Gandhinagar Nagrik Co.Op. Bank Ltd., Gandhinagar V. The ACIT, Gandhinagar Circle, Gandhinagar

ITA 2965/AHD/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0505 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 07-09-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 13-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: M K PATEL
• Keywords: Bad and doubtful debts
• Section: 143(3); 145; 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH BEFORE: S H RI RAJPAL YADAV , JUDICIAL MEMBER AND SHR I AMARJIT SIGH , ACCOUNTANT MEMBER GANDHINAGAR NAGRIK CO.OP BANK LTD. PLOT NO. 391, SECTOR - 16, GANDHINAGAR - 382016 PAN: AAAAG1558N (APPELLANT) VS THE ACIT, GANDHINAGAR CIRCLE, GANDHINAGAR (RESPONDENT) REVENUE BY : S H RI JAMES KURIAN , SR. D . R. ASSESSEE BY: S H RI M.K. PATEL , A.R. DATE OF HEARING : 07 - 09 - 2 016 DATE OF PRONOUNCEMENT : 23 - 09 - 2 016 / ORDER P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THIS ASSESSEE S APPEAL FOR A.Y. 2010 - 11 , AR IS ES FROM ORDER OF THE CIT(A), GANDHINAGAR DATED 02 - 09 - 2013 IN APPEAL NO. CIT(A)/GNR/149/2012 - 13 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . I T A NO . 2965 / A HD/20 1 3 A S SESSMENT YEAR 2010 - 11 I.T.A NO. 2965 /AHD/20 13 A.Y. 2010 - 11 PAGE NO GANDHINAGAR NAGRIK CO.OP. BANK LTD VS. ACIT 2 2. THE ASSESSEE HAS RAI SED FOLLOWING GROUNDS OF APPEALS: - 1. THAT ON FACTS, AND IN LAW, THE LEARNED CIT(A) HAS GRIEVOUSLY ERRED IN CONFIRMING THE ADDITION OF RS.27,55,440/ - BEING INTEREST ON SUB - STANDARD ADVANCE (NON - PERFORMING ASSETS). 2. THAT ON FACTS AND IN LAW IT O UGHT TO HAVE BEEN HELD THAT NO ADDITION IS REQUIRED TO BE MADE ON ACCRUAL BASIS AS IN FACT NO REAL INCOME IS EARNED BY APPELLANT. 3. THE BRIEF FACTS OF THE CASE IS THAT THE ASSESSEE IS A CO - OPERATIVE BANK HAVING LICENCE UNDER BANKING REGULATION ACT, 194 9 AND ALSO REGISTERED WITH REGISTRAR OF THE CO - OP SOCIETIES. 4 . THE RETURN OF INCOME WAS FILED BY THE ASSESSEE ON 29 - 03 - 2012 SHOWI NG INCOME OF RS. 1 , 05 , 16 , 380/ - . THE CASE WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESS ING OFFICER ASKED THE ASSESSEE F OR NOT OFFERING INTEREST ON SUB - STANDARD ASSE TS. I N THIS CONNECTION, THE ASSESSING OFFICER HAS INTIMATED , THE DETAILS OF SUB - STANDARD ASSETS TO THE ASSESSEE AS UNDER: - SUB - STANDARD ASSETS 90.66 LACS DOUBTFUL DEBTS (13 TO 24 MONTH) 27.43 LACS ------- DO ---------- (25 TO 48 MONTH) 11.40 LACS -------- DO --------- (49 TO 60 MONTH) 133.62 LACS ASSESSED DOUBTFUL DEBTS 43.05 LACS --------------------------------- TOTAL 306.16 LACS I.T.A NO. 2965 /AHD/20 13 A.Y. 2010 - 11 PAGE NO GANDHINAGAR NAGRIK CO.OP. BANK LTD VS. ACIT 3 5 . THE ASSESSEE WAS ALSO ASKED TO SHOW CAUSE WHY INTEREST ON SUB - STANDARD ASSETS MAY NOT BE TREATED AS INCOME. IN SPITE OF PROVIDING SEVERAL OPPORTUNITIES THE ASSESSEE HAS NOT PROVIDED ANY EXPLANATION. THEREAFTER , THE ASSESSING OFFICER HAS CALCULATED INTEREST @ 9% ON ABOVE MEN TIONED SUB - STANDARD ASSETS AT RS . 