2018 (12) TMI 322 - AT - Income Tax

Tribunal grants deductions and deletes additions in favor of taxpayer, emphasizing importance of judicial precedents.

Bhagini Nivedita Sahakari Bank Ltd., Lokmangal Co-Operative Bank Ltd. And The Karad Janata Sahakari Bank Ltd. Versus The Dy. Commissioner of Income Tax, Circle 1 (1) And The Asst. Commissioner of Income Tax, Circle 2, Solapur

The Tribunal allowed all appeals, granting deductions and deleting additions contested by the assessee. The decisions were based on precedents from High ... Disallowing deduction claimed u/s 36(1)(viia) - assessee was not having any rural advances and hence, was not eligible to claim of deduction u/s 36(1)(viia) - whether in the absence of any rural branches, can the benefit of deduction be allowed under section 36(1)(viia) of the Act and that also to the extent of 7.5% of total income - Held that:- The assessee is entitled to the claim of deduction under section 36(1)(viia) of the Act to the extent of 7.5% of total income. The assessee co-operative bank do not have any rural branches, hence is not entitled to the second part claim of 10% of advances made by rural branches. The deduction is allowable with a rider to satisfy the provisions of said section i.e. making a provision to that extent in the books of account. The first issue which is raised in the case of different co-operative banks stands decided in favour of assessee. Addition made on account of interest on NPAs - Held that:- The said issue is squarely covered by the decision in CIT Vs. Deogiri Nagari Sahakari Bank Ltd.[2015 (1) TMI 1218 - BOMBAY HIGH COURT]. In view of the issue being covered, we find no merit in the aforesaid addition and the same is deleted. The ground of appeal No.2 raised by assessee is thus, allowed. Addition on account of unclaimed dividend - Held that:- The said issue also stands covered by the ratio laid down by the Hon’ble Bombay High Court in CIT Vs. Deogiri Nagari Sahakari Bank Ltd. [2015 (1) TMI 1218 - BOMBAY HIGH COURT] wherein it was held that unclaimed dividend amounts to excess provision for dividend made by the assessee on an earlier occasion, which has been reversed by the assessee in the year under consideration and transferred to reserve account - also where the provision for dividend made earlier was not charged on profits but it was appropriation profits available post taxation, then there is no merit in the taxability of unclaimed dividend. - Decided in favour of assessee. Issues Involved:1. Disallowance of deduction under section 36(1)(viia) of the Income Tax Act.2. Addition on account of interest on Non-Performing Assets (NPAs).3. Disallowance of amortization of premium on Held to Maturity (HTM) securities.4. Addition on account of unclaimed dividend.5. Reopening of assessment under sections 147/148 of the Income Tax Act.Detailed Analysis:1. Disallowance of Deduction under Section 36(1)(viia):The primary issue was the disallowance of Rs. 95,66,809 claimed under section 36(1)(viia) by the assessee, a co-operative bank with no rural branches. The Assessing Officer (AO) disallowed the deduction, relying on the Supreme Court decision in Catholic Syrian Bank Ltd. Vs. CIT, which held that section 36(1)(viia) applies only to rural advances. The CIT(A) upheld this view. However, the Tribunal referred to the Kerala High Court decision in The Kodungallur Town Co-Op. Bank Ltd. Vs. ACIT, which clarified that co-operative banks could claim a deduction of 7.5% of total income under section 36(1)(viia)(a) without the condition of having rural branches. The Tribunal concluded that the assessee is entitled to the deduction of 7.5% of total income, provided a provision is made in the books of account.2. Addition on Account of Interest on NPAs:The issue of addition of Rs. 43,10,333 towards interest on NPAs was addressed. The Tribunal found this issue to be covered by the Bombay High Court decision in CIT Vs. Deogiri Nagari Sahakari Bank Ltd., which ruled against such additions. Consequently, the Tribunal deleted the addition.3. Disallowance of Amortization of Premium on HTM Securities:The Tribunal addressed the addition of Rs. 45,000 towards disallowance of amortization of premium on HTM securities. The Tribunal referred to its own order in the assessee's case for the assessment year 2009-10 and the Bombay High Court decision in CIT Vs. HDFC Bank Ltd., which allowed such deductions. The Tribunal deleted the addition based on these precedents.4. Addition on Account of Unclaimed Dividend:The addition of Rs. 71,302 towards unclaimed dividend was contested. The Tribunal referred to the Bombay High Court decision in CIT Vs. Deogiri Nagari Sahakari Bank Ltd., which held that unclaimed dividend, being an appropriation of profits post-taxation, should not be taxable. The Tribunal deleted the addition following this precedent.5. Reopening of Assessment under Sections 147/148:The assessee raised issues regarding the reopening of assessments for the years 2007-08 and 2009-10. Since the Tribunal decided the primary issues on merits in favor of the assessee, the issue of reopening became academic and was not adjudicated.Conclusion:The Tribunal allowed all the appeals, granting the deductions and deleting the additions as contested by the assessee. The decisions were primarily based on precedents from the High Courts and the Tribunal's own earlier rulings. The Tribunal's order emphasized the importance of following judicial precedents and interpretations that favor the taxpayer in the absence of contrary rulings.