ACIT, Nanded V. The Nanded Dist. Central Co-Op Bank Ltd, Nanded

ITA 2393/PUN/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 76111 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 03-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VERMA
• Assessee Lawyers: N O N E
• Keywords: Bad and doubtful debts
• Section: 145; 6; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE BEFORE: SHRI G. S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO S. 2392 & 2393 /PN/20 12 ASSESSMENT YEAR S : 200 7 - 08 & 2009 - 10 ASSTT. COMMISSI ONER OF INCOME TAX, CIRCLE - 3, NANDED VS. THE NANDED DIST. CENTRAL CO - OP. BANK LTD., STATION ROAD, NANDED (APPELLANT) (RESPONDENT) PAN NO. AAAA N0696A APPELLANT BY: SMT. M.S. VERMA RESPONDENT BY: N O N E DATE OF HEARING : 0 9 - 01 - 2014 DATE OF PRO NOUNCEMENT : 31 - 01 - 2014 ORDER P ER R.S. PADVEKAR , JM : - TH ESE TWO APPEALS ARE FILED BY THE REVENUE CHALLENGING THE IMPUGNED COMMON ORDER OF THE LD. CIT(A), AURANGABAD DATED 28 - 09 - 2012 FOR THE A.Y S . 200 7 - 08 AND 2009 - 10. THE FIRST COMMON ISSUE WHICH ARI SES FOR OUR CONSIDERATION IS WHETHER THE LD. CIT(A) HAS JUSTIFIED IN DELETING THE ADDITION OF RS.25,02,63,000/ - AND RS.22,63,61,000/ - FOR THE A.YS. 2007 - 08 AND 2009 - 10 RESPECTIVELY WHICH WAS MADE BY THE ASSESSING OFFICER IN RESPECT OF THE PROVISION FOR OVE RDUE INTEREST ON NPA. THERE IS NO DETAIL DISCUSSION IN THE ASSESSMENT ORDERS BUT HE LD. CIT(A ) HAS ELABORATED THIS ISSUE IN HIS ORDER FOR BOTH THE ASSESSMENT YEARS. 2. WE HAVE HEARD THE LD. CIT (DR). NONE WAS PRESENT FOR THE ASSESSEE. WE FIND THAT THE ISSUE STANDS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THIS TRIBUNAL IN THE CASE OF ACIT VS. THE OMERGA JANTA SAHAKARI BANK LTD., ITA NO. 350/PN/2013 AND CO NO. 61/PN/2013 ORDER DATED 31 - 10 - 2013. THE OPERATIVE PART OF THE DECISION IS AS UNDER: 2 ITA NO S. 2392 & 2393 /PN/2012, THE NANDED DIST. CENTRAL CO - OP. BANK LTD., NANDED 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. IN SO FAR AS THE APPLICABILITY OF SECTION 43D OF THE ACT TO THE ASSESSEE IS CONCERNED, THERE IS A CONVERGENCE OF OPINION BETWEEN THE ASSESSEE AND THE REVENUE TO THE EFFECT THAT THE SAME IS NOT APPLICABLE TO THE ASSESSEE. OSTENSIBLY, ASSESSEE IS A CO - OPERATIVE BANK CARRYING ON BANKING BUSINESS IN TERMS OF A LICENSE GRANTED BY RBI AND IS NOT A SCHEDULED BANK INCLUDED IN SECOND SCHEDULE OF RBI SO AS TO FALL WITHIN THE SCOPE OF SECTION 43D OF THE ACT. NOTABL Y, SECTION 43D OF THE ACT PRESCRIBES THAT INTEREST INCOME ON SUCH CATEGORIES OF BAD AND DOUBTFUL DEBTS AS PRESCRIBED BY THE RBI GUIDELINES SHALL BE CHARGEABLE TO TAX IN THE YEAR IN WHICH SUCH INTEREST INCOME IS CREDITED BY THE ASSESSEE IN THE PROFIT AND LO SS ACCOUNT OR IN THE YEAR OF ACTUAL RECEIPT, WHICHEVER IS EARLIER. SINCE ASSESSEE IS NOT AN ENTITY COVERED WITHIN THE SCOPE OF SECTION 43D OF THE ACT, THE PRESENT CONTROVERSY CANNOT BE ADJUDICATED IN THE LIGHT OF SECTION 43D OF THE ACT, AND IT IS LIABLE T O BE DECIDED ON GENERAL PRINCIPLES AS TO WHETHER THE IMPUGNED INCOME HAS ACCRUED TO THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. 9. IN THIS CONNECTION, WE FIND THAT THE VISAKHAPATNAM BENCH OF THE TRIBUNAL IN THE CASE OF THE DURGA COOPERATIVE URBAN B ANK LTD. (SUPRA) HAS CONSIDERED AN IDENTICAL CONTROVERSY. THE ASSESSEE BEFORE THE VISAKHAPATNAM BENCH WAS A CO - OPERATIVE BANK OPERATING UNDER A LICENSE ISSUED BY RBI BUT WAS NOT A SCHEDULED BANK SO AS TO FALL WITHIN THE SCOPE OF SECTION 43D OF THE ACT. THE ISSUE RELATED TO TAXABILITY OF INTEREST INCOME RELATING TO NPAS, WHICH AS PER THE REVENUE WAS LIABLE TO BE TAXED ON ACCRUAL BASIS IN LINE WITH MERCANTILE SYSTEM OF ACCOUNTING ADOPTED BY THE ASSESSEE THEREIN. THE ASSESSEE, ON THE OTHER HAND, CONTENDED THAT HAVING REGARD TO THE GUIDELINES ISSUED BY RBI REGARDING ACCOUNTING OF INTEREST ON NPAS, NO INTEREST INCOME ACCRUED IN RESPECT OF NPAS AND THAT THE SAME WAS TO BE TAXED ONLY ON RECEIPT BASIS. THE TRIBUNAL OBSERVED THAT THE QUESTION OF TAXABILITY OF I NTEREST ON NPAS CLASSIFIED BY RBI, WAS CONSIDERED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF M/S VASISTH CHAY VYAPAR LTD. (SUPRA) WHEREIN AFTER CONSIDERING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) IT W AS HELD THAT INTEREST INCOME RELATABLE TO NPAS WAS NOT INCLUDIBLE IN TOTAL INCOME ON ACCRUAL BASIS SINCE THE SAME DID NOT ACCRUE TO THE ASSESSEE. THE FOLLOWING 3 ITA NO S. 2392 & 2393 /PN/2012, THE NANDED DIST. CENTRAL CO - OP. BANK LTD., NANDED DISCUSSION BY THE VISAKHAPATNAM BENCH OF THE TRIBUNAL IN THE CASE OF THE DURGA COOPERATIVE URBA N BANK LTD. (SUPRA) IS WORTHY OF NOTICE : - 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULLY PERUSED THE RECORD. THE QUESTION OF TAXABILITY OF INTEREST ON NPAS HAS BEEN CONSIDERED BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF M/S VASISTH CHAY VYAPAR L TD (SUPRA); WHEREIN THE HON'BLE DELHI HIGH COURT TOOK INTO ACCOUNT THE DECISION RENDERED BY THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD (SUPRA). IN THE CASE OF M/S VASISTH CHAY VYAPAR LTD, THE ASSESSEE THEREIN WAS A NON BANKING FINAN CIAL COMPANY AND IT WAS ALSO BOUND BY THE PRUDENTIAL NORMS DIRECTIONS ISSUED BY THE RESERVE BANK OF INDIA FOR INCOME RECOGNITION AND ASSET CLASSIFICATION. THE ASSESSEE DID NOT INCLUDE THE INTEREST INCOME RELATABLE TO NPA ASSETS IN ITS TOTAL INCOME. THE A SSESSING OFFICER, HOWEVER, ADDED THE SAID INTEREST AS THE INCOME OF THE ASSESSEE BY HOLDING THAT IT HAD ACCRUED TO THE ASSESSEE EVEN IT WAS NOT REALIZED AS THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THE LEARNED CIT (A) AFFIRMED THE ORDER OF THE ASSESSING OFFICER. HOWEVER, THE ITAT DELETED THE AFORESAID INCOME. HENCE THE REVENUE PREFERRED APPEAL BEFORE THE HON'BLE DELHI HIGH COURT. 8.1 AFTER HEARING THE RIVAL SUBMISSIONS, THE HON'BLE DELHI HIGH COURT TOOK NOTE OF SEC.45Q OF RESERVE BANK O F INDIA ACT WHICH READS AS UNDER: CHAPTER IIIB TO OVERRIDE OTHER LAWS. 45Q. THE PROVISIONS OF THIS CHAPTER SHALL HAVE EFFECT NOTWITHSTANDING ANYTHING INCONSISTENT THEREWITH CONTAINED IN ANY OTHER LAW FOR THE TIME BEING IN FORCE OR ANY INSTRUMENT HAVING EFFECT BY VIRTUE OF ANY SUCH LAW. THE HIGH COURT TOOK NOTE OF THE FACT THAT THE PROVISION OF 45Q OF RESERVE BANK OF INDIA HAS OVERRIDING EFFECT OVER ANY OTHER LAW. THEN THE HON'BLE HIGH COURT ALSO CONSIDERED ACCOUNTING STANDARD AS - 9 ON REVENUE RECOGNI TION AND ALSO EXTRACTED FOLLOWING RELEVANT PORTION FROM THE SAID ACCOUNTING STANDARD: 4 ITA NO S. 2392 & 2393 /PN/2012, THE NANDED DIST. CENTRAL CO - OP. BANK LTD., NANDED 9. EFFECT OF UNCERTAINTIES ON REVENUE RECOGNITION 9.1 RECOGNITION OF REVENUE REQUIRES THAT REVENUE IS A MEASURABLE AND THAT AT THE TIME OF SALE OR THE RENDERING OF THE SERVICE, IT WOULD NOT BE UNREASONABLE TO EXPECT ULTIMATE COLLECTION. 9.2 WHERE THE ABILITY TO ASSESS THE ULTIMATE COLLECTION WITH REASONABLE CERTAINTY IS LACKING AT THE TIME OF RAISING ANY CLAIM, E.G., FOR ESCALATION OF PRICE, EXPORT INCENTIVES, INTEREST ETC., REVENUE RECOGNITION IS POSTPONED TO THE EXTENT OF UNCERTAINTY INVOLVED. IN SUCH CASES, IT MAY BE APPROPRIATE TO RECOGNIZE REVENUE ONLY WHEN IT IS REASONABLY CERTAIN THAT THE ULTIMATE COLLECTION WILL BE MADE. WHERE THERE IS NO UNCERTAINTY AS TO ULTIM ATE COLLECTION, REVENUE IS RECOGNIZED AT THE TIME OF SALE OR RENDERING OF SERVICE EVEN THOUGH PAYMENTS ARE MADE BY INSTALMENTS. 9.3 WHEN THE UNCERTAINTY RELATING TO COLLECTABILITY ARISES SUBSEQUENT TO THE TIME OF SALE OR THE RENDERING OF THE SERVICE, IT I S MORE APPROPRIATE TO MAKE A SEPARATE PROVISION TO REFLECT THE UNCERTAINTY RATHER THAN TO ADJUST THE AMOUNT OF REVENUE ORIGINALLY RECORDED. 9.4 AN ESSENTIAL CRITERION FOR THE RECOGNITION OF REVENUE IS THAT THE CONSIDERATION RECEIVABLE FOR THE SALE OF GOOD S, THE RENDERING OF SERVICES OR FROM THE USE OF OTHERS OF ENTERPRISE RESOURCES IS REASONABLY DETERMINABLE. WHEN SUCH CONSIDERATION IS NOT DETERMINABLE WITHIN REASONABLE LIMITS, THE RECOGNITION OF REVENUE IS POSTPONED. 9.5 WHEN RECOGNITION OF REVENUE IS PO STPONED DUE TO THE EFFECT OF UNCERTAINTIES, IT IS CONSIDERED AS REVENUE OF THE PERIOD IN WHICH IT IS PROPERLY RECOGNIZED. 8.2 THE DELHI HIGH COURT ALSO CONSIDERED THE DECISION RENDERED IN THE FOLLOWING CASES: I) CIT VS. ELGI FINANCE LTD., 293 ITR 357 (M AD) II) CIT VS. KKM INVESTMENTS (CAL) SLP DISMISSED BY SUPREME COURT (310 ITR 4) III) CIT VS. MOTOR CREDIT CO (P) LTD., 127 ITR 572 (MAD) 5 ITA NO S. 2392 & 2393 /PN/2012, THE NANDED DIST. CENTRAL CO - OP. BANK LTD., NANDED IV) UCO BANK VS. CIT 237 ITR 889 (SC) V) CIT VS. SHOORJI VALLABHDAS & CO 46 ITR 144 (SC) VI) GODHRA ELECTRICITY CO. LTD., VS.CIT 225 ITR 746 VII) CIT VS. GOYAL M G GASES (P) LTD., 303 ITR 159 (DEL) VIII) CIT VS. EICHER LTD., ITA NO.431/2009 DATED 15.7.2009 (DEL) 8.3 AFTER CONSIDERING THE ACCOUNTING STANDARD 9 AND THE VARIOUS CASE LAW LISTED ABOVE, THE HON'BLE DE LHI HIGH COURT HELD THAT THE INTEREST ON NPA ADVANCE CANNOT BE TREATED AS ACCRUED TO THE ASSESSEE. 8.4 BEFORE THE DELHI HIGH COURT, THE REVENUE TOOK SUPPORT OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD (SUPRA). T HE DELHI HIGH COURT CONSIDERED THE SAID DECISION OF HON'BLE APEX COURT AND EXPLAINED THE SAME AS UNDER: WE HAVE ALREADY HELD THAT EVEN UNDER THE INCOME TAX ACT, INTEREST INCOME HAD NOT ACCRUED. MOREOVER, THIS SUBMISSION OF MR. SABHARWAL IS BASED ENTIRELY ON THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGY (SUPRA). NO DOUBT, IN FIRST BLUSH, READING OF THE JUDGMENT GIVES AN INDICATION THAT THE COURT HAS HELD THAT RESERVE BANK OF INDIA ACT DOES NOT OVERRIDE THE PROVISIONS OF THE INCOME TA X ACT. HOWEVER, WHEN WE EXAMINE THE ISSUE INVOLVED THEREIN MINUTELY AND DEEPLY IN THE CONTEXT IN WHICH THAT HAD ARISEN AND CERTAIN OBSERVATIONS OF THE APEX COURT CONTAINED IN THAT VERY JUDGMENT, WE FIND THAT THE PROPOSITION ADVANCED BY MR.SABHARWAL MAY NOT BE ENTIRELY CORRECT. IN THE CASE BEFORE THE SUPREME COURT, THE ASSESSEE A NBFC DEBITED RS.81,68,516 AS PROVISION AGAINST NPA IN THE PROFIT AND LOSS ACCOUNT, WHICH WAS CLAIMED AS DEDUCTION IN TERMS OF SECTION 36(1) (VII) OF THE ACT. THE ASSESSING OFFICER D ID NOT ALLOW THE DEDUCTION CLAIMED AS AFORESAID ON THE GROUND THAT THE PROVISION OF NPA WAS NOT IN THE NATURE OF EXPENDITURE OR LOSS BUT MORE IN THE NATURE