THE BHAGYODAYA CO.OP. BANK LTD.,,AHMEDABAD vs. THE DY.CIT, CIRCLE-2,, AHMEDABAD

This appeal filed by the Assessee is directed against the order of the Ld. CIT(A)-10, Ahmedabad dated 23.03.2015 pertaining to A.Y. 2011-12 and following grounds have been taken:

Briefly facts of the case are that the appellant is co-op bank registered under the Gujarat Co-Op Society Act and carrying on banking business under the supervision and control of RBI. It had filed its return of income for A.Y.2011- 12 on 19.09.2001 declaring total income of Rs.83,51,733.

During the course of asstt. proceedings, the AO noticed that the appellant had not offered to tax the interest accrued on advances classified as NPA. Hence, addition of Rs.25,00,752 /-was made as accrued interest on such NPA advances. The AO also made disallowance of Investment depreciation provision of Rs. 10,75,880/-.

Being aggrieved, the appellant preferred first statutory appeal before the CIT(A) wherein the appellant vide its written submission contended that since

We have gone through the relevant record and impugned order. Appellant is co-op bank registered under the Gujarat Co-Op Society Act and carrying on banking business as per Reserve Bank of India guidelines.

The appellant has furnished the complete list of Non Performing Assets as per RBI Guidelines and also furnished the details of interest accrued on such NPAs during the Financial Year 2010-11 which aggregated to Rs. 25,00,752/- and same was not charged as mandatorily stipulated under income recognition and Assets classification norms of Reserve Bank of India.

As we can see, the assessee case is covered by Jurisdictional High Court in the matter of Pr.CIT vs. Shri Mahila Sewa Sahakari Bank Ltd. wherein it has been held that “ Non Performing Asssets – CANNOT BE RECOGNISED ON ACCRUAL BASIS – ASSESSEE BOUND BY RESERVE BANK OF INDIA GUIDELINES” and income from Non Performing Asset is not recognized on accrual basis but is booked as income only when it is actually received. Therefore bank should not take to income account, interest on Non Performing Assets on accrual basis.

Now we come to next ground relating to disallowance of Investment Depreciation Reserve of Rs. . 10,75,880/-.

In support of its contention, ld. A.R. has cited an order of Bombay High Court in the matter of CIT vs. Gajanan Nagari Sahakari Bank Ltd. wherein relief has been granted to the assessee and revenue appeal has been dismissed with following: Deduction—Deduction towards depreciation of security—Entitlement— Assessee was a Co-operative Bank and had filed Income Tax Returns for relevant assessment year declaring total loss of Rs.27,51,096—AO debited amount of Rs.81,67,500/- towards depreciation on investment on Government securities held under category of "HELD TO MATURITY"—In opinion of AO , securities held under "HTM" category were in nature of capital assets and therefore, were available for sale—AO also held that securities were held in trading and disallowed amount as diminution in value of security and added same to the total income—CIT(A) and ITAT held that Assessee was entitled to deducted on account of depreciation of security held as an investment in Government security—Held, In appeal before Appellate Tribunal, it held that securities were stock in trade and so depreciation would amount to loss and not income-Authorities below held that this aspect was well settled through judgment of High Court in the case of Commissioner of Income Tax vs. Bank of Baroda, as well as in judgment of Supreme Court in case of UCO Bank vs. the Commissioner of Income Tax— Supreme Court in said judgment held that merely because securities were kept under head by bank till maturity, said security could not be treated as purely investment.—Security held by bank was in nature of stock in trade—Reliance placed by Revenue on judgment of Vijaya Bank vs. Commissioner of Income Tax was misplaced— Thus, Revenue's appeal did not raise any substantial question of law and same was, dismissed—Revenue's Appeal dismissed.

Respectfully following the order of the Bombay High Court, we allow this ground of appeal.