Income Tax Appellate Tribunal - Hyderabad
The Kakatiya Co-Operative Urban Bank ... vs Acit,Circle-11(1) Hyderabad, ... on 14 June, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "B", HYDERABAD
BEFORE SHRI D. MANMOHAN, VICE PRESIDENT
AND
SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
I.T.A. No. 1548/HYD/2016
Assessment Year: 2012-13
The Kakatiya Co-operative The Asst. Commissioner
Urban Bank Limited, Vs of Income Tax,
Chintal, Circle-11(1),
Ranga Reddy Dist., HYDERABAD
[PAN: AAAAT4203B]
(Appellant) (Respondent)
For Assessee : Shri P. Rajeswara Rao, AR
For Revenue : Smt U. Minichandran, DR
Date of Hearing : 01-06-2017
Date of Pronouncement : 14-06-2017
ORDER
PER B. RAMAKOTAIAH, A.M. :
This is an appeal preferred by assessee directed against the order of the Commissioner of Income Tax (Appeals)-5, Hyderabad dated 15-09-2016 pertaining to AY. 2012-13.
2. Briefly stated, assessee is a co-operative bank carrying on the business of banking. Assessee-company has declared certain loans as Non-Performing Assets [herein after referred to as NPAs] in its books of account. Consequent there to, interest receivable on those NPAs quantified at Rs. 9,89,752/- was also not shown as amount receivable on accrual basis. According to the Assessing Officer (AO) as well as the CIT(A), the provisions of Section 43D of I.T.A. No. 1548/Hyd/2016 :- 2 -:
the Income Tax Act [Act] carves out exception to the scheduled banks; assessee being non-scheduled co-operative bank, interest receivable on NPAs is assessable to tax on accrual basis.
3. The case of assessee before the AO as well as the CIT(A) was that interest on performing accounts and non-performing accounts are disclosed in significant accounting policies under revenue recognition and assessee followed consistently the same methods; thus, the interest on NPAs is not credited. There was no loss of revenue to the Government. In fact it was the contention that when the principal itself is doubtful, question of recovering the interest does not arise. Reliance was placed upon the decision of the Hon'ble Bombay High Court, Bench at Aurangabad in the case of CIT, Aurangabad Vs. M/s. Deogiri Nagari Sahakari Bank Ltd., Aurangabad and others (In ITA No. 53 of 2014, dt. 22-01-2015). In the written submissions filed before the CIT(A), assessee also relied upon the decision of ITAT, Visakhapatnam in the case of DCIT Vs. The Durga Co-operative Urban Bank Ltd., dt. 10-03-2011 [ITA No. 511/Viz/2010], where similar view was taken i.e., interest on NPAs cannot be assessed to tax on accrual basis and it can only be assessed in the year of actual receipt.
4. The CIT(A) was of the view that number of decisions cited by the assessee cannot override the provisions of the Income Tax Act. He was of the firm view that Section 43D comes into play and interest on NPAs is assessable to tax on accrual basis.
5. Aggrieved by the order of CIT(A), assessee is in appeal before us. Ld. Counsel placed before us a copy of the judgment of the I.T.A. No. 1548/Hyd/2016 :- 3 -:
Hon'ble Gujarat High Court in the case of Pr.CIT Vs. Shri Mahila Sewa Shakari Bank Ltd., in ITA No. 531 of 2015 dt. 05-08-2016, wherein the Hon'ble High Court has upheld that the guidelines issued by the RBI are mandatory and it cannot charge interest on accrual basis. Following the theory of real income, taxability of any notional income like accrued interest on NPAs would not arise. Ld. counsel for the assessee submitted that the principal amount was declared as NPAs earlier and in all the subsequent years, the interest on NPAs is not brought to tax by the revenue and suddenly in this year, the revenue made an addition. He further submitted that there are catena of decisions with regard to the accrual of income only in the year of receipt. Even if it is assumed that there are two views possible, as per the decision of the Hon'ble Supreme Court in the case of CIT Vs Vegetable Products Ltd., (1973) 88 ITR 192 (SC), a view which is favourable to the assessee has to be taken and thus he strongly submitted that the addition made by the A.O, and confirmed by the CIT(A), is not in accordance with law.
6. Revenue contended that Section 43D of the Act recognizes taxability of such interest and when a specific provision has been made, assessee cannot indirectly claim the benefit. The provisions of RBI Act are subservient to the provisions of Section 43D of the Income Tax Act. The DR strongly relied upon the orders passed by the authorities.
7. We have carefully considered the rival submissions and perused the record. The arguments advanced by assessee are fully supported by the decision of the ITAT, Visakhapatnam Bench I.T.A. No. 1548/Hyd/2016 :- 4 -:
(supra) as well as the decision of the Hon'ble Gujarat High Court which in turn were based on several reported decisions of other Hon'ble High Courts. The decision of the Hon'ble Gujarat High Court is as under:
"11. From the rival submissions advanced by the learned counsel for the respective parties, it is evident that there is no dispute that the RBI Guidelines are applicable to the assessee. It is the case of the assessee that in view of the RBI Guidelines, it cannot charge interest on accrual basis and that following the theory of the real income, taxability of any notional income like accrued interest on NPAs would not arise. It has also been contended that even otherwise in view of the CBDT Circular bearing F No.201/21/844-ITA-II dated 09-10-1984, interest on accrual basis is not taxable if not received for three years even through credited to the suspense account."
8. The court observed that though RBI Act may not override the provisions of Income Tax Act. Income has to be recognised in terms of prudential norms by applying the real income theory. The revenue contended, in the aforecited decision, that Sec. 43D of the Act recognises taxability of such interest and when a specific provisions has been made, the assessee cannot indirectly claim benefit. On this aspect, the court observed that the benefit was claimed by the assessee not under any provisions of the IT Act, but, on account of the fact that it is bound by the RBI Guidelines, which are issued under the provisions of the RBI Act whereby the interest on NPAs cannot be shown as income. The provisions of Sec. 45Q of the RBI Act would have an overriding effect over the other laws, including the Income Tax Act. Therefore, notwithstanding the provisions of Sec. 43D of the Act, the A.O. is bound to follow the RBI Guidelines so far as the income recognition is concerned. It was thus, finally concluded that interest on NPAs cannot be brought to tax when the actual income is not received.
I.T.A. No. 1548/Hyd/2016 :- 5 -:
Ld.DR could not place any judgment wherein a contrary view was taken on this issue. Under these circumstances, we respectfully follow the decision of the Hon'ble Gujarat High Court and the decision of the ITAT, Visakhapatnam Bench. Further, Co-ordinate Bench ('A' Bench) of Hyderabad [one of us, Vice-President was the author of that order] in the case of The Kranti Co-Operative Urban Bank Ltd., Vs. ACIT in ITA No. 1194/Hyd/2016 dt. 20-12-2016 also took similar view.
9. Accordingly, we hold that the AO as well as the CIT(A) were not justified in bringing into tax the sum of Rs.9,89,752/- towards accrued interest on NPAs. In the circumstances of the case, AO is directed to delete the addition.
10. In the result, appeal of assessee is allowed.
Order pronounced in the open court on 14th June, 2017 Sd/- Sd/-
(D. MANMOHAN) (B. RAMAKOTAIAH)
VICE PRESIDENT ACCOUNTANT MEMBER
Hyderabad, Dated 14th June, 2017
TNMM
I.T.A. No. 1548/Hyd/2016
:- 6 -:
Copy to :
1.The Kakatiya Co-operative Urban Bank Ltd., C/o. P. Rajeswara Rao, Chartered Accountant, Flat No. 205, Priya Apartments, H.No. 1-1-560, New Bakaram, Hyderabad.
2. The Asst. Commissioner of Income Tax, Circle-11(1), Hyderabad.
3. CIT (Appeals)-5, Hyderabad.
4. Pr.CIT-5, Hyderabad.
5. D.R. ITAT, Hyderabad.
6. Guard File.