ACIT, Nanded V. Yeshwant Urban Co-Op Bank Ltd.,

ITA 81/PUN/2013

• Counselvise Citation: 8124514 RSA 2013
• Duration Of Justice: 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 07-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S C SARANGI
• Keywords: Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER 1. ITA NO. 74 AND 75/PN/2013 (ASSESSMENT YEARS 2008-09 & 2009-10) ACIT, CIRCLE-1, AURANGABAD .. APPELLANT VS. VALMIKI URBAN CO-OP BANK LTD., SAI ROAD, POST & TAL : PATHRI, DIST :PARBHANI. .. RESPONDENT PAN NO. AABAS7287D 2. ITA NO. 79/PN/2013 (ASSESSMENT YEAR 2009-10) ACIT, CIRCLE-III, NANDED .. APPELLANT VS. VASANTDADA NAGARI SAHAKARI BANK LTD., ARTH BHAVAN, SHIVAJI CHOWK OSMANABAD-413501 .. RESPONDENT PAN NO. AAAAV0844J 3. ITA NO. 81/PN/2013 (ASSESSMENT YEAR 2007-08) ACIT, CIRCLE-III, NANDED .. APPELLANT VS. YESHWANT URBAN CO-OP. BANK LTD., MUKKAWAR BUILDING, MUKKAWAR CHOWK, UDGIR-413517 .. RESPONDENT PAN NO. AAAAY0299A 4. ITA NO. 83/PN/2013 (ASSESSMENT YEAR 2007-08) ACIT, CIRCLE-III, NANDED .. APPELLANT VS. SAIBABA JANATA SAHAKARI BANK LTD., SHIVENERI GATE, OPP : MARKET YARD, KAVA ROAD, LATUR-413512 .. RESPONDENT PAN NO. AAAAS3088H ASSESSEE BY : SL.NO.1 - SHRI S.N. PURANIK : SL.NO.2,3, & 4 - NONE REVENUE BY : SHRI S.C. SARANGI DATE OF HEARING : 23-09-2013 DATE OF PRONOUNCEMENT : 30-09-2013 2 ORDER PER BENCH : IN THIS BATCH OF 5 APPEALS THE REVENUE HAS CHALLENG ED THE IMPUGNED ORDERS OF THE LD.CIT(A), AURANGABAD FOR TH E A.YRS. 2007- 08, 2008-09 & 2009-10. AS THE ISSUE IS COMMON IN A LL THESE APPEALS AND FACTS ARE IDENTICAL, HENCE THIS BATCH O F APPEALS IS DISPOSED OF BY THIS COMMON ORDER. 2. WE FIRST DECIDE ITA NO.74 AND 75/PN/2013 AS THE LEAD CASES IN THIS APPEAL. BRIEFLY STATED FACTS ARE AS UNDER. THE ASSESSEE IS A COOPERATIVE SOCIETY AND CARRYING ON THE BANKING BUS INESS. THE RETURNS FILED BY THE ASSESSEE FOR A.YRS. 2008-09 AN D 2009-10 WERE SELECTED FOR SCRUTINY AND ASSESSMENTS HAVE BEEN COM PLETED U/S.143(3) OF THE ACT IN BOTH THE ASSESSMENT ORDERS . 3. THE SHORT ISSUE IN CONTROVERSY IS WHETHER THE IN TEREST ON THE NPA ACCOUNT WAS RIGHTLY ADDED BY THE AO WHICH HAS B EEN DELETED BY THE LD.CIT(A). 4. IN THE CASE OF BOTH THESE APPEALS, IT WAS NOTICE D BY THE AO THAT THERE IS ACCRUED INTEREST OF RS.11,99,203/- AN D RS.16,61,256/- IN THE A.YRS. 2008-09 AND 2009-10 WHICH HAS NOT BEE N OFFERED TO TAX BY THE ASSESSEE. THE AO REJECTED THE CONTENTIO NS RAISED BY THE ASSESSEE THAT THE ASSESSEE BANK IS GOVERNED BY RBI GUIDELINES WHICH ARE BINDING ON THE BANK AND HENCE, THE INTERE ST INCOME ON NPA WHICH IS NOT LIKELY TO BE RECOVERED AND HENCE S AME IS TO BE RECOGNISED ON RECEIPT BASIS. THE AO RECORDED THE F OLLOWING REASONS FOR NOT ACCEPTING THE PLEA OF THE ASSESSEE : (1) AS PER PROVISIONS OF INCOME TAX ACT, THE INCOM E FROM BUSINESS OR PROFESSION OR INCOME FROM OTHER SOURCES IS TO BE COMPUTED IN ACCORDANCE WITH EITHER CASH SYSTEM OR M ERCANTILE SYSTEM REGULARLY EMPLOYED BY THE ASSESSEE. THE HYB RID SYSTEM OF ACCOUNTING IS NOT PERMISSIBLE. (2) AS PER SECTION 43D OF THE ACT WHICH IS APPLICAB LE TO SCHEDULED BANK, INTEREST ON BAD OR DOUBTFUL DEBTS S HALL BE CHARGEABLE TO TAX IN THE PREVIOUS YEAR IN WHICH IT IS CREDITED OR IS ACTUALLY RECEIVED WHICHEVER IS EARLIER. AS THE APP ELLANT BANK IS NOT SCHEDULED BANK IT CANNOT OFFER TO TAX INTEREST ON D OUBTFUL DEBTS ON RECEIPT BASIS BUT HAS TO FOLLOW ACCRUAL BASIS. 