TMI Blog2016 (3) TMI 871X X X X Extracts X X X X X X X X Extracts X X X X ..... he balance was disallowed. The issue arising before us is identical to the issue before the Tribunal in assessment year 2009-10 and following the same parity of reasoning, we dismiss the ground of appeal No.1 raised by the assessee. Deduction claimed on account of amortization of premium in respect of HTM investments - Held that:- The assessee is entitled to the claim of deduction on account of amortization of premium paid on Government securities held in HTM category - Decided in favour of assessee. Treatment of interest income arising on Non-Performing Assets (NPAs) - Held that:- Interest accrued on NPAs is not taxable in the hands of assessee, in view of the guidelines issued by the RBI. Thus we hold that no addition is warranted on account of interest accrued on NPAs. See Vasantadada Nagari Sahakari Bank Ltd. case [2015 (1) TMI 1218 - BOMBAY HIGH COURT] - Decided in favour of assessee. Disallowance of loss on account of sale of Available for Sale (AFS) securities - Held that:- Loss arising on account of sale of AFS securities as per directions of the RBI is allowable in the hands of assessee.r. The perusal of assessment order reflects that while computing the assessed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrect. Hon CIT(Appeals) relied on the Instruction No.17 of 2008, in which CBDT interpreted the provision of section 36(1) (viia). Interpretation of statutory provision is beyond the power of CBDT. Therefore decision given by Hon. CIT(Appeals) on the basis of instruction of CBDT is wrong. The addition made please be deleted. 2. On the facts and in the circumstances of the case the learned CIT(Appeals) has erred in not allowing the deduction claimed on amortization of premium amounting to ₹ 28,40,605/- in respect of HTM Investments by ignoring CBDT s Instruction and various covered decisions of jurisdictional Tribunal. 3. The learned CIT(Appeals) erred on facts and law by adding amount of ₹ 53.47,812/- on account of interest on NPA accounts which is not recognized as income. Treatment of interest has been correctly made as prescribed by RBI. This being a covered issue, the learned CIT(Appeals) has ignored the jurisdictional Tribunal decisions on the issue. The addition of above amount on this account please be deleted. 4. On the facts and in the circumstances of the case the learned CIT(Appeals) has erred in disallowing the loss of ₹ 41,70,14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s made by the rural branches of the assessee bank. Section 36(1)(viia) of the Act provides that such deduction shall not exceed 7.5% of the total income (computed before making any deduction under this clause and Chapter VI-A of the Act) and an amount not exceeding 10% of the aggregate average advances made by the rural branches of the bank. By relying on section 36(1)(viia) of the Act, assessee being a Co-operative Bank, claimed a deduction of ₹ 1,70,40,528/- in its return of income on account of bad and doubtful debts relating to the advances made by the rural branches. It was noticed that as against the claim of ₹ 1,70,40,528/- made in the return of income, assessee had made a Provision for bad and doubtful debts of ₹ 66,22,634/- only in the books of account. For the said reason assessee s claim for deduction u/s 36(1)(viia) of the 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( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,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 enhancing the claim for deduction from ₹ 1,90,36,000/- to ₹ 1,94,21,000/-. The Assessing Officer restricted the deduction under Section 36(1)(viia) of the Act to ₹ 1,90,36,000/- only and disallowed the balance on the ground that in the books of account pertaining to the relevant assessment year, assessee had made a Provision for bad and doubtful debts of ₹ 1,90,36,000/- only. The assessee argued that the Provision of ₹ 1,90,36,000/- was made in the Balance-Sheet finalized 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 sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause. 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 pointed out that in all those cases, reserves/provisions had been made in the books of account of the same assessment year and not of the subsequent 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, theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r or the amount calculated as per provisions of section 36(1)(viia), whichever is less. is in line with the interpretation of the section rendered by the Hon ble Punjab Haryana High Court and cannot be said to be contrary to the provisions of the Act. Therefore, the reliance placed by the lower authorities on the CBDT Circular dated 26.11.2008 (supra) cannot be faulted. 14. Before parting, we may refer to the decision of the Hon ble Supreme Court in the case of Catholic Syrian Bank Ltd. (supra) relied upon by the assessee and also the decision of our co-ordinate Bench in the case of Jaysingpur Udgaon Sahakari Bank Ltd. (supra). We have carefully perused the said decision and found that the issue before the Hon ble Supreme Court in the case of Catholic Syrian Bank Ltd. (supra) was quite different; and, in any case none of the observations of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Representative for the assessee pointed out that the said issue is covered by the order of Tribunal in assessee s own case relating to assessment year 2009-10 (supra). 9. We find that similar issue of amortization on premium paid on Government securities arose before the Tribunal in assessee s own case relating to assessment year 2009-10 (supra), wherein the Tribunal decided the issue in favour of assessee. The Tribunal held as under:- 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 securities and the claim of the assessee was that the same was to be amortized over the remaining period of maturity of the securities. The claim of the assessee was based on the Master Circular dated 12.07.2006 issued by the Reserve Bank of India. The CIT(A) found it fit to admit such Additional Ground followi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure incurred on premium paid for securities held 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 remaining to maturity. He held that the claim of the assessee thus was as per RBI guidelines and CBDT Instruction which clarified that premium amortized over the period remaining to maturity was liable to be allowed as deduction. 10. At the time of hearing before us, the learned representati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded. The facts of that case were that the Assessee viz. M/s Reliance Utilities and Power Ltd. had invested certain amounts in Reliance Gas Ltd. and Reliance Strategic Investments Ltd. It was the case of the Assessee that they themselves were in the business of generation of power and they had earned regular business income therefrom. The investments made by the Assessee in M/s Reliance Gas Ltd. and M/s Reliance Strategic Investments Ltd. were done out of their own funds and were in the regular course of business and therefore no part of the interest could be disallowed. It was also pointed out that the Assessee had borrowed ₹ 43.62 crores by way of issue of debentures and the said amount was utilized as capital expenditure and inter-corporate deposit. It was the Assessee s submission that no part of the interest bearing funds (viz. Issue of debentures) had gone into making investments in the said two companies. It was pointed out that the income from the operations of the Assessee was ₹ 313.53 crores and with the availability of other interest free funds with the Assessee the amount available for investments out of its own funds were to the tune of ₹ 398.19 crores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t-free and over draft and/or loans taken, then a presumption would arise that investments would be out of the interest-free funds generated or available with the company if the interest-free funds were sufficient to meet the investment. In this case this presumption is established considering the finding of fact both by the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal. (emphasis supplied) 5. We find that the facts of the present case are squarely covered by the judgment in the case of Reliance Utilities and Power Ltd. (supra). The finding of fact given by the ITAT in the present case is that the Assessee's own funds and other non-interest bearing funds were more than the investment in the tax-free securities. This factual position is not one that is disputed. In the present case, undisputedly the Assessee's capital, profit reserves, surplus and current account deposits were higher than the investment in the tax-free securities. In view of this factual position, as per the judgment of this Court in the case of Reliance Utilities and Power Ltd. (supra), it would have to be presumed that the investment made by the Assessee would be ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit Loss Account for the captioned assessment year. The claim of the assessee in this regard was that in view of RBI guidelines, the said interest income on NPAs was to be recognized, but not to be offered to tax. However, the Assessing Officer was of the view that where the assessee was following mercantile system of accounting, the interest accrued on NPAs is to be added in the hands of assessee and addition to that extent was made in the hands of assessee. 14. The CIT(A) upheld the order of Assessing Officer, against which the assessee is in appeal. 15. The learned Authorized Representative for the assessee at the outset pointed out that the issue raised in the present appeal is squarely covered in favour of the assessee by the order of Tribunal in assessee s own case for assessment year 2009-10. 16. We find that similar issue as before us arose in Kolhapur Mahila Sahakari Bank Ltd. Vs. ITO in ITA No.01/PN/2013, relating to assessment year 2009-10, vide order dated 29.01.2014. The Tribunal in turn following the ratio laid down by the Pune Bench of Tribunal in ACIT Vs. Osmanabad Janta Sahakari Bank Ltd. in ITA No.795/PN/2011, order dated 3 1.08.2012, held as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A No.794/PN/2011, (iii) ACIT (Central) V/s Latur Urban Co-operative Bank Ltd. ITA No.792/PN/2011 and (iv) Asst. CIT, Circle-1 V/s Deogiri Nagari Sahakari Bank Ltd. ITA No.817 1114/PN/2011. 17. Further, the Hon ble Bombay High Court in CIT Vs. (1) Deogiri Nagari Sahakari Bank Ltd. (Income Tax Appeal No.53 of 2014), (2) Peoples Co - operative Bank Ltd. (Income Tax Appeal No.54 of 2014), (3) Nanded District Central Co-op. Bank Ltd. (Income Tax Appeal No.57 and 58 of 2014) and (4) Vasantadada Nagari Sahakari Bank Ltd. (Income Tax Appeal No.68 of 2014) reported in (2015) 379 ITR 24 (Bom) has laid down the proposition that the interest accrued on NPAs is not taxable in the hands of assessee, in view of the guidelines issued by the RBI. 18. Following the same parity of reasoning, we hold that no addition is warranted on account of interest accrued on NPAs. Accordingly, we reverse the order of CIT(A) in this regard. The ground of appeal No.3 raised by the assessee is thus, allowed. 19. The issue in ground of appeal No.4 is against disallowance of loss of ₹ 41,70,140/- on account of sale of Available for Sale (AFS) securities. 20. Briefly, in the facts relating to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... towards Investment Depreciation Reserve, against which, it had claimed the deduction in the computation of total income on account of net loss of ₹ 41,70,140/-, an error had crept in the order of CIT(A). It was further pointed out by the learned Authorized Representative for the assessee that the issue in the present appeal is squarely covered by the order of Tribunal in Kallapanna Awade Ichalkaranji Janata Sah. Bank Ltd. Vs. DCIT in ITA Nos.1765 1766/PN/2013, relating to assessment years 2007-08 2010-11, order dated 20.05.2015, wherein the Tribunal had relied on the CBDT Instruction No.17/2008, dated 26.11.2008 and also made reference to Circular No.665, dated 05.10.1993 for the proposition that the AFS investments which are non-SLR constitute stock-in-trade and therefore, loss arising to the assessee were business loss. 23. The learned Departmental Representative for the Revenue on the other hand, relied on the orders of authorities below. 24. We have heard the rival contentions and perused the record. The issue raised by the assessee vide ground of appeal No.4 is against the disallowance of loss on sale of AFS securities i.e. Available For Sale securities. The ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction on account of loss of ₹ 41,70,140/- arising on sale of AFS investments. The ground of appeal No.4 raised by the assessee is thus, allowed. 27. The issue raised in ground of appeal No.5 is against the addition made on account of disallowance of contribution to Education Fund of ₹ 30,000/-. 28. The learned Authorized Representative for the assessee pointed out that every cooperative society is required to contribute to the aforesaid Education Fund of the State Government and the same is allowable as deduction. However, the Assessing Officer denied the said claim of the assessee as the assessee had made a provision and had not paid the said amount. The CIT(A) confirmed the order of Assessing Officer and observed that there is no merit in the claim of the assessee since the provisions of section 43B of the Act are attracted. 29. The learned Authorized Representative for the assessee pointed out that the said claim is allowable in the hands of assessee, in view of decision of Hon ble Bombay High Court in Krishna Sahakari Sakhar Karkhana Ltd. Vs. CIT (1998) 229 ITR 577 (Bom). 30. The learned Departmental Representative for the Revenue placed reliance on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee had failed to create a special reserve in its books of account out of eligible profits of the year and in view thereof, the assessee was not entitled to the claim of benefit of deduction under section 36(1)(viii) of the Act in view of the ratio laid down by the Pune Bench of Tribunal in Shree Sharada Sahakari Bank Ltd. Vs. ITO (supra), wherein, it was held as under:- 15. The case of the assessee before us is that admittedly it had not created any reserve in its books of account before claiming the said deduction under section 36(1)(viii) of the Act on the surmise that no such reserve is to be created in view of wording of the section. We find no merit in the said plea of the assessee in view of the similar wordings in section 36(1)(viia) of the Act which have been interpreted by the Hon ble Punjab Haryana High Court in the case of State Bank of Patiala vs. CIT (supra) which, in turn, has been applied by the Pune Bench of the Tribunal in the case of Shri Mahalaxmi Coop. Bank Ltd. vs. ITO (supra). In the absence of any reserve being created the assessee is not entitled to the said claim of deduction under section 36(1)(viii) of the Act. The second aspect of the is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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