The Hon’ble Mr. Justice v. Srishananda

IN THE HIGH COURT OF KARNATAKA AT BENGALURU|DATED THIS THE 4 DAY OF FEBRUARY, 2021 PRESENT THE HON’BLE MR. JUSTICE SATISH CHANDRA SHARMA| THE HON’BLE MR. JUSTICE V. SRISHANANDA| BETWEEN I.T.A. NO.136/2015 1.THE COMMISSIONER OF INCOME-TAXPARK VIEW BUILDING)NO.284/1, 4 MAINPjJEXTENSIONDAVANAGERE 5/77 OQ) 2DTHE ASST. COMMISSIONER OF INCOME-TAX |CIRCLE-1.PARK VIEW BUILDING)NO.284/1, 4 MAILN.PJEXTENSION |DAVANAGERE 5/7 OO2 |.. APPELLANTS (By SRI K V ARAVIND, ADVOCATE) AND M/S DAVANGERE DISTRICT CENTRAL |CO-OPERATIVE BANK LIMITEDD. C. OFFICE CIRCLECHITRADURGA 5/77 501PAN: AAATD 661/7NRESPONDENT| (BY SRI A.SHANKAR, SR. ADVOCATE FORSRI M.LAVA, ADVOCATE). THIS I.T.A. IS FILED UNDER SEC. 2Z600-A OF INCOMTAX ACT 1961, ARISING OUT OF ORDER DATED 03.12.2014PASSED IN ITA NO.894/BANG/2012, FOR THE ASSESSMENTYEAR|2008-09PRAYINGTO.(1)FORMULATETHESUBSTANTIAL QUESTIONS OF LAW STATED ABOVE AND(2) ALLOW THE APPEAL AND SET ASIDE THE ORDERSPASSED|BY|THEITAT,BANGALORE|IN|TTA.NO.894/BANG/2012 DATED 03.12.2014 CONFIRMING THEORDER OF THE APPELLATE COMMISSIONER AND CONFIRMTHE ORDER PASSED BY THE ASST. COMMISSIONER OFINCOME TAX, CIRCLE-I, DAVANAGERE. THIS I.T.A COMING ON FOR HEARING THIS DAY, |SATISHCHANDRA|SHARMAJ.,DELIVEREDTHE.FOLLOWING:JUDGMENT Tne present appeal is by the Revenue, arising against|the order dated 3[+8]December, 2014 passed in ITA)No.894/Bang/2012 by the Income Tax Appellate Tribunalconfirming the order passed by the Assistant Commissionerof Income Tax Officer, Circle-1, Davanagere. 2. The statement of facts as stated by the appellantsin the Memorandum of Income Tax Appeal reflects that theassessee claims to be a Co-operative Bank and filed theirreturn of income for year under consideration. Assessmentorder came to be passed in the case of assessee under section 143(3) of the Income Tax Act, 1961 (for short Act).In the order passed, the assessing authority made additions.Tne assessing authority calculated the interest on loans and|advances (including NPA) following mercantile system ofaccounting and interest offered in the P/L following casnsystem of accounting were reduced and the differenceamount was added to the income of the assessee. Tne nextissue pertains to debiting provision for audit cost, which isless than the actual payment of audit cost. Hence, in tneassessment order, the assessing autnority restricted to actualpayment and the provision was added back. Further theassessing authority disallowed certain amount under section40(a)(ia). The assessing authority further refused to admitthe debited amount in P/L A/c pertaining to provision fornon-performing asset (NPA). The assessee challenged thesaid order passed by the assessing authority beforeCommissioner of Income Tax (CIT) of appeals. The CITallowed the appeal and as sucn Revenue preferred appealbefore the Tribunal. Tne TridDunal has dismissed the appeal.Hence, the present appeal has been preferred by Revenue. | 3. This Court has framed the following substantial|questions of law: “1. "Whether on the facts and circumstances of thecase, the Tribunal is rignt in law in deleting tne|interest accrued on non performing assets from tnecomputation of taxabie income for the assessment|year under consideration despite the assessee|maintaining mercantile system of accounting"? 2.“Whether on the facts and circumstances of.the case, tne Tribunal is rignt in holding that tne|provision for non performing assets made. byassessee is proper as it is done as per RBIguidelines without appreciating that RBI guidelines|cannot override the mandatory provision of section145 of the I.T.Act which is a specific provision|dealingwitnthemethodOf accountingfordetermining income of particular year and tne|decision in the case of UCO Bank V/s.CIT (reported|in 237 ITR page 889), the Supreme court Nas not|given findings regarding tnis issue and as sucn tne|Tribunal is not rignt in relying on this ruling of Apex|Court’? 2.“Whether on the facts and circumstances of.the case, tne Tribunal is rignt in holding that tne|provision for non performing assets made. byassessee is proper as it is done as per RBIguidelines without appreciating that RBI guidelines|cannot override the mandatory provision of section145 of the I.T.Act which is a specific provision|dealingwitnthemethodOf accountingfordetermining income of particular year and tne|decision in the case of UCO Bank V/s.CIT (reported|in 237 ITR page 889), the Supreme court Nas not|given findings regarding tnis issue and as sucn tne|Tribunal is not rignt in relying on this ruling of Apex|Court’? 3, Whether on the facts and circumstances of the|case, tne Tripunal is rignt in law upholding tne|provision made by assessee with regard to Audit|Cost even when the provisions of Section 43B, the|deductions in respect of any sum payable by the| assessee Dy way of duty, cess or fees by|whatsoever name called, snall be given only on|actual payment and in the instant case, only tne)provision for payment of audit cost made and not|actually paid during the year’? 4.|“WhetherOf)the|factsandIn|the|circumstances of the case, the Tribunal ts right tnlaw in upholding the order of CIT regarding|remitting the issue pertaining to TDS to tneassessing authority for re-verifying even wnen tne|assessingautnority 1S rigntlydisallowedRs.17,38,222under|section40(a)(ia)Dy|considering the available materials on record as|well as provisions of the Act"?" 4. Tne learned counsel appearing for the appellants-|revenue has fairly submitted before this court that so far assubstantial question Nos.3 & 4 are concerned, he is notpressing for the same. 5. Learned counsel for the respondent assessee has|drawn the attention of this court towards the judgmentdelivered in ITA No.137/2015 dated 13.11.2020. Hiscontention is that the questions of law No.1 and 2 havealready been answered by this Court in the aforesaid case.He has drawn the attention of this Court towards paragraphs No.4 to 9 of the aforesaid judgment. Paras 4 to 9 of the |said judgment are extracted nereunder: “4, When the matter was taken up today,|learned counsel for the assessee suDmitted that firstsubstantia]question.of|lawhasalreaaybeen|answered by a bench of this court vide Judgmentdated|30.06.7014passedIn I. T.A.No.471/2013(Commissioner of Income Tax vs. The Urban Co-operative Bank Ltd) and Special Leave Petitionagainst the aforesaid order has been dismissed by.Supreme Court vide order dated 12.01.2015 keeping.the guestion of law open. The aforesaid aspect of thematter could not be disputed by tne learned counselfor the revenue. For the reasons assigned in thejuagment dated 30.06.2014 passed by this court in.[.T.A.No.471/2013, the first substantial question oflaw is answered against tne revenue and in favour ofthe assessee. 5.With regard to tne second substantial|question of law, learned counsel for the revenue.submitted that the assessee nad claimed tne benefitunder Section 36(1)(vila) of the Act and the assessee.has to first set off the bad debt written off against theprovision made under Section 36(1)(viia) of the Act. [t is further submitted that if actual write off is In.excess of provision made under Section 36(1)(viia) oftne Act, then as per proviso to Section 36(1)(vii),|actual write off in excess of provision of Section 5.With regard to tne second substantial|question of law, learned counsel for the revenue.submitted that the assessee nad claimed tne benefitunder Section 36(1)(vila) of the Act and the assessee.has to first set off the bad debt written off against theprovision made under Section 36(1)(viia) of the Act. [t is further submitted that if actual write off is In.excess of provision made under Section 36(1)(viia) oftne Act, then as per proviso to Section 36(1)(vii),|actual write off in excess of provision of Section 36(1)(viia) would alone be allowed under Section.36(1)(vil). It is also argued that allowing the provisionunder Section 36(1)(viia) of the Act and on actualwrite off under Section 36(1)(vil) of the Act would|amount to double deduction and tne same [s Incontravention of the law laid down by the Supreme.Court in CATHOLIC SYRIAN BANK LTD. VS. CIT (SC)|343 ITR 270. It is further submitted that the principlelaid down In the aforesaid decision has not been takennote of by the tribunal and therefore, the matterrequires re consideration. It is also urged that reliance placed on decision of this court in} COMMISSIONER.OF INCOME-TAX VS. CANFIN HOMES LID., 347 ITR-387 Is of no assistance to the assessee as in theaforesaid decision, the effect of Section 36(1)(vila) ofthe Act has not Deen considered. 6. On the other hand, learned counsel forthe assessee submitted tnat tribunal was Justified in.noilding tnat accounting Interest income on nonperforming asset on cash basis by the assesseethougnIt|Wasfollowingmercantilesystem|ofaccounting was correct since, once a particular assetis shown to be a non performing asset then theassumption Is tnat it is not yielding any revenue and.therefore, the question of showing that revenue and.paying tax would not arise. In support of aforesaidsubmissions, rellance has been placed on decisions 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). J |We have considered the submissionsmade by learned counsel for the parties and have.perused the record. In the course of assessmentproceeaings, it was noticed tnat assessee had debitedRs.1.5 Crores as provision for non performing assetbut in the income computation sheet the same nas|not been added. Tne assessee was given anopportunity to explain wny non performing assetprovision nas not aaded back to the total income, in.the income computation sneet and again deduction7.2% Under Section 36(1)(vila) has not been claimed.The assessee thereupon submitted that a provisionnas been made as per tne norms of the Reserve Bankof India and the details of non performing assets as.well|adsprovisionsmadeWeETEprovided. TheCommissioner of Income Tax (Appeals) held thatdeduction 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 UCOBank Ltd. supra. The tribunal in its order dated|10.10.2014 inter alia has held that thougn theassessee nas used the nomenclature as provision fornon performing assets but in pith and substance, theprovision has been created for bad and doubtful debtsand in doing so the assessee nas followed tne. guidelines framed by Reserve Bank of Inala. Thetribunal has therefore, affirmed the finding recordedqby the Commissioner of Income Tax (Appeals). guidelines framed by Reserve Bank of Inala. Thetribunal has therefore, affirmed the finding recordedqby the Commissioner of Income Tax (Appeals). 8.|This court in Canfin Homes Ltd. supraafter taking note of Section 145 of the Act has heldthat once a particular asset is snown as_ nonperforming asset then the assumption that it is notylelaing any revenue. When an asset is not yielding.any revenue, the question of snowing tnat revenue.and paying tax wouid not arise. Tne contentions,|which are sought to be raised by learned counsel forthe revenue do not arise for consideration in thecontext of substantial question of law, wnich Nas been.framed by this court. The concurrent findings havebeen recorded by the Commissioner of Income Tax.(Appeals) as well as tribunal in this regard, whicn)cannot be termed as perverse. 9. In view of preceding analysis, the second|substantial question of law is answered against therevenue and in favour of the assessee. In the result,we do not find any merit in this appeal, the same fails|and is hereby dismissed... 6. This court has carefully gone through the aforesaidjudgment. The substantial questions of law Nos.1 & 2 Nave|already been answered in respect of assessee for the| assessment year 2007-08 and the present appeal is in|respect of the assessment year 2008-09. 7. In the light of the aforesaid judgment delivered bytnis court, the substantial questions of law are answered|against the revenue and in favour of the assessee. Witn tneaforesaidopservation, theappealisdismissed_ No order as to costs. Sd/- JUDGE| Sd/-| JUDGE| PL*