Income Tax Appellate Tribunal - Pune
Deputy Commissioner Of Income-Tax,, vs The Pune People Co-Op. Bank Ltd.,, Pune on 25 January, 2018
आयकर अपील
य अ धकरण] पण
ु े यायपीठ "बी" पण
ु े म
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "B", PUNE
BEFORE MS. SUSHMA CHOWLA, JM AND
SHRI ANIL CHATURVEDI, AM
आयकर अपील सं
. / ITA Nos.717 to 719/PUN/2016
नधा रण वष / Assessment Years : 2007-08, 2009-10 and 2012-13
The Dy. Commissioner of Income Tax, .......... अपीलाथ /
Circle - 12, Pune.
Appellant
बनाम v/s
The Pune People Co-op. Bank Ltd., .......... यथ /
606, Sadhashiv Peth, Laxmi Road,
Respondent
Pune - 411 030.
PAN : AAAAP6104H.
Assessee by : Shri Suhas Bora.
Revenue by : Smt. Nirupama Kotru.
सन
ु वाई क तार ख / घोषणा क तार ख /
Date of Hearing : 24.01.2018 Date of Pronouncement: 25.01.2018
आदे श / ORDER
PER ANIL CHATURVEDI, AM :
These three appeals filed by the Revenue are emanating out of consolidated order for A.Ys. 2007-08 and 2009-10 and a separate order for A.Y. 2012-13 of Commissioner of Income Tax (A) - II, Pune - 5, dt. 06.01.2016.
2. Before us, at the outset, both the parties submitted that though the appeals filed by the Revenue are for three different assessment years but the facts and issues involved in all the appeals are identical except for the assessment year and the amounts involved and the Ld.CIT(A) has also passed a consolidated order for two assessment 2 years and therefore the submissions made by them while arguing one appeal would be equally applicable to the other appeals also and thus, all the three appeals can be heard together. In view of the aforesaid submissions of both the parties, we, for the sake of convenience, proceed to dispose of the three appeals by a consolidated order but however, proceed with narrating the facts in ITA No.717/PUN/2016 for assessment year 2007-08.
3. The relevant facts as culled out from the material on record are as under :-
Assessee is engaged in banking business. Assessee filed its return of income for A.Y. 2007-08 on 25.09.2012 declaring total income of Rs.4,65,63,620/-. The return of income was initially processed on 19.03.2009 u/s 143(1) of the Act. Thereafter, it was seen that interest accrued on NPAs amounting to Rs.6,99,80,000/- was not considered as income by the assessee. Accordingly, notice u/s 148 of the Act was issued and served on the assessee. Thereafter, the case was taken up for scrutiny and assessment was framed u/s 143(3) r.w.s. 147 of the Act vide order dt.16.02.2015 and the total income was determined at Rs.11,65,43,620/-. Aggrieved by the order of AO, assessee carried the matter before Ld.CIT(A), who vide order dt.06.01.2016 (in appeal No.PN/CIT(A)-5/DCIT, Cir-
12/913/912/2014-15) by a consolidated order for A.Ys. 2007-08 and 2009-10 granted substantial relief to the assessee. Aggrieved by the order of Ld.CIT(A), Revenue is now in appeal before us and has raised the following grounds :
"1. On the facts and the circumstances of the case, the Ld.CIT(A) has erred in allowing the claim of interest on NPAs. The Ld.CIT(A) failed to appreciate that the accrued interest on NPA should be worked as per the provisions of section 3D r.w.r 6EA.3
The Hon'ble ITAT, Pune in its order dated 23.01.2014 of Cosmos Bank in ITA Nos.460 and 461 of 2012 has upheld the stand of the department that the accrued interest should be worked out as per section 43D r.w.r. 6EA and accordingly brought to tax on accrual basis.
2. The order of the Ld.CIT(A) be vacated on this issue and that of AO be restored."
Similar grounds have been raised by the Revenue in A.Ys. 2009-10 and 2012-13.
4. During the course of assessment AO noticed that assessee had shown accrued interest on NPAs in the Balance Sheet. The assessee was asked to furnish the details of the accrued interest for the year and also show as to whether the same was included in the Profit and Loss account. Assessee inter-alia submitted that the interest on NPA accounts cannot be said to have been accrued to the assessee and its stand is supported by the Circular of CBDT dt.09.10.1984 and that assessee bank has been consistently following the system of accounting in respect of interest on NPAs as per the Prudential Norms of Recognition of Income issued by the Reserve Bank of India. The submission of the assessee was not found acceptable to the AO. AO was of the view that the interest accrued on NPAs have to be computed as per Sec.43D r.w.r 6EA and therefore should be included as income of the assessee. He also relied on the decision of Pune Tribunal in the case of Cosmos Co-operative Bank Ltd., in ITA Nos.460 and 461/PN/2012 dt.23.01.2014. He accordingly held that the interest chargeable on NPAs for the year amounting to Rs.6,99,80,000/- has to be included as income of the assessee. AO accordingly made its addition. Aggrieved by the order of AO, assessee carried the matter before Ld.CIT(A), who decided the issue in favour of the assessee by holding as under :
4
" 5.2 I have perused the material on record and the submissions made by the appellant bank carefully. I tend to agree with the contentions of the appellant bank. I also find that a similar issue has been decided by the Hon'ble ITAT Pune in its order in the case of Western Maharashtra Development Corporation Ltd Vs DCIT (2008) 114 ITJ (Pune) 54 wherein it has elaborately considered a similar situation where recovery on interest on seed money loan given by the assessee company was extremely low and possibility of recovering these amounts was somewhat remote. In the said case, the Hon'ble ITAT has observed that no doubt there is a legal right to receive the interest but there are also ground realities which do not permit strict enforcement of this right. While holding that such interest even though accrued as per mercantile system of accounting but did not give real income to the assessee. The Hon'ble ITAT Pune has decided the issue on accrued interest on NPA advances not to be considered as income in favour of the bank in many cases a few of which are mentioned below:
ACIT Vs Osmanabad Janta Sahkari Bank Ltd ITA No.795/PN/2011 dated 31.08.2012.
ACIT Vs Siddheshwar Sahkari Bank Ltd ITA No. 794/PN/2011 dated 31.08.2012.
ACIT Vs Devnagari Sahkari Bank Ltd ITA No.817 & 1114/PN/2011 dated 28.09.2012.
ACIT Vs Maharashtra Nagri Sahkari Nanded Bank ITA No. 1713/PN/2011 dated 28.02.2013.
5.3 Though there are diverse views on the issue of interest on NPA accounts of different High courts as in the case of CIT Vs Vasisht Chay Vyapar Ltd. 330 ITR 440 wherein the Delhi High Court ruled in favour of the assessee by holding that interest income on NPA is not taxable on accrual basis, the Hon'ble Madras High Court on the other hand in the case of Shakti Finance Ltd. 31 taxmann.com 305 has taken the stand that interest income on NPA is taxable on accrual basis, however, at present as there is no jurisdictional high court decisions on this issue and the jurisdictional bench has ruled in favour of the banks in various cases respectfully following the jurisdictional ITAT the action of the AO to tax accrued interest on NPA accounts is not justified in law. The AO is directed to delete the said addition. This grounds of appeal Nos. 2 to 5 for both years are allowed."
Aggrieved by the order of Ld.CIT(A), Revenue is now in appeal before us.
5. Before us, Ld.D.R. supported the order of AO. Ld.A.R. on the other hand reiterated the submissions made before AO and Ld.CIT(A) and further submitted that on identical issue in assessee's own case 5 the issue has been decided by the Co-ordinate Bench of the Tribunal in assessee's favour in ITA No.418/PN/2016 for A.Y. 2011-12. He further submitted that on identical issue, the Hon'ble Bombay High Court in the case of CIT Vs. Deogiri Nagari Sahakari Bank Ltd., in ITA No.53 of 2014 dt.22.01.2015 has also decided the issue in favour of the assessee. He placed on record the copy of the decisions rendered by Hon'ble Bombay High Court in the case of Deogiri Nagari Sahakari Bank (supra) and the decision of the Co-ordinate Bench of the Tribunal in assessee's own case in A.Y. 2011-12 and he thus supported the order of Ld.CIT(A).
6. We have heard the rival submissions and perused the material on record. The issue in the present case is with respect to considering interest on NPA accounts as income of the assessee. We find that identical issue of taxing of interest accrued on NPA accounts arose in assessee's own case in A.Y. 2011-12. The Co-ordinate Bench of the Tribunal while deciding the issue in ITA No.418/PN/2016 for A.Y. 2011-12 order dt.04.07.2016 has decided the issue in favour of the assessee by observing as under :
"7. We find that similar issue as before us arose in ITO Vs. Shankarrao Mohite Patil Sahakari Bank Ltd. in ITA No.934/PN/2015 and in ITO Vs. Samarth Sahakari Bank Ltd. in ITA No.615/PN/2015, relating to assessment year 2011- 12, order dated 10.02.2016 and Kolhapur Mahila Sahakari Bank Ltd. Vs. ITO in ITA No.01/PN/2013, relating to assessment year 2009-10, vide order dated 29.01.2014. The Tribunal in turn following the ratio laid down by the Pune Bench of Tribunal in ACIT Vs. Osmanabad Janta Sahakari Bank Ltd. in ITA No.795/PN/2011, order dated 31.08.2012, held as under:-
"2. The assessee is a Co-operative Bank engaged in the business of accepting deposits from members and giving loans to members. It has filed its return of income on 11.09.2009 for the year under consideration declaring total income at ₹ 14,57,840/-. In the scrutiny assessment, the Assessing Officer noticed that the assessee had not credited interest receivable or accrued on non- performing assets (hereinafter referred to as NPA) to its profit and loss account for financial year 2008-09. The Assessing Officer after rejecting the various contentions of the assessee has held that the RBI guidelines are not intended to regulate the income 6 tax law and the assessee was liable to be assessed on accrual basis u/s.5 of I.T. Act for the reasons (i) benefits extended to schedule bank, public financial institutions, public companies for the purpose of section 43D were not extended to a co-operative bank and (ii) the assessee was following mercantile system of accounting and not cash system. Ultimately the Assessing Officer taxed on accrued interest of ₹ 25,20,022/- advance claimed to be NPA account. The matter was carried before the first appellate authority wherein, following the Osmanabad Janta Sahakari Bank Ltd. in ITA No.795/PN/2011, the CIT(A) has decided the issue in favour of the assessee and the same has been opposed before us on behalf of revenue.
2.1 After going through the rival submissions and material on record, we find that in Osmanabad Janta Sahakari Bank Ltd. (supra) the Tribunal has decided the issue in favour of assessee by observing as under:
"7. In the case before us, admittedly, assessee has directly taken the interest to the Balance Sheet and it is not routed through the Profit & Loss Account. Moreover, the issue of the taxability of the interest on the sticky losses/advances, is covered in favour of the assessee by the decision of the coordinate Benches in the case of The Durga Cooperative Urban Bank Ltd., Vijayawada (supra) and Karnavati Cooperative Bank Ltd. (supra). We find no reason to interfere with the reasoned order of the Ld. CIT(A) and accordingly the same is confirmed. In the result, the Revenue's ground is dismissed."
The above decision has been followed in (i) ACIT, Circle-3, Nanded V/s Bhagyalaxmi Mahila Sahakar Bank Ltd. ITA No.793/PN/2011, (ii) ACIT, Circle -3 V/s Sidheshwar Sahakari Bank Ltd. ITA No.794/PN/2011 , (iii) ACIT (Central) V/s Latur Urban Co-operative Bank Ltd. ITA No.792/PN/2011 and (iv) Asst. CIT, Circle-1 V/s Deogiri Nagari Sahakari Bank Ltd. ITA No.817 & 1114/PN/2011."
8. The Hon'ble Bombay High Court in CIT Vs. M/s. Deogiri Nagari Sahakari Bank Ltd. in Income Tax Appeal No.53 of 2014 & Ors. has laid down the proposition that the interest accrued on NPAs is not taxable in the hands of assessee, in view of the guidelines issued by the RBI.
9. Following the same parity of reasoning, we hold that no addition is warranted on account of interest accrued on NPAs. Accordingly, we uphold the order of CIT(A) in deleting the addition made on account of interest accrued on NPAs. The grounds of appeal raised by the Revenue are thus, dismissed."
7 The aforesaid decision of the Tribunal has not been set aside, stayed or over-ruled by Higher Judicial Authorities. Before us, Revenue has also not placed any material on record to point out any distinguishing feature in the facts of the present case and that of earlier year nor has placed any contrary binding decision in its support. We therefore following the decision of Co-ordinate Bench of 7 the Tribunal and the decision of Hon'ble Bombay High Court, find no reason to interfere with the order of Ld.CIT(A) and thus the grounds of the Revenue are dismissed.
8. In the result, the appeal of the Revenue in ITA No.717/PUN/2016 for A.Y. 2007-08 is dismissed.
9. As far as the grounds raised in appeals in ITA Nos.718/PUN/2016 and 719/PUN/2016 for A.Ys. 2009-10 and 2012- 13 are concerned, in view of the submission of both the parties that the facts of the case in both these years being identical to the facts and issue of the case in ITA No.717/PUN/2016 for A.Y. 2007-08, we for the reasons stated herein while disposing of the appeal in ITA No.719/PUN/2016 for A.Y. 2007-08 and for similar reasons, dismiss the grounds of appeal of Revenue. Thus, the grounds of the Revenue are dismissed.
10. In the result, appeals of Revenue in ITA No.718/PUN/2016 for A.Y. 2009-10 and ITA No.719/PUN/2016 for A.Y. 2012-13 are dismissed.
11. To sum up, all the three appeals of the Revenue are dismissed.
Order pronounced on 25th day of January, 2018.
Sd/- Sd/-
(SUSHMA CHOWLA) (ANIL CHATURVEDI)
या यक सद!य / JUDICIAL MEMBER लेखा सद!य / ACCOUNTANT MEMBER
पुणे Pune; दनांक Dated : 25th January, 2018.
Yamini
8
आदे श क# $ त&ल'प अ(े'षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. CIT(A), Pune-5, Pune.
4. The Pr.CIT, Pune-4, Pune.
5. "वभागीय %त%न&ध, आयकर अपील य अ&धकरण, "बी" / DR, ITAT, "B" Pune;
6. गाड+ फाईल / Guard file.
आदे शानस ु ार/ BY ORDER,स / / TRUE COPY / / //T// True Copy // व-र.ठ %नजी स&चव / Sr. Private Secretary आयकर अपील य अ&धकरण ,पण ु े / ITAT, Pune.