The Yamuna Nagar Central Co-Operative Bank Ltd., Yamunanagar V. DCIT, Yamunanagar

ITA 996/CHANDI/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68425 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 12-08-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 12-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMARVEER SINGH
• Keywords: Bad and doubtful debts
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE SHRI T.R.SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.996 /CHD/2011 (ASSESSMENT YEAR : 2008-09) ITA NO.758 /CHD/2011 (ASSESSMENT YEAR : 2007-08) THE YAMUNA NAGAR CENTRAL VS. THE D.C.I.T., CO-OPERATIVE BANK LTD., CIRCLE 1-SAROJINI COLONY, YAMUNANAGAR. YAMUNANAGAR. PAN: AABCT9335R AND ITA NO.670 /CHD/2011 (ASSESSMENT YEAR : 2007-08) THE YAMUNA NAGAR URBAN VS. THE D.C.I.T., CO-OPERATIVE BANK LTD., CIRCLE WORKSHOP ROAD, YAMUNANAGAR. YAMUNANAGAR. PAN: AAALT0128N (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI TEJ MOHAN SINGH RESPONDENT BY : SHRI AMARVEER SINGH DATE OF HEARING : 12.08.2013 DATE OF PRONOUNCEMENT : 23.08.2013 O R D E R PER SUSHMA CHOWLA, J.M. : THESE THREE APPEALS FILED BY THE DIFFERENT ASSESSEE S ARE AGAINST THE SEPARATE ORDERS OF THE COMMISSIONER OF INCOME-TAX ( APPEALS), PANCHKULA DATED 24.08.2011, 16.05.2011 & 29.04.2011 RESPECTIV ELY RELATING TO ASSESSMENT YEARS 2007-08 AND 2008-09 AGAINST THE OR DER PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHOR T THE ACT). 2 2. THESE THREE APPEALS FILED BY TWO DIFFERENT ASSES SEES RELATING TO SAME ISSUE WERE HEARD TOGETHER AND ARE BEING DISPOS ED OFF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3. COMMON GROUNDS OF APPEAL HAVE BEEN RAISED IN ALL THE THREE APPEALS. HOWEVER FOR THE SAKE OF ADJUDICATION WE R EFER TO THE FACTS AND GROUNDS OF APPEAL RAISED IN ITA NO.758/CHD/2011 REL ATING TO ASSESSMENT YEAR 2007-08, WHICH READ AS UNDER: 1. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS), PANCHKULA ERRED IN LAW AS WELL AS ON FACTS IN SUSTAINING THE ADDITION OF R S.4,94,56,708/- ON ACCOUNT OF INTEREST RECOVERABLE ON NON PERFORMING ASSET S ACCOUNTS/ PACS/C/S MADE BY THE LEARNED DEPUTY COMMISSIONER OF INCOME T AX, CIRCLE, YAMUNA NAGAR ON WHOLLY UNSUSTAINABLE GROUNDS. 2. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) WHILE SUSTAINING THE ADDITION OF RS.4,94,56,708/- GROSSLY ERRED IN NOT A CCEPTING THE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE DULY ACCEPTED IN THE PREVIOUS YEARS. 3. THAT THE LEARNED AUTHORITIES BELOW WHILE MAKING AND SUSTAINING THE ADDITION FAILED TO APPRECIATE THE REAL FACTS AND SUBMISSIONS OF THE APPELLANT AND MADE AND SUSTAINED THE ADDITION PURELY ON SURMISES AND C ONJECTURES. 4. THAT THE ORDERS OF THE LEARNED AUTHORITIES BELOW ARE BAD IN LAW AND AGAINST THE FACTS OF THE CASE. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A COOPERATIVE BANK, GOVERNED BY STATE COOPERATIVE DEPARTMENT AND WAS ESTABLISHED TO PROVIDE SERVICES TO AGRICULTURISTS OF THE STATE ON NO PROFIT BASIS. THESE BANKS WERE ESTABLISHED IN ALL DISTRICTS OF STATE OF HARYANA AND SHARE CAPITAL WAS CONTRIBUTED BY THE COOPERATIVE SOCIETY AND STATE OF HARYANA. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HA D DECLARED INTEREST INCOME TOTALING RS.16.38 CRORES. IN THE BALANCE SH EET THE ASSESSEE HAD 3 DECLARED INTEREST RECOVERABLE AT RS.20.25 CRORES. THE EXPLANATION OF THE ASSESSEE IN RESPECT OF THE SAID INTEREST RECOVERABL E WAS THAT THE SAME WAS AMOUNT OF UNREALISED INTEREST CHARGED AT ADVANCES B UT PENDING FOR RECOVERY. THE ASSESSEE EXPLAINED THAT THE SAID INT EREST PENDING FOR COLLECTION WAS DEBITED TO A SEPARATE ACCOUNT WAS CR EDITED TO THE PROFIT & LOSS ACCOUNT IN THE YEAR OF RECEIPT. OUT OF THE TO TAL INTEREST ACCRUED IN THE YEAR OF RS.20,25,51,955/-, INTEREST OF RS.4,94, 56,708/- WAS NOT RECEIVED DURING THE YEAR AND AS SUCH WAS NOT SHOWN IN THE PROFIT & LOSS ACCOUNT BY THE ASSESSEE, THOUGH THE SAME WAS SHOWN AS INTEREST RECOVERABLE IN THE ASSET SIDE OF THE BALANCE SHEET. THE AUDITORS IN THE AUDIT REPORT UNDER METHOD OF ACCOUNTING EMPLOYED DU RING THE YEAR HAD REPORTED MERCANTILE SYSTEM BUT CASH BASIS FOR INTER EST INCOME. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE S METHOD OF ACCOUNT WAS A MIXED ONE, WHEREAS AS PER THE PROVISIONS OF S ECTION 145(1) OF THE ACT, THE INCOME CHARGEABLE UNDER THE HEAD PROFITS & GAINS OF BUSINESS HAD TO BE COMPUTED IN ACCORDANCE WITH EITHER CASH O F MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. THE ASSESSEE WAS SHOW CAUSED IN THIS REGARD AND REPLY OF THE ASSESSE E IS INCORPORATED UNDER PARA 2 OF THE ASSESSMENT ORDER. RELIANCE WAS PLACED ON THE GUIDELINES OF RESERVE BANK OF INDIA FOR NON-RECOGNI ZING THE INTEREST NOT RECEIVED BY THE ASSESSEE, AS INCOME. THE ASSESSING OFFICER REJECTED THE EXPLANATION OF THE ASSESSEE AND ADDITION OF RS.4,94 ,56,708/- WAS MADE IN THE HANDS OF THE ASSESSEE. 5. THE CIT (APPEALS) UPHELD THE ADDITION MADE BY TH E ASSESSING OFFICER HOLDING THAT IN VIEW OF THE PROVISIONS OF S ECTION 145(1) OF THE ACT THE INCOME IS TO BE RECOGNIZED EITHER ON MERCAN TILE OR CASH BASIS UNDER THE INCOME TAX ACT. AS THE ASSESSEE HAD NOT COMPUTED THE INCOME UNDER THE PROVISIONS OF THE ACT, THE DIFFERENCE BET WEEN INTEREST 4 RECOVERABLE RESERVE ACCRUED DURING THE YEAR AND THE INTEREST RECOVERED I.E. RS.4,97,56,708/- WAS ADDED TO THE INCOME OF TH E ASSESSEE. 6. THE LEARNED A.R. FOR THE ASSESSEE POINTED OUT TH AT THE ISSUE ARISING IN THE PRESENT APPEAL IS SQUARELY COVERED BY THE RA TIO LAID DOWN BY THE CHANDIGARH BENCH OF THE TRIBUNAL IN ACIT VS. PUNJAB STATE CO-OP. BANK LTD. IN ITA NO.1112/CHD/2010 & ITA NO.776/CHD/2011 RELATING TO ASSESSMENT YEARS 2007-08 & 2008-09 ORDER DATED 6. 3.2013, REPORTED IN 143 ITD 571 (CHD). 