THE PANIPAT URBAN CO-OPERATIVE BANK LTD.,NEW DELHI vs. ACIT, CIRCLE, PANIPAT

That in any case and in any view of the matter, order passed by Ld. CIT(A) in the non-speaking manner and pre- conceived mind and just placing reliance on the assessment

During the course of assessment proceedings and on perusing the Balance Sheet, AO noticed that assessee had shown “Interest Recoverable Loan” amounting to Rs.20,59,524/-. Assessee was asked to provide details and also explain about the applicability of Section 43D of the Income Tax Act. Assessee furnished the details and inter alia submitted that Rs.20,59,524/- represented interest on NPA accounts and since the same has not been realized it was not offered as income. The submissions of the assessee was not found acceptable to AO. AO was of the view that since assessee was following mercantile system of accounting, interest on NPAs should have been included in the Profit and Loss account as soon as and when it accrued. He was further of the view that NPA interest exemption was provided to Scheduled Banks and other financing institutions as mentioned in Section 43D of the Act and Section 43D of the Act was not applicable to the assessee. He thus held the amount of Rs.20,59,524/- to be the income of the assessee and made its addition. Aggrieved by the order of AO, assessee carried the matter before CIT(A) who upheld the order of AO. Aggrieved by the order of CIT(A), assessee is now in appeal before us.

Before us, Learned AR submitted that assessee being a Co- operative Bank was bound by Reserve Bank of India Guidelines. Learned AR further submitted that following the guidelines and mandate issued by Reserve Bank of India, assessee cannot recognize income from non performing assets on accrual basis and could book such income only when it was actually received. She further submitted that CIT(A) on similar facts while deciding identical issue in assessee’s own case for A.Y. 2015-16 by relying on the decision of Ahmedabad Tribunal in the case of DCIT vs. Saurashtra Co-op. Bank Ltd. in order dated 31.01.2018 had deleted the addition. She pointed to the copy of the order of CIT(A) for A.Y. 2015-16 dated 15.01.2019 placed in the paper book. Learned AR further submitted that the aforesaid order of CIT(A) passed for A.Y. 2015-16 has been accepted by Revenue as no appeal has been preferred according to her knowledge. She also relied on the decision of Ahmedabad Tribunal in the case of DCIT vs. Saurashtra Co-op. Bank Ltd. (supra). She therefore submitted that addition made by AO and confirmed by CIT(A) be deleted.

Learned DR on the other hand supported the order of lower authorities and further submitted that each assessment year is a separate assessment year and therefore the decision followed in one year may not be strictly applicable to the facts of the other year. He further submitted that the principal of rej-judicata is not applicable to income tax matters.

We have heard the rival submissions and perused the material available on record. The issue in the present ground is with respect to the taxing of interest on non-performing assets as income of the assessee. It is an undisputed fact that assessee is a Co-operative Bank and is governed by the guidelines and directions issued by Reserve Bank of India. Since it is governed by the guidelines issued by Reserve Bank of India therefore as per the prudential norms for Income recognition, Income from non- performing assets NPAs are not to be recognized on accrual basis and the interest on NPA accounts is to be booked as income only when it is actually received. We find that Hon’ble Gujarat High Court in the case of Principal Commissioner of Income-tax vs. Shri Mahila Sewa Sahakari Bank Ltd. reported in [2017] 395 ITR 324 (Guj) has held that interest on non-performing assets cannot be recognized on accrual basis when assessee is bound by Reserve Bank of India guidelines. Similar view has also been taken by Hon’ble Bombay High Court in the case of CIT vs. Deogiri Nagrik Sahakari Bank Ltd. reported in (2015) 379 ITR 24 (Bombay). We further find that on identical facts in assessee’s own case, CIT(A) while deciding identical issue for A.Y. 2015-16, by following the decision of Ahmedabad Tribunal in the case of Saurashtra Co-op. Bank Ltd. (supra), has held that interest on NPA cannot be taxed on accrual basis. Before us, Revenue has not placed on record any contrary binding decision in its support nor has pointed to any distinguishing feature in the facts of the case in the year under consideration and that of A.Y. 2015-16.

As far as submission of Learned DR that principle of res judicata does not apply to tax matters and each assessment year is a separate assessment is concerned, we have no quarrel with the aforesaid proposition but at the same time it is a settled position of law that consistency and certainty of law would require the State to take uniform position and not to change its stand in the absence of change of facts / or of the law. For the aforesaid proposition, reference can be made to the decision rendered by Hon’ble Bombay High Court in the case of CIT vs. Forest Development Corporation of Maharashtra Ltd. reported in (2017) 84 taxmann.com 294 (Bombay). In the present case, Revenue has not pointed any change in the facts or in law. In such a situation, we are of the view that AO was not justified in making addition of accrued interest on NPA account.

In the result, appeal of the assessee is partly allowed.