The Bhuj Merc.Co.Op.Bank Ltd., Ahmedabad V. The Jt.CIT.,Range-10, Ahmedabad

ITA 2784/AHD/2012

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7936 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 17-08-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 10-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P M PATEL
• Assessee Lawyers: S N DIVADIA
• Keywords: Notional interest

Judgement Text

, *,* *,**,* *,* IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD IZEKSN DQEKJ IZEKSN DQEKJ IZEKSN DQEKJ IZEKSN DQEKJ BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER I.T.A. NO.2784/AHD/2012 ( / ASSESSMENT YEAR : 2009-10) THE BHUJ MERCANTILE CO. OP. BANK LTD. MITHAKHALI SIX ROAD, MITHAKHALI, AHMEDABAD. VS. THE JT. CIT, RANGE 10 AHMEDABAD. ! PAN/GIR NO. : AAABT 0110 C ( ' / APPELLANT ) .. ( #' RESPONDENT ) '$ APPELLANT BY : SHRI S. N. DIVADIA, A.R. #'%$ / RESPONDENT BY : SHRI P. M. PATEL, SR. D.R & ' (%) * / DATE OF HEARING 30/11/2017 +,-. %) * / DATE OF PRONOUNCEMENT 22/12/2017 / O R D E R PER MAHAVIR PRASAD, JUDICIAL MEMBER : THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE OR DER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-XVI, AHMEDABAD, VIDE APPEAL NO.CIT(A)-XVI/JCIT/R.10/333/11-12 DATED 18/09/2012 FOR THE ASSESSMENT YEAR (AY) 2009-10, ASSESSEE HAS TAKEN FI VE GROUNDS OUT OF WHICH FOLLOWING GROUND WAS PRESSED: 5. ON FACTS AND IN CIRCUMSTANCES OF THE CASE, THE L EARNED CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.53,80,76 8/- TOWARDS ALLEGED ACCRUED INTEREST ON NPAS. IN THIS REGARDS T HE LEARNED CIT(A) HAS ERRED IN NOT FOLLOWING THE RATIO LAID DO WN BY HON'BLE ITA NO.2784/AHD /2012 THE BHUJ MERCANTILE CO.OP. VS. THE JT. CIT ASST.YEAR 2009-10 - 2 - JURISDICTIONAL AHMEDABAD TRIBUNAL IN CASE OF KARNAW ATI CO.OP BANK LTD 17 TAXMAN.COM 239 (2012). 2. THE BRIEF FACTS OF THE CASE ARE THAT IN THIS CAS E, LD. AO MADE AN ADDITION OF RS.53,80,768/- TOWARDS ALLEGED ACCRUED INTEREST ON NPAS. AFTER TAKING INTO ACCOUNT THE DETAILED SUBMISSION A ND EXPLANATION SUBMITTED BY THE APPELLANT VIDE REPLY DATED 02/09/2 011 AND 16/09/2011. IT WAS SUBMITTED AND CONTENDED THAT AO WAS COMPLETE LY IN ERROR ON FACTS AND IN LAW IN MAKING THE ABOVE REFERRED IMPUGNED AD DITION IN VIEW OF FACTS AND CIRCUMSTANCES MEETING OUT EACH AND EVERY STAND BY WAY OF SUPPORT TAKEN BY HIM AND ALSO JUSTIFYING THE SUBMIS SION MADE BY THE APPELLANT FOR NON-INCLUSION OF HYPOTHETICAL/NOTIONA L INTEREST ON NPAS A/C. WHICH IS STATED AS UNDER: I) THE LD. AO AT PAGE-14 UNDER PARA-8.3 HAS CLEARLY ASSERTED THAT CO-OPERATIVE BANKS IN INDIA ARE REGISTERED UNDER TH E CO. OP. SOCIETIES ACT. THE CO. OP. BANK IS ALSO REGULATED B Y THE RBI. THEY ARE GOVERNED BY THE BANKING REGULATIONS ACT, 1 949 AND BANKING LAWS [CO. OP. SOCIETIES] ACT, 1965. THE ASS ESSEE IS SUCH URBAN CO. OP. BANK. THEREFORE, IT WAS NOT IN DISPUT E THE FACT THAT THE CO. OP. BANK IS REGULATED BY THE NORMS AND DIRE CTIVES LAID DOWN BY THE RBI. HENCE, THE OBSERVATION MADE BY THE LD. AO STATING THAT AT PAGE-16 THAT ALL THE DECISIONS RELI ED UPON BY THE APPELLANT IN THE REPLY SUBMITTED ON 16.09.11 WERE N OT APPLICABLE SINCE THEY PERTAIN TO DIFFERENT NON-BANKING FINANCI AL INSTITUTIONS WHEREAS, THE APPELLANT IS A CO. OP. BANK AND BOTH S UCH INSTITUTIONS ARE DIFFERENTLY GOVERNED BY THE RBI IN TERMS OF REGULATIONS. SUCH OBSERVATION MADE BY THE LD. AO IS NOT CORRECT AND JUSTIFIED SINCE IT IS CONTRADICTORY AS EXPLAINE D HEREINABOVE. II) THEREFORE, AS SUBMITTED BY THE APPELLANT IN ITS REPLY SUBMITTED ON 18.08.11, ACCRUED INTEREST ON NON-PERFORMING ASSETS AS PER RBI GUIDELINES WAS NIL AS 'PER THE ORDERS/INSTRUCTIONS, INSTRUCTION ON INCOME RECOGNISITION, ASSETS CLASSIFICATION AND PRO VISIONING ARE ITA NO.2784/AHD /2012 THE BHUJ MERCANTILE CO.OP. VS. THE JT. CIT ASST.YEAR 2009-10 - 3 - MANDATORILY TO BE FOLLOWED WHICH DIRECTS THAT UNREA LIZED INTEREST ON NON-PERFORMING ASSETS IS NOT TO BE DEBITED TO TH E BORROWERS' A/C. BUT THE SAME IS A REQUIRED TO BE ACCOUNTED ONL Y WHEN ACTUAL RECEIPT OF INTEREST IS RECEIVED. THE SAID PROVISION IS ENUMERATED UNDER PARA NO.4.1.1 ON PAGE NO.17 OF THE MASTER CIRCULAR NO. UBD.PCB.MC.NO.3/09.14.000/2008-09 DT. JULY 01,2008 AND A COPY OF SUCH CIRCULAR WAS ALREADY SUBMITTED TO THE LD.AO ALONGWITH THE SAID REPLY. HENCE, IN VIEW OF SUCH UN DISPUTED FACTS, INTEREST ON NPAS WAS RIGHTLY STATED TO BE NIL AND A CCORDINGLY, LD. AO WITHOUT CONTROVERTING OR DISPUTING SUCH FACTS BA SED ON SUCH EVIDENCES, WAS COMPLETELY IN ERROR AND NOT JUSTIFIE D IN MAKING HYPOTHETICAL/NOTIONAL INTEREST ADDITION OF RS.53,80 ,768/-. III) THE RELIANCE PLACED BY THE LD. AO IN THE CASE OF STATE BANK OF TRAVANCORE 158 ITR 102 [SC] IS COMPLETELY MISPLACED AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE IN SO F AR AS IN THE SAID CASE, INTEREST ON NPAS WERE CHARGED BY THE BANK IN ITS BOOKS OF ACCOUNTS TO THE PARTIES CONCERNED BY MAKING DEBIT E NTRIES IN THEIR RESPECTIVE ACCOUNTS BUT NOT CREDITED TO THE P & L A/C BUT TO THE SEPARATE SUSPENSE A/C AND CLAIMED IT AS NOT LIA BLE TO TAX. TO WHICH THE HON. SUPREME COURT HELD THAT MERE IMPROBA BILITY OF RECOVERY, WHERE CONDUCT OF THE ASSESSEE IS UNEQUIVO CAL, CANNOT BE TREATED AS EVIDENCE OF THE FACT THAT INCOME HAS NOT RESULTED OR ACCRUED TO THE ASSESSEE. SUCH IS NOT THE CASE WITH THE PRESENT ASSESSEE IN VIEW OF THE UNDISPUTED FACT THAT THE AP PELLANT BANK HAS NEVER CHARGED INTEREST ON ITS NPAS A/C. IN ITS BOOKS BY DEBITING TO THE BORROWERS A/C. IN VIEW OF PRUDENTIA L NORMS ISSUED BY RBI IN MASTER CIRCULAR AS MENTIONED ABOVE. HENCE , THE RELIANCE PLACED BY THE LD. AO ON THE DECISION OF ST ATE BANK OF TRAVANCORE [SUPRA] IS MISPLACED AND OF NO HELP TO H IM IN THE PRESENT CASE. IV) THE LD.AO ASSERTED THAT THE APPELLANT FAILED TO PROVIDE MATERIALS ON RECORD AS TO WHICH SECTIONS AND/OR CLAUSES OF TH E RBI ACT ARE NON-OBSTANTE WHICH WOULD OVERRIDE THE PROVISIONS OF THE I.T. ACT. SUCH OBSERVATION OF THE LD.AO IS CONTRADICTORY TO T HE OBSERVATION MADE BY THE LD. AO UNDER PARA 8.5 AT PAGE 20 WHEREI N, IT IS ASSERTED BY THE LD. AO THAT THOUGH SEC.45Q OF THE R BI ACT PROVIDES THAT PROVISIONS OF CHAPTER-IIIB OF THE RBI ACT SHALL HAVE EFFECT NOTWITHSTANDING ANYTHING INCONSISTENT T HEREWITH ITA NO.2784/AHD /2012 THE BHUJ MERCANTILE CO.OP. VS. THE JT. CIT ASST.YEAR 2009-10 - 4 - CONTAINED IN ANY OTHER LAW. THUS, THE LD. AO HIMSEL F ADMITTED THAT SEC.45Q OF THE RBI ACT CONTAINS NON-OBSTANTE C LAUSE AND THEREFORE AS SUBMITTED BY THE APPELLANT IN ITS REPL Y DT. 14.09.11 RELYING ON THE DECISION OF HON. SUPREME COURT IN THE CASE OF TRO VS. CUSTODIAN, SPECIAL COURT ACT, 1992 (2007) 293 ITR 369, THAT WHENEVER THERE IS A PROVISION IN ANOTHER ENACT MENT WHICH CONTAINS A NON-OBSTANTE CLAUSE, IT WOULD OVER RIDE THE PROVISIONS OF INCOME TAX ACT. THUS, THE LD. AO WAS BOUND TO FOLLOW THIS DECISION FOR NOT ADHERING TO THE PROVIS IONS OF THE INCOME TAX ACT FOR TAXING HYPOTHETICAL INTEREST INC OME ON NPAS BUT OUGHT TO HAVE FOLLOWED PROVISIONS OF RBI ACT FO R ACCEPTING THE SUBMISSION OF THE APPELLANT FOR NON-CHARGING OF INTEREST ON NPAS A/C SINCE RBI ACT OVERRIDES THE PROVISIONS OF I.T. ACT. V) THE LD AO HAS ALSO MISPLACED ITS RELIANCE BY REF ERRING TO THE PROVISIONS OF SEC.145 OF THE I.T. ACT AS PER WHICH, THE APPELLANT NEEDS TO RECORD ITS INCOME FOLLOWING MERCANTILE SYS TEM OF ACCOUNTING IRRESPECTIVE OF THE FACT WHETHER SUCH IN COME IS RECEIVED OR NOT. SUCH OBSERVATIONS OF THE LD. AO DO ES NOT HOLD GOOD IN VIEW OF THE DECISION OF HON SUPREME COURT C ITED IN ITS REPLY DT.14.09.11 SUBMITTED ON 16.09.11 IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. VS. JOINT CIT [2010] 320 ITR 577 WHEREIN, THE HON. SUPREME COURT, MADE A DISTINCTION WITH REG ARD TO 'INCOME RECOGNISTION' AND HELD THAT INCOME HAD TO B E RECOGNIZED IN TERMS OF THE PRUDENTIAL NORMS EVEN THOUGH THEY D EVIATED FROM MERCANTILE SYSTEM OF ACCOUNTING AND/OR SEC.145 OF T HE I.T. ACT. THEREFORE, THE OBSERVATION OF THE LD. AO IN THIS RE GARD IS NOT CORRECT AND JUSTIFIED. VI) THE OBSERVATION MADE BY THE LD.AO MENTIONING TH AT THE APPELLANT BANK DISTRIBUTED GOLD COINS TO THE CUSTOM ERS ALTHOUGH SUCH CUSTOMERS WERE CATEGORIZED AS NPA AND THEREFOR E, THE APPELLANT BANK OUGHT TO HAVE TREATED THEM AS FULLY SECURED AND OUGHT TO HAVE ENFORCED RECOVERY FROM SUCH PERSONS. THE LD. AO HAS MISPLACED ITS RELIANCE BY MAKING SUCH INAPPLICA BLE OBSERVATION IN VIEW OF THE FACT THAT THE BANK HAVE DISTRIBUTED GOLD COINS TO ALL ITS CUSTOMERS /MEMBERS TO CELEBRA TE THE SPECIAL OCCASION IRRESPECTIVE OF THEIR STATUS WITH THE BANK AND HENCE, IT HAS NO RELEVANCE OR CONNECTION FOR DISCARDING THEM FROM THE ITA NO.2784/AHD /2012 THE BHUJ MERCANTILE CO.OP. VS. THE JT. CIT ASST.YEAR 2009-10 - 5 - DISTRIBUTION OF GOLD COINS AND ALSO, ENFORCEMENT OF RECOVERY OF DEBTS IS DIFFERENT THAN CHARGING OF INTEREST ON NPA S A/C. VII) BE IT AS MAY BE, NO INTEREST ON NPAS A/C. NEED TO BE FAXED ON HYPOTHETICAL/NOTIONAL BASIS AND AGAINST THE PRINCIP LES OF 'REAL INCOME' AS THOROUGHLY EXPLAINED WITH THE RELIANCE P LACED ON DIFFERENT DECISIONS IN REPLY SUBMITTED ON 02.09.11 AND DT.16.09.11 AND THEREFORE, IN VIEW OF SUCH SUBMISSI ON AND FACTS, THE CONCLUDING FINDINGS GIVEN BY THE LD. AO UNDER P ARA-8.5 AT PAGE-20 IS COMPLETELY INCORRECT, UNJUSTIFIED AND UNCALLED FOR SINCE, IT IS BASED ON ASSUMPTIONS, CONJUNCTURE S AND SURMISES WHICH IS AGAINST THE PRUDENTIAL NORMS LAID BY THE RBI MASTER CIRCULAR. HENCE, IN VIEW OF ABOVE STATED FACTS AND SUBMISSIONS, THE NOTIONAL /HYPOTHETICAL INTEREST CHARGED AND TAX ED BY THE LD. AO ON NPAS A/C. OF RS.53,80,768/- IS REQUESTED TO B E DELETED. 3. THE AO WAS NOT AGREE WITH THE CONTENTION OF THE ASSESSEE HENCE, HE MADE ADDITION OF RS.53,80,768/- TOWARDS ALLEGED ACCRUED INTEREST ON NPAS. 4. AGAINST THE SAID ORDER ASSESSEE PREFERRED FIRST STATUTORY APPEAL BEFORE THE LD. CIT(A) WHO CONFIRMED THE ORDER OF TH E ASSESSING OFFICER. 5. NOW APPEAL IS BEFORE US. 6. WE HAVE GONE THROUGH THE RELEVANT RECORD AND IMP UGNED ORDER, WHEREAS, THE APPELLANT IS A CO-OPERATIVE BANK REGIS TERED UNDER THE CO- OPERATIVE SOCIETIES ACT AND WHICH IS REQUIRED TO FO LLOW THE REGULATIONS LAID DOWN BY THE RESERVE BANK OF INDIA. AS PER THE REGUL ATIONS ISSUED BY THE RESERVE BANK OF INDIA, THE APPELLANT HAS NOT CHARGE D INTEREST ON NPAS. UNDER THE INCOME TAX ACT THE REAL INCOME IS TO BE T AXED AND THE INTERESTS ITA NO.2784/AHD /2012 THE BHUJ MERCANTILE CO.OP. VS. THE JT. CIT ASST.YEAR 2009-10 - 6 - INCOME ON ACCRUAL BASIS ON THE NPAS WOULD BE ONLY A N IMAGINARY INCOME NOT THE REAL INCOME AND THE SAME CANNOT BE T AXED. IN SUPPORT OF ITS CONTENTIONS AR CITED A TRIBUNAL JUDGMENT, IN TH E CASE OF KARNAWATI CO.OP BANK LTD 17 TAXMAN.COM 239 (2012) AND HAS BEE N HELD AS UNDER: SECTION 43D IS IN CONTRAST WITH THE FUNDAMENTAL PR INCIPLE OF ACCOUNTANCY. THE CARDINAL PRINCIPLE OF MERCANTILE SYSTEM OF ACCOUNTANCY IS THAT AN INCOME IS TO BE SHOWN IN THE BOOKS OF ACCOUNT ON ACCRUAL BASIS. IT IS IMMATERIAL WHETHER IT WAS ACTU ALLY RECEIVED OR NOT, BUT IF AN INCOME IS EXPECTED TO BE RECEIVED, THEN I T SHOULD BE BROUGHT INTO THE BOOKS OF ACCOUNT AS AN INCOME ACCRUED TO T HE ASSESSEE. CONTRARY TO THIS RECOGNISED PRINCIPLE, THIS SECTION PRESCRIBES THAT AN INCOME BY WAY OF INTEREST SHALL BE CHARGEABLE TO TA X IN THE PREVIOUS YEAR IN WHICH IT IS CREDITED. THE OTHER DEVIATION F ROM THE ACCEPTED PRINCIPLE OF ACCOUNTANCY IS THAT INCOME BY WAY OF I NTEREST SHALL BE CHARGEABLE TO TAX IN THE PREVIOUS YEAR IN WHICH IT IS ACTUALLY RECEIVED. SIMULTANEOUSLY, THIS SECTION IS AN OVERRIDING SECTI ON BECAUSE THE OPENING WORDS ARE 'NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT'. ONCE THE STAT UTE HAS CATEGORICALLY MADE A LAW IN RESPECT OF PUBLIC FINANCIAL INSTITUTI ONS THAT INTEREST IS CHARGEABLE TO TAX EITHER IN THE YEAR OF CREDIT OR A CTUAL RECEIPT, WHICHEVER IS EARLIER, NO SCOPE IS LEFT WITH THE AUT HORITIES TO IGNORE THESE PROVISIONS. 7. THEREFORE, IN VIEW OF THE MANDATE OF RBI GUIDELI NES, ASSESSEE COULD NOT HAVE AN ORGANIZED INCOME FROM NON PERFORM ING ASSETS ON ACCRUAL BASIS BUT COULD HAVE PICKED SUCH INCOME ONL Y WHEN IT WAS ACTUALLY RECEIVED. THEREFORE, INTEREST ON NPAS WOU LD NOT BE TAXABLE ON ACCRUAL BASIS IN ASSESSEES HANDS. ITA NO.2784/AHD /2012 THE BHUJ MERCANTILE CO.OP. VS. THE JT. CIT ASST.YEAR 2009-10 - 7 - 8. RESPECTFULLY, FOLLOWING THE ABOVE SAID RULING, W E SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE AO TO DEL ETE THE IMPUGNED ADDITION. 9. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 22/12/2017 SD/- SD/- IZEKSN DQEKJ IZEKSN DQEKJ IZEKSN DQEKJ IZEKSN DQEKJ EGKOHJ IZLKN EGKOHJ IZLKN EGKOHJ IZLKN EGKOHJ IZLKN YKS[KK LN YKS[KK LN YKS[KK LN YKS[KK LNL; L; L; L; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; (PRAMOD KUMAR) ( MAHAVIR PRASAD ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 22/12/2017 PRITI YADAV, SR.PS !'# $#! COPY OF THE ORDER FORWARDED TO : 1. ' / THE APPELLANT 2. #' / THE RESPONDENT. 3. 012) & 3) / CONCERNED CIT 4. & 3) 45 / THE CIT(A)-XVI, AHMEDABAD. 5. 67 8)'12 *12. 0 / DR, ITAT, AHMEDABAD 6. 8 9: ( GUARD FILE. % & / BY ORDER, # 6)) //TRUE COPY// '/& () ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD