Bellad Bagewadi Urban Souhard Sahakari Bank Niyamit., Bellad Bagewadi. V. Asst. Commissioner of Income Tax, Circle-1., Belgaum

ITA 436/PAN/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93579 (ITAT-PANAJI)
• Duration Of Justice: 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 13-07-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 22-12-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANAND SHANKAR MARATHE
• Assessee Lawyers: S V HALBHAVI
• Keywords: Bad and doubtful debts; Provision of bad debts
• Section: 201(1); 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI N.S. SAINI , HONBLE ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, HONBLE JUDICIAL MEMBER ITA NO. 436 /PNJ/201 4 (ASST. YEAR : 20 11 - 1 2 ) BELLAD BA GEWADI URBAN SOUHARD SAHAKARI BANK NIYAMIT, BAZAR ROAD, MRITYUNJAY CIRCLE, BELLAD, BAGEWADI . VS. A CIT, CIRCLE - 1, BELGAUM . PAN NO. AABCM 2493 B (APPELLANT) (RESPONDENT) ITA NO. 441 /PNJ/2014 (ASST. YEAR : 20 11 - 1 2 ) A CIT, CIRCLE - 1, BELGAUM . VS. BELLAD BAGEWADI URBAN SOUHARD SAHAKARI BANK NIYAMIT, BELLAD BAGEWADI, TQ. HUKKERI, DIST. B ELGAVI . PAN NO. AABCM 2493 B (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S.V. HALBHAVI CA . DEPARTMENT BY : SHRI ANAND SHANKAR MARATHE - DR DATE OF HEARING : 13 / 0 7 /2015 . DATE OF PRONOUNCEMENT : 13 / 0 7 /201 5 . O R D E R PER N.S. SAINI , ACCOUNTANT MEMBER THESE ARE THE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) , BELGAUM , DATED 03/11/2014. 2 ITA NO S . 436 & 441 /PNJ/2014 2. GROUND NO.1 OF THE ASSESSEES APPEAL IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX(APPEALS) CONFIRMING THE ADDITION OF RS. 15,00,000/ - TOWARDS THE PROVISION OF BAD DEBTS ON STANDARD ASSETS. 3 . BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER DISALLOWED CLAIM FOR DEDUCTION FOR PROVISION OF BAD DEBTS MADE BY THE ASSESSING OFFICER FOR STANDARD ASSETS OF RS. 15,00,000/ - DURING THE YEAR U/S. 36(1)(VIIA) ON THE GROUND TH A T THE ASSESSEE FAILED TO FURNIS H THE DETAILS OF DEDUCTION DURING THE ASSESSMENT YEAR . 4 . ON APPEAL, THE COMMISSIONER OF INCOME TAX(APPEALS) CONFIRMED THE ACTION OF THE ASSESSING OFFICER ON THE GROUND THAT THE ASSESSEE FAILED TO FURNISH ANY EVIDENCE IN SUPPORT OF ITS CLAIM. 5. BEFORE US, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE DEDUCTION WAS ALLOWABLE TO THE ASSESSEE AS THE SAME WAS CLAIMED IN PURSUANCE T O THE GUIDELINES OF THE RESERVE BANK OF INDIA . H OWEVER , HE DID NOT FURNISH THE DETAILS AND EVIDENCE OR ANY DOCUMENTS IN SUPPORT OF THE SAME. IN ABSENCE OF THE SAME, WE FIND NO INFIRMITY IN THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS), WHICH IS CONFIRMED AND THE GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 6. GROUND NO.2 OF THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DISALLOWING THE INTEREST OF RS. 30,08,157/ - FOR NOT DEDUCTING TDS U/S. 194A(3)(V) OF THE ACT. 7. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD PAID INTEREST ON TERM DEPOSITS IN EXCESS OF RS. 10,000/ - WITHOUT DEDUCTING TDS AND THE TOTAL INTEREST PAID OF RS. 30,08,157/ - IS LIABLE TO BE 3 ITA NO S . 436 & 441 /PNJ/2014 DISALLOWED U/S. 40(A)(IA) OF THE ACT . ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE BANK CANNOT CLAIM EXEMPTION FROM MAKING TDS ON INTEREST PAID TO ITS MEMBER AS PER THE PRO VI SIONS OF SEC. 194 A(3)(V) AS THOSE PROVISIONS ARE GENERAL IN NATURE , WHEREAS THE PROVISIONS CONTAINED IN SEC. 194A(3)(I) AND (VIIA) ARE SPECIFIC IN NATURE AND IT IS WELL ESTABLISHED PRINCIPLE OF INTERPRETATION THAT THE SPECIFIC PROVISIONS ALWAYS OVERRIDE THE GENERAL PROVISIONS . THE ASSESSING OFFICER RELIED ON THE DECISION OF PUNE BENCH OF THE TRIBUNAL IN THE CASE OF BHAGINI NIVEDITA SAHAKARA BANK LTD. VS. ACIT (2003) 87 ITD 569 (PUNE) . 8. ON APPEAL, THE COMMISSIONER OF INCOME TAX(APPEALS) CONFIRMED THE ACTION OF THE ASSESSING OFFICER . 9 . THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE RELIED ON THE DECISION OF THIS BENCH OF THE TRIBUNAL IN THE CASE OF BELGAUM DISTRICT CENTRAL COOPERATIVE BAN K LTD. VS. ITO IN I.T.A.NO S . 312 TO 315 / PNJ /2014 DATED 16/06/2015 AND SUBMITTED THAT THE ISSUE UNDER CONSIDERATION IS DECIDED IN FAVOUR OF THE ASSESSEE BY THE ABOVE DECISION OF THE TRIBUNAL. 10 . DEPARTMENTAL REPRESENTATIVE VERY FAIRLY AGREED TO THE SAME. 11 . WE FIND THAT THE TRIBUNAL IN THE CASE OF BELGAUM DISTRICT CENTRAL COOPERATIVE BANK LTD. (SUPRA) HAS HELD AS UNDER: - 4. THE SUM AND SUBSTANCE OF THE GRIEVANCE OF THE ASSESSEE FOR ALL THE YEARS UNDER CONSIDERATION IS THAT THE LD. CIT(A) FAILED TO APPRECIATE THE TRUE IMPORT OF SEC. 194(V) AND SEC. 194A(VIIA) SUB - CLAUSE (B) AND ERRED IN DENYING THE EXEMPTION FROM SEC. 194A IN RESPECT OF PAYMENTS OF INTEREST TO MEMBERS. 5. THE ASSESSEE IS A COOPERATIVE BANK ENGAGED IN THE BUSINESS OF BANKING. A SURVEY WAS CONDUCTED AT THE BANK PREMISES ON 28/10/2013 TO VERIFY THE COMPLIANCE WITH TDS PROVISIONS. A 4 ITA NO S . 436 & 441 /PNJ/2014 SHOW - CAUSE NOTICE WAS ISSUED TO THE ASSESSEE CALLING FOR DETAILS OF INTEREST PAID ON DEPOSITS AND TAX DEDUCTED AT SOURCE THEREIN. THE DETAILS WERE FILED. AFTER PERUSING THE DETAILS, THE ASSESSING OFFICER FOUND THAT THE DEFAULTS HAVE BEEN MADE BY THE ASSESSEE FOR NOT DEDUCTING TAX AT SOURCE ON PAYMENT OF INTEREST ON TERM DEPOSIT IN EXCESS OF RS. 10,000/ - AS PER THE PROVISIONS OF SEC. 194 A(3)(I)(B) READ WITH SEC. 194A(3)(VIIA)(B) OF THE ACT. THE ASSESSING OFFICER WAS OF THE FIRM BELIEF THAT BY NOT DEDUCTING TAX AT SOURCE, THE ASSESSEE HAS VIOLATED THE STATUTORY PROVISIONS OF THE ACT. DRAWING SUPPORT FROM THE DECISION OF THE TRIBUNAL PANA JI BENCH IN THE CASE OF BAILHONGAL URBAN COOPERATIVE BANK LTD. VS. JCIT, BELGAUM IN ITA NO. 85/PNJ/2013 AND THE DECISION OF THE TRIBUNAL PUNE BENCH IN THE CASE OF BHAGINI NIVEDITA SAHAKARA BANK LTD. VS. ACIT (87 ITD 569), THE ASSESSING OFFICER COMPUTED TH E LIABILITY OF THE ASSESSEE U/S. 201(1) & 201(1A) OF THE ACT. 6. AGGRIEVED BY THIS, ASSESSEE CARRIED THE MATTER BEFORE THE LD.CIT(A) AND REITERATED ITS CLAIM THAT THE ASSESSING OFFICER HAS RELIED UPON WRONG DECISIONS REFERRING TO ITS OWN ORDERS FOR THE A.Y. 2002 - 03. IT WAS POINTED OUT TO THE LD. CIT(A) THAT THE THEN LD. CIT(A) HAS ALLOWED THE ASSESSEES APPEAL BASED ON THE DECISION OF JALGAON DISTRICT CENTRAL CO - OP BANK LTD. & ANOTHER VS. UNION