Mansi Finance (Chennai) Ltd., CHENNAI V. ACIT, CHENNAI

ITA 1903/CHNY/2016

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3928 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-12-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 15-12-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 23-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MURALI MOHAN JCIT
• Assessee Lawyers: G BASKAR; S SRINIRANJANI
• Section: 145

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . . . , .. ' #$, & '( BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NOS.1903 & 1904/MDS/2016 * +* / ASSESSMENT YEARS : 2004 -05 & 2005-06 M/S MANSI FINANCE (CHENNAI) LTD., NO.22, MULLA SAHIB STREET, SOWCARPET, CHENNAI - 600 078. PAN : AAACM 5326 N V. THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 4(1), CHENNAI - 600 034. (-./ APPELLANT) (/0-./ RESPONDENT) -. 1 2 / APPELLANT BY : SHRI G. BASKAR, ADVOCATE & MS.S. SRINIRANJANI, ADVOCATE /0-. 1 2 / RESPONDENT BY : SHRI MURALI MOHAN, JCIT ' 1 3& / DATE OF HEARING : 15.12.2016 45+ 1 3& / DATE OF PRONOUNCEMENT : 27.12.2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: BOTH THE APPEALS OF THE ASSESSEE ARE DIRECTED AG AINST THE RESPECTIVE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS) 8, 2 I.T.A. NOS.1903 & 1904/MDS/16 CHENNAI, DATED 29.03.2016, PERTAINING TO ASSESSMENT YEARS 2004- 05 AND 2005-06. SINCE COMMON ISSUE ARISES FOR CONS IDERATION IN BOTH THE APPEALS, WE HEARD BOTH THE APPEALS TOGETHE R AND DISPOSING OF THE SAME BY THIS COMMON ORDER. 2. SHRI G. BASKAR, THE LD.COUNSEL FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE IS A NON-BANKING FINANCE COMPANY. THE ASSESSEE HAS NOT RECOGNIZED THE INCOME BEING THE IN TEREST ON NON- PERFORMING ASSET. ACCORDING TO THE LD. COUNSEL, TH E ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE ON THE G ROUND THAT THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNT ING. PLACING RELIANCE ON THE JUDGMENT OF MADRAS HIGH COURT IN CI T V. SAKTHI FINANCE LTD. (2013) 352 ITR 102, THE LD.COUNSEL SUB MITTED THAT THE ACCRUAL OF INTEREST IS A MATTER OF FACT TO BE DECID ED SEPARATELY FOR EACH CASE BASED ON THE EXAMINATION OF THE FACTS. W HEN THERE WAS UNCERTAINTY OF RECOVERY OF PRINCIPAL AMOUNT, IT IS ALSO UNCERTAINTY FOR RECOVERY OF INTEREST. WHEN THERE WAS UNCERTAINTY F OR RECOVERY OF INTEREST, IT CANNOT BE INCLUDED IN THE TOTAL INCOME . IN VIEW OF THIS JUDGMENT OF MADRAS HIGH COURT, ACCORDING TO THE LD. COUNSEL, THE CIT(APPEALS) IS NOT JUSTIFIED IN CONFIRMING THE ORD ER OF THE ASSESSING OFFICER. 3 I.T.A. NOS.1903 & 1904/MDS/16 3. ON THE CONTRARY, SHRI MURALI MOHAN, THE LD. DEPA RTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSEE CLAIMED BEFORE THE ASSESSING OFFICER THAT IT WAS PREPARING THE BOOKS O F ACCOUNT AS PER THE GUIDELINES OF RESERVE BANK OF INDIA. THE GUIDE LINES OF RESERVE BANK OF INDIA CANNOT OVERRIDE THE INCOME-TAX ACT. THE RBI GUIDELINES ARE ONLY DISCLOSURE NORMS AND THEY ARE N OTHING TO DO WITH TAXABLE INCOME. THEREFORE, THE CIT(APPEALS), BY AP PLYING THE JUDGMENT OF APEX COURT IN SOUTHERN TECHNOLOGIES LTD . V JCIT (2010) 320 ITR 577, FOUND THAT WHEN THE ASSESSEE WA S FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THE INCOME/INTERES T ON THE LOAN HAS TO BE RECOGNIZED. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE ON THE G ROUND THAT THE RESERVE BANK OF INDIAS GUIDELINES OR DIRECTIVES CA NNOT OVERRIDE THE INCOME-TAX ACT. IT IS A WELL SETTLED PRINCIPLE OF LAW THAT THE INCOME- TAX ACT BEING A SPECIAL ENACTMENT, IT WILL PREVAIL OVER THE OTHER LEGISLATIONS, THEREFORE, EITHER THE RESERVE BANK OF INDIA ACT OR REGULATIONS FRAMED THEREUNDER CANNOT OVERRIDE THE P ROVISIONS OF INCOME-TAX ACT. HERE, THE QUESTION ARISES FOR CONS IDERATION IS 4 I.T.A. NOS.1903 & 1904/MDS/16 ACCRUAL OF INTEREST INCOME AND LOAN ADVANCE. THE M ADRAS HIGH COURT IN SAKTHI FINANCE LIMITED (SUPRA), AFTER CONS IDERING THE PROVISIONS OF SECTION 145 OF THE ACT AND JUDGMENT O F APEX COURT IN SOUTHERN TECHNOLOGIES LTD. (SUPRA), FOUND THAT MERE CHARACTERIZATION OF AN ACCOUNT AS A NON-PERFORMING ASSET ITSELF IS NOT SUFFICIENT. THERE IS UNCERTAINTY AS REGARDS RE ALIZABILITY OF LOAN OR INTEREST THEREON. ACCRUAL OF INTEREST IS A MATTER OF FACT TO BE DECIDED SEPARATELY FOR EACH CASE ON THE BASIS OF EXAMINATIO N OF THE FACTS AND CIRCUMSTANCES. THE AUTHORITY COULD ARRIVE AT A DECISION WHETHER THERE IS UNCERTAINTY OF RECOVERY OF INTEREST OR NOT , ONLY AFTER EXAMINING THE FACTS OF EACH CASE. THE MADRAS HIGH COURT FURTHER OBSERVED THAT WHEN THERE IS UNCERTAINTY OF REALIZAB ILITY OF INCOME OR INTEREST, THEN IT IS NOT CHARGEABLE TO TAX. IN FAC T, THE MADRAS HIGH COURT OBSERVED AT PARA 18 OF ITS ORDER AS FOLLOWS:- 18. MERE CHARACTERIZATION OF AN ACCOUNT AS A NPA WOULD NOT BY ITSELF BE SUFFICIENT TO SAY THAT THERE IS UNCERTAINTY AS REGARDS REALIZABILITY OF INCOME OR I NTEREST INCOME THEREON. ACCRUAL OF INTEREST IS A MATTER OF FACT TO BE DECIDED SEPARATELY FOR EACH CASE ON THE BASIS OF EXAMINATION OF THE FACTS AND CIRCUMSTANCES. THE SAM E WOULD REQUIRE AN ASSESSMENT OF THE RELEVANT FACTS A ND CIRCUMSTANCES OF EACH CASE. ONLY BY ASSESSMENT OF FACTS AND CIRCUMSTANCES, THE AUTHORITY COULD ARRIVE AT A DECISION WHETHER THERE IS UNCERTAINTY OF THE INTERE ST ACCRUED ON NPA. ONLY WHEN THERE IS UNCERTAINTY OF REALIZABILTY OF INCOME OR INTEREST INCOME THEN IT I S NOT 5 I.T.A. NOS.1903 & 1904/MDS/16 CHARGEABLE TO TAX. THE SYSTEM OF ACCOUNTING FOLLOWE D ONLY RECOGNIZES IT BRINGING THE INCOME TO BOOKS. T HE ADOPTED ACCOUNTING POLICY I.E., RECOGNISING INCOME ON NPA ACCOUNTS ONLY SUBJECT TO REALIZATION DOES NOT SERVE AS A STANDARD CATEGORY. 5. IN VIEW OF THE ABOVE, IT HAS TO BE EXAMINED WHET HER THERE IS UNCERTAINTY IN THE FACTS AND CIRCUMSTANCES FOR RECO VERY OF INTEREST INCOME. THE CHARACTERISATION OF ACCOUNT AS A NON-P ERFORMING ASSET MAY NOT BY ITSELF BE SUFFICIENT TO SAY THAT THERE W AS UNCERTAINTY FOR REALIZATION OF INTEREST INCOME. IN VIEW OF THE ABO VE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RECONSIDERED. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES AR E SET ASIDE AND THE DISALLOWANCE OF INTEREST INCOME IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL RE- EXAMINE THE MATTER AND FIND OUT WHETHER THERE WAS ANY UNCERTAIN TY OF RECOVERY OF INTEREST INCOME AND THEREAFTER DECIDE THE CLAIM OF THE ASSESSEE IN ACCORDANCE WITH LAW IN THE LIGHT OF THE JUDGMENT OF MADRAS HIGH COURT IN SAKTHI FINANCE LIMITED (SUPRA). 6. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASS ESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 6 I.T.A. NOS.1903 & 1904/MDS/16 ORDER PRONOUNCED ON 27 TH DECEMBER, 2016 AT CHENNAI. SD/- SD/- ( . . ' #$ ) ( . . . ) (D.S. SUNDER SINGH) (N.R.S. GANESAN) & / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 7 /DATED, THE 27 TH DECEMBER, 2016. KRI. 1 /3#8 98+3 /COPY TO: 1. -. /APPELLANT 2. /0-. /RESPONDENT 3. ' :3 () /CIT(A) 4. ' :3 /CIT 5. 8; /3 /DR 6. * < /GF.