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. 265/2018 1.THE PR, COMMISSIONER OF INCOME-TAXCIT(A),"D FLOOR, SHREE TOWERS,NO.565/A, Al.OPPOSITE TO DRR HOSTELHADADI ROADDAVANAGERE-5//7 OO4 2.|THE INCOME-TAX OFFICER|WARD -l1"2 FLOOR, SHREE TOWERS,NO.565/A, Al.OPPOSITE TO DRR HOSTELHADADI ROADDAVANAGERE-5//7 OO4 .. APPELLANTS (BY SRI ARAVIND K V, ADVOCATE)| AND M/S. DAVANGERE DISTRICT CENTRAL CO-OP BANK LID.,#311, A BLOCK,DEVARAJA URS LAYOUT. D DAVANGERE-5/7/7 OQPAN: AAATD 661 /7 RESPONDENT| (BY SRI A.SHANKAR SR. ADVOCATEFOR SRI M.LAVA, ADVOCATE) THIS JBI.7T.A. IS FILED UNDER SECTION 260-A INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED03.11.2017 PASSED IN ITA NO.1093/BANG/2014, FOR THEASSESSMENT YEAR 2010-2011. PRAYING TO (i) FORMULATETHE SUBSTANTIAL QUESTIONS OF LAW (ii) ALLOW THEAPPEAL AND SET ASIDE THE ORDERS PASSED BY THEINCOME TAX APPELLATE TRIBUNAL, BENGALURU IN ITA NO.1093/BANG/2014 DATED 03.11.2017 AND CONFIRM THEORDER OF THE APPELLATE COMMISSIONER CONFIRMINGTHE ORDER PASSED BY THE INCOME TAX OFFICER, WARD-1, DAVANAGERE AND EITC. THIS I.T.A COMING ON FOR HEARING THIS DAY, |SATISHCHANDRA|SHARMAJ.,DELIVEREDTHE.FOLLOWING: JUDGMENT Tne present appeal is by the Revenue, arising against|tne Order dated 3[0;]November, 2017 passed in ITA|No.1093/Bang/2014 by the the Appellate Commissionerconfirming the order passed by the Income Tax Officer,Ward-1, Davanagere. 2. The statement of facts as stated by the appellantsin the Memorandum of Income Tax Appeal reflects that theassessee claims to be involved in the business of banking. Tne assessment order under Section 143(3) of the IT Actcame to be passed whereby the Assessing Authority madeseveral disallowances. Jhe disallowances were mainly inrespect of Provisions for NPAs, RO & SAQ's cost, accruedinterest on NPA‘s, addition on account of Bank ReconciliationProvisions. Assessee preferred an appeal before the CIT(A). |Tne CIT(A) partly allowed the appeal. As sucn Revenue andAssessee both preferred the appeal before the Tribunal. TheTribunal Nas partly allowed potn the appeals preferred by tneassessee as well as Revenues. The Tribunal nas renderedCommon order for both cases. The Tribunal has allowed claimof assessee for debiting Rs.3,00,00,000 for AY.2010-11 asprovisions for NPA’s and claiming that such a provision wasmandated as per Prudential Norms of RBI. The Tribunal hasdeleted the additions made on account of accrued interest onNPA by relying its earlier decision in case of assessee itselfwhich has not reached finality. The revenue has preferredthe present appeal before this Hon bie Court against orderdated 03.11.2017 passed by Tribunal. 3. This Court has framed the following substantial|questions of law: (1)Whetner on the facts and in thecircumstances of the case, the Tribunal is right|in law in setting aside findings of the assessingauthority in respect of provisions for NPA’s|debited to P & L Account for A.Y.2010-11 by|following the decision of Apex Court in case of|UCO Bank Ltd v/s CIT (reported in 237 ITRpage 889)" ? (2)|WhetherOf)the|factsandIn.the|circumstances of the case, the Tribunal is right|in law in deleting the addition made on)account of accrued interest on NPA, loans andadvances by relying on its earlier decision|passed in case of assessee’ 7? 4. The learned counsel appearing for the parties nave|drawn the attention of this court towards the judgmentdelivered in ITA No.137/2015 dated 13.11.2020. Paras 4 to9 of the said judgment reads as under:- “4, When the matter was taken up today,learned counsel for the assessee submitted thatfirst substantial question of law has alreaay beenanswered by a bench of this court vide Judgment (2)|WhetherOf)the|factsandIn.the|circumstances of the case, the Tribunal is right|in law in deleting the addition made on)account of accrued interest on NPA, loans andadvances by relying on its earlier decision|passed in case of assessee’ 7? 4. The learned counsel appearing for the parties nave|drawn the attention of this court towards the judgmentdelivered in ITA No.137/2015 dated 13.11.2020. Paras 4 to9 of the said judgment reads as under:- “4, When the matter was taken up today,learned counsel for the assessee submitted thatfirst substantial question of law has alreaay beenanswered by a bench of this court vide Judgment dated 30.06.2014 passed in I.1T.A.No0.471/201(Commissioner of Income Tax vs. Tne Urpan Co-operative Bank Ltd.,) and Special Leave Petitionagainst the aforesaid order has been dismissedby Supreme Court vide order dated 12.01.2015keeping the question of law open. The aforesaid|aspect of the matter could not be disputed by thelearned counsel! for the revenue. For the reasonsassigned in the jJuaqgment dated 30.06.201passed by this court in I.1.A.No.471/2013, tnefirst substantial question of law is answered|against tne revenue and in favour of the|GdSSECSSCE 5,With regard to the second substantialguestion of law, learned counsel for the revenuesubmitted that the assessee had claimed thebenefit under Section 36(1)(viia) of the Act and|the assessee has to first set off the bad debtwritten off against the provision made underSection 36(1)(vila) of