THE PR. COMMISSIONER OF INCOME-TAX vs. M/S. DAVANGERE DISTRICT CENTRAL CO-OP BANK LTD.,

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 4TH 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. 265/2018 BETWEEN 1. THE PR. COMMISSIONER OF INCOME-TAX CIT(A), "2ND FLOOR, SHREE TOWERS", NO.565/A, A1 OPPOSITE TO DRR HOSTEL HADADI ROAD DAVANAGERE-577 004 2. THE INCOME-TAX OFFICER WARD -1 "2ND FLOOR, SHREE TOWERS", NO.565/A, A1 OPPOSITE TO DRR HOSTEL HADADI ROAD DAVANAGERE-577 004 ...APPELLANTS (BY SRI ARAVIND K V, ADVOCATE) AND M/S. DAVANGERE DISTRICT CENTRAL CO-OP BANK LTD., #311, 'A' BLOCK, DEVARAJA URS LAYOUT

2 DAVANGERE-577 006 PAN: AAATD 6617N

…RESPONDENT (BY SRI A.SHANKAR SR. ADVOCATE FOR SRI M.LAVA, ADVOCATE) - - - THIS I.T.A. IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 03.11.2017 PASSED IN ITA NO.1093/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 ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN ITA NO. 1093/BANG/2014 DATED 03.11.2017 AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE INCOME TAX OFFICER, WARD- 1, DAVANAGERE AND ETC. THIS I.T.A COMING ON FOR HEARING THIS DAY, SATISH CHANDRA SHARMA J., DELIVERED THE FOLLOWING: JUDGMENT The present appeal is by the Revenue, arising against the Order dated 3rd November, 2017 passed in ITA No.1093/Bang/2014 by the the Appellate Commissioner confirming the order passed by the Income Tax Officer, Ward-1, Davanagere. 2. The statement of facts as stated by the appellants in the Memorandum of Income Tax Appeal reflects that the assessee claims to be involved in the business of banking.

3 The assessment order under Section 143(3) of the IT Act came to be passed whereby the Assessing Authority made several disallowances. The disallowances were mainly in respect of Provisions for NPA's, RO & SAO's cost, accrued interest on NPA's, addition on account of Bank Reconciliation Provisions. Assessee preferred an appeal before the CIT(A). The CIT(A) partly allowed the appeal. As such Revenue and Assessee both preferred the appeal before the Tribunal. The Tribunal has partly allowed both the appeals' preferred by the assessee as well as Revenue's. The Tribunal has rendered common order for both cases. The Tribunal has allowed claim of assessee for debiting Rs.3,00,00,000 for AY.2010-11 as provisions for NPA's and claiming that such a provision was mandated as per Prudential Norms of RBI. The Tribunal has deleted the additions made on account of accrued interest on NPA by relying its earlier decision in case of assessee itself which has not reached finality. The revenue has preferred the present appeal before this Hon'ble Court against order dated 03.11.2017 passed by Tribunal.

4 3. This Court has framed the following substantial questions of law: "(1) 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 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)"? (2) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in deleting the addition made on account of accrued interest on NPA, loans and advances by relying on its earlier decision passed in case of assessee"?" 4. The learned counsel appearing for the parties have drawn the attention of this court towards the judgment delivered in ITA No.137/2015 dated 13.11.2020. Paras 4 to 9 of the said judgment reads as under:- "4. When the matter was taken up today, learned counsel for the assessee submitted that first substantial question of law has already been answered by a bench of this court vide judgment

5 dated 30.06.2014 passed in I.T.A.No.471/2013 (Commissioner of Income Tax vs. The Urban Co- operative Bank Ltd.,) and Special Leave Petition against the aforesaid order has been dismissed by Supreme Court vide order dated 12.01.2015 keeping the question of law open. The aforesaid aspect of the matter could not be disputed by the learned counsel for the revenue. For the reasons assigned in the judgment dated 30.06.2014 passed by this court in I.T.A.No.471/2013, the first substantial question of law is answered against the revenue and in favour of the assessee. 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

6 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

7 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

8 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.

9 In view of preceding analysis, the second substantial question of law is answered against the revenue and in favour of the assessee. In the result, we do not find any merit in this appeal, the same fails and is hereby dismissed." 5. The question of law framed by this Court has already been answered by this court vide judgment dated 13.11.2020 as reproduced above. The only difference is that this appeal is for the assessment year 2010-11. 6. In view of the judgment delivered by this court in identical facts and circumstances of the case, in ITA No.137/2015 dated 13.11.2020, the substantial questions of law are answered against the revenue and in favour of the assessee, this Appeal is dismissed. Ordered accordingly. Sd/-

JUDGE Sd/- JUDGE PL*