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2015 (11) TMI 642 - AT - Income TaxAddition under the head income from NPA (non performing assets)- CIT(A) deleted the addition as the same has not been actually received by the assessee - Held that - We respectfully take cognizance of the judgment of coordinate bench of Delhi H Bench in asessee s own group cooperative bank case wherein it has been expressly held that as per RBI guidelines, the interest on NPA is not to be recognised and also as per Accounting Standard 9 issued by Institute of Chartered Accountants of India, that income is to be recognised only when there is some reasonable certainly about the receipt of income. In view of above, we have no reason to take a deviated view from the order of the Tribunal and therefore, we are unable to see any valid reason to interfere with the conclusion of the first appellate authority and thus, we uphold the same. Accordingly, ground of the revenue being devoid of merits is dismissed. - Decided against revenue Addition under the head premium expenditure on Govt. securities - whether the buy and sale of the Govt. securities is a normal business activity and the premium expenditure is a normal business expenditure - CIT(A) deleted the addition - Held that - CIT(A) was right in granting relief to the assessee on this issue as to when the assessee cooperative bank is holding government securities till its maturity, the premium paid by the assessee cooperative bank thereon is a necessary expenditure for the purpose of business of the assessee cooperative bank and thus, the same is an allowable expenditure under the provisions of the Act and the first appellate authority was correct in granting relief to the assessee. - Decided against revenue
Issues Involved:
1. Deletion of addition under the head income from non-performing assets (NPA). 2. Deletion of addition under the head premium expenditure on Government securities. Issue-wise Detailed Analysis: Ground No. 1: Deletion of Addition under the Head Income from Non-Performing Assets (NPA) The Revenue argued that the Assessing Officer (AO) was correct in making the addition under the head 'income from non-performing assets' (NPA) because guidelines issued by the Reserve Bank of India (RBI) cannot override the express provisions of the Income Tax Act, 1961, and are not binding upon the income tax authorities. The AO noted that the assessee follows the mercantile system of accounting, and thus, the accrued income should be treated as income of the assessee. The assessee contended that the notional interest income, which had not been actually received, should not be taken into account. They argued that as per RBI guidelines, income from NPA is not recognized on an accrual basis but is booked as income only when it is actually received. The assessee also cited various case laws supporting the principle that only real income, not hypothetical income, should be taxed. The CIT(A) granted relief to the assessee, stating that since the income had not been actually received and the loan/principal amount had become bad, the AO was not justified in treating the notional interest as income. The CIT(A) relied on the principle that only real income is taxable, as upheld by the Supreme Court in CIT Vs Shoorji Vallabhdas & Co, 46 ITR 144 (SC) [1962], and other case laws. The Tribunal upheld the CIT(A)'s decision, noting that the RBI guidelines and Circulars are binding on cooperative banks, and income from NPA should not be recognized on an accrual basis. The Tribunal emphasized that income tax authorities must consider the business and commercial reality of the situation and not merely the accounting system followed by the assessee. The Tribunal also referred to a coordinate bench decision in a similar case, which supported the assessee's position. Ground No. 2: Deletion of Addition under the Head Premium Expenditure on Government Securities The Revenue argued that the CIT(A) erred in deleting the addition of Rs. 6,20,669/- made by the AO under the head premium expenditure on Government securities. The AO contended that the premium paid on government securities was an inadmissible expenditure. The assessee argued that the premium expenditure was a normal business expenditure incurred for the purpose of business. They cited various Tribunal decisions, including ITAT Pune in the case of Satara District Central Co. Op. Bank Ltd. vs DCIT, which held that amortization of premium on HTM (Held to Maturity) securities is an allowable business expenditure. The Tribunal noted that as per RBI guidelines, investments classified under HTM need not be marked to market and are carried at acquisition cost, with the premium being amortized over the period remaining to maturity. The Tribunal referred to Instruction No. 17/2008 of the Income Tax department, which directs that the premium on HTM securities should be amortized. The Tribunal upheld the CIT(A)'s decision, stating that the premium paid on government securities held till maturity is a necessary business expenditure and thus allowable under the provisions of the Act. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the Revenue's appeal. Conclusion: The Tribunal dismissed the Revenue's appeal on both grounds, upholding the CIT(A)'s decision to delete the additions under the head income from NPA and premium expenditure on Government securities. The Tribunal emphasized adherence to RBI guidelines and the principle of taxing only real income.
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