The Assistant Comissioner of Income Tax, Ganidham Circle, GANDHIDHAM V. M/s. Kutch District Central Co. Op. Bank Ltd., Bhuj

ITA 300/RJT/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1323 (ITAT-RAJKOT)
• Duration Of Justice: 1 year(s) 11 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 06-04-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 02-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bad and doubtful debts
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENC H, RAJKOT [CONDUCTED THROUGH E-COURT AT AHMEDABAD] (BEFORE SHRI ANIL CHATURVEDI, A.M. & SHRI S. S. GOD ARA, J.M.) ( , , ) ITA NOS. 298, 299 & 300/RJT/2014 (ASSESSMENT YEARS: 2007-08, 2008-09 & 2009-10) ASSISTANT COMMISSIONER OF INCOME-TAX, GANDHIDHAM CIRCLE, GANDHIDHAM-KUTCH VS. M/S. KUTCH DISTRICT CENTRAL CO-OPERATIVE BANK LTD., VIJAY NAGAR, HOSPITAL ROAD, BHUJ- KUTCH PAN NO. AAAAT3210E (APPELLANT) (RESPONDENT) / BY REVENUE : SHRI PRASOON KABRA, D.R. / BY ASSESSEE : SHRI VIMAL DESAI, A.R. DATE OF HEARING : 06-04-201 6 DATE OF PRONOUNCEMENT : 28-04-2016 ( )/ ORDER PER ANIL CHATURVEDI, ACCOUNTANT MEMBER THESE THREE APPEALS FILED BY THE REVENUE ARE AGAINS T THE ORDERS OF CIT(A)-II, RAJKOT, DATED 11.02.2014 FOR A.YS. 2007-08, 2008-09 & 2009-10. 2. BEFORE US, AT THE OUTSET, LD. A.R. SUBMITTED THA T THOUGH THE THREE APPEALS OF THE REVENUE PERTAIN TO DIFFERENT ASSESSMENT YEARS B UT THE ISSUES IN ALL THOSE APPEARS ARE IDENTICAL AND THEREFORE THE SUBMISSION MADE BY HIM WHILE ARGUING APPEAL FOR ONE ASSESSMENT YEAR, WOULD BE APPLICABLE TO ALL THR EE APPEALS. LD. D.R. DID NOT ITA NOS. 298 TO 300/RJT/2014 . A.Y. 07-08 TO 09-10 2 OBJECT TO THE AFORESAID SUBMISSION OF LD. A.R. WE, THEREFORE, FOR THE SAKE OF CONVENIENCE PROCEED TO DISPOSE OF ALL THREE APPEALS BY A CONSOLIDATED ORDER AND FOR THE PURPOSE OF REFERENCE PROCEED WITH THE FACTS OF ITA NO.298/AHD/2014 FOR A.Y. 2007-08. 3. THE FACTS AS CULLED OUT FROM THE MATERIAL ON REC ORD ARE AS UNDER. 4. THE ASSESSEE IS A CO-OPERATIVE BANK WHO FILED IT S RETURN OF INCOME FOR A.Y. 2007-08 ON 31.10.2007 DECLARING TOTAL INCOME OF RS. 1,17,51,050/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED UNDER SECTION 143(3) VIDE ORDER DATED 23.12.2009 AND THE TOTAL INCOME WA S DETERMINED AT RS.2,05,57,560/-. AGGRIEVED BY THE ORDER OF A.O., A SSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO VIDE ORDER DATED 11.02.2014 (APPEAL NO. CIT(A) II/RJT/159/09- 10) DECIDED THE ISSUE IN FAVOUR OF ASSESSEE. AGGRI EVED BY THE AFORESAID ORDER OF LD. CIT(A), REVENUE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS:- 1) THE LD CIT(A) HAS ERRED IN LAW AND FACTS IN DEL ETING THE ADDITION MADE BY THE A.O. ON ACCOUNT OF PROVISION FOR OVERDUE INTEREST OF RS. 87,22,000/-, DESPITE THE FOLLOWING FACTS: I) UNDER THE PROVISIONS OF THE INCOME TAX ACT, ACCR UED AND ASCERTAINED LIABILITIES ARE ONLY DEDUCTIBLE EXPENSES AND PROVIS IONS FOR UNACCRUED AND UNASCERTAINED LIABILITIES ARE NOT ALLOWABLE EXPENSE . II) THE ASSESSEE BEING A COOPERATIVE BANK IS BOUND BY THE GUIDELINES; INSTRUCTIONS AND NOTIFICATIONS ISSUED BY THE RESERV E BANK OF INDIA, BUT THESE GUIDELINES AND NOTIFICATIONS WILL NOT GOVERN THE CO MPUTATION OF THE TAXABLE INCOME OF THE ASSESSEE AND CANNOT OVERRIDE THE PROVISIONS OF THE I. T. ACT. III) THE ASSESSEE BEING A COOPERATIVE SOCIETY ENGAG ED IN THE BANKING BUSINESS, IS GOVERNED BY THE PROVISIONS OF SECTION 36(1)(VIIA ) WHICH CLEARLY LAYS DOWN THE DEDUCTIONS WHICH THE ASSESSEE CAN CLAIM AS BAD DEBT S. ANYTHING ABOVE AND BEYOND THE AMOUNTS SPECIFIED U/S.36(1)(VIIA) CANNOT BE ALL OWED TO THE ASSESSEE IRRESPECTIVE OF THE NOMENCLATURE GIVEN BY THE ASSESSEE TO SUCH C LAIMS. ITA NOS. 298 TO 300/RJT/2014 . A.Y. 07-08 TO 09-10 3 5. BEFORE US, LD. D.R. SUBMITTED THAT THE SOLITARY ISSUE WHICH NEEDS TO BE DECIDED IS ABOUT THE OVERDUE INTEREST ON NPA ACCOUN TS. 5.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A. O. NOTICED THAT ASSESSEE HAD CLAIMED PROVISIONS OF OVERDUE INTEREST OF RS.87,22, 000/-. THE ASSESSEE WAS ASKED TO JUSTIFY ITS CLAIM, TO WHICH, ASSESSEE INTER ALIA SUBMITTED THAT ASSESSEE BEING A CO- OPERATIVE BANK IS BOUND BY THE GUIDELINES AND NOTIF ICATIONS ISSUED BY THE RESERVE BANK OF INDIA AND THAT IT HAD MADE PROVISION AGAINS T THE INTEREST ACCRUED BUT NOT RECEIVABLE ON NON PERFORMING ASSETS. IT WAS ALSO S UBMITTED THAT THE RESERVE BANK OF INDIA HAD ISSUED GUIDELINES AND PRUDENTIAL NORMS AND ACCORDING TO WHICH, UNREALIZED INCOME SHOULD NOT BE TAKEN TO PROFIT &LO SS ACCOUNT. THE SUBMISSIONS OF THE ASSESSEE WAS NOT ACCEPTABLE TO THE A.O. HE DISALLOWED THE CLAIM OF RS.87,22,000/-. 6. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO DECIDED THE ISSUE IN FAVOUR OF ASSESSEE BY HOLD ING AS UNDER: 6. I HAVE CAREFULLY CONSIDERED THE ORDER PASSED BY THE A.O., THE CIRCULAR AND THE DECISIONS REFERRED TO BY THE HON'BLE ITAT AND THE V ARIOUS JUDICIAL PRONOUNCEMENTS. ALSO, THE DETAILS OF THE INTEREST IN CASES WHERE INTEREST HAS NOT BEEN RECEIVED FOR LAST THREE YEARS HAS ALSO BEEN OBTAINED FROM THE APPELLANT. IT IS SE EN FOR THE YEAR UNDER CONSIDERATION THAT THE INTEREST IN CASE OF NPAS WHEREIN NO INTEREST HAS BEEN RECEIVED FOR THE LAST THREE YEARS IS RS.92,53,345/-. DURING THE YEAR, THE AMOU NT OF THE DISALLOWANCE FOR PROVISION OF OVERDUE INTEREST OR INTEREST ON NPAS IS RS.87,22,00 0/-. THE HONBLE ITAT HAS NOW DIRECTED TO DECIDE THE ISSUE AFRESH IN CONFORMITY W ITH LAW. IN MY OPINION, THE LEGAL POSITION WHICH EMERGES IS AS UNDER :- 1. THAT CBDT CIRCULAR DT. 9/10/1984 IS IN RESPECT O F BAD AND DOUBTFUL DEBTS / IRRECOVERABLE LOANS AND SUSPENSE ACCOUNT MAINTAINED FOR THE PURPOSE OF INTEREST THEREON. HOWEVER, THIS IS IN RESPECT OF BANKING COMPANIES. 2. S.43D HAS BEEN SPECIFICALLY INSERTED IN THE ACT W.E.F. 1/4/1991. S.43D LAYS DOWN THE PRINCIPLE THAT INCOME BY WAY OF INTEREST I N RESPECT OF SCHEDULED BANK IN RELATION TO SUCH CATEGORIES OF BAD OR DOUBTFUL DEBTS AS MAY BE PRESCRIBED HAVING REGARD TO THE GUIDELINES ISSUED BY RBI IN RELATION TO SUCH DEBTS SHALL BE CHARGEABLE TO TAX IN THE YEAR IN WHICH IT IS ACTUALLY RECEIVED, WHICHEVER IS EARLIER . ITA NOS. 298 TO 300/RJT/2014 . A.Y. 07-08 TO 09-10 4 7. IT IS NOW NECESSARY TO CONSIDER THE APPLICABILIT Y OF THESE SECTIONS TO THE APPELLANT WHICH IS A CO-OPERATIVE BANK. SCHEDULED BANK HAS BE EN DEFINED IN THE EXPLANATION TO S.43D AS HAVING MEANING ASSIGNED TO IT IN CLAUSE (I I) OF EXPLANATION 2 TO S.36(L)(VIIA). AS PER THIS CLAUSE, CO-OPERATIVE BANKS ARE NOT COVERED IN THIS DEFINITION. THE APPELLANT BEING A CO-OPERATIVE BANK IS NOT EXPRESSLY COVERED BY THE S.43D. HOWEVER, CBDT CIRCULAR DT. 9/10/1984 REFERS TO BANKING COMPANIES. THIS PHRASE HAS BEEN SPECIFICALLY DEFINED IN EXPLANATION (C) TO S.36(L)(VIII). IT IS SEEN FROM T HIS DEFINITION THAT CO-OPERATIVE BANKS ARE NOT INCLUDED IN THIS DEFINITION. IN OTHER WORDS, NE ITHER THIS CIRCULAR NOR S.43D SEEM TO BE APPLICABLE TO CO-OPERATIVE BANKS, HOWEVER, THE BASI C PRINCIPLES REGARDING INTEREST ON NON- PERFORMING ASSETS HAVE BEEN BROUGHT ABOUT BY THE CI RCULAR AS WELL AS S.43D. IT WOULD THEREFORE BE NECESSARY TO LOOK AT THE LEGISLATIVE I NTENT BEHIND ENACTMENT OF S.43D. IN THE NOTES TO ACCOUNT TO FINANCE ACT NO.2 OF 1-991, IT H AS BEEN MENTIONED AS UNDER:- 'FINANCE (NO.2) ACT, 1991:- CHARGEABILITY OF INCOME FROM BAD OR DOUBTFUL DEBTS IN THE CASE OF FINANCIAL INSTITUTIONS AND BANKS. 22. THE RESERVE BANK OF INDIA HAS CLASSIFIED ADVANC ES GIVEN BY BANKS INTO EIGHT CATEGORIES CALLED HEALTH CODES 1 TO 8. STICKY ADVAN CES WHICH ARE DOUBTFUL OF REALISATION FALL UNDER HEALTH CODES 4 TO 8. THE BAN KS AND FINANCIAL INSTITUTIONS NORMALLY CREDIT INTEREST FROM SUCH STICKY ADVANCES TO THE INTEREST SUSPENSE ACCOUNT AND NOT TO THE PROFIT AND LOSS ACCOUNT. THE ISSUE WHETHER INTEREST ON SUCH BAD AND DOUBTFUL ADVANCES SHOULD BE TAXED IN T HE YEAR OF ACCRUAL OR OF RECEIPT HAS BEEN A MATTER OF CONTROVERSY FOR A LONG TIME. FINANCE (NO.2) ACT, 1991:- 22.1 IN VIEW OF THE FACT THAT INTEREST FROM BAD AND DOUBTFUL DEBTS IN THE CASE OF BANKS AND FINANCIAL INSTITUTIONS ARE NORMAL LY VERY DIFFICULT TO RECOVER, TAXING SUCH INCOME ON ACCRUAL BASIS REDUCES THE LIQ UIDITY OF THE BANK WITHOUT ANY ACTUAL GENERATION OF INCOME. FINANCE (NO.2) ACT, 1991:- 22.2 WITH A VIEW TO IMPROVING THE VIABILITY OF BANK S, PUBLIC FINANCIAL INSTITUTIONS, STATE FINANCIAL CORPORATIONS AND STATE INDUSTRIAL INVESTMENT CORPORATIONS, THE INCOME-TAX ACT HAS BEEN AMENDED B Y INSERTING A NEW SECTION 43D, SO AS TO PROVIDE THAT INTEREST ON STICKY LOANS SHALL BE CHARGED TO TAX ONLY IN THE YEAR IN WHICH THE INTEREST IS ACTUALLY RECEIVED OR IS CREDITED TO THE ''PROFITS AND LOSS ACCOUNT', WHICHEVER IS EARLIER. THE CATEGORY O F BAD AND DOUBTFUL DEBT IN RESPECT OF WHICH THE INTEREST WILL QUALIFY, FOR THI S EXEMPTION, WILL BE PRESCRIBED BY THE CENTRAL BOARD OF DIRECT TAXES, KEEPING IN VIEW THE GUIDELINES ISSUED BY THE RESERVE BANK OF INDIA IN RELATION TO SUCH DEBTS.' ITA NOS. 298 TO 300/RJT/2014 . A.Y. 07-08 TO 09-10 5 SIMILARLY, CIRCULAR NO.621 OF CBDT DT. 19/12/1991 C LEARLY STATES THAT S.43D WAS INSERTED WITH A VIEW TO IMPROVING THE VIABILITY OF BANKS SO AS TO PROVIDE THAT THE INTEREST ON NON-PERFORMING ASSETS OR STICKY LOANS WOULD BE CHAR GED TO TAX ONLY IN THE YEAR IN WHICH THE INTEREST IS ACTUALLY RECEIVED OR CREDITED TO TH E P&L ACCOUNT. IT IS THEREFORE HELD; THAT THE PROVISIONS OF S.43D OVERRIDES THE CIRCULAR OF C BDTDT. 9/10/1984. THIS FINDING IS ALSO SUPPORTED BY VARIOUS JUDICIAL PRONOUNCEMENTS GIVEN BY VARIOUS TRIBUNALS. THE SAME HAVE ALREADY BEEN MENTIONED IN THE SUBMISSION OF THE APPELLANT. THE HON'BLE DELHI HIGH COURT IN CASE OF VASHISTHA VYAPA R LTD. (2011) 330 ITR 440, WHILE DECIDING ON THE ISSUE IN RESPECT OF INTEREST ON NPA S OF NBFCS, HAS HELD AS UNDER:- 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 INTEREST THOUGH NOT RECEIVED HAD STILL ACCRUED TO THE ASSESSEE UNDER TH E PROVISIONS OF INCOME-TAX ACT AND WAS, THEREFORE, EXIGIBLE TO TAX. OUR ANSWER IS IN THE N EGATIVE 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 GIVE CIRCUM STANCES, 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 INTEREST 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 \VAS ENTERED IN THE BOOKS OF ACCOUNT AS WELL. THE ASSESSEE HAS FURTHER SUCCESSFULLY DEMONSTRATED THAT EVEN IN THE SUCCEEDING ASSESSMENT YEARS, NO INTEREST WAS RECEIVED AND THE POSITION REMAINED THE SAME UNTIL THE ASSESSMENT YEAR 2006-07. REASON WAS ADVER SE FINANCIAL CIRCUMSTANCES AND THE FINANCIAL CRUNCH FACED BY SHAW WALLACE. SO MUCH SO, IT WAS FACING WINDING UP PETITIONS WHICH WERE FILED BY MANY CREDI TORS. THESE CIRCUMSTANCES, LED TO AN UNCERTAINTY INSOFAR AS RECOVERY OF INTEREST W AS CONCERNED, AS A RESULT OF THE AFORESAID PRECARIOUS FINANCIAL POSITION OF SHAW WAL LACE. WHAT TO TALK OF INTEREST, EVEN THE PRINCIPAL AMOUNT ITSELF HAD BECOME DOUBTFU L TO RECOVER. IN THIS SCENARIO IT WAS LEGITIMATE MOVE TO INFER THAT INTEREST INCOME T HEREUPON HAS NOT 'ACCRUED'. WE ARE IN AGREEMENT WITH THE SUBMISSION OF MR. VOHRA O N THIS COUNT, SUPPORTED BY VARIOUS DECISIONS OF DIFFERENT HIGH COURTS INCLUDIN G THIS COURT WHICH HAS ALREADY BEEN REFERRED TO ABOVE. (2) IN THE INSTANT CASE, THE ASSESSEE COMPANY BEING NBFC IS GOVERNED BY THE PROVISIONS OF RB I ACT. IN SUCH A CASE, INTEREST IN COME CANNOT BE SAID TO HAVE ACCRUED TO THE ASSESSEE HAVING REGARD TO THE PROVIS IONS OF SECTION 45 Q 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 NPA WHERE THE INTEREST WAS NOT RECEIVED AND POSSIBILITY OF RECOVERY WAS ALMOS T NIL, IT COULD NOT BE TREATED TO HAVE BEEN ACCRUED IN FAVOUR OF THE ASSESSEE. ' THE HONBLE ITAT, AHMEDABAD BENCH D (17 TAXMAN 23 9) HAS DISCUSSED THE RELEVANT DECISIONS IN DETAIL AND HAS STATED AS UNDE R: ITA NOS. 298 TO 300/RJT/2014 . A.Y. 07-08 TO 09-10 6 WE CAN THEREFORE SAFELY DRAW A CONCLUSION THAT BY THE INSERTION OF A SPECIAL PROVISIONS TO TAX INTEREST INCOME IN THE CASE OF PU BLIC FINANCIAL INSTITUTION, ETC. SECTION 43-D HAS TO BE APPLIED IN ITS LETTER AND SP IRIT. IT IS PERTINENT TO MENTION THAT LATER ON, IN THE CASE OF CIT V. BANK OF AMERICA N.T . & S.A. [2003] 262 ITR 504/ 133 TAXMAN 648 (BOM.) THE QUESTION OF INTEREST ON STICKY LOANS WAS DECIDED IN FAVOUR OF THE ASSESSEE AND HELD THAT THE QUESTION I S TO BE ANSWERED IN FAVOUR OF THE ASSESSEE FOLLOWING THE DECISION OF UCO BANK (SUPRA) , UNITED COMMERCIAL BANK V. CIT [1999] 240 ITR 355/ 106 TAXMAN 601 (SC). LIKE WISE, IN AN ANOTHER CASE OF CIT V.STATE BANK OF INDIA [2003] 262 ITR 662/ 129 TAXMAN 409 (BOM.) AGAIN IT WAS HELD THAT THE AMOUNT CREDITED TO THE INTEREST S USPENSE ACCOUNT WAS NOT TAXABLE FOLLOWING THE DECISION PRONOUNCED IN THE CASE OF UC O BANK (SUPRA). (V) JUDGEMENT IN FAVOUR OF REVENUE: FROM THE SIDE