TaxTMI 
TaxTMI 
2015 (4) TMI 726
X X X X Extracts X X X X
X X X X Extracts X X X X
....he face value of such securities. The CIT(A) was not correct in confirming disallowance of such amortization expenditure as various Judicial precedents of High Court and Tribunals have held it to be an allowable expenditure. It be held accordingly. 2. On the facts and circumstances of the case and in law the Ld CIT(A) was not correct in his decision to disallow such amortization expenditure holding that there was no provision in the I. T. Act, 1961 to allow amortization premium as deduction either in the year of acquisition of HTM securities or over the period of maturity on deferred basis. This also runs to contrary Cl. (vii) of Instruction No.17/2008 dt. 26-11-2008 of CBDT. The deduction claimed be allowed. 3. On the facts and circumstances of the case and in law the Ld. CIT(A) was not justified in confirming the addition made by the A.O. of Rs. 40,30,000/- holding it as provision for investment depreciation fund. In view of judicial precedents available on the subject the same cannot be disallowed. In the circ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....when the same was reimbursed by the Government and received by the Bank. The disallowance of the said amount also runs contrary to the 'Real Income Theory'. The disallowance on this count also is not sustainable. It be quashed. 8. On the facts and circumstances of the case and in law the Ld. CIT(A) was not justified in not considering the oral submissions made before him regarding the disallowance of depreciation on different assets of Rs. 66,66,960/- though no specific ground of appeal was raised before him in appeal memo F. No. 35. The grant of depreciation at correct rates is mandatory even if not claimed by the assessee. The matter be restored to the file of the A.O for correct working of the same for allowance in the interest of justice. 9. On the facts and circumstances of the case and in law the levy of interest u/s 234A, 234B and 234C is not justified. The levy of interest be quashed. 10. The appellant craves/lea....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in DCIT Vs. Kallappanna Awade Ichalkaranji Janata Sahakari Bank Ltd. in ITA No.449/PN/2012 and CO No.130/PN/2013. 7. The brief facts of the case are that, in the return of income, the assessee had claimed deduction on account of amortization of premium on government securities amounting to Rs. 1.94 crores. It was further stated that the said claim was supported by the RBI Circular / Instruction dated 13.07.2005. The Assessing Officer was of the view that the assessee had prepared the Profit & Loss Account on the basis of Guidelines / Circulars issued by the RBI for banking business. As per the RBI Circular, the devolution of securities Held To Maturity (HTM) were required to be valued at its realized price and only securities Held For Trading (HFT) or Available For Sale (AFS) needs to be valued at its realizable price on the last day. The devolution in the value of these securities i.e. HFT and AFS category were to be provided in the books of account as per the RBI Circulars. The assessee had debited a sum of Rs. 1.94 crores to its Profit & Loss Account as premium amortized and the same was claimed as an allowable expenditure. The Assessing Officer however, observed that the ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uctions or their exclusions under the Income Tax Act. Further, reference was made by the CIT(A) to the CBDT's Instruction No.17/08 dated 26.11.2008 and vide para 3.4.3, it was observed as under:- "3.4.3. As could be noticed from the above Instruction, it only refers to the earlier guidelines of RBI on the classification of investment portfolio of banks and states that the latest guidelines of the RBI may be referred to for allowing any such claims. It is important to note that the instruction was issued prior to the decision of the Apex Court in Southern Technologies (supra), wherein it is held that the RBI Guidelines or prudential norms issued by RBI are not intended to regulate income-tax laws. Similarly, in the case of Bank of Rajasthan in ITA No. 2246/Mum/2009, relied upon by the appellant, the decision of the Apex Court in Southern Technologies (supra) was not brought to the notice of the ITAT, Mumbai. There is no provision under the IT Act to allow amortization of premium as deduction either in the year of acquisition of HTM securities or over the period of maturity on deferred basis." 10. The assessee is in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bsp; "4. After going through rival submissions and material on record we find that with the advent of section 80P(4) w.e.f. A.Y, 2007-08 has closed the doors for cooperative banks for claiming the benefit of deduction u/s.80P(2)(a)(i) from this total income. However, the cooperative society should now be entitled to be assessed as normal banking company. The clause (4) inserted in section 80P has taken away the benefit of the erstwhile deduction available to cooperative society in carrying on business of banking or providing credit facility to its members. The new clause (4) inserted by the Finance Act, 2006 w.e.f. 01-04-2007 reads as under: " The provision of the section was not in relation to any cooperative bank other than agricultural credit society or primary cooperative agricultural and rural development bank". 5. The intention of the provision may be derived more precisely from relevant Para 166 of the budget speech which stated that : "Co-operative banks, like any other bank, are lending insti....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... It has also been held in the case of Catholic Syrian Bank Ltd. Vs. ACIT that amortization on purchase of Government securities was made as per prudential norms of the RBI and same was allowable deduction. In view of above, assessee was justified in contending for amortization of premium paid in excess of face value of securities held to maturity (HTM) category or period remaining till maturity was found reasonable by the CIT(A). Accordingly addition of Rs. 17,91,659/- made by the Assessing Officer by disallowing amount towards amortization of Government Securities (HMT) was deleted. This reasoned factual and legal finding of the CIT(A) needs no interference from our side. We uphold the same. 9. As a result, the appeal filed by the Revenue is dismissed". 10.1 Respectfully following the decision of the Coordinate Bench of the Tribunal and in absence of any contrary material brought to our notice against the above cited decision we find no infirmity in the order of the Ld.CIT(A) deleting the addition. Accordingly, the order of the Ld.CIT(A) is upheld and the grounds raised by the Revenue are dismissed."  ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vision made in the books of account and not actually written off. Secondly, as per the CIT(A) there was no provision under the I T Act to allow such provision for amortization of premium as deduction either in the year of creation of provision or over the period of maturity of HTM securities on deferred basis. Before the CIT(A), the assessee raised a new claim that the bank shifted some of the HTM securities to AFS classification on 25.12.2008 and in the process it suffered a loss of Rs. 40,30,000/- and it was not a provision for amortization. The CIT(A) observed that the assessee has failed to furnish the details to substantiate the new claim and even in the statement of facts, it was stated that it was a provision for amortization of government securities. The CIT(A) from the annual accounts, further noted that it was only a provision for investment depreciation fund made in the books of account and do not represent actual loss or depreciation on conversion of HTM securities to AFS, hence the loss claimed by the assessee was not allowed by the CIT(A), against which the assessee is in appeal before us vide ground of appeal No.3. 15. The learned Authorized Representative for the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....,000/- on the said transfer of securities from HTM to AFS. Before the Assessing Officer, the assessee had not raised the said claim, however, before the CIT(A), the said claim was raised, but no evidence in this regard was filed. Now, the assessee has furnished the Resolution of the bank evidencing the said transfer which in turn, resulted in loss of Rs. 40,30,000/-. The plea of the assessee before us was that the said amount was booked under the provision for investment depreciation fund by mistake and was actually the depreciated value of the investments on its transfer from HTM to AFS securities. The perusal of the Profit & Loss Account English version reflects the assessee to have claimed the expenditure of Rs. 40,30,000/- on account of investment depreciation fund under Schedule 16 provisions. In the entirety of the facts and circumstances and the revised claim made by the assessee, we are of the view that the facts and issue needs to be relooked into to determine the nature of entry passed by the assessee and following the principles of natural justice, we deem it fit to restore this issue back to the file of Assessing Officer, who shall decide the issue de novo after conside....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Assessing Officer further noted that the assessee had changed its method of accounting of interest from mercantile to cash system only for the interest in question and for all other entries, the bank had been following mercantile system of accounting. The case laws relied upon by the assessee were distinguished by the Assessing Officer as the same were rendered prior to amendment in section 145(3) of the Act. 21. Before the CIT(A), the assessee claimed that it had introduced the change in accounting method in respect of recognition of interest on performing agricultural loans only and the change was consistently followed in subsequent assessment years. The reason for the change in accounting method was the announcement of the Agricultural Debts Waiver and Debt Relief Scheme, 2008. In view of the said scheme, the RBI declared prudential norms of income recognition, asset classification, provisioning and capital adequacy. The highlights of the Agricultural Debts Waiver Scheme are referred to under para 6.3 at pages 24 and 25 of the appellate order and the norms issued by the RBI are reproduced under para 6.3.1 on pages 26 and 27 of the appellate order. Before the CIT(A), it was als....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Act to the assessee bank. It was also observed by the CIT(A) that where there was no certainty of recovery of interest when the principal amount was doubtful of recovery due to the Debt Waiver Scheme and the proper course of action for the assessee was to write off of such amount as bad & doubtful debts in the books of account and claim deduction under section 36(1)(viia) of the Act. The CIT(A) has given a finding that the assessee had neither written off of the principal nor the interest was written off in the books of account and hence, claim of the assessee was not allowable under section 36(1)(viia) of the Act. 23. The learned Authorized Representative for the assessee pointed out that under section 45(2) of the RBI Act, guidelines were issued to the banks and NBFCs to regulate its business. It was further pointed out by the learned Authorized Representative for the assessee that during the year under consideration, it had changed the accounting system from mercantile to cash in respect of performing agricultural loans in view of guidelines issued by the RBI. The learned Authorized Representative for the assessee further pointed out that the said performing assets could no....
X X X X Extracts X X X X
X X X X Extracts X X X X
....It was further pointed by the learned Departmental Representative for the Revenue that the debt waiver scheme placed at page 128 of the Paper Book is not applicable to the assessee as the assessee is a district cooperative bank and was not covered under the scheme. 26. The learned Authorized Representative for the assessee however, pointed out that it was a cooperative bank and was covered under the scheme. 27. We have heard the rival contentions and perused the record. The issue raised vide grounds of appeal No.5 to 7 is in relation to reversal of interest on performing assets amounting to Rs. 42.15 crores. The assessee during the year under consideration adopted a change in method of accounting in respect of interest income earned from certain performing assets. In the Notes to the annual accounts, the assessee declared that the interest relating to non-performing assets i.e. agricultural loans would be accounted for only on realization and interest amounting to Rs. 42.15 crores was de-reversed and de-recognized by the assessee. The explanation of the assessee for the said change in the method of accounting of interest on nonperforming assets was the Agricultural Waiver Scheme,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g unpaid until February 29, 2008; (ii) restructured and rescheduled by banks in 2004 and in 2006 through the special packages announced by the Central Government, whether overdue or not; and (iii) restructured and rescheduled in the normal course up to March 31, 2007 as per applicable RBI guidelines on account of natural calamities, whether overdue or not. b) in the case of an investment loan, the instalments of such loan that are overdue (together with applicable interest on such instalments) if the loan was: (i) disbursed up to March 31, 2007 and overdue as on December, 2007 and remaining unpaid until February 29, 2008; (ii) restructured and reschedule by banks in 2004 and in 2006 through the special packages announced by the Central Government; and (iii) restructured and rescheduled in the normal course up to March 31, 2007 as per applicable RBI guidelines on account of natural calamities. Explanation: In the case of an investment loan disbursed up to March 31, 2007 and classified as non-performing asset or suit filed account, only the installments that were overdue as on December 31, 2007 shall be the eligible amount." 30. In respect of other farmers, there was a One Ti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd 27 of the appellate order. As per clause 3, the RBI directs that the government had clarified that the lending institutions would not charge any interest on the eligible amount for the period from 29.02.2008 to 30.06.2009. However, the banks may charge normal rate of interest on the eligible amount from 01.04.2009 up to the date of settlement. The date for payment of 25% by way of single installment by other farmers eligible for debt relief of 25% Govt. of India was extended to 31.12.2009 and it was further pointed out that in case, the payment was delayed by farmers beyond 31.12.2009, the outstanding amount in the relevant accounts of such farmers shall be treated as NPAs. It was also clarified that where the farmers pay less than 75% of their share, the burden was to be borne by the banks. Further, instructions were given to the banks to make a suitable entries vis-à-vis the amount to be received from the Govt. of India against the waivers scheme. 33. The case of the assessee was that in view of the above said guidelines of RBI, pursuant to the Agricultural Waiver Scheme announced by the Central Government, the assessee made suitable entries in the books of account by ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... agricultural loans. In view of the present guidelines which were issued after the announcement of Agricultural Debt Waiver Relief Scheme by the Central Government, the assessee was to de-recognize the interest on agricultural loans which were performing assets of the assessee for the year under consideration. As per the RBI guidelines, the assessee was entitled not to recognize the interest on the eligible amount and work out the interest relatable to such eligible amount which is not to be recognized as income for the year under consideration. 34. Another aspect to be kept in mind is that in the succeeding years because of the debt waivers scheme, the assessee received sum Rs. 456.98 crores and Rs. 346.04 crores from the government during the year and Rs. 110.94 crores was received from the government in the succeeding years. The scheme related to small farmers and has been adopted by the Central Government and the payments against the same have been paid. 35. The issue which has to be decided in the present facts and circumstances, first what is the eligible amount which is governed by the debt waiver scheme of the Central Government and interest on which was not to be recogni....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o Rs. 1,30,19,195/-. The assessee was asked to explain the basis of the said claim and whether it was supported by any RBI Circular or Instruction. However, no Circular was produced during the assessment proceedings, but the contention of the assessee was that the said provision was made as per the decision of Government of Maharashtra dated 13.10.1989. The bank had made provision for Annual Contribution to Co-operative State Cadre Employment Fund as per Rule 53A of the Maharashtra Cooperative Societies Rules, 1961 and the Circular issued by the Government of Maharashtra, Co-operative Department No.1089/CR- 30, dated 13.10.1989. It was also stated that the assessee cooperative bank had made payment for the provision made for annual contribution to Co-operative State Cadre Employment Fund as detailed below:- Date Amount 26.09.2009 1,09,92,202/- 17.12.2009 1,30,19,151/- 40. The Assessing Officer was of the view that the amount debited to the fund was nothing but provision for contingent liability and the sum of Rs. 1,31,60,000/- thus, added to the income of the assessee. 41. Before the CIT(A), the assessee contended that the contribution was made as per the st....
X X X X Extracts X X X X
X X X X Extracts X X X X
....industry or class or classes of such corporate bodies, which in the opinion of the State Government, derives such benefit as aforesaid, and which are notified by the State Government in this behalf, contribute annually to the said Fund, at such rate and in such manner as may be prescribed. The appellant Bank is one on the notified bodies included' at S. No.6 of the table reproduced hereinabove and accordingly has made provision for annual contribution, to Co. Op. State Cadre Employment Fund as per Rule 53A of MCS Rules, 1961 and Circular dated 13th Oct. 1989 issued by Govt. of Maharashtra and it is business expenditure. It is also important to note that under sub-section (5) of Sec. 69A of MCS Act the Registrar is empowered to issue demand notice in case the society fails to pay the contribution as required by sub-section (4) of sec. 69A and such demand shall be a charge on the income of the society. The appellant bank control over the utilization of fund. A similar question came up before Madhya Pradesh court in the case of Keshkal Co-operative Marketing Society Ltd. v. CIT (165 ITR 437). In that case, the co-operative society was under the obligation to create a fund which is....