Deputy Commissioner Income-tax, V. M/s. Maharashtra Nagri Sahakari Bank Ltd., Latur

ITA 2138/PUN/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 85104 (ITAT-PUNE)
• Duration Of Justice: 10 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 06-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P S NAIK
• Assessee Lawyers: ASHISH S BIHANI
• Keywords: Bad and doubtful debts
• Section: 143(3); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.2138/PN/2013 (ASSESSMENT YEAR: 2009-10) THE ASST. COMMISSIONER OF INCOME TAX CIRCLE-3, NANDED . APPELLANT VS. MAHARASHTRA NAGRI SAHAKARI BANK LTD. KAVA ROAD, MARKET YARD, LATUR. PAN: AABTM0843L . RESPONDENT APPELLANT BY : SHRI P.S. NAIK RESPONDENT BY : SHRI ASHISH S. BIHANI DATE OF HEARING : 21-10-2014 DATE OF PRONOUNCEMENT : 30-10-2014 ORDER PER SUSHMA CHOWLA, JM: THIS APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A ), AURANGABAD DATED 30.09.2013 RELATING TO ASSESSMENT YEAR 2009-10 IS AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME-TAX AC T. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE CIT(A), AURANGABAD HAS ERRED IN DELETING THE ADDIT ION OF RS.1,05,61,520/- ON ACCOUNT OF INTEREST ACCRUED ON NP A BY IGNORING THE PROVISIONS OF SECTION 145 SECTION 4 3D OF THE INCOME-TAX ACT, 1961. 2. THE CIT(A), AURANGABAD HAS ERRED IN IGNORING THAT RBI DIRECTIONS & INCOME-TAX ACT OPERATE ON DIFFERENT FIELDS. 3. THE LD. CIT(A) HAS ERRED IN IGNORING THE FACT THAT T HE ASSESSEE IS FOLLOWING HYBRID SYSTEM OF ACCOUNTING I.E. BOTH THE MERCANTILE & CASH SYSTEM, SIMULTANEOUSLY. 4. THE CIT(A) HAS ERRED IN NOT CONSIDERING THE PRINCIPLE LAID BY THE HONBLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES VS. JCIT 320 1TR 577 (SC). ITA NO.2138/PN/2013 MAH. NAGRI SAH. BANK LTD. 2 5. THE ORDER OF THE A.O. BE RESTORED AND THE CIT(A), AURANGABAD BE VACATED. 6. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER ANY GROUNDS OF APPEAL. 3. THE ONLY ISSUE RAISED IN THE PRESENT APPEAL IS AGAINST THE DELETION OF ADDITION MADE ON ACCOUNT OF INTEREST ACCRUED O N NON PERFORMING ASSETS (NPAS). 4. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSES SEE POINTED OUT THAT THE ISSUE RAISED IN THE PRESENT APPEAL IS SQUAR ELY COVERED BY THE RATIO LAID DOWN BY THE TRIBUNAL IN ASSESSEES OWN CAS E RELATING TO ASSESSMENT YEAR 2007-08. 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVE NUE ON THE OTHER HAND, PLACED RELIANCE ON THE ORDER OF ASSESSING OFFICER. 6. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE WA S A CO- OPERATIVE BANK ENGAGED IN THE BANKING BUSINESS. THE ASS ESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THE ASSESSING OFFICE R DURING THE ASSESSMENT PROCEEDINGS, FROM THE EXAMINATION O F THE BOOKS OF ACCOUNT, NOTED THAT THE ASSESSEE HAD SHOWN INTEREST RECEIVABLE ON NPAS AT RS.1,05,61,620/-. SINCE THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, AS PER THE ASSESSING OFFIC ER, THE SAID AMOUNT OF INTEREST ACCRUED ON NPAS SHOULD HAVE BEEN OFFE RED TO TAX. IN REPLY, THE ASSESSEE EXPLAINED THAT IT WAS A CO-OPERA TIVE BANK AND GOVERNED BY THE RBI GUIDELINES, UNDER WHICH, THE INCOME O N NPAS WAS TO BE RECOGNIZED ON ACTUAL RECEIPT BASIS. THE ASSES SING OFFICER NOTED THAT IN VIEW OF THE PROVISIONS OF SECTION 145 OF THE ACT, THE ASSESSEE IS EITHER TO FOLLOW CASH OR MERCANTILE SYSTEM OF A CCOUNTING ITA NO.2138/PN/2013 MAH. NAGRI SAH. BANK LTD. 3 I.E. IN OTHER WORDS, HYBRID SYSTEM OF ACCOUNTING WAS NOT PE RMISSIBLE. AS PER THE ASSESSING OFFICER, THE ASSESSEE HAD FOLLOWED HYB RID SYSTEM OF ACCOUNTING. FURTHER, A REFERENCE WAS MADE TO THE PRO VISIONS OF SECTION 43D OF THE ACT WHICH WERE INTRODUCED W.E.F. 01.04.19 91 AND WERE SUBSTITUTED W.E.F. 01.04.2000 WHICH CLARIFIED THAT IN RESPE CT OF PUBLIC FINANCIAL INSTITUTION OR A SCHEDULED BANK OR A STATE FINANCIAL CORPORATION OR A STATE INDUSTRIAL INVESTMENT CORPORATIO N OR PUBLIC COMPANY, INCOME BY WAY OF INTEREST ON ASSETS CLASSIFIED AS BAD AND DOUBTFUL, SHALL BE CHARGEABLE TO TAX IN THE YEAR OF INTERES T CREDITED TO THE PROFIT & LOSS ACCOUNT OR IN THE YEAR WHEN IT HAS AC TUALLY RECEIVED BY THE ASSESSEE, WHICHEVER WAS EARLIER. THE SAID SECTION HOWEVER, DOES NOT ALLOW THE SAID OPTION TO NON-SCHEDULED CO-OPERA TIVE BANKS. IN VIEW THEREOF, THE CONTENTION OF THE ASSESSEE THAT IT W AS CONSISTENTLY FOLLOWING THE PRINCIPLE OF ACCOUNTING FOR INTEREST ON BAD AND DOUBTFUL DEBTS AS REVENUE IN THE YEAR OF RECOVERY IN TERMS OF RB I NORMS, WAS REJECTED BY ASSESSING OFFICER AND ADDITION OF RS.1,05,61,620 /- WAS MADE IN THE HANDS OF THE ASSESSEE. 7. THE CIT(A) RELYING ON THE VARIOUS DECISIONS, DELETED T HE SAID ADDITION, AGAINST WHICH THE REVENUE IS IN APPEAL. 8. WE FIND THAT A SIMILAR ISSUE OF TAXABILITY OF INTEREST ON N PAS ON ACCRUAL BASIS AROSE BEFORE THE PUNE BENCH OF THE TRIBUN AL IN ASSESSEES OWN CASE. THE TRIBUNAL IN ITA NO.1713/PN/20 11 VIDE ORDER DATED 28.02.2013 IN TURN, RELYING ON THE RATIO LAID D OWN IN THE CASE OF ACIT, CIRCLE-3, NANDED VS. OSMANABAD JANTA SAH. BA NK LTD., LATUR IN ITA NO.795/PN/2011 ORDER DATED 31.08.2012, OBS ERVED AS UNDER: ITA NO.2138/PN/2013 MAH. NAGRI SAH. BANK LTD. 4 3. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD . THE LD. COUNSEL SUBMITS THAT THE ISSUE OF THE TAXABILITY OF TH E INTEREST ON STICKY ADVANCES HAS BEEN CONSIDERED AND DECIDED BY THE HON'BLE TRIBUNAL IN THE CASE OF ACIT CIRCLE-3 NANDED VS. OSMAN ABAD JANTA SAH. BANK LTD., LATUR IN ITA NO.795/PN/2011 ORDER DATED 31.8.2012. THE LD. COUNSEL HAS FILED THE COPY OF THE TRIB UNAL ORDER WHICH IS PLACED ON RECORD. WE HAVE ALSO HEARD T HE LD. D.R. WE FIND THAT THE ISSUE BEFORE US IS SQUARELY COVERE D, AS RIGHTLY SUBMITTED BY THE LD. COUNSEL, IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT PUNE IN THE CASE OF OSMANABAD JANT A SAH. BANK LTD. THE OPERATIVE PART OF THE DECISION GIVING REASON S AND FINDINGS IS AS UNDER: '5. WE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE RECORD. WE FIND THAT THE IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE ITAT, VISAKHAPATNAM BENCH, IN THE CASE OF DCIT, VIJAYAWADA VS. THE DURGA COOPERATIVE UR BAN BANK LTD., VIJAYAWADA, IN ITA.NO.511/VIZAG/2010 DATED 10.03.2011. IN THE SAID CASE ALSO, IT WAS NOTICED BY THE ASSESSING OFFICER THAT ASSESSEE DID NOT INCLUDE THE I NTEREST OF RS.18,26,306/- ON THE NPA ADVANCES. AGAIN THE ISSUE O F APPLICABILITY OF SECTION 43D WAS CONSIDERED TO THE NO N- SCHEDULED BANKS. THE TRIBUNAL PLACED ITS HEAVY RELIANCE ON THE DECISION OF THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF VASHIST CHAY VYAPAR LTD. [330 ITR 440 (DEL.)], IN WHIC H THE HON'BLE DELHI HIGH COURT HAS CONSIDERED THE DECISION IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. [320 ITR 577 (SC)]. THE TRIBUNAL FINALLY HELD THAT THE INTEREST INCOME RELATAB LE TO NPA ADVANCES DID NOT ACCRUE TO THE ASSESSEE. 6. AN IDENTICAL VIEW HAS BEEN TAKEN BY THE ITAT, AHMEDABAD BENCH IN THE CASE OF KARNAVATI COOPERATIV E BANK LTD. VS. DY.CIT [134 ITD 486 (AHMEDABAD)]. IN THE CASE OF KARNAVATI COOPERATIVE BANK LTD. (SUPRA), THE TRIBUNAL HAS CONSIDERED THE PROVISIONS OF SECTION 4 3D AND ITS APPLICATION TO THE NON-SCHEDULED BANKS. THE REASONS GIVEN BY THE TRIBUNAL IN THE CASE OF KARNAVATI COOPE RATIVE BANK LTD. (SUPRA) FOR HOLDING THAT INTEREST ON THE STI CKY ADVANCES/NPA ADVANCES CANNOT BE BROUGHT TO TAX BY FOLLOWING THE DECISION IN THE CASE OF UCO BANK (SUPRA), WHICH IS AS UNDER: '15.1. ON CAREFUL ANALYSIS OF THIS SECTION OUR FIRST OBSERVATION IS THAT SECTION 43D IS IN CONTRAST WITH THE FUNDAMENTAL PRINCIPLE OF ACCOUNTANCY. THE CARDINAL PRINCIPLE OF MERCANTILE SYSTEM OF ACCOUNTANCY IS THA T AN INCOME IS TO BE SHOWN IN THE BOOKS OF ACCOUNT ON ACCRUAL BASIS. THE PRINCIPLE IS THAT IT IS IMMATERIAL WHETHER IT WAS ACTUALLY RECEIVED OR NOT, BUT IF AN INCOME IS EXPECTED TO BE RECEIVED, THEN IT SHOULD BE BROUGHT TO BOOKS OF ACCOUNT AS AN INCOME ACCRUED TO THE ASSESSEE. CONTRARY TO THIS RECOGNIZED PRINCIPLE, THIS SECTION HAS PRESCRIBED THAT AN INCOME BY WAY O F INTEREST SHALL BE CHARGEABLE TO TAX IN THE PREVIOUS YEAR IN WHICH IT IS CREDITED. THE WORDS 'CREDITED' A ND 'ACTUALLY RECEIVED' HAS BEEN HIGHLIGHTED HEREINABOVE WHILE REPRODUCING THE SECTION IN QUESTION. THE OTHER ITA NO.2138/PN/2013 MAH. NAGRI SAH. BANK LTD. 5 DEVIATION FROM THE SAID ACCEPTED PRINCIPLE OF ACCOUNTANCY IS THAT AN INCOME BY WAY OF INTEREST SHALL BE CHARGEABLE TO TAX IN THE PREVIOUS YEAR IN WHICH IT IS ACTUALLY RECEIVED. THE ACT SAYS THAT THE INCIDENCE OF 'CREDIT' OR 'ACTUALLY RECEIVED', WHICHEV ER IS EARLIER IS TO BE TAKEN INTO ACCOUNT FOR THE PURP OSE OF CHARGEABILITY OF INCOME BY WAY OF INTEREST. SIMULTANEOUSLY, IT IS NOTEWORTHY THAT THIS SECTION IS AN OVERRIDING SECTION BECAUSE THE ITA NO.1713/PN/2011 MAHARASHTRA NAGARI SAHAKARI BANK LTD., LATUR OPENING WORD IS 'NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT'. THEREFORE, IN SPITE OF ANYTH ING CONTAINED IN THE ACT, THE PROVISIONS OF THIS SECTION SHALL OVERRIDE THOSE PROVISIONS. ONCE THE STATUTE HA S CATEGORICALLY MADE A LAW IN RESPECT OF PUBLIC FINANC IAL INSTITUTIONS THAT INTEREST IS CHARGEABLE TO TAX EITHER IN THE YEAR IN WHICH CREDITED OR ACTUALLY RECEIVED, WHICHEVER IS EARLIER, THEN IT IS COMPULSORY TO ABIDE B Y THE SAID RULE. ACCORDING TO US, NO SCOPE IS LEFT WITH THE REVENUE AUTHORITIES TO IGNORE THESE PROVISIONS DUE TO UNAMBIGUOUS USE