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TMI Blog2016 (9) TMI 1465X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. The assessee has raised the following grounds of appeal: "Ground No.1: The order of the Learned Commissioner of Income Tax (Appeals), Visakhapatnam [CIT(A)] is contrary to the facts and law applicable to the case and circumstances of the appellant. Ground No.2: The Learned CIT(A) is not justified in confirming the action of the assessing officer, in disallowing Provision created for Staff Gratuity of Rs. 20,00,000/-. Ground No.3: The Learned CIT(A) is not justified in confirming the action of the assessing officer, in disallowing Provision for Standard Assets of Rs. 30,87,213/-. Ground No.4: The Learned CIT(A) is not justified in upholding the action of the assessing officer, in disallowing the amortization of loss on account of merger of Bobbili Co-operative Urban Bank, amounting to Rs. 1,56,70,500/-, being one fifth of the total amount of Rs. 7,83,52,408/- i.e. excess of liabilities over the assets taken over. Ground No.5: Without prejudice to the above, the Learned CIT(A) ought to have held that the price of Rs. 7,83,52,408/- paid, being excess of liabilities over the assets taken over is the consideration paid for acquisition of a commercial / business right which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal before the CIT(A). The Ld. CIT(A) confirmed the order of the A.O. by observing that the assessee is provided only provision for standard assets, but it is not the case of the assessee that any of these assets have become bad or non-recoverable. It is also not the case that any of these loans/assets are written off and the provision claimed by the assessee is not allowable deduction as per the of the Income Tax Act, 1961 (hereinafter called as 'the Act'). Before us, the Ld. Counsel for the assessee has submitted that the claim of the assessee has to be allowed. We find no merit in the argument of the Ld. Counsel for the assessee for the simple reason that the assessee has made a provision for standard assets not on the non-performing assets. It is a mere provision. We find no reason to interfere with the order passed by the Ld. CIT(A). This ground of appeal raised by the assessee is dismissed. 6. Next ground of appeal relating to loss on account of Bobbili branch merger. During the course of the assessment proceedings, the A.O. has observed that during the year under consideration, Bobbili Cooperative Urban Bank was merged with the assessee bank and the assessee claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. As per sub-section 7 of section 72AB of the Act the accumulated losses would have been entitled to carry forward and set off under the provisions of section 72 of the Act. Similar in the case of the unabsorbed depreciation and law should be allowable in the hands of the Bobbili branch as per the provisions of the Act. The Bobbili bank had never filed return of income. Thus, its loss is not eligible for carry forward under the provisions of section 72 of the Act and confirmed the order of the A.O. 7. On being aggrieved, assessee carried matter in appeal before the Tribunal. 8. The Ld. Counsel for the assessee has submitted that the Bobbili Cooperative Urban bank was merged with the assessee bank and as per the financial position of the Bobbili bank as on 14.11.2007, there were accumulated losses of Rs. 7,83,53,408/-. There was no consideration paid for the acquisition of Bobbili bank. This loss is amortized by the assessee bank over a period of 5 years as per the RBI guidelines. Therefore, the claim of the assessee has to be allowed. He has alternatively argued that the price paid by the assessee i.e. cost of excess of liabilities over the assets is similar that of the goodwill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led any return of income. The assessee also not brought anything on record to show that the Bobbili bank has filed the return of income. Once the Bobbili bank which is merged with assessee's bank not filed any return of income, as per the provisions of section 72AB of the Act, the Bobbili bank is not eligible to carry forward any losses or unabsorbed depreciation. The same cannot be allowed in the hands of the assessee's case. The Ld. CIT(A) correctly by considering the provisions of the Act disallowed the claim made by the assessee. So far as RBI guidelines with regard to the amortization of losses is concerned, in view of the specific provision provided by section 72AB of the Act, in our opinion, RBI guidelines cannot prevail over the Income Tax Act. We further observed that business losses and unabsorbed depreciation of amalgamating co-operative bank i.e. Bobbili Co-operative bank can be set off against the income of successor co-operative bank i.e. amalgamated co-operative bank (assessee) if the amalgamation is within the meaning of section 72AB of the Act. In the present case, the amalgamating company i.e. Bobbili Co-operative bank not filed return of income as required u/s 72 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dance with law. This ground of appeal raised by the assessee is allowed for statistical purposes. 12. In the result, the appeal filed by the assessee is partly allowed for statistical purposes. 13. The Cross objection filed by the assessee vide CO No.5/Vizag/2013 is only supportive and the same is dismissed. ITA 449/Vizag/2012 (Revenue's appeal for AY 2008-09) 14. The only ground raised by the revenue in this appeal in respect of interest payment by the society to its members on the share capital. The grounds raised by the revenue are extracted below: "1. The order of the Learned Commissioner of Income Tax (Appeals), Visakhapatnam is erroneous in law and on the facts of the case 2. The learned CIT(A), Visakhapatnam has erred in holding that the interest payment by the society to its members on the share capital component does not partake the character of dividend and, hence, permitted to be treated as deductible expenditure under the provisions of the Income Tax Act. 3. The learned CIT(A) ought to have upheld the action of the Assessing Officer in holding that the interest on share capital is nothing but appropriation of profits and is not an expenditure incurred for car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : "As stated earlier, it was held in those cases that the income tax is to be levied on the real income i.e. the profit arrived at on commercial principles subject to the provisions of the Income-tax Act. Accordingly it was held that the rebate given to the members is not a part of profit at all. In the instant case also, it has to be held that the amount paid by the assessee as "interest on share capital',' in the instant year, goes to reduce the gross interest collected by it from its members and it would not form part of profit at all. We order accordingly". As the facts of the case are same, respectfully following the Hon'ble jurisdictional Tribunal's decision in the assessee's own case, I hold that the interest on share capital would not form part of the profit at all and hence I direct AD to delete the addition made." 17. On being aggrieved, revenue carried matter in appeal before the Tribunal. 18. The Ld. D.R. has submitted that the assessee bank has to allocate the interest on share capital only upon determination of the surplus arising from the business i.e. net profit. This is nothing but appropriation of profits not expenditure incurred fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Assesee's appeal for A.Y. 2009-10): 24. The first ground of appeal raised by the assessee is general in nature and the same is dismissed. 25. The second ground of appeal raised in this appeal is relating to the provision for standard assets which is similar to that of assessment year 2008-09. In view of our decision above for the assessment year 2008-09, this ground of appeal raised by the assessee is dismissed. 26. In respect of third ground of appeal, the Ld. Counsel for the assessee has submitted that in the assessment order, the A.O. already disallowed the same claim made by the assessee and submitted that it is amounting to a double disallowance. We find that the Ld. CIT(A) has not considered this aspect, therefore, we set aside the order passed by the Ld. CIT(A) and remit the matter back to the A.O. to consider the issue and pass an order in accordance with law. 27. Ground no.4 is relating to provision for staff gratuity. In the assessment order, the A.O. has observed that the assessee has claimed Rs. 60 lakhs as a provision for staff gratuity debited the same in the profit & loss account. The A.O. has asked the assessee to furnish the details. The A.O. after considerin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive society engaged in the banking business is under obligation to deduct the TDS on the interest payment exceeding Rs. 10,000/-, in view of the specific provision contained in section 194A(3)(i)(b) of the Act and as assessee failed to deduct the TDS, the A.O. has disallowed the claim of the assessee. On appeal, CIT(A) confirmed the same. Subsequently, when the assessee filed a rectification petition u/s 154 of the Act dated 4.12.2013, the Ld. CIT(A) has corrected the order by considering the assessment year 2007-08 and relief was granted. Therefore, we find that this ground of appeal raised by the assessee has no merit and the same is dismissed. 36. The third ground of appeal of the assessee for the A.Y. 2010-11 relating to provision of standard assets. The issue involved in this appeal is similar to that of ground no.3 raised in the assessment year 2008-09 by the assessee's appeal. In view of our decision above, this ground of appeal raised by the assessee is dismissed. 37. The fourth ground of appeal raised by the assessee relating to provision for gratuity, which is similar to the second ground of appeal raised for the assessment year 2008-09. In view of our decision for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng as under: 5.2 I have considered the submissions. The issue considered in the above appellate order was whether the assessee, a cooperative bank is required to effect TDS on payment of interest made to its members, when the amounts exceed Rs. 10,000/-. A view was taken that in the above order dtd.22.10.2013 that if the interest amount exceeds Rs. 10,000/- then the appellant is required to deduct TDS even if the payment was made to the members. Such a view was taken with reference to provision contained in section 194A(3)(i)(b) and it was held that section 194A(3)(i)(b) would prevail over section 194A(3)(v) of the Act. Such a view was taken without considering the clarification given in the CBDT circular No.9 of 2002 dtd.11.09.2002. The relevant clarification in the circular reads as under: Under section 194A of the Income-tax Act, 1961, tax is deductible at source from any payment of income by way of interest other than income by way of interest on securities. Clause(v) of sub-section (3) of section 194A exempts such income credited or paid by a cooperative society to a member thereof from the requirement of TDS. On the other hand, clause (viia) of sub-section(3) of section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... place of the para 6.3, 6.4 & 6.5 of the appellate order dtd.22.10.2013. 6.3 I have considered the submissions made. In view of the clarification given in the CBDT circular No.9/2002, it is held that the assessee is not required to effect TDS on the interest payment made to its members even if it exceeds Rs. 10,000/-. The impugned disallowance made in the assessment is not in accordance with the clarification given in the CBDT Circular No.9/2002 and accordingly the AO is directed to delete the impugned disallowance made of Rs. 5,64,79,087/-. This ground of appeal is allowed in favour of the appellant. 5.5 The appellate order dtd.22.10.2013 in ITA No.0297/12-13 be considered to be modified and rectified accordingly with reference to ground No.3 of the appeal. 44. The Ld. CIT(A) by following his own decision for the assessment year 2007-08 and also order of the Tribunal for the very same year in the rectification order he has deleted the addition made by the A.O. We find no reason to interfere with the order passed by the Ld. CIT(A). This appeal raised by the revenue is dismissed. 45. In the result, the appeals filed by the assessee in ITA Nos.444 & 445/Vizag/2013 and 726/Vizag ..... X X X X Extracts X X X X X X X X Extracts X X X X
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