TaxTMI 
TaxTMI 
2025 (3) TMI 1715
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.... the assessee does not violate the provisions of section 145 of the Act and accordingly erred in deleting the addition made by the AO on account of disallowing the interest income from standard assets/regular advance, interest income from sub-standard advances, interest income on zero coupon bond and interest income on Non-SLR investment. 3. The facts in brief are that the assessee is a District Co-Operative Bank registered under Karnataka Co-Operatives Societies Act and engaged in the Banking business in accordance with the License RC 3412011-12 issued under section 22(1) of the Banking Regulation Act, 1949 by the Reserve Bank of India. 4. The assessee is engaged mainly in providing credit facilities to its members who are primarily farmers and Primarily Agricultural Co-Operative Societies (PACS) belonging to Dakshina Kannada. The assessee has 101 branches spread across all over the district including head office at Mangalore. 5. As per schedule 21 of financial statement highlighting the significant accounting policies, the assessee recognized income and expenses on mixed/hybrid system of accounting. In other words, the assessee has accounted for certain transactions on a....
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....verride the provisions of section 145 of Act. Thus, the hybrid/mix model of accounting system employed by the assessee is in contravention of the mandatory provision of the Act which the assessee has consistently violated. Further, the provision of section 145 of the requires the accounting system adopted shall be followed consistently whereas the assessee is changing the method frequently for accounting the same transaction which is evident from the fact that the assessee till F.Y. 2014-15 recognized income from SLR investment on cash basis whereas in the year under consideration change the method to accrual basis. Likewise, the assessee in notes to significant accounting policies disclosed that income on zero coupon bond recognized on an accrual basis but in reality, income offered only on cash/realization basis. Thus, the assessee even not following its disclosed accounting policy properly. 9. Based on the above observation the AO held that the accounting method followed by the assessee does not reflect the true/correct income. The AO found that the assessee has declared mercantile system as preferred method, therefore adopting the same as accounting method, thus, the AO proc....
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....me. Interest accrued on zero-coupen bonds; 13. The AO noted that the assessee in the profit and loss account credited interest on zero coupon bond for Rs. 2,76,32,931/- but the same was reduced from the computation of total income claiming the same as taxable on a cash basis. Thus, the AO brought the same to the tax on an accrual basis. 14. The aggrieved assessee preferred an appeal to the learned CIT(A). The assessee before the Ld. CIT(A), reiterated that it has consistently followed the same accounting policy since it became an assessee. It argued that right to receive interest/income on non-SLR investment as well as on zero coupon bond arises on record day only. Accordingly, the interest accrued on a time basis cannot be brought to tax when the right to receive the same does not arise. Therefore, the same was offered to tax on receipt basis. Likewise, the assessee reiterated that interest on advances whether standard or substandard offered on cash basis following RBI guidelines and guidelines of cooperative Act and bylaws. 14.1 The learned CIT(A) after considering the submissions made by the assessee deleted the addition of interest income on accrual basis with regar....
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....which included interest in standard advances at Rs. 2,15,86,760/-. On subsequent appeal by the assessee the leaned CIT(A) by following judicial precedence held that interest income on sub-standard advances cannot be taxed on accrual basis and deleted the addition of interest income in relation to substandard advances but confirmed the addition in relation to interest on standard assets. The assessee did not prefer appeal against the finding of learned CIT(A) meaning thereby the issue of taxability of interest income on standard advances on accrual basis reached to finality in the own case of the assessee in A.Y. 2010-11. 18.1.1. On the other hand, the revenue had preferred appeal before this tribunal in ITA No. 34/Bang/2014 against the deletion of interest income on substandard advances. The Tribunal vide order 4-09-2015 confirmed the view taken by the learned CIT(A). Thus, the issue of taxability of interest income on substandard advances also reached finality at this level. 18.1.2. In view of the above discussion and considering the principle laid down by the ITAT, we hereby confirm the finding of the learned CIT(A) in relation to deletion of addition of interest income on ....
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....ddition of interest on substandard/non-performing advances is hereby dismissed. Interest/income accrued on non-SLR investment 18.2 At the outset, we note that the assessee in A.Y. 2011-12 on similar reasoning as explained in the year under consideration did not offer the income accrued from the investments made. In the A.Y. 2011-12 also, the AO brought the income to tax on an accrual basis and made addition to the total income of the assessee. The dispute reached to this Tribunal in revenue's appeal bearing ITA No. 1244/Bang/2014. The Tribunal vide order dated 24-09-2015 decided the issue in favour of the assessee by observing as under: 49. We have heard the rival submissions. We have given a careful consideration to the rival submissions. At the time of hearing before us, it was agreed by the parties that the issue raised by the revenue in this appeal has already been decided by the Hon'ble Madras High Court in the case of CIT v. Tamil Nadu Mercantile Bank Ltd., 291 ITR 137 (Mad). The question of law before the Hon'ble Madras High Court was as follows:- "Whether, on the facts and circumstances of the case, the Tribunal was right in law in holding that inter....
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....axable for interest on securities only on specified dates when it became due for payment, in view of the third proviso to section 145(1) of the Act, which was in force during the relevant assessment years. " 50. It is not in dispute before us that identical decision has also been rendered by the Hon'ble High Court of Kerala in the case of CIT v. Federal Bank, 301 ITR 188 (Ker) and the Hon'ble Karnataka High Court in the case of Karnataka Bank Ltd. in ITA No.433/2005 dated 12.9.2013. 51. In the present case, the assessee has been following the method of offering interest on securities to tax on receipt basis on maturity and the same has been accepted by the revenue in the past. In view of the aforesaid decision, we are of the view that the order of the CIT(A) does not call for any interference. Consequently, the relevant grounds of appeal raised by the revenue are dismissed. 18.2.1. There is no material difference in the facts involved in the year under consideration and the facts involved for A.Y. 2011-12. However, we note that the assessee in earlier years including A.Y. 2011-12 offered tax on income earned from entire investment on cash/realization basis but,....
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....f the view that the assessee should also adopt the same approach in order to maintain consistency with respect to the income from the investment under non-SLR category. Accordingly, we are of the considered opinion that the principles laid down by the ITAT in the own case of the assessee cannot be applied for the year under consideration. 18.2.5. Before parting, it is equally important to note that there should not be any double taxation to the income of the assessee merely because of change in the method of accounting from cash to accrual for the investment which are giving rise to the income and right to the assessee to receive such income in different assessment years. With this observation, we are inclined to set aside the issue to the file of the AO for deciding the issue on hand afresh in the light of the above stated discussion and as per the provisions of law. Hence the ground of appeal of the Revenue is hereby allowed for statistical purposes. Zero coupon bond. 18.3. At the outset, we note that investment made under the head non-SLR, and zero-coupon bond are identical. Therefore, the findings given for accounting of interest on non-SLR investment vide paragraph no....
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....dispute traveled before this Tribunal in revenue's appeal bearing ITA No. 34/Bang/2014 and the coordinate bench vide order dated 04-09-2015 decided the dispute in favour of the assessee by observing as under: 39. We have heard the rival submissions. The issue raised by the assessee in ground No.8 & 9 is no longer res integra and has been decided by this Tribunal in the case of M/s. Sir M. Visweswaraya Cooperative Bank Ltd. Vs. JCIT, ITA No.1122/Bang/2010 for AY 07-08 order dated 11.5.2012. The following were the relevant observations of the Tribunal: "03. Let us first take up the issue relating to amortization of premium on investment in government securities. Relevant grounds read as under : "i) The learned Commissioner (Appeals) ought to have appreciated that the appellant has to invest surplus fund in Government Securities as per RBI guidelines and the premium paid while investing in Government Securities that are bought in open market would have to be amortized till the maturity date of the security and thus the premium was written off was liable to be allowed as depreciation of value of securities ; ii) The learned Commissioner (A) ought to ....
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....so placed reliance on Board's Instructions No.17 of 2008(vii) and pleaded that the claim of the assessee be allowed as the assessee had the powers to debit in its P&L account a sum of Rs. 29,02 lakhs of amortization of premium. 07. Per contra, the learned DR was unable to controvert to the submissions of the learned counsel for the assessee. 08. We have carefully considered the rival submissions and perused the relevant facts and materials on record. We have also considered the findings of the various benches of the Tribunal, as under : (i) Catholic Syrian Bank Ltd v. ACIT - (2010) 38 SOT 553 (Coch) : An identical issue to that of the subject matter under consideration had arisen before the Cochin Bench. After analyzing the issue in depth, the bench has observed that with regard to amortization of premium on purchase of Government securities, it was clarified that this was made as per the prudential norms of the RBI. Following the Tribunal decision in the assessee's own case and considering that the assessee bank is following consistent and regular method of accounting system, there is no justification in interfering with the order of the....
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.... is that the learned CIT(A) erred deleting the addition of Rs. 5,34,98,667/- on account of depreciation claimed on value of investment. 29. The assessee during the year claimed expenditure on account of depreciation on investment for Rs. 5,34,98,667/- only. During the assessment proceeding, the assessee submitted that the impugned claim was made on the advice of the statutory auditor. The impugned amount was worked out as difference between holding value of investment made by the assessee in different instrument and the buy price released by Fixed Income Money Market and Derivative Association of India (FIMMDA) for such instrument. The assessee further claimed that the in subsequent year i.e. F.Y. 2016-17 the impugned claim was reversed as income as per the NABARD inspection recommendation. The assessee in support of its claimed filed affidavit from the statutory auditor and copy of journey entry for reversal in F.Y. 2016-17. 30. However, the AO did not accept the explanation of the assessee and disallowed the claim of the assessee and added the same to the total income by holding that profit of the current year was affected/ disturbed by passing such entry therefore same sho....
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....s regular/standard assets are not bad or doubtful debt. Hence, the claim of provision on standard assets for Rs. 1,46,13,000/- cannot be allowed as deduction as the same was not covered under the provision of 36(1)(via) of the Act. The AO accordingly disallows the provision made for standard assets of Rs. 1,46,13,000/- and added to the total income of the assessee. 39. The aggrieved assessee preferred an appeal before the learned CIT(A) and contended that as per the provision of section 36(1)(via) of the Act, the assessee is eligible to claim deduction up to 7.5% of total income and 10% of total advances made by the rural branches but not exceeding the provision made in the books of accounts. It was further submitted that the deduction of 7.5% of total income under the first limb of section 36(1)(viia) of the Act is eligible for all types of loans & advances by the bank. Similarly, deduction of 10% of rural advances under second limb section 36(1)(viia) is also applicable for all types of advances made by rural branches. The assessee to buttress its argument relied on the decision of Hon'ble Kerala High Court in the case of Kannur District Co-operative Bank Limited vs. CIT repor....
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..... CIT [IT Appeal No. 5522 (Mum) of 2017, dated 24-7-2019] (iii) ITAT Indore Bench in Vikramaditya Nagarik Sahakari Bank v. ACIT [IT Appeal No. 36 (Ind) of 2017, dated 20-3-2018]. 44.3 In view of the above, we uphold the order of the learned CIT(A) and hold that the assessee is eligible for the deduction under section 36(1)(viia) to the extent of the specified limits. The disallowance made by the AO is, therefore, rightly deleted. Accordingly, the Revenue's appeal on this ground is dismissed. 44.4 In the result the appeal of the revenue is hereby partly allowed for statistical purposes. Coming to the ITA No. 217/Bang/2023, an appeal by the assessee for A.Y. 2016-17. 45. The only issue raised by the assessee is that the Leaned CIT(A) erred in confirming the disallowances of advertisement & training expenses for Rs. 20,19,000/- only. 46. The AO during the assessment proceeding noticed that the assessee in the books of accounts claimed expenditure under the head miscellaneous expenditure for Rs. 3.6 crores. The expenditure under the impugned head includes financial assistance given to temple, basadis, samithis, certain individual etc. advertisement given in news....
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....he expenses was not incurred for business purposes. This demonstrates the assessee's bona fide intent and adherence to the provisions of the Income Tax Act. 53.3 Further, the advertisement expenses incurred by the assessee in newspapers and other media serve the purpose of maintaining goodwill and public relations, which is essential for business growth. The business necessity and commercial expediency of such expenses cannot be overlooked. The Hon'ble Supreme Court and various High Courts have time and again held that expenses incurred for business promotion, including goodwill enhancement, are allowable under section 37(1) of the Income Tax Act. 53.4 Additionally, the financial assistance extended to certain organizations and individuals should not be outrightly treated as non-business expenditure without examining whether such contributions indirectly benefit the assessee's business operations. If such expenditures result in business goodwill or favorable commercial conditions, they are to be considered as business expenses. 53.5 The AO has disallowed the expenses without establishing any direct nexus between the expenditure and any personal benefit derived by the asses....
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....o. 26 & 27 of this order wherein the issue been decided against the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2016-17 shall also be applied for the assessment year 2017-18. Hence, the ground of appeal filed by the Revenue is hereby dismissed. 58. The next issue raised by the Revenue through ground No. 3 of its appeal is that the learned CIT(A) erred in deleting the addition made by the AO on account of accrued interest/income on non-SLR investments. 59. At the outset, we note that the issue raised by the Revenue in its grounds of appeal for the AY 2017-18 is identical to the issue raised by the Revenue in ITA No. 2331/Bang/2024 for the assessment year 2016-17. Therefore, the findings given in ITA No. 2331/Bang/2024 shall also be applicable for the assessment years 2017-18. The appeal of the Revenue for the A.Y. 2016-17 has been decided by us vide paragraph No.18.2 - 18.2.5 of this order in favour of the revenue for statistical purposes. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2016-17 shall also be applied for the assessment year 2017-18. Hence, the ground o....
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....ssue raised by the Revenue in its grounds of appeal for the AY 2018-19 is identical to the issue raised by the Revenue in ITA No. 2331/Bang/2024 for the assessment year 2016-17. Therefore, the findings given in ITA No. 2331/Bang/2024 shall also be applicable for the assessment year 2018-19. The appeal of the Revenue for the A.Y. 2016-17 has been decided by us vide paragraph No. 44 of this order against the revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2016-17 shall also be applied for the assessment year 2018-19. Hence, the ground of appeal filed by the Revenue is hereby dismissed. 67. The last raised by the Revenue through ground No. 3 of its appeal is that the learned CIT(A) erred in deleting the addition made on account of accrued interest on substandard advances. 68. At the outset, we note that the issue raised by the Revenue in its grounds of appeal for the AY 2018-19 is identical to the issue raised by the Revenue in ITA No. 2331/Bang/2024 for the assessment year 2016-17. Therefore, the findings given in ITA No. 2331/Bang/2024 shall also be applicable for the assessment years 2018-19. The appeal of the Revenue ....