Assistant Commissioner of Income-tax, V. The Laxmi Co-operative Bank Ltd.,

ITA 1019/PUN/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2649 (ITAT-PUNE)
• Duration Of Justice: 7 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 10-07-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HITENDRA NINAWE
• Assessee Lawyers: S N DOSHI
• Keywords: Question of law; Bad and doubtful debts; Revised return

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.1019/PN/2015 ASSESSMENT YEAR : 2011-12 THE ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 2, SOLAPUR. .. APPELLANT VS. THE LAXMI CO-OPERATIVE BANK LTD., 319, SOUTH KASABA, SOLAPUR. PAN: AAAAT3183G ... RESPONDENT / DEPARTMENT BY : SHRI HITENDRA NINAWE / ASSESSEE BY : SHRI S. N. DOSHI / DATE OF HEARING : 03.02.2016 / DATE OF PRONOUNCEMENT: 04.03.2016 % / ORDER PER VIKAS AWASTHY, JM : THE PRESENT APPEAL BY THE DEPARTMENT IS DIRECTED AG AINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)- 7, PUNE DATED 30.04.2015 FOR THE ASSESSMENT YEAR 2011-12. 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RE CORDS ARE: THE ASSESSEE IS A CO-OPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BAN KING ACTIVITIES. THE ASSESSEE FILED ITS REVISED RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR ON 22.09.2010 DECLARING TOTAL INCOME OF RS.1,82,62,930/-. THE CA SE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND ACCORDINGLY NOTICE UNDER SECTION 1 43(2) OF THE ACT WAS ISSUED TO THE ASSESSEE ON 25.09.2012. DURING THE COURSE OF S CRUTINY ASSESSMENT, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSES SEE ON ACCOUNT OF: (I) ACCRUED 2 ITA NO.1019/PN/2015 INTEREST ON NON-PERFORMING ASSETS (NPAS); (II) AMOR TIZATION OF PREMIUM ON GOVERNMENT SECURITIES WRITTEN OFF; AND (III) DISALL OWANCE UNDER SECTION 40(A)(IA). AGGRIEVED BY THE ASSESSMENT ORDER DATED 20.02.2014 , THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). 3. THE FIRST APPELLATE AUTHORITY ACCEPTED THE APPEA L OF THE ASSESSEE IN TOTO AND DELETED THE ADDITIONS/DISALLOWANCES. THE CIT(A) AC CEPTED THE CLAIM OF ASSESSEE QUA ACCRUED INTEREST ON NPAS BY PLACING RELIANCE ON TH E ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2009-10 AN D 2010-11. SIMILARLY, THE CIT(A) ACCEPTED THE CLAIM OF THE ASSESSEE IN RESPEC T OF AMORTIZATION OF PREMIUM ON GOVERNMENT SECURITIES BY FOLLOWING THE DECISIONS OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2010-11. AGAINST THE FINDINGS OF THE CIT(A), THE REVENUE IS IN APPEAL BEFORE TRIBUNAL. 4. THE REVENUE HAS FILED DETAILED GROUNDS OF APPEAL BY RAISING TEN GROUNDS. IN GROUND NOS.1 TO 5, THE REVENUE HAS ASSAILED THE FINDINGS OF CIT(A) AGAINST DELETING OF INTEREST ON NPAS AMOUNTING TO RS.1,78,2 8,802/-. IN GROUND NOS.6 TO 8, THE REVENUE HAS ASSAILED THE FINDINGS OF THE CIT(A) IN ALLOWING AMORTIZATION OF PREMIUM ON GOVERNMENT SECURITIES HELD UNDER HTM CAT EGORIES. 5. SHRI S. N. DOSHI APPEARING ON BEHALF OF THE ASSE SSEE SUBMITTED AT THE OUTSET THAT THE ISSUE RELATING TO INTEREST ACCRUED ON NPAS HAS BEEN DECIDED BY THE CO- ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CA SE FOR THE ASSESSMENT YEAR 2009-10 IN ITA NO.180/PN/2014 DECIDED ON 19.01.2015 . THE TRIBUNAL WHILE ACCEPTING THE CLAIM OF ASSESSEE PLACED RELIANCE ON THE DECISION OF PUNE BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. OSMANABAD JANT A SAHAKARI BANK LTD. IN ITA NO.795/PN/2011 DECIDED ON 31.08.2012. THE LD. AR F URTHER SUBMITTED THAT THIS 3 ITA NO.1019/PN/2015 ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE BY THE H ONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. DEOGITI NAGARI SAHKARI BANK LTD. RE PORTED AS 379 ITR 24 (BOM.) IN RESPECT OF AMORTIZATION OF PREMIUM ON GOVERNMEN T SECURITIES HELD UNDER HTM CATEGORIES, THE LD. AR SUBMITTED THAT THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN ITS OWN CASE IN ITA NO.121/PN/2014 DECIDED ON 12.01.2015. THE LD. AR FURNISHED COPIES OF BOTH THE DECISIONS OF TH E TRIBUNAL AND PRAYED FOR DISMISSING THE APPEAL OF THE REVENUE. 