The Deputy Commissioner of Income Tax, Circle - 2(1), Mangalore V. M/s The Mangalore Catholic Co-operative Bank Limited, Mangalore

ITA 172/PAN/2018

• Counselvise Citation: [NaN] 107 COUNSELVISE.COM (IT) 2263 (ITAT-PANAJI)
• Duration Of Justice: 3 year(s) 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-04-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: WT(D)
• Assessment Year: 2014-2015
• Appeal Filed On: 25-04-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: RANJAN KUMAR
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 143(3); 92; 250

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE DR. M. L. MEENA, ACCOUNTANT MEMBER & SHRI ANIKESH BANERJEE, JUDICIAL MEMBER I.T.A. No. 172/PAN/2018 Assessment Year: 2014-15 Deputy Commissioner of Income Tax, Circle – 2(1), Mangalore (Appellant) Vs. M/s. The Mangalore Catholic Co-perative Bank Ltd. 16-06-686 St. Aloysius College Rd Hampankatta Mangalore - [PAN: AAAAT5268Q] (Respondent) Appellant by None Respondent by Shri Ranjan Kumar, CIT, D/R Date of Hearing 30.03.2022 Date of Pronouncement 01.04.2022 ORDER Per Dr. M.L. Meena, AM : The captioned appeal is filed against the order of the Learned Commissioner of Income Tax (Appeals)- Mangaluru, [hereinafter the “ld. CIT(A)] passed u/s 250 of the Act (hereinafter the “Act”) dt. 12/02/2018, for the Assessment Year 2014-15. 2. None appeared on behalf of the assessee. The Department has challenged the deletion of addition on account of interest accrued on Non Performing Assets (NPA) loans on receipt basis. The assessee is a Co-operative Society registered with the Department of Co-operative Societies, Karnataka and functions as a Co-operative Bank under license from the RBI and exclusively running the business of providing credit facilities to its members. The assessee filed revised return declaring total income of Rs. 2,54,53,091 on 29.09.2015 for the impugned assessment year. The AO in the assessment order u/s 143(3) made the following additions:  Interest on Non Performing Advances of Rs. 5,83,91,709/- on the ground that it has to be accounted for on accrual basis and not on receipt basis. I.T.A. No. 111/PAN/2018 Assessment Year: 2009-10 I.T.A. No. 112/PAN/2018 Assessment Year: 2010-11 I.T.A. No. 113/PAN/2018 Assessment Year: 2012-13 I.T.A. No. 114/PAN/2018 Assessment Year: 2013-14 M/s. N.B. Hiremath 2  Rs. 10,10,915/- as inadmissible deduction on account of amortization of premium on investments held under the category held to maturity  Rs. 4,09,834/- as inadmissible deduction on account of Provisions made to Internal audit and Statutory Audit fees which is paid in subsequent financial year 3. Aggrieved the assessee carried the matter in appeal before the ld. CIT(A). The ld. CIT(A) granted relief to the assessee by holding that identical grounds were allowed by him in the preceding Assessment years 2012-13 & 2013-14 against which the Department went into appeal before the Hon’ble High Court of Karnataka. The Hon’ble High Court dismissed the appeal of the department on the issue of interest on NPAs and granted relief to the assessee. The ld. CIT(A) deleted the addition made by the ld. AO. 4. Aggrieved the revenue is in appeal before us. 5. The ld. D/R has relied on the order of the ld. AO passed u/s 143(3) of the Act dt. 19/12/2016 and contended that the learned CIT(A) ought to have upheld the decision of the Assessing Officer in respect of the addition made in the case of interest accrued on Non performing assets as the assessee has already identified and accounted the interest on NPAs and as such it can be clearly held that this interest on NPAs has also accrued to the assessee as on 31.03.2014 and is taxable. The assessee has neither followed mercantile nor cash system but followed hybrid system. By virtue of the provisions of section 145 of the Income Tax Act, the assessee is required to follow either cash or mercantile system of accounting to compute the real income. The CIT(A) deleted the amount ignoring the fact that the assessee is following the mercantile system of accounting as stated in the form 3CD.The decision of the Hon'ble High Court of Karnataka relied upon by the LD.CIT(A) in the case of CIT vs Canfin Homes I.T.A. No. 111/PAN/2018 Assessment Year: 2009-10 I.T.A. No. 112/PAN/2018 Assessment Year: 2010-11 I.T.A. No. 113/PAN/2018 Assessment Year: 2012-13 I.T.A. No. 114/PAN/2018 Assessment Year: 2013-14 M/s. N.B. Hiremath 3 Ltd(2014) 5Tax Corp (DT)49593 has not been accepted by the department as SLP has been filed in Supreme court. 6. Heard the ld. D/R at length. After perusing the order of the ld. CIT(A) and perusing the facts on record on the issue of interest on NPA loans on receipt basis, we find the issue has been considered by various Tribunals on identical facts and the Jurisdictional High Court in the assesee’s own case has decided the issue in respect of the Assessment Years 2012-13 & 2013-14 dismissing the appeal of the department. “Learned counsel appearing for the appellants fairly submits that the question raised in this appeal is answered against the appellants by this court in CIT v Canfin Homes Líd (2012) 347 ITR (Kar). The appeal is accordingly dismissed.” The ld. CIT(A) has also discussed the decision of the ITAT Bangalore Bench in the case of Shri Vijay Mahantesh Co-operative Bank Ltd. Hungund, Bagalkot vs. JCIT, Bijapur, Range in ITA No. 434/Bang/2013 dt. 26/09/2014 wherein the ITAT has relied on the decision of the Hon’ble Jurisdictional High Court in the case of CIT v Canfin Homes Líd (2012) 347 ITR (Kar), wherein at para 8 of the judgment, it has been held as under:- “Therefore, it is clear if an assessee adopts mercantile system of accounting and in his accounts he shows a particular income as accruing, whether the amount is really accrued or not is liable to bring said income to tax. His accounts should reflect true and correct statement of affairs. Merely because the said amount; accrued was not realized immediately cannot be a ground to avoid payment of tax. But, if in his account it is clearly stated that though a particular income is due to him but is not possible to recover the same, then it cannot be said to have been accrued and said amount cannot be brought to tax. In the instant case we are concerned with a non performing asset. As the definition of nonperforming asset shows an asset becomes non performing when it ceases to yield income. Nonperforming asset is an asset in respect of which interest has remained unpaid and has become past due. Once a particular asset is shown to be a nonperforming asset then the assumption is it is not yielding any revenue. When it is not yielding any revenue, the question of showing that revenue and paying tax would not arise. As is clear from the policy ITA No. 257/Bang/2012 guidelines issued by the National Housing Bank, the income from non performing asset should be recognized only when it is actually received. That is what the Tribunal held in the instant case. Therefore the contention of the revenue that in respect of non performing assets even though it does not yield any income as the assessee has adopted a mercantile system of accounting, he has to pay tax on the revenue which has accrued notionally is without any basis.” 7. Consistent with the view taken by the ITAT Bangalore Bench of the Tribunal and respectfully following the judgment of the Hon’ble Karnataka High Court (supra) I.T.A. No. 111/PAN/2018 Assessment Year: 2009-10 I.T.A. No. 112/PAN/2018 Assessment Year: 2010-11 I.T.A. No. 113/PAN/2018 Assessment Year: 2012-13 I.T.A. No. 114/PAN/2018 Assessment Year: 2013-14 M/s. N.B. Hiremath 4 we uphold the order of the ld. CIT(A) on this issue and dismiss the grounds raised by the revenue. 8. In the result, appeal of the revenue is dismissed. Order pronounced in the open court on 01.04.2022 Sd/- Sd/- (Anikesh Banerjee) (Dr. M.L. Meena) Judicial Member Accountant Member SC, Sr.P.S. Copy of the order forwarded to: (1)The Appellant:- (2) The Respondent :- (3) The CIT:- (4) The CIT (Appeals):- (5) The DR, I.T.A.T.:- True Copy By Order Sr. Private Secretary ITAT