M/s. Jhabua Dhar Kshetriya Gramin Bank, Jhabua V. THE DCIT, Ratlam

ITA 107/IND/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 1927 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 16-08-2018
• Assessment Year: 2008-2009
• Appeal Filed On: 16-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: LALCHAND
• Assessee Lawyers: S S DESH
• Keywords: Reopening of assessment; Capital asset; Depreciation; Business expenditure; Audit objection; Question of law; Cost of acquisition; Bad and doubtful debts; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 142(1); 148

Judgement Text

JHABUA DHAR KSHETRIYA GRAMIN BANK ITA NO.106 TO 114/IND/2017 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ITA NO.106 TO 114/IND/2017 ASSESSMENT YEARS: 2008-09 TO 2012-13 REVENUE BY SHRI LALCHAND , CIT ASSESSEE BY SHRI S.S. DESHPANDE,CA DATE OF HEARING 16 . 8 .2018 DATE OF PRONOUNCEM ENT 06 . 9 .2018 O R D E R PER BENCH . THE ABOVE CAPTIONED 9 APPEALS ARE FILED AT THE INSTANCE OF THE ASSESSEE. APPEAL NOS. 107, 109, 111, 113 & 114/ IND/2017 ARE DIRECTED AGAINST THE ORDER OF DATED 03.11.2016 AR ISING OUT OF THE ORDER U/S 143(3) OF THE ACT FOR ASSESSMENT YEARS 2 008-09 TO 2012- 13. THE REMAINING 4 APPEAL BEARING NOS. 106, 108, 110 & M/S JHABUA DHAR KSHETRIYA GRAMIN BANK, NEAR D.R.P. LINE, JHABUA VS. DCIT, RATLAM ( APPELLANT ) (RESPONDENT ) PAN NO.AA A AJ0292Q JHABUA DHAR KSHETRIYA GRAMIN BANK ITA NO.106 TO 114/IND/2017 2 112/IND/2017 ARE DIRECTED AGAINST THE ORDER OF DAT ED 03.11.2016 ARISING OUT OF THE ORDER U/S 143(3) R.W.S. 147 OF THE ACT FOR ASSESSMENT YEARS 2008-09 TO 2011-12. 2. AS THE ISSUES RAISED IN THESE APPEALS ARE MOSTL Y COMMON, THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY T HIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 3. FROM PERUSAL OF THE GROUND OF APPEALS RAISED BY THE ASSESSEE IN THESE 9 APPEALS, WE FIND THAT THE COMMON ISSUES CAN BE CATEGORIZED INTO TWO PARTS. 4. FIRSTLY WHICH ARE ARISING OUT OF THE ASSESSMENT ORDERS FRAMED U/S 143(3) OF THE ACT PERTAINING TO ASSESSMENT YEAR 2008-09 TO 2013-14 BY ITA NO.107, 109, 111, 113 & 114/IND/2017 ; (I) DISALLOWANCE OF AMORTIZATION OF EXPENSES ON GOV ERNMENT SECURITIES FOR ASSESSMENT YEARS 2008-09 TO 2012-13; (II) DISALLOWANCE OF CLAIM U/S 36(1)(VIIA) OF THE ACT FOR ASSESSMENT YEAR 2013-14. 5. SECONDLY THE ISSUE ARISING OUT OF THE ORDERS FRA MED U/S 143(3) R.W.S. 147 OF THE ACT; JHABUA DHAR KSHETRIYA GRAMIN BANK ITA NO.106 TO 114/IND/2017 3 (I) CHALLENGING THE VALIDITY OF NOTICE U/S 148 OF THE A CT AS WELL AS THE REASSESSMENT PROCEEDINGS MADE U/S 147 OF THE A CT. (II) DISALLOWANCE OF PROVISION FOR BAD AND DOUBTFUL DEBT S U/S 36(1)(VIIA) OF THE ACT. (III) DISALLOWANCE OF EXCESS PROVISION FOR NON PERFORMIN G OF ASSETS FOR ASSESSMENT YEAR 2009-10 (VI)DISALLOWANCE OF AMORTIZATION OF EXPENSES FOR GO VERNMENT SECURITIES FOR ASSESSMENT YEAR 2011-12 6. BRIEFLY STATED FACTS AS CULLED OUT FROM THE REC ORDS ARE THAT THE ASSESSEE IS A REGIONAL RURAL CO-OPERATIVE BANK ENGA GED IN THE BUSINESS OF BANKING IN JHABUA AND DHAR DISTRICTS. RETURN OF INCOME FOR ASSESSMENT YEARS 2008-09, 2009-10, 2010- 11, 2012-13 AND 2013-14 WERE DULY SUBMITTED AND THE CASES WERE SELECTED FOR SCRUTINY. ASSESSMENT ORDERS U/S 143(3) OF THE ACT W ERE FRAMED IN WHICH DISALLOWANCE FOR AMORTIZATION OF EXPENSES FOR GOVERNMENT SECURITIES WAS MADE FOR ASSESSMENT YEARS 2008-09, 2 010-11, 2012- 13 AND 2013-14 AND DISALLOWANCE OF PROVISION FOR B AD AND DOUBTFUL DEBTS U/S 36(1)(VIIA) OF THE ACT WAS MADE FOR ASSES SMENT YEARS JHABUA DHAR KSHETRIYA GRAMIN BANK ITA NO.106 TO 114/IND/2017 4 2012-13 AND 2013-14 WHICH THE ASSESSEE HAD CLAIMED IN ITS COMPUTATION OF INCOME BUT HAS NOT DEBITED TO THE PR OFIT AND LOSS ACCOUNT. IN THE COURSE OF ASSESSMENT PROCEEDINGS F OR THE ASSESSMENT YEAR 2012-13 AND 2013-14 WHEN THE DISAL LOWANCES U/S 36(1)(VIIA) OF THE ACT WAS MADE ON THE BASIS OF JUDICIAL PRONOUNCEMENTS. LD.AO ISSUED NOTICES U/S 148 OF THE ACT FOR REOPENING OF THE ASSESSMENT COMPLETED FOR ASSESSMEN T YEARS 2008- 09, 2009-10, 2010-11 AND 2011-12, AFTER DULY SERVIN G THE NOTICES U/S 148, 142(1) AND 143(2) OF THE ACT ALONG WITH TH E QUESTIONNAIRE. THE LD.A.O DISALLOWED THE PROVISION FOR BAD AND DOU BTFUL DEBTS U/S 36(1)(VIIA) OF THE ACT FOR THE REOPENED ASSESSMENTS FOR ASSESSMENT YEARS 2008-09 TO 2011-12. DISALLOWANCE OF EXCESS PR OVISION FOR NON PERFORMING ASSETS FOR ASSESSMENT YEAR 2009-10 AND D ISALLOWANCE OF AMORTIZATION OF EXPENSES ON GOVERNMENT SECURITIES W AS MADE FOR ASSESSMENT YEAR 2011-12. ALL THESE DISALLOWANCES M ADE BY THE LD.A.O U/S 143(3) AS WELL AS 143 R.W.S 147 OF THE A CT FOR THE ASSESSMENT YEARS REFERRED ABOVE WERE CONFIRMED BY T HE LD.CIT(A). 7. IN THE FOLLOWING CHART DETAILS OF TYPE OF ADDITI ON, ASSESSMENT YEARS, AMOUNT OF ADDITION/DISALLOWANCE ARE MENTIONE D. JHABUA DHAR KSHETRIYA GRAMIN BANK ITA NO.106 TO 114/IND/2017 5 (A) ADDITION MADE DURING REGULAR ASSESSMENT U/S 143 (3) OF THE ACT; ASSESSMENT YEAR ITA NO AMORTIZATION OF EXPENSES FOR GOVERNMENT SECURITIES PROVISION FOR BAD & DOUBTFUL DEBTS U/S 36(1)(VIIA) 2008 - 09 107 58,35,000/ - - 2009 - 10 109 55,80,080/ - - 2010 - 11 111 56,91,000/ - - 2012 - 13 113 58,04,000/ - 19,83,19,858/ - 2013 - 14 114 - 14,06,63,980/ - (B) ADDITION MADE DURING REOPENING OF ASSESSMENT U/ S 143(3) R.W.S. 147 OF THE ACT. ASSESSMENT YEAR ITA NO 36(1)(VIIA) EXCESS PROVISION TAXED AMORTIZATION 2008 - 09 106 13,09,86,295/ - - 2009 - 10 108 16,90,61,833/ - 6,13,39,600/ - 2010 - 11 110 16,66,59,199/ - - 2011 - 12 112 16,33,02,639/ - 58,04,000/ - 8. WE WILL FIRST TAKE UP THE ISSUE OF RE-OPENING OF THE ASSESSMENT FOR ASSESSMENT YEARS 2008-09 TO 2011-12. JHABUA DHAR KSHETRIYA GRAMIN BANK ITA NO.106 TO 114/IND/2017 6 9. THE LD. COUNSEL FOR THE ASSESSEE MADE FOLLOWING WRITTEN SUBMISSIONS CHALLENGING THE VALIDITY OF REOPENING O F ASSESSMENT FOR THE ASSESSMENT YEARS 2008-09 TO 2011-12 AS UNDER; THE ASSESSEE M/S JHABUA DHAR KSHETRIYA GRAMIN BANK: (HEREINAFTER CALLED THE BANK) IS A REGIONAL RURAL BANK (RRB) SPO NSORED BY BANK OF BARODA (A NATIONALIZED BANK). THE SHAREHOLDINGS ARE HELD BY THE CENTRAL GOVT., STATE GOVT. AND THE SPONSORED BANK IS. BANK OF BARODA. NO SHARES ARE ISSUED FOR ANY PRIVATE CONTRIBUTION. ALL THE RRBS' ARE DECLARED AS A SCHEDULED BANK: BY THE RESERVE BANK: OF INDIA. THE ASSESSEE IS GOVERNED BY RRB ACT 1976. THE NABARD AND RBI ARE SU PERVISORY AND CONTROLLING AUTHORITIES. 2.THE ASSESSEE BANK IS A REGULAR ASSESSEE AND IS FI LING THE RETURNS SINCE MANY YEARS. THE RETURNS FOR VARIOUS YEARS ARE FILED AS UNDER. A.Y. INCOME DATE OF FILING RETURN CLAIM U/S RETURNED 36(1)(VIIA) 2008-09 -6,75,51,723/- 29.08.2008 15,90,14,543/- 2009-10 -15,14,30,724/- 29.09.2009 16,90,61,833/- 2010-11 -7,93,37,806/- 21.09.2010 16,66,59,199/- 2011-12 -12,56,76,784/- 29.09.2011 16,33,02,6391- THE ASSESSMENTS FOR THE A.Y. 2008-09; 2009-10 AND 2 010-11 WERE FRAMED U/S 143(3). THE RETURN FOR THE A.Y. 2011-12 WAS PROCESS ED U/S 143(1). WHILE FILING THE RETURNS, THE ASSESSEE HAS CLAIMED THE DEDUCTION U/S 36(1)(VIIA) AS PER THE LIMITS PRESCRIBED IN THE SEC TION. HOWEVER THE PROVISIONS WERE MADE AT A LESSER FIGURE. THE CLAIM WAS MADE IN THE COMPUTATION WITH A SPECIFIC REMARK AS UNDER. JHABUA DHAR KSHETRIYA GRAMIN BANK ITA NO.106 TO 114/IND/2017 7 U/S 36(1)(VIIA)(A) 7.5 OF TOTAL INCOME 62,49,943/- U/S 36(1)(VIIA)(A) 10 OF AGGREGATE AVG. RURAL 15,27,64,7001- ADVANCES OF RS. 15276.46 LACS. THIS WAS DONE ON THE BASIS OF THE JUDGMENT OF THE H ON'BLE BANGALORE BENCH IN THE CASE OF SYNDICATE BANK. SUBSEQUENTLY, INDIRECTLY BY WAY OF A REMARK THE HON'BLE SUPREME COURT IN THE CASE OF S OUTHERN TECHNOLOGIES REPORTED IN 320 ITR 577 (PARA 41 P. 61 0 OF THE REPORT) HAS AFFIRMED SUCH A CLAIM. THE LD. AO RAISED A SPECIFIC QUERY IN RESPECT OF THIS DEDUCTION. THE ASSESSEE GAVE A DETAILED REPLY WITH THE WORKING OF THE ADVANCES. AFTER CONSIDERING THE SAME THE LD. AO ALL OWED THE CLAIM OF THE ASSESSEE WHILE PASSING THE ORIGINAL ORDER U/S 143(3 ). THE ASSESSMENTS FOR THE A.Y. 2008-09 WAS REOPENED O N 24.03.2015 BEYOND FOUR YEARS AND SUBSEQUENT ASSESSMENTS FOR TH E A.YRS. 2009- 10 TO 2011-12 WERE REOPENED WITHIN THE EXPIRY OF FOUR YEARS. THESE ASSESSMENTS HAVE BEEN REOPENED ON THE GROUND THAT T HE CLAIM OF DEDUCTION U/S 36(1) (VIIA) IS NOT ALLOWABLE SINCE T HE ASSESSEE HAS NOT MADE THE PROVISIONS. WHILE FILING THE RETURN THE AS SESSEE CLAIMED THE DEDUCTION IN COMPUTATION OF INCOME ON THE BASIS OF THE MAXIMUM AVAILABILITY PRESCRIBED U/S 36(1)(VIIA). THE ACTUAL PROVISION MADE IN THE BOOKS HAS BEEN ADDED IN THE INCOME. 3. IT WAS SUBMITTED BEFORE THE LOWER AUTHORITIES TH AT THE REOPENING OF THE ASSESSMENT IS BAD IN LAW BECAUSE IT IS A MERE CHANG E OF OPINION AND ALL THE NECESSARY MATERIAL WAS FILED BEFORE THE LD. AO. THE ASSESSMENTS WERE FRAMED ALLOWING THE DEDUCTION U/S 36(1)(VIIA) AFTER CONSIDERING ALL THE MATERIAL PRODUCED BEFORE THE LD. AO. THE ASSESS MENT FOR THE A.Y. 2008-09 HAS BEEN REOPENED BEYOND FOUR YEARS AND ALL THE NECESSARY PAPERS WERE FILED BEFORE THE LD. AO. THUS THERE IS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY OR TRULY ALL MATE RIAL FACTS NECESSARY FOR THE ASSESSMENT. 4.THE LD AO DID NOT ACCEPT THE CONTENTION OF THE AS SESSEE ABOUT THE JHABUA DHAR KSHETRIYA GRAMIN BANK ITA NO.106 TO 114/IND/2017 8 REOPENING OF THE CASE AND HAS DISALLOWED THE CLAIM MADE U/S 36(1)(VIIA) ON THE GROUND THAT THE CLAIM WOULD BE ALLOWABLE ONL Y ON THE BASIS OF ACTUAL PROVISION MADE IN THE BOOKS AND NOT ON THE B ASIS OF THE ALLOWABILITY U/S 36(1)(VIIA). IT IS SUBMITTED THAT THE ASSESSEE HAS MADE THIS CLAIM ON THE BASIS OF THE DECISION OF THE BANG ALORE BENCH IN THE CASE OF SYNDICATE BANK. SUBSEQUENTLY, INDIRECTLY BY WAY OF A REMARK THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHN OLOGIES REPORTED IN 320 ITR 577 (PARA 41 P. 610 OF THE REPORT) HAS AFFI RMED SUCH A CLAIM. HOWEVER, THE HON'BLE TRIBUNAL INDORE BENCH IN THE C ASE OF NARMADA GRAMIN BANK HAS HELD THAT THE CLAIM CAN BE ALLOWED ONLY ON THE BASIS OF ACTUAL PROVISION MADE IN THE BOOKS OF ACCOUNTS. THE MATTER IS PENDING BEFORE THE HON'BLE HIGH COURT OF MADHYA PRADESH. 5.THE LD. CIT(A) UPHELD THE CONTENTION OF THE LD. A O AND DISMISSED THE APPEAL ON THIS GROUND. 6.WHILE FILING THE RETURNS THE ASSESSEE HAS SPECIFI CALLY CLAIMED THE SAID DEDUCTION AND THE LD. AO HAS ALLOWED THE SAME AFTER DUE CONSIDERATION. NOW THE REOPENING OF THE ASSESSMENT IS A MERE CHANG E OF OPINION AND AS SUCH IT IS SUBMITTED THAT THE ACTION OF REOPENING I S BAD IN LAW AND WITHOUT JURISDICTION. IN THIS CONNECTION, ATTENTION IS DRAWN TO THE FOLLOWING CASES. DISTRICT COOPERATIVE BANK LTD. VIS DCIT, (ALL.) PAG E 47 OF PN. SECTION 36(L)(VIIA) READ WITH SECTION 147 OF INCOME TAX ACT. SECTION 147 AUTHORISES AND PERMITS THE A.O TO ASSESS OR REASSES SES OF INCOME CHARGEABLE TO TAX IF HE HAS REASON TO BELIEVE THAT THE INCOME HAS INCOME ESCAPED ASSESSMENT. IN THE INSTANT CASE THERE HAS B EEN AN ASSESSMENT U/S 143(3) THE BOOKS OF ACCOUNTS WERE PRODUCED AND THE SAME WERE SCRUTINIZED THE PROFIT AND LOSS ACCOUNT WAS CHECKED AND ONLY THERE AFTER THE NET LOSS WAS DETERMINED. MERELY BECAUSE THE AUD IT REPORT OPINED THAT CERTAIN EXPENSES WERE NOT ALLOCABLE U/S 36(1)(VIIA) DID NOT ENTITLE THE ASSESSING OFFICER