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2014 (10) TMI 613 - AT - Income TaxNature of receipts Revenue or capital receipts Character of the grant received by the assessee from the Government of Maharashtra of ₹ 110 crores - Held that - Even if the grant received by the assessee bank has been used for meeting SLR requirements of RBI, which is relatable to its banking activity, yet the purpose of the payment made by the Government was to safeguard the interest of farmers and small depositors in the district Nande - The strategy of providing financial assistance by way of the grant was a mechanism devised by the Government of Maharashtra with the purpose of safeguarding the interest of farmers and depositors from the Nanded district, and the same clearly emerges from the Government decision dated 10.08.2009 - Following the decision in Commissioner of Income Tax, Madras Versus Ponni Sugars & Chemicals Ltd. 2008 (9) TMI 14 - SUPREME COURT thus, the grants received are not in the course of any trade but is of capital nature, which is not chargeable to tax Decided in favour of assessee. Denial of claim of deduction u/s 36(1)(viia) Restriction of claim of provision for bad debts - Held that - Creation of provision for bad and doubtful debts equal to the amount mentioned in section 36(1)(viia) is a must for claiming such deduction - As the assessee has not made a Provision for bad and doubtful debts in the books of account equal to the amount of deduction sought to be claimed under Section 36(1)(viia) of the Act, Following the decision in Shri Mahalaxmi Co-op Bank Ltd. Versus ITO, Ward 1 (1), Kolhapur 2014 (1) TMI 1366 - ITAT PUNE - the claim of the assessee for deduction u/s 36(1)(viia) of the Act is liable to be restricted to the actual amount of Provision for bad and doubtful debts made in the books of account - the income-tax authorities have rightly allowed the deduction u/s 36(1)(viia) of the Act Decided against assessee. Addition of interest income on sticky advances/Non- Performing Asset advances Held that - The assessee is a cooperative bank and it is not in dispute that it is also governed by the Reserve Bank of India - the directions with regard to the prudential norms issued by the Reserve Bank of India are equally applicable to the assessee as it is applicable to the companies registered under the Companies Act as decided in M/s Southern Technologies Ltd. Versus Joint Commnr. of Income Tax, Coimbatore 2010 (1) TMI 5 - SUPREME COURT OF INDIA - the provision of 45Q of Reserve Bank of India Act has an overriding effect vis- -vis income recognition principle under the Companies Act - Hence Sec.45 Q of the RBI Act shall have overriding effect over the income recognition principle followed by cooperative banks also - the AO has to follow the Reserve Bank of India directions 1998. The assessee did not admit the interest relatable to NPA advances in its total income in Commissioner of Income tax Versus Vasisth Chay Vyapar Ltd. & others 2010 (11) TMI 88 - Delhi High Court it has been held that the interest on NPA assets cannot be said to have accrued to the assessee there is no reasons to interfere with the ultimate conclusion of the CIT(A) in deleting the addition relating to interest income in respect of NPAs Decided against revenue.
Issues Involved:
1. Addition of Rs. 110 crores as revenue receipt. 2. Disallowance of deduction under Section 36(1)(viia) of Rs. 10,32,12,700. 3. Addition of Rs. 3,49,75,000 on account of interest income on Non-Performing Assets (NPAs). Issue-wise Detailed Analysis: 1. Addition of Rs. 110 crores as revenue receipt: The primary issue in the assessee's appeal was the addition of Rs. 110 crores by the Assessing Officer (AO) as a revenue receipt chargeable to tax. The amount represented a loan from the Government of Maharashtra converted into a non-refundable grant. The AO and CIT(A) treated it as a revenue receipt, while the assessee argued it was a capital receipt. The AO noted the grant was given to recoup the bank's negative net worth and remove RBI restrictions. The assessee contended the grant was for maintaining the Statutory Liquidity Ratio (SLR) and thus a capital receipt. The Tribunal held that the grant was given to safeguard the interests of farmers and small depositors, not in the course of trade, and thus it was a capital receipt not chargeable to tax. The Tribunal relied on the Supreme Court's judgment in Ponni Sugars and Chemicals Ltd., emphasizing the purpose of the grant over its form. 2. Disallowance of deduction under Section 36(1)(viia) of Rs. 10,32,12,700: The assessee claimed a deduction of Rs. 15,47,62,700 under Section 36(1)(viia) for bad and doubtful debts, but the AO restricted it to Rs. 5,15,50,000, the amount actually provided in the books. The CIT(A) upheld this restriction. The Tribunal referred to the Pune Bench's decision in Shri Mahalaxmi Co-op. Bank Ltd., which followed the Punjab & Haryana High Court's ruling in State Bank of Patiala, holding that the deduction is limited to the provision made in the books. Consequently, the Tribunal upheld the AO's decision, restricting the deduction to the actual provision made in the books. 3. Addition of Rs. 3,49,75,000 on account of interest income on Non-Performing Assets (NPAs): The Revenue's appeal contested the deletion of Rs. 3,49,75,000 added by the AO as interest income on NPAs. The AO argued that even for NPAs, interest should be accrued based on the mercantile system of accounting. The CIT(A) disagreed, following the Tribunal's decision in The Omerga Janta Sahakari Bank Ltd., which relied on the Delhi High Court's judgment in Vasisth Chay Vyapar Ltd., holding that interest on NPAs does not accrue due to uncertainty in collection. The Tribunal upheld the CIT(A)'s decision, noting the divergence in High Court judgments and choosing the view favorable to the assessee, following the Supreme Court's guidance in CIT vs. Vegetable Products Ltd. Conclusion: The Tribunal partly allowed the assessee's appeal, deleting the addition of Rs. 110 crores and restricting the deduction under Section 36(1)(viia) to the actual provision made. The Revenue's appeal was dismissed, affirming the CIT(A)'s deletion of the addition on account of interest income on NPAs.
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