ACIT, Chandigarh V. M/s Punjab State Cooperative Bank Ltd., Chandigarh

ITA 1332/CHANDI/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80876 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 8 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 11-08-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 24-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JYOTI KUMARI
• Keywords: Bad and doubtful debts
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A CHANDIGARH BEFORE SHRI T.R.SOOD ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 1332/CHD/2012 ASSESSMENT YEAR : 2009-10 THE A.C.I.T., VS M/S PUNJAB STATE COOP ERATIVE CIRCLE 2(1), BANK LTD., ROOM NO. 414, SCO 51-52, 4 TH FLOOR, SECTOR 17-B, AAYAKAR BHAWAN, CHANDIGARH. SECTOR 17-E, CHANDIGARH. PAN : AAAAP0253B (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. JYOTI KUMARI RESPONDENT BY : SHRI M.R.SHARMA DATE OF HEARING : 11.08.2014 DATE OF PRONOUNCEMENT : 10.09.2014 O R D E R PER SUSHMA CHOWLA, JM THE APPEAL FILED BY THE REVENUE IS AGAINST THE ORDE R OF THE COMMISSIONER OF INCOME TAX (APPEALS) CHANDIGARH DAT ED 23.01.2012 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 ( 'THE ACT' FOR SHORT). 2. THE REVENUE HAS RAISED THE FOLLOWING GROUND OF A PPEAL : THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS. 3,57,53,60/- ON ACCOUN T OF INTEREST ON OUTSTANDING LOANS. 2 3. THE LD. AR FOR THE ASSESSEE AT THE OUTSET POINTE D OUT THAT THE ISSUE IN THE PRESENT APPEAL IS COVERED AGAINST THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN ASSESSEE'S OWN CASE IN EA RLIER YEARS. 4. THE LD. DR FOR THE REVENUE PLACED RELIANCE ON TH E ORDER OF THE ASSESSING OFFICER. 5. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A COOPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANK ING AND EXTENDING CREDIT FACILITIES TO VARIOUS MEMBERS/NOMI NAL MEMBERS. DURING THE COURSE OF ASSESSMENT, THE ASSESSEE WAS A SKED TO FURNISH THE DETAILS OF LOANS/ADVANCES TO CORPORATE/NOMINAL MEMBERS AND ALSO DETAILS OF INTEREST EARNED OR PROVISION THEREO F ON ACCRUAL BASIS. THE ASSESSEE IN REPLY FILED LIST OF PARTIES TO WHOM LOAN HAD BEEN ADVANCED BY THE ASSESSEE COMPANY AND AGAINST WHOM R ECOVERY PROCEEDINGS WERE PENDING AT SEVERAL FORUMS. THE TA BULATED DETAILS ARE AVAILABLE UNDER PARA 3 AT PAGES 2 TO 4 OF THE A SSESSMENT ORDER. THE ASSESSING OFFICER IN VIEW OF THE ADDITION MADE IN THE HANDS OF THE ASSESSEE IN THE EARLIER YEARS WAS OF THE VIEW T HAT THE ASSESSEE SHOULD HAVE DECLARED INTEREST ON THE SAID LOANS @ 1 2% ESPECIALLY IN VIEW OF THE FACT THAT AUDITORS HAD REPORTED THAT MERCANTILE SYSTEM OF ACCOUNTING EXCEPT INCOME ON NPA ACCOUNTED ON CAS H BASIS. CONSEQUENTLY, ADDITION OF RS. 3,57,53,660/- WAS MAD E IN THE HANDS OF THE ASSESSEE. 6. THE COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE SAID ADDITION IN VIEW OF SIMILAR DELETION MADE IN ASSESS MENT YEAR 2008- 09 BY THE COMMISSIONER OF INCOME TAX (APPEALS) HIMS ELF. 7. WE FIND THAT SIMILAR ISSUE AROSE BEFORE THE TRIB UNAL IN ITA NO. 1112/CHD/2010 AND ITA NO. 776/CHD/2011 IN ASSES SEE'S OWN 3 CASE RELATING TO ASSESSMENT YEARS 2007-08 AND 2008- 09 RESPECTIVELY AND VIDE ORDER DATED 06.03.2013, THE TRIBUNAL HELD AS UNDER : 9 WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE BEFORE US WAS A COOPERATIVE SOCIETY ENGAGE D IN BUSINESS OF BANKING AND EXTENDING THE CREDIT FACILITIES TO VARI OUS MEMBERS/NOMINAL MEMBERS ETC. THE REGISTERED OFFICE OF THE ASSESSEE WAS AT ROPAR WITH HEADQUARTERS AT CHANDIGARH. THE A O DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASKED THE ASSESSEE TO FURNISH THE DETAILS OF LOANS/ADVANCES MADE TO THE CORPORATE OR NOMINAL MEMBERS AND ALSO REQUISITIONED THE DETAILS OF INTEREST ON T HE SAID LOANS OR PROVISION THEREOF ON ACCRUAL BASIS. THE ASSESSEE IN HIS REPLY FILED BEFORE THE AO TABULATED THE DETAILS OF LOANS AND AD VANCES WHICH WERE OUTSTANDING AS ON 31.3.2007. THE SAID DETAILS ARE I NCORPORATED UNDER PARA 3 OF THE ASSESSMENT ORDER. 10. THE CLAIM OF THE ASSESSEE WAS THAT THE ABOVE SAID ACCOUNTS HAD BECOME NON PERFORMING ASSETS (NPA) AND AS PER INSTR UCTIONS OF THE RBI, THE BANK WAS NOT REQUIRED TO PROVIDE FOR THE I NTEREST ON THE SAID LOANS ON ACCRUAL BASIS, PARTICULARLY WHERE THE ASSE SSEE HAD FILED CLAIMS BY WAY OF COURT CASE/S AND NO AMOUNT HAD BEE N RECOVERED FROM THE ABOVE SAID PARTIES. THE ASSESSEE HAD TREAT ED THE SAID LOANS AS BAD AND DOUBTFUL DEBTS AND AS SUCH CLAIMS NOT TO HA VE PROVIDED FOR INTEREST ON THOSE LOANS AS EVEN THE PRINCIPAL WAS N OT RECOVERABLE. THUS THE INCOME ON THE SAID LOANS, EVEN IF TREATED AS THE INCOME OF THE ASSESSEE, WOULD BE ENTITLED TO DEDUCTION U/S 36(L)( VII) OF THE ACT. FURTHER THE ASSESSEE DURING THE YEAR UNDER CONSIDER ATION HAD DECLARED INCOME OF RS. 1,28,16,757/- ON ACCOUNT OF INTEREST ON LOANS AS A RESULT OF ONE TIME SETTLEMENT OR UNDER THE WAI VER SCHEME OF THE BANK. 1I. PERUSAL OF THE DETAILS OF LOANS AND ADVANCE S AS TABULATED IN PARA 3 OF THE ASSESSMENT ORDER REVEALS THAT IN RESP ECT OF PARTY NO. 1, BIFR HAD DECLARED COMPANY AS SICK UNIT ON 10.7.2006 AND THE SETTLEMENT IN THE CASE WAS APPROVED ON 10.9.2009. S IMILARLY IN RESPECT OF PARTY NO.2, DISPUTE WAS PENDING BEFORE THE COURT AND THE COMPANY HAD OPTED FOR SPECIAL SETTLEMENT SCHEME ON 31.12.20 07. HOWEVER, DURING THIS YEAR THE ASSESSEE HAD RECEIVED AND CRED ITED RS. 3,60,713/- AS INTEREST INCOME ON THE SAID LOAN. IN RESPECT OF PARTY NO. 3 THOUGH AWARD WAS PASSED ON 13.09.2006, NO AMOUNT HAD BEEN PAID BY THE BORROWER AND AUCTION OF THE MORTGAGE PROPERTY HAD B EEN INITIATED. IN RESPECT OF PARTY NO. 4, THE AMOUNT WAS FULLY ADJUST ED AND INTEREST OF RS. 8,82,805/- WAS CREDITED AS INCOME OF THE ASSESS EE. IN RESPECT OF PARTY NO. 5, THE AMOUNT HAS BEEN SETTLED DURING ASS ESSMENT YEAR 2007-08. IN RESPECT OF PARTY NO.6, THE ASSESSEE CLA IMS THAT NO RECOVERY WAS MADE DURING THE YEAR UNDER CONSIDERATI ON. THE SAID PARTY IS HEELS & TOES FOOTWEARS (P) LTD. AND CIVIL SUIT WAS PENDING. IN RESPECT OF PARTY NO. 7 WHERE ONE TIME SETTLEMENT OF LOAN OUTSTANDING WAS MADE, WAS WITHOUT CHARGING INTEREST THEREOF. IN RESPECT OF PARTY NO. 8 AND 9, AS PER THE ASSESSEE T HERE WAS NO RECOVERY OF ANY PART OF THE LOAN OR INTEREST DURING THE YEAR. IN RESPECT OF PARTY NO. 10, THE ACCOUNT HAS BEEN SETTLED DURIN G THE YEAR AND INTEREST OF RS. 9,57,212/- WAS RECOVERED AND REFLEC TED AS INCOME FOR YEAR UNDER APPEAL. 4 12. THE AUDITOR IN THE AUDIT REPORT HAD R EPORTED THAT THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOU NTING AND IN RESPECT OF ITEMS OF INTEREST ON NPAS, IT WAS ACCOU NTED FOR ON RECEIPT BASIS. 13. THE PROVISIONS OF SECTION 43D OF THE ACT, OVER WRIT ES ANY OTHER PROVISION OF THE ACT AND IT IS PROVIDED THAT IN THE CASE OF PUBLIC FINANCIAL INSTITUTION OR SCHEDULED BANK OR OTHER BO DIES, THE INCOME BY WAY OF INTEREST IN RELATION TO SUCH CATEGORIES OF B AD OR DOUBTFUL DEBTS, AS MAY BE PRESCRIBED, SHALL BE CHARGEABLE TO TAX I N THE PREVIOUS YEAR IN WHICH THE SAME IS CREDITED TO THE PRO FIT & LOSS ACCOUNT FOR THAT YEAR OR AS THE CASE MAY BE, IN WHICH YEAR IT IS ACTUALLY RECEIVED BY THE INSTITUTION OR BANK OR OTHER BODIES , WHICH EVER IS EARLIER. 14. IN THE FACTS OF THE PRESENT CASE THE ABOVE SAID L OANS WERE ADVANCED SINCE 1999 AND THEY HAD BECOME NPAS AGAINS T WHICH SUITS FOR RECOVERY WERE FILED BY THE ASSESSEE IN VARIOUS COUR TS. IN VIEW OF THE ASSESSEE HAVING NEITHER RECEIVED THE LOANS OR PAR T THEREOF NOR ANY INTEREST THEREFROM, NO INTEREST WAS PROVIDED IN THE BOOKS OF ACCOUNT AS THE RECOVERY OF THE LOANS ITSELF HAD BECOME DIFFICU LT. ADMITTEDLY, THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNT ING UNDER WHICH INCOME IS TO BE RECOGNIZED WHEN THE SAME ACCRUES IR RESPECTIVE OF THE FACT WHETHER THE SAME IS RECEIVED OR NOT. HOWEV ER, IN RESPECT OF THE INTEREST DUE ON NPAS SPECIAL PROVISIONS ARE PROVIDE D UNDER SECTION 43D OF THE ACT, WHICH IS NON OBSTANTE CLAUSE AND IN CASE OF NPAS I.E. THE DEBTS RECOVERY OF WHICH HAD BECOME BAD, INTERES T IS TO BE PROVIDED ON THIS RECOVERY, I.E. THE YEAR IN WHICH IT IS ACTU ALLY RECEIVED BY THE INSTITUTION OR THE BANK OR OTHER BODY OR WHEN IT IS CHARGED TO THE PROFIT & LOSS ACCOUNT WHICHEVER IS EARLIER. THE PROVISI ONS OF SECTION 43D OF THE ACT OVERRIDE OTHER PROVISIONS OF THE ACT AND SA ID PROVISIONS ARE APPLICABLE IN THE CASE OF ASSESSEE, BEING SCHEDULED BANK. ONCE THE LOANS HAD BECOME NPAS AND THE ASSESSEE HAD OPTED TO ACCOUNT FOR THE INTEREST ON SUCH NPAS ONLY ON RECOVERY OF THE SAME, THE LAW RECOGNIZES SUCH TREATMENT OF INTEREST ON NPAS AS VALID IN VIEW OF THE PROVISIONS OF SECTION 43D OF THE ACT. 15. IN VIEW OF THE ABOVE SAID PROVISION OF THE ACT WE F IND NO MERIT IN THE ORDER OF THE ASSESSING OFFICER IN CHARGING INTE REST ON NPAS IN THE CASE OF THE ASSESSEE DURING THE PERIOD UNDER CONSID ERATION. WE FIND SUPPORT FROM THE RATIO LAID DOWN IN KARNAVATI CO-OP. BANK LTD. VS. DCIT [134 ITD 486 (AHD)]. UPHOLDING TH E ORDER OF CIT (APPEALS) WE DISMISS THE GROUNDS OF APPEAL RAISED B Y THE REVENUE. 8. THE ISSUE IN THE PRESENT APPEAL IS IDENTICAL TO THE ISSUE BEFORE THE TRIBUNAL IN ASSESSEE'S OWN CASE IN THE EARLIER YEARS AND FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THA T THERE IS NO MERIT IN ANY ADDITION IN THE HANDS OF THE ASSESSEE ON ACCOUNT OF INTEREST ON NON-PERFORMING ASSETS. ACCORDINGLY, WE CONFIRM THE 5 ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) IN TH IS REGARD AND DISMISS THE GROUND OF APPEAL RAISED BY THE REVENUE. 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH SEPTEMBER, 2014. SD/- SD/- ( T.R.SOOD) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 10 TH SEPTEMBER, 2014 POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR. ASSISTANT REGISTRAR ITAT,CHD.