6. ON THE OTHER HAND, SHRI HITENDRA NINAWE REPRESEN TING THE DEPARTMENT VEHEMENTLY DEFENDED THE ORDER OF ASSESSING OFFICER ON BOTH THE ISSUES RAISED IN THE PRESENT APPEAL OF THE REVENUE. THE LD. DR SUBM ITTED THAT THE PROVISIONS OF SECTION 43D OF THE ACT APPLY ONLY TO THE FINANCIAL INSTITUTION AND SCHEDULED BANK. IT IS AN ADMITTED FACT THAT THE ASSESSEE IS A NON-SCHE DULED BANK, THEREFORE, THE PROVISIONS OF SECTION 43D OF THE ACT WOULD NOT APPL Y. THE LD. DR FURTHER SUBMITTED THAT THE ASSESSEE DOES NOT SATISFY THE CONDITIONS L AID DOWN IN THE CBDT CIRCULAR DATED 09.10.1984 AND HENCE CANNOT AVAIL THE BENEFIT OF SAME. IN RESPECT OF AMORTIZATION OF PREMIUM ON GOVERNMENT SECURITIES HE LD UNDER HTM CATEGORIES, THE LD. DR SUBMITTED THAT THE RBI GUIDELINES DOES NOT O VERRIDE THE PROVISIONS OF THE INCOME-TAX ACT, THEREFORE, THE SAME COULD NOT BE AP PLIED IN THE CASE OF THE ASSESSEE TO ALLOW AMORTIZATION OF PREMIUM ON GOVERN MENT SECURITIES HELD UNDER HTM CATEGORY. HOWEVER, THE LD. DR FAIRLY ADMITTED THAT THE ISSUES RAISED IN THE PRESENT APPEAL HAS ALREADY BEEN DECIDED BY THE CO-O RDINATE BENCH OF THE TRIBUNAL IN EARLIER ASSESSMENT YEARS IN ASSESSEES OWN CASE. 7. WE HAVE CAREFULLY HEARD THE SUBMISSIONS MADE BY THE RIVAL PARTIES AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE HA VE ALSO CONSIDERED THE DECISIONS OF WHICH THE LD. AR HAS PLACED RELIANCE. THE FIRST ISSUE RAISED IN THE APPEAL IS WITH REGARD TO INTEREST ACCRUED ON NPAS A MOUNTING TO RS.1,78,28,802/-. THE LD. AR HAS POINTED OUT THAT THIS ISSUE WAS RAIS ED BY THE DEPARTMENT EARLIER IN 4 ITA NO.1019/PN/2015 THE ASSESSMENT YEAR 2009-10 IN ITA NO.180/PN/2014 ( SUPRA), THE TRIBUNAL DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE. THE RELEVANT EXTRACT OF THE FINDINGS OF THE TRIBUNAL ARE AS UNDER :- 5. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED TH E VARIOUS DECISIONS CITED BEFORE US. WE FIND THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF OSMANABAD JANTA SAHAKARI BANK LTD., (SUPRA) HAS CONSIDERED AN IDENT ICAL ISSUE AND UPHELD THE ORDER OF THE CIT(A) WHERE IT WAS HELD THAT INTEREST ON ST ICKY ADVANCES CANNOT BE BROUGHT TO TAX ON ACCRUAL BASIS. THE RELEVANT OBSERVATION OF THE TRIBUNAL READS AS UNDER : 5. WE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES A ND PERUSED THE RECORD. WE FIND THAT THE IDENTICAL ISSUE HAS BEEN CONSIDERED B Y THE ITAT, VISAKHAPATNAM BENCH, IN THE CASE OF DCIT, VIJAYAWADA VS. THE DURG A COOPERATIVE URBAN BANK LTD., VIJAYAWADA, IN ITA.NO.511/VIZAG/2010 DATED 10 .03.2011. IN THE SAID CASE ALSO, IT WAS NOTICED BY THE ASSESSING OFFICER THAT ASSESSEE DID NOT INCLUDE THE INTEREST OF RS.18,26,306/- ON THE NPA ADVANCES. AG AIN THE ISSUE OF APPLICABILITY OF SECTION 43D WAS CONSIDERED TO THE NON-SCHEDULED BAN KS. THE TRIBUNAL PLACED ITS HEAVY RELIANCE ON THE DECISION OF THE HONBLE HIGH COURT OF DELHI IN THE CASE OF VASHIST CHAY VYAPAR LTD. [330 ITR 440 (DEL.)], IN W HICH THE HONBLE DELHI HIGH COURT HAS CONSIDERED THE DECISION IN THE CASE OF SO UTHERN TECHNOLOGIES LTD. [320 ITR 577 (SC)]. THE TRIBUNAL FINALLY HELD THAT THE I NTEREST INCOME RELATABLE TO NPA ADVANCES DID NOT ACCRUE TO THE ASSESSEE. 