Income Tax Appellate Tribunal - Chandigarh
Dcit,Circle-, Parwanoo vs The Jogindra Central Co-Operative Bank ... on 8 June, 2021
आयकर अपील य अ धकरण, च डीगढ़ यायपीठ "बी", च डीगढ़
IN THE INCOME TAX APPELLATE TRIBUNAL,
CHANDIGARH BENCH 'B', CHANDIGARH
ीमती दवा संह, या$यक सद%य एवं, एवं ीमती अ नपण
ू ा) ग+ु ता, लेखा सद%य
BEFORE: SMT.DIVA SINGH, JUDICAL MEMBER
AND SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER
आयकर अपील सं./ ITA No.290/Chd/2020
िनधा रण वष / Assessment Year : 2016-17
The D.C.I.T., बनाम The Jogindra Central Cooperative Bank
Circle Parwanoo, Ltd., Rajgarh Road, Solan,
Distt. Solan (HP)
थायी लेखा सं./PAN NO: A A A A J 8 5 9 0 P
अपीलाथ /Appellant यथ /Respondent
िनधा रती क ओर से/Assessee by : Shri Vishal Mohan, Adv.
राज व क ओर से/ Revenue by : Shri Vishal Dahiya, CIT
सुनवाई क तारीख/Date of Hearing : 31.05.2021
उदघोषणा क तारीख/Date of Pronouncement: 08.06. 2021
(Hearing through webex)
आदेश/Order
Per Annapurna Gupta, Accountant Member :
Th e a b ove a pp e al h a s b e e n pre fe rr e d b y the Re ve n ue a ga i nst the or de r of th e Le a rn e d C om mi ss ion e r of I n come Ta x ( Ap p e a l s ) [in short t he 'L d . C I T( A ) ] , S h iml a d a te d 20 . 02 . 2 02 0 r e l a ti ng to a ss e s smen t ye a r 2 0 16 -1 7, p a sse d ITA No.290/Chd/2020 A.Y. 2016-17 Page 2 of 18 u/s 2 50 ( 6 )) of th e I nc ome Ta x A ct , 1 9 6 1 ( he re in a fte r re fe rre d to a s ' Act '.
2. Th e sol i ta r y i ssu e i n t he pre sen t a p p e a l re l a te s to a dd i ti on ma d e of i n te re s t o n s ti ck y loa n s/N P A s a mo un ti ng to Rs .3 , 2 9, 0 1 ,4 8 4/- w hi ch s tood d e le te d i n f ir st a p p e a l by the Ld .C I T(A ) fol l ow in g the de c is ion o f t he C oor d i na t e Be nch of I TA T C h a n di g a r h B e nc h on id e nti ca l is sue . Th e fa c ts i n br i e f , a re t ha t th e a s se sse e is a c oop e r a ti ve b a n k e n ga ge d in ba n k in g a cti vi ti es a n d co ve re d und e r n on -sche d u le d b a nk a s de fi ne d in B a n kin g Re g ul a ti on Act, 1 9 49 . The a sse sse e is fol l ow in g t he m e r ca n ti le s yste m of a ccou nt in g. F or th e imp ug ne d ye a r th e a s se s se e h a d f il e d it s re tur n of i nc ome de cl a r in g i n come of Rs. 6 ,8 3 ,5 5 ,3 2 0 /-. I n the as se s sme n t fr a me d u/s 1 43 ( 3 ) of th e Ac t a n a d d i ti on w a s ma de to the tota l i nc ome of i nt e re s t a cc rue d o n N P A s/st ic ky l oa ns , a moun ti ng to Rs. 3 ,2 ,9 1 , 48 4 /- w h i ch had not bee n a ccou nt e d f or by th e a sse s see i n i ts P r ofi t & Los s Acc oun t for t he ye a r. Th e a s se sse e h a d c onte nde d be fo re th e AO th a t thi s i nte re st h a d n ot be e n sh ow n f oll ow i ng RB I gui d e l ine s, wh i ch cl a im w a s d is mis se d b y t he AO st a ti ng t ha t si nc e the a sse sse e w a s f ollow i n g me r ca n ti le sys te m of a ccoun tin g th e in te re st in come o n N P As n ee de d to b e in cl u de d in i ts tot a l in come .
