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TMI Blog2016 (12) TMI 296X X X X Extracts X X X X X X X X Extracts X X X X ..... owance of provision for standard assets - Held that:- AR has fairly conceded that on an identical issue in the case of Sindhudurg Dist. Central Co-op. Bank Ltd. [2012 (3) TMI 492 - ITAT PUNE] the Co-ordinate Bench has decided the issue against the assessee 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. (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. - ITA No.611/PN/2015, ITA No.664/PN/2015 - - - Dated:- 9-11-2016 - MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM For The Assessee : Shri Sunil Ganoo For The Department : Shri Rajeev Kumar, CIT ORDER PER ANIL CHATURVEDI, AM : The aforesaid captioned cross appeals filed by the Revenue and the assessee are directed against the order of Commissioner of Income Tax (Appeals)-5, Pune dated 27.02.2015 for the assessment year 2011-12. 2. The cross appeals filed by the Revenue and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts and circumstances of the case and in law, the learned C.I.T[A] has grossly erred in sustaining the disallowance of Provision for Standard Assets amounting to ₹ 4,44,83.000.00 [erroneously taken as ₹ 7,70,00,000.00 by learned C.I.T.[A] vide Page 43 of his impugned order] The learned C.I.T[A] has failed to appreciate that the said provision was made as per guidelines of R.B.I. which are binding on the appellant assessee and therefore the said provision is an allowable deduction. The said disallowance being patently illegal, devoid of merits and legally unsustainable the same may please be deleted. 3. In the facts and circumstances of the case and in law, the learned C.I.T.[A] has failed to appreciate that the provisions of Section 40 A [2] [b] of the I. T. Act 1961 were inapplicable to the payments made by the appellant bank to Cosmos Foundation and has further erred in disallowing 50 % each of the Outsourcing Expenses and Security Charges paid by the appellant bank to the Cosmos Foundation u/s 40A[2][b] of the I. T. Act 1961. The total disallowance of ₹ 2,82,72,467.00 as sustained by the learned C.I.T.[A] being patently illegal, devoid of merits and lega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribes that in respect of knowhow, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after 01.04.1998 owned wholly or partly by the assessee and used for the purposes of business or profession shall be entitled for allowance of depreciation as per the prescribed rates. The controversy before us is as to whether on account of merger of four banks assessee has acquired any asset which falls in the meaning of expression business or commercial rights of similar nature so as to be eligible for depreciation under clause (ii) of sub-section (1) of section 32 of the Act. 12. Before proceeding further, it would be appropriate to refer to the scheme of merger of respective four banks, copies of which have been placed in the Paper Book. All the schemes of the merger are similar and have been approved by the Reserve Bank of India in terms of the respective statutory provisions. The scheme of merger provides that the entire undertaking, the entire business, all the properties (whether immovable or immovable, tangible or intangible) assets, investments of all kinds, all cash balances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may refer to the judgment of the Hon ble Delhi High Court in the case of Areva T D India Ltd. Ors. (supra). In the case before the Hon ble High Court assessee company acquired the business of the transferor lock, stock and barrel under a slump sale agreement. The amount of consideration paid in excess of the net value of tangible assets transferred, was claimed as payment made by the assessee for acquisition of various business and commercial rights, which comprised of business claims; business information; business records; contracts; skilled employees; and, knowhow. Such acquisition was claimed to be an asset in the nature of 'business or commercial rights' contained in section 32(1)(ii) of the Act. The Hon ble High Court concurred with the assessee and held that the assets in question, being intangible assets acquired under slump sale agreement were in the nature of business or commercial rights of similar nature specified in section 32(1)(ii) of' the Act and were accordingly held eligible for depreciation. 14. In the aforesaid light, factually speaking, in the present case, it can be seen that the assessee by acquiring the four co-operative banks has acq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.3.5 In view of the above decision of the jurisdictional ITAT, wherein the impugned goodwill cost of the merged banks, has been held to result in the acquisition of an asset in the nature of 'business or commercial rights' and therefore amounts to intangible asset, the action of the Assessing Officer in not allowing depreciation on the goodwill cost cannot be sustained and accordingly, the ground no.1 in this regard is to be allowed for both the years. 4.3.6 However, it is noticed that the actual amount of ₹ 395.88 lakhs has been claimed towards good will written off along with provision for merged bank losses of ₹ 71.56 lakhs, totaling ₹ 467,45 lakhs by way of debit to the profit loss account for A.Y. 2010-11 on account of goodwill cost. The appellant has added back goodwill in respect of the merged banks to the extent of ₹ 320.85 lakhs. The Assessing Officer has however made disallowance only of the depreciation @ 25% amounting to ₹ 4,05,76,750/- in the assessment order passed for that year. Since the finding of ITAT Pune is that the goodwill amounts to intangible asset, it is clear that the entire claim of goodwill that has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t observation of the Tribunal from Para 11 to 14 of the order read as under : 11. We have carefully considered the rival submissions. Section 32(1)(ii) prescribes that in respect of knowhow, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after 01.04.1998 owned wholly or partly by the assessee and used for the purposes of business or profession shall be entitled for allowance of depreciation as per the prescribed rates. The controversy before us is as to whether on account of merger of four banks assessee has acquired any asset which falls in the meaning of expression business or commercial rights of similar nature so as to be eligible for depreciation under clause (ii) of sub-section (1) of section 32 of the Act. 12. Before proceeding further, it would be appropriate to refer to the scheme of merger of respective four banks, copies of which have been placed in the Paper Book. All the schemes of the merger are similar and have been approved by the Reserve Bank of India in terms of the respective statutory provisions. The scheme of merger provides that the enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an be considered to fall within the expression business or commercial rights of similar nature contained in section 32(1)(ii) of the Act. In this context, one may refer to the judgment of the Hon ble Delhi High Court in the case of Areva T D India Ltd. Ors. (supra). In the case before the Hon ble High Court assessee company acquired the business of the transferor lock, stock and barrel under a slump sale agreement. The amount of consideration paid in excess of the net value of tangible assets transferred, was claimed as payment made by the assessee for acquisition of various business and commercial rights, which comprised of business claims; business information; business records; contracts; skilled employees; and, knowhow. Such acquisition was claimed to be an asset in the nature of business or commercial rights contained in section 32(1)(ii) of the Act. The Hon ble High Court concurred with the assessee and held that the assets in question, being intangible assets acquired under slump sale agreement were in the nature of business or commercial rights of similar nature specified in section 32(1)(ii) of the Act and were accordingly held eligible for depreciation. 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he year under consideration are different from that of earlier years. In view of the aforesaid facts and since the facts in the year under consideration being identical to that of assessment year 2009-10, we for similar reasons and respectfully following the order of the Co-Ordinate Bench of Tribunal, find no reason to interfere with the order of CIT(A). Thus the ground of Revenue is dismissed. 9. In the result, the appeal of Revenue in ITA No.611/PN/2015 is dismissed. 10. We now take up assessee s appeal in ITA No.664/PN/2015. 11. First ground is with respect to disallowance under section 43D of the Act. 11.1 Assessing Officer noticed that assessee treated the account of the borrowers as Non Performing Asset (NPA) if interest or loan installment was not received for three months. It was assessee s submission that it was doing the categorization of advances as per RBI guidelines. Assessing Officer was of the view that assessee was not charging interest for one quarter as laid down in Rule 6EA. He was of the view the provisions of section 43D r.w. Rule 6EA extends the benefit in respect of bad and doubtful debts, provided interest was not taken into account for at least ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equests for overdrawing or issue of cheques without ensuring availability of funds in the account; ( 3 ) bills purchased or discounted remain overdue for 3 months and more or the recovery of such bills from the borrower poses difficulties; ( 4 ) in the case of term-loans, instalments which are overdue for 6 months or more; ( 5 ) unexplained delays by the borrower in submission of quarterly or half-yearly operating statements or stock statements or balance sheets and other information required by the bank; ( 6 ) slow movement or stagnation of stocks observed during inspections; ( 7 ) low or negligible level of activity observed during inspections or suspension or closure of the business; ( 8 ) persistent delay in compliance with vital requirements like execution of documents, producing additional security when required or non-compliance with such requirements; ( 9 ) diversion of funds to sister units or acquiring capital assets not relevant to the business or large personal withdrawals by the borrowers; ( 10 ) intentional non-adherence to project schedules leading to sub-stantial cost escalations and requirement of additional term-fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sec.43D. In the case of the appellant, the account of the borrowers is treated as NPA if interest or loan installment is not received for more than three months. It is also admitted by the appellant that its accounting software is programmed in such a way that any account is flagged as NPA as per RBI guidelines only and not as per Rule 6EA. In other words, a particular loan is treated as NPA where irregularities in the accounts of the borrowers are noticed for a period of three months as against the period of six months provided in the rule. The contention of the appellant in this regard is that the period of three months is considered having regard to the guidelines issued by the RBI in respect of NPAs which are more specific in nature. This contention of the appellant cannot be accepted as Rule 6EA clearly provides that irregularities in the borrowers account have to be observed tor a period of six months and then only, the advance can be treated as NPA for the purpose of recognition of interest income from such debt. In this context, reference can be made to the decision of the ITAT, Mumbai in the case of GIC Housing Finance Ltd. vs. Additional Commissioner of Income-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les as and when the guidelines of NHB are revised or that we have to read the guidelines of NHB as part of section 43D of the Act. 6.3.2 Thus, the ITAT, Mumbai clearly held that the expression Having regard to used in section 43D of the Act, does not mean that the rule making authority should amend the rules as and when the guidelines of NHB are revised or that one has to read the guidelines of NHB as part of section 43D of the Act. Since similar expression 'having regard to' is used in clause (a) of sec. 43D also, the principle is equally applicable in case of guidelines issued by RBI. In view of this legal position, when Rule 6EA provides a period of six months for observation of irregularities in borrowers' accounts before the same are treated as NPA, it is not correct to reduce the period to three months, on the ground that the appellant followed guidelines of RBI. As already mentioned hereinabove, the Apex Court in the case of Southern technologies Ltd. (supra) clearly held that the RBI Guidelines or prudential norms issued by RBI are not intended to regulate income-tax laws. Therefore, the Assessing Officer is justified in principle in holding that before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der dated 20.05.2016). He therefore submitted that the ground be decided accordingly. Ld. DR supported the order of lower authorities. 13. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to addition under section 43D of the Act. Before us, Ld. AR has submitted that on identical facts and in assessee s own case for assessment year 2009-10, the issue was decided against the assessee. We find that the issue was decided by the Co-ordinate Bench by observing as under :- 20. Ground of appeal No.6 by the assessee reads as under : 6. The Learned CIT(A)-III of Income Tax was not right legally as well as factually in holding that Sec 43 D applies to the appellant bank. The Learned CIT(A)-III of Income Tax has overlooked the fact that the appellant bank being a scheduled bank , the RBI directions should be applied to identify the Doubtful Debts as prescribed u/s 43D.lt i s therefore prayed that addition sustained of ₹ 6 , 53 , 00 , 000 . 00 on account of Sec 43 D may be quashed being illegal and devoid of any merit . 21. The Ld. Counsel for the assessee at the outset submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. He also placed on record the copy of the aforesaid order of Tribunal. He therefore submitted that the ground be decided accordingly. Ld. DR supported the order of lower authorities. 18. We have heard the rival submissions and perused the material on record. Before us, Ld. AR has fairly conceded that on an identical issue in the case of Sindhudurg Dist. Central Co-op. Bank Ltd. (supra), the Co-ordinate Bench has decided the issue against the assessee. The relevant portion of the order in the case of Sindhudurg Dist. Central Co-op. Bank Ltd. (supra) reads as under :- 26. The next Ground is with regard to the addition of ₹ 14,00,000/- on account of contingent provision for standard assets. The Assessing Officer disallowed the provision on the ground that such liability was of unascertained nature and a contingent liability. In appeal before the Commissioner of Income-tax (Appeals), it was submitted by the assessee that the stated provision was made for standard assets as per the guidelines issued by the RBI vide Circulars dated 9.4.1999, 2.12.1999 and 10.5.2000 and that such directions of the RBI were binding on the assessee as held by the Hon ble Uttaranchal High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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