Pune District Central Co.op. Bank Ltd.,, Pune v. Additional Commissioner of Income-tax,,

ITA 1796/PUN/2013 | 2009-2010
Pronouncement Date: 28-11-2014 | Result: Allowed

Appeal Details

RSA Number 179624514 RSA 2013
Assessee PAN AAAAP7372D
Bench Pune
Appeal Number ITA 1796/PUN/2013
Duration Of Justice 1 year(s) 1 month(s) 24 day(s)
Appellant Pune District Central Co.op. Bank Ltd.,, Pune
Respondent Additional Commissioner of Income-tax,,
Appeal Type Income Tax Appeal
Pronouncement Date 28-11-2014
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 28-11-2014
Date Of Final Hearing 23-09-2014
Next Hearing Date 23-09-2014
Assessment Year 2009-2010
Appeal Filed On 04-10-2013
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A PUNE BEFORE SHRI G.S. PANNU ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA JUDICIAL MEMBER ITA NO.1796/PN/2013 (ASSESSMENT YEAR: 2009-10) PUNE DISTRICT CENTRAL CO-OPERATIVE BANK LTD. 4B B.J. ROAD SADHU VASWANI CHOWK PUNE 411001 PAN: AAAAP7372D . APPELLANT VS. THE ADDL. COMMISSIONER OF INCOME TAX RANGE 1 PUNE . RESPONDENT ITA NO.2085/PN/2013 (ASSESSMENT YEAR: 2009-10) THE ADDL. COMMISSIONER OF INCOME TAX RANGE 1 PUNE . APPELLANT VS. PUNE DISTRICT CENTRAL CO-OPERATIVE BANK LTD. 4B B.J. ROAD SADHU VASWANI CHOWK PUNE 411001 PAN: AAAAP7372D . RESPONDENT ASSESSEE BY : S/SHRI M.K.KULKARNI AND D.V. KOTWAL REVENUE BY : SMT. M.S. VERMA CIT DATE OF HEARING : 09-10-2014 DATE OF PRONOUNCEMENT : 28-11-2014 ORDER PER SUSHMA CHOWLA JM: THE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENU E ARE AGAINST THE ORDER OF CIT(A)-I PUNE DATED 30.08.2013 RELA TING TO ITA NO.1796/PN/2013 ITA NO.2085/PN/2013 PUNE DIST. CENTRAL CO.OP BANK LTD. 2 ASSESSMENT YEAR 2009-10 AGAINST ORDER PASSED UNDER S ECTION 143(3) OF THE INCOME-TAX ACT. 2. THE CROSS APPEALS OF THE ASSESSEE ARE BEING DISPOSE D OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3. THE ASSESSEE IN ITA NO.1796/PN/2013 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE MADE BY TH E A.O. OF RS.1 94 73 302/- CLAIMED AS AMORTIZATION OF PREMIUM EXPENDITURE FOR HTM SECURITIES BY PAYMENT OF PREMIU M OVER AND ABOVE THE FACE VALUE OF SUCH SECURITIES. THE CIT(A) W AS NOT CORRECT IN CONFIRMING DISALLOWANCE OF SUCH AMORTIZATIO N EXPENDITURE AS VARIOUS JUDICIAL PRECEDENTS OF HIGH CO URT AND TRIBUNALS HAVE HELD IT TO BE AN ALLOWABLE EXPENDITURE. IT BE HELD ACCORDINGLY. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LD CIT(A) WAS NOT CORRECT IN HIS DECISION TO DISALLOW SUCH AMORTIZATION EXPENDITURE HOLDING THAT THERE WAS NO PR OVISION IN THE I. T. ACT 1961 TO ALLOW AMORTIZATION PREMIUM AS DED UCTION EITHER IN THE YEAR OF ACQUISITION OF HTM SECURITIES OR OVER THE PERIOD OF MATURITY ON DEFERRED BASIS. THIS ALSO RUNS T O CONTRARY CL. (VII) OF INSTRUCTION NO.17/2008 DT. 26-11-2008 OF CBDT . THE DEDUCTION CLAIMED BE ALLOWED. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION M ADE BY THE A.O. OF RS.40 30 000/- HOLDING IT AS PROVISION FOR INVESTM ENT DEPRECIATION FUND. IN VIEW OF JUDICIAL PRECEDENTS AVA ILABLE ON THE SUBJECT THE SAME CANNOT BE DISALLOWED. IN THE CIRCUMST ANCES AND IN VIEW OF THE LEGAL INTERPRETATIONS MADE THE CLAIM BE ALLOWED TO THE APPELLANT-BANK. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LD. (A) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE MADE BY A.O. OF RS.10 00 000/- CALLING IT AS PROVISION SIMPLICTER AS CONTIN GENT LIABILITY. THE INVESTMENT FLUCTUATION FUND IS CREATED TO PROTECT THE WILD FLUCTUATIONS IN MARKET VALUE OF HTM SECURITIE S WHICH ARE MADE AS COMPULSORY SLR INVESTMENTS AND WHICH ARE ALS O TREATED AS STOCK-IN-TRADE OF THE BANK. SINCE THIS IS F OR PROTECTION OF SLR SECURITIES IT CANNOT BE CALLED A CON TINGENT PROVISION AND IT BE ALLOWED AS DEDUCTION ACCORDINGLY. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLO WANCE MADE BY A.O OF RS.42 15 00 000/-. THE LD. CIT(A) DID NOT APPRECIATE THE LEGAL POSITION CORRECTLY PLACED BEFORE HIM THAT S UCH CLAIM BECAME NECESSARY IN VIEW OF CENTRAL GOVT. DEBT WAIV ER SCHEME ITA NO.1796/PN/2013 ITA NO.2085/PN/2013 PUNE DIST. CENTRAL CO.OP BANK LTD. 3 WHICH WAS TO BE IMPLEMENTED BY THE STATE GOVT. WHIC H AMOUNTED IN FACT THE CLAIM OF DEDUCTION OF NPA INTE REST RECOGNITION. THE APPELLANT BANK WAS OBLIGED TO HONO UR THE SCHEME WHICH WAS ALSO SUPPORTED BY RESERVE BANK OF INDIA. THE CLAIM BE ALLOWED ACCORDINGLY. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE APPELLANT BANK HAS OFFERED SUCH INTEREST WHICH WAS C LAIMED AS DEDUCTION AT RS.42 15 00 000/- AS AND WHEN IT WAS REIMBURS ED TO THE APPELLANT BANK BY THE STATE GOVERNMENT. THIS F ACT WAS EXPLAINED TO LD. CIT (A) THAT FOR THIS PURPOSE THE AP PELLANT BANK HAS CHANGED ITS ACCOUNTING METHOD REGULARLY EMPLOYED BY IT. IT WAS ALSO ELABORATELY EXPLAINED THAT SUCH CHANGED ACC OUNTING METHOD HAS BEEN CONSISTENTLY FOLLOWED SUBSEQUENTLY. IN VIEW OF THIS NO DISALLOWANCE WAS CALLED FOR. THE SAME BE DELETED. 7. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE ADDITION DUE TO DISALLOWANCE OF RS.42 15 00 000/- HAS EFFECTIVELY RESULTED INTO ASSESSMENT OF THE SAME INC OME TWICE. THE ENTIRE AMOUNT OF RS.42 15 00 000/- WAS OFFERED FOR T AXATION IN SUBSEQUENT YEARS AS AND WHEN THE SAME WAS REIMBUR SED BY THE GOVERNMENT AND RECEIVED BY THE BANK. THE DISALLOWA NCE OF THE SAID AMOUNT ALSO RUNS CONTRARY TO THE 'REAL INCOM E THEORY'. THE DISALLOWANCE ON THIS COUNT ALSO IS NOT SUSTAINABLE. IT BE QUASHED. 8. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LD. CIT(A) WAS NOT JUSTIFIED IN NOT CONSIDERING THE ORAL SUBMISSIONS MADE BEFORE HIM REGARDING THE DISALLOWANCE OF DEPRECIA TION ON DIFFERENT ASSETS OF RS.66 66 960/- THOUGH NO SPECIFIC G ROUND OF APPEAL WAS RAISED BEFORE HIM IN APPEAL MEMO F. NO. 35 . THE GRANT OF DEPRECIATION AT CORRECT RATES IS MANDATORY E VEN IF NOT CLAIMED BY THE ASSESSEE. THE MATTER BE RESTORED TO THE FILE OF THE A.O FOR CORRECT WORKING OF THE SAME FOR ALLOWANC E IN THE INTEREST OF JUSTICE. 9. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEVY OF INTEREST U/S 234A 234B AND 234C IS NOT JUSTIFIE D. THE LEVY OF INTEREST BE QUASHED. 10. THE APPELLANT CRAVES/LEAVE TO ADD AMEND OR ALTER A NY OF THE ABOVE GROUNDS OF APPEAL. 4. THE REVENUE IN ITA NO.2085/PN/2013 HAS RAISED THE FO LLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE LD. COMMISSIONER OF INCOME-TAX (APPE ALS) IS CONTRARY TO LAW AND TO THE FACTS AND CIRCUMSTANCES OF T HE CASE. 2. THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) GROSSLY ERRED IN DELETING THE ADDITION OF RS.1 31 60 000/- MADE BY THE ASSESSIN G OFFICER BY WAY OF DISALLOWING THE PROVISION MADE BY THE A SSESSEE FOR CONTRIBUTION TO THE RAJYA SWARGA SEWA NIDHI INSTEAD O F CONFIRMING THE SAID ADDITION. ITA NO.1796/PN/2013 ITA NO.2085/PN/2013 PUNE DIST. CENTRAL CO.OP BANK LTD. 4 3. THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) GROSSLY E RRED IN FAILING TO APPRECIATE THAT THE PROVISION MADE BY THE ASSESSEE WAS NOTHING BUT A CONTINGENT LIABILITY AND ALSO NOT IN TH E NATURE OF EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS. 4. THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) GROSSLY ERRED IN FAILING TO APPRECIATE THAT THE ASSESSEE HAD NOT MADE ANY SUCH PROVISION FOR THE PREVIOUS ASSESSMENT YEAR WHICH WOULD CLEARLY ESTABLISH THAT THE ASSESSEE WAS U NDER NO OBLIGATION TO MAKE THE IMPUGNED PROVISION. 5. FOR THESE AND SUCH OTHER GROUNDS AS MAY BE URGED AT THE TIME OF THE HEARING THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) MAY BE VACATED AND THAT OF THE ASSESSING OF FICER BE RESTORED. 6. THE APPELLANT CRAVES LEAVE TO ADD ALTER TO AMEND ANY OR ALL THE GROUNDS OF APPEAL. ITA NO.1796/PN/2013: ASSESSEES APPEAL 5. THE ISSUE IN THE GROUNDS OF APPEAL NO.1 AND 2 RAISED B Y THE ASSESSEE IS AGAINST THE DISALLOWANCE OF RS.1 94 73 302/- CLAIM ED AS AMORTIZATION OF PREMIUM EXPENDITURE FOR HTM SECURITIES. 6. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSES SEE AT THE OUTSET POINTED OUT THAT THE ISSUE RAISED IN THE PRESEN T APPEAL IS SQUARELY COVERED BY THE JUDGMENT OF THE HONBLE BOMBA Y HIGH COURT IN CIT VS. HDFC BANK (2014) 107 DTR (BOM) 140 AND THE DE CISION OF PUNE BENCH OF THE TRIBUNAL IN DCIT VS. KALLAPPANNA AWADE ICHALKARANJI JANATA SAHAKARI BANK LTD. IN ITA NO.449/PN/ 2012 AND CO NO.130/PN/2013. 7. THE BRIEF FACTS OF THE CASE ARE THAT IN THE RETURN O F INCOME THE ASSESSEE HAD CLAIMED DEDUCTION ON ACCOUNT OF AMORTIZATION OF PREMIUM ON GOVERNMENT SECURITIES AMOUNTING TO RS.1.94 CR ORES. IT WAS FURTHER STATED THAT THE SAID CLAIM WAS SUPPORTED BY THE RBI CIRCULAR / INSTRUCTION DATED 13.07.2005. THE ASSESSING O FFICER WAS OF THE VIEW THAT THE ASSESSEE HAD PREPARED THE PROFIT & L OSS ACCOUNT ON ITA NO.1796/PN/2013 ITA NO.2085/PN/2013 PUNE DIST. CENTRAL CO.OP BANK LTD. 5 THE BASIS OF GUIDELINES / CIRCULARS ISSUED BY THE RBI FOR BA NKING BUSINESS. AS PER THE RBI CIRCULAR THE DEVOLUTION OF SECU RITIES HELD TO MATURITY (HTM) WERE REQUIRED TO BE VALUED AT ITS REALIZED PRICE AND ONLY SECURITIES HELD FOR TRADING (HFT) OR AVAILABLE FOR SALE (AFS) NEEDS TO BE VALUED AT ITS REALIZABLE PRICE ON THE LAST DAY . THE DEVOLUTION IN THE VALUE OF THESE SECURITIES I.E. HFT AND AFS CATEGORY WERE TO BE PROVIDED IN THE BOOKS OF ACCOUNT AS PER THE RBI CIRCULARS. THE ASSESSEE HAD DEBITED A SUM OF RS.1.94 CRORES TO IT S PROFIT & LOSS ACCOUNT AS PREMIUM AMORTIZED AND THE SAME WAS CLAIMED A S AN ALLOWABLE EXPENDITURE. THE ASSESSING OFFICER HOWEVER OBSERV ED THAT THE ASSESSEES CLAIM WAS NOT ACCEPTABLE SINCE THE RBI H AD REQUIRED BANKS TO CLASSIFY INVESTMENTS INTO TWO CATEGORIES FOR THE PURPOSE OF VALUATION I.E. PERMANENT AND CURRENT. THE ASSESSING OFFICER FURTHER OBSERVED THAT WHILE THE DEPRECIATION IN RESPECT OF PERMAN ENT INVESTMENTS WAS NOT LIKELY TO AFFECT THEIR REALIZABLE VALUE A ND THEREFORE NEED NOT BE PROVIDED FOR; HOWEVER THE DEPRECIA TION IN THE CURRENT INVESTMENTS SHOULD BE FULLY PROVIDED FOR. FURTHER RELIANCE WAS PLACED ON THE CBDTS CIRCULAR NO.655 DATED 05.10.1983 UNDER WHICH THE ASSESSING OFFICER HAS TO DETERMINE ON THE FACT S AND CIRCUMSTANCES OF THE EACH CASE AS TO WHETHER ANY PART ICULAR SECURITY STOCK IN TRADE OR INVESTMENT WAS VALUED TAKING INTO A CCOUNT THE GUIDELINES ISSUED BY THE RBI IN THIS REGARD. IN VIEW OF THE SAID CBDTS CIRCULAR THE ASSESSEES CLAIM ON AMORTIZATION OF PREMIUM ON SECURITIES HELD TO MATURITY AT RS.1.94 CRORES WAS NOT ACC EPTED AND WAS ADDED TO THE INCOME OF THE ASSESSEE. 8. THE CIT(A) VIDE PARA 3.4.1 OBSERVED AS UNDER:- 3.4.1 IN THE CASE OF THE APPELLANT IT IS NOT IN DISPUTE THAT THE SECURITIES IN QUESTION WERE HELD IN THE CATEGORY OF HTM AND DURING THE YEAR THE APPELLANT HAS NOT SHIFTED THESE SECURITIES TO ITA NO.1796/PN/2013 ITA NO.2085/PN/2013 PUNE DIST. CENTRAL CO.OP BANK LTD. 6 OTHER CATEGORIES. THE VERY FACT THAT THE PREMIUM P AID ON GOVT. SECURITIES WAS AMORTIZED IN THE BOOKS OF ACCOUNT CLE ARLY SHOWS THAT THE SECURITIES WERE HELD AS HTM SECURITIES BY T HE APPELLANT ON CAPITAL ACCOUNT. THEREFORE THE SAID SECURITIES ARE PERMANENT SECURITIES IN THE NATURE OF CAPITAL ASSETS AND THE PR EMIUM PAID BY THE APPELLANT FORMS INTEGRAL PART OF THE COST OF CAPITA L ASSETS AND THE SAME CANNOT BE SEGREGATED FROM THE COST AND CLA IMED AS DEDUCTION. 9. FURTHER RELIANCE WAS ON THE DECISION OF THE APEX COUR T IN SOUTHERN TECHNOLOGIES LTD. REPORTED IN (2010) 320 ITR 57 7 (SC) WHEREIN IT WAS HELD THAT PRUDENTIAL / PROVISIONING NORMS ISS UED BY THE RBI UNDER THE RBI ACT CANNOT HAVE OVERRIDING EFFECT ON THE INCOME TAX PROVISIONS AND THE SAID NORMS OR THE GUIDELINES LAID DOWN IN RBI CIRCULARS HAVING NOTHING TO DO WITH COMPUTATION OF TAXABLE INCOME UNDER THE I T ACT. SUCH CLASSIFICATION AND TREATMENT OF STANDARD ASSETS SUB STANDARD ASSETS NON-PERFORMING ASSETS AMOR TIZATION OF PREMIUM ETC. ARE CONFINED TO PRESENTATION / DISCLOSURE IN A NNUAL ACCOUNTS OF THE BANK AND THESE GUIDELINES CANNOT OVERR ULE THE PERMISSIBLE DEDUCTIONS OR THEIR EXCLUSIONS UNDER THE INCOM E TAX ACT. FURTHER REFERENCE WAS MADE BY THE CIT(A) TO THE CBDTS INSTRUCTION NO.17/08 DATED 26.11.2008 AND VIDE PARA 3.4.3 IT WAS OBSE RVED AS UNDER:- 3.4.3. AS COULD BE NOTICED FROM THE ABOVE INSTRUCTION IT ONLY REFERS TO THE EARLIER GUIDELINES OF RBI ON THE CLAS SIFICATION OF INVESTMENT PORTFOLIO OF BANKS AND STATES THAT THE LA TEST GUIDELINES OF THE RBI MAY BE REFERRED TO FOR ALLOWING ANY SUCH C LAIMS. IT IS IMPORTANT TO NOTE THAT THE INSTRUCTION WAS ISSUED PR IOR TO THE DECISION OF THE APEX COURT IN SOUTHERN TECHNOLOGIES (SUPRA) WHEREIN IT IS HELD THAT THE RBI GUIDELINES OR PRUDENT IAL NORMS ISSUED BY RBI ARE NOT INTENDED TO REGULATE INCOME-T AX LAWS. SIMILARLY IN THE CASE OF BANK OF RAJASTHAN IN ITA NO . 2246/MUM/2009 RELIED UPON BY THE APPELLANT THE DECI SION OF THE APEX COURT IN SOUTHERN TECHNOLOGIES (SUPRA) WAS N OT BROUGHT TO THE NOTICE OF THE ITAT MUMBAI. THERE IS NO PROVISI ON UNDER THE IT ACT TO ALLOW AMORTIZATION OF PREMIUM AS DEDUCTION EITHER IN THE YEAR OF ACQUISITION OF HTM SECURITIES OR OVER THE PE RIOD OF MATURITY ON DEFERRED BASIS. ITA NO.1796/PN/2013 ITA NO.2085/PN/2013 PUNE DIST. CENTRAL CO.OP BANK LTD. 7 10. THE ASSESSEE IS IN APPEAL AGAINST THE SAID DECISION O F CIT(A). WE FIND THAT A SIMILAR ISSUE OF ALLOWABILITY OR DEDUCTION ON ACCOUN T OF AMORTIZATION OF PREMIUM EXPENDITURE FOR HTM SECURITIES ARO SE BEFORE PUNE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.1795/PN/2013 RELATING TO ASSESSMENT YEAR 2008-09 V IDE ORDER DATED 22.09.2014 WHEREIN IT WAS HELD AS UNDER:- 2.1 THE ONLY ISSUE REMAINS IS WITH REGARD TO DISALLOWAN CE MADE BY THE ASSESSING OFFICER OF RS.2 20 68 302/- CLAIMED BY THE ASSESSEE AS AMORTIZATION OF PREMIUM EXPENDITURE FOR HTM SECURITIES BY PAYMENT OF OVER AND ABOVE THE VALUE OF SUCH SECURITIES. THE LEARNED AUTHORIZED REPRESENTATIVE HA S POINTED OUT THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASS ESSEE BY ORDER OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. H DFC BANK LTD. (2014) 366 ITR 505 (BOM) WHEREIN THE HONBLE BOMBAY HIGH COURT ON SIMILAR ISSUE HELD AS UNDER: AS FAR AS QUESTION (C) IS CONCERNED WE FIND THAT A N IDENTICAL QUESTION OF LAW WAS FRAMED AND ANSWERED IN FAVOUR OF THE ASSESSEE BY THIS COURT IN ITS JUDGMENT DATED JULY 4 2014 IN INCOME TAX APPEAL NO.1079 OF 2012 CIT V . LORD KRISHNA BANK LTD. (NOW MERGED WITH HDFC BANK LTD. ) (2014) 366 ITR 416 (BOM). MR. SURESH KUMAR FAIRLY ST ATED THAT QUESTION (C) REPRODUCED ABOVE IS COVERED BY THE SAID ORDER. IN VIEW THEREOF WE ARE OF THE VIEW THAT EVEN QUESTION (C) DOES NOT ARISE ANY SUBSTANTIAL QUESTION O F LAW THAT REQUIRES AN ANSWER FROM US. AND A SIMILAR VIEW HAS BEEN TAKEN BY ITAT PUNE A BEN CH IN THE CASE OF DY.CIT VS. KALLAPPANNA AWADE ICHALKARANJ I JANATA SAHAKARI BANK LTD. IN ITA NO.449/PN/2012 AND ANOTHER BY OBSERVING AS UNDER: 10. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISI ONS CITED BEFORE US. WE FIND AN IDENTICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN THE CASE OF NAHSIK MERCHANT COOPERATIVE BANK LTD. (SUPRA). WE FIND THE TRIBUNAL HA S DISCUSSED THE ISSUE AND DISMISSED THE GROUNDS RAISE D BY THE REVENUE BY HOLDING AS UNDER : 4. AFTER GOING THROUGH RIVAL SUBMISSIONS AND MATERIAL ON RECORD WE FIND THAT WITH THE ADVENT OF SECTION 80P(4) W.E.F. A.Y 2007-08 HAS CLOSED THE DOORS FOR COOPERATIVE BANKS FOR CLAIMING THE BENEFIT OF DEDUCTION U/S.80P(2)(A)(I) FROM THIS TOTAL INCOME. HOWEVER THE COOPERATIVE SOCIETY SHOULD NOW BE ENTITLED TO BE ASSESSED AS NORMAL BANKING COMPANY. THE CLAUSE (4) INSERTED IN SECTION 80P HAS TAKEN ITA NO.1796/PN/2013 ITA NO.2085/PN/2013 PUNE DIST. CENTRAL CO.OP BANK LTD. 8 AWAY THE BENEFIT OF THE ERSTWHILE DEDUCTION AVAILABLE TO COOPERATIVE SOCIETY IN CARRYING ON BUSINESS OF BANKING OR PROVIDING CREDIT FACILITY TO ITS MEMBERS. THE NEW CLAUSE (4) INSERTED BY THE FINANCE ACT 2006 W.E.F. 01-04-2007 READS AS UNDER: ' THE PROVISION OF THE SECTION WAS NOT IN RELATION TO ANY COOPERATIVE BANK OTHER THAN AGRICULTURAL CREDIT SOCIETY OR PRIMARY COOPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK'. 5. THE INTENTION OF THE PROVISION MAY BE DERIVED MORE PRECISELY FROM RELEVANT PARA 166 OF THE BUDGET SPEECH WHICH STATED THAT : 'CO-OPERATIVE BANKS LIKE ANY OTHER BANK ARE LENDING INSTITUTIONS AND SHOULD PAY TAX ON THEIR PROFITS PRIMARY AGRICULTURAL CREDIT SOCIETIES (PACS) AND PRIMARY COOPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK (PCARDB) STAND ON A SPECIAL FOOTING AND WILL CONTINUE TO BE EXEMPT UNDER SECTION 80P OF THE INCOME TAX ACT. HOWEVER I PROPOSE TO EXCLUDE ALL OTHER CO-OPERATIVE BANKS FROM THE SCOPE OF THAT SECTION'. ACCORDINGLY SECTION 80P IS TO BE AMENDED TO GIVE EFFECT TO THE ABOVE PROPOSAL. IT IS ALSO PROPOSED TO AMEND SECTION 2(24) TO PROVIDE THAT PROFITS AND GAINS OF BUSINESS OF BANKING (INCLUDING PROVIDING CREDIT FACILITIES) CARRIED ON BY A CO-OPERATIVE SOCIETY WITH ITS MEMBERS SHALL BE INCLUDED IN THE DEFINITION OF 'INCOME' (WITH EFFECT FR OM 1ST APRIL 2007)'. 6. COOPERATIVE BANK UNLIKE OTHER COMMERCIAL BANKS ARE SUBJECTED TO DUAL CONTROL FROM BOTH RBI AS WELL AS FROM STATE COOPERATIVE DEPARTMENT. THE ACCOUNTING TREATMENT FOR A COOPERATIVE BANK IS THEREFORE A RESULT OF GUIDELINES FROM BOTH THE CONTROLLING AUTHORITIES. ORDINARILY A DEDUCTION IS NOT AVAILABLE TO AN ASSESSEE UNLESS SPECIFICALLY PROVIDED UNDER THE ACT. THIS IS IRRESPECTIVE OF ACCOUNTING TREATMENT PROVIDED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS. BUT AT THE SAME TIME IT WAS WELL SETTLED THAT DEDUCTION EXPRESSLY MENTIONED UNDER THE ACT ARE NOT EXHAUSTIVE AND PROFIT IS TO BE DERIVED ACCORDIN G TO ORDINARY COMMERCIAL PRINCIPLES. AS PER THE EXTANT RBI GUIDELINES DATED 01-07-2009 THE INVESTMENT PORTFOLIO OF THE BANKS IS REQUIRED TO BE CLASSIFIED UNDER 3 CATEGORIES VIZ. HELD THE MATURITY HTM) HELD FOR TRADING (HFT) AND AVAILABLE FOR SALE (AFS). THE VALUE OF EACH KIND OF INVESTMENT IS TO BE DONE IN THE FOLLOWING MANNER: SR.NO. CLASSIFICATION VALUATION NORMS OF INVESTMENT. 1.. 2.. ITA NO.1796/PN/2013 ITA NO.2085/PN/2013 PUNE DIST. CENTRAL CO.OP BANK LTD. 9 3.. 7. IN PARA (VII) OF THE CBDT INSTRUCTION NO.17 OF 2008 DATED 26.11.2008 ON 'ASSESSMENT OF BANK - CHECK LIST FOR DEDUCTION STATES AS UNDER: 'AS PER RBI GUIDELINES..' 8. THE ITAT MUMBAI BENCH IN THE CASE OF ACIT VS. THE BANK OF RAJASTHAN LTD. (2011) TIOL-35-ITAT- MUMBAI HAS HELD THAT IN CASE OF BANKS THE PREMIUM PAID IN EXCESS OF FACE VALUE OF INVESTMENTS CLASSIFI ED UNDER HTM CATEGORY WHICH HAS BEEN AMORTISED OVER THE PERIOD TILL MATURITY IS ALLOWABLE AS REVENUE EXPENDITURE SINCE THE CLAIM IS AS PER RBI GUIDELINES AND CBDT ALSO HAS DIRECTED TO ALLOW SUCH PREMIUM. IT HAS ALSO BEEN HELD IN THE CASE OF CATHOLIC SYRIAN BANK LTD. VS. ACIT THAT AMORTIZATION ON PURCHASE OF GOVERNMENT SECURITIES WAS MADE AS PER PRUDENTIAL NORMS OF THE RBI AND SAME WAS ALLOWABLE DEDUCTION. IN VIEW OF ABOVE ASSESSEE WAS JUSTIFIED IN CONTENDING FOR AMORTIZATION OF PREMIUM PAID IN EXCESS OF FACE VALUE OF SECURITIES HELD TO MATURITY (HTM) CATEGORY OR PERIOD REMAINING TILL MATURITY WAS FOUND REASONABLE BY THE CIT(A). ACCORDINGLY ADDITION OF RS.17 91 659/- MADE BY THE ASSESSING OFFICER BY DISALLOWING AMOUNT TOWARDS AMORTIZATION OF GOVERNMENT SECURITIES (HMT) WAS DELETED. THIS REASONED FACTUAL AND LEGAL FINDING OF THE CIT(A) NEEDS NO INTERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME. 9. AS A RESULT THE APPEAL FILED BY THE REVENUE IS DISMISSED. 10.1 RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINA TE BENCH OF THE TRIBUNAL AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE AGAINST THE ABOVE CITED DECISION WE FIND NO INFIRMITY IN THE ORDER OF THE LD .CIT(A) DELETING THE ADDITION. ACCORDINGLY THE ORDER OF THE LD.CIT(A) IS UPHELD AND THE GROUNDS RAISED BY THE REVE NUE ARE DISMISSED. 2.2 NOTHING CONTRARY HAS BEEN BROUGHT TO OUR KNOWLED GE ON BEHALF OF THE REVENUE. FACTS BEING SIMILAR SO FOLLOWIN G THE SAME REASONING WE HOLD THAT IN CASE OF BANKS THE PREMIUM PAID IN EXCESS OF FACE VALUE OF INVESTMENTS CLASSIFIED UNDER HTM CATEGORY WHICH HAS BEEN AMORTISED OVER THE PERIOD TILL MATURITY IS ALLOWABLE AS REVENUE EXPENDITURE SINCE THE CLAIM IS AS PER RBI GUIDELINES AND CBDT ALSO HAS DIRECTED TO ALLOW SUCH PR EMIUM. IN VIEW OF ABOVE THE ASSESSEE IS JUSTIFIED IN CONTE NDING THAT THE AMORTIZATION OF PREMIUM IN EXCESS OF FACE VALUE SECU RITIES AS HTM PERIOD REMAINING DIFFERENCE WAS FOUND REASONABLE . ACCORDINGLY THE DISALLOWANCE OF RS.2 20 68 302/- MADE BY T HE ASSESSING OFFICER CLAIMED AS AMORTIZATION OF PREMIUM EXPENDITURE FOR HTM SECURITIES BY PAYMENT OF PREMIUM OVER AND AB OVE THE FACE VALUE OF SUCH SECURITIES IS DIRECTED TO BE ALLOWED. ITA NO.1796/PN/2013 ITA NO.2085/PN/2013 PUNE DIST. CENTRAL CO.OP BANK LTD. 10 11. THE HONBLE BOMBAY HIGH COURT IN CIT VS. HDFC BANK (SUPRA) HELD THAT THE ASSESSEE THEREIN WAS ENTITLED TO DEDUCTION WITH RESPECT TO THE DIMINUTION IN THE VALUE OF INVESTMENTS AND AMORTIZA TION OF PREMIUM ON INVESTMENTS HELD TO MATURITY ON THE GROUND O F MANDATE OF THE RBI GUIDELINES. THE ISSUE RAISED IN THE PRESENT APP EAL IS IDENTICAL TO THE ISSUE BEFORE THE PUNE BENCH OF THE TRIBUN AL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09 AND HONBLE BOMBAY HIGH COURT IN CIT VS. HDFC BANK (SUPRA). WE HOLD THAT AM ORTIZATION OF PREMIUM EXPENDITURE FOR SECURITIES HELD TO MATURITY IN V IEW OF RBI GUIDELINES ARE ALLOWABLE BUSINESS EXPENDITURE IN THE CASE OF ASSESSEE. THE GROUNDS OF APPEAL NO.1 AND 2 RAISED BY THE ASSESSE E ARE THUS ALLOWED. 12. THE ISSUE IN GROUND NO.3 RAISED BY THE ASSESSEE IS A GAINST THE ADDITION OF RS.40 30 000/- HOLDING IT AS PROVISION FOR INVESTME NT DEPRECIATION FUND. 13. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE A SSESSEE DURING THE YEAR UNDER CONSIDERATION HAD ALSO CLAIMED DEDUCTION O N ACCOUNT OF PROVISION FOR AMORTIZATION OF PREMIUM ON GOVERNMENT SEC URITIES AMOUNTING TO RS.40 30 000/-. THE SAID CLAIM WAS ALSO MADE IN VIEW OF THE RBI CIRCULAR / INSTRUCTION DATED 13.07.2005. THE C LAIM OF THE ASSESSEE WAS NOT ALLOWED BY THE ASSESSING OFFICER IN VIEW OF THE CBDTS GUIDELINES AND ALSO BECAUSE IT WAS ONLY A PROVISIO N IN THE BOOKS OF ACCOUNT AND NOT AN ACTUAL EXPENDITURE DEBITED TO THE BOOKS OF ACCOUNT. 14. THE CIT(A) UPHELD THE ORDER OF ASSESSING OFFICER AS IT W AS ONLY A PROVISION MADE IN THE BOOKS OF ACCOUNT AND NOT ACTUALLY WRITTEN OFF. ITA NO.1796/PN/2013 ITA NO.2085/PN/2013 PUNE DIST. CENTRAL CO.OP BANK LTD. 11 SECONDLY AS PER THE CIT(A) THERE WAS NO PROVISION UNDER THE I T ACT TO ALLOW SUCH PROVISION FOR AMORTIZATION OF PREMIUM AS DEDUCTIO N EITHER IN THE YEAR OF CREATION OF PROVISION OR OVER THE PERIOD O F MATURITY OF HTM SECURITIES ON DEFERRED BASIS. BEFORE THE CIT(A) THE A SSESSEE RAISED A NEW CLAIM THAT THE BANK SHIFTED SOME OF THE HTM SECURITIES TO AFS CLASSIFICATION ON 25.12.2008 AND IN THE PROCESS IT SUFF ERED A LOSS OF RS.40 30 000/- AND IT WAS NOT A PROVISION FOR AMORTIZATIO N. THE CIT(A) OBSERVED THAT THE ASSESSEE HAS FAILED TO FURNISH T HE DETAILS TO SUBSTANTIATE THE NEW CLAIM AND EVEN IN THE STATEMENT OF FACTS IT WAS STATED THAT IT WAS A PROVISION FOR AMORTIZATION OF GOVERNM ENT SECURITIES. THE CIT(A) FROM THE ANNUAL ACCOUNTS FURTHER NOTED THAT IT WAS ONLY A PROVISION FOR INVESTMENT DEPRECIATION FUND MADE IN THE BOOKS OF ACCOUNT AND DO NOT REPRESENT ACTUAL LOSS OR D EPRECIATION ON CONVERSION OF HTM SECURITIES TO AFS HENCE THE LOSS CLAIMED BY THE ASSESSEE WAS NOT ALLOWED BY THE CIT(A) AGAINST WHICH T HE ASSESSEE IS IN APPEAL BEFORE US VIDE GROUND OF APPEAL NO.3. 15. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSES SEE FAIRLY CONCEDED THAT IN THE ACCOUNTS IT WAS MENTIONED AS PROV ISION FOR INVESTMENT DEPRECIATION FUND HOWEVER IT WAS ACTUALLY DEP RECIATED VALUE OF THE INVESTMENTS. THE LEARNED AUTHORIZED REPRESE NTATIVE FOR THE ASSESSEE POINTED OUT THAT THE SECURITIES HELD TO MA TURITY WERE TRANSFERRED TO AFS I.E. AVAILABLE FOR SALES AGAINST WHICH NO DETAILS WERE FILED BEFORE THE ASSESSING OFFICER. OUR ATTENTION WAS D RAWN TO SCHEDULE 16 OF THE BALANCE SHEET AND THE RESOLUTION PASS ED IN MARATHI ALONG WITH ITS ENGLISH TRANSLATION AND THE PLEA OF T HE ASSESSEE WAS THAT IN ORDER TO DETERMINE THE FACTS THE ISSUE MAY BE SENT BACK TO THE ASSESSING OFFICER. ITA NO.1796/PN/2013 ITA NO.2085/PN/2013 PUNE DIST. CENTRAL CO.OP BANK LTD. 12 16. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REV ENUE POINTED OUT THAT THE SAID AMOUNT WAS ONLY A PROVISION M ADE IN THE BOOKS OF ACCOUNT AND HAD NOT BEEN ACTUALLY WRITTEN. TH E ALTERNATE PLEA OF THE ASSESSEE BEFORE THE CIT(A) WAS THAT THE BANK HAD SHIFTED SOME SECURITIES FROM HTM TO AFS CLASSIFICATION AND WAS NOT A REAL PROVISION FOR AMORTIZATION WAS NOT SUBSTANTIATED EITHER BE FORE THE ASSESSING OFFICER OR CIT(A). THE LEARNED DEPARTMENTAL REPRE SENTATIVE FOR THE REVENUE STRESSED THAT THE NOTIONAL LOSSES COULD NOT BE ALLOWED AS DEDUCTION AND IT WAS POINTED OUT THAT EVEN THE HON BLE BOMBAY HIGH COURT IN CIT VS. HDFC BANK (SUPRA) HAD HELD THAT THE ASSESSEE WAS ENTITLED TO DEDUCTION WITH RESPECT TO AMORTIZATION OF PREMIUM ON INVESTMENTS HELD TO MATURITY BUT NOT AS A PROVISION. REL IANCE WAS PLACED ON THE RATIO LAID DOWN IN VIJAYA BANK VS. CIT REP ORTED IN (2010) 323 ITR 166 (SC). 17. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED TH E RECORD. THE ASSESSEE IN ITS BOOKS OF ACCOUNT HAD MADE A PROVISIO N ON ACCOUNT OF INVESTMENT DEPRECIATION FUND AT RS.40 30 000/-. THE ASSE SSEE HAS FILED THE TRANSLATED COPY OF THE PUBLISHED PROFIT & LOSS ACC OUNT AND BALANCE SHEET AND THE PERUSAL OF THE SAME REFLECTS THAT UNDER SCHEDULE II IT HAD MADE THE SAID PROVISION UNDER THE HE AD RESERVE FUND AND OTHER RESERVE FUND. THE ASSESSEE DURING TH E COURSE OF PROCEEDINGS BEFORE THE CIT(A) CHANGED ITS STAND AND CLA IMED THAT THE GOVERNMENT SECURITIES OF RS.5 CRORES HELD BY THE BANK IN HTM CATEGORY WERE TRANSFERRED TO AFS CATEGORY AS PER THE RESOLUTION PASSED BY THE BANK ON 25.12.2008. THE ORIGINAL RESOLUTION IN MARATHI ALONG WITH ITS TRANSLATED COPY WAS FURNISHED BEFORE US DURING THE COURS E OF HEARING. THE ASSESSEE SUFFERED A LOSS OF RS.40 30 000/- ON THE SAID TRANSFER OF SECURITIES FROM HTM TO AFS. BEFORE THE ASSESSING OFFICER TH E ITA NO.1796/PN/2013 ITA NO.2085/PN/2013 PUNE DIST. CENTRAL CO.OP BANK LTD. 13 ASSESSEE HAD NOT RAISED THE SAID CLAIM HOWEVER BEFORE T HE CIT(A) THE SAID CLAIM WAS RAISED BUT NO EVIDENCE IN THIS REGARD WAS FILED. NOW THE ASSESSEE HAS FURNISHED THE RESOLUTION OF THE BANK EV IDENCING THE SAID TRANSFER WHICH IN TURN RESULTED IN LOSS OF RS.40 30 000/ -. THE PLEA OF THE ASSESSEE BEFORE US WAS THAT THE SAID AMOUNT WAS BOOKED UNDER THE PROVISION FOR INVESTMENT DEPRECIATION FUND BY MI STAKE AND WAS ACTUALLY THE DEPRECIATED VALUE OF THE INVESTMENTS ON ITS TRANSFER FROM HTM TO AFS SECURITIES. THE PERUSAL OF THE PROFIT & LO SS ACCOUNT ENGLISH VERSION REFLECTS THE ASSESSEE TO HAVE CLAIMED THE EXPENDITURE OF RS.40 30 000/- ON ACCOUNT OF INVESTMENT DEPRECIATION FUND UNDER SCHEDULE 16 PROVISIONS. IN THE ENTIRETY OF THE FACTS AND CIRCUMSTANCES AND THE REVISED CLAIM MADE BY THE ASSESSEE WE ARE OF TH E VIEW THAT THE FACTS AND ISSUE NEEDS TO BE RELOOKED INTO TO DETERM INE THE NATURE OF ENTRY PASSED BY THE ASSESSEE AND FOLLOWING THE PRINCIP LES OF NATURAL JUSTICE WE DEEM IT FIT TO RESTORE THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER WHO SHALL DECIDE THE ISSUE DE NOVO AFTER CONSIDERING THE REVISED PLEA OF THE ASSESSEE AND THE RELEVANT DOCUMENTS IN THIS REGARD. THE ASSESSING OFFICER SHALL AFFORD REASONABLE OPPORTUNITY OF H EARING TO THE ASSESSEE. THE GROUND OF APPEAL NO.3 RAISED BY THE A SSESSEE IS THUS ALLOWED FOR STATISTICAL PURPOSES. 18. THE GROUNDS OF APPEAL NO.4 AND 8 WERE NOT PRESSED BY THE ASSESSEE AND THE SAME ARE DISMISSED AS NOT PRESSED. 19. THE ISSUE RAISED VIDE GROUNDS OF APPEAL NO.5 TO 7 IS A GAINST THE ADDITION MADE OF RS.42.15 CRORES ON ACCOUNT OF REVERSAL O F INTEREST ON PERFORMING ASSETS. 20. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTED THAT THE ASSESSEE ITA NO.1796/PN/2013 ITA NO.2085/PN/2013 PUNE DIST. CENTRAL CO.OP BANK LTD. 14 HAD INTRODUCED A CHANGE IN METHOD OF ACCOUNTING FROM THIS YEAR IN RESPECT OF INTEREST INCOME EARNED FROM PERFORMING ASSETS. THE BANK DECIDED TO ACCOUNT FOR INTEREST INCOME ONLY ON REALIZATIO N AND AS SUCH INTEREST AMOUNTING TO RS.42.15 CRORES WAS DE-REVERSED AND DE- RECOGNIZED BY THE ASSESSEE BY WAY OF THE NOTE TO THE ANNUAL ACCOUNTS. THE PLEA OF THE ASSESSEE BEFORE THE ASSESSING OFFICER WAS THAT THE SAID CHANGE IN THE METHOD OF ACCOUNTING WAS WITH REGARD TO R ECOGNITION OF INTEREST INCOME ON PERFORMING ASSETS OF AGRICULTURAL LOANS A S PER THE GUIDELINES ISSUED BY THE RBI. IT WAS EXPLAINED BY THE ASS ESSEE THAT UP TO FINANCIAL YEAR 2007-08 INTEREST ON PERFORMING ASSETS OF AGRICULTURAL LOANS EVEN THOUGH NOT ACTUALLY RECEIVED / RECOVERED WA S CREDITED TO THE INTEREST RECEIVED ACCOUNT AND WAS SHOWN IN THE BALA NCE SHEET AS NON-OVERDUE INTEREST RECEIVABLE ACCOUNTS. HOWEVER AS P ER THE NORMS OF THE RBI FROM THE YEAR UNDER CONSIDERATION THE UNREALIZ ED INTEREST WAS NOT CREDITED TO THE INTEREST RECEIVED ACCOUNT AND THE SAME WAS SHOWN ON THE LIABILITIES SIDE OF THE BALANCE SHEET AS PROVIS ION FOR UNREALIZED INTEREST AS BEING DONE FOR INTEREST EARNED O N NON- PERFORMING ASSETS. IN VIEW OF GUIDELINES ISSUED BY THE RBI THE SAID INTEREST WAS NOT RECEIVED BY THE ASSESSEE WAS NOT CRE DITED TO THE PROFIT & LOSS ACCOUNT. FURTHER THE ASSESSEE CHANGED ITS MET HOD OF ACCOUNTING DURING THE YEAR AS THE CENTRAL GOVERNMENT HAD AN NOUNCED FARMERS DEBTS WAIVERS SCHEME 2008 AND THE CHANGE IN M ETHOD OF ACCOUNTING DID NOT RESULT INTO ANY SUPPRESSION OF INCOME. THE ASSESSING OFFICER IN VIEW OF THE ASSESSEE FOLLOWING MERCANTILE SY STEM OF ACCOUNTING OBSERVED THAT ALL INCOME WAS REQUIRED TO BE O FFERED TO TAX ON ACCRUAL BASIS. THE ASSESSING OFFICER FURTHER NOTED THAT THE ASSESSEE HAD CHANGED ITS METHOD OF ACCOUNTING OF INTERE ST FROM MERCANTILE TO CASH SYSTEM ONLY FOR THE INTEREST IN QUES TION AND FOR ALL ITA NO.1796/PN/2013 ITA NO.2085/PN/2013 PUNE DIST. CENTRAL CO.OP BANK LTD. 15 OTHER ENTRIES THE BANK HAD BEEN FOLLOWING MERCANTILE SYST EM OF ACCOUNTING. THE CASE LAWS RELIED UPON BY THE ASSESSEE W ERE DISTINGUISHED BY THE ASSESSING OFFICER AS THE SAME WERE RE NDERED PRIOR TO AMENDMENT IN SECTION 145(3) OF THE ACT. 21. BEFORE THE CIT(A) THE ASSESSEE CLAIMED THAT IT HAD INT RODUCED THE CHANGE IN ACCOUNTING METHOD IN RESPECT OF RECOGNITION OF INTEREST ON PERFORMING AGRICULTURAL LOANS ONLY AND THE CHANGE WAS CONSISTENTLY FOLLOWED IN SUBSEQUENT ASSESSMENT YEARS. THE REASON FOR THE CHANGE IN ACCOUNTING METHOD WAS THE ANNOUNCEMENT OF THE AGRICU LTURAL DEBTS WAIVER AND DEBT RELIEF SCHEME 2008. IN VIEW OF THE SAID SCHEME THE RBI DECLARED PRUDENTIAL NORMS OF INCOME RECOG NITION ASSET CLASSIFICATION PROVISIONING AND CAPITAL ADEQUACY. THE HIGHLIGHTS OF THE AGRICULTURAL DEBTS WAIVER SCHEME ARE REFERRED TO UNDER PARA 6.3 AT PAGES 24 AND 25 OF THE APPELLATE ORDER AND THE NORM S ISSUED BY THE RBI ARE REPRODUCED UNDER PARA 6.3.1 ON PAGES 26 AND 2 7 OF THE APPELLATE ORDER. BEFORE THE CIT(A) IT WAS ALSO EXPLAINED T HAT BEARING THE GOVERNMENT CONTRIBUTION EQUAL TO 25% TOWARDS FARMER S LOAN THE ASSESSEE BANK WAS SUPPOSED TO ACCEPT THE LOSS DUE TO WAIVERS SCHEME AND THE ACCOUNTING SYSTEM WAS CHANGED TO INCORPORATE THE LOSSES AND THE SUM OF RS.42.15 CRORES WAS DEBITED TO THE PROFIT & LO SS ACCOUNT AND THE SAME AMOUNT WAS ACTUALLY WRITTEN OFF IN THE ACCO UNTS AND SIMPLY WAS NOT A PROVISION FOR WRITE OFF. THE CIT(A) VIDE PAR A 6.5.2 AT PAGE 32 OF APPELLATE ORDER ON RECONCILIATION OF ENTRIES PASS ED BY THE ASSESSEE IN THE INTEREST ACCOUNT OBSERVED THAT THE GR OSS INTEREST RECEIPTS ACCRUED DURING THE YEAR ON PERFORMING ASSETS W AS REVISED BY RS.42.15 CRORES BY THE SAID CHANGE IN THE METHOD OF ACCO UNTING OF INTEREST EARNED ON PERFORMING ASSETS. ITA NO.1796/PN/2013 ITA NO.2085/PN/2013 PUNE DIST. CENTRAL CO.OP BANK LTD. 16 22. THE SECOND PLEA OF THE ASSESSEE BEFORE CIT(A) WAS TH AT IN VIEW OF AGRICULTURAL DEBT WAIVER SCHEME IT HAD WRITTEN OFF THE SAID AMOUNT WAS ALSO NOT ACCEPTED AS THE SAID SCHEME RELATED TO TH E WAIVER OF AMOUNT OF LOAN TOGETHER WITH APPLICABLE INTEREST BUT THE A SSESSEE HAD FAILED TO FURNISH THE DETAILS AND EVEN OTHERWISE THE DEBT W AIVER SCHEME ANNOUNCED BY THE GOVERNMENT WAS NOT APPLICABLE TO THE LOANS AND INTEREST IN QUESTION. FURTHER EVEN PRESUMING THAT T HE ASSESSEE HAS SUCH ELIGIBLE LOANS THE CIT(A) OBSERVED THAT THE LOANS WERE NOT ACTUALLY WRITTEN OFF IN THE BOOKS OF ACCOUNT BY WAY OF WAIV ER. HENCE THE NORMS AND GUIDELINES PRESCRIBED BY THE RBI WITH RESP ECT TO RECOGNITION OF INTEREST INCOME WERE NOT APPLICABLE AS THE A SSETS INVOLVED WERE PERFORMING ASSETS. AS PER THE CIT(A) REVER SAL OF INTEREST IN QUESTION WAS PRE-MATURE AS THE ASSETS WERE PERFORMIN G ASSETS AND THE INTEREST WAS NOT OVER DUE AS ON 31.03.2009. FURTHE R IT WAS HELD THAT EVEN PRESUMING THAT THE PRUDENTIAL NORMS OF RBI WE RE APPLICABLE TO SUCH PERFORMING ASSETS THE CIT(A) OBSERVED THAT THE SAID RBI GUIDELINES WERE ISSUED TO SUPERVISE AND EXERCISE CONTROL O N BANKS AND NBFCS AND WERE NOT FOR THE PURPOSE OF RECOGNITION OF INCO ME OR MAKING PROVISIONS FOR BAD & DOUBTFUL DEBTS FOR THE PURPOS E OF INCOME TAX. THE CIT(A) FURTHER HELD THAT ONCE THE INCOME HAD AC CRUED AS PER THE METHOD OF ACCOUNTING REGULARLY FOLLOWED BY THE ASSESS EE THE SAME HAD TO BE INCLUDED IN THE TOTAL INCOME. FURTHER IT WAS OBSERVED THAT THE PROVISIONS OF SECTION 43D OF THE ACT WERE NOT APPLICAB LE TO THE COOPERATIVE BANKS AND THERE WAS NO QUESTION OF EXTENDIN G THE BENEFIT UNDER SECTION 43D OF THE ACT TO THE ASSESSEE BANK. IT WAS ALSO OBSERVED BY THE CIT(A) THAT WHERE THERE WAS NO CERTA INTY OF RECOVERY OF INTEREST WHEN THE PRINCIPAL AMOUNT WAS DOUBTFUL OF RECOVER Y DUE TO THE DEBT WAIVER SCHEME AND THE PROPER COURSE OF ACTION FOR THE ITA NO.1796/PN/2013 ITA NO.2085/PN/2013 PUNE DIST. CENTRAL CO.OP BANK LTD. 17 ASSESSEE WAS TO WRITE OFF OF SUCH AMOUNT AS BAD & DOUBT FUL DEBTS IN THE BOOKS OF ACCOUNT AND CLAIM DEDUCTION UNDER SECTION 3 6(1)(VIIA) OF THE ACT. THE CIT(A) HAS GIVEN A FINDING THAT THE ASSESSEE HAD NEITHER WRITTEN OFF OF THE PRINCIPAL NOR THE INTEREST WAS WRITTEN O FF IN THE BOOKS OF ACCOUNT AND HENCE CLAIM OF THE ASSESSEE WAS NOT ALLOWA BLE UNDER SECTION 36(1)(VIIA) OF THE ACT. 23. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSE SSEE POINTED OUT THAT UNDER SECTION 45(2) OF THE RBI ACT GUIDELINES W ERE ISSUED TO THE BANKS AND NBFCS TO REGULATE ITS BUSINESS. IT WAS FU RTHER POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE A SSESSEE THAT DURING THE YEAR UNDER CONSIDERATION IT HAD CHANGED THE ACCOUNTING SYSTEM FROM MERCANTILE TO CASH IN RESPECT OF PERFORMING AG RICULTURAL LOANS IN VIEW OF GUIDELINES ISSUED BY THE RBI. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER POINTED OUT THA T THE SAID PERFORMING ASSETS COULD NOT BE TREATED AS NPAS WITHOUT PASSING THROUGH THE FILTER OF RBI GUIDELINES AS THE ASSETS IN CONSI DERATION WERE PERFORMING ASSETS. HOWEVER IN VIEW OF DEBT WAIVER SCHEME INTRODUCED BY THE GOVT. OF INDIA WITH REGARD TO AGRICULTURAL LOANS TH E INTEREST DUE ON SUCH PERFORMING ASSETS WAS NOT DUE TO THE ASSESSEE AND HENCE THE SAME WAS NOT ACCOUNTED FOR IN THE BOOKS OF ACCOUNT. IT WAS FURTHER POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FO R THE ASSESSEE THAT IN RESPECT OF AGRICULTURAL LOANS IF INTEREST WAS NOT RE CEIVED FOR ONE YEAR THEN IT BECOMES NPA IN THE NEXT YEAR AND IN VIEW THEREOF IT WAS CLAIMED AS DEDUCTION IN THE PROFIT & LOSS ACCOUNT. THE LEA RNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER POINT ED OUT THAT UP TO ASSESSMENT YEAR 2007-08 THE INCOME OF THE ASSESSEE BANK WAS NOT TAXABLE. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE A SSESSEE FAIRLY CONCEDED THAT IN THE BALANCE SHEET THE SAID ASSETS WER E STATED TO BE ITA NO.1796/PN/2013 ITA NO.2085/PN/2013 PUNE DIST. CENTRAL CO.OP BANK LTD. 18 PERFORMING ASSETS. HOWEVER THE CHANGE IN THE METHOD OF ACCOUNTING WAS EFFECTED BY THE ASSESSEE AND THIS WAS THE FIRST YEAR OF CHANGE IN THE METHOD OF ACCOUNTING. THE LEARNED AUTHORIZED REPRES ENTATIVE FOR THE ASSESSEE ALSO POINTED OUT IN RESPECT OF LOANS GIVEN T O THE FARMERS LESS THAN RS.5 LAKHS EACH BECAUSE OF THE DEBT WAIVER SCH EME AMOUNT OF RS.456.98 CRORES WAS RECEIVED AND RS.346.04 CRORES WAS PAID BY THE GOVERNMENT DURING THE YEAR AND RS.110.94 CRORES WAS R ECEIVED FROM THE GOVERNMENT IN THE SUCCEEDING YEAR. 24. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REV ENUE STRESSED THAT THE ASSESSEE CHANGED ITS METHOD OF ACCO UNTING ONLY IN RESPECT OF INTEREST ON PERFORMING ASSETS AND SUCH HYBRID SYSTEM OF ACCOUNTING AFTER 01.04.1997 WAS NOT PERMITTED UNDER SECT ION 145 OF THE ACT. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR TH E REVENUE STRESSED THAT THE COMPUTATION OF INCOME HAS TO BE DONE AS PER THE PROVISIONS OF INCOME TAX ACT AND NOT ON THE BASIS OF RB I GUIDELINES. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENU E HAD PLACED RELIANCE ON THE FOLLOWING DECISIONS:- 1. HONBLE KARNATAKA HIGH COURT IN KARNATAKA BANK LTD VS. ACIT (2013) 34 TAXMANN.COM 2. HONBLE MADRAS HIGH COURT IN THE CASE OF SAKTHI FINANC E LTD T.C. (A) NOS.282 AND 283 OF 2007 3. HONBLE KERALA HIGH COURT JUDGMENT IN ART LEASING LTD. VS CIT 187 TAXMAN 29 (2010) 4. HONBLE MADRAS HIGH COURT IN CIT VS. AMRUTANJAN FINANCE LTD 15 TAXMANN.COM 392 25. IT WAS FURTHER POINTED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE THAT THE DEBT WAIVER SC HEME PLACED AT PAGE 128 OF THE PAPER BOOK IS NOT APPLICABLE TO THE ASSE SSEE AS THE ITA NO.1796/PN/2013 ITA NO.2085/PN/2013 PUNE DIST. CENTRAL CO.OP BANK LTD. 19 ASSESSEE IS A DISTRICT COOPERATIVE BANK AND WAS NOT COV ERED UNDER THE SCHEME. 26. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSE SSEE HOWEVER POINTED OUT THAT IT WAS A COOPERATIVE BANK AND WAS COV ERED UNDER THE SCHEME. 27. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE RAISED VIDE GROUNDS OF APPEAL NO.5 TO 7 IS IN RE LATION TO REVERSAL OF INTEREST ON PERFORMING ASSETS AMOUNTING TO RS .42.15 CRORES. THE ASSESSEE DURING THE YEAR UNDER CONSIDERAT ION ADOPTED A CHANGE IN METHOD OF ACCOUNTING IN RESPECT OF INTEREST INCO ME EARNED FROM CERTAIN PERFORMING ASSETS. IN THE NOTES TO THE ANN UAL ACCOUNTS THE ASSESSEE DECLARED THAT THE INTEREST RELATING TO NON -PERFORMING ASSETS I.E. AGRICULTURAL LOANS WOULD BE ACCOUNTED FOR ONLY O N REALIZATION AND INTEREST AMOUNTING TO RS.42.15 CRORES WAS DE-REVERSED AND DE-RECOGNIZED BY THE ASSESSEE. THE EXPLANATION OF T HE ASSESSEE FOR THE SAID CHANGE IN THE METHOD OF ACCOUNTING OF INTERE ST ON NON- PERFORMING ASSETS WAS THE AGRICULTURAL WAIVER SCHEME 2008 ISSUE D BY THE CENTRAL GOVERNMENT UNDER WHICH GUIDELINES WERE ISSUED BY THE RBI THAT WHERE THE SUCH INTEREST ON AGRICULTURAL LOANS W AS NOT RECEIVED BY THE ASSESSEE THE SAME WAS NOT TO BE CRED ITED TO THE PROFIT & LOSS ACCOUNT. THE CENTRAL GOVERNMENT HAD ANNOUNCED FARMERS DEBTS WAIVER SCHEME 2008 AND IN VIEW OF THE SAID SCHEME BEING INTRODUCED BY THE CENTRAL GOVERNMENT THE RBI ISSUED TH E GUIDELINES TO THE RESPECTIVE BANKS. THE ASSESSEE CLAIMS THAT IT HA D FOLLOWED THE SAID GUIDELINES AND CHANGED ITS METHOD OF ACCOUNTING VIS-- VIS THE INTEREST ACCRUING ON PERFORMING ASSETS OF AGRICULTURAL LOAN. THE ITA NO.1796/PN/2013 ITA NO.2085/PN/2013 PUNE DIST. CENTRAL CO.OP BANK LTD. 20 ASSESSEE CLAIMS THAT IT HAD WRITTEN OFF THE SAID AMOUNT IN ITS BOOKS OF ACCOUNT. 28. ADMITTEDLY THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING UNDER WHICH IT HAD TO RECOGNIZE ITS INCOME FOR THE RELEVANT YEAR EVEN IF THE SAME HAD NOT BEEN RECEIVED BY THE ASS ESSEE. SIMILARLY THE EXPENDITURE HAD TO BE RECOGNIZED EVEN IF THE SAME WAS NOT PAID DURING THE YEAR UNDER CONSIDERATION. THE ASSES SEE FROM YEAR TO YEAR WAS FOLLOWING THE SAID METHOD OF ACCOUNTING AND IN THE PRECEDING YEAR HAD ACCOUNTED FOR THE INTEREST EARNED FR OM THE PERFORMING ASSETS OF AGRICULTURAL LOANS IN ITS BOOKS OF ACCOU NT. WHERE THE ASSESSEE DID NOT RECEIVE THE INTEREST TILL THE CLOSE O F THE SUCCEEDING YEAR THEN SUCH INTEREST ON AGRICULTURAL LOANS WAS WRITTE N OFF IN THE BOOKS OF ACCOUNTS. IN OTHER WORDS THE ASSESSEE FOR TH E FINANCIAL YEAR 2007-08 HAD ACCOUNTED FOR THE INTEREST ON PERFORMING AS SETS IN ITS BOOKS OF ACCOUNT AS THIS INCOME FOR THE PRECEDING YEAR A ND IN CASES WHERE THE SAID INTEREST WAS NOT RECEIVED BY THE ASSESS EE THE SAME COULD BE WRITTEN OFF TILL 31.03.2009. HOWEVER FOR THE YEAR U NDER CONSIDERATION AND AS CLAIMED BY THE ASSESSEE FOR THE SUC CEEDING YEARS THE SAID PRACTICE OF RECOGNIZING THE INTEREST ON THE PERFO RMING ASSETS OF AGRICULTURAL LOANS WAS NOT FOLLOWED BY THE ASSESSEE BECAUS E OF RBI GUIDELINES. 29. THE CIT(A) HAD REFERRED TO THE HIGHLIGHTS OF THE AGRICU LTURAL DEBT WAIVER SCHEME 2008 UNDER PARA 6.3 AT PAGES 24 & 25 OF THE PAPER BOOK. THE PERUSAL OF THE SAID SCHEME REFLECTS THAT THE AMOUNT ELIGIBLE FOR DEBT WAIVER OR DEBT RELIEF SHALL COMPRISE OF:- A) IN THE CASE OF SHORT-TERM PRODUCTION LOAN THE A MOUNT OF SUCH LOAN (TOGETHER WITH APPLICABLE INTEREST): ITA NO.1796/PN/2013 ITA NO.2085/PN/2013 PUNE DIST. CENTRAL CO.OP BANK LTD. 21 (I) DISBURSED UP TO MARCH 31 2007 AND OVERDUE AS ON DECEMBER 31 2007 AND REMAINING UNPAID UNTIL FEBRUA RY 29 2008; (II) RESTRUCTURED AND RESCHEDULED BY BANKS IN 2004 AND IN 2006 THROUGH THE SPECIAL PACKAGES ANNOUNCED BY THE CENTRAL GOVERNMENT WHETHER OVERDUE OR NOT; AND (III) RESTRUCTURED AND RESCHEDULED IN THE NORMAL COURSE UP TO MARCH 31 2007 AS PER APPLICABLE RBI GUIDELINES ON ACCOUNT OF NATURAL CALAMITIES WHETHER OVERDUE OR NOT. B) IN THE CASE OF AN INVESTMENT LOAN THE INSTALMENTS OF SUCH LOAN THAT ARE OVERDUE (TOGETHER WITH APPLICABLE INTEREST ON SU CH INSTALMENTS) IF THE LOAN WAS: (I) DISBURSED UP TO MARCH 31 2007 AND OVERDUE AS ON DECEMBER 2007 AND REMAINING UNPAID UNTIL FEBRUARY 2 9 2008; (II) RESTRUCTURED AND RESCHEDULE BY BANKS IN 2004 AND IN 2006 THROUGH THE SPECIAL PACKAGES ANNOUNCED BY THE CENTR AL GOVERNMENT; AND (III) RESTRUCTURED AND RESCHEDULED IN THE NORMAL COURSE UP TO MARCH 31 2007 AS PER APPLICABLE RBI GUIDELINES ON ACCOUNT OF NATURAL CALAMITIES. EXPLANATION: IN THE CASE OF AN INVESTMENT LOAN DISBUR SED UP TO MARCH 31 2007 AND CLASSIFIED AS NON-PERFORMING ASSE T OR SUIT FILED ACCOUNT ONLY THE INSTALLMENTS THAT WERE OVERDU E AS ON DECEMBER 31 2007 SHALL BE THE ELIGIBLE AMOUNT. 30. IN RESPECT OF OTHER FARMERS THERE WAS A ONE TIME SE TTLEMENT SCHEME UNDER WHICH THE FARMERS WERE TO BE GIVEN REBATE OF 25% OF THE ELIGIBLE AMOUNT SUBJECT TO THE CONDITION THAT THE FARMERS PAYS THE BALANCE 75% OF THE ELIGIBLE AMOUNT. VIDE PARA 7 OF THE SAI D SCHEME EVERY BRANCH OF SCHEDULED COMMERCIAL BANK REGIONAL RURAL B ANK COOPERATIVE CREDIT INSTITUTIONS URBAN COOPERATIVE BANK A ND LOCAL AREA BANK COVERED UNDER THE SCHEME WERE DIRECTED TO PREPARE TWO LISTS ONE CONSISTED OF SMALL AND MARGINAL SCALE FARMERS WHO WERE ELIGIBLE FOR DEBT WAIVER AND SECOND CONSISTED OF OTHER FARME RS WHO WERE ELIGIBLE TO RELIEF UNDER THE OTS SCHEME. THE LIST SHALL IN CLUDE THE ITA NO.1796/PN/2013 ITA NO.2085/PN/2013 PUNE DIST. CENTRAL CO.OP BANK LTD. 22 PARTICULARS OF LANDHOLDING THE ELIGIBLE AMOUNT AND THE AMOUNT OF DEBT WAIVER OR DEBT RELIEF PROPOSED TO BE GRANTED IN EACH CA SE. FURTHER UNDER CLAUSE 8 OF THE SAID SCHEME IT HAS STIPULATED AS UNDER:- 8. INTEREST AND OTHER CHARGES: 8.1 THE LENDING INSTITUTIONS SHALL NOT CHARGE ANY INTERE ST ON THE ELIGIBLE AMOUNT FOR ANY PERIOD AFTER FEBRUARY 29 200 8. HOWEVER IN THE CASE OF AN OTHER FARMER WHO DEFAULTS IN PAYING HIS SHARE OF THE ELIGIBLE AMOUNT ON OR BEFORE JUNE 30 2009 AND BECOMES INELIGIBLE FOR OTS RELIEF THE BANK MAY CHARGE INTEREST FOR THE PERIOD AFTER JUNE 30 2009. 8.2 INSTALLMENTS OF INVESTMENT CREDIT WHICH FALL OVERD UE AFTER 31.12.2007 SHALL BE RECOVERED BY THE LENDING INSTITUTION S ALONG WITH THE APPLICABLE INTEREST. LENDING INSTITUTIONS MAY HOWEVER IN APPROPRIATE CASES RESCHEDULE THESE INSTALLMENTS I N ACCORDANCE WITH THE NORMAL POLICY OF THE LENDING INSTITUTION CONCERNE D. 31. AS PER CLAUSE 8 THE INSTITUTIONS WERE DIRECTED NOT T O CHARGE ANY INTEREST ON THE ELIGIBLE AMOUNT FOR ANY PERIOD AFTER 29.02.2 008. HOWEVER IN CASE OF OTHER FARMERS WHO DEFAULTS TO PAY HIS SHARE OF ELIGIBLE AMOUNT ON OR BEFORE 30.06.2009 AND BECOMES IN-ELIGIBLE FOR THE RELIEF IT WAS DIRECTED THAT THE BANK MAY CHARGE INTER EST FOR THE PERIOD AFTER 30.06.2009. 32. IN VIEW OF THE SAID SCHEME FORMULATED BY THE CENTRAL GOVERNMENT THE RESERVE BANK OF INDIA DECLARED NORMS OF INCOME RECOGNITION ASSET CLASSIFICATION PROVISIONING AND CAPITAL ADEQU ACY WHICH ARE REPRODUCED UNDER PARA 6.3.1 AT PAGES 26 AND 27 OF THE APPELLATE ORDER. AS PER CLAUSE 3 THE RBI DIRECTS THAT T HE GOVERNMENT HAD CLARIFIED THAT THE LENDING INSTITUTIONS WOULD NOT CHARGE ANY INTEREST ON THE ELIGIBLE AMOUNT FOR THE PERIOD FROM 29.02.200 8 TO 30.06.2009. HOWEVER THE BANKS MAY CHARGE NORMAL RATE O F INTEREST ON THE ELIGIBLE AMOUNT FROM 01.04.2009 UP TO THE DATE OF S ETTLEMENT. THE DATE FOR PAYMENT OF 25% BY WAY OF SINGLE INSTALLMENT BY OTHER FARMERS ELIGIBLE FOR DEBT RELIEF OF 25% GOVT. OF INDIA WAS EXTEN DED TO ITA NO.1796/PN/2013 ITA NO.2085/PN/2013 PUNE DIST. CENTRAL CO.OP BANK LTD. 23 31.12.2009 AND IT WAS FURTHER POINTED OUT THAT IN CASE TH E PAYMENT WAS DELAYED BY FARMERS BEYOND 31.12.2009 THE OUTSTANDI NG AMOUNT IN THE RELEVANT ACCOUNTS OF SUCH FARMERS SHALL BE TREATED AS NPAS. IT WAS ALSO CLARIFIED THAT WHERE THE FARMERS PAY LESS THAN 75 % OF THEIR SHARE THE BURDEN WAS TO BE BORNE BY THE BANKS. FURTHER INSTRUC TIONS WERE GIVEN TO THE BANKS TO MAKE A SUITABLE ENTRIES VIS- -VIS THE AMOUNT TO BE RECEIVED FROM THE GOVT. OF INDIA AGAINST T HE WAIVERS SCHEME. 33. THE CASE OF THE ASSESSEE WAS THAT IN VIEW OF THE A BOVE SAID GUIDELINES OF RBI PURSUANT TO THE AGRICULTURAL WAIVER SCHE ME ANNOUNCED BY THE CENTRAL GOVERNMENT THE ASSESSEE MAD E SUITABLE ENTRIES IN THE BOOKS OF ACCOUNT BY WAY OF NON-RECOGNITIO N OF THE INTEREST INCOME ON SUCH PERFORMING ASSETS OF AGRICULTURAL LO ANS. THE ASSESSEE CLAIMS THAT THE SAID PROVISIONS WERE WRITTEN OFF IN THE BOOKS OF ACCOUNT. THE FIRST ASPECT OF THE ISSUE IS WHETHER THE CLAIM OF THE ASSESSEE CAN BE CONSIDERED AS AN ADMISSIBLE DEDUCTION WH ERE THE ASSESSEE HAD MADE THE ENTRIES IN THE BOOKS OF ACCOUNT IN VIEW OF THE GUIDELINES OF RBI WHICH ARE CONTRARY TO THE MERCANTILE SYS TEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE. WE HAVE IN THE PARA S HEREINABOVE WHILE DECIDING THE ISSUE OF ALLOWABILITY OF DEDUCTION ON ACCOUNT OF AMORTIZATION OF PREMIUM EXPENDITURE FOR HTM SEC URITIES WHERE THE SAID EXPENDITURE WAS BOOKED ON THE BASIS OF T HE RBI GUIDELINES WHICH IN TURN AS PER THE ASSESSING OFFICER WERE CO NTRARY TO THE PROVISIONS OF INCOME TAX ACT HAD HELD THAT AS THE COOPERATIVE BANKS UNLIKE OTHER COMMERCIAL BANKS WERE SUBJECTED TO C ONTROL FROM BOTH RBI AS WELL AS FROM STATE COOPERATIVE DEPARTMENT THE ACCOUNTING TREATMENT FOR A COOPERATIVE BANK IS THEREFORE A RESULT OF GUIDELINES FROM BOTH THE CONTROLLING AUTHORITIES. THE PUNE B ENCH OF ITA NO.1796/PN/2013 ITA NO.2085/PN/2013 PUNE DIST. CENTRAL CO.OP BANK LTD. 24 THE TRIBUNAL IN DCIT VS. KALLAPPANNA AWADE ICHALKARANJI JAN ATA SAHAKARI BANK LTD. (SUPRA) HAD FURTHER HELD WHICH HAS BE EN REFERRED BY US UNDER PARA 10 OF THE ORDER THAT ORDINARILY C OOPERATIVE BANK UNLIKE OTHER COMMERCIAL BANKS ARE SUBJECTED TO DUAL CONTROL FROM BOTH RBI AS WELL AS FROM STATE COOPERATIVE DEPARTMENT. THE ACCOUNTING TREATMENT FOR A COOPERATIVE BANK IS THEREFORE A RES ULT OF GUIDELINES FROM BOTH THE CONTROLLING AUTHORITIES. ORDINARILY A DEDUCTI ON IS NOT AVAILABLE TO AN ASSESSEE UNLESS SPECIFICALLY PROVIDED UNDER THE AC T. THIS IS IRRESPECTIVE OF ACCOUNTING TREATMENT PROVIDED BY TH E ASSESSEE IN ITS BOOKS OF ACCOUNTS. BUT AT THE SAME TIME IT WAS WELL SET TLED THAT DEDUCTION EXPRESSLY MENTIONED UNDER THE ACT ARE NOT EXHAUSTIVE AND PROFIT IS TO BE DERIVED ACCORDING TO ORDINARY COMME RCIAL PRINCIPLES. IN VIEW THEREOF AS IN THE ISSUE RAISED EARLIER WHERE RELIEF HAS BEEN ALLOWED TO THE ASSESSEE ON ACCOUNT OF ENTRIES MADE BY FO LLOWING THE RBI GUIDELINES WE ARE OF THE VIEW THAT SIMILAR CONDUCT OF T HE ASSESSEE IN FOLLOWING THE RBI GUIDELINES ISSUED IS TO BE ADOPTED IN THE HANDS OF THE ASSESSEE. THOUGH THE SAID PROVISION IS WITH REGARD T O THE NON- PERFORMING ASSETS HOWEVER SIMILII IS DRAWN FOR ADJUDICATING T HE PRESENT ISSUE BEFORE US I.E. THE INTEREST DUE ON PERFORMING ASSETS OF AGRICULTURAL LOANS. IN VIEW OF THE PRESENT GUIDELINES WHICH WE RE ISSUED AFTER THE ANNOUNCEMENT OF AGRICULTURAL DEBT WAIVER RELIEF SCHEME BY THE CENTRAL GOVERNMENT THE ASSESSEE WAS TO DE-RECOGN IZE THE INTEREST ON AGRICULTURAL LOANS WHICH WERE PERFORMING ASSETS OF THE A SSESSEE FOR THE YEAR UNDER CONSIDERATION. AS PER THE RBI GUIDELINES THE ASSESSEE WAS ENTITLED NOT TO RECOGNIZE THE INTEREST ON THE ELIGIBLE AMOUNT AND WORK OUT THE INTEREST RELATABLE TO SUCH ELIGIBLE AMOUNT WH ICH IS NOT TO BE RECOGNIZED AS INCOME FOR THE YEAR UNDER CONSIDERATION. ITA NO.1796/PN/2013 ITA NO.2085/PN/2013 PUNE DIST. CENTRAL CO.OP BANK LTD. 25 34. ANOTHER ASPECT TO BE KEPT IN MIND IS THAT IN THE SU CCEEDING YEARS BECAUSE OF THE DEBT WAIVERS SCHEME THE ASSESSEE RECEIVED SUM RS.456.98 CRORES AND RS.346.04 CRORES FROM THE GOVERNMEN T DURING THE YEAR AND RS.110.94 CRORES WAS RECEIVED FROM THE GOV ERNMENT IN THE SUCCEEDING YEARS. THE SCHEME RELATED TO SMALL FARMER S AND HAS BEEN ADOPTED BY THE CENTRAL GOVERNMENT AND THE PAYME NTS AGAINST THE SAME HAVE BEEN PAID. 35. THE ISSUE WHICH HAS TO BE DECIDED IN THE PRESENT FA CTS AND CIRCUMSTANCES FIRST WHAT IS THE ELIGIBLE AMOUNT WHICH IS GOVE RNED BY THE DEBT WAIVER SCHEME OF THE CENTRAL GOVERNMENT AND IN TEREST ON WHICH WAS NOT TO BE RECOGNIZED BY THE ASSESSEE FOLLOWING THE RBI GUIDELINES. FROM THE DETAILS FURNISHED BY THE ASSESSEE THE NECESSARY DATA CANNOT BE CULLED OUT SO IN ALL FAIRNESS WE DEEM IT FIT TO RESTORE THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER WHO SHALL FIRST DETERMINE THE ELIGIBLE AMOUNT WHICH IS COVERED UNDER THE S AID AGRICULTURAL WAIVER SCHEME ISSUED BY THE CENTRAL GOVERNME NT AND THEREAFTER DETERMINE THE INTEREST RELATABLE TO SUCH ELIGIBL E AMOUNT. THE ASSESSEE IS DIRECTED TO FURNISH THE REQUISITE INFORMATIO N / DETAILS BEFORE THE ASSESSING OFFICER AND THE ASSESSING OFFICER THERE AFTER SHALL RECONCILE THE SAME WITH THE DEBT WAIVER SCHEME AND DETE RMINE THE ELIGIBLE AMOUNT. FURTHER THE ASSESSEE CLAIMS THAT THE INT EREST ON SUCH PERFORMING ASSETS THAT ARE COVERED BY AGRICULTURAL WAIVER SCHEME HAS BEEN WRITTEN OFF IN ITS BOOKS OF ACCOUNT. THE ASSESS ING OFFICER IS DIRECTED TO VERIFY WHETHER THE INTEREST ON AGRICULTURAL LOANS HAS BEEN WRITTEN OFF BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT. THE ASSESSING OFFICER THUS SHALL DECIDE THE ISSUE OF ALLOWABILITY OF THE SAID EXPENDITURE IN THE HANDS OF THE ASSESSEE IN LINE WITH OUR DIRECTIONS. ITA NO.1796/PN/2013 ITA NO.2085/PN/2013 PUNE DIST. CENTRAL CO.OP BANK LTD. 26 36. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REV ENUE HAD PLACED RELIANCE ON THE SERIES OF CASE LAWS WHICH ARE FOUND TO BE FACTUALLY DIFFERENT AND THE RATIO LAID DOWN IN THE SAID DECISIO NS IS NOT APPLICABLE TO THE FACTS OF THE CASE. THE GROUNDS OF APPE AL NO.5 TO 7 RAISED BY THE ASSESSEE ARE THUS ALLOWED AS INDICATED ABOVE. 37. THE ISSUE IN GROUND OF APPEAL NO.9 RAISED BY THE ASSE SSEE IS AGAINST THE LEVY OF INTEREST UNDER SECTIONS 234A 234B AN D 234C OF THE ACT. THE LEVY OF INTEREST UNDER SECTIONS 234A 234B AND 234C OF THE ACT IS CONSEQUENTIAL. HENCE THE GROUND OF APPEAL NO.9 R AISED BY THE ASSESSEE IS DISMISSED. ITA NO.2085/PN/2013: REVENUES APPEAL 38. THE ONLY ISSUE RAISED BY THE REVENUE IS AGAINST THE DELETION OF ADDITION OF RS.1 31 60 000/- ON ACCOUNT OF CONTRIBUTION TO TH E RAJYA SWARGA SEVE NIDHI. 39. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE AS SESSEE HAD CLAIMED DEDUCTION ON ACCOUNT OF CONTRIBUTION TO RAJYA SW ARGA SEVE NIDHI OF RS.1 31 60 000/-. THE CLAIM OF THE ASSESSEE WAS TH AT THE CONTRIBUTION WAS MADE TOWARDS STATE CADRE EMPLOYMENT F UND OF @ 10 PAISE PER RS.100/- OF OUTSTANDING AGRICULTURAL CREDIT BU SINESS AS AT THE END OF THE PREVIOUS YEAR. THE ASSESSEE HAD INCURR ED THIS EXPENSES ON 17.12.2009 AMOUNTING TO RS.1 30 19 195/-. THE ASSESSEE WAS ASKED TO EXPLAIN THE BASIS OF THE SAID CLAIM AND WHETHER IT WAS SUPPORTED BY ANY RBI CIRCULAR OR INSTRUCTION. HOWEVER NO CIRCULAR WAS PRODUCED DURING THE ASSESSMENT PROCEEDINGS BUT TH E CONTENTION OF THE ASSESSEE WAS THAT THE SAID PROVISION WAS MADE AS PER THE DECISION OF GOVERNMENT OF MAHARASHTRA DATED 13.10.1989. T HE BANK ITA NO.1796/PN/2013 ITA NO.2085/PN/2013 PUNE DIST. CENTRAL CO.OP BANK LTD. 27 HAD MADE PROVISION FOR ANNUAL CONTRIBUTION TO CO-OPERATIVE STATE CADRE EMPLOYMENT FUND AS PER RULE 53A OF THE MAHARASHT RA CO- OPERATIVE SOCIETIES RULES 1961 AND THE CIRCULAR ISSUED BY THE GOVERNMENT OF MAHARASHTRA CO-OPERATIVE DEPARTMENT NO.1 089/CR- 30 DATED 13.10.1989. IT WAS ALSO STATED THAT THE ASSES SEE COOPERATIVE BANK HAD MADE PAYMENT FOR THE PROVISION MADE FOR ANNUAL CONTRIBUTION TO CO-OPERATIVE STATE CADRE EMPLOYMENT FUN D AS DETAILED BELOW:- DATE AMOUNT 26.09.2009 1 09 92 202/- 17.12.2009 1 30 19 151/- 40. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE AMOUNT DEBITED TO THE FUND WAS NOTHING BUT PROVISION FOR CONTINGENT LIABILITY A ND THE SUM OF RS.1 31 60 000/- THUS ADDED TO THE INCOME OF THE ASSESSEE. 41. BEFORE THE CIT(A) THE ASSESSEE CONTENDED THAT THE CONTRIBUTION WAS MADE AS PER THE STATUTORY PROVISIONS IT WAS ALSO DI VERSION OF INCOME BY OVERRIDING TITLE AT SOURCE. IT WAS ALSO ARGUED THAT IT WAS A PROVISION MADE FOR A DEFINITE AND AN ASCERTAINED LIABILITY AS T HE CONTRIBUTION WAS MADE TOWARDS STATE CADRE EMPLOYMENT F UND AT 10 PAISE PER RS.100/- OF OUTSTANDING AGRICULTURAL CREDIT BUSINE SS AS AT THE END OF THE PREVIOUS YEAR AS PER THE MCS RULES AND THE ORDERS OF THE STATE GOVERNMENT. THE CIT(A) ALLOWED THE CLAIM OF TH E ASSESSEE HOLDING THE SAID CONTRIBUTION MADE BY THE ASSESSEE TO BE A STATUTORY LIABILITY AND NOT CONTINGENT LIABILITY. 42. THE REVENUE IS IN APPEAL AGAINST THE SAID ORDER OF CIT(A). ITA NO.1796/PN/2013 ITA NO.2085/PN/2013 PUNE DIST. CENTRAL CO.OP BANK LTD. 28 43. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED TH E RECORD. THE ISSUE ARISING BY THE GROUNDS OF APPEAL RAISED BY THE REVENUE IS AGAINST THE ORDER OF CIT(A) IN ALLOWING THE CLAIM OF THE ASSE SSEE TO THE EXTENT OF RS.1 31 60 000/- WHICH WAS A PROVISION MADE FOR CONTRIBUTION TO THE RAJYA SWARGA SEVE NIDHI CLAIM. THE CIT(A) VIDE PARA 5.2 NOTED THAT THE CONTRIBUTION IN QUESTION WAS MA DE BY THE ASSESSEE AS PER THE ORDERS OF THE STATE GOVERNMENT IS SUED UNDER MCS ACT. THE RELEVANT PROVISIONS OF MCS ACT I.E. SECTION 69A IS REPRODUCED BY THE CIT(A) UNDER PARA 5.2 AT PAGES 16 17 AND 18 OF T HE APPELLATE ORDER WHICH ARE BEING REFERRED TO BUT ARE NOT BEING REP RODUCED FOR THE SAKE OF BREVITY. FURTHER THE RELEVANT MCS RULES I.E. RULE 5 3A PROVIDING THE RATES OF ANNUAL CONTRIBUTION WERE ALSO SCANN ED AND REPRODUCED BY THE CIT(A) UNDER PARA 5.3 AT PAGES 18 AN D 19 OF THE APPELLATE ORDER WHICH ARE ALSO BEING REFERRED TO AND NOT BEING REPRODUCED. THE CIT(A) VIDE PARA 5.4 HELD AS UNDER:- 5.4 ON A PERUSAL OF THE ABOVE PROVISIONS IT COULD BE NOTICED THAT AS PER THE PROVISIONS OF MCS ACT AND MCS RULES A FUN D TO BE CALLED 'THE CO-OPERATIVE STATE CADRE EMPLOYMENT FUND' W AS ESTABLISHED AND IT SHALL BE UTILIZED FOR MEETING THE EXPENSES ON THE SALARIES ALLOWANCES AND OTHER EMOLUMENTS TO BE PAID TO THE PERSONS APPOINTED TO THE CO- OPERATIVE STATE CADRE A ND THE OTHER EXPENDITURE RELATING TO THE CADRE. EVERY SOCIETY OR CLASS OR CLASSES OF SOCIETIES WHICH IN THE OPINION OF THE STATE GO VERNMENT DERIVE ANY BENEFIT DIRECTLY OR INDIRECTLY FROM THE SERVICES OF ANY SECRETARY BELONGING TO THE COOPERATIVE STATE CADRE O F SECRETARIES AND EVERY OTHER BODY CORPORATE CARRYING ON ANY TRADE BUSI NESS OR INDUSTRY OR CLASS OR CLASSES OF SUCH CORPORATE BODI ES WHICH IN THE OPINION OF THE STATE GOVERNMENT DERIVES SUCH BENEF IT AS AFORESAID AND WHICH ARE NOTIFIED BY THE STATE GOVER NMENT IN THIS BEHALF CONTRIBUTE ANNUALLY TO THE SAID FUND AT SUCH RATE AND IN SUCH MANNER AS MAY BE PRESCRIBED. THE APPELLANT BANK IS ONE ON THE NOTIFIED BODIES INCLUDED' AT S. NO.6 OF THE TABLE R EPRODUCED HEREINABOVE AND ACCORDINGLY HAS MADE PROVISION FOR ANNUAL CONTRIBUTION TO CO. OP. STATE CADRE EMPLOYMENT FUND AS PER RU LE 53A OF MCS RULES 1961 AND CIRCULAR DATED 13 TH OCT. 1989 ISSUED BY GOVT. OF MAHARASHTRA AND IT IS BUSINESS EXPENDITUR E. IT IS ALSO IMPORTANT TO NOTE THAT UNDER SUB-SECTION (5) OF SEC. 69 A OF MCS ACT THE REGISTRAR IS EMPOWERED TO ISSUE DEMAND NOTICE I N CASE THE SOCIETY FAILS TO PAY THE CONTRIBUTION AS REQUIRED BY SUB-SECTION (4) OF SEC. 69A AND SUCH DEMAND SHALL BE A CHARGE ON THE INCOME OF ITA NO.1796/PN/2013 ITA NO.2085/PN/2013 PUNE DIST. CENTRAL CO.OP BANK LTD. 29 THE SOCIETY. THE APPELLANT BANK CONTROL OVER THE UTIL IZATION OF FUND. A SIMILAR QUESTION CAME UP BEFORE MADHYA PRADESH COU RT IN THE CASE OF KESHKAL CO-OPERATIVE MARKETING SOCIETY LTD. V. CIT (165 ITR 437). IN THAT CASE THE CO-OPERATIVE SOCIETY WAS U NDER THE OBLIGATION TO CREATE A FUND WHICH IS TO BE MANAGED BY THE REGISTRAR OF THE COOPERATIVE SOCIETIES AND IN THAT CONTEXT IT WAS HELD THAT THIS FUND WILL NOT BE INCLUDIBLE IN THE INCOM E OF THE ASSESSEE. IN THE PRESENT CASE ALSO THE CONTRIBUTION H AS TO BE TAKEN OUT FROM THE INCOME OF THE APPELLANT UNDER THE REQUIREMENT OF THE STATUTORY PROVISIONS AND THEREFORE IN MY CON SIDERED OPINION IT IS NOT APPLICATION OF INCOME OR APPROPRIAT ION OUT OF THE PROFITS. THE PROVISION FOR CONTRIBUTION CANNOT BE SA ID TO BE A PROVISION FOR CONTINGENT LIABILITY AS THE AMOUNT TO B E CONTRIBUTED EVERY YEAR IS FIXED BY THE STATE GOVT. UNDER MCS RULE S AND SUCH AMOUNT HAS TO BE PAID TO THE FUND. IN FACT THE APPELL ANT HAS PAID THE FOLLOWING AMOUNTS TO THE FUND IN THE SUBSEQUENT Y EAR OUT OF THE OPENING BALANCE OF THE PROVISION AND THE PROVIS ION MADE OF RS.1 31 60 000/- DURING THE YEAR. DATE AMOUNT 26.09.2009 1 09 92 202/- 17.12.2009 1 30 19 151/- IN VIEW OF THE ABOVE FACTS IT IS NOT CORRECT TO SAY THAT THE PROVISION WAS MADE BY THE APPELLANT FOR A CONTINGENT LIABILITY. T HE LIABILITY IS AN ASCERTAINED LIABILITY WHICH WAS ALSO DISCHARGED BY THE APPELLANT BY MAKING ACTUAL PAYMENTS TO THE FUND IN THE SUBSEQUENT YEAR. 44. THE FINDING OF THE CIT(A) IS THAT THE CONTRIBUTION MADE BY THE ASSESSEE WAS A STATUTORY REQUIREMENT AND WAS NOT APP LICATION OF INCOME OR APPROPRIATION OUT OF PROFITS. WE ARE IN CONFORMITY WITH THE OBSERVATIONS OF CIT(A) THAT THE PROVISION MADE BY THE ASS ESSEE CANNOT BE SAID TO BE A PROVISION FOR CONTINGENT LIABILITY BECAUSE TH E AMOUNT WAS CONTRIBUTED BY THE ASSESSEE FROM YEAR TO YEAR AND THE CONTRIBUTION IS FIXED BY THE STATE GOVERNMENT UNDER THE MCS RULES. ONCE THE AMOUNT IS SO FIXED BY THE STATE GOVERNMENT A ND THE SAME IS PAID BY THE ASSESSEE TO THE SAID FUND THEN THE SAME IS TO BE ALLOWED AS A DEDUCTION IN THE HANDS OF THE ASSESSEE. UNDOUBTED LY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD MADE A PROVISION OF RS.1 31 60 000/- BUT THE SAID AMOUNT WAS PAID IN THE SUCC EEDING YEAR I.E. RS.1 09 92 202/- ON 26.09.2009 AND RS.1 30 19 151/- ON ITA NO.1796/PN/2013 ITA NO.2085/PN/2013 PUNE DIST. CENTRAL CO.OP BANK LTD. 30 17.12.2009. THE LIABILITY BEING AN ASCERTAINED LIABILITY WHICH IN T URN WAS DISCHARGED BY THE ASSESSEE BY MAKING PAYMENT IN TH E SUCCEEDING YEAR IS AN ALLOWABLE EXPENDITURE IN THE HANDS OF THE ASS ESSEE. UPHOLDING THE ORDER OF CIT(A) WE DISMISS THE GROUNDS OF APP EAL RAISED BY THE REVENUE. 45. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF NOVEMBER 2014. SD/- SD/- (G.S. PANNU) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE DATED: 28 TH NOVEMBER 2014. GCVSR COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-I PUNE; 4) THE CIT-I PUNE; 5) THE DR A BENCH I.T.A.T. PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T. PUNE