Shri Janta Sahakari Bank Ltd., Patan V. The DY.CIT, Patan Range, Patan

ITA 718/AHD/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5823 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 30-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V K SINGH

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ./ ITA NO.718/AHD/2015 / ASSTT. YEAR: 2007-2008 SHRI JANTA SAHAKARI BANK LTD. SAHYOG BHAAN, DHAN BAZAR RADHANPUR DIST. : PATAN PAN : AAAAS 2098 D VS. DCIT, PATAN RANGE PATAN. / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI ASEEM THAKKAR, AR REVENUE BY : SHRI V.K. SINGH, SR.DR ! / DATE OF HEARING : 19/03/2018 '#$ ! / DATE OF PRONOUNCEMENT: 20 /03/2018 %& / O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST O RDER OF LD.CIT(A), GANDHINAGAR DATED 22.12.2014 PASSED FOR ASSTT.YEAR 2007-08. 2. THE ASSESSEE HAS TAKEN FOUR GROUNDS OF APPEAL. IN THE FIRST GROUND IT HAS PLEADED THAT THE LD.CIT(A) HAS ERRED IN PASSING EX PARTE ORDER WITHOUT REJECTING ADJOURNMENT APPLICATION FI LED BY THE ASSESSEE. IN THE SECOND GROUND, THE ASSESSEE HAS C HALLENGED ITA NO.718/AHD/2015 2 REOPENING OF THE ASSESSMENT. IN GROUND NO.3, THE A SSESSEE HAS PLEADED THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING ADDITION OF RS.39,29,620/- WHICH WAS ADDED BY THE AO ON THE GRO UND THAT INTEREST INCOME ON NON-PERFORMING ASSETS (NPA FOR SHORT) OUGHT TO BE CALCULATED BY THE ASSESSEE ON ACCRUAL BASIS. GROUND NO.4, IS GENERAL GROUND OF APPEAL. THE LD.COUNSEL FOR THE A SSESSEE SUBMITTED THAT ISSUE ON MERIT IS COVERED IN FAVOUR OF THE ASSESSEE, THEREFORE, HE IS NOT PRESSING OTHER THREE GROUNDS I .E. GROUND NOS.1, 2 AND 4. ACCORDINGLY, GROUND NO.1, 2 AND 4 ARE REJECTED 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAS FILED ITS RETURN OF INCOME ON 31.10.2007 DECLARING LOSS OF RS.12,21,23,000/-. ON SCRUTINY OF THE ASSESSEE, IT REVEALED TO THE AO THAT BANK HAS INCURRED INTEREST EXPENSES OF RS.1 ,16,13,495/- ON LOANS AND ADVANCES. HOWEVER, TOTAL INTEREST INC OME ON LOAN AND ADVANCES OF THE BANK WAS ONLY OF RS.38,43,246/- . ON FURTHER PROBE, HE FOUND THAT BANK HAS NOT PROVIDED FOR INTE REST INCOME ON ADVANCE OF RS.3,27,46,829/-. EXPLANATION OF THE AS SESSEE WAS THAT THESE LOANS AND ADVANCES WERE NON-PERFORMING A SSETS, HENCE BANK HAS NOT RECOGNIZED INTEREST INCOME ON SUCH ADV ANCES. THE LD.AO CALCULATED INTEREST INCOME AT THE RATE OF 12% ON THESE LOANS AND ADVANCES AND OBSERVED THAT PROPORTIONATE INTERE ST EXPENSES OF RS.39,29,620/- WOULD NOT BE ALLOWED AS AN EXPEND ITURE TO THE ASSESSEE. IN OTHER WORDS, THE LD.AO ASSUMED INTERE ST INCOME ON NPAS ON ACCRUAL BASIS OF ACCOUNTING, AND THEREAFTER SET OFF THAT NOTIONAL INCOME WITH INTEREST EXPENDITURE CLAIMED B Y THE ASSESSEE FOR THE PURPOSE OF BUSINESS. APPEAL TO THE LD.CIT( A) DID NOT BRING ANY RELIEF TO THE ASSESSEE. ITA NO.718/AHD/2015 3 4. THE LD.COUNSEL FOR THE ASSESSEE CONTENDED THAT T HE ISSUE IN DISPUTE IS SQUARELY COVERED BY THE DECISION OF THE HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF PR.CIT VS. SHRI MAHILA SEWA SAHAKARI BANK LTD., 395 ITR 324 (GUJ). ON THE OTHER HAND LD.DR RELIED UPON THE ORDER OF THE REVENUE AUTHORITIES. 5. WE HAVE CONSIDERED RIVAL CONTENTIONS AND GONE TH ROUGH THE RECORD. A PERUSAL OF DECISION OF THE HONBLE GUJAR AT HIGH COURT CITED SUPRA WOULD INDICATE THAT THE HONBLE COURT H AS HELD THAT IN VIEW OF GUIDELINES OF RBI ASSESSEE WAS NOT SUPPOSED TO RECOGNIZE INCOME FROM NPAS ON ACCRUAL BASIS. THUS, THERE WOU LD NOT BE ANY INCOME TO THE ASSESSEE ON THE ALLEGED LOANS AND ADV ANCES OF RS.3,27,46,829/- WHICH WAS CATEGORIZED BY THE ASSES SEE AS NPAS. IF THERE WAS NO NOTIONAL INCOME THERE COULD NOT BE ANY REDUCTION OF INTEREST EXPENDITURE. THE HEAD NOTE OF THE JUDG MENT IN THE CASE OF SHRI MAHILA SEWA SAKAKARI BANK LTD. (SUPRA) READS AS UNDER: IF A CO-OPERATIVE BANK IS EXCLUSIVELY CARRYING ON B ANKING BUSINESS, THEN THE INCOME DERIVED FROM THE BUSINESS CANNOT BE DEDUCTED IN COMPUTING THE TOTAL INCOME OF THE AS SESSEE. THE INCOME IS LIABLE FOR TAX. A CO-OPERATIVE BANK A S DEFINED UNDER THE BANKING REGULATION ACT, INCLUDES A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CO-OPERATI VE AGRICULTURAL RURAL DEVELOPMENT BANK. THE LEGISLATUR E DID NOT WANT TO DENY THE SAID BENEFIT TO A PRIMARY AGRICULT URAL CREDIT SOCIETY OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK. IF THE ASSESSEE IS NOT A CO-OPERA TIVE BANK CARRYING ON EXCLUSIVELY BANKING BUSINESS AND I F IT DOES NOT POSSESS A LICENCE FROM THE RESERVE BANK OF INDIA TO CARRY ON BUSINESS, THEN IT IS NOT A CO-OPERATIVE BANK. IT IS A CO- OPERATIVE SOCIETY WHICH ALSO CARRIES ON THE BUSINES S OF LENDING MONEY TO ITS MEMBERS WHICH IS COVERED UNDER SECTION 80P(2)(A)(I) OF THE INCOME-TAX ACT, 1961, I .E. CARRYING ON THE BUSINESS OF BANKING FOR PROVIDING C REDIT ITA NO.718/AHD/2015 4 FACILITIES TO THE MEMBERS. IT IS ENTITLED TO THE SP ECIAL DEDUCTION UNDER SECTION 80P OF THE ACT. 6. IT IS PERTINENT TO MENTION THAT HONBLE JURISDIC TIONAL HIGH COURT HAS FOLLOWED DECISION OF HONBLE DELHI HIGH C OURT IN THE CASE OF CIT VS. VASISTH CHAY VYPAR LTD. 330 ITR 440 (DEL ). THIS DECISION OF THE HONBLE DELHI HIGH COURT HAS BEEN U PHELD BY THE HONBLE SUPREME COURT AND JUDGMENT OF THE HONBLE S UPREME COURT IS REPORTED IN 90 TAXMANN.COM 365 (SC). COPY OF THE DECISION HAS BEEN PLACED BEFORE US. 7. ON DUE CONSIDERATION OF THE ABOVE FACTS, WE ARE OF THE VIEW THAT NO NOTIONAL INCOME IS TO BE ASSUMED IN THE HAN DS OF THE ASSESSEE OUT OF NPA, AND ACCORDINGLY INTEREST EXPEN DITURE CLAIMED BY THE ASSESSEE CANNOT BE REDUCED TO SUCH NOTIONAL INCOME. WE ALLOW THE APPEAL OF THE ASSESSEE PARTLY. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 20 TH MARCH, 2018. SD/- SD/- (AMARJIT SINGH) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER