ACIT, Circle-1, Aurangabad V. Samarth Sahakari Bank Ltd., Jalna

ITA 1617/PUN/2013

• Counselvise Citation: 161724514 RSA 2013
• Duration Of Justice: 11 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 26-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P S NAIK
• Keywords: Depreciation; Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO.1617/PN/2013 (A.Y: 2010-11) ACIT, CIRCLE-1, AURANGABAD APPELLANT VS. SAMARTH SAHAKARI BANK LTD., KADBI MANDI ROAD, JALNA 431203 PAN: AABAS8051R RESPONDENT ASSESSEE BY : MS. SHUBHADA KOPPA DEPARTMENT BY : SHRI P.S. NAIK DATE OF HEARING: 20.08.2014 DATE OF ORDER : 25.08.2014 ORDER PER SHAILENDRA KUMAR YADAV, J.M: THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEAL), AURANGABAD, DATED 03.06.2013 FOR A.Y. 2010-11 ON THE FOLLOWING GROUND S. 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT(A) IS CORRECT IN DECIDING THAT ASSESSEE CAN OFFER HIS INTEREST RECEIVED FROM BAD AND DOUBTFUL DEBTS (NPA) ON ACTUAL RECEIPT BASIS AS PER RBI GUIDELINES EVEN THO UGH ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG. IN SPITE OF THAT, PROVISION OF SECTION 43D IS NOT APPL ICABLE TO THE ASSESSEE. 2. THE ORDER OF THE AO BE RESTORED AND THAT OF THE CIT (A) BE VACATED. 3. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER A NY GROUNDS OF APPEAL. 2. THE ASSESSEE IS A COOPERATIVE BANK, REGISTERED U /S. 9(1) OF MAHARASHTRA CO-OP. SOCIETIES ACT, 1960. THE ASSESS EE HAS FILED 2 ITA NO.1617/PN/13 SAMARTH SAHAKARI BANK LTD RETURN OF INCOME ON 03.10.2010 DECLARING TOTAL INCO ME OF RS.52,22,900/-. THE INCOME HAS BEEN TAKEN AS PER O RDER U/S.143(1) OF THE ACT AT RS.80,21,130/- BY THE ASSE SSING OFFICER. THE ASSESSING OFFICER HAS ASSESSED THE INCOME OF TH E ASSESSEE AT RS.98,18,780/- BY MAKING ADDITION OF RS.17,97,655/- . THE DETAILS OF THE ADDITIONS ARE AS UNDER: PARTICULARS OF ADDITION PARA OF THE ASST. ORDER AMOUNT OF ADDITION RS. INTEREST ACCRUED ON NPA (4) 15,73,782/ - DISALLOWANCE OF PART OF THE DEPRECIATION (5) 2,23,873/ - 2.1 THE ISSUE BEFORE US IS WITH REGARD TO THE ADDIT ION OF RS.15,73,782/- ON ACCOUNT OF INTEREST ACCRUED ON NP A, WHICH WAS NOT OFFERED TO TAX BY THE ASSESSEE. IN APPEAL, THE CIT(A) HAS GRANTED RELIEF TO THE ASSESSEE. THE SAME HAS BEEN OPPOSED BEFORE US ON BEHALF OF THE REVENUE, INTER ALIA, SUBMITTED THAT THE CIT(A) WAS NOT JUSTIFIED IN DECIDING THAT ASSESSEE CAN OFF ER HIS INTEREST RECEIVED FROM BAD AND DOUBTFUL DEBTS (NPA) ON ACTUA L RECEIPT BASIS AS PER RBI GUIDELINES EVEN THOUGH ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. IN SPITE OF THAT, PROVISION OF SECTION 43D IS NOT APPLICABLE TO THE ASSESSEE. SO, THE ORDER OF CIT(A) BE SET ASIDE AND THAT OF ASSESSING OFFICER B E RESTORED. ON THE OTHER HAND, THE LEARNED AUTHORIZED REPRESENTATI VE HAS SUPPORTED THE ORDER OF CIT(A) AND SUBMITTED THAT TH IS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F ITAT, PUNE IN THE CASE OF ACIT VS. OSMANABAD JANTA SAH. BANK LTD. IN ITA NO.795/PN/2011, WHEREIN THE TRIBUNAL HAS OBSERVED A S UNDER: 5. WE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES A ND PERUSED THE RECORD. WE FIND THAT THE IDENTICAL ISS UE HAS BEEN CONSIDERED BY THE ITAT, VISAKHAPATNAM BENCH, I N THE CASE OF DCIT, VIJAYAWADA VS. THE DURGA COOPERATIVE URBAN BANK LTD., VIJAYAWADA, IN ITA.NO.511/VIZAG/2010 DAT ED 10.03.2011. IN THE SAID CASE ALSO, IT WAS NOTICED BY THE ASSESSING OFFICER THAT ASSESSEE DID NOT INCLUDE THE INTEREST OF RS.18,26,306/- ON THE NPA ADVANCES. AGAIN THE I SSUE OF APPLICABILITY OF SECTION 43D WAS CONSIDERED TO THE NON- 3 ITA NO.1617/PN/13 SAMARTH SAHAKARI BANK LTD SCHEDULED BANKS. THE TRIBUNAL PLACED ITS HEAVY REL IANCE ON THE DECISION OF THE HONBLE HIGH COURT OF DELHI IN THE CASE OF VASHIST CHAY VYAPAR LTD. [330 ITR 440 (DEL.)], IN W HICH THE HONBLE DELHI HIGH COURT HAS CONSIDERED THE DECISIO N IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. [320 ITR 577 (SC )]. THE TRIBUNAL FINALLY HELD THAT THE INTEREST INCOME RELA TABLE TO NPA ADVANCES DID NOT ACCRUE TO THE ASSESSEE. 6. AN IDENTICAL VIEW HAS BEEN TAKEN BY THE ITAT, AHMEDABAD BENCH IN THE CASE OF KARNAVATI COOPERATIV E BANK LTD. VS. DY.CIT [134 ITD 486 (AHMEDABAD)]. IN THE CASE OF KARNAVATI COOPERATIVE BANK LTD. (SUPRA), TH E TRIBUNAL HAS CONSIDERED THE PROVISIONS OF SECTION 4 3D AND ITS APPLICATION TO THE NON-SCHEDULED BANKS. THE RE ASONS GIVEN BY THE TRIBUNAL IN THE CASE OF KARNAVATI COOP ERATIVE BANK LTD. (SUPRA) FOR HOLDING THAT INTEREST ON THE STICKY ADVANCES/NPA ADVANCES CANNOT BE BROUGHT TO TAX BY FOLLOWING THE DECISION IN THE CASE OF UCO BANK (SUP RA), WHICH IS AS UNDER: 15.1. ON CAREFUL ANALYSIS OF THIS SECTION OUR FIRS T OBSERVATION IS THAT SECTION 43D IS IN CONTRAST WITH THE FUNDAMENTAL PRINCIPLE OF ACCOUNTANCY. THE CARDINAL PRINCIPLE OF MERCANTILE SYSTEM OF ACCOUNTANCY IS TH AT AN INCOME IS TO BE SHOWN IN THE BOOKS OF ACCOUNT ON ACCRUAL BASIS. THE PRINCIPLE IS THAT IT IS IMMATERI AL WHETHER IT WAS ACTUALLY RECEIVED OR NOT, BUT IF AN INCOME IS EXPECTED TO BE RECEIVED, THEN IT SHOULD B E BROUGHT TO BOOKS OF ACCOUNT AS AN INCOME ACCRUED TO THE ASSESSEE. CONTRARY TO THIS RECOGNIZED PRINCIPLE , THIS SECTION HAS PRESCRIBED THAT AN INCOME BY WAY O F INTEREST SHALL BE CHARGEABLE TO TAX IN THE PREVIOUS YEAR IN WHICH IT IS CREDITED. THE WORDS CREDITED AND ACTUALLY RECEIVED HAS BEEN HIGHLIGHTED HEREINABOV E WHILE REPRODUCING THE SECTION IN QUESTION. THE OTHE R DEVIATION FROM THE SAID ACCEPTED PRINCIPLE OF ACCOUNTANCY IS THAT AN INCOME BY WAY OF INTEREST SH ALL BE CHARGEABLE TO TAX IN THE PREVIOUS YEAR IN WHICH IT IS ACTUALLY RECEIVED. THE ACT SAYS THAT THE INCIDENCE OF CREDIT OR ACTUALLY RECEIVED, WHICHEVER IS EARLI ER IS TO BE TAKEN INTO ACCOUNT FOR THE PURPOSE OF CHARGEABIL ITY OF INCOME BY WAY OF INTEREST. SIMULTANEOUSLY, IT IS NOTEWORTHY THAT THIS SECTION IS AN OVERRIDING SECTI ON BECAUSE THE OPENING WORD IS NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT. THEREFORE, IN SPITE OF ANY THING CONTAINED IN THE ACT, THE PROVISIONS OF THIS SECTIO N SHALL OVERRIDE THOSE PROVISIONS. ONCE THE STATUTE H AS CATEGORICALLY MADE A LAW IN RESPECT OF PUBLIC FINAN CIAL 4 ITA NO.1617/PN/13 SAMARTH SAHAKARI BANK LTD INSTITUTIONS THAT INTEREST IS CHARGEABLE TO TAX EIT HER IN THE YEAR IN WHICH CREDITED OR ACTUALLY RECEIVED, WHICHEVER IS EARLIER, THEN IT IS COMPULSORY TO ABID E BY THE SAID RULE. ACCORDING TO US, NO SCOPE IS LEFT WI TH THE REVENUE AUTHORITIES TO IGNORE THESE PROVISIONS DUE TO UNAMBIGUOUS USE OF LANGUAGE IN THE SECTION. (II) STATUS OF ASSESSEE FOR THE PURPOSE OF APPLICAT ION SECTION 43-D. AS FAR AS THE STATUS OF THE ASSESSEE IS CONCERNED, THE ASSESSING OFFICER HAS STATED THAT THE ASSESSEE-BANK IS A CO-OPERATIVE BANK. UNDISPUTEDLY, THE ASSESSEE IS ALSO GOVERNED BY THE RBI GUIDELINES. VIDE AN EXPLANATION (D) R.W.S. 36(1)(VIIA) ANNEXED TO SECTION 43-D THE DEFI NITION OF THE ENTITIES INCORPORATED BY THE SECTION HAVE BE EN DEFINED AND IN THE ABSENCE OF ANY CONTRARY MATERIAL , WE HEREBY HOLD THAT THE ASSESSEE IS COVERED BY ONE OF THE ENTITIES, HENCE THE PROVISIONS OF SECTION 43-D ARE TO BE APPLIED. (III) APPLICABILITY OF CBDT CIRCULAR. NEXT ISSUE IS THAT WHETHER A CIRCULAR HAVING EFFECT OF RELAXING RIGOUR OF LAW CAN BE TREATED AS INCONSISTE NT WITH THE PROVISIONS OF A STATUTE. IN ORDER TO AID P ROPER DETERMINATION OF THE INCOME OF MONEY LENDERS AND BANKS, THE CENTRAL BOARD OF DIRECT TAXES HAS ISSUED A CIRCULAR DATED OCTOBER 6, 1952, PROVIDING THAT WHER E INTEREST ACCRUING ON DOUBTFUL DEBTS IS CREDITED TO A SUSPENSE ACCOUNT, IT NEED NOT BE INCLUDED IN ASSESSEES TAXABLE INCOME, PROVIDED THE INCOME TAX OFFICER IS SATISFIED THAT RECOVERY IS PRACTICALLY IMPROBABLE. THE CBDT U/S.119 OF THE I.T.ACT HAS POWER TO ISSUE CIRCULARS IN EXERCISE OF ITS STATUTO RY POWERS. IF THE BOARD CONSIDER IT NECESSARY TO LAY D OWN CERTAIN RULES AND THEN DIRECT THE SUB-ORDINATE AUTHORITIES, SUCH DIRECTIONS ARE REQUIRED TO BE FOL LOWED AND SUCH CIRCULAR WOULD BE BINDING ON THE DEPARTMENT UNLESS AND UNTIL HELD AS ULTRA VIRES BY A COURT OF LAW. THE BOARD HAS POWERS TO RELAX THE SEVERITY OR THE STRICTNESS OF LAW AND THE AUTHORITI ES ARE REQUIRED TO FOLLOW THOSE INSTRUCTIONS AS HELD IN TH E CASE OF C.B. GAUTAM VS. UNION OF INDIA 108 CTR 304 (SC) & 110 CTR 179 (SC); NAVNITLAL C.ZAVERI 56 ITR 198(SC) AND K.P.VARGHESE 131 ITR 597 (SC). IN THE LAND-MARK DECISION, THE HON'BLE SUPREME COUR T IN THE CASE OF UCO BANK VS. CIT (1999) 237 ITR 889 5 ITA NO.1617/PN/13 SAMARTH SAHAKARI BANK LTD (SC) HAS THEREFORE HELD, FIRST, THAT A BENEFICIAL C IRCULAR IS NOT TO BE TREATED AS INCONSISTENT WITH THE PROVI SIONS OF STATUTE AND BINDING ON THE AUTHORITIES. SECOND, THAT IN RESPECT OF INTEREST ON STICKY ADVANCES INTERES T INCOME IS TO BE TAXED ONLY WHEN ACTUALLY RECEIVED A S PRESCRIBED BY CBDT CIRCULAR. HOWEVER, IN THE PAST AN INTERESTING TURN HAD TAKEN PLACE BY AN ORDER OF THE HONBLE KERALA HIGH COURT IN THE CASE OF STATE BANK OF TRAVANCORE REPORTED IN 11 0 ITR 336 (KER.), WHEREIN IT WAS HELD THAT THE ASSESS EE, A BANKING COMPANY, DID NOT CREDIT IN ITS ACCOUNT THE INTEREST THAT HAD ACCRUED ON STICKY ADVANCES BECAUSE THE ASSESSEE FELT THAT THE INTEREST COULD N OT TO BE REALISED. IT CREDITED THE INTEREST TO A SEPARATE ACCOUNT KNOWN AS INTEREST SUSPENSE ACCOUNT. ON REFERENCE, THE HON'BLE COURT HAS HELD THAT THERE WA S AN ACCRUAL OF INCOME LIABLE TO INCOME-TAX AND THE ASSESSEE WAS NOT JUSTIFIED IN NOT CREDITING THE INT EREST INCOME ON SUCH STICK ADVANCES IT ITS ACCOUNTS. HOWEVER, LATER ON AT THE HON'BLE APEX COURT WHILE PRONOUNCING THE JUDGMENT OF THE SAID STATE BANK OF TRAVANCORE VS. CIT REPORTED IN (1986)158 ITR 102(SC ), THERE WERE HON'BLE THREE JUDGES PRESIDING THE COURT , OUT OF WHICH HONBLE TWO JUDGES WERE IN THE OPINION THAT THE INTEREST ON STICKY ADVANCES WAS RIGHTLY TREATED AS INCOME WHICH HAD ACCRUED TO THE APPELLAN T. THERE WAS A DESCENDING NOTE BY ONE OF THE HON'BLE JUDGE AND COMMENTED THAT WHETHER AN INCOME ON RECEIPT BASIS OR ON ACCRUAL BASIS, IT IS THE REAL I NCOME AND NOT ANY HYPOTHETICAL INCOME WHICH MAY HAVE THEORETICALLY ACCRUED, I.E. SUBJECT TO TAX UNDER TH E ACT. NEVERTHELESS, THAT DECISION WAS NOT FOLLOWED WHILE DECIDING THE APPEAL OF UCO BANK (SUPRA) BY THE HON'BLE THREE JUDGES OF THE SUPREME COURT, ALREADY DISCUSSED BY US SUPRA. WE, THEREFORE SUMMARIZE THAT AS OF NOW THE LAW AS LAID DOWN IN UCO BANK IS THAT IN TERMS OF CBDT CIRCULAR THE INTEREST IS TO BE ADDED AS INCOME ONLY WHEN ACTUALLY RECEIVED OR CREDITED IN RESPECT OF THE STICKY ADVANCES WHILE MAKING ASSESSMENT FOR A FINANCIAL INSTITUTION. (IV) INTERPRETATION OF THE LANGUAGE OF THE STATUTE : WE HAVE REPRODUCED VERBATIM THE PROVISIONS OF SECTI ON 43-D OF THE I.T.ACT AND EXPRESSED AN OPINION THAT I F THE STATUTE HAS USED THE TERMINOLOGY FOR THE CHARGEABIL ITY OF INTEREST ON THE BASIS WHEN CREDITED OR ACTUAL LY RECEIVED, THEN IN OUR OPINION NO AMBIGUITY HAS BEE N 6 ITA NO.1617/PN/13 SAMARTH SAHAKARI BANK LTD LEFT BY THE STATUTE. IF THE STATUTE IS SO CLEAR THA T AN INTERPRETATION CAN EASILY BE MADE, THEN THAT EXACT MEANING SHOULD BE GIVEN TO THE LANGUAGE OF THE SECTION. FOR THIS LEGAL PROPOSITION WE PLACE RELIAN CE ON KESHAVJI RAVJI AND COMPANY VS. CIT 183 ITR 01 (SC), WHEREIN IT WAS HELD AS UNDER: AS LONG AS THERE IS NO AMBIGUITY IN THE STATUTORY LANGUAGE, RESORT TO ANY INTERPRETATIVE PROCESS TO U NFOLD THE LEGISLATIVE INTENT BECOMES IMPERMISSIBLE. THE SUPPOSED INTENTION OF THE LEGISLATURE CANNOT THEN B E APPEALED TO WHITTLE DOWN THE STATUTORY LANGUAGE WHI CH IS OTHER-WISE UNAMBIGUOUS. IF THE INTENDMENT IS NOT IN THE WORDS, IT IS NOWHERE ELSE. THE NEED FOR INTERPRETATION ARISES WHEN THE WORDS USED IN THE STATUTE ARE, ON THEIR OWN TERMS, AMBIVALENT AND DO NOT MANIFEST THE INTENTION OF THE LEGISLATURE. WHEN WORDS ACQUIRE A PARTICULAR MEANING OR SENSE BECAUSE OF THEIR AUTHORITATIVE CONSTRUCTION BY SUPE RIOR COURTS, THEY ARE PRESUMED TO HAVE BEEN USED IN THE SAME SENSE WHEN USED IN SUBSEQUENT LEGISLATION IN T HE SAME OR SIMILAR CONTEXT. TO SAY THAT THE COURT COULD NOT RESORT TO THE SO-CA LLED EQUITABLE CONSTRUCTION OF A TAXING STATUTE IS NOT TO SAY THAT, WHERE A STRICT LITERAL CONSTRUCTION LEADS TO A RESULT NOT INTENDED TO SUBSERVE THE OBJECT OF THE LEGISLATION, ANOTHER CONSTRUCTION, PERMISSIBLE IN T HE CONTEXT, SHOULD NOT BE ADOPTED. IN THIS RESPECT, TA XING STATUTES ARE NOT DIFFERENT FROM OTHER STATUTES. WE CAN THEREFORE SAFELY DRAW A CONCLUSION THAT BY T HE INSERTION OF A SPECIAL PROVISION TO TAX INTEREST IN COME IN THE CASE OF PUBLIC FINANCIAL INSTITUTION, ETC. S ECTION 43-D HAS TO BE APPLIED IN ITS LETTER AND SPIRIT. IT IS PERTINENT TO MENTION THAT LATER ON, IN THE CASE OF CIT VS. BANK OF AMERICA S.A. 262 ITR 504 (BOM) THE QUESTION OF INTEREST ON STICKY LOANS WAS DECIDED IN FAVOUR OF THE ASSESSEE AND HELD THAT THE QUESTION I S TO BE ANSWERED IN FAVOUR OF THE ASSESSEE FOLLOWING THE DECISION OF UCO BANK REPORTED AT 237 ITR 889(SC) :: 240 ITR 355 (SC). LIKEWISE, IN AN ANOTHER CASE OF C IT VS. STATE BANK OF INDIA 262 ITR 662 (BOM.) AGAIN IT WAS HELD THAT THE AMOUNT CREDITED TO THE INTEREST SUSPENSE ACCOUNT WAS NOT TAXABLE FOLLOWING THE DECISION PRONOUNCED IN THE CASE OF UCO BANK (SUPRA) . (V) JUDGEMENT IN FAVOUR OF REVENUE : 7 ITA NO.1617/PN/13 SAMARTH SAHAKARI BANK LTD FROM THE SIDE OF THE REVENUE AN ORDER OF THE TRIBUN AL HAS BEEN VEHEMENTLY RELIED UPON AND THIS IS THE BAS IC REASON OF THE ELABORATE DISCUSSION MADE HEREINABOVE SO AS TO UNFOLD THE CONTROVERSY. IN THE SAID DECISI ON OF THE TRIBUNAL, VIZ. JT.CIT V/S. INDIA EQUIPMENT LEAS ING LTD. (2008)111 ITD 37 (CHENNAI), THE RESPECTED CO- ORDINATE BENCH HAS EXPRESSED THAT QUOTE PRIOR TO INSERTION OF SECTION 43D WITH EFFECT FROM 1-4-1991, RECOGNITION OF INCOME WAS ON THE BASIS OF CIRCULAR OF 9- 101984. IT SAID THAT FOR FIRST THREE YEARS THE INCO ME MAY BE TAKEN ON ACCRUAL BASIS AND FROM 4TH YEAR ONWARDS, THE INCOME IN RESPECT OF DOUBTFUL DEBTS WA S TO BE RECOGNIZED ON RECEIPT BASIS. SINCE THE INCOME WAS TO BE ASSESSED FOR FIRST THREE YEARS ON ACCRUAL BASIS, PROVISIONS OF SECTION 43D WERE INSERTED IN THE ACT. CIRCULAR NO.621, DATED 19-12-1991 GIVES THE LEGISLATIVE INTENTION STATING THAT SECTION 43D WAS INSERTED WITH A VIEW TO IMPROVING THE VIABILITY OF BANKS, PUBLIC FINANCIAL INSTITUTIONS ETC., SO AS TO PROVIDE THAT INTEREST ON STICKY LOANS SHALL BE CHAR GED TO TAX ONLY IN THE YEAR IN WHICH THE INTEREST IS AC TUALLY RECEIVED OR CREDITED TO THE PROFIT AND LOSS ACCOUNT . THIS BENEFIT WAS EXTENDED WITH EFFECT FROM 1-4-2000 IN T HE CASE OF PUBLIC COMPANIES ENGAGED IN LONG-TERM FINANCING OF HOUSING PROJECTS APPROVED BY NATIONAL HOUSING BANKS. THE LEGISLATURE IN THEIR WISDOM DID NOT EXTEND THE SAME BENEFIT TO NBFCS WHICH HAS BEEN GIVEN TO SCHEDULED BANKS, PUBLIC FINANCIAL INSTITUT IONS, ETC. THE PROVISIONS OF SECTION 43D AS STOOD AT RELE VANT TIME CONTAINED AN EXPRESSION 'THE INCOME BY WAY OF INTEREST IN RELATION TO SUCH CATEGORIES OF BAD OR DOUBTFUL DEBTS AS MAY BE PRESCRIBED HAVING REGARD T O THE GUIDELINES ISSUED BY THE RBI IN RELATION TO SUC H DEBTS'. THIS EXPRESSION CONTINUES TO EXIST IN THE N EWLY SUBSTITUTED SECTION 43D APPLICABLE WITH EFFECT FROM 1- 4-2000. THIS SHOWS THAT THE RBI GUIDELINES IN RESPE CT OF SCHEDULED BANKS, PUBLIC FINANCIAL INSTITUTIONS E TC., WERE NOT SUFFICIENT FOR RECOGNITION OF INCOME ON CA SH BASIS FOR THE PURPOSES OF INCOME-TAX. THE INCOME OF SUCH ASSESSEES WAS DETERMINED AS PER CIRCULAR DATED 9-10-1984. BECAUSE OF THIS REASON, SECTION 43DWAS INSERTED IN THE STATUTE. RBI GUIDELINES IN CASE OF NBFC ARE FOR THE PURPOSE OF CONTROL AND SUPERVISION WITH RESPECT TO PUBLIC INTEREST AND VIABILITY OF THE NBF C. THE GUIDELINES NEVER INTENDED FOR TAKING THE INTERE ST INCOME ACCRUED AS PER SECTION 5 OUT OF THE SCOPE OF THE ACT. IF THE CONTENTION OF ASSESSEE WAS ACCEPTED, IT WOULD AMOUNT TO INSERTION OF 'NBFC' IN SECTION 43D, 8 ITA NO.1617/PN/13 SAMARTH SAHAKARI BANK LTD THAT TOO BY A GUIDELINE ISSUED FOR DIFFERENT PURPOS ES BY AN AUTHORITY OTHER THAN THE PARLIAMENT IN OTHER WOR DS, THE DOCTRINE OF 'CASUS OMISSUS' WILL DEEM TO HAVE B EEN APPLIED WHICH IS CONTRARY TO LAW OF LAND.UNQUOTE. THE BASIC REASON FOR DIRECTING TO ASSESS THE ACCRUED INTEREST ON NPA WAS THE RBI GUIDELINES ISSUED ONLY FOR SCHEDULED BANKS, PUBLIC FINANCIAL INSTITUTIONS AND NOT FOR NBFC. THE OBSERVATION OF THE RESPECTED TRIBUNAL WAS THAT IF THE CONTENTION OF THE ASSESSEE WAS TO B E ACCEPTED, THEN IT WOULD AMOUNT TO INSERTION OF NBF C IN SECTION 43-D OF THE I.T.ACT. AS AGAINST THAT, AS FAR AS THE ASSESSEE IS CONCERNED, IT IS AN ACCEPTED FACT T HAT THE ASSESSEE IS A COOPERATIVE BANK AND NOT A NON- BANKING FINANCIAL COMPANY AND THIS NOTEWORTHY DISTINCTION HAS ALREADY BEEN APPRECIATED BY US IN O NE OF THE PARAGRAPHS ABOVE. THERE IS ONE MORE DECISION OF THE HONBLE APEX COUR T WHICH IS YET TO BE MENTIONED WHILE DISCUSSING THE ARGUMENTS RAISED FROM THE SIDE OF THE REVENUE. A DECISION IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. VS. JT. CIT 320 ITR 577 (SC) HAS BEEN CITED BUT THE FUNDAMENTAL DIFFERENCE IS THAT THE ISSUE BEFORE THE HONBLE COURT WAS IN RESPECT OF PROVISION FOR NPA A ND DEBITED TO P&L ACCOUNT BY A NBFC. THE SAID PROVISIO N WAS UNDISPUTEDLY MADE BY THE SAID NBFC AS PER THE PRUDENTIAL NORMS MADE BY THE RESERVE BANK. THEREFORE WE WANT TO MAKE IT CLEAR THAT THE QUESTIO N FOR CONSIDERATION BEFORE THE HONBLE COURT WAS THAT IF A PROVISION FOR DOUBTFUL DEBT IS MADE THEN WHAT WILL BE THE LEGAL POSITION OF THE APPLICABILITY OF EXPLANAT ION TO SECTION 36(1)(VII) OF THE I.T. ACT. FOR THE SAKE OF READY REFERENCE, RELEVANT PARAGRAPH FROM THE HELD PORTION IS REPRODUCED BELOW: THE INCOME-TAX IS A TAX ON REAL INCOME, I.E., THE PROFITS ARRIVED AT ON COMMERCIAL PRINCIPLES SUBJECT TO THE PROVISIONS OF THE ACT. THEREFORE, IF BY THE EXPLANATION TO SECTION 36(1)(VII) A PROVISION FOR DOUBTFUL DEBT IS KEPT OUT OF THE AMBIT OF BAD DEBT WHICH IS WRITTEN OFF, THEN ONE HAS TO TAKE INTO ACCOUNT THE EXPLANATION IN COMPUTING THE TOTAL INCOME UNDER THE INCOME-TAX ACT FAILING WHICH ONE CANNOT ASCERTAIN THE REAL PROFITS. THE PROVISION FOR NON-PERFORMING ASSETS DEBITED IN THE PROFIT AND LOSS ACCOUNT UNDER THE RESERVE BANK DIRECTIONS OF 1998 IS ONLY A NOTIONAL EXPENSE AND, THEREFORE, THERE WOULD BE 9 ITA NO.1617/PN/13 SAMARTH SAHAKARI BANK LTD ADD BACK TO THAT EXTENT IN THE COMPUTATION OF TOTAL INCOME UNDER THE INCOME-TAX ACT. THEREFORE THE DISTINCTION CAN EASILY BE DRAWN THAT IN THE APPEAL BEFORE US THE QUESTION IS ACCRUAL OF INT EREST INCOME ON STICKY LOAN BUT IN THIS CITED DECISION TH E QUESTION BEFORE HE APEX COURT WAS ABOUT THE ADMISSIBILITY OF PROVISION MADE IN RESPECT OF DOUBT FUL DEBTS. (VI) CONCEPT OF REAL INCOME APPROVED IN THE CASE OF BANKING BUSINESS: BEFORE US, THE THEORY OF REAL INCOME HAS ALSO BEE N ARGUED AND IN SUPPORT A DECISION OF HON'BLE COURT PRONOUNCED IN THE CASE OF CIT VS. GODHRA ELECTRICIT Y CO. 225 ITR 746 (SC). IN SHORT, THE VIEW EXPRESSED WAS THAT IF INCOME DOES NOT RESULT AT ALL, THERE CANNOT BE ANY TAX AND THAT IF AN INCOME HAS NOT MATERIALIZED, THEN MERELY AN ENTRY MADE ABOUT A HYPOTHETICAL INCOME BY FOLLOWING BOOK KEEPING METHODS, THE LIABI LITY TO TAX CANNOT BE ATTRACTED. NOW AT PRESENT THE SITUATION IS THAT THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. ELGI FINAN CE LTD. 293 ITR 357 (MAD.) HAS TAKEN A VIEW THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF LEASE, FINANCE AND HIRE PURCHASE AND THAT THE PRINC IPLE OF ACCRUAL COMES INTO PLAY WITHOUT INCOME WAS RECOGNIZED AND THAT THE ASSESSEE HAD CLASSIFIED ITS ASSETS ON THE BASIS OF NOTIFICATION ISSUED BY R.B.I . AND FOUND THAT CERTAIN ASSETS CAME UNDER THE CATEGORY O F NPA AND THAT FROM SUCH NPA THE ASSESSEE HAD NOT RECOGNIZED ANY INCOME IN CONSONANCE WITH THE NOTIFICATION ISSUED BY RBI AND AS-9 ISSUED BY ICAI AND THAT THE ASSESSEE WAS JUSTIFIED IN NOT RECOGNIZING SUCH INCOME. THE COURT HAD FURTHER EXPRESSED THAT THERE WAS NO OCCASION TO CONSIDER WHETHER THE PRINCIPLE O F ACCRUAL WOULD ARISE OR NOT, NEVERTHELESS, THE INTER EST FROM SUCH NPA WOULD BE TAXED IN THE APPROPRIATE ASSESSMENT YEAR ON THE BASIS OF ACTUAL RECEIPT. IT IS WORTH TO MENTION THAT FOR THIS DECISION, THE HON'BL E MADRAS HIGH COURT HAS RELIED UPON AN ANOTHER DECISION OF THE SAME HIGH COURT PRONOUNCED IN THE CASE OF JT.CIT VS. INDIA EQUIPMENT LEASING LTD. 293 ITR 350. 7. IN THE CASE BEFORE US, ADMITTEDLY, ASSESSEE HAS DIRECTLY TAKEN THE INTEREST TO THE BALANCE SHEET AND IT IS N OT ROUTED 10 ITA NO.1617/PN/13 SAMARTH SAHAKARI BANK LTD THROUGH THE PROFIT & LOSS ACCOUNT. MOREOVER, THE ISSUE OF THE TAXABILITY OF THE INTEREST ON THE STICKY LOSSES /ADVANCES, IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISIO N OF THE COORDINATE BENCHES IN THE CASE OF THE DURGA COOPERA TIVE URBAN BANK LTD., VIJAYAWADA (SUPRA) AND KARNAVATI COOPERATIVE BANK LTD. (SUPRA). WE FIND NO REASON T O INTERFERE WITH THE REASONED ORDER OF THE LD. CIT(A) AND ACCORDINGLY THE SAME IS CONFIRMED. IN THE RESULT, THE REVENUES GROUND IS DISMISSED. 2.2 NOTHING CONTRARY HAS BEEN BROUGHT TO OUR KNOWLE DGE ON BEHALF OF THE REVENUE. FACTS BEING SIMILAR, SO FOL LOWING THE SAME REASONING, WE ARE NOT INCLINED TO INTERFERE WITH TH E FINDING OF CIT(A) WHO HELD THAT THE ASSESSEE CAN OFFER HIS INT EREST RECEIVED FROM BAD AND DOUBTFUL DEBTS (NPA) ON ACTUAL RECEIPT BASIS AS PER RBI GUIDELINES EVEN THOUGH THE ASSESSEE IS FOLLOWIN G MERCANTILE SYSTEM OF ACCOUNTING. THIS REASONED FINDING OF CIT (A) NEEDS NO INTERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME. 3. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. PRONOUNCED IN THE OPEN COURT ON THIS THE 25 TH DAY OF AUGUST, 2014. SD/- SD/- (G.S. PANNU) (SHAILENDRA KUMAR YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 25 TH AUGUST, 2014 GCVSR COPY TO:- 1) DEPARTMENT 2) ASSESSEE 3) THE CIT(A), AURANGABAD 4) THE CIT, AURANGABAD 5) THE DR, B BENCH, I.T.A.T., PUNE. 6) GUARD FILE BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE