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TMI Blog2015 (6) TMI 603X X X X Extracts X X X X X X X X Extracts X X X X ..... s not justified in confirming the addition made by the A.O. of Rs. 1,82,78,935/- out of Rs. 2,32,78,935/- which deduction was claimed under S.36(1)(vii-a) of the Act. The decision to confirm the disallowance made by the A.O. is contrary to principles enunciated by Their Lordships of the Hon'ble Supreme Court in the case of Catholic Syrian Bank and properly claimed by the appellant Bank. The claim was restricted by A.O. to Rs. 50 lakhs. The claim be allowed to the appellant bank in full. 3) On the facts and circumstances of the case and in law the Ld. CIT(A) was not justified in confirming the disallowance of Rs. 2,55,60,841/- made by the A.O. rejecting the claim of interest on NPA accounts as according to settled law and the provisions of S.43D of the Act the NPA interest becomes taxable in the year of actual receipt. The appellant Bank correctly followed RBI Guidelines in this respect and also decisions of various coordinate Benches of ITAT and especially jurisdictional Pune Bench Judgments and CBDT Instructions. 4) On the facts and circumstances of the case and in law the Ld. CIT(A) was not justified in confirming the disallowance Rs. 5,00,000/- made by the A.O. which claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 1,11,69,000/- booked towards amortization of premium was disallowed and added to the total income of the assessee by the Assessing Officer. 5. The CIT(A) was of the view that the RBI guidelines or Prudential norms issued by the RBI were not intended to regulate the Income-tax law and consequently, expenditure booked by the assessee was disallowed in the hands of the assessee, against which the ground of appeal No.1 has been raised by the assessee. 6. The learned Authorized Representative for the assessee contended that the said issue is squarely covered in favour of the assessee by series of decisions of Pune Bench of the Tribunal and also by the Hon'ble Bombay High Court in CIT Vs. HDFC Bank Ltd. (2014) 366 ITR 505 (Bom). 7. The learned Departmental Representative for the Revenue had relied upon the ratio laid down by the Pune Bench of the Tribunal in Janata Sahakari Bank Ltd. in ITA No.819/PN/2010 decided on 31.05.2013 for the proposition that premium paid on acquisition of HTM securities was the part of composite cost and its valuation at the end of the year should be as per consistent method followed by the assessee for valuation of inventory i.e. cost or market price, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e A.O made the addition to the extent of Rs. 14,70,000/-. The Ld CIT(A) confirmed the addition. 14. We have heard the parties. The Ld Counsel placed his heavy reliance on the decision of the Hon'ble High Court of Bombay in the case of CIT Vs. Bank of Baroda and in the case of UCO Bank Vs. CIT, 240 ITR 355 (SC). In the case of Bank of Baroda (Supra), the issue before their Lordship was whether the assessee was entitled for deduction on account of depreciation in the value of investments. The method of valuation followed by the assessee Bank was to value investments at cost or market value whichever was lower. The assessee had claimed the depreciation to the tune of Rs. 11,82,35,007/- and the said depreciation was claimed as a deduction which was disallowed by the A.O, but the assessee Bank succeeded before the CIT(A). The Tribunal confirmed the order of the CIT(A). The Revenue carried the issue before the Hon'ble High Court. The core issue was the method of valuation adopted by the assessee Bank for valuing the stock of the Securities. The Hon'ble High Court followed the decision of Hon'ble Supreme Court in the case of United Commercial Bank (Supra). 15. In the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. Further, the Hon'ble Bombay High Court, Bench at Aurangabad in CIT Vs. M/s. Gajanan Nagari Sahakari Bank Ltd. in Income Tax Appeal No.39 of 2014 vide judgment dated 07.01.2015 had allowed the claim of the assessee, in turn following the ratio laid down by the Hon'ble Bombay High Court in CIT Vs. Bank of Baroda (2003) 262 ITR 334 (Bom) and also following the judgment of the Hon'ble Supreme Court in UCO Bank Vs. CIT (1999) 240 ITR 355 (SC). The Hon'ble Bombay High Court further held that the reliance placed by the Revenue on the judgment in the case of Vijaya Bank Ltd. Vs. CIT (1991) 187 ITR 541 (SC) was mis-placed. 11. The issue arising before us is similar to the issue before the Tribunal in The Ahmednagar Merchants Co-operative Bank Limited Vs. JCIT (supra), in assessee's own case relating to assessment years 2008-09 and 2009-10 (supra) and before the Hon'ble Bombay High Court in CIT Vs. M/s. Gajanan Nagari Sahakari Bank Ltd. (supra) and following the same parity of reasoning, we hold that the assessee is entitled to the expenditure incurred on account of amortization of premium on HTM securities. Thus, the ground of appeal No.1 raised by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst the deduction claimed under section 36(1)(viia) of the Act at Rs. 2,32,78,941/-. After referring to the ratio laid down by the Hon'ble Supreme Court in Catholic Syrian Bank Ltd. Vs. CIT (2012) 343 ITR 270 (SC), which endorses the view of Hon'ble Punjab & Haryana High Court, wherein it was held that in order to claim the provision for bad & doubtful debts in respect of rural advances under section 36(1)(viia) of the Act, the provision has to be made in the previous year to which such bad & doubtful debts pertain. The CIT(A) further noted that in the original return of income, the assessee had claimed a lesser deduction and only in the revised return during the course of assessment proceedings, a higher claim of deduction of Rs. 2.32 crores had been claimed as per internal calculation by the CIT(A). The CIT(A) thus, observed that any provision made by the assessee after the previous year was over, cannot be allowed, in turn relying on the CBDT Instruction No.17/2008. Further, reliance was placed on the decision of Bangalore Bench of the Tribunal in ITA Nos.708 & 709/Bang/2010 in the case of DCIT Vs. Syndicate Bank for assessment years 2006-07 and 2007-08, order dated 09.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim of deduction but only deduction to the extent of Rs. 50,00,000/- being the amount of provision actually made in the books of account was allowed in the hands of the assessee. The relevant findings of the Tribunal are as under:- "9. We have carefully considered the rival submissions. We have also anxiously perused the authorities cited at Bar in order to determine the controversy on hand. The relevant portion of Section 36(1)(viia) of the Act, as applicable for the assessment year under consideration i.e. A.Y. 2008 - 09 reads as under:- "[(viia) [in respect of any provision for bad and doubtful debts made by- (a) a scheduled bank [not being [* * *] a bank incorporated by or under the laws of a country outside India] or a non-scheduled bank [or a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank], an amount [not exceeding seven and one-half per cent] of the total income (computed before making any deduction under this clause and Chapter VIA) and an amount not exceeding [ten] per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner : 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 1,94,21,000/- and not restricted to Rs. 1,90,36,000/-. The CIT(A) as well as the Tribunal negated the plea of the assessee and accordingly, the matter was carried before the Hon'ble Punjab & Haryana High Court. The Hon'ble High Court referred to the provisions of Section 36(1)(viia) of the Act and observed that ".....the deduction allowable under the above provisions is in respect of the provision made" and further went on to hold that ".....making of a provision for bad and doubtful debts equal to the amount mentioned in this section is must for claiming such deduction." In view of the aforesaid judgement of the Hon'ble Punjab & Haryana High Court, in our view, the position sought to be canvassed by the assessee deserves to be repelled. We reproduce hereinafter the relevant portion of the order of the Hon'ble High Court, which reads as under:- "5. Sec.36(1)(viia) of the Act as applicable to the asst. yr. 1985-86, reads as under : "in respect of any provision for bad and doubtful debts made by a scheduled bank [not being a bank approved by the Central Government for the purposes of cl.(viiia) or a bank incorporated by or under the laws of a country outside Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubstantial question of law arises in this appeal for consideration by this Court. 11. In view of the aforesaid interpretation of Section 36(1)(viia) of the Act by the Hon'ble Punjab & Haryana High Court, the orders of the lower authorities deserve to be upheld inasmuch 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, and therefore, in our view, the lower authorities were justified in restricting the deduction to Rs. 50,00,000/-, being the amount of Provision actually made in the books of account. 12. The learned counsel for the assessee has cited certain decision in support of his proposition that the claim of deduction under Section 36(1)(viia) of the Act is not linked to making of a Provision in the account books. At the outset, we may observe that the decisions relied upon by the assessee are of various Benches of the Tribunal and not of any High Court. Therefore, the judgement of the Hon'ble High Court in the case of State Bank of Patiala (supra), which is contrary to the decisions of the Tribunal relied upon by the assessee; and being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o laid down by the Pune Bench of the Tribunal in M/s. The Ajara Urban Co-op Bank Ltd. Vs. ACIT in ITA Nos.2067 & 2068/PN/2013, relating to assessment years 2009-10 and 2010-11, order dated 31.12.2013. 24. The learned Departmental Representative for the Revenue placed reliance on the order of CIT(A). 25. We have heard the rival contentions and perused the record. The issue arising in the present appeal is in relation to the recognition of interest income accruing on the NPAs. The assessee had worked out the interest accrued on such NPAs and recognized the same in its books of account and on the contra had passed an entry by reversing the same to the reserve account. As per the guidelines of RBI, the interest on such NPAs is to be recognized only on receipt basis and admittedly, during the year under consideration the assessee had not received any interest on such NPAs from any person. In view thereof, we find no merit in the orders of authorities below in holding that since the assessee had recognized the accrual of income, the same is taxable in the hands of the assessee. The assessee has also passed contra entry in its books of account transferring the same to Reserve account. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see. 6. An identical view has been taken by the ITAT, Ahmedabad Bench in the case of Karnavati Cooperative Bank Ltd. Vs. Dy.CIT [134 ITD 486 (Ahmedabad)]. In the case of Karnavati Cooperative Bank Ltd. (supra), the Tribunal has considered the provisions of section 43D and its application to the non-scheduled banks. The reasons given by the Tribunal in the case of Karnavati Cooperative Bank Ltd. (supra) for holding that interest on the sticky advances/NPA advances cannot be brought to tax by following the decision in the case of UCO Bank (supra), which is as under: "15.1. On careful analysis of this section our first observation is that Section 43D is in contrast with the fundamental principle of accountancy. The cardinal principle of mercantile system of accountancy is that an income is to be shown in the books of account on accrual basis. The principle is that it is immaterial whether it was actually received or not, but if an income is expected to be received, then it should be brought to books of account as an income accrued to the assessee. Contrary to this recognized principle, this section has prescribed that an income by way of interest shall be chargeable to tax in the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Officer is satisfied that recovery is practically improbable. The CBDT u/s.119 of the I.T.Act has power to issue Circulars in exercise of its statutory powers. If the Board consider it necessary to lay down certain Rules and then direct the sub-ordinate authorities, such directions are required to be followed and such Circular would be binding on the Department unless and until held as ultra vires by a court of law. The Board has powers to relax the severity or the strictness of law and the authorities are required to follow those instructions as held in the case of C.B. Gautam vs. Union of India 108 CTR 304 (SC) & 110 CTR 179 (SC); Navnitlal C.Zaveri 56 ITR 198(SC) and K.P.Varghese 131 ITR 597 (SC). In the land-mark decision, the Hon'ble Supreme Court in the case of UCO Bank vs. CIT (1999) 237 ITR 889 (SC) has therefore held, first, that a beneficial circular is not to be treated as inconsistent with the provisions of statute and binding on the authorities. Second, that in respect of interest on "sticky advances" interest income is to be taxed only when actually received as prescribed by CBDT Circular. However, in the past an interesting turn had taken place by an order o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g as there is no ambiguity in the statutory language, resort to any interpretative process to unfold the legislative intent becomes impermissible. The supposed intention of the Legislature cannot then be appealed to whittle down the statutory language which is other-wise unambiguous. If the intendment is not in the words, it is nowhere else. The need for interpretation arises when the words used in the statute are, on their own terms, ambivalent and do not manifest the intention of the Legislature. When words acquire a particular meaning or sense because of their authoritative construction by superior courts, they are presumed to have been used in the same sense when used in subsequent legislation in the same or similar context. To say that the court could not resort to the so-called "equitable construction" of a taxing statute is not to say that, where a strict literal construction leads to a result not intended to subserve the object of the legislation, another construction, permissible in the context, should not be adopted. In this respect, taxing statutes are not different from other statutes." We can therefore safely draw a conclusion that by the insertion of a special provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebts as may be prescribed having regard to the Guidelines issued by the RBI in relation to such debts'. This expression continues to exist in the newly substituted section 43D applicable with effect from 1-4-2000. This shows that the RBI Guidelines in respect of scheduled banks, public financial institutions etc., were not sufficient for recognition of income on cash basis for the purposes of income-tax. The income of such assessees was determined as per circular dated 9-10-1984. Because of this reason, section 43Dwas inserted in the statute. RBI Guidelines in case of NBFC are for the purpose of control and supervision with respect to public interest and viability of the NBFC. The Guidelines never intended for taking the interest income accrued as per section 5 out of the scope of the Act. If the contention of assessee was accepted, it would amount to insertion of 'NBFC' in section 43D, that too by a Guideline issued for different purposes by an authority other than the Parliament In other words, the doctrine of 'Casus Omissus' will deem to have been applied which is contrary to law of land."Unquote. The basic reason for directing to assess the accrued interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missibility of provision made in respect of doubtful debts. (vi) Concept of real income approved in the case of banking business: Before us, the theory of "real income" has also been argued and in support a decision of Hon'ble Court pronounced in the case of CIT vs. Godhra Electricity Co. 225 ITR 746 (SC). In short, the view expressed was that if income does not result at all, there cannot be any tax and that if an income has not materialized, then merely an entry made about a hypothetical income by following book keeping methods, the liability to tax cannot be attracted. Now at present the situation is that the Hon'ble Madras High Court in the case of CIT vs. Elgi Finance Ltd. 293 ITR 357 (Mad.) has taken a view that the assessee is a company engaged in the business of lease, finance and hire purchase and that the principle of accrual comes into play without income was recognized and that the assessee had classified its assets on the basis of notification issued by R.B.I. and found that certain assets came under the category of NPA and that from such NPA the assessee had not recognized any income in consonance with the notification issued by RBI and AS-9 issued by ICAI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orrect perspective and matter be set-aside. However, we find that both the Assessing Officer and the CIT(A) had considered the said issue. The Assessing Officer observed as under:- "9. Disallowance of claim made on account of "Contingent provision for standard assets" 9.1 As per the revised return filed on 17/02/2011, the assessee bank has claimed deduction on account of Contingent provision against standard assets amounting to Rs. 5,00,000/-. During the course of assessment proceedings, it was requested to explain the reasons as to why the contingent provision against Standard Assets amounting to Rs. 5,00,000/- should not be disallowed as there is no specific provision in the IT Act, 1961 in this regard. 9.2 The assessee bank has claimed this provision u/s.36 (1) (viia) of the I.T Act, 1961. The assessee bank has explained that as per the RBI guidelines it is obligatory for it to make a general provision on standard assets of a minimum of 25%. The RBI has defined the standard asset as, "one which does not disclose any problem and which does not carry more than normal risk attached to the business. Such an asset should not be an NPA." The provision is made as per RBI guidelines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of an event would normally not constitute an allowable expenditure under the Income-tax Act. As seen from RBI circulars, provisioning for standard assets was introduced in the interests of counter cyclically and so as to ensure that banks and NBFCs create a financial buffer to protect them from the effect of economic downturns. The nomenclature of the provision itself suggests that it is a contingent liability provided at a small percentage of the value of standard assets and not an ascertained and crystallized liability. The very fact that as per RBI Circular, the provisions towards Standard Assets need not be netted from gross advances but shown separately as 'Contingent Provisions against Standard Assets' in the balance sheet, clearly shows that it is not for diminution in the value of any assets but only to create a financial buffer in order to protect banks and NBFCs from the economic downturns. This is a liability which is contingent upon event i.e. standard assets likely to become bad, which may or may not happen. There is no provision under the IT Act to allow such contingent provision as deduction from taxable income. Thus, the provision for standard assets is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioned hereinbefore, the RBI Guidelines or prudential norms issued by RBI are not intended to regulate income-tax laws. The admissibility or otherwise of a particular deduction in computing the total income under the Income Tax Act has to be decide d under the provisions of the Act itself. The fact of the matter is that the provision in question being in the nature of purely a contingent one and there is no provision under the IT Act to allow such contingent provision as deduction from taxable income. Therefore, the Assessing Officer has rightly disallowed such contingent provision of Rs. 5,00,000/- and the action of the Assessing Officer is accordingly, upheld. Ground of appeal No. 5 fails." 30. The learned Authorized Representative for the assessee failed to controvert the findings of the CIT(A) in this regard and in the absence of same, we find no merit in the plea of assessee in allowing deduction on account of contingent liability. The ground of appeal No.4 raised by the assessee is dismissed. 31. The issue in ground of appeal No.5 raised by the assessee is with regard to the compliance to RBI guidelines and the entries made in the books of account, in view of the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X
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