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2015 (6) TMI 200 - ITAT DELHI

2015 (6) TMI 200 - ITAT DELHI - TMI - Disallowance of deduction of premium written off on Govt. Securities - CIT(A) deleted the addition - Held 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 f .....

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d 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 in addition to the face value proportionately spread over the life of securi .....

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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 find that this issue has not been adjudicated on meri .....

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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). - Decided against revenue. - ITA No. 2537/Del/2012 - Dated:- 27-3-2015 - R S Syal, AM And A T Varkey, JM,JJ. For the Petitioner : Shri J P Chandrakar, Sr.DR For the Respondent : Shri S L Gupta, CA ORDER Per A T Varkey, Judicial Member The Revenue has filed the present appeal against the order dated 29/3/2012 passed by the Ld. Commissioner of Incom .....

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(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 Court in the case of Goetze India (P) Ltd. Vs. CIT (2006) 284 ITR 323 (SC) which mandates that AO cannot entertain assessee's claim at the assessment stage which is not made through filing of revised return. 3. Whether such direction by the Ld. CIT(A) in the order disposing off appeal does not tantamount setting aside the issue which is not e .....

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aring 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 .....

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d 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) and does not want us to interfere in the impugned order. 6. We have heard both the parties and considered the relevant record available before us. We find that the facts as stated by the ld CIT(A) is that the assessee is a Co-operative Society and was claiming deduction U/S 80P(2)(a)(i) of the Act up to AY 2006-07 @100%. The as .....

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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 the ground that the same is a capital expenditure or the same is not an allowable expenditure under the Act vide the order of the AO. We find that assessee before the Ld. CIT(A) has submitted that the AO is not justified to disallow the genuine premium expenditure which is a business expenditure and the same is allowable as the .....

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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 .....

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t 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 higher rate o .....

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rket 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 the appellant in a particular period is compensated /matched with the higher interest premium paid at the time of purchase of security, by writing off proportionate premium paid over the remaining period of security. So, according to the ld AR, on maturity of Govt. Security, it is only the face value on which security is redeeme .....

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quisition 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 should continue to be reduced to the extent of the amount amortized during the relevant accounting period. The ld AR took our attention to the observation of the Hon'ble Delhi High Court in the case of CIT Vs. Vasisth Chay Vyapar Ltd. (ITA No. 552/2005, 565/2005, 1191/2007, 139/2008,466/2008 & 537/2008, wherein it was o .....

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ay 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 t .....

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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 should continue to be reduced to the extent of the amount amortized during the relevant accounting period. And as held in the case of CIT Vs. Himachal Finance Corporation (2010) 186 Taxmann 2005 (H.P.) and Indian Rayon and Industries Ltd. (2010) 38 DTR 313 (Bombay) it was held that discount o .....

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ed 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-operative Society and was claiming deduction u/s 80P(2)(a)(i) of the Act up to A Y 2006-07 @ 100%. This benefit has been withdrawn in the case of urban Co-operative Society after A Y 2006-07 as provided u/s 80P( 4) as per the Finance Act, 2006. Since the benefit of deduction u/s 80P(2)(a)(i) has been withdrawn in the cas .....

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nd 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 course of assessment proceedings, the assessee detected the mistake and filed a revised computation claiming the deduction of ₹ 2,46,73,078/- which is allowable u/s 36(1)(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 u/s 13 .....

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ssessee 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 agai .....

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hicago Pneumatic India Ltd Vs DCIT Spl. Range-45, [2007] 15 SOT 252 (Mum) - Emerson Network Power India P Ltd Vs ACIT, [2009] 122 TTJ 67 (ITAT Mum) 7.2 We find that the 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, .....

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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/- made by AO on account of accrued interest on NPA is concerned, we find that the assessee has not declared the interest income amounting to ₹ 4,08,38,822/- as interest income from the NPA (Non-performing assets), since the loans have become bad. According to the AO, the assessee has neither received .....

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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 acc .....

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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 AR relied on various case laws which are as under:- (1) CIT V Shoorji Vallabhdas & Co, 46 ITR 144 (SC) [1962] (2) CIT Vs Vasisth Chay Vyapar Ltd, 330 ITR 440 ( .....

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he 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 the same accounting policies since long, so interest accrued on bad & doubtful loans cannot be considered its income. Where the chances of realization of principal by the appellant from its customers were far from remote even before the event of accrual of interest taking place, the question of treating t .....

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erally 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 assessee has not received the income as the loan amount itself has become bad and as such the AO is not justified to treat the notional interest as income of the assessee. A perusal of the case laws cited by the assessee also supports the case of the assessee that only the real income is taxable and not the hy .....

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is 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 accru .....

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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 Commissioner of Income-tax v. Shoorji Vallabhdas & Co. [1959] 36 I.T.R. 25 affirmed. Commissioner of Income-tax v. Chamanlal Mangaldas & Co. [1960] 39 I.T.R. 8 (S.C.) followed." 8.3 In the case of CIT V Motor Credit Co P Ltd, 127 ITR 572 (Mad) [1981] that only the real income is to be tax .....

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