Appeal details
Counselvise Citation
[2019] 118 COUNSELVISE.COM (IT) 8042 (ITAT-PUNE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 10 month(s) 28 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
04-01-2019
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
B
Assessment Year
2012-2013
Appeal Filed On
06-02-2017
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E BEFORE SHRI R.S. SYAL, VP AND SHRI PARTHA SARATHI CHAUDHURY, JM / ITA NO.303/PUN/2017 / ASSESSMENT YEAR : 2012-13 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-10, PUNE. ....... / APPELLANT / V/S. PIMPRI CHINCHWAD SAHAKARI BANK MARYDIT, SHARMA ARCHADE, SURVEY NO.111, MAIN ROAD KALEWADI PUNE-411 017 PAN : AAAJP0113F / RESPONDENT ASSESSEE BY : SHRI PRAMOD SHINGTE REVENUE BY : SHRI SUDHENDU DAS / DATE OF HEARING : 03.01.2019 / DATE OF PRONOUNCEMENT : 04.01.2019 / ORDER PER PARTHA SARATHI CHAUDHURY, JM : THIS APPEAL PREFERRED BY THE REVENUE EMANATES FROM THE ORDER OF CIT(APPEALS)-13, PUNE DATED 27.11.2016 FOR THE ASSESSMENT YEAR 2012-13 AS PER GROUNDS OF APPEAL ON RECORD. 2 ITA NO.303 /PUN/2017 A.Y.2012-13 2. THE BRIEF FACTS IN THIS CASE ARE THAT THE ASSESSEE IS A CO-OPERATIVE BANK REGISTERED UNDER THE MAHARASHTRA STATE CO-OPERATIVE S OCIETIES ACT. THE ASSESSEES MAIN BUSINESS IS OF LENDING MONEY TO ITS MEMBER S AND ACCEPTING DEPOSITS FROM ITS MEMBERS. IT CARRIES ON BUSINESS MAINLY IN PUNE DISTRICT. IN THIS CASE, THE ASSESSING OFFICER HAS ADDED THE AMOUNT OF R S.2,84,89,156/- ON ACCOUNT OF THE INTEREST ON NON-PERFORMING ASSETS (NPAS) T O THE ASSESSEES TOTAL INCOME. FURTHER, THE ASSESSING OFFICER HAS DISALLOWED R S.1,160/- U/S.14A OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) AND ADDED THE SAME TO THE ASSESSEES TOTAL INCOME. WITH T HE RESULT, THE ASSESSING OFFICER IN THE ASSESSMENT ORDER PASSED U/S.143(3) OF THE AC T, HAS ASSESSED THE TOTAL INCOME OF THE ASSESSEE AT RS.5,68,61,700/- AS AG AINST ITS RETURNED INCOME OF RS.2,83,71,383/-. 3. AGGRIEVED WITH THE ASSESSMENT ORDER, THE ASSESSEE P REFERRED APPEAL BEFORE THE LD. CIT(APPEALS) AND SUBMISSIONS WAS MADE ON THE ISSUE AND RELEVANT PORTION IS AS UNDER: INTEREST ON NPA DURING THE YEAR THE APPELLANT HAS RECOGNIZED INTERE ST ON ADVANCES OUT OF WHICH RS.2,84,89,156/- BEING INTEREST ON NON-PERFOR MING ASSET (NPA) IS NOT TREATED AS INCOME. THIS HAS BEEN DONE FIRSTLY A S PER THE PRUDENTIAL NORMS ISSUED BY THE RESERVE BANK OF INDIA, THE APEX BODY WHO GOVERNS THE BANKING OPERATIONS OF EVERY BANK. SECONDLY BY K EEPING IN VIEW THE PRINCIPLES OF REVENUE RECOGNITION GIVEN IN ACCOUNTI NG STANDARD 9(AS 9) ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. THE LEARNED ASSESSING OFFICER HAS NOT ACCEPTED THE CONTENTION O F THE APPELLANT AND TREATED THE INTEREST ON NPA A SUM OF RS.2,84,89,156 /-. SINCE THE APPELLANT IS FOLLOWING ACCRUAL SYSTEM OF ACCOUNTING, INTEREST ACCRUED ON ADVANCES SHOULD BE ACCOUNTED ACCORDINGLY . 1. RESERVE BANK GUIDELINES DO NOT SUPERSEDE THE PROVI SIONS OF INCOME TAX ACT, 1961, IN SO FAR AS COMPUTATION OF INCOME; AND SUCH GUIDELINES ARE NOT BINDING ON THE INCOME TAX ACT, 1961. IN THIS REGARD FOLLOWING POINT WISE SUBMISSION FOR YOUR HONORS KIND ADJUDICATION. 3 ITA NO.303 /PUN/2017 A.Y.2012-13 ALL THE CO-OPERATIVE BANKS ARE UNDER THE DIRECT CON TROL OF THE RESERVE BANK OF INDIA AND THEY HAVE TO CARRY OUT THEIR FUNCTIONS AS PER THE DIRECTIONS ISSUED BY THE RESERVE BANK OF INDIA AND ACCORDINGLY THE RESERVE BANK OF INDIA HAS ISSUED PRUDENTIAL NORMS WHICH ARE APPLICABLE TO ALL THE BANKS WHEREBY BANKS ASSETS IN THE FORM OF ADVANCES NEEDS TO BE CLASSIFIED AS PERFORMING ASSETS OR NON-PERFORMING ASSETS. IT I S FURTHER DIRECTED THAT INTEREST ON NON-PERFORMING ASSETS THOUGH ACCRUED BU T SHALL NOT BE RECOGNIZED AS INCOME AND SHALL BE SHOWN AS SEPARATE ITEM IN BALANCE SHEET UNDER THE HEAD INTEREST RECEIVABLE ON NON-PERFORMIN G ASSET. THE RATIONALE BEHIND THIS DIRECTION IS VERY CLEAR AND THAT IS WHE N THE PRINCIPLE AMOUNT OF LOAN ITSELF IS DOUBTFUL OF RECOVERY THE QUESTION OF ACCOUNTING FOR INTEREST WILL NOT ARISE. THIS PRINCIPLE IS ALSO APPROVED BY ACCOU NTED STANDARD 9, REVENUE RECOGNITION ISSUED BY THE INSTITUTE OF CHARTERED AC COUNTANTS OF INDIA WHERE IN PARA 9.2 READS AS FOLLOWS:- 9.0 EFFECTS ON UNCERTAINTIES ON REVENUE RECOGNITION '9.2 WHERE THE ABILITY TO ASSESS THE ULTIMATE COLLE CTION WITH REASONABLE CERTAINTY IS LACKING AT A TIME OF RAISING ANY CLAIM , FOR EXAMPLE, FOR ESCALATION OF PRICE, EXPORT INCENTIVE, INTEREST, ET C., REVENUE RECOGNITION IS POSTPONED TO THE EXTENT OF UNCERTAINTY INVOLVED. IN SUCH CA SES, IT MAY BE APPROPRIATE TO RECOGNIZE REVENUE ONLY WHEN IT IS RE ASONABLY CERTAIN THAT THE ULTIMATE COLLECTION WILL BE MADE. WHENEVER THER E IS NO UNCERTAINTY AS TO ULTIMATE COLLECTION, REVENUE IS RECOGNIZED AT TH E TIME OF SALE OR RENDERING OF SERVICES EVEN THOUGH PAYMENTS ARE MADE BY INSTALLMENTS. ' SO IN THE CASE OF NON-PERFORMING ASSETS AS THERE IS UNCERTAINTY OF RECEIPTS OF PRINCIPLE SUM ITSELF THE QUESTION OF RECOGNIZING REVENUE THEREFORE WILL NOT ARISE AND THEREFORE BY ADOPTING THE PRINCIPLES AS EMERGING FROM ACCOUNTING STANDARD 9 INTEREST ON NPA WILL NOT BE A CCOUNTED. SECONDLY, IF ONE ANALYSES THE PROVISIONS OF SECTION 145 OF TH E INCOME TAX ACT, 1961 AND THE DEFINITION OF THE TERM ACCRUAL GIVEN IN THE ACCOUNTING STANDARD PRESCRIBED UNDER SECTION 145, THEN ONE OBSERVES THA T THAT ACCRUAL REFERS TO THE ASSUMPTION THAT REVENUES OF COST ARE ACCRUED , I.E. RECOGNIZED AS THEY ARE' EARNED OR INCURRED AND NOT AS MONEY IS RE CEIVED AND PAID AND RECORDED IN THE FINANCIAL STATEMENTS OF THE PERIOD IN WHICH THEY RELATE. IF WE SEE THE REAL CONCEPT OF ACCRUAL AS SPECIFIED IN AS-9, AND READ THIS CONCEPTS THEN IN OUR HUMBLE OPINION THE INCOME OF I NTEREST CANNOT BE SAID TO HAVE ACCRUED AS THERE IS NO REASONABLE CERTAINTY OF EARNING SUCH INCOME. SINCE APPELLANTS ACCOUNT CLEARLY STATES THAT INTERE ST ON NPA IS TECHNICALLY ACCRUED TO HIM BUT IT IS NOT POSSIBLE TO RECOVER DU E TO PECULIAR CIRCUMSTANCES. UNDER SUCH SITUATION IT CANNOT BE SA ID THAT SUCH INCOME HAS ACCRUED TO THE APPELLANT AND SHOULD BE BROUGHT TO TAX. THEREFORE CHARGING OF TAX ON SUCH NOTIONAL INCOME WHICH HAS N EVER ACCRUED TO THE APPELLANT IS NOT TENABLE IN THE EYES OF LAW. HON'BLE PUNE ITAT IN CASE OF ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-3, NANDED V. OSMANABAD JANTASAH. BANK LTD. R EPORTED IN [20L3] 32 TAXMANN.COM 229 (PUNE-TRIB.) HELD THAT INTEREST ON STICKY ADVANCES/NPA ADVANCES DID NOT ACCRUE TO ASSESSEE--B ANK AND SAME COULD NOT BE BROUGHT TO TAX. THE AFORESAID JUDGMENT IS FOLLOWED IN NUMBER OF CAS ES AT PUNE TRIBUNAL. WE FURTHER PLACE OUR RELIANCE ON FOLLOWING JUDGMENT S IN SUPPORT OF OUR CONTENTION. 4 ITA NO.303 /PUN/2017 A.Y.2012-13 I. CIT VS. VASISTHCHAY VYAPAR LTD. (2011) 330 ITR 440 ( DELHI) INCOME-ACCRUAL-INTEREST ON NON-PERFORMING ASSETS OF NBFC-AS PER RBI ACT AND DIRECTIONS WHICH INTER-ALIA, MANDATE AN NBFC TO DECLARE SUCH ADVANCES AS NPA WHEN THE ACCRUED INTEREST THEREIN I S NOT PAID BY THE DEBTOR CONTINUOUSLY FOR SIX MONTHS, THE ASSESSEE DI D NOT SHOW INTEREST INCOME ON IMPUGNED ICD WHICH ACCORDING TO THE ASSES SEE WAS NOT REALIZABLE-AO, HOWEVER, ADDED THE INTEREST AS INCOM E OF THE ASSESSEE HOLDING THAT IT HAD ACCRUED TO THE ASSESSEE EVEN IF IT WAS NOT ACTUALLY REALIZED AS THE ASSESSEE WAS FOLLOWING MERCANTILE S YSTEM OF ACCOUNTING- NOT JUSTIFIED- ADMITTED POSITION IS THAT THE ASSESS EE HAD NOT RECEIVED ANY INTEREST ON THE IMPUGNED ICD AS IT HAD BECOME NPA I N ACCORDANCE WITH THE PRUDENTIAL NORMS-EVEN IN THE SUCCEEDING ASSESSM ENT YEARS, NO INTEREST WAS RECEIVED AND THE POSITION REMAINED THE SAME UNTIL THE ASST. YR. 2006-0 7 -ASSESSEE COMPANY BEING NBFC IS GOVERNED BY THE PRO VISIONS OF RBI ACT, HENCE INTEREST INCOME CANNOT BE SAID TO HAVE ACCRUED TO THE ASSESSEE HAVING REGARD TO THE PROVISIONS OF SECTION 45Q OF RBI ACT, AND PRUDENTIAL NORMS ISSUED BY THE RBI-EVEN UNDER I T ACT, INTEREST INCOME HAD NOT ACCRUED-MOREOVER, WHEN THERE IS A PR OVISION IN OTHER ENACTMENT WHICH CONTAINS A NON OBSTANTE CLAUSE, THA T WOULD OVERRIDE THE PROVISIONS OF IT ACT. II. CIT VS. CANFIN HOMES LTD. (2011) 13 TAXMANN.COM 43 (KAR.) SECTION 5 READ WITH SECTION 145 OF THE INCOME TAX A CT, 1961-INCOME ACCRUAL OF A. Y. 1997-98- WHETHER INCOME FROM NPA S HOULD BE ASSESSED ON CASH BASIS AND NOT ON MERCANTILE BASIS DESPITE A SSESSEE MAINTAINING MERCANTILE SYSTEM OF ACCOUNTING-HELD YES. III. CIT VS. NAINITAL BANK LTD. (2009) 309 ITR 335 ( UTTARANCHAL) ASSESSEE BEING BANKING COMPANY RNI GUIDELINES WERE BINDING ON IT AND THEREFORE VALUATION OF INVESTS ON THE BASIS OF RBI GUIDELINES WAS JUSTIFIED. IN VIEW OF THE ABOVE SUBMISSION IT IS SUBMITTED THA T THE TREATMENT GIVEN BY THE APPELLANT IN ITS BOOKS OF ACCOUNT FOR INTERE ST ON NPA IS CORRECT AND ASSESSING OFFICERS CONTENTION FAILS OF FOLLOWING GR OUNDS: A. ALTHOUGH APPELLANT IS FOLLOWING ACCRUAL SYSTEM, HOW EVER, INTEREST ACCRUED ON NPA CANNOT BE CALLED AS ACCRUED AS PRINC IPLE SUM ITSELF IS DOUBTFUL OF RECOVERY. B. RBI DIRECTIONS ARE MANDATORY AND ARE APPLICABLE TO ALL BANKS. C. THE CONCEPT OF ACCRUAL AS REFERRED TO IN SECTION 14 5 OF THE INCOME TAX ACT, 1961 REFERS TO RECOGNIZING THE REVENUES AS THE Y ARE EARNED BUT IN A PARTICULAR STREAM OF INCOME THERE PREVAILS UNCERT AINTY, THE INCOME CANNOT BE SAID TO BE ACCRUED. IT IS THEREFORE MOST HUMBLY SUBMITTED THAT THE ADDI TION MADE ON ACCOUNT OF INTEREST ON NON-PERFORMING ASSETS MAY KINDLY BE DELETED. WE ALSO POINT OUT THAT HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. DEOGIRI NAGARI SAHAKARI BANK LTD. HAS DECIDED THE I SSUE OF INTEREST ON NON-PERFORMING ASSET IN FAVOR OF BANK (COPY ENCLOSE D AS ANNEXURE NO.1). 5 ITA NO.303 /PUN/2017 A.Y.2012-13 4. THE SUBMISSIONS OF THE ASSESSEE WAS CONSIDERED ALONG WITH ASSESSMENT ORDER AND THE FACTS AND CIRCUMSTANCES OF THE CASE AND LD. CIT(APPEALS) HAS HELD AS UNDER: 2.1.4 I HAVE CONSIDERED THE FACTS AND ARGUMENTS OF THE LEARNED AO AND OF THE APPELLANT. I FIND THAT THIS ISSUE IS COVERED IN THE APPELLANTS FAVOUR BY SEVERAL DECISIONS OF THE HONORABLE PUNE BENCH OF THE ITAT AND ALSO OF THE HONORABLE BOMBAY HIGH COURT. THESE DECISIONS AR E AS UNDER: I.PAVANA SAHAKARI BANK LIMITED VS. CIT, ITA NO.1754 /PUN/2013 DATED 31.12.2014 II. DEOGIRI NAGARI SAHAKARI BANK LIMITED, ITA NO. 53 OF 2014 DATED 22.01.2015 ( BOMBAY HC) III. PEOPLES CO-OPERATIVE BANK LIMITED, ITA NO.54 OF 2014 DATED 22.01.2015 ( BOMBAY HC) IV. NANDED DISTRICT CENTRAL CO-OPERATIVE BANK LIMIT ED, ITA NO.57 OF 2014 WITH ITA/58/2014 DATED 22.01.2015 ( BOMBAY HC) V. VASANTDADA NAGRI SAHKATRI BANK LIMITED VS. CIT ( BOMBAY HC), ITA NO. 68 OF 2014 DATED 22.01.2015 ( BOMBAY H C) 2.1.5 IN VIEW OF THE ABOVE DECISIONS IN THE APPELL ANTS FAVOUR OF THE JURISDICTIONAL HIGH COURT AS WELL AS OF THE JURISDI CTIONAL ITAT, I DELETE THE ADDITION MADE BY THE LEARNED AO ON ACCOUNT OF THE I NTEREST ON NPAS OF RS.2,84,89,156/-. 5. WE HAVE PERUSED THE CASE RECORD AND HEARD THE RIV AL CONTENTIONS. THOUGH THE REVENUE HAS TAKEN MULTIPLE GROUNDS OF APPEA L , THE CRUX OF THE GRIEVANCE IS THE DELETION OF ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST ON NON PERFORMING ASSET OF RS.2,84,89,156/-. THE LD. CIT(APPEALS) HAS PROVIDED RELIEF TO THE ASSESSEE BASED ON VARIOUS JUD ICIAL PRONOUNCEMENTS AS APPEARING IN HIS ORDER ON RECORD SPECIALLY THE DECISION OF HON'BLE BOMBAY HIGH COURT IN ITA NO.53 OF 2014 DATED 22.01.2015 IN THE CA SE OF DEOGIRI NAGARI SAHAKARI BANK LIMITED. THAT FURTHER, THE LD. AR OF T HE ASSESSEE SUBMITTED THE COPIES OF THE DECISION OF HON'BLE KARNATAKA HIGH COURT IN THE CASE OF PR. CIT VS. BAGALKOT DISTRICT CENTRAL CO-OPERAT IVE BANK LIMITED IN 6 ITA NO.303 /PUN/2017 A.Y.2012-13 ITA NO.100037/2017 WHEREIN THE SUBSTANTIAL QUESTION OF LA W RAISED BY REVENUE IS AS UNDER: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW THE TRIBUNAL IS RIGHT IN DELETING THE ADDITIONS MAD E BY THE ASSESSING AUTHORITY ON ACCOUNT OF ACCRUED INTEREST ON LOANS W HICH ARE CLASSIFIED AS NON-PERFORMING ASSETS IGNORING THE PROVISIONS OF SECTION 43D OF THE INCOME TAX ACT,1961 AMENDED W.E.F 01.04.2000 WHICH PROVIDES FOR CERTAIN BENEFIT TO THE CERTAIN CLASS OF ASSESSEES B UT DOES NOT PROVIDE SUCH BENEFIT TO THE RESPONDENT BANK AND MORE PARTIC ULARLY WHEN THE RESPONDENT IS FOLLOWING MERCANTILE SYSTEM OF ACCOUN TING? IN THIS CASE, THE HON'BLE KARNATAKA HIGH COURT HAD OPINE D AND HELD THAT IT IS MANIFEST, WHEN AN ASSET BECOMES NON-PERFORMING , IT CEASES TO YIELD INCOME AND ONCE A PARTICULAR ASSET IS SHOWN TO BE A NON -PERFORMING ASSET, THEN IT IS NOTHING BUT NO REVENUE IS YIELDED. IN SUCH CAS ES, PAYING TAX WOULD NOT ARISE. HENCE, SUBSTANTIAL QUESTION OF LAW IS ANSWERED AG AINST REVENUE. AGAINST THIS DECISION, THE REVENUE HAD PREFERRED SLP BEFOR E THE HON'BLE SUPREME COURT OF INDIA IN TS-5404-SC-2018-O, SLP(CIVIL) DIARY NO(S) 25340/2018 AND IN THIS SLP FILED BY THE REVENUE, THE HON'BLE SUPREME C OURT DISMISSED REVENUES SLP AGAINST HC RULING. THE HIGH COURT HAD IN ITS ORDER REJECTED REVENUES CONTENTION THAT EVEN THOUGH NPAS DO NOT YIELD ANY INCOME, ASSESSEE HAS TO PAY TAX ON THE REVENUE WHICH H AS ACCRUED NOTIONALLY AS IT HAS ADOPTED MERCANTILE SYSTEM OF ACCOUNTING. THE HO N'BLE APEX COURT CONFIRMED THE VIEW OF THE HON'BLE KARNATAKA HIGH COURT TH AT ONCE A PARTICULAR ASSET IS SHOWN TO BE A NON-PERFORMING ASSET, T HEN THE ASSUMPTION IS IT IS NOT YIELDING ANY REVENUE. WHEN IT IS, NOT YIELDING ANY REVENUE, THE QUESTION OF SHOWING REVENUE AND PAYING TAX WOULD NOT ARISE. IN VIEW OF THE MATTER, WE FIND THAT THE AFORESAID JUDICIAL PRONOUNCEMENTS HAS ANSWERED THE ISSUE IN PRESENT APPE AL IN FAVOUR OF THE 7 ITA NO.303 /PUN/2017 A.Y.2012-13 ASSESSEE. RESPECTFULLY FOLLOWING THE JUDICIAL PRONOUNCEMENTS, WE UPHOLD THE ORDER OF LD.CIT(APPEALS) AND SUSTAIN THE RELIEF GRANTED TO THE ASSESSE E. 6. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON 04TH DAY OF JANUARY, 2019. SD/- SD/- R.S. SYAL PARTHA SARAT HI CHAUDHURY VICE-PRESIDENT JUDICIAL MEMBER / PUNE; / DATED : 04 TH JANUARY, 2019. SB !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT (APPEALS)-13, PUNE. 4. THE PR. CIT-5, PUNE. 5. '#$ %%&' , ( &' , )*+ , / DR, ITAT, B BENCH, PUNE. 6. $,- ./ / GUARD FILE. // TRUE COPY // (0 / BY ORDER, %1 &+ / PRIVATE SECRETARY ( &' , / ITAT, PUNE. 8 ITA NO.303 /PUN/2017 A.Y.2012-13 DATE 1 DRAFT DICTATED ON 04 .01.2019 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 04 .01 .201 9 SR.PS/PS 3 DRAFT PROPOSED AND PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/JM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 DATE OF UPLOADING OF ORDER SR.PS/PS 8 FILE SENT TO BENCH CLERK SR.PS/PS 9 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 10 DATE ON WHICH FILE GOES TO THE A.R 11 DATE OF DISPATCH OF ORDER
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