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Income Tax Appellate Tribunal, DELHI BENCH: ‘G’ NEW DELHI
PER SUCHITRA KAMBLE, JM
This appeal is filed by the assessee against the order dated 16/05/2016 passed by CIT(A)- Rohtak.
The grounds of appeal are as under:-
“CIT(A) has erred in allowing the appeal of the assessee as the assessee itself admitted that he had accepted some deposits from the non members which is in contraventions of section 80P(2)(a)(i) of the IT.
CIT(A) has erred in deleting the addition of Rs. 99,84,841/- made by the AO on account of interest on NPA as the assessee follows mercantile system but for realizing the interest income that become due on the NPA accounts it follows cash system which is not permissible after 1/4/1997. The assessee
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bank have not accounted for interest income on NPA accounts without writing off the accounts. 3. The decision of Supreme court in-the case of UCO bank as relied by the assessee and ITAT was delivered prior to the amendment of section 43 D with effect from 01.04.2000 and the assessee being co-operative bank is not covered by the provisions applicable to the schedule banks. 4. The assessee’s contention that interest due was not debited in the account of respective borrowers on treating the accounts as per NPA after identifying the advances of bank as NPA as per RBI guidelines is not acceptable as the Apex court held in M/S Southern Technology Ltd. Vs JCIT that “ We need to emphasize that the RBI Guidelines has nothing to do with the accounting treatment or taxability of Income tax Act, the two i.e. I.T. Act and RBI Guidelines operate in different fields………….”
The assessee i.e. “The Rewari Distt Primary Coop. Agriculture & Rural Development Bank Ltd.” (PARDB) is a Cooperative Bank, which is registered under the Cooperative Society Act and controlled by the Haryana Govt. The assessee was engaged only to carry the Banking Activities like borrowing, raising or taking up of money from member & non-members and lending or advancing of money to its members ever since from the date of its incorporation. During the period under consideration i.e. A.Y. 2012-13 the assessee has followed the same policy. The assessee filed its return of income for A.Y.2012-13 on 01.10.2012 declaring total loss of Rs. 1,63,54,253.00 after claiming deduction u/s 80P(2)(a)(i) of the Income Tax Act, 1961. The only source of Income of the assessee was from carrying on the business of banking or providing credit facilities to its members which is deductible u/s 80P(2)(a)(i) of the Income Tax Act, 1961. The assessee was called upon by the DCIT, Rewari Circle through a notice u/s. 143(2) along with a questionnaire related to various items. The assessee filed written reply and produced books of accounts & accounting records & appeared personally before the Assessing Officer. The Assessing Officer observed that during the previous year, the assessee bank was claiming exemption u/s 80P(2)(a)(i) and was also getting the deposit from non members. The assessee was asked to give bifurcation of the deposits from
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members and non members. Vide order sheet entry dt 16.01.2015, the assessee was asked to justify its claim for deduction. Vide reply dt 20.02.2015, the assessee stated that it was not possible to bifurcate deposits from members and non members. Further, it was only accepting deposits from non members but the assessee was not deriving income from any non member. Also the Assessee submitted before the Assessing Officer that the same issue is adjudicated in his favour by the ITAT in Assessment Year 2009-10. The Assessing Officer held that in the present case the assessee itself admitted that they are receiving payments from non members also thus assessee loses its eligibility to claim deduction u/s 80P(2)(a)(i) of the Income Tax Act, 1961. Thus, the Assessing Officer disallowed the claim of deduction u/s 80P(2)(a)(i) of the Act. The Assessing Officer further made an addition of Rs.99,84,841/- in respect of accrued interest on NPA.
Being aggrieved by the assessment order, the assessee filed before the CIT(A). The CIT(A) allowed the appeal of the assessee.