6. AN IDENTICAL VIEW HAS BEEN TAKEN BY THE ITAT, AH MEDABAD BENCH IN THE CASE OF KARNAVATI COOPERATIVE BANK LTD. VS. DY.CIT [134 ITD 486 (AHMEDABAD)]. IN THE CASE OF KARNAVATI COOPERATIVE BANK LTD. (SUP RA), THE TRIBUNAL HAS CONSIDERED THE PROVISIONS OF SECTION 43D AND ITS APPLICATION T O THE NON-SCHEDULED BANKS. THE REASONS GIVEN BY THE TRIBUNAL IN THE CASE OF KARNAV ATI COOPERATIVE BANK LTD. (SUPRA) FOR HOLDING THAT INTEREST ON THE STICKY ADV ANCES/NPA ADVANCES CANNOT BE BROUGHT TO TAX BY FOLLOWING THE DECISION IN THE CAS E OF UCO BANK (SUPRA), WHICH IS AS UNDER: 15.1. ON CAREFUL ANALYSIS OF THIS SECTION OUR FIRS T OBSERVATION IS THAT SECTION 43D IS IN CONTRAST WITH THE FUNDAMENTAL PRINCIPLE OF ACCOU NTANCY. THE CARDINAL PRINCIPLE OF MERCANTILE SYSTEM OF ACCOUNTANCY IS THAT AN INCOME IS TO BE SHOWN IN THE BOOKS OF ACCOUNT ON ACCRUAL BASIS. THE PRINCIPLE IS THAT IT IS IMMATERIAL WHETHER IT WAS ACTUALLY RECEIVED OR NOT, BUT IF AN INCOME IS EXPECTED TO BE RECEIVED, THEN IT SHOULD BE BROUGHT TO BOOKS OF ACCOUNT AS AN INCOME ACCRUED TO THE ASSESSEE. CONTRARY TO THIS RECOGNIZED PRINCIPLE, THIS SECTION HAS PRESCRIBED T HAT AN INCOME BY WAY OF INTEREST SHALL BE CHARGEABLE TO TAX IN THE PREVIOUS YEAR IN WHICH IT IS CREDITED. THE WORDS CREDITED AND ACTUALLY RECEIVED HAS BEEN HIGHLIG HTED HEREINABOVE WHILE REPRODUCING THE SECTION IN QUESTION. THE OTHER DEVI ATION FROM THE SAID ACCEPTED PRINCIPLE OF ACCOUNTANCY IS THAT AN INCOME BY WAY O F INTEREST SHALL BE CHARGEABLE TO TAX IN THE PREVIOUS YEAR IN WHICH IT IS ACTUALLY RE CEIVED. THE ACT SAYS THAT THE INCIDENCE OF CREDIT OR ACTUALLY RECEIVED, WHICH EVER IS EARLIER IS TO BE TAKEN INTO ACCOUNT FOR THE PURPOSE OF CHARGEABILITY OF INCOME BY WAY OF INTEREST. SIMULTANEOUSLY, IT IS NOTEWORTHY THAT THIS SECTION IS AN OVERRIDING SECTION BECAUSE THE OPENING WORD IS NOTWITHSTANDING ANYTHING TO TH E CONTRARY CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT. THEREFORE, IN SPITE OF ANY THING CONTAINED IN THE ACT, THE PROVISIONS OF THIS SECTION SHALL OVERRIDE THOSE PRO VISIONS. ONCE THE STATUTE HAS CATEGORICALLY MADE A LAW IN RESPECT OF PUBLIC FINAN CIAL INSTITUTIONS THAT INTEREST IS CHARGEABLE TO TAX EITHER IN THE YEAR IN WHICH CREDI TED OR ACTUALLY RECEIVED, WHICHEVER IS EARLIER, THEN IT IS COMPULSORY TO ABIDE BY THE S AID RULE. ACCORDING TO US, NO SCOPE IS LEFT WITH THE REVENUE AUTHORITIES TO IGNORE THES E PROVISIONS DUE TO UNAMBIGUOUS USE OF LANGUAGE IN THE SECTION. (II) STATUS OF ASSESSEE FOR THE PURPOSE OF APPLICAT ION SECTION 43-D. 5 ITA NO.1019/PN/2015 AS FAR AS THE STATUS OF THE ASSESSEE IS CONCERNED, THE ASSESSING OFFICER HAS STATED THAT THE ASSESSEE-BANK IS A CO-OPERATIVE BANK. UNDI SPUTEDLY, THE ASSESSEE IS ALSO GOVERNED BY THE RBI GUIDELINES. VIDE AN EXPLANATION (D) R.W.S. 36(1)(VIIA) ANNEXED TO SECTION 43-D THE DEFINITION OF THE ENTITIES INCO RPORATED BY THE SECTION HAVE BEEN DEFINED AND IN THE ABSENCE OF ANY CONTRARY MATERIAL , WE HEREBY HOLD THAT THE ASSESSEE IS COVERED BY ONE OF THE ENTITIES, HENCE T HE PROVISIONS OF SECTION 43-D ARE TO BE APPLIED. (III) APPLICABILITY OF CBDT CIRCULAR. NEXT ISSUE IS THAT WHETHER A CIRCULAR HAVING EFFECT OF RELAXING RIGOUR OF LAW CAN BE TREATED AS INCONSISTENT WITH THE PROVISIONS OF A ST ATUTE. IN ORDER TO AID PROPER DETERMINATION OF THE INCOME OF MONEY LENDERS AND BA NKS, THE CENTRAL BOARD OF DIRECT TAXES HAS ISSUED A CIRCULAR DATED OCTOBER 6, 1952, PROVIDING THAT WHERE INTEREST ACCRUING ON DOUBTFUL DEBTS IS CREDITED TO A SUSPENSE ACCOUNT, IT NEED NOT BE INCLUDED IN ASSESSEES TAXABLE INCOME, PROVIDED THE INCOME TAX OFFICER IS SATISFIED THAT