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2015 (4) TMI 726 - AT - Income TaxAmortization of premium paid for HTM securities - Provision for Investment Depreciation fund - Investment Fluctuation fund - Reversal of interest on non performing assets - Held that - The Hon ble Bombay High Court in the case of HDFC Bank 2014 (8) TMI 119 - BOMBAY HIGH COURT held that the assessee therein was entitled to deduction with respect to the diminution in the value of investments and amortization of premium on investments Held To Maturity on the ground of mandate of the RBI guidelines. The issue raised in the present appeal is identical to the issue before the Pune Bench of the Tribunal in the assessee s own case 2015 (4) TMI 662 - ITAT PUNE for assessment year 2008-09 and Hon ble Bombay High Court in CIT Vs. HDFC Bank 2014 (8) TMI 119 - BOMBAY HIGH COURT . We hold that amortization of premium expenditure for securities Held To Maturity in view of RBI guidelines are allowable business expenditure in the case of assessee. The grounds of appeal No.1 and 2 raised by the assessee are thus, allowed. The plea of the assessee before us was that the said amount was booked under the provision for investment depreciation fund by mistake and was actually the depreciated value of the investments on its transfer from HTM to AFS securities. The perusal of the Profit & Loss Account English version reflects the assessee to have claimed the expenditure of ₹ 40,30,000/- on account of investment depreciation fund under Schedule 16 provisions. In the entirety of the facts and circumstances and the revised claim made by the assessee, we are of the view that the facts and issue needs to be relooked into to determine the nature of entry passed by the assessee and following the principles of natural justice, we deem it fit to restore this issue back to the file of Assessing Officer, who shall decide the issue de novo after considering the revised plea of the assessee and the relevant documents in this regard. The issue raised vide grounds of appeal No.5 to 7 is in relation to reversal of interest on performing assets amounting to ₹ 42.15 crores. The assessee during the year under consideration adopted a change in method of accounting in respect of interest income earned from certain performing assets. In the Notes to the annual accounts, the assessee declared that the interest relating to non-performing assets i.e. agricultural loans would be accounted for only on realization and interest amounting to ₹ 42.15 crores was de-reversed and de-recognized by the assessee. The explanation of the assessee for the said change in the method of accounting of interest on non performing assets was the Agricultural Waiver Scheme, 2008 issued by the Central Government under which, guidelines were issued by the RBI, that where the such interest on agricultural loans was not received by the assessee, the same was not to be credited to the Profit & Loss Account. From the details furnished by the assessee, the necessary data cannot be culled out, so in all fairness, we deem it fit to restore this issue back to the file of the Assessing Officer, who shall first determine the eligible amount which is covered under the said agricultural waiver scheme issued by the Central Government and thereafter, determine the interest relatable to such eligible amount. The assessee is directed to furnish the requisite information / details before the Assessing Officer and the Assessing Officer thereafter, shall reconcile the same with the debt waiver scheme and determine the eligible amount. Further, the assessee claims that the interest on such performing assets that are covered by agricultural waiver scheme has been written off in its books of account. The Assessing Officer is directed to verify whether the interest on agricultural loans has been written off by the assessee in its books of account. The Assessing Officer thus, shall decide the issue of allowability of the said expenditure in the hands of the assessee in line with our directions. The finding of the CIT(A) is that the contribution made by the assessee was a statutory requirement and was not application of income or appropriation out of profits. We are in conformity with the observations of CIT(A) that the provision made by the assessee cannot be said to be a provision for contingent liability because the amount was contributed by the assessee from year to year and the contribution is fixed by the State Government under the MCS Rules. Once the amount is so fixed by the State Government and the same is paid by the assessee to the said fund then, the same is to be allowed as a deduction in the hands of the assessee. Undoubtedly, the assessee during the year under consideration, had made a provision of ₹ 1,31,60,000/- but the said amount was paid in the succeeding year i.e. ₹ 1,09,92,202/- on 26.09.2009 and ₹ 1,30,19,151/- on 17.12.2009. The liability being an ascertained liability, which in turn, was discharged by the assessee by making payment in the succeeding year, is an allowable expenditure in the hands of the assessee. Upholding the order of CIT(A), we dismiss the grounds of appeal raised by the Revenue. - Appeal of revenue dismissed.
Issues Involved:
1. Disallowance of amortization of premium expenditure for HTM securities. 2. Disallowance of provision for investment depreciation fund. 3. Disallowance of provision for Investment fluctuation Fund. 4. Disallowance of deduction related to Central Government debt waiver scheme. 5. Change in accounting method and its implications. 6. Depreciation on different assets. 7. Levy of interest under sections 234A, 234B, and 234C. 8. Contribution to Rajya Swarga Seva Nidhi. Detailed Analysis: 1. Disallowance of Amortization of Premium Expenditure for HTM Securities: The assessee claimed a deduction of Rs. 1,94,73,302/- for amortization of premium on HTM securities, supported by RBI Circular dated 13.07.2005. The Assessing Officer (AO) disallowed the claim, citing that the RBI guidelines were for accounting purposes and not for determining taxable income under the Income Tax Act. The CIT(A) upheld the AO's decision, referencing the Supreme Court's decision in Southern Technologies Ltd. (2010) 320 ITR 577 (SC) and CBDT's Instruction No.17/08. However, the Tribunal referred to the Bombay High Court's judgment in CIT Vs. HDFC Bank (2014) and Pune Bench decisions, which allowed such amortization as per RBI guidelines. Consequently, the Tribunal allowed the assessee's appeal on this issue. 2. Disallowance of Provision for Investment Depreciation Fund: The assessee claimed Rs. 40,30,000/- as a provision for investment depreciation fund. The AO disallowed it, stating it was not an actual expenditure. The CIT(A) upheld this disallowance. The assessee argued that the amount was due to the transfer of HTM securities to AFS, resulting in a loss. The Tribunal remanded the issue back to the AO for verification of the nature of the provision and the actual loss incurred. 3. Disallowance of Provision for Investment Fluctuation Fund: The assessee claimed Rs. 10,00,000/- for the Investment Fluctuation Fund to protect against market fluctuations in SLR securities. The AO disallowed it as a contingent liability. The Tribunal did not specifically address this issue in the detailed judgment provided. 4. Disallowance of Deduction Related to Central Government Debt Waiver Scheme: The assessee reversed Rs. 42.15 crores of interest income on performing assets, citing the Agricultural Debt Waiver Scheme, 2008, and RBI guidelines. The AO disallowed the claim, stating the assessee continued to follow the mercantile system for other entries. The CIT(A) also upheld the disallowance, noting that the assets were performing and the interest was not overdue. The Tribunal remanded the issue back to the AO to determine the eligible amount under the debt waiver scheme and verify the write-off in the books. 5. Change in Accounting Method and Its Implications: The assessee changed its accounting method for interest on agricultural loans from mercantile to cash basis due to the Agricultural Debt Waiver Scheme. The AO disallowed the change, and the CIT(A) upheld this decision. The Tribunal noted that cooperative banks follow guidelines from both RBI and state cooperative departments and remanded the issue back to the AO for further verification of the eligible amount and write-off. 6. Depreciation on Different Assets: The assessee did not press this issue, and it was dismissed as not pressed. 7. Levy of Interest Under Sections 234A, 234B, and 234C: The levy of interest under these sections is consequential and was dismissed accordingly. 8. Contribution to Rajya Swarga Seva Nidhi: The assessee claimed Rs. 1,31,60,000/- as a contribution to Rajya Swarga Seva Nidhi, which the AO disallowed as a contingent liability. The CIT(A) allowed the claim, stating it was a statutory liability under the Maharashtra Cooperative Societies Act and Rules. The Tribunal upheld the CIT(A)'s decision, noting the contribution was a fixed statutory requirement and an allowable expenditure. Conclusion: The Tribunal allowed the assessee's appeal on the amortization of premium expenditure for HTM securities and remanded the issues of provision for investment depreciation fund and deduction related to the debt waiver scheme back to the AO for further verification. The appeal on the contribution to Rajya Swarga Seva Nidhi was upheld in favor of the assessee, while the other issues were dismissed or not pressed. The Revenue's appeal was dismissed.
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