OF INDIA (265 ITR 423). AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS OF THE LD. CIT(A) AT PARA 6.3 HAS OBSERVED AS UNDER: - 6.3 NOW COMING TO THE CIRCULAR NO. 9 OF 2002 ISSUED BY THE CBDT RELIED UPON BY THE APPELLANT, THE BOARD VIDE SAID CIRCULAR HAD SOUGHT TO INTERPRET THE DEFINITION OF WORD MEMBER CLARIFYIN G THAT THE WORD 'MEMBER' DOES NOT INCLUDE WORD 'NOMINAL MEMBER'. IT WAS HELD BY THE BOMBAY HIGH COURT IN THE CASE OF JALGAON DISTRICT CENTRAL CO - OP BANK LTD & ANR V. UNION OF INDIA 265 ITR 423 (BOM), THAT THE BOARD HAS NO POWER TO INTERPRET THE PROVISIONS OF LAW BY WAY OF CIRCULAR. THE ISSUE AT HAND OF THE BOMBAY HIGH COURT WAS THE DEFINITION OF THE WORD 'MEMBER' AS APPEARING IN CLAUSE (V) OF SECTION 194(3) AND THE POWERS OF THE CENTRAL BOARD OF DIRECT TAXES TO ISSUE CIRCULARS U/S 119 WHICH WOULD OVERRIDE O R DETRACT FROM THE PROVISIONS OF THE INCOME TAX ACT. THE CIRCULAR NO.9 OF 2002 DATED 11 - 09 - 2002 ISSUED BY THE CBDT HAS BEEN QUASHED AND SET ASIDE BY THE HON'BLE HIGH COURT. THEREFORE, THE CIRCULAR NO.9 OF 2002 DATED 11 - 09 - 2002 ISSUED BY THE CBDT DOES NOT HELP THE CASE OF THE APPELLANT. THE APPELLANT'S RELIANCE ON THE SAID CIRCULAR IS FOUND TO BE ILL FOUNDED. SIMILARLY, THE APPELLANT'S RELIANCE ON THE DECISIONS OF THE HIGH CO URT IN THE CASES OF JALGAON DISTRICT CO - OP BANK 265 ITR 423, SUPRA AS WELL AS IN THE CASE OF THE GUJARAT URBAN CO - OPERATIVE BANK FEDERATION DO NOT HELP 5 ITA NO S . 436 & 441 /PNJ/2014 THE CASE OF THE APPELLANT AS IN BOTH THE CASES THE DECISION IS SAME AS DISCUSSED ABOVE. LD. CIT(A) FURTHER DRAWING SUPPORT FROM THE DECISION OF THE TRIBUNAL PANAJI BENCH IN THE CASE OF BAILHONGAL URBAN CO. BANK (SUPRA), CONFIRMED THE ORDER OF THE ASSESSING OFFICER MADE U/S.201(1) & 201(1)(A) OF THE ACT. 7. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. 8. AT THE VERY OUTSET, COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE MEMORANDUM EXPLAINING THE PROVISIONS IN THE FINANCE BILL 2015. THE RELEVANT PORTION OF WHICH READS AS UNDER: - SECTION 194A(1) READ WITH SECTION 194A(3)(I) OF THE ACT PROVIDE FOR DEDUCTION OF TAX ON INTEREST (OTHER THAN INTEREST ON SECURITIES)'OVER A SPEC IFIED THRESHOLD, I.E., RS. 10,000 FOR INTEREST PAYMENT BY BANKS, CO - OPERATIVE SOCIETY ENGAGED IN BANKING BUSINESS (CO - OPERATIVE BANK) AND POST OFFICE AND RS. 5,000 FOR PAYMENT OF INTEREST BY OTHER PERSONS. FURTHER, SUB - SECTION (3) OF SECTION 194A, INTER ALIA, ALSO PROVIDES FOR EXEMPTION FROM DEDUCTION OF TAX IN RESPECT OF FOLLOWING INTEREST PAYMENTS BY CO - OPERATIVE SOCIETY: (I) INTEREST PAYMENT BY A CO - OPERATIVE SOCIET Y TO A MEMBER THEREOF OR ANY OTHER CO - OPERATIVE SOCIETY. (SECTION 194A(3)(V) OF THE ACT] (II) INTEREST PAYMENTS ON DEPOSITS BY A PRIMARY AGRICULTURAL CREDIT SOCIETY OR PRIMARY CREDIT SOCIETY OR CO - OPERATIVE LAND MORTGAGE BANK OR CO OPERATIVE LAND DEVELOPM ENT BANK. [SECTION 194A(3)(VIIA)(A) OF THE ACT] (III) INTEREST PAYMENT ON DEPOSITS OTHER THAN TIME DEPOSIT BY A CO OPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING OTHER THAN THOSE MENTIONED IN SECTION 194A(3)(VIIA)(A) OF THE ACT. [SECTION 194A(3)(VII A)(B) OF THE