The ACIT,B.K.Circle, Palanpur V. The Pragati Co.Op.Bank Ltd., Palanpur

ITA 872/AHD/2012

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1168 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 14-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 20-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHIVA SEWAK
• Assessee Lawyers: BHARAT S SHAH AR
• Keywords: Bad and doubtful debts
• Section: 145

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD , , BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ./ I.T.A. NO.872/AHD/2012 ( / ASSESSMENT YEAR : 2008-09) THE ACIT BK CIRCLE PALANPUR / VS. THE PRAGATI CO-OP.BANK LTD. HIGH WAY ROAD THARA,TA: KANKREJ-385 555 ./ ./ PAN/GIR NO. : AAEFT 5913 F ( ' / APPELLANT ) .. ( #' / RESPONDENT ) ' $ / APPELLANT BY : SHRI SHIVA SEWAK, SR.DR #' % $ / RESPONDENT BY : SHRI BHARAT S.SHAH, AR &'( % ) / DATE OF HEARING 14/08/2015 *+, % ) / DATE OF PRONOUNCEMENT 21/08/2015 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD.COMMISSIONER OF INCOME TAX(APPEALS)-XX, AHMEDABA D [CIT(A) IN SHORT] DATED 15/02/2012 PERTAINING TO ASSESSMEN T YEAR (AY) 2008-09. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APP EAL:- 1) THE LD.COMMISSIONER OF INCOME-TAX (APPEALS)-XX, AH MEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDIT ION OF ITA NO.872 /AHD /2012 ACIT VS. THE PRAGAI CO-OP.BANK LTD. ASST.YEAR 2008-09 - 2 - RS.16,01,362/- MADE BY THE ASSESSING OFFICER BEING INTEREST TAXED ON ACCRUAL BASIS ON NON PERFORMING ASSETS(NPA). 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.COMMISSIONER OF INCOME-TAX (APPEALS)-XX, AHMEDAB AD OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 3) IT IS THEREFORE, PRAYED THAT THE ORDER OF THE LD.CO MMISSIONER OF INCOME-TAX(APPEALS)-XX, AHMEDABAD MAY BE SET-ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 2. BRIEFLY STATED FACTS ARE THAT THE CASE OF THE A SSESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S.143( 3) OF THE INCOME TAX ACT,1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRAMED VIDE ORDER DATED 27/12/2010, THEREBY THE ASSESSING OFFICER (AO IN SHORT)MADE ADDITION ON ACCOUNT OF ACCRUED INTEREST ON NPA OF R S.16,01,362/- AND DISALLOWANCE OF BAD DEBTS OF RS.1,71,000/-. AGAINS T THE SAID ASSESSMENT ORDER, ASSESSEE PREFERRED AN APPEAL BEFORE THE LD.C IT(A), WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, PARTLY ALLOWED THE APPEAL. WHILE ALLOWING THE APPEAL, THE LD.CIT(A) DELETED TH E ADDITION MADE ON ACCOUNT OF ACCRUED INTEREST ON NPA AND DIRECTED THE AO TO VERIFY WHETHER PROVISIONS FOR BAD AND DOUBTFUL DEBTS WAS A DDED BACK BY THE ASSESSEE ITSELF IN THE COMPUTATION OF INCOME. AG GRIEVED BY THE ORDER OF THE LD.CIT(A), THE REVENUE IS NOW IN APPEAL BEFORE US. 3. THE LD.SR.DR SUBMITTED THAT THE LD.CIT(A) WAS NO T JUSTIFIED IN DELETING THE ADDITION. 3.1. ON THE CONTRARY, LD.COUNSEL FOR THE ASSESSEE S UBMITTED THAT THE ISSUE IS NO MORE RES INTEGRA HAS BEEN DECIDED IN FAVOUR OF ASSESSEE BY THE ITA NO.872 /AHD /2012 ACIT VS. THE PRAGAI CO-OP.BANK LTD. ASST.YEAR 2008-09 - 3 - HONBLE HIGH COURT OF MADRAS RENDERED IN THE CASE O F CIT CIT VS. COIMBATORE LAKSHMI INV.& FINANCE CO.LTD. REPORTED A T [2011] 331 ITR 229 (MAD.). 4. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE JUDGEMENT RELIED UPON BY THE LD.COUN SEL FOR THE ASSESSEE. WE FIND THAT THE LD.CIT(A) HAS DECIDED THE ISSUE IN PARAS-5.2 & 5.3 OF HIS ORDER, BY OBSERVING AS UNDER:- 5.2 IN THE ASSESSMENT ORDER, AO OBSERVED THAT APPE LLANT IS A CO-OPERATIVE BANK INVOLVED IN THE BUSINESS OF BANKING; IT IS FOL LOWING MERCANTILE SYSTEM OF ACCOUNTING; THE INTEREST ACCRUED ON THE NPAS WAS SH OWN IN THE BALANCE SHEET BUT WAS NOT CREDITED TO THE P & L ACCOUNT AND THERE FORE IN ACCORDANCE WITH SECTION 145 ADDITION OF INTEREST ACCRUED ON NPAS OF RS. 16,01,362/- WAS BEING MADE. THE CONTENTIONS OF THE LEARNED AR IN BRIEF AR E THAT APPELLANT WAS BOUND TO FOLLOW THE RBI ACT AND THE PRUDENTIAL NORMS THER E-UNDER; THE INTEREST INCOME ON NPAS HAD NEITHER ACCRUED NOR RECEIVED WIT HIN THE MEANING OF SECTION 5 OF THE IT ACT; THE INTEREST WAS REFLECTED IN THE BALANCE SHEET IN ACCORDANCE WITH THE GUIDELINES OF THE RBI; HOWEVER, SINCE THE PRINCIPAL AMOUNT ITSELF WAS DOUBTFUL OF RECOVERY, THE INTERES T THEREON WAS NOT RECOGNIZED BY THE APPELLANT; AS AND WHEN THE INTERE ST WAS BEING RECEIVED ON THE NPAS IT WAS BEING OFFERED TO TAX; IN THE YEAR U NDER CONSIDERATION, AN AMOUNT OF RS.8,86,007/- WAS CREDITED AS INTEREST ON NPAS TO THE P & L ACCOUNT AND SINCE THIS HAS BEEN THE CONSISTENT METH OD ADOPTED BY THE APPELLANT, IMPUGNED ADDITION IS UNWARRANTED. IN SUP PORT OF THE CONTENTIONS THAT ONLY REAL INCOME IS TO BE ASSESSED AND THAT IN TEREST ON NPAS NEED NOT BE OFFERED ON ACCRUAL BASIS (BUT HAS TO BE OFFERED ON REALIZATION), HE RELIED ON THE DECISIONS CITED AT 331 ITR 229(MAD.), 158 ITR 102(S C), 225 ITR 746(SC) AND 259 ITR 51(SC). 5.3 HAVING CONSIDERED THE ISSUE I AM INCLINED TO A CCEPT THE CONTENTIONS OF THE AR. THE APPELLANT REFLECTED INTEREST IN THE BALANCE SHEET IN ACCORDANCE WITH THE RBI GUIDELINES. HOWEVER, IT DID NOT RECOGNIZE OR ITA NO.872 /AHD /2012 ACIT VS. THE PRAGAI CO-OP.BANK LTD. ASST.YEAR 2008-09 - 4 - REALIZE THE INTEREST IN THE P & L ACCOUNT. IT HAS B EEN THE PRACTICE OF THE APPELLANT OVER THE YEARS THAT INTEREST ON NPAS IS B EING OFFERED IN THE YEAR OF ITS REALIZATION. IN THE YEAR UNDER CONSIDER ATION ALSO THE APPELLANT CREDITED A SUM OF RS.8,86,007/- TO THE P & L ACCOUNT BY WAY OF INTEREST ON NPAS RECEIVED. IN THE EARLIER YEARS, THIS PRACTICE OF THE APPELLANT WAS ACCEPTED BY THE DEPARTMENT. THEREFORE , I AM OF THE VIEW THAT IMPUGNED ADDITION OF INTEREST IS UNWARRANTED. IT IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 4.1. WE FIND THAT THE HONBLE HIGH COURT OF MADRAS IN THE CASE OF CIT VS. COIMBATORE LAKSHMI INV. & FINANCE CO.LTD. HAS H ELD AS UNDER:- 3. WE HAVE HEARD THE LEARNED COUNSEL APPEARING FOR TH E REVENUE AND PERUSED THE MATERIALS ON RECORD. 4. THE TRIBUNAL IN ITS ORDER HAD RELIED ON THE TWO DE CISIONS OF THE DIVISION BENCH OF THIS COURT IN CIT VS. ELGI FINANC E LTD. (2007) 293 ITR 357 (MAD) AND IN CIT VS. INDIA EQUIPMENT LEASIN G LTD. (2007) 293 ITR 350 (MAD). IN THE LATTER DECISION, IN WHICH ONE OF US IS A PARTY, HAS CONSIDERED THE CASE OF THE ASSESSEE IN RESPECT OF H IRE-PURCHASE TRANSACTIONS AND LEASING OF PLANT AND MACHINERY, HA S HELD THAT INTEREST ON 'STICKY' LOANS NOT BEING BROUGHT INTO THE P&L A/ C, BUT BEING TAKEN TO THE SUSPENSE ACCOUNT WAS AN ACCEPTED MODE OF TREATM ENT OF NOTIONAL INCOME IN ACCOUNTING PRACTICE. THE FACT THAT THE AS SESSEE, ALTHOUGH GENERALLY USING THE MERCANTILE SYSTEM OF ACCOUNTING , KEPT SUCH INTEREST AMOUNT IN A SUSPENSE ACCOUNT AND DID NOT BRING THOS E AMOUNTS TO THE P&L A/C, SHOWED THAT THE ASSESSEE WAS FOLLOWING A M IXED SYSTEM OF ACCOUNTING BY WHICH SUCH INTEREST WAS INCLUDED IN I TS INCOME ONLY WHEN IT WAS ACTUALLY RECEIVED. THE CBDT CIRCULAR PERMITT ED SUCH INTEREST TO BE EXCLUDED FROM INCOME, IF FOR THREE YEARS SUCH IN TEREST WAS NOT ACTUALLY RECEIVED. ON THAT BASIS IT GRANTED THE REL IEF IN FAVOUR OF THE ASSESSEE. THE SAID JUDGEMENT HAS BEEN SUBSEQUENTLY REFERRED TO BY ANOTHER DIVISION BENCH. IF NO INCOME WAS RECOGNISED AT ALL FROM SUCH ASSET, THERE WAS NO QUESTION OF APPLYING THE PRINCI PLE OF ACCRUAL. THE PRINCIPLE OF 'ACCRUAL OF INCOME' COMES INTO PLAY ON LY WHEN THE INCOME ITA NO.872 /AHD /2012 ACIT VS. THE PRAGAI CO-OP.BANK LTD. ASST.YEAR 2008-09 - 5 - WAS RECOGNISED. IN THE PRESENT CASE, THE ASSESSEE H AS CLASSIFIED ITS ASSETS ON THE BASIS OF THE NOTIFICATION ISSUED BY T HE RESERVE BANK OF INDIA AND FOUND THAT THE APPELLANT UNDER THE CATEGO RY OF NON- PERFORMING ASSETS. FROM SUCH NON-PERFORMING ASSETS, THE ASSESSEE HAD NOT RECOGNISED ANY INCOME IN CONCEALING THE NOTIFIC ATION ISSUED BY THE RBI. THEREFORE, THE ASSESSEE WAS JUSTIFIED IN NOT R ECOGNISING THE INCOME AS SUCH. ONCE THAT WAS THE CASE, THERE WAS NO OCCAS ION TO CONSIDER WHETHER THE PRINCIPLE OF 'ACCRUAL' WOULD ARISE OR N OT. IN THAT VIEW OF THE MATTER, THE TRIBUNAL REVERSED THE FINDING OF TH E LOWER AUTHORITY AND THE ISSUE HAS BEEN HELD AGAINST THE REVENUE. 5. IN VIEW OF THE ABOVE SAID DIVISION BENCH JUDGMENT, WE ARE OF THE VIEW THAT THE SUBJECT-MATTER OF THESE APPEALS REQUI RES NO INTERFERENCE BY ENTERTAINING THE APPEALS. THE ISSUE IS ANSWERED AGA INST THE REVENUE. HENCE, THE TAX CASE APPEALS ARE DISMISSED. CONSEQUE NTLY, CONNECTED MISCELLANEOUS PETITIONS ARE ALSO DISMISSED. 4.2. IN VIEW OF THE JUDGEMENT OF HONBLE HIGH COURT OF MADRAS IN THE CASE OF CIT VS. COIMBATORE LAKSHMI INV.& FINANCE CO .LTD.(SUPRA) AND IN A SIMILAR CASE, THE TRIBUNAL (ITAT C BENCH, AH MEDABAD) IN ITA NO.62/AHD/2014 PASSED FOR AY 2010-11 IN THE CASE OF SHRI MAHILA SEWA SAHAKARI BANK LTD. VS. ASST.CIT, VIDE ITS ORDER DAT ED 27/03/2015, HAS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE, THEREFORE, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE LD.CIT(A) , SAME IS HEREBY UPHELD. ACCORDINGLY, GROUND NO.1 OF REVENUES APPE AL IS REJECTED. ITA NO.872 /AHD /2012 ACIT VS. THE PRAGAI CO-OP.BANK LTD. ASST.YEAR 2008-09 - 6 - 5. GROUND NOS.2 & 3 ARE GENERAL IN NATURE WHICH RE QUIRE NO INDEPENDENT ADJUDICATION. 6. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED . ORDER PRONOUNCED IN THE COURT ON FRIDAY, THE 21 ST DAY OF AUGUST, 2015 AT AHMEDABAD. SD/- SD/- ( ) ( ) ( PRAMOD KUMAR ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 21/ 08 /2015 0)..& , '.&../ T.C. NAIR, SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. ' / THE APPELLANT 2. #' / THE RESPONDENT. 3. 123 4 / CONCERNED CIT 4. 4 ( ) / THE CIT(A)-XX, AHMEDABAD 5. 5'6 &23 , ) 23 , , 1 / DR, ITAT, AHMEDABAD 6. 689 :( / GUARD FILE. / BY ORDER, #5 //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 14.8.15 (DICTATION-PAD 4+P AGES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER ..20.8.15 3. OTHER MEMBER... 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.21.8.15 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 21.8.15 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER