PRINCIPAL COMMISSIONER OF INCOME TAX VADODARA 4 vs. DAHOD URBAN COOPERATIVE BANK LTD

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TAXAP/1122/2018HC GujaratGJHC24035198201810 September 2018Bench: HONOURABLE MR. JUSTICE AKIL KURESHI,HONOURABLE MR. JUSTICE B.N. KARIA3 pages

AI SummaryWithdrawn

What did the High Court hold?

The High Court disposed of the appeal based on a statement made by the assessee's counsel. The counsel stated that the disputed amount of Rs.76,93,176/- was offered to tax in Assessment Year 2013-14 when it was actually repaid, and the Revenue had accepted this position. The Court acknowledged that in tax matters, the correct year of taxation is important. However, considering that the disputed sum was below the tax limit prescribed by the CBDT and that the tax had already been deposited in a later year, the Court found it appropriate to close the appeal. The Court noted that if the Assessing Officer found any confusion regarding the actual interest being taxed in the later year, they could file a recall application. The specific legal questions regarding the allowability of the deduction on the principle of 'real income' and the procedural requirements of filing a claim were not explicitly decided on merits.

What were the facts?

The Revenue, Principal Commissioner of Income Tax, Vadodara 4, filed an appeal against the order of the Income-tax Appellate Tribunal (ITAT) dated January 10, 2014, pertaining to Assessment Year 2007-08. The assessee, Dahod Urban Cooperative Bank Ltd., was required by RBI directives to deposit funds with the District Cooperative Bank. Due to financial difficulties of the apex body, interest on these deposits was not paid, and the principal became doubtful. The assessee noted in its return that the taxability of accrued interest be adjudicated. The ITAT granted relief to the assessee based on the principle of 'real income'. The Revenue's appeal challenged this decision.

What were the issues?

1. Whether the ITAT erred in allowing the assessee's claim for deduction of Rs.76,93,176/-, representing accrued but unrealized interest, when the assessee followed the mercantile system of accounting and had not filed a revised return or made a specific claim for deduction in the original return? (Question of law) Assessee's Contention: The assessee argued that the tax effect was below the threshold limit prescribed by the CBDT for filing appeals. Furthermore, the same amount was offered to tax in Assessment Year 2013-14 when it was actually repaid, and the Revenue had accepted this position. Therefore, the Revenue should not tax the same amount twice. Revenue's Contention: The Revenue primarily contended that the claim could not be sustained without a specific claim in the return or a revised return. Secondly, the assessee, following the mercantile system, was obligated to offer the interest to tax on accrual. The Revenue also clarified that the appeal was filed under an exception clause for audit objections, despite the tax effect potentially being below the threshold.

AI-generated summary — verify with the full judgment below

C/TAXAP/1122/2018 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 1122 of 2018 ========================================================== PRINCIPAL COMMISSIONER OF INCOME TAX VADODARA 4 Versus DAHOD URBAN COOPERATIVE BANK LTD ========================================================== Appearance: MR.VARUN K.PATEL(3802) for the PETITIONER(s) No. 1 DARSHAN R PATEL(8486) for the RESPONDENT(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE B.N. KARIA

Date : 10/09/2018

ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI)

Revenue has filed this appeal challenging the judgment dated 10.01.2014 of the Income tax Appellate Tribunal for the assessment year 200708. The questions framed by Revenue are multiple. However, issue is singular, namely, the allowability of the assessee's claim of deduction of Rs.76,93,176/. This question arises in the following background.

The respondent assessee is a Cooperative Bank. Under the Directors of RBI the assessee was required to deposit certain amounts with the District Cooperative Bank, an apex body. Due to financial hardship the District Page 1 of 3

C/TAXAP/1122/2018 ORDER Cooperative Bank could not pay interest on such deposit. Even the principal became doubtful. Under such circumstances, in the return filed the assessee put a note that the taxability of the accrued interest be adjudicated. The Tribunal ultimately granted the relief to the assessee on the principles of real income. The Revenue questions this decision primarily on two grounds; firstly, that without making a claim in the return or filing a revised return such claim could not have been sustained. Secondly, that the assessee bank was following mercantile system of accounting and had to offer the interest to tax on the basis of accrual.

At the outset, learned counsel for the assessee contended that the tax effect is lower than the threshold limit prescribed by CBDT in its latest circular enabling the Department to prefer appeal before the High Court. Shri Varun Patel for the Department, however, clarifies that the dispute falls under exception clause permitting Revenue to file appeal when it arises out of audit objections.

Be that as it may, counsel for the assessee stated that the same amount was offered to Page 2 of 3

C/TAXAP/1122/2018 ORDER tax in the later assessment year 201314 when the amount was actually repaid. The Revenue accepted such position and they therefore cannot tax the same amount second time in the present. Recording such statement, we propose to close this appeal. We are conscious that the Revenue could argue that in tax matters as much as taxing an amount, the correct year during which the same should be taxed is also important. However, as noted, in so far as disputed sum is concerned, it is below the tax limit prescribed by the CBDT. Further, as stated by the counsel for the assessee the tax is already deposited in the later year. The tax appeal is therefore disposed of. If the Assessing Officer finds that for some reason there is confusion about the actual interest is being taxed in the later year as stated, it would be open for the Revenue to file recall application in this appeal. (AKIL KURESHI, J) (B.N. KARIA, J) K.K. SAIYED Page 3 of 3

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