TaxTMI 
TaxTMI 
2022 (3) TMI 895
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....er has noted that assessee had debited an amount of Rs. 94,00,000/- for Assessment Year 2014-15 towards interest on share capital. The Assessing Officer called upon the assessee to show-cause as to why the said interest amount should not be treated as an appropriation of profit and added to the total income. In response, assessee submitted before the Assessing Officer that the assessee bank collects deposits from deposit holders, who are admitted as members and the deposits were given to the members as a loan under the A.P. Mutually Aided Cooperative Societies Act 1995, supports payment of interest on share capital as per section 16(1) of the Act. The Assessing Officer after considering the explanation of the assessee took a view that the interest on share capital to the members, amounts to appropriation of profits and such interest is paid out of surplus of profits and cannot be charged on income and hence, cannot be allowed as a deduction and claim made by the assessee is disallowed. 4. On appeal before the ld. CIT(A) it was submitted that similar issue was decided by the Hon'ble ITAT in the case of Visakhapatnam Cooperative Urban Bank Ltd. in ITA No.19/VIZ/2011 for the As....
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....tal to the members, amounts to appropriation of profits and such interest is paid out of surplus of profits and cannot be charged on income and hence cannot be allowed. The ld. CIT(A) has considered the order of the ITAT, Visakhapatnam in the case of Visakhapatnam Cooperative Urban Bank Ltd. for the Assessment Year 2007-08 in ITA No. 19/VIZ/2011 dated 29/08/2011 and came to a conclusion that interest on share capital paid to the members is an allowable deduction. The very same issue has been considered by the ITAT, Visakhapatnam Bench in ITA No.449/VIZ/2012 (supra) by following the case of Visakhapatnam Co-operative Bank for the Assessment Year 2007-08 which upheld the view taken by the ld.CIT(A). For the sake of convenience, the relevant portion of the order is extracted below:- "22. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. In this case, the assessee has debited an amount of Rs. 1,57,53,620/- towards interest on share capital. It was submitted that as per the section 16 of the A.P. Mutually Aided Cooperative Societies Act, 1995, it is an allowable expenditure. The A.O. has not accepted ....
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....ppeal, ld. CIT(A) has considered the order of the Tribunal in the case of Visakhapatnam Cooperative Bank for the Assessment Year 2007-08 in ITA Nos. 5 & 19/VIZ/2011 dated 29/08/2011 and also CBDT Circular No. 9/282 dated 11/09/2002 and directed the Assessing Officer to delete the disallowance. The relevant portion of the order is extracted as under:- "5.6 I have considered the submissions made in this regard. The issue to be resolved is whether the interest paid to members exceeding Rs. 10,000/- by the assessee, a co-operative bank would not attract liability to TDS in view of the exemption available in Sec.194A(3)(v) of the I.T.Act. The Hon'ble ITAT, Visakhapatnam, in the case of The Visakhapatnam Cooperative Bank Ltd. for the Asst. Yr. 2007-08 in ITA Nos. 5 & 19/Vizag/2011, dated 29.8.2011, held that the exemption u/s.194A(3)(v) would be available to the assessee and accordingly deleted the disallowance made u/s.40(a)(ia). The same issue again arose in the case of The Visakhapatnam Co-operative Bank Ltd., and was resolved in favour of the bank holding that the assessee would be entitled to exemption from TDS as per Sec.194A(3)(v) of the Act for A.Ys. 2008-09, 2009-10....
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.... dated 14.12.2013 and submitted that the very same issue has been considered by the CIT(A) as well as ITAT for earlier years and decided in favour of the assessee. The Ld. CIT(A) has considered the submissions of the assessee and directed the A.O. to delete the addition by observing as under: 5.2 I have considered the submissions. The issue considered in the above appellate order was whether the assessee, a cooperative bank is required to effect TDS on payment of interest made to its members, when the amounts exceed Rs. 10,000/-. A view was taken that in the above order dtd.22.10.2013 that if the interest amount exceeds Rs. 10,000/- then the appellant is required to deduct TDS even if the payment was made to the members. Such a view was taken with reference to provision contained in section 194A(3)(i)(b) and it was held that section 194A(3)(i)(b) would prevail over section 194A(3)(v) of the Act. Such a view was taken without considering the clarification given in the CBDT circular No.9 of 2002 dtd.11.09.2002. The relevant clarification in the circular reads as under: Under section 194A of the Income-tax Act, 1961, tax is deductible at source from any payment of in....
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....s submitted before the Assessing Officer that the premium paid was claimed as expenditure on the basis of amortization of Rs. 2,43,742/- as it was a loss to the assessee bank and further the assessee bank was required to offer as income whenever the securities were sold for more than purchase price paid; that the amortization of expenditure is not a contingent liability since it was already incurred and the excess premium paid over fair value of the securities were amortized over a period of time of unexpired period of securities and that the question of contingency does not arise at all. The Assessing Officer has not accepted the explanation of the assessee for the reason that the actual expenditure was not incurred by the assessee and only a provision i.e., a contingent liability was made which may become payable at a future date. Contingent liabilities do not constitute expenditure and cannot be the subject matter of deduction even under the mercantile system of accounting. The assessee claims that the premium amount was actually incurred. However, upon perusal of the assessee's reply, it becomes clear that it is only contingent in nature. The expenditure which is deductible for....
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....Y. 2012-13 & AY 2013-14. Following the rule of consistency, the grounds raised by the appellant is allowed and the Assessing Officer is directed to delete the addition." 22. On being aggrieved, Revenue is in appeal before the Tribunal. 23. Ld. Departmental Representative relied on the grounds of appeal. 24. Ld. counsel for the assessee has supported the order of the Assessing Officer. 25. We have heard both the parties, perused the material available on record and the orders of the authorities below. 26. In this case, the assessee has claimed an amount of Rs. 2,43,742/- as amortization of premium on Government Securities (HTM) in its profit & loss account relates to Assessment Year 2014-15. When the Assessing Officer asked the assessee to explain in detail, it is submitted that the premium paid was claimed as an expenditure on basis of amortization for Rs. 2,43,742/- as it was a loss to the assessee bank and further assessee bank was required to offer as income whenever securities were sold for more than the purchase price paid and the amortization of expenditure is not a contingent liability since it was already incurred and the excess premium paid over fai....