The Asstt. Commissioner of Income Tax, Jalandhar V. M/s The Citizen Urban Co-op. Bank Ltd., Jalandhar

ITA 417/ASR/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8698 (ITAT-AMRITSAR)
• Duration Of Justice: 7 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 25-01-2017
• Assessment Year: 2013-2014
• Appeal Filed On: 10-08-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: J S BHASIN
• Keywords: Capital asset; Business income; Depreciation; Cost of acquisition

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH: (CIRCUIT BENCH AT JALANDHAR) BEFORE SHRI A. D. JAIN, JUDICIAL MEMBER, AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A NOS. 416 & 417/ASR/2016 (ASSESSMENT YEARS-2012-13& 2013-14) THE ASSTT. CIT, CIRCLE-3, JALANDHAR. (REVENUE) VS .. M/S THE CITIZEN URBAN CO- OP. BANK LTD., 506-M, MODEL TOWN ROAD, JALANDHAR. PAN NO.AAAAT6369E (ASSESSEE) REVENUE BY SMT. BALVINDER KAUR, DR. ASSESSEE BY SHRI . J.S. BHASIN, AR. ORDER PER, A. D. JAIN, JUDICIAL MEMBER: THESE ARE DEPARTMENTS APPEALS FOR ASSESSMENT YEARS 2012-13 AND 2013-14 AGAINST THE LD. CIT(A)S SEPARATE ORDERS DATED 16.0 5.2016, RESPECTIVELY. ITA NO.416/ASR/2016 2. THE FOLLOWING GROUNDS ARE RAISED: L(A). WHETHER ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW IN DELETI NG THE DATE OF HEARING 25.01.2017 DATE OF PRONOUNCEMENT 27.03.2017 I.T.A NOS. 416 & 417/ASR/2016 2 ADDITION OF RS. 1,77,48,200/- MADE BY THE AO ON ACC OUNT OF TREATING INTEREST DUE TO NON PERFORMING ASSETS A S INCOME OF THE YEAR AS THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. L(B). WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW IN GRANTING R ELIEF OF INTEREST ON NON PERFORMING ASSETS BY RELYING ON THE CONTENTION OF THE ASSESSEE THAT IT WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING EXCEPT FOR INTEREST ON NON PERFORMING ASSETS, FOR WHICH THE ASSESSEE HAD FOLLOWED GUIDELINES ISSUED BY THE RBI, WHICH IS IN VIOLATION TO THE PROVISION OF SECTION 145(1) OF THE INCOME TAX ACT, 1961. L(C). WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THAT THE LD, CIT(A) HAS ERRED IN LAW IN FOLLO WING THE DECISION OF HON'BLE DELHI HIGH COURT IN CASE OF M/S VASISTH CHAY VYAPAR LTD. (DATED 29.11.2010). 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW IN DELETING T HE ADDITION OF RS.57,01,7047- MADE BY AO ON ACCOUNT OF DISALLOWANCE OF BROKEN PERIOD INTEREST DEBITED BY T HE ASSESSEE. 3. APROPOS GROUND NO.1, THE AO MADE ADDITION ON ACC OUNT OF UNDISCLOSED INTEREST INCOME WHICH WAS DUE TO THE ASSESSEE BANK ON NPAS TREATING THE INTEREST I.T.A NOS. 416 & 417/ASR/2016 3 ACCRUED ON LOANS CATEGORIZED AS NPAS AS THE INCOME OF THE ASSESSEE. THE LD. CIT(A) DELETED THE ADDITION. 4. THE LD. DR HAS CONTENDED THAT THE LD.CIT(A) HAS WRONGLY DELETED THE ADDITION CORRECTLY MADE BY THE AO ON ACCOUNT OF TRE ATING INTEREST DUE TO NON- PERFORMING ASSETS AS THE INCOME OF THE ASSESSEE FOR THE YEAR, AS THE ASSESSEE WAS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. 5. THE LD. COUNSEL FOR THE ASSESSEE HAS PLACED RELI ANCE ON THE IMPUGNED ORDER. 6. IT IS SEEN THAT THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE CO- OPERATIVE SOCIETY IS MERCANTILE. HOWEVER, WITH REGA RD TO INTEREST PERTAINING TO NPAS, THE ASSESSEE HAS ACTED ACCORDING TO THE GUIDE LINES ISSUED BY THE RBI. THIS METHOD OF ACCOUNTING OF THE ASSESSEE WAS ACCEPTED B Y THE DEPARTMENT IN THE EARLIER YEARS. IT REMAINS UNDISPUTED THAT THE RBI GUIDELINE S ARE OVERRIDING GUIDELINES ISSUED BY THE RBI. THEY ARE MANDATORY IN NATURE. TH E ASSESSEE HAS NO OPTION BUT TO FOLLOW THE SAME. MOREOVER, THE METHOD OF ACCOUNTING OF THE ASSESSEE IS IN ACCORDANCE WITH THE ACCOUNTING STANDARDS ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. FURTHER, SECTION 45Q OF THE R BI ACT IS THE GOVERNING PROVISION. IT STARTS WITH A NON-OBSTANTE CLAUSE. AS PER THIS NON-OBSTANTE CLAUSE, THE PROVISIONS OF THE CHAPTER CONTAINING SECTION 45Q OF THE RBI ACT SHALL HAVE EFFECT NOTWITHSTANDING ANYTHING INCONSISTENT THEREWITH CON TAINED IN ANY OTHER LAW FOR THE TIME BEING IN FORCE, OR ANY INSTRUMENT HAVING EFFEC T BY VIRTUE OF ANY SUCH LAW. THE I.T.A NOS. 416 & 417/ASR/2016 4 POSITION IS, THEREFORE, ABSOLUTELY CLEAR. THEN, IN M/S VASISTH CHAY VYAPAR LTD., VIDE ORDER DATED 29.11.2010, ISSUED IN ITA NOS. 552 AND 565 OF 2005, 1191 OF 2007, 139, 466 AND 537 OF 2008 AND 408 OF 2003, THE HONBLE DELHI HIGH COURT HAS HELD THAT WHEN AN NBFC CLASSIFIES AN ASSET AS A NON-PERFORMING ASSET, FOLLOWING THE DIRECTIONS ISSUED BY THE RESERVE BANK OF INDIA, IT IS LEGITIMATE TO INFER THAT THE INTEREST INCOME THEREON HAS NOT ACCR UED IN VIEW OF THE PRECARIOUS FINANCIAL POSITION OF THE BORROWER, EVEN THOUGH THE TAX PAYER WAS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. IN THIS DECISION, STATE BANK OF TRAVANCORE VS. CIT, 158 ITR 102 (SC) HAS BEEN DISTINGUISHED ALONG WITH M/S SOUTHERN TECHNOLOGIES LTD. VS. JCIT, 230 ITR 577 (SC). 7. THE ABOVE POSITION HAS DULY BEEN TAKEN INTO CONS IDERATION BY THE LD. CIT(A) WHILE CORRECTLY DELETING THE ADDITION MADE. THEREFO RE, THE LD. CIT(A)S ORDER ON THIS GROUND NO. 1 IS UPHELD. 8. SO FAR AS REGARDS GROUND NO. 2, THE AO MADE THE ADDITION ON ACCOUNT OF DISALLOWANCE OF BROKEN PERIOD INTEREST, OR BPI, T ILL THE DATE OF PURCHASE OF GOVERNMENT SECURITIES DEBITED BY THE ASSESSEE. THE AO FOLLOWED CIT VS. THE BANK OF RAJASTHAN LTD, 218 CTR 417 (RAJ.). THE LD. CIT(A) DELETED THE ADDITION BY FOLLOWING HIS ORDER FOR A.Y. 2011-12 IN THE CASE OF M/S CAPITAL LOCAL AREA BANK, JALANDHAR. I.T.A NOS. 416 & 417/ASR/2016 5 9. THE LD. DR HAS CONTENDED THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION CORRECTLY MADE BY THE AO ON ACCOUNT OF DI SALLOWANCE OF BPI DEBITED BY THE ASSESSEE. 10. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSES SEE HAS PLACED RELIANCE ON THE IMPUGNED ORDER. 11. IN THIS REGARD, THE AO, WHILE MAKING THE ADDITI ON, PLACED RELIANCE ON BANK OF RAJASTHAN (SUPRA). IN BANK OF RAJASTHAN, (SU PRA), AMERICAN EXPRESS INTERNATIONAL BANKING CORPORATION VS. CIT, 258 ITR 601 (BOMBAY) WAS DISSENTED FROM AND VIJAYA BANK LTD. VS. CIT, 187 ITR 541 (S UPREME COURT) WAS RELIED ON. IN AMERICAN EXPRESS (SUPRA) THE HONBLE BOMBAY HI GH COURT NOTED THAT THE BROKEN PERIOD INTEREST RECEIVED BY THE ASSESSEE BAN K WAS CHARGED TO TAX AS BUSINESS INCOME AND, THEREFORE, THE DEDUCTION FOR PAYMENT MA DE FOR BPI AT THE TIME OF PURCHASE OF THESE SECURITIES COULD NOT BE DENIED. T HE DEPARTMENT COULD NOT JUSTIFY AS TO WHY THE BPI RECEIVED SHOULD BE TAXED AND THE BPI PAID SHOULD BE DISALLOWED. VIJAYA BANK LTD. (SUPRA) WAS DISTINGUISHED QUA TH E FACT THAT THE SECURITIES WERE HELD TO BE TRADING ASSETS AND NOT CAPITAL ASSETS. AMERICAN EXPRESS (SUPRA) WAS FOLLOWED BY THE HONBLE BOMBAY HIGH COURT IN ITS OR DER DATED 09.10.2002, IN ITA NO. 221/1997, IN THE CASE OF UNION BANK OF INDIA. THE DEPARTMENT FILED AN SLP IN UNION BANK OF INDIA. THIS SLP WAS DISMISSED BY THE HONBLE SUPREME COURT IN SLP NO.(C)/6814/2004 REPORTED IN 268 ITR (ST.) 2 61, ON 29.03.2004. I.T.A NOS. 416 & 417/ASR/2016 6 12. THE DELHI BENCH OF THE ITAT, IN PUNJAB AND SIN DH BANK VS. DCIT, VIDE ORDER DATED 20.11.2008, IN ITA NO.2047/DEL/2007 AND 1504/DEL/1999, TAKING NOTE OF THE AFORESAID DISMISSAL OF THE DEPARTMENTS SLP IN UNION BANK OF INDIA (SUPRA), DIRECTED THE AO TO ALLOW THE BPI. 13. THE ITAT MUMBAI, IN JOINT CIT VS. M/S DENA BAN K, ITA NO.3676/MUM/2000, FOR THE A.Y. 1996-97, ALLOWED BP I INTEREST, FOLLOWING AMERICAN EXPRESS (SUPRA). 14. THE DELHI ITAT, IN ACIT VS. ORIENTAL BANK OF C OMMERCE, VIDE ORDER DATED 04.11.2015, IN ITA NO. 1961/DEL/2011, AGAIN, TOOK A SIMILAR VIEW, FOLLOWING AMERICAN EXPRESS (SUPRA) . 15. SO FAR AS REGARDS THE CIT(A)S ORDER, THE LD. C IT(A) HAS FOLLOWED HIS ORDER FOR A.Y. 2011-12 IN CAPITAL LOCAL AREA BANK, JALAN DHAR. THE FACTS IN THE PRESENT CASE ARE EXACTLY SIMILAR WITH THOSE IN THAT CASE. T HE ISSUE INVOLVED IS THE SAME. THE SAID ORDER OF THE LD. CIT(A) IN CAPITAL LOCAL ARE A BANK, JALANDHAR HAS BEEN UPHELD BY US IN ITA NO.557/ASR/2014, VIDE ORDER DAT ED 15/03/2017 AUTHORED BY ONE OF US, THE LD. ACCOUNTANT MEMBER. THEREIN WE HA VE HELD AS FOLLOWS: THE ASSESSING OFFICER DISALLOWED SUCH EXPENDITURE ON THE GROUND THAT PURCHASE COSTS OF INVESTMENT COULD NOT BE SPLIT UP ORDINARILY BETWEEN INVESTMENT AND INTEREST EX PENDITURE. WHILE HOLDING SO, THE ASSESSING OFFICER RELIED ON THE DECISIONS OF HON'BLE RAJASTHAN HIGH COURT WHEREIN T HE I.T.A NOS. 416 & 417/ASR/2016 7 RAJASTHAN HIGH COURT HAD APPLIED THE CASE OF VIJAY BANK LTD. VS. CIT 187 ITR 541(SC). HOWEVER, THE HON'BLE BOMBA Y HIGH COURT IN THE CASE OF AMERICAN EXPRESS INTERNATIONAL BANKING CORP. VS. CIT 258 ITR 601 (BOM) HAS NOTED THAT BROK EN PERIOD INTEREST RECEIVED BY THE ASSESSEE WAS CHARGED TO TA X AS BUSINESS INCOME AND THEREFORE, THE DEDUCTION FOR PAYMENT MAD E FOR BROKEN PERIOD AT THE TIME OF PURCHASE OF THESE SECU RITIES COULD NOT BE DENIED. IT WAS HELD THAT HAVING ASSESSED THE INCOME FROM THE SECURITIES U/S 28, THE DEPARTMENT OUGHT TO HAVE ALLOWED DEDUCTION OF PAYMENT OF BROKEN PERIOD INTEREST AS R EVENUE EXPENDITURE. THE HON'BLE COURT FURTHER HELD THAT TH ERE WAS NO DIFFERENCE IN THE AMOUNT OF TAX WHETHER ONE ADOPTED THE ASSESSEE'S METHOD OR DEPARTMENT'S METHOD SINCE UNDE R THE OTHER METHOD THE SAME AMOUNT WAS OFFERED TO TAX. THE HON' BLE BOMBAY HIGH COURT HAD CLEARLY DISTINGUISHED THE DEC ISION OF VIJAY BANK LTD. VS. CIT AND HELD THAT CASE LAW WAS NOT APPLICABLE TO THE FACTS. THE LD. CIT(A) HAS NO TED IN HIS DECISION THAT THOUGH BANK OF RAJASTHAN LTD. (SUPRA) DOES MAKE A STRONG CASE THAT THE VALUE OF PURCHASES MADE BY A SSESSEE SHOULD BE AN INCLUSIVE COST WHICH WAS PAID BY THE P URCHASER OF THE SECURITY BUT HE HAS FOLLOWED THE EASE OF AMERIC AN EXPRESS INTERNATIONAL BANK (SUPRA) FOR THE REASON THAT SLP FILED BY THE DEPARTMENT AGAINST THE DECISION OF HONBLE BOMBAY H IGH COURT IN THE CASE OF UNION BANK OF INDIA WHICH HAD FOLLOWED THE DECISION OF AMERICAN EXPRESS INTERNATI ONAL BANK (SUPRA) HAD BEEN DISMISSED BY HON'BLE SUPREME COUR T. I.T.A NOS. 416 & 417/ASR/2016 8 THEREFORE, HE HAS RIGHTLY HELD THAT VIEW OF HON'BLE BOMBAY HIGH COURT THAT INTEREST FROM BROKEN PERIOD SHOULD BE ALLOWED AS DEDUCTION AS HAS BEEN UPHELD BY HON'BLE APEX CO URT. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, WE ARE I N AGREEMENT WITH THE DETAILED FINDINGS AS NOTED BY ID. CIT(A) I N HIS ORDER AND THEREFORE, THE LD. CIT(A) HAS RIGHTLY NOT FOLLO WED THE JUDGMENT OF CIT VS. BANK OF RAJSTHAN AND DECISION O F APEX COURT IN THE CASE OF VIJAYA BANK LTD. VS. CIT(SUP RA). THEREFORE, THIS GRIEVANCE OF THE REVENUE IS ALSO DI SMISSED. IN VIEW OF THE ENTIRE DISCUSSION AND IN VIEW OF THE FACTS AND CIRCUMSTANCES AND JUDICIAL PRECEDENTS, WE ALLOW THE APPEALS AND CROSS OBJECTIONS OF ASSESSEE RELATING TO ISSUE OF DISALLOWANCE OF INTER-TRANSFER OF SECURITIES AND FU RTHER THE REVENUE'S APPEAL FOR THE ISSUES RELATING TO DISALLO WANCE ON ACCOUNT OF DEPRECIATION OF INVESTMENTS AND ON ACCOU NT OF DISALLOWANCE OF BROKEN PERIOD INTEREST ARE DECIDED AGAINST THE REVENUE. 16. THUS, AS OF NOW, THIS ISSUE IS EFFECTIVELY SETT LED IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, THE ORDER UNDER APPEAL WITH REGARD TO THIS ISSUE IS ALSO CONFIRMED. GROUND NO. 2 IS ALSO REJECTED. ITA NO.417/ASR/2016 17. THIS IS DEPARTMENTS APPEAL FOR A.Y. 2013-14 TH E ISSUES INVOLVED ARE THE SAME AS THOSE CONCERNING ITA NO.416/ASR/2016. THERE FORE, OUR OBSERVATIONS QUA I.T.A NOS. 416 & 417/ASR/2016 9 BOTH THE ISSUES, AS MADE IN ITA NO.416/ASR/2016 ARE , MUTATIS MUTANDIS, SQUARELY APPLICABLE TO ITA NO. 417/ASR/2016 ALSO. BOTH THE G ROUNDS RAISED BY THE DEPARTMENT IN ITA NO.417/ASR/2016 ARE ACCORDINGLY, REJECTED. 18. IN THE RESULT, BOTH THE APPEALS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27/03/2017. SD/- SD/- (T. S. KAPOOR) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED 27 /03/2017 *AKV* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT BY ORDER AR/SR.P.S./P.S.