The Assistant Commissioner of Income Tax, Jalandhar V. M/s Kapurthala Central Coop. Bank Ltd, Kapurthala

ITA 99/ASR/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5581 (ITAT-AMRITSAR)
• Duration Of Justice: 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-07-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 17-05-2017
• Assessment Year: 2013-2014
• Appeal Filed On: 17-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAHUL DHAWANLD
• Assessee Lawyers: SALIL GUPTA L D
• Keywords: Revised return
• Section: 142(1); 145

Judgement Text

IN THE INCOME TAX APPELLATE T RIBUNAL AMRITSAR BENCH; AMRITSAR BEFORE SH.T.S. KAPOOR, ACCOUNTANT MEMBER AND SH.N.K.CHOUDHRY, JUDICIAL MEMBER I.T.A. NOS.98 & 99(ASR)/2017 ASSESSMENT YEAR: 2012-13 & 2013-14 ASST. CIT, CIRCLE-IV, JALANDHAR. VS. M/S. KAPURTHALA CENTRAL COOPERATIVE BANK LTD. KANJLI ROAD, KAPURTHALA. PAN:AAAJK-0118K (APPELLANT) (RESPONDENT) APPELLANT BY : SH. RAHUL DHAW AN (LD. DR) RESPONDENT BY: SH. SALIL GUPTA (L D. CA) DATE OF HEARING: 17.05.2017 DATE OF PRONOUNCEM ENT:14.07.2017 ORDER PER N. K. CHOUDHRY (JM): THE INSTANT APPEALS HAVE BEEN FILED BY THE REVENUE D EPARTMENT AGAINST THE ORDERS OF LD. CIT(A)-2, JALANDHAR DATED 05.12.2016 & 07.12.2016 FOR ASST. YEARS: 2012-13 & 2013-14. 2. THE INSTANT APPEALS INVOLVES COMMON ISSUES AND GROU NDS, THEREFORE, IT IS APPROPRIATE AND PROPER TO DECIDE TH E BOTH APPEALS SIMULTANEOUSLY BY A COMPOSITE ORDER. FOR THE SAKE OF BRE VITY AND CONVENIENCE, THE GROUNDS OF APPEAL IN ITA NO.98(ASR)/20 17 HAS BEEN TAKEN INTO CONSIDERATION FOR DECISION OF THE SAME. 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.1,12,27,702/- MADE BY THE AO HOLDING THAT THE INTEREST DUE ON NON-PERFOR MING ASSETS WAS TAXABLE AS THE CO-OP BANK WAS FOLLOWING MERCANTILE SYSTEM O F ACCOUNTING EXCEPT WITH REGARD TO THE INTEREST PERTAINING TO NPAS. ITA NOS.98&99(ASR)/2017 ASST. YEARS: 2012-13& 2013-14 2 2. THE LD. CIT(A) HAS ERRED IN RELYING ON HIS DE CISION IN THE CASE OF M/S JALANDHAR CENTRAL CO-OP BANK LTD. IN APPEAL NO. 66/ 14-15/CIT(A)/JAL. DATED 19.09.2016 FOR THE A.Y. 2012-13 AS THE REVENUE HAS FILED APPEAL AGAINST THE SAID ORDER BEFORE THE HONBLE ITAT WHICH IS STILL P ENDING FOR ADJUDICATION. 3. THE LD. CIT(A) HAS ERRED IN LAW AND FACTS OF THE CASE IN HOLDING THAT THE INTEREST ON NON-PERFORMING ASSETS IS TO BE TAXED IN THE YEAR OF ACTUAL RECEIPT EVEN THOUGH IT IS FOLLOWING MERCANTILE SYSTEM OF AC COUNTING. 4. IT IS PRAYED THAT THE ORDER OF THE LD. COMMI SSIONER OF INCOME TAX (APPEALS) BE SET ASIDE AND THAT OF THE ASSESSING OF FICER BE RESTORED. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE H AD FILED RETURN OF INCOME ON 29.09.2012 DECLARING INCOME OF RS.9,56,87, 643/-. THE SAME WAS REVISED ON 06.10.2012 AND NET TAXABLE INCOME O F RS.5,71,88,616/- WAS DECLARED. IN THE REVISED RETURN, T HE INCOME WAS REDUCED BY AN AMOUNT OF RS.3,84,99,024/- I.E., DICGC FOR EARLIER YEARS PAID DURING THE YEAR. THE RETURN WAS PROCESSED UND ER SECTION 143(1) OF THE INCOME TAX ACT, 1961 AND THE ASSESSEES CASE W AS SELECTED FOR SCRUTINY UNDER CASS. NOTICE U/S 143(2) WAS ISSU ED TO THE ASSESSEE ON 17.08.2013 WHICH WAS SERVED UPON BY ASSESSEE BY P OST. FURTHER THE NOTICES U/S 143(2), 142(1) AND QUESTIONN AIRE WERE ALSO ISSUED TO THE ASSESSEE. IN RESPONSE TO THAT ASSESSEE FURNISHED B OOKS OF ACCOUNTS VOUCHERS ETC. AND REQUISITE INFORMATION. A PER USAL OF BALANCE SHEET, PROFIT AND LOSS ACCOUNT AND REPLIES FILED BY THE ASSESSEE FROM TIME TO TIME, IT WAS OBSERVED BY THE ASSESSING OFFI CER THAT THE INTEREST, DUE ON NON PERFORMING ASSETS AMOUNTING TO RS. 1,12,27,702/- HAS NOT BEEN SHOWN IN THE RECEIPTS BY THE ASSESSEE WHEREAS THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTINGS. WHILE CONSIDERING THE DOCUMENTS SUBMITTED BY THE ASSESSEE AND REL EVANT ITA NOS.98&99(ASR)/2017 ASST. YEARS: 2012-13& 2013-14 3 PROVISIONS OF LAW RELEVANT TO THE INSTANT CASE AND JUDGM ENTS RELIED BY THE PARTIES, THE ASSESSING OFFICER DETERMINED THE LIABIL ITY IN RESPECT OF NPA INTEREST AS UNDER: MOREOVER ASSESSEES CONTENTION IS ALSO NOT ACCEPTA BLE AS THE RBI DIRECTIONS OR [DIRECTIONS BY THE APEX BANK { THE PU NJAB STATE CO-OPERATIVE BANK LTD.}] DO NOT HAVE ANY RELEVANCE TO THE TREATM ENT OF TAXABLE INCOME, FOR THE RBI ACT AND THE INCOME TAX ACT OPERATE IN D IFFERENT FIELDS. THE RBI ACT OVERRIDES THE COMPANIES ACT, 1956 TO THE EXTENT OF PRESENTATION OF ACCOUNTS, BUT DOES NOT OVERRIDE THE INCOME TAX ACT, 1961. FURTHER, IN THE LIGHT OF THE JUDGMENT IN THE CASE OF INDIA EQUIPMENT LEASING LTD. T.N. POWER FINANCE AND INFRASTRUCTURE DEVELOPMENT CORPORATION LTD. AND ABOVE ALL M/S. SOUTHERN TECHNO LOGIES LTD. IT IS HELD THAT INTEREST OF STICKY LOANS/NPA HAS TO BE RECOGNI ZED AS INCOME SINCE THE CO-OPERATIVE BANK DOES NOT FALL WITHIN THE PREVIEW AND THE ASSESSEE BANK IS NOT SCHEDULED BANK AS DEFINED IN EXPLANATION BEL OW SECTION-43D SECTION 43D SUCH STATUTORY PROVISION IN THE INCOME TAX ACT, 1961, REGARDING RECOGNITION OF INCOME FROM STICKY LOANS