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of <h1>Tribunal rules in favor of assessee on interest disallowance, amortization, and leave salary provision</h1> The Tribunal ruled in favor of the assessee, directing the AO to delete the disallowance of interest on Non-Performing Assets (NPAs) and amortization of ... Interest on Non-Performing Assets - accrual of income - Held that:- Identical issue had come up before the Tribunal in the case of The Omerga Janta Sahakari Bank Ltd [2014 (12) TMI 355 - ITAT PUNE] what to talk of interest, even the principle amount itself had become doubtful to recover - In this scenario it was legitimate move to infer that interest income thereupon has not “accrued”- thus, there was no infirmity with the decision of the CIT(A) in holding that the interest income relatable on NPA advances did not accrue to the assessee – Decided against revenue. Disallowance being amortization of premium on Government Securities - Held that:- We find the issue stands decided in favour of the assessee by the decision of the Coordinate Bench of the Tribunal in the case of Solapur Janta Sahakari Bank Ltd [2014 (1) TMI 1805 - ITAT PUNE] wherein held the Law is well settled that all the securities held by the Bank are part of the stock-in-trade irrespective of the fact how the classification is made.– Decided against revenue. Issues Involved:1. Disallowance of interest on Non-Performing Assets (NPAs).2. Disallowance of amortization of premium on Government Securities.3. Disallowance of provision for leave salary.Issue-wise Detailed Analysis:1. Disallowance of Interest on Non-Performing Assets (NPAs):The assessee contested the disallowance of Rs. 1,43,16,571/- on account of interest on NPAs, arguing that it followed RBI norms for income disclosure. The AO added the interest to income based on CBDT guidelines, which the CIT(A) upheld, stating that RBI guidelines are disclosure norms and do not override the Income-tax Act. The CIT(A) distinguished between bad debts and NPAs, noting that NPAs do not qualify for deduction under the IT Act. However, the Tribunal found that the issue was covered by previous decisions favoring the assessee, such as in the case of ACIT Vs. Dharmvir Sambhaji Urban Co-op. Bank Ltd. and The Omerga Janta Sahakari Bank Ltd. The Tribunal followed the principle that interest on NPAs should not be added to income on a notional basis, especially when there is a divergence of judicial opinion. Consequently, the Tribunal directed the AO to delete the addition of Rs. 1,43,16,571/-.2. Disallowance of Amortization of Premium on Government Securities:The assessee, a scheduled cooperative bank, claimed amortization of Rs. 11,54,019/- on Government Securities classified under HTM (Held to Maturity) as per RBI guidelines. The AO disallowed this, stating that such amortization is not recognized under the Income-tax Act. The CIT(A) upheld the AO's decision, asserting that RBI guidelines do not override the IT Act for cooperative banks. However, the Tribunal referred to its previous decisions, such as in Solapur Janta Sahakari Bank Ltd. and Latur Urban Coop. Bank Limited, which held that all securities held by banks are stock-in-trade, and amortization of premium on HTM securities is allowable as per RBI guidelines. The Tribunal directed the AO to delete the disallowance of Rs. 11,54,019/-.3. Disallowance of Provision for Leave Salary:The AO disallowed Rs. 11,20,000/- provision for leave salary under section 43B(f) as it was not paid before the due date of filing the return. The CIT(A) directed the AO to verify the evidence of payment and allow the provision if it was paid before the filing date. The Revenue appealed, arguing that the CIT(A) admitted new evidence in contravention of Rule 46A. The Tribunal found no infirmity in the CIT(A)'s order, as it merely directed verification of evidence by the AO. The Tribunal upheld the CIT(A)'s order, allowing the provision for leave salary if the payment was verified.Conclusion:The Tribunal allowed the appeal by the assessee regarding the disallowance of interest on NPAs and amortization of premium on Government Securities, directing the AO to delete these additions. It dismissed the Revenue's appeal concerning the provision for leave salary, upholding the CIT(A)'s directive for the AO to verify the payment evidence.
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