2018 (10) TMI 1492 - AT - Income Tax

Interest on share capital paid to the members of the Bank - Held that - As observed from the order of the AO that the interest on share capital was related to the year 2010-11 which is relevant for the assessment year 2011-12, but not the impugned year. Neither the CIT(A) nor the AO has given a clear finding with regard to the correct assessment year in which the interest was accrued. Therefore, we remit the matter back to the file of the AO to examine the issue with regard to the accrual of liability as per the system of accounting followed by the assessee and decide the issue afresh on facts and merits. The appeal of the revenue on this issue is allowed for statistical purpose. Provision for bad debts under the head provision for standard assets - AR submitted that the said amount was not representing the provision for standard assets, it was in fact a bad debt, incurred over and above the provision made by the assessee u/s 36(1)(viia) - Held that - It appears from the discussion of the AO as well as the Ld.CIT(A) that the issue was not properly verified by the lower authorities. The assessee also did not furnish the required information before the lower authorities. It was also not clear, whether the assessee has claimed the said deduction u/s 36(1)(viia) or not. Therefore, we are of the considered opinion that the issue needs detailed verification, hence, in the interest of justice, we remit the matter back to the file of the AO to examine the issue in detail and decide the issue afresh on merits after giving due opportunity to the assessee. Accordingly, this ground of the assessee in CO is allowed for statistical purpose.

Summary

Issues Involved:
1. Interest on share capital.
2. Disallowance under Section 40(a)(ia) on interest paid to members for non-deduction of tax at source.
3. Disallowance of amortization of premium paid for acquisition of HTM securities.
4. Addition towards provision for standard assets.

Detailed Analysis:

1. Interest on Share Capital:
The Assessing Officer (AO) disallowed the interest on share capital amounting to ?4,55,61,020/- for the assessment year 2012-13, arguing it was not an allowable deduction. The assessee contended that the interest paid on share capital was a compulsory obligation under the A.P. Mutually Aided Cooperative Societies Act, 1995, and akin to a partnership business where interest on capital is allowed. The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the appeal, following the ITAT Visakhapatnam's precedent. However, the Tribunal noted the interest related to the year 2010-11 but was claimed in 2012-13, necessitating a remand to the AO to determine the correct assessment year.

2. Disallowance under Section 40(a)(ia) on Interest Paid to Members:
The AO disallowed ?2,52,84,556/- paid as interest to members without TDS deduction. The CIT(A) reversed this decision, referencing the ITAT's prior rulings and CBDT Circular No.9/2002, which exempts cooperative banks from TDS on interest payments to members. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

3. Disallowance of Amortization of Premium Paid for Acquisition of HTM Securities:
The AO disallowed the amortization of ?34,037/- for 2012-13 and ?26,903/- for 2013-14, considering it a contingent liability. The CIT(A) directed the AO to allow amortization over the securities' maturity period per CBDT Instruction No.17/2008. The Tribunal remanded the issue back to the AO for fresh examination, consistent with previous rulings and RBI guidelines.

4. Addition Towards Provision for Standard Assets:
The AO disallowed ?28,24,916/- claimed as bad debt, citing lack of clarity and supporting evidence. The CIT(A) upheld the AO's decision, noting the amount was a provision for standard assets, not allowable under the Income Tax Act. The Tribunal found the issue required detailed verification and remanded it back to the AO for fresh examination, directing the AO to ensure the amount was not claimed under Section 36(1)(viia) and to verify the assessee's claim thoroughly.

Cross Objections:
The assessee's cross objections supporting the CIT(A)'s decisions on interest on share capital and interest on deposits were allowed. The Tribunal remitted the issue of provision for standard assets back to the AO for detailed verification.

Conclusion:
The appeals of the Revenue were partly allowed for statistical purposes, and the cross objections of the assessee were allowed for statistical purposes. The Tribunal emphasized the need for detailed verification and adherence to legal precedents and guidelines.