2014 (6) TMI 925 - AT - Income Tax

Tribunal upholds CIT(A)'s decisions on disallowances & additions, allows deduction for unapproved gratuity funds.

The Tribunal upheld the CIT(A)'s decisions in favor of the assessee regarding disallowances under Section 40(a)(ia) and addition of interest on NPAs. It ... Non deduction of tax at source on the payment of interest on the deposits to members and non-members - Held that:- Disallowance made on account of interest paid by the assessee society to its members on deposits in excess of ₹ 10,000 invoking the provisions of section 40(a)(ia) is to be deleted as relying on The Bagalkot District Central Co-op. Bank, Bagalkot case [2015 (1) TMI 1005 - ITAT BANGALORE ] Addition on account of interest accrued on the loans & advances, which were classified as nonperforming assets - CIT(A) deleted the addition - Held that:- A similar issue involving identical facts thus has already been decided by the Tribunal in the case of ITO v. M/s. Shiva Sahakari Bank Niyamitha (2012 (12) TMI 1021 - ITAT BANGALORE) following the decision of the Hon’ble jurisdictional High Court in the case of Canfin Homes Ltd. (2011 (8) TMI 178 - KARNATAKA HIGH COURT) and respectfully following the same, we uphold the impugned order of the ld. CIT(Appeals) deleting the addition made by the AO on account of interest accrued on loans & advances classified as nonperforming assets. Disallowance of provision for bad and doubtful debts in respect of rural advances - Held that:- At this issue is squarely covered in favour of the revenue and against the assessee by the decision of the Tribunal rendered in the case of Syndicate Bank v. DCIT [2015 (4) TMI 727 - ITAT BANGALORE ]confirming the disallowance made by the AO on account of assessee’s claim for deduction u/s. 36(1)(viia) on account of provision for bad and doubtful debts in respect of rural advances. - Decided against assessee Disallowance on account of amortization of premium on Govt. securities - Held that:- Squarely covered in principle in favour of the assessee by the decision of the Tribunal rendered in the case of ING Vysya Bank Ltd [2015 (2) TMI 892 - ITAT BANGALORE ] . The matter is restored to the file of the Assessing Officer for the limited purpose of verifying as to whether the relevant securities in the present case are “held to maturity” by the assessee and accordingly to allow relief to the assessee on such verification, keeping in view the decision of the Tribunal in the case of ING Vysya Bank Ltd. (supra). Disallowance on account of payment by the assessee towards unapproved gratuity fund - Held that:- Respectfully following the decision of the co-ordinate Bench of the Tribunal in the case of Bilagi Pattana Sahakari Bank Niyamit (2013 (5) TMI 860 - ITAT BANGALORE), we delete the disallowance made by the AO and confirmed by the ld. CIT(Appeals) on account of payment made by the assessee to unapproved gratuity fund Issues Involved:1. Disallowance under Section 40(a)(ia) for non-deduction of TDS on interest paid to members.2. Addition of interest accrued on Non-Performing Assets (NPA).3. Disallowance of provision for bad and doubtful debts under Section 36(1)(viia).4. Disallowance of amortization of premium on government securities.5. Disallowance of payment to unapproved gratuity fund.6. Procedural fairness in the appellate process.Detailed Analysis:1. Disallowance under Section 40(a)(ia) for Non-Deduction of TDS on Interest Paid to Members:The primary issue was whether the assessee, a co-operative society engaged in banking, was required to deduct TDS on interest paid to its members exceeding Rs. 10,000. The CIT(A) deleted the disallowance made by the AO, referencing Section 194A(3)(v) of the Act, which exempts co-operative societies from deducting TDS on interest paid to their members. The Tribunal upheld this decision, citing a similar case (Bagalkot District Central Co-operative Bank) where it was established that co-operative societies need not deduct TDS on interest paid to members under Section 194A(3)(v). The Tribunal emphasized that the exemption applies irrespective of the nature of deposits or the amount.2. Addition of Interest Accrued on Non-Performing Assets (NPA):The AO added interest accrued on NPAs to the assessee's income, which the CIT(A) deleted. The CIT(A) reasoned that income from NPAs should not be recognized until actually received, following RBI guidelines and AS-9 issued by ICAI. The Tribunal upheld this view, referencing the jurisdictional High Court's decision in Canfin Homes Ltd., which supports non-recognition of income from NPAs on accrual basis due to uncertainty in collection.3. Disallowance of Provision for Bad and Doubtful Debts under Section 36(1)(viia):The AO disallowed the assessee's claim for deduction of provision for bad and doubtful debts, citing that the provision exceeded the amount debited to the profit and loss account. The CIT(A) upheld this disallowance. The Tribunal followed the decision in Syndicate Bank, where it was held that the deduction under Section 36(1)(viia) is limited to the amount debited to the profit and loss account. Consequently, the Tribunal upheld the CIT(A)'s decision, confirming the disallowance.4. Disallowance of Amortization of Premium on Government Securities:The AO disallowed the amortization of premium on government securities. The CIT(A) deleted this disallowance, and the Tribunal upheld this deletion, referencing the decision in ING Vysya Bank Ltd., which allowed such amortization for securities held to maturity. The Tribunal directed the AO to verify whether the relevant securities were indeed held to maturity and to allow the deduction accordingly.5. Disallowance of Payment to Unapproved Gratuity Fund:The AO disallowed the payment made by the assessee to an unapproved gratuity fund, which the CIT(A) confirmed. The Tribunal, however, deleted this disallowance, referencing the decision in Bilagi Pattana Sahakari Bank Niyamit, which allowed such payments under Section 37 of the Act as they were considered expenses laid out wholly and exclusively for business purposes.6. Procedural Fairness in the Appellate Process:The revenue contended that the CIT(A) did not provide an opportunity for the AO to be heard before deleting the disallowances. The Tribunal noted that similar issues had already been decided on merits in favor of the assessee in other cases, rendering the procedural grievance moot. Consequently, the Tribunal dismissed the revenue's grounds on this issue.Conclusion:The Tribunal upheld the CIT(A)'s decisions on disallowances under Section 40(a)(ia) and addition of interest on NPAs, favoring the assessee. It confirmed the disallowance of provision for bad and doubtful debts under Section 36(1)(viia) and allowed the amortization of premium on government securities subject to verification. The Tribunal also allowed the deduction for payment to unapproved gratuity funds. The appeals by the revenue were dismissed, and the appeals by the assessees were partly allowed.