ACIT,Cir.-1, Aurangabad V. Peoples Co-Op. Bank Ltd., Hingoli

ITA 828/PUN/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9704 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 07-08-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 13-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJEEV HARIL
• Keywords: Bad and doubtful debts

Judgement Text

N THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 828/PN/2011 (ASSTT. YEAR : 2007-08) THE ASSTT. COMMISSIONER OF INCOME TAX, ... APPELLANT CIRCLE-1, AURANGABAD V. PEOPLES CO-OPERATIVE BANK LTD. RESPONDENT HEAD OFFICE, AKOLA ROAD, HINGOLI APPELLANT BY : SHRI RAJEEV HARIL RESPONDENT BY : SHRI M.K. KULKARNI DATE OF HEARING : 05/09 /12 DATE OF PRONOUNCEMENT : 12- 9-12 ORDER PER R.S. PADVEKAR, JM IN THIS APPEAL, THE REVENUE HAS CHALLENGED THE IMP UGNED ORDER OF THE LD CIT(A), AURANGABAD, DATED 11.3.2011 FOR THE A.Y. 2007-08. 2. THE REVENUE HAS TAKEN THE FOLLOWING EFFECTIVE GR OUND IN THE APPEAL : 1) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE THE CIT(A) IS CORRECT IN DECIDING THAT ASSESSEE CAN OFF ER HIS INTEREST RECEIVED FROM BAD AND DOUBTFUL DEBTS (NPA) ON ACTUA L RECEIPT BASIS AS PER RBI GUIDELINES EVEN THOUGH ASSESSEE IS FOLLO WING MERCANTILE SYSTEM OF ACCOUNTING. IN SPITE OF THAT, PROVISION OF SECTION 43D IS NOT APPLICABLE TO THE ASSESSEE. 3. THE ASSESSEE IS A CO-OPERATIVE BANK CARRYING ON THE BUSINESS OF BANKING. REGULATIONS FRAMED BY THE RBI ARE APPLICA BLE TO THE ASSESSEE CO-OPERATIVE BANK. THE ASSESSEE FILED THE RETURN OF INCOME FOR THE A.Y. 2007-08 DECLARING THE INCOME OF RS. 3,32,22,453/-. THE ASSESSEES CASE WAS SELECTED FOR SCRUTINY AND HAS BEEN COMPLETED U/ S. 143(3). THE CORE ISSUE CONSIDERED BY THE A.O IS IN RESPECT THE INCOM E RECOGNITION OF INTEREST ON ASSET CLASSIFIED AS BAD AND DOUBTFUL D EBT AS PER THE PROVISION 2 ITA NO.828/PN/2011 PEOPLES CO-OP. BANK LTD. A.Y. 2007-08 OF SEC. 43D OF THE I.T. ACT. THE A.O HAS OBSERVED THAT THE ASSESSEE DOES NOT RECOGNIZE THE INCOME OF NPA AS PER THE RBI GUID ELINES AND DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE HAS NOT PROVID ED FOR INTEREST IN RESPECT OF BAD AND DOUBTFUL DEBT/NPA IN THE BOOKS O F ACCOUNT. THE A.O HAS FURTHER OBSERVED THAT THE ASSESSEE HAS BEEN CON SISTENTLY FOLLOWING THIS METHOD OF ACCOUNTING TO RECOGNIZE THE INCOME I N RESPECT OF INTEREST ON ASSET CLASSIFIED AS BAD AND DOUBTFUL. IN THE OP INION OF THE A.O IN VIEW OF SEC. 43D OF THE I.T. ACT, INCOME BY WAY OF INTER EST ON ASSETS CLASSIFIED AS BAD AND DOUBTFUL DEBTS/NPA SHALL BE CHARGEABLE T O TAX IN THE YEAR IN WHICH IT IS CREDITED TO THE PROFIT & LOSS A/C. OR I N THE YEAR WHEN ACTUALLY RECEIVED BY THE ASSESSEE BANK IN THE CASE OF SCHEDU LED BANK. THE A.O HELD THAT ASSESSEE BEING A CO-OPERATIVE BANK AND H ENCE, SEC. 43D DOES NOT APPLY NOR GIVES ANY CONCESSION TO THE ASSESSEE. THE A.O WORKED OUT THE INTEREST BY ADOPTING THE RATE OF 14% ON THE AMO UNT OF THE BAD AND DOUBTFUL ASSETS (DEBTS) WHICH WAS TO THE TUNE OF RS . 7,31,69,000/- AND MADE ADDITION OF RS. 1,02,43,666/- IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE BANK. THE ASSESSEE CHALLENGED THE SAID A DDITION BEFORE THE LD CIT(A) AND LD CIT(A) DELETED THE ADDITION. NOW THE REVENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD . THE LD COUNSEL SUBMITTED THAT THE ISSUE ARISING FROM THE REVENUES APPEAL STAND COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE IT AT, PUNE IN THE CASE OF CIT V/S. OSMANABAD JANTA SAHAKARI BANK LTD., ITA NO . 795/PN/11, ORDER DATED 29.8.2011. WE HAVE HEARD THE LD. D.R., WHO HA S FILED THE DETAILED WRITTEN SUBMISSION SUPPORTING THE ORDER OF THE A.O. 5. WE HAVE ANXIOUSLY CONSIDERED THE WRITTEN SUBMIS SION FILED BY THE LD. D.R. WE FIND THAT IDENTICAL ISSUE HAS BEEN CO NSIDERED BY THE ITAT, PUNE IN THE CASE OF OSMANABAD JANTA SAHAKARI BANK L TD. (SUPRA) AND THE OPERATIVE PART OF THE ORDER IS AS UNDER: 5. WE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AN D PERUSED THE RECORD. WE FIND THAT THE IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE ITAT, VISAKHAPATNAM BENCH, IN THE CASE OF DCIT, VIJAYAWAD A VS. THE DURGA COOPERATIVE URBAN BANK LTD., VIJAYAWADA, IN ITA.NO. 511/VIZAG/2010 DATED 10.03.2011. IN THE SAID CASE ALSO, IT WAS NO TICED 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 CONSIDERED TO THE NON-SCHEDULED BANKS. THE TRIBUNA L PLACED ITS HEAVY RELIANCE ON THE DECISION OF THE HONBLE HIGH COURT OF DELHI IN THE CASE OF VASHIST CHAY VYAPAR LTD. [330 ITR 440 (DEL.)], IN W HICH THE HONBLE DELHI 3 ITA NO.828/PN/2011 PEOPLES CO-OP. BANK LTD. A.Y. 2007-08 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 A CCRUE 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 KARNAVATI COOPERATIVE BANK LTD. (SUPRA), THE TRIBUNAL HAS CONSIDERED THE PROVISIONS OF SECTI ON 43D AND ITS APPLICATION TO THE NON-SCHEDULED BANKS. THE REASON S GIVEN BY THE TRIBUNAL IN THE CASE OF KARNAVATI COOPERATIVE BANK LTD. (SUPRA) FOR HOLDING THAT INTEREST ON THE STICKY ADVANCES/NPA AD VANCES CANNOT BE BROUGHT TO TAX BY FOLLOWING THE DECISION IN THE CAS E 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 FUNDAMENTA L PRINCIPLE OF ACCOUNTANCY. THE CARDINAL PRINCIPLE OF MERCANTILE S YSTEM OF ACCOUNTANCY IS THAT AN INCOME IS TO BE SHOWN IN THE BOOKS OF ACCOUNT ON ACCRUAL BASIS. THE PRINCIPLE IS THAT IT IS IMMATERIAL WHETHER IT WAS ACTUALLY RECEIVED OR NOT, BUT IF AN INCOME IS EXPECTED TO BE RECEIVED, THEN IT SHOULD BE BROUGHT TO BOOKS OF ACCOUNT AS AN INCOME ACCRUED TO THE ASSESSEE. CONTR ARY TO THIS RECOGNIZED PRINCIPLE, THIS SECTION HAS PRESCRIBED T HAT AN INCOME BY WAY OF INTEREST SHALL BE CHARGEABLE TO TAX IN THE P REVIOUS 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 DEVIATION FROM THE SAID ACCEPTE D PRINCIPLE OF ACCOUNTANCY IS THAT AN INCOME BY WAY OF INTEREST SH ALL BE CHARGEABLE TO TAX IN THE PREVIOUS YEAR IN WHICH IT IS ACTUALLY RECEIVED. THE ACT SAYS THAT THE INCIDENCE OF CREDI T OR ACTUALLY RECEIVED, WHICHEVER IS EARLIER IS TO BE TAKEN INTO ACCOUNT FOR 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 NOTWITHSTANDIN G ANYTHING TO THE CONTRARY CONTAINED IN ANY OTHER PROVISIONS OF T HIS ACT. THEREFORE, IN SPITE OF ANYTHING CONTAINED IN THE AC T, THE PROVISIONS OF THIS SECTION SHALL OVERRIDE THOSE PROVISIONS. ON CE THE STATUTE HAS CATEGORICALLY MADE A LAW IN RESPECT OF PUBLIC FINAN CIAL INSTITUTIONS THAT INTEREST IS CHARGEABLE TO TAX EITHER IN THE YE AR 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 IGNORE THESE P ROVISIONS DUE TO UNAMBIGUOUS USE OF LANGUAGE IN THE 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-O PERATIVE 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 DEFINED AND IN THE ABSENCE OF ANY CONTRARY MATERIAL , WE HEREBY HOLD THAT THE ASSESSEE IS COVERED BY ONE OF THE ENT ITIES, HENCE 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 INCONSISTENT WITH THE PROV ISIONS OF A 4 ITA NO.828/PN/2011 PEOPLES CO-OP. BANK LTD. A.Y. 2007-08 STATUTE. IN ORDER TO AID PROPER DETERMINATION OF TH E INCOME OF MONEY LENDERS AND BANKS, THE CENTRAL BOARD OF DIREC T TAXES HAS ISSUED A CIRCULAR DATED OCTOBER 6, 1952, PROVIDING THAT WHERE INTEREST ACCRUING ON DOUBTFUL DEBTS IS CREDITED TO A SUSPENSE ACCOUNT, IT NEED NOT BE INCLUDED IN ASSESSEES TAXA BLE INCOME, PROVIDED THE INCOME TAX OFFICER IS SATISFIED THAT R ECOVERY IS PRACTICALLY IMPROBABLE. THE CBDT U/S.119 OF THE I.T .ACT HAS POWER TO ISSUE CIRCULARS IN EXERCISE OF ITS STATUTORY POW ERS. IF THE BOARD CONSIDER IT NECESSARY TO LAY DOWN CERTAIN RULES AND THEN DIRECT THE SUB-ORDINATE AUTHORITIES, SUCH DIRECTIONS ARE REQUI RED TO BE FOLLOWED AND SUCH CIRCULAR WOULD BE BINDING ON THE DEPARTMEN T UNLESS AND UNTIL HELD AS ULTRA VIRES BY A COURT OF LAW. THE B OARD HAS POWERS TO RELAX THE SEVERITY OR THE STRICTNESS OF LAW AND THE AUTHORITIES ARE REQUIRED TO FOLLOW THOSE INSTRUCTIONS AS HELD IN TH E CASE OF C.B. GAUTAM VS. UNION OF INDIA 108 CTR 304 (SC) & 110 CT R 179 (SC); NAVNITLAL C.ZAVERI 56 ITR 198(SC) AND K.P.VARGHESE 131 ITR 597 (SC). IN THE LAND-MARK DECISION, THE HON'BLE SUPREME COUR T IN THE CASE OF UCO BANK VS. CIT (1999) 237 ITR 889 (SC) HAS THE REFORE HELD, FIRST, THAT A BENEFICIAL CIRCULAR IS NOT TO BE TREA TED AS INCONSISTENT WITH THE PROVISIONS OF STATUTE AND BINDING ON THE A UTHORITIES. SECOND, THAT IN RESPECT OF INTEREST ON STICKY ADVA NCES INTEREST INCOME IS TO BE TAXED ONLY WHEN ACTUALLY RECEIVED A S PRESCRIBED BY CBDT CIRCULAR. HOWEVER, IN THE PAST AN INTERESTING TURN HAD TAKEN PLACE BY AN ORDER OF THE HONBLE KERALA HIGH COURT IN THE CASE OF STATE BANK OF TRAVANCORE REPORTED IN 110 ITR 336 (KER.), WHEREIN IT WAS HELD THAT THE ASSESSEE, A BANKING COMPANY, DID NOT CREDIT IN ITS ACCOUNT THE INTEREST THAT HAD ACCRUED ON STICKY ADVANCES BECA USE THE ASSESSEE FELT THAT THE INTEREST COULD NOT TO BE REA LISED. IT CREDITED THE INTEREST TO A SEPARATE ACCOUNT KNOWN AS INTERE ST SUSPENSE ACCOUNT. ON REFERENCE, THE HON'BLE COURT HAS HELD THAT THERE WAS AN ACCRUAL OF INCOME LIABLE TO INCOME-TAX AND THE A SSESSEE WAS NOT JUSTIFIED IN NOT CREDITING THE INTEREST INCOME ON S UCH STICK ADVANCES IT ITS ACCOUNTS. HOWEVER, LATER ON AT THE HON'BLE APEX COURT WHILE PRONOUNCING THE JUDGMENT OF THE SAID ST ATE BANK OF TRAVANCORE VS. CIT REPORTED IN (1986)158 ITR 102(SC ), THERE WERE HON'BLE THREE JUDGES PRESIDING THE COURT, OUT OF WH ICH HONBLE TWO JUDGES WERE IN THE OPINION THAT THE INTEREST ON ST ICKY ADVANCES WAS RIGHTLY TREATED AS INCOME WHICH HAD ACCRUED TO THE APPELLANT. THERE WAS A DESCENDING NOTE BY ONE OF THE HON'BLE J UDGE AND COMMENTED THAT WHETHER AN INCOME ON RECEIPT BASIS O R ON ACCRUAL BASIS, IT IS THE REAL INCOME AND NOT ANY HYPOTHETIC AL INCOME WHICH MAY HAVE THEORETICALLY ACCRUED, I.E. SUBJECT TO TAX UNDER THE ACT. NEVERTHELESS, THAT DECISION WAS NOT FOLLOWED WHILE DECIDING THE APPEAL OF UCO BANK (SUPRA) BY THE HON'BLE THREE JUD GES OF THE SUPREME COURT, ALREADY DISCUSSED BY US SUPRA. WE, T HEREFORE SUMMARIZE THAT AS OF NOW THE LAW AS LAID DOWN IN UC O BANK IS THAT IN TERMS OF CBDT CIRCULAR THE INTEREST IS TO BE ADD ED AS INCOME ONLY WHEN ACTUALLY RECEIVED OR CREDITED IN RESPECT OF TH E STICKY ADVANCES WHILE MAKING ASSESSMENT FOR A FINANCIAL I NSTITUTION. (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 STATUT E HAS USED THE TERMINOLOGY FOR THE CHARGEABILITY OF INTEREST ON TH E BASIS WHEN CREDITED OR ACTUALLY RECEIVED, THEN IN OUR OPIN ION NO AMBIGUITY HAS BEEN LEFT BY THE STATUTE. IF THE STATUTE IS SO CLEAR THAT AN INTERPRETATION CAN EASILY BE MADE, THEN THAT EXACT MEANING SHOULD 5 ITA NO.828/PN/2011 PEOPLES CO-OP. BANK LTD. A.Y. 2007-08 BE GIVEN TO THE LANGUAGE OF THE SECTION. FOR THIS L EGAL PROPOSITION WE PLACE RELIANCE 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 LEGISLA TIVE INTENT BECOMES IMPERMISSIBLE. THE SUPPOSED INTENTION OF TH E LEGISLATURE CANNOT THEN BE APPEALED TO WHITTLE DOWN THE STATUTO RY LANGUAGE WHICH IS OTHER-WISE UNAMBIGUOUS. IF THE INTENDMENT IS NOT IN THE WORDS, IT IS NOWHERE ELSE. THE NEED FOR INTERPRETAT ION ARISES WHEN THE WORDS USED IN THE STATUTE ARE, ON THEIR OWN TER MS, AMBIVALENT AND DO NOT MANIFEST THE INTENTION OF THE LEGISLATUR E. WHEN WORDS ACQUIRE A PARTICULAR MEANING OR SENSE BE CAUSE OF THEIR AUTHORITATIVE CONSTRUCTION BY SUPERIOR COURTS, THEY ARE PRESUMED TO HAVE BEEN USED IN THE SAME SENSE WHEN USED IN SUBSE QUENT LEGISLATION IN THE SAME OR SIMILAR CONTEXT. TO SAY THAT THE COURT COULD NOT RESORT TO THE SO-CA LLED EQUITABLE CONSTRUCTION OF A TAXING STATUTE IS NOT TO SAY THA T, WHERE A STRICT LITERAL CONSTRUCTION LEADS TO A RESULT NOT INTENDED TO SUBSERVE THE OBJECT OF THE LEGISLATION, ANOTHER CONSTRUCTION, PE RMISSIBLE IN THE CONTEXT, SHOULD NOT BE ADOPTED. IN THIS RESPECT, TA XING STATUTES ARE NOT DIFFERENT FROM OTHER STATUTES. WE CAN THEREFORE SAFELY DRAW A CONCLUSION THAT BY T HE INSERTION OF A SPECIAL PROVISION TO TAX INTEREST INCOME IN THE CAS E OF PUBLIC FINANCIAL INSTITUTION, ETC. SECTION 43-D HAS TO BE APPLIED IN ITS LETTER AND SPIRIT. IT IS PERTINENT TO MENTION THAT LATER O N, IN THE CASE OF CIT VS. BANK OF AMERICA S.A. 262 ITR 504 (BOM) THE QUES TION OF INTEREST ON STICKY LOANS WAS DECIDED IN FAVOUR OF THE ASSESSEE AND HELD THAT THE QUESTION IS TO BE ANSWERED IN FAVOUR OF THE ASSESSEE FOLLOWING THE DECISION OF UCO BANK REPORTED AT 237 ITR 889(SC) :: 240 ITR 355 (SC). LIKEWISE, IN AN ANOTHER CASE OF C IT VS. STATE BANK OF INDIA 262 ITR 662 (BOM.) AGAIN IT WAS HELD THAT THE AMOUNT CREDITED TO THE INTEREST SUSPENSE ACCOUNT WA S NOT TAXABLE FOLLOWING THE DECISION PRONOUNCED IN THE CASE OF UC O 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 REASON OF THE ELABORATE DISCUSSION MADE HEREINABOVE SO AS TO UNFOLD THE CON TROVERSY. IN THE SAID DECISION OF THE TRIBUNAL, VIZ. JT.CIT V/S. INDIA EQUIPMENT LEASING LTD. (2008)111 ITD 37 (CHENNAI), THE RESPEC TED CO- ORDINATE BENCH HAS EXPRESSED 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 ONWARDS, THE INCOME IN RESPECT OF DOUBTFUL DEBTS WA S TO BE RECOGNIZED ON RECEIPT BASIS. SINCE THE INCOME WAS T O BE ASSESSED FOR FIRST THREE YEARS ON ACCRUAL BASIS, PROVISIONS OF SECTION 43D WERE INSERTED IN THE ACT. CIRCULAR NO.621, DATED 19 -12-1991 GIVES THE LEGISLATIVE INTENTION STATING THAT SECTION 43D WAS INSERTED WITH A VIEW TO IMPROVING THE VIABILITY OF BANKS, PUBLIC FI NANCIAL INSTITUTIONS ETC., SO AS TO PROVIDE THAT INTEREST ON STICKY LOAN S SHALL BE CHARGED TO TAX ONLY IN THE YEAR IN WHICH THE INTEREST IS AC TUALLY RECEIVED OR CREDITED TO THE PROFIT AND LOSS ACCOUNT. THIS BENEF IT WAS EXTENDED WITH EFFECT FROM 1-4-2000 IN THE CASE OF PUBLIC COM PANIES ENGAGED 6 ITA NO.828/PN/2011 PEOPLES CO-OP. BANK LTD. A.Y. 2007-08 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 SCHED ULED BANKS, PUBLIC FINANCIAL INSTITUTIONS, ETC. THE PROVISIONS OF SECTION 43D AS STOOD AT RELEVANT TIME CONTAINED AN EXPRESSION 'THE INCOME BY WAY OF INTEREST IN RELATION TO SUCH CATEGORIES OF BAD O R DOUBTFUL DEBTS AS MAY BE PRESCRIBED HAVING REGARD TO THE GUIDELINES I SSUED BY THE RBI IN RELATION TO SUCH DEBTS'. THIS EXPRESSION CON TINUES TO EXIST IN THE NEWLY SUBSTITUTED SECTION 43D APPLICABLE WITH E FFECT FROM 1-4- 2000. THIS SHOWS THAT THE RBI GUIDELINES IN RESPECT OF SCHEDULED BANKS, PUBLIC FINANCIAL INSTITUTIONS ETC., WERE NOT SUFFICIENT FOR RECOGNITION OF INCOME ON CASH BASIS FOR THE PURPOSE S OF INCOME-TAX. THE INCOME OF SUCH ASSESSEES WAS DETERMINED AS PER CIRCULAR DATED 9-10-1984. BECAUSE OF THIS REASON, SECTION 43DWAS I NSERTED IN THE STATUTE. RBI GUIDELINES IN CASE OF NBFC ARE FOR THE PURPOSE OF CONTROL AND SUPERVISION WITH RESPECT TO PUBLIC INTE REST AND VIABILITY OF THE NBFC. THE GUIDELINES NEVER INTENDED FOR TAKI NG THE INTEREST INCOME ACCRUED AS PER SECTION 5 OUT OF THE SCOPE OF THE ACT. IF THE CONTENTION OF ASSESSEE WAS ACCEPTED, IT WOULD AMOUN T TO INSERTION OF 'NBFC' IN SECTION 43D, THAT TOO BY A GUIDELINE I SSUED FOR DIFFERENT PURPOSES BY AN AUTHORITY OTHER THAN THE PARLIAMENT IN OTHER WORDS, THE DOCTRINE OF 'CASUS OMISSUS' WILL DEEM TO HAVE B EEN 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, PUBLIC FINANCIAL INSTITUTIONS AND NOT FOR NBFC. THE OBSERVATION OF T HE RESPECTED TRIBUNAL WAS THAT IF THE CONTENTION OF THE ASSESSEE WAS TO BE ACCEPTED, THEN IT WOULD AMOUNT TO INSERTION OF NBF C 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 NOT A NON-BANKING FINANCIAL COMPANY AND TH IS NOTEWORTHY DISTINCTION HAS ALREADY BEEN APPRECIATED BY US IN O NE OF THE PARAGRAPHS ABOVE. THERE IS ONE MORE DECISION OF THE HONBLE APEX COUR T WHICH IS YET TO BE MENTIONED WHILE DISCUSSING THE ARGUMENTS RAIS ED FROM THE SIDE OF THE REVENUE. A DECISION IN THE CASE OF SOUT HERN TECHNOLOGIES LTD. VS. JT. CIT 320 ITR 577 (SC) HAS BEEN CITED BUT THE FUNDAMENTAL DIFFERENCE IS THAT THE ISSUE BEFORE THE HONBLE COURT WAS IN RESPECT OF PROVISION FOR NPA AND DEBIT ED TO P&L ACCOUNT BY A NBFC. THE SAID PROVISION WAS UNDISPUTE DLY MADE BY THE SAID NBFC AS PER THE PRUDENTIAL NORMS MADE BY T HE RESERVE BANK. THEREFORE WE WANT TO MAKE IT CLEAR THAT THE Q UESTION FOR CONSIDERATION BEFORE THE HONBLE COURT WAS THAT IF A PROVISION FOR DOUBTFUL DEBT IS MADE THEN WHAT WILL BE THE LEGAL P OSITION OF THE APPLICABILITY OF EXPLANATION TO SECTION 36(1)(VII) OF THE I.T. ACT. FOR THE SAKE OF READY REFERENCE, RELEVANT PARAGRAPH FRO M 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 PROVISIO NS OF THE ACT. THEREFORE, IF BY THE EXPLANATION TO SECTION 36(1)(V II) A PROVISION FOR DOUBTFUL DEBT IS KEPT OUT OF THE AMBIT OF BAD DEBT WHICH IS WRITTEN OFF, THEN ONE HAS TO TAKE INTO ACCOUNT THE EXPLANAT ION IN COMPUTING THE TOTAL INCOME UNDER THE INCOME-TAX ACT FAILING W HICH ONE CANNOT ASCERTAIN THE REAL PROFITS. THE PROVISION FOR NON-P ERFORMING 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 IN THE COMPUTATION OF TOTAL INCOME UNDER THE INCOME-TAX ACT. 7 ITA NO.828/PN/2011 PEOPLES CO-OP. BANK LTD. A.Y. 2007-08 THEREFORE THE DISTINCTION CAN EASILY BE DRAWN THAT IN THE APPEAL BEFORE US THE QUESTION IS ACCRUAL OF INTEREST INCOME ON STICK Y LOAN BUT IN THIS CITED DECISION THE QUESTION BEFORE HE APEX COURT WAS ABOU T THE ADMISSIBILITY OF PROVISION MADE IN RESPECT OF DOUBTFUL DEBTS. ( VI ) CONCEPT OF REAL INCOME APPROVED IN THE CASE OF BANKING BUSINESS: BEFORE US, THE THEORY OF REAL INCOME HAS ALSO BEE N ARGUED AND IN SUPPORT A DECISION OF HON'BLE COURT PRONOUNCED IN T HE CASE OF CIT VS. GODHRA ELECTRICITY CO. 225 ITR 746 (SC). IN SHORT, THE VIEW EXPRESSED WAS THAT IF INCOME DOES NOT RESULT AT ALL, THERE CANNOT BE ANY TAX AND THAT IF AN INCOME HAS NOT MATERIALIZED, THEN MERELY AN ENTRY M ADE 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 COMPANY ENGAGED IN THE BUSINESS O F LEASE, FINANCE AND HIRE PURCHASE AND THAT THE PRINCIPLE OF ACCRUAL COM ES INTO PLAY WITHOUT INCOME WAS RECOGNIZED AND THAT THE ASSESSEE HAD CLA SSIFIED ITS ASSETS ON THE BASIS OF NOTIFICATION ISSUED BY R.B.I. AND FOUN D THAT CERTAIN ASSETS CAME UNDER THE CATEGORY OF NPA AND THAT FROM SUCH N PA THE ASSESSEE HAD NOT RECOGNIZED ANY INCOME IN CONSONANCE WITH TH E NOTIFICATION ISSUED BY RBI AND AS-9 ISSUED BY ICAI AND THAT THE ASSESSE E WAS JUSTIFIED IN NOT RECOGNIZING SUCH INCOME. THE COURT HAD FURTHER EXPR ESSED THAT THERE WAS NO OCCASION TO CONSIDER WHETHER THE PRINCIPLE OF AC CRUAL WOULD ARISE OR NOT, NEVERTHELESS, THE INTEREST FROM SUCH NPA WOULD BE TAXED IN THE APPROPRIATE ASSESSMENT YEAR ON THE BASIS OF ACTUAL RECEIPT. IT IS WORTH TO MENTION THAT FOR THIS DECISION, THE HON'BLE MADRAS HIGH COURT HAS RELIED UPON AN ANOTHER DECISION OF THE SAME HIGH COURT PRO NOUNCED IN THE CASE 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 NOT ROUTED THROUGH THE PROFIT & LOSS ACCOUNT. MOREOVER, THE ISSUE OF THE TAXABILITY OF THE INTEREST ON THE STICKY LOSSES/ADVANCES, IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE COORDINATE BENCHES IN THE CASE OF T HE DURGA COOPERATIVE URBAN BANK LTD., VIJAYAWADA (SUPRA) AND KARNAVATI C OOPERATIVE BANK LTD. (SUPRA). WE FIND NO REASON TO INTERFERE WITH THE R EASONED ORDER OF THE LD. CIT(A) AND ACCORDINGLY THE SAME IS CONFIRMED. IN T HE RESULT, THE REVENUES GROUND IS DISMISSED. FOR THE DETAILED REASONING GIVEN IN THE CASE OF OSM ANABAD JANTA SAHAKARI BANK LTD. (SUPRA) BY THE TRIBUNAL, WE FIND NO REASO N TO TAKE DIFFERENT VIEW. OTHERWISE ALSO, AS OBSERVED BY THE A.O, THE ASSESSEE IS CONSISTENTLY FOLLOWING THE METHOD BY NOT RECOGNIZI NG THE INCOME ON THE BAD AND DOUBTFUL DEBTS/NPA AND THE SAME HAS BEEN A CCEPTED IN THE PAST. WE, ACCORDINGLY, CONFIRM THE ORDER OF THE CI T(A) AND DISMISS THE GROUND TAKEN BY THE REVENUE. 6. IN THE RESULT, REVENUES APPEAL IS DISMISSED. 8 ITA NO.828/PN/2011 PEOPLES CO-OP. BANK LTD. A.Y. 2007-08 THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 12 TH SEPTEMBER 2012. SD/- SD/- (R.S. PANDA) ACCOUNTANT MEMBER (R.S.PADVEKAR ) JUDICIAL MEMBER PUNE, DATED THE 12TH SEPTEMBER, 2012 US COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-, AURANGABAD 4. THE CIT(A)-I, AURANGABAD 5. THE D.R. B BENCH, PUNE 6. GUARD FILE /- TRUE COPY-/ BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL PUNE