Income Tax Appellate Tribunal - Rajkot
The Dy. Commr. Of Income Tax, Cir.-1(2), ... vs Gondal Nagarik Sahakari Bank Ltd.,, ... on 16 January, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
RAJKOT BENCH, RAJKOT
[Conducted through E-Court at Ahmedabad]
सव ी एन.के. ब लैया, लेखा सद य एवं महावीर साद, या यक सद य के सम ।
BEFORE SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER And
SHRI MAHAVIR PRASAD, JUDICIAL MEMBER
आयकर अपील सं./I.T.A.
No.504/Rjt/2015
( नधा रण वष / Assessment Year : 2012-13)
Dy. CIT, बनाम/ Gondal Nagarik Sahakari
Cir - 1(2), Vs. Bank Ltd.
Rajkot. 'Samarpan', Mandvi Chowk,
Gondal.
थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AAAAG 4131 H
(अपीलाथ' /Appellant) .. ( (यथ' / Respondent)
अपीलाथ' ओर से / Appellant by : Shri Praveen Verma, Sr. D.R.
(यथ' क* ओर से/Respondent by : Shri M. J. Ranpura, A.R.
ु वाई क* तार.ख /
सन Date of Hearing 03/01/2018
घोषणा क* तार.ख /Date of Pronounce ment 16/01/2018
आदे श / O R D E R
PER MAHAVIR PRASAD, JUDICIAL MEMBER:
This is an appeal by the department against the order of the Commissioner of Income Tax(Appeals)-1, Rajkot, vide appeal no. CIT(A)-I/Rjt/0264/14-15 dated 28/07/2015 for the Assessment Year (AY) 2012-13, on the following Grounds:
1. The learned CIT(Appeal) has erred in making deletion of addition of Rs.34,73,904/- on account of accrued interest on NPA account.
2. The learned CIT(Appcal) has erred in making deletion of addition U/s.14A of Rs.19,04,830/-.
3. It is, therefore, prayed that the order of the ld. CIT(A) may be set aside and that of the Assessing Officer be restored.ITA No.504/Rjt/2015
DCIT Vs. Gondal Nagrik Sahakari Bank Ltd.
Asst.Year - 2012-13 -2-
2. The relevant facts as culled out from the materials on record are as under:-
The appellant is a Co-operative Society, and engaged in the business of blanking and governed by the Banking Regulation Act, 1949 as applicable to co-operative Societies. The appellant is an urban co- operative bank. Regular books of account are maintained and are audited as per the provision of Gujarat Co-Operative Societies Act as also u/s.44AB of the Income-tax Act, 1961. It had filed its return of income on 26.07.2012 showing therein income of Rs.2,59,94,100/-. The AO, vide order u/s.143(3) of the Act dated 11.03.2015 assessed the total income at Rs.3,13,72,830/-, wherein he made the above additions/disallowances.
2.1 In this case, appellant made following submission:
"(a) The AO vide para 3.1 of the Assessment order alleged that NPA's interest which was due as per mercantile system and as per provisions of section 145 of the Act should have been subjected to tax accrual basis. He further alleged that exemption of interest income in relation to the NPA is available only to the schedule banks and not to the Co-operative Bank. He thus vide para 3.6 of the assessment order held that accrued interest of Rs.34,73,904/- is part of taxable income and accordingly added to the total income.
(b) During the assessment proceedings in response to show cause notice dated 02.01.2015 the appellant vide its letter dated 09.01.2015 explained the reasons for not bringing the accrued interest on NPA to tax. The AO vide para 3(a) of the assessment order reproduced the same. Interest on advances under the category of Doubtful/loss advances were not considered as the recovery itself was is in question, there was no anticipation of receipt of any interest on such non performing asset. However, the ITA No.504/Rjt/2015 DCIT Vs. Gondal Nagrik Sahakari Bank Ltd.
Asst.Year - 2012-13 -3- AO in total disregards to the settled proposition of law, alleged that interest on NPA of Rs.34,73,904/- is required to be offered to tax in view of provisions of section 5 r.w.s sections 43D and 145 of the Act. The observation of the AO is totally erroneous and therefore disallowance made on misinterpretation of legal position is totally unjustified and deserves to be deleted, may kindly be deleted.
(c) It is also submitted that in the case of banking companies, any interest accrued on advances classified as non-performing is taxed in the year in which the same is actually received. The theory of only real income is to be taxed is a settled taw and therefore notwithstanding the appellant has been following mercantile system of accounting, the appellant could be taxed on the real income and not on the hypothetical income. So far as non- performing advances are concerned (i.e. advances categorizing under doubtful and loss advances) it is submitted that recoveries of interest on such accounts is extremely low and possibilities of recovering principal amount is also remote. The appellant submits that nevertheless there is legal right to receive interest on such advances there are ground realities which do not permit enforcement of such right. If such interest on NPA is included in the accounts, the financial result would give distorted picture of affairs of the appellant's bank. Income-tax is a levy on income. No doubt, the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a "hypothetical income", which does not materialize. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account. In this connection reliance is placed on the following decisions.
ITA No.504/Rjt/2015DCIT Vs. Gondal Nagrik Sahakari Bank Ltd.
Asst.Year - 2012-13 -4- • Hon'ble Supreme Court of India in the case of UCO Bank vs. CIT 237 ITR 889;
• Hon'ble Supreme Court of India in the case of CIT vs. Shoorji Vallabhdas & Co. 46 ITR 144;
• Hon'ble High Court of Calcutta in the case of ANZ Grindlays Bank Ltd. vs. CIT 250 ITR 125;
(d) The appellant further submits that provisions of section 145 are subject to mandate of accounting standards I issued u/s.145(2) of the Act, which prescribes that accounting policies adopted by the appellant should be such so as to represent true and fair view of the affairs of the business in the financial statements. In the name of compliance with section 145(1) or other section, it is not open for anyone to force adoption of accounting policies which give a distorted picture. Further, the appellant is consistently following the method of recognizing interest on NPA only when it is realized. The same also permitted and approved treatment in the Accounting Standard 9 "Revenue Recognition" issued by the Institute of Chartered Accountants of India. As per said standard, one following mercantile system of accounting, when there is uncertainty involved in the ultimate recovery of Revenue, revenue is to be recognized only in the year in which the same is recovered.
(e) Sub-section (1) of section 145 of the Income tax Act, 1961 provides that subject to sub-section (2), income chargeable under the head "Profits and gains of business or profession" shall be computed in accordance with system of accounting regularly employed by the assesses. Sub-section (2) of the said section has given power to the Central Government to notify from time to time accounting standards to be followed by any class of assessee or in respect of any class of income. In exercise of this power conferred by sub-section (2), the Central Government has hitherto notified two accounting standards, which is required to be followed by all assessee following mercantile system of accounting. It is submitted that nowhere in such accounting standards, it is prescribed that fundamental principle of accounting, i.e. Prudence should not be followed. Prudence suggests that all known liabilities and loss are to be provided for and income should be accounted for in the ITA No.504/Rjt/2015 DCIT Vs. Gondal Nagrik Sahakari Bank Ltd.
Asst.Year - 2012-13 -5- income statement if there-is certainty regarding its ultimate collections. Since, banking industries are completely governed by the RBI, RBI's guidelines have to be followed irrespective of accounting standards and that is also permitted by the ICAI by prescribing that accounting treatment suggested by governing body shall prevail over accounting treatment suggested, by any accounting standards.
(f) Further, it may be submitted that the tax is levied only on real Income, in a scenario that interest on Non-Performing Asset is doubtful of recovery due to adverse financial situation of borrower, it is legitimate move to infer that interest from such non- performing growers Is not accrued in the year to which it related and not exigible to tax, irrespective of the fact that assessee followed mercantile system of accounting. Reliance is placed on the decision of the Hon'ble Delhi High Court in the case, of CIT v. Vasisth Chay Vyapar Ltd [2010-TIOL-781-HC-DEL-IT]. It is further submitted that it is illusory to take credit for interest income when principal, on which such interest is dependent, is itself in doubt. To take interest on such non-performing advances in the scope of taxable income is patently against the theory of real income. The Hon'ble Supreme Court of India in the case, of UCO Bank vs. CIT [supra] held that in view of CBDT circular, dated 9-10-1984, interest on a loan whose recovery is doubtful and which has not been recovered by assessee bank for years but has been kept in a suspense account and has not been brought to profit and loss account of assessee, cannot be included In income of assessee. Further reliance is also placed on the decision of the Hon'ble Supreme Court of India in the case of Mercantile Bank Ltd. vs. CIT [2006] 153 Taxman 97, wherein, the apex court held that in view of decision of Supreme Court in UCO Bank v. CIT assessee would not liable to be taxed in respect of interest on doubtful advances credited to interest suspense account.
(g) Further without prejudice to the above, in view of the fact that bank has been following practice of recognizing interest on NPAs only actual realization basis and the department has accepted above, there seems no reason why different treatment ITA No.504/Rjt/2015 DCIT Vs. Gondal Nagrik Sahakari Bank Ltd.
Asst.Year - 2012-13 -6- was given in the assessment as there was no new facts emerged during the year. It is true that principle of res judicata does not apply to income tax proceeding, but at the same time it is also well-established that there ought to be uniformity and consistency when the facts and circumstances are identical.
(h) Further after considering the CBDT's circular as well as the decisions of UCO Bank (supra), Karnavati Co-Op Bank Ltd and others Hon'ble jurisdictional ITAT Rajkot Bench in ITA No.481/Rjt/2011deleted the disallowance.
(i) In appellant's own case Ld. CIT(A)-1, Rajkot vide order dated 08.07.2014 in appeal No. CIT(A)-I/Rjt/0239/13-14 for immediate preceding assessment year deleted the addition.
(j) Reliance is also placed on the following judicial pronouncements:
ITAT Pune Bench 'A' in the case of ACIT v. Osmanabad Janta Sah. Bank Ltd. [2013] 32 taxmann.com 229 (Pune-Trib.) wherein it has been held that:
"5 We heard the rival submissions of the parties and perused the record. We find that the identical issue has been considered by the ITAT Visakhapatnam Bench, in the case of Dy.CIT v. Durga Co-operative Urban Bank Ltd., [IT Appeal No.511/Vizag/2010), dated 10-03-2011. In the said case also, it was noticed by the Assessing Officer that assessee did not include the interest of Rs.18,26,306/- on the NPA advances. Again the issue of applicability of 43D was considered to the non-scheduled banks. The Tribunal placed its reliance on the decision of the. Hon'ble High Court of Delhi in the case of CIT v. Vasisth Chay Vyapar Ltd. [2011] 330 ITR 440/196 Taxman 169/[2010] 8 taxman.com 145 in which the Hon'ble Delhi High Court has considered the decision in the case of Southern Technologies Ltd. v. Jt. CIT [2010] 320 ITR 577/187 Taxman 346 (SC). The Tribunal finally held that the interest income rentable to NPA advances did not accrue to the assesses.ITA No.504/Rjt/2015
DCIT Vs. Gondal Nagrik Sahakari Bank Ltd.
Asst.Year - 2012-13 -7-
6. An identical view has been taken by the ITAT, Ahmedabad Bench in the case of Karnavati Co-op. Bank Ltd. v. Dy.CIT [2012] 134 ITD 486/17 taxmann.com 239. In this case the Tribunal has considered the provisions of section 43D and its application to the non-scheduled banks. The reasons given by the Tribunal in the case of Karnavati Co-op. Bank Ltd. (supra) for holding that interest on the sticky advances/NPA advances cannot be brought to tax by following the decision in the case of UCO Bank (supra), which is as under:
"15.1 On careful analysis of this section our first observation is that Section 43D is in contrast with the fundamental principle of accountancy. The cardinal principle of mercantile system of accountancy is that, an income is to be shown in the books of account on accrual basis. The principle is that it is immaterial whether it was actually received or not, but if an income is expected to be received, then it should be brought to books of account as an income accrued to the assessee. Contrary to this recognized principle, this section has prescribed that an income by way of interest shall be chargeable to tax in the previous year in which it is credited. The words "credited" and "actually received"
has been highlighted hereinabove while reproducing the section in question. The other deviation from the said accepted principle of accountancy is that an income by way of interest shall be chargeable to tax in the previous year in which it is actually received. The Act says that the incidence of 'credit' or "actually received", whichever is earlier is to be taken into account for the purpose of chargeability of income by way of interest. Simultaneously, it is noteworthy that this section is an overriding Section because the opening word is "notwithstanding anything to the contrary contained in any other provisions of this Act". Therefore, in spite of anything contained in the Act, the provisions of this section shall override those provisions. Once the Statute has categorically made a law in respect of public financial institutions that interest is chargeable to tax either in the year in which credited or actually received, whichever is earlier, then it is compulsory to abide by the said Rule. According to us, no scope is left with the Revenue Authorities to ignore these provisions due to ITA No.504/Rjt/2015 DCIT Vs. Gondal Nagrik Sahakari Bank Ltd.
Asst.Year - 2012-13 -8- unambiguous use of language in the Section.
(ii) Status of assessee for the purpose of application Section 43-D. As far as the status of the assessee is concerned, the Assessing officer has stated that the assessee-bank is a cooperative bank. Undisputedly, the assessee is also governed by the RBI guidelines. Vide an Explanation (d) r.w.s. 36(I)(viia) annexed to section 43-D the definition of the entities incorporated by the section have been defined and in the absence of any contrary material, we hereby hold that the assessee is covered by one of the entities, hence the provisions of section 43-D are to be applied.
(iii) Applicability of CBDT Circular.
Next issue is that whether a Circular having effect of relaxing rigour of law can be treated as inconsistent with the provisions of a statue. In order to aid proper determination of the income of money lenders and banks, the Central Board of Direct Taxes has issued a Circular dated October 6, 1952, providing that where interest accruing on doubtful debts is credited to a suspense account, it need not be included in assessee's taxable income, provided the Income tax Officer is satisfied that recovery is practically improbable. The CBDT u/s.119 of the I.T. Act has power to issue Circulars in exercise of its statutory powers. If the Board consider it necessary to lay down certain Rules and then direct the subordinate authorities, such directions are required to be followed and such Circular would be binding on the Department unless and until held as ultra virus by a court of law. The Board has powers to relax the severity or the strictness of law and the authorities are required to follow those instructions as held in the case of C.B. Gautam v. Union of India 108 CTR 304 (SC) & 110 CTR 179 (SC); Navnitlal C. Zaveri 56 ITR 198 (SC) and K.P. Varghese 131 ITR 597 (SC).
In the land-mark decision, the Hon'ble Supreme Court in the case of UCO Bank v. CIT [1999] 237 ITR 889 (SC) has therefore held, first, that a beneficial circular is not to be treated as inconsistent ITA No.504/Rjt/2015 DCIT Vs. Gondal Nagrik Sahakari Bank Ltd.
Asst.Year - 2012-13 -9- with the provisions of statute and binding on the authorities. Second, that in respect of interest on "sticky advances" interest income is to be taxed only when actually received as prescribed by CBDT Circular.
However, in the past an interesting turn had taken place by an order of the Hon'ble Kerala High Court in the case of State Bank of Travancore reported in 110 ITR 336 (Ker.), wherein it was held that the assessee, a banking company, did not credit in its account the interest that had accrued on "sticky advances" because the assessee felt that the interest could not to be realized. It credited the interest to a separate account known as "interest suspense account". On reference, the Hon'ble Court has held that there was an accrual of income liable to income-tax and the assessee was not justified in not crediting the interest income on such "stick advances" It its accounts. However, later on at the Hon'ble Apex Court while pronouncing the judgment of the said State Bank of Travancore v. CIT reported in [1986] 158 ITR 102 (SC), there were Hon'ble three Judges presiding the Court, out of which Hon'ble two Judges were in the opinion that the interest on "sticky advances" was rightly treated as income which had accrued to the appellant. There was a descending note by one of the Hon'ble Judge and commented that whether an income on receipt basis or on accrual basis, it is the real income and not any hypothetical income which may have theoretically accrued, i.e. subject to tax under the Act. Nevertheless, that decision was not followed while deciding the appeal of UCO Bank (supra) by the Hon'ble three Judges of the Supreme Court, already discussed by us supra. We, therefore summarize that as of now the law as laid down in UCO Bank is that in terms of CBDT Circular the interest is to be added as income only when actually received or credited in respect if the "sticky advances" while making assessment for a financial institution.
(iv) Interpretation of the language of the statute:
We have reproduced verbatim the provisions of section 43-D of the I.T. Act and expressed an opinion that if the statute has used the ITA No.504/Rjt/2015 DCIT Vs. Gondal Nagrik Sahakari Bank Ltd.
Asst.Year - 2012-13
- 10 -
terminology for the chargeability of interest on the basis when "credited" or "actually received", then in our opinion no ambiguity has been left by the Statute. If the statute is so clear that an interpretation can easily be made, then that exact meaning should be given to the language of the Section. For this legal proposition we place reliance on Keshavji Ravji and Company vs. CIT 183 ITR 01(SC), wherein it was held as under:
"As long as there is no ambiguity in the statutory language, resort to any interpretative process to unfold the legislative intent becomes impermissible. The supposed intention of the Legislature cannot then be appealed to whittle down the statutory language which is otherwise unambiguous. If the intendment is not in the words, it is nowhere else. The need for interpretation arises when the words used in the statute are, on their own terms, ambivalent and do not manifest the intention of the Legislature.
When words acquire a particular meaning or sense because of their authoritative construction by superior courts, they are presumed to have been used in the same sense when used in subsequent legislation in the same or similar context. To say that the court could not resort to the so-called "equitable construction"
of a taxing statute is not to say that, where a strict literal construction leads to a result not intended to sub-serve the object of the legislation, another construction, permissible in the context, should not be adopted. In this respect, taxing statutes are not different from other statutes."
We can therefore safely draw a conclusion that by the insertion of a special provision to tax interest income in the case of public financial institution, etc. section 43-D has to be applied in its letter and spirit. It is pertinent to mention that later on, in the case of CIT v. Bank of America S.A. 262 ITR 504 (Bom) the question of interest on "sticky loans'' was decided in favour of the assessee and held that the question is to be answered in favour of the assessee following the decision of UCO Bank reported at 237 ITR 889(5C) :: 240 ITR 355 (SC). Likewise, in an another case of CIT v. State Bank of India 262 ITR 662 (Bom.) again it was held that ITA No.504/Rjt/2015 DCIT Vs. Gondal Nagrik Sahakari Bank Ltd.
Asst.Year - 2012-13
- 11 -
the amount credited to the interest suspense account was not taxable following the decision pronounced in the case of UCO Bank (supra).
(v) Judgment in favour of Revenues From the side of the Revenue an order of the Tribunal has been vehemently relied upon and this is the basic reason of the elaborate discussion made hereinabove so as to unfold the controversy. In the said decision of the Tribunal, viz. Jt.CIT v. India Equipment Leasing Ltd. [2008] 111 ITD 37 (Chennai), the Respected Co-ordinate Bench has expressed that quote " Prior to insertion of section 43D with effect from 1-4- 1991, recognition of income was on the basis of circular of 9-10- 1984. It said that for first three years the income may be taken on accrual basis and from 4th year onwards, the income in respect of doubtful debts was to be recognized on receipt basis. Since the income was to be assessed for first three years on accrual basis, provisions of section 43D were inserted in the Act. Circular No. 621, dated 19-12-1991 gives the legislative intention stating that section 43D was inserted with a view to improving the viability of banks, public financial institutions etc., so as to provide that interest on sticky loans shall be charged to tax only in the year in which the interest is actually received or credited to the profit and loss account. This benefit was extended with Effect from 1-4-2000 in the case of public companies engaged in long-term financing of housing projects approved by National Housing Banks. The Legislature in their wisdom did not extend the same benefit to NBFCs which has been given to scheduled banks, public financial institutions, etc. The provisions of section 43D as stood at relevant time contained an expression 'the Income by way of interest in relation to such categories of bad or doubtful debts as may be prescribed having regard to the Guidelines issued by the RBI in relation to such debts'. This expression continues to exist in the newly substituted section 43D applicable with effect from 1-4- 2000. This shows that the RBI Guidelines in respect of scheduled banks, public financial institutions etc., were not sufficient for recognition of income on cash basis for the purposes of income- tax. The income of such assessees was determined as per circular dated 9-10-1984. Because of this reason, section 43D was inserted ITA No.504/Rjt/2015 DCIT Vs. Gondal Nagrik Sahakari Bank Ltd.
Asst.Year - 2012-13
- 12 -
in the statute. RBI Guidelines in case of NBFC are for the purpose of control and supervision with respect to public interest and viability of the NBFC. The Guidelines never intended for taking the interest income accrued as per section 5 out of the scope of the Act. If the contention of assessee was accepted, it would amount to insertion of NBFC in section 43D, that too by a Guideline issued for afferent purposes by an authority other than the Parliament. In other words, the doctrine of 'Casus Omissus' will deem to have been applied which is contrary to law of land. "Unquote the basic reason for directing to assess the accrued interest on NPA was the RBI guidelines issued only for scheduled banks, public financial institutions and not for NBFC. The observation of the Respected Tribunal was that if the contention of the assessee was to be accepted, then it would amount to insertion of "NBFC" in section 43-D of the I.T. Act. As against that, as far as the assessee is concerned, it is an accepted fact that the assessee is a cooperative bank and not a non-banking financial company and this noteworthy distinction has already been appreciated by us in one of the paragraphs above. "There is one more decision of the Hon'ble Apex Court which is yet to be mentioned while discussing the arguments raised from the side of the Revenue. A decision in the case of Southern Technologies Ltd. v. Jt. CIT 320 ITR 577 (SC) has been cited but the fundamental difference is that the issue before the Hon'ble Court was in respect of provision for NPA and debited to P&L Account by a NBFC. The said provision was undisputedly made by the said NBFC as per the prudential norms made by the Reserve Bank. Therefore we want to make it clear that the question for consideration before the Hon'ble Court was that if a provision for doubtful debt is made then what will be the legal position of the applicability of Explanation to section 36(1)(vii) of the IT. Act. For the sake of ready reference, relevant paragraph from the held portion is reproduced below: "The income-tax is a tax on "real income", i.e., the profits arrived at on commercial principles subject to the provisions of the Act. Therefore, if by the Explanation to section 36(I)(vii) a provision for doubtful debt is kept out of the ambit of bad debt which is written off, then one has to take into account the Explanation in computing the total income under the Income-tax Act falling which one cannot ascertain the ITA No.504/Rjt/2015 DCIT Vs. Gondal Nagrik Sahakari Bank Ltd.
Asst.Year - 2012-13
- 13 -
real profits. The provision for non-performing assets debited in the profit and loss account under the Reserve Bank Directions of 1998 is only a notional expense and, therefore, there would be add back to that extent in the computation of total income under the Income- tax Act." Therefore the distinction can easily be drawn that in the appeal before us the questtion is accrual of interest income on sticky loan but in this cited decision the question before the Apex court was about the admissibility of provision made in respect of doubtful debts, (vi) Concept of real income approved in the case of banking business: Before us, the theory of "real income" has also been argued and in support a decision of Hon'ble Court pronounced in the case of CIT v. Godhra Electricity Co.225 ITR 746 (SC). In short, the view expressed was that if income does not result at all, there cannot be any tax and that if an income has not materialized, then merely an entry made about a hypothetical income by following book keeping methods, the liability to tax cannot be attracted. Now at present the situation is that the Hon'ble Madras High Court in the case of CIT v. Elgi Finance Ltd. 293 ITR 357 (Mad.) has taken a view that the assessee is a company engaged in the business of lease, finance and hire purchase and that the principle of accrual comes into play without income was recognized and that the assessee had classified its assets on the basis of notification issued by R.B.I. and found that certain assets came under the category of NPA and that from such NPA the assessee had not recognized any income in consonance with the notification issued by RBI and AS-9 issued by ICAI and that the assessee was justified in not recognizing such income. The Court had further expressed that there was no occasion to consider whether the principle of accrual would arise or not, nevertheless, the interest from such NPA would be taxed in the appropriate assessment year on the basis of actual receipt. It is worth to mention that for this decision, the Hon'ble Madras High Court has relied upon an another decision of the same High Court pronounced in the case of Jt.CIT v. India Equipment Leasing Ltd. 293 ITR 350."
7. In the case before us, admittedly, assessee has directly taken the interest to the Balance Sheet and it is not routed through the ITA No.504/Rjt/2015 DCIT Vs. Gondal Nagrik Sahakari Bank Ltd.
Asst.Year - 2012-13
- 14 -
Profit and Loss Account. Moreover, the issue of the taxability of the interest on the sticky losses/advances is covered in favour of the assesses by the decision of the coordinate Benches in the case of The Durga Co-operative Urban Bank Ltd., (supra) and Karnavati Co-op, 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.
• Hon'ble ITAT Pune Bench "A', Pune In the case of ACIT, Circle-3, Vs. Samarth Urban Co-operative, Bank Ltd., in ITA.No.1558/PN/2011 has taken similar view.
• Hon'ble ITAT Pune Bench "B" in the case of DCIT Vs. Laxmi Urban Co operative Bank Ltd., in ITA No.351/PN/2013.
(j) Considering the facts and submission as above the addition made by the AO is totally unjustified on facts as also in law and deserves to be deleted and may kindly be deleted."
3. Against the said order appellant preferred appeal before the ld. CIT(A) who partly allowed the appeal of the appellant.
4. Now appeal is before us.
5. We have gone through the relevant record and impugned order. In this case, assessee cited an order of coordinate bench and stated that similar additions were allowed by the co-ordinate bench in assessee's own case and cited an order of coordinate bench in ITA No.504/Rjt/2015 for Asst. Year 2012-13. In this case, appellant is a co-operative society is assessed to tax and engaged in the business of banking and governed by the banking Regulation Act, 1949. Return of income for assessment year under consideration was e-filed declaring total income at ITA No.504/Rjt/2015 DCIT Vs. Gondal Nagrik Sahakari Bank Ltd.
Asst.Year - 2012-13
- 15 -
Rs.2,59,94,100/-. The AO vide order u/s.143(3) of the Act dated 11.03.2015 assessed the total income of Rs.3,13,72,830/-.
It is also held that in the case of banking companies, any interest accrued on advances classified as non-performing is taxed in the year in which the same is actually received. The theory of only real income is to be taxed is a settled law and therefore notwithstanding the appellant has been following mercantile system of accounting, the appellant could be taxed on the real income and not on the hypothetical income.
6. So far as ground related to deletion of addition u/s.14A is concerned. Assessee stated that the AO has not made any such observation to this effect that he was not satisfied with the correctness of the claim. He just mechanically worked out the disallowance.
Section 14A has not confirmed specific power to the AO to assume that a part of the expenditure must have necessarily been incurred to earn exempted income which he can estimate and disallow. The AO has no authority to estimate the expenditure which the appellant would have, in his opinion, incurred in relation to the exempted income.
7. Ld. AR cited our co-ordinate bench decision, ITAT held as follows:
"A perusal of case filed reveals that the revenue's twin substantive grounds seek to revive addition of accrued interest on NPA account of Rs,44,65,000/- and Section 14A disallowance of Rs.13,45,281/-; respectively. Both parties stated the outset that the same are covered by our findings on both the issues in preceding assessment years forming part of this very order. We appreciate this fair submission and decide ITA No.504/Rjt/2015 DCIT Vs. Gondal Nagrik Sahakari Bank Ltd.
Asst.Year - 2012-13
- 16 -
both issues in assessee's favour. Revenue's appeal ITA No.542/Rjt/14 is rejected.
These five Revenue's appeals ITA Nos. 540, 541, 558, 559 & 542/Rjt/2014 are dismissed and assessee's Cross Objection No.5/Rjt/2015 in ITA No.559/Rjt/2014 is allowed for statistical purposes Ordered accordingly."
8. Since in the past similar additions were deleted by the CIT(A) and thereafter confirmed by the Hon'ble ITAT Bench. We are not inclined to interfere in the order passed by the ld. CIT(A). In our considered opinion, ld. CIT(A) has passed detailed and reasoned order which does not require any kind of interference at our end.
9. In the result, appeal filed by the department is dismissed.
This Order pronounced in Open Court on 16/01/2018
Sd/- Sd/-
एन.के. ब लैया महावीर साद
(लेखा सद य) ( या यक सद य)
( N.K. BILLAIYA ) ( MAHAVIR PRASAD )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad; Dated 16/01/2018
Priti Yadav, Sr. PS
ITA No.504/Rjt/2015
DCIT Vs. Gondal Nagrik Sahakari Bank Ltd.
Asst.Year - 2012-13
- 17 -
आदे श क त ल प अ े षत/Copy of the Order forwarded to :
1. अपीलाथ' / The Appellant
2. (यथ' / The Respondent.
3. संबं6धत आयकर आयु8त / Concerned CIT
4. आयकर आय8
ु त(अपील) / The CIT(A)-1, Rajkot.
5. 9वभागीय त न6ध, आयकर अपील.य अ6धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड फाईल / Guard file.
आदे शानुसार/ BY ORDER, स(या9पत त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील$य अ%धकरण, अहमदाबाद / ITAT, Ahmedabad
1. Date of dictation 10/01/2018.
2. Date on which the typed draft is placed before the Dictating Member ...16/01/2018
3. Other Member...
4. Date on which the approved draft comes to the Sr.P.S./P.S.................
5. Date on which the fair order is placed before the Dictating Member for pronouncement......
6. Date on which the fair order comes back to the Sr.P.S./P.S.......
7. Date on which the file goes to the Bench Clerk.....................
8. Date on which the file goes to the Head Clerk..........................................
9. The date on which the file goes to the Assistant Registrar for signature on the order..........................
10. Date of Despatch of the Order..................