TaxTMI 
TaxTMI 
2016 (4) TMI 1290
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....hd/2014 for A.Y. 2007-08. 3. The facts as culled out from the material on record are as under. 4. The assessee is a Co-operative Bank who filed its return of income for A.Y. 2007-08 on 31.10.2007 declaring total income of Rs. 1,17,51,050/-. The case was selected for scrutiny and thereafter the assessment was framed under section 143(3) vide order dated 23.12.2009 and the total income was determined at Rs. 2,05,57,560/-. Aggrieved by the order of A.O., assessee carried the matter before ld. CIT(A) who vide order dated 11.02.2014 (Appeal No. CIT(A) - II/Rjt/159/09- 10) decided the issue in favour of assessee. Aggrieved by the aforesaid order of ld. CIT(A), Revenue is now in appeal before us and has raised the following grounds:- "1) The Ld CIT(A) has erred in law and facts in deleting the addition made by the A.O. on account of provision for overdue interest of Rs. 87,22,000/-, despite the following facts: i) Under the provisions of the Income tax Act, accrued and ascertained liabilities are only deductible expenses and provisions for unaccrued and unascertained liabilities are not allowable expense. ii) The assessee being a cooperative bank is bound ....
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....rges is as under :- 1. That CBDT Circular dt. 9/10/1984 is in respect of bad and doubtful debts/irrecoverable loans and suspense account maintained for the purpose of interest thereon. However, this is in respect of banking companies. 2. S.43D has been specifically inserted in the Act w.e.f. 1/4/1991. S.43D lays down the principle that income by way of interest in respect of scheduled bank in relation to such categories of bad or doubtful debts as may be prescribed having regard to the guidelines issued by RBI in relation to such debts shall be chargeable to tax in the year in which it is actually received, whichever is earlier. 7. It is now necessary to consider the applicability of these sections to the appellant which is a co-operative bank. Scheduled bank has been defined in the explanation to S.43D as having meaning assigned to it in clause (ii) of explanation 2 to s.36(l)(viia). As per this clause, co-operative banks are not covered in this definition. The appellant being a co-operative bank is not expressly covered by the s.43D. However, CBDT circular dt. 9/10/1984 refers to banking companies. This phrase has been specifically defined in explanatio....
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....anks so as to provide that the interest on non-performing assets or sticky loans would be charged to tax only in the year in which the interest is actually received or credited to the P&L account. It is therefore held; that the provisions of S.43D overrides the circular of CBDTdt. 9/10/1984. This finding is also supported by various judicial pronouncements given by various Tribunals. The same have already been mentioned in the submission of the appellant. The Hon'ble Delhi High court in case of Vashistha Vyapar Ltd. (2011) 330 ITR 440, while deciding on the issue in respect of interest on NPAs of NBFCs, has held as under:- "In this scenario, we have to examine the strength in the submission of learned counsel for the Revenue that whether it can still be held that income in the form of interest though not received had still accrued to the assessee under the provisions of Income-tax Act and was, therefore, exigible to tax. Our answer is in the negative and we give the following reasons in support:- (1) First of all we would discuss the matter in the light of the provisions of Income-tax Act and to examine as to whether in the give circumstances, interes....
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....nswered in favour of the assessee following the decision of UCO Bank (supra), United Commercial Bank v. CIT [1999] 240 ITR 355/106 Taxman 601 (SC). Likewise, in an another case of CIT v.State Bank of India [2003] 262 ITR 662/129 Taxman 409 (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. India Equipment Leasing Ltd. [2008] 111 ITD 37 (Chennai), the Respected Coordinate 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 ....
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....against that, as far as the assessee is concerned, it is an accepted fact that the assessee is a cooperative bank and not a non-banking 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. (supra) 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 IT, 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 ....
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....s of actual receipt. It is worth to mention that for this decision, the Hon'ble Madras High Court has relied upon an another decision of the same High Court pronounced in the case of CIT v. India Equipment Leasing Ltd. [2007] 293 ITR 350 (Mad.). To conclude the issue, we deem it important to discuss the decision of India Equipment Leasing Ltd. (supra) for the sake of completeness of our judgement. In that appeal, the assessee was doing the business of hire purchase transaction and leasing of Plant & Machinery. The interest on "sticky loans" not being brought into the Profit & Loss account but being taken to the suspense account was held by the Court as an accepted mode of treatment of notional income in accounting practice. The Court has said that the Circular-9 of October- 1984 serve a practical purpose of laying down a uniform test for the assessing authority to decide whether the interest income which is transferred to suspense account is, in fact, arising in respect of a doubtful or sticky loan. This was done by providing that non-receipt of interest for the first three years will not be treated as interest on a doubtful loan, but if after three years the payment o....