Alavi Co.Op.Bank Ltd., Baroda vs DCIT | ITAT Ahmedabad 2017

Income Tax Appellate Tribunal, “ D ” BENCH, AHMEDABAD

Before: SHRI S.S. GODARA & SHRI PRADIP KUMAR KEDIA

For Respondent: Shri V.K.Singh, Sr.DR

आदेश / O R D E R PER PRADIP KUMAR KEDIA - AM: The captioned appeal has been filed at the instance of the assessee against the order of the Commissioner of Income Tax(Appeals)-V, Baroda [CIT(A) in short] dated 27/05/2014 in the matter of assessment order passed by the Assessing Officer (AO) under s.143(3) r.w.s.263 of

ITA No.2267/Ahd/2014 Alavi Co.Op.Bank Ltd. vs. DCIT Asst.Year – 2007-08 - 2 - the Income Tax Act, 1961 (hereinafter referred to as "the Act") dated 11/03/2013 relevant to Assessment Year (AY) 2010-11.

In its appeal, the assessee has impugned the chargeability of interest on Non Performing Assets (NPAs) amounting to Rs.28,94,629/- on accrual basis.

Briefly stated, the assessee is engaged in banking business in Co- operative Sector. It was observed by the AO in the scrutiny assessment that during the Financial Year (FY) 2006-07 relevant to AY 2007-08, the assessee has declared an amount of Rs.28,94,629/- under the head interest on NPA receivable directly in the balance-sheet without routing it through the P&L Account. As a result, the aforesaid interest amount has not been considered for computing the profits and gains of business or profession. The AO observed that assessee ordinarily follows mercantile system of accounting whereby the aforesaid interest amount on NPA stands accrued as income in view of section 145 of the Act. He accordingly inflated the total income to the aforesaid extent while framing the assessment.

Aggrieved, the assessee preferred appeal before the CIT(A) without any success. 5. Further aggrieved, the assessee preferred appeal before the Tribunal.

ITA No.2267/Ahd/2014 Alavi Co.Op.Bank Ltd. vs. DCIT Asst.Year – 2007-08 - 3 - 6. The Ld.AR for the assessee, at the outset, submitted that in respect of interest on non-performing debtors/advances, the assessee has offered interest income as and when it has received such interest in departure with accrual system of accounting. The Ld.AR submitted that this is for the reason that interest cannot be said to have accrued where the principal amount itself is found to be non-performing and doubtful of recovery in terms of the RBI guidelines. The Ld.AR adverted our attention to the decision of the Hon’ble Gujarat High Court in the case of Pr.CIT vs. Shri Mahila Sewa Sahakari Bank Ltd. (2016) 72 taxmann.com 117 (Guj.) where after considering the RBI Act and CBDT Circcular, the Hon’ble Gujarat High Court has decided the issue in favour of assessee. The Ld.AR accordingly submitted that the addition so made requires to be reversed.

ALAVI CO.OP.BANK LTD.,,BARODA vs. THE DY.CIT, CIRCLE-5,, BARODA

Cases cited in this judgment