ACIT, AKOLA CIRCLE, Akola V. THE JANTA COMMERCIAL CO.OP. BANK LTD., Khamgaon

ITA 136/NAG/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2180 (ITAT-NAGPUR)
• Duration Of Justice: 1 year(s) 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-06-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 22-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A R NINAWE
• Assessee Lawyers: S C THAKAR
• Keywords: Question of law; Bad and doubtful debts
• Section: 143(3)

Judgement Text

1 ITA NO. 136/NAG/2015 IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. I.T.A. NO.13 6 /NAG/2015. ASSESSMENT YEAR : 20 10 - 11 . ASSTT. COMMISSIONER OF INCOME - TAX, THE JANTA COMMERCIAL CO - OP. AKOLA CIRCLE, AKOLA. VS. BANK LTD., KHAMGAON. PAN AA AJT0587F. APPELLANT. RESPONDENT. APPELLANT BY : SHRI A.R. NINAWE. RESPONDENT BY : SHRI S.C. THAKAR. DATE OF HEARING : 16 - 06 - 2016 DATE OF PRONOUNCEMENT : 16 TH JUNE, 2016 O R D E R PER SHRI SHAMIM YAHYA, A.M. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(APPEALS) - I, NAGPUR DATED 30 - 01 - 2015 AND PERTAINS TO ASSESSMENT YEAR 20 10 - 11 . THE GROUND S OF APPEAL READ AS UNDER : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(APPEALS) HAS ERRED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER OF RS.1,2028,969/ - BEING NET ACCRUED UNREALISED NPA INTEREST CREDITED TO THE BALANCE SHEET BUT NOT TO THE P&L ACCOUNT. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(APPEALS) HAS ERRED IN HOLDING THAT BOARDS CIRCULAR DATED 09.10.1984 IS APPLICABLE TO THE FACTS OF THE CASE DISREGARDING THE FACT THAT THE SAME HAS LOST ITS RELEVANCE AFTER THE AMENDMENT TO SECTION 145(1) OF THE INCOME TAX ACT WITH EFFECT FROM 01.04.1997 MAKING IT MANDATORY THT THE ASSESSEE HAS TO FOLLOW EITHER MERCANTILE OR CASH SYSTEM OF ACCOUNTING AND AFTER AMENDMENT IN SECTION 36(1)(NIIA) WITH EFFECT FROM 01.04.1987. 2 ITA NO. 136/NAG/2015 2. AT THE OUTSET IN THIS CASE LEARNED COUNSEL OF THE ASSE SSEE SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THIS TRIBUNAL IN THE CASE OF UMIYA URBAN CO - OPERATIVE BANK LTD. IN ITA NO. 439/NAG/2013 VIDE ORDER DATED 17 TH JULY, 2015. LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT O N IDENTICAL FACTS AND GROUNDS THE TRIBUNAL IN THE ABOVE CASE HAD DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. 3. UPON CAREFUL CONSIDERATION AND PERUSING THE RECORDS, WE FIND THAT IDENTICAL ISSUE WAS CONSIDERED BY THIS TRIBUNAL IN THE ABOVE CASE AND THE TR IBUNALS ADJUDICATION IS AS UNDER : 2. THE OBSERVATION OF THE ASSESSING OFFICER AS PER ASSESSMENT ORDER PASSED UNDER SECTION 143(3) DATED 26 - 12 - 2011 WERE THAT THE ASSESSEE IS A CREDIT COOPERATIVE SOCIETY AND DERIVES INCOME FROM BUSINESS OF BANKING. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD NOT CREDITED THE INTEREST ACCRUED ON NON PERFORMING ASSETS (NPA) AMOUNTING TO ` .25,22,674/ - . THE OBJECTION OF THE ASSESSING OFFICER WAS THAT THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THEREFORE, THE INTEREST SHOULD HAVE BEEN CREDITED ON ACCRUAL BASIS. THE ASSESSEES EXPLANATION WAS THAT THE UNREALIZED INTEREST OF NPA WAS NOT CREDITED DUE TO THE INSTRUCTIONS OF R.B.I. THE R.B.I. HAD GIVEN DIRECTION IN THE CONTEXT OF NPA PROVISIONS WHICH WERE FOLLOWED BY THE ASSESSEE. HOWEVER, THE ASSESSING OFFICER HAS CITED A DECISION OF SOUTHERN TECHNOLOGY LTD. 320 ITR 577 FOR THE LEGAL PROPOSITION THAT THE PRUDENTIAL NORMS PRESCRIBED BY RBI CANNOT OVERRIDE THE PROVISIONS OF INCOME TAX ACT. THE ASSESSIN G OFFICER HAS ALSO REFERRED A DECISION OF ORIENTAL BANK OF COMMERCE 31 ITD 519 (DEL), WHEREIN CBDT INSTRUCTION NO. F.NO.201/21/84 - ITA - II DATED 09 - 10 - 1984 HAS BEEN REFERRED WHEREIN THE BOARD HAS DECIDED THAT INTEREST IN RESPECT OF DOUBTFUL DEBTS CREDITED TO SUSPENSE ACCOUNT BY THE BANKING COMPANIES WILL BE SUBJECT TO TAX, BUT INTEREST CHARGED IN AN ACCOUNT WHERE THERE HAS BEEN NO RECOVERY FOR THREE CONSECUTIVE ACCOUNTING YEARS WILL NOT BE SUBJECTED TO TAX IN THE FOURTH YEAR AND ONWARDS. 2.1 THE ASSESSING OFF ICER HAS ALSO REFERRED AN ANOTHER CBDT INSTRUCTION NO. 17 DATED 26 - 11 - 2008 FOR THE LEGAL PROPOSITION THAT THE BANKS HAVE TO FOLLOW MERCANTILE SYSTEM OF ACCOUNTING AND PREPARE THE 3 ITA NO. 136/NAG/2015 ACCOUNTS ON ACCRUAL BASIS. THE ASSESSING OFFICER HAS ALSO PLACED RELIANCE ON A DECISION OF HONBLE SUPREME COURT IN THE CASE OF KERALA FINANCIAL CORPORATION 210 ITR 129 AND THE DECISION OF STATE BANK OF TRAVANCORE 158 ITR 102 WHEREIN IT WAS HELD THAT THE INTEREST OF STICKY ADVANCES HAD TO BE TREATED AS INCOME OF THE ASSESSEE. AGAI NST THE SAID DISALLOWANCE, THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY. 3. AFTER CONSIDERING THE ARGUMENTS OF BOTH THE SIDES, LEARNED CIT(APPEALS) HAS CONFIRMED THE DISALLOWANCE TO THE EXTENT OF ` .25,22,674/ - IN THE NATURE OF INTEREST ACCR UED ON NPA. THE RELEVANT OBSERVATION OF LEARNED CIT(APPEALS) WAS AS UNDER : 9.2 CONSIDERING THE FACTS OF THE PRESENT CASE, IT WOULD BE NECESSARY TO COMPUTE THE INCOME THAT IS TO BE BROUGHT TO TAX BEING INTEREST ON CERTAIN AMOUNT CLASSIFIED AS NPAS IN VIE W OF THE BOARDS ABOVE REFERRED CIRCULAR DATED 09.10.1984. THE AR OF THE APPELLANT ON 30.11.2011 HAS PROVIDED THE BIFURCATION OF THE INTEREST ACCRUED ON NPAS AND THE FIGURES OF INTEREST ATTRIBUTABLE TO SUCH NPAS, WHICH ARE OUTSTANDING FOR LESS THAN 3 YEARS AND ABOVE 3 YEARS AS UNDER : SUMMARY OF NPA & OVERDUE INTEREST FOR FY 2009 - 10, PARTICULARS INTEREST. OUTSTANDING FOR MORE THAN 3 YEARS ` . 33,382/ - OUTSTANDING FOR LESS THAN 3 YEARS & ABOVE ` .11,09,104/ - TOTAL UNREALIZED INTEREST ON NPA ` .11,42,486/ - 9.3 IT IS SEEN FROM THE ABOVE THAT THE APPELLANT HAS PROVIDED THE DETAILS OF TOTAL UNREALIZED INTEREST ON NPAS OF ` . 11,42,486/ - AS AGAINST THE AMOUNT OF ` .25,22,674/ - REFLECTED IN THE BALANCE SHEET. IT I S UNDISPUTED FACT THAT THE FIGURES PROVIDED BY THE APPELLANT IN THE BALANCE SHEET, WHICH HAS BEEN ADOPTED BY THE AO , FOR THE PURPOSE OF DISALLOWANCE BEING INTEREST ON NPSS IS ` . 25,22,674/ - WHEREAS THE APPELLANT, IN THE COURSE OF APPELLATE PROCEEDIN GS HAS PROVIDED THE DETAILS OF NPAS ONLY TO THE EXTENT OF ` .11,42,486/ - . IT SHOWS THAT THE FIGURES PROVIDED BY THE APPELLANT ARE INCORRECT. 4 ITA NO. 136/NAG/2015 9.4 AS PER THE DETAILS SUBMITTED BY THE A.R. OF THE APPELLANT, IT IS SEEN THAT OUT OF THE TOTAL ACCRUED INTERES T ON NPAS OF ` .25,22,674/ - , AN AMOUNT OF ` .33,382/ - IS SHOWN TO HAVE BEEN OUTSTANDING FOR MORE THAN 3 YEARS AND ` 11,09,104/ - IS SHOWN AS OUTSTANDING LESS THAN THREE YEARS, WHICH AGGREGATES TO ` .11,42,486/ - WHICH DOES NOT MATCH WITH THE AMOUNT REFLECTED IN THE BALANCE SHEET. THIS SHOWS THAT THE FIGURES OF INTEREST ON NPAS PROVIDED BY THE APPELLANT ARE FACTUALLY INCORRECT. THEREFORE, THE ENTIRE AMOUNT OF INTEREST ACCRUED ON NPAS OF ` .25,22,674 / - DISALLOWED BY THE AO , IS CONFIRMED IN VIEW OF THE BOARDS CIRCULAR DATED 09.10.1984. THIS GROUND IS DISMISSED. 4. FROM THE SIDE OF THE APPELLANT, LEARNED A.R., MR. K.K. THAKKAR APPEARED AND INFORMED THAT IN A GROUP OF APPEALS THE HONBLE HIGH COURT OF DELHI VIDE A JUDGMENT DELIVERED ON 29 - 11 - 2010 BEARING INCOME TAX APPEAL NOS. 552/2005, 565/2005 IN THE CASE OF CIT V/S. M/S VASISTH CHAY VYAPAR LTD. ETC. HAS DISCUSSED THIS VIEW AT LENGTH AND AFTER CONSIDERING THE DECISION IN THE CASE OF SOUTHERN TE CHNOLOGY LTD. 320 ITR 577, CAME TO THE CONCLUSION AS UNDER : AS NOTED ABOVE, MR. SABHARWAL, ARGUED THAT THE CASE OF THE ASSESSEE WAS TO BE DEALT WITH FOR THE PURPOSE OF TAXABILITY AS PER THE PROVISIONS OF THE ACT AND NOT THE RBI ACT WHICH WAS THE ACCOUNTING METHOD THAT THE ASSESSEE WAS SUPPOSED TO FOLLOW. WE HAVE ALREADY HELD THAT EVEN UNDER THE INCOME TAX ACT, INTEREST INCOME HAD NOT ACCRUED. MOREOVER, THE SUBMISSION OF MR. SABHARWAL IS BASED ENTIRELY ON THE JUD GMENT OF THE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGY (SUPRA). NO DOUBT, IN FIRST BLUSH, READING OF THE JUDGMENT GIVEN AN INDICATION THAT THE COURT HAS HELD THAT RBI ACT DOES NOT OVERRIDE THE PROVISIONS OF THE INCOME TAX ACT. HOWEVER, WHEN WE EXA MINE THE ISSUE INVOLVED THEREIN MINUTELY AND DEEPLY IN THE CONTEXT IN WHICH THAT HAD A RISEN AND CERTAIN OBSERVATIONS OF THE APEX COURT CONTAINED IN THAT VERY JUDGMENT, WE FIND THAT THE PROPOSITION ADVANCED BY MR. SABHARWAL MAY NOT BE ENTIRELY CORRECT. IN THE CASE BEFORE THE SUPREME COURT, THE ASSESSEE A NBFC DEBITED ` .81,68,516 AS PROVISION AGAINST NPA IN THE PROFIT AND LOSS ACCOUNT, WHICH WAS CLAIMED AS DEDUCTION IN TERMS OF SECTION 36(1)(VII) OF THE ACT. THE ASSESSING OFFICER DID NOT ALLOW THE DEDUC TION CLAIMED AS AFORESAID ON THE GROUND THAT THE PROVISION OF NPA WAS NOT IN THE NATURE OF EXPENDITURE OR LOSS BUT MORE IN THE NATURE OF A 5 ITA NO. 136/NAG/2015 RESERVE, AND THUS NOT DEDUCTIBLE UNDER SECTION 36(I)(VII) OF THE ACT. THE ASSESSING OFFICE, HOWEVER, DID NOT BRING TO TAX ` .20,34,605 AS INCOME (BEING INCOME ACCRUED UNDER THE MERCANTILE SYSTEM OF ACCOUNTING). THE DISPUTE BEFORE THE APEX COURT CENTERED AROUND DEDUCTIBILITY OF PROVISION FOR NPA. AFTER ANALYZING THE PROVISIONS OF THE RBI ACT, THEIR LORDSHIPS OF THE APEX COURT OBSERVED THAT IN SO FAR AS THE PERMISSIBLE DEDUCTIONS OR EXCLUSIONS UNDER THE ACT ARE CONCERNED, THE SAME ARE ADMISSIBLE ONLY IF SUCH DEDUCTION/EXCLUSIONS SATISFY THE RELEVANT CONDITIONS STIPULATED THEREFOR UNDER THE ACT. TO THAT EXTENT, IT WAS OBS ERVED THAT THE PRUDENTIAL NORMS DO NOT OVERRIDE THE PROVISIONS OF THE ACT. HOWEVER, THE APEX COURT MADE A DISTINCTION WITH REGARD TO INCOME RECOGNITION AND HELD THAT INCOME HAD TO BE RECOGNIZED IN TERMS OF THE PRUDENTIAL NORMS, EVEN THOUGH THE SAME DEV IATED FROM MERCANTILE SYSTEM OF ACCOUNTING AND/OR SECTION 45 OF THE INCOME TAX ACT. IT CAN BE SAID, THEREFORE, THAT THE APEX COURT APPROVED THE REAL INCOME THEORY WHICH IS ENGRAINED IN THE PRUDENTIAL NORMS FOR RECOGNITION OF REVENUE BY NBFC. THE FOLLOW ING PASSAGE FROM THE JUDGMENT OF THE APEX COURT WOULD BRING OUT THE DISTINCTION NOTICED BY THE APEX COURT BETWEEN PERMISSIBLE DEDUCTION/EXCLUSIONS, ON THE ONE HAND, AND INCOME RECOGNITION ON THE OTHER: - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 19. WE HAVE ALSO NOTICED THE OTHER LINE OF CASES WHEREIN THE SUPREME COURT ITSELF HAS HELD THAT WHEN THERE IS A PROVISION IN OTHER ENACTMENT WHICH CONTAINS A NON - OBSTANTE CLAUSE, THAT WOULD OVERRIDE THE PROVISIONS OF IN COME TAX ACT. TRO VS. CUSTODIAN SPECIAL COURT ACT (SUPRA) IS ONE SUCH CASE APART FROM OTHER CASES OF DIFFERENT HIGH COURTS. WHEN THE JUDGMENT OF THE SUPREME COURT IN SOUTHERN TECHNOLOGY (SUPRA) IS READ IN MANNER WE HAVE READ IT BECOME EASY TO RECONCILE TH E RATIO OF SOUTHERN TECHNOLOGY WITH TRO VS. CUSTODIAN, SPECIAL COURT ACT. 20. THUS VIEWED FROM ANY ANGLE, THE DECISION OF THE TRIBUNAL APPEARS TO BE CORRECT IN LAW. THE QUESTION OF LAW IS THUS DECIDED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. A S A RESULT, ALL THESE APPEALS ARE DISMISSED. 5. FROM THE SIDE OF THE ASSESSEE, CERTAIN OTHER DECISIONS HAVE ALSO BEEN CITED AS LISTED BELOW : 6 ITA NO. 136/NAG/2015 (1) SAMARTH URBAN CO - OPERATIVE BANK LTD. V/S. DEPARTMENT OF INCOME TAX (ITAT, PUNE), ORDER DATED 28 - 03 - 20 13. (2) SAURASHTRA CO - OPERATIVE BANK LTD. V/S. THE DY. CIT, AHMEDABAD DECIDED BY C BENCH, ITAT, AAHMEDABAD, ORDER DATED 15 - 11 - 2013. (3) OSMANABAD JANTA SAH. BANK LTD. V/S. DEPARTMENT OF INCOME TAX ITAT, PUNE ORDER DATED 31 - 08 - 2012 6. APART FROM THE ABOVE, WE HAVE ALSO NOTED THAT A DECISION OF KARNAVATI CO - OP. BANK LTD. 132 ITD 486 (AHD.) HAS ALSO BEEN FOLLOWED BY THE RESPECTED COORDINATE BENCHES. SINCE IN A NUMBER OF DECISIONS UNANIMOUS VIEW HAS BEEN TAKEN BY SEVERAL COURTS AND TRIBUNALS IN FAOUR O F THE ASSESSEE IN RESPECT OF THE QUESTION OF TAXABILITY OF INTEREST ACCRUED ON NPA, THEREFORE, RESPECTFULLY FOLLOWING THE SAME, WE HEREBY REVERSE THE FINDING OF LEARNED CIT(APPEALS) AND DIRECT TO ALLOW THE CLAIM OF THE ASSESSEE. 7. IN THE RESULT, ASSESSEE S APPEAL IS ALLOWED. 4. RESPECTFULLY FOLLOWING THE PRECEDENT AS ABOVE, WE UPHOLD THE ORDER OF LEARNED CIT(APPEALS) AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 5. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 16 TH DAY OF JUNE, 2016. SD/ - SD/ - (MUKUL K. SHRAWAT) ( SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER. NAGPUR, DATED: 16 TH JUNE, 2016. 7 ITA NO. 136/NAG/2015 COPY FORWARDED TO : 1. THE JANTA COMMERCIAL CO - OP. BANK LTD. , MAIN ROAD, KHAMGAON, DIST. BULDHANA. 2. A ..C.I.T., AKOLA CIRCLE, AKOLA. 3. C.I.T. I,NAGPUR. 4. CIT(APPEALS), - I, NAGPUR. 5. D.R., ITAT, NAGPUR. 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR. WAKODE.