Chiplun Urban Co.op. Bank Ltd., Ratnagiri V. Assistant Commissioner of Income-tax,

ITA 319/PUN/2014

• Counselvise Citation: 31924514 RSA 2014
• Duration Of Justice: 2 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-04-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 19-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S P WALIMBE
• Keywords: Capital asset; Business income; Depreciation; Question of law; Cost of acquisition; Bad and doubtful debts
• Section: 145; 12; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 319/PN/2014 (ASSESSMENT YEAR 2010-11) CHIPLUN URBAN CO-OP BANK LTD., HEAD OFFICE, FIRST FLOOR MAIN ROAD, BAZARPETH, CHIPLUN, DIST: RATNAGIRI .. APPELLANT PAN NO.AACAT0333J VS. ACIT, RATNAGIRI CIRCLE, RATNAGIRI .. RESPONDENT ASSESSEE BY : SHRI PRAMOD SHINGTE REVENUE BY : SHRI S.P. WALIMBE DATE OF HEARING : 21-04-2014 DATE OF PRONOUNCEMENT : 24-04-2014 ORDER PER R.S. PADVEKAR, JM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 30-12-2013 OF THE CIT(A), KOLHAPUR RELATING TO ASSE SSMENT YEAR 2010- 11. 2. GROUND OF APPEAL NO.1 BY THE ASSESSEE READS AS U NDER : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LOWER AUTHORITIES HAVE ERRED IN MAKING THE DISALLOWAN CE OF RS.84,90,070/- ON ACCOUNT OF INTEREST ON NON-PERFORMI NG ASSETS BY DISREGARDING APPELLANTS CONTENTION IN THIS REGARD. 2.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE AO DU RING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT INTEREST RECEI VABLE OR ACCRUED ON THE NPAS AMOUNTING TO RS.84,90,070/- HAS NOT BEEN C REDITED OR OFFERED FOR TAXATION BY THE ASSESSEE IN THE PROFIT AND LOSS ACCOUNT. ON BEING 2 QUESTIONED BY THE AO, IT WAS EXPLAINED THAT INTERES T RECEIVABLE IS NOT INCOME OF THE BANK AS THE BANK IS BOUND TO FOLLOW R BI GUIDELINES IN THIS REGARD. AS PER PARA (VII) OF INSTRUCTION NUMBER 17/ 2008 DATED 26.11.2008 'THE LATEST GUIDELINES OF THE RBI MAY BE REFERRED T O FOR ALLOWING SUCH CLAIMS.' THIS CLEARLY INDICATES THAT RBI GUIDELINES MAY BE TAKEN INTO ACCOUNT FOR DETERMINING INCOME OF THE BANK. HOWEVE R, THE ASSESSING OFFICER WAS NOT CONVINCED WITH THE EXPLANATION GIV EN BY THE ASSESSEE AND MADE ADDITION OF RS.84,90,070/- BEING ACCRUED I NTEREST ON NPA TO THE TOTAL INCOME. 3. BEFORE THE CIT(A) THE ASSESSEE REITERATED THE SA ME SUBMISSIONS AS MADE BEFORE THE ASSESSING OFFICER. IT WAS CONTENDED THAT PROVISIONS FOR NPA ARE MADE AS PER GUIDELINES OF RBI. WHEN THE PRI NCIPAL AMOUNT ITSELF IS OF DOUBTFUL RECOVERY, THE INTEREST CANNOT BE ACCRUED AND AO HAS ERRED IN DISALLOWING THE PROVISION FOR INTEREST. GU IDELINES REGARDING PROVISIONS FOR DEBTS AND NPA HAVE BEEN MADE AS MEAS URE OF PRUDENCE. BY SUCH PROVISIONING, THE BANK IS CUSHIONED FROM UN NECESSARY SHOCK IF CERTAIN DEBTS TURNED BAD. THE GUIDELINES ISSUED BY RBI ARE MANDATORY ON THE BANKS WHICH ARE UNDER SUPERVISION OF THE RBI. 4. HOWEVER, THE CIT(A) WAS ALSO NOT CONVINCED WITH THE EXPLANATION GIVEN BY THE ASSESSEE AND UPHELD THE ADDITION MADE BY THE ASSESSING OFFICER BY OBSERVING AS UNDER : 6. I HAVE GONE THROUGH THE SUBMISSION OF THE APPELLA NT. I FIND THAT DEDUCTION FOR INTEREST ON NPAS IS NOT ALLOWED BY ANY C LAUSE OF SECTION 36 OR ANY OTHER PROVISIONS OF THE ACT. APPELLANTS HAVE BE EN CLAIMING IT CITING RBI NORMS. THE BANK MAKES PROVISIONS FOR DOUBTFUL ASSETS, NPAS AND LOSS ASSETS, AND THESE CATEGORIES ARE SEPARATED BY THE PERIOD FOR WHICH PARTICULAR LOAN HAS BEEN SERVICED. IF THE INSTALLMENT ON A LOAN HAS NOT BEEN RECEIVED FOR SPECIFIED NUMBER OF QUARTERS, IT IS CONSIDERED AS NPA. IF THE LOAN HAS NOT BEEN SERVICE FOR A LONGER PERIOD, I T IS CATEGORIZED AS LOSS ASSET AND SO ON. THE CATEGORY OF LOSS ASSET IS THE ONLY CAT EGORY WHICH FALLS 3 INTO THE DEFINITION OF BAD DEBTS AS DESCRIBED IN SECTIO N 35(1)(VII) OF THE INCOME-TAX ACT. THE OTHER CATEGORIES FOR WHICH PROVI SIONING IS DONE I.E. DOUBTFUL ASSETS AND NPAS HAVE NOT YET GONE BAD. THAT IS WHY NO DEDUCTION IS AVAILABLE IN ANY SECTION OF THE ACT IN R ESPECT OF INTEREST ON NPA. SINCE THERE IS A POSSIBILITY THAT THE DEBT CAN GO BAD, THE RBI GUIDELINES ALLOW THE BANK TO APPROPRIATE PART OF ITS PROFIT BY MAKING A PROVISION IN RESPECT OF SUCH ASSETS WHICH WILL BE UTILIZE D IN CASE THE DEBT TURNS BAD. THE PROVISION HOWEVER, IS NOT OF 100% OF TH E DEBT BUT A FRACTION OF THESE DEBTS. THIS IS EVIDENT THAT THE DEBT IS NOT YET A BAD DEBT. RBI GUIDELINES ARE ONLY DISCLOSURE NORMS. THEY HAVE NOT HING TO DO WITH COMPUTATION OF TOTAL TAXABLE INCOME UNDER THE INCOM E-TAX ACT. WHEN A LOAN IS GRANTED BY BANK AND FINANCIAL INSTITUTIONS, TH ERE IS AN AGREEMENT BETWEEN THE LENDER AND THE BORROWER REGARDING TERMS AND CONDITIONS OF THE SERVICE OF LOAN AND INTEREST. THE CONDITIONS INCLU DE CLAUSES REGARDING PAYMENT OF INSTALLMENTS AND AS PER THESE CLAUSES THE LEND ER CREDITS ITS BOOKS AND DEBITS THE ACCOUNT OF BORROWER. THE INTEREST ACCRUES AS PER THE TERMS AGREED BETWEEN THE LENDER AND BORROWER. NO W AS A PRUDENCE, TO TAKE CARE OF UNFORESEEN CIRCUMSTANCES OF A LOAN TUR NING BAD, RBI PRESCRIBES GUIDELINES FOR CREATING PROVISION OUT OF THE PROFIT OF THE BANKS AND FINANCIAL INSTITUTIONS WHICH ARE REGULATED BY THE RBI ACT, BANKING REGULATIONS ACT AND PRUDENTIAL GUIDELINES ISSUED BY THE RBI WHICH ARE MANDATORY ON THE BANKS AND FINANCIAL INSTITUTIONS. BUT THESE GUIDELINES MAY OR MAY NOT SUPERCEDE THE PROVISIONS OF IT ACT IN C OMPUTING INCOME OF AN ASSESSEE ON WHICH TAX HAS TO BE PAID. UNLESS OTHERWI SE PROVIDED IN THE IT ACT, THE INTEREST INCOME SHOULD ACCRUE AS PER T HE AGREEMENT BETWEEN LENDER AND BORROWER. NOW, IN THE CASE OF VASISTH CHAY VYAPAR LTD. 330 ITR 440., WHICH WAS A NON-BANKING FINANCIAL INSTITUTION BOUND B Y PRUDENTIAL NORMS DIRECTIONS ISSUED BY THE RBI FOR INCOM E RECOGNITION AND ASSET CLASSIFICATION, THE HON'BLE DELHI HIGH COURT TOOK NOTE OF SECTION 45Q OF THE RBI ACT WHICH READS AS UNDER' ' CHAPTER IIIB TO OVERRIDE OTHER LAWS. 45Q. THE PROVISIONS OF THIS CHAPTER SHALL HAVE EFFE CT NOTWITHSTANDING ANYTHING INCONSISTENT THEREWITH CONTAINED IN ANY OT HER LAW FOR THE TIME BEING IN FORCE OR ANY INSTRUMENT HAVING EFFECT BY V IRTUE OF ANY SUCH LAW.' THE HIGH COURT TOOK NOTE OF THE FACT THAT THE PROVI SION OF SECTION 45Q OF RBI ACT HAS OVERRIDING EFFECT OVER ANY OTHER LAW. TH EN THE HON'BLE HIGH COURT CONSIDERED ACCOUNTING STANDARD AS-9 OF REVENUE RECOGNITION AND HAS ALSO CONSIDERED SOME OTHER CASES OF VARIOUS HIGH COURT S AND HON'BLE SUPREME COURT. IN THE CASE OF SOUTHERN TECHNOLOGIES L TD 320 ITR 577 SC, THE HON'BLE SUPREME COURT HELD THAT BY VIRTUE OF SEC TION 45Q, AN OVERRIDING EFFECT IS GIVEN TO THE DIRECTIONS OF THE R BI VIS-A-VIS INCOME RECOGNITION PRINCIPLES IN THE COMPANIES ACT 1956. IN SO FAR AS COMPUTATION OF INCOME UNDER THE INCOME-TAX ACT IS CO NCERNED, THE ADMISSIBILITY OF SUCH DEDUCTIONS SHALL BE GOVERNED BY TH E PROVISIONS OF THE INCOME-TAX ACT. THE CONCLUSION OF ALL THE ABOVE DISCUSSIONS IS THAT SINCE THE ASSESSEE IS IN THIS LINE OF BUSINESS HAVE TO MAINTAIN BOOKS OF ACCOUNTS AS PER PRUDENTIAL GUIDELINES ISSUED BY RBI UNDER CHAPTER IIIB OF THE RBI ACT ACCORDING TO WHICH INTEREST ON NPA HAS TO BE DEBITED IN INTEREST RE CEIVABLE ACCOUNT AND CREDITED TO OVERDUE INTEREST RESERVE ACCOUNT WITH OUT CARRYING THE INTEREST THROUGH PROFIT AND LOSS ACCOUNT AND SINCE AS PE R SECTION 45Q, PROVISIONS OF CHAPTER IIIB SUPERSEDE ALL THE ACTS, THERE FORE, INTEREST ON NPAS WILL NOT BE CREDITED TO PROFIT AND LOSS ACCOUNT A ND THEREFORE WILL NOT FORM PART OF INCOME OF THE ASSESSEE. 4 HOWEVER, THE ABOVE DECISION, WAS DELIVERED IN THE CASE OF A NON-BANKING FINANCIAL COMPANY, AND IT HAS NO APPLICATION IN THE CASE OF A CO-OPERATIVE BANKS AS THE FOLLOWING DISCUSSION WILL SHOW. IF WE REFER TO THE RBI ACT 1934, WE FIND THAT CHAPTER IIIB OF THE ACT DEALS WIT H PROVISIONS RELATING NON-BANKING INSTITUTIONS RECEIVING DEPOSITS AND FINANCI AL INSTITUTIONS, AND THESE PROVISIONS OVERRIDE ALL OTHER ACTS BY VIRTUE OF SECTION 45Q THEREIN. THE CHAPTER IIIB STARTS WITH SECTIONS 45H AND ALSO INCLUDES SECTION 45 Q. CHAPTER IIIB READS AS UNDER: '1 [CHAPTER IIIB PROVISIONS RELATING TO NON-BANKING INSTITUTIONS RECEIVING DEPOSITS AND FINANCIAL INSTITUTIONS 45H. CHAPTER IIIB NOT TO APPLY IN CERTAIN CASES. TH E PROVISIONS OF THIS CHAPTER SHALL NOT APPLY TO THE STATE BANK OR A BANK ING COMPANY AS DEFINED IN SECTION 5 OF THE 2[BANKING REGULATIONS ACT, 1949 ] OR 3[A CORRESPONDING NEW BANK AS DEFINED IN CLAUSE (DA) OF SECTION 5 OF THAT ACT OR A SUBSIDIARY BANK AS DEFINED IN THE STATE BANK OF INDIA (SUBSIDI ARY BANKS) ACTS, 1959] OR 4[A REGIONAL RURAL BANK OR A CO-OPERATIVE BANK] OR A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CREDIT SOCIETY]: PROVIDED THAT FOR THE PURPOSE OF THIS CHAPTER, THE 5[TAMIL NADU INDUSTRIAL INVESTMENT CORPORATION LIMITED] SHALL NOT BE DEEMED TO BE A BANKING COMPANY. ' 45Q. THE PROVISIONS OF THIS CHAPTER SHALL HAVE EFFE CT NOTWITHSTANDING ANYTHING INCONSISTENT THEREWITH CONTAINED IN ANY OT HER LAW FOR THE TIME BEING IN FORCE OR ANY INSTRUMENT HAVING EFFECT BY V IRTUE OF ANY SUCH LAW.' 7. THUS, THE VERY FIRST SECTION OF CHAPTER IIIB, I.E. SECT ION 45H CLARIFIED THAT PROVISIONS OF CHAPTER IIIB WILL NOT APPLY TO A CO-OPE RATIVE BANK. SINCE CHAPTER IIIB IS NOT APPLICABLE TO CO-OPERATIVE BANKS, THEREFORE SECTIONS 45Q WHICH IS PART OF CHAPTER IIIB WILL NOT BE APPLIC ABLE TO CO-OPERATIVE BANKS AND IN RESPECT OF CO-OPERATIVE BANKS THE CHAPTER IIIB WILL NOT OVERRIDE THE IT ACT. THE DECISION OF HONBLE DELHI H IGH COURT IN THE CASE OF VASISTH CHAY VYAPAR LTD. (SUPRA) WILL HAVE NO APPL ICATION IN THE CASE OF CO-OPERATIVE BANKS AS THE SAID ASSESSEE WAS AN NBFC WHIC H HAD THE BENEFIT OF SECTION 45Q. THIS IS DUE TO THE REASON THA T THE SAID DECISION WAS BASED ON THE OVERRIDING POWER OF CHAPTER IIIB OVE R OTHER ACTS AND THE CHAPTER IIIB IS APPLICABLE IN THE CASE OF NBFC. BUT THIS OVERRIDING POWER OF CHAPTER IIIB IS NOT AVAILABLE IN THE CASE OF CO-OPERATIVE BANKS. THEREFORE, THIS GROUND OF THE APPELLANT IS REJECTED. 4.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASS ESSEE IS IN APPEAL BEFORE US. 5. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET S UBMITTED THAT THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY T HE DECISIONS OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. DHARMVIR SAMBHAJI URBAN CO-OP. BANK LTD. VIDE ITA NO.2010/PN/2012 ORD ER DATED 27-09- 5 2013 FOR A.Y. 2009-10 AND IN THE CASE OF ACIT VS. T HE OMERGA JANTA SAHAKARI BANK LTD. VIDE ITA NO.350/PN/2013 ORDER DA TED 31-10-2013 FOR A.Y. 2007-08. HE ACCORDINGLY SUBMITTED THAT TH IS BEING A COVERED MATTER THE ISSUE SHOULD BE DECIDED IN FAVOUR OF THE ASSESSEE. 6. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND WHILE SUPPORTING THE ORDER OF THE CIT(A) RELIED ON THE DE CISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. SAKTHI FIN ANCE LTD. REPORTED IN 352 ITR 102 AND THE DECISION OF THE AHMEDABAD BE NCH OF THE TRIBUNAL IN THE CASE OF THE SARANGPUR CO.OP BANK LT D. VS. DCIT VIDE ITA NO.529 AND 530/AHD./2013 ORDER DATED 21-06-2013 FOR A.YRS. 2007-08 AND 2009-10. 7. THE LD. COUNSEL FOR THE ASSESSEE IN HIS REJOINDE R SUBMITTED THAT THE TRIBUNAL AFTER CONSIDERING THE DECISIONS OF VAR IOUS HIGH COURTS AND SUPREME COURT INCLUDING THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF SAKTHI FINANCE LTD. (SUPRA) HAS TAKE N A CONSCIOUS VIEW HOLDING THAT INTEREST ON NPA ACCOUNT CANNOT BE ADDE D TO THE TOTAL INCOME OF THE ASSESSEE ON NOTIONAL BASIS. FURTHER, WHEN D IVERGENT VIEW ARE THERE ON THE IDENTICAL ISSUE THE VIEW WHICH IS FAVOURABLE TO THE ASSESSEE HAS TO BE FOLLOWED. HE ACCORDINGLY SUBMITTED THAT IN VIEW OF THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF DHARMVIR SAMBHAJI URBAN CO-OP. BANK LTD. (SUPRA) THE ISSUE HAS TO BE DECIDED IN FAVOUR OF THE ASSESSEE. 8. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAV E ALSO CONSIDERED THE 6 VARIOUS DECISIONS CITED BEFORE US. WE FIND AN IDEN TICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN THE CASE OF THE OMERGA JA NTA SAHAKARI BANK LTD. (SUPRA). WE FIND THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND DISMISSED THE APPEAL FILED BY THE REVE NUE BY OBSERVING AS UNDER : 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSION S. IN SO FAR AS THE APPLICABILITY OF SECTION 43D OF THE ACT TO THE A SSESSEE IS CONCERNED, THERE IS A CONVERGENCE OF OPINION BETWEEN THE ASSESSEE A ND THE REVENUE TO THE EFFECT THAT THE SAME IS NOT APPLICABLE TO THE ASSESSEE. OSTENSIBLY, ASSESSEE IS A CO-OPERATIVE BANK CARRYING ON BANKING BUSIN ESS IN TERMS OF A LICENSE GRANTED BY RBI AND IS NOT A SCHEDULED BANK INCLUDED IN SECOND SCHEDULE OF RBI SO AS TO FALL WITHIN THE SCOPE OF SECTI ON 43D OF THE ACT. NOTABLY, SECTION 43D OF THE ACT PRESCRIBES THAT INTERE ST INCOME ON SUCH CATEGORIES OF BAD AND DOUBTFUL DEBTS AS PRESCRIBED BY T HE RBI GUIDELINES SHALL BE CHARGEABLE TO TAX IN THE YEAR IN WHICH SUCH INTEREST INCOME IS CREDITED BY THE ASSESSEE IN THE PROFIT AND LOSS ACCOUNT OR IN THE YEAR OF ACTUAL RECEIPT, WHICHEVER IS EARLIER. SINCE ASSESSEE IS NOT AN ENTITY COVERED WITHIN THE SCOPE OF SECTION 43D OF THE ACT, THE PRESENT CONTROVERSY CANNOT BE ADJUDICATED IN THE LIGHT OF SEC TION 43D OF THE ACT, AND IT IS LIABLE TO BE DECIDED ON GENERAL PRINCIPLE S AS TO WHETHER THE IMPUGNED INCOME HAS ACCRUED TO THE ASSESSEE DURING THE Y EAR UNDER CONSIDERATION. 9. IN THIS CONNECTION, WE FIND THAT THE VISAKHAPATNAM BENCH OF THE TRIBUNAL IN THE CASE OF THE DURGA COOPERATIVE URBAN BANK LTD. (SUPRA) HAS CONSIDERED AN IDENTICAL CONTROVERSY. THE ASSESSEE BEF ORE THE VISAKHAPATNAM BENCH WAS A CO-OPERATIVE BANK OPERATING UNDER A LICENSE ISSUED BY RBI BUT WAS NOT A SCHEDULED BANK SO A S TO FALL WITHIN THE SCOPE OF SECTION 43D OF THE ACT. THE ISSUE RELATE D TO TAXABILITY OF INTEREST INCOME RELATING TO NPAS, WHICH AS PER THE REV ENUE WAS LIABLE TO BE TAXED ON ACCRUAL BASIS IN LINE WITH MERCANTILE SYSTE M OF ACCOUNTING ADOPTED BY THE ASSESSEE THEREIN. THE ASSESSEE, ON THE OTHE R HAND, CONTENDED THAT HAVING REGARD TO THE GUIDELINES ISSUED BY RBI REGARDING ACCOUNTING OF INTEREST ON NPAS, NO INTEREST INCOME ACC RUED IN RESPECT OF NPAS AND THAT THE SAME WAS TO BE TAXED ONLY ON RECEIPT BASIS. THE TRIBUNAL OBSERVED THAT THE QUESTION OF TAXABILITY OF INTEREST ON NPAS CLASSIFIED BY RBI, WAS CONSIDERED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF M/S VASISTH CHAY VYAPAR LTD. (SUPRA) WHEREIN AFT ER CONSIDERING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) IT WAS HELD THAT INTEREST INC OME RELATABLE TO NPAS WAS NOT INCLUDIBLE IN TOTAL INCOME ON ACCRUAL BA SIS SINCE THE SAME DID NOT ACCRUE TO THE ASSESSEE. THE FOLLOWING DISCUSSION BY THE VISAKHAPATNAM BENCH OF THE TRIBUNAL IN THE CASE OF TH E DURGA COOPERATIVE URBAN BANK LTD. (SUPRA) IS WORTHY OF NOTI CE :- 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFUL LY PERUSED THE RECORD. THE QUESTION OF TAXABILITY OF INTEREST ON NPA S HAS BEEN CONSIDERED BY THE HON'BLE DELHI HIGH COURT IN THE CA SE OF M/S VASISTH CHAY VYAPAR LTD (SUPRA); WHEREIN THE HON'BLE DELHI HIGH COURT TOOK INTO ACCOUNT THE DECISION RENDERED BY THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD (SUPRA). IN THE CASE OF M/S VASISTH CHAY VYAPAR LTD, THE ASSESSEE THEREIN WAS A NON BANKING FINA NCIAL COMPANY AND IT WAS ALSO BOUND BY THE PRUDENTIAL NORMS DIRECTI ONS ISSUED BY THE 7 RESERVE BANK OF INDIA FOR INCOME RECOGNITION AND ASSET CLASSIFICATION. THE ASSESSEE DID NOT INCLUDE THE INTEREST INCOME RELATAB LE TO NPA ASSETS IN ITS TOTAL INCOME. THE ASSESSING OFFICER, HOWEVER, ADD ED THE SAID INTEREST AS THE INCOME OF THE ASSESSEE BY HOLDING THAT IT HAD ACCRUED TO THE ASSESSEE EVEN IT WAS NOT REALIZED AS THE ASSESSEE WAS FOLL OWING MERCANTILE SYSTEM OF ACCOUNTING. THE LEARNED CIT (A) AFFIRMED THE ORDER OF THE ASSESSING OFFICER. HOWEVER, THE ITAT DELETED THE AFORESAID INCOME. HENCE THE REVENUE PREFERRED APPEAL BEFORE THE HON'B LE DELHI HIGH COURT. 8.1 AFTER HEARING THE RIVAL SUBMISSIONS, THE HON'BLE DE LHI HIGH COURT TOOK NOTE OF SEC.45Q OF RESERVE BANK OF INDIA ACT WHI CH READS AS UNDER: CHAPTER IIIB TO OVERRIDE OTHER LAWS. 45Q. THE PROVISIONS OF THIS CHAPTER SHALL HAVE EFFECT NOTWITHSTANDING ANYTHING INCONSISTENT THEREWITH CONTAI NED IN ANY OTHER LAW FOR THE TIME BEING IN FORCE OR ANY IN STRUMENT HAVING EFFECT BY VIRTUE OF ANY SUCH LAW. THE HIGH COURT TOOK NOTE OF THE FACT THAT THE PROVI SION OF 45Q OF RESERVE BANK OF INDIA HAS OVERRIDING EFFECT OVER ANY OTHER L AW. THEN THE HON'BLE HIGH COURT ALSO CONSIDERED ACCOUNTING STANDARD AS-9 ON REVENUE RECOGNITION AND ALSO EXTRACTED FOLLOWING RELEVANT P ORTION FROM THE SAID ACCOUNTING STANDARD: 9. EFFECT OF UNCERTAINTIES ON REVENUE RECOGNITION 9.1 RECOGNITION OF REVENUE REQUIRES THAT REVENUE IS A MEASURABLE AND THAT AT THE TIME OF SALE OR THE RENDER ING OF THE SERVICE, IT WOULD NOT BE UNREASONABLE TO EXPECT ULTIM ATE COLLECTION. 9.2 WHERE THE ABILITY TO ASSESS THE ULTIMATE COLLECTION WITH REASONABLE CERTAINTY IS LACKING AT THE TIME OF RAISIN G ANY CLAIM, E.G., FOR ESCALATION OF PRICE, EXPORT INCENTIVES, INT EREST ETC., REVENUE RECOGNITION IS POSTPONED TO THE EXTENT OF UNCERTAINTY INVOLVED. IN SUCH CASES, IT MAY BE APPROPRIATE TO RECOGNIZE REVENUE ONLY WHEN IT IS REASONABLY CERTAIN THAT THE ULTIMATE COLLECTION WILL BE MADE. WHERE THERE IS NO UNCERTAINTY AS TO ULTIMATE COLLECTI ON, REVENUE IS RECOGNIZED AT THE TIME OF SALE OR RENDERING OF SERVI CE EVEN THOUGH PAYMENTS ARE MADE BY INSTALMENTS. 9.3 WHEN THE UNCERTAINTY RELATING TO COLLECTABILITY ARISES SUBSEQUENT TO THE TIME OF SALE OR THE RENDERING OF THE SERVICE, IT IS MORE APPROPRIATE TO MAKE A SEPARATE PROVISION TO REFL ECT THE UNCERTAINTY RATHER THAN TO ADJUST THE AMOUNT OF REVE NUE ORIGINALLY RECORDED. 