TMI Blog2016 (9) TMI 1465X X X X Extracts X X X X X X X X Extracts X X X X ..... essee carried matter in appeal before the CIT(A). CIT(A) confirmed the order of the A.O. by observing that the assessee is provided only provision for standard assets, but it is not the case of the assessee that any of these assets have become bad or non-recoverable. It is also not the case that any of these loans/assets are written off and the provision claimed by the assessee is not allowable deduction as per the of the Income Tax Act, 1961. Before us, the assessee has submitted that the claim of the assessee has to be allowed. We find no merit in the argument of the Ld. Counsel for the assessee for the simple reason that the assessee has made a provision for standard assets not on the non-performing assets. It is a mere provision. We find no reason to interfere with the order passed by the Ld. CIT(A). This ground of appeal raised by the assessee is dismissed. Loss on account of Bobbili branch merger - Held that:- The same cannot be allowed in the hands of the assessee’s case. CIT(A) correctly by considering the provisions of the Act disallowed the claim made by the assessee. So far as RBI guidelines with regard to the amortization of losses is concerned, in view of the specif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e A.O. has asked the assessee to furnish the details. The A.O. after considering the details submitted by the assessee, he has observed that as per the information available on record, it is not clear whether the assessee is contributing to the recognised gratuity fund or not, accordingly, the claim of the assessee of ₹ 60 lakhs was disallowed. On appeal, the CIT(A) by following the assessee’s own case for 2008-09, the order of the A.O. is confirmed and directed the A.O. to allow the deduction of the actual amount of gratuity paid during the year. TDS u/s 194A - Disallowance u/s 40(a)(ia) - TDS on the interest payment exceeding ₹ 10,000/-, in view of the specific provision contained in section 194A(3)(i)(b) - Held that:- When the assessee filed a rectification petition u/s 154 of the Act dated 4.12.2013, CIT(A) has corrected the order by considering the assessment year 2007-08 and relief was granted. Therefore, we find that this ground of appeal raised by the assessee has no merit and the same is dismissed. - I.T.A.No.444/Vizag/2012, I.T.A.No.445/Vizag/2012, I.T.A.No.449&450/Vizag/2012, C.O. Nos.5&6/Vizag/2013, I.T.A.No.726/Vizag/2013, I.T.A.Nos.2 & 38/Vizag/2014 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round of appeal raised by the assessee is general in nature. Thus, no adjudication is required, therefore, the same is dismissed. 4. Ground no.2 relating to provision for staff gratuity. In the assessment order, the A.O. has observed that from the profit loss account, it is seen that the assessee has claimed an amount of ₹ 20 lakhs as a provision for staff gratuity. This amount is debited to profit loss account but the same is accumulated under the head reserve for gratuity fund which shows that the actual payment was not made by the assessee. Therefore, the A.O. has disallowed the claim of the assessee. On appeal, the Ld. CIT(A) by following the case of District Cooperative Central Bank, Eluru, after considering the details filed by the assessee, he gave a categorical finding that payment made by the assessee towards unproved gratuity fund is not an allowable expenditure. The Ld. Counsel for the assessee has submitted before us that even provision is made for the staff gratuity it is an allowable expenditure. We find that there is no merit in the argument of the Ld. Counsel for the assessee for the reason that simply making a provision will not leads to allowable ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee bank took place as per the approval of RBI. The merger was also approved by the Registrar of Cooperative Societies. On 6.11.2007, the RBI policies did not promote fresh branch licenses as such, the banks expansion was not possible. The only option available for expansion was to acquire other urban banks which were not performing well. Therefore, the proposal for the merger of Bobbili Bank with the assessee bank was made and was accepted by RBI. Accordingly, the merger was effected in November, 2007 as per the financial position of Bobbili bank as on 14.11.2007. There were accumulated losses to the extent of ₹ 7,83,52,408/-. There was no consideration paid for acquisition of the Bobbili bank. This loss is amortized by the Bobbili bank for a period of 5 years as per the RBI guidelines. Therefore, the assessee claimed a deduction of ₹ 1,56,70,500/- being 1/5th of the accumulated losses. The same may be allowed. Before the CIT(A), the Ld. Counsel for the assessee also relied on this RBI letter dated 22.10.2007. The assessee also argued before the Ld. CIT(A) that the merger gave a new avenue of business to the assessee bank. The excess of liabilities over assets of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 09 dated 23.1.2014. 9. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The first argument raised by the assessee in respect of claim made by the assessee of ₹ 1,56,70,500/- as amortized loss on account of the merger of Bobbili branch with the assessee. In the course of the assessment proceedings, the A.O. has asked the assessee what is the basis for the claim. Before the A.O., the assessee is not able to justify in respect of claim made by the company as per the provisions of section 44DB 72AB of the Act. The A.O. has disallowed the same and added back to the total income of the assessee. On appeal, it was submitted before the Ld. CIT(A) that the merger of Bobbili bank with the assessee bank is as per the guidelines issued by the RBI, therefore, this loss has to be allowed. The Ld. CIT(A) by considering the RBI guidelines, he has observed that the Income Tax Act has a specific provision embedded for computing the deductions in the case of business re-organisation of Cooperative banks. Section 44DB of the Act deals with the details of such computation in the case of deduction under sections 32 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assets of Bobbili bank should be treated as the price paid for acquisition of a commercial/business asset which is a depreciable asset and it has to be treated as a goodwill. We find there is no merit in the argument of Ld. Counsel for the assessee. Goodwill means it is an intangible asset that arises as a result of acquisition of one company by another for a premium value. In this case, the assessee has not paid any amount to amalgamating company. The assessee has only taken losses of amalgamating company i.e. Bobbili Co-operative bank. Therefore, the assessee has not acquired any goodwill. The Ld. CIT(A) by considering the entire facts of the case has passed a detailed order by considering the provisions of law. In so far as case laws relied upon by the Ld. Counsel for the assessee particularly in the case of Cosmos Co-operative Bank Limited (supra) is entirely different facts and circumstances, therefore, we find no application to the facts of the present case. In so far as other case laws relied by the Ld. Counsel for the assessee also decided in a different facts and circumstances and therefore, we find no application to the facts of the present case. We find no reason to in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per the provisions of the A.P. Mutually Aided Cooperative Societies Act, 1995, the assessee has to allocate interest on share capital only upon determination of the surplus arising from the business i.e. net profit. This is nothing but appropriation of profits but not the expenditure incurred for carrying on the business and accordingly, he has disallowed and same is added back to the total income of the assessee. Assessee carried matter in appeal before the CIT(A). It was submitted before the Ld. CIT(A) that the issue involved in this appeal is covered by the coordinate bench of the Tribunal, in the assessee s own case in the assessment year 2007-08 and therefore, the same may be followed. 16. The Ld. CIT(A) after considering the explanation of the assessee, he has directed the A.O. to delete the addition by observing as under: 5. Ground No.2: Interest on share capital (Rs.1,57,53,620/-): Assessee debited an amount of ₹ 1,57,53,620/- towards interest on share capital. This interest represents the interest paid to members of the bank. Assessee, relying on section 16(1) of A.P. Mutually Aided Cooperative Societies Act 1995, claimed that the interest paid on share cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20. It is further submitted that a deduction has to be allowed as per the provisions of the Act. Income Tax Act does not permit interest payment to the members as an allowable expenditure. In fact it is not an expenditure at all incurred by the assessee, it is only an appropriation of profits. He has submitted that the order passed by the coordinate bench of the Tribunal does not constitute any precedent, therefore, same may not be followed and the order of the A.O. may be upheld. 21. The Ld. A.R. strongly supported the order passed by the CIT(A) as well as order of the ITAT in assesee s own case for A.Y. 2007-08. 22. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. In this case, the assessee has debited an amount of ₹ 1,57,53,620/- towards interest on share capital. It was submitted that as per the section 16 of the A.P. Mutually Aided Cooperative Societies Act, 1995, it is an allowable expenditure. The A.O. has not accepted the explanation of the assessee and he has observed that the assessee has to allocate the interest on share capital only upon determination of the surplus arising fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowed. On appeal, the CIT(A) by following the assessee s own case for 2008-09, the order of the A.O. is confirmed and directed the A.O. to allow the deduction of the actual amount of gratuity paid during the year. We find no infirmity in the order passed by the Ld. CIT(A) and the same is dismissed. 28. Ground no.5 is amortization of premium on Government securities. The same issue has been remitted back to the A.O. for the assessment year 2008-09 and therefore, the order of the CIT(A) is set aside and directed the A.O. to decide in accordance with law as per the directions given in assessment year 2008-09. This ground of appeal raised by the assessee is allowed for statistical purposes. 29. Ground no.6 is loss on account of merger. It is similar to the ground no.4 of the assessment year 2008-09. In view of our order in ITA No.444/Vizag/2012 for the assessment year 2008-09, this ground of appeal raised by the assessee is dismissed. 30. Ground no.7 is similar to that of ground no.5 for the assessment year 2008-09. In view of our decision above, the same is dismissed. 31. In view of the above, the appeal filed by the assessee in ITA No.445/Vizag/2012 is partly allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised in the assessment year 2008-09. In view of our decision for the A.Y. 2008-09, the order passed by the CIT(A) is set aside, directed the A.O. to decide the issue as per the above directions given for A.Y. 2008-09. This ground of appeal raised by the assessee is allowed for statistical purposes. 39. So far as ground no.6 raised by the assessee in this appeal is similar to the ground no.5 raised by the assessee for the A.Y. 2008-09. In view of our decision for the assessment year 2008-09, this ground of appeal raised by the assessee is dismissed. 40. In the result, the appeal filed by the assessee in ITA No.726/Vizag/2013 is partly allowed for statistical purposes. 41. In so far as revenue s appeal vide ITA No.2/Vizag/2014 for the A.Y. 2010-11 is concerned, the only issue raised is payment of interest on share capital whether it is an expenditure or appropriation of profits. This issue has already been considered in the revenue s appeal for the A.Y. 2008-09 in ITA No.449/Vizag/2012. In view of our decision above, this ground of appeal raised by the revenue is dismissed. 42. In the result, the appeal filed by the revenue in ITA No.2/Vizag/2014 is dismissed. 43. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g on the business of banking. 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 cooperative bank on or after 1st July, 1995. The Board has considered the matter and it is clarified that a member of a cooperative 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 the exemption granted vide clause (v) of sub-section (3) of the said section. The provisions of clause (vila) of the said sub-section are applicable only in case of a non-member depositor of the cooperative bank, who shall receive interest only on deposits other than time deposits made on or after 1st July, 1995 without TDs under section 194A. (emphasis underlined) Thus the circular clarifies that provisions of section 194A(3)(v) would prevail. 5.3 In view of the clarification given in the circular the view taken in the appellate order dtd.22.10.2013 suffers from mistake and, as such a view was taken without consideration of the above referred CBDT circular clarifying the position of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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