DCIT, CIRCLE-1(1), JALPAIGURI, JALPAIGURI vs. THE JALPAIGURI CENTRAL CO-OPERATIVE BANK LTD., JALPAIGURI

ORDER PER S.S.GODARA, JM

These two Revenue’s appeals for A.Y.2012-13 & 2013-14 arise from the ld. CIT(A)-Jalpaiguri’s impugned order dated 12.12.2016 passed in Appeal No.31 & 73/CIT(A)-JAL/Cir-1/15-16 reversing the AO’s action disallowing/adding the provision(s) for overdue interest sums amounting to Rs.1,69,27,607/- and Rs.5,76,56,515/- in respective assessment orders, involving proceedings u/s 143(3) of the Income Tax Act, 1961 (Act). Heard both the parties. Case file perused.

3.2.1. The Assessing Officer (AO) has stated the following :-

It is seen from the audited Profit & Loss Account that the assessee co-operative society has claimed Rs.1,69,27,607/- on account of Provision for Overdue Interest. It is to be mentioned that Provision for Overdue Interest is not an allowable expense as per the Income Tax Act, 1961. A letter was issued asking & 327/Kol/2017 The Jalpaiguri Central Co-operative Bank Ltd;. A.Y.2012-13 & 2013-14 2 the assessee to show cause why the amount should not be disallowed and added back to the total income of the assessee. In response to the show cause notice the Ld. A/R stated that Provisions for Overdue Interest is an allowable expense. Further the Ld. AIR has added that the provision for overdue interest is basically a provision for accrual income on Non-performing Asset and is created as per section 45Q of the RBI Act, 1949. The AIR has cited some case laws in support of his claim that interest on NPA asset does not accrue as income to an assessee-

(i) M/s Vasisth Chay Vyapar Ltd. [ITA 552(2005)]-Hon'ble High Court Delhi. (ii) CIT Vs Annaimalai Finance Ltd [(2005)275 ITR 45lMad)] (iii) CIT Vs Elgi Finance Ltd [293 ITR 357 (Mad)] 7 (iv) CIT Vs Shoorji Vallabhdas & Co. [46ITR 144 (SC)]; etc.

However, it was also observed from the Audited Report & Statement of Accounts vide Para No.11.8 wherein the Auditor has stated that - "Several loan accounts have been found to be overdue since inception. Bank should take necessary action for recovery of the loans The same were reported in last audit report but bank is yet to initiate any action. An inclusive list of such loans is as follows :-

& 327/Kol/2017 The Jalpaiguri Central Co-operative Bank Ltd;. A.Y.2012-13 & 2013-14 3

On the basis of the 'above list mentioned in the Audit Report it is seen that the total overdue interest amounts to RS.43,61,688.25 as against total loan (non- performing asset) of RS.49,56,187/-, it can be assumed that the bank has not taken necessary steps to recover the loans that are non-performing assets, due to which the bank is creating provision for overdue interest that reduces the income of the' assessee considerably.

Moreover, the above mentioned has actually not been incurred or spent. It is merely a provision. Such provision can not be debited to the profit & loss account of the assessee in such circumstances. He premise of the law is that loss or expenses not incurred cannot be allowed whatever be the treatment in the books of accounts of the assessee.

In view of the above, the total amount of Rs.1,69,27,607/- is hereby disallowed and added back to the total income of the assessee for the A. Y. 2012-13.

3.2.2 The A/R of the appellant has stated the following -

As regards to the addition of 'Provision for. Overdue Interest' amounting to Rs.1,69,27,609.27 to the declared. income is uncalled for in the sense that corresponding accrued interest [basically a Provision for Accrual Income] on Non Performing Asset as per Reserve Bank of India guidelines has been treated as an income in the computation by Ld. AO. Your appellant! submits that the corresponding Accrued Interest Income submerged in the Schedule NO.13 under the head of "Interest Received" be also directed to be reduced from the profit/loss computed by Ld. AO. Your appellant has to follow this Standard of Accounting as per the guidelines issued by Reserve Bank of India vide its Section 45Q of the RBI Act, 1949. The guidelines issued by RBI has an overriding power over the Accounting Norms prescribed u/s 145 of the Act and the same is also in consonance with Accounting Standard "9". In support of its contention your appellant would like to draw your attention to the judgement pronounced by Hon'ble High Court at Delhi in the case of M/s Vasisth Chay Vyaper Ltd. [ITA 552 (2005)J. In the said judgement it was pronounced that interest on NPA Asset does not accrue as income to an assessee. The contention of your appellant also draws support from the following judicial pronouncements of different Courts and Tribunals, like a) CIT v Annamalai Finance Ltd [(2005) 275 ITR 451 (Mad)]. b) CIT v Elgi Finance Ltd [293 ITR 357 (Mad)). c) CIT v KICM Investments (Cal) [310 ITR 4] wherein SLP was dismissed by Hon 'ble Supreme Court. d) CIT v Shoorji Vallabhdas & Co. [,46 ITR 144 (SC)] e) TCL Finance Ltd v ACIT [(2004) 91 ITD 573 (Hyd.). f) The Durga Co-op. Urban Bank Ltd v Department of Income Tax [Appeal 511 Vijag Tribunal vide order dated io" March, 2011].

& 327/Kol/2017 The Jalpaiguri Central Co-operative Bank Ltd;. A.Y.2012-13 & 2013-14 4 g) Nadia District Cent Co-op. Bank Ltd. v Department of Income Tax, in vide order dated 01/08/2014

From the above judicial pronouncements it will be clear that Provision for Overdue Interest should not be taxed as Income, though the same is credited in the Profit & Los Account of an assessee in order to present a Banking Accounts in compliance with the norms/guidelines issued by the Reserve Bank of India.

The same issue has already been presented before Ld. CIT (A), Jalpaiguri for the F. Ys 2007- 08, 2008-09, 2009 & 2010-11 and Ld. CIT(A), Jalpaiguri was pleased to consider it as allowable expenditure and omit disallowances made by Ld. AO. Hence, it is prayed to delete the addition Rs.1,69,27,609.2.7 made with the return of your appellant. 3.2.3 Findings of the CIT(A): I have perused the assessment order, the submission of the appellant and the case laws relied upon by the A/R of the appellant. It is seen that my predecessor has allowed relief to the appellant on the same issue in the earlier years. The issue is squarely covered by the decision of Hon'ble ITAT in the case of Nadia District Cent Co-op. Bank Ltd. v Department of Income Tax, in ITA 1851/KoI/2012. Following the same and also following the orders of earlier years the issue is decided in favour of the appellant. Therefore, this ground of appeal is allowed.”

3. It therefore emerges that the above sole issue has travelled to this tribunal in assessee’s case itself in preceding assessment years. Learned counsel files coordinate bench’s order in for A.Y.2008-09 to 2010-11 dated 11.11.2016 deciding the instant issue against the Revenue. There is no distinction on facts or law pointed out at Revenue’s behest. We therefore adopt judicial consistency to affirm the CIT(A)’s findings under challenge deleting the disallowance/addition of the impugned notional interest. Thus Revenue’s appeals are accordingly dismissed.