9911796707
TMI Blog2014 (12) TMI 345X X X X Extracts X X X X X X X X Extracts X X X X ..... t an order of the Commissioner of Income Tax (Appeals)-III, Pune dated 30.05.2014 which, in turn, has arisen from an order dated 28.11.2011 passed by the Assessing Officer u/s 143(3) of the Incometax Act, 1961 (in short "the Act"). 3. In this appeal, the following Grounds of Appeal have been raised by the Revenue :- "1) On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) has erred in deleting the addition of Rs. 26,11,750/- made by the A.O., on account of interest on Non Performing Assets (NPA), u/s. 43D of the I.T Act. 1961. 2) The Learned CIT(A) ought to have appreciated the fact that the assessee is a Co-operative bank and not a Scheduled Bank. 3) The Learned CIT(A) is ought to have held that the provisions of section 43D are only applicable to Financial Institutions and a Scheduled Bank. Thus, the assessee being a non-scheduled bank could not take the benefit of section 43D of the Act. Therefore, the Learned CIT(A) on this count itself ought to have dismissed the appeal of the assessee, confirming the addition made by the A.O. 4) On the facts and in the circumstances of the case, the Learned CIT(A) erred in appreciating the provisions of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en found necessary." 4. Although, Revenue has raised multiple Grounds of Appeal but the only grievance is against the order of the CIT(A) in deleting an addition of Rs. 26,11,750/- made by the Assessing Officer representing interest on Non Performing Assets (NPAs). 5. Briefly put, the controversy can be summarized as follows. The assessee is a non-scheduled Co-operative Bank carrying on banking business in terms of a license issued by Reserve Bank of India (RBI), and is thus governed by Circulars of RBI relating to Prudential Norms, Income Recognition, Asset Classification, Provisioning and other related matters. In terms of such Prudential Norms of RBI, assessee did not account for interest relating to Non-Performing Assets (NPAs) i.e. advances to customers which have been classified as NPAs in terms of the RBI guidelines. The Assessing Officer was of the opinion that interest income even in relation to such NPAs was liable to be included in this year's total income, having regard to the mercantile system of accounting followed by the assessee. According to the Assessing Officer, provisions of section 43D of the Act, which prescribe that interest income relatable to NPAs classif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome on such categories of bad and doubtful debts as prescribed by the RBI guidelines shall be chargeable to tax in the year in which such interest income is credited by the assessee in the Profit and Loss account or in the year of actual receipt, whichever is earlier. Since assessee is not an entity covered within the scope of section 43D of the Act, the present controversy cannot be adjudicated in the light of section 43D of the Act, and it is liable to be decided on general principles as to whether the impugned income has accrued to the assessee during the year under consideration. 9. In this connection, we find that the Visakhapatnam Bench of the Tribunal in the case of The Durga Cooperative Urban Bank Ltd. (supra) has considered an identical controversy. The assessee before the Visakhapatnam Bench was a Co-operative Bank operating under a license issued by RBI but was not a 'scheduled bank' so as to fall within the scope of section 43D of the Act. The issue related to taxability of interest income relating to NPAs, which as per the Revenue was liable to be taxed on accrual basis in line with mercantile system of accounting adopted by the assessee therein. The assessee, on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... note of the fact that the provision of 45Q of Reserve Bank of India has overriding effect over any other law. Then the Hon'ble High Court also considered accounting standard "AS-9" on "Revenue recognition" and also extracted following relevant portion from the said accounting standard: 9. Effect of uncertainties on Revenue Recognition 9.1 Recognition of revenue requires that revenue is a measurable and that at the time of sale or the rendering of the service, it would not be unreasonable to expect ultimate collection. 9.2 Where the ability to assess the ultimate collection with reasonable certainty is lacking at the time of raising any claim, e.g., for escalation of price, export incentives, interest etc., revenue recognition is postponed to the extent of uncertainty involved. In such cases, it may be appropriate to recognize revenue only when it is reasonably certain that the ultimate collection will be made. Where there is no uncertainty as to ultimate collection, revenue is recognized at the time of sale or rendering of service even though payments are made by installments. 9.3 When the uncertainty relating to collectability arises subsequent to the time of sale or the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt, the assessee a NBFC debited Rs. 81,68,516 as provision against NPA in the profit and loss account, which was claimed as deduction in terms of Section 36(1) (vii) of the Act. The Assessing Officer did not allow the deduction claimed as aforesaid on the ground that the provision of NPA was not in the nature of expenditure or loss but more in the nature of a reserve, and thus not deductible under section 36(i)(vii) of the Act. The Assessing Officer, however, did not bring to tax Rs. 20,34,605/- as income (being income accrued under the mercantile system of accounting). The dispute before the Apex Court centered around deductibility of provision for NPA. After analyzing the provisions of the Reserve Bank of India Act, their Lordships of the Apex Court observed that in so far as the permissible deductions or exclusions under the Act are concerned, the same are admissible only if such deductions/exclusions satisfy the relevant conditions stipulated therefore under the Act. To that extent, it was observed that the Prudential Norms do not override the provisions of the Act. However, the Apex Court made a distinction with regard to "Income Recognition" and held that income had to be r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by a company can be changed unless the AO comes to the conclusion that such change would result in understatement of profits. However, here is the case where the AO has to follow the Reserve Bank of India Directions 1998 in view of Section 45Q of the Reserve Bank of India Act. Hence, as far as Income Recognition is concerned, Section 145 of the IT Act has no role to play in the present dispute". 10. Turning to the facts of the case before us, the assessee herein is a cooperative bank and it is not in dispute that it is also governed by the Reserve Bank of India. Hence the directions with regard to the prudential norms issued by the Reserve Bank of India are equally applicable to the assessee as it is applicable to the companies registered under the Companies Act. The Hon'ble Supreme Court has held in the case of Southern Technologies Ltd (Supra), that the provision of 45Q of Reserve Bank of India Act has an overriding effect vis-à-vis income recognition principle under the Companies Act. Hence Sec.45 Q of the RBI Act shall have overriding effect over the income recognition principle followed by cooperative banks also. Hence the Assessing Officer has to follow the Res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applied to the Income Recognition Norms provided by RBI and therefore it held the interest income on NPAs is liable to be taxed on accrual basis and not in terms of RBI's guidelines. But the Hon'ble Delhi High Court in the case of M/s Vasisth Chay Vyapar Ltd. (supra) has taken a view that Southern Technologies Ltd. (supra) case did not apply to the Income Recognition Norms prescribed by RBI. Ostensibly, there is divergence of opinion between the Hon'ble Delhi High Court and the Hon'ble Madras High Court as noted by the Hon'ble Madras High Court in its order. 12. In so far as, present case is concerned there is no judgment of the Jurisdictional High Court. We are faced with two contrary judgments of the non-jurisdictional High Court. In such a situation, we are inclined to prefer a view which is favourable of the assessee following the judgement of the Hon'ble Supreme Court in the case of CIT vs. Vegetable Products Ltd. (1973) 88 ITR 192 (SC). 13. Therefore, in view of the aforesaid discussion, we are inclined to follow the decision of our co-ordinate Bench in the case of The Durga Cooperative Urban Bank Ltd. (supra) and accordingly the order of the CIT(A) is liable to the affirme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same are disposed-off by way of our decision in the appeal of the Revenue for assessment year 2009-10. The only other Ground remaining in the cross-objection is with regard to an addition of Rs. 3,13,855/- made by the Assessing Officer and which has since been sustained by the CIT(A). The said addition is on account of the interest on securities purchased by the assessee, which has been paid to the seller of the securities and corresponds to the period prior to the date of purchase by the assessee bank. 14. In this context, relevant facts are that assessee had effected purchases of Government securities from secondary market on 28.12.2008. Ostensibly, interest accruing on such securities upto 28.12.2008 was to the account of the seller and for the balance period i.e. from 29.12.2008 to 31.03.2009 it was the income of the assessee. Assessee received interest for the total period of six months, which amounted to Rs. 6,24,372/- and the interest pertaining to period upto 28.12.2008 was Rs. 3,13,855/-. Considering that the interest of Rs. 3,13,855/- belonged to the seller of securities, assessee had paid this amount to the seller at the time of purchase of securities. The said amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roken period interest' is allowable as a deduction. It is also noteworthy that the Hon'ble Bombay High Court in the case of HDFC Bank Ltd. (supra) considered the decisions of the Hon'ble Supreme Court in the case of Vijaya Bank Ltd. (supra) as also that of the Hon'ble Rajasthan High Court in the case of Bank of Rajasthan Ltd. (supra) and thereafter, it has upheld the stand of the assessee that 'broken period interest' is allowable as a deduction. In view of the aforesaid authoritative pronouncement by the Hon'ble Bombay High Court, we find no justification to uphold the stand of the income-tax authorities. Following the judgement of the Hon'ble Bombay High Court in the case of HDFC Bank Ltd. (supra), we hereby set-aside the order of the CIT(A) and direct the Assessing Officer to delete the impugned addition. 17. In the result, C.O.No.101/PN/2014 in the case of Lokmangal Co-op. Bank Ltd. is allowed. 18. Now, we may take-up C.O. No.102/PN/2014 which is in relation to appeal of the Revenue in the case of Lokmangal Co-op. Bank Ltd. vide ITA No.1541/PN/2014 for assessment year 2010-11. The said cross-objection arises from the order of the Commissioner of Income Tax (Appeals)-III, Pune ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bjector prays for deletion of said disallowance. 3. Cross Objector prays to uphold the decision of CIT(A) on non-addition of interest on NPA, (Gross) amount, subject to modification as Ground No. 1 4. Cross Objector prays for Just and equitable relief. 24. In so far as Ground of Appeal Nos.1 and 3 of the cross-objection are concerned, the same are disposed-off by way of our decision in the appeal of the Revenue for assessment year 2009-10. 25. The only other remaining Ground in the cross-objection is with regard to the action of the CIT(A) in confirming the disallowance of Rs. 3,70,913/- representing amortization of premium paid on acquisition of Held to Maturity (HTM) securities. 26. In this context, brief facts are that before the CIT(A) assessee claimed deduction of Rs. 3,70,913/- on account of amortization of premium paid on Government Securities in the category of investments Held to Maturity (i.e. HTM). The said premium represented the excess of acquisition cost over the face value of the securities and the claim of the assessee was that the same was to be amortized over the remaining period of maturity of the securities. The claim of the assessee was based on the Master ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground that the employees contribution to the Provident Fund amounting to Rs. 56,328.50 has been deposited belatedly. The stand of the assessee is that though the payment of employees contribution to the Provident Fund is delayed, however, the same has been deposited before the due date of filing of return prescribed u/s 139(1) of the Act. On this basis, it is sought to be contended that the aforesaid amount cannot be disallowed by invoking section 43B of the Act. The Ld. Representative submitted that the CIT(A) did not allow the plea of the assessee on the ground that employees contribution to the Provident Fund is liable to be treated as income of the assessee in term of section 2(24)(x) read with Explanation to section 36(1)(va) of the Act and therefore such an expense can only be allowed to be deducted if it has been paid within due date defined in Explanation below clause (va) of sub-section (1) of section 36 of the Act. In coming to such conclusion, the CIT(A) followed the judgement of the Hon'ble Gujarat High Court in the case of Gujarat State Road Transport Corporation (Tax Appeal Nos.637/2013, 1711 & 2577/2009, 925, 949, 965, 1655, 2365, 2378 & 2644/2010 and 814/2011) date ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