RECOVERY IS PRACTICALLY IMPROBABLE. THE CBDT U /S.119 OF THE I.T.ACT HAS POWER TO ISSUE CIRCULARS IN EXERCISE OF ITS STATUTORY POW ERS. IF THE BOARD CONSIDER IT NECESSARY TO LAY DOWN CERTAIN RULES AND THEN DIRECT THE SUB-ORDINATE AUTHORITIES, SUCH DIRECTIONS ARE REQUIRED TO BE FOLLOWED AND SUC H CIRCULAR WOULD BE BINDING ON THE DEPARTMENT UNLESS AND UNTIL HELD AS ULTRA VIRES BY A COURT OF LAW. THE BOARD HAS POWERS TO RELAX THE SEVERITY OR THE STRICTNESS OF L AW AND THE AUTHORITIES ARE REQUIRED TO FOLLOW THOSE INSTRUCTIONS AS HELD IN THE CASE OF C.B. GAUTAM VS. UNION OF INDIA 108 CTR 304 (SC) & 110 CTR 179 (SC); NAVNITLAL C.ZA VERI 56 ITR 198(SC) AND K.P.VARGHESE 131 ITR 597 (SC). IN THE LAND-MARK DECISION, THE HON'BLE SUPREME COUR T IN THE CASE OF UCO BANK VS. CIT (1999) 237 ITR 889 (SC) HAS THEREFORE HELD, FIR ST, THAT A BENEFICIAL CIRCULAR IS NOT TO BE TREATED AS INCONSISTENT WITH THE PROVISIONS O F STATUTE AND BINDING ON THE AUTHORITIES. SECOND, THAT IN RESPECT OF INTEREST ON STICKY ADVANCES INTEREST INCOME IS TO BE TAXED ONLY WHEN ACTUALLY RECEIVED AS PRESC RIBED BY CBDT CIRCULAR. HOWEVER, IN THE PAST AN INTERESTING TURN HAD TAKEN PLACE BY AN ORDER OF THE HONBLE KERALA HIGH COURT IN THE CASE OF STATE BANK OF TRAV ANCORE REPORTED IN 110 ITR 336 (KER.), WHEREIN IT WAS HELD THAT THE ASSESSEE, A BA NKING COMPANY, DID NOT CREDIT IN ITS ACCOUNT THE INTEREST THAT HAD ACCRUED ON STICK Y ADVANCES BECAUSE THE ASSESSEE FELT THAT THE INTEREST COULD NOT TO BE REA LISED. IT CREDITED THE INTEREST TO A SEPARATE ACCOUNT KNOWN AS INTEREST SUSPENSE ACCOUN T. ON REFERENCE, THE HON'BLE COURT HAS HELD THAT THERE WAS AN ACCRUAL OF INCOME LIABLE TO INCOME-TAX AND THE ASSESSEE WAS NOT JUSTIFIED IN NOT CREDITING THE INT EREST INCOME ON SUCH STICK ADVANCES IT ITS ACCOUNTS. HOWEVER, LATER ON AT THE HON'BLE APEX COURT WHILE PRONOUNCING THE JUDGMENT OF THE SAID STATE BANK OF TRAVANCORE VS. CIT REPORTED IN (1986)158 ITR 102(SC), THERE WERE HON'BLE THREE JUD GES PRESIDING THE COURT, OUT OF WHICH HONBLE TWO JUDGES WERE IN THE OPINION THAT T HE INTEREST ON STICKY ADVANCES WAS RIGHTLY TREATED AS INCOME WHICH HAD ACCRUED TO THE APPELLANT. THERE WAS A DESCENDING NOTE BY ONE OF THE HON'BLE JUDGE AND COM MENTED THAT WHETHER AN INCOME ON RECEIPT BASIS OR ON ACCRUAL BASIS, IT IS THE REAL INCOME AND NOT ANY HYPOTHETICAL INCOME WHICH MAY HAVE THEORETICALLY AC CRUED, I.E. SUBJECT TO TAX UNDER THE ACT. NEVERTHELESS, THAT DECISION WAS NOT FOLLOW ED WHILE DECIDING THE APPEAL OF UCO BANK (SUPRA) BY THE HON'BLE THREE JUDGES OF THE SUPREME COURT, ALREADY DISCUSSED BY US SUPRA. WE, THEREFORE SUMMARIZE THAT AS OF NOW THE LAW AS LAID DOWN IN UCO BANK IS THAT IN TERMS OF CBDT CIRCULAR THE INTEREST IS TO BE ADDED AS INCOME ONLY WHEN ACTUALLY RECEIVED OR CREDITED IN R ESPECT OF THE STICKY ADVANCES WHILE MAKING ASSESSMENT FOR A FINANCIAL INSTITUTION . (IV) INTERPRETATION OF THE LANGUAGE OF THE STATUTE : WE HAVE REPRODUCED VERBATIM THE PROVISIONS OF SECTI ON 43-D OF THE I.T.ACT AND EXPRESSED AN OPINION THAT IF THE STATUTE HAS USED T HE TERMINOLOGY FOR THE CHARGEABILITY OF INTEREST ON THE BASIS WHEN CREDIT ED OR ACTUALLY RECEIVED, THEN IN OUR OPINION NO AMBIGUITY HAS BEEN LEFT BY THE STATU TE. IF THE STATUTE IS SO CLEAR THAT AN INTERPRETATION CAN EASILY BE MADE, THEN THAT EXA CT MEANING SHOULD BE GIVEN TO THE LANGUAGE OF THE SECTION. FOR THIS LEGAL PROPOSI TION WE PLACE RELIANCE ON KESHAVJI RAVJI AND COMPANY VS. CIT 183 ITR 01 (SC), WHEREIN IT WAS HELD AS UNDER: 6 ITA NO.1019/PN/2015 AS LONG AS THERE IS NO AMBIGUITY IN THE STATUTORY LANGUAGE, RESORT TO ANY INTERPRETATIVE