Alavi Co.Op.Bank Ltd., Baroda V. The Dy.CIT, Circle-5, Baroda

ITA 2267/AHD/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8040 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 08-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Section: 143(3); 145

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD .., , BEFORE SHRI S.S. GODARA, JUDICIAL MEMBER & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ I.T.A. NO.2267/AHD/2014 ( / ASSESSMENT YEAR : 2007-08) ALAVI CO.OP.BANK LTD. CHOKHANDI WARDI BARODA 390 017 / VS. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-5 AAYAKAR BHAVAN RACE COURSE CIRCLE BARODA $ ./ ./ PAN/GIR NO. : AAAAA 0966 A ( $' / APPELLANT ) .. ( ($' / RESPONDENT ) $') / APPELLANT BY : SHRI SAMIR PARIKH, AR ($'*) / RESPONDENT BY : SHRI V.K.SINGH, SR.DR +,*- / DATE OF HEARING 06/12/2017 ./0*- / DATE OF PRONOUNCEMENT 08 / 12 /2017 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTAN CE OF THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-V, BARODA [CIT(A) IN SHORT] DATED 27/05/2014 IN THE MATTER OF ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER (AO) UNDER S. 143(3) R.W.S.263 OF ITA NO.2267/AHD /2014 ALAVI CO.OP.BANK LTD. VS. DCIT ASST.YEAR 2007-08 - 2 - THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO A S 'THE ACT') DATED 11/03/2013 RELEVANT TO ASSESSMENT YEAR (AY) 2010-11 . 2. IN ITS APPEAL, THE ASSESSEE HAS IMPUGNED THE C HARGEABILITY OF INTEREST ON NON PERFORMING ASSETS (NPAS) AMOUNTING TO RS.28,94,629/- ON ACCRUAL BASIS. 3. BRIEFLY STATED, THE ASSESSEE IS ENGAGED IN BANK ING BUSINESS IN CO- OPERATIVE SECTOR. IT WAS OBSERVED BY THE AO IN THE SCRUTINY ASSESSMENT THAT DURING THE FINANCIAL YEAR (FY) 2006-07 RELEVAN T TO AY 2007-08, THE ASSESSEE HAS DECLARED AN AMOUNT OF RS.28,94,629/- U NDER THE HEAD INTEREST ON NPA RECEIVABLE DIRECTLY IN THE BALANCE- SHEET WITHOUT ROUTING IT THROUGH THE P&L ACCOUNT. AS A RESULT, THE AFO RESAID INTEREST AMOUNT HAS NOT BEEN CONSIDERED FOR COMPUTING THE PROFITS A ND GAINS OF BUSINESS OR PROFESSION. THE AO OBSERVED THAT ASSESSEE ORDIN ARILY FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING WHEREBY THE AFORESA ID INTEREST AMOUNT ON NPA STANDS ACCRUED AS INCOME IN VIEW OF SECTION 145 OF THE ACT. HE ACCORDINGLY INFLATED THE TOTAL INCOME TO THE AFORES AID EXTENT WHILE FRAMING THE ASSESSMENT. 4. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A) WITHOUT ANY SUCCESS. 5. FURTHER AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE TRIBUNAL. ITA NO.2267/AHD /2014 ALAVI CO.OP.BANK LTD. VS. DCIT ASST.YEAR 2007-08 - 3 - 6. THE LD.AR FOR THE ASSESSEE, AT THE OUTSET, SUBMI TTED THAT IN RESPECT OF INTEREST ON NON-PERFORMING DEBTORS/ADVANCES, THE ASSESSEE HAS OFFERED INTEREST INCOME AS AND WHEN IT HAS RECEIVED SUCH IN TEREST IN DEPARTURE WITH ACCRUAL SYSTEM OF ACCOUNTING. THE LD.AR SUBMI TTED THAT THIS IS FOR THE REASON THAT INTEREST CANNOT BE SAID TO HAVE ACC RUED WHERE THE PRINCIPAL AMOUNT ITSELF IS FOUND TO BE NON-PERFORMING AND DOU BTFUL OF RECOVERY IN TERMS OF THE RBI GUIDELINES. THE LD.AR ADVERTED OU R ATTENTION TO THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE C ASE OF PR.CIT VS. SHRI MAHILA SEWA SAHAKARI BANK LTD. (2016) 72 TAXMANN.CO M 117 (GUJ.) WHERE AFTER CONSIDERING THE RBI ACT AND CBDT CIRCCU LAR, THE HONBLE GUJARAT HIGH COURT HAS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE. THE LD.AR ACCORDINGLY SUBMITTED THAT THE ADDITION SO MA DE REQUIRES TO BE REVERSED. 7. THE LD.DR, ON THE OTHER HAND, RELIED UPON THE OR DERS OF THE CIT(A) AND AO. 8. WE FIND THAT THE HONBLE GUJARAT HIGH COURT IN T HE CASE OF SHRI MAHILA SEWA SAHAKARI BANK LTD. (SUPRA) CLEARLY HELD THAT INTEREST ON NPAS IS NOT TAXABLE ON ACCRUAL BASIS IN VIEW OF THE GUIDELINES OF THE RBI. SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE BOMBAY H IGH COURT IN THE CASE OF CIT VS. DEOGIRI NAGARI SAHKARI BANK LTD. IN IT APPEAL NO.53 OF 2014 AND ORS. THEREFORE, WE FIND MERIT IN THE PLE A OF THE ASSESSEE THAT ITA NO.2267/AHD /2014 ALAVI CO.OP.BANK LTD. VS. DCIT ASST.YEAR 2007-08 - 4 - IN VIEW OF THE RBI GUIDELINES WHILE THE INTEREST IN COME ON NPAS ARE REQUIRED TO BE RECOGNIZED BUT NEED NOT TO BE OFFERE D TO TAX IRRESPECTIVE OF THE MERCANTILE SYSTEM OF ACCOUNTING. THE INTEREST INCOME ON NPA THEREFORE CANNOT BE SAID TO HAVE ACCRUED TO THE ASS ESSEE PER SE . 9. IN CONSONANCE WITH THE DECISION OF THE HONBLE J URISDICTIONAL HIGH COURT, WE FIND MERIT IN THE APPEAL OF THE ASSESSEE. THEREFORE, THE AO IS DIRECTED TO DELETE THE ADDITIONS MADE ON ACCOUNT OF INTEREST ON NPAS. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. THIS ORDER PRONOUNCED IN OPEN COURT ON 08/ 12 /2017 SD/- SD/- (..) ( ) ( S.S. GODARA ) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 08/ 12 /2017 4..+,.+../ T.C. NAIR, SR. PS !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. $' / THE APPELLANT 2. ($' / THE RESPONDENT. 3. 567- 8- / CONCERNED CIT 4. 8- ( ) / THE CIT(A)-V, BARODA 5. 9:-+67 , 670 , 5 / DR, ITAT, AHMEDABAD 6. <, / GUARD FILE. / BY ORDER, (9-- //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD