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

C/TAXAP/1052/2018 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 1052 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: “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 Rs.1,50,01,880/­?” 2. This   question   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 Page 1 of 3

C/TAXAP/1052/2018 ORDER 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 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 Page 2 of 3

C/TAXAP/1052/2018 ORDER 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.” 3. Tax Appeal is dismissed. (AKIL KURESHI, J) (B.N. KARIA, J) ANKIT SHAH Page 3 of 3