JUDGMENT

Akil Kureshi, J. - These appeals involve similar issues. We may record facts from Income Tax Appeal No. 237 of 2017.

2. The appeal is filed by the Revenue to challenge the judgment of the Income Tax Appellate Tribunal ("the Tribunal" for short) raising following questions for our consideration:-

"(i) Whether on the facts and circumstances of the case and in law, the Tribunal was correct in disregarding the judgment of the Hon''ble Supreme Court given in the case of Southern Technologies Ltd vs. Jt. CIT (2010) 34 DTR (SC) 11 : (2010) 320 ITR 577 (SC) which says that provisions of RBI Act cannot override the provision of Section 145 of the Income Tax Act, 1961, since both the Acts operate in different fields and therefore, assessee cannot recognize interest income on NPA and yet not offer it in Profit and Loss account?

(ii) Whether on the facts and in the circumstances of the case and in law, the Tribunal was correct in deleting the disallowance of Rs. 71,13,261/- made by AO under section 14A r/w Rule 8D after treating the disallowance of Rs. 57,600/-offered by assessee as insufficient on the ground that the AO has not recorded the error in the offer of the assessee before invoking Rule 8D, without any such explicit requirement of law?"

3. Question No. (i) arose in following background:-

3.1 Respondent assessee is a Non Banking Finance Company ("NBFC" for short). Respondent filed return of income for the assessment year 2009-10 in which the assessee had claimed deduction of interest on advances which had become non performing assets ("NPA" for short). The Assessing Officer disallowed the claim relying on such disallowance for the earlier assessment years which were on the ground that the assessee which was following the mercantile system of banking had to pay tax on interest on accrual basis.

3.2 The issue eventually reached the Tribunal. The Tribunal, by the impugned judgment, allowed the assessee''s claim, upon which, the Revenue has filed this appeal.

4. Learned counsel for the Revenue submitted that the assessee had to offer the interest income to tax on accrual basis. The special provision for taxing interest income on NPAs on the basis of receipt has been made under Section 43D of the Income Tax Act, 1961 ("the Act" for short) which does not apply to NBFC. By necessary implication, therefore, the legislature desired that such benefit would be restricted only to such of the entities as are referred to in Section 43D of the Act.

5. On the other hand, learned counsel for the assessee brought to our notice several judgments of the different High Courts holding that on the principle of real income theory, interest on NPAs cannot be charged on accrual basis.

6. Gujarat High Court in case of Principal Commissioner of Income Tax vs. Mahila Sewa Sahakari Bank Ltd (2016) 140 DTR (Guj)113 :[2017] 395 ITR 324 (Guj) had held that in case of a co-operative bank, the interest on NPAs would not be chargeable to tax on mere accrual. The Court referred to and relied upon the decision of the Supreme Court in the case of Southern Technologies Ltd vs. Joint (2010)34 DTR (SC) 11:(2010) 320 ITR 577 (SC) . We may note that the decision concerns the assessment year 2010-11 when a co-operative bank was not included under Section 43D of the Act which was inserted by Finance Act, 2017 w.e.f 1.4.2018.

7. In case of Commissioner of Income Tax vs. Deogiri Nagari Sahakari Bank Ltd & Ors.(2015) 128 DTR (bom) 209 : [2015] 379 ITR 24 (Bom), this Court had expressed a similar view. We may further clarify that in the said case, the Court was concerned with a similar claim raised by the co-operative bank and the Court did record that the assessee was a co-operative bank and not NBFC. However, this distinction may not have much significance now in view of the fact that this Court in case of Commissioner of Income Tax vs. M/s. KEC Holdings Ltd (Income Tax Appeal No. 221 of 2012 decided on 11.6.2014) held and observed as under:-

"8. The assessee had credi