TO ISSUE A NOTICE U/S 148. JHABUA DHAR KSHETRIYA GRAMIN BANK ITA NO.106 TO 114/IND/2017 9 CIT VERSUS FUJISTU OPTEL LTD (359 ITR 67) MADHYA PR ADESH HIGH COURT CIT V/S. TRIMURTI BUILDERS (M.P.) (246 CTR 308) CIT VS. KELVINATOR OF INDIA LTD. (2010) 320 ITR 561 (SC) CIT V/S ORIENT CRAFT LTD (354 ITR 536) (DEL) COURT RANBAXY LABORATORIES LTD VERSUS DEPUTY COMMISSIONER OF INCOME TAX AND OTR 351 ITR 23 DELHI HIGH COURT . RUBAMIN LTD. VIS. LOVE KUMAR (253 ITR 432) (GUJ.) ASHWAMEGH CO-OPERATIVE HOUSING SOCIETY VIS. DCIT (3 53 ITR 413) (GUJ.) METAL ALLOYS CORPORATION V/S. ACIT (350 ITR 245) (G UJ.) MRS. PARVEEN P. BHARUCHA VIS. CIT (348 ITR PAGE 325) (MUMBAI) NDT SYSTEMS VIS. ITO (255 CTR PAGE 113) (BORN.) VISHWANATH ENGINEERS VIS. ACIT (354 ITR PAGE 211) (GUJ.) MARUTI SUZUKI VIS. DCIT (356 ITR PAGE 209) DCIT V ANJALA EXHIBITORS I.T.A.T. DELHI BENCH ITA N O.4797, 4798, 4799/DEL/2012 DIST. CO.OP BANK LTD V DCIT HIGH COURT OF ALLAHABAD (2015) 62 TAXMANN.COM 248 (ALLAHABAD) 10. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMI TTED THAT FOR THE AY 2008-09, THE LD. A.O HAD RAISED SPECIFIC QUERIES IN RESPECT OF THE AMORTIZATION OF SECURITIES AND THE DETAILS ABOU T THE ADVANCES BY RURAL BRANCHES. THE DETAILS ABOUT THE ADVANCES BY THE RURAL BRANCHES WERE CALLED IN CONNECTION WITH DEDUCTION U /S 36(1)(VIIA). THIS WILL BE APPARENT FROM THE ENTRY IN THE ORDER S HEET. THE ASSESSEE GAVE A DETAILED REPLY EXPLAINING THE VARIO US CLAIMS. THIS FACT WOULD BE CLEAR FROM THE SUBSEQUENT ENTRY IN TH E ORDER SHEET, WHICH SPECIFICALLY MENTIONS THAT THE DETAILS ASKED FOR HAVE BEEN JHABUA DHAR KSHETRIYA GRAMIN BANK ITA NO.106 TO 114/IND/2017 10 FURNISHED BY THE ASSESSEE. THUS IT IS VERY CLEAR T HAT THE LD.AO SPECIFICALLY ASKED FOR THE DETAILS AND AFTER CONSID ERING THE DETAILS, HE HAS PASSED THE ASSESSMENT ORDER BY MAKING ADDITI ON FOR AMORTIZATION OF SECURITIES. FROM THE DETAILS OF THE ORDER SHEET ENTRY, IT IS CLEAR THAT THE LD.AO ASKED FOR THE DETAILS AF TER CONSIDERING THE SPECIFIC DEDUCTION CLAIMED IN THE RETURN U/S 36(1)( VIIA) (PAGE 26 OF PB). THIS FACT HAS ALSO BEEN MENTIONED IN THE ORIG INAL ASSESSMENT FRAMED, WHICH IS EVIDENT FROM PARA 6 ON PAGE 02 OF THE ASSESSMENT ORDER. THUS IT IS SUBMITTED THAT ALL THE MATERIAL FACTS WERE ALREADY BEFORE THE LD.A.O AND HAVE BEEN CONSIDERED WHILE F RAMING THE ASSESSMENT. THE SAME FACT ABOUT CLAIMING THE DEDUC TION U/S 36(1)(VIIA) HAS BEEN MENTIONED IN THE ASSESSMENT OR DER FOR THE AY 2009-10 AND 2010-11 WITH THE IDENTICAL WORDINGS. T HUS IT IS SUBMITTED THAT THE REOPENING OF THE ASSESSMENT IS B AD IN LAW SINCE ALL MATERIAL FACTS WERE SUBMITTED DURING THE ASSESS MENT PROCEEDINGS. IT IS A MERE CHANGE OF OPINION ON THE SAME FACTS ON RECORD AND AS SUCH, THE ASSESSMENTS SO FRAMED DESER VE TO BE ANNULLED. 11. ON THE OTHER HAND LD. DEPARTMENTAL REPRESENTATI VE VEHEMENTLY ARGUED IN SUPPORTING THE FINDINGS OF LD. CIT(A) AND SUBMITTED THAT THERE WAS NO CHANGE OF OPINION. HOW EVER, LD. DEPARTMENTAL REPRESENTATIVE CONCEDED TO THIS FACT T HAT THE REOPENING OF ASSESSMENT FOR THE ASSESSMENT YEAR 200 8-09 WAS BEYOND FOUR YEARS FROM THE END OF THE RELEVANT ASSE SSMENT YEAR. JHABUA DHAR KSHETRIYA GRAMIN BANK ITA NO.106 TO 114/IND/2017 11 12. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORDS PLACED BEFORE US CAREFULLY AND ALSO GONE THROUGH THE PLETH ORA OF JUDGMENTS REFERRED AND RELIED UPON BY THE COUNSEL FOR THE ASS ESSEE. THE COMMON ISSUE RAISED BY THE ASSESSEE FOR ASSESSMENT YEAR 2008-09 TO 2011-12 IS CHALLENGING OF THE VALIDITY OF REOPEN ING OF ASSESSMENT BY WAY OF ISSUING OF NOTICE U/S 148 AND SUBSEQUENTL Y FRAMING THE ASSESSMENT U/S 143(3) R.W.S 147 OF THE ACT. CRUX O F THE SUBMISSIONS MADE BY THE LD. COUNSEL FOR THE ASSESSE E IS THAT ALL THE DETAILS IN CONNECTION WITH THE DEDUCTION CLAIME D BY THE ASSESSEE U/S 36(1)(VIIA) OF THE ACT WERE VERY MUCH AVAILABLE WITH THE ASSESSING OFFICER DURING THE ASSESSMENT U/S 143(3) OF THE ACT AND THE ASSESSMENTS WERE CONCLUDED AFTER EXAMINING THE RELEVANT DETAILS FILED BY THE ASSESSEE. NO NEW FACTS CAME U P BEFORE THE ASSESSING AUTHORITY AND THEREFORE THE REOPENING WAS MERELY BASED ON ACCOUNT OF CHANGE OF OPINION. RELYING ON VARIOU S JUDGMENTS, IT IS CONTENDED THAT REOPENING OF ASSESSMENTS FOR MERE CHANGE OF OPINION ARE NOT VALID. 13. AS REGARDS ASSESSMENT FOR A.Y. 2008-09 IS CONC ERNED WE OBSERVE THAT NOTICE U/S 148 OF THE ACT WAS ISSUED O N 24.3.2015 AND THIS DATE FALLS AFTER THE COMPLETION OF FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR 2008-09. FOR ASSESSMENT YEAR 2008- 09 THE ASSESSEE DULY FILED RETURN OF INCOME AND ASSESSMENT COMPLETED U/S 143(3) OF THE ACT AND HAS SUBMITTED ALL MATERIAL FA CTS NECESSARY FOR THE ASSESSMENT. ALL THESE FACTS SHOWS THAT THE FIR ST PROVISO TO SECTION 147 OF THE ACT IS SQUARELY APPLICABLE ON TH E GIVEN FACTS FOR JHABUA DHAR KSHETRIYA GRAMIN BANK ITA NO.106 TO 114/IND/2017 12 A.Y. 2008-09 AND THE REOPENING IS BEYOND FOUR YEAR S FROM THE END OF RELEVANT ASSESSMENT YEAR AND THUS CANNOT BE HEL D TO BE VALID. WE THEREFORE FIND FORCE IN THE CONTENTIONS OF THE L D. COUNSEL FOR THE ISSUE OF REOPENING RAISED FOR A.Y. 2008-09 AND ACCO RDINGLY QUASH THE REASSESSMENT PROCEEDINGS U/S 147 FOR ASSESSMENT YEAR 2008- 09 AND ALLOW THE RELEVANT GROUND FOR ASSESSMENT YEA R 2008-09 IN FAVOUR OF THE ASSESSEE. 14. AS REGARDS THE REMAINING ASSESSMENT YEARS 2009- 10 TO 2011- 12 ARE CONCERNED, WE FIND THAT THE ISSUE RELATING T O CLAIM OF PROVISION U/S 136(1)(VIIA) OF THE ACT AS WELL AS TH E EXCESS PROVISION FOR NON PERFORMING ASSETS WAS THE BASIS. ASSESSEE CLAIMED DEDUCTION U/S 136(1)(VIIA) OF THE ACT ONLY IN THE C OMPUTATION OF INCOME AND NO SUCH PROVISION WAS ACTUALLY MADE IN T HE PROFIT AND LOSS ACCOUNT. IT IS TRUE THAT THE DETAILS OF THE D EDUCTION CLAIM U/S 136(1)(VIIA) WAS AVAILABLE ON RECORD BUT THE LEGAL ANGLE OF EXAMINING THIS CLAIM WAS NOT DISCUSSED AT LENGTH DURING THE C OURSE OF ASSESSMENT U/S 143(3) OF THE ACT. THE CLAIM OF THE ASSESSEE WERE BASED ON CERTAIN JUDICIAL PRONOUNCEMENTS WHICH THE ASSESSING OFFICER LATER ON FOUND TO BE FAVOURING THE REVENUE. THIS CHANGE OF LEGALITY OF THE ISSUE TRIGGERED THE ISSUANCE OF NOT ICE U/S 148 OF THE ACT. IT IS NOT DISPUTED THAT THE NOTICE ISSUED U/S 148 OF THE ACT FOR ASSESSMENT YEAR 2009-10 AND 2010-11 ARE WITHIN THE PERIOD OF FOUR YEARS FROM THE END OF RELEVANT ASSESSMENT YEARS. T HE REASONS HAVE DULY BEEN RECORDED AND THE NEED OF ISSUANCE OF NOTI CE WAS DUE TO THE ALLEGED EXCESS PROVISIONS CLAIMED FOR PROVISION S FOR BAD AND JHABUA DHAR KSHETRIYA GRAMIN BANK ITA NO.106 TO 114/IND/2017 13 DOUBTFUL DEBTS U/S 36(1)(VIIA). 15. WE HAVE GONE THROUGH ALL THE JUDGMENTS RELIED BY THE ASSESSEE BUT DO NOT FIND THEM TO BE APPLICABLE IN THE FACTS OF THE INSTANT APPEALS AND THEREFORE IN THE GIVEN FACTS AND CIRCUM STANCES OF THE CASE, FIND NO INCONSISTENCY IN THE FINDINGS OF LD.C IT(A) CONFIRMING THE VALIDITY OF ACTION TAKEN BY THE LD.A.O FOR ISSU ING THE OF NOTICE U/S 148 OF THE ACT AS WELL AS CONDUCTING REASSESSME NT PROCEEDINGS. AS SUCH THE COMMON ISSUE RELATING TO CHALLENGING OF ASSESSMENT PROCEEDINGS BY THE ASSESSEE FOR ASSESSMENT YEAR 200 9-10 TO 2010- 11 IS DISMISSED. 16. NOW WE TAKE UP THE COMMON ISSUE RELATING TO DIS ALLOWANCE U/S 36(1)(VIIA) OF THE ACT CONFIRMED BY THE LD.CIT(A) F OR ASSESSMENT YEAR 2009-10 TO 2013-14 FOR THE AMOUNTS MENTIONED IN THE PRECEDING PARA 7. 17. AT THE OUTSET LD. COUNSEL FOR THE ASSESSEE WAS FAIR ENOUGH TO CONCEDE THAT THIS ISSUE IS COVERED AGAINST THE ASSE SSEE BY THE DECISION OF COORDINATE BENCH IN THE CASE OF M/S. NA RMADA MALWA GRAMEEN BANK VS ACIT 2(1), INDORE M.A NO. 104/IND/2 012 ARISING OUT OF I.T.A NO.162/IND/2011 DATED 16.04.2013. 18. PER CONTRA THE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF THE TRIBUNAL IN THE CASE OF M/S. NARMADA MALWA GRAMEEN BANK VS ACIT 2(1), INDORE (SUPRA) . JHABUA DHAR KSHETRIYA GRAMIN BANK ITA NO.106 TO 114/IND/2017 14 18. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORDS PLACED BEFORE US. WE FIND THAT THE LD.A.O WHILE FRAMING T HE ASSESSMENT U/S 143(3) OF THE ACT FOR A.Y. 2012-13 AND 2013-14 AS WELL AS DURING THE REASSESSMENT PROCEEDINGS FOR A.Y. 2009-1 0 TO 2011-12 COMMONLY OBSERVED THAT THE DEDUCTION U/S 36(1)(VIIA ) OF THE ACT IS ALLOWABLE ONLY TO THE EXTENT OF THE PROVISION MADE IN THE BOOKS OF ACCOUNTS. FOR COMING TO THIS CONCLUSION THE LD.A.O REFERRED AND RELIED ON THE JUDGMENT OF HONBLE HIGH COURT OF PUN JAB & HARYANA IN THE CASE OF STATE BANK OF PATIALA V/S CIT (2005) 272 ITR 54, DECISION OF COORDINATE BANGALORE BENCH IN THE CASE OF SYNDICATE BANK ITA NO.708 & 709/BANG/2010, ANOTHER DECISION O F ITAT BANGALORE BENCH IN THE CASE OF CANARA BANK ITA NO.5 8/BANG/2004 AS WELL AS DECISION OF ITAT, CHENNAI BENCH IN THE CASE OF VELLORE ESTATE CO-OPERATIVE BANK, ITA NO.914/MAD/2013. THE LD.A.O ACCORDINGLY RESTRICTED THE ALLOWANCE DEDUCTION U/S 36(1)(VIIA) LIMITING PROVISION TO THE EXTENT OF PROVISIONS MADE FOR BAD AND DOUBTFUL DEBTS IN THE BOOKS OF ACCOUNTS AS THE ASSE SSEE MADE A LOWER AMOUNT SHOWN IN THE BOOKS OF ACCOUNTS BUT MAD E HIGHER CLAIM AS PER LIMITS PRESCRIBED U/S 36(1)(VIIA) OF THE ACT. 19. WE FURTHER FIND THAT THE VIEW OF THE LD.A.O HAS BEEN HELD TO BE CORRECT BY THE COORDINATE BENCH IN THE CASE OF M /S. NARMADA MALWA GRAMEEN BANK VS ACIT 2(1), INDORE (SUPRA) OBSERVING AS FOLLOWS; 2. WE HAVE GONE THROUGH THE ORDER OF THE TRIBUNAL DATED 29/03/2013 WHEREIN THE ISSUE WITH REGARD TO ALLOWABILITY OF CL AIM OF DEDUCTION U/S JHABUA DHAR KSHETRIYA GRAMIN BANK ITA NO.106 TO 114/IND/2017 15 36(1)(VIIA) OF THE ACT WAS DECIDED AFTER DISCUSSING VARIOUS DECISIONS OF HONBLE SUPREME COURT AS WELL AS HIGH COURT IN PARA 11 TO 16, THE ISSUE WITH REGARD TO QUANTIFICATION OF DEDUCTION U/S 36(1 )(VIIA) WAS RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR RECOMPUTING T HE CLAIM OF DEDUCTION TO THE EXTENT OF AMOUNT WRITTEN OFF IN THE BOOKS OF AC COUNT, EVEN THOUGH SUCH WRITE OFF WAS NOT PARTYWISE. THE CONTENTION OF LD.A .R WAS THAT FULL AMOUNT OF PROVISION FOR BAD AND DOUBTFUL DEBT SHOULD BE AL LOWED IRRESPECTIVE OF ENTRY MADE IN THE BOOKS OF ACCOUNT. WE ARE JOT IN AGREEMENT WITH THE ASSESSEES CONTENTION IN SO FAR AS PROVISION CONTAI NED IN CLAUSE (VIIA) OF SECTION 36 CLEARLY STARTS WITH WORD IN RESPECT OF PROVISION FOR BAD AND DOUBTFUL DEBT MADE BY SCHEDULE BANK THUS, TO THE EXTENT OF PROVISION MADE FOR BAD AND DOUBTFUL DEBTS IN THE BOOKS OF ACC OUNT, CAN BE ALLOWED. WE DO NOT FIND ANY MISTAKE IN THE ORDER OF THE TRIB UNAL, WHICH CAN BE RECTIFIED U/S 254(2) OF THE ACT. ON THE CONTRARY, THE TRIBUNAL, WHICH CAN BE RECTIFIED U/S 254(2) OF THE ACT. ON THE CONTRARY, T HE TRIBUNAL HAS GIVEN A FAVOURABLE FINDING AND DIRECTION TO THE ASSESSING O FFICER TO ALLOW THE CLAIM OF DEDUCTION TO THE EXTENT OF AMOUNT WRITTEN OFF IN THE BOOKS OF ACCOUNT NOTWITHSTANDING THE FACT THAT SUCH WRITE OFF WAS NO T PARTYWISE. THIS OBSERVATION WAS MADE KEEPING IN VIEW THE VERDIT OF HONBLE SUPREME COURT IN THE CASE OF VIJAYA BANK 323 ITR 166 IN THE RESULT, THE MISC. APPLICATION OF THE ASSESSE E IS DISMISSED. 20. WE THEREFORE RESPECTFULLY FOLLOWING THE DECISIO N OF COORDINATE BENCH OF INDORE IN THE CASE OF M/S. NARMADA MALWA G RAMEEN BANK VS ACIT 2(1), INDORE (SUPRA) AS WELL AS THE JUDGMENTS REFERRED AND RELIED BY THE ASSESSING OFFICER, FIND NO REASON TO INTERFERE IN THE FINDINGS OF LD.CIT(A) CONFIRMING THE DISALLOWANCE O F CLAIM U/S 36(1)(VIIA) OF THE ACT MADE BY THE LD.A.O IN ASSESS MENT FRAMED U/S 143(3) OF THE ACT FOR ASSESSMENT YEAR 2012-13 AND 2 013-14 AND JHABUA DHAR KSHETRIYA GRAMIN BANK ITA NO.106 TO 114/IND/2017 16 THOSE MADE IN ORDER MADE U/S 143(3) R.W.S. 147 OF T HE ACT FOR ASSESSMENT YEARS I.E 2009-10 TO 2011-12. THIS COM MON ISSUE IS DECIDED AGAINST THE ASSESSEE AND THE RELEVANT GROUN D RELATING TO THIS ISSUE OF THE ASSESSEE ARE DISMISSED. 21. NEXT COMMON ISSUE RELATES TO DISALLOWANCE OF A MORTIZATION OF EXPENSES FOR GOVERNMENT SECURITIES. 22. BRIEF FACT RELATING TO THIS ISSUE ARE THAT THE ASSESSEE DEBITED CERTAIN AMOUNT TOWARDS AMORTIZATION OF PREMIUM PAID ON GOVERNMENT SECURITIES CONTENDING THAT THE AMORTIZAT ION HAVE BEEN MADE AS PER THE GUIDELINES ISSUED BY RESERVE BANK O F INDIA DATED 16.10.2000, AS PER WHICH THE INVESTMENT PORTFOLIO O F THE BANKS IS REQUIRED TO BE CLASSIFIED UNDER THREE CATEGORIES I. E HEAD TO MATURITY (HTM), HELD FOR TRADING (HFT) AND AVAILABLE FOR SAL E (AFS). LD.A.O HOWEVER DID NOT SUPPORT THE CLAIM OF EXPENSE MADE B Y THE ASSESSEE OBSERVING THAT THE GOVERNMENT SECURITIES WERE ACQUI RED WITH THE INTENTION TO HOLD UP TO THE MATURITY AND THEREFOR E THEY ARE IN THE NATURE OF CAPITAL ASSETS AND THEREFORE HAD TO BE VA LUED AT COST ONLY AND NOT ON THAT OF COST OR MARKET PRICE WHICHEVER IS LESS. FOR THIS REASON THE ADDITION/DISALLOWANCE WAS MADE FOR ASSES SMENT YEAR 2008-09 TO 2012-13 IN THE ASSESSMENT FRAMED U/S 143 (3) OF THE ACT AND FOR ASSESSMENT YEAR 2011-12 IN THE REASSESSMENT PROCEEDINGS U/S 147 OF THE ACT FOR THE AMOUNTS MENTIONED IN THE TABLE PROVIDED IN PARA 7 OF THIS ORDER. JHABUA DHAR KSHETRIYA GRAMIN BANK ITA NO.106 TO 114/IND/2017 17 23. THE APPEAL FILED BY THE ASSESSEE AGAINST THE AL LEGED DISALLOWANCE DID NOT FIND ANY FAVOUR FROM LD.CIT(A) AND NOW THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 24. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ; 1.THE ASSESSEE M/S JHABUA DHAR KSHETRIYA GRAMIN BANK (HEREINAFTER CALLED THE BANK) IS A REGIONAL RURAL BANK (RRB) SPO NSORED BY BANK OF BARODA (A NATIONALIZED BANK). THE SHAREHOLDINGS ARE HELD BY THE CENTRAL GOVT., STATE GOVT. AND THE SPONSORED BANK M/S. BANK OF BARODA. NO SHARES ARE ISSUED FOR ANY PRIVATE CONTRIBUTION. ALL THE RRBS' ARE DECLARED AS A SCHEDULED BANK BY THE RESERVE BANK OF INDIA. T HE ASSESSEE IS GOVERNED BY RRB ACT 1976. THE NABARD AND RBI ARE SU PERVISORY AND CONTROLLING AUTHORITIES. 2.DURING ALL THESE YEARS, THE ASSESSEE HAS MADE A P ROVISION FOR AMORTIZATION OF THE PREMIUM PAID ON THE PURCHASE OF THE GOVT. SECURITIES WHICH ARE HELD AS STOCK IN TRADE. THE SAME HAS BEEN PROVIDED AS PER THE GUIDELINES AND INSTRUCTIONS OF THE RESERVE BANK OF INDIA. IN THIS CONNECTION, THE ATTENTION IS DRAWN TO THE CIRCULAR OF THE BOARD BEARING NO. 599 DATED 24/04/1991 WHICH PROVIDES 'THE BOARD HAS CONSIDERED THE TREATMENT TO BE ACCORDED TO SECURITIES HELD BY THE BANKS. THE QUESTION WHETHER A PARTICULAR ITEM OF INVESTMENT IN SECURITI ES CONSTITUTES THE STOCK IN TRADE OR A CAPITAL ASSET IS A QUESTION OF FACT. IN FACT, THE BANKS ARE GENERALLY GOVERNED BY THE INSTRUCTIONS OF THE RESER VE BANK OF INDIA FROM TIME TO TIME WITH REGARD TO THE CLASSIFICATION OF A SSETS AND ALSO THE ACCOUNTING STANDARDS FOR INVESTMENTS. THE BOARD HAS THEREFORE, DECIDED THAT THE ASSESSING OFFICERS SHOULD DETERMINE ON THE FACTS AND CIRCUMSTANCES OF EACH CASE AS TO WHETHER ANY PARTIC ULAR SECURITY CONSTITUTES STOCK IN TRADE OR INVESTMENTS TAKING IN TO ACCOUNT THE GUIDELINES ISSUED BY THE RESERVE BANK OF INDIA IN THIS REGARD' . JHABUA DHAR KSHETRIYA GRAMIN BANK ITA NO.106 TO 114/IND/2017 18 THIS CIRCULAR WAS WITHDRAWN AFTER THE DECISION OF T HE VIJAYA BANK LTD. AND A CLARIFICATION WAS MADE THAT THE SECURITIES MU ST BE REGARDED AS STOCK IN TRADE BY THE BANK. THEREFORE THE CLAIM OF LOSS IF DEBITED IN THE BOOKS OF ACCOUNTS WOULD BE GIVEN THE SAME TREATMENT AS IS NORMALLY GIVEN TO THE STOCK IN TRADE.(PG.68-69 OF PB). SUBSE QUENTLY CIRCULAR NO. 665 DATED 0511 011993 IT WAS AGAIN CLARIFIED THAT T HE BANKS ARE GENERALLY GOVERNED BY THE INSTRUCTIONS OF THE RESER VE BANK OF INDIA FROM TIME TO TIME WITH REGARD TO CLASSIFICATION OF ASSET S AND ALSO ACCOUNTING STANDARDS FOR INVESTMENT. THE BOARD HAS THEREFORE D ECIDED THAT THE LD. AO SHOULD DETERMINE ON THE FACTS AND CIRCUMSTANCES OF EACH CASE AS TO WHETHER ANY PARTICULAR SECURITY CONSTITUTES STOCK I N TRADE OR INVESTMENT TAKING INTO ACCOUNT THE GUIDELINES ISSUED BY THE RE SERVE BANK OF INDIA. SUBSEQUENTLY THE BOARD HAS ISSUED THE FURTHER INSTR UCTION NO. 17/2008 DATED 26.11.2008 WHEREIN IT HAS INSTRUCTED '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 MATU RITY (HTM), HELD FOR TRADING (HFT) AND AVAILABLE FOR SALE (AFS). INVESTM ENTS CLASSIFIED UNDER HTM CATEGORY NEED NOT BE MARKED TO MARKET AND ARE C ARRIED AT ACQUISITION COST UNLESS THESE ARE MORE THAN THE FACE VALUE, IN WHICH CASE THE PREMIUM SHOULD BE AMORTISED OVER THE PERIOD REMAINING TO MA TURITY. IN THE CASE OF HFT AND AFS SECURITIES FORMING STOCK IN TRADE OF TH E BANK, THE DEPRECIATION / APPRECIATION IS TO BE AGGREGATED SCRIP WISE AND O NLY 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 CL AIMS. ' 3.THE RESERVE BANK OF INDIA HAS CLASSIFIED THE SECU RITIES UNDER TWO HEADS- MARK TO MARKET NORMS AND SLR SECURITIES HELD UNDER HELD TO MATURITY. THE SECURITIES HELD BY THE BANK ON THE BA SIS OF HELD TO MATURITY WOULD MEAN THAT THE VALUATION ON THE BOOK VALUE BASIS WOULD BE DONE AND IF THE COST OF ACQUISITION IS MORE THAN FACE VALUE, THEN THE JHABUA DHAR KSHETRIYA GRAMIN BANK ITA NO.106 TO 114/IND/2017 19 PREMIUM PAID SHOULD BE AMORTISED OVER A PERIOD REMA INING TO MATURITY. IN THE INSTANT CASE, THE ASSESSEE HAS PURCHASED THE GOVT. SECURITIES AS A STOCK IN TRADE AND ARE HELD FOR THE PURPOSES OF MAI NTENANCE OF SLR (STATUTORY LIQUIDITY RATIO). THEY HAVE BEEN CLASSIF IED AS 'HELD ON MATURITY' . 4.WHILE FRAMING THE ASSESSMENTS OF THE YEARS, THE L D. AO DISALLOWED THE CLAIM OF ASSESSEE FOR AMORTISATION OF INCOME. THE L D. AO OBSERVED THAT THE SECURITIES ARE HELD UP TO THE MATURITY AND ARE IN THE NATURE OF CAPITAL ASSET AND AS SUCH THEY HAVE TO BE VALUED AT COST. H E FURTHER OBSERVES THAT IT MAY BE PRUDENT FROM THE BANKING POINT OF VI EW TO AMORTISE THE PREMIUM ON HTM BUT IS NOT ALLOWABLE UNDER THE INCOM E TAX ACT. ON THIS BASIS, THE LD. AO DISALLOWED THE CLAIM OF THE ASSES SEE FOR AMORTIZATION OF EXPENSES ON GOVT. SECURITIES. THE DETAILS OF DISALL OWANCES FOR AMORTIZATION ARE AS UNDER. A.Y. 2008 - 09 - RS. 58,35,000 A.Y. 2009- 10 - RS. 55,80,080 A.Y. 2010- 11 - RS. 56,91,000 A.Y. 2011- 12 - RS. 58,04,000 A.Y. 2012 - 13 - RS. 58,04,000 5.THE LD. CIT(A) DISMISSED THE ASSESSEE'S APPEAL ON THE GROUND THAT THE PREMIUM PAID ON HTM IS NOT ALLOWABLE EXPENDITURE SI NCE THE CAPITAL ASSETS ARE VALUED AT COST PRICE ONLY. THE RBI DIREC TION CANNOT OVERRIDE THE PROVISIONS OF THE IT ACT. THE LD CIT(A) HAS WRO NGLY RELIED ON THE PROVISIONS OF SEC. 36(1 )(VIIA). HE DISMISSED THE A SSESSEE'S APPEAL. 6.IT IS HUMBLY SUBMITTED THAT THE SECURITIES HAVE B EEN HELD FOR SLR AS A STOCK IN TRADE AND THE AMORTIZATION PROVIDED IN THE PROFIT & LOSS A/C IS AN ALLOWABLE EXPENDITURE. FOR THE CO-OPERATIVE BANK S, AS PER RBI GUIDELINES, INVESTMENTS CLASSIFIED UNDER 'HELD TO M ATURITY' (HTM) CATEGORY NEED NOT BE MARKED TO MARKET AND WILL BE C ARRIED AT ACQUISITION COST UNLESS IT IS MORE THAN THE FACE VALUE, IN WHIC H CASE THE PREMIUM JHABUA DHAR KSHETRIYA GRAMIN BANK ITA NO.106 TO 114/IND/2017 20 SHOULD BE AMORTIZED OVER THE PERIOD REMAINING TO MA TURITY. THE DEDUCTION ON ACCOUNT OF AMORTIZATION OF PREMIUM ON PURCHASE OF GOVT. SECURITIES IS ALLOWABLE IN ACCORDANCE WITH TH E CBDT'S INSTRUCTION NO. 17 VIDE PARA 2(VII) DATED 26-11-2008. RELEVANT EXTRACTS ARE ALREADY FILED IN ABOVE PARAGRAPHS. IN THIS CONNECTION, WE WOULD LIKE TO DRAW YOUR HONO UR'S KIND ATTENTION TO THE VARIOUS JUDGMENTS WHEREIN IT HAS BEEN HELD THAT THE PROVISION FOR AMORTIZATION IS AN ALLOWABLE EXPENDITURE BY VARIOUS TRIBUNALS AND BY THE HON'BLE HIGH COURT IN THE CASE OF CIT V/S HDFC BANK REPORTED IN 366 ITR P. 505. IT IS FURTHER SUBMITTED THAT THE HON'BL E GUJARAT HIGH COURT IN THE CASE OF CIT VS RAJKOT DIST. COOPERATIVE BANK IN TA NO. 56 OF 2013 HAS ALSO CONSIDERED THE CIRCULAR NO. 17 OF 2008 AND HAS DISMISSED THE DEPARTMENTAL APPEAL. THE LIST OF THE TRIBUNAL JUDGM ENTS IS ENCLOSED HEREWITH. THE ATTENTION IS DRAWN TO THE VARIOUS JUDGMENTS AS UNDER; (I) COMMISSIONER OF INCOME TAX V HDFC BANK LTD (2014), BOMBAY HIGH COURT, (2014) 366 ITR 505 (BOM) (II) COMMISSIONER OF INCOME TAX RAJKOT II V RAJKOT DIST. CO-OP BANK LTD (GUJ HC) TAX APPEAL NO.56 OF 2013 (III) ACIT V SUVARNYUG SAHKARI BANK LTD, I.T.A.T. PUNE BE NCH, ITA NO.1668/PN/2012 (IV) DCIT V TARUN AGARWALA AND SURYA PRAKASHI KESARWANI, JJ HC, ALLAHABAD (2015) 62 TAXMANN.COM 248 (ALLAHABAD) (V) ACIT V PRATHMA BANK I.T.A.T. DELHI BENCH ITA NO.409 0/DEL/2013 (VI) ASSTT. CIT V. BANK OF RAJASTHAN LTD. [IT APPEAL NOS . 2246 TO 2250 (MUM.) OF 2009, DATED 22-12-2010] (VII) CATHOLIC SYRIAN BANK LTD V. ASSTT. CIT [ 2010] 38 SOT 553 (COCH.) (VIII) KHANAPUR CO-OP. BANK LTD. V. ITO [IT APPEAL NO. 141 (PNJ) OF 2011] (IX) SRI. VISWESWARAYA CO-OP. BANK V. JT. CIT [IT APPEAL NO. 1122 JHABUA DHAR KSHETRIYA GRAMIN BANK ITA NO.106 TO 114/IND/2017 21 (BANG.) OF 2010, DATED 11-5-2012] (X) DY. CIT V. NASIK MERCHANTS CO-OP. BANK LTD. [IT APP EAL NO. 1254 (PN) OF 2011] (XI) ASSTT. CIT V. AHMEDNAGAR SHAHAR SAHAKARI BANK LTD. [IT APPEAL NO. 298 (PN) OF 2014, DATED 30-3-2015], ETC. 25. PER CONTRA THE LD. DEPARTMENTAL COUNSEL SUPPORT ED THE ORDERS OF LOWER AUTHORITIES. 26. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORDS PLACED BEFORE US. THE COMMON ISSUE RELATES TO DISALLOWANC E OF AMORTIZATION OF PREMIUM PAID ON GOVERNMENT SECURITI ES. FROM PERUSAL OF THE AUDITED BALANCE SHEET IT IS REVEALED THAT THE ASSESSEE BEING A REGIONAL RURAL CO. OPERATIVE BANK ENGAGED I N THE BUSINESS OF BANKING IS REQUIRED TO DEPOSIT CERTAIN AMOUNT IN GOVERNMENT SECURITIES AS PER THE GUIDELINES OF RESERVE BANK OF INDIA AND TO HOLD SUCH SECURITIES TILL THE MATURITY SO AS TO MAI NTAIN THE STATUTORY LIQUIDITY RATIO (SLR). IN SOME CASES VAL UE OF ACQUISITION OF SUCH SECURITIES IS HIGHER THAN THE FACE VALUE AN D SUCH PREMIUM SO PAID IS AMORTIZED AS LOSS DURING THE ENTIRE PERI OD OF SECURITY. ASSESSEE MADE SIMILAR CLAIM BUT BOTH THE LOWER AUTH ORITIES DID NOT ALLOWED. JHABUA DHAR KSHETRIYA GRAMIN BANK ITA NO.106 TO 114/IND/2017 22 27. WE FIND THAT THE ASSESSEE HAS REFERRED TO VARIO US JUDGMENTS PLACED IN THE PAPER BOOK NO.2 DATED 26.4.2018. SIM ILAR FACTS CAME UP FOR ADJUDICATION BEFORE HONBLE GUJARAT HIGH COU RT IN THE CASE OF CIT V/S RAJKOT DIST. CO-OP BANK LTD TAX APPEAL NO.5 6/2013 DATED 10/02/2014 AND FOLLOWING QUESTION WAS RAISED FOR CO NSIDERATION BEFORE THE HONBLE COURT; (I) WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, THE APPELLATE TRIBUNAL IS JUSTIFIED IN HOLDING THAT THE A.O AND CIT(A) HAVE ERRED IN DISALLOWING THE AMORTIZATION OF SECURITY P REMIUM OF RS.40,30,000/- ? (II) WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE APPELLATE TRIBUNAL IS JUSTIFIED IN NOT CONSIDERING THAT THE SECURITIES HELD UNDER HELD TO MATURITY (HTM) CATEGORY AS PER RBI GUIDELINES ARE NOT MEANT TO EARN PROFIT BUT ARE REQUIRED TO BE KEPT AS THEY ARE TILL MATURITY? 