OF A RESERVE, AND THUS NOT DEDUCTIBLE UNDER 6 ITA NO S. 2392 & 2393 /PN/2012, THE NANDED DIST. CENTRAL CO - OP. BANK LTD., NANDED SECTION 36(I)(VII) OF THE ACT. THE ASSESSING OFFICER, HO WEVER, DID NOT BRING TO TAX RS.20,34,605/ - AS INCOME (BEING INCOME ACCRUED UNDER THE MERCANTILE SYSTEM OF ACCOUNTING). THE DISPUTE BEFORE THE APEX COURT CENTERED AROUND DEDUCTIBILITY OF PROVISION FOR NPA. AFTER ANALYZING THE PROVISIONS OF THE RESERVE BANK OF INDIA ACT, THEIR LORDSHIPS OF THE APEX COURT OBSERVED THAT IN SO FAR AS THE PERMISSIBLE DEDUCTIONS OR EXCLUSIONS UNDER THE ACT ARE CONCERNED, THE SAME ARE ADMISSIBLE ONLY IF SUCH DEDUCTIONS/EXCLUSIONS SATISFY THE RELEVANT CONDITIONS STIPULATED THEREFORE UNDER THE ACT. TO THAT EXTENT, IT WAS OBSERVED THAT THE PRUDENTIAL NORMS DO NOT OVERRIDE THE PROVISIONS OF THE ACT. HOWEVER, THE APEX COURT MADE A DISTINCTION WITH REGARD TO INCOME RECOGNITION AND HELD THAT INCOME HAD TO BE RECOGNIZED IN TERMS OF THE PR UDENTIAL NORMS, EVEN THOUGH THE SAME DEVIATED FROM MERCANTILE SYSTEM OF ACCOUNTING AND/OR SECTION 45 (SIC. 145) OF THE INCOME TAX ACT. IT CAN BE SAID, THEREFORE, THAT THE APEX COURT APPROVED THE REAL INCOME THEORY WHICH IS ENGRAINED IN THE PRUDENTIAL NOR MS FOR RECOGNITION OF REVENUE BY NBFC. 9. THE HON'BLE SUPREME COURT IN THE CASE OF M/S SOUTHERN TECHNOLOGIES LTD (SUPRA) DISSECTED THE MATTER INTO TWO PARTS VIZ., A) INCOME RECOGNITION AND B) PERMISSIBLE DEDUCTION/EXCLUSIONS UNDER THE INCOME TAX ACT. IN SO FAR AS INCOME RECOGNITION IS CONCERNED, THE HON'BLE SUPREME COURT HELD THAT SECTION 145 OF THE INCOME TAX ACT HAS NO ROLE TO PLAY AND THE ASSESSING OFFICER HAS TO FOLLOW RESERVE BANK OF INDIA DIRECTIONS 1998, SINCE BY VIRTUE OF 45Q OF THE RESERVE BANK O F INDIA ACT, AN OVERRIDING EFFECT IS GIVEN TO THE DIRECTIONS OF RESERVE BANK OF INDIA VIS - - VIS INCOME RECOGNITION PRINCIPLES IN THE COMPANIES ACT 1956. IN SO FAR AS COMPUTATION OF INCOME UNDER THE INCOME TAX ACT IS CONCERNED, (WHICH INVOLVES DEDUCTION OF PERMISSIBLE DEDUCTIONS AND EXCLUSIONS) THE ADMISSIBILITY OF SUCH DEDUCTIONS SHALL BE GOVERNED BY THE PROVISIONS OF THE INCOME TAX ACT. THE RELEVANT OBSERVATIONS OF THE HON'BLE SUPREME COURT ARE EXTRACTED BELOW: 7 ITA NO S. 2392 & 2393 /PN/2012, THE NANDED DIST. CENTRAL CO - OP. BANK LTD., NANDED APPLICABILITY OF SECTION 145 40. AT THE OU TSET, WE MAY STATE THAT IN ESSENCE RBI DIRECTIONS 1998 ARE PRUDENTIAL/PROVISIONING NORMS ISSUED BY RBI UNDER CHAPTER IIIB OF THE RBI ACT, 1934. THESE NORMS DEAL ESSENTIALLY WITH INCOME RECOGNITION. THEY FORCE THE NBFCS TO DISCLOSE THE AMOUNT OF NPA IN THEI R FINANCIAL ACCOUNTS. THEY FORCE THE NBFCS TO REFLECT TRUE AND CORRECT PROFITS. BY VIRTUE OF SECTION 45Q, AN OVERRIDING EFFECT IS GIVEN TO THE DIRECTIONS 1998 VIS - - VIS INCOME RECOGNITION PRINCIPLES IN THE COMPANIES ACT, 1956. THESE DIRECTIONS CONSTITU TE A CODE BY ITSELF. HOWEVER, THESE DIRECTIONS 1998 AND THE IT ACT OPERATE IN DIFFERENT AREAS. THESE DIRECTIONS 1998 HAVE NOTHING TO DO WITH COMPUTATION OF TAXABLE INCOME. THESE DIRECTIONS CANNOT OVERRULE THE PERMISSIBLE DEDUCTIONS OR THEIR EXCLUSION U NDER THE IT ACT. THE INCONSISTENCY BETWEEN THESE DIRECTIONS AND COMPANIES ACT IS ONLY IN THE MATTER OF INCOME RECOGNITION AND PRESENTATION OF FINANCIAL STATEMENTS. THE ACCOUNTING POLICIES ADOPTED BY AN NBFC CANNOT DETERMINE THE TAXABLE INCOME. IT IS WELL S ETTLED THAT THE ACCOUNTING POLICIES FOLLOWED BY A COMPANY CAN BE CHANGED UNLESS THE AO COMES TO THE CONCLUSION THAT SUCH CHANGE WOULD RESULT IN UNDERSTATEMENT OF PROFITS. HOWEVER, HERE IS THE CASE WHERE THE AO HAS TO FOLLOW THE RESERVE BANK OF INDIA DIRECT IONS 1998 IN VIEW OF SECTION 45Q OF THE RESERVE BANK OF INDIA ACT. HENCE, AS FAR AS INCOME RECOGNITION IS CONCERNED, SECTION 145 OF THE IT ACT HAS NO ROLE TO PLAY IN THE PRESENT DISPUTE. 10. TURNING TO THE FACTS OF THE CASE BEFORE US, THE ASSESSEE HEREIN IS A COOPERATIVE BANK AND IT IS NOT IN DISPUTE THAT IT IS ALSO GOVERNED BY THE RESERVE BANK OF INDIA. HENCE THE DIRECTIONS WITH REGARD TO THE PRUDENTIAL NORMS ISSUED BY THE RESERVE BANK OF INDIA ARE EQUALLY APPLICABLE TO THE ASSESSEE AS IT IS APPLICABLE T O THE COMPANIES REGISTERED UNDER THE COMPANIES ACT. THE HON'BLE SUPREME COURT HAS HELD IN THE CASE OF SOUTHERN TECHNOLOGIES LTD (SUPRA), THAT THE PROVISION OF 45Q OF RESERVE BANK OF INDIA ACT HAS AN OVERRIDING EFFECT 8 ITA NO S. 2392 & 2393 /PN/2012, THE NANDED DIST. CENTRAL CO - OP. BANK LTD., NANDED VIS - - VIS INCOME RECOGNITION PRINCIPLE UNDER THE COMPANIES ACT. HENCE SEC.45 Q OF THE RBI ACT SHALL HAVE OVERRIDING EFFECT OVER THE INCOME RECOGNITION PRINCIPLE FOLLOWED BY COOPERATIVE BANKS ALSO. HENCE THE ASSESSING OFFICER HAS TO FOLLOW THE RESERVE BANK OF INDIA DIRECTIONS 1998, AS HELD BY TH E HON'BLE SUPREME COURT. 10.1 BASED ON THE PRUDENTIAL NORMS, THE ASSESSEE HEREIN DID NOT ADMIT THE INTEREST RELATABLE TO NPA ADVANCES IN ITS TOTAL INCOME. THE HON'BLE DELHI HIGH COURT IN THE CASE OF VASISTH CHAY VYAPAR LTD (SUPRA) HAS HELD THAT THE INTERE ST ON NPA ASSETS CANNOT BE SAID TO HAVE ACCRUED TO THE ASSESSEE. IN THIS REGARD, THE FOLLOWING OBSERVATIONS OF HON'BLE DELHI HIGH COURT IN THE ABOVE CITED CASE ARE RELEVANT: WHAT TO TALK OF INTEREST, EVEN THE PRINCIPLE AMOUNT ITSELF HAD BECOME DOUBTFUL T O RECOVER. IN THIS SCENARIO IT WAS LEGITIMATE MOVE TO INFER THAT INTEREST INCOME THEREUPON HAS NOT ACCRUED. THE SAID DECISION OF THE HON'BLE DELHI HIGH COURT IS EQUALLY APPLICABLE TO THE ISSUE IN OUR HANDS. ACCORDINGLY WE DO NOT FIND ANY INFIRMITY WITH THE DECISION OF THE LEARNED CIT (A) IN HOLDING THAT THE INTEREST INCOME RELATABLE ON NPA ADVANCES DID NOT ACCRUE TO THE ASSESSEE. ACCORDINGLY WE UPHOLD HIS ORDER. 10. FOLLOWING THE AFORESAID DISCUSSION, WHICH HAS BEEN RENDERED ON AN IDENTICAL ISSUE UNDE R SIMILAR CIRCUMSTANCES, WE FIND NO REASONS TO INTERFERE WITH THE ULTIMATE CONCLUSION OF THE CIT(A) IN DELETING THE IMPUGNED ADDITION RELATING TO INTEREST INCOME IN RESPECT OF NPAS. 11. SO, HOWEVER, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED T HAT THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. SAKTHI FINANCE LTD., (2013) 31 TAXMANN.COM 305 (MADRAS) HAS DIFFERED WITH THE JUDGEMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF M/S VASISTH CHAY VYAPAR LTD. (SUPRA) ON A SIMILAR ISSUE, I.E. RE LATING TO INTEREST INCOME ON NPAS. THE LEARNED DEPARTMENTAL REPRESENTATIVE FURTHER POINTED OUT THAT THE HONBLE MADRAS HIGH COURT FOLLOWED THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE 9 ITA NO S. 2392 & 2393 /PN/2012, THE NANDED DIST. CENTRAL CO - OP. BANK LTD., NANDED OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) IN HOLDING THAT INTEREST ON NPAS WAS ASSESSABLE TO TAX ON ACCRUAL BASIS. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS PUT - FORTH BY THE LEARNED DEPARTMENTAL REPRESENTATIVE BASED ON THE JUDGEMENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF SAKTHI FINANCE LTD. (SUPRA). THE CON TROVERSY BEFORE THE HONBLE MADRAS HIGH COURT RELATED TO NON - RECOGNITION OF INTEREST INCOME ON NPAS BY THE ASSESSEE FOLLOWING THE RBI GUIDELINES. THE HONBLE MADRAS HIGH COURT TOOK THE VIEW THAT THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF SO UTHERN TECHNOLOGIES LTD. (SUPRA) ALSO APPLIED TO THE INCOME RECOGNITION NORMS PROVIDED BY RBI AND THEREFORE IT HELD THE INTEREST INCOME ON NPAS IS LIABLE TO BE TAXED ON ACCRUAL BASIS AND NOT IN TERMS OF RBIS GUIDELINES. BUT THE HONBLE DELHI HIGH COURT I N THE CASE OF M/S VASISTH CHAY VYAPAR LTD. (SUPRA) HAS TAKEN A VIEW THAT SOUTHERN TECHNOLOGIES LTD. (SUPRA) CASE DID NOT APPLY TO THE INCOME RECOGNITION NORMS PRESCRIBED BY RBI. OSTENSIBLY, THERE IS DIVERGENCE OF OPINION BETWEEN THE HONBLE DELHI HIGH COU RT AND THE HONBLE MADRAS HIGH COURT AS NOTED BY THE HONBLE MADRAS HIGH COURT IN ITS ORDER. 12. IN SO FAR AS, PRESENT CASE IS CONCERNED THERE IS NO JUDGMENT OF THE JURISDICTIONAL HIGH COURT. WE ARE FACED WITH TWO CONTRARY JUDGMENTS OF THE NON - JURISDICT IONAL HIGH COURT. IN SUCH A SITUATION, WE ARE INCLINED TO PREFER A VIEW WHICH IS FAVOURABLE OF THE ASSESSEE FOLLOWING THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. VEGETABLE PRODUCTS LTD. (1973) 88 ITR 192 (SC). 13. THEREFORE, IN VI EW OF THE AFORESAID DISCUSSION, WE ARE INCLINED TO FOLLOW THE DECISION OF OUR CO - ORDINATE BENCH IN THE CASE OF THE DURGA COOPERATIVE URBAN BANK LTD. (SUPRA) AND ACCORDINGLY THE ORDER OF THE CIT(A) IS LIABLE TO THE AFFIRMED. WE HOLD SO. 3. WE, THEREFORE, FOLLOWING THE DECISION IN THE CASE OF THE OMERGA JANTA SAHAKARI BANK LTD. (SUPRA) CONFIRM THE ORDER OF THE LD. CIT(A) AND RESPECTIVE GROUNDS TAKEN BY THE REVENUE ARE DISMISSED. 4. THE NEXT ISSUE WHICH ARISES IN THE APPEAL FOR A.Y. 2009 - 10 IS WHETHER THE LD. CIT(A) JUSTIFIED IN DELETING THE ADDITION OF 10 ITA NO S. 2392 & 2393 /PN/2012, THE NANDED DIST. CENTRAL CO - OP. BANK LTD., NANDED RS.16,12,74,000/ - IN RESPECT OF REVERSAL OF PROVISION OF BAD AND DOUBTFUL DEBT. THE ASSESSING OFFICER HAS DISCUSSED THIS ISSUE IN PARA NO. 11 OF THE ASSESSMENT ORDER. IT WAS NOTICED BY THE ASSESSING OFFIC ER THAT THE ASSESSEE BANK IS CREDITED AN AMOUNT OF RS.16,12,74,000/ - IN PROFIT AND LOSS ACCOUNT ON ACCOUNT OF REVERSAL OF PROVISION FOR NPA AND HAD REDUCED THE SAME AMOUNT IN COMPUTATION OF TOTAL INCOME ON ACCOUNT OF NPA PROVISION REVERSED. THE ASSESSING OFFICER SOUGHT THE EXPLANATION OF THE ASSESSEE AND THE ASSESSEE HA S STATED THAT IT HAD ADDED BACK PROVISION FOR NPA AMOUNTING TO RS.5,85,00,000/ - IN A.Y. 2008 - 09 OUT OF ADDITION OF RS.1,78,61,41,000/ - IN EARLIER YEARS. IT WAS ALSO STATED BY THE ASSESSEE T HAT THE ASSESSEE HAD NOT CLAIMED ANY DEDUCTION U/S. 36(1)(VIIA) IN A.Y. 2007 - 08 OR ANY PERIOD PRIOR TO A.Y. 2009 - 10. IT IS THE CASE OF THE ASSESSEE THAT NPA REVERSE AMOUNTING TO RS.16,12,74,000/ - CANNOT BE ADDED BACK AS IT IS ALREADY CONSIDERED AS INCOME IN EARLIER ASSESSMENT YEARS OTHERWISE IT WILL AMOUNT TO DOUBLE TAXATION . THE ASSESSING OFFICER DID NOT ACCEPT THE SUBMISSION OF THE ASSESSEE BY GIVING THE FOLLOWING REASONS: DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.R. SUBMITTED FOLLOWING EXPL ANATION FOR THE TRANSACTION. IN A.Y. 2008 - 09 WE HAVE ADDED BACK PROVISION FOR NPA AMOUNTING TO RS.5,85,00,000/ - . IN EARLIER YEARS THERE WAS ADDITION TO THE TURN OF RS.1,78,61,41,000/ - . AS FOR DISALLOWANCE PERTAINING TO PERIOD PRIOR TO A.Y. 2007 - 08 IS C ONCERNED WE HAVE NOT CLAIMED DEDUCTION U/S. 36(1)(VIIA). THEREFORE, NPA REVERSE AMOUNTING TO RS.18,72,74,000/ - SHALL NOT BE ADDED BACK AS IT IS ALREADY CONSIDERED AS INCOME IN EARLIER ASSESSMENTS OTHERWISE IT WILL AMOUNT TO DOUBLE TAXATION. FURTHER, THE ASSESSEE VIDE HIS LETTER DT. 27/07/2012 EXPLAINED MORE OR LESS THE SAME AS SUBMITTED EARLIER IN THE SCRUTINY PROCEEDINGS. THE ASSESSEE HAS RELIED ON THE DECISION OF THE APEX COURT IN THE CASE OF DELHI STOCK EXCHANGE ASSOCIATION V/S CIT 41 ITR 495 IN WHICH IT WAS HELD THAT 'IT IS NOT HOW THE ASSESSEE TREATS ANY MONEY RECEIVED BUT WHAT IS THE NATURE OF THE RECEIPT WHICH IS DECISIVE OF ITS BEING TAXABLE. FUR T HER, THE ASSESSEE HAS REFERRED TO THE CASE OF STATE 11 ITA NO S. 2392 & 2393 /PN/2012, THE NANDED DIST. CENTRAL CO - OP. BANK LTD., NANDED BANK OF INDIA 157 ITR 67 IN WHICH IT WAS HELD BY THE APEX COURT THAT IT IS WELL SETTLED FACT THAT THE WAY IN WHICH ENTRIES ARE MADE BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS IS NOT DETERMINATIVE OF THE QUESTION THAT THE ASSESSEE HAS EARNED ANY PROFIT OR LOSS. THE SUBMISSION MADE BY THE ASSESSEE IS NOT ACC EPTABLE FOR THE REASON THAT THE ASSESSEE HAS CLAIMED DEDUCTION ON ACCOUNT OF PROVISIONS FOR BAD & DOUBTFUL DEBTS U/S 36(10)(VIIA) OF THE ACT FOR A.Y. 2007 - 08 AND 2008 - 09 AND AMOUNT CLAIMED IS MORE THAN THE AMOUNT REVERSAL. ONCE THE ASSESSEE HAS CLAIMED DED UCTION ON ACCOUNT OF PROVISIONS, THEN THE RECOVERY IN THAT ACCOUNT I.E. REVERSAL OF NPA SHALL BE OFFERED TO TAX. IT IS BECAUSE THE REVERSAL OF PROVISION FOR NPA IS NOTHING BUT THE RECOVERY OF DEBT ON ACCOUNT OF BAD AND DOUBTFUL DEBT FOR WHICH THE ASSESSEE HAS AVAILED THE BENEFIT IN EARLIER YEARS. IN THE PRESENT CASE THERE IS REVERSAL OF NPA DURING THE YEAR IS AT RS. 16,12,74,000/ - . HENCE THE SAME SHOULD BE OFFERED TAX. THE QUESTION OF DOUBLE TAXATION DOES NOT ARISE AS THE DEDUCTION ALLOWED DURING THE A.Y. 2 007 - 08 & 2008 - 09 WAS NEVER TAXED IN THESE EARLIER. THEREFORE THE DISALLOWANCE MADE ON ACCOUNT REVERSAL OF NPA AT RS.16,12,74,000/ - IS CORRECT.' 5. THE ASSESSING OFFICER MADE THE ENTIRE DISALLOWANCE AND MADE ADDITION TO THE INCOME OF THE ASSESSEE . B EFORE THE LD. CIT(A) , T HE ASSESSEE STATED THAT THE PROVISION ON NPA RELATING TO A.YS. 2003 - 04 TO 2007 - 08 HAVE BEEN ADDED BACK IN THE COMPUTATION OF TOTAL INCOME FOR THE RESPECTIVE ASSESSMENT YEARS AND THIS INCOME SO ADDED INCLUDE THE AMOUNT OF RS.16,12,74,000/ - WHICH HAS BEEN REVERSED AND CREDITED TO THE PROFIT AND LOSS ACCOUNT. THE ASSESSEE ALSO FILED THE CHART FOR THE A.YS. 2003 - 04 TO 2007 - 08 SHOWING THE AMOUNT ADDED BACK AND AMOUNT REVERSE D . THE LD. CIT(A) ACCEPTED THE PLEA OF THE ASSESSEE THAT AS THE ASSESS EE CONSIDERED THE PROVISION FOR NPA AS AN INCOME IN THE EARLIER YEARS AND NO DEDUCTION WAS CLAIMED AND HENCE, THE RECOVERY OF THE SAID PROVISION FOR NPA ACCOUNT AMOUNTING TO RS.16,12,74,000/ - CANNOT BE AGAIN ADDED AS INCOME OF THE ASSESSEE. THE LD. CIT(A) DIRECTED THE 12 ITA NO S. 2392 & 2393 /PN/2012, THE NANDED DIST. CENTRAL CO - OP. BANK LTD., NANDED ASSESSING OFFICER TO VERIFY THE CLAIM OF THE ASSESSEE AND THEN TO ALLOW THE DEDUCTION. THE FINDINGS OF THE LD. CIT(A) ARE AS UNDER: 11.3. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND RIVAL CONTENTIONS. ON PERUSAL OF THE SAME IT HAS BEEN NOTICED THAT DURING THE YEAR UNDER APPEAL, THE APPELLANT HAS RECOVERED AN AMOUNT OF RS.16,12,74,000/ - TOWARDS REVERSAL OF PROVISION FOR NPA ACCOUNT. THE SAID AMOUNT HAS BEEN CREDITED BY THE APPELLANT BANK TO THE PROFIT AND LOSS ACCOUNT. THE APPELLA NT HAS POINTED OUT THAT DURING THE EARLIER EARS THE APPELLANT HAS NEVER CLAIMED DEDUCTION U/S. 36(1)(VIIA) IN RESPECT OF PROVISION FOR NPA ACCOUNT AND HENCE PART RECOVERY OF THE SAME IN THE CURRENT YEAR CANNOT BE CONSIDERED AS INCOME. FROM THE SUBMISSIONS OF THE APPELLANT IT HAS BEEN NOTICED THAT THE APPELLANT HAS MADE PROVISION OF NPA ACCOUNT AND HAS AGAIN ADDED BACK THE SAME WHILE COMPUTING THE TAXABLE INCOME IN EARLIER YEARS. WHENEVER THERE IS RECOVERY IN THE NPA ACCOUNT, SUCH RECOVERIES ARE CREDITED T O PROFIT & LOSS ACCOUNT AS REVERSAL OF PROVISION FOR NPA IN THE YEAR OF RECOVERY. THE APPELLANT HAS FURTHER CLAIMED THAT IT HAS ADDED THE SAID PROVISION FOR NPA ACCOUNT TO THE INCOME IN COMPUTATION OF INCOME. THEREFORE, EFFECTIVELY THE APPELLANT HAS CONS IDERED THE PROVISION FOR NPA ACCOUNT AS INCOME IN EARLIER YEARS AND HENCE THE RECOVERY OF THE SAID PROVISION FOR NPA ACCOUNT AMOUNTING TO RS.16,12,74,000/ - CANNOT BE AGAIN ADDED AS INCOME OF THE APPELLANT. THE A.O. IS DIRECTED TO VERIFY THE ABOVE CLAIM OF THE APPELLANT THAT IN THE EARLIER YEARS IT HAS DEBITED TO THE PROVISION FOR NPA ACCOUNT IN PROFIT & LOSS ACCOUNT AND THE SAID PROVISION IS ADDED TO THE INCOME IN COMPUTATION OF INCOME FOR ARRIVING AT TAXABLE INCOME AND NO DEDUCTION HAS BEEN CLAIMED U/S. 3 6(1)(VIIA). THE A.O. IS DIRECTED TO DELETE THE ADDITION OF RS.16,12,74,000/ - AFTER DUE VERIFICATION OF THE ABOVE CLAIMS MADE BY THE APPELLANT. IF SUCH PROVISION FOR NPA HAS NOT BEEN OFFERED TO TAX IN EARLIER YEAR OR THE DEDUCTION HAS BEEN CLAIMED IN THIS REGARD, THE SAME WILL STAND CONFIRMED. GROUND NO. 7 IS DECIDED ACCORDINGLY SUBJECT TO THE ABOVE DIRECTION. 6. WE HAVE HEARD THE LD. CIT (DR). IN OUR OPINION THE ORDER OF THE LD. CIT(A) HAS TO BE UPHELD. THE ASSESSEE FILED THE DETAILS IN RES PECT OF THE AMOUNT S ADDED BACK WHICH W ERE PERTAINING TO THE INTEREST ON THE NPAS FOR THE A.YS. 2003 - 04 TO 2007 - 08. IF THE ASSESSEE HAS NOT CLAIMED 13 ITA NO S. 2392 & 2393 /PN/2012, THE NANDED DIST. CENTRAL CO - OP. BANK LTD., NANDED ANY DEDUCTION IN RESPECT OF THE INTEREST INCOME ON THE NPAS IN THE PRECEDING YEARS THEN HOW ON RECEIPT BAS IS T HE SAID AMOUNT CAN AGAIN BE BROUGHT TO TAX WHICH IS THE CASE BEFORE US. WE FIND THAT THE LD. CIT(A) HAS GIVEN THE DIRECTIONS TO THE ASSESSING OFFICER TO VERIFY THE CLAIM OF THE ASSESSEE WHETHER IN THE PRECEDING YEARS THE ASSESSEE HAS OFFERED THE SAID AMOUNT BY INCLUDING IN HIS INCOME AND NOT CLAIMED ANY DEDUCTION. WE FAIL TO UNDERSTAND WHEN THE DIRECTIONS OF THE LD. CIT(A) ARE VERY CLEAR THEN WH AT PREJUDICE IS CAUSED TO THE REVENUE FOR CARRYING THE ISSUE BEFORE US. WE FIND NO MERIT IN THE GROUNDS TAK EN BY THE REVENUE ON THIS ISSUE. ACCORDINGLY, SAME ARE DISMISSED. 7. IN THE RESULT, BOTH THE REVENUES APPEAL S ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 31 - 01 - 201 4 SD/ - SD/ - ( G.S. PANNU ) ( R.S. PADVEKAR ) ACCOUNTANT MEMBER JUDICIAL ME MBER RK /PS PUNE , DATED : 31 ST JANUARY, 2014 COPY TO 1 ASSESSEE 2 DEPARTMENT 3 THE CIT(A), AURANGABAD 4 THE CIT, AURANGABAD 5 THE DR, ITAT, A BENCH, PUNE . 6 GUARD FILE. //TRUE COPY// BY ORDER PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL PUNE