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TMI Blog2022 (3) TMI 895X X X X Extracts X X X X X X X X Extracts X X X X ..... Securities i.e. HTM - AO has not accepted the explanation of the assessee for the reason that the actual expenditure was not incurred by the assessee and only a provision i.e., a contingent liability was made which may become payable at a future date. Contingent liabilities do not constitute expenditure and cannot be the subject matter of deduction even under the mercantile system of accounting - CIT-A allowed the claim - HELD THAT:- From the details filed, it is seen that the securities were held under HTM category and the premium paid over the cost of acquisition have been amortized over a period of maturity and claimed as allowance. He found that assessee s claim is in accordance with the CBDT Instruction and directed the AO to allow this claim and delete the addition. The ld. Departmental Representative has not pointed out any error in the order passed by the CIT(A), which is neither contrary to any provision of law nor CBDT Circular. We have also considered CBDT circular and find that ld. CIT(A) by following the Circular No. 17/2008, dated 26/11/2008 directed the Assessing Officer to delete the addition. We find no infirmity in the order of the ld.CIT(A). Thus, these grounds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital as per section 16(1) of the Act. The Assessing Officer after considering the explanation of the assessee took a view that the interest on share capital to the members, amounts to appropriation of profits and such interest is paid out of surplus of profits and cannot be charged on income and hence, cannot be allowed as a deduction and claim made by the assessee is disallowed. 4. On appeal before the ld. CIT(A) it was submitted that similar issue was decided by the Hon'ble ITAT in the case of Visakhapatnam Cooperative Urban Bank Ltd. in ITA No.19/VIZ/2011 for the Assessment Year 2007-08, dated 29/08/2011 and the Assessing Officer is not justified in making the addition. The ld.CIT(A) has considered the explanation given by the assessee and by following the order of the ITAT Visakhapatnam Bench in the case of Visakhapatnam Cooperative Urban Bank Ltd. (supra) came to a conclusion that interest on share capital paid to the members is an allowable deduction and directed the Assessing Officer to delete the impugned addition. The relevant portion of the order of the CIT(A) is extracted as under:- 4.4 I have considered the submissions made. The issue to be resolved is whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -operative Bank for the Assessment Year 2007-08 which upheld the view taken by the ld.CIT(A). For the sake of convenience, the relevant portion of the order is extracted below:- 22. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. In this case, the assessee has debited an amount of ₹ 1,57,53,620/- towards interest on share capital. It was submitted that as per the section 16 of the A.P. Mutually Aided Cooperative Societies Act, 1995, it is an allowable expenditure. The A.O. has not accepted the explanation of the assessee and he has observed that the assessee 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 but not an expenditure incurred for carrying on the business. The Ld. CIT(A) by following the decision of the coordinate bench of the Tribunal in assessee s own case for the assessment year 2007-08 in ITA No.5/Vizag/2011 19/Vizag/2011 for A.Y. 2007-08 vide order dated 29.8.2011 has directed the A.O. to delete the addition made by him. It is submitted across the bar t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available in Sec.194A(3)(v) of the I.T.Act. The Hon'ble ITAT, Visakhapatnam, in the case of The Visakhapatnam Cooperative Bank Ltd. for the Asst. Yr. 2007-08 in ITA Nos. 5 19/Vizag/2011, dated 29.8.2011, held that the exemption u/s.194A(3)(v) would be available to the assessee and accordingly deleted the disallowance made u/s.40(a)(ia). The same issue again arose in the case of The Visakhapatnam Co-operative Bank Ltd., and was resolved in favour of the bank holding that the assessee would be entitled to exemption from TDS as per Sec.194A(3)(v) of the Act for A.Ys. 2008-09, 2009-10 2010-11 by the Hon'ble ITAT vide its order in ITA Nos. 444 445, 449, 450/Vizag/2012 ITA No.726/2013 ITA Nos. 2 38/Vizag/2014 dated 30.9.2016. In the light of the decision of the Ld.CIT(Appeals) in the assessee's case for A.Y. 2008-09, the clarification given by CBDT vide Circular No.9/2002 dated 11.9.2002 and the decisions rendered by the Hon'ble ITAT in the case of Visakhapatnam Cooperative Bank for A.Ys. 2007-08 to 2010-11 (in ITA Nos.5 9/Vizag/2011 dated 29.8.2011; ITA Nos. 444 445, 449, 450/ Vizag/2012 ITA No.726/2013 ITA Nos. 2 38/Vizag/2014 dated 30.9.2016), it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if the interest amount exceeds ₹ 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 194A exempts from the requirement of TDS such income credited or paid in respect of deposits (other than time-deposits made on or after 1st July, 1995) with a cooperative society engaged in carrying on the business of banking. Representations have been received in the Board seeking clarification as to whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer has not accepted the explanation of the assessee for the reason that the actual expenditure was not incurred by the assessee and only a provision i.e., a contingent liability was made which may become payable at a future date. Contingent liabilities do not constitute expenditure and cannot be the subject matter of deduction even under the mercantile system of accounting. The assessee claims that the premium amount was actually incurred. However, upon perusal of the assessee s reply, it becomes clear that it is only contingent in nature. The expenditure which is deductible for income tax purpose is towards a liability actually existing at the time, but setting apart money which might became expenditure on the happening of an event is not an expenditure. For determining whether there is an expenditure, it is necessary to see whether there is an existing liability to pay irretrievably. The expenditure may be allowed in the year in which it is actually accrued or incurred by the assessee. Such provisions are not allowable to section 36 or 37 of the Act, hence, the same is disallowed and added to the total income of the assessee. 21. On appeal, ld. CIT(A) by following the CB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ization of premium on Government Securities (HTM) in its profit loss account relates to Assessment Year 2014-15. When the Assessing Officer asked the assessee to explain in detail, it is submitted that the premium paid was claimed as an expenditure on basis of amortization for ₹ 2,43,742/- as it was a loss to the assessee bank and further assessee bank was required to offer as income whenever securities were sold for more than the purchase price paid and the amortization of expenditure is not a contingent liability since it was already incurred and the excess premium paid over fair value of the securities were amortized over a period of time of unexpired period of securities and the same has to be allowed. However, the Assessing Officer is of the view that it is only a contingent liability, which may become payable at a future date, hence, disallowed the same. On appeal, ld. CIT(A) by following the CBDT Instruction (supra) has observed that in view of the CBDT instruction in respect of investments classified under HMT category, the premium should be amortized over the period of remaining to maturity. From the details filed, it is seen that the securities were held under HTM ..... X X X X Extracts X X X X X X X X Extracts X X X X
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