The Ld. DR submitted that the assessee wrongly claimed exemption u/s 80P(20(a)(i) of the Act and the Assessing Officer rightly disallowed the claim u/s 80P. The CIT(A) was not right in allowing the appeal of the assessee. 6. The Ld. AR submitted that no credit facility was provided to any non members and the assessee exclusively deals with members of the assessee. The assessee submitted that as per the section 80P(2)(a)(i) of the Act the words “Carrying on the business of banking or providing credit facilities to its members,” the word business of banking covers everything except to covers credit facility provide to member or non member and accordingly acceptance of despites from non members, if any is the part of banking activity. Since assessee is providing credit facilities to its members only and is very well eligible for claiming deduction section 80P(2)(a)(i) of the Act. Since bank is a banking institution and to keep the record of defaulter borrowers to recover accrued interest on NPA accounts which was accumulated balance of previous
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years shown in balance sheet of the bank. Such interest was not earned by the bank since the borrower account was defined as “NPA” account and interest on such account can’t be accounted for as income. Since it is the normal practice in the banking business these expenditures should be treated as allowable. All these facts were explained in detailed to the Assessing Officer during the course of hearing. The Ld. AR further submitted that rejection of deduction claimed under section 80P(2)(a)(i) by the Assessing Officer is simply on difference of opinion and without any supporting and hence, CIT (A) rightly deleted the addition by relying upon the co-ordinate Bench decision in assessee’s own case being ITA NO. 2362 & 2363/Del/2012 dated 31/7/2012). The assessee had duly claimed the exemption u/s 80P of the Income Tax Act, 1961 after fulfilling all the necessary requirement of Section 80P(2)(a)(i) of the Act. For interest accrued on NPA, the Ld. AR relied upon the the coordinate bench decision in case of ACIT vs. The Rohtak Central Cooperative bank Ltd. being ITA No. 2839/DEL/2011 . The Ld. AR relied upon the order of the CIT(A).
We have heard both the parties and perused the material available on record. The CIT(A) held as under:-
“4. Ld. Assessing Officer has made the additions on mere suspicion and he has failed to appreciate the facts and explanation on records kept by the appellant & made all addition on his assumption basis only.
We like to mention here that complete books of account with supporting documents have duly produced before Ld. AO. Ld. AO duly goes through the same before completing the scrutiny proceeding without pointing any adverse material on record.
He made both the additions mere suspicion and he has failed to appreciate the facts and explanation on records since it was very well explained to Ld. AO that PARDB is fulfilling all the necessary requirement to claim deduction U/s 80P(2)(a)(i) and also that accrued Interest on NPA shown in balance sheet is accumulated balance of previous years and also such income was not earned by the bank since the borrower account was defined as “NPA” account and interest on such account can’t be accounted for as income.
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In view of the both the above citation we hereby humbly request you to delete both the additions made by Ld. AO.
Since, there is no concealment of income at all as per ground No. l, 2 & 3, there cannot penalty also u/s. 271(l)(c) & the penalty proceeding needs to be deleted.
The facts of the case are squarely covered by the Hon’ble ITAT, Delhi in its order in ITA NO. 2362 & 2363/Del/2012 dated 31/7/2012 in the appellant’s case for Assessment Year 2009-10. Therefore, I delete the said addition. The grounds of appeal are allowed.”
