TaxTMI 
TaxTMI 
TaxTMI 
2016 (2) TMI 36
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....the Hon'ble Supreme Court in the case of Southern Technologies Ltd. vs. JCIT (2010) 320 ITR 527, has held that guidelines of RBI to banking institutions cannot override the provisions of I.T. Act? 3. The appellant craves leave to add, amend or alter any of the above grounds of appeal." 3. Facts of the case, in brief, are that the assessee is a cooperative society engaged in the business of banking. It filed its return of income on 13-09-2010 declaring total income of Rs. 80,02,320/-. During the course of assessment proceedings, the AO noticed after comparing the balance sheet of the preceding year that there was increase in interest in NPA amounting to Rs. 1,10,00,642/- compared to last year which was not offered for taxation. He, therefore, issued a show cause notice asking the assessee to explain as to why interest on NPA account not routed through the profit and loss account should not be added to the income. It was explained by the assessee that it was following RBI guidelines for treatment of interest income on NPA account and as per RBI guidelines it was not required to account for interest related to NPAs. It was submitted that as per section 5 of the I.T. Act only real i....
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.... filed the decision of Hon'ble Bombay High Court in the case of CIT Vs. Deogiri Nagari Sahakari Bank Ltd. and others reported in 379 ITR 24 and submitted that the Hon'ble High Court after considering the decision of Hon'ble Delhi High Court in the case of Vasisth Chay Vyapar Ltd. reported in 330 ITR 440 and the decision of Hon'ble Supreme Court in the case of Southern Technologies Ltd. reported in 320 ITR 577 has held that the assessee being a cooperative society was also governed by the RBI. Thus, the directions with regard to the prudential norms issued by the RBI are equally applicable to cooperative societies. The provisions of section 45Q of the RBI Act, 1934 have an overriding effect, vis-à-vis income recognition under the Companies Act and hence the section 45Q of the RBI Act, 1934 shall have the overriding effect over the income recognition principle followed by cooperative societies. Hence, the AO has to follow the RBI directions. It was accordingly held that the deletion of the additions on account of interest on sticky advances was justified. He accordingly submitted that in view of the binding decision of Hon'ble jurisdiction High Court the appeal filed by the Re....
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....rrectness of the order passed by the Income-tax Appellate Tribunal. 6. The learned counsel, Mr. Alok Sharma, appearing for the appellants-Revenue submits that, the assessee in all these cases are the co-operative banks and not scheduled banks, therefore, the special provisions of section 43D of the Income-tax Act will not be applicable to them. Learned counsel further submits that, in view of the provisions of section 145 of the Income-tax Act, the assessee-co-operative banks have to follow either the mercantile system of accounting or cash system. They cannot have mixed system of account. The learned counsel also submits that, the RBI directions under the Reserve Bank of India Act are prudential norms but have nothing to do with the computation or taxability of the provision of the NPA under the Income-tax Act. Learned counsel further submits that though the RBI directions deviate from the accounting practice as provided by the Companies Act but they do not override the provisions of the Income-tax Act and they are operating in different fields. The learned counsel for the appellants-Revenue, lastly, submits that the learned Tribunal ought to have held that the assessee co-opera....
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....r has to follow the Reserve Bank of India Directions, 1998, as held by the hon'ble Supreme Court. 10. The honourable apex court in the case of UCO Bank's case (supra) had an occasion to consider the nature of the Central Board of Direct Taxes Circular and the hon'ble apex court has thus held that the Board has power, inter alia, to tone down the rigour of the law and ensure a fair enforcement of its provisions, by issuing circular in exercise of its statutory powers under section 119 of the Act which are binding on the authorities in the administration of the Act, it is a beneficial power given to the Board for proper administration of fiscal law so that undue hardship may not be caused to the assessee and the fiscal laws may be correctly applied. Further, a similar issue was raised about interest accrued on a "sticky" loan which was not recovered by the assessee-bank for the last three years and transferred to the suspense account, would or would not be included in the income of the assessee for the particular assessment year. The hon'ble apex court has observed that : "The method of accounting which is followed by the assessee-bank is the mercantile system of ....
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....erest has to be treated as doubtful claim which need not be included in the income of the assessee until it is actually recovered. . . . In the present case, the circulars which have been in force are meant to ensure that while assessing the income accrued by way of interest on a 'sticky' loan, the notional interest which is transferred to a suspense account pertaining to doubtful loans would not be included in the income of the assessee, if for three years such interest is not actually received. The very fact that the assessee although generally using a mercantile system of accounting, keeps such interest amounts in a suspense account and does not bring these amounts to the profit and loss account goes to show that the assessee is following a mixed system of accounting by which such interest is included in its income only when it is actually received. Looking to the method of accounting so adopted by the assessee in such cases, the circulars which have been issued are consistent with the provisions of section 145 and are meant to ensure that assessees of the kind specified who have to account for all such amounts of interest on doubtful loans are uniformly given the benefi....