Pragati Sahakari Bank Ltd., Baroda V. The CIT-I, Baroda

ITA 480/AHD/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0499 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 09-09-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 13-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIBHA BHALLA
• Assessee Lawyers: S N SOPARKAR
• Keywords: Opportunity of being heard
• Section: 263; 2

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD .., , !' BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ I.T.A. NO.480/AHD/2014 ( / ASSESSMENT YEAR : 2009-10) PRAGATI SAHAKARI BANK LTD. ALEMBIC COLONY ALEMBIC ROAD BARODA 390 003 / VS. THE COMMISSIONER OF INCOME TAX-1 BARODA % ./ ./ PAN/GIR NO. : AAAAP 0468 N ( %( / APPELLANT ) .. ( )%( / RESPONDENT ) %(* / APPELLANT BY : SHRI S.N. SOPARKAR, AR )%(+* / RESPONDENT BY : MS. VIBHA BHALLA, CIT-DR ,+ / DATE OF HEARING 09/09/2016 -./+ / DATE OF PRONOUNCEMENT 20/09/2016 / O R D E R PER SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER : THE ABOVE CAPTIONED APPEAL FILED BY THE ASSESSEE I S PRESENTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX -I, BARODA (IN SHORT THE CIT) DATED 19/12/2013. 2. THE CIT IN EXERCISE OF HIS REVISIONARY POWER PA SSED ORDER U/S.263 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED T O AS 'THE ACT') WHEREBY ASSESSMENT ORDER DATED 05/12/2011 PASSED BY THE ASSESSING ITA NO.480/AHD/ 2014 PRAGATI SAHAKARI BANK LTD. VS. CIT ASST.YEAR 2009-10 - 2 - OFFICER U/S.143(3) OF THE ACT RELEVANT TO ASSESSMEN T YEAR (AY) 2009-10 WAS SET ASIDE. THE CIT ALLEGED THAT THE ORDER PAS SED BY THE ASSESSING OFFICER (AO) WAS ERRONEOUS IN SO FAR AS IT WAS PREJ UDICIAL TO THE INTERESTS OF THE REVENUE AS (I) THE ASSESSEE HAD NOT PROPERLY DISCLOSED NOR PROPERLY EXAMINED BY THE AO THE NATURE AND IDENTITY OF ASSET S DECLARED AS NON PERFORMING ASSETS (NPAS) AND (II) TOWARDS FAILURE TO DISCLOSE A SUM OF RS.55.60 LACS TOWARDS ACCRUED INTEREST ON NPAS AS I NCOME IN THE PROFIT & LOSS ACCOUNT. THE ASSESSEE IN THIS APPEAL SEEKS TO ASSAIL THE ACTION OF THE CIT IN INVOKING THE SECTION 263 OF THE ACT AND CONTENDS THAT THE SUBJECT ASSESSMENT ORDER FRAMED U/S.143(3) OF THE P ASSED BY THE AO CANNOT BE TERMED AS ERRONEOUS OR PREJUDICIAL TO THE INTERESTS OF THE REVENUE. 3. THE ASSESSEE IS A CO-OPERATIVE BANK AND CLAIMS T O IDENTIFY NPAS TOWARDS LOANS AND ADVANCES MADE TO ITS CUSTOMERS AS PER PRESCRIBED NORMS LAID DOWN BY THE RESERVE BANK OF INDIA (RBI). HAVING IDENTIFIED THE NPA AS PER THE RBI GUIDELINES, SUITABLE PROVIS IONING THEREOF IS MADE IN THE BOOKS OF ACCOUNTS. THE ASSESSEE HAS NOT REP ORTED ANY INTEREST INCOME PURPORTEDLY ACCRUED ON SUCH NPAS WHICH ARE D OUBTFUL OF RECOVERY. IT IS THE CASE OF THE CIT THAT INTEREST ACCRUED ON THE NPAS HAS ESCAPED ASSESSMENT AND SUCH INTEREST WAS REQUIRED TO BE TAXED. IT WAS ALLEGED BY THE CIT THAT THE AO DID NOT EXAMINE THE ISSUE IN A PERSPECTIVE ITA NO.480/AHD/ 2014 PRAGATI SAHAKARI BANK LTD. VS. CIT ASST.YEAR 2009-10 - 3 - AND ACCEPTED THE CLAIM ON FACE VALUE. THE RELEVA NT FINDING OF THE CIT, IN THIS REGARD, IS REPRODUCED HEREUNDER:- 4. I HAVE CONSIDERED THE SUBMISSION OF THE ASSESS EE. IT IS APPARENT THAT THE ISSUE OF ACCRUED INTEREST ON NPA WAS NOT P ROPERLY DISCLOSED NOR EXAMINED BY THE A.O. THE RBI CIRCULAR NO.3/09.14.000/2009-10 DATED 1 ST JULY, 2009 HAS DEFINED NPAS AS AN ASSET WHICH CEASES TO GENERA TE INCOME FOR THE BANK. THOSE ASSETS ON WHICH INTEREST AND / OR INSTALLMENT OR PRINCIPAL REMAIN OVERDUE FOR THE PERIOD OF MORE THAN 90 DAYS IN RESPECT OF TERM LOAN ARE CONSIDERED AS NPAS. IN RESPECT OF CREDIT FACILITIES, IF AN AMOUNT IS NOT PAID BY THE DUE DATE, THE BALANCE BECOMES OVERDUE. FURTHER IT IS ADVISED IN THE RBI GUIDELINES THAT IN CASE OF NPAS WHERE INTEREST HAS NOT BEEN RECEIVED FOR 90 DAYS OR MORE, AS A PRUDENTIAL NORM, THERE IS NO USE DEBITING THE SAID ACCOUNT BY INTEREST ACCRUED I N SUBSEQUENT QUARTERS. HOWEVER, THIS IS SUBJECT TO CERTAIN COND ITIONS. IT HAS BEEN ALSO ADVISED BY THE RBI THAT THE IDENTIFICATIO N OF NPAS IS DONE ON AN ONGOING BASIS AND DOUBTS IN ASSET CLASSI FICATION DUE TO ANY REASON ARE SETTLED IN SPECIFIED INTERNAL CHA NNELS WITHIN ONE MONTH FROM THE DATE ON WHICH THE ACCOUNT WOULD HAVE BEEN CLASSIFIED AS NPA AS PER PRESCRIBED NORMS. IT IS F URTHER ADVISED THAT THE TREATMENT OF AN ASSET AS NPA SHOULD BE BAS ED ON THE RECORD OF RECOVERY. THE BANKS SHOULD NOT TREAT THE ADVANCE AS NPA MERELY DUE TO EXISTENCE OF SOME DEFICIENCIES WH ICH ARE TEMPORARY IN NATURE SUCH AS NON-AVAILABILITY OF ADE QUATE DRAWING POWER, BALANCE OUTSTANDING EXCEEDING THE LI MIT, NON- SUBMISSION OF STOCK STATEMENT AND NON-RENEWAL OF TH E LIMITS ON THE DUE DATE ETC. IT IS FURTHER PROVIDED THAT WHER E NATURAL CALAMITIES IMPAIR THE REPAYING CAPACITY OF LOAN MAY BE RE- SCHEDULED AND IN SUCH CASES ASSETS SHOULD NOT BE CL ASSIFIED AS NPAS. SIMILARLY, EXEMPTION HAVE BEEN PROVIDED IN C ASE OF HOUSING LOAN TO STAFF, CREDIT FACILITIES GUARANTEED BY CENTRE AND STATE GOVERNMENTS ETC. IN OTHER WORDS, THIS ISSUE NEEDED IN- DEPTH INQUIRY BY THE ASSESSING OFFICER KEEPING IN V IEW ALL THESE FACTORS. THE ASSESSING OFFICER DID NOT EXAMINE THI S ISSUE IN ITA NO.480/AHD/ 2014 PRAGATI SAHAKARI BANK LTD. VS. CIT ASST.YEAR 2009-10 - 4 - PROPER PERSPECTIVE. IT IS VERY IMPORTANT TO IDENTI FY THE PERSONS WHOSE TRANSACTIONS HAVE BEEN CATEGORIZED AS NPA IN A CO- OPERATIVE BANK. HE MERELY ACCEPTED THE CLAIM ON FA CE VALUE. HE ALSO DID NOT EXAMINE PROPERLY THE AMOUNT SHOWN TO H AVE BEEN RECEIVED FROM ASSET EARLIER DECLARED AS NPA. ACCOR DINGLY, IT IS HELD THAT THE ORDER PASSED BY THE A.O IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. 5. IN VIEW OF THE ABOVE, THE ORDER DATED 5.12.2011 IS SET ASIDE TO BE PASSED AFTER GIVING ASSESSEE REASONABLE OPPORTUNITY OF BEING HEARD ON THE ISSUE REFERRED ABOVE. THE ASSESSING OFFICER WI LL EXAMINE THE ISSUE IN DETAIL AND WILL PASS A SPEAKING ORDER. 4. THE LD.COUNSEL MR.S.N.SOPARKAR SENIOR ADVOCATE A PPEARED ON BEHALF OF ASSESSEE AND POINTED OUT THAT THE CIT HA S EXERCISED HIS POWER U/S.263 OF THE ACT PRIMARILY ON THE GROUND THAT INT EREST ACCRUED ON NPAS IDENTIFIED BY THE ASSESSEE-BANK OUGHT TO HAVE BEEN ACCOUNTED FOR WHILE COMPUTING THE TAXABLE INCOME OF THE ASSESSEE. HE S UBMITTED THAT SUCH ACTION TO TAX INTEREST PURPORTEDLY ACCRUED ON NPA S UGGESTED BY THE CIT IS AGAINST THE SETTLED LAW BY THE JUDICIARY IN THIS REGARD. THE LD.SR.COUNSEL SUBMITTED THAT THAT ASSESSEE IS A CO -OPERATIVE BANK AND ENGAGED IN THE BUSINESS OF BANKING IN INDIA. THE A SSESSEE IS GOVERNED BY THE RULES, REGULATIONS AND GUIDELINES OF THE RBI. THE LD.SR.COUNSEL SUBMITTED THAT NPAS TOWARDS LOANS AND ADVANCES GIVE N TO ITS CUSTOMERS FROM TIME TO TIME HAVE BEEN IDENTIFIED AND PROVISIO NED IN THE BOOKS OF ACCOUNT AS PER THE PRUDENTIAL NORMS LAID DOWN BY T HE RBI IN EXERCISE OF ITS STATUTORY POWERS. THE INCOME ON SUCH NPAS COUL D NOT BE RECOGNIZED AND CANNOT BE SAID TO HAVE BEEN ACCRUED DUE TO INHE RENT UNCERTAINTY IN ITA NO.480/AHD/ 2014 PRAGATI SAHAKARI BANK LTD. VS. CIT ASST.YEAR 2009-10 - 5 - THE COLLECTION OF THE PRINCIPAL AMOUNT ITSELF. FOR THE PROPOSITION THAT THE INTEREST ON NPAS IS NOT TAXABLE ON ACCRUAL BASIS IN VIEW OF THE GUIDELINES OF THE RBI HE PLACED RELIANCE UPON THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF PRINCIPAL COMMISSIONER OF INCO ME-TAX-5 VS. SHRI MAHILA SEWA SAHAKARI BANK LTD.D REPORTED AT (2016) 72 TAXMANN.COM 117 (GUJARAT). THE LD.SR.COUNSEL NEXT REFERRED TO T HE REPLY OF THE ASSESSEE AS WERE MADE BEFORE THE CIT IN RESPONSE TO SHOW-CAU SE NOTICE ISSUED U/S.263 OF THE ACT AND SUBMITTED THAT IT IS A MATTE R OF RECORD THAT BEFORE PASSING THE ASSESSMENT ORDER, DISCUSSIONS ON THE IS SUE THAT TAX CANNOT BE LEVIED ON INTEREST ON NPAS WERE DULY UNDERTAKEN BY THE AO. MERELY BECAUSE THESE DISCUSSIONS DID NOT FIND MENTION IN T HE ASSESSMENT ORDER BY ITSELF WILL NOT RENDER THE ORDER ERRONEOUS AND PREJ UDICIAL TO THE INTERESTS OF THE REVENUE. HE FURTHER SUBMITTED THAT THE CIT HAS SOUGHT TO INVOKE THE POWER U/S.263 OF THE ACT MERELY BECAUSE IN HIS OPINION THE ISSUE HAS NOT BEEN EXAMINED IN PROPER PERSPECTIVE. HE SUBMIT TED THAT INADEQUACY IN INQUIRY, IF ANY, IN THE OPINION OF THE CIT WOULD NOT BE SUFFICIENT TO INVOKE POWER U/S.263 OF THE ACT. FOR THIS PROPOSIT ION, HE RELIED ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF CIT VS. NIRAV MODI REPORTED AT (2016) 71 TAXMANN.COM 272 (BOMBAY) . HE FINALLY SUBMITTED THAT THERE WAS NO ERROR PER SE IN TERMS OF SECTION 263 OF THE ACT IN THE ORDER PASSED U/S.143(3) OF THE ACT AND THERE FORE POWER EXERCISED BY THE CIT U/S.263 OF THE ACT IS VITIATED IN LAW. CONSEQUENTLY, ORDER U/S.263 OF THE ACT DATED 19/12/2013 REQUIRES TO BE SET ASIDE. ITA NO.480/AHD/ 2014 PRAGATI SAHAKARI BANK LTD. VS. CIT ASST.YEAR 2009-10 - 6 - 5. THE LD.CIT-DR FOR THE REVENUE, ON THE OTHER HAND , RELIED ON THE ORDER OF THE CIT AND SUBMITTED THAT IN THE ABSENCE OF PROPER ENQUIRY ON THE PERTINENT ISSUE AS POINTED OUT AND IN THE ORDER OF THE CIT, THE ACTION OF THE COMMISSIONER U/S.263 OF THE ACT SUFFERS FRO M ERROR WHICH IS PREJUDICIAL TO THE INTERESTS OF REVENUE AND THUS TH E ACTION OF CIT WAS IN ACCORDANCE WITH LAW AND THUS JUSTIFIED. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. SECTI ON 263 OF THE INCOME TAX ACT, 1961 CONFERS THE POWERS UPON THE CO MMISSIONER TO CALL FOR AND EXAMINE THE RECORDS OF A PROCEEDING UNDER T HE ACT AND REVISE ANY ORDER IF HE CONSIDERS THE SAME TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE COMMISSIONER CAN TAK E RE-COURSE TO REVISION U/S.263 OF THE ACT WHERE THE ASSESSMENT OR DER IS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE . THE TWIN CONDITIONS ARE REQUIRED TO BE SATISFIED SIMULTANEOUSLY. THE C OMMISSIONER IN THE PRESENT CASE HAS PURPORTED TO ACT IN EXERCISE OF PO WER U/S.263 OF THE ACT AND THEREBY HAS SOUGHT TO SET ASIDE THE ASSESSMENT ORDER OF THE AO PASSED U/S.143(3) OF THE ACT. THE FOUNDATION OF TH E ACTION OF THE COMMISSIONER IS THAT THE ASSESSEE SHOULD HAVE OFFER ED THE INTEREST ON NPAS AS INCOME FOR THE YEAR UNDER CONSIDERATION. T HE LAW TOUCHING THE CONTROVERSY IN ISSUE HAS BEEN EXTENSIVELY DEALT WIT H IN THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF SHRI MAHI LA SEWA SAHAKARI BANK LTD.(SUPRA), WHEREIN THE HONBLE HIGH COURT FO UND MERIT IN NOT CHARGING THE INTEREST ON NPAS BY THE ASSESSEE THERE IN. THE ACTION OF THE ITA NO.480/AHD/ 2014 PRAGATI SAHAKARI BANK LTD. VS. CIT ASST.YEAR 2009-10 - 7 - COMMISSIONER IN INVOKING THE SECTION 263 OF THE ACT RUNS CONTRARY TO THE DECISION OF THE HONBLE GUJARAT HIGH COURT AS NOTED ABOVE AND THEREFORE NOT SUSTAINABLE IN LAW. WE ALSO NOTE THAT THE REVE NUE HAS NOT CONTROVERTED THE OBSERVATION ON BEHALF OF THE ASSES SEE THAT SOME ENQUIRY ON THE ISSUE WAS MADE DURING THE COURSE OF ASSESSME NT PROCEEDINGS AND THEREFORE IN OUR VIEW THE CIT WAS NOT JUSTIFIED IN SUBSTITUTING HIS OPINION IN PLACE OF THE OPINION OF THE AO WITHOUT SHOWING A NY PERVERSITY IN THE ACTION OF THE AO. 6.1. IN THE LIGHT OF THE AFORESAID DISCUSSION, WE H OLD THAT THE ACTION OF THE COMMISSIONER IS WITHOUT AUTHORITY OF LAW AND TH EREFORE CANNOT BE SUSTAINED. IN CONSEQUENCE, THE ORDER PASSED U/S.26 3 FOR THE AY 2009-10 DATED 19/12/2013 IS HEREBY SET ASIDE AND QUASHED. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 20 /09/2016 SD/- SD/- .. () ( ) ( R.P. TOLANI ) ( PR ADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 20/ 09 /2016 3..,.../ T.C. NAIR, SR. PS ITA NO.480/AHD/ 2014 PRAGATI SAHAKARI BANK LTD. VS. CIT ASST.YEAR 2009-10 - 8 - !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. %( / THE APPELLANT 2. )%( / THE RESPONDENT. 3. 456 7 / CONCERNED CIT 4. 7 ( ) / THE CIT(A)-I, BARODA 5. 89:56 , 56/ , 4 / DR, ITAT, AHMEDABAD 6. :<, / GUARD FILE. / BY ORDER, )8 //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 15.9.16 (DICTATION-PAD 16- P AGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 16.9.16 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S. 20.9.16 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 20.9.16 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER