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2014 (11) TMI 240 - AT - Income TaxInterest on sticky advances/nonperforming assets - Whether the CIT(A) is justified in deleting the addition which was made in respect of interest on sticky advances Held that - Revenue was of the view that assessee bank has not considered the interest receivable on the sticky advances/nonperforming assets (NPA) as an income and it has not been taken to the profit & loss account but has directly taken to the balances - In Karnavati Cooperative Bank Ltd. Vs. Dy.CIT 2011 (11) TMI 367 - ITAT AHMEDABAD the same issue has been decided and held that interest on the sticky advances/NPA advances cannot be brought to tax by following the decision in the case of Uco Bank Versus Commissioner of Income-Tax 1999 (5) TMI 3 - SUPREME Court - Vide an explanation (d) r.w.s. 36(1)(viia) annexed to section 43-D the definition of the entities incorporated by the section have been defined and in the absence of any contrary material, the assessee is covered by one of the entities, hence the provisions of section 43-D are to be applied - 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-ordinate authorities, such directions are required to be followed and such Circular would be binding on the Department unless and until held as ultra vires by a court of law - in terms of CBDT Circular the interest is to be added as income only when actually received or credited in respect of the sticky advances while making assessment for a financial institution. Interpretation of the language of the statute Concept of real income approved in the case of banking business Held that - If the statute has used the terminology for the chargeability of interest on the basis when credited or actually received , then no ambiguity has been left by the Statute - If the statute is so clear that an interpretation can easily be made, then that exact meaning should be given to the language of the Section - section 43-D has to be applied in its letter and spirit - assessee has directly taken the interest to the Balance Sheet and it is not routed through the Profit & Loss Account thus, there is no reason to interfere in the order of the CIT(A) Decided against revenue.
Issues Involved:
1. Justification of the CIT(A) in deleting the addition of Rs. 26,23,703/- made in respect of interest on sticky advances. Issue-Wise Detailed Analysis: 1. Justification of the CIT(A) in Deleting the Addition: The primary issue in the appeal is whether the CIT(A) was justified in deleting the addition of Rs. 26,23,703/- made by the Assessing Officer (A.O.) concerning interest on sticky advances. The assessee, a co-operative bank, did not consider interest receivable on sticky advances/non-performing assets (NPA) as income and did not include it in the profit & loss account but directly took it to the balances. The A.O. argued that the exemption under Section 43D of the Income Tax Act could not be extended to non-scheduled co-operative banks and thus brought the interest on sticky advances to tax, enhancing the total income by Rs. 26,43,703/-. The CIT(A) deleted this addition, leading to the revenue's appeal. Tribunal's Analysis and Findings: The Tribunal reviewed the facts and previous decisions on similar issues. The Tribunal noted that the issue of taxability of interest on sticky advances had been addressed in several cases, including the ITAT Pune's decision in the case of Osmanabad Janta Sah. Bank Ltd. and other relevant cases like ACIT Circle-3 Nanded Vs. Osmanabad Janta Sah. Bank Ltd., and DCIT, Vijayawada vs. The Durga Cooperative Urban Bank Ltd. The Tribunal found that these cases supported the view that interest on NPA advances did not accrue to the assessee and thus should not be taxed. Legal Precedents and Interpretations: The Tribunal cited multiple precedents, including the Hon'ble Supreme Court's decision in UCO Bank Vs. CIT, which held that interest on sticky loans/advances could not be taxed unless actually received. The Tribunal also referenced the ITAT Ahmedabad Bench's decision in Karnavati Cooperative Bank Ltd. Vs. Dy.CIT, which supported the non-taxability of interest on sticky advances for non-scheduled banks. Section 43D and CBDT Circular: The Tribunal analyzed Section 43D, which prescribes that interest income is chargeable to tax in the year it is credited or actually received, whichever is earlier. The Tribunal emphasized that this section is an overriding provision and must be applied as it stands. The Tribunal also discussed the applicability of the CBDT Circular dated October 6, 1952, which provides that interest on doubtful debts need not be included in taxable income if recovery is improbable, and noted that such circulars are binding on the Department unless held ultra vires by a court of law. Concept of Real Income: The Tribunal considered the concept of "real income" and cited the Hon'ble Supreme Court's decision in CIT vs. Godhra Electricity Co., which held that if income does not materialize, it cannot be taxed. The Tribunal applied this principle to the case at hand, concluding that interest on sticky advances, which had not materialized, should not be taxed. Conclusion: The Tribunal concluded that the issue of taxability of interest on sticky advances was covered in favor of the assessee by previous decisions and that the CIT(A)'s deletion of the addition was justified. Therefore, the Tribunal dismissed the revenue's appeal and confirmed the CIT(A)'s order. Final Order: The revenue's appeal was dismissed, and the CIT(A)'s order was confirmed, with the Tribunal pronouncing the decision in the open Court on 28.02.2013.
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