OF THE REVENUE AN ORDER OF THE TRIBUN AL HAS BEEN VEHEMENTLY RELIED UPON AND THIS IS THE BASIC REASON OF THE ELABORATE DISCUSSION MADE HEREINABOVE SO AS TO UNFOLD THE CONTROVERSY. IN THE SAID DECISION OF THE TRIBUNAL, VIZ. JT.CIT V. INDIA EQUIPMENT LEASING LTD. [2008] 111 ITD 37 (CHE NNAI), THE RESPECTED CO- ORDINATE BENCH HAS EXPRESSED THAT QUOTE 'PRIOR TO I NSERTION OF SECTION 43D WITH EFFECT FROM 1-4-1991, RECOGNITION OF INCOME WAS ON THE BASIS OF CIRCULAR OF 9- 10- 1984. IT SAID THAT FOR FIRST THREE YEARS THE INCOME MAY BE TAKEN ON ACCRUAL BASIS AND FROM 4TH YEAR ONWARDS, THE INCOME IN RESPECT OF DOUBTFUL DEBTS WAS TO BE RECOGNIZED ON RECEIPT BASIS. SINCE THE INCOME WAS T O BE ASSESSED FOR FIRST THREE YEARS ON ACCRUAL BASIS, PROVISIONS OF SECTION 43D W ERE INSERTED IN THE ACT. CIRCULAR NO. 621, DATED 19-12-1991 GIVES THE LEGISL ATIVE INTENTION STATING THAT SECTION 43D WAS INSERTED WITH A VIEW TO IMPROVING THE VIABILITY, OF BANKS, PUBLIC FINANCIAL INSTITUTIONS ETC., SO AS TO PROVIDE THAT INTEREST ON STICKY LOANS SHALL BE CHARGED TO TAX ONLY IN THE YEAR IN WHICH THE INTERE ST IS ACTUALLY RECEIVED OR CREDITED, TO THE PROFIT AND LOSS ACCOUNT. THIS BENE FIT WAS EXTENDED WITH EFFECT FROM 1-4-2000 IN THE CASE OF PUBLIC COMPANIES ENGAGED IN LONG-TERM FINANCING OF HOUSING PROJECTS APPROVED BY NATIONAL HOUSING BANK S. THE LEGISLATURE IN THEIR WISDOM DID NOT EXTEND THE SAME BENEFIT TO NBFCS WHI CH HAS BEEN GIVEN SCHEDULED BANKS, PUBLIC FINANCIAL INSTITUTIONS, ETC. THE PRO VISIONS OF SECTION 43D AS STOOD AT RELEVANT TIME CONTAINED AN EXPRESSION THE INCOME B Y WAY OF INTEREST IN RELATION TO SUCH CATEGORIES OF BAD OR DOUBTFUL DEBTS AS MAY BE PRESCRIBED HAVING REGARD TO THE GUIDELINES ISSUED BY THE RBI IN RELATION TO SUCH DE BTS. THIS EXPRESSION CONTINUES TO EXIST IN THE NEWLY SUBSTITUTED SECTION 43D APPLI CABLE WITH EFFECT FROM 1-4-2000. THIS SHOWS THAT THE RBI GUIDELINES IN RESPECT OF SC HEDULED BANKS, PUBLIC FINANCIAL INSTITUTIONS ETC., WERE NOT SUFFICIENT FOR RECOGNIT ION OF INCOME ON CASH BASIS FOR THE PURPOSES OF INCOME-TAX. THE INCOME OF SUCH ASSESSE ES WAS DETERMINED AS PER CIRCULAR DATED 9-10-1984. BECAUSE OF THIS REASON, SECTION 43D WAS INSERTED IN THE STATUTE. RBI GUIDELINES IN CASE OF NBFC ARE FOR TH E PURPOSE OF CONTROL AND SUPERVISION WITH RESPECT TO PUBLIC INTERST AND VIAB ILITY OF THE NBFC. THE GUIDELINES NEVER INTENDED FOR TAKING THE INTEREST I NCOME ACCRUED AS PER SECTION 5 OUT OF THE SCOPE OF THE ACT. IF THE CONTENTION OF ASSESSEE WAS ACCEPTED, IT WOULD AMOUNT TO INSERTION OF 'NBFC' IN SECTION 43D, THAT TOO BY A GUIDELINE ISSUED FOR DIFFERENT PURPOSES BY AN AUTHORITY OTHER THAN THE P ARLIAMENT. IN OTHER WORDS, THE ITA NOS. 298 TO 300/RJT/2014 . A.Y. 07-08 TO 09-10 7 DOCTRINE OF 'CASUS OMISSUS' WILL DEEM TO HAVE BEEN APPLIED WHICH IS CONTRARY TO LAW OF LAND.' UNQUOTE. THE BASIC REASON FOR DIRECTI NG TO ASSESS THE ACCRUED INTEREST ON NPA WAS THE RBI GUIDELINES ISSUED ONLY FOR SCHEDULED BANKS, PUBLIC FINANCIAL INSTITUTIONS AND NOT FOR NBFC. THE OBSERV ATION OF THE RESPECTED TRIBUNAL WAS THAT IF THE CONTENTION OF THE ASSESSEE WAS TO B E ACCEPTED, THEN IT WOULD AMOUNT TO INSERTION OF 'NBFC' IN SECTION 43-D OF THE I.T. ACT. AS AGAINST THAT, AS FAR AS THE ASSESSEE IS CONCERNED, IT IS AN ACCEPTED FACT THAT THE ASSESSEE IS A COOPERATIVE BANK AND NOT A NON-BANKING FINANCIAL COMPANY AND THIS N OTEWORTHY DISTINCTION HAS ALREADY BEEN APPRECIATED BY US IN ONE OF THE PARAGR APHS ABOVE. THERE IS ONE MORE DECISION OF THE HON'BLE APEX COUR T WHICH IS YET TO BE MENTIONED WHILE DISCUSSING THE ARGUMENTS RAISED FROM THE SIDE OF THE REVENUE. A DECISION IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) HAS BEEN CITED BUT THE FUNDAMENTAL DIFFERENCE IS THAT THE ISSUE BEFORE THE HON'BLE COU RT WAS IN RESPECT OF PROVISION FOR NPA AND DEBITED TO P&L ACCOUNT BY A NBFC. THE SAID PROVISION WAS UNDISPUTEDLY MADE BY THE SAID NBFC AS PER THE PRUDE NTIAL NORMS MADE BY THE RESERVE BANK. THEREFORE WE WANT TO MAKE IT CLEAR TH AT THE QUESTION FOR CONSIDERATION BEFORE THE HON'BLE' COURT WAS THAT IF A PROVISION FOR DOUBTFUL DEBT IS MADE THEN WHAT WILL BE THE LEGAL POSITION OF THE AP PLICABILITY OF EXPLANATION TO SECTION 36(1) (VII) OF THE IT, ACT. FOR THE SAKE OF READY REFERENCE, RELEVANT PARAGRAPH FROM THE HELD PORTION IS REPRODUCED BELOW :- 'THE INCOME-TAX IS A TAX ON 'REAL INCOME', I.E., TH E PROFITS ARRIVED AT ON COMMERCIAL PRINCIPLES SUBJECT TO THE PROVISIONS OF THE ACT. THEREFORE, IF BY THE EXPLANATION TO SECTION 36(L)(VII) A PROVISION F OR DOUBTFUL DEBT IS KEPT OUT OF THE AMBIT OF BAD DEBT WHICH IS WRITTEN OFF, THEN ONE HAS TO TAKE INTO ACCOUNT THE EXPLANATION IN COMPUTING THE TOTAL INCO ME UNDER THE INCOME- TAX ACT FAILING WHICH ONE CANNOT ASCERTAIN THE REAL PROFITS. THE PROVISION FOR NON-PERFORMING ASSETS DEBITED IN THE PROFIT AND LOSS ACCOUNT UNDER THE RESERVE BANK DIRECTIONS OF 1998 IS ONLY A NOTIONAL EXPENSE AND, THEREFORE, THERE WOULD BE ADD BACK TO THAT EXTENT IN THE COMPU TATION OF TOTAL INCOME UNDER THE INCOME-TAX ACT.' THEREFORE THE DISTINCTION CAN EASILY BE DRAWN THAT IN THE APPEAL BEFORE US THE QUESTION IS ACCRUAL OF INTEREST INCOME ON STICKY LO AN BUT IN THIS CITED DECISION THE QUESTION BEFORE HE APEX COURT WAS ABOUT THE ADMISSI BILITY OF PROVISION MADE IN RESPECT OF DOUBTFUL DEBTS. (VI) CONCEPT OF REAL INCOME APPROVED IN THE CASE OF BANKING BUSINESS: BEFORE US, THE THEORY OF 'REAL INCOME ' HAS ALSO BE EN ARGUED AND IN SUPPORT A DECISION OF HON'BLE COURT PRONOUNCED IN THE CASE OF GODHRA ELECTRICITY CO. LTD. V. CIT [1997] 225 ITR 746/91 TAXMAN 351 (SC). IN SHORT , THE VIEW EXPRESSED WAS THAT IF INCOME DOES NOT RESULT AT ALL, THERE CANNOT BE ANY TAX AND THAT IF AN IN-COME HAS NOT MATERIALIZED, THEN MERELY AN ENTRY MADE ABO UT A HYPOTHETICAL INCOME BY FOLLOWING BOOK KEEPING METHODS, THE LIABILITY TO TA X CANNOT BE ATTRACTED. ITA NOS. 298 TO 300/RJT/2014 . A.Y. 07-08 TO 09-10 8 NOW AT PRESENT THE SITUATION IS THAT THE HON'BLE MA DRAS HIGH COURT IN THE CASE OF CIT V. ELGI FINANCE LTD. [2007] 293 ITR 357 (MAD.) HAS TAKEN A VIEW THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF LE ASE, FINANCE AND HIRE PURCHASE AND THAT THE PRINCIPLE OF ACCRUAL COMES INTO PLAY W ITHOUT INCOME WAS RECOGNIZED AND THAT THE ASSESSEE HAD CLASSIFIED ITS ASSETS ON THE BASIS OF NOTIFICATION ISSUED BY R.B.I. AND. FOUND