DCIT, Circle-3, Nanded V. Laxmi Urban Co-operative Bank Ltd., Latur

ITA 351/PUN/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 76035 (ITAT-PUNE)
• Duration Of Justice: 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 04-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S P WALIMBE
• Keywords: Bad and doubtful debts
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 351/PN/2013 (ASSTT.YEAR : 2007-08) DCIT, CIRCLE-3, NANDED .. APPELLANT VS. LAXMI URBAN COOPERATIVE BANK LTD., 16/7, KAVA ROAD, MARKET YARD, LATUR, DIST : LATUR .. RESPONDENT PAN NO.AAALL0013A ASSESSEE BY : SHRI SUNIL GANOO REVENUE BY : SRI S.P. WALIMBE DATE OF HEARING : 09-01-2014 DATE OF PRONOUNCEMENT : 15-01-2014 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 06-11-2012 OF THE CIT(A), AURANGABAD RELATING TO AS SESSMENT YEAR 2007- 08. 2. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER : 1. THE CIT(A) IS NOT JUSTIFIED IN DELETING THE ADDITION ON ACCOUNT OF STICKY ADVANCES/NP.A AT RS.11,16,282/- FOR THE FO LLOWING REASONS: I) THE PROVISIONS OF SECTION 145 &.43D ARE APPLICAB LE TO INTEREST ON STICKY ADVANCES/NPA. II) THE PROVISIONS OF SECTION 45Q OF RBI ACT CANNO T OVERRIDE SECTION 43D OF THE INCOME TAX ACT. SINCE BOTH THE A CTS OPERATE IN DIFFERENT FIELDS. III) THE ASSESSEE BANK IS ADOPTING HYBRID METHOD OF AC COUNTING (CASH AND MERCANTILE) WHICH IS NOT ALLOWABLE SIMULTANE OUSLY IN THE CASE OF NON-SCHEDULE BANKS CONTRARY TO THE PROVISIONS O F THE INCOME- TAX ACT. 2 IV) THE DECISION IN THE CASE OF UCO BANK VS. CIT (19 93) 237 ITR 889 (SC) & SOUTHERN TECHNOLOGIES VS. JCIT 320 ITR 577 (SC) IS APPLICABLE IN THE CASE OF NON- SCHEDULED BANKS. V) THE CBDT CIRCULAR NO. F 201/81/84 ITA-II DT. 09/10/1984 IS APPLICABLE IN THE CASE OF THE ASSESSEE BANK. THIS CIRCUL AR STIPULATES FOLLOWING TWO CONDITIONS FOR AVAILING THE BENEFIT OF THE CIRCULAR. THE ASSESSEE BANK HAS NOT FULFILLED BOTH THESE CONDITIONS. 1. THE ASSESSEE SHOULD BE BANKING COMPANY. 2. SUCH INTEREST SHOULD HAVE REMAINED UNCOVERED FOR CONSECUTIVELY FOR THREE PREVIOUS YEARS. THE ASSESSEE BANK HAS NOT FULFILLED BOTH THESE CONDITIONS . 2. THE ORDER OF THE A.O. BE RESTORED AND THE CIT(A) BE VACATED. 3. FACTS OF THE CASE, IN BRIEF, THAT THE ASSESSEE I S A COOPERATIVE SOCIETY REGISTERED U/S.9(1) OF MAHARASHTRA COOPERATIVE SOCI ETIES ACT, 1960. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THERE IS ACCRUED INTEREST OF RS.11,16,282/- ON NPA WHICH HAS NOT BEEN OFFERED TO TAX BY THE ASSESSEE. THE ARGUMENT OF TH E ASSESSEE THAT THE ASSESSEE BANK IS GOVERNED BY RBI GUIDELINES WHICH A RE BINDING ON THE BANK AND HENCE THE INTEREST INCOME ON NPA, WHICH IS NOT LIKELY TO BE RECOVERED, HAS TO BE RECOGNISED ON RECEIPT BASIS WAS NOT ACCEP TED BY THE ASSESSING OFFICER. ACCORDING TO THE ASSESSING OFFICER, AS PE R SECTION 43D OF THE ACT WHICH IS APPLICABLE TO SCHEDULED BANKS, INTEREST ON BAD OR DOUBTFUL DEBTS SHALL BE CHARGEABLE TO TAX IN THE PREVIOUS YEAR IN WHICH IT IS CREDITED OR IS ACTUALLY RECEIVED WHICHEVER IS EARLIER. SINCE THE ASSESSEE BANK IS NOT A SCHEDULED BANK, IT CANNOT OFFER TO TAX INTEREST ON DOUBTFUL DEBTS ON RECEIPT BASIS BUT HAS TO FOLLOW ACCRUAL BASIS. THE ASSESSI NG OFFICER ACCORDINGLY MADE ADDITION OF RS.11,16,282/- TO THE TOTAL INCOME OF THE ASSESSEE. 3 4. IN APPEAL THE LD.CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE FOLLOWING VARIOUS DECISIONS INCLUDING THE DECISION OF THE PUN E BENCH OF THE TRIBUNAL IN THE CASE OF ACIT, CIRCLE-3 NANDED VS. OSMANABAD JANATA SAHAKARI BANK LTD. VIDE ITA NO.795/PN/2011 ORDER DATED 31-08-2012 FOR A.Y. 2007-08. 4.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REV ENUE IS IN APPEAL BEFORE US. 5. AFTER HEARING BOTH THE SIDES, WE FIND THE ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE COORD INATE BENCH OF THE TRIBUNAL IN THE CASE OF OSMANABAD JANATA SAHAKARI B ANK LTD.(SUPRA). WE FIND THE TRIBUNAL AFTER THOROUGHLY CONSIDERING THE ISSUE HAS UPHELD THE ORDER OF THE CIT(A) WHEREIN THE LD.CIT(A) HAD DELET ED THE ADDITION MADE ON ACCOUNT OF INTEREST ON STICKY ADVANCES. THE OPE RATIVE PART OF THE ORDER OF THE TRIBUNAL READS AS UNDER : 5. WE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND P ERUSED THE RECORD. WE FIND THAT THE IDENTICAL ISSUE HAS BEEN CON SIDERED BY THE ITAT, VISAKHAPATNAM BENCH, IN THE CASE OF DCIT, VIJAYAWADA VS. THE DURGA COOPERATIVE URBAN BANK LTD., VIJAYAWADA, IN ITA.NO. 511/VIZAG/2010 DATED 10.03.2011. IN THE SAID CASE ALSO, IT WAS NOTICED BY T HE ASSESSING OFFICER THAT ASSESSEE DID NOT INCLUDE THE INTEREST OF RS.18,26,30 6/- ON THE NPA ADVANCES. AGAIN THE ISSUE OF APPLICABILITY OF SECTION 43D WAS CONSIDERED TO THE NON-SCHEDULED BANKS. THE TRIBUNAL PLACED ITS HEAV Y RELIANCE ON THE DECISION OF THE HONBLE HIGH COURT OF DELHI IN THE C ASE OF VASHIST CHAY VYAPAR LTD. [330 ITR 440 (DEL.)], IN WHICH THE HON BLE DELHI HIGH COURT HAS CONSIDERED THE DECISION IN THE CASE OF SOUTHERN TECHNO LOGIES LTD. [320 ITR 577 (SC)]. THE TRIBUNAL FINALLY HELD THAT THE INTER EST INCOME RELATABLE TO NPA ADVANCES DID NOT ACCRUE TO THE ASSESSEE. 6. AN IDENTICAL VIEW HAS BEEN TAKEN BY THE ITAT, AHM EDABAD BENCH IN THE CASE OF KARNAVATI COOPERATIVE BANK LTD. VS. DY.CI T [134 ITD 486 (AHMEDABAD)]. IN THE CASE OF KARNAVATI COOPERATIVE BANK LTD. (SUPRA), THE TRIBUNAL HAS CONSIDERED THE PROVISIONS OF SECTION 43D AN D ITS APPLICATION TO THE NON-SCHEDULED BANKS. THE REASONS GIVEN BY THE TRIB UNAL IN THE CASE OF KARNAVATI COOPERATIVE BANK LTD. (SUPRA) FOR HOLDING THAT INTEREST ON THE STICKY ADVANCES/NPA ADVANCES CANNOT BE BROUGHT TO TAX BY FOLLOWING THE DECISION IN THE CASE OF UCO BANK (SUPRA), WHICH IS AS UN DER: 15.1. ON CAREFUL ANALYSIS OF THIS SECTION OUR FIRS T OBSERVATION IS THAT SECTION 43D IS IN CONTRAST WITH THE FUNDAMENTAL PRINCIPLE O F ACCOUNTANCY. THE CARDINAL PRINCIPLE OF MERCANTILE SYSTEM OF ACCOUNTA NCY IS THAT AN INCOME IS TO 4 BE SHOWN IN THE BOOKS OF ACCOUNT ON ACCRUAL BASIS. THE PRINCIPLE IS THAT IT IS IMMATERIAL WHETHER IT WAS ACTUALLY RECEIVED OR NOT, BUT IF AN INCOME IS EXPECTED TO BE RECEIVED, THEN IT SHOULD BE BROUGHT TO BOOKS OF ACCOUNT AS AN INCOME ACCRUED TO THE ASSESSEE. CONTRARY TO THIS RE COGNIZED PRINCIPLE, THIS SECTION HAS PRESCRIBED THAT AN INCOME BY WAY OF INT EREST SHALL BE CHARGEABLE TO TAX IN THE PREVIOUS YEAR IN WHICH IT IS CREDITED. THE WORDS CREDITED AND ACTUALLY RECEIVED HAS BEEN HIGHLIGHTED HEREINABOV E WHILE REPRODUCING THE SECTION IN QUESTION. THE OTHER DEVIATION FROM THE S AID ACCEPTED PRINCIPLE OF ACCOUNTANCY IS THAT AN INCOME BY WAY OF INTEREST SH ALL BE CHARGEABLE TO TAX IN THE PREVIOUS YEAR IN WHICH IT IS ACTUALLY RECEIVED. THE ACT SAYS THAT THE INCIDENCE OF CREDIT OR ACTUALLY RECEIVED, WHICH EVER IS EARLIER IS TO BE TAKEN INTO ACCOUNT FOR THE PURPOSE OF CHARGEABILITY OF IN COME BY WAY OF INTEREST. SIMULTANEOUSLY, IT IS NOTEWORTHY THAT THIS SECTION IS AN OVERRIDING SECTION BECAUSE THE OPENING WORD IS NOTWITHSTANDING ANYTHI NG TO THE CONTRARY CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT. THE REFORE, IN SPITE OF ANYTHING CONTAINED IN THE ACT, THE PROVISIONS OF THIS SECTIO N SHALL OVERRIDE THOSE PROVISIONS. ONCE THE STATUTE HAS CATEGORICALLY MADE A LAW IN RESPECT OF PUBLIC FINANCIAL INSTITUTIONS THAT INTEREST IS CHARGEABLE TO TAX EITHER IN THE YEAR IN WHICH CREDITED OR ACTUALLY RECEIVED, WHICHEVER IS E ARLIER, THEN IT IS COMPULSORY TO ABIDE BY THE SAID RULE. ACCORDING TO US, NO SCOP E IS LEFT WITH THE REVENUE AUTHORITIES TO IGNORE THESE PROVISIONS DUE TO UNAMB IGUOUS USE OF LANGUAGE IN THE SECTION. (II) STATUS OF ASSESSEE FOR THE PURPOSE OF APPLICAT ION SECTION 43-D. AS FAR AS THE STATUS OF THE ASSESSEE IS CONCERNED, THE ASSESSING OFFICER HAS STATED THAT THE ASSESSEE-BANK IS A CO-OPERATIVE BAN K. UNDISPUTEDLY, THE ASSESSEE IS ALSO GOVERNED BY THE RBI GUIDELINES. VI DE AN EXPLANATION (D) R.W.S. 36(1)(VIIA) ANNEXED TO SECTION 43-D THE DEFINITION O F THE ENTITIES INCORPORATED BY THE SECTION HAVE BEEN DEFINED AND IN THE ABSENCE OF ANY CONTRARY MATERIAL, WE HEREBY HOLD THAT THE ASSESSEE IS COVERED BY ONE OF THE ENTITIES, HENCE THE PROVISIONS OF SECTION 43-D ARE TO BE APPLIED. (III) APPLICABILITY OF CBDT CIRCULAR. NEXT ISSUE IS THAT WHETHER A CIRCULAR HAVING EFFECT OF RELAXING RIGOUR OF LAW CAN BE TREATED AS INCONSISTENT WITH THE PROVISIONS OF A STATUTE. IN ORDER TO AID PROPER DETERMINATION OF THE INCOME OF MONEY LENDERS AND BANKS, THE CENTRAL BOARD OF DIRECT TAXES HAS ISSUED A CIRCULAR DATED OC TOBER 6, 1952, PROVIDING THAT WHERE INTEREST ACCRUING ON DOUBTFUL DEBTS IS C REDITED TO A SUSPENSE ACCOUNT, IT NEED NOT BE INCLUDED IN ASSESSEES TAXAB LE INCOME, PROVIDED THE INCOME TAX OFFICER IS SATISFIED THAT RECOVERY IS PRA CTICALLY IMPROBABLE. THE CBDT U/S.119 OF THE I.T.ACT HAS POWER TO ISSUE CIRC ULARS IN EXERCISE OF ITS STATUTORY POWERS. IF THE BOARD CONSIDER IT NECESSAR Y TO LAY DOWN CERTAIN RULES AND THEN DIRECT THE SUB-ORDINATE AUTHORITIES, SUCH DIRECTIONS ARE REQUIRED TO BE FOLLOWED AND SUCH CIRCULAR WOULD BE BINDING ON T HE DEPARTMENT UNLESS AND UNTIL HELD AS ULTRA VIRES BY A COURT OF LAW. THE B OARD HAS POWERS TO RELAX THE SEVERITY OR THE STRICTNESS OF LAW AND THE AUTHORITI ES ARE REQUIRED TO FOLLOW THOSE INSTRUCTIONS AS HELD IN THE CASE OF C.B. GAUT AM VS. UNION OF INDIA 108 CTR 304 (SC) & 110 CTR 179 (SC); NAVNITLAL C.ZAVERI 56 ITR 198(SC) AND K.P.VARGHESE 131 ITR 597 (SC). IN THE LAND-MARK DECISION, THE HON'BLE SUPREME COUR T IN THE CASE OF UCO BANK VS. CIT (1999) 237 ITR 889 (SC) HAS THEREFORE HELD, FIRST, THAT A BENEFICIAL CIRCULAR IS NOT TO BE TREATED AS INCONSISTENT WITH THE PROVISIONS OF STATUTE AND BINDING ON THE AUTHORITIES. SECOND, THAT IN RESPECT OF INTEREST ON STICKY ADVANCES INTEREST INCOME IS TO BE TAXED ONLY WHEN ACTUALLY RECEIVED AS PRESCRIBED BY CBDT CIRCULAR. 5 HOWEVER, IN THE PAST AN INTERESTING TURN HAD TAKEN PLACE BY AN ORDER OF THE HONBLE KERALA HIGH COURT IN THE CASE OF STATE BANK OF TRAVANCORE REPORTED IN 110 ITR 336 (KER.), WHEREIN IT WAS HELD THAT THE AS SESSEE, A BANKING COMPANY, DID NOT CREDIT IN ITS ACCOUNT THE INTEREST THAT HAD ACCRUED ON STICKY ADVANCES BECAUSE THE ASSESSEE FELT THAT THE INTEREST COULD N OT TO BE REALISED. IT CREDITED THE INTEREST TO A SEPARATE ACCOUNT KNOWN AS INTERE ST SUSPENSE ACCOUNT. ON REFERENCE, THE HON'BLE COURT HAS HELD THAT THERE WA S AN ACCRUAL OF INCOME LIABLE TO INCOME-TAX AND THE ASSESSEE WAS NOT JUSTIF IED IN NOT CREDITING THE INTEREST INCOME ON SUCH STICK ADVANCES IT ITS ACC OUNTS. HOWEVER, LATER ON AT THE HON'BLE APEX COURT WHILE PRONOUNCING THE JUDGMEN T OF THE SAID STATE BANK OF TRAVANCORE VS. CIT REPORTED IN (1986)158 ITR 102 (SC), THERE WERE HON'BLE THREE JUDGES PRESIDING THE COURT, OUT OF WHICH HON BLE TWO JUDGES WERE IN THE OPINION THAT THE INTEREST ON STICKY ADVANCES WAS RIGHTLY TREATED AS INCOME WHICH HAD ACCRUED TO THE APPELLANT. THERE WAS A DES CENDING NOTE BY ONE OF THE HON'BLE JUDGE AND COMMENTED THAT WHETHER AN INCOME ON RECEIPT BASIS OR ON ACCRUAL BASIS, IT IS THE REAL INCOME AND NOT ANY HY POTHETICAL INCOME WHICH MAY HAVE THEORETICALLY ACCRUED, I.E. SUBJECT TO TAX UNDE R THE ACT. NEVERTHELESS, THAT DECISION WAS NOT FOLLOWED WHILE DECIDING THE APPEAL OF UCO BANK (SUPRA) BY THE HON'BLE THREE JUDGES OF THE SUPREME COURT, ALREA DY DISCUSSED BY US SUPRA. WE, THEREFORE SUMMARIZE THAT AS OF NOW THE LAW AS L AID DOWN IN UCO BANK IS THAT IN TERMS OF CBDT CIRCULAR THE INTEREST IS TO B E ADDED AS INCOME ONLY WHEN ACTUALLY RECEIVED OR CREDITED IN RESPECT OF THE ST ICKY ADVANCES WHILE MAKING ASSESSMENT FOR A FINANCIAL INSTITUTION. (IV) INTERPRETATION OF THE LANGUAGE OF THE STATUTE : WE HAVE REPRODUCED VERBATIM THE PROVISIONS OF SECTI ON 43-D OF THE I.T.ACT AND EXPRESSED AN OPINION THAT IF THE STATUTE HAS USED T HE TERMINOLOGY FOR THE CHARGEABILITY OF INTEREST ON THE BASIS WHEN CREDIT ED OR ACTUALLY RECEIVED, THEN IN OUR OPINION NO AMBIGUITY HAS BEEN LEFT BY T HE STATUTE. IF THE STATUTE IS SO CLEAR THAT AN INTERPRETATION CAN EASILY BE MADE, THEN THAT EXACT MEANING SHOULD BE GIVEN TO THE LANGUAGE OF THE SECTION. FOR THIS LEGAL PROPOSITION WE PLACE RELIANCE ON KESHAVJI RAVJI AND COMPANY VS. CI T 183 ITR 01 (SC), WHEREIN IT WAS HELD AS UNDER: AS LONG AS THERE IS NO AMBIGUITY IN THE STATUTORY LANGUAGE, RESORT TO ANY INTERPRETATIVE PROCESS TO UNFOLD THE LEGISLATIVE IN TENT BECOMES IMPERMISSIBLE. THE SUPPOSED INTENTION OF THE LEGISLATURE CANNOT TH EN BE APPEALED TO WHITTLE DOWN THE STATUTORY LANGUAGE WHICH IS OTHER-WISE UNA MBIGUOUS. IF THE INTENDMENT IS NOT IN THE WORDS, IT IS NOWHERE ELSE. THE NEED FOR INTERPRETATION ARISES WHEN THE WORDS USED IN TH E STATUTE ARE, ON THEIR OWN TERMS, AMBIVALENT AND DO NOT MANIFEST THE INTENTION OF THE LEGISLATURE. WHEN WORDS ACQUIRE A PARTICULAR MEANING OR SENSE BE CAUSE OF THEIR AUTHORITATIVE CONSTRUCTION BY SUPERIOR COURTS, THEY ARE PRESUMED TO HAVE BEEN USED IN THE SAME SENSE WHEN USED IN SUBSEQUENT LEGI SLATION IN THE SAME OR SIMILAR CONTEXT. TO SAY THAT THE COURT COULD NOT RESORT TO THE SO-CA LLED EQUITABLE CONSTRUCTION OF A TAXING STATUTE IS NOT TO SAY THAT, WHERE A STRI CT LITERAL CONSTRUCTION LEADS TO A RESULT NOT INTENDED TO SUBSERVE THE OBJECT OF THE LEGISLATION, ANOTHER CONSTRUCTION, PERMISSIBLE IN THE CONTEXT, SHOULD NO T BE ADOPTED. IN THIS RESPECT, TAXING STATUTES ARE NOT DIFFERENT FROM OTHER STATUTE S. WE CAN THEREFORE SAFELY DRAW A CONCLUSION THAT BY T HE INSERTION OF A SPECIAL PROVISION TO TAX INTEREST INCOME IN THE CASE OF PUBL IC 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 VS. BANK OF AMERI CA S.A. 262 ITR 504 (BOM) THE 6 QUESTION OF INTEREST ON STICKY LOANS WAS DECIDED IN FAVOUR OF THE ASSESSEE AND HELD THAT THE QUESTION IS TO BE ANSWERED IN FAVOUR OF THE ASSESSEE FOLLOWING THE DECISION OF UCO BANK REPORTED AT 237 ITR 889(SC) :: 240 ITR 355 (SC). LIKEWISE, IN AN ANOTHER CASE OF CIT VS. STATE BANK OF INDIA 262 ITR 662 (BOM.) AGAIN IT WAS HELD THAT THE AMOUNT CREDITED TO THE I NTEREST SUSPENSE ACCOUNT WAS NOT TAXABLE FOLLOWING THE DECISION PRONOUNCED IN THE CASE OF UCO 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 ELA BORATE DISCUSSION MADE HEREINABOVE SO AS TO UNFOLD THE CONTROVERSY. IN THE SAID DECISION OF THE TRIBUNAL, VIZ. JT.CIT V/S. INDIA EQUIPMENT LEASING L TD. (2008)111 ITD 37 (CHENNAI), THE RESPECTED CO-ORDINATE BENCH HAS EXPR ESSED THAT QUOTE PRIOR TO INSERTION OF SECTION 43D WITH EFFECT FROM 1-4-19 91, RECOGNITION OF INCOME WAS ON THE BASIS OF CIRCULAR OF 9-101984. IT SAID T HAT FOR FIRST THREE YEARS THE INCOME MAY BE TAKEN ON ACCRUAL BASIS AND FROM 4TH Y EAR ONWARDS, THE INCOME IN RESPECT OF DOUBTFUL DEBTS WAS TO BE RECOGNIZED O N RECEIPT BASIS. SINCE THE INCOME WAS TO BE ASSESSED FOR FIRST THREE YEARS ON ACCRUAL BASIS, PROVISIONS OF SECTION 43D WERE INSERTED IN THE ACT. CIRCULAR NO.6 21, DATED 19-12-1991 GIVES THE LEGISLATIVE 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 CHAR GED TO TAX ONLY IN THE YEAR IN WHICH THE INTEREST IS ACTUALLY RECEIVED OR CREDITED TO THE PROFIT AND LOSS ACCOUNT. THIS BENEFIT 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 BANKS. THE LEGISLATURE IN THEIR WISDOM DID NOT EXTEND THE SAME BENEFIT TO NBFCS WHICH HAS BEEN GIVE N TO SCHEDULED BANKS, PUBLIC FINANCIAL INSTITUTIONS, ETC. THE PROVISIONS 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 DEBT S AS MAY BE PRESCRIBED HAVING REGARD TO THE GUIDELINES ISSUED BY THE RBI I N RELATION TO SUCH DEBTS'. THIS EXPRESSION CONTINUES TO EXIST IN THE NEWLY SUBS TITUTED SECTION 43D APPLICABLE WITH EFFECT FROM 1-4-2000. THIS SHOWS TH AT THE RBI GUIDELINES IN RESPECT OF SCHEDULED BANKS, PUBLIC FINANCIAL INSTIT UTIONS ETC., WERE NOT SUFFICIENT FOR RECOGNITION OF INCOME ON CASH BASIS FOR THE PURPOSES OF INCOME- TAX. THE INCOME OF SUCH ASSESSEES WAS DETERMINED AS