Rushikulya Gramya Bank, Ganjam V. DCIT, Berhampur Circle, Berhampur

ITA 5/CTK/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5321 (ITAT-CUTTACK)
• Duration Of Justice: 1 year(s) 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-05-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 03-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAAD KIDWAI
• Keywords: Question of law
• Section: 142(1); 145; 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK BEFORE SHRI N.S.SAINI, AM & SHRI PAV AN KUMAR GADALE, JM ITA NO . 05 /CTK/201 7 ( / ASSESSMENT YEAR : 20 1 2 - 20 1 3 ) RUSHIKULYA GRAMYA BANK, SUBBA RAO SQ UARE BERHAMPUR, GAJAM ORISSA - 760001 VS. DCIT, BERHAMPUR CIRCLE , BERHAMPUR ./ ./ PAN/GIR NO. : A A AAR 5989 C ( / APPELLANT ) .. ( / RESPONDENT ) /AS SESSEE BY : NONE /REVENUE BY : SHRI SAAD KIDWAI , DR / DATE OF HEARING : 1 5 / 0 5 /201 8 / DATE OF PRONOUNCEMENT 16 / 05 /201 8 / O R D E R PER SHRI PAV AN KUMAR GADALE, JM : TH E ASSESSEE HAS FILED AN APPEAL AGAINST THE ORDER OF CIT(A) - 1 , BHUBANE SWAR, DATED 23.09.2016 , PASSED IN I.T.APPEAL NO. 0077 / 15 - 16 , U/S.143(3)/250 OF THE I.T.ACT FOR THE ASSESSMENT YEAR 201 2 - 201 3 . 2. THE SOLE SUBSTANTIVE GROUND RAISED BY THE ASSESSEE THAT THE CIT(A) HAS ERRED IN CONFIRMING ADDITION OF THE INTEREST ON NON PERFO RMING ASSETS (NPAS) ON ACCRUAL BASIS . 3. AT THE TIME OF HEARING, AN ADJOURNMENT PETITION HAS BEEN FILED BY THE ASSESSEE STATING THAT LD. AR OF THE ASSESSEE IS OUT OF STATION, WHICH IS IN OUR OPINION, IS NOT A PLAUSIBLE ONE, AND THE SAME IS REJECTED AND TH E BENCH PROCEEDED TO DISPOSE OFF THE APPEAL ON THE BASIS OF MATERIAL AVAILABLE ON RECORD AND ON THE SUBMISSIONS OF LD. DR. ITA NO. 05 /201 7 2 4 . BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COOPERATIVE SOCIETY AND IS ENGAGED IN THE BANKING BUSINESS AND FILED THE RETURN OF INCOME ON 22.09.2012 FOR THE ASSESSMENT YEAR 201 2 - 1 3 WITH TOTAL INCOME AT RS. 5,80,42,910/ - AND THE RETURN OF INCOME WAS PROCESSED U/S.143(1) OF THE ACT. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND NOTICE U/S.143(2) AND 142(1) OF THE ACT WAS ISSUED TO THE ASSESSEE. IN COMPLIANCE THE LD. AR OF THE ASSESSEE APPEARED AND SUBMITTED THE RELEVANT DETAILS. THE AO ON PERUSAL OF THE BOOKS OF ACCOUNTS FOUND THAT THE ASSESSEE HAS CLAIMED NON - PERFORMING ASSETS (NPAS) OF RS.22,66,48,000/ - AND ON F URTHER VERIFICATION THE AO FOUND THAT NO INTEREST HAS BEEN CHARGED BY THE ASSESSEE AT MARKET RATE ON SUCH NPA AND THE AO ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE AND T HE ASSESSEE FILED EXPLANATION S ON 24.02.2015 REFERRED AT PAGE 1 TO 3 OF THE ASSESSMENT OR DER . T HE AO HAVING CONSIDERED THE SUBMISSIONS OF THE ASSESSEE AND REL IED ON THE JUDICIAL DECISION AND IS OF THE OPINION THAT RBI GUIDELINES DOES NOT OVERRIDE THE PROVISIONS OF INCOME TAX ACT AND INTEREST SHALL BE CHARGED ON NPAS AT MARKET RATE @ 16% WHICH WORKED OU T TO RS.3,62,63,680/ - AND MADE ADDITION AND ASSESSED THE TO TAL INCOME AT RS.9,43,06,590/ - AND PASSED ORDER U/S.143(3) OF THE ACT DATED 17.03.2015. 5 . ON APPEAL, THE CIT(A) HAVING CONSIDERED THE SUBMISSIONS AND FINDINGS OF AO AND THE GROUNDS RAISED BY THE ASSESSEE AND OBSERVED THAT THE AO IS JUSTIFIED IN MAKING AN ADDITION AND DISMISSED THE APPEAL OF THE ASSESSEE. ITA NO. 05 /201 7 3 6 . AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE HAS FILED AN APPEAL BEFORE THE TRIBUNAL. 7 . NONE APPEARED ON BEHALF OF THE ASSESSEE, WHEREAS LD .DR RELIED ON THE ORDER OF AO AND SUBMITTED THAT THE AO WAS CORRECT IN MAKING ADDITION OF INTEREST ON NPA AT MARKET RATE. 8 . WE HAVE HEARD SUBMISSIONS OF LD.DR AND PER USED THE MATERIAL ON RECORD. PRIMA FACIE THE DISPUTED ISSUE IS WITH RESPECT TO CHARGING O F INTEREST ON NPA AT MARKET RATE. WE ARE OF THE OPINION THAT THE STAND OF THE DEPARTMENT OF CHARGING OF INTEREST ON NPA IS WITHOUT ANY BASIS. TH E COORDINATE BENCH OF THE TRIBUNAL IN CASE OF THE BOUDH CENTRAL CO - OP BANK LTD., ITA NO.397/CTK/2016, ORDER DAT ED 09.04.2018 HAS HELD THAT NO INTEREST TO BE CHARGED ON THE NPA AND OBSERVED AS UNDER: - 9. WE HAVE HEARD RIVAL SUBMISSIONS AND CONSIDERED THE MATERIALS AVAILABLE ON RECORD. THE CRUX OF THE ISSUE IS WITH RESPECT OF CHARGING OF INTEREST ON BAD AND DOUBTFU L DEBTS (NPA). LD. ARS CONTENTION IS THAT NO INTEREST SHALL BE CHARGED BY THE COOPERATIVE SOCIETIES ON THE NPA AND SHALL FOLLOW THE PROVISIONS OF SECTION 43D AND THE RBI GUIDELINES. THE LD. AR SUBMITTED THAT IN ASSESSEES OWN CASE THE COORDINATE BENCH OF THE TRIBUNAL HAS DECIDED THE VERY SAME ISSUE IN FAVOUR OF THE ASSESSEE. WE FOUND IN ITA NO.98/CTK/2017, ORDER DATED 15.02.2018, THE TRIBUNAL HAS HELD AS UNDER: - 9. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. THE SOLE DISPUTE ARISES IN THIS APPEAL IS THAT WHETHER THE CIT(A) IS JUSTIFIED IN CONFIRMING THE ADDITION OF RS.1,93,84,549/ - ON ACCOUNT OF ACCRUED INTEREST ON NPA MADE ON ESTIMATE BASIS BY THE ASSESSING OFFICER. THE LD A.R.S CONTEN TION THAT INTEREST ON NPA CANNOT BE CHARGED ON ACCRUAL BASIS AND HAS TO BE CONSIDERED ON ACTUAL REALISATION. ALTHOUGH THE ASSESSEE HAS CHARGED INTEREST AND DISCLOSED IN THE BALANCE SHEET BUT NO INCOME HAS ACCRUED TO THE ASSESSEE. WE FIND THAT THIS ISSUE I S NOW SETTLED BY THE DECISION OF THIS BENCH OF THE TRIBUNAL IN THE CASE OF BERHAMPUR CO - OPERATIVE CENTRAL BANK LTD VS ACIT IN ITA NOS.03 & 125/CTK/2017 FOR ASSESSMENT YEARS : 2012 - 2013 & 2013 - 14 ORDER DATED 1.2.2018, WHEREIN, THE TRIBUNAL BY FOLLOWING THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF PR. CIT VS. SHRI ITA NO. 05 /201 7 4 MAHILASEWASAHAKARI BANK LTD. (SUPRA), HAS HELD AS UNDER: 7. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. WE FIND T HAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THIS BENCH OF THE TRIBUNAL IN THE CASE OF ASKA CO - OP. CENTRAL BANK LTD (SUPRA). THE OPERATIVE PORTION OF THE ORDER IS REPRODUCED BELOW: 6. WE HAVE HEARD EXTENSIVE SUBMISSIONS MADE BY THE REPRESENTATIV ES OF RIVAL SIDES AND HAVES PERUSED THE ORDERS OF AUTHORITIES BELOW. WE HAVE ALSO CONSIDERED VARIOUS DOCUMENTS AND DECISIONS RELIED ON BY BOTH THE SIDES. WE FIND THAT THE ISSUE UNDER CONSIDERATION HAS BEEN COVERED BY THE DECISION OF CO - ORDINATE BENCH OF IT AT AHMEDABAD BENCH IN THE CASE OF THE SUVIKAS PEOPLES CO - OP BANK LTD., VS. ACIT IN ITA NO.1288/AHD/2014 DATED 30.11.2017 WHEREIN THE ITAT AHMEDABAD BENCH HAS HELD AS UNDER: - 3. BOTH PARTIES INVITED OUR ATTENTION TO THE CASE RECORD CONTAINING A CO - ORDINAT E BENCHS ORDER IN ASSESSEES CASE ITSELF, ITA NO.2182/AHD/2013 DECIDED ON 5.9.2016 ADJUDICATING BOTH INSTANT ISSUE AGAINST REVENUE AS UNDER: - 3. THE ASSESSEE IS IN THE BUSINESS OF BANKING ACTIVITIES FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. DURING THE C OURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF INTEREST ACCRUED ON NON - PERFORMING ASSETS. THE ASSESSEE FURNISHED NECESSARY DETAILS. S9IMULTANEOUSLY, THE ASSESSEE CLAIMED THAT IT HAS TO FOLLOW THE CIRCULARS/GU IDELINES ISSUED BY THE RESERVE BANK OF INDIA AND ONE OF THE GUIDELINE OF THE RBI IS THAT INTEREST INCOME IN RESPECT OF RESTRUCTURED ACCOUNTS CLASSIFIED AS STANDARD ASSETS WILL BE RECOGNIZED ON ACCRUAL BASIS AND THAT IN RESPECT OF THE ACCOUNT CLASSIFIED A S NON - PERFORMING ASSETS WILL BE RECOGNIZED AS CASH BASIS. IT WAS EXPLAINED THAT BECAUSE OF THESE MANDATORY GUIDELINES, THE ASSESSEE HAS NOT RECOGNISED INTEREST ON NON PERFORMING ASSETS ON ACCRUAL BASIS. THIS CONTENTION OF THE ASSESSEE WAS DISMISSED BY TH E AO WHO WAS OF THE OPINION THAT SINCE THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, IT SHOULD HAVE RECOGNIZED INTEREST ON NPA ON ACCRUAL BASIS AS PER THE PROVISIONS OF THE INCOME TAX ACT. THE AO ACCORDINGLY MADE THE ADDITION OF RS.15.50 LACS. 4. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. BUT WITHOUT ANY SUCCESS. 5. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THIS ISSU9E IS NO MORE RES INTEGRA AS IT HAS BEEN DECIDED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF SHRI MAHILASEWASAHAKARI BANK LTD. IN TAX APPEAL NO.531 OF 2015 DATED 05.08.2016 IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THE LD. DR COULD NOT BRING ANY DISTINGUISHING DECISION IN FAVOUR OF THE REVENUE. 6. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW. WE FIND FORCE IN THE CONTENTION, OF THE LD. COUNSEL. THE ITA NO. 05 /201 7 5 HONBLE HIGH COURT (SUPRA) WAS SEIZED WITH THE FOLLOWING SUBSTANTIAL QUESTION OF LAW: - WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE INCOME TAX APPELLATE TRIBUNAL IS RIGHT IN LAW AND ON FACTS IN HOLDING THAT INTEREST ON NON PERFORMING ASSETS IS NOT TAXABLE ON ACCRUAL BASIS LOOKING TO THE GUIDELINES OF THE RESERVE BANK OF INDIA.? 7. THE HONBLE HIGH COURT CONSIDERED THE FOLLOWING FACTS: - 5.1 THE ASSESSING OFFICER WAS OF THE OPINION THAT INTEREST ON THE NPA HAD ACCRUED TO THE ASSESSEE, EVEN IF IT WAS NOT ACTUALLY REALIZED, AS IT WAS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AND ACCORDINGLY ADDED A SUM OF RS1,72,73,000/ - TO THE TOTAL INCOME OF T HE ASSESSEE. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE COMMISSIONER (APPEALS), WHO UPHELD THE ORDER PASSED BY THE ASSESSING OFFICER. THE ASSESSEE CHALLENGED THE ORDER OF THE COMMISSIONER (APPEALS) BEFORE THE TRIBUNAL, WHICH ALLOWED THE APPEAL BY DELETING THE INTEREST. BEING AGGRIEVED, THE REVENUE IS IN APPEAL. 22. THEREFORE, IN TERMS OF THE ABOVE DECISION, WHERE AN ASSESSEE MAKES PROVISION FOR NPA AND SEEKS DEDUCTION OF SUCH AMOUNT UNDER SECTION 36(1)(VII) OR SECTION 37 OF THE ACT, THEN IN THE CO MPUTATION OF INCOME, THE RBI GUIDELINES WOULD HAVE NO ROLE TO PLAY, AND HENCE AN ADD BACK. INSOFAR AS INCOME RECOGNITION IS CONCERNED, THE SUPREME COURT HAS HELD THUS: APPLICABILITY OF SECTION 145. 57.AT THE OUTSET, WE MAY STATE THAT IN ESSENCE THE RBI DI RECTIONS, 1998 ARE PRUDENTIAL/PROVISIONING NORMS ISSUED BY RBI UNDER CHAPTER III - B OF THE RBI ACT, 1934. THESE NORMS DEAL ESSENTIALLY WITH INCOME RECOGNITION. THEY FORCE THE NBFCS TO DISCLOSE THE AMOUNT OF NPA IN THEIR FINANCIAL ACCOUNTS. THEY FORCE THE NB FCS TO REFLECT TRUE AND CORRECT PROFITS. BY VIRTUE OF SECTION 45 - Q, AN OVERRIDING EFFECT IS GIVEN TO THE RBI DIRECTIONS, 1998 VIS - - VIS INCOME RECOGNITION PRINCIPLES IN THE COMPANIES ACT, 1956. THESE DIRECTIONS CONSTITUTE A CODE BY ITSELF. HOWEVER, TH ESE RBI DIRECTIONS, 1998 AND THE IT ACT OPERATE IN DIFFERENT AREAS. THESE RBI DIRECTIONS, 1998 HAVE NOTHING TO DO WITH COMPUTATION OF TAXABLE INCOME. THESE DIRECTIONS CANNOT OVERRULE THE PERMISSIBLE DEDUCTIONS OR THEIR EXCLUSION UNDER THE IT ACT. THE INCONSISTENCY BETWEEN THESE DIRECTIONS AND THE COMPANIES ACT IS ONLY IN THE MATTER OF INCOME RECOGNITION AND PRESENTATION OF FINANCIAL STATEMENTS. THE ACCOUNTING POLICIES ADOPTED BY AN NBFC CANNOT DETERMINE THE TAXABLE INCOME. IT IS WELL SETTLED THAT THE ACCOUNTING POLICIES FOLLOWED BY A COMPANY CAN BE CHANGED UNLESS THE AO COMES TO THE CONCLUSION THAT SUCH CHANGE WOULD RESULT IN UNDERSTATEMENT OF PROFITS. HOWEVER, HERE IS THE CASE WHERE THE AO HAS TO FOLLOW THE RBI DIRECTIONS, 1998 IN VIEW OF SECTION 45 - Q OF THE RBI ACT. HENCE, AS FAR AS INCOME RECOGNITION IS CONCERNED, SECTION 145 OF THE IT ACT HAS NO ROLE TO PLAY IN THE PRESENT DISPUTE. THUS, INSOFAR AS INCOME RECOGNITION IS CONCERNED, THE COURT HAS HELD THAT EVEN THE ASSESSING OFFICER HAS TO FOLLOW THE RBI DIRECTIONS, 1998 IN VIEW OF SECTION 45Q OF THE ITA NO. 05 /201 7 6 RBI ACT AND THAT AS FAR AS INCOME RECOGNITION IS CONCERNED, SECTION 145 OF THE INCOME TAX ACT, HAS NOT ROLE TO PLAY. 8. AND HELD AS UNDER: - 23. IN THE LIGHT OF THE ABOVE DISCUSSION WHAT EMERGES IS THAT WH ILE DETERMINING THE TAX LIABILITY OF AN ASSESSEE, TWO FACTORS WOULD COME INTO PLAY. FIRSTLY, THE RECOGNITION OF INCOME IN TERMS OF THE RECOGNIZED ACCOUNTING PRINCIPLES AD AFTER SUCH INCOME IS RECOGNIZED, THE COMPUTATION THEREOF, IN TERMS OF THE PROVISIONS OF THE INCOME TAX ACT, 1961. INSOFAR AS THE COMPUTATION OF TAXABILITY IS CONCERNED, THE SAME IS SOLELY GOVERNED BY THE PROVISIONS OF THE INCOME TAX ACT AND THE ACCOUNTING PRINCIPLES HAVE NO ROLE TO PLAY. HOWEVER, RECOGNITION OF INCOME STANDS ON A DIFFEREN T FOOTING. INSOFAR AS INCOME RECOGNITION IS CONCERNED, IT WOULD BE THE RBI DIRECTIONS WHICH WOULD PREVAIL IN VIEW OF THE PROVISIONS OF SECTION 45 - Q OF THE RBI ACT, AND SECTION 145 WOULD HAVE NO ROLE TO PLAY. HENCE, THE ASSESSING OFFICER HAS TO FOLLOW THE R BI DIRECTIONS. 9. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT (SUPRA), WE SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE A.Q. TO DELETE THE ADDITION OF RS.15.50 LACS WHICH ALSO INCLUDES THE ADDITION OF RS.1,30,864. THE CO - ORDINATE BENCH OF THE TRIBUNAL FOLLOWING THE DECISION OF ITAT AHMEDABAD BENCH IN THE CASE OF SUVIKAS PEOPLES CO - OP. BANK LTD (SUPRA), HAS OBSERVED THAT NO SUCH ADDITION ON ACCOUNT OF NPA INTEREST HAS BEEN MADE BY THE ASSESSING OFFICER WHILE MAKIN G ASSESSMENT U/S.143(3) OF THE ACT FOR THE ASSESSMENT YEAR 2015 - 16 IN THE CASE OF THE ASSESSEE (ASKA CO - OP.CENTRAL BANK LTD.). 8. SINCE THE ISSUE UNDER CONSIDERATION IN THE PRESENT CASE IS IDENTICAL TO THE CASE OF ASKA CO - OPERATIVE CENTRAL BANK (SUPRA), R ESPECTFULLY FOLLOWING THE DECISION, REPRODUCED ABOVE, WE SET ASIDE THE ORDER OF THE CIT(A) AND DELETE THE ADDITION ON ACCOUNT OF NPA INTEREST AND ALLOW THE APPEAL OF THE ASSESSEE. 10. RESPECTFULLY FOLLOWING THE PRECEDENT, WE SET ASIDE THE ORDER OF THE CIT (A) AND DELETE THE ADDITION OF RS.1,93,84,549/ - MADE BY THE ASSESSING OFFICER ON ESTIMATED BASIS AND ALLOW THE GROUND OF APPEAL OF THE ASSESSEE. 11. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. 10. WE RESPECTFULLY FOLLOW THE ABOVE ORDER OF TRIBUNAL AND SET ASIDE THE ORDER OF CIT(A) AND DIRECT THE AO TO DELETE THE ADDITION AND ALLOW THE GROUND OF APPEAL OF THE ASSESSEE. 9 . WE RESPECTFULLY FOLLOW THE JUDICIAL PRECEDENCE AND APPLY THE RATIO OF DECISION TO THE FACTS OF THE CASE AND SET ASID E THE ORDER OF CIT(A) AND ITA NO. 05 /201 7 7 DIRECT THE AO TO DELETE THE ADDITION . ACCORDINGLY, WE ALLOW TH E GROUND S OF APPEAL OF THE ASSESSEE. 10 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. O RDER PRONOU NCED IN THE OPEN COURT ON 16 / 05 / 201 8 . SD/ - ( N. S. SAINI ) SD/ - ( PA V AN KUMAR GADALE ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER CUTTACK ; DATED 16 / 05 /201 8 . . / PKM , SENIOR PRIVATE SECRETARY / COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( SENIOR PRIVATE SECRETARY ) , / ITAT, CUT TACK 1. / THE APPELLANT - RUSHIK ULYA GRAMYA BANK, SUBBA RAO SQUARE , BERHAMPUR, GAJAM ORISSA - 760001 2. / THE RESPONDENT - DCIT, BERHAMPUR CIRCLE, BERHAMPUR 3. ( ) / THE CIT(A), 4. / CIT 5. , , / DR, ITAT, CUTTACK 6. / GUARD FILE. //TRUE COPY//