TaxTMI 
TaxTMI 
2015 (3) TMI 1148
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.... 3. The assessee in ITA No.413/PN/2014 has raised the following grounds of appeal:- 1. Order u/s 263 passed by the Commissioner is without jurisdiction AND Bad in Law. Appellant prays to cancel the same. 2. Without prejudice to Ground No.1 above, Commissioner of Income Tax has erred in directing Assessing Officer to make addition of Rs. 6,93,10,184/- alleging being accrued Interest on NPA. Same may please be deleted. 3. Without prejudice to above grounds, if it is held against the Assessee, then Interest credited to Profit & Loss A/c on realization Basis relating to period prior to 31/03/2008 may please be excluded from Income. 4. Without prejudice to Ground No. 1 above, Honourable Commissioner of Income tax has erred in making addition of Rs. 52,960/- in respect of 'Nominal Membership Fee', Appellant prays for deletion of the same. 5. Appellant prays for just and equitable relief. 6. Appellant prays to add, alter, amend and / or withdraw the ground / s, as and when may thought fit by appellant. 4. The issue raised in the present appeal is against the invoking of jurisdiction under section 263 of the Act. 5. The brief facts of the case are that, t....
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....ccruing on NPAs, it was pointed out that the issue is squarely covered in favour of the assessee by Pune Bench of the Tribunal in ACIT Vs. Osmanabad Janta Sah. Bank Ltd., in ITA No.795/PN/2011, relating to assessment year 2007-08, order dated 31.08.2012. 9. The learned Departmental Representative for the Revenue on the other hand, placed reliance on the order of Commissioner. 10. We have heard the rival contentions and perused the record. The Commissioner in the present case had invoked the jurisdiction under section 263 of the Act after verification of the assessment records on account of two issues. The first issue was with regard to the nominal membership fees received by the assessee from such persons, who were not the members of the cooperative society, but were associated with it on account of certain transactions. The assessee had not declared the said receipts on the premise that the same were capital receipts. However, the said receipts were in the nature of nominal membership fees or entrance fees charged by the assessee from such nonexisting members of the cooperative society who had transacted with the assessee society and hence, the said receipts were to be charg....
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....rual basis relatable to the NPAs by the Assessing Officer made the assessment order both erroneous and prejudicial to the interest of Revenue. However, we find that the said issue with regard to accrual of income on NPAs is no longer res integra but the same has already been adjudicated in favour of the assessee by the decision of the Pune Bench of the Tribunal in the case of ACIT Vs. Osmanabad Janta Sah. Bank Ltd. (supra) and in ACIT vs. The Omerga Janta Sahakari Bank Ltd. vide order in ITA No.350/PN/2013 dated 31.10.2013. The Tribunal considered the judgement of the Hon'ble Delhi High Court in the case of M/s Vasisth Chay Vyapar Ltd., 330 ITR 440 (Del) as well as the judgement of the Hon'ble Madras High Court in the case of CIT vs. Sakthi Finance Ltd., (2013) 31 taxmann.com 305 (Madras), which had expressed divergent views with respect to the issue of accrual of interest income on NPA advances; and, following the proposition that in the absence of any judgement of the Jurisdictional High Court, there being contrary judgements of the non-jurisdictional High Courts, a decision which was favourable to the assessee was to be followed in view of the reasoning laid down by the Hon'ble ....
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....he case of M/s Vasisth Chay Vyapar Ltd. (supra) wherein after considering the decision of the Hon'ble Supreme Court in the case of Southern Technologies Ltd. (supra) it was held that interest income relatable to NPAs was not includible in total income on accrual basis since the same did not accrue to the assessee. The following discussion by the Visakhapatnam Bench of the Tribunal in the case of The Durga Cooperative Urban Bank Ltd. (supra) is worthy of notice :- "8. We have heard the rival contentions and carefully perused the record. The question of taxability of interest on NPAs has been considered by the Hon'ble Delhi High Court in the case of M/s Vasisth Chay Vyapar Ltd (Supra); wherein the Hon'ble Delhi High Court took into account the decision rendered by the Hon'ble Supreme Court in the case of Southern Technologies Ltd (Supra). In the case of M/s Vasisth Chay Vyapar Ltd, the assessee therein was a non banking financial company and it was also bound by the "Prudential norms directions" issued by the Reserve Bank of India for Income recognition and asset classification. The assessee did not include the interest income relatable to NPA assets in its total....
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....ring of services or from the use of others of enterprise resources is reasonably determinable. When such consideration is not determinable within reasonable limits, the recognition of revenue is postponed. 9.5 When recognition of revenue is postponed due to the effect of uncertainties, it is considered as revenue of the period in which it is properly recognized". 8.2 The Delhi High Court also considered the decision rendered in the following cases: i) CIT vs. Elgi Finance Ltd., 293 ITR 357 (Mad) ii) CIT vs. KKM Investments (Cal) - SLP dismissed by Supreme Court (310 ITR 4) iii) CIT vs. Motor Credit Co (P) Ltd., 127 ITR 572 (Mad) iv) UCO Bank vs. CIT 237 ITR 889 (SC) v) CIT vs. Shoorji Vallabhdas & Co 46 ITR 144 (SC) vi) Godhra Electricity Co. Ltd., Vs.CIT 225 ITR 746 vii) CIT vs. Goyal M G Gases (P) Ltd., 303 ITR 159 (Del) viii) CIT vs. Eicher Ltd., ITA No.431/2009 dated 15.7.2009 (Del) 8.3 After considering the Accounting Standard 9 and the various case law listed above, the Hon'ble Delhi High Court held that the interest on NPA advance cannot be treated as "accrued" to the asses....
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.... the Apex Court approved the 'real income' theory which is engrained in the Prudential Norms for recognition of revenue by NBFC". 9. The Hon'ble Supreme Court in the case of M/s Southern Technologies Ltd (Supra) dissected the matter into two parts viz., a) Income Recognition and b) permissible deduction/exclusions under the Income Tax Act. In so far as income recognition is concerned, the Hon'ble Supreme Court held that Section 145 of the Income Tax Act has no role to play and the Assessing Officer has to follow Reserve Bank of India directions 1998, since by virtue of 45Q of the Reserve Bank of India Act, an overriding effect is given to the directions of Reserve Bank of India visà- vis income recognition principles in the Companies Act 1956. In so far as computation of income under the Income Tax Act is concerned, (which involves deduction of permissible deductions and exclusions) the admissibility of such deductions shall be governed by the provisions of the Income Tax Act. The relevant observations of the Hon'ble Supreme Court are extracted below: "Applicability of Section 145 40. At the outset, we may state that in essence RBI Dire....
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....nterest relatable to NPA advances in its total income. The Hon'ble Delhi High Court in the case of Vasisth Chay Vyapar Ltd (Supra) has held that the interest on NPA assets cannot be said to have accrued to the assessee. In this regard, the following observations of Hon'ble Delhi High Court in the above cited case are relevant: "What to talk of interest, even the principle amount itself had become doubtful to recover. In this scenario it was legitimate move to infer that interest income thereupon has not "accrued". The said decision of the Hon'ble Delhi High Court is equally applicable to the issue in our hands. Accordingly we do not find any infirmity with the decision of the learned CIT (A) in holding that the interest income relatable on NPA advances did not accrue to the assessee. Accordingly we uphold his order." 10. Following the aforesaid discussion, which has been rendered on an identical issue under similar circumstances, we find no reasons to interfere with the ultimate conclusion of the CIT(A) in deleting the impugned addition relating to interest income in respect of NPAs. 11. So, however, the learned Departmental Representative has....
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....eady been settled, then the non-assessability of such income on accrual basis i.e. interest on NPAs, by the Assessing Officer cannot be said to be prejudicial to the interest of Revenue. However, the said principle is to be applied only in respect of non-recognition of income on accrual basis relatable to NPAs and not on the said income received by the assessee on receipt basis during the captioned assessment year. The Assessing Officer in the first round of proceedings had already made an addition of Rs. 1,62,42,236/-. in the hands of the assessee, which has been upheld by the CIT(A) and though the ground of appeal has been raised by the assessee in this regard in ITA No.237/PN/2013, but the contention of the learned Authorized Representative for the assessee before us was that the said ground of appeal is not being pressed. Once a particular addition has been made in the hands of the assessee by the Assessing Officer in the assessment order, then no further addition can be made on that basis, by way of initiation of proceedings under section 263 of the Act. Accordingly, we hold that the exercise of jurisdiction by the Commissioner under section 263 of the Act in respect of intere....
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....re dismissed as not pressed. 16. The assessee has also raised additional grounds of appeal, which read as under:- Additional Grounds 1) "Loss on merger of Sinhagad Urban Co Op Bank Ltd, Pathari Dist. Parbhani, of Rs. 80,80,935/- may please be allowed as Revenue / Business Expenditure" 2) Without Prejudice to above Ground and if appellant fails, Difference in Asset and Liability of Bank merged, being for 'Banking license'/ Goodwill, depreciation on the same may please be allowed. 17. The issue in ground of appeal No.2 raised by the assessee is against the addition of Rs. 40,02,265/- i.e. the amount of dividend forfeited and credited to the Reserve account. 18. The brief facts relating to the issue are that the assessee had forfeited sum of Rs. 40,02,265/- on account of dividend payable which was shown in the liabilities side of the balance sheet of the assessee and had credited the same to General Reserve Fund. The Assessing Officer was of the view that the said forfeiture of dividend payable was income of the assessee under section 2(24)(ii) of the Act and is to be included as income from other sources in the hands of the assessee. The contenti....
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....nd the tax liability also would have remained the same. Therefore, the unclaimed dividend cannot be treated as income of the appellant u/s 28 of the Act. The A.O. is, therefore, not justified in taxing the unclaimed dividend u/s 28 of the Act. 8.4 Further, the said unclaimed dividend is also not taxable u/s 41(1) of the Act as held by the Hon'ble ITAT, Delhi in ITA No.4981/Del/2010 dated 29/04/2011 for A.Y.2007-08 in the case of Gulshan Mercantile Urban Coop.Bank Ltd., in para-5 of the order as under - "5. We have heard both the parties and gone through the material available on record as well as the order of ld. CIT(A). The Assessing Officer had made addition on the ground that the amount of unpaid dividend was to be deposited in the Government account after certain period. In this case, there is no dispute that the amount of dividend paid has not been charged to P & L account. It forms part of appropriation of income. Therefore, when the assessee paid dividend to the shareholders, the amount was not debited to P & L account and, therefore, the provision of section 41(1) are not applicable as there is no cessation of liability. Therefore, in our considered opinion,....
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....ng same line of reasoning as in ground of appeal No.6, we hold that the provisions of section 41(1) of the Act are attracted and we confirm the addition of Rs. 20,547/-. Consequently, the grounds of appeal Nos.6 and 9 raised by the assessee are thus, dismissed. 27. Now, coming to the issue raised vide ground of appeal No.4, the issue is with regard to addition made on account of disallowance of loss on amortization of premium on government securities of Rs. 6,12,119/-. The learned Authorized Representative for the assessee fairly pointed out that the issue is covered by the order of Pune Bench of the Tribunal in Bhavani Urban Co-operative Bank Ltd. Vs. ACIT in ITA No.610/PN/2011, relating to assessment year 2007-08, order dated 31.07.2013 and also the Hon'ble Bombay High Court in CIT Vs. HDFC Bank Ltd. (2014) 366 ITR 505 (Bom). 28. In the facts of the present ground of appeal, the assessee had debited sum of Rs. 6,12,119/- on account of amortization of premium of investment in government securities in the category of Held to Maturity. The premium represented the excess of acquisition cost over the face value of Held to Maturity securities, which were amortized by the bank ove....
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....ITR 505 (Bom), wherein the Hon'ble Bombay High Court on similar issue, held as under: "As far as question (C) is concerned, we find that an identical question of law was framed and answered in favour of the assessee by this court in its judgment dated July 4, 2014, in Income Tax Appeal No.1079 of 2012, CIT v. Lord Krishna Bank Ltd. (now merged with HDFC Bank Ltd.) (2014) 366 ITR 416 (Bom). Mr. Suresh Kumar fairly stated that question (C) reproduced above is covered by the said order. In view thereof, we are of the view that even question (C) does not arise any substantial question of law that requires an answer from us." And a similar view has been taken by ITAT, Pune 'A' Bench in the case of Dy.CIT vs. Kallappanna Awade Ichalkaranji Janata Sahakari Bank Ltd. in ITA No.449/PN/2012 and another by observing as under: "10. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find an identical issue had come up before the Tribunal in the case of Nahsik Merchant Cooperat....
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....tled that deduction expressly mentioned under the Act are not exhaustive and profit is to be derived according to ordinary commercial principles. As per the extant RBI guidelines dated 01-07-2009 the investment portfolio of the banks is required to be classified under 3 categories viz., Held the maturity HTM), Held for Trading (HFT) and Available for Sale (AFS). The value of each kind of investment is to be done in the following manner: Sr.No. Classification Valuation Norms of Investment. 1..... 2..... 3..... 7. In para (vii) of the CBDT Instruction No.17 of 2008 dated 26.11.2008, on 'Assessment of Bank - check list for deduction, states as under: "As per RBI guidelines....." 8. The ITAT, Mumbai Bench, in the case of ACIT vs. The Bank of Rajasthan Ltd. (2011) TIOL-35-ITATMumbai, has held that in case of banks, the premium paid in excess of face value of investments classified under HTM category which has been amortised over the period till maturity is allowable as revenue expenditure since the claim is as per RBI Guidelines and CBDT also has directed to allow such premium. It has also been held in the case of Cathol....
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....sment year 2008- 09 and Hon'ble Bombay High Court in CIT Vs. HDFC Bank (supra). We hold that amortization of premium expenditure for securities Held To Maturity in view of RBI guidelines are allowable business expenditure in the case of assessee. The grounds of appeal No.1 and 2 raised by the assessee are thus, allowed." 13. We further find that the Hon'ble Bombay High Court in CIT Vs. HDFC Bank Ltd., in Income Tax Appeal No.330 of 2012, vide order dated 23.07.2014, on a similar issue on account of deduction with respect to diminution in the value of investment and amortization of premium on investment Held To Maturity on the ground of mandate by the RBI Guidelines, after considering the decision of the Hon'ble Supreme Court in Southern Technologies Vs. JCIT, (2010) 320 ITR 577 (SC), had dismissed the appeal filed by the Revenue holding that no substantial question of law had arisen in the instant appeal. 14. The issue arising in the present appeal is identical to the issue decided by the Pune Bench of the Tribunal (supra) and Hon'ble Bombay High Court (supra), and following the same parity of reasoning, we hold that the assessee is entitled to the deduction of Rs. 58,41,016/....
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.... payable by the assessee as interest on any [loan or advances] from a scheduled bank in accordance with the terms and conditions of the agreement governing such loan [or advances],] [or] [(f) any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee,] 33. The perusal of above reflects that audit fees is not included under section 43B of the Act and hence, we find no merit in the order of Assessing Officer, in this regard. Accordingly, we direct the Assessing Officer to allow the expenditure of Rs. 1,19,277/- booked on account of audit fees payable. The ground of appeal No.8 raised by the assessee is thus, allowed. 34. Vide ground of appeal No.10, the grievance of the assessee is against correct deduction to be allowed under section 36(1)(viia) of the Act. 35. The learned Authorized Representative for the assessee pointed out that the Assessing Officer may be directed for allowing correct deduction under section 36(1)(viia) of the Act. In view thereof, we set-aside this issue back to the file of Assessing Officer, who shall decide the same in accordance with the law after affording reasonable opportunity of hearing to the assessee. Th....
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....ure should be allowed as revenue expenditure / loss. The assessee while finalizing its books of account had treated the said expenditure as deferred revenue expenditure to be allowed over the period of five years, which has been negated by the authorities below. However, the stand of the assessee now before us is that the said expenditure is to be allowed in entirety, and/or depreciation on difference in asset and liability of bank merged is to be allowed. 40. We find that similar issue arose before Pune Bench of the Tribunal in The Cosmos Co-op Bank Ltd. Vs. DCIT in ITA Nos.460 & 461/PN/2012, relating to assessment years 2007-08 & 2008-09, order dated 23.01.2014, wherein it was held that the difference paid by the assessee in excess of liabilities over the realizable values of the assets taken over represent payment for any business or commercial rights of similar nature and are liable to be construed as intangible asset, contemplated under section 32(1)(ii) of the Act. Accordingly, it was held that the assessee is entitled to the allowance of depreciation in terms of section 32(1)(ii) of the Act. The relevant findings of the Tribunal are as under:- "11. We have carefully co....
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....ank including the savings bank account or current bank account or any other deposits of the customers. The scheme also envisaged taking-over of all the employers of the Transferor Bank who wished to continue in service. In sum and substance, assessee bank took over the entire business apparatus of the Transferor Bank, which included its client base, operational branches of the bank at different places and also their employees, besides the licenses and other statutory approvals enjoyed by the Transferor Bank. Now, the case set-up by the assessee is that the acquisition of huge client base, operational branches of the banks and the access to new money markets has resulted in a business advantage which is covered within the meaning of the expression "business or commercial rights of similar nature" as contemplated in clause (ii) of sub-section (1) of section 32 of the Act. 13. Therefore, the moot question is as to whether the aforesaid business/ commercial advantages, namely, taking over of huge client base, licenses, operational bank branches in different areas, etc. can be considered to fall within the expression "business or commercial rights of similar nature" contained in sect....
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....r the assets of the transferor, inclusive of its customers base was held to be an 'intangible asset' being 'business or commercial rights of similar nature' contemplated in section 32(1)(ii) of the Act and was held eligible for depreciation. Following the aforesaid discussion, in the present case, the business advantages detailed earlier, are liable to be considered as an intangible asset, being 'business or commercial rights of similar nature' contemplated u/s 32(1)(ii) of the Act. In our considered opinion, the plea of the assessee for allowance of depreciation in terms of section 32(1)(ii) of the Act cannot be faulted either in law or on facts. 15. The other objection of the CIT(A) to the effect that the amalgamation in question is not by way of purchase but is an amalgamation by merger, in our view, is no ground to deny the claim of the assessee, which is otherwise well-founded. Therefore, having regard to the aforesaid discussion, in our view, on facts and in law the assessee is entitled for depreciation on the impugned sum for acquisition of business of commercial rights contemplated in section 32(1)(ii) of the Act. Thus, on the Ground of Appeal No.3, assessee succeeds." ....
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.... The learned CIT(A) has erred in confirming Assessing Officer's action in making addition of Rs. 3,37,350/- on account expenditure on investment fluctuation reserve and the same may please be deleted. 8. The learned CIT(A) has erred in confirming Assessing Officer's action of not allowing deduction of Rs. 1,62,42,236/- out of Interest on Advances relating to periods up to 31/03/2006 and additions may pleas be deleted as the said income does not pertain to previous year relevant to A.Y. 2009-10 and it is not taxable in Assessment Year 2009-10. 9. Appellant prays for just and equitable relief. 10.Appellant prays to add, alter, amend and / or withdraw the ground/s during the appellate proceedings. 43. The assessee has also raised additional ground of appeal, which reads as under:- 1. "loss on merger of Sanjeevani Urban Co Op Bank Ltd, Dist. Parbhani, of Rs. 2,49,30,262/- may please be allowed as Revenue / Business Expenditure" 2. Without Prejudice to above Ground and if appellant fails, Difference in Asset and Liability of Bank merged, being for 'Banking license'/ Goodwill, depreciation on the same may please be allowed. 44. The learned Authorized Rep....
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....Banking Business and goodwill, customer line and infrastructure etc of Sanjivani Urban Bank, Appellant may please be allowed depreciation on the said cost, u/s 32 (1)(ii) of the Act, 1961. 3. The learned CIT(A) has erred in confirming the action of Assessing Officer in disallowing appellant claim of Rs. 16,17,000/- i.e. 1/5th of deferred revenue expenditure i.e. difference in Assets and liabilities of Sinhgad Urban Co-operative Bank Ltd, taken over merged in Appellants bank. Same may please be allowed. 4. Without prejudice to Ground No.3, since Appellant Bank has incurred expenditure for acquiring license to carry on Banking Business and goodwill, customer line and infrastructure etc of Sinhgad Urban Bank, Appellant may please be allowed depreciation on the said cost u/s 32 (1)(ii) of the Act, 1961. 5. The learned CIT(A) has erred in confirming the action of Assessing Officer in making addition of Rs. 4,87,790/- in respect of nominal membership fees ignoring fact that the same being capital receipt is not taxable at all under the Income Tax Act. 6. The learned CIT(A) has erred in confirming Assessing Officer's action of not allowing deduction of Rs. 72,09,630/- out ....