Accrued Interest on Sticky advances of Co-Operative Banks not taxable

Brief of the Case: In the case of CIT Vs. M/s.Deogiri Nagari Sahakari Bank Ltd. & Others , Bombay High Court inter-alia held that the assessee herein being a Cooperative Bank also governed by the Reserve Bank of India and thus the directions with regard to the prudential norms issued by the Reserve Bank of India are equally applicable to the Cooperative banks. The provisions of Section 45Q of Reserve Bank of India Act has an overriding effect vis-à-vis income recognition principle under the Companies Act. Hence, Section 45Q of the RBI Act shall have overriding effect over the income recognition principle followed by cooperative banks.

Facts of the Case: The assessee in all the cited appeals were the Co­operative Banks registered under section 9(1) of the Maharashtra Co­operative Societies Act, 1960. The assessee banks were engaged in the Banking business by following mercantile system of accounting. The assessee Co­operative banks had furnished its return of income for the year under consideration declaring their total income. The AO passed the order under section 143 (3) of the IT Act on different dates by making additions on various issues.

The common issue involved in all the appeals relating to the assessment year was about deletion of the additions on account of interest on sticky advances. In all the cases, the AO, during the assessment proceeding had observed that the provisions of Section 43 (D) of the IT Act cannot be applied to the assessee as it was not a Scheduled Bank but a Co­operative Bank. In the opinion of the Assessing officer, considering the provisions of section 43­D of the IT Act, non scheduled Co­operative banks were specifically excluded from the special provisions of the 43­D of the IT Act, regarding interest on sticky advances. The AO had also held that CBDT circular No.F­ 201/81/84 ITA­II dated 09.10.1984 was applicable only to banking companies and not to non­-scheduled banks and co­ operative banks.

On aggrieved, the assessee Banks preferred appeals separately before the CIT(A), who directed to delete the additions on the interest of sticky advances, on the NPA made by the AO.

On aggrieved by the order of CIT(A), the Revenue preferred separate appeals in each case before the Income Tax Appellate Tribunal, Pune Bench. The ITAT confirmed the decision of the CIT(A) and dismissed the appeals of the Revenue.

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