By Ajay R. Singh
Advocate
6. The Pr. CIT-1
vs. The Janalaxmi Co-operative Bank Ltd. [Income tax Appeal No. 683 of 2017] Date of order: 26th August, 2019 (Bombay High Court)
The Janalaxmi Co-operative Bank Ltd. vs. The Pr. CIT-1;
date of order: 20th May, 2016; [ITA No. 1955/PN/2014; A.Y.: 2010-11;
Bench: ‘B’ Pune ITAT]
Section 263: Revision – Assessee filed detailed reply to
the query raised by AO in respect of interest on NPA – Revision not possible if
the AO had taken a view after due consideration of assessee’s submissions
The
assessee is a co-operative society engaged in the banking business. It filed
its return of income for the A.Y. 2010-11 declaring Nil income. During the
course of scrutiny assessment, the AO issued a questionnaire to the assessee
who replied to the same. One of the queries was with respect to interest on
non-performing assets, Rs. 2,64,59,614, debited to profit and loss account. The
AO was satisfied with the reply of the assessee and did not make any addition
with regard to the interest on NPAs.
However,
the CIT issued a notice u/s 263 of the Act on the ground that no proper inquiry
/ verification was carried out by the AO in respect of interest expenses and
the NPAs claimed by the assessee. The CIT held that any provision towards any
unascertained liability is not an allowable deduction under the provisions of
the Act, therefore, the entire provision towards interest expenditure,
amounting to Rs. 2,64,59,614, needs to be disallowed. The CIT vide the impugned
order set aside the assessment order and directed the AO to pass fresh orders
after conducting proper inquiries / verification on the aforementioned issue.
Being
aggrieved by the order, the assessee filed an appeal to the Tribunal. The
assessee submitted that the issue relating to interest arising on NPAs has been
settled by the Supreme Court in the case of UCO Bank vs. CIT [154 CTR 88
(SC)]. The Bombay High Court had also, in the case of Deogiri
Nagari Sahakari Bank Ltd. in Income Tax Appeal No. 53 of 2014 on 22nd
January, 2015, decided the issue in favour of the assessee. The assessee
further submitted that the Co-ordinate Bench of the Tribunal, in the case of
similarly situated other assessees vide common order dated 4th
February, 2016, has deleted the addition made on account of interest accrued on
NPAs.
The
Tribunal held that a perusal of the submissions made by the assessee before
ACIT shows that during the course of assessment proceedings, the assessee has
given detailed reply to the query raised by the AO in respect of interest on
the NPAs. Therefore, once the issue has been considered by the AO in scrutiny
assessment proceedings, provisions of section 263 of the Act cannot be invoked
unless two conditions are satisfied, that is, (i) the assessment order is erroneous;
and (ii) it is prejudicial to the interest of Revenue. In the present case the
reason/s given by CIT to hold that the assessment order is erroneous is not
tenable.
Being
aggrieved by the order, the Revenue filed an appeal to the High Court. The Court
held that during the regular assessment proceedings leading to the assessment
order, specific queries with respect to interest for NPAs / sticky loans being
chargeable to tax were raised and the assessee had given detailed replies to
them. The AO, on consideration, did not make any addition with regard to it in
the return, i.e., on account of interest on sticky loans. In CIT vs. Fine
Jewellery (India) Ltd., 372 ITR 303 rendered in the context of section
263 of the Act, it was held that once inquiries are made during the assessment
proceedings and the assessee has responded to the queries, then non-mentioning
of the same in the assessment order would not lead to the conclusion that the
AO had not inquired into this aspect. In the result, the appeal of the Revenue
was dismissed.
