Assistant Commissioner of Income tax, Ichalkaranji Circle, Ichalkaranji V. Choundeshwari Sahakari Bank Ltd, (Now Merged with Janata Sah. Bank Ltd), Ichalkaranji

ITA 1880/PUN/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 2339 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 25-11-2020
• Assessment Year: 2012-2013
• Appeal Filed On: 03-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S P WALIMBE
• Keywords: Question of law
• Section: 43D; 119; 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUN E (THROUGH VIRTUAL COURT) BEFORE SHRI P.M. JAGTAP, VICE PRESIDENT (KZ) AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER . / ITA NO.1880/PUN/2017 / ASSESSMENT YEAR : 2012-13 THE ASST.COMMISSIONER OF INCOME TAX, ICHALKARANJI CIRCLE, ICHALKARANJI. ..APPELLANT. VS. CHOUNDESHWARI SAHAKARI BANK LIMITED, (NOW MERGED WITH JANATA SAHAKARI BANK LTD.), 12/440, MAHATMA FULE ROAD, ICHALKARANJI. PAN : AAAAC0215A. ..RESPONDENT. ASSESSEE BY : SHRI NIKHIL PATHAK. REVENUE BY : SHRI S.P. WALIMBE. / ORDER PER SHRI PARTHA SARATHI CHAUDHURY, JM. 1. THIS APPEAL PREFERRED BY THE REVENUE EMANATES FROM T HE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) DATED 15 .05.2017 FOR A.Y.2012-13 AS PER THE GROUNDS OF APPEAL ON RECORD. 2. THE CRUX OF THE GRIEVANCE OF THE REVENUE IN THIS APPE AL IS WHETHER THE LD.CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION MADE BY TH E ASSESSING OFFICER ON ACCOUNT OF ACCRUED INTEREST IN RESPECT OF NON-P ERFORMING ASSETS (N.P.AS). THE LD.CIT(A) ON THIS ISSUE HAS OBSERVED AND HELD AT PARA 5.2.2 OF HIS ORDER AS FOLLOWS : / DATE OF HEARING : 25.11.2020 / DATE OF PRONOUNCEMENT: 26.11.2020 2 5.2.2. THE 3 RD GROUND IS AGAINST THE ACTION OF THE AO IN ASSESSING THE INTEREST INCOME ON NPA LOANS . THE FACTS HAVE ALREADY BEEN DISCUSSED BY ME . I FIND THAT THIS ISSUE IS COVERED SQUARELY IN FAVOUR OF THE APPELLANT BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF UCO BAN K LTD CITED SUPRA. THIS HAS AGAIN BEEN FOLLOWED BY THE HO N'BLE BOMBAY HIG H COURT AURANGABAD BENCH IN THE CASE OF CIT V/S DEOGIRI NAGARI SAHAKARI BANK LTD. ITA NO. 53 OF 2014 DATED 2 2/01/2015. THEREIN T HE HON' BL E COURT HAS HELD THAT INTEREST ON ST I CKY LOANS CANNOT B E ASSESSED AS I N C O M E WHEN THE PRIN C IPAL LOAN AMOUNT ITSELF IS DOUBTFUL OF RECOVER Y . I N DOING SO , THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF UCO BANK LTD. (1999) 4 SCC 599, HAS BEEN FOLLOWED. QUO TING FROM THE SAME THE ASSESSEE, A COOPERATIVE BANK, CLAIMED THAT THE INTEREST ON STICKY ADVANCES WAS NOT CHARGEABLE TO TAX. THIS WAS REJECTED BY THE AO ON THE GROUND THAT SECTION 43D OF THE INCOME - TAX ACT APPLIED ONLY TO SCHEDULED BANKS AND NOT TO COOPERAT IVE BANKS. THE ASSESSING OFFICER HAS ALSO HELD THAT CBDT CIRCU LAR NO.F201/81/84 ITAII DATED 09.10.1984 