This Court In The Case Otfcommissioner Of Income-Tax Andanother v. This Court Incanfin Homes Limited(Supra

IN THR HIGH COURT OF KARNATAKA|DHARWAD BENCH DATED THIS THE 29 DAY OF JANUARY, 2018 PRESENT THE HON’BLE MRS. JUSTICE S. SUJATHA AND THE HON’BLE MR. JUSTICE JOHN MICHAEL CUNHA| L.T.A. NO.100037/2017 BETWEEN : 1.|THER PR COMMISSIONER OF| INCOME TAX, DR.B.R.AMBEDKARVEEDHI, OPP: CIVIL HOSPITAL, |VEEDHI, OPP: CIVIL HOSPITAL, | BELAGAVI. |ASST. COMMISSIONEROF INCOME TAX, CIRCLE-1, VIJAYAPURA. ~.. APPELLANT (BY SRI.Y.V.RAVIRAJ, ADV.) AND: M/S BAGALKOT DISTRICT CENTRALCO OPERATIVE BANK LIMITED,NEAR BASAVESHWAR CIRCLE,|BAGALKOT, PAN:AAAAT 7937 N. _. RESPONDENT THIS APPBKRAL IS FILED UNDER SBCTION JO0OA OF TINCOME -TAXACT, 1961,PRAYINGTO,RFORMULATETHESUBSTANTIAL QUESTION OF LAW STATED ABOVE AND ALLOW,THR APPKHAL AND SBT ASIDE THR ORDERS PASSBD BY THEINCOME-TAX APPELLATE TRIBUNAL, “B” BENCH, BANGALORE IN.ITA NO.1594/BANG/2016, DATED 07.07.2017 AND CONFIRM THEORDER PASSED BY THR ASSISTANT COMMISSIONBR OF INCOME.TAX OFFICER, CIRCLE-1, VIJAYAPURA. THIS APPEAL COMING ON FOR ADMISSION THIS DAY,|S.SUJATHA J.,DELIVERED THE FOLLOWING: 7 OD 3 JUDGMENT This appeal is filed by the revenue under Section260A of the Income Tax Act, 1961 (for short the ‘Act’challenging the judgment and order passed by the IncomeTax Appellate Tribunal, “B” Bench, Bangalore (for short“ITAT”’) in ITA No.1994/Bang/2016 relating to theassessment year 2012-13. 2.The substantial question of law raised by therevenue is as under: “1. Whether on the facts and in the circumstances ofthe case and in law the Tribunal ts right in deletingthe additions made by the assessing authority onaccount of accrued interest on loans which areclassified as “Non-performing Assets” ignoring theprovisions of section 43D of the Income Tax Act,1961 amended w.e.f. 01.04.2000 which providesfor certain benefit to the certain class of assesseesbut does not provide such benefit to the respondentbank and more particularly when the respondent isfollowing mercantile system of accounting?” 3.The issue involved in this appeal is no moreTeSintegrain view of the decision of the Co-ordinate Bench otf this Court in the case otfCommissioner of Income-Tax andanother Vs. Canfin Homes Limited (2012) 347 ITR 382|(Karn), which has been followed by yet another Co-ordinate Bench of this Court in the case of!TheCommissioner of Income Tax and another Vs. SArt|Siddeshwar Co-Operative Bank Limited and others|in ITANo.200002/2015 and connected matters (DD 22[=7]June.2016). | 4This Court in|Canfin Homes Limited(supra), has held as under: © “Therefore, it is clear, if an assessee adoptsthe mercantile system of accounting and in hisaccounts he shows a particular income as accruing,whether that amount is really accrued or not isliable to bring the said income to tax. His accountsShould reflect true and correct statement of affairs.Merely because the said amount accrued was notrealized immediately cannot be a ground to avoidpayment of tax. But, uf in his account it ts clearlystated though a particular income is due to him butit ts not possible to recover the same, then it cannotbe sqid to have been accrued and the sqid aqmountcannot be brought to tax. In the instant case, wereare concerned with a non-performing asset. As the 4This Court in|Canfin Homes Limited(supra), has held as under: © “Therefore, it is clear, if an assessee adoptsthe mercantile system of accounting and in hisaccounts he shows a particular income as accruing,whether that amount is really accrued or not isliable to bring the said income to tax. His accountsShould reflect true and correct statement of affairs.Merely because the said amount accrued was notrealized immediately cannot be a ground to avoidpayment of tax. But, uf in his account it ts clearlystated though a particular income is due to him butit ts not possible to recover the same, then it cannotbe sqid to have been accrued and the sqid aqmountcannot be brought to tax. In the instant case, wereare concerned with a non-performing asset. As the definition of non-performing asset shows an assetbecomes non-performing when it ceases to yleldincome. Non-performing asset is an asset in respectof which interest has remained unpaid and hasbecome past due. Once a particular asset is shownto be a non-performing asset, then the assumption 1sit is not yielding any revenue. When it is notyielding any revenue, the question of showing thatrevenue and paying tax would not arise. As is clearfrom the policy guidelines issued by the NationalHousing Bank, the income from non-performingasset should be recognized only when it is actuallyreceived. That is what the Tribunal held in theinstant case. Therefore, the contention of theRevenue that in respect of non-performing assetseven though it does not yield any income as theassessee has adopted a mercantile system ofaccounting, he has to pay tax on the revenue whichhas accrued notionally its without any basis. In thatview of the matter, the second substantial questionframed is answered against, the Revenue and infavour of the assessee.” 5.In the case of.Shri Siddeshwar Co-Operative|Bank Limited(supra), the definition of non-performingassets as defined in Volume I of “‘Tannan’s Banking Lawand Practice in India’ has been extracted which reads as)under: © 5H: “1. Non-performing assets: An asset, including a leased asset, becomes|non-performing when it ceases to generate incomefor the bank. A “non-performing asset” (NPA) is a loan or an}advance where:| (i) the interest and / or instalment ofprincipalremain overdue for a period of more than 90 daysin respect of a term loan, (u) the account remains “out of order” for a|period of more than 90 days as indicated below, inrespect of an Overdraft/ Cash Credit (OD/ CC) (ui) the bill remains overdue for a period of|more than 90 days in the case of bills purchasedand discounted; (w) the instalment of principal or interest'|thereon remains overdue for two crop seasons forShort duration crops; (v) the instalment of principal or interest'thereon remains overdue for one crop seasons forlong duration crops. Banks should, classify an account as NPA|only if the interest charged during any quarter isnot serviced fully within 9O days from the end ofthe quarter. ” Further, asset classification which is separately dealt with reference to categories of non-performing assets are extracted which reads as follows: “Banksare|requiredTO classifynon-performing assets further into the following three|categories based on the period for which the assethas remained non-performing and the realisabilityof the dues: (a)Sub-standard Assets (b)Doubtful Assets (c}Loss ofAssets"| 6.From the aforesaid, it is manifest that when an) asset becomes non-performing, it ceases to yield incomeand once a particular asset is shown to be a non-performing asset, then it is nothing but no revenue isyielded. In such cases, paying tax would not arise. —Hence, we answer the substantial question of law againstthe revenue. In the result, appeal stands dismissed. od/-.JUDGE, Sh| sd/-|JUDGE