Loading judgment…
No AI summary yet for this case.
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 5TH DAY OF FEBRUARY, 2021
PRESENT
THE HON’BLE MR. JUSTICE SATISH CHANDRA SHARMA
AND
THE HON’BLE MR. JUSTICE V. SRISHANANDA
I.T.A. NO. 264/2018 BETWEEN
THE PR. COMMISSIONER OF INCOME-TAX CIT(A), 2ND FLOOR, SHREE TOWERS NO.565/A, A1, OPPOSITE TO DRR HOSTEL HADADI ROAD, DAVANAGERE-577004
THE JOINT COMMISSIONER OF INCOME TAX CIRCLE-1 2ND FLOOR, SHREE TOWERS NO.565/A, A1, OPPOSITE TO DRR HOSTEL HADADI ROAD, DAVANAGERE-577004
…APPELLANTS
(BY SRI ARAVIND K V, ADVOCATE)
AND
M/S. DAVANGERE DISTRICT CENTRAL CO-OP BANK LTD., #311, 'A' BLOCK, DEVARAJA URS LAYOUT DAVANGERE-577 006 PAN: AAATD 6617N
…RESPONDENT
THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 03.11.2017 PASSED IN ITA NO.1147/BANG/2014, FOR THE ASSESSMENT YEAR 2010-2011 PRAYING TO (I) FORMULATE THE
SUBSTANTIAL QUESTIONS OF LAW (II) ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE INOCME TAX APPELLATE TRIBUNAL, BENGALURU IN ITA NO.1147/BANG/2014 DATED 03.11.2017 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE JOINT COMMISSIONER OF INCOME TAX, CIRCLE-1, DAVANAGERE.
THIS I.T.A. COMING ON FOR HEARING, THIS DAY, V. SRISHANANDA. J., DELIVERED THE FOLLOWING:
JUDGMENT
This appeal under Section 260A of the Income Tax Act, 1961 [hereinafter referred to as 'Act' for short] has been preferred by the revenue. The subject matter of the appeal pertains to the assessment year 2010-11. The appeal was admitted by a bench of this Court vide order dated 9.11.2018 with the following substantial question of law: "Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside findings of the assessing authority in respect of the provisions for NPA's debited to P & L Account for A.Y.2010-11 by following the decision of Apex Court in case of UCO Bank Ltd v/s CIT (reported in 237 ITR page 889)?
Facts leading to filing of this appeal briefly stated are that the assessee is a co-operative bank. The co-
operative Banks became taxable entity like the commercial banks from the Assessment Year 2007-08. The assessee therefore, filed the return of income for the Assessment Year 2010-11.
At the time of hearing, the learned counsel appearing for the assessee has relied on the judgment delivered by the co-ordinate bench of this court in ITA No.137/2015, where the subject matter of the appeal was for the Assessment Year 2007-08, wherein an identical substantial question of law in respect of the very same assessee was held against the revenue and in favour of the assessee. Therefore, in terms of the order passed in the said appeal, this appeal can be disposed of as the present appeal is between the same parties but for the assessment year 2010-11.
The learned counsel for the revenue did not dispute the order passed by the co-ordinate bench of this Court passed in ITA No.137/2015. The co-ordinate bench of this court in the said appeal in paragraphs 5 to 8 has held as under:
"5. With regard to the second substantial question of law, learned counsel for the revenue submitted that the assessee had claimed the benefit under Section 36(1)(viia) of the Act and the assessee has to first set off the bad debt written off against the provision made under Section 36(1)(viia) of the Act. It is further submitted that if actual write off is in excess of provision made under Section 36(1)(viia) of the Act, then as per proviso to Section 36(1)(vii), actual write off in excess of provision of Section 36(1)(viia) would alone be allowed under Section 36(1)(vii). It is also argued that allowing the provision under Section 36(1)(viia) of the Act and on actual write off under Section 36(1)(vii) of the Act would amount to double deduction and the same is in contravention of the law laid down by the Supreme Court in CATHOLIC SYRIAN BANK LTD. VS. CIT (SC) 343 ITR 270. It is further submitted that the principle laid down in the aforesaid decision has not been taken note of by the tribunal and therefore, the matter requires re consideration. It is also urged that reliance
placed on decision of this court in COMMISSIONER OF INCOME-TAX VS. CANFIN HOMES LTD., 347 ITR 382 is of no assistance to the assessee as in the aforesaid decision, the effect of Section 36(1)(viia) of the Act has not been considered. 6. On the other hand, learned counsel for the assessee submitted that tribunal was justified in holding that accounting interest income on non performing asset on cash basis by the assessee though it was following mercantile system of accounting was correct since, once a particular asset is shown to be a non performing asset then the assumption is that it is not yielding any revenue and therefore, the question of showing that revenue and paying tax would not arise. In support of aforesaid submissions, reliance has been placed on decisions in 'UCO BANK VS. CIT', 237 ITR 889 SC, 'CIT VS. CANFIN HOMES LTD.', 347 ITR 382 (KAR), CIT VS. THE URBAN CO-OPERATIVE BANK IN ITA NO.471/2013 (KAR), CIT VIS THE URBAN CO-OPERATIVE BANK IN SLP
NO.1066/2015 (SC) and 'UCO BANK VS. CIT', 360 ITR 567 (KOL). 7. We have considered the submissions made by learned counsel for the parties and have perused the record. In the course of assessment proceedings, it was noticed that assessee had debited Rs.1.5 Crores as provision for non performing asset but in the income computation sheet the same has not been added. The assessee was given an opportunity to explain why non performing asset provision has not added back to the total income, in the income computation sheet and again deduction 7.5% under Section 36(1)(viia) has not been claimed. The assessee thereupon submitted that a provision has been made as per the norms of the Reserve Bank of India and the details of non performing assets as well as provisions made were provided. The Commissioner of Income Tax (Appeals) held that deduction for provision for bad and doubtful debt is allowed under Section 36(1)(viia) of the Act in the light of the decision of the Supreme Court in UCO Bank
Ltd. supra. The tribunal in its order dated 10.10.2014 inter alia has held that though the assessee has used the nomenclature as provision for non performing assets but in pith and substance, the provision has been created for bad and doubtful debts and in doing so the assessee has followed the guidelines framed by Reserve Bank of India. The tribunal has therefore, affirmed the finding recorded by the Commissioner of Income Tax (Appeals). 8. This court in Canfin Homes Ltd. supra after taking note of Section 145 of the Act has held that once a particular asset is shown as non performing asset then the assumption that it is not yielding any revenue. When an asset is not yielding any revenue, the question of showing that revenue and paying tax would not arise. The contentions, which are sought to be raised by learned counsel for the revenue do not arise for consideration in the context of substantial question of law, which has been framed by this court. The concurrent findings have been recorded by the Commissioner of Income Tax
(Appeals) as well as tribunal in this regard, which cannot be termed as perverse." It is also urged that reliance placed on decision of this court in COMMISSIONER OF INCOME-TAX VS. CANFIN HOMES LTD., 347 ITR 382 is of no assistance to the assessee as in the aforesaid decision, the effect of Section 36(1)(viia) of the Act has not been considered.
On the other hand, the learned counsel for the assessee submitted that tribunal was justified in holding that accounting interest income on non performing asset on cash basis by the assessee though it was following mercantile system of accounting was correct since, once a particular asset is shown to be a non performing asset then the assumption is that it is not yielding any revenue and therefore, the question of showing that revenue and paying tax would not arise. In support of aforesaid submissions, reliance has been placed on decisions in 'UCO BANK VS. CIT', 237 ITR 889 SC, 'CIT VS. CANFIN HOMES LTD.', 347 ITR 382 (KAR), CIT VS. THE URBAN CO-OPERATIVE BANK IN ITA NO.471/2013 (KAR), CIT VS. THE URBAN CO-
OPERATIVE BANK IN SLP NO.1066/2015 (SC) and 'UCO BANK VS. CIT', 360 ITR 567 (KOL).
We have considered the submissions made by learned counsel for the parties and have perused the record. In the course of assessment proceedings, it was noticed that assessee had debited Rs.1.5 Crores as provision for non performing asset but in the income computation sheet the same has not been added. The assessee was given an opportunity to explain why non performing asset provision has not added back to the total income, in the income computation sheet and again deduction 7.5% under Section 36(1)(viia) has not been claimed. The assessee thereupon submitted that a provision has been made as per the norms of the Reserve Bank of India and the details of non performing assets as well as provisions made were provided. The Commissioner of Income Tax (Appeals) held that deduction for provision for bad and doubtful debt is allowed under Section 36(1)(viia) of the Act in the light of the decision of the Supreme Court in UCO Bank Ltd. supra. The tribunal in its order dated 10.10.2014 inter alia has held that
though the assessee has used the nomenclature as provision for non performing assets but in pith and substance, the provision has been created for bad and doubtful debts and in doing so the assessee has followed the guidelines framed by Reserve Bank of India. The tribunal has therefore, affirmed the finding recorded by the Commissioner of Income Tax (Appeals).
This court in Canfin Homes Ltd. supra after taking note of Section 145 of the Act has held that once a particular asset is shown as non performing asset then the assumption that it is not yielding any revenue. When an asset is not yielding any revenue, the question of showing that revenue and paying tax would not arise. The contentions, which are sought to be raised by learned counsel for the revenue do not arise for consideration in the context of substantial question of law, which has been framed by this court. The concurrent findings have been recorded by the Commissioner of Income Tax (Appeals) as well as tribunal in this regard, which cannot be termed as perverse.
We have given our anxious consideration to the facts involved in the present case and the order passed by the co-ordinate bench of this court in ITA No.137/2015. Since the issue involved in the present appeal is in respect of the year 2010-11, the judgment delivered in ITA No.137/2015 is applicable as mutatis and mutandis for this appeal also. Hence, the following order is passed:
Accordingly, the appeal is dismissed. The substantial question of law is answered against the revenue and in favour of the of the assessee.
Sd/-
JUDGE
Sd/- JUDGE
PL*