The Pr. Commissioner Of Income Tax v. 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 TAXVersusM/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 KURESHIandHONOURABLE 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 Rs.1,41,76,000/-? [D]Whether in the facts and circumstances of the case and law, the Appellate Tribunal is justifiedinrejectingadditionof Rs.21,48,000/- on account of accrued interest on NPA?” 2.Questions-A and B overlap. Issue is whether the respondent-assessee 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 2007-08, 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 respondent-assessee. 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 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.Question-C 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. 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 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 16[th] 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.Question-D pertains to addition of accrued interest on advances which had become NPA. The 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 Income-Tax 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) ANKIT SHAH (B.N. KARIA, J)