OF LANGUAGE IN THE SECTION. (II) STATUS OF ASSESSEE FOR THE PURPOSE OF APPLICAT ION SECTION 43-D. AS FAR AS THE STATUS OF THE ASSESSEE IS CONCERNED, T HE ASSESSING OFFICER HAS STATED THAT THE ASSESSEE-BANK IS A CO-OPERATIVE BANK. UNDISPUTEDLY, THE ASSESSEE IS ALSO GOVERNED BY THE RBI GUIDELINES. VIDE AN EXPLANATION (D) R.W.S. 36(1)(VIIA) ANNEXED TO SECTION 43-D THE DEFINITION OF THE ENTITIES INCORPORATED BY THE SECTI ON HAVE BEEN DEFINED AND IN THE ABSENCE OF ANY CONTRARY MATERIAL, WE HEREBY HOLD THAT THE ASSESSEE IS COVERED BY ONE OF THE ENTITIES, HENCE THE PROVISIO NS OF SECTION 43-D ARE TO BE APPLIED. (III) APPLICABILITY OF CBDT CIRCULAR. NEXT ISSUE IS THAT WHETHER A CIRCULAR HAVING EFFECT OF RELAXING RIGOUR OF LAW CAN BE TREATED AS INCONSISTEN T WITH THE PROVISIONS OF A STATUTE. IN ORDER TO AID PR OPER DETERMINATION OF THE INCOME OF MONEY LENDERS AND BANKS, THE CENTRAL BOARD OF DIRECT TAXES HAS ISSUED A CIRCULAR DATED OCTOBER 6, 1952, PROVIDING THAT WHERE INTEREST ACCRUING ON DOUBTFUL DEBTS IS CREDITED TO A SUSPENSE ACCOUNT, IT NEED NOT BE INCLUDED IN ASSESSEE'S TAXABLE INCOME, PROVIDED THE INCOME TAX OFFICER IS SATISFIED THAT RECOVERY IS PRACTICALLY IMPROBABLE. THE CBDT U/S.119 OF THE I.T.ACT HAS POWER TO ISSUE CIRCULARS IN EXERCISE OF ITS STATUTOR Y POWERS. IF THE BOARD CONSIDER IT NECESSARY TO LAY DOWN CERTAIN RULES AND THEN DIRECT THE SUB-ORDINATE AUTHORITIES, SUCH DIRECTIONS ARE REQUIRED TO BE FOLLOWED AND SUCH CIRCULAR WOULD BE BINDING ON THE ITA NO.2138/PN/2013 MAH. NAGRI SAH. BANK LTD. 6 DEPARTMENT UNLESS AND UNTIL HELD AS ULTRA VIRES BY A COURT OF LAW. THE BOARD HAS POWERS TO RELAX THE SEVERITY OR THE STRICTNESS OF LAW AND THE AUTHORITIES ARE REQUIRED TO FOLLOW THOSE INSTRUCTIONS AS HELD IN THE CASE OF C.B. GAUTAM VS. UNION OF INDIA 108 CTR 304 (SC) & 110 CTR 179 (SC); NAVNITLAL C.ZAVERI 56 ITR 198(SC) AND K.P.VARGHESE 131 ITR 597 (SC). IN THE LAND-MARK DECISION, THE HON'BLE SUPREME COURT IN THE CASE OF UCO BANK VS. CIT (1999) 237 ITR 889 (SC) HAS THEREFORE HELD, FIRST, THAT A BENEFICIAL CIRCUL AR IS NOT TO BE TREATED AS INCONSISTENT WITH THE PROVISIONS OF STATUTE AND BINDING ON THE AUTHORITIES . SECOND, THAT IN RESPECT OF INTEREST ON 'STICKY ADVANCES' INTEREST INCOME IS TO BE TAXED ONLY WHEN ACTUALLY RECEIVED AS PRESCRIBED BY CBDT CIRCULAR. HOWEVER, IN THE PAST AN INTERESTING TURN HAD TAKEN PLACE BY AN ORDER OF THE HON'BLE KERALA HIGH COURT I N THE CASE OF STATE BANK OF TRAVANCORE REPORTED IN 11 0 ITR 336 (KER.), WHEREIN IT WAS HELD THAT THE ASSESSEE, A BANKING COMPANY, DID NOT CREDIT IN ITS ACCOUNT THE INTEREST THAT HAD ACCRUED ON 'STICKY ADVANCES' BECAUSE THE ASSESSEE FELT THAT THE INTEREST COULD NOT TO BE REALISED. IT CREDITED THE INTEREST TO A SEPARAT E ACCOUNT KNOWN AS 'INTEREST SUSPENSE ACCOUNT'. ON REFERENCE, THE HON'BLE COURT HAS HELD THAT THERE WAS AN ACCRUAL OF INCOME LIABLE TO INCOME-TAX AND THE ASSESSEE WAS NOT JUSTIFIED IN NOT CREDITING THE INTEREST INCOME ON SUCH 'STICK ADVANCES' IT ITS ACCOUNTS. HOWEVER, LATER ON AT THE HON'BLE APEX COURT WHILE PRONOUNCING THE JUDGMENT OF THE SAID STATE BANK OF TRAVANCORE