2019 (3) TMI 1853 - AT - Income Tax

Revision u/s 263 - Deduction u/s 43D admissibility - entitlement for deduction of interest on sticky loans - as this deduction is available only from 01.04.2018 as per the amendment, the CIT held that the Assessing Officer's action in allowing deduction was both erroneous and prejudicial to the interest of revenue, hence the assessment was set aside with a direction to the Assessing Officer to consider this allowability of the deduction afresh, affording sufficient opportunity to the assessee to offer submissions - HELD THAT - The provisions of section 43D(g) was inserted by Finance Act, 2017 which is clarificatory and should be applied. As such, it was submitted that the assessee cannot be denied the applicability of provisions of section 43D(g) of the Act. An identical issue was considered by Ahmedabad Bench of the Tribunal in the case of Karnavati Co-op. Bank Ltd. vs. DCIT 2011 (11) TMI 367 - ITAT AHMEDABAD wherein it was held that interest on sticky advances/NPA advances cannot be brought to tax. The provisions of section 43D are applicable to Co-operative Banks also. We are of the view that there are judgments in favour of the assessee on the issue of applicability of section 43D(g) of the Act to the Co-operative Banks. In view of this, we are of the opinion that the order passed by the Assessing Officer is not erroneous and prejudicial to the interests of the Revenue for the purpose of invoking jurisdiction u/s. 263 of the Act. Accordingly, we quash the order passed by the CIT u/s. 263 of the I.T. Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the deduction under section 43D of the Income Tax Act was correctly allowed to the assessee.
2. Whether the CIT was justified in invoking section 263 of the Income Tax Act to revise the assessment order.

Issue-wise Detailed Analysis:

1. Deduction under Section 43D:
The primary issue revolves around whether the assessee, a co-operative bank, was eligible for a deduction under section 43D of the Income Tax Act for the assessment year 2013-14. The CIT observed that the deduction of ?7,26,695/- under section 43D in the profit & loss account was not in accordance with the provisions of section 43D, which applies to public financial institutions, scheduled banks, state financial corporations, and state industrial investment corporations. The CIT noted that the assessee did not belong to any of these categories, making the deduction erroneous and prejudicial to the revenue's interest. The CIT further highlighted that the amendment to include co-operative banks under section 43D was effective from 01.04.2018, thus not applicable for the assessment year 2013-14.

The assessee contended that the deduction was allowed by the Assessing Officer after thorough examination and verification of records. The assessee argued that being governed by the Reserve Bank of India and following the prudential norms, it was eligible for the deduction. The assessee relied on various judicial precedents, including the decisions in CIT vs. Canfin Homes Ltd. and UCO Bank vs. CIT, which supported the deduction under section 43D for co-operative banks. The assessee also argued that the amendment made by the Finance Act, 2017, was clarificatory and should be applied retrospectively.

2. Invocation of Section 263 by CIT:
The CIT invoked section 263 of the Income Tax Act, asserting that the assessment order was erroneous and prejudicial to the interest of revenue. The CIT directed the Assessing Officer to reconsider the allowability of the deduction under section 43D afresh, providing sufficient opportunity to the assessee to present submissions.

The assessee countered that the CIT's invocation of section 263 was unjustified as the Assessing Officer had already examined and verified the claim. The assessee emphasized that merely having a different view from the CIT does not warrant the invocation of section 263. The assessee supported this argument with various judicial precedents, including the decision in Karnavati Co-op. Bank Ltd. vs. DCIT, which held that interest on sticky advances/NPA advances cannot be brought to tax and that section 43D applies to co-operative banks.

Judgment Analysis:
The Tribunal examined the rival submissions and the relevant records. The Tribunal noted that the main contention of the assessee was that as a co-operative bank, it was entitled to the deduction under section 43D(g) for interest on sticky loans. The Tribunal referenced the decision in Karnavati Co-op. Bank Ltd. vs. DCIT, which supported the applicability of section 43D to co-operative banks. The Tribunal also considered the decisions in DCIT vs. Gondal Nagarik Sahakari Bank and The Sindagi Urban Co-operative Bank vs. Department of Income Tax, which upheld similar views.

The Tribunal highlighted that section 43D, being an overriding section, mandates that interest income is chargeable to tax either when credited or actually received, whichever is earlier. The Tribunal emphasized that the statute's language leaves no scope for the revenue authorities to ignore these provisions. The Tribunal also referenced the CBDT circular, which supports the non-inclusion of interest on doubtful debts in taxable income until actually received or credited.

The Tribunal concluded that there were sufficient judicial precedents favoring the assessee's position on the applicability of section 43D(g) to co-operative banks. Therefore, the Tribunal held that the assessment order was not erroneous and prejudicial to the interests of the revenue, thereby quashing the CIT's order under section 263.

Conclusion:
The appeal filed by the assessee was allowed, and the order passed by the CIT under section 263 of the Income Tax Act was quashed. The Tribunal upheld the assessee's eligibility for the deduction under section 43D for the assessment year 2013-14.