2014 (12) TMI 345 - AT - Income Tax

Deletion of addition on Non-performing Assets Applicability of provisions of section 43D - Revenue was of the view that the interest income even in relation to such NPAs was liable to be included in this year s total income, having regard to the mercantile system of accounting followed by the assessee - Held that - Following the decision in ACIT vs. The Omerga Janta Sahakari Bank Ltd. 2014 (12) TMI 355 - ITAT PUNE wherein it was held that so far as the applicability of section 43D of the Act to the assessee is concerned, there is a convergence of opinion between the assessee and the Revenue to the effect that the same is not applicable to the assessee - assessee is a Co-operative Bank carrying on banking business in terms of a license granted by RBI and is not a scheduled bank included in second schedule of RBI so as to fall within the scope of section 43D of the Act - in Commissioner of Income tax Versus Vasisth Chay Vyapar Ltd. & others 2010 (11) TMI 88 - Delhi High Court it was held that what to talk of interest, even the principle amount itself had become doubtful to recover - In this scenario it was legitimate move to infer that interest income thereupon has not accrued - thus, there was no infirmity with the decision of the CIT(A) in holding that the interest income relatable on NPA advances did not accrue to the assessee Decided against revenue. Addition of interest on securities purchased Securities paid to the seller of the securities and corresponds to the period prior to the date of purchase by the assessee bank Held that - In CIT vs. HDFC Bank Ltd. 2014 (8) TMI 119 - BOMBAY HIGH COURT has held that the broken period interest is allowable as a deduction there was no justification to uphold the stand of the income-tax authorities. Following the judgement of the Hon ble Bombay High Court in the case of HDFC Bank Ltd. the order of the CIT(A) is upheld Decided in favour of assessee. Claim of employee s contribution to PF disallowed Held that - Following the decision in CIT vs. Ghatge Patil Transports Ltd. 2014 (10) TMI 402 - BOMBAY HIGH COURT - It has been held that the payment of employees contribution to the Provident Fund was also subject to the provisions of section 43B of the Act and therefore the assessee was to be allowed the benefit of amendment inserted w.e.f. 01.04.2004 by way of the first proviso - even the employees contribution to the Provident Fund paid beyond the respective due dates but before the due date applicable for furnishing of return of income u/s 139(1) of the Act, would not suffer the disallowance u/s 43B thus, the order of the CIT(A) is set aside and the AO is directed to allow assessee s claim for deduction representing employees contribution to the Provident Fund deposited before the due date of filing of return prescribed u/s 139(1) - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition on account of interest on Non-Performing Assets (NPAs) under Section 43D of the Income Tax Act.
2. Treatment of 'broken period interest' on securities purchased.
3. Disallowance of amortization of premium paid on Held to Maturity (HTM) securities.
4. Deduction of employees' contribution to the Provident Fund paid before the due date of filing the return.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Interest on NPAs:
The primary issue revolves around whether interest on NPAs should be included in the total income of a non-scheduled Co-operative Bank. The Assessing Officer included Rs. 26,11,750/- as interest income on NPAs, arguing that Section 43D, which allows deferral of such income, does not apply to non-scheduled banks. However, the CIT(A) deleted this addition, and the Tribunal upheld this decision, citing the Pune Bench's precedent in ACIT vs. The Omerga Janta Sahakari Bank Ltd. The Tribunal noted that the RBI guidelines on income recognition for NPAs should be followed, as supported by the Delhi High Court's judgment in M/s Vasisth Chay Vyapar Ltd. and the Supreme Court's reasoning in CIT vs. Vegetable Products Ltd., favoring the assessee.

2. Treatment of 'Broken Period Interest':
The issue pertains to the treatment of interest paid on securities for the period before their purchase. The assessee argued that such 'broken period interest' should be deductible. The Assessing Officer and CIT(A) disagreed, treating it as a capital outlay. However, the Tribunal referenced the Bombay High Court's ruling in CIT vs. HDFC Bank Ltd., which allows 'broken period interest' as a deductible expense. Hence, the Tribunal directed the deletion of the addition of Rs. 3,13,855/-.

3. Disallowance of Amortization of Premium Paid on HTM Securities:
The assessee claimed a deduction for the amortization of the premium paid on HTM securities. The CIT(A) disallowed this, but the Tribunal overturned the decision, citing the Bombay High Court's judgment in CIT vs. HDFC Bank Ltd., which supports the amortization of such premiums as a deductible expense. Consequently, the Tribunal directed the deletion of the disallowance of Rs. 3,70,913/-.

4. Deduction of Employees' Contribution to Provident Fund:
The issue concerns the disallowance of employees' Provident Fund contributions paid after the due date but before the filing of the return. The CIT(A) upheld the disallowance based on the Gujarat High Court's judgment. However, the Tribunal favored the assessee, referencing the Bombay High Court's decision in CIT vs. Ghatge Patil Transports Ltd., which allows such deductions if paid before the due date for filing the return. Thus, the Tribunal directed the allowance of the deduction of Rs. 56,328.50.

Conclusion:
The Tribunal dismissed the Revenue's appeals and allowed the respective cross-objections of the assessees, directing the deletion of the disputed additions and disallowances. The judgments were pronounced in favor of the assessees, adhering to the principles laid down by jurisdictional High Courts and the Supreme Court.