2015 (6) TMI 200

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.... in the case of Goetze India (P) Ltd. Vs. CIT (2006) 284 ITR 323 (SC) which mandates that AO cannot entertain assessee's claim at the assessment stage which is not made through filing of revised return. 3. Whether such direction by the Ld. CIT(A) in the order disposing off appeal does not tantamount setting aside the issue which is not envisaged in sec. 250(4) after 1.6.2001. 4. Whether Ld. CIT(A) has not erred in law and on facts in deleting the addition of Rs. 4,08,38,822/- made by AO on account of accrued interest on NPAs." 2. Ground No.1 is in respect of deletion of addition of Rs. 1,43,13,391/- made by AO on account of disallowance of deduction of premium written off on Govt. Securities. The facts in brief are that the assessee is a Cooperative Bank engaged in the business of banking. The return of income declaring income of Rs. 30,43,17,299/- was filed in this case on 28.9.2008 and the same was processed u/s. 143(1) of the Income Tax Act, 1961 (herein after 'the Act') on 31.3.2010. The case was selected for scrutiny through CASS on random basis. Statutory notice u/s. 143(2) of the Act, dated 16.9.2009 was issued and duly served upon the assess....

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....er is that it is part of the business activity of the assessee and as such the premium expenditure/write off should be allowed. The Ld. Counsel of the assessee submitted that the Assessing Officer has failed to establish, how there is an adverse impact on revenue when the assessee is consistently following the same accounting policy since long. The Ld. Assessing Officer stated in his order that premium paid is an expense for purchase of securities at premium, and securities are not business assets of the assessee and shown as investment instead of stock in trade, which according to the assessee is not true. We find that Assessing Officer further stated that by following the consistent accounting policies the appellant is carrying an illegal and wrong act but failed to establish how the appellant is doing the illegal and wrong act. He stated that the financial accounts of the appellant are prepared as per the set guidelines and Performa of RBI. The assessee is a service provider and deals in money or money equivalents and securities purchased and dealt with are its stock in trade. Ld. Counsel of the assessee further submitted that as per RBI norms the assessee on the basis of its ti....

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....i High Court in the case of CIT Vs. Vasisth Chay Vyapar Ltd. (ITA No. 552/2005, 565/2005, 1191/2007, 139/2008,466/2008 & 537/2008, wherein it was observed as under:- "Under the Income Tax Act the charge is on profit & gains, not on gross receipts (which, however, has profits embedded in it). Therefore, subject to the requirement of the Income Tax Act profit to be assessed under the Income Tax Act have got to be real profits which have to be computed on ordinary principle of commercial accounting. In other words profit have got to be computed after deducting losses/ expenses incurred for business, even though such losses/expenses may not be admissible u/s 30 to 430 of the Income Tax Act unless such losses/ expenses are expressly or by necessary implication disallowed by the act." 6.1 Ld. Counsel of the assessee further brought to our notice that the Assessing Officer have accepted the same accounting policy in the past and never objected for the same. And generally Income of the assessee was assessed u/s 143(3) of the Act by the Ld. Assessing Officer without any reference to change in accounting policy. 6.2 We find that the assessee invests in Govt. Securities and oth....

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.... not aware of the change in law and so did not make the claim in respect of bad debt (N.P.) while filing the return. The assessee had filed the return income of Rs. 30,43,17,299/- on 31/03/2010. During the course of assessment proceedings, the assessee detected the mistake and filed a revised computation claiming the deduction of Rs. 2,46,73,078/- which is allowable u/s 36(1)(viia) @ 7.5% of the total NP. The AO has disallowed the claim of the assessee on the ground that filing time for revised return has expired u/s 139(5) and the assessee was not entitled to make a fresh claim or deduction and the AO relied on the case of Goetze India Ltd Vs CIT, 284 ITR 323 (SC) [2006]. We find that the Ld. Counsel of the assessee submitted before the Ld. CIT(A) that AO was not justified to disallow the statutory and genuine claim of the assessee on technical grounds. He submitted that since new provisions were introduced for bad and doubtful debts inrespect of Cooperative Societies w.e.f. A Y 2007-08 u/s 36(1)(viia), the assessee was not able to keep track of the amended/new provisions and there was a bona fide mistake in not being able to make the correct claim of deduction in the original ret....

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....erest receivable" in the debit side of the balance sheet and as a liability under the head "overdue interest reserve account" in the credit side of the balance sheet. However, the AO has treated the interest income as a normal business income on the ground that in the mercantile system of accounting the accrued income is to be treated as income of the assessee and accordingly, has made the addition of Rs. 4,08,38,822/-. The ld DR relied on the order of the AO and want us to reverse the order of the ld CIT(A). On the other hand the AR submitted that the AO was not justified to make the addition as the loan has become bad (NPA); and the assessee has not received the interest income and as such no real income has accrued to the assessee. According to him, in the case of interest on NPAs, the party account is debited and the interest account is credited in the P&L account and since the interest is actually not received a reverse entry is passed at the year-end by which the P&L account is debited and the overdue interest account is credited. It was further submitted that the assessee has maintained the books of accounts on the NPA and its interest on the basis of the RBI guidelines and ....

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....ved the income as the loan amount itself has become bad and as such the AO is not justified to treat the notional interest as income of the assessee. A perusal of the case laws cited by the assessee also supports the case of the assessee that only the real income is taxable and not the hypothetical income in view of the real income theory as no real income is received by the assessee and the same view has been held by the Hon'ble Supreme Court in the case of CIT vs. Shoorji Vallabhdas & Co., 46 ITR 144 (SC) [1962] and the head-note of the case reads as under:- "Held, that the subsequent agreement had altered the rate of commission in such a way as to make the income which really accrued to the assessee different from what had been entered in the books of account. This was not a case of a gift by the assessee to the managed companies of a portion of income which had already accrued, but an agreement to receive a lesser remuneration that what had been agreed upon. The assessee had in fact received only the lesser amount in spite of the entries in the account books, and this lesser amount alone was taxable. Income tax is a levy on income. Though the Income Tax Ac....