TaxTMI 
TaxTMI 
TaxTMI 
2015 (9) TMI 1768
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....income of the assessee? Since the facts are identical, we adjudicate the issues with reference to facts and figures of assessment year 2009-10. 3. In this case return of income declaring income of Rs. 59,69,115/-was filed on 30-09-2009. The appellant is a cooperative society engaged in the business of banking activity / cooperative bank. During the course of assessment proceedings it was noted by the Ld.AO that the appellant has made a claim of deduction amounting to Rs. 2,12,523/-u/s 36(1)(viia) of the Act. The Ld.AO analyzed the provisions of section 36(1)(viia) and stated that such deduction is available either to a scheduled bank or non scheduled bank or certain types of cooperative banks. He further concluded that the appellant is not either a scheduled bank or a cooperative bank. He examined the claim of the appellant and came to the conclusion that the appellant is not a nonscheduled bank either. It is stated by the Ld.AO that a non scheduled bank as explanation (i) to section 36(1)(viia) means that it is a banking company as defined under the Banking Regulation Act, 1949 which refers to any "company" which transacts the business of banking in India. The Ld.AO fu....
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.... non-scheduled bank and has been so notified as such alongwith several other banks. The list of such non scheduled bank is available at the website of RBI, the copy of which has been furnished by the appellant during the course of appellate proceedings. There is merit in the submission of the appellant that explanation to section 36(1)(viia) of the Act at clause (i) leaves the definition of a non-scheduled bank to the Banking Regulation act and a non scheduled bank means banking company as defined in section 5(c) of the Banking Regulation Act. Thus it is clear that once a bank has been declared and notified as a non scheduled bank under the Banking Regulation Act by the RBI, it is entitled to deduction u/s 36(1)(viia) of the Act. In view of the same it is held that the appellant would be entitled to claim a deduction of Rs..2,12,523/-u/s 36(1)(viia) of the Act." 6. As regards the second issue of disallowance of Rs..27,03,083 as income of the assessee being interest accrued on NPAs, learned CIT(Appeals) considered the orders of ITAT, Vishakhapatnam Bench in the case of CIT vs. Durga Co-operative Urban Bank (ITA No. 511/Vizag/2010) and also the Hon'ble Delhi High Court decision....
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....all have effect as if for the words "five per cent", the words "ten per cent" had been substituted :] [Provided also that a scheduled bank or a non-scheduled bank referred to in this sub-clause shall, at its option, be allowed a further deduction in excess of the limits specified in the foregoing provisions, for an amount not exceeding the income derived from redemption of securities in accordance with a scheme framed by the Central Government: Provided also that no deduction shall be allowed under the third proviso unless such income has been disclosed in the return of income under the head "Profits and gains of business or profession." ] [Explanation.-For the purposes of this sub-clause, "relevant assessment years" means the five consecutive assessment years commencing on or after the 1st day of April, 2000 and ending before the 1st day of April, 2005;] 9. In this regard we refer hereunder the written submissions of the learned counsel of the assessee : "Sir, Part V of the Banking Regulation Act 1949 specifically provides for the applicability of the Banking Regulation act to all co-operative banks and I Quote: [PART V: APPLICATION OF THE ACT TO CO-OPERATIVE BANKS 5....
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....ognises a co-operative bank as a nonscheduled bank and so notifies the same, the Income Tax department cannot challenge the authority of the RBI or its directives. For the sake of propriety it is further respectfully 'submitted that the Appellant Bank i.e. Arvind Sahakari Bank Limited, Katol has been duly registered and approved by the Reserve bank of India as a non scheduled bank and has been so notified as such along with 2000 odd other such banks in India. The detailed list is published by the Reserve bank of India on its website and can be seen and verified by anyone at the Reserve Bank of India website, and I quote the internet link as http://rbidocs.rbi.org/rdocs/content/pdfs/nonscheduledcoop.pdf. The detailed list is being attached here with as well, as a proof of the Appellant Bank being recognised and notified as a nonscheduled bank. Thus it is respectfully submitted that once the Reserve Bank of India recognises and notifies a co-operative bank as a non scheduled bank, (it being the final arbiter in this regard) the learned Assessing officer cannot challenge the authority or the jurisdiction of the Reserve Bank of India in this connection. The Appellant Bank fulfil....
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....ank and hence being a non schedule bank it is entitled to deduction u/s 36(1)(viia) of the I.T. Act. Accordingly we do not find any infirmity in the order of learned CIT(Appeals). Hence we uphold the same. 10. As regards the second issue, the interest accrued of non performing assets of the bank, the AO has opined that the same is taxable on accrual basis. In this regard the AO further placed reliance on the judgment of the Hon'ble Apex Court in the case of Southern Technologies Ltd. 320 ITR 577. Upon assessee's appeal, learned CIT (Appeals) referred to the ITAT Vishakhapatnam Bench decision in the case of CIT vs. Durga Urban Cooperative Bank Ltd. (supra) which read as under : "9. The Hon'ble Supreme Court in the case of M/s Southern Technologies Ltd (Supra) dissected the matter into two parts viz., a) Income Recognition and b) permissible deduction/exclusions under the Income Tax Act. In so far as income recognition is concerned, the Hon'ble Supreme Court held that Section 145 of the Income Tax Act has no role to play and the Assessing Officer has to follow Reserve Bank of India directions 1998, since by virtue of 45Q of the Reserve Bank of India Act, an overriding effe....
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....uthern Technologies Ltd (Supra), that the provision of 45Q of Reserve Bank of India Act has an overriding effect vis-a-vis income recognition principle under the Companies Act. Hence Sec .45 Q of the RBI Act shall have overriding effect over the income recognition principle followed by cooperative banks also. Hence the Assessing Officer has to follow the Reserve Bank of India directions 1998, as held by the Hon'ble 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 de....