VS. CIT REPORTED IN (1986)158 ITR 102(SC), THERE WERE HON'BLE THREE JUDGES PRESIDING THE COURT, OUT OF WHICH HON'BLE TWO ITA NO.1713/PN/2011 MAHARASHTRA NAGARI SAHAKARI BANK LTD., LATUR JUDGES WERE IN THE OPINION THAT THE INTEREST ON 'STICKY ADVANCES' WAS RIGHTLY TREATED AS INCOME WHICH HAD ACCRUED TO THE APPELLANT. THERE WAS A DESCENDING NOTE BY ONE OF THE HON'BLE JUDGE AND COMMENTED THAT WHETHER AN INCOME ON RECEIPT BASIS OR ON ACCRUAL BASIS, IT IS THE REAL INCOME AND NOT ANY HYPOTHETICAL INCOME WHICH MAY HAVE THEORETICALLY ACCRUED, I.E. SUBJECT TO TAX UNDER THE ACT. NEVERTHELESS, THAT DECISION WAS NOT FOLLOWED WHILE DECIDING THE APPEAL OF UCO BANK (SUPRA) BY THE HON'BLE THREE JUDGES OF THE SUPREME COURT, ALREADY DISCUSSED BY US SUPRA. WE, THEREFORE SUMMARIZE THAT AS OF NOW THE LAW AS LAID DOWN IN UCO BANK IS THAT IN TERMS OF CBDT CIRCULAR THE INTEREST IS TO BE ADDED AS INCOME ONLY WHEN ACTUALLY RECEIVED OR CREDITED IN RESPECT OF THE 'STICKY ADVANCES' WHILE MAKING ASSESSMENT FOR A FINANCIAL INSTITUTION. (IV) INTERPRETATION OF THE LANGUAGE OF THE STATUTE : ITA NO.2138/PN/2013 MAH. NAGRI SAH. BANK LTD. 7 WE HAVE REPRODUCED VERBATIM THE PROVISIONS OF SECTION 43-D OF THE I.T.ACT AND EXPRESSED AN OPINION THAT IF THE STATUTE HAS USED THE TERMINOLOGY FOR THE CHARGEABILITY OF INTEREST ON THE BASIS WHEN 'CREDITE D' OR 'ACTUALLY RECEIVED', THEN IN OUR OPINION NO AMBIGUITY HAS BEEN LEFT BY THE STATUTE. IF THE STATUTE IS SO CLEAR THAT AN INTERPRETATION CAN EASILY BE MADE, THEN THAT EXACT MEANING SHOULD BE GIVEN TO THE LANGUAGE OF THE SECTION. FOR THIS LEGAL PROPOSITION WE PLACE RELIANCE ON KESHAVJI RAVJI AND COMPANY VS. CIT 183 ITR 01 (SC), WHEREIN IT WAS HELD AS UNDER: 'AS LONG AS THERE IS NO AMBIGUITY IN THE STATUTORY LANGUAGE, RESORT TO ANY INTERPRETATIVE PROCESS TO UNFOLD THE LEGISLATIVE INTENT BECOMES IMPERMISSIBLE. THE SUPPOSED INTENTION OF THE LEGISLATURE CANNOT THEN BE APPEALED TO WHITTLE DOWN THE STATUTORY LANGUAGE WHICH IS OTHER-WISE UNAMBIGUOUS. IF THE INTENDMENT IS NOT IN THE WORDS, IT IS NOWHERE ELSE. THE NEED FOR INTERPRETATION ARISES WHEN THE WORDS USED IN THE STATUTE ARE, ON THEIR OWN TERMS, AMBIVALENT AND DO NOT MANIFEST THE INTENTION OF THE LEGISLATURE. WHEN WORDS ACQUIRE A PARTICULAR MEANING OR SENSE BECAUSE OF THEIR AUTHORITATIVE CONSTRUCTION BY SUPERIOR COURTS, THEY ARE PRESUMED TO HAVE BEEN USED IN THE SAME SENSE WHEN USED IN SUBSEQUENT LEGISLATION IN THE SAME OR SIMILAR CONTEXT. TO SAY THAT THE COURT COULD NOT RESORT TO THE SO-CALLED 'EQUITABLE CONSTRUCTION' OF A TAXING STATUTE IS NOT T O SAY THAT, WHERE A STRICT LITERAL CONSTRUCTION LEADS T O A RESULT NOT INTENDED TO SUBSERVE THE OBJECT OF THE LEGISLATION, ANOTHER CONSTRUCTION, PERMISSIBLE IN THE CONTEXT, SHOULD NOT BE ADOPTED. IN THIS RESPECT, TAXIN G STATUTES ARE NOT DIFFERENT FROM OTHER STATUTES.' WE CAN THEREFORE SAFELY DRAW A CONCLUSION THAT BY THE INSERTION OF A SPECIAL PROVISION TO TAX INTEREST INCOME IN THE CASE OF PUBLIC FINANCIAL INSTITUTION, ETC. SECTION 43-D HAS TO BE APPLIED IN ITS LETTER AND SPIR IT. IT IS PERTINENT TO MENTION THAT LATER ON, IN THE CASE OF CIT VS. BANK OF AMERICA S.A. 262 ITR 504 (BOM) THE QUESTION OF INTEREST ON 'STICKY LOANS' WAS DECID ED IN FAVOUR OF THE ASSESSEE AND HELD THAT THE QUESTION IS TO BE ANSWERED IN FAVOUR OF THE ASSESSEE FOLLOWING THE DECISION OF UCO BANK REPORTED AT 237 ITR 889(SC) :: 240 ITR 355 (SC). LIKEWISE, IN AN ANOTHER CASE OF CIT VS. STATE BANK OF INDIA 262 ITR 662 (BOM.) AGAIN IT WAS HELD THAT THE AMOUNT CREDITED TO THE INTEREST SUSPENSE ACCOUNT WAS NOT TAXABLE FOLLOWING THE DECISION PRONOUNCED IN THE CASE OF UCO BANK (SUPRA). (V) JUDGEMENT IN FAVOUR OF REVENUE : ITA NO.2138/PN/2013 MAH. NAGRI SAH. BANK LTD. 8 FROM THE SIDE OF THE REVENUE AN ORDER OF THE TRIBUN AL HAS BEEN VEHEMENTLY RELIED UPON AND THIS IS THE BASIC REASON OF THE ELABORATE DISCUSSION MADE HEREINABOVE SO AS TO UNFOLD THE CONTROVERSY. IN THE SAID DECISION OF THE TRIBUNAL, VIZ. JT.CIT V/S. INDIA EQUIPMENT LEASING LTD. (2008)111 ITD 37 (CHENNAI), THE RESPECTED CO-ORDINATE BENCH HAS EXPRESSED THAT QUOTE ' PRIOR TO INSERTION OF SECTION 43D WITH EFFEC T FROM 1-4-1991, RECOGNITION OF INCOME WAS ON THE BASIS OF CIRCULAR OF 9-101984. IT SAID THAT FOR FIRST THREE YEARS THE INCOME MAY BE TAKEN ON ACCRUAL BASIS AND FROM 4TH YEAR ONWARDS, THE INCOME IN RESPECT OF DOUBTFUL DEBTS WAS TO BE RECOGNIZED ON RECEIPT BASIS. SINCE THE INCOME WAS TO BE ASSESSED FOR FIRST THREE YEARS ON ACCRUAL BASIS, PROVISIONS OF SECTION 43D WERE INSERTED IN THE ACT. CIRCULAR NO.621 , DATED 19-12-1991 GIVES THE LEGISLATIVE INTENTION STATING THAT SECTION 43D WAS INSERTED WITH A VIEW T O IMPROVING THE VIABILITY OF BANKS, PUBLIC FINANCIAL INSTITUTIONS ETC., SO AS TO PROVIDE THAT INTEREST ON STICKY LOANS SHALL BE CHARGED TO TAX ONLY IN THE YEAR IN WHICH THE INTEREST IS ACTUALLY RECEIVED OR CREDIT ED TO THE PROFIT AND LOSS ACCOUNT. THIS BENEFIT WAS EXTENDED WITH EFFECT FROM 1-4- 2000 IN THE CASE OF PUBLIC COMPANIES ENGAGED IN LONG-TERM FINANCING OF HOUSING PROJECTS APPROVED BY NATIONAL HOUSING BANKS. THE LEGISLATURE IN THEIR WISDOM DID NOT EXTEND THE SAME BENEFIT TO NBFCS WHICH HAS BEEN GIVEN TO SCHEDULED BANKS, PUBLIC FINANCIAL INSTITUTIONS, ETC. THE PROVISIONS OF SECTION 43D AS STOOD AT RELEVANT TIME CONTAINED AN EXPRESSION 'THE INCOME BY WAY OF INTEREST IN RELATION TO SUCH CATEGORIES OF BAD OR DOUBTFUL DEBTS AS MAY BE PRESCRIBED HAVING REGARD TO THE GUIDELINES ISSUED B Y THE RBI IN RELATION TO SUCH DEBTS'. THIS EXPRESSION CONTINUES TO EXIST IN THE NEWLY SUBSTITUTED SECTION 43D APPLICABLE WITH EFFECT FROM 1-4-2000. THIS SHOWS THAT THE RBI GUIDELINES IN RESPECT OF SCHEDULED BANKS, PUBLIC FINANCIAL INSTITUTIONS ETC., WERE NOT SUFFICIENT FOR RECOGNITION OF INCOME ON CASH BASIS FOR THE PURPOSES OF INCOME-TAX. THE INCOME OF SUCH ASSESSEES WAS DETERMINED AS PER CIRCULAR DATED 9- 10-1984. BECAUSE OF THIS REASON, SECTION 43DWAS INSERTED IN THE STATUTE. RBI GUIDELINES IN CASE OF NBFC ARE FOR THE PURPOSE OF CONTROL AND SUPERVISION WITH RESPECT TO PUBLIC INTEREST AND VIABILITY OF THE NBFC. THE GUIDELINES NEVER INTENDED FOR TAKING THE INTEREST INCOME ACCRUED AS PER SECTION 5 OUT OF THE SCOPE OF THE ACT. IF THE CONTENTION OF ASSESSEE WAS ACCEPTED, IT WOULD AMOUNT TO INSERTION OF 'NBFC' IN SECTION 43D, THAT TOO BY A GUIDELINE ISSUED FOR DIFFERENT PURPOSES BY AN AUTHORITY OTHER THAN THE PARLIAMENT IN OTHER WORDS, THE DOCTRINE OF 'CASUS OMISSUS' WILL DEEM TO HAVE BEEN APPLIED WHICH IS CONTRARY TO LAW OF LAND.'UNQUOTE. THE BASIC REASON FOR DIRECTING TO ASSESS THE ACCRUED INTEREST ON NPA WAS THE RBI GUIDELINES ISSUED ONLY FOR SCHEDULED ITA NO.2138/PN/2013 MAH. NAGRI SAH. BANK LTD. 9 BANKS, PUBLIC FINANCIAL INSTITUTIONS AND NOT FOR NBFC. THE OBSERVATION OF THE RESPECTED TRIBUNAL WAS THAT IF THE CONTENTION OF THE ASSESSEE WAS TO BE ACCEPTED, THEN IT WOULD AMOUNT TO INSERTION OF 'NBFC' IN SECTIO N 43-D OF THE I.T.ACT. AS AGAINST THAT, AS FAR AS THE ASSESSEE IS CONCERNED, IT IS AN ACCEPTED FACT THAT T HE ASSESSEE IS A COOPERATIVE BANK AND NOT A NON- BANKING FINANCIAL COMPANY AND THIS NOTEWORTHY DISTINCTION HAS ALREADY BEEN APPRECIATED BY US IN ONE OF THE PARAGRAPHS ABOVE. THERE IS ONE MORE DECISION OF THE HON'BLE APEX COUR T WHICH IS YET TO BE MENTIONED WHILE DISCUSSING THE ARGUMENTS RAISED FROM THE SIDE OF THE REVENUE. A DECISION IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. VS . JT. CIT 320 ITR 577 (SC) HAS BEEN CITED BUT THE FUNDAMENTAL DIFFERENCE IS THAT THE ISSUE BEFORE THE HON'BLE COURT WAS IN RESPECT OF PROVISION FOR NPA AN D DEBITED TO P&L ACCOUNT BY A NBFC. THE SAID PROVISION WAS UNDISPUTEDLY MADE BY THE SAID NBFC AS PER THE PRUDENTIAL NORMS MADE BY THE RESERVE BANK. THEREFORE WE WANT TO MAKE IT CLEAR THAT THE QUESTION FOR CONSIDERATION BEFORE THE HON'BLE COURT WAS THAT IF A PROVISION FOR DOUBTFUL DEBT IS MADE TH EN WHAT WILL BE THE LEGAL POSITION OF THE APPLICABILITY OF ITA NO.1713/PN/2011 MAHARASHTRA NAGARI SAHAKARI BANK LTD., LATUR EXPLANATION TO SECTION 36(1)(VII) OF THE I.T. ACT. FOR THE SAKE OF READY REFERENCE, RELEVANT PARAGRAPH FROM THE HELD PORTION IS REPRODUCED BELOW: ' THE INCOME-TAX IS A TAX ON 'REAL INCOME', I.E., THE PROFITS ARRIVED AT ON COMMERCIAL PRINCIPLES SUBJE CT TO THE PROVISIONS OF THE ACT. THEREFORE, IF BY THE EXPLANATION TO SECTION 36(1)(VII) A PROVISION FOR DOUBTFUL DEBT IS KEPT OUT OF THE AMBIT OF BAD DEBT WHICH IS WRITTEN OFF, THEN ONE HAS TO TAKE INTO ACCOUN T THE EXPLANATION IN COMPUTING THE TOTAL INCOME UNDER THE INCOME-TAX ACT FAILING WHICH ONE CANNOT ASCERTA IN THE REAL PROFITS. THE PROVISION FOR NON-PERFORMING ASSETS DEBITED IN THE PROFIT AND LOSS ACCOUNT UNDER THE RESERVE BANK DIRECTIONS OF 1998 IS ONLY A NOTIONAL EXPENSE AND, THEREFORE, THERE WOULD BE ADD BACK TO THAT EXTENT IN THE COMPUTATION OF TOTAL INCO ME UNDER THE INCOME-TAX ACT.' THEREFORE THE DISTINCTION CAN EASILY BE DRAWN THAT IN THE APPEAL BEFORE US THE QUESTION IS ACCRUAL OF INTEREST INCOME ON STICKY LOAN BUT IN THIS CITED DECISION THE QUESTION BEFORE HE APEX COURT WAS ABOU T THE ADMISSIBILITY OF PROVISION MADE IN RESPECT OF DOUBTFUL DEBTS. (VI ) CONCEPT OF REAL INCOME APPROVED IN THE CASE OF BANKING BUSINESS: ITA NO.2138/PN/2013 MAH. NAGRI SAH. BANK LTD. 10 BEFORE US, THE THEORY OF 'REAL INCOME' HAS ALSO BEEN ARGUED AND IN SUPPORT A DECISION OF HON'BLE COURT PRONOUNCED IN THE CASE OF CIT VS. GODHRA ELECTRICITY CO. 225 ITR 746 (SC). IN SHORT, THE VIEW EXPRESSED WAS THAT IF INCOME DOES NOT RESULT AT ALL, THERE CANNO T BE ANY TAX AND THAT IF AN INCOME HAS NOT MATERIALIZED, THEN MERELY AN ENTRY MADE ABOUT A HYPOTHETICAL INCOME BY FOLLOWING BOOK KEEPING METHODS, THE LIABILITY TO TAX CANNOT BE ATTRACTED. NOW AT PRESENT THE SITUATION IS THAT THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. ELGI FINANCE LTD. 293 ITR 357 (MAD.) HAS TAKEN A VIEW THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF LEASE, FINANCE AND HIRE PURCHASE AND THAT THE PRINCIPLE OF ACCRUAL COMES INTO PLAY WITHOUT INCOME WAS RECOGNIZED AND THAT THE ASSESSEE HAD CLASSIFIED ITS ASSETS ON THE BASIS OF NOTIFICATION ISSUED BY R.B .I. AND FOUND THAT CERTAIN ASSETS CAME UNDER THE CATEGORY OF NPA AND THAT FROM SUCH NPA THE ASSESSEE HAD NOT RECOGNIZED ANY INCOME IN CONSONANCE WITH THE NOTIFICATION ISSUED BY RBI AND AS-9 ISSUED BY ICAI AND THAT THE ASSESSEE WAS JUSTIFIED IN NOT RECOGNIZING SUCH INCOME. THE COURT HAD FURTHER EXPRESSED THAT THERE WAS NO OCCASION TO CONSIDER WHETHER THE PRINCIPLE OF ACCRUAL WOULD ARISE OR NOT, NEVERTHELESS, THE INTEREST FROM SUCH NPA WOULD BE TAXED IN THE APPROPRIATE ASSESSMENT YEAR ON THE BASIS OF ACTUAL RECEIPT. IT IS WORTH TO MENTION THAT FOR THIS DECISION, THE HON'BLE MADRAS HIGH COURT HAS RELIED UPON AN ANOTHER DECISION OF THE SAME HIG H COURT PRONOUNCED IN THE CASE OF JT.CIT VS. INDIA EQUIPMENT LEASING LTD. 293 ITR 350.' 7. IN THE CASE BEFORE US, ADMITTEDLY, ASSESSEE HAS DIRE CTLY TAKEN THE INTEREST TO THE BALANCE SHEET AND IT IS N OT ROUTED THROUGH THE PROFIT & LOSS ACCOUNT. MOREOVER, THE ISSU E OF THE TAXABILITY OF THE INTEREST ON THE STICKY LOSSES/ ADVANCES, IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISIO N OF THE COORDINATE BENCHES IN THE CASE OF THE DURGA COOPERA TIVE URBAN BANK LTD., VIJAYAWADA (SUPRA) AND KARNAVATI COOPERATIVE BANK LTD. (SUPRA). WE FIND NO REASON TO INTERFERE WITH THE REASONED ORDER OF THE LD. CIT(A) AN D ACCORDINGLY THE SAME IS CONFIRMED. IN THE RESULT, THE REVENUE'S GROUND IS DISMISSED. 4. WE THEREFORE FOLLOWING THE DECISION OF THE TRIBUNAL I N THE CASE OF OSMANABAD JANTA SAH. BANK LTD. (SUPRA) CONFIRMED TH E ORDER OF THE LD. CIT(A) AND DISMISS THE GROUNDS TAKEN BY THE REVE NUE. 9. THE ISSUE ARISING BEFORE US IS IDENTICAL TO THE ISSUE BE FORE THE TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 2007-08 AND FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT INTE REST ON ITA NO.2138/PN/2013 MAH. NAGRI SAH. BANK LTD. 11 NPAS IS NOT INCLUDABLE IN THE HANDS OF THE ASSESSEE IN THE YEAR OF ACCRUAL. UPHOLDING THE ORDER OF CIT(A), WE DISMISS THE GRO UNDS OF APPEAL RAISED BY THE REVENUE. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF OCTOBER, 2014. SD/- SD/- (G.S. PANNU) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 30 TH OCTOBER, 2014. GCVSR COPY OF THE ORDER IS FORWARDED TO : - 1) THE DEPARTMENT; 2) THE ASSESSEE; 3) THE CIT(A), AURANGABAD; 4) THE CIT, AURANGABAD; 5) THE DR B BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE