DCIT - 1(3)(2), MUMBAI V. AGRASEN URBAN CO.OP.BANK LTD., PUNE

ITA 2874/MUM/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 8893 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-10-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 17-05-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 18-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Question of law; Cost of acquisition; Bad and doubtful debts; Notional interest; Revenue expenditure
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, AM AND SHRI SANDEEP GOSAIN, JM I.T.A. NO. 2874/MUM/2016 ( ASSESSMENT YEAR: 2010 - 11 ) DY. CIT - 1(3)(2), ROOM NO. 540, 5 TH FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI - 400 020 VS. M/S. MAHANAGAR CO - OPERATIVE BANK LIMITED (THE SUCCESSOR ENTITY OF M/S. AGRASEN URBAN CO - OP. BANK LTD. 1040, RAVIWAR PETH, HAMJA KHAN CHOWK, LAXMI ROAD,PUNE - 411 002 PAN/GIR NO. AABTA 2487 N ( APPELLANT ) : ( RESPONDENT ) APPELLANT BY : SHRI PRAMOD NIKALJE RESPONDENT BY : SHRI SUHAS BORA DATE OF HEARING : 19.09.2018 DATE OF PRONOUNCEMENT : 03.10 .2018 O R D E R PER S HAMIM YAHYA, A. M.: THIS A PPEAL BY THE REVENUE IS DIRECTED AGAINST THE O RDER BY THE LEAR N ED COMMISSIONER OF INCOME TAX (APPEALS) , PUNE - 5, (LD.CIT(A) FOR SHORT) DATED 25.01.2016 AND PERTAINS TO THE A SSESSMENT YEAR (A.Y.) 2010 - 11. 2. THE GROUNDS OF APPEAL READ AS UNDER: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION O F RS.6,94,21,449/ - ON ACCOUNT OF ACCRUED INTEREST ON NON PERFORMING ASSETS, MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER U/S. 143(3). 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWA NCE OF RS.5,48,611/ - ON ACCOUNT OF CLAIM OF AMORTIZATION OF PREMIUM ON INVESTMENT IN GOVT. SECURITIES IN THE CATEGORY OF HELD TO MATURITY. APROPOS GROUND NO.1: 3. THE ASSESSING OFFICER (A.O. FOR SHORT) ON THIS ISSUE MADE AN ADDITION OF RS.6,94,21,449/ - O N ACCOUNT OF INTEREST ACCRUED ON NON PERFORMING ASSETS (NPA) ON 2 ITA NO. 2874/MUM/2016 THE GROUND THAT THE INTEREST ON BAD AND DOUBTFUL DEBTS/ASSETS ARE TO BE RECOGNIZED IN VIEW OF THE PROVISION OF SECTION 145 AND 43D OF THE INCOME TAX ACT, 1961 (THE ACT' FOR SHORT) . 4. UPON THE ASSESSEES APPEAL, THE LD. CIT(A) DELETED THE ADDITION REFERRING TO THE ITAT DECISION IN THE ASSESSEES OWN CASE AND A CATENA OF OTHER DECISIONS FROM THE HONBLE HIGH COURTS. 5. AGAINST THIS ORDER, THE REVENUE IS IN APPEAL BEFORE US. 6. WE HAVE HEA RD BOTH THE COUNSEL AND PERUSED THE RECORDS. UPON CAREFUL CONSIDERATION, WE NOTE THAT TH IS ISSUE NOW IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE VIDE SEVERAL DECISIONS OF THE HONBLE HIGH COURTS INCLUDING THAT OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE CIT VS. M/S. DEOGIRI NAGARI SAHAKARI BANK LTD. AND OTHERS (IN ITA NO. 54 OF 2014 AND OTHERS VIDE ORDER DATED 22.01.2015), THE HONBLE HIGH COURT HAS ELABORATELY CONSIDERED THE SAME ISSUE AND HELD AS UNDER: 9. THE INCOME TAX APPELLATE TRIBUNAL HA S REFFERED THE CASE OF M/S. VASISTH CHAY VYAPAR LIMITED 330 ITR 440(DELHI). IN THIS CASE, THE REVEN UE RELIED UPON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. SUPRA. T HE LEARNED INCOME TAX APPELLATE TRI BUNAL HAS REPRODUCED THE OBSERVATIONS MADE BY THE DELHI HIGH COURT WHILE REFERRING THE SAID CASE OF M/S SOUTHERNTECHNOLOGIES LIMITED SUPRA. THE ASSESSEE HEREIN BEING A CO OPERATIVE BANK ALSO GOVERNED BY THE RESER VE BANK OF INDIA AND THUS THE DIRECTIONS WITH R EGARD TO THE PRUDENTIAL NORMS ISSUED BY THE RESERVE BANK OF INDIA ARE EQUALL Y APPLICABLE TO THE CO OPERATIVE BANKS. THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LIMITED SUPRA HELD THAT, PROVISIONS OF SECTION 45Q OF RESERVE BANK OF INDIA ACT HAS AN OVERRIDING EFFECT VIS A VIS INCOME RECOGNITION PRINCIPLE UNDER THE COMPANIES ACT. HENCE, SECTION 45Q OF THE RBIACT SHALL HAVE OVERRIDING EFFECT OVER THE INCOME RE COGNITION PRINCIPLE FOLLOWED BY COOPERATIVE BANKS. HENCE, THE 3 ITA NO. 2874/MUM/2016 ASSESSING OFFICER HAS TO F OLLOW THE RESERVE BANK OF INDIA DIRECTIONS 1998, AS HELD BY THE HON'BLE SUPREME COURT. 10. THE HONOURABLE APEX COURT IN THE CASE OF UCO BANK CASE (SUPRA) HAD AN OCC ASION TO CONSIDER THE NATURE OF CBDT CIRCULAR AND HO N'BL E APEX COURT HAS THUS HELD THATBOARD HAS POWER, INTER ALIA, TO TONE DOWN THE RI GOUR OF THE LAW AND ENSURE A FAIR ENFORCEMENT OF ITS PROVISIONS, BY ISSUING CIRCULAR IN EXERCIS E OF ITS STATUTORY POWERS UNDERSECTION 119 OF ACT WHICH ARE BI NDING ON THE AUTHORITIES IN THE ADMINISTRATION OF THE ACT, IT IS A BENEFICIAL POW ER GIVEN TO THE BOARD FOR PROPER ADMINISTRATION OF FISC AL LAW SO THAT UNDUE HARDSHIP MAY NOT BE CAUSED TO THE ASSESSEE AND THE FISCAL BAY HIGH COURT 7 ITA NOS.53, 54, 57, 58, 68. 2014.ODT ASSESSING OFFICER HAS TO FOLLOW THE RESERVE BANK OF INDIA DIRECTIONS 1998, AS HELD BY THE HON'BLE SUPREME COURT. 10. THE HONOURABL E APEX COURT IN THE CASE OF UCO BANK CASE (SUPRA) HAD AN OCC ASI ON TO CONSIDER THE NATURE OF CBDT CIRCULAR AND HON'BLE APEX COURT HAS THUS HELD T HAT BOARD HAS POWER, INTER ALIA, TO TONE DOWN THE RIG OUR OF THE LAW AND ENSURE A FAIR ENFORCEMEN T OF ITS PROVISIONS, BY ISSUING CIRCULAR IN EXERCIS E OF ITS STATUTORY POWERS UNDER SECTION 119 OF ACT WHICH AR E BI NDING ON THE AUTHORITIES IN THE ADMINISTRATION OF THE ACT, IT IS A BENEFICIAL POWER GIVEN TO THEBOARD FOR PROPER ADMINISTRATION OF FISCAL LAW SO THAT UNDUE HARDSHIP M AY NOT BE CAUSED TO THE ASSESSEE AND THE FISCAL LAWS MAY BE CORRECTLY APPLIED. FURTH ER A SIMILAR ISSUE WAS RAISED ABOUT INTEREST ACCRUED ON A STICKY LOAN WHICH WA S NOT RECOVERED BY THE ASSESSEE BANK FOR THE LAST THREE YEARSAND TRANSFERRED TO THE SUS PE NSE ACCOUNT, WOULD OR WOULD NOT BE INCLUDED IN THE INCOME OF THE ASSESSEE FOR TH E PARTICULAR ASSESSMEN T YEAR. HON'BLE APEX COURT HAS OBSERVED THAT : THE METHOD OF ACCOUNTING WHICH IS FOLLOWED BY THE ASSESSEEBANK IS MERCANTILE SYSTEM OF ACCOUNTING. HOWEVER, THE ASSESSEE CONSIDERS INCOME BY WAY OF INTEREST PERTAINING TO DOUBTFUL LOANS AS NOT REAL INCOME IN THE YEAR IN WHICH IT ACCRUES, BUT ONLY WHEN IT IS REALIZED. A MIXED METHOD OF ACCOUNTING IS THUS FOLLOWED BY THE ASSESSEE - BANK. THIS METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE IS IN ACCORDANCE WITH ACCOUNTING PRACTICE. THE ASSESSEES METHOD OF ACCOUNTIN G, TRANSFERRING THE DOUBTFUL DEBT TO AN INTEREST SUSPENSE ACCOUNT AND NOT TREATING IT AS PROFIT UNTIL ACTUALLY RECEIVED, IS IN ACCORDANCE WITH ACCOUNTING PRACTICE UP TO ASSESSMENT YEAR 1978 - 79 THE TAXABILITY OF INTEREST ON DOUBTFUL DEBTS CREDITED TO SUSPEN SE ACCOUNT WILL BE DECIDED IN THE LIGHT OF THE BOARDS EARLIER CIRCULAR DATED 6 - 10 - 1952, AS THE SAID CIRCULAR WAS WITHDRAWN ONLY IN JUNE,1978. THE NEW PROCEDURE UNDER THE CIRCULAR OF 9 - 10 - 1984 WILL BE APPLICABLE FOR AND FROM THE ASSESSMENT YEAR, 1979 - 80. A LL PENDING DISPUTES ON THE ISSUE SHOULD BE SETTLED IN THE LIGHT OF THESE INSTRUCTIONS. THEREFORE, UP TO THE ASSESSMENT YEAR 1978 - 79, THE CBDTS CIRCULAR OF 6 - 10 - 1952 WOULD BE APPLICABLE; WHILE FROM THE ASSESSMENT YEAR 1979 - 80, THE CBDTS CIRCULAR OF 9 - 10 - 1984 IS MADE APPLICABLE. IN THE PRESENT CASE, THE ASSESSMENT WAS MADE ON THE BASIS OF THE CBDTS CIRCULAR ON 9 - 10 - 1984, SINCE THE ASSESSMENT PERTAINS TO THE ASSESSMENT YEAR 1981 - 82 TO WHICH THE CIRCULAR OF 9 - 10 - 1984 IS APPLICABLE. IF, THE BOARD HAS CONSID ERED IT NECESSARY TO LAY DOWN A 4 ITA NO. 2874/MUM/2016 GENERAL TEST FOR DECIDING WHAT IS A DOUBTFUL DEBT, AND DIRECTED THAT ALL ASSESSING OFFICERS SHOULD TREAT SUCH AMOUNTS AS NOT FORMING PART OF THE INCOME OF THE ASSESSEE UNTIL REALIZED, THIS DIRECTION BY WAY OF A CIRCULAR CAN NOT BE CONSIDERED AS TRAVELING BEYOND THE POWERS OF THE BOARD UNDER SECTION 119 OF THE INCOME TAX ACT. SUCH A CIRCULAR IS BINDING UNDER SECTION 119. THE CIRCULAR OF 9 - 10 - 1984, THEREFORE, PROVIDES A TEST FOR RECOGNIZING WHETHER A CLAIM FOR INTEREST CAN BE T REATED AS A DOUBTFUL CLAIM UNLIKELY TO BE RECOVERED OR NOT. THE TEST PROVIDED BY THE SAID CIRCULAR IS TO SEE WHETHER, AT THE END OF THREE YEARS, THE AMOUNT OF INTEREST HAS, IN FACT, BEEN RECOVERED BY THE BANK OR NOT. IF IT IS NOT RECOVERED FOR A PERIOD OF THREE YEARS, THEN IN THE FOURTH YEAR AND ONWARDS THE CLAIM FOR INTEREST HAS TO BE TREATED AS DOUBTFUL CLAIM WHICH NEED NOT BE INCLUDED IN THE INCOME OF THE ASSESSEE UNTIL IT IS ACTUALLY RECOVERED. IN THE PRESENT CASE, THE CIRCULARS WHICH HAVE BEEN IN FORCE ARE MEANT TO ENSURE THAT WHILE ASSESSING THE INCOME ACCRUED BY WAY OF INTEREST ON A STICKY LOAN, THE NOTIONAL INTEREST WHICH IS TRANSFERRED TO A SUSPENSE ACCOUNT PERTAINING TO DOUBTFUL LOANS WOULD NOT BE INCLUDED IN THE INCOME OF THE ASSESSEE, IF FOR TH REE YEARS SUCH INTEREST IS NOT ACTUALLY RECEIVED. THE VERY FACT THAT THE ASSESSEE, ALTHOUGH GENERALLY USING A MERCANTILE SYSTEM OF ACCOUNTING, KEEPS SUCH INTEREST AMOUNTS IN A SUSPENSE ACCOUNT AND DOES NOT BRING THESE AMOUNTS TO THE P&L A/C GOES TO SHOW TH AT THE ASSESSEE IS FOLLOWING A MIXED SYSTEM OF ACCOUNTING BY WHICH SUCH INTEREST IS INCLUDED IN ITS INCOME ONLY WHEN IT IS ACTUALLY RECEIVED. LOOKING TO THE METHOD OF ACCOUNTING SO ADOPTED BY THE ASSESSEE IN SUCH CASES, THE CIRCULARS WHICH HAVE BEEN ISSUED ARE CONSISTENT WITH THE PROVISIONS OF SECTION 145 AND ARE MEANT TO ENSURE THAT ASSESSEES OF THE KIND SPECIFIED WHO HAVE TO ACCOUNT FOR ALL SUCH AMOUNTS OF INTEREST ON DOUBTFUL LOANS ARE UNIFORMLY GIVEN THE BENEFIT UNDER THE CIRCULAR AND SUCH INTEREST AMOU NTS ARE NOT INCLUDED IN THE INCOME OF THE ASSESSEE UNTIL ACTUALLY RECEIVED IF THE CONDITIONS OF THE CIRCULAR ARE SATISFIED. THE CIRCULAR OF 9 - 10 - 1984, ALSO SERVES ANOTHER PRACTICAL PURPOSE OF LAYING DOWN A UNIFORM TEST FOR THE ASSESSING AUTHORITY TO DECIDE WHETHER THE INTEREST INCOME WHICH IS TRANSFERRED TO THE SUSPENSE ACCOUNT IS, IN FACT, ARISING IN RESPECT OF A DOUBTFUL OR STICKY LOAN. THIS IS DONE BY PROVIDING THAT NON - RECEIPT OF INTEREST FOR THE FIRST THREE YEARS WILL NOT BE TREATED AS INTEREST ON A DOUBTFUL LOAN. BUT IF AFTER THREE YEARS THE PAYMENT OF INTEREST IS NOT RECEIVED, FROM THE FOURTH YEAR ONWARDS IT WILL BE TREATED AS INTEREST ON A DOUBTFUL LOAN AND WILL BE ADDED TO THE INCOME ONLY WHEN IT IS ACTUALLY RECEIVED. THERE IS NO INCONSISTENCY OR CONTRADICTION BETWEEN THE CIRCULAR SO ISSUED AND SECTION 145 OF THE INCOME TAX ACT. IN FACT, THE CIRCULAR CLARIFIES THE WAY IN WHICH THESE AMOUNTS ARE TO BE TREATED UNDER THE ACCOUNTING PRACTICE FOLLOWED BY THE LENDER. THE CIRCULAR, THEREFORE, CANNOT BE TR EATED AS CONTRARY TO SECTION 145 OF THE INCOME TAX ACT OR ILLEGAL IN ANY FORM. IT IS MEANT FOR A UNIFORM ADMINISTRATION OF LAW BY ALL THE INCOME - TAX AUTHORITIES IN A SPECIFIC SITUATION AND, THEREFORE, VALIDLY ISSUED UNDER SECTION 119 OF THE INCOME TAX ACT. AS SUCH, THE CIRCULAR WOULD BE BINDING ON THE DEPARTMENT. THE RELEVANT CIRCULARS OF CBDT CANNOT BE IGNORED. THE QUESTION IS NOT WHETHER A CIRCULAR CAN OVERRIDE OR DETRACT FROM THE PROVISIONS OF THE ACT; THE QUESTION IS 5 ITA NO. 2874/MUM/2016 WHETHER THE CIRCULAR SEEKS TO MITIGA TE THE RIGOUR OF A PARTICULAR SECTION FOR THE BENEFIT OF THE ASSESSEE IN CERTAIN SPECIFIED CIRCUMSTANCES. SO LONG AS SUCH A CIRCULAR IS IN FORCE IT WOULD BE BINDING ON THE DEPARTMENTAL AUTHORITIES IN VIEW OF THE PROVISIONS OF SECTION 119 TO ENSURE A UNIFOR M AND PROPER ADMINISTRATION AND APPLICATION OF THE INCOME TAX ACT. 11. THE LEARNED COUNSEL FOR RESPONDENT HAS PLAC ED RELIANCE IN A CASE OF MERCANTILE BANK LTD., BOMBAY VS. THE COMMISSIONER OF INCOME TAX, BOMBAY CITY - III REPORTED IN (2006) 5 SCC 221, WHERE SIMILAR QUESTION WAS RAISED BEFORE THE APEX COURT. THE QUEST ION WAS WHETHER THE ASSESSEE IS LIABLE TO BE TAXED UNDER I NCOME TAX ACT, 1961 IN RESPECT OF THE INTEREST ON DOUBTFUL ADVANCES CREDITED TO TH INTEREST SUSPENSE ACCOUNT. IN THIS CASE, THE UCO BANK'S CASE (SUPRA) WAS ALSO REFERRED AND THE HONBLE APEX COURT HAS ALLOWED THE APPEAL TO THE EXTENT OF QUESTION RAISED AS AFORESAID. FURTHERMORE, THE RESPONDENT CO - OPERATIVE BANKS, AS UNDERSTOOD BY SECTION 43 C OF THE INCOME TAX ACT ON THE SCHEDULED BANK. 12. LEARNED COUNSEL FOR THE APPELLANTS/REVENUE PLACED RELIANCE ON THE JUDGMENT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. VS. JOINT CO MMISSIONER OF INCOME TAX, COIMBTORE REPORTED IN 2010 (2) SCC 548. HOWEVER, T HIS JUDGMENT PERTAINS TO N ON BANKING FINANCIAL COMPANIES. UCO BANK CASE (SUPRA) AND MERCANTILE BANK (SU PRA) CASESQUARELY APPLIES TO THE FACTS OF THE PRESENT CASE AND ISS UES INVOLVED. WE T HEREFORE, DO NOT FIND IT NECESSARY TO INTERFERE IN THE JUDGMENT OF THE APPELLATE TRIB UNAL. WE HOLD THAT NO SUBSTANTIAL QUESTION OF LAW ARISES IN THESE APPEALS. 7. SINCE THE IDENTICAL ISSUE HAS BEEN DECIDED BY THE HON'BLE JURISDICTIONAL HIGH COURT I N FAVOUR OF THE ASSESSEE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE L D. CIT(A), ACCORDINGLY, WE UPHOLD THE SAME. APROPOS GROUND NO. 2 : 8. ON THIS ISSUE, THE A.O. HAD MADE THE ADDITION OF RS.5,48,611/ - ON ACCOUNT OF AMORTIZATION OF PREMIUM ON INVESTMENT IN GOVERNMENT SECURITIES IN TH E CATEGORY OF HELD TO MATURITY. 6 ITA NO. 2874/MUM/2016 9. UPO N THE ASSESSEES APPEAL, THE LD. C IT(A) REFERRED TO THE ORDER OF THE ITAT IN ASSESSEES OWN CASE WHEREIN THE ISSUE HAS BEEN ELABORATELY DEALT WITH AND THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. 10. AGAINST THIS ORDER, THE REVENUE IS IN APPEAL BEFORE US. 11. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT THE LD. CIT(A) HAS DECIDED THE ISSUE BY REFERRING TO THE ITAT DECISION ON THE IMPUGNED SUBJECT WHEREIN THE ISSUE HAS BEEN ELABORATELY DEALT WITH. THE ORDER OF THE LD. CIT (A) IN THIS REGARD MAY BE REFERRED AS UNDER: 4.2 I HAVE PERUSED CAREFULLY THE MATERIAL, AND THE SUBMISSIONS OF THE APPELLANT. . I FIND THAT THE ISSUE HAS BEEN DECIDED IN APPELLANT'S OWN CASE BY THE HON'BLE ITAT PUNE BENCH 'B' PUNE IN THE APPELLATE ORDER I N ITA NO. ;' 690/PN/2013 FOR AY 2009 - 10 DATED 27 - 11 - 2013 IN FAVOUR OF THE APPELLANT, REFERRING TO THE DECISION OF THE ITAT PUNE BENCH IN THE CASE OF NASHIK MERCHANT CO - OP BANK LTD, IN ITA NO. 1254/PN/2011 WHEREIN ALSO THE TRIBUNAL HAD DECIDED THE ISSUE I N ASSESSEE'S FAVOUR BY OBSERVING AS UNDER: - ' 4. AFTER GOING THROUGH RIVAL SUBMISSIONS AND MATERIAL ON RECORD WE FIND THAT ; WITH THE ADVENT OF SECTION 80P(4) W.E.F. A.Y. 2007 - 08 HAS CLOSED THE DOORS FOR COOPERATIVE BANKS FOR CLAIMING THE BENEFIT OF DE DUCTION U/S.80P(2)(A)(I) FROM THIS TOTAL INCOME. HOWEVER, THE COOPERATIVE SOCIETY SHOULD NOW BE ENTITLED TO BE ASSESSED AS NORMAL BANKING COMPANY. THE CLAUSE (4) INSERTED IN 1 /28/2016 SECTION SOP HAS TAKEN AWAY THE BENEFIT OF THE ERSTWHILE I DEDUCTION AVAI LABLE TO COOPERATIVE SOCIETY IN CARRYING ON BUSINESS OF BANKING OR PROVIDING CREDIT FACILITY TO ITS MEMBERS. THE NEW CLAUSE (4) INSERTED BY THE FINANCE ACT, 2006 W.E.F. 01 - 04 - 2007 READS AS UNDER: 'THE PROVISION OF THE SECTION WAS NOT IN RELATION TO ANY COO PERATIVE BANK OTHER THAN AGRICULTURAL CREDIT SOCIETY OR PRIMARY COOPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK'. 5. THE INTENTION OF THE PROVISION MAY BE DERIVED MORE PRECISELY FROM RELEVANT PARA 166 OF THE BUDGET SPEECH WHICH STATED THAT: 'COO PERATIVE BANKS, LIKE ANY OTHER BANK, ARE LENDING INSTITUTIONS AND SHOULD PAY TAX ON THEIR PROFITS, PRIMARY AGRICULTURAL CREDIT SOCIETIES (PACS) AND PRIMARY COOPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK (PCARDB) STAND ON A 7 ITA NO. 2874/MUM/2016 SPECIAL FOOTING AND WILL CON TINUE TO BE EXEMPT UNDER SECTION SOP OF THE INCOME TAX ACT. HOWEVER, I PROPOSE TO EXCLUDE ALL OTHER COOPERATIVE BANKS FROM THE SCOPE OF THAT SECTION'. ACCORDINGLY, SECTION SOP IS TO BE AMENDED TO GIVE EFFECT TO THE ABOVE PROPOSAL. IT IS ALSO PROPOSED TO AM END SECTION 2(24) TO PROVIDE THAT PROFITS AND GAINS OF BUSINESS OF BANKING (INCLUDING PROVIDING CREDIT FACILITIES) CARRIED ON BY A COOPERATIVE SOCIETY WITH ITS MEMBERS SHALL BE INCLUDED IN THE DEFINITION OF 'INCOME' (WITH EFFECT FROM 1ST APRIL, 2007)'. 6. COOPERATIVE BANK UNLIKE OTHER COMMERCIAL BANKS ARE SUBJECTED TO DUAL CONTROL FROM BOTH RBI AS WELL AS FROM STATE COOPERATIVE DEPARTMENT. THE ACCOUNTING TREATMENT FOR A COOPERATIVE BANK IS THEREFORE A RESULT OF GUIDELINES FROM BOTH THE CONTROLLING AU THORITIES. ORDINARILY A DEDUCTION IS NOT AVAILABLE TO AN ASSESSES UNLESS SPECIFICALLY PROVIDED UNDER THE ACT. THIS IS IRRESPECTIVE OF ACCOUNTING TREATMENT PROVIDED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS. BUT AT THE SAME TIME IT WAS WELL SETTLED THAT DEDU CTION EXPRESSLY MENTIONED UNDER THE ACT ARE NOT EXHAUSTIVE AND PROFIT IS TO BE DERIVED ACCORDING TO ORDINARY COMMERCIAL PRINCIPLES. AS PER THE EXTANT RBI GUIDELINES DATED 01072009 THE INVESTMENT PORTFOLIO OF THE BANKS IS REQUIRED TO BE CLASSIFIED UNDER 3 C ATEGORIES VIZ., HELD THE MATURITY HTM), HELD FOR TRADING (HFT) AND AVAILABLE FOR SALE (AFS). THE VALUE OF EACH KIND OF INVESTMENT IS TO BE DONE IN THE FOLLOWING MANNER; SR. NO. CLASSIFICATION - VALUATION NORMS OF INVESTMENT 1. HTM - THESE ARE CARRIED AT ACQUISITION COST UNLESS THE COST IS MORE THAN THE FACE VALUE, IN WHICH CASE THE PREMIUM SHOULD BE AMORTIZED OVER THE PERIOD REMAINING TO MATURITY. THE PREMIUM IS REQUIRED TO BE AMORTIZED OVER THE PERIOD REMAINING TO MATURITY. THIS APART, ANY PERMANENT DIMI NUTION IN VALUE SHALL FV SHALL GO ON TO REDUCE COST OF THE INVESTMENT. 2. AFS - THE INDIVIDUAL SCRIPS IN THE AVAILABLE FOR SALE CATEGORY WILL BE MARKED TO MARKET AT QUARTERLY OR AT MORE FREQUENT INTERVALS. THESE INVESTMENTS ARE CONSIDERED TO FORM STOCK IN TRADE OF A BANK AND THEREFORE ARE TO BE VALUED AT COST OR NRV, WHICHEVER IS LESS. FALL IN VALUE BELOW COST, THEREFORE, IS TO BE PROVIDED IMMEDIATELY, HOWEVER ANY NET APPRECIATION IN VALUE IS IGNORED AND NOT RECOGNIZED AS INCOME ON THE BASIS OF CONSERVATISM . 3. HFT - THE INDIVIDUAL SCRIPS IN THE HELD FOR TRADING CATEGORY WILL BE MARKED TO MARKET AT MONTHLY OR AT MORE FREQUENT INTERVALS AND PROVIDED FOR AS IN THE CASE OF THOSE IN THE AVAILABLE FOR SALE CATEGORY. 7 . IN PARA (VII) OF THE CBDT INSTRUCTION NO.17 OF 2008 DATED 26.11.2008, ON ASSESSMENT OF BANK CHECKLIST FOR DEDUCTION 1 , STATES AS UNDER; 'AS PER RB1 GUIDELINES DATED 16TH OCTOBER, 2000, THE INVESTMENT PORTFOLIO OF THE BANKS IS REQUIRED TO BE CLASSIFIED UNDER THREE CATEGORIES VIZ. HELD TO MATURI TY (HTM), HELD FOR TRADING (HFT) AND AVAILABLE FOR SALE (AFS). INVESTMENTS CLASSIFIED UNDER HTM CATEGORY NEED NOT BE MARKED TO MARKET AND ARE CARRIED AT ACQUISITION COST UNLESS THESE ARE MORE THAN THE FACE VALUE, IN WHICH CASE THE PREMIUM SHOULD BE 8 ITA NO. 2874/MUM/2016 AMORTIZ ED OVER THE PERIOD REMAINING TO MATURITY, IN THE CASE OF HFT AND AFS SECURITIES FORMING STOCK IN TRADE OF THE BANK, THE DEPRECIATION/APPRECIATION IS TO BE AGGREGATED SCRIP WISE AND ONLY NET DEPRECIATION, IF ANY, IS REQUIRED TO BE PROVIDED FOR IN THE ACCOUN TS. THE LATEST GUIDELINES OF THE RBI MAY BE REFERRED TO FOR ALLOWING ANY SUCH CLAIMS.' 8. THE 1TAT, MUMBAI BENCH, IN THE CASE OF ACIT VS. THE BANK OF RAJASTHAN LTD. (2011) TI OL35ITATMUMBAI, HAS HELD THAT IN CASE OF BANKS, THE PREMIUM PAID IN EXCESS OF FACE VALUE OF INVESTMENTS CLASSIFIED UNDER HTM CATEGORY WHICH HAS BEEN AMORTISED OVER THE PERIOD TILL MATURITY IS ALLOWABLE AS REVENUE EXPENDITURE SINCE THE CLAIM IS AS PER RBI GUIDELINES AND CBDT ALSO HAS DIRECTED TO ALLOW SUCH PREMIUM. I T HAS ALSO BEEN HELD IN THE CASE OF CATHOLIC SYRIAN BANK LTD. VS. ACIT THAT AMORTISATION ON PURCHASE OF GOVERNMENT SECURITIES WAS MADE AS PER PRUDENTIAL NORMS OF THE RBI AND SAME WAS ALLOWABLE DEDUCTION. IN VIEW OF ABOVE, ASSESSEE WAS JUSTIFIED IN CONTENDING FOR AMORTISATION O F PREMIUM PAID IN EXCESS OF FACE VALUE OF I SECURITIES HELD TO MATURITY(HTM) CATEGORY OR PERIOD REMAINING TILL MATURITY IT WAS FOUND REASONABLE BY THE CIT(A).ACCORDINGLY ADDITION OF RS.17,91,659/ - MADE BY THE ASSESSING OFFICER BY DISALLOWING AMOUNT TOWARDS AMORTISATION OF GOVERNMENT SECURITIES (HMT) WAS DELETED. THIS REASONED FACTUAL AND LEGAL FINDING OF THE CIT(A) NEEDS NO INTERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME. 9. AS A RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED.' 4.3 I ALSO FIND THA T THE HON'BLE TRIBUNAL IN APPELLANT'S OWN CASE IN ITA NO. 136/PN/2014 FOR AY 2010 - 11 DATED 29 - 5 - 2015 HAD ALLOWED THE ASSESSEE'S APPEAL REFERRING TO THE AFORESAID DECISION OF THE APPELLANT FOR AY 2009 - 10. RESPECTFULLY FOLLOWING THE ABOVE DECISIONS OF THE JU RISDICTIONAL TRIBUNAL, I DIRECT THE AO TO DELETE THE ADDITION OF RS. 5,48,6117 - MADE BY HIM TOWARDS AMORTIZATION OF PREMIUM ON INVESTMENT IN GOVERNMENT SECURITIES IN THIS YEAR. GROUND NO. 3 RAISED BY THE APPELLANT IS ACCORDINGLY ALLOWED. 12. IN VIEW OF T HE DECISION OF THE ITAT, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A). ACCORDINGLY, WE UPHOLD THE SAME . 13. IN THE RESULT, THE APPEAL BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 03.10.2018 SD/ - SD/ - ( SANDEEP GOSAIN ) (S HAMIM YAHYA) J UDICIAL MEMBER A CCOUNTANT MEMBER MUMBAI ; DATED : 03.10.2018 9 ITA NO. 2874/MUM/2016 ROSHANI , SR. PS COPY OF THE ORDER FORWARDED T O : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT - CONCERNED 5. DR, ITAT, MUMBAI 6. GUARD F ILE BY ORDER, (DY./ASSTT. REGISTRAR) ITAT, MUMBAI