The Suvikas Peoples'Co-Operative Bank Ltd., Ahmedabad V. The ACIT, Circle-10, Ahmedabad

ITA 1288/AHD/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8071 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 26-07-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 01-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S N DIVATIA
• Keywords: Question of law; Set aside
• Section: 143(3); 43D; 201; 145; 37; 2

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C BEFORE SHRI S.S. GODARA, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ ITA NO.1288/AHD/2014 / ASSTT. YEAR: 2010-11 THE SUVIKAS PEOPLES CO-OP. BANK LTD. SUN COMPLEX, NR. STADIUM CIRCLE C.G. ROAD, NAVRANGPURA AHMEDABAD 380 009. PAN : AAAAT 4288 N VS. ACIT, CIR.10 AHMEDABAD. / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI S.N. DIVATIA, AR REVENUE BY : SHRI RAJDEEP SINGH, SR.DR ! / DATE OF HEARING : 30/11/2017 '#$ ! / DATE OF PRONOUNCEMENT: 30 /11/2017 %& / O R D E R PER S.S.GODARA, JUDICIAL MEMBER: THIS ASSESSEES APPEAL FOR ASSTT.YEAR 2010-11 AROSE AGAINST LD.CIT(A)-XVIS, AHMEDABAD ORDER DATED 3.2.2014 PAS SED IN CASE NO.CIT(A)-XVI/ACIT(OSD)/CIR.10/258/12-13 UPHOLDING ASSESSING OFFICERS ACTION INTERALIA MAKING ADDITION ON ACCRUED INTEREST ON NON-PERFORMING ASSETS (NPA) AND INTEREST INCOME A CTUALLY RECEIVED IN THE IMPUGNED ASSESSMENT YEAR INVOLVING AMOUNTS OF RS.13.29 LAKHS AND RS.9,10,893/-; RESPECTIVELY IN P ROCEEDINGS ITA NO.1288 /AHD/2014 2 UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (I N SHORT THE ACT). 2. HEARD BOTH PARTIES. CASE FILE PERUSED. IT EMER GES FROM BOTH LOWER AUTHORITIES RESPECTIVE ORDERS THAT THEY HAVE FOLLOWED THEIR RESPECTIVE FINDING IN ASSTT.YEAR 2009-10 MAKING TWO IMPUGNED ADDITIONS AFTER CONCLUDING THAT SINCE THE ASSESSEE IS UNSCHEDULED BANK SECTION 43D PROVISION WOULD NOT BE APPLICABLE IN ITS CASE, AND AS A RESULT, IT HAD TO RECOGNIZE ITS INCOME ON THE NPAS ON QUESTION ON ACCRUAL BASIS. 3. BOTH PARTIES INVITED OUR ATTENTION TO THE CASE RE CORD CONTAINING A CO-ORDINATE BENCHS ORDER IN ASSESSEE S CASE ITSELF, ITA NO.2182/AHD/2013 DECIDED ON 5.9.2016 ADJUDICATI NG BOTH INSTANT ISSUE AGAINST REVENUE AS UNDER: 3. THE ASSESSEE IS IN THE BUSINESS OF BANKING ACTI VITIES FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. DURING T HE COURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSE E WAS ASKED TO FURNISH THE DETAILS OF INTEREST ACCRUED ON NON- PERFORMING ASSETS. THE ASSESSEE FURNISHED NECESSARY DETAILS. SIMULTANEOUSLY, THE ASSESSEE CLAIMED THAT IT HAS TO FOLLOW THE CIRCULARS/GUIDELINES ISSUED BY THE RESERVE BANK OF INDIA AND ONE OF THE GUIDELINE OF THE RBI IS THAT INTEREST INCOME IN RESPECT OF RESTRUCTURED ACCOUNTS CLASSIFIED AS 'STA NDARD ASSETS' WILL BE RECOGNIZED ON ACCRUAL BASIS AND THA T IN RESPECT OF THE ACCOUNT CLASSIFIED AS 'NON-PERFORMIN G ASSETS' WILL BE RECOGNIZED AS CASH BASIS. IT WAS EXPLAINED THAT BECAUSE OF THESE MANDATORY