ITA No.290/Chd/2020A.Y. 2016-17 Page 3 of 18
3. Th e ma t te r wa s c a r r ie d i n a p pe a l be f ore the C I T( A) , wh o on not in g th a t i d e nt ic a l i ss ue ha d b ee n de ci de d b y th e I TA T C ha n d ig a r h B e nc h in the c a se of Ka n gra C e nt r a l C oop e r a ti ve B a nk Ltd . , D ha r a m sh a l a in I TA N o .3 2 3 & 32 4 /C h d /2 0 1 6 d a t e d 0 9. 0 1 .2 0 1 8, i n f a vou r of the a ss e ssee , de le te d the a d d iti on ma de by t he A O . The re le va nt fi n di n gs of th e Ld . C I T( A) a t p a r a 5 . 2 of h i s or de r a re a s un de r :
5.2 Ground No. 2 & 3: are inter related and hence taken up together. The facts of the case, the order of the A.O. under appeal and the submission of the appellant have been perused. A similar issue has been decided by the ITAT in ITA Nos 323 & 324/Chd/2016 dated 09.01.2018 in the case of The Kangra Central Cooperative Bank Ltd. Civil Lines Dharamshala and held as under-
Both the captioned appeals relate to the same assesses and have been filed by the Revenue against separate orders of the Ld. Commissioner of Income Tax(Appeals), Pa!ampur (hereinafter referred to as 'C!T(Appeals) dated 23.12.2015.
It was common ground between both the parties that the issue involved in both the appeals was common. They were therefore heard together and are being disposed off by way of this common order.
The sole issue in the present appeals pertains to the taxability of interest on loans categorized as NPA's/sticky loans whether on accrualbasisascontended by the Revenue or on receipt basis as claimed by the asssessee.
Brief facts relevant to the case are that the assesses is a Co-operative Society, having operations as a non Scheduled Bank. During assessment proceedings for the impugned assessment years, the Assessing Officer noted that the assesses had shown non performing assets (hereinafter referred to as NPA's) on which no interest income had been credited/recognized, though the assesses ITA No.290/Chd/2020 A.Y. 2016-17 Page 4 of 18 was following mercantile system of accounting. On being confronted with the same, the assessee contended that interest on NPA's was being accounted for on receipt basis consistently in the past a/so following the Accounting Standard-9 relating to Revenue recognition prescribed by the institute of Chartered Accountants of India, which required income to be recognized only on becoming certain. It was also contended that the method followed by the assessee was in consonance with the guidelines issued by the Reserve Bank of India from time to time. Reliance was also placed on various courts' decisions. The Assessing Officer after considering the assessee's reply held that it was required to account for interest on sticky loans/NPA's on accrual basis since it followed the mercantile system of accounting. The Assessing Officer, therefore, computed the interest on the NPA's and added the same to the income of the assesses.
5. The matter was carried in appeal before the Id. CIT (Appeals) who allowed the assesses 's appeals following the decision of the I.T.A.T, Pune Bench in the case of ACIT vs Usmanabad Janta Sahkari Bank Ltd. in ITA No. 795/PN/2011 dated 31.08.2012 and the decision of the I.T.A.T. Chandigarh Bench in the case of AC IT vs. Punjab State Cooperative Bank Ltd. [2013] 143 ITD 0571, holding that the provisions of Section 43D of the Income Tax Act, 1961 which allowed interest on bad and doubtful debts as prescribed in the guidelines issued by the RBI, to be accounted for on receipt basis in case of Public Financial institutions, public companies etc., to be applicable in the case of the assessee also Aggrieved by the same, the Revenue has come up in appeal before us, raising the following identical ground in both the appeals.
"1. On the facts and in the circumstances, the Id. CIT(A) has erred in deleting the additions of Rs.23,65.26,600/- made by the AO on account of interest income not declared by the assessee on NPA's/sticky loans on accrual basis as the assesses bank has been following Mercantile System of accounting regularly.
7. During the course of hearing before us, Id. Counsel of the assessee at the outset drew our attention to the fact that theI.T.A.7",Chandigarh Bench had dealt with identical issue in the case of The DCIT vs. The Ludhiana Central Co-op. Bank Ltd., in ITA No 526/Chd/2013 dated 03.01.2017,holdingthatinterest on sticky loans/NPA's was ITA No.290/Chd/2020 A.Y. 2016-17 Page 5 of 18 to be subjected to tax on receipt basis. Copy of the said order was placed before us.
8. The Id. DR fairly agreed that the issue was covered in favour of the assessee by the decision of the ITAT Chandigarh Bench in the case of Ludhiana Central Cooperative Bank Ltd.(supra).
9. In view of the above, we find no reason to interfere in the order of the Id. CIT(A). The I.T.A.T. Chandigarh Bench has, we find, in the case of Ludhiana Central Co-op. Bank Ltd., (Supra),categorically held that in the case of assessees, being Co-operative Banks, the interest on sticky loans/ NPA's has to be brought to tax on receipt basis. The I.T.A.T., while rendering this judgment, has noted that in a number of decisions of High courts and the apex court, it has been held that interest on sticky loans is to be accounted for on receipt basis following the "Real Income theory", the prescribed Accounting Standard AS-9 issued by the Institute of Chartered Accountants Of India, the RBI guidelines relating to accounting for interest on NPA's and the accounting practice of the assessees.. Further it has taken note of the decision of the Gujarat High Court in the case of Pr. CIT-5 vs. Shri Mahila Sewa Sahkari Bank Ltd. which held that so far as income recognition was concerned the Assessing Officer had to follow the RBI Directions, 1998, in view of Section 4SQ of the RBI Act, which provided that the policy of income recognition has to be objective and based on the record of recovery and that income from non performing assets is not to be recognized on accrual basis but only when it is actually received. Further taking note of the decision of the Hon'ble Bombay High Court in the case of CIT vs. Deogiri Nagari Sahakari Bank Ltd. & Others, 379 ITR 241, the I . T . A . T held that the issue of taxability of interest on NPA's was settled in favour of the assesses as being taxable in the year of receipt. The relevant findings of the ITAT at para 13-27 of the order is as under:
" 13. We find that the issue of accounting for interest on sticky loans/NPA's, has been dealt with in a number of decisions both by the Apex Court and various High Courts and Tribunals also, wherein after applying the "Real Income Theory", the prescribed Accounting Standard issued by ICAI on Revenue Recognition, AS-9, the accounting practise of the asseessee relating to interest on sticky loans and the RB! guidelines relating ITA No.290/Chd/2020 A.Y. 2016-17 Page 6 of 18 to accounting for interest on NPA's, it was held that such income was taxable in the year of receipt only, when its realisation becomes reasonably certain.
14. The Apex Court in the case of UCO Bank, Calcutta Vs. CIT, West Bengal (1999) 4 Supreme Court Cases 599 approved the receipt basis of accounting for interest on loans whose recovery was doubtful, holding the same to be in accordance with accounting practice and in conformity with the method prescribed under section 145 of the Act. The relevant findings of the Apex Court are as follows :
" We have to consider whether interest on a loan whose recovery is doubtful and which has not been recovered by the assessee-bank for the last three years but has been kept in a suspense account and has not been brought to the profit and loss account of the assessee, can be included in the income of the assessee for the assessment year 1981-82. It is the case of the assessee that in respect of loans which are advanced by it to various customers, recovery of some loans is very doubtful. It is doubtful whether even the interest on the loans advanced will be recovered from the customer, in such cases, the interest calculated on the loan amount is credited in a suspense account. This amount is not brought to the profit and loss account of the assessee-bank because these are amounts which are not likely to be realised by the bank. Hence they do not form a part of the real income of the bank. If and when any such amount or a part ofit is recovered, it is included in that assessment year in the total income of the assesses for the purpose of payment of income-tax.
The method of accounting which is followed by the assessee- bank is mercantile system of accounting. However, the assessee considers income by way of interest pertaining to doubtful loans as not real income in the year in which it accrues, but only when it is realised A mixed method of accounting is thus followed by the assessee-bank. This method of accounting adopted by the assessee is in accordance with accounting practice- In Spicer and Pegler's Practical Auditing the relevant passage occurring at page 186- 1B7 has been reproduced in the minority judgment of this Court in State Bank of Travancore v. Commissioner of Income-tax, Kerala 1(1986) 158ITR102atp.i2o]. It is as follows:
"Where interest has not been paid it is sometimes left out of account altogether. This prevents the possibility of ITA No.290/Chd/2020 A.Y. 2016-17 Page 7 of 18 irrecoverable interest being credited to revenue, and distributed as profit. On the other hand this treatment does not record the actual state of the loan account, and in the case of banks and other concerns whose business it is to advance money it is usual to find the interest is regularly charged up, but when its recovery is doubtful, the amount hereof is either fully provided against or taken to the credit of an Interest Suspense Account and carried forward and not treated as profit until actually received."
Similarly, referring to interest on doubtful debts, Shukla and Grewal on Advanced Accounts, Ninth Edition at page 1089 state as follows: "Interest on doubtful debts should be debited to the loan account concerned but should not be credited to interest account. Instead it should be credited to Interest Suspense Account. To the extent the interest is received in cash, the Interest Suspense Account should be transferred to Interest account; the remaining amount should be closed by transfer to the Loan account. This treatment accords with the principle that no item should be treated as income unless it has been received or there is a reasonable certainty that it will be realised.
(Vide State Bank of Tranvacore v. CIT [supra]) The assessee's method of accounting, therefore, transferring: the doubtful debt to an interest suspense account and not treating it as profit until actually received, is in accordance with accounting practice.
Under Section 145 of the Income-tax Act, 1961, income chargeable under the head "profits and gains of business or profession or income from other sources" shall be computed in accordance with the method of accounting regularly employed by the assessee; provided that in a case where the accounts are correct and complete but the method employed is such that in the opinion of the Income- tax Officer, the income cannot properly be deduced therefrom, the computation shall be made in such manner and on such basis as the Income-fax Officer may determine. In the present case the method employed is entirely, for a proper determination of income. "
(emphasis supplied by us) Further the Apex Court also referred to the CBDT Circular dated 9 th October 1984 stating that interest on loans on which there has been no recovery for 3 years ITA No.290/Chd/2020 A.Y. 2016-17 Page 8 of 18 will be subjected to tax on receipt basis, and held as follows :
'The question whether interest earned, on what have come to be known as "sticky" loans, can be considered as income or not until actual realization, is a question which may arise before several income tax officers exercising jurisdiction in different, parts of the country Under the accounting practice, interest which is transferred to the suspense account and not brought to the profit and loss account of the company is not treated as income. The question whether in a given case such "accrual" of interest is doubtful or not. may also be problematic. If, therefore, the Board has considered it necessary to lay down a general test for deciding what is a doubtful debt, and directed that all income tax officers should treat such amounts as not forming part of the income of the assessee until realized, this direction by way of a circular cannot be considered as travelling beyond the powers of the Board under Section 119 of the Income Tax Act. Such a circular is binding under Section
119. The circular of 9th of October, 1984, therefore, provides a test for recognising whether a claim for interest can be treated as a doubtful claim unlikely to be recovered or not. The test provided by the said circular is to see whether, at the end of three years, the amount of interest has in fact, been recovered by the bank or not. If it is not recovered for a period of three years, then in the fourth year and onwards the claim for interest has to be treated as a doubtful claim which need not be included in the income of the assessee until it is actually recovered."
This view was reaffirmed in a later judgment by the Apex Court in Mercantile Bank Ltd., Vs. CIT, Bombay City-Ill (2006) 5 SSC 221.
Further the issue of taxability of interest on NPA accounts on receipt basis by Cooperative Banks has been dealt with by various High Courts, wherein it was held that the assessee was bound by RBI guidelines to account for such interest on receipt basis and by virtue of the provisions of section 45Q of the RBI Act, the RBJ guidelines had an overriding effect over other Acts including the Income Tax Act, 1961.
The Gujarat High Court in the case of Pr.CIT-5 Vs. Shri Mahila Sewa Sahakari Bank Ltd. (Tax Appeal No.531 of ITA No.290/Chd/2020 A.Y. 2016-17 Page 9 of 18 2015 dated 5.8.2016, relying upon the decision of the apex court in Southern Technologies Limited vs JCIT, Coimbatore, (2010) 320 ITR 577,held that so far as Income Recognition was concerned even the AO had to follow the RBI Directions, 1998 in view of section 45Q of the RBI Act and section 145 of the Income Tax Act had no role to play in the same. The Hon'ble Court held at para 20 to 23 of its order as follows :
Section 45Q finds place in Chapter IIIB of the RBI Act. Thus, the provisions of Chapter IIIB of the RBI Act have an overriding effect qua other enactments to the extent the same are inconsistent with the provisions contained therein. In order to reflect a bank's actual financial health in its balance sheet, the Reserve Bank has introduced prudential norms for income recognition, asset classification and provisioning for advances portfolio of the cooperative banks. The guidelines provided thereunder are mandatory and it is incumbent upon all co-operative banks to follow the same. Insofar as income recognition is concerned, clause 4.1.1 of the circular provides that the policy of income recognition has to be objective and based on the record of recovery Income from non-performing assets (NPA) is not recognised on accrual basis but is booked as income only when it is actually received. Therefore, banks should not take to income account interest on non-performing assets on accrual basis. Thus, in view of the mandate of the RBI Guidelines the assessee cannot recognise income from non-performing assets on accrual basis but can book such income only when it is actually received. Thus, this is a case where at the threshold, the assessee, in view of the RBI Guidelines, cannot recognise income from NPA on accrual basis. This is, therefore, a case pertaining to recognition of income and not computation of the income of the assessee.
The Supreme Court in Southern Technologies Limited (supra) has held that the 1998 Directions are only disclosure norms and have nothing to do with computation of total income under the IT Act or with the accounting treatment. The 1998 Directions only lay down the manner of presentation of NPA provision in the balance sheet of an NBFC. The court has referred to the deviations between the RBI Directions and the Companies Act as follows:
42. Broadly, there are three deviations:ITA No.290/Chd/2020
A.Y. 2016-17 Page 10 of 18
(i) in the matter of presentation of financial statements under Schedule VI to the Companies Act;
in not recognising the "income" under the mercantile system of accounting and its insistence to follow cash system with respect to assets classified as NPA as per its norms in creating a provision for all NPAs summarily as against creating a provision only when the debt is doubtful of recovery under the norms of the accounting standards issued by the Institute of Chartered Accountants of India.
These deviations prevail over certain provisions of the Companies Act, 1956 to protect the depositors in the context of income recognition and presentation of the assets and provisions created against them. Thus, the P&L account prepared by NBFC in terms of the RBI Directions, 1998 does not recognise "income from NPA" and, therefore, directs a provision to be made in that regard and hence an "add back". It is important to note that "add back" is there only in the case of provisions. [Emphasis supplied]"
22. Therefore, in terms of the above decision, where an assessee makes provision for NPA and seeks deduction of such amount under section 36(1)(vii) or section 37 of the Act, then in the computation of income, the RBI Guidelines would have no role to play, and hence, an add back. Insofar as income recognition is concerned, the Supreme Court has held thus: "Applicability of Section 145 57 At the outset, we may state that in essence the RBI Directions, 1998 are prudential/provisioning norms issued by RBI under Chapter lll-B of the RBI Act, 1934. These norms deal essentially with income recognition. They force the NBFCs to disclose the amount of NPA in their financial accounts. They force the NBFCs to reflect "true and correct"
profits. By virtue of Section 45-Q, an overriding eff ect is given to the RBI Directions, 1998 vis-a-vis "income recognition" principles in the Companies Act, 1956. These Directions constitute a code by itself. However, these RBI Directions, 1998 and the IT Ac t operate in different areas. These RBI Directions, 1998 have nothing to do with computation of taxable income. These Directions cannot overrule the "permissible deductions" or "their exclusion" under the IT Act The inconsistency between these Directions and ITA No.290/Chd/2020 A.Y. 2016-17 Page 11 of 18 the Companies Act is only in the matter of income recognition and presentation of financial statements. The accounting policies adopted by an NBFC cannot determine the taxable income. It is well settled that the accounting policies followed by a company can be changed unless the AO comes to the conclusion that such change would result in understatement of profits. However, here is the case where the AO has to follow the RBI Directions, 1998 in view of Section 45-Q of the RBI Act. Hence, as far as income recognition is concerned, Section 145 of the IT Act has no role to play in the present dispute."
Thus, insofar as income recognition is concerned, the court has held that even the Assessing Officer has to follow the RBI Directions, 1998 in view of section 45Q of the RBI Act and that as far as income recognition is concerned, section 145 of the Income Tax Act, has not role to play.
23. In the light of the above discussion what emerges is that while determining the tax liability of an assessee, two factors would come into play. Firstly, the recognition of income in terms of the recognised accounting principles and after such income is recognised, the computation thereof, in terms of the provisions of the Income Tax Act, 1961. Insofar as the computation of taxability is concerned, the same is solely governed by the provisions of the Income Tax Act and the accounting principles have no role to play. However, recognition of income stands on a different footing. Insofar as income recognition is concerned, it would be the RBI Directions which would prevail in view of the provisions of section 45Q of the RBI Act and section 145 would have no role to play Hence, the Assessing Officer has to follow the RBI Directions.
Further relying upon the decision of the Delhi High Court in the case of CIT Vs. Vasisth Chay Vyapar Ltd. (2011) 330 ITR 440, the Court held that the AO has to follow RBI directions on Revenue Recognition, and held as follows:
"25. The distinction drawn by the Delhi High Court is that while the accounting policies of adopted by the NBFC cannot determine the taxable income. However, insofar as income recognition is concerned, the Assessing Officer has to follow the RBI Directions, 1998 in view of section 45Q of the RBI Act That insofar as income recognition is concerned, section 145 of the Income Tax Act, 1961 has no role to play."
The Bombay High Court in the case of CIT Vs. Deogiri Nagari Sahakarii Bank Ltd- & Others, 379 ITR 241 ITA No.290/Chd/2020 A.Y. 2016-17 Page 12 of 18 reiterated the above proposition by holding at para 9 of its order as follows :
"9. The Income Tax Appellate Tribunal has referred the case of M/s. Vasisth Chay Vyapar Limited 330 ITR 440 (Delhi). In this case, the revenue relied upon the decision of the Hon'ble Supreme in the case of Southern Technologies Ltd.
supra. The learned Income Tax Appellate Tribunal has reproduced the observations made by the Delhi High Court while referring the said case of M/s Southern Technologies Limited supra. The assesses herein being a Cooperative Bank also governed by the Reserve Bank of India and thus the directions with regard to the prudential norms issued by the Reserve Bank of India are equally applicable to the Co-operative banks. The Hon'ble Supreme Court in the case of Southern Technologies Limited supra held that, provisions of Section 45Q of Reserve Bank of India Act has an overriding effect vis-a-vis income recognition principle under the Companies Act Hence, Section 45Q of the RBI Act shall have overriding effect over the income recognition principle followed by cooperative banks. Hence, the Assessing Officer has to follow the Reserve Bank of India directions 1998, as held by the Hon 'ble Supreme Court. "
Further relying upon the decision of the Apex Court in the case of UCO Bank, Calcutta and Mercantile Bank Ltd. (supra) it allowed the assessee's appeal.
It is evident from the above that the issue regarding taxability of interest on NPA's is settled in favour of the assessee as being taxable in the year of receipt.
The grievance of the Revenue that the Hon'ble Supreme Court's decision in the case of State Bank of Travancore (supra) applies to the present case, we find is misplaced, since as pointed out above by the Ld. counsel of the assessee, it has been overruled by the Apex Court itself in the case of UCO Bank Limited (supra) wherein it was pointed out by the Apex Court that while rendering the judgment in the case of State Bank of Travancore (supra), the circular dated 9.10.1984 had not been brought to the notice of the Court, nor the subsequent decision of the Apex Court in the case of K.P.Varghese Vs. ITO (1981) 131 ITR 597 (SC). The relevant extracts of the decision in UCO Bank Limited are reproduced hereunder :
"There are, however, two decisions of this Court which have been strongly relied upon by the respondents in the present ITA No.290/Chd/2020 A.Y. 2016-17 Page 13 of 18 case. The first decision is the majority judgment in The State Bank of Travancore v. Commissioner of Income- Tax, Kerala (1986 (158) ITR 102) decided by a Bench of three Judges of this court by a majority of two to one. This judgment directly deals with interest on "sticky advances"
which have been debited to the customer but taken to the interest suspense account by a banking company. The majority judgment has referred to the circular of 6th of October, 1952 and its withdrawal by the second circular of 20th of June, 1978. The majority appears to have proceeded on the basis that by the second circular of 20th of June, 1978 the Central Board had directed that interest in the suspense account on ''sticky" advances should be includible in the taxable income of the assessee and all pending cases should be disposed of keeping these instructions in view. The subsequent circular of 9th of October, 1984 by which, from the assessment year 1979-80 the banking companies were given the benefit of the circular of 9th of October, 1984 does not appear to have been pointed out to the Court. What was submitted before the Court was, that since such interest had been allowed to be exempted for more than half a century, the practice had transformed itself into taw and this position should not have been deviated from. Negativing this contention, the Court said that the question of how far the concept of real income enters into the question of taxability in the facts and circumstances of the case, and how far and to what extent the concept of real income should intermingle with the accrual of income, will have to be judged "in the light of the provisions of the Act, the principles of accountancy recognised and followed, and feasibility". The Court said that the earlier circulars being executive in character cannot alter the provisions of the Act. These were in the nature of concessions which could always be prospectively withdrawn. The Court also observed that the circulars cannot detract from the Act. The decision of the Constitution Bench of this Court in Navnitlal C. Javeri v. K.K. Sen (Supra), or the subsequent decision in K.P. Varghese v. Income Tax Officer (supra) also do not appear to have been pointed out to the Court. Since the later circular of 9.10.1984 was not pointed out to the Court:, the Court naturally proceeded on the assumption that the benefit granted under the earlier circular was no longer available to the assessee and those circulars could not be resorted to for the purpose of overcoming the provisions of the Act. Interestingly, the concurring judgment of the second judge has not dealt with this question at all but ITA No.290/Chd/2020 A.Y. 2016-17 Page 14 of 18 has decided the matter on the basis of other provisions of law."
Therefore, the contention of the Revenue that the decision in the case of State Bank of Travancore (supra) applies to the assessee's case is dismissed.
The argument of the learned D.R. that the decision of the Delhi High Court in the case of Vasisth Chay Vyapar Ltd. (supra) would not apply to the assessee's case since the assessee is a cooperative society while in the case of Vasisth Chay Vyapar Ltd. (supra), the assessee was a NBFC, is also dismissed since the principle enunciated by the Delhi High Court in Vasisth Chay Vyapar Ltd. (supra) has been followed in the case of Shri Mahila Sewa Sahakari Bank Ltd. (supra) by the Hon'ble Gujarat High Court and various other decisions cited by the assessee before us , and the assessee in all those cases being a cooperative bank, the decision rendered therein squarely applies to the case of the assessee. The argument of the learned D.R. that the assessee is following the mercantile system of accounting is also dismissed since this aspect has been dealt with by various High Courts referred to above wherein they have categorically held that even following the mercantile system of accounting the interest on NPA cannot be said to have accrued in the year since the recovery of the same was impossible and even otherwise for the purpose of Income Recognition the RB! Directions, 1998, had to be followed in view of section 45Q of the RBI Act.
27. In the light of the above discussion we find no inf irmity in the order of the CIT(A),holding the interest on NPA 's as taxable in the year of receipt, so as to warrant interference.
10. The issue involved in the present appeals being identical to that decided by the I T.A.T. in the case of The Ludhiana Central Co-op. Bank Ltd.,(Supra), the decision rendered therein would squarely apply to the present cases, following which we hold that the interest on sticky loans/NPA's has to be taxed on receipt basis. We, therefore, uphold the order of the CIT(A) and dismiss the ground raised by the Revenue.
11. In the result, both the appeals of the Revenue are dismissed."
ITA No.290/Chd/2020A.Y. 2016-17 Page 15 of 18
4. Ag gr i e ve d b y the sa me , th e Re ve nu e ha s come up i n a pp e a l be fo re u s r a is in g th e f ol l owin g gr oun d :
1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting an addition of Rs.3,29,01,484/- which was subsequently enhanced at Rs.4,22,04,069/- by the A.O. u/s 154 of the Act by holding that interest on sticky loans7NPAs is to be taxed on receipt basis whereas the assessee itself has stated that it is following mercantile system of accounting.
2. It is prayed that the order of the Ld CIT(A) be set-aside and that of the A.O. restored.
3. The Appellant craves leave to add any other ground of appeal which may arise at the time of hearing."
5. B e f ore u s, t he Ld . DR r e li e d up on th e or d e r of th e AO con te n d in g th a t th e i n te re s t on NP As ne e de d to be in cl ud e d in th e i nc ome of th e a sse s see si nce the sa me s tood a cc r ue d a nd w a s the income o f th e a ss e ssee a s pe r me rc a nt il e sys te m be in g fo llow e d by the a sses see .
6. Th e Ld .C ou ns e l for t he a s se sse e, on the oth e r han d , re lie d up on the or d e r of the Ld . C IT( A) .
7. W e ha ve h e a r d b ot h th e pa rt ie s a nd ha v e a l so gon e thr ou gh t he or der of the Ld . C I T( A ) . W e h a ve n ote d t ha t th e Ld. C I T( A) h a s d e ci d e d the i ss ue in f a vo ur of the asse ssee on noti n g t ha t i de nti c a l is su e h a d b e e n a d ju d ic a te d by th e I TA T C ha n d ig a rh B e n ch i n th e ca se of Ka ng ra C e n tr a l C oop e r a ti ve ITA No.290/Chd/2020 A.Y. 2016-17 Page 16 of 18 B a nk Ltd ., D h a r a ms ha l a (s up r a ). W e ha ve gone thr ou gh th e sa i d d e ci s ion re p ro du ce d i n the o rd e r of the Ld .C I T(A ) a n d fi nd t ha t the i ssu e i n th e s a id c ase w a s i d e n ti ca l r e l a ti ng to a dd i ti on ma d e of in te re st on st ic ky l oa n s o n a cc r u al b a si s fol l ow in g me r c a nti l e sy ste m of a c cou nti n g . Th e I TA T ha d he l d the s a me to b e t a xa b le on r e ce ip t ba s i s f ol low i ng i ts de ci si on i n the ca s e of Lud h ia n a C e n tr a l C oope ra tiv e B a nk Ltd . i n I TA N o. 5 2 6 /C hd /2 0 13 , w he re in i t n ote d , th a t the ju dg e me n t of the H on' bl e G uj a r a t H i gh C our t i n t he c a se of Pr . C I T-5 vs S hr i Ma h i la S e w a S a h ka r i B a nk Ltd a n d th e Hon 'b l e B omb a y H i gh C our t in th e c a se o f CI T vs De ogi r i N a ga r i Sa h a k a r i B a nk Lt d & Ot he r s 3 7 9 I TR 2 41 , w a s fol l ow e d .
Th e Ld . DR ha s be e n un a b le to d i sti n gui sh the s a id ca se be fore us , n or ha s h e b r oug ht to ou r n oti ce a ny con tr a r y ju dg me n t of a n y Ho n'b l e H ig h C ou rt o r th e H on 'b le A pex C our t on th e is su e .
8. I n vie w of the same s in ce a d mi tte dl y th e i ssue sta nd s cove re d i n fa v our of th e a sse sse e by th e de ci si on of th e I TA T C ha n d ig a rh B e nch i n the c a se of K a ngr a C e n tr a l Coo pe r a tive B a nk Ltd . , D ha r a msh a l a (s up r a ) w e see no rea son to ITA No.290/Chd/2020 A.Y. 2016-17 Page 17 of 18 in te r fe re i n th e or de r of t he Ld .C I T( A) w h o h a s d e le te d the a dd i ti on s o ma d e f ol low i n g the sa i d d e c is io n . Th e gr oun ds of a p pe a l r a i se d b y t he Re ve n ue ar e , the re f ore , d i smi sse d .
9. I n the re s ul t, the a p p e a l of t he Re ve nue i s d i smi sse d.
Sd/- Sd/-
(DIVA SINGH) (ANNAPURNA GUPTA)
याियक सद य/ Judicial Member लेखा सद य/ Accountant Member
Dated: 08th June, 2021
*रती*
आदे श क त ल प अ े षत/ Copy of the order forwarded to :
• अपीलाथ / The Appellant
• यथ / The Respondent
• आयकर आयु त/ CIT
• आयकर आय
ु त (अपील)/ The CIT(A)
• िवभागीय त न ध, आयकर अपील य आ धकरण, च,डीगढ़/ DR, ITAT, CHANDIGARH • गाड फाईल/ Guard File आदे शानुसार/ By order, सहायक पंजीकार/ Assistant Registrar ITA No.290/Chd/2020 A.Y. 2016-17 Page 18 of 18