PROCESS TO UNFOLD THE LEGISLATIVE IN TENT BECOMES IMPERMISSIBLE. THE SUPPOSED INTENTION OF THE LEGISLATURE CANNOT THEN B E APPEALED TO WHITTLE DOWN THE STATUTORY LANGUAGE WHICH IS OTHER-WISE UNAMBIGUOUS. IF THE INTENDMENT IS NOT IN THE WORDS, IT IS NOWHERE ELSE. THE NEED FOR INTERPRETAT ION ARISES WHEN THE WORDS USED IN THE STATUTE ARE, ON THEIR OWN TERMS, AMBIVALENT AND DO NOT MANIFEST THE INTENTION OF THE LEGISLATURE. WHEN WORDS ACQUIRE A PARTICULAR MEANING OR SENSE BE CAUSE OF THEIR AUTHORITATIVE CONSTRUCTION BY SUPERIOR COURTS, THEY ARE PRESUMED TO HAVE BEEN USED IN THE SAME SENSE WHEN USED IN SUBSEQUENT LEGISLATION IN THE SA ME OR SIMILAR CONTEXT. TO SAY THAT THE COURT COULD NOT RESORT TO THE SO-CA LLED EQUITABLE CONSTRUCTION OF A TAXING STATUTE IS NOT TO SAY THAT, WHERE A STRICT L ITERAL CONSTRUCTION LEADS TO A RESULT NOT INTENDED TO SUBSERVE THE OBJECT OF THE LEGISLAT ION, ANOTHER CONSTRUCTION, PERMISSIBLE IN THE CONTEXT, SHOULD NOT BE ADOPTED. IN THIS RESPECT, TAXING STATUTES ARE NOT DIFFERENT FROM OTHER STATUTES. WE CAN THEREFORE SAFELY DRAW A CONCLUSION THAT BY T HE INSERTION OF A SPECIAL PROVISION TO TAX INTEREST INCOME IN THE CASE OF PUB LIC FINANCIAL INSTITUTION, ETC. SECTION 43-D HAS TO BE APPLIED IN ITS LETTER AND SPIRIT. IT IS PERTINENT TO MENTION THAT LATER ON, IN THE CASE OF CIT VS. BANK OF AMERICA S.A. 262 ITR 504 (BOM) THE QUESTION OF INTEREST ON STICKY LOANS WAS DECIDED IN FAVOUR OF THE ASSESSEE AND HELD THAT THE QUESTION IS TO BE ANSWERED IN FAVOUR OF THE ASSESSE E FOLLOWING THE DECISION OF UCO BANK REPORTED AT 237 ITR 889(SC) :: 240 ITR 355 (SC ). LIKEWISE, IN AN ANOTHER CASE OF CIT VS. STATE BANK OF INDIA 262 ITR 662 (BO M.) AGAIN IT WAS HELD THAT THE AMOUNT CREDITED TO THE INTEREST SUSPENSE ACCOUNT WA S NOT TAXABLE FOLLOWING THE DECISION PRONOUNCED IN THE CASE OF UCO BANK (SUPRA) . (V) JUDGEMENT IN FAVOUR OF REVENUE : FROM THE SIDE OF THE REVENUE AN ORDER OF THE TRIBUN AL HAS BEEN VEHEMENTLY RELIED UPON AND THIS IS THE BASIC REASON OF THE ELABORATE DISCUSSION MADE HEREINABOVE SO AS TO UNFOLD THE CONTROVERSY. IN THE SAID DECISION OF THE TRIBUNAL, VIZ. JT.CIT V/S. INDIA EQUIPMENT LEASING LTD. (2008)111 ITD 37 (CHEN NAI), THE RESPECTED CO- ORDINATE BENCH HAS EXPRESSED THAT QUOTE PRIOR TO INSERTION OF SECTION 43D WITH EFFECT FROM 1-4-1991, RECOGNITION OF INCOME WAS ON THE BASIS OF CIRCULAR OF 9- 101984. IT SAID THAT FOR FIRST THREE YEARS THE INCO ME MAY BE TAKEN ON ACCRUAL BASIS AND FROM 4TH YEAR ONWARDS, THE INCOME IN RESPECT OF DOUBTFUL DEBTS WAS TO BE RECOGNIZED ON RECEIPT BASIS. SINCE THE INCOME WAS T O BE ASSESSED FOR FIRST THREE YEARS ON ACCRUAL BASIS, PROVISIONS OF SECTION 43D W ERE INSERTED IN THE ACT. CIRCULAR NO.621, DATED 19-12-1991 GIVES THE LEGISLATIVE INTE NTION STATING THAT SECTION 43D WAS INSERTED WITH A VIEW TO IMPROVING THE VIABILITY OF BANKS, PUBLIC FINANCIAL INSTITUTIONS ETC., SO AS TO PROVIDE THAT INTEREST O N STICKY LOANS SHALL BE CHARGED TO TAX ONLY IN THE YEAR IN WHICH THE INTEREST IS ACTUALLY RECEIVED OR CREDITED TO THE PROFIT AND LOSS ACCOUNT. THIS BENEFIT WAS EXTENDED WITH EFFECT FROM 1-4-2000 IN THE CASE OF PUBLIC COMPANIES ENGAGED IN LONG-TERM FINANCING OF HOUSING PROJECTS APPROVED BY NATIONAL HOUSING BANKS. THE LEGISLATURE IN THEIR WI SDOM DID NOT EXTEND THE SAME BENEFIT TO NBFCS WHICH HAS BEEN GIVEN TO SCHEDULED BANKS, PUBLIC FINANCIAL INSTITUTIONS, ETC. THE PROVISIONS OF SECTION 43D AS STOOD AT RELEVANT TIME CONTAINED AN EXPRESSION 'THE INCOME BY WAY OF INTEREST IN REL ATION TO SUCH CATEGORIES OF BAD OR DOUBTFUL DEBTS AS MAY BE PRESCRIBED HAVING REGARD T O THE GUIDELINES