THAT CERTAIN ASSETS CAME UNDER TH E CATEGORY OF NPA AND THAT FROM SUCH NPA THE ASSESSEE HAD NOT RECOGNIZED ANY INCOME IN CONSONANCE WITH THE NOTIFICATION ISSUED BY RBI AND AS-9 ISSUED BY ICAI AND THAT THE ASSESSEE WAS JUSTIFIED IN NOT RECOGNIZING SUCH INCOME. THE COURT HAD FURTHER EXPRESSED THAT THERE WAS NO OCCASION TO CONSIDER WHETHER THE PRINC IPLE OF ACCRUAL WOULD ARISE OR NOT, NEVERTHELESS, THE INTEREST FROM SUCH NPA WOULD BE TAXED IN THE APPROPRIATE ASSESSMENT YEAR ON THE BASIS OF ACTUAL RECEIPT. IT IS WORTH TO MENTION THAT FOR THIS DECISION, THE HON'BLE MADRAS HIGH COURT HAS RELIED UPON AN ANOTHER DECISION OF THE SAME HIGH COURT PRONOUNCED IN THE CASE OF CIT V . INDIA EQUIPMENT LEASING LTD. [2007] 293 ITR 350 (MAD.). TO CONCLUDE THE ISSUE, WE DEEM IT IMPORTANT TO DISC USS THE DECISION OF INDIA EQUIPMENT LEASING LTD. (SUPRA) FOR THE SA KE OF COMPLETENESS OF OUR JUDGEMENT. IN THAT APPEAL, THE ASSESSEE WAS DOING T HE BUSINESS OF HIRE PURCHASE TRANSACTION AND LEASING OF PLANT & MACHINERY. THE INTEREST ON 'STICKY LOANS' NOT BEING BROUGHT INTO THE PROFIT & LOSS ACCOUNT BUT BE ING TAKEN TO THE SUSPENSE ACCOUNT WAS HELD BY THE COURT AS AN ACCEPTED MODE O F TREATMENT OF NOTIONAL INCOME IN ACCOUNTING PRACTICE. THE COURT HAS SAID T HAT THE CIRCULAR-9 OF OCTOBER- 1984 SERVE A PRACTICAL PURPOSE OF LAYING DOWN A UNI FORM TEST FOR THE ASSESSING AUTHORITY TO DECIDE WHETHER THE INTEREST INCOME WHI CH IS TRANSFERRED TO SUSPENSE ACCOUNT IS, IN FACT, ARISING IN RESPECT OF A DOUBTF UL OR STICKY LOAN. THIS WAS DONE BY PROVIDING THAT NON-RECEIPT OF INTEREST FOR THE FIRS T THREE YEARS WILL NOT BE TREATED AS INTEREST ON A DOUBTFUL LOAN, BUT IF AFTER THREE YEA RS THE PAYMENT OF INTEREST IS NOT RECEIVED, FROM THE 4TH YEAR ONWARDS IT WILL BE TREA TED AS INTEREST ON A DOUBTFUL LOAN AND WILL BE ADDED TO THE INCOME ONLY WHEN IT IS ACT UALLY RECEIVED. FOLLOWING THE UCO BANK (SUPRA), THE SAID APPEAL OF THE REVENUE WA S DISMISSED. ' IT IS ALSO SEEN THAT THIS ISSUE HAS BEEN DECIDED BY THE HON'BLE ITAT, RAJKOT BENCH IN THE CASE OF JAMNAGAR DISTRICT CO-OP. BANK VS. AD DL. CIT, JAMNAGAR IN ITA NO. 481 /RJT/2011 FOR A.Y. 08-09. WHILE DECIDING THE SAME I SSUE, THE HON'BLE ITAT HAS HELD AS UNDER.- '22. WITH REGARD TO GROUND NO.3, WE HAVE HEARD BO TH SIDES. THE ASSESSING OFFICER DISALLOWED THE OVERDUE INTEREST RESERVE AMO UNTING TO RS.1,15,000/- ON THE GROUND THAT ASSESSEE MADE THE PROVISION OF THIS AMO UNT. BEFORE US, THE ASSESSEE SUBMITTED TTHAT THE AO HAS NOT CONSIDERED THAT IT I S CREDITED INTO PROFIT AND LOSS ACCOUNT AND DEBITED BACK AS PER RBI GUIDELINES ACCO UNTING POLICY OF THE BANK ADOPTED CONSISTENTLY. THUS, THERE IS NO REAL INCOM E AND THE AMOUNT DOES NOT REMAIN CREDITED IN P/L A/C AS REQUIRED U/S.43D. IN SUPPORT OF THIS, RELIANCE IS PLACE ON THE DECISION OF ITAT, AHMEDABAD BENCH IN T HE CASE OF KARNAVATI CO-OP. BANK LTD. V. DCIT [2012] 134 ITD 486 (AHD.) THE LD . D.R. APPEARED FOR THE REVENUE COULD NOT CONTROVERT THE SAME. ITA NOS. 298 TO 300/RJT/2014 . A.Y. 07-08 TO 09-10 9 23. HAVING HEARD BOTH SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT AO HAS NOT CONSIDERED THE FACT THAT OVERDUE INTEREST AMOUNTING TO