Ode Urban Co.Op.Bank Ltd., Anand V. The Dy.CIT.,Anand Circle, Anand

ITA 2352/AHD/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9158 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-12-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 29-11-2010
• Assessment Year: 2007-2008
• Appeal Filed On: 19-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M MATHIVANAN
• Assessee Lawyers: VIVEK N CHAVDA
• Keywords: Opportunity of being heard; Bad and doubtful debts; Set aside
• Section: 43D

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH AHMEDABAD (BEFORE S/SHRI G. D. AGARWAL, VP AND BHAVNESH SAINI , JM) ITA NO. 2352/AHD/2010 A. Y.: 2007-08 ODE URBAN CO-OPERATIVE BANK LTD., ODE, DISTRICT ANAND VS THE D. C. I. T., ANAND CIRCLE, ANAND PA NO. AAATO 0263 D (APPELLANT) (RESPONDENT) APPELLANT BY SHRI VIVEK N. CHAVDA, AR RESPONDENT BY SHRI M. MATHIVANAN, DR O R D E R PER BHAVNESH SAINI, JM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-IV , BARODA DATED 28-05-2010, FOR ASSESSMENT YEAR 2007-08, CHALLENGIN G THE ADDITION OF RS.42,23,762/- MADE BY THE AO IN RESPECT OF INTERES T RECEIVABLE ACCOUNT. 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE AO M ADE THE ADDITION OF RS.42,23,762/- BEING INTEREST RECEIVABLE ON NON-PER FORMING ACCOUNT CONSIDERING AS INCOME OF THE ASSESSEE. IT IS STATED THAT THE ASSESSEE HAD NOT CREDITED INTEREST RECEIVABLE OF RS.42,23,762/- TO THE PROFIT & LOSS ACCOUNT ON THE GROUND THAT INTEREST WAS ON NON-PERF ORMING ACCOUNT, WHERE NEITHER PRINCIPAL NOR INTEREST WAS RECEIVED F ROM THE CONCERNED PARTIES. IT WAS SUBMITTED BY THE ASSESSEE THAT AS P ER RESERVE BANK OF INDIA GUIDELINES DATED 01-09-2001, BANK HAD TO RECO GNIZE ITS INCOME FROM THE NON-PERFORMING ACCOUNT AND HAD TO SIMULTAN EOUSLY CREATE PROVISIONS FOR NON-PERFORMING ACCOUNT AT THE PRESCR IBED RATE AND ACCORDINGLY PROVISIONS OF RS.240.46 LACS WAS CREATE D. THE ASSESSEE SUBMITTED THAT SECURITIES AND ADVANCES WERE TREATED AS NON-PERFORMING ACCOUNT WHEN THEY WERE IRREGULAR FOR MORE THAN 180 DAYS. THE AO REFERRED TO THE DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF UCO ITA NO.2352/AHD/2010 ODE URBAN CO-OPERATIVE BANK LTD. VS DCIT, ANAND CIR CLE, ANAND 2 BANK 237 ITR 889 AND ALSO CBDT CIRCULAR DATED 9-10- 1984 WHICH PROVIDES AS UNDER: (1) THAT INTEREST IN RESPECT OF DOUBTFUL DEBTS CREDITED TO SUSPENSE A/S BY THE BANKING COMPANIES WOULD BE SUBJECTED TO TAX. (2) BUT INTEREST CHARGED IN ACCOUNT WHERE THERE HAD BEE N NO RECOVERY FOR 3 CONSECUTIVE ACCOUNTING YEARS WOULD N OT BE SUBJECTED TO TAX IN THE 4 TH YEAR AND ONWARDS. (3) HOWEVER, IF THERE WAS ANY RECOVERY IN THE 4 TH YEAR OR LATER THE ACTUAL AMOUNT RECOVERED ONLY WOULD BE SUBJECTED TO TAX IN THE RESPECTIVE YEARS. THE PROCEDURE IS APPLI CABLE TO THE ASSESSMENT YEAR 1979-80 AND ONWARDS. AND THE AO CONSIDERED THE INTEREST RECEIVABLE AS AS SESSEES INCOME FOR THE ASSESSMENT YEAR UNDER APPEAL. THE ADDITION WAS CHALLENGED BEFORE THE LEARNED CIT(A). THE WRITTEN SUBMISSION OF THE A SSESSEE IS REPRODUCED IN THE IMPUGNED ORDER. THE LEARNED CIT(A) HOWEVER, NOTED THAT THE ASSESSEE FOLLOWED MERCANTILE SYSTEM OF ACCOUNTING R EGULARLY AS MENTIONED IN THE TAX AUDIT REPORT AND INTEREST WAS CHARGED ON ACCRUAL BASIS ON THE SO-CALLED NON-PERFORMING ACCOUNT THOUG H INSTEAD OF CREDITING THE SAME TO THE PROFIT & LOSS ACCOUNT, IT WAS TAKEN TO INTEREST SUSPENSE ACCOUNT. THE LEARNED CIT(A) ALSO HELD THA T BENEFIT OF SECTION 43D, I.E. TAXATION OF INTEREST ON RECEIPT BASIS IN RELATION TO PRESCRIBED CATEGORIES OF BAD DEBTS IS NOT AVAILABLE TO THE ASS ESSEE, A COOPERATIVE BANK. PROVISIONS OF SECTION 43D ARE APPLICABLE ONLY IN CASE OF PUBLIC FINANCIAL INSTITUTIONS, SCHEDULED BANKS, STATE FINA NCIAL CORPORATIONS, STATE INDUSTRIAL INVESTMENT CORPORATIONS AND HOUSIN G FINANCE COMPANIES, AS DEFINED IN THE EXPLANATION BELOW SECT ION 43D. THE LEARNED CIT(A) FOLLOWING THE DECISION OF THE HONBL E SUPREME COURT IN THE CASE OF STATE BANK OF TRAVANCORE 158 ITR 102 UPHELD THE ADDITION. ITA NO.2352/AHD/2010 ODE URBAN CO-OPERATIVE BANK LTD. VS DCIT, ANAND CIR CLE, ANAND 3 3. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THA T CBDT CIRCULAR MENTIONED BY THE AO MAY BE FOLLOWED IN THIS CASE. H E HAS SUBMITTED THAT THE ASSESSEE IS NOW IN A POSITION TO GIVE THE DETAI LS OF INTEREST WHERE THERE WAS NO RECOVERY OF 3 CONSECUTIVE ACCOUNTING Y EARS AS PER THE BOARD CIRCULAR. HE HAS SUBMITTED THAT THE AO BY FOLLOWING THE BOARD CIRCULAR DATED 9-10-1984 NOTED THAT IF INTEREST IS NOT RECEI VED FOR THE SAID 3 YEARS THERE IS NO JUSTIFICATION TO TREAT IT AS INCOME FOR THE 4 TH YEAR. HE HAS SUBMITTED THAT AT THE TIME OF ASSESSMENT PROCEEDING S THE ASSESSEE COULD NOT PRODUCE THE DETAILS BEFORE THE AO AND NOW THE A SSESSEE IS IN A POSITION TO PRODUCE THE SAME AND THE AO MAY BE DIRE CTED TO DECIDE THE ISSUE AS PER THE BOARD CIRCULAR (SUPRA). THE LEARNE D COUNSEL FOR THE ASSESSEE DURING THE COURSE OF ARGUMENT ALSO RELIED UPON THE ORDER OF ITAT AHMEDABAD BENCH IN THE CASE OF ACIT VS SOUTH G UJARAT AREA LOCAL BANK LTD. IN ITA NO.1441/AHD/2007 AND 1442/AHD/2007 DATED 26-03-2010 IN WHICH THE AO OBSERVED THAT THE ASSESS EE BANK HAS NOT ACCOUNTED FOR INTEREST INCOME WHICH ACCRUED ON NON- PERFORMING ACCOUNT, EVEN THOUGH FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG IT MADE THE ADDITION TREATING AS NON-PERFORMING ACCOUNT. IN THI S CASE, THE LEARNED CIT(A) DELETED THE ADDITION AND THE TRIBUNAL CONFI RMED THE ORDER OF THE LEARNED CIT(A). THE LEARNED COUNSEL FOR THE ASSESSE E HOWEVER, AGREED THAT IN THE CASE OF THE ASSESSEE THE FACTS ARE DIST INGUISHABLE BECAUSE THE ASSESSEE INSTEAD OF CREDITING THE INTEREST TO THE P ROFIT & LOSS ACCOUNT HAD TAKEN IT TO INTEREST SUSPENSE ACCOUNT. HE HAS, THER EFORE, SUBMITTED THAT THE ASSESSEES CASE IS CLEARLY DISTINGUISHABLE ON F ACTS AND, THEREFORE, HIS CASE MAY BE RE-CONSIDERED BY THE AO AS PER THE BOAR D CIRCULAR BECAUSE THE ASSESSEE IS ABLE TO FILE THE DETAILS BEFORE HIM . 4. THE LEARNED DR SUBMITTED THAT THE MATTER COULD B E RE-EXAMINED BY THE AO AS PER THE BOARD CIRCULAR REFERRED TO IN THE ASSESSMENT ORDER ON FILING OF THE DETAILS BY THE ASSESSEE. ITA NO.2352/AHD/2010 ODE URBAN CO-OPERATIVE BANK LTD. VS DCIT, ANAND CIR CLE, ANAND 4 5. ON CONSIDERATION OF THE ABOVE FACTS, WE ARE OF T HE VIEW THAT THE MATER REQUIRES RE-CONSIDERATION AT THE LEVEL OF THE AO. THE ASSESSEE SUBMITTED THAT THE ISSUE COULD BE RE-EXAMINED IN TH E LIGHT OF BOARD CIRCULAR DATED 9-10-1984 RELIED UPON BY THE AO BECA USE THE ASSESSEE IS IN A POSITION TO FURNISH THE DETAILS BEFORE THE AO WITH REGARD TO THE INTEREST RECEIVABLE IN EARLIER YEARS WHICH WOULD HA VE BEARING IN THE MATTER ON ISSUE. WE ARE, THEREFORE, OF THE VIEW THA T ONE MORE CHANCE MAY BE GIVEN TO THE ASSESSEE TO EXPLAIN THE ISSUE BEFOR E THE AO. WE ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIE S BELOW AND RESTORE THE ISSUE TO THE FILE OF THE AO WITH DIRECTION TO THE A SSESSEE TO PRODUCE SUFFICIENT AND RELEVANT MATERIAL BEFORE THE AO ON T HE ABOVE ISSUE AND THE AO SHALL RE-EXAMINE THE ISSUE IN THE LIGHT OF THE B OARD CIRCULAR ALREADY REFERRED TO IN THE ASSESSMENT ORDER. THE AO SHALL G IVE REASONABLE SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 2-12--2010. SD/- SD/- (G. D. AGARWAL) VICE PRESIDENT (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 2-12-2010 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AHMEDABAD