TaxTMI 
TaxTMI 
TaxTMI 
2016 (7) TMI 308
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....med the addition made by the AO for which the assessee is in appeal before us. 5. The Ld. Counsel for the assessee at the outset submitted that identical issue has been decided in favour of the assessee by the Tribunal in ITA No.495/PN/2012 order dated 29-09-2014 for A.Y. 2008-09. Following the above decision the Tribunal vide ITA No.1295/PN/2013 order dated 30-12-2014 for A.Y. 2009-10 has deleted such disallowance. Thus the issue is covered in favour of the assessee by the decision of the Tribunal for A.Yrs. 2008-09 and 2009-10. 6. The Ld. Departmental Representative on the other hand fairly conceded that the issue has been decided in favour of the assessee by the decision of the Tribunal for A.Yrs. 2008-09 and 2009-10. 7. After hearing both the sides, we find the Tribunal in assessee's own case in A.Y. 2009-10 vide ITA No.1295/PN/2013 order dated 30-12-2014 has decided the issue in favour of the assessee and deleted the disallowance on account of interest on NPA by observing as under : "4. Insofar as the first Ground of appeal is concerned, it relates to an addition of Rs. 7,68,22,858, on account of interest on non-performing assets (in short "NPAs"). At the time of hearing,....
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....by the Revenue is that assessee had indeed credited such income in its Profit & Loss Account and there is an equivalent amount of Provision made by the assessee by way of debit in the Profit & Loss Account. In essence, the stand of the Revenue is that the impugned income, though relatable to NPAs, is deemed to have accrued since assessee has credited it in its Profit & Loss Account, and the corresponding debit in the Profit & Loss Account is only a Provision for overdue interest and it is not an allowable deduction. 6. In the above background, we have considered the rival stands. The assessee has also furnished an affidavit on oath dated 05.10.2013 enumerating the various factual aspects and in response the Revenue has also furnished its say in terms of written comments dated 18.11.2013 by the Assistant Commissioner of Income Tax, Circle-2, Solapur, the Assessing Officer in this case. Before dwelling on the rival arguments on the objections raised by the Revenue we consider it appropriate to briefly cull out the necessary facts having regard to the orders of the authorities below as well as the material on record. 7. The assessee is registered as a co-operative society and is....
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....s has been separately shown. It is further pointed out that amount on the debit side of the Profit & Loss Account is not appearing as a Provision. Further, even in the Balance-Sheet, it is pointed out that amount of Rs. 82,81,68,339/- on the 'Liabilities' side of the Balance-Sheet does not appear under the head 'Reserve and Other Funds' but is separately disclosed as 'Overdue Interest Reserve'. It is also pointed out that the treatment in the financial statement of the assessee would show that it has never created in a Provision or a Reserve in respect of Overdue Interest on NPAs as sought to be made out by the income-tax authorities. In this context, the following averments in the affidavit are relevant :- "3. It is respectfully submitted that in the Balance Sheet as on 31/03/2008 [in English copy] on the Liability side there appears an entry for Rs. 82,81,68,339.10 styled as Overdue Interest Reserve. The bank submits that the term Reserve is mistakenly used and is erroneous and in fact it is a Contra Entry for Interest Receivable on N.P.A. which is appearing on Asset side of the Balance Sheet under the heading Interest Receivable and sub heading On Society Loans and On Individ....
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....presentation of Profit and Loss Account and dehors of entries in the Balance Sheet which show that the same is simultaneously debited to Interest Receivable on N.P.A. Account [on Asset side] and a contra credit entry is made in Overdue Interest Account [on Liability side] 8. The bank most respectfully submits that the aforesaid factual position was explained by it to the learned Assessing Officer during the assessment proceedings as well as to the learned C.I.T.[A] during the appellate proceedings. However both the authorities have failed to appreciate the facts in the proper perspective. 9. The bank most respectfully submits that entries made while presentation of final accounts to the shareholders for better understanding of the various issues shall not convert the true character and nature of income." 10. Apart therefrom, it has also been pointed out that the gross interest reflected on the credit side of the Profit & Loss Account and the Overdue Interest on NPAs shown on the debit side of the Profit & Loss Account is as per the requirements of section 65 of the Maharashtra Cooperative Societies Act, 1960 which prescribes the manner in which the net profit or loss is re....
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....withstanding the existing provisions in the respective State Co-operative Societies Act. Notably, the Balance- Sheet format prescribed under the Third Schedule to the Banking Regulation Act, 1949 (as applicable to Cooperative Societies) specifically requires the banks to show 'Overdue Interest Reserve' as a distinct item on the 'Capital and Liabilities' side of the Balance-Sheet. Thus, it is evident that 'Overdue Interest Reserve Account' cannot be regarded as a 'reserve' or a part of the owned funds of the bank, as it is not created out of the real income received by the bank. 13. As a compliance to the aforesaid RBI guidelines, we find that the assessee has not debited the interest on NPAs to the accounts of the respective borrowals but it has been shown separately under 'Interest Receivable Account' on the 'Property and Assets' side of the Balance-Sheet. and corresponding amount has been shown under 'Overdue Interest Reserve Account' on the 'Capital and Liabilities' side of the Balance-Sheet. Thus, the depiction in the Balance-Sheet is in adherence to the prescription contained in the Banking Regulation Act, 1949 (as applicable to Co-operative Societies), a statute under whic....
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....rovisions governing the assessee, can be a factor to evaluate assessability or otherwise of an income. In our considered opinion, it would inappropriate to be merely guided by a presentation in the annual financial statements to infer assessee's perception that an income had accrued, without considering the entries made in the financial statements in toto. In the present case, it is quite clear that assessee has drawn up its annual financial statement in compliance with the requirements of the statutes under which it functions and/or is incorporated. Therefore, the issue with regard to non-recognition of income on NPAs is required to be adjudicated having regard to the relevant legal position and not on the basis of the presentation in the annual financial statements. At this stage, we may also refer to the judgement of the Hon'ble Supreme Court in the case of CIT vs. Shoorji Vallabhdas & Co., (1962) 46 ITR 144 (SC) for the proposition that a mere book keeping entry cannot be assessed as income unless it can be shown that income has actually resulted. In the present case, the crediting of gross interest in the Profit & Loss Account, which includes interest on NPAs cannot be taken a....