The Karnavati Co.Op. Bank Ltd, Ahmedabad V. The Dy.CIT.,Circle-11, Ahmedabad

ITA 497/AHD/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5824 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 09-03-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 17-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S N DIVATIA JAMES KURIAN
• Keywords: Principle of natural justice; Bad and doubtful debts
• Section: 143(3); 56

Judgement Text

ITA NO. 497 /AHD/2014 ASSESSMENT YEAR : 2010 - 11 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH, AHMEDBAD [CORAM: PRAMOD KUMAR AM AND S.S. GODARA JM ] ITA NO. 497 /AHD/2014 ASSESSMENT YEAR : 2010 - 11 THE KARNV A TI CO - OP. BANK LIMITED , .. .. .. . .....APPELLANT 105, RADHARAMA N COMPLEX, NEAR KHODIYAR NAGAR CHAR RASTA, BAPUNAGAR, N.H. NO.8, AHMEDABAD 382 350 [PAN: AA BAT 4588 J ] VS. DY. COMMISSIONER OF INCOME TAX CIRCLE - 11 , A HMEDABAD . .. ..................RESPONDENT APPEARANCES BY: S.N. DIVATIA F OR THE A PP ELLANT JAMES KURIAN FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : 09.03.2017 DATE OF PRONOUNCING THE ORDER : 18 .05. 2017 O R D E R PER PRAMOD KUMAR AM: 1. THIS APPEAL, FILED BY THE ASSESSEE, IS DIRECTED AGAINST LEARNED CIT(A) S O RD ER DATED 18 TH DECEMBER 2013 , IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961, FOR THE ASSESSMENT YEAR 2010 - 11. 2. GRIEVANCES RAISED BY THE ASSESSEE ARE AS FOLLOWS : - 1.1 THE ORDER PASSED U/S.250 ON 18.12.2013 FOR A.Y.20 10 - 11 BY CIT(A) - XVI, ABAD CONFIRMING ADDITION OF RS.8,58,961 MADE BY AO IS WHOLLY ILLEGAL, UNLAWFUL AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE. 1.2 THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN NOT CONSIDERING FULLY AND PROPERLY THE SUBMISSIONS AND EVIDEN CE PRODUCED BY THE APPELLANT WITH REGARD TO THE IMPUGNED ADDITION. 2.1 THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND OR ON FACTS IN CONFIRMING THE ADDITION OF RS.8,58,961 AS INTEREST ACCRUING ON NPAS, THOUGH THE SAME WAS NOT INCOME CHARGEABLE TO TAX IN VIEW OF THEORY OF REAL INCOME, RBI GUIDELINES AND SUIT FILED ACCOUNTS. ITA NO. 497 /AHD/2014 ASSESSMENT YEAR : 2010 - 11 PAGE 2 OF 5 2.2 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LD. CIT(A) OUGHT NOT TO HAVE CONFIRMED THE ADDITION OF RS.8,58,961 AS INTEREST ACCRUING ON NPAS AND C HARGEABLE TO TAX. 2.3 THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND OR ON FACTS IN UPHOLDING THAT THE INTEREST HAD ACCRUED UNDER THE MERCANTILE SYSTEM OF ACCOUNTING IN RESPECT OF NPA A/CS. 2.4 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LD. CIT(A) OUGHT NOT TO HAVE UPHELD THAT INTEREST ACCRUE ON NPA ACCOUNTS. 3. BRIEFLY STATED, THE RELEVANT MATERIAL F ACTS ARE LIKE THIS. THE ASSESSEE BEFORE US IS A CO - OPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS ACCRUED INTEREST ON NPAS (NON P ERFORMING ASSETS) TO THE TUNE OF RS.8,58,961/ - BUT HE HAS NOT OFFERED THE SAME TO TAX. THE ASSESSING O FFICER WAS OF THE VIEW THA T SINCE THE ASSESSEE IS NOT A SCHEDULE D BANK AND SINCE THE BENEFIT OF SECTION 43D WHICH PREVENTS TAXATION OF INTEREST ON SUCH CATEGORIES OF BAD AND DOUBTFUL DEBTS AS MAY BE PRESCRIBED HAVING REGARD TO THE GUIDELINES ISSUED BY T HE RESERVE BANK OF INDIA IN RESPECT OF SUCH DEBTS IS RESTRICTED TO THE SCHEDULED BANKS, THE ASSESSEE IS LIABLE TO INCLUDE INTEREST ON NPAS IN IT S TAXABLE INCOME. AGGRIEVED, ASSESSEE CARRIED THE M AT TER IN APPEAL BEFORE THE LEARNED C I T (A) BUT WITHOUT ANY SUCCESS. THE ASSESSEE IS NO T SATISFIED AND IS IN FURTHER APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF APPLICABLE LEGAL POSITION. 5. WE FIND THAT THE ISSUE IN APPEAL IS NOW COVERED, IN F AVOUR OF THE ASSESSEE, BY H ON BLE JURISDICTIONAL H IGH C OURT S JUDGEMENT IN THE CASE OF PCIT VS . SHRI MAHILA SEWA SA H KARI BA N K LIMITED [(2016) 289 CTR 225 (GUJ)] WHEREIN THEIR LORDSHIPS HAVE, INTER ALIA, OBSERVED AS FOLLOWS : - ITA NO. 497 /AHD/2014 ASSESSMENT YEAR : 2010 - 11 PAGE 3 OF 5 29. ON BEHALF OF THE APPELLA NT IT HAS BEEN CONTENDED THAT SECTION 43D OF THE ACT ITSELF RECOGNISES RECOGNITION OF TAXABILITY OF SUCH INTEREST AND THAT WHEN A SPECIFIC PROVISION IN THE NATURE OF SECTION 43D OF THE ACT HAS BEEN MADE, AND ENTITIES LIKE THE ASSESSEE ARE EXCLUDED FROM THE PURVIEW THEREOF, THE ASSESSEE CANNOT INDIRECTLY CLAIM BENEFIT WHICH WOULD AMOUNT TO A BENEFIT SIMILAR TO THAT UNDER SECTION 43D OF THE ACT. IN THIS REGARD, IT MAY BE NOTED THAT THE BENEFIT CLAIMED BY THE ASSESSEE IS NOT UNDER ANY PROVISION OF THE INCOME - T AX ACT, 1961. THE ASSESSEE BEING BOUND BY THE RBI GUIDELINES WHICH ARE ISSUED UNDER THE PROVISIONS OF THE RBI ACT HAS NOT SHOWN THE INTEREST ON NPA AS INCOME. BY VIRTUE OF THE PROVISIONS OF SECTION 45Q OF THE RBI ACT, THE PROVISIONS OF CHAPTER IIIB THEREOF HAVE AN OVERRIDING EFFECT OVER OTHER LAWS INCLUDING THE INCOME - TAX ACT, 1961. THEREFORE, NOTWITHSTANDING THE PROVISIONS OF SECTION 43D OF THE ACT, SINCE THE PROVISIONS OF SECTION 45Q OF THE RBI ACT HAVE AN OVERRIDING EFFECT VIS - - VIS INCOME RECOGNITION PR INCIPLES IN THE COMPANIES ACT, THE ASSESSING OFFICER IS BOUND TO FOLLOW THE RBI DIRECTIONS SO FAR AS INCOME RECOGNITION IS CONCERNED. THE CONTENTION THAT THE ASSESSEE CANNOT INDIRECTLY CLAIM THE BENEFIT WHICH WOULD AMOUNT TO A BENEFIT SIMILAR TO THAT UNDER SECTION 43D OF THE ACT, THEREFORE, DOES NOT MERIT ACCEPTANCE. 30. AS CAN BE SEEN FROM THE ASSESSMENT ORDER, BEFORE THE ASSESSING OFFICER THE ASSESSEE HAD INTER ALIA SUBMITTED THAT INTEREST ON NPA WAS NOT CHARGED AS MANDATORILY STIPULATED UNDER INCOME REC OGNITION AND ASSET CLASSIFICATION NORMS OF THE RESERVE BANK OF INDIA. IT HAS ALSO BEEN SUBMITTED THAT THE CBDT CIRCULAR BEARING F.NO.201/21/84 - ITA - II, DATED 9.10.1984 ISSUED UNDER SECTION 119 OF THE ACT FOR ALL BANKING AND NON - BANKING FINANCIAL COMPANIES S TATING THAT IF THE INTEREST HAS NOT BEEN RECEIVED FOR THREE YEARS, THE SAME WILL NOT BE TAXED AS AN INCOME EVEN ON ACCRUAL BASIS EVEN IF INTEREST HAS BEEN CREDITED TO 'INTEREST SUSPENSE ACCOUNT' WOULD BE APPLICABLE IN ITS CASE. THE ASSESSING OFFICER BRUSHE D ASIDE THE SUBMISSION BASED UPON THE CIRCULAR OF 1984, ON THE GROUND THAT THE SAME IS APPLICABLE ONLY TO BANKING COMPANIES AND NOT TO CO - OPERATIVE BANKS, ON A MISCONCEPTION OF LAW THAT A CO - OPERATIVE BANK IS NOT A BANKING COMPANY. IN THIS REGARD IT MAY BE NOTED THAT 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 BANKING REGULATION ACT BEARS THE HEADING 'APPLICATION O F THE ACT TO CO - OPERATIVE SOCIETIES'. SECTION 56 THEREOF PROVIDES THAT THE PROVISIONS OF THE ACT, AS IN FORCE FOR THE TIME BEING, SHALL APPLY TO, OR IN RELATION TO CO - OPERATIVE SOCIETIES AS THEY APPLY TO, OR IN RELATION TO BANKING COMPANIES SUBJECT TO THE MODIFICATIONS STATED THEREUNDER. CLAUSE (A) OF SECTION 56, TO THE EXTENT THE SAME IS RELEVANT FOR THE PRESENT PURPOSE, PROVIDES THAT THROUGHOUT THE ACT, UNLESS THE CONTEXT OTHERWISE REQUIRES, - (I) REFERENCES TO A 'BANKING COMPANY' OR 'THE COMPANY' OR 'SUC H COMPANY' SHALL BE CONSTRUED AS REFERENCES TO A CO - OPERATIVE BANK. SECTION 2(I) OF THE RBI ACT PROVIDES THAT 'CO - OPERATIVE BANK', 'CO - OPERATIVE CREDIT SOCIETY', 'DIRECTOR', 'PRIMARY AGRICULTURAL CREDIT SOCIETY', 'PRIMARY CO - OPERATIVE SOCIETY' AND 'PRIMARY CREDIT SOCIETY' SHALL HAVE THE MEANINGS RESPECTIVELY ASSIGNED TO THEM IN PART V OF THE BANKING REGULATION ACT, 1949. EVIDENTLY THEREFORE, THE EXPRESSION 'BANKING COMPANY' WOULD TAKE WITHIN ITS SWEEP A CO - OPERATIVE BANK. THE ASSESSING OFFICER HAS THEREAFTE R ENTERED INTO A DISCUSSION ON THE PROVISIONS OF THE SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002, WHICH PROVIDES FOR ENFORCEMENT OF SECURITY INTEREST OF BANKS AND FINANCIAL INSTITUTIONS AND HAS OBSER VED THAT IN THE INSTANT CASE, NO ITA NO. 497 /AHD/2014 ASSESSMENT YEAR : 2010 - 11 PAGE 4 OF 5 MATERIAL HAS BEEN BROUGHT ON RECORD BY THE ASSESSEE TO PROVE ITS EFFORTS MADE IN A BID TO RECOVER SUCH DEBTS WHICH ARE CLASSIFIED AS NPA AND OTHER CATEGORIES. THE ASSESSING OFFICER HAS ALSO ENTERED INTO A DISCUSSION AS REGA RDS THE QUALITY OF MANAGEMENT, ETC., WITHOUT EVEN EXAMINING AS TO WHETHER OR NOT THERE WAS ANY PROBABILITY OF INTEREST BEING RECEIVED ON THE NPAS. THE COMMISSIONER (APPEALS) HAS PLACED RELIANCE UPON THE DECISION OF THE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LIMITED (SUPRA) AND HELD THAT THERE IS NO MERIT IN THE CONTENTION OF THE ASSESSEE THAT UNDER COMMERCIAL ACCOUNTING, INTEREST ON NPAS CANNOT BE CHARGED. ON THE QUESTION OF APPLICABILITY OF THE CBDT CIRCULAR DATED 9.10.1984, THE COMMISSIONER (A PPEALS) HELD THAT THE SAME WOULD NOT BE APPLICABLE FOR THE REASON THAT THE PROVISIONS OF SECTION 43D OF THE ACT ARE CLEAR AND CANNOT BE OVERRIDDEN THROUGH DELEGATED LEGISLATION VIZ. CIRCULARS AND NOTIFICATIONS. THE COMMISSIONER (APPEALS) WAS FURTHER OF THE OPINION THAT THE STATUTORY PROVISIONS WERE BROUGHT ON THE ACT MUCH LATER THAN THE SAID CIRCULAR (WHICH WAS ISSUED IN 1984) AND THEREFORE THE SAID CIRCULAR WOULD NOT HAVE ANY EFFECT OR BINDING FORCE UPON THE ASSESSING OFFICER. THE VIEW ADOPTED BY THE ASSES SING OFFICER AND THE COMMISSIONER (APPEALS) IS CLEARLY CONTRARY TO THE VIEW EXPRESSED BY THIS COURT HEREINABOVE. THE TRIBUNAL WAS THEREFORE, WHOLLY JUSTIFIED IN SETTING ASIDE THE ORDER PASSED BY THE COMMISSIONER (APPEALS) CONFIRMING THE ASSESSMENT ORDER. 3 1. IN THE LIGHT OF THE ABOVE DISCUSSION, THIS COURT DOES NOT FIND ANY INFIRMITY IN THE IMPUGNED ORDER PASSED BY THE TRIBUNAL SO AS TO WARRANT INTERFERENCE. 6. RESPECTFULLY FOLLOWING THE VIEW SO EXPRESSED BY THEIR LORDSHIPS, WE HOLD T HAT OBJECTION S RAISED BY THE AUTHORITIES BELOW WERE DEVOID OF LEGALLY SUSTAINABLE MERITS. ACCORDINGLY , WE APPROVE THE PLEA OF THE ASSESSEE AND DIRECT THE ASSESSING O FFICER TO DELETE THE IMPUGNED DISALLOWANCE OF RS.8,58,961/ - . THE ASSESSEE GE T S THE RELIEF ACCORDINGLY. 7. IN THE RESULT, THE APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT TODAY ON THE 18 TH DAY OF MAY , 2017. SD/ - SD/ - S.S. GODARA PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) AHMEDABAD , DATED THE 18 TH DAY OF MAY , 201 7 ITA NO. 497 /AHD/2014 ASSESSMENT YEAR : 2010 - 11 PAGE 5 OF 5 COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD