TMI Blog2016 (4) TMI 1290X X X X Extracts X X X X X X X X Extracts X X X X ..... er) And Anil Chaturvedi (Accountant Member) For the Revenue : Prasoon Kabra, D.R. For the Assessee : Vimal Desai, A.R. ORDER Anil Chaturvedi (Accountant Member) These three appeals filed by the Revenue are against the orders of CIT(A)-II, Rajkot, dated 11.02.2014 for A.Ys. 2007-08, 2008-09 2009-10. 2. Before us, at the outset, ld. A.R. submitted that though the three appeals of the Revenue pertain to different assessment years but the issues in all those appears are identical and therefore the submission made by him while arguing appeal for one assessment year, would be applicable to all three appeals. Ld. D.R. did not object to the aforesaid submission of ld. A.R. We, therefore, for the sake of convenience proceed to dispose of all three appeals by a consolidated order and for the purpose of reference proceed with the facts of ITA No.298/Ahd/2014 for A.Y. 2007-08. 3. The facts as culled out from the material on record are as under. 4. The assessee is a Co-operative Bank who filed its return of income for A.Y. 2007-08 on 31.10.2007 declaring total income of ₹ 1,17,51,050/-. The case was selected for scrutiny and thereafter the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00/-. 6. Aggrieved by the order of A.O., assessee carried the matter before ld. CIT(A) who decided the issue in favour of assessee by holding as under: 6. I have carefully considered the order passed by the A.O., the circular and the decisions referred to by the Hon'ble ITAT and the various judicial pronouncements. Also, the details of the interest in cases where interest has not been received for last three years has also been obtained from the appellant. It is seen for the year under consideration that the interest in case of NPAs wherein no interest has been received for the last three years is ₹ 92,53,345/-. During the year, the amount of the disallowance for provision of overdue Interest or interest on NPAs is ₹ 87,22,000/-. The Hon ble ITAT has now directed to decide the issue afresh in conformity with law. In my opinion, the legal position which emerges is as under :- 1. That CBDT Circular dt. 9/10/1984 is in respect of bad and doubtful debts/irrecoverable loans and suspense account maintained for the purpose of interest thereon. However, this is in respect of banking companies. 2. S.43D has been specifically inserted in the Act w.e.f. 1/4/1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1991:- 22.2 With a view to improving the viability of banks, public financial institutions, State financial corporations and State industrial investment corporations, the Income-tax Act has been amended by inserting a new section 43D, so as to provide that interest on sticky loans shall be charged to tax only in the year in which the interest is actually received or is credited to the ''Profits and Loss Account , whichever is earlier. The category of bad and doubtful debt in respect of which the interest will qualify, for this exemption, will be prescribed by the Central Board of Direct Taxes, keeping in view the guidelines issued by the Reserve Bank of India in relation to such debts. Similarly, circular No.621 of CBDT dt. 19/12/1991 clearly states that S.43D was inserted with a view to improving the viability of banks so as to provide that the interest on non-performing assets or sticky loans would be charged to tax only in the year in which the interest is actually received or credited to the P L account. It is therefore held; that the provisions of S.43D overrides the circular of CBDTdt. 9/10/1984. This finding is also supported by various judicial pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers. As per these norms, the ICD had become NPA and on such NPA where the interest was not received and possibility of recovery was almost nil, it could not be treated to have been accrued in favour of the assessee. The Hon ble ITAT, Ahmedabad Bench D (17 Taxman 239) has discussed the relevant decisions in detail and has stated as under: We can therefore safely draw a conclusion that by the insertion of a special provisions 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 v. Bank of America N.T. S.A. [2003] 262 ITR 504/133 Taxman 648 (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 (supra), United Commercial Bank v. CIT [1999] 240 ITR 355/106 Taxman 601 (SC). Likewise, in an another case of CIT v.State Bank of India [2003] 262 ITR 662/129 Taxman 409 (Bom.) again it was held that the amount credited to the interest suspense account was not taxable following the decision pronounced in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 reason for directing to assess the accrued interest on NPA was the RBI guidelines issued only for scheduled banks, public financial institutions and not for NBFC. The observation of the Respected Tribunal was that if the contention of the assessee was to be accepted, then it would amount 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 fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 357 (Mad.) has taken a view that the assessee is a company engaged in the business of lease, finance and hire purchase and that the principle of accrual comes into play without income was recognized and that the 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 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 the same High Court pronounced in the case of CIT v. India Equipment Leasing Ltd. [2007] 293 ITR 350 (Mad.). To conclude the issue, we deem it important to discuss the decision of India Equipment Leasing Ltd. (supra) for the sake of completeness of our judgement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A/c. in this respect. Thus, there is no income accrued and no addition on this account can be made. This view is supported by the decision of IT AT Ahmedabad Bench in the case of Karnavati Co-op. Bank Ltd. (supra). In this case, the Tribunal has followed the judgment of Hon'ble Apex Court rendered in the case of UCO Bank vs. CIT as reported in 237 ITR889. We, therefore, following the decision of ITAT Ahmedabad Bench in the case of Karnavati Co-op. Bank Ltd. (supra) delete the disallowance of ₹ 1,15,00,000/- made by AO. This ground of appeal is allowed. Respectfully following the above decisions, I concur with my Ld. Predecessor's order and hold that the A.O. was not justified in making the disallowance of deduction claimed on the issue of interest on overdue loans. This addition is directed to be deleted. This ground of appeal is allowed. 7. Aggrieved by the order of ld. CIT(A), Revenue is now in appeal before us. 7.1 Before us, ld. D.R. supported the order of A.O. On the other hand, ld. A.R. reiterated the submissions made before the A.O. and ld. CIT(A) and supported the order of ld. CIT(A). 8. We have heard the rival submissions and perused the mate ..... X X X X Extracts X X X X X X X X Extracts X X X X
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