Navnirman Co.Op. Bank Ltd., Ahmedabad V. The ACIT, Circle-10, Ahmedabad

ITA 242/AHD/2014

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9445 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 13-01-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 23-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAVIN KUMAR
• Keywords: Bad and doubtful debts
• Section: 37

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD . . , , BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER ./ I.T.A. NO.242/AHD/2014 ( / ASSESSMENT YEAR : 2009-10) NAVNIRMAN CO-OP BANK LTD. SHRIMALI SOCIETY, NAVRANGPURA, ADMEDABAD 380 009 / VS. ACIT, CIRCLE 10, AHMEDABAD. ./ ./ PAN/GIR NO. : AABFN 2975 L ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : MS. URVASHI SHODHAN, A.R. / RESPONDENT BY : SHRI PRAVIN KUMAR, SR.D.R. / DATE OF HEARING 13/01/2017 / DATE OF PRONOUNCEMENT 17/01/2017 / O R D E R PER SHRI MAHAVIR PRASAD, JUDICIAL MEMBER : THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)- XVI, AHMEDABAD, DATED 02/12/2013 FOR THE ASSESSMENT YEAR (AY) 2009-10 AND FOLLOWING GROUNDS HAVE BEEN TAKEN: (I). LD.CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMING ADDITION MADE BY AO OF RS.3,20,446/- ON ACCOUNT OF ACCRUED INTEREST ON NPA NOT CHARGED BY THE APPELLANT AS PER GUIDELINES OF RBI CIRCULAR. LD.CIT(A) OUGHT TO HAVE DELETED ADDITION OF INTEREST ON NON PERFORMING ADVANCES THAT IS CONSISTENTLY RECOGNIZED BY THE APPELLANT WHEN ACTUALLY RECEIVED. IT BE SO HELD NOW. ITA NO.242/AHD/2014 NAVNIRMAN CO-OP BANK LTD. VS. ACIT ASST.YEAR 2009-10 - 2 - (II) LD CIT (A) ERRED IN LAW AND ON THE FACTS IN NOT FOLLOWING DECISION OF THE HONBLE JURISDICTIONAL TRIBUNAL IN CASE OF KARNAVATI CO.OP BANK HOLDING THAT INTEREST ON ACCRUAL BASIS ON NPA NOT TO BE ADDED WHEN NOT CHARGED. JUDICIAL PROPRIETY REQUIRES THAT LD.CIT(A) OUGHT TO FOLLOW DECISION OF HONBLE JURISDICTIONAL TRIBUNAL AND DELETED THE ADDITION. IT BE SO HALD NOW. (III) ALTERNATIVELY AND WITHOUT PREJUDICE TO ABOVE SUBMISSIONS THAT INTEREST ON NPA NOT ACCRUED AND CONSISTENTLY SHOWN WHEN RECOVERED THEN THE INTEREST OF RS.2,66,610/- PERTAINING TO NPA OF EARLIER YEARS WHICH IS RECOVERED AND CREDITED DURING THE CURRENT YEAR OUGHT TO BE REDUCED. IT BE SO HELD NOW. (IV). LD.CIT(A) ERRED IN LAW AND ON FACTS IN REJECTING ALTERNATE CONTENTION OF THE APPELLANT THAT SUITABLE DIRECTION BE GIVEN TO AO TO EXCLUDE AMOUNT OF INTEREST ON NPA PERTAINING TO CURRENT YEAR RECOVERED IN NEXT FINANCIAL YEARS. LD.CIT(A) FAILED TO APPRECIATE THAT INTEREST INCOME ON NPA ALREADY DECLARED AND OFFERED TO TAX WHEN RECOVERED IN SUBSEQUENT FINANCIAL YEAR WOULD AMOUNT TO DOUBLE TAXATION. IT BE SO HELD NOW. (V). LD.CIT(A) ERRED IN LAW AND ON FACTS IN REJECTING ALTERNATE CONTENTION OF THE APPELLANT TO ISSUE DIRECTIONS TO AO TO GRANT CREDIT OF TAXES PAID IN THE SUBSEQUENT ASSESSMENT YEAR ON INTEREST RECOVERED ON NPA IF ADDITION IS SUSTAINED IN THE YEAR UNDER CONSIDERATION. LD.CIT(A) ERRED IN REJECTING SUBMISSIONS OF THE APPELLANT WITHOUT DISCUSSING JUDGMENTS RELIED ON CIT VS. EXCEL INDUSTRIES LTD. (SC) AND OF PERFECT EQUIPMENT 80ITD 50(AHD). (VI). LEVY OF INTEREST U/S 234A/234B/234C & 234D OF THE ACT IS NOT JUSTIFIED. (VII). INITIATION OF PENALTY U/S.271(1)(C) OF THE ACT IS NOT JUSTIFIED. 2. THE FACTS OF THE CASE ARE THE ASSESSEE IS A CO-OPERATIVE BANK ENGAGED IN BANKING RELATED ACTIVITIES AND ADDITION ON ACCOUNT OF ACCRUED INTEREST ON NPSS REGARDING THE SAME, ASSESSEE WAS REQUESTED TO FURNISH THE DETAILS OF INTEREST. IN THIS REGARD ASSESSEES REPLY WAS THAT ASSESSEE IS A CO- OPERATIVE BANK REGISTERED UNDER THE GUJARAT SOCIETIES ACT AND ITA NO.242/AHD/2014 NAVNIRMAN CO-OP BANK LTD. VS. ACIT ASST.YEAR 2009-10 - 3 - ENGAGED IN THE BANKING ACTIVITIES, HAS TO FOLLOW THE BANKING REGULATION ACT AND RULES, REGULATIONS AND INSTRUCTIONS ISSUED BY RESERVE BANK OF INDIA FROM TIME TO TIME AND RESERVE BANK OF INDIA HAS VIDE ITS CIRCULAR HAS INSTRUCTED TO ALL THE BANKS AND SOCIETIES ENGAGED IN BANKING BUSINESS AND COVERED UNDER THE BANKING REGULATION ACT TO CLASSIFY ITS ADVANCES IN TO PERFORMING AND NON PERFORMING ASSETS ON THE BASIS OF CRITERIA PROVIDED IN THE CIRCULAR. SINCE, CIRCULAR NUMBER IS PROVIDED THAT ALL THE BANKS ARE REQUIRED TO MAKE PROVISIONS AT SPECIFIED RATES FOR NON PERFORMING ASSETS BEFORE ARRIVING AT NET PROFIT. IT IS FURTHER PROVIDED THAT INTEREST ON THE NPA ADVANCES IS TO BE RECOGNIZED ONLY ON REALIZATION. IT IS MANDATORY INSTRUCTION AND EACH AND EVERY BANK HAS TO FOLLOW IT BEFORE ARRIVING AT NET PROFIT. 3. ASSESSEE FURTHER STATED THAT THE REAL PROFIT AND GAINS TO BE CALCULATED AND NOT HYPOTHETICAL PROFITS OR GAINS ON A DOCTRINAIRE THEORY OF ACCRUAL; THAT EVEN UNDER THE MERCANTILE SYSTEM OF ACCOUNTING REGULARLY ADOPTED BY AN ASSESSEE IT IS ONLY THE ACCRUAL OF REAL INCOME IN THE COMMERCIAL SENSE WHICH IS CHARGEABLE TO TAX AND IN ASSESSEES CASE THERE IS NO REAL INCOME, SO FAR INTEREST ON STICKY ADVANCES. 4. THE CBDT HAD CLARIFIED THROUGH A BENEFICENT CIRCULAR NO.201/21 OF 1984 ITA-II DATED 9 TH OCTOBER, 1984 THAT INTEREST CREDITED TO THE ITA NO.242/AHD/2014 NAVNIRMAN CO-OP BANK LTD. VS. ACIT ASST.YEAR 2009-10 - 4 - SUSPENSE ACCOUNT IN RESPECT OF STICKY/DOUBTFUL ACCOUNTS SHOULD BE EXCLUDED IN COMPUTATION OF TOTAL INCOME OF THE BANKS. 5. APPELLANT ALSO CITED A CASE OF UCO BANK VS. CIT, 237 ITR 889 (SC) SUPREME COURT HAS OBSERVED THAT THE COURT CONCLUDED THAT THE ACCOUNTING POLICY OF CREDITING INTEREST ON DOUBTFUL DEBTS TO INTEREST SUSPENSE ACCOUNT AND NOT RECOGNIZING THIS AS INCOME BEFORE ACTUAL REALIZATION CONFORMED TO THE GENERALLY ACCEPTED ACCOUNTING PRACTICE. 6. A.O. CONSIDERED THE REPLY OF THE ASSESSEE, BUT SAME WAS NOT TENABLE. HENCE, HE MADE TOTAL ADDITION OF RS.2,42,30,930/-. 7. AGAINST THE SAME ASSESSEE PREFERRED FIRST STATUTORY APPEAL BEFORE THE LD.CIT(A) WHO PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 8. TODAY LD. A.R. CITED A JUDGMENT OF THE SUVIKAS PEOPLES CO-OP BANK LTD. VS. ACIT, AHMEDABAD IN ITA NO.2182/AHD/2013 AND STATED THAT THIS CASE IS COVERED BY THIS JUDGMENT. 9. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW. WE FIND FORCE IN THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE AND THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF SHRI ITA NO.242/AHD/2014 NAVNIRMAN CO-OP BANK LTD. VS. ACIT ASST.YEAR 2009-10 - 5 - MAHILA SEWA SAHAKARI BANK LTD. (IN TAX APPEAL NO. 531 OF 2015 DATED 05.08.2016), WHEREIN THE HONBLE HIGH COURT HAS HELD AS UNDER: THE ASSESSING OFFICER WAS OF THE OPINION THAT INTEREST ON THE NPA HAD ACCRUED TO THE ASSESSEE, EVEN IF IT WAS NOT ACTUALLY REALIZED, AS IT WAS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AND ACCORDINGLY ADDED A SUM OF RS.1,72,73,000/- 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 CHALLENGED THE ORDER OF THE COMMISSIONER (APPEALS) BEFORE THE TRIBUNAL, WHICH ALLOWED THE APPEAL BY DELETING THE INTEREST. BEING AGGRIEVED, THE REVENUE IS IN APPEAL. THEREFORE, IN TERMS OF THE ABOVE DECISION, WHERE AN ASSESSEE MAKES PROVISION FOR NPA AND SEEKS DEDUCTION OF SUCH AMOUNT UNDER SECTION 36(1)(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 INCOME RECOGNITION IS CONCERNED, THE SUPREME COURT HAS HELD THUS. 10. RESPECTFULLY FOLLOWING THE DECISION OF THE ITAT & HONBLE JURISDICTIONAL HIGH COURT, WE SET ASIDE THE FINDINGS OF THE LD.CIT(A) AND DIRECT THE A.O. TO DELETE THE ADDITION AS PRAYED. 11. IN THE RESULT APPEAL OF THE ASSESSEE ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 17/01/2017 SD/- SD/- . . ( ) ( ) ( N.K. BILLAIYA ) ( MAHAVIR PRASAD ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 17/01/2017 PY ITA NO.242/AHD/2014 NAVNIRMAN CO-OP BANK LTD. VS. ACIT ASST.YEAR 2009-10 - 6 - / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A)-XVI, AHMEDABAD. 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE. / BY ORDER, //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD TRUE COPY