Sharad Sahakari Bank Ltd., Pune V. Assistant Commissioner of Income-tax,

CO 37/PUN/2015

• Counselvise Citation: [2016] 123 COUNSELVISE.COM (IT) 1975 (ITAT-PUNE)
• Duration Of Justice: 14 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 05-01-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 22-12-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: HITENDRA NINAWE
• Keywords: Question of law
• Section: 143(3); 145; 6

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE . . , ! , # $ BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.1376/PN/2014 #& & / ASSESSMENT YEAR : 2010-11 ACIT, CIRCLE-10, PUNE . / APPELLANT V/S SHARAD SAHAKARI BANK LTD., AP MANCHAR, TAL : AMBEGAON, PUNE 410 503 PAN NO.AABAS2358F . / RESPONDENT CO NO. 37/PN/2015 #& & / ASSESSMENT YEAR : 2010-11 SHARAD SAHAKARI BANK LTD., AP MANCHAR, TAL : AMBEGAON, PUNE 410 503 PAN NO.AABAS2358F . / APPELLANT V/S ACIT, CIRCLE-10, PUNE . / RESPONDENT / ASSESSEE BY : SHRI M.K. KULKARNI / REVENUE BY : SHRI HITENDRA NINAWE / ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE O RDER DATED 12-03-2014 OF THE CIT(A)-V, PUNE RELATING TO ASS ESSMENT YEAR 2010-11. THE ASSESSEE HAS FILED THE CROSS OBJECTION AGA INST THE APPEAL FILED BY THE REVENUE. FOR THE SAKE OF CONVENIENCE THESE / DATE OF HEARING :06.01.2016 / DATE OF PRONOUNCEMENT:08 .01.2016 2 ITA NO.1376/PN/2014 CO NO. 37/PN/2015 WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS C OMMON ORDER. 2. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER : 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LD.CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF R S.1,00,10,642/- MADE ON ACCOUNT OF INTEREST ON NON PERFORMING ASSETS, W HEN THE ASSESSEE IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING? 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF R S.1,00,10,642/- MADE ON ACCOUNT OF INTEREST ON NON PERFORMING ASSETS, W HEN THE HONBLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNO LOGIES LTD. VS. JCIT (2010) 320 ITR 527, HAS HELD THAT GUIDELINES OF RBI TO BANKING INSTITUTIONS CANNOT OVERRIDE THE PROVISIONS OF I.T. ACT ? 3. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER ANY OF THE ABOVE GROUNDS OF APPEAL. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A COOPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING. I T FILED ITS RETURN OF INCOME ON 13-09-2010 DECLARING TOTAL INCOME OF RS.80,02,320/-. DURING THE COURSE OF ASSESSMENT PROCEEDIN GS, THE AO NOTICED AFTER COMPARING THE BALANCE SHEET OF THE PREC EDING YEAR THAT THERE WAS INCREASE IN INTEREST IN NPA AMOUNTING TO RS.1,10,00,642/- COMPARED TO LAST YEAR WHICH WAS NOT OFFERE D FOR TAXATION. HE, THEREFORE, ISSUED A SHOW CAUSE NOTICE ASKING THE ASSESSEE TO EXPLAIN AS TO WHY INTEREST ON NPA ACCOUNT NOT ROUTED THROUGH THE PROFIT AND LOSS ACCOUNT SHOULD NOT BE ADDED TO THE INCOME. IT WAS EXPLAINED BY THE ASSESSEE THAT IT WAS FO LLOWING RBI GUIDELINES FOR TREATMENT OF INTEREST INCOME ON NPA ACCOUNT AND AS PER RBI GUIDELINES IT WAS NOT REQUIRED TO ACCOUNT FOR INTEREST RELAT ED TO NPAS. IT WAS SUBMITTED THAT AS PER SECTION 5 OF THE I.T. ACT ONLY REAL INCOME NEEDS TO BE TAXED. RELYING ON VARIOUS CASE LA WS IT WAS ARGUED THAT NPA INTEREST WAS ONLY NOTIONAL INCOME AND T HEREFORE THE SAME WAS NOT REQUIRED TO BE TAXED. 3 ITA NO.1376/PN/2014 CO NO. 37/PN/2015 4. HOWEVER, THE AO WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. ACCORDING TO HIM THE PRUDENTIAL NORMS ISSUED BY THE RBI COULD NOT REGULATE TAXABILITY OF SUCH INCOME IN THE HANDS OF THE ASSESSEE. THE AO FURTHER NOTED THAT THE ASSESSEE HAS NOT FURNISHED THE DETAILS OF EACH NPA ACCOUNT TO SHOW WHETHE R THE SAME ARE SECURED BY SECURITY OR GUARANTEE BY ANY SOU ND PERSON OR THE BORROWER IS PERFORMING WELL AND NOT ABLE TO PAY DUE TO LIQUIDITY CRUNCH ON THE PRETEXT THAT THE DATA CANNOT BE MADE AVAILABLE AS IT IS VOLUMINOUS. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE AND DISTINGUISHING THE VARIOUS DECISIONS CITED BEFO RE HIM THE AO MADE ADDITION OF RS.1,10,00,642/- TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF INTEREST ON NPA NOT OFFERED TO TAX. 5. IN APPEAL THE LD.CIT(A), FOLLOWING THE DECISION OF THE PUN E BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. THE OMERGA JANTA SAHAKARI BANK LTD. VIDE ORDER DATED 31-10-2013, DELETED THE ADDITION ON ACCOUNT OF INTEREST ON NPAS. 6. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 7. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY OPPOSE D THE ORDER OF THE CIT(A). HE SUBMITTED THAT THE DECISION OF HO NBLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES VS. JC IT REPORTED IN 320 ITR 157 IS APPLICABLE TO THE PRESENT CAS E WHERE IT HAS BEEN HELD THAT GUIDELINES OF RBI TO BANKING INSTITUTIONS MAY NOT OVERRIDE THE PROVISIONS OF I.T. ACT AND HENCE EVEN T HOUGH THE BANK MAY NOT OFFER THE CORRECT INCOME IN PROFIT AND LOSS A CCOUNT BUT IT HAS TO COMPULSORILY OFFER IT FOR THE PURPOSE OF TAXA TION. HE SUBMITTED THAT IT IS TRITE LAW THAT THE DIRECTIONS OF THE RBI CANNOT 4 ITA NO.1376/PN/2014 CO NO. 37/PN/2015 BE ACCEPTED TO OVERRIDE THE STATUTORY PROVISIONS OF I.T . ACT. SINCE THE DEPARTMENT HAS NOT ACCEPTED THE DECISION GIVEN BY THE CIT(A) ON SIMILAR ISSUE IN THE CASE OF BAJAJ AUTO FINANCE LTD. FOR A.Y. 2007-08 AND PAVANA SAHAKARI BANK LTD. FOR A.Y. 2010-11 A ND SINCE THE DEPARTMENT HAS PREFERRED FURTHER APPEAL BEFORE THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RAJGURUNAGAR S AHAKARI BANK LTD. FOR A.YRS. 2008-09 AND 2009-10, THEREFORE, THE O RDER OF THE CIT(A) SHOULD BE REVERSED AND THAT OF THE AO BE RESTORED. 8. THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER HAND FILED THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V S. DEOGIRI NAGARI SAHAKARI BANK LTD. AND OTHERS REPORTED IN 379 ITR 24 AND SUBMITTED THAT THE HONBLE HIGH COURT AFTER CONS IDERING THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF VASISTH C HAY VYAPAR LTD. REPORTED IN 330 ITR 440 AND THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. REPORTED IN 320 ITR 577 HAS HELD THAT THE ASSESSEE BEING A COOP ERATIVE SOCIETY WAS ALSO GOVERNED BY THE RBI. THUS, THE DIRECT IONS WITH REGARD TO THE PRUDENTIAL NORMS ISSUED BY THE RBI ARE E QUALLY APPLICABLE TO COOPERATIVE SOCIETIES. THE PROVISIONS OF SECTIO N 45Q OF THE RBI ACT, 1934 HAVE AN OVERRIDING EFFECT, VIS--VIS INCOM E RECOGNITION UNDER THE COMPANIES ACT AND HENCE THE SECT ION 45Q OF THE RBI ACT, 1934 SHALL HAVE THE OVERRIDING EFFECT OVER TH E INCOME RECOGNITION PRINCIPLE FOLLOWED BY COOPERATIVE SOCIETIES. HENCE , THE AO HAS TO FOLLOW THE RBI DIRECTIONS. IT WAS ACCORDINGLY H ELD THAT THE DELETION OF THE ADDITIONS ON ACCOUNT OF INTEREST ON ST ICKY ADVANCES WAS JUSTIFIED. HE ACCORDINGLY SUBMITTED THAT IN VIEW OF THE BINDING DECISION OF HONBLE JURISDICTION HIGH COURT THE A PPEAL FILED BY THE REVENUE SHOULD BE ALLOWED. 5 ITA NO.1376/PN/2014 CO NO. 37/PN/2015 9. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES. WE FIND THE AO MADE AN ADDITION OF RS.1,10,00,642/- ON ACCOUNT OF INTEREST ON NPA WHICH ACCORDING TO THE AO WA S NOT OFFERED FOR TAXATION BY THE ASSESSEE. WE FIND THE LD.CIT(A) FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF THE OMERGA JANT A SAHAKARI BANK LTD. (SUPRA) DELETED THE ADDITION MADE BY TH E AO. WE FIND AN IDENTICAL ISSUE HAD COME UP BEFORE THE HONBLE BOMBAY HIGH COURT IN THE CASE OF DEOGIRI NAGARI SAHAKARI BANK LTD . AND OTHER CONNECTED APPEALS REPORTED IN 379 ITR 24. THE H ONBLE HIGH COURT HAS DECIDED THE ISSUE AND DISMISSED THE APPEAL FILED BY THE REVENUE BY OBSERVING AS UNDER : 3. THE COMMON ISSUE INVOLVED IN ALL THESE APPEALS REL ATING TO THE ASSESSMENT YEAR AS MENTIONED IN THE AFORESAID TABLE ABOUT THE DELETION OF THE ADDITIONS ON ACCOUNT OF INTEREST ON STICKY ADVA NCES. IN ALL THESE CASES, THE ASSESSING OFFICER, DURING THE ASSESSMENT PROCEEDI NG HAS OBSERVED THAT THE PROVISIONS OF SECTION 43D OF THE INCO ME-TAX ACT CANNOT BE APPLIED TO THE ASSESSEE AS IT IS NOT A SCHEDULED BANK BUT A CO-OPERATIVE BANK. IN THE OPINION OF THE ASSESSING OFFICER, CONSIDERI NG THE PROVISIONS OF SECTION 43D OF THE INCOME-TAX ACT, NON-SCHEDULED C O-OPERATIVE BANKS ARE SPECIFICALLY EXCLUDED FROM THE SPECIAL PROVISIONS O F SECTION 43D OF THE INCOME-TAX ACT, REGARDING INTEREST ON STICKY ADVANCES. THE ASSESSING OFFICER HAS ALSO HELD THAT THE CENTRAL BOARD OF DIREC T TAXES CIRCULAR NO. F. 201/ 81/84 ITA-II, DATED OCTOBER 9, 1984, IS APPLICA BLE ONLY TO BANKING COMPANIES AND NOT TO NON -SCHEDULED BANKS AND CO-OPERA TIVE BANKS. 