Deputy Commissioner of Income Tax, Circle-2 (1) , Mangalore V. M/s The Mangalore Catholic Co-op. Bank Ltd., Mangalore

ITA 117/PAN/2019

AI Insights

The case involves an appeal by the Deputy Commissioner of Income Tax, Circle \\u2013 2 (1), Mangalore against the order of the CIT(A), Mangaluru, which had deleted certain additions made by the Assessing Officer concerning the assessee's interest income from Non-Performing Assets (NPAs) and amortization of premium on investments for the assessment year 2016-2017. The primary legal contention revolved around whether the interest on NPAs should be recognized on an accrual basis under the mercantile system of accounting, and whether the amortization of premium on government securities should be allowed as a deduction. The CIT(A) had relied on judicial precedents and the assessee's accounting practices, which the Tribunal affirmed.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 136827 (ITAT-PANAJI)
• Duration Of Justice: 4 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-07-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: WT(D)
• Next Hearing Date: 11-07-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 24-03-2019
• Other Referred Cases: CIT vs Canfin Homes Ltd, Shri Vijay Mahantesh Co-operative Bank Ltd vs JCIT, TN Power Finance & Infrastructure Development Corporation Ltd vs JCIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH : PANAJI (THROUGH VIRTUAL HEARING) BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI G.D. PADMAHSHALI, ACCOUNTANT MEMBER ITA.No.117/PAN./2019 Assessment year 2016-2017 The DCIT, Circle – 2 (1), C.R. Bldg., Annexe, Attavar, Mangalore – 575 001. State of Karnataka. vs. M/s. The Mangalore Catholic Coop Bank Ltd., 14-06-686, St. Aloysius College Road, Hampankatta, Mangalore – 575 001 PAN AAAAT5268Q (Appellant) (Respondent) For Revenue : Shri Prabhakar Anand DJ For Assessee : Shri Balram Rao Date of Hearing : 12.07.2023 Date of Pronouncement : 18.07.2023 ORDER PER SATBEER SINGH GODARA, J.M. : This assessee’s appeal for the assessment year 2016- 2017, arise against the CIT(A), Mangaluru’s order ITA.No.10261/MNG/CIT(A)MNG/18-19 dated 22.01.2019, involving proceedings u/sec.143(3) of the Income Tax Act, 1961 (in short "the Act"). Heard both the parties. Case file perused. 2. The Revenue pleads the following grounds in the instant appeal : 2 ITA.No.117/PAN./2019 1. “The order of learned CIT(A) is opposed to law and facts of the case. 2. The learned CIT(A) erred in deleting the addition on account of interest accrued on Non Performing Assets (NPA) loans on the receipt basis. 3. The learned CIT(A) ought to have upheld the decision of the Assessing Officer in Respect of the addition made in case of interest accrued on Non performing assets as the assessee has already identified and accounted the interest on NPAs and as such it can be clearly held that this interest on NPAs has also accrued to the assessee as on 31.03.2014 and is taxable. The assessee has neither followed mercantile nor cash system but followed hybrid system. By virtue of the provisions of section 145 of the Income Tax Act; the assessee is required to follow either cash or mercantile system of accounting to compute the real income. The CIT(A) deleted the amount ignoring the fact that the assessee is following the mercantile system of accounting as stated in the form 3CD. The decision of the Hon’ble High Court of Karnataka relied upon by the LD.CIT(A) in the case of CIT vs Canfin Homes Ltd (2011) 5 Tax Crop (DT) 49593 has not been accepted by the department as SLP has been filed in Supreme court. 4. The Ld. CIT(Appeals) has erred in deleting the addition made in respect of amortization of premium paid on 3 ITA.No.117/PAN./2019 investments. Amortization of premium paid on government securities claimed by the assessee as deduction is not an allowable deduction as in the assessee’s case the securities classified as “Held to Maturity” are permanent long term investment made by the assessee bank, which are predominantly capital in nature. Ratio of the decision of Hon’ble Madras High Court judgment in the TN Power Finance & Infrastructure Development Corporation Ltd.vs JCIT (2006) 280 ITR 491 (Mad) wherein, it is held that RBI guideline cannot override the mandatory provisions of income tax, is applicable in this case. 5. For these and such other grounds that may be urged that the order of the CIT(A), on the above points may be set aside and the order of the assessing Officer be restored. 6. The appellant craves leave to add, alter or amend all or any of the grounds of appeal before or at the time of the hearing of the appeal.” 3. Both the learned representatives next invited our attention to the CIT(A)'s detailed discussion in issue reading as under : “5.1. I have carefully considered the submissions of the appellant and the decision of the Jurisdictional Hon’ble ITAT, Bangalore TV Bench in the case of Shri Vijay Mahantesh Co-operative Bank Ltd, Hungund, Bagalkot 4 ITA.No.117/PAN./2019 V/s JCIT Bijapur Range, Bijapur (ITANo.434/Bang/2013 dated 26/09/2014). The Jurisdictional Hon'ble ITAT relied on the decisions of Jurisdictional High Court in the case of Canfin Homes Ltd wherein at Para 8 of the order, the Hon’ble High Court has held as under : “Therefore, it is clear if an Assessee adopts mercantile system of accounting and in his accounts he shows a particular income as accruing, whether the amount is really accrued or not is liable lo bring said income to tax. His accounts should reflect true and correct statement of affairs. Merely because the said amount; accrued was not realized immediately cannot be a ground to avoid payment of tax. But, if in his account it is clearly stated that though a particular income is due to him but is not possible lo recover the same, then it cannot be said to have been accrued and said amount cannot be brought to tax. In the instant case we are concerned with a non performing asset. As the definition of nonperforming asset shows an asset becomes nonperforming when it ceases to yield income. Nonperforming asset is an asset in respect of which interest has remained unpaid and has become past due. Once a particular asset is shown to be a nonperforming asset then the 5 ITA.No.117/PAN./2019 assumption is it is not yielding any revenue. When it is not yielding any revenue, the question of showing that revenue and paying tax would not arise. As is clear from the policy ITA.No.257/ Bang/2012 guidelines issued by the National Housing Bank, the income from non performing asset should be recognized only when it is actually received. That is what the Tribunal held in the instant case. Therefore the contention of the revenue that in respect of non- performing assets even though it does not yield any income as the assessee has adopted a mercantile system of accounting, he has to pay tax on the revenue which has accrued nationally is without any basis. 5.2. Similar issue was involved in the appeals for AY 2012-13 and AY 2013-14 in the case of the appellant itself. The grounds were allowed by me. The Hon'ble High Court of Karnataka in the case of the appellant itself dismissed the appeal filed by the Department on the issue of interest on NPAs in its order dated 22.11.2017. The relevant portion of the order is as under: “Learned counsel appearing for the appellants fairly submits that the question raised in this appeal is answered against the appellants by this court in CIT 6 ITA.No.117/PAN./2019 v Canfin Homes Ltd (2012) 347ITR (Kar). The appeal is accordingly dismissed. 5.2. The facts and the issue involved in the instant case Eire similar to the case decided by the Jurisdictional High Court in the case of the appellant itself. Respectfully following the decision of the Jurisdictional High Court and ITAT Bangalore ‘A’ Bench in the case cited above, I hereby direct the AO to delete the addition of Rs.8,19,52,818/-. The grounds on the issue are allowed.” 4. Suffice to say, it has already come on record that the impugned issue of interest income pertaining to assessee’s non-performing assets “NPAs” on accrual basis, already stand settled in the latter’s favour up to hon’ble jurisdictional high court. 5. Learned CIT-DR vehemently argued that the Revenue has preferred it’s Special Leave Petition “SLP” stated to be pending. Faced with the situation, we are of the view that the same hardly forms sole reason for us to adopt a different view in the impugned assessment year. And that too, without any distinction on the relevant facts. We adopt judicial consistency to affirm CIT(A)'s action under challenge. Ordered accordingly. 6. This Revenue’s appeal is dismissed in above terms. 7 ITA.No.117/PAN./2019 Order pronounced in the open court on 18.07.2023. Sd/- Sd/- [G.D. PADMAHSHALI] [SATBEER SINGH GODARA] ACCOUNTANT MEMBER JUDICIAL MEMBER Pune, Dated 18 th July, 2023 VBP/- Copy to 1. The appellant 2. The respondent 3. The CIT(A), Mangaluru 4. The Pr. CIT, Mangaluru 5. D.R. ITAT, Panaji Bench, Panaji. 6. Guard File. //By Order// Assistant Registrar, ITAT, Pune Benches, Pune.