Despite The Assessee Maintaining Mercantile System Of Accounting v. Cit (Reported In 237 Itrpage 889), The Supreme Court Has Not.given Findings Regarding Tnis Issue And Assucn Tne Tribunal Is Not Right In Relying Onthis Ruling O

IN THE HIGH COURT OF KARNATAKA AT BENGALURUDATED THIS THE 13 DAY OF NOVEMBER 2070.PRESENT| THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASADLT.A. NOCO.137 OF 201 BETWEEN: 1.|THE COMMISSIONER OF INCOME-TA® PARK VIEW BUILDING| No.284/1, 4TH MAIN P.J. EXTENSTION, DAVANGERE-577002. 2 |THE ASST. COMMISSIONER OF INCOME-TAX CIRCLE-1, PARK VIEW BUILDING. No.284/1, 4TH MAIN, P.J. EXTENSION DAVANGERE-5//002. .., APPELLANTS~ (BY SRI. K.V. ARAVIND, ADV.,) AND" M/S. DAVANGERE DISTRICT CENTRAL|CO-OPERATIVE BANK LIMITED D.C. OFFICE CIRCLECHITRADURGA-5//501 PAN: AAATD 661/7N. (BY SMT. R. PRATIBHA, ADV., FOR.SRI. S. PARTHASARATHI, ADV.,)_ .., RESPONDENT THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT,|1961L ARISING OUT OF ORDER DATED 10.10.2014 PASSED IN ITA NO.889/BANG/2012 FOR THE ASSESSMENT YEAR 2007-08,PRAYING TO: (1) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW.STATED ABOVE. (11) ALLOW THE APPEAL AND SET ASIDE THE ORDERS.PASSED BY THE ITAT, BANGALORE IN ITA NO.889/BANG/2012DATED 10-1L0-201L4 CONFIRMING THE ORDER OF THE APPELLATCOMMISSIONER AND CONFIRM THE ORDER PASSED BY THE ASST..COMMISSIONER OF INCOME TAX, CIRCLE-1, DAVANAGERE. THIS|ITACOMING|ONFOR.HEARING,THISALOK ARADHE J.,DELIVERED THE FOLLOWING: | DAY, | JUDGMENT This appeal under Section 260A of the Income TaxAct, 1961 (nereinafter referred to as the Act for short)nas been preferred by the revenue. The subject matterof the appeal pertains to the Assessment year 2007-08.The appeal was admitted by a bench of this Court videorder dated 10.08.2015 on the following substantial|questions of law:| (1) WhetnerOf)thefactsand|circumstances of the case, the Tribunal Is right in law in deleting the interest accrued|Of)No7rperformingassetsfromthecomputation of taxable income for the|assessmenlnYCdrUnderconsideration despite the assessee maintaining mercantile system of accounting.| (11) WhetherOf)thefactsand|circumstances of the case, the Tribunal Is right in law in holding that the provision for.non performing assets made by assessee Isproper as it is done as per RBI guidelineswithout appreciating that RBI guidelines.cannot override the mandatory provision of Section 145 of the I[.T. Act which Is aspecific provision dealing with the metnod|of accounting for determining income ofparticular year and the decision in the case|of UCO Bank Vs. CIT (reported in 237 ITR|page 889), the Supreme Court has not.given findings regarding tnis issue and as|sucn tne Tribunal is not right in relying on|this ruling of Apex Court. 2 |Facts leading to filing of this appeal brieflystated are that the assessee is a co-operative bank. Theco-operative Banks became taxable entity like thecommercial Danks from tne Assessment Year 200/-08..Tne assessee therefore, filed the return of income for. the Assessment Year 2007-08. The return of income was.processed under Section 143(1) of the Act and the case.of the assessee was selected for scrutiny and noticeunder Section 143(2) of the Act was issued. TheAssessing Officer by an order dated 23.12.2009 made.an addition of Rs.6,99,73,139/- on account of interestincome following the mercantile system of accounting,.provision made for non performing assets to the extent.of Rs.1,50,00,000/-. The Assessing Officer also made anadditionOf Rs.4,00,000/-and.Rs.17,38,222/-—onaccount of provision for audit cost and addition underSection 40(a)(ia) of the Act. 3Being aggrieved, the assessee challenged theaforesaid order in an appeal before the Commissioner of.Income.Tax(Appeals)whoby|an|orderdated|29.12.7011 inter alia held that effective rate of interest.on the amount of advances was 7.5%, whereas,Assessing Officer has considered the same to be 9%,which is on the higher side. It was further held that the 3Being aggrieved, the assessee challenged theaforesaid order in an appeal before the Commissioner of.Income.Tax(Appeals)whoby|an|orderdated|29.12.7011 inter alia held that effective rate of interest.on the amount of advances was 7.5%, whereas,Assessing Officer has considered the same to be 9%,which is on the higher side. It was further held that the Assessing Officer has to correctly work out the openingand closing balances after giving reasonable opportunityto the assessee and after verification of books of.accounts and work out the correct income accruing frominterest and to decide the issue in the light of the.decision of the Supreme Court in the case of UCO BankVs. CIT, 237 ITR 889The Commissioner of Income Tax(Appeals)allowed|theprovision.made.for.non|performing assets to the extent of RS.1,50,00,000/- byfollowing the decision of the Supreme Court in UCOBank supra and with regard to addition made underSection 40(a)(ia) of the Act of Rs.1/7,38,222/-, theCommissioner of Income Tax (Appeals) has’ givendirection to the Assessing Officer to call details ofprevious payment and to check the return. Accordingly,the appeal was partly allowed the appeal preferred bythe assessee. The revenue thereupon approached theIncome Tax Appellate Tribunal (hereinafter referred toas the tribunal’ for short). The tribunal by an order dated 10.10.2014 dismissed the appeal preferred by therevenue. In the aforesaid factual background, therevenue has filed this appeal. 4When the matter was taken up _ todaylearned counsel for the assessee submitted that first.substantial question of law has already been answeredby a bench of this court vide judgment dated30.06.2014 passed in I.T.A.No.4/71/2013 (Commissionerof Income Tax vs. The Urban Co-operative Bank Ltd)and Special Leave Petition against the aforesaid orderhas been dismissed by Supreme Court vide order dated12.01.2015 Keeping the question of law open. The!aforesaid aspect of the matter could not be disputed bythe learned counsel for the revenue. For the reasonsassigned in the judgment dated 30.06.2014 passed by|this court in I.T.A.No.4/71/2013, the first substantialquestion of law is answered against the revenue and infavour of tne assessee. 5.|WithregardCO theSeECONCsubstantialquestion of law, learned counsel for the revenueSubmitted that the assessee had claimed the benefit.under Section 36(1)(viia) of the Act and the assesseehas to first set off the bad debt written off against the|provision made under Section 36(1)(viia) of the Act. Itis further submitted that if actual write off is in excess of.provision made under Section 36(1)(vila) of the Act,then as per proviso to Section 36(1)(vil), actual write offin excess of provision of Section 36(1)(viila) would alonebe allowed under Section 36(1)(vii). It is also argued|that allowing the provision under Section 36(1)(viia) of|the Act and on actual write off under Section 36(1)(vii)of the Act would amount to double deduction and tne.Same Is in contravention of the law laid down by theSupreme Court in CATHOLIC SYRIAN BANK LTD. VS. CIT(SC) 343 ITR 270. It is further submitted that theprinciple laid down in the aforesaid decision has notpeen taken note of by the tribunal and therefore, the matter requires re consideration. It is also urged that.rellance|placedON)decisionofthis|courtInCOMMISSIONER OF INCOME-TAX VS. CANFIN HOMES|LTD., 347 ITR 382 is of no assistance to the assessee as.in the!aforesaiddecision, the|effectofSection36(1)(vila) of the Act has not been considered. matter requires re consideration. It is also urged that.rellance|placedON)decisionofthis|courtInCOMMISSIONER OF INCOME-TAX VS. CANFIN HOMES|LTD., 347 ITR 382 is of no assistance to the assessee as.in the!aforesaiddecision, the|effectofSection36(1)(vila) of the Act has not been considered. 6.|On the other hand, learned counsel for theassessee submitted that tribunal was justified in holding|that accounting interest income on non performing asseton cash basis by the assessee though it was followingmercantile system of accounting was correct since, oncea particular asset is shown to be a non performing assetthen the assumption is that it is not yielding anyrevenue and therefore, the question of showing thatrevenue and paying tax would not arise. In support of aforesaid submissions, reliance has been placed ondecisions in‘UCO BANK VS. CIT’, 237 ITR 889 SC,"CIT VS. CANFIN HOMES LTD.', 347 ITR 382 (KAR),CIT VS. THE URBAN CO-OPERATIVE BANK IN ITA| NO.471/2013 (KAR), CIT VIS THE URBAN CO-OPERATIVE BANK IN SLP NO.1066/2015 (SC)and‘UCO BANK VS. CIT’, 360 ITR 567 (KOL). 7We have considered the submissions made§by learned counsel for the parties and have perused therecord. In the course of assessment proceedings, it was.noticed that assessee had debited Rs.1.5 Crores asprovision for non performing asset but in the income.computation sheet the same has not been added. Theassessee was given an opportunity to explain why non)performing asset provision has not added back to the|total income, in the income computation sheet andagain deduction 7.5% under Section 36(1)(vila) has notbeen claimed. The assessee thereupon submitted that aprovision has been made as per the norms of theReserve Bank of India and the details of non performingassets as well as provisions made were provided. TheCommissioner of Income Tax (Appeals) held tnatdeduction for provision for bad and doubtful dept is allowed under Section 36(1)(viia) of the Act in the light|of the decision of the Supreme Court in UCO Bank Ltd.Supra. The tribunal in its order dated 10.10.2014 interalia has held that though the assessee has used the)nomenclature as provision for non performing assets but.in pith and substance, the provision has been createdfor bad and doubtful debts and in doing so the assessee|has followed the guidelines framed by Reserve Bank of.India. The tribunal has therefore, affirmed the finding:recorded by the Commissioner of Income Tax (Appeals).8 _This court in Canfin Homes Ltd. supra aftertaking note of Section 145 of tne Act nas held that oncea particular asset is shown as non performing asset then.the assumption that it is not yielding any revenue. When.an asset is not yielding any revenue, the question ofshowing that revenue and paying tax would not arise.The contentions, which are sought to be raised byjearned counsel for the revenue do not arise for.consideration in the context of substantial question of law, which has been framed by this court. Theconcurrent.findings|have|beenrecorded|by|theCommissioner of Income Tax (Appeals) as well astribunal in this regard, which cannot be termed asperverse. In|VIEWofpreceding.analysis,theSeECONCsubstantial question of law is answered against therevenue and in favour of the assessee. In the result, wedo not find any merit in this appeal, the same fails andis hereby dismissed. Sd/-JUDGE. SS| Sd/-—JUDGE.