Income-tax Officer, V. Rjeshwar Yuvak Vikas Sah. Bank Ltd., Satara

ITA 902/PUN/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 0826 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 6 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 02-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DHEERAJ KUMAR JAIN
• Keywords: Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUN E BEFORE SHRI VIKAS AWASTHY, JM AND SHRI PRADIP KUMAR KEDIA, AM . / ITA NO. 902/PN/2014 / ASSESSMENT YEAR : 2009-10 ITO, WARD-2, SATARA ....... / APPELLANT / V/S. RAJESHWAR YUVAK VIKAS SAH. BANK LTD., 407, PAWAR TOWERS, OPP : KAMANI HOUD, GURUWAR PETH, TAL & DIST. SATARA PAN NO.AAAAR1719E / RESPONDENT ASSESSEE BY : NONE REVENUE BY : SHRI DHEERAJ KUMAR JAIN / DATE OF HEARING : 01-10-2015 / DATE OF PRONOUNCEMENT : 18-11-2015 / ORDER PER VIKAS AWASTHY, JM : THE APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE OR DER OF CIT(A)-III, PUNE DATED 07-02-2014 FOR THE ASSESSMENT YEAR 20 09-10. 2. THE SOLITARY ISSUE RAISED BY THE REVENUE IN APPEAL AGA INST THE ORDER OF FIRST APPELLATE AUTHORITY IN DELETING OF ADDITION R S.61,67,289/- ON ACCOUNT OF INTEREST RECEIVABLE ON NON-PERFORMING ASSET S (NPAS) ON ACCRUAL BASIS. 2 ITA NO. 902/PN/2014, A.Y. 2009-10 3. THE ASSESSEE IS A COOPERATIVE SOCIETY AND IS ENGAGED IN THE BANKING BUSINESS. DURING THE COURSE OF SCRUTINY ASSESSME NT FOR A.Y. 2009-10, THE AO OBSERVED THAT THE ASSESSEE IS A NON- SCHEDULED BANK AND IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THE ASSESS EE HAS NOT ACCOUNTED ACCRUED INTEREST ON NPAS AND HENCE MADE TH E ADDITION OF INTEREST INCOME RS.61,67,289/- ON ADVANCES PURPORTED TO BE NPA ACCOUNTS. 4. AGGRIEVED BY THE ASSESSMENT ORDER DATED 22-12-201 1 THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). THE CIT(A ) BY PLACING RELIANCE ON THE DECISION OF PUNE BENCH OF THE TRIBUNAL IN TH E CASE OF ACIT VS. OSMANABAD JANTA SAH. BANK LTD. IN ITA NO.795/PN/ 2011 FOR A.Y. 2007-08 DECIDED ON 31-08-2012 DIRECTED THE AO TO D ELETE THE ADDITION MADE ON ACCOUNT OF INTEREST RECEIVABLE ON NPAS O N ACCRUAL BASIS FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. 5. SHRI DHEERAJ KUMAR JAIN APPEARING ON BEHALF OF THE DEPA RTMENT VEHEMENTLY SUPPORTED THE FINDINGS OF THE AO AND PRAYED FOR REVERSING THE FINDING OF THE CIT(A) ON THE ISSUE. 6. NONE APPEARED ON BEHALF OF THE ASSESSEE DESPITE SERV ICE OF NOTICE. HENCE, THE MATTER IS BEING ADJUDICATED ON THE BASIS OF MA TERIAL AVAILABLE ON RECORD. 7. WE HAVE HEARD THE SUBMISSIONS MADE BY THE LD. DEPAR TMENTAL REPRESENTATIVE AND PERUSED THE ORDERS OF THE AUTHORITIE S BELOW. WE HAVE ALSO CONSIDERED THE DECISION OF TRIBUNAL RELIED ON BY T HE LD. CIT(A). THE REVENUE IN APPEAL HAS IMPUGNED THE FINDINGS OF THE CIT(A) ON THE GROUND THAT THE REVENUE HAS NOT ACCEPT ED THE DECISION OF TRIBUNAL IN THE CASE OF OSMANABAD JANTA SAH. BANK LTD. (S UPRA). WE 3 ITA NO. 902/PN/2014, A.Y. 2009-10 FIND THAT THE ISSUE RAISED IN THE PRESENT APPEAL HAS BEEN CONSIDERED AND ADJUDICATED BY THE CO-ORDINATE BENCH AFTER DISCUSSIN G CATENA OF JUDGMENTS ON THE ISSUE. THE RELEVANT EXTRACT OF THE O RDER OF THE TRIBUNAL IS AS UNDER : 5. WE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AN D PERUSED THE RECORD. WE FIND THAT THE IDENTICAL ISSUE HAS BEE N CONSIDERED BY THE ITAT, VISAKHAPATNAM BENCH, IN THE CASE OF DCI T, VIJAYAWADA 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 NOTICED BY THE ASSESSING OFFICE R 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 TRIBUNAL PL ACED ITS HEAVY RELIANCE ON THE DECISION OF THE HONBLE HIGH COU RT OF DELHI IN THE CASE OF VASHIST CHAY VYAPAR LTD. [330 ITR 440 (DE L.)], IN WHICH THE HONBLE DELHI HIGH COURT HAS CONSIDERED THE DECISIO N IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. [320 ITR 577 (SC)]. THE TRIB UNAL 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, AHM EDABAD BENCH IN THE CASE OF KARNAVATI COOPERATIVE BANK LTD. V S. DY.CIT [134 ITD 486 (AHMEDABAD)]. IN THE CASE OF KARNAVATI COOPERATIVE BANK LTD. (SUPRA), THE TRIBUNAL HAS CONSIDERED THE PROVIS IONS OF SECTION 43D AND ITS APPLICATION TO THE NON-SCHEDULED BA NKS. THE REASONS GIVEN BY THE TRIBUNAL IN THE CASE OF KARNAVA TI COOPERATIVE BANK LTD. (SUPRA) FOR HOLDING THAT INTEREST ON THE STIC KY ADVANCES/NPA ADVANCES CANNOT BE BROUGHT TO TAX BY F OLLOWING THE DECISION IN THE CASE OF UCO BANK (SUPRA), WHICH IS AS UNDE R: 15.1. ON CAREFUL ANALYSIS OF THIS SECTION OUR FIRS T OBSERVATION IS THAT SECTION 43D IS IN CONTRAST WITH THE FUNDAMENTAL PRI NCIPLE OF ACCOUNTANCY. THE CARDINAL PRINCIPLE OF MERCANTILE SYSTEM OF ACCO UNTANCY IS THAT AN INCOME IS TO BE SHOWN IN THE BOOKS OF ACCOUNT ON AC CRUAL 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, THEN I T SHOULD BE BROUGHT TO BOOKS OF ACCOUNT AS AN INCOME ACCRUED TO THE ASSESS EE. CONTRARY TO THIS RECOGNIZED PRINCIPLE, THIS SECTION HAS PRESCRIBED T HAT AN INCOME BY WAY OF INTEREST SHALL BE CHARGEABLE TO TAX IN THE PREVI OUS YEAR IN WHICH IT IS CREDITED. THE WORDS CREDITED AND ACTUALLY RECEIV ED HAS BEEN HIGHLIGHTED HEREINABOVE WHILE REPRODUCING THE SECTI ON IN QUESTION. THE OTHER DEVIATION 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 RECEIVED, WHICHEVER IS EARLIER IS TO BE TAKEN INTO ACCOUNT FOR THE PURPOSE OF CHARGEABILITY OF INCOME BY WAY OF IN TEREST. SIMULTANEOUSLY, IT IS NOTEWORTHY THAT THIS SECTION IS AN OVERRIDING SECTION BECAUSE THE OPENING WORD IS NOTWITHSTANDING ANYTHI NG TO THE CONTRARY CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT. THE REFORE, IN SPITE OF ANYTHING CONTAINED IN THE ACT, THE PROVISIONS OF TH IS SECTION SHALL OVERRIDE THOSE PROVISIONS. ONCE THE STATUTE HAS CATEGORICALL Y MADE A LAW IN RESPECT OF PUBLIC FINANCIAL INSTITUTIONS THAT INTER EST IS CHARGEABLE TO TAX EITHER IN THE YEAR IN WHICH CREDITED OR ACTUALLY RE CEIVED, 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 IG NORE THESE PROVISIONS DUE TO UNAMBIGUOUS USE OF LANGUAGE IN THE SECTION. 