Tribunal Partially Allows Appeal, Reduces Disallowances on Interest & FDRs

The Tribunal partly allowed the appeal, deleting disallowances and additions related to interest on saving bank accounts, compulsory deposit accounts, recurring deposits, and NPAs. The disallowance on FDRs for non-members was reduced to 30%, and the disallowance on amortization of premium on government securities was deleted.

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Issues Involved:
1. Disallowance of Rs. 6,36,02,481/- due to non-deduction of tax on interest paid on deposits under Section 40(a)(ia) of the Act.
2. Addition of Rs. 52,20,914/- on account of interest on non-performing assets (NPA).
3. Disallowance of Rs. 1,92,041/- on account of amortization of premium on government securities.

Issue-Wise Detailed Analysis:

1. Disallowance of Rs. 6,36,02,481/- Due to Non-Deduction of Tax on Interest Paid on Deposits:

The Assessing Officer (AO) disallowed Rs. 6,36,02,481/- on account of non-deduction of tax on interest paid on various deposits by invoking Section 40(a)(ia) of the Act. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the disallowance to the extent of Rs. 1,72,27,362/-.

The Tribunal observed that there is no liability to deduct TDS on interest on saving bank accounts and compulsory deposit accounts as per Section 194A of the Act. This was accepted by the AO for the Assessment Year (AY) 2014-15, and no additions were made. Hence, the additions for AY 2013-14 regarding Rs. 69,73,450/- (interest on saving bank accounts) and Rs. 16,76,968/- (interest on compulsory deposit accounts) were deleted.

For interest on recurring deposits, the Tribunal noted that the amendment to Section 194A, which includes recurring deposits, was effective from 1st June 2015 and thus not applicable for AY 2013-14. Therefore, the addition of Rs. 11,80,887/- was deleted.

Regarding interest on FDRs for non-members amounting to Rs. 73,96,057/-, the Tribunal accepted the assessee's contention that the disallowance should be restricted to 30% instead of 100%, as per the amendment in the Finance Act, 2014. Thus, the disallowance was reduced to 30%.

2. Addition of Rs. 52,20,914/- on Account of Interest on Non-Performing Assets (NPA):

The AO added Rs. 52,20,914/- on account of accrued interest on NPA, which was confirmed by the CIT(A). The assessee argued that the interest on NPA should not be recognized as income unless actually received, following RBI guidelines.

The Tribunal agreed with the assessee, noting that the RBI guidelines for income recognition on NPAs apply to cooperative societies engaged in banking activities. The Tribunal cited precedents, including a decision in the case of Vaish Cooperative Adarsh Bank Ltd., which supported the non-recognition of interest on NPAs as income unless received. Thus, the addition of Rs. 52,20,914/- was deleted.

3. Disallowance of Rs. 1,92,041/- on Account of Amortization of Premium on Government Securities:

The AO disallowed Rs. 1,92,041/- claimed by the assessee as amortization of premium on government securities, considering it a capital loss. The CIT(A) upheld this disallowance, relying on the Supreme Court decision in Southern Technology Vs. CIT.

The Tribunal, however, noted that similar disallowances were deleted in the assessee's own case for AY 2010-11 and 2011-12. Additionally, RBI guidelines require the amortization of premium on securities held to maturity. The Tribunal concluded that the disallowance of Rs. 1,92,041/- was not justified and deleted it.

Conclusion:

The appeal was partly allowed for statistical purposes. The Tribunal deleted the disallowances and additions related to interest on saving bank accounts, compulsory deposit accounts, recurring deposits, and NPAs, while reducing the disallowance on FDRs for non-members to 30%. The disallowance on amortization of premium on government securities was also deleted.

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