DCIT, Davangere V. M/s Hiriyur Urban Co-Operative Bank Ltd., Harihara

ITA 776/BANG/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7264 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 19-07-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 12-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PADMA MEENAKSHI JT BENGALURU

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO. 776/BANG/2016 ASSESSMENT YEAR : 2010 - 11 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2(1), DAVANGERE. VS. M/S. HIRIYUR URBAN CO-OPERATIVE BANK LTD., P.B. ROAD, HIRIYUR. PAN: AAAAT 3575E APP ELLANT RESPONDENT APP ELLANT BY : SMT. PADMA MEENAKSHI, JT. CIT(DR)(ITAT), BENGALURU RESPONDENT BY : SHRI SANDEEP, CA DATE OF HEARING : 07.11.2017 DATE OF PRONOUNCEMENT : 10 .11.2017 O R D E R PER SUNIL KUMAR YADAV, JUDICIAL MEMBER THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE CIT(APPEALS) INTER ALIA ON THE FOLLOWING GROUNDS:- 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX(AP PEALS), DAVANGERE, IS OPPOSED TO THE LAW AND NOT ON THE FAC TS AND CIRCUMSTANCES OF THE CASE. 2. THE CIT (APPEAL) IS NOT RIGHT IN GRANTING RELIE F TO THE ASSESSEE ON THE ADDITION MADE ON ACCOUNT OF INTERES T ACCRUED ON NON-PERFORMING ASSETS (NPA). 3. THE CIT (APPEAL) ERRED IN COMING TO THE CONCLUS ION THAT THE ASSESSEE CAN FOLLOW MISSED SYSTEM OF ACCOUNTING . ITA NO.776/BANG/2016 PAGE 2 OF 4 4. THE CIT (APPEAL) FAILED TO APPRECIATE THE RATIO NALE OF DECISION IN THE CASE OF HON'BLE SUPREME COURT OF IN DIA IN SOUTHERN TECHNOLOGIES LTD., VS. JCIT (2010) 320 ITR 577. RBI GUIDELINES ARE ONLY PRUDENTIAL NORMS AND CANNOT OVE RRULE INCOME RECOGNITION AS PER INCOME-TAX ACT. 5. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED UP ON, THE ORDER OF THE CIT(A) MAY BE REVERSED AND THAT ASSESS MENT ORDER BE RESTORED. 6. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR DELETE ANY OTHER GROUNDS ON OR BEFORE HEARING OF THE APPEA L. 2. THOUGH VARIOUS GROUNDS ARE RAISED, BUT THEY ALL RELATE TO THE ADDITION MADE ON ACCOUNT OF INTEREST ACCRUED NON-PE RFORMING ASSETS (NPA). 3. DURING THE COURSE OF HEARING, THE LD. COUNSEL FO R THE ASSESSEE HAS INVITED OUR ATTENTION TO THE JUDGMENT OF THE HON'BL E JURISDICTIONAL HIGH COURT IN THE CASE OF CIT & ANR. V. CANFIN HOMES LTD. (2012) 347 ITR 382 (KAR) IN WHICH IT HAS BEEN HELD THAT INCOME FROM NPA SHOULD BE ASSESSED ON CASH BASIS AND NOT ON MERCANTILE BASIS, DESPITE THE ASSE SSEE FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. 4. THE LD. DR DID NOT DISPUTE THESE FACTS. HE, HOWE VER, PLACED RELIANCE UPON THE ORDER OF THE AO. 5. HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWE R AUTHORITIES IN THE LIGHT OF RIVAL SUBMISSIONS, WE FIND THAT THE IMPUGN ED ISSUE IS SQUARELY COVERED BY THE JUDGMENT OF THE HON'BLE JURISDICTION AL HIGH COURT IN THE CASE OF CANFIN HOMES LTD. (SUPRA) IN WHICH IT HAS BEEN HELD THAT INCOME FROM NPA ACCRUES ONLY WHEN ACTUALLY RECEIVED. THE RELEV ANT OBSERVATIONS OF THE HONBLE HIGH COURT ARE EXTRACTED HEREUNDER FOR THE SAKE OF REFERENCE:- ITA NO.776/BANG/2016 PAGE 3 OF 4 7. AGAIN, THE APEX COURT IN THE CASE OF UCO BANK V. CIT [1999] 237 ITR 889 (SC) HELD THAT, UNDER THE ACCOUN TING PRACTICE, INTEREST WHICH IS TRANSFERRED TO THE SUSP ENSE ACCOUNT AND NOT BROUGHT TO THE PROFIT AND LOSS ACCOUNT OF THE C OMPANY IS NOT TREATED AS INCOME. THE QUESTION WHETHER IN A GIVEN CASE SUCH 'ACCRUAL' OF INTEREST IS DOUBTFUL OR NOT, MAY ALSO BE PROBLEMATIC. IF, THEREFORE, THE BOARD HAS CONSIDERED IT NECESSAR Y TO LAY DOWN A GENERAL TEST FOR DECIDING WHAT IS A DOUBTFUL DEBT, AND DIRECTED THAT ALL INCOME-TAX OFFICERS SHOULD TREAT SUCH AMOUNTS A S NOT FORMING PART OF THE INCOME OF THE ASSESSEE UNTIL REALIZED, THIS DIRECTION BY WAY OF A CIRCULAR CANNOT BE CONSIDERED AS TRAVELLIN G BEYOND THE POWERS OF THE BOARD UNDER SECTION 119 OF THE INCOME -TAX ACT. SUCH A CIRCULAR IS BINDING UNDER SECTION 119. SUCH CIRCULARS ARE MEANT FOR ENSURING PROPER ADMINISTRATION OF THE STA TUTE AND, THEY ARE DESIGNED TO MITIGATE THE RIGOURS OF THE APPLICA TION OF A PARTICULAR PROVISION OF THE STATUTE IN CERTAIN SITU ATIONS BY APPLYING A BENEFICIAL INTERPRETATION OF THE PROVISION IN QUE STION. 8. THEREFORE, IT IS CLEAR, IF AN ASSESSEE ADOPTS T HE MERCANTILE SYSTEM OF ACCOUNTING AND IN HIS ACCOUNTS HE SHOWS A PARTICULAR INCOME AS ACCRUING, WHETHER THAT AMOUNT IS REALLY A CCRUED OR NOT IS LIABLE TO BRING THE SAID INCOME TO TAX. HIS ACCO UNTS SHOULD REFLECT TRUE AND CORRECT STATEMENT OF AFFAIRS. MERE LY BECAUSE THE SAID AMOUNT ACCRUED WAS NOT REALISED IMMEDIATELY CA NNOT BE A GROUND TO AVOID PAYMENT OF TAX. BUT, IF IN HIS ACCO UNT IT IS CLEARLY STATED THOUGH A PARTICULAR INCOME IS DUE TO HIM BUT IT IS NOT POSSIBLE TO RECOVER THE SAME, THEN IT CANNOT SAID T O HAVE BEEN ACCRUED AND THE SAID AMOUNT CANNOT BE BROUGHT TO TA X. IN THE INSTANT CASE, WE ARE CONCERNED WITH A NON-PERFORMIN G ASSET. AS THE DEFINITION OF NON-PERFORMING ASSET SHOWS AN ASS ET BECOMES NON-PERFORMING WHEN IT CEASES TO YIELD INCOME. NON- PERFORMING ASSET IS AN ASSET IN RESPECT OF WHICH INTEREST HAS REMAINED UNPAID AND HAS BECOME PAST DUE. ONCE A PARTICULAR ASSET IS SHOWN TO BE A NON-PERFORMING ASSET, THEN THE ASSUMPTION IS IT IS NOT YIELDING ANY REVENUE. WHEN IT IS NOT YIELDING ANY REVENUE, THE Q UESTION OF SHOWING THAT REVENUE AND PAYING TAX WOULD NOT ARISE . AS IS CLEAR FROM THE POLICY GUIDELINES ISSUED BY THE NATIONAL H OUSING BANK, THE INCOME FROM NON-PERFORMING ASSET SHOULD BE RECO GNISED ONLY WHEN IT IS ACTUALLY RECEIVED. THAT IS WHAT THE TRIB UNAL HELD IN THE INSTANT CASE. THEREFORE, THE CONTENTION OF THE REVE NUE THAT IN RESPECT OF NON-PERFORMING ASSETS EVEN THOUGH IT DOE S NOT YIELD ANY INCOME AS THE ASSESSEE HAS ADOPTED A MERCANTILE SYSTEM OF ACCOUNTING, HE HAS TO PAY TAX ON THE REVENUE WHICH HAS ACCRUED ITA NO.776/BANG/2016 PAGE 4 OF 4 NOTIONALLY IS WITHOUT ANY BASIS. IN THAT VIEW OF TH E MATTER, THE SECOND SUBSTANTIAL QUESTION FRAMED IS ANSWERED AGAI NST, THE REVENUE AND IN FAVOUR OF THE ASSESSEE. 6. SINCE THE ISSUE IS SQUARELY COVERED BY THE JUDGM ENT OF THE HON'BLE JURISDICTIONAL HIGH COURT CITED SUPRA , WE FIND NO INFIRMITY IN THE ORDER OF CIT(APPEALS). ACCORDINGLY, WE CONFIRM THE SAME. 7. IN THE RESULT, THE APPEAL OF REVENUE STANDS DISM ISSED. PRONOUNCED IN THE OPEN COURT ON THIS 10 TH DAY OF NOVEMBER, 2017. SD/- SD/- ( A.K. GARODIA ) ( SUNIL KUMAR YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 10 TH NOVEMBER, 2017. / D ESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.