IN INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA Nos.1525 & 1526/Mds/2016 Assessment Years : 2009-10 & 2010-11 Assistant Commissioner of M/s Tambaram Co-op Urban Income Tax, v. Bank Ltd., Non-Corporate Circle 22, No.14, Venkatesan Street, No.7, Ramakrishna Street, Tambaram West, West Tambaram, Chennai - 600 045. Chennai - 600 045. PAN : AAAAT 0010 (Appellant) (Respondent) Appellant by : Shri Supriyo Pal, JCIT Respondent by : Shri R. Subramanian, CA Date of Hearing : 11.08.2016 Date of Pronouncement : 23.09.2016 ORDER PER N.R.S. GANESAN, JUDICIAL MEMBER: Both appeals of Revenue are directed against common order of Commissioner of Income Tax (Appeals) 10, Chennai, dated 25.02.2016 and pertain to assessment years 2009- 10 and 2010-11. Since common issue arises for consideration in 2 I.T.A. No.1525 & 1526/Mds/16 both appeals, we heard both appeals together and disposing of same by this common order. 2. only issue arises for consideration in both appeals is with regard to assessment of income on non-performing assets. 3. Shri Supriyo Pal, Ld. Departmental Representative, submitted that assessee-co-operative bank has not offered interest to extent of `1,49,76,159/- for assessment year 2009-10 and `3,01,452/- for assessment year 2010-11. assessee claimed before Assessing Officer that sum of `7,49,25,165/- was overdue from customers and assessee could not recover interest. Since principal amount advanced by assessee itself could not be recovered, assessee has not recognized interest on such advances. Ld. D.R. further submitted that Assessing Officer examined contention of assessee and found that under scheme of Income-tax Act, assessee deemed to have received income on accrual basis. Moreover, interest due was not written off in books of account as irrecoverable. Therefore, according to Ld. D.R., irrespective of stand of assessee that accrued interest is not recognized, same has to be treated as income of 3 I.T.A. No.1525 & 1526/Mds/16 assessee. On appeal by assessee, CIT(Appeals) found that advance made by assessee was treated as non-performing asset as per prudential norms framed by Reserve Bank of India for purpose of recognizing interest income. CIT(Appeals) has also found that assessee was recognising interest income on receipt basis continuously in respect of non-performing asset. Therefore, as per Accounting Standard-9, CIT(Appeals) found that there was uncertainty in recovery of amount, hence, it cannot be taken as income of assessee. 4. According to Ld. D.R., when assessee advanced loan, there cannot be any uncertainty in recovery of outstanding loan and interest accrued thereon. assessee being co- operative urban bank, following mercantile system of accounting, therefore, interest on amount advanced has to be recognized on accrual basis. According to Ld. D.R., prudential norms framed by Reserve Bank of India cannot override provisions of Income-tax Act. On basis of regulations framed by Reserve Bank of India, assessee may plead that interest on non-performing asset was not accrued to assessee. However, under Income-tax Act, assessee is 4 I.T.A. No.1525 & 1526/Mds/16 deemed to have received income since same was accrued to assessee. In other words, assessee has right to recover money through court of law. 5. On contrary, Shri R. Subramanian, Ld. representative for assessee, submitted that assessee advanced loan in course of its banking activity. sum of `7,49,25,165/- was classified as non-performing asset as on 31.03,2009. assessee was following mercantile system of accounting. However, in respect of interest accrued on non-performing asset, bank consistently following practice of recognising income on receipt basis. Ld. representative further submitted that when assessee could not recover principal amount advanced and classified same as non-performing asset, interest on such amount could not be accrued at all. very object of classifying advance as non-performing asset is to indicate that no interest was accrued and recovery of principal amount itself is doubtful. According to Ld. representative, as and when assessee recovers money together with interest, same will be offered for taxation. In view of uncertainty in recovering principal 5 I.T.A. No.1525 & 1526/Mds/16 amount, according to Ld. representative, CIT(Appeals) has rightly found that there cannot be any addition. 6. We have considered rival submissions on either side and perused relevant material available on record. It is not in dispute that as on 31.03.2009, sum of `7,49,25,165/- was classified as non-performing asset. assessee claims that as per prudential norms framed by Reserve Bank of India, advances are classified as non-performing assets. It is well settled principle of law that Income-tax Act being special enactment for assessment of income, levy of tax thereon and collection of tax, same would prevail over other legislations. In other words, Income-tax Act would prevail over regulations framed by Reserve Bank of India. In case before us, assessee was systematically following accounting method with regard to non-performing asset. When advances are classified as non-performing assets, assessee was continuously following practice of recognising interest on receipt basis. This method of accounting continuously followed by assessee is not in dispute. When advances were classified as non-performing assets and assessee shifting to cash system of accounting in 6 I.T.A. No.1525 & 1526/Mds/16 respect of such advances which are classified as non-performing assets, this Tribunal is of considered opinion that when recovery of principal amount itself was doubtful, it cannot be said that interest on such amount accrued to assessee. Therefore, as per system of accounting continuously followed by assessee, interest income on non-performing assets cannot be taken as income of assessee. This Tribunal do not find any reason to interfere with order of lower authority and accordingly same is confirmed. 7. In result, both appeals of Revenue are dismissed. Order pronounced on 23td September, 2016 at Chennai. sd/- sd/- (A. Mohan Alankamony) (N.R.S. Ganesan) Accountant Member Judicial Member Chennai, rd Dated, 23 September, 2016. Kri. Copy to: 1. Appellant 2. Respondent 3. (CIT(A)-10, Chennai-34 4. Principal CIT-7, Chennai 5. DR 6. GF. Assistant Commissioner of Income-tax, Non-Corporate Circle 22, Chennai v. M/s Tambaram Co-op Urban Bank Ltd