Laxmi Sahakari Bank Niyamit, Gulledgudd V. DCIT, Bijapur

ITA 1567/BANG/2013

• Counselvise Citation: 156721114 RSA 2013
• Duration Of Justice: 1 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: misc
• Appeal Filed On: 18-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR P K SRIHARI
• Assessee Lawyers: N R NULVI
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER A ND SHRI JASON P.BOAZ, ACCOUNTANT MEMBER ITA NO. 1532 / BANG/20 13 (ASSESSMENT YEAR: 20 10 - 11 ) ASST. COMMISSIONER OF INCOME - TAX, CIRCLE - 1, B IJAPUR. APPELLANT VS. SHRI LAXMI SAHAKARI BANK NIYAMIT, MAIN ROAD, GULLEDGUDD. RESPONDENT PAN:AAAAL0402A AND ITA NO. 1567 /BANG/20 13 (ASSESSMENT YEAR: 2010 - 11) LAXMI SAHAKARI BANK NIYAMIT, GULLEDGUDD. APPELLANT VS . DEPUTY COMMISSIONER OF INCOME - TAX, CIRCLE - 1, BIJAPUR. RESPONDENT REVENUE BY: DR.P.K.SRIHARI, ADDL.CIT(DR) ASSESSEE BY: SHRI N.R.NULVI, CA. DATE OF HEARING : 20/10/2014. DATE OF PRONOUNCEMENT: 21 /11/2014. ITA NO . 1532&1567 /BANG/20 1 3 LAXMI SAHAKARI BANK NIYAMIT PAGE 2 OF 7 O R D E R PER SMT.P.MADHAVI DEVI, JM: THESE ARE CROSS APPEALS BOTH BY THE ASSESSEE AND THE REVENUE AGAINST THE ORDER OF THE CIT(A), BELGAUM DATED 05/09/2013 FOR THE ASSESSMENT YEAR 2010 - 11. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A CO - OPERATIVE BANK ENGAGED IN CARRYING ON THE BUSINESS OF BANKING. IT HAS OBTAINED NECESSARY LICENSE FROM THE RESERVE BANK OF INDIA FOR CARRYING ON ITS BANKING OPERATIONS AS A CO - OPERATIVE BANK. IT FILED ITS RETURN OF INCOME FOR THE RELEVANT ASSESSMENT YEAR OFFERING A TOTAL INCOME OF RS.62,95,630/ - . DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE INCOME - TAX ACT, 1961[HEREINAFTER REFERRED TO AS 'THE ACT'], THE ASSESSING OFFICER [AO] OBSERVED THAT THE ASSESSEE HAS PAID INTEREST ON DEPOSITS TOTALING A SUM OF RS.3,06,27,071 / - BUT NO TAX WAS DEDUCTED AT SOURCE AS FAR AS A SUM OF RS.7,20,287/ - IS CONCERNED EVEN THOUGH THE AMOUNT OF INTEREST PAID TO EACH INDIVIDUAL EXCEEDED RS.10,000/ - . ON INQUIRY, THE ASSESSEE SUBMITTED THAT THE PROVISIONS OF SUB - CLAUSE (B) OF CLAUSE (I) OF S EC.194A(3) OF THE ACT, WAS APPLICABLE AND SINCE THE INTEREST PAID TO ANY MEMBER OF THE CO - OPERATIVE SOCIETY DOES NOT ATTRACT TDS PROVISIONS, NO TAX WAS DEDUCTED AT SOURCE. HOWEVER, THE AO OBSERVED THAT SINCE THE ASSESSEE HAS FAILED TO DEDUCT TAX AT SOURCE ON THE INTEREST PAYMENTS EXCEEDING RS.10,000/ - , THE PROVISIONS OF SEC.40(A)(IA) ITA NO . 1532&1567 /BANG/20 1 3 LAXMI SAHAKARI BANK NIYAMIT PAGE 3 OF 7 ARE ATTRACTED. HE, ACCORDINGLY, DISALLOWED THE SAME U/S 40(A)(IA) OF THE ACT AND BROUGHT IT TO TAX. FURTHER, THE AO ALSO OBSERVED THAT THE ASSESSEE WAS FOLLOWING THE HYBRID SYSTEM OF ACCOUNTING AND THE INTEREST WHICH HAS ACCRUED TO IT ON NON - PERFORMING ASSETS WAS NOT BEING CREDITED TO THE PROFIT AND LOSS ACCOUNT BUT WAS TAKEN DIRECTLY TO THE BALANCE SHEET. HE, THEREFORE, REQUIRED THE ASSESSEE TO EXPLAIN THE DISCREPANCY. THE ASSESSEE SUBMITTED ITS REPLY. THE AO, THEREAFTER CONSIDERING THAT HIS PREDECESSOR, IN THE ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2009 - 10 HAD HELD THAT INTEREST RECEIVABLE ON LOANS AND INTEREST ON ACCRUAL BASIS BUT NOT CREDITED TO THE PROFIT AND LOSS ACCO UNT IS TO BE ADDED TO THE RETURNED INCOME, BROUGHT IT TO TAX. 3. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WHO CONFIRMED THE ADDITION MADE ON ACCOUNT OF SECTION 40(A)(IA) , BUT DELETED THE ADDITION OF THE ACCRUED INTEREST ON NON - PERF ORMING ASSETS. AGAINST THE CONFIRMATION OF THE ADDITION, THE ASSESSEE IS IN APPEAL BEFORE US WHILE AGAINST THE RELIEF GIVEN BY THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 4. COMING TO THE ASSESSEE S APPEAL, WE FIND THAT THE ASSESSEE HAS PAID I NTEREST ON TERM DEPOSITS OR FIXED DEPOSITS TO INDIVIDUALS WITHOUT DEDUCTING TAX AT SOURCE EVEN THOUGH THE AMOUNT OF INTEREST PAID TO EACH INDIVIDUAL EXCEEDED RS.10,000/ - . THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE VERY ITA NO . 1532&1567 /BANG/20 1 3 LAXMI SAHAKARI BANK NIYAMIT PAGE 4 OF 7 SAME ISSUE HAD ARIS EN I N THE CASE OF THE BAGALKOT DISTRICT CENTR AL CO - OPERATIVE BANK VS. JCIT (ITA NO.1572/BANG/2013) BEFORE A BENCH OF TH IS TRIBUNAL AND VIDE ORDER DATED 30/5/2014, THIS TRIBUNAL HAS CONSIDERED THE ISSUE AT LENGTH AND HAS HELD THAT WHERE THE ASSESSEE, WHICH IS A CO - OPERATIVE SOCIETY CARRYING ON THE BANKING BUSINESS AND IS LIABLE TO PAY INTEREST TO A MEMBER, BOTH ON TERM DEPOSITS AND ALSO ON DEPOSITS OTHER THAN TIME DEPOSITS WITH SUCH CO - OPERATIVE SOCIETY , NEED NOT DEDUCT TAX AT SOURCE U/S 194A BY VIRTUE OF E XEMPTION GRANTED VIDE CLAUSE (V ) OF SUB - SECTION (3) OF SECTION 194A. HE SUBMITTED THAT THE TRIBUNAL, AFTER GIVING THE ABOVE FINDING HAS, HOWEVER, REMANDED THE ISSUE TO THE FILE OF THE AO FOR LIMITED PURPOSE OF VERIFYING A S TO WHETHER ANY PORTION OF INTERE ST DISALLOWED RELATES TO PAYMENT TO NON - MEMBERS AND IN THAT EVENT TO RESTRICT THE DISALLOWANCE IN SO FAR AS IT RELATES TO NON - MEMBERS WITHOUT DEDUCTION OF TAX AT SOURCE. HE SUBMITTED THAT SIMILAR DIRECTION MAY BE GIVEN IN THE CASE OF THE ASSESSEE ALSO. THE LEARNED DEPARTMENTAL REPRESENTATIVE, HOWEVER, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 5. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE VERY SAME ISSUE HAD ARISEN IN THE CASE OF THE BAGALKOT DISTRI CT CENTRAL CO - OPERATIVE BANK (CITED SUPRA) AND THIS TRIBUNAL HAS EXTENSIVELY DEALT WITH THIS ISSUE ITA NO . 1532&1567 /BANG/20 1 3 LAXMI SAHAKARI BANK NIYAMIT PAGE 5 OF 7 BEFORE GIVING A FINDING THAT PAYMENT OF INTEREST TO MEMBERS, BOTH ON TERM DEPOSITS AS WELL AS OTHER DEPOSITS WITH THE CO - OPERATIVE SOCIETY, DO NOT ATTRACT TD S PROVISIONS. RESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH ON SIMILAR SET OF FACTS, WE SET ASIDE THE ORDER OF THE CIT(A) AND REMAND THE ISSUE TO THE AO FILE OF THE FOR THE LIMITED PURPOSE OF VERIFYING AS TO WHETHER ANY PORTION OF INTEREST DISALLOWED RELATES TO PAYMENT TO NON - MEMBERS AND DIRECT THE AO TO RESTRICT THE DISALLOWANCE ONLY TO SUCH PAYMENTS OF INTEREST TO NON - MEMBERS WITHOUT DEDUCTION OF TAX AT SOURCE. IN THE RESULT, THE ASSESSEE S APPEAL IS ALLOWED. 6. AS REGARDS THE REVENUE S APPEAL, THE GROUND RAISED BY THE REVENUE IS THAT THE CIT(A) HAS ERRED IN DELETING THE ADDITION ON ACCOUNT OF ACCRUED INTEREST ON LOANS WHICH ARE CLASSIFIED AS NON - PERFORMING ASSETS BY RELYING ON THE HON BLE KARNATAKA HIGH COURT DECISION IN THE CA SE OF CANFIN HOMES LTD. (2011) 5 TAXCORP (DT) 49593 IGNORING THE PROVISIONS OF SEC.43D OF THE ACT. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT AS PER THE PROVISIONS OF SEC.43D AMENDED W.E.F. 01/04/2000, ANY INTEREST ACCRUING ON A NON - PERFORMING ASSET SHALL BE CHARGED TO TAX IN THE PREVIOUS YEAR IN WHICH IT IS CREDITED TO ITS PROFIT AND LOSS ACCOUNT FOR THAT YEAR OR AS THE CASE MAY BE, IN WHICH IT IS ACTUALLY RECEIVED , WHICHEVER IS EARLIER. THUS, ACCORDING TO THE LEARNED DEPARTMENTAL REPRESENTAT IVE, EVERY INTEREST WHICH HAS ACCRUED TO A BANK HAS TO BE CREDITED TO THE PROFIT AND LOSS ITA NO . 1532&1567 /BANG/20 1 3 LAXMI SAHAKARI BANK NIYAMIT PAGE 6 OF 7 ACCOUNT AND IS CHARGEABLE TO TAX AT THE TIME OF ITS CREDIT OR RECEIPT , WHICHEVER IS EARLIER. THE LEARNED COUNSEL FOR THE ASSESSEE, HOWEVER, RELIED UPON THE ORDER OF THE CIT(A) AND ALSO THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CANFIN HOMES LTD. (CITED SUPRA) . 7. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE AO, WHILE DEALING WITH THE ISSUE, HAS PLACED REL IANCE UPON THE FINDING OF HIS PREDECESSOR IN THE ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2009 - 10 WHEREIN IT WAS HELD THAT AFTER AMENDMENT TO SEC.43D, THE ASSESSEE, BEING A CO - OPERATIVE BANK, DOES NOT COME WITHIN THE PURVIEW OF SEC.43D OF THE ACT. THEREFOR E, IT IS CLEAR THAT THE AO WAS OF THE OPINION THAT THE PROVISIONS OF SEC.43D ARE NOT APPLICABLE TO THE ASSESSEE. HOWEVER, THE GROUNDS RAISED BEFORE US ARE THAT THE CIT(A) HAS ERRED IN IGNORING THE PROVISIONS OF SEC.43D OF THE ACT. THE GROUNDS RAISED ARE, THERE FORE, IN CONTRA DIC TION TO THE FINDINGS OF THE AO IN THE ASSESSMENT ORDER. AS REGARDS THE MERITS OF THE ORDER OF THE CIT(A) ARE CONCERNED, WE FIND THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CANFIN HOMES LTD. (CITED SUPRA) WHEREIN IT HAS FOLLOWED THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF UCO BANK LTD. (237 ITR 889). THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE ITA NO . 1532&1567 /BANG/20 1 3 LAXMI SAHAKARI BANK NIYAMIT PAGE 7 OF 7 JURISDICTIONAL HIGH COURT, WE UPHOLD T HE ORDER OF THE CIT(A). THE REVENUE S APPEAL IS ACCORDINGLY DISMISSED. 8. IN THE RESULT, THE ASSESSEE S APPEAL IS ALLOWED AND THE REVENUE S APPEAL IS DISMISSED. PRON OUNCED IN THE OPEN COURT ON 21 ST OF NOVEMBER , 201 4. S D/ - S D/ - (JASON P BOAZ ) ( SMT. P.MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER EKSRINIVASULU COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT RE GISTRAR INCOME - TAX APPELLATE T RIBUNAL BANGALORE