AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2014 (6) TMI 925
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....usiness of banking. It is having the necessary licence issued by Reserve Bank of India for carrying on its banking operations as a co-operative bank. The return of income for the year under consideration i.e., A.Y. 2008-09 was filed by the assessee on 26.5.2008 declaring a total income of Rs. 3,02,11,590. In the profit & loss account filed along with the said return, interest on term deposits amounting to Rs. 9,81,17,982 was debited by the assessee, which included interest of Rs. 1,76,26,539 paid by the assessee to its members in excess of Rs. 10,000. According to the AO, the assessee was liable to deduct tax at source from such interest paid to its members and since no such deduction of tax at source was made by the assessee, he disallowed the interest of Rs. 1,76,26,539 paid by the assessee society to its members by invoking the provisions of section 40(a)(ia) of the Act. The AO also made a further addition of Rs. 2,35,20,043 on account of interest receivable on loans and advances, which was not offered by the assessee on the ground that the concerned loans & advances had already become Non-Performing Assets (NPA). The AO accordingly completed the assessment u/s. 143(3) of the Ac....
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.... sections I draw the following inferences Section 194A(3)(i)(b) :Exemption of interest paid by a cooperative society engaged in Banking business, upto Rs. 10,000 to members as well as non-members, irrespective of the nature of the deposit is exempt; Section 194A(3)(v) : Exemption of interest paid by a co-operative society to its members irrespective of the nature of deposit or amount; Section 194A(3)(viia)(a) : Exemption of interest paid by persons namely, Primary Agriculture credit society, Primary credit society, Co-operative Land Mortgage Bank or a Co-operative Land Development Bank to members or non-members without any monetary limit. Section 194A(3)(viia)(b) : Exemption of interest paid by persons namely, Co-operative society engaged in Banking Business irrespective of membership or amount only to non-time deposits. From the above summary it is clear that income paid by a cooperative society to its members is exempt irrespective of the nature of deposits or any monetary limits and no conflicts would arise if one were to consider the applicability of section 194A(3)(v) only to members and the other sections solely for non-members. C. The contention of the AO is that a co-o....
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....ification of assets and the AS-9 issued by the CBDT, it is to be seen that the question of accrual can be considered only after recognizing income from such assets. If no income is recognized at all from such assets, there is no question of applying the principle of accrual. The principle of accrual comes into play only when income is recognized and certainty of collection. In the present case, the appellant has classified its assets on the basis of the circulars issued by the RBI and found that certain assets are coming under the category of Non-performing Assets. From such Non-performing Assets, the appellant has not recognized any income in accordance with the circulars issued by the RBI and AS-9 issued by the ICAI. Therefore, the appellant is justified in not recognizing the interest as income. Once that is the case, there is no occasion to consider whether the principle of accrual would arise or not. In view of the matter, I am of the considered view that the AO has erred in treating the interest on Non-performing Assets as income of the appellant. I direct the AO to delete the said interest from the computation of taxable income. The issue of the interest from Non-performing....
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....passing the order without giving notice of hearing to the Assessing Officer and therefore, the order passed by the CIT(Appeals) is bad in law and requires to be set aside. (2) The learned CIT(Appeals) erred in not allowing the right to be heard to the Assessing Officer either in person or by a representative as per section 250(2) of the I.T. Act, 1961 and therefore, the order passed by the CIT(Appeals) is bad in law and requires to be set aside. (3) The learned CIT(Appeals) erred in depriving the Assessing Officer to avail right to be heard at the hearing of the appeal as envisaged in section 250(2)(b) which was confirmed by him vide his letter F.No.CIT(A)/BGM/Orders/11-12 dated 11.01.2012 and as such, the order passed lacks procedural aspect as well as invalid in the eyes of law. (4) Without prejudice to the above (a) The learned CIT(Appeals) erred in deleting the disallowance u/s 40(a)(ia) of Rs. 1,76,26,539 ignoring the ratio of the decision of Pune ITAT in the case of Bhagini Nivedita Sahakari Bank Ltd v. ACIT87 lTD 569. (b) The learned CIT(Appeals) erred in deleting the addition of Rs. 91,17,603 on account of accrued interest on loans which are classified as "Non-pe....
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....ive societies including co-operative society engaged in the business of banking. It is not possible to exclude co-operative society engaged in the business of banking from the provisions of Sec.194A(3)(v) of the Act on the ground that the same is covered by the provisions of Sec.194A(3)(i)(b) of the Act. Sec.194A(3)(v) of the Act refers to payment by a co-operative Society to a member and payment by a co-operative society to non-member would continue to be governed by the provisions of Sec.194A(3)(i)(b) of the Act. Similarly u/s.194A(3)(viia)(b) interest on deposits other than time deposits even if the payment is made to a non-member by a co-operative society, the coITA operative society need not deduct tax at source. Thus this section carves out another exception to Sec.194A(3)(i)(b) of the Act. We do not think that any of the above provisions can be called a general provision and other provisions called specific provisions. Each provision over-lap and if read in the manner as indicated above, there is perfect harmony to the various provisions. We do not agree with the view expressed by the Pune ITAT SMC in the case of Bhagani Nivedita Sahakari Bank Ltd. (supra) when it says that ....
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....ying on banking business when it pays interest on deposits by its members need not deduct tax at source in view of the provisions of Sec.194A(3)(v) of the Act. 17. We also find that the CBDT in Circular No.9 dated 11.9.2002 clarified certain aspects which are relevant to the present case. The same reads thus: "Circular No.9 of 2002 "Sub : Tax deduction at source under section 194A of the Income-tax Act, 1961 -Applicability of the provisions in respect of income paid or credited to a member of co-operative bank-Reg. 11/09/2002 TDS 194A Under section 194A of the Income-tax Act, 1961, tax is deductible at source from any payment of income by way of interest other than income by way of interest on securities. Clause (v) of sub-section (3) of section 194A exempts such income credited or paid by a co-operative society to a member thereof from the requirement of TDS. On the other hand, clause (viia) of sub-section (3) of section 194A exempts from the requirement of TDS such income credited or paid in respect of deposits (other than time-deposits made on or after 1st July, 1995) with a co-operative society engaged in carrying on the business of banking. 2. Representations have bee....
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....and therefore chose to follow the decision rendered by Pune ITAT SMC in the case of Bhagani Nivedita Sahakari Bank Ltd. (supra). In our view the Hon'ble Bombay High Court in the case of Jalgaon District Central Cooperative Bank Ltd.'s case was dealing with a case of challenge to para-3 of CBDT Circular No.9 dated 11.9.2002 which tried to interpret the word "member" as given in Sec.194A(3)(v) of the Act. It is only that part of the Circular that had been quashed by the Hon'ble Bombay High Court and the other paragraphs of the Circular had no connection with the issue before the Hon'ble Bombay high Court. How could it be said that the entire circular has been quashed by the Hon'ble Bombay High Court? In our view para-2 of the Circular still holds good and the conclusion of the ITAT Pune Bench in the case of The Bailhongal Urban Co-op Bank Ltd.(supra) are not factually correct. Consequently, the conclusions drawn in the aforesaid decision also contrary to facts and hence cannot be considered as precedent. 20. The learned counsel for the Assessee has brought to our notice that the ITAT Vishakapatnam Bench in the case of The Visakhapatnam Co-operative Bank ITA No.5 and 19 of 2011 order....
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....6/Bang/2012 for giving the Assessing Officer an opportunity of being heard, it is observed that the issue now stands decided by the Tribunal in favour of the assessee on merits, by its order dated 30.5.2014 (supra). Keeping in view this recent development, we do not find any justifiable reason to entertain the grievance of the revenue as projected in grounds No.1 to 3 and dismiss the said grounds. 10. As regards the issue raised in ground Nos. 4(b) & 4(c) relating to the addition made by the AO and deleted by the ld. CIT(A) on account of interest accrued on the loans & advances, which were classified as nonperforming assets, the ld. representatives of both the sides have agreed that this issue is squarely covered in favour of the assessee by the decision of the co-ordinate Bench of this Tribunal rendered in the case of ITO v. M/s. Shiva Sahakari Bank Niyamitha vide its order dated 21.12.2012 passed in ITA No.257/Bang/2012, wherein a similar issue was decided by the Tribunal by recording its findings in paras 8 & 9 as under:- "8. Having heard both the parties and having considered their rival contentions, we find that undisputedly the assessee is in the banking business and is als....
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....relied upon the learned AR, we find that the decision of the Jurisdictional High Court in the case of Canfin Homes Ltd., is also on the same set facts as before us and is binding on this tribunal. In the said decision, at para 8 of the order, the Hon'ble High Court has held as under : "Therefore, it is clear if an assessee adopts mercantile system of accounting and in his accounts he shows a particular income as accruing, whether that amount is really accrued or not is liable to bring the said income to tax. His accounts should reflect true and correct statement of affairs. Merely because the said amount; accrued was not realized immediately cannot be a ground to avoid payment of tax. But, if in his account it is clearly stated that though a particular income is due to him but is not possible to recover the same, then it cannot be said to have been accrued and the said amount cannot be brought to tax. In the instant case we are concerned with a non performing asset. As the definition of non performing asset shows an asset becomes non performing when it ceases to yield income. Non performing asset is an asset in respect of which interest has remained unpaid and has become past due....
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....the ground No.4(a) in the revenue's appeal in ITA No.275/Bang/2012 hereinabove and for the reasons stated therein, we hold this issue in favour of the assessee. Thus, these grounds of the assessee are allowed. 15. The issue involved in ground Nos.5 to 7 of the assessee's appeal relates to disallowance made by the AO and confirmed by the ld. CIT(A) on account of provision for bad and doubtful debts in respect of rural advances. 16. At the time of hearing before us, the ld. representatives of both the sides have agreed that this issue is squarely covered in favour of the revenue and against the assessee by the decision of the Tribunal rendered in the case of Syndicate Bank v. DCIT, ITA Nos.668 & 669/B/10, wherein a similar issue was decided against the assessee by the Tribunal for the following reasons given in paras 48 to 50 of the said order:- 48. As far as Gr.No.3 raised by the Revenue in the original grounds of appeal is concerned, the AO disallowed the entire claim for deduction of Rs. 503,49,00,000/- on the following ground. a) The provision for bad and doubtful debts in respect of rural advances was created by debit to profit and loss account of only a sum of Rs. 295,55,54....
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....and loss account on account of provision for bad and doubtful debts (PBDD), an Assessee is entitled to 10% of the AARA as deduction u/s.36(1)(viia) of the Act. The relevant observations of the Tribunal in the aforesaid decision were as follows: "20. The learned CIT has also acted under the misconception that deduction under cl. (viia) is related to the actual amount of provision made by the assessee for bad and doubtful debts. The true meaning of the clause, as indicated earlier, is that once a provision for bad and doubtful debts is made by a scheduled bank having rural branches, the assessee is entitled to a deduction which is quantified not with respect to the amount provided for in the accounts, but with respect to a certain percentage of the total income and also a certain percentage of the aggregate average advances made by the rural branches of the bank. In other words, this is a specific deduction given by the statute irrespective of the quantum provided by the assessee in its accounts towards provision for bad and doubtful debts." 50. In the appeal before the Tribunal, in Ground No.3 of the original grounds of appeal, the Revenue has challenged the order of CIT(A) in so....
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....on account of amortization of premium on Govt. securities is also squarely covered in principle in favour of the assessee by the decision of the Tribunal rendered in the case of ING Vysya Bank Ltd. vide its order dated 14.8.2013 passed in ITA No.443/B/2012, wherein a similar issue was decided by the Tribunal in favour of the assessee vide paras 10 & 11, which read as under:- "10. We have heard the rival submissions. The issue raised by the assessee in ground No.2 is no longer res integra and has been decided by this Tribunal in the case of M/s. Sir M.Visweswaraya Cooperative Bank Ltd. Vs. JCIT ITA No.1122/Bang/2010 for AY 07-08 order dated 11.5.2012. The following were the relevant observations of the Tribunal: "03. Let us first take up the issue relating to amortization of premium on investment in government securities. Relevant grounds read as under : " i) The learned Commissioner (Appeals) ought to have appreciated that the appellant has to invest surplus fund in Government Securities as per RBI guidelines and the premium paid while investing in Government Securities that are bought in open market would have to be amortized till the maturity date of the security and thus th....
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....rporation Bank v. ACIT, M'lore in ITA.112/Bang/2008 (Bang) The learned counsel also placed reliance on Board's Instructions No.17 of 2008(vii) and pleaded that the claim of the assessee be allowed as the assessee had the powers to debit in its P&L account a sum of Rs. 29,02 lakhs of amortization of premium. 07. Per contra, the learned DR was unable to controvert to the submissions of the learned counsel for the assessee. 08. We have carefully considered the rival submissions and perused the relevant facts and materials on record. We have also considered the findings of the various benches of the Tribunal, as under : (i) Catholic Syrian Bank Ltd v. ACIT - (2010) 38 SOT 553 (Coch) : An identical issue to that of the subject matter under consideration had arisen before the Cochin Bench. After analyzing the issue in depth, the bench has observed that with regard to amortization of premium on purchase of Government securities, it was clarified that this was made as per the prudential norms of the RBI. Following the Tribunal decision in the assessee's own case and considering that the assessee bank is following consistent and regular method of accounting system, the....
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....gly to allow relief to the assessee on such verification, keeping in view the decision of the Tribunal in the case of ING Vysya Bank Ltd. (supra). Grounds (c) to (e) of the revenue's appeal are accordingly dismissed, subject to this verification by the AO. ITA 1774/B/13 21. Now we shall take up the appeal of the assessee for the A.Y. 2010- 11 which is directed against the order of the ld. CIT(Appeals), Belgaum dated 25.11.2013. 22. As submitted by the ld. counsel for the assessee, ground No.1 raised by the assessee in this appeal is general in nature, seeking no specific decision from us. 23. As regards grounds No. 2 to 4 of the assessee's appeal, it is observed that the common issue involved therein, relating to disallowance made by the AO and confirmed by the CIT(A) on account of interest paid by the assessee society to its members on the deposits in excess of Rs. 10,000 invoking the provisions of section 40(a)(ia), has already been adjudicated in favour of the assessee while dealing with the ground No.4(a) in the revenue's appeal in ITA No.275/Bang/2012 hereinabove and for the reasons stated therein, we hold this issue in favour of the assessee. Thus, these grounds of the as....
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....onal. Section 36(1)(iv) of the Act does not specifically debar deduction on account of contribution made under the Provident Funds Act, 1925. It only talks about grant of deduction in respect of recognised provident fund. The contribution to the unrecognised provident fund was deductible." 4.4.3. In conformity with the judicial views (supra), we are of the view that the CIT was not justified in disallowing a sum of Rs. 3,11,000/- and adding back the same to the total income of the assessee. In essence, the assessment order passed u/s 143 (3) of the Act dated 29.11.2010 by the assessing officer is upheld / restored. It is ordered accordingly." 25. Respectfully following the decision of the co-ordinate Bench of the Tribunal in the case of Bilagi Pattana Sahakari Bank Niyamit (supra), we delete the disallowance made by the AO and confirmed by the ld. CIT(Appeals) on account of payment made by the assessee to unapproved gratuity fund and allow ground Nos.5 to 7 of the assessee's appeal. ITA Nos.798/B/2013 & 802/B/2013 26. Now we shall take up the cross appeals in the case of The Sindgi Urban Co-op. Bank Ltd., for the A.Y. 2009-10, which are directed against the order of the CIT(Appe....
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....lar issue has been adjudicated upon hereinabove in the case of Sri Basveshwar Sahakari Bank Niyamitha vide ground Nos. (c) to (e) raised therein and the matter has been restored to the file of the Assessing Officer for the limited purpose of verifying as to whether the relevant securities in the present case are "held to maturity" by the assessee and accordingly allow relief to the assessee on such verification, keeping in view the decision of the Tribunal in the case of ING Vysya Bank Ltd. (supra). For the reasons stated therein, grounds (c) to (e) of the revenue's appeal are also dismissed, subject to the said verification by the AO. ITA 1573/Bang/2013 (Assessee's Appeal) 32. This appeal by the assessee is directed against the order of the CIT(Appeals), Belgaum dated 17.9.2013 for the A.Y. 2010-11. 33. As submitted by the ld. counsel for the assessee, ground No.1 raised in the appeal of the assessee is general in nature, seeking no specific decision from us. 34. As regards grounds No. 2 to 4 of the assessee's appeal, it is observed that the common issue involved therein, relating to disallowance made by the AO and confirmed by the CIT(A) on account of interest paid by the ass....