7. THE LEARNED D.R. FOR THE REVENUE, HOWEVER, PLACE D RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING IN THE PRESENT APPEAL IS IN RELATION TO THE RECOGNITION OF INTEREST INCOME NOT RECEIVED BY THE ASSESSEE. THE ASSESSEE IS A COOPERATIVE BANK AND HAS BEEN ESTABLISHED IN ALL TH E DISTRICTS OF STATE OF HARYANA AND IS GOVERNED BY THE STATE COOPERATIVE DE PARTMENT. THE MAIN OBJECT OF THE ASSESSEE SOCIETY IS TO PROVIDE CREDIT FACILITY TO THE FARMERS AT VERY LOW RATE OF INTEREST. THE ASSESSEE IS PROV IDING THE FACILITY THROUGH PRIMARY COOPERATIVE SOCIETY WHICH ARE ESTAB LISHED ALMOST IN ALL THE VILLAGES OF HARYANA. THE ASSESSEE DURING THE Y EAR UNDER CONSIDERATION HAD RECOGNIZED THE INTEREST INCOME RE CEIVED BY IT AS INCOME PERTAINING TO THE YEAR UNDER CONSIDERATION. HOWEVER, THE INTEREST INCOME ARISING ON NON-PERFORMING ASSETS WERE NOT IN CLUDED AS INCOME OF THE YEAR UNDER CONSIDERATION AND THE SAME WAS SHOWN AS ACCRUED BUT NOT RECEIVED. IN THE PROFIT & LOSS ACCOUNT THE ASSESSE E DID NOT RECOGNIZE THE SAID ACCRUAL OF INTEREST INCOME AS THE SAME WAS NOT RECEIVED DURING THE YEAR UNDER CONSIDERATION, IN VIEW OF VARIOUS GU IDELINES ISSUED BY THE CONTROLLING BANKS IN THIS REGARD. THE ASSESSEE ADM ITTEDLY WAS FOLLOWING 5 MERCANTILE SYSTEM OF ACCOUNTING. THE AUDITORS IN T HE AUDIT REPORT HAD REPORTED THAT THE SAID MERCANTILE SYSTEM OF ACCOUNT ING WAS BEING FOLLOWED FOR ALL PURPOSES EXCEPT INTEREST RECEIVABL E ON SUCH NPAS. THE ISSUE ARISING IN THE PRESENT APPEAL IS INCLUSION OF THE SAID INTEREST INCOME WHICH HAD ACCRUED ON NPAS IN THE HANDS OF TH E ASSESSEE. 9. WE FIND THAT IDENTICAL ISSUE OF ASSESSABILITY OF INTEREST DUE ON NPAS AROSE BEFORE THE TRIBUNAL IN ACIT VS. PUNJAB S TATE CO-OP. BANK LTD. (SUPRA) AND THE TRIBUNAL VIDE PARAS 9 TO 15 HE LD AS UNDER: 9. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE BEFORE US WAS A COOPERATIVE SOCIETY ENGAGE D IN BUSINESS OF BANKING AND EXTENDING THE CREDIT FACILITIES TO VARI OUS MEMBERS/NOMINAL MEMBERS ETC. THE REGISTERED OFFICE OF THE ASSESSEE WAS AT ROPAR WITH HEADQUARTERS AT CHANDIGARH. THE AO DURING THE COURS E OF ASSESSMENT PROCEEDINGS ASKED THE ASSESSEE TO FURNISH THE DETAI LS OF LOANS/ADVANCES MADE TO THE CORPORATE OR NOMINAL MEMBERS AND ALSO R EQUISITIONED THE DETAILS OF INTEREST ON THE SAID LOANS OR PROVISION THEREOF ON ACCRUAL BASIS. THE ASSESSEE IN HIS REPLY FILED BEFORE THE AO TABUL ATED THE DETAILS OF LOANS AND ADVANCES WHICH WERE OUTSTANDING AS ON 31. 3.2007. THE SAID DETAILS ARE INCORPORATED UNDER PARA 3 OF THE ASSESS MENT ORDER. 10. THE CLAIM OF THE ASSESSEE WAS THAT THE ABOVE SA ID ACCOUNTS HAD BECOME NON PERFORMING ASSETS (NPA) AND AS PER INSTR UCTIONS OF THE RBI, THE BANK WAS NOT REQUIRED TO PROVIDE FOR THE INTERE ST ON THE SAID LOANS ON ACCRUAL BASIS, PARTICULARLY WHERE THE ASSESSEE HAD FILED CLAIMS BY WAY OF COURT CASE/S AND NO AMOUNT HAD BEEN RECOVERED FROM THE ABOVE SAID PARTIES. THE ASSESSEE HAD TREATED THE SAID LOANS A S BAD AND DOUBTFUL DEBTS AND AS SUCH CLAIMS NOT TO HAVE PROVIDED FOR I NTEREST ON THOSE LOANS AS EVEN THE PRINCIPAL WAS NOT RECOVERABLE. THUS TH E INCOME ON THE SAID LOANS, EVEN IF TREATED AS THE INCOME OF THE ASSESSE E, WOULD BE ENTITLED TO DEDUCTION U/S 36(1)(VII) OF THE ACT. FURTHER THE A SSESSEE DURING THE YEAR UNDER CONSIDERATION HAD DECLARED INCOME OF RS. 1,28 ,16,757/- ON ACCOUNT OF INTEREST ON LOANS AS A RESULT OF ONE TI ME SETTLEMENT OR UNDER THE WAIVER SCHEME OF THE BANK. 11. PERUSAL OF THE DETAILS OF LOANS AND ADVANCES AS TABULATED IN PARA 3 OF THE ASSESSMENT ORDER REVEALS THAT IN RESPECT O F PARTY NO. 1, BIFR HAD DECLARED COMPANY AS SICK UNIT ON 10.7.2006 AND THE SETTLEMENT IN THE CASE WAS APPROVED ON 10.9.2009. SIMILARLY IN R ESPECT OF PARTY NO.2, DISPUTE WAS PENDING BEFORE THE COURT AND THE COMPAN Y HAD OPTED FOR SPECIAL SETTLEMENT SCHEME ON 31.12.2007. HOWEVER, DURING THIS YEAR THE ASSESSEE HAD RECEIVED AND CREDITED RS. 3,60,713/- AS INTEREST INCOME ON THE SAID LOAN. IN RESPECT OF PARTY NO. 3 THOUGH AW ARD WAS PASSED ON 13.09.2006, NO AMOUNT HAD BEEN PAID BY THE BORROWER AND AUCTION OF THE MORTGAGE PROPERTY HAD BEEN INITIATED. IN RESPECT O F PARTY NO. 4, THE AMOUNT WAS FULLY ADJUSTED AND INTEREST OF RS. 8,82, 805/- WAS CREDITED AS INCOME OF THE ASSESSEE. IN RESPECT OF PARTY NO. 5, THE AMOUNT HAS BEEN SETTLED DURING ASSESSMENT YEAR 2007-08. IN RESPECT OF PARTY NO.6, THE 6 ASSESSEE CLAIMS THAT NO RECOVERY WAS MADE DURING TH E YEAR UNDER CONSIDERATION. THE SAID PARTY IS HEELS & TOES FOOT WEARS (P) LTD. AND CIVIL SUIT WAS PENDING. IN RESPECT OF PARTY NO. 7 WHERE ONE TIME SETTLEMENT OF LOAN OUTSTANDING WAS MADE, WAS WITHOU T CHARGING INTEREST THEREOF. IN RESPECT OF PARTY NO. 8 AND 9, AS PER T HE ASSESSEE THERE WAS NO RECOVERY OF ANY PART OF THE LOAN OR INTEREST DURING THE YEAR. IN RESPECT OF PARTY NO. 10, THE ACCOUNT HAS BEEN SETTLED DURING T HE YEAR AND INTEREST OF RS. 9,57,272/- WAS RECOVERED AND REFLECTED AS INCOM E FOR YEAR UNDER APPEAL. 12. THE AUDITOR IN THE AUDIT REPORT HAD REPORTED TH AT THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND I N RESPECT OF ITEMS OF INTEREST ON NPAS, IT WAS ACCOUNTED FOR ON RECEIPT B ASIS. 13. THE PROVISIONS OF SECTION 43D OF THE ACT, OVER WRITES ANY OTHER PROVISION OF THE ACT AND IT IS PROVIDED THAT IN THE CASE OF PUBLIC FINANCIAL INSTITUTION OR SCHEDULED BANK OR OTHER BODIES, THE INCOME BY WAY OF INTEREST IN RELATION TO SUCH CATEGORIES OF BAD OR D OUBTFUL DEBTS, AS MAY BE PRESCRIBED, SHALL BE CHARGEABLE TO TAX IN THE PREVI OUS YEAR IN WHICH THE SAME IS CREDITED TO THE PROFIT & LOSS ACCOUNT FOR T HAT YEAR OR AS THE CASE MAY BE, IN WHICH YEAR IT IS ACTUALLY RECEIVED BY TH E INSTITUTION OR BANK OR OTHER BODIES, WHICH EVER IS EARLIER. 14. IN THE FACTS OF THE PRESENT CASE THE ABOVE SAID LOANS WERE ADVANCED SINCE 1999 AND THEY HAD BECOME NPAS AGAINS T WHICH SUITS FOR RECOVERY WERE FILED BY THE ASSESSEE IN VARIOUS COUR TS. IN VIEW OF THE ASSESSEE HAVING NEITHER RECEIVED THE LOANS OR PART THEREOF NOR ANY INTEREST THEREFROM, NO INTEREST WAS PROVIDED IN THE BOOKS OF ACCOUNT AS THE RECOVERY OF THE LOANS ITSELF HAD BECOME DIFFICU LT. ADMITTEDLY, THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNT ING UNDER WHICH INCOME IS TO BE RECOGNIZED WHEN THE SAME ACCRUES IR RESPECTIVE OF THE FACT WHETHER THE SAME IS RECEIVED OR NOT. HOWEVER, IN RESPECT OF THE INTEREST DUE ON NPAS SPECIAL PROVISIONS ARE PROVIDED UNDER S ECTION 43D OF THE ACT, WHICH IS NON OBSTANTE CLAUSE AND IN CASE OF NP AS I.E. THE DEBTS RECOVERY OF WHICH HAD BECOME BAD, INTEREST IS TO BE PROVIDED ON THIS RECOVERY, I.E. THE YEAR IN WHICH IT IS ACTUALLY REC EIVED BY THE INSTITUTION OR THE BANK OR OTHER BODY OR WHEN IT IS CHARGED TO THE PROFIT & LOSS ACCOUNT WHICHEVER IS EARLIER. THE PROVISIONS OF SE CTION 43D OF THE ACT OVERRIDE OTHER PROVISIONS OF THE ACT AND SAID PROVI SIONS ARE APPLICABLE IN THE CASE OF ASSESSEE, BEING SCHEDULED BANK. ONC E THE LOANS HAD BECOME NPAS AND THE ASSESSEE HAD OPTED TO ACCOUNT F OR THE INTEREST ON SUCH NPAS ONLY ON RECOVERY OF THE SAME, THE LAW REC OGNIZES SUCH TREATMENT OF INTEREST ON NPAS AS VALID IN VIEW OF T HE PROVISIONS OF SECTION 43D OF THE ACT. 15. IN VIEW OF THE ABOVE SAID PROVISION OF THE ACT WE FIND NO MERIT IN THE ORDER OF THE ASSESSING OFFICER IN CHARGING INTE REST ON NPAS IN THE CASE OF THE ASSESSEE DURING THE PERIOD UNDER CONSID ERATION. WE FIND SUPPORT FROM THE RATIO LAID DOWN IN KARNAVATI CO-OP . BANK LTD. VS. DCIT [134 ITD 486 (AHD)]. UPHOLDING THE ORDER OF C IT (APPEALS) WE DISMISS THE GROUNDS OF APPEAL RAISED BY THE REVENUE .' 10. THE TRIBUNAL HAD PLACED RELIANCE ON THE RATIO L AID DOWN BY THE AHMEDABAD BENCH OF THE TRIBUNAL IN KARNAVATI CO-OP. BANK LTD. VS. 7 DCIT [134 ITD 486 (AHD)] IN HOLDING THAT INTEREST DUE ON NPAS WAS NOT INCLUDIBLE AS INCOME OF THE ASSESSEE. 11. WE FIND THAT THE FACTS OF THE PRESENT CASE ARE IDENTICAL TO THE FACTS BEFORE THE TRIBUNAL IN ACIT VS. PUNJAB STATE CO-OP. BANK LTD. IN (SUPRA) AND FOLLOWING THE SAME PARITY OF REASONING WE HOLD THAT THE INTEREST ACCRUED ON NPAS WHICH HAVE NOT BEEN RECEIV ED BY THE ASSESSEE WAS NOT INCLUDIBLE AS INCOME OF THE ASSESSEE. ACCO RDINGLY, WE DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS.4,94 ,56,708/- IN ITA NO.758/CHD/2011 RELATING TO ASSESSMENT YEAR 2007-08 . 12. THE FACTS AND THE ISSUES ARISING IN ITA NOS.996 & 670/CHD/2011 ARE SIMILAR TO THE FACTS AND ISSUES IN ITA NO.758/C HD/2011 AND OUR DECISION IN ITA NO.758/CHD/2011 SHALL APPLY MUTATIS MUTANDIS TO ITA NOS.996 & 670/CHD/2011. THE GROUNDS OF APPEAL RAIS ED BY THE ASSESSEE ARE ALLOWED. 13. IN THE RESULT, ALL THE THREE APPEALS FILED BY T HE ASSESSEES ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 23 RD DAY OF AUGUST, 2013. SD/- SD/- (T.R.SOOD) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 23 RD AUGUST, 2013 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH 8