THE ITO-KHAMGAON, Khamgaon v. M/S THE JIJAMATA MAHILA NAGRI SAHAKARI BANK LTD,, Buldhana

ITA 464/NAG/2013 | 2010-2011
Pronouncement Date: 31-07-2015 | Result: Dismissed

Appeal Details

RSA Number 46423914 RSA 2013
Assessee PAN AAAAT5050C
Bench Nagpur
Appeal Number ITA 464/NAG/2013
Duration Of Justice 1 year(s) 7 month(s) 3 day(s)
Appellant THE ITO-KHAMGAON, Khamgaon
Respondent M/S THE JIJAMATA MAHILA NAGRI SAHAKARI BANK LTD,, Buldhana
Appeal Type Income Tax Appeal
Pronouncement Date 31-07-2015
Appeal Filed By Department
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 31-07-2015
Assessment Year 2010-2011
Appeal Filed On 27-12-2013
Judgment Text
1 ITA NO.464/NAG/2013 IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH NAGPUR BEFORE SHRI MUKUL K. SHRAWAT JUDICIAL MEMBER AND SHRI SHAMIM YAHYA ACCOUNTANT MEMBER. I.T. A. NO.464/NAG/2013 ASSESSMENT YEAR : 2010 - 11. THE INCOME - TAX OFFICER M/S THE JIJAMATA MAHILA NAGRI KHAMGAON. V/S. SAHAKARI BANK LTD. CHIKHLI ROAD BULDHANA. PAN AAAAT5050C (APPELLANT) RESPONDENT. APPELLANT BY : SHRI NARENDRA KANE. RESPONDENT BY : SHRI MUKESH AGRAWAL. DATE OF HEARING : 13 - 07 - 2015 DATE OF PRONOUNCEMENT : 31 ST JULY 2015. O R D E R PER SHRI MUKUL K. SHRAWAT J.M. THIS IS AN APPEAL FILED BY THE REVENUE ARISING FROM THE ORDER OF LEARNED CIT(APPEALS) - I NAGPUR DATED 30 - 09 - 2013. REVENUE HAS RAISED THE FOLLOWING GROUND S : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN HOLDING THAT IN VIEW OF CBDT CIRCULAR DT. 09.10.1984 THE INTEREST ON NPAS WHICH WERE OUTSTANDING FOR MORE THAN 3 YEARS WAS NOT TAXABLE AND CONSEQUENTLY THE CIT(A) ERRED IN ALLOWING THE RELIEF TO THE EXTENT OF ` .31.32 LACS SUBJECT TO FURTHER VERIFICATION BY THE AO . 2 ITA NO.464/NAG/2013 2. ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW THE CIT(A) ERRED IN HOLDING THAT THE BENEFIT OF THE CBDT CIRCULAR DT. 09.10.1984 WAS AVAILABLE TO THE NON - SCHEDULED BANKS CARRYING ON THE BUSINESS UNDER THE LICENSE ISSUED BY THE R BI. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) CBDT CIRCULAR HAD BECOME REDUNDANT IN VIEW OF THE SPECIFIC AMENDED PROVISIONS OF SECTION 43D ABOUT TAXABILITY OF THE ACCRUED INTEREST ON NPAS EITHER ON RECEIPT OR CREDIT BASIS AND AM ENDED PROVISIONS OF SECTION 145(1) PRESCRIBING EITHER MERCANTILE OR CASH SYSTEM OF ACCOUNTING STATUTORILY TO BE FOLLOWED BY THE ASSESSEE AND THAT CHOICE OF FOLLOWING THE HYBRID SYSTEM OF ACCOUNTING WAS NOT MORE AVAILABLE TO THE ASSESSEE. 4. ON THE FACT S AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN NOT FOLLOWING THE RATIO OF THE HONBLE LUCKNOW ITAT BENCH DECISION IN THE CASE OF M/S THE HAMIRPUR DISTRICT CO - OPERATIVE BANK LTD. V/S. DCIT (2012) 25 TAXMAN 306 WHEREIN ON SIMILAR FACTS TH E HONBLE ITAT HAS HELD THAT THE ACCRUED INTEREST ON NPAS WAS BASED UPON THE HONBLE SC JUDGMENT IN THE CASE OF M/S SOUTHERS TECHNOLOGIES LTD. (320 ITR 577). 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT THE ASSESSEE HAD CHANGED THE METHOD OF ACCOUNTING TO ACCOUNT FOR THE ACCRUED INTEREST ON NPAS WHEREAS SECTION 145(1) MANDATORILY REQUIRES THE ASSESSEE EITHER TO FOLLOW MERCANTILE SYSTEM OR TO FOLLOW CASH SYSTEM OF ACCOUNTING THEREFORE BA RRING HYBRID SYSTEM OF ACCOUNTING. 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED UNDER SECTION 143(3) DATED 05 - 12 - 2012 WERE THAT THE ASSESSEE IS IN BANKING BUSINESS AND CREATED A RESERVE ACCOUNT ON ACCOUNT OF OVERDUE INTEREST OF ` .31 32 024/ - IN THE BALANCE SHEET. THE OBSERVATION OF THE ASSESSING OFFICER WAS THAT THE INTEREST ACCRUED ON NON PERFORMING ASSET (NPA) WAS NOT CREDITED TO THE PROFIT & LOSS ACCOUNT ALTHOUGH THE ASSESSEE HAS FOLLOWED THE MERCANTILE SYSTEM OF ACCOUNTI NG. HOWEVER THE ASSESSING OFFICER WAS NOT IN AGREEMENT WITH THE ARGUMENT OF THE ASSESSEE THAT AS PER THE NORMS OF RBI THE ACCRUED INTEREST WAS NOT 3 ITA NO.464/NAG/2013 CREDITED IN PROFIT & LOSS ACCOUNT. THE ASSESSING OFFICER HAS MENTIONED FEW CASE LAWS AS UNDER : THE ASSESSEE HAS MADE AN ARGUMENT THAT IT IS FOLLOWING THE SAME METHOD OF ACCOUNTING SINCE 1993 HAS NO FORCE BECAUSE SECTION 145 STATES THAT THE INCOME CHARGEABLE BE COMPUTED IN ACCORDANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPL OYED BY THE ASSESSEE. IT IS CLEAR THAT THE ASSESSEE HAS TO FOLLOW EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING. IT DOES NOT PERMIT HYBRID SYSTEM OF ACCOUNTING. THEREFORE THE ASSESSEES CONTENTION THAT IT IS FOLLOWING THE METHOD OF ACCOUNTING SINCE 1 993 IS LAME AS IT DOES NOT FOLLOW THE METHOD OF ACCOUNTING AS PER THE PROVISIONS OF INCOME TAX ACT 1961. IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. V/S. CIT (SC) 227 ITR 172 HONBLE SUPREME COURT HELD THAT ACCOUNTANCY PRACTICE CANN OT OVERRIDE SECTION 56 OR ANY PROVISION OF THE I.T. ACT. THE INCOME TAX LAW DOES NOT MARCH STEP BY STEP IN THE FOOT PRINTS OF THE A CCOUNTANCY PROFESSION WHEN THE QUESTION IS WHETHER A RECEIPT ARE PERMISSIBLE IN LAW OR NOT THE QUESTION HAS TO BE DEC IDED ACCORDING TO THE PRINCIPLES OF LAW AND NOT IN ACCORDANCE WITH ACCOUNTANCY PRACTICE. IN THE CASE OF SUTLEJ COTTON MILLS LTD. V/S. CIT (SC) 116 ITR 1 THE HONBLE SUPREME COURT HELD THAT THE MATTER OF TAXABILITY CANNOT BE DECIDED ON THE BASIS OF ENTRIES WHICH THE ASSESSEE MAY CHOOSE TO MAKE IN HIS ACCOUNT BUT HAS TO BE DECIDED IN ACCORDANCE WITH THE PROVISIONS OF LAW. IN THE CASE OF CIT V/S. BRITISH PAINTS INDIA LTD. (SC) 188 ITR 44 THE HONBLE SUPREME COURT HELD THAT IT IS NO T ONLY THE RIGHT BUT THE DUTY OF THE TO CONSIDER WHETHER OR NOT THE BOOKS DISCLOSE THE TRUE STATE OF ACCOUNTS AND THE CORRECT INCOME CAN BE DEDUCTED THERE FROM EVEN IF THE METHOD OF ACCOUNTING IS REGULARLY FOLLOWED ITO CAN REJECT SINCE THERE IS NOT E STOPPELS ON THESE MATTERS. EACH YEAR BEING A SELF CONTAINED UNIT TAXES OF PARTICULAR YEAR IS PAYABLE WITH REFERENCE TO THE INCOME OF THAT YEAR AS COMPUTED IN THE TERMS OF THE ACT. RELIANCE IS ALSO PLACED UPON THE HONBLE ITAT CHENNAI BENCH DECISION REPORTED IN 111 ITD 37 IN THE CASE OF JCIT V/S. INDIA EQUIPMENT LEASING CO. LTD. WHEREIN IT HAS BEEN HELD THAT THE HYBRID SYSTEM OF ACCOUNTING IS NOT PERMISSIBLE AFTER 01/04/1997. 4 ITA NO.464/NAG/2013 2.1 AFTER A DETAILED DISCUSSION THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM AS UNDER : IN VIEW OF THE DETAILED DISCUSSION AS ABOVE IT IS HELD THAT THE ACCRUED INTEREST ON NPA IS CHARGEABLE TO TAX IN AS MUCH AS THE ASSESSEE IS FOLLOWING THE MERCANTILE SYSTEM OF THE ACCOUNTING. HOWEVER THE ASSESSEE IS ALSO ENTITLED TO DEDUCTION U/S 36(1)(VIIA) OF THE INCOME TAX ACT 1961 IN RESPECT OF THE PROVISION MADE FOR BAD AND DOUBTFUL DEBTS. ACCORDINGLY 7.5% OF THE TOTAL INCOME AS PER THE PROVISIONS OF SEC. 36(1)(VIIA) IS ALLOWED. THEREFORE THE ACCRUED INTEREST ON NPA AMOUNTING TO ` .31 32 024/ - AS PER RESERVE CREATED IN THE BALANCE SHEET IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 3. WHEN THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY LEARNED CIT(APPEALS) HAS REFERRED THE I SSUE BACK TO THE STAGE OF THE ASSESSING OFFICER AS PER THE FOLLOWING OBSERVATIONS: 8.2 IN VIEW OF THE BOARDS CIRCULAR DATED 09.10.1984 THE APPELLANT WAS REQUIRED TO FILE THE CLASSIFICATION/DETAILS OF SUCH DEBTS/NPAS IN TERMS OF THE AGE OF DEBTS TO ASCERTAIN THE QUANTUM OF INTEREST ATTRIBUTABLE TO SUCH NPAS WHICH HAVE BECOME IRRECOVERABLE OR NO RECOVERY FOR THREE CONSECUTIVE ACCOUNTING YEARS COULD BE MADE BY THE APPELLANT WITH A VIEW TO BRING THE INTEREST ACCRUED ON SUCH NPAS WITHIN THE AMBIT OF TAXABILITY AS ENVISAGED IN THE BOARDS CIRCULAR. 8.3. CONSIDERING THE FACTS OF THE PRESENT CASE IT WOULD BE NECESSARY TO COMPUTE THE INCOME THAT IS TO BE BROUGHT TO TAX BEING INTEREST ON CERTAIN AMOUNT CLASSIFIED AS NPAS IN VIEW OF THE BOARDS ABOVE REFERRED CIRCULAR DATED 09.10.1984. THE AR OF THE APPELLANT VIDE ORDER SHEET NOTINGS DATED 27.09.2013 SUBMITTED THAT DUE TO ADMINISTRATIVE PROBLEMS THE APPELLANT IS NOT IN A POSITION TO PROVIDE THE RECONCILIATION AND BIFURCATION OF THE INTEREST ACCRU ED ON NPAS AND THE FIGURES OF INTEREST ATTRIBUTABLE TO SUCH NPAS WHICH ARE OUTSTANDING FOR LESS THAN 3 YEARS AND ABOVE 3 YEARS AS IT IS A TIME TAKING PROCESS. THE AR DISPUTED THE FIGURES ADOPTED BY THE AO FOR THE REASON THAT THE SAME WERE NOT QUANTIFI ED BY AO KEEPING IN VIEW OF THE BOARDS CIRCULAR DATED 09.10.1984. IN THE LIGHT OF THESE FACTS THE AO IS DIRECTED TO COMPUTE THE CORRECT FIGURES OF INTEREST ATTRIBUTABLE TO NPAS FALLING WITHIN THE AMBIT OF 3 YEARS AND BRING SUCH AMOUNT WITHIN THE AMB IT OF TAXABILITY IN VIEW OF THE BOARDS CIRCULAR DATED 09.10.1984. THE AO IS 5 ITA NO.464/NAG/2013 AT LIBERTY TO EXAMINE THE VERACITY OF THE FIGURES OF INTEREST OF SUCH NPAS TO BE SUBMITTED BY THE APPELLANT WITH THAT OF THE FIGURES ADOPTED IN THE ASSESSMENT ORDER AND TAX THE FIGURES DETERMINED IN THE ASSESSMENT ORDER FOR WANT OF RECONCILIATION OR FAILURE ON THE PART OF THE APPELLANT TO FURNISH PROPER CLASSIFICATION OF SUCH NPAS. THIS GROUND OF APPEAL IS DISPOSED OFF ACCORDINGLY. 4. FROM THE SID E OF THE REVENUE LEARNED D.R. MR. NARENDRA KANE HAS SUPPORTED THE ORDER OF THE ASSESSING OFFICER. HOWEVER FROM THE SIDE OF THE RESPONDENT - ASSESSEE LEARNED A.R. MR. MUKESH AGRAWAL HAS PLACED RELIANCE ON THE FOLLOWING DECISIONS: I) KARNAVATI CO - OP. BANK LTD. V/S. DCIT 144 TTJ 0769 (AHD. TRIB) II) ACIT V/S. SINGUDI URBAN CO - OP. BANK 43 CCH 0226 (BANG TRIB) DT. 05.03.2015. III) ACIT V/S. PUNJAB STATE CO - OP. BANK LTD. 143 ITD 0571 (CHANDIGARH) DT. 06.03.2013. IV) CIT V/S. INDIA EQUIPMENT LEAS ING LTD. (MAD. H.C.) V) CIT V/S. VASISTH CHAY VYAPAR LTD. (DEL.H.C.) 330 ITR 440. VI) ACIT V/S. THE OMERYA JANTA SAHARI BANK LTD. 166 TTJ 0375 (PUNE) DT. 31.10.2014. VII) CIT V/S. ELGI FINANCE LTD. (MAD. H.C.) 293 ITR 0357. 5. APART FROM THE ABOVE DECISIONS WE HAVE ALSO COME ACROSS AN ANOTHER DECISION OF HONBLE DELHI HIGH COURT PRONOUNCED IN THE CASE OF CIT V/S. M/S VASISTH CHAY VYAPAR LTD. ETC. HONBLE HIGH COURT HAS DISCUSSED THIS VIEW AT LENGTH AND AFTER CONSIDERING THE DECISION IN THE CASE OF SOUTHERN TECHNOLOGY LTD. 320 ITR 577 CAME TO THE CONCLUSION AS UNDER : AS NOTED ABOVE MR. SABHARWAL ARGUED THAT THE CASE OF THE ASSESSEE WAS TO BE DEALT WITH FOR THE PURPOSE OF TAXABILITY AS PER THE PROVISIONS OF THE ACT AND NOT THE RBI ACT WH ICH WAS THE ACCOUNTING METHOD THAT THE ASSESSEE WAS SUPPOSED TO FOLLOW. WE HAVE ALREADY HELD THAT EVEN UNDER THE INCOME TAX 6 ITA NO.464/NAG/2013 ACT INTEREST INCOME HAD NOT ACCRUED. MOREOVER THE 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 GIVEN AN INDICATION THAT THE COURT HAS HELD THAT RBI ACT DOES NOT OVERRIDE THE PROVISIONS OF THE INCOME TAX ACT. HOWEVER WHEN WE EXAMINE THE ISSUE INV OLVED 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 ` .81 68 516 AS PROVISION AGAINST NPA IN THE PROFIT AND LOSS ACCOUNT WHICH WAS CLAIMED AS DEDUCTION IN TERMS 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 RESERVE AND THUS NOT DEDUCTIBLE UNDER SECTION 36(I)(VII) OF THE ACT. THE ASSESSING OFFICE HOWEVER DID NOT BRING TO TAX ` .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 RBI ACT THEIR LORDSHIPS OF THE APEX COURT OBSERV ED THAT IN SO FAR AS THE PERMISSIBLE DEDUCTIONS OR EXCLUSIONS UNDER THE ACT ARE CONCERNED THE SAME ARE ADMISSIBLE ONLY IF SUCH DEDUCTION/EXCLUSIONS SATISFY THE RELEVANT CONDITIONS STIPULATED THEREFOR 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 FR OM MERCANTILE SYSTEM OF ACCOUNTING AND/OR SECTION 45 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. THE FOLLOWING PA SSAGE FROM THE JUDGMENT OF THE APEX COURT WOULD BRING OUT THE DISTINCTION NOTICED BY THE APEX COURT BETWEEN PERMISSIBLE DEDUCTION/EXCLUSIONS ON THE ONE HAND AND INCOME RECOGNITION ON THE OTHER: - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 19. WE HAVE ALSO NOTICED THE OTHER LINE OF CASES WHEREIN THE SUPREME COURT ITSELF HAS HELD THAT WHEN THERE IS A PROVISION IN OTHER ENACTMENT WHICH CONTAINS A NON - OBSTANTE CLAUSE THAT WOULD OVERRIDE THE PROVISIONS OF INC OME TAX ACT. TRO VS. CUSTODIAN SPECIAL COURT ACT (SUPRA) IS ONE SUCH 7 ITA NO.464/NAG/2013 CASE APART FROM OTHER CASES OF DIFFERENT HIGH COURTS. WHEN THE JUDGMENT OF THE SUPREME COURT IN SOUTHERN TECHNOLOGY (SUPRA) IS READ IN MANNER WE HAVE READ IT BECOME EASY TO RECONCILE T HE RATIO OF SOUTHERN TECHNOLOGY WITH TRO VS. CUSTODIAN SPECIAL COURT ACT. 20. THUS VIEWED FROM ANY ANGLE THE DECISION OF THE TRIBUNAL APPEARS TO BE CORRECT IN LAW. THE QUESTION OF LAW IS THUS DECIDED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE . AS A RESULT ALL THESE APPEALS ARE DISMISSED. 5. RESPECTFULLY FOLLOWING THE ABOVE DECISION WE FIND NO FORCE IN THE GROUNDS OF THE REVENUE. HENCE THE SAME ARE DISMISSED. BEFORE WE CONCLUDE IT IS WORTH TO MENTION THAT THE RESPONDENT - ASSESSEE IS NOT IN APPEAL AGAINST THE ORDER OF LEARNED CIT(APPEALS) . 6. IN THE RESULT REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF JULY 2015. SD/ - SD/ - ( SHAMIM YAHYA) (MUKUL K. SHRAWAT) ACCOUNTANT MEMBER. JUDICIAL MEMBER NAGPUR DATED: 31 ST JULY 2015. COPY OF ORDER FORWARDED TO : 1. THE ASSESSEE. 2. REVENUE. 3. THE CIT(A) 4. THE CIT NAGPUR. 5. THE D.R. ITAT NAGPUR. 6. GUARD FILE. TRUE COPY. BY ORDER WAKODE ASSISTANT REGISTRAR ITAT NAGPUR 8 ITA NO.464/NAG/2013