TMI Blog2014 (4) TMI 1107X X X X Extracts X X X X X X X X Extracts X X X X ..... reupon has not “accrued”- thus, there was no infirmity with the decision of the CIT(A) in holding that the interest income relatable on NPA advances did not accrue to the assessee – Decided against revenue. Deduction representing amortization of premium paid on Government Securities - Held that:- CIT(A) made no mistake in allowing the claim of the assessee for deduction representing amortization of premium paid on Government Securities under the HTM category holding that the same was claimed as per the relevant RBI guidelines and even the CBDT has issued instructions to allow the same. – Decided against revenue. - ITA No.162/PN/2013 & ITA No.384/PN/2013 - - - Dated:- 16-4-2014 - SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER For the Petitioner : Mr. S.N. Doshi For the Respondent : Mr. S. P. Walimbe ORDER PER G. S. PANNU, AM The captioned cross-appeals, each by the assessee and the Revenue, pertaining to the assessment year 2009-10, were heard together and are being disposed-off by way of a consolidated order for the sake of convenience and brevity. Both the captioned cross-appeals are directed against the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act was restricted the extent of Provision for bad and doubtful debts made in the account books i.e. ₹ 66,22,634/- and the balance of ₹ 1,04,17,894/- was disallowed. The aforesaid controversy is before us. In the immediately preceding assessment year of 2008-09 also the Revenue had denied the claim of the assessee u/s 36(1)(viia) of the Act by restricting it to the extent of the Provision for bad and doubtful debts actually made in the account books. The Tribunal, after considering the rival stands as also the various authorities cited at Bar came to conclude that the deduction sought to be claimed by the assessee u/s 36(1)(viia) of the Act was liable to be restricted to the extent of the Provision for bad and doubtful debts actually made in the account books. The relevant discussion contained in the order of the Tribunal is reproduced hereinafter:- 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 under consideration i.e. A.Y. 2008-09 reads as under : - [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalized 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 compliance with the requirement of law of making Provision for bad and doubtful debts and therefore assessee justified the claim of deduction for the complete amount of ₹ 1,94,21,000/- and not restricted to ₹ 1,90,36,000/-. The CIT(A) as well as the Tribunal negated the plea of the assessee and accordingly, the matter was carried before the Hon ble Punjab Haryana High Court. The Hon ble High Court referred to the provisions of Section 36(1)(viia) of the Act and observed 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 menti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year. 8. In the present case, the assessee has not made any provision in the books of account for the assessment year under consideration, i.e., 1985-86, by making supplementary entries and by revising its balance sheet. The provision has been made in the books of account of the subsequent year. 9. We are, therefore, satisfied that the Tribunal 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 the Hon ble Punjab Haryana High Court, the orders of the lower authorities deserve to be upheld inasmuch as the assessee has not made a Provision for bad and doubtful debts in the books of account equal to the amount of deduction sought to be claimed under Section 36(1)(viia) of the Act, and therefore, in our view, the lower ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Hon ble Supreme Court run contrary to the pronouncement of the Hon ble Punjab Haryana High Court in the case of State Bank of Patiala (supra) to the effect that making of a Provision for bad and doubtful debts equal to the amount mentioned in Section 36(1)(viia) of the Act is must for claiming such deduction. Therefore, the judgement of the Hon ble Supreme Court in the case of Catholic Syrian Bank Ltd. (supra) does not help the assessee in the present controversy before us. Further, even in the case of Jaysingpur Udgaon Sahakari Bank Ltd. (supra), the Tribunal has merely set-aside the matter for adjudication afresh back to the file of the Assessing Officer and it does not contain any positive finding with respect to the controversy before us. 15. In the result, considering the aforesaid discussion, in our view, the orders of the authorities below on this aspect are liable to be upheld. We hold so. 5. Following the aforesaid precedent and in view of the convergence of stand of both the parties that the facts and circumstances in the year under consideration are identical to those considered by the Tribunal in the assessment year 2008-09 (supra), the Ground of App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 43D of the Act and therefore the assessee having followed the mercantile system of accounting did not have the option of accounting for interest income relating to NPAs advances on receipt basis. Therefore, according to the Assessing Officer, interest of NPAs accrued to the assessee and accordingly, he brought to tax such interest income of ₹ 57,19,885/-. 9. The learned CIT(A) disagreed with the Assessing Officer, and thus the Revenue is in appeal before us. At the time of hearing, it was a common point between the parties that an identical c8o ntroversy has been considered by the Pune Bench of the Tribunal in the case of ACIT vs. The Omerga Janta Sahakari Bank Ltd. vide order in ITA No.350/PN/2013 dated 31.10.2013. In the said precedent the Pune Bench of the Tribunal considered the decision of the Hon ble Delhi High Court in the case of M/s Vasisth Chay Vyapar Ltd., 330 ITR 440 (Del) as well as the judgement of the Hon ble Madras High Court in the case of CIT vs. Sakthi Finance Ltd., (2013) 31 taxmann.com 305 (Madras) which were divergent with respect to the issue of accrual of interest income on NPA advances, and following the proposition that in the absence of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e accrued in respect of NPAs and that the same was to be taxed only on receipt basis. The Tribunal observed that the question of taxability of interest on NPAs classified by RBI, was considered by the Hon ble Delhi High Court in the case of M/s Vasisth Chay Vyapar Ltd. (supra) wherein after considering the decision of the Hon ble Supreme Court in the case of Southern Technologies Ltd. (supra) it was held that interest income relatable to NPAs was not includible in total income on accrual basis since the same did not accrue to the assessee. The following discussion by the Visakhapatnam Bench of the Tribunal in the case of The Durga Cooperative Urban Bank Ltd. (supra) is worthy of notice :- 8. We have heard the rival contentions and carefully perused the record. The question of taxability of interest on NPAs has been considered by the Hon'ble Delhi High Court in the case of M/s Vasisth Chay Vyapar Ltd (Supra); wherein the Hon'ble Delhi High Court took into account the decision rendered by the Hon'ble Supreme Court in the case of Southern Technologies Ltd (Supra). In the case of M/s Vasisth Chay Vyapar Ltd, the assessee therein was a non banking financial company an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uncertainty rather than to adjust the amount of revenue originally recorded. 9.4 An essential criterion for the recognition of revenue is that the consideration receivable for the sale of goods, the rendering of services or from the use of others of enterprise resources is reasonably determinable. When such consideration is not determinable within reasonable limits, the recognition of revenue is postponed. 9.5 When recognition of revenue is postponed due to the effect of uncertainties, it is considered as revenue of the period in which it is properly recognized . 8.2 The Delhi High Court also considered the decision rendered in the following cases: i) CIT vs. Elgi Finance Ltd., 293 ITR 357 (Mad) ii) CIT vs. KKM Investments (Cal) SLP dismissed by Supreme Court (310 ITR 4) iii) CIT vs. Motor Credit Co (P) Ltd., 127 ITR 572 (Mad) iv) UCO Bank vs. CIT 237 ITR 889 (SC) v) CIT vs. Shoorji Vallabhdas Co 46 ITR 144 (SC) vi) Godhra Electricity Co. Ltd., Vs.CIT 225 ITR 746 vii) CIT vs. Goyal M G Gases (P) Ltd., 303 ITR 159 (Del) viii) CIT vs. Eicher Ltd., ITA No.431/2009 dated 15.7.2009 (Del) 8.3 After considering t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of the Prudential Norms, even though the same deviated from mercantile system of accounting and/or section 45 (sic. 145) of the Income Tax Act. It can be said, therefore, that the Apex Court approved the real income theory which is engrained in the Prudential Norms for recognition of revenue by NBFC . 9. The Hon'ble Supreme Court in the case of M/s Southern Technologies Ltd (Supra) dissected the matter into two parts viz., a) Income Recognition and b) permissible deduction/exclusions under the Income Tax Act. In so far as income recognition is concerned, the Hon'ble Supreme Court held that Section 145 of the Income Tax Act has no role to play and the Assessing Officer has to follow Reserve Bank of India directions 1998, since by virtue of 45Q of the Reserve Bank of India Act, an overriding effect is given to the directions of Reserve Bank of India vis- -vis income recognition principles in the Companies Act 1956. In so far as computation of income under the Income Tax Act is concerned, (which involves deduction of permissible deductions and exclusions) the admissibility of such deductions shall be governed by the provisions of the Income Tax Act. The relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f India directions 1998, as held by the Hon'ble Supreme Court. 10.1 Based on the prudential norms, the assessee herein did not admit the interest relatable to NPA advances in its total income. The Hon'ble Delhi High Court in the case of Vasisth Chay Vyapar Ltd (Supra) has held that the interest on NPA assets cannot be said to have accrued to the assessee. In this regard, the following observations of Hon'ble Delhi High Court in the above cited case are relevant: What to talk of interest, even the principle amount itself had become doubtful to recover. In this scenario it was legitimate move to infer that interest income thereupon has not accrued . The said decision of the Hon'ble Delhi High Court is equally applicable to the issue in our hands. Accordingly we do not find any infirmity with the decision of the learned CIT (A) in holding that the interest income relatable on NPA advances did not accrue to the assessee. Accordingly we uphold his order. 10. Following the aforesaid discussion, which has been rendered on an identical issue under similar circumstances, we find no reasons to interfere with the ultimate conclusion of the CIT(A) in deleti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liable to the affirmed. We hold so. 14. In the result, the appeal of the Revenue is dismissed. 10. Since it was a common point between the parties the facts and circumstances in the present case are identical to those considered by us in the case of The Omerga Janta Sahakari Bank Ltd. (supra) following the aforesaid precedent the present claim of the assessee deserves to be upheld. We hold so. 11. Thus, following the aforesaid precedent, the order of the CIT(A) is hereby affirmed and the Revenue has to fail on this aspect. 12. The second issue raised by the Revenue in its appeal relates to the action of the CIT(A) in allowing deduction of ₹ 51,95,263/- representing amortization of premium paid on Government Securities. 13. In this context, brief facts are that before the CIT(A) assessee raised an Additional Ground which was hitherto not before the Assessing Officer, to the effect that it was liable to claim deduction of ₹ 51,95,263/- on account of amortization of premium paid on Government Securities in the category of investments Held to Maturity (i.e. HTM). The said premium represented the excess of acquisition cost over the face value of the secu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal is as under :- 9. The amortized amount of premium paid for securities held under HTM category amounting to ₹ 11.77 crores was claimed by the assessee as deduction in its computation of total income. The same, however, was disallowed by the Assessing Officer holding that the expenditure incurred on premium paid for securities 1h5eld under HTM category was a capital expenditure not allowable as deduction. He held that the said securities were in the nature of investment and not stock in trade. On appeal, the learned CIT(Appeals) deleted the disallowance made by the AO on this issue. Besides relying on his own order in assessee's own case on a similar issue for the earlier year, the learned CIT(Appeals) also relied on CBDT Instruction No. 17/2008 dated 26-11-2008 published in 220 CTR (Statute) page 41. He held that the assessee company was bound to classify its investment as per RBI guidelines dated 16-10-2010 and as per the said guidelines, investment classified under HTM category was required to be carried at acquisition cost unless it was more than the face value. He held that the premium on such investments was also required to be amortized over the period remai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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