ISSUED BY THE RBI IN RELATION TO SUCH DEBTS'. THIS EXPRESSION CON TINUES TO EXIST IN THE NEWLY SUBSTITUTED SECTION 43D APPLICABLE WITH EFFECT FROM 1-4-2000. THIS SHOWS THAT THE RBI GUIDELINES IN RESPECT OF SCHEDULED BANKS, PUBLI C FINANCIAL INSTITUTIONS ETC., WERE NOT SUFFICIENT FOR RECOGNITION OF INCOME ON CASH BA SIS FOR THE PURPOSES OF INCOME- TAX. THE INCOME OF SUCH ASSESSEES WAS DETERMINED AS PER CIRCULAR DATED 9-10- 1984. BECAUSE OF THIS REASON, SECTION 43DWAS INSERT ED IN THE STATUTE. RBI GUIDELINES IN CASE OF NBFC ARE FOR THE PURPOSE OF C ONTROL AND SUPERVISION WITH RESPECT TO PUBLIC INTEREST AND VIABILITY OF THE NBF C. THE GUIDELINES NEVER INTENDED FOR TAKING THE INTEREST INCOME ACCRUED AS PER SECTI ON 5 OUT OF THE SCOPE OF THE ACT. IF THE CONTENTION OF ASSESSEE WAS ACCEPTED, IT WOULD A MOUNT TO INSERTION OF 'NBFC' IN SECTION 43D, THAT TOO BY A GUIDELINE ISSUED FOR DIF FERENT PURPOSES BY AN AUTHORITY 7 ITA NO.1019/PN/2015 OTHER THAN THE PARLIAMENT IN OTHER WORDS, THE DOCTR INE OF 'CASUS OMISSUS' WILL DEEM TO HAVE BEEN APPLIED WHICH IS CONTRARY TO LAW OF LA ND.UNQUOTE. THE BASIC REASON FOR DIRECTING TO ASSESS THE ACCRUED INTEREST ON NPA WAS THE RBI GUIDELINES ISSUED ONLY FOR SCHEDULED BANKS, PUBLIC FINANCIAL INSTITUTIONS AND NOT FOR NBFC. THE OBSERVATION OF THE RESPECTED TRIBUNAL WAS THAT IF THE CONTENTIO N OF THE ASSESSEE WAS TO BE ACCEPTED, THEN IT WOULD AMOUNT TO INSERTION OF NBF C IN SECTION 43-D OF THE I.T.ACT. AS AGAINST THAT, AS FAR AS THE ASSESSEE IS CONCERNE D, IT IS AN ACCEPTED FACT THAT THE ASSESSEE IS A COOPERATIVE BANK AND NOT A NON-BANKIN G FINANCIAL COMPANY AND THIS NOTEWORTHY DISTINCTION HAS ALREADY BEEN APPRECIATED BY US IN ONE OF THE PARAGRAPHS ABOVE. THERE IS ONE MORE DECISION OF THE HONBLE APEX COUR T WHICH IS YET TO BE MENTIONED WHILE DISCUSSING THE ARGUMENTS RAISED FROM THE SIDE OF THE REVENUE. A DECISION IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. VS. JT. CIT 320 ITR 577 (SC) HAS BEEN CITED BUT THE FUNDAMENTAL DIFFERENCE IS THAT THE ISSUE BE FORE THE HONBLE COURT WAS IN RESPECT OF PROVISION FOR NPA AND DEBITED TO P&L ACC OUNT BY A NBFC. THE SAID PROVISION WAS UNDISPUTEDLY MADE BY THE SAID NBFC AS PER THE PRUDENTIAL NORMS MADE BY THE RESERVE BANK. THEREFORE WE WANT TO MAKE IT CLEAR THAT THE QUESTION FOR CONSIDERATION BEFORE THE HONBLE COURT WAS THAT IF A PROVISION FOR DOUBTFUL DEBT IS MADE THEN WHAT WILL BE THE LEGAL POSITION OF THE AP PLICABILITY OF EXPLANATION TO SECTION 36(1)(VII) OF THE I.T. ACT. FOR THE SAKE OF READY REFERENCE, RELEVANT PARAGRAPH FROM THE HELD PORTION IS REPRODUCED BELOW: THE INCOME-TAX IS A TAX ON REAL INCOME, I.E., T HE PROFITS ARRIVED AT ON COMMERCIAL PRINCIPLES SUBJECT TO THE PROVISIONS OF THE ACT. TH EREFORE, IF BY THE EXPLANATION TO SECTION 36(1)(VII) A PROVISION FOR DOUBTFUL DEBT IS KEPT OUT OF THE AMBIT OF BAD DEBT WHICH IS WRITTEN OFF, THEN ONE HAS TO TAKE INTO ACC OUNT THE EXPLANATION IN COMPUTING THE TOTAL INCOME UNDER THE INCOME-TAX ACT FAILING W HICH ONE CANNOT ASCERTAIN THE REAL PROFITS. THE PROVISION FOR NON-PERFORMING ASSE TS DEBITED IN THE PROFIT AND LOSS ACCOUNT UNDER THE RESERVE BANK DIRECTIONS OF 1998 I S ONLY A NOTIONAL EXPENSE AND, THEREFORE, THERE WOULD BE ADD BACK TO THAT EXTENT I N THE COMPUTATION OF TOTAL INCOME UNDER THE INCOME-TAX ACT. THEREFORE THE DISTINCTION CAN EASILY BE DRAWN THAT IN THE APPEAL BEFORE US THE QUESTION IS ACCRUAL OF INTEREST INCOME ON STICKY LO AN BUT IN THIS CITED DECISION THE QUESTION BEFORE HE APEX COURT WAS ABOUT THE ADMISSI BILITY OF PROVISION MADE IN RESPECT OF DOUBTFUL DEBTS. (VI) CONCEPT OF REAL