2011 (5) TMI 1148 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 58,75,300/- on account of alleged interest accrued on sticky loans.
2. Addition of Rs. 8,58,000/- being amortization of the investment.
3. Addition of Rs. 62,665/- being the contribution to Jila Sahakari Sangh.
4. Deduction claim of Rs. 7,12,500/-.

Summary:

1. Addition of Rs. 58,75,300/- on account of alleged interest accrued on sticky loans:
The assessee argued that no income can be accounted for in respect of interest on doubtful advances, following the RBI guidelines and the Supreme Court judgment in UCO Bank vs. CIT. The AO contended that u/s 36(1)(viia) of the Income-tax Act, 1961, the assessee must account for all accrued income. The CIT(A) confirmed the addition, citing the CBDT circular dated 9.10.1984, which mandates that interest on doubtful debts credited to a suspense account is taxable for the initial three years. The Tribunal agreed with the CIT(A), noting that the relevant assessment year is 2007-08, and thus, the interest accrued on doubtful advances is taxable.

2. Addition of Rs. 8,58,000/- being amortization of the investment:
The assessee claimed amortization of the premium paid on government securities as an expense. The Tribunal found that there is no provision in the Income-tax Act, 1961, for allowing part of the cost of investment as an expense. The securities are treated as investments, not stock-in-trade, and thus, the premium paid cannot be debited to the profit and loss account. The Tribunal upheld the lower authorities' decision to disallow the amortization.

3. Addition of Rs. 62,665/- being the contribution to Jila Sahakari Sangh:
The AO declined the deduction claim, applying Section 40(ii) Explanation. The Tribunal found that this provision is not applicable as it pertains to tax levied on profits and gains of business. The contribution is a statutory payment required u/s 43(2B) of the M.P. Coop. Societies Act and is thus allowable as a deduction. The Tribunal directed the AO to allow the deduction, referencing a similar decision in Burhanpur Mandi Samiti.

4. Deduction claim of Rs. 7,12,500/-:
The assessee's representative conceded that the CIT(A) had already given directions regarding this deduction. The Tribunal did not provide further details on this issue.

Conclusion:
The appeal was allowed in part, with the Tribunal dismissing the grounds related to the addition of interest on sticky loans and amortization of investment, while allowing the deduction for the contribution to Jila Sahakari Sangh. The issue of the Rs. 7,12,500/- deduction was acknowledged as already addressed by the CIT(A).