The Sindgi Urban Co-Op Bank Ltd., V. JCIT,

ITA 802/BANG/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 76996 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 28-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: L V BHASKAR REDDY
• Assessee Lawyers: S RAMASUBRAMANIAN
• Keywords: Depreciation; Opportunity of being heard; Bad and doubtful debts
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI PRAMOD M. JAGTAP, ACCOUNTANT MEMBER AND SMT. P. MADHAVI DEVI, JUDICIAL MEMBER ITA NOS. A.Y. APPELLANT V S. RESPONDENT 275/BANG/2012 2008-09 797/BANG/2013 2009-10 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1, BIJAPUR. SHRI BASAVESHWARA SAHAKARI BANK NIYAMITH, NO.25, BASAVESHWAR CIRCLE, NAVANAGAR, BAGALKOT. PAN: AAAAS 1703P 534/BANG/2013 2009-10 THE ACIT, CIRCLE 1, BIJAPUR. 1774/BANG/2013 2010-11 SHRI BASAVESHWARA SAHAKARI BANK NIYAMITH, BAGALKOT. THE DEPUTY CIT, CIRCLE 1, BIJAPUR. 789/BANG/2013 2009-10 SHRI SIDDESHWAR CO-OP. BANK LTD., S.S. ROAD, BIJAPUR. PAN: AAAAS 4391P THE JOINT CIT, BIJAPUR RANGE, BIJAPUR. 799/BANG/2013 2009-10 THE ACIT, CIRCLE 1, BIJAPUR. SHRI SIDDESHWAR CO-OP. BANK LTD., BIJAPUR. 798/BANG/2013 2009-10 THE ACIT, CIRCLE 1, BIJAPUR. THE SINDAGI URBAN CO-OP. BANK LTD., BANK ROAD, A/P SINDGI, SINDGI 586 128. PAN: AAAAT 3801F 802/BANG/2013 2009-10 1573/BANG/2013 2010-11 THE SINDAGI URBAN CO-OP. BANK LTD., SINDGI. THE JCIT, BIJAPUR RANGE, BIJAPUR. ITA NOS. 275/B/12, 789 & 798/BANG/2013 & CONNECTED APPEALS. PAGE 2 OF 37 ASSESSEE(S) BY : SHRI S. RAMASUBRAMANIAN, C.A. REVENUE BY : SHRI L.V. BHASKAR REDDY, ADDL.CIT(DR) DATE OF HEARING : 25.06.2014 DATE OF PRONOUNCEMENT : 27.06.2014 O R D E R PER BENCH THESE NINE APPEALS FILED IN THE CASE OF THREE ASSE SSEES INVOLVE SOME COMMON ISSUES AND THE SAME THEREFORE ARE HEARD TOGETHER AND BEING DISPOSED OF BY THIS SINGLE CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. ITA NO.275/B/12 2. FIRST, WE WILL TAKE UP THE APPEAL FILED BY THE REVENUE IN THE CASE OF SHRI BASAVESHWARA SAHAKARI BANK NIYAMITH FOR THE A .Y. 2008-09, WHICH IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(APPEALS), BELGAUM DATED 30.11.2011. 3. THE ASSESSEE IN THE PRESENT CASE IS A CO-OPERATI VE SOCIETY WHICH IS ENGAGED IN THE BUSINESS OF BANKING. IT IS HAVING TH E NECESSARY LICENCE ISSUED BY RESERVE BANK OF INDIA FOR CARRYING ON ITS BANKING OPERATIONS AS A CO-OPERATIVE BANK. THE RETURN OF INCOME FOR THE YEA R UNDER CONSIDERATION I.E., A.Y. 2008-09 WAS FILED BY THE ASSESSEE ON 26. 5.2008 DECLARING A TOTAL ITA NOS. 275/B/12, 789 & 798/BANG/2013 & CONNECTED APPEALS. PAGE 3 OF 37 INCOME OF RS.3,02,11,590. IN THE PROFIT & LOSS ACC OUNT FILED ALONG WITH THE SAID RETURN, INTEREST ON TERM DEPOSITS AMOUNTING TO RS.9,81,17,982 WAS DEBITED BY THE ASSESSEE, WHICH INCLUDED INTEREST OF RS.1,76,26,539 PAID BY THE ASSESSEE TO ITS MEMBERS IN EXCESS OF RS.10,000. ACCORDING TO THE AO, THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE FRO M SUCH INTEREST PAID TO ITS MEMBERS AND SINCE NO SUCH DEDUCTION OF TAX AT S OURCE WAS MADE BY THE ASSESSEE, HE DISALLOWED THE INTEREST OF RS.1,76,26, 539 PAID BY THE ASSESSEE SOCIETY TO ITS MEMBERS BY INVOKING THE PRO VISIONS OF SECTION 40(A)(IA) OF THE ACT. THE AO ALSO MADE A FURTHER A DDITION OF RS.2,35,20,043 ON ACCOUNT OF INTEREST RECEIVABLE ON LOANS AND ADVA NCES, WHICH WAS NOT OFFERED BY THE ASSESSEE ON THE GROUND THAT THE CONC ERNED LOANS & ADVANCES HAD ALREADY BECOME NON-PERFORMING ASSETS ( NPA). THE AO ACCORDINGLY COMPLETED THE ASSESSMENT U/S. 143(3) OF THE ACT VIDE ORDER DATED 24.12.2010 COMPUTING THE TOTAL INCOME OF THE ASSESSEE AT RS.7,38,49,672, AFTER MAKING ONE MORE ADDITION OF R S.24,91,500 ON ACCOUNT OF DISALLOWANCE OF 10% ON AVERAGE RURAL ADV ANCES. 4. AGAINST THE ORDER PASSED BY THE AO U/S. 143(3), APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LD. CIT(APPEAL S). AFTER CONSIDERING THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE AS W ELL MATERIAL AVAILABLE ON RECORD, THE LD. CIT(A) DELETED THE ADDITION OF R S.1,76,26,539 MADE BY THE AO INVOKING THE PROVISIONS OF SECTION 40(A)(IA) FOR THE FOLLOWING REASONS GIVEN IN PARA 3.3 OF HIS IMPUGNED ORDER:- ITA NOS. 275/B/12, 789 & 798/BANG/2013 & CONNECTED APPEALS. PAGE 4 OF 37 3.3 THE FIRST QUESTION OF APPEAL IS THAT, WHETHER THE A SSESSEE IS ENTITLED FOR CLAIMING EXEMPTION U/S 194A(3)(V) OF T HE ACT IN RESPECT OF INTEREST PAYMENTS EXCEEDING RS.10,000 MA DE TO MEMBERS. THE RELEVANT PROVISIONS OF SECTION 194A(3) WITH REGARD TO CO-OPERATIVE SOCIETIES ARE REPRODUCED BELOW: (3) THE PROVISIONS OF SUB-SECTION (1) SHALL NOT APP LY [(I) WHERE THE AMOUNT OF SUCH INCOME OR, AS THE CASE MAY BE, T HE AGGREGATE OF THE AMOUNTS OF SUCH INCOME CREDITED OR PAID OR L IKELY TO BE CREDITED OR PAID DURING THE FINANCIAL YEAR BY THE P ERSON REFERRED TO IN SUB-SECTION (1) TO THE ACCOUNT OF, OR TO, THE PA YEE, [DOES NOT EXCEED (A) .. (B) TEN THOUSAND RUPEES, WHERE THE PAYER IS A CO-O PERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANK ING; (C) . (D) . PROVIDED THAT IN RESPECT OF THE INCOME CREDITED OR PAID IN RESPECT OF (A) (B) TIME DEPOSITS WITH A CO-OPERATIVE SOCIETY ENGA GED IN CARRYING ON THE BUSINESS OF BANKING; THE AFORESAID AMOUNT SHALL BE COMPUTED WITH REFEREN CE TO THE INCOME CREDITED OR PAID BY A BRANCH OF THE BANKING COMPANY OR THE CO-OPERATIVE SOCIETY OR THE PUBLIC COMPANY, AS THE CASE MAY BE; (V) TO SUCH INCOME CREDITED OR PAID BY A CO-OPERAT IVE SOCIETY [TO A MEMBER THEREOF OR] TO ANY OTHER CO-OPERATIVE SOCIETY (VIIA) TO SUCH INCOME CREDITED OR PAID IN RESPECT O F, ITA NOS. 275/B/12, 789 & 798/BANG/2013 & CONNECTED APPEALS. PAGE 5 OF 37 (A) DEPOSITS WITH A PRIMARY AGRICULTURAL CREDIT SO CIETY OR A PRIMARY CREDIT SOCIETY OR A CO-OPERATIVE LAND MORTG AGE BANK OR A CO-OPERATIVE LAND DEVELOPMENT BANK; (B) DEPOSITS (OTHER THAN TIME DEPOSITS MADE ON OR AFTER THE 1ST DAY OF JULY, 1995) WITH A CO-OPERATIVE SOCIETY, OTH ER THAN A CO-OPERATIVE SOCIETY OR BANK REFERRED TO IN SUB-CLA USE (A), ENGAGED IN CARRYING ON THE BUSINESS OF BANKING; B. ON READING OF THE ABOVE SECTIONS I DRAW THE FOLL OWING INFERENCES SECTION 194A(3)(I)(B) :EXEMPTION OF INTEREST PAID BY A CO- OPERATIVE SOCIETY ENGAGED IN BANKING BUSINESS, UPTO RS.10,000 TO MEMBERS AS WELL AS NON-MEMBERS, IRRESPECTIVE OF THE NATURE OF THE DEPOSIT IS EXEMPT; SECTION 194A(3)(V) : EXEMPTION OF INTEREST PAID BY A CO-OPERATIVE SOCIETY TO ITS MEMBERS IRRESPECTIVE OF THE NATURE O F DEPOSIT OR AMOUNT; SECTION 194A(3)(VIIA)(A) : EXEMPTION OF INTEREST PAID BY PERSONS NAMELY, PRIMARY AGRICULTURE CREDIT SOCIETY, PRIMARY CREDIT SOCIETY, CO-OPERATIVE LAND MORTGAGE BANK OR A CO-OP ERATIVE LAND DEVELOPMENT BANK TO MEMBERS OR NON-MEMBERS WIT HOUT ANY MONETARY LIMIT. SECTION 194A(3)(VIIA)(B) : EXEMPTION OF INTEREST PAID BY PERSONS NAMELY, CO-OPERATIVE SOCIETY ENGAGED IN BANKING BUS INESS IRRESPECTIVE OF MEMBERSHIP OR AMOUNT ONLY TO NON-TI ME DEPOSITS. FROM THE ABOVE SUMMARY IT IS CLEAR THAT INCOME PAID BY A CO- OPERATIVE SOCIETY TO ITS MEMBERS IS EXEMPT IRRESPEC TIVE OF THE NATURE OF DEPOSITS OR ANY MONETARY LIMITS AND NO CO NFLICTS WOULD ARISE IF ONE WERE TO CONSIDER THE APPLICABILITY OF SECTION 194A(3)(V) ONLY TO MEMBERS AND THE OTHER SECTIONS S OLELY FOR NON-MEMBERS. C. THE CONTENTION OF THE AO IS THAT A CO-OPERATIVE SOCIETY ENGAGED IN BANKING BUSINESS WILL NOT FALL WITHIN TH E AMBIT OF SECTION 194A(3)(V). CIRCULAR NO. 9 OF 2002 DATED 11 /09/2002 257 ITR 36 ISSUED BY CBDT (QUOTED EARLIER) CLARIFIES TH AT A MEMBER ITA NOS. 275/B/12, 789 & 798/BANG/2013 & CONNECTED APPEALS. PAGE 6 OF 37 OF A CO-OPERATIVE BANK SHALL RECEIVE INTEREST ON BO TH TIME DEPOSITS AND DEPOSITS OTHER THAN TIME DEPOSITS WITH SUCH COO PERATIVE BANK WITHOUT TDS UNDER SECTION 194A BY VIRTUE OF EXEMPTI ON GRANTED VIDE CLAUSE (V) OF SUB-SECTION (3) OF THE SAID SECT ION. THE RELIANCE PLACED BY THE AO TO THE DECISION OF HONBLE INCOME TAX APPELLATE TRIBUNAL, PUNE IN BHAGANI NIVEDITA SAHAKA RI BANK LTD. V. ASST. CIT (2003) 87 ITD 569 WAS WITHOUT NOTING T HAT THE ITAT AT THE TIME OF THE ORDER DIDNT HAVE THE PRIVI LEGE OF THE CIRCULAR OF CBDT. RELIANCE ALSO PLACED BY THE AO TO THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE JALGAON DISTRIC T CENTRAL COOPERATIVE BANK LTD. & ANR. V UNION OF INDIA & ORS . (2004) 265 ITR 423 WAS WITHOUT FULLY COMPREHENDING THE FAC TS OF THE SAID CASE. IF THE INTEREST PAID BY A CO-OPERATIVE S OCIETY, ENGAGED IN BANKING BUSINESS, TO ITS MEMBERS WAS NOT EXEMPT THEN THERE WAS NO REQUIREMENT OF THE HONBLE COURT TO PONDER A BOUT THE COVERAGE OF THE TERM MEMBERS USED IN SECTION 194A(3 )(V). IT SHOULD ALSO BE STATED HERE THAT THE ONLY POINT THE COURTS CONSIDERED WAS THAT OF WHO IS A MEMBER OF A CO-OPER ATIVE SOCIETY. D. IN LIGHT OF THE ABOVE FACTS AND ANALYSIS OF THE PROVISIONS, ONE CAN CONCLUDE THAT THE INTENTION OF THE ACT WAS TO CONFER SOME BENEFIT TO THE MEMBERS OF CO-OPERATIVE SOCIETY, INC LUDING A CO- OPERATIVE SOCIETY ENGAGED IN BANKING BUSINESS THAT IS CO- OPERATIVE BANK. THEREFORE THE APPELLANT IS ENTITLED TO EXEMPTION SPECIFIED IN SECTION 194A(3)(V). THE AO IS NOT JUST IFIED IN DISALLOWING A SUM OF RS. 1,76,26,539 U/S 40(A)(IA). HENCE IT IS DIRECTED TO THE AO TO DELETE THE ADDITION OF RS.1,7 6,26,539. THUS APPELLANT GETS RELIEF OF RS. 1,76,26,539. 5. THE LD. CIT(APPEALS) ALSO DELETED THE ADDITION O F RS.2,35,20,043 MADE BY THE AO ON ACCOUNT OF INTEREST ACCRUED ON LO ANS & ADVANCES, WHICH WERE CLASSIFIED AS NON-PERFORMING ASSETS FO R THE FOLLOWING REASONS GIVEN IN HIS IMPUGNED ORDER :- ITA NOS. 275/B/12, 789 & 798/BANG/2013 & CONNECTED APPEALS. PAGE 7 OF 37 I HAVE CAREFULLY CONSIDERED THE APPELLANT SUBMISSI ONS AND PERUSED THE VIEWS OF THE AO AS DISCUSSED IN THE ASS ESSMENT ORDER. IN THE CASE OF NON-PERFORMING ASSETS (NPA LOANS, WH ICH ARE DOUBTFUL OF RECOVERY), IN THE LIGHT OF THE CIRCULAR S ISSUED BY THE RESERVE BANK ON CLASSIFICATION OF ASSETS AND THE AS -9 ISSUED BY THE CBDT, IT IS TO BE SEEN THAT THE QUESTION OF ACC RUAL CAN BE CONSIDERED ONLY AFTER RECOGNIZING INCOME FROM SUCH ASSETS. IF NO INCOME IS RECOGNIZED AT ALL FROM SUCH ASSETS, THERE IS NO QUESTION OF APPLYING THE PRINCIPLE OF ACCRUAL. THE PRINCIPLE OF ACCRUAL COMES INTO PLAY ONLY WHEN INCOME IS RECOGNIZED AND CERTAINTY OF COLLECTION. IN THE PRESENT CASE, THE APPELLANT HAS CLASSIFIED I TS ASSETS ON THE BASIS OF THE CIRCULARS ISSUED BY THE RBI AND FOUND THAT CERTAIN ASSETS ARE COMING UNDER THE CATEGORY OF NON-PERFORM ING ASSETS. FROM SUCH NON-PERFORMING ASSETS, THE APPELLANT HAS NOT RECOGNIZED ANY INCOME IN ACCORDANCE WITH THE CIRCUL ARS ISSUED BY THE RBI AND AS-9 ISSUED BY THE ICAI. THEREFORE, THE APPELLANT IS JUSTIFIED IN NOT RECOGNIZING THE INTEREST AS INCOME . ONCE THAT IS THE CASE, THERE IS NO OCCASION TO CONSIDER WHETHER THE PRINCIPLE OF ACCRUAL WOULD ARISE OR NOT. IN VIEW OF THE MATTER, I AM OF THE CONSIDERED VIEW THAT THE AO HAS ERRED IN TREATING T HE INTEREST ON NON-PERFORMING ASSETS AS INCOME OF THE APPELLANT. I DIRECT THE AO TO DELETE THE SAID INTEREST FROM THE COMPUTATION OF TAXABLE INCOME. THE ISSUE OF THE INTEREST FROM NON-PERFORMI NG ASSETS IS THEREFORE DECIDED IN THE FAVOR OF THE APPELLANT, AN D APPELLANT GETS A RELIEF OF RS. 91,17,603. D. THE THIRD QUESTION FOR CONSIDERATION IS THAT, W HETHER INTEREST RECEIVABLE ON STANDARD LOANS AND ADVANCES, BE TREATED AS THE INCOME OF THE ASSESSEE. THE PROVISIONS OF SECTI ON 5 OF THE ACT, STATED EARLIER REQUIRE THAT THE ASSESSEE RECOG NIZE INCOME WHEN IT IS EITHER RECEIVED OR DEEMED TO BE RECEIVED OR ACCRUES OR DEEMED TO ACCRUE. INTEREST ON STANDARD LOANS AND AD VANCES MUST BE RECOGNIZED AS INCOME SINCE THERE IS VIRTUAL CERT AINTY AS TO THEIR FINAL COLLECTABILITY AND THERE IS NOT AN IOTA OF DO UBT EVEN IN THE MIND OF THE ASSESSEE AS TO THEIR COLLECTABILITY. TH E MASTER CIRCULAR ISSUED BY RBI, RELIED ON BY THE ASSESSEE REQUIRES T HAT THE ASSESSEE HAS TO RECOGNIZE THE INTEREST ON STANDARD LOANS AND ADVANCES ON ITA NOS. 275/B/12, 789 & 798/BANG/2013 & CONNECTED APPEALS. PAGE 8 OF 37 ACCRUAL BASIS. THEREFORE THE ADDITION OF RS. 1,44,0 2,440 MADE BY THE AC IS CONFIRMED. E. THE FOURTH QUESTION FOR CONSIDERATION IS THAT, WHETHER THE AO WAS RIGHT IN CONSIDERING THE INCOME OF THE ASSES SEE AS RS.18,39,03,637 INSTEAD OF RS.15,88,09,148. THE AO HAD TO COMPUTE THE INCOME OF THE ASSESSEE AS PER ACCRUAL P OLICY AND NOT AS PER CASH BASIS. THE INCOME OF RS.18,39,03,637 WA S ARRIVED AFTER CONSIDERING THE AMOUNT OF RS. 1,73,99,971, RS . 39,12,422, RS. 16,19,458 AND RS. 21,62,638 RECEIVED DURING AY 2008-09 PERTAINING TO EARLIER YEARS. THE AO IN PARA 7.13 HA D OBSERVED THAT DURING THE COURSE OF HEARING ON 13.12.2010, THE AS SESSEE SUBMITTED THAT THE INTEREST ON STANDARD LOANS AND A DVANCES RECEIVABLE AS ON 31.03.2008 IS TO THE TUNE OF RS.1, 44,02,440. THIS AMOUNT IS DIFFERENT FROM THAT OF THE INTEREST RECEI VABLE ON ACCOUNT OF OVERDUES. HENCE, THIS AMOUNT ALSO HAS TO BE TAXE D ON ACCRUAL BASIS IN VIEW OF THE DETAILED REASONS GIVEN IN THE ABOVE PARAGRAPHS. AS THE AO OBSERVED THE ASSESSEE HAS TO FOLLOW ACCRUAL POLICY. IF THE AMOUNT OF RS.18,39,03,637 WE RE TO BE CONSIDERED AS THE INCOME OF THE ASSESSEE IT WOULD B E EQUIVALENT TO ACCOUNTING ON HYBRID SYSTEM. THE ASSESSEE COULD NOT BE COMPELLED TO ACCOUNT INTEREST RECEIVABLE ON ACCRUAL BASIS AND AS WELL AS INTEREST INCOME ON CASH BASIS. 6. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS), THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL ON THE FO LLOWING GROUNDS:- (1) THE LEARNED CIT(APPEALS) ERRED IN NOT FOLLOWIN G THE PROCEDURE LAID DOWN IN SECTION 250 IN PARTICULARLY SUB-SECTIONS (1) AND ERRED IN PASSING THE ORDER WITHOUT GIVING N OTICE OF HEARING TO THE ASSESSING OFFICER AND THEREFORE, THE ORDER P ASSED BY THE CIT(APPEALS) IS BAD IN LAW AND REQUIRES TO BE SET A SIDE. (2) THE LEARNED CIT(APPEALS) ERRED IN NOT ALLOWING THE RIGHT TO BE HEARD TO THE ASSESSING OFFICER EITHER IN PERS ON OR BY A REPRESENTATIVE AS PER SECTION 250(2) OF THE I.T. AC T, 1961 AND THEREFORE, THE ORDER PASSED BY THE CIT(APPEALS) IS BAD IN LAW AND REQUIRES TO BE SET ASIDE. ITA NOS. 275/B/12, 789 & 798/BANG/2013 & CONNECTED APPEALS. PAGE 9 OF 37 (3) THE LEARNED CIT(APPEALS) ERRED IN DEPRIVING TH E ASSESSING OFFICER TO AVAIL RIGHT TO BE HEARD AT THE HEARING OF THE APPEAL AS ENVISAGED IN SECTION 250(2)(B) WHICH WAS CONFIRMED BY HIM VIDE HIS LETTER F.NO.CIT(A)/BGM/ORDERS/11-12 DA TED 11.01.2012 AND AS SUCH, THE ORDER PASSED LACKS PROC EDURAL ASPECT AS WELL AS INVALID IN THE EYES OF LAW. (4) WITHOUT PREJUDICE TO THE ABOVE (A) THE LEARNED CIT(APPEALS) ERRED IN DELETING THE DISALLOWANCE U/S 40(A)(IA) OF RS.1,76,26,539 IGNORI NG THE RATIO OF THE DECISION OF PUNE ITAT IN THE CASE OF B HAGINI NIVEDITA SAHAKARI BANK LTD V. ACIT87 LTD 569. (B) THE LEARNED CIT(APPEALS) ERRED IN DELETING THE ADDITION OF RS.91,17,603 ON ACCOUNT OF ACCRUED INTEREST ON LOAN S WHICH ARE CLASSIFIED AS NON-PERFORMING ASSETS WIT HOUT CONSIDERING THE DECISION OF HONBLE SUPREME COURT I N THE CASE OF STATE BANK OF TRAVANCORE V. CIT 158 ITR 102 AND WITHOUT CONSIDERING THE NEW PROVISIONS OF SECTION 4 3D. (C) THE LEARNED CIT(APPEALS) ERRED IN NOT CONSIDER ING THE FACT THAT SECTION 43D WAS INSERTED TO OVER COME THE DECI SION OF HONBLE SUPREME COURT IN STATE BANK OF TRAVANCORE V . CIT AND THE BENEFIT OF THE EXCEPTION FROM THE SAID DECISION OF THE HONBLE SUPREME COURT WAS NOT AVAILABLE TO A CO- OPERATIVE BANK. (5) FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, THE ORDER OF THE LEARNED CIT(A) MAY BE SET ASIDE AND THAT THE ORDER OF THE ASSESSING OFFICER BE RESTORED . 7. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT RECORD. IN GROUND NO.4(A) OF ITS APPE AL, THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(APPEALS) IN DE LETING THE DISALLOWANCE OF RS.1,76,26,539 MADE BY THE AO ON ACCOUNT OF INTERES T ON LOANS & ADVANCES PAID BY THE ASSESSEE SOCIETY TO ITS MEMBER S IN EXCESS OF ITA NOS. 275/B/12, 789 & 798/BANG/2013 & CONNECTED APPEALS. PAGE 10 OF 37 RS.10,000 INVOKING THE PROVISIONS SECTION 40(A)(IA) AND AS AGREED BY THE LD. REPRESENTATIVES OF BOTH THE SIDES, THIS ISSUE I S SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE CO-ORDIN ATE BENCH OF THIS TRIBUNAL DATED 30.5.2014 PASSED IN ITA NO.1572/BANG/2013 IN THE CASE OF BAGALKOT DISTRICT CENTRAL CO-OPERATIVE BANK. A COPY OF THE SAID ORDER IS PLACED ON RECORD BEFORE US AND A PERU SAL OF THE SAME SHOWS THAT A SIMILAR ISSUE HAS BEEN DECIDED BY THE TRIBUN AL IN FAVOUR OF THE ASSESSEE, AFTER DISCUSSING ALL THE RELEVANT ASPECTS OF THE MATTER ELABORATELY IN PARAGRAPHS 15 TO 21 OF ITS ORDER, WHICH ARE REPR ODUCED HEREUNDER:- 15. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO T HE RIVAL SUBMISSIONS. WE ARE OF THE VIEW THAT THE SUBMISSIO NS MADE BY THE LEARNED COUNSEL FOR THE ASSESSEE DESERVES TO BE ACCEPTED. AS RIGHTLY CONTENDED BY HIM SEC.194A(3)(I)(B) OF THE A CT IS A PROVISION WHICH MANDATES DEDUCTION OF TAX AT SOURCE BY A CO- OPERATIVE SOCIETY CARRYING ON THE BUSINESS OF BANKI NG, WHERE THE INCOME IN THE FORM OF INTEREST WHICH IS PAID BY SUC H SOCIETY IS IN EXCESS OF TEN THOUSAND RUPEES. SEC.194A(3)(V) OF T HE ACT PROVIDES THAT TAX NEED NOT BE DEDUCTED AT SOURCE WH ERE THE INCOME IN THE FORM OF INTEREST IS CREDITED OR PAID BY A CO- OPERATIVE SOCIETY TO A MEMBER THEREOF OR TO ANY OTH ER CO- OPERATIVE SOCIETY. THIS PROVISION THEREFORE APPLIE S 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 SA ME 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 -OPERATIVE SOCIETY TO A MEMBER AND PAYMENT BY A CO-OPERATIVE S OCIETY TO NON-MEMBER WOULD CONTINUE TO BE GOVERNED BY THE PRO VISIONS 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- ITA NOS. 275/B/12, 789 & 798/BANG/2013 & CONNECTED APPEALS. PAGE 11 OF 37 OPERATIVE SOCIETY NEED NOT DEDUCT TAX AT SOURCE. T HUS THIS SECTION CARVES OUT ANOTHER EXCEPTION TO SEC.194A(3)(I)(B) O F THE ACT. WE DO NOT THINK THAT ANY OF THE ABOVE PROVISIONS CAN B E CALLED A GENERAL PROVISION AND OTHER PROVISIONS CALLED SPECI FIC PROVISIONS. EACH PROVISION OVER-LAP AND IF READ IN THE MANNER A S INDICATED ABOVE, THERE IS PERFECT HARMONY TO THE VARIOUS PROV ISIONS. WE DO NOT AGREE WITH THE VIEW EXPRESSED BY THE PUNE ITAT SMC IN THE CASE OF BHAGANI NIVEDITA SAHAKARI BANK LTD. (SUPRA) WHEN IT SAYS THAT CO-OPERATIVE SOCIETY AS MENTIONED IN CL. (V) I S A GENERAL SPECIES, WHEREAS THE OTHER FIVE CATEGORIES OF CO-OP ERATIVE SOCIETIES WHICH ARE SPECIFICALLY REFERRED TO IN OTH ER PROVISIONS ARE SPECIFIC CO-OPERATIVE SOCIETIES. THE FURTHER CONCL USION IN THE SAID DECISION THAT THE TERM CO-OPERATIVE SOCIETY IN CL . (V) OF S. 194A(3) HAS TO BE INTERPRETED AS CO-OPERATIVE SOCIE TY 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 C OURSE IS PERMITTED ONLY WHEN THERE IS CAUSUS OMISUS. WE DO NOT THIN K 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 TH E HONBLE KERALA HIGH COURT IN THE CASE OF MOOLAMATTOM ELECTR ICITY BOARD EMPLOYEES CO-OP BANK LTD. (SUPRA) SUPPORTS THE PLEA OF THE ASSESSEE BEFORE US. THE PETITIONERS IN THAT CASE WERE PRIMARY CREDIT SOCIETIES REGISTERED UNDER THE KERALA CO-OPE RATIVE SOCIETIES ACT. IN VIEW OF THE SPECIFIC PROVISIONS OF SEC.19 4A(3(VIIA) OF THE ACT, THEY CLAIMED THAT THEY NEED NOT DEDUCT TAX AT SOURCE ON INTEREST PAID. IT WAS SUBMITTED BY THE PETITIONER THAT SUB- S.194A(3)(V) DEALS WITH SUCH INCOME CREDITED OR PAI D BY A CO- OPERATIVE SOCIETY TO A MEMBER WHEREAS SUB-S. (3)(VI IA)(A) PROVIDES A TOTAL EXEMPTION TO DEPOSITS WITH THE PRI MARY CREDIT SOCIETY. THE HONBLE KERALA HIGH COURT ACCEPTED THE IR PLEA AND IN THEIR JUDGMENT HAVE OBSERVED THAT SEC.194A (3)(I ) EXEMPTION LIMIT OF RS. 10,000 TO INTEREST PAID ON TIME DEPOSI TS WITH CO- OPERATIVE SOCIETIES ENGAGED IN CARRYING ON BUSINESS OF BANKING IS ALLOWED BUT THAT DOES NOT MEAN THAT ALL CO-OPERATIV E SOCIETIES WHO HAVE CREDITED OR PAID EXCEEDING RS. 10,000 ARE LIAB LE TO DEDUCT TAX AT SOURCE. THE COURT HELD THAT CO-OPERATIVE SO CIETY ENGAGED IN CARRYING ON BUSINESS OF BANKING AND PRIMARY CRED IT SOCIETIES STAND ON DIFFERENT FOOTING AND BELONG TO DIFFERENT CLASS. THAT DOES ITA NOS. 275/B/12, 789 & 798/BANG/2013 & CONNECTED APPEALS. PAGE 12 OF 37 NOT MEAN THAT SEC.194A(3)(V) OF THE ACT IS APPLICAB LE ONLY TO CO- OPERATIVE SOCIETIES OTHER THAN CO-OPERATIVE SOCIETI ES CARRYING ON THE BUSINESS OF BANKING AS OBSERVED IN PARA-37 OF I TS JUDGMENT THE PUNE ITAT IN THE CASE OF BHAGANI NIVEDITA SAH B ANK 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 S OCIETIES CARRYING ON BANKING BUSINESS WHEN IT PAYS INTEREST ON DEPOSITS BY ITS MEMBERS NEED NOT DEDUCT TAX AT SOURCE IN VIEW O F THE PROVISIONS OF SEC.194A(3)(V) OF THE ACT. 17. WE ALSO FIND THAT THE CBDT IN CIRCULAR NO.9 DAT ED 11.9.2002 CLARIFIED CERTAIN ASPECTS WHICH ARE RELEV ANT TO THE PRESENT CASE. THE SAME READS THUS: 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 BANKREG. 11/09/2002 TDS 194A 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 INTERES T ON SECURITIES. CLAUSE (V) OF SUB-SECTION (3) OF SECTIO N 194A EXEMPTS SUCH INCOME CREDITED OR PAID BY A CO-OPERAT IVE 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 C O- 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 DE POSITS OTHER THAN TIME DEPOSITS WITH SUCH CO-OPERATIVE BAN K ITA NOS. 275/B/12, 789 & 798/BANG/2013 & CONNECTED APPEALS. PAGE 13 OF 37 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) O F THE SAID SUB-SECTION ARE APPLICABLE ONLY IN CASE OF A N ON- MEMBER DEPOSITOR OF THE CO-OPERATIVE BANK, WHO SHAL L RECEIVE INTEREST ONLY ON DEPOSITS OTHER THAN TIME D EPOSITS MADE ON OR AFTER 1ST JULY, 1995 WITHOUT TDS UNDER SECTION 194A. 3. A QUESTION HAS ALSO BEEN RAISED AS TO WHETHER NORM AL MEMBERS, ASSOCIATE MEMBERS AND SYMPATHIZER MEMBERS ARE ALSO COVERED BY THE EXEMPTION UNDER SECTION 194A(3)(V). IT IS HEREBY CLARIFIED THAT THE EXEMPTI ON IS AVAILABLE ONLY TO SUCH MEMBERS WHO HAVE JOINED IN APPLICATION FOR THE REGISTRATION OF THE CO-OPERATIV E SOCIETY AND THOSE WHO ARE ADMITTED TO MEMBERSHIP AF TER REGISTRATION IN ACCORDANCE WITH THE BYE-LAWS AND RU LES. A MEMBER ELIGIBLE FOR EXEMPTION UNDER SECTION 194A(3)(V) MUST HAVE SUBSCRIBED TO AND FULLY PAID F OR AT LEAST ONE SHARE OF THE CO-OPERATIVE BANK, MUST BE E NTITLED TO PARTICIPATE AND VOTE IN THE GENERAL BODY MEETING S AND/OR SPECIAL GENERAL BODY MEETINGS OF THE CO- OPERATIVE BANK AND MUST BE ENTITLED TO RECEIVE SHAR E FROM THE PROFITS OF THE CO-OPERATIVE BANK. [F. NO. 275/106/2000-IT(B)] (2002) 177 CTR (ST) 1 18. IT CAN BE SEEN FROM PARA-2 OF THE CIRCULAR REFE RRED TO ABOVE THAT THE CBDT HAS VERY CLEARLY LAID DOWN THAT CO-OP ERATIVE SOCIETIES CARRYING ON BANKING BUSINESS WHEN IT PAYS INTEREST ON DEPOSITS BY ITS MEMBERS NEED NOT DEDUCT TAX AT SOUR CE. THE ABOVE INTERPRETATION OF THE PROVISIONS BY THE CBDT WHICH IS IN FAVOUR OF THE ASSESSEE, IN OUR VIEW IS BINDING ON T HE 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 BAILH ONGAL URBAN CO-OP BANK LTD. VS. JCIT ORDER DATED 28.8.201 3, THE TRIBUNAL PROCEEDED ON THE FOOTING THAT THE AFORESAI D CIRCULAR HAS BEEN QUASHED BY THE HONBLE BOMBAY HIGH COURT IN TH E CASE OF THE JALGAON DISTRICT CENTRAL CO-OPERATIVE BANK LTD. VS. UNION ITA NOS. 275/B/12, 789 & 798/BANG/2013 & CONNECTED APPEALS. PAGE 14 OF 37 OF INDIA 265 ITR 423 (BOM) AND THEREFORE CHOSE TO F OLLOW THE DECISION RENDERED BY PUNE ITAT SMC IN THE CASE OF B HAGANI NIVEDITA SAHAKARI BANK LTD. (SUPRA). IN OUR VIEW T HE HONBLE BOMBAY HIGH COURT IN THE CASE OF JALGAON DISTRICT C ENTRAL CO- OPERATIVE BANK LTD.S CASE WAS DEALING WITH A CASE OF CHALLENGE TO PARA-3 OF CBDT CIRCULAR NO.9 DATED 11.9.2002 WHI CH 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 HONBLE BOMBAY HIGH COURT AND THE OTHER PARAGRA PHS OF THE CIRCULAR HAD NO CONNECTION WITH THE ISSUE BEFORE TH E HONBLE BOMBAY HIGH COURT. HOW COULD IT BE SAID THAT THE E NTIRE CIRCULAR HAS BEEN QUASHED BY THE HONBLE BOMBAY HIGH COURT? IN OUR VIEW PARA-2 OF THE CIRCULAR STILL HOLDS GOOD AND TH E CONCLUSION OF THE ITAT PUNE BENCH IN THE CASE OF THE BAILHONGAL U RBAN CO-OP BANK LTD.(SUPRA) ARE NOT FACTUALLY CORRECT. CONSEQ UENTLY, THE CONCLUSIONS DRAWN IN THE AFORESAID DECISION ALSO CO NTRARY TO FACTS AND HENCE CANNOT BE CONSIDERED AS PRECEDENT. 20. THE LEARNED COUNSEL FOR THE ASSESSEE HAS BROUGH T TO OUR NOTICE THAT THE ITAT VISHAKAPATNAM BENCH IN THE CAS E OF THE VISAKHAPATNAM CO-OPERATIVE BANK ITA NO.5 AND 19 OF 2011 ORDER DATED 29.8.2011 HAS HELD THAT CO-OPERATIVE SO CIETIES CARRYING ON BANKING BUSINESS WHEN IT PAYS INTEREST TO ITS MEMBERS ON DEPOSITS IT NEED NOT DEDUCT TAX AT SOURCE IN VIE W OF THE PROVISIONS OF SEC.194A(3)(V) OF THE ACT. SIMILAR V IEW 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 MAY ADD THAT IN BOTH THESE DE CISIONS THE DISCUSSION DID NOT TURN ON THE INTERPRETATION OF SE C.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 SOCIETIES CARRYING ON BANKING BUSINESS WH EN 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 A SSESSEE WHICH IS A CO-OPERATIVE SOCIETY CARRYING ON BANKING BUSINESS WHEN IT PAYS INTEREST INCOME TO A MEMBER BOTH ON TI ME DEPOSITS AND ON DEPOSITS OTHER THAN TIME DEPOSITS WITH SUCH CO-OPERATIVE SOCIETY NEED NOT DEDUCT TAX AT SOURCE UNDER SECTION 194A BY ITA NOS. 275/B/12, 789 & 798/BANG/2013 & CONNECTED APPEALS. PAGE 15 OF 37 VIRTUE OF THE EXEMPTION GRANTED VIDE CLAUSE (V) OF SUB-SECTION (3) OF THE SAID SECTION. 8. AS THE ISSUE INVOLVED IN THE PRESENT CASE AS WEL L AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO THAT OF THE C ASE OF BAGALKOT DISTRICT CENTRAL CO-OPERATIVE BANK (SUPRA) , WE RESPECTFULLY FOLLOW THE DECISION RENDERED BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE SAID CASE AND UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(APPEA LS) DELETING THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF INTEREST PAID BY THE ASSESSEE SOCIETY TO ITS MEMBERS ON DEPOSITS IN EXCESS OF RS. 10,000 INVOKING THE PROVISIONS OF SECTION 40(A)(IA). GROUND NO.4(A) O F THE REVENUES APPEAL IS ACCORDINGLY DISMISSED. 9. AS REGARDS GROUND NOS. 1 TO 3 OF THE REVENUES A PPEAL, IT IS OBSERVED THAT THE GRIEVANCE OF THE REVENUE RAISED T HEREIN IS THAT NO OPPORTUNITY OF BEING HEARD WAS GIVEN BY THE LD. CIT (A) TO THE AO BEFORE DELETING THE DISALLOWANCE MADE U/S. 40(A)(IA) ON AC COUNT OF INTEREST PAID BY THE ASSESSEE SOCIETY TO ITS MEMBERS ON DEPOSITS IN EXCESS OF RS.10,000. ALTHOUGH A SIMILAR GRIEVANCE OF THE REVENUE WAS ADD RESSED BY THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF THE SINDGI URBAN CO-OP. BANK LTD. BY SENDING THE MATTER BACK TO THE LD. CIT(A), VIDE ITS ORDER DATED 9.5.2004 PASSED IN ITA NO.276/BANG/2012 FOR GIVING THE ASSESSING OFFICER AN OPPORTUNITY OF BEING HEARD, IT IS OBSERVED THAT THE ITA NOS. 275/B/12, 789 & 798/BANG/2013 & CONNECTED APPEALS. PAGE 16 OF 37 ISSUE NOW STANDS DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE ON MERITS, BY ITS ORDER DATED 30.5.2014 (SUPRA). KEEPI NG IN VIEW THIS RECENT DEVELOPMENT, WE DO NOT FIND ANY JUSTIFIABLE REASON TO ENTERTAIN THE GRIEVANCE OF THE REVENUE AS PROJECTED IN GROUNDS NO .1 TO 3 AND DISMISS THE SAID GROUNDS. 10. AS REGARDS THE ISSUE RAISED IN GROUND NOS. 4(B) & 4(C) RELATING TO THE ADDITION MADE BY THE AO AND DELETED BY THE LD. CIT( A) ON ACCOUNT OF INTEREST ACCRUED ON THE LOANS & ADVANCES, WHICH WER E CLASSIFIED AS NON- PERFORMING ASSETS, THE LD. REPRESENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF TH E ASSESSEE BY THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL RENDERED IN THE CASE OF ITO V. M/S. SHIVA SAHAKARI BANK NIYAMITHA VIDE ITS ORDER DATED 21.12.2012 PASSED IN ITA NO.257/BANG/2012 , WHEREIN A SIMILAR ISSUE WAS DECIDED BY THE TRIBUNAL BY RECORDING ITS FINDIN GS IN PARAS 8 & 9 AS UNDER:- 8. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THEIR RIVAL CONTENTIONS, WE FIND THAT UNDISPUTEDLY THE AS SESSEE IS IN THE BANKING BUSINESS AND IS ALSO GOVERNED BY THE BANKIN G REGULATIONS. WHETHER THE INTEREST ACCRUED ON NPAS WHICH ARE DOUBTFUL OF BEING RECOVERED, SHOULD BE RECOGNIZED A S ASSESSEES INCOME ON ACCRUAL OR ON RECEIPT BASIS IS THE QUESTI ON BEFORE US. LET US FIRST CONSIDER THE APPLICABILITY OF THE DECI SIONS RELIED UPON BY THE LEARNED DR. THE HONBLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD WAS CONSIDERING THE ISSUE OF ALLOWABILITY OF PROVISIONS OF NPA U/S 36(1)(VII) OF THE INCOME- TAX ACT WHILE THE CASE BEFORE US IS WITH REGARD TO THE ACCRUAL OF ITA NOS. 275/B/12, 789 & 798/BANG/2013 & CONNECTED APPEALS. PAGE 17 OF 37 INTEREST ON NPAS AND RECOGNITION OF THE SAME ON RE CEIPT BASIS AND NOT ON ACCRUAL BASIS. FURTHER, THE HONBLE SUPR EME COURT, WHILE HOLDING THAT THE RBI DIRECTIONS ARE ONLY NORM S AND ACT IN A DIFFERENT FIELD AS AGAINST THE INCOME-TAX ACT, HAS ALSO OBSERVED THAT COLLECTABILITY OF A RECEIPT IS DIFFERENT FROM ACCRUAL AND HENCE IN EACH CASE, THE ASSESSEE HAS TO PROVE THAT INTERE ST IS NOT RECOGNIZED OR TAKEN INTO ACCOUNT DUE TO UNCERTAINTY IN CALCULATION OF THE INCOME AND IT IS FOR THE AO ACCEPT THE CLAIM OF THE ASSESSEE UNDER THE IT ACT OR NOT TO ACCEPT IT, IN WHICH CASE THERE WILL BE ADDED- BACK EVEN UNDER THE REAL INCOME THEORY. IT W AS ALSO OBSERVED THAT THE INCOME-TAX ACT IS TAX ON REAL INC OME I.E THE PROFITS ARRIVED AT ON COMMERCIAL PRINCIPLES SUBJECT TO THE PROVISIONS OF ACT BUT A PROVISION FOR DOUBTFUL DEBT S IS ONLY A NOTIONAL EXPENSE WHICH IS A DEBIT TO THE P & L ACCO UNT WHICH IS EXPRESSLY DISALLOWED BY EXPLANATION TO SEC. 36(1)(V II) WHICH IF CLAIMED HAS GOT TO BE ADDED BACK TO THE TOTAL INCOM E OF THE ASSESSEE BECAUSE ACT SEEKS TO TAX THE REAL INCOME A ND FOR THIS PURPOSE WRITE OFF IS A CONDITION FOR ALLOWANCE. IT IS, THEREFORE, CLEAR THAT THE FACTS OF THE CASE BEFORE THE APEX CO URT ARE ENTIRELY ON A DIFFERENT SET OF FACTS AND HENCE ITS FINDING O N NON- ALLOWABILITY OF THE PROVISIONS OF NPAS CANNOT BE A PPLIED TO THE FACTS OF THE CASE BEFORE US BUT ITS OBSERVATION THA T FOR RECOGNIZING THE INTEREST INCOME ON NPAS, AO HAS TO CONSIDER TH E FACTS OF EACH CASE HAS RELEVANCE TO THE CASE BEFORE US. IN V IEW OF THE SAME, WE HOLD THAT THE DECISION OF THE HONBLE SUPR EME COURT IS ON A DIFFERENT SET OF FACTS. THE SECOND DECISION RE LIED UPON BY THE LEARNED DR IS THAT OF CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF INDIA EQUIPMENT LEASING LTD., WHICH IS ON THE SA ME SET OF FACTS AS BEFORE US, AS IT WAS HELD IN FAVOUR OF THE REVENUE. COMING TO THE DECISIONS RELIED UPON THE LEARNED AR, WE FIND THAT THE DECISION OF THE JURISDICTIONAL HIGH COURT IN TH E CASE OF CANFIN HOMES LTD., IS ALSO ON THE SAME SET FACTS AS BEFORE US AND IS BINDING ON THIS TRIBUNAL. IN THE SAID DECISION, AT PARA 8 OF THE ORDER, THE HONBLE HIGH COURT HAS HELD AS UNDER : THEREFORE, IT IS CLEAR IF AN ASSESSEE ADOPTS MERCA NTILE SYSTEM OF ACCOUNTING AND IN HIS ACCOUNTS HE SHOWS A PARTICULAR INCOME AS ACCRUING, WHETHER THAT AMOUNT IS REALLY ACCRUED OR NOT IS LIABLE TO BRING THE SAID I NCOME TO TAX. HIS ACCOUNTS SHOULD REFLECT TRUE AND CORRECT STATEMENT OF AFFAIRS. MERELY BECAUSE THE SAID AMOUN T; ACCRUED WAS NOT REALIZED IMMEDIATELY CANNOT BE A GR OUND ITA NOS. 275/B/12, 789 & 798/BANG/2013 & CONNECTED APPEALS. PAGE 18 OF 37 TO AVOID PAYMENT OF TAX. BUT, IF IN HIS ACCOUNT IT IS CLEARLY STATED THAT THOUGH A PARTICULAR INCOME IS DUE TO HI M BUT IS NOT POSSIBLE TO RECOVER THE SAME, THEN IT CANNOT BE SAID TO HAVE BEEN ACCRUED AND THE SAID AMOUNT CANNOT BE BROUGHT TO TAX. IN THE INSTANT CASE WE ARE CONCERNE D WITH A NON PERFORMING ASSET. AS THE DEFINITION OF NON PERFORMING ASSET SHOWS AN ASSET BECOMES NON PERFORM ING WHEN IT CEASES TO YIELD INCOME. NON PERFORMING ASSE T IS AN ASSET IN RESPECT OF WHICH INTEREST HAS REMAINED UNPAID AND HAS BECOME PAST DUE. ONCE A PARTICULAR ASSET IS SHOWN TO BE A NON PERFORMING ASSET THEN THE ASSUMPT ION IS IT IS NOT YIELDING ANY REVENUE. WHEN IT IS NOT Y IELDING ANY REVENUE, THE QUESTION OF SHOWING THAT REVENUE A ND PAYING TAX WOULD NOT ARISE. AS IS CLEAR FROM THE PO LICY GUIDELINES ISSUED BY THE NATIONAL HOUSING BANK, THE INCOME FROM NON PERFORMING ASSET SHOULD BE RECOGNIZ ED ONLY WHEN IT IS ACTUALLY RECEIVED. THAT IS WHAT THE TRIBUNAL HELD IN THE INSTANT CASE. THEREFORE, THE CONTENTION OF THE REVENUE THAT IN RESPECT OF NON PERFORMING ASSETS EVEN THOUGH IT DOES NOT YIELD ANY INCOME AS THE ASSESSEE HAS ADOPTED A MERCANTILE SYS TEM OF ACCOUNTING, HE HAS TO PAY TAX ON THE REVENUE WHI CH HAS ACCRUED NOTIONALLY IS WITHOUT ANY BASIS. IN THAT VI EW OF THE MATTER, THE SECOND SUBSTANTIAL QUESTION FRAMED IS ANSWERED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. 9. IN VIEW OF THE SAME, RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT (CITED SUPRA) , THE REVENUES APPEAL IS DISMISSED. 11. A SIMILAR ISSUE INVOLVING IDENTICAL FACTS THUS HAS ALREADY BEEN DECIDED BY THE TRIBUNAL IN THE CASE OF ITO V. M/S. SHIVA SAHAKARI BANK NIYAMITHA (SUPRA) FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CANFIN HOMES LTD. (2011) 5 TAXCORP (DT) 49593 AND RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE ITA NOS. 275/B/12, 789 & 798/BANG/2013 & CONNECTED APPEALS. PAGE 19 OF 37 IMPUGNED ORDER OF THE LD. CIT(APPEALS) DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF INTEREST ACCRUED ON LOANS & ADVANC ES CLASSIFIED AS NON- PERFORMING ASSETS. GROUNDS NO.4(B) & 4(C) OF THE R EVENUES APPEALS ARE ACCORDINGLY DISMISSED. ITA 534/B/13 & 797/B/13 12. NOW WE SHALL TAKE UP THE CROSS APPEALS FILED IN THE CASE OF SHRI BASAVESHWAR SAHAKARI BANK NIYAMITH FOR THE A.Y. 200 9-10, WHICH ARE DIRECTED AGAINST THE ORDER OF THE LD. CIT(APPEALS), BELGAUM DATED 20.2.2013. ITA 534/B/13 13. AS SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSE E, GROUND NO.1 RAISED IN THE APPEAL OF THE ASSESSEE IS GENERAL IN NATURE, SEEKING NO SPECIFIC DECISION FROM US. 14. AS REGARDS GROUNDS NO. 2 TO 4 OF THE ASSESSEES APPEAL, IT IS OBSERVED THAT THE COMMON ISSUE INVOLVED THEREIN, RE LATING TO DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE CIT(A) ON ACCOU NT OF INTEREST PAID BY THE ASSESSEE SOCIETY TO ITS MEMBERS ON THE DEPOSITS IN EXCESS OF RS.10,000 INVOKING THE PROVISIONS OF SECTION 40(A)( IA), HAS ALREADY BEEN ADJUDICATED IN FAVOUR OF THE ASSESSEE WHILE DEALING WITH THE GROUND NO.4(A) IN THE REVENUES APPEAL IN ITA NO.275/BANG/2012 HER EINABOVE AND FOR THE ITA NOS. 275/B/12, 789 & 798/BANG/2013 & CONNECTED APPEALS. PAGE 20 OF 37 REASONS STATED THEREIN, WE HOLD THIS ISSUE IN FAVOU R OF THE ASSESSEE. THUS, THESE GROUNDS OF THE ASSESSEE ARE ALLOWED. 15. THE ISSUE INVOLVED IN GROUND NOS.5 TO 7 OF THE ASSESSEES APPEAL RELATES TO DISALLOWANCE MADE BY THE AO AND CONFIRME D BY THE LD. CIT(A) ON ACCOUNT OF PROVISION FOR BAD AND DOUBTFUL DEBTS IN RESPECT OF RURAL ADVANCES. 16. AT THE TIME OF HEARING BEFORE US, THE LD. REPRE SENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THIS ISSUE IS SQUARELY COVER ED IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE BY THE DECISION OF THE TRIBUNAL RENDERED IN THE CASE OF SYNDICATE BANK V. DCIT, ITA NOS.668 & 669/B/10 , WHEREIN A SIMILAR ISSUE WAS DECIDED AGAINST THE ASSESSEE BY T HE TRIBUNAL FOR THE FOLLOWING REASONS GIVEN IN PARAS 48 TO 50 OF THE SA ID ORDER:- 48. AS FAR AS GR.NO.3 RAISED BY THE REVENUE IN THE ORIGINAL GROUNDS OF APPEAL IS CONCERNED, THE AO DISALLOWED T HE ENTIRE CLAIM FOR DEDUCTION OF RS.503,49,00,000/- ON THE FO LLOWING GROUND. A) THE PROVISION FOR BAD AND DOUBTFUL DEBTS IN RESPECT OF RURAL ADVANCES WAS CREATED BY DEBIT TO PROFIT AND LOSS AC COUNT OF ONLY A SUM OF RS.295,55,54,682 WHEREAS THE CLAIM FO R DEDUCTION ACTUALLY MADE U/S.36(1)(VIIA) OF THE ACT WAS A SUM OF RS.503,49,00,000/-. THE AO WAS OF THE VIEW THAT AS LAID DOWN BY THE HONBLE PUNJAB AND HARYANA HIGH CO URT IN THE CASE OF STATE BANK OF PATIALA VS. CIT 272 IT R 53 (P & H), CLAIM FOR DEDUCTION U/S.36(1)(VIIA) OF THE AC T CANNOT BE GREATER THAN THE AMOUNT DEBITED TO THE PROFIT AN D LOSS ACCOUNT AS PROVISION. THE AO THEREFORE PROPOSED TO ITA NOS. 275/B/12, 789 & 798/BANG/2013 & CONNECTED APPEALS. PAGE 21 OF 37 DISALLOW A SUM OF RS.207,93,45,318 (DIFFERENCE BETW EEN RS.503,49,00,000 AND RS.295,55,54,682). B) APART FROM THE ABOVE THE AO ALSO DISALLOWED THE SUM OF RS.295,55,54,682 OUT OF RS.503,49,00,000 CLAIMED AS DEDUCTION U/S.36(1)(VIIA) OF THE ACT. THE REASONS GIVEN FOR DISALLOWING CLAIM FOR DEDUCTION OF RS.295,55,54,682 /- U/S.36(1)(VIIA) OF THE ACT BY THE AO WAS THAT THERE WAS ALREADY CREDIT BALANCE IN THE PBDD AS ON 1.04.2005 BALANCE B/F WAS RS. 912,57,47,169. ACCORDING TO TH E AO 10% OF AARA CAN BE CREATED AS PROVISION EACH YEAR PROVIDED THERE IS NO BROUGHT FORWARD BALANCE AS ON THE FIRST DAY OF THE PREVIOUS YEAR IN THE PBDD ACCOUNT. 10% OF THE AARA AS ADMITTED BY THE ASSESSEE AS PER REVISED CEN SUS OF 2001 WAS 352.53 CRORES. ACCORDING TO THE AO EVEN I F BAD DEBTS WRITTEN OFF OF RS.179,21,88,992 IS REDUCED ST ILL THE BALANCE IN THE PBDD ACCOUNT WAS RS.733,35,58,177/-. SINCE THE BALANCE SO AVAILABLE IN PBDD ACCOUNT WAS MORE THAN 10% OF AARA, THE AO HELD THAT DEDUCTION ON THE BASIS OF NEW PROVISION OF RS.295,55,54,682/- CANNOT BE ALLOWED. IN THIS REGARD THE AO REFERRED TO THE CON TENTION OF THE ASSESSEE WHICH WAS TO THE EFFECT THAT IN EACH Y EAR THE ASSESSEE CAN CREATE 10% OF AARA AND CONCLUDED THAT THE EXPRESSION NOT EXCEEDING TEN PERCENT OF THE AGGREG ATE AVERAGE ADVANCES USED IN SEC.36(1)(VIIA) OF THE AC T CANNOT MEAN THAT PROVISION CAN BE CREATED EACH YEAR IRRESP ECTIVE OF THE AVAILABLE BALANCE IN THE PBDD ACCOUNT. THE AO ALSO REFERRED TO A SITUATION WHERE THERE IS NO CLAIM FOR BAD DEBTS IN A YEAR EVEN THEN THE ASSESSEE WILL BE ENTITLED T O CLAIM DEDUCTION BY WAY OF PBDD WHICH ACCORDING TO THE AO WOULD NOT BE THE INTENTION OF THE LEGISLATURE. THE AO THUS REFUSED TO ALLOW THE CLAIM OF THE ASSESSEE FOR DEDU CTION OF 10% OF AARA. 49. THE CIT(A) DELETED THE ADDITION MADE BY THE AO BY FOLLOWING THE DECISION OF THE DECISION OF THE ITAT IN ASSESSEES OWN CASE REPORTED IN 78 ITD 103 WHEREIN IT WAS HELD THAT ITA NOS. 275/B/12, 789 & 798/BANG/2013 & CONNECTED APPEALS. PAGE 22 OF 37 IRRESPECTIVE OF THE DEBIT TO THE PROFIT AND LOSS AC COUNT ON ACCOUNT OF PROVISION FOR BAD AND DOUBTFUL DEBTS (PBDD), AN ASSESSEE IS ENTITLED TO 10% OF THE AARA AS DEDUCTION U/S.36(1)( VIIA) OF THE ACT. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL IN THE AFORESAID DECISION WERE AS FOLLOWS: 20. THE LEARNED CIT HAS ALSO ACTED UNDER THE MISCONCEPTION THAT DEDUCTION UNDER CL. (VIIA) IS RE LATED TO THE ACTUAL AMOUNT OF PROVISION MADE BY THE ASSES SEE FOR BAD AND DOUBTFUL DEBTS. THE TRUE MEANING OF THE CLAUSE, AS INDICATED EARLIER, IS THAT ONCE A PROVIS ION FOR BAD AND DOUBTFUL DEBTS IS MADE BY A SCHEDULED BANK HAVING RURAL BRANCHES, THE ASSESSEE IS ENTITLED TO A DEDUCTION WHICH IS QUANTIFIED NOT WITH RESPECT TO T HE AMOUNT PROVIDED FOR IN THE ACCOUNTS, BUT WITH RESPE CT TO A CERTAIN PERCENTAGE OF THE TOTAL INCOME AND ALS O A CERTAIN PERCENTAGE OF THE AGGREGATE AVERAGE ADVANCE S MADE BY THE RURAL BRANCHES OF THE BANK. IN OTHER WORDS, THIS IS A SPECIFIC DEDUCTION GIVEN BY THE ST ATUTE IRRESPECTIVE OF THE QUANTUM PROVIDED BY THE ASSESSE E IN ITS ACCOUNTS TOWARDS PROVISION FOR BAD AND DOUBTFUL DEBTS. 50. IN THE APPEAL BEFORE THE TRIBUNAL, IN GROUND NO .3 OF THE ORIGINAL GROUNDS OF APPEAL, THE REVENUE HAS CHALLEN GED THE ORDER OF CIT(A) IN SO FAR AS IT RELATES TO THE DELETION O F A SUM OF RS.207,83,45,338 WHICH IS THE DIFFERENCE BETWEEN RS.503,49,00,000 AND RS.295,55,54,682. THE LEARNED DR RELIED ON THE DECISION OF THE ITAT BANGALORE BENCH IN THE CASE OF CANARA BANK IN ITA NO.58/BANG/2004 DATED 9.6.2006 . IN THE AFORESAID DECISION THIS BENCH CONSIDERED THE DECISI ON OF THE ITAT IN THE CASE OF SYNDICATE BANK 78 ITD 103(BANG) AND THE DECISION OF THE HONBLE PUNJAB AND HARYANA HIGH COU RT IN THE CASE OF STATE BANK OF PATIALA (SUPRA) AND HELD THAT THE DECISION RENDERED BY THE HONBLE HIGH COURT HAS TO BE FOLLOW ED. THE ABOVE DECISION IS THE DECISION BROUGHT TO OUR NOTIC E ON THE ISSUE RENDERED AFTER THE DECISION IN ASSESSEES OWN CASE. JUDICIAL DISCIPLINE DEMANDS THAT WE FOLLOW THE LATER DECISIO N WHICH HAS CONSIDERED BOTH THE DECISIONS ON THE ISSUE. WE THE REFORE RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF CANARA BANK ( SUPRA ), ALLOW GR.NO.3 RAISED BY THE REVENUE AND ITA NOS. 275/B/12, 789 & 798/BANG/2013 & CONNECTED APPEALS. PAGE 23 OF 37 HOLD THAT DISALLOWANCE TO THE EXTENT OF RS.207,83,4 5,338/- BE RESTORED. THUS GR.NO.3 RAISED BY THE REVENUE IS AL LOWED. 17. AS THE ISSUE INVOLVED IN THE PRESENT CASE AS WE LL AS ALL THE MATERIAL FACTS THERETO ARE SIMILAR TO THAT OF THE CASE OF SYNDICATE BANK (SUPRA) , WE RESPECTFULLY FOLLOW THE DECISION RENDERED BY THE TR IBUNAL IN THE SAID CASE AND UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(APPEAL S) CONFIRMING THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF ASSESSEE S CLAIM FOR DEDUCTION U/S. 36(1)(VIIA) ON ACCOUNT OF PROVISION FOR BAD AN D DOUBTFUL DEBTS IN RESPECT OF RURAL ADVANCES. GROUND NOS.5 TO 7 OF TH E ASSESSEES APPEAL ARE ACCORDINGLY DISMISSED. ITA 797/B/13 18. AS REGARD THE REVENUES APPEAL FOR A.Y. 2009-10 , IT IS OBSERVED THAT THE ISSUE RAISED IN GROUNDS (A) & (B) THEREOF RELAT ING TO THE ADDITION MADE TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF INTE REST ACCRUED ON LOANS & ADVANCES CLASSIFIED AS NON-PERFORMING ASSETS, HAS A LREADY BEEN ADJUDICATED IN FAVOUR OF THE ASSESSEE AND AGAINST T HE REVENUE, WHILE DEALING WITH THE GROUND NO.4(B) & (C) IN THE REVENU ES APPEAL IN ITA NO.275/BANG/2012 HEREINABOVE AND FOR THE REASONS ST ATED THEREIN, WE HOLD THIS ISSUE AGAINST THE REVENUE. THUS, THESE GROUND S OF THE REVENUE ARE DISMISSED. ITA NOS. 275/B/12, 789 & 798/BANG/2013 & CONNECTED APPEALS. PAGE 24 OF 37 19. AS REGARDS GROUNDS (C) TO (E) OF THE REVENUES APPEAL FOR THE A.Y. 2009-10, THE LD. REPRESENTATIVES OF BOTH THE SIDES AGREED THAT THE ISSUE INVOLVED THEREIN RELATING TO DISALLOWANCE ON ACCOUN T OF AMORTIZATION OF PREMIUM ON GOVT. SECURITIES IS ALSO SQUARELY COVERE D IN PRINCIPLE IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL REN DERED IN THE CASE OF ING VYSYA BANK LTD. VIDE ITS ORDER DATED 14.8.2013 PASSED IN ITA NO.443/B/2012 , WHEREIN A SIMILAR ISSUE WAS DECIDED BY THE TRIBUN AL IN FAVOUR OF THE ASSESSEE VIDE PARAS 10 & 11, WHICH RE AD AS UNDER:- 10. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE ISSU E RAISED BY THE ASSESSEE IN GROUND NO.2 IS NO LONGER RES INTEGRA AND HAS BEEN DECIDED BY THIS TRIBUNAL IN THE CASE OF M/S. SIR M.VISWESWARAYA COOPERATIVE BANK LTD. VS. JCIT ITA NO.1122/BANG/2010 FOR AY 07-08 ORDER DATED 11.5.201 2 . THE FOLLOWING WERE THE RELEVANT OBSERVATIONS OF THE TRIBUNAL: 03. LET US FIRST TAKE UP THE ISSUE RELATING TO AMO RTIZATION OF PREMIUM ON INVESTMENT IN GOVERNMENT SECURITIES. RE LEVANT GROUNDS READ AS UNDER : ' I) THE LEARNED COMMISSIONER (APPEALS) OUGHT TO H AVE APPRECIATED THAT THE APPELLANT HAS TO INVEST SURPLU S FUND IN GOVERNMENT SECURITIES AS PER RBI GUIDELINES AND THE PREMIUM PAID WHILE INVESTING IN GOVERNMENT SECURITI ES THAT ARE BOUGHT IN OPEN MARKET WOULD HAVE TO BE AMORTIZED TILL THE MATURITY DATE OF THE SECURITY AN D THUS THE PREMIUM WAS WRITTEN OFF WAS LIABLE TO BE ALLOWED AS DEPRECIATION OF VALUE OF SECURITIES ; II) THE LEARNED COMMISSIONER (A) OUGHT TO HAVE APPRECIATED THAT THE CLASSIFICATION OF SECURITIES F OR RBI PURPOSES WOULD NOT TAKE AWAY THE BENEFIT WHICH THE APPELLANT WAS ENTITLED TO AND HE OUGHT TO HAVE APPR ECIATED THAT THE CASE LAW REFERRED WERE DISTINGUISHABLE AND ITA NOS. 275/B/12, 789 & 798/BANG/2013 & CONNECTED APPEALS. PAGE 25 OF 37 ACCORDINGLY HE OUGHT TO HAVE ALLOWED THE DEDUCTION AS CLAIMED IN FULL.' 04. THE BRIEF FACTS PERTAINING TO THIS ISSUE ARE TH AT WHILE FRAMING THE ASSESSMENT U/S.143(3) OF THE IT ACT, FO R THE ASSESSMENT YEAR 2007-08, THE ASSESSING OFFICER NOTI CED THAT THE ASSESSEE HAS CLAIMED A SUM OF RS.26,40,237/- UN DER AMORTIZATION OF PREMIUM ON INVESTMENTS AND THE ASSE SSEE HAD NO EXPLANATION FOR THE CLAIM. HENCE, HE DISALLOWED THE SAME. WHILE DISALLOWING THE SAME, THE ASSESSING OFFICER F OLLOWED THE DECISION OF THE MADRAS HIGH COURT IN THE CASE O F TN POWER FINANCE AND INFRASTRUCTURE DEVELOPMENT CORPOR ATION LTD., V. JCIT (2006) 280 ITR 491. AGGRIEVED, THE A SSESSEE MOVED THE MATTER IN APPEAL BEFORE THE FIRST APPELLA TE AUTHORITY. 05. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) AFTER CONSIDERING THE SUBMISSIONS MADE BEFORE HIM A ND FOLLOWING THE DECISION OF THE MADRAS HIGH COURT CIT ED SUPRA, CAME TO THE CONCLUSION THAT THE HON'BLE MADRAS HIGH COURT HAS THAT MERELY BECAUSE THE RBI HAD DIRECTED THE AS SESSEE TO PROVIDE FOR NON-PERFORMING ASSETS, THAT DIRECTION C ANNOT OVERRIDE THE MANDATORY PROVISIONS OF THE INCOME-TAX ACT CONTAINED IN SECTION 36(1)(VIIA) WHICH STIPULATE FO R DEDUCTION NOT EXCEEDING 5 PER CENT OF THE TOTAL INCOME ONLY I N RESPECT OF THE PROVISION FOR BAD AND DOUBTFUL DEBTS WHICH ARE PREDOMINANTLY REVENUE IN NATURE OR TRADE RELATED AN D NOT FOR PROVISION FOR NON-PERFORMING ASSETS WHICH ARE OF PREDOMINANTLY CAPITAL NATURE. THUS, HE WAS OF THE VIEW THAT THE ASSESSEE WAS NOT ENTITLED TO DEDUCTION OF AMORT IZATION OF PREMIUM ON INVESTMENTS U/S.36(1)(VII). AGGRIEVED, THE ASSESSEE IS IN SECOND APPEAL BEFORE US WITH THIS IS SUE. 06. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) HAD FAILED TO SEE THE REASON THAT A ISSUE SIMILAR TO THAT OF THE PRESENT ONE HAD BEEN ALLOWED BY VARIOUS BENCHES OF THE HON'BLE TRIBUNALS , NAMELY: CATHOLIC SYRIAN BANK LTD., V. ACIT COCHIN (2010) 38 SOT 553 ; ITA NOS. 275/B/12, 789 & 798/BANG/2013 & CONNECTED APPEALS. PAGE 26 OF 37 KHANAPUR COOP.BANK LTD., V. ITO IN ITA.141/PNJ/2011 (PANAJI); CORPORATION BANK V. ACIT, M'LORE IN ITA.112/BANG/2008 (BANG) THE LEARNED COUNSEL ALSO PLACED RELIANCE ON BOARD'S INSTRUCTIONS NO.17 OF 2008(VII) AND PLEADED THAT TH E CLAIM OF THE ASSESSEE BE ALLOWED AS THE ASSESSEE HAD THE POW ERS TO DEBIT IN ITS P&L ACCOUNT A SUM OF RS.29,02 LAKHS OF AMORTIZATION OF PREMIUM. 07. PER CONTRA, THE LEARNED DR WAS UNABLE TO CONTRO VERT TO THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSE SSEE. 08. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED THE RELEVANT FACTS AND MATERIALS ON RECORD. WE HAVE ALSO CONSIDERED THE FINDINGS OF THE VARIOUS BENCHES OF THE TRIBUNAL, AS UNDER : (I) CATHOLIC SYRIAN BANK LTD V. ACIT (2010) 38 SO T 553 (COCH) : AN IDENTICAL ISSUE TO THAT OF THE SUBJECT MATTER UN DER CONSIDERATION HAD ARISEN BEFORE THE COCHIN BENCH. AFTER ANALYZING THE ISSUE IN DEPTH, THE BENCH HAS OBSERVED THAT WITH REGARD TO AMORTIZATION OF PREMIU M ON PURCHASE OF GOVERNMENT SECURITIES, IT WAS CLARIF IED THAT THIS WAS MADE AS PER THE PRUDENTIAL NORMS OF T HE RBI. FOLLOWING THE TRIBUNAL DECISION IN THE ASSESS EE'S OWN CASE AND CONSIDERING THAT THE ASSESSEE BANK IS FOLLOWING CONSISTENT AND REGULAR METHOD OF ACCOUNTI NG SYSTEM, THERE IS NO JUSTIFICATION IN INTERFERING WI TH THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) O N THIS ISSUE OF AMORTIZATION OF PREMIUM ON GOVERNMENT SECURITIES. UNITED COMMERCIAL BANK V. CIT (1999) 156 CTR (SC) 380 ; (1999) 240 ITR 355 (SC) AND SOUTH INDIAN BANK LTD., (ITA NO.126/COCH/2004, DATED.