Assistant Commissioner of Income-tax,, v. Shankarrao Mohite Patil Sakahari Bank Ltd.,, Solapur

ITA 383/PUN/2014 | 2009-2010
Pronouncement Date: 29-04-2015 | Result: Dismissed

Appeal Details

RSA Number 38324514 RSA 2014
Assessee PAN AAAAS1270P
Bench Pune
Appeal Number ITA 383/PUN/2014
Duration Of Justice 1 year(s) 2 month(s)
Appellant Assistant Commissioner of Income-tax,,
Respondent Shankarrao Mohite Patil Sakahari Bank Ltd.,, Solapur
Appeal Type Income Tax Appeal
Pronouncement Date 29-04-2015
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 29-04-2015
Assessment Year 2009-2010
Appeal Filed On 28-02-2014
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A PUNE BEFORE M S SUSHMA CHOWLA JUDICIAL MEMBER AND SHRI R.K. PANDA ACCOUNTANT MEMBER AND SHRI R.K. PANDA ACCOUNTANT MEMBER ITA NO. 38 3 /PN/2014 ASSESSMENT YEAR: 2009 - 10 THE INCOME TAX OFFICER WARD 1(1) SOLAPUR . APPELLANT VS. SH ANKARRAO MOHITE PATIL SAHAKARI BANK LTD. A/P. AKLUJ TAL. MALSHIRAS DIST. SOLAPUR . RESPONDENT DIST. SOLAPUR . RESPONDENT PAN: AAAA S1270P A PPELLANT BY : S MT. ANURADHA V . RAVI RESPONDENT BY : SHRI SUNIL GANOO DATE OF HEARING : 15 - 0 4 - 201 5 DATE OF PRONOUNCE MENT : 29 - 0 4 - 201 5 ORDER PER SUSHMA CHOWLA J M : THIS APPEAL FILED BY THE REVENUE IS AGAINST THE ORDER OF CIT(A) - II I PUNE DATED 0 9 .1 2 .201 3 RELATING TO ASSESSMENT YEAR 2009 - 10 PASSED UNDER SECTION 143(3) OF THE INCOME - TAX ACT. 2 . TH E REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE HON'BLE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 7 5 25 140 / - MADE BY THE A.O ON ACCOUNT OF INTEREST RECEIVABLE ON STICKY LOANS / ADVANCES . 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE HON'BLE CIT(A) HAS ERRED IN HOLDING THAT THE PROVISIONS OF SECTION 43D ARE APPLICABLE TO FINANCIAL INSTITUTIONS AND A SCHEDULED BANK. THUS THE ASSESSEE BEING A NON SCHEDULED BA NK COULD NOT TAKE THE BENEFIT OF SECTION 43D OF THE ACT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE HON'BL E CIT(A) ERRED IN APPRECIATING THE PROVISIONS OF SECTION 145 OF THE I . T. ACT 1961 IN ITS CORRECT PERSPECTIVE . ITA NO . 38 3 /PN/20 14 SHANKARRAO MOHITE PATIL SAHAKARI BANK LTD. 2 4. ON THE FAC TS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE HON'BLE CIT(A) ERRED WHILE DELIVERING THE JUDGMENT HAS ALLOWED THE APPEAL OF THE ASSESSEE BANK BY PLACING RELIANCE ON ITS OWN DECISION IN THE ACIT CIRCLE - 3 F NANDED VS. OSMANABAD JANATA SAHAKAR I BANK LTD. IN ITA NO. 795/PN/2011 VIDE ORDER DATED 31/08/2012. HOWEVER THE ABOVE DECISION HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND AN APPEAL U/S. 260A HAS BEEN FILED BY THE CIT AURANGABAD WITH THE HON'BLE HIGH COU RT OF BOMBAY BENCH AT AURANGABAD VIDE LODGING NO. 1613/2013 DATED 15/01/2013. 5. THE ORDER OF THE CIT(A) BE VACATED AND THAT OF AO BE RESTORED. 6. THE APPELLANT CRAVES TO ADD ALTER AMEND SUBSTITUTE OR DELETE ANY OF THE GROUNDS URGED HEREIN ABOVE AS A ND WHEN FOUND NECESSARY. 3 . AT THE OUTSET T HE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ISSUE IN THE PRESENT APPEAL IS SQUARELY COVERED BY RATIO LAID DOWN BY PUNE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSE SSMENT YEAR 2010 - 11. 4 . BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSESSEE WAS ENGAGED IN THE BANKING BUSINESS GOVERN ED UNDER BANKING REGULATIONS 1949 AND HAD DECLARED INCOME FROM THE SAID BUSINESS AND ALSO INCOME FROM INVESTMENTS. THE INCOME FROM THE SAID BUSINESS AND ALSO INCOME FROM INVESTMENTS. THE ASSESSING OFFIC ER NOTED FROM THE DETAILS OF THE INTEREST RECEIVED ON ADVANCES CREDITED TO THE PROFIT & LOSS ACCOUNT AND THE STATEMENT OF NPA PREPARED UNDER ICA I NORMS PRESCRIBED BY THE RBI THAT THE BANK HAD NOT CONSIDERED THE INTEREST RECEIVABLE ON ADVANCES / NON PERFORM ING ASSETS (NPAS) AS INCOME FOR TAXATION THOUGH THE SAME WERE REFLECTED IN THE BALANCE SHEET AS CONTRA ITEM. THE INTEREST RECEIVABLE ON STICKY LOANS RELATABLE TO THE YEAR UNDER CONSIDERATION WAS RS. 7 5 25 140 / - . THE EXPLANATION OF THE ASSESSEE IN THIS REG ARD WAS THAT THE INTEREST RECEIVABLE ON STICKY LOANS WERE NOT CREDITED TO THE PROFIT & LOSS ACCOUNT IN VIEW OF THE NORMS PRESCRIBED BY RBI THAT THE SAID INCOME SHOULD BE RECOGNIZED ONLY AS AND WHEN THE SAME IS RECEIVED WHICH SYSTEM OF ACCOUNTING WAS REGU LARLY FOLLOWED BY THE ASSESSEE. THE ASSESSING OFFICER REJECTING THE CONTENTION OF THE ASSESSEE OBSERVED THAT SINCE THE ASSESSEE WAS FOLLOWIN G MERCANTILE SYSTEM OF ACCOUNTING THE ACCRUED INTEREST ON SUCH NPAS / STICKY ITA NO . 