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TMI Blog2015 (1) TMI 1267X X X X Extracts X X X X X X X X Extracts X X X X ..... ,37,000/- towards provision for Standard Assets which were made as per directions of R.B.I. 4. The assessee craves for leave to add, amend, alter or delete any of the grounds of appeal with the permission of the Hon'ble Tribunal. 3. The present appeal is filed after a delay of 1023 days. The assessee has moved an application for condonation of delay in filing the present appeal late and also filed an Affidavit in this regard. The contention of the assessee vide the Affidavit was that the order of the CIT(A) was received on 11.03.2009 and on the same day, noting was put with the Asst. Manager, Accounts, who discussed the issue with the Tax Consultant and taken action accordingly. The Consultant of the assessee was Shri V.V. Joshi, who had also attended the proceedings before the CIT(A) and since nothing was heard from his office, no action was taken for filing the appeal. However, during the course of filing the appeal for subsequent years, it was noted that the issue involved in the appeal was fully settled by the CBDT's circular and the assessee was entitled to the claim of deduction in respect of Amortization of Premium on Securities and provision made in respect of rural adva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elines issued by the RBI and NABARD. The Assessing Officer was of the view that the investment in Government Securities was to be realized either at the time of maturity or at the time of its sale. In the facts of the present case wherein, there was no transfer, the said loss was not allowable as deduction, as per the Assessing Officer. 8. The CIT(A) observed that the securities held by the assessee were permanent investment as they were not held for trading, but were held up to maturity. Where the securities were permanent investment, then the same are to be declared at purchase price, unlike the trading assets or stock, for which the bank could adopt the method of accounting based on cost or market value. The CIT(A) further observed that the guidelines framed by the RBI and NABARD may be binding on the banks, but were not binding under the Income Tax laws. In view thereof, the disallowance made by the Assessing Officer was upheld by the CIT(A). 9. The learned Authorized Representative for the assessee pointed out that the said premium on Amortization is squarely covered by the CBDT's Circular No.17/2008, dated 26.11.2008. 10. The learned Departmental Representative for the Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In view thereof, we are of the view that even question (C) does not arise any substantial question of law that requires an answer from us." And a similar view has been taken by ITAT, Pune 'A' Bench in the case of Dy.CIT vs. Kallappanna Awade Ichalkaranji Janata Sahakari Bank Ltd. in ITA No.449/PN/2012 and another by observing as under: "10. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find an identical issue had come up before the Tribunal in the case of Nahsik Merchant Cooperative Bank Ltd. (Supra). We find the Tribunal has discussed the issue and dismissed the grounds raised by the Revenue by holding as under : "4. After going through rival submissions and material on record we find that with the advent of section 80P(4) w.e.f. A.Y, 2007-08 has closed the doors for cooperative banks for claiming the benefit of deduction u/s.80P(2)(a)(i) from this total income. However, the cooperative society should now be entitled to be assessed as normal banking company. The clause (4) inserted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the CBDT Instruction No.17 of 2008 dated 26.11.2008, on 'Assessment of Bank - check list for deduction, states as under: "As per RBI guidelines....." 8. The ITAT, Mumbai Bench, in the case of ACIT vs. The Bank of Rajasthan Ltd. (2011) TIOL-35-ITAT-Mumbai, has held that in case of banks, the premium paid in excess of face value of investments classified under HTM category which has been amortised over the period till maturity is allowable as revenue expenditure since the claim is as per RBI Guidelines and CBDT also has directed to allow such premium. It has also been held in the case of Catholic Syrian Bank Ltd. Vs. ACIT that amortization on purchase of Government securities was made as per prudential norms of the RBI and same was allowable deduction. In view of above, assessee was justified in contending for amortization of premium paid in excess of face value of securities held to maturity (HTM) category or period remaining till maturity was found reasonable by the CIT(A). Accordingly addition of Rs. 17,91,659/- made by the Assessing Officer by disallowing amount towards amortization of Government Securities (HMT) was deleted. This reasoned factual and legal finding of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Maturity on the ground of mandate by the RBI Guidelines, after considering the decision of the Hon'ble Supreme Court in Southern Technologies Vs. JCIT, (2010) 320 ITR 577 (SC), had dismissed the appeal filed by the Revenue holding that no substantial question of law had arisen in the instant appeal. 14. The issue arising in the present appeal is identical to the issue decided by the Pune Bench of the Tribunal (supra) and Hon'ble Bombay High Court (supra), and following the same parity of reasoning, we hold that the assessee is entitled to the deduction of Rs. 58,41,016/- being the Premium on Amortization of Securities. Accordingly, we direct the Assessing Officer to allow the claim of the assessee and delete the addition of Rs. 58,41,016/-. The ground of appeal No.1 raised by the assessee is thus, allowed. 15. The issue arising in the ground of appeal No.2 is against the addition made on account of provision for interest on NPAs. During the course of assessment proceedings, the Assessing Officer noted from the balance sheet that a sum of Rs. 49,53,000/- was shown as interest receivable on NPAs account on the assets side and contra entry of NPA interest reserve account was made on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion in the order of the Tribunal dated 31.10.2013 (supra) is reproduced as under :- "8. We have carefully considered the rival submissions. In 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. Ostensibly, 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. Notably, section 43D of the Act prescribes that interest income on such categories of bad and doubtful debts as prescribed by the RBI guidelines shall be chargeable to tax in the year in which such interest income is credited by the assessee in the Profit and Loss account or in the year of actual receipt, whichever is earlier. Since assessee is not an entity covered within the scope of section 43D of the Act, the present controversy cannot be adjudicated in the light of section 43D of the Act, and it is liable to be decided on general principles as to whether the impugned income has accrued to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s following mercantile system of accounting. The learned CIT (A) affirmed the order of the Assessing Officer. However, the ITAT deleted the aforesaid income. Hence the revenue preferred appeal before the Hon'ble Delhi High Court. 8.1 After hearing the rival submissions, the Hon'ble Delhi High Court took note of sec.45Q of Reserve Bank of India Act which reads as under: "Chapter IIIB to override other laws. 45Q. The provisions of this Chapter shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law". The High Court took note of the fact that the provision of 45Q of Reserve Bank of India has overriding effect over any other law. Then the Hon'ble High Court also considered accounting standard "AS-9" on "Revenue recognition" and also extracted following relevant portion from the said accounting standard: 9. Effect of uncertainties on Revenue Recognition 9.1 Recognition of revenue requires that revenue is a measurable and that at the time of sale or the rendering of the service, it would not be unreasonable to expect ultimate collection. 9.2 Wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest income had not accrued. Moreover, this submission of Mr. Sabharwal is based entirely on the judgment of the Supreme Court in the case of Southern Technology (Supra). No doubt, in first blush, reading of the judgment gives an indication that the Court has held that Reserve Bank of India Act does not override the provisions of the Income Tax Act. However, when we examine the issue involved therein minutely and deeply in the context in which that had arisen and certain observations of the Apex Court contained in that very judgment, we find that the proposition advanced by Mr.Sabharwal may not be entirely correct. In the case before the Supreme Court, the assessee a NBFC debited Rs. 81,68,516 as provision against NPA in the profit and loss account, which was claimed as deduction in terms of Section 36(1) (vii) of the Act. The Assessing Officer did not allow the deduction claimed as aforesaid on the ground that the provision of NPA was not in the nature of expenditure or loss but more in the nature of a reserve, and thus not deductible under section 36(i)(vii) of the Act. The Assessing Officer, however, did not bring to tax Rs. 20,34,605/- as income (being income accrued under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 1998 vis-à-vis "Income Recognition" principles in the Companies Act, 1956. These Directions constitute a code by itself. However, these Directions 1998 and the IT Act operate in different areas. These Directions 1998 have nothing to do with computation of taxable income. These Directions cannot overrule the 'permissible deductions" or "their exclusion" under the IT Act. The inconsistency between these Directions and Companies Act is only in the matter of Income Recognition and presentation of Financial Statements. The Accounting policies adopted by an NBFC cannot determine the taxable income. It is well settled that the Accounting Policies followed by a company can be changed unless the AO comes to the conclusion that such change would result in understatement of profits. However, here is the case where the AO has to follow the Reserve Bank of India Directions 1998 in view of Section 45Q of the Reserve Bank of India Act. Hence, as far as Income Recognition is concerned, Section 145 of the IT Act has no role to play in the present dispute". 10. Turning to the facts of the case before us, the assessee herein is a cooperative bank and it is not in dispute that it is also gov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed the decision of the Hon'ble Supreme Court in the case of Southern Technologies Ltd. (supra) in holding that interest on NPAs was assessable to tax on accrual basis. We have carefully considered the submissions put-forth by the learned Departmental Representative based on the judgement of the Hon'ble Madras High Court in the case of Sakthi Finance Ltd. (supra). The controversy before the Hon'ble Madras High Court related to non-recognition of interest income on NPAs by the assessee following the RBI guidelines. The Hon'ble Madras High Court took the view that the judgement of the Hon'ble Supreme Court in the case of Southern Technologies Ltd. (supra) also applied to the Income Recognition Norms provided by RBI and therefore it held the interest income on NPAs is liable to be taxed on accrual basis and not in terms of RBI's guidelines. But the Hon'ble Delhi High Court in the case of M/s Vasisth Chay Vyapar Ltd. (supra) has taken a view that Southern Technologies Ltd. (supra) case did not apply to the Income Recognition Norms prescribed by RBI. Ostensibly, there is divergence of opinion between the Hon'ble Delhi High Court and the Hon'ble Madras High Court as noted by the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Hon'ble Supreme Court the case of Southern Technologies Ltd. Vs.JCIT (2010) 320 ITR 577 (SC) . The Hon'ble Supreme Court has clearly pointed out that claim for deduction of an expenditure is liable to be governed by the provisions of the Act and not merely on account of the RBI guidelines. In our view, the ratio of the judgment of the Hon'ble Supreme Court the case of Southern Technologies Ltd. (supra) clearly applies to the present case and the claim of the assessee has been rightly rejected by the lower authorities. Thus, on this Ground, assessee has to fail."
20. The issue of deduction claimed on account of provision for standard assets is identical to the issue before the Tribunal in The Sindhudurg Dist. Central Co-op Bank Ltd. Vs. ITO (supra). In view of the admission of the learned Authorized Representative for the assessee, we hold that the assessee is not entitled to the claim of Rs. 56,37,000/- booked on account of provision for standard assets. The ground of appeal No.3 raised by the assessee is thus, dismissed.
21. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open Court on this 20th day of January, 2015. X X X X Extracts X X X X X X X X Extracts X X X X
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