2015 (2) TMI 196 - AT - Income Tax

Appellate Tribunal rules in favor of assessee, remits issues for further verification and quantification

Asst. Commissioner of Income-tax Versus The Bijapur District Central Co-op. Bank Ltd.

Asst. Commissioner of Income-tax Versus The Bijapur District Central Co-op. Bank Ltd. - TMI Issues involved:1. Disallowance of interest paid to members for non-deduction of tax at source.2. Disallowance of interest on NPA but not credited to profit and loss account.3. Disallowance of gratuity paid to retired employees.Analysis:Issue 1: Disallowance of interest paid to members for non-deduction of tax at sourceThe Appellate Tribunal considered cross-appeals by the assessee and the Revenue against the CIT(A)'s orders for assessment years 2009-10 and 2010-11. The Assessing Officer disallowed interest paid to members exceeding Rs. 10,000 on time deposits for non-deduction of tax at source under sec.194A(3)(i)(b) of the Income-tax Act. The assessee argued that as a cooperative society engaged in banking, it was exempt from TDS under sec.194(3)(v). The Tribunal remitted the issue to the AO for verification and quantification of interest paid to members on different deposits, granting the assessee a fair hearing opportunity.Issue 2: Disallowance of interest on NPA but not credited to profit and loss accountThe Revenue's appeal focused on the deletion of addition by the AO regarding interest accrued on NPA but not credited to the profit and loss account. The CIT(A) followed a High Court decision stating interest is taxable only on receipt basis. The Tribunal upheld the CIT(A)'s decision, emphasizing that sec.43D, a provision for public financial institutions, did not apply to the assessee. Citing relevant case law, the Tribunal concluded that interest on NPA should be taxed on receipt basis, aligning with the High Court's ruling.Issue 3: Disallowance of gratuity paid to retired employeesRegarding the disallowance of gratuity paid to retired employees, the Tribunal found that the actual payment of gratuity could not be disallowed under sec.36(1)(v) or sec.40(a)(ia) of the Act. However, verification was needed to confirm the payment to employees. The issue was remitted to the AO for verification, with a directive to consider the matter afresh based on the evidence provided.In conclusion, the Tribunal allowed the assessee's appeals for both assessment years for statistical purposes and dismissed the Revenue's appeal on the interest accrued on NPA. The judgments were pronounced on 31st December 2014.