4 ITA NO. 902/PN/2014, A.Y. 2009-10 (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 DEFINED AND I N THE ABSENCE OF ANY CONTRARY MATERIAL, WE HEREBY HOLD THAT THE ASSESSEE IS COVERED BY ONE OF THE ENTITIES, 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 PROVISI ONS OF A STATUTE. IN ORDER TO AID PROPER DETERMINATION OF THE INCOME OF MONEY LENDERS AND BANKS, THE CENTRAL BOARD OF DIRECT TAXES HAS ISSUED A CIRCULAR DATED OCTOBER 6, 1952, PROVIDING THAT WHERE INTEREST ACCR UING ON DOUBTFUL DEBTS IS CREDITED TO A SUSPENSE ACCOUNT, IT NEED NOT BE I NCLUDED IN ASSESSEES TAXABLE INCOME, PROVIDED THE INCOME TAX OFFICER IS SATISFIED THAT RECOVERY IS PRACTICALLY IMPROBABLE. THE CBDT U/S.119 OF THE I.T.ACT HAS POWER TO ISSUE CIRCULARS IN EXERCISE OF ITS STATUTORY POWERS . IF THE BOARD CONSIDER IT NECESSARY TO LAY DOWN CERTAIN RULES AND THEN DIRECT THE SUB-ORDINATE AUTHORITIES, SUCH DIRECTIONS ARE REQUIRED TO BE FOL LOWED AND SUCH CIRCULAR WOULD BE BINDING ON THE DEPARTMENT UNLESS AND UNTIL HELD AS ULTRA VIRES BY A COURT OF LAW. THE BOARD HAS POWERS TO RELAX T HE SEVERITY OR THE STRICTNESS OF LAW AND THE AUTHORITIES ARE REQUIRED 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). 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 THEREFORE HELD, FIRST, THAT A BENEFICIAL CIRCULAR IS NOT TO BE TREATED AS INCONSI STENT WITH THE PROVISIONS OF STATUTE 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 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 BECAUSE THE ASSESSEE F ELT THAT THE INTEREST COULD NOT TO BE REALISED. IT CREDITED THE INTEREST TO A SEPARATE ACCOUNT KNOWN AS INTEREST SUSPENSE ACCOUNT. ON REFERENCE, THE HON'BLE COURT HAS HELD THAT THERE WAS AN ACCRUAL OF INCOME LIABLE TO INCOME-TAX AND THE ASSESSEE WAS NOT JUSTIFIED IN NOT CREDITING THE INT EREST INCOME ON SUCH 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 JUDGE AND C OMMENTED THAT WHETHER AN INCOME ON RECEIPT BASIS OR ON ACCRUAL BA SIS, IT IS THE REAL INCOME AND NOT ANY HYPOTHETICAL INCOME WHICH MAY HA VE THEORETICALLY ACCRUED, I.E. SUBJECT TO TAX UNDER THE ACT. NEVERTH ELESS, THAT DECISION WAS NOT FOLLOWED WHILE DECIDING THE APPEAL OF UCO BANK (SUPRA) BY THE HON'BLE THREE JUDGES OF THE SUPREME COURT, ALREADY DISCUSSED BY US SUPRA. WE, THEREFORE SUMMARIZE THAT AS OF NOW THE L AW AS LAID DOWN IN UCO BANK IS THAT IN TERMS OF CBDT CIRCULAR THE INTE REST IS TO BE ADDED AS INCOME ONLY WHEN ACTUALLY RECEIVED OR CREDITED I N RESPECT OF THE STICKY ADVANCES WHILE MAKING ASSESSMENT FOR A FIN ANCIAL INSTITUTION. (IV) INTERPRETATION OF THE LANGUAGE OF THE STATUTE : 5 ITA NO. 902/PN/2014, A.Y. 2009-10 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 US ED THE TERMINOLOGY FOR THE CHARGEABILITY OF INTEREST ON THE BASIS WHEN CR EDITED OR ACTUALLY RECEIVED, THEN IN OUR OPINION NO AMBIGUITY HAS BEE N LEFT BY THE STATUTE. IF THE STATUTE IS SO CLEAR THAT AN INTERPRETATION C AN EASILY BE MADE, THEN THAT EXACT MEANING SHOULD BE GIVEN TO THE LANGUAGE OF THE SECTION. FOR THIS LEGAL PROPOSITION WE PLACE RELIANCE ON KESHAVJ I RAVJI AND COMPANY VS. CIT 183 ITR 01 (SC), WHEREIN IT WAS HELD AS UND ER: AS LONG AS THERE IS NO AMBIGUITY IN THE STATUTORY LANGUAGE, RESORT TO ANY INTERPRETATIVE PROCESS TO UNFOLD THE LEGISLATIVE IN TENT BECOMES IMPERMISSIBLE. THE SUPPOSED INTENTION OF THE LEGISL ATURE CANNOT THEN BE APPEALED TO WHITTLE DOWN THE STATUTORY LANGUAGE WHI CH IS OTHER-WISE UNAMBIGUOUS. IF THE INTENDMENT IS NOT IN THE WORDS, IT IS NOWHERE ELSE. THE NEED FOR INTERPRETATION ARISES WHEN THE WORDS U SED IN THE STATUTE ARE, ON THEIR OWN TERMS, AMBIVALENT AND DO NOT MANI FEST THE INTENTION OF THE LEGISLATURE. 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 SUBSEQUENT 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 SUBS ERVE THE OBJECT OF THE LEGISLATION, ANOTHER CONSTRUCTION, PERMISSIBLE IN T HE CONTEXT, SHOULD NOT 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 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 ON, IN THE CASE OF CIT VS. BANK OF AMERICA S.A. 262 ITR 504 (BOM) THE QUESTION 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 DE CISION OF UCO BANK REPORTED AT 237 ITR 889(SC) :: 240 ITR 355 (SC). LI KEWISE, IN AN ANOTHER CASE OF CIT VS. STATE BANK OF INDIA 262 ITR 662 (BO M.) AGAIN IT WAS HELD THAT THE AMOUNT CREDITED TO THE INTEREST SUSPENSE A CCOUNT WAS NOT TAXABLE FOLLOWING THE DECISION PRONOUNCED IN THE CA SE 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 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 EQ UIPMENT LEASING LTD. (2008)111 ITD 37 (CHENNAI), THE RESPECTED CO-ORDINA TE BENCH HAS EXPRESSED THAT QUOTE PRIOR TO INSERTION OF SECTIO N 43D WITH EFFECT FROM 1- 4-1991, RECOGNITION OF INCOME WAS ON THE BASIS OF C IRCULAR OF 9-101984. IT SAID THAT FOR FIRST THREE YEARS THE INCOME MAY BE T AKEN ON ACCRUAL BASIS AND FROM 4TH YEAR ONWARDS, THE INCOME IN RESPECT OF DOUBTFUL DEBTS WAS TO BE RECOGNIZED ON RECEIPT BASIS. SINCE THE INCOME WAS TO BE ASSESSED FOR FIRST THREE YEARS ON ACCRUAL BASIS, PROVISIONS OF SECTION 43D WERE INSERTED IN THE ACT. CIRCULAR NO.621, DATED 19-12-1 991 GIVES THE LEGISLATIVE INTENTION STATING THAT SECTION 43D WAS INSERTED WITH A VIEW TO IMPROVING THE VIABILITY OF BANKS, PUBLIC FINANCIAL INSTITUTIONS ETC., SO AS TO PROVIDE THAT INTEREST ON STICKY LOANS SHALL BE CHAR GED TO TAX ONLY IN THE YEAR IN WHICH THE INTEREST IS ACTUALLY RECEIVED OR CREDITED TO THE PROFIT AND LOSS ACCOUNT. THIS BENEFIT WAS EXTENDED WITH EFFECT FROM 1-4-2000 IN THE CASE OF PUBLIC COMPANIES ENGAGED IN LONG-TERM FINAN CING OF HOUSING PROJECTS APPROVED BY NATIONAL HOUSING BANKS. THE LE GISLATURE IN THEIR WISDOM DID NOT EXTEND THE SAME BENEFIT TO NBFCS WHI CH HAS BEEN GIVEN 6 ITA NO. 902/PN/2014, A.Y. 2009-10 TO SCHEDULED 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 CATEG ORIES OF BAD OR DOUBTFUL DEBTS AS MAY BE PRESCRIBED HAVING REGARD TO THE GUI DELINES ISSUED BY THE RBI IN RELATION TO SUCH DEBTS'. THIS EXPRESSION CONTINUES 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 SC HEDULED BANKS, PUBLIC FINANCIAL INSTITUTIONS ETC., WERE NOT SUFFICIENT FO R RECOGNITION OF INCOME ON CASH BASIS FOR THE PURPOSES OF INCOME-TAX. THE INCO ME OF SUCH ASSESSEES WAS DETERMINED AS PER CIRCULAR DATED 9-10-1984. BEC AUSE OF THIS REASON, SECTION 43DWAS INSERTED IN THE STATUTE. RBI GUIDELI NES IN CASE OF NBFC ARE FOR THE PURPOSE OF CONTROL AND SUPERVISION WITH RESPECT TO PUBLIC INTEREST AND VIABILITY OF THE NBFC. THE GUIDELINES NEVER INTENDED 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 G UIDELINE ISSUED FOR DIFFERENT PURPOSES BY AN AUTHORITY OTHER THAN THE P ARLIAMENT IN OTHER WORDS, 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 G UIDELINES ISSUED ONLY FOR SCHEDULED BANKS, PUBLIC FINANCIAL INSTITUT IONS AND NOT FOR NBFC. THE OBSERVATION OF THE RESPECTED TRIBUNAL WAS THAT IF THE CONTENTION OF THE ASSESSEE WAS TO BE ACCEPTED, THEN IT WOULD AMOU NT TO INSERTION OF NBFC IN SECTION 43-D OF THE I.T.ACT. AS AGAINST T HAT, 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 CO MPANY AND THIS NOTEWORTHY DISTINCTION HAS ALREADY BEEN APPRECIATED BY US IN ONE 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 RAISED FRO M THE SIDE OF THE REVENUE. A DECISION IN THE CASE OF SOUTHERN TECHNOL OGIES 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 O F PROVISION FOR NPA AND DEBITED TO P&L ACCOUNT BY A NBFC. THE SAID PROV ISION WAS UNDISPUTEDLY MADE BY THE SAID NBFC AS PER THE PRUDE NTIAL NORMS MADE BY THE RESERVE BANK. THEREFORE WE WANT TO MAKE IT C LEAR THAT THE QUESTION FOR CONSIDERATION BEFORE THE HONBLE COURT WAS THAT IF A PROVISION FOR DOUBTFUL DEBT IS MADE THEN WHAT WILL BE THE LEGAL POSITION OF THE APPLICABILITY OF EXPLANATION TO SECTION 36(1)(V II) OF THE I.T. ACT. FOR THE SAKE OF READY REFERENCE, RELEVANT PARAGRAPH FROM TH E 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 SECTION 36(1)(VII) A PROVISION F OR DOUBTFUL DEBT IS KEPT OUT OF THE AMBIT OF BAD DEBT WHICH IS WRITTEN OFF, THEN ONE HAS TO TAKE INTO ACCOUNT THE EXPLANATION IN COMPUTING THE TOTAL INCOME UNDER THE INCOME-TAX ACT FAILING WHICH ONE CANNOT ASCERTAIN T HE REAL PROFITS. THE PROVISION FOR NON-PERFORMING ASSETS DEBITED IN THE PROFIT AND LOSS ACCOUNT UNDER THE RESERVE BANK DIRECTIONS OF 1998 IS ONLY A NOTIONAL EXPENSE AND, THEREFORE, THERE WOULD BE ADD BACK TO THAT EXT ENT IN THE COMPUTATION OF TOTAL INCOME UNDER THE INCOME-TAX ACT. 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 CA NNOT BE ANY TAX AND 7 ITA NO. 902/PN/2014, A.Y. 2009-10 THAT IF AN INCOME HAS NOT MATERIALIZED, THEN MERELY AN ENTRY MADE ABOUT A HYPOTHETICAL INCOME BY FOLLOWING BOOK KEEPING MET HODS, 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 BUSIN ESS OF LEASE, FINANCE AND HIRE PURCHASE AND THAT THE PRINCIPLE OF ACCRUAL COMES INTO PLAY WITHOUT INCOME WAS RECOGNIZED AND THAT THE ASSESSEE HAD CLASSIFIED ITS ASSETS ON THE BASIS OF NOTIFICATION ISSUED BY R.B.I . AND FOUND THAT CERTAIN ASSETS CAME UNDER THE CATEGORY OF NPA AND THAT FROM SUCH NPA THE ASSESSEE HAD NOT RECOGNIZED ANY INCOME IN CONSONANC E WITH THE NOTIFICATION ISSUED BY RBI AND AS-9 ISSUED BY ICAI AND THAT THE ASSESSEE WAS JUSTIFIED IN NOT RECOGNIZING SUCH INCO ME. THE COURT HAD FURTHER EXPRESSED THAT THERE WAS NO OCCASION TO CON SIDER WHETHER THE PRINCIPLE OF ACCRUAL WOULD ARISE OR NOT, NEVERTHELE SS, THE INTEREST FROM SUCH NPA WOULD BE TAXED IN THE APPROPRIATE ASSESSME NT YEAR ON THE BASIS OF ACTUAL RECEIPT. IT IS WORTH TO MENTION THA T FOR THIS DECISION, THE HON'BLE MADRAS HIGH COURT HAS RELIED UPON AN ANOTHE R DECISION OF THE SAME HIGH COURT PRONOUNCED IN THE CASE OF JT.CIT VS . INDIA EQUIPMENT LEASING LTD. 293 ITR 350. 7. IN THE CASE BEFORE US, ADMITTEDLY, ASSESSEE HAS DIR ECTLY TAKEN THE INTEREST TO THE BALANCE SHEET AND IT IS N OT ROUTED THROUGH THE PROFIT & LOSS ACCOUNT. MOREOVER, THE ISSUE OF T HE TAXABILITY OF THE INTEREST ON THE STICKY LOSSES/ADVANCES, IS COVERE D IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE COORDINATE BENCH ES IN THE CASE OF THE DURGA COOPERATIVE URBAN BANK LTD., VIJAYAWADA (S UPRA) AND KARNAVATI COOPERATIVE BANK LTD. (SUPRA). WE FIND N O REASON TO INTERFERE WITH THE REASONED ORDER OF THE LD. CIT(A) AND ACCORDINGLY THE SAME IS CONFIRMED. IN THE RESULT, TH E REVENUES GROUND IS DISMISSED. 8. WE OBSERVE THAT THE ISSUE RAISED IN THE PRESENT APP EAL IS SIMILAR TO THE ONE ADJUDICATED BY THE TRIBUNAL IN THE ABOVE SA ID CASE. THE LD. DEPARTMENTAL REPRESENTATIVE HAS NOT BROUGHT TO OUR NO TICE ANY DECISION CONTRARY TO THE DECISION OF THE TRIBUNAL ON THE ISSUE RAISED IN THE APPEAL. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF TH E CIT(A). THE APPEAL OF THE REVENUE IS DISMISSED BEING DEVOID OF ANY MERIT. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 18 TH DAY OF NOVEMBER, 2015. SD/- SD/- (PRADIP KUMAR KEDIA) (VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; ! / DATED : 18 TH NOVEMBER, 2015 SATISH 8 ITA NO. 902/PN/2014, A.Y. 2009-10 $ %'( )( / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. $ () / THE CIT(A)-III, PUNE 4. $ / THE CIT-III, PUNE 5. ' * , * , . , / DR, ITAT, A BENCH, PUNE. 6. 1 / GUARD FILE. // ' // TRUE COPY// / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY, * , / ITAT, PUNE