Assistant Commissioner of Income-tax,, v. Sharad Nagari Sahakari Bank Ltd.,, Solapur

ITA 417/PUN/2014 | 2010-2011
Pronouncement Date: 31-07-2015 | Result: Dismissed

Appeal Details

RSA Number 41724514 RSA 2014
Assessee PAN AAAAS9900L
Bench Pune
Appeal Number ITA 417/PUN/2014
Duration Of Justice 1 year(s) 4 month(s) 27 day(s)
Appellant Assistant Commissioner of Income-tax,,
Respondent Sharad Nagari Sahakari Bank Ltd.,, Solapur
Appeal Type Income Tax Appeal
Pronouncement Date 31-07-2015
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 31-07-2015
Assessment Year 2010-2011
Appeal Filed On 04-03-2014
Judgment Text
] IQ.KS IQ.KS IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A PUNE ! ' BEFORE SHRI R.K. PANDA AM AND SHRI VIKAS AWASTHY JM / ITA NO.417/PN/2014 !# $ %$ / ASSESSMENT YEAR : 2010-11 ACIT CIRCLE-2 SOLAPUR . / APPELLANT V/S SHARAD NAGARI SAHAKARI BANK LIMITED 318/319 GOLD FINCH PETH SUBHASH CHOWK SOLAPUR 413 007 PAN NO.AAAAS9900L . / RESPONDENT / APPELLANT BY : SHRI PIYUSH P. BAFNA & SHRI S.N. DOSHI / DEPARTMENT BY : SHRI . RAJESH DAMOR & / ORDER PER R.K. PANDA AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE OR DER DATED 02-12-2013 OF THE CIT(A)-III PUNE RELATING TO ASS ESSMENT YEAR 2010-11. 2. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER : 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.16 19 053/- MADE BY THE AO ON ACCOUNT OF INTEREST ON NON PERFORMING ASSETS U/S.43D OF THE INCOME TAX ACT 196 1 AS THE ASSESSEE IS A COOPERATIVE BANK AND NOT A SCHEDULED BA NK. / DATE OF HEARING :30.07.2015 / DATE OF PRONOUNCEMENT:31.07.2015 2 ITA NO.417/PN/2014 2. THE LEARNED CIT(A) IS ERRED IN NOT OBSERVING THAT T HE PROVISIONS OF SECTION 43D ARE ONLY APPLICABLE TO FINA NCIAL INSTITUTIONS AND SCHEDULED BANKS WHEREAS THE ASSESSEE IS A NON-S CHEDULED BANK AND CANNOT TAKE THE BENEFIT OF SECTION 43D OF THE ACT. 3. WHETHER THE LEARNED CIT(A) ERRED IN NOT APPRECIATI NG THE RATIO OF HON'BLE SUPREME COURT JUDGMENT IN SOUTHERN T ECHNOLOGIES LIMITED VS. JCIT 320 ITR 577 (SC) WHICH SAYS THAT THE RBI DIRECTIONS UNDER RBI ACT ARE PRUDENTIAL NORMS AND HAVE NOTHING TO DO WITH COMPUTATION OF TAXABILITY OF PROVISIONS OF NPA UNDER THE I NCOME TAX ACT 1961 CANNOT OVERRIDE THE PROVISIONS OF THE INCOME TAX ACT 1961. 4. THE APPELLANT CRAVES TO ADD ALTER AMEND SUBSTITUTE O R DELETE ANY OF THE GROUNDS URGED HEREIN ABOVE AS AND WHEN FOUND NECE SSARY. 3. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE IS A COOPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING AN D THE PROVISIONS OF BANKING REGULATION ACT 1949 ARE APPLICABLE AS THE RBI HAS ISSUED THE LICENSE. THE ASSESSEE FILED ITS RETURN OF INCOME ON 22-09-2010 DECLARING TOTAL INCOME OF RS.34 28 370/-. D URING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO WHILE VERIFY ING THE DETAILS OF NPA OBSERVED FROM THE BALANCE SHEET OF THE ASS ESSEE THAT AN AMOUNT OF RS.46 62 323/- HAS BEEN SHOWN AS INTEREST RECEIVABLE