ACIT, Tambaram V. The Tambaram Co-op Urban Bank Ltd., CHENNAI

ITA 1526/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8414 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 27-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUPRIYO PAL
• Assessee Lawyers: R SU BRAMANIAN

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . . . , . !'# ! , % !& BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NOS.1525 & 1526/MDS/2016 ( )( / ASSESSMENT YEARS : 2009-10 & 2010-11 THE ASSISTANT COMMISSIONER OF INCOME TAX, NON-CORPORATE CIRCLE 22, NO.7, RAMAKRISHNA STREET, WEST TAMBARAM, CHENNAI - 600 045. V. M/S THE TAMBARAM CO-OP URBAN BANK LTD., NO.14, VENKATESAN STREET, TAMBARAM WEST, CHENNAI - 600 045. PAN : AAAAT 0010 A (+,/ APPELLANT) (-.+,/ RESPONDENT) +, / 0 / APPELLANT BY : SHRI SUPRIYO PAL, JCIT -.+, / 0 / RESPONDENT BY : SHRI R. SUBRAMANIAN, CA 1 / 2% / DATE OF HEARING : 11.08.2016 3') / 2% / DATE OF PRONOUNCEMENT : 23.09.2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: BOTH THE APPEALS OF THE REVENUE ARE DIRECTED AGA INST THE COMMON ORDER OF THE COMMISSIONER OF INCOME TAX (APP EALS) 10, CHENNAI, DATED 25.02.2016 AND PERTAIN TO ASSESSMENT YEARS 2009- 10 AND 2010-11. SINCE COMMON ISSUE ARISES FOR CONS IDERATION IN 2 I.T.A. NO.1525 & 1526/MDS/16 BOTH THE APPEALS, WE HEARD BOTH THE APPEALS TOGETHE R AND DISPOSING OF THE SAME BY THIS COMMON ORDER. 2. THE ONLY ISSUE ARISES FOR CONSIDERATION IN BOTH THE APPEALS IS WITH REGARD TO ASSESSMENT OF INCOME ON THE NON-PERF ORMING ASSETS. 3. SHRI SUPRIYO PAL, THE LD. DEPARTMENTAL REPRESENT ATIVE, SUBMITTED THAT THE ASSESSEE-CO-OPERATIVE BANK HAS N OT OFFERED INTEREST TO THE EXTENT OF ` 1,49,76,159/- FOR THE ASSESSMENT YEAR 2009-10 AND ` 3,01,452/- FOR THE ASSESSMENT YEAR 2010-11. THE ASSESSEE CLAIMED BEFORE THE ASSESSING OFFICER THAT A SUM OF ` 7,49,25,165/- WAS OVERDUE FROM THE CUSTOMERS AND TH E ASSESSEE COULD NOT RECOVER THE INTEREST. SINCE THE PRINCIPA L AMOUNT ADVANCED BY THE ASSESSEE ITSELF COULD NOT BE RECOVERED, THE ASSESSEE HAS NOT RECOGNIZED THE INTEREST ON SUCH ADVANCES. THE LD. D.R. FURTHER SUBMITTED THAT THE ASSESSING OFFICER EXAMINED THE C ONTENTION OF THE ASSESSEE AND FOUND THAT UNDER THE SCHEME OF INCOME- TAX ACT, THE ASSESSEE DEEMED TO HAVE RECEIVED THE INCOME ON ACCR UAL BASIS. MOREOVER, THE INTEREST DUE WAS NOT WRITTEN OFF IN T HE BOOKS OF ACCOUNT AS IRRECOVERABLE. THEREFORE, ACCORDING TO THE LD. D.R., IRRESPECTIVE OF THE STAND OF THE ASSESSEE THAT THE ACCRUED INTEREST IS NOT RECOGNIZED, THE SAME HAS TO BE TREATED AS INCOM E OF THE 3 I.T.A. NO.1525 & 1526/MDS/16 ASSESSEE. ON APPEAL BY THE ASSESSEE, THE CIT(APPEA LS) FOUND THAT THE ADVANCE MADE BY THE ASSESSEE WAS TREATED AS NON -PERFORMING ASSET AS PER THE PRUDENTIAL NORMS FRAMED BY RESERVE BANK OF INDIA FOR THE PURPOSE OF RECOGNIZING INTEREST INCOME. TH E CIT(APPEALS) HAS ALSO FOUND THAT THE ASSESSEE WAS RECOGNISING TH E INTEREST INCOME ON RECEIPT BASIS CONTINUOUSLY IN RESPECT OF NON-PERFORMING ASSET. THEREFORE, AS PER ACCOUNTING STANDARD-9, TH E CIT(APPEALS) FOUND THAT THERE WAS UNCERTAINTY IN RECOVERY OF AMO UNT, HENCE, IT CANNOT BE TAKEN AS INCOME OF THE ASSESSEE. 