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2015 (4) TMI 99 - ITAT DELHI

2015 (4) TMI 99 - ITAT DELHI - TMI - Disallowance of deduction of premium written off on Govt. Securities - CIT(A) deleted the addition - Held that:- Assessee invests in Govt. Securities and other financial documents as other co-operative banks as per the guidelines of the RBI and so as per the RBI Master Circular No.DBOD.BP.BC.13/21.04.141/2012-13 dated July 2,2012, containing consolidated instructions/guidelines issued to banks till June 30, 2012, on matters relating to prudential norms for cl .....

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Finance Corporation [2008 (5) TMI 633 - HIMACHAL PRADESH] and Indian Rayon and Industries Ltd. [2010 (3) TMI 299 - BOMBAY HIGH COURT] it was held that discount on bonds and premiums on redemptions of debentures are allowable as expense proportionately spread over the period of security. So therefore we are of the considered view that this issue needs to be remanded back to the file of the AO to verify whether the assessee has claimed the expenses proportionately i.e. the premium amount which is .....

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₹ 1,35,28,498/- instead of ₹ 3,66,33,543/-. We find that section 36(1)(viia) was amended by Finance Act, 2007, with effect from 01.04.2007, by which the words “or a cooperative bank other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank” were inserted. This amendment is applicable to assessment year 2007-08 onwards and for the year under consideration. Accordingly, it applies to the case of the assessee for this year. We fin .....

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as such the AO was not justified to make the addition on the basis of notional interest because of the mercantile system of accounting only and accordingly, the addition was rightly deleted by the CIT(A). In the background of the aforesaid discussions and precedent relied upon, we are of the considered view that no interference is called for in the well reasoned order passed by the Ld. CIT(A), hence, we uphold the same by rejecting this ground of appeal raised by the Revenue in the aforesaid ma .....

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ed in law and on facts in deleting the addition of ₹ 1,43,13,391/- made by AO on account of disallowance of deduction of premium written off on Govt. Securities when the assessee is not in the business of trading in Govt. Securities and such Govt. Securities are shown by the assessee as investments and not as stock in trade. 2. Whether the ld. CIT(A) has not entered in law in directing the AO to examine the assessee s claim u/s. 36(1)(viia) obliterating the verdict of the Hon ble Supreme C .....

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on account of accrued interest on NPAs. 2. Ground No.1 is in respect of deletion of addition of ₹ 1,43,13,391/- made by AO on account of disallowance of deduction of premium written off on Govt. Securities. The facts in brief are that the assessee is a Cooperative Bank engaged in the business of banking. The return of income declaring income of ₹ 30,43,17,299/- was filed in this case on 28.9.2008 and the same was processed u/s. 143(1) of the Income Tax Act, 1961 (herein after the Act .....

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efore the Ld. CIT(A), who was pleased to allow it. 3. Now the Revenue is aggrieved against the said impugned order of the ld CIT(A) and has filed the present appeal before us. 4. At the time of hearing Ld. DR relied upon the order of the AO and reiterated the contentions raised by the Revenue in the grounds of appeal and prayed that we reverse the order of the ld CIT(A) and uphold the order of the AO. 5. On the other hand, Ld. Counsel of the assessee has relied upon the order of the Ld. CIT(A) a .....

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ts in interest is lower in other avenues/areas. The Bonds/G-Sec are having the face value and are generally having the long maturity period like 20 years etc and the assessee redeems the same after a long period. When the assessee buys the G-Sec at a premium, the premium amount which is in addition and above the face value is proportionately claimed by the assessee as a revenue expenditure or is written off. The AO has disallowed the premium expenditure / write off of ₹ 1,43,13,391/- on th .....

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art of the business activity of the assessee whereas the fact of the matter is that it is part of the business activity of the assessee and as such the premium expenditure/write off should be allowed. The Ld. Counsel of the assessee submitted that the Assessing Officer has failed to establish, how there is an adverse impact on revenue when the assessee is consistently following the same accounting policy since long. The Ld. Assessing Officer stated in his order that premium paid is an expense fo .....

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uidelines and Performa of RBI. The assessee is a service provider and deals in money or money equivalents and securities purchased and dealt with are its stock in trade. Ld. Counsel of the assessee further submitted that as per RBI norms the assessee on the basis of its time & demand liabilities has to invest certain amount in Govt. Securities and also invests surplus (funds which are not immediately required) business funds in securities/ loans/ bonds/advances. Ld. Counsel of the assessee s .....

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than the face value, due to change in interest rates) adopted by the appellant since ab-nitio is specifically and clearly mentioned, in the annual audited financial accounts. According to the ld AR the Premium paid at the time of purchase of security is nothing, but difference of rate of higher interest than the prevailing market rate of interest, for which the purchaser/ assessee will take the benefit in future by receiving extra interest. According to the ld AR, higher interest received by th .....

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dated July 2,2012, containing consolidated instructions/guidelines issued to banks till June 30, 2012, on matters relating to prudential norms for classification, valuation and operation of investment portfolio by banks, Investments classified under HTM (Held To Maturity) need not be marked to market and will be carried at acquisition cost, unless it is more than the face value, in which case the premium should be amortized over the period remaining to maturity. The book value of the security s .....

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t to the requirement of the Income Tax Act profit to be assessed under the Income Tax Act have got to be real profits which have to be computed on ordinary principle of commercial accounting. In other words profit have got to be computed after deducting losses/ expenses incurred for business, even though such losses/expenses may not be admissible u/s 30 to 430 of the Income Tax Act unless such losses/ expenses are expressly or by necessary implication disallowed by the act. 6.1 Ld. Counsel of th .....

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BOD.BP.BC.13/21.04.141/2012-13 dated July 2,2012, containing consolidated instructions/guidelines issued to banks till June 30, 2012, on matters relating to prudential norms for classification, valuation and operation of investment portfolio by banks, Investments classified under HTM (Held To Maturity) need not be marked to market and will be carried at acquisition cost, unless it is more than the face value, in which case the premium should be amortized over the period remaining to maturity. Th .....

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s issue needs to be remanded back to the file of the AO to verify whether the assessee has claimed the expenses proportionately i.e. the premium amount which is in addition to the face value proportionately spread over the life of security and if it is so computed and claimed it be allowed. Therefore this ground is allowed for statistical purposes. 7. With regard to deletion of addition of ₹ 2,46,73,078/- under the head deduction u/s 36(1)(viia) is concerned, we find that assessee is a Co- .....

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viia) as per the Finance Act, 2007. The co-operative societies were not allowed this benefit up to A Y 2006-07 as the deduction was allowed to them u/s 80P(2)(a)(i). The assessee has been claiming the benefit of 100% deduction of its income u/s 80P(2)(a)(i). And therefore the assessee was not aware of the change in law and so did not make the claim in respect of bad debt (N.P.) while filing the return. The assessee had filed the return income of ₹ 30,43,17,299/- on 31/03/2010. During the c .....

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Counsel of the assessee submitted before the Ld. CIT(A) that AO was not justified to disallow the statutory and genuine claim of the assessee on technical grounds. He submitted that since new provisions were introduced for bad and doubtful debts inrespect of Cooperative Societies w.e.f. A Y 2007-08 u/s 36(1)(viia), the assessee was not able to keep track of the amended/new provisions and there was a bona fide mistake in not being able to make the correct claim of deduction in the original return .....

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n which the assessment was not pending whereas in the present case the assessment was pending and the assessee had made the genuine claim during the course of assessment proceedings itself through a revised computation. The ld AR relied on the following cases:- CIT Vs Bharat Aluminium Co Ltd, 303 ITR 256 (Del) [2008] - Chicago Pneumatic India Ltd Vs DCn Spl. Range-45, [2007] 15 SOT 252 (Mum) - Emerson Network Power India P Ltd Vs ACIT, [2009] 122TTJ 67 (ITAT Mum) 7.2 We find that the assessee ha .....

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ment is applicable to assessment year 2007-08 onwards and for the year under consideration. Accordingly, it applies to the case of the assessee for this year. We find that this issue has not been adjudicated on merits by the AO. Therefore, we think it fit to restore the matter back to the file of the AO to adjudicate the admissibility of the amount u/s 36(1)(viia) on merits. This ground is treated as allowed for statistical purposes. 8. With regard to deletion of addition of ₹ 4,08,38,822/ .....

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head "overdue interest reserve account" in the credit side of the balance sheet. However, the AO has treated the interest income as a normal business income on the ground that in the mercantile system of accounting the accrued income is to be treated as income of the assessee and accordingly, has made the addition of ₹ 4,08,38,822/-. The ld DR relied on the order of the AO and want us to reverse the order of the ld CIT(A). On the other hand the AR submitted that the AO was not ju .....

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her submitted that the assessee has maintained the books of accounts on the NPA and its interest on the basis of the RBI guidelines and since the income has not been received by the assessee, the AO was not justified to treat the same as income of the assessee. It was also submitted that in case later, the interest income could be recovered in future the same will be accounted for and offered as income of the assessee. Further it was submitted that only the real income of the assessee may be tax .....

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TR 31 (Guj) (6) CIT Vs Nanital Bank Ltd, 309 ITR 335 (Uttarakhand) (7) CIT Vs Elgi Finance Ltd, 293 ITR 357 (Mad) (8) CIT V s Motor Credit Co P Ltd, 127 ITR 572 (Mad) [1981] (9) CIT Vs Coimbatore Lakshmi Inv. & Finance Co Ltd, 331 ITR 229 (Mad) [2011] 8.1 We find that as per RBI prudential norms where the principal amount is doubtful of recovery and borrower is not paying, income from interest on such accounts should not be credited to its profit and loss account. The assessee is adopting th .....

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e loan is recovered /settled. The accounting policy adopted by the appellant is specifically and clearly mentioned, in the Income Tax Audit Report u/s 44AB and annual audited financial accounts. More over the Assessing Officer has also accepted the same accounting policy and never objected for the same. Generally Income of the assessee was assessed uls 143(3) of the Income Tax Act 1961 without any reference to change in accounting policy. 8.2 We find that the Ld. CIT(A) has observed that the ass .....

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llabhdas & Co., 46 ITR 144 (Sc) [1962] and the head-note of the case reads as under:- "Held, that the subsequent agreement had altered the rate of commission in such a way as to make the income which really accrued to the assessee different from what had been entered in the books of account. This was not a case of a gift by the assessee to the managed companies of a portion of income which had already accrued, but an agreement to receive a lesser remuneration that what had been agreed u .....

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hetical income which does not materialise. Where income has, in fact, been received and is subsequently given up 10 such circumstances that it remain the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account. Decision of the Bombay High Court in Com .....

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