TMI Blog2015 (1) TMI 558X X X X Extracts X X X X X X X X Extracts X X X X ..... , Revenue fails - Decided in favour of assessee. - ITA No. 63/PN/2014 - - - Dated:- 9-12-2014 - R. S. Padvekar, JM And R. K. Panda, AM,JJ. For the Petitioner : Shri S N Doshi For the Respondent : Shri B C Malakar ORDER Per R. K. Panda,AM. This appeal filed by the assessee is directed against the order dated 22-10-2013 of the CIT(A), Kolhapur relating to Assessment Year 2010-11. 2. Ground of appeal No.1 by the assessee reads as under : 1. The learned CIT (Appeals) erred on facts and in law in restricting the deduction to the extent of amount of provision made in the books, for bad and doubtful debt i.e. ₹ 58,00,000/- and there by disallowing deduction of ₹ 1,07,58,930/-. The actual claim made by assessee is correct. Hon CIT (Appeals) relied on the Instruction No. 17 of 2008, in which CBDT interpreted the provision of section 36(1)(viia). Interpretation of statutory provision is beyond the power of CBDT. Therefore decision given by Hon. CIT (Appeals) on the basis of instruction of CBDT is wrong. The addition made please be deleted. 2.1 The Ld. Counsel for the assessee at the outset submitted that this issue stands decided against the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such Prudential Norms of RBI, assessee did not account for interest relatable to NPAs i.e. advances to customers which were classified as NPAs in terms of the Prudential Norms of RBI. The Assessing Officer was of the opinion that interest income even in relation to such NPAs was liable to be included having regard to the mercantile system of accounting followed by the assessee. As per the Revenue, the provisions of section 43D of the Act, which provides that interest income relatable to NPAs classified as per the RBI guidelines shall be charged to tax in the year in which it is credited or received by the assessee, whichever is earlier, was not applicable to the assessee, since the assessee was not a scheduled bank. Notably, section 43D of the Act prescribes that in case of public financial institution, or a scheduled bank or a State financial corporation or a State industrial investment corporation, 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 RBI or in cases of public companies, income bay way of interest in relation to such categories of debts as may be having regard to the gu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 categories of bad and doubtful debts as prescribed by the RBI guidelines shall be chargeable to tax in the year in which such interest income is credited by the assessee in the Profit and Loss account or in the year of actual receipt, whichever is earlier. Since assessee is not an entity covered within the scope of section 43D of the Act, the present controversy cannot be adjudicated in the light of section 43D of the Act, and it is liable to be decided on general principles as to whether the impugned income has accrued to the assessee during the year under consideration. 9. In this connection, we find that the Visakhapatnam Bench of the Tribunal in the case of The Durga Cooperative Urban Bank Ltd. (supra) has considered an identical controversy. The assessee before the Visakhapatnam Bench was a Co-operative Bank operating under a license issued by RBI but was not a 'scheduled bank' so as to fall within the scope of section 43D of the Act. The iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 fact that the provision of 45Q of Reserve Bank of India has overriding effect over any other law. Then the Hon'ble High Court also considered accounting standard AS-9 on Revenue recognition and also extracted following relevant portion from the said accounting standard: 9. Effect of uncertainties on Revenue Recognition 9.1 Recognition of revenue requires that revenue is a measurable and that at the time of sale or the rendering of the service, it would not be unreasonable to expect ultimate collection. 9.2 Where the ability to assess the ultimate collection with reasonable certainty is lacking at the time of raising any claim, e.g., for escalation of price, export incentives, interest etc., revenue recognition is postponed to the extent of uncertainty involved. In such cases, it may be appropriate to recognize revenue only when it is reasonably certain that the ultimate collection will be made. Where there is no u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Supreme Court, the assessee a NBFC debited ₹ 81,68,516 as provision against NPA in the profit and loss account, which was claimed as deduction in terms of Section 36(1) (vii) of the Act. The Assessing Officer did not allow the deduction claimed as aforesaid on the ground that the provision of NPA was not in the nature of expenditure or loss but more in the nature of a reserve, and thus not deductible under section 36(i)(vii) of the Act. The Assessing Officer, however, did not bring to tax ₹ 20,34,605/- as income (being income accrued under the mercantile system of accounting). The dispute before the Apex Court centered around deductibility of provision for NPA. After analyzing the provisions of the Reserve Bank of India Act, their Lordships of the Apex Court observed that in so far as the permissible deductions or exclusions under the Act are concerned, the same are admissible only if such deductions/exclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 followed by a company can be changed unless the AO comes to the conclusion that such change would result in understatement of profits. However, here is the case where the AO has to follow the Reserve Bank of India Directions 1998 in view of Section 45Q of the Reserve Bank of India Act. Hence, as far as Income Recognition is concerned, Section 145 of the IT Act has no role to play in the present dispute . 10. Turning to the facts of the case before us, the assessee herein is a cooperative bank and it is not in dispute that it is also governed by the Reserve Bank of India. Hence the directions with regard to the prudential norms issued by the Reserve Bank of India are equally applicable to the assessee as it is applicable to the companies registered under the Companies Act. The Hon'ble Supreme Court has held in the case of Southern Technologies Ltd (Supra), that the provision of 45Q of Reserve Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. (supra) also applied to the Income Recognition Norms provided by RBI and therefore it held the interest income on NPAs is liable to be taxed on accrual basis and not in terms of RBI's guidelines. But the Hon'ble Delhi High Court in the case of M/s Vasisth Chay Vyapar Ltd. (supra) has taken a view that Southern Technologies Ltd. (supra) case did not apply to the Income Recognition Norms prescribed by RBI. Ostensibly, there is divergence of opinion between the Hon'ble Delhi High Court and the Hon'ble Madras High Court as noted by the Hon'ble Madras High Court in its order. 12. In so far as, present case is concerned there is no judgment of the Jurisdictional High Court. We are faced with two contrary judgments of the non-jurisdictional High Court. In such a situation, we are inclined to prefer a view which is favourable of the assessee following the ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee has not furnished details of the extent of HTM security, the working of the premium and the date of the maturity of the securities. He held that in absence of these facts, the claim of the assessee cannot be examined. He accordingly rejected the above ground of the assessee. 5.3 Aggrieved with such order of the CIT(A) the assessee is in appeal before us. 6. After hearing both the sides, we find an identical issue had come up before the Tribunal in assessee's own case in the immediately preceding assessment year where such claim though not made before the AO was made before the CIT(A) who allowed the claim of the assessee. On further appeal by the Revenue, the Tribunal upheld the order of the CIT(A) and dismissed the ground raised by the Revenue by observing as under : 12. The second issue raised by the Revenue in its appeal relates to the action of the CIT(A) in allowing deduction of ₹ 51,95,263/- representing amortization of premium paid on Government Securities. 13. In this context, brief facts are that before the CIT(A) assessee raised an Additional Ground which was hitherto not before the Assessing Officer, to the effect that it was lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he has sought to oppose the claim of the assessee. 16. After considering the rival stands, we find that the Mumbai Bench of the Tribunal in the case of Bank of Rajasthan Ltd. (supra) has considered an identical issue and the relevant discussion made by the Tribunal is as under :- 9. The amortized amount of premium paid for securities held under HTM category amounting to ₹ 11.77 crores was claimed by the assessee as deduction in its computation of total income. The same, however, was disallowed by the Assessing Officer holding that the expenditure incurred on premium paid for securities held under HTM category was a capital expenditure not allowable as deduction. He held that the said securities were in the nature of investment and not stock in trade. On appeal, the learned CIT(Appeals) deleted the disallowance made by the AO on this issue. Besides relying on his own order in assessee's own case on a similar issue for the earlier year, the learned CIT(Appeals) also relied on CBDT Instruction No. 17/2008 dated 26-11-2008 published in 220 CTR (Statute) page 41. He held that the assessee company was bound to classify its investment as per RBI guidelines dated 16-10-201 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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