2015 (6) TMI 603 - AT - Income Tax

Claim of deduction on amortization of expenses - premium paid on purchase of Government securities (HTM Securities) - Held that - The issue arising before us is similar to the issue before the Tribunal in The Ahmednagar Merchants Co-operative Bank Limited Vs. JCIT (2015 (6) TMI 552 - ITAT PUNE), in assessee s own case relating to assessment years 2008-09 and 2009-10 and before the Hon ble Bombay High Court in CIT Vs. M/s. Gajanan Nagari Sahakari Bank Ltd. (2015 (6) TMI 551 - BOMBAY HIGH COURT) and following the same parity of reasoning, we hold that the assessee is entitled to the expenditure incurred on account of amortization of premium on HTM securities. Disallowance under section 36(1)(viia) - Held that - the issue before us is identical to the issue before the Pune Bench of the Tribunal in Mahalaxmi Co-op. Bank Ltd. vs. ITO (2014 (1) TMI 1366 - ITAT PUNE) and following the same parity of reasoning, we hold that the assessee having failed to make full provision, is only entitled to the claim of deduction to the extent of ₹ 50 lakhs being the amount of provision actually made in the books of account. Consequently, we uphold the order of CIT(A) - Decided against assessee. Disallowance of claim of interest on NPAs - Held that - In view of the ratio laid down by the Pune Bench of the Tribunal in ACIT Vs. Maharashtra Nagri Sahakari Bank Ltd. (supra) and the jurisdictional High Court in CIT Vs. HDFC Bank Ltd. (2014 (8) TMI 119 - BOMBAY HIGH COURT ), we hold that the interest accruing on NPAs is not includable in the hands of the assessee as income for the year under consideration. Accordingly, we direct the Assessing Officer to delete the addition of ₹ 2,55,60,841/-. - Decided in favour of assessee. Disallowance of claim made on account of Contingent provision for standard assets - Held that - RBI Guidelines or prudential norms issued by RBI are not intended to regulate income-tax laws. The admissibility or otherwise of a particular deduction in computing the total income under the Income Tax Act has to be decide d under the provisions of the Act itself. The fact of the matter is that the provision in question being in the nature of purely a contingent one and there is no provision under the IT Act to allow such contingent provision as deduction from taxable income. Therefore, the Assessing Officer has rightly disallowed such contingent provision of ₹ 5,00,000/- and the action of the Assessing Officer is accordingly, upheld. The learned Authorized Representative for the assessee failed to controvert the findings of the CIT(A) in this regard and in the absence of same, we find no merit in the plea of assessee in allowing deduction on account of contingent liability - Decided against assessee.

Summary

Issues Involved:
1. Deduction on amortization of expenses for premium paid on Government securities (HTM securities).
2. Disallowance under section 36(1)(viia) of the Income-tax Act.
3. Disallowance of interest on NPAs (Non-Performing Assets).
4. Disallowance of provision for standard assets.
5. Compliance with RBI guidelines versus Income-tax provisions.
6. Levy of interest under sections 234B and 234C.

Detailed Analysis:

1. Deduction on Amortization of Expenses for Premium Paid on Government Securities (HTM Securities):
The assessee, a cooperative society engaged in banking, claimed a deduction of Rs. 1,11,69,000/- for amortization of premium paid on HTM securities, in line with RBI guidelines. The Assessing Officer disallowed this, viewing the premium as part of the cost of securities, deductible only upon sale. The CIT(A) upheld this, stating RBI guidelines do not regulate Income-tax law. However, the Tribunal allowed the deduction, referencing consistent favorable decisions by the Pune Bench and the Hon'ble Bombay High Court in CIT Vs. HDFC Bank Ltd. (2014) 366 ITR 505 (Bom).

2. Disallowance under Section 36(1)(viia) of the Income-tax Act:
The assessee claimed a deduction of Rs. 2,32,78,941/- under section 36(1)(viia) for provision for bad and doubtful debts. The Assessing Officer restricted this to Rs. 50 lakhs, the actual provision made in the books. The CIT(A) upheld this, citing the Hon'ble Punjab & Haryana High Court in State Bank of Patiala and the Hon'ble Supreme Court in Catholic Syrian Bank Ltd. Vs. CIT. The Tribunal agreed, emphasizing that deductions under section 36(1)(viia) require corresponding provisions in the books.

3. Disallowance of Interest on NPAs:
The Assessing Officer included interest on NPAs as taxable income, despite the assessee following RBI guidelines which recognize such interest on receipt basis. The CIT(A) upheld this. The Tribunal, however, sided with the assessee, citing various decisions, including the Pune Bench's ruling in ACIT Vs. Maharashtra Nagri Sahakari Bank Ltd., which supported the non-inclusion of such interest in taxable income until actual receipt.

4. Disallowance of Provision for Standard Assets:
The assessee claimed a deduction of Rs. 5 lakhs for provision against standard assets, as mandated by RBI guidelines. The Assessing Officer and CIT(A) disallowed this, viewing it as a contingent liability not deductible under the Income-tax Act. The Tribunal upheld this disallowance, noting that such provisions, intended as financial buffers, do not qualify as ascertained liabilities under tax laws.

5. Compliance with RBI Guidelines versus Income-tax Provisions:
The assessee argued that RBI guidelines should influence tax deductions. The Tribunal dismissed this, emphasizing that Income-tax provisions take precedence over RBI guidelines, as already adjudicated in issues 1 and 3.

6. Levy of Interest under Sections 234B and 234C:
The assessee contested the levy of interest under sections 234B and 234C. The Tribunal noted this as consequential, upholding the levy based on the outcomes of the primary issues.

Conclusion:
The appeal was partly allowed. The Tribunal granted the deduction for amortization of HTM securities and excluded interest on NPAs from taxable income. However, it upheld the disallowances for the provision under section 36(1)(viia) and for standard assets, and confirmed the levy of interest under sections 234B and 234C.