the Act. It its furthersubmitted that if actual write off is in excess ofprovision made under Section 36(1)(viia) of tneAct, then as per proviso to Section 36(1)(vii),actual write off in excess of provision of Section36(1)(viia) would alone be allowed under Section36(1)(vil). It is aiso argued that allowing the|provision under Section 36(1)(viia) of the Act and on actual write off under Section 36(1)(vii) of theAct would amount to double Geduction and thesame is in contravention of the law laid down bythe Supreme Court in CATHOLIC SYRIAN BANKLTD. VS. CIT (SC) 343 ITR 270. It is furthersubmitted that the principle laid down in theaforesaid decision nas not been taken note of bythe tribunal and therefore, the matter requires reconsideration. It is also urged that relianceplacedOP)decisionofthiscourtIn-COMMISSIONER OF INCOME-TAX VS. CANFINHOMES LTD., 347 ITR 382 is of no assistance tothe assessee as in the aforesaid decision, theeffect of Section 36(1)(vila) of the Act nas notbeen considered. 6.On the other hand, learned counselfor tne assessee subpmitted tnaet tribunal wajustified in holding that accounting’ interestincome on non performing asset on casn Dasis bytne assessee though it was following mercantilesystem of accounting was correct since, once aparticular asset is shown to be a non performingasset then the assumption is tnat it is notyielding any revenue and therefore, the questionof snowing that revenue and paying tax wouldnot arise. In support of aforesaid submissions,|reliance nas 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 INITA NO.471/2013 (KAR), CIT VIS’ THEURBANCO-OPERATIVEBANK|IN|SLPNO.1066/2015 (SC)and|'UCO BANK VS.CIT, 360 ITR 567 (KOL). 6.On the other hand, learned counselfor tne assessee subpmitted tnaet tribunal wajustified in holding that accounting’ interestincome on non performing asset on casn Dasis bytne assessee though it was following mercantilesystem of accounting was correct since, once aparticular asset is shown to be a non performingasset then the assumption is tnat it is notyielding any revenue and therefore, the questionof snowing that revenue and paying tax wouldnot arise. In support of aforesaid submissions,|reliance nas 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 INITA NO.471/2013 (KAR), CIT VIS’ THEURBANCO-OPERATIVEBANK|IN|SLPNO.1066/2015 (SC)and|'UCO BANK VS.CIT, 360 ITR 567 (KOL). /.We have considered the submIissionsmade by learned counsel! for the parties and naveperused the record. In the course of assessmentproceeaings, it was noticed tnat assessee naddgebiteqd Rs.1.5 Crores as_ provision for nperforming asset but in the income computationsheet the same has not been added. Theassessee was given an opportunity to explainwny non performing asset provision has notadded back to the totai income, in the incomecomputation sheet and again deduction 7.5%under Section 36(1)(viia) has not been claimed.Thedssessecethereuponsubmittedthatdprovision has been made as per the norms of theReserve Bank of India and the details of nonperforming assets as well as provisions madewere provided. The Commissioner of Income Tax(Appeals) neld that deduction for provision forbad and doubtful debt is allowed under Section36(1)(viia) of the Act in the light of the decision of the Supreme Court in UCO Bank Ltd. supra.The tribunal tn its order dated 10.10.2014 interalia nas held tnat though the assessee Nas usedthe nomenciature as provision for non performingassets but in pith and substance, the provisionhas been created for bad and doubtful debts andin aoing so the assessee has followed theguidelines framed by Reserve Bank of India. Thetribunal nas_ tnerefore, affirmed the findingrecorded by the Commissioner of Income Tax|(Appeals). &.This court in Canfin Homes Ltd. supraafter taking note of Section 145 of the Act has|neld that once a particular asset is snown as nonperforming asset then the assumption that it Isnot yielding any revenue. When an asset is notyielding any revenue, the question of showingthat revenue and paying tax would not arise. Thecontentions, wnichn are sougnt to be raised bylearned counsel for the revenue do not arise forconsiderationInthecontextOf|suDStantialguestion of law, wnich has been framed by thiscourt. Theconcurrentfindingshave|been|recorded by the Commissioner of Income Tax|(Appeals) as well as tribunal in this regard, whicncannot be termed as perverse. In view of preceding analysis, the secondsubstantial question of law is answered against|the revenue and In favour of the assessee. I[n theresult, we do not find any merit in this appeal,the same fails and is nereby dismissed. | 5. The question of law framed by this Court has/|already been answered py this court vide judgment dated13.11.2020 as reproduced above. The only difference is thatthis appeal is for the assessment year 2010-11. 6. In view of the judgment delivered by this court in|identical facts and circumstances of the case, in ITANo.137/2015 dated 13.11.2020, the substantial questions oflaw are answered against the revenue and in favour of theassessee, thisAppeal Is dismissed. Ordered accordingly. Sd/- JUDGE| Sd/-| JUDGE| PL*|