Income Tax Appellate Tribunal - Indore
M/S. Jhabua Dhar Kshetriya Gramin Bank, ... vs The Dcit, Ratlam on 6 September, 2018
Jhabua Dhar Kshetriya Gramin Bank
ITA No.106 to 114/Ind/2017
आयकर अपील
य अ धकरण, इंदौर यायपीठ, इंदौर
IN THE INCOME TAX APPELLATE TRIBUNAL,
INDORE BENCH, INDORE
BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER
AND SHRI MANISH BORAD, ACCOUNTANT MEMBER
ITA No.106 to 114/Ind/2017
Assessment Years: 2008-09 to 2012-13
M/s Jhabua Dhar DCIT, Ratlam
Kshetriya Gramin Bank, Vs.
Near D.R.P. Line, Jhabua
(Appellant) (Respondent )
PAN No.AAAAJ0292Q
Revenue by Shri Lalchand, CIT
Assessee by Shri S.S. Deshpande,CA
Date of Hearing 16.8.2018
Date of Pronouncement 06.9.2018
ORDER
PER BENCH.
The above captioned 9 appeals are filed at the instance of the assessee. Appeal Nos. 107, 109, 111, 113 & 114/Ind/2017 are directed against the order of dated 03.11.2016 arising out of the order u/s 143(3) of the Act for Assessment Years 2008-09 to 2012-
13. The remaining 4 appeal bearing Nos. 106, 108, 110 & 1 Jhabua Dhar Kshetriya Gramin Bank ITA No.106 to 114/Ind/2017 112/Ind/2017 are directed against the order of dated 03.11.2016 arising out of the order u/s 143(3) r.w.s. 147 of the Act for Assessment Years 2008-09 to 2011-12.
2. As the issues raised in these appeals are mostly common, these were heard together and are being disposed off by this common order for the sake of convenience and brevity.
3. From perusal of the ground of appeals raised by the assessee in these 9 appeals, we find that the common issues can be categorized into two parts.
4. Firstly which are arising out of the assessment orders framed u/s 143(3) of the Act pertaining to Assessment Year 2008-09 to 2013-14 by ITA No.107, 109, 111, 113 & 114/Ind/2017;
(i) Disallowance of amortization of expenses on government securities for Assessment Years 2008-09 to 2012-13;
(ii) Disallowance of claim u/s 36(1)(viia) of the Act for Assessment Year 2013-14.
5. Secondly the issue arising out of the orders framed u/s 143(3) r.w.s. 147 of the Act;
2Jhabua Dhar Kshetriya Gramin Bank ITA No.106 to 114/Ind/2017
(i) Challenging the validity of notice u/s 148 of the Act as well as the reassessment proceedings made u/s 147 of the Act.
(ii) Disallowance of provision for bad and doubtful debts u/s 36(1)(viia) of the Act.
(iii) Disallowance of excess provision for non performing of assets for Assessment Year 2009-10
(vi)Disallowance of amortization of expenses for government securities for Assessment Year 2011-12
6. Briefly stated facts as culled out from the records are that the assessee is a Regional Rural Co-operative Bank engaged in the business of banking in Jhabua and Dhar Districts. Return of income for Assessment Years 2008-09, 2009-10, 2010-11, 2012-13 and 2013-14 were duly submitted and the cases were selected for scrutiny. Assessment orders u/s 143(3) of the Act were framed in which disallowance for amortization of expenses for Government securities was made for Assessment Years 2008-09, 2010-11, 2012- 13 and 2013-14 and disallowance of provision for bad and doubtful debts u/s 36(1)(viia) of the Act was made for Assessment Years 3 Jhabua Dhar Kshetriya Gramin Bank ITA No.106 to 114/Ind/2017 2012-13 and 2013-14 which the assessee had claimed in its computation of income but has not debited to the profit and loss account. In the course of assessment proceedings for the Assessment Year 2012-13 and 2013-14 when the disallowances u/s 36(1)(viia) of the Act was made on the basis of judicial pronouncements. Ld.AO issued notices u/s 148 of the Act for reopening of the assessment completed for Assessment Years 2008- 09, 2009-10, 2010-11 and 2011-12, after duly serving the notices u/s 148, 142(1) and 143(2) of the Act along with the questionnaire.
The Ld.A.O disallowed the provision for bad and doubtful debts u/s 36(1)(viia) of the Act for the reopened assessments for Assessment Years 2008-09 to 2011-12. Disallowance of excess provision for non performing assets for Assessment Year 2009-10 and disallowance of amortization of expenses on government securities was made for Assessment Year 2011-12. All these disallowances made by the Ld.A.O u/s 143(3) as well as 143 r.w.s 147 of the Act for the assessment years referred above were confirmed by the Ld.CIT(A).
7. In the following chart details of type of addition, Assessment Years, amount of addition/disallowance are mentioned.
4Jhabua Dhar Kshetriya Gramin Bank ITA No.106 to 114/Ind/2017 (A) Addition made during Regular assessment u/s 143(3) of the Act;
Assessment ITA No Amortization of Provision for
Year expenses for bad & doubtful
Government debts u/s
Securities 36(1)(viia)
2008-09 107 58,35,000/- -
2009-10 109 55,80,080/- -
2010-11 111 56,91,000/- -
2012-13 113 58,04,000/- 19,83,19,858/-
2013-14 114 - 14,06,63,980/-
(B) Addition made during reopening of Assessment u/s 143(3) r.w.s. 147 of the Act.
Assessment ITA No 36(1)(viia) Excess Amortization
Year provision
taxed
2008-09 106 13,09,86,295/- -
2009-10 108 16,90,61,833/- 6,13,39,600/-
2010-11 110 16,66,59,199/- -
2011-12 112 16,33,02,639/- 58,04,000/-
8. We will first take up the issue of re-opening of the assessment for Assessment Years 2008-09 to 2011-12.
5Jhabua Dhar Kshetriya Gramin Bank ITA No.106 to 114/Ind/2017
9. The Ld. Counsel for the assessee made following written submissions challenging the validity of reopening of assessment for the Assessment Years 2008-09 to 2011-12 as under;
"The assessee M/s Jhabua Dhar Kshetriya Gramin Bank: (hereinafter called the Bank) is a Regional Rural Bank (RRB) sponsored by Bank of Baroda (a nationalized bank). The shareholdings are held by the Central Govt., State Govt. and the Sponsored Bank is. Bank of Baroda. No shares are issued for any private contribution. All the RRBs' are declared as a scheduled bank: by the Reserve Bank: of India. The assessee is governed by RRB Act 1976. The NABARD and RBI are supervisory and controlling authorities.
2.The assessee bank is a regular assessee and is filing the returns since many years. The returns for various years are filed as under.
A.Y. Income Date of filing return Claim u/s
Returned 36(1)(viia)
2008-09 -6,75,51,723/- 29.08.2008 15,90,14,543/-
2009-10 -15,14,30,724/- 29.09.2009 16,90,61,833/-
2010-11 -7,93,37,806/- 21.09.2010 16,66,59,199/-
2011-12 -12,56,76,784/- 29.09.2011 16,33,02,6391-
The assessments for the A.Y. 2008-09; 2009-10 and 2010-11 were framed u/s 143(3). The return for the A.Y. 2011-12 was processed u/s 143(1). While filing the returns, the assessee has claimed the deduction u/s 36(1)(viia) as per the limits prescribed in the section. However the provisions were made at a lesser figure. The claim was made in the computation with a specific remark as under.6
Jhabua Dhar Kshetriya Gramin Bank ITA No.106 to 114/Ind/2017 U/s 36(1)(viia)(a) 7.5 of total income 62,49,943/- U/s 36(1)(viia)(a) 10 of aggregate avg. rural 15,27,64,7001- Advances of Rs. 15276.46 Lacs.
This was done on the basis of the judgment of the Hon'ble Bangalore Bench in the case of Syndicate Bank. Subsequently, indirectly by way of a remark the Hon'ble Supreme Court in the case of Southern Technologies reported in 320 ITR 577 (Para 41 P. 610 of the report) has affirmed such a claim. The Ld. AO raised a specific query in respect of this deduction. The assessee gave a detailed reply with the working of the advances. After considering the same the Ld. AO allowed the claim of the assessee while passing the original order u/s 143(3). The assessments for the A.Y. 2008-09 was reopened on 24.03.2015 beyond four years and subsequent assessments for the A.Yrs. 2009- 10 to 2011-12 were reopened within the expiry of four years. These assessments have been reopened on the ground that the claim of deduction u/s 36(1) (viia) is not allowable since the assessee has not made the provisions. While filing the return the assessee claimed the deduction in computation of income on the basis of the maximum availability prescribed u/s 36(1)(viia). The actual provision made in the books has been added in the income.
3. It was submitted before the lower authorities that the reopening of the assessment is bad in law because it is a mere change of opinion and all the necessary material was filed before the Ld. AO. The assessments were framed allowing the deduction u/s 36(1)(viia) after considering all the material produced before the Ld. AO. The assessment for the A.Y. 2008-09 has been reopened beyond four years and all the necessary papers were filed before the Ld. AO. Thus there is no failure on the part of the assessee to disclose fully or truly all material facts necessary for the assessment.
4.The Ld AO did not accept the contention of the assessee about the 7 Jhabua Dhar Kshetriya Gramin Bank ITA No.106 to 114/Ind/2017 reopening of the case and has disallowed the claim made u/s 36(1)(viia) on the ground that the claim would be allowable only on the basis of actual provision made in the books and not on the basis of the allowability u/s 36(1)(viia). It is submitted that the assessee has made this claim on the basis of the decision of the Bangalore Bench in the case of Syndicate Bank. Subsequently, indirectly by way of a remark the Hon'ble Supreme Court in the case of Southern Technologies reported in 320 ITR 577 (Para 41 P. 610 of the report) has affirmed such a claim. However, the Hon'ble Tribunal Indore Bench in the case of Narmada Gramin Bank has held that the claim can be allowed only on the basis of actual provision made in the books of accounts. The matter is pending before the Hon'ble High Court of Madhya Pradesh.
5.The Ld. CIT(A) upheld the contention of the Ld. AO and dismissed the appeal on this ground.
6.While filing the returns the assessee has specifically claimed the said deduction and the Ld. AO has allowed the same after due consideration. Now the reopening of the assessment is a mere change of opinion and as such it is submitted that the action of reopening is bad in law and without jurisdiction. In this connection, attention is drawn to the following cases.
District Cooperative Bank Ltd. Vis DCIT, (All.) Page 47 of PN. Section 36(l)(viia) read with section 147 of income tax act. Section 147 authorises and permits the A.O to assess or reassesses of income chargeable to tax if he has reason to believe that the income has income escaped assessment. In the instant case there has been an assessment u/s 143(3) the books of accounts were produced and the same were scrutinized the profit and loss account was checked and only there after the net loss was determined. Merely because the audit report opined that certain expenses were not allocable u/s 36(1)(viia) did not entitle the assessing officer to issue a notice u/s 148.8
Jhabua Dhar Kshetriya Gramin Bank ITA No.106 to 114/Ind/2017 CIT Versus Fujistu Optel Ltd (359 ITR 67) Madhya Pradesh High Court CIT v/s. Trimurti Builders (M.P.) (246 CTR 308) CIT Vs. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC) CIT v/s Orient Craft Ltd (354 ITR 536) (Del) court Ranbaxy Laboratories Ltd Versus Deputy Commissioner of Income Tax and OTR 351 ITR 23 Delhi High Court .
Rubamin Ltd. Vis. Love Kumar (253 ITR 432) (Guj.) Ashwamegh Co-operative Housing Society vis. DCIT (353 ITR 413) (Guj.) Metal Alloys Corporation v/s. ACIT (350 ITR 245) (Guj.) Mrs. Parveen P. Bharucha vis. CIT (348 ITR page 325) (Mumbai) NDT Systems vis. ITO (255 CTR page 113) (Born.) Vishwanath Engineers vis. ACIT (354 ITR page 211) (Guj.) Maruti Suzuki vis. DCIT (356 ITR page 209) DCIT V Anjala Exhibitors I.T.A.T. Delhi Bench ITA No.4797, 4798, 4799/Del/2012 Dist. Co.Op Bank Ltd V DCIT High Court of Allahabad (2015) 62 taxmann.com 248 (Allahabad)
10. The Ld. Counsel for the assessee further submitted that for the AY 2008-09, the Ld. A.O had raised specific queries in respect of the amortization of securities and the details about the advances by rural branches. The details about the advances by the rural branches were called in connection with deduction u/s 36(1)(viia). This will be apparent from the entry in the order sheet. The assessee gave a detailed reply explaining the various claims. This fact would be clear from the subsequent entry in the order sheet, which specifically mentions that the details asked for have been 9 Jhabua Dhar Kshetriya Gramin Bank ITA No.106 to 114/Ind/2017 furnished by the assessee. Thus it is very clear that the Ld.AO specifically asked for the details and after considering the details, he has passed the assessment order by making addition for amortization of securities. From the details of the order sheet entry, it is clear that the Ld.AO asked for the details after considering the specific deduction claimed in the return u/s 36(1)(viia) (Page 26 of PB). This fact has also been mentioned in the original assessment framed, which is evident from Para 6 on page 02 of the assessment order. Thus it is submitted that all the material facts were already before the Ld.A.O and have been considered while framing the assessment. The same fact about claiming the deduction u/s 36(1)(viia) has been mentioned in the assessment order for the AY 2009-10 and 2010-11 with the identical wordings. Thus it is submitted that the reopening of the assessment is bad in law since all material facts were submitted during the assessment proceedings. It is a mere change of opinion on the same facts on record and as such, the assessments so framed deserve to be annulled.
11. On the other hand Ld. Departmental Representative vehemently argued in supporting the findings of Ld.CIT(A) and submitted that there was no change of opinion. However, Ld. Departmental Representative conceded to this fact that the reopening of assessment for the Assessment Year 2008-09 was beyond four years from the end of the relevant assessment year.
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12. We have heard rival contentions and perused the records placed before us carefully and also gone through the plethora of judgments referred and relied upon by the Counsel for the assessee. The common issue raised by the assessee for Assessment Year 2008-09 to 2011-12 is challenging of the validity of reopening of assessment by way of issuing of notice u/s 148 and subsequently framing the assessment u/s 143(3) r.w.s 147 of the Act. Crux of the submissions made by the Ld. Counsel for the assessee is that all the details in connection with the deduction claimed by the assessee u/s 36(1)(viia) of the Act were very much available with the Assessing Officer during the assessment u/s 143(3) of the Act and the assessments were concluded after examining the relevant details filed by the assessee. No new facts came up before the assessing authority and therefore the reopening was merely based on account of change of opinion. Relying on various judgments, it is contended that reopening of assessments for mere change of opinion are not valid.
13. As regards assessment for A.Y. 2008-09 is concerned we observe that notice u/s 148 of the Act was issued on 24.3.2015 and this date falls after the completion of four years from the end of the assessment year 2008-09. For assessment year 2008-09 the assessee duly filed return of income and assessment completed u/s 143(3) of the Act and has submitted all material facts necessary for the assessment. All these facts shows that the first proviso to section 147 of the Act is squarely applicable on the given facts for 11 Jhabua Dhar Kshetriya Gramin Bank ITA No.106 to 114/Ind/2017 A.Y. 2008-09 and the reopening is beyond four years from the end of relevant assessment year and thus cannot be held to be valid. We therefore find force in the contentions of the Ld. Counsel for the issue of reopening raised for A.Y. 2008-09 and accordingly quash the reassessment proceedings u/s 147 for Assessment Year 2008- 09 and allow the relevant ground for assessment year 2008-09 in favour of the assessee.
14. As regards the remaining Assessment Years 2009-10 to 2011- 12 are concerned, we find that the issue relating to claim of provision u/s 136(1)(viia) of the Act as well as the excess provision for non performing assets was the basis. Assessee claimed deduction u/s 136(1)(viia) of the Act only in the computation of income and no such provision was actually made in the profit and loss account. It is true that the details of the deduction claim u/s 136(1)(viia) was available on record but the legal angle of examining this claim was not discussed at length during the course of assessment u/s 143(3) of the Act. The claim of the assessee were based on certain judicial pronouncements which the Assessing Officer later on found to be favouring the revenue. This change of legality of the issue triggered the issuance of notice u/s 148 of the Act. It is not disputed that the notice issued u/s 148 of the Act for Assessment Year 2009-10 and 2010-11 are within the period of four years from the end of relevant assessment years. The reasons have duly been recorded and the need of issuance of notice was due to the alleged excess provisions claimed for provisions for bad and 12 Jhabua Dhar Kshetriya Gramin Bank ITA No.106 to 114/Ind/2017 doubtful debts u/s 36(1)(viia).
15. We have gone through all the judgments relied by the assessee but do not find them to be applicable in the facts of the instant appeals and therefore in the given facts and circumstances of the case, find no inconsistency in the findings of Ld.CIT(A) confirming the validity of action taken by the Ld.A.O for issuing the of notice u/s 148 of the Act as well as conducting reassessment proceedings. As such the common issue relating to challenging of assessment proceedings by the assessee for Assessment Year 2009-10 to 2010- 11 is dismissed.
16. Now we take up the common issue relating to disallowance u/s 36(1)(viia) of the Act confirmed by the Ld.CIT(A) for Assessment Year 2009-10 to 2013-14 for the amounts mentioned in the preceding para 7.
17. At the outset Ld. Counsel for the assessee was fair enough to concede that this issue is covered against the assessee by the decision of Coordinate Bench in the case of M/s. Narmada Malwa Grameen Bank Vs ACIT 2(1), Indore M.A No. 104/Ind/2012 arising out of I.T.A No.162/Ind/2011 dated 16.04.2013.
18. Per contra the Ld. Departmental Representative supported the order of the Tribunal in the case of M/s. Narmada Malwa Grameen Bank Vs ACIT 2(1), Indore (supra).
13Jhabua Dhar Kshetriya Gramin Bank ITA No.106 to 114/Ind/2017
18. We have heard rival contentions and perused the records placed before us. We find that the Ld.A.O while framing the assessment u/s 143(3) of the Act for A.Y. 2012-13 and 2013-14 as well as during the reassessment proceedings for A.Y. 2009-10 to 2011-12 commonly observed that the deduction u/s 36(1)(viia) of the Act is allowable only to the extent of the provision made in the books of accounts. For coming to this conclusion the Ld.A.O referred and relied on the judgment of Hon'ble High Court of Punjab & Haryana in the case of State Bank of Patiala V/s CIT (2005) 272 ITR 54, decision of Coordinate Bangalore Bench in the case of Syndicate Bank ITA No.708 & 709/Bang/2010, another decision of ITAT Bangalore Bench in the case of Canara Bank ITA No.58/Bang/2004 as well as decision of ITAT, Chennai Bench in the case of Vellore Estate Co-operative Bank, ITA No.914/Mad/2013. The Ld.A.O accordingly restricted the allowance deduction u/s 36(1)(viia) limiting provision to the extent of provisions made for bad and doubtful debts in the books of accounts as the assessee made a lower amount shown in the books of accounts but made higher claim as per limits prescribed u/s 36(1)(viia) of the Act.
19. We further find that the view of the Ld.A.O has been held to be correct by the Coordinate Bench in the case of M/s. Narmada Malwa Grameen Bank Vs ACIT 2(1), Indore (supra) observing as follows;
"2. We have gone through the order of the Tribunal dated 29/03/2013 wherein the issue with regard to allowability of claim of deduction u/s 14 Jhabua Dhar Kshetriya Gramin Bank ITA No.106 to 114/Ind/2017 36(1)(viia) of the Act was decided after discussing various decisions of Hon'ble Supreme Court as well as High Court in para 11 to 16, the issue with regard to quantification of deduction u/s 36(1)(viia) was restored to the file of the Assessing Officer for recomputing the claim of deduction to the extent of amount written off in the books of account, even though such write off was not partywise. The contention of Ld.A.R was that full amount of provision for bad and doubtful debt should be allowed irrespective of entry made in the books of account. We are jot in agreement with the assessee's contention in so far as provision contained in clause (viia) of section 36 clearly starts with word "in respect of provision for bad and doubtful debt made by schedule bank..." Thus, to the extent of provision made for bad and doubtful debts in the books of account, can be allowed. We do not find any mistake in the order of the Tribunal, which can be rectified u/s 254(2) of the Act. On the contrary, the Tribunal, which can be rectified u/s 254(2) of the Act. On the contrary, the Tribunal has given a favourable finding and direction to the Assessing Officer to allow the claim of deduction to the extent of amount written off in the books of account notwithstanding the fact that such write off was not partywise. This observation was made keeping in view the verdit of Hon'ble Supreme Court in the case of Vijaya Bank 323 ITR 166"
In the result, the Misc. Application of the assessee is dismissed".
20. We therefore respectfully following the decision of Coordinate Bench of Indore in the case of M/s. Narmada Malwa Grameen Bank Vs ACIT 2(1), Indore (supra) as well as the judgments referred and relied by the Assessing Officer, find no reason to interfere in the findings of Ld.CIT(A) confirming the disallowance of claim u/s 36(1)(viia) of the Act made by the Ld.A.O in assessment framed u/s 143(3) of the Act for Assessment Year 2012-13 and 2013-14 and 15 Jhabua Dhar Kshetriya Gramin Bank ITA No.106 to 114/Ind/2017 those made in order made u/s 143(3) r.w.s. 147 of the Act for Assessment Years i.e 2009-10 to 2011-12. This common issue is decided against the assessee and the relevant ground relating to this issue of the assessee are dismissed.
21. Next common issue relates to disallowance of amortization of expenses for government securities.
22. Brief fact relating to this issue are that the assessee debited certain amount towards amortization of premium paid on government securities contending that the amortization have been made as per the guidelines issued by Reserve Bank of India dated 16.10.2000, as per which the investment portfolio of the banks is required to be classified under three categories i.e Head to Maturity (HTM), Held for Trading (HFT) and Available for Sale (AFS). Ld.A.O however did not support the claim of expense made by the assessee observing that the government securities were acquired with the intention to "hold up to the maturity" and therefore they are in the nature of capital assets and therefore had to be valued at cost only and not on that of "cost or market price whichever is less". For this reason the addition/disallowance was made for Assessment Year 2008-09 to 2012-13 in the assessment framed u/s 143(3) of the Act and for Assessment Year 2011-12 in the reassessment proceedings u/s 147 of the Act for the amounts mentioned in the table provided in para 7 of this order.
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23. The appeal filed by the assessee against the alleged disallowance did not find any favour from Ld.CIT(A) and now the assessee is in appeal before the Tribunal.
24. The Ld. Counsel for the assessee submitted that;
"1.The assessee M/s Jhabua Dhar Kshetriya Gramin Bank (hereinafter called the Bank) is a Regional Rural Bank (RRB) sponsored by Bank of Baroda (a nationalized bank). The shareholdings are held by the Central Govt., State Govt. and the Sponsored Bank M/s. Bank of Baroda. No shares are issued for any private contribution. All the RRBs' are declared as a scheduled bank by the Reserve Bank of India. The assessee is governed by RRB Act 1976. The NABARD and RBI are supervisory and controlling authorities.
2.During all these years, the assessee has made a provision for amortization of the premium paid on the purchase of the Govt. securities which are held as stock in trade. The same has been provided as per the guidelines and instructions of the Reserve Bank of India. In this connection, the attention is drawn to the Circular of the Board bearing no. 599 dated 24/04/1991 which provides "The Board has considered the treatment to be accorded to securities held by the Banks. The question whether a particular item of investment in securities constitutes the stock in trade or a capital asset is a question of fact. In fact, the banks are generally governed by the instructions of the Reserve Bank of India from time to time with regard to the classification of assets and also the accounting standards for Investments. The Board has therefore, decided that the Assessing Officers should determine on the facts and circumstances of each case as to whether any particular security constitutes stock in trade or investments taking into account the guidelines issued by the Reserve Bank of India in this regard".17
Jhabua Dhar Kshetriya Gramin Bank ITA No.106 to 114/Ind/2017 This circular was withdrawn after the decision of the Vijaya bank Ltd. and a clarification was made that the securities must be regarded as stock in trade by the bank. Therefore the claim of loss if debited in the books of accounts would be given the same treatment as is normally given to the stock in trade.(pg.68-69 of Pb). Subsequently circular no. 665 dated 0511 011993 it was again clarified that the banks are generally governed by the instructions of the Reserve Bank of India from time to time with regard to classification of assets and also accounting standards for investment. The board has therefore decided that the Ld. AO should determine on the facts and circumstances of each case as to whether any particular security constitutes stock in trade or investment taking into account the guidelines issued by the Reserve Bank of India. Subsequently the board has issued the further instruction No. 17/2008 dated 26.11.2008 wherein it has instructed "As per RBI guidelines dated 16th October 2000, the investment portfolio of the banks is required to be classified under three categories viz. Held to Maturity (HTM), Held for Trading (HFT) and Available for Sale (AFS). Investments classified under HTM category need not be marked to market and are carried at acquisition cost unless these are more than the face value, in which case the premium should be amortised over the period remaining to maturity. In the case of HFT and AFS securities forming stock in trade of the bank, the depreciation / appreciation is to be aggregated scrip wise and only net depreciation, if any, is required to be provided for in the accounts. The latest guidelines of the RBI may be referred to for allowing any such claims. "
3.The Reserve Bank of India has classified the securities under two heads- Mark to Market norms and SLR Securities held under Held to Maturity. The Securities held by the Bank on the basis of Held to Maturity would mean that the valuation on the Book Value basis would be done and if the cost of acquisition is more than face value, then the 18 Jhabua Dhar Kshetriya Gramin Bank ITA No.106 to 114/Ind/2017 premium paid should be amortised over a period remaining to maturity. In the instant case, the assessee has purchased the Govt. securities as a stock in trade and are held for the purposes of maintenance of SLR (Statutory Liquidity Ratio). They have been classified as 'Held on Maturity' .
4.While framing the assessments of the years, the Ld. AO disallowed the claim of assessee for amortisation of income. The Ld. AO observed that the securities are held up to the maturity and are in the nature of capital asset and as such they have to be valued at cost. He further observes that it may be prudent from the banking point of view to amortise the premium on HTM but is not allowable under the Income tax Act. On this basis, the Ld. AO disallowed the claim of the assessee for amortization of expenses on Govt. securities. The details of disallowances for amortization are as under.
A.Y. 2008- 09 - Rs. 58,35,000 A.Y. 2009- 10 - Rs. 55,80,080 A.Y. 2010- 11 - Rs. 56,91,000 A.Y. 2011- 12 - Rs. 58,04,000 A.Y. 2012- 13 - Rs. 58,04,000
5.The Ld. CIT(A) dismissed the assessee's appeal on the ground that the premium paid on HTM is not allowable expenditure since the capital assets are valued at cost price only. The RBI direction cannot override the provisions of the IT Act. The Ld CIT(A) has wrongly relied on the provisions of sec. 36(1 )(viia). He dismissed the assessee's appeal.
6.It is humbly submitted that the securities have been held for SLR as a stock in trade and the amortization provided in the Profit & Loss A/c is an allowable expenditure. For the Co-operative banks, as per RBI guidelines, investments classified under 'Held to Maturity' (HTM) category need not be marked to market and will be carried at acquisition cost unless it is more than the face value, in which case the premium 19 Jhabua Dhar Kshetriya Gramin Bank ITA No.106 to 114/Ind/2017 should be amortized over the period remaining to maturity. The deduction on account of amortization of premium on purchase of Govt. securities is allowable in accordance with the CBDT's Instruction No. 17 vide para 2(vii) dated 26-11-2008. Relevant extracts are already filed in above paragraphs.
In this connection, we would like to draw your honour's kind attention to the various judgments wherein it has been held that the provision for amortization is an allowable expenditure by various Tribunals and by the Hon'ble High Court in the case of CIT v/s HDFC Bank reported in 366 ITR P. 505. It is further submitted that the Hon'ble Gujarat High court in the case of CIT vs Rajkot Dist. Cooperative Bank in TA no. 56 of 2013 has also considered the circular no. 17 of 2008 and has dismissed the departmental appeal. The list of the Tribunal judgments is enclosed herewith.
The attention is drawn to the various judgments as under;
(i) Commissioner of Income Tax V HDFC Bank Ltd (2014), Bombay High Court, (2014) 366 ITR 505 (Bom)
(ii) Commissioner of Income Tax Rajkot II V Rajkot Dist. Co-Op Bank Ltd (Guj HC) Tax Appeal No.56 of 2013
(iii) ACIT V Suvarnyug Sahkari Bank Ltd, I.T.A.T. Pune Bench, ITA No.1668/PN/2012
(iv) DCIT V Tarun Agarwala and Surya Prakashi Kesarwani, JJ HC, Allahabad (2015) 62 taxmann.com 248 (Allahabad)
(v) ACIT V Prathma Bank I.T.A.T. Delhi Bench ITA No.4090/Del/2013
(vi) Asstt. CIT v. Bank of Rajasthan Ltd. [IT Appeal Nos. 2246 to 2250 (Mum.) of 2009, dated 22-12-2010]
(vii) Catholic Syrian Bank Ltd v. Asstt. CIT [2010] 38 SOT 553 (Coch.)
(viii) Khanapur Co-op. Bank Ltd. v. ITO [IT Appeal No. 141 (PNJ) of 2011]
(ix) Sri. Visweswaraya Co-op. Bank v. Jt. CIT [IT Appeal No. 1122 20 Jhabua Dhar Kshetriya Gramin Bank ITA No.106 to 114/Ind/2017 (Bang.) of 2010, dated 11-5-2012]
(x) Dy. CIT v. Nasik Merchants Co-op. Bank Ltd. [IT Appeal No. 1254 (PN) of 2011]
(xi) Asstt. CIT v. Ahmednagar Shahar Sahakari Bank Ltd. [IT Appeal No. 298 (PN) of 2014, dated 30-3-2015], etc.
25. Per contra the Ld. Departmental Counsel supported the orders of lower authorities.
26. We have heard rival contentions and perused the records placed before us. The common issue relates to disallowance of amortization of premium paid on government securities. From perusal of the audited balance sheet it is revealed that the assessee being a Regional Rural co. operative Bank engaged in the business of banking is required to deposit certain amount in government securities as per the guidelines of Reserve Bank of India and to hold such securities till the maturity so as to maintain the Statutory Liquidity Ratio (SLR). In some cases value of acquisition of such securities is higher than the face value and such premium so paid is amortized as loss during the entire period of security.
Assessee made similar claim but both the lower authorities did not allowed.
21Jhabua Dhar Kshetriya Gramin Bank ITA No.106 to 114/Ind/2017
27. We find that the assessee has referred to various judgments placed in the paper book No.2 dated 26.4.2018. Similar facts came up for adjudication before Hon'ble Gujarat High Court in the case of CIT V/s Rajkot Dist. Co-Op Bank Ltd Tax Appeal No.56/2013 dated 10/02/2014 and following question was raised for consideration before the Hon'ble court;
(i) Whether in the facts and circumstances of the case and in law, the Appellate Tribunal is justified in holding that the A.O and CIT(A) have erred in disallowing the amortization of security premium of Rs.40,30,000/- ?
(ii) Whether in the facts and circumstances of the case and in law, the Appellate Tribunal is justified in not considering that the securities held under "Held to maturity (HTM) category" as per RBI guidelines are not meant to earn profit but are required to be kept as they are till maturity?"
28. Further the facts in this case are mentioned below:
"2.1 The respondent-assessee is a cooperative bank. As per the Reserve Bank of India guidelines, it is required to deposit certain amounts in Government securities and to hold the same till maturity in order to maintain Statutory Liquidity Ratio (SLR). In certain cases, the acquisition of such securities is at a value higher than the face value of the security itself. The respondent-assessee claimed such premium so paid in acquiring the securities as a loss amortized over the entire period of security"22
Jhabua Dhar Kshetriya Gramin Bank ITA No.106 to 114/Ind/2017
29. Hon'ble Court decided in favour of the assessee finding merit in the following submissions made by the Ld. Counsel for the assessee placing reliance on the CBDT Circular dated 26.11.2008.
"6. On the other hand, the learned counsel Shri Tushar Hemani for the respondent placed heavy reliance on the said CBDT Circular dated November 26, 2008 and contended that the benefit of amortization had to be granted. The assessee as a cooperative bank was bound by the RBI directives. As per such directives, the assessee had to invest certain amounts in Government securities and to hold the same till maturity. In the process of acquisition, if there was any premium paid on the face value of the security, the loss had to be amortized. Paragraph (vii) of the CBDT Circular No.17 of 2008 dated November 26, 2008 would apply. Such instruction reads as under:
"(vii) As per RBI guidelines dated 16th October, 2000, the investment portfolio of the banks is required to be classified under three categories viz. Head to Maturity (HTM), Held for Trading (HTF) and Available for Sale (AFS). Investments classified under HTM category need not be marked to market and are carried at acquisition cost unless these are more than the face value, in which case the premium should be amortized over the period remaining to maturity. In the case of HFT and AFT securities forming stock-in-trade of the bank, the depreciation/appreciation is to be aggregated scrip-wise and only net depreciation, if any, is required to be provided for in the accounts. The latest guidelines of the RBI may be referred to for allowing any such claims."
7. The instructions clearly provide for amortization of premium paid on acquisition of securities when the same are acquired at the rate higher than the face value. Such amortization would have to be for the remaining period of maturity. This precisely the Tribunal had directed in the 23 Jhabua Dhar Kshetriya Gramin Bank ITA No.106 to 114/Ind/2017 impugned order. Though contended, no contrary instructions of CBDT are brought to our notice. The instruction in question having been issued under section 119(2) of the Income-tax Act, 1961, would bind the Revenue. No question of law, therefore, arises.
8. Resultantly, the Tax Appeal is dismissed. Notice is discharged with no order as to costs."
30. We have examined the facts of the instant appeal and find that they are similar to the facts adjudicated by the Hon'ble High Court of Gujarat in the case of CIT V/s Rajkot Dist. Co-Op Bank Ltd (supra). Therefore Respectfully following the judgment of Hon'ble High Court of Gujarat, we are of the considered opinion that both the lower authorities erred in confirming the addition and the assessee has rightly claimed the amortization of loss in the value of government securities and the same is liable to be treated as business expenditure. In the result this common issue is decided in favour of the assessee and the relevant grounds raised in Assessment Year 2008-09 to Assessment Year 2012-13 in Income-
tax Act, 1961, No. 107, 109, 111, 112, & 133/Ind/2017 stands allowed.
31. Now the last issue which remains to adjudicate is for Assessment Year 2009-10 wherein the Ld. Assessing Officer while 24 Jhabua Dhar Kshetriya Gramin Bank ITA No.106 to 114/Ind/2017 framing the assessment u/s 143(3) r.w.s. 147 of the Act noticed that the assessee bank has maintained the provision for Non Performing Assets (NPA) at Rs. 948.62 lakhs as against the required provisions under the NPA norms of Rs.335.23 lakhs, but as the assessee decided to retain the provision made in the past year amounting to Rs.613.39 lakhs which was intended to be adjusted in future for the uncertainty of receiving 75% of the over due amount from the borrowers involved in cases of Debt Relief Scheme, 2008. On the basis of this observation Ld.A.O took a view that the assessee had created excess provision more than what has been prescribed under the Reserve Bank of India guidelines and they are not allowable as expenditure and further the liability as stated in notes on accounts is in the character of contingent liability which could not be allowed as admissible deduction. Ld.AO reversed the excess provision and added it back to the income thereby making an addition of Rs.6,13,39,660/-
32. Aggrieved assessee preferred appeal before the Ld.CIT(A) but failed to succeed.
33. Now the assessee is in appeal before the Tribunal.
25Jhabua Dhar Kshetriya Gramin Bank ITA No.106 to 114/Ind/2017
34. Ld. Counsel for the assessee submitted that in the A.Y. 2009- 10 the Ld. AO has made the addition of Rs.6,13,39,600/- on account of disallowance of alleged excess provision for NPA. Ld.A.O made the addition on the basis of audit objection in sub para 2 of para 4 on notes to accounts wherein it has been stated that the provision of NPA amounting to Rs.948.62 Lacs was maintained as against the required provision under NPA norms of Rs. 335.23 Lacs (P.Y.Rs.1180.31 Lacs). Bank has decided to retain provision made in past years amounting to Rs. 613.39 lacs to be adjusted in future due to uncertainty of receiving 75 overdue amounts from the borrowers involved in case of debt relief scheme. It is submitted that this note was already appearing in the notes on account and was before the Ld. AO while passing the order u/s 143(3). The same has been accepted during the course of original assessment proceedings. The reopening on the same facts is bad in law. Even on merits no addition can be made on this account it is merely a note given by auditors which clearly stated that the provision would be adjusted in future against the overdue amounts from the borrowers involved in the case of debt relief scheme 2008. The provisions which are made cannot be added even if reversed. There is no provision under the IT Law to tax the reversal of provision and reserves. Under this circumstances the addition are bad in law and deserves to be deleted".
35. Per contra Ld. Departmental representative supported the findings of both the lower authorities.
26Jhabua Dhar Kshetriya Gramin Bank ITA No.106 to 114/Ind/2017
36. We have heard rival contentions and perused the records placed before us. Assessee is aggrieved with the findings of Ld.CIT(A) confirming the addition of Rs.613.39 lakhs made by the Assessing Officer on account of disallowance of alleged excess provision for Non performing assets. Issue originated from the audit observation made by the statutory auditors in the note to accounts stating that the provision for Non Performing Assets amounting to Rs.948.62 lakhs was maintained as against the required provision under Non Performing Asset schemes at Rs.335.32 lakhs. Ld.A.O taking the basis of the observation of the statutory auditors in the audited balance sheet reversed provisions made in the earlier years limiting them to the provision required as per the Reserve Bank of India norms thereby making addition of Rs.613.39 lakhs. Ld. CIT(A) dealing with this issue confirmed the view of the Assessing Officer observing that the liabilities stated in the note on account is uncertain and this is in the character of contingent liability as the assessee has provided to meet the uncertainty of receiving 75% of over due amount from the borrowers involved in the case of bad and debt reserve scheme.
27Jhabua Dhar Kshetriya Gramin Bank ITA No.106 to 114/Ind/2017
37. We observe one common thing in the findings of both the lower authorities that both of them have made no reference to the provisions of 36(1)(vii) and 36(1)(viia) because the provision to Section 36(1)(vii) deals with the deduction allowable for the amount of any bad debts or part there of which is represented in the accounts of the assessee and provision of section 36(1)(viia) which relates to the provision for bad and doubtful debts to be made by certain category of banks including the assessee calculated on the basis of certain percentage of the total income as well as the average advances which can be claimed to the extent of which the assessee can claim the provisions. It is true that the banking companies have to work under the guidelines prescribed by Reserve Bank of India. However as held by Hon'ble Apex Court in the case of M/s. Southern Technologies Ltd V/s ACIT (320 ITR 577) that guidelines provided by RBI cannot over ride the provisions of Income Tax Act. RBI guidelines are for the purpose of maintaining the balance sheet and financial statements for the stake holders so as to give true and fair view of the financials of the bank. Claiming of deduction for bad and doubtful debts as well as provision for bad 28 Jhabua Dhar Kshetriya Gramin Bank ITA No.106 to 114/Ind/2017 and doubtful debts for the borrowers involved in Debt Relief Scheme, 2008 needs to be examined in the light of provisions of Income Tax Act applicable to the assessee. We find that the observations of the Ld. Assessing Officer are also not very clear and only the auditors remarks have been discussed and similarly Ld.CIT)(A) has also not given clear finding on this issue.
38. In our considered view this issue needs to be set aside to the file of Ld.CIT(A) for fresh adjudication. Needless to mention that proper opportunity being heard to be provided to the assessee and also direct the assessee to bring necessary details for calculating the provisions of bad and doubtful debts as well as the details of over due debts from the borrowers involved in debt relief scheme of 2008 so that the issue can be decided on merit under the relevant provisions of law.
39. We accordingly allow this issue raised under I.T.A No. 108/Ind/2016 in Ground No.2 for statistical purpose.
40. In the result assessee's Appeal No. 107, 109 & 111 are allowed, and I.T.A. No. 113 is partly allowed, I.T.A. No.114 is dismissed, I.T.A. No. 106 is allowed, I.T.A No. 108 is partly allowed 29 Jhabua Dhar Kshetriya Gramin Bank ITA No.106 to 114/Ind/2017 for statistical purposes, I.T.A. No. 110 is dismissed and I.T.A. No.112 is partly allowed.
The order pronounced in the open Court on 06.9.2018.
Sd/- sd/-
( KUL BHARAT) (MANISH BORAD)
JUDICIAL MEMBER ACCOUNTANT MEMBER
दनांक /Dated : 06 September, 2018
/Dev
Copy to: The Appellant/Respondent/CIT concerned/CIT(A) concerned/ DR, ITAT, Indore/Guard file.
By order Private Secretary/DDO, Indore 30