2016 (3) TMI 1430 - AT - Income Tax

Tribunal affirms CIT(A) decisions, rejects Revenue's appeal on various issues, cites legal precedents

The Tribunal upheld the CIT(A)'s decisions on all contested issues, dismissing the Revenue's appeal. The additions on interest on NPAs and investments in ... Accrual of income - interest on non- performing assets - year of assessment - whether interest on NPAs has also accrued to the assessee as on 31-03-2012 and is taxable? - CIT-A deleted the addition - HELD THAT:- As it is clear that this issue is covered by the judgment of the Hon’ble High Court in the case of CIT Vs Canfin Homes Ltd. [2011 (8) TMI 178 - KARNATAKA HIGH COURT] and by following the said judgment of the Hon’ble jurisdictional High Court this Tribunal has decided the issue in favour of the assessee for the assessment year 2010-11 [2015 (10) TMI 598 - ITAT BANGALORE] Following the earlier order of this Tribunal in assesee’s own case we do not find any error or illegality in the impugned order of the CIT(A) qua this issue. Addition of interest on investments in government securities - assessee did not offer the interest accrued, but not due on government securities to tax - AO has made an addition by holding that the interest accrued but not due on government securities is income accrued to the assessee during the year under consideration and accordingly, brought the same to tax - HELD THAT:- It is clear that this issue is decided in favour of the assessee by this Tribunal by following the decision of the Hon’ble Kerala High Court in case of CIT Vs Federal Bank [2008 (1) TMI 195 - KERALA HIGH COURT] as well as the judgment of jurisdictional High Court in the cased of Karnataka Bank Ltd. [2014 (11) TMI 221 - KARNATAKA HIGH COURT] Following the earlier order of the Co-ordinate Bench of this Tribunal in assessee’s own case, we do not find any error or illegality in the impugned order of the CIT(A) on this issue. Hence, ground no.3.2 of the revenue is dismissed. TDS u/s 194A - payment of interest on deposits - disallowance u/s 40(a)(ia) - Assessee paid interest on deposits from members and payment to each of the depositors exceeded a sum of ₹ 10,000 - CIT-A deleted the addition - HELD THAT:- CIT(A) has correctly deleted the disallowance made by the AO by following the decision of Bagalkot District Central Co-op. Bank Ltd [2015 (1) TMI 1005 - ITAT BANGALORE] wherein it was held that the Co-operative bank is covered by the exemption specified u/s 194A(3)(v) of the IT Act. Therefore, the co-operative bank is not required to deduct tax at source u/s 194A of the IT Act, 1961. Disallowance of expenditure on the ground of non-business expenditure - CIT(A) allowed the claim of the assessee and deleted the disallowance - HELD THAT:- As relying on assessee's own case [2015 (10) TMI 598 - ITAT BANGALORE] taking into account the totality of the facts and materials, we are of the considered view that the assessee is entitled to claim this deduction and hence, we allow the grounds of the assessee relating to this issue. Addition u/s 36(1)(viia) - disallowance of the claim of provision towards NPA - AO was of the view that Explanation to sec.36(1)(vii) of the IT Act, provides that any bad debt or part thereof written off cannot include any provision for bad and doubtful debts. The provision for NPA under the RBI direction is doubtful assets and accordingly, the AO disallowed the claim of the assessee - CIT-A deleted the addition - HELD THAT:- As it is manifest from the finding of the CIT(A) that the claim of the assessee was examined by the CIT(A) as per the provision of Sec.36(1)(viia) and accordingly, the AO was directed to allow the claim under the said provision after verification of the provisions made by the assessee and compliance of conditions provided u/s 36(1)(viia) of the IT Act, 1961. Accordingly, we do not find any reason to interfere with the impugned order of the CIT(A) on this issue and the AO is directed to consider and examine this claim u/s 36(1)(viia) - Decided against revenue. Issues Involved:1. Addition on account of interest on non-performing assets (NPAs).2. Addition on account of interest on investments in government securities.3. Disallowance under Section 40(a)(ia) for non-deduction of TDS on interest payments.4. Disallowance of non-business expenditure.5. Addition made in respect of amortization of premium on government securities.6. Disallowance of provision for non-performing assets (NPA) and standard assets.Issue-wise Detailed Analysis:1. Addition on account of interest on non-performing assets (NPAs):The Assessing Officer (AO) added Rs. 98,46,471/- as interest on NPAs, which was contested by the assessee. The CIT(A) deleted this addition by following an earlier order for the assessment year 2010-11. The Tribunal upheld this deletion, referencing the Karnataka High Court's decision in CIT Vs Canfin Homes Ltd. (2011) 347 ITR 382, which held that there can be no question of accrual of income on NPAs even under the mercantile system of accounting. The Tribunal noted that the Revenue's appeal to the Supreme Court did not alter the applicability of the High Court's ruling.2. Addition on account of interest on investments in government securities:The AO added Rs. 4,16,05,627/- as interest accrued but not due on government securities, which the assessee had not offered to tax. The CIT(A) deleted this addition, following the Tribunal's earlier decision for the assessment years 2010-11 and 2011-12. The Tribunal reiterated that interest on securities is taxable only on specified dates when it becomes due for payment, not on an accrued basis, as supported by the Madras High Court in CIT Vs Tamil Nadu Mercantile Bank Ltd., 291 ITR 137 (Mad.).3. Disallowance under Section 40(a)(ia) for non-deduction of TDS on interest payments:The AO disallowed Rs. 62,51,01,510/- for non-deduction of TDS on interest paid to members. The CIT(A) deleted this disallowance, referencing the Tribunal's decision in Bagalkot District Central Co-op. Bank Ltd., which held that co-operative banks are covered by the exemption under Section 194A(3)(v). The Tribunal upheld this view, citing the Karnataka High Court's decision in Bailhongal Urban Co-Op. Bank Ltd., which confirmed that co-operative banks need not deduct TDS on interest paid to members before June 1, 2015.4. Disallowance of non-business expenditure:The AO disallowed Rs. 1,18,60,800/- paid to Navodaya Grama Vikasa Charitable Trust, considering it non-business expenditure. The CIT(A) allowed this expenditure, noting it was incurred as per NABARD's directions for promoting self-help groups, which generated business for the assessee. The Tribunal upheld this, referencing the Rajasthan High Court's decision in Rajasthan Spinning and Weaving Mills Ltd., which emphasized the relationship between the expenditure and the business's benefit.5. Addition made in respect of amortization of premium on government securities:The AO disallowed Rs. 45,25,556/- claimed as amortization of premium on government securities. The CIT(A) allowed this claim, following the Tribunal's decisions for the assessment years 2010-11 and 2011-12. The Tribunal reiterated its stance from previous cases, such as M/s Sir M. Visweswaraya Co-operative Bank Ltd., that amortization of premium on government securities is an allowable deduction as per the RBI guidelines and consistent accounting practices.6. Disallowance of provision for non-performing assets (NPA) and standard assets:The AO disallowed Rs. 2.5 Crores claimed as provision for NPA, citing that it does not qualify as an allowable deduction under Section 36(1)(vii). The CIT(A) directed the AO to allow the deduction under Section 36(1)(viia) after verification. The Tribunal upheld this directive, emphasizing the need for the AO to verify the provision's compliance with Section 36(1)(viia), which allows deductions for provisions made in the books of account for bad and doubtful debts.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all contested issues, reaffirming the established legal principles and precedents.