TMI Blog2015 (3) TMI 1148X X X X Extracts X X X X X X X X Extracts X X X X ..... e. interest on NPAs, by the Assessing Officer cannot be said to be prejudicial to the interest of Revenue. However, the said principle is to be applied only in respect of non-recognition of income on accrual basis relatable to NPAs and not on the said income received by the assessee on receipt basis during the captioned assessment year. The Assessing Officer in the first round of proceedings had already made an addition of ₹ 1,62,42,236/-. in the hands of the assessee, which has been upheld by the CIT(A) and though the ground of appeal has been raised by the assessee in this regard in ITA No.237/PN/2013, but the contention of the learned Authorized Representative for the assessee before us was that the said ground of appeal is not being pressed. Once a particular addition has been made in the hands of the assessee by the Assessing Officer in the assessment order, then no further addition can be made on that basis, by way of initiation of proceedings under section 263 of the Act. Accordingly, we hold that the exercise of jurisdiction by the Commissioner under section 263 of the Act in respect of interest income relatable to NPAs is invalid as the assessment order passed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecided in favour of assessee Allowability of loss on merger of Sinhagad Urban Co-operative Bank Ltd.- alternative depreciation on difference in asset and liability of bank merged - Held that:- Authorized Representative for the assessee fairly admitted that the issue may be remitted back to the file of CIT(A) to examine the allowability of depreciation on intangible assets under section 32(1)(ii) of the Act, in the light of ratio laid down in The Cosmos Co-op Bank Ltd. Vs. DCIT (2014 (1) TMI 1696 - ITAT PUNE ) wherein held difference paid by the assessee in excess of liabilities over the realizable values of the assets taken over represent payment for any business or commercial rights of similar nature and are liable to be construed as intangible asset, contemplated under section 32(1)(ii) of the Act. Accordingly, it was held that the assessee is entitled to the allowance of depreciation in terms of section 32(1)(ii) of the Act. In view thereof, we restore this issue back to the file of CIT(A) to re-adjudicate the issue - ITA No.413/PN/2014, ITA No.1154/PN/2011, ITA No.64/PN/2014 - - - Dated:- 31-3-2015 - SHRI G.S. PANNU, ACCOUNTANT MEMBER AND Ms SUSHMA CHOWLA, JUDICIAL MEMBE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer was both erroneous and prejudicial to the interest of Revenue on account of nominal membership fees of ₹ 52,960/- not being offered as revenue receipt and further, the interest on Non Performing Assets (NPA) was though accounted for on receipt basis, but the same was not offered to tax. On both the accounts, the Commissioner was of the view that the said receipts are to be included as income of the assessee for the captioned assessment year. Accordingly, the Assessing Officer was directed to make an addition of ₹ 52,960/- on account of receipts of nominal membership fees and further, addition of ₹ 6,93,10,184/- being accrued interest on NPA accounts was made. In respect of third addition proposed i.e. interest on investment, the submissions of the assessee were accepted after verification and it was held that no interference was warranted on the said issue. 6. The assessee is in appeal against the order of Commissioner. 7. It was pointed out by the learned Authorized Representative for the assessee that the nominal membership fees were received by the cooperative society and such receipts were capital receipts and it was admitted by the learned Auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of interest accrued on NPAs, we find that the issue is squarely covered by the order of Pune Bench of the Tribunal in ACIT Vs. Osmanabad Janta Sah. Bank Ltd. (supra), wherein it has been held that the treatment given by the assessee was on account of guidelines of RBI is not includable as income of the assessee. However, the interest, which has been received on such NPAs by the assessee is taxable in the hands of the assessee. The learned Authorized Representative for the assessee fairly pointed out that the Assessing Officer had taxed sum of ₹ 1.62 crores as interest on such advances, as income of the assessee for the captioned assessment year and though the grounds of appeal has been raised by the assessee in the appeal filed against the order passed by the CIT(A) upholding the addition made by the Assessing Officer under section 143(3) of the Act, but the said ground of appeal is not being pressed in ITA No.237/PN/2011, which is listed for hearing today. However, in respect of balance interest due on NPAs, the same would not be added as income in the hands of the assessee, in view of the ratio laid down by in ACIT Vs. Osmanabad Janta Sah. Bank Ltd. (supra). We f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act to the assessee is concerned, there is a convergence of opinion between the assessee and the Revenue to the effect that the same is not applicable to the assessee. Ostensibly, assessee is a Co-operative Bank carrying on banking business in terms of a license granted by RBI and is not a scheduled bank included in second schedule of RBI so as to fall within the scope of section 43D of the Act. Notably, section 43D of the Act prescribes that interest income on such categories of bad and doubtful debts as prescribed by the RBI guidelines shall be chargeable to tax in the year in which such interest income is credited by the assessee in the Profit and Loss account or in the year of actual receipt, whichever is earlier. Since assessee is not an entity covered within the scope of section 43D of the Act, the present controversy cannot be adjudicated in the light of section 43D of the Act, and it is liable to be decided on general principles as to whether the impugned income has accrued to the assessee during the year under consideration. 9. In this connection, we find that the Visakhapatnam Bench of the Tribunal in the case of The Durga Cooperative Urban Bank Ltd. (supra) has co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the Hon'ble Delhi High Court. 8.1 After hearing the rival submissions, the Hon'ble Delhi High Court took note of sec.45Q of Reserve Bank of India Act which reads as under: Chapter IIIB to override other laws. 45Q. The provisions of this Chapter shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law . The High Court took note of the fact that the provision of 45Q of Reserve Bank of India has overriding effect over any other law. Then the Hon'ble High Court also considered accounting standard AS-9 on Revenue recognition and also extracted following relevant portion from the said accounting standard: 9. Effect of uncertainties on Revenue Recognition 9.1 Recognition of revenue requires that revenue is a measurable and that at the time of sale or the rendering of the service, it would not be unreasonable to expect ultimate collection. 9.2 Where the ability to assess the ultimate collection with reasonable certainty is lacking at the time of raising any claim, e.g., for escalation of price, export incentives, interest etc., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rn Technology (Supra). No doubt, in first blush, reading of the judgment gives an indication that the Court has held that Reserve Bank of India Act does not override the provisions of the Income Tax Act. However, when we examine the issue involved therein minutely and deeply in the context in which that had arisen and certain observations of the Apex Court contained in that very judgment, we find that the proposition advanced by Mr.Sabharwal may not be entirely correct. In the case before the Supreme Court, the assessee a NBFC debited ₹ 81,68,516 as provision against NPA in the profit and loss account, which was claimed as deduction in terms of Section 36(1) (vii) of the Act. The Assessing Officer did not allow the deduction claimed as aforesaid on the ground that the provision of NPA was not in the nature of expenditure or loss but more in the nature of a reserve, and thus not deductible under section 36(i)(vii) of the Act. The Assessing Officer, however, did not bring to tax ₹ 20,34,605/- as income (being income accrued under the mercantile system of accounting). The dispute before the Apex Court centered around deductibility of provision for NPA. After analyzing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1998 and the IT Act operate in different areas. These Directions 1998 have nothing to do with computation of taxable income. These Directions cannot overrule the permissible deductions or their exclusion under the IT Act. The inconsistency between these Directions and Companies Act is only in the matter of Income Recognition and presentation of Financial Statements. The Accounting policies adopted by an NBFC cannot determine the taxable income. It is well settled that the Accounting Policies followed by a company can be changed unless the AO comes to the conclusion that such change would result in understatement of profits. However, here is the case where the AO has to follow the Reserve Bank of India Directions 1998 in view of Section 45Q of the Reserve Bank of India Act. Hence, as far as Income Recognition is concerned, Section 145 of the IT Act has no role to play in the present dispute . 10. Turning to the facts of the case before us, the assessee herein is a cooperative bank and it is not in dispute that it is also governed by the Reserve Bank of India. Hence the directions with regard to the prudential norms issued by the Reserve Bank of India are equally applicable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rual basis. We have carefully considered the submissions put-forth by the learned Departmental Representative based on the judgement of the Hon ble Madras High Court in the case of Sakthi Finance Ltd. (supra). The controversy before the Hon ble Madras High Court related to non-recognition of interest income on NPAs by the assessee following the RBI guidelines. The Hon ble Madras High Court took the view that the judgement of the Hon ble Supreme Court in the case of Southern Technologies Ltd. (supra) also applied to the Income Recognition Norms provided by RBI and therefore it held the interest income on NPAs is liable to be taxed on accrual basis and not in terms of RBI s guidelines. But the Hon ble Delhi High Court in the case of M/s Vasisth Chay Vyapar Ltd. (supra) has taken a view that Southern Technologies Ltd. (supra) case did not apply to the Income Recognition Norms prescribed by RBI. Ostensibly, there is divergence of opinion between the Hon ble Delhi High Court and the Hon ble Madras High Court as noted by the Hon ble Madras High Court in its order. 12. In so far as, present case is concerned there is no judgment of the Jurisdictional High Court. We are faced with two c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Year 2008-09 14. The assessee has raised the following grounds of appeal:- 1) Commissioner (Appeals) has erred in confirming the addition of ₹ 17,40,000/- on account of interest on NPA not recognised as income for the year. Appellant prays for the deletion of said addition. 2) Commissioner (Appeals) has erred in confirming addition of ₹ 40,02,265/- amount of dividend forfeited and credited to Reserve. Same may please be deleted 3) Commissioner(Appeals) erred in confirming disallowance of loss on Apex Bank shares of ₹ 15,83,000/-. Same may please be allowed. 4) Commissioner (Appeals) has erred in confirming disallowance of Loss on Amortisation of premium on Government Securities ₹ 6,12,119/- 5) CIT (A) has erred in disallowing loss of ₹ 16,16,187/- on merger of Sinhagad Urban Co-operative Bank Ltd. Same may please be allowed. 6) CIT (A) has erred in confirming addition of ₹ 1,88,877/- invoking Section 41(1) on Bank transferring Creditors Balances to Reserve Fund. Same is neither Cessation nor Liability, nor Income of the Appellant Bank. Addition is prayed to be deleted. 7) CIT (A) has erred in not allowing deduction/making ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee, against which, the assessee is in appeal vide ground of appeal No.2. 20. The plea of the learned Authorized Representative for the assessee before us was that similar addition made in assessment year 2009-10 by the Assessing Officer has been deleted by the CIT(A), against which the Revenue is not in appeal and following the same parity of reasoning, the addition made in the captioned assessment year should be deleted. 21. We have heard the rival contentions and perused the record. The addition made in the hands of the assessee is in respect of the unclaimed dividend, which had been transferred to the Reserve Fund Account by the assessee. The case of the assessee was that the liability is still there and there is no forfeiture of the said unclaimed dividend amount. The said provision for distribution of dividend to its members was made by the assessee bank out of its profits, which have already been assessed as income of the assessee. Such reversal of unclaimed dividend to the Reserve Account cannot be treated as income of the assessee under section 28 of the Act and also the provisions of section 41(1) of the Act are not applicable in the case. The CIT(A) while decidi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer to delete the addition of ₹ 40,02,265/-. The ground of appeal No.2 raised by the assessee is thus, allowed. 23. The issue in ground of appeal No.6 raised by the assessee is against the addition of ₹ 1,88,877/- on account of the transfer of creditors balance to Reserve Fund. 24. The claim of the assessee before the authorities below was that it was neither cessation nor income of the assessee. However, the authorities below had invoked the provisions of section 41(1) of the Act and made an addition of ₹ 1,88,877/-. 25. The claim of the assessee before us was that the provisions of section 41(1) of the Act were not applicable. We find no merit in the plea of the assessee in this regard in view of the fact that the assessee itself had transferred the credit balance of unclaimed creditors to the Reserve Accounts and the provisions of section 41(1) of the Act are clearly attracted, wherein it is provided that where any allowance of deduction has been made in the assessment for any year in respect of any loss, expenditure or trading liability incurred by the assessee and subsequently, during any previous year if any benefit has been obtained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as held as under:- 11. We have heard the rival contentions and perused the record. The issue arising in the present appeal is in relation to the provision made on account of Amortization of Securities known Held To Maturity. The case of the Revenue was that the said securities were held as investments and consequently, the purchase cost was to be adopted and there was no basis for adopting the market value of the said assets and booking the loss in the value of securities at the close of the year. The claim of the assessee on the other hand was that, in view of the guidelines framed by the RBI and NABARD, the said entries were made in the books of account which resulted in loss of ₹ 58,41,016/- which was booked as an expenditure for the year under consideration. 12. We find similar issue of the allowability of Premium on Amortization of HTM Securities, arose before Pune Bench of the Tribunal in Pune District Central Co. Operative Bank Ltd. Vs. Addl.CIT in ITA No.1796/PN/2013, relating to assessment year 2009-10 and vide order dated 28th November 2014, it was held as under:- 10. We find that a similar issue of allowability or deduction on account of amortization ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way the benefit of the erstwhile deduction available to cooperative society in carrying on business of banking or providing credit facility to its members. The new clause (4) inserted by the Finance Act, 2006 w.e.f. 01-04-2007 reads as under: The provision of the section was not in relation to any cooperative bank other than agricultural credit society or primary cooperative agricultural and rural development bank . 5. The intention of the provision may be derived more precisely from relevant Para 166 of the budget speech which stated that : Co-operative banks, like any other bank, are lending institutions and should pay tax on their profits, Primary Agricultural Credit Societies (PACS) and Primary Cooperative Agricultural and Rural Development Bank (PCARDB) stand on a special footing and will continue to be exempt under section 80P of the Income Tax Act. However, I propose to exclude all other co-operative banks from the scope of that section . Accordingly, section 80P is to be amended to give effect to the above proposal. It is also proposed to amend section 2(24) to provide that profits and gains of business of banking (Including providing credit facilities) carried on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erference from our side. We uphold the same. 9. As a result, the appeal filed by the Revenue is dismissed . 10.1 Respectfully following the decision of the Coordinate Bench of the Tribunal and in absence of any contrary material brought to our notice against the above cited decision we find no infirmity in the order of the Ld.CIT(A) deleting the addition. Accordingly, the order of the Ld.CIT(A) is upheld and the grounds raised by the Revenue are dismissed. 2.2 Nothing contrary has been brought to our knowledge on behalf of the Revenue. Facts being similar, so following the same reasoning we hold that in case of banks, the premium paid in excess of face value of investments classified under HTM category which has been amortised over the period till maturity is allowable as revenue expenditure since the claim is as per RBI Guidelines and CBDT also has directed to allow such premium. In view of above, the assessee is justified in contending that the amortization of premium in excess of face value securities as HTM, period remaining difference was found reasonable. Accordingly, the disallowance of ₹ 2,20,68,302/- made by the Assessing Officer claimed as amortization of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he disallowance of audit fees of ₹ 1,19,277/- under section 43B of the Act. 32. The plea of the learned Authorized Representative for the assessee before us was that vis- -vis audit fees payable, the provisions of section 43B of the Act are not attracted. The authorities below had disallowed the expenditure of audit fees of ₹ 1,19,277/- by invoking the provisions of section 43B of the Act since the said amount was payable at the close of the year. Under the provisions of section 43B of the Act, it is provided that notwithstanding anything contained in other provisions of the Act, a deduction which is otherwise allowable under the Act, shall be allowed as a deduction while computing the income of the previous year in which such sum is actually paid by the person, irrespective of the previous year, in which the liability to pay such sum was incurred by the assessee, according to the method of accounting regularly employed by him. The nature of heads of expenditure considered under section 43B of the Act are as under:- [(a) any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or] (b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .5 is dismissed as not pressed. The additional ground of appeal being legal in nature, is admitted for adjudication. 37. The brief facts relating to the issue are that during the year under consideration, the assessee had taken over the Sinhagad Urban Co-operative Bank Ltd. and claimed loss on account of difference in deficit in assets over liabilities on deferred revenue expenditure over five years, as per RBI directions at 1/5th being ₹ 16,16,186/-. The said loss was not allowed in the hands of the assessee. However, the assessee has now claimed that the said loss in entirety is allowable as business expenditure under section 37 of the Act i.e. the expenditure incurred for earning more profit and its scope and/or the depreciation thereon. It was fairly pointed out by the learned Authorized Representative for the assessee that no such issue was raised before the CIT(A) and in the interest of justice, the same may be set aside to the file of CIT(A). Further, the learned Authorized Representative for the assessee pointed out that the issue is similar to the issue considered by the Pune Bench of the Tribunal in The Cosmos Co-op Bank Ltd. Vs. DCIT in ITA Nos.460 461/PN/2012 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of similar nature so as to be eligible for depreciation under clause (ii) of sub-section (1) of section 32 of the Act. 12. Before proceeding further, it would be appropriate to refer to the scheme of merger of respective four banks, copies of which have been placed in the Paper Book. All the schemes of the merger are similar and have been approved by the Reserve Bank of India in terms of the respective statutory provisions. The scheme of merger provides that the entire undertaking, the entire business, all the properties (whether immovable or immovable, tangible or intangible) assets, investments of all kinds, all cash balances with the RBI and other banks money at call or short notice, loans advances, any other contingency rights or benefits, lease and hire purchase contracts and assets, receivables, securitized assets, licenses, fixed assets and other assets, powers, consents, registrations, exemptions, waivers of all kinds and wheresoever situate belonging to, or enjoyed by the Transferor Bank have been taken-over by the assessee. The liabilities taken-over mean all debts, demand deposits, saving bank deposits, term deposits, Time and Demand liabilities, rupee borrowings, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd, knowhow. Such acquisition was claimed to be an asset in the nature of business or commercial rights contained in section 32(1)(ii) of the Act. The Hon ble High Court concurred with the assessee and held that the assets in question, being intangible assets acquired under slump sale agreement were in the nature of business or commercial rights of similar nature specified in section 32(1)(ii) of the Act and were accordingly held eligible for depreciation. 14. In the aforesaid light, factually speaking, in the present case, it can be seen that the assessee by acquiring the four co-operative banks has acquired existing running banking businesses complete with the required statutory licenses, operational bank branches, customers base as also the employees, besides other assets. The plea of the Revenue is that the difference paid by the assessee in excess of liabilities over the realizable values of the assets taken-over does not represent payment for any business or commercial rights is untenable. In-fact, the impugned sum reflects the amount paid by the assessee over and above the net worth of the banks which have been taken-over, which ostensibly is a reflection of the value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orded, in this regard. The additional ground of appeal No.1 is dismissed and alternate plea raised by the assessee is thus, allowed for statistical purposes. ITA No.237/PN/2013 :: Assessment Year 2009-10 42. The assessee has raised the following grounds of appeal:- 1. The learned CIT(A) has erred in confirming the action of Assessing Officer in making addition of ₹ 49,86,000/- on account of loss incurred on merging of Sanjivani Urban Co Operative Bank ltd and same addition be deleted as it is regular banking business expenditure allowable u/s 37 of Income tax Act. 2. The learned CIT(A) has erred in confirming the action of Assessing Officer in making addition of ₹ 16,17,000/- on account of loss incurred on merging of Sinhgad Urban Co Operative Bank ltd and same addition be deleted as it is regular banking business expenditure allowable u/s 37 of income tax Act. 3. The learned CIT(A) has erred in confirming the action of Assessing Officer in making addition of ₹ 68,895/- u/s 41(1) in respect of forfeited entries credited to reserve fund ignoring fact that the same is not taxable at all u/s 41(1) of the IT Act. 4. The learned CIT(A) has erred in co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of section 41(1) of the Act. The ground of appeal No.3 raised by the assessee is thus, dismissed. 45. The issue in ground of appeal No.4 is same as ground of appeal No.9 raised in ITA No.1154/PN/2011 and following the same parity of reasoning, we hold that sum of ₹ 13,760/- i.e. excess cash transferred to Reserve Account is assessable as income in the hands of the assessee and the ground of appeal No.4 raised by the assessee is dismissed. 46. The additional ground of appeal raised by the assessee is identical to the issue raised in the additional ground of appeal raised in ITA No.1154/PN/2011. The assessee during the year under consideration had taken over another bank i.e. Sanjivani Urban Co Operative Bank Ltd. and claimed loss of ₹ 2,49,30,262/- being the difference in deficit in assets over liabilities. Alternate plea was raised for allowing depreciation under section 32(1)(ii) of the Act by treating the same as intangible asset. Following the same parity of reasoning, we remit this issue also back to the file of CIT(A) to decide in line with our directions in ITA No.1154/PN/2011. Thus, the additional ground of appeal raised by the assessee is di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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