THE VISAKHAPATNAM CO-OPERATIVE BANK LTD,,VISAKHAPATNAM vs. THE ACIT,, VISAKHAPATNAM

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 No. 176/VIZ/2017 (Asst. Year : 2013-14) 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 No. 308/VIZ/2017 (Asst. Year : 2013-14) 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.No. 58/VIZ/2017 (ITA No. 308/VIZ/2017) (Asst. Year : 2013-14) 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)

Assessee by : Shri G.V.N. Hari – Advocate. Department By : Shri Deba Kumar Sonowal–CIT-DR

Date of hearing : 19/12/2017. Date of pronouncement : 12/01/2018.

2 ITA Nos.176 & 308/VIZ/2017 C.O.No. 58/VIZ/2017 (The Visakhapatnam Co-op Bank Ltd.)

O R D E R PER V. DURGA RAO, JUDICIAL MEMBER

Both the appeals filed by the assessee and the revenue are the cross appeals against the order of the ld. CIT(A)-1, Visakhapatnam, dated 15/03/2017 for the Assessment Year 2013-14. C.O.No. 58/VIZ/2017 is filed by the assessee in ITA No. 308/VIZ/2017. 2. Facts of the case, in brief, are that the assessee is a bank, filed its return of income by declaring total income of Rs.5,99,76,761/-. The case was selected for scrutiny under Computer Aided Scrutiny Selection (CASS) and the assessment was completed by making certain additions/disallowances and determined the income at Rs. 45,14,25,100/-. On appeal, ld.CIT(A) has deleted some of the additions /disallowance and confirmed the other additions/disallowances. 3. On being aggrieved, both revenue as well as assessee is in appeal before the Tribunal. ITA No. 308/VIZ/2017 4. The Revenue has raised the following grounds of appeal:- “1. The Order of the Ld.CIT(A)-1, Visakhapatnam is erroneous on facts and in law.

3 ITA Nos.176 & 308/VIZ/2017 C.O.No. 58/VIZ/2017 (The Visakhapatnam Co-op Bank Ltd.) 2. The Ld.CIT(A)- I, Vsp. erred in holding that the interest on share capital paid to members of the bank is an allowable deduction relying on the decision of the Hon'ble ITAT Vsp. in the assessee's own case for the A.Y.2007- 08. 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 admissible deduction as per the provisions of I.T.Act. 5. The Ld.C1T(A)-1, Vsp. erred in deleting the addition made on account of disallowance of interest paid to members of bank uls.40(a)(ia) by following the decision of Hon'ble ITAT,Vsp in the assessee's own case for A.Y.2007-08. 6. The Ld.CIT(A)-1, Vsp. ought to have considered that as per the provisions of Sec. 194A(1) read with the provisions ofSec. 194A(3)(i)(b) and Sec. 194A (3) (viia) (b), a 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)-l. Vsp. ought to have appreciated that specific provisions of tax deduction provided u/s.194A(3)(i)(b) and u/s.194A(3Xviia)(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.

4 ITA Nos.176 & 308/VIZ/2017 C.O.No. 58/VIZ/2017 (The Visakhapatnam Co-op Bank Ltd.) 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 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.”

5 ITA Nos.176 & 308/VIZ/2017 C.O.No. 58/VIZ/2017 (The Visakhapatnam Co-op Bank Ltd.) per the A.P. Mutually Aided Co-operative Societies Act 1995. The Assessing Officer after considering the explanation of the assessee has observed that the interest on capital paid to its members amounts to appropriation of profits and such interest is paid out of the surplus of profits and cannot be a charge on income and hence cannot be allowed as deduction. The Assessing Officer further observed that the ITAT, Visakhapatnam Bench has decided this issue in favour of the assessee for the Assessment Year 2007-08, however, principle of res-judicata has no application and each year is separate and distinct and accordingly disallowed the claim of the assessee. 7. On being aggrieved, assessee carried the matter in appeal before the ld. CIT(A), who by following the decision of the ITAT, Visakhapatnam Bench in assessee’s own case for the Assessment Year 2007-08 in ITA No. 19/VIZ/2011 by order dated 29/08/2011 and also following the decisions in assessee’s own case for the Assessment Years 2008-09, 2009-10 & 2010-11 in ITA Nos. 444, 445 & 450/VIZ/2012 and ITA No. 726/VIZ/2013 & ITA Nos. 2 & 3/VIZ/2014, directed the Assessing Officer to delete the additions. 8. On being aggrieved, revenue is in appeal before the Tribunal.

6 ITA Nos.176 & 308/VIZ/2017 C.O.No. 58/VIZ/2017 (The Visakhapatnam Co-op Bank Ltd.) 9. When this appeal is taken up for hearing, ld. counsel for the assessee has submitted that the issue involved in this appeal is squarely covered by the decision of the ITAT, Visakhapatnam Bench in assessee’s own case in ITA Nos. 444, 445 & 450/VIZ/2012 and ITA No. 726/VIZ/2013 & ITA Nos. 2 & 3/VIZ/2014 and submitted that the same may be followed. 10. Ld. Departmental Representative fairly accepted that the issue is covered in favour of the assessee, however relied on the order of the Assessing Officer. 11. The only issue involved in this appeal is interest on share capital paid to the members of the assessee is allowable deduction or not. The coordinate Bench of the tribunal in assessee’s own case for the Assessment Years 2008-09, 2009-10 & 2010-11 in ITA Nos. 444, 445 & 450/VIZ/2012 and ITA No. 726/VIZ/2013 & ITA Nos.2&3/VIZ/2014 by order dated 30/09/2016 has considered the issue and upheld the order passed by the ld.CIT(A). For the sake of convenience, the relevant portion of the order 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.

7 ITA Nos.176 & 308/VIZ/2017 C.O.No. 58/VIZ/2017 (The Visakhapatnam Co-op Bank Ltd.) 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 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.”

12 In view of the above decision of the coordinate bench of the tribunal in assessee’s own case, the facts are mutatis mutandis similar and therefore ld. CIT(A) by following the same, directed the Assessing Officer to delete the addition. Therefore, we find no infirmity in the order passed by the ld. CIT(A). Thus, these grounds of appeal raised by the revenue are dismissed. 13 Grounds No. 5 to 8 are relating to disallowance of interest paid to the members of the bank under section 40(a)(ia) of the Act. 14 In the assessment order, the Assessing Officer noted that assessee has paid interest of Rs. 10,000/- and above to various depositors, the total amount of which computed during the year was Rs. 33,71,09,667/-, but not deducted TDS on such interest payments. The Assessing Officer called upon the assessee to

8 ITA Nos.176 & 308/VIZ/2017 C.O.No. 58/VIZ/2017 (The Visakhapatnam Co-op Bank Ltd.) explain as to why the provisions of sec. 40(a)(ia) be not made applicable to the above interest payments. In response, the assessee replied that similar disallowance was made in Assessment Year 2007-08, and the ITAT, Visakhapatnam Bench vide its order dated 29/08/2011 in ITA No. 5 & 19/VIZ/2011, allowed the claim of the assessee. By following the same the ld.CIT(A) in Assessment Years 2008-09, 2009-10 & 2010-11 granted relief to the assessee. The Assessing Officer has not agreed with the explanation given by the assessee and observed that a plain reading of section 194A(3)(i)(b) clearly mandates the requirement to deduct TDS and therefore the claim of the assessee is covered by exemption under section 194(3)(v) was rejected. 15. On appeal, ld. CIT(A) by following the decision of the ITAT, Visakhapatnam Bench in assessee’s own case for the Assessment Years 2008-09, 2009-10 & 2010-11 in ITA Nos. 444, 445 & 450/VIZ/2012 and ITA No. 726/VIZ/2013 & ITA Nos. 2 & 3/VIZ/2014 by order dated 30/09/2016, directed the Assessing Officer to delete the addition. 16. On being aggrieved, revenue is in appeal before the Tribunal. 17. Ld. counsel for the assessee has submitted that the issue involved in this appeal is squarely covered by the decision of the

9 ITA Nos.176 & 308/VIZ/2017 C.O.No. 58/VIZ/2017 (The Visakhapatnam Co-op Bank Ltd.) coordinate bench of the tribunal in assessee’s own case for the Assessment Years 2008-09, 2009-10 & 2010-11 in ITA Nos. 444, 445 & 450/VIZ/2012 and ITA No. 726/VIZ/2013 & ITA Nos. 2 & 3/VIZ/2014 by order dated 30/09/2016 and submitted that the same may be followed. 18. Ld. Departmental Representative has fairly accepted that the issue is covered in favour of the assessee, however, relied on the order passed by the Assessing Officer. 19. We have heard both the sides, perused the material available on record and orders of the authorities below. 20. We find that the issue involved in this appeal relating to application of section 40(a)(ia) of the Act. The same issue has been considered by the coordinate bench of the tribunal in assessee’s own case in Assessment Years 2008-09, 2009-10 & 2010-11 in ITA Nos. 444, 445 & 450/VIZ/2012 and ITA No. 726/VIZ/2013 & ITA Nos. 2 & 3/VIZ/2014 by order dated 30/09/2016 and decided the issue in favour of the assessee. For the sake of convenience, the relevant portion of the order is extracted as under:-

“43. In so far as another appeal filed by the revenue for the same assessment year i.e. 2010-11 vide ITA No.38/Vizag/2014 is concerned, the facts are in brief that the assessee has paid interest to various depositors and no TDS was deducted. The

10 ITA Nos.176 & 308/VIZ/2017 C.O.No. 58/VIZ/2017 (The Visakhapatnam Co-op Bank Ltd.) A.O. of the opinion that assessee being a cooperative society engaged in the banking business is under obligation to deduct the TDS on interest payment exceeding ` 10,000/- in view of the specific provision u/s 194A(3)(i)(b) of the Act and the assessee has failed to deduct TDS. Therefore, the A.O. has disallowed the claim of the assessee. The Ld. CIT(A) initially confirmed the order of the A.O. Subsequently, the assessee has filed a rectification u/s 154 of the Act dated 14.12.2013 and submitted that the very same issue has been considered by the CIT(A) as well as ITAT for earlier years and decided in favour of the assessee. The Ld. CIT(A) has considered the submissions of the assessee and directed the A.O. to delete the addition by observing 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 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 whether a member of a cooperative bank may receive without TDS interest on time deposit made with the cooperative bank on or after 1st July, 1995. The Board has considered the matter and it is

11 ITA Nos.176 & 308/VIZ/2017 C.O.No. 58/VIZ/2017 (The Visakhapatnam Co-op Bank Ltd.) clarified that a member of a cooperative bank shall receive interest on both time deposits and deposits other than time deposits with such cooperative bank without TDS under section 194A by virtue of the exemption granted vide clause (v) of sub-section (3) of the said section. The provisions of clause (vila) of the said sub- section are applicable only in case of a non-member depositor of the cooperative bank, who shall receive interest only on deposits other than time deposits made on or after 1st July, 1995 without TDs under section 194A. (emphasis underlined) Thus the circular clarifies that provisions of section 194A(3)(v) would prevail. 5.3 In view of the clarification given in the circular the view taken in the appellate order dtd.22.10.2013 suffers from mistake and, as such a view was taken without consideration of the above referred CBDT circular clarifying the position of law, it would amount to mistake apparent from record and rectifiable u/s.154 of the I.T. Act. Further, it is noted that the assessee had relied on the CBDT circular No.9/2002 dtd.11.09.2002 and the decision of Bombay High Court in the case of Jalgaon District Central Co- operative Bank, in its appeal for A.Y.2007-08, which has been discussed and considered by the learned CIT(A) while deciding the assessee's appeal for A.Y.2007-08. The relevant extract of the CIT(A) order has been referred and discussed in the Hon'ble ITAT's order for A.Y.2007-08, (copy of which submitted as part of paper-book in the original appeal). Therefore, it cannot be said that this aspect was not considered by the Hon'ble ITAT while passing order in the assessee's appeal for A.Y.2007-08. 5.4 In view of the above discussion, I am convinced that the appellate order dtd.22.10.2013 suffers from mistake apparent from record and the mistake is rectified by substituting the following operative para in the 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

12 ITA Nos.176 & 308/VIZ/2017 C.O.No. 58/VIZ/2017 (The Visakhapatnam Co-op Bank Ltd.) 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.

13 ITA Nos.176 & 308/VIZ/2017 C.O.No. 58/VIZ/2017 (The Visakhapatnam Co-op Bank Ltd.) that the assessee-bank was required to maintain specified percentage of investments in approved government securities and as per RBI guidelines, these securities held to maturity are to be carried in the books at their cost in the normal course, however, where the cost is more than the face value, such excess known as premium has to be amortized over the period remaining to maturity. The Assessing Officer did not accept the above explanation and observed that “The reply of the assessee is considered. From the available record it is clear 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. Expenditure which is deductible for income tax purpose 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 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

14 ITA Nos.176 & 308/VIZ/2017 C.O.No. 58/VIZ/2017 (The Visakhapatnam Co-op Bank Ltd.) the year, in which it is actually accrued or incurred by the assessee. Such provisions are not allowable under section 36 or 37 of I.T.Act, 1961. Hence, the same is disallowed and added back to the total income of the assessee.” 24. On appeal, ld. CIT(A) 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. 25. On being aggrieved, revenue carried the matter in appeal before the Tribunal. 26. We have heard both the sides, perused the material available on record and orders of the authorities below. 27. The similar issue has come up before the tribunal in earlier years in assessee’s own case in ITA Nos. 444, 445 & 450/VIZ/2012 and ITA No. 726/VIZ/2013 & ITA Nos. 2 & 3/VIZ/2014 by order dated 30/09/2016, where the tribunal set aside the issue to the file of the Assessing Officer to decide the issue in accordance with law. In the present case, ld. CIT(A) by following the decision of the coordinate bench of the tribunal in the above referred to appeals in assessee’s own case, directed the Assessing Officer to examine the issue and accordingly relied may

15 ITA Nos.176 & 308/VIZ/2017 C.O.No. 58/VIZ/2017 (The Visakhapatnam Co-op Bank Ltd.) be granted. For the sake of convenience, the relevant portion of the order is extracted as under:-

”7.2 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 FIAT in its order in ITA No. 444, 445, 449 & 450/Vizag/2012, ITA No.726/Vizag/2013 & ITA No.2 & 38/2014, dated 30.9.2016 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 shou7ld 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. 7.3 In view of the CBDT Instruction in respect of 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.

16 ITA Nos.176 & 308/VIZ/2017 C.O.No. 58/VIZ/2017 (The Visakhapatnam Co-op Bank Ltd.) case, directed the Assessing Officer to examine the issue and relief may be granted. We find no infirmity in the order passed by the ld. CIT(A). Thus, these grounds of appeal raised by the revenue are dismissed. ITA No. 176/VIZ/2017 29. The assessee has raised the following grounds of appeal:- “1, The order of the learned Commissioner of Income Tax (Appeals)-2 is contrary to the facts and also the law applicable to the facts of the case. 2. The learned Commissioner of Income Tax (Appeals) is justified in upholding the action of the assessing officer, in disallowing the amortization of loss on account of merger of Ongole Cooperative Urban Bank and Ramachandrapuram Cooperative Urban Bank amounting to Rs.76,29,369. 3. Without prejudice to the above, the learned Commissioner of Income Tax (Appeals) ought to have allowed depreciation by treating the transaction of merger as one of goodwill acquired by the appellant. 4. For any other ground that may be urged at the time of appeal hearing.”

17 ITA Nos.176 & 308/VIZ/2017 C.O.No. 58/VIZ/2017 (The Visakhapatnam Co-op Bank Ltd.) Ramachandrapuram Cooperative Urban Bank to the extent of Rs.23,12,676/- and Ongole Cooperative Urban Bank to the extent of Rs. 53,16,693/-, aggregating to Rs. 76,29,369/- in its profit & loss account. It was explained that the merger of the aforementioned banks took place as per the approval of the RBI. This loss was stated to be amortized over a period of 5 years as per the RBI guidelines. It was argued by the assessee that amortization of loss was done as per AS-14 and as per the RBI guidelines and therefore the same should be allowed. The Assessing Officer has not agreed with the explanation given by the assessee and observed that the above claim of the assessee is not allowable as per act and accordingly addition was made. 32. On appeal, ld. CIT(A) by following his own decisions in earlier years in assessee’s own case for the Assessment Years 2008-09 & 2009-10 in ITA No. 372/10-11/Addl.CIT, R-1/VSP/20123-13 and in ITA No. 506/11-12/Joint CIT, R-1/VSP/2012-13 dated 27/09/2012, confirmed the order of the Assessing Officer. The relevant portion of the order of ld. CIT(A) is extracted as under:- "8.3 I have considered the arguments of the assessee and have gone through the facts of the case and also the decisions relied upon by the assessee in support of its arguments. Income-tax Act has specific provisions embedded for computing deductions in the case of business reorganization of cooperative

18 ITA Nos.176 & 308/VIZ/2017 C.O.No. 58/VIZ/2017 (The Visakhapatnam Co-op Bank Ltd.) banks. Section 44DB deals with the details of such computation in case of deduction under section 32, section 35D, section 35DD or section 35DDA. Similarly section 72AB deals with the carry forward and set off of the accumulated loss and unabsorbed depreciation in case of business reorganization of cooperative banks. Sub-section (7) of section 72AB states as under: (a) accumulated loss" means so much of loss of the amalgamating co-operative bank or the demerged co- operative bank, as the case may be, under the head profits and gains of business or profession' (not being a loss sustained in a speculation business) which such amalgamating cooperative bank or the demerged cooperative bank, would have been entitled to carry forward and setoff under the pro visions of section 72 as if the business reorganization had not taken place. (b) "unabsorbed depreciation" means so much of the allowance for depreciation of the 'amalgamating cooperative bank or the demerged cooperative bank, as the case may be, which remains to be allowed and which would have been allowed to such bank as if the business reorganization had not taken place. It is not disputed that that Bobbili Bank got merged with assessee-bank is done as per the approval of RBI and Registrar of Co-operative Societies. Even then the allowance of brought forward losses/unabsorbed depreciation are covered by provisions of I.T.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 Bobbili Bank as per the provisions of the Act. The fact which is undisputed is that M/s.Bobbili Bank prior to its merger has never filed its return of income and thus its loss is not otherwise eligible to be carried forward under the provisions of section 72. Therefore 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. Therefore as observed by AO, Bobbili Bank, whose losses ae rio: determined as per the provisions of Income-tax Act, 1961, does not satisfy the conditions laid down by the Act. Therefore AO rightly disallowed the amortization of losses claimed by the assessee. Coming to the decisions cited by the assessee it can be observed that all these

19 ITA Nos.176 & 308/VIZ/2017 C.O.No. 58/VIZ/2017 (The Visakhapatnam Co-op Bank Ltd.) decisions pertain to the assessment years prior to insertion of section 72AB w.e.f.01.04.2008. Coming to the issue of RBI guidelines with regard to amortization of losses it has been already discussed in the previous paragraphs while dealing with the allowance of provision for bad debts that 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 to the allowance of brought forward losses or unabsorbed depreciation of Bobbili Bank either in amortized form over a period of five years or otherwise. Therefore I uphold the disallowance made by AO". 8.5 I find that the facts and issues raised in this assessment are identical to the issues resolved in A.Y.2008-09 and A,Y.2009- 10 except for the fact that for the subject year the loss related to the acquisition of Ramachandrapuram and Ongole banks. I am in agreement with the above decision taken for A.Y.rs.200809, A.Y.2009-10 & A.Y. 2010-11 and accordingly I am of the view that the AO is justified in disallowing amortization loss on account merger of R.Ch.Puram and Ongole Banks. Accordingly, this ground is dismissed.”

20 ITA Nos.176 & 308/VIZ/2017 C.O.No. 58/VIZ/2017 (The Visakhapatnam Co-op Bank Ltd.) 36. We have heard both the sides, perused the material available on record and orders of the authorities below. 37. The only issue involved in this appeal is whether loss on account of merger of Ongole Cooperative Urban Bank and Ramachandrapuram Cooperative Urban Bank is allowable deduction or not. The similar issue has been considered by the coordinate bench of the tribunal in assessee’s own case in ITA Nos. 444, 445 & 450/VIZ/2012 and ITA No. 726/VIZ/2013 & ITA Nos. 2 & 3/VIZ/2014 by order dated 30/09/2016, which is as under:- “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

21 ITA Nos.176 & 308/VIZ/2017 C.O.No. 58/VIZ/2017 (The Visakhapatnam Co-op Bank Ltd.) 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 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. 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

22 ITA Nos.176 & 308/VIZ/2017 C.O.No. 58/VIZ/2017 (The Visakhapatnam Co-op Bank Ltd.) 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.”

38 The ld. CIT(A) by following the decision of the coordinate bench of the tribunal in the above referred to case, order passed by the Assessing Officer is confirmed. We find no reason to interfere with the order passed by the ld. CIT(A). Thus, this ground of appeal raised by the assessee is dismissed. C.O.No. 58/VIZ/2017 39. So far as cross objection is concerned, it is in support of the order passed by the ld. CIT(A). In view of our decision in ITA No. 308/VIZ/2017, this cross objection filed by the assessee is dismissed. 40 In the result, both the appeals filed by the revenue and assessee are dismissed; Cross Objection filed by the assessee is also dismissed. Order Pronounced in open Court on this 12th day of Jan., 2018.

Sd/- sd/- (D.S. SUNDER SINGH) (V. DURGA RAO) Accountant Member Judicial Member Dated : 12th January, 2018.

23 ITA Nos.176 & 308/VIZ/2017 C.O.No. 58/VIZ/2017 (The Visakhapatnam Co-op Bank Ltd.) 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

(VUKKEM RAMBABU) Sr. Private Secretary, ITAT, Visakhapatnam.