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The Karad Janata Sahakari Bank Ltd. Versus Tax Recovery Officer, Satara

Claim of deduction on amortization of expenses - premium paid on purchase of Government securities (HTM Securities) - Held that:- The issue arising before us is similar to the issue before the Tribunal in The Ahmednagar Merchants Co-operative Bank Limited Vs. JCIT (2015 (6) TMI 552 - ITAT PUNE), in assessee's own case relating to assessment years 2008-09 and 2009-10 and before the Hon'ble Bombay High Court in CIT Vs. M/s. Gajanan Nagari Sahakari Bank Ltd. (2015 (6) TMI 551 - BOMBAY HIGH COURT) a .....

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entitled to the claim of deduction to the extent of ₹ 50 lakhs being the amount of provision actually made in the books of account. Consequently, we uphold the order of CIT(A) - Decided against assessee.

Disallowance of claim of interest on NPAs - Held that:- In view of the ratio laid down by the Pune Bench of the Tribunal in ACIT Vs. Maharashtra Nagri Sahakari Bank Ltd. (supra) and the jurisdictional High Court in CIT Vs. HDFC Bank Ltd. (2014 (8) TMI 119 - BOMBAY HIGH COURT ), .....

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particular deduction in computing the total income under the Income Tax Act has to be decide d under the provisions of the Act itself. The fact of the matter is that the provision in question being in the nature of purely a contingent one and there is no provision under the IT Act to allow such contingent provision as deduction from taxable income. Therefore, the Assessing Officer has rightly disallowed such contingent provision of ₹ 5,00,000/- and the action of the Assessing Officer is a .....

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by the assessee is against the order of CIT(A)-III, Pune dated 15.10.2013 relating to assessment year 2010-11 passed under section 143(3) of the Income-tax Act, 1961. 2. The assessee has raised the following grounds of appeal:- 1) On the facts and circumstances of the case and in law the Ld. CIT(A)- III, Pune was not justified in dismissing the Ground of appeal claiming the deduction of ₹ 1,11,69,000/- on account of amortization of expenses i.e. premium paid an purchase Govt. Securities ( .....

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The decision to confirm the disallowance made by the A.O. is contrary to principles enunciated by Their Lordships of the Hon'ble Supreme Court in the case of Catholic Syrian Bank and properly claimed by the appellant Bank. The claim was restricted by A.O. to ₹ 50 lakhs. The claim be allowed to the appellant bank in full. 3) On the facts and circumstances of the case and in law the Ld. CIT(A) was not justified in confirming the disallowance of ₹ 2,55,60,841/- made by the A.O. reje .....

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77; 5,00,000/- made by the A.O. which claim was made by the appellant-Bank relating to Standard Assets as the appellant Bank is obliged to follow the prudential norms circulated by the Reserve Bank of India. The same be allowed. 5) On the facts and circumstances of the case and in law the main plank of the arguments of the Department in making the disallowances in respect of this appellant Bank was that the Reserve Bank Guidelines issued by it under RBI Act, 1934 cannot override the provisions o .....

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justified. The levy of interest be quashed. 7) The appellant craves/leave to add, amend or after any of the above grounds of appeal. 3. The issue in the ground of appeal No.1 raised by the assessee is in respect of claim of deduction on amortization of expenses i.e. premium paid on purchase of Government securities (HTM Securities). 4. Briefly, the facts of the case are that the assessee is a cooperative society engaged in the business of banking. The assessee during the year under consideration .....

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ning the assessee bank. The Assessing Officer was of the view that the premium amortized by the bank was part of the cost of Government securities and any loss or gain could be ascertained only when the securities were sold, hence the deduction claimed towards amortization of premium was not a liability, which had accrued to the bank and the said claim could not be allowed under the provisions of Income-tax Act. In view thereof, sum of ₹ 1,11,69,000/- booked towards amortization of premium .....

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covered in favour of the assessee by series of decisions of Pune Bench of the Tribunal and also by the Hon'ble Bombay High Court in CIT Vs. HDFC Bank Ltd. (2014) 366 ITR 505 (Bom). 7. The learned Departmental Representative for the Revenue had relied upon the ratio laid down by the Pune Bench of the Tribunal in Janata Sahakari Bank Ltd. in ITA No.819/PN/2010 decided on 31.05.2013 for the proposition that premium paid on acquisition of HTM securities was the part of composite cost and its val .....

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ears 2008-09 and 2009-10, order dated 31.01.2014 and also covered by the judgment of jurisdictional High Court in CIT Vs. HDFC Bank Ltd. (supra). 9. We have heard the rival contentions and perused the record. The issue in the present appeal is in relation to the allowability of expenditure on account of amortization of premium on HTM securities. We find that the Pune Bench of the Tribunal in The Ahmednagar Merchants Co-operative Bank Limited Vs. JCIT in ITA No.712/PN/2013, relating to assessment .....

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rder in the case of Nagar Urban Co-operative Bank Ltd., in ITA No.306/PN/2012, wherein the Tribunal has decided the issue in favour of the assessee by observing as under: "4. We have heard the parties. We find that the issue before us is clearly covered in favour of the assessee by the decision of ITAT Pune Bench in the case of Latur Urban Co-op. Bank Ltd. in ITA No. 778 and 792/PN/2011, order dated 31-8-2012. The relevant discussion and finding of the Tribunal on the issue is as under. &qu .....

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the nature of capital loss and therefore, the same is not allowable expenditure. The A.O made the addition to the extent of ₹ 14,70,000/-. The Ld CIT(A) confirmed the addition. 14. We have heard the parties. The Ld Counsel placed his heavy reliance on the decision of the Hon'ble High Court of Bombay in the case of CIT Vs. Bank of Baroda and in the case of UCO Bank Vs. CIT, 240 ITR 355 (SC). In the case of Bank of Baroda (Supra), the issue before their Lordship was whether the assessee .....

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e before the Hon'ble High Court. The core issue was the method of valuation adopted by the assessee Bank for valuing the stock of the Securities. The Hon'ble High Court followed the decision of Hon'ble Supreme Court in the case of United Commercial Bank (Supra). 15. In the case of United Commercial Bank (Supra), even the issue of valuation of the stock in trade of the investment was before the Hon'ble Supreme Court. In the case of the assessee, the issue is regarding allowability .....

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e in the nature of stock-in-trade. Both the authorities below have merely gone on the nomenclature of the head under which the Securities are held. In our considered view, nomenclature cannot be decisive for the assessee Bank. We, therefore, hold that the loss on the sale of the Securities is revenue in nature and same is allowable. Accordingly, Ground No. 2 is allowed". 2.1 Moreover, the said issue is also decided in favour of the assessee by other co-ordinate Bench in the following cases: .....

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easoning, we hold that amortization premium paid on Govt. Securities of ₹ 23,13,525/- debited to Profit and Loss Account, as per RBI guidelines has to be allowed being expenses incurred during the course of business of banking, Assessing Officer is directed accordingly." 10. Further, on perusal of the order passed by the Tribunal in assessee's own case relating to assessment years 2008-09 and 2009-10 along with order in ITA Nos.103, 1454 & 2432/PN/2012, relating to assessment .....

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igh Court in CIT Vs. Bank of Baroda (2003) 262 ITR 334 (Bom) and also following the judgment of the Hon'ble Supreme Court in UCO Bank Vs. CIT (1999) 240 ITR 355 (SC). The Hon'ble Bombay High Court further held that the reliance placed by the Revenue on the judgment in the case of Vijaya Bank Ltd. Vs. CIT (1991) 187 ITR 541 (SC) was mis-placed. 11. The issue arising before us is similar to the issue before the Tribunal in The Ahmednagar Merchants Co-operative Bank Limited Vs. JCIT (supra) .....

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disallowance under section 36(1)(viia) of the Act. 13. Briefly, the facts relating to the issue are that the Assessing Officer on going through the revised computation of income noted that the assessee had claimed ₹ 12,84,606/- being 7.5% of total income of ₹ 1,71,28,080/- and ₹ 2,19,94,335/- being 10% of rural advances of ₹ 21,99,43,351/- as deductible under section 36(1)(viia) of the Act on account of provision for bad & doubtful debts. On verification of the Profit .....

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he assessee observed that when bad & doubtful debts are written off, the assessee has to debit the same first to the provision account and claim only the amount of bad debts exceeding the balance available in the provision as deduction. In other words, bad debts claimed as deduction are admissible subject to the credit balance in the provision for bad debts account made under section 36(1)(viia) of the Act. The assessee during the year under consideration had made a provision for bad & d .....

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a reported in 272 ITR 54 (P&H) for the proposition that the deduction under section 36(1)(viia) of the Act can be claimed only to the extent of such provision has been made in the books of account for the year. The CIT(A) also noted the fact that for the year under consideration, the assessee had made provision to the extent of only ₹ 50 lakhs as against the deduction claimed under section 36(1)(viia) of the Act at ₹ 2,32,78,941/-. After referring to the ratio laid down by the Ho .....

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lesser deduction and only in the revised return during the course of assessment proceedings, a higher claim of deduction of ₹ 2.32 crores had been claimed as per internal calculation by the CIT(A). The CIT(A) thus, observed that any provision made by the assessee after the previous year was over, cannot be allowed, in turn relying on the CBDT Instruction No.17/2008. Further, reliance was placed on the decision of Bangalore Bench of the Tribunal in ITA Nos.708 & 709/Bang/2010 in the cas .....

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bsequent jurisdictional Tribunal decision in the case of Canara Bank in ITA No.58/Bang/2004 dated 09.06.2006, which considered its earlier decisions in Syndicate Bank and Punjab and Haryana High Court decision rendered in the case of State Bank of Patiala (supra). The CIT(A) thus, dismissed the grounds of appeal raised by the assessee. 15. The learned Authorized Representative for the assessee before us claimed that the disallowance in the hands of the assessee was made on account of not making .....

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nue on the other hand placed reliance on the ratio laid down by the Hon'ble Punjab & Haryana High Court in State Bank of Patiala Vs. CIT (supra) and also placed reliance on the order of CIT(A). 17. We have heard the rival contentions and perused the record. The issue arising in the present appeal is in relation to the claim of deduction under section 36(1)(viia) of the Act. We find that Pune Bench of the Tribunal in Mahalaxmi Cooperative Bank Ltd. vs. ITO in ITA No.1658/PN/2011 relating .....

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laim of deduction but only deduction to the extent of ₹ 50,00,000/- being the amount of provision actually made in the books of account was allowed in the hands of the assessee. The relevant findings of the Tribunal are as under:- "9. We have carefully considered the rival submissions. We have also anxiously perused the authorities cited at Bar in order to determine the controversy on hand. The relevant portion of Section 36(1)(viia) of the Act, as applicable for the assessment year u .....

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making any deduction under this clause and Chapter VIA) and an amount not exceeding [ten] per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner : 10. A bare perusal of aforesaid section clearly brings out that the deduction specified therein is in "respect of any provision for bad and doubtful debts made by…….." an eligible assessee. The presence of the aforesaid expression in the section supports the plea of .....

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nally filed its return of income for assessment year 1985-86 claiming deduction under Section 36(1)(viia) of the Act at ₹ 1,90,36,000/-. After filing of the return the provisions of Section 36(1)(viia) of the Act were amended by Finance Act, 1985 whereby deduction was enhanced to 10% of the profit or 2% of the aggregate average advances made by rural branches of the bank, whichever was higher. On account of the amended provisions, assessee filed a revised return of income on 24.04.1986 enh .....

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zed on 14.02.1985 which was as per the unamended provisions of Section 36(1)(viia) of the Act and that in view of the amendment of Section 36(1)(viia) of the Act permitting higher claim of deduction, the assessee could not have possibly made the higher Provision in the Balance-Sheet finalized on a prior date, but it made up the shortfall by making an adequate Provision in the Balance-Sheet of the subsequent assessment year. On this basis, it was sought to be made out that there was substantial c .....

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that "…..the deduction allowable under the above provisions is in respect of the provision made" and further went on to hold that "…..making of a provision for bad and doubtful debts equal to the amount mentioned in this section is must for claiming such deduction." In view of the aforesaid judgement of the Hon'ble Punjab & Haryana High Court, in our view, the position sought to be canvassed by the assessee deserves to be repelled. We reproduce hereinaft .....

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income (computed before making any deduction under this clause and Chapter VI-A) or an amount not exceeding two per cent of the aggregate average advances made by the rural branches of such bank, computed in the prescribed manner, whichever is higher." 6. A bare perusal of the above shows that the deduction allowable under the above provisions is in respect of the provision made. Therefore, making of a provision for bad and doubtful debts equal to the amount mentioned in this section is a .....

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quot; 7. This also clearly shows that making of provision equal to the amount claimed as deduction in the account books is necessary for claiming deduction under s. 36(1)(viia) of the Act. The Tribunal has distinguished various authorities relied upon by the assessee wherein deductions had been allowed under various provisions which also required creation of reserve after the assessee had created such reserve in the account books before the completion of the assessment. It has been correctly poi .....

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nal was right in holding that since the assessee had made a provision of ₹ 1,19,36,000 for bad and doubtful debts, its claim for deduction under s. 36(1)(viia) of the Act had to be restricted to that amount only. Since the language of the statute is clear and is not capable of any other interpretation, we are satisfied that no substantial question of law arises in this appeal for consideration by this Court. 11. In view of the aforesaid interpretation of Section 36(1)(viia) of the Act by t .....

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counsel for the assessee has cited certain decision in support of his proposition that the claim of deduction under Section 36(1)(viia) of the Act is not linked to making of a Provision in the account books. At the outset, we may observe that the decisions relied upon by the assessee are of various Benches of the Tribunal and not of any High Court. Therefore, the judgement of the Hon'ble High Court in the case of State Bank of Patiala (supra), which is contrary to the decisions of the Tribu .....

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aving failed to make full provision, is only entitled to the claim of deduction to the extent of ₹ 50 lakhs being the amount of provision actually made in the books of account. Consequently, we uphold the order of CIT(A) and dismiss the ground of appeal No.2 raised by the assessee. 19. The issue in ground of appeal No.3 raised by the assessee is against the disallowance of claim of interest on NPAs amounting to ₹ 2,55,60,841/-. 20. The facts relating to the issue are that the Assessi .....

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er the Income-tax Act to allow such provision over and above the limits prescribed under section 36(1)(viia) of the Act. Rejecting the plea of the assessee in this regard and in view of the fact that the assessee was following mercantile system of accounting, the Assessing Officer held that interest income on NPAs had accrued to the assessee and was liable to be assessed in the hands of the assessee on accrual basis. 21. The CIT(A) upheld the order of the Assessing Officer observing that the ass .....

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al in M/s. The Ajara Urban Co-op Bank Ltd. Vs. ACIT in ITA Nos.2067 & 2068/PN/2013, relating to assessment years 2009-10 and 2010-11, order dated 31.12.2013. 24. The learned Departmental Representative for the Revenue placed reliance on the order of CIT(A). 25. We have heard the rival contentions and perused the record. The issue arising in the present appeal is in relation to the recognition of interest income accruing on the NPAs. The assessee had worked out the interest accrued on such NP .....

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the same is taxable in the hands of the assessee. The assessee has also passed contra entry in its books of account transferring the same to Reserve account. Such accrual of interest on NPAs is not to be recognized as income in the hands of the assessee, in view of various decisions of the Pune Bench of the Tribunal. We find that the Pune Bench of the Tribunal in ACIT Vs. Maharashtra Nagri Sahakari Bank Ltd. in ITA No.2138/PN/2013, relating to assessment year 2009-10, order dated 31.010.2013, he .....

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ubmits that the issue of the taxability of the interest on sticky advances has been considered and decided by the Hon'ble Tribunal in the case of ACIT Circle -3 Nanded Vs. Osmanabad Janta Sah. Bank Ltd., Latur in ITA No.795/PN/2011 order dated 31.8.2012. The Ld. Counsel has filed the copy of the Tribunal order which is placed on record. We have also heard the Ld. D.R. We find that the issue before us is squarely covered, as rightly submitted by the Ld. Counsel, in favour of the assessee by t .....

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ficer that assessee did not include the interest of ₹ 18,26,306/- on the NPA advances. Again the issue of applicability of section 43D was considered to the nonscheduled banks. The Tribunal placed its heavy reliance on the decision of the Hon'ble High Court of Delhi in the case of Vashist Chay Vyapar Ltd. [330 ITR 440 (Del.)], in which the Hon'ble Delhi High Court has considered the decision in the case of Southern Technologies Ltd. [320 ITR 577 (SC)]. The Tribunal finally held tha .....

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terest on the sticky advances/NPA advances cannot be brought to tax by following the decision in the case of UCO Bank (supra), which is as under: "15.1. On careful analysis of this section our first observation is that Section 43D is in contrast with the fundamental principle of accountancy. The cardinal principle of mercantile system of accountancy is that an income is to be shown in the books of account on accrual basis. The principle is that it is immaterial whether it was actually recei .....

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rinciple of accountancy is that an income by way of interest shall be chargeable to tax in the previous year in which it is actually received. The Act says that the incidence of 'credit' or "actually received", whichever is earlier is to be taken into account for the purpose of chargeability of income by way of interest. Simultaneously, it is noteworthy that this section is an overriding section because the ITA No.1713/PN/2011 Maharashtra Nagari Sahakari Bank Ltd., Latur openin .....

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no scope is left with the Revenue Authorities to ignore these provisions due to unambiguous use of language in the Section. (ii) Status of assessee for the purpose of application Section 43-D. As far as the status of the assessee is concerned, the Assessing Officer has stated that the assessee-bank is a co-operative bank. Undisputedly, the assessee is also governed by the RBI guidelines. Vide an explanation (d) r.w.s. 36(1)(viia) annexed to section 43-D the definition of the entities incorporate .....

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s issued a Circular dated October 6, 1952, providing that where interest accruing on doubtful debts is credited to a suspense account, it need not be included in assessee's taxable income, provided the Income tax Officer is satisfied that recovery is practically improbable. The CBDT u/s.119 of the I.T.Act has power to issue Circulars in exercise of its statutory powers. If the Board consider it necessary to lay down certain Rules and then direct the sub-ordinate authorities, such directions .....

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of UCO Bank vs. CIT (1999) 237 ITR 889 (SC) has therefore held, first, that a beneficial circular is not to be treated as inconsistent with the provisions of statute and binding on the authorities. Second, that in respect of interest on "sticky advances" interest income is to be taxed only when actually received as prescribed by CBDT Circular. However, in the past an interesting turn had taken place by an order of the Hon'ble Kerala High Court in the case of State Bank of Travancor .....

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g the interest income on such "stick advances" it its accounts. However, later on at the Hon'ble Apex Court while pronouncing the judgment of the said State Bank of Travancore vs. CIT reported in (1986)158 ITR 102 (SC), there were Hon'ble three Judges presiding the Court, out of which Hon'ble two ITA No.1713/PN/2011 Maharashtra Nagari Sahakari Bank Ltd., Latur Judges were in the opinion that the interest on "sticky advances" was rightly treated as income which had .....

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now the law as laid down in UCO Bank is that in terms of CBDT Circular the interest is to be added as income only when actually received or credited in respect of the "sticky advances" while making assessment for a financial institution. (iv) Interpretation of the language of the statute : We have reproduced verbatim the provisions of section 43-D of the I.T.Act and expressed an opinion that if the statute has used the terminology for the chargeability of interest on the basis when &qu .....

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the legislative intent becomes impermissible. The supposed intention of the Legislature cannot then be appealed to whittle down the statutory language which is other-wise unambiguous. If the intendment is not in the words, it is nowhere else. The need for interpretation arises when the words used in the statute are, on their own terms, ambivalent and do not manifest the intention of the Legislature. When words acquire a particular meaning or sense because of their authoritative construction by s .....

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nt from other statutes." We can therefore safely draw a conclusion that by the insertion of a special provision to tax interest income in the case of public financial institution, etc. section 43-D has to be applied in its letter and spirit. It is pertinent to mention that later on, in the case of CIT vs. Bank of America S.A. 262 ITR 504 (Bom) the question of interest on "sticky loans" was decided in favour of the assessee and held that the question is to be answered in favour of .....

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discussion made hereinabove so as to unfold the controversy. In the said decision of the Tribunal, viz. Jt.CIT v/s. India Equipment leasing Ltd. (2008) 111 ITD 37 (Chennai), the R espected Co ordinate Bench has expressed that quote " Prior to insertion of section 43D with effect from 1-4-1991, recognition of income was on the basis of circular of 9-101984. It said that for first three years the income may be taken on accrual basis and from 4th year onwards, the income in respect of doubtful .....

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dited to the profit and loss account. This benefit was extended with effect from 1-4- 2000 in the case of public companies engaged in long-term financing of housing projects approved by National Housing Banks. The Legislature in their wisdom did not extend the same benefit to NBFCs which has been given to scheduled banks, public financial institutions, etc. The provisions of section 43D as stood at relevant time contained an expression 'the income by way of interest in relation to such categ .....

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ted 9-10-1984. Because of this reason, section 43Dwas inserted in the statute. RBI Guidelines in case of NBFC are for the purpose of control and supervision with respect to public interest and viability of the NBFC. The Guidelines never intended for taking the interest income accrued as per section 5 out of the scope of the Act. If the contention of assessee was accepted, it would amount to insertion of 'NBFC' in section 43D, that too by a Guideline issued for different purposes by an au .....

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in section 43-D of the I.T.Act. As against that, as far as the assessee is concerned, it is an accepted fact that the assessee is a cooperative bank and not a non-banking financial company and this noteworthy distinction has already been appreciated by us in one of the paragraphs above. There is one more decision of the Hon'ble Apex Court which is yet to be mentioned while discussing the arguments raised from the side of the Revenue. A decision in the case of Southern Technologies Ltd. vs. .....

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e applicability of ITA No.1713/PN/2011 Maharashtra Nagari Sahakari Bank Ltd., Latur Explanation to section 36(1)(vii) of the I.T. Act. For the sake of ready reference, relevant paragraph from the held portion is reproduced below: "The income-tax is a tax on "real income", i.e., the profits arrived at on commercial principles subject to the provisions of the Act. Therefore, if by the Explanation to section 36(1)(vii) a provision for doubtful debt is kept out of the ambit of bad deb .....

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at in the appeal before us the question is accrual of interest income on sticky loan but in this cited decision the question before he Apex court was about the admissibility of provision made in respect of doubtful debts. (vi) Concept of real income approved in the case of banking business: Before us, the theory of "real income" has also been argued and in support a decision of Hon'ble Court pronounced in the case of CIT vs. Godhra Electricity Co. 225 ITR 746 (SC). In short, the vi .....

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at the principle of accrual comes into play without income was recognized and that the assessee had classified its assets on the basis of notification issued by R.B.I. and found that certain assets came under the category of NPA and that from such NPA the assessee had not recognized any income in consonance with the notification issued by RBI and AS-9 issued by ICAI and that the assessee was justified in not recognizing such income. The Court had further expressed that there was no occasion to c .....

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ce Sheet and it is not routed through the Profit & Loss Account. Moreover, the issue of the taxability of the interest on the sticky losses/advances, is covered in favour of the assessee by the decision of the coordinate Benches in the case of The Durga Cooperative Urban Bank Ltd., Vijayawada (supra) and Karnavati Cooperative Bank Ltd. (supra). We find no reason to interfere with the reasoned order of the Ld. CIT(A) and accordingly the same is confirmed. In the result, the Revenue's grou .....

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Upholding the order of CIT(A), we dismiss the Grounds of Appeal raised by the Revenue." 26. In view of the ratio laid down by the Pune Bench of the Tribunal in ACIT Vs. Maharashtra Nagri Sahakari Bank Ltd. (supra) and the jurisdictional High Court in CIT Vs. HDFC Bank Ltd. (supra), we hold that the interest accruing on NPAs is not includable in the hands of the assessee as income for the year under consideration. Accordingly, we direct the Assessing Officer to delete the addition of ₹ .....

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m made on account of "Contingent provision for standard assets" 9.1 As per the revised return filed on 17/02/2011, the assessee bank has claimed deduction on account of Contingent provision against standard assets amounting to ₹ 5,00,000/-. During the course of assessment proceedings, it was requested to explain the reasons as to why the contingent provision against Standard Assets amounting to ₹ 5,00,000/- should not be disallowed as there is no specific provision in the I .....

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per RBI guidelines and circulars on standard assets and the amount of provision is debited to profit and loss a/c and it is shown as liability under the head Reserves & Reserves fund. It is not a contingent liability, it is included in the total of the balance sheet of a Bank. Hence the provision for standard asset is allowable as normal expenditure on accrual basis. 9.3. The claim of the assessee is that this provision against Standard assets was made as per the guidelines of RBI vide circ .....

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equirement for all other loans and advances, which are standard assets, including those to agriculture, SMEs and industry in general shall remain unchanged. The standard asset provisioning requirements for categories of banks mentioned at para 2 above, after the above changes, are summarised below. As hitherto, these provisions would be eligible for inclusion in Tier II capital for capital adequacy purposes to the permitted extent Sr. No. Category of standard asset Rate of provisioning (a) Direc .....

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t debited in the P&L account in respect of an accrued or ascertained Liability only is an admissible deduction, while any provision in respect of any unascertained liability or a liability which has not accrued, does not qualify for deduction. A contingent liability cannot constitute deductible expenditure for the purposes of Income-tax Act. Keeping aside of money which may become expenditure on the happening of an event would normally not constitute an allowable expenditure under the Income .....

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towards Standard Assets need not be netted from gross advances but shown separately as 'Contingent Provisions against Standard Assets' in the balance sheet, clearly shows that it is not for diminution in the value of any assets but only to create a financial buffer in order to protect banks and NBFCs from the economic downturns. This is a liability which is contingent upon event i.e. standard assets likely to become bad, which may or may not happen. There is no provision under the IT Act .....

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ction of which was not admissible under any of the provisions of the Act. Justifying the provision, it was claimed by the appellant before the Assessing Officer that the same was made pursuant to the guidelines of the RBI. However, while stressing that the RBI guidelines or prudential norms were not intended to regulate income-tax laws, the Assessing Officer, after examining the RBI circular No.19/02/2007 on the basis of which the impugned provision was claimed to have been made, observed that t .....

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e proceedings, the Id. counsel for the appellant reiterated the submission made before the Assessing Officer that the provision has been made pursuant to the guidelines issued by the RBI and therefore, an allowable deduction. 6.2 The submissions of the appellant are carefully examined with reference to the relevant guidelines of RBI and the legal position as applicable to the year. A perusal of the guidelines of RBI issued vide circular No.19/02/2007 clearly shows that such provision was directe .....

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