As noted by the CIT(A) in the order, in earlier A.Y.2009-10, the Tribunal decide this issue in favour of the assessee (being ITA NO. 2362 & 2363/Del/2012 dated 31/7/2012). The Tribunal held as under: “6. A perusal of the above provisions indicates that in the gross total income of a co-operative society, if any, income referred to in sub-section (2) is included then there shall be a deduction of such income if other conditions are fulfilled by the assessee society. The case of the assessee falls within the category (i) and (iv) i.e. assessee society is carrying on the business of banking and providing credit facilities to its members, to purchase agricultural implements seeds etc. To this extent, there is no dispute on facts. The case of the Assessing Officer is that in order to fulfill these objects, assessee gets the money in the shape of deposits from other co-operative banks who are not its members, therefore, it is not entitled for exemption. In assessment year 2008- 09, the ITAT has considered this aspect and observed that deposits from non- members do not generate any income to the assessee. Assessing Officer in the present assessment year also not pointed out how income would generate to the assessee by taking deposits from non-members. The direct source of income is ultimately from the credit facility provided to its members or from sale of seeds agricultural implements etc. contemplated in section 80P(2)(a)(iv). The calculation made by the Assessing Officer is on hypothesis only. He assumes that for example hundred rupees are taken as a deposit from non-member, then hundred would be given to its members as a credit facility which would generate interest income from the members, namely, ten rupees. In this ten rupees, the element of income on the contribution made by the depositor is involved. To our mind, the net income generated to the assessee is only from its members. On the deposits, it will pay interest which would be its expenses and would be set off against the total income
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generated from the credit facility. It has not income on the deposits from the non-members rather it must have paid interest on such deposits. This issue has elaborately been discussed by the ITAT in assessment year 2008-09 in the case of Palhawas Primary Agriculture Co-op Society. Respectfully following the order of the ITAT, we do not find any error in the impugned order of the Learned CIT(Appeals).
In result, both the appeals are dismissed.”
Thus, Ground No. 1 of the assessee’s appeal herein is squarely covered by the decision of the Tribunal for A.Y. 2009-10 in Assessee’s own case. Therefore, Ground No. 1 is dismissed.
As regarding to Ground No. 2 to 4 of the assessee’s appeal, the accrued Interest on NPA shown in balance sheet is accumulated balance of previous years and also such income was not earned by the bank since the borrower account was defined as “NPA” account and interest on such account cannot be accounted for as income. The Tribunal in case of ACIT vs. The Rohtak Central Cooperative bank Ltd. being ITA No. 2839/DEL/2011 held as under:-
“3.4 We have heard rival submissions and perused the material on record. The issue in question is covered in favour of the assessee by the order of the tribunal in the case of ACIT vs. The Jhajjar Central Coop. Bank (supra). The relevant finding of the Tribunal reads as follows:
(Para 11)
“Considering the above submission of the assessee which is well supported by RBI/NABARD Circular dated 17.08.2002 vide para no. 3.1 clearly states that the policy of income recognition should be based on record of recovery and therefore unrealized income should not be taken into profit and Loss account by State Co-op Bank 1 Central Co-op Banks and that the provisions of Section 43D of the Act are clear regarding the recognition of interest income on NPA. The Ld. CIT(A) in our view has thus rightly held that overdue interest not realized during the year and credited to suspense interest account cannot be taken to be the income of the assessee. Thus the Ld. CIT(A) has thus rightly deleted the addition in question. The same is upheld. There is no
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substance in the contention of the Ld. DR that the assessee was having no objection to this addition, since we find that it was an alternative submission of the assessee before the AO that “even if any addition is to be made of Rs.1,29,91,989/- then addition of Rs. 1,00,51,715/- is to be made on account of interest of earlier years credited (During the year) to P & L account”. Even otherwise the AO is supposed to make just assessment based on the provisions of Laws which cannot be ignored since is agreeable to the proposed wrong addition. The ground No. 3 is accordingly rejected.”
3.5 In view of the coordinate Bench order of the Tribunal in the case of CIT vs. The Jhajjar Central Coop. (supra); which is identical to the facts of the instant case we reject the Ground No. 1 raised by the Revenue. It is ordered accordingly.”
The facts of the present case are similar to the decision of the Tribunal in case of The Rohtak Central Cooperative bank Ltd. Thus, the issue is squarely covered by the Coordinate Bench decision. Therefore, Ground No. 2 to 4 are dismissed.
In result, appeal of the Revenue is dismissed. Order pronounced in the Open Court on 11th June, 2018. Sd/- Sd/- (PRASHANT MAHARISHI) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 11/06/2018 R. N* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT
ASSISTANT REGISTRAR ITAT NEW DELHI
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