Ita/471/2013 Of Commissioner Of Income Tax v. The Urban Co-Operative Bank Ltd

IN THB HIGH COURT OF KARNATAKA AT BANGALOREDATEKD THIS THE 3[th]DAY OF JUNE 2014 PRESENT THR HON BLE MR. JUSTICE N. KUMAR. AND THR HON’BLE MRS. JUSTICBK B MANOHAR ITA No.471 OF 2013 BETWEEN; 1. Commissioner of Income-Tax,Davanagere.2.Income Tax Officer,Ward-2,Shimoga._ APPKRLLANTS (By Sri. Jeevan.J. Neeralgi, Advocate)| AND: The Urban Co-Operative Bank LimitedRajatha Bhavan, Shikaripura,Shimoga District.— RBSPONDEBENT (By Sriyuths. A. Shankar and M. Lava, Advocates) -0-0-0-O-This ITA is filed under Section 260-A of I.T. Act,|1961 arising out of Order dated 30.04.2013 passed inITA.No.258/BANG/2012,.fortheAssessmentYear2008-09 praying to formulate the substantial questionsof law stated therein and to allow the appeal and setaside the order passed by the ITAT, Bangalore in ITA No.258/BANG/2012 dated 30.04.2013 and the order ofthe Commissioner of Income Tax(Appeals), Hubli, dated28.11.2011 in Appeal ITA.CIT(A)363/HBL/2010-11. This appeal coming on for admission this day,|N,KUMAR, J.delivered the following:- JUDGMENT The revenue has preferred this appeal challengingthe order passed by the Tribunal holding that the assessee need not pay tax in respect of non-performing assets though the assessee is adopting mercantile system of accounting. 2 |The substantial question of law which israised in this appeal is:- “Whether the Tribunal was right inholding that the income from_ nonperforming assets should be assessed|on cash basis and not on mercantile|basis despite the assesee maintaining|mercantile system of accounting?| 3.|The said question has been answered by this— Court in the case otfCommisstoner of Income-Tax,| Central Circle, Bangalore .vs. Canfin Homes Limited (2011/2011 TAXMAN273/13|taxmann.Com| 43(Karnataka)]at paragraph 8, which reads as under:- “&.Therefore,it1S clear,urQr|assessee adopts mercantile system of|accounting and in his accounts he|Shows a particular income as accruing,|whether that amount is really accrued|or not is liable to bring the said income|to tax. His accounts should reflect true|and correct statement of affairs. Merely|becquse the sqid amount accrued was|not realized immediately cannot be a|ground to avoid payment of tax. But, tfin his account it is clearly stated though|a particular income is due to him but it|is not possible to recover the same, then|it cannot said to have been accrued and|the said amount cannot be brought to|tax. In the Instant case we areconcerned with a non-performing asset. |As the definition of non-performing assetShowsQr|assetbecomesTlLoperforming when it ceases to _ ylelincome. Non-performing asset 1s an|asset in respect of which interest has| remained unpaid and has become past|due. Once a particular asset is shown|to be a non-performing asset, then the|assumption is it is not yielding any|revenue. When it is not yielding any|revenue, the question of showing that|revenue and paying tax would not arise. |As 1s clear from the policy guidelines|issued by the National Housing Bank,|the income from non-performing asset|Should be recognized only when it is|actually received. That is what, the|Tribunal held wn the instant case.|Therefore, the contention of the revenue|that in respect of non-performing assets|even though it does not yleld any|income as the assessee has adopted a|mercantile system of accounting, he has|to pay tax on the revenue which has|accrued notionally is without any basis. |In that view of the matter, the second|substantialquestionframed1S|answered against, the revenue and in|favour of the assessee.” 4In that view of the matter, we do not see anymerit in this appeal. The said question of law is answered in favour of the assessee and against theTEVENUE. 5 |However, it is submitted that the saidjudgment of this Court is under challenge before theApex Court. Therefore, in the event of Apex Courtreversing the said judgment, the assessing authorityshall give effect to the judgment of the Apex Court. Sd/-JUDGE. Sd/-| JUDGE. *alb/-.