Income Tax Appellate Tribunal - Hyderabad
The Adarsh Co-Operative Urban Bank ... vs Acit, Circle-11(1), Hyd, Hyderabad on 28 February, 2018
ITA No 1265 of 2016 Adarsh Coop Urban Bank Ltd Hyderabad.
IN THE INCOME TAX APPELLATE TRIBUNAL
Hyderabad ' A ' Bench, Hyderabad
Before Smt. P. Madhavi Devi, Judicial Member
AND
Shri S.Rifaur Rahman, Accountant Member
ITA No.1265/Hyd/2016
(Assessment Year: 2013-14)
The Adarsh Cooperative Vs Asstt. Commissioner of
Urban Bank Ltd Income Tax, Circle 11(1)
Hyderabad IT Towers, AC Guards
PAN: AABAT 4278 K Hyderabad 500004
(Appellant) (Respondent)
For Assessee : Shri C.V.Narasimham
For Revenue : Smt. Suman Malik, DR
Date of Hearing: 19.12.2017
Date of Pronouncement: 28.02.2018
ORDER
Per Smt. P. Madhavi Devi, J.M.
This is assessee's appeal for the A.Y 2013-14. In this appeal, the assessee is aggrieved by the order of the learned CIT (A)-V, Hyderabad, dated 29.07.2016 confirming the assessment order dated 31/12/2015. The grounds of appeals raised by the assessee read as under:
"1. The Learned Commissioner erred in confirming the additions to returned income and disallowing the higher rate of depreciation and deductions claimed which is contrary to facts of the ease, contrary to the evidence on record and unsustainable in law.
2. The Learned Commissioner erred in not allowing the higher rate depreciation claimed on Cash Dispenser, ATM and its related accessories and UPS batteries.Page 1 of 8
ITA No 1265 of 2016 Adarsh Coop Urban Bank Ltd Hyderabad.
3. The Learned Commissioner erred in not considering the grounds of appeal relating to claim for higher rate of depreciation claimed on printer and scanner and failed to give any finding on the same.
4. The Learned Commissioner erred in confirming the addition of Rs.43,70,680/- being the interest not received on Non-Performing assets (NPAs) and ought to have held that such interest is taxable only on actual receipt.
5. For these and other grounds that may be urged at the time of hearing, it is prayed that appeal may be allowed".
2. Brief facts of the case are that the assessee, a cooperative society engaged in banking business filed its return of income for the A.Y 2013-14 on 11.09.2013 admitting total income of Rs.3,97,50,110. The return was initially processed u/s 143(1) and later on, selected for scrutiny. During the assessment proceedings u/s 143(3) of the Act, the AO observed that the assessee has claimed depreciation @ 60% on UPS Batteries, ATM, ATM related accessories, iPad accessories and Cash Dispenser Machine, whereas according to the AO, the depreciation allowable on these items is only 15%. He considered the definition of 'computer' under the 'Information Technology Act, 2000' and has held that the UPS is just an instrument to ensure uninterrupted power supply and to regulate the flow of power to computer system, therefore, cannot be considered as part of the computer. He accordingly held that the depreciation on UPS, ATM, ATM related accessories and other accessories is allowable @ 15% only. He accordingly disallowed the balance 45% of the claim and brought it to tax.
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3. Further, from the 3CD report filed by the assessee, the AO observed that the assessee is following mercantile system of accounting but has offered interest income on NPAs on realization basis. Observing that section 43D is not applicable to the assessee, being a non-scheduled cooperative bank, he held that the interest on NPAs is to be offered to tax on accrual basis. Accordingly, he made the addition and brought it to tax. Aggrieved, the assessee preferred an appeal before the CIT (A), who confirmed the order of the AO and the assessee is in second appeal before us.
4. The learned Counsel for the assessee submitted that the ATM & ATM related accessories, including cash dispensing machine, cannot be operated without the computer and therefore, they are to be considered as part of the computer and they are eligible for depreciation @ 60%. Similarly, he also submitted that the UPS is necessary for running of the ATM and ATM related accessories and therefore, they should be considered as part of the computer and depreciation should be allowed @60%. He placed reliance upon the following decisions in support of his contention:
a) CIT vs. Orient Ceramics and Industries Ltd (2013) 358 ITR 49 Delhi High Court.
b) CIT vs. BSES Yamuna Powers Ltd (2013) 358 ITR 47 Delhi High Court.
c) DCIT-2(1) vs. Datacraft India Ltd (2011) 9 ITR (Tri) 712 Mum.
d) DCIT vs. Saraswat Infotech Ltd (ITA
No.1494/Mum/2015d), dated 22.11.2016
e) DCIT vs. Global Trust Bank Ltd (ITA No.474/Del/2009
dated 20.04.2011)
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5. The learned DR, on the other hand, supported the orders of the authorities below.
6. Having regard to the rival contentions and the material on record, we find that in the case of CIT vs. Orient Ceramics and Industries Ltd (Supra), the Hon'ble Delhi High Court has followed the decision of the Coordinate Bench of the High Court in the case of CIT vs. BSES Yamuna Powers Ltd to allow depreciation @ 60% on computer peripherals and accessories and also UPS. We find that in the case of CIT vs. BSES Yamuna Powers Ltd, the Hon'ble Delhi High Court was considering the depreciation allowable on computer accessories and peripherals such as, printers, scanners and server etc., which form an integral part of the computer system and cannot be used without the computer.
7. In the case of DCIT vs. Datacraft India Ltd (cited Supra), the Hon'ble Special Bench of the Tribunal at Mumbai was considering whether computer accessories & peripherals such as routers and switches can be classified as computer hardware, when they are used along with a computer and it was held that when their functions are integrated with a 'computer' and when a device is used as part of the computer in its functions, then it would be termed as a computer.
8. The Coordinate Bench of the Tribunal in the case of Saraswat Infotech Ltd (Supra) has followed the decision of the Hon'ble Bombay High Court in the assessee's own case to hold that depreciation @ 60% is allowable on UPS.
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9. In the case of Global Trust Bank Ltd (Supra), Coordinate Bench of the Tribunal at Delhi has held that the ATM is a computer telecommunication device that allows Bank Customers to access banking at places other than the normal bank without having to take the trouble to go to the Bank in person and collect the cash as is done under the conventional method of withdrawing money from the Bank and that the ATM Machines are computerized machines which not only allow the customers to withdraw money but they can check the account balance, pay bills, purchase goods and services and therefore, unless it is computerized and linked with the main server, it is not possible to operate the ATM.
10. From the reading of the above judgments, we find that the assessee is eligible for depreciation @ 60% on ATM and other related accessories. As regards depreciation @ 60% on UPS is concerned, we find that though the UPS can independently function without the assistance or integration with a computer and is an alternate mode of supply of power and does not depend on any assistance from a computer, the computer can function only on a power supply and when there is no power supply, it is connected to UPS so that it can work uninterruptedly and without losing the unsaved data when the power goes off. Therefore, in our opinion, UPS also can be considered as a computer if it is connected to the ATM Machine or a Computer and depreciation thereon is allowable at 60%. AO is directed to verify if the UPS are used for the functioning of the ATM and allow depreciation accordingly. Therefore, the grounds of appeal No.1 to 3 are treated as allowed for statistical purposes.
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11. As regards Ground of appeal No.4, the learned Counsel for the assessee submitted that this issue is fairly covered in assessee's favour by the decision of the Hon'ble Gujarat High Court in the case of Pr. CIT vs. Shri Mahila Sewa Sahakari Bank Ltd reported in (2017) 395 ITR 324 (Guj.) and in the case of Kranthi Cooperative Urban Bank Ltd vs. ACIT in ITA No.1194/Hyd/2016 dated 20.12.2016.
12. The learned DR, however, supported the orders of the authorities below.
13. Having regard to the rival contentions and the material on record, we find that the Hon'ble Gujarat High Court and also the Hon'ble Bombay High Court has considered the decision of the Apex Court in the case of Southern Technologies Ltd to hold that the interest on non-performing assets/sticky loan is to be recognized only when it is received or credited to the P&L A/c. The Coordinate Bench of this Tribunal in the case of Kranthi Coop. Urban Bank Ltd (Supra) has also considered this issue at length and at Paras 5 to 9, has held as under:
"5. Aggrieved by the order of Ld. CIT(A) the assessee is an appeal before us. The Ld. counsel placed before us a copy of the latest order of the Hon'ble Gujarat High Court in the case of Pr. Commissioner of Income Tax Vs. Shri Mahila Sewa Shakari Bank Ltd.,(ITA No. 531 of 2015, dated 05- 08-2016), wherein the bench referred to catena of decisions and decided in favour of the assessee by observing 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 ITA No.1194/Hyd/2016 The Kranti Co-operative Urban Bank Ltd., Hyderabad. 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 Page 6 of 8 ITA No 1265 of 2016 Adarsh Coop Urban Bank Ltd Hyderabad.
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. 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.
6. The revenue contended, in the aforecited decision, that Sec. 43D of 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.
7. It was thus, finally concluded that interest on NPAs cannot be brought to tax when the actual income is not received. Ld. Counsel for the assessee submitted that the principal amount was declared as NPAs somewhere in the year 2002-03 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 ITA No.1194/Hyd/2016 The Kranti Co-operative Urban Bank Ltd., Hyderabad 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.
8. The Ld. DR, on the other hand, submitted that the provisions of the RBI Act are subservient to the provisions of Sec 43D of the income tax Act and thus strongly relied upon the orders passed by the taxing authorities.
9. We have carefully considered the rival submissions and perused the record. The arguments advanced by the assessee are fully supported by the decision of the ITAT Visakhapatnam Bench as well as the decision of the Hon'ble High Court of Gujarat (supra) which, in terms, were based on several reported decisions of other High Courts. Ld. DR could not place any judgement wherein a contrary Page 7 of 8 ITA No 1265 of 2016 Adarsh Coop Urban Bank Ltd Hyderabad.
was taken on this issue. Under these circumstances, we respectfully follow the decision of the Hon'ble High Court of Gujarat and the decision of the ITAT Visakhapatnam Bench (supra) and hold that the A.O. as well as CIT(A) were not justified in bringing to tax a sum of Rs. 2,58,279/-, towards alleged accrued interest on NPAs. In the circumstances of the case, the A.O. is directed to delete the addition.
14. Respectfully following the same, we direct the AO to consider the interest on NPAs as income only in the year of receipt. The addition is accordingly deleted and the Ground of appeal No.4 is allowed.
15. In the result, assessee's appeal is partly allowed.
Order pronounced in the Open Court on 28th February, 2018.
Sd/- Sd/-
(S.Rifaur Rahman) (P. Madhavi Devi)
Accountant Member Judicial Member
Hyderabad, dated 28th February 2018.
Vinodan/sps
Copy to:
1 The Adarsh Cooperative Urban Bank Ltd, 1-251/I Phase I, IDA,
Jeedimetla, Hyderabad 500055
2 ACIT Circle 11(1) IT Towers, AC Guards, Hyderabad 500004
3 CIT (A)-5 Hyderabad
4 Pr. CIT - 5 Hyderabad
5 The DR, ITAT Hyderabad
6 Guard File
By Order
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