DEPUTY COMMISSIONER OF INCOME TAX, AAYAKAR BHAVAN , MUMBAI vs. JANAKALYAN SAHAKARI BANK LTD, MUMBAI

This appeal has been preferred by the Revenue against order dated 29.04.2024 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2018-19. In the original Form No. 36 filed by the Revenue, the grounds raised were inconsistent with the authorization memo issued by the respective Pr. Commissioner of Income-tax and therefore, the Revenue has filed revised Form No. tax and therefore, the Revenue has filed revised Form No. tax and therefore, the Revenue has filed revised Form No. 36 which is placed on record. 36 which is placed on record.

2. The CIT(A) has erred in deleting the disallowance of Rs. 2. The CIT(A) has erred in deleting the disallowance of Rs. 2. The CIT(A) has erred in deleting the disallowance of Rs. 2,72,78,950/ 2,72,78,950/- on account of Amortization of securities without on account of Amortization of securities without appreciating that the assessee has not complied wit appreciating that the assessee has not complied with the RBI h the RBI Guidelines on classification and valuation of investments Guidelines on classification and valuation of investments Guidelines on classification and valuation of investments dated 12.07.2006 dated 12.07.2006 3. The CIT(A) has erred in deleting the disallowance of Rs.

3. The CIT(A) has erred in deleting the disallowance of Rs. 3. The CIT(A) has erred in deleting the disallowance of Rs. 2,72,78,950/ 2,72,78,950/- on account of Amortization of securities without on account of Amortization of securities without appreciating that the said investments are not h appreciating that the said investments are not held in Held eld in Held-To- Maturity Category, rather all the securities are held by the Maturity Category, rather all the securities are held by the Maturity Category, rather all the securities are held by the assessee as stock in trade. assessee as stock in trade. 4. The CIT(A) has erred in deleting the disallowance of Rs. 4. The CIT(A) has erred in deleting the disallowance of Rs. 4. The CIT(A) has erred in deleting the disallowance of Rs. 2,72,78,950/ 2,72,78,950/- on account of Amortization of securities without on account of Amortization of securities without appreciating that as per CBDT appreciating that as per CBDT Instruction No. 17 dated Instruction No. 17 dated 26.11.2008 amortization is allowable only on securities held 26.11.2008 amortization is allowable only on securities held 26.11.2008 amortization is allowable only on securities held under Hold-to to-Maturity category. 5. The appellant prays that the order of the CIT(A) on the 5. The appellant prays that the order of the CIT(A) on the 5. The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the AO be restored. above ground be set aside and that of the AO be restored. above ground be set aside and that of the AO be restored. 3. The Ld. Departme The Ld. Departmental Representative (DR) also pointed out ntal Representative (DR) also pointed out that this appeal has been filed with a delay of 42 days. He that this appeal has been filed with a delay of 42 days. He that this appeal has been filed with a delay of 42 days. He submitted that the Ld. CIT(A) has passed the order on 29.04.2024 submitted that the Ld. CIT(A) has passed the order on 29.04.2024 submitted that the Ld. CIT(A) has passed the order on 29.04.2024 and appeal was due to and appeal was due to be filed latest by 24.08.2024 filed latest by 24.08.2024, but same is filed on 09.04.2024. 09.04.2024. In the affidavit, the Ld. Assessing Officer has he Ld. Assessing Officer has submitted that delay was partly due to submitted that delay was partly due to late receipt of late receipt of authorization memo from the office of the PCIT and thereafter memo from the office of the PCIT and thereafter because of holding because of holding additional charge, due to due to pressure of time baring, judicial matters judicial matters and other work, delay delay occurred in filing the appeal. The Assessing in filing the appeal. The Assessing Officer submitted that there was no intention Officer submitted that there was no intention behind behind causing the delay in filing the appeal. There was no objection from the opposite filing the appeal. There was no objection from the opposite filing the appeal. There was no objection from the opposite side for condoning the delay. In vie the delay. In view of the bona w of the bonafide reason the delay of 42 days in filing appeal of 42 days in filing appeal is condoned and appeal is admitted is condoned and appeal is admitted for adjudication.

