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2016 (3) TMI 910 - ITAT PUNE

2016 (3) TMI 910 - ITAT PUNE - TMI - Addition on account of accrued interest on Non Performing Assets u/s 43D - CIT(A) deleted the addition - Held that:- Hon’ble Bombay High Court in CIT Vs. M/s. Deogiri Nagari Sahakari Bank Ltd. [2015 (1) TMI 1218 - BOMBAY HIGH COURT ] 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. No addition is warranted on account of interest accrued on NPAs. Accordingly, w .....

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assessee - ITA No.934/PN/2015, ITA No.615/PN/2015 - Dated:- 10-2-2016 - MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA, AM For The Appellant : Shri Dheeraj Kumar Jain For The Respondent : Shri Sunil Ganoo, Shri S.N. Puranik ORDER PER SUSHMA CHOWLA, JM: Both the appeals filed by Revenue relating to different assessee s are against separate orders of CIT(A)-7, Pune, dated 24.03.2015 and 10.02.2015 relating to assessment year 2011-12 against respective orders passed under section 143(3) of the I .....

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to Financial Institutions and a Scheduled Bank. The assessee being a non-scheduled bank provision of section 43D would not apply. 3. The learned Commissioner of Income-Tax (Appeals) has grossly erred in interpreting the provisions of section 145 of the Income Tax Act, 1961 under which the assessee is not allowed to use the Mixed or Hybrid System of accounting. 4. The learned Commissioner of Income-Tax (Appeals) has grossly erred in appreciating the decision of Supreme Court in the case of Southe .....

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ditions of the Circular (a) The assessee should be Banking Company. (b) Such interest should have remained uncovered for consecutively for three previous years. 6. The learned Commissioner of Income-Tax (Appeals) erred in deleting the addition of ₹ 4,60,592/- made by the Assessing Officer on account of amortization premium on Government Securities without appreciating that the securities held under "Held to Maturity" (HTM) are in the nature of capital assets and for the purpose o .....

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are permanent securities in the nature of capital assets and the same cannot be segregated from the cost and claimed as deduction. 8. The learned Commissioner of Income-Tax (Appeals) should have appreciated that the CBDT instruction No.17/2008 was issued prior to the decision of the Apex court in the case of Southern Technologies Limited Vs. JCIT 320 ITR 577 (SC) wherein it is held that the RBI Guidelines or prudential norms issued by RBI are not intended to regulate income tax laws. There is n .....

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urse of appellate proceedings before the Hon ble Tribunal. 3. The issues arising in both the appeals are identical. However, we proceed to adjudicate the issues by making reference to the facts in ITA No.934/PN/2015. 4. The issue in grounds of appeal No.1 to 5 raised by the Revenue is in relation to the order of CIT(A) in deleting the addition made on account of accrued interest on Non-Performing Assets (NPAs) . 5. Briefly, in the facts of the present case, the assessee is a cooperative bank eng .....

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hat 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. 6. The CIT(A) deleted the addition made by the Assessing Officer, against which the Revenue is in appeal. 7. 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 in view of the rat .....

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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 31.08.2012, held as under:- 2. The assessee is a Co-operative Bank engaged in the business of accepting deposits from members and giving loans to members. It has filed its return of income on 11.09.2009 for the year under consideration declaring total .....

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I.T. Act for the reasons (i) benefits extended to schedule bank, public financial institutions, public companies for the purpose of section 43D were not extended to a co-operative bank and (ii) the assessee was following mercantile system of accounting and not cash system. Ultimately the Assessing Officer taxed on accrued interest of ₹ 25,20,022/- advance claimed to be NPA account. The matter was carried before the first appellate authority wherein, following the Osmanabad Janta Sahakari .....

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it & 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 ground is dismissed. The above decision has been follo .....

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sition that the interest accrued on NPAs is not taxable in the hands of assessee, in view of the guidelines issued by the RBI. 10. Following the same parity of reasoning, we hold that no addition is warranted on account of interest accrued on NPAs. Accordingly, we uphold the order of CIT(A) in deleting the addition made on account of interest accrued on NPAs. The ground of appeal No.1 raised by the Revenue is dismissed. 11. The issue in grounds of appeal No.6 to 8 raised by the Revenue is in rel .....

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dated 07.01.2015. 13. We find that similar issue has been decided by the Hon ble Bombay High Court in CIT Vs. HDFC Bank Ltd. in Income Tax Appeal No.330 of 2012, dated 23.07.2014 in favour of the assessee. The Hon ble Bombay High Court has held as under:- 4. We do not agree. In the case at hand, as recorded by the ITAT, undisputedly the Assessee s own funds and other non-interest bearing funds were more than the investment in the tax free securities. The ITAT therefore held that there was no bas .....

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r Mistry, the learned Senior Counsel appearing on behalf of the Assessee, that this issue is squarely covered by a judgment of this Court in the case of Commissioner of Income Tax v/s Reliance Utilities and Power Ltd., reported in (2009) 313 ITR 340 (Bom) is well founded. 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 themse .....

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diture 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. In view thereof, it was submit .....

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and dismissed the Appeal of the Revenue. From the order of the ITAT, the Revenue a pproached this Court by way of an Appeal. After examining the entire factual matrix of the matter and the law on the subject, this Court held as under:- If there be interest-free funds available to an assessee sufficient to meet its investments and at the same time the assessee had raised a loan it can be presumed that the investments were from the interest-free funds available. In our opinion, the Supreme Court .....

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ntitled to claim the deductions. The Supreme Court noted that the argument had considerable force, but considering the fact that the contention had not been advanced earlier it did not require to be answered. It then noted that in Woolcombers of India Ltd.'s case (1982) 134 ITR 219 the Calcutta High Court had come to the conclusion that the profits were sufficient to meet the advance tax liability and the profits were deposited in the over draft account of the assessee and in such a case it .....

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d 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 Asses .....

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t the investment made by the Assessee would be out of the interest-free funds available with the Assessee. We therefore, are unable to agree with the submission of Mr Suresh Kumar that the Tribunal had erred in dismissing the Appeal of the Revenue on this ground. We do not find that question (A) gives rise to any substantial question of law and is therefore rejected. 6. Even as far as question (B) is concerned, we find no infirmity in the orders passed by the CIT (Appeals) or the ITAT. In decidi .....

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