New User   Login      
Tax Management India .com TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2017 (2) TMI 734 - KARNATAKA HIGH COURT

2017 (2) TMI 734 - KARNATAKA HIGH COURT - TMI - Addition u/s 41 - Demand Drafts and Pay Orders payable as on the last date of the Financial Year, which were not so far encashed by the concerned customers - Held that:- Addition cannot be made under Section 41(1) of the Act, since the liability of the assessee Bank to pay back the amounts to the customers in respect of such stale Demand Drafts and Pay Orders does not cease in law. See The Commissioner of Income Tax, Asst. Commissioner of Income Ta .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

hereinafter referred to as the Tribunal , for short) on 31.12.2013, deleting the addition made in the hands of the petitioner-assessee, which is the Co-operative Bank, under Section 41(1) of the Income Tax Act, 1961 (hereinafter referred to as the Act, for short), to the extent of ₹ 73,58,708/- for A.Y.2007-08. 2. The learned Assessing Authority has made the said addition in the income of the petitioner-assessee on the ground of Demand Drafts and Pay Orders payable as on the last date of t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ons cited on either side. The Assessing Officer has invoked the provisions of Section 41(1) of the Act to bring the amount of ₹ 73,58,708 received for making drafts and pay orders to tax in the hands of the assessee in the period under consideration. Section 41(1) of the Act, specifically deals with amounts that were allowed as a deduction in the past assessments as trading liabilities which in a later year ceases OR are remitted by the creditors. If and when in a later year there is evide .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

8 (SC) it was held that a unilateral action cannot bring about a cessation or remission as a remission can only be granted by a creditor and cessation can only occur either by operation of law or the debtor by unequivocally declaring intention not to honour his liability when payment is demanded by the creditor. In the case on hand, taking into account the facts and circumstances involved, we find merit in the arguments put forth by the learned Authorised Representative since the outstandingly l .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d in respect of the outstanding liability of ₹ 73,58,708. 8.5.2 As per the RBI Circular referred to by the assessee it is required to keep the amounts related to such stale drafts / pay orders as a liability in the books of account for ten years after which the amount would be transferred to the RBI. A reading of this Circular would indicate that there is no cessation of liability in favour of the bank at all. For ten years the stale DDs/Pay orders remain as a liability of the concerned pe .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rs in the Balance Sheet of the assessee as on 31.3.2007. We, therefore find merit in the arguments put forth by the learned Authorised Representative which is further fortified by the decisions rendered by the co-ordinate bench of this Tribunal in the cases of Canara Bank (ITA No.390/Bang/2011 dt.8.6.2012) and Vijay Bank (ITA No.455/Bang/2011 dt.22.4.2012). Following, the aforesaid decisions of the co- ordinate bench of the Tribunal (supra), we delete this addition of ₹ 73,58,708 made by t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

hat such an addition cannot be made under Section 41(1) of the Act, since the liability of the assessee Bank to pay back the amounts to the customers in respect of such stale Demand Drafts and Pay Orders does not cease in law. The relevant extract from the judgment of the Division Bench of the Court as contained in para 18 thereof including the extract from the decision of the Hon ble Supreme Court is quoted below for ready reference: 18. A careful perusal of the above provision leads us to infe .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

trading liability incurred by the assessee. While dealing with a situation of unclaimed amount, the Hon ble Supreme Court in the case of T.V. Sundaram Iyengar (1996) 222 ITR 344, has held as follows:- 12. We are unable to uphold the decision of the Tribunal. The amounts were not in the nature of security deposits held by the assessee for performance of contract by its constitutents. As it appears from the facts of the case, the amounts were depleted by adjustments made from time to time. The CIT .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t ceased. The Tribunal agreed with this view." (underlining is by us) 19. The Tribunal adverting to the above ruling has rightly deleted the sum of ₹ 58,38,581/- added by the assessing authority by holding it as unsustainable in law. 5. Having perused the record, we are in respectful agreement with the aforesaid decision of the Division Bench of this Court and we do not find any reason to take a different view of the matter and in view of the aforesaid, we do not find any substantial .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

following the previous decisions of this Court in the case of Commissioner of Income Tax and another Vs. Canfin Homes Ltd., reported in (2012) 347 ITR 382 (Karn), has held that such accrued interest on non-performing assets cannot be brought to tax in the hands of the assessee. The relevant portion of the judgment of the Division bench of this Court in Commissioner of Income Tax Vs. Shri. Siddeshwar Co- Operative Bank Limited (supra) is also quoted below for ready reference: 5. One other substan .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s follows: Therefore, it is clear, if an assessee adopts the mercantile system of accounting and in his accounts he shows a particular income as accruing, whether that amount is really accrued or not is liable to bring the said income to tax. His accounts should reflect true and correct statement of affairs. Merely because the said amount accrued was not realised immediately cannot be a ground to avoid payment of tax. But, if in his account it is clearly stated though a particular income is due .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e assumption is it is not yielding any revenue. When it is not yielding any revenue, the question of showing that revenue and paying tax would not arise. As is clear from the policy guidelines issued by the National Housing Bank, the income from non-performing asset should be recognised only when it is actually received. That is what the Tribunal held in the instant case. Therefore, the contention of the Revenue that in respect of non- performing assets even though it does not yield any income a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

In this regard, the learned counsel for the assessee would point out that non- performing assets would include the other categories of substandard assets, doubtful assets, loss assets, etc., all of which would come within the purview of non-performing assets. In this regard, he would draw attention to the prudential norms for income recognition, asset classification and provisioning pertaining to advances. Volume I of Tannan s Banking Law and Practice in India , has extracted these prudential no .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ased asset, becomes non-performing when it ceases to generate income from the bank. A non-performing asset (NPA)is a loan or an advance where; (i) The interest and/or installment of principal remain overdue for a period of more than 90 days in respect of a term loan; (ii) the account remains out of order for a period of more than 90 days as indicated below, in respect of an Overdraft/Cash Credit (OD/CC); (iii) the bill remains overdue for a period of more than 90 days in the case of bills purcha .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version