DEPUTY COMMSSIONER OF INCOME TAX, CIRCLE - IV, JALANDHAR V. M/S THE KAPURTHALA CENTRAL CO. OPERATIVE BANK LIMITED, KAPURTHALA

ITA 543/ASR/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 4218 (ITAT-AMRITSAR)
• Duration Of Justice: 11 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-08-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 09-08-2018
• Assessment Year: 2014-2015
• Appeal Filed On: 17-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GAUTAM DE B LD
• Assessee Lawyers: SALIL GUPTA L D
• Keywords: Business expenditure; Bad and doubtful debts
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER AND SH. N.K.CHOUDHRY, JUDICIAL MEMBER ITA NO.543(ASR)/2017 ASSESSMENT YEAR:2014-15 DY. CIT, CIRCLE-IV, JALANDHAR VS. M/S. THE KAPURTHALA CENTRAL CO-OP, BANK LTD., KANJLI ROAD, MODEL TOWN, KAPURTHALA PAN: AAAJK 0118K (APPELLANT) (RESPONDENT) APPELLANT BY: SH. GAUTAM DE B (LD. DR) RESPONDENT BY: SALIL GUPTA (LD. CA) DATE OF HEARING: 09.08.2018 DATE OF PRONOUNCEMENT: 16.08.2018 ORDER PER N.K. CHOUDHRY THE INSTANT APPEAL HAS BEEN FILED BY THE REVENUE DEPA RTMENT, ON FEELING AGGRIEVED AGAINST THE ORDER DATED 06.06.201 7 PASSED BY THE LD. CIT(A)-, JALANDHAR, U/S 250(6) OF THE I.T. ACT, 1961 (HEREINAFTER CALLED AS THE ACT). 2. THE FOLLOWING GROUNDS OF APPEAL RAISED BY THE REVENUE DEPARTMENT. 1. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS O F THE CASE IN DELETING THE ADDITION OF RS. 1,13,80,453/- MADE BY THE AO HOLDING THAT THE INTEREST DUE ON NON-PERFORMING ASSETS WAS TAX ABLE AS THE CO-OP. BANK WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING EXCEPT WITH REGARD TO THE INTEREST PERTAINING TO NPAS. 2. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS O F THE CASE IN RELYING ON THE DECISION OF HONBLE ITAT IN THE CASE OF M/S. THE JALANDHAR CENTRAL CO-OP BANK LTD., VIDE ORDER DATED 20.01.201 7 IN ITA NO. 604, 605,652/ASR/2015-16 AS THE DEPARTMENT HAS FILED APP EAL AGAINST THE ITA NO.543(ASR)/2017 (A.Y.2014-15) DCIT V. KAP URTHALA CENTRAL CO-OP, BANK, LTD. KAPURTHALA 2 SAID ORDER BEFORE THE HON'BLE PUNJAB AND HARYANA HI GH COURT WHICH IS STILL PENDING FOR ADJUDICATION. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDIT ION OF RS.8,50,000/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF PROVIS ION FOR STANDARD ASSETS AS PER RBI GUIDELINES AS STANDARD ASSETS ARE PERFORMING ASSETS AND THESE ARE NOT BAD ASSETS WHICH CAN BE COVERED I N PURVIEW OF SECTION 36(L)(IIA) OF THE ACT. 4. THAT WHILE ALLOWING THE RELIEF OF RS.8,50,000/-, TH E LD. CIT(A) HAS NOT APPRECIATED THAT IT WAS CONTINGENT LIABILITY AN D WAS NOT ALLOWABLE AS BUSINESS EXPENDITURE. 5. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS O F THE CASE IN RELYING ON THE DECISION OF HONBLE ITAT IN THE CASE OF M/S. PUNJAB GRAMIN BANK, KAPURTHALA VIDE ORDER DATED 22.06.2016 IN ITA NO. 134/ASR/2015 AS THE DEPARTMENT HAS ALREADY FILED AN APPEAL AGAIN ST THE SAID ORDER BEFORE THE HON'BLE PUNJAB AND HARYANA HIGH COURT WH ICH IS STILL PENDING FOR ADJUDICATION. 6. IT IS PRAYED THAT THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) BE SET ASIDE AND THAT OF THE ASSESSING OF FICER BE RESTORED. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE TWO ISSUES ARE I NVOLVED IN THE INSTANT CASE, FIRST WITH REGARD TO THE NON PERFOR MING ASSETS (NPAS) AND SECOND THE ADDITION OF RS.8,50,000/- MADE BY THE A O ON ACCOUNT OF DISALLOWANCE OF PROVISION FOR STANDARD ASSETS. WE REALIZE D THAT THE CO- ORDINATE BENCH AT AMRITSAR IN ITA NOS.98 & 99 (ASR)/201 7, CASE TITLED AS ASST. CIT, CIRCLE-IV, JALANDHAR VS. M/S. KAPURTHALA CENT RAL CO-OP. BANK LTD. KAPURTHALA, ORDER DATED 14.07.2017 DEALT WITH THE SIMILAR AND IDENTICAL ISSUE QUA NON PERFORMING ASSETS. THE RELEV ANT PART OF THIS ORDER IS REPRODUCED HEREIN BELOW. 8. WE HAVE GONE THROUGH THE FACTS AND CIRCUMSTANCES O F THE CASE AND ALSO CASES RELIED ON THE PARTIES AS INTEREST IN THE INSTANT CASE THE ONLY CONTROVERSY PERTAINS TO DELETION OF THE AD DITION QUA INTEREST DUE ON NON PERFORMING ASSETS AS NOT TAXABLE AND THE INTEREST ON NON PERFORMING ASSETS IS TO BE TAXED IN THE YEAR OF ACT UAL RECEIPT EVEN THOUGH IT IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNT ING. THE CO- ORDINATE BENCH OF THE ITAT, WHILE DECIDING THE SIMI LAR ISSUE OBSERVED AS UNDER: ITA NO.543(ASR)/2017 (A.Y.2014-15) DCIT V. KAP URTHALA CENTRAL CO-OP, BANK, LTD. KAPURTHALA 3 6. IT REMAINS AN UNDISPUTED FACT THAT THE ASSESSEE CO-ORDINATION BANK HAS BEEN FOLLOWING THE MERCANTILE SYSTEM OF AC COUNTING, EXCEPT WITH REGARD TO INTEREST PERTAINING TO NPAS. AS NOTE D BY THE LD. CIT(A), THIS POSITION STANDS ACCEPTED BY THE DEPARTMENT IN THE EARLIER YEARS. THE ASSESSEE HAS BEEN FOLLOWING THE RBI GUIDELINES IN THIS MATTER. ITS METHOD OF ACCOUNTING IS ENTIRELY IN ACCORDANCE WITH THE RBI GUIDELINES. THE RBI GUIDELINES NEED TO BE MANDATORI LY FOLLOWED BY THE ASSESSEE. MOREOVER, THIS METHOD OF ACCOUNTING, ADOP TED BY THE ASSESSEE, IS IN ACCORDANCE WITH THE ACCOUNTING STAN DARDS ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. SE CTION 45Q OF THE RBI ACT PROVIDES, IN THE NON OBSTANTE CLAUSE WITH W HICH IT BEGINS, THAT THE PROVISIONS OF THE CHAPTER UNDER WHICH SECT ION 45Q FALLS, SHALL HAVE EFFECT, NOTWITHSTANDING ANYTHING INCONSI STENT THEREWITH CONTAINED IN ANY OTHER LAW FOR THE TIME BEING INFOR CE. 7. IN M/S VASISTH CHAY VYAPAR LTD. (SUPRA), IT HAS BEEN HELD THAT WHEN AN NBFC CLASSIFIES AN ASSET AS A NON-PERFORMIN G ASSET IN ACCORDANCE WITH THE DIRECTIONS ISSUED THE RESERVE B ANK OF INDIA, IT IS LEGITIMATE TO INFER THAT THE INTEREST INCOME THEREO N IS NOT ACCRUED, EVEN THOUGH THE NBFC IS FOLLOWING THE MERCANTILE SY STEM OF ACCOUNTING. INTERALIA, M/S SOUTHERN TECHNOLOGIES L TD. (SUPRA) HAS BEEN DISTINGUISHED IN M/S VASISTH CHAY VYAPAR LTD. (SUPRA). 8. APROPOS THE APPLICABILITY OF SECTION 43D OF T HE I.T. ACT, IT IS ON RECORD THAT DURING THE PROCEEDINGS BEFORE THE ID. C IT(A), THE ASSESSEE, BY WAY OF SUBMISSION DATED 17.09.2015, THE ASSESSEE HAD STATED THAT THE ASSESSEE HAD BEEN CONFIRMED BY THE HEADQUA RTER OF THE PUNJAB STATE CO-OPERATIVE BANK , TO BE A SCHEDULED BANK. THIS POSITION HAS NOT BEEN DISPUTED. 9. IN VIEW OF THE ABOVE, WE FIND THAT THE GRIEVAN CE OF THE DEPARTMENT IS WITHOUT ANY FORCE. THE ORDER OF THE ID. CIT(A) I S A WELL VERSED REASONED DETAILED ORDER, REQUIRING NO INTERFERENCE WHATSOEVER AT OUR HANDS. THE SAME IS, ACCORDINGLY, CONFIRMED. 10. AS NOTED AT THE BEGINNING OF THIS ORDER, ALL THE THREE APPEALS INVOLVE THE SAME COMMON ISSUE. THAT BEING SO, OUR A BOVE OBSERVATIONS SHALL APPLY EQUALLY, MUTATIS MUTANDIS, TO THE OTHER TWO APPEALS ALSO. 11.ACCORDINGLY, ALL THE ORDERS OF THE ID. CIT(A) IN THESE THREE APPEALS ARE UPHELD AND THE GROUNDS RAISED BY THE DEPARTMENT ARE REJECTED WHILE FOLLOWING THE AFORESAID JUDGMENT OF THE CO-ORDINATE BENCH, EVEN OTHERWISE WE INDEPENDENTLY CONSIDERED T HE FACTS OF THE INSTANT CASE THAT THE ASSESSEE IS A CO-OPERATIVE SO CIETY WHICH IS ENGAGED IN THE BUSINESS OF BANKING AND HAS BEEN FOL LOWING THE DIRECTIONS OF THE APEX BANK AND ACCORDING TO THAT I NTEREST DUE ON ITA NO.543(ASR)/2017 (A.Y.2014-15) DCIT V. KAP URTHALA CENTRAL CO-OP, BANK, LTD. KAPURTHALA 4 NPAS HAD TO BE ACCOUNTED FOR AS INCOME ON ACTUAL RE CEIPTS BASIS. EVEN OTHERWISE, AS9 OF ICAI ON REVENUE RECOGNITIONS PROVIDE FOR, WHERE THERE IN UNCERTAINTY ABOUT THE COLLECTION OF REVENUE, RECOGNITION OF INCOME OR SUCH REVENUE IS POSTPONED TO THE EXTENT OF UNCERTAINTY INVOLVED, THEREFORE, THE ASSESSEE RECOG NIZED REVENUE ON ADVANCES CLASSIFIED AS NPAS ON ACTUAL RECEIPT BASIS AND EVEN THE ASSESSEE CONSISTENTLY FOLLOWING THE METHOD OF ACCOU NTING IN ACCORDANCE WITH SECTION 145 OF THE ACT. THEREFORE, ON THE AFORESAID REASONS AND OBSERVATIONS, WE DO NOT HAVE ANY HESITA TION TO UPHOLD THE ACTION OF THE LD. CIT(A) TO DISMISS THE APPEALS OF THE DEPARTMENT. HENCE, THE INSTANT APPEALS STAND DISMIS SED 3 4. WE HAVE GONE THROUGH THE ISSUE QUA NON PERFORMING ASSETS (NPAS) AS SQUARELY BEEN COVERED BY THE CO-ORDINATE BENCH AT A MRITSAR, THEREFORE, WHILE FOLLOWING THE SAME, WE DO NOT FIND ANY INFIRMI TY, IMPROPRIETY AND PERVERSITY IN THE ORDER OF THE CIT(A) QUA THE ISSUE U NDER HAND. 5. NOW, COMING TO THE SECOND ISSUE WITH REGARD TO THE DISAL LOWANCE OF PROVISION FOR STANDARD ASSETS, THE LD. CIT(A) WHILE FOL LOWING THE DECISION OF CO-ORDINATE BENCH AT AMRITSAR (JALANDHAR CAMP) IN THE CASE OF DCIT V. PUNJAB GRAMIN BANK KAPURTHALA IN ITA NO.134(ASR)/2015, VIDE ORDER DATED 22.06.2016 DELETED THE ADDITION OF RS.8,50,000/- QUA DISALLOWANCE OF PROVISION FOR STANDARD ASSETS. THE CONCLUDING PART OF THE ORDER IS REPRODUCED HEREIN BELOW. 8. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE T HROUGH THE MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE HAD CREATED A PROVISION OF RS.50,00,000/- WHICH INCLUDED A SUM OF RS.13,25,000/- AS PROVISIONS FOR BAD AND DOUBTFUL DEBTS AND THE B ALANCE AMOUNT OF RS.36,75,000/- WAS PROVISION AGAINST STANDARD ASSET S AND THE ENTIRE AMOUNT WAS CLAIMED AS DEDUCTION UNDER SECTION 36(1) (VIIA) OF THE ACT. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE PROVISIONS MADE BY THE ASSESSEE AGAINST STANDARD ASSETS WAS A CONTINGENT LIABILITY AND WHICH WAS NOT ALLOWABLE AS BUSINESS E XPENDITURE. THE ITA NO.543(ASR)/2017 (A.Y.2014-15) DCIT V. KAP URTHALA CENTRAL CO-OP, BANK, LTD. KAPURTHALA 5 LD. CIT(A), HOWEVER, ALLOWED RELIEF TO THE ASSESSEE BY HOLDING THAT THE CLAIM OF THE ASSESSEE FALL INTO THE MAIN PROVISIONS OF SECTION 36(1)(VIIA). TO RESOLVE THE DISPUTE IT IS IMPORTANT TO VISIT THE PROVISIONS OF SECTION 36(1)(VIIA) OF THE ACT AND WH ICH FOR THE SAKE OF CONVENIENCE ARE REPRODUCED BELOW. 36(1)(VIIA) IN RESPECT OF ANY PROVISION FOR BAD AND DOUBTFUL DEBTS MADE BY (A)A SCHEDULED BANK [NOT BEING A BANK INCOR PORATED BY OR UNDER THE LAWS OF A COUNTRY OUTSIDE INDIA] OR A NON -SCHEDULED BANK OR A CO-OPERATIVE BANK OUTSIDE INDIA] OR A PRIMARY CO- OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK, AN AMOUNT NOT EXCEEDING SEVEN AND ONE-HALF PERCENT OF THE TOTAL INCOME (COM PUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VI-A) AND AN AMOUNT NOT EXCEEDING TEN PERCENT OF THE AGGREGATE A VERAGE ADVANCES MADE BY THE RURAL BRANCHES OF SUCH BANK COMPUTED IN THE PRESCRIBED MANNER. PROVIDED THAT A SCHEDULED BANK OR A NON-SCHEDULED BANK REFERRED TO IN THIS SUB-CLAUSE SHALL, AT ITS OPTION , BE ALLOWED IN ANY OF THE RELEVANT ASSESSMENT YEARS DEDUCTION IN RESPECT OF ANY PROVISION MADE BY IT FOR ANY ASSETS CLASSIFIED BY THE RESERVE BANK OF INDIA AS DOUBTFUL ASSETS OR LOSS ASSETS IN ACCORDANCE WITH T HE GUIDELINES ISSUED BY IT IN THIS BEHALF, FOR AN AMOUNT NOT EXCEEDING F IVE PERCENT OF THE AMOUNT OF SUCH ASSETS SHOWN IN THE BOOKS OF ACCOUNT OF THE BANK ON THE LAST DAY OF THE PREVIOUS YEAR: PROVIDED FURTHER THAT FOR THE RELEVANT ASSESSMENT Y EARS COMMENCING ON OR AFTER THE 1 ST DAY OF APRIL,2003 AND ENDING BEFORE THE 1 ST DAY OF APRIL, 2005, THE PROVISIONS OF THE FIRST PROVISO SHALL HAV E EFFECT AS IF FOR THE WORDS FIVE PERCENT, THE WORDS TEN PERCENT HAD B EEN SUBSTITUTED: PROVIDED ALSO THAT A SCHEDULED BANK OR A NON-SCHEDU LED BANK REFERRED TO IN THIS SUB-CLAUSE SHALL, AT ITS OPTION, BE ALLO WED A FURTHER DEDUCTION IN EXCESS OF THE LIMITS SPECIFIED IN THE FOREGOING PROVISIONS, FOR AN AMOUNT NOT EXCEEDING THE INCOME DERIVED FROM REDEMP TION OF SECURITIES IN ACCORDANCE WITH A SCHEME FRAMED BY THE CENTRAL G OVERNMENT: PROVIDED ALSO THAT NO DEDUCTION SHALL BE ALLOWED UN DER THE THIRD PROVISO UNLESS SUCH INCOME HAS BEEN DISCLOSED IN TH E RETURN OF INCOME UNDER THE HEAD PROFITS AND GAINS BUSINESS OR PROFE SSION. FROM THE ABOVE PROVISIONS IT CAN BE SEEN THAT DEDUC TION U/S 36(1)(VIIA) OF THE ACT IS ALLOWED IN RESPECT OF PRO VISIONS FOR BAD AND DOUBTFUL DEBTS THIS SECTION DOES NOT DIFFERENTIATE BETWEEN PROVISION ON BAD ASSETS AND PROVISION ON STANDARD ASSETS. THI S DEDUCTION EXCLUSIVELY ALLOWS DEDUCTION IN RESPECT OF PROVISIO N FOR BAD AND DOUBTFUL DEBTS TO THE EXTENT MENTIONED IN THE VARIO US CLAUSES OF SUB-SECTION(1) OF SECTION 36 OF THE ACT. THE DEDUCT ION UNDER SECTION 36(1)(VIIA) OF THE ACT IS ALLOWED ONLY IN RESPECT O F CERTAIN SPECIFIC CATEGORIES OF ASSESSEE MENTIONED IN THE CLAUSE LIKE BANKS, FINANCIAL INSTITUTIONS, ETC. WHO ARE IN BUSINESS OF LENDING M ONEY. IT IS NOT ALLOWED EVEN TO NON-BANKING FINANCIAL INSTITUTIONS SINCE THEY ARE NOT ITA NO.543(ASR)/2017 (A.Y.2014-15) DCIT V. KAP URTHALA CENTRAL CO-OP, BANK, LTD. KAPURTHALA 6 INCLUDED IN THIS CLAUSE. IT IS SEEN THAT THOUGH SEC TION 36(1)(VII) STATES THAT DEDUCTION FOR PROVISION IS ALLOWABLE IN RESPECT OF PROVISION FOR BAD AND DOUBTFUL DEBTS, THE COMPUTATI ON OF SUCH DEDUCTION IS MADE WITH REFERENCE TO TOTAL INCOME OF THE SPECIFIED BANKS BASED UPON QUANTUM OF AVERAGE ADVANCES. THE D EDUCTION OF THE PROVISIONS IS NEITHER LIMITED TO THE QUANTUM OF BAD DEBTS IN THE BOOKS NOR IS COMPUTED WITH REFERENCE TO THE QUANTUM OF STANDARD ASSETS. THE DEDUCTION IN THIS CLAUSE REFERS TO ALLO WABLE PROVISIONS OF ANTICIPATED DEFAULT ON THE LOANS AND ADVANCES MADE IN RESPECT OF TOTAL ASSETS INCLUDING STANDARD ASSETS AND THE CLAI M OF THE ASSESSEE DOES NOT FALL INTO THE PROVISO TO SECTION 36(1)(VII A) AS THE PROVISO DEALS WITH FURTHER DEDUCTION FOR PROVISIONS ON BAD AND DOUBTFUL DEBTS. THE CLAIM OF THE ASSESSEE IS COVERED IN THE MAIN PROVISIONS OF SECTION 36(1)(VIIA) OF THE ACT. THE LEARNED CIT(A) HAS PASSED A VERY EXHAUSTIVE AND SPEAKING ORDER AND WE DO NOT FIND AN Y INFIRMITY IN THE SAME. 9. IN VIEW OF THE ABOVE, THE APPEAL FILED BY REVE NUE IS DISMISSED. AS THE ISSUE UNDER HAND, IS SQUARELY COVERED BY THE JUDGM ENT RENDERED BY THE CO-ORDINATE BENCH AT AMRITSAR (JALAND HAR CAMP) IN THE CASE OF DCIT V. PUNJAB GRAMIN BANK, KAPURTHALA (SUPRA), THEREFORE, WE DO NOT HAVE ANY HESITATION TO AFFIRM THE ORDER PASSED BY THE LD. CIT(A) QUA SUBJECTED ISSUE, SPECIFICALLY IN VIEW OF THE FACT THAT THE REVENUE DEPARTMENT HAS FAILED TO BRING ON RECORD ANY CONTRARY MATERIAL T O THE JUDGMENT REFERRED AND RELIED UPON BY THE LD. CIT(A) WHILE DELETING TH E ADDITION. 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE DEPA RTMENT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16. 08.2018. SD/- SD/- (SANJAY ARORA) (N.K.CHOUDHRY) ACCOUNTANT MEMBER JUDI CIAL MEMBER DATED: 16.08.2018 /PK/ PS. ITA NO.543(ASR)/2017 (A.Y.2014-15) DCIT V. KAP URTHALA CENTRAL CO-OP, BANK, LTD. KAPURTHALA 7 COPY OF THE ORDER FORWARDED TO: (1) M/S. THE KAPURTHALA CENTRAL CO-OP, BANK LTD., KANJLI ROAD, MODEL TOWN, KAPURTHALA (2) THE DCIT, CIRCLE-IV, JALANDHAR (3) THE CIT(A)-2, JALANDHAR (4) THE CIT CONCERNED (5) THE SR DR, I.T.A.T., AMRITSAR TRUE COPY BY ORDER