TaxTMI 
TaxTMI 
2016 (3) TMI 275
X X X X Extracts X X X X
X X X X Extracts X X X X
....sponse to the notice, the assessee's authorized representative appeared from time to time and furnished the information and documents called for. During the course of assessment proceedings, the assessee was asked to clarify, whether interest on NPA was credited to the profit & loss account or not. If not the assessee was requested to give the reasons for the same. In reply, the assessee has filed a letter dated 24.12.2012 and stated that it has not credited interest on NPA to the profit & loss account. The assessee further submitted that it is following the method of accounting as per the accounting standards regularly, wherein the income on NPA is offered on the basis of actual realization rather than on accrual basis. The assessee further submitted that being a co-operative bank bound to follow the guidelines issued by the RBI accordingly, income recognition was made as per the RBI guidelines. The A.O. after considering the explanations of the assessee added the interest on non performing assets and completed the assessment. While doing so, the A.O. was of the opinion that the guidelines of RBI cannot over ride the mandatory provisions of the Income Tax Act 1961. The A.O. furthe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ines issued by the RBI cannot over ride the provisions of the Income-Tax Act, 1961, as section 145 of the Act, mandates that the assessee's either to follow mercantile or cash system of accounting. The Ld. D.R. further submitted that as per the board instruction no.17 of 2008 dated 26.11.2008, it was mandatory on the part of all banks including Co-op Banks to follow the mercantile system of accounting and prepare accounts on accrual basis. Therefore, the A.O. has rightly made the additions and his order should be upheld. 5. On the other hand, the Ld. A.R. of the assessee strongly supported the order of the CIT(A). The A.R. further submitted that the issue involved in this appeal i.e. taxability of interest on non performing asset was squarely covered by the decision of ITAT, Visakhapatnam in assessee's own case for the assessment year 2009-10. The A.R. further submitted that the assessee is a cooperative bank, is bound to follow the regulative instructions of RBI and as per the guidelines issued by the RBI, all cooperative banks should follow prudential norms for income recognition, asset classification and provisioning. The assessee being a cooperative bank bound to follow the gu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assification and provisioning. Therefore, the assessee following the guidelines issued by the RBI did not recognize the interest accrued to the NPAs. The A.O. was of the opinion that since, the assessee is following mercantile system of accounting, it should recognize the interest relatable to NPAs, therefore, made the additions. The CIT(A), by relied upon the judgement of the ITAT, Hyderabad bench in the case of TCI Finance Ltd. Vs. ACIT (2004) 91 ITD 573 and also the Hon'ble Madras High Court judgement in the case of CIT Vs. Annamalai Finance Ltd. (2005) 275 ITR 451, held that when the principal amount itself is doubtful of recovery, it cannot be said that any interest accrued on such principal amount is recoverable. As the appellant is following the established method of accounting and recognizing the interest on NPAs at the time of realization, the A.O. is not correct in taxing the interest on NPAs on accrual basis. 7. We have gone through the reason given by the CIT(A) as well as the case laws relied upon by the assessee. The A.R. of the assessee at the time of hearing submitted that the issue is squarely covered by the decision of ITAT Visakhapatnam bench in the case of DC....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., the assessee herein is a cooperative bank and it is not in dispute that it is also governed by the Reserve Bank of India. Hence the directions with 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 (Supra), that the provision of 45Q of Reserve Bank of India Act has an overriding effect vis-à-vis income recognition principle under the Companies Act. Hence Sec.45 Q of the RBI Act shall have overriding effect over the income recognition principle followed by cooperative banks also. Hence the Assessing Officer has to follow the Reserve Bank of India directions 1998, as held by the Hon'ble Supreme Court. Based on the prudential norms, the assessee herein did not admit the interest relatable to NPA advances in its total income. The Hon'ble Delhi High Court in the case of Vasisth Chay Vyapar Ltd (Supra) has held that the interest on NPA assets cannot be said to have accrued to the assessee. In this regard, the following observations of Hon'ble Delhi High Court in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ay of relaxation of any of the provisions of the sections specified there or otherwise. The Board thus has power, inter al/a, to tone down the rigour of the law and ensure a fair enforcement of its provisions, by issuing circulars in exercise of its statutory powers under s. 119 which are binding on the authorities in the administration of the Act. Under s. 119(2)(a), however, the circulars as contemplated therein cannot be adverse to the assessee. Thus, the authority which wields the power for its own advantage under the Act is given the right to forego the advantage when required to wield it in a manner it considers just by relaxing the rigour of the law or in other permissible manners as laid down in s. 119. The power is given for the purpose of just, proper and efficient management of the work of assessment and in public interest. 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. Hard cases which can be properly categorised as belonging to a class, can thus be given the benefit of relaxation of law by issuing circulars binding on the taxing au....