DCIT, New Delhi V. M/s. Bhartiya Samruddhi Investment and Consulting Services Ltd., New Delhi

ITA 4228/DEL/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 4067 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 25-05-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 01-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAVIKANT GUPTA

Judgement Text

+ IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI A BENCH, NEW DELHI BEFORE SHRI B.P. JAIN, ACCOUNTANT MEMBER, AND SHRI KULDIP SINGH , JUDICIAL MEMBER ITA NO. 4228 /DEL/201 4 [ASSESSMENT YEAR: 20 1 0 - 11 ] THE DY . C.I.T VS. M/S BHARTIYA SAMRUDDHI FINANCE LTD. CIRCLE 2(1) D - 9, 1 ST FLOOR, GREATER KAILASH ENCLAVE NEW DELHI PART 1, NEW DELHI PAN : A AAC B 5337 Q 5536 C [APPELLANT] [RESPONDENT] DATE OF HEARING : 0 3 . 0 1 .201 8 DATE OF PRONOUNCEMENT : 22 . 01 .201 8 ASSESSEE BY : SHRI ARVIND KUMAR, ADV REVENUE BY : S HRI RAVI KANT GUPTA, SR. DR ORDER PER B.P. JAIN, ACCOUNTANT MEMBER, THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 15 . 05 .201 4 OF COMMISSI ONER OF INCOME TAX (APPEALS) - V , NEW DELHI AND RELATES TO ASSESSMENT YEAR 2010 - 11 . 2. THE F OLLOWING SOLITARY GROUND OF APPEAL HA S BEEN RAISED BY THE REVENUE : 2 ITA NO.4228/DEL/2014 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 1,39,95,558/ - ON ACCOUNT OF DERECOGNIZED INTEREST. 3 . AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT THE NAME OF THE ASSESSEE HAS BEEN WRONGLY REGISTERED BY THE REGISTRY OF ITAT AS M/S BHARTIYA SAMRUDDHI INVESTMENT AND CONSULTING SERVICES LTD. INSTEAD OF M/S BHARTIYA SAMRUDDHI FINANCE LTD. AND REQUESTED THAT THE SAME MAY BE RECTIFIED. THE MISTAKE POINTED O UT BY THE LD. COUNSEL FOR THE ASSESSEE IS QUITE EVIDENT FROM FORM NO. 36, ORDER OF THE ASSESSING OFFICER AS WELL AS THE IMPUGNED ORDER. ACCORDINGLY, THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE IS FOUND TO BE CORRECT AND, THEREFORE, THE REGISTRY IS DIRECTED TO REGISTER THE NAME CORRECTLY AS MENTIONED HEREINABOVE AS M/S BHARTIYA SAMRUDDHI FINANCE LTD. 4. BRIEF RELEVANT FACTS OF THE CASE AS EMANATING FROM THE O RDER OF THE A O ARE THAT DURING THE ASSESSMENT PROCEEDINGS, IT WAS NOTICED FROM THE SUBMISS IONS MADE BY THE COMPANY THAT THE COMPANY HAD DERECOGNIZED INTEREST OF RS. 1,35,95,558 - WHICH IS NOT TREATED AS INCOME BY THE ASSESSEE COMPANY AS THE INTEREST WAS NOT REALIZED ON THE NON PERFORMING ASSETS . VIDE ORDER SHEET ENTRY DATED 11/12/2012 3 ITA NO.4228/DEL/2014 THE ASSESSEE COMPANY WAS ASKED TO SHOW CAUSE AS TO WHY THE DE - RECOGNISED INTEREST OF RS. 1,35,95,558/ - SHOULD NOT BE TREATED AS ITS INCOME. AS IN THE EARLIER YEARS, THE ASSESSEE COMPANY HAS SUBMITTED THAT AS PER THE DIRECTIONS PROMULGATED BY THE RESERVE BANK OF INDIA, WHICH IS TO BE MANDATORILY FOLLOWED BY ALL THE NON BANKING FINANCE COMPANIES IS THE PRUDENTIAL NORM. UNDER THESE NORMS ALL THE NBFCS ARE NOT TO RECOGNIZE ANY INTEREST ACCRUING ON NON PERFORMING ASSETS, UNDER CERTAIN CONDITIONS AND TIME PERIO D, AND ALSO DERECOGNIZE THE INCOME SO ACCRUED AND ACCOUNTED FOR IN THE EARLIER YEARS, IF A PARTICULAR ASSET TURNS OUT TO BE NON PERFORMING. THUS , THESE DIRECTIONS NOT ONLY PROHIBIT THE NBFCS FROM ACCRUING THE INCOME ON NPAS BUT ALSO DIRECT THEM TO REVERSE THE INCOME SO ACCRUED IN THE PAST, IN THE YEAR IN WHICH SUCH ASSETS ARE TREATED AS NPA AS PER THE DIRECTIONS. WHILE LOGIC BEHIND SUCH IS TO PROTECT THE CAPITAL AND PROMOTE HEALTHILY ACCOUNTING PRACTICES AMONG THE NBFCS, SO THAT FAILURES ARE AVOIDED. THESE DIRECTIONS CAME INTO EFFECT AFTER MUCH REPORTED FAILURES OF NBFCS AND EROSION OF THE PUBLIC FUNDS, IN THE YEAR 19 99. 4 ITA NO.4228/DEL/2014 5. THE ASSESSEE SUBMITTED EXPLANATION WHICH WAS NOT FOUND SATISFACTORY. ACCORDINGLY, THE ASSESSING OFFICER ADDED A SUM OF RS. 1,35,95,5 58/ - TO THE TOTAL INCOME OF THE ASSESSEE. THE LD. CIT(A) DELETED THE SAME SINCE ON IDENTICAL FACTS, THE ISSUE IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2004 - 05 TO 2008 - 09 HAS BEEN ALLOWED BY THE LD. CIT(A) WHICH HAS BEEN CONFIRMED BY THE ITAT IS A MATTE R OF RECORD. 6 . WE HAVE HEARD THE RIVAL SUBMISSIONS , PERUSED THE ORDERS OF THE A.O AND THE LD. CIT(A) AND THE RELEVANT MATERIAL ON RECORD. AS REGARDS ACCRUAL OF INTEREST ON STICKY LOANS, THE HON'BLE SUPREME COURT IN THE CASE OF STATE BANK OF TRAVANCORE V S. CIT [1986] 158 ITR 192HELD THAT INTEREST ACCRUING ON STICKY LOANS IS TAXABLE TO INCOME TAX ON ACCRUAL BASIS. SUBSEQUENT TO THE DECISION OF THE HON'BLE SUPREME COURT, THE CBDT HELD VIDE CIRCULAR NO. 491 DATED 30.06.1987 HAS GIVEN DIRECTIONS AS UNDER: ASSESSMENT OF STATE FINANCIAL CORPORATION - CHANGE IN METHOD OF ACCOUNTING OF INTEREST FROM MERCANTILE TO CASH - REGARDING. THE SUPREME COURT HAS IN ITS JUDGMENT IN THE CASE OF STATE BANK OF TRAVANCORE V. CIT, (1986) 158 ITR 192, HELD THAT THE INTEREST ACCRUING ON STICKY LOANS IS TAXABLE TO INCOME - TAX ON ACCRUAL BASIS WHERE THE ASSESSEE FOLLOWS THE MERCANTILE SYSTEM OF ACCOUNTING. 5 ITA NO.4228/DEL/2014 SOME STATE FINANCIAL CORPORATIONS HAVE CHANGED THE METHOD OF ACCOUNTING OF INTEREST FROM MERCANTILE TO CASH BASIS. STATE FINA NCIAL CORPORATIONS ARE GOVERNED BY THE DIRECTIVES OF THE RESERVE BANK OF INDIA AND IDBI. IF THESE AUTHORITIES ARE SATISFIED THAT THE CHANGE IN THE SYSTEM OF ACCOUNTING OF INTEREST FROM MERCANTILE TO CASH BASIS BY THE CONCERNED STATE FINANCIAL CORPORATION I S LEGAL, VALID AND BONA FIDE, THE INCOME - TAX DEPARTMENT MAY ACCEPT THE CASH SYSTEM OF ACCOUNTING OF INTEREST. 7. ACCORDINGLY, THE NBFC, AS IN THE PRESENT CASE, HAS TO FOLLOW THE DIRECTIONS OF THE CBDT AND AS PER THE DECISION OF VARIOUS COURTS, NBFC INCLU DING BANKS FOLLOW THE CASH BASIS OF ACCOUNTING FOR INTEREST ON STICKY LOANS UNTIL THEY ARE RECOVERED OR THE LOAN ITSELF IS WRITTEN OFF. THERE IS CONSISTENCY IN FOLLOWING THE ACCOUNTING PRINCIPLES BY THE ASSESSEE AND THEREFORE, DERECOGNITION OF INTEREST O N NPAS IS NOT SOMETHING BARRED BY THE INCOME TAX LAW. MOREOVER , THE ISSUE IS DIRECTLY COVERED BY ASSESSEES OWN CASE BY THE ITAT DELHI BENCH WHICH HAS BEEN MENTIONED BY THE LD. CIT(A) IN HIS ORDER, WHICH FOR THE SAKE OF CONVENIENCE IS REPRODUCED HEREINBEL OW: 6 ITA NO.4228/DEL/2014 2.11 THIS MATTER HAS BEEN AGITATED IN APPEALS FOR THE LAST SEVERAL ASSESSMENT YEARS AND HAS REACHED FINALITY. THE PRESENT POSITION IS AS FOLLOWS: 2.12. IN VIEW OF THIS, WE HUMBLY SUBMIT AND REQUEST THAT THE ORDER OF THE ASSESSING OFFICER BE REVERSED AND DIRECT HIM TO DELETE THE DISALLOWANCE. ALL THE MORE THIS NEEDS TO BE SEEN ASST YEARS STATUS 2004 - 05 TO 2008 - 09 IN ALL THESE YEARS, THE QUESTION OF DE RECOGNISED INTEREST HAS BEEN EXAMINED BY THE PREDECESSOR COMMISSIONER OF INCOME TAX (APPEALS) AND BY THE INCOME TAX APPELLA TE TRIBUNAL. IN ITA NO. 100 TO 1 03/DEL/20 10 FOR THE ASSESSMENT YEARS 2004 - 05 , 2005 - 06, 2006 - 07 AND ITA NO. 2308 AND 5642/DEL/20 11 FOR THE ASSES SMENT YEARS 2007 - 08 AND 2008 - 09 THE HON'BLE ITAT HAS ALLOWED THAT DERECOGNISED INCOME IN THE HANDS OF THE ASSESSEE SHOULD NOT BE ADDED AND SUBJECTED TO INCOME TAX. A COPY OF THE ORDER IS ATTACHED FOR YOUR RECORDS. 2009 - 10 THE SAME MATTER HAS BEEN ON APPEAL IN YOUR OFFICE AND WAS DECIDED IN OUR FAVOUR VIDE APPEAL NO. 171/11 - 12 DATED 23.08.2013 . 7 ITA NO.4228/DEL/2014 IN THE CONTEXT OF PRESENT DAY DIRECTIONS AND THE BUSINESS AND PURPOSE OF THE COMPANY. SHOULD BE YOU NEED ANY FURTHER CLARIFICATION, PLEASE DO NOT HESITATE TO CONTACT US OR PROVIDE US ANOTHER OPPORTUNITY TO EXPLAIN. I HAVE CAREFULLY EXAMINED THE ISSUE RELATED TO DISALLOWANCE MADE BY THE AO ON ACCOUNT OF DERECOGNIZED INTEREST. FROM THE APPELLANTS SUBMISSION DATED 12 . 5.2014 IT IS SEEN THAT THE VERY SAME ISSUE HAS BEEN DECIDED IN FAVOUR OF THE APPELLANT BY THE HONBLE ITAT, DELHI IN ITA NO. 100 TO 103 /DEL /2010 FOR THE ASSESSMENT YEARS 2004 - 05 , 2005 - 06 , 2006 - 07 AND ITA NO. 2308 AND 5642 /DEL /2011 FOR THE ASSESSMENT YEARS 2007 - 08 AND 2008 - 09 WHEREIN THE ITAT HAS HELD THAT THE DERECOGNIZED INCOME SHOULD NOT BE ADDED AND SUBJECTED TO INCOME TAX , IN THE HANDS OF THE ASSESSEE. FURTHERMORE, VIDE APPELLATE ORDER NO. 171 / 11 - 12 DATED 23 . 8 . 2013 , PASSED BY THE UNDERSIGNED, THIS VERY ISSUE HAS BEEN DECI DED IN APPELLANTS FAVOUR FOR AY 2009 - 10 . FOLLOWING THE SAME THE AO IS DIRECTED TO DELETE THE ADDITION FOR RS. 1,35,95,558/ - . 8. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE AND THE DECISION OF THE ITAT IN ASSESSEES OWN CASE [SUPRA], WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) WHO HAS RIGHTLY DELETED THE 8 ITA NO.4228/DEL/2014 ADDITION SO MADE BY THE ASSESSING OFFICER. THUS, THE SOLE GROUND OF APPEAL RAISED BY THE REVENUE IS DISMISSED. 9 . IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO. 4228 /DEL/201 4 IS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 2 2 . 01.2018 . SD/ - SD/ - [ KULDIP SINGH ] [B.P. JAIN] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 22 N D JANUARY, 2018 VL/ COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR ASST. REGISTRAR, ITAT, NEW DELHI