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ACIT, Circle-2, Solapur Versus Sharad Nagari Sahakari Bank Limited

2015 (8) TMI 267 - ITAT PUNE

Addition on account of interest on Non Performing Assets u/s.43D - accrual on interest - the assessee is a cooperative bank and not a Scheduled Bank - CIT(A) deleted the addition - Held that:- Pune Bench of the Tribunal in the case of Osmanabad Janata Sahari Bank Ltd (2015 (3) TMI 886 - ITAT PUNE) has decided an identical issue in favour of the assessee after considering the decision of the Hon’ble Supreme Court in the case of Southern Technologies Ltd. [2010 (1) TMI 5 - SUPREME COURT OF INDIA] .....

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ed against the order dated 02-12-2013 of the CIT(A)-III, Pune relating to Assessment 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 ₹ 16,19,053/- made by the AO on account of interest on Non Performing Assets u/s.43D of the Income Tax Act, 1961, as the assessee is a cooperative bank and not a Scheduled Bank. 2. The learned CIT(A) is erred in n .....

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of provisions of NPA under the Income Tax Act, 1961, cannot override the provisions of the Income Tax Act, 1961. 4. The appellant craves to add, alter, amend, substitute or delete any of the grounds urged herein above as and when found necessary. 3. Facts of the case, in brief, are that the assessee is a cooperative society engaged in the business of banking and the provisions of Banking Regulation Act, 1949 are applicable as the RBI has issued the license. The assessee filed its return of inco .....

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interest accrued on nonperforming accounts is not credited to the profit and loss account and directly taken to the balance sheet. On verification of details of NPAs and interest accrued on the same, the Assessing Officer noted that the assessee bank has not treated as income of one year, i.e. F.Y. 2009-10 on NPA at ₹ 16,19,052/-. The Assessing Officer asked the assessee to explain as to why the said interest income on NPA should not be treated as income since it has been following mercan .....

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al basis. So far as the issue of overdue interest receivable on NPAs is concerned, he held that it can be allowed as deduction u/s.43D of the I.T. Act. However, the same is applicable only to the scheduled banks or financial corporations. Since the assessee is neither a scheduled bank nor a financial institution, 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 guide .....

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the NPAs to the total income 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 Sahari Bank Ltd. vide ITA No.795/PN/2011 order dated 31-08-2012 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 Boo .....

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r of the assessee has observed 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 ₹ 18,26,306/- on the NPA advances. Again the issue of .....

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the ITAT, Ahmedabad Bench in the case of Karnavati Cooperative Bank Ltd. Vs. Dy.CIT [134 ITD 486 (Ahmedabad)]. In the case of Karnavati Cooperative Bank Ltd. (supra), the Tribunal has considered the provisions of section 43D and its application to the non-scheduled banks. The reasons given by the Tribunal in the case of Karnavati Cooperative Bank Ltd. (supra) for holding that interest on the sticky advances/NPA advances cannot be brought to tax by following the decision in the case of UCO Bank .....

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to the assessee. Contrary to this recognized principle, this section has prescribed that an income by way of interest shall be chargeable to tax in the previous year in which it is credited. The words credited and actually received has been highlighted hereinabove while reproducing the section in question. The other deviation from the said accepted principle of accountancy is that an income by way of interest shall be chargeable to tax in the previous year in which it is actually received. The A .....

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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, t .....

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t 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 of the income of money lenders and banks, the Central Board of Direct Taxes has issued a Circular dated October 6, 1952, providing that where interest accruing on doubtful debts is credited to a suspense account, it need not be included in assessee s taxable income, provided the Income tax Officer is satisfied that recove .....

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hose 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 decision, 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 respect of interest on sticky advan .....

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to a separate account known as interest suspense account . On reference, the Hon'ble Court has held that there was an accrual of income liable to income-tax and the assessee was not justified in not crediting the interest income on such stick advances it its accounts. However, later on at the Hon'ble Apex Court while pronouncing the judgment of the said State Bank of Travancore vs. CIT reported in (1986)158 ITR 102(SC), there were Hon'ble three Judges presiding the Court, out of whi .....

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the Hon'ble three Judges of the Supreme Court, already discussed by us supra. We, therefore summarize that as of now the law as laid down in UCO Bank is that in terms of CBDT Circular the interest is to be added as income only when actually received or credited in respect 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 op .....

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ty in the statutory language, resort to any interpretative process to unfold the legislative intent becomes impermissible. The supposed intention of the Legislature cannot then be appealed to whittle down the statutory language which is otherwise unambiguous. If the intendment is not in the words, it is nowhere else. The need for interpretation arises when the words used in the statute are, on their own terms, ambivalent and do not manifest the intention of the Legislature. When words acquire a .....

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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 tha .....

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pon and this is the basic reason of the elaborate discussion made hereinabove so as to unfold the controversy. In the said decision of the Tribunal, viz. Jt.CIT v/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 .....

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ch 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 .....

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ssessees 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 Guidel .....

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ount to insertion of NBFC in section 43-D of the I.T.Act. As against that, as far as the assessee is concerned, it is an accepted fact that the assessee is a cooperative bank and not a non-banking financial company and this noteworthy distinction has already been appreciated by us in one of the paragraphs above. There is one more decision of the Hon ble Apex Court which is yet to be mentioned while discussing the arguments raised from the side of the Revenue. A decision in the case of Southern T .....

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osition 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 below: The income-tax is a tax on real income , i.e., the profits arrived at on commercial principles subject to the provisions of the Act. Therefore, if by the Explanation to section 36(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 Explana .....

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icky 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 does not result at all, there cannot be any tax and tha .....

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assessee had classified its assets on the basis of notification issued by R.B.I. and found that certain assets came under the category of NPA and that from such NPA the assessee had not recognized any income in consonance with the notification issued by RBI and AS-9 issued by ICAI and that the assessee was justified in not recognizing such income. The Court had further expressed that there was no occasion to consider whether the principle of accrual would arise or not, nevertheless, the interest .....

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