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

ITA 1265/HYD/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2463 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 19-12-2017
• Assessment Year: 2013-2014
• Appeal Filed On: 29-08-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUMAN MALIK
• Assessee Lawyers: C V NARASIMHAM
• Keywords: Depreciation
• Section: 143(3)

Judgement Text

ITA NO 1265 OF 2016 ADARSH COOP URBAN BANK LTD HYD ERABAD. PAGE 1 OF 8 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.1265/HYD/2016 (ASSESSMENT YEAR: 2013-14) THE ADARSH COOPERATIVE URBAN BANK LTD HYDERABAD PAN: AABAT 4278 K VS ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 11(1) IT TOWERS, AC GUARDS HYDERABAD 500004 (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI C.V.NARASIMHAM FOR REVENUE : SMT. SUMAN MALIK, DR O R D E R PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y 2013-14. IN T HIS APPEAL, THE ASSESSEE IS AGGRIEVED BY THE ORDER OF T HE LEARNED CIT (A)-V, HYDERABAD, DATED 29.07.2016 CONFIRMING THE A SSESSMENT ORDER DATED 31/12/2015. THE GROUNDS OF APPEALS RAIS ED BY THE ASSESSEE READ AS UNDER: 1. THE LEARNED COMMISSIONER ERRED IN CONFIRMING THE ADDITIONS TO RETURNED INCOME AND DISALLOWING THE HIGHER RATE OF DEPRECIATION AND DEDUCTIONS CLAIMED WHICH IS CONTRARY TO FACTS OF THE EASE, CONTRARY TO THE EVIDENCE ON RECORD AND UNSUSTAINABLE IN LAW. 2. THE LEARNED COMMISSIONER ERRED IN NOT ALLOWING THE HIGHER RATE DEPRECIATION CLAIMED ON CASH DISPENSER, ATM AND ITS RELATED ACCESSORIES AND UPS BATTERIES. DATE OF HEARING: 19.12.2017 DATE OF PRONOUNCEMENT: 28.02.2018 ITA NO 1265 OF 2016 ADARSH COOP URBAN BANK LTD HYD ERABAD. PAGE 2 OF 8 3. THE LEARNED COMMISSIONER ERRED IN NOT CONSIDERING THE GROUNDS OF APPEAL RELATING TO CLAIM FOR HIGHER RATE OF DEPRECIATION CLAIMED ON PRINTER AND SCANNER AND FAILED TO GIVE ANY FINDING ON THE SAME. 4. THE LEARNED COMMISSIONER ERRED IN CONFIRMING THE ADDITION OF RS.43,70,680/- BEING THE INTEREST NOT RECEIVED ON NON-PERFORMING ASSETS (NPAS) AND OUGHT TO HAVE HELD THAT SUCH INTEREST IS TAXABLE ON LY ON ACTUAL RECEIPT. 5. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS PRAYED THAT APPEAL MA Y BE ALLOWED. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, A COOPERATIVE SOCIETY ENGAGED IN BANKING BUSINESS FIL ED ITS RETURN OF INCOME FOR THE A.Y 2013-14 ON 11.09.2013 ADMITTING TOTAL INCOME OF RS.3,97,50,110. THE RETURN WAS INITIALLY PROCESS ED U/S 143(1) AND LATER ON, SELECTED FOR SCRUTINY. DURING THE ASS ESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, THE AO OBSERVED THAT THE ASSESSEE HAS CLAIMED DEPRECIATION @ 60% ON UPS BATT ERIES, ATM, ATM RELATED ACCESSORIES, IPAD ACCESSORIES AND CASH