The Kakatiya Co-operative Urban Bank Limited, Hyderabad, Hyderabad V. ACIT,Circle-11(1) Hyderabad, Hyderabad

ITA 1548/HYD/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2390 (ITAT-HYDERABAD)
• Duration Of Justice: 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-06-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 17-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: U MINICHANDRAN
• Assessee Lawyers: P RAJESWARA RAO

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 1548/HYD/2016 ASSESSMENT YEAR: 2012-13 THE KAKATIYA CO-OPERATIVE URBAN BANK LIMITED, CHINTAL, RANGA REDDY DIST., [PAN: AAAAT4203B] VS THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-11(1), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI P. RAJESWARA RAO, AR FOR REVENUE : SMT U. MINICHANDRAN, DR DATE OF HEARING : 01-06-2017 DATE OF PRONOUNCEMENT : 14-06-2017 O R D E R PER B. RAMAKOTAIAH, A.M. : THIS IS AN APPEAL PREFERRED BY ASSESSEE DIRECTED AG AINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-5, HYDERABAD DATED 15-09-2016 PERTAINING TO AY. 2012-13. 2. BRIEFLY STATED, ASSESSEE IS A CO-OPERATIVE BANK CAR RYING ON THE BUSINESS OF BANKING. ASSESSEE-COMPANY HAS DECLARED CERTAIN LOANS AS NON-PERFORMING ASSETS [HEREIN AFTER REFERRED TO AS NPAS] IN ITS BOOKS OF ACCOUNT. CONSEQUENT THERE TO, INTEREST RECEIV ABLE ON THOSE NPAS QUANTIFIED AT RS. 9,89,752/- WAS ALSO NOT S HOWN AS AMOUNT RECEIVABLE ON ACCRUAL BASIS. ACCORDING TO TH E ASSESSING OFFICER (AO) AS WELL AS THE CIT(A), THE PROVISIONS OF SECTION 43D OF I.T.A. NO. 1548/HYD/2016 :- 2 - : THE INCOME TAX ACT [ACT] CARVES OUT EXCEPTION TO THE SCH EDULED BANKS; ASSESSEE BEING NON-SCHEDULED CO-OPERATIVE BAN K, INTEREST RECEIVABLE ON NPAS IS ASSESSABLE TO TAX ON ACCRUAL BA SIS. 3. THE CASE OF ASSESSEE BEFORE THE AO AS WELL AS THE CIT(A) WAS THAT INTEREST ON PERFORMING ACCOUNTS AND NON-PERFORMING ACCOUNTS ARE DISCLOSED IN SIGNIFICANT ACCOUNTING POLICIES UND ER REVENUE RECOGNITION AND ASSESSEE FOLLOWED CONSISTENTLY THE SAME METHODS; THUS, THE INTEREST ON NPAS IS NOT CREDITED. THERE WAS NO LOSS OF REVENUE TO THE GOVERNMENT. IN FACT IT WAS THE CONTENTION THA T WHEN THE PRINCIPAL ITSELF IS DOUBTFUL, QUESTION OF RECOVERI NG THE INTEREST DOES NOT ARISE. RELIANCE WAS PLACED UPON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT, BENCH AT AURANGABAD IN THE CASE OF CIT, AURANGABAD VS. M/S. DEOGIRI NAGARI SAHAKARI BA NK LTD., AURANGABAD AND OTHERS (IN ITA NO. 53 OF 2014, DT. 22 -01-2015). IN THE WRITTEN SUBMISSIONS FILED BEFORE THE CIT(A), ASSES SEE ALSO RELIED UPON THE DECISION OF ITAT, VISAKHAPATNAM IN THE CASE O F DCIT VS. THE DURGA CO-OPERATIVE URBAN BANK LTD., DT. 10-03-2011 [ITA NO. 511/VIZ/2010], WHERE SIMILAR VIEW WAS TAKEN I.E., IN TEREST ON NPAS CANNOT BE ASSESSED TO TAX ON ACCRUAL BASIS AND IT CAN O NLY BE ASSESSED IN THE YEAR OF ACTUAL RECEIPT. 4. THE CIT(A) WAS OF THE VIEW THAT NUMBER OF DECISIONS CITED BY THE ASSESSEE CANNOT OVERRIDE THE PROVISIONS OF THE INC OME TAX ACT. HE WAS OF THE FIRM VIEW THAT SECTION 43D COMES INTO PL AY AND INTEREST ON NPAS IS ASSESSABLE TO TAX ON ACCRUAL BASIS. 5. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS IN APPEAL BEFORE US. LD. COUNSEL PLACED BEFORE US A COPY OF THE JUDG MENT OF THE I.T.A. NO. 1548/HYD/2016 :- 3 - : HON'BLE GUJARAT HIGH COURT IN THE CASE OF PR.CIT VS. SHRI MAHILA SEWA SHAKARI BANK LTD., IN ITA NO. 531 OF 2015 DT. 05 -08-2016, WHEREIN THE HON'BLE HIGH COURT HAS UPHELD THAT THE GUID ELINES ISSUED BY THE RBI ARE MANDATORY AND IT CANNOT CHARGE IN TEREST ON ACCRUAL BASIS. FOLLOWING THE THEORY OF REAL INCOME, TAXABILITY OF ANY NOTIONAL INCOME LIKE ACCRUED INTEREST ON NPAS WOULD NOT ARISE. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PRINCIPAL AMO UNT WAS DECLARED AS NPAS EARLIER AND IN ALL THE SUBSEQUENT YE ARS, THE INTEREST ON NPAS IS NOT BROUGHT TO TAX BY THE REVENUE AN D SUDDENLY IN THIS YEAR, THE REVENUE MADE AN ADDITION. HE FURTHE R SUBMITTED THAT THERE ARE CATENA OF DECISIONS WITH REGARD TO THE A CCRUAL OF INCOME ONLY IN THE YEAR OF RECEIPT. EVEN IF IT IS ASSU MED THAT THERE ARE TWO VIEWS POSSIBLE, AS PER THE DECISION OF THE H ONBLE SUPREME COURT IN THE CASE OF CIT VS VEGETABLE PRODUCTS LTD., (1 973) 88 ITR 192 (SC), A VIEW WHICH IS FAVOURABLE TO THE ASSESSEE HAS TO BE TAKEN AND THUS HE STRONGLY SUBMITTED THAT THE ADDITION MADE BY THE A.O, AND CONFIRMED BY THE CIT(A), IS NOT IN ACCORD ANCE WITH LAW. 6. REVENUE CONTENDED THAT SECTION 43D OF THE ACT RECOGNIZ ES TAXABILITY OF SUCH INTEREST AND WHEN A SPECIFIC PROVIS ION HAS BEEN MADE, ASSESSEE CANNOT INDIRECTLY CLAIM THE BENEFIT. TH E PROVISIONS OF RBI ACT ARE SUBSERVIENT TO THE PROVISIONS OF SECTION 43D OF THE INCOME TAX ACT. THE DR STRONGLY RELIED UPON THE ORDE RS PASSED BY THE AUTHORITIES. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSION S AND PERUSED THE RECORD. THE ARGUMENTS ADVANCED BY ASSESS EE ARE FULLY SUPPORTED BY THE DECISION OF THE ITAT, VISAKHAPATNAM BENCH I.T.A. NO. 1548/HYD/2016 :- 4 - : (SUPRA) AS WELL AS THE DECISION OF THE HON'BLE GUJAR AT HIGH COURT WHICH IN TURN WERE BASED ON SEVERAL REPORTED DECISI ONS OF OTHER HON'BLE HIGH COURTS. THE DECISION OF THE HON'BLE GUJA RAT HIGH COURT IS AS UNDER: 11. FROM THE RIVAL SUBMISSIONS ADVANCED BY THE LEA RNED COUNSEL FOR THE RESPECTIVE PARTIES, IT IS EVIDENT T HAT THERE IS NO DISPUTE THAT THE RBI GUIDELINES ARE APPLICABLE TO T HE ASSESSEE. IT IS THE CASE OF THE ASSESSEE THAT IN VIEW OF THE RBI GUIDELINES, IT CANNOT CHARGE INTEREST ON ACCRUAL BASIS AND THAT FO LLOWING THE THEORY OF THE REAL INCOME, TAXABILITY OF ANY NOTION AL INCOME LIKE ACCRUED INTEREST ON NPAS WOULD NOT ARISE. IT HAS A LSO BEEN CONTENDED THAT EVEN OTHERWISE IN VIEW OF THE CBDT C IRCULAR BEARING F NO.201/21/844-ITA-II DATED 09-10-1984, IN TEREST ON ACCRUAL BASIS IS NOT TAXABLE IF NOT RECEIVED FOR TH REE YEARS EVEN THROUGH CREDITED TO THE SUSPENSE ACCOUNT. 8. THE COURT OBSERVED THAT THOUGH RBI ACT MAY NOT OVERRIDE T HE PROVISIONS OF INCOME TAX ACT. INCOME HAS TO BE RECOGN ISED IN TERMS OF PRUDENTIAL NORMS BY APPLYING THE REAL INCOME THEO RY. THE REVENUE CONTENDED, IN THE AFORECITED DECISION, THAT SEC . 43D OF THE ACT RECOGNISES TAXABILITY OF SUCH INTEREST AND WHEN A S PECIFIC PROVISIONS HAS BEEN MADE, THE ASSESSEE CANNOT INDIREC TLY CLAIM BENEFIT. ON THIS ASPECT, THE COURT OBSERVED THAT THE BENEF IT WAS CLAIMED BY THE ASSESSEE NOT UNDER ANY PROVISIONS OF TH E IT ACT, BUT, ON ACCOUNT OF THE FACT THAT IT IS BOUND BY THE RBI GU IDELINES, WHICH ARE ISSUED UNDER THE PROVISIONS OF THE RBI ACT WHEREBY THE INTEREST ON NPAS CANNOT BE SHOWN AS INCOME. THE PROVIS IONS OF SEC. 45Q OF THE RBI ACT WOULD HAVE AN OVERRIDING EFFE CT OVER THE OTHER LAWS, INCLUDING THE INCOME TAX ACT. THEREFORE, NOTWITHSTANDING THE PROVISIONS OF SEC. 43D OF THE ACT, THE A.O. IS BOUND TO FOLLOW THE RBI GUIDELINES SO FAR AS THE INCO ME RECOGNITION IS CONCERNED. IT WAS THUS, FINALLY CONCLUDED THAT INTER EST ON NPAS CANNOT BE BROUGHT TO TAX WHEN THE ACTUAL INCOME IS NOT RE CEIVED . I.T.A. NO. 1548/HYD/2016 :- 5 - : LD.DR COULD NOT PLACE ANY JUDGMENT WHEREIN A CONTRARY VIEW WAS TAKEN ON THIS ISSUE. UNDER THESE CIRCUMSTANCES, WE RESP ECTFULLY FOLLOW THE DECISION OF THE HON'BLE GUJARAT HIGH COURT AND THE DECISION OF THE ITAT, VISAKHAPATNAM BENCH. FURTHER, C O-ORDINATE BENCH (A BENCH) OF HYDERABAD [ONE OF US, VICE-PRE SIDENT WAS THE AUTHOR OF THAT ORDER] IN THE CASE OF THE KRANTI CO-OPER ATIVE URBAN BANK LTD., VS. ACIT IN ITA NO. 1194/HYD/2016 DT. 20-1 2-2016 ALSO TOOK SIMILAR VIEW. 9. ACCORDINGLY, WE HOLD THAT THE AO AS WELL AS THE C IT(A) WERE NOT JUSTIFIED IN BRINGING INTO TAX THE SUM OF RS.9,8 9,752/- TOWARDS ACCRUED INTEREST ON NPAS. IN THE CIRCUMSTANCES OF THE C ASE, AO IS DIRECTED TO DELETE THE ADDITION. 10. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH JUNE, 2017 SD/- SD/- (D. MANMOHAN) (B. RAMAKOTAIAH) VICE PRESIDENT ACCOUNTANT MEMB ER HYDERABAD, DATED 14 TH JUNE, 2017 TNMM I.T.A. NO. 1548/HYD/2016 :- 6 - : COPY TO : 1.THE KAKATIYA CO-OPERATIVE URBAN BANK LTD., C/O. P . RAJESWARA RAO, CHARTERED ACCOUNTANT, FLAT NO. 205, PRIYA APARTMENTS, H.NO. 1-1-560, NEW BAKARAM, HYDERABAD. 2. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-11( 1), HYDERABAD. 3. CIT (APPEALS)-5, HYDERABAD. 4. PR.CIT-5, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.