4. BEING AGGRIEVED BY THE SAME, THE ASSESSEE/ABOVE CO-O PERATIVE BANKS PREFERRED APPEALS SEPARATELY BEFORE THE COMMISSION ER OF INCOME- TAX (APPEALS). THE COMMISSIONER OF INCOME-TAX (APPEALS) , VIDE HIS ORDERS IN ALL THE APPEALS HAS DIRECTED TO DELETE THE A DDITIONS ON THE INTEREST OF STICKY ADVANCES, ON THE NP A MADE BY THE A SSESSING OFFICER. 5. BEING AGGRIEVED BY THE ORDER OF THE COMMISSIONER OF INCOME- TAX APPEALS), THE REVENUE PREFERRED SEPARATE APPEALS I N EACH CASE BEFORE THE INCOME-TAX APPELLATE TRIBUNAL, PUNE BENCH A P UNE. THE LEARNED INCOME-TAX APPELLATE TRIBUNAL HAS CONFIRMED THE DECI SION OF THE COMMISSIONER OF INCOME-TAX (APPEALS) AND DISMISSED THE AP PEALS OF THE REVENUE. THUS, THE REVENUE HAS FILED THE AFORESAID APP EALS CHALLENGING THE LEGALITY AND CORRECTNESS OF THE ORDER PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL. 6. THE LEARNED COUNSEL, MR. ALOK SHARMA, APPEARING FOR THE APPELLANTS-REVENUE SUBMITS THAT, THE ASSESSEE IN ALL THE SE CASES ARE THE CO-OPERATIVE BANKS AND NOT SCHEDULED BANKS, THEREFORE, THE SPECIAL PROVISIONS OF SECTION 43D OF THE INCOME-TAX ACT WILL N OT BE APPLICABLE TO THEM. LEARNED COUNSEL FURTHER SUBMITS THAT, IN VIEW O F THE PROVISIONS OF 6 ITA NO.1376/PN/2014 CO NO. 37/PN/2015 SECTION 145 OF THE INCOME-TAX ACT, THE ASSESSEE-CO-OPERA TIVE BANKS HAVE TO FOLLOW EITHER THE MERCANTILE SYSTEM OF ACCOUNTING OR CASH SYSTEM. THEY CANNOT HAVE MIXED SYSTEM OF ACCOUNT. THE LEARNED COUN SEL ALSO SUBMITS THAT, THE RBI DIRECTIONS UNDER THE RESERVE BANK OF IN DIA ACT ARE PRUDENTIAL NORMS BUT HAVE NOTHING TO DO WITH THE COM PUTATION OR TAXABILITY OF THE PROVISION OF THE NPA UNDER THE INC OME-TAX ACT. LEARNED COUNSEL FURTHER SUBMITS THAT THOUGH THE RBI DIRECTIONS DEVIATE FROM THE ACCOUNTING PRACTICE AS PROVIDED BY THE COMPANIES ACT BUT THEY DO NOT OVERRIDE THE PROVISIONS OF THE INCOME-TAX ACT AND THE Y ARE OPERATING IN DIFFERENT FIELDS. THE LEARNED COUNSEL FOR THE APPELLA NTS-REVENUE, LASTLY, SUBMITS THAT THE LEARNED TRIBUNAL OUGHT TO HAVE HELD THAT THE ASSESSEE CO-OPERATIVE BANK DOES NOT SATISFY THE CONDITIONS OF T HE CENTRAL BOARD OF DIRECT TAXES CIRCULAR NO. F. 201/81/84/ITAT, DATED O CTOBER 9, 1984, AND, THEREFORE, COULD NOT AVAIL OF THE BENEFITS OF T HE CIRCULAR. ON THE BASIS OF THE AFORESAID SUBMISSIONS, THE LEARNED COUNSEL FURTHER SUBMITS THAT SUBSTANTIAL QUESTION OF LAW INVOLVED IN THE ABOVE APPE ALS AND, THUS, THE ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961, ARE REQUIRED TO BE CONFIRMED. LEARNED COUNSEL FOR THE APPELLANTS SUBMITS THAT THE TRIBUNAL OUGHT TO HAVE ALLOWED THE APPEAL BY RELYING ON THE JUDGMENT IN THE MATTER OF SOUTHERN TECHNOLOGIES LTD. V. JOINT CIT REPORTED IN [2010] 32 0 ITR 577 (SC) ; [2010] 2 SCC 548. 7. THE LEARNED COUNSEL FOR THE RESPONDENT-CO-OPERATI VE BANKS SUBMIT THAT THE ISSUES INVOLVED IN THE ABOVE APPEALS AR E NO MORE RES INTEGRA IN VIEW OF THE DECISION RENDERED BY THE HON' BLE SUPREME COURT IN THE CASE OF UCO BANK V. CIT REPORTED IN [1999] 237 I TR 889 (SC) ; [1999] 4 SCC 599. 8. LEARNED COUNSEL FOR RESPONDENT SUBMITS THAT THE LEA RNED TRIBUNAL HAS RIGHTLY DISMISSED THE APPEALS OF THE REVEN UE BY CONFIRMING THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APP EALS). THERE IS NO SUBSTANTIAL QUESTION OF LAW INVOLVED IN THESE APPEA LS AND, THUS, ALL THE APPEALS ARE LIABLE TO BE DISMISSED. 9. THE INCOME-TAX APPELLATE TRIBUNAL HAS REFERRED T HE CASE OF VASISTH CHAY VYAPAR LTD. [2011] 330 ITR 440 (DELHI). IN THIS CASE, THE REVENUE RELIED UPON THE DECISION OF THE HON'BLE SUPR EME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA). THE LEARNE D INCOME-TAX APPELLATE TRIBUNAL HAS REPRODUCED THE OBSERVATIONS MAD E BY THE DELHI HIGH COURT WHILE REFERRING THE SAID CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA). THE ASSESSEE HEREIN BEING A CO-OPERATIVE BANK A LSO GOVERNED BY THE RESERVE BANK OF INDIA AND THUS THE DIRECTIONS WITH REGARD TO THE PRUDENTIAL NORMS ISSUED BY THE RESERVE BANK OF INDIA AR E EQUALLY APPLICABLE TO THE CO-OPERATIVE BANKS. THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) HELD THAT T HE PROVISIONS OF SECTION 45Q OF THE RESERVE BANK OF INDIA ACT HAS AN OV ERRIDING EFFECT VIS- A-VIS INCOME RECOGNITION PRINCIPLE UNDER THE COMPANI ES ACT. HENCE, SECTION 45Q OF THE RESERVE BANK OF INDIA ACT SHALL HA VE THE OVERRIDING EFFECT OVER THE INCOME RECOGNITION PRINCIPLE FOLLOW ED BY CO-OPERATIVE BANKS. HENCE, THE ASSESSING OFFICER HAS TO FOLLOW THE RESE RVE BANK OF INDIA DIRECTIONS, 1998, AS HELD BY THE HON'BLE SUPREM E COURT. 7 ITA NO.1376/PN/2014 CO NO. 37/PN/2015 10. THE HONOURABLE APEX COURT IN THE CASE OF UCO BAN K'S CASE (SUPRA) HAD AN OCCASION TO CONSIDER THE NATURE OF THE CENTRAL BOARD OF DIRECT TAXES CIRCULAR AND THE HON'BLE APEX COURT HAS THUS HELD THAT THE BOARD HAS POWER, INTER ALIA, TO TONE DOWN THE RIGOUR OF THE LAW AND ENSURE A FAIR ENFORCEMENT OF ITS PROVISIONS, BY ISSUING C IRCULAR IN EXERCISE OF ITS STATUTORY POWERS UNDER SECTION 119 OF THE ACT WH ICH ARE BINDING ON THE AUTHORITIES IN THE ADMINISTRATION OF THE ACT, IT IS A BENEFICIAL POWER GIVEN TO THE BOARD FOR PROPER ADMINISTRATION OF FISCA L LAW SO THAT UNDUE HARDSHIP MAY NOT BE CAUSED TO THE ASSESSEE AND THE FISCAL LAWS MAY BE CORRECTLY APPLIED. FURTHER, A SIMILAR ISSUE WAS RAISED A BOUT INTEREST ACCRUED ON A STICKY' LOAN WHICH WAS NOT RECOVERED B Y THE ASSESSEE-BANK FOR THE LAST THREE YEARS AND TRANSFERRED TO THE SUSPENSE ACCOUNT, WOULD OR WOULD NOT BE INCLUDED IN THE INCOME OF THE ASSESSEE FOR THE PARTICULAR ASSESSMENT YEAR. THE HON'BLE APEX COURT HAS OBSERVED THAT : 'THE METHOD OF ACCOUNTING WHICH IS FOLLOWED BY THE A SSESSEE-BANK IS THE MERCANTILE SYSTEM OF ACCOUNTING. HOWEVER, THE ASSE SSEE CONSIDERS INCOME BY WAY OF INTEREST PERTAINING TO DOUBTFUL LOA NS AS NOT REAL INCOME IN THE YEAR IN WHICH IT ACCRUES BUT ONLY WHEN IT IS REALISED. A MIXED METHOD OF ACCOUNTING IS THUS FOLLOWED BY THE ASSE SSEE-BANK. THIS METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE IS IN ACCORDANCE WITH ACCOUNTING PRACTICE . . . THE ASSESSEE'S METHOD OF ACCOUNTING, TRANSFERRING THE DO UBTFUL DEBT TO AN INTEREST SUSPENSE ACCOUNT AND NOT TREATING IT AS PROF IT UNTIL ACTUALLY RECEIVED, IS IN ACCORDANCE WITH ACCOUNTING PRACTICE ... UP TO THE ASSESSMENT YEAR 1978-79 THE TAXABILITY OF INTEREST ON DO UBTFUL DEBTS CREDITED TO SUSPENSE ACCOUNT WILL BE DECIDED IN THE LI GHT OF THE BOARD'S EARLIER CIRCULAR DATED OCTOBER 6, 1952, AS THE SAID C IRCULAR WAS WITHDRAWN ONLY IN JUNE, 1978. THE NEW PROCEDURE UND ER THE CIRCULAR OF OCTOBER 9, 1984, WILL BE APPLICABLE FOR AND FROM THE ASSESSMENT YEAR, 1979-80. ALL PENDING DISPUTES ON THE ISSUE SHOULD BE SETTLED IN THE LIGHT OF THESE INSTRUCTIONS. THEREFORE, UP TO THE ASSESSMENT YEAR 1978-79, THE CENTRAL BOARD OF DIRECT TAXES'S CIRCULAR OF OCTOBER 6, 1952 WOULD BE APPLICABLE; WHILE FROM THE ASSESSMENT YEA R 1979- 80,THE CENTRAL BOARD OF DIRECT TAXES'S CIRCULAR OF OC TOBER 9, 1984 IS MADE APPLICABLE. IN THE PRESENT CASE, THE ASSESSMENT WAS MADE ON' THE BASIS OF THE CENTRAL BOARD OF DIRECT TAXES'S CIRCULAR O N OCTOBER 9' 1984, SINCE THE ASSESSMENT PERTAINS TO THE ASSESSMENT YEAR 1 981-82 TO WHICH THE CIRCULAR OF OCTOBER 9, 1984, IS APPLICA BLE ... IF, THE BOARD HAS CONSIDERED IT NECESSARY TO LAY DOWN A GENERAL TEST F OR DECIDING WHAT IS A DOUBTFUL DEBT, AND DIRECTED THAT ALL INCOM E-TAX OFFICER'S SHOULD TREAT SUCH AMOUNTS AS NOT FORMING PART OF THE IN COME OF THE ASSESSEE UNTIL REALIZED, THIS DIRECTION BY WAY OF A CIRC ULAR CANNOT BE CONSIDERED AS TRAVELLING BEYOND THE POWERS OF THE BOAR D UNDER SECTION 119 OF THE INCOME-TAX ACT. SUCH A CIRCULAR IS BINDI NG UNDER SECTION 119. THE CIRCULAR OF OCTOBER 9, 1984, THEREFORE, PR OVIDES A TEST FOR RECOGNISING WHETHER A CLAIM FOR INTEREST CAN BE TREAT ED AS A DOUBTFUL CLAIM UNLIKELY TO BE RECOVERED OR NOT. THE TEST PROV IDED BY THE SAID CIRCULAR IS TO SEE WHETHER, AT THE END OF THREE YEARS, THE AMOUNT OF INTEREST HAS, IN FACT, BEEN RECOVERED BY THE BANK OR NOT. IF IT IS NOT RECOVERED FOR A PERIOD OF THREE YEARS, THEN IN THE F OURTH YEAR AND ONWARDS THE CLAIM FOR INTEREST HAS TO BE TREATED AS DOU BTFUL CLAIM WHICH NEED NOT BE INCLUDED IN THE INCOME OF THE ASSESSE E UNTIL IT IS ACTUALLY RECOVERED. . . . IN THE PRESENT CASE, THE CI RCULARS WHICH HAVE BEEN IN FORCE ARE MEANT TO ENSURE THAT WHILE ASSESSING T HE INCOME 8 ITA NO.1376/PN/2014 CO NO. 37/PN/2015 ACCRUED BY WAY OF INTEREST ON A 'STICKY' LOAN, THE NO TIONAL INTEREST WHICH IS TRANSFERRED TO A SUSPENSE ACCOUNT PERTAINING TO DOUBTFUL LOANS WOULD NOT BE INCLUDED IN THE INCOME OF THE ASSESSE E, IF FOR THREE YEARS SUCH INTEREST IS NOT ACTUALLY RECEIVED. THE VERY FACT THAT THE ASSESSEE ALTHOUGH