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Income Tax Appellate Tribunal, DELHI BENCH ‘G’, NEW DELHI
Before: SH. N. K. BILLAIYA & SH. C.N. PRASAD
Cross Objection No.111/Del/2017 are appeal and the cross objection by the revenue and the assessee preferred against the order of the CIT(A), Rohtak dated 27.12.2016 pertaining to A.Y. 2013-14.
The grievance of the revenue read as under :- “ia) On the facts and in the circumstances of the case; the Ld.CIT(Appeals) has erred in deleting the addition made by the AO at Rs.1,65,72,820/- on account of fresh provision for NPA out of realization of the preceding years' NPA amounting to Rs.2,21,15,886/-; without appreciating the fact that deductioin in respect of such provisions has already been claimed & allowed in the relevant years and, therefore, such realization forms part of the current year's income as such; as against partly credited to the P&L account at Rs.55,43,066/-. ib) On the facts and in the circumstances of the case; the Ld.CIT(Appeals) has erred in deleting the addition made by the AO at Rs.1,65,72,820/ - for making fresh provision of NPA out of the current year's income; without appreciating the fact that the assessee has declared loss and that none of the branches of the assessee are 'rural branches' within the meaning of Explanation (l)(ia) to Section 36 of the Act being population of none of the stations where such branches of the assessee-bank are situated is below 10,000 as per the census published before the 1st day of the previous year.
ii) On the facts and in the circumstances of the case; the Ld.CIT(Appeals) has erred in deleting the addition made by the AO at Rs.57,13,820/- without appreciating the fact that the assessee has regularly been following mercantile system of accounting and thus the interest accrued during the year, though not realized, is exigible to tax in accordance with the method of accounting regularly employed by the assessee. iii) The appellant carves leave to add, amend or modify the grounds of appeal subsequently, before the appeal is disposed of.”
Briefly stated the facts of the case are that the assessee is a primary cooperative Agricultural and rural Development Bank Ltd., to promote economic interest of its members particularly by providing long term loans to its members for agricultural activities and for a rural development. The main source of funds is the head office of the assessee HSARDB, Chandigarh.
The return for the year under consideration was electronically filed on 05.11.2013 declaring loss of Rs.5,27,16,858/-. The return was selected for scrutiny assessment under CASS and accordingly statutory notices were issued and served upon the assessee.
During the course of the scrutiny assessment proceedings the AO noticed that the assessee has made provision for NPA of Rs.1,65,72,820/-. The assessee was asked to justify the claim and also show cause why the aforesaid provision should not be disallowed.
In its reply the assessee submitted that though the provision of Rs.1,65,72,820/- was made but has reversed Rs.2,21,15,886/-. However, it was admitted Rs.2,21,15,886/- pertain to earlier years. The assessee was asked to give year wise bifurcation of the same and also was also asked the section under which the assessee can be allowed to make provision of NPA. On receiving no plausible reply the AO made the addition of Rs.1,65,72,820/-.
Proceeding further the AO noticed that the assessee had made provision on account of suspense interest at Rs.5,91,95,669/-. Assessee was asked to explain this provision to explain as to why the same should not be disallowed.
Assessee filed a detailed reply which is extracted in the body of the assessment order but was not found tenable and the AO concluded the assessment proceedings by making the impugned disallowance of Rs.1,65,72,820/-and Rs.5713820/-.
Assessee challenged the assessment before the CIT(A) and filed a detailed submission after considering the facts and the submissions the CIT(A) held as under :- “Regarding disallowance of Rs. 1,65,72,820/- on account of NPA Provision.
The assessee has not made any provision for NPA during the year under consideration. The opening balance of NPA A/c as on 01.04.2012 was Rs. 10,97,67,934/- whereas the closing balance of the same as on 31.03.2013 was Rs. 10,42,24,868/-. It is very much clear that the balance of NPA A/c has decreased at the end rather than increasing. It is a general practice followed by the appellant that being a co-operative bank it follows the. rules and guidelines issued by the NABARD. One such rule is making a provision for doubtful assets winch have been issued by NABARD vide circular No NB.Dos.LDB/1/97-98 dated 19/06/1997 (Circular enclosed Pg 2-7). This contention of the assessee has been upheld by CIT (Appeals) Rohtak vide its order dated 29/11/2016 for the A.Y. 2012-13. (Copy of order is enclosed herewith) (Pg 18-23).
But the point worth noting here, in the A.Y. 2013-14, is that the assessee did not make any provision in this year because there was no doubtful asset as per the criteria given the circular issued by the NABARD. In fact the provision made in the earlier years was more than what was required so the assessee reversed the provision and credited the P/L A/c by Rs.55,43,066/-. The copy of NPA A/c is enclosed herewith for your kind consideration which is self explanatory. (Pg No 1)
The ledger summary is as follows Particulars Amount (In Rs.) Opening Balance of NPA Provision(l) 10,97,67,934.00 Add: Provision made during the year (2) 1,65,72,820.00 Less: Provision reversed during the year (3) 2,21,15,886.00 55,43,066.00 Net amount credited to P/L A/c (4)=(3)-(2) 10,42,24,868.00 Closing balance as on 31.03.2013. (5)=(1)- (4)
The AO only considered the credited amount of the ledger and ignored the debited amount, despite the fact that the debit amount was more than the credit amount thereby decreasing the closing balance of provision A/c and increasing the returned income of the assessee by Rs. 55,43,066/- .
As is clearly evident that the assessee has not created any provision during A.Y. 2013-14, there should not be any addition on this account. A perusal of the facts of the case reveal the classification for NPA is usually done as per NABARD guidelines. It is seen that no provision has been made by the appellant for this year as there was no doubtful asset. In the circumstances, I delete the said addition. This ground of appeal is allowed.”
Before us the DR strongly supported the findings of the AO.
Per contra the Counsel for the assessee drew our attention to the decision of this Tribunal in for A.Y. 2006-07 and submitted that the impugned quarrel has been decided by the coordinate Bench in favour of the assessee and against the revenue.
We have carefully considered the orders of the authorities below. The coordinate Bench in for A.Y.2006-07 was seized with the following grounds of appeal :-
"On the facts of and in the circumstances of the case, 1. learned CIT(A) has erred in allowing interest on sticky loans (NPA) transferred to suspense account and not accounted for in P&L account or in its total income.
On the facts and in the circumstances of the case, learned 2. CIT(A) has erred in not appreciating the fact that the ratio of decision of the Hon'ble Supreme Court in the case of State Bank of Travancore Vs. CIT (1986) 158 ITR 102 (Supreme Court) is applicable to the case of the assessee and facts of the case of Keshav Ji Ravji & Co. Vs. CIT (1990) 183 ITR 1 (Supreme Court) relied upon by the learned CIT(A) are distinguishable.
The appellant craves leave to add, or amend the grounds 3. before the appeal is heard and disposed off."
And the Coordinate Bench inter alia, held as under :- 6.2 The Id. DR appearing before us did not even whisper as to whether or not the said circular dated 9.IO.1984 issued by the CBDT has been withdrawn nor stated as to why decision in UCO Bank(supra) is not applicable in this case. In view of the aforesaid decision in the case of UCO Bank(supra),it is apparent that interest on sticky loans and advances need not be taxed if they fall within the purview of the beneficent circulars issued by the Board. Here it may be pointed out that considering the difficulties faced by the banks and financial Institutions arising out of the Supreme Court's decision in the case of State Bank of Travancore(supra), section 43D was brought in the statute book to override all other provisions of the Act so that in the case of public financial institutions or a scheduled bank or a state financial corporation or a state industrial investment corporation, the income by way of interest in relation to such categories of bad and doubtful debts as may be prescribed by the Reserve Bank of India in relation 6 ITA no.4312/Del./2011 to such debts, may be taxed in the previous year in which it is credited to profit and loss account or in which it is actually received, whichever is earlier. The said provision is also in accord with the Accounting Standard-9 (Revenue Recognition) issued by the Institute of Chartered Accountants of India. The banks and FIs account for interest on standard assets on accrual basis, while interest on non- performing assets is recorded on realisation. Thus, they follow hybrid system of accounting as per RBI's prudential norms, which is definitely contrary to the provision of section 145 of the Act, which deals with method of accounting for computation of business income and income from other sources. Section 145 permits assessee to follow either cash system or mercantile system of accounting with effect from 1.4.1997.
In the light of the findings of the coordinate Bench (supra) we do not find any error or infirmity in the findings of the CIT(A) appeal filed by the revenue is dismissed.
Since cross objection of the assessee is only in support of the order of the CIT(A), therefore, needs no separate adjudication.
Order pronounced in the open court on 19.04.2023.