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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI V. DURGA RAO, HON’BLE & SHRI D.S. SUNDER SINGH, HON’BLE
IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO, HON’BLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH, HON’BLE ACCOUNTANT MEMBER ITA Nos. 427 & 428/VIZ/2018 (Asst. Year : 2014-15 & 2015-16) M/s. The Visakhapatnam vs. ACIT, Circle-1(1), Co-operative Bank Ltd., Visakhapatnam. Near Town Kotha Road, Main Road, Visakhapatnam. PAN No. AAAAT 0844 L (Appellant) (Respondent) ITA Nos. 471 & 472/VIZ/2018 (Asst. Year : 2014-15 & 2015-16) ACIT, Circle-1(1), vs. M/s. The Visakhapatnam Visakhapatnam. Co-operative Bank Ltd., Near Town Kotha Road, Main Road, Visakhapatnam. PAN No. AAAAT 0844 L (Appellant) (Respondent)
C.O.Nos. 130 & 131/VIZ/2018 (Arising out of ITA Nos. 471 & 472/VIZ/2018) (Asst. Year : 2014-15 & 2015-16) M/s. The Visakhapatnam vs. ACIT, Circle-1(1), Co-operative Bank Ltd., Visakhapatnam. Near Town Kotha Road, Main Road, Visakhapatnam. PAN No. AAAAT 0844 L (Applicant) (Respondent) Assessee by : Shri G.V.N. Hari –Advocate. Department By : Shri V. Appala Raju - Sr. DR Date of hearing : 02/01/2019. Date of pronouncement : 25/01/2019.
2 ITA Nos. 427, 428, 471 & 472/VIZ/2018 C.O.No.130 & 131/VIZ/2018 (M/s. The Visakhapatnam Co-op. Bank Ltd.) O R D E R PER V. DURGA RAO, JUDICIAL MEMBER
ITA Nos.427 & 428/VIZ/2018 filed by the assessee and ITA Nos. 471 & 472/VIZ/2018 field by the Revenue are cross appeals against the separate orders of the Commissioner of Income Tax (Appeals)-1, Visakhapatnam, all dated 19/07/2018 for the Assessment Years 2014-15 & 2015-16 respectively. The Cross Objection Nos. 130 & 131/VIZ/2018 filed by the assessee in ITA No.471 & 472/VIZ/2018. Facts and issues involved in these appeals are similar, therefore heard together and consolidated order is passed. 2. Facts of the case in brief are that the assessee is a Co-operative bank, filed its return of income by declaring total income of Rs. 8,44,75,602/-. Subsequently, the assessee’s case was selected for scrutiny through CASS and assessment was completed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as 'Act') for Assessment Year 2014-15, dated 13/12/2006 by madding the following additions:- a) Interest on share capital Rs. 6,26,57,735/- b) Disallowance of interest paid to members of Co-op. Bank u/s 40(a)(ia) Rs. 34,24,34,683/- c) Amortization of premium on
3 ITA Nos. 427, 428, 471 & 472/VIZ/2018 C.O.No.130 & 131/VIZ/2018 (M/s. The Visakhapatnam Co-op. Bank Ltd.) Government securities Rs. 27,98,308/- d) Amortized loss on account of merger of Ongole Co-op Bank Rs. 53,16,693/-
Against the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A). The ld. CIT(A) has confirmed amortization loss on account of merger of Ongole Co-op. Bank, and remaining above three issues, the additions made by the Assessing Officer was deleted. 4. Aggrieved by the order of the ld. CIT(A), the assessee is in appeal against the order of confirmation of the Assessing Officer and the department is in appeal in respect of deletion of additions made by the ld. CIT(A). The assessee also filed Cross Objections to support the orders of the ld. CIT(A). ITA No. 427/VIZ/2018 (A.Y. 2014-15)
The assessee has raised the following grounds of appeal:- “1. The order of the learned Commissioner of Income Tax (Appeals)-1, Visakhapatnam is contrary to the facts and also the law applicable to the facts of the case. 2. The learned Commissioner of Income Tax (Appeals)-1, Visakhapatnam is not justified in upholding the action of the Assessing Officer in disallowing a sum of Rs. 53,16,693/- claimed by the appellant towards „Amortization of loss on account of merger of Ongole Co-operative Bank‟. 3. Without prejudice to the above, the Assessing Officer ought to have granted depreciation in as much as the „excess of liabilities over assets taken over‟ is the price paid for acquisition of a commercial/business right which is eligible for depreciation u/s. 32(i)(ii) of the Income Tax Act, 1961.
4 ITA Nos. 427, 428, 471 & 472/VIZ/2018 C.O.No.130 & 131/VIZ/2018 (M/s. The Visakhapatnam Co-op. Bank Ltd.) 4. Any other ground that may be urged at the time of appeal hearing.”
Ground Nos. 1 & 4 are general in nature, no adjudication is required therefore same are dismissed. 7. Ground No.2 relates to disallowance of amortization on account of merger of Ongole Co-op. Bank. In the assessment order, the Assessing Officer has noted that the assessee-bank had claimed amortization loss on account of merger of Ongole Co-op. Bank to the extent of Rs. 53,16,693/- as expenditure in the profit & loss account for the year ended 31/03/2014. The assessee was submitted before the Assessing Officer that the merger of aforementioned bank with the assessee-bank took place as per the approval of the Reserve Bank of India (RBI). The RBI’s policy did not permit fresh branch licences and as such the bank’s expansion was not possible. The only option available for expansion was to acquire other urban banks which are not performing well. This loss is amortized by the assessee-bank over a period of 05 years as per the RBI guidelines. In the assessment order, the Assessing Officer further noted that it is not in dispute that R.C.Puram & Ongole Co-op. Bank got merged with the assessee-bank is done as per the approval of RBI. Even then, the allowance of brought forward losses/unabsorbed depreciation is
5 ITA Nos. 427, 428, 471 & 472/VIZ/2018 C.O.No.130 & 131/VIZ/2018 (M/s. The Visakhapatnam Co-op. Bank Ltd.) covered by the provisions of IT Act and not by RBI guidelines. As per sub-section (7) of section 72AB, the accumulated losses would have been entitled to carry forward and set off under the provisions of section 72. Similar is the case with the unabsorbed depreciation. Therefore, the main condition which needs to be fulfilled is that the said loss should have been allowable in the hands of R.C.Puram & Ongole Co-op. Bank as per the provisions of the Act. The fact which is undisputed is that these banks prior to its merger have never filed its return of income and thus either loss is not otherwise eligible to be carried forward under the provisions of section 72. Therefore, once this condition is not fulfilled, the acquirer bank is not eligible to carry forward the said losses/unabsorbed depreciation as per the provisions of section 72AB. Coming to the issue of RBI guidelines with regard to amortizing of losses, the specific provisions of Income Tax Act override the general provisions of Cooperative Society’s Act/RBI guidelines. In view of the specific provisions of Income Tax Act, the assessee is not eligible for allowance of brought forward losses or unabsorbed depreciation of R.C.Puram & Ongole Co-op. Banks either in amortized form over a period of 05 years or otherwise. The Assessing Officer further noted that as the losses of both
6 ITA Nos. 427, 428, 471 & 472/VIZ/2018 C.O.No.130 & 131/VIZ/2018 (M/s. The Visakhapatnam Co-op. Bank Ltd.) acquired banks pertain to the period, during which the total income of both the banks were exempt under section 80P, hence, in view of the provisions of section 14A, such claim of amortized loss by the assessee-bank needs to be disallowed. Accordingly, the claim of the assessee amounting to Rs. 53,16,693/- was disallowed. 8. On appeal, ld. CIT(A) by following the decision of the coordinate bench of the Visakhapatnam tribunal in assessee’s own case for the Assessment Years 2008-09 to 2010-11 vide order dated 30/09/2016 confirmed the order of the Assessing Officer. For the sake of convenience, the relevant portion of the order of ld. CIT(A) is extracted as under:-
“8.7 I have considered the submissions made. It is seen that the assessee has acquired the asset & liabilities of Ongole Bank. The assessee has not paid any consideration for the said acquisition, and has taken over accumulated loss of the two banks. It is pertinent to note that the assessee has not shown any amount towards goodwill in the depreciation schedule or in its assets. The Hon'ble Supreme Court in the case of Smifs Securities Ltd. has held that the amount paid in excess to the net asset acquired would constitute 'goodwill' and on which depreciation can be considered. The Hon'ble ITAT, Hyderabad in SKS Micro Finance Ltd has followed the above Supreme Court decision. Thus, the excess price paid over the value of net asset was held to be goodwill. However, in the assessee's case there was no consideration paid. Hence the loss amortized cannot be considered to constitute goodwill. Further, the assessee has not included any such goodwill as its, assets. In the circumstances, the claim of depreciation on the amortized loss is rejected as without basis.
7 ITA Nos. 427, 428, 471 & 472/VIZ/2018 C.O.No.130 & 131/VIZ/2018 (M/s. The Visakhapatnam Co-op. Bank Ltd.) 8.7.1 It is relevant to note that the above view taken by the CIT(Appeals) for A.Y. 2010-11 was upheld by the Hon'ble 1TAT, Visakhapatnam in the assessee's own case in its order in ITA No. ITA No. 444,445, 449 & 45012012, ITA No.726/2013 & ITA No.2 & 38/2014, dated 30.9.2016 and the relevant portion of the same is extracted below:- So far as alternative ground raised by the assessee is concerned, according to the Ld. Counsel for the assessee, the excess of liabilities over the assets of Bobbili bank should be treated as the price paid for acquisition of a commercial / business asset which is a depreciable asset and it has to be treated as k goodwill. We find there is no merit in the argument of Ld. Counsel for the assessee. Goodwill means it is an intangible asset that arises as a result of acquisition of one company by another for a premium value. In this case, the assessee has not paid any amount to amalgamating company. The assessee has only taken losses of amalgamating company i.e. Bobbili Co-operative bank. Therefore, the assessee has not acquired any goodwill. The Ld.CIT(A) by considering the entire facts of the case has passed a detailed order by considering the provisions of law. In so far as case laws relied upon by the Ld. Counsel for the assessee particularly in the case of Cosmos Co- operative Bank Limited (supra) is entirely different facts and circumstances, therefore, we find no application to the facts of the present case. In so far as other case laws relied by the Ld. Counsel for the assessee also decided in a different facts and circumstances and therefore, we find no application to the facts of the present case. 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. 8.8. Respectfully following the decision of the Hon'ble ITAT for the A.Y. 2008-09 to 2010-11, the disallowance made by the AO is upheld.
On being aggrieved, the assessee carried the matter in appeal before the Tribunal. 10. Ld. counsel for the assessee has relied on the grounds of appeal.
8 ITA Nos. 427, 428, 471 & 472/VIZ/2018 C.O.No.130 & 131/VIZ/2018 (M/s. The Visakhapatnam Co-op. Bank Ltd.) 11. On the other hand, ld. Departmental Representative strongly supported the order passed by the tribunal in assessee’s own case for the Assessment Years 2008-09 to 2010-11 & 2013-14. 12. We have heard both the sides, perused the material available on record and orders of the authorities below. 13. The only issue involved in this appeal is amortization loss on account of merger of Ongole Co-op. Bank is allowable deduction or not. According to the assessee, the merger has took-place as per the approval of the RBI. The loss was stated to be amortized over a period of 05 years as per the RBI guidelines. It was argued by the assessee that the amortization loss was done as per AS-14 and RBI guidelines, the same should be allowed. The Assessing Officer has not agreed with the explanation given by the assessee and observed that the claim of the assessee is not allowable as per the Act. Accordingly, addition was made. On appeal, ld.CIT(A) by following the order of the ITAT, Visakhapatnam Bench in assessee’s own case in ITA No. 444/VIZ/2012 for the Assessment Year 2008-09, dated 30/09/2016 has confirmed the order of the Assessing Officer. For the sake of convenience, the relevant portion of the order passed in ITA No.444/VIZ/2012 is extracted as under:-
9 ITA Nos. 427, 428, 471 & 472/VIZ/2018 C.O.No.130 & 131/VIZ/2018 (M/s. The Visakhapatnam Co-op. Bank Ltd.) “9. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The first argument raised by the assessee in respect of claim made by the assessee of Rs. 1,56,70,500/- as amortized loss on account of the merger of Bobbili branch with the assessee. In the course of the assessment proceedings, the A.O. has asked the assessee what is the basis for the claim. Before the A.O., the assessee is not able to justify in respect of claim made by the company as per the provisions of section 44DB & 72AB of the Act. The A.O. has disallowed the same and added back to the total income of the assessee. On appeal, it was submitted before the Ld. CIT(A) that the merger of Bobbili bank with the assessee bank is as per the guidelines issued by the RBI, therefore, this loss has to be allowed. The Ld. CIT(A) by considering the RBI guidelines, he has observed that the Income Tax Act has a specific provision embedded for computing the deductions in the case of business re- organisation of Cooperative banks. Section 44DB of the Act deals with the details of such computation in the case of deduction under sections 32, 35D, 35DD or 35DDA of the Act. Similarly, section 72AB deals with the carry forward and set off of accumulated losses and depreciation in the case of business re-organization of the cooperative banks. He has observed that 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 is the case with unabsorbed depreciation. Therefore, the main condition which needs to be fulfilled is that the said loss should have been allowable in the hand of Bobbili branch as per the provisions of the Act. The Bobbili bank never filed its return of income, thus, its loss is not otherwise eligible to be carry forward under the provisions of section 72 of the Act and he confirmed the order passed by the A.O. We find that the Bobbili Cooperative bank has not filed 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
10 ITA Nos. 427, 428, 471 & 472/VIZ/2018 C.O.No.130 & 131/VIZ/2018 (M/s. The Visakhapatnam Co-op. Bank Ltd.) 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 72AB of the Act. Therefore, the claim of the assessee cannot be allowed. We find that the Ld. CIT(A) has correctly decided the issue and disallowed the claim of the assessee.”
Insofar as alternative ground (Ground No.3) raised by the assessee, has already been considered by the Tribunal in the very same assessment year in assessee’s own case, which is as follows:-
“10. So far as alternative ground raised by the assessee is concerned, according to the Ld. Counsel for the assessee, the excess of liabilities over the assets of Bobbili bank should be treated as the price paid for acquisition of a commercial/ business asset which is a depreciable asset and it has to be treated as a goodwill. We find there is no merit in the argument of Ld. Counsel for the assessee. Goodwill means it is an intangible asset that arises as a result of acquisition of one company by another for a premium value. In this case, the assessee has not paid any amount to amalgamating company. The assessee has only taken losses of amalgamating company i.e. Bobbili Co-operative bank. Therefore, the assessee has not acquired any goodwill. The Ld. CIT(A) by considering the entire facts of the case has passed a detailed order by considering the provisions of law. In so far as case laws relied upon by the Ld. Counsel for the assessee particularly in the case of Cosmos Co- operative Bank Limited (supra) is entirely different facts and circumstances, therefore, we find no application to the facts of the present case. In so far as other case laws relied by the Ld. Counsel for the assessee also decided in a different facts and circumstances and therefore, we find no application to the facts of the present case. We find no reason to interfere with the order passed by the Ld. CIT(A). This ground of appeal raised
11 ITA Nos. 427, 428, 471 & 472/VIZ/2018 C.O.No.130 & 131/VIZ/2018 (M/s. The Visakhapatnam Co-op. Bank Ltd.) by the assessee is dismissed.”
Therefore, respectfully following the decision of the ITAT, Visakhapatnam Bench in assessee’s own case for the Assessment Year 2008-09 in ITA No. 444/VIZ/2012, by order dated 30/09/2016, we find no reason to interfere with the order passed by the ld. CIT(A). Thus, this appeal filed by the assessee is dismissed. ITA No. 428/VIZ/2018 (A.Y. 2015-16) 16. The grounds raised in this appeal are similar to the grounds raised in ITA No. 427/VIZ/2018. Therefore, in view of our decision above, no separate adjudication is required. Thus, this appeal filed by the assessee is dismissed. ITA No. 471/VIZ/2018 (A.Y. 2014-15) 17. The Revenue has raised the following grounds of appeal:- “1. The Order of the Ld.CIT(A)-I. Visakhapatnam is erroneous on facts and in law. 2. The Ld.CIT(A)-1, Vsp. erred in holding that the interest on share capital paid to members of the bank is an allowable deduction. 3. The Ld.CIT(A)-1, Vsp. ought to have appreciated that the assessee bank has allocated interest on share capital only upon determination of the surplus arising from the business i.e. Net Profit and therefore the same is nothing but appropriation of profits and it cannot be treated as a 'charge‟ on the income as claimed by the assessee. 4. The Ld.CIT(A)-1, Vsp. ought to have considered that such interest payment by the assessee bank to its members on the share capital component partakes the character of dividend and therefore, the same is not an
12 ITA Nos. 427, 428, 471 & 472/VIZ/2018 C.O.No.130 & 131/VIZ/2018 (M/s. The Visakhapatnam Co-op. Bank Ltd.) admissible deduction as per the provisions of I.T.Act. 5. The Ld.CIT(A)-1, Vsp. erred in deleting the addition made on account of disallowance of interest paid to members of bank u/s.40(a)(ia). 6. The Ld.CIT(A)-1, Vsp. ought to have considered that as per the provisions of Sec.194A(l) read with the provisions of Sec.194A(3)(i)(b) and Sec.194A(3)(viia)(b) for the co- operative bank is required to deduct tax from interest payment on time deposits if the amount of such payment exceeds the threshold limit. 7. The Ld.CIT(A)-1. Vsp. ought to have appreciated that specific provisions of tax deduction provided u/s.194A(3) (i)(b) and u/s.194A(3)(viia)(b) for the co- operative bank override the general exemption provided to all co-operative societies for such deduction of tax from interest payment to members u/s.194A(3)(v) of the Act. 8. The Ld.CIT(A)-1, Vsp. ought to have appreciated that the amendment to Sec.194A(3)(v) w.e.f. 01.06.2015 and the explanatory notes to the Finance Bill, 2015 make the legal position very clear that legislature never intended to allow exemption from TDS in case of interest on term deposits paid by co-operative banks to its members. 9. The ld. CIT(A) erred in taking a view, that premium paid on HTM category of securities by the assessee should be amortized over the period remaining to maturity and accordingly directing the AO to allow, the premium on deferred basis. 10. The Ld.CIT(A) ought to have considered that the premium paid for acquisition of HTM securities form integral part of the cost of securities and cannot be separated from the face value of securities and allowed as deduction under the IT Act either in the year of acquisition or on deferred basis over the period of maturity. 11. The Ld.CIT(A) ought to have further appreciated that CBDT Instruction No. 17/2008 was issued prior to the decision of Apex Court in the case of Southern Technologies Ltd.(320 ITR 577), wherein it was held that the RBI guidelines or prudential norms issued by RBI are not intended to regulate Income Tax Laws. 12. The appellant craves leave to add or amend or alter or delete any ground of appeal at the time of hearing of the appeal. 13. For these and other grounds that may be urged at the
13 ITA Nos. 427, 428, 471 & 472/VIZ/2018 C.O.No.130 & 131/VIZ/2018 (M/s. The Visakhapatnam Co-op. Bank Ltd.) time of hearing of appeal, it is prayed that addition made by the AO on account of disallowance of interest on share capital, disallowance of interest paid to members u/s 40(a)(ia)and disallowance of amortization of premium be restored.”
Ground Nos. 1 & 12 are general in nature, no adjudication is required therefore same are dismissed. Ground No. 13 raised by the Revenue relates to the issues raised in ground Nos. 2 to 11, therefore no separate adjudication is required, the same is dismissed. 19. Ground Nos. 2 to 4 relate to interest on share capital. During the course of assessment proceedings, the Assessing Officer noted that the assessee had debited an amount of Rs.6,26,57,735/- towards interest on share capital. The Assessing Officer called upon the assessee to show-cause as to why the said interest amount should not be treated as appropriation of profit and added to the total income. The assessee submitted before the Assessing Officer that the interest on share capital is paid annually to all the members of the Co-operative society as it is bound to pay such interest as per the A.P. Mutually Aided Co-operative Societies Act, 1995. It was also submitted that this has to be paid on proportion to the use of the Co-operative Societies services and is approved by the Annual General Body
14 ITA Nos. 427, 428, 471 & 472/VIZ/2018 C.O.No.130 & 131/VIZ/2018 (M/s. The Visakhapatnam Co-op. Bank Ltd.) Meeting. Further submitted that in contrast to the equity share capital, the co-operative societies have only members and such members shall have either taken loans or would have matching deposits with the bank; that the membership fee collected is equated to a deposit as per Co-operative law and it mandated payment of interest on such capital. It was also submitted that the issue of interest on share capital has been considered by the Hon'ble ITAT, Visakhapatnam Bench for the Assessment Year 2007-08 in the assessee’s own case and submitted same may be allowed. The Assessing Officer after considering the explanation of the assessee, he has observed that each assessment year is separate proceedings, principle of res judicata has no application and held that claim of the assessee cannot be allowed and accordingly disallowed an amount of Rs. 6,26,57,735/-. 20. On appeal, ld. CIT(A) by following the decision in assessee’s own case for the Assessment Years 2007-08 to 2010-11 in ITA No.5/VIZ/2011, dated 29/08/2011, ITA Nos. 444, 445, 449 & 450/VIZ/2012, ITA Nos. 726/VIZ/2013 & ITA Nos. 2 & 38/VIZ/ 2014, dated 30/09/2016 directed the Assessing Officer to delete the addition. For the sake of convenience, the relevant portion of the order ld. CIT(A)’s is extracted as under:-
15 ITA Nos. 427, 428, 471 & 472/VIZ/2018 C.O.No.130 & 131/VIZ/2018 (M/s. The Visakhapatnam Co-op. Bank Ltd.) “5.4 I have considered the submissions made. The issue to be resolved is whether interest on share capital would amount to appropriation of profit and not charge on income. I find that the Hon'ble ITAT, Visakhapatnam has examined this issue in detail in the assessee's case for the Asst. Yr. 2007-08 in ITA No.19/Vizag/2011 dated 29.8.2011 and come to the conclusion that interest on share capital paid to members is an allowable deduction. The issue as to whether interest on share capital would amount to appropriation of profit arose again in the ossessee's case before the Hon'ble ITAT, Visakhapatnam for Asst. Yrs. 2008-09, 2009-10 & 2010-11 in ITA No.444, 445,449 & 450/Vizag/2012 & ITA No.726/Vizag/2013 & ITA No.2&38/Vizag/2014 and the bench followed the co-ordinate bench decision in the assessee's own case for the Asst. Yr. 2007-08. Respectfully following the decision of Hon'ble ITAT in the assessee's case for the A.Ys. 2007-0s to 2009-10, the AO is directed to delete the impugned addition of Rs.6,26,57,7135/-.”
On being aggrieved, the Revenue carried the matter in appeal before the Tribunal. 22. Ld. Departmental Representative strongly placed reliance on the grounds of appeal and supported the order of the Assessing Officer. 23. On the other hand, ld. counsel for the assessee has relied on the order of the ld. CIT(A) as well as the orders passed by the ITAT in assessee’s own case for the Assessment Years 2007-08 to 2010-11. 24. We have heard both the sides, perused the material available on record and orders of the authorities below.
16 ITA Nos. 427, 428, 471 & 472/VIZ/2018 C.O.No.130 & 131/VIZ/2018 (M/s. The Visakhapatnam Co-op. Bank Ltd.) 25. The issue involved in this appeal in respect of interest payment made by the assessee to its members has been considered by the coordinate bench of the Visakhapatnam tribunal in assessee’s own case in ITA No. 444/VIZ/2012 for the Assessment Year 2008-09, whereby following the decision in assessee’s own case in ITA No. 05 & 19/VIZ/2011 for Assessment Year 2007-08, by order dated 29/08/2011, dismissed the ground raised by the Revenue. The very same decision has been followed by the Tribunal while deciding the appeal in Assessment Years 2010-11 & 2012-13 in ITA No.379 & 391/VIZ/2015 vide order dated 30/12/2016 and again followed in ITA No. 308/VIZ/2018 for Assessment Year 2013-14 vide order dated 12/01/2018. The relevant portion of the order in ITA No. 444/VIZ/2012 is extracted as under:- “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 Rs.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
17 ITA Nos. 427, 428, 471 & 472/VIZ/2018 C.O.No.130 & 131/VIZ/2018 (M/s. The Visakhapatnam Co-op. Bank Ltd.) across the bar that the very same issue in the assessee‟s own case is pending before the Hon‟ble High Court. In view of the above, by following the coordinate bench of the Tribunal, in view of the doctrine of precedent, we dismiss this ground of appeal raised by the Department.”
Therefore, respectfully following the decision of the ITAT, Visakhapatnam Bench in assessee’s own case for the Assessment Year 2008-09 in ITA No. 444/VIZ/2012, by order dated 30/09/2016, we find no reason to interfere with the order passed by the ld. CIT(A). Thus, the ground Nos. 2 to 4 raised by the Revenue are dismissed. 27. Ground Nos. 5 to 8 relate to disallowance under section 40(a)(ia) of the Act. In the assessment order, the Assessing Officer has noted that the assessee had paid interest of Rs.10,000/- and above to various depositors, total amount which computed during the year was Rs. 34,24,34,683/-. The assessee had not affected TDS on such interest payments. The Assessing Officer called upon the assessee to explain as to why the provisions of section 40(a)(ia) be not made applicable to the above interest payments. It was submitted before the Assessing Officer that the interest was only paid to its members, therefore not required to deduct TDS under section 194A of the Act. However, the Assessing Officer took the view that the assessee
18 ITA Nos. 427, 428, 471 & 472/VIZ/2018 C.O.No.130 & 131/VIZ/2018 (M/s. The Visakhapatnam Co-op. Bank Ltd.) even though co-operative bank, it is required to deduct TDS under section 194A of the Act, since, it is not carrying on banking business. However, the Assessing Officer is of the opinion that co-operative banks that are functioning in similar to the commercial banks and, therefore, the explanation of the assessee cannot be accepted and accordingly the Assessing Officer has invoked section 40(a)(ia) and disallowed an amount of Rs.34,24,34,683/-. 28. On appeal before the ld. CIT(A), it was submitted that the issue involved in this appeal is covered by the coordinate bench of the tribunal in assessee’s own case for the Assessment Year 2007-08 in ITA No. 05/VIZ/2011, dated 29/08/2011. It was further submitted that this issue has been again considered by the coordinate bench of the tribunal for the Assessment Years 2008-09 & 2009-10. The similar issue has been considered by the tribunal in assessee’s own case in the Assessment Year 2007-08 and held that no TDS has to be deducted. The very same decision has been considered by the Tribunal in Assessment Years 2011-12 & 2012-13 in ITA No.379 & 391/VIZ/2015, whereby following the decision in ITA No 05 & 19/VIZ/2011, dated 29/08/2011 decided the issue in favour of the assessee and submitted that same may
19 ITA Nos. 427, 428, 471 & 472/VIZ/2018 C.O.No.130 & 131/VIZ/2018 (M/s. The Visakhapatnam Co-op. Bank Ltd.) be followed. The ld. CIT(A) by considering the submissions of the assessee and by following the decision of the ITAT, Visakhapatnam Bench in assessee’s own case for the Assessment Year 2007-08 in ITA No.05/VIZ/2011, dated 29/08/2011 and also by following the subsequent orders directed the Assessing Officer to delete the addition. For the sake of convenience, the relevant portion of the order passed in Assessment Year 2007-08 is extracted as under:- “4. We shall take up the appeal of the revenue first. The Assessing Officer made disallowance under section 40(a)(ia) of the Act for the reason that the assessee has failed to deduct tax at source u/s 194A of the Act on the interest paid on deposits. The assessee claimed that the said interest were paid only to its members and it, being a cooperative society, is not required to deduct tax at source under section 194A of the Act as per the provisions of Sec.194A (3) (v) of the Act. However, the Assessing Officer took the view that the assessee, even though a cooperative society, is required to deduct tax at source under section 194A of the Act since it is carrying on banking business and further it is not a co-operative society as stated in section 80P of the Act. Accordingly, he estimated the amount of interest payments on which there was default in deduction of TDS at 1,80,05,129/- and disallowed the same under section 40(a)(ia) of the Act. In the appeal preferred before the learned CIT (A), the first appellate authority accepted the contentions made by the assessee that it is eligible for exemption from deduction of tax at source under section 194A(3)(v) of the Act and accordingly deleted the said addition. For the sake of convenience, we extract below the relevant observations made by the learned CIT (A) on this issue: "5.1 The learned Authorised Representative submitted that inter alia, that the Assessing Officer while disallowing the appellant's claim that it being a cooperative society and hence, it is exempt from the obligations to deduct tax at source in respect of interest payment under section 194A of the Act, erroneously observed that although the appellant is an entity
20 ITA Nos. 427, 428, 471 & 472/VIZ/2018 C.O.No.130 & 131/VIZ/2018 (M/s. The Visakhapatnam Co-op. Bank Ltd.) registered under the Cooperative Societies Act, yet it is not entitled to the benefit of a cooperative society under the Act for having been engaged in banking activities like any other bank, and thus, it could not partake of the benefit of the exemption provided under section 194A(3)(v) of the Act. He further submitted that the Assessing Officer clearly failed to appreciate that no matter whatever its business activities are, the appellant's legal status is that of a cooperative society and as such it is entitled to all the benefits contemplated and provided under the Act. The fact as appearing in the appellant society's case accord very well with the requirements stipulated under the CBDT circular No.9/2002 dt. 11.09.2002 wherein it has been stated that the exemption is available in respect of interest payments to, inter alia, only those members who have joined in application for the registration of the cooperative society and those who are admitted to membership after registration in accordance with the bye-laws and rules of the society. In the appellant's case all the members are regular members and not any associate or sympathizer member. Even otherwise, the Honble Mumbai High Court in the case of Jalgaon District Central Cooperative Bank Ltd & ANR Vs. Union of India & Others (2003) 265 ITR 423 (Born) has held that no distinction should be made between any nominal member, associate member or sympathiser member, as stated in the CBDT Circular and that interest payment to member of all category could be treated as exempt under section 194A(3)(v) of the Act so as to provide a blanket exemption from TDS provision in respect of interest payments to any member of a cooperative society. Although, the appellant could not furnish the detailed particulars of interest payment as requisitioned by the Assessing Officer during the assessment proceedings since such information was voluminous in nature, yet the fact remains is that in majority of cases each interest payment remained below the threshold limit of '20,000/-. Therefore, there was no warrant on the part of the Assessing Officer to have effected a disallowance under section 40(a)(ia) of the Act on an adhoc and estimated basis. 5.3 After hearing the learned Authorised Representative and on a careful consideration of the facts relating to the issue it may be stated that irrespective of the nature of business activities carried by it, the assessee is a cooperative society registered under the relevant statute, and, hence, it is entitled to the benefits provided in the At with reference to its activities as prescribed under the Act. Whether or not its business activities are regulated by any other statute is not material for determining whether it is entitled to the benefits under the Act. The assessee being a cooperative society and engaged in banking activities as per the Banking
21 ITA Nos. 427, 428, 471 & 472/VIZ/2018 C.O.No.130 & 131/VIZ/2018 (M/s. The Visakhapatnam Co-op. Bank Ltd.) Regulation At, 1949, it certainly is entitled to the benefit provided under the At subject to its fulfillment of the conditions of eligibility for any specific benefit. Hence, on this count itself, the assessee gets the benefit of the exemption from the obligation to deduct tax at source in terms of section 194A(3)(v) of the Act. Consequently, the assessee cannot be made liable for any disallowance under section 40(a)(ia) of the Act, assuming that certain interest payments exceeding the prescribed monetary limit have been made to various parties/members. Hence, there is no need for considering the factual details to ascertain the number of cases where the interest payments exceeding the threshold limit have been made during the year. Even otherwise, there is no scope for effecting any adhoc and estimated disallowance under section 40(a)(ia) of the Act; any disallowance has to be made only on actual basis pursuant to ascertainment of defaults in each case of interest payment. Accordingly, the assessee gets relief and the addition of Rs.1,80,05,129/- is hereby deleted". 4.1 We have carefully considered the arguments of the assessee and also the decision rendered by Learned CIT(A). Section 194A(3) of the Act prescribes the monetary limits and also a list of payments which are exempt from the requirement of complying with the provisions of TDS prescribed under sub section (1) of that section. Clause (v) of section 194A(3), on which reliance was placed by the assessee, reads as under: 194A(3) The provisions of sub-section (1) shall not apply- ----- (v) to such income credited or paid by a co- operative society (other than a co-operative bank) to a member thereof or to such income credited or paid by a co-operative society to any other co-operative society; On a plain reading of the section 194A(3)(v), we notice that the said section provides blanket exemption to the interest paid by any co-operative society to its members. The term "Co-operative society" has been defined under section 2(19) of the Act as under:- "2(19) "Co-operative Society" means a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any state for the registration of co- operative societies."
22 ITA Nos. 427, 428, 471 & 472/VIZ/2018 C.O.No.130 & 131/VIZ/2018 (M/s. The Visakhapatnam Co-op. Bank Ltd.) It can be seen that neither sec. 2(19) nor sec. 194A(3) makes any discrimination between the co-operative societies carrying on banking business and other co-operative societies. However, as per sec. 194A(3), the said exemption is available only to the interest payments made to its members or to any other co-operative society. In the instant case, it is the claim of the assessee that all the interest payments have been made only to its members. In that case, the assessee is squarely covered by the exemption provided under section 194A(3)(v) of the Act. Accordingly we find no reason with the decision of Learned CIT(A) on this issue.”
On being aggrieved, the Revenue carried the matter in appeal before the Tribunal. 30. Ld. Departmental Representative strongly supported the order passed by the Assessing Officer and also grounds of appeal raised. 31. On the other hand, ld. counsel for the assessee has relied on the order passed by the ld. CIT(A). 32. We have heard both the sides, perused the material available on record and orders of the authorities below. 33. The only issue involved in this appeal is whether the assessee has to deducted TDS or nor in respect of interest payments made. In the assessment order, the Assessing Officer has noted that the assessee has paid interest of Rs. 10,000/- and above to various depositors, total amount which computed during the year was Rs. 34,24,34,683/-. The assessee has not deducted TDS on such interest payments. The Assessing Officer called the
23 ITA Nos. 427, 428, 471 & 472/VIZ/2018 C.O.No.130 & 131/VIZ/2018 (M/s. The Visakhapatnam Co-op. Bank Ltd.) assessee to explain why the provisions of section 40(a)(ia) has not made applicable to the above interest payments. The assessee has submitted before the Assessing Officer that the interest payments made only to its members as it is being a co-operative society, hence, not deducted TDS under section 194A(3)(v) of the Act. However, the Assessing Officer not agreed with the submissions of the assessee and observed that the assessee carrying operations similar to the commercial banks, therefore, TDS has to be deducted. Accordingly, the Assessing Officer has made addition of Rs. 34,24,34,683/-. On appeal, ld. CIT(A) by following the decision in assessee’s own case for Assessment Year 2007-08 and also subsequent orders passed by the Tribunal, deleted the addition made by the Assessing Officer. We find that the issue involved in this appeal has been considered by the Tribunal in Assessment Year 2007-08 in ITA No. 05/VIZ/2011, dated 29/08/2011. Subsequently, the same order has been followed by the Tribunal. For the sake of convenience, the relevant portion of the order is extracted as under:- “4.1 We have carefully considered the arguments of the assessee and also the decision rendered by Learned CIT(A). Section 194A(3) of the Act prescribes the monetary limits and also a list of payments which are exempt from the requirement of complying with the provisions of TDS prescribed under sub section (1) of that section. Clause (v) of section 194A(3), on which reliance was placed by the
24 ITA Nos. 427, 428, 471 & 472/VIZ/2018 C.O.No.130 & 131/VIZ/2018 (M/s. The Visakhapatnam Co-op. Bank Ltd.) assessee, reads as under: 194A(3) The provisions of sub-section (1) shall not apply- ----- (v) to such income credited or paid by a co- operative society (other than a co-operative bank) to a member thereof or to such income credited or paid by a co-operative society to any other co-operative society; On a plain reading of the section 194A(3)(v), we notice that the said section provides blanket exemption to the interest paid by any co-operative society to its members. The term "Co-operative society" has been defined under section 2(19) of the Act as under:- "2(19) "Co-operative Society" means a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any state for the registration of co- operative societies." It can be seen that neither sec. 2(19) nor sec. 194A(3) makes any discrimination between the co-operative societies carrying on banking business and other co-operative societies. However, as per sec. 194A(3), the said exemption is available only to the interest payments made to its members or to any other co-operative society. In the instant case, it is the claim of the assessee that all the interest payments have been made only to its members. In that case, the assessee is squarely covered by the exemption provided under section 194A(3)(v) of the Act. Accordingly we find no reason with the decision of Learned CIT(A) on this issue.”
We find that the facts of the present appeal are similar to the facts of the Assessment Year 2007-08 and subsequent assessment years, and therefore respectfully following the decision of the coordinate bench of the tribunal in assessee’s own case in ITA No. 05/VIZ/2011 for the Assessment Year 2007-08, dated 29/08/2011, we find no reason to interfere with the order passed
25 ITA Nos. 427, 428, 471 & 472/VIZ/2018 C.O.No.130 & 131/VIZ/2018 (M/s. The Visakhapatnam Co-op. Bank Ltd.) by this ld. CIT(A) on these issues. Thus, the ground Nos. 5 to 8 raised by the Revenue are dismissed. 34. Ground Nos. 9 to 11 relates to amortization of premium on account of government securities. In the assessment order, the Assessing Officer has noted that the assessee has claimed an amount of Rs. 27,98,308/- as amortization of premium on government securities (HTM) in the profit & loss account. The Assessing Officer asked the assessee to explain the basis on which the claim is made. In response to that, assessee has submitted that the assessee being a cooperative bank is required to maintain 25% of its demand and some liabilities in liquid assets as per the provisions of Sec. 24 of the Banking Regulation Act, 1949. In compliance of the above provisions, the assessee acquired the government securities. As per the RBI guidelines, these securities held to maturity are to be carried in the books at their cost in normal course. However, where the cost is more than the face value, such excess premium has to be amortised over the period remaining to maturity. The Assessing Officer has considered the reply and observed that the assessee has not incurred actual expenditure, it is only a provision i.e. a contingent liability was made which may become payable at a future date. The
26 ITA Nos. 427, 428, 471 & 472/VIZ/2018 C.O.No.130 & 131/VIZ/2018 (M/s. The Visakhapatnam Co-op. Bank Ltd.) 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. Expenditure which is deductible for income tax purposes is towards a liability actually existing at the time but setting apart money which might become expenditure on the happening of an event is not expenditure. For determining whether there is 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 under sections 36 to 37 of the Act, hence, the same is disallowed and added back to the total income of the assessee. 35. On appeal, ld. CIT(A) by following the decision in assessee’s own case for the Assessment Year 2008-09 & 2009-10 and also CBDT Instruction No. 17/2008, dated 26/11/2008 directed the AO to examine whether these securities are held under HTM category, and in such case, the premium paid over the cost of acquisition may be amortized over the period of maturity and accordingly
27 ITA Nos. 427, 428, 471 & 472/VIZ/2018 C.O.No.130 & 131/VIZ/2018 (M/s. The Visakhapatnam Co-op. Bank Ltd.) allowance may be granted. For the sake of convenience, the relevant portion of the order is extracted as under:- “6.2 I have considered the submissions made. On this issue, the Ld. CIT(A), Visakhapatnam in assessee's case for A.Y.2008- 09 vide his order in ITA No.372/10-11/Addl.CIT, R- 1/VSP/2012-13 dtd.27.09.2012 has upheld the disallowance made by the AO, and which was also followed for the Asst. Yr. 2010-11. The Hon'ble ITAT in its order in ITA No. 444, 445, 449 & 450/Vizag/2012, ITA No.726/Vizag/2013 & ITA No.2 & 38/2014, dated 30.9.20 16 has set-aside the issue to the file of the AO to examine whether it was ascertained liability. In this regard, it is relevant to refer to the CBDT Instruction No.17/2008, dated 26.11.2008, wherein at para (vii), it is stated: (vii) As per RBI guidelines dated 16th October 2000, the investment portfolio of the banks is required to be classified under three categories viz. Held to Maturity (HTM), Held for Trading (HFT) and Available for Sale (AFS). Investments classified under HTM category need not be marked to market and are carried at acquisition cost unless these are more than the face value, in which case the premium should be amortised over the period remaining to maturity. In the case of HFT and AFS securities forming stock in trade of the bank, the depreciation / appreciation is to be aggregated scrip wise and only net depreciation, if any, is required to be / provided for in the accounts. The latest guidelines of the RBI may be referred to for allowing any such claims. 6.3 In view of the CBDT Instruction in respect of the investments classified under HTM category, the premium should be amortized over the period remaining to maturity. The AO may examine whether these securities are held under HTM category, and in such case the premium paid over the cost of acquisition may be amortized over the period of maturity and accordingly allowance may be granted.”
On being aggrieved, Revenue carried the matter in appeal before the Tribunal.
28 ITA Nos. 427, 428, 471 & 472/VIZ/2018 C.O.No.130 & 131/VIZ/2018 (M/s. The Visakhapatnam Co-op. Bank Ltd.) 37. Ld. Departmental Representative relied on the order passed by the Assessing Officer and strongly supported the grounds appeal. 28. On the other hand, ld. counsel for the assessee has relied on the order of the ld. CIT(A). 39. We have heard both the sides, perused the material available on record and orders of the authorities below. 40. We find that the ld. CIT(A) by following the decision in assessee’s own case for the Assessment Year 2008-09 and also following the subsequent orders of the Tribunal in assessee’s own case, directed the Assessing Officer to examine whether these securities are held under HTM category, and in such case, the premium paid over the cost of acquisition may be amortized over the period of maturity and accordingly allowance may be granted. Ld. Departmental Representative has not able to point out any error committed by the ld. CIT(A). We find no reason to interfere with the order passed by the ld. CIT(A). Thus, the ground Nos. 9 to 11 raised by the Revenue are dismissed. ITA No. 472/VIZ/2018 41. The grounds raised in this appeal are similar to the grounds raised in ITA No. 471/VIZ/2018, therefore, in view of our decision
29 ITA Nos. 427, 428, 471 & 472/VIZ/2018 C.O.No.130 & 131/VIZ/2018 (M/s. The Visakhapatnam Co-op. Bank Ltd.) above, no separate adjudication is required. Thus, this appeal filed by the Revenue is dismissed. C.O.Nos. 130 & 131/VIZ/2018 42. The Cross Objections filed by the assessee are in support of the order of the Commissioner of Income Tax (Appeals). In view of our decision above, these Cross Objections filed by the assessee have become infructuous and are dismissed accordingly. 43. In the result, appeals filed by the assessee and Revenue are dismissed. Cross Objections filed by the assessee are dismissed. Order Pronounced in open Court on the 25th day of January, 2019.
Sd/- sd/- (D.S. SUNDER SINGH) (V. DURGA RAO) Accountant Member Judicial Member
Dated : 25th January, 2019. vr/- Copy to: 1. The Assessee - M/s. The Visakhapatnam Co-operative Bank Ltd., Near Town Kotha Road, Main Road, Visakhapatnam. 2. The Revenue - ACIT, Circle-1(1), Visakhapatnam. 3. The Pr.CIT-1, Visakhapatnam. 4. The CIT(A)-1, Visakhapatnam. 5. The D.R., Visakhapatnam. 6. Guard file. By order
Senior Private Secretary, I.T.A.T., Visakhapatnam.