Assistant Commissioner of Income-tax, Circle - 12, Pune V. Pune Peoples Co-operative Bank Ltd, Pune

ITA 269/PUN/2018

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 9892 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 01-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bad and doubtful debts
• Section: 143(3); 142(1); 43D; 201; 143(2); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE (THROUGH VIRTUAL COURT) BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI S.S. VISWANETHRA RAVI, J UDICIAL MEMBER . / ITA NO . 2 69 /PUN/201 8 / ASSESSMENT YEAR : 20 14 - 15 ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 12, PUNE ...... / APPELLANT / V/S. PUNE PEOPLES CO - OPERATIVE BANK LIMITED, 606, SADASHIV PETH, LAXMI ROAD, NEAR JAIHIND COLLECTION, PUNE 411030 PAN : AAAAP6104H / RESPONDENT ASSESSEE BY : SHRI SUHAS P. BORA REVENUE BY : SHRI DEEPAK GARG / DATE OF HEARING : 15 - 03 - 2021 / DATE OF PRONOUNCEMENT : 16 - 03 - 2021 / ORDER PER S.S. VISWANETHRA RAVI, JM : THIS APPEAL BY THE REVENUE AGAINST THE ORDER DATED 09 - 11 - 2017 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 8, PUNE [CIT(A)] FOR ASSESSMENT YEAR 20 14 - 15 . 2 ITA NO .269/PUN/2018, A.Y. 2014 - 15 2. THE ONLY ISSUE IS TO BE DECIDED IS AS TO WHETHER THE CIT(A) JUSTIFIED IN DELETING THE ADDITION MADE ON ACCOUNT OF ACCRUED INTEREST ON NPA IN THE FACTS AND CIRCU MSTANCES OF THE CASE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A CO - OPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING. THE ASSESSEE FILED RETURN OF INCOME DECLARING A TOTAL INCOME OF RS.8,97,43,602/ - WHICH WAS REVISED TO TOTAL INCOME OF RS.8,03,17,213/ - . UNDER SCRUTINY NOTICES U/S. 143(2) AND 142(1) OF THE ACT ISSUED AND IN RESPONSE TO WHICH THE ASSESSEE THROUGH IT S AUTHORIZED REPRESENTATIVE SUBMITTED VARIOUS DETAILS IN SUPPORT OF ITS RETURN OF INCOME. THE ASSESSEE HAS SHOWN ACCRUED IN TEREST ON NON PERFORMING ASSET (NPA). IN VIEW OF THE PROVISIONS OF SECTION 43D THE AO ASKED THE ASSESSEE TO FURNISH THE DETAILS OF THE SAME. IN RESPONSE TO WHICH IT WAS EXPLAINED THAT THE ACCRUED INTEREST IS NOT SHOWN IN THE PROFIT AND LOSS ACCOUNT. THE AO SHOW CAUSE D AS TO WHY SUCH ACCRUED INTEREST SHOULD NOT BE ADDED TO THE INCOME OF ASSESSEE. IT WAS EXPLAINED BY THE ASSESSEE THAT THE INTEREST ON NPA ACCOUNT CANNOT BE CONSIDERED AS AN INCOME OF THE BANK IN VIEW OF CBDT CIRCULAR NO.F - 201/81/84 ITA - II D ATED 09 - 10 - 1984. FURTHER, THE INTEREST ON NPA/BAD OR DOUBTFUL DEBTS CANNOT BE SAID TO HAVE ACCRUED TO THE ASSESSEE. INCOME RECOGNITION, ASSET CLASSIFICATION AND PROVISIONING PERTAINING TO ADVANCES, INTEREST ON NON PERFORMING ADVANCES ARE CREDITED TO NPA INTEREST RECEIVABLE ACCOUNT AND THE SAME ARE BROUGHT TO TAX IN THE YEAR IN WHICH ACTUALLY RECEIVED BY VIRTUE OF MASTER CIRCULAR OF RBI IN RESPECT OF PRUDENTIAL NORMS . THE ASSESSEE RECOGNIZED INTEREST INCOME ON ADVANCES CLASSIFIED AS NPA ON ACTUAL RECEIPT BASIS, BECAUSE THE CERTAINTY OF RECOVERY OF INTEREST WAS NOT KNOWN TO THE BANK AS PER THE RBI 3 ITA NO .269/PUN/2018, A.Y. 2014 - 15 NORMS. THE AO FOUND THE SUBMISSIONS OF THE ASSESSEE NOT ACCEPTABLE AND REJECTED THE SAME. ACCORDING TO HIM THE INTEREST ACCRUED ON NPA HAS TO BE COMPUTED AS PER SECTION 43D R.W. RULE 6EA AND TO BE INCLUDED IN THE PROFIT AND LOSS ACCOUNT RECOGNIZING THE SAME AS INCOME OF THE ASSESSEE. HE PLACED RELIANCE IN THE CASE OF SOUTHERN TECHNOLOGY LTD. VS. JCIT REPORTED IN 320 ITR 577 (SC) OF HONBLE SUPREME COURT AND OBSE RVED THAT THE RBI GUIDELINES OR PRUDENTIAL NORMS ISSUED BY RBI ARE NOT INTENDED TO REGULATE THE INCOME TAX LAWS, THEREBY , HE HELD THE INTEREST ACCRUED ON NPA CHARGEABLE TO TAX U/S. 43D R.W. RULE 6EA AND ADDED TO THE INCOME OF ASSESSEE VIDE THIS ORDER DATED 29 - 12 - 2016 PASSED U/S. 143(3) OF THE ACT. THE ASSESSEE CHALLENGED THE ORDER PASSED BY THE AO BEFORE THE CIT(A). WE NOTE THAT THE CIT(A) PLACING RELIANCE ON THE DECISION OF HONBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. DEOGIRI NAGARI SAHAKARI BANK LTD. REPORTED IN 379 ITR 24 (BOM) HELD INTEREST ACCRUED ON NPAS IS NOT CHARGEABLE TO TAX AND DIRECTED THE AO TO DELETE THE ADDITION MADE. THE APPELLANT REVENUE BEFORE US CHALLENGING THE ORDER OF CIT(A) BY RAISING GROUNDS AS DISCUSSED ABOVE. 4. SHRI DEE PAK GARG, THE DR OPPOSED THE ORDER OF CIT(A) AND PLACED RELIANCE ON THE ORDER OF AO IN SUPPORT OF GROUNDS RAISED THEREIN. 5. SHRI SUHAS P. BORA, THE LD. AR SUBMITS THAT THE ISSUE RAISED BY THE REVENUE IS IDENTICAL TO THE ISSUE DECIDED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER YEARS. HE REFERRED TO PAGE NO. 1 OF THE PAPER BOOK AND SUBMITTED THIS TRIBUNAL DECIDED THE SA ME IDENTICAL ISSUE WHICH AROSE FOR A.YS. 2007 - 08, 2009 - 10 AND 2012 - 13 AND DREW OUR ATTENTION TO PARA NO. 6 4 ITA NO .269/PUN/2018, A.Y. 2014 - 15 OF THE SAID ORDER AT PAGE NO. 3 OF THE PAPER BOOK. WE NOTE THAT WHILE DECIDING THE SAID ISSUE THE CO - ORDINATE BENCH OF THIS TRIBUNAL PLACED RELIANCE IN ASSESSEES OWN CASE FOR A.Y. 2011 - 12 AND OPINED, SINCE THERE WAS NO ORDER CONTRARY TO THE FINDING OF THIS TRIBUNAL HELD THE CHARGEABILITY OF ACCRUED INTEREST ON NPA IS BAD UNDER LAW. FURTHER, WE NOTE THAT THE ORDER PASSED BY THIS TRIBUNAL FOR A.Y. 201 1 - 12 IS ALSO PLACED AT PAGE NO. 5 OF THE PAPER BOOK WHEREIN BY PLACING RELIANCE ON THE ORDER OF THIS TRIBUNAL PASSED IN VARIOUS OTHER ASSESSEES ON IDENTICAL ISSUE COME TO SUCH CONCLUSION THAT ACCRUED INTEREST ON NPA IS NOT AN INCOME. FOR BETTER UNDERSTAND ING THE RELEVANT PORTION OF ORDER PASSED IN ASSESSEES OWN CASE FOR A.YS. 2007 - 08, 2009 - 10 AND 2012 - 13 IS REPRODUCED HERE - IN - BELOW : 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO CONSIDERING INTEREST ON NPA ACCOUNTS AS INCOME OF THE ASSESSEE. WE FIND THAT IDENTICAL ISSUE OF TAXING OF INTEREST ACCRUED ON NPA ACCOUNTS AROSE IN ASSESSEES OWN CASE IN A.Y. 2011 - 12. THE CO - ORDINATE BENCH OF THE TRIBUNAL WHILE DECIDING THE ISSUE IN IT A NO.418/PN/2016 FOR A.Y. 2011 - 12 ORDER DT.04.07.2016 HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER : 7. WE FIND THAT SIMILAR ISSUE AS BEFORE US AROSE IN ITO VS. SHANKARRAO MOHITE PATIL SAHAKARI BANK LTD. IN ITA NO.934/PN/2015 AND IN ITO VS. SAMARTH SAHAKARI BANK LTD. IN ITA NO.615/PN/2015, RELATING TO ASSESSMENT YEAR 2011 - 12, ORDER DATED 10.02.2016 AND KOLHAPUR MAHILA SAHAKARI BANK LTD. VS. ITO IN ITA NO.01/PN/2013, RELATING TO ASSESSMENT YEAR 2009 - 10, VIDE ORDER DATED 29.01.2014 . THE TRIBUNAL IN TURN FOLLOWING THE RATIO LAID DOWN BY THE PUNE BENCH OF TRIBUNAL IN ACIT VS. OSMANABAD JANTA SAHAKARI BANK LTD. IN ITA NO.795/PN/2011, ORDER DATED 31.08.2012, HELD AS UNDER: - 2. THE ASSESSEE IS A CO - OPERATIVE BANK ENGAGED IN THE BUSINES S OF ACCEPTING DEPOSITS FROM MEMBERS AND GIVING LOANS TO MEMBERS. IT HAS FILED ITS RETURN OF INCOME ON 11.09.2009 FOR THE YEAR UNDER CONSIDERATION DECLARING TOTAL INCOME AT 14,57,840/ - . IN THE SCRUTINY ASSESSMENT, THE ASSESSING OFFICER NOTICED THAT THE A SSESSEE HAD NOT CREDITED INTEREST RECEIVABLE OR ACCRUED ON NONPERFORMING ASSETS (HEREINAFTER REFERRED TO AS NPA) TO ITS PROFIT AND LOSS ACCOUNT FOR FINANCIAL YEAR 2008 - 09. THE ASSESSING OFFICER AFTER REJECTING THE VARIOUS CONTENTIONS OF THE ASSESSEE HAS HE LD THAT THE RBI GUIDELINES ARE NOT INTENDED TO REGULATE THE INCOME TAX LAW AND THE ASSESSEE WAS LIABLE TO BE ASSESSED ON ACCRUAL BASIS U/S.5 OF I.T. ACT FOR THE REASONS (I) BENEFITS EXTENDED TO SCHEDULE BANK, PUBLIC FINANCIAL INSTITUTIONS, PUBLIC COMPANIES 5 ITA NO .269/PUN/2018, A.Y. 2014 - 15 FOR THE PURPOSE OF SECTION 43D WERE NOT EXTENDED TO A CO - OPERATIVE BANK AND (II) THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND NOT CASH SYSTEM. ULTIMATELY THE ASSESSING OFFICER TAXED ON ACCRUED INTEREST OF 25,20,022/ - ADVANCE CLAIMED TO BE NPA ACCOUNT. THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY WHEREIN, FOLLOWING THE OSMANABAD JANTA SAHAKARI BANK LTD. IN ITA NO.795/PN/2011, THE CIT(A) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND THE SAME HAS BEEN OPPOSED BEFORE US ON BEHALF OF REVENUE. 2.1 AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND MATERIAL ON RECORD, WE FIND THAT IN OSMANABAD JANTA SAHAKARI BANK LTD. (SUPRA) THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE BY OBSERVING AS UNDER: 7. IN THE CASE BEFO RE US, ADMITTEDLY, ASSESSEE HAS DIRECTLY TAKEN THE INTEREST TO THE BALANCE SHEET AND IT IS NOT ROUTED THROUGH THE PROFIT & LOSS ACCOUNT. MOREOVER, THE ISSUE OF THE TAXABILITY OF THE INTEREST ON THE STICKY LOSSES/ADVANCES, IS COVERED IN FAVOUR OF THE ASSESS EE BY THE DECISION OF THE COORDINATE BENCHES IN THE CASE OF THE DURGA COOPERATIVE URBAN BANK LTD., VIJAYAWADA (SUPRA) AND KARNAVATI COOPERATIVE BANK LTD. (SUPRA). WE FIND NO REASON TO INTERFERE WITH THE REASONED ORDER OF THE LD. CIT(A) AND ACCORDINGLY THE SAME IS CONFIRMED. IN THE RESULT, THE REVENUES GROUND IS DISMISSED. THE ABOVE DECISION HAS BEEN FOLLOWED IN (I) ACIT, CIRCLE - 3, NANDED V/S BHAGYALAXMI MAHILA SAHAKAR BANK LTD. ITA NO.793/PN/2011, (II) ACIT, CIRCLE - 3 V/S SIDHESHWAR SAHAKARI BANK LTD. I TA NO.794/PN/2011 , (III) ACIT (CENTRAL) V/S LATUR URBAN CO - OPERATIVE BANK LTD. ITA NO.792/PN/2011 AND (IV) ASST. CIT, CIRCLE - 1 V/S DEOGIRI NAGARI SAHAKARI BANK LTD. ITA NO.817 & 1114/PN/2011. 8. THE HONBLE BOMBAY HIGH COURT IN CIT VS. M/S. DEOGIRI NAG ARI SAHAKARI BANK LTD. IN INCOME TAX APPEAL NO.53 OF 2014 & ORS. HAS LAID DOWN THE PROPOSITION THAT THE INTEREST ACCRUED ON NPAS IS NOT TAXABLE IN THE HANDS OF ASSESSEE, IN VIEW OF THE GUIDELINES ISSUED BY THE RBI. 9. FOLLOWING THE SAME PARITY OF REASONI NG, WE HOLD THAT NO ADDITION IS WARRANTED ON ACCOUNT OF INTEREST ACCRUED ON NPAS. ACCORDINGLY, WE UPHOLD THE ORDER OF CIT(A) IN DELETING THE ADDITION MADE ON ACCOUNT OF INTEREST ACCRUED ON NPAS. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE THUS, DISMISS ED. 6. THUS, IN THE LIGHT OF THE ABOVE, WE HOLD THAT THE ACCRUED INTEREST ON NPA IS NOT CHARGEABLE TO TAX U/S. 43D R.W. RULE 6EA AND WE DO NOT FIND 6 ITA NO .269/PUN/2018, A.Y. 2014 - 15 ANY REASON TO INTERFERE WITH THE ORDER OF CIT(A) AND ACCORDINGLY IT IS JUSTIFIED. THUS, THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 7. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH MARCH, 202 1 . SD/ - SD/ - ( R.S. SYAL ) ( S.S. VISWANETHRA RAVI ) VICE PRESIDENT JUDICIAL MEMBER / PUNE; / DATED : 16 TH MARCH, 202 1 . RK / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(A) - 8 , PUNE 4. THE PR. CIT - 4 , PUNE 5. , , , / DR, ITAT, A BENCH, PUNE. 6. / GUARD FILE. // // TRUE COPY// / BY ORDER, / PRIVATE SECRETARY, , / ITAT, PUNE