Berhampur Co-Operative Central Bank Ltd., Ganjam V. ACIT, Berhampur Circle, Berhampur

ITA 3/CTK/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 4382 (ITAT-CUTTACK)
• Duration Of Justice: 1 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 01-02-2018
• Assessment Year: 2012-2013
• Appeal Filed On: 02-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D K PRADHAN
• Assessee Lawyers: P N DAVE
• Keywords: Question of law
• Section: 145; 37; 2

Judgement Text

1 ITA NOS.03 & 125/CTK/2017 ASSESSMENT YEARS : 2012 - 2013 & 2013 - 14 IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE S/SHRI N.S SAINI, ACCOUNTANT MEMBER AND PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA NO S . 03 & 125 /CTK/201 7 ASSESSMENT YEAR S : 201 2 - 2013 & 2013 - 14 BERHAMPUR CO - OPERATIVE CENTRAL BANK LTD., BERHAMPUR, GANJAM VS. ACIT, BERHAMPUR CIRCLE, BERHAMPUR PAN/GIR NO. AAAAB 2634 C (APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY : SHRI P.N.DAVE, AR REVENUE BY : SHRI D.K.PRADHAN, DR DATE OF HEARING : 1 / 0 2 / 201 8 DATE OF PRONOUNCEMENT : 01 / 0 2 / 201 8 O R D E R PER PAVAN KUMAR GADALE, JM TH ESE ARE APPEAL S FILED BY THE ASSESSEE AGAINST THE DIFFERENT ORDER S OF THE CIT(A) - 1, BHUBANESWAR DATED 21.9.2016 FOR THE ASSESSMENT YEAR 2012 - 13 AND DATED 23.12.2016 FOR THE ASSESSMENT YEAR 2013 - 14. SINCE COMMON ISSUE IS INVOLVED IN BOTH THE APPEALS, THEY WERE DISPOSED OF BY A SINGLE ORDER FOR THE SAKE OF CONVENIENCE. WE TAKE UP THE APPEAL IN ITA NO.03/CTC/2017 FOR OUR ADJUDICATION. 2 ITA NOS.03 & 125/CTK/2017 ASSESSMENT YEARS : 2012 - 2013 & 2013 - 14 2. GROUNDS NO.1 TO 3 RELATE TO CONFIRMATION OF ADDITION OF RS.3,74,04,464/ - ON ACCOUNT OF ACCRUED INTEREST ON NPA NOT RECOGNISED AS INCOME FOR THE YEAR. 3. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FOUND THA T THE ASSESSEE HAD CLAIMED AN AMOUNT OF RS.23,37,77,897/ - AS NON - PERFORMING AS SET (NPA) AND NOT CHARGED INTEREST ON THE SAME. THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO EXPLAIN A S TO WHY THE INTEREST AT MARKET RATE SHOULD NOT BE CHARGED ON THE NPA AND TAXE D AS INCOME KEEPING IN VIEW THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD., 320 ITR 577 (SC) WHICH WAS FOLLOWED BY THE HON' BL E MADRAS HIGH COURT IN THE CASE OF CIT V. SHAKTI FINANCE LTD. PURSUANT TO QU ERY OF THE ASSESSING OFFICER, T HE ASSESSEE STATED THA T THE CASE LAWS REFERRED TO RELATED TO THE CASE OF AN NBFC (NON - BANKING FINANCIAL COMPANY) AND WAS NOT APPLICABLE TO THE ASSESSEE S CASE AS THE ASSESSEE IS A COOPERATIVE BANK. THE EXPLANATION OF THE AS SESSEE WAS NOT ACCEPTED BY THE ASSESSING OFFICER. HENCE, THE ASSESSING OFFICER CALCULATED THE INTEREST AT MARKET RATE OF 16% ON NPA OF RS.23,37,77,897/ - WHICH WORKS OUT TO RS.3,74,04,464/ - AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 4. ON APPEAL,THE CIT(A) UPHELD THE ADDITION OF RS.3,74,04,464/ - MADE BY THE ASSESSING OFFICER. 5. BEFORE US, LD A.R. OF THE ASSESSEE PRODUCED A COPY OF DECISION OF CUTTACK BENCH OF THE TRIBUNAL IN THE CASE OF ASKA COOP. CENTRAL BANK LTD 3 ITA NOS.03 & 125/CTK/2017 ASSESSMENT YEARS : 2012 - 2013 & 2013 - 14 VS ACIT IN ITA NO.11/CTK/ 2017 FOR ASSESSMENT YEAR 2012 - 13 ORDER DATED 18.1.2018 AND SUBMITTED THAT ON IDENTICAL ISSUE, THE ADDITION MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT(A) HAS BEEN DELETED. BY DOING SO, THE ITAT HAS FOLLOWED THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF PR. CIT VS. SHRI MAHILA SEWA SAHAKARI BANK LTD., IN TAX APPEAL NO.531 OF 2015 DATED 5.8.2016. LD A.R. ALSO FILED A COPY OF JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF PR. CIT VS. JIVAN COMMERCIAL CO - OPERATIVE BANK LTD. IN T AX APPEAL NO.584 OF 2017 ORDER DATED 23.8.2017, WHEREIN, ALSO ON SIMILAR FACTS, THE HONBLE HIGH COURT FOLLOWING ITS OWN DECISION IN THE CASE OF MAHILA SEVA SARKARI BANK LTD., (SUPRA) HAS HELD THAT THE ASSESSEE WAS CORRECT IN NOT CHARGING INTEREST ON NPA. RELYING ON THE ABOVE JUDICIAL DECISIONS, LD A.R. PRAYED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE. 6. CONTRA, LD D.R. SUPPORTED THE ORDERS OF LOWER AUTHORITIES BUT COULD NOT PRODUCE ANY CONTRARY DECISIONS TO SUPPORT ITS CASE. 7. WE HAVE HEARD TH E RIVAL SUBMISSIONS, PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THIS BENCH OF THE TRIBUNAL IN THE CASE OF ASKA CO - OP. CENTRAL BANK LTD (SUPRA). THE OPERATIVE P ORTION OF THE ORDER IS REPRODUCED BELOW: 6. WE HAVE HEARD EXTENSIVE SUBMISSIONS MADE BY THE REPRESENTATIVES OF RIVAL SIDES AND HAVES PERUSED THE ORDERS OF AUTHORITIES BELOW. WE HAVE ALSO CONSIDERED VARIOUS DOCUMENTS AND DECISIONS RELIED ON BY BOTH THE SIDE S. WE FIND THAT THE ISSUE UNDER CONSIDERATION HAS BEEN COVERED BY THE DECISION OF CO - ORDINATE BENCH OF ITAT AHMEDABAD BENCH IN THE CASE OF THE SUVIKAS PEOPLES CO - OP BANK LTD., VS. ACIT IN ITA 4 ITA NOS.03 & 125/CTK/2017 ASSESSMENT YEARS : 2012 - 2013 & 2013 - 14 NO.1288/AHD/2014 DATED 30.11.2017 WHEREIN THE ITAT AHMEDABAD BENCH HAS HELD AS UNDER: - 3. BOTH PARTIES INVITED OUR ATTENTION TO THE CASE RECORD CONTAINING A CO - ORDINATE BENCHS ORDER IN ASSESSEES CASE ITSELF, ITA NO.2182/AHD/2013 DECIDED ON 5.9.2016 ADJUDICATING BOTH IN STANT ISSUE AGAINST REVENUE AS UNDER: - 3. THE ASSESSEE IS IN THE BUSINESS OF BANKING ACTIVITIES FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF INTEREST ACCRUED ON NON - PERFORMING ASSETS. THE ASSESSEE FURNISHED NECESSARY DETAILS. S9IMULTANEOUSLY, THE ASSESSEE CLAIMED THAT IT HAS TO FOLLOW THE CIRCULARS/GUIDELINES ISSUED BY THE RESERVE BANK OF INDIA AND ONE OF THE GUIDELINE OF THE RBI IS THAT INTEREST INCOME IN RESPECT OF RESTRUCTURED ACCOUNTS CLASSIFIED AS STANDARD ASSETS WILL BE RECOGNIZED ON ACCRUAL BASIS AND THAT IN RESPECT OF THE ACCOUNT CLASSIFIED AS NON - PERFORMING ASSETS WILL BE RECOGNIZED AS CASH BASIS. IT WAS EXPLAINED THAT BECAUSE OF THESE MANDA TORY GUIDELINES, THE ASSESSEE HAS NOT RECOGNISED INTEREST ON NON PERFORMING ASSETS ON ACCRUAL BASIS. THIS CONTENTION OF THE ASSESSEE WAS DISMISSED BY THE AO WHO WAS OF THE OPINION THAT SINCE THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, IT SHO ULD HAVE RECOGNIZED INTEREST ON NPA ON ACCRUAL BASIS AS PER THE PROVISIONS OF THE INCOME TAX ACT. THE AO ACCORDINGLY MADE THE ADDITION OF RS.15.50 LACS. 4. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. BUT WITHOUT ANY SUCCESS. 5. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THIS ISSU9E IS NO MORE RES INTEGRA AS IT HAS BEEN DECIDED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF SHRI MAHILA SEWA SAHAKARI BANK LTD. IN TAX APPEAL NO.531 OF 2015 DATED 05.08.2016 IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THE LD. DR COULD NOT BRING ANY DISTINGUISHING DECISION IN FAVOUR OF THE REVENUE. 6. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW. WE FIND FORCE IN THE CONTENTION, OF THE LD. COUNSEL. THE HONBLE HIGH COURT (SUPRA) WAS SEIZED WITH THE FOLLOWING SUBSTANTIAL QUESTION OF LAW: - WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE INCOME TAX APPELLATE TRIBUNAL IS RIGHT IN LAW AND ON FACTS IN HOLDING THAT INTEREST ON NON PERFORMING ASSETS IS N OT TAXABLE ON ACCRUAL BASIS LOOKING TO THE GUIDELINES OF THE RESERVE BANK OF INDIA.? 7. THE HONBLE HIGH COURT CONSIDERED THE FOLLOWING FACTS: - 5.1 THE ASSESSING OFFICER WAS OF THE OPINION THAT INTEREST ON THE NPA HAD ACCRUED TO THE ASSESSEE, EVEN IF I T WAS NOT ACTUALLY 5 ITA NOS.03 & 125/CTK/2017 ASSESSMENT YEARS : 2012 - 2013 & 2013 - 14 REALIZED, AS IT WAS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AND ACCORDINGLY ADDED A SUM OF RS1,72,73,000/ - 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. 22. THEREFORE, IN TERMS OF THE AB OVE 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 GU9IDELINES WOULD HAVE NO ROLE TO PLAY, AND HENCE AN ADD BACK. INSOFAR AS INCOME RECOGNITION IS CONCERNED, THE SUPREME COURT HAS HELD THUS: APPLICABILITY OF SECTION 145. 57.AT THE OUTSET, WE MAY STATE THAT IN ESSENCE THE RBI DIRECTIONS, 1998 ARE PRUDENTIAL/PROVISIONING NORMS ISSUED BY RBI UNDER CHAPTER III - B OF THE RBI ACT, 1934. THESE NORMS DEAL ESSENTIALLY WITH INCOME RECOGNITION. THEY FORCE THE NBFCS TO DISCLOSE THE AMOUNT OF NPA IN THEIR FINANCIAL ACCOUNTS. THEY FORCE THE NBFCS TO REFLECT TRUE AND CORRECT PROFITS. BY VIRTUE OF SECTION 45 - Q, AN OVERRIDING EFFECT IS GIVEN TO THE RBI DIRECTIONS, 1998 VIS - - VIS INCOME RECOGNITION PRINCIPLES IN THE COMPANIES ACT, 1956. THESE DIRECTIONS CONSTITUTE A CODE BY ITSELF. HOWEVER, THESE RBI DIRECTIONS, 1998 AND THE IT ACT OPERATE IN DIFFERENT AREAS. THESE RBI DIRECTIONS, 1998 HAV E NOTHING TO DO WITH COMPUTATION OF TAXABLE INCOME. THESE DIRECTIONS CANNOT OVERRULE THE PERMISSIBLE DEDUCTIONS OR THEIR EXCLUSION UNDER THE IT ACT. THE INCONSISTENCY BETWEEN THESE DIRECTIONS AND THE COMPANIES ACT IS ONLY IN THE MATTER OF INCOME RECOG NITION AND PRESENTATION OF FINANCIAL STATEMENTS. THE ACCOUNTING POLICIES ADOPTED BY AN NBFC CANNOT DETERMINE THE TAXABLE INCOME. IT IS WELL SETTLED THAT THE ACCOUNTING POLICIES FOLLOWED BY A COMPANY CAN BE CHANGED UNLESS THE AO COMES TO THE CONCLUSION THAT SUCH CHANGE WOULD RESULT IN UNDERSTATEMENT OF PROFITS. HOWEVER, HERE IS THE CASE WHERE THE AO HAS TO FOLLOW THE RBI DIRECTIONS, 1998 IN VIEW OF SECTION 45 - Q OF THE RBI ACT. HENCE, AS FAR AS INCOME RECOGNITION IS CONCERNED, SECTION 145 OF THE IT ACT HAS NO ROLE TO PLAY IN THE PRESENT DISPUTE. THUS, INSOFAR AS INCOME RECOGNITION IS CONCERNED, THE COURT HAS HELD THAT EVEN THE ASSESSING OFFICER HAS TO FOLLOW THE RBI DIRECTIONS, 1998 IN VIEW OF SECTION 45Q OF THE RBI ACT AND THAT AS FAR AS INCOME RECOGNITION I S CONCERNED, SECTION 145 OF THE INCOME TAX ACT, HAS NOT ROLE TO PLAY. 8. AND HELD AS UNDER: - 23. IN THE LIGHT OF THE ABOVE DISCUSSION WHAT EMERGES IS THAT WHILE DETERMINING THE : TAX LIABILITY OF AN ASSESSEE, TWO FACTORS WOULD COME INTO PLAY. FIRSTLY, THE RECOGNITION OF INCOME IN TERMS OF THE RECOGNIZED ACCOUNTING PRINCIPLES AD AFTER SUCH INCOME IS 6 ITA NOS.03 & 125/CTK/2017 ASSESSMENT YEARS : 2012 - 2013 & 2013 - 14 RECOGNIZED, THE COMPUTATION THEREOF, IN TERMS OF THE PROVISIONS OF THE INCOME TAX ACT, 1961. INSOFAR AS THE COMPUTATION OF TAXABILITY IS CONCERNED, THE SAME IS S OLELY GOVERNED BY THE PROVISIONS OF THE INCOME TAX ACT AND THE ACCOUNTING PRINCIPLES HAVE NO ROLE TO PLAY. HOWEVER, RECOGNITION OF INCOME STANDS ON A DIFFERENT FOOTING. INSOFAR AS INCOME RECOGNITION IS CONCERNED, IT WOULD BE THE RBI DIRECTIONS WHICH WOULD PREVAIL IN VIEW OF THE PROVISIONS OF SECTION 45 - Q OF THE RBI ACT, AND SECTION 145 WOULD HAVE NO ROLE TO PLAY. HENCE, THE ASSESSING OFFICER HAS TO FOLLOW THE RBI DIRECTIONS. 9. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT (SU PRA), WE SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE A.Q. TO DELETE THE ADDITION OF RS.15.50 LACS WHICH ALSO INCLUDES THE ADDITION OF RS.1,30,864. THE CO - ORDINATE BENCH OF THE TRIBUNAL FOLLOWING THE DECISION OF ITAT AHMEDABAD BENCH IN THE CASE OF SUVIKAS PEOPLES CO - OP. BANK LTD (SUPRA), HAS OBSERVED THAT NO SUCH ADDITION ON ACCOUNT OF NPA INTEREST HAS BEEN MADE BY THE ASSESSING OFFICER WHILE MAKING ASSESSMENT U/S.143(3) OF THE ACT FOR THE ASSESSMENT YEAR 2015 - 16 IN THE CASE OF THE ASSESSEE (AS KA CO - OP.CENTRAL BANK LTD.). 8. SINCE THE ISSUE UNDER CONSIDERATION IN THE PRESENT CASE IS IDENTICAL TO THE CASE OF ASKA CO - OPERATIVE CENTRAL BANK (SUPRA), RESPECTFULLY FOLLOWING THE DECISION, REPRODUCED ABOVE, WE SET ASIDE THE ORDER OF THE CIT(A) AND DEL ETE THE ADDITION ON ACCOUNT OF NPA INTEREST AND ALLOW THE APPEAL OF THE ASSESSEE. 9. IN THE RESULT, APPEALS FILED BY THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED ON 1 / 0 2 /201 8 . SD/ - SD/ - ( N.S SAINI) ( PAVAN KUMAR GADALE) A CCOUNTANT MEMBER JUDICIALMEMBER CUTTACK; DATED 01 / 0 2 /201 8 7 ITA NOS.03 & 125/CTK/2017 ASSESSMENT YEARS : 2012 - 2013 & 2013 - 14 B.K.PARIDA, SPS COPY OF THE ORDER FORWARDED TO : BY ORDER, SR.PRIVATE SECRETARY ITAT, CUTTACK 1. THE APPELLANT : BERHAMPUR CO - OPERATIVE CENTRAL BANK LTD., BERHAMPUR, GANJAM 2. THE RESPONDENT. ACIT, BERHAMPUR CIRCLE, BERHAMPUR 3. THE CIT(A) - 1, BHUBANESWAR 4. PR.CIT - 1, BHUBANESWAR 5. DR, ITAT, CUTTACK 6. GUARD FILE. //TRUE COPY//