TMI Blog2019 (6) TMI 1425X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Amortization of Premium - HELD THAT:- As decided in own case [ 2018 (5) TMI 1867 - ITAT AHMEDABAD] the allowability of amortized expenses on premium on Government Securities has been provided u/s. 36(1)(ii) of the provisions have been clarified and explained by CBDT, New Delhi vide Instruction No. 17 of 2008 dated 26.11.2008. As per this clarification, investments of banks classified under HTM (Held to Maturity) category need not be marked to market and are carried at acquisition cost unless these are more than the face value, in which case, the premium should be amortized over the period remaining to maturity. On the basis of this Instruction, different Tribunals, as mentioned above by assessee, have allowed the amortized expenditure. The AO has ignored the provisions of Instruction which is binding on him while discussing the issue and disallowing the expenditure. Since, the Instructions and Circulars are binding in nature on AOs and different Tribunals have given decisions against the revenue, respectfully following the same, ground of appeal of assessee is allowed and addition made by AO is deleted. Disallowance on account of interest accrued on non performing assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored to the above extent. The appellant craves, to leave, to amend or alter any ground or add a new ground which may be necessary. 2. The assessee, a Co-operative Bank filed its return of income on 12.09.2014 declaring total income of ₹ 80,14,86,735/-. Under scrutiny through CASS notice u/s 143(3) of the Act dated 28.08.2015 was issued followed by a further notice dated 17.06.2016 u/s 142(1) r.w.s. 129 of the Act due to change of incumbent. The assessment proceeding was finalized with the following additions: Returned Income ₹ 80,14,86,735/- Additions: 1) Disallowance of Business Promotion Members Gift, scholarship expenses and payment to legal heirs of the members ₹ 31,98,772/- 2) Amortization Expenses of Premium amounting ₹ 3,15,81,243/- 3) Addition of an account of Interest accrued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee was allowed by the Learned CIT(A) in assessee s own case for A.Y. 2008-09, confirmed by the Hon ble Tribunal, which was taken care of by the Learned CIT(A) in his operative part of the order; the relevant portion whereof is as follows: 4. I have carefully considered the submissions made by the appellant and the assessment order. The first issue is regarding disallowance of business promotion members gift, scholarship expenses and payment to legal heirs of the members amounting to ₹ 31,98,7762/-. The similar issue came up before the Hon'ble ITAT, Ahmedabad C Bench in the appellant s own case for A.Y. 2008-09. After discussing the issue in detail, the Hon'ble ITAT has held as under:- 5.4 We have heard both sides, perused the material available on record and gone through the orders of the authorities below. The main source of income of the assessee is that of receipt of I interest realized on the advance made by the bank and out of the total advance outstanding at the end of the year at ₹ 735.65 crores, advances to the members works out to be ₹ 722.36 crores which comprises more than 98% of total advances. The principal sour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to incur these expenditure but the assessee had incurred it for preserving business connection and goodwill of the business. Therefore, in view of above findings, we allow the aforesaid expenditure as business expenditure under Section 37 of the Act. 4.1 Since the issue has already been decided against the Revenue by the Hon'ble ITAT, Ahmedabad Bench, respectfully following the order of Hon'ble ITAT, the addition made by the A.O on this account is deleted. This ground of appeal is allowed. We have also find that the said order has been affirmed by the Jurisdictional High Court in revenue s Appeal No. 596 of 2017; the tax appeal preferred by the Revenue was found to be devoid of merit by the Hon ble Jurisdictional High Court, relevant portion whereof is as follows: 3. It can thus be seen that the Tribunal accepted the assessee's version that the expenditure was incurred for the purpose of business to maintain goodwill and continuity of business being provided by important members. It was pointed out that these members had provided for nearly 98% of the bank's business and the expenditure was marginal as compared to the interest realis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not in the nature of expenditure of loss but more in the nature of capital and is not allowable u/s 37 of the Act. Ultimately, the said amount of ₹ 3,15,81,243/- was added to the income of the assessee which was in turn deleted by the Learned CIT(A) in appeal, hence the revenue before us. 7. At the time of hearing of the instant appeal, the Learned Senior Counsel appearing for the assessee submitted before us that the issue is entirely covered by the assessee s own case for A.Y. 2013-14 which followed the order passed in A.Y. 2012-13. In fact, the order passed by the Learned CIT(A) for A.Y. 2012-13 was further affirmed by the Co-ordinate Bench; copy whereof has been also submitted by the Learned AR before us. The Learned DR, however, failed to controvert the arguments advanced by the Learned Senior Counsel appearing for the assessee. 