TMI Blog2014 (6) TMI 925X X X X Extracts X X X X X X X X Extracts X X X X ..... T(Appeals) deleting the addition made by the AO on account of interest accrued on loans & advances classified as nonperforming assets. Disallowance of provision for bad and doubtful debts in respect of rural advances - Held that:- At this issue is squarely covered in favour of the revenue and against the assessee by the decision of the Tribunal rendered in the case of Syndicate Bank v. DCIT [2015 (4) TMI 727 - ITAT BANGALORE ]confirming the disallowance made by the AO on account of assessee’s claim for deduction u/s. 36(1)(viia) on account of provision for bad and doubtful debts in respect of rural advances. - Decided against assessee Disallowance on account of amortization of premium on Govt. securities - Held that:- Squarely covered in principle in favour of the assessee by the decision of the Tribunal rendered in the case of ING Vysya Bank Ltd [2015 (2) TMI 892 - ITAT BANGALORE ] . The matter is restored to the file of the Assessing Officer for the limited purpose of verifying as to whether the relevant securities in the present case are “held to maturity” by the assessee and accordingly to allow relief to the assessee on such verification, keeping in view the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count of interest receivable on loans and advances, which was not offered by the assessee on the ground that the concerned loans advances had already become Non-Performing Assets (NPA). The AO accordingly completed the assessment u/s. 143(3) of the Act vide order dated 24.12.2010 computing the total income of the assessee at ₹ 7,38,49,672, after making one more addition of ₹ 24,91,500 on account of disallowance of 10% on average rural advances. 4. Against the order passed by the AO u/s. 143(3), appeal was preferred by the assessee before the ld. CIT(Appeals). After considering the submissions made on behalf of the assessee as well material available on record, the ld. CIT(A) deleted the addition of ₹ 1,76,26,539 made by the AO invoking the provisions of section 40(a)(ia) for the following reasons given in para 3.3 of his impugned order:- 3.3 The first question of appeal is that, whether the assessee is entitled for claiming exemption u/s 194A(3)(v) of the Act in respect of interest payments exceeding ₹ 10,000 made to members. The relevant provisions of section 194A(3) with regard to co-operative societies are reproduced below: (3) The provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is exempt irrespective of the nature of deposits or any monetary limits and no conflicts would arise if one were to consider the applicability of section 194A(3)(v) only to members and the other sections solely for non-members. C. The contention of the AO is that a co-operative society engaged in banking business will not fall within the ambit of section 194A(3)(v). Circular No. 9 of 2002 dated 11/09/2002 257 ITR 36 issued by CBDT (quoted earlier) clarifies that a member of a co-operative bank shall receive interest on both time deposits and deposits other than time deposits with such cooperative bank without TDS under Section 194A by virtue of exemption granted vide clause (v) of sub-section (3) of the said section. The reliance placed by the AO to the decision of Hon ble Income Tax Appellate Tribunal, Pune in Bhagani Nivedita Sahakari Bank Ltd. V. Asst. CIT (2003) 87 ITD 569 was without noting that the ITAT at the time of the order didn t have the privilege of the circular of CBDT. Reliance also placed by the AO to the decision of Hon ble Bombay High Court in The Jalgaon District Central Cooperative Bank Ltd. Anr. V Union of India Ors. (2004) 265 ITR 423 was without full ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arise or not. In view of the matter, I am of the considered view that the AO has erred in treating the interest on Non-performing Assets as income of the appellant. I direct the AO to delete the said interest from the computation of taxable income. The issue of the interest from Non-performing Assets is therefore decided in the favor of the appellant, and appellant gets a relief of ₹ 91,17,603. D. The third question for consideration is that, whether interest receivable on standard loans and advances, be treated as the income of the assessee. The provisions of section 5 of the Act, stated earlier require that the assessee recognize income when it is either received or deemed to be received or accrues or deemed to accrue. Interest on Standard Loans and advances must be recognized as income since there is virtual certainty as to their final collectability and there is not an iota of doubt even in the mind of the assessee as to their collectability. The Master circular issued by RBI, relied on by the assessee requires that the assessee has to recognize the interest on standard loans and advances on accrual basis. Therefore the addition of ₹ 1,44,02,440 made by the AC is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned CIT(Appeals) erred in deleting the disallowance u/s 40(a)(ia) of ₹ 1,76,26,539 ignoring the ratio of the decision of Pune ITAT in the case of Bhagini Nivedita Sahakari Bank Ltd v. ACIT87 lTD 569. (b) The learned CIT(Appeals) erred in deleting the addition of ₹ 91,17,603 on account of accrued interest on loans which are classified as Non-performing Assets without considering the decision of Hon ble Supreme Court in the case of State Bank of Travancore v. CIT 158 ITR 102 and without considering the new provisions of section 43D. (c) The learned CIT(Appeals) erred in not considering the fact that section 43D was inserted to over come the decision of Hon ble supreme Court in State Bank of Travancore v. CIT and the benefit of the exception from the said decision of the Hon ble Supreme Court was not available to a cooperative bank. (5) For these and other grounds that may be urged at the time of hearing, the order of the learned CIT(A) may be set aside and that the order of the Assessing Officer be restored. 7. We have heard the arguments of both the sides and also perused the relevant record. In ground No.4(a) of its appeal, the revenue has challenged th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk that any of the above provisions can be called a general provision and other provisions called specific provisions. Each provision over-lap and if read in the manner as indicated above, there is perfect harmony to the various provisions. We do not agree with the view expressed by the Pune ITAT SMC in the case of Bhagani Nivedita Sahakari Bank Ltd. (supra) when it says that Co-operative society as mentioned in cl. (v) is a general species, whereas the other five categories of co-operative societies which are specifically referred to in other provisions are specific co-operative societies. The further conclusion in the said decision that the term co-operative society in cl. (v) of s. 194A(3) has to be interpreted as co-operative society other than co-operative bank, is again unsustainable. The law is well settled that by a process of interpretation one cannot add on words that are not found in the text of the statute. Such a course is permitted only when there is causus omisus . We do not think that the provisions of Sec.194A(3)(v) suffers from any causus omisus as has been interpreted by the ITAT Pune Bench SMC. 16. We are also of the view that the decision of the Hon ble K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y a co-operative society to a member thereof from the requirement of TDS. On the other hand, clause (viia) of sub-section (3) of section 194A exempts from the requirement of TDS such income credited or paid in respect of deposits (other than time-deposits made on or after 1st July, 1995) with a co-operative society engaged in carrying on the business of banking. 2. Representations have been received in the Board seeking clarification as to whether a member of a cooperative bank may receive without TDS interest on time deposit made with the co-operative bank on or after 1st July, 1995. The Board has considered the matter and it is clarified that a member of a co-operative bank shall receive interest on both time deposits and deposits other than time deposits with such co-operative bank without TDS under section 194A by virtue of the exemption granted vide clause (v) of sub-section (3) of the said section. The provisions of clause (viia) of the said sub-section are applicable only in case of a nonmember depositor of the co-operative bank, who shall receive interest only on deposits other than time deposits made on or after 1st July, 1995 without TDS under section 194A. 3. A que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nch in the case of The Bailhongal Urban Co-op Bank Ltd.(supra) are not factually correct. Consequently, the conclusions drawn in the aforesaid decision also contrary to facts and hence cannot be considered as precedent. 20. The learned counsel for the Assessee has brought to our notice that the ITAT Vishakapatnam Bench in the case of The Visakhapatnam Co-operative Bank ITA No.5 and 19 of 2011 order dated 29.8.2011 has held that co-operative societies carrying on banking business when it pays interest to its members on deposits it need not deduct tax at source in view of the provisions of Sec.194A(3)(v) of the Act. Similar view has also been expressed by the Pune Bench of the ITAT in the case of Ozer Merchant Co-operative Bank ITA No.1588/PN/2012 order dated 30.10.2013. We may add that in both these decisions the discussion did not turn on the interpretation of Sec.194A(3)(i)(b) of the Act vis-a-vis Sec.194A(3)(v) of the Act. It is thus clear that the preponderance of judicial opinion on this issue is that cooperative societies carrying on banking business when it pays interest to its members on deposits need not deduct tax at source in view of the provisions of Sec.194A(3)(v) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nate Bench of this Tribunal rendered in the case of ITO v. M/s. Shiva Sahakari Bank Niyamitha vide its order dated 21.12.2012 passed in ITA No.257/Bang/2012, wherein a similar issue was decided by the Tribunal by recording its findings in paras 8 9 as under:- 8. Having heard both the parties and having considered their rival contentions, we find that undisputedly the assessee is in the banking business and is also governed by the Banking regulations. Whether the interest accrued on NPA s which are doubtful of being recovered, should be recognized as assessee s income on accrual or on receipt basis is the question before us. Let us first consider the applicability of the decisions relied upon by the learned DR. The Hon ble Supreme Court in the case of Southern Technologies Ltd was considering the issue of allowability of provisions of NPA u/s 36(1)(vii) of the Incometax Act while the case before us is with regard to the accrual of interest on NPA s and recognition of the same on receipt basis and not on accrual basis. Further, the Hon ble Supreme Court, while holding that the RBI directions are only norms and act in a different field as against the Income-tax Act, has also obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to him but is not possible to recover the same, then it cannot be said to have been accrued and the said amount cannot be brought to tax. In the instant case we are concerned with a non performing asset. As the definition of non performing asset shows an asset becomes non performing when it ceases to yield income. Non performing asset is an asset in respect of which interest has remained unpaid and has become past due. Once a particular asset is shown to be a non performing asset then the assumption is it is not yielding any revenue. When it is not yielding any revenue, the question of showing that revenue and paying tax would not arise. As is clear from the policy guidelines issued by the National Housing Bank, the income from non performing asset should be recognized only when it is actually received. That is what the Tribunal held in the instant case. Therefore, the contention of the revenue that in respect of non performing assets even though it does not yield any income as the assessee has adopted a mercantile system of accounting, he has to pay tax on the revenue which has accrued notionally is without any basis. In that view of the matter, the second substantial question f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst the assessee by the Tribunal for the following reasons given in paras 48 to 50 of the said order:- 48. As far as Gr.No.3 raised by the Revenue in the original grounds of appeal is concerned, the AO disallowed the entire claim for deduction of ₹ 503,49,00,000/- on the following ground. a) The provision for bad and doubtful debts in respect of rural advances was created by debit to profit and loss account of only a sum of ₹ 295,55,54,682 whereas the claim for deduction actually made u/s.36(1)(viia) of the Act was a sum of ₹ 503,49,00,000/-. The AO was of the view that as laid down by the Hon ble Punjab and Haryana High Court in the case of State Bank of Patiala Vs. CIT 272 ITR 53 (P H), claim for deduction u/s.36(1)(viia) of the Act cannot be greater than the amount debited to the profit and loss account as provision. The AO therefore proposed to disallow a sum of ₹ 207,93,45,318 (Difference between ₹ 503,49,00,000 and ₹ 295,55,54,682). b) Apart from the above the AO also disallowed the sum of ₹ 295,55,54,682 out of ₹ 503,49,00,000 claimed as deduction u/s.36(1)(viia) of the Act. The reasons given for disallowing claim fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the accounts, but with respect to a certain percentage of the total income and also a certain percentage of the aggregate average advances made by the rural branches of the bank. In other words, this is a specific deduction given by the statute irrespective of the quantum provided by the assessee in its accounts towards provision for bad and doubtful debts. 50. In the appeal before the Tribunal, in Ground No.3 of the original grounds of appeal, the Revenue has challenged the order of CIT(A) in so far as it relates to the deletion of a sum of ₹ 207,83,45,338 which is the difference between ₹ 503,49,00,000 and ₹ 295,55,54,682. The learned DR relied on the decision of the ITAT Bangalore Bench in the case of Canara Bank in ITA No.58/Bang/2004 dated 9.6.2006. In the aforesaid decision this Bench considered the decision of the ITAT in the case of Syndicate Bank 78 ITD 103(Bang) and the decision of the Hon ble Punjab and Haryana High Court in the case of State Bank of Patiala (supra) and held that the decision rendered by the Hon ble High Court has to be followed. The above decision is the decision brought to our notice on the issue rendered after the decision in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing were the relevant observations of the Tribunal: 03. Let us first take up the issue relating to amortization of premium on investment in government securities. Relevant grounds read as under : i) The learned Commissioner (Appeals) ought to have appreciated that the appellant has to invest surplus fund in Government Securities as per RBI guidelines and the premium paid while investing in Government Securities that are bought in open market would have to be amortized till the maturity date of the security and thus the premium was written off was liable to be allowed as depreciation of value of securities ; ii) The learned Commissioner (A) ought to have appreciated that the classification of securities for RBI purposes would not take away the benefit which the appellant was entitled to and he ought to have appreciated that the case law referred were distinguishable and accordingly he ought to have allowed the deduction as claimed in full. 04. The brief facts pertaining to this issue are that while framing the assessment u/s.143(3) of the IT Act, for the assessment year 2007-08, the Assessing Officer noticed that the assessee has claimed a sum of ₹ 26,40,23 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atholic Syrian Bank Ltd v. ACIT (2010) 38 SOT 553 (Coch) : An identical issue to that of the subject matter under consideration had arisen before the Cochin Bench. After analyzing the issue in depth, the bench has observed that with regard to amortization of premium on purchase of Government securities, it was clarified that this was made as per the prudential norms of the RBI. Following the Tribunal decision in the assessee's own case and considering that the assessee bank is following consistent and regular method of accounting system, there is no justification in interfering with the order of the Commissioner of Income-tax (Appeals) on this issue of amortization of premium on government securities. United Commercial Bank v. CIT (1999) 156 CTR (SC) 380 ; (1999) 240 ITR 355 (SC) and South Indian Bank Ltd., (ITA No.126/Coch/2004, dated.___ Sept, 2005 followed. (ii) The Khanapur Co-op Bank Ltd v. ITO ITA No.141/PNJ/2011, dated.8.9.2011 : The Hon'ble Bench of Panaji Tribunal had recorded its findings that 6. Likewise, the premium amortized at ₹ 1,78,098/- is claimed to be in respect of securities held under the category 'held to maturity'. The Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 4 of the assessee s appeal, it is observed that the common issue involved therein, relating to disallowance made by the AO and confirmed by the CIT(A) on account of interest paid by the assessee society to its members on the deposits in excess of ₹ 10,000 invoking the provisions of section 40(a)(ia), has already been adjudicated in favour of the assessee while dealing with the ground No.4(a) in the revenue s appeal in ITA No.275/Bang/2012 hereinabove and for the reasons stated therein, we hold this issue in favour of the assessee. Thus, these grounds of the assessee are allowed. 24. As regards grounds No.5 to 7 of the assessee s appeal, the ld. representatives of both the sides agreed that the issue involved therein relating to disallowance of ₹ 7,77,758 made by the AO and confirmed by the ld. CIT(A) on account of payment by the assessee towards unapproved gratuity fund is also squarely covered by the decision of the Tribunal rendered in the case of Bilagi Pattana Sahakari Bank Niyamit vide its order dated 24.5.2013 passed in ITA No.1073/Bang/2012, wherein a similar issue was decided by the Tribunal in favour of the assessee for the following reasons given in par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upheld / restored. It is ordered accordingly. 25. Respectfully following the decision of the co-ordinate Bench of the Tribunal in the case of Bilagi Pattana Sahakari Bank Niyamit (supra), we delete the disallowance made by the AO and confirmed by the ld. CIT(Appeals) on account of payment made by the assessee to unapproved gratuity fund and allow ground Nos.5 to 7 of the assessee s appeal. ITA Nos.798/B/2013 802/B/2013 26. Now we shall take up the cross appeals in the case of The Sindgi Urban Co-op. Bank Ltd., for the A.Y. 2009-10, which are directed against the order of the CIT(Appeals), Belgaum dated 20.2.2013. ITA 802/B/13 (Assessee s appeal) 27. As submitted by the ld. counsel for the assessee, ground No.1 raised in the appeal of the assessee is general in nature, seeking no specific decision from us. 28. As regards grounds No. 2 to 4 of the assessee s appeal, it is observed that the common issue involved therein, relating to disallowance made by the AO and confirmed by the CIT(A) on account of interest paid by the assessee society to its members on the deposits in excess of ₹ 10,000 invoking the provisions of section 40(a)(ia), has already been adjudicate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also dismissed, subject to the said verification by the AO. ITA 1573/Bang/2013 (Assessee s Appeal) 32. This appeal by the assessee is directed against the order of the CIT(Appeals), Belgaum dated 17.9.2013 for the A.Y. 2010-11. 33. As submitted by the ld. counsel for the assessee, ground No.1 raised in the appeal of the assessee is general in nature, seeking no specific decision from us. 34. As regards grounds No. 2 to 4 of the assessee s appeal, it is observed that the common issue involved therein, relating to disallowance made by the AO and confirmed by the CIT(A) on account of interest paid by the assessee society to its members on the deposits in excess of ₹ 10,000 invoking the provisions of section 40(a)(ia), has already been adjudicated in favour of the assessee while dealing with the ground No.4(a) in the revenue s appeal in ITA No.275/Bang/2012 hereinabove and for the reasons stated therein, we hold this issue in favour of the assessee. Thus, these grounds of the assessee are allowed. 35. As regards grounds No. 5 to 7, it is observed that the issue involved in the present case relating to disallowance made by the AO and confirmed by the ld. CIT(A) on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the deposits in excess of ₹ 10,000 invoking the provisions of section 40(a)(ia), has already been adjudicated in favour of the assessee while dealing with the ground No.4(a) in the revenue s appeal in ITA No.275/Bang/2012 hereinabove and for the reasons stated therein, we hold this issue in favour of the assessee. Thus, these grounds of the assessee are allowed. 41. As regards grounds No. 5 to 7, the issue involved in the present case as well as all the material facts thereto are similar to ground Nos.5 to 7 raised in ITA No.1774/B/13 in the case of Shri Basveshwar Sahakari Bank Niyamitha for the A.Y. 2010-11, wherein the issue has been adjudicated in favour of the assessee. For similar reasons stated therein, we delete the disallowance made by the lower authorities on account of payment made by the assessee to unapproved gratuity fund and allow ground Nos.5 to 7 of the assessee s appeal. 42. In the result - the assessees appeals being ITA No.1774/Bang/2013 789/Bang/2013 are allowed; - the assessees appeals being ITA No.534/Bang/2013, 1573/Bang/2013 802/Bang/2013 are partly allowed; - whereas all the four appeals of the Revenue are dismissed. Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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