The Assistant Commissioner of Income Tax, Circle-1, Belagavi., Belagavi V. M/s Janata Co-op. Bank Ltd., Belagavi

ITA 339/PAN/2015

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1327 (ITAT-PANAJI)
• Duration Of Justice: 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 31-08-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI N.S. SAINI , HONBLE ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, HONBLE JUDICIAL MEMBER ITA NO. 339 /PNJ/201 5 (ASST. YEAR : 200 9 - 1 0 ) ACIT, CIRCLE - 1, BELAGAVI. VS. THE JANATA COOPERATIVE BANK LTD., AT POST HARUGERI, TAL : RAIBAG, DIST. BELAGAVI. PAN NO AAAJ 0711 A (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE . DEPARTMENT BY : SHRI PRASHANT GADEKAR - D R DATE OF HEARING : 17 / 1 1 /2015 . DATE OF PRONOUNCEMENT : 17 / 1 1 /201 5 . O R D E R PER N.S. SAINI , ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) , BEL A GA VI , DATED 0 3 /0 6 /201 5 . 2. THE SOLE ISSUE INVOLVED IN THIS APPEAL IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELETING THE ADDITION OF 15,23,200/ - ON ACCOUNT OF ACCRUED INTEREST ON LOANS WHICH ARE CLASSIFIED AS NON - PERFORMING ASSETS RELYING ON THE KARNATAKA HIGH CO URT DECISION IN M/S. CANFIN HOMES LTD. (2011) 5 TAXCORP (DT) 49593 IGNORING THE PROVISIONS OF SEC. 43D OF THE INCOME TAX ACT, 1961 . 3 . WE HAVE HEARD THE SUBMISSIONS OF THE DEPARTMENTAL REPRESENTATIVE AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD . IN THE INSTANT CASE, THE ASSESSING OFFICER OBSERVED THAT INTEREST RECEIVABLE ON NON - PERFORMING ASSETS ON ACCRUAL BASIS , AMOUNTING TO 15,23,200/ - , WAS NOT CREDITED IN THE PROFIT & LOSS 2 ITA NO. 339 /PNJ/201 5 ACCOUNT . IN HIS VIEW, THE INTEREST WAS TAXABLE ON ACCRUAL BASIS AND ACCORDINGLY , HE ADDED THE SAME TO THE INCOME OF THE ASSESSEE. 4 . ON APPEAL, COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE ADDITION BY OBSERVING AS UNDER: - 5.1.4 I HAVE CAREFUL LY CONSIDERED THE SUBMISSIONS OF THE APPELLANT IN THIS REGARD AND ALSO PERUSED THE DECISIONS RELIED UPON BY IT. THE ASSESSING OFFICER WHILE BRINGING TO TAX THE INTEREST INCOME OF THE APPELLANT FROM NPAS/STICKY LOANS ON ACCRUAL BASIS HAS RELIED ON THE JUDGM ENT OF HONBLE SUPREME COURT IN THE CASE OF STATE BANK OF TRAVANCORE VS. CIT (158 ITR 102) AND THE JUDGMENT OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF KARNATAKA STATE FINANCE CORPORATION VS. CIT H(174 ITR 212). THE A.O HAS ALSO CONTENDED THAT SECTION 4 3D OF THE I .T. ACT AS INSERTED W.E.F.01 - 04 - 2000 IS NOT APPLICABLE TO CO - OPERATIVE BANKS. 5.1.5 THE APPELLANT ON THE OTHER HAND CHALLENGING THE ACTION OF THE A.O IN BRINGING TO TAX THE INTEREST INCOME OF THE APPELLANT FROM NPA5/STICKY LOANS ON ACCRUAL BASIS HAD MAINLY RELIED ON THE DECISION OF THE APEX COURT IN THE CASE OF UCO BANK VS.CIT, 237 ITR 889 (1999). OTHER CASE LAWS IN FAVOUR OF THE APPELLANT ARE THE JCIT(ASST) V. CANFIN HOMES LTD IN ITA NO.801 OF 2006 AND THE DECISION OF THE ITAT, BANGALORE BE NCH C BANGALORE IN THE CASE OF ITO WARD - 2 SHIVAMOGGA V. SHIVA SAHAKARI B ANK NIYAMITHA IN ITA NO.257/BANG/2012 FOR A.Y. 2008 - 09 DATED 21.12.2012 WHEREIN, THE HONBLE ITAT, RELYING UPON THE DECISION OF HONBLE HIGH COURT OF KARNATAKA, IN THE CASE OF JCIT(A SST) V. CANFIN HOMES LTD IN ITA NO.801 OF 2006, HAS HELD THAT INTEREST ON NON - PERFORMING ASSETS CANNOT BE TAKEN AS INCOME ACCRUED TO THE ASSESSEE IN THE RELEVANT YEAR. THE AB OVE MENTIONED CASES OF SUPREME C OURT AND HIGH COURT IN FAVOUR OF THE APPELLANT IN THE CASES OF UCO BANK AND CANFIN, SUPRA A RE LATER IN TIME THAN THE CASE L AWS RELIED UPON BY THE A.O. THE APEX COURT IN THE CASE OF UCO BANK, SUPRA HAS CONSIDERED AND OVER RULED ITS OWN DECISION IN THE CASE OF STATE BANK OF TRAVANCORE, SUPRA. FURTHER, THE H ONBLE ITAT AHMEDABAD BENCH IN CASE OF KARNAVATI CO - OP. BANK LTD. VS. DEPUTY COMMISSIONER OF INCOME TAX (2012) 14 ITR (TRIB . ) 175 HAS HELD THAT CO - OPERATIVE BANK IS GOVERNED BY RBI GUIDELINES HENCE PROVISIONS OF SECTION 43D ARE ALSO APPLICABLE TO CO - OPERAT IVE BANKS. FURTHER, THERE IS NOTHING IN THE PHRASEOLOGY OF SECTION 43D WHICH MAKES THE INTEREST INCOME OF COOPERATIVE BANKS FROM NPA OR STICKY LOANS TAXABLE ON ACCRUAL BASIS. 5.1.6 HONBLE SUPREME COURT (3 MEMBERS) IN THE CASE OF UCO BANK VS. CIT (1999) 2 37 ITR 889 HAS HELD THAT INTEREST ACCRUED ON STICKY ADVANCES WHICH WAS NOT BROUGHT IN PROFIT AND LOSS ACCOUNT BUT TAKEN TO SEPARATE SUSPENSE ACCOUNT SHOULD BE ADDED AS INCOME ONLY WHEN ACTUALLY RECEIVED. THIS JUDGMENT OF THE APEX 3 ITA NO. 339 /PNJ/201 5 COURT IN ITS ESSENCE LAYS DOWN LAW ON THE ISSUE UNLESS EXPRESSLY OVERRULED EITHER BY ITSELF OR BY A LEGISLATIVE AMENDMENT WHICH HAS NOT COME TILL DATE. 5.1.7 THE HONBLE HIGH COURT OF KARNATAKA IN THE CANFIN CASE, MENTIONED SUPRA, FOLLOWING THE JUDGMENT OF THE APEX COURT IN THE CASE OF UCO BANK VS.CIT, 237 ITR 889 (1999) HAS HELD AS UNDER: - THEREFORE, IT IS CLEAR IF AN ASSESSEE ADOPTS MERCANTILE SYSTEM OF ACCOUNTING AND IN HIS ACCOUNTS HE SHOWS A PARTICULAR INCOME AS ACCRUING, WHETHER THAT AMOUNT IS REALLY ACCRUED OR NOT IS LIA BLE TO BRING THE SAID INCOME TO TAX. HIS ACCOUNTS SHOULD REFLECT TRUE AND CORRECT STATEMENT OF AFFAIRS. MERELY BECAUSE THE SAID AMOUNT; ACCRUED WAS NOT REALIZED IMMEDIATELY CANNOT BE A GROUND TO AVOID PAYMENT OF TAX. BUT, IF IN HIS ACCOUNT IT IS CLEARLY ST ATED THOUGH A PARTICULAR INCOME IS DUE TO HIM BUT IT IS NOT POSSIBLE TO RECOVER THE SAME, THEN IT CANNOT SAID TO HAVE BEEN ACCRUED AND THE SAID AMOUNT CANNOT BE BROUGHT TO TAX. IN THE INSTANT CASE WE ARE CONCERNED WITH A NON - PERFORMING ASSET. AS THE DEFINI TION OF NON - PERFORMING ASSET SHOWS AN ASSET BECOMES NON - PERFORMING WHEN IT CEASES TO YIELD INCOME. NON - PERFORMING ASSET IS AN ASSET IN RESPECT OF WHICH INTEREST HAS REMAINED UNPAID AND HAS BECOME PAST DUE. ONCE A PARTICULAR ASSET IS SHOWN TO BE A NON - PERFO RMING ASST THEN THE ASSUMPTION IS IT IS NOT YIELDING ANY REVENUE. WHEN IT IS NOT YIELDING ANY REVENUE, THE QUESTION OF SHOWING THAT REVENUE AND PAYING TAX WOULD NOT ARISE. AS IS CLEAR FROM THE POLICY GUIDELINES ISSUED BY THE NATIONAL HOUSING BANK, THE INCO ME FROM NON - PERFORMING ASSET SHOULD BE RECOGNIZED ONLY WHEN IT IS ACTUALLY RECEIVED. THAT IS WHAT THE TRIBUNAL HELD IN THE INSTANT CASE. THEREFORE , THE CONTENTION OF THE REVENUE THAT IN RESPECT OF NON - PERFORMING ASSETS EVEN THOUGH IT DOES NOT YIELD ANY IN COME AS THE ASSESSEE HAS ADOPTED A MERCANTILE SYSTEM OF ACCOUNTING, HE HAS TO PAY TAX ON THE REVENUE WHICH HAS ACCRUED NOTIONALLY IS WITHOUT ANY BASIS. IN THAT VIEW OF THE MATTER, THE SECOND SUBSTANTIAL QUESTION FRAMED IS ANSWERED AGAINST THE REVENUE AND I N FAVOUR OF THE ASSESSEE. 5.1.8 THUS, IN VIEW OF THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF JCIT VS. M/S CANFIN HOMES LTD (2011)5 TAX CORP (DT) 49593, IT IS OBSERVED THAT THE FACTS OF THE APPELLANT BANK ARE SIMILAR TO THE FACTS OF THE CASE BEFORE THE HONBLE HIGH COURT OF KARNATAKA WHEREIN IT HAS BEEN HELD THAT THE CONTENTION OF THE REVENUE THAT IN RESPECT OF NON - PERFORMING ASSETS EVEN THOUGH IT DOES NOT YIELD ANY INCOME AS THE ASSESSEE HAS ADOPTED A MERCANTILE SYSTEM OF ACCOUNTING, HE HAS TO PAY TAX ON THE REVENUE WHICH HAS ACCRUED NOTIONALLY IS WITHOUT ANY BASIS. 4 ITA NO. 339 /PNJ/201 5 5.1.9 IN VIEW OF THE ABOVE DISCUSSION AND RESPECTFULLY FOLLOWING THE JUDGMENTS OF THE APEX COURT IN THE UCO BANK VS.CIT, SUPRA, JUDGMENTS OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CANFIN, SUPRA AND THE DECISIONS OF ITAT, BANGALORE BENCH C BANGALORE IN THE CASE OF ITO WARD - 2 SHIVAMOGGA V. SHIVA SAHAKARI BANK NIYAMITHA, SUPRA AND PANJI BENCH IN THE CASE OF THE KHANAPUR CO - OP. BANK LTD., VS. INCOME TAX OFFICER ITA NO. 141 /PNJ/2011, I HOLD THAT THE ADDITION MADE BY THE ASSESSING OFFICER OF RS.15,23,200/ - CANNOT BE SUSTAINED IN LAW. ACCORDINGLY, THE ADDITION OF RS.15,23,200/ - ON ACCOUNT OF INTEREST RECEIVABLE ON NPA MADE BY THE ASSESSING OFFICER IS DELETED. 5. DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE ASSESSING OFFICER. 6 . WE FIND THAT THE DEPARTMENTAL REPRESENTATIVE COULD NOT POINT OUT ANY SPECIFIC ERROR IN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) QUOTED ABOVE. WE FIND THAT THE COMMI SSIONER OF INCOME TAX (APPEALS) AFTER CONSIDERING THE FACTS IN THE INSTANT CASE AND RELYING ON THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S. CANFIN HOMES LTD. (SUPRA) , DELETED THE ADDITION OF 15,23,200/ - ON ACCOUNT OF INTEREST RECEIVABLE ON NON - PERFORMING ASSETS. WE, THUS, FIND THAT THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IS IN CONFORMITY WITH THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT AND HENCE, WE DO NOT FIND ANY GOOD AND JUSTIFIABLE REASON TO INTERFE RE WITH THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) WHICH IS CONFIRMED AND THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 7 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT AT THE CLOSE OF THE HEARING ON TUESDAY , THE 17 TH DAY OF NOVEMBER , 201 5 AT GOA . SD/ - SD/ - (GEORGE MATHAN) (N.S.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 17 TH N O V E M B E R , 201 5 . VR/ - 5 ITA NO. 339 /PNJ/201 5 COPY TO: 1 . THE ASSESSEE. 2 . THE REVENUE. 3 . THE CIT 4 . THE CIT(A) 5 . THE D.R . 6 . GUARD FILE. BY ORDER ASSISTANT REGISTRAR I.T.A.T., PANAJI 6 ITA NO. 339 /PNJ/201 5 DATE INITIAL ORIGINAL DICTATION PAD & DRAFT ARE ENCLOSED IN THE FILE 1. DRAFT DICTATED ON 17 . 1 1 .2015 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 18 . 1 1 .2015 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 18 / 1 1 /2015 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 18 / 1 1 /2015 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 18 / 1 1 /2015 SR.PS 6. DATE OF PRONOUNCEMENT 17 / 1 1 /2015 SR.PS 7. FILE SENT TO THE BENCH CLERK 18 / 1 1 /2015 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER