TMI Blog2022 (9) TMI 833X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed for statistical purpose. Addition on account of accrued interest on NPA - HELD THAT:- We are of the opinion that the assessee who is into banking activities has to follow RBI Guidelines and we do not find any error with the assessee in offering the interest on NPA for taxation in the assessment year relevant to such financial year of recovery. AO/CIT(A) have committed an error in disallowing Rs. 52,20,914/- on account of interest on non performing assets. Accordingly, ground of Appeal No. 2 of the assessee is allowed. Disallowance on account of amortization of premium on government securities - HELD THAT:- Disallowance of amortization premium for the Assessments Year 2010-11 and 2011-12 has been also mentioned by the A.O in the Assessment order, but has not followed the consistency. Apart from the same as per the RBI Guidelines dated 16/10/2000, 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 Sales (AFS). Investments classified under HTM category need not be marked to market and are carried at acquisition cost unless these are more than the face value, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest in FDR s Non Members Rs.7396057/- Rs. 17227362/- 2. That the AO has erred in facts and law in making addition of Rs. 5220914/- on account of interest on non-performing assets and the Learned CIT has further erred in confirming the said addition. 3. That the AO has erred in facts and law in disallowing the amount on Rs. 192041/- on account of amortization of premium on Government Securities and the Learned CIT appeal has further erred in confirming the said addition. 3. Brief facts if the case are that, the assessee is a co-operative society carrying on the business of providing credit and deposits facilities. The assessee filed return of income declaring the total income of Rs. 1,76,68,630/-. The case of the assessee was selected for scrutiny, assessment proceedings have to been initiated. The Assessing Officer has passed the assessment order passed by computing the incomes of the assessee as under:- S.No. Particulars (Amount in ?) Income as per computation filed by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed above. 6. The Ld. Counsel for the assessee submitted that, there is no liability to deduct the TDS on interest paid on saving bank accounts (-of Rs. 69,73,450/-) as per the provisions contained u/s 194A of the Act. The said fact as been duly accepted for Assessment Year 2014-15 and no addition was made in the said assessment order. Further submitted that, in so far as interest on compulsory deposit of Rs. 16,76,968/-, the TDS provisions were applicable on interest paid on the term deposits only, but not on compulsory deposits and there is no liability to deduct TDS on interest. Further submitted that, the said fact has been accepted by the Ld. A.O while framing assessment order of the assessee bank for the Assessment Year 2014-15 and no addition was made in the said assessment order. Further contended that, the deduction of TDS on interest the interest paid on recurring deposit was introduced by the Government w.e.f 1st June 2015 only, which is having prospective effect, which is not applicable for the year under consideration. Therefore submitted that, the said addition of Rs. 11,80,882/- deserves to be deleted. Further, brought to our notice that the Ld. A.O has accepted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest on recurring deposits are concerned, the Ld.CIT(A) has invoked explanation 1 to the Sub Section 3 of Section 194 A, but failed to note that the said amendments having prospective effect from 1st June, 2015. Since, the year under consideration is Assessment Year 2013-14 the said explanation 1 to the Sub Section 3 of Section 194 A is not applicable. Therefore, in our considered opinion, interest on recurring deposits of Rs. 11,80,887/- also deserves to be deleted. 12. Further, in so far as interest on FDR s non members of Rs. 73,96,057/- is concerned, the assessee has provided following details of interest of FDRs on non members paid during the year under consideration which are reproduced hereunder:- a. Interest above Rs. 10,000/- paid to staff members. Rs. 14,69,730/- b. Interest above Rs. 10,000/- paid to others Rs. 48,90,136/- c. Interest on which TDS has been deducted Rs. 10,36,191 Rs. 73,96,057/- 13. It is found that the Ld.CIT(A) has confirmed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. 17. In our opinion, the Department cannot make difference between banking companies/nationalized bank and the cooperative societies engaged in the business of banking activities while treating the accrued interest on NPA since the RBI Circular/guidelines for recognization of income from NPA is also applicable to the cooperative societies which are into banking activities. 18. In the case of Vaish Cooperative Adarsh Bank Ltd., vide order dated 16/10/2015 in ITA No. 3310/Del/2012 the Coordinate Bench of the Tribunal has held as under:- Against the above order, revenue is in appeal before us. We have heard both the counsels and perused the records. We find that the interest in this case was due on non-performing assets (NPA). As per the RBI guideline in this regard, interest on NPAs is not to be recognized. Accounting standard 9 issued by the Institute of Chartered Accountant of India also provides that income is to be recognized only when there is some reasonable certainty about the receipt of the income. We, further, find that this view is also supported by the decisions, as mentioned above. We find that in the case of CIT Vs. Elgi Finance Ltd. 293 ITR 357, Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bjective and based on the record of recovery. Income from non-performing assets (NPA) is not recognized on accrual basis but is booked as income only when it is actually received. Therefore, banks should not take to income account interest on non-performing assets on accrual basis. 9. It is pertinent to mention that all cooperative banks including the assessee are bound to follow RBI Circular (supra) for recognition of income from NPA and in derivation therefrom may create serious problems for the violating bank. Hence, conclusion of the AO was not correct that RBI guidelines/Circulars are not binding on the income tax authorities. Per contra, when the assessee cooperative bank is following income recognition policy set out by the RBI, then it cannot be compelled to follow other method of recognition and income tax authorities have to consider this aspect before making any disallowance or addition in this regard. 10. At this point, we respectfully take cognizance of the judgment of coordinate bench of Delhi 'H' Bench dated 21.6.13 in asessee's own group cooperative bank case (supra) wherein it has been expressly held that as per RBI guidelines, the inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioned by the A.O in the Assessment order, but has not followed the consistency. Apart from the same as per the RBI Guidelines dated 16/10/2000, 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 Sales (AFS). Investments classified under HTM 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. In the case of HFT and AFS securities forming stock in trade of the bank, the depreciation/appreciation is to be aggregated scrip wise and only net depreciation, if any, is required to be provided for in the accounts. 22. Therefore, by considering the facts and circumstances of the case, in our opinion, the disallowance of Rs. 1,92,041/- on account of democratization of premium of government securities is deserves to be deleted. Accordingly, we allow Ground No. 3 of the assessee. 23. In the result, the Appeal of the assessee is partly allowed for statistical purpose. Order pronounced in the open court on 15th September , 2022 - ..... 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