4. ACCORDING TO THE LD. D.R., WHEN THE ASSESSEE ADV ANCED LOAN, THERE CANNOT BE ANY UNCERTAINTY IN RECOVERY O F OUTSTANDING LOAN AND INTEREST ACCRUED THEREON. THE ASSESSEE BE ING A CO- OPERATIVE URBAN BANK, FOLLOWING MERCANTILE SYSTEM O F ACCOUNTING, THEREFORE, THE INTEREST ON THE AMOUNT ADVANCED HAS TO BE RECOGNIZED ON ACCRUAL BASIS. ACCORDING TO THE LD. D.R., THE PRUDENTIAL NORMS FRAMED BY RESERVE BANK OF INDIA CA NNOT OVERRIDE THE PROVISIONS OF INCOME-TAX ACT. ON THE BASIS OF REGULATIONS FRAMED BY RESERVE BANK OF INDIA, THE ASSESSEE MAY P LEAD THAT THE INTEREST ON THE NON-PERFORMING ASSET WAS NOT ACCRUE D TO THE ASSESSEE. HOWEVER, UNDER THE INCOME-TAX ACT, THE A SSESSEE IS 4 I.T.A. NO.1525 & 1526/MDS/16 DEEMED TO HAVE RECEIVED THE INCOME SINCE THE SAME W AS ACCRUED TO THE ASSESSEE. IN OTHER WORDS, THE ASSESSEE HAS RIGHT TO RECOVER THE MONEY THROUGH COURT OF LAW. 5. ON THE CONTRARY, SHRI R. SUBRAMANIAN, THE LD. RE PRESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE ADVAN CED LOAN IN THE COURSE OF ITS BANKING ACTIVITY. A SUM OF ` 7,49,25,165/- WAS CLASSIFIED AS NON-PERFORMING ASSET AS ON 31.03,2009 . THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNT ING. HOWEVER, IN RESPECT OF INTEREST ACCRUED ON NON-PERFORMING AS SET, THE BANK CONSISTENTLY FOLLOWING THE PRACTICE OF RECOGNISING THE INCOME ON RECEIPT BASIS. THE LD. REPRESENTATIVE FURTHER SUBM ITTED THAT WHEN THE ASSESSEE COULD NOT RECOVER THE PRINCIPAL AMOUNT ADVANCED AND CLASSIFIED THE SAME AS NON-PERFORMING ASSET, THE IN TEREST ON SUCH AMOUNT COULD NOT BE ACCRUED AT ALL. THE VERY OBJEC T OF CLASSIFYING THE ADVANCE AS NON-PERFORMING ASSET IS TO INDICATE THAT NO INTEREST WAS ACCRUED AND THE RECOVERY OF PRINCIPAL AMOUNT IT SELF IS DOUBTFUL. ACCORDING TO THE LD. REPRESENTATIVE, AS AND WHEN TH E ASSESSEE RECOVERS THE MONEY TOGETHER WITH INTEREST, THE SAME WILL BE OFFERED FOR TAXATION. IN VIEW OF UNCERTAINTY IN RECOVERING THE PRINCIPAL 5 I.T.A. NO.1525 & 1526/MDS/16 AMOUNT, ACCORDING TO THE LD. REPRESENTATIVE, THE CI T(APPEALS) HAS RIGHTLY FOUND THAT THERE CANNOT BE ANY ADDITION. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT AS ON 31.03.2009, A SUM OF ` 7,49,25,165/- WAS CLASSIFIED AS NON-PERFORMING ASSET. THE ASSESSEE C LAIMS THAT AS PER PRUDENTIAL NORMS FRAMED BY THE RESERVE BANK OF INDIA, THE ADVANCES ARE CLASSIFIED AS NON-PERFORMING ASSETS. IT IS A WELL SETTLED PRINCIPLE OF LAW THAT INCOME-TAX ACT BEING A SPECIAL ENACTMENT FOR ASSESSMENT OF INCOME, LEVY OF TAX THE REON AND COLLECTION OF TAX, THE SAME WOULD PREVAIL OVER OTHE R LEGISLATIONS. IN OTHER WORDS, INCOME-TAX ACT WOULD PREVAIL OVER THE REGULATIONS FRAMED BY RESERVE BANK OF INDIA. IN THE CASE BEFOR E US, THE ASSESSEE WAS SYSTEMATICALLY FOLLOWING THE ACCOUNTIN G METHOD WITH REGARD TO NON-PERFORMING ASSET. WHEN THE ADVANCES ARE CLASSIFIED AS NON-PERFORMING ASSETS, THE ASSESSEE WAS CONTINUO USLY FOLLOWING A PRACTICE OF RECOGNISING THE INTEREST ON RECEIPT B ASIS. THIS METHOD OF ACCOUNTING CONTINUOUSLY FOLLOWED BY THE ASSESSEE IS NOT IN DISPUTE. WHEN THE ADVANCES WERE CLASSIFIED AS NON- PERFORMING ASSETS AND THE ASSESSEE SHIFTING TO CASH SYSTEM OF ACCOUNTING IN 6 I.T.A. NO.1525 & 1526/MDS/16 RESPECT OF SUCH ADVANCES WHICH ARE CLASSIFIED AS NO N-PERFORMING ASSETS, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT WHEN THE RECOVERY OF PRINCIPAL AMOUNT ITSELF WAS DOUBTFUL, I T CANNOT BE SAID THAT THE INTEREST ON SUCH AMOUNT ACCRUED TO THE ASS ESSEE. THEREFORE, AS PER SYSTEM OF ACCOUNTING CONTINUOUSLY FOLLOWED BY THE ASSESSEE, INTEREST INCOME ON NON-PERFORMING ASSETS CANNOT BE TAKEN AS INCOME OF THE ASSESSEE. THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUT HORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 7. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE A RE DISMISSED. ORDER PRONOUNCED ON 23TD SEPTEMBER, 2016 AT CHENN AI. SD/- SD/- (. !'# ! ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) % / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 5 /DATED, THE 23 RD SEPTEMBER, 2016. KRI. / -267 87)2 /COPY TO: 1. +, /APPELLANT 2. -.+, /RESPONDENT 3. 1 92 () /CIT(A)-10, CHENNAI-34 4. PRINCIPAL CIT-7, CHENNAI 5. 7: -2 /DR 6. ;( < /GF.