INCOME APPROVED IN THE CASE OF BANKING BUSINESS: BEFORE US, THE THEORY OF REAL INCOME HAS ALSO BEE N ARGUED AND IN SUPPORT A DECISION OF HON'BLE COURT PRONOUNCED IN THE CASE OF CIT VS. GODHRA ELECTRICITY CO. 225 ITR 746 (SC). IN SHORT, THE VIEW EXPRESSED WAS THAT IF INCOME DOES NOT RESULT AT ALL, THERE CANNOT BE ANY TAX AND THAT IF AN INCOME HAS NOT MATERIALIZED, THEN MERELY AN ENTRY MADE ABOUT A HYPOTHETICAL INCOME BY FOLLOW ING BOOK KEEPING METHODS, THE LIABILITY TO TAX CANNOT BE ATTRACTED. NOW AT PRESENT THE SITUATION IS THAT THE HON'BLE MA DRAS HIGH COURT IN THE CASE OF CIT VS. ELGI FINANCE LTD. 293 ITR 357 (MAD.) HAS TA KEN A VIEW THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF LEASE, FINANCE AND HIRE PURCHASE AND THAT THE PRINCIPLE OF ACCRUAL COMES INTO PLAY WITHOUT IN COME WAS RECOGNIZED AND THAT THE ASSESSEE HAD CLASSIFIED ITS ASSETS ON THE BASIS OF NOTIFICATION ISSUED BY R.B.I. AND FOUND THAT CERTAIN ASSETS CAME UNDER THE CATEGORY O F NPA AND THAT FROM SUCH NPA THE ASSESSEE HAD NOT RECOGNIZED ANY INCOME IN CONSO NANCE WITH THE NOTIFICATION ISSUED BY RBI AND AS-9 ISSUED BY ICAI AND THAT THE ASSESSEE WAS JUSTIFIED IN NOT RECOGNIZING SUCH INCOME. THE COURT HAD FURTHER EXPR ESSED THAT THERE WAS NO OCCASION TO CONSIDER WHETHER THE PRINCIPLE OF ACCRU AL WOULD ARISE OR NOT, NEVERTHELESS, THE INTEREST FROM SUCH NPA WOULD BE T AXED IN THE APPROPRIATE ASSESSMENT YEAR ON THE BASIS OF ACTUAL RECEIPT. IT IS WORTH TO MENTION THAT FOR THIS DECISION, THE HON'BLE MADRAS HIGH COURT HAS RELIED UPON AN ANOTHER DECISION OF THE SAME HIGH COURT PRONOUNCED IN THE CASE OF JT.CIT VS . INDIA EQUIPMENT LEASING LTD. 293 ITR 350. 7. IN THE CASE BEFORE US, ADMITTEDLY, ASSESSEE HAS DIRECTLY TAKEN THE INTEREST TO THE BALANCE SHEET AND IT IS NOT ROUTED THROUGH THE PROFIT & LOSS ACCOUNT. 8 ITA NO.1019/PN/2015 MOREOVER, THE ISSUE OF THE TAXABILITY OF THE INTERE ST ON THE STICKY LOSSES/ADVANCES, IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THE COORDINATE BENCHES IN THE CASE OF THE DURGA COOPERATIVE URBAN BANK LTD., VIJA YAWADA (SUPRA) AND KARNAVATI COOPERATIVE BANK LTD. (SUPRA). WE FIND NO REASON T O INTERFERE WITH THE REASONED ORDER OF THE LD. CIT(A) AND ACCORDINGLY THE SAME IS CONFIRMED. IN THE RESULT, THE REVENUES GROUND IS DISMISSED. 5.1 SINCE THE LD.CIT(A) WHILE DECIDING THE ISSUE HA S FOLLOWED THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL, THEREFORE, WE FIND NO R EASON TO DEVIATE FROM THE VIEW ALREADY TAKEN BY THE TRIBUNAL. MERELY BECAUSE THE REVENUE HAS NOT ACCEPTED THE DECISION OF THE TRIBUNAL AND HAS FILED AN APPEAL BE FORE THE HONBLE HIGH COURT CANNOT BE A GROUND TO TAKE A DIFFERENT VIEW UNTIL A ND UNLESS THE SAME IS REVERSED BY A HIGHER COURT. IN THIS VIEW OF THE MATTER, WE FIN D NO INFIRMITY IN THE ORDER OF THE CIT(A) AND UPHELD THE SAME. THE GROUNDS RAISED BY THE REVENUE ARE ACCORDINGLY DISMISSED. 8. SINCE IN THE PRESENT ASSESSMENT YEAR, THE ISSUE RAISED IS IDENTICAL AND THERE IS NO MATERIAL CONTRARY TO THE FACTS IN THE ASSESSM ENT YEAR 2009-10, WE RESPECTFULLY FOLLOW THE ORDER OF THE CO-ORDINATE BENCH OF THE TR IBUNAL IN ASSESSEES OWN CASE IN ITA NO.180/PN/2014 (SUPRA) AND DISMISS GROUND NO.1 TO 5 RAISED IN THE APPEAL OF THE REVENUE. 9. THE SECOND ISSUE RAISED IN THE PRESENT APPEAL IS WITH REGARD TO AMORTIZATION OF PREMIUM ON GOVERNMENT SECURITIES HELD UNDER HTM CATEGORY AMOUNTING TO RS.34,93,655/-. THE LD. AR HAS PLACED ON RECORD A COPY OF THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.121/PN/2014 DECIDED O N 12.01.2015. THE TRIBUNAL HAS ACCEPTED THE CLAIM OF THE ASSESSEE BY PLACING R ELIANCE ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. HD FC BANK LTD. IN INCOME TAX APPEAL NO.330 OF 2012 DECIDED ON 23.07.2014 AND THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF BHAVANI URBAN CO-OP. BANK LTD. IN ITA NO.610/PN/2011 DECIDED ON 31.07.2013. THE RELEVANT EXTRACT OF THE FINDING OF THE TRIBUNAL ARE AS UNDER :- 6. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES. THE ONLY ISSUE TO BE DECIDED IS REGARDING THE DISALLOWANCE O F AMORTIZATION OF PREMIUM ON GOVT. SECURITIES OF RS.25,93,929/- BY THE AO (RS.35 ,28,509/- AS CLAIMED BY THE ASSESSEE IN THE GROUNDS). WE FIND THE AO DISREGARD ING THE CBDT INSTRUCTION NO.17/2008 DATED 26-11-2008 DISALLOWED THE DEDUCTIO N OF AMORTIZATION OF PREMIUM BY FOLLOWING THE DECISION OF THE HONBLE SUPREME CO URT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD., REPORTED IN 320 ITR 577. WE FIN D THE LD.CIT(A) UPHELD THE DISALLOWANCE SO MADE BY THE AO. WE FIND BEFORE THE HONBLE BOMBAY HIGH COURT 9 ITA NO.1019/PN/2015 IN THE CASE OF HDFC BANK LTD., (SUPRA) THE FOLLOWIN G SUBSTANTIAL QUESTION OF LAW WAS RAISED : C WHETHER THE ITAT IS RIGHT IN LAW IN HOLDING THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION WITH RESPECT TO THE DIMINUTION IN VALUE O F THE INVESTMENT AND AMORTIZATION OF PREMIUM ON INVESTMENT HELD TO MATURITY ON THE GR OUND OF MANDATE BY RBI GUIDELINES THEREBY IGNORING THE DECISION OF THE SUP REME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES VS. CIT (320 ITR 577)? 6.1 WE FIND THE HONBLE HIGH COURT DISMISSED THE AP PEAL FILED BY THE REVENUE ON THIS ISSUE BY OBSERVING AS UNDER : 7. AS FAR AS QUESTION (C) IS CONCERNED, WE FIND TH AT AN IDENTICAL QUESTION OF LAW WAS FRAMED AND ANSWERED IN FAVOUR OF THE ASSESSEE B Y THIS COURT IN ITS JUDGEMENT DATED 04 TH JULY, 2014 IN INCOME TAX APPELLATE NO. 1079 OF 201 2, COMMISSIONER OF INCOME TAX-2 VS. M/S. LORD KRISHNA BANK LTD., (NOW MERGED WITH HDFC BANK LTD.,). MR. SURESH KUMAR FAIRLY STATED THAT QUESTI ON (C) REPRODUCED ABOVE IS COVERED BY THE SAID ORDER. IN VIEW THEREOF, WE ARE OF THE VIEW THAT EVEN QUESTION (C) DOES NOT RAISE ANY SUBSTANTIAL QUESTION OF LAW THAT REQUIRES AN ANSWER FROM US. 6.2 WE FURTHER FIND THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF BHAVANI URBAN CO-OP BANK LTD.(SUPRA) FOLLOWING THE DECISION OF TH E MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF BANK OF RAJASTHAN LTD., HAS ALSO ALL OWED SIMILAR CLAIM OF THE ASSESSEE. THEREFORE, RESPECTFULLY FOLLOWING THE DE CISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF HDFC BANK LTD. AND IN ABSENCE OF ANY DISTINGUISHABLE FEATURES BROUGHT TO OUR NOTICE BY THE LD. DEPARTMENTAL REPRE SENTATIVE, WE SET-ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE DISALLOWANCE. GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWE D. 10. IN VIEW OF THE FINDINGS OF THE CO-ORDINATE BENC H OF THE TRIBUNAL ON THIS ISSUE IN ASSESSEES OWN CASE FOR THE EARLIER ASSESSMENT Y EAR, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A). ACCORDINGLY, GROUND NO .6 TO 10 RAISED IN THE APPEAL OF THE REVENUE ARE DISMISSED. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED BEING DEVOID OF ANY MERIT. ORDER PRONOUNCED ON FRIDAY, THE 04 TH DAY OF MARCH, 2016. SD/- SD/- ( R.K. PANDA ) ( VIKAS AWASTHY ) / ACCOUNTANT MEMBER # / JUDICIAL MEMBER PUNE ; DATED : 04 TH MARCH, 2016. 10 ITA NO.1019/PN/2015 %&'#()!*!+( / COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-7, PUNE; 4) THE CIT-7, PUNE; 5) THE DR B BENCH, I.T.A.T., PUNE; 6) GUARD FILE. %, / BY ORDER , ' # //TRUE COPY// $%& # '( / SR. PRIVATE SECRETARY ) '*, / ITAT, PUNE