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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR
Before: SH. SANJAY ARORA & SH. N.K.CHOUDHRY
IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER AND SH. N.K.CHOUDHRY, JUDICIAL MEMBER ITA No.543(Asr)/2017 Assessment Year:2014-15
Dy. CIT, Vs. M/s. The Kapurthala Central Circle-IV, Jalandhar Co-op, Bank Ltd., Kanjli Road, Model Town, Kapurthala
PAN: AAAJK 0118K (Appellant) (Respondent)
Appellant by: Sh. Gautam Deb (Ld. DR) Respondent by: Salil Gupta (Ld. CA) Date of hearing: 09.08.2018 Date of pronouncement: 16.08.2018 ORDER PER N.K. CHOUDHRY The instant appeal has been filed by the Revenue Department, on feeling aggrieved against the order dated 06.06.2017 passed by the Ld. CIT(A)-, Jalandhar, u/s 250(6) of the I.T. Act, 1961 (hereinafter called as ‘the Act’).
The following grounds of appeal raised by the Revenue Department. 1. That the Ld. CIT(A) has erred in law and on facts of the case in deleting the addition of Rs. 1,13,80,453/- made by the AO holding that the interest due on ‘Non-Performing Assets’ was taxable as the Co-op. Bank was following mercantile system of Accounting except with regard to the interest pertaining to NPAs. 2. That the Ld. CIT(A) has erred in law and on facts of the case in relying on the decision of Hon’ble ITAT in the case of M/s. The Jalandhar Central Co-op Bank Ltd., vide order dated 20.01.2017 in ITA No. 604, 605,652/Asr/2015-16 as the Department has filed appeal against the
2 ITA No.543(Asr)/2017 (A.Y.2014-15) DCIT v. Kapurthala Central Co-op, Bank, Ltd. Kapurthala
said order before the Hon'ble Punjab and Haryana High Court which is still pending for adjudication.
That on the facts and in the circumstances of the case Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.8,50,000/- made by the AO on account of disallowance of provision for Standard Assets as per RBI Guidelines as Standard Assets are performing assets and these are not bad assets which can be covered in purview of section 36(l)(iia) of the Act. 4. That while allowing the relief of Rs.8,50,000/-, the Ld. CIT(A) has not appreciated that it was contingent liability and was not allowable as business expenditure.
That the Ld. CIT(A) has erred in law and on facts of the case in relying on the decision of Hon’ble ITAT in the case of M/s. Punjab Gramin Bank, Kapurthala vide order dated 22.06.2016 in ITA No. 134/Asr/2015 as the Department has already filed an appeal against the said order before the Hon'ble Punjab and Haryana High Court which is still pending for adjudication. 6. It is prayed that the order of the Ld. Commissioner of Income Tax (Appeals) be set aside and that of the Assessing Officer be restored.”
The brief facts of the case are that the two issues are involved in the instant case, first with regard to the ‘Non Performing Assets’ (NPAs) and second the addition of Rs.8,50,000/- made by the AO on account of disallowance of provision for Standard Assets. We realized that the Co- ordinate Bench at Amritsar in ITA Nos.98 & 99 (Asr)/2017, case titled as Asst. CIT, Circle-Iv, Jalandhar vs. M/s. Kapurthala Central Co-op. Bank Ltd. Kapurthala, order dated 14.07.2017 dealt with the similar and identical issue qua ‘Non Performing Assets’. The Relevant part of this order is reproduced herein below. “8. We have gone through the facts and circumstances of the case and also cases relied on the parties as interest in the instant case the only controversy pertains to deletion of the addition qua interest due on non performing assets as not taxable and the interest on non performing assets is to be taxed in the year of actual receipt even though it is following mercantile system of accounting. The Co- ordinate Bench of the ITAT, while deciding the similar issue observed as under:
3 ITA No.543(Asr)/2017 (A.Y.2014-15) DCIT v. Kapurthala Central Co-op, Bank, Ltd. Kapurthala
“6. It remains an undisputed fact that the assessee co-ordination bank has been following the mercantile system of accounting, except with regard to interest pertaining to NPAs. As noted by the Ld. CIT(A), this position stands accepted by the department in the earlier years. The assessee has been following the RBI guidelines in this matter. Its method of accounting is entirely in accordance with the RBI guidelines. The RBI guidelines need to be mandatorily followed by the assessee. Moreover, this method of accounting, adopted by the assessee, is in accordance with the Accounting Standards issued by the Institute of Chartered Accountants of India. Section 45Q of the RBI Act provides, in the non obstante Clause with which it begins, that the provisions of the Chapter under which section 45Q falls, shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being inforce.
In “M/s Vasisth Chay Vyapar Ltd.” (supra), it has been held that when an NBFC classifies an asset as a Non-performing Asset in accordance with the directions issued the Reserve Bank of India, it is legitimate to infer that the interest income thereon is not accrued, even though the NBFC is following the mercantile system of accounting. Interalia, “M/s Southern Technologies Ltd.” (supra) has been distinguished “in M/s Vasisth Chay Vyapar Ltd.” (supra).
Apropos the applicability of section 43D of the I.T. Act, it is on record that during the proceedings before the Id. CIT(A), the assessee, by way of submission dated 17.09.2015, the assessee had stated that the assessee had been confirmed by the Headquarter of the Punjab State Co-operative Bank , to be a scheduled bank. This position has not been disputed.
In view of the above, we find that the grievance of the department is without any force. The order of the Id. CIT(A) is a well versed reasoned detailed order, requiring no interference whatsoever at our hands. The same is, accordingly, confirmed.
As noted at the beginning of this order, all the three appeals involve the same common issue. That being so, our above observations shall apply equally, mutatis mutandis, to the other two appeals also.
11.Accordingly, all the orders of the Id. CIT(A) in these three appeals are upheld and the grounds raised by the department are rejected” While following the aforesaid judgment of the Co-ordinate Bench, even otherwise we independently considered the facts of the instant case that the assessee is a Co-operative Society which is engaged in the business of banking and has been following the directions of the Apex Bank and according to that interest due on
4 ITA No.543(Asr)/2017 (A.Y.2014-15) DCIT v. Kapurthala Central Co-op, Bank, Ltd. Kapurthala NPAs had to be accounted for as income on actual receipts basis. Even otherwise, AS9 of ICAI on Revenue recognitions provide for, where there in uncertainty about the collection of Revenue, recognition of income or such Revenue is postponed to the extent of uncertainty involved, therefore, the assessee recognized Revenue on advances classified as NPAs on actual receipt basis and even the assessee consistently following the method of accounting in accordance with Section 145 of the Act. Therefore, on the aforesaid reasons and observations, we do not have any hesitation to uphold the action of the Ld. CIT(A) to dismiss the appeals of the Department. Hence, the instant appeals stand dismissed “
We have gone through the issue qua ‘Non Performing Assets’ (NPAs)
as squarely been covered by the Co-ordinate Bench at Amritsar, therefore,
while following the same, we do not find any infirmity, impropriety and
perversity in the order of the CIT(A) qua the issue under hand.
Now, coming to the second issue with regard to the disallowance of
provision for Standard Assets, the ld. CIT(A) while following the decision of
Co-ordinate Bench at Amritsar (Jalandhar Camp) in the case of DCIT v.
Punjab Gramin Bank Kapurthala in ITA No.134(Asr)/2015, vide order dated
22.06.2016 deleted the addition of Rs.8,50,000/- qua disallowance of
provision for Standard Assets. The concluding part of the order is reproduced
herein below.
“8. We have heard the rival parties and have gone through the material on record. We find that the assessee had created a provision of Rs.50,00,000/- which included a sum of Rs.13,25,000/- as provisions for bad and doubtful debts and the balance amount of Rs.36,75,000/- was provision against standard assets and the entire amount was claimed as deduction under section 36(1)(viia) of the Act. The Assessing Officer was of the opinion that the provisions made by the assessee against standard assets was a contingent liability and which was not allowable as business expenditure. The
5 ITA No.543(Asr)/2017 (A.Y.2014-15) DCIT v. Kapurthala Central Co-op, Bank, Ltd. Kapurthala
ld. CIT(A), however, allowed relief to the assessee by holding that the claim of the assessee fall into the main provisions of section 36(1)(viia). To resolve the dispute it is important to visit the provisions of section 36(1)(viia) of the Act and which for the sake of convenience are reproduced below. “36(1)(viia) In respect of any provision for bad and doubtful debts made by (a)a scheduled bank [not being a bank incorporated by or under the laws of a country outside India] or a non-scheduled bank or a co-operative bank outside India] or a primary co-operative agricultural and rural development bank, an amount not exceeding seven and one-half percent of the total income (computed before making any deduction under this clause and Chapter VI-A) and an amount not exceeding ten percent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner. Provided that a scheduled bank or a non-scheduled bank referred to in this sub-clause shall, at its option, be allowed in any of the relevant assessment years deduction in respect of any provision made by it for any assets classified by the Reserve Bank of India as doubtful assets or loss assets in accordance with the guidelines issued by it in this behalf, for an amount not exceeding five percent of the amount of such assets shown in the books of account of the bank on the last day of the previous year: Provided further that for the relevant assessment years commencing on or after the 1st day of April,2003 and ending before the 1st day of April, 2005, the provisions of the first proviso shall have effect as if for the words “five percent”, the words “ten percent” had been substituted: Provided also that a scheduled bank or a non-scheduled bank referred to in this sub-clause shall, at its option, be allowed a further deduction in excess of the limits specified in the foregoing provisions, for an amount not exceeding the income derived from redemption of securities in accordance with a scheme framed by the Central Government: Provided also that no deduction shall be allowed under the third proviso unless such income has been disclosed in the return of income under the head “Profits and gains business or profession.” From the above provisions it can be seen that deduction u/s 36(1)(viia) of the Act is allowed in respect of provisions for bad and doubtful debts This section does not differentiate between provision on bad assets and provision on standard assets. This deduction exclusively allows deduction in respect of provision for bad and doubtful debts to the extent mentioned in the various clauses of sub-section(1) of section 36 of the Act. The deduction under section 36(1)(viia) of the Act is allowed only in respect of certain specific categories of assessee mentioned in the clause like banks, financial institutions, etc. who are in business of lending money. It is not allowed even to non-banking financial institutions since they are not
6 ITA No.543(Asr)/2017 (A.Y.2014-15) DCIT v. Kapurthala Central Co-op, Bank, Ltd. Kapurthala
included in this clause. It is seen that though section 36(1)(vii) states that deduction for provision is allowable in respect of provision for bad and doubtful debts, the computation of such deduction is made with reference to total income of the specified Banks based upon quantum of average advances. The deduction of the provisions is neither limited to the quantum of bad debts in the books nor is computed with reference to the quantum of standard assets. The deduction in this clause refers to allowable provisions of anticipated default on the loans and advances made in respect of total assets including standard assets and the claim of the assessee does not fall into the proviso to section 36(1)(viia) as the proviso deals with further deduction for provisions on bad and doubtful debts. The claim of the assessee is covered in the main provisions of section 36(1)(viia) of the Act. The learned CIT(A) has passed a very exhaustive and speaking order and we do not find any infirmity in the same. 9. In view of the above, the appeal filed by Revenue is dismissed.” As the issue under hand, is squarely covered by the judgment
rendered by the Co-ordinate Bench at Amritsar (Jalandhar Camp) in the case
of DCIT v. Punjab Gramin Bank, Kapurthala (supra), therefore, we do not
have any hesitation to affirm the order passed by the ld. CIT(A) qua
subjected issue, specifically in view of the fact that the Revenue Department
has failed to bring on record any contrary material to the judgment referred
and relied upon by the ld. CIT(A) while deleting the addition.
In the result, the appeal filed by the Revenue Department is dismissed. Order pronounced in the open Court on 16.08.2018.
Sd/- Sd/- (SANJAY ARORA) (N.K.CHOUDHRY) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 16.08.2018 /PK/ Ps.
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Copy of the order forwarded to: (1) M/s. The Kapurthala Central Co-op, Bank Ltd., Kanjli Road, Model Town, Kapurthala (2) The DCIT, Circle-IV, Jalandhar (3) The CIT(A)-2, Jalandhar (4) The CIT concerned (5) The SR DR, I.T.A.T., Amritsar