2016 (3) TMI 915 - AT - Income Tax

ITAT Pune Upholds CIT(A) on Interest & Premium Additions for AY 2010-11 & 2011-12 (A)

ACIT, Circle-2, Solapur Versus Vyapari Sahakari Bank Maryadit

The ITAT Pune upheld the CIT(A)'s decisions to delete the additions of accrued interest on NPA and amortization of premium on investment for Assessment ... Addition on account of accrued interest on NPA u/s.43D - Held that:- The assessee being a co-operative bank was also governed by the Reserve Bank of India and thus the directions with regard to the prudential norms issued by the Reserve Bank of India are equally applicable to co-operative banks. The provisions of section 45Q of the Reserve Bank of India Act, 1934, have an overriding effect vis-à-vis income recognition under the Companies Act. Hence, section 45Q of the 1934 Act shall have the overriding effect over the income recognition principle followed by co-operative banks. Hence, the Assessing Officer has to follow the Reserve Bank of India Directions, 1998. Thus, the deletion of the additions on account of interest on sticky advances was justified. - Decided in favour of assessee Addition on account of amortization of premium on investment - Held that:- Pune Bench of the Tribunal in the case of Bhavani Urban Co-op Bank Ltd.(2013 (7) TMI 987 - ITAT PUNE ) allowed similar claim of the assessee. Therefore, respectfully following the decision of the jurisdictional High Court in the case of HDFC Bank Ltd. [2014 (8) TMI 119 - BOMBAY HIGH COURT ] and in absence of any distinguishable features brought to our notice by the Ld. Departmental Representative, we set-aside the order of the CIT(A) on this issue and direct the AO to delete the disallowance. - Decided in favour of assessee Issues Involved:1. Challenge to deletion of addition of accrued interest on NPA under section 43D of the Income Tax Act for Assessment Years 2010-11 and 2011-12.2. Challenge to deletion of addition of amortization of premium on investment for Assessment Years 2010-11 and 2011-12.Issue 1: Accrued Interest on NPA under Section 43D:The ITAT Pune dealt with the challenge to the deletion of the addition of accrued interest on Non-Performing Assets (NPA) under section 43D of the Income Tax Act for Assessment Years 2010-11 and 2011-12. The Revenue contested the CIT(A)'s decision to delete the addition of accrued interest on NPA. The ITAT noted that the assessee, a cooperative society engaged in banking, followed the mercantile system of accounting but accounted for interest receivable on NPAs on a cash basis in accordance with RBI guidelines. The AO added the interest on NPAs to the income of the assessee bank, arguing that the interest on sticky advances should be considered as income. However, the CIT(A) deleted the addition following various decisions and principles, including the decision of the Tribunal in the assessee's own case for A.Y. 2008-09. The ITAT upheld the CIT(A)'s decision based on previous rulings and the jurisdictional High Court's observations, dismissing the Revenue's grounds on this issue for both assessment years.Issue 2: Amortization of Premium on Investment:The ITAT Pune addressed the challenge to the deletion of the addition of amortization of premium on investment for Assessment Years 2010-11 and 2011-12. The Revenue disputed the CIT(A)'s decision to delete the addition of amortization of premium on securities. The AO disallowed the amount claimed for amortization of premium on Government Securities held under 'Held to Maturity' category, stating that while prudent from a banking perspective, it was not allowable under the Income Tax Act. The CIT(A) ruled in favor of the assessee, citing a Tribunal decision in a similar case. The ITAT referred to a decision of the Hon'ble jurisdictional High Court and another Tribunal case, where similar claims were allowed, and upheld the CIT(A)'s decision to delete the disallowance. The ITAT dismissed the Revenue's grounds on this issue for both assessment years, following the previous rulings and absence of contrary material.In conclusion, the ITAT Pune upheld the CIT(A)'s decisions to delete the additions of accrued interest on NPA and amortization of premium on investment for both Assessment Years 2010-11 and 2011-12. The ITAT dismissed the Revenue's appeals, citing previous rulings, Tribunal decisions, and observations from the jurisdictional High Court.