A.C.I.T Cir - Nadia., Nadia V. Nadia District Cent Co- Operative Bank Ltd., Nadia

ITA 1851/KOL/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83009 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-08-2014
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 14-12-2012
• Court: TRIBUNAL
• Department Lawyers: USMANI
• Assessee Lawyers: SOUMITRA CHOUDHURY S K GHOSH
• Keywords: Additional evidence; Bad and doubtful debts
• Section: 143(3)

Judgement Text

, A , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA () BEFORE , . . . . ! ! ! ! /AND ' #!' ' #!' ' #!' ' #!' , ) [BEFORE SHRI P. K. BANSAL, AM & SHRI MAHAVIR SINGH, JM] !$ / I.T.A NO.1851/KOL/2012 #% &'/ ASSESSMENT YEAR: 2007-08 ASSTT. COMMISSIONER OF INCOME-TAX, VS. NADIA DIS TRICT CENT COOPERATIVE BANK LTD. CIRCLE-NADIA (PAN:AAALN0319M) ()* /APPELLANT ) (+,)*/ RESPONDENT ) DATE OF HEARING: 24.07.2014 DATE OF PRONOUNCEMENT: 01.08.2014 FOR THE APPELLANT: SHRI S. H. USMANI, JCIT, SR. DR FOR THE RESPONDENT: S/SHRI SOUMITRA CHOUDHURY, S . K. GHOSH & B. SAHA, ADVOCATES / ORDER PER SHRI MAHAVIR SINGH, JM : THIS APPEAL BY REVENUE IS ARISING OUT OF ORDER OF CIT(A)-XXXVI, KOLKATA IN APPEAL NO. 1002/CIT(A)-XXXVI/KOL/CIR.-NADIA/09-10 DATED 13 .10.2012. ASSESSMENT WAS FRAMED BY DCIT, CIRCLE-NADIA U/S. 143(3) OF THE INCOME-TAX AC T, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEARS 2007-08 VIDE HIS ORDER D ATED 29.12.2009. 2. THE ONLY ISSUE IN THIS APPEAL OF REVENUE IS AGAI NST THE ORDER OF CIT(A) ALLOWING THE CLAIM OF INTEREST ON ACCOUNT OF PROVISIONS FOR OVER DUE INTEREST AMOUNTING TO RS.1,39,12,476/-, PROVISION FOR NPA RS.25,46,168/-, PROVISION ON STAN DARD ASSETS RS.2,96,981/- AND PROVISION FOR AMORTIZATION OF GOVERNMENT SECURITIES RS.32,65,288/ -, BY ADMITTING ADDITIONAL EVIDENCES IN CONTRAVENTION OF RULE 46A OF I. T. RULES, 1962 (HER EINAFTER REFERRED TO AS THE RULES). FOR THIS, ASSESSEE HAS RAISED FOLLOWING THREE GROUNDS: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE LD. CIT(A)-XXVI, KOLKATA, ERRED IN ADMITTING ADDITIONAL EVIDENCE AT THE TIME OF APPELLATE PROCEEDINGS IN CONTRAVENTION OF RULE 46A IN DELETING ADDITIONS ON ACCOUNT OF PROVISION FOR OVERDUE INTEREST AMOUNTING TO RS.1,39,12,476/-, PROVISION F OR NPA AMOUNTING TO RS.25,46,168/-, PROVISION ON STANDARD ASSETS OF RS.2,96,981/- AND P ROVISION FOR AMORTIZATION OF GOVERNMENT SECURITIES AMOUNTING RS.32,65,288/-. 2. THE LD. CIT(A)-XXXVI, KOLKATA ERRED IN FACT AS W ELL AS IN LAW BY NOT ASCERTAINING THE AMOUNT OF INTEREST OVERDUE BEFORE GIVING RELIEF TO THE ASSESSEE. 3. THE LD. CIT(A)-XXXVI, KOLKATA ERRED IN LAW AS WE LL AS IN FACT BY NOT ASCERTAINING THE EXTENT OF UTILIZATION OF THE PROVISIONS BY THE ASSE SSEE UNDER VARIOUS HEADS BFORE SUMMARILY DELETING THE ADDITIONS OF THE AO. 2 ITA NO.1851/K/2012 NADIA DIST. CENT COOP. BANK LTD., AY 2007-08 3. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS MADE DISALLOWANCE OF THE FOLLOWING PROVISIONS : A. PROVISIONS FOR OVERDUE INTEREST RS.1,39,12, 476/- B. PROVISION FOR NON-PERFORMING ASSETS RS. 25, 46,148/- C. PROVISION FOR STANDARD ASSETS RS. 2,96,98 1/- D. PROVISION FOR G-SEC. (GOVT. SECURITIES) RS. 3 2,65,288/- ASSESSEE IS A CENTRAL COOPERATIVE BANK OF NADIA DIS TRICT, WEST BENGAL OPERATING UNDER BANKING REGULATION ACT, 1949 AND RULES & REGULATION S FRAMED BY RBI ARE BINDING ON THE ASSESSEE. THE ASSESSEE FOLLOWING THE GUIDELINES ISS UED BY RBI AND AUDIT MANUAL OF STATE GOVERNMENT COOPERATIVE BANKS & CENTRAL COOPERATIVE BANKS, MADE VARIOUS PROVISIONS FOR DOUBTFUL DEBTS, OVERDUE INTEREST, NPAS, STANDARD AS SETS AND GOVERNMENT SECURITIES. THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE ON OVERDUE INTEREST PROVISION BY OBSERVING AS UNDER: 5. I HAVE HEARD THE LD. A/R AND CAREFULLY PERUSED THE R.B.IS MASTER CIRCULAR, DECISIONS CITED SUPRA AND OTHER EVIDENCE ON RECORD. I FIND TH AT THE A.O. RESORTED TO THE IMPUGNED DISALLOWANCE ON OVERDUE INEREST PROVISION SIMPLY ON THE GROUND THAT THERE IS NO PROVISON FOR DEDUCTION OF OVERDUE INTEREST IN THE I. T. ACT AND THE APPELLANT SOCIETY HAS MADE NO PROVISION FOR BAD & DOUBTFUL DEBTS DURING THE F.YS 2005-06 AND 2006-07. THE APPELLANT- SOCIETY FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING HOW EVER, THE APPELLANT CONSIDERS OVERDUE INTEREST ON NPA AS NOT REAL INCOME IN THE YEAR IN W HICH IT ACCRUES, BUT ONLY WHEN IT IS REALIZED. A MIXED METHOD OF ACCOUNTING IS THUS FOLL OWED BY THE APPELLANT WHICH IS IN ACCORDANCE WITH THE AUDIT MANUAL. THE HONBLE SUPRE ME COURT IN THE CASE OF UCO BANK VS. CIT (SUPRA) AFTER CONSIDERING VARIOUS DECISIONS ALLOWED THE EXCLUSION OF CREDIT MADE BY THE ASSESSEE BY WAY OF INTEREST TO A SUSPENSE AC COUNT SINCE THE RECOVERY OF THE SAID AMOUNT WAS DOUBTFUL AND NO RECOVERY OF THE SAID AMO UNT OR ANY PART OF IT WHICH WAS BY WAY OF INTEREST ON LOANS ADVANCED BY IT, HAS BEEN E FFECTED IN THE THREE PREVIOUS YEARS. THE OBSERVATIONS OF THE HONBLE SUPREME COURT ARE, TO Q UOTE, AS UNDER:- IN SPICER AND PEGLERS PRACTICAL AUDITING THE RELE VANT PASSAGE OCCURRING AT PAGE 186- 187 HAS BEEN REPRODUCED N THE MINORITY JUDGMENT OF THIS COURT IN STARE BANK OF TRAVANCORE VS. CIT (1986] 158 ITR 102 AT PAGE 120. IT S AS FOLLOWS: WHERE INTEREST HAS NOT BEEN PAID, IT IS SOMETIMES LEFT OUT OF ACCOUNT ALTOGETHER. THIS PREVENTS THE POSSIBILITY OF IRRECOVERABLE INTEREST BEING CREDITED TO REVENUE, AND DISTRIBUTED AS PROFIT. ON THE OTHER HAND, THIS TREATMENT DOES N OT RECORD THE ACTUAL STATE OF THE LOAN ACCOUNT, AND IN THE CASE OF BANKS AND OTHER CONCERN S WHOSE BUSINESS IT IS TO ADVANCE MONEY, IT IS USUAL TO FIND THE INTEREST IS REGULARL Y CHARGED UP, BUT WHEN ITS RECOVERY IS DOUBTFUL, THE AMOUNT THEREOF IS EITHER FULLY PROVID ED AGAINST OR TAKEN TO THE CREDIT OF AN INTEREST SUSPENSE ACCOUNT AND CARRIED FORWARD AND N OT TREATED AS PROFIT UNTIL ACTUALLY RECEIVED. SIMILARLY, REFERRING TO INTEREST ON DOUBTFUL DEBTS, SHUKLA AND GREWAL ON ADVANCED ACCOUNTS, NINTH EDITION, AT PAGE 1089 STALE AS FOLL OWS: INTEREST ON DOUBTFUL DEBTS SHOULD BE DEBITED TO TH E LOAN ACCOUNT CONCERNED BUT SHOULD NOT BE CREDITED TO INTEREST ACCOUNT. INSTEAD, IT SH OULD BE CREDITED TO INTEREST SUSPENSE ACCOUNT. TO THE EXTENT THE INTEREST IS RECEIVED IN CASH, THE INTEREST SUSPENSE ACCOUNT SHOULD 3 ITA NO.1851/K/2012 NADIA DIST. CENT COOP. BANK LTD., AY 2007-08 BE TRANSFERRED TO INTEREST ACCOUNT; THE REMAINING A MOUNT SHOULD BE CLOSED BY TRANSFER TO THE LOAN ACCOUNT. THIS TREATMENT ACCORDS. WITH THE PRINCIPLE THAT NO ITEM SHOULD BE TREATED AS INCOME UNLESS IT HAS BEEN RECEIVED OR THERE IS A REASONABLE CERTAINTY THAT IT WILL BE REALIZED (VIDE STATE BANK OF TRAVANCORE V. CIT [108 6] 158 ITR 102, 120). IN VIEW OF THE ABOVE DECISION OF HONBLE SUPREME CO URT, IT IS MANIFEST THAT THERE WAS NO DEFIANCE OF THE ACCOUNTING PRINCIPLE AND R.B.IS GU IDELINES IN MAKING THE PROVISION FOR OVERDUE INTEREST IN THE ASSESSMENT YEAR UNDER CONSI DERATION, INASMUCH AS NO ITEM SHOULD BE TREATED AS INCOME UNLESS IT HAS BEEN RECEIVED. 5.1. FURTHER, ON IDENTCAL FACTS, THE HONBLE CALC UTTA HIGH COURT IN THE CASE OF CIT VS KICM INVESTMENTS LTD. (SUPRA) UPHELD THE ORDER OF T HE HONBLE TRIBUNAL ALLOWING WRITING OFF OF BAD DEBT BY PASSING NECESSARY ENTRIES IN THE ACCOUNTS. THE GROUND RAISED BY THE ASSESSEE BEFORE THE HONBLE TRIBUNAL WAS AS UNDER:- 4. FOR THAT THE COMMISSIONER OF INCOME-TAX (APPEALS ) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.4,06,002/- BEING THE BAD DEBT WR ITTEN OFF BY THE APPELLANT IN THE BOOKS OF ACCOUNT. THE COMMISSIONER OF INCOME-TAX (APPEALS ) FAILED TO APPRECIATE THE FACT THAT THE SAID AMOUNT WAS NON-RECOVERABLE AND UNDER THE G UIDELINE ISSUED BY THE RESERVE BANK OF INDIA WHICH WERE BINDING ON THE APPELLANT THE SA ID SUM WAS WRITTEN OFF AND WAS ALLOWABLE AS A BAD DEBT. THE DEPARTMENT FILED SLP BEFORE THE HONBLE SUPREME COURT AGAINST THE SAID JUDGMENT OF HONBLE CALCUTTA HIGH COURT WHICH WAS DISMISSED VID E ORDER DATED 12/1/2009 AND REPORTED IN 310 ITR (STATUTE) 4. THEREFORE, CONSIDE RING THE FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE AND RESPECTFULLY FOLLOWING HE AFOR ESAID DECISIONS, THE A.O. IS DIRECTED TO DELETE THE DISALLOWANCE OF RS. 1,39,12,476/- MADE I N RESPECT OF PROVISIONS FOR OVERDUE INTEREST. GROUNDS NO. 1 TO 3 ARE ALLOWED. CIT(A) ALSO ALLOWED THE PROVISIONS FOR NPA BY OBSER VING AS UNDER: ON CAREFUL PERUSAL OF THE DEFINITIONS ELABORATED U NDER PARAGRAPH 3.2 OF THE R.B.IS MASTER CIRCULAR, IT IS EVIDENT THAT SUB-STANDARD AS SETS, DOUBTFUL ASSETS AND LOSS ASSETS COME UNDER THE NOMENCLATURE OF NON-PERFORMING ASSET S (NPA). PROVISION IN THE SUM OF RS. 25,46,168/- HAS BEEN MADE IN THE ACCOUNTS BY THE AP PELLANT FOR SUCH CLASSIFIED NPA. AS PER INCOME RECOGNITION POLICY DESCRIBED IN PARA 4.1 .1 OF THE SAID MASTER CIRCULAR, THE POLICY OF INCOME RECOGNITION HAS TO BE OBJECTIVE AN D BASED ON THE RECORD OF RECOVERY. INCOME FROM NON-PERFORMING ASSETS (NPA) IS NOT RECO GNIZED ON ACCRUAL BASIS BUT IS BOOKED AS INCOME ONLY WHEN IT IS ACTUALLY RECEIVED. THEREFORE, THE BANKS SHOULD NOT TAKE TO INCOME ACCOUNT INTEREST ON NON-PERFORMING ASSETS ON ACCRUAL BASIS. IN VIEW OF THE ABOVE CLEAR POSITION CLARIFIED BY R.B.I., I AM OF T HE CONSIDERED OPINION THAT THE APPELLANT HAS RIGHTLY MADE THE PROVISION FOR NPA OF RS.25,46, 168/- AS PER R.B.IS GUIDELINES AND THAT BEING SO, THE A.O. MISDIRECTED HIMSELF IN DISA LLOWING THE SAME, WHICH IS DIRECTED TO BE DELETED. GROUNDS NO.4 & 5 ARE ALLOWED. FURTHER, THE PROVISIONS OF GOVERNMENT SECURITIES WA S ALSO ALLOWED VIDE PARA 7.1 AS UNDER: 7.1. I HAVE HEARD THE LD. A/R AND PERUSED THE R.B. IS CIRCULAR AND ORDER OF HONBLE TRIBUNAL REFERRED TO ABOVE. IN THE CIRCULAR UNDER THE HEADIN G NON-SCHEDULED SCBS AND ALL DCCBS, THE R.B.I. HAS CLARIFIED AS UNDER:- SHIFTING OF SECURITIES FROM CURRENT CATEGORY TO PERMANENT CATEGORY BY NON- SCHEDULED SCBS/DCCBS MAY BE DONE AT BOOK VALUE, SUB JECT TO THE FOLLOWING CONDITIONS: I) IN CASE THE BOOK VALUE IS HIGHER THAN THE FACE VALU E, THE DIFFERENCE BETWEEN THE BOOK VALUE AND THE FACT VALUE I.E. THE PREMIUM, MAY BE AMORTIZED 4 ITA NO.1851/K/2012 NADIA DIST. CENT COOP. BANK LTD., AY 2007-08 IN EQUAL INSTALLMENTS OVER THE PERIOD REMAINING TIL L MATURITY. IF THE SECURITY WAS OBTAINED AT A DISCOUNT TO FACE VALUE, THE DIFFERENC E SHOULD BE BOOKED AS PROFIT ONLY AT THE TIME OF MATURITY OF THE SECURITY. THERE IS NO DISPUTE TO THE FACT THAT THE APPELLANT IS MANDATORILY REQUIRED TO INVEST A PART OF ITS FUNDS IN GOVT. SECURITIES FOR MAINTAINING SLR RATIO WITH THE R.B.I. AND AS PER R.B.I.S INSTRUCTIONS/GUIDELINES, WHICH ARE OBLIGATORY ON TH E APPELLANT, SUCH INVESTMENT S TO BE AMORTIZED IN THE YEAR OF PURCHASE WITHOUT JEOPARDIZ ING THE PROFIT OF THE YEAR AND THE PROPORTIONATE AMOUNT OF AMORTIZED PREMIUM IS CHARGE D TO P/L ACCOUNT IN SUBSEQUENT YEARS. ALTHOUGH THE APPELLANT HAS WRONGLY INCLUDED THIS GO VT. SECURITY IN THE PROVISIONS MADE FOR THE YEAR WITHOUT SHOWING IT SEPARATELY, BUT THAT DOES N OT CHANGE THE ACTUAL NATURE OF EXPENDITURE INCURRED BY THE APPELLANT BY WAY OF PREMIUM ON GOVT . SECURITIES. THE APPELLANT HAS CITED A DECISION OF HONBLE I.T.A.T., MUMBAI IN THE CASE OF ACIT VS. THE BANK OF RAJASTHAN LTD. (SUPRA), WHEREIN THE PREMIUM AMORTIZED OVER THE PER IOD REMAINING TILL MATURITY WAS HELD AS ALLOWABLE AND ALLOWED THE CLAIM OF THE ASSESSEE. IN VIEW OF THE ABOVE, I FIND NO REASON TO ENDORSE THE ACTION OF THE A.O. IN DISALLOWING THE E XPENDITURE OF RS. 32,65,288/- BY WAY OF GOVT. SECURITIES, WHICH IS DIRECTED TO BE DELETED. AGGRIEVED, REVENUE CAME IN APPEAL BEFORE US. 4. WE FIND THAT THIS ISSUE IS SQUARELY COVERED BY T HE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. KICM INVESTMENT LTD. I N ITA NO. 391 OF 2007, WHICH WAS DULY AFFIRMED BY HONBLE SUPREME COURT AS REPORTED IN 31 0 ITR 4 (ST.). ONCE THE ISSUE IS SETTLED BY HONBLE SUPREME COURT, WE FIND NO INFIRMITY IN THE ORDER OF CIT(A). MOREOVER, IT IS SEEN FROM THE GROUNDS RAISED BY REVENUE THAT ONLY GROUSE OF T HE REVENUE WAS THAT THERE IS VIOLATION OF THE PROVISION OF RULE 46 OF THE RULES. WE FIND NOTHING AND ONCE SPECIFIC QUERY FROM THE BENCH LD. SR. DR COULD NOT STATE WHAT IS THE VIOLATION. IN S UCH CIRCUMSTANCES, AND FACTUALLY THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY JURISDICTIONAL HIGH COURT IN THE CASE OF KICM INVESTMENT LTD., SUPRA, WE CONFIRM THE ORDER OF CIT(A) AND THI S APPEAL OF REVENUE IS DISMISSED. 5. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSE D. 6. ORDER PRONOUNCED IN OPEN COURT ON 01.08.2014. SD/- SD/- , . . . . , ' #!' ' #!' ' #!' ' #!' , (P. K. BANSAL) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 1 ST AUGUST, 2014 -. #/0 #1 JD.(SR.P.S.) 2 +##3 43&5- COPY OF THE ORDER FORWARDED TO: 5 ITA NO.1851/K/2012 NADIA DIST. CENT COOP. BANK LTD., AY 2007-08 1 . )* / APPELLANT ACIT, CIRCLE, NADIA 2 +,)* / RESPONDENT NADIA DISTRICT CENT COOPERATIVE BANK L TD., M.M. GHOSH STREET, KRISHNAGAR, NADIA-741 101. 3 . # ( )/ THE CIT(A), KOLKATA 4. 5. # / CIT KOLKATA 3:#; +# / DR, KOLKATA BENCHES, KOLKATA ,3 +#/ TRUE COPY,