RS. 1,15,00,000/- WHI CH IS CREDITED INTO PROFIT AND LOSS ACCOUNT WAS DEBITED AS PER RBI GUIDELINES AND THERE IS NO ULTIMATE CREDIT IN P/L A/C. IN THIS RESPECT. THUS, THERE IS NO INCOME ACCRUED AND NO ADDITION ON THIS ACCOUNT CAN BE MADE. THIS VIEW IS SUPPORTED BY THE DECISION OF IT AT AHMEDABAD BENCH IN THE CASE OF KARNAVATI CO-OP. BANK LTD. (SU PRA). IN THIS CASE, THE TRIBUNAL HAS FOLLOWED THE JUDGMENT OF HON'BLE APEX COURT REN DERED IN THE CASE OF UCO BANK VS. CIT AS REPORTED IN 237 ITR889. WE, THEREFO RE, FOLLOWING THE DECISION OF ITAT AHMEDABAD BENCH IN THE CASE OF KARNAVATI CO-OP . BANK LTD. (SUPRA) DELETE THE DISALLOWANCE OF RS. 1,15,00,000/- MADE BY AO. T HIS GROUND OF APPEAL IS ALLOWED. RESPECTFULLY FOLLOWING THE ABOVE DECISIONS, I CONCU R WITH MY LD. PREDECESSOR'S ORDER AND HOLD THAT THE A.O. WAS NOT JUSTIFIED IN M AKING THE DISALLOWANCE OF DEDUCTION CLAIMED ON THE ISSUE OF INTEREST ON OVERDUE LOANS. THIS ADDITION IS DIRECTED TO BE DELETED. THIS GROUND OF APPEAL IS ALLOWED. 7. AGGRIEVED BY THE ORDER OF LD. CIT(A), REVENUE I S NOW IN APPEAL BEFORE US. 7.1 BEFORE US, LD. D.R. SUPPORTED THE ORDER OF A.O. ON THE OTHER HAND, LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE THE A.O. AND LD. CIT(A) AND SUPPORTED THE ORDER OF LD. CIT(A). 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO PROVIS ION OF OVERDUE INTEREST ON NPA ACCOUNTS. IT IS AN UNDISPUTED FACT THAT ASSESSEE I S A CO-OPERATIVE BANK AND IS GOVERNED BY THE RESERVE BANK OF INDIA GUIDELINES. WE FIND THAT LD. CIT(A) AFTER CONSIDERING THE CBDT CIRCULAR, PROVISIONS OF ACT AN D VARIOUS DECISIONS CITED IN THE ORDER HAS HELD THAT A.O. WAS NOT JUSTIFIED IN DISAL LOWING THE CLAIM OF DEDUCTION ON THE ISSUE OF INTEREST ON OVERDUE LOANS. WE FIND T HAT HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. DEOGIRI NAGAR SAHAKARI BANK LTD. & ORS. (2015) 379 ITR 24 (BOM.) HAS HELD THAT PRUDENTIAL NORMS ISSUED BY RES ERVE BANK OF INDIA ARE EQUALLY APPLICABLE TO CO-OPERATIVE BANKS AND THAT INTEREST ON STICKY ADVANCES IS NOT TAXABLE. BEFORE US, REVENUE HAS NOT BROUGHT ON RECORD ANY CO NTRARY BINDING DECISION IN ITS ITA NOS. 298 TO 300/RJT/2014 . A.Y. 07-08 TO 09-10 10 SUPPORT. IN VIEW OF THE AFORESAID FACTS, WE FIND N O REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A). THUS, THE GROUND OF REVENUE IS DISM ISSED. 9. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSE D. ITA NOS. 299 & 300/RJT/2014 FOR A.Y. 2008-09 & 2009 -10 10. SINCE BOTH THE PARTIES HAVE ADMITTED THAT THE F ACTS AND CIRCUMSTANCES OF BOTH CASES ARE IDENTICAL TO THAT OF ITA NO. 298/RJT/201 4 FOR A.Y. 2007-08, WHICH WE HAVE DECIDED HEREINABOVE, WE, THEREFORE, FOR THE S IMILAR REASONS STATED HEREINABOVE WHILE DECIDING THE APPEAL FOR A.Y. 2007-08 IN ITA N O. 298/AHD/2014 (SUPRA) DISMISS THE GROUNDS OF REVENUE IN BOTH THE APPEALS. 11. THUS, BOTH THE APPEALS OF REVENUE ARE DISMISSED . 12. IN THE RESULT, ALL THREE APPEALS OF REVENUE ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 28/04/2016 SD/- SD/- (S. S. GODARA) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED. 28/04/2016 TRUE COPY S K SINHA 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, RAJKOT