Assistant Commissioner Of Income Tax Circle -1(1), Davanagere V. M/s Davangere Urban Co-Op Bank , Davanagere

ITA 2094/BANG/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 6902 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-09-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 02-09-2020
• Assessment Year: 2011-2012
• Appeal Filed On: 26-06-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T ROUMUAN PAITE
• Keywords: TDS
• Section: 40(a)(ia)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI A.K.GARODIA, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO.2094/BANG/2018 ASSESSMENT YEAR : 2011-12 THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-1(1), DAVANGERE. VS. M/S DAVANGERE URBAN CO - OP BANK, P.B ROAD, DAVANGERE. PAN AAACT 8757 A APPELLANT RESPONDENT APPELLANT BY : SHRI T ROUMUAN PAITE, CIT (DR) RESPONDENT BY : S MT. SHEETAL BORKAR, ADVOCATE DATE OF HEARING : 0 2 - 0 9 - 2020 DATE OF PRONOUNCEMENT : 08 - 0 9 - 2020 ORDER PER BEENA PILLAI, JUDICIAL MEMBER PRESENT APPEAL HAS BEEN FILED BY REVENUE AGAINST OR DER DATED 05/03/2018 PASSED BY THE LD.CIT(A), DAVANGERE FOR A SSESSMENT YEAR 2011-12 ON FOLLOWING GROUNDS OF APPEAL: PAGE 2 OF 6 ITA NO.2094/BANG/2018 BRIEF FACTS OF THE CASE ARE AS UNDER: 2. ASSESSEE IS A CO-OPERATIVE BANK AND FILED ITS RETUR N OF INCOME ON 30/09/2011 DECLARING TOTAL INCOME AT RUPEES NIL. LD.AO NOTED THAT ASSESSEE HAS NOT ACCOUNTED FOR THE INTEREST ACCRUED ON NON- PERFORMING ASSETS. LD.AO, ACCORDINGLY DISALLOWED TH E SAME . LD.AO MADE ADDITION IN THE HANDS OF ASSESSEE FOR NOT ACCO UNTING FOR INTEREST ACCRUED ON STANDARD ASSETS AMOUNTING TO RS .26.02 LAKHS. LD.AO DISALLOWED DEDUCTION CLAIMED UNDER PRINCIPLE OF MUTUALITY AMOUNTING TO RS.2,66,37,989/-. LD.AO ALSO DISALLOWE D SUM OF RS.2,60,846/- UNDER SECTION 36(1)(VIIA) OF THE ACT BEING EXCESS CLAIM MADE BY ASSESSEE TOWARDS PROVISION UNDER BAD DEBT. DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT, WAS MADE TOWARD S INTEREST PAID ON DEPOSITS FOR NON-DEDUCTION OF TDS. 3. AGGRIEVED BY ADDITIONS, ASSESSEE PREFERRED APPEAL B EFORE LD.CIT(A) WHO ALLOWED CLAIM OF ASSESSEE MADE ON ACC OUNT OF INTEREST ACCRUED/RECEIVABLE ON NPA BUT NOT ACCOUNTE D AS INCOME. IN RESPECT OF REMAINING ADDITIONS LD.AO IS VIEW WAS CO NFIRMED. 4. LD.CIT(A) FOLLOWING DECISION OF HONABLE KARNATAKA HIGH COURT IN CASE OF CIT VS CANFIN HOMES LTD. , REPORTED IN 347 ITR 382 DELETED THE ADDITION. 5. AGGRIEVED BY ORDER OF LD.CIT(A) REVENUE IS IN APPEA L BEFORE US NOW. 6. ONLY ISSUE ALLEGED BY REVENUE IS IN RESPECT OF, WHE THER, INTEREST ON NON-PERFORMING ASSETS COULD BE TREATED AS INCOME ACCRUED DURING THE YEAR. AT THE OUTSET, LD.AR SUBMITTED THA T SIMILAR ISSUE PAGE 3 OF 6 ITA NO.2094/BANG/2018 HAS BEEN ADJUDICATED BY COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2013-14 IN ITA NO. 1817/BANG/2018 BY ORDER DATED 17/07/2019. SHE ALSO SUBMITTED THAT THE HONBLE KARNATAKA HIGH COURT IN ITA NO.780/BANG/2017 BY ORDER DATED 7/3/2018 FOR ASSESSMENT YEAR 2009-10 DISMISSED IDENTICAL ISSUE IN APPEAL FILED BY REVENUE. HONBLE COURT OBSERVED THAT, FOR ASST. YEAR 2010-11 SIMILAR ISSUE WAS CONS IDERED AND REVENUE APPEAL WAS DISMISSED IN ITA NO.781/BANG/2017 AGAINST ORDER PASSED BY THIS TRIBUNAL DATED 16/6/2017 IN ITA NO.1275/BANG/2016. 