Sarangpur Co.Op.Bank Ltd.,, Ahmedabad vs Assessee

The Sarangpur Co-op. The Dy. Commissioner of Bank Ltd, Pritam Nagar's Income Tax, First Dhal, Ellisbridge, Vs Circle-11, Ahmedabad-380006 Ahmedabad PAN: AAAAT2465R (Respondent) (Appellant)

Assessee by: Shri S.N. Divetia, A.R. Revenue by: Smt. Sonia Kumar, Sr. D.R

Date of hearing : 18-06-2015 Date of pronouncement : 25-06-2015

आदेश /ORDER

PER : RAJPAL YADAV, JUDICIAL MEMBER:-

The assessee is in appeal before us against the order of Ld. Commissioner of Income Tax (Appeals) dated 2nd December, 2013 passed for Assessment Year 2010-11.

I.T.A No. 86/Ahd/2014 A.Y. 2010-11 Page No 2 The Sarangpur Co-op. Bank Ltd vs. DCIT

2. The grounds of appeal taken by the assessee are not in consonance with Rule 8 of ITAT Rules, they are descriptive and argumentative in nature.

3. The assessee has taken four grounds of appeal along with their sub- grounds whereas, in brief, its grievance revolves around single issue namely; ld. Commissioner of Income Tax (Appeals) has erred in confirming the addition of Rs. 1,41,76,000/- which was added by the Assessing Officer on the ground that assessee had accrued interest income on the alleged non-performing assets which ought to have been offed for tax by it.

4. The brief facts of the case are that assesee is a co-operative bank engaged in the business of banking. It has filed its return of income on 21st September, 2010 declaring total income at Rs. 79,69,230/-. The case of the assessee was selected for scrutiny assessment and a notice u/s. 143(2) was issued and served upon the assessee. On scrutiny of the accounts, it revealed to the Assessing Officer that assessee has shown an amount of Rs. 276.58 lacs as NPS as on 31st March, 2010. He called for details of accrued interest on the outstanding NPA. The assessee reiterated that interest ought to have been accrued is of Rs. 141.76 lacs. The assessee did not include this amount in total income on the ground that as per RBI guidelines which are also binding to all the cooperative and scheduled banks, the bank cannot credit the interest on NPA account on accrued basis and such interest can be credited only on receipt basis because recovery of the principal amount is doubtful. The assesse has filed written submission vide letter dated 23rd January, 2013 and alleged that it has compiled the details branch-wise representing the NPAs. The ld. Assessing Officer did not accept the contentions of the assessee on the I.T.A No. 86/Ahd/2014 A.Y. 2010-11 Page No 3 The Sarangpur Co-op. Bank Ltd vs. DCIT

ground that section 43D provides exemption from inclusion of the interest in relation with bad and doubtful debts in the total income of the assessee. The bad and doubtful debts are to be categorized as per RBI guidelines but this section is applicable only on scheduled banks. The Assessing Officer has annexed the list of schedule banks on which section 43D is applicable. The assessee is a non-scheduled bank and, therefore, according to the Assessing Officer, it cannot draw any benefit from section 43D. The ld. Assessing Officer has included the alleged interest income in the total income of the assessee by observing as under:-

"4.3 In view of the above, the assessee bank is very much required to charge the interest on the NPAs and offer the same for the taxation. On perusal of the details, it is seen that the assesse bank has an amount of Rs. 276.58 lacs as NPA, the interest worked out on which comes to Rs. 141.76 lacs. Accordingly, Rs. 1,41,76,000/-, being interest accrued on NPA for the period under consideration, is added to the total income of the assessee. The assessee has furnished inaccurate particulars for which penalty proceedings u/s. 271(1)(c) of the Income Tax Act are being initiated separately."

5. Appeal to the Commissioner of Income Tax (Appeals) did not bring any relief to the assessee.

6. According to the Commissioner of Income Tax (Appeals), section 43D is not applicable on unscheduled banks. The assessee had tried to demonstrate that it has categorized as NPS only on those defaulters against whom legal recovery proceedings were initiated. For buttressing this contention, assessee has compiled certain details and submitted before the Commissioner of Income Tax (Appeals). The ld. Commissioner of Income Tax (Appeals) has rejected this contention on the ground that no formal application has been filed by the assessee under rule 46A of the I.T.A No. 86/Ahd/2014 A.Y. 2010-11 Page No 4 The Sarangpur Co-op. Bank Ltd vs. DCIT

Income Tax Act Rules for permission to adduce additional evidence. The request of the assessee has to be examined under sub-rule 1 & 2 of Rule 46A. The assessee cannot rely upon these datas which were not submitted before the Assessing Officer. The ld. first appellate authority has accordingly confirmed the addition.

7. Before us, learned counsel for the assessee, at the very outset, submitted that issue in dispute is squarely covered in favour of the assessee by the decision of Hon'ble Karnataka High Court in the case of CIT Vs. The Urban Co-operative Bank rendered on 30-06-2014 in ITA No. 471 of 2013. He placed on record the copy of Hon'ble Karnataka High Court's decision at pages 84 to 88 of the paper book. Apart from this one decision, he has placed on record a large numbers of decisions and contended that since assesssee is being governed by the RBI guidelines, it has categorized defaulters as NPAs on the basis of evidence available with the assessee about the non-recovery of certain loans. Shri S.N. Divetia further contended that assessee has compiled all the NPA accounts which are placed in tabular form on pages nos. 20 to 25 of the paper book. These details would demonstrate that recovery of the principal amounts were in doubt, therefore, assessee has rightly categorized these accounts as NPA accounts.

8. The Ld. DR on the other hand submitted that in earlier years similar issue had come before the Tribunal and the Tribunal has set aside the issue to the file of Assessing Officer for re-adjudication. He drew our attention towards order of the Tribunal dated 21-06-2013 passed in ITA No. 529-530/Ahd/2013 for Assessment Years 2007-08 and 2009-10.

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9. We have duly considered rival contentions and gone through the record carefully. We find that Tribunal has considered an identical issue in Assessment Year 2007-08 and 2009-10. The observation of the Tribunal in this respect read as under:-

"6. Next is the question of the accrual of the interest on "NPA".

Although a scheduled bank is required to follow the prudential norms issued by the RBI from time to time, but simultaneously for taxation purpose, the tax payer is required to follow the provisions of the I.T. Act. In this regard, we may like to mention that the ITAT, Ahmedabad in the case of Karnavati Co-op. Bank Ltd. Vs. DCIT, 134 ITD 486 (Ahd) has opined that in a situation where a cooperative bank had followed mercantile system of accounting, but neither credited interest in the profit & loss account nor offered for taxation, the amount of interest of "NPA", in terms of CBDT Circular dated 6.10.1952 need not to be included in the assessee's taxable income, provided the ITO is satisfied that on such doubtful debts, the recovery of interest is practically improbable. In addition to this judgment, few other judgments have also been cited by the learned AR passed by this very Tribunal. However, the latest decision of the Hon'ble Madras High Court in the case of CIT Vs. Sakthi Finance Ltd., 31 taxmann.com 305 (Mad) has held that quote.... "By a careful reading of the case of Southern Technologies Ltd., we are of the view that the assessee has to prove each case that interest not recognized or not taken into account was in fact due to uncertainty in collection of interest and it is for the AO to examine facts of each individual case".

Unquote. Further, the Hon'ble Court vide para 18 has held as under:

"18. Mere characterisation of an account as a NPA would not by itself be sufficient to say that there is uncertainty as regards realizability of income or interest income thereon. Accrual of interest is a matter of fact to be decided separately for each case on the basis of examination of the facts and circumstances."

Respectfully following this decision of the Hon'ble Madras High Court, we are also of considered opinion that the accrual of interest is a matter of fact, to be decided on the basis of examination of the status of each party. We, therefore, restore this issue back to the stage of the AO to be decided de novo in the light of the guidelines I.T.A No. 86/Ahd/2014 A.Y. 2010-11 Page No 6 The Sarangpur Co-op. Bank Ltd vs. DCIT

issued by the Hon'ble Madras High Court, needless to say after providing adequate opportunity of hearing to the assessee. Resultantly, the grounds raised by the assessee may be treated as allowed for statistical purpose.

10. From perusal of the above, it would reveal that Tribunal was of the view that after judgment of Hon'ble Supreme Court in the case of Southern Technologies Ltd reported in 320 page 577, this issue has been considered by the hon'ble Madras High Court in the case of Shakti Finance Ltd. According to the Madras High Court, the assessee has to prove each case, that interest not recognized or not taken into account because of the fact that its recovery is doubtful and there is uncertainty in collection of interest. We have extracted the finding of Assessing Officer in the present year. Ld. Assessing Officer has not examined the issue with that angle, nor, the assessee has submitted the details. With the help of certain details complied in tabular form, which do not form part of the cored, Learned counsel for the assessee had tried to persuaded us to believe about the genuineness of its categorization of the accounts as NPA. But these details were not entertained by the Commissioner of Income Tax (Appeals) for the reason that no formal application for additional evidence was filed. These were not submitted to the Assessing Officer, therefore, at this stage, these details cannot be made basis of the order. Taking into consideration the finding of the Tribunal in earlier two years vis-à-vis the non-availability of the details exhibiting the fact that accounts categorized by the assessee as NPA is based on authentic facts about the uncertainty of collection of interest as well as principal amount. For the purpose of the income tax act, 1961, we are of the view that it is for the assessee to demonstrate that it has not recognized the interest income on accrual basis because there was uncertainty of the recovery of interest on certain I.T.A No. 86/Ahd/2014 A.Y. 2010-11 Page No 7 The Sarangpur Co-op. Bank Ltd vs. DCIT

accounts. Since complete facts are not on record, therefore, we deem it appropriate that ends of justice would meet if, we set aside this issue to the file of Assessing Officer for re-adjudication. In view of the above discussion, the appeal of the assessee is allowed for statistical purposes.

Order pronounced in the open court on 25-06-2015

Sd/- Sd/-

(G.D. AGRAWAL) (RAJPAL YADAV) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad : Dated 25/06/2015 ak आदेश क त ल प अ े षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file.

By order/आदेश से,

उप/सहायक पंजीकार आयकर अपील य अ धकरण, अहमदाबाद