ASSISTANT COMMISSIONER OF INCOME-TAX vs. THE PANDHARPUR MERCHANTS CO-OP. BANK LTD., SOLAPUR

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ITA 1421/PUN/2016Status: DisposedITAT Pune09 May 2018AY 2012-135 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the deletion of additions on account of interest accrued on NPAs was justified, following previous decisions in the assessee's own case. Similarly, the amortization of premium on HTM securities was also allowed, based on established jurisprudence.

What were the facts?

The Revenue appealed the deletion of additions made by the Assessing Officer regarding interest accrued on Non-Performing Assets (NPAs) and amortization of premium on investments held to maturity (HTM). The assessee, a cooperative bank, argued that Section 43D of the IT Act applies to all banks, including cooperative banks.

What were the issues?

Whether Section 43D of the IT Act applies to cooperative banks for NPA interest accrual, and whether amortization of premium on HTM securities is allowable.

Which sections of the Income-tax Act were involved?

Section 43D

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(2)Show list

Detected automatically from the text. Citations are also linked where they appear in the judgment. The count shows how many other judgments on BharatTax rely on the same authority.

Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE

Before: SHRI D.KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM

For Appellant: Shri S.N. Puranik
For Respondent: Shri Mukesh Jha, JCIT
Hearing: 03.05.2018Pronounced: 09.05.2018

आदेश आदेश / ORDER आदेश आदेश

PER D. KARUNAKARA RAO, AM :

This appeal is filed by the Revenue against the order of CIT(A)-7, Pune, dated 01-04-2016 for the Assessment Year 2012-13.

2.

Revenue raised total 13 grounds. All these grounds revolve around couple of issues. Ground Nos. 1 to 7 relate to the issue of deletion of addition by the CIT(A) on account of interest accrued on Non-Performing Assets u/s.43D of the I.T. Act, 1961. Further, the Ground Nos. 8 to 11 relate to deletion of addition by the CIT(A) on account of amortization of premium on investments under the category Held to Maturity (HTM).

3.

At the outset, before us, Ld. Counsel for the assessee argues that provisions of section 43D of the Act apply to all the banks including the

cooperative banks. On the other hand, Revenue holds that these

provisions are applicable only to the scheduled banks.

Regarding the first issue, i.e. addition on account of interest

accrued on NPA, Ld. Counsel for the assessee submitted that the issue

stands now covered in favour of the assessee by the order of the

Tribunal in assessee’s own case vide ITA No.875/PN/2014,

C.O.No.100/PN/2014 for the A.Y. 2009-10 and ITA No.1354/PN/2014,

dated 28-11-2014 for the A.Y. 2010-11.

4.

Ld. DR for the Revenue relied on the order of the AO.

5.

We heard both the parties and perused the orders of the Revenue

and the decisions relied on by the Ld. Counsel for the assessee on this

issue of NPA. We find the CIT(A) discussed the issue in Para Nos. 6 to

6.4 of his order and allowed the ground relating to interest accrued on

NPA amounting to Rs.67,84,906/-. While doing so, he explained the

provisions of section 43D of the Act and relied on the judgment of

Hon’ble Supreme Court in the case of Southern Technologies Ltd. Vs.

JCIT (Coimbatore) 320 ITR 577 (SC), judgment of Hon’ble Delhi High

Court in the case of M/s. Vasisth Chay Vyapar Ltd. 330 ITR 440 (Delhi)

and the decisions of the Tribunal in assessee’s own case for the A.Yrs.

2009-10 and 2010-11 vide ITA Nos. 875/PN/2014 &

C.O.No.100/PN/2014, dated 28-11-2014. Eventually, the CIT(A)

allowed the claim of the assessee in his favour. On perusing the finding

given by the CIT(A) we find it relevant to extract the operational paras

and the same read as under :

“6.2.3 The above analysis shows that, whether amount has become NPA or not is to be decided first then treatment of the interest thereon is to be considered for offering to Income Tax on the basis of accrual or receipt basis.

6.3 From the facts of the case, it is apparent from the record that appellant has not shown the amount received as interest after recovery from NPA. 6.4 Respectfully following the decision of ITAT Pune in the case of appellant for A.Y. 2009-10 and 2011-12 the amount of Rs.67,84,906/- claimed as NPA is not to be taxed in the year under consideration. Therefore, the ground No.1 of the appeal is allowed.

6.

Considering the settled nature of issue relating to taxation of

interest accrued on NPAs, we find the order of the CIT(A) is a well

reasoned one and therefore does not warrant any adverse view on this

issue. We therefore direct the AO to delete the addition. Accordingly,

ground Nos. 1 to 7 raised by the Revenue are dismissed.

7.

Now coming to the second issue raised by the Revenue vide

Ground Nos. 8 to 11, brief facts relevant to the issue are that assessee

debited an amount of Rs.1,55,037/- towards amortization of premium

on securities. Assessee submitted that as on 31-03-2012 it holds

Rs.23,75,16,951/- in Govt of India securities and all such investment is

held for maturity – HTM category. Assessee stated that when these

securities are purchased, the entire premium paid on purchase of

securities is not booked to expenditure account as it is required to be

amortized over the period until the maturity of securities. However, the

AO after analysing the investment portfolio of the banks came to the

conclusion that these securities are into three categories namely (1)

Held to Maturity, (2) Available for Sale and (3) Held for Trading. AO

opined that ‘AFS’ and ‘HFT’ are in the nature of stock in trade while the

‘HTM’ securities are in the nature of capital assets. For the purpose of

income-tax, the valuation in respect of ‘AFS’ and ‘HFT’ securities are to

be valued at cost or market whichever is less whereas ‘HTM’ securities

have to be valued at cost only and not at cost of market whichever is

less and thus disallowed the claim on amortization of premium

amounting to Rs.1,55,037/-.

8.

In the First Appellate proceedings, the CIT(A) relying on the

decision of Tribunal in assessee’s own case for the A.Yrs. 2009-10 and

2010-11 and the decision of Pune Bench of the Tribunal in the case of

Lokmangal Co-operative Bank Ltd. – ITA No.1540/PN/2014, dated

28-11-2014 allowed the claim in favour of the assessee. Contents of

Para No.7.3 to 7.5 of the order of CIT(A) are relevant on this issue.

9.

Aggrieved with the order of CIT(A), Revenue filed the present

appeal.

10.

At the outset, Ld. Counsel for the assessee submitted that this

issue also is a covered issue in view of the decisions of the Pune Bench

of the Tribunal in the assessee’s own case for the A.Yrs. 2009-10 and

2010-11. Per Contra, Ld. DR for the Revenue relied on the order of the

AO dutifully.

11.

After hearing both the parties and perusing the orders of the

Revenue and the consolidated order of the Tribunal dated 28-11-2014

where assessee is also covered in the said order, we find the issue is

decided in favour of the assessee vide Para Nos. 25 to 27 of the order.

For the sake of completeness, we reproduce the said findings of the

Tribunal here as under :

“25. The only other remaining Ground in the cross-objection is with regard to the action of the CIT(A) in confirming the disallowance of Rs.3,70,913/- representing amortization of premium paid on acquisition of Held to Maturity (HTM) securities. 26. In this context, brief facts are that before the CIT(A) assessee claimed deduction of Rs.3,70,913/- on account of amortization of premium paid on Government Securities in the category of investments Held to Maturity (i.e.HTM). The said premium represented the excess of acquisition cost over the face value of the securities and the claim of the assessee was that the same was to be amortized over the remaining period of maturity of the securities. The claim of the assessee was based on the Master Circular dated 12.07.2006 issued by the Reserve Bank of India. The CIT(A) did not accept the plea of the assessee and sustained the disallowance of Rs.3,70,913/-. Against such a decision of the CIT(A), assessee is in appeal by way of cross- objection before us.

27.

It was a common point between the parties that the said issue is no longer res-integra and has been adjudicated ill favour of the assessee by the Hon'ble Bombay High Court in the case of HDFC Bank Ltd. (supra). The Hon'ble Bombay High Court referred to its earlier decision in the case of CIT vs. Lord Krishna Bank Ltd. (2014) 107 DTR 138 (Bom.) and decided the issue in favour of the assessee. In view of the aforesaid, the order of the CIT(A) is set-aside and the Assessing Officer is directed to delete an addition of Rs.3,70,913/- representing amortization of premium paid on HTM securities. Thus, the Ground of the assessee is allowed.”

In view of the above, we hold that the addition on account of

amortization of premium on HTM securities is allowable in favour of the

assessee. We therefore direct the AO to delete the said addition of

Rs.1,55,037/- in the hands of the assessee. Accordingly, relevant

grounds (8 to 11) raised by the Revenue are dismissed.

12.

In the result, appeal of the Revenue is dismissed.

Order pronounced in the open court on this 09th day of May,

2018.

Sd/- Sd/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) �याियक �याियक सद�य �याियक �याियक सद�य सद�य /JUDICIAL MEMBER लेखा सद�य लेखा लेखा सद�य लेखा सद�य सद�य / ACCOUNTANT MEMBER सद�य

पुणे Pune; �दनांक Dated : 09th May, 2018 सतीश आदेश क� आदेश क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : आदेश आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत

अपीलाथ� / The Appellant 1. ��यथ� / The Respondent 2. 3. The CIT(A)-7, Pune 4. CIT-7, Pune िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “B Bench” Pune; 5. गाड� फाईल / Guard file. 6.

आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER,स आदेशानुसार

स�यािपत �ित //True Copy// //True Copy// Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

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