ON NPA ACCOUNT ON THE ASSET SIDE OF THE BALAN CE SHEET. SIMILARLY A CONTRA ENTRY NPA INTEREST RESERVE ACCOUNT WAS SHOWN IN THE LIABILITY SIDE. ON BEING ASKED ABOUT THE NATURE OF TH IS ENTRY IT WAS SUBMITTED BY THE ASSESSEE THAT INTEREST ACCRUED ON NON- PERFORMING ACCOUNTS IS NOT CREDITED TO THE PROFIT AND LOSS ACCOUNT AND DIRECTLY TAKEN TO THE BALANCE SHEET. ON VERIFICATIO N OF DETAILS OF NPAS AND INTEREST ACCRUED ON THE SAME THE ASSESSING OFFICER NOTED THAT THE ASSESSEE BANK HAS NOT TREATED AS INCO ME OF ONE YEAR I.E. F.Y. 2009-10 ON NPA AT RS.16 19 052/-. THE ASSESS ING OFFICER ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE SAID INTEREST INCOME ON NPA SHOULD NOT BE TREATED AS INCOME SINCE IT H AS BEEN 3 ITA NO.417/PN/2014 FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THE ASSESSEE JU STIFIED ITS ACTION BY CITING CIRCULAR DATED 09-10-1984 ISSUED BY C BDT TO THE EFFECT THAT INTEREST ON STICKY ADVANCES OR NPAS HAS TO BE TREATED AS INCOME IN THE YEAR OF ACTUAL RECEIPT. RBI GU IDELINES AND VARIOUS DECISIONS WERE ALSO RELIED UPON. 4. HOWEVER THE ASSESSING OFFICER DID NOT ACCEPT THE ARGU MENTS ADVANCED BY THE ASSESSEE. ACCORDING TO THE ASSESSING OFFICER THE ASSESSEE ITSELF HAS BEEN CREDITING THE ENTIRE INTEREST DUE FROM THE BORROWERS ON ACCRUAL BASIS. SO FAR AS THE ISSUE OF OVERD UE INTEREST RECEIVABLE ON NPAS IS CONCERNED HE HELD THAT IT CAN BE A LLOWED AS DEDUCTION U/S.43D OF THE I.T. ACT. HOWEVER THE SAME IS A PPLICABLE ONLY TO THE SCHEDULED BANKS OR FINANCIAL CORPORATIONS. SINCE THE ASSESSEE IS NEITHER A SCHEDULED BANK NOR A FINANCIAL INSTIT UTION THEREFORE THE ASSESSEE IS NOT ENTITLED TO SUCH DEDUCTION. 5. AS REGARDS THE RELIANCE OF THE ASSESSEE ON THE RBI GUIDELINES ARE CONCERNED THE ASSESSING OFFICER NOTED THAT THE RBI GUIDELINES WERE ONLY FOR THE PURPOSE OF PRESENTATION OF NPA PROVISIO NS IN THE BALANCE SHEET AND IT HAS NO EFFECT ON THE TAXABILITY OF SUC H INCOME UNDER THE INCOME TAX ACT. THE ASSESSING OFFICER SIMILARLY HELD THAT THE CBDT CIRCULAR DATED 09-10-1984 IS ALSO NOT APP LICABLE TO THE FACTS OF THE CASE. RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. REPORTED IN 320 ITR 577 THE ASSESSING OFFICER ADDED THE AMOUNT OF RS.16 19 053/- BEING THE OVERDUE INTEREST ON THE NPAS TO THE TOTAL IN COME OF THE ASSESSEE. 6. IN APPEAL THE LD.CIT(A) FOLLOWING THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF OSMANABAD JANATA SA HARI 4 ITA NO.417/PN/2014 BANK LTD. VIDE ITA NO.795/PN/2011 ORDER DATED 31-08-2 012 DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. 7. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 8. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE H AVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF OSMANABAD JANATA SA HARI BANK LTD (SUPRA) HAS DECIDED AN IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE AFTER CONSIDERING THE DECISION OF THE HONBLE SUP REME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) W HICH HAS BEEN FOLLOWED BY THE LD.CIT(A). WE FIND THE PUNE BENCH OF TH E TRIBUNAL IN THE CASE CITED (SUPRA) WHILE DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE HAS OBSERVED AS UNDER : 5. WE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND PE RUSED THE RECORD. WE FIND THAT THE IDENTICAL ISSUE HAS BEEN CON SIDERED BY THE ITAT VISAKHAPATNAM BENCH IN THE CASE OF DCIT VIJAY AWADA 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 DECISION OF THE HONBLE HIGH COURT OF DELHI IN THE CASE OF VASHIST CH AY VYAPAR LTD. [330 ITR 440 (DEL.)] IN WHICH THE HONBLE DELHI HI GH COURT HAS CONSIDERED THE DECISION IN THE CASE OF SOUTHERN TECHNO LOGIES LTD. [320 ITR 577 (SC)]. THE TRIBUNAL FINALLY HELD THAT THE I NTEREST INCOME RELATABLE TO NPA ADVANCES DID NOT ACCRUE TO THE ASSESSEE . 6. AN IDENTICAL VIEW HAS BEEN TAKEN BY THE ITAT AHM EDABAD BENCH IN THE CASE OF KARNAVATI COOPERATIVE BANK LTD. VS. DY.CIT [134 ITD 486 (AHMEDABAD)]. IN THE CASE OF KARNAVATI COOP ERATIVE BANK LTD. (SUPRA) THE TRIBUNAL HAS CONSIDERED THE PROVISION S OF SECTION 43D AND ITS APPLICATION TO THE NON-SCHEDULED BANKS. T HE REASONS GIVEN BY THE TRIBUNAL IN THE CASE OF KARNAVATI COOPE RATIVE BANK LTD. (SUPRA) FOR HOLDING THAT INTEREST ON THE STICKY ADVANC ES/NPA ADVANCES 5 ITA NO.417/PN/2014 CANNOT BE BROUGHT TO TAX BY FOLLOWING THE DECISION I N THE CASE OF UCO BANK (SUPRA) WHICH IS AS UNDER: 15.1. ON CAREFUL ANALYSIS OF THIS SECTION OUR FIRST OBSE RVATION IS THAT SECTION 43D IS IN CONTRAST WITH THE FUNDAMENTAL PRINC IPLE OF ACCOUNTANCY. THE CARDINAL PRINCIPLE OF MERCANTILE SY STEM OF ACCOUNTANCY IS THAT AN INCOME IS TO BE SHOWN IN THE BO OKS OF ACCOUNT ON ACCRUAL BASIS. THE PRINCIPLE IS THAT IT IS IMMATE RIAL WHETHER IT WAS ACTUALLY RECEIVED OR NOT BUT IF AN INCOME IS EXPECT ED TO BE RECEIVED THEN IT SHOULD BE BROUGHT TO BOOKS OF ACCOUNT AS AN IN COME ACCRUED TO THE ASSESSEE. CONTRARY TO THIS RECOGNIZED PRINCIPLE THI S 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 WOR DS CREDITED AND ACTUALLY RECEIVED HAS BEEN HIGHLIGHTED HEREINABOVE WHILE REPRODUCING THE SECTION IN QUESTION. THE OTHER DEVIAT ION 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 WH ICH IT IS ACTUALLY RECEIVED. THE ACT SAYS THAT THE INCIDENCE OF CREDIT OR ACTUALLY RECEIVED WHICHEVER IS EARLIER IS TO BE TAKEN INTO A CCOUNT FOR THE PURPOSE OF CHARGEABILITY OF INCOME BY WAY OF INTEREST . SIMULTANEOUSLY IT IS NOTEWORTHY THAT THIS SECTION IS AN OVERRIDING SECT ION BECAUSE THE OPENING WORD IS NOTWITHSTANDING ANYTHING TO THE CONT RARY CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT. THEREFORE IN SPI TE OF ANYTHING CONTAINED IN THE ACT THE PROVISIONS OF THIS SECTION SHA LL OVERRIDE THOSE PROVISIONS. ONCE THE STATUTE HAS CATEGORICALLY MADE A LAW IN RESPECT OF PUBLIC FINANCIAL INSTITUTIONS THAT INTEREST IS CHARGEAB LE TO TAX EITHER IN THE YEAR IN WHICH CREDITED OR ACTUALLY RECEIVED WH ICHEVER IS EARLIER THEN IT IS COMPULSORY TO ABIDE BY THE SAID RULE. ACCOR DING TO US NO SCOPE IS LEFT WITH THE REVENUE AUTHORITIES TO IGNORE T HESE PROVISIONS DUE TO UNAMBIGUOUS USE OF LANGUAGE IN THE SECTION. (II) STATUS OF ASSESSEE FOR THE PURPOSE OF APPLICATION SE CTION 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 GUI DELINES. VIDE AN EXPLANATION (D) R.W.S. 36(1)(VIIA) ANNEXED T O SECTION 43-D THE DEFINITION OF THE ENTITIES INCORPORATED BY THE SECTIO N HAVE BEEN DEFINED AND IN THE ABSENCE OF ANY CONTRARY MATERIAL WE HEREBY HOLD THAT THE ASSESSEE IS COVERED BY ONE OF THE ENTITIES HEN CE 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 O F A STATUTE. IN ORDER TO AID PROPER DETERMINATION OF THE INCOME OF MONEY LENDERS AND BANKS THE CENTRAL BOARD OF DIRECT TAXES HAS ISSUED A CI RCULAR DATED OCTOBER 6 1952 PROVIDING THAT WHERE INTEREST ACCRU ING ON DOUBTFUL DEBTS IS CREDITED TO A SUSPENSE ACCOUNT IT NEED NOT BE INCLUDED IN ASSESSEES TAXABLE INCOME PROVIDED THE INCOME TAX OFFIC ER 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 AR E REQUIRED TO BE FOLLOWED AND SUCH CIRCULAR WOULD BE BINDING ON THE D EPARTMENT 6 ITA NO.417/PN/2014 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 AN D THE AUTHORITIES ARE REQUIRED TO FOLLOW THOSE INSTRUCTIONS A S HELD IN THE CASE OF C.B. GAUTAM VS. UNION OF INDIA 108 CTR 304 (S C) & 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 VS. CIT (1999) 237 ITR 889 (SC) HAS THEREFOR E HELD FIRST THAT A BENEFICIAL CIRCULAR IS NOT TO BE TREATED AS IN CONSISTENT WITH THE PROVISIONS OF STATUTE AND BINDING ON THE AUTHORITIES. S ECOND THAT IN RESPECT OF INTEREST ON STICKY ADVANCES INTEREST INCOME IS TO BE TAXED ONLY WHEN ACTUALLY RECEIVED AS PRESCRIBED BY CBDT CIR CULAR. HOWEVER IN THE PAST AN INTERESTING TURN HAD TAKEN PL ACE BY AN ORDER OF THE HONBLE KERALA HIGH COURT IN THE CASE OF STAT E BANK OF TRAVANCORE REPORTED IN 110 ITR 336 (KER.) WHEREIN IT WAS HELD THAT THE ASSESSEE A BANKING COMPANY DID NOT CREDIT IN ITS A CCOUNT THE INTEREST THAT HAD ACCRUED ON STICKY ADVANCES BECAUSE THE ASSESSEE FELT THAT THE INTEREST COULD NOT TO BE REALISED. IT C REDITED 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 JUST IFIED IN NOT CREDITING THE INTEREST INCOME ON SUCH STICK ADVANCES IT ITS ACCOUNTS. HOWEVER LATER ON AT THE HON'BLE APEX COURT WHILE P RONOUNCING THE JUDGMENT OF THE SAID STATE BANK OF TRAVANCORE VS. CIT REPORTED IN (1986)158 ITR 102(SC) THERE WERE HON'BLE THREE JUD GES PRESIDING THE COURT OUT OF WHICH HONBLE TWO JUDGES WERE IN T HE OPINION THAT THE INTEREST ON STICKY ADVANCES WAS RIGHTLY TREATED A S INCOME WHICH HAD ACCRUED TO THE APPELLANT. THERE WAS A DESCENDING NOTE BY ONE OF THE HON'BLE JUDGE AND COMMENTED THAT WHETHER AN INC OME ON RECEIPT BASIS OR ON ACCRUAL BASIS IT IS THE REAL INCOME AND NOT ANY HYPOTHETICAL INCOME WHICH MAY HAVE THEORETICALLY ACCRUED I.E. SU BJECT TO TAX UNDER THE ACT. NEVERTHELESS THAT DECISION WAS NOT FOLLOWED W HILE DECIDING THE APPEAL OF UCO BANK (SUPRA) BY THE HON'BLE THREE JUDGES OF THE SUPREME COURT ALREADY DISCUSSED BY US SUPRA. WE THERE FORE SUMMARIZE THAT AS OF NOW THE LAW AS LAID DOWN IN UCO B ANK 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 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 H AS USED THE TERMINOLOGY FOR THE CHARGEABILITY OF INTEREST ON TH E BASIS WHEN CREDITED OR ACTUALLY RECEIVED THEN IN OUR OPIN ION NO AMBIGUITY HAS BEEN LEFT BY THE STATUTE. IF THE STATUTE IS SO CLEAR T HAT AN INTERPRETATION CAN EASILY BE MADE THEN THAT EXACT MEANING SHOULD BE GIVEN TO THE LANGUAGE OF THE SECTION. FOR THIS LEGAL PROPOSITION W E PLACE RELIANCE ON KESHAVJI RAVJI AND COMPANY VS. CIT 183 ITR 01 (SC) W HEREIN IT WAS HELD AS UNDER: AS LONG AS THERE IS NO AMBIGUITY IN THE STATUTORY LANG UAGE RESORT TO ANY INTERPRETATIVE PROCESS TO UNFOLD THE LEGISLATIVE I NTENT BECOMES IMPERMISSIBLE. THE SUPPOSED INTENTION OF THE LEGISLATURE CANNOT THEN 7 ITA NO.417/PN/2014 BE APPEALED TO WHITTLE DOWN THE STATUTORY LANGUAGE W HICH IS OTHER- WISE UNAMBIGUOUS. IF THE INTENDMENT IS NOT IN THE WOR DS IT IS NOWHERE ELSE. THE NEED FOR INTERPRETATION ARISES WHEN THE WORD S USED IN THE STATUTE ARE ON THEIR OWN TERMS AMBIVALENT AND DO NO T MANIFEST THE INTENTION OF THE LEGISLATURE. WHEN WORDS ACQUIRE A PARTICULAR MEANING OR SENSE BECAU SE OF THEIR AUTHORITATIVE CONSTRUCTION BY SUPERIOR COURTS THEY AR E 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-CALLE D EQUITABLE CONSTRUCTION OF A TAXING STATUTE IS NOT TO SAY THAT W HERE A STRICT LITERAL CONSTRUCTION LEADS TO A RESULT NOT INTENDED TO SUBSERVE THE OBJECT OF THE LEGISLATION ANOTHER CONSTRUCTION PERMISSIBLE IN T HE 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 IT S 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 INTER EST ON STICKY LOANS WAS DECIDED IN FAVOUR OF THE ASSESSEE AND HELD TH AT THE QUESTION IS TO BE ANSWERED IN FAVOUR OF THE ASSESSEE FOLL OWING 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 NOT TAXABLE FOLLOWING THE DECISION PRONOUNCED IN THE CASE OF UCO BANK (SUPRA). (V) JUDGEMENT IN FAVOUR OF REVENUE : FROM THE SIDE OF THE REVENUE AN ORDER OF THE TRIBUNA L HAS BEEN VEHEMENTLY RELIED UPON AND THIS IS THE BASIC REASON OF THE ELABORATE DISCUSSION MADE HEREINABOVE SO AS TO UNFOLD THE CONTROVE RSY. IN THE SAID DECISION OF THE TRIBUNAL VIZ. JT.CIT V/S. INDIA EQUIPMENT LEASING LTD. (2008)111 ITD 37 (CHENNAI) THE RESPECTED CO-OR DINATE 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 RECOGNIZED ON RECEIPT BASIS. S INCE THE INCOME WAS TO BE ASSESSED FOR FIRST THREE YEARS ON ACCRUAL BASIS P ROVISIONS OF SECTION 43D WERE INSERTED IN THE ACT. CIRCULAR NO.621 DATED 19-12- 1991 GIVES THE LEGISLATIVE INTENTION STATING THAT SECTI ON 43D WAS INSERTED WITH A VIEW TO IMPROVING THE VIABILITY OF B ANKS PUBLIC FINANCIAL INSTITUTIONS ETC. SO AS TO PROVIDE THAT IN TEREST ON STICKY LOANS SHALL BE CHARGED TO TAX ONLY IN THE YEAR IN WHICH TH E 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 PU BLIC COMPANIES ENGAGED IN LONG-TERM FINANCING OF HOUSING PROJECTS AP PROVED 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 PROVISI ONS OF SECTION 43D AS STOOD AT RELEVANT TIME CONTAINED AN EXPRESSION 'TH E INCOME BY WAY 8 ITA NO.417/PN/2014 OF INTEREST IN RELATION TO SUCH CATEGORIES OF BAD OR D OUBTFUL DEBTS AS MAY BE PRESCRIBED HAVING REGARD TO THE GUIDELINES ISSUE D BY THE RBI IN RELATION TO SUCH DEBTS'. THIS EXPRESSION CONTINUES TO EXIST IN THE NEWLY SUBSTITUTED SECTION 43D APPLICABLE WITH EFFECT F ROM 1-4-2000. THIS SHOWS THAT THE RBI GUIDELINES IN RESPECT OF SCHEDUL ED BANKS PUBLIC FINANCIAL INSTITUTIONS ETC. WERE NOT SUFFICIEN T FOR RECOGNITION OF INCOME ON CASH BASIS FOR THE PURPOSES OF INCOME-TAX. THE INCOME OF SUCH ASSESSEES WAS DETERMINED AS PER CIRCULAR DATED 9-10-19 84. BECAUSE OF THIS REASON SECTION 43DWAS INSERTED IN THE STA TUTE. RBI GUIDELINES IN CASE OF NBFC ARE FOR THE PURPOSE OF CONT ROL AND SUPERVISION WITH RESPECT TO PUBLIC INTEREST AND VIABILI TY 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 C ONTENTION OF ASSESSEE WAS ACCEPTED IT WOULD AMOUNT TO INSERTION OF 'N BFC' IN SECTION 43D THAT TOO BY A GUIDELINE ISSUED FOR DIFFER ENT PURPOSES BY AN AUTHORITY OTHER THAN THE PARLIAMENT IN OTHER WOR DS THE DOCTRINE OF 'CASUS OMISSUS' WILL DEEM TO HAVE BEEN APPLIED WHICH IS C ONTRARY TO LAW OF LAND.UNQUOTE. THE BASIC REASON FOR DIRECTING TO ASSESS THE ACCRUED INTEREST ON NPA WAS THE RBI GUIDELINES ISSUED ON LY 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 INSE RTION OF NBFC IN SECTION 43-D OF THE I.T.ACT. AS AGAINST THA T AS FAR AS THE ASSESSEE IS CONCERNED IT IS AN ACCEPTED FACT THAT THE ASSE SSEE IS A COOPERATIVE BANK AND NOT A NON-BANKING FINANCIAL CO MPANY AND THIS NOTEWORTHY DISTINCTION HAS ALREADY BEEN APPRECIATED B Y US IN ONE OF THE PARAGRAPHS ABOVE. THERE IS ONE MORE DECISION OF THE HONBLE 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 TECHN OLOGIES LTD. VS. JT. CIT 320 ITR 577 (SC) HAS BEEN CITED BUT THE FUND AMENTAL DIFFERENCE IS THAT THE ISSUE BEFORE THE HONBLE COURT WAS IN RESPE CT OF PROVISION FOR NPA AND DEBITED TO P&L ACCOUNT BY A NBFC. THE SA ID PROVISION WAS UNDISPUTEDLY MADE BY THE SAID NBFC AS PER THE PRUDE NTIAL NORMS MADE BY THE RESERVE BANK. THEREFORE WE WANT TO MAKE IT CLEAR THAT THE QUESTION FOR CONSIDERATION BEFORE THE HONBLE COU RT WAS THAT IF A PROVISION FOR DOUBTFUL DEBT IS MADE THEN WHAT WILL BE THE LEGAL POSITION OF THE APPLICABILITY OF EXPLANATION TO SECTI ON 36(1)(VII) OF THE I.T. 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. TH E PROFITS ARRIVED AT ON COMMERCIAL PRINCIPLES SUBJECT TO THE PROVISIONS OF THE ACT. THEREFORE IF BY THE EXPLANATION TO SECTION 36(1)(VII) A PROVISI ON FOR DOUBTFUL DEBT IS KEPT OUT OF THE AMBIT OF BAD DEBT WHICH IS WR ITTEN OFF THEN ONE HAS TO TAKE INTO ACCOUNT THE EXPLANATION IN COMPUTIN G THE TOTAL INCOME UNDER THE INCOME-TAX ACT FAILING WHICH ONE CANNOT A SCERTAIN THE REAL PROFITS. THE PROVISION FOR NON-PERFORMING ASSETS DEBITED IN THE PROFIT AND LOSS ACCOUNT UNDER THE RESERVE BANK DIRECTIONS OF 1 998 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 QUESTION IS ACCRUAL OF INTEREST INCOME ON STICKY LOAN BUT IN THIS 9 ITA NO.417/PN/2014 CITED DECISION THE QUESTION BEFORE HE APEX COURT WAS A BOUT 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 A RGUED 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 T HE VIEW EXPRESSED WAS THAT IF INCOME DOES NOT RESULT AT ALL THERE CANNO T BE ANY TAX AND THAT IF AN INCOME HAS NOT MATERIALIZED THEN MERELY AN ENTRY MADE ABOUT A HYPOTHETICAL INCOME BY FOLLOWING BOOK KEEPI NG METHODS THE LIABILITY TO TAX CANNOT BE ATTRACTED. NOW AT PRESENT THE SITUATION IS THAT THE HON'BLE MADRA S HIGH COURT IN THE CASE OF CIT VS. ELGI FINANCE LTD. 293 ITR 357 (MA D.) HAS TAKEN A VIEW THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINE SS 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 N PA 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 RECOGNIZI NG SUCH INCOME. THE COURT HAD FURTHER EXPRESSED THAT THERE WA S NO OCCASION TO CONSIDER WHETHER THE PRINCIPLE OF ACCRUAL WOULD A RISE OR NOT NEVERTHELESS THE INTEREST FROM SUCH NPA WOULD BE TAXED IN THE APPROPRIATE ASSESSMENT YEAR ON THE BASIS OF ACTUAL RECEI PT. 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 COUR T PRONOUNCED IN THE CASE OF JT.CIT VS. INDIA EQUIPMENT LEASING LTD. 29 3 ITR 350. 7. IN THE CASE BEFORE US ADMITTEDLY ASSESSEE HAS DIRECTL Y TAKEN THE INTEREST TO THE BALANCE SHEET AND IT IS NOT ROUT ED THROUGH THE PROFIT & LOSS ACCOUNT. MOREOVER THE ISSUE OF THE TAXABILITY OF THE INTEREST ON THE STICKY LOSSES/ADVANCES IS COVERED IN FAVOUR OF TH E 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 DISM ISSED. 9. WE FIND THE LD.CIT(A) WHILE DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE HAS FOLLOWED THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF OSMANABAD JANATA SAHARI BANK LTD (SUPRA). IN VIEW OF THE DECISION OF THE COORDINATE BENCH O F THE TRIBUNAL AND IN ABSENCE OF ANY DISTINGUISHABLE FEATURES BRO UGHT TO OUR NOTICE BY THE LD. DEPARTMENTAL REPRESENTATIVE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) WHO HAS FOLLOWED THE 10 ITA NO.417/PN/2014 DECISION OF THE TRIBUNAL. THE GROUNDS RAISED BY THE REVEN UE ARE THEREFORE DISMISSED. 10. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31-07-2015. SD/- SD/- ( VIKAS AWASTHY ) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER IQ.KS PUNE ; !' DATED : 31 ST JULY 2015. LRH'K &'(!)*+%) / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. $ $ % ( ) - III IQ.KS / THE CIT(A)-III PUNE 4. $ $ % - III IQ.KS / THE CIT- III PUNE 5. 6. ()* ++ - $ - IQ.KS / DR ITAT A PUNE; */0 1 / GUARD FILE. &# / BY ORDER ( + //TRUE C ( + //TRUE COPY// 234 +5 6 / SR. PRIVATE SECRETARY $ - IQ.KS / ITAT PUNE