TaxTMI 
TaxTMI 
TaxTMI 
2019 (10) TMI 1068
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.... appeal : 2. Ground No.1 & 5 : These grounds of appeal are general in nature and, therefore, no order needs to be passed. 3. Ground No.2: The assessee is not pressing this ground of appeal before us. Hence, this ground of appeal is dismissed as not pressed. 3. Ground No.3 & 4: These grounds are consequential in nature therefore no order need to be passed. ITA No.1088/Ahd/2017 for A.Y. 2013-14 - Revenue's appeal : 4. The revenue has filed this appeal with the following grounds: "(1) That the ld.CIT(A) has erred in law and on facts in deleting the addition made by the AO on account of FDR written off Rs. 23,88,83 704/-. (2) That the ld.CIT(A) has erred in law and on facts in deleting the addition made by the AO on account of interest accrued on non performing assets of Rs. 79,57,37,478/-. (3) That the ld.CIT(A) has erred in law and on facts in deleting the disallowance made by the AO u/s 14A r.w. Rule 8D of Rs. 53,68,445/-. (4) That the Ld.CIT(A) has erred in law and on facts in deleting the addition made by the AO on account of Amortized of Premium amounting to Rs. 2,74,57,365/-. On the fact and in the circumstances of the case and in law, the CIT(A) ought to have up....
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.... the claim of write off, in addition to earlier submission enclose please find following. - Annexure I (Page 01 to 06) (a) A copy of Press Release: 2011-12/ 1949 dated June 7, 2012 made by Reserve Bank of India. (b) Documents relating to revival are appended. As regard to revival scheme, certainly scheme of reconstruction was made applicable from the close of business of August 23, 2001 for a period often years. But no progress is made in ten years due to non fulfillment of commitments for contribution by UCB and poor track record of recovery lead to expiry of scheme on August 23, 2011. Thus your goodself has refer to revival scheme which was recommended long back and upon its failure it closed down also. Finally for writing of debts / deposits the Reserve Bank of India will prepare the rules the norms a prior permission is not necessary for write off. It is well settled proposition that, to be a permissible deduction there must be direct & intimate Connection between the payment and the business of the assessee. Payment should have been for the purpose of carrying on the business. On the facts of the assessee's case assessee has placed deposits with the Madhavpura ....
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....i) The co-operative bank is not in a position to pay its present and future depositors in full as and when their claims accrue. iv) The affairs of the co-operative bank are being conducted in a manner detrimental to the Interests of its depositors. , v) The financial position of the co-operative bank is so precarious that there is no scope for its revival. vi) The public interest would be adversely affected if the co-operative bank is allowed to carry on its business any further. Therefore, Reserve Bank of India took the extreme measure of cancelling the licence of the cooperative bank in the interest of co-operative bank's depositors. Consequent to the cancellation of licence, The Madhavpura Mercantile Co-operative Bank Ltd., Ahmedabad (Gujarat) is prohibited from carrying on the business of 'banking' as defined in Section 5(b) of lie Banking Regulation Act, 1949 (AACS).As stated in the same RBI has given that MMCB ceased to be solvent and which indicates that there is no chances of receiving the deposits back from the MMCB your assessee has written off the same from its books of accounts. As the Claim of deduction is rightly, made under the Provision of the ....
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.... in regard to the financial position as on 31.03.2011. It is further mentioned that the net worth of the said bank was assessed at Rs.(-) 1316.50 crores and the Bank was not having adequate assets to meet its liabilities. The entire capital and reserves of the cooperative bank has eroded as also observed by the RBI and NPA where Rs. 1126.55 crores i.e. almost 99.99% to its gross advances and the bank has accumulated loss of Rs. 1357.41 Crores and deposit erosion was 100%. In that view of the matter, the Learned CIT(A) was of the opinion that the justification made by the Learned AO upon verification of the written off income filed by the MMC Bank for A.Y. 2013-14 that the said bank is having cash and the Bank balance amounting to Rs. 654.89 crores, cannot be the basis of disallowance of claim of the assessee, particularly, when the RBI has issued order cancelling the license of MMC Bank; such finding was given by the RBI after statutory instruction of the co-operative bank u/s 35 of the Act with reference to the financial position as on 31.03.2011. The appellant has further been able to prove that nothing has been recovered till date since 2001. Neither anything is likely to recove....
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.... which it is credited to its profit and loss account by the said institution or bank or corporation OR (b) In the previous year in which it is actually received by the institution or bank, Whichever is earlier On facts of the case, assessee bank has not credited any such interest nor any part of interest which is actually received is not shown as income and therefore provision of section 43D are not applicable. (II) Kindly refer to" Income ARecognition Policy contain in Master Circular issued by the RBI dt. July 1, 2015 relating to Income Recognition, Asset classification provisioning and other related matters-UCB on Page 16 A copy of the said circular is appended - Annexure III (Page No. 13 to 64) Therein it has been categorically stated that" Income from Non-Performing Assets (NPA) is not recognized on accrual basis but is booked as income only when it is actually received. Therefore banks should not take income account interest on non performing assets on accrual basis. Para 4.5 Interest Application 4.5.1 In case of NPs where interest has not been received for 90 days or more, as a prudential norm, there is no use in debiting the said account by interest accrued in ....
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....eas assessee being banking company, obviously interest has to be paid on deposits accepted are banking and investment being the core activity, its income will also consist of interest only. And from the Profit and loss account your good self will appreciate that bank has earned interest of Rs. 356.71 crore and paid interest on deposits of Rs. 222.68 crore so to say there is net interest income of Rs. 134.03 crore. f. Also from the balance sheet your good self will appreciate that bank has its own funds as follow. Capital 66.67 crores Reserves 705.94 crores Total 772.61 crores g. As against this only Rs. 19 crore is invested in shares of Clearing Co. Op. India Ltd. wherefrom assessee has received dividend which is claimed as exempt. Moreover the investment in the said shares has been made in past years and not in the current assessment year therefore interest expenditure of current year has no nexus with the income claimed exempt. h. There are various decisions where it has been so held that no disallowance be made if investments is made out of its own fund. i. All other expenditure charged in Profit and Loss Account are for carrying banking activities and it ha....
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....ubtful debts as may be prescribed having regard to the guidelines issued by the Reserve Bank of India in relation to such debts. (b) in the case of a public company, the income by way of interest in relation to such categories of bad or doubtful debts as may be prescribed having regard to the guidelines issued by the National Housing Bank in relation to such debts, Shall be chargeable to tax in the previous year in which it is credited by the public financial institution or the scheduled bank or the State financial corporation or the State industrial investment corporation or the public company to its profit and loss account for that year or, as the case may be, in which it is actually received by that institution or bank or corporation or company, whichever is earlier. Explanation for the purpose of this section - Scheduled bank shall have the meaning assigned to it in clause-ii of the explanation to clause vii(a) of sub-sec-1 of sec-36. The scheduled bank has been described as (u) whose main object is carrying on the business of providing long term finance for construction 01 purchase of houses in India for residential purposes" The appellant during the course of appellate ....
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....lly received by that bank whichever is earlier. On a perusal of the assessment order it is noticed that the A.O has not disputed that the issue in question is regarding interest on non-performing assets The focus of the A.O has all along been that since the appellant follows mercantile system of accounting as per sec. 145 of the I.T. Act, the appellant cannot have a mixed system of accounting as subsection-( 1) to sec. 145 contains the word 'shall' which suggests that the provisions of section 145 are mandatory in nature. Therefore, once the income has accrued as per the method of accounting being regularly followed by the assessee, it shall be included in the total income. However, it is a fact that the income of the appellant is being offered under the head profit and gains of business for which as per the scheme of taxation the income is required to be computed as per the provisions of sec 28 to 44 of the IT Act Sec.43D is a part and parcel of this chapter which is also squarely applicable for the computation of this income from business or profession of such assessee. Therefore, when a specific section has been inserted by the Parliament in its wisdom for computatio....
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....85,91,096/- as exempt income. He observed that assessee has not disallowed any expenditure incurred towards earning exempt income as per the provision of section 14A of the act. Therefore, the assessing officer has worked out disallowance according to section 14A r.w. Rule 8D of the act and disallowed an amount of Rs. 42,65.343/-. 12. Aggrieved assessee filed appeal before the ld. CIT(A). The ld. CIT(A) has stated that his predecessor in the case of the assessee itself has decided the similar issue in favour of the assessee. The Ld. CIT(A) has deleted the additions of Rs. 33,15,343 made by the assess in officer stating that the assessee has more interest free fund available than investment made in securities from which exempt income accrued. However, in respect of addition of Rs. 9.5 lacs made under rule 8D(iii) he stated that assessee has not filed any submission, therefore, he has sustained the addition to the extent of Rs. 9,50,000/-in respect of administrative expenses. 13. We have heard the rival contentions and perused the material on record carefully. The second issue is pertained to the disallowance of expenses u/s. 14A r.w. Rule 8D of the act incurred towards the exe....
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....ssessee filed appeal before the ld. CIT(A). The ld. CIT(A) has deleted the addition stating that his predecessor has deleted the same in the case of the assessee in the earlier years. 10. We have heard the rival contentions and perused the material on record carefully. The assessee has made investment in the HTM category as per the guidelines laid down by the RBI and claimed amortization of premium till the period maturity. The assessing officer has disallowed the claim following the similar addition made by his predecessors on the ground that the premium amount paid for acquiring the capital investment cannot be allowed as deduction expenditure. The ld. CIT(A) has deleted the addition by following the decision of his predecessors. We have noticed that as per RBI guidelines dated 16th Oct, 2000, the investment portfolio of the bank is required to be classified under three categories viz. Held to Maturity (HTM), Held for Trading (HFT) and Available for Sale (ATS). Investment classified under HTM category needs to be marked to market and are carried at acquisition cost unless these are more than the face value in which case the premium should be amortized over the remaining perio....