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TMI Blog2018 (1) TMI 1431X X X X Extracts X X X X X X X X Extracts X X X X ..... as assessee is in appeal before the Tribunal. ITA No. 308/VIZ/2017 4. The Revenue has raised the following grounds of appeal:- "1. The Order of the Ld.CIT(A)-1, Visakhapatnam is erroneous on facts and in law. 2. The Ld.CIT(A)- I, Vsp. erred in holding that the interest on share capital paid to members of the bank is an allowable deduction relying on the decision of the Hon'ble ITAT Vsp. in the assessee's own case for the A.Y.2007-08. 3. The Ld.CIT(A)-1, Vsp. ought to have appreciated that the assessee bank has allocated interest on share capital only upon determination of the surplus arising from the business i.e. Net Profit and therefore the same is nothing but appropriation of profits and it cannot be treated as a 'charge' on the income as claimed by the assessee. 4. The Ld.CIT(A)-1, Vsp. ought to have considered that such interest payment by the assessee bank to its members on the share capital component partakes the character of dividend and therefore, the same is not an admissible deduction as per the provisions of I.T.Act. 5. The Ld.C1T(A)-1, Vsp. erred in deleting the addition made on account of disallowance of interest paid to members of bank ul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round No.1 is general in nature, no adjudication is required. Grounds No. 2 to 4 are relating to single issue of interest on share capital paid to the members of the bank. 6. During the course of assessment proceedings, the Assessing Officer has noted that the assessee had debited an amount of Rs. 4,40,83,676/- towards interest on share capital. The Assessing Officer called upon the assessee to show cause as to why the said interest amount should not be treated as appropriation of profit and added to the total income. The assessee has submitted before the Assessing Officer that the said interest was paid annually to all the members as, it is bound to pay such interest as per the A.P. Mutually Aided Co-operative Societies Act 1995. The Assessing Officer after considering the explanation of the assessee has observed that the interest on capital paid to its members amounts to appropriation of profits and such interest is paid out of the surplus of profits and cannot be a charge on income and hence cannot be allowed as deduction. The Assessing Officer further observed that the ITAT, Visakhapatnam Bench has decided this issue in favour of the assessee for the Assessment Year 2007-08, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an expenditure incurred for carrying on the business. The Ld. CIT(A) by following the decision of the coordinate bench of the Tribunal in assessee's own case for the assessment year 2007-08 in ITA No.5/Vizag/2011 & 19/Vizag/2011 for A.Y. 2007-08 vide order dated 29.8.2011 has directed the A.O. to delete the addition made by him. It is submitted across the bar that the very same issue in the assessee's own case is pending before the Hon'ble High Court. In view of the above, by following the coordinate bench of the Tribunal, in view of the doctrine of precedent, we dismiss this ground of appeal raised by the Department." 12 In view of the above decision of the coordinate bench of the tribunal in assessee's own case, the facts are mutatis mutandis similar and therefore ld. CIT(A) by following the same, directed the Assessing Officer to delete the addition. Therefore, we find no infirmity in the order passed by the ld. CIT(A). Thus, these grounds of appeal raised by the revenue are dismissed. 13 Grounds No. 5 to 8 are relating to disallowance of interest paid to the members of the bank under section 40(a)(ia) of the Act. 14 In the assessment order, the Assessing Officer noted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14 by order dated 30/09/2016 and decided the issue in favour of the assessee. For the sake of convenience, the relevant portion of the order is extracted as under:- "43. In so far as another appeal filed by the revenue for the same assessment year i.e. 2010-11 vide ITA No.38/Vizag/2014 is concerned, the facts are in brief that the assessee has paid interest to various depositors and no TDS was deducted. The A.O. of the opinion that assessee being a cooperative society engaged in the banking business is under obligation to deduct the TDS on interest payment exceeding ` 10,000/- in view of the specific provision u/s 194A(3)(i)(b) of the Act and the assessee has failed to deduct TDS. Therefore, the A.O. has disallowed the claim of the assessee. The Ld. CIT(A) initially confirmed the order of the A.O. Subsequently, the assessee has filed a rectification u/s 154 of the Act dated 14.12.2013 and submitted that the very same issue has been considered by the CIT(A) as well as ITAT for earlier years and decided in favour of the assessee. The Ld. CIT(A) has considered the submissions of the assessee and directed the A.O. to delete the addition by observing as under: 5.2 I have considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 law, it would amount to mistake apparent from record and rectifiable u/s.154 of the I.T. Act. Further, it is noted that the assessee had relied on the CBDT circular No.9/2002 dtd.11.09.2002 and the decision of Bombay High Court in the case of Jalgaon District Central Co-operative Bank, in its appeal for A.Y.2007-08, which has been discussed and considered by the learned CIT(A) while deciding the assessee's appeal for A.Y.2007-08. The relevant extract of the CIT(A) order has been referred and discussed in the Hon'ble ITAT's order for A.Y.2007-08, (copy of which submitted as part of paper-book in the original appeal). Therefore, it cannot be said that this aspect was not considered by the Hon'ble ITAT while passing order in the assessee's appeal for A.Y.2007-08. 5.4 In view of the above discussion, I am convinced that the appellate order dtd.22.10.2013 suffers from mistake apparent from record and the mistake is rectified by substituting the following operative para in the place of the para 6.3, 6.4 & 6.5 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the available record it is clear that the actual expenditure was not incurred by the assessee and only a provision i.e., a contingent liability was made which may become payable at a future date. Contingent liabilities do not constitute expenditure and cannot be the subject matter of deduction even under the Mercantile system of accounting. The assessee claims that the premium amount was actually incurred. However, upon perusal of the assessee's reply it becomes clear that it is only contingent in nature. Expenditure which is deductible for income tax purpose is towards a liability actually existing at the time but setting apart money which might become expenditure on the happening of an event is not an expenditure. For determining whether there is an expenditure, it is necessary to see whether there is an existing liability to pay irretrievably. The expenditure may be allowed in the year, in which it is actually accrued or incurred by the assessee. Such provisions are not allowable under section 36 or 37 of I.T.Act, 1961. Hence, the same is disallowed and added back to the total income of the assessee." 24. On appeal, ld. CIT(A) directed the Assessing Officer to examine wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts. The latest guidelines of the RBI may be referred to for allowing any such claims. 7.3 In view of the CBDT Instruction in respect of investments classified under HTM category, the premium should be amortized over the period remaining to maturity. The AO may examine whether these securities are held under HTM category, and in such case the premium paid over the cost of acquisition may be amortized over the period of maturity and accordingly allowance may be granted. 28. From the above, we find that the ld. CIT(A) by following the decision of the coordinate bench of the tribunal in assessee's own case, directed the Assessing Officer to examine the issue and relief may be granted. We find no infirmity in the order passed by the ld. CIT(A). Thus, these grounds of appeal raised by the revenue are dismissed. ITA No. 176/VIZ/2017 29. The assessee has raised the following grounds of appeal:- "1, The order of the learned Commissioner of Income Tax (Appeals)-2 is contrary to the facts and also the law applicable to the facts of the case. 2. The learned Commissioner of Income Tax (Appeals) is justified in upholding the action of the assessing officer, in disallowing the amor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forward and set off of the accumulated loss and unabsorbed depreciation in case of business reorganization of cooperative banks. Sub-section (7) of section 72AB states as under: (a) accumulated loss" means so much of loss of the amalgamating co-operative bank or the demerged co-operative bank, as the case may be, under the head profits and gains of business or profession' (not being a loss sustained in a speculation business) which such amalgamating cooperative bank or the demerged cooperative bank, would have been entitled to carry forward and setoff under the pro visions of section 72 as if the business reorganization had not taken place. (b) "unabsorbed depreciation" means so much of the allowance for depreciation of the 'amalgamating cooperative bank or the demerged cooperative bank, as the case may be, which remains to be allowed and which would have been allowed to such bank as if the business reorganization had not taken place. It is not disputed that that Bobbili Bank got merged with assessee-bank is done as per the approval of RBI and Registrar of Co-operative Societies. Even then the allowance of brought forward losses/unabsorbed depreciation are covered by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved, assessee carried the matter in appeal before the Tribunal. 34. Ld. Counsel for the assessee has fairly submitted that the very same issue came up for consideration before the tribunal for earlier years. The tribunal has considered the issue in detail and confirmed the order of the Assessing Officer. 35. On the other hand, ld. Departmental Representative has supported the orders of the authorities below and prayed that the order passed by the Tribunal in assessee's own case may be followed. 36. We have heard both the sides, perused the material available on record and orders of the authorities below. 37. The only issue involved in this appeal is whether loss on account of merger of Ongole Cooperative Urban Bank and Ramachandrapuram Cooperative Urban Bank is allowable deduction or not. The similar issue has been considered by the coordinate bench of the tribunal in assessee's own case in ITA Nos. 444, 445 & 450/VIZ/2012 and ITA No. 726/VIZ/2013 & ITA Nos. 2 & 3/VIZ/2014 by order dated 30/09/2016, which is as under:- "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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim made by the assessee. So far as RBI guidelines with regard to the amortization of losses is concerned, in view of the specific provision provided by section 72AB of the Act, in our opinion, RBI guidelines cannot prevail over the Income Tax Act. We further observed that business losses and unabsorbed depreciation of amalgamating co-operative bank i.e. Bobbili Co-operative bank can be set off against the income of successor co-operative bank i.e. amalgamated co-operative bank (assessee) if the amalgamation is within the meaning of section 72AB of the Act. In the present case, the amalgamating company i.e. Bobbili Co-operative bank not filed return of income as required u/s 72AB of the Act. Therefore, the claim of the assessee cannot be allowed. We find that the Ld. CIT(A) has correctly decided the issue and disallowed the claim of the assessee. 10. So far as alternative ground raised by the assessee is concerned, according to the Ld. Counsel for the assessee, the excess of liabilities over the 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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