TaxTMI 
TaxTMI 
2015 (4) TMI 1100
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....e course of assessment proceedings, the AO observed that the balance sheet of the assessee for the impugned assessment year shows an amount of Rs. 2,88,00,000/- as interest receivable on NPA account on the asset side and a contra entry "NPA interest reserve account" was shown in the liability side. On being asked by the AO, it was stated by the assessee that the interest accrued on NPA was not credited to the profit and loss account but directly taken to the balance sheet. The relevant details of interest on NPA accrued and collected were submitted before the AO, the details of which are as under : Overdue interest reserve as per balance sheet As at 31-03-2008 Rs.881.04 lacs Add : Interest on NPA loans credited to Reserve and not credited to Profit and Loss Account during F.Y. 2008-09 Rs.288.29 lacs Less : Interest on NPA loans recovered during the year transferred from Reserve and creditedto P& L A/c. Rs.420.66 lacs Closing balance as on 31-03-2009 Rs.748.67 lacs The AO asked the assessee as to why such interest accrued on NPA should not be treated as income since the assessee is following mercantile system of accounting. The assessee justified its....
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....anabad Janata Sahakari Bank Ltd., vide ITA No.795/PN/2011 order dated 31-08-2012 for A.Y. 2007- 08 it was argued that the issue has been decided in favour of the assessee. 6. Based on the arguments advanced by the assessee and relying on the decision of the Pune Bench of the Tribunal in the case of Osmanabad Janata Sahakari Bank Ltd. vide ITA No.795/PN/2011 the Ld.CIT(A) directed the AO to delete the addition made by the AO on account of interest receivable on NPAs on accrual basis for the impugned assessment year. 7. Aggrieved with such order of the CIT(A) the Revenue is in appeal before us. 8. The Ld. Counsel for the assessee at the outset filed a copy of the decision of the Pune Bench of the Tribunal in the case of Osmanabad Janata Sahakari Bank Ltd.(Supra) submitted that the issue stands decided in favour of the assessee by the decision of the Tribunal. The Ld. Departmental Representative also fairly conceded that the issue stands decided in favour of the assessee. 9. We find the Tribunal in the case of Osmanabad Janata Sahakari Bank (Supra) while deciding an identical issue has observed as under : "5. We heard the rival submissions of the parties and perused the....
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..... 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 co-operative bank. Undisputedly, the assessee is also governed by the RBI guidelines. Vide an explanation (d) r.w.s. 36(1)(vii....
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....e 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 Circular the interest is to be added as income only when actually received or credited in re....
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.... 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 9-101984. 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 gives the legislative intention stating that section 43D was inserted with a view to ....
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....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 section 36(1)(vii) a provision for doubtful debt is kept out of the ambi....
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.... 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." 10. Respectfully following the decision of the Coordinate Bench of the Tribunal in the case cited (supra) and in absence of any contrary material brought to our notice against the order of the Tribunal we find no infirmity in the order of the CIT(A) directing the AO to delete the addition on account of interest receivable on NPA on accrual basis. The grounds raised by the Revenue are accordingly dismissed. CO No.11/PN/2015 ( By Assessee) : 11. There was a delay of 9 days in filing of the CO for which the assessee has filed an affidavit along with condonation petitio....
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....isions of Rule 8D fails miserably. Accordingly, it was argued that no disallowance u/s.14A can be made. 15. However, the AO was not satisfied with the explanation given by the assessee and disallowed an amount of Rs. 5,21,005/- being 0.0825% of the expenditure as shown in the profit and loss account at Rs. 63,15,21,703/-. The aforesaid percentage was taken by the AO on the basis of the ratio of exempt dividend income to total income as per profit and loss account. 16. In appeal the Ld.CIT(A) upheld the action of the AO. Aggrieved with such order of the CIT(A) the assessee has taken this ground in the CO. 17. The Ld. Counsel for the assessee at the outset referring to page 10 of the assessment order drew the attention of the Bench where the AO has computed the disallowance under Rule 8D and submitted that such computation is not in accordance with the provisions of Rule 8D. He submitted that the own funds of the assessee are more than the investments made and therefore the assessee need not have to incur any expenditure on account of interest. So far as the administrative expenses are concerned he submitted that the assessee is not required to spend any amount since the div....
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....on'ble Karnataka High Court in the case of Smt. Leena Ramchandran (Supra). However, the AO has not commented upon the above submission of the assessee. Even though such an argument was taken before the CIT(A), however, the Ld.CIT(A) also decided the issue against the assessee. We find the Pune Bench of the Tribunal in the case of Shri Apoorva Patni and other connected appeals (Supra) while deciding an identical issue deleted the disallowance made u/s.14A wherein the assessee was a dealer in shares and securities and had earned dividend income on shares of certain companies. The relevant observation of the Tribunal at para 29 reads as under : "29. We have carefully considered the rival submissions. In the case of M/s CCI Ltd. (supra), the assessee was, inter alia, a dealer in shares and securities and had earned dividend income on shares of certain companies. The Assessing Officer found that the assessee had raised interest bearing loans to part-finance the shares and it had also incurred brokerage for arranging such loans. The Assessing Officer held that such expenditure was directly attributable to the earning of dividend income and invoked section 14A of the Act read with Rule....