AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2015 (5) TMI 1168
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.... securities." 3. The brief facts of the case as emanating from records are: The assessee is a co-operative society registered under Maharashtra Cooperative Societies Act and is engaged in the business of banking. The assessee filed its return of income for the assessment year 2010-11 on 27.09.2010 declaring total income of Rs. 8,44,80,270/-. The case of the assessee was selected for scrutiny and notice under section 143(2) of the Income Tax Act, 1961 (in short "the Act") was issued on 20.09.2011. The Assessing Officer vide order dated 30.11.2012 made certain additions/disallowance. Aggrieved by the assessment order dated 30.11.2012, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) vide impugned order partly accepted the appeal of the assessee. Now, the assessee has come in second appeal impugning the order of the First Appellate Authority. 4. Smt. Deepa Khare appearing on behalf of the assessee submitted that the Commissioner of Income Tax (Appeals) has erred in confirming disallowance of deduction claimed under section 36(1)(viia) of the Act. The assessee is carrying on banking activities. Admittedly, al....
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....wable in case of provision for non-rural advances also. On interpretation of statutes, the assessee placed reliance on the judgement of the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. vs. DCIT reported as (2010) 328 ITR 81 (Bom). 5. The second issue in the appeal relates to interest on NPA accounts. The Ld. Counsel submitted that similar issue was raised before the Tribunal in bunch of appeals, one of which is ITA No.387/PN/2014 for the assessment year 2010-11 decided on 28.11.2014. The Co-ordinate Bench of the Tribunal has decided the issue in favour of the assessee. 6. The third issue in this appeal relates to amortization of premium paid on Govt. Securities held under HTM category. The Ld. Counsel for the assessee contended that similar issue was raised by the assessee in the assessment year 2009-10 in ITA No.690/PN/2013 decided on 27.11.2013. The Co-ordinate Bench of the Tribunal placed reliance on the decision in the case of Nashik Merchants Co-operative Bank Ltd. in ITA No.1254/PN/2011 and decided the issue in favour of the assessee. 7. On the other hand, Shri Pankaj Garg representing the Department vehemently supported the finding of the Commissi....
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....clause.] [Explanation 1. - For the purposes of this clause, any bad debt or part thereof written off as irrecoverable in the accounts of the assessee shall not include any provision for bad and doubtful debts made in the accounts of the assessee;] [Explanation 2. - For the removal of doubts, it is hereby clarified that for the purposes of the proviso to clause (vii) of this sub-section and clause (v) of sub-section (2), the account referred to therein shall be only one account in respect of provision for bad and doubtful debts under clause (viia) and such account shall relate to all types of advances, including advances made by rural branches;] [(viia) [in respect of any provision for bad and doubtful debts made by- (a) a scheduled bank [not being [* * *] a bank incorporated by or under the laws of a country outside India] or a nonscheduled bank [or a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank], an amount [not exceeding seven and one-half per cent] of the total income (computed before making any deduction under this clause and Chapter VIA) and an amount not exceeding [ten] per cent of ....
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....1)(vii) deals with general deduction available to a bank and even non-banking business. The provisions of section 36(1)(vii) operate in their own field and are not restricted by the limitation of section 36(1)(viia) of the Act. After giving detailed findings and elaborating the provisions of both the clauses, the Hon'ble Apex Court concluded as under :- "To conclude, we hold that the provisions of section 36(1)(vii) and 36(1)(viia) of the Act are distinct and independent items of deduction and operate in their respective fields. The bad debts written off in debts, other than those for which the provision is made under clause (viia), will be covered under the main part of section 36(1)(vii), while the proviso will operate in cases under clause (viia) to limit deduction to the extent of difference between the debt or part thereof written off in the previous year and credit balance in the provision for bad and doubtful debts account made under clause (viia). The proviso to section 36(1)(vii) will relate to 36(2)(v) of the Act. Thus, the proviso would not permit the benefit of double deduction, operating with reference to rural loans while, under section 36(1)(vii), the assessee woul....
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.... 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. In the absence of any judgement of the Jurisdictional High Court, a view which was favourable to the assessee was followed by the Tribunal and the issue was decided in favour of the assessee in view of the reasoning laid down by the Hon'ble Supreme Court in the case of CIT vs. Vegetable Products Ltd., (1973) 88 ITR 192 (SC). The relevant discussion in the order of the Tribunal dated 31.10.2013 (supra) is reproduced as under :- "8. We have carefully considered the rival submissions. In so far as the applicability of section 43D of the Act to the assessee is concerned, there is a convergence of opinion between the assessee and the Revenue to the effect that the same is not applicable to the assessee. Ostensibly, assessee is a Co-operative Bank carrying on banking business in terms of a license granted by RBI and is not a 'scheduled bank' included in second schedule of RBI so as to fall within the scope of section 43D of the Act. Notably, section 43D of the Act prescribes that interest income on such categor....
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....upra). 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 income. The Assessing Officer, however, added the said interest as the income of the assessee by holding that it had "accrued" to the assessee even it was not realized as the assessee was following mercantile system of accounting. The learned CIT (A) affirmed the order of the Assessing Officer. However, the ITAT deleted the aforesaid income. Hence the revenue preferred appeal before the Hon'ble Delhi High Court. 8.1 After hearing the rival submissions, the Hon'ble Delhi High Court took note of sec.45Q of Reserve Bank of India Act which reads as under: "Chapter IIIB to override other laws. 45Q. The provisions of this Chapter shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law". The High Court took note of the f....
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....09 (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 assessee. 8.4 Before the Delhi High Court, the revenue took support of the decision of the Hon'ble Supreme Court in the case of Southern Technologies Ltd (Supra). The Delhi High Court considered the said decision of Hon'ble Apex Court and explained the same as under: "We have already held that even under the Income Tax Act, interest income had not accrued. Moreover, this submission of Mr. Sabharwal is based entirely on the judgment of the Supreme Court in the case of Southern Technology (Supra). No doubt, in first blush, reading of the judgment gives an indication that the Court has held that Reserve Bank of India Act does not override the provisions of the Income Tax Act. However, when we examine the issue involved therein minutely and deeply in the context in which that had arisen and certain observations of the Apex Court contained in that very judgment, we find that the proposition advanced by Mr.Sabharwal may not be entirely correct. In the case before the Supre....
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....x 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 Directions 1998 are Prudential/Provisioning Norms issued by RBI under Chapter IIIB of the RBI Act, 1934. These Norms deal essentially with Income Recognition. They force the NBFCs to disclose the amount of NPA in their financial accounts. They force the NBFCs to reflect "true and correct" profits. By virtue of Section 45Q, an overriding effect is given to the Directions 1998 vis-à-vis "Income Recognition" principles in the Companies Act, 1956. These Directions constitute a code by itself. However, these Directions 1998 and the IT Act operate in different areas. These Directions 1998 have nothing to do with computation of taxable income. These Directions cannot overrule the 'permissible deductions" or "their exclusion" under the IT Act. The inconsistency between these Directions and Companies Act is only in the matter of Income Recognition and presentation of Financial Statements. The Accounting policies adopted by an NBFC cannot determine the taxable income. It is well settled that the Accounting Policies....
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....in deleting the impugned addition relating to interest income in respect of NPAs. 11. So, however, the learned Departmental Representative has submitted that the Hon'ble Madras High Court in the case of CIT vs. Sakthi Finance Ltd., (2013) 31 taxmann.com 305 (Madras) has differed with the judgement of the Hon'ble Delhi High Court in the case of M/s Vasisth Chay Vyapar Ltd. (supra) on a similar issue, i.e. relating to interest income on NPAs. The learned Departmental Representative further pointed out that the Hon'ble Madras High Court followed the decision of the Hon'ble Supreme Court in the case of Southern Technologies Ltd. (supra) in holding that interest on NPAs was assessable to tax on accrual basis. We have carefully considered the submissions put-forth by the learned Departmental Representative based on the judgement of the Hon'ble Madras High Court in the case of Sakthi Finance Ltd. (supra). The controversy before the Hon'ble Madras High Court related to non-recognition of interest income on NPAs by the assessee following the RBI guidelines. The Hon'ble Madras High Court took the view that the judgement of the Hon'ble Supreme Court in the case of Southern Technologies Ltd.....