28. FURTHER THE FACTS IN THIS CASE ARE MENTIONED B ELOW: 2.1 THE RESPONDENT-ASSESSEE IS A COOPERATIVE BANK. AS PER THE RESERVE BANK OF INDIA GUIDELINES, IT IS REQUIRED TO DEPOSIT CERTAIN AMOUNTS IN GOVERNMENT SECURITIES AND TO HOLD THE SAME TILL MAT URITY IN ORDER TO MAINTAIN STATUTORY LIQUIDITY RATIO (SLR). IN CERTA IN CASES, THE ACQUISITION OF SUCH SECURITIES IS AT A VALUE HIGHER THAN THE FA CE VALUE OF THE SECURITY ITSELF. THE RESPONDENT-ASSESSEE CLAIMED SUCH PREMI UM SO PAID IN ACQUIRING THE SECURITIES AS A LOSS AMORTIZED OVER T HE ENTIRE PERIOD OF SECURITY JHABUA DHAR KSHETRIYA GRAMIN BANK ITA NO.106 TO 114/IND/2017 23 29. HONBLE COURT DECIDED IN FAVOUR OF THE ASSESSE E FINDING MERIT IN THE FOLLOWING SUBMISSIONS MADE BY THE LD. COUNSE L FOR THE ASSESSEE PLACING RELIANCE ON THE CBDT CIRCULAR DATE D 26.11.2008. 6. ON THE OTHER HAND, THE LEARNED COUNSEL SHRI TU SHAR HEMANI FOR THE RESPONDENT PLACED HEAVY RELIANCE ON THE SAID CBDT C IRCULAR DATED NOVEMBER 26, 2008 AND CONTENDED THAT THE BENEFIT OF AMORTIZATION HAD TO BE GRANTED. THE ASSESSEE AS A COOPERATIVE BANK WAS BOUND BY THE RBI DIRECTIVES. AS PER SUCH DIRECTIVES, THE ASSESSEE H AD TO INVEST CERTAIN AMOUNTS IN GOVERNMENT SECURITIES AND TO HOLD THE SA ME TILL MATURITY. IN THE PROCESS OF ACQUISITION, IF THERE WAS ANY PREMIU M PAID ON THE FACE VALUE OF THE SECURITY, THE LOSS HAD TO BE AMORTIZED. PAR AGRAPH (VII) OF THE CBDT CIRCULAR NO.17 OF 2008 DATED NOVEMBER 26, 2008 WOUL D 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. HEAD TO MATURITY (HTM), HELD FOR TRADING (HTF) AND AVAILABLE FOR SALE (AFS). INVESTMENTS CLASSIFIED UNDER HTM CATEGORY N EED NOT BE MARKED TO MARKET AND ARE CARRIED AT ACQUISITION COST UNLESS T HESE ARE MORE THAN THE FACE VALUE, IN WHICH CASE THE PREMIUM SHOULD BE AMO RTIZED OVER THE PERIOD REMAINING TO MATURITY. IN THE CASE OF HFT AND AFT SECURITIES FORMING STOCK-IN-TRADE OF THE BANK, THE DEPRECIATION/APPREC IATION IS TO BE AGGREGATED SCRIP-WISE AND ONLY NET DEPRECIATION, IF ANY, IS REQUIRED TO BE PROVIDED FOR IN THE ACCOUNTS. THE LATEST GUIDELINE S OF THE RBI MAY BE REFERRED TO FOR ALLOWING ANY SUCH CLAIMS. 7. THE INSTRUCTIONS CLEARLY PROVIDE FOR AMORTIZATIO N OF PREMIUM PAID ON ACQUISITION OF SECURITIES WHEN THE SAME ARE ACQUIRE D AT THE RATE HIGHER THAN THE FACE VALUE. SUCH AMORTIZATION WOULD HAVE TO BE FOR THE REMAINING PERIOD OF MATURITY. THIS PRECISELY THE TRIBUNAL HA D DIRECTED IN THE JHABUA DHAR KSHETRIYA GRAMIN BANK ITA NO.106 TO 114/IND/2017 24 IMPUGNED ORDER. THOUGH CONTENDED, NO CONTRARY INST RUCTIONS OF CBDT ARE BROUGHT TO OUR NOTICE. THE INSTRUCTION IN QUESTION HAVING BEEN ISSUED UNDER SECTION 119(2) OF THE INCOME-TAX ACT, 1961, W OULD BIND THE REVENUE. NO QUESTION OF LAW, THEREFORE, ARISES. 8. RESULTANTLY, THE TAX APPEAL IS DISMISSED. NOT ICE IS DISCHARGED WITH NO ORDER AS TO COSTS. 30. WE HAVE EXAMINED THE FACTS OF THE INSTANT APPE AL AND FIND THAT THEY ARE SIMILAR TO THE FACTS ADJUDICATED BY THE HO NBLE HIGH COURT OF GUJARAT IN THE CASE OF CIT V/S RAJKOT DIST. CO-O P BANK LTD (SUPRA). THEREFORE RESPECTFULLY FOLLOWING THE JUDGM ENT OF HONBLE HIGH COURT OF GUJARAT, WE ARE OF THE CONSIDERED OPI NION THAT BOTH THE LOWER AUTHORITIES ERRED IN CONFIRMING THE ADDI TION AND THE ASSESSEE HAS RIGHTLY CLAIMED THE AMORTIZATION OF LO SS IN THE VALUE OF GOVERNMENT SECURITIES AND THE SAME IS LIABLE TO BE TREATED AS BUSINESS EXPENDITURE. IN THE RESULT THIS COMMON IS SUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND THE RELEVANT GROUNDS RAISED IN ASSESSMENT YEAR 2008-09 TO ASSESSMENT YEAR 2012-13 IN INCOME- TAX ACT, 1961, NO. 107, 109, 111, 112, & 133/IND/20 17 STANDS ALLOWED. 31. NOW THE LAST ISSUE WHICH REMAINS TO ADJUDICATE IS FOR ASSESSMENT YEAR 2009-10 WHEREIN THE LD. ASSESSING O FFICER WHILE JHABUA DHAR KSHETRIYA GRAMIN BANK ITA NO.106 TO 114/IND/2017 25 FRAMING THE ASSESSMENT U/S 143(3) R.W.S. 147 OF THE ACT NOTICED THAT THE ASSESSEE BANK HAS MAINTAINED THE PROVISION FOR NON PERFORMING ASSETS (NPA) AT RS. 948.62 LAKHS AS AGAI NST THE REQUIRED PROVISIONS UNDER THE NPA NORMS OF RS.335.23 LAKHS, BUT AS THE ASSESSEE DECIDED TO RETAIN THE PROVISION MADE IN TH E PAST YEAR AMOUNTING TO RS.613.39 LAKHS WHICH WAS INTENDED TO BE ADJUSTED IN FUTURE FOR THE UNCERTAINTY OF RECEIVING 75% OF T HE OVER DUE AMOUNT FROM THE BORROWERS INVOLVED IN CASES OF DEBT RELIEF SCHEME, 2008. ON THE BASIS OF THIS OBSERVATION LD.A.O TOOK A VIEW THAT THE ASSESSEE HAD CREATED EXCESS PROVISION MORE THAN WHA T HAS BEEN PRESCRIBED UNDER THE RESERVE BANK OF INDIA GUIDELIN ES AND THEY ARE NOT ALLOWABLE AS EXPENDITURE AND FURTHER THE LIABI LITY AS STATED IN NOTES ON ACCOUNTS IS IN THE CHARACTER OF CONTINGENT LIABILITY WHICH COULD NOT BE ALLOWED AS ADMISSIBLE DEDUCTION. LD.A O REVERSED THE EXCESS PROVISION AND ADDED IT BACK TO THE INCOME TH EREBY MAKING AN ADDITION OF RS.6,13,39,660/- 32. AGGRIEVED ASSESSEE PREFERRED APPEAL BEFORE THE LD.CIT(A) BUT FAILED TO SUCCEED. 33. NOW THE ASSESSEE IS IN APPEAL BEFORE THE TRIBU NAL. JHABUA DHAR KSHETRIYA GRAMIN BANK ITA NO.106 TO 114/IND/2017 26 34. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE A.Y. 2009- 10 THE LD. AO HAS MADE THE ADDITION OF RS. 6,13,39,600/- ON ACCOUNT OF DISALLOWANCE OF ALLEGED EXCESS PROVISION FOR NPA . LD.A.O MADE THE ADDITION ON THE BASIS OF AUDIT OBJECTION IN SUB PARA 2 OF PARA 4 ON NOTES TO ACCOUNTS WHEREIN IT HAS BEEN STATED THA T THE PROVISION OF NPA AMOUNTING TO RS.948.62 LACS WAS MAINTAINED A S AGAINST THE REQUIRED PROVISION UNDER NPA NORMS OF RS. 335.23 LACS (P.Y.RS.1180.31 LACS). BANK HAS DECIDED TO RET AIN PROVISION MADE IN PAST YEARS AMOUNTING TO RS. 613.39 LACS TO BE ADJUSTED IN FUTURE DUE TO UNCERTAINTY OF RECEIVING 75 OVERDUE A MOUNTS FROM THE BORROWERS INVOLVED IN CASE OF DEBT RELIEF SCHEME. IT IS SUBMITTED THAT THIS NOTE WAS ALREADY APPEARING IN THE NOTES O N ACCOUNT AND WAS BEFORE THE LD. AO WHILE PASSING THE ORDER U/S 143(3). THE SAME HAS BEEN ACCEPTED DURING THE COURSE OF ORIGINAL ASS ESSMENT PROCEEDINGS. THE REOPENING ON THE SAME FACTS IS BAD IN LAW. EVEN ON MERITS NO ADDITION CAN BE MADE ON THIS ACCOUNT I T IS MERELY A NOTE GIVEN BY AUDITORS WHICH CLEARLY STATED THAT TH E PROVISION WOULD BE ADJUSTED IN FUTURE AGAINST THE OVERDUE AMOUNTS F ROM THE BORROWERS INVOLVED IN THE CASE OF DEBT RELIEF SCHEM E 2008. THE PROVISIONS WHICH ARE MADE CANNOT BE ADDED EVEN IF R EVERSED. THERE IS NO PROVISION UNDER THE IT LAW TO TAX THE REVERSA L OF PROVISION AND RESERVES. UNDER THIS CIRCUMSTANCES THE ADDITION ARE BAD IN LAW AND DESERVES TO BE DELETED. 35. PER CONTRA LD. DEPARTMENTAL REPRESENTATIVE SUPP ORTED THE FINDINGS OF BOTH THE LOWER AUTHORITIES. JHABUA DHAR KSHETRIYA GRAMIN BANK ITA NO.106 TO 114/IND/2017 27 36. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORDS PLACED BEFORE US. ASSESSEE IS AGGRIEVED WITH THE FINDINGS OF LD.CIT(A) CONFIRMING THE ADDITION OF RS.613.39 LAKHS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF ALLEGED EXCES S PROVISION FOR NON PERFORMING ASSETS. ISSUE ORIGINATED FROM THE AUDIT OBSERVATION MADE BY THE STATUTORY AUDITORS IN THE NOTE TO ACCOU NTS STATING THAT THE PROVISION FOR NON PERFORMING ASSETS AMOUNTING T O RS.948.62 LAKHS WAS MAINTAINED AS AGAINST THE REQUIRED PROVIS ION UNDER NON PERFORMING ASSET SCHEMES AT RS.335.32 LAKHS. LD.A. O TAKING THE BASIS OF THE OBSERVATION OF THE STATUTORY AUDITORS IN THE AUDITED BALANCE SHEET REVERSED PROVISIONS MADE IN THE EARLI ER YEARS LIMITING THEM TO THE PROVISION REQUIRED AS PER THE RESERVE B ANK OF INDIA NORMS THEREBY MAKING ADDITION OF RS.613.39 LAKHS. LD. CIT(A) DEALING WITH THIS ISSUE CONFIRMED THE VIEW OF THE A SSESSING OFFICER OBSERVING THAT THE LIABILITIES STATED IN THE NOTE O N ACCOUNT IS UNCERTAIN AND THIS IS IN THE CHARACTER OF CONTINGEN T LIABILITY AS THE ASSESSEE HAS PROVIDED TO MEET THE UNCERTAINTY OF RE CEIVING 75% OF OVER DUE AMOUNT FROM THE BORROWERS INVOLVED IN THE CASE OF BAD AND DEBT RESERVE SCHEME. JHABUA DHAR KSHETRIYA GRAMIN BANK ITA NO.106 TO 114/IND/2017 28 37. WE OBSERVE ONE COMMON THING IN THE FINDINGS OF BOTH THE LOWER AUTHORITIES THAT BOTH OF THEM HAVE MADE NO REFERENC E TO THE PROVISIONS OF 36(1)(VII) AND 36(1)(VIIA) BECAUSE TH E PROVISION TO SECTION 36(1)(VII) DEALS WITH THE DEDUCTION ALLOWA BLE FOR THE AMOUNT OF ANY BAD DEBTS OR PART THERE OF WHICH IS REPRESEN TED IN THE ACCOUNTS OF THE ASSESSEE AND PROVISION OF SECTION 36(1)(VIIA) WHICH RELATES TO THE PROVISION FOR BAD AND DOUBTFUL DEBTS TO BE MADE BY CERTAIN CATEGORY OF BANKS INCLUDING THE ASSESSEE CA LCULATED ON THE BASIS OF CERTAIN PERCENTAGE OF THE TOTAL INCOME A S WELL AS THE AVERAGE ADVANCES WHICH CAN BE CLAIMED TO THE EXTEN T OF WHICH THE ASSESSEE CAN CLAIM THE PROVISIONS. IT IS TRUE THAT THE BANKING COMPANIES HAVE TO WORK UNDER THE GUIDELINES PRESCRI BED BY RESERVE BANK OF INDIA. HOWEVER AS HELD BY HON'BLE APEX COU RT IN THE CASE OF M/S. SOUTHERN TECHNOLOGIES LTD V/S ACIT (320 ITR 577) THAT GUIDELINES PROVIDED BY RBI CANNOT OVER RIDE THE PRO VISIONS OF INCOME TAX ACT. RBI GUIDELINES ARE FOR THE PURPOSE OF MAINTAINING THE BALANCE SHEET AND FINANCIAL STATEMENTS FOR THE STAKE HOLDERS SO AS TO GIVE TRUE AND FAIR VIEW OF THE FINANCIALS OF THE BANK. CLAIMING OF DEDUCTION FOR BAD AND DOUBTFUL DEBTS AS WELL AS PROVISION FOR BAD JHABUA DHAR KSHETRIYA GRAMIN BANK ITA NO.106 TO 114/IND/2017 29 AND DOUBTFUL DEBTS FOR THE BORROWERS INVOLVED IN D EBT RELIEF SCHEME, 2008 NEEDS TO BE EXAMINED IN THE LIGHT OF P ROVISIONS OF INCOME TAX ACT APPLICABLE TO THE ASSESSEE. WE FIND THAT THE OBSERVATIONS OF THE LD. ASSESSING OFFICER ARE ALSO NOT VERY CLEAR AND ONLY THE AUDITORS REMARKS HAVE BEEN DISCUSSED AND S IMILARLY LD.CIT)(A) HAS ALSO NOT GIVEN CLEAR FINDING ON THIS ISSUE. 38. IN OUR CONSIDERED VIEW THIS ISSUE NEEDS TO BE SET ASIDE TO THE FILE OF LD.CIT(A) FOR FRESH ADJUDICATION. NEEDLESS TO MENTION THAT PROPER OPPORTUNITY BEING HEARD TO BE PROVIDED TO TH E ASSESSEE AND ALSO DIRECT THE ASSESSEE TO BRING NECESSARY DETAILS FOR CALCULATING THE PROVISIONS OF BAD AND DOUBTFUL DEBTS AS WELL A S THE DETAILS OF OVER DUE DEBTS FROM THE BORROWERS INVOLVED IN DEBT RELIEF SCHEME OF 2008 SO THAT THE ISSUE CAN BE DECIDED ON MERIT UNDE R THE RELEVANT PROVISIONS OF LAW. 39. WE ACCORDINGLY ALLOW THIS ISSUE RAISED UNDER I .T.A NO. 108/IND/2016 IN GROUND NO.2 FOR STATISTICAL PURPOSE . 40. IN THE RESULT ASSESSEES APPEAL NO. 107, 109 & 111 ARE ALLOWED, AND I.T.A. NO. 113 IS PARTLY ALLOWED, I.T.A. NO.114 IS DISMISSED, I.T.A. NO. 106 IS ALLOWED, I.T.A NO. 108 I S PARTLY ALLOWED JHABUA DHAR KSHETRIYA GRAMIN BANK ITA NO.106 TO 114/IND/2017 30 FOR STATISTICAL PURPOSES, I.T.A. NO. 110 IS DISMISS ED AND I.T.A. NO.112 IS PARTLY ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 06.9.2 018. SD/- SD/- ( KUL BHARAT) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER / DATED : 06 SEPTEMBER, 2018 /DEV COPY TO: THE APPELLANT/RESPONDENT/CIT CONCERNED/CIT (A) CONCERNED/ DR, ITAT, INDORE/GUARD FILE. BY ORDER PRIVATE SECRETARY/DDO, INDORE