2013 (12) TMI 1546 - AT - Income Tax

Estimation of accrued interest on NPAs - Held that - Assessee was justified in contending for amortization of premium paid in excess of face value of securities held to maturity (HTM) category or period remaining till maturity was found reasonable by the CIT(A). Accordingly addition made by the Assessing Officer by disallowing amount towards amortization of Government Securities (HMT) was deleted.

Summary

Issues Involved
1. Addition of accrued interest on Non-Performing Assets (NPAs).
2. Disallowance of amortization expenses of premium paid on purchase of Government securities.
3. Disallowance of depreciation.
4. Levy of interest under Section 234B.
5. Levy of interest under Section 234A.

Issue-wise Detailed Analysis

1. Addition of Accrued Interest on NPAs
The primary issue pertains to the addition of Rs. 5,79,83,094/- by the Assessing Officer (AO) as estimated accrued interest on NPAs for the Assessment Year (A.Y.) 2009-10. The appellant argued that this issue is covered by the decision of the Pune Bench of the Tribunal in ITA No.2197/PN/2012 for A.Y. 2009-10 in the case of ACIT Vs. Pupils Cooperative Bank Ltd., where it was decided that interest income on NPAs should be recognized on a receipt basis, not accrual. The Tribunal, referencing similar cases like Osmanabad Janata Sahakari Bank Ltd. and Karnavati Cooperative Bank Ltd., upheld that interest on NPAs did not accrue to the assessee. Consequently, the addition of Rs. 5,79,83,094/- by the AO was directed to be deleted.

2. Disallowance of Amortization Expenses of Premium Paid on Purchase of Government Securities
The second issue involves the disallowance of Rs. 5,67,456/- claimed as amortization expenses of premium paid on the purchase of Government securities. The appellant cited a decision by the ITAT Pune Bench in ITA No.449/PN/2012, which allowed such amortization as per RBI guidelines. The Tribunal, referencing the case of Nashik Merchant Cooperative Bank Ltd., held that amortization of premium paid on securities held to maturity is allowable as revenue expenditure. Therefore, the AO was directed to allow the deduction of Rs. 5,67,456/- as amortization expenses.

3. Disallowance of Depreciation
The third issue pertains to the disallowance of Rs. 8,650/- on account of depreciation. The appellant did not press this issue, leading to its dismissal as 'not pressed'.

4. Levy of Interest Under Section 234B
The fourth issue involves the levy of interest under Section 234B amounting to Rs. 67,22,066/-. The Tribunal noted that this issue is consequential and directed the AO to adjust accordingly based on the outcomes of the other issues.

5. Levy of Interest Under Section 234A
For A.Y. 2010-11, the appellant contested the levy of interest under Section 234A amounting to Rs. 10,07,640/-, arguing that the return was filed within the limitation period of Section 139(1). The Tribunal found that this issue required further examination and restored it to the AO for a decision as per the facts and law, after providing an opportunity for a hearing to the assessee.

Conclusion
The appeals for both A.Y. 2009-10 and A.Y. 2010-11 were partly allowed. The significant findings include the deletion of additions related to accrued interest on NPAs and the allowance of amortization expenses for Government securities. The issues regarding depreciation and levy of interest under Sections 234A and 234B were either dismissed or directed for further examination. The judgment emphasizes adherence to judicial precedents and proper application of legal principles and guidelines.