8. Heard the respective parties, perused the relevant materials available on record. It appears from the records that while deleting the addition made by the Learned AO, the Learned CIT(A) observed inter alia as follows following the order passed by his predecessor. Relevant portion whereof is as follows: 6. Aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the identical issue in favour of the assessee the Hon ble Co-ordinate Bench observed as follows: 10. We have heard the rival contentions and perused the material on record carefully. The assessee has made investment in the HTM category as per the guidelines laid down by the RBI and claimed amortization of premium till the period maturity. The assessing officer has disallowed the claim following the similar addition made by his predecessors on the ground that the premium amount paid for acquiring the capital investment cannot be allowed as deduction expenditure. The ld. CIT(A) has deleted the addition by following the decision of his predecessors. We have noticed that as per RBI guidelines dated 16th Oct, 2000, the investment portfolio of the bank is required to be classified under three categories viz. Held to Maturity (HTM), Held for Trading (HFT) and Available for Sale (ATS). Investment classified under HTM category needs to be marked to market and are carried at acquisition cost unless these are more than the face value in which case the premium should be amortized over the remaining period. Allowable of amortized expenses on premium on government securities has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wever, provisions of section 43D is for the Interest accrued on Non Performing Assets (NPA). Further, you have mentioned that Interest accrued on Non Performing Assets (NPA) is of ₹ 1,20,75,66,875/- but it is a cumulative balance of interest accrued on NPA accounts and breakup of the same is as under. Cumulative balance as on 31/03/2014 ₹ 1207566875 Less: Additions made in AY 2013-14 ₹ 795737478 (Disputed in Appeal) Current year's interest accrued on NPA accounts ₹ 411829397 So if at all you propose to disallow and add back an amount of interest accrued on NPA, it should be ₹ 41,18,29,397 only and not as propose in the notice. Regarding Non-applicability of Provisions of Section 43D non considering interest accrued on NPA account as income, your assessee respectfully submits as under. 1. Your Assessee is a schedule Bank and Provisions of Section 43D of the IT. Act. reads as under. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r i.e. AY 2013- 14, where in for the first time learned assessing officer has made additions of ₹ 79,57,37,478 and the matter is pending before the CIT (A), Ahmedabad and same is partly heard. Even for making said addition, the learned assessing officer heavily relied upon the incorrect observation that the assessee is not a Schedule Bank . The learned Assessing Officer further agreed that had it been schedule bank it would have been otherwise now for the year under reference your good self have categorical inquired about the status of the assessee bank (Which your predecessor had, not) and your assessee has produced a copy of Gazette published by the authority recognizing assessee bank as a Schedule Bank since September 1, 1988. In view of the clear provisions of Sec. 43D of the I. T. Act, 1967 ns clarified, here in above, it is humbly requested not to make such addition as alleged and save your assessee from facing uncalled for pressure of paper demand. Kindly refer to Income\Recognition Policy contains in Master Circular issued by the RBI dated July 1, 2015 relating to Income Recognition, Asset classification provisioning and other related ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of non performing asset shows an asset (loan or advance) becomes non performing when it ceases to yield income, Non per forming asset is an asset in respect of which interest has remained unpaid and has become past due. Once a particular asset is shown to be a non performing asset then the assumption is it is not yielding any revenue and even principal repayment is doubtful. When it is not yielding any revenue, the question of showing that revenue and paving tax would not arise. 3. Your assessee rely upon the following decision - (Annexure C) The Sindagi Urban Co. Op. Bank Vs. Department of Income Tax ITAT, Banglore Commissioner of Income Tax Vs. Shri Siddeshwar Co. Operative Bank Ltd. - Karnataka High Court Commissioner of Income Tax Vs. Can/In Homes ltd. - Karnataka High Court Relevant Documents regarding to aforesaid matter is being appended herewith. However, such submission of the assessee was not accepted by the Learned AO and he was of the view that the Circular issued by the RBI which has been relied upon by the assessee was of no impact on the computation of taxable income under the Income Tax Act. The directi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as bad debts but carried, the interest amount to the interest 'Suspense Account' Mere crediting of the said interest amount to, what it called the 'Interest Suspense Account', without treating it as bed debts or irrecoverable interest, was repayment to section 36(1)(vii) and section 32(3)of the Act and that the concept of real income does not help the appellant-bank . It was observed the concept of real income cannot be so read as to defeat the object and the provision of the Act. Sabyasachi Milkharaji J, in his opinion, discussed all the relevant cases on the subject including Morin Industries Ltd's case(Supra) and Biral Gwalior(P) Ltd's case (Supra) as well as the decision of this court in Shooji Vallabhdas and Co's case (supra) and stated the proposition emerging therefrom in the following words: .... (1) It is the income which has really accrued or arisen to the assessee that the taxable whether the income has really accrued or arisen to the assessee must be judged in the light of the reality of the situation. (2) The concept of real income would apply where there has been a surrender of income which in theory may have accrued but in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve that the concept of real income should not be so read as to defeat the provisions of the Act and to make accrued income no income on the mere ipse dixit to the assessee. The Apex Court also held that the concept of real income must be applied with extreme caution and that it should not be extended to the areas where it has no application. In the case on hand, it is not in dispute that the assessee was following mercantile system of accounting and therefore the interest income on the advances including NPAs accrued to the assessee u/s 5 r.w.s 145 of the I.T. Act and the case of the assessee is not covered by section 43D. In such, a situation, the concept 01 reality of income cannot be utilized for whittling down or nullifying the provision of section 5 of the I.T. Act. Under section 5, income has accrued to the assessee during the year and accordingly entries to that effect were made in the books of accounts of the bank and shown in the balance sheet even, if the realization of the interest amount is delayed. Therefore, it cannot be said that what is assessed is notional income or hypothetical income or unreal income. 5.10 To sum up, RBI guideline have been issued under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arefully considered the order passed by the Jurisdictional High Court as cited above where the Hon ble High Court observed as follows: 2. Respondent assessee is a cooperative bank. For the assessment year 2010-11, the assessee had filed the return of income on 14-102010 declaring total loss of ₹ 3.22 crores (rounded off). The return was taken in scrutiny. During such scrutiny assessment, one of the issues examined by the Assessing Officer was of the assessee's claim of deduction of ₹ 93.03 lakhs. The Assessing Officer noticed that the P L account, the assessee had debited the said sum under the head reserve for overdue interest . The Assessing Officer called upon the assessee to explain this, in response to which, the assessee conveyed that the assessee is a cooperative bank governed by the Gujarat Cooperative Societies Act, 1961, Banking Regulations Act, 1949 and the rules and regulations framed by the Reserve Bank of India ('RBI' for short), as per which, it is mandatory for the bank to follow directives issued by the RBI. During the year under consideration, the bank had made a provision for overdue interest of ₹ 93.03 lakhs against in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Supreme Court in case of Southern Technologies Limited v. Joint CIT [2010] 187 Taxman 346/320 ITR 577 was not examined. In the said judgment, the Supreme Court has held that the RBI directives would not govern the taxability a certain receipt. 7. On the other hand, learned advocate Shri Darshan Patel and Shri Bandish Soparkar appearing for the assessees submitted that the bank was bound by the RBI directives, as per which, the bank would have to make 100% provision for the entire overdue interest on NPA. The account having become non performing account, there was little chance of recovering even the principal sum. Merely because the interest goes on accruing, the same cannot be taxed even though the possibility of recovering interest was almost nonexistent. Learned advocate submitted that various Courts have taken a similar view and granted the deduction on the principal of taxing real income. Our attention was drawn to the decision of Division Bench of this Court in case of Pr. CIT v. Shri Mahila Sewa Sahakari Bank Ltd. [2016] 72 taxmann.com 117/242 Taxman 60/[2017] 395 ITR 324 (Gujarat) in which the said issue came up for consideration. 8. In our opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X
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