1 ITA NOS.53, 54, 57, 58, 68.2014.odt IN HIGH COURT OF JUDICATURE AT BOMBAY BENCH AT AURANGABAD rt INCOME TAX APPEAL NO. 53 OF 2014 ou COMMISSIONER OF INCOME TAX, AURANGABAD VERSUS M/S. DEOGIRI NAGARI SAHAKARI BANL LTD., AURANGABAD ... Advocate for Appellant : Mr. Alok Sharma C Advocate for Respondent : Mr. L.D.Vakil ... INCOME TAX APPEAL NO. 54 OF 2014 h COMMISSIONER OF INCOME TAX AURANGABAD ig VERSUS M/S PEOPLES COOPERATIVE BANK LTD. ... Advocate for Appellant : Mr. Alok Sharma Advocate for Respondent : Mr. L.D.Vakil H ... INCOME TAX APPEAL NO. 57 OF 2014 WITH ITA/58/2014 y COMMISSIONER OF INCOME TAX AURANABAD VERSUS ba NANDED DISTRICT CENTRAL CO OP BANK LTD. NANDED ... Advocate for Appellant : Mr. Alok Sharma Advocate for Respondents : Mr. K.J. Suryawanshi ... om INCOME TAX APPEAL NO. 68 OF 2014 COMMISSIONER OF INCOME TAX , AURANGABAD VERSUS B VASANTADADA NAGARI SAHAKARI BANK LTD. , OSMANABAD ... Advocate for Appellant : Mr. Alok Sharma Advocate for Respondent : Mr. M.B.Kolpe ... CORAM : A.V. NIRGUDE & V.K. JADHAV, JJ. ... DATE OF RESERVING ORDER :06.01.2015 DATE OF PRONOUNCING ORDER :22.01.2015 .... ::: Uploaded on - 23/01/2015 ::: Downloaded on - 15/02/2016 11:02:40 ::: 2 ITA NOS.53, 54, 57, 58, 68.2014.odt ORDER : (Per V.K.Jadhav, J.) rt 1. issues involved in these appeals are similar hence all appeals are decided by this common order. ou 2. assessee in all these appeals are Co C operative Banks registered under section 9(1) of Maharashtra Co operative Societies Act, 1960. assessee h banks are engaged in Banking business by following ig Mercantile system of accounting. assessee Co operative banks have furnished its return of income for year under H consideration declaring their total income. Assessing Officer passed order under section 143 (3) of Income y Tax Act on different dates by making additions on various ba issues. same is showed below in tabular form. Tax Appeal Name of Assessment Total income as Deletions of Nos. Assessee/Co- Year per computation additions which is operative Bank. challenged in om writ petition by revenue 53 of 2014 M/s Devgiri Nagari 2009-2010 Rs.9,39,57,223/- Rs.1,06,36,000/- Sahakari Bank Ltd., Aurangabad 54 of 2014 M/s Peoples Co- 2009-2010 Rs.5,15,43,200/- Rs.1,19,77,000/- B operative Bank Ltd.,Hingoli 57 of 2014 Nanded 2007-2008 Return income : Rs.25,02,63,000/- & District Central & 27,61,76,504/- 58 of 2014 Co-operative Bank 2009-2010 Total Ltd., Nanded. computation of income : Rs.22,63,61,000/ - 68 of 2014 M/s Vasantdada 2009-2010 Rs.37,80,596 Rs.1,09,27,419/- Nagari Sah. Bank Ltd., Osmanabad ::: Uploaded on - 23/01/2015 ::: Downloaded on - 15/02/2016 11:02:40 ::: 3 ITA NOS.53, 54, 57, 58, 68.2014.odt 3. common issue involved in all these appeals rt relating to assessment year as mentioned in aforesaid table about deletion of additions on account of interest ou on sticky advances. In all these cases, Assessing officer, during assessment proceeding has observed that C provisions of Section 43 (D) of Income Tax Act cannot be applied to assessee as it is not scheduled Bank but h Co operative Bank. In opinion of Assessing officer, ig considering provisions of section 43 D of Income Tax Act, non scheduled Co operative banks are specifically H excluded from special provisions of 43 D of Income Tax Act, regarding interest on sticky advances. y Assessing officer has also held that CBDT circular No.F ba 201/81/84 ITA II dated 09.10.1984 is applicable only to banking companies and not to non scheduled banks and co om operative banks. 4. Being aggrieved by same, assessee/above B co operative Banks preferred appeals separately before CIT(A). CIT(A) vide his orders in all appeals has directed to delete additions on interest of sticky advances, on NPA made by Assessing officer. ::: Uploaded on - 23/01/2015 ::: Downloaded on - 15/02/2016 11:02:40 ::: 4 ITA NOS.53, 54, 57, 58, 68.2014.odt 5. Being aggrieved by order of CIT(A), rt Revenue preferred separate appeals in each case before Income Tax Appellate Tribunal, Pune Bench , Pune. ou learned I.T.A.T. has confirmed decision of CIT(A) and dismissed appeals of Revenue. Thus, Revenue has C filed aforesaid appeals challenging legality and correctness of order passed by Income Tax Appellate h Tribunal. ig 6. learned counsel Mr. Alok Sharma, appearing H for appellants/Revenue submits that, assessee in all these cases are co operative Banks and not Scheduled y Bank, therefore, special provisions of Section 43 D of ba Income Tax will not be applicable to them. Learned counsel further submits that, in view of provisions of Section 145 om of Income Tax Act, assesseee/Co operative banks have to follow either Mercantile system of accounting or Cash system. They cannot have mix system of account. B learned counsel also submits that, RBI directions under RBI Act are prudential norms, but have nothing to do with computation or taxability of provision of NPA under IT Act. Learned counsel further submits that though RBI directions deviate from accounting practice as provided by Companies Act, but they do not ::: Uploaded on - 23/01/2015 ::: Downloaded on - 15/02/2016 11:02:40 ::: 5 ITA NOS.53, 54, 57, 58, 68.2014.odt override provisions of IT Act and they are operating rt in different fields. learned counsel for appellants/revenue lastly submits that, learned Tribunal ou ought to have held that assessee cooperative bank does not satisfy conditions of CBDT circular C No.F.201/81/84/ITA II dated 09.10.1984 and therefore could not avail benefits of circular. On basis of h aforesaid submissions, learned counsel further submits ig that substantial question of law involved in above appeals and thus order passed by Assessing Officer H under section 143 (3) of Income Tax Act, 1961 are required to be confirmed. Learned counsel for appellants y submits that, Tribunal ought to have allowed appeal ba by relying on judgment in matter of Southern Technologies Ltd. Vs. Joint Commissioner of Income om Tax, Coimbtore Reported in 2010 (2) SCC 548. 7. learned counsel for respondent/Co operative B banks submit that, issues involved in above appeals are no more res integra in view of decision rendered by Hon ble Supreme Court in case of Uco Bank, Calcutta Vs. Commissioner of Income Tax, West Bengal reported in (1999) 4 Supreme Court Cases 599. ::: Uploaded on - 23/01/2015 ::: Downloaded on - 15/02/2016 11:02:40 ::: 6 ITA NOS.53, 54, 57, 58, 68.2014.odt 8. Learned counsel for respondent submits that, rt learned Tribunal has rightly dismissed appeals of revenue by confirming order passed by CIT(A). There ou is no substantial question of law involved in these appeals and thus all appeals are liable to be dismissed. C 9. Income Tax Appellate Tribunal has referred h case of M/s. Vasisth Chay Vyapar Limited 330 ITR 440 ig (Delhi). In this case, revenue relied upon decision of Hon'ble Supreme Court in case of Southern H Technologies Ltd. supra. learned Income Tax Appellate Tribunal has reproduced observations made by Delhi y High Court while referring said case of M/s Southern ba Technologies Limited supra. assessee herein being Co operative Bank also governed by Reserve Bank of India om and thus directions with regard to prudential norms issued by Reserve Bank of India are equally applicable to Co operative banks. Hon'ble Supreme Court in B case of Southern Technologies Limited supra held that, provisions of Section 45Q of Reserve Bank of India Act has overriding effect vis vis income recognition principle under Companies Act. Hence, Section 45Q of RBI Act shall have overriding effect over income recognition principle followed by cooperative banks. Hence, ::: Uploaded on - 23/01/2015 ::: Downloaded on - 15/02/2016 11:02:40 ::: 7 ITA NOS.53, 54, 57, 58, 68.2014.odt Assessing Officer has to follow Reserve Bank of India rt directions 1998, as held by Hon'ble Supreme Court. ou 10. Honourable Apex Court in case of Uco Bank case (supra) had occasion to consider nature of C CBDT circular and Hon'ble Apex Court has thus held that Board has power, inter alia, to tone down rigour of h law and ensure fair enforcement of its provisions, by ig issuing circular in exercise of its statutory powers under section 119 of act which are binding on authorities in H administration of Act, it is beneficial power given to Board for proper administration of fiscal law so that undue y hardship may not be caused to assessee and fiscal ba laws may be correctly applied. Further similar issue was raised about interest accrued on sticky loan which was om not recovered by assessee bank for last three years and transferred to suspense account, would or would not be included in income of assessee for particular B assessment year. Hon'ble Apex Court has observed that : method of accounting which is followed by assessee- bank is Mercantile system of accounting. However, assessee considers income by way of interest pertaining to doubtful loans as not real income in year in which it accrues, but only when it is realized. mixed method of accounting is thus followed by assessee-bank. This method of accounting adopted by assessee is in ::: Uploaded on - 23/01/2015 ::: Downloaded on - 15/02/2016 11:02:40 ::: 8 ITA NOS.53, 54, 57, 58, 68.2014.odt accordance with accounting practice. assessee s method of accounting, transferring doubtful debt to interest rt suspense account and not treating it as profit until actually received, is in accordance with accounting practice up to ou assessment year 1978-79 taxability of interest on doubtful debts credited to suspense account will be decided in light of Board s earlier Circular dated 6-10-1952, as C said circular was withdrawn only in June,1978. new procedure under Circular of 9-10-1984 will be applicable for and from assessment year, 1979-80. All pending disputes on issue should be settled in light of these h instructions. Therefore, up to assessment year 1978-79, CBDT s Circular of 6-10-1952 would be applicable; while ig from assessment year 1979-80, CBDT s Circular of 9- 10-1984 is made applicable. In present case, H assessment was made on basis of CBDT s Circular on 9- 10-1984, since assessment pertains to assessment year 1981-82 to which Circular of 9-10-1984 is applicable. If, Board has considered it necessary to lay down general y test for deciding what is doubtful debt, and directed that all Assessing Officer s should treat such amounts as not forming ba part of income of assessee until realized, this direction by way of circular cannot be considered as traveling beyond powers of Board under section 119 of om Income Tax Act. Such circular is binding under section 119. Circular of 9-10-1984, therefore, provides test for recognizing whether claim for interest can be treated as doubtful claim unlikely to be recovered or not. test provided by said circular is to see whether, at end of B three years, amount of interest has, in fact, been recovered by bank or not. If it is not recovered for period of three years, then in fourth year and onwards claim for interest has to be treated as doubtful claim which need not be included in income of assessee until it is actually recovered. In present case, circulars which have been in force are meant to ensure that while assessing income accrued by way of interest on sticky loan, ::: Uploaded on - 23/01/2015 ::: Downloaded on - 15/02/2016 11:02:40 ::: 9 ITA NOS.53, 54, 57, 58, 68.2014.odt notional interest which is transferred to suspense account pertaining to doubtful loans would not be included in rt income of assessee, if for three years such interest is not actually received. very fact that assessee, although ou generally using mercantile system of accounting, keeps such interest amounts in suspense account and does not bring these amounts to P&L a/c goes to show that assessee C is following mixed system of accounting by which such interest is included in its income only when it is actually received. Looking to method of accounting so adopted by assessee in such cases, circulars which have been h issued are consistent with provisions of section 145 and are meant to ensure that assessees of kind specified who ig have to account for all such amounts of interest on doubtful loans are uniformly given benefit under circular and H such interest amounts are not included in income of assessee until actually received if conditions of circular are satisfied. Circular of 9-10-1984, also serves another practical purpose of laying down uniform test for y assessing authority to decide whether interest income which is transferred to suspense account is, in fact, ba arising in respect of doubtful or sticky loan. This is done by providing that non-receipt of interest for first three years will not be treated as interest on doubtful loan. But if om after three years payment of interest is not received, from fourth year onwards it will be treated as interest on doubtful loan and will be added to income only when it is actually received. There is no inconsistency or contradiction between circular so issued and section 145 B of Income Tax Act. In fact, circular clarifies way in which these amounts are to be treated under accounting practice followed by lender. circular, therefore, cannot be treated as contrary to section 145 of Income Tax Act or illegal in any form. It is meant for uniform administration of law by all Income-tax authorities in specific situation and, therefore, validly issued under section 119 of Income Tax Act. As such, ::: Uploaded on - 23/01/2015 ::: Downloaded on - 15/02/2016 11:02:40 ::: 10 ITA NOS.53, 54, 57, 58, 68.2014.odt circular would be binding on department. relevant circulars of CBDT cannot be ignored. question is not rt whether circular can override or detract from provisions of Act; question is whether circular seeks to ou mitigate rigour of particular section for benefit of assessee in certain specified circumstances. So long as such circular is in force it would be binding on C departmental authorities in view of provisions of section 119 to ensure uniform and proper administration and application of Income Tax Act. h 11. learned counsel for respondent has placed ig reliance in case of Mercantile Bank Ltd., Bombay Vs. Commissioner of Income Tax, Bombay City III reported in H (2006) 5 SCC 221, where similar question was raised before Apex Court. question was whether assessee is y liable to be taxed under Income Tax Act, 1961 in respect of ba interest on doubtful advances credited to interest suspense account. In this case, Uco Bank's Case (supra) om was also referred and Hon ble Apex Court has allowed appeal to extent of question raised as aforesaid. Furthermore, respondent Co operative banks, as B understood by Section 43 C of Income Tax Act on Scheduled Bank. 12. Learned counsel for appellants/revenue placed reliance on judgment in case of Southern ::: Uploaded on - 23/01/2015 ::: Downloaded on - 15/02/2016 11:02:40 ::: 11 ITA NOS.53, 54, 57, 58, 68.2014.odt Technologies Ltd. Vs. Joint Commissioner of Income rt Tax, Coimbtore reported in 2010 (2) SCC 548. However, this judgment pertains to non Banking financial companies. ou Uco Bank case (supra) and Mercantile Bank (supra) case squarely applies to facts of present case and issues C involved. We therefore, do not find it necessary to interfere in judgment of Appellate Tribunal. We hold that no h substantial question of law arises in these appeals. ig 13. So far as income Tax Appeal Nos.53/2014 and H 54/2014 are concerned, issue was also raised in appeals before Tribunal with regard to addition made y by Assessing Officer representing forfeited dividend. ba learned Tribunal has rightly dealt with this issue and observed that, unclaimed dividend in question amounts to om excess provisions for dividend made by Assessee on earlier occasion which has been reversed by Assessee in year under consideration and transferred to reserve B account. provisions for dividend made earlier was not charge action profits but it was appropriation of profits available post taxation. We find no error in aforesaid observations. Furthermore, in appeals as mentioned above, Revenue has only challenged deletion of additions on account of interest on sticky advances ::: Uploaded on - 23/01/2015 ::: Downloaded on - 15/02/2016 11:02:40 ::: 12 ITA NOS.53, 54, 57, 58, 68.2014.odt alone. In view of this, we proceed to pass following order. rt O R D E R 1. Income Tax Appeal Nos.53/2014, 54/2014, ou 57/2014, 58/2014, 68/2014 are hereby dismissed. C 2. In facts and circumstances, there shall be no order as to costs. h ig ( V.K. JADHAV, J. ) ( A.V. NIRGUDE, J. ) ... H aaa/ y ba om B ::: Uploaded on - 23/01/2015 ::: Downloaded on - 15/02/2016 11:02:40 ::: Commissioner of Income-tax, Aurangabad v. Deogiri Nagari Sahakari Banl Ltd