9.4 AN ESSENTIAL CRITERION FOR THE RECOGNITION OF REV ENUE IS THAT THE CONSIDERATION RECEIVABLE FOR THE SALE OF GOODS, TH E RENDERING OF SERVICES OR FROM THE USE OF OTHERS OF ENTERPRISE RESOURCE S IS REASONABLY DETERMINABLE. WHEN SUCH CONSIDERATION IS NO T DETERMINABLE WITHIN REASONABLE LIMITS, THE RECOGNITI ON OF REVENUE IS POSTPONED. 9.5 WHEN RECOGNITION OF REVENUE IS POSTPONED DUE TO T HE EFFECT OF UNCERTAINTIES, IT IS CONSIDERED AS REVENUE OF THE PE RIOD IN WHICH IT IS PROPERLY RECOGNIZED. 8.2 THE DELHI HIGH COURT ALSO CONSIDERED THE DECISION RENDERED IN THE FOLLOWING CASES: 8 I) CIT VS. ELGI FINANCE LTD., 293 ITR 357 (MAD) II) CIT VS. KKM INVESTMENTS (CAL) SLP DISMISSED BY SUPR EME COURT (310 ITR 4) III) CIT VS. MOTOR CREDIT CO (P) LTD., 127 ITR 572 ( MAD) IV) UCO BANK VS. CIT 237 ITR 889 (SC) V) CIT VS. SHOORJI VALLABHDAS & CO 46 ITR 144 (SC) VI) GODHRA ELECTRICITY CO. LTD., VS.CIT 225 ITR 746 VII) CIT VS. GOYAL M G GASES (P) LTD., 303 ITR 159 (DE L) VIII) CIT VS. EICHER LTD., ITA NO.431/2009 DATED 15. 7.2009 (DEL) 8.3 AFTER CONSIDERING THE ACCOUNTING STANDARD 9 AND THE VARIOUS CASE LAW LISTED ABOVE, THE HON'BLE DELHI HIGH COURT HELD THAT THE INTEREST ON NPA ADVANCE CANNOT BE TREATED AS ACCRUED TO THE ASSE SSEE. 8.4 BEFORE THE DELHI HIGH COURT, THE REVENUE TOOK SU PPORT OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD (SUPRA). THE DELHI HIGH COURT CONSID ERED THE SAID DECISION OF HON'BLE APEX COURT AND EXPLAINED THE SAME AS UNDER: WE HAVE ALREADY HELD THAT EVEN UNDER THE INCOME TA X ACT, INTEREST INCOME HAD NOT ACCRUED. MOREOVER, THIS SUBMISSI ON OF MR. SABHARWAL IS BASED ENTIRELY ON THE JUDGMENT OF THE SU PREME COURT IN THE CASE OF SOUTHERN TECHNOLOGY (SUPRA). NO DOUBT, IN FIRST BLUSH, READING OF THE JUDGMENT GIVES AN INDIC ATION THAT THE COURT HAS HELD THAT RESERVE BANK OF INDIA ACT D OES NOT OVERRIDE THE PROVISIONS OF THE INCOME TAX ACT. HOWEVER, WHEN WE EXAMINE THE ISSUE INVOLVED THEREIN MINUTELY AND DE EPLY IN THE CONTEXT IN WHICH THAT HAD ARISEN AND CERTAIN OBSERVAT IONS OF THE APEX COURT CONTAINED IN THAT VERY JUDGMENT, WE FIND THAT THE PROPOSITION ADVANCED BY MR.SABHARWAL MAY NOT BE ENTI RELY CORRECT. IN THE CASE BEFORE THE SUPREME COURT, THE ASSESSEE A NBFC DEBITED RS.81,68,516 AS PROVISION AGAINST NPA IN THE PROFIT AND LOSS ACCOUNT, WHICH WAS CLAIMED AS DEDUC TION IN TERMS OF SECTION 36(1) (VII) OF THE ACT. THE ASSESSING OFFICER DID NOT ALLOW THE DEDUCTION CLAIMED AS AFORESAID ON THE G ROUND THAT THE PROVISION OF NPA WAS NOT IN THE NATURE OF EXPENDI TURE OR LOSS BUT MORE IN THE NATURE OF A RESERVE, AND THUS NOT DED UCTIBLE UNDER SECTION 36(I)(VII) OF THE ACT. THE ASSESSING OFFICER, HOWEVER, DID NOT BRING TO TAX RS.20,34,605/- AS INCOME (BEING IN COME ACCRUED UNDER THE MERCANTILE SYSTEM OF ACCOUNTING). THE DISPUTE BEFORE THE APEX COURT CENTERED AROUND DEDUCT IBILITY OF PROVISION FOR NPA. AFTER ANALYZING THE PROVISIONS OF THE RESERVE BANK OF INDIA ACT, THEIR LORDSHIPS OF THE A PEX COURT OBSERVED THAT IN SO FAR AS THE PERMISSIBLE DEDUCTIO NS OR EXCLUSIONS UNDER THE ACT ARE CONCERNED, THE SAME AR E ADMISSIBLE ONLY IF SUCH DEDUCTIONS/EXCLUSIONS SATIS FY THE RELEVANT CONDITIONS STIPULATED THEREFORE UNDER THE ACT. TO THAT EXTENT, IT WAS OBSERVED THAT THE PRUDENTIAL NO RMS DO NOT OVERRIDE THE PROVISIONS OF THE ACT. HOWEVER, THE APEX COURT MADE A DISTINCTION WITH REGARD TO INCOME RECOGNITIO N AND HELD THAT INCOME HAD TO BE RECOGNIZED IN TERMS OF THE PRUDENT IAL NORMS, EVEN THOUGH THE SAME DEVIATED FROM MERCANTIL E SYSTEM OF ACCOUNTING AND/OR SECTION 45 (SIC. 145) O F THE INCOME TAX ACT. IT CAN BE SAID, THEREFORE, THAT THE APEX COURT 9 APPROVED THE REAL INCOME THEORY WHICH IS ENGRAINED IN THE PRUDENTIAL NORMS FOR RECOGNITION OF REVENUE BY NBFC . 9. THE HON'BLE SUPREME COURT IN THE CASE OF M/S SOUTH ERN TECHNOLOGIES LTD (SUPRA) DISSECTED THE MATTER INTO TWO PARTS VIZ., A) INCOME RECOGNITION AND B) PERMISSIBLE DEDUCTION/EXCLU SIONS UNDER THE INCOME TAX ACT. IN SO FAR AS INCOME RECOGNITION IS CON CERNED, THE HON'BLE SUPREME COURT HELD THAT SECTION 145 OF THE INCOME T AX ACT HAS NO ROLE TO PLAY AND THE ASSESSING OFFICER HAS TO FOLLOW RESERVE BAN K OF INDIA DIRECTIONS 1998, SINCE BY VIRTUE OF 45Q OF THE RESERVE BANK OF INDIA ACT, AN OVERRIDING EFFECT IS GIVEN TO THE DIRECTIONS OF R ESERVE BANK OF INDIA VIS--VIS INCOME RECOGNITION PRINCIPLES IN THE COMPAN IES ACT 1956. IN SO FAR AS COMPUTATION OF INCOME UNDER THE INCOME TAX AC T IS CONCERNED, (WHICH INVOLVES DEDUCTION OF PERMISSIBLE DEDUCTIONS AND EXCLUSIONS) THE ADMISSIBILITY OF SUCH DEDUCTIONS SHALL BE GOVERNED BY TH E PROVISIONS OF THE INCOME TAX ACT. THE RELEVANT OBSERVATIONS OF THE HON'BLE SUPREME COURT ARE EXTRACTED BELOW: APPLICABILITY OF SECTION 145 40. AT THE OUTSET, WE MAY STATE THAT IN ESSENCE RBI DIR ECTIONS 1998 ARE PRUDENTIAL/PROVISIONING NORMS ISSUED BY RBI U NDER CHAPTER IIIB OF THE RBI ACT, 1934. THESE NORMS DEAL E SSENTIALLY WITH INCOME RECOGNITION. THEY FORCE THE NBFCS TO DISC LOSE THE AMOUNT OF NPA IN THEIR FINANCIAL ACCOUNTS. THEY FORC E THE NBFCS TO REFLECT TRUE AND CORRECT PROFITS. BY VIRTUE OF SECTION 45Q, AN OVERRIDING EFFECT IS GIVEN TO THE DIRECTIONS 1998 V IS--VIS INCOME RECOGNITION PRINCIPLES IN THE COMPANIES AC T, 1956. THESE DIRECTIONS CONSTITUTE A CODE BY ITSELF. HOWEVER, THESE DIRECTIONS 1998 AND THE IT ACT OPERATE IN DIFFERENT AREAS. THESE DIRECTIONS 1998 HAVE NOTHING TO DO WITH COMPUTATION OF TAXABLE INCOME. THESE DIRECTIONS CANNOT OVERRULE THE PERMISSIBLE DEDUCTIONS OR THEIR EXCLUSION UNDER THE IT ACT. THE INCONSISTENCY BETWEEN THESE DIRECTIONS AND COMPANIES AC T IS ONLY IN THE MATTER OF INCOME RECOGNITION AND PRESENT ATION OF FINANCIAL STATEMENTS. THE ACCOUNTING POLICIES ADOPTE D BY AN NBFC CANNOT DETERMINE THE TAXABLE INCOME. IT IS WELL SETTLED THAT THE ACCOUNTING POLICIES FOLLOWED BY A COMPANY CAN BE CHANGED UNLESS THE AO COMES TO THE CONCLUSION THAT SUCH CHANGE W OULD RESULT IN UNDERSTATEMENT OF PROFITS. HOWEVER, HERE IS THE CASE WHERE THE AO HAS TO FOLLOW THE RESERVE BANK OF INDI A DIRECTIONS 1998 IN VIEW OF SECTION 45Q OF THE RESER VE BANK OF INDIA ACT. HENCE, AS FAR AS INCOME RECOGNITION IS C ONCERNED, SECTION 145 OF THE IT ACT HAS NO ROLE TO PLAY IN TH E PRESENT DISPUTE. 10. TURNING TO THE FACTS OF THE CASE BEFORE US, THE AS SESSEE HEREIN IS A COOPERATIVE BANK AND IT IS NOT IN DISPUTE THAT IT IS A LSO GOVERNED BY THE RESERVE BANK OF INDIA. HENCE THE DIRECTIONS WITH REGA RD TO THE PRUDENTIAL NORMS ISSUED BY THE RESERVE BANK OF INDIA ARE EQUALLY A PPLICABLE TO THE ASSESSEE AS IT IS APPLICABLE TO THE COMPANIES REGISTERED U NDER THE COMPANIES ACT. THE HON'BLE SUPREME COURT HAS HELD IN THE CASE OF SOUTHERN TECHNOLOGIES LTD (SUPRA), THAT THE PROVISION OF 45Q OF RESERVE BANK OF INDIA ACT HAS AN OVERRIDING EFFECT VIS--VIS INCOME RECOGNITION PRINCIPLE UNDER THE COMPANIES ACT. HENCE SEC.45 Q OF THE RBI ACT SHALL HAVE OVERRIDING EFFECT OVER THE INCOME RECOGNITION PRINCIPLE FOLLOWED BY COOPERATIVE BANKS ALSO. HENCE THE ASSESSING OFFICER HAS TO FOLLOW THE RESERVE BANK OF INDIA DIRECTIONS 1998, AS HELD BY THE HON'BLE SUPREME COURT. 10 10.1 BASED ON THE PRUDENTIAL NORMS, THE ASSESSEE HEREIN D ID NOT ADMIT THE INTEREST RELATABLE TO NPA ADVANCES IN ITS TOTAL I NCOME. THE HON'BLE DELHI HIGH COURT IN THE CASE OF VASISTH CHAY VYAPAR LT D (SUPRA) HAS HELD THAT THE INTEREST ON NPA ASSETS CANNOT BE SAID TO HAVE ACCRUED TO THE ASSESSEE. IN THIS REGARD, THE FOLLOWING OBSERVATIONS OF HO N'BLE DELHI HIGH COURT IN THE ABOVE CITED CASE ARE RELEVANT: WHAT TO TALK OF INTEREST, EVEN THE PRINCIPLE AMOUNT ITSELF HAD BECOME DOUBTFUL TO RECOVER. IN THIS SCENARIO IT WAS LE GITIMATE MOVE TO INFER THAT INTEREST INCOME THEREUPON HAS NOT ACCRUED. THE SAID DECISION OF THE HON'BLE DELHI HIGH COURT IS E QUALLY APPLICABLE TO THE ISSUE IN OUR HANDS. ACCORDINGLY WE DO NOT FIND ANY INFIRMITY WITH THE DECISION OF THE LEARNED CIT (A) IN HOLDING THAT THE INTEREST INCOME RELATABLE ON NPA ADVANCES DID NOT ACCRUE TO THE ASSESSEE . ACCORDINGLY WE UPHOLD HIS ORDER. 10. FOLLOWING THE AFORESAID DISCUSSION, WHICH HAS BEEN RENDERED ON AN IDENTICAL ISSUE UNDER SIMILAR CIRCUMSTANCES, WE FIND NO REASONS TO INTERFERE WITH THE ULTIMATE CONCLUSION OF THE CIT(A) IN DELETING THE IMPUGNED ADDITION RELATING TO INTEREST INCOME IN RESP ECT OF NPAS. 11. SO, HOWEVER, THE LEARNED DEPARTMENTAL REPRESENTA TIVE HAS SUBMITTED THAT THE HONBLE MADRAS HIGH COURT IN THE C ASE OF CIT VS. SAKTHI FINANCE LTD., (2013) 31 TAXMANN.COM 305 (MAD RAS) HAS DIFFERED WITH THE JUDGEMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF M/S VASISTH CHAY VYAPAR LTD. (SUPRA) ON A SIMILAR ISSUE, I.E . RELATING TO INTEREST INCOME ON NPAS. THE LEARNED DEPARTMENTAL RE PRESENTATIVE FURTHER POINTED OUT THAT THE HONBLE MADRAS HIGH COU RT FOLLOWED THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) IN HOLDING THAT INTEREST ON NPAS WAS ASSESSABLE TO TAX ON ACCRUAL BASIS. WE HAVE CAREFULLY CO NSIDERED THE SUBMISSIONS PUT-FORTH BY THE LEARNED DEPARTMENTAL REPRE SENTATIVE BASED ON THE JUDGEMENT OF THE HONBLE MADRAS HIGH CO URT IN THE CASE OF SAKTHI FINANCE LTD. (SUPRA). THE CONTROVERSY BEFORE THE HONBLE MADRAS HIGH COURT RELATED TO NON-RECOGNITION OF INTEREST IN COME ON NPAS BY THE ASSESSEE FOLLOWING THE RBI GUIDELINES. THE HONBLE MADR AS HIGH COURT TOOK THE VIEW THAT THE JUDGEMENT OF THE HONBLE SUP REME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) ALSO APPLIED TO THE INCOME RECOGNITION NORMS PROVIDED BY RBI AND THEREFORE IT H ELD THE INTEREST INCOME ON NPAS IS LIABLE TO BE TAXED ON ACCRUAL BASIS A ND NOT IN TERMS OF RBIS GUIDELINES. BUT THE HONBLE DELHI HIGH COURT I N THE CASE OF M/S VASISTH CHAY VYAPAR LTD. (SUPRA) HAS TAKEN A VIEW THAT SOUTHERN TECHNOLOGIES LTD. (SUPRA) CASE DID NOT APPLY TO THE IN COME RECOGNITION NORMS PRESCRIBED BY RBI. OSTENSIBLY, THERE IS DIVERGENC E OF OPINION BETWEEN THE HONBLE DELHI HIGH COURT AND THE HONBL E MADRAS HIGH COURT AS NOTED BY THE HONBLE MADRAS HIGH COURT IN IT S ORDER. 12. IN SO FAR AS, PRESENT CASE IS CONCERNED THERE IS NO J UDGMENT OF THE JURISDICTIONAL HIGH COURT. WE ARE FACED WITH TWO CO NTRARY JUDGMENTS OF THE NON-JURISDICTIONAL HIGH COURT. IN SUCH A SITUATI ON, WE ARE INCLINED TO PREFER A VIEW WHICH IS FAVOURABLE OF THE ASSESSEE FOLLOW ING THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE O F CIT VS. VEGETABLE PRODUCTS LTD. (1973) 88 ITR 192 (SC). 13. THEREFORE, IN VIEW OF THE AFORESAID DISCUSSION, WE ARE INCLINED TO FOLLOW THE DECISION OF OUR CO-ORDINATE BENCH IN THE CASE OF THE DURGA COOPERATIVE URBAN BANK LTD. (SUPRA) AND ACCORDINGLY THE ORDER OF THE CIT(A) IS LIABLE TO THE AFFIRMED. WE HOLD SO. 11 8.1 RESPECTFULLY FOLLOWING THE DECISION OF THE COOR DINATE BENCH OF THE TRIBUNAL IN THE CASE OF THE OMERGA JANTA SAHAKA RI BANK LTD. (SUPRA) WE DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. WE ACCORDINGLY SET-ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OF FICER TO DELETE THE ADDITION OF RS.84,90,070/- BEING INTEREST ACCRUED O N NPA. THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 9. GROUND OF APPEAL NO.2 BY THE ASSESSEE READS AS U NDER : 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LOWER AUTHORITIES HAVE ERRED IN MAKING THE DISALLOWA NCE OF RS.8,81,856/- BEING AMORTIZATION OF PREMIUM ON GOVERNMENT SECURIT IES DEBITED TO PROFIT AND LOSS ACCOUNT BY DISREGARDING APPELLANTS CONT ENTION. 9.1 AFTER HEARING BOTH THE SIDES WE FIND THE ASSESS EE IS A COOPERATIVE BANK DOING BANKING BUSINESS WHICH IS REGULATED UNDE R BANKING REGULATION ACT, 1949 AND RBI GUIDELINES ISSUED FROM TIME TO TIME. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS DEBIT ED AN AMOUNT OF RS.8,81,856/- TO ITS PROFIT AND LOSS ACCOUNT ON ACC OUNT OF AMORTIZATION OF GOVERNMENT SECURITY. HE OBSERVED FROM THE EXPLANAT ION GIVEN BY THE ASSESSEE THAT THESE SECURITIES ARE UNDER HTM CATEGO RY AND THE AMOUNT OF RS.8,81,856/- IS AMORTIZATION FOR THE PERIOD REMAIN ING TO MATURITY OF THE PREMIUM PAID. IT WAS FURTHER STATED THAT THE SAME WAS WRITTEN OFF AS PER GUIDELINES OF RBI. 10. HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT T HE CONTENTION OF THE ASSESSEE AND HELD THAT SUCH SECURITIES ARE UNDE R THE CATEGORY OF HELD TO MATURITY (HTM) WHICH IS NOT A STOCK IN TRADE. H ENCE ANY PROFIT OR LOSS ON SUCH ASSET AS PER INCOME-TAX ACT IS TO BE R EALISED AT THE TIME OF ITS MATURITY OR ACTUAL SALE ONLY. THE PROFIT/LOSS CAN BE ARRIVED ONLY AT THE TIME OF MATURITY OR SALE OF THE SECURITY. THESE HT M SECURITIES ARE 12 CAPITAL ASSETS AND NOT STOCK IN TRADE AND ANY COST IN ACQUIRING THE SAME HAS TO BE TREATED AS THE TREATMENT GIVEN TO A CAPIT AL ASSET UNDER THE INCOME TAX ACT. HE ACCORDINGLY MADE DISALLOWANCE O F RS.8,81,856/-. 11. IN APPEAL THE LD.CIT(A) UPHELD THE ADDITION MAD E BY THE ASSESSING OFFICER OBSERVING AS UNDER : 11. I HAVE PERUSED THE ASSESSMENT ORDER AND THE SUBMISSI ONS FILED BY THE APPELLANT. I HAVE ALSO GONE THROUGH RBI GUIDELIN ES DATED 16 TH OCTOBER, 2000 AND GUIDELINES ISSUED SUBSEQUENTLY. AS PER THE MASTER CIRCULAR OF RBI DBOD.NO.BP.BC.32/21.04.048/2000-200 1 AND SUBSEQUENT CIRCULARS THE ENTIRE INVESTMENT PORTFOLIO OF THE BANKS (SLR AS WELL AS NON-SLR SECURITIES) WILL BE CLASSIFIED UNDER THR EE CATEGORIES VIZ. HELD TO MATURITY (HTM), AVAILABLE FOR SALE (AFS) AND HELD FOR TRADING (HFT). HOWEVER, IN THE BALANCE SHEET, THE INVESTMENT S WILL CONTINUE TO BE DISCLOSED AS PER EXISTING SIX CLASSIFICATIONS VIZ. (I) GOVE RNMENT SECURITIES (II) OTHER APPROVED SECURITIES (III) SHARES (IV) DEBENT URES & BONDS (V) SUBSIDIARIES / JOINT VENTURES (VI) OTHERS (CP MUTUAL FUN D UNITS ETC.), WHICH INVESTMENT IS TO BE KEPT UNDER WHICH OF THE TH REE CLASSIFICATION SHOULD BE DECIDED BY BANKS AT THE TIME OF ACQUISITION. AS PER CLAUSE 4.1 OF THIS MASTER CIRCULAR, INVESTMENTS UNDER THE AFS AND HFT CATEGORIES SHOULD BE MARKED TO MARKET AND INVESTMENT HELD UNDER HTM NEED NOT BE MARKED TO MARKET. THE CIRCULAR DOES NOT MAKE ANY MANDATE REGARDING TREATMENT TO BE GIVEN TO PREMIUM PAID ON THE HTM CA TEGORY. SUCH SPECIAL TREATMENT ALLOWED TO SECURITIES AS PER RBI GUID ELINES ARE NOT RECOGNISED BY IT ACT OR NORMAL ACCOUNTING NORMS. AS PE R NORMAL ACCOUNTING NORMS, ANY ASSET PURCHASED AT A PRICE HIGHER THAN ITS VALUE, THE ACTUAL PRICE IS TAKEN AS ITS COST OF ACQUISITION WHI CH IS USED TO COMPUTE THE CAPITAL GAIN AT THE TIME OF SALE OF THE ASSET. UNDER THE INCOME-TAX ACT, THERE IS NO PROVISION TO ALLOW PREMI UM PAID AS THE ASSET AS A DEDUCTION PRIOR TO THE / YEAR OF ITS DISPOSAL. TH E ENTIRE COST OF ACQUISITION IS ALLOWED FROM THE SALE CONSIDERATION IN T HE YEAR OF SALE ONLY. 12. IT WAS CONTENDED ON BEHALF OF THE APPELLANT THA T GUIDELINES ISSUED BY THE RBI ARE BINDING ON BANKS AND THOSE GUIDELINES A RE ISSUED UNDER THE RBI ACT, 1934 WHICH SUPERSEDES ALL OTHER ACT BY VI RTUE OF SECTION 45Q OF RBI ACT. THIS CONTENTION OF THE APPELLANT IS NOT C ORRECT AND EXCEPT IN THE CASE OF NON-BANKING FINANCIAL COMPANIES, THE RBI ACT DOES NOT SUPERCEDE OTHER LAWS OF THE COUNTRY. IF WE GO THROUGH THE RBI ACT, 1934, CHAPTER IIIB OF THE ACT GOVERNS AFFAIRS OF NON-BANK C OMPANIES AND IT RUNS FROM SECTION 45H TO 45QB. AS PER SECTION 45Q OF C HAPTER IIIB, THE PROVISION OF CHAPTER IIIB WILL APPLY NOTWITHSTANDING ANY PROVISION IN ANY OTHER LAW. HOWEVER, THE VERY FIRST SECTION OF CHAPTER IIIB, I.E. SECTION 45H SPECIFIES THAT CHAPTER IIIB WILL NOT APPLY TO CO-OPER ATIVE SOCIETIES / BANKS. THEREFORE, BY VIRTUE OF SECTION 45H, THE CHAPT ER IIIB OF RBI ACT WILL NOT SUPERSEDE INCOME-TAX ACT OR ANY OTHER LAW FO R THAT MATTER IN RESPECT OF CO-OPERATIVE SOCIETIES ARID BANKS. THIS LEADS TO THE CONCLUSION THAT WHEREAS CO-OPERATIVE BANKS WILL FOLLOW THE GUIDE LINES OF RBI IN DISPLAYING THE SIX CLAUSES OF INVESTMENT UNDER THREE CAT EGORIES OF AFS, HFT AND HTM, AS FAR AS THE COMPUTATION OF INCOME UNDE R INCOME-TAX ACT IS CONCERNED, PROVISIONS OF INCOME-TAX ACT WILL BE FOL LOWED. THE GUIDELINES ISSUED BY RBI MAY BE BINDING ON THE APPELLA NT AS PRUDENTIAL NORMS BUT WHEN IT COMES TO COMPUTING TAXABLE INCOME, IT WILL BE 13 COMPUTED UNDER SECTION 28 AND SUBSEQUENT SECTION RELATI NG TO COMPUTATION OF INCOME OF BUSINESS / PROFESSION. 13. IN VIEW OF THE ABOVE DISCUSSIONS, THE GROUND TAKE N BY THE APPELLANT IS REJECTED. 11.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE AS SESSEE IS IN APPEAL BEFORE US 12. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBMITTED THAT THE ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE BY T HE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. R AJKOT DISTRICT CENTRAL COOPERATIVE BANK LTD. REPORTED IN 43 TAXMAN N.COM 161 (GUJ.) AND THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF SOLAPUR JANTA SAHAKARI BANK LTD. VIDE ITA NO.2534/PN/2012 O RDER DATED 27-01- 2014 FOR A.Y. 2009-10. 13. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHE R HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A). 14. AFTER HEARING BOTH THE SIDES, WE FIND THE COORD INATE BENCH OF THE TRIBUNAL IN THE CASE OF SOLAPUR JANTA SAHAKARI BANK LTD. (SUPRA) HAS OBSERVED AS UNDER : 3. WE HAVE HEARD THE PARTIES. WE FIND THAT THE ISSU E STANDS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT, MUMBAI BENCH, MUMBAI IN THE CASE OF ACIT, CENTRAL CIRCLE 23 3, MUMBAI VS. BANK OF RAJASTHAN LTD., ITA NO. 2246 TO 2250/MUM/2009 ORD ER DATED 22-12- 2010. IN THE SAID DECISION, THE TRIBUNAL HAS REFERRED TO SUBSEQUENT DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF UCO BANK, 240 ITR 355. THE OPERATIVE PART OF THE FINDING OF THE CO-O PERATIVE BENCH IN THE CASE OF BANK OF RAJASTHAN LTD. (SUPRA) IS AS UNDER: 17. IN THE CASE OF THE BANK ALL INVESTMENTS ARE ST OCK IN TRADE AS HELD BY HON'BLE SUPREME COURT IN THE CASE OF UCO BANK REPOR TED AT 240 ITR 355. THERE IS NO INVESTMENT IN THE NATURE OF INVESTMENT ON WHICH THE EXPENDITURE/LOSS CAN BE TREATED IN THE NATURE OF CA PITAL EXPENDITURE. THE SECURITIES ARE CATEGORIZED AS PER THE NORMS OF THE RBI. AS PER THE 'SIGNIFICANT ACCOUNTING POLICIES' GIVEN IN SCHEDULE 17 ATTACHED WITH THE BALANCE SHEET EVERY YEAR, THE FACT THAT ALL INVESTM ENTS ARE STOCK IN TRADE HAS BEEN CLARIFIED IN THE CASE OF THE ASSESSEE. IT DOES NOT MEAN THE SECURITIES 14 KEPT IN CATEGORY OF HTM CANNOT BE SOLD BEFORE THE M ATURITY. THE HTM HAS BEEN SOLD IN SUBSEQUENT YEAR AND INCOME/LOSS TREATE D AS BUSINESS INCOME/LOSS AND NOT AS CAPITAL GAIN/LOSS AT ALL. 18. ALL INCOME/LOSS WHATEVER ARISING ON ACCOUNT OF INVESTMENT(STOCK IN TRADE) INTEREST LOSS/PROFITS OR DIMINISHING OF INVE STMENT INCLUDING SECURITIES HELD UNDER HTM CATEGORY HAS BEEN TREATED AS BUSINESS INCOME/LOSS AND ALWAYS HAS BEEN TREATED BY DEPARTME NT AS BUSINESS AND ASSESSED ACCORDINGLY IN ALL PAST YEAR ASSESSMENT BY DEPARTMENT. THE INTEREST EARNED IN THE CASE OF THE BANK, ON ALL SHA RE AND SECURITY ASSETS ARE STOCK IN TRADE AND WHATEVER THE LOSS/PROFIT ARE NOT IN THE NATURE OF CAPITAL. THE ENTIRE INTEREST INCOME OF SECURITIES UNDER WHAT EVER CATEGORY HAD BEEN AND IS BEING ASSESSED IN ALL THESE YEARS AS BUSINES S INCOME. THEREFORE, AS SUCH DIFFERENT CATEGORIES OF THE INCOME DOES NOT FO RM(HTM) AS CAPITAL IN NATURE. 19. AS STATED EARLIER, THE FIGURE OF RS. 65.62 LAC S REPRESENTS THE AMORTIZATION OF PREMIUM FOR SECURITIES HELD UNDER H TM CATEGORY, WHICH HAS BEEN WRITTEN OFF IN TERMS OF THE RBI CIRCULAR D ATED 16/10/2000. PARA 14 OF THE SAID CIRCULAR READS AS UNDER: '14. INVEST MENTS CLASSIFIED UNDER HELD TO MATURITY CATEGORY NEED NOT TO BE MARKED TO MARKET AND WILL BE CARRIED AT ACQUISITION COST UNLESS IT IS MORE THAN THE FACE VALUE, IN WHICH CASE THE PREMIUM SHOULD BE AMORTIZED OVER THE PERIO D REMAINING TO MATURITY.' VIDE RBI CIRCULAR NO.DBOD NO.BP.B.C 32/2 1.04.08/2000-01 DATED 16/10/2000, BANK MAY SHIFT INVESTMENT TO/FROM HTM CATEGORY WITH APPROVAL OF BOARD FROM/TO OTHER CATEGORY. FURTHER I N TERMS OF ABOVE REFERRED CIRCULAR, PROFIT ON SALE OF INVESTMENTS IN HTM CATEGORY SHOULD BE TAKEN TO THE PROFIT AND LOSS ACCOUNT. THERE IT IS V ERY CLEAR THAT SECURITIES HELD UNDER HTM CATEGORY CAN BE SOLD BY BANK AT ANY POINT OF TIME. THEREFORE, THESE SECURITIES ARE BEING AS STOCK IN T RADE AND PROFIT/LOSS ON SALE OF THESE SECURITIES ARE TREATED AS BUSINESS IN COME/LOSS. 20. THE ASSESSEE HAS FURTHER FILED A COPY OF CBDT INSTRUCTION NO.17 DATED 26/11/2008 PUBLISHED IN 220 CTR (STATUTE PAGE S 41 TO 44). THE CBDT IN PARA (VII) OF THIS INSTRUCTION HAS STATED T HAT IN THE CASES OF BANKS WHERE RBI HAD ISSUED GUIDELINES FOR ALLOWING DEDUCT ION OF AMORTIZATION PREMIUM PAID ON SECURITIES UNDER HTM CATEGORY. THE RELEVANT PORTION OF INSTRUCTION IS AS UNDER: 'AS PER RBI GUIDELINES DAT ED 16TH OCTOBER, 2000, THE INVESTMENT PORTFOLIO OF THE BANKS IS REQUIRED T O BE CLASSIFIED UNDER THREE CATEGORIES VIZ. HELD TO MATURITY (HTM), HELD FOR TRADING (HFT) AND AVAILABLE FOR SALE (AFS). INVESTMENTS CLASSIFIED UN DER HTM CATEGORY NEED NOT BE MARKED TO MARKED AND ARE CARRIED AT ACQUISIT ION COST UNLESS THESE ARE MORE THAN THE FACE VALUE, IN WHICH CASE THE PRE MIUM SHOULD BE AMORTIZED 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 FO R THE ACCOUNTS. THE LATEST GUIDELINES OF THE RBI MAY BE REFERRED TO FOR ALLOWI NG ANY SUCH CLAIMS.' 21. SINCE THE CLAIM OF THE ASSESSEE IS AS PER RBI GUIDELINES AND CBDT HAS ALSO ISSUED DIRECTIONS TO ALLOW PREMIUM TO BE A MORTIZED REMAINING WITH THE MATURITY, THEREFORE, THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE CLAIM OF THE ASSESSEE AMOUNTING TO RS. 65,51,826/-. 4. WE FURTHER FIND THAT THIS ISSUE STANDS COVERED IN FAV OUR OF THE ASSESSEE BY THE DECISION OF THE ITAT, PUNE IN THE CASE OF LATUR URBAN CO- OP. BANK LIMITED, LATUR VS. DY. CIT, CIRCLE-3, NANDE D, ITA NOS. 778 & 792/PN/2011 ORDER DATED 31-08-2012. IN THE SAID CASE THE TRIBUNAL HAS HELD THAT ALL THE SECURITIES HELD BY THE BANK FORM PA RT OF THE STOCK-IN- 15 TRADE RESPECTIVE OF THE CLASSIFICATION MADE AS PER THE RBI GUIDELINES. THE OPERATIVE PART OF THE DECISION OF THE TRIBUNAL IS AS U NDER: 14. WE HAVE HEARD THE PARTIES. THE LD COUNSEL PLAC ED HIS HEAVY RELIANCE ON THE DECISION OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. BANK OF BARODA AND IN THE CASE OF UCO BANK VS. CIT, 240 ITR 355 (SC). IN THE CASE OF BANK OF BARODA (SUPRA), THE I SSUE BEFORE THEIR LORDSHIP WAS WHETHER THE ASSESSEE WAS ENTITLED FOR DEDUCTION ON ACCOUNT OF DEPRECIATION IN THE VALUE OF INVESTMENTS. THE METH OD OF VALUATION FOLLOWED BY THE ASSESSEE BANK WAS TO VALUE INVESTMENTS AT CO ST OR MARKET VALUE WHICHEVER WAS LOWER. THE ASSESSEE HAD CLAIMED THE DEPRECIATION TO THE TUNE OF RS. 11,82,35,007/- AND THE SAID DEPRECIATIO N WAS CLAIMED AS A DEDUCTION WHICH WAS DISALLOWED BY THE A.O, BUT THE ASSESSEE BANK SUCCEEDED BEFORE THE CIT(A). THE TRIBUNAL CONFIRMED THE ORDER OF THE CIT(A). THE REVENUE CARRIED THE ISSUE BEFORE THE H ONBLE HIGH COURT. THE CORE ISSUE WAS THE METHOD OF VALUATION ADOPTED BY T HE ASSESSEE BANK FOR VALUING THE STOCK OF THE SECURITIES. THE HONBLE H IGH COURT FOLLOWED THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF UN ITED COMMERCIAL BANK (SUPRA). 15. IN THE CASE OF UNITED COMMERCIAL BANK (SUPRA), EVEN THE ISSUE OF VALUATION OF THE STOCK IN TRADE OF THE INVESTMENT W AS BEFORE THE HONBLE SUPREME COURT. IN THE CASE OF THE ASSESSEE, THE IS SUE IS REGARDING ALLOWABILITY OF THE LOSS ON THE SALE OF THE SECURIT IES. MERELY BECAUSE THE SECURITIES ARE KEPT UNDER THE HEAD TILL THE MATURIT Y, THE SAID SECURITY CANNOT BE TREATED AS A PURELY INVESTMENT. LAW IS WELL SETTLED THAT THE SECURITIES HELD BY THE BANK ARE IN THE NATURE OF ST OCK-IN-TRADE. WE MAY LIKE TO QUOTE HERE THE DECISION OF THE HONBLE HIGH COURT OF KERALA IN THE CASE OF CIT VS. NEDUNGADI BANK LTD., 264 ITR 545. IN THE SAID CASE, THE HONBLE HIGH COURT HAS HELD THAT THE SECURITIES HEL D BY THE BANK ARE IN THE NATURE OF STOCK-IN-TRADE. BOTH THE AUTHORITIES BEL OW HAS MERELY GONE ON THE NOMENCLATURE OF THE HEAD UNDER WHICH THE SECURI TIES ARE HELD. IN OUR CONSIDERED VIEW, NOMENCLATURE CANNOT BE DECISIVE FO R THE ASSESSEE BANK. WE, THEREFORE, HOLD THAT THE LOSS ON THE SALE OF TH E SECURITIES IS REVENUE IN NATURE AND SAME IS ALLOWABLE. ACCORDINGLY, GROUND NO. 2 IS ALLOWED. 5. SO FAR AS THE REFERENCE BY THE ASSESSING OFFICER TO T HE DECISION OF THE VIJAYA BANK LTD. (SUPRA) IS CONCERNED, IN OUR OPI NION IN THE SUBSEQUENT DECISION IN THE CASE OF UNITED COMMERCIAL BA NK VS. CIT 240 ITR 355 (SC), THE ISSUE OF VALUATION OF STOCK-IN-TRADE OF SECURITIES HELD BY THE BANK WAS REFERRED TO THE HON'BLE SUPREME COURT A ND IT IS HELD THAT IT IS OPEN TO THE ASSESSEE TO VALUE IT AT THE COST OR MARKET VALUE WHICHEVER IS LOWER AND METHOD OF ACCOUNTING ADOPTED BY THE TAX PAYER CONSISTENTLY AND REGULARLY CANNOT BE DISCARDED BY THE DEPARTMENT AUTHORITY. THE LAW IS WELL SETTLED THAT ALL THE SECURITIES HELD BY THE BANK ARE PART OF THE STOCK-IN-TRADE IRRESPECTIVE OF THE FACT HOW THE CLASSIF ICATION IS MADE. IN THE LIGHT OF THE ABOVE DISCUSSION AND FOLLOWING THE DE CISION IN THE CASE OF BANK OF RAJASTHAN LTD. (SUPRA) AND THE LATUR URBAN CO -OP. BANK LIMITED (SUPRA), WE, ALLOW THE APPEAL FILED BY THE ASSESSEE AND DELETE THE ADDITION MADE BY THE ASSESSING OFFICER. 14.1 SIMILARLY, WE FIND THE HONBLE GUJARAT HIGH CO URT IN THE CASE OF CIT VS. RAJKOT DIST. CO-OP BANK LTD. REPORTED IN 3 TAXMANN.COM 161 HAS OBSERVED AS UNDER: 16 2.1 THE RESPONDENT-ASSESSEE IS A COOPERATIVE BANK. AS P ER THE RESERVE BANK OF INDIA GUIDELINES, IT IS REQUIRED TO DE POSIT CERTAIN AMOUNTS IN GOVERNMENT SECURITIES AND TO HOLD THE SAME T ILL MATURITY IN ORDER TO MAINTAIN STATUTORY LIQUIDITY RATIO (SLR). IN CERTAIN CASES, THE ACQUISITION OF SUCH SECURITIES IS AT A VALUE HIGHER THAN THE FACE VALUE OF THE SECURITY ITSELF. THE RESPONDENT-ASSESSEE CLAIMED SUCH P REMIUM SO PAID IN ACQUIRING THE SECURITIES AS A LOSS AMORTISED OVER THE ENTIRE PERIOD OF SECURITY. 3. THE REVENUE STOUTLY OPPOSED THE CLAIM. THE ASSESSING OFFICER AS WELL AS CIT(APPEALS) REJECTED THE ASSESSEE'S CLAIM. IN PAR TICULAR, THE CIT (APPEALS) GAVE DETAILED REASONS. HE WAS OF THE OPINION THAT THE INVESTMENT WAS IN THE NATURE OF CAPITAL ASSET AND CANNO T BE TREATED AS STOCK-IN-TRADE. HE WAS ALSO OF THE OPINION THAT IT WA S NOT POSSIBLE TO ASCERTAIN THE LOSS SUFFERED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. ON SUCH REASONS, HE OPINED THAT ONLY UPO N MATURITY ANY CLAIM OF THE ASSESSEE CAN BE CONSIDERED, THAT TOO, TREAT ING THE INVESTMENT AS CAPITAL ASSET. 4. THE ASSESSEE CARRIED THE MATTER IN APPEAL. THE TRIB UNAL ALLOWED THE ASSESSEE'S CLAIM FOLLOWING THE DECISION OF THE BOMBAY BENCH OF THE TRIBUNAL AND ALSO THE CBDT CIRCULAR DATED NOVEMBER 2 6, 2008. 5. THE LEARNED COUNSEL SHRI P.G. DESAI FOR THE APPEL LANT VEHEMENTLY CONTENDED THAT THE TRIBUNAL COMMITTED SERIOUS ERROR I N OVERRULING THE DECISION OF THE CIT (APPEALS), WHO HAD GIVEN DETAILED REASONS. HE SUBMITTED THAT THE INVESTMENT WAS IN THE NATURE OF CAP ITAL INVESTMENT IN THE HANDS OF THE ASSESSEE AS HELD BY THE CIT (APPEALS). T HE CBDT CIRCULAR DATED NOVEMBER 26, 2008 WOULD NOT APPLY. THERE WE RE FURTHER INSTRUCTIONS WHICH WOULD GOVERN THE SITUATION. 6. ON THE OTHER HAND, THE LEARNED COUNSEL SHRI TUSHA R HEMANI FOR THE RESPONDENT PLACED HEAVY RELIANCE ON THE SAID CBDT CIRCULAR DATED NOVEMBER 26, 2008 AND CONTENDED THAT THE BENEFIT OF AMORTISATION HAD TO BE GRANTED. THE ASSESSEE AS A COOPERATIVE BANK WAS BOU ND BY THE RBI DIRECTIVES. AS PER SUCH DIRECTIVES, THE ASSESSEE HAD TO IN VEST CERTAIN AMOUNTS IN GOVERNMENT SECURITIES AND TO HOLD THE SAME T ILL MATURITY. IN THE PROCESS OF ACQUISITION, IF THERE WAS ANY PREMIUM PA ID ON THE LACE VALUE OF THE SECURITY, THE LOSS HAD TO BE AMORTISED. PA RAGRAPH (VII) OF THE CBDT CIRCULAR NO. 17 OF 2008 DATED NOVEMBER 26. 200 8 WOULD APPLY. SUCH INSTRUCTION READS AS UNDER '(VII) AS PER RBI GUIDELINES DATED 16TH OCTOBER, 2000, THE INVESTMENT PORTFOLIO OF THE BANKS IS REQUIRED TO BE CL ASSIFIED UNDER THREE CATEGORIES VIZ. HELD TO MATURITY (HTM), HELD FOR TRADING (HFT) AND AVAILABLE FOR SALE (AFS). INVESTME NTS CLASSIFIED UNDER HTM CATEGORY NEED NOT BE MARKED TO MARKET AND ARE CARRIED AT ACQUISITION COST UNLESS THESE ARE MORE THAN T HE FACE VALUE, IN WHICH CASE THE PREMIUM SHOULD BE AMORTISED O VER THE PERIOD REMAINING TO MATURITY. IN THE CASE OF HFT A ND AFT 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 ACCOUNTS. THE LATEST GUIDELINES OF THE RBI MAY BE REF ERRED TO FOR ALLOWING ANY SUCH CLAIMS. 7. THE INSTRUCTIONS CLEARLY PROVIDE FOR AMORTIZATION OF PREMIUM PAID ON ACQUISITION OF SECURITIES WHEN THE SAME ARE ACQUIRED AT THE RATE HIGHER THAN THE FACE VALUE. SUCH AMORTIZATION WOULD HAVE TO BE FOR THE REMAINING PERIOD OF MATURITY. THIS PRECISELY THE TRI BUNAL HAD DIRECTED IN 17 THE IMPUGNED ORDER. THOUGH CONTENDED, NO CONTRARY INSTRUCTIONS OF CBDT ARE BROUGHT TO OUR NOTICE. THE INSTRUCTION IN QUESTION HAVING BEEN ISSUED UNDER SECTION 119(2) OF THE INCOME-TAX ACT, 196 1, WOULD BIND THE REVENUE. NO QUESTION OF LAW, THEREFORE, ARISES. 8. RESULTANTLY, THE TAX APPEAL IS DISMISSED. NOTICE IS D ISCHARGED WITH NO ORDER AS TO COSTS. 14.2 RESPECTFULLY FOLLOWING THE DECISION OF THE COO RDINATE BENCH OF THE TRIBUNAL AS WELL AS THE DECISION OF THE HONBLE GUJARAT HIGH COURT CITED (SUPRA), WE SET-ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION. 15. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 24-04-2014. SD/- SD/- (R.K. PANDA) (R.S .PADVEKAR) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE DATED: 24 TH APRIL, 2014 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. CIT(A), KOLHAPUR 4 CIT, KOLHAPUR 5. THE D.R, B PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY ITAT, PUNE BENCHES, PUNE