IS APPLICABLE ONLY TO BANKING COMPANIES AND NOT TO NON-SCHEDULED BANKS AN D COOPERATIVE BANKS. THIS WAS REVERSED BY THE ITAT. O N APPEAL BY THE DEPARTMENT TO THE HIGH COURT HELD DISMISSING TH E APPEAL: THE ASSESSEE HEREIN BEING A COOPERATIVE BANK ALSO G OVERNED BY THE RESERVE BANK OF INDIA AND THUS THE DIRECTIONS W ITH REGARD TO THE PRUDENTIAL NORMS ISSUED BY THE RESERVE BANK OF INDIA ARE EQUALLY APPLICABLE TO THE COOPERATIVE BANKS. THE PR OVISIONS OF SECTION 45Q OF RESERVE BANK OF INDIA ACT HAS AN OVE RRIDING EFFECT VIS-A-VIS INCOME RECOGNITION PRINCIPLE UNDER THE COM PANIES ACT. HENCE, SECTION 45Q OF THE RBI ACT SHALL HAVE OVERRI DING EFFECT OVER THE INCOME RECOGNITION PRINCIPLE FOLLOWED BY COOPERA TIVE BANKS. HENCE, THE ASSESSING OFFICER HAS TO FOLLOW THE RESE RVE BANK OF INDIA DIRECTIONS 1998. IN UCO BANK THE SUPREME COUR T CONSIDERED THE NATURE OF CBDT CIRCULAR AND HELD THAT THE BOARD HAS POWER, INTER ALIA, TO TONE DOWN THE RIGOUR OF THE LAW AND ENSURE A FAIR ENFORCEMENT OF ITS PROVISIONS, BY ISSUING CIRCULAR IN EXERCISE OF ITS STATUTORY POWERS UNDER SECTION 119 OF ACT WHICH ARE BINDING ON THE AUTHORITIES IN THE ADMINISTRATION OF THE ACT, I T IS A BENEFICIAL POWER GIVEN TO THE BOARD FOR PROPER ADMINISTRATION OF FISCAL LAW SO THAT UNDUE HARDSHIP MAY NOT BE CAUSED TO THE ASSESSE E AND THE FISCAL LAWS MAY BE CORRECTLY APPLIED. FURTH ER A SIMILAR ISSUE WAS RAISED ABOUT INTEREST ACCRUED ON A 'STICK Y' LOAN WHICH WAS NOT RECOVERED BY THE ASSESSEE BANK FOR THE LAST THREE YEARS AND TRANSFERRED TO THE SUSPENSE ACCOUNT, WOULD OR W OULD NOT BE INCLUDED IN THE INCOME OF THE ASSESSEE FOR THE PART ICULAR ASSESSMENT YEAR (SOUTHERN TECHNOLOGIES LTD. VS, JOI NT COMMISSIONER OF INCOME TAX, COIMBATORE REPORTED IN 2010 (2) SCC 548, MERCANTILE BANK LTD., BOMBAY VS. THE COMMISSIO NER OF INCOME TAX, (2006) 5 SCC 221 AND VASISTHCHAYVYAPAR LIMITED 330 ITR 440 (DELHI)FOLLOWED). IT IS EVIDENT FROM THE ABOVE THAT THE INTEREST ON S TICKY LOANS, WHERE PRINCIPAL ITSELF IS DOUBTFUL OF RECOVERY CANNO T BE ASSESSED AS INCOME. 3 3. THAT AT THE VERY OUTSET, THE LD.A.R. OF THE ASSESSEE APPRAISED THE BENCH THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSE E BY VARIOUS DECISIONS OF PUNE TRIBUNAL. HE PLACED RELIANCE ON TWO SUCH DECISIONS GIVEN BELOW : 1) THE ACIT, CIRCLE 10, PUNE VS. PIMPRI CHINCHWAD SAHAKARI BA NK MARYADIT (ITA NO.303/PN/2017). 2) THE ACIT, CIRCLE 12, PUNE VS. BHARATI SAHAKARI BANK LTD. , (ITA NO.383/PN/2018). 4. THE LD. D.R. ALSO CONCEDED TO THE FACT THAT THIS ISSUE O N ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST ON NPAS IS COVERED IN FAVOUR OF THE ASSESSEE BY THE AFORESTATED DECISIONS OF THE PUNE TRIBUNAL AND SOME DECISIONS OF HONBLE HIGH COURTS INCLUDING THE HONBLE JURISDICTIONAL HIGH COURT. 5. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE CAS E RECORDS AND CONSIDERED THE JUDICIAL PRONOUNCEMENTS PLACED ON RECORD. WE FIND IN ITA NO.303/PUN/2017 (SUPRA) WHEREIN IT HAS BEEN HELD AS FOLLOWS : 5. WE HAVE PERUSED THE CASE RECORD AND HEARD THE R IVAL CONTENTIONS. THOUGH THE REVENUE HAS TAKEN MULTIPLE GROUNDS OF AP PEAL , THE CRUX OF THE GRIEVANCE IS THE DELETION OF ADDITION MADE BY THE A SSESSING OFFICER ON ACCOUNT OF INTEREST ON NON PERFORMING ASSET OF RS.2 ,84,89,156/-. THE LD. CIT(APPEALS) HAS PROVIDED RELIEF TO THE ASSESSEE BA SED ON VARIOUS JUDICIAL PRONOUNCEMENTS AS APPEARING IN HIS ORDER ON RECORD SPECIALLY THE DECISION OF HON'BLE BOMBAY HIGH COURT IN ITA NO.53 OF 2014 D ATED 22.01.2015 IN THE CASE OF DEOGIRI NAGARI SAHAKARI BANK LIMITED. TH AT FURTHER, THE LD. AR OF THE ASSESSEE SUBMITTED THE COPIES OF THE DECISIO N OF HON'BLE KARNATAKA HIGH COURT IN THE CASE OF PR. CIT VS. BAGALKOT DIST RICT CENTRAL CO-OPERATIVE BANK LIMITED IN ITA NO.100037/2017 WHEREIN THE SUBST ANTIAL QUESTION OF LAW RAISED BY REVENUE IS AS UNDER: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW THE TRIBUNAL IS RIGHT IN DELETING THE ADDITIONS MADE BY THE ASSESSING AUTHORITY ON ACCOUNT OF ACCRUED INTEREST ON LOANS WHICH ARE CLASSIFIED AS NON-PERFORMING ASSETS IGNORING THE PROVISIONS OF 4 SECTION 43D OF THE INCOME TAX ACT,1961 AMENDED W.E. F 01.04.2000 WHICH PROVIDES FOR CERTAIN BENEFIT TO THE CERTAIN C LASS OF ASSESSEES BUT DOES NOT PROVIDE SUCH BENEFIT TO THE RESPONDENT BANK AND MORE PARTICULARLY WHEN THE RESPONDENT IS FOLLOWING MERCA NTILE SYSTEM OF ACCOUNTING? IN THIS CASE, THE HON'BLE KARNATAKA HIGH COURT HAD OPINED AND HELD THAT IT IS MANIFEST, WHEN AN ASSET BECOMES NON-PERFORMING, IT CEASES TO YIELD INCOME AND ONCE A PARTICULAR ASSET IS SHOWN TO BE A NON-PERFORMING ASSET, THEN IT IS NOTHING BUT NO REVENUE IS YIELDED. IN SU CH CASES, PAYING TAX WOULD NOT ARISE. HENCE, SUBSTANTIAL QUESTION OF LAW IS ANSWERED AGAINST REVENUE. AGAINST THIS DECISION, THE REVENUE HAD PRE FERRED SLP BEFORE THE HON'BLE SUPREME COURT OF INDIA IN TS-5404-SC-2018-O , SLP(CIVIL) DIARY NO(S) 25340/2018 AND IN THIS SLP FILED BY THE REVEN UE, THE HON'BLE SUPREME COURT DISMISSED REVENUES SLP AGAINST HC RU LING. THE HIGH COURT HAD IN ITS ORDER REJECTED REVENUES CONTENTIO N THAT EVEN THOUGH NPAS DO NOT YIELD ANY INCOME, ASSESSEE HAS TO PAY TAX ON THE REVENUE WHICH HAS ACCRUED NOTIONALLY AS IT HAS ADOPTED MERCANTILE SYSTEM OF ACCOUNTING. THE HON'BLE APEX COURT CONFIRMED THE VIEW OF THE HO N'BLE KARNATAKA HIGH COURT THAT ONCE A PARTICULAR ASSET IS SHOWN TO BE A NON-PERFORMING ASSET, THEN THE ASSUMPTION IS IT IS NOT YIELDING ANY REVEN UE. WHEN IT IS, NOT YIELDING ANY REVENUE, THE QUESTION OF SHOWING REVEN UE AND PAYING TAX WOULD NOT ARISE. IN VIEW OF THE MATTER, WE FIND THAT THE AFORESAID J UDICIAL PRONOUNCEMENTS HAS ANSWERED THE ISSUE IN PRESENT AP PEAL IN FAVOUR OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE JUDICIAL PRONO UNCEMENTS, WE UPHOLD THE ORDER OF LD.CIT(APPEALS) AND SUSTAIN THE RELIEF GRANTED TO THE ASSESSEE.. 6. SIMILARLY, IN ITA NO.383/PUN/2018(SUPRA), IT HAS BEEN HELD AS FOLLOWS : 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RES PECT TO ADDITION ON ACCOUNT OF INTEREST ON NPA ACCOUNTS. WE FIND THAT L D.CIT(A) BY FOLLOWING THE ORDER OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. DEOGIRI NAGARI SAHAKARI BANK LTD., (SUPRA) HAS HELD THAT PR UDENTIAL NORMS ISSUED BY RESERVE BANK OF INDIA ARE APPLICABLE TO CO-OPERA TIVE BANKS AND THAT INTEREST ON STICKY ADVANCES ARE NOT TAXABLE. WE FUR THER FIND THAT HONBLE GUJARAT HIGH COURT IN THE CASE OF PCIT VS. SHRI MAH ILA SEVA SAHAKARI BANK LTD., (2017) 395 ITR 324 (GUJ) AFTER CONSIDERI NG THE RESERVE BANK OF INDIA GUIDELINES, RESERVE BANK OF INDIA ACT, 1934, SEC.45Q OF NON- BANKING COMPANIES PRUDENTIAL NORMS (RESERVE BANK) D IRECTIONS, 1998 & SEC.43D OF I.T. ACT HAS HELD AS UNDER : THE EXPRESSION 'BANKING COMPANY' HAS BEEN DEFINED UNDER SECTION 5(C) OF THE BANKING REGULATION ACT, 1949 TO MEAN ANY COMPAN Y WHICH TRANSACTS THE BUSINESS OF BANKING IN INDIA. PART V OF THE 194 9 ACT BEARS THE HEADING 'APPLICATION OF THE ACT TO CO-OPERATIVE SOCIETIES'. SECTION 56 THEREOF PROVIDES THAT THE PROVISIONS OF THE ACT, AS IN FORC E FOR THE TIME BEING, SHALL APPLY TO, OR IN RELATION TO THE CO-OPERATIVE SOCIET IES AS THEY APPLY TO, OR IN RELATION TO BANKING COMPANIES SUBJECT TO THE MODIFI CATIONS STATED THEREUNDER. CLAUSE (A) OF SECTION 56, PROVIDES THAT THROUGHOUT THE ACT, UNLESS THE CONTEXT OTHERWISE REQUIRES- REFERENCES T O A 'BANKING COMPANY' OR 'THE COMPANY' OR 'SUCH COMPANY' SHALL BE CONSTRU ED AS REFERENCES TO A 'CO-OPERATIVE BANK'. SECTION 2(I) OF THE RESERVE BA NK OF INDIA ACT, 1934 5 PROVIDES THAT' CO-OPERATIVE BANK', 'COOPERATIVE CRE DIT SOCIETY', 'DIRECTOR', 'PRIMARY AGRICULTURAL CREDIT SOCIETY', 'PRIMARY CO- OPERATIVE SOCIETY' AND 'PRIMARY CREDIT SOCIETY' SHALL HAVE THE MEANING RES PECTIVELY ASSIGNED TO THEM IN PART V OF THE 1949 ACT. THEREFORE, THE EXPR ESSION 'BANKING COMPANY' WOULD TAKE WITHIN ITS SWEEP A CO-OPERATIVE BANK. SECTION 45Q OF THE RESERVE BANK OF INDIA ACT, 1934, IS IN CHAPTER III-B OF THE ACT. THE PROVISIONS OF CHAPTER III-B HAVE AN OV ERRIDING EFFECT QUA OTHER ENACTMENTS TO THE EXTENT THEY ARE INCONSISTENT WITH THE PROVISIONS CONTAINED THEREIN. IN ORDER TO REFLECT A BANK'S ACT UAL FINANCIAL POSITION IN ITS BALANCE-SHEET, THE RESERVE BANK HAS INTRODUCED PRUD ENTIAL NORMS FOR INCOME RECOGNITION, ASSET CLASSIFICATION AND PROVIS IONING FOR ADVANCES PORTFOLIO OF THE CO-OPERATIVE BANKS. THE GUIDELINES PROVIDED THEREUNDER ARE MANDATORY AND IT IS INCUMBENT UPON ALL CO-OPERATIVE BANKS TO FOLLOW THEM. INCOME FROM NON-PERFORMING ASSETS IS NOT RECOGNIZED ON ACCRUAL BASIS BUT IS BOOKED AS INCOME ONLY WHEN IT IS ACTUALLY RECEIV ED. THEREFORE, BANKS SHOULD NOT .TAKE TO INCOME ACCOUNT, THE INTEREST ON NONPERFORMING ASSETS ON ACCRUAL BASIS. THE HONBLE HIGH COURT WHILE DISMISSING THE APPEAL OF REVENUE OBSERVED AS UNDER : THAT IN VIEW OF THE MANDATE OF THE RESERVE BANK OF INDIA GUIDELINES THE ASSESSEE COULD NOT RECOGNIZE INCOME FROM NON- PERFORMING ASSETS ON ACCRUAL BASIS AND COULD BOOK S UCH INCOME ONLY WHEN IT WAS ACTUALLY RECEIVED. THE BENEFIT CLA IMED BY THE ASSESSEE WAS NOT UNDER ANY PROVISION OF THE INCOME- TAX ACT, 1961. THE ASSESSEE BEING BOUND BY THE RESERVE BANK OF IND IA GUIDELINES WHICH WERE ISSUED UNDER THE PROVISIONS OF THE RESER VE BANK OF INDIA ACT, 1934 HAD NOT SHOWN THE INTEREST ON NON-P ERFORMING ASSETS AS INCOME. BY VIRTUE OF THE PROVISIONS OF SE CTION 45Q OF THE RESERVE BANK OF INDIA ACT, 1934, THE PROVISIONS OF CHAPTER III THEREOF HAD AN OVERRIDING EFFECT OVER OTHER LAWS IN CLUDING THE 1961 ACT. THEREFORE, NOTWITHSTANDING THE PROVISIONS OF S ECTION 43D OF THE 1961 ACT, SINCE THE PROVISIONS OF SECTION 45Q OF TH E 1934 ACT HAD AN OVERRIDING EFFECT VIS-A-VIS INCOME RECOGNITION P RINCIPLES IN THE COMPANIES ACT, 1956, THE ASSESSING OFFICER WAS BOUN D TO FOLLOW THE RESERVE BANK OF INDIA DIRECTIONS SO-FAR AS INCOME R ECOGNITION WAS CONCERNED. BEFORE US, REVENUE HAS NEITHER PLACED ANY CONTRARY BINDING DECISION IN ITS SUPPORT NOR HAS POINTED OUT ANY FALLACY IN THE FIND INGS 5 ITA NO.383/PUN/2018 OF LD.CIT(A). IN SUCH A SITUATION, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD.CIT(A). THUS, THE GR OUNDS OF REVENUE ARE DISMISSED. 7. CONSIDERING THE ABOVE DECISIONS, WE FIND THAT THE LD.CIT(A ) HAS STRONGLY RELIED ON THE DECISIONS OF HONBLE BOMBAY HIGH CO URT IN THE CASE OF CIT VS. DEOGIRI NAGARI SAHAKARI BANK LTD., REPOR TED IN (2015) 379 ITR 24 (SUPRA) AND HAS DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDITION ON ACCOUNT OF INTEREST MADE ON NON-PERFORMING AS SETS. SIMILARLY, IN OUR DECISION ON THIS ISSUE, AS AFORE STATED RELIEF HAS BEEN 6 PROVIDED TO THE ASSESSEE. THAT IN VIEW OF THESE JUDICIAL P RONOUNCEMENTS AND FOLLOWING THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT, WE SUSTAIN THE RELIEF ALREADY PROVIDED TO THE ASSESSEE. 8. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED ON 26 TH DAY OF NOVEMBER, 2020. SD/- SD/- ( P.M. JAGTAP ) ( PARTHA SARATHI CHAUDHURY ) VICE PRESIDENT JUDICIAL MEMBER PUNE; DATED : 26 TH NOVEMBER, 2020. YAMINI ' ( )*+ ,+) / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. 4. 5 6. CIT(A) - 2, KOLHAPUR. PR. CIT-2, KOLHAPUR. , , , / DR, ITAT, A BENCH, PUNE. !'/ GUARD FILE. / BY ORDER // TRUE COPY // $ %&'()* / SR. PRIVATE SECRETARY + ), , / ITAT, PUNE.