The Dy. Commissioner of Income Tax, Sabarkantha Circle, Sabarkantha V. The Sabarkantha District Central Co.-Op. Bank Ltd., Himatnagar

ITA 2897/AHD/2016

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 8642 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2013-2014
• Appeal Filed On: 08-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K DEV
• Assessee Lawyers: A C SHAH
• Keywords: Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH (BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER) ITA. NO: 2897/AHD/2016 (ASSESSMENT YEAR: 2013-14) THE DEPUTY COMMISSIONER OF INCOME-TAX, SABARKANTHA CIRCLE, HIMATNAGAR. V/S THE SABARKANTHA DISTRICT CENTRAL CO-OP. BANK LTD. OPP. HIMMAT HIGH SCHOOL, SHUKLA ROAD, HIMATNAGAR- 383001 (APPELLANT) (RESPONDENT) PAN: AAAAT1019P APPELLANT BY : SHRI S. K. DEV, SR. D.R. RESPONDENT BY : SHRI A. C. SHAH, A.R. ( )/ ORDER DATE OF HEARING : 24 -10-201 8 DATE OF PRONOUNCEMENT : 21 -12-2018 PER MAHAVIR PRASAD, JUDICIAL MEMBER 1. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-2, AHMEDABAD DATED 17.08.2016 PERTAINING TO A.Y. 2013- 14 AND FOLLOWING GROUNDS HAVE BEEN TAKEN: ITA NO. 2897 /AHD/2016 . A.Y. 2013-1 4 2 1. THE LD.CIT (A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS. 82,74,376/- BEING PROVISION FOR AMORTIZATION ON GOV ERNMENT SECURITIES. 2. THE LD.CIT (A) HAS ERRED IN LAW AND ON FACTS IN DELETING DISALLOWANCE OF RS.21,48,021/- BEING OVERDUE INTEREST RESERVE FUND. 3. THE LD.CIT (A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 1,71,59,979/-ON ACCOUNT OF ACCRUED INTEREST ON NPA. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT (A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 5. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE L D. CIT (A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED TO TH E ABOVE EXTENT. 2. IN THIS CASE, ASSESSEE IS A CO-OP. BANK ENGAGED IN BANKING BUSINESS. ON PERUSAL OF PROFIT AND LOSS ACCOUNT, IT IS NOTICED THAT PROV ISION OF RS. 82,74,376/- WAS MADE BY THE ASSESSEE UNDER HEAD OF GOVERNMENT SECUR ITIES PREMIUM AMORTIZATIONS AT THE END OF THE YEAR UNDER CONSIDER ATION WHICH WAS NOT ADDED BACK IN THE TOTAL INCOME WHILE COMPUTING THE TAXABL E INCOME. ASSESSEE WAS THEREFORE REQUESTED TO EXPLAIN AS TO WHY AMOUNT CLA IMED OF PROVISION BASIS ONLY UNDER THE HEAD OF SECURITIES PREMIUM AMORTIZAT IONS OF RS. 82,74,376/- SHOULD NOT BE DISALLOWED. 3. IN RESPONSE TO THE NOTICE, ASSESSEE STATED THAT IT REPRESENTS THE PREMIUM PAID OVER AND ABOVE THE FACE VALUE AT THE TIME OF PURCHA SE OF SECURITIES HELD TILL MATURITY [PERMANENT CATEGORY]. THE PREMIUM SO PAID IS PROVIDED AND WRITTEN OFF OVER THE PERIOD OF LIFE OF SECURITIES AS PER RB I GUIDELINES. THE SAID PROVISION IS ALLOWABLE AS DEDUCTION AS PER CBDT INS TRUCTION NO. 17 DATED 26.11.2008 AND GUJARAT HIGH COURT IN THE CASE OF CI T VS. RAJKOT DIST. CO.OP. BANK LTD. HAS DECIDED IN FAVOUR OF THE ASSESSEE.: SECTION 28(I) OF THE INCOME-TAX ACT, 1961 - BUSINE SS LOSS/DEDUCTIONS -ALLOWABLE AS (AMORTISATION OF SECURITIES PREMIUM) - WHETHER I N TERMS OF CIRCULAR NO. 17, DATED 26-11-2008, WHERE A CO-OPERATIVE BANK PURCHAS ES CERTAIN GOVERNMENT SECURITIES IN ORDER TO MAINTAIN STATUTORY LIQUIDITY RATIO (SLR) AT A PRICE HIGHER ITA NO. 2897 /AHD/2016 . A.Y. 2013-1 4 3 THAN THEIR FACE VALUE, PREMIUM SO PAID HAS TO BE AM ORTISED FOR REMAINING PERIOD OF MATURITY A HELD, YES [PARA 7] [IN FAVOUR OF ASSESSEE/MATTER REMANDED] 4. THE LD.CIT(A) HAS DECIDED THE MATTER IN FAVOUR OF T HE ASSESSEE. AFTER GOING THROUGH THE JURISDICTIONAL HIGH COURT IN THE CASE O F CIT VS. RAJKOT DIST. CO.OP. BANK LTD. (SUPRA), WE ARE NOT INCLINED TO IN TERFERE IN THE ORDER PASSED BY THE LD. CIT(A). IN OUR CONSIDERED OPINION, LD. CIT( A) HAS PASSED DETAILED AND REASONED ORDER. 5. NOW WE COME TO GROUND RELATE TO DELETING THE DISALL OWANCE OF RS. 21,48,021/- BEING OVERDUE INTEREST RESERVE FUND. 6. ON PERUSAL OF PROFIT AND LOSS ACCOUNT, IT IS NOTICE D THAT THE ASSESSEE HAS MADE PROVISION OF RS.21,48,021/- UNDER HEAD OF OVERDUE I NTEREST RESERVE AT THE END OF THE YEAR UNDER CONSIDERATION AND ADDED BACK THE PROVISION AMOUNT IN THE TOTAL INCOME WHILE COMPUTING THE TAXABLE INCOME. 7. IN REPLY TO THE NOTICED, ASSESSEE STATED THAT OVERD UE INTEREST RESERVE OF RS. 21,48,021/- REPRESENTS THE PROVISION AND NOT RESERV E THE INTEREST ON NPA ACCOUNT IS NOT TAXABLE. HOWEVER, SUCH INTEREST IS C REDITED IN THE INTEREST RECEIVABLE AMOUNT. THEREFORE, THE AMOUNT SO CREDITE D IS PROVIDED BY WAY OF PROVISION TO NULLIFY THE EFFECT AS PER RBI GUIDELIN ES AND CITED AN ORDER OF AHMEDABAD ITAT BENCH IN THE CASE OF SHRI MAHILA SAH KARI BANK LTD. VS. ACIT. IN SIMILAR CIRCUMSTANCES, MATTER WAS DECIDED IN FAVOUR OF THE BANK. ITA NO. 2897 /AHD/2016 . A.Y. 2013-1 4 4 8. IN THESE CIRCUMSTANCES AND IN OUR CONSIDERED OPINIO N, LD. CIT(A) HAS RIGHTLY GRANTED RELIEF TO THE ASSESSEE. THEREFORE, WE DO NO T WANT TO INTERVENE IN THE ORDER PASSED BY THE LD. CIT(A). THEREFORE, THIS GRO UND OF REVENUE IS DISMISSED. 9. NOW WE COME TO GROUND RELATING TO DELETING THE ADDI TION OF RS. 1,71,59,979/- ON ACCOUNT OF ACCRUED INTEREST ON NPA. 10. LOWER AUTHORITIES OBSERVED THAT THE ASSESSEE BANK H AS SHOWN NPA OF RS. 21,21,13,900/- UNDER THE HEAD LOAN & ADVANCES, BAD & DOUBTFUL DEBT ON WHICH INTEREST WAS NOT CHARGED ON ACCRUAL BASIS. THEREFOR E, NOTICE WAS ISSUED BY THE LD. A.O. AND IN RESPONSE THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM AND STATED ASSESSEE CASE IS COVERED BY SUPREME COURT DECISION IN THE CASE OF UCO BANK 237 ITR 889 AND RBI CIRCULAR. PRINCIPLE IS THAT THE RE IS A STICKY ACCOUNT, THE INTEREST IS NOT SAID TO HAVE BEEN ACCRUED. THEREFOR E, RBI CIRCULAR SO PROVIDED AND IN THAT CASE OF UCO BANK FOR NPA AMOUNT INTERES T CANNOT BE ADDED TO THE INCOME OF THE ASSESSEE. BUT LD. A.O. WAS NOT A GREE WITH THE CONTENTION OF THE ASSESSEE AND ADDED BACK RS. . 1,71,59,979/- ON ACCOUNT OF ACCRUED INTEREST ON NPA. 11. IN APPEAL FILED BY THE ASSESSEE, LD. CIT(A) GRANTED RELIEF TO THE ASSESSEE. 12. WE HAVE GONE THROUGH THE RELEVANT RECORD AND IMPUGN ED ORDER. APEX COURT IN THE CASE OF UCO BANK VS. CIT 237 ITR 889 HAVE OBSER VED THAT THE NOTIONAL INTEREST UPON THE STICKY LOAN CANNOT BE TAXED. THE RELEVANT PARA OF THE SAID ORDER IS PRODUCED: 'SECTION 5, READ WITH SECTION 119 AND 145, OF THE IN COME TAX ACT, 1961 - INCOME - ACCRUAL OF - ASSESSMENT YEAR 1981-82 - WHETHER IN V IEW OF CBDT CIRCULAR, DATED 9-10-1984, INTEREST ON A LOAN WHOSE RECOVERY. IS DO UBTFUL AND WHICH HAS NOT BEEN ITA NO. 2897 /AHD/2016 . A.Y. 2013-1 4 5 RECOVERED BY ASSESSEE-BANK FOR LAST THREE YEARS BUT HAS BEEN KEPT IN A SUSPENSE ACCOUNT AND HAS NOT BEEN BROUGHT TO PROFIT AND LOSS ACCOUNT OF ASSESSEE, CANNOT BE INCLUDED IN INCOME OF ASSESSEE - HELD YES -WHETH ER CBDT CIRCULAR DATED 9-10- 1984 IS IN CONFLICT WITH PROVISIONS OF SECTION 145- HELD NO 13. IN THE CASE OF SARDARGANJ MERCANTILE CO-OP. BANK LT D. VS. ACIT IN ITA NO. 2426/AHD/2012 DATED 15/02/2013 CO-ORDINATE BENCH HA S HELD THAT ADDITION ON ACCOUNT OF ACCRUED INTEREST ON NPA CANNOT BE MAD E. THE RELEVANT PARA OF THE SAID JUDGMENT IS REPRODUCED: '4. NOW THE ASSESSEE IS BEFORE US. LD. COUNSEL FOR T HE APPELLANT CONTENDED THAT THE ASSESSEE IS A COOPERATIVE BANK ENGAGED IN CARRY ING ON BANKING BUSINESS. DURING A.Y. 2009-10, THE ASSESSEE PASSED BOOK ENTRY FOR INTEREST OF RS.1,58,897/- ON NPA ACCOUNT BY DEBITING TO TIME BARRED INTEREST RECEIVABLE ACCOUNT AND CREDITING TO PROVISION FOR TIME BARRED INTEREST. BO TH THE ACCOUNTS ARE REFLECTED IN THE BALANCE SHEET ON THE ASSETS SIDE AND LIABILITY SIDE. NO SUCH INTEREST IS CREDITED TO P&L ACCOUNT AS INCOME. HE FURTHER RELIED RBI MAS TER CIRCULAR UPDATED 30.06.2007, WHEREIN IT WAS POLICY AS PER THE RBI GU IDELINE INCOME FROM NON PERFORMING ASSETS IS NOT RECOGNIZED ON ACCRUAL BASI S BUT IS BOOKED AS INCOME ONLY WHEN , IT IS ACTUALLY RECEIVED. THEREFORE, BANKS SH OULD NOT TAKE TO INCOME ACCOUNT INTEREST, ON NON-PERFORMING ASSETS ON ACCRUAL BASIS . HE FURTHER HAS DRAWN OUR ATTENTION ON THE PAGE NO.5 OF THE PAPER BOOK WHICH IS BALANCE SHEET FOR A.Y. 09- 10 WHICH SHOWS THAT THE APPELLANT HAD SHOWN THIS IN TEREST PROVISION NPA IN ASSET SIDE AND LIABILITY SIDE AND NOT CREDITED IN THE P&L ACCOUNT. THE APPELLANT FURTHER ARGUED THAT UCO BANK-V. CIT, 237 ITR 889, WHEREIN I T WAS HELD THAT THE QUESTION WHETHER INTEREST EARNED WHAT HAVE COME TO BE KNOWN AS 'STICKY' LOANS, CAN BE CONSIDERED AS INCOME OR NOT UNTIL ACTUAL REALIZATIO N, IS A QUESTION WHICH MAY ARISE B:EFORE SEVERAL INCOME TAX OFFICER EXERCISING JURIS DICTION IN DIFFERENT PARTS OF THE COUNTRY. UNDER THE ACCOUNTING PRACTICE, INTEREST W HICH IS TRANSFERRED TO THE SUSPENSE ACCOUNT AND NOT BROUGHT TO THE P & L A/C. OF THE COMPANY IS NOT TREATED AS INCOME. HE FURTHER ARGUED THAT IN CASE OF CIT VS . STATE BANK OF INDIA 262 ITR 662-668, WHEREIN HON'BLE BOMBAY HIGH COURT HAS ANSW ERED IN FAVOUR OF ASSESSEE AND AGAINST THE REVENUE. THEREFORE, HE REQUESTED TO DELETE THE ADDITION. AT THE OUTSET, ID. SR. D.R. RELIED UPON THE ORDER OF THE C IT(A) AND A.O. 5.WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED T HE MATERIAL ON RECORD. THE APPELLANT IS MAKING THE PROVISION OF INTEREST AS PE R THE GUIDELINES ISSUED BY THE ITA NO. 2897 /AHD/2016 . A.Y. 2013-1 4 6 R.B.I. HOWEVER, SAME HAS NOT BEEN CREDITED IN THE P &L ACCOUNT AS IT F WAS NOTIONAL HAD NOT RECEIVED ACTUALLY BY IT. SECTION 4 3 IS ALSO NOT APPLICABLE AS ASSESSEE HAS NOT CREDITED IN THE P&L ACCOUNT BUT SH OWN IN THE ASSETS AND LIABILITY SIDE IN THE BALANCE SHEET DIRECTLY AND ALSO NOT REC EIVED ACTUALLY. THUS WE HAVE CONSIDERED VIEW THAT THE CIT(A) WAS NOT JUSTIFYING IN CONFIRMING THE ADDITION/ACCORDINGLY, THE ASSESSEE'S APPEAL IS ALLO WED.' 14. RESPECTFULLY FOLLOWING THE ABOVE SAID JUDGMENTS AND IN OUR CONSIDERED OPINION, LD. CIT(A) HAS PASSED DETAILED AND REASONED ORDER. THEREFORE, WE ARE NOT INCLINED TO INTERFERE IN THE ORDER PASSED BY THE LD . CIT(A). THUS, WE DISMISS THIS APPEAL OF THE REVENUE. ORDER PRONOUNCED IN OPEN COURT ON 21 - 12- 2018 SD/- SD/- (PRADIP KUMAR KEDIA) (MAHAVIR PRASAD) ACCOUNTANT MEMBER TRUE COPY JUDICIAL MEMBER AHMEDABAD: DATED 21/12/2018 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD