The Anand Mercantile Co.Op.Bank Ltd., Anand V. The Dy.CIT.,Anand Circle., Anand

ITA 378/AHD/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 67944 (ITAT-AHMEDABAD)
• Duration Of Justice: 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 10-10-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 08-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P L KUREEL
• Assessee Lawyers: S N DIVETIA
• Keywords: Principle of natural justice; Bad and doubtful debts
• Section: 143(3)

Judgement Text

ITA NO 378 /AHD/2013 . A.Y. 2009 - 10 1 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL C HATURVEDI, A.M.) I.T. A. NO. 378/AHD/2013 (ASSESSMENT YEAR:2009-10) THE ANAND MERCANTILE COOP. BANK LTD MAHARSHI DAYANAND MARD, NR. PIONEER SCHOOL, ANAND (APPELLANT) VS. THE D.C.I.T, CIRCLE ANAND (RESPONDENT) PAN: AAABT 0104 E APPELLANT BY : SHRI S.N. DIVETIA RESPONDENT BY : SHRI P.L. KUREEL, SR. D.R. ( )/ ORDER DATE OF HEARING : 10-10-2013 DATE OF PRONOUNCEMENT : 22-11-2013 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A)-IV, BARODA DATED 28.09.2012 FOR A.Y. 2009-10. 2. THE FACTS AS CULLED OUT FROM THE ORDER OF LOWER AUTHORITIES ARE AS UNDER:- 3. ASSESSEE IS A CO-OPERATIVE BANK ENGAGED IN THE B ANKING BUSINESS. IT ELECTRONICALLY FILED ITS RETURN OF INCOME FOR A.Y. 2009-10 ON 31.07.2009 DECLARING TOTAL INCOME OF RS. 1,77,39,710/-. THE C ASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED U /S. 143(3) VIDE ORDER ITA NO 378 /AHD/2013 . A.Y. 2009 - 10 2 DATED 21.10.2011 AND THE TOTAL INCOME WAS DETERMINE D AT RS. 1,79,80,930/-. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED TH E MATTER BEFORE CIT(A). CIT(A) VIDE ORDER DATED 28.09.2012 PARTLY ALLOWED T HE APPEAL OF THE ASSESSEE. AGGRIEVED BY THE AFORESAID ORDER OF CIT(A ), THE ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUN DS:- 1.1 THE ORDER PASSED U/S.250 ON 28/09/2012 FOR A.Y.2009 -10 BY CIT(A)-VI, BARODA UPHOLDING THE ADDITION OF RS1,28,931/- AS TA XABLE INTEREST ON NPA A/CS MADE BY AO IS WHOLLY ILLEGAL, UNLAWFUL AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE. 1.2 THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND OR O N FACTS IN NOT CONSIDERING FULLY AND PROPERLY THE SUBMISSIONS MADE AND EVIDENCE PRODUCED BY THE APPELLANT WITH REGARD TO THE IMPUGN ED ADDITION. 2.1 THE LD.CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND ON FACTS IN CONFIRMING THAT THE INTEREST OF RS. 1,28,931/- WAS TAXABLE IN CASE ENTRY IS PASSED IN THE BOOKS AND ACCRUED TO EITHER P & L A/C OR BALANCE SH EET. 2.2 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LD.CIT(A) OUGHT NOT TO HAVE UPHELD THAT THE INTERES T OF RS. 1,28,931 WAS TAXABLE IN CASE ENTRY IS PASSED IN THE BOOKS AND AC CRUED TO EITHER P & L A/C OR BALANCE SHEET. 4. AT THE OUTSET, IT WAS SUBMITTED THAT THERE WAS B EEN DELAY IN FILING THE APPEAL. IT WAS SUBMITTED THAT THE ORDER OF CIT(A) WAS RECEI VED ON 11.10.2012 AND THEREFORE, THE APPEAL BEFORE TRIBUNAL SHOULD HAVE B EEN FILED ON OR BEFORE 11.12.2012 BUT THE SAME WAS FILED ON 08.02.2013 AND THUS THERE WAS A DELAY OF 57 DAYS IN PREFERRING THE APPEAL. ASSESSEE HAS F ILED AFFIDAVIT REQUESTING FOR CONDONATION OF DELAY. THE LEARNED A.R. THEREFORE SU BMITTED THAT THE DELAY IN FILING OF APPEAL BE CONSIDERED SYMPATHETICALLY AND THE APPEAL BEING ACCEPTED. 5. THE LD. D.R. ON THE OTHER HAND OBJECTED TO THE C ONDONATION FILED BY THE A.R. WE HAVE GONE THROUGH THE APPLICATION FOR CONDONATIO N OF DELAY AND CONSIDERED THE SUBMISSIONS MADE THEREIN. CONSIDERIN G THE SUBMISSIONS MADE, WE ARE OF THE VIEW THAT IN THE PRESENT CASE D ELAY NEEDS TO BE CONDONED AND ACCORDINGLY THE DELAY IS CONDONED AND THE APPEAL IS ADMITTED. ALL THE GROUNDS ARE INTERCONNECTED AND THEREFORE AR E CONSIDERED TOGETHER. ITA NO 378 /AHD/2013 . A.Y. 2009 - 10 3 6. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O . ON PERUSING THE DETAILS OF INTEREST NOTICED THAT ON THE ACCOUNTS WHICH TURNED TO NPA, WITHIN 3 YEARS THE ASSESSEE SHOULD HAVE CONSIDERED THE INTEREST ON IT AMOUNTING TO RS. 128931/- AS INCOME IN VIEW OF BOARDS CIRCULAR DATE D 09.10.1984 AND HON. SUPREME COURTS DECISION IN THE CASE OF UCO BANK 23 3 ITR 889. . HE ACCORDINGLY HELD INTEREST OF RS. 1,28,931/- ON THE NPA ACCOUNTS AS TAXABLE INTEREST INCOME. AGGRIEVED BY THE ORDER OF A.O, ASS ESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) DECIDED THE ISSUE BY HOLDING AS UNDER:- 11. I HAVE CONSIDERED THE REASONS FOR MAKING ADDITI ON OF R1,28,931/- ON ACCOUNT OF INTEREST ON NPA AS MENTIONED BY THE AO IN THE ASSESSMENT ORDER AS WELL AS THE ABOVE SUBMISSION OF THE APPELLANT. T HE APPELLANT HAS FILED SUBMISSION VIDE HIS LETTER DATED 17-09-20 12 AS REPRODUCED IN EARLIER PARAGRAPHS. THE MAIN CONTENTION OF THE APPE LLANT IS THAT THE ABOVE INTEREST OF RS. 1,28,931/- WAS NOT ACCRUED TO HIM O N NPA. AS PER THE APPELLANT AS PER THE GUIDELINES ISSUED BY THE RESER VE BANK OF INDIA FOR RECOGNIZING THE INCOME FROM NON PERFORMING ASSETS O F A BANK, THE REAL INCOME IS ONLY REQUIRED TO BE TAXED AND NOT THE HY POTHETICAL NON EXISTING INCOME. AS PER THE APPELLANT IT BEEN COOP. BANK HAS FOLLOWED INCOME RECOGNITION NORMS PRONOUNCED BY RBI AND SUCH ACCOUN TING PRACTICE IS BEING FOLLOWED BY IT SINCE 1991-92. AS PER THE APPELLANT WHEN THE PRINCIPAL AMOUNT ITSELF IS IN DOWN OF RECOVERY, RECEIPT OF INTEREST IS FAR BEYOND REACH AND SUCH INTEREST INCOME ON NPA ACCOUNTS ARE INCLUDED AS INT EREST INCOME ONLY ON THE BASIS OF ACTUAL RECEIPT, AS PER THE APPELLANT THIS IS BASED ON THE LINES OF GUIDELINES ISSUED BY RBI. IN MY OPINION THE ABOV E AMOUNT OF RS.1,28,931/- CANNOT BE ADDED TO THE TOTAL INCOME OF THE APPELLAN T IN CASE IF THE APPELLANT BANK HAS NOT PASSED ANY ENTRY IN THE BOOKS OF ACCOU NT FOR SUCH INTEREST AND IT HAS NOT ACCRUED TO ANY ACCOUNT EITHER IN P & L OR IN BALANCE SHEET. 12 INTEREST HAS TO BE ADDED AS INCOME ONLY WHEN THE SA ME IS ACTUALLY RECEIVED OR IS CREDITED IN THE BOOKS OF ACCOUNT IN RESPECT OF THE STICKY ADVANCES OR NPA WHILE MAKING ASSESSMENT FOR FINANCI AL INSTITUTIONS. IN THIS REGARD, SUPPORT IS DRAWN FROM THE DECISIONS OF HON' BLE ITAT, AHMEDABAD IN THE CASE OF THE KARNAVATI CO-OP. BANK LTD. VS. DCIT (2012) 144 TTJ (AHD) 769. AS PER THE DECISION OF HON'BLE ITAT, AHMEDABAD AS OF NOW AS LAID DOWN IN THAT IN TERMS OF CBDT CIRCULAR DATED 06-10-1952, THE INTEREST IS.TO BE ADDED AS INCOME ONLY WHEN ACTUALLY RECEIVED OR CRED ITED IN RESPECT OF THE 'STICKY ADVANCES' WHILE MAKING ASSESSMENT FOR A FINANCIAL INSTITUTION. THUS , AS PER THE HON'BLE ITAT IT CAN SAFELY BE CONCLUDED THAT BY THE INSERTION OF SPECIAL PROVISION TO TAX INTEREST INCOME IN THE CAS E OF PUBLIC FINANCIAL INSTITUTION ETC. SECTION 43D HAS TO BE APPLIED IN I TS LETTER AND SPIRIT. IN VIEW OF THESE FACTS, THE AO IS DIRECTED TO VERIFY FROM THE RELEVANT RECORDS OF THE APPELLANT AS TO WHETHER THE APPELLANT HAS PASSED AN Y ENTRY IN THE BOOKS OF ACCOUNTS FOR ABOVE INTEREST OF RS L,28,93L/- AND IT HAS ACCRUED TO ANY ACCOUNT ITA NO 378 /AHD/2013 . A.Y. 2009 - 10 4 EITHER IN P&L ACCOUNT OR IN BALANCE SHEET. ON VERIF ICATION IF IT IS FOUND THAT THE APPELLANT BANK HAS NOT PASSED ANY ENTRY IN THE BOOK S OF ACCOUNTS FOR THIS AMOUNT OF INTEREST AND IT HAS NOT ACCRUED TO ANY AC COUNT EITHER IN P&L ACCOUNT OR IN BALANCE SHEET, THEN THE ABOVE ADDITIO N OF RS 1,28,931/- WILL STAND DELETED. IF THE APPELLANT BANK HAS PASSED ANY ENTRY IN THE BOOKS OF ACCOUNTS FOR THIS AMOUNT OF INTEREST AND IT HAS ACC RUED TO ANY ACCOUNT EITHER IN P&L ACCOUNT OR IN BALANCE SHEET, THEN THIS ADDIT ION OF RS 1,28,931/- WILL STAND CONFIRMED. THUS THE GROUND OF APPEAL NO. 1 OF THE APPELLANT ARE DECIDED SUBJECT TO THIS DIRECTION. 7. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE I S NOW IN APPEAL BEFORE US. BEFORE US, THE LD. A.R. SUBMITTED THAT THE ASSESSEE IS GOVERNED BY THE DIRECTIONS OF RESERVE BANK OF INDIA (RBI) AND THE C LASSIFICATION OF ADVANCES HAS BEEN MADE IN VIEW OF THE CIRCULAR AND DIRECTION S ISSUED BY RBI. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS BEEN CONSISTENTLY F OLLOWING THE SAME METHOD OF ACCOUNTING OF NOT RECOGNIZING INTEREST IN COME FROM NON PERFORMING ASSETS ON ACCRUAL BASIS BUT BOOKING IT AS INCOME ON LY WHEN IT IS ACTUALLY RECEIVED. HE THUS URGED THAT THE ADDITION MADE BY THE A.O. BE DELETED. THE LD. D.R. ON THE OTHER HAND SUPPORTED THE ORDER OF A .O. AND CIT(A). 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE IS A CO-OPERAT IVE BANK AND IS GOVERNED BY THE GUIDELINES ISSUED BY R.B.I. FOR RECOGNIZING INCOME FROM NON PERFORMING ASSETS. IT IS ALSO A FACT THAT RS. 128931/- BEING I NTEREST ON NPA ACCOUNTS HAS NOT BEEN CONSIDERED AS INCOME BY ASSESSEE BY FOLLOW ING THE PRUDENTIAL NORMS OF RBI. WE FIND THAT HON. MADRAS HIGH COURT IN THE CASE OF CIT VS. SHAKTI FINANCE LTD. (2013) 352 ITR (MAD) HAS HELD A S UNDER:- S.36(1)(VII); MERE OF AN ACCOUNT AS A NPA WOULD NOT BY ITSELF BE SUFFICIENT TO SAY THAT THERE IS UNCERTAINTY AS REGARDS REALIZABIL ITY OF INCOME OR INTEREST INCOME THEREON. MERE CHARACTERISATION OF AN ACCOUNT AS A NPA WOULD NOT BY ITSELF BE SUFFICIENT TO SAY THAT THERE IS UNCERTAINTY AS REGARDS REALIZA BILITY OF INCOME OR INTEREST INCOME THEREON. ACCRUAL OF INTEREST IS A MATTER OF FACT TO BE DECIDED SEPARATELY FOR EACH CASE ON THE BASIS OF EXAMINATIO N OF THE FACTS AND CIRCUMSTANCES. THE SAME WOULD REQUIRE AN ASSESSMENT OF THE RELEVANT FACTS AND CIRCUMSTANCES OF EACH CASE. ONLY BY ASSESSMENT OF FACTS AND CIRCUMSTANCES, THE AUTHORITY COULD ARRIVE AT A DECI SION WHETHER THERE IS ITA NO 378 /AHD/2013 . A.Y. 2009 - 10 5 UNCERTAINITY OF THE INTEREST ACCRUED ON NPA. ONLY W HEN THERE IS UNCERTAINLY OF REALIZABILITY OF INCOME OR INTEREST INCOME THEN IT IS NOT CHARGEABLE TO TAX. THE SYSTEM OF ACCOUNTING FOLLOWED ONLY RECOGNISES IT BR INGING THE INCOME TO BOOKS. THE ADOPTED ACCOUNTING POLICY I.E., RECOGNIS ING INCOME ON NPA ACCOUNTS ONLY SUBJECT TO REALISATION DOES NOT SERVE AS A STANDARD CATEGORY. 9. WE ALSO FIND THAT ON IDENTICAL FACTS THE CO-ORDI NATE BENCH IN THE CASE OF SARANGPUR CO-OPERATIVE BANK LTD. ITA NO. 529 & 530/ A/2013 VIDE ORDER DATED 21.06.2013 HAS HELD AS UNDER:- 6. NEXT IS THE QUESTION OF THE ACCRUAL OF THE INTE REST ON 'NPA'. ALTHOUGH A SCHEDULED BANK IS REQUIRED TO FOLLOW THE PRUDENTIAL NORMS ISSUED BY THE RBI FROM TIME TO TIME, BUT SIMULTANEOUSLY FOR TAXATION PURPOSE, THE TAX PAYER IS REQUIRED TO FOLLOW THE PROVISIONS OF THE IT.ACT. IN THIS REGARD, WE MAY LIKE TO MENTION THAT THE IT AT, AHMEDABAD IN THE CASE OF KA RNAVATI CO-OP. BANK LTD. VS. DCIT, 134 ITD 486 (AHD) HAS OPINED THAT IN A SI TUATION WHERE A COOPERATIVE BANK HAD FOLLOWED MERCANTILE SYSTEM OF ACCOUNTING, BUT NEITHER CREDITED INTEREST IN THE PROFIT & LOSS ACCOUNT NOR OFFERED FOR TAXATION, THE AMOUNT OF INTEREST OF 'NPA' , IN TERMS OF CBDT CIRC ULAR DATED 6.10.1952 NEED NOT TO BE INCLUDED IN THE ASSESSEE'S TAXABLE INCOME , PROVIDED THE ITO IS SATISFIED THAT ON SUCH DOUBTFUL DEBTS, THE RECOVERY OF INTEREST IS PRACTICALLY IMPROBABLE. IN ADDITION TO THIS JUDGMENT, FEW OTHER JUDGMENTS HAVE ALSO BEEN CITED BY THE LEARNED AR PASSED BY THIS VERY TRIBUNA L. HOWEVER, THE LATEST DECISION OF THE HON'BLE MADRAS HIGH COURT IN THE CA SE OF CIT VS. SAKTHI FINANCE LTD., 31 TAXMANN.COM 305 (MAD) HAS HELD THA T QUOTE.... 'BY A CAREFUL READING OF THE CASE OF SOUTHERN TECHNOLOGIES LTD., WE ARE OF THE VIEW THAT THE ASSESSEE HAS TO PROVE EACH CASE THAT INTEREST NOT R ECOGNIZED OR NOT TAKEN INTO ACOUNT WAS IN FACT DUE TO UNCERTAINTY IN COLLE CTION OF INTEREST AND IT IS FOR THE AO TO EXAMINE FACTS OF EACH INDIVIDUAL CASE'. U NQUOTE. FURTHER, THE HON'BLE COURT VIDE PARA 18 HAS HELD AS UNDER: '18. MERE CHARACTERISATION OF AN ACCOUNT AS A NPA W OULD NOT BY ITSELF BE SUFFICIENT TO SAY THAT THERE IS UNCERTAINTY AS REGA RDS READABILITY OF INCOME OR INTEREST INCOME THEREON. ACCRUAL OF INTEREST IS A M ATTER OF FACT TO BE DECIDED SEPARATELY FOR EACH CASE ON THE BASIS OF EXAMINATIO N OF THE FACTS AND CIRCUMSTANCES. ' RESPECTFULLY FOLLOWING THIS DECISION OF THE HON'BLE MADRAS HIGH COURT, WE ARE ALSO OF CONSIDERED OPINION THAT THE ACCRUAL OF INTE REST IS A MATTER OF FACT, TO BE DECIDED ON THE BASIS OF EXAMINATION OF THE STATUS O F EACH PARTY. WE, THEREFORE, RESTORE THIS ISSUE BACK TO THE STAGE OF THE AO TO BE DECIDED DE NOVO IN THE LIGHT OF THE GUIDELINES ISSUED BY THE H ON'BLE MADRAS HIGH COURT, NEEDLESS TO SAY AFTER PROVIDING ADEQUATE OPPORTUNIT Y OF HEARING TO THE ASSESSEE. RESULTANTLY, THE GROUNDS RAISED BY THE AS SESSEE MAY BE TREATED AS ALLOWED FOR STATISTICAL PURPOSE. ITA NO 378 /AHD/2013 . A.Y. 2009 - 10 6 10. IN THE PRESENT CASE, THERE IS NOTHING ON RECORD TO DEMONSTRATE THAT THE VERIFICATION OF ACCRUAL OF INTEREST HAS BEEN DECIDE D ON THE BASIS OF EXAMINATION OF EACH ACCOUNT. WE THEREFORE RESPECTFU LLY FOLLOWING THE AFORESAID DECISION OF HON. MADRAS HIGH COURT AND OF CO-ORDINATE BENCH RESTORE THE ISSUE TO THE FILE OF A.O. AND DIRECT HI M TO DECIDE THE ISSUE IN THE LIGHT OF GUIDELINES ISSUED BY HON. MADRAS HIGH COUR T IN THE CASE OF SHAKTI FINANCE LTD.(SUPRA) AND AFTER PROVIDING ADEQUATE O PPORTUNITY OF HEARING TO THE ASSESSEE. THUS THESE GROUNDS OF ASSESSEE ARE AL LOWED FOR STATISTICAL PURPOSES. 11. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 22 - 11- 2013. SD/- SD/- (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH 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,A HMEDABA