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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI SUNIL KUMAR YADAV & SHRI JASON P. BOAZ
Date of hearing : 09.11.2017 Date of Pronouncement : 17.11.2017 O R D E R
Per Sunil Kumar Yadav, Judicial Member
This appeal is preferred by the assessee against the order of the CIT(Appeals) inter alia on the following grounds:-
“1. Because the Commissioner of Income Tax (Appeals) erred in law as well as on. facts while confirming the following disallowances made by the Assessing Officer. a) The interest received pertaining to pre-amendment of Section 80P of the Income Tax Act on account of Overdue NPA Accounts of old accounts. 2. Because, the learned CIT (Appeals) has erred is overlooking and summarily rejecting the detailed statement of facts submitted along with Memorandum of appeals with respect to confirming of the disallowance as stated in Para No.1.
3. Disallowance of expenditure - amounting to Rs. 1,61,72,468/-. The leaned CIT (Appeals) has not justified in failing to consider the submissions of the appeal and has disallowed the claim of Deduction which is very well available U/s 80P of the Income Tax Act and further has confirmed the disallowance of NPA Interest pertaining to pre 80P amendment, amounting to Rs. 1,61,72,468/-. It is further submitted that the learned CIT (Appeals) has failed to appreciate the fact that during the relevant AY the Bank has received the interest of Rs. 1,61,72,468/- on account of overdue NPA accounts during the Assessment Year 2011-12, which pertains to the interest receivable by the Bank up to the Financial Year Ending 31-03-2006 wherein the deduction U/s 80P was available to the Bank i.e., Pre-amendment of Section 80P of the Income tax Act 1961, was ought to be reduced in computing the total income of the bank. The said amount pertains to the interest received by the Bank on account of Overdue Accounts which were treated as NPA Accounts by the Bank as the said accounts have become NPA as per the RBI Guidelines. The said accounts have been treated by the Bank as NPA Accounts since from several years as the Bank has not at all recovered the interest and the Principal Amount - of these accounts and the same were shown as outstanding receivable amounts in our Financial Statements. Further all these accounts were become NPA as per the guidelines of RBI and "When the interest has not been actually received with respect to NPA accounts and when the amount of interest so taken to income in the corresponding previous year income should be reversed". This system has to be adopted as per the RBI Guidelines and when these amounts have become NPA, the appropriate interest were also reversed during the said previous years, the amount of interest receivable on these accounts were shown as receivable in the Financial Statement of our Bank and were duly reflected in the balance sheet as Interest Receivable account and Overdue Interest Reserve Account (Contra) in the Balance Sheet under Assets Side and the Liability side respectively and it can be seen that the interest were recognized in all the Financial Years wherein the Deduction
U/s 80P was available to the Bank. Hence this disallowance of the same is not called for and the claim needs to be allowed. 4. The assessee craves leave to add/alter any of the grounds of appeal before or at the time of hearing.”
During the course of hearing, the ld. Counsel for the assessee has contended that the issue is squarely covered by the order of the Tribunal in the case of CIT v. Shri Veerapulakeshi Co-operative Bank Ltd. In in which the Tribunal has set aside the matter to the file of the AO with a direction to readjudicate the issue afresh in the light of detailed information.
The ld. DR has simply placed reliance on the order of the CIT(Appeals).
We have carefully perused the order of the lower authorities and the order of the Tribunal referred to by the assessee and we find that in similar set of facts, the Tribunal has restored back the matter to the Assessing Officer for readjudication of the issue, after affording opportunity of being heard to the assessee. The relevant observations of the Tribunal are extracted hereunder for the sake of reference:-
“26. We have heard the rival submissions. The ld. counsel for the assessee submitted that the AO accepted the fact that interest income of Rs.1,65,96,821 was interest which accrued to the assessee during the period earlier to previous year relevant to A.Y. 2007-08 and was accounted by the assessee in the books of the previous year relevant to A.Y. 2007-08 on receipt basis. The only basis on which the AO brought such interest income to tax was that the interest income of Rs.1,65,96,821 was interest on sticky loans and therefore was accounted by the assessee only on receipt basis and therefore the said interest income accrued to the assessee only during the previous year relevant to A.Y. 2007-08. According to the ld. counsel for the assessee, the CIT(A) has therefore proceeded on a totally irrelevant consideration. It was his submission that the findings of the CIT(A) in para 13 of his order are incorrect and contrary to the findings of the AO. He submitted that there was no basis for the AO to consider that the interest income in question was interest on sticky loans. The other submissions made before the AO were reiterated.
The ld. DR relied on the order of the CIT(A).
We have given a very careful consideration to the rival submissions. At page 7 of the assessee’s paperbook, a copy of the particulars of interest on loans recovered during the previous year relevant to A.Y. 2007-08 but pertaining to the period before 31.3.2006 has been given. There is no basis for the AO to come to the conclusion that the interest income in question is interest on sticky loans. The AO has proceeded on the basis that since interest has to be accounted on receipt basis under the Karnataka Co-operative Societies Rules, 1960, the loans in question were sticky loans. In our view, such conclusions cannot be sustained. The claim made by the assessee in this regard about the nature of interest income and its time of accrual has to be accepted. The conclusions of the CIT(A) in para 13 of his order, in our view, is again based on surmises and cannot be sustained. Neither the AO nor the CIT(A) called upon the Assessee to explain as to whether the interest income in question is interest on sticky loans which was accounted for as income only on receipt basis. As we have already observed, accounting entries in the books of the assessee regarding interest income assumed significance only after A.Y. 2006-07 when interest income became taxable in view of insertion of section 80P(4) to the Act w.e.f. 1.4.2007. Therefore, there is no merit in the observations of the CIT(A) regarding lack of entries in the books of account of the assessee for A.Y. 2005- 06 and 2006-07. We are therefore of the view that it would it would just and proper to direct the Assessee to furnish evidence before the AO to show as to how the interest income in question is not interest on sticky loans which was accounted for as income only on receipt basis. For the reasons stated above, we set aside the order of the CIT(A) on this issue and remand the issue with regard to taxing the sum of Rs.1,65,96,812 to the AO for fresh consideration. Ground Nos.5 to 7 are thus allowed for statistical purpose.”
Since under similar set of facts, the Tribunal in the case of Shri Veerapulakeshi Co-operative Bank Ltd. (supra) has restored the matter to the AO for readjudication of the issue, we find no justification to take a contrary view in this appeal. Accordingly, we set aside the order of the CIT(Appeals) and restore the matter to the file of the Assessing Officer to readjudicate the issue afresh, after affording opportunity of being heard to the assessee.
In the result, the appeal by the assessee stands allowed for statistical purposes.
Pronounced in the open court on this 17th day of November, 2017.