Tax Management India. Com
Law and Practice  :  Digital eBook
Research is most exciting & rewarding


  TMI - Tax Management India. Com
Follow us:
  Facebook   Twitter   Linkedin   Telegram

TMI Blog

Home

2015 (6) TMI 200

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... 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 for statistical purposes. Claim u/s. 36(1)(viia) - assessee is a Co-operative Society and was claiming deduction u/s 80P(2)(a)(i) of the Act up to A Y 2006-07 @ 100% - 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 to assessment year 2007-08 o .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... 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 assessment u/s. 143(3) of the Act on 31.12.2010 against which the assessee filed an appeal before 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 upo .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... nt 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 submitted that the assessee invests in Govt. Securities and other financial documents as other commercial/Co-operative banks as per the guidelines of the RBI. In case of investments/securities purchased on premium, the total premium paid is allocated/ distributed equally to the remaining period of security, as the hi .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... 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 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 wh .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... d 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 that the AO should not take advantage of the ignorance of the assessee and the AO should not act against the assessee in securing the genuine relief due to the assessee. It was also submitted that the case of the Goetze India Ltd (supra) has been decided in a different context in which the assessment was not pe .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... IT(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 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 taxed and not the notional income. The AR further submitted that no interest would be set to have accrued on the loans of doubtful recovery and the .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... 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, there cannot be a tax, even though in book-keeping, an entry is made about a 'hypothetical 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 pa .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

 

 

 

 

Quick Updates:Latest Updates