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2021 (2) TMI 416 - AT - Income TaxInterest on NPAs - interest receivable on non- performing advances but not received during the course of assessment - HELD THAT - No dispute that we are dealing in AY.2015-16 dealing with the case of the assessee/co-operative urban bank. The legislature has included a co-operative bank as covered u/s.43D(a) of the Act vide Finance Act, 2017 w.e.f. 01-04-2018 only. Meaning thereby that the said amendment does not carry retrospective effect. This tribunal s co-ordinate bench s decision The Taliparamba Co-operative Bank Ltd 2019 (3) TMI 1853 - ITAT COCHIN deletes the very nature of additions of interest on NPAs - We direct the Assessing Officer to delete the impugned addition - Decided in favour of assessee.
Issues Involved:
1. Addition of interest on Non-Performing Assets (NPAs) amounting to ?15,04,061. 2. Applicability of Section 43D of the Income Tax Act to co-operative banks for the Assessment Year (AY) 2015-16. 3. Retrospective application of the amendment to Section 43D by the Finance Act, 2017. Issue-wise Detailed Analysis: 1. Addition of Interest on NPAs: The assessee's primary grievance concerns the addition of ?15,04,061 as interest receivable on NPAs, which was not received during the assessment period. The lower authorities upheld this addition, prompting the appeal. 2. Applicability of Section 43D to Co-operative Banks: The tribunal noted that the Finance Act, 2017 amended Section 43D to include co-operative banks, effective from 01-04-2018. This amendment, however, does not have retrospective effect. The tribunal referenced a decision from its co-ordinate bench in "The Taliparamba Co-operative Bank Ltd. vs. ITO," which deleted similar additions of interest on NPAs based on the statutory amendment. 3. Retrospective Application of the Amendment: The tribunal discussed the legislative intent and the prospective nature of the amendment. The CIT had previously found that the deduction under Section 43D was erroneously allowed for AY 2013-14, as the assessee did not fall under the categories eligible for this deduction before the amendment. The CIT viewed the amendment as prospective, thus disallowing the deduction for periods prior to 01-04-2018. The assessee argued that the amendment should be treated as retrospective, citing various judicial precedents and the practice of following RBI guidelines for accounting interest on NPAs. The tribunal examined several case laws where courts held that interest on NPAs should not be taxed until actually received or credited, even if the assessee follows the mercantile system of accounting. Tribunal's Conclusion: The tribunal concluded that the provisions of Section 43D, as amended, should be applied to co-operative banks. It emphasized that the non-obstante clause in Section 43D overrides other provisions, allowing interest on NPAs to be taxed only when actually received or credited. The tribunal found that the assessee, being a co-operative bank, is governed by RBI guidelines and is eligible for the benefits under Section 43D, even before the amendment's effective date. The tribunal adopted the detailed reasoning from previous judgments and directed the Assessing Officer to delete the impugned addition of ?15,04,061. Consequently, the assessee's appeal was allowed. Order Pronouncement: The order was pronounced in the open court on 19th January 2021.
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