38 3 /PN/20 14 SHANKARRAO MOHITE PATIL SAHAKARI BANK LTD. 3 LOANS SHOULD BE OFFERED TO TAX. RE LI ANCE WAS PLACED ON TO THE CBDTS CIRCULAR NO.201/81/84 /ITA - II DATED 09.10.1984 FOR THE PROPOSITION THAT ONLY WHEN THE INTEREST ACCRUED ON BAD & DOUBTFUL ADVANCES REMAINED UN - RECOVERABLE FOR CONS ECUTIVE THREE PREVIOUS YEARS THEN SUCH INTEREST DOES NOT FOR M PART OF TAXABLE INCOME OF THE BANKING COMPANY IN THE FOURTH YEAR. THE ASSESSING OFFICER NOTED THAT THE SAID ADVANCES OF THE ASSESSEE WERE INCLUSIVE OF SUB - STANDARD DOUBTFUL LOANS WHICH MEANT THAT THE INTEREST HAD NOT REMAINED UN - RECOVERABLE FOR THE LA ST THREE CONSECUTIVE PREVIOUS YEARS HENCE THE CONTENTION OF THE ASSESSEE WAS REJECTED BY THE ASSESSING OFFICER AND THE ASSESSING OFFICER HELD THE ASSESSEE TO HAVE CONTRAVENED THE PROVISIONS OF SECTION 43D OF THE ACT AND THE INTEREST ON SUCH STICKY LOANS WAS HELD TO BE INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. 5 . THE CIT(A) IN TURN RELYING ON THE RATIO LAID DOWN BY THE PUNE BENCH OF THE TRIBUNAL IN ACIT VS. OSMANABAD JANTA SAH. BANK LTD. IN ITA NO.795/PN/2011 RELATING TO ASSESSMENT YEAR 2007 - 08 ORDER DATED 31.08.2012 HELD THAT THE RELATING TO ASSESSMENT YEAR 2007 - 08 ORDER DATED 31.08.2012 HELD THAT THE INCOME FROM NPAS SHOULD NOT BE ASSESSED ON MERCANTILE BASIS . D ESPITE THE ASSESSEE MAINTAINING MERCANTILE SYSTEM OF ACCOUNTING IT ALSO HELD THAT THE PROVISIONS OF SECTION 43D OF THE ACT WERE APPLICABLE ONLY T O THE EXTENT THE INTEREST WAS ACTUALLY RECEIVED. THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAD DIRECTLY TAKEN THE INTEREST RECEIVABLE ON NPAS TO INTEREST RECEIVABLE ACCOUNT ON THE ASSET SIDE OF THE BALANCE SHEET AND CORRESPONDING LIABILITY WAS CREATED BY DEBITING INTEREST OVERDUE RESERVE ACCOUNT AND SINCE THE SAME WAS NOT INCLUDED IN THE INTEREST SHOWN AS RECEIVED IN THE PROFIT & LOSS ACCOUNT THE ASSESSING OFFICER WAS DIRECTED TO DELETE THE ADDITION MADE ON ACCOUNT OF INTEREST RECEIVABLE ON NPAS AMOUN TING TO RS.75 25 140/ - . 6 . THE REVENUE IS IN APPEAL AGAINST THE ORDER OF CIT(A). ITA NO . 38 3 /PN/20 14 SHANKARRAO MOHITE PATIL SAHAKARI BANK LTD. 4 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDER OF ASSESSING OFFICER. ON THE OTHER HAND THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE PLACED RELIANCE ON THE ORDER OF CIT(A) . 8 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE IN THE PRESENT APPEAL AGAINST THE RECOGNITION OF INTEREST RECEIVABLE ON STICKY LOANS/ADVANCES AMOUNTING TO RS. 75 25 140/ - IS ID ENTICAL TO THE ISSUE BEFORE THE PUNE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.2219/PN/2013 RELATING TO ASSESSMENT YEAR 2010 - 11 WHEREIN VIDE ORDER DATED 31.10.2014 IT WAS HELD AS UNDER: - 4. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. THE LD. COUNSEL SUBMITTED THAT THE ISSUE STANDS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE FOLLOWING DECISIONS : 1. ACIT CIRCLE - 3 NANDED VS. OSMANABAD JANTA SAHAKARI BANK LTD. IN ITA NO.795/PN/2011 DATED 31 - 08 - 2012 2. ACIT CIRCLE - 3 NANDED VS.OMERGA JANTA SAHAKARI BANK LTD. IN ITA NO.350/PN/2013 & CO NO.61/PN/2013 DATED 31 - 10 - 2013. 4.1 IN THE CASE OF OSMANABAD JANTA SAHAKARI BANK LTD. (SUPRA) THE TRIBUNAL HELD AS UNDER : 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 DCIT VIJAYAWADA VS. THE DURGA COOPERATIVE URBAN BANK LTD. VIJAYAWADA IN ITA.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 SECTION 43D WAS CONSIDERED TO THE NON - SCHEDULED BANKS. THE TRIBUNAL PLACED ITS HEAVY RELIANCE ON THE D ECISION OF THE HONBLE HIGH COURT OF DELHI IN THE CASE OF VASHIST CHAY VYAPAR LTD. [330 ITR 440 (DEL.)] IN WHICH THE HONBLE DELHI HIGH COURT HAS CONSIDERED THE DECISION IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. [320 ITR 577 (SC)]. THE TRIBUNAL FINALLY HE LD THAT THE INTEREST INCOME RELATABLE TO NPA ADVANCES DID NOT ACCRUE TO THE ASSESSEE. 6. AN IDENTICAL VIEW HAS BEEN TAKEN BY THE ITAT AHMEDABAD BENCH IN THE CASE OF KARNAVATI COOPERATIVE BANK LTD. VS. DY.CIT [134 ITD 486 (AHMEDABAD)]. IN THE CASE OF K ARNAVATI COOPERATIVE BANK LTD. (SUPRA) THE TRIBUNAL HAS CONSIDERED THE PROVISIONS OF ITA NO . 38 3 /PN/20 14 SHANKARRAO MOHITE PATIL SAHAKARI BANK LTD. 5 SECTION 43D AND ITS APPLICATION TO THE NON - SCHEDULED BANKS. THE REASONS GIVEN BY THE TRIBUNAL IN THE CASE OF KARNAVATI COOPERATIVE BANK LTD. (SUPRA) FOR HOLDING THAT INT EREST 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 F UNDAMENTAL 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 I F 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 T HE 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 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 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 CO - OPERATIVE BANK. UNDISPUTEDLY THE ASSESSEE IS ALSO GOVERNED BY THE RBI GUIDELINES. VIDE AN EXPLANATION (D) R.W .S. 36(1)(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 SE CTION 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 STATUTE. IN ORDER TO AID PROPER DETERMINATION ITA NO . 38 3 /PN/20 14 SHANKARRAO MOHITE PATIL SAHAKARI BANK LTD. 6 OF T HE 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 ASSESSEES TAXABLE I NCOME 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 SUB - ORDINATE AUTHORITIES SUCH DIRECTIONS ARE REQUIRED TO BE FOLLOWED AND SUCH CIRCULAR WOULD BE BINDING ON THE DEPARTMENT UNLESS AND UNTIL HELD AS ULTRA VIRES 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 VS. 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 DECISIO N THE HON'BLE SUPREME COURT IN THE CASE OF UCO BANK VS. CIT (1999) 237 ITR 889 (SC) HAS THEREFORE HELD FIRST THAT A BENEFICIAL CIRCULAR IS NOT TO BE TREATED AS INCONSISTENT WITH THE PROVISIONS OF STATUTE AND BINDING ON THE AUTHORITIES. SECOND THAT IN R ESPECT 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 HONBLE KERALA HIGH COURT IN THE CASE OF STATE BANK OF TRAVANCORE REPORTED IN 110 ITR 336 (KER.) 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 REALIS ED. 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 INCO ME 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 VS. CIT REPORTED IN (1986)158 ITR 102(SC) THERE WERE HON'BLE THREE JUDGES PRESIDING THE COURT OUT OF WHICH HONBLE 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 RECEIP T 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 HO N'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 OF THE STICKY ITA NO . 38 3 /PN/20 14 SHANKARRAO MOHITE PATIL SAHAKARI BANK LTD. 7 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 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 TH EN 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 LAN GUAGE 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 OTHER - WISE 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 BECA USE OF THEIR AUTHORITATIVE CONSTRUCTION BY SUPERIOR COURTS THEY ARE PRESUMED TO HAVE BEEN USED IN THE SAME SENSE WHEN USED 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 CONST RUCTION OF A TAXING STATUTE IS NOT TO SAY THAT WHERE A STRICT LITERAL CONSTRUCTION LEADS TO A RESULT NOT INTENDED TO SUBSERVE 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 VS. 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 T HE ASSESSEE FOLLOWING THE DECISION OF UCO BANK REPORTED AT 237 ITR 889(SC) :: 240 ITR 355 (SC). LIKEWISE IN AN ANOTHER CASE OF CIT VS. STATE BANK OF INDIA 262 ITR 662 (BOM.) AGAIN IT WAS HELD THAT THE AMOUNT CREDITED TO THE INTEREST SUSPENSE ACCOUNT WAS N OT TAXABLE FOLLOWING THE DECISION PRONOUNCED IN THE CASE OF UCO BANK (SUPRA). (V) JUDGEMENT IN FAVOUR OF REVENUE : ITA NO . 38 3 /PN/20 14 SHANKARRAO MOHITE PATIL SAHAKARI BANK LTD. 8 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 DISCU SSION MADE HEREINABOVE SO AS TO UNFOLD THE CONTROVERSY. IN THE SAID DECISION OF THE TRIBUNAL VIZ. JT.CIT V/S. 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 - 101984. 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 RECOGNI ZED 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 WI TH 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 H AVING REGARD TO THE GUIDELINES ISSUED BY THE RBI IN RELATION TO SUCH DEBTS'. THIS EXPRESSION CONTINUES TO EXIST IN THE 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 PUB LIC 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 43DWAS INSERTED 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 DIFFERENT PURPOSES BY AN AUTHORITY OTHER THAN THE PARLIAMENT IN OTHER WORDS THE DOCTRINE OF 'CASUS OMISSUS' WILL DE EM 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 ASSES SEE IS A COOPERATIVE BANK AND NOT A NON - BANKING FINANCIAL COMPANY AND THIS NOTEWORTHY DISTINCTION HAS ITA NO . 38 3 /PN/20 14 SHANKARRAO MOHITE PATIL SAHAKARI BANK LTD. 9 ALREADY BEEN APPRECIATED BY US IN ONE OF THE PARAGRAPHS ABOVE. THERE IS ONE MORE DECISION OF THE HONBLE APEX COURT WHICH IS YET TO BE MENTIONED WHILE D ISCUSSING THE ARGUMENTS RAISED FROM THE SIDE OF THE REVENUE. A DECISION IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. VS. JT. CIT 320 ITR 577 (SC) HAS BEEN CITED BUT THE FUNDAMENTAL DIFFERENCE IS THAT THE ISSUE BEFORE THE HONBLE COURT WAS IN RESPECT OF PROVIS ION 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 HONBLE COUR T 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 I.T. ACT. FOR THE SAKE OF READY REFERENCE RELEVANT PARAGRAPH FROM THE HELD PORTION IS REPRODUCED BELO W: 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(1)(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 FAILING WHICH ONE CANNOT ASCERTAIN THE 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 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 A PPEAL BEFORE US THE QUESTION IS ACCRUAL OF INTEREST INCOME ON STICKY LOAN BUT IN THIS CITED DECISION THE QUESTION BEFORE HE 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 VS. GODHRA ELECTRICITY CO. 225 ITR 746 (SC). IN SHORT THE VIEW EXPRESSED WAS THAT IF INCOME D OES 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 VS. 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 WIT HOUT INCOME WAS RECOGNIZED AND THAT THE ASSESSEE HAD CLASSIFIED ITS ASSETS ON THE BASIS OF NOTIFICATION ISSUED BY R.B.I. AND ITA NO . 38 3 /PN/20 14 SHANKARRAO MOHITE PATIL SAHAKARI BANK LTD. 10 FOUND THAT CERTAIN ASSETS CAME UNDER THE CATEGORY OF NPA AND THAT FROM SUCH NPA THE ASSESSEE HAD NOT RECOGNIZED ANY INCOME IN CONSO NANCE 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 C OURT PRONOUNCED IN THE CASE OF JT.CIT VS. 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 PROFIT & LOSS ACCOUNT. MOREOVER TH E 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 REVENUES GROUND IS DISMISSED. 4.2 IN THE CASE OF OMERGA JANTA SAHAKARI BANK LTD. (SUPRA) IDENTICAL ISSUE HAS AGAIN CONSIDERED BY THE TRIBUNAL AND HELD AS UNDER: WE FIND THAT THE IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE ITAT A BENCH PUNE IN THE CASE OF THE OMERGA JANTA SAHAKARI BANK A BENCH PUNE IN THE CASE OF THE OMERGA JANTA SAHAKARI BANK LTD. OSMANABAD (SUPRA). THE OPERATIVE PART OF THE REASONING AND FINDIN G IN THE SAID DECISION IS AS UNDER: 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. IN SO FAR AS THE APPLICABILITY OF SECTION 43D OF THE ACT TO THE ASSESSEE IS CONCERNED THERE IS A CONVERGENCE OF OPINION BETWEEN THE ASSESSEE AND THE REVENUE TO TH E EFFECT THAT THE SAME IS NOT APPLICABLE TO THE ASSESSEE. OSTENSIBLY ASSESSEE IS A CO - OPERATIVE BANK CARRYING ON BANKING BUSINESS IN TERMS OF A LICENSE GRANTED BY RBI AND IS NOT A SCHEDULED BANK INCLUDED IN SECOND SCHEDULE OF RBI SO AS TO FALL WITHIN T HE SCOPE OF SECTION 43D OF THE ACT. NOTABLY SECTION 43D OF THE ACT PRESCRIBES THAT INTEREST INCOME ON SUCH CATEGORIES OF BAD AND DOUBTFUL DEBTS AS PRESCRIBED BY THE RBI GUIDELINES SHALL BE CHARGEABLE TO TAX IN THE YEAR IN WHICH SUCH INTEREST INCOME IS CR EDITED BY THE ASSESSEE IN THE PROFIT AND LOSS ACCOUNT OR IN THE YEAR OF ACTUAL RECEIPT WHICHEVER IS EARLIER. SINCE ASSESSEE IS NOT AN ENTITY COVERED WITHIN THE SCOPE OF SECTION 43D OF THE ACT THE PRESENT CONTROVERSY CANNOT BE ADJUDICATED IN THE LIGHT OF SECTION 43D OF THE ACT AND IT IS LIABLE TO BE DECIDED ON GENERAL PRINCIPLES AS TO WHETHER THE IMPUGNED INCOME HAS ACCRUED TO THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. 9. IN THIS CONNECTION WE FIND THAT THE VISAKHAPATNAM BENCH OF THE TRIBUNAL I N THE CASE OF THE DURGA COOPERATIVE URBAN BANK LTD. (SUPRA) HAS CONSIDERED AN IDENTICAL ITA NO . 38 3 /PN/20 14 SHANKARRAO MOHITE PATIL SAHAKARI BANK LTD. 11 CONTROVERSY. THE ASSESSEE BEFORE THE VISAKHAPATNAM BENCH WAS A CO - OPERATIVE BANK OPERATING UNDER A LICENSE ISSUED BY RBI BUT WAS NOT A SCHEDULED BANK SO AS TO FALL W ITHIN THE SCOPE OF SECTION 43D OF THE ACT. THE ISSUE RELATED TO TAXABILITY OF INTEREST INCOME RELATING TO NPAS WHICH AS PER THE REVENUE WAS LIABLE TO BE TAXED ON ACCRUAL BASIS IN LINE WITH MERCANTILE SYSTEM OF ACCOUNTING ADOPTED BY THE ASSESSEE THEREIN. THE ASSESSEE ON THE OTHER HAND CONTENDED THAT HAVING REGARD TO THE GUIDELINES ISSUED BY RBI REGARDING ACCOUNTING OF INTEREST ON NPAS NO INTEREST INCOME ACCRUED IN RESPECT OF NPAS AND THAT THE SAME WAS TO BE TAXED ONLY ON RECEIPT BASIS. THE TRIBUNAL OB SERVED THAT THE QUESTION OF TAXABILITY OF INTEREST ON NPAS CLASSIFIED BY RBI WAS CONSIDERED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF M/S VASISTH CHAY VYAPAR LTD. (SUPRA) WHEREIN AFTER CONSIDERING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) IT WAS HELD THAT INTEREST INCOME RELATABLE TO NPAS WAS NOT INCLUDIBLE IN TOTAL INCOME ON ACCRUAL BASIS SINCE THE SAME DID NOT ACCRUE TO THE ASSESSEE. THE FOLLOWING DISCUSSION BY THE VISAKHAPATNAM BENCH OF THE TRIBUNA L IN THE CASE OF THE DURGA COOPERATIVE URBAN BANK LTD. (SUPRA) IS WORTHY OF NOTICE : - 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULLY PERUSED THE RECORD. THE QUESTION OF TAXABILITY OF INTEREST ON NPAS HAS BEEN CONSIDERED BY THE HON'BLE DELHI HIGH CO URT IN THE CASE OF M/S VASISTH CHAY VYAPAR LTD (SUPRA); WHEREIN THE HON'BLE DELHI HIGH COURT TOOK INTO ACCOUNT THE DECISION RENDERED BY THE HON'BLE SUPREME COURT IN THE CASE OF RENDERED BY THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD (SUPRA). IN THE CASE OF M/S VASISTH CHAY VYAPAR LTD THE ASSESSEE THEREIN WAS A NON BANKING FINANCIAL COMPANY AND IT WAS ALSO BOUND BY THE PRUDENTIAL NORMS DIRECTIONS ISSUED BY THE RESERVE BANK OF INDIA FOR INCOME RECOGNITION AND ASSET CLASSIFICATION. THE ASSESSEE DID NOT INCLUDE THE INTEREST INCOME RELATA BLE TO NPA ASSETS IN ITS TOTAL INCOME. THE ASSESSING OFFICER HOWEVER ADDED THE SAID INTEREST AS THE INCOME OF THE ASSESSEE BY HOLDING THAT IT HAD ACCRUED TO THE ASSESSEE EVEN IT WAS NOT REALIZED AS THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUN TING. THE LEARNED CIT (A) AFFIRMED THE ORDER OF THE ASSESSING OFFICER. HOWEVER THE ITAT DELETED THE AFORESAID INCOME. HENCE THE REVENUE PREFERRED APPEAL BEFORE THE HON'BLE DELHI HIGH COURT. 8.1 AFTER HEARING THE RIVAL SUBMISSIONS THE HON'BLE DELHI HIGH COURT TOOK NOTE OF SEC.45Q OF RESERVE BANK OF INDIA ACT WHICH READS AS UNDER: CHAPTER IIIB TO OVERRIDE OTHER LAWS. 45Q. THE PROVISIONS OF THIS CHAPTER SHALL HAVE EFFECT NOTWITHSTANDING ANYTHING INCONSISTENT THEREWITH CONTAINED IN ANY OTHER LAW FOR TH E TIME BEING IN FORCE OR ANY INSTRUMENT HAVING EFFECT BY VIRTUE OF ANY SUCH LAW. ITA NO . 38 3 /PN/20 14 SHANKARRAO MOHITE PATIL SAHAKARI BANK LTD. 12 THE HIGH COURT TOOK NOTE OF THE FACT THAT THE PROVISION OF 45Q OF RESERVE BANK OF INDIA HAS OVERRIDING EFFECT OVER ANY OTHER LAW. THEN THE HON'BLE HIGH COURT ALSO CONSIDERE D ACCOUNTING STANDARD AS - 9 ON REVENUE RECOGNITION AND ALSO EXTRACTED FOLLOWING RELEVANT PORTION FROM THE SAID ACCOUNTING STANDARD: 9. EFFECT OF UNCERTAINTIES ON REVENUE RECOGNITION 9.1 RECOGNITION OF REVENUE REQUIRES THAT REVENUE IS A MEASURABLE AN D THAT AT THE TIME OF SALE OR THE RENDERING OF THE SERVICE IT WOULD NOT BE UNREASONABLE TO EXPECT ULTIMATE COLLECTION. 9.2 WHERE THE ABILITY TO ASSESS THE ULTIMATE COLLECTION WITH REASONABLE CERTAINTY IS LACKING AT THE TIME OF RAISING ANY CLAIM E.G. F OR ESCALATION OF PRICE EXPORT INCENTIVES 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. WHERE THERE IS NO UNCERTAINTY AS TO ULTIMATE COLLECTION REVENUE IS RECOGNIZED AT THE TIME OF SALE OR RENDERING OF SERVICE EVEN THOUGH PAYMENTS ARE MADE BY INSTALLMENTS. 9.3 WHEN THE UNCERTAINTY RELATING TO COLLECTABILITY ARISES SUBSEQUENT TO T HE TIME OF SALE OR THE RENDERING OF THE SERVICE IT IS MORE APPROPRIATE TO MAKE A SEPARATE PROVISION TO REFLECT THE UNCERTAINTY RATHER THAN TO ADJUST THE AMOUNT OF REVENUE ORIGINALLY RECORDED. REVENUE ORIGINALLY RECORDED. 9.4 AN ESSENTIAL CRITERION FOR THE RECOGNITION OF REVENUE IS THAT THE CONSIDERATION RECEIVABLE FOR THE SALE OF GOODS THE RENDERING OF SERVICES OR FROM THE USE OF OTHERS OF ENTERPRISE RESOURCES IS REASONABLY DETERMINABLE. WHEN SUCH CONSIDERATION IS NOT DETERMINABLE WITHIN REASONABLE LIMITS THE RECOGNITION OF REVENU E IS POSTPONED. 9.5 WHEN RECOGNITION OF REVENUE IS POSTPONED DUE TO THE EFFECT OF UNCERTAINTIES IT IS CONSIDERED AS REVENUE OF THE PERIOD IN WHICH IT IS PROPERLY RECOGNIZED. 8.2 THE DELHI HIGH COURT ALSO CONSIDERED THE DECISION RENDERED IN THE FOLLOW ING CASES: I) CIT VS. ELGI FINANCE LTD. 293 ITR 357 (MAD) II) CIT VS. KKM INVESTMENTS (CAL) SLP DISMISSED BY SUPREME COURT (310 ITR 4) III) CIT VS. MOTOR CREDIT CO (P) LTD. 127 ITR 572 (MAD) IV) UCO BANK VS. CIT 237 ITR 889 (SC) V) CIT VS. SHOOR JI VALLABHDAS & CO 46 ITR 144 (SC) VI) GODHRA ELECTRICITY CO. LTD. VS.CIT 225 ITR 746 VII) CIT VS. GOYAL M G GASES (P) LTD. 303 ITR 159 (DEL) VIII) CIT VS. EICHER LTD. ITA NO.431/2009 DATED 15.7.2009 (DEL) ITA NO . 38 3 /PN/20 14 SHANKARRAO MOHITE PATIL SAHAKARI BANK LTD. 13 8.3 AFTER CONSIDERING THE ACCOUNTING STAND ARD 9 AND THE VARIOUS CASE LAW LISTED ABOVE THE HON'BLE DELHI HIGH COURT HELD THAT THE INTEREST ON NPA ADVANCE CANNOT BE TREATED AS ACCRUED TO THE ASSESSEE. 8.4 BEFORE THE DELHI HIGH COURT THE REVENUE TOOK SUPPORT OF THE DECISION OF THE HON'BLE SUPRE ME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD (SUPRA). THE DELHI HIGH COURT CONSIDERED THE SAID DECISION OF HON'BLE APEX COURT AND EXPLAINED THE SAME AS UNDER: WE HAVE ALREADY HELD THAT EVEN UNDER THE INCOME TAX ACT INTEREST INCOME HAD NOT ACCRUED. MOREOVER THIS SUBMISSION OF MR. SABHARWAL IS BASED ENTIRELY ON THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGY (SUPRA). NO DOUBT IN FIRST BLUSH READING OF THE JUDGMENT GIVES AN INDICATION THAT THE COURT HAS HELD THAT RESERVE BANK O F INDIA ACT DOES NOT OVERRIDE THE PROVISIONS OF THE INCOME TAX ACT. HOWEVER WHEN WE EXAMINE THE ISSUE INVOLVED THEREIN MINUTELY AND DEEPLY IN THE CONTEXT IN WHICH THAT HAD ARISEN AND CERTAIN OBSERVATIONS OF THE APEX COURT CONTAINED IN THAT VERY JUDGMENT WE FIND THAT THE PROPOSITION ADVANCED BY MR.SABHARWAL MAY NOT BE ENTIRELY CORRECT. IN THE CASE BEFORE THE SUPREME COURT THE ASSESSEE A NBFC DEBITED RS.81 68 516 AS PROVISION AGAINST NPA IN THE PROFIT AND LOSS ACCOUNT WHICH WAS CLAIMED AS DEDUCTION IN TER MS OF SECTION 36(1) (VII) OF THE ACT. THE ASSESSING OFFICER DID NOT ALLOW THE DEDUCTION CLAIMED AS AFORESAID ON THE GROUND THAT THE PROVISION OF NPA WAS NOT IN THE NATURE OF EXPENDITURE OR LOSS BUT MORE IN THE NATURE OF A THE NATURE OF EXPENDITURE OR LOSS BUT MORE IN THE NATURE OF A RESERVE AND THUS NOT DEDUCTIBLE U NDER SECTION 36(I)(VII) OF THE ACT. THE ASSESSING OFFICER HOWEVER DID NOT BRING TO TAX RS.20 34 605/ - AS INCOME (BEING INCOME ACCRUED UNDER THE MERCANTILE SYSTEM OF ACCOUNTING). THE DISPUTE BEFORE THE APEX COURT CENTERED AROUND DEDUCTIBILITY OF PROVISION FOR NPA. AFTER ANALYZING THE PROVISIONS OF THE RESERVE BANK OF INDIA ACT THEIR LORDSHIPS OF THE APEX COURT OBSERVED THAT IN SO FAR AS THE PERMISSIBLE DEDUCTIONS OR EXCLUSIONS UNDER THE ACT ARE CONCERNED THE SAME ARE ADMISSIBLE ONLY IF SUCH DEDUCTIONS/EX CLUSIONS SATISFY THE RELEVANT CONDITIONS STIPULATED THEREFORE UNDER THE ACT. TO THAT EXTENT IT WAS OBSERVED THAT THE PRUDENTIAL NORMS DO NOT OVERRIDE THE PROVISIONS OF THE ACT. HOWEVER THE APEX COURT MADE A DISTINCTION WITH REGARD TO INCOME RECOGNITION AND HELD THAT INCOME HAD TO BE RECOGNIZED IN TERMS OF THE PRUDENTIAL NORMS EVEN THOUGH THE SAME DEVIATED FROM MERCANTILE SYSTEM OF ACCOUNTING AND/OR SECTION 45 (SIC. 145) OF THE INCOME TAX ACT. IT CAN BE SAID THEREFORE THAT THE APEX COURT APPROVED THE REAL INCOME THEORY WHICH IS ENGRAINED IN THE PRUDENTIAL NORMS FOR RECOGNITION OF REVENUE BY NBFC. 9. THE HON'BLE SUPREME COURT IN THE CASE OF M/S SOUTHERN TECHNOLOGIES LTD (SUPRA) DISSECTED THE MATTER INTO TWO PARTS VIZ. A) INCOME RECOGNITION AND B) PERMISSIBLE DEDUCTION/EXCLUSIONS UNDER THE INCOME TAX ACT. IN SO FAR AS INCOME RECOGNITION IS CONCERNED ITA NO . 38 3 /PN/20 14 SHANKARRAO MOHITE PATIL SAHAKARI BANK LTD. 14 THE HON'BLE SUPREME COURT HELD THAT SECTION 145 OF THE INCOME TAX ACT HAS NO ROLE TO PLAY AND THE ASSESSING OFFICER HAS TO FOLLOW RESERVE BANK OF INDIA DIRECTIONS 1998 SINCE BY VIRTUE OF 45Q OF THE RESERVE BANK OF INDIA ACT AN OVERRIDING EFFECT IS GIVEN TO THE DIRECTIONS OF RESERVE BANK OF INDIA VIS - - VIS INCOME RECOGNITION PRINCIPLES IN THE COMPANIES ACT 1956. IN SO FAR AS COMPUTATION OF INCOME UNDER THE INCOME TAX ACT IS CONCERNED (WHICH INVOLVES DEDUCTION OF PERMISSIBLE DEDUCTIONS AND EXCLUSIONS) THE ADMISSIBILITY OF SUCH DEDUCTIONS SHALL BE GOVERNED BY THE PROVISIONS OF THE INCOME TAX ACT. THE RELEVANT OBSERVATIONS OF THE HON'BLE SUPREME COURT ARE EXTRACTED BELOW: APPLICABILITY OF SECTION 145 40. AT THE OUTSET WE MAY STATE THAT IN ESSENCE RBI DIRECTIONS 1998 ARE PRUDENTIAL/PROVISIONING NORMS ISSUED BY RBI UNDER CHAPTER IIIB OF THE RBI ACT 1934. THESE NORMS DEAL ESSENTIALLY WITH INCOME RECOGNI TION. 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 45Q AN OVERRIDING EFFECT IS GIVEN TO THE DIRECTIONS 1998 VIS - - VIS INCOME RECOGNITION PRINCIPLES IN THE COMPANIES ACT 1956. THESE DIRECTIONS CONSTITUTE A CODE BY ITSELF. HOWEVER THESE DIRECTIONS 1998 AND THE IT ACT OPERATE IN DIFFERENT AREAS. THESE DIRECTIONS 1998 HAVE NOTHING TO DO WITH COMPUTATION OF TAXABLE INCOME. THESE DIRECTIONS CAN NOT OVERRULE THE PERMISSIBLE DEDUCTIONS OR THEIR EXCLUSION UNDER THE IT ACT. THE INCONSISTENCY BETWEEN THESE DIRECTIONS AND COMPANIES ACT IS ONLY IN THE MATTER OF INCOME RECOGNITION AND PRESENTATION OF FINANCIAL STATEMENTS. THE ACCOUNTING POLICIES ADOP TED BY AN NBFC CANNOT DETERMINE THE ACCOUNTING POLICIES ADOP TED 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 RESERVE BANK OF INDIA DIRECTIONS 1998 IN VIEW OF SECTION 45Q OF THE RESERVE BANK OF INDIA ACT. HENCE AS FAR AS INCOME RECOGNITION IS CONCERNED SECTION 145 OF THE IT ACT HAS NO ROLE TO PLAY IN THE PRESENT DISPUTE. 10 . TURNING TO THE FACTS OF THE CASE BEFORE US THE ASSESSEE HEREIN IS A COOPERATIVE BANK AND IT IS NOT IN DISPUTE THAT IT IS ALSO GOVERNED BY THE RESERVE BANK OF INDIA. HENCE THE DIRECTIONS WITH REGARD TO THE PRUDENTIAL NORMS ISSUED BY THE RESERVE BANK OF I NDIA ARE EQUALLY APPLICABLE TO THE ASSESSEE AS IT IS APPLICABLE TO THE COMPANIES REGISTERED UNDER THE COMPANIES ACT. THE HON'BLE SUPREME COURT HAS HELD IN THE CASE OF SOUTHERN TECHNOLOGIES LTD (SUPRA) THAT THE PROVISION OF 45Q OF RESERVE BANK OF INDIA ACT HAS AN OVERRIDING EFFECT VIS - - VIS INCOME RECOGNITION PRINCIPLE UNDER THE COMPANIES ACT. HENCE SEC.45 Q OF THE RBI ACT SHALL HAVE OVERRIDING EFFECT OVER THE INCOME RECOGNITION PRINCIPLE FOLLOWED BY COOPERATIVE BANKS ALSO. HENCE THE ASSESSING OFFICER HAS T O FOLLOW THE RESERVE BANK OF INDIA DIRECTIONS 1998 AS HELD BY THE HON'BLE SUPREME COURT. 10.1 BASED ON THE PRUDENTIAL NORMS THE ASSESSEE HEREIN DID NOT ADMIT THE INTEREST RELATABLE TO NPA ADVANCES IN ITS TOTAL INCOME. THE HON'BLE DELHI HIGH COURT IN TH E CASE OF VASISTH CHAY VYAPAR ITA NO . 38 3 /PN/20 14 SHANKARRAO MOHITE PATIL SAHAKARI BANK LTD. 15 LTD (SUPRA) HAS HELD THAT THE INTEREST ON NPA ASSETS CANNOT BE SAID TO HAVE ACCRUED TO THE ASSESSEE. IN THIS REGARD THE FOLLOWING OBSERVATIONS OF HON'BLE DELHI HIGH COURT IN THE ABOVE CITED CASE ARE RELEVANT: WHAT TO TALK OF INTEREST EVEN THE PRINCIPLE AMOUNT ITSELF HAD BECOME DOUBTFUL TO RECOVER. IN THIS SCENARIO IT WAS LEGITIMATE MOVE TO INFER THAT INTEREST INCOME THEREUPON HAS NOT ACCRUED. THE SAID DECISION OF THE HON'BLE DELHI HIGH COURT IS EQUALLY APPLICABLE TO TH E ISSUE IN OUR HANDS. ACCORDINGLY WE DO NOT FIND ANY INFIRMITY WITH THE DECISION OF THE LEARNED CIT (A) IN HOLDING THAT THE INTEREST INCOME RELATABLE ON NPA ADVANCES DID NOT ACCRUE TO THE ASSESSEE. ACCORDINGLY WE UPHOLD HIS ORDER. 10. FOLLOWING THE AFOR ESAID DISCUSSION WHICH HAS BEEN RENDERED ON AN IDENTICAL ISSUE UNDER SIMILAR CIRCUMSTANCES WE FIND NO REASONS TO INTERFERE WITH THE ULTIMATE CONCLUSION OF THE CIT(A) IN DELETING THE IMPUGNED ADDITION RELATING TO INTEREST INCOME IN RESPECT OF NPAS. 11. SO HOWEVER THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. SAKTHI FINANCE LTD. (2013) 31 TAXMANN.COM 305 (MADRAS) HAS DIFFERED WITH THE JUDGEMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF M/S VASISTH CHAY VYAPAR LTD. (SUPRA) ON A SIMILAR ISSUE I.E. RELATING TO INTEREST INCOME ON NPAS. THE LEARNED DEPARTMENTAL INTEREST INCOME ON NPAS. THE LEARNED DEPARTMENTAL REPRESENTATIVE FURTHER POINTED OUT THAT THE HONBLE MADRAS HIGH COURT FOLLOWED THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) IN HOLDING THAT INTEREST ON NPAS WAS ASSESSABLE TO TAX ON ACCRUAL BASIS. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS PUT - FORTH BY THE LEARNED DEPARTMENTAL REPRESENTATIVE BASED ON THE JUDGEMENT OF THE HONBLE MA DRAS HIGH COURT IN THE CASE OF SAKTHI FINANCE LTD. (SUPRA). THE CONTROVERSY BEFORE THE HONBLE MADRAS HIGH COURT RELATED TO NON - RECOGNITION OF INTEREST INCOME ON NPAS BY THE ASSESSEE FOLLOWING THE RBI GUIDELINES. THE HONBLE MADRAS HIGH COURT TOOK THE VI EW THAT THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) ALSO APPLIED TO THE INCOME RECOGNITION NORMS PROVIDED BY RBI AND THEREFORE IT HELD THE INTEREST INCOME ON NPAS IS LIABLE TO BE TAXED ON ACCRUAL BASIS AND N OT IN TERMS OF RBIS GUIDELINES. BUT THE HONBLE DELHI HIGH COURT IN THE CASE OF M/S VASISTH CHAY VYAPAR LTD. (SUPRA) HAS TAKEN A VIEW THAT SOUTHERN TECHNOLOGIES LTD. (SUPRA) CASE DID NOT APPLY TO THE INCOME RECOGNITION NORMS PRESCRIBED BY RBI. OSTENSIBL Y THERE IS DIVERGENCE OF OPINION BETWEEN THE HONBLE DELHI HIGH COURT AND THE HONBLE MADRAS HIGH COURT AS NOTED BY THE HONBLE MADRAS HIGH COURT IN ITS ORDER. 12. IN SO FAR AS PRESENT CASE IS CONCERNED THERE IS NO JUDGMENT OF THE JURISDICTIONAL HIGH C OURT. WE ARE FACED WITH ITA NO . 38 3 /PN/20 14 SHANKARRAO MOHITE PATIL SAHAKARI BANK LTD. 16 TWO CONTRARY JUDGMENTS OF THE NON - JURISDICTIONAL HIGH COURT. IN SUCH A SITUATION WE ARE INCLINED TO PREFER A VIEW WHICH IS FAVOURABLE OF THE ASSESSEE FOLLOWING THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. VEG ETABLE PRODUCTS LTD. (1973) 88 ITR 192 (SC). 13. THEREFORE IN VIEW OF THE AFORESAID DISCUSSION WE ARE INCLINED TO FOLLOW THE DECISION OF OUR CO - ORDINATE BENCH IN THE CASE OF THE DURGA COOPERATIVE URBAN BANK LTD. (SUPRA) AND ACCORDINGLY THE ORDER OF TH E CIT(A) IS LIABLE TO THE AFFIRMED. WE HOLD SO. 9. FOLLOWING THE SAME PARITY OF REASONING WE HOLD THAT THE INTEREST ON NPAS IS NOT TAXABLE IN THE HANDS OF THE ASSESSEE FOR THE CAPTIONED ASSESSMENT YEAR. CONSEQUENTLY THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE DISMISSED. 10 . IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISSED . ORDER P RONOUNCED ON THIS 29 TH DAY OF APRIL 201 5 . SD/ - SD/ - ( R.K. PANDA ) ( SUSHMA CHOWLA ) ( R.K. PANDA ) ( SUSHMA CHOWLA ) ACCOUNTANT MEMBER JUDI CIAL MEMBER PUNE DATED: 29 TH APRIL 2015 GCVSR COPY OF THE ORDER IS FORWARDED TO : - 1) THE DEPARTMENT; 2) THE ASSESSEE; 3) THE CIT(A) - III PUNE ; 4) THE CIT - III PUNE ; 5) THE DR A BENCH I.T.A.T. PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I .T.A.T. PUNE