INCOME TAX ACT, 1961

Section 143(3), section 43D

Assessment - Addition to income - Overdue interest on NPAs in the hands of cooperative bank - Assessee following mercantile system of accounting

Assessee was a cooperative bank claimed that overdue interest on investment, which became non performing as per guidelines of the Reserve Bank of India (RBI) was not to be recognized, as there was no certainty with regard to receipt of such income. AO held that exception under section 43D was available only to public financial institutions and not to co-operative societies, as the co-operative societies came to be included only by the Finance Act, 2017 with effect from 1-4-2018 and since assessee was following mercantile system of accounting interest was to be offered on accrual basis.Held: Assessee being bound by RBI Guidelines issued under the provisions of RBI Act, 1934 had not shown interest on NPA as income. By virtue of section 45Q of 1934 Act, provisions of Chapter IIIB thereof have an overriding effect over other laws. Therefore, notwithstanding provisions of section 43D since section 45Q of the 1934 Act has an overriding effect vis-a-vis income recognition principles in Companies Act, AO was bound to follow RBI Directions so far as income recognition was concerned and the interest on principal loan amount which had been classified as NPA could not be held to have 'accrued' so as to tax the same under the Act.

Followed:Bhind District Cooperative Central Bank Ltd. v. Income Tax Department and others - (2019) 106 Taxmann.com 396 (MP) : 2019 TaxPub(DT) 1837 (MP-HC); Pr. CIT v. The Ludhiana Central Co-Op. Bank Ltd. (2018) 99 taxmann.com 81 : (2019) 410 ITR 72 (Punj. & Har.) : 2018 TaxPub(DT) 7142 (P&H-HC)

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2007-08

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