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2014 (4) TMI 1107 - AT - Income TaxDeduction claimed u/s 36(1)(viia) - amount of Provision made in the books of account for bad and doubtful debts - Held that - In the immediately preceding assessment year of 2008-09 also the Revenue had denied the claim of the assessee u/s 36(1)(viia) of the Act by restricting it to the extent of the Provision for bad and doubtful debts actually made in the account books. The Tribunal after considering the rival stands as also the various authorities cited at Bar came to conclude that the deduction sought to be claimed by the assessee u/s 36(1)(viia) of the Act was liable to be restricted to the extent of the Provision for bad and doubtful debts actually made in the account books. - Decided against assessee Addition on account of accrued interest income relating to Non Performing Assets - Held that - As decided in Asst. Commissioner of Income Tax Versus The Omerga Janta Sahakari Bank Ltd. 2014 (12) TMI 355 - ITAT PUNE it was legitimate move to infer that interest income thereupon has not accrued - thus there was no infirmity with the decision of the CIT(A) in holding that the interest income relatable on NPA advances did not accrue to the assessee Decided against revenue. Deduction representing amortization of premium paid on Government Securities - Held that - CIT(A) made no mistake in allowing the claim of the assessee for deduction representing amortization of premium paid on Government Securities under the HTM category holding that the same was claimed as per the relevant RBI guidelines and even the CBDT has issued instructions to allow the same. Decided against revenue.
Issues Involved:
1. Deduction under Section 36(1)(viia) of the Income Tax Act. 2. Accrued interest income on Non-Performing Assets (NPAs). 3. Amortization of premium paid on Government Securities. Issue-wise Detailed Analysis: 1. Deduction under Section 36(1)(viia) of the Income Tax Act: The primary issue in the assessee's appeal was the restriction of the deduction claimed under Section 36(1)(viia) of the Income Tax Act to the actual amount of provision made in the books of account for bad and doubtful debts, amounting to Rs. 66,22,634, as against the claimed deduction of Rs. 1,70,40,528. The Tribunal noted that a similar issue had been decided against the assessee in the preceding assessment year 2008-09. The relevant section allows a deduction for provisions for bad and doubtful debts made by certain banks, including cooperative banks, up to 7.5% of the total income and 10% of the aggregate average advances made by rural branches. The Tribunal upheld the Revenue's stance, referencing the precedent set by the Hon'ble Punjab & Haryana High Court in the case of State Bank of Patiala, which emphasized that the deduction is limited to the provision actually made in the books. Consequently, the assessee's appeal on this ground was dismissed. 2. Accrued Interest Income on Non-Performing Assets (NPAs): In the Revenue's appeal, the first issue was the deletion of an addition of Rs. 57,19,885 on account of accrued interest income relating to NPAs. The assessee, a cooperative bank, followed RBI's Prudential Norms, which did not account for interest on NPAs. The Assessing Officer included this interest income based on the mercantile system of accounting. However, the CIT(A) disagreed, and the Tribunal upheld this decision, referencing the Pune Bench's decision in the case of ACIT vs. The Omerga Janta Sahakari Bank Ltd. The Tribunal noted that, in the absence of a jurisdictional High Court ruling, the decision of the Hon'ble Delhi High Court in M/s Vasisth Chay Vyapar Ltd., which favored the assessee, should be followed. This decision was based on the principle that interest on NPAs does not accrue until it is reasonably certain of collection. Thus, the Revenue's appeal on this ground was dismissed. 3. Amortization of Premium Paid on Government Securities: The second issue in the Revenue's appeal concerned the deduction of Rs. 51,95,263 for the amortization of premium paid on Government Securities categorized as Held to Maturity (HTM). The CIT(A) allowed this deduction based on RBI guidelines and a precedent set by the Hon'ble Bombay High Court in CIT vs. Pruthvi Brokers & Shareholders (P) Ltd. The Tribunal upheld the CIT(A)'s decision, referencing similar decisions by the Mumbai and Bangalore Benches of the Tribunal, which allowed such amortization as per RBI guidelines. The Tribunal found no contrary decision presented by the Revenue and thus dismissed the Revenue's appeal on this ground. Conclusion: Both the appeals by the assessee and the Revenue were dismissed. The Tribunal upheld the CIT(A)'s decisions on all contested issues, including the restriction of the deduction under Section 36(1)(viia) to the actual provision made, the exclusion of accrued interest on NPAs from taxable income, and the allowance of amortization of premium on Government Securities. The judgment emphasized adherence to established precedents and guidelines issued by regulatory authorities like the RBI.
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