The Suvikas Peoples'Co-Operative Bank Ltd., Ahmedabad V. The ACIT, Circle-10, Ahmedabad

ITA 2182/AHD/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0700 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 23-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S N DIVETIA
• Section: 145; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH (BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER & SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER) ITA. NO: 2182/AHD/2013 (ASSESSMENT YEAR: 2009-10) THE SUVIKAS PEOPLES CO- OPERATIVE BANK LTD. SUN COMPLEX, NR. STADIUM CIRCLE, C.G. ROAD, NAVRANGPURA, AHMEDABAD-380009 V/S ACIT, CIRCLE-10, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AAAAT4288N APPELLANT BY : SHRI S. N. DIVETIA, AR RESPONDENT BY : SHRI SANJAY KUMAR, SR. D.R. ( )/ ORDER DATE OF HEARING : 30 -08-201 6 DATE OF PRONOUNCEMENT : 05-09-2016 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ORDER OF LD. CIT(A)-XVI, AHMEDABAD DATED 25.06.2013 PERTAINING T O A.Y. 2009-10. ITA NO. 2182 /AHD/2013 . A.Y. 2009-10 2 2. THE SUBSTANTIVE GRIEVANCE OF THE ASSESSEE IS TWOFOL D. FIRSTLY, THE ASSESSEE IS AGGRIEVED BY THE ADDITION OF RS. 15,50, 000/- AS ACCRUED INTEREST INCOME ON NON-PERFORMING ASSETS AND SECOND LY, THE ASSESSEE IS AGGRIEVED BY THE INCOME ADDITION OF RS. 1,30,864 /- BEING THE INTEREST RECEIVED ON NPA ASSETS WHICH FORMS PART OF THE GROSS NPA INTEREST OF RS. 15.50 LACS. 3. THE ASSESSEE IS IN THE BUSINESS OF BANKING ACTIVITI ES FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO F URNISH THE DETAILS OF INTEREST ACCRUED ON NON-PERFORMING ASSETS. THE A SSESSEE FURNISHED NECESSARY DETAILS. SIMULTANEOUSLY, THE ASSESSEE CLA IMED THAT IT HAS TO FOLLOW THE CIRCULARS/GUIDELINES ISSUED BY THE RESER VE BANK OF INDIA AND ONE OF THE GUIDELINE OF THE RBI IS THAT INTEREST IN COME IN RESPECT OF RESTRUCTURED ACCOUNTS CLASSIFIED AS STANDARD ASSET S WILL BE RECOGNIZED ON ACCRUAL BASIS AND THAT IN RESPECT OF THE ACCOUNT CLASSIFIED AS NON- PERFORMING ASSETS WILL BE RECOGNIZED AS CASH BASIS . IT WAS EXPLAINED THAT BECAUSE OF THESE MANDATORY GUIDELINES, THE ASS ESSEE HAS NOT RECOGNIZED INTEREST ON NON PERFORMING ASSETS ON ACC RUAL BASIS. THIS CONTENTION OF THE ASSESSEE WAS DISMISSED BY THE A.O . WHO WAS OF THE OPINION THAT SINCE THE ASSESSEE IS FOLLOWING MERCAN TILE SYSTEM OF ACCOUNTING, IT SHOULD HAVE RECOGNIZED INTEREST ON N PA ON ACCRUAL BASIS AS PER THE PROVISIONS OF THE INCOME TAX ACT. THE A. O. ACCORDINGLY MADE THE ADDITION OF RS. 15.50 LACS. 4. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. ITA NO. 2182 /AHD/2013 . A.Y. 2009-10 3 5. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THIS ISSUE IS NO MORE RES INTEGRA AS IT HAS BEEN DECIDED BY THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF SHRI MAHILA SEWA SAHAKARI BANK LTD. IN TAX APPEAL NO. 531 OF 2015 DATED 05.08.2016 IN FAVOUR O F THE ASSESSEE AND AGAINST THE REVENUE. THE LD. D.R. COULD NOT BRI NG ANY DISTINGUISHING DECISION IN FAVOUR OF THE REVENUE. 6. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTH ORITIES BELOW. WE FIND FORCE IN THE CONTENTION OF THE LD. COUNSEL. TH E HONBLE HIGH COURT (SUPRA) WAS SEIZED WITH THE FOLLOWING SUBSTANTIAL Q UESTION OF LAW:- 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE INCOME TAX APPELLATE TRIBUNAL IS RIGHT IN LAW AND ON FACTS IN HOLDING THAT INTEREST ON NON PERFORMING ASSETS IS NOT TAXABLE ON ACCRUAL BASIS L OOKING TO THE GUIDELINES OF THE RESERVE BANK OF INDIA?' 7. THE HONBLE HIGH COURT CONSIDERED THE FOLLOWING FAC TS:- 5.1 THE ASSESSING OFFICER WAS OF THE OPINION THAT INTER EST ON THE NPA HAD ACCRUED TO THE ASSESSEE, EVEN IF IT WAS NOT ACTUALL Y REALIZED, AS IT WAS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AND ACCORDINGLY ADDED A SUM OF RS.L,72,73,000/-TO THE TOTAL INCOME OF THE ASSESSEE . THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE COMMISSIONER (APPEALS), WHO UPHELD THE ORDER PASSED BY THE ASSESSING OFFICER. THE ASSESSEE CHALL ENGED THE ORDER OF THE COMMISSIONER (APPEALS) BEFORE THE TRIBUNAL, WHICH A LLOWED THE APPEAL BY DELETING THE INTEREST. BEING AGGRIEVED, THE REVENUE IS IN APPEAL. 22. THEREFORE, IN TERMS OF THE ABOVE DECISION, WHERE AN ASSESSEE MAKES PROVISION FOR NPA AND SEEKS DEDUCTION OF SUCH AMOUNT UNDER SE CTION 36(L)(VII) OR SECTION 37 OF THE ACT, THEN IN THE COMPUTATION ,OF INCOME, THE RBI GUIDELINES WOULD HAVE NO ROLE TO PLAY, AND HENCE, AN ADD BACK. INSOFAR AS IN COME RECOGNITION IS CONCERNED, THE SUPREME COURT HAS HELD THUS: 'APPLICABILITY OF SECTION 145 ITA NO. 2182 /AHD/2013 . A.Y. 2009-10 4 57. AT THE OUTSET, WE MAY STATE THAT IN ESSENCE THE RBI DIRECTIONS, 1998 ARE PRUDENTIAL/PROVISIONING NORMS ISSUED BY RBI UNDER C HAPTER III-B OF THE RBI ACT, 1934. THESE NORMS DEAL ESSENTIALLY WITH INCOME RECO GNITION. THEY FORCE THE NBFCS TO DISCLOSE THE AMOUNT OF NPA IN THEIR FINANC IAL ACCOUNTS. THEY FORCE THE NBFCS TO REFLECT 'TRUE AND CORRECT' PROFITS. BY VIR TUE OF SECTION 45-Q, AN OVERRIDING EFFECT IS GIVEN TO THE RBI DIRECTIONS, 1 998 VIS-A-VIS 'INCOME RECOGNITION' PRINCIPLES IN THE COMPANIES ACT, 1956. THESE DIRECTIONS CONSTITUTE A CODE BY ITSELF. HOWEVER, THESE RBI DIRECTIONS, 1998 AND THE IT ACT OPERATE IN DIFFERENT AREAS. THESE RBI DIRECTIONS, 1998 HAVE NO THING TO DO WITH COMPUTATION OF TAXABLE INCOME. THESE DIRECTIONS CANNOT OVERRULE THE 'PERMISSIBLE DEDUCTIONS' OR 'THEIR EXCLUSION' UNDER THE IT ACT. THE INCONSIS TENCY BETWEEN THESE DIRECTIONS AND THE COMPANIES ACT IS ONLY IN THE MATTER OF INCO ME RECOGNITION AND PRESENTATION OF FINANCIAL STATEMENTS. THE ACCOUNTIN G POLICIES ADOPTED BY AN NBFC CANNOT DETERMINE THE TAXABLE INCOME. IT IS WEL L SETTLED THAT THE ACCOUNTING POLICIES FOLLOWED BY A COMPANY CAN BE CHANGED UNLES S THE AO COMES TO THE CONCLUSION THAT SUCH CHANGE WOULD RESULT IN UNDERST ATEMENT OF PROFITS. HOWEVER, HERE IS THE CASE WHERE THE AO HAS TO FOLLOW THE RBI DIRECTIONS, 1998 IN VIEW OF SECTION 45-Q OF THE RBI ACT. HENCE, AS FAR AS INCOM E RECOGNITION IS CONCERNED, SECTION 145 OF THE IT ACT HAS NO ROLE TO PLAY IN TH E PRESENT DISPUTE.' THUS, INSOFAR AS INCOME RECOGNITION IS CONCERNED, T HE COURT HAS HELD THAT EVEN THE ASSESSING OFFICER HAS TO FOLLOW THE RBI DIRECTIONS, 1998 IN VIEW OF SECTION 45Q OF THE RBI ACT AND THAT AS FAR AS INCOME RECOGNITION I S CONCERNED, SECTION 145 OF THE INCOME TAX ACT, HAS NOT ROLE TO PLAY. 8. AND HELD AS UNDER:- 23. IN THE LIGHT OF THE ABOVE DISCUSSION WHAT EMERGES I S THAT WHILE DETERMINING THE: TAX LIABILITY OF AN ASSESSEE, TWO FACTORS WOUL D COME INTO PLAY. FIRSTLY, THE RECOGNITION OF INCOME IN TERMS OF THE RECOGNIZED AC COUNTING PRINCIPLES AND AFTER SUCH INCOME IS RECOGNIZED, THE COMPUTATION THEREOF, IN TERMS OF THE PROVISIONS OF THE INCOME TAX ACT, 1961. INSOFAR AS THE COMPUTATIO N OF TAXABILITY IS CONCERNED, THE SAME IS SOLELY GOVERNED BY THE PROVISIONS OF TH E INCOME TAX ACT AND THE ITA NO. 2182 /AHD/2013 . A.Y. 2009-10 5 ACCOUNTING PRINCIPLES HAVE NO ROLE TO PLAY. HOWEVER , RECOGNITION OF INCOME STANDS ON A DIFFERENT FOOTING. INSOFAR AS INCOME RE COGNITION IS CONCERNED, IT WOULD BE THE RBI DIRECTIONS WHICH WOULD PREVAIL IN VIEW O F THE PROVISIONS OF SECTION 45Q OF THE RBI ACT .AND SECTION 145 WOULD HAVE NO R OLE TO PLAY. HENCE, THE ASSESSING OFFICER HAS TO FOLLOW THE RBI DIRECTIONS. 9. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT (SUPRA), WE SET ASIDE THE FINDINGS OF TH E LD. CIT(A) AND DIRECT THE A.O. TO DELETE THE ADDITION OF RS. 15.50 LACS WHICH ALSO INCLUDES THE ADDITION OF RS. 1,30,864/-. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 05- 09- 20 16. SD/- SD/- (R.P. TOLANI) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD