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2015 (1) TMI 1218 - HC - Income TaxUnclaimed dividend - method of accounting - Held that - Unclaimed dividend in question amounts to excess provisions for dividend made by the Assessee on an earlier occasion which has been reversed by the Assessee in the year under consideration and transferred to a reserve account. The provisions for dividend made earlier was not a charge action profits but it was appropriation of the profits available post taxation.
Issues Involved:
1. Deletion of additions on account of interest on sticky advances in the income tax assessments of Cooperative Banks. 2. Applicability of Section 43D of the Income Tax Act to Cooperative Banks. 3. Applicability of CBDT Circular No.F201/81/84 ITAII dated 09.10.1984 to Cooperative Banks. 4. Treatment of forfeited dividend in income tax assessments. Detailed Analysis: 1. Deletion of Additions on Account of Interest on Sticky Advances: The primary issue in these appeals revolves around the deletion of additions made by the Assessing Officer on account of interest on sticky advances. The Assessing Officer had observed that Section 43D of the Income Tax Act, which deals with special provisions regarding interest on sticky advances, is not applicable to Cooperative Banks as they are not scheduled banks. The Assessing Officer also held that CBDT Circular No.F201/81/84 ITAII dated 09.10.1984 applies only to banking companies and not to non-scheduled banks and cooperative banks. 2. Applicability of Section 43D of the Income Tax Act: The Revenue argued that the special provisions of Section 43D of the Income Tax Act do not apply to Cooperative Banks, as they are not scheduled banks. The Revenue contended that Cooperative Banks must follow either the Mercantile system of accounting or the Cash system, as per Section 145 of the Income Tax Act, and cannot adopt a mixed system of accounting. They further argued that RBI directions under the RBI Act are prudential norms and do not affect the computation or taxability of provisions for NPA under the Income Tax Act. 3. Applicability of CBDT Circular No.F201/81/84 ITAII: The Revenue also contended that the CBDT Circular No.F201/81/84 ITAII dated 09.10.1984, which provides guidelines for recognizing interest on sticky advances, is not applicable to Cooperative Banks. However, the Tribunal referred to the Supreme Court's decision in the case of Uco Bank, Calcutta Vs. Commissioner of Income Tax, West Bengal, which held that such circulars are binding on the authorities and ensure fair enforcement of the law, thereby mitigating undue hardship to the assessee. 4. Treatment of Forfeited Dividend: In Income Tax Appeal Nos. 53/2014 and 54/2014, an additional issue was raised regarding the addition made by the Assessing Officer representing the forfeited dividend. The Tribunal observed that the unclaimed dividend in question amounted to excess provisions for dividend made by the Assessee on an earlier occasion, which was reversed and transferred to a reserve account. The Tribunal held that the provision for dividend was not a charge on profits but an appropriation of profits available post-taxation. Conclusion: The Tribunal upheld the CIT(A)'s decision to delete the additions on account of interest on sticky advances, confirming that the provisions of Section 43D and the relevant CBDT circulars apply to Cooperative Banks. The Tribunal also found no error in the treatment of forfeited dividend as observed in the appeals. Consequently, the appeals filed by the Revenue were dismissed, with no substantial question of law arising in these appeals. Order: 1. Income Tax Appeal Nos. 53/2014, 54/2014, 57/2014, 58/2014, and 68/2014 are dismissed. 2. No order as to costs.
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