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2024 (9) TMI 90 - AT - Income TaxEnhancement of income by CIT(A) - Addition made on account of income under one time settlement scheme (OTS) and income enhanced by erstwhile CIT(A) on account of recovery of NPA - adjudication and adjudgment is how to treat the income in which assessment year - CIT(A) enhanced the income of the assessee holding that since the amount has been received during the A.Y. 2013-14 the same is taxable under the year under consideration as per the provisions of Section 43D - HELD THAT - Section 43D is NON OBSTANTE IN NATURE BESIDES BEING SPECIAL PROVISION. The words used are the income by way of interest in relation to such categories of bad or doubtful debts as may be prescribed having regard to the guidelines issued by the RBI in relation to such debts shall be chargeable to tax in the previous year in which it is credited to its profit and loss account for that year or as the case may be in which it is actually received by that institution or bank or corporation or corporate, whichever is earlier. Law has used two words credited or received whichever is earlier. In light of above express, non obstante and special provision of law we notice as ledger account maintained by the assessee society as bankers that an amount as appropriated / recognised as interest income on 13/05/2015 which falls under A.Y. 2016-17. Similarly the assessee has appropriated / recognised sum on 31/03/2017 as interest income for A.Y. 2017-18. Thus we hold that in aggregate sum of Rs. 1,20,87,000/- as duly appropriated and accounted as and by way of interest income basis ledger statement of assessee society / bank for A.Y. 2016- 17 and A.Y. 2017-18. We hold that we have also perused carefully all the paper and proceeding filed in several paper books and basis that we hold that with great difficulty assessee bank could recover bad loans which had become NPA s. Civil proceedings though initiated in year 2012 finally yielded result for bank in form of recovery while it is true that the assessee bank had to go through the rigours of civil litigation which is highly time consuming in India the assessee bank received the amounts(supra) and finally appropriated, recognised and accounted the same as aforesaid. Accordingly we hold that provisions of Section 43D of Income Tax Act, 1961 stands complied in overall facts and circumstances of the case as the word credited or received as used in Section 43D (supra) is required to be understood in the context of recognition and appropriation of payment by virtue of RBI guidelines (supra) and the Indian Contract Act, 1872 and so also by noting and appreciating the fact that recoveries were appropriated and recognised after the clouds of litigation got cleared. In the result the impugned order of Ld. CIT(A) is set aside and appeal of the assessee is allowed.
Issues Involved:
1. Disallowance of premium paid on government securities. 2. Addition of Rs. 7,43,000/- under the One Time Settlement (OTS) scheme. 3. Addition of Rs. 1,20,87,000/- as income from NPA recovery. Issue-wise Detailed Analysis: 1. Disallowance of Premium Paid on Government Securities: The Assessee, a cooperative society engaged in banking, claimed a deduction of Rs. 12,39,000/- as revenue expenditure for the premium paid on government securities. The Assessing Officer (AO) treated this amount as capital expenditure, leading to its disallowance. The CIT(A) decided this issue in favor of the Assessee, and the department's appeal on this issue was dismissed by the ITAT. 2. Addition of Rs. 7,43,000/- under the OTS Scheme: The AO added Rs. 7,43,000/- to the Assessee's income, considering it as income recovered under the OTS scheme for NPAs. The Assessee contended that this amount was not income as it was only received as a token and not credited to the borrower's account until final settlement. The CIT(A) found that the amount was included in the total income based on the ledger extract and audit report, thus deleting the addition made by the AO. The ITAT upheld this decision, noting that the amount was rightly accounted for under the OTS scheme and should not be considered as income until it is credited to the borrower's account. 3. Addition of Rs. 1,20,87,000/- as Income from NPA Recovery: The AO and CIT(A) added Rs. 1,20,87,000/- as income for the Assessment Year (AY) 2013-14, arguing it should be taxed under Section 43D of the Income Tax Act, 1961. The Assessee argued that this amount was treated as a liability due to ongoing litigation and was only recognized as income in AY 2016-17 and AY 2017-18 when the litigation was resolved. The ITAT examined Section 43D, which requires income by way of interest on bad or doubtful debts to be taxed in the year it is credited to the profit and loss account or received, whichever is earlier. However, the ITAT found that the Assessee had recognized and appropriated the income in the years 2016-17 and 2017-18, following the RBI guidelines and the Indian Contract Act, 1872. The ITAT concluded that taxing the amount in AY 2013-14 would lead to double taxation, as the Assessee had already accounted for it in subsequent years. Therefore, the ITAT set aside the CIT(A)'s order and allowed the Assessee's appeal. Conclusion: The ITAT allowed the Assessee's appeal, holding that: - The premium paid on government securities was correctly treated as revenue expenditure. - The amount received under the OTS scheme was not income until credited to the borrower's account. - The income from NPA recovery was appropriately recognized and taxed in AY 2016-17 and AY 2017-18, not in AY 2013-14, to avoid double taxation. Order: The appeal of the Assessee is allowed, and the impugned order of the CIT(A) is set aside. The decision was pronounced in open court on 21/08/2024.
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