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2018 (4) TMI 631 - AT - Income TaxAccrual of income - overdue interest relating to the NPA - Held that - Addition cannot be made on overdue interest relating to the NPA. See District Co-operative Central Bank, Eluru Vs. ITO Ward-2, Eluru 2018 (4) TMI 553 - ITAT VISAKHAPATNAM addition u/s 40(a)(ia) - assessee required to deduct the TDS u/s 194C of the Act but failed to deduct the tax at source - omount is yet to be paid OR actually paid - Held that - Assessee has made the payments for computerization to the extent of ₹ 21,46,000/- to M/s. D.Y. Systems, Hyderabad and ₹ 3,79,688/- to M/s. Techno Demo Office Automation Systems, Guntur. Now the issue is settled by by the Hon ble Supreme Court in the case of Palam Gas Service v.Commissioner of Income-tax, 2017 (5) TMI 242 - SUPREME COURT and held that the Word payable occurring in section 40(a)(ia) not only covers cases where amount is yet to be paid but also those cases where amount has actually been paid. Therefore, we set aside the order of the CIT(A) and allow the appeal of the revenue.
Issues Involved:
1. Deletion of addition made by the A.O. on account of provision for overdue interest. 2. Addition under section 40(a)(ia) of the Income Tax Act for non-deduction of TDS on payments made for computerization. Issue-wise Detailed Analysis: 1. Deletion of Addition on Account of Provision for Overdue Interest: The revenue's appeal challenged the deletion of the addition made by the Assessing Officer (A.O.) concerning the provision for overdue interest. The assessment was initially completed under section 143(3) of the Income Tax Act, 1961, determining the total income. However, the Commissioner of Income Tax (CIT) revised the order under section 263, directing the A.O. to examine the taxability of the provision for overdue interest. The A.O. subsequently added ?24,49,34,000/- relating to the provision for overdue interest. The assessee, a Co-operative Bank, followed the prudential norms issued by the Reserve Bank of India (RBI), recognizing income on a receipt basis rather than an accrual basis for Non-Performing Assets (NPA). The CIT(A) allowed the appeal of the assessee, applying the real income theory and the Supreme Court's decision in UCO Bank Vs. CIT 237 ITR 889, stating that tax must be on real income and not notional income. The CIT(A) concluded that adding overdue interest to notional income was unjustifiable as no income had been received. The Tribunal upheld the CIT(A)'s decision, emphasizing that the RBI's prudential norms mandated recognizing income from NPAs only when actually received. This practice was consistent across Co-operative Banks. The Tribunal referenced similar cases, including the District Co-operative Central Bank, Eluru Vs. ITO, and the Gujarat High Court's decision in Principal Commissioner of Income Tax Vs. Mahila Seva Sahakari Bank Ltd., which supported the non-recognition of income from NPAs on an accrual basis. The Tribunal also cited the Supreme Court's ruling in Southern Technologies Ltd., which clarified that RBI Directions regarding income recognition have an overriding effect over the Income Tax Act, specifically section 145. Consequently, the Tribunal upheld the CIT(A)'s deletion of the addition made by the A.O. 2. Addition under Section 40(a)(ia) for Non-Deduction of TDS: The second issue involved the addition made under section 40(a)(ia) due to the assessee's failure to deduct TDS on payments made for computerization services. The CIT, in revising the order under section 263, identified payments of ?21,46,000/- to M/s. D.Y. Systems, Hyderabad, and ?3,79,000/- to M/s. Techno Demo Office Automation Systems, Guntur, for which TDS was not deducted as required under section 194C. The CIT(A) deleted the addition, relying on the Special Bench decision in M/s. Merilyn Shipping and Transports, which held that section 40(a)(ia) applies only to amounts payable and not to amounts already paid. However, the Tribunal noted that the Supreme Court in Palam Gas Service v. Commissioner of Income-tax clarified that the word 'payable' in section 40(a)(ia) covers both amounts yet to be paid and amounts already paid. Therefore, the Tribunal set aside the CIT(A)'s order and allowed the revenue's appeal, reinstating the addition made by the A.O. under section 40(a)(ia). Cross Objection: The cross objection filed by the assessee supported the CIT(A)'s order on the provision for overdue interest. Given the Tribunal's decision to dismiss the revenue's appeal on this issue, the cross objection was sustained. However, the cross objection regarding the addition under section 40(a)(ia) was dismissed, consistent with the Tribunal's decision to allow the revenue's appeal on this matter. Conclusion: The Tribunal's order resulted in a partial allowance of the revenue's appeal and a partial allowance of the assessee's cross objection. The decision reaffirmed the application of RBI prudential norms for income recognition from NPAs and clarified the scope of section 40(a)(ia) concerning TDS on payments.
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