Tribunal decision on assessee's appeal: disallowance partially deleted, addition reduced, provisions upheld. Revenue's appeal dismissed.

The Tribunal partially allowed the assessee's appeal by deleting the disallowance of Rs. 10,99,420/- and the addition of Rs. 12,25,859/- on NPA interest. However, the disallowance of provisions for bad and doubtful debts was upheld. The Revenue's appeal was dismissed, affirming the deletion of disallowances related to amortization of premium and depreciation on investment fluctuation reserves.

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Issues Involved:
1. Disallowance of Rs. 10,99,420/-
2. Addition of Rs. 12,25,859/- on NPA interest
3. Disallowance of provisions for bad and doubtful debts u/s 36(viia) of Rs. 6,78,133/-
4. Deletion of disallowance of Rs. 1,86,000/- and Rs. 23,70,000/-

Issue-Wise Detailed Analysis:

1. Disallowance of Rs. 10,99,420/-:
The assessee, a cooperative society engaged in banking, did not deduct TDS on interest payments exceeding Rs. 10,000/- on time deposits, leading to a disallowance of Rs. 10,99,420/- by the Assessing Officer (AO). The assessee argued that such payments are exempt from TDS under section 194(3)(v) of the Income Tax Act. The Tribunal referred to a similar case (The Bagalkot District Central Coop. Bank) where it was held that cooperative societies, including those engaged in banking, are not required to deduct TDS on interest paid to members. The Tribunal concluded that the AO's disallowance was incorrect and deleted it.

2. Addition of Rs. 12,25,859/- on NPA Interest:
The AO added Rs. 12,25,859/- to the assessee's income, arguing that interest on Non-Performing Assets (NPA) should be recognized as income. The Tribunal referenced the case of M/s. Shiva Sahakari Bank Niyamitha, where it was held that interest on NPAs should not be recognized on an accrual basis due to uncertainty in collectability. The Tribunal found no disparity in facts and followed the precedent, deleting the addition made by the AO.

3. Disallowance of Provisions for Bad and Doubtful Debts u/s 36(viia) of Rs. 6,78,133/-:
The AO disallowed the provision for bad and doubtful debts, as the assessee did not make the provision in its accounts, although it claimed it in the return of income. The Tribunal noted that the claim was not specifically disclosed in the return of income nor made in the audited accounts. The Tribunal upheld the CIT (A)'s decision, which was based on the precedent that a provision must be made in the books of accounts to claim such deductions. The assessee's ground of appeal was rejected.

4. Deletion of Disallowance of Rs. 1,86,000/- and Rs. 23,70,000/-:
The AO disallowed Rs. 1,86,000/- as amortization of premium on government securities and Rs. 23,70,000/- as depreciation on investment fluctuation reserves, treating them as capital expenditures. The CIT (A) allowed these claims, referencing CBDT's Circular No.17/2008, which permits such deductions if the securities are classified as "Held for Trading" (HFT) or "Available for Sale" (AFS). The Tribunal agreed with the CIT (A), noting that the AO failed to establish that the securities were investments and not stock in trade. The Tribunal upheld the CIT (A)'s decision, dismissing the Revenue's appeal.

Conclusion:
The Tribunal partly allowed the assessee's appeal (ITA No.434/Bang/2013) by deleting the disallowance of Rs. 10,99,420/- and the addition of Rs. 12,25,859/- on NPA interest but upheld the disallowance of provisions for bad and doubtful debts. The Revenue's appeal (ITA No.529/Bang/2013) was dismissed, affirming the CIT (A)'s deletion of disallowances related to amortization of premium and depreciation on investment fluctuation reserves.

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