“7.1.1 The appellant in its Ground of Appeal No. 1 assailed the AO The appellant in its Ground of Appeal No. 1 assailed the AO The appellant in its Ground of Appeal No. 1 assailed the AO in disallowing the claim for amortization of premium on investment in disallowing the claim for amortization of premium on investment in disallowing the claim for amortization of premium on investment under Held to maturity category of Rs. 2,72,78,950/ under Held to maturity category of Rs. 2,72,78,950/ under Held to maturity category of Rs. 2,72,78,950/- u/s 37(1) of Income Tax Act, 1961. Th Income Tax Act, 1961. The appellant bank in his reply claimed that e appellant bank in his reply claimed that it has investments in Held To Maturity (HTM) category Government it has investments in Held To Maturity (HTM) category Government it has investments in Held To Maturity (HTM) category Government securities and classified the same as per Reserve Bank of India securities and classified the same as per Reserve Bank of India securities and classified the same as per Reserve Bank of India guidelines, by amortizing premium on HTM securities over the guidelines, by amortizing premium on HTM securities over the guidelines, by amortizing premium on HTM securities over the residual period of matu residual period of maturity if acquisition cost is higher than the face rity if acquisition cost is higher than the face value of the investments. The said amortized premium is taken as value of the investments. The said amortized premium is taken as value of the investments. The said amortized premium is taken as allowable allowable allowable deduction deduction deduction while while while calculating calculating calculating taxable taxable taxable income. income. income. The The The classification and valuation of these securities is done as per RBI classification and valuation of these securities is done as per RBI classification and valuation of these securities is done as per RBI norms and also a norms and also accepted by Income Tax department by issuing ccepted by Income Tax department by issuing CBDT Instructions and also ICDS VIll (Income Computation CBDT Instructions and also ICDS VIll (Income Computation CBDT Instructions and also ICDS VIll (Income Computation Disclosure standards) which states that securities shall be Disclosure standards) which states that securities shall be Disclosure standards) which states that securities shall be classified, recognized and measured in accordance with the classified, recognized and measured in accordance with the classified, recognized and measured in accordance with the guidelines issued by the RBI. The cl guidelines issued by the RBI. The claim made by Appellant is in aim made by Appellant is in respect of the amortization of premium paid on acquisition of respect of the amortization of premium paid on acquisition of respect of the amortization of premium paid on acquisition of Government Securities classified under HTM category on the ground Government Securities classified under HTM category on the ground Government Securities classified under HTM category on the ground of the mandate of the RBI, a proposition which is supported by the of the mandate of the RBI, a proposition which is supported by the of the mandate of the RBI, a proposition which is supported by the judgment of the Hon'ble Bombay Hi judgment of the Hon'ble Bombay High Court in the case of HDFC gh Court in the case of HDFC Bank (supra). Thus, the appellant claimed that decision of Hon'ble Bank (supra). Thus, the appellant claimed that decision of Hon'ble Bank (supra). Thus, the appellant claimed that decision of Hon'ble Supreme Court in Southern Technologies Ltd. is not applicable in Supreme Court in Southern Technologies Ltd. is not applicable in Supreme Court in Southern Technologies Ltd. is not applicable in Appellants case. The appellant requested to delete the addition Appellants case. The appellant requested to delete the addition Appellants case. The appellant requested to delete the addition made in respect of amortized pr made in respect of amortized premium on HTM securities on the emium on HTM securities on the basis of facts mentioned by him in his reply. basis of facts mentioned by him in his reply. 7.1.2 The AO in assessment order noted that in respect of HTM 7.1.2 The AO in assessment order noted that in respect of HTM 7.1.2 The AO in assessment order noted that in respect of HTM securities, the assessee follows two different systems which are securities, the assessee follows two different systems which are securities, the assessee follows two different systems which are inconsistent with each other. When the purchase pric inconsistent with each other. When the purchase pric inconsistent with each other. When the purchase price is less than the face value at which the security is ultimately sold. the difference the face value at which the security is ultimately sold. the difference the face value at which the security is ultimately sold. the difference is booked as profit only in the year of sale. But when the cost price is booked as profit only in the year of sale. But when the cost price is booked as profit only in the year of sale. But when the cost price is more than the face value, the loss is not booked in the year of is more than the face value, the loss is not booked in the year of is more than the face value, the loss is not booked in the year of sale but is spread over the peri sale but is spread over the period of holding. If the securities are od of holding. If the securities are held as investment, there is no question of allowance of any amount held as investment, there is no question of allowance of any amount held as investment, there is no question of allowance of any amount till such time as they are sold or redeemed. Even if these securities till such time as they are sold or redeemed. Even if these securities till such time as they are sold or redeemed. Even if these securities are held as stock are held as stock-in-trade, as per RBI's guidelines, whatever loss is trade, as per RBI's guidelines, whatever loss is suffered on sale of redemption of securities that will constitute the sale of redemption of securities that will constitute the sale of redemption of securities that will constitute the loss of the year in which they are sold or redeemed. In between, no loss of the year in which they are sold or redeemed. In between, no loss of the year in which they are sold or redeemed. In between, no amount can be allowed under the provisions of section 145. The AO amount can be allowed under the provisions of section 145. The AO amount can be allowed under the provisions of section 145. The AO further relied on findings given by Hon'ble Supreme Court in further relied on findings given by Hon'ble Supreme Court in further relied on findings given by Hon'ble Supreme Court in judgment delivered in January, 2010 in the case of M/s. Southern dgment delivered in January, 2010 in the case of M/s. Southern dgment delivered in January, 2010 in the case of M/s. Southern Technologies Ltd. vs. JCIT in Civil Appeal No. 1337/ 2003, the Technologies Ltd. vs. JCIT in Civil Appeal No. 1337/ 2003, the Technologies Ltd. vs. JCIT in Civil Appeal No. 1337/ 2003, the assessee which is an NBFC had created a provision for NPA, which assessee which is an NBFC had created a provision for NPA, which assessee which is an NBFC had created a provision for NPA, which in terms of RBI guidelines was debited to Profit & Loss Account a in terms of RBI guidelines was debited to Profit & Loss Account a in terms of RBI guidelines was debited to Profit & Loss Account and was claimed in the Income Tax Return. The Hon'ble Supreme Court was claimed in the Income Tax Return. The Hon'ble Supreme Court was claimed in the Income Tax Return. The Hon'ble Supreme Court has held that the above provision is not allowable. Accordingly, the has held that the above provision is not allowable. Accordingly, the has held that the above provision is not allowable. Accordingly, the AO disallowed and added back the AO disallowed and added back the amount of premium amortized amount of premium amortized in respect of HTM securities of Rs. 2,72,78,950/ in respect of HTM securities of Rs. 2,72,78,950/- in total in total income of the appellant. the appellant. 7.1.3 The reply of the appellant, assessment order and case laws 7.1.3 The reply of the appellant, assessment order and case laws 7.1.3 The reply of the appellant, assessment order and case laws relied upon by the appellant and the AO has been considered. The relied upon by the appellant and the AO has been considered. The relied upon by the appellant and the AO has been considered. The appellant's claim is considered in the background of the decision appellant's claim is considered in the background of the decision appellant's claim is considered in the background of the decision delivered by ITAT Mumbai in case Ka delivered by ITAT Mumbai in case Kalyan Janata Sahakari Bank in lyan Janata Sahakari Bank in September 2015, it was discussed as following: September 2015, it was discussed as following: "assessee's claim for amortization of premium paid on the purchase "assessee's claim for amortization of premium paid on the purchase "assessee's claim for amortization of premium paid on the purchase of Government securities classified as HTM is consistent with the of Government securities classified as HTM is consistent with the of Government securities classified as HTM is consistent with the prudential norms issued by the RBI. It is also undeniable that the prudential norms issued by the RBI. It is also undeniable that the prudential norms issued by the RBI. It is also undeniable that the acquisition of the Government securities under the HTM c acquisition of the Government securities under the HTM c acquisition of the Government securities under the HTM categories has been undertaken by the assessee in the course of carrying on has been undertaken by the assessee in the course of carrying on has been undertaken by the assessee in the course of carrying on the 'banking business' under the mandate of RBI. Ostensibly, the the 'banking business' under the mandate of RBI. Ostensibly, the the 'banking business' under the mandate of RBI. Ostensibly, the predominant motive to purchase securities is to maintain the predominant motive to purchase securities is to maintain the predominant motive to purchase securities is to maintain the statutory liquidity ratio prescribed by the RBI. The Ce statutory liquidity ratio prescribed by the RBI. The Central Board of statutory liquidity ratio prescribed by the RBI. The Central Board of Direct Taxes vide its circular No.665 dated 5/10/1995 also Direct Taxes vide its circular No.665 dated 5/10/1995 also Direct Taxes vide its circular No.665 dated 5/10/1995 also provides that the question as to whether any particular securities provides that the question as to whether any particular securities provides that the question as to whether any particular securities constitute stock constitute stock-in-trade or investment in the case of a bank shall be trade or investment in the case of a bank shall be determined, inter determined, inter-alia, having regard to the guidelines issued by guidelines issued by RBI from time to time. In this background, it would be relevant to RBI from time to time. In this background, it would be relevant to RBI from time to time. In this background, it would be relevant to refer to the judgment of the Hon'ble Kerala High Court in the case of refer to the judgment of the Hon'ble Kerala High Court in the case of refer to the judgment of the Hon'ble Kerala High Court in the case of Nedungadi Bank Ltd. (supra), wherein it has been held that Nedungadi Bank Ltd. (supra), wherein it has been held that Nedungadi Bank Ltd. (supra), wherein it has been held that securities held by a Co securities held by a Co-operative society engaged in the business of ety engaged in the business of banking would constitute the 'stock banking would constitute the 'stock-in-trade' of the business of the trade' of the business of the said society. Therefore, in the context of the present assessee, said society. Therefore, in the context of the present assessee, said society. Therefore, in the context of the present assessee, which is also a Cooperative society engaged in the business of which is also a Cooperative society engaged in the business of which is also a Cooperative society engaged in the business of banking, the impugned Govern banking, the impugned Government securities are liable to be ment securities are liable to be considered as the stock considered as the stock-in-trade of its business of banking. Thus, trade of its business of banking. Thus, considering the aforesaid fact considering the aforesaid fact-situation and also the mandate of the situation and also the mandate of the RBI, the amortization of premium paid on purchase of securities RBI, the amortization of premium paid on purchase of securities RBI, the amortization of premium paid on purchase of securities classified under HTM ca classified under HTM category is liable to be allowed as a deduction tegory is liable to be allowed as a deduction while computing the business income of the assessee bank. At this while computing the business income of the assessee bank. At this while computing the business income of the assessee bank. At this point, it would also be appropriate to refer to the judgment of the point, it would also be appropriate to refer to the judgment of the point, it would also be appropriate to refer to the judgment of the Hon'ble Jurisdictional High Court in the case of C/T v. HDFC Bank Hon'ble Jurisdictional High Court in the case of C/T v. HDFC Bank Hon'ble Jurisdictional High Court in the case of C/T v. HDFC Bank Ltd. [2014] 366 ITR 505/49 taxmann.com 335/226 Taxman 132 ] 366 ITR 505/49 taxmann.com 335/226 Taxman 132 ] 366 ITR 505/49 taxmann.com 335/226 Taxman 132 (Mag.) (Bom.), wherein the assessee bank was held entitled for (Mag.) (Bom.), wherein the assessee bank was held entitled for (Mag.) (Bom.), wherein the assessee bank was held entitled for deduction with respect to the amortization of premium paid on deduction with respect to the amortization of premium paid on deduction with respect to the amortization of premium paid on acquisition of securities classified as HTM category on the ground of acquisition of securities classified as HTM category on the ground of acquisition of securities classified as HTM category on the ground of the mandate b the mandate by RBI guidelines, In our considered opinion, the y RBI guidelines, In our considered opinion, the aforesaid judgment of the Hon'ble Bombay High Court clearly aforesaid judgment of the Hon'ble Bombay High Court clearly aforesaid judgment of the Hon'ble Bombay High Court clearly supports the inference reached by the CIT(A), which we hereby supports the inference reached by the CIT(A), which we hereby supports the inference reached by the CIT(A), which we hereby affirm. In view of the clear finding of Hon'ble Jurisdictio In view of the clear finding of Hon'ble Jurisdictional High Court in nal High Court in the case of CI of CIT v. HDFC Bank Ltd. [2014] 366 ITR 505/49 HDFC Bank Ltd. [2014] 366 ITR 505/49 taxmann.com 335/226 Taxman 132 (Mag.) (Bom.), addition made taxmann.com 335/226 Taxman 132 (Mag.) (Bom.), addition made taxmann.com 335/226 Taxman 132 (Mag.) (Bom.), addition made for amortization of premium on investment under Held to maturity for amortization of premium on investment under Held to maturity for amortization of premium on investment under Held to maturity category of Rs. 2,72,78,950/ category of Rs. 2,72,78,950/- U/s 37(1) of Income Tax Act, 1961 is U/s 37(1) of Income Tax Act, 1961 is deleted The grou deleted The grounds of appeal is allowed.” 4.1 In view of the above decision, the In view of the above decision, the ld cIT(A) ld cIT(A) has correctly characterized the nature of the government securities as stock in characterized the nature of the government securities as stock in characterized the nature of the government securities as stock in trade in view of guidelines issued by the RBI. The trade in view of guidelines issued by the RBI. The ld CIT(A) ld CIT(A) has also relied on the decision of the relied on the decision of the Hon’ble Jurisdictional High Court in Hon’ble Jurisdictional High Court in the case of CIT v. HDFC Bank Ltd. (supra). Further, the Ld. counsel the case of CIT v. HDFC Bank Ltd. (supra). Further, the case of CIT v. HDFC Bank Ltd. (supra). Further, for the assessee also supported the for the assessee also supported the finding of ld CIT(A) finding of ld CIT(A) relying on Hon’ble High Court of Gujarat in the case of CIT v. Rajkot District Hon’ble High Court of Gujarat in the case of CIT v. Rajkot District Hon’ble High Court of Gujarat in the case of CIT v. Rajkot District Co-operative Bank Ltd. [2014] 43 taxmann.com 161 (Gujarat) Bank Ltd. [2014] 43 taxmann.com 161 (Gujarat) Bank Ltd. [2014] 43 taxmann.com 161 (Gujarat) wherein Circular dated 26.11.2008 issued by the CBDT has been dated 26.11.2008 issued by the CBDT has been dated 26.11.2008 issued by the CBDT has been referred and Hon’ble High Court held that where a co-operative referred and Hon’ble High Court held that where a co referred and Hon’ble High Court held that where a co bank purchases certain government securities in order to maintain bank purchases certain government securities in order to maintain bank purchases certain government securities in order to maintain statutory liquidity ratio (SLR) at a price higher than their face value, ratio (SLR) at a price higher than their face value, ratio (SLR) at a price higher than their face value, premium so paid has to be amortized for remaining period of premium so paid has to be amortized for remaining period of premium so paid has to be amortized for remaining period of maturity. In the instant case also the government securities have maturity. In the instant case also the government securities have maturity. In the instant case also the government securities have been purchased by the been purchased by the assessee for maintaining statutory maintaining statutory liquidity ratio. Further the Ld. counsel for the assessee also relied on the rther the Ld. counsel for the assessee also relied on the rther the Ld. counsel for the assessee also relied on the decision of the Hon’ble High Court of Delhi in the case of Punjab decision of the Hon’ble High Court of Delhi in the case of Punjab decision of the Hon’ble High Court of Delhi in the case of Punjab National Bank [2024] 169 taxmann.com 620 (Delhi) wherein it is National Bank [2024] 169 taxmann.com 620 (Delhi) wherein it is National Bank [2024] 169 taxmann.com 620 (Delhi) wherein it is held that security under HTM category are those that are held till held that security under HTM category are those that are held till held that security under HTM category are those that are held till its redemption/maturity and premium was paid for s redemption/maturity and premium was paid for acquiring said s redemption/maturity and premium was paid for security over and above the face value or the redemption value of security over and above the face value or the redemption value of security over and above the face value or the redemption value of those securities, it would be apposite to amortize the same during those securities, it would be apposite to amortize the same during those securities, it would be apposite to amortize the same during the holding period. The Co the holding period. The Co-ordinate Bench of the Tribunal in ordinate Bench of the Tribunal in the case of DCIT v. M/s Yes Bank Ltd. in and case of DCIT v. M/s Yes Bank Ltd. in and case of DCIT v. M/s Yes Bank Ltd. in ITA No. 3239/M/2018 and 3501/M/2018 for assessment year 2014 3501/M/2018 for assessment year 2014-15 also gave also gave a similar finding. Respectfully, , following the finding of the Co- -ordinate Bench of the Tribunal as discussed above, w he Tribunal as discussed above, we do not find any infirm e do not find any infirmity in the order of the Ld. CIT(A) on the issue in dispute and accordingly the order of the Ld. CIT(A) on the issue in dispute and accordingly the order of the Ld. CIT(A) on the issue in dispute and accordingly we uphold the same. we uphold the same. The ground raised by the Revenue are The ground raised by the Revenue are accordingly dismissed. accordingly dismissed.

Order pronounced in the open Court on nounced in the open Court on 30/ /01/2025.