___ SEPT, 2005 FOLLOWED.' (II) THE KHANAPUR CO-OP BANK LTD V. ITO ITA NO.141/PNJ/2011, DATED.8.9.2011 : ITA NOS. 275/B/12, 789 & 798/BANG/2013 & CONNECTED APPEALS. PAGE 27 OF 37 THE HON'BLE BENCH OF PANAJI TRIBUNAL HAD RECORDE D ITS FINDINGS THAT '6. LIKEWISE, THE PREMIUM AMORTIZ ED AT RS.1,78,098/- IS CLAIMED TO BE IN RESPECT OF SECURITIES HELD UNDER THE CATEGORY 'HELD TO MATURIT Y'. THE ASSESSING OFFICER HAS TAKEN THEM AS LONG TERM INVESTMENTS. IN OTHER WORDS, HE HAS ACCEPTED THE ASSESSEE'S CLAIM THAT THE SECURITIES ARE 'HELD TO MATURITY'. THAT BEING SO AND HAVING REGARD TO THE CBDT INSTRUCTION NO.17 OF 2008 DATED.26.11.2008 AS REPRODUCED HEREIN ABOVE, THE PREMIUM PAID ON SUCH GOVERNMENT SECURITIES IS REQUIRED TO BE AMORTIZED O VER THE PERIOD REMAINING TO MATURITY .' (III) IN THE CASE OF CORPORATION BANK V. ACIT, M'LO RE IN ITA.112/BANG/2008 (BANG), FOR THE ASSESSMENT YEA R 2004-05, THE EARLIER BENCH HAD ALSO HELD A SIMILAR VIEW. IN THE LIGHT OF THE ABOVE DISCUSSION AND THE CASE L AWS DISCUSSED SUPRA, TAKING INTO ACCOUNT THE TOTALITY OF THE FACT S AND MATERIALS, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE IS ENTITLED TO CLAIM THIS DEDUCTION AND HENCE WE ALLOW THE GROUNDS OF THE ASSESSEE RELATING TO THIS ISSUE. 11. WE ARE OF THE VIEW THAT IN THE LIGHT OF THE DEC ISION ON THE ISSUE CONSIDERED BY THE TRIBUNAL, THE CLAIM MADE BY THE ASSESSEE HAS TO BE ALLOWED. ACCORDINGLY, THE AO IS DIRECTE D TO ALLOW THE CLAIM OF THE ASSESSEE FOR DEDUCTION. 20. AS POINTED OUT BY THE LD. DR, THE DECISION OF T HE TRIBUNAL RENDERED IN THE CASE OF ING VYSYA BANK LTD. (SUPRA) IS APPLICABLE IN RESPECT OF SECURITIES HELD TO MATURITY BY THE ASSESSEE. HE HAS CONTENDED THAT IT IS, HOWEVER, NOT CLEAR AS TO WHETHER THE RELEVANT SECUR ITIES IN THE PRESENT CASE ARE HELD TO MATURITY BY THE ASSESSEE AND THE AO M AY THEREFORE BE DIRECTED TO VERIFY THIS ASPECT. WE FIND MERIT IN T HIS CONTENTION OF THE LD. DR. ITA NOS. 275/B/12, 789 & 798/BANG/2013 & CONNECTED APPEALS. PAGE 28 OF 37 ACCORDINGLY, THE MATTER IS RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR THE LIMITED PURPOSE OF VERIFYING AS TO WHETHER THE RELEVANT SECURITIES IN THE PRESENT CASE ARE HELD TO MATURITY BY THE ASSESSEE AND ACCORDINGLY TO ALLOW RELIEF TO THE ASSESSEE ON SUCH VERIFICATION, KEEPING IN VIEW THE DECISION OF THE TRIBUNAL IN THE CASE OF ING VYSYA BANK LTD. (SUPRA) . GROUNDS (C) TO (E) OF THE REVENUES APPEAL ARE ACCO RDINGLY DISMISSED, SUBJECT TO THIS VERIFICATION BY THE AO. ITA 1774/B/13 21. NOW WE SHALL TAKE UP THE APPEAL OF THE ASSESSEE FOR THE A.Y. 2010- 11 WHICH IS DIRECTED AGAINST THE ORDER OF THE LD. C IT(APPEALS), BELGAUM DATED 25.11.2013. 22. AS SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSE E, GROUND NO.1 RAISED BY THE ASSESSEE IN THIS APPEAL IS GENERAL IN NATURE, SEEKING NO SPECIFIC DECISION FROM US. 23. AS REGARDS GROUNDS NO. 2 TO 4 OF THE ASSESSEES APPEAL, IT IS OBSERVED THAT THE COMMON ISSUE INVOLVED THEREIN, RE LATING TO DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE CIT(A) ON ACCOU NT OF INTEREST PAID BY THE ASSESSEE SOCIETY TO ITS MEMBERS ON THE DEPOSITS IN EXCESS OF RS.10,000 INVOKING THE PROVISIONS OF SECTION 40(A)( IA), HAS ALREADY BEEN ADJUDICATED IN FAVOUR OF THE ASSESSEE WHILE DEALING WITH THE GROUND NO.4(A) ITA NOS. 275/B/12, 789 & 798/BANG/2013 & CONNECTED APPEALS. PAGE 29 OF 37 IN THE REVENUES APPEAL IN ITA NO.275/BANG/2012 HER EINABOVE AND FOR THE REASONS STATED THEREIN, WE HOLD THIS ISSUE IN FAVOU R OF THE ASSESSEE. THUS, THESE GROUNDS OF THE ASSESSEE ARE ALLOWED. 24. AS REGARDS GROUNDS NO.5 TO 7 OF THE ASSESSEES APPEAL, THE LD. REPRESENTATIVES OF BOTH THE SIDES AGREED THAT THE I SSUE INVOLVED THEREIN RELATING TO DISALLOWANCE OF RS.7,77,758 MADE BY THE AO AND CONFIRMED BY THE LD. CIT(A) ON ACCOUNT OF PAYMENT BY THE ASSESSE E TOWARDS UNAPPROVED GRATUITY FUND IS ALSO SQUARELY COVERED BY THE DECIS ION OF THE TRIBUNAL RENDERED IN THE CASE OF BILAGI PATTANA SAHAKARI BANK NIYAMIT VIDE ITS ORDER DATED 24.5.2013 PASSED IN ITA NO.1073/BANG/2012 , WHEREIN A SIMILAR ISSUE WAS DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE FOR THE FOLLOWING REASONS GIVEN IN PARA 4.4 (INCLUDING PARA S 4.4.1 TO 4.4.3) THEREOF: 4.4. WE SHALL NOW PROCEED TO ANALYSE THE ISSUE ON MERITS AS TO WHETHER THE CIT WAS JUSTIFIED IN COMING TO A CONCLU SION THAT THE CONTRIBUTION TO UNAPPROVED GRATUITY FUND WAS NOT AN ALLOWABLE DEDUCTION OR OTHERWISE. 4.4.1. AT THE OUTSET, WE WOULD LIKE TO POINT OUT TH AT THERE WAS AN OCCASION FOR THE HONBLE JURISDICTIONAL HIGH COURT TO CONSIDER ALMOST AN IDENTICAL ISSUE TO THAT OF THE PRESENT IS SUE UNDER DISPUTE IN THE CASE OF CHIEF COMMISSIONER (ADMN) AND ANOTHE R V. KARNATAKA ELECTRICITY BOARD REPORTED IN 197 ITR 48 (KAR). AFTER TAKING COGNIZANCE OF RIVAL SUBMISSIONS, THE HONBLE COURT HAD OBSERVED THAT: - THE CONCEPT OF COMMERCIAL EXPEDIENCE IS NOT FOREIGN TO A STATUTORY CORPORATION WHICH IS OBLIGED TO CARRY ON AS VENTURE WHICH ANY OTHER COMMERCIAL ENTERPRISE CAN ALSO CARRY ON. WHERE ITA NOS. 275/B/12, 789 & 798/BANG/2013 & CONNECTED APPEALS. PAGE 30 OF 37 AN ASSESSEE, A STATUTORY CORPORATION, WAS OBLIGED TO PAY PENSION TO ITS EMPLOYEES UNDER THE RULES GOVERNING IT AND PROVISION WAS MADE BY IT TOWARDS THE PENSION FUND THOUGH NO APPROVAL PENSION FUND WAS IN EXISTENCE AND THE CLAIM FOR DEDUCTION DID NOT FALL UNDER SECTION 36(1)(IV) OF THE INCOME-TAX ACT, 1961, SUCH PROVISION IS AN EXPENDITURE LAID OUT WHOLLY AND EXCLUSIVELY FOR PURPOSES OF BUSINESS AND IS DEDUCTIBLE UNDER SECTION 37 OF THE ACT. 4.4.2. FURTHER, IN A RECENT RULING, THE HONBLE PUN JAB AND HARYANA HIGH COURT IN THE CASE OF CIT V. PUNJAB FINANCIAL C ORPORATION LIMITED REPORTED IN (2007) 295 ITR 510 (P&H) HAD HE LD THUS:- (III) THAT IT WAS NOT DISPUTED THAT THE ASSESSEE HAD CONTRIBUTED TO THE PROVIDENT FUND FOR ITS EMPLOYEES UNDER THE PROVIDENT FUNDS ACT, 1925. FURTHER, IT COULD NOT BE DISPUTED THAT THE EXPENSE WAS MADE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND WAS NEITHER CAPITAL IN NATURE NOR PERSONAL. SECTION 36(1)(IV) OF THE ACT DOES NOT SPECIFICALLY DEBAR DEDUCTION ON ACCOUNT OF CONTRIBUTION MADE UNDER THE PROVIDENT FUNDS ACT, 1925. IT ONLY TALKS ABOUT GRANT OF DEDUCTION IN RESPECT OF RECOGNISED PROVIDENT FUND. THE CONTRIBUTION TO THE UNRECOGNISED PROVIDENT FUND WAS DEDUCTIBLE. 4.4.3. IN CONFORMITY WITH THE JUDICIAL VIEWS (SUPRA ), WE ARE OF THE VIEW THAT THE CIT WAS NOT JUSTIFIED IN DISALLOWING A SUM OF RS.3,11,000/- AND ADDING BACK THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. IN ESSENCE, THE ASSESSMENT ORDER PASSED U /S 143 (3) OF THE ACT DATED 29.11.2010 BY THE ASSESSING OFFICER I S UPHELD / RESTORED. IT IS ORDERED ACCORDINGLY. 25. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-O RDINATE BENCH OF THE TRIBUNAL IN THE CASE OF BILAGI PATTANA SAHAKARI BANK NIYAMIT (SUPRA) , WE DELETE THE DISALLOWANCE MADE BY THE AO AND CONFI RMED BY THE LD. ITA NOS. 275/B/12, 789 & 798/BANG/2013 & CONNECTED APPEALS. PAGE 31 OF 37 CIT(APPEALS) ON ACCOUNT OF PAYMENT MADE BY THE ASSE SSEE TO UNAPPROVED GRATUITY FUND AND ALLOW GROUND NOS.5 TO 7 OF THE AS SESSEES APPEAL. ITA NOS.798/B/2013 & 802/B/2013 26. NOW WE SHALL TAKE UP THE CROSS APPEALS IN THE C ASE OF THE SINDGI URBAN CO-OP. BANK LTD., FOR THE A.Y. 2009-10, WHICH ARE DIRECTED AGAINST THE ORDER OF THE CIT(APPEALS), BELGAUM DATED 20.2.2 013. ITA 802/B/13 (ASSESSEES APPEAL) 27. AS SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSE E, GROUND NO.1 RAISED IN THE APPEAL OF THE ASSESSEE IS GENERAL IN NATURE, SEEKING NO SPECIFIC DECISION FROM US. 28. AS REGARDS GROUNDS NO. 2 TO 4 OF THE ASSESSEES APPEAL, IT IS OBSERVED THAT THE COMMON ISSUE INVOLVED THEREIN, RE LATING TO DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE CIT(A) ON ACCOU NT OF INTEREST PAID BY THE ASSESSEE SOCIETY TO ITS MEMBERS ON THE DEPOSITS IN EXCESS OF RS.10,000 INVOKING THE PROVISIONS OF SECTION 40(A)( IA), HAS ALREADY BEEN ADJUDICATED IN FAVOUR OF THE ASSESSEE WHILE DEALING WITH THE GROUND NO.4(A) IN THE REVENUES APPEAL IN ITA NO.275/BANG/2012 HER EINABOVE AND FOR THE REASONS STATED THEREIN, WE HOLD THIS ISSUE IN FAVOU R OF THE ASSESSEE. THUS, THESE GROUNDS OF THE ASSESSEE ARE ALLOWED. ITA NOS. 275/B/12, 789 & 798/BANG/2013 & CONNECTED APPEALS. PAGE 32 OF 37 29. AS REGARDS GROUNDS NO. 5 TO 7, IT IS OBSERVED T HAT THE ISSUE INVOLVED IN THE PRESENT CASE RELATING TO DISALLOWANCE MADE B Y THE AO AND CONFIRMED BY THE LD. CIT(A) ON ACCOUNT OF PROVISIONS MADE BY THE ASSESSEE FOR BAD AND DOUBTFUL DEBTS IN RESPECT OF RURAL ADVANCES IS SIMILAR TO THE ONE INVOLVED IN GROUNDS NO.5 TO 7 IN THE CASE OF SRI BA SVESHWAR SAHAKARI BANK NIYAMITHA (ITA NO.534/BANG/2013) WHICH HAS BEEN DEA LT WITH AND ADJUDICATED UPON HEREINABOVE IN THE PRECEDING PARAG RAPHS, WHEREIN THE ISSUE IS HELD AGAINST THE ASSESSEE. FOR THE REASONS STATED THEREIN, WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(APPEALS) C ONFIRMING THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF ASSESSEE S CLAIM FOR DEDUCTION U/S. 36(1)(VIIA) ON ACCOUNT OF PROVISION FOR BAD AN D DOUBTFUL DEBTS IN RESPECT OF RURAL ADVANCES. GROUND NOS.5 TO 7 OF TH E ASSESSEES APPEAL ARE ACCORDINGLY DISMISSED. ITA 798/B/2013 (REVENUES APPEAL) 30. AS REGARD THE REVENUES APPEAL FOR A.Y. 2009-10 , IT IS OBSERVED THAT THE ISSUE RAISED IN GROUNDS (A) & (B) THEREOF RELAT ING TO THE ADDITION MADE TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF INTE REST ACCRUED ON LOANS & ADVANCES CLASSIFIED AS NON-PERFORMING ASSETS, HAS A LREADY BEEN ADJUDICATED IN FAVOUR OF THE ASSESSEE AND AGAINST T HE REVENUE, WHILE DEALING WITH THE GROUND NO.4(B) & (C) IN THE REVENU ES APPEAL IN ITA NO.275/BANG/2012 HEREINABOVE AND FOR THE REASONS ST ATED THEREIN, WE HOLD ITA NOS. 275/B/12, 789 & 798/BANG/2013 & CONNECTED APPEALS. PAGE 33 OF 37 THIS ISSUE AGAINST THE REVENUE. THUS, THESE GROUND S OF THE REVENUE ARE DISMISSED. 31. AS FAR AS GROUNDS NO. (C) TO (E) ARE CONCERNED, SIMILAR ISSUE HAS BEEN ADJUDICATED UPON HEREINABOVE IN THE CASE OF SR I BASVESHWAR SAHAKARI BANK NIYAMITHA VIDE GROUND NOS. (C) TO (E) RAISED THEREIN AND THE MATTER HAS BEEN RESTORED TO THE FILE OF THE ASSESSI NG OFFICER FOR THE LIMITED PURPOSE OF VERIFYING AS TO WHETHER THE RELEVANT SEC URITIES IN THE PRESENT CASE ARE HELD TO MATURITY BY THE ASSESSEE AND ACC ORDINGLY ALLOW RELIEF TO THE ASSESSEE ON SUCH VERIFICATION, KEEPING IN VIEW THE DECISION OF THE TRIBUNAL IN THE CASE OF ING VYSYA BANK LTD. (SUPRA) . FOR THE REASONS STATED THEREIN, GROUNDS (C) TO (E) OF THE REVENUES APPEAL ARE ALSO DISMISSED, SUBJECT TO THE SAID VERIFICATION BY THE AO. ITA 1573/BANG/2013 (ASSESSEES APPEAL) 32. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(APPEALS), BELGAUM DATED 17.9.2013 FOR THE A.Y. 2010-11. 33. AS SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSE E, GROUND NO.1 RAISED IN THE APPEAL OF THE ASSESSEE IS GENERAL IN NATURE, SEEKING NO SPECIFIC DECISION FROM US. 34. AS REGARDS GROUNDS NO. 2 TO 4 OF THE ASSESSEES APPEAL, IT IS OBSERVED THAT THE COMMON ISSUE INVOLVED THEREIN, RE LATING TO DISALLOWANCE ITA NOS. 275/B/12, 789 & 798/BANG/2013 & CONNECTED APPEALS. PAGE 34 OF 37 MADE BY THE AO AND CONFIRMED BY THE CIT(A) ON ACCOU NT OF INTEREST PAID BY THE ASSESSEE SOCIETY TO ITS MEMBERS ON THE DEPOSITS IN EXCESS OF RS.10,000 INVOKING THE PROVISIONS OF SECTION 40(A)( IA), HAS ALREADY BEEN ADJUDICATED IN FAVOUR OF THE ASSESSEE WHILE DEALING WITH THE GROUND NO.4(A) IN THE REVENUES APPEAL IN ITA NO.275/BANG/2012 HER EINABOVE AND FOR THE REASONS STATED THEREIN, WE HOLD THIS ISSUE IN FAVOU R OF THE ASSESSEE. THUS, THESE GROUNDS OF THE ASSESSEE ARE ALLOWED. 35. AS REGARDS GROUNDS NO. 5 TO 7, IT IS OBSERVED T HAT THE ISSUE INVOLVED IN THE PRESENT CASE RELATING TO DISALLOWANCE MADE B Y THE AO AND CONFIRMED BY THE LD. CIT(A) ON ACCOUNT OF PROVISIONS MADE BY THE ASSESSEE FOR BAD AND DOUBTFUL DEBTS IN RESPECT OF RURAL ADVANCES IS SIMILAR TO THE ONE INVOLVED IN GROUNDS NO.5 TO 7 IN THE CASE OF SRI BA SVESHWAR SAHAKARI BANK NIYAMITHA (ITA NO.534/BANG/2013) WHICH HAS BEEN DEA LT WITH AND ADJUDICATED UPON HEREINABOVE IN THE PRECEDING PARAG RAPHS, WHEREIN THE ISSUE IS HELD AGAINST THE ASSESSEE. FOR THE REASONS STATED THEREIN, WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(APPEALS) C ONFIRMING THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF ASSESSEE S CLAIM FOR DEDUCTION U/S. 36(1)(VIIA) ON ACCOUNT OF PROVISION FOR BAD AN D DOUBTFUL DEBTS IN RESPECT OF RURAL ADVANCES. GROUND NOS.5 TO 7 OF TH E ASSESSEES APPEAL ARE ACCORDINGLY DISMISSED. 36. GROUND NOS. 8 TO 11 RAISED BY THE ASSESSEE IS S IMILAR TO GROUND NOS.5 TO 7 RAISED IN ITA NO.1774/B/13 IN THE CASE O F SHRI BASVESHWAR ITA NOS. 275/B/12, 789 & 798/BANG/2013 & CONNECTED APPEALS. PAGE 35 OF 37 SAHAKARI BANK NIYAMITHA FOR THE A.Y. 2010-11, WHERE IN THE ISSUE HAS BEEN ADJUDICATED IN FAVOUR OF THE ASSESSEE. FOR SIMILAR REASONS STATED THEREIN, WE DELETE THE DISALLOWANCE MADE BY THE LOWER AUTHOR ITIES ON ACCOUNT OF PAYMENT MADE BY THE ASSESSEE TO UNAPPROVED GRATUITY FUND AND ALLOW GROUND NOS.8 TO 11 OF THE ASSESSEES APPEAL. ITA NOS. 799/B/13 & 789/B/13 37. NOW WE SHALL TAKE UP THE CROSS APPEALS IN THE C ASE OF SHRI SIDDESHWAR CO-OP. BANK LTD. FOR THE A.Y. 2009-10, W HICH ARE DIRECTED AGAINST THE ORDER OF THE CIT(APPEALS), BELGAUM DATE D 20.2.2013. ITA 799/B/13 (REVENUES APPEAL) 38. AS REGARDS GROUNDS (A) & (B) RAISED IN THIS APP EAL BY THE REVENUE, IT IS OBSERVED THAT THE ISSUE INVOLVED THEREIN RELATIN G TO ADDITION OF ACCRUED INTEREST CLASSIFIED AS NON-PERFORMING ASSETS HAS AL READY BEEN ADJUDICATED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE, WHILE DEALING WITH THE GROUND NO.4(B) & (C) IN THE REVENUES APPEAL IN ITA NO.275/BANG/2012 HEREINABOVE AND FOR THE REASONS STATED THEREIN, WE HOLD THIS ISSUE AGAINST THE REVENUE. THUS, THESE GROUNDS OF THE REVENUE AR E DISMISSED. ITA NOS. 275/B/12, 789 & 798/BANG/2013 & CONNECTED APPEALS. PAGE 36 OF 37 ITA 789/B/13 (ASSESSEES APPEAL) 39. AS SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSE E, GROUND NO.1 RAISED IN THE APPEAL OF THE ASSESSEE IS GENERAL IN NATURE, SEEKING NO SPECIFIC DECISION FROM US. 40. AS REGARDS GROUNDS NO. 2 TO 4 OF THE ASSESSEES APPEAL, IT IS OBSERVED THAT THE COMMON ISSUE INVOLVED THEREIN, RE LATING TO DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE CIT(A) ON ACCOU NT OF INTEREST PAID BY THE ASSESSEE SOCIETY TO ITS MEMBERS ON THE DEPOSITS IN EXCESS OF RS.10,000 INVOKING THE PROVISIONS OF SECTION 40(A)( IA), HAS ALREADY BEEN ADJUDICATED IN FAVOUR OF THE ASSESSEE WHILE DEALING WITH THE GROUND NO.4(A) IN THE REVENUES APPEAL IN ITA NO.275/BANG/2012 HER EINABOVE AND FOR THE REASONS STATED THEREIN, WE HOLD THIS ISSUE IN FAVOU R OF THE ASSESSEE. THUS, THESE GROUNDS OF THE ASSESSEE ARE ALLOWED. 41. AS REGARDS GROUNDS NO. 5 TO 7, THE ISSUE INVOLV ED IN THE PRESENT CASE AS WELL AS ALL THE MATERIAL FACTS THERETO ARE SIMILAR TO GROUND NOS.5 TO 7 RAISED IN ITA NO.1774/B/13 IN THE CASE OF SHRI BA SVESHWAR SAHAKARI BANK NIYAMITHA FOR THE A.Y. 2010-11, WHEREIN THE IS SUE HAS BEEN ADJUDICATED IN FAVOUR OF THE ASSESSEE. FOR SIMILAR REASONS STATED THEREIN, WE DELETE THE DISALLOWANCE MADE BY THE LOWER AUTHOR ITIES ON ACCOUNT OF PAYMENT MADE BY THE ASSESSEE TO UNAPPROVED GRATUITY FUND AND ALLOW GROUND NOS.5 TO 7 OF THE ASSESSEES APPEAL. ITA NOS. 275/B/12, 789 & 798/BANG/2013 & CONNECTED APPEALS. PAGE 37 OF 37 42. IN THE RESULT - THE ASSESSEES APPEALS BEING ITA NO.1774/BANG/201 3 & 789/BANG/2013 ARE ALLOWED; - THE ASSESSEES APPEALS BEING ITA NO.534/BANG/2013 , 1573/BANG/2013 & 802/BANG/2013 ARE PARTLY ALLOWED; - WHEREAS ALL THE FOUR APPEALS OF THE REVENUE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 27 TH DAY OF JUNE , 2014 . SD/- SD/- ( P. MADHAVI DEVI ) ( PRAMOD M. JAGTAP) JUDICIAL MEMBER ACCOUNT ANT MEMBER BANGALORE, DATED, THE 27 TH JUNE , 2014 . /D S/ COPY TO: 1. APPELLANTS 2. RESPONDENTS 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR/ SENIOR PRIVATE SECRETARY ITAT, BANGALORE.