Assistant Commissioner of Income-tax, Circle - 12, Pune V. Bharati Sahakari Bank Ltd, Pune

ITA 383/PUN/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 9368 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-07-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 22-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHABANA PARVEEN
• Section: 143(3); 43D; 145; 56

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI ANIL CHATURVEDI, AM AND SHRI PARTHA SARATHI CHAUDHURY, JM . / ITA NO.383/PUN/2018 / ASSESSMENT YEAR : 2013-14 THE ASST. C OMMISSIONER OF INCOME TAX, CIRCLE 12, PUNE. . / APPELLANT V/S BHARATI SAHAKARI BANK LIMITED, BHARATI VIDYAPEETH BHAWAN, LBS ROAD, NAVI PETH, PUNE 411 030. PAN : AAATB4583F . / RESPONDENT ASSESSEE BY : SHRI MAHAVEER JAIN. REVENUE BY : MS. SHABANA PARVEEN. / ORDER PER ANIL CHATURVEDI, AM : 1. THIS APPEAL FILED BY THE REVENUE IS EMANATING OUT OF THE OR DER OF COMMISSIONER OF INCOME TAX (A) 8, PUNE DATED 31.10.3017 FOR THE ASSESSMENT YEAR 2013-14. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON R ECORD ARE AS UNDER :- ASSESSEE IS A MULTI-STATE CO-OPERATIVE BANK STATED TO BE ENGAGED IN THE BUSINESS OF BANKING ACTIVITIES. ASSESSEE FILED ITS RETU RN OF INCOME FOR A.Y. 2013-14 ON 30.09.2013 DECLARING TOTAL INCOME OF / DATE OF HEARING : 27.06.2019 / DATE OF PRONOUNCEMENT: 02.07.2019 2 ITA NO.383/PUN/2018 RS.13,06,11,044/-. THE CASE WAS SELECTED FOR SCRUTINY AN D THEREAFTER ASSESSMENT WAS FRAMED U/S 143(3) OF THE ACT VIDE ORDER D T.29.02.2016 AND THE TOTAL INCOME WAS DETERMINED AT RS.14,82,30,040/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO VIDE ORDER DT.18.04.2016 (IN APPEAL NO.PN/CIT(A)-8/DCIT, CIR CLE- 12/359/2017-18) ALLOWED THE APPEAL OF ASSESSEE. AGGRIEVE D BY THE ORDER OF LD.CIT(A), REVENUE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS : 1. THE LD. CIT(A) ERRED IN DELETING THE DISALLOWAN CE ON ACCOUNT OF ACCRUED INTEREST ON NPA AMOUNTING TO RS. 1,62,90,00 0/- AND FAILED TO APPRECIATE THAT THE ASSESSEE IS FOLLOWING MERCANTIL E SYSTEM OF ACCOUNTING AND THEREFORE, SUCH ACCRUED INTEREST ON NP A SHOULD BE INCLUDED IN THE INCOME FOR THE YEAR BY VIRTUE OF SE CTION 145 OF THE INCOME TAX ACT, 1961. 2. THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANC E ON ACCOUNT OF ACCRUED INTEREST ON NPA AMOUNTING TO RS. 1,62,90,00 0/- AND FAILED TO APPRECIATE THE DECISION OF THE APEX COURT IN THE CA SE OF SOUTHERN TECHNOLOGIES (320 ITR 577) WHEREIN THE HON'BLE SUPR EME COURT HAS HELD THAT THE PRUDENTIAL NORMS ISSUED BY THE RBI CANNOT OVERRIDE THE PROVISIONS OF THE INCOME TAX ACT FOR C OMPUTING TAXABLE INCOME. 3. BOTH THE GROUNDS BEING INTER-CONNECTED ARE CONSIDERED TOGE THER. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTIC ED THAT ASSESSEE HAD NOT OFFERED ACCRUED INTEREST ON NPAS AMOU NTING TO RS.1,62,90,000/- AS ITS INCOME. THE ASSESSEE WAS ASKED T O FURNISH THE DETAILS AND SHOW CAUSE AS TO WHY THE AMOUNT NOT B E INCLUDED TO THE TOTAL INCOME OF THE ASSESSEE. TO THE QUERY OF AO AS SESSEE MADE SUBMISSIONS WHICH WERE NOT FOUND ACCEPTABLE TO THE AO. AO THEREAFTER FOLLOWING THE DECISION OF HONBLE APEX COURT IN TH E CASE OF SOUTHERN TECHNOLOGIES VS JCIT REPORTED IN 320 ITR 577 HELD THAT INTEREST ACCRUED ON NPAS AMOUNTING TO RS.1,62,90,000/- SH OULD BE 3 ITA NO.383/PUN/2018 ADDED TO THE INCOME OF THE ASSESSEE AND ACCORDINGLY MA DE ITS ADDITION. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATT ER BEFORE LD.CIT(A) WHO AFTER FOLLOWING THE DECISION OF HONBLE BOMBAY H IGH COURT IN THE CASE OF CIT VS. DEOGIRI NAGARI SAHAKARI BANK LTD., REPORTED IN (2015) 379 ITR 24 DIRECTED THE AO TO DELETE THE ADDITION MADE ON ACCOUNT OF INTEREST MADE ON NPAS. AGGRIEVED BY THE ORDER OF LD.CIT(A), REVENUE IS NOW BEFORE US. 5. BEFORE US, LD. D.R. SUPPORTED THE ORDER OF AO. LD.A.R. ON THE OTHER HAND REITERATED THE SUBMISSIONS MADE BEFORE AO AND LD.CIT(A) . 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE M ATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESP ECT TO ADDITION ON ACCOUNT OF INTEREST ON NPA ACCOUNTS. WE FIND THAT LD.C IT(A) BY FOLLOWING THE ORDER OF HONBLE BOMBAY HIGH COURT IN THE CAS E OF CIT VS. DEOGIRI NAGARI SAHAKARI BANK LTD., (SUPRA) HAS HELD THA T PRUDENTIAL NORMS ISSUED BY RESERVE BANK OF INDIA ARE APP LICABLE TO CO-OPERATIVE BANKS AND THAT INTEREST ON STICKY ADVANCE S ARE NOT TAXABLE. WE FURTHER FIND THAT HONBLE GUJARAT HIGH COURT IN THE CASE O F PCIT VS. SHRI MAHILA SEVA SAHAKARI BANK LTD., (2017) 395 IT R 324 (GUJ) AFTER CONSIDERING THE RESERVE BANK OF INDIA GUIDELINES , RESERVE BANK OF INDIA ACT, 1934, SEC.45Q OF NON-BANKING COMPANIES PRUDENTIAL NORMS (RESERVE BANK) DIRECTIONS, 1998 & SEC.43 D OF I.T. ACT HAS HELD AS UNDER : THE EXPRESSION 'BANKING COMPANY' HAS BEEN DEFINED UNDER SECTION 5(C) OF THE BANKING REGULATION ACT, 1949 TO MEAN ANY COMPANY WHICH TRANSACTS THE BUSINESS OF BANKING IN INDIA. PART V OF THE 1949 ACT BEARS THE HEADING 'APPLICATION OF THE ACT TO CO-OPERATIVE SOCIETIES'. SECTION 56 THEREOF PROVIDES THAT THE PROVISIONS OF THE ACT, AS IN FORCE FOR THE TIME 4 ITA NO.383/PUN/2018 BEING, SHALL APPLY TO, OR IN RELATION TO THE CO-OPE RATIVE SOCIETIES AS THEY APPLY TO, OR IN RELATION TO BANKING COMPANIES SUBJE CT TO THE MODIFICATIONS STATED THEREUNDER. CLAUSE (A) OF SECT ION 56, PROVIDES THAT THROUGHOUT THE ACT, UNLESS THE CONTEXT OTHERWISE R EQUIRES- REFERENCES TO A 'BANKING COMPANY' OR 'THE COMPANY' OR 'SUCH COMPA NY' SHALL BE CONSTRUED AS REFERENCES TO A 'CO-OPERATIVE BANK'. S ECTION 2(I) OF THE RESERVE BANK OF INDIA ACT, 1934 PROVIDES THAT' CO-OPERATIVE BANK', 'CO- OPERATIVE CREDIT SOCIETY', 'DIRECTOR', 'PRIMARY AGR ICULTURAL CREDIT SOCIETY', 'PRIMARY CO-OPERATIVE SOCIETY' AND 'PRIMARY CREDIT SOCIETY' SHALL HAVE THE MEANING RESPECTIVELY ASSIGNED TO THEM IN PART V OF THE 1949 ACT. THEREFORE, THE EXPRESSION 'BANKING COMPANY' WOULD T AKE WITHIN ITS SWEEP A CO-OPERATIVE BANK. SECTION 45Q OF THE RESERVE BANK OF INDIA ACT, 1934, IS IN CHAPTER III-B OF THE ACT. THE PROVISIONS OF CHAPTER III-B HAVE AN OVERRIDING EFFECT QUA OTHER ENACTMENTS TO THE EXTENT THEY ARE INCONSISTEN T WITH THE PROVISIONS CONTAINED THEREIN. IN ORDER TO REFLECT A BANK'S ACT UAL FINANCIAL POSITION IN ITS BALANCE-SHEET, THE RESERVE BANK HAS INTRODUCED PRUDENTIAL NORMS FOR INCOME RECOGNITION, ASSET CLASSIFICATION AND PROVIS IONING FOR ADVANCES PORTFOLIO OF THE CO-OPERATIVE BANKS. THE GUIDELINES PROVIDED THEREUNDER ARE MANDATORY AND IT IS INCUMBENT UPON ALL CO-OPERA TIVE BANKS TO FOLLOW THEM. INCOME FROM NON-PERFORMING ASSETS IS NOT RECOGNIZED ON ACCRUAL BASIS BUT IS BOOKED AS INCOME ONLY WHEN IT IS ACTUALLY RE CEIVED. THEREFORE, BANKS SHOULD NOT .TAKE TO INCOME ACCOUNT, THE INTER EST ON NON- PERFORMING ASSETS ON ACCRUAL BASIS. THE HONBLE HIGH COURT WHILE DISMISSING THE APPEAL OF REVE NUE OBSERVED AS UNDER : THAT IN VIEW OF THE MANDATE OF THE RESERVE BANK OF INDIA GUIDELINES THE ASSESSEE COULD NOT RECOGNIZE INCOME FROM NON- PERFO RMING ASSETS ON ACCRUAL BASIS AND COULD BOOK SUCH INCOME ONLY WHEN IT WAS ACTUALLY RECEIVED. THE BENEFIT CLAIMED BY THE ASSESSEE WAS N OT UNDER ANY PROVISION OF THE INCOME-TAX ACT, 1961. THE ASSESSEE BEING BOUND BY THE RESERVE BANK OF INDIA GUIDELINES WHICH WERE ISSUED UNDER THE PROVISIONS OF THE RESERVE BANK OF INDIA ACT, 1934 HAD NOT SHOWN THE INTEREST ON NON-PERFORMING ASSETS AS INCOME. BY VIR TUE OF THE PROVISIONS OF SECTION 45Q OF THE RESERVE BANK OF INDIA ACT, 1934, THE PROVISIONS OF CHAPTER III THEREOF HAD AN OVERRIDING EFFECT OVER O THER LAWS INCLUDING THE 1961 ACT. THEREFORE, NOTWITHSTANDING THE PROVISIONS OF S ECTION 43D OF THE 1961 ACT, SINCE THE PROVISIONS OF SECTION 45Q OF THE 1934 ACT HAD AN OVERRIDING EFFECT VIS-A-VIS INCOME RECOGNITION PRIN CIPLES IN THE COMPANIES ACT, 1956, THE ASSESSING OFFICER WAS BOUND TO FOLLOW THE RESER VE BANK OF INDIA DIRECTIONS SO-FAR AS INCOME RECOGNITION WA S CONCERNED. BEFORE US, REVENUE HAS NEITHER PLACED ANY CONTRARY BINDIN G DECISION IN ITS SUPPORT NOR HAS POINTED OUT ANY FALLACY IN T HE FINDINGS 5 ITA NO.383/PUN/2018 OF LD.CIT(A). IN SUCH A SITUATION, WE FIND NO REASON TO INTE RFERE WITH THE ORDER OF LD.CIT(A). THUS, THE GROUNDS OF REVENUE ARE DISMISSED. 7. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED ON THE 2 ND DAY OF JULY, 2019. SD/- SD/ - ( PARTHA SARATHI CHAUDHURY ) ( ANIL CHATURVEDI ) ! / JUDICIAL MEMBER '! / ACCOUNTANT MEMBER PUNE; DATED : 2 ND JULY, 2019. YAMINI #$%&'('% / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. 4. 5 6. CIT(A)-8, PUNE. PR. CIT-4, PUNE. '#$ %%&',) &', / DR, ITAT, A PUNE; $,-./ GUARD FILE. / BY ORDER // TRUE COPY // /01%2&3 / SR. PRIVATE SECRETARY ) &' , / ITAT, PUNE.