3 (3) THE RBI DIRECTIONS DO NOT OVERRIDE THE PROVISIO NS OF THE INCOME TAX ACT AS THE RBI DIRECTIONS AND INCOME TAX ACT OPERATE IN DIFFERENT FIELDS. THE PROPOSITION IS SUPPORTED BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF M/S. SOUTHERN TECHNOLOGIES LTD. VS. JCIT 320 ITR 577. 5. THE AO MADE THE ADDITION. MATTER WAS CARRIED BE FORE THE LD.CIT(A). THE LD.CIT(A) RELYING ON THE DECISION O F ITAT, PUNE IN THE CASE OF ACIT, CIRCLE-3, NANDED VS. OSMANABAD JA NATA SAHAKARI BANK LTD. VIDE ITA NO.795/PN/2011 ORDER DATED 31-08 -2012 HAS DISMISSED THE APPEAL FILED BY THE REVENUE. NOW BEI NG AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD THE LD. DR. WE FIND THAT THIS ISS UE STANDS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION OF THIS TRIBUNAL IN THE CASE OF OSMANABAD JANATA SAHAKARI BANK LTD (SUPRA). THE OPERATIVE PART OF THE DECISION OF THE TRIBUNAL IS AS UNDER : 5. WE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE RECORD. WE FIND THAT THE IDENTICAL ISSUE HAS B EEN CONSIDERED BY THE ITAT, VISAKHAPATNAM BENCH, IN THE CASE OF DCIT, VIJAYAWADA VS. THE DURGA COOPERATIVE URBAN BANK LTD., VIJAYAWA DA, IN ITA.NO.511/VIZAG/2010 DATED 10.03.2011. IN THE SAI D CASE ALSO, IT WAS NOTICED BY THE ASSESSING OFFICER THAT ASSESSEE DID NOT INCLUDE THE INTEREST OF RS.18,26,306/- ON THE NPA ADVANCES. AGAIN THE ISSUE OF APPLICABILITY OF SECTION 43D WAS CONSIDERE D TO THE NON- SCHEDULED BANKS. THE TRIBUNAL PLACED ITS HEAVY REL IANCE ON THE DECISION OF THE HONBLE HIGH COURT OF DELHI IN THE CASE OF VASHIST CHAY VYAPAR LTD. [330 ITR 440 (DEL.)], IN WHICH THE HONBLE DELHI HIGH COURT HAS CONSIDERED THE DECISION IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. [320 ITR 577 (SC)]. THE TRIBUNAL FINALLY HELD THAT THE INTEREST INCOME RELATABLE TO NPA ADVANCES DID NOT ACCRUE TO THE ASSESSEE. 6. AN IDENTICAL VIEW HAS BEEN TAKEN BY THE ITAT, AH MEDABAD BENCH IN THE CASE OF KARNAVATI COOPERATIVE BANK LTD . VS. DY.CIT [134 ITD 486 (AHMEDABAD)]. IN THE CASE OF KARNAVAT I COOPERATIVE BANK LTD. (SUPRA), THE TRIBUNAL HAS CONSIDERED THE PROVISIONS OF SECTION 43D AND ITS APPLICATION TO THE NON-SCHEDULE D BANKS. THE REASONS GIVEN BY THE TRIBUNAL IN THE CASE OF KARNAV ATI COOPERATIVE BANK LTD. (SUPRA) FOR HOLDING THAT INTEREST ON THE STICKY ADVANCES/NPA ADVANCES CANNOT BE BROUGHT TO TAX BY F OLLOWING THE DECISION IN THE CASE OF UCO BANK (SUPRA), WHICH IS AS UNDER: 15.1. ON CAREFUL ANALYSIS OF THIS SECTION OUR FIRS T OBSERVATION IS THAT SECTION 43D IS IN CONTRAST WITH THE FUNDAMENTAL PRINCIPLE OF ACCOUNTANCY. THE CARDINAL PRINCIPLE OF MERCANTILE SYSTEM OF ACCOUNTANCY IS THAT AN INCO ME IS TO BE SHOWN IN THE BOOKS OF ACCOUNT ON ACCRUAL BASIS. THE PRINCIPLE IS THAT IT IS IMMATERIAL WHETHER IT WAS A CTUALLY RECEIVED OR NOT, BUT IF AN INCOME IS EXPECTED TO BE RECEIVED, 4 THEN IT SHOULD BE BROUGHT TO BOOKS OF ACCOUNT AS AN INCOME ACCRUED TO THE ASSESSEE. CONTRARY TO THIS RECOGNIZE D PRINCIPLE, THIS SECTION HAS PRESCRIBED THAT AN INCO ME BY WAY OF INTEREST SHALL BE CHARGEABLE TO TAX IN THE PREVI OUS YEAR IN WHICH IT IS CREDITED. THE WORDS CREDITED AND ACT UALLY RECEIVED HAS BEEN HIGHLIGHTED HEREINABOVE WHILE REPRODUCING THE SECTION IN QUESTION. THE OTHER DEVI ATION FROM THE SAID ACCEPTED PRINCIPLE OF ACCOUNTANCY IS THAT AN INCOME BY WAY OF INTEREST SHALL BE CHARGEABLE TO TA X IN THE PREVIOUS YEAR IN WHICH IT IS ACTUALLY RECEIVED. THE ACT SAYS THAT THE INCIDENCE OF CREDIT OR ACTUALLY RECEIVE D, WHICHEVER IS EARLIER IS TO BE TAKEN INTO ACCOUNT FO R THE PURPOSE OF CHARGEABILITY OF INCOME BY WAY OF INTERE ST. SIMULTANEOUSLY, IT IS NOTEWORTHY THAT THIS SECTION IS AN OVERRIDING SECTION BECAUSE THE OPENING WORD IS NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT. THEREFORE, IN SPITE OF ANYTHING CONTAINED IN THE ACT, THE PROVISIONS OF THIS SECTIO N SHALL OVERRIDE THOSE PROVISIONS. ONCE THE STATUTE HAS CAT EGORICALLY MADE A LAW IN RESPECT OF PUBLIC FINANCIAL INSTITUTI ONS THAT INTEREST IS CHARGEABLE TO TAX EITHER IN THE YEAR IN WHICH CREDITED OR ACTUALLY RECEIVED, WHICHEVER IS EARLIER , THEN IT IS COMPULSORY TO ABIDE BY THE SAID RULE. ACCORDING TO US, NO SCOPE IS LEFT WITH THE REVENUE AUTHORITIES TO IGNOR E THESE PROVISIONS DUE TO UNAMBIGUOUS USE OF LANGUAGE IN TH E SECTION. (II) STATUS OF ASSESSEE FOR THE PURPOSE OF APPLICAT ION SECTION 43-D. AS FAR AS THE STATUS OF THE ASSESSEE IS CONCERNED, THE ASSESSING OFFICER HAS STATED THAT THE ASSESSEE-BANK IS A CO- OPERATIVE BANK. UNDISPUTEDLY, THE ASSESSEE IS ALSO GOVERNED BY THE RBI GUIDELINES. VIDE AN EXPLANATION (D) R.W. S. 36(1)(VIIA) ANNEXED TO SECTION 43-D THE DEFINITION OF THE ENTITIES INCORPORATED BY THE SECTION HAVE BEEN DEFI NED AND IN THE ABSENCE OF ANY CONTRARY MATERIAL, WE HEREBY HOLD THAT THE ASSESSEE IS COVERED BY ONE OF THE ENTITIES, HEN CE THE PROVISIONS OF SECTION 43-D ARE TO BE APPLIED. (III) APPLICABILITY OF CBDT CIRCULAR. NEXT ISSUE IS THAT WHETHER A CIRCULAR HAVING EFFECT OF RELAXING RIGOUR OF LAW CAN BE TREATED AS INCONSISTE NT WITH THE PROVISIONS OF A STATUTE. IN ORDER TO AID PROPER DET ERMINATION OF THE INCOME OF MONEY LENDERS AND BANKS, THE CENTR AL BOARD OF DIRECT TAXES HAS ISSUED A CIRCULAR DATED O CTOBER 6, 1952, PROVIDING THAT WHERE INTEREST ACCRUING ON DOU BTFUL DEBTS IS CREDITED TO A SUSPENSE ACCOUNT, IT NEED NO T BE INCLUDED IN ASSESSEES TAXABLE INCOME, PROVIDED THE INCOME TAX OFFICER IS SATISFIED THAT RECOVERY IS PRACTICAL LY IMPROBABLE. THE CBDT U/S.119 OF THE I.T.ACT HAS POW ER TO ISSUE CIRCULARS IN EXERCISE OF ITS STATUTORY POWERS . IF THE BOARD CONSIDER IT NECESSARY TO LAY DOWN CERTAIN RUL ES AND THEN DIRECT THE SUB-ORDINATE AUTHORITIES, SUCH DIRE CTIONS ARE REQUIRED TO BE FOLLOWED AND SUCH CIRCULAR WOULD BE BINDING ON THE DEPARTMENT UNLESS AND UNTIL HELD AS ULTRA VI RES BY A COURT OF LAW. THE BOARD HAS POWERS TO RELAX THE SE VERITY OR THE STRICTNESS OF LAW AND THE AUTHORITIES ARE REQUI RED TO FOLLOW THOSE INSTRUCTIONS AS HELD IN THE CASE OF C. B. GAUTAM VS. UNION OF INDIA 108 CTR 304 (SC) & 110 CTR 179 ( SC); NAVNITLAL C.ZAVERI 56 ITR 198(SC) AND K.P.VARGHESE 131 ITR 597 (SC). 5 IN THE LAND-MARK DECISION, THE HON'BLE SUPREME COUR T IN THE CASE OF UCO BANK VS. CIT (1999) 237 ITR 889 (SC) HA S THEREFORE HELD, FIRST, THAT A BENEFICIAL CIRCULAR I S NOT TO BE TREATED AS INCONSISTENT WITH THE PROVISIONS OF STAT UTE AND BINDING ON THE AUTHORITIES. SECOND, THAT IN RESPECT OF INTEREST ON STICKY ADVANCES INTEREST INCOME IS TO BE TAXED ONLY WHEN ACTUALLY RECEIVED AS PRESCRIBED BY CBDT C IRCULAR. HOWEVER, IN THE PAST AN INTERESTING TURN HAD TAKEN PLACE BY AN ORDER OF THE HONBLE KERALA HIGH COURT IN THE CA SE OF STATE BANK OF TRAVANCORE REPORTED IN 110 ITR 336 (K ER.), WHEREIN IT WAS HELD THAT THE ASSESSEE, A BANKING CO MPANY, DID NOT CREDIT IN ITS ACCOUNT THE INTEREST THAT HAD ACCRUED ON STICKY ADVANCES BECAUSE THE ASSESSEE FELT THAT TH E INTEREST COULD NOT TO BE REALISED. IT CREDITED THE INTEREST TO A SEPARATE ACCOUNT KNOWN AS INTEREST SUSPENSE ACCOUN T. ON REFERENCE, THE HON'BLE COURT HAS HELD THAT THERE WA S AN ACCRUAL OF INCOME LIABLE TO INCOME-TAX AND THE ASSE SSEE WAS NOT JUSTIFIED IN NOT CREDITING THE INTEREST INCOME ON SUCH STICK ADVANCES IT ITS ACCOUNTS. HOWEVER, LATER ON AT THE HON'BLE APEX COURT WHILE PRONOUNCING THE JUDGMENT O F THE SAID STATE BANK OF TRAVANCORE VS. CIT REPORTED IN ( 1986)158 ITR 102(SC), THERE WERE HON'BLE THREE JUDGES PRESID ING THE COURT, OUT OF WHICH HONBLE TWO JUDGES WERE IN THE OPINION THAT THE INTEREST ON STICKY ADVANCES WAS RIGHTLY TREATED AS INCOME WHICH HAD ACCRUED TO THE APPELLANT. THERE WA S A DESCENDING NOTE BY ONE OF THE HON'BLE JUDGE AND COMMENTED THAT WHETHER AN INCOME ON RECEIPT BASIS O R ON ACCRUAL BASIS, IT IS THE REAL INCOME AND NOT ANY HY POTHETICAL INCOME WHICH MAY HAVE THEORETICALLY ACCRUED, I.E. S UBJECT TO TAX UNDER THE ACT. NEVERTHELESS, THAT DECISION WAS NOT FOLLOWED WHILE DECIDING THE APPEAL OF UCO BANK (SUP RA) BY THE HON'BLE THREE JUDGES OF THE SUPREME COURT, ALRE ADY DISCUSSED BY US SUPRA. WE, THEREFORE SUMMARIZE THAT AS OF NOW THE LAW AS LAID DOWN IN UCO BANK IS THAT IN TER MS OF CBDT CIRCULAR THE INTEREST IS TO BE ADDED AS INCOME ONLY WHEN ACTUALLY RECEIVED OR CREDITED IN RESPECT OF TH E STICKY ADVANCES WHILE MAKING ASSESSMENT FOR A FINANCIAL INSTITUTION. (IV) INTERPRETATION OF THE LANGUAGE OF THE STATUTE : WE HAVE REPRODUCED VERBATIM THE PROVISIONS OF SECTI ON 43-D OF THE I.T.ACT AND EXPRESSED AN OPINION THAT IF THE STATUTE HAS USED THE TERMINOLOGY FOR THE CHARGEABILITY OF I NTEREST ON THE BASIS WHEN CREDITED OR ACTUALLY RECEIVED, T HEN IN OUR OPINION NO AMBIGUITY HAS BEEN LEFT BY THE STATUTE. IF THE STATUTE IS SO CLEAR THAT AN INTERPRETATION CAN EASI LY BE MADE, THEN THAT EXACT MEANING SHOULD BE GIVEN TO THE LANG UAGE OF THE SECTION. FOR THIS LEGAL PROPOSITION WE PLACE RE LIANCE ON KESHAVJI RAVJI AND COMPANY VS. CIT 183 ITR 01 (SC), WHEREIN IT WAS HELD AS UNDER: AS LONG AS THERE IS NO AMBIGUITY IN THE STATUTORY LANGUAGE, RESORT TO ANY INTERPRETATIVE PROCESS TO UNFOLD THE LEGISLATIVE INTENT BECOMES IMPERMISSIBLE. THE SUPPOSED INTENTIO N OF THE LEGISLATURE CANNOT THEN BE APPEALED TO WHITTLE DOWN THE STATUTORY LANGUAGE WHICH IS OTHER-WISE UNAMBIGUOUS. IF THE INTENDMENT IS NOT IN THE WORDS, IT IS NOWHERE ELSE. THE NEED FOR INTERPRETATION ARISES WHEN THE WORDS USED IN TH E STATUTE ARE, ON THEIR OWN TERMS, AMBIVALENT AND DO NOT MANI FEST THE INTENTION OF THE LEGISLATURE. 6 WHEN WORDS ACQUIRE A PARTICULAR MEANING OR SENSE BE CAUSE OF THEIR AUTHORITATIVE CONSTRUCTION BY SUPERIOR COU RTS, THEY ARE PRESUMED TO HAVE BEEN USED IN THE SAME SENSE WH EN USED IN SUBSEQUENT LEGISLATION IN THE SAME OR SIMIL AR CONTEXT. TO SAY THAT THE COURT COULD NOT RESORT TO THE SO-CA LLED EQUITABLE CONSTRUCTION OF A TAXING STATUTE IS NOT TO SAY THAT, WHERE A STRICT LITERAL CONSTRUCTION LEADS TO A RESULT NOT INTENDED TO SUBSERVE THE OBJECT OF THE LEGISLATION, ANOTHER CONSTRUCTION, PERMISSIBLE IN THE CONTEXT, SHOULD NO T BE ADOPTED. IN THIS RESPECT, TAXING STATUTES ARE NOT D IFFERENT FROM OTHER STATUTES. WE CAN THEREFORE SAFELY DRAW A CONCLUSION THAT BY T HE INSERTION OF A SPECIAL PROVISION TO TAX INTEREST IN COME IN THE CASE OF PUBLIC FINANCIAL INSTITUTION, ETC. SECTION 43-D HAS TO BE APPLIED IN ITS LETTER AND SPIRIT. IT IS PERTINEN T TO MENTION THAT LATER ON, IN THE CASE OF CIT VS. BANK OF AMERI CA S.A. 262 ITR 504 (BOM) THE QUESTION OF INTEREST ON STIC KY LOANS WAS DECIDED IN FAVOUR OF THE ASSESSEE AND HELD THAT THE QUESTION IS TO BE ANSWERED IN FAVOUR OF THE ASSESSE E FOLLOWING THE DECISION OF UCO BANK REPORTED AT 237 ITR 889(SC) :: 240 ITR 355 (SC). LIKEWISE, IN AN ANOTHE R CASE OF CIT VS. STATE BANK OF INDIA 262 ITR 662 (BOM.) A GAIN IT WAS HELD THAT THE AMOUNT CREDITED TO THE INTEREST S USPENSE ACCOUNT WAS NOT TAXABLE FOLLOWING THE DECISION PRON OUNCED IN THE CASE OF UCO BANK (SUPRA). (V) JUDGEMENT IN FAVOUR OF REVENUE : FROM THE SIDE OF THE REVENUE AN ORDER OF THE TRIBUN AL HAS BEEN VEHEMENTLY RELIED UPON AND THIS IS THE BASIC R EASON OF THE ELABORATE DISCUSSION MADE HEREINABOVE SO AS TO UNFOLD THE CONTROVERSY. IN THE SAID DECISION OF THE TRIBUN AL, VIZ. JT.CIT V/S. INDIA EQUIPMENT LEASING LTD. (2008)111 ITD 37 (CHENNAI), THE RESPECTED CO-ORDINATE BENCH HAS EXPR ESSED THAT QUOTE PRIOR TO INSERTION OF SECTION 43D WITH EFFECT FROM 1-4-1991, RECOGNITION OF INCOME WAS ON THE BASIS OF CIRCULAR OF 9-101984. IT SAID THAT FOR FIRST THREE YEARS THE INCOME MAY BE TAKEN ON ACCRUAL BASIS AND FROM 4TH YEAR ONW ARDS, THE INCOME IN RESPECT OF DOUBTFUL DEBTS WAS TO BE R ECOGNIZED ON RECEIPT BASIS. SINCE THE INCOME WAS TO BE ASSESS ED FOR FIRST THREE YEARS ON ACCRUAL BASIS, PROVISIONS OF S ECTION 43D WERE INSERTED IN THE ACT. CIRCULAR NO.621, DATED 19 -12-1991 GIVES THE LEGISLATIVE INTENTION STATING THAT SECTIO N 43D WAS INSERTED WITH A VIEW TO IMPROVING THE VIABILITY OF BANKS, PUBLIC FINANCIAL INSTITUTIONS ETC., SO AS TO PROVID E THAT INTEREST ON STICKY LOANS SHALL BE CHARGED TO TAX ON LY IN THE YEAR IN WHICH THE INTEREST IS ACTUALLY RECEIVED OR CREDITED TO THE PROFIT AND LOSS ACCOUNT. THIS BENEFIT WAS EXTEN DED WITH EFFECT FROM 1-4-2000 IN THE CASE OF PUBLIC COMPANIE S ENGAGED IN LONG-TERM FINANCING OF HOUSING PROJECTS APPROVED BY NATIONAL HOUSING BANKS. THE LEGISLATURE IN THEIR WISDOM DID NOT EXTEND THE SAME BENEFIT TO NBFCS WHICH HAS BEEN GIVEN TO SCHEDULED BANKS, PUBLIC FINANCIAL INSTITUT IONS, ETC. THE PROVISIONS OF SECTION 43D AS STOOD AT RELEVANT TIME CONTAINED AN EXPRESSION 'THE INCOME BY WAY OF INTER EST IN RELATION TO SUCH CATEGORIES OF BAD OR DOUBTFUL DEBT S AS MAY BE PRESCRIBED HAVING REGARD TO THE GUIDELINES ISSUE D BY THE RBI IN RELATION TO SUCH DEBTS'. THIS EXPRESSION CON TINUES TO EXIST IN THE NEWLY SUBSTITUTED SECTION 43D APPLICAB LE WITH 7 EFFECT FROM 1-4-2000. THIS SHOWS THAT THE RBI GUIDE LINES IN RESPECT OF SCHEDULED BANKS, PUBLIC FINANCIAL INSTIT UTIONS ETC., WERE NOT SUFFICIENT FOR RECOGNITION OF INCOME ON CA SH BASIS FOR THE PURPOSES OF INCOME-TAX. THE INCOME OF SUCH ASSESSEES WAS DETERMINED AS PER CIRCULAR DATED 9-10 -1984. BECAUSE OF THIS REASON, SECTION 43DWAS INSERTED IN THE STATUTE. RBI GUIDELINES IN CASE OF NBFC ARE FOR THE PURPOSE OF CONTROL AND SUPERVISION WITH RESPECT TO PUBLIC I NTEREST AND VIABILITY OF THE NBFC. THE GUIDELINES NEVER INTENDE D FOR TAKING THE INTEREST INCOME ACCRUED AS PER SECTION 5 OUT OF THE SCOPE OF THE ACT. IF THE CONTENTION OF ASSESSEE WAS ACCEPTED, IT WOULD AMOUNT TO INSERTION OF 'NBFC' IN SECTION 43D, THAT TOO BY A GUIDELINE ISSUED FOR DIFFERENT P URPOSES BY AN AUTHORITY OTHER THAN THE PARLIAMENT IN OTHER WOR DS, THE DOCTRINE OF 'CASUS OMISSUS' WILL DEEM TO HAVE BEEN APPLIED WHICH IS CONTRARY TO LAW OF LAND.UNQUOTE. THE BASI C REASON FOR DIRECTING TO ASSESS THE ACCRUED INTEREST ON NPA WAS THE RBI GUIDELINES ISSUED ONLY FOR SCHEDULED BANKS, PUB LIC FINANCIAL INSTITUTIONS AND NOT FOR NBFC. THE OBSERV ATION OF THE RESPECTED TRIBUNAL WAS THAT IF THE CONTENTION O F THE ASSESSEE WAS TO BE ACCEPTED, THEN IT WOULD AMOUNT T O INSERTION OF NBFC IN SECTION 43-D OF THE I.T.ACT. AS AGAINST THAT, AS FAR AS THE ASSESSEE IS CONCERNED, IT IS AN ACCEPTED FACT THAT THE ASSESSEE IS A COOPERATIVE BANK AND NO T A NON- BANKING FINANCIAL COMPANY AND THIS NOTEWORTHY DISTI NCTION HAS ALREADY BEEN APPRECIATED BY US IN ONE OF THE PA RAGRAPHS ABOVE. THERE IS ONE MORE DECISION OF THE HONBLE APEX COUR T WHICH IS YET TO BE MENTIONED WHILE DISCUSSING THE ARGUMEN TS RAISED FROM THE SIDE OF THE REVENUE. A DECISION IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. VS. JT. CIT 320 ITR 5 77 (SC) HAS BEEN CITED BUT THE FUNDAMENTAL DIFFERENCE IS TH AT THE ISSUE BEFORE THE HONBLE COURT WAS IN RESPECT OF PR OVISION FOR NPA AND DEBITED TO P&L ACCOUNT BY A NBFC. THE SAID PROVISION WAS UNDISPUTEDLY MADE BY THE SAID NBFC AS PER THE PRUDENTIAL NORMS MADE BY THE RESERVE BANK. THER EFORE WE WANT TO MAKE IT CLEAR THAT THE QUESTION FOR CONS IDERATION BEFORE THE HONBLE COURT WAS THAT IF A PROVISION FO R DOUBTFUL DEBT IS MADE THEN WHAT WILL BE THE LEGAL POSITION O F THE APPLICABILITY OF EXPLANATION TO SECTION 36(1)(VII) OF THE I.T. ACT. FOR THE SAKE OF READY REFERENCE, RELEVANT PARA GRAPH FROM THE HELD PORTION IS REPRODUCED BELOW: THE INCOME-TAX IS A TAX ON REAL INCOME, I.E., T HE PROFITS ARRIVED AT ON COMMERCIAL PRINCIPLES SUBJECT TO THE PROVISIONS OF THE ACT. THEREFORE, IF BY THE EXPLANATION TO SEC TION 36(1)(VII) A PROVISION FOR DOUBTFUL DEBT IS KEPT OU T OF THE AMBIT OF BAD DEBT WHICH IS WRITTEN OFF, THEN ONE HA S TO TAKE INTO ACCOUNT THE EXPLANATION IN COMPUTING THE TOTAL INCOME UNDER THE INCOME-TAX ACT FAILING WHICH ONE CANNOT A SCERTAIN THE REAL PROFITS. THE PROVISION FOR NON-PERFORMING ASSETS DEBITED IN THE PROFIT AND LOSS ACCOUNT UNDER THE RE SERVE BANK DIRECTIONS OF 1998 IS ONLY A NOTIONAL EXPENSE AND, THEREFORE, THERE WOULD BE ADD BACK TO THAT EXTENT I N THE COMPUTATION OF TOTAL INCOME UNDER THE INCOME-TAX AC T. THEREFORE THE DISTINCTION CAN EASILY BE DRAWN THAT IN THE APPEAL BEFORE US THE QUESTION IS ACCRUAL OF INTERES T INCOME ON STICKY LOAN BUT IN THIS CITED DECISION THE QUEST ION BEFORE HE APEX COURT WAS ABOUT THE ADMISSIBILITY OF PROVIS ION MADE IN RESPECT OF DOUBTFUL DEBTS. 8 (VI ) CONCEPT OF REAL INCOME APPROVED IN THE CASE O F BANKING BUSINESS: BEFORE US, THE THEORY OF REAL INCOME HAS ALSO BEE N ARGUED AND IN SUPPORT A DECISION OF HON'BLE COURT PRONOUNC ED IN THE CASE OF CIT VS. GODHRA ELECTRICITY CO. 225 ITR 746 (SC). IN SHORT, THE VIEW EXPRESSED WAS THAT IF INCOME DOES N OT RESULT AT ALL, THERE CANNOT BE ANY TAX AND THAT IF AN INCO ME HAS NOT MATERIALIZED, THEN MERELY AN ENTRY MADE ABOUT A HYPOTHETICAL INCOME BY FOLLOWING BOOK KEEPING METHO DS, THE LIABILITY TO TAX CANNOT BE ATTRACTED. NOW AT PRESENT THE SITUATION IS THAT THE HON'BLE MA DRAS HIGH COURT IN THE CASE OF CIT VS. ELGI FINANCE LTD. 293 ITR 357 (MAD.) HAS TAKEN A VIEW THAT THE ASSESSEE IS A COMP ANY ENGAGED IN THE BUSINESS OF LEASE, FINANCE AND HIRE PURCHASE AND THAT THE PRINCIPLE OF ACCRUAL COMES INTO PLAY W ITHOUT INCOME WAS RECOGNIZED AND THAT THE ASSESSEE HAD CLA SSIFIED ITS ASSETS ON THE BASIS OF NOTIFICATION ISSUED BY R .B.I. AND FOUND THAT CERTAIN ASSETS CAME UNDER THE CATEGORY O F NPA AND THAT FROM SUCH NPA THE ASSESSEE HAD NOT RECOGNI ZED ANY INCOME IN CONSONANCE WITH THE NOTIFICATION ISSU ED BY RBI AND AS-9 ISSUED BY ICAI AND THAT THE ASSESSEE W AS JUSTIFIED IN NOT RECOGNIZING SUCH INCOME. THE COURT HAD FURTHER EXPRESSED THAT THERE WAS NO OCCASION TO CON SIDER WHETHER THE PRINCIPLE OF ACCRUAL WOULD ARISE OR NOT , NEVERTHELESS, THE INTEREST FROM SUCH NPA WOULD BE T AXED IN THE APPROPRIATE ASSESSMENT YEAR ON THE BASIS OF ACT UAL RECEIPT. IT IS WORTH TO MENTION THAT FOR THIS DECIS ION, THE HON'BLE MADRAS HIGH COURT HAS RELIED UPON AN ANOTHE R DECISION OF THE SAME HIGH COURT PRONOUNCED IN THE C ASE OF JT.CIT VS. INDIA EQUIPMENT LEASING LTD. 293 ITR 350 . 7. IN THE CASE BEFORE US, ADMITTEDLY, ASSESSEE HAS DIRECTLY TAKEN THE INTEREST TO THE BALANCE SHEET AND IT IS N OT ROUTED THROUGH THE PROFIT & LOSS ACCOUNT. MOREOVER, THE ISSUE OF THE TAXABILITY OF THE INTEREST ON THE STICKY LOSSES/ADV ANCES, IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE CO ORDINATE BENCHES IN THE CASE OF THE DURGA COOPERATIVE URBAN BANK LTD ., VIJAYAWADA (SUPRA) AND KARNAVATI COOPERATIVE BANK LTD. (SUPRA) . WE FIND NO REASON TO INTERFERE WITH THE REASONED ORDER OF THE LD. CIT(A) AND ACCORDINGLY THE SAME IS CONFIRMED. IN THE RESULT, THE REVENUES GROUND IS DISMISSED. 6.1 WE, THEREFORE, FOLLOWING THE DECISION IN THE CA SE OF OSMANABAD JANATA SAHAKARI BANK LTD. (SUPRA) HOLD TH AT INTEREST ON NPA ACCOUNT CANNOT BE ADDED TO THE INCOME OF THE ASSESSEE ON NOTIONAL BASIS. 7. SO FAR AS RELIANCE PLACED BY THE AO ON THE DECIS ION OF THE HONBLE SUPREME COURT IN THE CASE OF SOUTHERN TECHN OLOGIES LTD. VS. JCIT 320 ITR 577 (SC), IN OUR HUMBLE OPINION TH E SAME IS NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE AS I N THE SAID CASE THE ISSUE WAS ABOUT ALLOWABILITY OF CLAIM OF DEDUCT ION U/S.36(1)(VII) OF THE ACT AND NOT ACCRUED INTEREST ON THE NPA. 9 ADMITTEDLY, IN THESE CASES, IT IS NOT THE CASE OF T HE AO THAT THE ASSESSEE BANK HAS RECEIVED THE INTEREST ON NPA BUT HAS NOT DECLARED IN THE PROFIT AND LOSS ACCOUNT. MOREOVER, IT IS ALSO NOT DISPUTED BEFORE US THAT THE INTEREST ON NPA IS NOT ROUTED THROUGH PROFIT & LOSS ACCOUNT BUT DIRECTLY TAKEN TO THE BAL ANCE SHEET. IN OUR OPINION, THE PRINCIPLES LAID DOWN BY THIS TRIBU NAL IN THE CASE OF OSMANABAD JANATA SAHAKARI BANK LTD. (SUPRA) ARE SQU ARELY APPLICABLE TO THE ISSUE BEFORE US. WE, THEREFORE, CONFIRM THE ORDER OF THE LD.CIT(A) FOR BOTH THE ASSESSMENT YEARS BY F OLLOWING THE DECISION IN THE CASE OF OSMANABAD JANATA SAHAKARI B ANK LTD. (SUPRA), WE DISMISS THE GROUNDS TAKEN BY THE REVENU E. 8. NOW WE DISPOSE OFF FOLLOWING APPEALS. ITA NO.79/PN/2013 VASANTDADA NAGARI SAHAKARI BANK LTD., OSMANABAD ITA NO.81/PN/2013 YESHWANT URBAN CO-OP BANK LTD., UDGIR ITA NO.83/PN/2013 SAIBABA JANATA SAHAKARAI BANK LTD., LATUR SO FAR AS THE ABOVE APPEALS ARE CONCERNED, THE ISSU E IS IDENTICAL AS THE CASES OF VALMIKI URBAN CO-OP BANK LTD. PARBHAN I - ITA NO.74 AND 75/PN/2013. THE FACTS ARE ALSO IDENTICAL. WE, THEREFORE, FOLLOWING OUR REASONING AND FINDING IN THE CASE OF VALMIKI URBAN CO-OP BANK LTD. PARBHANI (SUPRA) WHICH IS THE LEAD CASE DISMISS THE GROUNDS IN THESE APPEALS ALSO AND ISSUE ARISING IN THESE APPEALS IS DECIDED AGAINST THE REVENUE AND IN FAVOU R OF THESE ASSESSEES. 9. IN THE RESULT, ALL THE REVENUE APPEALS ARE DISMI SSED. PRONOUNCED IN THE OPEN COURT ON THIS THE 30 TH DAY OF SEPTEMBER 2013. SD/- SD/- (G.S.PANNU) (R.S.PAD VEKAR) ACCOUNTANT MEMBER JUDICI AL MEMBER PUNE DATED: 30 TH SEPTEMBER 2013 SATISH 10 COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. CIT(A), AURANGABAD 4 CIT, AURANGABAD 5. THE D.R, B PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY ITAT, PUN E BENCHES, PUNE