Deputy Commissioner of Income-tax, V. The Pune People Co-op. Bank Ltd., Pune

ITA 718/PUN/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9455 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 9 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 15-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIRUPAMA KOTRU
• Section: 143(3); 148

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NOS.717 TO 719/PUN/2016 / ASSESSMENT YEARS : 2007-08, 2009-10 AND 2012-13 THE DY. C OMMISSIONER OF I NCOME TAX , CIRCLE 12, PUNE. . / APPELLANT V/S THE PUNE PEOPLE CO - OP. BANK LTD., 606, SADHASHIV PETH, LAXMI ROAD, PUNE 411 030. PAN : AAAAP6104H. . / RESPONDENT ASSESSEE BY : SHRI SUHAS BORA. REVENUE BY : SMT. NIRUPAMA KOTRU. / ORDER PER ANIL CHATURVEDI, AM : THESE THREE APPEALS FILED BY THE REVENUE ARE EMANATING OUT OF CONSOLIDATED ORDER FOR A.YS. 2007-08 AND 2009-10 AND A S EPARATE ORDER FOR A.Y. 2012-13 OF COMMISSIONER OF INCOME TAX (A) II, PUNE 5, DT. 06.01.2016. 2. BEFORE US, AT THE OUTSET, BOTH THE PARTIES SUBMITTED T HAT THOUGH THE APPEALS FILED BY THE REVENUE ARE FOR THREE DIFFERENT A SSESSMENT YEARS BUT THE FACTS AND ISSUES INVOLVED IN ALL THE APPEA LS ARE IDENTICAL EXCEPT FOR THE ASSESSMENT YEAR AND THE AMOUNTS INVOLVE D AND THE LD.CIT(A) HAS ALSO PASSED A CONSOLIDATED ORDER FOR TWO ASS ESSMENT / DATE OF HEARING : 24.01.2018 / DATE OF PRONOUNCEMENT: 25.01.2018 2 YEARS AND THEREFORE THE SUBMISSIONS MADE BY THEM WHILE ARGUING ONE APPEAL WOULD BE EQUALLY APPLICABLE TO THE OTHER APPEALS A LSO AND THUS, ALL THE THREE APPEALS CAN BE HEARD TOGETHER. IN VIEW O F THE AFORESAID SUBMISSIONS OF BOTH THE PARTIES, WE, FOR THE SAKE OF CONVEN IENCE, PROCEED TO DISPOSE OF THE THREE APPEALS BY A CONSOLIDAT ED ORDER BUT HOWEVER, PROCEED WITH NARRATING THE FACTS IN ITA NO.717 /PUN/2016 FOR ASSESSMENT YEAR 2007-08. 3. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RE CORD ARE AS UNDER :- ASSESSEE IS ENGAGED IN BANKING BUSINESS. ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y. 2007-08 ON 25.09.2012 DECLARING TO TAL INCOME OF RS.4,65,63,620/-. THE RETURN OF INCOME WAS INITIALLY PROCESSED ON 19.03.2009 U/S 143(1) OF THE ACT. THEREAFTER, IT WA S SEEN THAT INTEREST ACCRUED ON NPAS AMOUNTING TO RS.6,99,80,00 0/- WAS NOT CONSIDERED AS INCOME BY THE ASSESSEE. ACCORDINGLY, NOTIC E U/S 148 OF THE ACT WAS ISSUED AND SERVED ON THE ASSESSEE. THERE AFTER, THE CASE WAS TAKEN UP FOR SCRUTINY AND ASSESSMENT WAS FRAMED U/ S 143(3) R.W.S. 147 OF THE ACT VIDE ORDER DT.16.02.2015 AND THE TOT AL INCOME WAS DETERMINED AT RS.11,65,43,620/-. AGGRIEVED BY THE ORD ER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO VIDE ORD ER DT.06.01.2016 (IN APPEAL NO.PN/CIT(A)-5/DCIT, CIR- 12/913/912/2014-15) BY A CONSOLIDATED ORDER FOR A.YS. 2007-08 AND 2009-10 GRANTED SUBSTANTIAL RELIEF TO THE ASSESSEE. AGGR IEVED BY THE ORDER OF LD.CIT(A), REVENUE IS NOW IN APPEAL BEFORE US AND H AS RAISED THE FOLLOWING GROUNDS : 1. ON THE FACTS AND THE CIRCUMSTANCES OF THE CAS E, THE LD.CIT(A) HAS ERRED IN ALLOWING THE CLAIM OF INTEREST ON NPAS . THE LD.CIT(A) FAILED TO APPRECIATE THAT THE ACCRUED INT EREST ON NPA SHOULD BE WORKED AS PER THE PROVISIONS OF SECTION 3 D R.W.R 6EA. 3 THE HONBLE ITAT, PUNE IN ITS ORDER DATED 23.01.201 4 OF COSMOS BANK IN ITA NOS.460 AND 461 OF 2012 HAS UPHELD THE STAND OF THE DEPARTMENT THAT THE ACCRUED INTEREST SHOULD BE WORKED OUT AS PER SECTION 43D R.W.R. 6EA AND ACCORDINGLY BROUGHT TO TAX ON ACCRUAL BASIS. 2. THE ORDER OF THE LD.CIT(A) BE VACATED ON THIS IS SUE AND THAT OF AO BE RESTORED. SIMILAR GROUNDS HAVE BEEN RAISED BY THE REVENUE IN A.YS. 2 009-10 AND 2012-13. 4. DURING THE COURSE OF ASSESSMENT AO NOTICED THAT AS SESSEE HAD SHOWN ACCRUED INTEREST ON NPAS IN THE BALANCE SHEET. T HE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF THE ACCRUED INTEREST FOR THE YEAR AND ALSO SHOW AS TO WHETHER THE SAME WAS INCLUDED IN TH E PROFIT AND LOSS ACCOUNT. ASSESSEE INTER-ALIA SUBMITTED THAT THE IN TEREST ON NPA ACCOUNTS CANNOT BE SAID TO HAVE BEEN ACCRUED TO THE ASSESSEE AND ITS STAND IS SUPPORTED BY THE CIRCULAR OF CBDT DT.09.10.1984 AND THAT ASSESSEE BANK HAS BEEN CONSISTENTLY FOLLOWING THE SYSTEM OF ACCOUNTING IN RESPECT OF INTEREST ON NPAS AS PER THE P RUDENTIAL NORMS OF RECOGNITION OF INCOME ISSUED BY THE RESERVE BANK OF IN DIA. THE SUBMISSION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO T HE AO. AO WAS OF THE VIEW THAT THE INTEREST ACCRUED ON NPAS HAVE TO BE COMPUTED AS PER SEC.43D R.W.R 6EA AND THEREFORE SHOULD BE INCLUDE D AS INCOME OF THE ASSESSEE. HE ALSO RELIED ON THE DECISION OF PUNE TR IBUNAL IN THE CASE OF COSMOS CO-OPERATIVE BANK LTD., IN ITA NOS.460 AN D 461/PN/2012 DT.23.01.2014. HE ACCORDINGLY HELD THAT THE INTEREST CHARGEABLE ON NPAS FOR THE YEAR AMOUNTING TO RS.6,99,80,0 00/- HAS TO BE INCLUDED AS INCOME OF THE ASSESSEE. AO ACCORDINGLY MAD E ITS ADDITION. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO DECIDED THE ISSUE IN FAVOUR OF THE ASSE SSEE BY HOLDING AS UNDER : 4 5.2 I HAVE PERUSED THE MATERIAL ON RECORD AND THE SUBMI SSIONS MADE BY THE APPELLANT BANK CAREFULLY. I TEND TO AGR EE WITH THE CONTENTIONS OF THE APPELLANT BANK. I ALSO FIND THAT A SIMILAR ISSUE HAS BEEN DECIDED BY THE HON'BLE ITAT PUNE IN ITS OR DER IN THE CASE OF WESTERN MAHARASHTRA DEVELOPMENT CORPORATION LTD VS DCIT (2008) 114 ITJ (PUNE) 54 WHEREIN IT HAS ELABOR ATELY CONSIDERED A SIMILAR SITUATION WHERE RECOVERY ON IN TEREST ON SEED MONEY LOAN GIVEN BY THE ASSESSEE COMPANY WAS EXTREM ELY LOW AND POSSIBILITY OF RECOVERING THESE AMOUNTS WAS SOM EWHAT REMOTE. IN THE SAID CASE, THE HON'BLE ITAT HAS OBSE RVED THAT NO DOUBT THERE IS A LEGAL RIGHT TO RECEIVE THE INTERES T BUT THERE ARE ALSO GROUND REALITIES WHICH DO NOT PERMIT STRICT EN FORCEMENT OF THIS RIGHT. WHILE HOLDING THAT SUCH INTEREST EVEN T HOUGH ACCRUED AS PER MERCANTILE SYSTEM OF ACCOUNTING BUT DID NOT GIVE REAL INCOME TO THE ASSESSEE. THE HON'BLE ITAT PUNE HAS D ECIDED THE ISSUE ON ACCRUED INTEREST ON NPA ADVANCES NOT TO BE CONSIDERED AS INCOME IN FAVOUR OF THE BANK IN MANY CASES A FEW OF WHICH ARE MENTIONED BELOW: ACIT VS OSMANABAD JANTA SAHKARI BANK LTD ITA NO.795/PN/2011 DATED 31.08.2012. ACIT VS SIDDHESHWAR SAHKARI BANK LTD ITA NO. 794/P N/2011 DATED 31.08.2012. ACIT VS DEVNAGARI SAHKARI BANK LTD ITA NO.817 & 1114/PN/2011 DATED 28.09.2012. ACIT VS MAHARASHTRA NAGRI SAHKARI NANDED BANK ITA N O. 1713/PN/2011 DATED 28.02.2013. 5.3 THOUGH THERE ARE DIVERSE VIEWS ON THE ISSUE OF INTE REST ON NPA ACCOUNTS OF DIFFERENT HIGH COURTS AS IN THE CAS E OF CIT VS VASISHT CHAY VYAPAR LTD. 330 ITR 440 WHEREIN THE DE LHI HIGH COURT RULED IN FAVOUR OF THE ASSESSEE BY HOLDING TH AT INTEREST INCOME ON NPA IS NOT TAXABLE ON ACCRUAL BASIS, THE HON'BLE MADRAS HIGH COURT ON THE OTHER HAND IN THE CASE OF SHAKTI FINANCE LTD. 31 TAXMANN.COM 305 HAS TAKEN THE STAND THAT INTEREST INCOME ON NPA IS TAXABLE ON ACCRUAL BASIS, HOWEVER, AT PRESENT AS THERE IS NO JURISDICTIONAL HIGH COURT DE CISIONS ON THIS ISSUE AND THE JURISDICTIONAL BENCH HAS RULED IN FAV OUR OF THE BANKS IN VARIOUS CASES RESPECTFULLY FOLLOWING THE J URISDICTIONAL ITAT THE ACTION OF THE AO TO TAX ACCRUED INTEREST O N NPA ACCOUNTS IS NOT JUSTIFIED IN LAW. THE AO IS DIRECTED TO DELE TE THE SAID ADDITION. THIS GROUNDS OF APPEAL NOS. 2 TO 5 FOR B OTH YEARS ARE ALLOWED. AGGRIEVED BY THE ORDER OF LD.CIT(A), REVENUE IS NOW IN APPE AL BEFORE US. 5. BEFORE US, LD.D.R. SUPPORTED THE ORDER OF AO. LD.A.R. ON THE OTHER HAND REITERATED THE SUBMISSIONS MADE BEFORE AO AN D LD.CIT(A) AND FURTHER SUBMITTED THAT ON IDENTICAL ISSUE IN ASSESSEE S OWN CASE 5 THE ISSUE HAS BEEN DECIDED BY THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES FAVOUR IN ITA NO.418/PN/2016 FOR A.Y. 2011-1 2. HE FURTHER SUBMITTED THAT ON IDENTICAL ISSUE, THE HONBLE BOM BAY HIGH COURT IN THE CASE OF CIT VS. DEOGIRI NAGARI SAHAKARI BANK LTD., IN ITA NO.53 OF 2014 DT.22.01.2015 HAS ALSO DECIDED THE ISSUE IN FA VOUR OF THE ASSESSEE. HE PLACED ON RECORD THE COPY OF THE DE CISIONS RENDERED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF DEOGIRI NAGA RI SAHAKARI BANK (SUPRA) AND THE DECISION OF THE CO-ORDINATE BENCH O F THE TRIBUNAL IN ASSESSEES OWN CASE IN A.Y. 2011-12 AND HE T HUS SUPPORTED THE ORDER OF LD.CIT(A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPEC T TO CONSIDERING INTEREST ON NPA ACCOUNTS AS INCOME OF THE ASSESSEE. WE FIND THAT IDENTICAL ISSUE OF TAXING OF INTEREST ACCRUED ON NPA ACCOUN TS AROSE IN ASSESSEES OWN CASE IN A.Y. 2011-12. THE CO-ORDINATE BE NCH OF THE TRIBUNAL WHILE DECIDING THE ISSUE IN ITA NO.418/PN/2016 FOR A .Y. 2011-12 ORDER DT.04.07.2016 HAS DECIDED THE ISSUE IN FAVOU R OF THE ASSESSEE BY OBSERVING AS UNDER : 7. WE FIND THAT SIMILAR ISSUE AS BEFORE US AROSE I N ITO VS. SHANKARRAO MOHITE PATIL SAHAKARI BANK LTD. IN ITA NO.934/PN/20 15 AND IN ITO VS. SAMARTH SAHAKARI BANK LTD. IN ITA NO.615/PN/2015, R ELATING TO ASSESSMENT YEAR 2011- 12, ORDER DATED 10.02.2016 AN D KOLHAPUR MAHILA SAHAKARI BANK LTD. VS. ITO IN ITA NO.01/PN/2 013, RELATING TO ASSESSMENT YEAR 2009-10, VIDE ORDER DATED 29.01.201 4. THE TRIBUNAL IN TURN FOLLOWING THE RATIO LAID DOWN BY THE PUNE BENC H OF TRIBUNAL IN ACIT VS. OSMANABAD JANTA SAHAKARI BANK LTD. IN ITA NO.79 5/PN/2011, ORDER DATED 31.08.2012, HELD AS UNDER:- 2. THE ASSESSEE IS A CO-OPERATIVE BANK ENGAGED IN THE BUSINESS OF ACCEPTING DEPOSITS FROM MEMBERS AND GIVING LOANS TO MEMBERS. IT HAS FILED ITS RETURN OF INCOME ON 11.09 .2009 FOR THE YEAR UNDER CONSIDERATION DECLARING TOTAL INCOME AT 14,57,840/-. IN THE SCRUTINY ASSESSMENT, THE ASSESSING OFFICER N OTICED THAT THE ASSESSEE HAD NOT CREDITED INTEREST RECEIVABLE OR AC CRUED ON NON- PERFORMING ASSETS (HEREINAFTER REFERRED TO AS NPA) TO ITS PROFIT AND LOSS ACCOUNT FOR FINANCIAL YEAR 2008-09. THE ASSESS ING OFFICER AFTER REJECTING THE VARIOUS CONTENTIONS OF THE ASSE SSEE HAS HELD THAT THE RBI GUIDELINES ARE NOT INTENDED TO REGULAT E THE INCOME 6 TAX LAW AND THE ASSESSEE WAS LIABLE TO BE ASSESSED ON ACCRUAL BASIS U/S.5 OF I.T. ACT FOR THE REASONS (I) BENEFIT S EXTENDED TO SCHEDULE BANK, PUBLIC FINANCIAL INSTITUTIONS, PUBLI C COMPANIES FOR THE PURPOSE OF SECTION 43D WERE NOT EXTENDED TO A C O-OPERATIVE BANK AND (II) THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND NOT CASH SYSTEM. ULTIMATELY THE ASSE SSING OFFICER TAXED ON ACCRUED INTEREST OF 25,20,022/- ADVANCE CLAIMED TO BE NPA ACCOUNT. THE MATTER WAS CARRIED BEFORE THE FIRS T APPELLATE AUTHORITY WHEREIN, FOLLOWING THE OSMANABAD JANTA SA HAKARI BANK LTD. IN ITA NO.795/PN/2011, THE CIT(A) HAS DEC IDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND THE SAME HAS BE EN OPPOSED BEFORE US ON BEHALF OF REVENUE. 2.1 AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND M ATERIAL ON RECORD, WE FIND THAT IN OSMANABAD JANTA SAHAKARI BA NK LTD. (SUPRA) THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOU R OF ASSESSEE BY OBSERVING AS UNDER: 7. IN THE CASE BEFORE US, ADMITTEDLY, ASSESSEE HAS DIRECTLY TAKEN THE INTEREST TO THE BALANCE SHEET AN D IT IS NOT ROUTED THROUGH THE PROFIT & LOSS ACCOUNT. MOREO VER, THE ISSUE OF THE TAXABILITY OF THE INTEREST ON THE STICKY LOSSES/ADVANCES, IS COVERED IN FAVOUR OF THE ASSESS EE BY THE DECISION OF THE COORDINATE BENCHES IN THE CASE OF THE DURGA COOPERATIVE URBAN BANK LTD., VIJAYAWADA (SUPR A) AND KARNAVATI COOPERATIVE BANK LTD. (SUPRA). WE FIN D NO REASON TO INTERFERE WITH THE REASONED ORDER OF THE LD. CIT(A) AND ACCORDINGLY THE SAME IS CONFIRMED. IN TH E RESULT, THE REVENUES GROUND IS DISMISSED. THE ABOVE DECISION HAS BEEN FOLLOWED IN (I) ACIT, C IRCLE-3, NANDED V/S BHAGYALAXMI MAHILA SAHAKAR BANK LTD. ITA NO.793/PN/2011, (II) ACIT, CIRCLE -3 V/S SIDHESHWAR SAHAKARI BANK LTD. ITA NO.794/PN/2011 , (III) ACIT (CENTRAL) V/S LATUR URBAN CO-OPERATIVE BANK LTD. ITA NO.792/PN/2011 AND (IV) ASST. CIT, CIRCLE-1 V/S DEOGIRI NAGARI SAHAKARI BANK LTD. ITA NO.817 & 1114/PN/2011. 8. THE HONBLE BOMBAY HIGH COURT IN CIT VS. M/S. DE OGIRI NAGARI SAHAKARI BANK LTD. IN INCOME TAX APPEAL NO.53 OF 20 14 & ORS. HAS LAID DOWN THE PROPOSITION THAT THE INTEREST ACCRUED ON N PAS IS NOT TAXABLE IN THE HANDS OF ASSESSEE, IN VIEW OF THE GUIDELINES IS SUED BY THE RBI. 9. FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT NO ADDITION IS WARRANTED ON ACCOUNT OF INTEREST ACCRUED ON NPAS. A CCORDINGLY, WE UPHOLD THE ORDER OF CIT(A) IN DELETING THE ADDITION MADE ON ACCOUNT OF INTEREST ACCRUED ON NPAS. THE GROUNDS OF APPEAL RAI SED BY THE REVENUE ARE THUS, DISMISSED. 7 THE AFORESAID DECISION OF THE TRIBUNAL HAS NOT BEEN SET ASIDE, STAYED OR OVER-RULED BY HIGHER JUDICIAL AUTHORITIES. BEFORE US, REVENUE HAS ALSO NOT PLACED ANY MATERIAL ON RECORD TO P OINT OUT ANY DISTINGUISHING FEATURE IN THE FACTS OF THE PRESENT CASE AN D THAT OF EARLIER YEAR NOR HAS PLACED ANY CONTRARY BINDING DECIS ION IN ITS SUPPORT. WE THEREFORE FOLLOWING THE DECISION OF CO-ORDINATE BENCH OF 7 THE TRIBUNAL AND THE DECISION OF HONBLE BOMBAY HIGH COURT , FIND NO REASON TO INTERFERE WITH THE ORDER OF LD.CIT(A) AND THUS THE GROUNDS OF THE REVENUE ARE DISMISSED. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO.717/PUN/2016 FOR A.Y. 2007-08 IS DISMISSED. 9. AS FAR AS THE GROUNDS RAISED IN APPEALS IN ITA NOS.718/PUN/2016 AND 719/PUN/2016 FOR A.YS. 2009-10 AN D 2012- 13 ARE CONCERNED, IN VIEW OF THE SUBMISSION OF BOTH THE PARTIES THAT THE FACTS OF THE CASE IN BOTH THESE YEARS BEING IDENTICAL TO THE FAC TS AND ISSUE OF THE CASE IN ITA NO.717/PUN/2016 FOR A.Y. 2007-08 , WE FOR THE REASONS STATED HEREIN WHILE DISPOSING OF THE APPEAL IN IT A NO.719/PUN/2016 FOR A.Y. 2007-08 AND FOR SIMILAR REASONS, D ISMISS THE GROUNDS OF APPEAL OF REVENUE. THUS, THE GROUNDS OF THE REVENUE ARE DISMISSED. 10. IN THE RESULT, APPEALS OF REVENUE IN ITA NO.718/PU N/2016 FOR A.Y. 2009-10 AND ITA NO.719/PUN/2016 FOR A.Y. 2 012-13 ARE DISMISSED. 11. TO SUM UP, ALL THE THREE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED ON 25 TH DAY OF JANUARY, 2018. SD/- SD /- ( SUSHMA CHOWLA ) ( ANIL CHATURVEDI ) ! / JUDICIAL MEMBER '! / ACCOUNTANT MEMBER PUNE; DATED : 25 TH JANUARY, 2018. YAMINI 8 #$%&'('% / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3 . 4. 5. 6. CIT(A), PUNE-5, PUNE. THE PR.CIT, PUNE-4, PUNE. '#$ %%&',) &', / DR, ITAT, B PUNE; $*+,/ GUARD FILE. / BY ORDER , / / TRUE COPY / / //T// TRUE COPY // -./%0&1 / SR. PRIVATE SECRETARY ) &', / ITAT, PUNE.