ACIT, Circle -9(1), Hyderabad V. M/s Deccan Grameen Bank, Hyderabad

ITA 1536/HYD/2012

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0283 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 21-04-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 08-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAMAKRISHNA BANDI
• Keywords: Bad and doubtful debts; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 1536/HYD/2012 ASSESSMENT YEAR: 2009-10 ASST. COMMISSIONER OF INCOME- TAX, CIRCLE 9(1), HYDERABAD VS. M/S DECCAN GRAMEEN BANK, LALITHA NAGAR, HYDERABAD. PAN AAAAD3893M (APPELLANT) (RESPONDENT) ITA NO. 1579/HYD/2012 ASSESSMENT YEAR: 2009-10 M/S DECCAN GRAMEEN BANK, LALITHA NAGAR, HYDERABAD. PAN AAAAD3893M VS. ASST. COMMISSIONER OF INCOME-TAX, CIRCLE 9(1), HYDERABAD REVENUE BY : SHRI RAMAKRISHNA BANDI ASSESSEE BY : SHRI MOHD. AFZAL DATE OF HEARING 05-06-2015 DATE OF PRONOUNCEMENT 12-06-2015 O R D E R PER SAKTIJIT DEY, J.M.: THESE CROSS APPEALS BY THE DEPARTMENT AND ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 16/07/2012 OF LD. CIT(A)-VI, HYDERABAD FOR THE AY 2009-10. ITA NO. 1536/HYD/2012 BY REVENUE 2. IN THIS APPEAL, DEPARTMENT HAS RAISED THREE GROU NDS. 2 ITA NOS. 1536 & 1579 /HYD/2012 M/S DECCAN GRAMEEN BANK 3. FIRST ISSUE AS RAISED IN GROUND NOS. 1 & 2 RELAT ES TO DELETION BY LD. CIT(A) OF ADDITION MADE BY AO ON ACCOUNT OF DIS ALLOWANCE OF BROKEN PERIOD INTEREST. 4. BRIEFLY THE FACTS RELATING TO THIS ISSUE ARE, AS SESSEE A REGIONAL RURAL BANK IS DOING BANKING ACTIVITY IN THE STATE O F UNDIVIDED AP. FOR THE AY UNDER CONSIDERATION, ASSESSEE FILED ITS RETU RN OF INCOME ON 25/09/2009 DECLARING TOTAL INCOME OF RS. 36,33,59,2 91. DURING THE ASSESSMENT PROCEEDING, AO NOTICED THAT ASSESSEE HAS CLAIMED AN AMOUNT OF RS. 1,58,65,512 AS BROKEN PERIOD INTEREST PAID ON PURCHASE OF SECURITIES. WHEN AO CALLED UPON ASSESSEE TO EXPL AIN WHETHER THE BROKEN PERIOD CAN BE ALLOWED AS BUSINESS EXPENDITUR E, ASSESSEE SUBMITTED THAT RBI HAD ADVISED BANKS THAT THEY SHOU LD NOT CAPITALIZE BROKEN PERIOD INTEREST PAID TO THE SELLER AS PART O F COST BUT TO TREAT IT AS AN EXPENDITURE IN P&L A/C. SUBSEQUENTLY, CIRCULA RS ISSUED BY RBI ALSO REITERATED THE SAME FACT. IT WAS SUBMITTED, AS PER RBI GUIDELINES ASSESSEE BANK DEBITED BROKEN PERIOD INTEREST PAID T O SELLER TO P&L A/C. IT WAS SUBMITTED THAT ASSESSEE BANK HAS BEEN F OLLOWING SAME METHOD OF ACCOUNTING CONSISTENTLY WHICH IS ALSO FOL LOWED BY OTHER BANKS. AO, HOWEVER, DID NOT FIND MERIT IN THE SUBMI SSIONS OF ASSESSEE. HE WAS OF THE VIEW THAT THE PROVISIONS OF INCOME-TAX ACT WILL SUPERSEDE NOT ONLY ACCOUNTING NORMS, BUT, ALSO THE CIRCULARS ISSUED BY RBI. AO, THEREAFTER, REFERRING TO CERTAIN JUDICIAL PRECEDENTS ULTIMATELY CONCLUDED THAT THE BROKEN PERIOD INTERES T IS NOT ALLOWABLE AS EXPENDITURE AND ACCORDINGLY DISALLOWING THE SAME ADDED BACK THE AMOUNT OF RS. 1,58,65,512 TO INCOME OF ASSESSEE. B EING AGGRIEVED OF SUCH DISALLOWANCE, ASSESSEE PREFERRED APPEAL BEF ORE LD. CIT(A). 5. LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE FOUND THAT ITAT, HYDERABAD BENCH IN CASE OF SBH VS. JCIT [2005] 94 ITD 219 HAS HELD THAT BROKEN PERIOD INTEREST PAID BY AS SESSEE BANK IS ALLOWABLE AS DEDUCTION. LD. CIT(A) ALSO REFERRING T O THE SOME OTHER DECISIONS OF THE HIGH COURT AS WELL AS SPECIAL BENC H OF THE TRIBUNAL, ULTIMATELY, HELD THAT BROKEN PERIOD INTEREST PAID B Y ASSESSEE IS 3 ITA NOS. 1536 & 1579 /HYD/2012 M/S DECCAN GRAMEEN BANK ALLOWABLE AS DEDUCTION AND ACCORDINGLY DELETED THE ADDITION MADE BY AO. BEING AGGRIEVED, DEPARTMENT IS BEFORE US. 6. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIE S AND PERUSED THE MATERIALS ON RECORD AS WELL AS THE ORDERS OF RE VENUE AUTHORITIES. BOTH THE COUNSELS AGREED BEFORE US THAT THE ISSUE I N DISPUTE IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2010-11 IN ITA NO. 1742/HYD/2014 DATED 25/03/2015. ON PERUSAL OF THE SAID ORDER OF ITAT, A COPY OF WHICH IS PLACED BEFORE THE BENCH, IT IS NOTICED THAT TRIBUNAL WHILE DECIDING T HE ISSUE IN ASSESSEES OWN CASE FOR AY 2010-11 HAS HELD AS UNDE R: 21. WITH REGARD TO THE ISSUE OF BROKEN PERIOD OF INTEREST FOR AN AMOUNT OF RS.3,73,12,444/- THE ISSUE IS COVERED BY THE ORD ERS CITED ABOVE AND ALSO IN THE CASE OF UNITED COMMERCIAL BANK VS. CIT (1994) 240 ITR 355 (S.C), CIT VS. SOUTH INDIAN BANK LTD (2000) 241 ITR 374 (KER.) AND BOARDS CIRCULAR NO.665 DATED 5.10.1993 ISSUED BY T HE CBDT. HENCE, RESPECTFULLY FOLLOWING THE ORDER OF THE COORDINATE BENCHES, WE DISMISS GROUND NO.3 OF REVENUES APPEAL. RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINA TE BENCH IN ASSESSEES OWN CASE (SUPRA) WE HOLD THAT BROKEN PER IOD INTEREST CLAIMED BY ASSESSEE IS AN ALLOWABLE DEDUCTION. ACCO RDINGLY, WE UPHOLD THE ORDER OF LD. CIT(A) ON THIS ISSUE BY DIS MISSING THE GROUND RAISED. 7. IN GROUND NO. 4 DEPARTMENT HAS CHALLENGED THE DE CISION OF LD. CIT(A) IN DELETING THE ADDITION MADE BY AO ON ACCOU NT OF AMORTIZATION OF PREMIUM PAID IN EXCESS OF FACE VALU E OF SECURITIES. 8. BRIEFLY THE FACTS ARE, DURING THE ASSESSMENT PRO CEEDING, AO NOTICED THAT ASSESSEE HAS DEBITED AN AMOUNT OF RS. 2,70,27,000 TO P&L A/C TOWARDS AMORTIZATION PROVIDED ON GOVERNMENT SECURITIES. HE OBSERVED, TO MEET THE STATUTORY LIQUIDITY RATIO AS PER BANKING REGULATIONS ACT, 1949, BANK PURCHASES GOVERNMENT SE CURITIES IN THE MARKET THROUGH SBI. WHILE PURCHASING BANK NEEDS TO PAY PREMIUM ON THE FACE VALUE OF THE GOVERNMENT SECURITY. AS PER R BI GUIDELINE BANK HOLDS THE GOVERNMENT SECURITIES TILL ITS MATURITY ( HELD TO MATURITY). THE 4 ITA NOS. 1536 & 1579 /HYD/2012 M/S DECCAN GRAMEEN BANK PREMIUM IS BIFURCATED FROM THE DATE OF PURCHASE TIL L THE DATE OF MATURITY AND THE SAME IS CALLED AMORTIZATION. AO CA LLED UPON ASSESSEE TO EXPLAIN WHY THE EXPENDITURE CLAIMED SHO ULD NOT BE DISALLOWED U/S 37(1). IN RESPONSE TO THE SAID QUERY RAISED BY AO, ASSESSEE SUBMITTED THAT ACCORDING TO AS-26 READ WIT H INCOME-TAX ACT, 1961 THE PREMIUM PAID ON GOVERNMENT SECURITIES IS A N INTANGIBLE ASSET WHOSE LIFE CAN BE ASCERTAINED AND ACCORDINGLY THE SAME SHOULD BE AMORTIZED AND WRITTEN OFF OVER THE USEFUL LIFE O F INTEREST. AO, HOWEVER, DID NOT FIND MERIT IN THE SUBMISSIONS OF A SSESSEE. REFERRING TO THE PROVISIONS OF SECTION 35D, AO ULTIMATELY, HE LD THAT AS THE CLAIM OF AMORTIZATION IS NOT IN ACCORDANCE WITH THE PROVI SIONS OF THE SAID SECTION, ASSESSEES CLAIM IS NOT ALLOWABLE. BEING A GGRIEVED OF SUCH DISALLOWANCE, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A). 9. IN COURSE OF HEARING OF APPEAL BEFORE LD. CIT(A) , IT WAS SUBMITTED BY ASSESSEE THAT ALL THE INVESTMENTS IN G OVERNMENT SECURITIES WERE HELD AS STOCK-IN-TRADE AND NOT AS I NVESTMENT AND THE SECURITIES ON WHICH PREMIUM WAS PAID EVEN THOUGH HE LD UNDER THE HTM (HELD TO MATURITY) CATEGORY, BUT, THEY WERE TO BE TREATED AS STOCK-IN-TRADE AND THE AMORTIZATION ON THE HTM SECU RITIES IS A REVENUE EXPENDITURE. IN SUPPORT OF SUCH CONTENTION, ASSESSEE RELIED UPON A DECISION OF HONBLE SUPREME COURT IN CASE OF UCO BANK, 237 ITR 889 AND THE DECISION OF MUMBAI BENCH OF ITAT IN CASE OF ACIT VS. BANK OF RAJASTHAN LTD., 2011-TIOL-35-ITAT-MUM. LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE AND GOING T HROUGH THE PRINCIPLE OF LAW LAID DOWN IN THE DECISIONS CITED BEFORE HER HELD THAT ASSESSEE IS ELIGIBLE FOR DEDUCTION CLAIMED. ACCORDI NGLY SHE DELETED THE ADDITION MADE BY AO. 10. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS OT HER MATERIALS ON RECORD. UNDISPUTEDLY, THE GOVERNMENT SECURITIES UND ER HTM CATEGORY HAVE BEEN HELD AS STOCK-IN-TRADE BY ASSESSEE. AS HE LD BY HONBLE SUPREME COURT IN CASE OF UCO BANK (SUPRA), SECURIT IES ON WHICH 5 ITA NOS. 1536 & 1579 /HYD/2012 M/S DECCAN GRAMEEN BANK PREMIUM IS PAID, IF HELD UNDER HTM CATEGORY ARE TO BE TREATED AS STOCK-IN-TRADE. ITAT MUMBAI BENCH IN CASE OF ACIT V S. THE BANK OF RAJASTHAN LTD. IN ITA NO. 3238/MUM/2010 AND OTHERS DATED 09/09/2011 WHILE DECIDING THE ISSUE RELATING TO AL LOWABILITY OF DEDUCTION CLAIMED TOWARDS AMORTIZATION ON PREMIUM P AID ON EXCESS FACE VALUE OF SECURITIES HELD UNDER HTM CATEGORY HA S ALLOWED ASSESSEES CLAIM HOLDING AS UNDER: 10. AT THE TIME OF HEARING BEFORE US, THE LEARNED R EPRESENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THIS ISSUE IS ALSO SQU ARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE VARIOUS ORDERS OF T HE TRIBUNAL PASSED IN ASSESSEES OWN CASE FOR EARLIER YEARS. COPIES OF THE SAID ORDERS ARE PLACED ON RECORD BEFORE US AND A PERUSAL OF TH E SAME SHOWS THAT IN ONE OF SUCH ORDERS DATED 22ND DEC., 2010 PASSED IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2002-03 TO 2006-07, THE COORDINATE BENCH OF THIS TRIBUNAL HAS DIRECTED THE AO TO ALL OW THE PREMIUM AMORTIZED BY THE ASSESSEE OVER THE PERIOD REMAINI NG TO MATURITY HOLDING THAT THE SAME WAS CLAIMED AS PER THE RELEV ANT RBI GUIDELINES AND EVEN THE CBDT HAS ISSUED INSTRUCTIONS TO ALLOW THE SAME. RESPECTFULLY FOLLOWING THE SAID ORDER OF THE TRIB UNAL IN ASSESSEES OWN CASE FOR EARLIER YEARS, WE UPHOLD THE IMPUGNED OR DER OF THE LEARNED CIT(APPEALS) GIVING RELIEF TO THE ASSESSEE ON THI S ISSUE AND DISMISS GROUND NO. 3 OF THE REVENUES APPEAL. LD. DR HAS NOT BEEN ABLE TO BRING TO OUR NOTICE AN Y OTHER CONTRARY DECISION EITHER OF THE ITAT OR ANY HIGH COURT TO TA KE A DIFFERENT VIEW ON THE ISSUE. IN VIEW OF THE AFORESAID, WE UPHOLD T HE ORDER OF LD. CIT(A) BY DISMISSING THE GROUND RAISED. 11. IN THE RESULT, APPEAL OF DEPARTMENT IS DISMISSE D. ITA NO. 1579/HYD/2012 BY ASSESSEE 12. THE ONLY ISSUE IN ASSESSEES APPEAL RELATES TO DISALLOWANCE OF DEDUCTION CLAIMED U/S 36(1)(VIIA) AMOUNTING TO RS. 2,94,61,564. 13. BRIEFLY THE FACTS RELATING TO THIS ISSUE ARE, D URING THE ASSESSMENT PROCEEDING AO NOTICED THAT IN THE COMPUT ATION OF INCOME FILED ALONG WITH RETURN OF INCOME ASSESSEE HAS CLAI MED DEDUCTION OF AN AMOUNT OF RS. 2,94,61,564 U/S 36(1)(VIIA) BEING PROVISION MADE FOR BAD AND DOUBTFUL DEBTS OF RURAL BRANCHES. HOWEVER, ON VERIFYING THE 6 ITA NOS. 1536 & 1579 /HYD/2012 M/S DECCAN GRAMEEN BANK AUDITED STATEMENT OF ACCOUNTS AND OTHER DOCUMENTS, HE NOTICED THAT ASSESSEE HAD NOT MADE ANY PROVISION FOR BAD AND DOU BTFUL DEBTS IN THE BOOKS OF ACCOUNT. ACCORDINGLY, HE DISALLOWED TH E DEDUCTION CLAIMED BY ASSESSEE. BEING AGGRIEVED OF SUCH DISALL OWANCE, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A). 14. LD. CIT(A) ON REFERRING TO A DECISION OF STATE BANK OF PATIALA VS. CIT, 272 ITR 54 (P&H), WHEREIN IT WAS HELD THAT UNLESS PROVISION FOR BAD AND DOUBTFUL DEBTS IS MADE IN THE BOOKS OF ACCOUNT, NO DEDUCTION U/S 36(1)(VIIA) CAN BE ALLOWED, UPHELD TH E DISALLOWANCE SINCE ASSESSEE HAS NOT MADE ANY PROVISION IN THE BO OKS OF ACCOUNT. BEING AGGRIEVED, ASSESSEE IS BEFORE US. 15. LD. AR SUBMITTED BEFORE US, THE ISSUE IS COVERE D BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2010-11 IN ITA NO. 1742/HYD/14 DATED 25/03/2015. 16. LD. DR, ON THE OTHER HAND, SUBMITTED THAT THE S AID DECISION HAS NOT TAKEN INTO CONSIDERATION THE JUDGMENT OF THE P& H HIGH COURT IN CASE OF STATE BANK OF PATIAL (SUPRA), WHICH IS DIRE CTLY ON THE ISSUE. 17. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE MATERIALS ON RECORD. UNDISPUTEDLY, ASSESSEE HA S NOT MADE ANY PROVISION FOR BAD AND DOUBTFUL DEBTS IN THE BOOKS O F ACCOUNT AS REQUIRED U/S 36(1)(VIIA). ONLY IN COMPUTATION OF IN COME FILED ALONG WITH RETURN OF INCOME ASSESSEE HAS CLAIMED DEDUCTIO N TOWARDS PROVISION FOR BAD AND DOUBTFUL DEBTS. ON PERUSAL OF SECTION 36(1)(VIIA), IT IS VERY MUCH CLEAR THAT FOR CLAIMIN G DEDUCTION UNDER THE SAID PROVISION, THE MANDATORY REQUIREMENT IS ASSESS EE MUST HAVE MADE A PROVISION IN THE BOOKS OF ACCOUNT FOR CLAIMI NG DEDUCTION IN THE MANNER PRESCRIBED THEREIN. THEREFORE, WHEN ASSESSEE HAS NOT MADE ANY PROVISION IN THE BOOKS OF ACCOUNT IN SO FAR AS BAD AND DOUBTFUL DEBTS ARE CONCERNED, ASSESSEE IS NOT ELIGIBLE FOR D EDUCTION U/S 36(1)(VIIA). THE HONBLE P&H HIGH COURT IN CASE OF STATE BANK OF PATIALA VS. CIT (SUPRA) WHILE INTERPRETING THE PROV ISIONS OF SECTION 7 ITA NOS. 1536 & 1579 /HYD/2012 M/S DECCAN GRAMEEN BANK 36(1)(VIIA) HAS HELD THAT UNLESS ASSESSEE BANK MAKE S A PROVISION FOR BAD AND DOUBTFUL DEBT IN THE BOOKS OF ACCOUNT, NO D EDUCTION IS ALLOWABLE. AS REGARDS THE DECISION OF THE COORDINAT E BENCH IN ASSESSEES OWN CASE FOR AY 2010-11 RELIED UPON BY T HE LD. COUNSEL FOR THE ASSESSEE, IT IS OBSERVED THAT A SIMILAR ISS UE WAS DECIDED BY THE COORDINATE BENCH FOR AY 2010-11 IN FAVOUR OF TH E ASSESSEE RELYING ON THE DECISION OF HONBLE SUPREME COURT IN CASE OF CAHTOLIC SYRIAN BANK VS. CIT, [2012] 343 ITR 270 WHICH WAS NOT DIRE CTLY ON THE POINT AND THE DECISION OF STATE BANK OF PATIALA VS. CIT, 272 ITR 54 (P&H), WHICH IS DIRECTLY ON THE POINT, WAS NOT BROUGHT TO THE NOTICE OF THE COORDINATE BENCH. THE BENEFIT OF THE SAID DECISION IN THE CASE OF STATE BANK OF PATIALA VS. CIT (SUPRA), THUS, WAS NO T AVAILABLE TO THE COORDINATE BENCH WHILE DEALING A SIMILAR ISSUE FOR AY 2010-11 AND SINCE THE SAME IS SQUARELY APPLICABLE TO THE ISSUE UNDER CONSIDERATION, AS AGREED EVEN BY THE LD. COUNSEL FO R THE ASSESSEE, WE DECIDE THIS ISSUE AGAINST THE ASSESSEE FOLLOWING TH E SAME. IN THE AFORESAID VIEW OF THE MATTER, FINDING NO INFIRMITY IN THE ORDER OF LD. CIT(A), WE UPHOLD THE SAME BY DISMISSING THE GROUND RAISED. 18. IN THE RESULT, APPEAL OF ASSESSEE IS DISMISSED. 19. TO SUM UP REVENUES APPEAL IN ITA NO. 1536/HY/1 2 AND ASSESSEES IN ITA NO. 1579/HYD/12 ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 12 TH JUNE, 2015. SD/- SD/- (P.M. JAGTAP) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 12 TH JUNE, 2015 KV 8 ITA NOS. 1536 & 1579 /HYD/2012 M/S DECCAN GRAMEEN BANK COPY TO:- 1) ACIT, CIRCLE 9(1), HYDERABAD 2) M/S DECCAN GRAMEEN BANK, LALITHA NAGAR, DILSUKHN AGAR, HYDERABAD. 3 CIT(A)-VI, HYDERABAD 4) CIT-VI, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.