ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE - 12, PUNE vs. BHARATI SAHAKARI BANK LTD, PUNE

आदेश / ORDER PER ANIL CHATURVEDI, AM :

This appeal filed by the Revenue is emanating out of the order of 1. Commissioner of Income Tax (A) – 8, Pune dated 31.10.3017 for the assessment year 2013-14.

Assessee is a multi-state Co-operative Bank stated to be engaged in the business of banking activities. Assessee filed its return of income for A.Y. 2013-14 on 30.09.2013 declaring total income of

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Rs.13,06,11,044/-. The case was selected for scrutiny and thereafter

assessment was framed u/s 143(3) of the Act vide order dt.29.02.2016

and the total income was determined at Rs.14,82,30,040/-. Aggrieved

by the order of AO, assessee carried the matter before Ld.CIT(A), who

vide order dt.18.04.2016 (in appeal No.PN/CIT(A)-8/DCIT, Circle-

12/359/2017-18) allowed the appeal of assessee. Aggrieved by the

order of Ld.CIT(A), Revenue is now in appeal before us and has raised

the following grounds :

“1. The Ld. CIT(A) erred in deleting the disallowance on account of accrued interest on NPA amounting to Rs. 1,62,90,000/- and failed to appreciate that the assessee is following mercantile system of accounting and therefore, such accrued interest on NP A should be included in the income for the year by virtue of section 145 of the Income Tax Act, 1961.

assessee had not offered accrued interest on NPAs amounting to

Rs.1,62,90,000/- as its income. The assessee was asked to furnish

the details and show cause as to why the amount not be included to

the total income of the assessee. To the query of AO assessee made

submissions which were not found acceptable to the AO. AO

thereafter following the decision of Hon’ble Apex Court in the case of

Southern Technologies Vs JCIT reported in 320 ITR 577 held that

interest accrued on NPAs amounting to Rs.1,62,90,000/- should be

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added to the income of the assessee and accordingly made its addition.

Aggrieved by the order of AO, assessee carried the matter before

Ld.CIT(A) who after following the decision of Hon’ble Bombay High

Court in the case of CIT Vs. Deogiri Nagari Sahakari Bank Ltd.,

reported in (2015) 379 ITR 24 directed the AO to delete the addition

made on account of interest made on NPAs. Aggrieved by the order of

Ld.CIT(A), Revenue is now before us.

other hand reiterated the submissions made before AO and Ld.CIT(A).

on record. The issue in the present ground is with respect to addition

on account of interest on NPA accounts. We find that Ld.CIT(A) by

following the order of Hon’ble Bombay High Court in the case of CIT

Vs. Deogiri Nagari Sahakari Bank Ltd., (supra) has held that

prudential norms issued by Reserve Bank of India are applicable to

Co-operative Banks and that interest on sticky advances are not

taxable. We further find that Hon’ble Gujarat High Court in the case of

PCIT Vs. Shri Mahila Seva Sahakari Bank Ltd., (2017) 395 ITR 324

(Guj) after considering the Reserve Bank of India guidelines, Reserve

Bank of India Act, 1934, Sec.45Q of Non-Banking Companies

Prudential Norms (Reserve Bank) Directions, 1998 & Sec.43D of I.T.

Act has held as under :

“The expression "banking company" has been defined under section 5(c) of the Banking Regulation Act, 1949 to mean any company which transacts the business of banking in India. Part V of the 1949 Act bears the heading "Application of the Act to co-operative societies". Section 56 thereof provides that the provisions of the Act, as in force for the time

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being, shall apply to, or in relation to the co-operative societies as they apply to, or in relation to banking companies subject to the modifications stated thereunder. Clause (a) of section 56, provides that throughout the Act, unless the context otherwise requires- references to a "banking company" or "the company" or "such company" shall be construed as references to a "co-operative bank". Section 2(i) of the Reserve Bank of India Act, 1934 provides that" co-operative bank", "co- operative credit society", "director", "primary agricultural credit society", "primary co-operative society" and "primary credit society" shall have the meaning respectively assigned to them in Part V of the 1949 Act. Therefore, the expression "banking company" would take within its sweep a co-operative bank.

Section 45Q of the Reserve Bank of India Act, 1934, is in Chapter III-B of the Act. The provisions of Chapter III-B have an overriding effect qua other enactments to the extent they are inconsistent with the provisions contained therein. In order to reflect a bank's actual financial position in its balance-sheet, the Reserve Bank has introduced prudential norms for income recognition, asset classification and provisioning for advances portfolio of the co-operative banks. The guidelines provided thereunder are mandatory and it is incumbent upon all co-operative banks to follow them.

Income from non-performing assets is not recognized on accrual basis but is booked as income only when it is actually received. Therefore, banks should not .take to income account, the interest on non- performing assets on accrual basis.”

The Hon’ble High Court while dismissing the appeal of Revenue

observed as under :

“that in view of the mandate of the Reserve Bank of India Guidelines the assessee could not recognize income from non- performing assets on accrual basis and could book such income only when it was actually received. The benefit claimed by the assessee was not under any provision of the Income-tax Act, 1961. The assessee being bound by the Reserve Bank of India Guidelines which were issued under the provisions of the Reserve Bank of India Act, 1934 had not shown the interest on non-performing assets as income. By virtue of the provisions of section 45Q of the Reserve Bank of India Act, 1934, the provisions of Chapter III thereof had an overriding effect over other laws including the 1961 Act. Therefore, notwithstanding the provisions of section 43D of the 1961 Act, since the provisions of section 45Q of the 1934 Act had an overriding effect vis-a-vis income recognition principles in the Companies Act, 1956, the Assessing Officer was bound to follow the Reserve Bank of India Directions so-far as income recognition was concerned.”

Before us, Revenue has neither placed any contrary binding

decision in its support nor has pointed out any fallacy in the findings

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of Ld.CIT(A). In such a situation, we find no reason to interfere with the order of Ld.CIT(A). Thus, the grounds of Revenue are dismissed.

Order pronounced on the 2nd day of July, 2019.

Sd/- Sd/- (PARTHA SARATHI CHAUDHURY) (ANIL CHATURVEDI) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER

पुणे Pune; �दनांक Dated : 2nd July, 2019. Yamini

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent 3. CIT(A)-8, Pune. 4. Pr. CIT-4, Pune. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “ए” / DR, 5 ITAT, “A” Pune; 6. गाड� फाईल / Guard file.

आदेशानुसार/ BY ORDER // True Copy // व�र�ठ �नजी स�चव / Sr. Private Secretary आयकर अपील�य अ�धकरण ,पुणे / ITAT, Pune.