Assistant Commissioner of Income-tax, V. Ambejogai Peoples' Co.op. Bank Ltd., Beed

ITA 2065/PUN/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1726 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 17-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HITENDRA NINAVE
• Keywords: Bad and doubtful debts
• Section: 145

Judgement Text

] IQ.KS ] IQ.KS ] IQ.KS ] IQ.KS IQ.KS IQ.KSIQ.KS IQ.KS IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE . . , , ' # BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.2065/PN/2014 '% % / ASSESSMENT YEAR : 2011-12 ACIT, CIRCLE-2, AURANGABAD . / APPELLANT V/S AMBEJOGAI PEOPLESCO-OP BANK LTD., 01, PRASHANT NAGAR, SAWARKAR CHOWK, AMBEJOGAI, BEED 431517 PAN NO.AAAAA2883L . / RESPONDENT / ASSESSEE BY : SHRI S.N. PURANIK / DEPARTMENT BY : SHRI . HITENDRA NINAVE / ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE OR DER DATED 18-08-2014 OF THE CIT(A), AURANGABAD RELATING TO A SSESSMENT YEAR 2011-12. 2. THE ONLY EFFECTIVE GROUND RAISED BY THE REVENUE READS AS UNDER : 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE CIT(A) IS INCORRECT IN DECIDING THAT ASSESSEE CAN OFFER HIS INTEREST RECEIVED FROM BAD AND DOUBTFUL DEBTS (NPA) ON ACTUAL RECEIPT BASIS AS PER RBI GUIDELINES EVEN THOUGH ASSESSEE IS FOLLOWING MERCANTILE S YSTEM OF / DATE OF HEARING :30.05.2016 / DATE OF PRONOUNCEMENT:30.05.2016 2 ITA NO.2065/PN/2014 ACCOUNTING, INSPITE OF THAT THE PROVISIONS OF SECTION 4 3D OF THE ACT, ARE NOT APPLICABLE TO THE ASSESSEE. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A COOPERATIVE SOCIETY REGISTERED U/S.9(1) OF THE MAHARASHTRA COOPERATIVE SOCIETIES ACT, 1960. THE SOCIETY HAS BEEN CLASSIFIED AS COOPERATIV E BANK, SUB- CLASSIFICATION OTHER BANK U/S.12(1) OF THE SAID ACT READ W ITH RULE 10(I) OF MAHARASHTRA CO-OPERATIVE SOCIETIES RULES, 1961. TH E BANK DERIVES INCOME FROM BANKING BUSINESS AND HAS MAINTAINED TH E BOOKS OF ACCOUNT ON MERCANTILE SYSTEM. THE ASSESSEE FILED ITS RETU RN OF INCOME ON 29-09-2011 DECLARING TOTAL INCOME AT RS.1,67,76,120/-. D URING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTED THAT TH E ASSESSEE BANK HAS SHOWN INTEREST ACCRUED ON NPA ACCOUNTS AT RS.1,60,8 2,390/-. HOWEVER, THE BANK HAS CREDITED INTEREST OF RS.37,95,634/- TO THE PROFIT AND LOSS ACCOUNT. HE, THEREFORE, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE TOTAL ACCRUED INTEREST ON NPA HAS NOT BEEN CR EDITED TO THE PROFIT AND LOSS ACCOUNT. 4. IT WAS EXPLAINED BY THE ASSESSEE THAT WHEN NPA ADV ANCES ARE DOUBTFUL OF RECOVERY, THEREFORE, RECOVERY OF THE INTEREST O N STAGNANT ACCOUNT IS ALSO DOUBTFUL, THEREFORE, INTEREST ON SUCH ADVAN CES CANNOT BE SAID AS REALIZED TILL IT IS ACTUALLY RECEIVED. IT WAS SUBMIT TED THAT INTEREST ON NPA ADVANCE IS ACCOUNTED FOR IN THE BOOKS AS INCOME ONLY WHEN IT IS REALIZED THAT IS ACTUALLY RECEIVED. IT WAS FURT HER SUBMITTED THAT THE BANK IS FOLLOWING THIS ACCOUNTING SYSTEM FOR ACC OUNTING THE INTEREST ON NPA ACCOUNTS SINCE THE INCEPTION OF THE BANK AND THERE IS NO CHANGE IN THE METHOD OF ACCOUNTING. VARIOUS DECISIONS WERE ALSO BROUGHT TO THE NOTICE OF THE AO ON THIS ISSUE. 3 ITA NO.2065/PN/2014 5. HOWEVER, THE AO WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE BY OBSERVING AS UNDER : 4.1 THE CONTENTION OF THE ASSESSEE IS UNSUSTAINABLE AND UNACCEPTABLE FOR THE FOLLOWING REASONS: I. THE SPECIAL PROVISION OF SEC. 43D ALLOWS A FINANCI AL INSTITUTION, SCHEDULE BANK ETC. TO RECOGNIZE REVENUE ON THE NON P ERFORMING ASSETS/BAD OR DOUBTFUL ASSETS IN THE PREVIOUS YEAR IN WHICH IT IS C REDITED TO P & L A/C OR ACTUALLY RECEIVED WHICHEVER IS EARLIER. HOWEVER, THI S SECTION HAS NOT ACCORDED THE SAME PRIVILEGE TO NON-SCHEDULED BANK AND CO-OP. BANK, EVEN THE CBDT CIRCULAR DATED 1984 IS ALSO APPLICABLE IN C ASE OF BANKING COMPANIES ONLY AND THE ASSESEE IS NOT A 'BANKING COMPANY '. II. FURTHER THE PROVISION OF SEC. 145 OF THE IT ACT PROVIDES THAT THE ASSESSEE FOLLOW MERCANTILE SYSTEM OF ACCOUNTING OR CASH SYS TEM OF ACCOUNTING AND MIXED SYSTEM OF ACCOUNTING IS NOT PERMI SSIBLE W.E.F. A.Y. 1997-98. AS PER AUDIT REPORT, THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. SO IT HAS TO FOLLOW MERCANTILE SYSTEM IN R ESPECT OF ALL INCOMES AND EXPENDITURES. HOWEVER, ASSESSEE FOLLOWS MIXED SYSTEM OF ACCOUNTING VIZ-A-VIZ INTEREST ON NPA IS CONCERNED WHICH IS NOT PE RMISSIBLE. III. THE HON'BLE SUPREME COURT IN SOUTHERN TECHNOL OGIES LTD. VS. JCIT 320 ITR 577 (SC), WHEREIN IT IS HELD THAT THE RBI DI RECTIONS UNDER THE RBI ACT ARE PRUDENTIAL NORMS, BUT HAVE NOTHING TO DO WIT H THE COMPUTATION OR TAXABILITY OF THE PROVISION OF NPA UNDER THE I.T. AC T. EVEN THOUGH THE RBI DIRECTIONS DEVIATE FROM THE ACCOUNTING PRACTICE AS PR OVIDED BY THE COMPANIES ACT, THEY DO NOT OVERRIDE THE PROVISIONS OF THE IT ACT. THE RBI DIRECTIONS AND THE IT ACT OPERATE IN DIFFERENT FIELD S. 4.2 IN VIEW OF THE ABOVE, THE CONTENTION OF THE ASSESSE E THAT THE INTEREST ACCRUED AT RS.1,60,82,390/- DURING ASSESSMENT YEAR 2011- 12 IS NOT TAXABLE IN CURRENT YEAR, IS NOT ACCEPTABLE. HENCE, AN AMOU NT OF RS.1,60,82,390/- IS TREATED AS INCOME OF THE CURRENT YEAR IN VIEW OF THE PROVISIONS OF SECTION 43D AND 145 OF THE ACT AND ADDED TO THE TOTAL INCOM E OF THE ASSESSEE. 6. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASSES SEE THE AO MADE ADDITION OF RS.1,60,82,320/- TO THE TOTAL INCOME OF THE ASSESSEE AS INCOME OF THE CURRENT YEAR IN VIEW OF THE PROVISIONS O F SECTION 43D AND SECTION 145 OF THE I.T. ACT. 7. IN APPEAL THE LD.CIT(A) FOLLOWING THE DECISION OF THE PUNE B ENCH OF THE TRIBUNAL IN THE CASE OF DEOGIRI NAGARI SAHAKARI BANK LTD. VIDE ITA NOS. 817 AND 1114/PN/2011 ORDER DATED 28-09-2012 FOR A.YRS. 4 ITA NO.2065/PN/2014 2007-08 AND 2008-09 AND VARIOUS OTHER DECISIONS OF THE COORDINATE BENCH OF THE TRIBUNAL DELETED SUCH ADDITION MADE BY THE AO. 8. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 9. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBM ITTED A COPY OF THE RECENT DECISION OF THE COORDINATE BENCH OF THE TRIB UNAL IN THE CASE OF JCIT VS. PEOPLES CO-OP BANK LTD. VIDE ITA NO.164 1/PN/2014 AND BATCH OF OTHER APPEALS ORDER DATED 05-02-2016 AND SUBMITTED THAT IDENTICAL ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR O F THE ASSESSEE AND THE APPEALS FILED BY THE REVENUE ON THIS ISS UE IN THE CASE OF VARIOUS BANKS HAVE BEEN DISMISSED BY THE TRIBUNAL. THE REFORE, THIS BEING A COVERED MATTER THE GROUND RAISED BY THE REVEN UE SHOULD BE DISMISSED. 10. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND FAIRLY CONCEDED THAT THE ISSUE HAS SINCE BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 11. AFTER HEARING BOTH THE SIDES, WE FIND IDENTICAL ISSUE HAD COME UP BEFORE THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. PEOPLE S CO-OP BANK LTD. AND BATCH OF OTHER APPEALS. WE FIND THE TRIBUNAL IN THE CONSOLIDATED ORDER DATED 05-02-2016 WHILE DECIDING TH E ISSUE HAS HELD AS UNDER : 12. WE FIND THAT SIMILAR ISSUE AS BEFORE US AROSE IN KOL HAPUR MAHILA SAHAKARI BANK LTD. VS. ITO IN ITA NO.01/PN/2013, REL ATING TO ASSESSMENT YEAR 2009 -10, VIDE ORDER DATED 29.01.2014. THE TRI BUNAL IN TURN FOLLOWING THE RATIO LAID DOWN BY THE PUNE BENCH OF TRIBUNAL I N ACIT VS. OSMANABAD JANTA SAHAKARI BANK LTD. IN ITA NO.795/PN/2011, ORD ER DATED 31.08.2012, HELD AS UNDER:- 2. THE ASSESSEE IS A CO-OPERATIVE BANK ENGAGED IN THE BUSINESS OF ACCEPTING DEPOSITS FROM MEMBERS AND GIVING LOANS TO MEMBERS. IT HAS FILED ITS RETURN OF INCOME ON 11.09.2009 FOR THE YE AR UNDER CONSIDERATION 5 ITA NO.2065/PN/2014 DECLARING TOTAL INCOME AT RS.14,57,840/-. IN THE SC RUTINY ASSESSMENT, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD NOT CREDITED INTEREST RECEIVABLE OR ACCRUED ON NON-PERFORMING AS SETS (HEREINAFTER REFERRED TO AS NPA) TO ITS PROFIT AND LOSS ACCOUNT FOR FINANCIAL YEAR 2008- 09. THE ASSESSING OFFICER AFTER REJECTING THE VARIO US CONTENTIONS OF THE ASSESSEE HAS HELD THAT THE RBI GUIDELINES ARE NOT I NTENDED TO REGULATE THE INCOME TAX LAW AND THE ASSESSEE WAS LIABLE TO B E ASSESSED ON ACCRUAL BASIS U/S.5 OF I.T. ACT FOR THE REASONS (I) BENEFITS EXTENDED TO SCHEDULE BANK, PUBLIC FINANCIAL INSTITUTIONS, PUBLI C COMPANIES FOR THE PURPOSE OF SECTION 43D WERE NOT EXTENDED TO A CO-OP ERATIVE BANK AND (II) THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM O F ACCOUNTING AND NOT CASH SYSTEM. ULTIMATELY THE ASSESSING OFFICER TAXED ON ACCRUED INTEREST OF RS. 25,20,022/- ADVANCE CLAIMED TO BE NPA ACCOUN T. THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY WHEREI N, FOLLOWING THE OSMANABAD JANTA SAHAKARI BANK LTD. IN ITA NO.795/PN /2011, THE CIT(A) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSES SEE AND THE SAME HAS BEEN OPPOSED BEFORE US ON BEHALF OF REVENUE. 