THE PR. COMMISSIONER OF INCOME TAX vs. M/S. SAURASHTRA GRAMIN BANK

C/TAXAP/1051/2018 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 1051 of 2018 ========================================================== THE PR. COMMISSIONER OF INCOME TAX Versus M/S. SAURASHTRA GRAMIN BANK ========================================================== Appearance: MRS MAUNA M BHATT(174) for the PETITIONER(s) No. 1 for the RESPONDENT(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE B.N. KARIA

Date : 27/08/2018

ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. Revenue is in appeal against the judgment of the Income   Tax   Appellate   Tribunal   dated   30.01.2018 raising following questions for our consideration: “[A] Whether in the facts and circumstances of the   case   and   law,   the   Appellate   Tribunal   is justified   in   considering   the   status   of   the assessee   as   “Scheduled   Bank”,   even   though   the name of the assessee bank was not reflected in the second schedule of the Reserve Bank of India Act, 1934, as on date of assessment? [B] Whether in the facts and circumstances of the   case   and   law,   the   Appellate   Tribunal   is justified   in   deleting   of   disallowance   of deduction of bad debts of Rs 2,57,35,327/­ u/s 36(1)(viia)(a) of the Act? [C] Whether in the facts and circumstances of the   case   and   law,   the   Appellate   Tribunal   is justified  in  deleting  of  disallowing  deduction of   Amortized   Government   Security   Premium   of Page 1 of 5

C/TAXAP/1051/2018 ORDER Rs.1,41,76,000/­? [D] Whether in the facts and circumstances of the   case   and   law,   the   Appellate   Tribunal   is justified

rejecting

addition

of Rs.21,48,000/­ on account of accrued interest on NPA?” 2. Questions­A and B overlap.  Issue is whether the respondent­assessee   bank   can   be   categorized   as   a Scheduled Bank and consequently would get the benefit of deduction of bad debt in terms of section 36(1) (viia)(a) of the Income Tax Act, 1961, ('the Act' for short). 3. For the assessment year 2007­08, the Assessing Officer   refused   to   treat   the   respondent   bank   as   a scheduled bank.  The undisputable facts emerging from the record however are that there were three Gramin banks.  All of which were duly notified as scheduled banks   as   per   the   Government   notification   dated 02.01.2006   all   these   three   banks   were   amalgamated under   a   Government   notification   bringing   into existence   Saurashtra   Gramin   Bank   i.e.   the   present respondent­assessee.     On   account   of   such   facts, Commissioner of Income Tax (Appeals) and the Tribunal concurrently held that the respondent bank would also be a scheduled bank and consequently allowed the bad Page 2 of 5

C/TAXAP/1051/2018 ORDER debts under section 36(1)(viia)(a) of the Act.  Such being the position, we find no error in the view.  No question of law arises. 4. Question­C pertains to deletion of disallowance made   by   the   Assessing   Officer   of   the   deduction   of Amortized   Government   Security   Premium.     Similar question   came   up   for   consideration   of   before   this Court   in   Tax   Appeal   No.56   of   2013.     The   Court dismissed   the   said   appeal   making   following observations: “5. The learned counsel Shri P.G. Desai for the  appellant vehemently contended that the Tribunal   committed   serious   error   in overruling   the   decision   of   the   CIT (Appeals),   who   had   given   detailed   reasons. He submitted that the investment was in the nature of capital investment in the hands of the assessee as held by the CIT (Appeals). The   CBDT   Circular   dated   November   26,   2008 would   not   apply.   There   were   further instructions   which   would   govern   the situation. 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   amortisation   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 Page 3 of 5

C/TAXAP/1051/2018 ORDER security,   the   loss   had   to   be   amortised. 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. 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   AFT   securities   forming stockintrade   of   the   bank,   the depreciation/   appreciation   is   to   be aggregated   scripwise   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 amortisation of premium paid on acquisition of securities when the same are acquired at the   rate   higher   than   the   face   value.   Such amortisation   would   have   to   be   for   the remaining period of maturity. This precisely the   Tribunal   had   directed   in   the   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.” 5. Question­D   pertains   to   addition   of   accrued interest   on   advances   which   had   become   NPA.     The Page 4 of 5

C/TAXAP/1051/2018 ORDER Tribunal deleted the same, upon which, the Revenue is in appeal before us.  This issue is squarely covered by the judgment of the Division Bench of this Court in case of  Principal Commissioner of Income­Tax v. Shri   Mahila   Sewa   Sahakari   Bank   Ltd.  reported   in [2017]  395   ITR   324   (Guj).    This   question   is   also therefore not required to be considered. 6. Tax Appeal is dismissed. (AKIL KURESHI, J) (B.N. KARIA, J) ANKIT SHAH Page 5 of 5