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2015 (4) TMI 99

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..... 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 in addition to the face value proportionately spread over the life of security and if it is so computed and claimed it be allowed. - Decided in favour of revenue statistical purposes. Provision for bad & doubtful debts - Addition under the head deduction u/s 36(1)(viia) - CIT(A) deleted the addition - Held that:- assessee has made the provisions of ₹ 3,66,33,543/- for bad and doubtful debts in its Profit & Loss A/c but by mistake while submitting the return the same was taken as ₹ 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 .....

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..... such direction by the Ld. CIT(A) in the order disposing off appeal does not tantamount setting aside the issue which is not envisaged in sec. 250(4) after 1.6.2001. 4. Whether Ld. CIT(A) has not erred in law and on facts in deleting the addition of ₹ 4,08,38,822/- made by AO 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 ) on 31.3.2010. The case was selected for scrutiny through CASS on random basis. Statutory notice u/s. 143(2) of the Act, dated 16.9.2009 was issued and duly served upon the assessee. In compliance thereof, various details were submitted from time to time before the AO during assessment proceedings and books of accounts were examined on random test check basis by the AO. Thereafter, the AO completed the as .....

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..... 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 for purchase of securities at premium, and securities are not business assets of the assessee and shown as investment instead of stock in trade, which according to the assessee is not true. We find that Assessing Officer further stated that by following the consistent accounting policies the appellant is carrying an illegal and wrong act but failed to establish how the appellant is doing the illegal and wrong act. He stated that the financial accounts of the appellant are prepared as per the set guidelines 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 sub .....

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..... s, not on gross receipts (which, however, has profits embedded in it). Therefore, subject 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 the assessee further brought to our notice that the Assessing Officer have accepted the same accounting policy in the past and never objected for the same. And generally Income of the assessee was assessed u/s 143(3) of the Act by the Ld. Assessing Officer without any reference to change in accounting policy. 6.2 We find that the 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 .....

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..... ent proceedings, the assessee detected the mistake and filed a revised computation claiming the deduction of ₹ 2,46,73,078/- which is allowable uls 36(l)(viia) @ 7.5% of the total NP. The AO has disallowed the claim of the assessee on the ground that filing time for revised return has expired uls 139(5) and the assessee was not entitled to make a fresh claim or deduction and the AO relied on the case of Goetze India Ltd Vs CIT, 284 ITR 323 (SC) [2006]. We find that the Ld. 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. It was submitted by the ld AR that the AO is also duty bound to allow the genuine claim of the assessee as per the Board Circular No. 14 (XL-35) dated 11104/2005 F.No. 81127/65-IT(B) dated 18/0511965 which states .....

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..... terest 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 justified to make the addition as the loan has become bad (NPA); and the assessee has not received the interest income and as such no real income has accrued to the assessee. According to him, in the case of interest on NPAs, the party account is debited and the interest account is credited in the P L account and since the interest is actually not received a reverse entry is passed at the year-end by which the P L account is debited and the overdue interest account is credited. It was further 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 .....

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..... e also supports the case of the assessee that only the real income is taxable and not the hypothetical income in view of the real income theory as no real income is received by the assessee and the same view has been held by the Hon ble Supreme Court in the case of CIT vs. Shoorji Vallabhdas 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 upon. The assessee had in fact received only the lesser amount in spite of the entries in the account books, and this lesser amount alone was taxable. Income tax is a levy on income. Though the Income Tax Act takes into account two points of time at which the liability to tax is attracted viz., the accrual of the income or its receipt, yet the substance of the matter is the income. If income does not result at all, t .....

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