9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2014 (11) TMI 94 - AT - Income TaxAddition of accrued interest on loans and advances remitted - Amendment to section 145 of the Act w.e.f. 1.4.1997 not appreciated Directions made by CIT(A) amounts to remitting back for fresh adjudication or not - Whether the interest accrued on NPAs, which are doubtful of being recovered, should be recognised as income on accrual basis or on receipt basis - Held that - The assessee is in the business of banking and is governed by the Banking Regulations Act, 1949 Following the decision in Commissioner of Income-Tax Davanagere and Income Tax Officer Ward-2, Shimoga. Versus The Urban Co-Operative Bank Limited 2014 (10) TMI 740 - KARNATAKA HIGH COURT - if an assessee adopts mercantile system of accounting and in his accounts he shows a particular income as accruing, whether that amount is really accrued or not is liable to bring the said income to tax - His accounts should reflect true and correct statement of affairs - Merely because the amount accrued was not realised immediately cannot be a ground to avoid payment of tax - But, if in his account it is clearly stated though a particular income is due to him but it is not possible to recover the same, then it cannot said to have been accrued and the said amount cannot be brought to tax - the contention of the revenue that in respect of non-performing assets even though it does not yield any income as the assessee has adopted a mercantile system of accounting, he has to pay tax on the revenue which has accrued notionally is without any basis. The assessee also pointed out certain mistakes in the computation of interest, the CIT(A) has directed the AO to compute the quantum of interest to be allowed correctly, by considering the submissions put forth by the assessee in this regard - This direction of the CIT(A) cannot be construed as remitting back the substantive issue to the AO, as he has only directed the Assessing Officer to compute the quantum correctly thus, there was no infirmity in the order of the CIT(A) Decided against revenue. Provision for Non-Performing Assets ( NPA ) Mandatory requirement of RBI Guidelines to follow mercantile system of accounting fulfilled or not - Held that - Section 36(1)(viia) of the Act provides for allowance of any provision for bad and doubtful debts - Although the assessee has used the nomenclature for the provision as Provision for NPAs , but in pith and substance the provision has been created for bad and doubtful debts and in doing so, the assessee has followed the RBI Guidelines relying upon UCO Bank Versus Commissioner of Income-Tax 1999 (5) TMI 3 - SUPREME Court the order of the CIT(A) for allowing the claim of deduction on account of provision for NPA is upheld Decided against revenue. Provision for Audit Cost Mercantile system of accounting followed - Held that - The assessee is following the mercantile system of accounting and is booking expenditure on accrual basis - The provision for audit fees has been made as per the rules specified for this purpose; i.e. as per the directions of the Deputy Director of Co-operative Audit under Rule 441 of the Karnataka Civil Service Rules - the assessee is mandated to make the payment as per the Rules, the liability of the assessee has got crystallised - once a liability is crystallised, it is liable to be provided for even if the actual payment is made later thus, the order fo the CIT(A) is upheld Decided against revenue. Disallowance u/s.40(a)(ia) - Non-deduction of tax at source Held that - CIT(A) rightly directed the AO to examine and verify the TDS payments related to only one item of expenditure i.e. building rent payments - This direction too has been made because the assessee claimed that TDS has been made on building rental payments and the disallowance thereof amounts to double deduction the action of the CIT (A) cannot be construed as if the CIT (A) has remitted the matter to the file of the AO for fresh adjudication Decided against revenue.
Issues Involved:
1. Addition to Interest Income 2. Provision for Non-Performing Assets (NPA) 3. Provision for Audit Cost 4. Disallowance under Section 40(a)(ia) of the Income Tax Act for non-deduction of tax at source Detailed Analysis: 1. Addition to Interest Income: The Revenue challenged the deletion of the addition of Rs. 6,99,73,139 made on account of accrued interest on loans and advances. The Assessing Officer (AO) observed that the assessee followed a hybrid system of accounting, which contravenes Section 145 of the Income Tax Act, 1961, requiring either cash or mercantile system of accounting. The AO relied on the decision of the ITAT, Chennai in JCIT v. India Equipment Leasing Ltd. (2008) to justify the addition. The CIT (Appeals) deleted the addition, referencing the Supreme Court decision in UCO Bank Ltd. v. CIT 237 ITR 829 (SC), which allows recognizing interest on NPAs on a receipt basis. The Tribunal agreed with the CIT (Appeals), citing the Karnataka High Court's decision in Urban Co-operative Bank Ltd., which held that income from NPAs should be assessed on a cash basis. The Tribunal dismissed Revenue's contention that the CIT (Appeals) overstepped his powers by remanding the issue to the AO, clarifying that the CIT (Appeals) merely directed the AO to compute the interest income correctly. 2. Provision for Non-Performing Assets (NPA): The AO disallowed the provision for NPAs of Rs. 1,50,00,000, arguing it should be claimed as bad and doubtful debts. The CIT (Appeals) allowed the provision, citing the Supreme Court's decision in UCO Bank Ltd., which supports the deduction of provisions mandated by RBI Guidelines. The Tribunal upheld the CIT (Appeals)'s decision, noting that the provision for NPAs, though labeled differently, is essentially for bad and doubtful debts and aligns with Section 36(1)(viia) of the Act. 3. Provision for Audit Cost: The AO disallowed the provision for audit fees of Rs. 4,00,000, allowing only actual costs paid. The CIT (Appeals) allowed the provision, stating it aligns with prevailing practices and accounting principles. The Tribunal upheld this decision, noting that the assessee follows the mercantile system of accounting, and the liability for audit fees, mandated by the Deputy Director of Co-operative Audit under the Karnataka Civil Service Rules, had crystallized. 4. Disallowance under Section 40(a)(ia) of the Income Tax Act for non-deduction of tax at source: The AO disallowed certain payments due to non-deduction of TDS. The CIT (Appeals) directed the AO to verify the details of TDS payments made, particularly for building rent, as the assessee claimed TDS had been paid, preventing double deduction. The Tribunal found no fault in the CIT (Appeals)'s direction, stating it was a verification of the assessee's claim rather than a remand for fresh adjudication. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the CIT (Appeals)'s decisions on all issues. The order was pronounced on 10th October 2014.
|
