The Baghat Urban Co-operative Bank Limited, Solan V. DCIT, Circle, Shimla

ITA 366/CHANDI/2023

• Counselvise Citation: [2023] 101 COUNSELVISE.COM (IT) 9655 (ITAT-CHANDIGARH)
• Duration Of Justice: 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 28-11-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 04-06-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Set aside
• Section: 145; 43D; 43

Judgement Text

आयकर अपील य अ धकरण,च डीगढ़ यायपीठ , च डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH ‘B’ CHANDIGARH BEFORE: SHRI A.D.JAIN, VICE PRESIDENT AND SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER आयकर अपील सं./ ITA No. 366 & 367/CHD/2023 नधा रण वष / Assessment Year : 2013-14 & 2014-15 The Bhagat Urban Co-operative Bank Ltd., Head Office Bhagat Bank Parisar, Rajgarh Road, Solan (HP). Vs The DCIT, Circle – Shimla, Shimla (HP). PAN /TAN No: AACAT8221F अपीलाथ /Appellant यथ /Respondent HYBRID HEARING नधा रती क ओर से/Assessee by : Shri Vishal Mohan, Sr.Advocate with Shri Aman Singhi, CA राज व क ओर से/ Revenue by : Shri Dharam Vir, JCIT, Sr.DR तार ख/Date of Hearing : 29.11.2023 उदघोषणा क तार ख/Date of Pronouncement : 06.12.2023 आदेश/ORDER PER VIKRAM SINGH YADAV,A.M. These are two appeals filed against the respective orders of CIT(A) NFAC, Delhi dated 16.05.2023 and 17.05.2023 pertaining to assessment year 2013-14 and 2014-15 respectively. Since common issues are involved, both these appeals were heard together. 2. With the consent of both the parties, the case of the assessee in ITA 366/CHD/2023 pertaining to 2013-14 is taken as ITA 366&367/CHD/2023 2 a lead case wherein the assessee has taken the following grounds of appeal: “1. That in the facts and circumstances of the case the Ld. Commissioner of Income Tax (Appeal) is not justified in upholding the order of the Ld. Assessing Officer and treating the interest due on NPA accounts as income of the assessee? 2. That in the facts and circumstances of the case the Ld. Commissioner of Income Tax Appeals is not justified in not following the Judgment of the Hon'ble Jurisdictional High Court of Himachal Pradesh whereby the Hon'ble High Court held that the interest on sticky loans (NPAs) in respect of co- operative bank is taxable on receipt basis viz-a-viz NPAs and hold that the amendment in Section 43D w.e.f. 01.04.2018 should be treated as retrospective.” 3. Briefly the facts of the case are that the assessee is a Co- operative Society registered under the Co-operative Societies Act w.e.f. 07.09.1970 and thereafter got under the purview of Banking Regulation Act, 1949 w.e.f. 27.03.1972 by the Reserve Bank of India and permanently registered under RBI License dated 09.05.1997 and therefore, covered under Non Scheduled Bank as defined in the Banking Regulation Act, 1949. The assessee was following mercantile system of accounting for the impugned assessment year. The assessee had filed its return of income declaring total income of Rs.1,83,15,554/- and in the assessment framed u/s 143(3), an addition was made to the total income on account of overdue interest on non performing assets amounting to Rs.49,52,913/- which was shown in the Balance Sheet under the head “Interest Receivable overdue interest on ITA 366&367/CHD/2023 3 NPA” and at the same time, not credited/recognized in the Profit & Loss Account, hence not offered to tax. The assessee had contended before the AO that the interest has not been accounted for and offered to tax following the RBI guidelines and following the decision of Hon'ble Supreme Court in the case of UCO Bank Vs CIT reported in 237 ITR 889. The claim so made by the assessee was, however, not accepted by the AO stating that since the assessee was following mercantile system of accounting, the interest income on NPA need to be included in its total income and has referred to the CBDT Instruction No.17/2008 dated 26.11.2008 issued in the context of Section 145 wherein it was provided that under the RBI guidelines and the Indian Companies Act, the banks have to follow the mercantile system of accounting and prepare accounts on accrual basis and the AO should ensure that the system is strictly followed by the banks. It was further held by the AO that the decision of the Hon'ble Supreme Court in the case of UCO Bank does not support the case of the assessee as the assessee is a Non Scheduled Bank whereas the UCO Bank was a Scheduled Bank and Scheduled Bank has been specifically given the privilege of accounting their interest income from NPAs in the year in which such interest income is received in terms of Section 43D of the Act. It was held by the AO that the benefit of Section 43D was extended w.e.f. 01.04.2000 in case of public companies engaged in long term financing of housing project approved by National Housing Bank, however, the legislature in ITA 366&367/CHD/2023 4 its wisdom did not extend the same benefit to co-operative banks as has been given to the Scheduled Banks, Public Financial Institutions etc. Accordingly, the AO held that since the assessee bank is regularly following the mercantile system of accounting, the interest due on NPA amounting to Rs.49,52,913/- is income of the assessee for the year under consideration and the same was accordingly, brought to tax and the assessed income was determined at Rs.2,32,68,470/-. 4. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) and before the ld. CIT(A), it was submitted that the only ground of appeal in the instant case is regarding taxing of Rs.49,52,913/- on account of interest earned on the accounts which were declared NPA. In that regard, it was submitted that the assessee is a Cooperative Bank engaged in the business of banking. In the assessment year under consideration, the ld. A.O. was of the opinion that interest on the loans which have been declared NPA had to be declared as income of the assessee on accrual basis as the assessee-bank was following mercantile system of account. In that regard, it was submitted that the assessee is Co-operative bank engaged in the business of banking and the NPA had been declared as per the prevalent RBI's guidelines which are binding upon the assessee. The status of the accounts which were declared NPA alongwith the prevalent RR1 guidelines for the instant assessment year were placed on ITA 366&367/CHD/2023 5 record. It was further submitted that the matter is no longer res integra as the law is well settled by the Hon'ble Supreme Court of India in the case titled UCO Bank versus C1T reported in 237 ITR 889 and Mercantile Bank Ltd reported in 283 ITR 84. It was submitted that as the issue is squarely covered in the favour of the assessee, it was prayed that the addition be quashed. Alternatively, it was submitted that the Section 43 D was amended by the Finance Act. 2017 commencing w.e.f. 01.04.2018 wherein the applicability of the provisions of Section 43 D have been made applicable to Co-op erative banks other that primary agriculture credit Society or primary Cooperative and Rural Development Corporation. Though in the instant assessment in Section 43D, same was not explicitly mentioned, but the legislature in its own wisdom has now removed the said anomaly and made the said section applicable even to cooperative banks as the said amendment is curative in nature replying upon the judgment of the Hon'ble Supreme Court in the case of Alom Extrusion Ltd. reported in 184 Taxman 416, the same is applicable for the instant assessment year. It was further submitted before the ld. CIT(A) that in case of Pr. CIT Vs Kangra Central Co-operative Bank (ITA No. 82 & 83 of 2018), the Hon'ble Himachal Pradesh High Court vide its decision dated 07.12.2022 has decided the matter in favour of the assessee holding that the provisions of Section 43D are curative in nature and therefore, ITA 366&367/CHD/2023 6 the amendment brought in w.e.f. 01.04.2018 have to be treated as retrospective in nature. 