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TMI Blog2015 (10) TMI 598X X X X Extracts X X X X X X X X Extracts X X X X ..... - Held that:- It is clear from the facts as it emanates from the record that announcement of schemes by NABARD happened during the previous year. Therefore accrual of liability as far as assessee is concerned is only when subvention percentage is announced by NABARD. Till such time, the assessee’s liability cannot be said to have accrued. Since liability relates to the previous year in which subvention is announced by NABARD, we are of the view that accrual of liability occurs only when the subvention percentage is announced by NABARD and it is only thereafter that the Assessee can know what is the liability on account of sub-vention that it has to bear. In that view of the matter we find no infirmity in the order of the CIT(A). We therefore confirm the order of the CIT(Appeals) - Decided in favour of assessee. Additions made on account of non-business expenditure - whether expenditure is incurred as per the directions of its controlling authority and no documentary evidence was furnished before the A.O. to prove to his satisfaction that on account of this expenditure, the assessee derived certain income or benefits? - CIT(Appeals) observed that though the expenditure is made on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eral in nature and calls for no adjudication. Ground Nos. 2 3 reads as follows:- 2. The learned CIT(A) ought to have upheld the decision of the Assessing Officer in respect of the addition made in the case of interest income on account of method of accounting followed by the assessee as the assessee has neither followed mercantile nor cash system but followed hybrid system. By virtue of the provisions of section 145 of the Income Tax Act, the assessee is required to follow either cash or mercantile system of accounting to compute the real income. No adjustment could be made to the income assessed on accrual basis. 3. The learned CIT(A) has erred in deleting the addition on account of interest on non performing assets as the assessee has already identified and accounted the interest on NPAs and as such it can be clearly held that this interest on NPAs has also accrued to the assessee as on 31-03-2010 and is taxable. The learned CIT(A) has relied upon the decision of Hon ble Jurisdictional High court in the case of CIT Vs Canfin Homes Ltd (2011) 5 Tax Corp (DT) 49593, reported in 347 ITR 382 on this issue despite the fact that the Department has challenged this decision befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e system of accounting. Following the aforesaid decision, the CIT(Appeals) was of the view that interest on NPA to the extent of ₹ 16.89 lakhs cannot be brought to tax. 7. Aggrieved by the order of CIT(Appeals), the Revenue has raised grounds 2 3 before the Tribunal. 8. As can be seen from the grounds raised, the Revenue does not dispute the proposition of law laid down by the Hon ble High Court of Karnataka in Canfin Homes (supra) and the fact that the said ratio is applicable to the case of the assessee. The only grievance of the Revenue appears to be that a SLP has been filed against the decision of the Hon ble High Court and therefore the issue is being agitated before the Tribunal. We are of the view that in light of the pronouncement of Hon ble High Court of Karnataka in the case of Canfin Homes (supra) , there can be no question of accrual of income on NPA and therefore even under the mercantile system of accounting, it cannot be said that income has accrued or arisen to the assessee. The fact that the Revenue has preferred SLP against the decision of the Hon ble High Court cannot be a ground to take any different view on the issue. We therefore uphold the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, the AO was of the view that it was very clear that there was liability of the Bank to pay a sum of ₹ 7,08,43,762/- to the PACs towards interest sub-vention due from Central Government calculated at 2% on the short term agricultural loans advanced by the Bank and also interest sub-vention on own funding of PACs. This liability is for the Financial Year 2008-09 relevant to the Asst. Year 2009-10. The assessee has received a sum ₹ 2,91,73,000/- out of the above referred ₹ 7,08,43,762/- in the Financial Year 2009-10. The balance amount of ₹ 4,16,70,762/- was claimed, by the assessee as actual expenditure made to the PACs during the F.Y. 2009-10 i.e. A.Y. 2010-11. From the above, it is clear that the actual claim on payment basis made by the assessee amounting to ₹ 4,16,70,762/- does not pertain to the previous year relevant to the Asst. Year 2010-11. These expenditures pertains to prior period i.e., for the Asst. Year 2009-10. 13. In view of the above and also considering the fact th t the assessee is following mercantile system of accounting, according to the AO, the expenses cannot be claimed on payment basis in the AY 2010-11 and the same s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was argued that the method of accounting consistently followed in respect of this expenditure should not be disturbed. 17. The ld. CIT(Appeals) found strength in the argument of the assessee that though the basis of calculation for arriving at the expenditure is based on the disbursement of loans to targeted sections of agriculturists, the liability for the same arises in the year of raising of bills by PACs which happens in the subsequent years counting the disbursement upto the year end. Hence, he held that it was the expenditure relatable to previous year and accordingly directed the AO to allow the same. 18. Aggrieved by the order of CIT(Appeals), the Revenue has raised ground No.4 before the Tribunal. 19. We have heard the submissions of the ld. DR, who relied on the order of Assessing Officer. The ld. counsel for the assessee relied on the order of CIT(Appeals). 20. We have given a very careful consideration to the rival submissions. It is clear from the facts as it emanates from the record that announcement of schemes by NABARD happened during the previous year. Therefore accrual of liability as far as assessee is concerned is only when subvention percentage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, the assessee in his letter dated 05.02.2013 stated as under:- We have been asked to provide the details of the amounts paid to Navodaya Grama Vikas Charitable Trust (Regd) and debited to Other Expenditure Account. Navodaya Grama Vikas Charitable Trust is a registered Trust formed as per the directions of our controlling authority - NABARD. Through the said Trust the bank is promoting the formation of Self Help Groups in the districts of Dakshina Kannada and Udupi. The bank has been advancing loans to those self help groups for generating income. The loans are given to SHGs for home industries like Candle making, soap making and such other activities. The income generated by such self help groups come back to our bank as deposits. Under this Micro Financing scheme rural poor and uneducated people get to know banking, learn to handle finance and increase their income level. They also develop the habit of thrift and rural poor learn to save money. The scheme has a great vision of upliftment of the rural poor through these activities. With this object in view, NABARD, our controlling authority has thrust this responsibility on us. The expenses made by us are in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure, the assessee derived certain income or benefits. The MOU relied on by the assessee has no relevance to this issue. Considering the above, a sum of ₹ 93,73,200/- was disallowed by the AO treating the same as non-business expenditure. 25. Before the CIT(Appeals), the assessee reiterated the submissions made before the AO. It was further argued that it is not correct to say that there is no generation of income because of this expenditure as, firstly, the assessee has no choice but to incur this expenditure since it is a directive from NABARD and it is a kind of mandatory expenditure. Secondly, the assessee could generate loan disbursements to the tune of ₹ 500 crores and deposit mobilization of ₹ 85 crores from these SHGs. There was no adverse findings on these facts by the AO. The assessee has no exempted income. 26. The assessee relied on the decision of Sri Venkata Sathyanarayana Rice Mills Vs CIT (223) ITR 101 wherein it was observed that What is to be seen is not whether it was compulsory for the assessee to make the payment or not but whether it was expended out of consideration of commercial expediency. As long as the payment is made for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Assessee s controlling authority, NABARD. Through the said Trust the Assessee is promoting the formation of Self Help Groups in the districts of Dakshina Kannada and Udupi. The Assessee has been advancing loans to those self help groups for generating income. The loans are given to SHGs for home industries like Candle making, soap making and such other activities. The income generated by such self help groups come back to the Assessee as deposits. Under this Micro Financing scheme rural poor and uneducated people get to know banking, learn to handle finance and increase their income level. They also develop the habit of thrift and rural poor learn to save money. The scheme has a great vision of upliftment of the rural poor through these activities. With this object in view, NABARD, has thrust the responsibility of making payments to Navodaya Trust. The expenses in question are in respect of the remuneration paid each month to 250 Animators and 8 coordinators. Such Animators and coordinators do the work of liaisoning, training, monitoring and guiding such SHGs. They are also promoting various loan products of the Assessee s bank and are also work as the persons canvassing for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f income tax is applicable in this case. 32. The AO noticed that the assessee has reduced a sum of ₹ 26,63,034/- from the gross interest received from non-statutory liquidate Ratio (non-SLR) and ₹ 4,28,49,794 from the gross interest from statutory liquidatory ratio (SLR) received during the year relevant to AY 2010-11. The amounts so reduced was termed by the assessee as Amortised Amount . In short, from the total interest, the assessee has claimed a sum of ₹ 4,55,12,828/- towards Amortisation and claimed the same as a deduction and offered the remaining interest for taxation. The AO vide requisition dated 25.6.2012 asked the assessee to justify this claim as under: To file detail of amortization expenses, giving detail of govt. security on which this premium was paid. Please explain as to how the amortization expenses is a revenue expenses. 33. The assessee in its reply dated 14.08.2012 has stated as under:- This method of amortization of premium on investment is in line with the guidance notes on audit of the Banks given by the Institute of Chartered Accountants of India. The Bank has followed the normal method of accounting and writing off of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(Appeals) deleted the addition made by the AO observing as under:- 7.2 In appeal, the appellant relied on the binding decision of Jurisdictional Hon ble ITAT Bangalore Bench in Sri M. Visweswraya Co-operative Bank Ltd vs JCIT in ITA No. 1122/Bang/2010 wherein, it is held that the amortized premium is allowable as expenditure / deduction. Hon ble ITAT also relied on Board instruction no. 17/208 which also states that amortization premium is to be allowed as deduction. 7.4 I have perused the order of the Hon ble ITAT cited by the appellant. In that case, that AO also relied on Madras High Court decision cited by the AO. After analyzing various case laws, Hon ble ITAT held that this expenditure is an allowable expenditure. 7.5 Respectfully following the jurisdictional ITAT order cited supra, I direct the AO to delete the addition. 38. Aggrieved by the order of the CIT(A), the revenue has preferred the aforesaid ground before the Tribunal. 39. We have heard the rival submissions. The issue raised by the assessee in ground No.8 9 is no longer res integra and has been decided by this Tribunal in the case of M/s. Sir M. Visweswaraya Cooperative Bank Ltd. Vs. JCIT, I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital nature. Thus, he was of the view that the assessee was not entitled to deduction of amortization of premium on investments u/s.36(1)(vii). Aggrieved, the assessee is in second appeal before us with this issue. 06. The learned counsel for the assessee submitted that the Commissioner of Income-tax (Appeals) had failed to see the reason that a issue similar to that of the present one had been allowed by various benches of the Hon'ble Tribunals, namely : Catholic Syrian Bank Ltd., v. ACIT Cochin (2010) 38 SOT 553 ; Khanapur Coop.Bank Ltd., v. ITO in ITA.141/PNJ/2011 (Panaji); Corporation Bank v. ACIT, M'lore in ITA.112/Bang/2008 (Bang) The learned counsel also placed reliance on Board's Instructions No.17 of 2008(vii) and pleaded that the claim of the assessee be allowed as the assessee had the powers to debit in its P L account a sum of ₹ 29,02 lakhs of amortization of premium. 07. Per contra, the learned DR was unable to controvert to the submissions of the learned counsel for the assessee. 08. We have carefully considered the rival submissions and perused the relevant facts and materials on record. We have also considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is dismissed. 42 . ITA No.1266/B/13 is also an appeal by the Revenue against the order dated 18.3.2014 relating to AY 2011-12. Ground No.1 is general in nature and calls for no adjudication. 43. Ground Nos.2 3 are identical to ground Nos. 2 3 raised by the Revenue in ITA No.34/Bang/2014 for the AY 2010-11. For the reasons stated therein while deciding the aforesaid grounds, we dismiss ground Nos. 2 3 raised by the Revenue in this appeal also. 44. Ground Nos. 4.1 4.2 read as follows:- 4.1 The Ld. CIT(A) erred in deleting the addition made on account of interest accrued on investments ignoring the fact that the assessee is following the Mercantile system of accounting as stated in Form 3CD. 4.2 Ld.CIT(Appeals) has erred in deleting the addition on accrued investment relying on the decision of Hon ble Karnataka High Court in CIT vs The Karnataka Bank Ltd. ITA No.433/2006 without appreciating the fact that the Department has not accepted the decision and since the SLP filed has been dismissed without going into the merits of the case, the question of law continues to remain unsettled. 45. On perusal of the assessee s P L A/c, the AO noticed that an amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment proceedings for A.Y. 2012-13 in case any part of income that is added back for A.Y. 2011-12 on mercantile basis forms a part of the income offered for A.Y.2012-13 on cash basis. Therefore, the question of double taxation does not arise. 6.1.29 In view of the above, an amount of ₹ 15,08,94,552/- being interest accrued on investments for A.Y. 2011-12 is added to the income. 46. In appeal before the CIT(Appeals), it was argued by the assessee that the interest accrues on bonds on the due date specified at the time of issuing the bond which has fallen due after the previous year. Hon ble High Court of Karnataka in the case of CIT vs. The Karnataka Bank Ltd. , held that the taxing authority have no right to tax interest on investment unless it becomes due and payable as per provisions of section 5 of the IT Act. 47. The CIT(Appeals) was of the opinion that the Hon ble High Court of Karnataka in the case law cited above, has clearly held that if the interest does not become due and not liable to pay such part of interest, it cannot be said that the interest has become accrued. Hence, it was held that the broken period interest on the government securities in the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owever, disallowed the claims of the assessee, holding that after the omission of section 18 of the Act, i.e., after July 8, 1988, interest is to be assessed under the head Business or Other Sources as the case may be, and therefore, the interest which accrued up to the end of the accounting year became taxable as the income of the previous year. The Commissioner of Income-tax (Appeals) held that the Assessing Officer was not justified in holding that the interest accrued up to the last day of the accounting year should be subjected to tax. This was upheld by the Tribunal. On appeal to the High Court: Held, dismissing the appeal that even though section 18 of the Act was deleted, the assessee was taxable for interest on securities only on specified dates when it became due for payment, in view of the third proviso to section 145(1) of the Act, which was in force during the relevant assessment years. 50. It is not in dispute before us that identical decision has also been rendered by the Hon ble High Court of Kerala in the case of CIT v. Federal Bank, 301 ITR 188 (Ker) and the Hon ble Karnataka High Court in the case of Karnataka Bank Ltd. in ITA No.433/2005 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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