TaxTMI 
TaxTMI 
TaxTMI 
2013 (4) TMI 770
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..../Hyd/11 (departmental appeals):- 2. Since facts excepting the figures are similar for both the years in these two appeals, we deal with the facts involved in the assessment year relating to A.Y. 2007-08. 3 The first issue as raised in ground No.2 relates to deletion of addition of an amount of Rs. 83 lakhs being broken period interest. Briefly the facts are, the assessee is a regional rural bank which came into existence after amalgamation of five regional rural banks. In course of assessment proceedings for the impugned assessment year, the assessing officer noted that the assessee for the purpose of maintaining statutory liquidity ratio (SLR) with the Reserve Bank of India, had purchased government securities on which the RBI pays interest on due dates. It was further noted by the assessing officer that the assessee has included broken period interest for the interest payable to the assessee. The assessing officer was of the view that the broken period interest paid at the time of purchase of securities was a part of purchase consideration and therefore the same is in the nature of capital expenditure. He therefore asked the assessee to explain as to why the broken period inte....
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.... it has been held that the broken period interest is an allowable deduction. The co-ordinate Bench of this Tribunal following the aforesaid decisions have also decided the issue in favour of the assessee in case of State Bank of Hyderabad in ITA Nos.578 and 779/Hyd/10 dated 7-9-2012. Further, the conclusion arrived at by the assessing officer that the HTM category of securities are investments and cannot be considered as stock in trade is also found to be not the correct view. The Hon'ble AP High Court in case of SBH (151 ITR 703) has held that the amount required to be kept in India as per section 24 of the banking Regulation Act, 1949 in the form of cash, gold and encumbered securities is part of stock in trade of the assessee. Hence, it cannot be held that HTM category of securities is not stock in trade of the assessee. In aforesaid view of the matter, we uphold the conclusion of the CIT (A) to the effect that broken period interest is an allowable deduction. Accordingly, we dismiss the ground raised by the revenue on this issue. 6. Ground No.3 relates to disallowance of amortisation of government securities amounting to Rs. 19,14,62,383/-. In course of assessment proceedings,....
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....nt of fraud by the staff are treated as loss and accordingly provision has been made. The assessing officer however rejected the contentions of the assessee by observing that the provision for staff frauds could not be equated with the provision of bad and doubtful debts. He was further of the view that frauds by staff are normally not easily let off and the amounts are recovered, but appropriate action is initiated for recovery of such loss from payments due to them. The assessing officer was of the opinion that since the assessee was not able to show that the amount so recovered was duly accounted for, the claim cannot be allowed. He assessee challenged the disallowance before the CIT (A). 9. On appeal, the CIT (A) after considering the contentions made on behalf of the assessee was of the view that staff frauds are similar to embezzlement by an employee and therefore qualifies as an allowable expenditure u/s 37 of the Act. The CIT(A) following a decision of Income-tax Appellate Tribunal, Amritsar Bench in case of ITO vs. J & K Bank Ltd., (95 ITD 141) allowed the claim of the assessee. 10. We have considered rival submissions of the parties and perused the material on record. F....
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....cognised on accrual basis, the assessee submitted that interest on advances have been recognised in accordance with the prudential norms for income recognition, classification and provisions issued by the RBI. It was stated that interest on NPAs is recognised only when it is actually received by the bank. 14. It was further stated that once an advance account is classified as substandard asset as at the end of the year, unrealized interest on such interest will be debited to interest account if it is previously credited to it. It was stated that as the recognition of advances is in accordance with the guidelines issued by the RBI and also considering the provisions of section 43D interest on non performing assets should not be treated as income on accrual basis. The Assessing Officer however did not accept the contentions of the assessee by observing that such interest was taxable on accrual basis as the assessee was following mercantile system of accounting. He further observed that the assessee itself had credited interest on NPA in its books of accounts before debiting the same for purpose of computing taxable income. Hence, he came to a conclusion that the amount credited as u....
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....s held that when the principal amount is doubtful for recovery it cannot be said that any interest accrued on such principal amount. The CIT (A) considering the submissions of the assessee in the light of judicial precedents cited before him held that as the assessee was following an established method of accounting and recognizing the interest income on NPAs at the time of realization, the interest income did not accrue to the assessee on NPAs during the year under dispute. While coming to such conclusion, the CIT (A) also took support from the decision of the Income-tax Appellate Tribunal, Visakhapatnam Bench in the case of DCIT V/s. Durga Co-operative Urban Bank Ltd. in ITA No.511/Vizag/2010 dated 10-3-2011 and the judgment dated 29-11-2010 of Hon'ble Delhi High Court in case of CIT V/s. Vasisth Chay Vyapar Ltd. 17. We have heard the submissions of the parties and perused the materials on record. We have also carefully examined the decisions cited before us. It is quite evident from the assessment order that the Assessing Officer treated the interest on NPAs as income of the assessee only because the assessee was following mercantile system of accounting. Further the Assessing ....
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....assessee has claimed provision for gratuity of an amount Rs. 2,74,49,761/-. The Assessing Officer when asked the assessee to explain why the said amount should not be disallowed u/s 40A (7) of the Act, the assessee in its reply submitted that the provision has been made on the basis of actuarial valuation. It was further stated that the actual payment was also made on 22-5-2007 i.e., before the due date of furnishing the return of income, by way of contribution to group gratuity Scheme of SBI Life Insurance Co. Ltd. The Assessing Officer however did not accept the explanation of the assessee and disallowed the provision made for gratuity by observing that the provision is required to be disallowed u/s 40A(7) as the payment has not been made to any approved gratuity fund. The assessee challenged the disallowance in the appeal preferred before the CIT (A). 20. In course of hearing before the CIT(A), the assessee contended that the observation made by the Assessing Officer that group gratuity of SBI life Insurance Co. Ltd is not an approved gratuity fund, is not correct. The assessee contended that the group gratuity scheme is an approved one hence, the contribution made to such sche....
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....rtificate issue by IRDA stating that the group insurance fund managed by SBI life Insurance Company Limited is approved gratuity fund the assessing officer has allowed the provision for gratuity. It was further submitted that for the assessment year 2009-10 the CIT(A) allowed the ground relating to disallowance of payment to group gratuity fund managed by the SBI Life Insurance Co. Ltd, approved by IRDA and authorized to manage group gratuity scheme. A copy of the order dated 31-1-2013 passed by the CIT(A) in appeal No.320/CIT(A)/Tr/Vja/10-11 relating to assessment year 2009-10 was also submitted before us by the learned AR. 22. The learned DR, on the other hand, supported the order of the CIT (A). 23. We have considered rival submissions of the parties and perused the material on record. On perusal of the order of the revenue authorities it is to be seen that while the assessing officer has disallowed the claim of the assessee on the ground that the fund to which contribution was made is not an approved gratuity fund, the CIT(A) has rejected the claim of the assessee by observing that the evidence produced for the first time before him could not be taken cognizance of as there w....
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....referred an appeal before the CIT (A). 28. On appeal, the CIT (A) also confirmed the view of the assessing officer by observing that the assessee's claim cannot be considered as it was not made within the period prescribed u/s 139(5) of the Act. 29. We have considered rival submissions of the parties and perused the material on record. It is clear from the orders of the revenue authorities that the assessee's claim for deduction u/s 36(1)(viia) has been rejected on the ground that the assessee has not made the claim within the prescribed time as provided u/s 139(5) of the Act. In other words, the deduction claimed by the assessee was not considered on merits. The Hon'ble Supreme Court in case of Goetz India Limited vs. CIT (284 ITR 323) has laid down the law that the assessing officer is not empowered under the Act to entertain the claim for deduction otherwise than by filing a revised return. However in the very same judgment, the Hon'ble Supreme Court made it clear that the restriction is limited to the power of the assessing authority and does not impigne on the power of the Income-tax Appellate Tribunal u/s 254 of the Act. Keeping in view the ratio laid down by the Hon'ble Su....
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.... 22-5-2009. 34. The learned AR submitted before us that there is heavy risk involved with regard to advances made by Rural Bank as more than 80% of the total advances are given to rural borrowers like agriculture crop production loans, animal husbandry loans, artisans and other rural schemes in the rural areas and possibility of loans and advances becoming doubtful is very high in view of various risk factors such as monsoon vagaries, political developments, government policies, unforeseen domestic problems like health, education, marriages, death of earning persons, marketing losses etc., badly effect the recovery process of regional rural banks. It was further submitted that in addition to the above factors, the declaration of relief measures for affected farmers, moratorium on loan recovery and interest waivers, as also operational and risks, not switching over to new technology and procedures sticking on to old techniques and procedures also lead to landing of standard assets into loss assets overnight. It was submitted that keeping in view the above risk factors and the rationale, the IT Act introduced Sec. 36(1)(viia) for allowing deduction for the provision of an amount not....
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.... is one which has remained in NPA for a period exceeding 18 months but has all the weaknesses inherent in assets that were classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable. Similarly, a loss asset is one where loss has been identified for whole or substantial portion of the asset although the asset has not been written off fully. Such an asset is considered as uncollectible The Income-tax Appellate Tribunal in case of Andhra Bank vs. DCIT (ITA Nos. 615 to 619 of 2007and 711 of 2008dated 22-5-2009 after considering the entire gamut of NPAs and standard assets held that standard assets cannot be equated with bad and doubtful debts which in other words is known as NPAs. The Coordinate Bench held in the following manner:- "16. Coming to the facts of the case on hand, the main argument of the learned counsel is that the assessee has strictly followed RBI guidelines and hence the deduction is available. We are afraid, we cannot agree with the proposition advocated by the learned counsel. The assessee has claimed deduction u/s 36(1)(viia) of the Act. The said provision grants deduction ....
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....or for the loss which has already taken place. Therefore, the RBI further prescribes that provision on standard assets should not be reckoned for arriving at net NPAs. The Act itself has given an option to the assessee to make provision for its doubtful or loss assets (first proviso to section 36(1)(viia). We do agree that the bank si bound to follow the RBI guidelines. But the deduction available has to be as per the provisions of the Act only. Accordingly, we uphold the order fo the CIT(A) disallowing the deduction in respect of provision made for standard assets. Another provision disallowed by the revenue authorities is in respect of border line performing assets. Neither the RBI has given such classification in its guidelines nor has the Act provided for any deduction of provision in respect of such assets. The very nomenclature used by the bank suggests that the assets are still performing, that is, still generating income for the bank though there may be some signs of concern. However, unless such assets are not classified as nonperforming assets and sub-classified as sub-standard, doubtful or loss assets, no deduction can be permitted under the Act in respect of the provisi....