GUIDELINES, THE ASSESSEE HAS NOT RECOGNIZED INTEREST ON NON PERFORMING ASSETS ON ACC RUAL BASIS. THIS CONTENTION OF THE ASSESSEE WAS DISMISSE D BY THE A.O. WHO WAS OF THE OPINION THAT SINCE THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, IT SHOU LD HAVE RECOGNIZED INTEREST ON NPA ON ACCRUAL BASIS AS PER THE PROVISIONS OF THE INCOME TAX ACT. THE A.O. ACCORDIN GLY MADE THE ADDITION OF RS.15.50 LACS. ITA NO.1288 /AHD/2014 3 4. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATT ER BEFORE THE ID. BUT WITHOUT ANY SUCCESS. 5. BEFORE US, THE ID. COUNSEL FOR THE ASSESSEE STATE D THAT THIS ISSUE IS NO MORE RES INTEGRA AS IT HAS BEEN DECIDED BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF SH RI MAHILA SEWA SAHAKARI BANK LTD. IN TAX APPEAL NO. 531 OF 201 5 DATED 05.08.2016 IN FAVOUR OF THE ASSESSEE AND AGAI NST THE REVENUE. THE ID. D.R. COULD NOT. BRING ANY DISTINGU ISHING DECISION IN FAVOUR OF THE REVENUE. 6. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE A UTHORITIES BELOW. WE FIND FORCE IN THE .CONTENTION ,OF THE-LD. COUNSEL. THE HON'BLE HIGH COURT (SUPRA) WAS SEIZED WITH THE FOLLOWING SUBSTANTIAL QUESTION OF LAW:- 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE INCOME TAX APPELLATE TRIBUNAL IS RIGHT IN LAW AND ON FACTS IN HOLDING THAT INTEREST ON NON PERFOR MING ASSETS IS NOT TAXABLE ON ACCRUAL BASIS LOOKING TO T HE GUIDELINES OF THE RESERVE BANK OF INDIA?' 7. THE HON'BLE HIGH COURT CONSIDERED THE FOLLOWING FACTS:- 5.1 THE ASSESSING OFFICER WAS OF THE OPINION THAT INTEREST ON THE NPA HAD ACCRUED TO THE ASSESSEE, EV EN IF IT WAS NOT ACTUALLY REALIZED, AS IT WAS FOLLOWIN G THE MERCANTILE SYSTEM OF ACCOUNTING AND ACCORDINGLY ADD ED A SUM OF ELF RS.1L72,73,000/-TO THE TOTAL INCOME OF THE ASSESSEE. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE COMMISSIONER (APPEALS), WHO UPHELD THE ORDER PASSED BY THE ASSESSING OFFICER. THE ASSESSEE CHALLENGED THE ORDER OF THE COMMISSIONER (APPEALS) BEFORE THE TRIBUNAL, WHICH ALLOWED THE APPEAL BY DELETING THE INTEREST. BEING AGGRIEVED, THE REVENUE IS IN APPEAL. 22. THEREFORE, IN TERMS OF THE ABOVE DECISION, WHER E AN ASSESSEE MAKES PROVISION FOR NPA AND SEEKS DEDUCTIO N OF SUCH AMOUNT UNDER SECTION 36(L)(VII) OR SECTION 37 OF THE ACT, THEN IN THE COMPUTATION ,OF INCOME, THE RB I GUIDELINES WOULD HAVE NO ROLE TO PLAY, AND HENCE, A N ADD BACK. INSOFAR AS INCOME RECOGNITION IS CONCERNE D, ITA NO.1288 /AHD/2014 4 THE SUPREME COURT HAS HELD THUS: 'APPLICABILITY OF SECTION 145 57. AT THE OUTSET, WE MAY STATE THAT IN ESSENCE THE RBI DIRECTIONS, 1998 ARE PRUDENTIAL/PROVISIONING NORMS ISSUED BY RBI UNDER CHAPTER ILI-B OF THE RBI ACT, 19 34. THESE NORMS DEAL ESSENTIALLY WITH INCOME RECOGNITIO N. THEY FORCE THE NBFCS TO DISCLOSE THE AMOUNT OF NPA IN THEIR FINANCIAL ACCOUNTS. THEY FORCE THE NBFCS TO RE FLECT 'TRUE AND CORRECT' PROFITS. BY VIRTUE OF SECTION 45- Q, AN OVERRIDING EFFECT IS GIVEN TO THE RBI DIRECTIONS, 19 98 VIS-A-VIS 'INCOME RECOGNITION' PRINCIPLES IN THE COMPANIES ACT, 1956. THESE DIRECTIONS CONSTITUTE A CODE BY ITSELF. HOWEVER, THESE RBI DIRECTIONS, 1998 AND THE IT ACT OPERATE IN DIFFERENT AREAS. THESE RBI DIRECTIONS, 1998'HAVE'NOTHING'TODOWITH COMPUTATION OF TAXABLE INCOME. THESE DIRECTIONS CANNOT OVERRULE TH E 'PERMISSIBLE DEDUCTIONS' OR 'THEIR EXCLUSION' UNDER THE IT ACT. THE INCONSISTENCY BETWEEN THESE DIRECTIONS AND THE COMPANIES ACT IS ONLY IN THE MATTER OF INCOME RECOGNITION AND PRESENTATION OF FINANCIAL STATEMENT S. THE ACCOUNTING POLICIES ADOPTED BY AN NBFC CANNOT DETERMINE THE TAXABLE INCOME. IT IS WELL SETTLED TH AT THE ACCOUNTING POLICIES FOLLOWED BY A COMPANY CAN BE CHANGED UNLESS THE AO COMES TO THE CONCLUSION THAT SUCH CHANGE WOULD RESULT IN UNDERSTATEMENT OF PROFI TS. HOWEVER, HERE IS THE CASE WHERE THE AO HAS TO FOLLO W THE RBI DIRECTIONS, 1998 IN VIEW OF SECTION 45-Q OF THE RBI ACT. HENCE, AS FAR AS INCOME RECOGNITION IS CONCERNED, SECTION 145 OF THE IT ACT HAS NO ROLE TO PLAY IN THE PRESENT DISPUTE.' THUS, INSOFAR AS INCOME RECOGNITION IS CONCERNED, THE COURT HAS HELD THAT E VEN THE ASSESSING OFFICER HAS TO FOLLOW THE RBI DIRECTI ONS, 1998 IN VIEW OF SECTION 45Q OF THE RBI ACT AND THAT AS FAR AS INCOME RECOGNITION IS CONCERNED, SECTION 145 OF THE INCOME TAX ACT, HAS NOT ROLE TO PLAY. 8. AND HELD AS UNDER:- 23. IN THE LIGHT OF THE ABOVE DISCUSSION WHAT EMERG ES IS THAT WHILE DETERMINING THE: TAX LIABILITY OF AN ASSESSEE, TWO FACTORS WOULD COME INTO PLAY. FIRSTLY , THE RECOGNITION OF INCOME IN TERMS OF THE RECOGNIZED ITA NO.1288 /AHD/2014 5 ACCOUNTING PRINCIPLES AND AFTER SUCH INCOME IS RECOGNIZED, THE COMPUTATION THEREOF, IN TERMS OF TH E PROVISIONS OF THE INCOME TAX ACT, 1961. INSOFAR AS THE COMPUTATION OF TAXABILITY IS CONCERNED, THE SAME IS SOLELY GOVERNED BY THE PROVISIONS OF THE INCOME TAX ACT AND THE ACCOUNTING PRINCIPLES HAVE NO ROLE TO P LAY. HOWEVER, RECOGNITION OF INCOME STANDS ON A DIFFEREN T FOOTING. INSOFAR AS INCOME RECOGNITION IS CONCERNED , IT WOULD BE THE RBI DIRECTIONS WHICH WOULD PREVAIL IN V IEW OF THE PROVISIONS OF SECTION 45 Q OF THE RBI ACT .AN D SECTION 145 WOULD HAVE NO ROLE TO PLAY. HENCE, THE ASSESSING OFFICER HAS TO FOLLOW THE RBI DIRECTIONS. 9. RESPECTFULLY FOLLOWING THE DECISION OF THE HON'B LE JURISDICTIONAL HIGH COURT (SUPRA), WE SET ASIDE THE FINDINGS OF THE ID. CIT(A) AND DIRECT THE A.Q. TO DELETE THE AD DITION OF RS. 15.50 LACS WHICH ALSO INCLUDES THE ADDITION OF RS. 1,30,864/-. 4. REVENUE IS FAIR ENOUGH IN NOT DRAWING ANY DISTIN CTION ON LAW AND ON FACTS. WE THEREFORE ADOPT CONSISTENCY TO AC CEPT BOTH THE ABOVE STATED SUBSTANTIAL GROUNDS RAISED AT ASSESSEE S BEHEST. THIS ASSESSEES APPEAL IS ALLOWED. 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE COURT ON 30 TH NOVEMBER, 2017. SD/- SD/- (PRADIP KUMAR KEDIA) ACCOUNTANT MEMBER (S.S.GODARA) JUDICIAL MEMBER AHMEDABAD; DATED 30/11/2017