In this case, it is not controverted before us by the Ld. DR that the dividend which is forfeited was provided from the business profit which has already suffered the tax. In our opinion, as rightly held by the Ld.CIT(A), the provisions of section 41(1) are not applicable to the issue before us as the said provision operate in the different situation. In the case of T.V. Iyengar and Sons Ltd (Supra) applicability of the section 41(1) was before the Hon'ble Supreme Court but in present case section 41(1) itself is not applicable, then we need not discuss the principles laid down in the said decision. We find no fault in deleting the addition by the Ld.CIT(A), which is as per law. We accordingly confirm the order of the Ld.CIT(A) and dismiss the ground No.2 taken by the revenue. ....