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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 ..... made on account of provision for interest on NPAs - Held that:- Similar issue of allowability of the provision made on account of interest on NPAs, arose before Pune Bench of the Tribunal in the case of Shri Yashwant Sahakari Bank Ltd. Vs. ITO [2014 (4) TMI 1118 - ITAT PUNE] held that the interest on NPA advance cannot be treated as “accrued” to the assessee.- Decided in favour of assessee Addition towards provision for Standard Assets made as per the guidelines of RBI - Held that:- The issue raised is squarely covered against the assessee by the order of Pune Bench of the Tribunal in The Sindhudurg Dist. Central Co-op Bank Ltd. Vs. ITO [2012 (3) TMI 492 - ITAT PUNE] wherein held 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. (2010 (1) TMI 5 - SUPREME COURT OF INDIA ) clearly applies to the present case and the claim of the assessee has been rightly rejected by the lower authorities - Decided against assessee - ITA No.386/PN/2012 - - - Dated:- 20-1-2015 - SHRI G.S. PANNU, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entative for the Revenue stressed that there was no merit in the condonation application filed by the assessee and the appeal of the assessee should be dismissed. 5. We have heard the rival contentions and perused the record. Admittedly, the assessee has filed the present appeal after a delay of 1023 days. The explanation of the assessee by way of Affidavit filed by the Dy. General Manager of the assessee bank is that though the order of CIT(A) was received on 11.03.2009 but the appeal against the said order could not be filed in time because of in-action of the Consultant of the assessee bank. The assessee further claimed that it had forwarded the appellate order on receipt, to the Asst. Manager, Accounts, for handing over the same to the Consultant. However, no action was taken by the Consultant in this regard and filing of the appeal was delayed. However, while filing the appeal for the subsequent years, it came to the notice of the assessee that the appeal for the present assessment year was not filed by the Tax Consultant. In view of the issue being covered by the CBDT s Circular thereafter, the assessee has filed the present appeal, after a delay of 1023 days. In the total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision made on account of Amortization of Securities known Held To Maturity. The case of the Revenue was that the said securities were held as investments and consequently, the purchase cost was to be adopted and there was no basis for adopting the market value of the said assets and booking the loss in the value of securities at the close of the year. The claim of the assessee on the other hand was that, in view of the guidelines framed by the RBI and NABARD, the said entries were made in the books of account which resulted in loss of ₹ 58,41,016/- which was booked as an expenditure for the year under consideration. 12. We find similar issue of the allowability of Premium on Amortization of HTM Securities, arose before Pune Bench of the Tribunal in Pune District Central Co. Operative Bank Ltd. Vs. Addl.CIT in ITA No.1796/PN/2013, relating to assessment year 2009-10 and vide order dated 28th November 2014, it was held as under:- 10. We find that a similar issue of allowability or deduction on account of amortization of premium expenditure for HTM securities arose before Pune Bench of the Tribunal in assessee s own case in ITA No.1795/PN/2013 relating to assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers. The new clause (4) inserted by the Finance Act, 2006 w.e.f. 01- 04-2007 reads as under: The provision of the section was not in relation to any cooperative bank other than agricultural credit society or primary cooperative agricultural and rural development bank . 5. The intention of the provision may be derived more precisely from relevant Para 166 of the budget speech which stated that : Cooperative banks, like any other bank, are lending institutions and should pay tax on their profits, Primary Agricultural Credit Societies (PACS) and Primary Cooperative Agricultural and Rural Development Bank (PCARDB) stand on a special footing and will continue to be exempt under section 80P of the Income Tax Act. However, I propose to exclude all other cooperative banks from the scope of that section . Accordingly, section 80P is to be amended to give effect to the above proposal. It is also proposed to amend section 2(24) to provide that profits and gains of business of banking (Including providing credit facilities) carried on by a co-operative society with its members shall be included in the definition of 'income' (with effect from 1st April, 2007) . 6. Coopera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the Coordinate Bench of the Tribunal and in absence of any contrary material brought to our notice against the above cited decision we find no infirmity in the order of the Ld.CIT(A) deleting the addition. Accordingly, the order of the Ld.CIT(A) is upheld and the grounds raised by the Revenue are dismissed. 2.2 Nothing contrary has been brought to our knowledge on behalf of the Revenue. Facts being similar, so following the same reasoning we hold 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. In view of above, the assessee is justified in contending that the amortization of premium in excess of face value securities as HTM, period remaining difference was found reasonable. Accordingly, the disallowance of ₹ 2,20,68,302/- made by the Assessing Officer claimed as amortization of premium expenditure for HTM securities by payment of premium over and above the face value of such securities is directed to be allowed. 11. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directly taken to the balance sheet. The Assessing Officer show caused the assessee as to why such interest accrued on NPAs should not be treated as income of the assessee, since it was following the mercantile system of accounting. In reply, the assessee submitted that interest on NPAs was to be treated as income for the year of actual receipt. For the proposition, the assessee relied on various decisions, RBI Instructions and the CBDT s Circular dated 19.10.1984. The said provision was made on account of the guidelines of the RBI and NABARD, which was not allowed by the Assessing Officer holding that the guidelines of RBI and NABARD were not binding under the Income Tax Laws. The CIT(A) upheld the order of Assessing Officer. 16. We find that similar issue of allowability of the provision made on account of interest on NPAs, arose before Pune Bench of the Tribunal in the case of Shri Yashwant Sahakari Bank Ltd. Vs. ITO in ITA No.356/PN/2014 relating to assessment year 2006-07 vide order dated 28.04.2014, it was held as under:- 4. At the time of hearing, it was a common point between the parties that an identical controversy has been considered by the Pune Bench of the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of The Durga Cooperative Urban Bank Ltd. (supra) has considered an identical controversy. The assessee before the Visakhapatnam Bench was a Co-operative Bank operating under a license issued by RBI but was not a scheduled bank so as to fall within the scope of section 43D of the Act. The issue related to taxability of interest income relating to NPAs, which as per the Revenue was liable to be taxed on accrual basis in line with mercantile system of accounting adopted by the assessee therein. The assessee, on the other hand, contended that having regard to the guidelines issued by RBI regarding accounting of interest on NPAs, no interest income accrued in respect of NPAs and that the same was to be taxed only on receipt basis. The Tribunal observed that the question of taxability of interest on NPAs classified by RBI, was considered by the Hon ble Delhi High Court in the case of M/s Vasisth Chay Vyapar Ltd. (supra) wherein after considering the decision of the Hon ble Supreme Court in the case of Southern Technologies Ltd. (supra) it was held that interest income relatable to NPAs was not includible in total income on accrual basis since the same did not accrue to the assessee. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r escalation of price, export incentives, interest etc., revenue recognition is postponed to the extent of uncertainty involved. In such cases, it may be appropriate to recognize revenue only when it is reasonably certain that the ultimate collection will be made. Where there is no uncertainty as to ultimate collection, revenue is recognized at the time of sale or rendering of service even though payments are made by instalments. 9.3 When the uncertainty relating to collectability arises subsequent to the time of sale or the rendering of the service, it is more appropriate to make a separate provision to reflect the uncertainty rather than to adjust the amount of revenue originally recorded. 9.4 An essential criterion for the recognition of revenue is that the consideration receivable for the sale of goods, the rendering of services or from the use of others of enterprise resources is reasonably determinable. When such consideration is not determinable within reasonable limits, the recognition of revenue is postponed. 9.5 When recognition of revenue is postponed due to the effect of uncertainties, it is considered as revenue of the period in which it is properly recognized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eductibility of provision for NPA. After analyzing the provisions of the Reserve Bank of India Act, their Lordships of the Apex Court observed that in so far as the permissible deductions or exclusions under the Act are concerned, the same are admissible only if such deductions/exclusions satisfy the relevant conditions stipulated therefore under the Act. To that extent, it was observed that the Prudential Norms do not override the provisions of the Act. However, the Apex Court made a distinction with regard to Income Recognition and held that income had to be recognized in terms of the Prudential Norms, even though the same deviated from mercantile system of accounting and/or section 45 (sic. 145) of the Income Tax Act. It can be said, therefore, that the Apex Court approved the real income theory which is engrained in the Prudential Norms for recognition of revenue by NBFC . 9. The Hon'ble Supreme Court in the case of M/s Southern Technologies Ltd (Supra) dissected the matter into two parts viz., a) Income Recognition and b) permissible deduction/exclusions under the Income Tax Act. In so far as income recognition is concerned, the Hon'ble Supreme Court held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued by the Reserve Bank of India are equally applicable to the assessee as it is applicable to the companies registered under the Companies Act. The Hon'ble Supreme Court has held in the case of Southern Technologies Ltd (Supra), that the provision of 45Q of Reserve Bank of India Act has an overriding effect vis- -vis income recognition principle under the Companies Act. Hence Sec.45 Q of the RBI Act shall have overriding effect over the income recognition principle followed by cooperative banks also. Hence the Assessing Officer has to follow the Reserve Bank of India directions 1998, as held by the Hon'ble Supreme Court. 10.1 Based on the prudential norms, the assessee herein did not admit the interest relatable to NPA advances in its total income. The Hon'ble Delhi High Court in the case of Vasisth Chay Vyapar Ltd (Supra) has held that the interest on NPA assets cannot be said to have accrued to the assessee. In this regard, the following observations of Hon'ble Delhi High Court in the above cited case are relevant: What to talk of interest, even the principle amount itself had become doubtful to recover. In this scenario it was legitimate move to infer tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the Jurisdictional High Court. We are faced with two contrary judgments of the non-jurisdictional High Court. In such a situation, we are inclined to prefer a view which is favourable of the assessee following the judgement of the Hon ble Supreme Court in the case of CIT vs. Vegetable Products Ltd. (1973) 88 ITR 192 (SC). 13. Therefore, in view of the aforesaid discussion, we are inclined to follow the decision of our co-ordinate Bench in the case of The Durga Cooperative Urban Bank Ltd. (supra) and accordingly the order of the CIT(A) is liable to the affirmed. We hold so. 14. In the result, the appeal of the Revenue is dismissed. 5. Since it was a common point between the parties that the facts and circumstances in the present case are identical to those considered by us in the case of The Omerga Janta Sahakari Bank Ltd. (supra), following the aforesaid precedent the present claim of the assessee deserves to be upheld. We hold so. 6. In the result, following the aforesaid precedent, the order of the CIT(A) is set-aside and the Assessing Officer is directed to delete the addition of ₹ 7,82,267/-. 17. The issue in the present appeal is identical to the i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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