Shri. Laxmi Sahakari Bank Niyamit, V. JCIT,

ITA 515/BANG/2013

• Counselvise Citation: 51521114 RSA 2013
• Duration Of Justice: 1 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 19-11-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 16-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: BIJOY KUMAR
• Assessee Lawyers: C R NULVI
• Keywords: Depreciation; Cost of acquisition; Bad and doubtful debts; Revised return; Capital expenditure
• Section: 143(3); 54

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE SHRI RAJPAL YADAV , JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER I.T.A. NO . 515 / BANG /20 1 3 ( ASSESSMENT YEAR : 200 9 - 10 ) SHRI LAXMI SAHAKARI BANK NIYAMIT, MAIN ROAD, NEAR MUNI CIPALITY, GULEDGUDD 587 203, DIST.BAGALKOT. . APPELLANT . PAN AAAL 0402A VS. JT. COMMISSIONER OF INCOME TAX, BIJAPUR RANGE, BIJAPUR . .. RESPONDENT. I.T.A. NO.800/BANG/2013 (ASSESSMENT YEAR : 2009 - 10) ASST. COMMISSIONER OF INCOME TAX, CIRCLE - 1, BIJAPUR. . APPELLANT . VS. SHRI LAXMI SAHAKARI BANK NIYAMIT, GULEDGUDD 587 203, DIST.BAGALKOT. .. RESPONDENT. ASSESSEE BY : SHRI C.R. NULVI, C.A. RE VENUE BY : S H RI BIJOY KUMAR PANDA, ADDL. CIT (D.R.) DATE OF H EARING : 19.11.2014. DATE OF P RONOUNCEMENT : 23.1. 201 5 . O R D E R PER S HRI JASON P. BOAZ : THESE ARE CROSS APPEALS, ONE BY THE ASSESSEE AND ONE BY REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), BELGAUM DT.20.2.2013 FOR ASSESSMENT YEAR 2009 - 10. 2. THE FACTS OF THE CASE, BRIEFLY, A RE A S UNDER: - ITA NO S . 515 & 800/BANG/2013 2 2.1 THE ASSESSEE IS A CO - OPERATIVE BANK ENGAGED IN CARRYING ON THE BUSINESS OF BANKING; OBTAINING THE NECESSARY LICENSE FROM THE RESERVE BANK OF INDIA FOR CARRYING ON ITS BANKING OPERATIONS AS A CO - OPERATIVE BANK. FOR ASSESSMENT YEAR 20 09 - 10, THE ASSESSEE FILED ITS RETURN OF INCOME ON 29.9.2009 DECLARING INCOME OF RS.55,75,703. THE RETURN WAS PROCESSED AND THE CASE WAS TAKEN UP FOR SCRUTINY. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (HEREIN AFTER RE FERRED TO AS 'THE ACT') VIDE ORDER DT.23.12.2011 WHEREIN THE INCOME OF THE ASSESSEE WAS DETERMINED AT RS.3,78,41,496 AS AGAINST THE RETURNED INCOME OF RS . 55,75,703 IN VIEW OF THE FOLLOWING ADDITIONS / DISALLOWANCES THERETO : - (I) DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT FOR NON - DEDUCTION OF TAX AT SOURCE ON THE PAYMENT OF INTEREST ON DEPOSITS AMOUNTING TO RS2,84,10,541 EVEN THOUGH THE AMOUNT OF INTEREST PAID TO EACH INDIVIDUAL EXCEEDED RS.10,000. RS.7,40,777 (II) ADDITION OF INTEREST ON NPA AS INTE REST RECEIVABLE RESERVE NOT CREDITED TO PROFIT AND LOSS ACCOUNT. RS.2,75,23,487 (III) DISALLOWANCE ON ACCOUNT OF PREMIUM AND LOSS ON GOVT. SECURITIES , UTI BONDS, ETC. RS.35,96,855 (IV) DISALLOWANCE OF PROVISION FOR BAD AND DOUBTFUL DEBTS RS.17,21,8 84 2.2 AGGRIEVED BY THE ORDER OF ASSESSMENT FOR ASSESSMENT YEAR 2009 - 10 DT.23.12.2011, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (APPEALS), BELGAUM. THE LEARNED CIT(A) DISPOSED OFF THE ASSESSEE'S APPEAL VIDE THE IMPUGNED ORDER DT.20.2.2013 ALL OWING THE ASSESSEE PARTIAL RELIEF. THE LEARNED CIT(A) UPHELD THE DISALLOWANCES MADE BY THE ASSESSING OFFICER OF ISSUES LISTED AT S.NOS.(I) AND (IV) AT PARA 2.1 (SUPRA) AND DELETED THE DISALLOWANCES MADE AT S.NOS.(II) AND (III) AT PARA 2.1 (SUPRA). 3. AGGRIEVED BY THE ORDER OF THE CIT (APPEALS), BELGAUM FOR ASSESSMENT YEAR 2009 - 10 DT.20.2.2013, BOTH REVENUE AND THE ASSESSEE HAVE FILED APPEALS BEFORE THE TRIBUNAL IN RESPECT ITA NO S . 515 & 800/BANG/2013 3 OF THE ISSUES HELD AGAINST THEM IN THE IMPUGNED ORDER OF THE LEARNED CIT(A). WE NOW PROCEED TO DISPOSE OF BOTH THESE APPEALS. REVENUE S APPEAL FOR ASSESSMENT YEAR 2009 - 10 IN ITA NO.800/BANG/2013. 4. THE GROUNDS RAISED IN REVENUE S APPEAL ARE AS FOLLOWS : - (A) THE CIT (APPEALS) ERRED IN LAW AND ON FACTS, IN DELETING THE ADDITI ON OF RS.2,75,23,487 ON ACCOUNT OF ACCRUED INTEREST ON LOANS WHICH ARE CLASSIFIED AS NON - PERFORMING ASSETS RELYING ON THE KARNATAKA HIGH COURT DECISION IN CANFIN HOMES LTD. (2011) 5 TAX CORP (DT) 49593, IGNORING THE PROVISIONS OF SECTION 43D OF THE IT AC T, 1961 ? (B) ON THE FACTS AND IN LAW THE CIT (APPEALS) ERRED IN HOLDING THAT INCOME ACCRUED TO THE ASSESSEE CANNOT BE TAKEN AS INCOME IN THE YEAR IGNORING THE AMENDED PROVISIONS OF SECTION 43D OF THE IT ACT, 1961, WHICH PROVIDES CERTAIN BENEFIT TO THE CER TAIN CLASS OF ASSESSEE'S BUT DO NOT PROVIDE SUCH BENEFIT TO THE ASSESSEE BANK AND AS SUCH, THE PROVISIONS OF SECTION 43D AMENDED W.E.F. 1.4.2000 OVERRULED THE COURT DECISIONS / CIRCULARS ? (C) THE LEARNED CIT (APPEALS) ERRED IN DELETING THE DISALLOWANCE OF RS.19,92,613 AND RS.1,85,000 ON ACCOUNT OF PREMIUM ON GOVT. SECURITIES AND LOSS ON GOVT. SECURITIES MERELY RELYING UPON THE INSTRUCTION NO.17/2008 WITHOUT EXAMINING THE EVIDENCE IN REGARD TO TREATMENT OF THESE SECURITIES IN ITS BOOKS BY THE ASSESSEE. ( D) THE LEARNED CIT (APPEALS) ERRED IN MERELY RELYING UPON THE INSTRUCTION NO.17/2008 WITHOUT EXAMINING THE ACTIVITIES OF THE ASSESSEE AS TO WHETHER ASSESSEE BANK HAS KEPT THESE SECURITIES UNDER THE HEAD HELD FOR MATURITY AS WELL AS HELD FOR TRADING SO AS TO CLAIM DEDUCTIONS. (E) THE LEARNED CIT (APPEALS) ERRED IN DELETING THE DISALLOWANCE MADE ON ACCOUNT OF PREMIUM ON GOVT. SECURITIES AND INVESTMENT FLUCTUATION RESERVE THOUGH IT IS HELD AS CAPITAL EXPENDITURE BY THE HON'BLE SUPREME COURT IN THE CASE OF VIJAYA BANK REPORTED IN 187 ITR 541 (SC). (F) FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, THE ORDER OF THE LEARNED CIT (APPEALS) MAY BE SET ASIDE AND THAT THE ORDER OF THE ASSESSING OFFICER BE RESTORED. 5.0 ACCRUED INTEREST ON LOANS CLASSIFIED AS NPAS. 5.1 GROUNDS (A) AND (B) OF REVENUE S APPEAL RELATE TO THE ISSUE OF ADDITION OF ACCRUED INTEREST ON LOANS CLASSIFIED AS NPAS (NON PERFORMING ASSETS). IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT AN AMOUNT OF RS.2,75,23,487 HAS BEEN SHOWN ITA NO S . 515 & 800/BANG/2013 4 AS INTEREST RECEIVABLE RESERVE IN THE ASSESSEE'S BALANCE SHEET FOR THE RELEVANT PERIOD, BUT HAS NOT BEEN CREDITED TO THE PROFIT AND LOSS ACCOUNT. THE ASSESSING OFFICER WAS OF THE VIEW THAT SECTION 43D OF T HE ACT NOT BEING APPLICABLE I N THE ASSESSEE'S CASE, THE INTEREST RECEIVABLE ON LOANS AND INVESTMENTS HAS TO BE TAXED ON ACCRUAL BASIS SINCE THE ASSESSEE FOLLOWS THE MERCANTILE SYSTEM OF ACCOUNTING AND IN THIS VIEW OF THE MATTER, THE ASSESSING OFFICER BRO UGHT THE SAME TO TAX IN THE ASSESSEE'S HANDS. 5.2 ON APPEAL, HOWEVER, THE LEARNED CIT(A) RELYING ON THE DECISION OF THE HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF JCIT V CANFIN HOMES LTD. (2011) 5 TAX CORP (DT) 49593, HELD THAT THE ADDITION OF RS.2 ,75,23,487 MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST ACCRUED ON NPAS CANNOT BE SUSTAINED AND DELETED THE ADDITION. 5.3 THE LEARNED DEPARTMENTAL REPRESENTATIVE WAS HEARD IN SUPPORT OF THE GROUNDS RAISED AND VEHEMENTLY ARGUED THAT THE ORDER OF T HE LEARNED CIT(A) BE REVERSED AND THE FINDING / ADDITION OF THE ASSESSING OFFICER BE RESTORED ON THE ISSUE OF TAXING THE INCOME ON ACCOUNT OF ACCRUED INTEREST ON NPAS. 5.4 PER CONTRA, THE LEARNED AUTHORISED REPRESENTATIVE SUPPORTED THE FINDING OF THE L EARNED CIT(A) IN THE IMPUGNED ORDER ON THIS ISSUE OF ACCRUED INTEREST ON NPAS BY RELYING ON THE ORDER OF THE HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF CANFIN HOMES LTD. (SUPRA). THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT, APART FROM THIS, T HE SAME ISSUE HAS ALSO BEEN CONSIDERED BY A CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ANOTHER CO - OPERATIVE BANK I.E. SHRI VIJAY MAHAN TESH CO - OPERATIVE BANK LTD. IN ITA NO.434/BANG/2013 DT.26.9.2014 FOR ASSESSMENT YEAR 2009 - 10, WHEREIN IT WAS HELD THAT THE ACCRUAL OF INTEREST ON NPAS IS NOT TO BE RECOGNISED AS INCOME. THE LEARNED AUTHORISED REPRESENTATIVE FURTHER SUBMITTED THAT IN ITA NO S . 515 & 800/BANG/2013 5 COMING TO THIS DECISION, THE CO - ORDINATE BENCH FOLLOWED THE DECISION OF ANOTHER CO - ORDINAT E BENCH IN THE CASE OF M/S. S HIVA SHAKTI SAHAKARI BANK NIYAMITHA RENDERED IN ITA NO.257/BANG/2012. THE LEARNED AUTHORISED REPRESENTATIVE CONTENDS THAT IN VIEW OF ABOVE CITED DECISIONS, HOLDING THAT INTEREST ACCRUED ON NPAS IS NOT TO BE RECOGNISED AS INCOME, THE ISSUE IS SQUARELY COVE RED IN FAVOUR OF THE ASSESSEE AND THEREFORE REVENUE S GROUNDS RAISED ON THIS ISSUE ARE LIABLE TO BE DISMISSED. 5.5.1 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD ; INCLUDING THE JUDICIAL PRONOUNCEMENTS CITED AND PLACED RELIANCE UPON BY THE ASSESSEE. AS CONTENDED BY THE LEARNED AUTHORISED REPRESENTATIVE, WE FIND THIS ISSUE HAS BEEN CONSIDERED BY A CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF SHRI VIJAY MAHA N TESH CO - OPERATIVE BANK LTD. IN ITA NO.434 & 529/BANG/2013 DT.26.9.2014, WHEREIN FOLLOWING THE DECISION OF ANOTHER CO - ORDINATE BENCH IN M/S. SHIVA SAHAKARI BANK NIAYAMITHA IN ITA NO.257/BANG/2012, THE TRIBUNAL HELD AS UNDER AT PARAS 7 & 8 AS UNDER : 7. THE L E A R N E D C O U N S E L F O R T H E ASS E S S E E A T T H E V E R Y O U T S E T S U B MI T T E D T H A T T H I S I S S U E H A S A L S O B E E N CO N S I D ERE D I N T HE CA S E O F A N OT H E R COO P ERAT I V E B A NK A ND T HE T R I BUN A L H A S H E L D T H A T A CC R U A L O F I N T ERES T O N S U C H NPA A C C O UNT N O T T O BE RECOG N I ZE D. T H E F I N D I N G O F T HE T R I BUN A L I N T HE CAS E O F I N C O M E T A X O F F I C E R V S . M / S . S H I V A S A H A K AR I B A N K N I Y A MI T HA RE ND E RE D I N I TA N O . 257 / B A N G / 2012 REA D A S U N D E R : 8 . HA V I NG H E A R D BO T H THE P A R T I E S A ND H A V I NG C ON S I D E R E D T H E I R R I V A L C ON T E N T I ON S , W E FI ND T H A T UNDI S PU T E DLY THE A SS E S SE E IS IN T H E B A NKING BU S IN ES S A ND IS A L S O G O V E R N E D BY T HE B A NKING R E GUL A T ION S . W H E T H E R T H E IN T E R E S T A C C R U E D ON N P A ' S W HI C H A R E DOUB T F UL OF B E ING R E C O V E R E D, S HOULD BE R E C O G NI Z E D A S A SS ESS E E 'S I N C O M E ON A CC R U A L OR ON R EC E I PT B AS IS I S T H E QU E S TION B E F O R E U S . L E T US F I R S T C ON S I DE R THE A PPLI CA B I LI T Y OF THE D E C I S IONS R E L I E D UP O N BY THE L E A R N E D D R . T HE H ON'B L E SUP R E M E C OU R T IN THE C A S E OF SOUTH E R N T EC HNO L O G I E S L T D WA S C ON S ID E R I NG T HE I SS UE OF A L LO WA B I L ITY OF P R O V I S IONS OF N PA U / S 36 ( 1 ) ( V I I ) OF T HE I N C O M E - T A X A C T W HILE T H E C A S E B E F O R E US I S W I T H R E G A R D T O THE A CC R U A L OF IN T E R ES T ON N P A 'S A ND R EC O G N I TION OF T HE S A ME ON R E C E IPT B A S IS A ND NOT ON A C C R U A L B A S I S . F U R T H E R , THE H ON'BLE S UP R E ME C OU R T , W HILE HOLD I NG TH A T T HE RB I DI R E C T IONS A R E O N L Y NO R MS A ND AC T I N A DI FF E R E NT F I E LD A S A G A IN S T T H E ITA NO S . 515 & 800/BANG/2013 6 I N C OM E - T A X AC T, H A S A L S O OB S E R V E D TH A T C O L L E C T A BILI T Y OF A R E C E I P T IS DI FF E R E NT F R OM A C C R U A L A ND H E N C E IN E A C H C A S E , T H E AS S ES S E E H A S T O P R O V E TH A T INT E R ES T IS NOT R E C O G NI Z E D OR T A K E N IN T O A C C OUNT D U E TO U N C E R T A INTY I N CA L C UL A TION O F I T A N O . 257/ B / 12 T H E IN C O M E A ND IT IS F OR T H E A O ACCE PT THE C L A IM OF T HE A SS E SS E E UND E R T H E I T AC T OR NOT TO ACCE PT I T , I N W HI C H C A S E T H E R E W I L L BE A D D E D - B A C K E V E N UND E R THE R E A L I N C O M E T H E O R Y . I T W A S A L S O OB S E R V E D TH A T T H E I N C O M E - T A X AC T IS T A X ON R E A L IN C O ME I . E THE P R O F ITS A RR I V E D A T ON C OM M E R C I A L P R IN C IP L E S S U B J E C T TO T HE P R O V I S I ONS OF AC T BUT A P R O V I S ION F OR DOUB TF UL D E B T S IS ONLY A NOT I ON A L E XP E N S E W H I C H IS A D E BIT T O THE P & L AC C OUNT W HI C H I S E XP R ES S L Y DI SA LLO W E D BY E XPL A N A T I ON TO SE C . 36 ( 1 )( V I I ) W H I C H IF C L A I M E D H A S G OT TO B E A DD E D B A C K TO T H E T O T A L I N C OME OF T H E ASSE SS E E B ECA U S E AC T S E E KS T O T A X THE R E A L I N C O M E A ND F OR T H I S PU R PO S E W R ITE O F F IS A C ONDIT I ON F OR A L LO W A N CE . I T I S , T H E R E F O R E , C L E A R TH A T T H E F AC TS O F T H E C A S E B E F O R E T H E A P E X C O U R T A R E E NT I R E LY ON A D I FF E R E NT S E T OF F AC TS A ND H E N C E I T S FI NDING ON NON - A L L OW A B I L I TY OF THE P R O V I S IONS OF N P A 'S C A NNOT B E A PPLI E D T O THE F A C T S OF T H E CAS E B E F O R E US BUT ITS OB SE R V A T ION TH A T F OR R E C O G NI Z ING T HE I NT E R E S T I N C OME ON N P A ' S , A O H A S TO C ON S I D E R THE F A C T S OF EAC H C A S E H A S R E L E V A N C E TO THE CAS E B E F O R E U S . I N V I E W OF THE SA M E , W E HO L D TH A T T H E D E C I S I ON OF T H E H ON'B L E S UP R E ME C OU R T IS ON A D I F F E R E NT S E T OF F AC T S . T HE S E C OND D EC I S ION R E L I E D UPON BY THE L E A R N E D D R IS TH A T O F C H E NN A I BE N C H OF T H E T R IBUN A L I N T HE CA S E OF I NDIA E QU I PM E NT L EAS ING L TD . , W H I C H IS ON THE S A ME S E T OF F A C TS A S B E F O R E U S , A S I T W A S H E LD IN F A V OUR OF THE R E V E NU E . C OMING TO THE D E C I S I ONS R E LI E D UPON THE L EA R N E D A R , W E I T A N O . 257 / B /12 F I ND T H A T THE D E C I S ION OF THE J U R I S D I C T IO N A L H I G H C OU R T IN THE C AS E OF CA N F IN H OM E S L TD . , I S A L S O ON T HE S A ME S E T F AC TS A S B E F O R E US A ND IS B I NDING ON TH I S T R IBUN A L . I N T HE SA ID D EC I S IO N , A T P A R A 8 OF T HE O R D E R , THE H ON'BLE H I G H C OU R T H A S H E LD A S UND E R : ' T H E R E F O R E , IT I S CL E A R I F A N A S S E S S E E A D O P T S M ER CA N T I L E S Y S T E M O F ACC O U N T I N G A N D IN H IS A C C O U N T S H E SH O WS A P A R T I C U L A R I N C O M E A S A C C R U I N G , W H E T H E R T H A T A M O U N T IS R E A L L Y ACC R U E D O R N O T I S L I A B L E T O B R I N G T H E S A I D I N C O M E T O TA X. H IS A C C O U N T S S H O U L D R E F L E C T T R U E A N D C OR R E C T ST A T E M E N T O F A FF A I R S . M E R E L Y B E CA U S E T H E SA ID A M O U N T ; A C C R U E D W A S N O T RE AL I Z E D I MME DI A T E L Y C A N NO T B E A G R O U N D T O AV O I D P A Y M E N T O F TA X. B U T , IF I N H IS ACC O U N T IT I S C L E A R L Y S TAT E D T H A T TH O U G H A P A R T I C U L A R I N C OM E IS D UE T O H I M B U T IS N O T P O S S IB L E T O R E COV E R TH E SA ME , TH E N I T CA NNO T B E SA ID T O H A V E B EE N ACC R U E D A N D TH E SA ID AM O U N T CA N N O T BE B R O U GH T T O TA X. I N T H E I N STA N T C A S E WE A R E C O N C E R NE D WI T H A N O N PER F OR M I N G ASS E T . AS TH E DEFI N I T I O N O F NO N P E R F O R M I N G A S S E T SH O WS A N A S S E T B E C O M E S NO N P E R F OR M I N G W H E N IT C E AS E S T O Y I E L D I N C OM E . N O N PER F OR M I N G A SS E T I S A N A SS E T I N R E S PE C T O F W H I C H I N T ERE S T HA S RE MA I NE D U N P A ID A N D H A S B E C O M E P AS T D U E . O N C E A P A R T I C U L A R A S S E T I S SH O W N T O B E A N O N P E R F O R M I N G A S S E T T H E N T H E ASS U M P T I O N I S IT I S N O T Y I E L D I N G A N Y RE V E N U E . WH E N IT I S N O T Y I E L DI N G A N Y RE V E N U E , TH E Q U E ST I O N O F S H O WI N G TH A T R E V EN U E A N D P A Y I N G TA X W O U L D N O T A R I S E . AS I S C L E A R F RO M TH E P O L I C Y I T A N O . 2 5 7 / B / 1 2 G U I D E L I N E S I S S U E D BY T H E N AT I O N A L H O U S I N G B A N K , TH E I N C OM E F RO M NO N P E R F OR M I N G ASS E T S H O U L D BE R E C O G N I Z E D ON L Y W H E N IT IS ACT U A L L Y R E C E I V E D . T H A T IS W HA T TH E T R I B U N A L H E L D IN T H E I N S T A N T C A S E . T H ER EF O RE , TH E C O N T EN T I O N O F T H E R E V E N U E TH A T IN RE S PE C T O F N O N PER F OR M I N G A S S ET S E V E N TH O U G H IT D OE S N O T Y I E L D A N Y I N C O M E A S T H E A S S E S S E E H A S A D O P T E D A M E R C A N T I L E S Y ST E M O F A C C O U N T I N G , H E H A S T O P A Y T A X O N TH E RE V E N U E W H I C H H A S A C C R U E D NO T I O N A L L Y IS W I T H O UT A N Y B A S I S . I N TH A T V I E W O F T H E M A TT E R , T H E S E C O N D ITA NO S . 515 & 800/BANG/2013 7 S U B STA N T I A L QU E ST I O N F R A M E D IS A N S W E R E D A G A I N S T TH E RE V EN U E A N D IN F A V O UR O F T H E A SS E S S E E . ' 9. I N V I E W O F TH E SAM E , RE S PE CT FU LL Y F O L L O WI N G T H E D E C I S I O N O F T H E H ON' B L E J U R I S D I C T I ON A L H I G H CO U R T ( C I T E D S U PR A ) , TH E R E V E N U E ' S A PPE A L IS D I S M I S S E D . 8. TH E R E I S NO D I S P AR I T Y O N F A C T S . THE P O S I T I O N O F L A W E X P L A I N E D BY T HE T R I BU N A L ( S U P R A ) I S SQ U ARE L Y A PP LI CA B L E O N T HE A S S E S S EE . THE A LL EGE D I N TERE S T I N C O M E O N NP A A C C O UNT I S N O T T O B E C R E D I T E D T O T HE P & L A / C . T H E A DD I T I O N M A DE BY T HE A S S E S S I N G O FF I CE R I S D E L E T E D . 5.5.2 THE FACTS IN THE CASE ON HAND ARE SIMILAR TO THE CASE CITED ABOVE AND THE POSITION OF LAW EXPLAINED IN THE ABOVE CITED CASE IS ALSO APPLICABLE TO THE CASE ON HAND. THEREFORE, FOLLOWING THE DECISIONS OF THE CO - ORDINATE BENCHES OF THIS TRIBUNAL IN SHRI VIJAY MAHA N TESH CO - OPERATIVE BANK LTD. (SUPRA) AND M/S. SHIVA SAHAKARI BANK NIYAMITHA (SUPRA), WE ALSO HOLD THAT THE ACCRUED INTEREST ON LOANS CLASSIFIED AS NPAS IS NOT TO BE TREATED AS INCOME. WE, THEREFORE, UPHOLD THE DECISION OF THE LEARNED CIT(A) IN DELETING THE ADDITION MADE IN THIS REGA RD. CONSEQUENTLY, THE GROUNDS RAISED BY REVENUE AT S.NOS. (A) AND (B) ARE DISMISSED. 6. DISALLOWANCE ON ACCOUNT OF LOSS ON SALE OF AND PREMIUM PAID ON GOVT. SECURITIES. 6.1 GROUNDS OF APPEAL (C) TO (E) , PERTAIN TO THE RELIEF GRANTED BY THE LEARNED CIT(A) TO THE ASSESSEE IN THE IMPUGNED ORDER, UNDER TWO HEADS : - (I) DEDUCTION OF AN AMOUNT OF RS.1,11,855 ON ACCOUNT OF PREMIUM PAID ON GOVT. SECURITIES; AND (II) AN AMOUNT OF RS.19,92,613 ON ACCOUNT OF DEPRECIATION ON LOSS ON SALE OF GOVT. SECURITIE S. 6.2.1 IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD PAID PREMIUM ON GOVT. SECURITIES HELD TILL MATURITY ( MTM ) AND AMORTISED THE SAME OVER THE PERIOD OF HOLDING OF THE SECURITIES OR 10 YEARS, WHICHEVE R IS EARLIER. THE ITA NO S . 515 & 800/BANG/2013 8 ASSESSING OFFICER WAS OF THE VIEW THAT THE PAYMENTS WERE CAPITAL IN NATURE AND DISALLOWED THE SAME. 6.2.2 THE ASSESSING OFFICER ALSO OBSERVED THAT THE ASSESSEE HAD DEBITED AN AMOUNT OF RS.33,00,000 ON ACCOUNT OF INVESTMENT DEPRECIATI ON AND AN AMOUNT OF RS.1,85,000 ON PROVISION FOR DEPRECIATION ON STANDARD ASSET. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE INVESTMENT IN GOVT. SECURITIES WAS NOT STOCK - IN - TRADE BUT INVESTMENTS ONLY AND THEREFORE HELD THAT LOSS ON DEPRECIATION CANNOT BE ALLOWED AND CONSEQUENTLY DISALLOWED THE SAME. 6.3 ON APPEAL, THE LEARNED CIT(A) HELD THAT THE DEDUCTION OF RS.1,11,855 CLAIMED ON ACCOUNT OF PREMIUM PAID ON GOVT. SECURITIES IS AN ALLOWABLE DEDUCTION AS THE ASSESSEE KEPT THE INVESTMENT UNDER THE H TM CATEGORY. THE LEARNED CIT(A) ALSO ALLOWED THE DEDUCTION CLAIMED TOWARDS DEPRECIATION BY HOLDING THAT THE ASSESSEE HAD FOLLOWED THE RBI GUIDELINES IN CATEGORIZING ITS SECURITIES AND THEREFORE THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DISALLOWING THE ASSESSEE'S CLAIM. 6.4.1 AGAINST THIS ORDER OF THE LEARNED CIT(A), REVENUE IS IN APPEAL BEFORE US. WE HAVE HEARD BOTH THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR REVENUE AND THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE IN THE MATTER AND PERUSE D AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD, INCLUDING THE JUDICIAL DECISIONS CITED BY THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE. THE BRIEF FACTS OF THE CASE, ON THIS ISSUE, ARE THAT THE ASSESSEE BEING A CO - OPERATIVE BANK WAS STATUTORILY BOUND TO MAKE INVESTMENT IN GOVT. SECURITIES. THE ASSESSEE HAD PURCHASED GOVT. SECURITIES ON PREMIUM, WHICH WAS TO BE RE DEEMED AT PAR ON THE EXPIRY OF THE PERIOD OF INVESTMENT. THUS, THE PREMIUM PAID BY THE ASSESSEE ON GOVT. SECURITIES WAS AMORTISED OVE R THE PERIOD OF HOLDING OF THESE SECURITIES AND ITA NO S . 515 & 800/BANG/2013 9 DEDUCTION CLAIMED PROPORTIONATELY. THE ASSESSING OFFICER DISALLOWED THIS CLAIM ON THE GROUND THAT IT IS CAPITAL IN NATURE, OBSERVING THAT INTEREST PAID ON THE PURCHASE OF GOVT. SECURITIES TILL THE DATE OF PU RCHASE CONSTITUTES CAPITAL EXPENDITURE. SIMILARLY, THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.33,00,000 ON ACCOUNT OF INVESTMENT FLUCTUATION RESERVES AS THE ASSESSEE HAD SUFFERED LOSSES AND CLAIMED SUCH LOSS IN THE FORM OF DEPRECIATION ON GOVT. OF INDIA SEC URITIES; WHICH REPRESENT THE DIFFERENCE BETWEEN THE COST OF THE SECURITY AND THE MARKET VALUE OF THE SAME SECURITY ON 31 ST MARCH OF THE CONCERNED YEAR. THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM FOR THIS LOSS. 6.4.2 ON APPEAL, THE LEARNED CIT(A) HAS DELETED THIS DISALLOWANCE BY RENDERING THE FOLLOWING FINDINGS AT PARAS 6.2TO 6.4 OF THE IMPUGNED ORDER : - 6.2 I HAVE EXAMINED THE FACTS OF THE CASE AND ALSO THE INSTRUCTION NO.17/2008 DT.26.11.2008. THE APPELLANT IS A CO - OPERATIVE BANK AND IN AC CORDANCE WITH THE RBI REGULATIONS, GOVT. SECURITIES WERE HELD BY THE APPELLANT AND VALUES THE SAME BY CONSIDERING THE MARKET VALUE AND WHEREBY THE REDUCTION IN THE VALUE IS CLAIMED BY WAY OF DEPRECIATION. SIMILARLY, THE APPELLANT PURCHASED GOVT. SECURITIE S ON PREMIUM WHICH WERE TOBE REDEEMED ON THE EXPIRY OF THE PERIOD OF INVESTMENT AT PART. THUS, THE APPELLANT CLAIMED TO HAVE PAID PREMIUM ON GOVT. SECURITIES HELD TILL MATURITY AND AMORTISED THE SAME OVER A PERIOD OF HOLDING BY THE SAID SECURITY OR TEN YE ARS WHICHEVER IS EARLIER. THE AMOUNT OF PREMIUM OF RS.1,86,000 WAS DISALLOWED AS CAPITAL IN NATURE IN VIEW OF THE DECISION OF VIJAYA BANK V. ADDL. CIT 187 ITR 541 (SC) WHEREIN IT HAS BEEN HELD THAT INTEREST PAID ON PURCHASE OF SECURITIES TILL THE DATE OF PURCHASE CONSTITUTES CAPITAL EXPENDITURE IN THE CASE OF THE APPELLANT BANK. THE APPELLANT HAS DEBITED A SUM OF RS.33,00,000 ON ACCOU N T OF DEPRECIATION ON GOI SECURITIES WHICH REPRESENTS DIFFERENCE BETWEEN THE COST OF THE SECURITY AND MARKET VALUE AS ON 31 ST MARCH. THE ASSESSING OFFICER HELD THAT THE SECURITIES HELD IS FOR LONG TERM PERIOD AND THUS, IT WAS APPARENT THAT THE APPELLANT HAD INVESTED IN THE ABOVE SECURITIES FOR A LONG TERM BASIS AND INVESTMENT CANNOT BE TERMED AS STOCK - IN - TRADE. IN VIEW OF THE ABOVE, THE ASSESSING OFFICER HELD THAT THOUGH THE PROVISION IS AS PER RBI GUIDELINES, NOTIONAL LOSS IS NOT ALLOWABLE AS DEDUCTION AND ACCORDINGLY, HE DISALLOWED THE SAID CLAIM AS CAPITAL LOSS. 6.3 HOWEVER, FORM THE ASSESSMENT ORDER, IT IS OBSERVED THA T THE APPELLANT BANK HAS CLAIMED THE AMOUNT OF PREMIUM AS WELL AS LOSS ON SALE OF GOVT. SECURITIES AS PER THE GUIDELINES ISSUED BY THE RBI AND THE ASSESSING OFFICER HAS REACHED A FINDING THAT THE SECURITIES HELD ARE LONG TERM INVESTMENT WITHOUT SHOWING AS TO HOW THE SAME COULD NOT BE ITA NO S . 515 & 800/BANG/2013 10 TREATED AS STOCK - IN - TRADE. IT IS FURTHER OBSERVED THAT THE DEPRECIATION IS NOT ALLOWABLE ON PERMANENT INVESTMENTS WHICH ARE HELD TO MATURITY SECURITIES BUT IT IS ALLOWABLE ON CURRENT INVESTMENT CATEGORIZED AS HELD FOR TRADI NG AND AVAILABLE FOR SALE CATEGORY. IN THIS REGARD, RELIANCE IS PLACED UPON CIRCULAR NO.665 DT.5.10.1993 AND INSTRUCTION NO.17 OF 2008 DT.26.11.2008. SIMILARLY, ON GOING THROUGH THE ASSESSMENT ORDER AND THE DETAILS IT IS SEEN THAT THE PREMIUM AMORTISED AT RS.1,86,000, THE SAID SECURITIES ARE HELD UNDER THE CATEGORY OF HELD TO MATURITY AS THE SAME AS CONSIDERED AS LONG TERM INVESTMENTS BY THE ASSESSING OFFICER. IN VIEW OF THE INSTRUCTION NO.17 OF 2008, THE PREMIUM PAID ON SUCH GOVT. SECURITIES IS REQU IRED TO BE AMORTISED OVER THE PERIOD REMAINING TO MATURITY AND SINCE THE APPELLANT BANK HAS CORRECTLY AMORTISED THE SAME AND CLAIMED PREMIUM AT RS.1,11,855 THE SAME IS REQUIRED TO BE ALLOWED AS DEDUCTION.; SINCE THE APPELLANT BANK HAS KEPT THE INVESTMENT UNDER THE CATEGORY OF HELD FOR MATURITY (HFM), THE DEDUCTION OF RS.1,11,855 ON ACCOUNT OF PREMIUM PAID IS ALLOWABLE DEDUCTION. 6.4 AS REGARDS DISALLOWANCE OF INVESTMENT FLUCTUATION RESERVE (DEPRECIATION ON LOSS) RS.33,00,000 AND RS.1,85,000, AS PER THE INSTRUCTION NO.17/2008, SUCH LOSS IS ALLOWABLE EXPENDITURE IN CASE THE SAME IS CATEGORIZED BY THE APPELLANT BANK UNDER THE CATEGORY OF HELD FOR TRADING (HFT) OR AVAILABLE FOR SALE (AFS). THE RELEVANT PORTION OF INSTRUCTION NO.17 OF 2008 DT.26.11.2008 ISSUED BY THE CBDT IS REPRODUCED AS UNDER : AS PER RBI GUIDELINES DT.16.10.2000, THE INVESTMENT PORTFOLIO OF THE BANKS IS REQUIRED TO BE CLASSIFIED UNDER THREE CATEGORIES VIZ. HELD TO MATURITY, HELD FOR TRADING AND AVAILABLE FOR SALE, INVESTMENTS CLASSIF IED UNDER HTM CATEGORY NEED NOT TO 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 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 MAYBE REFERRED TO FOR ALLOWING ANY SUCH CLAIM. T HEREFORE, THE APPELLANT HAVING CATEGORIZED THE SAID SECURITIES AS STOCK IN TRADE I.E. HELD FOR TRADING AND AVAILABLE FOR SALE IS RIGHT IN CLAIMING THE LOSS DIFFERENCE AMOUNT BETWEEN SALE PRICE AND PURCHASE PRICE AS DEPRECIATION LOSS AS PER THE INSTRUCTION NO.17/2008. THE ASSESSING OFFICER HAS NOT BEEN ABLE TO ESTABLISH AS TO HOW THE SAID SECURITIES ARE INVESTMENTS AND NOT STOCK IN TRADE. THE APPELLANT HAS FOLLOWED THE GUIDELINES OF THE RBI IN CATEGORIZING ITS SECURITIES AND AS SUCH, THE ASSESSING OFFICER IS NOT JUSTIFIED IN DISALLOWING RS.33,00,000 AND RS.1,85,000 CLAIMED AS DEPRECIATION AND ACCORDINGLY, THE APPELLANT S THIS GROUND OF APPEAL IS ALLOWED. 6.5 WE HAVE HEARD BOTH PARTIES AND CAREFULLY CONSIDERED THE ISSUE; BOTH FACTUALLY AND IN THE LI GHT OF THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF SHRI VIJAY MAHA N TESH CO - OPERATIVE BANK LTD. (SUPRA) RELIED ON BY THE LEARNED AUTHORISED REPRESENTATIVE. WE FIND THAT THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF SHRI V IJAY MAHAN TESH CO - ITA NO S . 515 & 800/BANG/2013 11 OPERATIVE BANK LTD. (SUPRA) HAS DECIDED THE SAME ISSUE IN FAVOUR OF THE ASSESSEE, BY HOLDING AS UNDER AT PARA S 14 & 15 OF THE CITED ORDER, WHICH IS EXTRACTED HEREUNDER : - 14. WI T H T HE ASS I S TA N C E O F T HE L EAR N E D RE P R E SE N TATI V ES , W E H A V E G O NE T H R O U G H T H E RE C O R D C A R E F U LL Y . T H E FA LL AC Y A T T HE E ND O F A S S E S S I N G O FF I C E R B EG A N A T T HE VER Y S TAR T WI T H REG A R D T O B O T H T H E S E I S S U ES . WI T H REG A R D T O I N V E S T M E NT F L U C T U A T I O N RESERV E S , W E F I N D T H A T T HE AS S ESS E E I N I T S R E P L Y P O I N T E D O UT T O T HE A SS E S S I N G O F F I C E R T H A T T HE E X E C U T I V E M E M B E R O F T HE S O C I ET Y HAD T A K E N A D E C I S I O N T H A T A D D I T I O N A L F U N D S W I T H T HE S O C I ET Y BE I N V E S T E D I N T H E U T I I N F R A S T R U C T U R E B O NDS A ND T H E S E BO N DS AR E H E L D F O R TRA DE A N D N O T FO R I N VE S T M E N T . T H E C I T ( A) H A S PUT R E LI A N C E U P O N T H E CIRCU L A R O F T HE CB D T B EAR I NG N O . 17 / 2008 D A TE D 2 6 . 11 . 2008 ( E X T R A C T E D S U P R A ) W H E RE I N T H E A S S E S S I N G O FF I C E R H A S B E E N A PP R A I S E D T O F I N D O UT T HE C L A S S I F I C A T I O N O F T HE I N V E S T M E N T P O R T F O LI O S . T H E B A NKS AR E REQ U I R E D T O C L A S S I F Y T H EI R I N V E S T M E N T U N D E R T H R E E CA T E G OR I E S N A M E L Y , H E L D T O M AT U R I T Y (H TM ) , H O L D F O R TRA D I NG (H FT) A N D AVA IL A B L E F O R S A L E ( A FS ) . THE I N V E S T M E N T C L A S S I F I E D U N D E R HTM C ATEGO R Y N E E D N O T T O BE M AR K E D T O M A R K E T A ND I S C ARR I E D A T A C Q U I S I T I O N COS T , U N L ES S T H E S E AR E M OR E T H A N T H E F A C E V A L U E , I N W H I C H T HE COS T P R E MI U M S H O U L D BE A M O R T I Z E D O V E R T H E R E M A I N I NG P ER I O D O F M AT U R I T Y . I N T H E C A S E O F HFT A ND A F S S E C U R I T Y F O R M I N G STOC K I N T R A DE O F T HE B A N K, T HE D E P RE C I A T I O N H A S T O BE AG G REGATE D S CR I P - WI S E A ND O N L Y N E T D E P R E C I A T I O N , I F A N Y , I S REQ U I R E D T O BE P ROV I D E D FO R I N T H E AC C O UN T S . N O W T HE A S S E S S E E H A S CO N T E ND E D O N T HE S T R E N GT H O F I T S B YE L A W S A ND O N T HE B AS I S O F T H E D EC I S I O NS TA K E N BY T HE E X E C U T I V E M E M B E R S T H A T I T H A D I N V ESTE D S U R P L U S F U N D S I N U I T I N F R A S T R U C T U R E B O N DS W H I C H I S B E I N G K E PT A S STO C K I N TRA D E . A S S E S S I N G O F F I C E R S I M P L Y O B S E R V E D T H A T T H ES E W ER E PU RC H A S E D O N 1 2 . 1 2 . 2007 A ND K E PT UP T O 31 . 03 . 2009, T H E R E F O R E , I T B E CA M E I N VE S T M E N T . A F TE R C O N CE I V I N G T H E S E F A C T S , HE A P P LI E D T HE D E C I S I O N O F T HE H O N ' B L E S UP RE M E C O U R T I N T HE CAS E O F V I J A Y A B A N K ( S U P R A ) , O N C E HE C O N C E I V E D W R O N G F A C T S , T H E RES U L T W O U L D BE W RO N G . T H E C I T ( A ) H A S O B S E RV E D T H A T T H E A S S E SS I N G O FF I CE R H A S N O T B E E N A B L E T O E S TA B LI SH A S T O H O W T H E SA I D S E C U R I T I E S AR E I N V E ST M E NT A ND N O T S TOC K I N TR AD E . W E DO N O T F I N D A NY ERRO R I N T HE F I N D I N G S O F T H E C I T ( A ) . F R OM P E R U SA L O F T H E OR D E R O F T HE A SS E S S I N G O FF I C ER , P ARA G R A PH 8 T O 8 . 5, N O W H ERE , A N Y REASO N I S D I SC E R N I B L E A S T O H O W T H E S E TRA D I NG S T O C K CO U L D B E CO N S I D ERE D A S I N V E S T M E N T . T H E O N L Y REASO N A S S I G N E D B Y H I M I S T H E P E R I O D O F RETA I N I N G T H E S E S E C U R I T I ES . TH I S S O L E C I RC U M S TA N C E I S N O T S U F F I C I E N T T O T REA T T H E T R A D I N G S TOC K A S I N V E S T M E N T . W I T H REGA R D T O A M O R T I Z A T I O N O F P RE MI U M I S C O N CER N E D, T H E C I T ( A) H A S B ASE D H E R O R D E R O N T H E C I R C U L A R I SS U E D BY T HE BO AR D. T H E I N V ES T M E N T I N G OVT . S EC U R I T Y I F M A DE O N P R E MI U M , T H E N P R E M I U M H A S T O BE A M O R T I Z E D O V E R T HE P ER I O D O F T I M E . T H E A S S E S SE E H A S FO L L O W E D T H I S S T E P A N D C L A IM E D D E DU CT I O N O F R S . 1 , 86 , 000 / - . A S S E S S I N G O F F I CE R H A S ERRE D I N D I SA LL O WI NG T H I S C L A IM . C O N S I D E R I N G T H E W E L L R E A S O N E D OR D E R O F T H E C I T ( A ) , W E DO N O T F I N D A NY R E A S O N T O I N T E R F E R E I N I T . A C C O R D I N G L Y A PP E A L O F T HE R E V E N U E I S D EVO I D O F ITA NO S . 515 & 800/BANG/2013 12 A NY M E R I T . 15. I N T HE RES U L T , A PP EA L I N I TA N O . 43 4 / B A N G / 2013 I S P A R T L Y A L L O W E D, W H E REA S A PP EA L I N I TA N O . 529 / B A N G / 2013 I S D I S M I S S E D . FOLLOWING THE AFORESAID DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF SHRI VI JAY MAHA N TESH CO - OPERATIVE BANK LTD. (SUPRA), WE CONCUR WITH THE DECISION OF THE LEARNED CIT(A) IN DELETING THE DISALLOWANCES MAD E IN THIS REGARD. CONSEQUENTLY, GROUNDS RAISED BY REVENUE AT S.NO.(C), (D) AND (E) ARE DISMISSED. 7. IN THE RESULT, THE RE VENUE S APPEAL FOR ASSESSMENT YEAR 2009 - 10 IS DISMISSED. ASSE SSEE'S APPEAL FOR A.Y . 2009 - 10 (ITA NO.515/BANG/2013) 8. WE NOW PROCEED TO EXAMINE THE ISSUES / GROUNDS RAISED IN THE ASSESSEE'S APPEAL WHICH ARE EXTRACTED HEREUNDER : - 1. THE ORDER OF THE CIT (APPEALS) IS BAD AND ERRONEOUS IN LAW AND AGAINST THE FACTS OF THE CASE. 2. THAT THE LEARNED CIT (APPEALS) ERRED IN LAW AND ON FACTS IN MAKING DISALLOWANCE UNDER SECTION 40(A)(IA) OF RS.7,40,777 HOLDING THAT THE INTEREST ON DEPOSITS PAID IN EXCESS OF RS.10,000 TO ITS MEMBERS IS LIABLE FOR TAX DEDUCTION AT SOURCE UNDER SECTION 194A OF THE IT ACT, AND THAT THE APPELLANT IS NOT ENTITLED TO EXEMPTION FROM TDS PROVIDED IN SECTION 194A(3)(V) OF THE ACT. 3. THAT THE LEARNED CIT (APPEALS) ERRED IN LAW AND ON FACTS IN HOLDING THAT THE EXPRESSION CO - OPERATIVE SOCIETY USED IN SECTION 194A(3)(V) DOES NOT INCLUDE A CO - OPERATIVE BANK . 4. THAT THE LEARNED CIT (APPEALS) ERRED IN LAW AND ON FACTS IN DISALLOWING PROVISION FOR BAD AND DOUBTFUL DEBTS UNDER SECTION 36 (VIIA) OF RS.17,21,884 IGNORING THE DECISION OF ITAT, BANGALORE BENCH A BANGALORE IN THE CASE OF THE JAMKHANDI URBAN CO - OPERATIVE BANK LTD., JAMKHANDI V/S. ACIT, CIRCLE 1, BIJAPUR IN ITA NO.809/BANG/201 FOR A.Y. 2007 - 08 DT.16.7.2012. THEREFORE, IT IS PRA YED THAT THE SAID ADDITIONS BE DELETED. 5. EACH OF THE ABOVE GROUNDS IS WITHOUT PREJUDICE TO ONE ANOTHER AND THE APPELLANT CRAVES LEAVE OF THE JUDICIAL MEMBER & ACCOUNTANT MEMBER OF HON'BLE INCOME TAX APPELLATE TRIBUNAL, TO ADD, DELETE, AMEND OR OTHERWISE MODIFY ONE OR MORE OF THE ABOVE GROUNDS EITHER BEFORE OR AT THE TIME OF HEARING OF THIS APPEAL. 9. THE GROUNDS AT S.NOS.1 AND 5 BEING GENERAL IN NATURE AND NOT URGED BEFORE US IN THESE APPELLATE PROCEEDINGS, ARE DISMISSED AS INFRUCTUOUS. ITA NO S . 515 & 800/BANG/2013 13 10. INTEREST PAID WITHOUT DEDUCTING TAX AT SOURCE . 10.1 IN THE GROUNDS AT S.NOS.2 AND 3 , THE ASSESSEE ASSAILS THE ORDER OF THE LEARNED CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS.7,40,777 UNDER SECTION 40(A)(IA) OF THE ACT, ON THE GROUND THAT THE INTEREST ON DEPOSITS PAID IN EXCESS OF RS.10,000 IS LIABLE FOR TDS UNDER SECTION 194A OF THE ACT AND THAT THE ASSESSEE IS NOT EXEMPT FROM MAKING THE TDS PROVIDED IN SECTION 194A(3)(IV) OF THE ACT. THE ASSESSEE ALSO CONTENDS THAT THE LEARNED CIT(A) ERRED BOTH IN LAW AND ON FACTS IN HOLDING THAT THE EXPRESSION CO - OPERATIVE SOCIETY USED IN SECTION 194A(3)(V) DOES NOT INCLUDE A CO - OPERATIVE BANK . 10.2 IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD DEBITED AN AMOUN T OF RS.2,84,10,541 TOWARDS INTEREST PAID ON DEPOSITS . THE ASSESSING OFFICER ON EXAMINATION THEREOF, DETERMINED THAT OUT OF THE TOTAL INTEREST, THE INTEREST PAID ABOVE RS.10,000 WAS RS.7,40,777 ON FIXED DEPOSITS AND TIME DEPOSITS. IT WAS ALSO ASCERTAIN ED BY THE ASSESSING OFFICER THAT THE INTEREST HAS BEEN PAID WITHOUT DEDUCTION OF TAX AT SOURCE THEREON. FOR THE DETAILED REASONS GIVEN IN THE ORDER OF ASSESSMENT, THE ASSESSING OFFICER HELD THAT THESE INTEREST PAYMENTS FALL WITHIN THE AMBIT OF THE PROVISI ONS OF SECTION 194A OF THE ACT AND THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE ON THESE PAYMENTS. AS THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURC E ON THESE PAYMENTS AMOUNTING TO RS.7,40,777, THE ASSESSING OFFICER DISALLOWED THESE PAYMENTS UNDER SECTION 40(A)(IA) OF THE ACT. ON APPEAL, THE LEARNED CIT(A) CONFIRMED THE ABOVE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 40(A)(IA) OF THE ACT. ITA NO S . 515 & 800/BANG/2013 14 10.3.1 WE HAVE HEARD BOTH THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE IN SUPPORT OF THE GROUNDS RAISED AND THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR REVENUE IN SUPPORT OF THE IMPUGNED ORDER OF THE LEARNED CIT(A) ON THE ISSUE IN QUESTION. AT THE OUTSET OF THE HEARING, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT AN IDENTICAL ISSUE WAS CONSIDERED BY A CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF THE BAGALKOT DISTRICT CENTRAL CO - OPERATIVE BANK, BAGALKOT V JCIT IN ITA NO.1572/BANG/2013 DT.30.5.2014 FOR ASSESSMENT YEAR 2009 - 10, A COPY OF WHICH WAS PLACED ON RECORD. WE ALSO FIND THAT A CO - ORDINATE BENCH OF THIS TRIBUNAL IN ITA NOS.1532 & 1567/BANG/2013 IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2010 - 11 HAS CONSIDERED THE SAME ISSUE AND HAS RULED IN FAVOUR OF THE ASSESSEE BY RELYING ON THE AFORESAID DECISION OF CO - ORDINATE BENCH. THE CO - ORDINATE BENCH IN THE CASE OF THE BAGALKOT DISTRICT CENTRAL CO - OPERATIVE (SUPRA) AT PARA 15 THEREOF HAS HELD AS UNDER ON THE ISSUE BEFORE US : - 15. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS. WE ARE OF T HE VIEW THAT THE SUBMISSIONS MADE BY THE LEARNED COUNSEL FOR THE ASSESSEE DESERVES TO BE ACCEPTED. AS RIGHTLY CONTENDED BY HIM SEC.194A(3)(I)(B) OF THE ACT IS A PROVISION WHICH MANDATES DEDUCTION OF TAX AT SOURCE BY A CO - OPERATIVE SOCIETY CARRYING ON THE BUSINESS OF BANKING, WHERE THE INCOME IN THE FORM OF INTEREST WHICH IS PAID BY SUCH SOCIETY IS IN EXCESS OF TEN THOUSAND RUPEES. SEC.194A(3)(V) OF THE ACT PROVIDES THAT TAX NEED NOT BE DEDUCTED AT SOURCE WHERE THE INCOME IN THE FORM OF INTEREST IS CREDITE D OR PAID BY A CO - OPERATIVE SOCIETY TO A MEMBER THEREOF OR TO ANY OTHER CO - OPERATIVE SOCIETY. THIS PROVISION THEREFORE APPLIES TO ALL CO - OPERATIVE SOCIETIES INCLUDING CO - OPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING. IT IS NOT POSSIBLE TO EXCLUDE CO - OPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING FROM THE PROVISIONS OF SEC.194A(3)(V) OF THE ACT ON THE GROUND THAT THE SAME IS COVERED BY THE PROVISIONS OF SEC.194A(3)(I)(B) OF THE ACT. SEC.194A(3)(V) OF THE ACT REFERS TO PAYMENT BY A CO - OPERATIV E SOCIEITY TO A MEMBER AND PAYMENT BY A CO - OPERATIVE SOCIETY TO NON - MEMBER WOULD CONTINUE TO BE GOVERNED BY THE PROVISIONS OF SEC.194A(3)(I)(B) OF THE ACT. SIMILARLY U/S.194A(3)(VIIA)(B) INTEREST ON DEPOSITS OTHER THAN TIME DEPOSITS EVEN IF THE PAYMENT IS MADE TO A NON - MEMBER BY A CO - OPERATIVE SOCIETY, THE CO - OPERATIVE SOCIETY NEED NOT DEDUCT TAX AT SOURCE. THUS THIS SECTION CARVES OUT ANOTHER EXCEPTION TO ITA NO S . 515 & 800/BANG/2013 15 SEC.194A(3)(I)(B) OF THE ACT. WE DO NOT THINK THAT ANY OF THE ABOVE PROVISIONS CAN BE CALLED A GENE RAL PROVISION AND OTHER PROVISIONS CALLED SPECIFIC PROVISIONS. EACH PROVISION OVER - LAP AND IF READ IN THE MANNER AS INDICATED ABOVE, THERE IS PERFECT HARMONY TO THE VARIOUS PROVISIONS. WE DO NOT AGREE WITH THE VIEW EXPRESSED BY THE PUNE ITAT SMC IN THE C ASE OF BHAGANI NIVEDITA SAHAKARI BANK LTD. (SUPRA) WHEN IT SAYS THAT CO - OPERATIVE SOCIETY AS MENTIONED IN CL. (V) IS A GENERAL SPECIES, WHEREAS THE OTHER FIVE CATEGORIES OF CO - OPERATIVE SOCIETIES WHICH ARE SPECIFICALLY REFERRED TO IN OTHER PROVISIONS ARE S PECIFIC CO - OPERATIVE SOCIETIES. THE FURTHER CONCLUSION IN THE SAID DECISION THAT THE TERM CO - OPERATIVE SOCIETY IN CL. (V) OF S. 194A(3) HAS TO BE INTERPRETED AS CO - OPERATIVE SOCIETY OTHER THAN CO - OPERATIVE BANK, IS AGAIN UNSUSTAINABLE. THE LAW IS WELL SETTLED THAT BY A PROCESS OF INTERPRETATION ONE CANNOT ADD ON WORDS THAT ARE NOT FOUND IN THE TEXT OF THE STATUTE. SUCH A COURSE IS PERMITTED ONLY WHEN THERE IS CAUSUS OMISUS . WE DO NOT THINK THAT THE PROVISIONS OF SEC.194A(3)(V) SUFFERS FROM ANY CAUSU S OMISUS AS HAS BEEN INTERPRETED BY THE ITAT PUNE BENCH SMC. 16. WE ARE ALSO OF THE VIEW THAT THE DECISION OF THE HON BLE KERELA HIGH COURT IN THE CASE OF MOOLAMATTOM ELECTRICITY BOARD EMPLOYEES CO - OP BANK LTD. (SUPRA) SUPPORTS THE PLEA OF THE ASSESSEE BEFORE US. T HE PETITIONERS IN THAT CASE WERE PRIMARY CREDIT SOCIETIES REGISTERED UNDER THE KERALA CO - OPERATIVE SOCIETIES ACT. IN VIEW OF THE SPECIFIC PROVISIONS OF SEC.194A(3(VIIA) OF THE ACT, THEY CLAIMED THAT THEY NEED NOT DEDUCT TAX AT SOURCE ON INT EREST PAID. IT WAS SUBMITTED BY THE PETITIONER THAT SUB - S.194A(3)(V) DEALS WITH SUCH INCOME CREDITED OR PAID BY A CO - OPERATIVE SOCIETY TO A MEMBER WHEREAS SUB - S. (3)(VIIA)(A) PROVIDES A TOTAL EXEMPTION TO DEPOSITS WITH THE PRIMARY CREDIT SOCIETY. THE HON BLE KERALA HIGH COURT ACCEPTED THEIR PLEA AND IN THEIR JUDGMENT HAVE OBSERVED THAT SEC.194A (3)(I) EXEMPTION LIMIT OF RS. 10,000 TO INTEREST PAID ON TIME DEPOSITS WITH CO - OPERATIVE SOCIETIES ENGAGED IN CARRYING ON BUSINESS OF BANKING IS ALLOWED BUT THAT DO ES NOT MEAN THAT ALL CO - OPERATIVE SOCIETIES WHO HAVE CREDITED OR PAID EXCEEDING RS. 10,000 ARE LIABLE TO DEDUCT TAX AT SOURCE. THE COURT HELD THAT CO - OPERATIVE SOCIETY ENGAGED IN CARRYING ON BUSINESS OF BANKING AND PRIMARY CREDIT SOCIETIES STAND ON DIFFER ENT FOOTING AND BELONG TO DIFFERENT CLASS. THAT DOES NOT MEAN THAT SEC.194A(3)(V) OF THE ACT IS APPLICABLE ONLY TO CO - OPERATIVE SOCIETIES OTHER THAN CO - OPERATIVE SOCIETIES CARRYING ON THE BUSINESS OF BANKING AS OBSERVED IN PARA - 37 OF ITS JUDGMENT THE PUNE ITAT IN THE CASE OF BHAGANI NIVEDITA SAH BANK LTD. (SUPRA). IN FACT IN PARA - 2 OF CIRCULAR NO.9 DATED 11.9.2002, THE CBDT HAS VERY CLEARLY LAID DOWN THAT CO - OPERATIVE SOCIETIES CARRYING ON BANKING BUSINESS WHEN IT PAYS INTEREST ON DEPOSITS BY ITS MEMBERS N EED NOT DEDUCT TAX AT SOURCE IN VIEW OF THE PROVISIONS OF SEC.194A(3)(V) OF THE ACT. 17. WE ALSO FIND THAT THE CBDT IN CIRCULAR NO.9 DATED 11.9.2002 CLARIFIED CERTAIN ASPECTS WHICH ARE RELEVANT TO THE PRESENT CASE. THE SAME READS THUS: ITA NO S . 515 & 800/BANG/2013 16 CIRCULAR NO.9 OF 2002 SUB : TAX DEDUCTION AT SOURCE UNDER SECTION 194A OF THE INCOME - TAX ACT, 1961 APPLICABILITY OF THE PROVISIONS IN RESPECT OF INCOME PAID OR CREDITED TO A MEMBER OF CO - OPERATIVE BANK REG. 11/09/2002 TDS 194A UNDER SECTION 194A OF THE INCOME - TAX AC T, 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 CO - OPERATIVE 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 CO - OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING. 2. REPRESENTATIONS HAVE BEEN RECEIVED IN THE BOARD SEEKING CLARIFICATION AS TO WHETHER A MEMBER OF A CO - OPERATIVE BANK MAY RECEIVE WITHOUT TDS INTEREST ON TIME DEPOSIT MADE WITH THE CO - OPERATIVE BANK ON OR AFTER 1ST JULY, 1995. THE BOARD HAS CONSIDERED THE MATTER AND IT IS CLARIFIED THAT A MEMBER OF A CO - OPERATIVE BANK SHALL RECEIVE INTEREST ON BOTH TIME DEPOSITS AND DEPOSITS OTHER THAN TIME DEPOSITS WITH SUCH CO - OPERATIVE 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 (VIIA) OF THE SAID SUB - SECTION ARE APPLICABLE ONLY IN CASE OF A NON - MEMBER DEPOSITOR OF THE CO - OPERATIVE BANK, WHO SH ALL RECEIVE INTEREST ONLY ON DEPOSITS OTHER THAN TIME DEPOSITS MADE ON OR AFTER 1ST JULY, 1995 WITHOUT TDS UNDER SECTION 194A. 3. A QUESTION HAS ALSO BEEN RAISED AS TO WHETHER NORMAL MEMBERS, ASSOCIATE MEMBERS AND SYMPATHIZER MEMBERS ARE ALSO COVERED BY T HE EXEMPTION UNDER SECTION 194A(3)(V). IT IS HEREBY CLARIFIED THAT THE EXEMPTION IS AVAILABLE ONLY TO SUCH MEMBERS WHO HAVE JOINED IN APPLICATION FOR THE REGISTRATION OF THE CO - OPERATIVE SOCIETY AND THOSE WHO ARE ADMITTED TO MEMBERSHIP AFTER REGISTRATION I N ACCORDANCE WITH THE BYE - LAWS AND RULES. A MEMBER ELIGIBLE FOR EXEMPTION UNDER SECTION 194A(3)(V) MUST HAVE SUBSCRIBED TO AND FULLY PAID FOR AT LEAST ONE SHARE OF THE CO - OPERATIVE BANK, MUST BE ENTITLED TO PARTICIPATE AND VOTE IN THE GENERAL BODY MEETINGS AND/OR SPECIAL GENERAL BODY MEETINGS OF THE CO - OPERATIVE BANK AND MUST BE ENTITLED TO RECEIVE SHARE FROM THE PROFITS OF THE CO - OPERATIVE BANK. [F. NO. 275/106/2000 - IT(B)] (2002) 177 CTR (ST) 1 ITA NO S . 515 & 800/BANG/2013 17 18. IT CAN BE SEEN FROM PARA - 2 OF THE CIRCULAR REFERRED TO ABOVE THAT THE CBDT HAS VERY CLEARLY LAID DOWN THAT CO - OPERATIVE SOCIETIES CARRYING ON BANKING BUSINESS WHEN IT PAYS INTEREST ON DEPOSITS BY ITS MEMBERS NEED NOT DEDUCT TAX AT SOURCE. THE ABOVE INTERPRETATION OF THE PROVISIONS BY THE CBDT WHICH IS IN FAVO UR OF THE ASSESSEE, IN OUR VIEW IS BINDING ON THE TAX AUTHORITIES. 19. IN THE CASE DECIDED BY ITAT PANAJI BENCH IN ITA NO.85/PN/2013 FOR AY 09 - 10 IN THE CASE OF THE BAILHONGAL URABAN CO - OP BANK LTD. VS. JCIT ORDER DATED 28.8.2013, THE TRIBUNAL PROCEEDED ON THE FOOTING THAT THE AFORESAID CIRCULAR HAS BEEN QUASHED BY THE HON BLE BOMBAY HIGH COURT IN THE CASE OF THE JALGAON DISTRICT CENTRAL CO - OPERATIVE BANK LTD. VS. UNION OF INDIA 265 ITR 423 (BOM) AND THEREFORE CHOSE TO FOLLOW THE DECISION RENDERED BY PUN E ITAT SMC IN THE CASE OF BHAGANI NIVEDITA SAHAKARI BANK LTD. (SUPRA). IN OUR VIEW THE HON BLE BOMBAY HIGH COURT IN THE CASE OF JALGAON DISTRICT CENTRAL CO - OPERATIVE BANK LTD. S CASE WAS DEALING WITH A CASE OF CHALLENGE TO PARA - 3 OF CBDT CIRCULAR NO.9 DAT ED 11.9.2002 WHICH TRIED TO INTERPRET THE WORD MEMBER AS GIVEN IN SEC.194A(3)(V) OF THE ACT. IT IS ONLY THAT PART OF THE CIRCULAR THAT HAD BEEN QUASHED BY THE HON BLE BOMBAY HIGH COURT AND THE OTHER PARAGRAPHS OF THE CIRCULAR HAD NO CONNECTION WITH THE ISSUE BEFORE THE HON BLE BOMBAY HIGH COURT. HOW COULD IT BE SAID THAT THE ENTIRE CIRCULAR HAS BEEN QUASHED BY THE HON BLE BOMBAY HIGH COURT? IN OUR VIEW PARA - 2 OF THE CIRCULAR STILL HOLDS GOOD AND THE CONCLUSION OF THE ITAT PUNE BENCH IN THE CASE OF THE BAILHONGAL URABAN CO - OP BANK LTD.(SUPRA) ARE NOT FACTUALLY CORRECT. CONSEQUENTLY, THE CONCLUSIONS DRAWN IN THE AFORESAID DECISION ALSO CONTRARY TO FACTS AND HENCE CANNOT BE CONSIDERED AS PRECEDENT. 20. THE LEARNED COUNSEL FOR THE ASSESSEE HAS BROUGHT TO OUR NOTICE THAT THE ITAT VISHAKAPATNAM BENCH IN THE CASE OF THE VISAKHAPATNAM CO - OPERATIVE BANK ITA NO.5 AND 19 OF 2011 ORDER DATED 29.8.2011 HAS HELD THAT CO - OPERATIVE SOCIETIES CARRYING ON BANKING BUSINESS WHEN IT PAYS INTEREST TO ITS MEMBERS ON DEPOSIT S IT NEED NOT DEDUCT TAX AT SOURCE IN VIEW OF THE PROVISIONS OF SEC.194A(3)(V) OF THE ACT. SIMILAR VIEW HAS ALSO BEEN EXPRESSED BY THE PUNE BENCH OF THE ITAT IN THE CASE OF OZER MERCHANT CO - OPERATIVE BANK ITA NO.1588/PN/2012 ORDER DATED 30.10.2013. WE MA Y ADD THAT IN BOTH THESE DECISIONS THE DISCUSSION DID NOT TURN ON THE INTERPRETATION OF SEC.194A(3)(I)(B) OF THE ACT VIS - A - VIS SEC.194A(3)(V) OF THE ACT. IT IS THUS CLEAR THAT THE PREPONDERANCE OF JUDICIAL OPINION ON THIS ISSUE IS THAT CO - OPERATIVE SOCIETI ES CARRYING ON BANKING BUSINESS WHEN IT PAYS INTEREST TO ITS MEMBERS ON DEPOSITS NEED NOT DEDUCT TAX AT SOURCE IN VIEW OF THE PROVISIONS OF SEC.194A(3)(V) OF THE ACT 21. FOR THE REASONS GIVEN ABOVE, WE HOLD THAT THE ASSESSEE WHICH IS A CO - OPERATIVE SO CIETY CARRYING ON BANKING BUSINESS WHEN IT PAYS INTEREST INCOME TO A MEMBER BOTH ON ITA NO S . 515 & 800/BANG/2013 18 TIME DEPOSITS AND ON DEPOSITS OTHER THAN TIME DEPOSITS WITH SUCH CO - OPERATIVE SOCIETY NEED NOT DEDUCT TAX AT SOURCE UNDER SECTION 194A BY VIRTUE OF THE EXEMPTION GRANTED VI DE CLAUSE (V) OF SUB - SECTION (3) OF THE SAID SECTION. 22. WE HOWEVER FIND, AS SUBMITTED BY THE LEARNED DR, THAT THE ORDERS ARE NOT CLEAR AS TO WHETHER THE ENTIRE INTEREST DISALLOWED U/S.40(A)(IA) OF THE ACT RELATES TO INTEREST PAID TO MEMBERS OR PART OF THE INTEREST IS ALSO PAID TO NON - MEMBERS. WE THEREFORE SET ASIDE THE ORDER OF THE CIT(A) FOR THE LIMITED PURPOSE OF VERIFYING AS TO ANY PORTION OF THE INTEREST DISALLOWED RELATES TO PAYMENT TO NON - MEMBERS AND IN THAT EVENT RESTRICT THE DISALLOWANCE IN SO FAR AS IT RELATES TO PAYMENT OF INTEREST BY THE ASSESSEE TO NON - MEMBERS WITHOUT DEDUCTION OF TAX AT SOURCE. 10.3.2 COMING TO THE APPEAL IN THE CASE ON HAND, WE FIND THAT THE ASSESSEE HAS PAID INTEREST ON TERM DEPOSITS OR FIXED DEPOSITS TO INDIVIDU ALS WITHOUT DEDUCTING TAX AT SOURCE, EVEN THOUGH THE AMOUNT OF INTEREST PAID IN SOME CASES EXCEEDED RS.10,000. WE FIND THAT THE ISSUE HAS BEEN CONSIDERED AT LENGTH BY THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF BAGALKOT DISTRICT CENTRAL CO - OPERAT IVE BANK (SUPRA) AND IT HAS BEEN HELD THAT WHERE THE ASSESSEE, WHICH IS A CO - OPERATIVE SOCIETY CARRYING ON BANKING BUSINESS AND IS LIABLE TO PAY INTEREST TO A MEMBER, BOTH ON TERM DEPOSITS AND DEPOSITS OTHER THAN TERM DEPOSITS WITH SUCH CO - OPERATIVE SOCIET Y, IT NEED NOT DEDUCT TAX AT SOURCE UNDER SECTION 194A OF THE ACT, BY VIRTUE OF THE EXEMPTION GRANTED VIDE CLAUSE (V) OF SUB - SECTION (3) OF SECTION 194A. IT IS SEEN THAT THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE ABOVE CITED ORDER HAS, HOWEVER, REMANDED THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR THE LIMITED PURPOSE OF VERIFYING AS TO WHETHER ANY PORTION OF THE INTEREST DISALLOWED RELATES TO PAYMENT TO NON - MEMBERS A ND IN THAT EVENT TO RESTRICT THE DISALLOWANCE IN SO FAR AS IT RELATES TO NON - MEMBE RS MADE WITHOUT DEDUCTION OF TAX AT SOURCE. FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH IN THE CASE OF BAGALKOT DISTRICT CENTRAL CO - OPERATIVE BANK (SUPRA), THE FACTS OF THE CITED CASE BEING SIMILAR TO THAT OF THE CASE ON HAND, ITA NO S . 515 & 800/BANG/2013 19 WE SET ASIDE THE ORDER O F THE LEARNED CIT(A) AND REMAND THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR THE LIMITED PURPOSE OF VERIFYING AS TO WHETHER ANY PORTION OF THE INTEREST OF RS.7,40,777 DISALLOWED RELATES TO PAYMENTS TO NON - MEMBERS AND DIRECT THE ASSESSING OFFICER TO R ESTRICT THE DISALLOWANCE ONLY TO SUCH PAYMENTS OF INTEREST TO NON - MEMBERS WHICH WERE MADE WITHOUT DEDUCTION OF TAX . I T IS ORDERED ACCORDINGLY. CONSEQUENTLY, ASSESSEE'S GROUNDS AT S.NOS.2 AND 3 OF THIS APPEAL ARE ALLOWED. 11. PROVISION FOR BAD AND DOUBTFUL DEBTS . 11.1 GROUND NO.4 OF ASSESSEE'S APPEAL CHALLENGE THE IMPUGNED ORDER OF THE LEARNED CIT(A) IN DISALLOWING THE PROVISION FOR BAD AND DOUBTFUL DEBTS UNDER SECTION 36(VIIA) OF THE ACT AMOUNTING TO RS.17,21,884 IGNORING THE DECISION OF THE CO - ORDINATE BENCH OF THE ITAT, BANGALORE IN THE CASE OF THE JAMKHANDI URBAN CO - OPERATIVE BANK LTD. IN ITA NO.809/BANG/2011 DT.16.7.2012 FOR ASSESSMENT YEAR 2007 - 08. 11.2 IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT THE A SSESSEE HAS DEBITED AN AMOUNT OF RS.17,21,884 TOWARDS BAD AND DOUBTFUL DEBTS RESERVES, WHICH AS PER THE ASSESSEE IS LESS THAN 7.5% OF THE GROSS TOTAL INCOME OF RS.5,04,78,058. THE ASSESSING OFFICER OBSERVING THAT THIS AMOUNT OF RS.5,04,78,058 IS NOT THE G ROSS TOTAL INCOME, BUT ONLY THE GROSS RECEIPTS OF THE ASSESSEE BANK, DISALLOWED THE ENTIRE DEDUCTION CLAIMED . ON APPEAL, THE LEARNED CIT (APPEALS) UPHELD THE ACTION OF THE ASSESSING OFFICER HOLDING AS UNDER AT PARA 9.2 OF HIS ORDER : - ITA NO S . 515 & 800/BANG/2013 20 9.2 I HAVE C AREFULLY CONSIDERED THE FACTS OF THE CASE, ORDER OF THE ASSESSING OFFICER AND THE SUBMISSIONS MADE BY THE ASSESSEE. I HAVE ALSO GONE THROUGH THE DECISIONS OF THE HON'BLE BANGALORE BENCH, ITAT, BANGALORE IN THE CASES OF SHRI BASAVESHWAR CO - OP. BANK LTD. AN D JAMKHANDI CO - OP. BANK LTD. IN THE SAID ORDERS OF THE ITAT, THE DECISION WAS RESTRICTED TO THE POWER OF THE ASSESSING AUTHORITY AND USING THE INHERENT POWERS OF THE ITAT, THE ITAT ALLOWED THE CLAIM OF THE ASSESSEE. IN THE STATE BANK OF PATIALA CASE CITE D SUPRA, IT HAS BEEN HELD BY THE HON'BLE HIGH COURT THAT IN ORDER TO CLAIM DEDUCTION UNDER SECTION 36(1)(VIIA), IT IS NECESSARY TO MAKE A PROVISION EQUAL TO THE AMOUNT CLAIMED AS DEDUCTION IN THE BOOKS OF ACCOUNT FOR THE RELEVANT ASSESSMENT YEAR . RESP ECTFULLY FOLLOWING THE DECISION OF THE HON'BLE HIGH COURT OF PUNJAB AND HARYANA CITED SUPRA, I HOLD THAT THE ASSESSING OFFICER IS RIGHT IN DISALLOWING THE DEDUCTION UNDER SECTION 36(1)(VIIA) OF RS.17,21,884 AND AS SUCH THE ACTION OF THE ASSESSING OFFICER O N THIS COUNT IS CONFIRMED. 11.3 THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT SECTION 36(1)(VIIA) OF THE ACT AUTHORISES THE ALLOWANCE OF A CLAIM OF A PROVISION FOR BAD AND DOUBTFUL DEBTS AT 7 % OF THE TOTAL INCOME. IT WAS F URTHER SUBMITTED THAT EVEN THOUGH THE SAID PROVISION WAS NOT MADE BY THE ASSESSEE IN THE ACCOUNTS, A CLAIM FOR DEDUCTION IN THIS REGARD WAS MADE IN THE RETURN OF INCOME FILED FOR THE PERIOD UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2009 - 10 AND THEREFORE TH E ASSESSING OFFICER OUGHT TO HAVE ALLOWED THE CLAIM. IN SUPPORT OF THE ASSESSEE'S CONTENTIONS, THE LEARNED AUTHORISED REPRESENTATIVE PLACED RELIANCE ON THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF JAMKHANDI URBAN CO - OPERATIVE BANK LTD. (SUPRA). IT WAS CONTENDED THAT THE DECISION WAS RENDERED ON SIMILAR FACT SITUATION AND THEREFORE PRAYED THAT THE ORDERS OF THE AUTHORITIES BELOW BE CANCELLED AND THE ASSESSEE'S APPEAL ON THIS ISSUE BE ALLOWED. 11.4 PER CONTRA , THE LEARNED DEPA RTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE IMPUGNED ORDERS OF THE AUTHORITIES BELOW AND PRAYED FOR THEM TO BE UPHELD. ITA NO S . 515 & 800/BANG/2013 21 11.5.1 WE HAVE HEARD THE RIVAL CONTENTIONS ON THE ISSUE OF THE ASSESSEE'S CLAIMS OF PROVISION FOR BAD AND DOUBTFUL DEBTS AND PER USED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD, INCLUDING THE JUDICIAL DECISIONS CITED. IN THE CASE OF THE JAMKHANDI URBAN CO - OPERATIVE BANK LTD. (SUPRA), CITED BY THE ASSESSEE, WE FIND THAT THE FACTS WERE THAT THE ASSESSEE MADE A PROVISION FOR BAD AND DOUBTFUL DEBTS @ 7.5% OF ITS TOTAL INCOME UNDER SECTION 36(VIIA) OF THE ACT, BUT IT WAS NOT CLAIMED IN THE RETURN OF INCOME AND NO REVISED RETURN WAS FILED BY THE ASSESSEE IN THIS REGARD. THE ASSESSING OFFICER DISALLOWED THE ASSESSEE'S CLAIM UNDER SEC TION 36(VIIA) OF THE ACT, WITH REGARD TO ADVANCES MADE BY THE RURAL BRANCHES, ON THE GROUND THAT THE CLAIM WAS NEITHER MADE IN THE RETURN OF INCOME FILED NOR WAS A REVISED RETURN FILED BY THE ASSESSEE IN THIS REGARD. IN COMING TO THIS CONCLUSION, THE ASSES SING OFFICER PLACED RELIANCE ON THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF GOETZE INDIA LTD. V CIT (284 ITR 323). THE CO - ORDINATE BENCH ENTERTAINED THE GROUND RAISED IN REGARD TO THIS CLAIM OF THE ASSESSEE OF PROVISION FOR BAD AND DOUBTFUL DEBT S MADE UNDER SECTION 36 (VIIA) OF THE ACT AND SET ASIDE THE ISSUE TO THE ASSESSING OFFICER FOR EXAMINATION AND ADJUDICATION ON MERITS OF THE CLAIM. THE OPERATIVE PART OF THE CO - ORDINATE BENCHES ORDER IN THE CASE OF JAMKHANDI URBAN CO - OPERATIVE BANK LTD. (SUPRA) AT PARAS 3 TO 5 THEREOF ARE EXTRACTED HEREUNDER : - 3. HAV I N G A D M I TT E D T H E A P P E A L , L E T U S GO I N T O T H E M E R I T S O F T H E C A S E . T H E B R I E F F A C T S O F T H E C A S E A R E T HA T T H E ASS E SS E E IS A C O - O P E R A T I V E B A N K D O I N G B A N K I N G B U S I N E S S . F O R T H E A S S E SS M E N T Y E AR 2 00 7 - 0 8, T H E A S S E S S E E E - F I L E D R E T UR N O F I N C O M E D E C L A R I N G I N C O M E O F ` 1 , 4 6 , 2 5 , 4 20/ - . T H E A O , W H I LE P R O C E SS I N G T H E R E T U R N U /S 1 4 3 ( 3) N O T I C E D T H AT T H E ASS E SS E E H AD M A D E A P R O V I S I O N F O R B AD A N D D O U B T F U L D E BTS OF ` 50 L A K H S . I N T H E R E T U R N OF I N C O M E , T H E AS S E SS E E C L A I M E D A D E D U C T I O N O F 1 1 , 88 , 2 1 8/ - AT T H E R A TE O F 7 . 5% OF T O T A L I N C O M E U /S 36 ( 1 )( V I I A ) OF T H E I N C O M E - T A X A C T , 1 9 61 [ H E R E I N A F T E R R E F E R R E D T O A S ' T H E A C T ' ] . DUR I N G T H E C O U R S E O F A S S E S S ME N T P R O C EE D I N G S , T H E AS S E S S E E H AD C L A I M E D F U R T H E R D E D U C T I O N U /S 36 ( 1 )( V I I A ) OF ` 2 9 , 7 2 , 0 0 0/ - F O R AD V AN C E S M A D E B Y T H E R U R A L B R A NC H E S O F T H E B A N K. T H E A O , W H I L E A L L O W I N G T H E D E D U C T I O N @ 7 . 5 % O F T O T A L I N C O M E , D I D N OT A L L OW T H E D E D U C T I O N C L A I M E D F OR A D VA N C E S M A D E BY R U R A L B R A NC H E S AS T H I S D E D U C T I O N H AD N OT B E E N C L A I M E D B Y T H E ASS E S S E E I N T H E I N T H E R E T U R N O F I N C O M E A N D N O R E V I S E D R E T UR N H A D B E E N F I L E D. T H E A O TOOK T H E A BO V E D E C I S I O N R E L Y I N G ON T H E J U DG M E N T S OF T H E A P E X C O U R T I N T H E C A S E O F G OT Z E ( I N D I A ) L T D. VS. CI T ( 20 0 6 ) 28 4 I T R ITA NO S . 515 & 800/BANG/2013 22 3 23 ( S C ) . A G G R I E V E D BY T H I S O R D E R O F T H E A O , T H E AS S E SS E E M O V E D T H E M ATT E R I N A P P E A L B E F O R E T H E F I R S T A P P E L L A T E A U T H O R I T Y . T H E F I R S T A P P E L L A T E A U T H O R I T Y , A F T E R C O N S I D E R I N G T H E F A C T S OF T H E C A S E A N D T H E S U B M I S S I O N S OF T H E ASS E SS EE , C O N F I R M E D T H E O R D E R OF T H E A O F O L L O W I N G T H E D E C I S I O N OF T H E A P E X C O U R T IN T H E C A S E OF G O T Z E ( I N D I A ) L T D . ( S U P R A) . A CC O R D I N G TO H E R , C L A I M I N G OF D E D U C T I O N B Y W AY O F L E TT E R T O T H E AO W O U LD N O T BE P E R M I SS I B L E IN VI E W O F T H E D E C I S I O N OF T H E A P E X C O U R T . T H E AS S E S S E E I S STILL A G G R I E V E D A N D IS ON S E C O N D A P P E A L B E F O R E T H I S T R I B U N A L W ITH T H E F O L L O W I N G G R O U N DS OF A PP E A L : 1 . TH E L E A R N E D C O M M I SS I O N E R O F I N C O M E T A X ( A PP E A L S ) H A S ERR E D I N U P H O L D I N G T H E L E A R N E D A SS E S S I N G OF FI C ER O R D E R R E J E C T I N G T H E A P P E LL A N T C L A I M O F F U LL D E DU C T I O N U /S 36 ( 1 )( V I I A ) O F ` 4 2 , 2 0 , 3 90 / - A L T H O UG H E L I G I B L E A N D O N L Y P A R T I A L L Y A LL O W I N G A S U M O F `1 2 , 48 , 39 0 / - RE L Y I N G O N T H E CA SE O F G O T Z E ( I N D I A ) VS. C I T ( 20 0 6 ) 2 8 4 I T R 3 23 ( S C ) . 2 . TH E L E A R N E D C O M M I SS I O N E R O F I N C O M E T A X ( A PP E A L S ) H A S ERR E D O N A P P L Y I N G TH E P R I N C I P L E S O F G O T Z E ( I N D I A ) W H E R E I N TH E F A C T S O F TH A T C A S E B E I N G RE L A T E D T O A SSES S M E N T U /S 1 4 3 ( 1 ) ( A ) WH I C H IS D I F F E R E N T T O T H A T O F TH E A PP E L L A N T W H O IS A S S ESS E D U / 1 4 3 ( 3 ) O F T H E I N C O M E T A X A C T , 19 6 1 I G N O R I N G TH E PO W ERS E N S H RI N E D T O T H E A SS E S S I N G OF F I C ER T O A L L O W A L L L E G I T I M A T E D E DU C T I O N S UN D ER T H E I N C O M E TA X A C T 1 9 6 1 T O TH E A P P E LL A N T EVEN TH O UG H N O T C L A I M E D . 4 . A T T H E T I M E O F H E A R I N G , L E A R N E D A R O F T H E A SS E S S E E R E I T E R A T E D T H E G R O U N DS OF A PP E A L A S H I S S U B M I S S I O N S . P E R C O N T R A , L E A R N E D D E P A R T M E N T A L R E P R E S E N T A T I V E S U B M I TT E D T H E C O N T E N T S O F T H E C I T ( A ) S O R D E R AS H I S S U B M I S S I O N S . 5 . W E H AVE H E A R D R I V A L S U B M I SS I O N S A N D C O N S I D E R E D T H E F A C T S A N D M A T E R I A L O N R E C O R D A N D A L S O T H E D E C I S I O N OF TH E A P E X C O U R T IN T H E C A S E O F GOT Z E ( I N D I A ) L T D. ( S U P R A ) . W E F I N D T H AT T H E A P E X C O U R T , IN T H E C ASE O F G O T Z E ( I N D I A ) L T D . ( S U P R A) M A D E I T C L E A R T H AT T H E D E C I S I O N W AS R E S T R I C T E D TO P O W E R S O F TH E A SS E S S I N G A U T H O R I T Y TO E N T E R T A I N A C L A I M F OR D E D U C T I O N O T H E R W I S E T H AN B Y A R E V I S E D R E T U R N A N D D I D N O T I M P I N G E ON T H E PO W E R OF T H E A P P E L L A T E T R I B UN A L U / S 2 5 4 OF T H E A C T . H E N CE , E X E RC I S I N G O U R P O W E R , W E R E STO R E T H I S M AT T E R B A C K TO T H E F I L E O F T H E A O W I TH A D I R E C T I O N TO C O N S I D E R T H E C L A I M O F T H E A SS E SS E E ON M E R I T S A F T E R G I VI N G E FF E C T I V E O P P O R T U N I T Y OF H E A R I N G TO T H E ASS E S S E E . T H E A S S E S S E E I S A L S O H E R E BY D I R E C T E D TO C O - O P E R A TE W ITH T H E A O B Y P R O D U C I N G D E T A I L S S OU G H T F O R IN D E C I D I N G T H E I S S U E . 11.5.2 FOLLOWING THE ABOVE DECISION OF THE CO - ORDINATE BENCH IN THE CASE OF JAMKHANDI URBAN CO - OPERATIVE BANK LTD. (SUPRA), WE ALSO HOLD THAT THE PROVISION FOR BAD AND DOUBTFUL DEBTS IS TO BE ALLOWED, BUT SET ASIDE THE I SSUE TO THE FILE OF THE ASSESSING OFFICER FOR EXAMINATION AND ADJUDICATION ON MERITS, IN LINE WITH THE OBSERVATIONS AND FINDINGS IN THE ABOVE CITED DECISION OF THE CO - ORDINATE BENCH. IT IS ORDERED ACCORDINGLY. CONSEQUENTLY, GROUND NO.4 IS TREATED AS ALLO WED FOR STATISTICAL P UR POSES. ITA NO S . 515 & 800/BANG/2013 23 12. IN THE RESULT, THE ASSESSEE'S APPEAL FOR ASSESSMENT YEAR 2009 - 10 IS PARTLY ALLOWED. TO SUM UP, THE ASSESSEE'S APPEAL FOR ASSESSMENT YEAR 2009 - 10 IS PARTLY ALLOWED AND REVENUE S CROSS APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD JAN., 201 5 . SD/ - SD/ - ( RAJPAL YADAV ) ( JASON P BOAZ ) JUDICIAL M EMBER ACCOUNTANT MEMBER *REDDY GP COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE. (TRUE COPY) BY ORDER ASST. REGISTRAR, ITAT, BANGALORE