GENERALLY USING A MERCANTILE SYSTEM OF A CCOUNTING, KEEPS SUCH INTEREST AMOUNTS IN A SUSPENSE ACCOUNT AND DOE S NOT BRING THESE AMOUNTS TO THE PROFIT AND LOSS ACCOUNT GOES TO SHOW THAT THE ASSESSEE IS FOLLOWING A MIXED SYSTEM OF ACCOUNTING BY WHIC H SUCH INTEREST IS INCLUDED IN ITS INCOME ONLY WHEN IT IS ACTU ALLY RECEIVED. LOOKING TO THE METHOD OF ACCOUNTING SO ADOPTED BY TH E ASSESSEE IN SUCH CASES, THE CIRCULARS WHICH HAVE BEEN ISSUED ARE CONSI STENT WITH THE PROVISIONS OF SECTION 145 AND ARE MEANT TO ENSURE T HAT ASSESSEES OF THE KIND SPECIFIED WHO HAVE TO ACCOUNT FOR ALL SU CH AMOUNTS OF INTEREST ON DOUBTFUL LOANS ARE UNIFORMLY GIVEN THE BE NEFIT UNDER THE CIRCULAR AND SUCH INTEREST AMOUNTS ARE NOT INCLUDED IN THE INCOME OF THE ASSESSEE UNTIL ACTUALLY RECEIVED IF THE CONDITIONS O F THE CIRCULAR ARE SATISFIED. THE CIRCULAR OF OCTOBER 9, 1984, ALSO SERVES ANOTHER PRACTICAL PURPOSE OF LAYING DOWN A UNIFORM TEST FOR THE ASSESSING A UTHORITY TO DECIDE WHETHER THE INTEREST INCOME WHICH IS TRANSFERRE D TO THE SUSPENSE ACCOUNT IS, IN FACT, ARISING IN RESPECT OF A DO UBTFUL OR 'STICKY' LOAN. THIS IS DONE BY PROVIDING THAT NON-RECEIPT OF I NTEREST FOR THE FIRST THREE YEARS WILL NOT BE TREATED AS INTEREST ON A DOUBT FUL LOAN. BUT IF AFTER THREE YEARS THE PAYMENT OF INTEREST IS NOT RECE IVED, FROM THE FOURTH YEAR ONWARDS IT WILL BE TREATED AS INTEREST ON A DOUBTFUL LOAN AND WILL BE ADDED TO THE INCOME ONLY WHEN IT IS ACTU ALLY RECEIVED ... THERE IS NO INCONSISTENCY OR CONTRADICTION BETWEEN TH E CIRCULAR SO ISSUED AND SECTION 145 OF THE INCOME-TAX ACT. IN FACT, THE CIRCULAR CLARIFIES THE WAY IN WHICH THESE AMOUNTS ARE TO BE TRE ATED UNDER THE ACCOUNTING PRACTICE FOLLOWED BY THE LENDER. THE CIR CULAR, THEREFORE, CANNOT BE TREATED AS CONTRARY TO SECTION 145 OF THE I NCOME-TAX ACT OR ILLEGAL IN ANY FORM. IT IS MEANT FOR A UNIFORM ADMIN ISTRATION OF LAW BY ALL THE INCOME-TAX AUTHORITIES IN A SPECIFIC SITUATIO N AND, THEREFORE, VALIDLY ISSUED UNDER SECTION 119 OF THE INCOME-TAX ACT . AS SUCH, THE CIRCULAR WOULD BE BINDING ON THE DEPARTMENT . . . T HE RELEVANT CIRCULARS OF CENTRAL BOARD OF DIRECT TAXES CANNOT BE IGNORED. THE QUESTION IS NOT WHETHER A CIRCULAR CAN OVERRIDE OR DETRACT FROM THE PROVISIONS OF THE ACT; THE QUESTION IS WHETHER THE CIRCULAR SEEKS TO MIT IGATE THE RIGOUR OF A PARTICULAR SECTION FOR THE BENEFIT OF THE ASSESSEE IN CERTAIN SPECIFIED CIRCUMSTANCES. SO LONG AS SUCH A CIRCULAR IS IN FORCE IT WOULD BE BINDING ON THE DEPARTMENTAL AUTHORITIES IN VIEW OF THE PROVI SIONS OF SECTION 119 TO ENSURE A UNIFORM AND PROPER ADMINISTRATION AND APPLICATION OF THE INCOME-TAX ACT.' 11. THE LEARNED COUNSEL FOR THE RESPONDENT HAS PLACED RELIANCE IN A CASE OF MERCANTILE BANK LTD. V. CIT REPORTED IN [200 6] 283 ITR 84 (SC) ; [2006] 5 SCC 221, WHERE SIMILAR QUESTION WAS RAISED B EFORE THE APEX COURT. THE QUESTION WAS WHETHER THE ASSESSEE IS LIABLE TO BE TAXED UNDER THE INCOME-TAX ACT, 1961, IN RESPECT OF THE IN TEREST ON DOUBTFUL ADVANCES CREDITED TO THE INTEREST SUSPENSE ACCOUNT. IN T HIS CASE, UCO BANK'S CASE (SUPRA) WAS ALSO REFERRED AND THE HON'BLE AP EX COURT HAS ALLOWED THE APPEAL TO THE EXTENT OF QUESTION RAISED A S AFORESAID. FURTHERMORE, THE RESPONDENT CO-OPERATIVE BANKS, AS UND ERSTOOD BY SECTION 43C OF THE INCOME-TAX ACT ON THE SCHEDULED BA NK. 9 ITA NO.1376/PN/2014 CO NO. 37/PN/2015 12. LEARNED COUNSEL FOR THE APPELLANTS-REVENUE PLACE D RELIANCE ON THE JUDGMENT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD . V. JOINT CIT REPORTED IN [2010] 320 ITR 577 (SC) ; [2010] 2 SCC 548. HOWEVER, THIS JUDGMENT PERTAINS TO NON-BANKING FINANCIAL COMPANIES. UCO BANK'S CASE (SUPRA) AND MERCANTILE BANK (SUPRA) CASE SQUARELY A PPLIES TO THE FACTS OF THE PRESENT CASE AND ISSUES INVOLVED. WE, THERE FORE, DO NOT FIND IT NECESSARY TO INTERFERE IN THE JUDGMENT OF THE APPE LLANT TRIBUNAL. WE HOLD THAT NO SUBSTANTIAL QUESTION OF LAW ARISES IN THESE APPEALS. 10. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT AND IN ABSENCE OF ANY CONTRARY M ATERIAL BROUGHT TO OUR NOTICE BY THE LD. DEPARTMENTAL REPRESE NTATIVE THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. CO NO.37/PN/2015 : 11. THE ONLY EFFECTIVE GROUND RAISED BY THE ASSESSEE RE ADS AS UNDER : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE REVENUE IN THIS APPEAL HAS CHALLENGED THE LD.CIT(A)S ORDER WHERE ADDITION OF RS.1,00,10,642/- HAS BEEN DELETED MADE BY THE A.O. ON ACCOUNT OF INTEREST ON NON PERFORMING ASSETS. THE ISSUE IS SQUARELY COVERED BY VARIOUS DECISIONS OF HIGH COURT AND BENCHES OF TRIBUNAL INCLUDING THE LATEST DECISION OF HONBLE BOMBAY HIGH COURT, AURANGABAD BENCH. THE APPEAL OF THE REVENUE BE DISM ISSED. 12. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET SU BMITTED THAT THE GROUND RAISED BY THE ASSESSEE IS MERELY IN SUPPORT OF THE ORDER OF THE CIT(A). 13. AFTER HEARING BOTH THE SIDES, WE FIND THE GROUND RAISE D BY THE ASSESSEE IN THE C.O. IS MERELY IN SUPPORT OF THE ORDER O F THE CIT(A). WE HAVE ALREADY DISMISSED THE APPEAL FILED BY THE REVENUE. THEREFORE, THE C.O. FILED BY THE ASSESSEE BECOMES INFRUCTUO US. ACCORDINGLY, THE CO FILED BY THE ASSESSEE IN DISMISSED. 10 ITA NO.1376/PN/2014 CO NO. 37/PN/2015 14. IN THE RESULT, THE APPEAL FILED BY THE REVENUE AS WELL AS THE CROSS OBJECTION FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 08-01-2016. SD/- SD/- ( VIKAS AWASTHY ) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE ; DATED 08 TH JANUARY 2016. ) *#,! -! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT(A) - V, PUNE 4. 5. 6. THE CIT-V, PUNE, AURANGABAD $ ''(, (, / DR, ITAT, B PUNE; - / GUARD FILE. / BY ORDER , // TRUE COPY // // TRUE COPY // // $ ' //TRUE COPY / /0 ' ( / SR. PRIVATE SECRETARY (, / ITAT, PUNE