2.1 AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND M ATERIAL ON RECORD, WE FIND THAT IN OSMANABAD JANTA SAHAKARI BANK LTD. (SU PRA) THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE BY OBSE RVING AS UNDER: 7. IN THE CASE BEFORE US, ADMITTEDLY, ASSESSEE HAS DIRECTLY TAKEN THE INTEREST TO THE BALANCE SHEET AND IT IS N OT ROUTED THROUGH THE PROFIT & LOSS ACCOUNT. MOREOVER, THE IS SUE OF THE TAXABILITY OF THE INTEREST ON THE STICKY LOSSES/ADV ANCES, IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THE COORDINATE BENCHES IN THE CASE OF THE DURGA COOPERA TIVE URBAN BANK LTD., VIJAYAWADA (SUPRA) AND KARNAVATI C OOPERATIVE BANK LTD. (SUPRA). WE FIND NO REASON TO INTERFERE W ITH THE REASONED ORDER OF THE LD. CIT(A) AND ACCORDINGLY TH E SAME IS CONFIRMED. IN THE RESULT, THE REVENUES GROUND IS D ISMISSED. THE ABOVE DECISION HAS BEEN FOLLOWED IN (I) ACIT, C IRCLE-3, NANDED V/S BHAGYALAXMI MAHILA SAHAKAR BANK LTD. ITA NO.793/PN/ 2011, (II) ACIT, CIRCLE -3 V/S SIDHESHWAR SAHAKARI BANK LTD. ITA NO. 794/PN/2011, (III) ACIT (CENTRAL) V/S LATUR URBAN CO - OPERATIVE BANK LTD. ITA NO.792/PN/2011 AND (IV) ASST. CIT, CIRCLE -1 V/S DE OGIRI NAGARI SAHAKARI BANK LTD. ITA NO.817 & 1114/PN/2011. 13. THE HONBLE BOMBAY HIGH COURT IN CIT VS. M/S. DEO GIRI NAGARI SAHAKARI BANK LTD. IN INCOME TAX APPEAL NO.53 OF 2014 & ORS. HAS LAID DOWN THE PROPOSITION THAT THE INTEREST ACCRUED ON NPAS IS NOT TA XABLE IN THE HANDS OF ASSESSEE, IN VIEW OF THE GUIDELINES ISSUED BY THE RBI. 14. FOLLOWING THE SAME PARITY OF REASONING, WE HOLD T HAT NO ADDITION IS WARRANTED ON ACCOUNT OF INTEREST ACCRUED ON NPAS. ACC ORDINGLY, WE UPHOLD THE ORDER OF CIT(A) IN DELETING THE ADDITION MADE O N ACCOUNT OF INTEREST ACCRUED ON NPAS. THE GROUND OF APPEAL NO.1 RAISED BY THE REVENUE IS DISMISSED. 12. SINCE THE FACTS OF THE INSTANT CASE ARE IDENTICAL TO T HE FACTS OF THE CASE DECIDED BY THE TRIBUNAL IN THE CASE OF M/S. PEOPLES CO-OP BANK LTD. CITED (SUPRA), THEREFORE, FOLLOWING THE DECISION OF THE COOR DINATE BENCH OF THE TRIBUNAL AND IN ABSENCE OF ANY CONTRARY MA TERIAL BROUGHT 6 ITA NO.2065/PN/2014 TO OUR NOTICE WE UPHOLD THE ORDER OF THE CIT(A) ON THIS ISSUE. THE GROUND RAISED BY THE REVENUE IS DISMISSED. 13. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF HEAR ING ITSELF, I.E. ON 30 TH DAY OF MAY, 2016. SD/- SD/- ( VIKAS AWASTHY ) ( R.K. PANDA ) ' / JUDICIAL MEMBER / ACCOUNTANT MEMBER IQ.KS PUNE ; # DATED : 30 TH MAY, 2016. LRH'K ( )'+ , / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ( ) S / THE CIT(A), AURANGABAD 4. ( S / THE CIT-AURANGABAD 5. 6. + ., ., IQ.KS / DR, ITAT, B PUNE; / GUARD FILE. / BY ORDER , //TRUE COPY// + //TRUE COPY// 2 . / SR. PRIVATE SECRETARY ., IQ.KS / ITAT, PUNE