2014 (9) TMI 1002 - AT - Income Tax

TDS u/s 194A - interest on deposit and loans - Disallowance u/s 40(a)(ia) - Held that - Assessing Officer was of the opinion that as per sub clause (i) of section 194A(3), only payer a cooperative society has been provided. The nature of payee is expressly not defined in the said clause that means any payment of interest to member or non member or to cooperative society including cooperative bank etc., are all covered by the ambit of clause (i). But the Tribunal has held that if interest is being paid to Members, then TDS would not be deducted. It was not demonstrated before us that payment made by the assessee including payment to non member. Respectfully following the decision of The Bagalkot District Central Coop. Bank, Bagalkot Vs. JCIT. 2015 (1) TMI 1005 - ITAT BANGALORE we delete the disallowance made by the Assessing Officer. - Decided in favour of assessee Addition on the premise that on NPA account the assessee ought to have recognized the interest income - Held that - The alleged interest income on NPA account is not to be credited to the P&L a/c . The addition made by the Assessing Officer is deleted. See ITO vs. M/s.Shiva Sahakari Bank Niyamitha 2012 (12) TMI 1021 - ITAT BANGALORE - Decided in favour of assessee Disallowance of provision for bad and doubtful debt u/s 36(viia) - Held that - In the present case, the assessee contended that the claim was made in the return, but provision was not made in the books. We directed the learned Counsel to show us the statement of income. He placed on record the claim which read as under Less Deductible expenditure and income to be excluded NPA provision u/s 36(1)(ix) ₹ 6,78,133 Sub clause (ix) of section 36(1) deals with any expenditure bonafidely incurred by a company for the purpose of promoting family planning amongst its employees. It does not talk about any provision for bad and doubtful debts. Thus neither specifically disclosed in the return of income, nor had a provision made in the audited accounts. We do not find any basis for the assessee to make a claim at this stage. Therefore, there is no error in the order of the CIT (A) on this ground, this ground of appeal is rejected. Other grounds are general in nature or supporting arguments qua these three issues. - Decided against assessee. Premium paid on govt. securities amortized over a period of time holding of these securities and claimed proportionately - Held that - From perusal of the order of the Assessing Officer, paragraph 8 to 8.5, nowhere, any reason is discernible as to how these trading stock could be considered as investment. The only reason assigned by him is the period of retaining these securities. This sole circumstance is not sufficient to treat the trading stock as investment. With regard to amortization of premium is concerned, the CIT (A) has based her order on the circular issued by the Board. The investment in Govt. security if made on premium, then premium has to be amortized over the period of time. The assessee has followed this step and claimed deduction of ₹ 1,86,000/-.Assessing Officer has erred in disallowing this claim. Considering the well reasoned order of the CIT (A), we do not find any reason to interfere in it. Accordingly appeal of the Revenue is devoid of any merit.

Summary

Issues Involved:
1. Disallowance of Rs. 10,99,420/-
2. Addition of Rs. 12,25,859/- on NPA interest
3. Disallowance of provisions for bad and doubtful debts u/s 36(viia) of Rs. 6,78,133/-
4. Deletion of disallowance of Rs. 1,86,000/- and Rs. 23,70,000/-

Issue-Wise Detailed Analysis:

1. Disallowance of Rs. 10,99,420/-:
The assessee, a cooperative society engaged in banking, did not deduct TDS on interest payments exceeding Rs. 10,000/- on time deposits, leading to a disallowance of Rs. 10,99,420/- by the Assessing Officer (AO). The assessee argued that such payments are exempt from TDS under section 194(3)(v) of the Income Tax Act. The Tribunal referred to a similar case (The Bagalkot District Central Coop. Bank) where it was held that cooperative societies, including those engaged in banking, are not required to deduct TDS on interest paid to members. The Tribunal concluded that the AO's disallowance was incorrect and deleted it.

2. Addition of Rs. 12,25,859/- on NPA Interest:
The AO added Rs. 12,25,859/- to the assessee's income, arguing that interest on Non-Performing Assets (NPA) should be recognized as income. The Tribunal referenced the case of M/s. Shiva Sahakari Bank Niyamitha, where it was held that interest on NPAs should not be recognized on an accrual basis due to uncertainty in collectability. The Tribunal found no disparity in facts and followed the precedent, deleting the addition made by the AO.

3. Disallowance of Provisions for Bad and Doubtful Debts u/s 36(viia) of Rs. 6,78,133/-:
The AO disallowed the provision for bad and doubtful debts, as the assessee did not make the provision in its accounts, although it claimed it in the return of income. The Tribunal noted that the claim was not specifically disclosed in the return of income nor made in the audited accounts. The Tribunal upheld the CIT (A)'s decision, which was based on the precedent that a provision must be made in the books of accounts to claim such deductions. The assessee's ground of appeal was rejected.

4. Deletion of Disallowance of Rs. 1,86,000/- and Rs. 23,70,000/-:
The AO disallowed Rs. 1,86,000/- as amortization of premium on government securities and Rs. 23,70,000/- as depreciation on investment fluctuation reserves, treating them as capital expenditures. The CIT (A) allowed these claims, referencing CBDT's Circular No.17/2008, which permits such deductions if the securities are classified as "Held for Trading" (HFT) or "Available for Sale" (AFS). The Tribunal agreed with the CIT (A), noting that the AO failed to establish that the securities were investments and not stock in trade. The Tribunal upheld the CIT (A)'s decision, dismissing the Revenue's appeal.

Conclusion:
The Tribunal partly allowed the assessee's appeal (ITA No.434/Bang/2013) by deleting the disallowance of Rs. 10,99,420/- and the addition of Rs. 12,25,859/- on NPA interest but upheld the disallowance of provisions for bad and doubtful debts. The Revenue's appeal (ITA No.529/Bang/2013) was dismissed, affirming the CIT (A)'s deletion of disallowances related to amortization of premium and depreciation on investment fluctuation reserves.