Income Tax Appellate Tribunal - Pune
Assistant Commissioner Of Income Tax,, ... vs Pimpri Chinchwad Sahakari Bank ... on 4 January, 2019
आयकर अपील य अ धकरण "बी" यायपीठ पण
ु े म ।
IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH, PUNE
BEFORE SHRI R.S. SYAL, VP AND
SHRI PARTHA SARATHI CHAUDHURY, JM
आयकर अपील सं. / ITA No.303/PUN/2017
नधा रण वष / Assessment Year : 2012-13
The Assistant Commissioner of Income Tax,
Circle-10, Pune.
.......अपीलाथ / Appellant
बनाम / V/s.
Pimpri Chinchwad Sahakari Bank
Marydit, Sharma Archade,
Survey No.111, Main Road
Kalewadi
Pune-411 017
PAN : AAAJP0113F
...... यथ / Respondent
Assessee by : Shri Pramod Shingte
Revenue by : Shri Sudhendu Das
सन
ु वाई क तार ख / Date of Hearing : 03.01.2019
घोषणा क तार ख / Date of Pronouncement : 04.01.2019
आदे श / ORDER
PER PARTHA SARATHI CHAUDHURY, JM :
This appeal preferred by the Revenue emanates from the order of CIT(Appeals)-13, Pune dated 27.11.2016 for the assessment year 2012-13 as per grounds of appeal on record.
2 ITA No.303 /PUN/2017A.Y.2012-13
2. The brief facts in this case are that the assessee is a co-operative bank registered under the Maharashtra State Co-operative Societies Act. The assessee's main business is of lending money to its members and accepting deposits from its members. It carries on business mainly in Pune district. In this case, the Assessing Officer has added the amount of Rs.2,84,89,156/- on account of the interest on Non-Performing Assets (NPAs) to the assessee's total income. Further, the Assessing Officer has disallowed Rs.1,160/-
u/s.14A of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') and added the same to the assessee's total income. With the result, the Assessing Officer in the assessment order passed u/s.143(3) of the Act, has assessed the total income of the assessee at Rs.5,68,61,700/- as against its returned income of Rs.2,83,71,383/-.
3. Aggrieved with the assessment order, the assessee preferred appeal before the Ld. CIT(Appeals) and submissions was made on the issue and relevant portion is as under:
"Interest on NPA During the year the appellant has recognized interest on advances out of which Rs.2,84,89,156/- being interest on non-performing asset (NPA) is not treated as income. This has been done firstly as per the prudential norms issued by the Reserve Bank of India, the apex body who governs the banking operations of every bank. Secondly by keeping in view the principles of revenue recognition given in Accounting Standard 9(AS 9) issued by the Institute of Chartered Accountants of India. The learned Assessing Officer has not accepted the contention of the appellant and treated the interest on NPA a sum of Rs.2,84,89,156/-.
Since the appellant is following accrual system of accounting, interest accrued on advances should be accounted accordingly.
1. Reserve Bank guidelines do not supersede the provisions of Income Tax Act, 1961, in so far as computation of income; and such guidelines are not binding on the Income Tax Act, 1961.
In this regard following point wise submission for your honors kind adjudication.3 ITA No.303 /PUN/2017
A.Y.2012-13 All the Co-operative Banks are under the direct control of The Reserve Bank of India and they have to carry out their functions as per the directions issued by The Reserve Bank of India and accordingly The Reserve Bank of India has issued prudential norms which are applicable to all the banks whereby banks assets in the form of advances needs to be classified as performing assets or non-performing assets. It is further directed that interest on non-performing assets though accrued but shall not be recognized as income and shall be shown as separate item in balance sheet under the head interest receivable on non-performing asset. The rationale behind this direction is very clear and that is when the principle amount of loan itself is doubtful of recovery the question of accounting for interest will not arise. This principle is also approved by Accounted Standard 9, Revenue recognition issued by the Institute of Chartered Accountants of India where in para 9.2 reads as follows:-
9.0 Effects on uncertainties on revenue recognition "9.2 where the ability to assess the ultimate collection with reasonable certainty is lacking at a time of raising any claim, for example, for escalation of price, export incentive, interest, etc., revenue recognition is postponed to the extent of uncertainty involved. In such cases, it may be appropriate to recognize revenue only when it is reasonably certain that the ultimate collection will be made. Whenever there is no uncertainty as to ultimate collection, revenue is recognized at the time of sale or rendering of services even though payments are made by installments. "
So in the case of non-performing assets as there is uncertainty of receipts of principle sum itself the question of recognizing revenue therefore will not arise and therefore by adopting the principles as emerging from Accounting Standard 9 interest on NPA will not be accounted. Secondly, if one analyses the provisions of section 145 of the Income Tax Act, 1961 and the definition of the term accrual given in the Accounting Standard prescribed under section 145, then one observes that that accrual refers to the assumption that revenues of cost are accrued, i.e. recognized as they are' earned or incurred and not as money is received and paid and recorded in the financial statements of the period in which they relate.
If we see the real concept of accrual as specified in AS-9, and read this concepts then in our humble opinion the income of interest cannot be said to have accrued as there is no reasonable certainty of earning such income.
Since appellants account clearly states that interest on NPA is technically accrued to him but it is not possible to recover due to peculiar circumstances. Under such situation it cannot be said that such income has accrued to the appellant and should be brought to tax. Therefore charging of tax on such notional income which has never accrued to the appellant is not tenable in the eyes of law.
Hon'ble Pune ITAT in case of Assistant Commissioner of Income-tax, Circle-3, Nanded v. Osmanabad JantaSah. Bank Ltd. reported in [20l3] 32 taxmann.com 229 (Pune-Trib.) held that Interest on sticky advances/NPA advances did not accrue to Assessee--bank and same could not be brought to tax.
The aforesaid judgment is followed in number of cases at Pune Tribunal.
We further place our reliance on following judgment's in support of our contention.
4 ITA No.303 /PUN/2017A.Y.2012-13 i. CIT Vs. VasisthChay Vyapar Ltd. (2011) 330 ITR 440 ( Delhi) Income-accrual-interest on non-performing assets of NBFC-as per RBI Act and Directions which inter-alia, mandate an NBFC to declare such advances as NPA when the accrued interest therein is not paid by the debtor continuously for six months, the Assessee did not show interest income on impugned ICD which according to the Assessee was not realizable-AO, however, added the interest as income of the Assessee holding that it had accrued to the Assessee even if it was not actually realized as the Assessee was following mercantile system of accounting- Not justified- admitted position is that the Assessee had not received any interest on the impugned ICD as it had become NPA in accordance with the prudential norms-even in the succeeding assessment years, no interest was received and the position remained the same until the asst. yr. 2006-07-assessee company being NBFC is governed by the provisions of RBI Act, hence interest income cannot be said to have accrued to the Assessee having regard to the provisions of section 45Q of RBI Act, and prudential norms issued by the RBI-even under IT Act, interest income had not accrued-moreover, when there is a provision in other enactment which contains a non obstante clause, that would override the provisions of IT Act.
ii. CIT Vs. Canfin Homes Ltd. (2011) 13 Taxmann.com 43 (kar.) Section 5 read with section 145 of the Income Tax Act, 1961-income accrual of A. Y. 1997-98- whether income from NPA should be assessed on cash basis and not on mercantile basis despite Assessee maintaining mercantile system of accounting-held yes.
iii. CIT Vs. Nainital Bank Ltd. (2009) 309 ITR 335 ( Uttaranchal) Assessee being banking company RNI guidelines were binding on it and therefore valuation of invests on the basis of RBI guidelines was justified.
In view of the above submission it is submitted that the treatment given by the appellant in its books of account for interest on NPA is correct and Assessing Officers contention fails of following grounds:
a. Although appellant is following accrual system, however, interest accrued on NPA cannot be called as accrued as principle sum itself is doubtful of recovery.
b. RBI directions are mandatory and are applicable to all banks.
c. The concept of accrual as referred to in section 145 of the Income tax Act, 1961 refers to recognizing the revenues as they are earned but in a particular stream of income there prevails uncertainty, the income cannot be said to be accrued.
It is therefore most humbly submitted that the addition made on account of interest on non-performing assets may kindly be deleted.
We also point out that Hon'ble Bombay High Court in the case of CIT vs. Deogiri Nagari Sahakari Bank Ltd. has decided the issue of interest on Non-Performing Asset in favor of bank (copy enclosed as Annexure No.1)."5 ITA No.303 /PUN/2017
A.Y.2012-13
4. The submissions of the assessee was considered along with assessment order and the facts and circumstances of the case and Ld. CIT(Appeals) has held as under:
"2.1.4 I have considered the facts and arguments of the learned AO and of the Appellant. I find that this issue is covered in the appellant's favour by several decisions of the honorable Pune Bench of the ITAT and also of the honorable Bombay High Court. These decisions are as under:
i.Pavana Sahakari Bank Limited Vs. CIT, ITA No.1754/PUN/2013 dated 31.12.2014 ii. Deogiri Nagari Sahakari Bank Limited, ITA No. 53 of 2014 dated 22.01.2015 ( Bombay HC) iii. Peoples Co-operative Bank Limited, ITA No.54 of 2014 dated 22.01.2015 ( Bombay HC) iv. Nanded District Central Co-operative Bank Limited, ITA No.57 of 2014 with ITA/58/2014 dated 22.01.2015 ( Bombay HC) v. Vasantdada Nagri Sahkatri Bank Limited Vs. CIT ( Bombay HC), ITA No. 68 of 2014 dated 22.01.2015 ( Bombay HC) 2.1.5 In view of the above decisions in the Appellant's favour of the jurisdictional High Court as well as of the jurisdictional ITAT, I delete the addition made by the learned AO on account of the interest on NPAs of Rs.2,84,89,156/-."
5. We have perused the case record and heard the rival contentions.
Though the Revenue has taken multiple grounds of appeal , the crux of the grievance is the deletion of addition made by the Assessing Officer on account of interest on non performing asset of Rs.2,84,89,156/-. The Ld. CIT(Appeals) has provided relief to the assessee based on various judicial pronouncements as appearing in his order on record specially the decision of Hon'ble Bombay High Court in ITA No.53 of 2014 dated 22.01.2015 in the case of Deogiri Nagari Sahakari Bank Limited. That further, the Ld. AR of the assessee submitted the copies of the decision of Hon'ble Karnataka High Court in the case of Pr. CIT Vs. Bagalkot District Central Co-operative Bank Limited in 6 ITA No.303 /PUN/2017 A.Y.2012-13 ITA No.100037/2017 wherein the substantial question of law raised by Revenue is as under:
"Whether on the facts and in the circumstances of the case and in law the Tribunal is right in deleting the additions made by the assessing authority on account of accrued interest on loans which are classified as "Non-performing Assets" ignoring the provisions of section 43D of the Income Tax Act,1961 amended w.e.f 01.04.2000 which provides for certain benefit to the certain class of assessees but does not provide such benefit to the respondent bank and more particularly when the respondent is following mercantile system of accounting?"
In this case, the Hon'ble Karnataka High Court had opined and held that it is manifest, when an asset becomes non-performing, it ceases to yield income and once a particular asset is shown to be a non-performing asset, then it is nothing but no revenue is yielded. In such cases, paying tax would not arise. Hence, substantial question of law is answered against Revenue.
Against this decision, the Revenue had preferred SLP before the Hon'ble Supreme Court of India in TS-5404-SC-2018-O, SLP(Civil) Diary No(s) 25340/2018 and in this SLP filed by the Revenue, the Hon'ble Supreme Court dismissed Revenue's SLP against HC ruling. The High Court had in its order rejected Revenue's contention that even though NPAs do not yield any income, assessee has to pay tax on the revenue which has accrued notionally as it has adopted mercantile system of accounting. The Hon'ble Apex Court confirmed the view of the Hon'ble Karnataka High Court that once a particular asset is shown to be a non-performing asset, then the assumption is it is not yielding any revenue. When it is, not yielding any revenue, the question of showing revenue and paying tax would not arise.
In view of the matter, we find that the aforesaid judicial pronouncements has answered the issue in present appeal in favour of the 7 ITA No.303 /PUN/2017 A.Y.2012-13 assessee. Respectfully following the judicial pronouncements, we uphold the order of Ld.CIT(Appeals) and sustain the relief granted to the assessee.
6. In the result, appeal of the Revenue is dismissed.
Order pronounced on 04th day of January, 2019.
Sd/- Sd/-
R.S. SYAL PARTHA SARATHI CHAUDHURY
VICE-PRESIDENT JUDICIAL MEMBER
पुणे / Pune; दनांक / Dated : 04th January, 2019. SB आदे श क! " त$ल%प अ&े%षत / Copy of the Order forwarded to :
1. अपीलाथ / The Appellant.
2. यथ / The Respondent.
3. The CIT (Appeals)-13, Pune.
4. The Pr. CIT-5, Pune.
5. "वभागीय %त%न&ध, आयकर अपील य अ&धकरण, "बी" ब*च, पण ु े / DR, ITAT, "B" Bench, Pune.
6. गाड- फ़ाइल / Guard File.
// True Copy // आदे शानुसार / BY ORDER, %नजी स&चव / Private Secretary आयकर अपील य अ&धकरण, पण ु े / ITAT, Pune.
8 ITA No.303 /PUN/2017A.Y.2012-13 Date 1 Draft dictated on 04.01.2019 Sr.PS/PS 2 Draft placed before author 04.01.2019 Sr.PS/PS 3 Draft proposed and placed JM/AM before the second Member 4 Draft discussed/approved by AM/JM second Member 5 Approved draft comes to the Sr.PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr.PS/PS 7 Date of uploading of order Sr.PS/PS 8 File sent to Bench Clerk Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order