GIC HOUSING FINANCE LIMITED, MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2(1)(2), MUMBAI

ITA 533/MUM/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 3088 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2013-2014
• Appeal Filed On: 25-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHOUDHARY ARUN KIUMAR SINGH
• Assessee Lawyers: AMIT KIRVE ARS
• Keywords: Bad and doubtful debts
• Section: 143(3); 43D

Judgement Text

AAYAK AAYAK AAYAK AAYAKR APILAIYA AIQ R APILAIYA AIQ R APILAIYA AIQ R APILAIYA AIQAKRNA N AKRNA N AKRNA N AKRNA NYAAYAPIZ YAAYAPIZ YAAYAPIZ YAAYAPIZ MAMUBA[ MAMUBA[ MAMUBA[ MAMUBA[- -- - MAO MAOMAO MAO. .. . IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUM BAI BEFORE SRI MAHAVIR SINGH, JM AND SRI M BALAGENSH, AM AAYAKR APILA SA AAYAKR APILA SA AAYAKR APILA SA AAYAKR APILA SAM MM M . / ITA NO.533/MUM/2018 ( INAQA-ARNA BAYA- / ASSESSMENT YEAR 2013-14) GIC HOUSING FINANCE LIMITED., NATIONAL INSURANCE BUILDING, 6 TH FLOOR, J TATA ROAD, CHURCHGATE, MUMBAI., VS. DCIT, CIRCLE 2(1)(2), MUMBAI ( APILAAQA APILAAQA APILAAQA APILAAQAI II I - -- - / APPELLANT) .. ( P` P`P` P`%YAQAA %YAQAA %YAQAA %YAQAAI II I- -- - / RESPONDENT) PAN NO. AAACG 2755 R REVENUE BY : SHRI CHOUDHARY ARUN KIUMAR SINGH ASSESSEE BY : SHRI NIRAJ SHETH & AMIT KIRVE, ARS DATE OF HEARING: 5.3.2019 DATE OF PRONOUNCEMENT : 5-03- 2019 AADOSA AADOSA AADOSA AADOSA / O R D E R PER MAHAVIR SINGH, JM: THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF THE O RDER OF COMMISSIONER OF INCOME TAX (APPEALS)-4, MUMBAI [IN SHORT CIT(A)], IN APPEAL NO.4/IT-105/DCIT-2(1)(2)/2016-17 DATED 23.11 .2017. THE ASSESSMENT WAS FRAMED BY THE DY.COMMISSIONER OF INC OME TAX, CIRCLE 2 ITA NO.1248/MUM/2018 ASSESSMENT YEAR 2012-13 21(2)WARD 2(4),,MUMBAI FOR THE A.Y. 2013-14 VIDE OR DER DATED 23.3.2016 UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (H EREINAFTER THE ACT). 2. THE ONLY ISSUE RAISED IN THIS APPEAL IS AGAINST THE ORDER OF THE CIT(A) IN CONFIRMING THE ACTION OF THE ASSESSING OF FICER MAKING ADDITION ON ACCOUNT OF INTEREST ACCRUED ON SUCH NON -PERFORMING ASSETS (NPA) IN ACCORDANCE WITH PROVISIONS CONTAINE D IN SECTION 43D READ WITH RULE 6EB OF THE INCOME TAX RULES, 196 2.(IN SHORT RULES). FOR THIS, THE ASSESSEE HAS RAISED THE FOLL OWING GROUND: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN CONFIRMING THE ADDITION MADE BY THE AO ON ACCOUNT OF INTEREST ACCRUED ON SUCH NON- PERFORMING ASSETS IN ACCORDANCE WITH PROVISIONS CONTAINED IN SECTION 43D READ WITH RULE 6EB OF THE INCOME TAX RULES, 1962 AMOUNTING TO 14,72,575/- WITHOUT APPRECIATING THE FACTS AND THE SUBMISSION M ADE DURING THE COURSE OF THE ASSESSMENT/APPEAL PROCEEDINGS. 3. AT THE OUTSET, LD COUNSEL FOR THE ASSESSEE STATE D THAT THE ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISI ON OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006-07 IN ITA NO.1874/MUM/2010 VIDE ORDER DATED 9.2.2011 A ND ORDER FOR ASSESSMENT YEARS 2007-08 AND 2008-09 IN ITA NO.5295 /MUM/2010 AND ITA NO.7590/MUM/2011 RESPECTIVELY VIDE ORDER DA TED 30.10.2013. LD COUNSEL FOR THE ASSESSEE REFERRED T O THE PARAS 5 & 6 OF THE TRIBUNAL ORDER FOR ASSESSMENT YEARS 2008-0 8 AND 2008-09, WHEREIN, THE TRIBUNAL HAS FOLLOWED ITS OWN ORDER FO R ASSESSMENT YEAR 2006-07. THE RELEVANT PARAS 5 & 6 READ AS UND ER: 3 ITA NO.1248/MUM/2018 ASSESSMENT YEAR 2012-13 5. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD AT THE OUTSET WE NOTE THAT AN IDENTICAL ISSU E HAS BEEN CONSIDERED AND DECIDED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006- 07. THE TRIBUNAL HAS ELABORATELY DISCUSSED THE ISSU E BY CONSIDERING THE DECISION OF HONBLE SUPREME COURT AND CONCLUDED THE FINDING IN PARA 20 AND 21 AS UNDER: 20. WE AGREE WITH THE SUBMISSIONS OF THE LEARNED D .R. THAT THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF UCO BAN K (SUPRA) DOES NOT OBLITERATE THE RATIO OF THE VERY SAME HONBLE COURT IN THE CASE OF STATE OF BANK OF TRAVANCORE (SUPRA) BUT ONLY MODIFIES THE SA ME IN SO FAR AS A LATER CIRCULAR WHICH IS BENEVOLENT HAD NOT BEEN BRO UGHT TO THE HONBLE COURTS NOTICE. IN THAT VIEW OF THE MATTER, WE AGREE WITH THE SUBMISSION OF THE LEARNED D.R. THAT REAL INCOME THEORY WOULD BE R ELEVANT BUT WOULD HAVE NO APPLICATION SO AS TO DEFEAT THE PROVISIONS OF THE ACT. IN OUR VIEW PROVISIONS OF SEC.43D LAY DOWN THE LIMITS UPTO WHIC H INTEREST INCOME OF BAD AND DOUBTFUL DEBTS IN THE CASE OF PUBLIC COMPAN IES NEED NOT BE RECOGNISED AS INCOME, IN A CASE WHERE ASSESSEE FOLL OWS MERCANTILE SYSTEM OF ACCOUNTING. BY IMPLICATION IT ALSO LAYS D OWN THAT ANY CLAIM THAT INTEREST INCOME AS NOT HAVING ACCRUED OVER AND ABOV E THE LIMITS LAID DOWN BY THE RULES, SHOULD NOT BE ACCEPTED. THE CLAI M OF THE ASSESSEE IN OUR VIEW IS THEREFORE CONTRARY TO THE PROVISIONS OF SEC.43D AND THE CLAIM OF THE ASSESSEE BASED ON REAL INCOME THEORY A ND THERE BEING NO REAL ACCRUAL OF INCOME CANNOT BE ACCEPTED. 21. THAT LEAVES US WITH THE DECISION OF THE HONBL E DELHI HIGH COURT IN THE CASE OF VASISTH CHAY VYAPAR LTD. (SUPRA) AND TH E HONBLE MADRAS HIGH COURT IN THE CASE OF ELGI FINANCE LTD. (SUPRA) . IN THE CASE OF VASISTH CHAY VYAPAR LTD. (SUPIA), THE ASSESSEE WAS A NON-BA NKING FINANCE COMPANY BOUND BY THE PROVISIONS OF THE RESERVE BANK OF INDIA ACT, 1934. IN COMPLIANCE WITH THE DIRECTIONS ISSUED BY T HE RBI UNDER THE RBI ACT, 1934, IT DID NOT RECOGNISE INTEREST ON INTERCO RPORATE DEPOSIT AS INCOME. THE HONBLE DELHI HIGH COURT HELD THAT INTE REST INCOME DOES NOT ACCRUE AND THE ACTION OF THE ASSESSEE WAS CORRECT. TO THE SAME EFFECT IS THE DECISION OF THE HONBLE MADRAS HIGH COURT IN TH E CASE OF ELGI FINANCE LTD. (SUPRA). THE HONBLE DELHI HIGH COURT CONSIDERED THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F SOUTHERN TECHNOLOGIES LTD. (SUPRA) AND EXPLAINED THAT THE CA SE DECIDED BY THE HONBLE SUPREME COURT INVOLVED A CASE WHERE PROVISI ON ON ACCOUNT OF NON-PERFORMING ASSETS WAS ITA NO.5295/M/2010 & 7590 /M/2011 GIC HOUSING FINANCE LTD. 5 CLAIMED AS A DEDUCTION, WHIC H WAS HELD BY THE COURT TO BE NOT ALLOWABLE. THE HONBLE COURT FOUND THAT A DEDUCTION CLAIMED UNDER THE ACT HAD TO SATISFY THE CONDITIONS LAID DOWN UNDER THE ACT AND PRUDENTIAL NORMS OF RBI WILL NOT OVERRIDE T HE PROVISIONS OF THE ACT. BUT WHEN IT COMES TO INCOME RECOGNITION PRUD ENTIAL NORMS WILL BE RELEVANT. AS RIGHTLY CONTENDED BY THE LEARNED D.R. THE ISSUE BEFORE THE HONBLE DELHI HIGH COURT WAS NOT IN RELATION TO PRO VISIONS OF SEC.43D AND THEREFORE THE RATIO LAID DOWN BY THE HONBLE SU PREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) WOULD AP PLY. THE HONBLE DELHI HIGH COURT WAS DEALING WITH A CASE WHERE THER E WAS A CONFLICT BETWEEN THEORY OF INCOME RECOGNITION AND PRUDENTI AL NORMS OF THE RBI. 1N THE PRESENT CASE, WE ARE CONCERNED WITH THE PROV ISIONS OF SEC.43D VIS-A-VIS THE GUIDELINES OF NHB REGARDING BAD AND D OUBTFUL DEBTS. THE HONBLE SUPREME COURT IN THE CASE OF SOUTHERN TECHN OLOGIES LTD. 4 ITA NO.1248/MUM/2018 ASSESSMENT YEAR 2012-13 (SUPRA) HAD TO DEAL WITH DEDUCTION ON ACCOUNT OF CL AIM FOR DEDUCTION ON ACCOUNT OF PROVISION FOR NON-PERFORMING ASSETS IN T ERMS OF RBI DIRECTIONS ISSUED UNDER THE RBI ACT, 1934. THE HON BLE COURT FOUND THAT UNDER EXPLANATION TO SEC. 36(1)(VII) OF THE ACT, PR OVISION FOR DOUBTFUL DEBT WAS KEPT OUT OF THE AMBIT OF BAD DEBT WRITTEN OFF. IT WAS FURTHER HELD THAT UNDER THE ACT, TAXIS ON REAL INCOME I.E., PROFITS ARRIVED AT ON COMMERCIAL PRINCIPLES SUBJECT TO THE PROVISIONS OF THE ACT. RE AL PROFITS CAN BE ARRIVED AT ONLY BY MAKING THE PERMISSIBLE DEDUCTIONS. SINCE THE PROVISION FOR BAD DEBT WAS NOT A PERMISSIBLE DEDUCTION UNDER .THE ACT , THE SAME WAS V HELD TO BE NOT ALLOWABLE. THE REAL INCOME REFERRE D TO BY THE HONBLE SUPREME COURT IN ITS JUDGMENT IN PARA-35 TO 39 IS I N THE CONTEXT OF PROFITS ARRIVED AT ON COMMERCIAL PRINCIPLES SUBJECT TO THE PROVISIONS OF THE ACT. THE PROVISIONS OF SEC.43D LAY DOWN THE LIMITS UPTO WHICH INTEREST INCOME OF BAD AND DOUBTFUL DEBTS IN THE CASE OF PUBLIC COM PANIES NEED NOT BE RECOGNISED AS INCOME, IN A CASE WHERE ASSESSEE FOLL OWS MERCANTILE SYSTEM OF ACCOUNTING. BY IMPLICATION IT ALSO LAYS D OWN THAT ANY CLAIM THAT INTEREST INCOME AS NOT HAVING ACCRUED OVER AND ABOV E THE LIMITS LAID DOWN BY THE RULES, SHOULD NOT BE ACCEPTED. THE CLAI M OF THE ASSESSEE IN OUR VIEW IS THEREFORE CONTRARY TO THE PROVISIONS OF SEC.43D AND CANNOT THEREFORE THE CLAIM OF THE ASSESSEE BASED ON REAL I NCOME THEORY AND THERE BEING NO REAL ACCRUAL OF INCOME CANNOT BE ACC EPTED. THUS THE DECISION OF THE HONBLE DELHI HIGH COURT AND THE MA DRAS HIGH COURT WILL NOT BE APPLICABLE TO THE FACTS OF THE PRESENT CASE. RATHER THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SOUTHERN T ECHNOLOGIES (SUPRA) ALONE WILL APPLY. WE THEREFORE REJECT THE C ONTENTION RAISED ON BEHALF OF THE LEARNED COUNSEL FOR THE ASSESSEE. 6 RESPECTFULLY FOLLOWING THE DECISION OF THIS TRIB UNAL IN ASSESSEES OWN CASE WE DECIDE THIS ISSUE AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE. 4. AFTER HEARING THE RIVAL SUBMISSION AND GOING TH ROUGH THE FACTS OF THE CASE, WE NOTICED THAT THIS ISSUE IS SQUARELY COVERE D IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. WE FIND THAT THE ASSESSEE IS A HOUSING FINANCE COMPANY REGISTERED UNDER NATIONAL HOUSING BANK. ALL HOUSIN G FINANCE COMPANIES ARE CONTROLLED AND REGULATED BY THE NHB FOR ITS REQUIRE MENT. ALL HOUSING FINANCE COMPANIES HAVE TO FOLLOW GUIDELINES AND DIRECTIVES ISSUED BY NHB FROM TIME TO TIME. DURING THE PREVIOUS YEAR 2012-13 RELEVANT TO ASSESSMENT YEAR 2013-14, THE YEAR UNDER CONSIDERATION, THE INTEREST INCOME E ARNED ON SUCH NPA WAS 6,27,63,541/- AND HENCE NOT ACCOUNTED ITS BOOKS OF ACCOUNT AS PER NHB GUIDELINES. THE FACTS OF THE ASSESSEE ARE THAT AS PER 180 DAYS CONCEPT, THE INTEREST INCOME ON NON-PERFORMING ASSETS AMOUNTING TO 6,12,90,966/- AND AS 5 ITA NO.1248/MUM/2018 ASSESSMENT YEAR 2012-13 PER 90 DAYS CONCEPT, THE INTEREST INCOME ON NPA AM OUNTING TO 6,27,63,541/-. ON THE BASIS OF THREE MONTHS CONCEPT, I.E. AS PER LATEST NHB GUIDELINES, IT WAS CLAIMED BY THE ASSESSEE THAT IT CANNOT BOOK INTERES T ON NPA UNLESS OTHERWISE IT IS ACTUALLY RECEIVED. THEREFORE, THE INTEREST INCO ME AMOUNTING TO 6,27,63,541/- WAS NOT BOOKED IN THE BOOKS OF ACCOUNT BUT THE ASSE SSING OFFICER DISALLOWED AND THE CIT(A) CONFIRMED THE SAME. WE FIND THAT TH IS ISSUE IS SQUARELY COVERED IN THE GIVEN FACTS BY THE TRIBUNAL DECISION IN ASSE SSEES OWN CASE AND HENCE, RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN EARLIER ASSESSMENT YEARS I.E. 2006-07, 2007-08 & 2008-09 (SUPRA), WE AFFIRM THE O RDER OF THE CIT(A) AND DISMISS THE GROUND OF APPEAL OF THE ASSESSEE. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 5-03- 2019. AADOSA KI AADOSA KI AADOSA KI AADOSA KI GAAO GAAOGAAO GAAOYANAA KULAO MAO IDNAMK YANAA KULAO MAO IDNAMK YANAA KULAO MAO IDNAMK YANAA KULAO MAO IDNAMK 15. 03.2019 KAO KI KAO KI KAO KI KAO KI GA GAGA GA SD/- SD/- (M BALAGANESH) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 5-03- 2019 SUDIP SARKAR /SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ASSISTANT REGISTRAR ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT (A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//