The Kumbakonam Mutual Benefit Fund Ltd., Kumbakonam V. JCIT, Kumbakonam

ITA 1688/CHNY/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68889 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2013
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 09-12-2013
• Assessment Year: 2010-2011
• Appeal Filed On: 02-09-2013
• Court: TRIBUNAL
• Department Lawyers: GURU BHASHYAM
• Assessee Lawyers: GIRISH S SUNDAR ACA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI BEFORE DR. O.K. NARAYANAN, VICE PRESIDENT & SHRI VIKAS AWASTHY, JUDICIAL MEMBER I.T.A. NOS. 1686, 1687 & 1688/MDS/2013 ASSESSMENT YEARS : 2008-09, 2009-10 & 2010-11 THE KUMBAKONAM MUTUAL BENEFIT FUND LTD., 145, TSR BIG STREET, KUMBAKONAM [PAN: AADCT 2538 C] VS THE JOINT COMMISSIONER OF INCOME TAX, CIRCLE-I, KUMBAKONAM I.T.A. NO. 1802/MDS/2013 ASSESSMENT YEAR : 2008-09 DEPUTY COMMISSIONER OF INCOME TAX, BENEFIT, CIRCLE-I, KUMBAKONAM (APPELLANT) VS M/S. THE KUMBAKONAM MUTUAL BENEFIT FUND LTD., NO.145, TSR BIG STREET, KUMBAKONAM [PAN: AADCT 2538 C] (RESPONDENT) REVENUE BY : SHRI GURU BHASHYAM, JCIT ASSESSEE BY : SHRI GIRISH S.SUNDAR , ACA DATE OF HEARING : 09-12-2013 DATE OF PRONOUNCEMENT : 09-12-2013 O R D E R PER VIKAS AWASTHY, JUDICIAL MEMBER: THE THREE APPEALS I.E., I.T.A. NOS.1686, 1687 & 1688/MDS/2013 HAVE BEEN FILED BY THE ASSESSEE AGAIN ST THE COMMON ORDER OF COMMISSIONER OF INCOME TAX(APPEALS) - I.T.A.NOS. 1686, 1687, 1688 & 1802/MDS/2013 2 TIRUCHIRAPALLI DATED 25-07-2013, WHEREBY, THE CIT(A PPEALS) HAS ADJUDICATED THE APPEALS OF THE ASSESSEE FOR THE ASS ESSMENT YEARS (AYS) 2008-09, 2009-10 & 2010-11 BY SINGLE ORDER. FOR THE AY.2008-09, THE REVENUE HAS ALSO FILED ITA NO. 1802 /2013 ASSAILING THE ORDER OF CIT(APPEALS). THE COMMON IS SUE INVOLVED IN ALL THE APPEALS RELATE TO INTEREST ON STICKY LO ANS. 2. THE ASSESSEE IS A PUBLIC LIMITED COMPANY AND IS ACCEPTING DEPOSITS FROM THE MEMBERS AND GIVING LOANS TO ITS M EMBERS. THE ASSESSING OFFICER WHILE MAKING THE ASSESSMENT, MADE ADDITION ON ACCOUNT OF INTEREST ON STICKY LOANS. THE ASSESSING OFFICER WAS OF THE VIEW THAT INTEREST INCOME HAD BECOME DUE BUT NO T ACCOUNTED. ON THE OTHER HAND, THE ASSESSEE HAD CLASSIFIED THE ACCOUNTS AS NON-PERFORMING ASSETS [NPA]. THE ASSESSEE IN ACCORDANCE WITH THE ACCOUNTING STANDARD 9 OF ICAI DID NOT CHARGE AN Y INTEREST ON STICKY MORTGAGE LOANS/ADVANCES AS THERE WAS NO RECO VERY FROM SUCH TYPE OF ADVANCES OVER A PERIOD OF YEARS. THE SAID LOAN ACCOUNTS WERE OLD MORTGAGED LOANS WHICH WERE IN ARR EARS FOR MORE THAN A YEAR. IN THE AY.2008-09, THE ASSESSING OFF ICER ADDED A SUM OF ` 51,35,196/- TO THE TOTAL INCOME OF THE ASSESSEE FOR THE INTEREST DUE ON STICKY LOANS. SIMILARLY, FOR THE A Y.2009-10 & 2010- 11, THE ASSESSING OFFICER MADE ADDITION OF ` 15,49,319/- AND I.T.A.NOS. 1686, 1687, 1688 & 1802/MDS/2013 3 ` 17,27,491/- RESPECTIVELY. HOWEVER, IN AY.2009-10 A ND 2010-11, THE ASSESSING OFFICER GRANTED RELIEF TO THE EXTENT OF 80% ON STICKY LOANS WHERE NO INTEREST AND PRINCIPAL WAS RECEIVED OVER A PERIOD OF TIME. IN THE LATER TWO AYS, ADDITION WAS MADE ONLY TO THE EXTENT OF 20%. AGGRIEVED BY THE ASSESSMENT ORDER FOR THE AY.2008- 09, 2009-10 & 2010-11, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(APPEALS). THE CIT(APPEALS) VIDE COMMON ORDER D ATED 25-07-2013, PARTLY ALLOWED THE APPEAL OF THE ASSESS EE FOR THE AY.2008-09, BY GRANTING RELIEF TO THE EXTENT OF 80% , ON STICKY LOANS, WHERE NO INTEREST AND PRINCIPAL WAS RECEIVE D OR RECEIVABLE OVER A PERIOD OF TIME. ADDITION TO THE EXTENT OF O NLY 20% WAS SUSTAINED. THUS, THE APPEAL OF THE ASSESSEE FOR TH E AY.2008-09 WAS PARTLY ALLOWED. AS REGARDS THE AY.2009-10 & 20 10-11, SINCE SIMILAR RELIEF WAS ALREADY GRANTED BY THE ASSESSING OFFICER, THE APPEALS OF THE ASSESSEE FOR BOTH THE AYS WERE DISMI SSED. AGGRIEVED AGAINST THE ORDER OF THE CIT(APPEALS), T HE ASSESSEE HAS FILED APPEALS FOR ALL THE THREE AYS BE FORE THE TRIBUNAL SEEKING RELIEF OF THE ENTIRE AMOUNT OF ADD ITION MADE. ON THE OTHER HAND, FOR THE AY.2008-09, THE REVENUE HAS FILED APPEAL AGAINST THE RELIEF OF 80% GRANTED TO THE ASSESSEE B Y THE CIT(APPEALS). I.T.A.NOS. 1686, 1687, 1688 & 1802/MDS/2013 4 3. THE LD.DR SUBMITTED THAT THE ASSESSEE CANNOT CLA IM BLANKET RELIEF BY TERMING THE STICKY LOANS AS NPA. THIS PRIVILEGE IS AVAILABLE ONLY TO NBFCS OR BANKING COMPANIES, WHERE AS, THE ASSESSEE IS A NIDHI COMPANY. THE LD.DR FURTHER SUB MITTED THAT IDENTICAL MATTERS RELATING TO AYS. 2003-04 & 2004-0 5 WHEREIN SIMILAR RELIEF WAS GRANTED BY THE TRIBUNAL TO THE A SSESSEE ARE PENDING BEFORE THE HONBLE JURISDICTIONAL HIGH COUR T. THE DR CONTENDED THAT, THE ASSESSEE CANNOT BE GRANTED RELI EF ON ESTIMATION BASIS. THE ASSESSEE AT THE MOST CAN BE GRANTED BENEFIT AFTER EXAMINING EACH AND EVERY ACCOUNT. IN ORDER TO SUPPORT HIS CONTENTIONS, THE LD.DR RELIED ON THE JU DGMENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. SAKTHI FINANCE LTD., REPORTED AS 352 ITR 102 (MAD). 4. ON THE OTHER HAND, SHRI GIRISH S.SUNDAR, APPEARI NG ON BEHALF OF THE ASSESSEE SUBMITTED THAT ACCOUNTS HAVE BECOME STICKY AND THERE IS NO POSSIBILITY OF RECOVERY OF E ITHER INTEREST OR PRINCIPAL FROM THE SAID ACCOUNTS. THEREFORE, ESTI MATION ADDITION OF 20% IS AGAINST THE FACTS OF THE CASE. 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF BOTH THE SIDES AND HAVE PERUSED THE ORDERS OF I.T.A.NOS. 1686, 1687, 1688 & 1802/MDS/2013 5 THE AUTHORITIES BELOW AS WELL AS THE JUDGMENT RELIE D ON BY THE LD.DR. THE CIT(APPEALS) VIDE IMPUGNED ORDER DATED 25-07-2013, AFTER FOLLOWING THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE FOR THE AYS. 2003-04 & 2004-05, PARTLY ALLOWED THE APPEAL O F THE ASSESSEE FOR THE AY.2008-09 BY GRANTING RELIEF TO T HE EXTENT OF 80% WHERE THE LOANS HAVE BECOME STICKY ON ACCOUNT O F NON- RECOVERY OF INTEREST AND PRINCIPAL AMOUNTS OVER A P ERIOD OF TIME. ADDITION WAS SUSTAINED ONLY TO THE EXTENT OF 20%. AS FAR AS AY.2009-10 & 2010-11, THE CIT(APPEALS) HAS DISMISSE D THE APPEALS OF THE ASSESSEE AS SIMILAR RELIEF HAS ALREA DY BEEN GRANTED BY THE ASSESSING OFFICER. 6. THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. SAKTHI FINANCE LTD., (SUPRA) HAS HELD THAT: 18. MERE CHARACTERIZATION OF AN ACCOUNT AS NPA WOU LD NOT BY ITSELF BE SUFFICIENT TO SAY THAT THERE IS UN CERTAINTY AS REGARDS RELIZABILITY OF INCOME OR INTEREST INCOME T HEREON. ACCRUAL OF INTEREST IS A MATTER OF FACT TO BE DECID ED SEPARATELY FOR EACH CASE ON THE BASIS OF EXAMINATION OF THE FA CTS AND CIRCUMSTANCES. THE SAME WOULD REQUIRE AN ASSESSMEN T OF THE RELEVANT FACTS AND CIRCUMSTANCES OF EACH CASE. ONLY BY ASSESSMENT OF FACTS AND CIRCUMSTANCES, THE AUTHORIT Y COULD ARRIVE AT A DECISION WHETHER THERE IS UNCERTAINTY O F THE INTEREST ACCRUED ON NPA. ONLY WHEN THERE IS UNCERTAINTY OF I.T.A.NOS. 1686, 1687, 1688 & 1802/MDS/2013 6 REALIZABILITY OF INCOME OR INTEREST INCOME THEN IT IS NOT CHARGEABLE TO TAX. THE SYSTEM OF ACCOUNTING FOLLOWE D ONLY RECOGNIZES IT BRINGING THE INCOME TO BOOKS. THE AD OPTED ACCOUNTING POLICY I.E., RECOGNIZING INCOME ON NPA A CCOUNTS ONLY SUBJECT TO REALIZATION DOES NOT SERVE AS A STA NDARD CATEGORY. EARLIER, FOR AY. 2003-04 AND 2004-05 THE TRIBUNAL H AS GRANTED RELIEF TO THE ASSESSEE ON ESTIMATION BASIS. APPEAL S AGAINST THE ORDERS OF THE TRIBUNAL ARE PENDING BEFORE THE HONB LE MADRAS HIGH COURT FOR FINAL ADJUDICATION. AT THAT TIME THE DEC ISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. SAKTHI FINANCE LTD., (SUPRA) WAS NOT AVAILABLE BEFORE THE TRIBUNAL. IN THE PRESENT CASE, WE FIND THAT THE ASSESSING OFFICER HAS NOT EXAMINED WHETHER THE ACCOUNTS TERMED AS STICKY LOANS ARE IN FACT BAD A CCOUNTS, AND NO INTEREST OR PRINCIPAL IS RECOVERABLE. AS HAS BEEN OBSERVED BY THE HONBLE HIGH COURT IN THE CASE OF CIT VS. SAKTHI FINANCE LTD., (SUPRA), THAT MERE CHARACTERIZATION OF ACCOUNTS AS NPA WOULD NOT BE SUFFICIENT TO SHOW THAT THERE IS UNCERTAINTY AS REGARD REALISABILITY OF INCOME OR INTEREST THEREON. ONLY BY ASSESSMENT OF FACTS AND CIRCUMSTANCES, IT CAN BE DETERMINED WHETHER THERE I S UNCERTAINTY OF INTEREST ACCRUED ON NPA. FOLLOWING THE SAME ANA LOGY, IN THE INSTANT CASE, EACH AND EVERY ACCOUNT HAS TO BE EXAM INED TO FORM I.T.A.NOS. 1686, 1687, 1688 & 1802/MDS/2013 7 AN OPINION WHETHER THE PRINCIPAL AND INTEREST AMOUN T IS RECOVERED OR RECOVERABLE OR THE ACCOUNT HAS TO BE CLASSIFIED AS STICKY. THE FILES ARE REMITTED TO THE ASSESSING OFFICER FOR FRE SH ADJUDICATION ON THE ISSUE. THE ASSESSING OFFICER SHALL EXAMINE EAC H AND EVERY ALLEGED STICKY LOAN ACCOUNT AND THEREAFTER CLASSIFY THE ACCOUNTS. IF THE ASSESSEE IS ABLE TO SHOW THAT THE ACCOUNTS ARE STICKY, THE BENEFIT OF SAME BE GRANTED ACCORDINGLY TO THE ASSES SEE. 7. THE APPEALS OF THE ASSESSEE AS WELL AS THE REVEN UE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES IN THE AFOR ESAID TERMS. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF H EARING ON MONDAY, THE 9 TH DECEMBER, 2013 AT CHENNAI. SD/- SD/- (DR. O.K. NARAYANAN) (VI KAS AWASTHY) VICE PRESIDENT JUDICIAL MEMBER DATED: 9 TH DECEMBER, 2013 TNMM COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR