TaxTMI 
TaxTMI 
2019 (6) TMI 1425
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....e ld.CFF(A) has erred in law and on facts in deleting the disallowance made by the AO on account of Amortization of Premium amounting to Rs. 3,15,81,243/-. (3) That the ld.CIT(A) has erred in law and on facts in deleting the disallowance made by the AO on account of interest accrued on non performing assets of Rs. 41,18,29,397/-. On the fact and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the Assessing Officer to the extent mentioned above since the assessee has failed to disclose his true income/book profit. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored to the above extent. The appellant craves, to leave, to amend or alter any ground or add a new ground which may be necessary." 2. The assessee, a Co-operative Bank filed its return of income on 12.09.2014 declaring total income of Rs. 80,14,86,735/-. Under scrutiny through CASS notice u/s 143(3) of the Act dated 28.08.2015 was issued followed by a further notice dated 17.06.2016 u/s 142(1) r.w.s. 129 of the Act due to change of incumbent. The assessment proceeding was fi....
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....ntrovert the said contention made by the Learned AR. 4. We have heard the respective parties, we have also perused the relevant materials available on record. It appears that the similar claim of the assessee was allowed by the Learned CIT(A) in assessee's own case for A.Y. 2008-09, confirmed by the Hon'ble Tribunal, which was taken care of by the Learned CIT(A) in his operative part of the order; the relevant portion whereof is as follows: "4. I have carefully considered the submissions made by the appellant and the assessment order. The first issue is regarding disallowance of business promotion members gift, scholarship expenses and payment to legal heirs of the members amounting to Rs. 31,98,7762/-. The similar issue came up before the Hon'ble ITAT, Ahmedabad "C" Bench in the appellant's own case for A.Y. 2008-09. After discussing the issue in detail, the Hon'ble ITAT has held as under:- "5.4 We have heard both sides, perused the material available on record and gone through the orders of the authorities below. The main source of income of the assessee is that of receipt of I interest realized on the advance made by the bank and out of the total adv....
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....In view of above mentioned facts and circumstances, we find that the assessee had incurred above stated expenditure for promoting the business, even though there is no legal obligation to incur these expenditure but the assessee had incurred it for preserving business connection and goodwill of the business. Therefore, in view of above findings, we allow the aforesaid expenditure as business expenditure under Section 37 of the Act." 4.1 Since the issue has already been decided against the Revenue by the Hon'ble ITAT, Ahmedabad Bench, respectfully following the order of Hon'ble ITAT, the addition made by the A.O on this account is deleted. This ground of appeal is allowed." We have also find that the said order has been affirmed by the Jurisdictional High Court in revenue's Appeal No. 596 of 2017; the tax appeal preferred by the Revenue was found to be devoid of merit by the Hon'ble Jurisdictional High Court, relevant portion whereof is as follows: "3. It can thus be seen that the Tribunal accepted the assessee's version that the expenditure was incurred for the purpose of business to maintain goodwill and continuity of business being provided by imp....
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.... by the assessee was not found acceptable by the Learned AO. He was of the opinion that the Amortization of premium paid to HTM Securities is not in the nature of expenditure of loss but more in the nature of capital and is not allowable u/s 37 of the Act. Ultimately, the said amount of Rs. 3,15,81,243/- was added to the income of the assessee which was in turn deleted by the Learned CIT(A) in appeal, hence the revenue before us. 7. At the time of hearing of the instant appeal, the Learned Senior Counsel appearing for the assessee submitted before us that the issue is entirely covered by the assessee's own case for A.Y. 2013-14 which followed the order passed in A.Y. 2012-13. In fact, the order passed by the Learned CIT(A) for A.Y. 2012-13 was further affirmed by the Co-ordinate Bench; copy whereof has been also submitted by the Learned AR before us. The Learned DR, however, failed to controvert the arguments advanced by the Learned Senior Counsel appearing for the assessee. 8. Heard the respective parties, perused the relevant materials available on record. It appears from the records that while deleting the addition made by the Learned AO, the Learned CIT(A) observed inter ....
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....he order passed by the Learned Coordinate Bench in ITA No.2124/Ahd/2016 for A.Y. 2012-13. While deciding the identical issue in favour of the assessee the Hon'ble Co-ordinate Bench observed as follows: "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....
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....er under reference namely "Interest accrued on Non Performing Assets (NPA)". However, provisions of section 43D is for the Interest accrued on Non Performing Assets (NPA). Further, you have mentioned that Interest accrued on Non Performing Assets (NPA) is of Rs. 1,20,75,66,875/- but it is a cumulative balance of interest accrued on NPA accounts and breakup of the same is as under. Cumulative balance as on 31/03/2014 Rs. 1207566875 Less: Additions made in AY 2013-14 Rs. 795737478 (Disputed in Appeal) Current year's interest accrued on NPA accounts Rs. 411829397 So if at all you propose to disallow and add back an amount of interest accrued on NPA, it should be Rs. 41,18,29,397 only and not as propose in the notice. Regarding Non-applicability of Provisions of Section 43D & non considering interest accrued on NPA account as income, your assessee respectfully submits as under. 1. Your Assessee is a schedule Bank and Provisions of Section 43D of the IT. Act. reads as under. "Sec. 43D - Notwithstanding anything to the contrary contained in any other provisions of the Act, - (a) In ....
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.... pending before the CIT (A), Ahmedabad and same is partly heard. Even for making said addition, the learned assessing officer heavily relied upon the incorrect observation that the assessee is not a "Schedule Bank". The learned Assessing Officer further agreed that had it been schedule bank it would have been otherwise now for the year under reference your good self have categorical inquired about the status of the assessee bank (Which your predecessor had, not) and your assessee has produced a copy of Gazette published by the authority recognizing assessee bank as a "Schedule Bank" since September 1, 1988. In view of the clear provisions of Sec. 43D of the I. T. Act, 1967 ns clarified, here in above, it is humbly requested not to make such addition as alleged and save your assessee from facing uncalled for pressure of paper demand. Kindly refer to "Income\Recognition Policy contains in Master Circular issued by the RBI dated July 1, 2015 relating to Income Recognition, Asset classification provisioning and other related matters- UCB on Page 16A copy of the said circular is appended - Annexure III (Annexure B) Therein it has been categorically st....
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....n asset in respect of which interest has remained unpaid and has become past due. Once a particular asset is shown to be a non performing asset then the assumption is it is not yielding any revenue and even principal repayment is doubtful. When it is not yielding any revenue, the question of showing that revenue and paving tax would not arise. 3. Your assessee rely upon the following decision - (Annexure C) * The Sindagi Urban Co. Op. Bank Vs. Department of Income Tax - ITAT, Banglore * Commissioner of Income Tax Vs. Shri Siddeshwar Co. Operative Bank Ltd. - Karnataka High Court * Commissioner of Income Tax Vs. Can/In Homes ltd. - Karnataka High Court Relevant Documents regarding to aforesaid matter is being appended herewith." However, such submission of the assessee was not accepted by the Learned AO and he was of the view that the Circular issued by the RBI which has been relied upon by the assessee was of no impact on the computation of taxable income under the Income Tax Act. The directions given under such circular cannot overrule the permissible deduction or other exclusion under the Income Tax Act. He further added the following: ....
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....39;Interest Suspense Account', without treating it as bed debts or irrecoverable interest, was repayment to section 36(1)(vii) and section 32(3)of the Act and that the concept of real income does not help the appellant-bank . It was observed the concept of real income cannot be so read as to defeat the object and the provision of the Act. Sabyasachi Milkharaji J, in his opinion, discussed all the relevant cases on the subject including Morin "Industries Ltd's case(Supra) and Biral Gwalior(P) Ltd's case (Supra) as well as the decision of this court in Shooji Vallabhdas and Co's case (supra) and stated the proposition emerging therefrom in the following words: ".... (1) It is the income which has really accrued or arisen to the assessee that the taxable whether the income has really accrued or arisen to the assessee must be judged in the light of the reality of the situation. (2) The concept of real income would apply where there has been a surrender of income which in theory may have accrued but in the reality of the situation, no income had resulted because the income did not really accrue. (3)Where a debt has become bad, deduction in compliance with the pr....
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.... assessee. The Apex Court also held that the concept of real income must be applied with extreme caution and that it should not be extended to the areas where it has no application. In the case on hand, it is not in dispute that the assessee was following mercantile system of accounting and therefore the interest income on the advances including NPAs accrued to the assessee u/s 5 r.w.s 145 of the I.T. Act and the case of the assessee is not covered by section 43D. In such, a situation, the concept 01 reality of income cannot be utilized for whittling down or nullifying the provision of section 5 of the I.T. Act. Under section 5, income has accrued to the assessee during the year and accordingly entries to that effect were made in the books of accounts of the bank and shown in the balance sheet even, if the realization of the interest amount is delayed. Therefore, it cannot be said that what is assessed is notional income or hypothetical income or unreal income. 5.10 To sum up, RBI guideline have been issued under delegated legislation for the purpose of effective supervision and control of monetary and system and to supervise and exercise control on banks and NBFCS. The RB....
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.... the assessment year 2010-11, the assessee had filed the return of income on 14-102010 declaring total loss of Rs. 3.22 crores (rounded off). The return was taken in scrutiny. During such scrutiny assessment, one of the issues examined by the Assessing Officer was of the assessee's claim of deduction of Rs. 93.03 lakhs. The Assessing Officer noticed that the P & L account, the assessee had debited the said sum under the head "reserve for overdue interest". The Assessing Officer called upon the assessee to explain this, in response to which, the assessee conveyed that the assessee is a cooperative bank governed by the Gujarat Cooperative Societies Act, 1961, Banking Regulations Act, 1949 and the rules and regulations framed by the Reserve Bank of India ('RBI' for short), as per which, it is mandatory for the bank to follow directives issued by the RBI. During the year under consideration, the bank had made a provision for overdue interest of Rs. 93.03 lakhs against interest accrued but not receivable on non performing assets which were irrecoverable, sticky loans, or doubtful loans. The assessee pointed out that as per the Reserve Bank of India circular dated 22-06-1996,....
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.... the taxability a certain receipt. 7. On the other hand, learned advocate Shri Darshan Patel and Shri Bandish Soparkar appearing for the assessees submitted that the bank was bound by the RBI directives, as per which, the bank would have to make 100% provision for the entire overdue interest on NPA. The account having become non performing account, there was little chance of recovering even the principal sum. Merely because the interest goes on accruing, the same cannot be taxed even though the possibility of recovering interest was almost nonexistent. Learned advocate submitted that various Courts have taken a similar view and granted the deduction on the principal of taxing real income. Our attention was drawn to the decision of Division Bench of this Court in case of Pr. CIT v. Shri Mahila Sewa Sahakari Bank Ltd. [2016] 72 taxmann.com 117/242 Taxman 60/[2017] 395 ITR 324 (Gujarat) in which the said issue came up for consideration. 8. In our opinion, entire issue is covered by the judgment of this Court in case of Shri Mahila Sewa Sahakari Bank Ltd. (supra). In the said case, the Court has considered following substantial question of law: "Whether on th....