TMI Blog2014 (4) TMI 1118X X X X Extracts X X X X X X X X Extracts X X X X ..... made u/s 40(a)(ia) of the Act if the assessee is not deemed to be an assessee in default under the first proviso to section 201(1) of the Act. It was submitted that the applicability of the aforesaid proviso be considered retrospectively in the same manner as was considered in the case of the first proviso to section 40(a)(ia) of the Act which was inserted by the Finance Act, 2010 w.e.f. 01.04.2010 but it has been understood as retrospective on the reasoning that it is clarificatory in nature by the Hon’ble Calcutta High Court in the case of CIT vs. Virgin Creations [2011 (11) TMI 348 - CALCUTTA HIGH COURT ]. The Pune Bench of the Tribunal in the case of M/s Gaurimal Mahajan & Sons. (2015 (3) TMI 770 - ITAT PUNE ) considered the aforesaid plea and since the same was being raised for the first time by the assessee before the Tribunal, it was restored back to the Assessing Officer to decide afresh following the decision of the Cochin Bench of the Tribunal in the case of Antony D. Mundackal vs. ACTi [ 2013 (12) TMI 67 - ITAT COCHIN ] . Therefore, respectfully following the decision of the Cochin Bench of the Tribunal cited (Supra) and in the interest of justice, we restore this issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tial Norms issued by the Reserve Bank of India would not regulate the accrual of such income in the hands of the assessee. Accordingly, a sum of ₹ 7,82,267/- was added to the returned income. The CIT(A) has also affirmed the decision of the Assessing Officer, against which assessee is further appeal before us. 4. At the time of hearing, it was a common point between the parties that an identical controversy has been considered by the Pune Bench of the Tribunal in the case of ACIT vs. The Omerga Janta Sahakari Bank Ltd. order dated 31.10.2013. In the said precedent, the Pune Bench of the Tribunal has considered the judgement of the Hon ble Delhi High Court in the case of M/s Vasisth Chay Vyapar Ltd., 330 ITR 440 (Del) as well as the contrary judgement of the Hon ble Madras High Court in the case of CIT vs. Sakthi Finance Ltd., (2013) 31 taxmann.com 305 (Madras) with respect to the issue of accrual of interest income on NPAs advances. After a detailed discussion and following the proposition that in the absence of any judgement of the Jurisdictional High Court, there being two contrary judgements of the nonjurisdictional High Courts, a decision which was favourable to the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis. The Tribunal observed that the question of taxability of interest on NPAs classified by RBI, was considered by the Hon ble Delhi High Court in the case of M/s Vasisth Chay Vyapar Ltd. (supra) wherein after considering the decision of the Hon ble 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 Tribunal 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 Court 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 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 Re4s erve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iterion 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 revenue 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 following cases: i) CIT vs. Elgi Finance Ltd., 293 ITR 357 (Mad) ii) CIT vs. KKM I5n vestments (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. Shoorji 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) 8.3 After considering the Accounting Standard 9 and the various case law listed above, the Hon'ble Delhi High Court held that the interest on NPA advance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, the Hon'ble Supreme Court he6ld 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... latable to NPA advances in its total income. The Hon'ble Delhi High Court in the case of Vasisth Chay Vyapar 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 Ho7n 'ble Delhi High Court is equally applicable to the 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 aforesaid 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and circumstances in the present case are identical to those considered by us in the case of The Omerga Janta Sahakari Bank Ltd. (supra), following the aforesaid precedent the present claim of the assessee deserves to be upheld. We hold so. 6. In the result, following the afore8s aid precedent, the order of the CIT(A) is set-aside and the Assessing Officer is directed to delete the addition of ₹ 7,82,267/-. 7. The second Ground of Appeal relates to an addition of ₹ 72,815/- representing expenditure on Pigmy commission, which has been disallowed by the Assessing Officer by invoking section 40(a)(ia) of the Act as the assessee had failed to deduct the requisite tax at source. 8. The only plea raised by the assessee is based on a recent decision of the Pune Bench of the Tribunal in the case of ITO, Ward 4(5), Pune vs. M/s Gaurimal Mahajan Sons. Vide ITA No.1852/PN/2012 dated 06.01.2014 pertaining to assessment year 2008-09. It is contended that as per the second proviso to section 40(a)(ia) of the Act inserted by Finance Act, 2012 w.e.f. 01.04.2013 no disallowance is to be made u/s 40(a)(ia) of the Act if the assessee is not deemed to be an assessee in default ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue in the light of the above argument and has restored the issue to the file of the Assessing Officer with certain directions. The relevant observation of the Tribunal at Para 7 of the order read as under: 7. We have heard the rival contentions and carefully perused the record. According to the assessee, there is no written contract between him and the persons doing polishing works. Accordingly, the assessee has contended before us that the provisions of sec. 194C shall not apply to the polishing charges. However, we notice that the assessing officer has given a clear finding that essential ingredients of a contract are very much available in the polishing works entrusted by the assessee. Further we notice that the CBDT, vide circular No.433 dated 25-09-1985 (1986)(157 ITR St. 27) has clarified that the provisions of sec. 194C are wide enough to cover oral contracts also. A contract is normally reduced in writing in order to make clear the terms and conditions, obligations of the parties to the contract etc. If the conditions of contract are otherwise understood by the parties, in view of the repeated transactions, in our view, the absence of a written contract would not mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Bench in the case of Meryline Shipping Transports is not a good law. The Ld A.R, however, placed reliance on the decision of Hon'ble Allahabad High Court in the case of Vector Shipping Services (357 ITR 642). On a careful perusal of the decision given by Hon'ble Allahabad High Court, we notice that the High Court has decided the issue referred to it on a different footing and has made a passing comment about the decision rendered by the Special Bench. Thus, the ratio of the said decision is different from that rendered in the case of Meryline Shipping and Transports by the Special bench. Hence, we are inclined to reject the contentions of the assessee on this point also. 7.3 The assessee placed reliance on the decision of Hon'ble Supreme Court in the case of Hindustan Coco-Cola beverages Ltd (supra) in order to contend that the revenue is not entitled to recover taxes, if the recipient has declared the payments in his return of income. We notice that the above said decision was rendered in the context of the provisions of sec. 201(1) and hence, we are of the view that the ratio of the said decision cannot be applied to the disallowance made u/s 40(a)(ia) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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