DISPENSER MACHINE, WHEREAS ACCORDING TO THE AO, THE DEPRECIAT ION ALLOWABLE ON THESE ITEMS IS ONLY 15%. HE CONSIDERED THE DEFIN ITION OF COMPUTER UNDER THE INFORMATION TECHNOLOGY ACT, 2 000 AND HAS HELD THAT THE UPS IS JUST AN INSTRUMENT TO ENSURE U NINTERRUPTED POWER SUPPLY AND TO REGULATE THE FLOW OF POWER TO C OMPUTER SYSTEM, THEREFORE, CANNOT BE CONSIDERED AS PART OF THE COMPUTER. HE ACCORDINGLY HELD THAT THE DEPRECIATION ON UPS, A TM, ATM RELATED ACCESSORIES AND OTHER ACCESSORIES IS ALLOWA BLE @ 15% ONLY. HE ACCORDINGLY DISALLOWED THE BALANCE 45% OF THE CL AIM AND BROUGHT IT TO TAX. ITA NO 1265 OF 2016 ADARSH COOP URBAN BANK LTD HYD ERABAD. PAGE 3 OF 8 3. FURTHER, FROM THE 3CD REPORT FILED BY THE ASSESS EE, THE AO OBSERVED THAT THE ASSESSEE IS FOLLOWING MERCANTI LE SYSTEM OF ACCOUNTING BUT HAS OFFERED INTEREST INCOME ON NPAS ON REALIZATION BASIS. OBSERVING THAT SECTION 43D IS NOT APPLICABLE TO THE ASSESSEE, BEING A NON-SCHEDULED COOPERATIVE BANK, H E HELD THAT THE INTEREST ON NPAS IS TO BE OFFERED TO TAX ON ACC RUAL BASIS. ACCORDINGLY, HE MADE THE ADDITION AND BROUGHT IT TO TAX. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A), WHO CONFIRMED THE ORDER OF THE AO AND THE ASSESSEE IS IN SECOND APPEAL BEFORE US. 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE ATM & ATM RELATED ACCESSORIES, INCLUDING CASH D ISPENSING MACHINE, CANNOT BE OPERATED WITHOUT THE COMPUTER AN D THEREFORE, THEY ARE TO BE CONSIDERED AS PART OF THE COMPUTER A ND THEY ARE ELIGIBLE FOR DEPRECIATION @ 60%. SIMILARLY, HE ALSO SUBMITTED THAT THE UPS IS NECESSARY FOR RUNNING OF THE ATM AND ATM RELATED ACCESSORIES AND THEREFORE, THEY SHOULD BE CONSIDERE D AS PART OF THE COMPUTER AND DEPRECIATION SHOULD BE ALLOWED @60 %. HE PLACED RELIANCE UPON THE FOLLOWING DECISIONS IN SUP PORT OF HIS CONTENTION: A) CIT VS. ORIENT CERAMICS AND INDUSTRIES LTD (2013) 3 58 ITR 49 DELHI HIGH COURT. B) CIT VS. BSES YAMUNA POWERS LTD (2013) 358 ITR 47 DELHI HIGH COURT. C) DCIT-2(1) VS. DATACRAFT INDIA LTD (2011) 9 ITR ( TRI) 712 MUM. D) DCIT VS. SARASWAT INFOTECH LTD (ITA NO.1494/MUM/2015D), DATED 22.11.2016 E) DCIT VS. GLOBAL TRUST BANK LTD (ITA NO.474/DEL/2 009 DATED 20.04.2011) ITA NO 1265 OF 2016 ADARSH COOP URBAN BANK LTD HYD ERABAD. PAGE 4 OF 8 5. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 6. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT IN THE CASE OF CIT VS. ORIE NT CERAMICS AND INDUSTRIES LTD (SUPRA), THE HON'BLE DELHI HIGH COUR T HAS FOLLOWED THE DECISION OF THE COORDINATE BENCH OF THE HIGH CO URT IN THE CASE OF CIT VS. BSES YAMUNA POWERS LTD TO ALLOW DEPRECIA TION @ 60% ON COMPUTER PERIPHERALS AND ACCESSORIES AND ALSO UP S. WE FIND THAT IN THE CASE OF CIT VS. BSES YAMUNA POWERS LTD, THE HON'BLE DELHI HIGH COURT WAS CONSIDERING THE DEPRECIATION A LLOWABLE ON COMPUTER ACCESSORIES AND PERIPHERALS SUCH AS, PRINT ERS, SCANNERS AND SERVER ETC., WHICH FORM AN INTEGRAL PART OF THE COMPUTER SYSTEM AND CANNOT BE USED WITHOUT THE COMPUTER. 7. IN THE CASE OF DCIT VS. DATACRAFT INDIA LTD (CIT ED SUPRA), THE HON'BLE SPECIAL BENCH OF THE TRIBUNAL A T MUMBAI WAS CONSIDERING WHETHER COMPUTER ACCESSORIES & PERIPHER ALS SUCH AS ROUTERS AND SWITCHES CAN BE CLASSIFIED AS COMPUTER HARDWARE, WHEN THEY ARE USED ALONG WITH A COMPUTER AND IT WAS HELD THAT WHEN THEIR FUNCTIONS ARE INTEGRATED WITH A COMPUTE R AND WHEN A DEVICE IS USED AS PART OF THE COMPUTER IN ITS FUNCT IONS, THEN IT WOULD BE TERMED AS A COMPUTER. 8. THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF SARASWAT INFOTECH LTD (SUPRA) HAS FOLLOWED THE DECI SION OF THE HON'BLE BOMBAY HIGH COURT IN THE ASSESSEES OWN CAS E TO HOLD THAT DEPRECIATION @ 60% IS ALLOWABLE ON UPS. ITA NO 1265 OF 2016 ADARSH COOP URBAN BANK LTD HYD ERABAD. PAGE 5 OF 8 9. IN THE CASE OF GLOBAL TRUST BANK LTD (SUPRA), COORDINATE BENCH OF THE TRIBUNAL AT DELHI HAS HELD THAT THE ATM IS A COMPUTER TELECOMMUNICATION DEVICE THAT ALLOWS BANK CUSTOMERS TO ACCESS BANKING AT PLACES OTHER THAN TH E NORMAL BANK WITHOUT HAVING TO TAKE THE TROUBLE TO GO TO TH E BANK IN PERSON AND COLLECT THE CASH AS IS DONE UNDER THE CO NVENTIONAL METHOD OF WITHDRAWING MONEY FROM THE BANK AND THAT THE ATM MACHINES ARE COMPUTERIZED MACHINES WHICH NOT ONLY A LLOW THE CUSTOMERS TO WITHDRAW MONEY BUT THEY CAN CHECK THE ACCOUNT BALANCE, PAY BILLS, PURCHASE GOODS AND SERVICES AND THEREFORE, UNLESS IT IS COMPUTERIZED AND LINKED WITH THE MAIN SERVER, IT IS NOT POSSIBLE TO OPERATE THE ATM. 10. FROM THE READING OF THE ABOVE JUDGMENTS, WE FIN D THAT THE ASSESSEE IS ELIGIBLE FOR DEPRECIATION @ 60% ON ATM AND OTHER RELATED ACCESSORIES. AS REGARDS DEPRECIATION @ 60% ON UPS IS CONCERNED, WE FIND THAT THOUGH THE UPS CAN INDEPEND ENTLY FUNCTION WITHOUT THE ASSISTANCE OR INTEGRATION WITH A COMPUTER AND IS AN ALTERNATE MODE OF SUPPLY OF POWER AND DOE S NOT DEPEND ON ANY ASSISTANCE FROM A COMPUTER, THE COMPUTER CAN FUNCTION ONLY ON A POWER SUPPLY AND WHEN THERE IS NO POWER S UPPLY, IT IS CONNECTED TO UPS SO THAT IT CAN WORK UNINTERRUPTEDL Y AND WITHOUT LOSING THE UNSAVED DATA WHEN THE POWER GOES OFF. TH EREFORE, IN OUR OPINION, UPS ALSO CAN BE CONSIDERED AS A COMPUT ER IF IT IS CONNECTED TO THE ATM MACHINE OR A COMPUTER AND DEPR ECIATION THEREON IS ALLOWABLE AT 60%. AO IS DIRECTED TO VERI FY IF THE UPS ARE USED FOR THE FUNCTIONING OF THE ATM AND ALLOW DEPRE CIATION ACCORDINGLY. THEREFORE, THE GROUNDS OF APPEAL NO.1 TO 3 ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ITA NO 1265 OF 2016 ADARSH COOP URBAN BANK LTD HYD ERABAD. PAGE 6 OF 8 11. AS REGARDS GROUND OF APPEAL NO.4, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS FAIRLY COVERED IN ASSESSEES FAVOUR BY THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF PR. CIT VS. SHRI MAHILA S EWA SAHAKARI BANK LTD REPORTED IN (2017) 395 ITR 324 (GUJ.) AND IN THE CASE OF KRANTHI COOPERATIVE URBAN BANK LTD VS. ACIT IN ITA NO.1194/HYD/2016 DATED 20.12.2016. 12. THE LEARNED DR, HOWEVER, SUPPORTED THE ORDERS O F THE AUTHORITIES BELOW. 13. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE HON'BLE GUJARAT HIGH CO URT AND ALSO THE HON'BLE BOMBAY HIGH COURT HAS CONSIDERED THE DE CISION OF THE APEX COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD TO HOLD THAT THE INTEREST ON NON-PERFORMING ASSETS/STICKY L OAN IS TO BE RECOGNIZED ONLY WHEN IT IS RECEIVED OR CREDITED TO THE P&L A/C. THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF KR ANTHI COOP. URBAN BANK LTD (SUPRA) HAS ALSO CONSIDERED THIS ISS UE AT LENGTH AND AT PARAS 5 TO 9, HAS HELD AS UNDER: 5. AGGRIEVED BY THE ORDER OF LD. CIT(A) THE ASSESSEE IS AN APPEAL BEFORE US. THE LD. COUNSEL PLACED BEFORE US A COPY OF THE LATEST ORDER OF THE HONBLE GUJARAT HIGH COU RT IN THE CASE OF PR. COMMISSIONER OF INCOME TAX VS. SHRI MAHILA SEWA SHAKARI BANK LTD. ,(ITA NO. 531 OF 2015, DATED 05- 08-2016), WHEREIN THE BENCH REFERRED TO CATENA OF D ECISIONS AND DECIDED IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER: 11. FROM THE RIVAL SUBMISSIONS ADVANCED BY THE LEAR NED 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. THE ASSESSEE THAT IN VIEW OF THE R BI GUIDELINES, IT CANNOT CHARGE INTEREST ON ACCRUAL BASIS AND THAT FOLLOWING THE THEORY OF THE REAL INCOME, TAXABILITY OF ANY NOTION AL INCOME LIKE ACCRUED INTEREST ON NPAS WOULD NOT ARISE. IT HAS AL SO BEEN ITA NO 1265 OF 2016 ADARSH COOP URBAN BANK LTD HYD ERABAD. PAGE 7 OF 8 CONTENDED THAT EVEN OTHERWISE IN VIEW OF THE CBDT C IRCULAR BEARING F NO.201/21/844- ITA-II DATED 09-10-1984, I NTEREST ON ACCRUAL BASIS IS NOT TAXABLE IF NOT RECEIVED FOR TH REE YEARS EVEN THROUGH CREDITED TO THE SUSPENSE ACCOUNT. THE COURT OBSERVED THAT THOUGH RBI ACT MAY NOT OVERRIDE THE PROVISIONS OF I NCOME TAX ACT. INCOME HAS TO BE RECOGNISED IN TERMS OF PRUDEN TIAL NORMS BY APPLYING THE REAL INCOME THEORY. 6. THE REVENUE CONTENDED, IN THE AFORECITED DECISIO N, THAT SEC. 43D OF MADE, THE ASSESSEE CANNOT INDIRECTLY CL AIM BENEFIT. ON THIS ASPECT, THE COURT OBSERVED THAT TH E 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 THE RBI GUIDELINES, WHICH ARE ISSUED UNDER THE PROVISIO NS OF THE RBI ACT WHEREBY THE INTEREST ON NPAS CANNOT BE SHOWN AS INCOME. THE PROVISIONS OF SEC. 45Q OF THE RBI ACT WOULD HAVE AN OVERRIDING EFFECT OVER THE OTHER LAW S, INCLUDING THE INCOME TAX ACT. THEREFORE, NOTWITHSTA NDING THE PROVISIONS OF SEC. 43D OF THE ACT, THE A.O. IS BOUND TO FOLLOW THE RBI GUIDELINES SO FAR AS THE INCOME RECO GNITION IS CONCERNED. 7. IT WAS THUS, FINALLY CONCLUDED THAT INTEREST ON NPAS CANNOT BE BROUGHT TO TAX WHEN THE ACTUAL INCOME IS NOT RECEIVED. LD. COUNSEL FOR THE ASSESSEE SUBMITTED TH AT THE PRINCIPAL AMOUNT WAS DECLARED AS NPAS SOMEWHERE IN THE YEAR 2002-03 AND IN ALL THE SUBSEQUENT YEARS, THE I NTEREST ON NPAS IS NOT BROUGHT TO TAX BY THE REVENUE AND SU DDENLY IN THIS YEAR, THE REVENUE MADE AN ADDITION. HE FURT HER SUBMITTED THAT THERE ARE CATENA OF DECISIONS WITH R EGARD 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 O F CIT VS. VEGETABLE PRODUCTS ITA NO.1194/HYD/2016 THE KRANTI CO-OPERATIVE URBAN BANK LTD. , HYDERABAD LTD., ( 1973) 88 ITR 192 (SC ), A VIEW WHICH IS FAVOURABLE 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 TH E PROVISIONS OF THE RBI ACT ARE SUBSERVIENT TO THE PR OVISIONS OF SEC 43D OF THE INCOME TAX ACT AND THUS STRONGLY RELIED UPON THE ORDERS PASSED BY THE TAXING AUTHORITIES. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND PERUSED THE RECORD. THE ARGUMENTS ADVANCED BY THE ASSESSEE ARE FULLY SUPPORTED BY THE DECISION OF THE ITAT VISAKHAPATNAM BENCH AS WELL AS THE DECISION OF THE HON'BLE HIGH COURT OF GUJARAT (SUPRA) WHICH, IN TER MS, WERE BASED ON SEVERAL REPORTED DECISIONS OF OTHER HIGH C OURTS. LD. DR COULD NOT PLACE ANY JUDGEMENT WHEREIN A CONT RARY ITA NO 1265 OF 2016 ADARSH COOP URBAN BANK LTD HYD ERABAD. PAGE 8 OF 8 WAS TAKEN ON THIS ISSUE. UNDER THESE CIRCUMSTANCES, WE RESPECTFULLY FOLLOW THE DECISION OF THE HON'BLE HIG H COURT OF GUJARAT AND THE DECISION OF THE ITAT VISAKHAPATNAM BENCH (SUPRA) AND HOLD THAT THE A.O. AS WELL AS CIT(A) WE RE NOT JUSTIFIED IN BRINGING TO TAX A SUM OF RS. 2,58,279/ -, TOWARDS ALLEGED ACCRUED INTEREST ON NPAS. IN THE CIRCUMSTAN CES OF THE CASE, THE A.O. IS DIRECTED TO DELETE THE ADDITI ON. 14. RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE AO TO CONSIDER THE INTEREST ON NPAS AS INCOME ONLY IN THE YEAR OF RECEIPT. THE ADDITION IS ACCORDINGLY DELETED AND TH E GROUND OF APPEAL NO.4 IS ALLOWED. 15. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH FEBRUARY, 2018. SD/- SD/- (S.RIFAUR RAHMAN) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 28 TH FEBRUARY 2018. VINODAN/SPS COPY TO: 1 THE ADARSH COOPERATIVE URBAN BANK LTD, 1-251/I PH ASE I, IDA, JEEDIMETLA, HYDERABAD 500055 2 ACIT CIRCLE 11(1) IT TOWERS, AC GUARDS, HYDERABAD 5 00004 3 CIT (A)-5 HYDERABAD 4 PR. CIT 5 HYDERABAD 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER