Shri Mahalaxmi Co.op. Bank Ltd., Kolhapur V. Assistant Commissioner of Income-tax,

ITA 1170/PUN/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2716 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 8 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 02-06-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DHEERAJ KUMAR JAIN
• Assessee Lawyers: S N DOSHI
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Principle of natural justice; Question of law; Cost of acquisition; Bad and doubtful debts; Revised return; Revenue expenditure; Capital expenditure
• Section: 43B; 143(3); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA , A M . / ITA NO. 1170 /PN/201 4 / ASSESSMENT YEAR : 20 1 1 - 1 2 SHRI MAHALAXMI CO - OP BANK LTD., SHRI BHAVAN, 167, B WARD, MANGALWAR PETH, KOLHAPUR 416012 . / APPELLANT PAN: AAATS3679R VS. THE ASST . COMMISSIONER OF INCO ME TAX, CIRCLE 1, KOLHAPUR . / RESPONDENT / APPELLANT BY : SHRI S.N. DOSHI / RESPONDENT BY : SHRI DHEERAJ KUMAR JAIN / DATE OF HEARING : 28 . 0 1 .201 6 / DA TE OF PRONOUNCEMENT: 19 . 0 2 .201 6 / ORDER PER SUSHMA CHOWLA, J M : TH IS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF CIT (A) , KOLHAPUR , DATED 27 . 0 3 .20 1 4 RELATING TO ASSESSMENT YEAR 20 1 1 - 1 2 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOM E - TAX ACT , 1961 (IN SHORT THE ACT) . 2 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. THE LEARNED CIT(APPEALS) ERRED ON FACTS AND IN LAW IN RESTRICTING THE DEDUCTION TO THE EX TENT OF AMOUNT OF PROVISION MADE IN THE BOOKS, FOR B A D AND DOUBT FUL DEBT I.E. RS.56,00,000/ - AND THEREBY DISALLOWING DEDUCTION OF RS.1,95,01,379/ - . THE ACTUAL CLAIM MADE BY ASSESSEE IS CORRECT . ITA NO. 1170 /PN/20 1 4 THE MAHALAXMI CO - OP. BANK LTD. 2 HON C I T ( APPEALS) RELIED ON THE INSTRUCTION NO.17 OF 2008, IN WHICH CBDT I NTER P RETED THE PROVISION OF SECTION 36 ( 1) (VIIA). INT ERPRETATION OF STATUTORY PROVISION IS BEYOND THE POWER OF CBDT. THEREFORE DECISION GIVEN BY HON. CIT ( APPEALS) ON THE BASIS OF INSTRUCTION OF CBDT IS WRONG. THE ADDITION MADE PLEASE BE DELETED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEAR NED CIT ( APPEALS) HAS ERRED IN NOT ALLOWING THE DEDUCTION CLAIMED ON AMORTIZATION OF PREMIUM AMOUNTING TO RS. 28,40,605/ - IN RESPECT OF HTM INVESTMENTS BY IGNORING CBDTS INSTRUCTION AND VARIOUS COVERED DECISIONS OF JURISDICTIONAL TRIBUNAL. 3. THE LEARNED CIT ( APPEALS) ERRED ON FACTS AND LAW BY ADDING AMOUNT OF RS.53.47,812/ - ON ACCOUNT OF INTEREST ON NPA ACCOUNTS WHICH IS NOT RECOGNIZED AS INCOME. TREATMENT OF INTEREST HAS BEEN CORRECTLY MADE AS PRESCRIBED BY RBI. THIS BEING A COVERED ISSUE, THE LEARNED C IT ( APPEALS) HAS IGNORED THE JURISDICTIONAL TRIBUNAL DECISIONS ON THE ISSUE. THE ADDITION OF ABOVE AMOUNT ON THIS ACCOUNT PLEASE BE DELETED. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT ( APPEALS) HAS ERRED IN DISALLOWING THE LOSS OF RS.41,70,140/ - THAT OCCURRED ON SALE OF AFS (AVAILABLE FOR SALE INVESTMENTS) AND STATING THAT THERE IS NO DISALLOWANCE ON THIS ACCOUNT. THE LEARNED C I T ( APPEALS) HAS IGNORED CBDT'S CIRCULAR NO. 665 AND DECISION OF SUPREME COURT ON THIS ISSUE. 5. ON THE F ACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT ( APPEALS) HAS ERRED IN DISALLOWING THE CONTRIBUTION MADE TOWARDS THE EDUCATION FUND OF RS.30,000/ - MADE AS PER SEC 65 OF MAHARASHTRA CO - OPERATIVE SOCIETY ACT , 1960 . 6. ON THE FACTS AND IN THE CIRCUM STANCES OF THE CASE THE LEARNED CIT(APPEALS) HAS ERRED IN DISALLOWING THE DEDUCTION OF RS.96,063/ - CIT(APPEALS) HAS ERRED IN DISALLOWING THE DEDUCTION OF RS.96,063/ - INCLUDED IN TOTAL CLAIM OF RS.7,07,269/ - CLAIMED U/S 36(1)(VIII) OF THE INCOME TAX ACT, 1961. THE ABOVE GROUNDS OF APPEAL MAY KINDLY BE ALLOWED TO BE AMEND ED, ALTERED, MODIFIED, ETC. IN THE INTEREST OF NATURAL JUSTICE. 3. THE ISSUE IN GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE IS AGAINST THE DEDUCTION CLAIMED ON ACCOUNT OF PROVISION MADE IN THE BOOKS OF ACCOUNT FOR BAD AND DOUBTFUL DEBTS. 4. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FAIRLY POINTED OUT THAT THE SAID ISSUE IS SQUARELY COVERED AGAINST THE ASSESSEE BY THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 162/PN/2013, RELATING TO ASSESSMENT YEAR 2009 - 10 , ORDER DATED 16.04.2014. 5. ON PERUSAL OF RECORD, WE FIND THAT THE ISSUE ARISING IN THE PRESENT APPEAL IS WITH REGARD TO RESTRICTION OF DEDUCTION CLAIMED BY THE ASSESSEE UNDER SECTION ITA NO. 1170 /PN/20 1 4 THE MAHALAXMI CO - OP. BANK LTD. 3 36(1)(VIIA) OF THE ACT TO THE ACTUAL AMOUNT OF PROVISION MADE IN THE BOOKS OF ACCOUNT FOR BAD AND DOUBTFUL DEBTS AMOUNTING TO RS. 56 LAKHS AS AGAINST , THE ASSESSEE CLAIMED DEDUCTION OF RS. 1,95,01,379/ - . THE TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 2009 - 10 HAS ELABORATELY CONSIDERED THIS ISSUE AND HAD IN TURN, RELIED ON THE RATIO LAI D DOWN IN ASSESSMENT YEAR 2008 - 09 , HAD OBSERVED AS UNDER: - 4. IN VIEW OF THE AFORESAID PRECEDENT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008 - 09 (SUPRA) THE ISSUE IS LIABLE TO BE DECIDED AGAINST THE ASSESSEE. HOWEVER, IN ORDER TO IMPART COMPLETENESS T O THE ORDER ON THIS ASPECT A BRIEF DISCUSSION IS NECESSARY. THE ASSESSEE IS A CO - OPERATIVE BANK ENGAGED IN THE BUSINESS OF BANKING AND IN TERMS OF SECTION 36(1)(VIIA) OF THE ACT, IT IS ENTITLED TO CLAIM A DEDUCTION IN RESPECT OF ANY PROVISION FOR BAD AND DOUBTFUL DEBTS MADE ON ACCOUNT OF AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF THE ASSESSEE BANK. SECTION 36(1)(VIIA) OF THE ACT PROVIDES THAT SUCH DEDUCTION SHALL NOT EXCEED 7.5% OF THE TOTAL INCOME (COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VI - A OF THE ACT) AND AN AMOUNT NOT EXCEEDING 10% OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF THE BANK. BY RELYING ON SECTION 36(1)(VIIA) OF THE ACT, ASSESSEE BEING A CO - OPERATIVE BANK, CLAIMED A DEDUCTION OF RS .1,70,40,528/ - IN ITS RETURN OF INCOME ON ACCOUNT OF BAD AND DOUBTFUL DEBTS RELATING TO THE ADVANCES MADE BY THE RURAL BRANCHES. IT WAS NOTICED THAT AS AGAINST THE CLAIM OF RS.1,70,40,528/ - MADE IN THE RETURN OF INCOME, ASSESSEE HAD MADE A PROVISION FOR B AD AND DOUBTFUL DEBTS OF RS.66,22,634/ - ONLY IN THE BOOKS OF ACCOUNT. FOR THE SAID REASON ASSESSEES CLAIM FOR DEDUCTION U/S 36(1)(VIIA) OF ACCOUNT. FOR THE SAID REASON ASSESSEES CLAIM FOR DEDUCTION U/S 36(1)(VIIA) OF THE ACT WAS RESTRICTED THE EXTENT OF PROVISION FOR BAD AND DOUBTFUL DEBTS MADE IN THE ACCOUNT BOOKS I.E. RS.66,22,6 34/ - AND THE BALANCE OF RS.1,04,17,894/ - WAS DISALLOWED. THE AFORESAID CONTROVERSY IS BEFORE US. IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR OF 2008 - 09 ALSO THE REVENUE HAD DENIED THE CLAIM OF THE ASSESSEE U/S 36(1)(VIIA) OF THE ACT BY RESTRICTING IT TO THE EXTENT OF THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACTUALLY MADE IN THE ACCOUNT BOOKS. THE TRIBUNAL, AFTER CONSIDERING THE RIVAL STANDS AS ALSO THE VARIOUS AUTHORITIES CITED AT BAR CAME TO CONCLUDE THAT THE DEDUCTION SOUGHT TO BE CLAIMED BY THE ASSES SEE U/S 36(1)(VIIA) OF THE ACT WAS LIABLE TO BE RESTRICTED TO THE EXTENT OF THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACTUALLY MADE IN THE ACCOUNT BOOKS. THE RELEVANT DISCUSSION CONTAINED IN THE ORDER OF THE TRIBUNAL IS REPRODUCED HEREINAFTER: - 9. WE HAV E CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. WE HAVE ALSO ANXIOUSLY PERUSED THE AUTHORITIES CITED AT BAR IN ORDER TO DETERMINE THE CONTROVERSY ON HAND. THE RELEVANT PORTION OF SECTION 36(1)(VIIA) OF THE ACT, AS APPLICABLE FOR THE ASSESSMENT YEAR UNDER CON SIDERATION I.E. A.Y. 2008 - 09 READS AS UNDER : - [(VIIA) [IN RESPECT OF ANY PROVISION FOR BAD AND DOUBTFUL DEBTS MADE BY (A) A SCHEDULED BANK [NOT BEING [* * *] A BANK INCORPORATED BY OR UNDER THE LAWS OF A COUNTRY OUTSIDE INDIA] OR A NON - SCHEDULED BANK [OR A CO - OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CO - OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK], AN AMOUNT [NOT EXCEEDING SEVEN AND ONE - HALF PER CENT] OF THE TOTAL INCOME (COMPUTED BEFORE MAKING ANY DEDUCTION ITA NO. 1170 /PN/20 1 4 THE MAHALAXMI CO - OP. BANK LTD. 4 UND ER THIS CLAUSE AND CHAPTER VIA) AND AN AMOUNT NOT EXCEEDING [TEN] PER CENT OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF SUCH BANK COMPUTED IN THE PRESCRIBED MANNER : 10. A BARE PERUSAL OF AFORESAID SECTION CLEARLY BRINGS OUT THAT THE DE DUCTION SPECIFIED THEREIN IS IN RESPECT OF ANY PROVISION FOR BAD AND DOUBTFUL DEBTS MADE BY.. AN ELIGIBLE ASSESSEE. THE PRESENCE OF THE AFORESAID EXPRESSION IN THE SECTION SUPPORTS THE PLEA OF THE REVENUE, WHICH IS TO THE EFFECT THAT THE DEDUCTION ALLO WABLE UNDER SECTION 36(1)(VIIA) OF THE ACT IS IN RESPECT OF THE PROVISION MADE BY THE ASSESSEE. IN OUR CONSIDERED OPINION, THE JUDGEMENT OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF STATE BANK OF PATIALA (SUPRA) CLEARLY COVERS THE CONTROVERS Y IN FAVOUR OF THE REVENUE AND BELIES THE INTERPRETATION SOUGHT TO BE CANVASSED BY THE ASSESSEE. IN THE CASE BEFORE THE HONBLE HIGH COURT, ASSESSEE - BANK HAD ORIGINALLY FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 1985 - 86 CLAIMING DEDUCTION UNDER SECTION 36(1)(VIIA) OF THE ACT AT RS.1,90,36,000/ - . AFTER FILING OF THE RETURN THE PROVISIONS OF SECTION 36(1)(VIIA) OF THE ACT WERE AMENDED BY FINANCE ACT, 1985 WHEREBY DEDUCTION WAS ENHANCED TO 10% OF THE PROFIT OR 2% OF THE AGGREGATE AVERAGE ADVANCES MADE BY R URAL BRANCHES OF THE BANK, WHICHEVER WAS HIGHER. ON ACCOUNT OF THE AMENDED PROVISIONS, ASSESSEE FILED A REVISED RETURN OF INCOME ON 24.04.1986 ENHANCING THE CLAIM FOR DEDUCTION FROM RS.1,90,36,000/ - TO RS.1,94,21,000/ - . THE ASSESSING OFFICER RESTRICTED THE DEDUCTION UNDER SECTION 36(1)(VIIA) OF THE ACT TO RS.1,90,36,000/ - ONLY AND DISALLOWED THE BALANCE ON THE GROUND THAT IN THE BOOKS OF ACCOUNT PERTAINING TO THE RELEVANT ASSESSMENT YEAR, ASSESSEE HAD MADE A PROVISION FOR BAD AND RELEVANT ASSESSMENT YEAR, ASSESSEE HAD MADE A PROVISION FOR BAD AND DOUBTFUL DEBTS OF RS.1,90,3 6,000/ - ONLY. THE ASSESSEE ARGUED THAT THE PROVISION OF RS.1,90,36,000/ - WAS MADE IN THE BALANCE - SHEET FINALIZED ON 14.02.1985 WHICH WAS AS PER THE UNAMENDED PROVISIONS OF SECTION 36(1)(VIIA) OF THE ACT AND THAT IN VIEW OF THE AMENDMENT OF SECTION 36(1)(VI IA) OF THE ACT PERMITTING HIGHER CLAIM OF DEDUCTION, THE ASSESSEE COULD NOT HAVE POSSIBLY MADE THE HIGHER PROVISION IN THE BALANCE - SHEET FINALIZED ON A PRIOR DATE, BUT IT MADE UP THE SHORTFALL BY MAKING AN ADEQUATE PROVISION IN THE BALANCE - SHEET OF THE SUB SEQUENT ASSESSMENT YEAR. ON THIS BASIS, IT WAS SOUGHT TO BE MADE OUT THAT THERE WAS SUBSTANTIAL COMPLIANCE WITH THE REQUIREMENT OF LAW OF MAKING PROVISION FOR BAD AND DOUBTFUL DEBTS AND THEREFORE ASSESSEE JUSTIFIED THE CLAIM OF DEDUCTION FOR THE COMPLETE A MOUNT OF RS.1,94,21,000/ - AND NOT RESTRICTED TO RS.1,90,36,000/ - . THE CIT(A) AS WELL AS THE TRIBUNAL NEGATED THE PLEA OF THE ASSESSEE AND ACCORDINGLY, THE MATTER WAS CARRIED BEFORE THE HONBLE PUNJAB & HARYANA HIGH COURT. THE HONBLE HIGH COURT REFERRED TO THE PROVISIONS OF SECTION 36(1)(VIIA) OF THE ACT AND OBSERVED THAT ..THE DEDUCTION ALLOWABLE UNDER THE ABOVE PROVISIONS IS IN RESPECT OF THE PROVISION MADE AND FURTHER WENT ON TO HOLD THAT ..MAKING OF A PROVISION FOR BAD AND DOUBTFUL DEBTS EQUAL TO T HE AMOUNT MENTIONED IN THIS SECTION IS MUST FOR CLAIMING SUCH DEDUCTION. IN VIEW OF THE AFORESAID JUDGEMENT OF THE HONBLE PUNJAB & HARYANA HIGH COURT, IN OUR VIEW, THE POSITION SOUGHT TO BE CANVASSED BY THE ASSESSEE DESERVES TO BE REPELLED. WE REPRODUCE HEREINAFTER THE RELEVANT PORTION OF THE ORDER OF THE HONBLE HIGH COURT, WHICH READS AS UNDER : - ITA NO. 1170 /PN/20 1 4 THE MAHALAXMI CO - OP. BANK LTD. 5 5. SEC.36(1)(VIIA) OF THE ACT AS APPLICABLE TO THE ASST. YR. 1985 - 86, READS AS UNDER : IN RESPECT OF ANY PROVISION FOR BAD AND DOUBTFUL DEBTS MADE BY A SCHED ULED BANK [NOT BEING A BANK APPROVED BY THE CENTRAL GOVERNMENT FOR THE PURPOSES OF CL.(VIIIA) OR A BANK INCORPORATED BY OR UNDER THE LAWS OF A COUNTRY OUTSIDE INDIA] OR A NON - SCHEDULED BANK, AN AMOUNT NOT EXCEEDING TEN PER CENT OF THE TOTAL INCOME (COMPUTE D BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VI - A) OR AN AMOUNT NOT EXCEEDING TWO PER CENT OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF SUCH BANK, COMPUTED IN THE PRESCRIBED MANNER, WHICHEVER IS HIGHER. 6. A BARE PERUSAL OF THE ABOVE SHOWS THAT THE DEDUCTION ALLOWABLE UNDER THE ABOVE PROVISIONS IS IN RESPECT OF THE PROVISION MADE. THEREFORE, MAKING OF A PROVISION FOR BAD AND DOUBTFUL DEBTS EQUAL TO THE AMOUNT MENTIONED IN THIS SECTION IS A MUST FOR CLAIMING SUCH DEDUCTION. THE TRIBUNAL HAS RIGHTLY POINTED OUT THAT THIS ISSUE STANDS FURTHER CLARIFIED FROM THE PROVISO TO CL.(VII) OF S.36(1) OF THE ACT, WHICH READS AS UNDER : PROVIDED THAT IN THE CASE OF AN ASSESSEE TO WHICH CL.(VIIA) APPLIES, THE AMOUNT OF THE DEDUCTION RELA TING TO ANY SUCH DEBT OR PART THEREOF SHALL BE LIMITED TO THE AMOUNT BY WHICH SUCH DEBT OR PART THEREOF EXCEEDS THE CREDIT BALANCE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE UNDER THAT CLAUSE. 7. THIS ALSO CLEARLY SHOWS THAT MAKING OF PROVIS ION EQUAL TO 7. THIS ALSO CLEARLY SHOWS THAT MAKING OF PROVIS ION EQUAL TO THE AMOUNT CLAIMED AS DEDUCTION IN THE ACCOUNT BOOKS IS NECESSARY FOR CLAIMING DEDUCTION UNDER S. 36(1)(VIIA) OF THE ACT. THE TRIBUNAL HAS DISTINGUISHED VARIOUS AUTHORITIES RELIED UPON BY THE ASSESSEE WHEREIN DEDUCTIONS HAD BEEN ALLOWED UNDER VARIOUS PROVISIONS WHICH ALSO REQUIRED CREATION OF RESERVE AFTER THE ASSESSEE HAD CREATED SUCH RESERVE IN THE ACCOUNT BOOKS BEFORE THE COMPLETION OF THE ASSESSMENT. IT HAS BEEN CORRECTLY POINTED OUT THAT IN ALL THOSE CASES, RESERVES/PROVISIONS HAD BEEN MAD E IN THE BOOKS OF ACCOUNT OF THE SAME ASSESSMENT YEAR AND NOT OF THE SUBSEQUENT ASSESSMENT YEAR. 8. IN THE PRESENT CASE, THE ASSESSEE HAS NOT MADE ANY PROVISION IN THE BOOKS OF ACCOUNT FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, I.E., 1985 - 86, BY MAKING S UPPLEMENTARY ENTRIES AND BY REVISING ITS BALANCE SHEET. THE PROVISION HAS BEEN MADE IN THE BOOKS OF ACCOUNT OF THE SUBSEQUENT YEAR. 9. WE ARE, THEREFORE, SATISFIED THAT THE TRIBUNAL WAS RIGHT IN HOLDING THAT SINCE THE ASSESSEE HAD MADE A PROVISION OF RS.1 ,19,36,000 FOR BAD AND DOUBTFUL DEBTS, ITS CLAIM FOR DEDUCTION UNDER S. 36(1)(VIIA) OF THE ACT HAD TO BE RESTRICTED TO THAT AMOUNT ONLY. SINCE THE LANGUAGE OF THE STATUTE IS CLEAR AND IS NOT CAPABLE OF ANY OTHER INTERPRETATION, WE ARE SATISFIED THAT NO SUB STANTIAL QUESTION OF LAW ARISES IN THIS APPEAL FOR CONSIDERATION BY THIS COURT. 11. IN VIEW OF THE AFORESAID INTERPRETATION OF SECTION 36(1)(VIIA) OF THE ACT BY THE HONBLE PUNJAB & HARYANA HIGH COURT, THE ORDERS OF THE ITA NO. 1170 /PN/20 1 4 THE MAHALAXMI CO - OP. BANK LTD. 6 LOWER AUTHORITIES DESERVE TO BE UPH ELD INASMUCH AS THE ASSESSEE HAS NOT MADE A PROVISION FOR BAD AND DOUBTFUL DEBTS IN THE BOOKS OF ACCOUNT EQUAL TO THE AMOUNT OF DEDUCTION SOUGHT TO BE CLAIMED UNDER SECTION 36(1)(VIIA) OF THE ACT, AND THEREFORE, IN OUR VIEW, THE LOWER AUTHORITIES WERE JUST IFIED IN RESTRICTING THE DEDUCTION TO RS.50,00,000/ - , BEING THE AMOUNT OF PROVISION ACTUALLY MADE IN THE BOOKS OF ACCOUNT. 12. THE LEARNED COUNSEL FOR THE ASSESSEE HAS CITED CERTAIN DECISION IN SUPPORT OF HIS PROPOSITION THAT THE CLAIM OF DEDUCTION UNDER SECTION 36(1)(VIIA) OF THE ACT IS NOT LINKED TO MAKING OF A PROVISION IN THE ACCOUNT BOOKS. AT THE OUTSET, WE MAY OBSERVE THAT THE DECISIONS RELIED UPON BY THE ASSESSEE ARE OF VARIOUS BENCHES OF THE TRIBUNAL AND NOT OF ANY HIGH COURT. THEREFORE, THE JUDGEM ENT OF THE HONBLE HIGH COURT IN THE CASE OF STATE BANK OF PATIALA (SUPRA), WHICH IS CONTRARY TO THE DECISIONS OF THE TRIBUNAL RELIED UPON BY THE ASSESSEE; AND BEING SOLITARY JUDGEMENT OF A HIGH COURT, IS REQUIRED TO BE APPLIED, HAVING REGARD TO THE ESTABL ISHED NORMS OF JUDICIAL DISCIPLINE. FOR THE SAID REASON, WE REFRAIN FROM DISCUSSING EACH OF THE DECISIONS OF THE TRIBUNAL RELIED BY THE ASSESSEE BEFORE US. 13. THE OTHER PLEA OF THE ASSESSEE WAS THAT THE CONTENTS OF THE CBDT CIRCULAR DATED 26.11.2008 (SUP RA) IS CONTRARY TO THE PROVISIONS OF SECTION 36(1)(VIIA) OF THE ACT AND THEREFORE THE SAME SHOULD BE DISREGARDED. IN OUR VIEW, THE FOLLOWING EXPLANATION IN RESPECT OF SECTION 36(1)(VIIA) OF THE ACT RENDERED BY THE CBDT IN CIRCULAR DATED 26.11.2008 (SUPRA) BY WAY OF PARA 2(III)(B) AS UNDER : - (B) THE DEDUCTION FOR PROVISION FOR BAD AND DOUBTFUL DEBTS SHOULD BE RESTRICTED TO THE AMOUNT OF SUCH PROVISION DEBTS SHOULD BE RESTRICTED TO THE AMOUNT OF SUCH PROVISION ACTUALLY CREATED IN THE BOOKS OF THE ASSESSEE IN THE RELEVANT YEAR OR THE AMOUNT CALCULATED AS PER PROVISI ONS OF SECTION 36(1)(VIIA), WHICHEVER IS LESS. IS IN LINE WITH THE INTERPRETATION OF THE SECTION RENDERED BY THE HONBLE PUNJAB & HARYANA HIGH COURT AND CANNOT BE SAID TO BE CONTRARY TO THE PROVISIONS OF THE ACT. THEREFORE, THE RELIANCE PLACED BY THE LOWE R AUTHORITIES ON THE CBDT CIRCULAR DATED 26.11.2008 (SUPRA) CANNOT BE FAULTED. 14. BEFORE PARTING, WE MAY REFER TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CATHOLIC SYRIAN BANK LTD. (SUPRA) RELIED UPON BY THE ASSESSEE AND ALSO THE DECISION OF OUR CO - ORDINATE BENCH IN THE CASE OF JAYSINGPUR UDGAON SAHAKARI BANK LTD. (SUPRA). WE HAVE CAREFULLY PERUSED THE SAID DECISION AND FOUND THAT THE ISSUE BEFORE THE HONBLE SUPREME COURT IN THE CASE OF CATHOLIC SYRIAN BANK LTD. (SUPRA) WAS QUITE DIFFEREN T; AND, IN ANY CASE NONE OF THE OBSERVATIONS OF THE HONBLE SUPREME COURT RUN CONTRARY TO THE PRONOUNCEMENT OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF STATE BANK OF PATIALA (SUPRA) TO THE EFFECT THAT MAKING OF A PROVISION FOR BAD AND DOUBTFU L DEBTS EQUAL TO THE AMOUNT MENTIONED IN SECTION 36(1)(VIIA) OF THE ACT IS MUST FOR CLAIMING SUCH DEDUCTION. THEREFORE, THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CATHOLIC SYRIAN BANK LTD. (SUPRA) DOES NOT HELP THE ASSESSEE IN THE PRESENT CO NTROVERSY BEFORE US. FURTHER, EVEN IN THE CASE OF JAYSINGPUR UDGAON SAHAKARI BANK LTD. (SUPRA), THE TRIBUNAL HAS MERELY SET - ASIDE THE MATTER FOR ADJUDICATION ITA NO. 1170 /PN/20 1 4 THE MAHALAXMI CO - OP. BANK LTD. 7 AFRESH BACK TO THE FILE OF THE ASSESSING OFFICER AND IT DOES NOT CONTAIN ANY POSITIVE FINDING WITH RESPECT TO THE CONTROVERSY BEFORE US. 15. IN THE RESULT, CONSIDERING THE AFORESAID DISCUSSION, IN OUR VIEW, THE ORDERS OF THE AUTHORITIES BELOW ON THIS ASPECT ARE LIABLE TO BE UPHELD. WE HOLD SO. 5. FOLLOWING THE AFORESAID PRECEDENT AND IN VIEW OF THE CONVERGENCE OF STAND OF BOTH THE PARTIES THAT THE FACTS AND CIRCUMSTANCES IN THE YEAR UNDER CONSIDERATION ARE IDENTICAL TO THOSE CONSIDERED BY THE TRIBUNAL IN THE ASSESSMENT YEAR 2008 - 09 (SUPRA), THE GROUND OF APPEAL RAISED BY THE ASSESSEE IS LIABLE TO BE DISMISSED. WE HOLD SO. 6. THE ISSUE ARISING BEFORE US IS SIMILAR THAT WHERE THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF BANKING AND IN TERMS OF SECTION 36(1)(VIIA) OF THE ACT , WAS ENTITLED TO CLAIM THE DEDUCTION IN RESPECT OF PROVISION MADE FOR BAD AND DOUBTFUL DEBTS, ON ACCOUNT OF AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF THE ASSESSEE BANK. SECTION 36(1)(VIIA) OF THE ACT PROVIDES THAT SUCH DEDUCTION SHALL NOT EXCEED 7.5% OF THE TOTAL INCOME I.E. INCOME CO MPUTED BEFORE MAKING ANY DEDUCTI ON UNDER THIS CLAUSE AND CHAPTER VI - A OF THE ACT AND THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION CLAIMED DEDUCTION OF THE ACT AND THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION CLAIMED DEDUCTION OF RS.1 .95 CRORES UNDER SECTION 36(1)(VIIA) OF THE ACT IN ITS RETURN OF INCOME ON ACCOUNT OF BAD AND DOUBTFUL DEBTS RELATING TO ADVANCES MA DE BY THE RURAL BRANCHES . HOWEVER, AS AGAINST THE SAID CLAIM MADE IN THE RETURN OF INCOME, THE ASSESSEE HAD MADE PROVISION FOR BAD AND DOUBTFUL DEBTS OF RS. 56 LAKHS. ON ACCOUNT OF THIS, THE ASSESSEES CLAIM WAS RESTRICTED TO RS.56 LAKHS AND THE BALANCE W AS DISALLOWED. THE ISSUE ARISING BEFORE US IS IDENTICAL TO THE ISSUE BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 2009 - 10 AND FOLLOWING THE SAME PARITY OF REASONING, WE DISMISS THE GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE. 7. THE ISSUE IN GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE IS WITH REGARD TO DEDUCTION CLAIMED ON ACCOUNT OF AMORTIZATION OF PREMIUM AMOUNTING TO RS. 28,40,605/ - IN RESPECT OF HTM INVESTMENTS. ITA NO. 1170 /PN/20 1 4 THE MAHALAXMI CO - OP. BANK LTD. 8 8. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE SAID ISSUE IS C OVERED BY THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 2009 - 10 (SUPRA) . 9. WE FIND THAT SIMILAR ISSUE OF AMORTIZATION ON PREMIUM PAID ON GOVERNMENT S ECURITIES AROSE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSM ENT YEAR 2009 - 10 (SUPRA), WHEREIN THE TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF ASSESSEE. THE TRIBUNAL HELD AS UNDER: - 13. IN THIS CONTEXT, BRIEF FACTS ARE THAT BEFORE THE CIT(A) ASSESSEE RAISED AN ADDITIONAL GROUND WHICH WAS HITHERTO NOT BEFORE THE ASSESS ING OFFICER, TO THE EFFECT THAT IT WAS LIABLE TO CLAIM DEDUCTION OF RS.51,95,263/ - ON ACCOUNT OF AMORTIZATION OF PREMIUM PAID ON GOVERNMENT SECURITIES IN THE CATEGORY OF INVESTMENTS HELD TO MATURITY (I.E. HTM). THE SAID PREMIUM REPRESENTED THE EXCESS OF A CQUISITION COST OVER THE FACE VALUE OF THE SECURITIES AND THE CLAIM OF THE ASSESSEE WAS THAT THE SAME WAS TO BE AMORTIZED OVER THE REMAINING PERIOD OF MATURITY OF THE SECURITIES. THE CLAIM OF THE ASSESSEE WAS BASED ON THE MASTER CIRCULAR DATED 12.07.2006 ISSUED BY THE RESERVE BANK OF INDIA. THE CIT(A) FOUND IT FIT TO ADMIT SUCH ADDITIONAL GROUND FOLLOWING THE RATIO OF THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. PRUTHVI BROKERS & SHAREHOLDERS (P) LTD. (2012) 23 TAXMANN.COM 23 (BOM ). AFTER ADMITTING SUCH ADDITIONAL GROUND THE CIT(A) HAS ALLOWED THE SAME, AGAINST WHICH REVENUE IS IN APPEAL BEFORE US. WHICH REVENUE IS IN APPEAL BEFORE US. 14. IN SO FAR AS THE ACTION OF THE CIT(A) IN ADMITTING THE ADDITIONAL GROUND RAISED BY THE ASSESSEE ON THE IMPUGNED ISSUE IS CONCERNE D, THE SAME IS NOT CHALLENGED BY THE REVENUE, AS IS EVIDENT FROM THE GROUNDS OF APPEAL NOS.3 & 4 RAISED BY THE REVENUE BEFORE US, WHICH READ AS UNDER : - 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(APPEALS) ERRED IN ALLOW ING AMORTIZATION OF PREMIUM PAID ON GOVERNMENT SECURITIES BY THE ASSESSEE OF RS.51,95,263/ - . 4. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(APPEALS) ERRED IN ALLOWING AMORTIZATION OF PREMIUM PAID ON GOVERNMENT SECURITIES PURC HASED BY THE ASSESSEE. ALL CAPITAL ASSETS ARE TO BE VALUED AT COST ONLY AND NO PART THEREOF CAN BE CLAIMED AS REVENUE EXPENDITURE IN COMPUTING TOTAL INCOME. THIS PRINCIPLE HAS BEEN UPHELD BY THE HONBLE SUPREME COURT IN THE CASE OF VIJAY BANK LTD. VS. AD DL.CIT (187 ITR 541). 15. HOWEVER, IN SO FAR AS THE MERITS OF THE ACTION OF THE CIT(A) IN ALLOWING SUCH CLAIM IS CONCERNED, IT WAS A COMMON POINT BETWEEN THE PARTIES BEFORE US THAT SIMILAR ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. BANK OF RAJASTHAN LTD. VIDE ITA NO.3238/MUM/2011 ORDER DATED 09.09.2011 AND ALSO THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF SRI SUBRAMANYESWARA COOPERATIVE BANK LTD. VS. ACIT VIDE ITA NO.488/BANG/2011 ORDER D ATED 06.06.2012. NO DECISION TO THE CONTRARY HAS BEEN BROUGHT OUT BY THE LEARNED DEPARTMENTAL REPRESENTATIVE, THOUGH HE HAS SOUGHT TO OPPOSE THE CLAIM OF THE ASSESSEE. ITA NO. 1170 /PN/20 1 4 THE MAHALAXMI CO - OP. BANK LTD. 9 16. AFTER CONSIDERING THE RIVAL STANDS, WE FIND THAT THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF BANK OF RAJASTHAN LTD. (SUPRA) HAS CONSIDERED AN IDENTICAL ISSUE AND THE RELEVANT DISCUSSION MADE BY THE TRIBUNAL IS AS UNDER : - 9. THE AMORTIZED AMOUNT OF PREMIUM PAID FOR SECURITIES HELD UNDER HTM CATEGORY AMOUNTING TO RS.11.77 CRORES W AS CLAIMED BY THE ASSESSEE AS DEDUCTION IN ITS COMPUTATION OF TOTAL INCOME. THE SAME, HOWEVER, WAS DISALLOWED BY THE ASSESSING OFFICER HOLDING THAT THE EXPENDITURE INCURRED ON PREMIUM PAID FOR SECURITIES HELD UNDER HTM CATEGORY WAS A CAPITAL EXPENDITURE NO T ALLOWABLE AS DEDUCTION. HE HELD THAT THE SAID SECURITIES WERE IN THE NATURE OF INVESTMENT AND NOT STOCK IN TRADE. ON APPEAL, THE LEARNED CIT(APPEALS) DELETED THE DISALLOWANCE MADE BY THE AO ON THIS ISSUE. BESIDES RELYING ON HIS OWN ORDER IN ASSESSEE'S OW N CASE ON A SIMILAR ISSUE FOR THE EARLIER YEAR, THE LEARNED CIT(APPEALS) ALSO RELIED ON CBDT INSTRUCTION NO. 17/2008 DATED 26 - 11 - 2008 PUBLISHED IN 220 CTR (STATUTE) PAGE 41. HE HELD THAT THE ASSESSEE COMPANY WAS BOUND TO CLASSIFY ITS INVESTMENT AS PER RBI GUIDELINES DATED 16 - 10 - 2010 AND AS PER THE SAID GUIDELINES, INVESTMENT CLASSIFIED UNDER HTM CATEGORY WAS REQUIRED TO BE CARRIED AT ACQUISITION COST UNLESS IT WAS MORE THAN THE FACE VALUE. HE HELD THAT THE PREMIUM ON SUCH INVESTMENTS WAS ALSO REQUIRED TO BE AMORTIZED OVER THE PERIOD REMAINING TO MATURITY. HE HELD THAT THE CLAIM OF THE ASSESSEE THUS WAS AS PER RBI GUIDELINES AND CBDT INSTRUCTION WHICH CLARIFIED THAT PREMIUM AMORTIZED OVER THE PERIOD REMAINING TO MATURITY WAS LIABLE TO BE ALLOWED AS DEDUCTION. 10. AT THE TIME OF HEARING BEFORE US, THE LEARNED REPRESENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THIS ISSUE IS ALSO SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE VARIOUS ORDERS OF THE TRIBUNAL PASSED IN ASSESSEE'S OWN CASE FOR EARLIER YEARS. COPIE S OF THE SAID ORDERS ARE PLACED ON RECORD BEFORE US AND A PERUSAL OF THE SAME SHOWS THAT IN ONE OF SUCH ORDERS DATED 22ND DEC., 2010 PASSED IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEARS 2002 - 03 TO 2006 - 07, THE COORDINATE BENCH OF THIS TRIBUNAL HAS DIRECTED T HE AO TO ALLOW THE PREMIUM AMORTIZED BY THE ASSESSEE OVER THE PERIOD REMAINING TO MATURITY HOLDING THAT THE SAME WAS CLAIMED AS PER THE RELEVANT RBI GUIDELINES AND EVEN THE CBDT HAS ISSUED INSTRUCTIONS TO ALLOW THE SAME. RESPECTFULLY FOLLOWING THE SAID ORD ER OF THE TRIBUNAL IN ASSESSEE'S OWN CASE FOR EARLIER YEARS, WE UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE AND DISMISS GROUND NO. 3 OF THE REVENUE'S APPEAL. 17. FOLLOWING THE AFORESAID PRECEDENT WE FIND THAT THE CIT(A) MADE NO MISTAKE IN ALLOWING THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF RS.51,95,263/ - REPRESENTING AMORTIZATION OF PREMIUM PAID ON GOVERNMENT SECURITIES UNDER THE HTM CATEGORY. THUS ON THIS GROUND ALSO, REVENUE FAILS. 