2015 (1) TMI 1267 - AT - Income Tax

Addition on provision for loss on Government Securities - Held that - The issue arising in the present appeal is identical to the issue decided in in Pune District Central Co. Operative Bank Ltd. Vs. Addl.CIT 2015 (4) TMI 726 - ITAT PUNE wherein held in case of banks, the premium paid in excess of face value of investments classified under HTM category which has been amortised over the period till maturity is allowable as revenue expenditure since the claim is as per RBI Guidelines and CBDT also has directed to allow such premium. In view of above, the assessee is justified in contending that the amortization of premium in excess of face value securities as HTM, period remaining difference was found reasonable. Accordingly, the disallowance made by the Assessing Officer claimed as amortization of premium expenditure for HTM securities by payment of premium over and above the face value of such securities is directed to be allowed. Also see CIT Vs. HDFC Bank Ltd 2014 (8) TMI 119 - BOMBAY HIGH COURT - Decided in favour of assessee Addition made on account of provision for interest on NPAs - Held that - Similar issue of allowability of the provision made on account of interest on NPAs, arose before Pune Bench of the Tribunal in the case of Shri Yashwant Sahakari Bank Ltd. Vs. ITO 2014 (4) TMI 1118 - ITAT PUNE held that the interest on NPA advance cannot be treated as accrued to the assessee.- Decided in favour of assessee Addition towards provision for Standard Assets made as per the guidelines of RBI - Held that - The issue raised is squarely covered against the assessee by the order of Pune Bench of the Tribunal in The Sindhudurg Dist. Central Co-op Bank Ltd. Vs. ITO 2012 (3) TMI 492 - ITAT PUNE wherein held that claim for deduction of an expenditure is liable to be governed by the provisions of the Act and not merely on account of the RBI guidelines. In our view, the ratio of the judgment of the Hon ble Supreme Court the case of Southern Technologies Ltd. (2010 (1) TMI 5 - SUPREME COURT OF INDIA ) clearly applies to the present case and the claim of the assessee has been rightly rejected by the lower authorities - Decided against assessee

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Addition towards provision for loss on Government securities.
3. Addition towards provision for Non-Performing Assets (NPA).
4. Addition towards provision for Standard Assets.

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The appeal was filed after a delay of 1023 days. The assessee argued that the delay was due to the inaction of their tax consultant, who failed to file the appeal in time. The Tribunal found merit in the assessee's plea, noting that the delay was due to sufficient cause. Consequently, the delay was condoned, and the appeal was admitted for hearing.

2. Addition Towards Provision for Loss on Government Securities:
The assessee had debited Rs. 58,41,016/- as a loss on Held To Maturity (HTM) Government Securities, following RBI and NABARD guidelines. The Assessing Officer (AO) disallowed the deduction, stating it was not allowable since there was no transfer of securities. The CIT(A) upheld this view, stating that RBI guidelines were not binding under Income Tax laws. However, the Tribunal found that the issue of amortization of premium on HTM securities was covered in favor of the assessee by the CBDT's Circular No. 17/2008 and various judicial precedents, including the Bombay High Court's decision in CIT Vs. HDFC Bank Ltd. Therefore, the Tribunal allowed the assessee's claim and directed the AO to delete the addition of Rs. 58,41,016/-.

3. Addition Towards Provision for Non-Performing Assets (NPA):
The AO added Rs. 49,53,000/- towards interest on NPAs, arguing that under the mercantile system of accounting, such interest should be treated as income. The CIT(A) upheld this addition. The Tribunal referred to the decision in Shri Yashwant Sahakari Bank Ltd. Vs. ITO, where it was held that interest on NPAs did not accrue and was not taxable until actually received, following the RBI guidelines. The Tribunal directed the AO to delete the addition of Rs. 49,53,000/-.

4. Addition Towards Provision for Standard Assets:
The assessee claimed a deduction of Rs. 56,37,000/- for provision towards standard assets as per RBI guidelines. The Tribunal referred to its earlier decision in The Sindhudurg Dist. Central Co-op Bank Ltd. Vs. ITO, where it was held that such provisions were not allowable as deductions under the Income Tax Act, following the Supreme Court's ruling in Southern Technologies Ltd. Vs. JCIT. Consequently, the Tribunal dismissed the assessee's claim for this deduction.

Conclusion:
The appeal was partly allowed. The Tribunal condoned the delay in filing the appeal and allowed the claims related to the provision for loss on Government securities and interest on NPAs. However, the claim for the provision for standard assets was dismissed.