AND ONLY TH E CATEGORY OF BUSINESS CONCERNED IN SECTION 43D WILL BE ABLE TO RECOGNIZE INTERESTS ON STICKY LOANS ON RECEIPT BASIS. THE ASSESSEE IS NOT INCLUDED IN S UCH THE CATEGORY OF BUSINESS OR ASSESSEE U/S 43D, HENCE, IT IS REQUIRED TO ACCOUNT FOR INTEREST ON STICKY LOANS ON NPAS AS IT INCOME. EVEN IF IT DI D NOT MAKE ANY ENQUIRIES IN ITS BOOKS OF ACCOUNTS FOR THE INTEREST NPAS, SUC H INTEREST WOULD REQUIRED TO BE ACCOUNTED FOR AS INCOME. IN THE LIGHT OF ABOVE DISCUSSION IT IS HEREBY HELD THAT SINCE THE ASSESSEE BANK IS REGULARLY FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING THUS INTEREST DUE ON NPA AT RS.1,12,27,702/- DURING THE YEAR IS TREATED AS INCOME OF ASSESSEE FOR THE ASST. YEAR UNDER CONSIDE RATION. HENCE, THE NET AMOUNT OF RS.1,12,27,702/- IS ADDED BACK TO THE INC OME OF THE ASSESSEE. 4. FEELING AGGRIEVED BY THE ASSESSMENT ORDER THE ASSESSEE PREFERRED THE FIRST APPEAL BEFORE THE LD. CIT(A), WH O DELETED THE ADDITION ON ACCOUNT OF INTEREST OF NPA BY HOLDING AS UNDER: ITA NOS.98&99(ASR)/2017 ASST. YEARS: 2012-13& 2013-14 4 4.3 I HAVE GONE THROUGH THE ASSESSMENT ORDER PASSE D BY THE AO AND DETAILED SUBMISSIONS FILED BY THE APPELLANT INC LUDING JUDICIAL CITATIONS GIVEN THEREIN AND FIND THAT AN ADDITION O F RS.1,12,27,702/- HAS BEEN MADE BY THE AO ON ACCOUNT OF INTEREST ON NON PERFORMING ASSETS (NPA). IT HAS BEEN NOTED B Y THE AO IN THE COURSE OF ASSESSMENT PROCEEDINGS FROM THE AUDIT REP ORT FILED ALONG WITH THE RETURN OF INCOME THAT NPAS OF RS.9,51,62,5 27/- HAVE BEEN SHOWN IN THE BALANCE SHEET AS ON 31.03.2012 AND FOL LOWING THE MERCANTILE SYSTEM OF ACCOUNTING, NO INTEREST INCOME HAS BEEN DECLARED ON THESE NPAS. CONSIDERING THE EXPLANATION FILED BY THE APPELLANT WITH REGARD TO THE CIRCULARS OF RBI ETC. THE AO HAS HELD THAT INTEREST INCOME OF RS.1,12,27,702 HAS NOT BEEN DECLARED IN THE RETURN OF INCOME. 4.4. THE APPELLANT HAS SUBMITTED THAT ASSESSEE IS C O-OPERATIVE SOCIETY WHICH IS ENGAGED IN THE BUSINESS OF BANKING AND HAS FOLLOWED THE DIRECTIVES OF THE APEX BANK WHICH MEAN T THAT THE INTEREST DUE ON NPAS HAD TO BE ACCOUNTED FOR AS INC OME ON ACTUAL RECEIPT BASIS. IT IS STATED THAT MASTER CIRC ULAR OF RBI IN RESPECT OF PRUDENTIAL NORMS ON INCOME RECOGNITION P ROVIDE FOR INCOME RECOGNITION ON RECEIPT OF INTEREST IN RESPEC T OF ASSETS/LOANS UNDER NPAS. IT IS ALSO STATED THAT AS- 9 ICAI ON REVENUE RECOGNITION PROVIDE FOR, WHERE THERE IN UNC ERTAINTY ABOUT THE COLLECTION OF REVENUE, RECOGNITION OF INC OME OR SUCH REVENUE IS POSTPONED TO THE EXTENT OF UNCERTAINTY I NVOLVED. IN VIEW OF THIS POSITION, THE APPELLANT BANK RECOGNIZE D REVENUE ON ADVANCES CLASSIFIED AS NPAS ON ACTUAL RECEIPT BASIS . THE APPELLANT HAS ALSO SUBMITTED THAT METHOD OF ACCOUNT ING HAS BEEN CONSISTENTLY FOLLOWED BY THE ASSESSEE AS REQUI RED U/S 145 OF THE IT ACT. 4.5 HAVING CONSIDERED THE SUBMISSIONS FILED BY THE APPELLANT IN WHICH THE RELIANCE HAS BEEN PLACED ON THE ORDER PAS SED BY THE UNDERSIGNED IN THE CASE M/S. THE JALANDHAR CENTRAL CO-OP BANK LTD. IN APPEAL NO. 66/2014-15 FOR AY:2012-13.THE RE LEVANT TEXT OF THE ORDER IS AS FOLLOWS:- I FIND THAT THIS ISSUE OF TAXABILITY OF INTEREST INCOME ON ADVANCES CLASSIFIED AS NPAS -WHETHER TO HE TAXED ON D UE BASIS OR ON RECEIPT BASIS, HAS ALREADY BEEN CONSIDERED BY MY ID. PREDECESSOR IN THE CASE OF THE JALANDHAR CENTRAL CO- OP BANK LTD. IN THE PRECEDING YEAR AY 2011-12 AND AFTER CON SIDERING, THE JURISPRUDENCE ON THIS ISSUE WAS HELD THAT IT HAS TO BE TAXED IN THE YEAR OF ACTUAL RECEIPT . THEREFORE, FOLLOWING THE SAME DECISION AS THERE IS NO CHANGE IN THE FA CTS OF THE EASE IN THE YEAR, I DELETE THE ADDITION OF RS.2,03, 76,946 MADE BY THE AO ON ACCOUN T OF ACCRUED INTEREST ON NPAS 4.6 THEREFORE, IN VIEW OF THE ABOVE FACTS, AS THE I SSUE IN THIS CAE IS SAME, I DELETE THE ADDITION OF RS.1,12,27,702 MA DE BY THE AO ON ACCOUNT OF INTEREST ON NON PERFORMING ASSETS (NPA) AFTER PLACING RELIANCE ON THE SAME ORDER. ITA NOS.98&99(ASR)/2017 ASST. YEARS: 2012-13& 2013-14 5 6. THE LD. DR IN SUPPORT OF ITS CASE ARGUED THAT HE IS REL YING UPON THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER. 7. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ORDER PASSED BY THE LD. CIT(A) IS CORRECT, LEG AL, LOGICAL AND BEST ON THE CASE LAWS AND REASONING AND EVEN OTHERWISE GR OUND NO.2 OF THE APPEAL BY WHICH THE REVENUE CONTROVERTED THE DECISION OF THE LD. CIT(A) IN THE CASE OF MS. THE JALANDHAR CENTRAL CO -OPERATIVE BANK LTD. IN APPEAL NO. 66/14-15/CIT(A)/JALANDHAR DATED 19.09.2016 FOR THE A.Y.2012-13 ON THE PRETEXT THAT THE REVENUE HAS FILED APPEAL AGAINST THE ORDER BEFORE THE HONBLE ITAT WHICH IS T ILL PENDING FOR ADJUDICATION. THE LD. COUNSEL DRAWN OUR ATTENTION TO THE ORDER PASSED BY THE ITAT CIRCUIT BENCH AT JALANDHAR IN ITA NO.652( ASR)/2015 AND ITA NOS.604 & 605(ASR)/2016 TITLED AS ACIT, CIRCLE-3, J ALANDHAR VS. M/S. THE JALANDHAR CENTRAL CO-OPERATIVE BANK LTD. OP P. GPO. CIVIL LINES, JALANDHAR. FURTHER THE ASSESSEES REPRESENTATIVE D RAWN OUR ATTENTION TO THE SAID ORDER DATED 20 TH JANUARY,2017 PASSED BY THE CIRCUIT BENCH BY WHICH THE CIRCUIT BENCH ALLOWED THE APP EAL OF THE ASSESSEE WHILE DELETING THE ADDITION QUA INTEREST DUE ON NON PERFORMING ASSET WAS NOT TAXABLE AS THE CO-OPERATIVE BA NK FOLLOWING MERCANTILE SYSTEM ACCOUNTING. ALL THE GROUNDS RAISED BY THE DEPARTMENT ARE INTER CO NNECTED AND IN ORDER TO CUT SHORT THE LITIGATION AND FOR PROP ER AND APPROPRIATE ITA NOS.98&99(ASR)/2017 ASST. YEARS: 2012-13& 2013-14 6 DISPOSAL OF THE APPEALS IT IS PROPER TO TAKE UP ALL TH E ISSUES FOR DISPOSAL SIMULTANEOUSLY. 8. WE HAVE GONE THROUGH WITH THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO CASES RELIED ON THE PARTIES AS INTEREST IN TH E INSTANT CASE THE ONLY CONTROVERSY PERTAINS TO DELETION OF THE ADDIT ION QUA INTEREST DUE ON NON PERFORMING ASSETS AS NOT TAXABLE AND THE INT EREST ON NON PERFORMING ASSETS IS TO BE TAXED IN THE YEAR OF ACTUAL R ECEIPT EVEN THOUGH IT IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THE CO- ORDINATION BENCH OF THE ITAT, WHILE DECIDING THE SIMI LAR ISSUE OBSERVED AS UNDER: 6. IT REMAINS AN UNDISPUTED FACT THAT THE ASSESSEE CO-ORDINATION BANK HAS BEEN FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNT ING, EXCEPT WITH REGARD TO INTEREST PERTAINING TO NPAS. AS NOTED BY THE LD. CIT(A), THIS POSITION STANDS ACCEPTED BY THE DEPARTMENT IN THE EARLIER YE ARS. THE ASSESSEE HAS BEEN FOLLOWING THE RBI GUIDELINES IN THIS MATTER. I TS METHOD OF ACCOUNTING IS ENTIRELY IN ACCORDANCE WITH THE RBI GUIDELINES. THE RBI GUIDELINES NEED TO BE MANDATORILY FOLLOWED BY THE ASSESSEE. MOREOVE R, THIS METHOD OF ACCOUNTING, ADOPTED BY THE ASSESSEE, IS IN ACCORDAN CE WITH THE ACCOUNTING STANDARDS ISSUED BY THE INSTITUTE OF CHARTERED ACCO UNTANTS OF INDIA. SECTION 45Q OF THE RBI ACT PROVIDES, IN THE NON OBS TANTE CLAUSE WITH WHICH IT BEGINS, THAT THE PROVISIONS OF THE CHAPTER UNDER WHICH SECTION 45Q FALLS, SHALL HAVE EFFECT, NOTWITHSTANDING ANYTH ING INCONSISTENT THEREWITH CONTAINED IN ANY OTHER LAW FOR THE TIME B EING INFORCE. 7. IN M/S VASISTH CHAY VYAPAR LTD. (SUPRA), IT HAS BEEN HELD THAT WHEN AN NBFC CLASSIFIES AN ASSET AS A NON-PERFORMIN G ASSET IN ACCORDANCE WITH THE DIRECTIONS ISSUED THE RESERVE B ANK OF INDIA, IT IS LEGITIMATE TO INFER THAT THE INTEREST INCOME THEREO N IS NOT ACCRUED, EVEN THOUGH THE NBFC IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. INTERALIA, M/S SOUTHERN TECHNOLOGIES LTD. (SUPRA) HAS BEEN DISTINGUISHED IN M/S VASISTH CHAY VYAPAR LTD. (SUPRA). 8. APROPOS THE APPLICABILITY OF SECTION 43D OF T HE I.T. ACT, IT IS ON RECORD THAT DURING THE PROCEEDINGS BEFORE THE ID. CIT(A), THE ASSESSEE, BY WAY OF SUBMISSION DATED 17.09.2015, THE ASSESSEE HAD STATE D THAT THE ASSESSEE ITA NOS.98&99(ASR)/2017 ASST. YEARS: 2012-13& 2013-14 7 HAD BEEN CONFIRMED BY THE HEADQUARTER OF THE PUNJAB STATE CO-OPERATIVE BANK , TO BE A SCHEDULED BANK. THIS POSITION HAS NO T BEEN DISPUTED. 9. IN VIEW OF THE ABOVE, WE FIND THAT THE GRIEVAN CE OF THE DEPARTMENT IS WITHOUT ANY FORCE. THE ORDER OF THE ID. CIT(A) IS A WELL VERSED REASONED DETAILED ORDER, REQUIRING NO INTERFERENCE WHATSOEVE R AT OUR HANDS. THE SAME IS, ACCORDINGLY, CONFIRMED. 10. AS NOTED AT THE BEGINNING OF THIS ORDER, ALL THE THREE APPEALS INVOLVE THE SAME COMMON ISSUE. THAT BEING SO, OUR ABOVE OBS ERVATIONS SHALL APPLY EQUALLY, MUTATIS MUTANDIS, TO THE OTHER TWO APPEALS ALSO. 11.ACCORDINGLY, ALL THE ORDERS OF THE ID. CIT(A) IN THESE THREE APPEALS ARE UPHELD AND THE GROUNDS RAISED BY THE DEPARTMENT ARE REJECTED WHILE FOLLOWING THE AFORESAID JUDGMENT OF THE CO-ORDINATION BENCH, EVEN OTHERWISE WE INDEPENDENTLY CONSIDERED THE F ACTS OF THE INSTANT CASE THAT THE ASSESSEE IS A CO-OPERATIVE SOCIETY WHI CH IS ENGAGED IN THE BUSINESS OF BANKING AND HAS BEEN FOLLOWI NG THE DIRECTIONS OF THE APEX BANK AND ACCORDING TO THAT INTER EST DUE ON NPAS HAD TO BE ACCOUNTED FOR AS INCOME ON ACTUAL RECEIPTS BASIS. EVEN OTHERWISE, AS9 OF ICAI ON REVENUE RECOGNITIONS PROVID E FOR, WHERE THERE IN UNCERTAINTY ABOUT THE COLLECTION OF REVENUE, RECOGNITION OF INCOME OR SUCH REVENUE IS POSTPONED TO THE EXTENT OF UNCE RTAINTY INVOLVED, THEREFORE, THE ASSESSEE RECOGNIZED REVENUE ON ADVANCES CLASSIFIED AS NPAS ON ACTUAL RECEIPT BASIS AND EVEN THE ASSESSE E CONSISTENTLY FOLLOWING THE METHOD OF ACCOUNTING IN ACCORDA NCE WITH SECTION 145 OF THE ACT. THEREFORE, ON THE AFORESAID RE ASONS AND OBSERVATIONS, WE DO NOT HAVE ANY HESITATION TO UPHOLD THE ACTION OF ITA NOS.98&99(ASR)/2017 ASST. YEARS: 2012-13& 2013-14 8 THE LD. CIT(A) TO DISMISS THE APPEALS OF THE DEPARTMEN T. HENCE, THE INSTANT APPEALS STAND DISMISSED. 9. IN THE RESULT, THE APPEALS FILED BY THE REVENUE/DEPA RTMENT ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14.07. 2017. SD/- SD/- (T. S. KAPOOR) (N.K.CHOUDHRY) ACCOUNTANT MEMBER JUDICIAL M EMBER DATED: 14.07.2017. /PK/ PS. COPY OF THE ORDER FORWARDED TO: (1) THE ASSESSEE: (2) THE (3) THE CIT(A), (4) THE CIT, (5) THE SR DR, I.T.A.T., TRUE COPY BY ORDER