TaxTMI 
TaxTMI 
2018 (4) TMI 631
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....T), Guntur has taken up the case for revision u/s 263 of the Act and set aside the order passed u/s 143(3) dated 18/11/2010 of the Act with a direction to examine the taxability of provision for overdue interest. The A.O. given effect to the order of the Ld. CIT(A) by order u/s 143(3) r.w.s. 263 of the Act by an order dated 27.3.2014 and in the cited order, the A.O. made the addition of Rs. 24,49,34,000/- relating to the provision for overdue interest. 3. The assessee debited a sum of Rs. 24,49,34,000/- towards provision for overdue interest. The overdue interest is related to the interest accrued on loans and advances given by the assessee bank which became Non performing Asset(NPA). The assessee credited the interest to profit & loss account as income and the reversed the same and debited to the profit & loss account as provision for overdue interest, as the interest was not realized from the debtors who became defaulters. In effect, the assessee has not offered the interest income accrued or Non-performance assets (NPA) in the year under consideration. The A.O. was of the view that as per the system of accounting followed by the assessee, it has rightly offered the overdue in....
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....at in the case of Principal Commissioner of Income Tax Vs. Mahila Seva Sahakari Bank Ltd. 140 DTR 113. Per contra the Ld.DR supported the order of the AO. 6. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The assessee is a District Central Co-operative Bank, which is governed by the RBI directions. As per the RBI prudential norms, the assessee is not recognizing the income relating to the NPA. NPA is a debt, in which there is no repayment of instalments for specified period of time. In this case, the recovery of principal also doubtful. Therefore, the RBI has issued directions as stated by the Ld. A.R. to debit the interest to the individual debtor and derecognize the income. The same practice is being followed by the Co-operative banks through out the country. 7. On the similar facts, this Tribunal has deleted the additions relating to the overdue interest in the case of District Co-operative Central Bank, Eluru Vs. ITO Ward-2, Eluru in the order cited (supra) following the decision of. Hon'ble High Court of Gujarat in the case of Principal Commissioner of Income Tax Vs. Mahila Seva Sahakari Ban....
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....2. Broadly, there are three deviations: (i) in the matter of presentation of financial statements under Schedule VI to the Companies Act; (ii) in not recognising the "income" under the mercantile system of accounting and its insistence to follow cash system with respect to assets classified as NPA as per its norms; (iii) in creating a provision for all NPAs summarily as against creating a provision only when the debt is doubtful of recovery under the norms of the accounting standards issued by the Institute of Chartered Accountants of India. These deviations prevail over certain provisions of the Companies Act, 1956 to protect the depositors in the context of income recognition and presentation of the assets and provisions created against them. Thus, the P&L account prepared by NBFC in terms of the RBI Directions, 1998 does not recognise "income from NPA" and, therefore, directs a provision to be made in that regard and hence an "add back". It is important to note that "add back" is there only in the case of provisions." [Emphasis supplied] 22. Therefore, in terms of the above decision, where an assessee makes provision for NPA and seeks....
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....e provisions of the Income-tax Act, 1961. Insofar as the computation of taxability is concerned, the same is solely governed by the provisions of the Income-tax Act and the accounting principles have no role to play. However, recognition of income stands on a different footing. Insofar as income recognition is concerned, it would be the RBI Directions which would prevail in view of the provisions of section 45Q of the RBI Act and section 145 would have no role to play. Hence, the Assessing Officer has to follow the RBI Directions. 8. Hon'ble Gujarat High Court has considered the decision of Hon'ble Supreme Court in the case of Southern Technologies and held that section 45Q of the RBI Act shall have overriding effect over the income recognition. The Hon'ble High Court has considered the issue with regard to the method of accounting applied for recognizing the income and held that the method of accounting followed by the assessee is in accordance with the accounting practice. 9. The assessee also relied on the decision of Hon'ble High Court of Bombay in the case of CIT Vs. Deogiri Nagari Sahakari Bank Ltd. (2015) 128 DTR (Bom) 0209 head notes, which reads as under: In....
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....ase 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 the above cited case are relevant: "What to talk of interest, even the principle amount itself had become doubtful to recover. In this scenario it was legitimate move to infer that interest income thereupon has not "accrued". The said decision of the Hon'ble Delhi High Court is equally applicable to the issue in our hands. Accordingly we do not find any infirmity with the decision of the learned CIT (A) in holding that the interest income relatable on NPA advances did not accrue to the assessee. Accordingly we uphold his order." 11. An identical issue came up for consideration before the ITAT Pune Bench in the case of Vaidyanath Urban Co-op. Bank Ltd. Vs. CIT in ITA No.413/PN/2014 dated 31.3.2015, wherein the ITAT under similar set of facts held as under: "10. Turning to the facts of the case before us, 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 w....
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....i Bank Limited (supra) and the other decisions cited supra, we hold that the interest on NPA is to be recognized on actual receipt basis but not on accrual basis. Accordingly, we set aside the orders of the lower authorities and delete the addition. The appeal of the assessee on this ground is allowed. 13. Since the facts are identical, respectfully following the view taken by this Tribunal, we hold that the addition cannot be made on overdue interest relating to the NPA. Accordingly, we uphold the order of the CIT(A) and allow the appeal of the assessee. 14. The second issue in this appeal is related to the addition u/s 40(a)(ia) of the Act. The CIT in the revision u/s 263 of the Act, found that the assessee has made the payment of Rs. 21,46,000/- to M/s. D.Y. Systems, Hyderabad and Rs. 3,79,000/- to M/s. Techno Demo Office Automation Systems, Guntur. Both the payments were made for computerization. But the assessee has not deducted the TDS, which required to be deducted u/s 194C of the Act. Therefore, the CIT has directed the A.O. to examine the issue with regard to the payment made for computerizing records. The A.O. while passing the order u/s 143(3) r.w.s. 263 of the Act....