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2018 Supreme(P&H) 4489
IN THE HIGH COURT FOR THE STATES OF PUNJAB AND HARYANA AT CHANDIGARH
Ajay Kumar Mittal, Avneesh Jhingan, JJ.
Principal Commissioner Of Income Tax-3 - Appellant
Versus
Ludhiana Central Co-op. Bank Ltd. - Respondent
ITA Nos. 349, 395, 449 and 450 of 2017
Decided On : 24-09-2018
Mr. Rajesh Katoch, Senior Standing Counsel, for the Appellant(ITA-349 of 2017); Mr. Vivek Sethi, Senior Standing Counsel, for the Appellant(ITA Nos. 395, 449 and 450 of 2017); Mr. Varun Mittal, Advocate for Mr. Vikas Mohan Gupta, Advocate, for the Respondent(ITA-349 of 2017); Mr. Aman Parti and Munish Kapila, Advocates, for the Respondent(ITA Nos. 395, 449 and 450 of 2017)
Headnote:
INCOME TAX - Interest on non-performing assets - Co-operative Bank - Whether interest on non-performing assets in the hands of the assessee-Cooperative Banks is taxable on accrual basis or not, keeping in view the guidelines of the Reserve Bank of India - HELD, interest on non-performing assets in the hands of the assessee-Cooperative Banks is taxable in the year of receipt and not on accrual basis.
Fact of the Case:
The assessee, a Cooperative Bank, filed its return of income declaring an income of Rs. 4,15,03,450/-. The assessment was completed under Section 143(3) of the Act by the Assessing Officer at an income of Rs. 8,20,58,289/- with an addition of Rs. 3,02,82,000/- on account of interest due on Non-Performing Assets (NPA). The CIT(A) deleted the addition made by the Assessing Officer. The Tribunal upheld the deletion made by the CIT(A) on account of addition of Rs. 3,02,82,000/- regarding interest accrued on NPA.
Finding of the Court:
The Tribunal had decided the issue regarding taxability of interest on NPA's in favour of the assessee as being taxable in the year of receipt. The Tribunal had upheld the deletion made by the CIT(A) on account of addition of Rs. 3,02,82,000/-regarding interest accrued on NPA. No illegality or perversity could be demonstrated by learned counsel for the revenue in the aforesaid findings recorded by the Tribunal.
Issues: Whether interest on non-performing assets in the hands of the assessee-Cooperative Banks is taxable on accrual basis or not, keeping in view the guidelines of the Reserve Bank of India.
Ratio Decidendi: Section 43D of the Act is akin to Section 43B of the Act. The Supreme Court in Southern Technologies Limited vs. Joint CIT (2010) 320 ITR 577 (SC) elaborated the scope and reason for enacting the said provision. It was held that interest from bad and doubtful debts in the case of bank and financial institutions is difficult and onerous to recover and taxing such income on accrual basis reduces the liquidity of the Bank/financial institution without generation of any income. Thus, Section 43D of the Act was inserted with the said purpose to mitigate the circumstances of taxing income accrued from bad and doubtful debts except in the year of receipt or in the year in which it is credited to the profit and loss account, whichever is earlier.
Final Decision: Appeals dismissed.
JUDGMENT
Ajay Kumar Mittal, J. - This order shall dispose of a bunch of four appeals bearing ITA Nos.349, 395, 449 and 450 of 2017 as according to learned counsel for the parties, similar issues are involved therein.
2. ITA-349-2017 has been preferred by the revenue under section 260A of the Income Tax Act, 1961 (in short "the Act") against the order dated 3.1.2017 (Annexure A-3) passed by the Income Tax Appellate Tribunal, Division Bench, Chandigarh (hereinafter referred to as "the Tribunal") in ITA No. 526/CHD/2013, for the assessment year 200910, claiming the following substantial questions of law:-
(i) Whether on the facts and in the circumstances of the case, the Hon'ble ITAT, Chandigarh is justified in deleting the addition of Rs. 3,02,82,000/- made by the AO on account of interest accrued on nonperforming assets by ignoring the decision of the Hon'ble Supreme Court in the case of State Bank of Travancore vs. Commissioner of Income Tax, reported in (1986) 158 ITR 102 ?
(ii) Whether on the facts and in the circumstances of the case, the Hon'ble ITAT erred in applying Section 43D to a cooperative society i.e. the assessee which is not specifically mentioned in Section 43D?
(iii) Whether on the facts and in the circumstances of the case, the Hon'ble ITAT has erred in following the decision in the case of Commissioner of Income Tax vs. Punjab State Cooperative Bank Limited of Assessment years 2007-08, 2008-09 reported in 143 ITD 571 (Chd) applying Section 43D, as the Punjab State Cooperative Bank Limited is a Scheduled Bank whereas the Ludhiana Central Cooperative Bank Limited is not a scheduled Bank.?"
Subsequently, vide order dated 14.11.2017 passed in CM No.23262 CII of 2017, the following amended substantial questions of law were taken on record:-
"(i) Whether on the facts and in the circumstances of the case, the Hon'ble ITAT, Chandigarh is justified in deleting the addition of Rs. 3,02,82,000/- made by the Assessing Officer on account of interest accrued on non performing assets by ignoring the decision of the Hon'ble Supreme Court in the case of State Bank of Travancore vs. Commissioner of Income Tax, reported in (1986) 158 ITR 102 ?
(ii) Whether on the facts and in the circumstances of the case, the Hon'ble ITAT, Chandigarh is justified in deleting the addition of Rs. 3,02,82,000/- made by the Assessing Officer on account of interest accrued on non performing assets ignoring the finding of the Assessing Officer that the assessee who is following the mercantile system of accounting, has to show income/receipts on accrual basis but recognition of interest on NPA (Non performing Assets) accounts on receipt basis by the assessee shows that hybrid system of accounting is being followed by the assessee which is no longer permissible with effect from 1.4.1997?
3. In ITA Nos. 395, 449 and 450 of 2017, the following substantial questions of law have been raised:-
(i) Whether on the facts and in the circumstances of the case the ITAT was correct in ignoring the fact that Section 43D of the Income-Tax Act, 1961 would not apply to a Co-operative Bank?
(ii) Whether on the facts and in the circumstances of the case the ITAT was justified in law in holding that Section 45Q of RBI Act, 1934 is applicable in the case of the assessee, when Section 45H of the RBI Act, 1934 excludes its application to cooperative banks?
(iii) Whether on the facts and in the circumstances of the case the ITAT has erred in law in confirming the decision of Ld. CIT(A) who had wrongly relied upon the finding of the Hon'ble Delhi High Court in the case of M/s Vasisth Chay Vyapar Ltd. [ITA Nos. 552, 565 of 2005, ITA No. 1191 of 2007, ITA Nos. 139, 466, 537 of 2008 and ITA No. 408 of 2003 date of decision 29.11.2010] which is a Non-Banking Financial Corporation, whereas the assessee under consideration is a Co-operative Society?
(iv) Whether on the facts and in the circumstances of the case, the ITAT has erred in confirming the decision of Ld. CIT(A) who delete
