The Kranthi Co-operative Urban Bank Ltd., Hyd, Hyderabad V. ACIT, Circle-11(1), Hyd, Hyderabad

ITA 1194/HYD/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 5963 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 12-09-2016
• Court: TRIBUNAL
• Department Lawyers: A SITARAMA RAO
• Assessee Lawyers: P RAJESWARA RAO

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 1194/HYD/2016 ASSESSMENT YEAR: 2012-13 THE KRANTI CO-OPERATIVE URBAN BANK LTD., HYDERABAD PAN AAAJT1134E VS. ACIT, CIRCLE -11(1) HYDERABAD (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P. RAJESWARA RAO REVENUE BY : SHRI A. SITARAMA RAO DATE OF HEARING : 20-12-2016 DATE OF PRONOUNCEMENT : 20-12-2016 ORDER PER D. MANMOHAN, V.P.: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY CIT(A)-5, HYDERABAD, DATED 28/06/2016 AND IT PERTAINS TO THE ASSESSMENT YEAR 2012-13. 2. THE ASSESSEE IS ADMITTEDLY A CO-OPERATIVE BANK, CARRYING ON THE BUSINESS OF BANKING. IT IS UNDISPUTED THAT CERT AIN LOANS WERE DECLARED AS NON PERFORMING ASSETS (HEREIN AFTER REF ERRED TO AS NPA) IN THE ASSESSEES BOOKS. CONSEQUENT THERE TO, INTE REST RECEIVABLE TO THE TUNE OF RS. 2,58,279/- WAS ALSO NOT SHOWN AS AM OUNT RECEIVABLE, ON ACCRUAL BASIS. ACCORDING TO THE A.O . AS WELL AS CIT(A), THE PROVISIONS OF SEC. 43D OF THE ACT CARVE S OUT AN EXCEPTION TO THE SCHEDULE BANKS: ASSESSEE BEING A NON-SCHEDU LED CO- OPERATIVE BANK, INTEREST RECEIVABLE ON NPAS IS ASSE SSABLE TO TAX ON ACCRUAL BASIS. ITA NO.1194/HYD/2016 THE KRANTI CO-OPERATIVE URBAN BANK LTD., HYDERABAD. PAGE 2 OF 5 3. THE CASE OF THE ASSESSEE BEFORE THE A.O. AS WELL AS THE CIT(A) WAS THAT INTEREST ON PERFORMING ACCOUNTS AND NON-PE RFORMING ACCOUNTS ARE DISCLOSED IN SIGNIFICANT ACCOUNTING PO LICIES UNDER REVENUE RECOGNITION AND ASSESSEE FOLLOWED CONSISTEN TLY THE SAME METHODS; THUS, THE INTEREST ON NON-PERFORMING ASSET S IS CREDITED DURING THE YEAR TO THE EXTENT OF ACTUAL RECEIPT AND IT WAS OFFERED TO TAX. THERE WAS NO LOSS OF REVENUE TO THE GOVERNMEN T. RELIANCE WAS ALSO PLACED UPON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT, AURANGABAD VS M/S DEOGIRI NAGARI S HAKARI BANK LTD., AURANGABAD (ITA NO. 53 OF 2004 AND OTHERS, DA TED 22/01/2015). IN THE WRITTEN SUBMISSIONS FILED BEFO RE THE CIT(A), THE ASSESSEE RELIED UPON A DECISION OF THE ITAT VIS AKHPATNAM BENCH IN THE CASE OF THE DURGA CO-OPERATIVE URBAN B ANK VS DEPARTMENT OF INCOME TAX ON 10-03-2011 (ITA NO. 511 /VIZ/2011) WHEREIN SIMILAR VIEW WAS TAKEN I.E. INTEREST ON NPA S CANNOT BE ASSESSED TO TAX ON ACCRUAL BASIS AND IT CAN ONLY BE ASSESSED IN THE YEAR OF ACTUAL RECEIPT. 4. THE LD. CIT(A) WAS OF THE VIEW THAT NUMBER OF DE CISIONS CITED BY THE ASSESSEE CANNOT OVERRIDE THE PROVISIONS OF T HE INCOME TAX ACT. HE WAS OF THE FIRM VIEW THAT SEC. 43D COMES I NTO PLAY AND THE INTEREST ON NPAS IS ASSESSABLE TO TAX ON ACCRUAL BA SIS. 5. AGGRIEVED BY THE ORDER OF LD. CIT(A) THE ASSESSE E IS AN APPEAL BEFORE US. THE LD. COUNSEL PLACED BEFORE US A COPY OF THE LATEST ORDER OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF PR. COMMISSIONER OF INCOME TAX VS SHRI MAHILA SEWA SHAK ARI BANK LTD.,(ITA NO. 531 OF 2015, DATED 05-08-2016), WHER EIN THE BENCH REFERRED TO CATENA OF DECISIONS AND DECIDED IN FAV OUR OF THE ASSESSEE BY OBSERVING AS UNDER: 11. FROM THE RIVAL SUBMISSIONS ADVANCED BY THE LE ARNED COUNSEL FOR THE RESPECTIVE PARTIES, IT IS EVIDENT THAT THER E IS NO DISPUTE THAT THE RBI GUIDELINES ARE APPLICABLE TO THE ASSESSEE. IT IS THE CASE OF ITA NO.1194/HYD/2016 THE KRANTI CO-OPERATIVE URBAN BANK LTD., HYDERABAD. PAGE 3 OF 5 THE ASSESSEE THAT IN VIEW OF THE RBI GUIDELINES, IT CANNOT CHARGE INTEREST ON ACCRUAL BASIS AND THAT FOLLOWING THE TH EORY OF THE REAL INCOME, TAXABILITY OF ANY NOTIONAL INCOME LIKE ACCR UED INTEREST ON NPAS WOULD NOT ARISE. IT HAS ALSO BEEN CONTENDED T HAT EVEN OTHERWISE IN VIEW OF THE CBDT CIRCULAR BEARING F NO .201/21/844- ITA-II DATED 09-10-1984, INTEREST ON ACCRUAL BASIS IS NOT TAXABLE IF NOT RECEIVED FOR THREE YEARS EVEN THROUGH CREDITED TO THE SUSPENSE ACCOUNT. THE COURT OBSERVED THAT THOUGH RBI ACT MAY NOT OVE RRIDE THE PROVISIONS OF INCOME TAX ACT. INCOME HAS TO BE RECO GNISED IN TERMS OF PRUDENTIAL NORMS BY APPLYING THE REAL INCOME THE ORY. 6. THE REVENUE CONTENDED, IN THE AFORECITED DECISIO N, THAT SEC. 43D OF THE ACT RECOGNISES TAXABILITY OF SUCH INTERE ST AND WHEN A SPECIFIC PROVISIONS HAS BEEN MADE, THE ASSESSEE CAN NOT INDIRECTLY CLAIM BENEFIT. ON THIS ASPECT, THE COURT OBSERVED THAT THE BENEFIT WAS CLAIMED BY THE ASSESSEE NOT UNDER ANY PROVISION S OF THE IT ACT, BUT, ON ACCOUNT OF THE FACT THAT IT IS BOUND BY TH E RBI GUIDELINES, WHICH ARE ISSUED UNDER THE PROVISIONS OF THE RBI AC T WHEREBY THE INTEREST ON NPAS CANNOT BE SHOWN AS INCOME. THE PRO VISIONS OF SEC. 45Q OF THE RBI ACT WOULD HAVE AN OVERRIDING EFFECT OVER THE OTHER LAWS, INCLUDING THE INCOME TAX ACT. THEREFORE, NOT WITHSTANDING THE PROVISIONS OF SEC. 43D OF THE ACT, THE A.O. IS BOUN D TO FOLLOW THE RBI GUIDELINES SO FAR AS THE INCOME RECOGNITION IS CONCERNED. 7. IT WAS THUS, FINALLY CONCLUDED THAT INTEREST ON NPAS CANNOT BE BROUGHT TO TAX WHEN THE ACTUAL INCOME IS NOT RECEIV ED. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PRINCIPAL AMOUN T WAS DECLARED AS NPAS SOMEWHERE IN THE YEAR 2002-03 AND IN ALL TH E SUBSEQUENT YEARS, THE INTEREST ON NPAS IS NOT BROUGHT TO TAX BY THE REVENUE AND SUDDENLY IN THIS YEAR, THE REVENUE MADE AN ADDI TION. HE FURTHER SUBMITTED THAT THERE ARE CATENA OF DECISION S WITH REGARD TO THE ACCRUAL OF INCOME ONLY IN THE YEAR OF RECEIPT. EVEN IF IT IS ASSUMED THAT THERE ARE TWO VIEWS POSSIBLE, AS PER T HE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS VEG ETABLE PRODUCTS ITA NO.1194/HYD/2016 THE KRANTI CO-OPERATIVE URBAN BANK LTD., HYDERABAD. PAGE 4 OF 5 LTD., (1973) 88 ITR 192 (SC), A VIEW WHICH IS FAVOU RABLE TO THE ASSESSEE HAS TO BE TAKEN AND THUS HE STRONGLY SUBMI TTED THAT THE ADDITION MADE BY THE A.O, AND CONFIRMED BY THE CIT( A), IS NOT IN ACCORDANCE WITH LAW. 8. THE LD. DR, ON THE OTHER HAND, SUBMITTED THAT T HE PROVISIONS OF THE RBI ACT ARE SUBSERVIENT TO THE PROVISIONS OF SEC 43D OF THE INCOME TAX ACT AND THUS STRONGLY RELIED UPON THE OR DERS PASSED BY THE TAXING AUTHORITIES. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND PERUSED THE RECORD. THE ARGUMENTS ADVANCED BY THE A SSESSEE ARE FULLY SUPPORTED BY THE DECISION OF THE ITAT VISAKH APATNAM BENCH AS WELL AS THE DECISION OF THE HONBLE HIGH COURT O F GUJARAT (SUPRA) WHICH, IN TERMS, WERE BASED ON SEVERAL REPORTED DE CISIONS OF OTHER HIGH COURTS. LD. DR COULD NOT PLACE ANY JUDGEMENT WHEREIN A CONTRARY WAS TAKEN ON THIS ISSUE. UNDER THESE CIRC UMSTANCES, WE RESPECTFULLY FOLLOW THE DECISION OF THE HONBLE HIG H COURT OF GUJARAT AND THE DECISION OF THE ITAT VISAKHAPATNAM BENCH (S UPRA) AND HOLD THAT THE A.O. AS WELL AS CIT(A) WERE NOT JUST IFIED IN BRINGING TO TAX A SUM OF RS. 2,58,279/-, TOWARDS ALLEGED ACCRUE D INTEREST ON NPAS. IN THE CIRCUMSTANCES OF THE CASE, THE A.O. IS DIRECTED TO DELETE THE ADDITION. 10. PRONOUNCED ACCORDINGLY IN THE OPEN COURT ON 20 -12-2016. SD/- SD/- (S. RIFAUR RAHMAN) (D M ANMOHAN) ACCOUNTANT MEMBER V ICE PRESIDENT HYDERABAD, DATED: 20 TH DECEMBER, 2016 KRK ITA NO.1194/HYD/2016 THE KRANTI CO-OPERATIVE URBAN BANK LTD., HYDERABAD. PAGE 5 OF 5 COPY TO:- 1) THE KRANTI CO-OPERATIVE URBAN BANK LTD. C/O P. RAJESWARA RAO,CA FLAT NO. 205, PRIYA APARTMENTS, H. NO. 1-1-560, NEW BAKARAM HYDERABAD 500020. 2) ACIT, CIRCLE-11 (1) HYDERABAD. . 3) CIT ( APPEALS)-5, HYDERABAD 4) THE PCIT-5, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., H YDERABAD. 6) GUARD FILE