Assistant Commissioner of Income tax, Mangalore V. M/s South Canara District Central Co.operative Bank Ltd, Mangalore

ITA 1266/BANG/2014

• Counselvise Citation: 126621114 RSA 2014
• Duration Of Justice: 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 31-08-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 13-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V RAJENDRA
• Assessee Lawyers: S RAMASUBRAMANIAN
• Keywords: Depreciation; Business expenditure; Charitable institution; Question of law; Bad and doubtful debts; Commercial expediency
• Section: 37(1); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.34/BANG/2014 ASSESSMENT YEAR : 2010-11 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1(1), MANGALORE. VS. M/S. SOUTH CANARA DISTRICT CENTRAL CO-OPERATIVE BANK LTD., SADASHIVA SAHAKARA SADANA, K.S. RAO ROAD, MANGALORE 575 002. PAN : AABAT 6621N APPELLANT RESPONDENT ITA NO.1266/BANG/2014 ASSESSMENT YEAR : 2011-12 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1(1), MANGALORE. VS. M/S. SOUTH CANARA DISTRICT CENTRAL CO-OPERATIVE BANK LTD., MANGALORE 575 002. PAN : AABAT 6621N APPELLANT RESPONDENT REVENUE BY : SHRI V. RAJENDRA, CIT(DR) ASSESSEE BY : SHRI S. RAMASUBRAMANIAN, CA DATE OF HEARING : 31.08.2015 DATE OF PRONOUNCEMENT : 04.09.2015 ITA NOS. 34 & 1266/BANG/2014 PAGE 2 OF 29 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER ITA NO.34/B/14 IS AN APPEAL BY THE REVENUE AGAINS T THE ORDER DATED 16.8.2013 OF THE CIT(APPEALS), MYSORE RELATIN G TO ASSESSMENT YEAR 2010-11. 2. GROUND NO. 1 IS GENERAL IN NATURE AND CALLS FOR NO ADJUDICATION. GROUND NOS. 2 & 3 READS AS FOLLOWS:- 2. THE LEARNED CIT(A) OUGHT TO HAVE UPHELD THE DEC ISION OF THE ASSESSING OFFICER IN RESPECT OF THE ADDITION MA DE IN THE CASE OF INTEREST INCOME ON ACCOUNT OF METHOD OF ACCOUNTI NG FOLLOWED BY THE ASSESSEE AS THE ASSESSEE HAS NEITHER FOLLOWE D MERCANTILE NOR CASH SYSTEM BUT FOLLOWED HYBRID SYSTEM. BY VIRT UE OF THE PROVISIONS OF SECTION 145 OF THE INCOME TAX ACT, TH E ASSESSEE IS REQUIRED TO FOLLOW EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING TO COMPUTE THE REAL INCOME. NO ADJUSTMENT COULD BE MADE TO THE INCOME ASSESSED ON ACCRUAL BASIS. 3. THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADD ITION ON ACCOUNT OF INTEREST ON NON PERFORMING ASSETS AS THE ASSESSEE HAS ALREADY IDENTIFIED AND ACCOUNTED THE INTEREST ON NP AS AND AS SUCH IT CAN BE CLEARLY HELD THAT THIS INTEREST ON N PAS HAS ALSO ACCRUED TO THE ASSESSEE AS ON 31-03-2010 AND IS TAX ABLE. THE LEARNED CIT(A) HAS RELIED UPON THE DECISION OF HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS CAN FIN HOMES LTD (2011) 5 TAX CORP (DT) 49593, REPORTED IN 347 ITR 3 82 ON THIS ISSUE DESPITE THE FACT THAT THE DEPARTMENT HAS CHAL LENGED THIS DECISION BEFORE THE HONBLE SUPREME COURT AND THE S LP IS PENDING IN THIS CASE. 3. THE ASSESSEE IS A COOPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING AND PROVIDING CREDIT FACILITIES TO ITS MEMB ERS. IN THE COURSE OF ITA NOS. 34 & 1266/BANG/2014 PAGE 3 OF 29 ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTIC ED THAT THE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE WAS MERCANTILE SYSTEM OF ACCOUNTING. THE AO FURTHER NOTICED THAT THE ASSES SEE HAD ACCOUNTED INTEREST INCOME ON ACCRUAL AS WELL AS CASH BASIS AS FOLLOWS:- 4. THOUGH IN THE BOOKS OF ACCOUNTS THE ASSESSEE HAD ACCOUNTED FOR INCOME RECEIVABLE ON STANDARD LOANS AND INTEREST RE CEIVABLE ON NON- PERFORMING ASSETS (NPA), IN THE RETURN OF INCOME TH E ASSESSEE DID NOT OFFER THE AFORESAID SUMS TO TAX ON THE GROUND THAT THE SAME WILL BE OFFERED TO TAX ONLY WHEN RECEIVED. ACCORDING TO THE AO, AS PER PROVISIONS OF SECTION 145(1) OF THE ACT, THE ASSESSEE CANNOT FOLL OW MIXED SYSTEM OF ACCOUNTING I.E., BOTH CASH AS WELL AS MERCANTILE SY STEMS. HE WAS THEREFORE OF THE VIEW THAT THE ASSESSEE OUGHT TO HAVE ACCOUNT ED FOR INTEREST RECEIVABLE ON STANDARD LOANS AS WELL AS INTEREST RE CEIVABLE ON NON- PERFORMING ASSETS (NPA) TO TAXATION ON MERCANTILE S YSTEM OF ACCOUNTING. HE ACCORDINGLY BROUGHT TO TAX A SUM OF RS.19,05,85, 839 TO TAX TOWARDS INTEREST ACCRUED TO THE ASSESSEE ON THE MERCANTILE SYSTEM OF ACCOUNTING. ITA NOS. 34 & 1266/BANG/2014 PAGE 4 OF 29 5. AGGRIEVED BY THE AFORESAID ORDER OF THE AO, THE ASSESSEE FILED APPEAL BEFORE THE CIT(APPEALS). 6. BEFORE THE CIT(A), THE ASSESSEE PLACED RELIANCE ON THE DECISION OF THE HONBLE HIGH COURT OF KARNATAKA IN CIT V. CANFIN HOMES, 347 ITR 382 (KARN) WHEREIN IT WAS HELD THAT ONCE A PARTICULAR ASSET I S SHOWN TO BE A NPA, THEN IT DOES NOT YIELD ANY REVENUE. WHEN THER E IS NO YIELD OF REVENUE, THERE WAS NO QUESTION OF ANY ACCRUAL OF IN COME UNDER THE MERCANTILE SYSTEM OF ACCOUNTING. FOLLOWING THE AFO RESAID DECISION, THE CIT(APPEALS) WAS OF THE VIEW THAT INTEREST ON NPA T O THE EXTENT OF RS.16.89 LAKHS CANNOT BE BROUGHT TO TAX. 7. AGGRIEVED BY THE ORDER OF CIT(APPEALS), THE REVE NUE HAS RAISED GROUNDS 2 & 3 BEFORE THE TRIBUNAL. 8. AS CAN BE SEEN FROM THE GROUNDS RAISED, THE REVE NUE DOES NOT DISPUTE THE PROPOSITION OF LAW LAID DOWN BY THE HON BLE HIGH COURT OF KARNATAKA IN CANFIN HOMES (SUPRA) AND THE FACT THAT THE SAID RATIO IS APPLICABLE TO THE CASE OF THE ASSESSEE. THE ONLY G RIEVANCE OF THE REVENUE APPEARS TO BE THAT A SLP HAS BEEN FILED AGAINST THE DECISION OF THE HONBLE HIGH COURT AND THEREFORE THE ISSUE IS BEING AGITATE D BEFORE THE TRIBUNAL. WE ARE OF THE VIEW THAT IN LIGHT OF THE PRONOUNCEME NT OF HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CANFIN HOMES (SUPRA) , THERE CAN BE NO QUESTION OF ACCRUAL OF INCOME ON NPA AND THEREFORE EVEN UNDER THE MERCANTILE SYSTEM OF ACCOUNTING, IT CANNOT BE SAID THAT INCOME HAS ACCRUED ITA NOS. 34 & 1266/BANG/2014 PAGE 5 OF 29 OR ARISEN TO THE ASSESSEE. THE FACT THAT THE REVEN UE HAS PREFERRED SLP AGAINST THE DECISION OF THE HONBLE HIGH COURT CANN OT BE A GROUND TO TAKE ANY DIFFERENT VIEW ON THE ISSUE. WE THEREFORE UPHO LD THE ORDER OF CIT(APPEALS) AND DISMISS GROUND NOS.2 & 3. 9. GROUND NO.4 READS AS FOLLOWS:- THE LD. CIT(APPEALS) OUGHT TO HAVE UPHELD THE DECI SION OF THE ASSESSING OFFICER IN DISALLOWING THE EXPENSES RELAT ING TO EARLIER YEARS. AS THE ASSESSEE IS FOLLOWING MERCANTILE SYST EM OF ACCOUNTING ACCORDING TO WHICH THE ACTUAL CLAIM ON P AYMENT BASIS MADE BY THE ASSESSEE WHICH DOES NOT PERTAIN TO THE PREVIOUS YEAR RELEVANT TO THE A.Y.2010-11 BUT IT PERTAINS TO THE A.Y.2009-10 CANNOT BE CLAIMED ON PAYMENT BASIS DURING THE A.Y.2 010-11. THE SAID EXPENSES SHOULD HAVE BEEN CLAIMED IN THE A.Y.2 009-10. 10. AS WE HAVE ALREADY SEEN, THE ASSESSEE IS A COOP ERATIVE SOCIETY ENGAGED IN THE BUSINESS OF PROVIDING CREDIT FACILIT IES TO ITS MEMBERS. ON GOING THROUGH THE ACCOUNTS, IT WAS NOTICED BY THE A O THAT THE ASSESSEE HAS MADE A CLAIM FOR DEDUCTION WHILE COMPUTING INCOME O F RS,6,16,00,000/- UNDER THE HEAD PROVISION FOR NABARD SUB-VENATION TO PACS. THIS CLAIM WAS MADE VIDE SCHEDULE 20 - OTHER EXPENSES - TO THE P&L ACCOUNT FOR THE YEAR ENDING 31.3.2010. THE ASSESSEE WAS ASKED TO EX PLAIN THE SAME AND JUSTIFY THE CLAIM. 11. IN REPLY DATED 14.08.2012, THE ASSESSEE STATED AS UNDER:- THE CLAIM FOR INTEREST SUB-VENTION OF 2% FRONT THE CENTRAL GOVT. IS ALSO LIKE IN INTEREST SUBSIDY FROM THE STATE GOV T. IT IS PREPARED AT THE MEMBER PACS LEVEL. THIS CLAIM IS INCLUSIVE OF BANK ITA NOS. 34 & 1266/BANG/2014 PAGE 6 OF 29 FUNDING AND OWN FUNDING OF THE PACS. THE CENTRAL GO VT. MAKES THE PAYMENT OF THIS INTEREST SUB-VENTION TO THE BAN K THROUGH APEX BANK. THE BANK HAS RECEIVED INTEREST SUB-VENTI ON OF RS. 2,60,13,000/- FROM THE CENTRAL GOVT. FOR THE FINANC IAL YEAR 2009- 10. THE BANK HAS MADE A PAYMENT OF RS. 6,34,81,506 /- TO THE PACS AS PER THE CLAIM FROM THE MEMBER LEVEL. RS. 2, 60,13,000/- (INCLUSIVE OF BOTH INTEREST SUBSIDY ON BANK FUNDING AND OWN FUNDS OF PACS) WAS RECEIVED FROM THE CENTRAL GOVT., ON 28.01.2011 AND THE BANK HAS PAID A SUM OF RS. 6,34, 81,506/- TO THE PACS ON THE SAME DAY. THE DIFFERENCE OF RS. 3,7 4,68,506/- (RS. 6,34,81,506 RS. 2,60,13,000) IS AN EXPENDITU RE TO THE BANK. THIS LIABILITY WAS ASCERTAINED DURING THE YEA R 2009-10. OUT OF THIS ASCERTAINED LIABILITY, THE BANK HAS MADE A PROVISION FOR RS. 1,99,29,238/- UNDER THE HEAD PROVISION FOR NABARD S UBVENTION TO PACS IN THE INCOME & EXPENDITURE A/C UNDER THE H EAD OTHER EXPENDITURE ON 31.03.2010. 12. FROM THE EXPLANATION FILED BY THE ASSESSEE, THE AO WAS OF THE VIEW THAT IT WAS VERY CLEAR THAT THERE WAS LIABILITY OF THE BANK TO PAY A SUM OF RS.7,08,43,762/- TO THE PACS TOWARDS INTEREST SUB-V ENTION DUE FROM CENTRAL GOVERNMENT CALCULATED AT 2% ON THE SHORT TE RM AGRICULTURAL LOANS ADVANCED BY THE BANK AND ALSO INTEREST SUB-VENTION ON OWN FUNDING OF PACS. THIS LIABILITY IS FOR THE FINANCIAL YEAR 2008 -09 RELEVANT TO THE ASST. YEAR 2009-10. THE ASSESSEE HAS RECEIVED A SUM RS.2, 91,73,000/- OUT OF THE ABOVE REFERRED RS. 7,08,43,762/- IN THE FINANCI AL YEAR 2009-10. THE BALANCE AMOUNT OF RS. 4,16,70,762/- WAS CLAIMED, BY THE ASSESSEE AS ACTUAL EXPENDITURE MADE TO THE PACS DURING THE F.Y. 2009-10 I.E. A.Y. 2010-11. FROM THE ABOVE, IT IS CLEAR THAT THE ACTUA L CLAIM ON PAYMENT BASIS MADE BY THE ASSESSEE AMOUNTING TO RS. 4,16,70,762/- DOES NOT PERTAIN TO ITA NOS. 34 & 1266/BANG/2014 PAGE 7 OF 29 THE PREVIOUS YEAR RELEVANT TO THE ASST. YEAR 2010-1 1. THESE EXPENDITURES PERTAINS TO PRIOR PERIOD I.E., FOR THE ASST. YEAR 2 009-10. 13. IN VIEW OF THE ABOVE AND ALSO CONSIDERING THE F ACT THT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, ACCOR DING TO THE AO, THE EXPENSES CANNOT BE CLAIMED ON PAYMENT BASIS IN THE AY 2010-11 AND THE SAME SHOULD HAVE BEEN CLAIMED IN THE ASST. YEAR 200 9-L0. ACCORDINGLY, A SUM OF RS. 4,16,70,762/- WAS DISALLOWED AND ADDED T O THE TOTAL INCOME OF ASSESSEE. 14. THE CIT(APPEALS) OBSERVED THAT THE ASSESSEE HAS MADE A CLAIM OF RS. 6,16,00,000/- UNDER THE HEAD PROVISION OF NABAR D SUB-VENTION TO PACS. THIS IS BASICALLY A SUBSIDY GIVEN BY NABARD O N THE ADVANCES MADE TO PRIMARY AGRICULTURAL CO-OPERATIVE SOCIETIES (PACS). NABARD HAS FRAMED CERTAIN SCHEMES WHERE, IT CHARGES LOAN AT CO NCESSIONAL RATE ON AGRICULTURAL LOANS GRANTED TO TARGETED SECTIONS OF AGRICULTURISTS. AS PER THE SCHEME, INITIALLY THE BANKS ARE REQUIRED TO CHARGE THE NORMAL RATE OF INTEREST. AFTER THE YEAR END, THE PRIMARY AGRICULTU RAL CO-OPERATIVE SOCIETIES (PAC) WOULD SUBMIT A CLAIM FOR INTEREST SUB-VENTION . BASED ON THIS CLAIM AND AFTER APPROVAL OF NABARD, THE ASSESSEE BANK HAS TO MAKE THE INTEREST SUBVENTION PAYMENTS TO PACS. THE ASSESSEE ACCOUNTS FOR THE INTEREST SUBVENTION ONLY IN THE YEAR IN WHICH THE C LAIMS HAVE BEEN MADE. IT WAS OBSERVED BY THE AO THAT THE ASSESSEE WAS LIABLE TO PAY A SUM OF RS. 7,08,43,762/- AT 2% TO PACS WHICH IS A LIABILITY PE RTAINING TO AY 2009-10. ITA NOS. 34 & 1266/BANG/2014 PAGE 8 OF 29 THE ASSESSEE HAS RECEIVED A SUM OF RS. 2,91,73,000 /- OUT OF THE ABOVE REFERRED AMOUNT IN THE 2009-10 RELEVANT TO THE AY 2 010-11, THE BALANCE AMOUNT OF RS. 4,16,70,762/- WAS CLAIMED BY THE APPE LLANT AS ACCRUED EXPENDITURE DURING THE AY 2010-11. 15. BEFORE THE CIT(APPEALS), IT WAS ARGUED BY THE A SSESSEE THAT THE LIABILITY ARISES ONLY WHEN THE CLAIMS ARE MADE BY P ACS. THE PACS HAVE TO VERIFY THE ELIGIBILITY AND SUBMIT THEIR BILLS TO TH E ASSESSEE. AFTER SCRUTINY BY THE ASSESSEE, THE PAYMENTS ARE MADE. HENCE, IT WAS SUBMITTED THAT THOUGH THE BASIS OF ARRIVING AT THE EXPENDITURE IS THE DIS BURSEMENT OF LOANS, IN THE EARLIER YEARS, THE QUANTUM OF EXPENDITURE AND ALSO THE LIABILITY ARISES IN THE SUBSEQUENT YEAR BASED ON THE ANNOUNCEMENT OF SCHEME BY NABARD AND ALSO THE PERCENTAGE APPROVED BY NABARD. HENCE, THIS IS EXPENDITURE PERTAINING TO CURRENT YEAR AND NOT EARLIER YEARS. R ELIANCE WAS PLACED ON THE DECISION OF HONBLE CHHATTISGARH HIGH COURT IN CIT VS. BEEKAY ENGINEERING CORPORATION 323 ITR 252, WHEREIN IT WAS HELD THAT THE EXPENDITURE IS TO BE DEDUCTED IN THE YEAR IN WHICH THE BILLS ARE RECEIVE D. 16. FURTHER, RELYING ON THE DECISION OF HONBLE DEL HI HIGH COURT IN CIT VS. JAGATJIT INDUSTRIES LTD 339 ITR 382 , IT WAS ARGUED THAT THE METHOD OF ACCOUNTING CONSISTENTLY FOLLOWED IN RESPECT OF THIS EXPENDITURE SHOULD NOT BE DISTURBED. 17. THE LD. CIT(APPEALS) FOUND STRENGTH IN THE ARGU MENT OF THE ASSESSEE THAT THOUGH THE BASIS OF CALCULATION FOR ARRIVING A T THE EXPENDITURE IS BASED ITA NOS. 34 & 1266/BANG/2014 PAGE 9 OF 29 ON THE DISBURSEMENT OF LOANS TO TARGETED SECTIONS O F AGRICULTURISTS, THE LIABILITY FOR THE SAME ARISES IN THE YEAR OF RAISIN G OF BILLS BY PACS WHICH HAPPENS IN THE SUBSEQUENT YEARS COUNTING THE DISBUR SEMENT UPTO THE YEAR END. HENCE, HE HELD THAT IT WAS THE EXPENDITURE REL ATABLE TO PREVIOUS YEAR AND ACCORDINGLY DIRECTED THE AO TO ALLOW THE SAME. 18. AGGRIEVED BY THE ORDER OF CIT(APPEALS), THE REV ENUE HAS RAISED GROUND NO.4 BEFORE THE TRIBUNAL. 19. WE HAVE HEARD THE SUBMISSIONS OF THE LD. DR, WH O RELIED ON THE ORDER OF ASSESSING OFFICER. THE LD. COUNSEL FOR T HE ASSESSEE RELIED ON THE ORDER OF CIT(APPEALS). 20. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO T HE RIVAL SUBMISSIONS. IT IS CLEAR FROM THE FACTS AS IT EMANATES FROM THE RECORD THAT ANNOUNCEMENT OF SCHEMES BY NABARD HAPPENED DURING THE PREVIOUS Y EAR. THEREFORE ACCRUAL OF LIABILITY AS FAR AS ASSESSEE IS CONCERNE D IS ONLY WHEN SUBVENTION PERCENTAGE IS ANNOUNCED BY NABARD. TILL SUCH TIME, THE ASSESSEES LIABILITY CANNOT BE SAID TO HAVE ACCRUED. SINCE LI ABILITY RELATES TO THE PREVIOUS YEAR IN WHICH SUBVENTION IS ANNOUNCED BY N ABARD, WE ARE OF THE VIEW THAT ACCRUAL OF LIABILITY OCCURS ONLY WHEN THE SUBVENTION PERCENTAGE IS ANNOUNCED BY NABARD AND IT IS ONLY THEREAFTER THAT THE ASSESSEE CAN KNOW WHAT IS THE LIABILITY ON ACCOUNT OF SUB-VENTIO N THAT IT HAS TO BEAR. IN THAT VIEW OF THE MATTER WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A). WE THEREFORE CONFIRM THE ORDER OF THE CIT(APPEALS) AND DISMISS GROUND NO.4. ITA NOS. 34 & 1266/BANG/2014 PAGE 10 OF 29 21. GROUND NOS. 5 TO 8 RAISED BY THE REVENUE READS AS FOLLOWS:- 5. THE LEARNED CIT(A) OUGHT TO HAVE UPHELD THE DEC ISION OF THE ASSESSING OFFICER TOWARDS ADDITIONS MADE ON ACC OUNT OF NON- BUSINESS EXPENDITURE AS THIS EXPENDITURE IS INCURRE D AS PER THE DIRECTIONS OF ITS CONTROLLING AUTHORITY AND NO DOCU MENTARY EVIDENCE WAS FURNISHED BEFORE THE A.O. TO PROVE TO HIS SATISFACTION THAT ON ACCOUNT OF THIS EXPENDITURE, T HE ASSESSEE DERIVED CERTAIN INCOME OR BENEFITS. 6. THE LD. CIT(APPEALS) HAS RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF SIR VENKATA SATHYANARAYANA RICE MILLS VS CIT (223) ITR 101. THE LD. CIT(APPEALS) HAS FAILED TO APPRECIATE THAT THE FACT S AND CIRCUMSTANCES OF THE QUOTED CASE ARE DIFFERENT FOR THE INSTANT CASE. 7. LD.CIT(APPEALS) HAS RELIED ON THE DECISION OF T HE HONBLE MADRAS HIGH COURT IN CIT VS VELUMANICKAM LODGE (317 ) ITR 338. THE LD. CIT(APPEALS) HAS FAILED TO APPRECIATE THAT THE FACTS AND CIRCUMSTANCES OF THE QUOTED CASE ARE DIFFERENT FOR THE INSTANT CASE. 8. LD.CIT(APPEALS) RELIED ON THE DECISION OF HONB LE RAJASTHAN HIGH COURT IN ADDL. COMMISSIONER OF INCOM E TAX VS RAJASTHAN SPINNING AND WEAVING MILLS LTD. 274 ITR 4 65. THE LD. CIT(APPEALS) HAS FAILED TO APPRECIATE THAT THE FACTS AND CIRCUMSTANCES OF THE QUOTED CASE ARE DIFFERENT FOR THE INSTANT CASE. 22. ON GOING THROUGH THE ASSESSEES CLAIM OF OTHER EXPENDITURE AMOUNTING TO RS.2,81,57,340/-, THE AO NOTICED THAT THE ASSESSEE HAS MADE PAYMENTS OF RS. 6,51,200/- EACH FOR SIX MONTHS AND RS. 9,11,000/- EACH FOR THE REMAINING SIX MONTHS DURING THE FINANCIAL YEAR RELEVANT TO THE ASST. YEAR 2010-11 TO M/S NAVODAYA GRAMA VIKASA CHARITABL E TRUST WITH A DESCRIPTION NGVCT ANIMATOR SALARY. ITA NOS. 34 & 1266/BANG/2014 PAGE 11 OF 29 23. WHEN THE ASSESSEE WAS ASKED TO EXPLAIN HOW THIS EXPENDITURE IS AN ALLOWABLE EXPENDITURE UNDER THE ACT, THE ASSESSEE I N HIS LETTER DATED 05.02.2013 STATED AS UNDER:- WE HAVE BEEN ASKED TO PROVIDE THE DETAILS OF THE A MOUNTS PAID TO NAVODAYA GRAMA VIKAS CHARITABLE TRUST (REGD) AND DEBITED TO OTHER EXPENDITURE ACCOUNT. NAVODAYA GRAMA VIKAS CHA RITABLE TRUST IS A REGISTERED TRUST FORMED AS PER THE DIRE CTIONS OF OUR CONTROLLING AUTHORITY NABARD. THROUGH THE SAID TR UST THE BANK IS PROMOTING THE FORMATION OF SELF HELP GROUPS IN THE DISTRICTS OF DAKSHINA KANNADA AND UDUPI. THE BANK H AS BEEN ADVANCING LOANS TO THOSE SELF HELP GROUPS FOR GENER ATING INCOME. THE LOANS ARE GIVEN TO SHGS FOR HOME INDUSTRIES LIK E CANDLE MAKING, SOAP MAKING AND SUCH OTHER ACTIVITIES. THE INCOME GENERATED BY SUCH SELF HELP GROUPS COME BACK TO OUR BANK AS DEPOSITS. UNDER THIS MICRO FINANCING SCHEME RURAL POOR AND UN EDUCATED PEOPLE GET TO KNOW BANKING, LEARN TO HANDLE FINANCE AND INCREASE THEIR INCOME LEVEL. THEY ALSO DEVELOP THE HABIT OF THRIFT AND RURAL POOR LEARN TO SAVE MONEY. THE SCHEME HAS A GREAT VI SION OF UPLIFTMENT OF THE RURAL POOR THROUGH THESE ACTIVITI ES. WITH THIS OBJECT IN VIEW, NABARD, OUR CONTROLLING AUTHORITY H AS THRUST THIS RESPONSIBILITY ON US. THE EXPENSES MADE BY US ARE IN RESPECT OF THE REMUN ERATION PAID EACH MONTH TO 250 ANIMATORS AND 8 COORDINATORS. SUC H ANIMATORS AND COORDINATORS DO THE WORK OF LIAISONIN G, TRAINING, MONITORING AND GUIDING SUCH SHGS. THEY ARE ALSO PRO MOTING VARIOUS LOAN PRODUCTS OF OUR BANK AND ARE ALSO WORK AS THE PERSONS CANVASSING FOR THE DEPOSITS OF THE BANK. AT PRESENT THERE ARE 250 ANIMATORS AND 8 COORDINATO RS WORKING UNDER THIS SCHEME. SINCE INCEPTION IN 2004, THE BA NK HAS ADVANCED VARIOUS LOANS AMOUNTING TO OVER RS. 500 CR ORES. THE PRESENT ADVANCE OUTSTANDING BALANCE OF VARIOUS ADVA NCES TO DIFFERENT SHGS IS OVER RS.100 CRORES WITH VERY HIGH RECOVERY RATE. THE SHGS ARE PROMPT PAYERS OF THE LOAN INSTAL LMENTS. THE PRESENT DEPOSITS OF SUCH SHGS WITH US IS OVER RS.85 CRORES. THE EXPENDITURE INCURRED IS AS PER THE MOU MADE BETWEEN THE BANK AND THE SAID TRUST. A COPY OF THE MOU IS ENCLOSED H EREWITH. THE ITA NOS. 34 & 1266/BANG/2014 PAGE 12 OF 29 REGISTRAR OF COOPERATIVE SOCIETIES HAS ALSO GRANTED PERMISSION TO US FOR SUCH EXPENDITURES. A COPY OF THE ORDER OF TH E REGISTRAR OF COOP SOCIETIES IS ALSO ENCLOSED. 24. THE AO, FROM THE ABOVE EXPLANATION OF THE ASSES SEE, OBSERVED THAT IT WAS CLEAR THAT THE ASSESSEE HAS INCURRED THE EXP ENDITURE TOWARDS THE ABOVE REFERRED TRUST MAINLY AS PER THE DIRECTIONS O F THEIR CONTROLLING AUTHORITY VIZ., NABARD. THE AO FURTHER NOTICED THAT THE ASSESSEE HAS FURTHER STATED THAT SINCE THE INCEPTION OF THE TRUS T THE BANK HAS ADVANCED HUGE LOANS. THE ASSESSEE ALSO RELIED ON THE MOU BET WEEN THE BANK AND THE SAID TRUST TO JUSTIFY THE CLAIM. HE WAS OF THE VIEW THAT IN ORDER TO QUALIFY FOR A DEDUCTION/ALLOWANCE UNDER THE ACT, THE EXPEND ITURE INCURRED AND CLAIMED BY THE ASSESSEE SHOULD HAVE NEXUS TO THE TA XABLE INCOME OF THE ASSESSEE. HE NOTED THAT IF ANY EXPENSES ARE INCURR ED AND CLAIMED, WHICH ARE IN CONNECTION WITH ANY EXEMPTED INCOME, THE SAM E IS ALSO NOT AN ALLOWABLE EXPENDITURE. UNDER THE ACT, FOR ALLOWING AN EXPENDITURE, IT SHOULD HAVE BEEN INCURRED BY THE ASSESSEE FOR EARNING TAXA BLE INCOME AND IT SHOULD BE IN THE NATURE OF REVENUE. ACCORDING TO T HE AO, THOUGH THIS EXPENDITURE IS IN THE NATURE OF REVENUE, THIS IS NO T AN ALLOWABLE EXPENDITURE, AS THIS HAS NO RELEVANCE TO THE TAXABL E INCOME AND AS ADMITTED BY THE ASSESSEE, THIS EXPENDITURE IS INCUR RED AS PER THE DIRECTIONS OF ITS CONTROLLING AUTHORITY. THE AO ALSO OBSERVED THAT THE ASSESSEE HAS ALSO NOT PROVED WITH DOCUMENTARY EVIDENCE THAT ON A CCOUNT OF THIS EXPENDITURE, THE ASSESSEE DERIVED CERTAIN INCOME OR BENEFITS. THE MOU ITA NOS. 34 & 1266/BANG/2014 PAGE 13 OF 29 RELIED ON BY THE ASSESSEE HAS NO RELEVANCE TO THIS ISSUE. CONSIDERING THE ABOVE, A SUM OF RS. 93,73,200/- WAS DISALLOWED BY T HE AO TREATING THE SAME AS NON-BUSINESS EXPENDITURE. 25. BEFORE THE CIT(APPEALS), THE ASSESSEE REITERATE D THE SUBMISSIONS MADE BEFORE THE AO. IT WAS FURTHER ARGUED THAT IT I S NOT CORRECT TO SAY THAT THERE IS NO GENERATION OF INCOME BECAUSE OF THIS EX PENDITURE AS, FIRSTLY, THE ASSESSEE HAS NO CHOICE BUT TO INCUR THIS EXPENDITU RE SINCE IT IS A DIRECTIVE FROM NABARD AND IT IS A KIND OF MANDATORY EXPENDITU RE. SECONDLY, THE ASSESSEE COULD GENERATE LOAN DISBURSEMENTS TO THE T UNE OF RS.500 CRORES AND DEPOSIT MOBILIZATION OF RS.85 CRORES FROM THESE SHGS. THERE WAS NO ADVERSE FINDINGS ON THESE FACTS BY THE AO. THE ASS ESSEE HAS NO EXEMPTED INCOME. 26. THE ASSESSEE RELIED ON THE DECISION OF SRI VENKATA SATHYANARAYANA RICE MILLS VS CIT (223) ITR 101 WHEREIN IT WAS OBSERVED THAT WHAT IS TO BE SEEN IS NOT WHETHER IT WAS COMPULSORY FOR THE AS SESSEE TO MAKE THE PAYMENT OR NOT BUT WHETHER IT WAS EXPENDED OUT OF C ONSIDERATION OF COMMERCIAL EXPEDIENCY. AS LONG AS THE PAYMENT IS MA DE FOR THE PURPOSE OF BUSINESS AND THE PAYMENT MADE IS NOT BY WAY OF PENA LTY FOR INFRACTION OF ANY LAW, THE SAME WOULD BE ALLOWABLE AS DEDUCTION (HEAD NOTES). IT WAS SUBMITTED THAT THE HONBLE SUPREME COURT IN THE ABO VE CASE HELD THAT THE DONATION MADE BY THE ASSESSEE TO THE DISTRICT WELFA RE FUND WITH WHICH THE DISTRICT COLLECTOR WAS ASSOCIATED IS ALLOWABLE AS B USINESS EXPENDITURE. IT ITA NOS. 34 & 1266/BANG/2014 PAGE 14 OF 29 WAS HELD THAT REQUIRING PAYMENT TO BE MADE FOR JUST CAUSE WHICH HAS ENTITLED A BUSINESS MAN TO OBTAIN A LICENSE OR PERM IT COULD NOT BE RECORDED AS BEING AGAINST THE PUBLIC POLICY AND THE EXPENDIT URE HAS BEEN MOTIVATED PURELY BY COMMERCIAL CONSIDERATION. APPLYING THE RA TIO OF THE ABOVE DECISION TO THE FACTS OF THE PRESENT CASE, IT WAS S UBMITTED THAT THE EXPENDITURE HAS BEEN MOTIVATED PURELY BY COMMERCIAL CONSIDERATION. THE ASSESSEE HAS ESTABLISHED AS TO HOW IT IS IN ITS BU SINESS AND COMMERCIAL INTEREST TO ENSURE THE WELLBEING OF SELF-HELP GROUP S. HENCE, THE EXPENDITURE WAS FOR THE PURPOSE OF BUSINESS. THE ASSESSEE ALSO RELIED ON THE DECISIONS OF HONBLE MADRAS HIGH COURT IN CIT V. VELUMANICKAM LODGE, 317 ITR 338 (MAD) AND THE HONBLE RAJASTHAN HIGH COURT IN ADDL. CIT V. RAJASTHAN SPINNING & WEAVING MILLS LTD, 274 ITR 465 IN SUPPORT OF ITS CLAIM. 27. FROM THE DETAILED SUBMISSIONS AS ABOVE, THE CI T(APPEALS) OBSERVED THAT THOUGH THE EXPENDITURE IS MADE ON ACC OUNT OF DIRECTIVE FROM NABARD, THERE IS ALSO COMMERCIAL EXIGENCY, AND THE ASSESSEE COULD FAIRLY ESTABLISH THAT THERE WAS SUFFICIENT MOBILIZA TION OF LOANS AND ADVANCES AND DEPOSITS DIRECTLY RELATABLE TO THIS EXPENDITURE . THERE WAS NO ADVERSE FINDINGS TO THIS EFFECT. KEEPING IN VIEW THE DECISI ONS CITED BY THE ASSESSEE, THE CIT(A) WAS OF THE VIEW THAT EXPENDITURE HAS REL EVANCE TO THE BUSINESS OF THE ASSESSEE AND ALSO GENERATED SUBSTANTIAL INCO ME THOUGH THE OBJECTIVE IS ALSO LAUDABLE WHICH MAY NOT BE RELEVAN T FOR BUSINESS. UNDER THESE CIRCUMSTANCES, HE DIRECTED THE AO TO DELETE T HE ADDITION. ITA NOS. 34 & 1266/BANG/2014 PAGE 15 OF 29 28. AGGRIEVED BY THE ORDER OF CIT(APPEALS), THE REV ENUE HAS RAISED GROUNDS NO.5 & 6 BEFORE THE TRIBUNAL. 29. WE HAVE HEARD THE SUBMISSIONS OF THE LD. DR, WH O RELIED ON THE ORDER OF AO AND THE GROUNDS OF APPEAL. THE LD. COU NSEL FOR THE ASSESSEE RELIED ON THE ORDER OF CIT(APPEALS). 30. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE R IVAL SUBMISSIONS. NAVODAYA GRAMA VIKAS CHARITABLE TRUST IS A REGISTER ED TRUST FORMED AS PER THE DIRECTIONS OF THE ASSESSEES CONTROLLING AU THORITY, NABARD. THROUGH THE SAID TRUST THE ASSESSEE IS PROMOTING TH E FORMATION OF SELF HELP GROUPS IN THE DISTRICTS OF DAKSHINA KANNADA AN D UDUPI. THE ASSESSEE HAS BEEN ADVANCING LOANS TO THOSE SELF HEL P GROUPS FOR GENERATING INCOME. THE LOANS ARE GIVEN TO SHGS FOR HOME INDUSTRIES LIKE CANDLE MAKING, SOAP MAKING AND SUCH OTHER ACTIVITIE S. THE INCOME GENERATED BY SUCH SELF HELP GROUPS COME BACK TO THE ASSESSEE AS DEPOSITS. UNDER THIS MICRO FINANCING SCHEME RURAL POOR AND UNEDUCATED PEOPLE GET TO KNOW BANKING, LEARN TO HANDLE FINANCE AND INCREASE THEIR INCOME LEVEL. THEY ALSO DEVELOP THE HABIT OF THRIFT AND RURAL POOR LEARN TO SAVE MONEY. THE SCHEME HAS A GREAT VISION OF UPLIFT MENT OF THE RURAL POOR THROUGH THESE ACTIVITIES. WITH THIS OBJECT IN VIEW, NABARD, HAS THRUST THE RESPONSIBILITY OF MAKING PAYMENTS TO NAVODAYA TRUST . THE EXPENSES IN QUESTION ARE IN RESPECT OF THE REMUNERATION PAID EA CH MONTH TO 250 ANIMATORS AND 8 COORDINATORS. SUCH ANIMATORS AND CO ORDINATORS DO THE ITA NOS. 34 & 1266/BANG/2014 PAGE 16 OF 29 WORK OF LIAISONING, TRAINING, MONITORING AND GUIDIN G SUCH SHGS. THEY ARE ALSO PROMOTING VARIOUS LOAN PRODUCTS OF THE ASSESSE ES BANK AND ARE ALSO WORK AS THE PERSONS CANVASSING FOR THE DEPOSITS OF THE BANK. FURTHER IT IS CLEAR FROM THE FACTUAL FINDING RENDERED BY THE CIT( APPEALS) THAT THE ASSESSEE COULD GENERATE DISBURSEMENTS TO THE TUNE O F RS.500 CRORES AND DEPOSIT MOBILIZATION TO THE EXTENT OF RS.85 CRORES FROM THE SELF HELP GROUPS. IT IS ALSO CLEAR THAT THE EXPENDITURE IN QUESTION WAS INCURRED BY THE ASSESSEE KEEPING IN MIND THE COMMERCIAL EXIGENC Y. THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT IN RAJASTHAN SPINNING AND WEAVING MILLS LTD. CITED SUPRA CLEARLY SUPPORT THE CONCLUSIONS ARRIVED AT BY THE CIT(APPEALS). IN THE AFORESAID DECISION, THE HONB LE RAJASTHAN HIGH COURT HELD THAT IT IS NOT NECESSARY TO SHOW THAT THE EXPE NSES WERE NOT PROFITABLE OR NO BENEFIT WAS ACTUALLY DERIVED. THE RECEIPT OF ACTUAL BENEFIT IS ALSO NOT NECESSARY. THE KEY ASPECT TO BE SEEN IS RELATIONSH IP BETWEEN THE EXPENSES INCURRED AND CARRYING ON OF THE BUSINESS O F THE ASSESSEE. IF THERE IS A BENEFIT TO THE ASSESSEE, THEN THE EXPEND ITURE HAS TO BE REGARDED AS INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSE SSEE AND ALLOWED AS A DEDUCTION. THE HONBLE RAJASTHAN HIGH COURT FOLLOW ED THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SASOON J. DAVID & CO. P. LTD. V. CIT, 118 ITR 261 (SC) WHEREIN REFERENCE WAS MADE TO THE EXPRESSION WHOL LY OR EXCLUSIVELY USED IN SECTION 37(1) OF THE ACT AND W AS OF THE VIEW THAT THE EXPRESSION USED IS NOT NECESSARILY. IN LIGHT OF THE LEGAL POSITION AS EXPLAINED IN THE JUDICIAL PRONOUNCEMENTS AND KEEPIN G IN VIEW THE FACTS OF ITA NOS. 34 & 1266/BANG/2014 PAGE 17 OF 29 THE PRESENT CASE, WE ARE OF THE VIEW THAT THE ORDER OF CIT(APPEALS) DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, GROUND S NO.5 TO 8 RAISED BY THE REVENUE ARE DISMISSED. 31. GROUND NO.9 RAISED READ AS FOLLOWS:- 9. THE LD. CIT(APPEALS) HAS ERRED IN DELETING THE ADDITION MADE IN RESPECT OF AMORTIZATION OF PREMIUM PAID ON GOVERNMENT SECURITIES. AMORTIZATION OF PREMIUM PAID ON GOVERNM ENT SECURITIES CLAIMED BY THE ASSESSEE AS DEDUCTION IS NOT AN ALLOWABLE DEDUCTION AS IN THE ASSESSEES CASE THE S ECURITIES CLASSIFIED AS HELD TO MATURITY ARE PERMANENT LONG TERM INVESTMENT MADE BY THE ASSESSEE BANK, WHICH ARE PRE DOMINANTLY CAPITAL IN NATURE. RATIO OF THE DECISION OF HONBLE MADRAS HIGH COURT JUDGEMENT IN TN POWER FINANCE & INFRASTRUCTUR E DEVELOPMENT CORPORATION LTD. VS JCIT (2006) 280 ITR 491 (MAD) WHEREIN, IT IS HELD THAT RBI GUIDELINES CANNO T OVERRIDE THE MANDATORY PROVISIONS OF INCOME TAX IS APPLICABLE IN THIS CASE. 32. THE AO NOTICED THAT THE ASSESSEE HAS REDUCED A SUM OF RS.26,63,034/- FROM THE GROSS INTEREST RECEIVED FRO M NON-STATUTORY LIQUIDATE RATIO (NON-SLR) AND RS.4,28,49,794 FROM THE GROSS I NTEREST FROM STATUTORY LIQUIDATORY RATIO (SLR) RECEIVED DURING THE YEAR RE LEVANT TO AY 2010-11. THE AMOUNTS SO REDUCED WAS TERMED BY THE ASSESSEE A S AMORTISED AMOUNT. IN SHORT, FROM THE TOTAL INTEREST, THE ASS ESSEE HAS CLAIMED A SUM OF RS. 4,55,12,828/- TOWARDS AMORTISATION AND CLAIM ED THE SAME AS A DEDUCTION AND OFFERED THE REMAINING INTEREST FOR TA XATION. THE AO VIDE REQUISITION DATED 25.6.2012 ASKED THE ASSESSEE TO J USTIFY THIS CLAIM AS UNDER: ITA NOS. 34 & 1266/BANG/2014 PAGE 18 OF 29 TO FILE DETAIL OF AMORTIZATION EXPENSES, GIVING DE TAIL OF GOVT. SECURITY ON WHICH THIS PREMIUM WAS PAID. PLEASE EXP LAIN AS TO HOW THE AMORTIZATION EXPENSES IS A REVENUE EXPENSES . 33. THE ASSESSEE IN ITS REPLY DATED 14.08.2012 HAS STATED AS UNDER:- THIS METHOD OF AMORTIZATION OF PREMIUM ON INVESTME NT IS IN LINE WITH THE GUIDANCE NOTES ON AUDIT OF THE BANKS GIVEN BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. THE BA NK HAS FOLLOWED THE NORMAL METHOD OF ACCOUNTING AND WRITIN G OFF OF THE PREMIUM WHICH IS BEING FOLLOWED BY THE BANKING SECT OR AS A WHOLE. A COPY OF RELEVANT PAGE FROM THE GUIDANCE N OTE ON AUDIT OF THE BANKS IS ALSO ENCLOSED. 34. THE AO NOTED THAT THE ASSESSEE MAINLY RELIED ON RESERVE BANK OF INDIAS GUIDELINES. ALL THE GOVERNMENT SECURITIES P URCHASED ARE REQUIRED TO BE CATEGORIZED UNDER (A) HELD TO MATURITY (B) HELD FOR TRADING (C) AVAILABLE FOR SALE; AS PER CIRCULAR/INSTRUCTION FROM RBI. SUC H PURCHASES OF SECURITIES INVOLVE PAYMENT OF PREMIUMS OVER THE FACE VALUE AT THE TIME OF ACQUIRING THE, SECURITY. THE PREMIUM SO PAID IS ADDED TO THE VALUE OF SECURITY COST. WHEN SUCH SECURITIES ARE HELD UNDER THE CATEGORY HE LD TO MATURITY, THE PREMIUMS SO PAID S EQUALLY SPREAD OVER MATURITY DAT E AND AMORTISED ANNUALLY AS PER RBI GUIDELINES. SUCH PREMIUMS AMORT ISED AND PERTAINING TO THE CURRENT YEAR IS DEBITED TO THE PROFIT AND LOSS ACCOUNT AS EXPENDITURE. AS PER THE RBI NORMS, THE AMORTISATION OF PREMIUM I S CHARGED AS AN EXPENDITURE FOR THAT YEAR. ITA NOS. 34 & 1266/BANG/2014 PAGE 19 OF 29 35. ACCORDING TO THE AO, AMORTISATION OF PREMIUM IS THE ELEMENT ARRIVED AT BY CALCULATING THE PREMIUM IT PAID ON CERTAIN IN VESTMENTS CLASSIFIED AS HELD TO MATURITY BY THE ASSESSEE BANK. THESE SECU RITIES CLASSIFIED AS HELD TO MATURITY ARE PERMANENT LONG TERM INVESTME NTS MADE BY THE ASSESSEE BANK, SO IT IS CLEARLY UNDERSTOOD THAT THE SE CANNOT BE TREATED AS STOCK-IN-TRADE OF THE ASSESSEE LIKE AVAILABLE FO R SALE AND HELD FOR TRADING CATEGORY. SO ONCE IT IS ESTABLISHED THAT THESE ARE NOT STOCK-IN- TRADE NO CHARGE CAN BE MADE ON REVENUE. BUT, HOWEV ER, AT THE TIME OF DISPOSING OFF THE ASSET, RELEVANT CAPITAL GAIN OR L OSS CAN BE BOOKED. 36. THE AO WAS OF THE VIEW THAT IN THE INSTANT CASE , THE SECURITIES CLASSIFIED AS HELD TO MATURITY ARE PERMANENT LONG TERM INVESTMENT MADE BY THE ASSESSEE BANK, WHICH ARE PREDOMINANTLY CAPIT AL IN NATURE. RATIO OF THE DECISIONS OF THE HONBLE HIGH COURT OF MADRAS I N THE CASE OF TN POWER FINANCE AND INFRASTRUCTURE DEVELOPMENT CORPORATION LTD. (SUPRA), WHEREIN IT IS HELD THAT RBI GUIDELINES CANNOT OVERRIDE THE MANDATORY PROVISIONS OF THE INCOME TAX ACT, IS APPLICABLE TO THIS CASE. THE REFORE, THE ASSESSEES CLAIM OF AMORTISATION OF PREMIUM PAID IN GOVERNMENT SECURITIES HELD IN THE PERMANENT CATEGORY OF HELD TO MATURITY WAS DISALL OWED AND A SUM OF RS. 4,55,12,828/- ADDED TO THE TOTAL INCOME OF THE ASS ESSEE. 37. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) DEL ETED THE ADDITION MADE BY THE AO OBSERVING AS UNDER:- ITA NOS. 34 & 1266/BANG/2014 PAGE 20 OF 29 7.2 IN APPEAL, THE APPELLANT RELIED ON THE BINDIN G DECISION OF JURISDICTIONAL HONBLE ITAT BANGALORE BENCH IN SRI M. VISWESWRAYA CO-OPERATIVE BANK LTD VS JCIT IN ITA NO . 1122/BANG/2010 WHEREIN, IT IS HELD THAT THE AMORTIZ ED PREMIUM IS ALLOWABLE AS EXPENDITURE / DEDUCTION. HONBLE ITAT ALSO RELIED ON BOARD INSTRUCTION NO. 17/208 WHICH ALSO STATES T HAT AMORTIZATION PREMIUM IS TO BE ALLOWED AS DEDUCTION. 7.4 I HAVE PERUSED THE ORDER OF THE HONBLE ITAT C ITED BY THE APPELLANT. IN THAT CASE, THAT AO ALSO RELIED ON MAD RAS HIGH COURT DECISION CITED BY THE AO. AFTER ANALYZING VARIOUS C ASE LAWS, HONBLE ITAT HELD THAT THIS EXPENDITURE IS AN ALLOW ABLE EXPENDITURE. 7.5 RESPECTFULLY FOLLOWING THE JURISDICTIONAL ITAT ORDER CITED SUPRA, I DIRECT THE AO TO DELETE THE ADDITION. 38. AGGRIEVED BY THE ORDER OF THE CIT(A), THE R EVENUE HAS PREFERRED THE AFORESAID GROUND BEFORE THE TRIBUNAL. 39. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO.8 & 9 IS NO LONGER RES INTEGRA AND HAS BEEN DECIDED BY THIS TRIBUNAL IN THE CASE OF M/S. SIR M. VISWESWARAYA COOPERATIVE BANK LTD. VS. JCIT, ITA NO.1122/BANG/2010 FOR AY 07 -08 ORDER DATED 11.5.2012 . THE FOLLOWING WERE THE RELEVANT OBSERVATIONS OF THE TRIBUNAL: 03. LET US FIRST TAKE UP THE ISSUE RELATING TO AMO RTIZATION OF PREMIUM ON INVESTMENT IN GOVERNMENT SECURITIES. RE LEVANT GROUNDS READ AS UNDER : ' I) THE LEARNED COMMISSIONER (APPEALS) OUGHT TO H AVE APPRECIATED THAT THE APPELLANT HAS TO INVEST SURPLU S FUND IN GOVERNMENT SECURITIES AS PER RBI GUIDELINES AND THE ITA NOS. 34 & 1266/BANG/2014 PAGE 21 OF 29 PREMIUM PAID WHILE INVESTING IN GOVERNMENT SECURITI ES THAT ARE BOUGHT IN OPEN MARKET WOULD HAVE TO BE AMORTIZED TILL THE MATURITY DATE OF THE SECURITY AN D THUS THE PREMIUM WAS WRITTEN OFF WAS LIABLE TO BE ALLOWED AS DEPRECIATION OF VALUE OF SECURITIES ; II) THE LEARNED COMMISSIONER (A) OUGHT TO HAVE APPRECIATED THAT THE CLASSIFICATION OF SECURITIES F OR RBI PURPOSES WOULD NOT TAKE AWAY THE BENEFIT WHICH THE APPELLANT WAS ENTITLED TO AND HE OUGHT TO HAVE APPR ECIATED THAT THE CASE LAW REFERRED WERE DISTINGUISHABLE AND ACCORDINGLY HE OUGHT TO HAVE ALLOWED THE DEDUCTION AS CLAIMED IN FULL.' 04. THE BRIEF FACTS PERTAINING TO THIS ISSUE ARE TH AT WHILE FRAMING THE ASSESSMENT U/S.143(3) OF THE IT ACT, FO R THE ASSESSMENT YEAR 2007-08, THE ASSESSING OFFICER NOTI CED THAT THE ASSESSEE HAS CLAIMED A SUM OF RS.26,40,237/- UNDER AMORTIZATION OF PREMIUM ON INVESTMENTS AND THE ASSESSEE HAD NO E XPLANATION FOR THE CLAIM. HENCE, HE DISALLOWED THE SAME. WHI LE DISALLOWING THE SAME, THE ASSESSING OFFICER FOLLOWED THE DECISI ON OF THE MADRAS HIGH COURT IN THE CASE OF TN POWER FINANCE A ND INFRASTRUCTURE DEVELOPMENT CORPORATION LTD., V. JCI T (2006) 280 ITR 491. AGGRIEVED, THE ASSESSEE MOVED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 05. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) AFTER CONSIDERING THE SUBMISSIONS MADE BEFORE HIM AND FOL LOWING THE DECISION OF THE MADRAS HIGH COURT CITED SUPRA, CAME TO THE CONCLUSION THAT THE HON'BLE MADRAS HIGH COURT HAS T HAT MERELY BECAUSE THE RBI HAD DIRECTED THE ASSESSEE TO PROVID E FOR NON- PERFORMING ASSETS, THAT DIRECTION CANNOT OVERRIDE T HE MANDATORY PROVISIONS OF THE INCOME-TAX ACT CONTAINED IN SECTI ON 36(1)(VIIA) WHICH STIPULATE FOR DEDUCTION NOT EXCEEDING 5 PER C ENT OF THE TOTAL INCOME ONLY IN RESPECT OF THE PROVISION FOR BAD AND DOUBTFUL DEBTS WHICH ARE PREDOMINANTLY REVENUE IN NATURE OR TRADE RELATED AND NOT FOR PROVISION FOR NON-PERFORMING ASSETS WHI CH ARE OF PREDOMINANTLY CAPITAL NATURE. THUS, HE WAS OF THE VIEW THAT THE ASSESSEE WAS NOT ENTITLED TO DEDUCTION OF AMORTIZAT ION OF PREMIUM ON INVESTMENTS U/S.36(1)(VII). AGGRIEVED, THE ASSESSEE IS IN SECOND APPEAL BEFORE US WITH THIS ISSUE. ITA NOS. 34 & 1266/BANG/2014 PAGE 22 OF 29 06. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) HAD FAILED TO SEE THE REASON THAT A ISSUE SIMILAR TO THAT OF THE PRESENT ONE HAD BEEN ALLOWED BY VARIOUS BENCHES OF THE HON'BLE TRIBUNALS , NAMELY : CATHOLIC SYRIAN BANK LTD., V. ACIT COCHIN (2010) 38 SOT 553 ; KHANAPUR COOP.BANK LTD., V. ITO IN ITA.141/PNJ/2011 (PANAJI); CORPORATION BANK V. ACIT, M'LORE IN ITA.112/BANG/20 08 (BANG) THE LEARNED COUNSEL ALSO PLACED RELIANCE ON BOARD'S INSTRUCTIONS NO.17 OF 2008(VII) AND PLEADED THAT THE CLAIM OF TH E ASSESSEE BE ALLOWED AS THE ASSESSEE HAD THE POWERS TO DEBIT IN ITS P&L ACCOUNT A SUM OF RS.29,02 LAKHS OF AMORTIZATION OF PREMIUM. 07. PER CONTRA, THE LEARNED DR WAS UNABLE TO CONTRO VERT TO THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE . 08. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED THE RELEVANT FACTS AND MATERIALS ON RECORD. WE HAVE ALSO CONSIDERED THE FINDINGS OF THE VARIOUS BENCHES OF T HE TRIBUNAL, AS UNDER : (I) CATHOLIC SYRIAN BANK LTD V. ACIT (2010) 38 SO T 553 (COCH) : AN IDENTICAL ISSUE TO THAT OF THE SUBJECT MATTER UN DER CONSIDERATION HAD ARISEN BEFORE THE COCHIN BENCH. AFTER ANALYZIN G THE ISSUE IN DEPTH, THE BENCH HAS OBSERVED THAT WITH REGARD TO A MORTIZATION OF PREMIUM ON PURCHASE OF GOVERNMENT SECURITIES, IT WA S CLARIFIED THAT THIS WAS MADE AS PER THE PRUDENTIAL NORMS OF THE RB I. FOLLOWING THE TRIBUNAL DECISION IN THE ASSESSEE'S OWN CASE AND CO NSIDERING THAT THE ASSESSEE BANK IS FOLLOWING CONSISTENT AND REGUL AR METHOD OF ACCOUNTING SYSTEM, THERE IS NO JUSTIFICATION IN INT ERFERING WITH THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) O N THIS ISSUE OF AMORTIZATION OF PREMIUM ON GOVERNMENT SECURITIES. UNITED COMMERCIAL BANK V. CIT (1999) 156 CTR (SC) 380 ; ( 1999) 240 ITR 355 (SC) AND SOUTH INDIAN BANK LTD., (ITA NO.126/CO CH/2004, DATED.___ SEPT, 2005 FOLLOWED.' ITA NOS. 34 & 1266/BANG/2014 PAGE 23 OF 29 (II) THE KHANAPUR CO-OP BANK LTD V. ITO ITA NO.14 1/PNJ/2011, DATED.8.9.2011 : THE HON'BLE BENCH OF PANAJI TRIBUNAL HAD RECORDE D ITS FINDINGS THAT '6. LIKEWISE, THE PREMIUM AMORTIZED A T RS.1,78,098/- IS CLAIMED TO BE IN RESPECT OF SECURI TIES HELD UNDER THE CATEGORY 'HELD TO MATURITY'. THE ASSESSING OFF ICER HAS TAKEN THEM AS LONG TERM INVESTMENTS. IN OTHER WORDS, HE HAS ACCEPTED THE ASSESSEE'S CLAIM THAT THE SECURITIES ARE 'HELD TO MATURITY'. THAT BEING SO AND HAVING REGARD TO THE CBDT INSTRUCTION NO.17 OF 2008 DATED.26.11.2008 AS REPRODUCED HEREIN ABOVE, T HE PREMIUM PAID ON SUCH GOVERNMENT SECURITIES IS REQUIRED TO BE AMORTIZED OVER THE PERIOD REMAINING TO MATURITY .' (III) IN THE CASE OF CORPORATION BANK V. ACIT, M'LO RE IN ITA.112/BANG/2008 (BANG), FOR THE ASSESSMENT YEAR 2 004-05, THE EARLIER BENCH HAD ALSO HELD A SIMILAR VIEW. IN THE LIGHT OF THE ABOVE DISCUSSION AND THE CASE L AWS DISCUSSED SUPRA, TAKING INTO ACCOUNT THE TOTALITY OF THE FACT S AND MATERIALS, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE IS ENTITLED TO CLAIM THIS DEDUCTION AND HENCE WE ALLOW THE GROUNDS OF THE ASSESSEE RELATING TO THIS ISSUE. 40. WE ARE OF THE VIEW THAT IN THE LIGHT OF THE DEC ISION ON THE ISSUE CONSIDERED BY THE TRIBUNAL, THE CLAIM MADE BY THE A SSESSEE WAS RIGHTLY ALLOWED BY CIT(A). ACCORDINGLY, THE RELEVANT GROUN D OF APPEAL IS DISMISSED. 41. THUS, APPEAL BY THE REVENUE IS DISMISSED. 42. ITA NO.1266/B/13 IS ALSO AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 18.3.2014 RELATING TO AY 2011-12. GROU ND NO.1 IS GENERAL IN NATURE AND CALLS FOR NO ADJUDICATION. ITA NOS. 34 & 1266/BANG/2014 PAGE 24 OF 29 43. GROUND NOS.2 & 3 ARE IDENTICAL TO GROUND NOS. 2 & 3 RAISED BY THE REVENUE IN ITA NO.34/BANG/2014 FOR THE AY 2010-11. FOR THE REASONS STATED THEREIN WHILE DECIDING THE AFORESAID GROUNDS , WE DISMISS GROUND NOS. 2 & 3 RAISED BY THE REVENUE IN THIS APPEAL ALS O. 44. GROUND NOS. 4.1 & 4.2 READ AS FOLLOWS:- 4.1 THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF INTEREST ACCRUED ON INVESTMENTS IGNORING THE FACT THAT THE ASSESSEE IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AS STATED IN FORM 3CD. 4.2 LD.CIT(APPEALS) HAS ERRED IN DELETING THE ADDI TION ON ACCRUED INVESTMENT RELYING ON THE DECISION OF HONB LE KARNATAKA HIGH COURT IN CIT VS THE KARNATAKA BANK LTD. ITA NO .433/2006 WITHOUT APPRECIATING THE FACT THAT THE DEPARTMENT H AS NOT ACCEPTED THE DECISION AND SINCE THE SLP FILED HAS B EEN DISMISSED WITHOUT GOING INTO THE MERITS OF THE CASE, THE QUES TION OF LAW CONTINUES TO REMAIN UNSETTLED. 45. ON PERUSAL OF THE ASSESSEES P&L A/C, THE AO NO TICED THAT AN AMOUNT OF RS. 35,77,41,170/- HAS BEEN CREDITED TO T HE P&L A/C. WHEN SPECIFICALLY ASKED AS TO WHY THIS AMOUNT HAD NOT BE EN OFFERED ON ACCRUAL BASIS, THE ASSESSEE STATED AS UNDER:- (B) INTEREST ON INVESTMENTS: IN ADDITION TO THE ABOVE, WE WERE ASKED TO FILE DET AILS OF INTEREST ACCRUED ON INVESTMENT. AS IS THE CASE OF INTEREST O N ADVANCES, THE ASSESSEE HAS BEEN OFFERING THE INTEREST INCOME FROM INVESTMENTS OF CASH BASIS. THE SAME HAS ALSO BEEN ACCEPTED BY T HE LEARNED JC1T DURING THE COURSE OF ASSESSING PROCEEDINGS FOR THE ASSESSMENT YEAR 2010-L1. WE ARE OF THE OPINION THAT THE ITA NOS. 34 & 1266/BANG/2014 PAGE 25 OF 29 DEPARTMENT MAY ACCEPT THE ACCOUNTING TREATMENT ADOP TED BY THE ASSESSEE BANK SINCE THE SAME HAS BEEN FOLLOWED CONS ISTENTLY. HOWEVER, AS REQUIRED BY YOU WE ARE HEREWITH ANNEXIN G TO THIS LETTER WORKING IN RELATION TO INTEREST ACCRUED ON I NVESTMENTS. THE AMOUNT OF INTEREST ACCRUED ON INVESTMENTS FOR THE Y EAR ENDED 31- MARCH-2011 IN RS. 15,08,94,552/-. FURTHERMORE, WE WOULD ALSO WISH TO BRING TO YOUR NO TICE THAT THE SAME METHOD OF ACCOUNTING FOR INTEREST IS ADOPTED B Y THE ASSESSEE EVERY YEAR. THUS, THE INCOME WHICH IS NOT OFFERED T O TAX IN THIS YEAR ON ACCRUAL BASIS IS DEFINITELY OFFERED TO TAX IN THE SUBSEQUENT ASSESSMENT YEAR. THEREFORE, THERE IS NO LOSS OF REV ENUE TO THE DEPARTMENT WHATSOEVER. IN THE INSTANCE THAT THE SAM E IS ADDED TO THE INCOME OF THE ASSESSEE AND BROUGHT TO TAX FOR T HE ASSESSMENT YEAR 2011-12, IT WILL LEAD TO A SITUATION WHERE THE SAME INCOME IS BEING TAXED IN THE HANDS OF THE ASSESSEE IN TWO DIF FERENT ASSESSMENT YEARS SINCE THE INCOME IS ALREADY OFFERE D TO TAX ON CASH BASIS FOR THE ASSESSMENT YEAR 2012-13... 6.1.27 AS CAN BE OBSERVED, THE ASSESSEE HAS STATED THAT INCOME FROM INTEREST ON INVESTMENTS HAS ALSO BEEN OFFERED ON CASH BASIS AND IT SHOULD NOT BE ADDED AS THE SAME HAD BEEN ACC EPTED BY THE LD. JCIT DURING THE COURSE OF ASSESSMENT PROCEEDING S FOR A.Y. 2011-11 AND THE SAME WOULD LEAD TO DOUBLE TAXATION AS THE SAME INCOME HAS BEEN OFFERED ON CASH BASIS FOR A.Y. 2012 -13. 6.1.28 AT THE COST OF REPETITION, IT IS TO BE NOTED THAT EACH ASSESSMENT YEAR IS TO BE TREATED AS AN INDEPENDENT UNIT AND MERELY ON THE BASIS OF THE FACT THAT A PARTICULAR I SSUE WAS NOT INVESTIGATED IN THE PREVIOUS YEAR, IT CANNOT BE ASS ERTED BY THE ASSESSEE THAT NO ADDITION SHOULD BE MADE IN RESPECT OF THAT ISSUE. MOREOVER, THE ASSESSEE IS FREE TO MAKE A CLAIM DURI NG THE ASSESSMENT PROCEEDINGS FOR A.Y. 2012-13 IN CASE ANY PART OF INCOME THAT IS ADDED BACK FOR A.Y. 2011-12 ON MERCA NTILE BASIS FORMS A PART OF THE INCOME OFFERED FOR A.Y.2012-13 ON CASH BASIS. THEREFORE, THE QUESTION OF DOUBLE TAXATION D OES NOT ARISE. 6.1.29 IN VIEW OF THE ABOVE, AN AMOUNT OF RS. 15,08 ,94,552/- BEING INTEREST ACCRUED ON INVESTMENTS FOR A.Y. 2011 -12 IS ADDED TO THE INCOME. ITA NOS. 34 & 1266/BANG/2014 PAGE 26 OF 29 46. IN APPEAL BEFORE THE CIT(APPEALS), IT WAS ARGUE D BY THE ASSESSEE THAT THE INTEREST ACCRUES ON BONDS ON THE DUE DATE SPECIFIED AT THE TIME OF ISSUING THE BOND WHICH HAS FALLEN DUE AFTER THE PRE VIOUS YEAR. HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT VS. THE KARNATAKA BANK LTD. , HELD THAT THE TAXING AUTHORITY HAVE NO RIGHT TO TAX INTE REST ON INVESTMENT UNLESS IT BECOMES DUE AND PAYABLE AS PER PROVISIONS OF SECTIO N 5 OF THE IT ACT. 47. THE CIT(APPEALS) WAS OF THE OPINION THAT THE HO NBLE HIGH COURT OF KARNATAKA IN THE CASE LAW CITED ABOVE, HAS CLEARLY HELD THAT IF THE INTEREST DOES NOT BECOME DUE AND NOT LIABLE TO PAY SUCH PART OF INTEREST, IT CANNOT BE SAID THAT THE INTEREST HAS BECOME ACCRUED. HENCE , IT WAS HELD THAT THE BROKEN PERIOD INTEREST ON THE GOVERNMENT SECURITIES IN THE ABOVE CASE WERE NOT TAXABLE. HENCE THE ADDITION WAS DIRECTED TO BE DELETED. 48. AGGRIEVED BY THE ORDER OF CIT(APPEALS), THE RE VENUE HAS RAISED GROUND NOS.4.1 & 4.2 BEFORE THE TRIBUNAL. 49. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS. AT THE TIME OF HEARING BEFORE US, IT WAS AGREED BY THE PARTIES THAT THE ISSUE RAISED BY THE REVENUE IN THIS APPEAL HAS ALREADY BEEN DECIDED BY THE HONBLE MADR AS HIGH COURT IN THE CASE OF CIT V. TAMIL NADU MERCANTILE BANK LTD., 291 ITR 137 (MAD) . THE QUESTION OF LAW BEFORE THE HONBLE MADRAS HI GH COURT WAS AS FOLLOWS:- ITA NOS. 34 & 1266/BANG/2014 PAGE 27 OF 29 WHETHER, ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE TRIBUNAL WAS RIGHT IN LAW IN HOLDING THAT INTEREST ON SECURITIES IS TAXABLE ONLY ON SPECIFIED DATES WHEN IT BECAME DUE FOR PAYMENT AND NOT ON ACCRUED BASIS?' THE HONBLE MADRAS HIGH COURT HELD AS FOLLOWS:- ' IN VIEW OF THE DELETION OF SECTION 18 OF THE INCOME -TAX ACT, 1961, WITH EFFECT FROM 1ST APRIL, 1989, THE TH IRD PROVISO TO SECTION 145(1) WAS INSERTED WITH EFFECT FROM APRIL 1, 1989, WHICH IS A SAVING CLAUSE. ALTHOUGH THE AMENDMENT WAS WITH EFFECT FROM APRIL 1, 1989, IT CLEARLY PROVIDES THAT ANY INCOME BY WAY OF INTEREST ON SECURITIES SHALL BE CHARGEABLE TO TAX A S THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH INTEREST IS DUE TO THE ASSESSEE ONLY WHERE NO METHOD OF ACCOUNTING IS REGULARLY EMP LOYED BY THE ASSESSEE. IN OTHER WORDS, IF THE ASSESSEE IS MAINTA INING CASH SYSTEM OF ACCOUNTING, THE AFORESAID PROVISO WOULD N OT APPLY. THE LEGISLATIVE INTENT IS THAT WHEN THE ASSESSEE IS MAI NTAINING THE CASH SYSTEM OF ACCOUNTING, INCOME BY WAY OF INTEREST ON SECURITIES WILL HAVE TO BE CHARGED TO TAX ONLY WHEN THE ASSESS EE ACTUALLY RECEIVES THE INTEREST AND NOT ON THE DATE ON WHICH INTEREST ON SUCH SECURITIES MIGHT BECOME DUE. THE ASSESSEE, WHILE FILING THE RETURN OF INCOME FO R THE ASSESSMENT YEARS 1989-90 AND 1990-91, CLAIMED EXCLU SION OF THE SUMS REPRESENTING THE ACCRUED INTEREST FOR THE PERI ODS TILL MARCH 31, 1989, AND TILL MARCH, 31, 1990, FOR THE RESPECT IVE ASSESSMENT YEARS, IN RESPECT OF THE SECURITIES HELD BY IT ON T HE GROUND THAT IT DID NOT BECOME DUE IN THE RESPECTIVE PREVIOUS YEARS AND THAT EVEN AFTER THE OMISSION OF SECTION 18, THE INTEREST ON S ECURITIES SHOULD BE CHARGED ONLY WHEN IT BECAME DUE FOR PAYMENT AS I T DID NOT ACCRUE ON DAY-TO-DAY BASIS. THE ASSESSING OFFICER, HOWEVER, DISALLOWED THE CLAIMS OF THE ASSESSEE, HOLDING THAT AFTER THE OMISSION OF SECTION 18 OF THE ACT, I.E., AFTER JULY 8, 1988, INTEREST IS TO BE ASSESSED UNDER THE HEAD BUSINESS OR OTH ER SOURCES AS THE CASE MAY BE, AND THEREFORE, THE INTEREST WHICH ACCRUED UP TO THE END OF THE ACCOUNTING YEAR BECAME TAXABLE AS TH E INCOME OF THE PREVIOUS YEAR. THE COMMISSIONER OF INCOME-TAX (APPEALS) HELD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED I N HOLDING THAT THE INTEREST ACCRUED UP TO THE LAST DAY OF THE ACCO UNTING YEAR SHOULD BE SUBJECTED TO TAX. THIS WAS UPHELD BY THE TRIBUNAL. ITA NOS. 34 & 1266/BANG/2014 PAGE 28 OF 29 ON APPEAL TO THE HIGH COURT: HELD, DISMISSING THE APPEAL THAT EVEN THOUGH SECTI ON 18 OF THE ACT WAS DELETED, THE ASSESSEE WAS TAXABLE FOR I NTEREST ON SECURITIES ONLY ON SPECIFIED DATES WHEN IT BECAME D UE FOR PAYMENT, IN VIEW OF THE THIRD PROVISO TO SECTION 14 5(1) OF THE ACT, WHICH WAS IN FORCE DURING THE RELEVANT ASSESSMENT Y EARS. 50. IT IS NOT IN DISPUTE BEFORE US THAT IDENTICAL DECISION HAS ALSO BEEN RENDERED BY THE HONBLE HIGH COURT OF KERALA IN THE CASE OF CIT V. FEDERAL BANK, 301 ITR 188 (KER) AND THE HONBLE KAR NATAKA HIGH COURT IN THE CASE OF KARNATAKA BANK LTD. IN IT A NO.433/2005 DATED 12.9.2013 . 51. IN THE PRESENT CASE, THE ASSESSEE HAS BEEN FOLL OWING THE METHOD OF OFFERING INTEREST ON SECURITIES TO TAX ON RECEIPT B ASIS ON MATURITY AND THE SAME HAS BEEN ACCEPTED BY THE REVENUE IN THE PAST. IN VIEW OF THE AFORESAID DECISION, WE ARE OF THE VIEW THAT THE ORD ER OF THE CIT(A) DOES NOT CALL FOR ANY INTERFERENCE. CONSEQUENTLY, THE RELEV ANT GROUNDS OF APPEAL RAISED BY THE REVENUE ARE DISMISSED. 52. GROUND NO.5 IS IDENTICAL TO GROUND NO.4 RAISED BY THE REVENUE FOR AY 2010-11. FOR THE REASONS STATED THEREIN, THIS G ROUND IS DISMISSED. 53. GROUND NOS.6.4 IS IDENTICAL TO GROUND NOS. 5 TO 8 RAISED BY THE REVENUE FOR AY 2010-11 IN ITA NO.34/B/14. FOR THE REASONS STATED THEREIN, THIS GROUND IS ALSO DISMISSED. ITA NOS. 34 & 1266/BANG/2014 PAGE 29 OF 29 54. CONSEQUENTLY, THE APPEAL IS DISMISSED. 55. IN THE RESULT, BOTH THE APPEALS BY THE REVENUE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 4 TH DAY OF SEPTEMBER, 2015. SD/- SD/- ( S. RIFAUR RAHMAN ) ( N.V. VASUD EVAN ) ACCOUNTANT MEMBER JUDICIAL M EMBER BANGALORE, DATED, THE 4 TH SEPTEMBER, 2015. /D S/ COPY TO: 1. APPELLANT 2. RESPONDENTS 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.