27,55,440/ - AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. AGAINST THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE HAS PREFERRED APPEAL BEFORE THE LD. COMMISSIONER OF INCOME TAX(A). THE LD. COMMISSIONER OF INCOME TAX(A) HAS SUSTAINED THE ADDITION MADE BY THE ASSESSING OFFICER BY STATING AS UNDER: - SECTION 43D AND 36(1)(VIIA) INTEREST ON NON - PERFORMING ASSETS, SPARES LIABILITY FOR INTEREST IN RESPECT OF NON - PERFORMING 1 ASSETS FOR PUBLIC FINANCIAL INSTITUTIONS IN THE YEAR OF ACCRUAL AND SECTION 36(1)(VIIA) PROVIDES FOR DEDUCTION OF PROVISION FOR NON - PERFORMING ASSETS SUBJECT TO THE CONDITIONS THERE UNDER FOR BANKS AND PUBLIC FINANCIAL INSTITUTIONS. CONSTITUTIONAL VALIDITY OF THESE PROVISIONS WERE QUESTIONED BY THE NON - BANK ING FINANCIAL INSTITUTIONS, WHO ARE NOT ENTITLED TO SUCH DEDUCTIONS, THOUGH THEY ARE ALSO ENGAGED IN SAME ACTIVITY OF PERFORMING LENDING MONEYS. THESE PROVISIONS HAVE BEEN FOUND TO BE CONSTITUTIONALLY VALID IN THAT THEY DO NOT OFFEND ARTICLE 19 OF THE CONS TITUTION AS HELD IN SOUTHERN TECHNOLOGIES LTD V JT. CIT (2010) 320 ITR 577 (SC), FOLLOWING THE LAW LAID DOWN BY SUPREME COURT IN R. K. GARG V. UNION OF INDIA (1982) 133 ITR 239 (SC), BHAVESH D. PARISHI V UOI (2000) 5 SCC 471 AND TWO OTHER DECISIONS IN THE CONTEXT OF ROLE OF THE STATE IN REGULATING ECONOMIC ACTIVITIES. THE PROVISIONS OF SECTION 43D OF THE INCOME - TAX ACT, 1961, READ AS UNDER: 43D. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN ANY OTHER PROVISION OF THIS ACT, (A) IN THE CASE OF A PUBLIC FINANCIAL INSTITUTION OR A SCHEDULED BANK OR A STATE FINANCIAL CORPORATION OR A STATE INDUSTRIAL INVESTMENT CORPORATION, THE INCOME BY WAY OF INTEREST IN RELATION TO SUCH CATEGORIES OF BAD OR DOUBTFUL DEBTS AS MAY BE PRESCRIBED HAVING I.T.A NO. 2965 /AHD/20 13 A.Y. 2010 - 11 PAGE NO GANDHINAGAR NAGRIK CO.OP. BANK LTD VS. ACIT 4 REGARD TO THE GUIDEL INES ISSUED BY THE RESERVE BANK OF INDIA IN RELATION TO SUCH DEBTS; (B) IN THE CASE OF A PUBLIC COMPANY, THE INCOME BY WAY OF INTEREST IN RELATION TO SUCH CATEGORIES OF BAD OR DOUBTFUL DEBTS AS MAY BE PRESCRIBED HAVING REGARD TO THE GUIDELINES ISSUED BY T HE NATIONAL HOUSING BANK IN RELATION TO SUCH DEBTS, SHALL BE CHARGEABLE TO TAX IN THE PREVIOUS YEAR IN WHICH IT IS CREDITED BY THE PUBLIC FINANCIAL INSTITUTION OR THE SCHEDULED BANK OR THE STATE FINANCIAL CORPORATION OR THE STATE INDUSTRIAL, INVESTMENT COR PORATION OR THE PUBLIC COMPANY TO ITS PROFIT AND LOSS ACCOUNT. FOR THAT YEAR OR, AS THE CASE MAY BE, IN WHICH IT, IS ACTUALLY RECEIVED BY THAT INSTITUTION OR BANK OR CORPORATION OR COMPANY, WHICHEVER IS EARLIER. EXPLANATION. FOR THE PURPOSES OF THIS SECTIO N, (A) 'NATIONAL HOUSING BANK' MEANS THE NATIONAL HOUSING BANK ESTABLISHED UNDER SECTION 3 OF THE NATIONAL HOUSING BANK ACT, 1987 (53 OF 1987); (B) 'PUBLIC COMPANY' MEANS A COMPANY, (I ) WHICH IS A PUBLIC COMPANY WITHIN THE. MEANING OF SECTION OF THE COM PA NIES ACT, 1956 (1 OF 1956); (II ) WHOSE MAIN OBJECT IS CARRYING ON THE BUSINESS OF PROVIDING LONG - TERM FINANCE FOR CONSTRUCTION OR PURCHASE OF HOUSES IN INDIA FOR RESIDENTIAL PURPOSES; AND (III ) WHICH IS REGISTERED IN ACCORDANCE WITH THE HOUSING FINANCE C OMPANIES (NHB) DIRECTIONS, 1989 GIVEN UNDER SECTION 30 AND SECTION 31 OF THE NATIONAL HOUSING BANK ACT, 1987 (53 OF 1987); (C) 'P UBLIC FINANCIAL INSTITUTION' SHA LL HAVE THE MEANING - ASSIGNED TO IT IN SECTION 4A OF THE COMPANIES ACT, 1956 (1 OF 1956); (D) 'S CHEDULED BANK' SHALL HAVE THE MEANING ASSIGNED TO IT IN CLAUSE (II ) OF THE EXPLANATION TO CLAUSE (VIIA ) OF SUB - SECTION (1) OF SECTION 36; (E) 'STATE FINANCIAL CORPORATION' MEANS A FINANCIAL CORPORATION ESTABLISHED UNDER SECTION 3 OR SECTION 3A OR AN INST ITUTION NOTIFIED UNDER SECTION 46 OF THE STATE FINANCIAL CORPORATIONS ACT, 1951 (63 OF 1951); (F ) 'STATE INDUSTRIAL INVESTMENT CORPORATION ' MEANS A GOVERNMENT COMPANY WITHIN THE MEANING OF SECTION 617 OF THE COMPANIES ACT, 1956 (1 OF 1956), ENGAGED IN THE BUSINESS OF PROVIDING LONG - TERM FINANCE FOR INDUSTRIAL PROJECTS.] THE AO HELD THAT THE EXEMPTION AVAILABLE U/S. 43D CANNOT BE EXTENDED TO NON - SCHEDULED CO - OPERATIVE BANK IN VIEW OF OVERRIDING PROVISION OF SECTION 43D, NON - SCHEDULED CO - OPERATIVE BANKS ARE SPECIFICALLY EXCLUDED FROM THE EXEMPTION REGARDING INTEREST ON STICKY I.T.A NO. 2965 /AHD/20 13 A.Y. 2010 - 11 PAGE NO GANDHINAGAR NAGRIK CO.OP. BANK LTD VS. ACIT 5 ADVANCES AND THE BANK HAS CONTRAVENED THE PROVISIONS OF SECTION 43D, THEREFORE, THE INTEREST ON STICKY ADVANCES IS LIABLE TO BE CONSIDERED AS INCOME. THE CONTENTION OF THE AO IS CORREC T AS SECTION 43D DOES NOT GRANT ANY EXEMPTION TO ASSESSEES. THIS SECTION LAYS DOWN THAT INTEREST IN RELATION TO NON - PERFORMING ASSETS/BAD OR DOUBTFUL DEBTS SHALL BE CHARGEABLE TO TAX IN THE PREVIOUS YEAR IN WHICH IT IS CREDITED TO PROFIT & LOSS ACCOUNT OR ACTUALLY RECEIVED WHICHEVER IS EARLIER. THIS SECTION IS APPLICABLE TO SCHEDULED BANKS, PUBLIC FINANCIAL INSTITUTIONS, COMPANIES ETC., AND NOT TO NON - SCHEDULED CO - OPERATIVE BANKS AND NON - BANKING FINANCIAL COMPANIES. THE HON'BLE SUPREME COURT HAS RECENTLY HE LD IN THE CASE OF SOU THERN TECHNOLOGIES LIMITED VS JCI T 320 ITR 577 THAT RBI DIRECTIVES HAVE NOTHING TO DO WITH THE TAXABILITY OF THE ENTITIES GOVERNED BY THOSE DIRECTIONS AND TAXABLE INCOME OF THE ASSESSEE IS REQUIRED TO BE DETERMINED IN ACCORDANCE WITH T HE PROVISIONS OF THE INCOME - TAX ACT. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE DISCUSSED HEREINABOVE, THE BENEFIT CANNOT BE EXTENDED TO THE UNINTENDED ENTITIES AND THE ACTION OF THE AO IN CALCULATING INTEREST ON SUB - STANDARD ASSETS AND MAKI NG ADDITION OF RS.27,55,440/ - @ 9% IS HELD JUSTIFIED AND IS CONFIRMED . THIS GROUND OF APPEAL IS THEREFORE DISMISSED. 6 . DURING THE COURSE OF APPELLATE PROCEEDING S BEFORE US, THE LD. COUNSEL CONTENDED THAT NO ADDITION IS REQUIRED TO BE MADE ON ACCRUAL BAS IS AS IN FACT NO REAL INCOME IS EARNED BY THE ASSESSEE. THE LD. COUNSEL ALSO PLACED RELIANCE ON THE DECISION OF HON BLE HIGH C OURT OF GUJARAT IN THE CASE OF PRINCIPAL COMMISSIONER OF INCOME TAX VS. SHRI MAHILA SEVA SAHAKARI BANK LTD STATING THAT THE CASE OF THE ASSESSEE IS COVERED BY THIS DECISION. THE HON BLE GUJARAT HIGH COURT IN THE ABOVE CITE D DECISION HAS AGREED WITH THE D EC ISION OF THE DELHI HIGH COURT I N COMMISSIONER OF INCOME TAX VS. VA SISTH CHAY VYAPAR LTD. (2011) 330 ITR 440 (DELHI). THE PART OF THE JUDGMENTS GIVEN BY THE I.T.A NO. 2965 /AHD/20 13 A.Y. 2010 - 11 PAGE NO GANDHINAGAR NAGRIK CO.OP. BANK LTD VS. ACIT 6 HON BLE HIGH COURT OF GUJARAT IN TAX APPEAL NO. 531 OF 2015 IS REPRODUCED AS UNDER: - 24. THE DELHI HIGH COURT IN COMMISSIONER OF INCOME - TAX V. VASISTH CHAY VYAPAR LTD., (2011) 330 ITR 440 (DELHI), HAS IN THE CONTEXT OF A SIMI LAR ISSUE ARISING IN THE CASE OF A NON BANKING FINANCIAL COMPANY HAS HELD THUS: 17. IN THIS SCENARIO, WE HAVE TO EXAMINE THE STRENGTH IN THE SUBMISSION OF LEARNED COUNSEL FOR THE REVENUE THAT WHETHER IT CAN STILL BE HELD THAT INCOME IN THE FORM OF INTERE ST THOUGH NOT RECEIVED HAD STILL ACCRUED TO THE ASSESSEE UNDER THE PROVISIONS OF INCOME TAX ACT AND WAS, THEREFORE, EXIGIBLE TO TAX. OUR ANSWER IS IN THE NEGATIVE AND WE GIVE THE FOLLOWING REASONS IN SUPPORT: - (1) FIRST OF ALL WE WOULD DISCUSS THE MATTER IN THE LIGHT OF THE PROVISIONS OF INCOME TAX ACT AND TO EXAMINE AS TO WHETHER IN THE GIVEN CIRCUMSTANCES, INTEREST INCOME HAS ACCRUED TO THE ASSESSEE. IT IS STATED AT THE COST OF REPETITION THAT ADMITTED POSITION IS THAT THE ASSESSEE HAD NOT RECEIVED ANY I NTEREST ON THE SAID ICD PLACED WITH SHAW WALLACE SINCE THE ASSESSMENT YEAR 1996 - 97 AS IT HAD BECOME NPAS IN ACCORDANCE WITH THE PRUDENTIAL NORMS WHICH WAS ENTERED IN THE BOOKS OF ACCOUNTS AS ITA 139/2008, ITA 466/2008, ITA 537/2008,ITA 408/2003 WELL. THE A SSESSEE HAS FURTHER SUCCESSFULLY DEMONSTRATED THAT EVEN IN THE SUCCEEDING ASSESSMENT YEARS, NO INTEREST WAS RECEIVED AND THE POSITION REMAINED THE SAME UNTIL THE ASSESSMENT YEARS 2006 - 07. REASON WAS ADVERSE FINANCIAL CIRCUMSTANCES AND THE FINANCIAL CRUNCH FACED BY SHAW WALLACE. SO MUCH SO, IT WAS FACING WINDING UP PETITIONS WHICH WERE FILED BY MANY CREDITORS. THESE CIRCUMSTANCES, LED TO AN UNCERTAINTY IN SO FAR AS RECOVERY OF INTEREST WAS CONCERNED, AS A RESULT OF THE AFORESAID PRECARIOUS FINANCIAL POSITIO N OF SHAW WALLACE. WHAT TO TALK OF INTEREST, EVEN THE PRINCIPAL AMOUNT ITSELF HAD BECOME DOUBTFUL TO RECOVER. IN THIS SCENARIO IT WAS LEGITIMATE MOVE TO INFER THAT INTEREST INCOME THEREUPON HAS NOT 'ACCRUED'. WE ARE IN AGREEMENT WITH THE SUBMISSION OF MR. VOHRA ON THIS COUNT, SUPPORTED BY VARIOUS DECISIONS OF DIFFERENT HIGH COURTS INCLUDING THIS COURT WHICH HAS ALREADY BEEN REFERRED TO ABOVE. I.T.A NO. 2965 /AHD/20 13 A.Y. 2010 - 11 PAGE NO GANDHINAGAR NAGRIK CO.OP. BANK LTD VS. ACIT 7 (2) IN THE INSTANT CASE, THE ASSESSEE COMPANY BEING NBFC IS GOVERNED BY THE PROVISIONS OF RBI ACT. IN SUCH A CASE , INTEREST INCOME CANNOT BE SAID TO HAVE ACCRUED TO THE ASSESSEE HAVING REGARD TO THE PROVISIONS OF SECTION 45Q OF THE RBI AND PRUDENTIAL NORMS ISSUED BY THE RBI IN EXERCISE OF ITS STATUTORY POWERS. AS PER THESE NORMS, THE ICD HAD BECOME NPA AND ON SUCH NP A WHERE THE INTEREST WAS NOT RECEIVED AND POSSIBILITY OF RECOVERY WAS ALMOST NIL, IT COULD NOT BE TREATED TO HAVE BEEN ACCRUED IN FAVOUR OF THE ASSESSEE. NO DOUBT, IN FIRST BLUSH, READING OF THE JUDGMENT GIVES AN INDICATION THAT THE COURT HAS HELD THAT R BI ACT DOES NOT OVERRIDE THE PROVISIONS OF THE INCOME TAX 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 FI ND THAT THE PROPOSITION ADVANCED BY MR. SABHARWAL MAY NOT BE ENTIRELY CORRECT. IN THE CASE BEFORE THE SUPREME COURT, THE ASSESSEE A NBFC DEBITED ` 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 DID 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 SECTION 36(I) (VII) OF THE ACT. THE ASSESSING OFFICER, HOWEVER, DID NOT BRING TO TAX 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 RBI 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 RELEV ANT CONDITIONS STIPULATED THEREFOR 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 T O BE RECOGNIZED IN TERMS OF THE PRUDENTIAL NORMS, EVEN THOUGH THE SAME DEVIATED FROM MERCANTILE SYSTEM OF ACCOUNTING AND/OR SECTION 145 OF THE I.T.A NO. 2965 /AHD/20 13 A.Y. 2010 - 11 PAGE NO GANDHINAGAR NAGRIK CO.OP. BANK LTD VS. ACIT 8 INCOME TAX ACT. IT CAN BE SAID, THEREFORE, THAT THE APEX COURT APPROVED THE REAL INCOME THEORY WHICH IS ENGRAINE D IN THE PRUDENTIAL NORMS FOR RECOGNITION OF REVENUE BY NBFC. 25. THE DISTINCTION DRAWN BY THE DELHI HIGH COURT IS T HAT WHILE THE ACCOUNTING POLICIES OF ADOPTED BY THE NBFC CANNOT DETERMINE THE TAXABLE INCOME. HOWEVER, INSOFAR AS INCOME RECOGNITION IS CO NCERNED, THE ASSESSING OFFICER HAS TO FOLLOW THE RBI DIRECTIONS, 1998 IN VIEW OF SECTION 45Q OF THE RBI ACT. THAT INSOFAR AS INCOME RECOGNITION IS CONCERNED, SECTION 145 OF THE INCOME TAX ACT, 1961 HAS NOT ROLE TO PLAY. 6 .1 THE OTHER RELEVANT PART OF THE JUDGMENT RENDERED BY THE HON BLE GUJARAT HIGH COU RT IS REPRODUCED AS UNDER: - 28. IN THE LIGHT OF THE VIEW ADOPTED BY THE COURT, IT IS NOT NECESSARY TO ENTER INTO ANY DETAILED DISCUSSION AS REGARDS THE APPLICABILITY OR OTHERWISE OF THE CBDT CIRCULAR TO TH E FAC TS OF THE PRESENT CASE. THE SUPREME COURT IN UCO BANK, CALCUTTA V. CIT (SUPRA) HAS HELD THAT SUCH CIRCULARS ARE NOT MEANT FOR CONTRADICTING OR NULLIFYING ANY PROVISION OF THE STATUTE. THEY ARE MEANT FOR PROPER ADMINISTRATION OF THE STATUTE, THEY ARE D ESIGNED TO MITIGATE THE RIGOURS OF THE APPLICATION OF A PARTICULAR PROVISION OF THE STATUTE IN CERTAIN SITUATIONS BY APPLYING A BENEFICIAL INTERPRETATION TO THE PROVISION IN QUESTION SO AS TO BENEFIT THE ASSESSEE AND MAKE THE APPLICATION OF THE FISCAL PROV ISION, IN THAT CASE, IN CONSONANCE WITH THE CONCEPT OF INCOME AND IN PARTICULAR, NOTIONAL INCOME AS ALSO THE TREATMENT OF SUCH NOTIONAL INCOME UNDER THE ACCOUNTING PRACTICE. THE COURT, ACCORDINGLY, DID NOT FIND ANY INCONSISTENCY OR CONTRADICTION BETWEEN TH E CIRCULAR SO ISSUED AND SECTION 145 OF THE INCOME TAX ACT. IN THE AFORESAID PREMISES, UNTIL THE CIRCULAR IS REVOKED, THE SAME CONTINUES TO BE IN FORCE AND THE SAME HAVING BEEN ISSUED TO MITIGATE THE HARDSHIPS CAUSED TO THE CLASS OF ASSESSEES COVERED BY TH E CIRCULAR, SUCH ASSESSEES WOULD BE ENTITLED TO THE BENEFIT THEREOF. MERELY BECAUSE BY VIRTUE OF THE PROVISIONS OF SECTION 43D OF THE ACT, A CERTAIN CLASS OF ASSESSEES IS GIVEN BENEFIT UNDER THE PROVISIONS OF THE ACT WOULD NOT MEAN THAT THE SAME WOULD OVER RIDE THE CIRCULAR. 29. 29. ON BEHALF OF THE APPELLANT IT HAS BEEN CONTENDED THAT SECTION 43D OF THE ACT ITSELF RECOGNISES RECOGNITION OF TAXABILITY OF SUCH INTEREST AND THAT WHEN A SPECIFIC PROVISION IN THE NATURE OF SECTION I.T.A NO. 2965 /AHD/20 13 A.Y. 2010 - 11 PAGE NO GANDHINAGAR NAGRIK CO.OP. BANK LTD VS. ACIT 9 43D OF THE ACT HAS BEEN MADE, AND ENTITIES LIKE THE ASSESSEE ARE EXCLUDED FROM THE PURVIEW THEREOF, THE ASSESSEE CANNOT INDIRECTLY CLAIM BENEFIT WHICH WOULD AMOUNT TO A BENEFIT SIMILAR TO THAT UNDER SECTION 43D OF THE ACT. IN THIS REGARD, IT MAY BE NOTED THAT THE BENEFIT CLAIMED BY TH E ASSESSEE IS NOT UNDER ANY PROVISION OF THE INCOME TAX ACT, 1961. THE ASSESSEE BEING BOUND BY THE RBI GUIDELINES WHICH ARE ISSUED UNDER THE PROVISIONS OF THE RBI ACT HAS NOT SHOWN THE INTEREST ON NPA AS INCOME. BY VIRTUE OF THE PROVISIONS OF SECTION 45Q O F THE RBI ACT, THE PROVISIONS OF CHAPTER IIIB THEREOF HAVE AN OVERRIDING EFFECT OVER OTHER LAWS INCLUDING THE INCOME TAX ACT, 1961. THEREFORE, NOTWITHSTANDING THE PROVISIONS OF SECTION 43D OF THE ACT, SINCE THE PROVISIONS OF SECTION 45Q OF THE RBI ACT HAVE AN OVERRIDING EFFECT VIS - - VIS INCOME RECOGNITION PRINCIPLES IN THE COMPANIES ACT, THE ASSESSING OFFICER IS BOUND TO FOLLOW THE RBI DIRECTIONS SO FAR AS INCOME RECOGNITION IS CONCERNED. THE CONTENTION THAT THE ASSESSEE CANNOT INDIRECTLY CLAIM THE BENEFIT WHICH WOULD AMOUNT TO A BENEFIT SIMILAR TO THAT UNDER SECTION 43D OF THE ACT, THEREFORE, DOES NOT MERIT ACCEPTANCE. 30. AS CAN BE SEEN FROM THE ASSESSMENT ORDER, BEFORE THE ASSESSING OFFICER THE ASSESSEE HAD INTER ALIA SUBMITTED THAT INTEREST ON NPA WAS NOT CHARGED AS MANDATORILY STIPULATED UNDER INCOME RECOGNITION AND ASSET CLASSIFICATION NORMS OF THE RESERVE BANK OF INDIA. IT HAS ALSO BEEN SUBMITTED THAT THE CBDT CIRCULAR BEARING F.NO.201/21/84 - ITA - II DATED 9.10.1984 ISSUED UNDER SECTION 119 OF THE ACT FOR ALL BANKING AND NON BANKING FINANCIAL COMPANIES STATING THAT IF THE INTEREST HAS NOT BEEN RECEIVED FOR THREE YEARS, THE SAME WILL NOT BE TAXED AS AN INCOME EVEN ON ACCRUAL BASIS EVEN IF INTEREST HAS BEEN CREDITED TO INTEREST SUSPENSE ACCOUNT WOULD BE APPLICABLE IN ITS CASE. THE ASSESSING OFFICER BRUSHED ASIDE THE SUBMISSION BASED UPON THE CIRCULAR OF 1984, ON THE GROUND THAT THE SAME IS APPLICABLE ONLY TO BANKING COMPANIES AND NOT TO COOPERATIVE BANKS, ON A MISCONCEPTION OF LAW THAT A COOPERATIVE BANK IS NOT A BANKING COMPANY. IN THIS REGARD IT MAY BE NOTED THAT THE EXPRESSION BANKING COMPANY HAS BEEN DEFINED UNDER SECTION 5(C) OF THE BANKING REGULATION ACT, 1949 TO MEAN ANY COMPANY WHICH TRANSACTS THE BUSINESS OF BANKING IN INDIA. PART V OF THE BANK ING REGULATION ACT BEARS THE HEADING APPLICATION OF THE ACT TO CO - OPERATIVE SOCIETIES . SECTION 56 THEREOF PROVIDES THAT THE PROVISIONS OF THE ACT, AS IN FORCE FOR THE TIME BEING, SHALL APPLY TO, OR IN RELATION TO CO - OPERATIVE SOCIETIES AS THEY APPLY TO, OR IN RELATION TO BANKING COMPANIES SUBJECT TO THE MODIFICATIONS STATED THEREUNDER. I.T.A NO. 2965 /AHD/20 13 A.Y. 2010 - 11 PAGE NO GANDHINAGAR NAGRIK CO.OP. BANK LTD VS. ACIT 10 CLAUSE (A) OF SECTION 56, TO THE EXTENT THE SAME IS RELEVANT FOR THE PRESENT PURPOSE, PROVIDES THAT THROUGHOUT THE ACT, UNLESS THE CONTEXT OTHERWISE REQUIRES, - (I) REFEREN CES TO A BANKING COMPANY OR THE COMPANY OR SUCH COMPANY SHALL BE CONSTRUED AS REFERENCES TO A CO - OPERATIVE BANK. SECTION 2(I) OF THE RBI ACT PROVIDES THAT CO - OPERATIVE BANK , CO - OPERATIVE CREDIT SOCIETY , DIRECTOR , PRIMARY AGRICULTURAL CREDIT SO CIETY , PRIMARY CO - OPERATIVE SOCIETY AND PRIMARY CREDIT SOCIETY SHALL HAVE THE MEANINGS RESPECTIVELY ASSIGNED TO THEM IN PART V OF THE BANKING REGULATION ACT, 1949. EVIDENTLY THEREFORE, THE EXPRESSION BANKING COMPANY WOULD TAKE WITHIN ITS SWEEP A CO - OPERATIVE BANK. THE ASSESSING OFFICER HAS THEREAFTER ENTERED INTO A DISCUSSION ON THE PROVISIONS OF THE SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002, WHICH PROVIDES FOR ENFORCEMENT OF SECURITY INTERES T OF BANKS AND FINANCIAL INSTITUTIONS AND HAS OBSERVED THAT IN THE INSTANT CASE, NO MATERIAL HAS BEEN BROUGHT ON RECORD BY THE ASSESSEE TO PROVE ITS EFFORTS MADE IN A BID TO RECOVER SUCH DEBTS WHICH ARE CLASSIFIED AS NPA AND OTHER CATEGORIES. THE ASSESSING OFFICER HAS ALSO ENTERED INTO A DISCUSSION AS REGARDS THE QUALITY OF MANAGEMENT, ETC., WITHOUT EVEN EXAMINING AS TO WHETHER OR NOT THERE WAS ANY PROBABILITY OF INTEREST BEING RECEIVED ON THE NPAS. THE COMMISSIONER (APPEALS) HAS PLACED RELIANCE UPON THE DE CISION OF THE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LIMITED (SUPRA) AND HELD THAT THERE IS NO MERIT IN THE CONTENTION OF THE ASSESSEE THAT UNDER COMMERCIAL ACCOUNTING, INTEREST ON NPAS CANNOT BE CHARGED. ON THE QUESTION OF APPLICABILITY OF THE CBDT CIRCULAR DATED 9.10.1984, THE COMMISSIONER (APPEALS) HELD THAT THE SAME WOULD NOT BE APPLICABLE FOR THE REASON THAT THE PROVISIONS OF SECTION 43D OF THE ACT ARE CLEAR AND CANNOT BE OVERRIDDEN THROUGH DELEGATED LEGISLATION VIZ. CIRCULARS AND NOTIFICAT IONS. THE COMMISSIONER (APPEALS) WAS FURTHER OF THE OPINION THAT THE STATUTORY PROVISIONS WERE BROUGHT ON THE ACT MUCH LATER THAN THE SAID CIRCULAR (WHICH WAS ISSUED IN 1984) AND THEREFORE THE SAID CIRCULAR WOULD NOT HAVE ANY EFFECT OR BINDING FORCE UPON T HE ASSESSING OFFICER. THE VIEW ADOPTED BY THE ASSESSING OFFICER AND THE COMMISSIONER (APPEALS) IS CLEARLY CONTRARY TO THE VIEW EXPRESSED BY THIS COURT HEREINABOVE. THE TRIBUNAL WAS THEREFORE, WHOLLY JUSTIFIED IN SETTING ASIDE THE ORDER PASSED BY THE COMMIS SIONER (APPEALS) CONFIRMING THE ASSESSMENT ORDER. 31. IN THE LIGHT OF THE ABOVE DISCUSSION, THIS COURT DOES NOT FIND ANY INFIRMITY IN THE IMPUGNED ORDER PASSED BY THE TRIBUNAL SO AS TO I.T.A NO. 2965 /AHD/20 13 A.Y. 2010 - 11 PAGE NO GANDHINAGAR NAGRIK CO.OP. BANK LTD VS. ACIT 11 WARRANT INTERFERENCE. THE QUESTION IS, ACCORDINGLY, ANSWERED IN THE A FFIRMATIVE, THAT IS, IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. CONSEQUENTLY, THE APPEAL FAILS AND IS, ACCORDINGLY, DISMISSED. 7 . THE LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE LOWER AUTHORITIES. 8 . WE HAVE CONSIDERED THE CONTE NTIONS OF BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD CAREFULLY. THE HON BLE GUJARAT HIGH COURT IN THE CASE OF SHRI MAHILA SEWA SAHAKARI BANK LTD HAS DECIDED THAT IT W OULD BE THE RBI DIRECTION S WHICH WOULD PREVAIL IN VIEW OF THE PROVISIONS OF SECTIO N 45Q OF THE RBI ACT AND SECTION 145 WOULD HAVE NO ROLE TO PLAY. THE ASSESSEE HAS NOT SHOWN INTEREST ON NPA AS INCOME BECAUSE OF BINDING GUIDELINES UNDER THE PROVISIONS OF SECTION 45Q OF THE RBI ACT WHICH HAS OVERRIDING EFFECT OVER OTHER LAWS INCLUDING T HE INCOME TAX ACT, 1961. WE FIND THAT THE CASE OF THE ASSESEE IS COVERED BY THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF PRINCIPAL COMMISSIONER OF INCOME TAX VS. SHRI MAHILA SEVA SAHAKARI BANK LTD OF TAX APPEAL NO. 531 OF 2015. ACCORDINGL Y, T HE AP PEAL OF THE ASSESSEE IS ALLOWED FOR THE REASONS ELABORATED ABOVE. ORDER PR ONOUNCED IN THE OPEN C OURT ON 23 - 09 - 201 6 SD/ - SD/ - ( RAJPAL YADAV ) ( AMAJIT SINGH) JUDICIAL MEMBER ACCOUTANT MEMBER I.T.A NO. 2965 /AHD/20 13 A.Y. 2010 - 11 PAGE NO GANDHINAGAR NAGRIK CO.OP. BANK LTD VS. ACIT 12 AHMEDABAD : DATED 23 /09 /2016 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ / ,