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ACIT, Range-8, Pune Versus Dharmvir Sambhaji Urban Co-op Bank Ltd. And Vice Versa

ITA No. 2010/PN/2012, CO No. 41/PN/2013 - Dated:- 27-9-2013 - G. S. Pannu (Accountant Member) And R. S. Padvekar (Judicial Member) For the Assessee : Pramod Shingte For the Revenue : Rajeev Jain ORDER R. S. Padvekar (Judicial Member) This appeal is filed by the Revenue challenging the impugned order of the Ld.CIT(A)-V, Pune dated 11-07-2012 for the A.Y. 2009-10. The Revenue has taken the following ground in the appeal : Whether on the facts and in the circumstances of the case, the CIT(A) was ju .....

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We first take up the appeal filed by the Revenue for disposal. The issue in controversy is whether the interest on the accounts classified as NPA is taxable under the provisions of the Income Tax Act. 4. Briefly stated facts are as under. The assessee is a cooperative society engaged in the banking business. The assessee filed the return of income for A.Y. 2009-10 declaring total income at ₹ 86,42,560/-. The assessee s case was selected for scrutiny and assessment has been completed u/s.14 .....

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eal before us. 5. We have heard the parties. We find that the issue stands covered in favour of the assessee by the decision of this Bench in the case of ACIT, Circle-3, Nanded Vs. Osmanabad Janata Sahakari Bank Ltd. vide ITA No.795/PN/2011. In the case of Osmanabad Janata Sahakari Bank Ltd (Supra) the issue before the Tribunal was whether the provisions of section 43D of the Act are applicable to the assessee Bank. Section 43D is a specific provision made in the Act for giving the treatment of .....

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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 applicability of section 43D was considered to the nonscheduled banks. The Tribunal placed its heavy reliance on the decision of the Hon ble High Court of Delhi in the case of Vashist Chay Vyapar Ltd. [330 ITR 440 ( .....

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tion 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 (supra), which is as under: 15.1. On careful analysis of this section our first observation is that Section 43D is in contrast with the fundamental principle of accountancy. The cardinal principle of mercantile system .....

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ually 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 Act says that the incidence of credit or actually received , whichever is earlier is to be taken into account for the purpose of chargeability of income by way of interest. Simultaneously, it is noteworthy that this se .....

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de 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, the Assessing Officer has stated that the assessee-bank is a cooperative bank. Undisputedly, the assessee is also governed by the RBI guidelines. Vide an explanation (d) r.w.s. 36(1)(viia) annexed to section 43-D the d .....

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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 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-ordin .....

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39;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 advances interest income is to be taxed only when actually received as prescribed by CBDT Circular. However, in the past an interesting turn had taken place by an order of the Hon ble Kerala High Court in the case of State .....

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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 which Hon ble two Judges were in the opinion that the interest on sticky advances was rightly treated as income which had accrued to the appellant. There was a descending note by one of the Hon'ble Judge and commented .....

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s 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 has used the terminology for the chargeability of interest on the basis when credited or actually received , then in our opinion no ambiguity has been left by the Statute. If the statute is so .....

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language which is other-wise 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 particular meaning or sense because of their authoritative construction by superior courts, they are presumed to have been used in the same sense when used in subsequent legislation in the same or similar context. To .....

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ic 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 that the question is to be answered in favour of the assessee following 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 (B .....

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nai), 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 9-10-1984. 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. Since the income was to be assessed for first three years on accrual basis, provisions of section 43D were inserted in the Act. C .....

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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 provisions of section 43D as stood at relevant time contained an expression 'the income by way of interest in relation to such categories of bad or doubtful debts as may be prescribed having regard to the Guidelines issued by the RBI in relation to such debts'. This expression continues to exist in the .....

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lic 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 Guideline issued for different purposes by an authority other than the Parliament In other words, the doctrine of 'Casus Omissus' will deem to have been applied which is contrary to law of land. Unquote. The basic re .....

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d 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 Technologies Ltd. vs. Jt. CIT 320 ITR 577 (SC) has been cited but the fundamental difference is that the issue before the Hon ble Court was in respect of provision for NPA and debited to P&L Account by a NBFC. The .....

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, 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 Explanation in computing the total income under the Income-tax Act failing which one cannot ascertain the real profits. The provision for non-performing assets debited in the profit and loss account under the Reserve Bank Di .....

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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 that if an income has not materialized, then merely an entry made about a hypothetical income by following book keeping methods, the liability to tax cannot be attracted. Now at present the situation is that the Hon' .....

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ance 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 from such NPA would be taxed in the appropriate assessment year on the basis of actual receipt. It is worth to mention that for this decision, the Hon'ble Madras High Court has relied upon an another decision of .....

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