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TMI Blog2024 (9) TMI 90X X X X Extracts X X X X X X X X Extracts X X X X ..... te, 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 account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee would reveal that the only source of Income of the assessee is interest income besides income from house property. The main business of the assessee society includes lending of money to earn interest thereon from the various banks, institutions, investment in Government securities and other various deposits including investment in bonds and debentures of various societies as well as interest earned on its advances to the various members, member cooperatives including cooperative societies. 5. That while completing the assessment for the year under consideration the AO has made an addition of Rs. 12,61,940/- vide para 3.1 of the order of assessment. The assessee society had claimed deduction being Revenue expenditure at Rs. 12,39,000/- being the amount of premium paid at the time of purchase of Government securities from the Reserve Bank of India. This amount has been held by the AO as capital expenditure instead of Revenue expenditure as claimed by the assessee society and as such addition has been made. Further perusal of the order of assessment would reveal that an addition of Rs. 7,43,000/- has been made while completing the assessment vide para 4 of the order of assessment. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dismissed by ITAT and the assessee's appeal on issue (c) was remanded back to the file of the CIT(A) on the basis of the additional evidence filed by the assessee during the proceedings before the Hon'ble ITAT in respect of 2 grounds of appeal: a) Taxability of interest income of Rs. 1,20,87,000/- already taxed during FY 2015- 16 relevant to AY 2016-17 b) Taxability of amount of Rs. 743,000 received by the assessee under OTS(One Time Settlement scheme) with regard to NPA accounts (Non Performing Assets) The assessee submits as under: a) Disallowance of Rs. 12,39,000/- being premium paid on issue of Government securities The issue has been decided by the CIT(A) in favour of the assessee in Appeal No 293/2015-16 and the appeal of the department before the Hon'ble ITAT has been dismissed in Appeal no 867/CHD/2019 VIDE ORDER DATED 5th September 2019. b) Rs. 7,43,000 on the basis of the Notes of accounts considering the same as being depicted in the Sundries Miscellaneous on account of OTS scheme. The assessee had filed additional evidence before the Hon'ble ITAT on the basis of which the matter was remanded to the CIT(A). The documents filed before the Hon'ble IT AT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is allowed deduction on account of provision for bad and doubtful debts and deduction allowable is subject to the ceiling of 7.5% of the total income of the assessee. On receipt of the amount from the defaulter the amount is credited to his account and the provision for NPA is reduced by the Banking Company. Therefore, merely because an amount is received cannot be considered as income of the bank. The amount of any interest received by the bank is considered as income of the bank. Therefore the Assessing Officer has erred in considering the amount received under OTS scheme as income of the assessee society. Further, the amount received under the OTS scheme is adjusted against the advance only after the approval from the appropriate authority and till that time the amount is reflected by the Bank in the Sundries (Misc) Account. The detail of the customers opting for OTS scheme in FY 2012-13 (AY 2013-14) is enclosed. The assessee had initially received a sum of Rs. 7,50,110/- dun'ng the year under consideration. The statutory auditor in the LFAR has taken the amount at Rs. 7.43 Lacs (calculation enclosed),, the calculation and basis of calculation of the same is also e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision for bad debts is written back but is not shown separately but the fresh provision for bad and doubtful debts is debited to the profit and loss account after adjustment of the amount. The assessee only debits to the profit and loss account the proportion of the provision for bad debts which is allowable under the provisions of Section 36(1)(viia) of the Income Tax Act and the remaining amount is directly debited to the retained earnings of the assessee banking society. Therefore, it is clear from the above that the Ld. A.O. has erred in adding the amount of Rs. 743,000 as income of the assessee. Further, the Assessing Officer has failed to provide the provision of the Income Tax Act 1961 under which the amount has been considered as income of assessee as the amount allowed under the provisions of Section 36(1)(vii)(a) is not covered under the provisions of Section 41(4) which deals with the collection in bad debts accounts. The details of accounts along with the ledger accounts are also enclosed. Therefore, in light of the above the assessee requests that the addition of Rs. 7.43 Lacs may kindly be deleted. The Hon'ble ITAT has remanded the matter back on issue of con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as mere receipt of the amount is not taxable, the income must accrue to the assessee before it is becomes taxable. Sir, the amount had been added by the Ld. CIT(A) through an / enhancement notice. The issue relates to AY 2014-15 where in the Ld. A.O. had made addition of Rs. 1.73 crores to the income of the assessee for provision for doubtful debts on the basis of the Long Form Audit Report (LFAR) of the bank and during original appellant proceedings the Ld. CIT(A) had allowed the principal amount to the assessee and since the amount of Rs. 12087000 was received by the assessee during the FY 2012-13 issued enhancement notice upon the assessee and added the amount of Rs. 120,87,000 to the income of the assessee for AY 2013-14. The appeal for the AY 2014-15 has also been remanded back by the Hon'ble ITAT to the CIT(A). Therefore, the addition has no relevance and should be considered and dealt with after the decision for AY 2014-15 is adjudicated by the Ld. CIT(A). 9. That in light of the aforesaid two issues arose before the Ld. CIT(A) for adjudication and adjudgment (1) addition made on account of income of Rs. 7,43,000/- under one time settlement scheme (OTS) and income enhan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred on facts and in law in considering the amount of Rs. 12087000/- as income of the assessee when the assessee has himself declared the same as income during AY 2016-17 2017-18 at the time of accrual of income. 4. That CIT(A) has erred in law in interpreting the words actually received under section 43D of the Act. 5. That the Ld. AO. has erred in making addition of Rs. 12087000 when the addition in the original was made by the Ld. AO. by issuing enhancement notice under Section 251(2) without adhering to the laid down procedure when the issue had been remanded the amount had accrued from the order passed for AY 2014-15. 6. That the Ld. CIT(A) has erred in law and on fact when the appellant had specifically mentioned that the issue relates to AY 2014-15 and should not be decided without deciding the appeal for AY 2014-15. 7. The assessee craves permission to add, amend or delete any ground of appeal before the finalization of appellate proceedings. Record of Hearing 13. The hearing in the matter took place before this Tribunal on 07/08/2024; when both the parties appeared before us and were heard at length on merits. The Ld. AR contended that in reply to enhancement notice dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he has contended that the combined and cumulative reading of the above provisions it can be said that assessee society recognized the interest income of Rs. 1,20,87,000/- as not an income for A.Y. 2013-14 but for A.Y. 2016-17 and 2017-18. 13.3 The amount of Rs. 1,70,00,000/- pertains to the amount received from the sale of assets of a guarantor to the loan taken by the borrower on 24/12/2012 for which they had to file an execution application in a Civil Court. The Civil Court order in favour of the bank was contested before Punjab Haryana High Court and upon refusal by the Punjab Haryana High Court not to grant stay to the guarantor, the amount was credited into the account of borrower on 13/05/2015 and an amount of Rs. 91,00,000/- was appropriated and recognised as interest income by the assessee for the A.Y. 2016-17 and the remaining amount of Rs. 79,00,000/- was appropriated and adjusted against the principal outstanding sum. Similarly the assessee received sum of Rs. 29,87,000/- from the borrower M/s Heels and Toes Footwear Pvt. Ltd. on 22/03/2013 under OTS. The amount was appropriated, recognised and credited on 31/03/2017 and the amount was shown as interest income of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of customer for A.Y. 2017-18 and taxed as interest income. It was finally contended that amount received by the assessee is not income but a portion of amount become income and same can be known only after credit of the amount into the account of borrower which was done during A.Y. 2016-17 and A.Y. 2017-18. By virtue of provision contained in section 43D there is a reference to the guidelines of RBI and by virtue of 3.3.2 it is provided that In the absence of a clear agreement between the bank and the borrower for the purpose of appropriation of recoveries in NPAs (i.e. towards principal or interest due), banks should adopt an accounting principle and exercise the right of appropriation of recoveries in a uniform and consistent manner. Reliance on AS-9 issued by ICAI with regard to recognition of Revenue vide para 13 which places importance on recognition when no significant uncertainty as to measurability or collectability exist was placed. 14. Per contra the Ld. DR relied upon the impugned order of Ld. CIT(A) and contended that assessee society is not clear at all as to how they should account the interest income of NPA s. The Ld. CIT(A) has not erred in law and a proper and wel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for that year or, as the case may be, in which it is actually received by that institution or bank or corporation or company, whichever is earlier. 15.1 A bare simple perusal of above section first of all means 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. 15.2 In light of above express, non obstante and special provision of law we notice on page 30 of paper book which is ledger account maintained by the assessee society as bankers that an amount of Rs. 91,00,000/- was appropriated / recognised as interest income on 13/05/2015 which falls under A.Y. 2016-17. Similarly the assessee has appropriated / recognised Rs. 29,87,000/- on 31/03/2017 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me clouds of uncertainties with regard to recover of bad debts were clear. Finally when stage came of some degree of certainty the assessee rightly exercised his right of appropriation u/s 60 of the Contract Act and so also by following the guidelines of RBI as mandated by Section 43D of the Income Tax Act, 1961 and appropriated it for A.Y. 2016-17 and A.Y 2017-18 respectively. The debtor s amount so realised was not indicative to which debt the payment is to be applied i.e; principal or interest. The debtor had omitted to indicate and further there were no other circumstances indicating contrary. Be that as it may the Debtor / borrower/guarantors amount realised by assessee bank on receipt was silent on how it is to be appropriated. Hence following due process i.e; guidelines of RBI and law relating to appropriation of payment the amount was duly accounted as interest income for A.Y. 2016-17 and A.Y. 2017-18 despite the fact that money was received in A.Y. 2013-14 and accounted as sundry payable. We therefore hold that mere receiving the money is inconsequential unless and until assessee appropriates it towards the object and purpose for which it was received which is of relevance ..... X X X X Extracts X X X X X X X X Extracts X X X X
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