7. ON THE CONTRARY, LD.CIT.DR RELIED UPON ORDERS PASSE D BY LD.AO. 8. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. 9. WE NOTE THAT, THIS TRIBUNAL HAS CONSIDERED SIMILAR ISSUE FOR ASSESSMENT YEAR 2013-14 IN ASSESSEES OWN CASE (SUPRA) BY OBSERVING AS UNDER: 2. THE ONLY ISSUE THAT ARISES FOR OUR CONSIDERATIO N IS WHETHER INTEREST ON NON- PERFORMING ASSETS COULD BE TREATED AS INCOME ACCRUE D DURING THE YEAR. THE LD.CIT(A), AT PARA. 5C & 5D 3 OF HIS ORDER HELD AS FOLLOWS : '5C. I HAVE GONE THROUGH THE DECISIONS RELIED BY TH E AO IN HER ORDER AS WELL AS THE AR. BEING A CO-OPERATIVE BANK GOVERNED BY THE R EGULATIONS OF THE RBI, THE APPELLANT IS EXPECTED TO FOLLOW THE PROCEDURAL NORM S ISSUED BY RBI. IT IS NOT REQUIRED TO RECOGNIZE THE INTEREST ON NON-PERFORMIN G ASSETS AND STICKY LOANS ON ACCRUAL BASIS. THE HON'BLE HIGH COURT OF KARNATA KA IN THE CASE OF CIT VS CANFIN HOMES LTD (347 ITR 0382) HAS PRONOUNCED THE JUDGMENT AGAINST REVENUE. THE AU IN THAT CASE HAD ASSESSED INTEREST INCOME FROM NONPERFORMING ASSET, TAKING A VIEW THAT, THE INTERE ST FROM NPA IS ASSESSABLE, EVEN THOUGH IT HAS NOT YIELDED INCOME, SINCE THE AS SESSE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. DECISION OF THE H ONBLE SUPREME COURT IN THE CASE OF UCO BANK VS. C.I.T 237 ITR 889 (1999) ON TH E SAME ISSUE IS ALSO RELIED UPON. THE DECISION OF THE HON'BLE HIGH COURT OF KARNATAKA IN THE CASE PAGE 4 OF 6 ITA NO.2094/BANG/2018 OF CIT VS CANFIN HOMES LTD IS ELD AS UNDER: 'THEREF ORE, IT IS CLEAR, IF AN ASSESSEE ADOPTS MERCANTILE SYSTEM OF ACCOUNTING AND IN HIS ACCOUNTS HE SHOWS A PARTICULAR INCOME AS ACCRUING, WHETHER THAT AMOUNT IS REALLY ACCRUED OR NOT IS LIABLE TO BRING THE SAID INCOME TO TAX. H IS ACCOUNTS SHOULD REFLECT TRUE AND CORRECT STATEMENT OF AFFAIRS. MERELY BECAUSE TH E SAID AMOUNT ACCRUED WAS NOT REALIZED IMMEDIATELY CANNOT BE A GROUND TO AVOID PAYMENT OF TAX. BUT, IF IN HIS ACCOUNT IT IS CLEARLY STATED THOUGH A PARTICULAR INCOME IS DUE TO HIM BUT IT IS NOT POSSIBLE TO RECOVER THE SAME, THE N IT CANNOT SAID TO HAVE BEEN ACCRUED AND THE SAID AMOUNT CANNOT BE BROUGHT TO TA X. IN THE INSTANT CASE WE ARE CONCERNED WITH ANON PERFORMING ASSET. AS THE DE FINITION OF NONPERFORMING ASSET SHOWS AN ASSET BECOMES NON PERFORMING WHEN IT CEASES TO YIELD INCOME. NON PERFORMING ASSET IS AN ASSET IN RESPECT OF WHICH INTEREST HAS REMAINED UNPAID AND HAS BECOME PAST DUE. ONCE A PAR TICULAR ASSET IS SHOWN TO BE A NON PERFORMING ASSET, THEN THE ASSUMPTION I S IT IS NOT YIELDING ANY REVENUE. WHEN IT IS NOT YIELDING ANY REVENUE, THE Q UESTION OF SHOWING THAT REVENUE AND PAYING TAX WOULD NOT ARISE. AS IS CLEAR FROM THE POLICY GUIDELINES ISSUED BY THE NATIONAL HOUSING BANK, THE INCOME FRO M NON-PERFORMING ASSET SHOULD BE RECOGNIZED ONLY WHEN IT IS ACTUALLY RECOG NIZED. THAT IS WHAT, THE TRIBUNAL HELD IN THE INSTANT CASE. THEREFORE, THE C ONTENTION OF THE REVENUE THAT IN RESPECT OF NON PERFORMING ASSETS EVEN THOUG H IT DOES NOT YIELD ANY INCOME AS THE ASSESSEE HAS ADOPTED A MERCANTILE SYS TEM OF ACCOUNTING, HE HAS TO PAY TAX ON THE REVENUE WHICH HAS ACCRUED NOT IONALLY IS WITHOUT ANY BASIS. IN THAT VIEW OF THE MATTER, THE SECOND SUBST ANTIAL QUESTION FRAMED IS ANSWERED AGAINST THE REVENUE AND IN FAVOUR OF THE A SSESSEE.' 5D. THUS, RESPECTFULLY FOLLOWING THE DECISIONS OF T HE APEX COURT AND HONIBLE JURISDICTIONAL HIGH COURT (CITED SUPRA) IN THE ABOV E CASES, I ALSO HOLD THAT THE INTEREST EARNED ON NON-PERFORMING ASSETS BE BROUGHT TO TAX ON RECEIPT BASIS AND NOT ON ACCRUAL BASIS AND ALSO KEEPING IN VIEW T HE FACT THAT THE ASSESSEE IS STATUTORILY OBLIGED TO ACCOUNT FOR THE INTEREST ON NON-PERFORMING ASSETS ON ACTUAL RECEIPT BASIS AND THAT, IT DOES NOT MATTER W HETHER THE INTEREST IS SHOWN IN THE YEAR OF RECEIPT OR ON ACCRUAL BASIS AS THE T AX RATE IS ONE AND THE SAME ON THE INCOME TO BE ASSESSED, IT IS HELD THAT THE A SSESSING OFFICER IS NOT JUSTIFIED IN BRINGING TO TAX THE INTEREST ON NON-PE RFORMING ASSETS ON ACCRUAL BASIS JUST BECAUSE THE ASSESSEE FOLLOWS HYBRID SYST EM OF ACCOUNTING AND AS SUCH THE ADDITION OF RS.2,42,22,852/- BEING INTERES T ACCRUED ON NPA IS HELD TO BE UNWARRANTED AND THE SAME IS DELETED. THUS, THIS GROUND IS ALLOWED IN FAVOUR OF THE APPELLANT.' 10. NOTHING HAS BEEN FILED BY REVENUE BEFORE US TO CON TRADICT THE ABOVE DECISION. FURTHER AS THIS VIEW IS UPHELD BY HONBLE KARNATAKA PAGE 5 OF 6 ITA NO.2094/BANG/2018 HIGH COURT IN ITA NO.780-781/2017 BY ORDER DATED 7/3/2018 AND 28/2/2018 RESPECTIVELY, THIS ISSUE HAS ATTAINED FIN ALITY. RESPECTFULLY FOLLOWING THE SAME, WE DO NOT FIND AN Y INFIRMITY IN VIEW TAKEN BY LD.CIT(A), AND THE SAME IS UPHELD. ACCORDINGLY GROUNDS RAISED BY REVENUE STANDS DISMIS SED. IN THE RESULT APPEAL FILED BY REVENUE STANDS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH SEPT, 2020. SD/- SD/- (A.K.GARODIA) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 8 TH SEPT, 2020. /VMS/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL. BANGALORE. PAGE 6 OF 6 ITA NO.2094/BANG/2018 DATE INITIAL 1. DRAFT DICTATED ON ON DRAGON SR.PS 2. DRAFT PLACED BEFORE AUTHOR - 0 9 - 2020 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER - 0 9 - 2020 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. - 0 9 - 2020 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS - 0 9 - 2020 SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON - 0 9 - 2020 SR.PS 7. DATE OF UPLOADING THE ORDER ON WEBSITE - 0 9 - 2020 SR.PS 8. IF NOT UPLOADED, FURNISH THE REASON - 09 - 2020 SR.PS 9. FILE SENT TO THE BENCH CLERK - 0 9 - 2020 SR.PS 10. DATE ON WHICH FILE GOES TO THE AR 11. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 12. DATE OF DISPATCH OF ORDER. 13. DRAFT DICTATION SHEETS ARE ATTACHED NO SR.PS