TaxTMI 
TaxTMI 
TaxTMI 
2018 (9) TMI 530
X X X X Extracts X X X X
X X X X Extracts X X X X
....der. I.T.A.Nos.199 and 461/Viz/2016, A.Ys.2012-13 and 2013-14 2. The first issue in this appeal is related to the interest on Non Performing Assets. For the assessment year 2012-13, the assessee has claimed the deduction of Rs. 46,79,284/- accrued interest on Non- Performing Assets. Since the assessee is cooperative bank and following mercantile system of accounting, the Assessing Officer (AO) found that the interest required to be offered to income on accrual basis, whereas, the assessee admitted the interest on non-performing assets on receipt basis. Since there was deviation from the method of accounting followed by the assessee, the AO held that as per the system of accounting followed, the interest required to be admitted on accrual basis. Since the assessee failed to admit the same as income, the AO made the addition of Rs. 46,79,284/- representing the interest on Non-Performing Assets. Similarly for the assessment year 2013-14, the AO made the addition of Rs. 72,29,895/- representing the interest on non performing assets. 3. Aggrieved by the order of the AO, the assessee went on appeal before the CIT(A) and the Ld.CIT(A) deleted the addition following the order of this T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t held the issue in favour of the assessee. The head note of the above case reads as under: Income-Accrual - Interest on non-performing assets of cooperative bank- In so far as the computation of taxability is concerned, the same is solely govered by the provisions of the IT 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 s. 45Q of the RBI Act and s. 145 would have no role to play-Hence, the AO has to follow the RBI Directions-In view of the mandate of the RBI Guidelines the assessee cannot recognise income from non-performing assets on accrual basis but can book such income only when it is actually received - Until a circular is revoked, the same continues to be in force and the Circular F.No.201/21/84-ITA-II, dt.9th Oct.1984 having been issued to mitigate the hardships caused to the class of assessees covered by the circular, such assessees would be entitled to the benefit thereof-Merely because by virtue of the provisions of s. 43D, a certain class of assessees is given benefit under t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ions only lay down the manner of presentation of NPA provision in the balance sheet of an NBFC. The court has referred to the deviations between the RBI Directions and the Companies Act as follows: '42. 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 th....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., the recognition of income in terms of the recognised accounting principles and after such income is recognised, the computation thereof, in terms of the 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. Hon'ble Gujarat High Court has considered the decision of Hon'ble Supreme Court in the case of Southern Technologies which was relied by the Ld. CIT(A) and held that since section 45Q of the RBI Act shall have overriding effect over the income recognition, followed by the cooperative banks also the A.O. has to follow the RBI directions. In para No.14, 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 ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Reserve Bank of India directions 1998, as held by the Honible Supreme Court. 10.1 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 VasisthChayVyapar 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." 8. 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 si....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the assessee considers income by way of interest pertaining to doubtful loans as not real income in the year in which it accrues, but only when it is realised. A mixed method of accounting is thus followed by the assessee-bank. This method of accounting adopted by the assessee is in accordance with accounting practice. Up to the asst. yr. 1978-79, the CBDT's circular of 6th Oct., 1952 would be applicable; while from the asst. yr. 1979-80, the CBDT's circular of 9th Oct., 1984 is made applicable. In the present case, the assessment was made on the basis of the CBDT's circular of 9th Oct., 1984, since the assessment pertains to asst. yr. 1981-82 to which the circular of 9th Oct., 1984, is applicable. Under sub-s. (2) of s. 119, without prejudice to the generality of the Board's power set out in sub-s. (1), a specific power is given to the Board for the purpose of proper and efficient management of the work of assessment and collection of revenue to issue from time to time general or special orders in respect of any class of incomes or class of cases setting forth directions or instructions, not being prejudicial to assessees, as the guidelines, principles or procedure....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o delete the additions made towards interest on NPAs. 28. Since the facts are identical, respectfully following the view taken by the decision of Hon'ble Gujarat High Court in the case of Sri MahilaSewaSahakari 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." 4.1. Since the facts are identical, respectfully following the view taken by this Tribunal in the case cited supra, we uphold the order of the Ld.CIT(A) and dismiss the appeal of the revenue. Accordingly, the appeals of the revenue for the assessment years 2012-13 and 2013-14 on this ground are dismissed. 5. The next issue in this appeal is related to the gratuity premium paid to LIC Gratuity Fund. For the assessment year 2012-13, the assessee debited the amount of Rs. 11,00,000/- towards the gratuity premium paid to LIC of India for exclusive benefits of its employees under irrevocable trust. Since the fund to which the said premium is seen to have been paid is not an ap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gratuity payment from the LIC which is being paid to the employee concerned and no further deduction is being claimed by the assessee as expenditure. Thus no double deduction is claimed. The expenditure claimed by the assessee under group gratuity scheme to LIC of India was allowed in the earlier years prior to 2007-08. During the previous year relevant to the assessment year 2007-08, the A.O. disallowed the same since the payment made to LIC of India towards group gratuity scheme is not covered by section 36(1)(v), 40A(7)(b) & 40A(9) of the Act because the assessee has not satisfied the conditions. The argument of the assessee is that since the payments were made to LIC of India in Master policy scheme, the premiums contributed to the LIC of India is allowable deduction and relied on the decisions of coordinate bench of Hyderabad in the case of Capital IQ Information Systems (India) Pvt. Limited (supra). The Hon'ble ITAT Hyderabad Bench while deciding the issue on similar facts held as under: 8. We have heard the arguments of the parties, perused the material on record and have gone through the orders of the authorities below. We find that the issue is squarely covered by the d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fund. Since the Group Gratuity Scheme is not approved by the CIT, according to the Revenue, it cannot be allowed. However, the contention of the assessee is that in view of the judgement of the Madras High Court in the case of Premier Spinning Mills Ltd. (supra) and the judgement of the jurisdictional High Court in the case of Warner Hindustan Ltd. (supra), it has to be allowed. 5. We have carefully gone through the judgement of the jurisdictional High Court in the case of Warner Hindustan Ltd. (supra). In the case before the jurisdictional High Court, the Provident Fund was not approved by the CIT. The Andhra Pradesh High Court after referring to the judgement of the Bombay High Court in Tata Iron & Steel Co. Ltd. v. D. V. Bapat, ITO (1975) 101 ITR 292, and the judgement of the Supreme Court in Metal Box Company of India Ltd. vs. The Workmen (1969) 73 ITR 53, held that the amount paid towards an unapproved gratuity fund can be deducted under sec. 37 of the I.T. Act, though not under sec. 36(1)(v). In view of this judgment of the jurisdictional High Court, in our opinion, even if any payment is made to an unapproved gratuity fund, it has to be allowed under sec. 37. By respectfu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... if it had been proved that gratuity, in respect of which said payment had been made, had not become payable during previous year - Held, yes - Whether in absence of such a case made out by revenue, Tribunal was right in holding that grant of approval of gratuity fund was not relevant for purpose of instant case as said deduction was not being claimed on account of any provision and amount of gratuity was an allowable deduction - Held, yes". 5. Considering the above aspects, we do not find any infirmity in the order of the learned CIT(A) in deleting the addition. There is no merit in the departmental appeal. Same is accordingly dismissed." 10. In the case of Verizon Data Services India Pvt. Ltd. (supra) the coordinate bench of Madras held that payment made to gratuity fund maintained with LIC has no control over the irrevocable trust created exclusively for the benefit of employees and deduction shall be allowed. The coordinate bench of Madras while deciding the appeal relied on the decision of Hon'ble Madras High court in the case of Textool India Pvt. Limited (supra) (civil appeal No.447 of 2003). In the instant case the assessee has made the payments to the LIC towards gro....