ACT] THEREFORE, AS PER THE PROVISIONS OF SECTION 194A(1) READ WITH PROVISIONS OF SECTION 194A(3)(I)(B) AND 194A(3)(VIIA)(B), CO - OPERATIVE BANK IS REQUIRED TO DEDUCT TAX FROM INTEREST PAYMENT ON TIME DEPOSITS IF THE AMOUNT OF SUCH PAYMENT EXCE EDS SPECIFIED THRESHOLD OF RS. 10,000. HOWEVER, AS THE PRO VISIONS OF SECTION 194A(3)( V ) OF THE ACT PROVIDE A GENERAL EXEMPTION FROM MAKING TAX DEDUCTION FROM PAYMENT OF INTEREST BY ALL CO - OPERATIVE SOCIETIES TO ITS MEMBERS, THE CO - OPERATIVE BANKS TRIED TO AVAIL THIS EXEMPTION BY MAKING THEIR DEPOSITORS AS MEMBERS OF DIFFERENT CATEGORIES. THIS HAS LED TO DISPUTE AS TO WHETHER THE CO - OPERATIVE BANKS, FOR WHICH THE SPECIFIC PRO - VISIONS OF TAX DEDUCTION EXIST IN THE FORM OF SECTION 194A(1), SECTION(C)4A(3)(I)( B) AND 194A(3)(VIIA)(B) OF THE ACT CAN TAKE THE BENEFIT OF GENERAL EXEMPTION PROVIDED TO ALL CO - OPERATIVE SOCIETIES FROM DEDUCTION OF TAX ON PAYMENT OF INTEREST TO MEMBERS. THE MATTER HAS BEEN CARRIED TO JUDICIAL 6 ITA NO S . 436 & 441 /PNJ/2014 FORUMS AND IN SOME CASES A VIEW HAS BEEN TA KEN THAT THE PROVISIONS OF SECTION 194A(3)(VIIA)(B) OF THE ACT MAKES NO DISTINCTION BETWEEN MEMBERS AND NON - MEMBERS OF CO - OPERATIVE BANKS FOR THE PURPOSES OF DEDUCTION OF TAX, HENCE, THE CO - OPERATIVE BANKS ARE REQUIRED TO DEDUCT TAX ON PAYMENT OF INTEREST ON TIME DEPOSIT AND CANNOT AVOID THE SAME BY TAK - ING THE PLEA OF THE GENERAL EXEMPTION PROVIDED UNDER SECTION 194A(3)(V) OF THE ACT. THIS IS BECAUSE THE SPECIFIC PROVISION OF TAX DEDUCTION PROVIDED UNDER SECTION 194A(3)(I)(B) AND 194A(3)(VIIA)(B) OF THE AC T FOR CO - OPERATIVE BANKS OVERRIDE THE GENERAL EXEMPTION PROVIDED TO ALL CO - OPERATIVE SOCIETIES FOR NON - DEDUCTION OF TAX FROM INTEREST PAYMENT TO MEMBERS UNDER SECTION 194A(3)(V) OF THE ACT. AS THERE IS NO DIFFERENCE IN THE FUNCTIONING OF THE CO - OPERATIVE BANKS AND OTHER COMMERCIAL BANKS, THE FINANCE ACT, 2006 AND FINANCE ACT, 2007, AMENDED THE PROVISIONS OF THE ACT TO PROVIDE FOR CO - OPERATIVE BANKS A TAXATION REGIME WHICH IS SIMILAR TO THAT FOR THE OTHER COMMERCIAL BANKS. THEREFORE, THERE IS NO RATIONALE F OR TREATING THE CO - OPERATIVE BANKS DIFFERENTLY FROM OTHER COMMERCIAL BANKS IN THE MATTER OF DEDUCTION OF TAX AND ALLOWING THEM TO AVAIL THE EXEMPTION MEANT FOR SMALLER CREDIT CO - OPERATIVE SOCIETIES FORMED FOR THE BENEFIT OF SMALL NUMBER OF MEMBERS. HOWEVER , AS MENTIONED EARLIER, A DOUBT HAS BEEN CREATED REGARDING THE APPLICABILITY OF THE SPECIFIC PROVISIONS MANDATING DEDUCTION OF TAX FROM THE PAYMENT OF INTEREST ON TIME DEPOSITS BY THE CO - OPERATIVE BANKS TO ITS MEMBERS BY 'CLAIMING THAT GENERAL EXEMPTION PR OVIDED IS ALSO APPLICABLE FOR PAYMENT OF INTEREST TO MEMBER DEPOSITORS. IN VIEW OF THIS, IT IS PROPOSED TO AMEND THE PROVISIONS OF THE SECTION 194A OF THE ACT TO EXPRESSLY PROVIDE FROM THE PROSPECTIVE DATE OF 1ST JUNE, 2015 THAT THE EXEMPTION PROVIDED FRO M DEDUCTION OF TAX FROM PAYMENT OF INTEREST TO MEMBERS BY A CO - OPERATIVE SOCIETY UNDER SECTION 194A(3)(V) OF THE ACT SHALL NOT APPLY TO THE PAYMENT OF INTEREST ON TIME DEPOSITS BY THE COOPERATIVE BANKS TO ITS MEMBERS. IT IS THE SAY OF THE COUNSEL THAT WI TH THIS AMENDMENT, IT IS ABUNDANTLY CLEAR THAT THE IMPUGNED PROVISION WAS NOT APPLICABLE DURING THE YEARS UNDER APPEAL AND IT IS CLEAR THAT THE PROVISIONS ARE APPLICABLE W.E.F. 01/06/2015. COUNSEL FURTHER DREW OUR ATTENTION TO THE CIRCULAR NO. 9 OF 2002 OF THE CBDT AND STATED THAT THE BOARD HAS CLARIFIED THAT THE PROVISIONS OF TDS ARE NOT ENFORCEABLE IN RESPECT OF INTEREST PAID BY THE COOPERATIVE SOCIETY/BANK TO ITS MEMBERS, BUT TAX DEDUCTED AT SOURCE IS TO BE DEDUCTED FROM THE INTEREST PAID TO THE NON - ME MBERS. 9. PER CONTRA, LEARNED DR STRONGLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER. IT IS THE SAY OF THE DR THAT THE AMENDMENT IS ONLY OF CLARIFICATORY IN NATURE. LEARNED DR FURTHER POINTED OUT THAT THE CIRCULAR 9 OF 2002 HAS BEEN WITHDRAWN BY THE CBDT AS IT 7 ITA NO S . 436 & 441 /PNJ/2014 H AS BEEN STRUCK DOWN BY THE BOMBAY HIGH COURT IN THE CASE OF JALGAON DISTRICT CENTRAL CO. BANK (SUPRA). 10. HAVING GIVEN A THOUGHTFUL CONSIDERATION TO THE RIVAL CONTENTIONS. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE ALSO G ONE THROUGH THE DECISIONS RELIED UPON BY THE RIVAL PARTIES AND THE CIRCULARS OF THE CBDT BROUGHT TO OUR NOTICE. 11. FIRSTLY, THE ASSESSING OFFICER AND THE LD. CIT(A) HAVE HEAVILY RELIED UPON THE DECISION OF THE TRIBUNAL PANAJI BENCH IN THE CASE OF BAILHON GAL URBAN CO. BANK LTD. (SUPRA), WHEREIN THE TRIBUNAL HAS HELD THAT CIRCULAR NO. 9 OF 2002 DATED 11/09/2002 ISSUED BY THE CBDT HAS BEEN QUASHED AND SET ASIDE BY THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF JALGAON DISTRICT CO. BANK (SUPRA). THEREFORE, ASSESSEES RELIANCE ON THE SAID CASE AND THE CIRCULAR IS FOUND TO BE ILL - FOUNDED. THE TRIBUNAL DECIDED THE APPEAL IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. WITH DUE RESPECT TO THE SAID DECISION OF THE TRIBUNAL, WE HAVE TO SAY THE OBSERVATIONS M ADE BY THE TRIBUNAL ARE ILL - FOUNDED BECAUSE SUBSEQUENT TO THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF JALGAON DISTRICT CO. BANK (SUPRA) AN INFORMATION WAS REQUIRED FROM THE CBDT UNDER THE RIGHT TO INFORMATION ACT, 2005. THE INFORMATION RE QUIRED AND THE REPLY OF THE BOARD READS AS UNDER: - 8 ITA NO S . 436 & 441 /PNJ/2014 THUS, WITH THIS CLARIFICATION, IT IS CLEAR THAT THE CIRCULAR HAS NOT BEEN WITHDRAWN. MOREOVER, A PERUSAL OF THE DECISION OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF JALGAON DISTRICT CO. BANK (SUPRA) SHOWS THAT THE HONBLE HIGH COURT HAS HELD THAT T HE IMPUGNED NOTIFICATION ISSUED BY THE CBDT WHICH IS IN THE FORM OF A CLARIFICATION WITH REGARD TO THE RIGHTS AND PRIVILEGES OF A DULY REGISTERED MEMBER AND NOMINAL MEMBER IS OUTSIDE THE SCOPE OF SEC.119 OF THE ACT. THE HONBLE HIGH COURT FURTHER HELD THA T THE CBDT CANNOT ISSUE A CIRCULAR U/S. 119 OF THE ACT WHICH WOULD OVERRIDE OR RETRACT FROM THE PROVISIONS OF INCOME - TAX ACT, 1961. THUS, THE OBSERVATIONS OF THE HONBLE HIGH COURT WERE MORE TOWARDS THE CLARIFICATION REGARDING MEMBER AND NOMINAL MEMBER. CONSIDERING ALL THE FACTS IN TOTALITY IN THE LIGHT OF THE MEMORANDUM EXPLAINING THE PROVISIONS IN THE FINANCE BILL 2015 (SUPRA) AND THE CLARIFICATION BY THE BOARD THAT THE CIRCULAR HAS NOT BEEN WITHDRAWN, MAKES IT AMPLE CLEAR THAT THE IMPUGNED PROVISIONS RELATING TO THE LIABILITY OF TDS WOULD COME WITH EFFECT FROM 01/06/2015, WE, THEREFORE, SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED ADDITIONS MADE IN THE ORDER U/S. 201(1) & 201(1A) OF THE ACT. 12 IN THE RESULT, ALL THESE APPEALS FILED BY THE ASSESSEE ARE ALLOWED. 12. F A C T S B E I N G I D E N T I C A L , RESPECTFULLY F O L L O W I N G I T S P R E C E D E N T , WE SET ASIDE THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND DELETE THE DISALLOWANCE OF INTEREST OF RS. 30,08,157/ - . T HUS , THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 13. IN THE REVENUES APPEAL , THE SOLE GROUND OF APPEAL TAKEN IS THAT THE COMMISSIONER OF INCOME TAX(APPEALS) ERRED IN DELETING THE ADDITION OF RS. 13,01,241/ - [ THOUGH THE ASSESSING OFFICER HAS MADE THE ADDITION OF RS. 19,06, 225/ - WHICH HAS BEEN DELETED BY THE COMMISSIONER OF INCOME TAX(APPEALS) ] ON ACCOUNT OF ACCRUED INTEREST ON LOANS WHICH ARE CLASSIFIED AS NON - PERFORMING ASSETS RELYING ON THE KARNATAKA HIGH COURT S DECISION IN CANFIN HOMES LTD. ( 2011) 5 TAXCORP (DT) 49593 . 9 ITA NO S . 436 & 441 /PNJ/2014 14 . WE HAVE HEARD THE RIVAL SUBMISSIONS , PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. 15 . THE ASSESSING OFFICER OBSERVED FROM THE DETAILS FURNISHED BY THE ASSESSEE THAT THE TOTAL AMOUNT OF NP AS ON 31/03/2011 IS RS. 1, 28,25,626/ - WHICH WAS SHOWN O N 3 1 / 0 3 / 2 0 1 0 AT RS. 1, 09,19,401/ - THUS, THE INTEREST ON NPA WORKS OUT TO RS. 19,06,225/ - WHICH IS NOT CREDITED TO THE PROFIT & LOSS ACCOUNT AND THEREFORE, THE SAME IS ADDED TO THE INCOME OF THE ASSESSEE ON ACCRUAL BASIS . 16 ON APPEAL , THE COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE DISALLOWANCE BY OBSERVING AS UNDER: - 5.2.4 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT IN THIS REGARD AND ALSO PERUSED THE DECISIONS RELIED UPON BY IT. THE ASSESSING OFFICER WHILE BRINGING TO TAX THE INTEREST INCOME OF THE APPELLANT FROM NPAS/STICKY LOANS ON ACCRUAL BASIS HAS RELIED ON THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF STA TE BANK OF TRAVANCORE VS. CIT (158 ITR 102) AND THE JUDGMENT OF HON'BLE KARNATAKA HIGH COURT IN THE CASE OF KARNATAKA STATE FINANCE CORPORATION VS. CIT H(174 ITR 212). THE A.O HAS ALSO CONTEND ED THAT SECTION 43D OF THE I.T. ACT AS INSERTED W.E.F. 01 - 04 - 2000 IS NOT APPLICABLE TO CO - OPERATIVE BANKS. 5.2.5 THE APPELLANT ON THE OTHER HAND CHALLENGING THE ACTION OF THE A.O IN BRINGING TO TAX THE INTEREST INCOME OF THE APPELLANT FROM N PAS/STICKY LOANS ON ACCRUAL BASIS HAD MAINLY RELIED ON THE DECISION OF THE APEX COURT IN THE CASE OF UCO BANK VS.CIT, 237 ITR 889 (1999). OTHER CASE LAWS IN FAVOUR OF THE APPELLANT ARE THE JCIT(ASST) V. CANFIN HOMES LTD IN ITA NO.801 OF 2006 AND THE DECISION OF THE ITAT, BANGALORE BENCH 'C' BANGALORE IN THE CASE OF ITO WARD - 2 SHIVAMOGGA V. SHIVA SAHAKARI BANK NIYAMITHA IN ITA NO.257/BANG/2012 FOR A.Y. 2008 - 09 DATED 21.12.2012 WHEREIN, THE HON'BLE ITAT, RELYING UPON THE DECISION OF HON'BLE HIGH COURT OF KARNATAKA, IN THE CASE OF JCIT(ASST) V. CANFIN HOMES LTD IN ITA NO.801 OF 2 006, HAS HELD THAT INTEREST ON NON - PERFORMING ASSETS CANNOT BE TAKEN AS INCOME ACCRUED TO THE ASSESSEE IN THE RELEVANT YEAR. THE ABOVE MENTIONED CASES OF SUPREME COURT AND HIGH COURT IN FAVOUR OF THE APPELLANT IN THE CASES OF U CO BANK AND CANFIN, SUPRA ARE LATER IN TIME THAN THE CASE LAWS RELIED UPON BY THE A.O. THE APEX COURT IN THE CASE OF UCO BANK, SUPRA HAS 10 ITA NO S . 436 & 441 /PNJ/2014 CONSIDERED AND OVER RULED ITS OWN DECISION IN THE CASE OF STATE BANK OF TRAVANCORE, SUPRA. FURTHER, THE HON'BLE ITAT AHMEDABAD BENCH IN CASE OF KARNAVATI CO - OP. BANK LTD. VS. DEPUTY COMMISSIONER OF INCOME TAX (2012) 14 ITR (TRIB) 175 HAS HELD THAT CO - OPERATIVE BANK IS GOVERNED BY RBI GUIDELINES HENCE PROVISIONS OF SECTION 43D ARE ALSO APPLICABLE TO CO - OPERATIVE BANKS. FU RTHER, THERE IS NOTHING IN THE PHRASEOLOGY OF SECTION 43D WHICH MAKES THE INTEREST INCOME OF CO - OPERATIVE BANKS FROM NPA OR STICKY LOANS TAXABLE ON ACCRUAL BASIS. 5.2.6 HON'BLE SUPREME COURT (3 MEMBERS) IN THE CASE OF UCO BANK VS. CIT (1999) 237 ITR 889 HAS HELD THAT INTEREST ACCRUED ON STICKY ADVANCES WHICH WAS NOT BROUGHT IN PROFIT AND LOSS ACCOUNT BUT TAKEN TO SEPARATE SUSPENSE ACCOUNT SHOULD BE ADDED AS INCOME ONLY WHEN ACTUALLY RECEIVED. THIS JUDGMENT OF THE APEX COURT IN ITS ESSENCE LAYS DOWN LA W ON THE ISSUE UNLESS EXPRESSLY OVERRULED EITHER BY ITSELF OR BY A LEGISLATIVE AMENDMENT WHICH HAS NOT COME TILL DATE. 5.2.7 . THE HON'BLE HIGH COURT OF KARNATAKA IN THE CANFIN CASE, MENTIONED SUPRA, FOLLOWING THE JUDGMENT OF THE APEX COURT IN THE CASE OF UCO BANKVS.CIT, 237 ITR 889 (1999) HAS HELD AS UNDER: - 'THEREFORE, IT IS CLEAR IF AN ASSESSEE ADOPTS MERCANTILE SYSTEM OF ACCOUNTING AND IN HIS ACCOUNTS HE SHOWS A PARTICULAR INCOME AS ACCRUING, WHETHER THAT AMOUNT IS REALLY ACCRUED OR NOT IS LIABLE TO BRING THE SAID INCOME TO TAX. HIS ACCOUNTS SHOULD REFLECT TRUE AND CORRECT S TATEMENT OF AFFAIRS. MERELY BECAUSE THE SAID AMOUNT; ACCRUED WAS NOT REALIZED IMMEDIATELY CANNOT BE A GROUND TO AVOID PAYMENT OF TAX. BUT, IF IN HIS ACCOUNT IT IS CLEARLY STATED THOUGH A PARTICULAR INCOME IS DUE TO HIM BUT IT IS NOT POSSIBLE TO RECOVER THE SAME, THEN IT CANNOT SAID TO HAVE BEEN ACCRUED AND THE SAID AMOUNT CANNOT BE BROUGHT TO T AX. IN T HE INSTANT CASE WE ARE CONCERNED WITH A NON - PERFORMING ASSET. AS THE DEFINITION OF NON - 'PERFORMING ASSET SHOWS AN ASSET BECOMES NON - PERFORMING WHEN IT CEASES TO YIELD INCOME. NON - PERFORMING ASSET IS AN ASSET IN RESPECT OF WHICH INTEREST HAS REMAINE D UNPAID AND HAS BECOME PAST DUE. ONCE A PARTICULAR ASSET IS SHOWN TO BE A NON - PERFORMING ASST THEN THE ASSUMPTION IS IT IS NOT YIELDING ANY REVENUE. WHEN IT IS NOT YIELDING ANY REVENUE, THE QUESTION OF SHOWING THAT REVENUE AND PAYING TAX WOULD NOT ARISE. AS IS CLEAR FROM THE POLICY GUIDELINES ISSUED BY THE NATIONAL HOUSING BANK, THE INCOME FROM NON - PERFORMING ASSET SHOULD BE RECOGNIZED ONLY WHEN IT IS 11 ITA NO S . 436 & 441 /PNJ/2014 ACTUALLY RECEIVED. THAT IS WHAT THE TRIBUNAL HELD IN THE INSTANT CASE. THEREFORE, THE CONTENTION OF THE RE VENUE THAT IN RESPECT OF NON - PERFORMING ASSETS EVEN THOUGH IT DOES NOT YIELD ANY INCOME AS THE ASSESSEE HAS ADOPTED A MERCANTILE SYSTEM OF ACCOUNTING, HE HAS TO PAY TAX ON THE REVENUE WHICH HAS ACCRUED NATIONALLY IS WITHOUT ANY BASIS. IN THAT VIEW OF THE M ATTER, THE SECOND SUBSTANTIAL QUESTION FRAMED IS ANSWERED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE.' 5.2.8 THUS, IN VIEW OF THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF JCIT VS.M/S CANFIN HOMES LTD (2011) 5 TAX CORP (DT) 49593 , IT IS OBSERVED THAT THE FACTS OF THE APPELLANT BANK ARE SIMILAR TO THE FACTS OF THE CASE BEFORE THE HON'BLE HIGH COURT OF KARNATAKA WHEREIN IT HAS BEEN HELD THAT THE CONTENTION OF THE REVENUE THAT IN RESPECT OF NON - PERFORMING ASSETS EVEN THOUGH IT DOES NOT Y IELD ANY INCOME AS THE ASSESSEE HAS ADOPTED A MERCANTILE SYSTEM OF ACCOUNTING, HE HAS TO PAY TAX ON THE REVENUE WHICH HAS ACCRUED NOTIONALLY IS WITHOUT ANY BASIS. 5.2.9 THE PANJIM BENCH OF THE HON'BLE ITAT HAS IN THE APPELLANT'S OWN CASE IN ITA NO.72/P NJ/2 013 FOR A.Y. 2009 - 10, DECIDED THE APPEAL ON THIS ISSUE IN FAVOUR OF THE APPELLANT. 5.2.10 IN VIEW OF THE ABOVE DISCUSSION AND RESPECTFULLY FOLLOWING THE JUDGMENTS OF THE APEX COURT IN THE UCO BANK VS.CIT, SUPRA, JUDGMENTS OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CANFIN, SUPRA AND THE DECISIONS OF ITAT, BANGALORE BENCH 'C' BANGALORE IN THE CASE OF ITO WARD - 2 SHIVAMOGGA V. SHIVA SAHAKARI BANK NIYAMITHA, SUPRA AND PANJI M BENCH IN THE CASE OF THE KHANAPUR CO - OP. BANK LTD., VS. INCOME TAX OFFICER ITA NO. 141/PNJ/2011, I HOLD THAT THE ADDITION MADE BY THE ASSESSING OFFICER OF RS.1,85,50,790/ - CANNOT BE SUSTAINED IN LAW. ACCORDINGLY, THE ADDITION OF RS.19,08,225/ - ON ACCOUNT OF INTEREST RECEIVABLE ON NPA MADE BY THE ASSESSING OFFICER IS DELETED. 17 . DEPARTMENTAL REPRESENTATIVE SIMPLY RELIED ON THE ORDER OF THE ASSESSING OFFICER. HE COULD NOT POINT OUT ANY SPECIFIC ERROR IN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). HENCE, WE FIND NO GOOD REASON TO INTERFERE WITH THE ORDER OF THE COMMISSIO NER OF INCOME TAX 12 ITA NO S . 436 & 441 /PNJ/2014 (APPEALS) , WHICH IS CONFIRMED AND THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 18. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND THAT OF REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT AT THE CLOSE OF THE HEARING ON MONDAY , THE 13 TH DAY OF JULY , 201 5 AT GOA . S D / - S D / - (GEORGE MATHAN) (N.S.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 13 TH JU LY , 201 5 . VR/ - COPY TO: 1 . THE ASSESSEE 2 . THE DEPARTMENT . 3 . THE CIT 4 . THE CIT(A) 5 . THE D.R 6 . GUARD FILE. BY ORDER ASSISTANT REGISTRAR I.T.A.T., PANAJI 13 ITA NO S . 436 & 441 /PNJ/2014 DATE INITIAL ORIGINAL DICTATION PAD IS ENCLOSED IN THE FILE 1. DRAFT DICTATED ON 13 .0 7 .2015 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 14 .07 .2015 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 14 /07 /2015 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 14 /0 7 /2015 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 14 /07 /2015 SR.PS 6. DATE OF PRONOUNCEMENT 13 /0 7 /2015 SR.PS 7. FILE SENT TO THE BENCH CLERK 1 0 /07 /2015 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER