DCIT, NEW DELHI vs. M/S. THE VAISH CO-OPERATIVE ADARSH BANK LTD., NEW DELHI

PER CHANDRAMOHAN GARG, J.M.

This appeal by the revenue has been directed against the order of the CIT(A)-XXV, New Delhi dated 19.4.2012 in Appeal No.153/2011-12 for AY 2009-10.

“1. "On the facts and in circumstances of the case, Ld. CIT(A) XXV, New Delhi has erred in deleting the addition of Rs.4,04, 15,564/- made by the AO under the head income from NPA (non performing assets) on the grounds that the same has not been actually received by the assessee."

ITA No.3310/Del/12 AY: 2009-10 2. "On the facts and in circumstances of the case, the Ld. CIT(A)-XXV, New Delhi has erred in deleting the addition of Rs.6,20,669/- made by the AO under the head premium expenditure on Govt. securities on the basis of that the buy and sale of the Govt. securities is a normal business activity and the premium expenditure is a normal business expenditure".

Ground No.1

carefully perused the relevant material placed on record, inter alia assessment

order, impugned order and other relevant orders of Hon’ble High Court and

Tribunal including paper book of the assessee spread over 100 pages. Ld. DR

submitted that the AO was correct in making addition under the head ‘income

from non-performing assets’ (NPA) because circular or any other guidelines

issued by RBI cannot override the express provisions of Income Tax Act, 1961

(for short the Act) and are not binding upon the income tax authorities.

Secondly, Form No. 3CD of the tax audit report furnished by the assessee

clearly mentions that the assessee follows mercantile system of accounting. Ld.

DR also pointed out that the CIT(A) deleted the addition by wrongly holding

that the income from NPA has not been actually received by the assessee,

therefore, impugned order may be set aside by restoring that of the AO.

relevant operative part of the impugned order of the first appellate authority and

submitted that the notional interest income which has not been actually received

ITA No.3310/Del/12 AY: 2009-10 by the assessee and as such it was not taken in the profit and loss account,

therefore, in the light of guidelines of RBI dated 28.2.2000 and RBI Circular

No. UBD dated 6.6.1995, policy of income recognition has to be objective and

based on the record of recovery and hence income from non-performing assets

(NPA) is not recognised on accrual basis but is booked as income only when it

is actually received. Ld. counsel further pointed out that the RBI by way of

circular (supra) clarified that corporate books should not take into income

account interest on non-performing assets on accrual basis.

of the CIT(A), we note that the CIT(A) noted the following facts and

contentions of the assessee in para 4.1 and 4.2 of the impugned order which

read as under:-

“4.1. The facts emanating from the order of the AO and the submissions of the assessee is that the assessee is a Co-operative Bank and is engaged in banking business and the assessee was claiming deduction u/s 80P(2)(a)(i) up to AY 2006-07 @ 100%. It is submitted that the assessee has claimed the interest income amount of Rs 4,04,16,564/- as interest income from the NPA (Non-performing assets) but since the loans/principal amounts have become bad the assessee has neither received the loan amount nor the interest income. The assessee has treated the interest amount as "interest receivable" in the debit side of the balance sheet and as a liability under the head "overdue interest reserve account" in the credit side of the balance sheet. The AO has treated the interest income from the NP As as a normal business income on the ground that in the mercantile system of accounting the accrued income is to be treated as income of the assessee and accordingly, has made the addition of Rs. 4,04,16,564/- vide the order of the AO.

ITA No.3310/Del/12 AY: 2009-10 4.2 The assessee is in appeal' against the order of the AO and it is submitted that the AO is not justified to make the addition as the loan/principal amount has become bad (NPA) and at the same time, the assessee has not received any interest income and as such no real income has accrued to the assessee. It is submitted that in the case of interest on NP As the party account is debited and the interest account is credited in the P&L account and since the interest is actually not received a reverse entry is passed at the year-end by which the P&L account is debited and the overdue interest account is credited. It is also submitted that the assessee has maintained the books of accounts on the NP A and its interest on the basis of the RBI guidelines and since the income has not been received by the assessee, the AO is not justified to treat the same as income of the assessee. It is also submitted that when the interest income finally recovered or received in future the same is accounted for and offered as income of the assessee in the relevant FY. It is also submitted that only the real income of the assessee may be taxed and not the notional income. The assessee also submitted that no interest would be said to have accrued to the assessee on the loans of doubtful recovery and the assessee also relied on various case laws some of which are as under:- (1) CIT Vs Shoorji Vallabhdas & Co, 46 ITR 144 (SC) [1962] (2) CIT Vs Vasisth Chay Vyapar Ltd, 330 ITR 440 (Delhi), 2011 (3) DIT Vs Brahmaputra Capital Financial Services Ltd, 335 ITR 182 (Delhi), 2011 (4) TRO Vs Custodian, 293 ITR 369 (Del) (5) Barkha Investment & Trading Co P Ltd Vs CIT, 281 ITR 31 (Guj) (6) CIT vs Nainital Bank Ltd. 309 ITR 335 (Uttarakhand) (7) CIT vs Elgi Finance Ltd. 293 ITR 357 (Mad) (8) CIT Vs Motor Credit Co P Ltd, 127 ITR 572 (Mad) [1981] (9) CIT Vs Coimbatore Lakshmi Inv. & Finance Co Ltd, 331 ITR 229 (Mad) [2011] (10) UCO Bank Vs CIT, 237 ITR 889 (SC)[1999]

ITA No.3310/Del/12 AY: 2009-10 6. We further observe that the CIT(A) granted relief to the assessee with

following observations and conclusion:-

“4.3 I have considered the order of the AO and the submissions of the assessee and I find considerable merit in the submission of the assessee that since the assessee has not actually received the income as the loan/principal amount itself has become bad and as such the AO is not justified to treat the notional interest as income of the assessee. A perusal of the case laws cited by the assessee also supports the case of the assessee that only the real income is taxable and not the hypothetical income in view of the real income theory as no real income is actually received by the assessee and the same view has been held by the Hon'ble Supreme Court in the case of CIT Vs Shoorji Vallabhdas & Co, 46 ITR 144 (SC) [1962] and the head note of the case reads as under :- "Held, that the subsequent agreement had altered the rate of commission in such a way as to make the income which really accrued to the assessee different from what had been entered in the books of account. This was not a case of a gift by the assessee to the managed companies of a portion of income which 'had already accrued, but an agreement to receive a lesser remuneration that what had been agreed upon. The assessee had in fact received only the lesser amount in spite of the entries in the account books, and this lesser amount alone was taxable. Income-tax is a levy on income. Though the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt, yet the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a "hypothetical income", which does not materialise . Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account.

ITA No.3310/Del/12 AY: 2009-10 Decision of the Bombay High Court in Commissioner of Income-tax v. Shoorji Vallabhdas & Co. [1959] 36 I.T.R. 25 affirmed.

Commissioner of Income-tax v. Chamanlal Mangaldas & Co. [1960] 39 I.T.R. 8 (S.C.) followed.” 4.4. It has also been held in the case of CIT Vs Motor Credit Co P Ltd, 127 ITR 572 (Mad) [1981] that only the real income is to be taxed and the head-note of the case reads as under :-

“The regular mode of accounting determines only the mode of computing the taxable income and the point of time at which the tax liability is attracted. It cannot determine or affect the range of taxable income or the ambit of taxation. Where no income has resulted it cannot be said that income has accrued merely on the ground that the assessee had been following the mercantile system of accounting. Even if the assessee makes a debit entry to that effect, still no income can be said to have accrued to the assessee. If no income has materialised, there can be no liability to tax on a hypothetical income. It is not the hypothetical accrual of income based on the mercantile system of accounting followed by the assessee that has to be taken into account, but what should be considered is whether the income has really materialised or resulted to the assessee. The question whether real income has materialised to the assessee has to be considered with reference to commercial and business realities of the situation in which the assessee has been placed and not with reference to his system of accounting.” 4.5 After considering all the facts and circumstances of the case, I am of the view that there is considerable merit in the submission of the assessee regarding the notional interest income which has not been actually received by the assessee and as such the AO is not justified to make the addition on the basis of notional interest income only and accordingly, the addition made by the AO is deleted.”

ITA No.3310/Del/12 AY: 2009-10

for Assessment Year 2009-10 in the case of DCIT vs Vaish Cooperative New Bank Ltd. wherein the issue of notional interest on non-performing assets (NPA) has been decided in favour of the assessee with following observations and conclusion:-

“5. Before the Ld. CIT (A) assessee submitted that Assessing Officer was not justified to make the addition in this case as the loan/Principal amount has become bad (NPA) and at the same time the assessee had not received any interest income and as such no real income has accrued to the assessee. The assessee further placed reliance upon accounting standards 9 in this regard. It was further submitted that no interest would be said to have accrued to the assessee as the loans thereof was of doubtful recovery. In this regard, assessee referred to various case laws as under :- “(1) CIT Vs. Shoorji Vallabhdas & Co. 46 ITR 144 (SC) [1962] (2) CIT Vs. Vasisth Chay Vyapar Ltd., 330 ITR 440(Delhi),2011, (3) DIT Vs. Brahmaputra Capital Financial Services Ltd, 335 ITR 182 (Delhi), 2011 (4) TRO Vs. Custodian, 293 ITR 369 (Del) (5) Barkha Investment & Trading Co. P.Ltd. Vs. CIT, 281 ITR 31(Guj) (6) CIT Vs. Nanital Bank Ltd, 309 ITR 335 (Uttarakhand) (7) CIT Vs. Elgi Finance Ltd, 293 ITR 357 (Mad) (8) CIT Vs. Motor Credit Co. P. Ltd. 127 ITR 572 (Mad) [1981] (9) CIT Vs. Coimbatore Lakshmi Inv. & Finance Co. Ltd. 331 ITR 229 (Mad) [2011]”

ITA No.3310/Del/12 AY: 2009-10 submission of the assessee regarding the notional interest income which has not been actually received by the assessee and as such the Assessing Officer is not justified to make the addition on the basis of notional interest income only and accordingly, the addition made by the Assessing Officer was deleted. 7. Against the above order, revenue is in appeal before us. We have heard both the counsels and perused the records. We find that the interest in this case was due on non-performing assets (NPA). As per the RBI guideline in this regard, interest on NPAs is not to be recognized. Accounting standard 9 issued by the Institute of Chartered Accountant of India also provides that income is to be recognized only when there is some reasonable certainty about the receipt of the income. We, further, find that this view is also supported by the decisions, as mentioned above. We find that in the case of CIT Vs. Elgi Finance Ltd. 293 ITR 357, Hon’ble Madras High Court has held that interest on non- performing asset is not to be recognized in light of the RBI notification and accounting standard 9 issued by the Institute of Chartered Accountant of India. 8. In the light of aforesaid discussion and precedents. We do not find any infirmity in the order of Ld. CIT(A). Accordingly, we uphold the same.” In view of above, at the very outset, we may point out that the AO wrongly

mentioned that the guidelines of RBI and Circulars are not binding upon the

income tax authorities as urban cooperative banks are bound to follow income

recognition policy decided by the RBI and when RBI has made it clear that

cooperative banks should not take to income account interest on performing

assets on accrual basis, then it is not appropriate for the cooperative banks to

recognise interest on non-performing assets as their income on national basis.

Therefore, basis of the action of the AO is not sustainable and in accordance

with the provisions of the Act. We further note that where no income has

resulted in the hands of the assessee cooperative bank as interest on NPA, then

ITA No.3310/Del/12 AY: 2009-10 the same cannot be held as income accrued to the assessee merely on the ground

that the assessee had been following the mercantile system of accounting. We

are unable to agree with the conclusion of the CIT(A) that if no income has

materialised in the hands of the assessee as actual accrual of interest from NPA,

then there can be no liability to tax on hypothetical income. It is not a

hypothetical accrual income based on mercantile system of accounting followed

by the assessee that has to be taken into account but the crux of the issue is that

whether the income has really materialised or accrued to the assessee as interest

on NPA. We are also in agreement with the observations of the CIT(A) that the

question whether real income as materialised to the assessee has to be

considered with reference to business and commercial reality of the situation in

which the assessee has been placed and not with reference to his system of

accounting.

UBD.PCB.MC.3/09.14.000/2009-10 dated 1.7.2009, the income recognition

policy from NPA has been set out as follows:-

“4.1 Income Recognition – Policy 4.1.1 The policy of income recognition has to be objective and based on the record of recovery. Income from non-performing assets (NPA) is not recognised on accrual basis but is booked as income only when it is actually received. Therefore, banks should not take to income account interest on non-performing assets on accrual basis.”

ITA No.3310/Del/12 AY: 2009-10 9. It is pertinent to mention that all cooperative banks including the assessee

are bound to follow RBI Circular (supra) for recognition of income from NPA

and in derivation therefrom may create serious problems for the violating bank.

Hence, conclusion of the AO was not correct that RBI guidelines/Circulars are

not binding on the income tax authorities. Per contra, when the assessee

cooperative bank is following income recognition policy set out by the RBI,

then it cannot be compelled to follow other method of recognition and income

tax authorities have to consider this aspect before making any disallowance or

addition in this regard.

coordinate bench of Delhi ‘H’ Bench dated 21.6.13 in asessee’s own group

cooperative bank case (supra) wherein it has been expressly held that as per RBI

guidelines, the interest on NPA is not to be recognised and also as per

Accounting Standard 9 issued by Institute of Chartered Accountants of India,

that income is to be recognised only when there is some reasonable certainly

about the receipt of income. In view of above, we have no reason to take a

deviated view from the order of the Tribunal (supra) and therefore, we are

unable to see any valid reason to interfere with the conclusion of the first

appellate authority and thus, we uphold the same. Accordingly, ground no. 1 of

the revenue being devoid of merits is dismissed.

ITA No.3310/Del/12 AY: 2009-10

Ground No.2

erred in deleting the addition of Rs.6,20,669/- made by the AO under the head

premium expenditure on Govt. securities on the basis of that the buy and sale of

the Govt. securities is a normal business activity and the premium expenditure is

a normal business expenditure Ld. DR supporting the action of the Assessing

Officer submitted that premium paid on government securities was an

expenditure being admissible in nature which was not allowable, therefore, the

Assessing Officer rightly made addition in this regard. Ld. Counsel vehemently

pointed out that CIT(A) granted relief to the assessee without any justified

reason and basis, therefore, the same may be set aside by restoring that of the

Assessing Officer.

Assessing Officer was not justified in disallowing the genuine premium

expenditure which was a normal business expenditure and the same was

allowable as the same was incurred for the purpose of business of the assessee.

On behalf of the assessee, it was also submitted that the buying and sale of

government securities is a part of normal business activity of the assessee, as

ITA No.3310/Del/12 AY: 2009-10 such, the premium expenditure or deduction or write off should be allowed. Ld.

Counsel vehemently contended that the assessee was granted relief on correct

and justified reasons, therefore, impugned order may kindly be upheld.

Tribunal including order of ITAT Pune in the case of Satara District Central Co.

Op. Bank Ltd. vs DCIT dated 30.12.14 in ITA No. 2537/PN/2012 for AY 2009-

10, order of ITAT Ahmedabad ‘B’ Bench in the case of DCIT vs Surat National

Cooperative Bank Ltd. dated 23.8.2013 in ITA No. 2793/Ahd/2012 for AY

2009-10 and order of ITAT Bangalore ‘A’ Bench in the case of M/s Sir M.

Visweswaraya Cooperative Bank Ltd. vs JCIT dated 11.5.12 in ITA

No.1122/Bang/2010 for AY 2007-08 and submitted that the assessee is entitled

to claim the expenditure on account of amortisation of premium held till

maturity (HTM) government securities and therefore, the first appellate

authority was quite correct in granting relief to the assessee on this issue. Ld.

Counsel has also drawn our attention towards chart filed along with written

submissions of the assessee dated 27.6.15 which explicitly clarify the details of

government securities purchased at premium as on 31.3.2009 amounting to

Rs.6,20,669 wherein amortisation during financial period 2008-09 government

security held till maturity has been submitted. Learned Departmental

ITA No.3310/Del/12 AY: 2009-10 Representative has not disputed this fact that this chart along with relevant

submissions was submitted to the authorities below by the assessee.

outset, we find it appropriate to note proposition laid down by ITAT Pune Bench

in the case of Satara District Central Co. Op. Bank Ltd. vs DCIT (supra) where

in para 10, after considering the proposition laid down by ITAT Pune Bench

itself in the case of Pune District Central Co. Op. Bank Ltd. vs DCIT (supra) in

ITA No. 1796/PN/2013 order dated 28.11.14 relating to AY 2009-10, it has been

held that the assessee is entitled to the claim of expenditure on account of

amortisation premium held till maturity government securities. The relevant

operative part of the order of the Tribunal reads thus:-

“8. The assessee is in appeal against the order of the learned CIT(A). The A.R. pointed out that the issue in the present appeal is squarely covered by the ratio laid down by the Tribunal, Pune Bench, in the case of Pune District Central Co. Operative Bank Ltd., ITA No.1796/PN/2013, vide order dated 28th November 2014, relating to assessment year 2009-10 and Hon’ble Bombay High Court in CIT v/s HDFC Bank Ltd., 366 ITR 505 (Bom.). 9. The A.R. for the Revenue placed reliance on the order of the CIT(A). 10. We have heard the rival contention and perused the record. The issue arising in the present appeal is with regard to amortization of premium on HTM securities. The case of the assessee was the Banks were given permission to shift securities from AFS to HTM on or before 31st March 2005. For the purpose, year and valuation of AFS was done and price paid for 13

ITA No.3310/Del/12 AY: 2009-10 the HTMs over the face value was amortized for a period of five years and booked as expenditure, as per RBI norms. The case of the Revenue was that the HTM securities were held on capital account and the premium paid forms integral part of the cost of capital asset and the same cannot be segregated from the cost and claimed as deduction. Identical issue arose before the Tribunal, Pune Bench, in the case of Pune District Central Co. Operative Bank Ltd. (supra), wherein the Tribunal held as under:- “10. We find that a similar issue of allowability or deduction on account of amortization of premium expenditure for HTM securities arose before Pune Bench of the Tribunal in assessee’s own case in ITA No.1795/PN/2013 relating to assessment year 2008-09 vide order dated 22.09.2014 wherein, it was held as under:- “2.1 The only issue remains is with regard to disallowance made by the Assessing Officer of Rs.2,20,68,302/- claimed by the assessee as amortization of premium expenditure for HTM securities by payment of over and above the value of such securities. The learned Authorized Representative has pointed out that this issue is covered in favour of the assessee by order of the Hon’ble Bombay High Court in the case of CIT Vs. HDFC Bank Ltd. (2014) 366 ITR 505 (Bom), wherein the Hon’ble Bombay High Court on similar issue, held as under: “As far as question (C) is concerned, we find that an identical question of law was framed and answered in favour of the assessee by this court in its judgment dated July 4, 2014, in Income Tax Appeal No.1079 of 2012, CIT v. Lord Krishna Bank Ltd. (now 7 The Satara District Central Co. Op. Bank Ltd. merged with HDFC Bank Ltd.) (2014) 366 ITR 416 (Bom). Mr. Suresh Kumar fairly stated that question (C) reproduced above is covered by the said order. In view thereof, we are of the view that even question (C) does not arise any substantial question of law that requires an answer from us.” And a similar view has been taken by ITAT, Pune ‘A’ Bench in the case of Dy.CIT vs. Kallappanna Awade Ichalkaranji Janata Sahakari Bank Ltd. in ITA No.449/PN/2012 and another by observing as under: “10. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) 14

ITA No.3310/Del/12 AY: 2009-10 and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find an identical issue had come up before the Tribunal in the case of Nahsik Merchant Cooperative Bank Ltd. (Supra). We find the Tribunal has discussed the issue and dismissed the grounds raised by the Revenue by holding as under : “4. After going through rival submissions and material on record we find that with the advent of section 80P(4) w.e.f. A.Y, 2007-08 has closed the doors for cooperative banks for claiming the benefit of deduction u/s.80P(2)(a)(i) from this total income. However, the cooperative society should now be entitled to be assessed as normal banking company. The clause (4) inserted in section 80P has taken away the benefit of the erstwhile deduction available to cooperative society in carrying on business of banking or providing credit facility to its members. The new clause (4) inserted by the Finance Act, 2006 w.e.f. 01-04-2007 reads as under: " The provision of the section was not in relation to any cooperative bank other than agricultural credit society or primary cooperative agricultural and rural development bank". 5. The intention of the provision may be derived more precisely from relevant Para 166 of the budget speech which stated that : "Co-operative banks, like any other bank, are lending institutions and should pay tax on their profits, Primary Agricultural Credit Societies (PACS) and Primary Cooperative Agricultural and Rural Development Bank (PCARDB) stand on a special footing and will continue to be exempt under section 80P of the Income Tax Act. However, I propose to exclude all other co-operative banks from the scope of that section". Accordingly, section 80P is to be amended to give effect to the above proposal. It is also proposed to amend section 8 The Satara District Central Co. Op. Bank Ltd. 2(24) to provide that profits and gains of business of banking (Including providing credit facilities) carried on by a co- operative society with its members shall be included in the definition of 'income' (with effect from 1st April, 2007)". 6. Cooperative bank unlike other commercial banks are subjected to dual control from both RBI as well as from state cooperative department. The accounting treatment for a cooperative bank is therefore a result of guidelines from both the controlling authorities. Ordinarily a deduction is not available to

ITA No.3310/Del/12 AY: 2009-10 an assessee unless specifically provided under the Act. This is irrespective of accounting treatment provided by the assessee in its books of accounts. But at the same time it was well settled that deduction expressly mentioned under the Act are not exhaustive and profit is to be derived according to ordinary commercial principles. As per the extant RBI guidelines dated 01-07-2009 the investment portfolio of the banks is required to be classified under 3 categories viz., Held the maturity HTM), Held for Trading (HFT) and Available for Sale (AFS). The value of each kind of investment is to be done in the following manner: Sr.No. Classification Valuation Norms of Investment. 1….. 2….. 3….. 7. In para (vii) of the CBDT Instruction No.17 of 2008 dated 26.11.2008, on 'Assessment of Bank - check list for deduction, states as under: "As per RBI guidelines….." 8. The ITAT, Mumbai Bench, in the case of ACIT vs. The Bank of Rajasthan Ltd. (2011) TIOL-35- ITAT-Mumbai, has held that in case of banks, the premium paid in excess of face value of investments classified under HTM category which has been amortised over the period till maturity is allowable as revenue expenditure since the claim is as per RBI Guidelines and CBDT also has directed to allow such premium. It has also been held in the case of Catholic Syrian Bank Ltd. Vs. ACIT that amortization on purchase of Government securities was made as per prudential norms of the RBI and same was allowable deduction. In view of above, assessee was justified in contending for amortization of premium paid in excess of face value of securities held to maturity (HTM) category or period remaining till 9 The Satara District Central Co. Op. Bank Ltd. maturity was found reasonable by the CIT(A). Accordingly addition of Rs.17,91,659/- made by the Assessing Officer by disallowing amount towards amortization of Government Securities (HMT) was deleted. This reasoned factual and legal finding of the CIT(A) needs no interference from our side. We uphold the same. 9. As a result, the appeal filed by the Revenue is dismissed”. 10.1 Respectfully following the decision of the Coordinate Bench of the Tribunal and in absence of any contrary material brought to our notice against the above cited decision we find no infirmity in the order of the Ld.CIT(A) deleting the addition. Accordingly,

ITA No.3310/Del/12 AY: 2009-10 the order of the Ld.CIT(A) is upheld and the grounds raised by the Revenue are dismissed.” 2.2 Nothing contrary has been brought to our knowledge on behalf of the Revenue. Facts being similar, so following the same reasoning we hold that in case of banks, the premium paid in excess of face value of investments classified under HTM category which has been amortised over the period till maturity is allowable as revenue expenditure since the claim is as per RBI Guidelines and CBDT also has directed to allow such premium. In view of above, the assessee is justified in contending that the amortization of premium in excess of face value securities as HTM, period remaining difference was found reasonable. Accordingly, the disallowance of Rs.2,20,68,302/- made by the Assessing Officer claimed as amortization of premium expenditure for HTM securities by payment of premium over and above the face value of such securities is directed to be allowed.” 11. The Hon’ble Bombay High Court in CIT Vs. HDFC Bank (supra) held that the assessee therein was entitled to deduction with respect to the diminution in the value of investments and amortization of premium on investments Held To Maturity on the ground of mandate of the RBI guidelines. The issue raised in the present appeal is identical to the issue before the Pune Bench of the Tribunal in the assessee’s own case for assessment year 2008-09 and Hon’ble Bombay High Court in CIT Vs. HDFC Bank (supra). We hold that amortization of premium expenditure for securities Held To Maturity in view of RBI guidelines are allowable business expenditure in the case of assessee. The grounds of appeal No.1 and 2 raised by the assessee are thus, allowed.” 10 The Satara District Central Co. Op. Bank Ltd. 11. Following the same parity of reasoning, we hold that the assessee is entitled to the claim of expenditure of Rs.31,73,359/-, on account of amortization of premium on HTM securities. Thus, the ground of appeal no.1 raised by the assessee is allowed.”

26.11.2008 of the Income Tax department, it has been directed to the revenue

authorities that as per RBI guidelines dated 16.10.2000, the investment portfolio

ITA No.3310/Del/12 AY: 2009-10 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) and the

investment classified under HTM category need not be marked to market and

are carried at acquisition cost unless these are more than the face value and in

these cases, premium should be amortised over period remaining to maturity.

The relevant Instruction no. (vii) 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 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.”

the CIT(A) was right in granting relief to the assessee on this issue as to when

the assessee cooperative bank is holding government securities till its maturity,

the premium paid by the assessee cooperative bank thereon is a necessary

expenditure for the purpose of business of the assessee cooperative bank and

thus, the same is an allowable expenditure under the provisions of the Act and 18

ITA No.3310/Del/12 AY: 2009-10 the first appellate authority was correct in granting relief to the assessee.

Accordingly, ground no. 2 of the revenue being devoid of merits is also

dismissed.

dismissed.

Order pronounced in the open court on 16.10.2015. Sd/- Sd/-

(L.P. SAHU) (C.M. GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 16th October, 2015 ‘GS’