10. FURTHER, THE HONBLE BOMBAY HIGH COURT IN CIT VS. HDFC BANK LTD. IN INCOME TAX APPEAL NO.330 OF 2012, JUDGMENT DATED 23.07.2014 HAS HELD AS UNDER: - ITA NO. 1170 /PN/20 1 4 THE MAHALAXMI CO - OP. BANK LTD. 10 4. WE DO NOT AGREE. IN THE CASE AT HAND, AS RECORDED BY THE ITAT, UNDISPUTEDLY THE ASSESSEES OWN FUNDS AND OTHER N ON - INTEREST BEARING FUNDS WERE MORE THAN THE INVESTMENT IN THE TAX FREE SECURITIES. THE ITAT THEREFORE HELD THAT THERE WAS NO BASIS FOR DEEMING THAT THE ASSESSEE HAD USED THE BORROWED FUNDS FOR INVESTMENT IN TAX FREE SECURITIES. ON THIS FACTUAL ASPECT, T HE ITAT DID NOT FIND ANY MERIT IN THE CONTENTION RAISED BY THE REVENUE AND THEREFORE, ACCORDINGLY ANSWERED THE QUESTION IN FAVOUR OF THE ASSESSEE. ON GOING THROUGH THE ORDER OF THE CIT(APPEALS) DATED 28 TH MARCH 2005 AS WELL AS THE IMPUGNED ORDER, WE DO NO T FIND THAT THE CIT(APPEALS) OR THE ITAT ERRED IN HOLDING IN FAVOUR OF THE ASSESSEE. IN THIS REGARD, THE SUBMISSION OF MR MISTRY, THE LEARNED SENIOR COUNSEL APPEARING ON BEHALF OF THE ASSESSEE, THAT THIS ISSUE IS SQUARELY COVERED BY A JUDGMENT OF THIS COU RT IN THE CASE OF COMMISSIONER OF INCOME TAX V/S RELIANCE UTILITIES AND POWER LTD., REPORTED IN (2009) 313 ITR 340 (BOM) IS WELL FOUNDED. THE FACTS OF THAT CASE WERE THAT THE ASSESSEE VIZ. M/S RELIANCE UTILITIES AND POWER LTD. HAD INVESTED CERTAIN AMOUNTS IN RELIANCE GAS LTD. AND RELIANCE STRATEGIC INVESTMENTS LTD. IT WAS THE CASE OF THE ASSESSEE THAT THEY THEMSELVES WERE IN THE BUSINESS OF GENERATION OF POWER AND THEY HAD EARNED REGULAR BUSINESS INCOME THEREFROM. THE INVESTMENTS MADE BY THE ASSESSEE IN M/S RELIANCE GAS LTD. AND M/S RELIANCE STRATEGIC INVESTMENTS LTD. WERE DONE OUT OF THEIR OWN FUNDS AND WERE IN THE REGULAR COURSE OF BUSINESS AND THEREFORE NO PART OF THE INTEREST COULD BE DISALLOWED. IT WAS ALSO POINTED OUT THAT THE ASSESSEE HAD BORROWED RS.43.62 CRORES BY WAY OF ISSUE OF DEBENTURES AND THE SAID AMOUNT WAS UTILIZED AS CAPITAL EXPENDITURE AND INTER - CORPORATE DEPOSIT. IT WAS THE ASSESSEES SUBMISSION THAT NO PART OF THE INTEREST BEARING FUNDS (VIZ. ISSUE OF DEBENTURES) HAD GONE INTO MAKING INVESTMENTS IN THE SAID TWO COMPANIES. IT WAS POINTED OUT THAT THE INCOME FROM THE OPERATIONS OF THE ASSESSEE WAS RS.313.53 CRORES AND WITH THE AVAILABILITY OF OTHER INTEREST FREE FUNDS WITH THE ASSESSEE THE AMOUNT AVAILABLE FOR INVESTMENTS OUT OF ITS OW N FUNDS WERE TO THE TUNE OF RS.398.19 CRORES. IN VIEW THEREOF, IT WAS SUBMITTED THAT FROM THE ANALYSIS OF THE BALANCE - SHEET, THE ASSESSEE HAD ENOUGH INTEREST FREE FUNDS AT ITS DISPOSAL THE BALANCE - SHEET, THE ASSESSEE HAD ENOUGH INTEREST FREE FUNDS AT ITS DISPOSAL FOR MAKING THE INVESTMENTS. THE CIT (APPEALS) ON EXAMINING THE SAID M ATERIAL, AGREED WITH THE CONTENTION OF THE ASSESSEE AND ACCORDINGLY DELETED THE ADDITION MADE BY THE ASSESSING OFFICER AND DIRECTED HIM TO ALLOW THE SAME UNDER THE PROVISIONS OF THE INCOME TAX ACT, 1961. THE REVENUE BEING AGGRIEVED BY THE ORDER PREFERRED A N APPEAL BEFORE THE ITAT WHO UPHELD THE ORDER OF THE CIT (APPEALS) AND DISMISSED THE APPEAL OF THE REVENUE. FROM THE ORDER OF THE ITAT, THE REVENUE APPROACHED THIS COURT BY WAY OF AN APPEAL. AFTER EXAMIN ING THE ENTIRE FACTUAL MATRIX OF THE MATTER AND THE L AW ON THE SUBJECT, THIS COURT HELD AS UNDER: - IF THERE BE INTEREST - FREE FUNDS AVAILABLE TO AN ASSESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME TIME THE ASSESSEE HAD RAISED A LOAN IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM THE INTEREST - F REE FUNDS AVAILABLE. IN OUR OPINION, THE SUPREME COURT IN EAST INDIA PHARMACEUTICAL WORKS LTD. V. CIT (1997) 224 ITR 627 HAD THE OCCASION TO CONSIDER THE DECISION OF THE CALCUTTA HIGH COURT IN WOOLCOMBERS OF INDIA LTD. (1982) 134 ITR 219 WHERE A SIMILAR IS SUE HAD ARISEN. BEFORE THE SUPREME COURT IT WAS ARGUED THAT IT SHOULD HAVE BEEN PRESUMED THAT IN ESSENCE AND TRUE CHARACTER THE TAXES WERE PAID OUT OF THE PROFITS OF THE RELEVANT YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS AND IN THESE CIRCUMSTANCES THE APPELLANT WAS ENTITLED TO CLAIM THE DEDUCTIONS. THE SUPREME COURT NOTED THAT THE ARGUMENT HAD CONSIDERABLE FORCE, BUT CONSIDERING THE FACT THAT THE CONTENTION HAD NOT BEEN ADVANCED EARLIER IT DID NOT REQUIRE TO BE ANSWERED. IT T HEN NOTED THAT IN WOOLCOMBERS OF INDIA LTD.'S CASE (1982) 134 ITR 219 THE CALCUTTA HIGH COURT HAD COME TO THE CONCLUSION THAT THE PROFITS WERE SUFFICIENT TO MEET THE ADVANCE TAX LIABILITY AND THE PROFITS WERE DEPOSITED IN THE OVER DRAFT ACCOUNT OF THE ASSE SSEE AND IN SUCH A CASE IT SHOULD BE PRESUMED THAT THE TAXES WERE PAID OUT OF THE PROFITS OF THE YEAR AND ITA NO. 1170 /PN/20 1 4 THE MAHALAXMI CO - OP. BANK LTD. 11 NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS. IT NOTED THAT TO RAISE THE PRESUMPTION, THERE WAS SUFFICIENT MATERIAL AND THE ASSESS EE HAD URGED THE CONTENTION BEFORE THE HIGH COURT. THE PRINCIPLE, THEREFORE, WOULD BE THAT IF THERE WERE FUNDS AVAILABLE BOTH INTEREST - FREE AND OVER DRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST - FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY IF THE INTEREST - FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENT. IN THIS CASE THIS PRESUMPTION IS ESTABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE COMMISSIONER OF INCOME - TAX (APPEALS) AND THE INCOME - T AX APPELLATE TRIBUNAL. (EMPHASIS SUPPLIED ) 5. WE FIND THAT THE FACTS OF THE PRESENT CASE ARE SQUARELY COVERED BY THE JUDGMENT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. (SUPRA). THE FINDING OF FACT GIVEN BY THE ITAT IN THE PRESENT CASE IS THAT THE ASSESSEE'S OWN FUNDS AND OTHER NON - INTEREST BEARING FUNDS WERE MORE THAN THE INVESTMENT IN THE TAX - FREE SECURITIES. THIS FACTUAL POSITION IS NOT ONE THAT IS DISPUTED. IN THE PRESENT CASE, UNDISPUTEDLY THE ASSESSEE'S CAPITAL, PROFIT RESERVES, SURPLUS AND C URRENT ACCOUNT DEPOSITS WERE HIGHER THAN THE INVESTMENT IN THE TAX - FREE SECURITIES. IN VIEW OF THIS FACTUAL POSITION, AS PER THE JUDGMENT OF THIS COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. (SUPRA), IT WOULD HAVE TO BE PRESUMED THAT THE INVESTME NT MADE BY THE ASSESSEE WOULD BE OUT OF THE INTEREST - FREE FUNDS AVAILABLE WITH THE ASSESSEE. WE THEREFORE, ARE UNABLE TO AGREE WITH THE SUBMISSION OF MR SURESH KUMAR THAT THE TRIBUNAL HAD ERRED IN DISMISSING THE APPEAL OF THE REVENUE ON THIS GROUND. WE DO NOT FIND THAT QUESTION (A) GIVES RISE TO ANY SUBSTANTIAL QUESTION OF LAW AND IS THEREFORE REJECTED. 6. EVEN AS FAR AS QUESTION (B) IS CONCERNED, WE FIND NO INFIRMITY IN THE ORDERS PASSED BY THE CIT (APPEALS) OR THE ITAT. IN DECIDING THIS ISSUE, CIT (APPEA LS) AND THE ITAT HAVE MERELY FOLLOWED THE JUDGMENT OF THIS COURT IN THE CASE OF AMERICAN EXPRESS INTERNATIONAL BANKING CORPORATION V/S COMMISSIONER OF INCOME TAX, REPORTED IN (2002) 258 ITR 601. ON GOING THROUGH THE SAID INCOME TAX, REPORTED IN (2002) 258 ITR 601. ON GOING THROUGH THE SAID JUDGMENT, WE FIND THAT QUESTION (B) REPRODUCED ABOVE AND PROJECTED AS SUBSTANTIAL BY MR SURESH KUMAR IS SQUARELY ANSWERED BY THE JUDGMENT OF THIS COURT IN THE CASE OF AMERICAN EXPRESS INTERNATIONAL BANKING CORPORATION (SUPRA). IN VIEW THEREOF, WE DO NOT FIND THAT EVEN QUESTION (B) GIVES RIS E TO ANY SUBSTANTIAL QUESTION OF LAW THAT NEEDS TO BE ANSWERED BY THIS COURT. 7. 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 JUDGEMENT DATED 4TH JULY , 2014 IN INCOME TAX APPEAL NO.1079 OF 2012, COMMISSIONER OF INCOME TAX - 2 V/S M/S LORD KRISHNA BANK LTD. (NOW MERGED WITH HDFC BANK LTD.). MR SURESH KUMAR FAIRLY STATED THAT QUESTION (C) REPRODUCED ABOVE IS COVERED BY THE SAID ORDER. IN VIEW THEREOF, WE AR E OF THE VIEW THAT EVEN QUESTION (C) DOES NOT RAISE ANY SUBSTANTIAL QUESTION OF LAW THAT REQUI RES AN ANSWER FROM US. 1 1 . FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT THE ASSESSEE IS ENTITLED TO THE CLAIM OF DEDUCTION ON ACCOUNT OF AMORTIZATION OF PREMIUM PAID ON GOVERNMENT SECURITIES HELD IN HTM CATEGORY. REVERSING THE ORDER OF CIT(A), WE ALLOW THE GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE . 12. THE ISSUE IN GROUND OF APPEAL NO.3 RAISED BY THE ASSESSEE IS IN RELATION TO THE TREATMENT OF INTERE ST INCOME ARISING ON NON - PERFORMING ASSETS (NPAS). ITA NO. 1170 /PN/20 1 4 THE MAHALAXMI CO - OP. BANK LTD. 12 13. BRIEFLY, IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE IS A COOPERATIVE BANK ENGAGED IN THE BUSINESS OF BANKING. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASSES SEE HAD NOT CREDITED THE INTEREST RECEIVABLE OR ACCRUED ON NON - PERFORMING ASSETS (REFERRED TO AS NPAS) TO ITS PROFIT & LOSS ACCOUNT FOR THE CAPTIONED ASSESSMENT YEAR. THE CLAIM OF THE ASSESSEE IN THIS REGARD WAS THAT IN VIEW OF RBI GUIDELINES, THE SAID IN TEREST INCOME ON NPAS WAS TO BE RECOGNIZED, BUT NOT TO BE OFFERED TO TAX. HOWEVER, THE ASSESSING OFFICER WAS OF THE VIEW THAT WHERE THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THE INTEREST ACCRUED ON NPAS IS TO BE ADDED IN THE HANDS OF ASS ESSEE AND ADDITION TO THAT EXTENT WAS MADE IN THE HANDS OF ASSESSEE. 1 4 . THE CIT(A) UPHELD THE ORDER OF ASSESSING OFFICER , AGAINST WHICH THE ASSESSEE IS IN APPEAL. 1 5 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE AT THE OUTSET POINTED OUT THAT THE ISSUE RAISED IN THE PRESENT APPEAL IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009 - 10. 1 6 . WE FIND THAT SIMILAR ISSUE AS BEFORE US AROSE IN KOLHAPUR MAHILA SAHAKARI BANK LTD. VS. I TO IN ITA NO.01/PN/2013, RELATING TO ASSESSMENT YEAR 2009 - 10, VIDE ORDER DATED 29.01.2014. THE TRIBUNAL IN TURN FOLLOWING THE RATIO LAID DOWN BY THE PUNE BENCH OF TRIBUNAL IN ACIT VS. OSMANABAD JANTA SAHAKARI BANK LTD. IN ITA NO.795/PN/2011, ORDER DATED 3 1.08.2012, HELD AS UNDER: - 2. THE ASSESSEE IS A CO - OPERATIVE BANK ENGAGED IN THE BUSINESS OF ACCEPTING DEPOSITS FROM MEMBERS AND GIVING LOANS TO MEMBERS. IT HAS FILED ITS RETURN OF INCOME ON 11.09.2009 FOR THE YEAR UNDER CONSIDERATION DECLARING TOTAL INC OME AT 14,57,840/ - . IN THE SCRUTINY ASSESSMENT, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD NOT CREDITED INTEREST RECEIVABLE OR ACCRUED ON ITA NO. 1170 /PN/20 1 4 THE MAHALAXMI CO - OP. BANK LTD. 13 NON - PERFORMING ASSETS (HEREINAFTER REFERRED TO AS NPA) TO ITS PROFIT AND LOSS ACCOUNT FOR FINANCIAL YEAR 20 08 - 09. THE ASSESSING OFFICER AFTER REJECTING THE VARIOUS CONTENTIONS OF THE ASSESSEE HAS HELD THAT THE RBI GUIDELINES ARE NOT INTENDED TO REGULATE THE INCOME TAX LAW AND THE ASSESSEE WAS LIABLE TO BE ASSESSED ON ACCRUAL BASIS U/S.5 OF I.T. ACT FOR THE REA SONS (I) BENEFITS EXTENDED TO SCHEDULE BANK, PUBLIC FINANCIAL INSTITUTIONS, PUBLIC COMPANIES FOR THE PURPOSE OF SECTION 43D WERE NOT EXTENDED TO A CO - OPERATIVE BANK AND (II) THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND NOT CASH SYSTEM. U LTIMATELY THE ASSESSING OFFICER TAXED ON ACCRUED INTEREST OF 25,20,022/ - ADVANCE CLAIMED TO BE NPA ACCOUNT. THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY WHEREIN, FOLLOWING THE OSMANABAD JANTA SAHAKARI BANK LTD. IN ITA NO.795/PN/2011, THE CIT(A) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND THE SAME HAS BEEN OPPOSED BEFORE US ON BEHALF OF REVENUE. 2.1 AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND MATERIAL ON RECORD, WE FIND THAT IN OSMANABAD JANTA SAHAKARI BANK LTD. (SUPRA) THE TRIB UNAL HAS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE BY OBSERVING AS UNDER: 7. IN THE CASE BEFORE US, ADMITTEDLY, ASSESSEE HAS DIRECTLY TAKEN THE INTEREST TO THE BALANCE SHEET AND IT IS NOT ROUTED THROUGH THE PROFIT & LOSS ACCOUNT. MOREOVER, THE ISSUE OF T HE TAXABILITY OF THE INTEREST ON THE STICKY LOSSES/ADVANCES, IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE COORDINATE BENCHES IN THE CASE OF THE DURGA COOPERATIVE URBAN BANK LTD., VIJAYAWADA (SUPRA) AND KARNAVATI COOPERATIVE BANK LTD. (SUPRA) . WE FIND NO REASON TO INTERFERE WITH THE REASONED ORDER OF THE LD. CIT(A) AND ACCORDINGLY THE SAME IS CONFIRMED. IN THE RESULT, THE REVENUES GROUND IS DISMISSED. THE ABOVE DECISION HAS BEEN FOLLOWED IN (I) ACIT, CIRCLE - 3, NANDED V/S BHAGYALAXMI MAHIL A SAHAKAR BANK LTD. ITA NO.793/PN/2011, (II) ACIT, CIRCLE - 3 V/S SIDHESHWAR SAHAKARI BANK LTD. ITA NO.794/PN/2011, (III) ACIT (CENTRAL) V/S LATUR URBAN CO - OPERATIVE BANK LTD. ITA NO.792/PN/2011 AND (IV) ASST. V/S LATUR URBAN CO - OPERATIVE BANK LTD. ITA NO.792/PN/2011 AND (IV) ASST. CIT, CIRCLE - 1 V/S DEOGIRI NAGARI SAHAKARI BANK L TD. ITA NO.817 & 1114/PN/2011. 1 7 . FURTHER, THE HONBLE BOMBAY HIGH COURT IN CIT VS. (1) DEOGIRI NAGARI SAHAKARI BANK LTD. (INCOME TAX APPEAL NO.53 OF 2014), (2) PEOPLES CO - OPERATIVE BANK LTD. (INCOME TAX APPEAL NO.54 OF 2014), (3) NANDED DISTRICT CENTRA L CO - OP. BANK LTD. (INCOME TAX APPEAL NO.57 AND 58 OF 2014) AND (4) VASANTADADA NAGARI SAHAKARI BANK LTD. (INCOME TAX APPEAL NO.68 OF 2014) REPORTED IN (2015) 379 ITR 24 (BOM) HAS LAID DOWN THE PROPOSITION THAT THE INTEREST ACCRUED ON NPAS IS NOT TAXABLE I N THE HANDS OF ASSESSEE, IN VIEW OF THE GUIDELINES ISSUED BY THE RBI. 1 8 . FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT NO ADDITION IS WARRANTED ON ACCOUNT OF INTEREST ACCRUED ON NPAS. ACCORDINGLY, WE REVERSE ITA NO. 1170 /PN/20 1 4 THE MAHALAXMI CO - OP. BANK LTD. 14 THE ORDER OF CIT(A) IN THIS REGARD . THE GROUND OF APPEAL NO. 3 RAISED BY THE ASSESSEE IS THUS, ALLOWED . 1 9 . THE ISSUE IN GROUND OF APPEAL NO.4 IS AGAINST DISALLOWANCE OF LOSS OF RS. 41,70,140/ - ON ACCOUNT OF SALE OF AVAILABLE FOR SALE (AFS) SECURITIES . 20. BRIEFLY, IN THE FACTS RELATING TO THE ISSUE, THE ASSESSEE HAD MADE INVESTMENT IN IIBI DEEP DISCOUNT BOND . HOWEVER, IT WAS FOUND THAT THE SAID INVESTMENT WAS NOT SAFE AND RBI BY ITS REPORT ON STATUTORY INSPECTION REPORT DATED 15.03.2011 DIRECTED THE ASSESSEE BANK TO WRITE OFF ITS COST OF I NVESTMENT IN IIBI BONDS. THE COPY OF THE STATUTORY INSPECTION REPORT IS FILED AT PAGES 39 TO 47 OF THE PAPER BOOK. THE ASSESSEE AS ON 31.03.2011 MADE PROVISION OF RS. 1,30,01,542/ - TO ITS PROFIT & LOSS ACCOUNT TOWARDS INVESTMENT DEPRECIATION RESERVE (IDR) , WHICH CONSISTED OF AMOUNT ON ACCOUNT OF IIBI BONDS OF RS. 1,27,50,000/ - AND FOR OTHER AT RS. 2,51,542/ - . HOWEVER, BEFORE FILING THE RS. 1,27,50,000/ - AND FOR OTHER AT RS. 2,51,542/ - . HOWEVER, BEFORE FILING THE RETURN OF INCOME, IIBI BONDS WERE DISPOSED OF BY THE ASSESSEE FOR RS. 85,20,000/ - RESULTING INTO THE LOSS OF RS.42,30,000/ - . THE OTHER AFS SECURITIES HAD DEPRECIATED FULLY I.E. RS.2,51,542/ - AND HENCE, LOSS ON AFS SECURITIES WAS WORKED OUT AT RS. 44,81,542/ - . ANOTHER POINT NOTED BY THE AUDITOR IN TAX AUDIT REPORT THAT INTEREST OF RS. 3,11,403/ - HAD REMAINED TO BE CREDITED TO TH E PROFIT & LOSS ACCOUNT, THEREFORE, IN THE COMPUTATION OF INCOME, THE ASSESSEE CLAIMED NET LOSS OF RS. 41,70,140/ - . THE ASSESSING OFFICER HOWEVER, DISALLOWED THE LOSS CLAIMED BY THE ASSESSEE AT RS. 41,70,140/ - . 21. THE CIT(A) VIDE PARA 17 OBSERVED THAT THO UGH THE ASSESSEE HAD RAISED AN ISSUE AGAINST THE DISALLOWANCE OF LOSS ON SALE OF AFS SECURITIES AMOUNTING TO RS. 41,70,140/ - , BUT NO SUCH DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. THE CIT(A) ALSO OBSERVED THAT THE RETURN OF IN COME OF THE ASSESSEE FOR RS.1.70 CRORES AND THE ASSESSING OFFICER MADE ITA NO. 1170 /PN/20 1 4 THE MAHALAXMI CO - OP. BANK LTD. 15 ADDITION OF RS.3.27 CRORES ON ACCOUNT OF PROVISION DEBITED TO PROFIT & LOSS ACCOUNT, AMORTIZATION OF PREMIUM O N HTM SECURITIES, EXCESS PROVISION FOR BDDR AND ACCRUED INTEREST ON NPAS AN D ALSO DISALLOWANCE OF DEDUCTION UNDER SECTION 36(1)(VIII) OF THE ACT , HENCE, THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE WERE REJECTED. 22. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ISSUE HAS TO BE CONSIDERED WITH REGAR D TO THE PROVISION MADE IN THE PROFIT & LOSS ACCOUNT, BUT ON ACCOUNT OF THE AMOUNT CLAIMED AS NET LOSS IN THE COMPUTATION OF TOTAL INCOME FILED BY THE ASSESSEE. HE FURTHER POINTED OUT THAT IN VIEW OF THE VARIATION IN FIGURES I.E. WHEREIN THE ASSESSEE HAD MADE PROVISION OF RS.1.30 CRORES TOWARDS INVESTMENT DEPRECIATION RESERVE, AGAINST WHICH, IT HAD CLAIMED THE DEDUCTION IN THE COMPUTATION OF TOTAL INCOME ON ACCOUNT OF NET LOSS OF RS.41,70,140/ - , AN ERROR HAD CREPT IN THE ORDER OF CIT(A). IT WAS FURTHER PO INTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT THE PO INTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT THE ISSUE IN THE PRESENT APPEAL IS SQUARELY COVERED BY THE ORDER OF TRIBUNAL IN KA LLAPANNA AWADE ICHALKARANJI JANATA S AH. BANK LTD. VS. DCIT IN ITA NOS.1765 & 1766/PN/2013, RELATING T O ASSESSMENT YEARS 2007 - 08 & 2010 - 11 , ORDER DATED 20.05.2015 , WHEREIN THE TRIBUNAL HAD RELIED ON THE CBDT INSTRUCTION NO.17/2008 , DATED 26.11.2008 AND ALSO MADE REFERENCE TO CIRCUL AR NO. 665 , DATED 05.10.1993 FOR THE PROPOSITION THAT THE AFS INVESTMENTS WHI CH ARE NON - SLR CONSTITUTE STOCK - IN - TRADE AND THEREFORE, LOSS ARISING TO THE ASSESSEE WERE BUSINESS LOSS. 23. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, RELIED ON THE ORDERS OF AUTHORITIES BELOW. 24. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE RAISED BY THE ASSESSEE VIDE GROUND OF APPEAL NO.4 IS AGAINST THE DIS ALLOWANCE ITA NO. 1170 /PN/20 1 4 THE MAHALAXMI CO - OP. BANK LTD. 16 OF LOSS ON SALE OF AFS SECURITIES I.E. AVAILABLE FOR SALE SECURITIES. THE CASE OF THE ASSESSEE B EFORE US WAS THAT IT HAD MADE INVE STMENT IN IIBI BONDS TOTALING RS.1,27,50,000/ - . AS PER STATUTORY INSPECTION REPORT OF RBI, DATED 15.03.2011 , THE RBI DIRECTED THE ASSESSEE BANK TO WRITE OFF ITS COST OF INVESTMENT IN IIBI BONDS SINCE THE SAID INVESTMENT WAS FOUND TO BE NOT SAFE. THE ASSE SSEE FOR THE YEAR UNDER APPEAL HAD MADE A PROVISION TOWARDS INVESTMENT DEPRECIATION RESERVE (IDR) TOTALING RS.1.30 CRORES , WHICH CONSISTED OF WRITE OFF OF INVESTMENT IN IIBI BONDS OF RS.1.27 CRORES AND FOR OTHERS RS. 2,51,542/ - . HOWEVER, BEFORE FILING THE RETURN OF INCOME, IIBI BONDS HELD BY THE ASSESSEE WITH FACE VALUE OF RS.1.27 CRORES WERE SOLD FOR RS.85,20,000/ - , RESULTING IN LOSS OF RS. 42,30,000/ - . THE OTHER AFS SECURITIES HELD BY THE ASSESSEE HAD DEPRECIATED TOTALLY TO THE EXTENT OF RS. 2,51,542/ - , HE NCE, THE LOSS ON AFS SECURITIES WORKED OUT TO RS. 44,81,542/ - , AGAINST WHICH THE INTEREST OF RS. 3,11,403/ - , WHICH WAS NOT CREDITED BY THE ASSESSEE TO ITS PROFIT & LOSS ACCOUNT, WAS SET OFF AND THE NET LOSS OF RS. 41,70,140/ - WAS CLAIMED BY THE ASSESSEE IN TH E COMPUTATION OF TOTAL INCOME. 25. THE FIRST ISSUE ARISING BEFORE US IS WHETHER THE SAID LOSS ON AFS SECURITIES IS ALLOWABLE IN THE HANDS OF ASSESSEE. THE SAID ADDITION HAS BEEN MADE IN THE HANDS OF ASSESSEE BY ADDING BACK THE PROVISION DEBITED TO PROF IT & LOSS ACCOUNT OF RS.49,99,457/ - WHICH ALSO INCLUDED THE LOSS OF RS.41,70,140/ - . WE FIND THAT THE TRIBUNAL IN KALLAPANNA AWADE ICHALKARANJI JANATA SAH. BANK LTD. VS. DCIT (SUPRA) HAD CONSIDERED THE ISSUE OF ALLOWABILITY OF LOSS ARISING ON SALE OF HTM SECURITIES AND DEPRECIATION (LOSS ON SHIFTING OF AFS SECURITIES TO HTM SECURITIES) . FOLLOWING THE SAID PRINCIPLE LAID DOWN BY THE TRIBUNAL, LOSS ARISING ON ACCOUNT OF SALE OF AFS SECURITIES AS PER DIRECTIONS OF THE RBI IS ALLOWABLE IN THE HANDS OF ASSESS EE. ITA NO. 1170 /PN/20 1 4 THE MAHALAXMI CO - OP. BANK LTD. 17 26. THE SECOND ASPECT OF THE ISSUE RAISED BEFORE US IS THE OBSERVATION OF CIT(A) THAT NO SUCH ADDITION HAS BEEN MADE BY THE ASSESSING OFFICER. THE PERUSAL OF ASSESSMENT ORDER REFLECTS THAT WHILE COMPUTING THE ASSESSED INCOME IN THE HANDS OF ASSESSEE , THE ASSESSING OFFICER HAD DISALLOWED THE PROVISION DEBITED TO PROFIT & LOSS ACCOUNT OF RS. 49,99,457/ - WHICH COMPRISES OF PROVISION OF RS.41,70,140/ - . I N VIEW OF OUR ORDER , WE DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF DEDUCTION ON ACCOUNT OF LOS S OF RS. 41,70,140/ - ARISING ON SALE OF AFS INVESTMENTS. THE GROUND OF APPEAL NO.4 RAISED BY THE ASSESSEE IS THUS, ALLOWED. 2 7 . T HE ISSUE RAISED IN GROUND OF APPEAL NO.5 IS AGAINST THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF CONTRIBUTION TO EDUCATION FUND OF RS.30,000/ - . 2 8 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT EVERY COOPERATIVE SOCIETY IS REQUIRED TO CONTRIBUTE TO THE AFORESAID EDUCATION EVERY COOPERATIVE SOCIETY IS REQUIRED TO CONTRIBUTE TO THE AFORESAID EDUCATION FUND OF THE STATE GOVERNMENT AND THE SAME IS ALLOWABLE AS DEDUCTION. HOWEVER, THE ASSESSING OFFICER DENIED THE SAID CLAIM OF THE ASSESSEE AS THE ASSESSEE HAD MADE A PROVISION AND HAD NOT PAID THE SAID AMOUNT. THE CIT(A) CONFIRMED THE ORDER OF ASSESSING OFFICER AND OBSERVED THAT THERE IS NO MERIT IN THE CLAIM OF THE ASSESSEE SINCE T HE PROVISIONS OF SECTION 43B OF THE ACT ARE ATTRACTED. 2 9 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE SAID CLAIM IS ALLOWABLE IN THE HANDS OF ASSESSEE, IN VIEW OF DECISION OF HONBLE BOMBAY HIGH COURT IN KRISHNA SAHAKARI SAKHAR KARKHANA LTD. VS. CIT (1998) 229 ITR 577 (BOM) . 30 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. ITA NO. 1170 /PN/20 1 4 THE MAHALAXMI CO - OP. BANK LTD. 18 3 1 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE HONBLE BOMBAY HIG H COURT IN KRISHNA SAHAKARI SAKHAR KARKHANA LTD. VS. CIT (SUPRA) HAD CONSIDERED THE ISSUE OF ALLOWABILITY OF CONTRIBUTION MADE BY THE ASSESSEE AS BUSINESS EXPENDITURE, WHICH WAS BY VIRTUE OF SECTION 68 OF THE MAHARASHTRA CO - OPERATIVE SOCIE TIES ACT. THE AS SESSEE BEFORE US WAS COOPERATIVE SOCIETY AND HAD MADE THE CONTRIBUTION OF RS.30,000/ - TO THE EDUCATION FUND OF THE STATE FEDERAL SOCIETY IN LINE WITH THE REQUIREMENT OF SECTION 68 OF THE MAHARASHTRA CO - OPERATIVE SOCIETIES ACT. THE SAID CLAIM OF THE ASSESS EE WAS REJECTED BY THE ASSESSING OFFICER SINCE THE PAYMENT WAS MADE IN THE SUCCEEDING YEAR I.E. AFTER CLOSE OF THE YEAR AS ON 31.03.2011 . THE CLAIM OF THE ASSESSEE ON THE OTHER HAND, BEFORE US WAS THAT THE SAID SUM OF RS.30,000/ - RELATED TO THE FINANCIAL YEAR 2010 - 11 AS IS EVIDENT FROM THE COPY OF THE RECEIPT FILED AT PAGE 1 OF PAPER BOOK - II , THOUGH THE PAYMENT WAS MADE ON 25.04.2011 , WHICH RELATED TO 2011 - 12 AND HENCE, WAS ALLOWABLE IN THE HANDS OF THE ASSESSEE AS EXPENDITURE. WE FIND MERIT IN THE CLAIM OF THE ASSESSEE IN VIEW OF THE PROPOSITION LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN KRISHNA SAHAKARI SAKHAR KARKHANA LTD. VS. CIT (SUPRA) , WHEREIN SIMILAR EXPENDITURE CLAIMED BY THE ASSESSEE WAS HELD AS ALLOWABLE. WHERE THE ASSESSEE IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING, THE EXPENDITURE RELATABLE TO THE YEAR UNDER CONSIDERATION THOUGH NOT PAID IS TO BE ALLOWED IN THE HANDS OF ASSESSEE. FURTHER, THE PROVISIONS OF SECTION 43B OF THE ACT ARE NOT ATTRACTE D IN RESPECT OF SUCH PAYMENTS TO THE ST ATE AUTHORITIES. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE CONTRIBUTION OF RS.30,000/ - . THE GROUND OF APPEAL NO.5 RAISED BY THE ASSESSEE IS THUS, ALLOWED. 3 2 . THE ISSUE RAISED IN GROUND OF APPEAL NO.6 IS AGAINST THE DEDUCTION UNDER SECTI ON 36(1)(VIII) OF THE ACT OF RS.96,063/ - . ITA NO. 1170 /PN/20 1 4 THE MAHALAXMI CO - OP. BANK LTD. 19 3 3 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE AT THE OUTSET POINTED OUT THAT THE SAID ISSUE IS SQUARELY COVERED AGAINST THE ASSESSEE BY THE RATIO LAID DOWN BY THE PUNE BENCH OF TRIBUNAL IN SHREE SHARA DA SAHAKARI BANK LTD. VS. ITO (2015) 57 TAXMANN.COM 366 (PUNE TRIB . ) . 3 4 . THE ISSUE ARISING IN THE PRESENT APPEAL IS IN RELATION TO THE CLAIM OF DEDUCTION OF RS.96,063/ - UNDER SECTION 36(1)(VIII) OF THE ACT . THE ASSESSEE HAD FAILED TO CREATE A SPECIAL RESERVE IN ITS BOOKS OF ACCOUNT OUT OF ELIGIBLE PROFITS OF THE YEAR AND IN VIEW THEREOF, THE ASSESSEE WAS NOT ENTITLED TO THE CLAIM OF BENEFIT OF DEDUCTION UNDER SECTION 36(1)(VIII) OF THE ACT IN VIEW OF THE RATIO LAID DOWN BY THE PUNE BENCH OF TRIBUNAL IN SHREE SHARADA SAHAKARI BANK LTD. VS. ITO (SUPRA) , WHEREIN, IT WAS HELD AS UNDER: - 15. THE CASE OF THE ASSESSEE BEFORE US IS THAT ADMITTEDLY IT HAD NOT CREATED ANY RESERVE IN ITS BOOKS OF ACCOUNT BEFORE CLAIMING THE SAID DEDUCTION UNDER SECTION 36(1)(VIII ) OF THE ACT ON THE SURMISE THAT NO SUCH RESERVE IS TO BE CREATED IN VIEW OF WORDING OF THE SECTION. WE FIND NO MERIT IN THE SAID PLEA OF THE ASSESSEE IN VIEW OF THE SIMILAR WORDINGS IN SECTION 36(1)(VIIA) OF THE ACT THE ASSESSEE IN VIEW OF THE SIMILAR WORDINGS IN SECTION 36(1)(VIIA) OF THE ACT WHICH HAVE BEEN INTERPRETED BY THE HON BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF STATE BANK OF PATIALA VS. CIT (SUPRA) WHICH, IN TURN, HAS BEEN APPLIED BY THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF SHRI MAHALAXMI CO - OP. BANK LTD. VS. ITO (SUPRA). IN THE ABSENCE OF ANY RESERVE BEING CR EATED THE ASSESSEE IS NOT ENTITLED TO THE SAID CLAIM OF DEDUCTION UNDER SECTION 36(1)(VIII) OF THE ACT. THE SECOND ASPECT OF THE ISSUE IS THE PLEA OF THE ASSESSEE THAT IT SHOULD BE ALLOWED AN OPPORTUNITY TO CREATE THE SAID RESERVE IN ITS BOOKS OF ACCOUNT NOW. FROM THE PLAIN READING OF THE WORDINGS OF THE SECTION, IT IS CLEAR THAT RESERVE IS TO BE CREATED FROM THE PROFITS OF THE RELEVANT FINANCIAL YEAR I.E. OUT OF THE PROFITS DERIVED FROM THE ELIGIBLE BUSINESS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS, BEFORE CLAIMING ANY DEDUCTION UNDER THE SAID CLAUSE. IN VIEW OF THE CLEAR WORDING OF THE SECTION THAT WHERE IT IS PROVIDED THAT THE SPECIAL RESERVE IS TO BE CREATED AND MAINTAINED BY THE SPECIAL ENTITY FROM ITS PROFIT DERIVED FROM THE ELIGIBLE BUSINESS, THEN SUCH NON - CREATION OF SPECIAL RESERVE BY THE ASSESSEE CANNOT BE MADE GOOD BY CREATING ANY RESERVE ON A LATER DATE. THE BOOKS OF ACCOUNT OF THE ASSESSEE ARE ADMITTEDLY AUDITED AND IN THE ABSENCE OF ANY RESERVE BEING CREATED IN SUCH AUDITED BO OKS OF ACCOUNT, NO REMEDY IS AVAILABLE TO THE ASSESSEE TO CREATE SUCH A RESERVE ON A LATER DATE. THE FACTS IN THE CASE OF CIT VS. PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION (SUPRA) WERE DIFFERENT, WHEREIN THE ASSESSEE HAD ALREADY CREATED A RESERVE BE FORE CLAIMING THE DEDUCTION UNDER SECTION 36(1)(VIII) OF THE ACT. HOWEVER, THE ASSESSEE THEREIN WAS ENTITLED TO A HIGHER DEDUCTION UNDER SECTION 36(1)(VIII) OF THE ACT FOR WHICH OPPORTUNITY WAS GRANTED TO CREATE ADDITIONAL RESERVE. IN THE FACTS OF THE PRESENT CASE, TH ERE WAS NO RESERVE CREATED BY THE ASSESSEE AND IN THE ABSENCE OF SAME, WE FIND NO MERIT IN THE ALTERNATE PLEA RAISED BY THE ASSESSEE AND THE SAME IS DISMISSED. IN VIEW THEREOF, THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE DISMISSED. ITA NO. 1170 /PN/20 1 4 THE MAHALAXMI CO - OP. BANK LTD. 20 3 5 . WE FIND NO M ERIT IN THE CLAIM OF THE ASSESSEE. THE GROUND OF APPEAL NO. 6 RAISED BY THE ASSESSEE IS THUS, DISMISSED. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, PARTLY ALLOWED. 3 6 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOU NCED ON THIS 19 TH DAY OF FEBRU ARY , 201 6 . SD/ - SD/ - (PRADIP KUMAR KEDIA) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 19 TH FEBR UARY , 201 6 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE AP PELLANT ; 2. / THE RESPONDENT; 2. / THE RESPONDENT; 3. ( ) / THE CIT(A) , KOLHAPUR ; 4. / THE CIT - I / II, KOLHAPUR / CIT (CENTRAL), PUNE ; 5. , , , / DR A , ITAT, PUNE; / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE