Counset For The Appeilant: Srl. Karthik Ramana Puttamreddy v. Prasad (Sc For Rncome Tax)The Court Delivered The Following: Judgment

IN THE HIGH COURT AT HYDERABAD WEDNESDAY ,THE EIGHTH TWO THOUSAND PRESENT THE HON'BLE THE CHIEF JUSTICE UJJAL ANDTHE HON'BLE SRI JUSTICE N.TUKARAMJI INCOME TAX TRIBUNAL APPEAL NO: 202 OF [2005] Appeal Under Section 260 -A of the lncome Tax Act, 1961 [against ][the]order of the lncome Tax Appellate Tribunal B Bench, Hyderabad in ITA No..s.893 & 894 lHydl 2OO2 dated 18-03-2005, pertaining to assessment [year ]1999-2000 preferred against the order dated 20-08-2002 in Appeal No.27lDC-3 [(1)/]CIT (A) -lV I 2OO2-O3 on the file of the Commissioner of lncome Tax ( Appeals) [lV, Hyderabad preferred ][against the order ][of ]the [Deputy ][Commissioner ][of]lncome Tax , Circle 3 ('l) , Hyderabad dated 19{3-2002 in PAN / GIR No. S-31. Between: State Bank of lndia , Gunfoundry Hyderabad - 5OO OO1 (9t 1" title is amended as per coun order dated 03-01-2018 in - - lrrAMp No. 785 of2017inlANo 1t201t) ...epie[r_nr,iilnpplrrintAND Joint Commissioner Of lncome Tax (Assessments - --" - '- ) / Special vt/'Range _ lV,Basheerbagh, Hyderabad - 500 001' ...RESPONDENT/ Respondent Counset for the Appeilant: SRl. KARTHIK RAMANA PUTTAMREDDY counset for the Respondent: SRr J. v. pRAsAD (sc FoR rNcoME TAx)The Court delivered the following: Judgment UAI- BANDBLERITI E N.TNf JIIDGMENI, fP,. [the ][Hu,'t,h ][tt'. ][Lt'i! ]]a'rir [t-)jut ][Bt'utn)] Ilearrd lv[r. Kardk Ramana Punamreddy, leamed counselfor the appellant and Mr. J.V.Prasad, leamed Standing C-ounsel,Income Tax Depanment for the respondent. 2. This appeal has been [preferred ][by the ][assessee ][as ][the]appellant under Section [260A ][of ][the ][Income ][Tax ][Act, ][1961](briefly'the Act' [hereinafter) ][against ][the ][order ][dated ][t8'03'2005]passed bythe [Income Tax ][Appellate ][Tribunal' ][Hyderabad Bench]'B', H/erabad [(briefly ]['the ][Tribunal' ][hereinafter) ][in]I.T.ANo'89a/ [Ht'd/2002 for ][the ][assessment ][year 1999'20a0'] 3Appeal [was ][admined ][vide rhe ][order ][dated ][17 ]['09 ]['2012 ][on']the following [substantial ][questions ][of ][law:] a. \I{hether [on the ][facts ][and ][in ][the ][circunrstences]of the [case' ][the ][Tribunal ][is iustif ][ied ][in ][holdine that]interest Peftaining [to ][non- ][Pe ][rf ][orming ][assets ][c:rnnot]be deducted [from ][the taxable ][income ][rclating ][to ][en]accounting [),ear, ][even ][though ][the ][rele\':1nt ][assets] '--- assets [onlY ][in ][that] have [become ][non- ][Performing]accounting [year ][?]o*.-i..*' "-":: ::.:.T. #l:[1-*";oast [accounting ][)ear ][can]:ffi;; for [the ]PurPoses [o[ ][comPuting ][the]uxable [income ][o[ ][the ][current ][accot'nting ][year ][?]otduction [from ][net ][profit ][on ][accourlt]I*"i"t "r- ' U ,ro"*'c,n [made ]['rn ][respect ][of ][interest]nertainirg [to ][non-pedormhB ][rssets ][is ][permissible]'*d"' lT Act [?]Stttion 28 o[ thc d. [\(hether a ][debit ][to ][the ][interest ][accoturt ][and]credit [to ][a ][suspense ][account ][can ][be ][considered ][as]"writing [off ][a ][bad ][debt" ][under ][the ][provisions o[]Section [36(1)(vif of ][the ] [Act ][?] Appellant [[before ]][us is ][the ][State ][Bank ][of ][India ][(cause ][title] 4. Appellant [[before ]]amended [aitle ][theorder dated ][0l'01'2018 in ][ITTAMP'No'785 of]2017). [For ][the ][assessment ][yar ][1999-2OOO' ][it ][was ][assessed ][bythe]assessing [offrcer ][uide ][the ][assessment ][order ][dated ][t9'03'2002]passedunderSection [143(3) ][o[ ][the ][Act'] In the course the course course [[of ][the ][assessrnent ]][[the ][assessrnent ]][[assessrnent ]][proceedings, ][it ][was ][fot[rd] 5In the course the course course [[of ][the ][assessrnent ]][[the ][assessrnent ]][[assessrnent ]]interest [eamed ][net ][of]that assessee [had ][accounted ][gross]unrealised [income ][of ][previors ][)car ][on ][advances ][identifiddis] Appellant [[before ]][us is ][the ][State ][Bank ][of ][India ][(cause ][title] 4. Appellant [[before ]]amended [aitle ][theorder dated ][0l'01'2018 in ][ITTAMP'No'785 of]2017). [For ][the ][assessment ][yar ][1999-2OOO' ][it ][was ][assessed ][bythe]assessing [offrcer ][uide ][the ][assessment ][order ][dated ][t9'03'2002]passedunderSection [143(3) ][o[ ][the ][Act'] In the course the course course [[of ][the ][assessrnent ]][[the ][assessrnent ]][[assessrnent ]][proceedings, ][it ][was ][fot[rd] 5In the course the course course [[of ][the ][assessrnent ]][[the ][assessrnent ]][[assessrnent ]]interest [eamed ][net ][of]that assessee [had ][accounted ][gross]unrealised [income ][of ][previors ][)car ][on ][advances ][identifiddis] Non-Performing Asses (iVpAs) for the fint time during the yearas per nonns laid down by the fuserve Bank of India (RBI).Assessee had submimed interest of Rs.4,4g,O5,g22.OO which wasreversed during the par reratable ro ceftain borrowings u4richhad becorne Npa.. a, per the guidelines of RBI, inreresr onMfu was required to be quantified and such interest had to bededucted/reversed to the subsequenr )ear. Ijowevet theassessing officer did not accepr the claim o[ the assessee andadded the same to the income of the assesse e uide theassessmenrorder dated 19.03.2006. 6. This uras assailed bythe assessee before the (bmrlissionerof Income Tax (Appeals)-lv, ,()T(A),Hydenbad (for shon hereinafter). By th. appellate order dated 2O.OL.2OA2, OT(o(held that assessing officer was corecr in disallowing theLdeduction claimed by the appellant. Advening to Secrion 4JDof the Act, CIT(A) held that income bywayof inreresr in relationto such categories of bad or doubtful debts as maybe prescribedbythe RBI in relation to such [debs ][shall ][be chargeable ][to tax ][in] the previous par [in ][vAich ][it ][is credited by the ][Schedule ][Bank ][to]its profit and loss account. [Holding ][that claim ][of ][the ][assessee ][is]not permissible under Section [43D ][of ][the ][Act, ][the ][said ][ground ][of]appeal was rejected. 7. Thereafrcr, assessee filed funher appeal before [the]Tribunal. Afrcr advening to the findings of the assessing officerand CXT(A), Tribunal held as follous, \We have carefu.lly considertd the rivalsubmissions and perused the record. In the case ofTCI Finance (supra) the issue as to w'hether non-recognition of income by fo tlowing RBI nonns canbe considered as a recognizccl method ofaccounting, was considered in detarl and held as ifany assessee follciws the RBI norms consistentlythe same has to be accepted and interest incomeon MA need not be recognzed. Mrh regard tothe inconre dready recognized in the earlier yeartle Bench observed, n pan-29 ol rhe order, thatthe depanment has already accepred the claimmade as per the revenal entries. Since the issue isconfined to non-recognition of income and notwith regarid to the reversal o[ entries, rhe Benchhad no occasion to consider this issue w-ith regard t \We have carefu.lly considertd the rivalsubmissions and perused the record. In the case ofTCI Finance (supra) the issue as to w'hether non-recognition of income by fo tlowing RBI nonns canbe considered as a recognizccl method ofaccounting, was considered in detarl and held as ifany assessee follciws the RBI norms consistentlythe same has to be accepted and interest incomeon MA need not be recognzed. Mrh regard tothe inconre dready recognized in the earlier yeartle Bench observed, n pan-29 ol rhe order, thatthe depanment has already accepred the claimmade as per the revenal entries. Since the issue isconfined to non-recognition of income and notwith regarid to the reversal o[ entries, rhe Benchhad no occasion to consider this issue w-ith regard t to the claim of deduction of the amount referableto the reversal of the enuies. In the case of Bankof Madura (r"pra), the Honble Madras Flgh Counwas concemed wit-h the pecuiiar case of .r bankdeclaring higher income by charging excess interestfrom one of im customers and on reelizrtion of thesame, the excess interest which was charged andcollected was claimed as liabiliry in the lear ofrealizing the misule and credited to the account o[the crstomer. The Court held that [the ][claim ][of]deduction in the par of realization [of ][mistale ][is ][in]order. It may be noted [here ][that ][it ][was a ][case ][of]excess co[ection of interest [and ][there ][was ][a duty]cxst upon the bank to [refund ][the ][excess interest]whereas in the instant [case ][interest ][on NPAs ][was]eerlier declared [as ][income ][on ][accrual basis ][and]it [has ][not ][become bad ][in ][all ][resPects' ][the]though entry was sought [to ][be ][reversed ][only ][because ][of]RBI guidelines. [The ][assessee ][has ][fumished ][the]c ircular [leaer ][of ][the ] [containing ][consolidated]instructions/guidelines [on ][[urtters ][relating ][to]prudenthl [norrlls ][on ][income ][recognition ][In ][the]circular [dated 4'h ]JuIy, [2002, ][the RBI ][has]consolidated [all ][the ][instructions ][issued ][earl-ier']Pans [].2, ][3.2.1 ][and ][3'2'2 ][of' ][the ][Circular ][read ][as]rmder. 3.2. Revenal of income 3.2.1,. If any advance,includhg billspurchased and discounted becomes NpA asat the close ofany tear, interest accrued andcredired roincome account in thecorrespondingprevious lear, should bereversed or provided for if the same is notrealizef,. This will apply w Govsmnrcnlguaranteed accounB also. 3.2.2. In respec of NpAs, f ces,commission and similar inconre that haveaccrued shou.ld ce;xe ro accrue in the curentperiod and shou.ld be revened or provideda. respecr of ,:* _ pasr periods, Iuncolleced.,,accruel As per in the rhe Circular, earlier if rhe inreresr is shou,n aslear bur ,, ,h. ,rb;.;;.;,)ears the advance beccMA drc interestaccrued and credited ,orrlt^t rncom€ account be reversed should". [r;;; ]the correspond,rgprevious ;ear. ,r. -"0"":: the ,:::1::'{he'1r [Ac;' ][-J: ]; [:fl: ]mstrucub["::;:11 Income order to Tax Act is a stlf contarned code .rnct i,",*;;;;r it t for the asscssee ,hr, 6.-;]},1r.' ro-.fro* It cou.ld b. ..;" l#"""": :'ch.a deducrion.1e nore :'ch.a 1e nore giren b), the 3.2.2. In respec of NpAs, f ces,commission and similar inconre that haveaccrued shou.ld ce;xe ro accrue in the curentperiod and shou.ld be revened or provideda. respecr of ,:* _ pasr periods, Iuncolleced.,,accruel As per in the rhe Circular, earlier if rhe inreresr is shou,n aslear bur ,, ,h. ,rb;.;;.;,)ears the advance beccMA drc interestaccrued and credited ,orrlt^t rncom€ account be reversed should". [r;;; ]the correspond,rgprevious ;ear. ,r. -"0"":: the ,:::1::'{he'1r [Ac;' ][-J: ]; [:fl: ]mstrucub["::;:11 Income order to Tax Act is a stlf contarned code .rnct i,",*;;;;r it t for the asscssee ,hr, 6.-;]},1r.' ro-.fro* It cou.ld b. ..;" l#"""": :'ch.a deducrion.1e nore :'ch.a 1e nore giren b), the assessee, during the relevanr period, 180 dapyardstick was prescribed for idenrifying an asser asstandard or NPA For example, if an advance isgiven on 1" January 1998 the clear picture as tostandard or NPA For example, if an advance isgiven on 1" January 1998 the clear picture as towhether it has become NPA or not emerges onJune, [1998. ][t-et ][w ][funher ][presume ][that the ][interest]payable by the parry for a period of 6 months [is]Rs.6 lakhs. tu on I1-3-98 it can [be ][predicted ][that ][it]would become NPA and thus the [assessee]xccounts for interest of [Rs'3 ][lakhs ][for ][three]months ending on [31-3-98. ][Such ][interest ][is]assessable to tax [in ][the ][assessment ][yeau- ][1998-99 ][']However, i[ [the ][assessee ][has ][not ][received ][any]interest cluring [the ][previous ][par ][relevant ][to ][the]assessment iear [1999-00, ][on the ][expiry ][of ][3O'h ][day]o[ June, [1998 ][the ][assessee ][bank ][can ][treat ][it ][as ] and intercst [for ][the ][period ][of ][*ree ][montls ][if]alreadv [credited in the ][books ][as ][income' ][srrch ][entry]should [be ][reversed ][in ][tJre ][later ][pan ][of ][the]June, [1998. ][t-et ][w ][funher ][presume ][that the ][interest]payable by the parry for a period of 6 months [is]Rs.6 lakhs. tu on I1-3-98 it can [be ][predicted ][that ][it]would become NPA and thus the [assessee]xccounts for interest of [Rs'3 ][lakhs ][for ][three]months ending on [31-3-98. ][Such ][interest ][is]assessable to tax [in ][the ][assessment ][yeau- ][1998-99 ][']However, i[ [the ][assessee ][has ][not ][received ][any]interest cluring [the ][previous ][par ][relevant ][to ][the]assessment iear [1999-00, ][on the ][expiry ][of ][3O'h ][day]o[ June, [1998 ][the ][assessee ][bank ][can ][treat ][it ][as ] and intercst [for ][the ][period ][of ][*ree ][montls ][if]alreadv [credited in the ][books ][as ][income' ][srrch ][entry]should [be ][reversed ][in ][tJre ][later ][pan ][of ][the]accounting lear [and ][for ][the ][balance ][period ][of ][9]months [of ][the previous ][year ][1998-99 ][the ][assessee]neecl [not ][recognize ][the ][income ][of ][Rs'9 ][laklis' ][If]the [essessee ][has ][other ][income ][to ][the tune ][of Its'20].." [tbe ][assessee ][claim ][that ][onlv Rs'17 ][lakhs]i;;r, hs [to ][be trt.*ec\ ][as ][*?Tr.,""rffrT;:r.'T]urterest [to ][the ][tune ][ot]months [of ][the previous ][year ][1998-99 ][the ][assessee]neecl [not ][recognize ][the ][income ][of ][Rs'9 ][laklis' ][If]the [essessee ][has ][other ][income ][to ][the tune ][of Its'20].." [tbe ][assessee ][claim ][that ][onlv Rs'17 ][lakhs]i;;r, hs [to ][be trt.*ec\ ][as ][*?Tr.,""rffrT;:r.'T]urterest [to ][the ][tune ][ot] II II another Parry [was ][wrongly ][declared ][as ][income ][rL]the earlier lear [and ][thus ][it ][needs ][to ][be ][set ][off ][in the]consideration? [Non ][recognidon of]*r. [.** ]the real [income]income [permissible ][i' ]'pp$'g principla [and ][the ][income ][which ][is ][already]accounrcd [for in ][the ][first ][part ][of ][the ][laar ][but]revened [in the ][later ][part ][of ][the ][par ][also need ][not]be declared [as ][income, ][by ]'pply"g [the ][same]principle, [because ][in ][the computadon ][of ][income ][of]a panicular [ytar, the ][income ][of ][that ][year ][to ][be]themken into [corsideration' ][However' ][once]income of $x [yeal ][is ][properly ][recorded]thetheassessee cannot [reduce ][the ][income ][from]subsequent )ears [comPutation ][on ][the ][grourd ][that]in the earlier laar [income was ][shown ][on ][accr-ual]basis wrongly and thus [the income ][of ][this ][year ][gets]reduced if set off is permined. In the [given]example, it could be seen that the assessee [is not]claiming any expenditure against the current learincome but seeking reduction of current ytar'sincome though even accorrding rc the assessee suchincome accmed in the par under consideration. Inour considered opinion, such a claim is notpermissible. In the immediatelypreceding par, theassessee having declared income on che accrualbasis, the only course open to the assessee to derecognise rhe incomedebr by r.,,"*;; il; ;##.;:"1supponed by the decisi* Apex coun in thecase of state Banr< of ;" r^,elt as rhe decrion ., #;filf::*:ir.Jlase [of ][popha ][oxlgen ][@) ][Ltd., ][(e1 ]rTD;10-Adminedly, rhe assessee ha nor wricten .O ,i.impugned sum as bad-debt ,/s :e(f)("if of th.Act and in facr the case of rhe ;Lssessee is that thereis no question of write off us 36(l)(vif of th. A.t.Such being rhe case, we are of the view thar theclaim of the assessee is conrrary to law andaccordingly we rcject the contention of theassessee. 8. From the above, we find that Tribunal had considered thecircular oi RBI dated 04.07.2002 and held thar once an incomeof a previors 1'e ar is recorded, assessee cannot reduce theincome o[ subsequent )rars on the ground that in the earlier 1rearincorne was shown on actual basis wrongly. Tribunal held rhatsuch a claim o[ the assessee is not pennissible under theprovisions of rhe Act. Funher, Tribunal held that assessee hadalso not [written ][oif ][the ][NPAs ][as bad ][debts ][.nder] Section [36(1xvii) ][of ][the ][Act' ][Therefore' there ][was ][no ][questlon]of writing [off ][such interest ][as ][a ][bad debt'] 9. [In ][the hearing today' leamed ][counsel ][for ][the ][appellant ][has]referred [to ][Section 21 ][of ][the ][Banking ][Regulation ][AcL ][1949 and]submis [that ][under ][sub-section ][(t) ][thereof' ][all ][banking]companies [are ][bound ][to follow ][policy ][of ][the ] [so ][determined']Therefore, [assessee ][being ][a ][banking company ][had ][ro ][comply]with the [guidehnes' ][FIe ][has ][also ][referred ][to ][a ][decision ][of ][the]Supreme [C-oun ][in ][Depury ][Commissioner ][of ][Sales ][Tax ][v']M/s. [Motor ][lndustries ][Companyl ][and ][submia that ][in ][that]case [under ][the ][Kerala ][General ][Sales ][Tax ][Lcr' ][1963' ][Supreme]C-ourt [had ][pointed ][out ][a ][waY ][to ][overcome ][such ][a ][difficulty']Further [reference ][has been ][praced ][on ][the ][decision ][of ][the]Supreme [C-ourt ][in UCO ][Bank ][v' ][Commissioner ][of ][Incomc]Tax2 [to ][contend ][that it ][is ][always ][open ][to ][the ][Crntral ][Board ][o[-]Direct [Taxes ][(GDT) ][to ][issue ][instrudrons un][der Section ] [of] t lusly z scc ros2 lrolo;+ scc slo2 lrolo;+ scc slo the Act ro remove anydifficulryin wfiichevent such instructionswould be binding on the depanment.wfiichevent such instructionswould be binding on the depanment. t lusly z scc ros2 lrolo;+ scc slo2 lrolo;+ scc slo the Act ro remove anydifficulryin wfiichevent such instructionswould be binding on the depanment.wfiichevent such instructionswould be binding on the depanment. 10. v/e are afraid we cannor accept such conrenrron urged byIeamed counsel for the appellant. In the presenr appeal, it is notGDT which has issued circulan or guidelines under Section119 of the Act. On the other hand, circular has been issued bythe RBI wfiich is binding on all the banking companies ingeneral. However, u4en rt comes to assessrnent under tle Ac1,the revenue authondes are bound by the provisions of the Act.Therefore, the claim o[ rhe assessee rhar interest paid on \p65should be excluded from computation of income was rightlynegarived by the assessing officer, which has been affirmed bythe rqro lower appellate aurhoriries. 11. As pointed our by the Supreme Coun in M,/s. MotorIndustries Company (rupo), ir is always open for rhe assesseeor appellant to file a revised rerum and claim the deduction.Even if assessment. is completed, assessee could have demanded !I Il or [refund by preferring the claim ][in ][time']adjustment was not done But that 12. [Thus ][in ][the ][facs ][and ][circurnstances, ][we ][do ][not ][find ][that] any question o[ [law, ][much ][less ][any substantial ][question ][of ][laq]arises for [consideration ][of ][the ][C-ourt ][from ][the ][order ][of ][the]Tribunal. 13. Appeal [fails and ][is ][accordinglydismissed. ][No ][costs.] fu a sequel, [miscellaneous ]Petitions, Pending [if ][any, stand] Sd/- M. VIJAYA BHASKARJOINT REGISTRAR closed //TRUE COPY// SECTION OFFICER To 1. The lncome Tax [Appellate Tribunal B Bench, Hyderabad] 2. The Commissioner of [lncome ][Tax ][( ][Appeals ]) [lV, ][Hyderabad] 3. The Deputy Commissioner [of ][lncome ][Tax ], [Circle ][3 ][(1) ], [Hyderabad] 4. One CC to SRl. KARTHIK RAMANA PUTTAMREDDY, [Advocate ] 5. One CC to SRl. J v PRASAD [(SC ]FOR INCOME TAX) 6. Two CD Copies CD \Y kul kam ,IGH COURT DATED:08/02t2023 JUDGMENTI2 + r,i3 ?t?3ITTA.No.202 of 2OOsDISMISSING THE ITTAthk