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Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED&
PER Ms. MADHUMITA ROY – JUDICIAL MEMBER:
These two cross appeals (filed by the assessee and the revenue) are directed against the order dated 28.02.2016 passed by the Commissioner of Income Tax ITA Nos.770 & 1088/Ahd/2017 Asst.Year – 2013-14 (Appeals)-10, Ahmedabad arising out of the order dated 02.02.2016 passed by the DCIT, Circle – 1(3), Ahmedabad under section 143(3) of the Income Tax Act, 1961 (hereinafter referred as to “the Act”) for the Assessment Year (A.Y.) 2013-14. Since both the appeals relate to the same assessee, the same are heard analogously and are being disposed of by a common order.
ITA No.770/Ahd/2017 - assessee’s appeal :
Ground No.1 & 5 : These grounds of appeal are general in nature and, therefore, no order needs to be passed.
Ground No.2: The assessee is not pressing this ground of appeal before us. Hence, this ground of appeal is dismissed as not pressed.
Ground No.3 & 4: These grounds are consequential in nature therefore no order need to be passed.
ITA No.1088/Ahd/2017 for A.Y. 2013-14 - Revenue’s appeal :
The revenue has filed this appeal with the following grounds: “(1) That the ld.CIT(A) has erred in law and on facts in deleting the addition made by the AO on account of FDR written off Rs.23,88,83 704/-. (2) That the ld.CIT(A) has erred in law and on facts in deleting the addition made by the AO on account of interest accrued on non performing assets of Rs.79,57,37,478/-. (3) That the ld.CIT(A) has erred in law and on facts in deleting the disallowance made by the AO u/s 14A r.w. Rule 8D of Rs.53,68,445/-. ITA Nos.770 & 1088/Ahd/2017 Asst.Year – 2013-14 (4) That the Ld.CIT(A) has erred in law and on facts in deleting the addition made by the AO on account of Amortized of Premium amounting to Rs.2,74,57,365/-. On the fact and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the Assessing Officer to the extent mentioned above since the assessee has failed to disclose his true income/book profit. The appellant prays that the order of CIT( A) on the above grounds be set aside and that of the Assessing Officer be restored to the above extent. The appellant craves, to leave, to amend or alter any ground or add a new sround which may be necessary.”
Ground No.1: The deletion of disallowance of deposits with the Madhavpura Mercantile Co. Op. Bank Ltd. of Rs.23,88,83,704/- has been challenged before us.
The assessee has debited on account of Madhavpura Mercantile Co. Op. Bank Ltd. deposit written off amounting to Rs.23,88,83,704/-. The assessee filed the copy of the letter dated 02.12.2010 issued by the Reserve Bank of India whereby and whereunder the bank has directed the assessee to make full provision against exposure to Madhavpura Mercantile Co. Op. Bank Ltd. as on 31.03.2011. Another letter issued by the Ministry of the Agriculture Department of Agriculture Land Corporation, Krishi Bhawan New Delhi dated 05.08.2010 submitted by the assessee indicates that the RBI is in favour of revival of MMC Bank. It is the case of the Revenue that since this letter does not speaks of written off its fixed deposit made with MMC Bank, the assessee’s claim cannot be exceeded too. Since, the assessee has not filed any corroborative evidence or justification regarding such write off amounting to Rs.23,88,83,704/-, the same has been added on account of fixed deposit write off debited in the Profit and Loss account and added to the total income of the assessee, which was, in turn, confirmed by the Learned CIT(A). Hence, the instant appeal before us.
Heard the respective parties, perused the relevant materials available on record. It appears that on 13.01.2016 the assessee submitted as follows: ITA Nos.770 & 1088/Ahd/2017 Asst.Year – 2013-14 “With reference to assessment proceeding for A.Y.2013-14, and in compliance to your above referred notices we are submitting the details as under (I) Kindly refer to Para two of your show cause notice wherein your good self have conveyed that " Assessee has not filed any corroboratory evidence regarding the claim. " RBI is in favor of revival of said bank. " RBI has not stated for writing off. It is respectfully clarified that content are not correct and out of context. Towards the corroboratory evidence regarding the claim of write off, in addition to earlier submission enclose please find following. - Annexure I (Page 01 to 06) (a) A copy of Press Release: 2011-12/ 1949 dated June 7, 2012 made by Reserve Bank of India. (b) Documents relating to revival are appended. As regard to revival scheme, certainly scheme of reconstruction was made applicable from the close of business of August 23, 2001 for a period often years. But no progress is made in ten years due to non fulfillment of commitments for contribution by UCB and poor track record of recovery lead to expiry of scheme on August 23, 2011. Thus your goodself has refer to revival scheme which was recommended long back and upon its failure it closed down also. Finally for writing of debts / deposits the Reserve Bank of India will prepare the rules the norms a prior permission is not necessary for write off. It is well settled proposition that, to be a permissible deduction there must be direct & intimate Connection between the payment and the business of the assessee. Payment should have been for the purpose of carrying on the business. On the facts of the assessee's case assessee has placed deposits with the Madhavpura Mercantile Co-Op bank ltd In its ordinary course of business. The details of such deposits placed with other bank since last 5 years are annexed herewith. The details of outstanding balance of deposits placed by bank (along with those banks who gets amalgamated with the assessee bank)with MMCB and amount still due and payable to Your assessee is as under. Rs. 22,98,61,862 : The Kalupur Comm. Co-op Bank Ltd. Rs. 79,42,847 : The Standard Co-op Bank Ltd. Merged With Kalupur Rs. 10,78,995 : The Tapi Co-op Bank Ltd. Bank Your Assessee Accepting of Deposits and giving of loans and advances, making investments, deposits etc. form part of core activity of banking business. Thus the deposits placed with MMCB ITA Nos.770 & 1088/Ahd/2017 Asst.Year – 2013-14 were certainly, exclusively & wholly in the course of and for the purpose of business. This is also evident form -Annexure II (Page No.7 to 12) As per the corrigendum of the meeting held on 26.5.2010 and notice of the department of Agriculture & Co-operation, Krishi bhavan, New Delhi the prospects of the revival of the MMCB were remote moreover the bank has make the provision for doubtful debt as per the letter of RBI,UBD(AH)TAFCUB.NO. 3367/12.33.01/2010-11. Thus as per the resolution of Board of Directors passed in the meeting dated 29th march,2013 same has been written off. Copy of RBI letter, circular of the Department and copy of resolution was appended in our previous submission therefore the same has not been repeated. Moreover Reserve Bank of India has cancelled the license of The Madhavpura Mercantile Cooperative bank Ltd. by giving a press release on 07TH June,2012. In its press release it observed that: • The MMCB itself has admitted about its precocious financial position • The MMCB accepted that the Reconstruction scheme failed due to non fulfillment of commitment of UCB • The MMCB accepted all its irregularities/ deficiency observed in the SCN issued for cancellation of licence The deposits of bank has been eroded fully. • The RBI then concluded that, From the facts and circumstances mentioned above it is observed that: i) The co-operative bank is not complying with the provision of Sections 11(1) and 22(3) (a) & (b) of the Act. There is no revival plan or merger proposal pending with RBI. ii) There is no likelihood of the co-operative bank being able to resume normal functioning in the foreseeable future. iii) The co-operative bank is not in a position to pay its present and future depositors in full as and when their claims accrue. iv) The affairs of the co-operative bank are being conducted in a manner detrimental to the Interests of its depositors. , v) The financial position of the co-operative bank is so precarious that there is no scope for its revival. vi) The public interest would be adversely affected if the co-operative bank is allowed to carry on its business any further. Therefore, Reserve Bank of India took the extreme measure of cancelling the licence of the cooperative bank in the interest of co-operative bank's depositors. Consequent to the cancellation of licence, The Madhavpura Mercantile Co-operative Bank Ltd., Ahmedabad (Gujarat) is prohibited from carrying on the business of 'banking' as defined in Section 5(b) of lie Banking Regulation Act, 1949 (AACS).As stated in the same RBI has given that MMCB ceased to be solvent and which indicates that there is no chances of ITA Nos.770 & 1088/Ahd/2017 Asst.Year – 2013-14 receiving the deposits back from the MMCB your assessee has written off the same from its books of accounts. As the Claim of deduction is rightly, made under the Provision of the Act. u/s 28 & 37 of the IT Act, it may kindly be allowed and oblige.”
The Learned AO, however, was not convinced with such submissions furnished by the assessee and he, therefore, observed as follows while making addition :
“7. I have carefully perused the submission of the assessee. However the contention of the assessee is not acceptable on the following facts. i) The assessee has not filed any Corroboratory evidence or justification regarding the write off amounting to Rs.23,88,83,704/-. The assessee has furnished a letter dated 05/08/2010 issued by the, Director, Ministry of agriculture. Department of Agriculture & Co-operation, Krishi Bhavan, New Delhi regarding the Gist of discussions taken in the meeting held on 26/05/2010 to discuss the possibilities of the revival of The Madhupura Mercantile Co-operative Bank Ltd. Ahmedabad. The letter clearly indicates that the Reserve Bank of India is in favour of Revival of Madhupura Mercantile Co-operative Bank. Further letter of Reserve Bank of India dated 02/12/2010 produced by the assessee is a letter to all Urban Co- operative banks to make full provision against their exposure to Madhupura Mercantile Bank as on 31/03/2010.However the assessee has not produced any other evidence or justification regarding write off or any other directions issued by the Reserve Bank of India. ii) It is also noticed on verification of the Return of income filed by the Madhupura Mercantile Co-operative Bank for the Assessment Year 2013-14 that the bank is having Cash and Bank Balances amounting to Rs.654.89Cr. The assessee has not produced any evidence regarding any correspondence made with the Madhupura Mercantile Co-operative Bank or any legal action taken against the bank before the write off.
In view of the above discussion the reply given by the assessee is not acceptable and additions on account of fixed deposit write of amounting to Rs.238883704/- debited in the profit and loss account is disallowed and added back to the total income of the assessee. The penalty proceedings under section 271 (l)(c) of the I. T. Act are being initiated for furnishing inaccurate particulars of income and concealment of particulars of income.”
The Learned CIT(A) in appeal, took into consideration this particular aspect of the matter that the RBI has conducted statutory inspection of the Co-operative Bank u/s 35 of the Act in regard to the financial position as on 31.03.2011. It is further mentioned that ITA Nos.770 & 1088/Ahd/2017 Asst.Year – 2013-14 the net worth of the said bank was assessed at Rs.(-) 1316.50 crores and the Bank was not having adequate assets to meet its liabilities. The entire capital and reserves of the co- operative bank has eroded as also observed by the RBI and NPA where Rs.1126.55 crores i.e. almost 99.99% to its gross advances and the bank has accumulated loss of Rs.1357.41 Crores and deposit erosion was 100%. In that view of the matter, the Learned CIT(A) was of the opinion that the justification made by the Learned AO upon verification of the written off income filed by the MMC Bank for A.Y. 2013-14 that the said bank is having cash and the Bank balance amounting to Rs.654.89 crores, cannot be the basis of disallowance of claim of the assessee, particularly, when the RBI has issued order cancelling the license of MMC Bank; such finding was given by the RBI after statutory instruction of the co-operative bank u/s 35 of the Act with reference to the financial position as on 31.03.2011. The appellant has further been able to prove that nothing has been recovered till date since 2001. Neither anything is likely to recover in near feature also. In our considered opinion, such clarification given by the Learned CIT(A) while deleting the addition is without any ambiguity so as to warrant interference. Hence, we confirm the same. In the result, department’s appeal fails.
The revenue has further challenged the deletion of accrued interest on NPA u/s 43D to the tune of Rs.79,57,37,478/-.
Upon verification of the audited balance sheet for the A.Y. 2013-14, it was found that the assessee has credited in its profit and loss account interest accrued on Non Performing Assets (NPA) amounting to Rs.79,57,37,478/- which was shown as overdue reserve in the balance sheet. The assessee sought to justify his claim with the following submission: “(2) Details of interest on NPA advances not recognized as income is shown in the statement appended with previous submission. The Provision of Sec. 43D of the IT. Act. reads as under. ITA Nos.770 & 1088/Ahd/2017 Asst.Year – 2013-14
"Sec. 43D - Notwithstanding anything to the contrary contained in any other provisions of the Act, -
(a) In the case of a public financial institution or a scheduled bank or a State Financial Corporation or a State Industrial Investment Corporation, the income by way of interest in relation to such categories of bad or doubtful debts as may be prescribed having regard to the guidelines issued by the Reserve Bank of India in relation to such debts; (b) In the case of a public company relation to such debts. Shall be chargeable to tax in the previous year in which it is credited by the public financial institution or the scheduled bank or the State Financial Corporation or the State Industrial Investment Corporation or the Public Company to its profit and loss account for that year or, as the case may be, in which it is actually received by that institution or bank or corporation or company, whichever is earlier.
Explanation - For the purposes of this section…………….’ It is clarified that Section 43D provides that in case of a public financial institution or a scheduled bank or state financial corporation, Income by way of interest on such categories of bad & doubtful debt as may be prescribed having regard to guidelines issued by RBI in relation to such debt i.e. in other words interest on (N.P.A) non performing asset classified as such on the basis of guidelines prescribed by the RBI shall be chargeable to tax
(a) In the previous year in which it is credited to its profit and loss account by the said institution or bank or corporation OR (b) In the previous year in which it is actually received by the institution or bank, Whichever is earlier On facts of the case, assessee bank has not credited any such interest nor any part of interest which is actually received is not shown as income and therefore provision of section 43D are not applicable.
(II) Kindly refer to" Income ARecognition Policy contain in Master Circular issued by the RBI dt. July 1, 2015 relating to Income Recognition, Asset classification provisioning and other related matters-UCB on Page 16 A copy of the said circular is appended - Annexure III (Page No. 13 to 64)
Therein it has been categorically stated that" Income from Non-Performing Assets (NPA) is not recognized on accrual basis but is booked as income only when it is actually received. Therefore banks should not take income account interest on non performing assets on accrual basis.
Para 4.5 Interest Application ITA Nos.770 & 1088/Ahd/2017 Asst.Year – 2013-14
1 In case of NPs where interest has not been received for 90 days or more, as a prudential norm, there is no use in debiting the said account by interest accrued in subsequent quarters and taking this accrued interest amount as income of the bank as the said interest is not being received. It is simultaneously desirable to show such accrued interest separately or park in a separate account so that interest receivable on such NPA Account is computed and shown as such, though not accounted as income of the bank for the period. 4.5.3 With a view to ensuring uniformity in accounting the accrued interest in respect of both the performing and non-performing assets, the following guidelines may be adopted notwithstanding the existing provisions in the respective State Co. Operative Societies Act.
(i) Interest accrued in respect of non-performing advances should not be debited to borrowal accounts but shown separately under" interest Receivable Account" on the" Property and Assets " side of the balance sheet and corresponding amount shown under "Overdue interest Reserve Account" on the" Capital and Liabilities" side of the balance sheet.
Thus, as it is mandatory required assessee has prepared its accounts exactly as per said guidelines.
Since no amount is credited to profit and loss account and what has been actually received on NPA Accounts has been duly disclosed, the Provision of Section 43D of the Income Tax Act. Being not applicable and hence cannot be invoked.
(3) In regards to large interest expenditure with respect to exempt investment and applicability of section 14A we respectfully clarified as under. a. The Provisions of Section 14A of the IT. Act, 1961 can be invoked only and only when the learned Assessing Officer having regard to the accounts of the assessee bank is not satisfied with the correctness of the claim of expenditure made by assessee. If the authority is satisfied with the claim, question of invoking the provisions will not arise.
b. It may also be noted that no specific reasons has been assigned for disallowance.
c. Your assessee bank is obviously in business of banking and therefore accepts deposits and gives advances and makes investments in Government Securities and other Securities as per the norms laid down and within the framework of the Banking Regulation Act.
d. As per the rule laid down, question of any part of interest will be disallowed if it is expenditure only. Thus to disallow any part of interest it is to be charged to ITA Nos.770 & 1088/Ahd/2017 Asst.Year – 2013-14
e. Profit and Loss Account as an expenditure whereas assessee being banking company, obviously interest has to be paid on deposits accepted are banking and investment being the core activity, its income will also consist of interest only. And from the Profit and loss account your good self will appreciate that bank has earned interest of Rs. 356.71 crore and paid interest on deposits of Rs. 222.68 crore so to say there is net interest income of Rs. 134.03 crore.
f. Also from the balance sheet your good self will appreciate that bank has its own funds as follow. Capital 66.67 crores Reserves 705.94 crores Total 772.61 crores
g. As against this only Rs.19 crore is invested in shares of Clearing Co. Op. India Ltd. wherefrom assessee has received dividend which is claimed as exempt. Moreover the investment in the said shares has been made in past years and not in the current assessment year therefore interest expenditure of current year has no nexus with the income claimed exempt.
h. There are various decisions where it has been so held that no disallowance be made if investments is made out of its own fund. i. All other expenditure charged in Profit and Loss Account are for carrying banking activities and it has a direct nexus with banking business and no part of it is expended in acquiring shares of Clearing Co. Op. India Ltd. All expenditure has direct nexus to income which is taxable and due taxes are paid.
Therefore considering facts of the case and material on record and in absence of any nexus of expenditure to exempt income we request your good office not to invoke provisions of section 14A of the I.T. Act. and oblige. (iv) Clarification regarding amortization of premium on securities, as per the terms of the circular of RBI is as follows:
A copy of the master circular dt. July 1,2015 issued by the RBI on investments by primary (Urban) Co. Operative Banks is appended - Annexure IV (Page No. 65 to 133 )
"we clarify that as per the guidelines laid down by the Reserve Bank of India Investments are categorized as follow."
Sr. Particulars Particulars No. (i) Held for Maturity (HTM) (ii) Available for sale (AFS ) ITA Nos.770 & 1088/Ahd/2017 Asst.Year – 2013-14
(iii) Held for Trading (HFT )
Normally, at the time of acquisition of investments, category of investment is decided as to whether it is for trading or held for maturity. For this, your assessee, as duty bound, strictly follow the guidelines laid down by the Hon'ble Reserve Bank of India. For the allowability of claim of premium paid on purchase of Government Securities which are held under the HTM category we submit that on consistent basis assessee is following same method of accounting wherein amount of premium paid is distributed till the period of maturity and claim as Revenue Expenditure in respective year. Your assessee rely upon circular No. 665 dt. 05.10.1993 issued by the CBDT and decision in the matter of ACIT circle 1 Nasik, V. Ozer Merchant Co.Op. Bank Ltd. 41 Taxman. Com 110 (Pune Tribunal) ,Sir M Vishveswaraya co-op bank ltd vs. Jt CIT in ITA no. 1122/Bang/2010 dt.11/05/2012 & Cit v. Hdfc Bank(Bom.).”
However, such plea of the assessee was not found fit by Learned AO and he thus rejected the claim. In appeal, the Learned CIT(A) observed the following while allowing the claim of the assessee: "Notwithstanding anything to the contrary contained in any other provision of this Act.- (a) in the case of a public financial institution or a scheduled bank or a State financial corporation or a State industrial investment corporation- the income by way of interest in relation to such categories of bad or doubtful debts as may be prescribed having regard to the guidelines issued by the Reserve Bank of India in relation to such debts. (b) in the case of a public company, the income by way of interest in relation to such categories of bad or doubtful debts as may be prescribed having regard to the guidelines issued by the National Housing Bank in relation to such debts, Shall be chargeable to tax in the previous year in which it is credited by the public financial institution or the scheduled bank or the State financial corporation or the State industrial investment corporation or the public company to its profit and loss account for that year or, as the case may be, in which it is actually received by that institution or bank or corporation or company, whichever is earlier. Explanation for the purpose of this section - Scheduled bank shall have the meaning assigned to it in clause-ii of the explanation to clause vii(a) of sub-sec-1 of sec-36. The scheduled bank has been described as (u) whose main object is carrying on the business of providing long term finance for construction 01 purchase of houses in India for residential purposes" ITA Nos.770 & 1088/Ahd/2017 Asst.Year – 2013-14
The appellant during the course of appellate proceedings has filed a copy of the RBI order giving the details of grant of 'scheduled status to select Urban Co.Operative Banks. The relevant portion of this order is reproduced as under :-
"We advice that with effect from September 1, 1988 eleven urban co-operative banks whose names and full addresses have been given in the enclosed statement have been included in the Second Schedule to the Reserve Bank of India Act. 1934 Consequently it will be in order for your organization to accept cheques/pay- orders issued by these banks and also accept guarantees given by them on behalf of their constituents.
The same were published in the Gazatte of India in part-3 Sec 4 by RBI which is being reproduced as under:-
RESERVE BANK OF INDIA (Urban Banks Department) Bombay the 31" August. 1933 NOTIFICATION No.UBD.BR 94/A.9-88/89 - In pursuance of clause (1) of sub-section (b of section 'e of the Reserve Bank of India Act. 1934(of 1934) the Reserve Bank of India herby directs the inclusion in the Second Schedule to the said Act of the following banks namely.
1 Bombay Mercantile Co-operative Bank Ltd Bombay 2 Saraswat Co-operative Bank Ltd Bombay
Abhyudaya Co-operative Bank Ltd . Bombay
Development Co-operative Bank Ltd. Bombay.
Janata Sahakan Bank Ltd.. Pue
Jhararao Vithal Co-Opeative Bank Ltd. Bombay
Rajkot Nagrik Sahakari Bank Ltd. Rajkot.
Kalupur Commercial Co-operative Bank Ltd. Ahmedabad 9 Surat Peoples Co.Op Bank Ltd. Surat
Sangli Urban Co.Op. Bank Ltd. Sangli
Rupee Co Op. Bank Ltd. Pune
The effective date of inclusion of the aforesaid banks in the Second Schedule shall be 1 September. 1988
A perusal of the above notification clearly proves that the appellant has been listed at Sr.No.8 and has been granted the status of a "Scheduled Bank" as per the RBI notification. Therefore, the conditions enumerated in the provisions of Sec.43D has been complied with When the appellant qualifies as a Scheduled Bank as per the provisions of the section, it is clear that the income by way of interest in relation to such categories of bank or doubtful debts as may be prescribed having regard to the guidelines issued" by ITA Nos.770 & 1088/Ahd/2017 Asst.Year – 2013-14 RBI in relation to such debts shall be chargeable to tax in the previous year in which it is credited by the Scheduled Bank to its P & L A/c for that year or as the case may be in which it is actually received by that bank whichever is earlier. On a perusal of the assessment order it is noticed that the A.O has not disputed that the issue in question is regarding interest on non-performing assets The focus of the A.O has all along been that since the appellant follows mercantile system of accounting as per sec. 145 of the I.T. Act, the appellant cannot have a mixed system of accounting as sub- section-(1) to sec. 145 contains the word 'shall' which suggests that the provisions of section 145 are mandatory in nature. Therefore, once the income has accrued as per the method of accounting being regularly followed by the assessee, it shall be included in the total income. However, it is a fact that the income of the appellant is being offered under the head profit and gains of business for which as per the scheme of taxation the income is required to be computed as per the provisions of sec 28 to 44 of the IT Act Sec.43D is a part and parcel of this chapter which is also squarely applicable for the computation of this income from business or profession of such assessee. Therefore, when a specific section has been inserted by the Parliament in its wi om for computation of income under a particular head the same would have precedence over the general provisions of the Act including sec 145 of the I T. Act. Once it is established that the appellant is a scheduled bank as per the notification by the RBI and the interest as accrued on non- performing assets as has been classified by the RBI the benefit of section 43D would be applicable to the appellant and therefore the same cannot be added by taking shelter to sec. 145 of the Act. It is not a case of the AO that either the appellant is not a "scheduled bank or the interest which has been accrued is not on account of non-performing assets Therefore, there is no force in the argument of the A.O. and the same are rejected. The ground of appeal is accordingly allowed.”
Heard the respective parties, perused the relevant materials available on record. This is a settled principle of law that once it is established the appellant is a “scheduled bank” in terms of the notification of the RBI and interest accrued on NPA and has been classified by the RBI, the benefit of section 43B ought to have been applicable to the appellant and the same cannot be added under section 145 of the act as has been rightly considered by the Learned CIT(A) without any ambiguity so far as to warrant interference. Hence, we confirm the order of the Learned CIT(A). Thus the order is in favour of the assessee against the Revenue. ITA Nos.770 & 1088/Ahd/2017 Asst.Year – 2013-14
Ground No.3 : The deletion of disallowance u/s 14A r.w.r. 8D of Rs.53,68,445/- has been challenged by the Revenue before us.
The Learned Advocate appearing for the assessee submitted before us that the Learned CIT(A) has relied upon the order passed by him in assessee’s own case for A.Y. 2012-13. He, further relies upon the judgment passed by the co-ordinate bench in assessee’s own case for A.Y. 2012-13 in ITA No.2124/Ahd/2016 copy whereof has been submitted before us.
Heard the respective parties, perused the relevant materials available on record including the order passed by the co-ordinate Bench. The relevant portion whereof is as follows: “Second ground of appeal pertaining to disallowance u/s. 14A of the act. And ground number 3 of appeal of the assessee.
During the course of assessment proceedings, the assessing officer has noticed that assessee has claimed dividend income of Rs. 1.52 crores and interest earned on other trustee securities of Rs. 85,91,096/- as exempt income. He observed that assessee has not disallowed any expenditure incurred towards earning exempt income as per the provision of section 14A of the act. Therefore, the assessing officer has worked out disallowance according to section 14A r.w. Rule 8D of the act and disallowed an amount of Rs. 42,65.343/-.
Aggrieved assessee filed appeal before the ld. CIT(A). The ld. CIT(A) has stated that his predecessor in the case of the assessee itself has decided the similar issue in favour of the assessee. The Ld. CIT(A) has deleted the additions of Rs.33,15,343 made by the assess in officer stating that the assessee has more interest free fund available than investment made in securities from which exempt income accrued. However, in respect of addition of Rs. 9.5 lacs made under rule 8D(iii) he stated that assessee has not filed any submission, therefore, he has sustained the addition to the extent of Rs. 9,50,000/-in respect of administrative expenses.
We have heard the rival contentions and perused the material on record carefully. The second issue is pertained to the disallowance of expenses u/s. 14A r.w. Rule 8D of the act incurred towards the exempt income. The ld. CIT(A) has deleted the addition following the decision of his predecessors in the case of the asssessse as the asssessee has more interest free fund available than investment made in securities. We have also noticed that the assessee has its own funds as under:- ITA Nos.770 & 1088/Ahd/2017 Asst.Year – 2013-14 Capital : Rs. 60.25 croes Reserves: Rs. 662.97 crores The assessee has also explained before the assessing officer that investment in central and state Government securities was stock in trade and part of banking business only. After considering the above facts that investment were made out of the interest free funds available with the assessee we do not find any error in the decision of ld. CIT(A) of restricting the disallowance to the extent of administrative expenses of Rs.9,50000/. The Ld. Counsel has not pressed ground no. 3 of appeal of the assessee. Accordingly, the appeal of the Revenue is dismissed.”
We find that the issue is squarely covered in favour of the assessee and thus we find no ambiguity in the order passed by the Learned CIT(A) in deleting the addition made by the Learned AO u/s 14A r.w.r. 8D. Hence, this ground of appeal preferred by the Revenue is dismissed.
The next ground of deleting addition amortization of premium on Govt. Securities of Rs.2,74,57,365/-
The capital expenditure has been challenged by the Revenue before us. We find that the Learned CIT(A) relying upon the order passed in A.Y. 2012-13 allowed such claim of the assessee. The Learned Advocate appearing for the assessee further relied upon the order passed by the Co-ordinate Bench in Assessee’s own case for A.Y. 2012- 13 in ITA No.2124/Ahd/2016; copy whereof has been submitted before us. On the contrary the Learned DR relied upon the order passed by the authorities below.
Heard the respective parties, perused the relevant materials available on record including the order passed by the co-ordinate Bench in ITA No.2124/Ahd/2016 the relevant portion whereof is as follows:
“8. During the year under consideration, the assessee has written off govt. security premium to the extent of Rs. 2,10,11,715/-. The assessing officer has disallowed the premium amount amortized by the asssessee bank in respect of purchase of securities ITA Nos.770 & 1088/Ahd/2017 Asst.Year – 2013-14 under the category held to be maturity stating that definitely the same is of capital outlay which cannot be allowed as expenditure.
Aggrieved assessee filed appeal before the ld. CIT(A). The ld. CIT(A) has deleted the addition stating that his predecessor has deleted the same in the case of the assessee in the earlier years.
We have heard the rival contentions and perused the material on record carefully. The assessee has made investment in the HTM category as per the guidelines laid down by the RBI and claimed amortization of premium till the period maturity. The assessing officer has disallowed the claim following the similar addition made by his predecessors on the ground that the premium amount paid for acquiring the capital investment cannot be allowed as deduction expenditure. The ld. CIT(A) has deleted the addition by following the decision of his predecessors. We have noticed that as per RBI guidelines dated 16th Oct, 2000, the investment portfolio of the bank is required to be classified under three categories viz. Held to Maturity (HTM), Held for Trading (HFT) and Available for Sale (ATS). Investment classified under HTM category needs to be marked to market and are carried at acquisition cost unless these are more than the face value in which case the premium should be amortized over the remaining period. Allowable of amortized expenses on premium on government securities has been provided u/s. 36(1)(ii) of the act and explained by CBDT vide instruction No. 17 of 2008 dated 26-11- 2008. The Hon’ble High Court of Gujarat vide (2014) 43 taxmann.com 161 (Gujarat) in the case of CIT, Rajkot-II vs. Rajkot Dist. Co-op. Bank Ltd. held that instructions clearly provide for amortization of premium paid on 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. In view of the above stated facts and legal finding, we do not find any infirmity in the decision of the ld. CIT (A). Therefore, the appeal of the revenue is dismissed on this issue.”
It appears that the Hon’ble Court has taken care of that the order passed by the Hon’ble Juri ictional High Court in the case of CIT, Rajkot-2 vs. Rajkot Dist. Co-op. Bank Ltd. reported in (2014) 43 taxmann.com 161 (Gujarat) where it was held that the CBDT instruction providing for amortization of premium paid on securities when the same were acquired at the rate higher than the face value, such amortization would have to be for the remaining period of maturity. ITA Nos.770 & 1088/Ahd/2017 Asst.Year – 2013-14
Relying upon the same, we confirm the order passed by the Learned CIT(A). Hence, this ground of appeal preferred by the Revenue is dismissed.
In the result, both the appeals filed by the assessee and revenue are dismissed. This Order pronounced in Open Court on 14/10/2019 ( Ms. MADHUMITA ROY ) JUDICIAL MEMBER Ahmedabad; Dated 14/10/2019 Priti Yadav, Sr.PS
आदेश क" ""त"ल"प अ"े"षत/Copy of the Order forwarded to : 1. अपीलाथ" / The Appellant
""यथ" / The Respondent. 3. संबं"धत आयकर आयु"त / Concerned CIT 4. आयकर आयु"त ( अपील ) / The CIT(A)-10, Ahmedabad.
"वभागीय ""त"न"ध अहमदाबाद , आयकर अपील"य अ"धकरण / DR, ITAT, Ahmedabad 6. गाड" फाईल /Guard file.
आदेशानुसार/ BY ORDER, स"या"पत ""त //// उप सहायक पंजीकार (Dy./Asstt.