5. The ld. CIT(A) considered the submissions so made by the assessee, however, confirmed the finding of the AO holding that the assessee co-operative society cannot be given the benefit of retrospective applicability of Section 43D of the Act. As per the ld. CIT(A), the amendment in Section 43D w.e.f. 01.04.2018 nowhere mentions the term “shall be deemed always to have meant”, or “shall be deemed never to have included” which is a strong indicator of retrospective operation of Statute. Further, referring to the decision of Hon'ble Himachal Pradesh High Court, it was held by the ld. CIT(A) that the amendment in Section 43D was brought to provide level playing field to the Co-operative Banks vis-à-vis Scheduled Bank. It was stated by the ld CIT(A) that with due respect and honour to the Hon'ble Judges, he beg to defer that creation or provision of level playing field in itself can be a state of retrospective operation. It was held by the ld. CIT(A) that the preamble of the amendment in Section 43D was neither declaratory nor clarificatory and it was just an enabler and it was not contemplating any retrospectivity. Further referring to the Hon'ble Supreme Court decision in case of Gold Coil Health Food Pvt. Ltd. in Civil Appeal No. 5065 of 2008, it was held by the ld. CIT(A) that the retrospective application can be achieved by express enactment or by necessary implication ITA 366&367/CHD/2023 7 from the language implied and in the present case, in his opinion with due respect and offering due apology to the Hon'ble Judges, the amendment in Section 43D w.e.f. 01.04.2018 should not be treated as retrospective in nature. Further, he agrees with the observation of the AO that the judgement of the Hon'ble Supreme Court in case of UCO Bank is not applicable in the present case as the assessee is a Co-operative Society (bank) and not a Scheduled Bank, hence the assessee society cannot be given the benefit of retrospectivity of Section 43D nor the benefit of a Schedule Bank and the appeal of the assessee was accordingly, dismissed. 6. Against the said findings and the directions of the ld. CIT(A), the assessee is in appeal before us. 7. During the course of hearing, the limited contention which has been raised by the ld. AR is that the amendment brought in Section 43D was curative in nature to provide level playing fields to the co-operative banks vis-à-vis Scheduled Bank and to rationalize the scope of Section 43D, the amendment has to be read with effect from the date when Section 43D was introduced i.e. w.e.f. 01.04.2000. It was submitted that the matter is squarely covered by the decision of Hon'ble jurisdictional High Court in case of Pr. CIT Vs the Kangra Central Co-operative Bank (supra) and our reference was drawn to para 21 of the said order ITA 366&367/CHD/2023 8 wherein there is a clear finding that the amendment brought in w.e.f. 01.04.2018 has to be treated as retrospective in nature. 8. It was further submitted that Co-ordinate Chandigarh Benches have been taking a consistent view in the matter and following the decision of the Tribunal in case of Kangra Central Co-operative Bank which has now been affirmed by the Hon’ble High Court and reference was drawn to the decision in case of DCIT Vs Jogindra Central Co-operative Bank ITA No. 290/CHD/2020 dated 08.06.2021 wherein the matter has again been decided in favour of the assessee which is also a case of a Co-operative Bank engaged in banking activities and covered under Non Scheduled Bank as defined in Banking Regulation Act, 1949. It was, accordingly, submitted that the matter is squarely covered in favour of the assessee by the decision of the jurisdictional High Court as well as the Co-ordinate Benches and therefore, following the same, necessary relief may be provided to the assessee. 9. Per contra, the ld. DR submitted that at the time of passing of the assessment order on 28/01/2016, Section 43D did not refer to Non Scheduled Banks and only referred to Scheduled Banks, however, by Finance Act, 2017, Co-operative Banks were also included in the definition of Section 43D w.e.f. 01.04.2018. It was submitted that at the time of passing of the Finance Bill, it was specifically stated that the amendment will take effect ITA 366&367/CHD/2023 9 from 01,04,2018 and will mainly apply in relation to assessment year 2018-19 and subsequent years. It was, accordingly, submitted by the ld. DR that Section 43D cannot have retrospective applicability for the years under consideration and the same has to be read and understood as applicable w.e.f. assessment year 2018-19 onwards. 10. Regarding the decision of the Hon'ble jurisdictional High Court in case of Pr. CIT Vs Kangra Central Co-operative Bank, it was submitted that the Revenue has moved an SLP against the said decision before the Hon'ble Supreme Court and the matter is currently pending adjudication before the Hon'ble Supreme Court. It was, accordingly, submitted that the Revenue has not accepted the decision of the Hon'ble jurisdictional High Court in case of Kangra Central Co-operative Bank. 11. We have heard the rival contentions and perused the material available on record. In case of Kangra Central Co- operative Bank (supra), the matter came up for consideration before the Hon'ble jurisdictional High Court pertaining to assessment year 2012-13 and 2013-14 and the Hon'ble jurisdiction High Court was pleased to hold as under : “21. A perusal of the objects of amending the existing provisions of Section 43D of the Act vide Finance Bill 2017, reveals that the benefit of the existing provision was available to .scheduled bank or a public financial institution etc. With a view to provide level playing field to cooperative banks vis-a-vis scheduled banks and to rationalize the scope of Section 43D. it was proposed to introduce the amendment to Section 43D of the Act so as to include co- ITA 366&367/CHD/2023 10 operative banks other then a primary agricultural credit society or a primary co-operative agricultural and rural development bank. The omission was sought to be corrected by bringing at par the scheduled banks and non- scheduled banks. Thus, it is evident that the amendment was brought in force with a view to cure the omission in Section 43D. Although, the amendment was sought to be made effective w.e.f. 1 s ' April. 2018, but it was liable to be treated as retrospective in nature. In order to arrive at this view, reliance is made on the decision of Hon'ble Supreme Court in Allied Motors' case supra. Moreover, it serves no purpose that the assessee, which is a non-scheduled bank, should include the NPAs/sticky loans in the relevant assessment year and then claim it as a bad debt in the next assessment year. There is no quarrel with the preposition of law settled by the judgments relied upon by the learned counsel for the appellant, but in view of the decision given by the Hon'ble Supreme Court in Allied Motors' case supra, we are of the opinion that the view taken by the Tribunal that the assessee was required to tax the interest on the sticky loans/NPAs on receipt basis, is liable to be upheld.” 12. The Hon’ble High Court held that although the amendment in section 43D was sought to be made effective w.e.f 1/04/2018 but it was liable to be treated as retrospective in nature and has upheld the view taken by the Tribunal that the assessee was required to tax the interest on the sticky loans/NPAs on receipt basis. We, therefore, find that the matter is squarely covered in favour of the assessee by the decision of the Hon'ble jurisdictional High Court. The amendment whether to be read as retrospective or prospective being a question of law where so decided by the Hon’ble Jurisdictional High Court is binding on all the authorities under its jurisdiction and we see no reason but to respectfully follow the said decision. In the instant case, it is not in dispute that the assessee is a Co-operative Bank and covered under Non Scheduled Bank as per the Banking Regulation Act, 1949 and therefore, the amendment brought in by the Finance Act, 2017 which has been held to be retrospective in nature ITA 366&367/CHD/2023 11 applies in the case of the assessee. In view of the same, the addition so made by the AO and confirmed by the ld. CIT(A) is hereby set aside. 13. In the result, appeal of the assessee is allowed. 14. Since the facts and circumstances are identical in ITA No. 366/CHD/2023 and ITA 367/CHD/2023, therefore, our decision in ITA 366/CHD/2023 would apply mutatis-mutandis to ITA 367/CHD/2023 also. 15. In the result, both appeals are allowed. Order pronounced in the Open Court on 6 th December,2023. Sd/- Sd/- (A.D.JAIN ) (VIKRAM SINGH YADAV ) VICE PRESIDENT ACCOUNTANTMEMBER “Poonam” आदेश क琉 灹ितिलिप अ灡ेिषत/ Copy of the order forwarded to : 1. अपीलाथ牸/ The Appellant 2. 灹瀄यथ牸/ The Respondent 3. आयकर आयु猴/ CIT 4. िवभागीय 灹ितिनिध, आयकर अपीलीय आिधकरण, च瀃डीगढ़/ DR, ITAT, CHANDIGARH 5. गाड榁 फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar