Assistant Commissioner of Income-tax, V. The Laxmi Co.op. Bank Ltd.,

ITA 180/PUN/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88796 (ITAT-PUNE)
• Duration Of Justice: 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-01-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 28-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B D SINGH
• Assessee Lawyers: S N DOSHI; SUDEEP V CHALLANI
• Keywords: Bad and doubtful debts
• Section: 145

Judgement Text

INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NOS. 180 & 181/PN/2014 (ASSESSMENT YEARS : 2009-10 & 2010-11) ACIT, CIRCLE-2, SOLAPUR .. APPELLANT VS. THE LAXMI CO-OPERATIVE BANK LTD., 319, SOUTH KASABA, SOLAPUR .. RESPONDENT PAN NO.AAAAT3183G ASSESSEE BY : SHRI S.N.DOSHI & SHRI SUDEEP V. CHALLANI DEPARTMENT BY : SHRI B.D. SINGH DATE OF HEARING : 12-01-2015 DATE OF PRONOUNCEMENT : 19-01-2015 ORDER PER R.K. PANDA, AM : THE ABOVE 2 APPEALS FILED BY THE REVENUE ARE DIRECT ED AGAINST THE COMMON ORDER DATED 25-11-2013 OF THE CI T(A)- III, PUNE RELATING TO ASSESSMENT YEARS 2009-10 & 20 10-11 RESPECTIVELY. SINCE IDENTICAL GROUNDS HAVE BEEN TA KEN BY THE REVENUE IN BOTH THESE APPEALS, THEREFORE, THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CO MMON ORDER. ITA NO.180/PN/2014 (A.Y.2009-10) : 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A CO-OPERATIVE SOCIETY ENGAGED IN BANKING BUSINESS. IT FILED ITS RETURN OF INCOME ON 29-09-2009 DECLARING TOTAL INCOME OF RS.1,71,70,230/-. DURING THE COURSE OF ASSESSMENT 2 PROCEEDINGS, THE ASSESSING OFFICER NOTED FROM THE B ALANCE SHEET THAT AN AMOUNT OF RS.12,92,93,013/- IS SHOWN AS INTEREST RECEIVABLE ON NPA ACCOUNT ON THE ASSETS SI DE AND A CONTRA ENTRY NPA INTEREST RESERVE ACCOUNT IS SHOW N ON LIABILITY SIDE. ON BEING ASKED BY THE ASSESSING OF FICER, IT WAS SUBMITTED THAT THE INTEREST ACCRUED ON NPA WAS NOT CREDITED TO THE P&L ACCOUNT BUT DIRECTLY TAKEN TO T HE BALANCE SHEET. ON BEING FURTHER ASKED BY THE ASSESSING OFF ICER AS TO WHY SUCH INTEREST ACCRUED ON NPAS SHOULD NOT BE TRE ATED AS INCOME OF THE ASSESSEE SINCE IT HAS BEEN FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THE ASSESSEE SUBMI TTED THAT INTEREST ON STICKY ADVANCES OR NPAS IS TO BE T REATED AS INCOME IN THE YEAR OF ACTUAL RECEIPT. FOR THE ABOV E PROPOSITION, THE ASSESSEE RELIED ON VARIOUS DECISIO NS, RBI INSTRUCTIONS AND THE CBDT CIRCULAR DATED 09-10-1984 . THE RELEVANT DETAILS OF INTEREST ON NPA ACCRUED AND COL LECTED WERE FURNISHED BEFORE THE ASSESSING OFFICER, THE DE TAILS OF WHICH ARE AS UNDER : NPA INTEREST RESERVE AS PER BALANCE SHEET AS AT RS.1 1,24,42,220/- 31-03-2008 NPA INTEREST RECOVERED AND CREDITED TO P&L A/C. DURING THE PERIOD FROM 01-04-2008 TO 31-03-2009 OUT OF THE BALANCE STOOD ON 31-03-2008 RS.1,76, 96,527/- NPA INTEREST OUTSTANDING ON 31-03-2009 RELATING TO PERIOD PRIOR TO 31-03-2008 RS.9,47,45,693/ - INTEREST ON NPA ACCOUNTS WHICH HAS NOT BEEN CREDITED TO P&L A/C. PERTAINING TO THE PERIOD 01-04-2008 TO 31-03-2009 RS.3,45,47,320/- NPA INTEREST RESERVE AS PER BALANCE SHEET AS ON 31-03-2009 RS.12,92,93,013/- 3 2.1 HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIE D WITH THE EXPLANATION GIVEN BY THE ASSESSEE. HE WAS OF T HE VIEW THAT THE ONLY SECTION UNDER WHICH SAID INTEREST COU LD BE ALLOWED AS DEDUCTION WAS SECTION 43D. HOWEVER, IT I S APPLICABLE ONLY IN CASE OF SCHEDULED BANKS OR FINAN CIAL CORPORATIONS. SINCE THE ASSESSEE IS NEITHER A SCHE DULED BANK NOR A FINANCIAL INSTITUTION, THEREFORE, IT IS NOT ENTITLED TO SUCH DEDUCTION. 2.2 SO FAR AS THE ARGUMENT OF THE ASSESSEE THAT IN VIEW OF THE RBI INSTRUCTIONS WHICH IS THE APEX CONTROLLING BODY OVER BANKS SUCH TREATMENT WAS REQUIRED TO BE GIVEN TO TH E NPA INTEREST, THE ASSESSING OFFICER HELD THAT SUCH GUID ELINES WERE ONLY FOR THE PURPOSE OF PRESENTATION OF NPA PR OVISIONS IN THE BALANCE SHEET AND IT HAS NO EFFECT ON THE TA XABILITY OF SUCH INCOME UNDER I.T. ACT. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE THE ASSESSING OF FICER MADE ADDITION OF RS.3,45,47,320/- BEING THE ACCRUED INTEREST ON NPA WHICH IS THE AMOUNT DEBITED BY THE ASSESSEE BANK IN THE INCOME & EXPENDITURE ACCOUNT. 3. IN APPEAL THE LD.CIT(A) FOLLOWING THE DECISION O F PUNE BENCH OF THE TRIBUNAL IN THE CASE OF ACIT, CIRCLE-3 , NANDED VS. OSMANABAD JANTA SAHAKARI BANK LTD., VIDE ITA NO.795/PN/2011, ORDER DATED 31-08-2012 FOR A.Y. 200 7-08 DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. 4. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVE NUE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE HON'BLE CIT(A) HAS ERRED IN DELETING THE AD DITION OF RS.3,45,47,320/- MADE BY THE A.O., ON ACCOUNT OF INT EREST ON NON PERFORMING ASSETS U/S. 43D OF THE I.T ACT. 1961. 4 2) THE LEARNED CIT(A), OUGHT TO HAVE APPRECIATED THE FACT THAT THE ASSESSEE IS A CO-OPERATIVE BANK AND NOT A SCHED ULED BANK. 3) THE LEARNED CIT(A), IS OUGHT TO HAVE HELD THAT THE PROVISIONS OF SECTION 43D ARE ONLY APPLICABLE TO FINAN CIAL INSTITUTIONS AND A SCHEDULED BANK. THUS, THE ASSESSEE BEIN G A NON-SCHEDULED BANK COULD NOT TAKE THE BENEFIT OF SECT ION 43D OF THE ACT. THEREFORE, THE LEARNED CIT(A) ON THIS CO UNT ITSELF OUGHT TO HAVE DISMISSED THE APPEAL OF THE ASSESSEE, CONFIR MING THE ADDITION MADE BY THE A.O. 4) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED CIT(A), ERRED IN APPRECIATING THE PROVISIONS OF SECTION 145 OF THE I.T ACT 1961 IN ITS CORRECT PERSPECTIVE. T HE LEARNED CIT(A) OUGHT TO HAVE HELD THAT THE PROVISIONS OF SECTI ON 145 PERMITS THE ASSESSEE TO EITHER FOLLOW MERCANTILE SYSTEM O F ACCOUNTING OR CASH SYSTEM OF ACCOUNTING. THE ASSESSEE IS NOT PERMITTED TO USE THE MIXED OR HYBRID SYSTEM OF ACCOUN TING. THUS, ON THIS COUNT ITSELF THE LEARNED CIT(A) SHOULD HA VE UPHELD THE ADDITION MADE BY THE AO ON ACCOUNT OF IN TEREST ON NPA. 5) THE CIT(A) OUGHT TO HAVE APPRECIATED THAT T HE HON'BLE SUPREME COURT IN SOUTHERN TECHNOLOGIES LIMITED VS. JC IT 320 ITR 577 (SC) HAS HELD THAT THE RBI DIRECTIONS UNDER R BI ACT ARE PRUDENTIAL NORMS BUT HAVE NOTHING TO DO WITH COMPUTATION OF TAXABILITY OF PROVISIONS OF NPA UNDER THE I.T.ACT, 1961. EVEN THOUGH THE RBI DIRECTIONS DEVIAT E FROM THE ACCOUNTING PRACTICE AS PROVIDED BY THE COMPANIES ACT, THEY DO NOT OVERRIDE THE PROVISIONS OF I.T.ACT, 1961. RBI DIR ECTIONS AND INCOME TAX ACT, 1961 OPERATE IN DIFFERENT FIELDS. TH EREFORE, THE ORDER OF THE AO DESERVES TO BE UPHELD. 6) THE LEARNED CIT(A) OUGHT TO HAVE HELD THAT T HE ASSESSEE DOES NOT SATISFY THE TWO CONDITIONS IN THE CBDT'S CIRCUL AR NO.F-201/81/84 ITA-II DATED 09/10/1984 AND HENCE C OULD NOT AVAIL THE BENEFITS OF THE CIRCULAR. THE APPELL ANT HEREIN REPRODUCES THE TWO CONDITIONS OF THE CIRCULAR. (A) THE ASSESSEE SHOULD BE BANKING COMPANY. (B) SUCH INTEREST SHOULD HAVE REMAINED UNCOVERED FOR CONSECUTIVELY FOR THREE PREVIOUS YEARS. 7) THE LEARNED CIT(A) ERRED IN PLACING RELIANCE ON THE DECISION OF ITAT IN THE CASE OF ACIT, CIRCLE-3, NANDE D VS. OSMANABAD JANATA SAHAKARI BANK LTD. IN ITA NO. 795/PN/2011 ORDER DATED 31/08/2012, WHEREIN IT IS H ELD THAT PROVISIONS OF SECTION 43D WERE APPLICABLE IN THE CASE OF ASSESSEE CO-OPERATIVE BANK UNLESS ACCRUED INTEREST WAS ROUTED THROUGH P& L ACCOUNT. HOWEVER, THE ABOVE DE CISION HAS NOT BEEN ACCEPTED BY THE CIT, AURANGABAD AND APP EAL U/S.260A HAS BEEN FILED WITH THE HONBLE HIGH COURT O F BOMBAY, BENCH AT AURANGABAD, VIDE LODGING NO.1613/2 013 DATED 15-01-2013. FURTHER, APPEALS U/S.260A ON THE S IMILAR ISSUE HAVE ALSO BEEN FILED BY THE DEPARTMENT IN THE CA SE OF SAMARATH SAHAKARI BANK LTD., SOLAPUR FOR A.Y. 2007- 08 AND A.Y. 2008-09 (LODGING NO.626 & 625 OF 2013). 5 8) THE ORDER OF THE CIT(A) BE VACATED AND THAT OF T HE AO BE RESTORED. 9) THE APPELLANT CRAVES LEAVE TO ADD, AMEND, SUBSTITUT E OR DELETE ANY OF THE GROUNDS URGED HEREIN ABOVE AS AND W HEN FOUND NECESSARY. 5. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFI CER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF TH E ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECI SIONS CITED BEFORE US. WE FIND THE PUNE BENCH OF THE TRI BUNAL IN THE CASE OF OSMANABAD JANTA SAHAKARI BANK LTD., (SU PRA) HAS CONSIDERED AN IDENTICAL ISSUE AND UPHELD THE OR DER OF THE CIT(A) WHERE IT WAS HELD THAT INTEREST ON STICK Y ADVANCES CANNOT BE BROUGHT TO TAX ON ACCRUAL BASIS. THE RELEVANT OBSERVATION OF THE TRIBUNAL READS AS 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- 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.)], I N WHICH THE HONBLE DELHI HIGH COURT HAS CONSIDERED THE DEC ISION IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. [320 ITR 577 (SC)]. THE TRIBUNAL FINALLY HELD THAT THE INTEREST INCOME RELATABLE 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 AC CRUAL 6 BASIS. THE PRINCIPLE IS THAT IT IS IMMATERIAL WHETH ER IT WAS ACTUALLY RECEIVED OR NOT, BUT IF AN INCOME IS EXPEC TED TO BE RECEIVED, THEN IT SHOULD BE BROUGHT TO BOOKS OF ACC OUNT AS AN INCOME ACCRUED TO THE ASSESSEE. CONTRARY TO THIS RECOGNIZED PRINCIPLE, THIS SECTION HAS PRESCRIBED T HAT AN INCOME BY WAY OF INTEREST SHALL BE CHARGEABLE TO TA X IN THE PREVIOUS YEAR IN WHICH IT IS CREDITED. THE WORDS C REDITED AND ACTUALLY RECEIVED HAS BEEN HIGHLIGHTED HEREIN ABOVE WHILE REPRODUCING THE SECTION IN QUESTION. THE OTHE R DEVIATION FROM THE SAID ACCEPTED PRINCIPLE OF ACCOU NTANCY IS THAT AN INCOME BY WAY OF INTEREST SHALL BE CHARGEAB LE TO TAX IN THE PREVIOUS YEAR IN WHICH IT IS ACTUALLY RE CEIVED. THE ACT SAYS THAT THE INCIDENCE OF CREDIT OR ACTUALL Y RECEIVED, WHICHEVER IS EARLIER IS TO BE TAKEN INTO ACCOUNT FO R THE PURPOSE OF CHARGEABILITY OF INCOME BY WAY OF INTERE ST. SIMULTANEOUSLY, IT IS NOTEWORTHY THAT THIS SECTION IS AN OVERRIDING SECTION BECAUSE THE OPENING WORD IS NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT. THEREFORE, IN SPITE OF ANYTHING CONTAINED IN THE ACT, THE PROVISIONS OF THIS SECTIO N SHALL OVERRIDE THOSE PROVISIONS. ONCE THE STATUTE HAS CATEGORICALLY MADE A LAW IN RESPECT OF PUBLIC FINAN CIAL INSTITUTIONS THAT INTEREST IS CHARGEABLE TO TAX EIT HER IN THE YEAR IN WHICH CREDITED OR ACTUALLY RECEIVED, WHICHE VER IS EARLIER, THEN IT IS COMPULSORY TO ABIDE BY THE SAID RULE. ACCORDING TO US, NO SCOPE IS LEFT WITH THE REVENUE AUTHORITIES TO IGNORE THESE PROVISIONS DUE TO UNAMB IGUOUS 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 AL SO 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 BEEN DEFINED AND IN THE ABSENCE OF ANY CONTRARY MATERIAL, WE HER EBY HOLD THAT THE ASSESSEE IS COVERED BY ONE OF THE ENT ITIES, HENCE THE PROVISIONS OF SECTION 43-D ARE TO BE APPL IED. (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 PROPER DETERMINATION OF THE INCOME OF MONEY LENDERS AND BA NKS, THE CENTRAL BOARD OF DIRECT TAXES HAS ISSUED A CIRC ULAR DATED OCTOBER 6, 1952, PROVIDING THAT WHERE INTERES T ACCRUING ON DOUBTFUL DEBTS IS CREDITED TO A SUSPENS E ACCOUNT, IT NEED NOT BE INCLUDED IN ASSESSEES TAXA BLE INCOME, PROVIDED THE INCOME TAX OFFICER IS SATISFIE D THAT RECOVERY IS PRACTICALLY IMPROBABLE. THE CBDT U/S.11 9 OF THE I.T.ACT HAS POWER TO ISSUE CIRCULARS IN EXERCISE OF ITS STATUTORY POWERS. IF THE BOARD CONSIDER IT NECESSAR Y TO LAY DOWN 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 UN LESS AND UNTIL HELD AS ULTRA VIRES BY A COURT OF LAW. T HE BOARD HAS POWERS TO RELAX THE SEVERITY OR THE STRICTNESS OF LAW AND THE AUTHORITIES ARE REQUIRED TO FOLLOW THOSE IN STRUCTIONS AS HELD IN THE CASE OF C.B. GAUTAM VS. UNION OF IND IA 108 CTR 304 (SC) & 110 CTR 179 (SC); NAVNITLAL C.ZAVERI 56 ITR 198(SC) AND K.P.VARGHESE 131 ITR 597 (SC). 7 IN THE LAND-MARK DECISION, THE HON'BLE SUPREME COUR T IN THE CASE OF UCO BANK VS. CIT (1999) 237 ITR 889 (SC ) HAS THEREFORE HELD, FIRST, THAT A BENEFICIAL CIRCULAR I S NOT TO BE TREATED AS INCONSISTENT WITH THE PROVISIONS OF STAT UTE AND BINDING ON THE AUTHORITIES. SECOND, THAT IN RESPECT OF INTEREST ON STICKY ADVANCES INTEREST INCOME IS TO BE TAXED ONLY WHEN ACTUALLY RECEIVED AS 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 CA SE OF STATE BANK OF TRAVANCORE REPORTED IN 110 ITR 336 (K ER.), WHEREIN IT WAS HELD THAT THE ASSESSEE, A BANKING CO MPANY, DID NOT CREDIT IN ITS ACCOUNT THE INTEREST THAT HAD ACCRUED ON STICKY ADVANCES BECAUSE THE ASSESSEE FELT THAT THE INTEREST COULD NOT TO BE REALISED. IT CREDITED THE INTEREST TO A SEPARATE ACCOUNT KNOWN AS INTEREST SUSPENSE ACCO UNT. ON REFERENCE, THE HON'BLE COURT HAS HELD THAT THERE WAS AN ACCRUAL OF INCOME LIABLE TO INCOME-TAX AND THE ASSE SSEE WAS NOT JUSTIFIED IN NOT CREDITING THE INTEREST INC OME ON SUCH STICK ADVANCES IT ITS ACCOUNTS. HOWEVER, LAT ER ON AT THE HON'BLE APEX COURT WHILE PRONOUNCING THE JUDGME NT OF THE SAID STATE BANK OF TRAVANCORE VS. CIT REPORTED IN (1986)158 ITR 102(SC), THERE WERE HON'BLE THREE JUD GES PRESIDING THE COURT, OUT OF WHICH HONBLE TWO JUDGE S WERE IN THE OPINION THAT THE INTEREST ON STICKY ADVANCE S WAS RIGHTLY TREATED AS INCOME WHICH HAD ACCRUED TO THE APPELLANT. THERE WAS A DESCENDING NOTE BY ONE OF TH E 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 THEORETI CALLY ACCRUED, I.E. SUBJECT TO TAX UNDER THE ACT. NEVERTH ELESS, THAT DECISION WAS NOT FOLLOWED WHILE DECIDING THE A PPEAL 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 INTE REST IS TO BE ADDED AS INCOME ONLY WHEN ACTUALLY RECEIVED O R 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 IF T HE STATUTE HAS USED THE TERMINOLOGY FOR THE CHARGEABILITY OF I NTEREST ON THE BASIS WHEN CREDITED OR ACTUALLY RECEIVED , THEN IN OUR OPINION NO AMBIGUITY HAS BEEN LEFT BY THE STATU TE. IF THE STATUTE IS SO CLEAR THAT AN INTERPRETATION CAN EASILY BE MADE, THEN THAT EXACT MEANING SHOULD BE GIVEN TO TH E LANGUAGE OF THE SECTION. FOR THIS LEGAL PROPOSITION WE PLACE RELIANCE 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 UNFOLD THE LEGISLATIVE INTENT BECOMES IMPERMISSIBLE. THE SUPPOSED INTENTIO N OF THE LEGISLATURE CANNOT THEN BE APPEALED TO WHITTLE DOWN THE STATUTORY LANGUAGE WHICH IS OTHER-WISE UNAMBIGU OUS. IF THE INTENDMENT IS NOT IN THE WORDS, IT IS NOWHERE E LSE. 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. 8 WHEN WORDS ACQUIRE A PARTICULAR MEANING OR SENSE BE CAUSE OF THEIR AUTHORITATIVE CONSTRUCTION BY SUPERIOR COU RTS, THEY ARE PRESUMED TO HAVE BEEN USED IN THE SAME SENSE WH EN USED IN SUBSEQUENT LEGISLATION IN THE SAME OR SIMIL AR 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 THE CONTEXT, SHOULD NO T BE ADOPTED. IN THIS RESPECT, TAXING STATUTES ARE NOT D IFFERENT 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. SECTION 43-D HAS TO BE APPLIED IN ITS LETTER AND SPIRIT. IT IS PERTINEN T TO MENTION THAT LATER ON, IN THE CASE OF CIT VS. BANK OF AMERI CA S.A. 262 ITR 504 (BOM) THE QUESTION OF INTEREST ON STIC KY LOANS WAS DECIDED IN FAVOUR OF THE ASSESSEE AND HE LD THAT THE QUESTION IS TO BE ANSWERED IN FAVOUR OF THE ASS ESSEE FOLLOWING THE DECISION OF UCO BANK REPORTED AT 237 ITR 889(SC) :: 240 ITR 355 (SC). LIKEWISE, IN AN ANOTHE R CASE OF CIT VS. STATE BANK OF INDIA 262 ITR 662 (BOM.) A GAIN IT WAS HELD THAT THE AMOUNT CREDITED TO THE INTEREST S USPENSE ACCOUNT WAS NOT TAXABLE FOLLOWING THE DECISION PRON OUNCED IN THE CASE OF UCO BANK (SUPRA). (V) JUDGEMENT IN FAVOUR OF REVENUE : FROM THE SIDE OF THE REVENUE AN ORDER OF THE TRIBUN AL HAS BEEN VEHEMENTLY RELIED UPON AND THIS IS THE BASIC R EASON OF THE ELABORATE DISCUSSION MADE HEREINABOVE SO AS TO UNFOLD THE CONTROVERSY. IN THE SAID DECISION OF THE TRIBUN AL, VIZ. JT.CIT V/S. INDIA EQUIPMENT LEASING LTD. (2008)111 ITD 37 (CHENNAI), THE RESPECTED CO-ORDINATE BENCH HAS EXPR ESSED THAT QUOTE PRIOR TO INSERTION OF SECTION 43D WITH EFFECT FROM 1-4-1991, RECOGNITION OF INCOME WAS ON THE BAS IS OF CIRCULAR OF 9-101984. IT SAID THAT FOR FIRST THREE YEARS THE INCOME MAY BE TAKEN ON ACCRUAL BASIS AND FROM 4TH Y EAR ONWARDS, THE INCOME IN RESPECT OF DOUBTFUL DEBTS WA S TO BE RECOGNIZED ON RECEIPT BASIS. SINCE THE INCOME WAS T O BE ASSESSED FOR FIRST THREE YEARS ON ACCRUAL BASIS, PR OVISIONS OF SECTION 43D WERE INSERTED IN THE ACT. CIRCULAR NO.6 21, DATED 19-12-1991 GIVES THE LEGISLATIVE INTENTION ST ATING THAT SECTION 43D WAS INSERTED WITH A VIEW TO IMPROV ING THE VIABILITY OF BANKS, PUBLIC FINANCIAL INSTITUTIONS E TC., SO AS TO PROVIDE THAT INTEREST ON STICKY LOANS SHALL BE CHAR GED TO TAX ONLY IN THE YEAR IN WHICH THE INTEREST IS ACTUALLY RECEIVED OR CREDITED TO THE PROFIT AND LOSS ACCOUNT. THIS BENEF IT WAS EXTENDED WITH EFFECT FROM 1-4-2000 IN THE CASE OF P UBLIC 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, P UBLIC FINANCIAL INSTITUTIONS, ETC. THE PROVISIONS OF SECT ION 43D AS STOOD AT RELEVANT TIME CONTAINED AN EXPRESSION 'THE INCOME BY WAY OF INTEREST IN RELATION TO SUCH CATEGORIES O F BAD OR DOUBTFUL DEBTS AS MAY BE PRESCRIBED HAVING REGARD T O THE GUIDELINES ISSUED BY THE RBI IN RELATION TO SUCH DE BTS'. THIS EXPRESSION CONTINUES TO EXIST IN THE NEWLY SUBSTITU TED SECTION 43D APPLICABLE WITH EFFECT FROM 1-4-2000. T HIS SHOWS THAT THE RBI GUIDELINES IN RESPECT OF SCHEDUL ED 9 BANKS, PUBLIC FINANCIAL INSTITUTIONS ETC., WERE NOT SUFFICIENT FOR RECOGNITION OF INCOME ON CASH BASIS FOR THE PUR POSES OF INCOME-TAX. THE INCOME OF SUCH ASSESSEES WAS DETERM INED AS PER CIRCULAR DATED 9-10-1984. BECAUSE OF THIS RE ASON, SECTION 43DWAS INSERTED IN THE STATUTE. RBI GUIDELI NES IN CASE OF NBFC ARE FOR THE PURPOSE OF CONTROL AND SUP ERVISION WITH RESPECT TO PUBLIC INTEREST AND VIABILITY OF TH E NBFC. 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, THAT TOO BY A GUIDELINE ISSUED FOR DIFFERENT PURPOSES BY AN AUTHO RITY OTHER THAN THE PARLIAMENT IN OTHER WORDS, THE DOCTR INE OF 'CASUS OMISSUS' WILL DEEM TO HAVE BEEN APPLIED WHIC H 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 T HE RESPECTED TRIBUNAL WAS THAT IF THE CONTENTION OF TH E ASSESSEE WAS TO BE ACCEPTED, THEN IT WOULD AMOUNT T O INSERTION OF NBFC IN SECTION 43-D OF THE I.T.ACT. AS AGAINST THAT, AS FAR AS THE ASSESSEE IS CONCERNED, IT IS AN ACCEPTED FACT THAT THE ASSESSEE IS A COOPERATIVE BA NK AND NOT A NON-BANKING FINANCIAL COMPANY AND THIS NOTEWO RTHY 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 ARGUMEN TS RAISED FROM THE SIDE OF THE REVENUE. A DECISION IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. VS. JT. CIT 320 ITR 5 77 (SC) HAS BEEN CITED BUT THE FUNDAMENTAL DIFFERENCE IS TH AT THE ISSUE BEFORE THE HONBLE COURT WAS IN RESPECT OF PR OVISION FOR NPA AND DEBITED TO P&L ACCOUNT BY A NBFC. THE S AID PROVISION WAS UNDISPUTEDLY MADE BY THE SAID NBFC AS PER THE PRUDENTIAL NORMS MADE BY THE RESERVE BANK. THER EFORE WE WANT TO MAKE IT CLEAR THAT THE QUESTION 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 EXPLANATION TO SECTION 36(1)(VII) OF THE I.T. ACT. FOR THE SAKE OF READY R EFERENCE, RELEVANT PARAGRAPH FROM THE HELD PORTION IS REPRODU CED BELOW: THE INCOME-TAX IS A TAX ON REAL INCOME, I.E., T HE PROFITS ARRIVED AT ON COMMERCIAL PRINCIPLES SUBJECT TO THE PROVISIONS OF THE ACT. THEREFORE, IF BY THE EXPLANA TION 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 T HE TOTAL INCOME UNDER THE INCOME-TAX ACT FAILING WHICH ONE C ANNOT ASCERTAIN THE REAL PROFITS. THE PROVISION FOR NON-P ERFORMING 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 ADD BACK TO THAT EXT ENT IN THE COMPUTATION OF TOTAL INCOME UNDER THE INCOME-TA X ACT. THEREFORE THE DISTINCTION CAN EASILY BE DRAWN THAT IN THE APPEAL BEFORE US THE QUESTION IS ACCRUAL OF INTERES T INCOME ON STICKY LOAN BUT IN THIS CITED DECISION THE QUEST ION BEFORE HE APEX COURT WAS ABOUT THE ADMISSIBILITY OF PROVIS ION MADE IN RESPECT OF DOUBTFUL DEBTS. 10 (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 LIABILITY TO TAX CANNOT BE ATT RACTED. NOW AT PRESENT THE SITUATION IS THAT THE HON'BLE MA DRAS HIGH COURT IN THE CASE OF CIT VS. ELGI FINANCE LTD. 293 ITR 357 (MAD.) HAS TAKEN A VIEW THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF LEASE, FINANCE A ND HIRE PURCHASE AND THAT THE PRINCIPLE OF ACCRUAL COMES IN TO 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 OF 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 OF ACCRU AL WOULD ARISE OR NOT, NEVERTHELESS, THE INTEREST FROM SUCH NPA WOULD BE TAXED IN THE APPROPRIATE ASSESSMENT YEAR O N THE BASIS OF ACTUAL RECEIPT. IT IS WORTH TO MENTION THA T FOR THIS DECISION, THE HON'BLE 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 AN D IT IS NOT ROUTED THROUGH THE PROFIT & LOSS ACCOUNT. MOREOVE R, THE ISSUE OF THE TAXABILITY OF THE INTEREST ON THE STIC KY LOSSES/ADVANCES, IS COVERED IN FAVOUR OF THE ASSESS EE BY THE DECISION OF THE COORDINATE BENCHES IN THE CASE OF THE DURGA COOPERATIVE URBAN BANK LTD., VIJAYAWADA (SUPR A) AND KARNAVATI COOPERATIVE BANK LTD. (SUPRA). WE FI ND NO REASON TO INTERFERE WITH THE REASONED ORDER OF THE LD. CIT(A) AND ACCORDINGLY THE SAME IS CONFIRMED. IN T HE RESULT, THE REVENUES GROUND IS DISMISSED. 5.1 SINCE THE LD.CIT(A) WHILE DECIDING THE ISSUE HA S FOLLOWED THE DECISION OF THE PUNE BENCH OF THE TRIB UNAL, THEREFORE, WE FIND NO REASON TO DEVIATE FROM THE VI EW ALREADY TAKEN BY THE TRIBUNAL. MERELY BECAUSE THE REVENUE HAS NOT ACCEPTED THE DECISION OF THE TRIBUNAL AND H AS FILED AN APPEAL BEFORE THE HONBLE HIGH COURT CANNOT BE A GROUND TO TAKE A DIFFERENT VIEW UNTIL AND UNLESS THE SAME IS REVERSED BY A HIGHER COURT. IN THIS VIEW OF THE MA TTER, WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) AND UP HELD THE 11 SAME. THE GROUNDS RAISED BY THE REVENUE ARE ACCORD INGLY DISMISSED. ITA NO.181/PN/2014 (A.Y. 2010-11) : 6. AFTER HEARING BOTH THE SIDES, WE FIND THE GROUND S RAISED BY THE REVENUE IN THE IMPUGNED APPEAL ARE ID ENTICAL TO THE GROUNDS RAISED IN ITA NO.180/PN/2014. WE HA VE ALREADY DECIDED THE ISSUE IN THE PRECEDING PARAGRAP HS AND THE GROUNDS RAISED BY THE REVENUE HAVE BEEN DISMISS ED. FOLLOWING THE SAME REASONINGS, THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 7. IN THE RESULT, BOTH THE APPEALS FILED BY THE REV ENUE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 19-01-2015. SD/- SD/- (SUSHMA CHOWLA) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE DATED: 19 TH JANUARY, 2015 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. CIT(A)-III, PUNE 4. CIT-III, PUNE 5. THE D.R, A PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // ASSISTANT REGISTRAR, ITAT, PUNE BENCHES, PUNE