PER CIRCULAR DATED 9-10- 1984. BECAUSE OF THIS REASON, SECTION 43DWAS INSERT ED IN THE STATUTE. RBI GUIDELINES IN CASE OF NBFC ARE FOR THE PURPOSE OF C ONTROL AND SUPERVISION WITH RESPECT TO PUBLIC INTEREST AND VIABILITY OF THE NBF C. THE GUIDELINES NEVER INTENDED FOR TAKING THE INTEREST INCOME 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 G UIDELINE ISSUED FOR DIFFERENT PURPOSES BY AN AUTHORITY OTHER THAN THE PARLIAMENT IN OTHER WORDS, THE DOCTRINE OF 'CASUS OMISSUS' WILL DEEM TO HAVE BEEN APPLIED WHICH IS CONTRARY TO LAW OF LAND.UNQUOTE. THE BASIC REASON FOR DIREC TING 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 BE 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 FINANCI AL COMPANY AND THIS NOTEWORTHY DISTINCTION HAS ALREADY BEEN APPRECIATED BY US IN ONE OF THE PARAGRAPHS ABOVE. THERE IS ONE MORE DECISION OF THE HONBLE APEX COURT WHICH IS YET TO BE MENTIONED WHILE DISCUSSING THE ARGUMENTS RAISED FRO M THE SIDE OF THE REVENUE. A DECISION IN THE CASE OF SOUTHERN TECHNOLOGIES LTD . VS. JT. CIT 320 ITR 577 7 (SC) HAS BEEN CITED BUT THE FUNDAMENTAL DIFFERENCE IS THAT THE ISSUE BEFORE THE HONBLE COURT WAS IN RESPECT OF PROVISION FOR NPA A ND DEBITED TO P&L ACCOUNT BY A NBFC. THE SAID PROVISION WAS UNDISPUTEDLY MADE BY THE SAID NBFC AS PER THE PRUDENTIAL NORMS MADE BY THE RESERVE BANK. THER EFORE WE WANT TO MAKE IT CLEAR THAT THE QUESTION FOR CONSIDERATION BEFORE THE HONBLE COURT WAS THAT IF A PROVISION FOR DOUBTFUL DEBT IS MADE THEN WHAT WIL L BE THE LEGAL POSITION OF THE APPLICABILITY OF EXPLANATION TO SECTION 36(1)(V II) OF THE I.T. ACT. FOR THE SAKE OF READY REFERENCE, RELEVANT PARAGRAPH FROM TH E HELD PORTION IS REPRODUCED BELOW: THE INCOME-TAX IS A TAX ON REAL INCOME, I.E., THE PROFITS ARRIVED AT ON COMMERCIAL PRINCIPLES SUBJECT TO THE PROVISIONS OF THE ACT. THEREFORE, IF BY THE EXPLANATION TO SECTION 36(1)(VII) A PROVISION FOR D OUBTFUL DEBT IS KEPT OUT OF THE AMBIT OF BAD DEBT WHICH IS WRITTEN OFF, THEN ON E HAS TO TAKE INTO ACCOUNT THE EXPLANATION IN COMPUTING THE TOTAL INCOME 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 AC COUNT UNDER THE RESERVE BANK DIRECTIONS OF 1998 IS ONLY A NOTIONAL EXPENSE AND, THEREFORE, THERE WOULD BE ADD BACK TO THAT EXTENT IN THE COMPUTATION OF TOT AL 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 ADMI SSIBILITY 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 BEE N ARGUED AND IN SUPPORT A DECISION OF HON'BLE COURT PRONOUNCED IN THE CASE OF CIT VS. GODHRA ELECTRICITY CO. 225 ITR 746 (SC). IN SHORT, THE VIEW EXPRESSED WAS THAT IF INCOME DOES NOT RESULT AT ALL, THERE CANNOT BE ANY TAX AND THAT IF A N INCOME HAS NOT MATERIALIZED, THEN MERELY AN ENTRY MADE ABOUT A HYP OTHETICAL INCOME BY FOLLOWING BOOK KEEPING METHODS, THE LIABILITY TO TA X CANNOT BE ATTRACTED. NOW AT PRESENT THE SITUATION IS THAT THE HON'BLE MA DRAS HIGH COURT IN THE CASE OF CIT VS. ELGI FINANCE LTD. 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 IN TO PLAY WITHOUT INCOME WAS RECOGNIZED AND THAT THE ASSESSEE HAD CLASSIFIED ITS ASSETS ON THE BASIS OF NOTIFICATION ISSUED BY R.B.I. AND FOUND THAT CERTAI N ASSETS CAME UNDER THE CATEGORY OF NPA AND THAT FROM SUCH NPA THE ASSESSEE HAD NOT RECOGNIZED ANY INCOME IN CONSONANCE WITH THE NOTIFICATION ISSUED B Y RBI AND AS-9 ISSUED BY ICAI AND THAT THE ASSESSEE WAS JUSTIFIED IN NOT REC OGNIZING SUCH INCOME. THE COURT HAD FURTHER EXPRESSED THAT THERE WAS NO OCCAS ION TO CONSIDER WHETHER THE PRINCIPLE OF ACCRUAL WOULD ARISE OR NOT, NEVERT HELESS, THE INTEREST FROM SUCH NPA WOULD BE TAXED IN THE APPROPRIATE ASSESSMENT YE AR ON THE BASIS OF ACTUAL RECEIPT. IT IS WORTH TO MENTION THAT FOR THIS DECIS ION, THE HON'BLE MADRAS HIGH COURT HAS RELIED UPON AN ANOTHER DECISION OF THE SA ME HIGH COURT PRONOUNCED IN THE CASE OF JT.CIT VS. INDIA EQUIPMENT LEASING LT D. 293 ITR 350. 7. IN THE CASE BEFORE US, ADMITTEDLY, ASSESSEE HAS DIRECTL Y TAKEN THE INTEREST TO THE BALANCE SHEET AND IT IS NOT ROUTED TH ROUGH THE PROFIT & LOSS ACCOUNT. MOREOVER, THE ISSUE OF THE TAXABILITY OF T HE INTEREST ON THE STICKY LOSSES/ADVANCES, IS COVERED IN FAVOUR OF THE ASSESSEE BY TH E DECISION OF THE COORDINATE BENCHES IN THE CASE OF THE DURGA COOPERATI VE URBAN BANK LTD., VIJAYAWADA (SUPRA) AND KARNAVATI COOPERATIVE BANK LT D. (SUPRA). WE FIND NO REASON TO INTERFERE WITH THE REASONED ORDER OF THE LD. CIT(A) AND ACCORDINGLY THE SAME IS CONFIRMED. IN THE RESULT, THE REVENUES GROUND IS DISMISSED. 8 5.1 RESPECTFULLY FOLLOWING THE DECISION OF THE TRIB UNAL IN THE CASE OF OSMANABAD JANATA SAHAKARI BANK LTD. (SUPRA) AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) DELETING THE ADDITION MADE BY THE ASSESS ING OFFICER ON ACCOUNT OF INTEREST ON STICKY ADVANCES/NPA AT RS.11,16,282/ -. THE GROUNDS RAISED BY THE REVENUE ARE ACCORDINGLY DISMISSED. 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. PRONOUNCED IN THE OPEN COURT ON 15-01-2014. SD/- SD/- (SHAILENDRA KUMAR YADAV) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMB ER PUNE, DATED : 15 TH JANUARY 2014 SATISH COPY OF THE ORDER IS FORWARDED TO : 1. THE ASSESSEE 2. THE DEPARTMENT 3. THE CIT(A), AURANGABAD 4. THE CIT, AURANGABAD 5. D.R. B BENCH, PUNE 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE