ACIT, Aurangabad V. M/s The Vaijapur Merrchants Co-Op Bank Ltd, Aurangabad

ITA 1048/PUN/2012

• Counselvise Citation: 104824514 RSA 2012
• Duration Of Justice: 1 year(s) 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 21-11-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 24-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S P WALIMBE
• Keywords: Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 1048/PN/2012 (ASSESSMENT YEAR 2009-10) ACIT, CIRCLE-1, AURANGABAD .. APPELLANT VS. THE VAIJAPUR MERCHANTS C-OP BANK LTD., MARKET YARD, VAIJAPUR, AURANGABAD PAN NO.AAAAT2773N .. RESPONDENT ASSESSEE BY : SHRI NIKHIL PATHAK REVENUE BY : SHRI S.P. WALIMBE DATE OF HEARING : 03-02-2014 DATE OF PRONOUNCEMENT : 04-02-2014 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 29-03-2012 OF THE CIT(A), AURANGABAD RELATING TO THE ASSESSMENT YEAR 2009-10. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A COOPERATIVE BANK ENGAGED IN THE BUSINESS OF BANKING. THE RULES AND REGULATIONS OF THE RBI ARE MANDATORY TO THE ASSESSEE. IT FILED IT S RETURN OF INCOME ON 29-09-2009 DECLARING TOTAL INCOME OF RS.90,43,670/- . THE ASSESSING OFFICER COMPLETED THE ASSESSMENT ON A TOTAL INCOME OF RS.1,51,43,210/-. WHILE COMPLETING THE ASSESSMENT, THE ASSESSING OFFI CER APART FROM OTHER ADDITIONS MADE ADDITION OF RS.46,31,000/- ON ACCOUN T OF INTEREST RECEIVABLE ON NPA ON THE GROUND THAT ASSESSEE IS FO LLOWING MERCANTILE 2 SYSTEM OF ACCOUNTING AND THEREFORE THE SAME SHOULD BE OFFERED TO TAX. SIMILARLY, HE ALSO ADDED AN AMOUNT OF RS.7,35,470/- ON ACCOUNT OF FORFEITURE OF DIVIDEND PAYABLE WHICH IS SHOWN IN TH E LIABILITIES SIDE OF THE BALANCE SHEET AND WHICH HAS BEEN CARRIED/CREDITED T O GENERAL RESERVE FUND. IN APPEAL THE LD.CIT(A) DELETED BOTH THE ADD ITIONS. 3. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVE NUE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT(A) IS CORRECT IN DECIDING THAT ASSESSEE CAN OFFER HIS INTEREST RECEIVED FROM BAD AND DOUBTFUL DEBTS (NPA) ON ACTUAL RECEIPT BASIS AS PER RBI GUIDELINES EVEN THOUGH ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACC OUNTING. INSPITE OF THAT, PROVISION OF SECTION 43D IS NOT APPLIC ABLE TO THE ASSESSEE 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) IS CORRECT IN HOLDING THAT THE FORFEITED AMOUNT OF THE DIVIDEND IS NOT AN INCOME OF THE ASSESSEE U/S.28 OF THE ACT. 4. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET DREW THE ATTENTION OF THE BENCH TO THE ORDER OF THE TRIBUNAL IN THE CA SE OF ACIT VS. M/S. SUNDERLAL SAWJI URBAN CO-OP BANK LTD. VIDE ITA NO.2 353/PN/2012 ORDER DATED 24-09-2013 FOR A.Y. 2009-10 AND SUBMITT ED THAT THE TRIBUNAL HAS DECIDED BOTH THE ISSUES IN FAVOUR OF T HE ASSESSEE. THE LD. DEPARTMENTAL REPRESENTATIVE ALSO FAIRLY CONCEDED TH AT BOTH THE ISSUES HAVE BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S. SUNDERLAL SAWJI URBAN CO-OP BANK LTD. (SUPRA). 5. WE FIND THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. SUNDERLAL SAWJI URBAN CO-OP BANK LTD.(SUPRA) WHILE DECIDING THE ISSUE OF TAXABILITY OF INTEREST RECEIVED FROM BAD AND DOU BTFUL DEBTS (NPA) ON ACTUAL RECEIPT BASIS AS PER RBI GUIDELINES EVEN THO UGH ASSESSEE IS 3 FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING HAS DECID ED THE ISSUE IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER : 4. WE HAVE HEARD THE PARTIES. WE FIND THAT THE ISSU E STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THIS BENCH I N THE CASE OF OSMANABAD JANATA SAHARI BANK LTD (SUPRA). THE OPERA TIVE PART OF THE FINDING AND REASONINGS OF THE TRIBUNAL IN THE SAID CASE IS AS UNDER : 5. WE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE RECORD. WE FIND THAT THE IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE ITAT, VISAKHAPATNAM BENCH, IN THE CASE OF DCIT, VIJAYAWAD A VS. THE DURGA COOPERATIVE URBAN BANK LTD., VIJAYAWADA, IN ITA.NO. 511/VIZAG/2010 DATED 10.03.2011. IN THE SAID CASE ALSO, IT WAS NO TICED BY THE ASSESSING OFFICER THAT ASSESSEE DID NOT INCLUDE THE INTEREST OF RS.18,26,306/- ON THE NPA ADVANCES. AGAIN THE ISSUE OF APPLICABILITY OF SECTION 43D WAS CONSIDERED TO THE NON-SCHEDULED BANKS. THE TRIBUNA L 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 SOUTHERN TECHNOLOGIES LTD. [320 ITR 577 (SC)]. THE TRIBUNAL FINALLY HELD THAT THE INTEREST INCOME RELATABLE TO NPA ADVANCES DID NOT A CCRUE 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. (SUPRA), THE TRIBUNAL HAS CONSIDERED THE PROVISIONS OF SECTION 4 3D AND ITS APPLICATION TO THE NON-SCHEDULED BANKS. THE REASONS GIVEN BY THE TRIBUNAL IN THE CASE OF KARNAVATI COOPERATIVE BANK LTD. (SUPRA) FOR HOLDING THAT INTEREST ON THE STICKY ADVANCES/NPA ADVANCES CANNOT BE BROUGHT TO T AX BY FOLLOWING THE DECISION IN THE CASE 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 PRI NCIPLE OF ACCOUNTANCY. THE CARDINAL PRINCIPLE OF MERCANTILE S YSTEM 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 RE COGNIZED PRINCIPLE, THIS SECTION HAS PRESCRIBED THAT AN INCO ME BY WAY OF INTEREST SHALL BE CHARGEABLE TO TAX IN THE PREVIOUS YEAR IN WHICH IT IS CREDITED. THE WORDS CREDITED AND ACTUALLY RECEIV ED HAS BEEN HIGHLIGHTED HEREINABOVE WHILE REPRODUCING THE SECTI ON IN QUESTION. THE OTHER DEVIATION FROM THE SAID ACCEPTED PRINCIPL E OF ACCOUNTANCY IS THAT AN INCOME BY WAY OF INTEREST SHALL BE CHARG EABLE TO TAX IN THE PREVIOUS YEAR IN WHICH IT IS ACTUALLY RECEIVED. 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 CHARGEABIL ITY OF INCOME BY WAY OF INTEREST. SIMULTANEOUSLY, IT IS NOTEWORTHY T HAT THIS SECTION IS AN OVERRIDING SECTION BECAUSE THE OPENING WORD IS NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN ANY OTHER PRO VISIONS OF THIS ACT. THEREFORE, IN SPITE OF ANYTHING 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 FINANCIAL INSTITUTIONS THAT INTEREST IS CHARGEABLE TO TAX EITH ER IN THE YEAR IN WHICH CREDITED OR ACTUALLY RECEIVED, WHICHEVER IS E ARLIER, THEN IT IS 4 COMPULSORY TO ABIDE BY THE SAID RULE. ACCORDING TO US, NO SCOPE IS LEFT WITH THE REVENUE AUTHORITIES TO IGNORE THESE P ROVISIONS DUE TO UNAMBIGUOUS USE OF LANGUAGE IN THE SECTION. (II) STATUS OF ASSESSEE FOR THE PURPOSE OF APPLICAT ION SECTION 43-D. AS FAR AS THE STATUS OF THE ASSESSEE IS CONCERNED, THE ASSESSING OFFICER HAS STATED THAT THE ASSESSEE-BANK IS A CO-O PERATIVE BANK. UNDISPUTEDLY, THE ASSESSEE IS ALSO GOVERNED BY THE RBI GUIDELINES. VIDE AN EXPLANATION (D) R.W.S. 36(1)(VIIA) ANNEXED T O SECTION 43-D THE DEFINITION OF THE ENTITIES INCORPORATED 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 THE 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 PROV ISIONS OF A STATUTE. IN ORDER TO AID PROPER DETERMINATION OF TH E INCOME OF MONEY LENDERS AND BANKS, THE CENTRAL BOARD OF DIREC T 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 TAXAB LE INCOME, PROVIDED THE INCOME TAX OFFICER IS SATISFIED THAT RE COVERY 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 REQUI RED TO BE FOLLOWED AND SUCH CIRCULAR WOULD BE BINDING ON THE DEPARTMEN T UNLESS AND UNTIL HELD AS ULTRA VIRES BY A COURT OF LAW. THE B OARD HAS POWERS TO RELAX THE SEVERITY OR THE STRICTNESS OF LAW AND THE AUTHORITIES ARE REQUIRED TO FOLLOW THOSE INSTRUCTIONS AS HELD IN TH E CASE OF C.B. GAUTAM VS. UNION OF INDIA 108 CTR 304 (SC) & 110 CT R 179 (SC); NAVNITLAL C.ZAVERI 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 THEREF ORE HELD, FIRST, THAT A BENEFICIAL CIRCULAR IS NOT TO BE TREATED AS INCONSISTENT WITH THE PROVISIONS OF STATUTE AND BINDING ON THE AUTHOR ITIES. SECOND, THAT IN RESPECT OF INTEREST ON STICKY ADVANCES IN TEREST INCOME IS TO BE TAXED ONLY WHEN ACTUALLY RECEIVED AS PRESCRIBED B Y 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 TRAVANCORE REPORTED IN 110 ITR 336 (KER.), WHEREIN IT WAS HELD THAT THE ASSESSEE, A BANKING COMPANY, DID NOT CREDIT IN ITS ACCOUNT THE INTEREST THAT HAD ACCRUED ON STICKY ADVANCES BECA USE THE ASSESSEE FELT THAT THE INTEREST COULD NOT TO BE REALISED. IT CREDITED THE INTEREST TO A SEPARATE ACCOUNT KNOWN AS INTEREST SUSPENSE A CCOUNT. ON REFERENCE, THE HON'BLE COURT HAS HELD THAT THERE WA S AN ACCRUAL OF INCOME LIABLE TO INCOME-TAX AND THE ASSESSEE WAS NOT JUSTIFIED IN NOT CREDITING THE INTEREST INCOME ON SUCH STICK ADVANC ES IT ITS ACCOUNTS. HOWEVER, LATER ON AT THE HON'BLE APEX COUR T WHILE PRONOUNCING THE JUDGMENT OF THE SAID STATE BANK OF TRAVANCORE VS. CIT REPORTED IN (1986)158 ITR 102(SC), THERE WERE H ON'BLE THREE JUDGES PRESIDING THE COURT, OUT OF WHICH HONBLE TWO JUDGES WERE IN THE OPINION THAT THE INTEREST ON STICKY ADVANCES WAS RIGHTLY TREATED AS INCOME WHICH HAD ACCRUED TO THE APPELLAN T. THERE WAS A DESCENDING NOTE BY ONE OF THE HON'BLE JUDGE AND COMM ENTED THAT 5 WHETHER AN INCOME ON RECEIPT BASIS OR ON ACCRUAL BA SIS, IT IS THE REAL INCOME AND NOT ANY HYPOTHETICAL INCOME WHICH MAY HA VE THEORETICALLY ACCRUED, I.E. SUBJECT TO TAX UNDER THE ACT. NEVERTHELESS, THAT DECISION WAS NOT FOLLOWED WHILE DECIDING THE A PPEAL OF UCO BANK (SUPRA) BY THE HON'BLE THREE JUDGES OF THE SUPR EME COURT, ALREADY DISCUSSED BY US SUPRA. WE, THEREFORE SUMMAR IZE THAT AS OF NOW THE LAW AS LAID DOWN IN UCO BANK IS THAT IN TER MS OF CBDT CIRCULAR THE INTEREST IS TO BE ADDED AS INCOME ONLY WHEN ACTUALLY RECEIVED OR CREDITED IN RESPECT OF THE STICKY ADVA NCES 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 STATUT E HAS USED THE TERMINOLOGY FOR THE CHARGEABILITY OF INTEREST ON TH E BASIS WHEN CREDITED OR ACTUALLY RECEIVED, THEN IN OUR OPIN ION NO AMBIGUITY HAS BEEN LEFT BY THE STATUTE. IF THE STATUTE IS SO CLEAR THAT AN INTERPRETATION CAN EASILY BE MADE, THEN THAT EXACT MEANING SHOULD BE GIVEN TO THE LANGUAGE OF THE SECTION. FOR THIS L EGAL PROPOSITION WE PLACE RELIANCE ON KESHAVJI RAVJI AND COMPANY VS. CIT 183 ITR 01 (SC), WHEREIN IT WAS HELD AS UNDER: AS LONG AS THERE IS NO AMBIGUITY IN THE STATUTORY LANGUAGE, RESORT TO ANY INTERPRETATIVE PROCESS TO UNFOLD THE LEGISLA TIVE INTENT BECOMES IMPERMISSIBLE. THE SUPPOSED INTENTION OF TH E LEGISLATURE CANNOT THEN BE APPEALED TO WHITTLE DOWN THE STATUTO RY 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 TER MS, AMBIVALENT AND DO NOT MANIFEST THE INTENTION OF THE LEGISLATUR E. 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 SUBSE QUENT LEGISLATION IN THE SAME 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 LITERAL CONSTRUCTION LEADS TO A RESULT NOT INTENDED TO SUBSERVE THE OBJECT OF THE LEGISLATION, ANOTHER CONSTRUCTION, PE RMISSIBLE IN THE CONTEXT, SHOULD NOT BE ADOPTED. IN THIS RESPECT, TA XING 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 PUBLIC FINANCIAL INSTITUTION, ETC. SECTION 43-D HAS TO BE APPLIED IN ITS LETTER AND SPIRIT. IT IS PERTINENT TO MENTION THAT LATER O N, IN THE CASE OF CIT VS. BANK OF AMERICA S.A. 262 ITR 504 (BOM) THE QUES TION OF INTEREST ON STICKY LOANS WAS DECIDED IN FAVOUR OF THE ASSE SSEE AND HELD THAT THE QUESTION IS TO BE ANSWERED IN FAVOUR OF THE ASS ESSEE FOLLOWING THE DECISION OF UCO BANK REPORTED AT 237 ITR 889(SC ) :: 240 ITR 355 (SC). LIKEWISE, IN AN ANOTHER CASE OF CIT VS. S TATE BANK OF INDIA 262 ITR 662 (BOM.) AGAIN IT WAS HELD THAT THE AMOUN T CREDITED TO THE INTEREST SUSPENSE ACCOUNT WAS NOT TAXABLE FOLLO WING THE DECISION PRONOUNCED IN THE CASE OF UCO BANK (SUPRA). (V) JUDGEMENT IN FAVOUR OF REVENUE : 6 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 CON TROVERSY. IN THE SAID DECISION OF THE TRIBUNAL, VIZ. JT.CIT V/S. INDI A EQUIPMENT LEASING LTD. (2008)111 ITD 37 (CHENNAI), THE RESPECTED CO-O RDINATE BENCH HAS EXPRESSED THAT QUOTE PRIOR TO INSERTION OF SE CTION 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 INCOME MAY BE TAKEN ON ACCRUAL BASIS AND FROM 4TH YEAR ONW ARDS, THE INCOME IN RESPECT OF DOUBTFUL DEBTS WAS TO BE RECOG NIZED ON RECEIPT BASIS. SINCE THE INCOME WAS TO BE ASSESSED FOR FIRS T THREE YEARS ON ACCRUAL BASIS, PROVISIONS OF SECTION 43D WERE INSER TED IN THE ACT. CIRCULAR NO.621, DATED 19-12-1991 GIVES THE LEGISLA TIVE INTENTION STATING THAT SECTION 43D WAS INSERTED WITH A VIEW T O IMPROVING THE VIABILITY OF BANKS, PUBLIC FINANCIAL INSTITUTIONS E TC., SO AS TO PROVIDE THAT INTEREST ON STICKY LOANS SHALL BE CHARGED TO T AX ONLY IN THE YEAR IN WHICH THE INTEREST IS ACTUALLY RECEIVED OR CREDI TED TO THE PROFIT AND LOSS ACCOUNT. THIS BENEFIT WAS EXTENDED WITH EFF ECT FROM 1-4- 2000 IN THE CASE OF PUBLIC COMPANIES ENGAGED IN LON G-TERM FINANCING OF HOUSING PROJECTS APPROVED BY NATIONAL HOUSING BANKS. THE LEGISLATURE IN THEIR WISDOM DID NOT EXTEND THE S AME BENEFIT TO NBFCS WHICH HAS BEEN GIVEN TO SCHEDULED BANKS, PUBL IC FINANCIAL INSTITUTIONS, ETC. THE PROVISIONS OF SECTION 43D AS STOOD AT RELEVANT TIME CONTAINED AN EXPRESSION 'THE INCOME BY WAY OF INTEREST IN RELATION TO SUCH CATEGORIES OF BAD OR DOUBTFUL DEBT S AS MAY BE PRESCRIBED HAVING REGARD TO THE GUIDELINES ISSUED B Y THE RBI IN RELATION TO SUCH DEBTS'. THIS EXPRESSION CONTINUES TO EXIST IN THE NEWLY SUBSTITUTED SECTION 43D APPLICABLE WITH EFFEC T FROM 1-4-2000. THIS SHOWS THAT THE RBI GUIDELINES IN RESPECT OF SC HEDULED BANKS, PUBLIC FINANCIAL INSTITUTIONS ETC., WERE NOT SUFFIC IENT FOR RECOGNITION OF INCOME ON CASH BASIS FOR THE PURPOSES OF INCOME- TAX. THE INCOME OF SUCH ASSESSEES WAS DETERMINED AS PER CIRCULAR DA TED 9-10-1984. BECAUSE OF THIS REASON, SECTION 43DWAS INSERTED IN THE STATUTE. RBI GUIDELINES IN CASE OF NBFC ARE FOR THE PURPOSE OF C ONTROL AND SUPERVISION WITH RESPECT TO PUBLIC INTEREST AND VIA BILITY OF THE NBFC. THE GUIDELINES NEVER INTENDED FOR TAKING THE INTERE ST INCOME ACCRUED AS PER SECTION 5 OUT OF THE SCOPE OF THE AC T. IF THE CONTENTION OF ASSESSEE WAS ACCEPTED, IT WOULD AMOUNT TO INSERT ION OF 'NBFC' IN SECTION 43D, THAT TOO BY A GUIDELINE ISSUED FOR DIF FERENT PURPOSES BY AN AUTHORITY OTHER THAN THE PARLIAMENT IN OTHER WOR DS, THE DOCTRINE OF 'CASUS OMISSUS' WILL DEEM TO HAVE BEEN APPLIED W HICH IS CONTRARY TO LAW OF LAND.UNQUOTE. THE BASIC REASON FOR DIREC TING TO ASSESS THE ACCRUED INTEREST ON NPA WAS THE RBI GUIDELINES ISSU ED ONLY FOR SCHEDULED BANKS, PUBLIC FINANCIAL INSTITUTIONS AND NOT FOR NBFC. THE OBSERVATION OF THE RESPECTED TRIBUNAL WAS THAT IF T HE CONTENTION OF THE ASSESSEE WAS TO BE ACCEPTED, THEN IT WOULD AMOU NT TO INSERTION OF NBFC IN SECTION 43-D OF THE I.T.ACT. AS AGAINS T THAT, AS FAR AS THE ASSESSEE IS CONCERNED, IT IS AN ACCEPTED FACT THAT THE ASSESSEE IS A COOPERATIVE BANK AND NOT A NON-BANKING FINANCIAL CO MPANY AND THIS NOTEWORTHY DISTINCTION HAS ALREADY BEEN APPREC IATED BY US IN ONE OF THE PARAGRAPHS ABOVE. THERE IS ONE MORE DECISION OF THE HONBLE APEX COURT 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 BEFORE THE HONBLE COU RT WAS IN RESPECT OF PROVISION FOR NPA AND DEBITED TO P&L ACCOUNT BY A N BFC. THE SAID PROVISION WAS UNDISPUTEDLY MADE BY THE SAID NBFC AS PER THE 7 PRUDENTIAL NORMS MADE BY THE RESERVE BANK. THEREFOR E WE WANT TO MAKE IT CLEAR THAT THE QUESTION FOR CONSIDERATION B EFORE THE HONBLE COURT WAS THAT IF A PROVISION FOR DOUBTFUL DEBT IS MADE THEN WHAT WILL BE THE LEGAL POSITION OF THE APPLICABILITY 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 REPRODU CED BELOW: THE INCOME-TAX IS A TAX ON REAL INCOME, I.E., THE PROFITS ARRIVED AT ON COMMERCIAL PRINCIPLES SUBJECT TO THE PROVISIONS OF THE ACT. THEREFORE, IF BY THE EXPLANATION TO SECTION 36(1)(V II) A PROVISION FOR DOUBTFUL DEBT IS KEPT OUT OF THE AMBIT OF BAD DEBT WHICH IS WRITTEN OFF, THEN ONE HAS TO TAKE INTO ACCOUNT THE EXPLANAT ION IN COMPUTING THE TOTAL INCOME UNDER THE INCOME-TAX ACT FAILING WH ICH ONE CANNOT ASCERTAIN THE REAL PROFITS. THE PROVISION FOR NON-P ERFORMING ASSETS DEBITED IN THE PROFIT AND LOSS ACCOUNT UNDER THE RE SERVE BANK DIRECTIONS OF 1998 IS ONLY A NOTIONAL EXPENSE AND, THEREFORE, THERE WOULD BE ADD BACK TO THAT EXTENT IN 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 INCOM E ON STICKY LOAN BUT IN THIS CITED DECISION THE QUESTION BEFORE HE A PEX COURT WAS ABOUT THE ADMISSIBILITY OF PROVISION MADE IN RESPEC T OF DOUBTFUL DEBTS. (VI ) CONCEPT OF REAL INCOME APPROVED IN THE CASE O F 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 T HE CASE OF CIT VS. GODHRA ELECTRICITY CO. 225 ITR 746 (SC). IN SHO RT, 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 FOLLOWING 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 35 7 (MAD.) HAS TAKEN A VIEW THAT THE ASSESSEE IS A COMPANY ENGAGED IN TH E BUSINESS OF LEASE, FINANCE AND HIRE PURCHASE AND THAT THE PRINC IPLE OF ACCRUAL COMES INTO PLAY WITHOUT INCOME WAS RECOGNIZED AND T HAT 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 OF NPA AND THAT FROM SUCH NPA THE ASSESSEE HAD NOT REC OGNIZED ANY INCOME IN CONSONANCE WITH THE NOTIFICATION ISSUED B Y RBI AND AS-9 ISSUED BY ICAI AND THAT THE ASSESSEE WAS JUSTIFIED IN NOT RECOGNIZING SUCH INCOME. THE COURT HAD FURTHER EXPRESSED THAT T HERE WAS NO OCCASION TO CONSIDER WHETHER THE PRINCIPLE OF ACCRU AL WOULD ARISE OR NOT, NEVERTHELESS, THE INTEREST FROM SUCH NPA WOULD BE TAXED IN THE APPROPRIATE ASSESSMENT YEAR ON THE BASIS OF ACTUAL RECEIPT. IT IS WORTH TO MENTION THAT FOR THIS DECISION, THE HON'BL E MADRAS HIGH COURT HAS RELIED UPON AN ANOTHER DECISION OF THE SA ME 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. MOREOVER, THE ISSUE OF THE TAXABILITY OF THE INTEREST ON THE STICKY LOSSES/ADVANCES, IS COVERED IN FAVOUR OF THE ASSESS EE BY THE DECISION OF THE COORDINATE BENCHES IN THE CASE OF THE DURGA COOPERA TIVE URBAN BANK LTD., VIJAYAWADA (SUPRA) AND KARNAVATI COOPERATIVE BANK L TD. (SUPRA). WE FIND 8 NO REASON TO INTERFERE WITH THE REASONED ORDER OF T HE LD. CIT(A) AND ACCORDINGLY THE SAME IS CONFIRMED. IN THE RESULT, THE REVENUES GROUND IS DISMISSED. 4.1 WE THEREFORE FIND NO REASON TO INTERFERE WITH THE ORDER OF THE LD.CIT(A) AND ACCORDINGLY WE CONFIRM THE SAME ON THI S ISSUE. 5.1 SINCE FACTS OF THE IMPUGNED APPEAL ARE SIMILAR TO THE FACTS OF THE DECISION CITED (SUPRA), THEREFORE, RESPECTFULLY FOL LOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S. SUNDERLAL SAWJI UR BAN CO-OP BANK LTD. (SUPRA) AND IN ABSENCE OF ANY CONTRARY MATERIAL BRO UGHT TO OUR NOTICE WE UPHOLD THE ORDER OF THE CIT(A) ON THIS ISSUE. THE GROUND RAISED BY THE REVENUE IS THEREFORE DISMISSED. 6. SO FAR AS THE SECOND ISSUE IS CONCERNED, WE FIND THE TRIBUNAL AT PARA 7 OF THE ORDER HAS DISCUSSED THE ISSUE IN FAVO UR OF THE ASSESSEE BY OBSERVING AS UNDER : 7. WE HAVE HEARD THE PARTIES. IN THIS CASE, IT IS NOT CONTROVERTED BEFORE US BY THE LD. DR THAT THE DIVIDEND WHICH IS FO RFEITED WAS PROVIDED FROM THE BUSINESS PROFIT WHICH HAS ALREADY SUF FERED THE TAX. IN OUR OPINION, AS RIGHTLY HELD BY THE LD.CIT(A), THE P ROVISIONS OF SECTION 41(1) ARE NOT APPLICABLE TO THE ISSUE BEFORE US AS THE SAID PROVISION OPERATE IN THE DIFFERENT SITUATION. IN THE CASE OF T .V. IYENGAR AND SONS LTD (SUPRA) APPLICABILITY OF THE SECTION 41(1) WAS BE FORE THE HONBLE SUPREME COURT BUT IN PRESENT CASE SECTION 41(1) ITSELF IS NOT APPLICABLE, THEN WE NEED NOT DISCUSS THE PRINCIPLES LAID DOWN IN T HE SAID DECISION. WE FIND NO FAULT IN DELETING THE ADDITION BY THE LD .CIT(A), WHICH IS AS PER LAW. WE ACCORDINGLY CONFIRM THE ORDER OF THE LD.CI T(A) AND DISMISS THE GROUND NO.2 TAKEN BY THE REVENUE. 11. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 6.1 SINCE FACTS OF THE IMPUGNED APPEAL ARE IDENTICA L TO THE FACTS IN THE CASE DECIDED BY THE TRIBUNAL IN THE CASE CITED (SUP RA), THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINA TE BENCH OF THE TRIBUNAL IN THE CASE CITED (SUPRA) AND IN ABSENCE O F ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE THE ORDER OF THE CIT (A) ON THIS ISSUE IS 9 ALSO UPHELD AND THE GROUND RAISED BY THE REVENUE ON THIS ISSUE IS DISMISSED. 7. GROUNDS OF APPEAL NO.3 AND 4 BEING GENERAL IN NA TURE ARE DISMISSED. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. PRONOUNCED IN THE OPEN COURT ON 04-02-2014. SD/- SD/- (R.S. PADVEKAR) (R.K. PAND A) JUDICIAL MEMBER ACCOUN TANT MEMBER PUNE DATED: 04 TH FEBRUARY 2014 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. CIT(A), AURANGABAD 4 CIT, AURANGABAD 5. THE D.R, B PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY ITAT, PUNE BENCHES, PUNE