DCIT, New Delhi V. M/s. The Vaish Co-operative Adarsh Bank Ltd., New Delhi

ITA 3310/DEL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 97667 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 09-10-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 28-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Gift; Business income; Depreciation; Business expenditure; Question of law; Cost of acquisition; Notional interest; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `H NEW DELHI BEFORE SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER I.T.A.NO.3310/DEL/2012 ASSESSMENT YEAR : 2009-10 DCIT, VS THE VAISH COOPERATIVE ADARSH BANK LTD., CIRCLE 30(1), 3, NETAJI SUBHASH MARG, DRUM SHAPE BUILDING, DARYA GANJ, NEW DELH I. NEW DELHI. (PAN: AABAT7703R) (APPELLANT) (RESPONDENT) APPELLANT B Y: SHRI R.C. DANDAY, ACIT DR RESPONDENT BY : SHRI M.K. BHATT, ADVOCATE DATE OF HEARING: 9.10.2015 DATE OF PRONOUNCEMENT: 16.10.2015 O R D E R PER CHANDRAMOHAN GARG, J.M. THIS APPEAL BY THE REVENUE HAS BEEN DIRECTED AGAINS T THE ORDER OF THE CIT(A)-XXV, NEW DELHI DATED 19.4.2012 IN APPEAL NO .153/2011-12 FOR AY 2009-10. 2. THE REVENUE HAS RAISED MAINLY FOLLOWING TWO GROU NDS IN THIS APPEAL:- 1. 'ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE , LD. CIT(A) XXV, NEW DELHI HAS ERRED IN DELETING THE ADD ITION OF RS.4,04, 15,564/- MADE BY THE AO UNDER THE HEAD INC OME FROM NPA (NON PERFORMING ASSETS) ON THE GROUNDS THAT THE SAME HAS NOT BEEN ACTUALLY RECEIVED BY THE ASSESSEE.' ITA NO.3310/DEL/12 AY: 2009-10 2 2. 'ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE , THE LD. CIT(A)-XXV, NEW DELHI HAS ERRED IN DELETING THE ADDITION OF RS.6,20,669/- MADE BY THE AO UNDER THE HEAD PREMIUM EXPENDITURE ON GOVT. SECURITIES ON THE BASIS OF THA T THE BUY AND SALE OF THE GOVT. SECURITIES IS A NORMAL BUSINESS A CTIVITY AND THE PREMIUM EXPENDITURE IS A NORMAL BUSINESS EXPENDITUR E'. GROUND NO.1 3. APROPOS GROUND NO.1, WE HAVE HEARD ARGUMENTS OF BOTH THE SIDES AND CAREFULLY PERUSED THE RELEVANT MATERIAL PLACED ON R ECORD, INTER ALIA ASSESSMENT ORDER, IMPUGNED ORDER AND OTHER RELEVANT ORDERS OF HONBLE HIGH COURT AND TRIBUNAL INCLUDING PAPER BOOK OF THE ASSESSEE SPREA D OVER 100 PAGES. LD. DR SUBMITTED THAT THE AO WAS CORRECT IN MAKING ADDITIO N UNDER THE HEAD INCOME FROM NON-PERFORMING ASSETS (NPA) BECAUSE CIRCULAR OR ANY OTHER GUIDELINES ISSUED BY RBI CANNOT OVERRIDE THE EXPRESS PROVISION S OF INCOME TAX ACT, 1961 (FOR SHORT THE ACT) AND ARE NOT BINDING UPON THE IN COME TAX AUTHORITIES. SECONDLY, FORM NO. 3CD OF THE TAX AUDIT REPORT FURN ISHED BY THE ASSESSEE CLEARLY MENTIONS THAT THE ASSESSEE FOLLOWS MERCANTI LE SYSTEM OF ACCOUNTING. LD. DR ALSO POINTED OUT THAT THE CIT(A) DELETED THE ADD ITION BY WRONGLY HOLDING THAT THE INCOME FROM NPA HAS NOT BEEN ACTUALLY RECE IVED BY THE ASSESSEE, THEREFORE, IMPUGNED ORDER MAY BE SET ASIDE BY RESTO RING THAT OF THE AO. 4. REPLYING TO THE ABOVE, LD. COUNSEL OF THE ASSESS EE TOOK US THROUGH THE RELEVANT OPERATIVE PART OF THE IMPUGNED ORDER OF TH E FIRST APPELLATE AUTHORITY AND SUBMITTED THAT THE NOTIONAL INTEREST INCOME WHICH H AS NOT BEEN ACTUALLY RECEIVED ITA NO.3310/DEL/12 AY: 2009-10 3 BY THE ASSESSEE AND AS SUCH IT WAS NOT TAKEN IN THE PROFIT AND LOSS ACCOUNT, THEREFORE, IN THE LIGHT OF GUIDELINES OF RBI DATED 28.2.2000 AND RBI CIRCULAR NO. UBD DATED 6.6.1995, POLICY OF INCOME RECOGNITI ON HAS TO BE OBJECTIVE AND BASED ON THE RECORD OF RECOVERY AND HENCE INCOME FR OM NON-PERFORMING ASSETS (NPA) IS NOT RECOGNISED ON ACCRUAL BASIS BUT IS BOO KED AS INCOME ONLY WHEN IT IS ACTUALLY RECEIVED. LD. COUNSEL FURTHER POINTED OUT THAT THE RBI BY WAY OF CIRCULAR (SUPRA) CLARIFIED THAT CORPORATE BOOKS SHO ULD NOT TAKE INTO INCOME ACCOUNT INTEREST ON NON-PERFORMING ASSETS ON ACCRUA L BASIS. 5. ON CAREFUL CONSIDERATION OF ABOVE SUBMISSIONS, FROM THE IMPUGNED ORDER OF THE CIT(A), WE NOTE THAT THE CIT(A) NOTED THE FO LLOWING FACTS AND CONTENTIONS OF THE ASSESSEE IN PARA 4.1 AND 4.2 OF THE IMPUGNED ORDER WHICH READ AS UNDER:- 4.1. THE FACTS EMANATING FROM THE ORDER OF THE AO AND THE SUBMISSIONS OF THE ASSESSEE IS THAT THE ASSESSEE IS A CO-OPERATIVE BANK AND IS ENGAGED IN BANKING BUSINESS AND THE ASS ESSEE WAS CLAIMING DEDUCTION U/S 80P(2)(A)(I) UP TO AY 2006-0 7 @ 100%. IT IS SUBMITTED THAT THE ASSESSEE HAS CLAIMED THE I NTEREST INCOME AMOUNT OF RS 4,04,16,564/- AS INTEREST INCOME FROM THE NPA (NON-PERFORMING ASSETS) BUT SINCE THE LOANS/PRINCIP AL AMOUNTS HAVE BECOME BAD THE ASSESSEE HAS NEITHER RECEIVED T HE LOAN AMOUNT NOR THE INTEREST INCOME. THE ASSESSEE HAS TR EATED THE INTEREST AMOUNT AS 'INTEREST RECEIVABLE' IN THE DEB IT SIDE OF THE BALANCE SHEET AND AS A LIABILITY UNDER THE HEAD 'OV ERDUE INTEREST RESERVE ACCOUNT' IN THE CREDIT SIDE OF THE BALANCE SHEET. THE AO HAS TREATED THE INTEREST INCOME FROM THE NP AS AS A NORMAL BUSINESS INCOME ON THE GROUND THAT IN THE MERCANTIL E SYSTEM OF ACCOUNTING THE ACCRUED INCOME IS TO BE TREATED AS I NCOME OF THE ASSESSEE AND ACCORDINGLY, HAS MADE THE ADDITION OF RS. 4,04,16,564/- VIDE THE ORDER OF THE AO. ITA NO.3310/DEL/12 AY: 2009-10 4 4.2 THE ASSESSEE IS IN APPEAL' AGAINST THE ORDER OF THE AO AND IT IS SUBMITTED THAT THE AO IS NOT JUSTIFIED TO MAKE T HE ADDITION AS THE LOAN/PRINCIPAL AMOUNT HAS BECOME BAD (NPA) AND AT THE SAME TIME, THE ASSESSEE HAS NOT RECEIVED ANY INTERE ST INCOME AND AS SUCH NO REAL INCOME HAS ACCRUED TO THE ASSESSEE. IT IS SUBMITTED THAT IN THE CASE OF INTEREST ON NP AS THE PARTY ACCOUNT IS DEBITED AND THE INTEREST ACCOUNT IS CREDITED IN THE P&L ACCOUNT AND SINCE THE INTEREST IS ACTUALLY NOT RECEIVED A R EVERSE ENTRY IS PASSED AT THE YEAR-END BY WHICH THE P&L ACCOUNT IS DEBITED AND THE OVERDUE INTEREST ACCOUNT IS CREDITED. IT IS ALS O SUBMITTED THAT THE ASSESSEE HAS MAINTAINED THE BOOKS OF ACCOUNTS O N THE NP A AND ITS INTEREST ON THE BASIS OF THE RBI GUIDELINES AND SINCE THE INCOME HAS NOT BEEN RECEIVED BY THE ASSESSEE, THE A O IS NOT JUSTIFIED TO TREAT THE SAME AS INCOME OF THE ASSESS EE. IT IS ALSO SUBMITTED THAT WHEN THE INTEREST INCOME FINALLY REC OVERED OR RECEIVED IN FUTURE THE SAME IS ACCOUNTED FOR AND OF FERED AS INCOME OF THE ASSESSEE IN THE RELEVANT FY. IT IS AL SO SUBMITTED THAT ONLY THE REAL INCOME OF THE ASSESSEE MAY BE TA XED AND NOT THE NOTIONAL INCOME. THE ASSESSEE ALSO SUBMITTED TH AT NO INTEREST WOULD BE SAID TO HAVE ACCRUED TO THE ASSESSEE ON TH E LOANS OF DOUBTFUL RECOVERY AND THE ASSESSEE ALSO RELIED ON V ARIOUS CASE LAWS SOME OF WHICH ARE AS UNDER:- (1) CIT VS SHOORJI VALLABHDAS & CO, 46 ITR 144 (SC) [1962] (2) CIT VS VASISTH CHAY VYAPAR LTD, 330 ITR 440 (DE LHI), 2011 (3) DIT VS BRAHMAPUTRA CAPITAL FINANCIAL SERVICES L TD, 335 ITR 182 (DELHI), 2011 (4) TRO VS CUSTODIAN, 293 ITR 369 (DEL) (5) BARKHA INVESTMENT & TRADING CO P LTD VS CIT, 28 1 ITR 31 (GUJ) (6) CIT VS NAINITAL BANK LTD. 309 ITR 335 (UTTARAK HAND) (7) CIT VS ELGI FINANCE LTD. 293 ITR 357 (MAD) (8) CIT VS MOTOR CREDIT CO P LTD, 127 ITR 572 (MAD) [1981] (9) CIT VS COIMBATORE LAKSHMI INV. & FINANCE CO LTD , 331 ITR 229 (MAD) [2011] (10) UCO BANK VS CIT, 237 ITR 889 (SC)[1999] ITA NO.3310/DEL/12 AY: 2009-10 5 6. WE FURTHER OBSERVE THAT THE CIT(A) GRANTED RELIE F TO THE ASSESSEE WITH FOLLOWING OBSERVATIONS AND CONCLUSION:- 4.3 I HAVE CONSIDERED THE ORDER OF THE AO AND TH E SUBMISSIONS OF THE ASSESSEE AND I FIND CONSIDERABLE MERIT IN THE SUBMISSION OF THE ASSESSEE THAT SINCE THE ASSESSEE HAS NOT ACTUALLY RECEIVED THE INCOME AS THE LOAN/PRINCIPAL AMOUNT ITSELF HAS BECOME BAD AND AS SUCH THE AO IS NOT JUSTIFIED TO TREAT THE NOTIONAL INTEREST AS INCOME OF THE ASSESSEE. A PERU SAL OF THE CASE LAWS CITED BY THE ASSESSEE ALSO SUPPORTS THE CASE O F THE ASSESSEE THAT ONLY THE REAL INCOME IS TAXABLE AND NOT THE HY POTHETICAL INCOME IN VIEW OF THE REAL INCOME THEORY AS NO REAL INCOME IS ACTUALLY RECEIVED BY THE ASSESSEE AND THE SAME VIEW HAS BEEN HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF CI T VS SHOORJI VALLABHDAS & CO, 46 ITR 144 (SC) [1962] AND THE HEA D NOTE OF THE CASE READS AS UNDER :- 'HELD, THAT THE SUBSEQUENT AGREEMENT HAD ALTERED TH E RATE OF COMMISSION IN SUCH A WAY AS TO MAKE THE INCOME WHIC H REALLY ACCRUED TO THE ASSESSEE DIFFERENT FROM WHAT HAD BEE N ENTERED IN THE BOOKS OF ACCOUNT. THIS WAS NOT A CASE OF A GIFT BY THE ASSESSEE TO THE MANAGED COMPANIES OF A PORTION OF INCOME WHI CH 'HAD ALREADY ACCRUED, BUT AN AGREEMENT TO RECEIVE A LESS ER REMUNERATION THAT WHAT HAD BEEN AGREED UPON. THE AS SESSEE HAD IN FACT RECEIVED ONLY THE LESSER AMOUNT IN SPITE OF THE ENTRIES IN THE ACCOUNT BOOKS, AND THIS LESSER AMOUNT ALONE WAS TAXABLE. INCOME-TAX IS A LEVY ON INCOME. THOUGH THE INCOME-T AX ACT TAKES INTO ACCOUNT TWO POINTS OF TIME AT WHICH THE LIABILITY TO TAX IS ATTRACTED, VIZ., THE ACCRUAL OF THE INCOME OR I TS RECEIPT, YET THE SUBSTANCE OF THE MATTER IS THE INCOME. IF INCOME DO ES NOT RESULT AT ALL, THERE CANNOT BE A TAX, EVEN THOUGH IN BOOK- KEEPING, AN ENTRY IS MADE ABOUT A 'HYPOTHETICAL INCOME', WHICH DOES NOT MATERIALISE . WHERE INCOME HAS, IN FACT, BEEN RECEI VED AND IS SUBSEQUENTLY GIVEN UP IN SUCH CIRCUMSTANCES THAT IT REMAINS THE INCOME OF THE RECIPIENT, EVEN THOUGH GIVEN UP, THE TAX MAY BE PAYABLE. WHERE, HOWEVER, THE INCOME CAN BE SAID NOT TO HAVE RESULTED AT ALL, THERE IS OBVIOUSLY NEITHER ACCRUAL NOR RECEIPT OF INCOME, EVEN THOUGH AN ENTRY TO THAT EFFECT MIGHT, IN CERTAIN CIRCUMSTANCES, HAVE BEEN MADE IN THE BOOKS OF ACCOU NT. ITA NO.3310/DEL/12 AY: 2009-10 6 DECISION OF THE BOMBAY HIGH COURT IN COMMISSIONER O F INCOME-TAX V. SHOORJI VALLABHDAS & CO. [1959] 36 I. T.R. 25 AFFIRMED. COMMISSIONER OF INCOME-TAX V. CHAMANLAL MANGALDAS & CO. [1960] 39 I.T.R. 8 (S.C.) FOLLOWED. 4.4. IT HAS ALSO BEEN HELD IN THE CASE OF CIT VS MOTOR C REDIT CO P LTD, 127 ITR 572 (MAD) [1981] THAT ONLY THE REAL IN COME IS TO BE TAXED AND THE HEAD-NOTE OF THE CASE READS AS UNDER :- THE REGULAR MODE OF ACCOUNTING DETERMINES ONLY THE MODE OF COMPUTING THE TAXABLE INCOME AND THE POINT OF TI ME AT WHICH THE TAX LIABILITY IS ATTRACTED. IT CANNOT DET ERMINE OR AFFECT THE RANGE OF TAXABLE INCOME OR THE AMBIT OF TAXATION. WHERE NO INCOME HAS RESULTED IT CANNOT BE SAID THAT INCOME HAS ACCRUED MERELY ON THE GROUND THAT THE ASSESSEE HAD BEEN FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. EVEN IF THE ASSESSEE MAKES A DEBIT ENTRY TO THAT EFFECT, STILL NO INCOME CAN BE SAID TO HAVE ACCRUED TO THE ASSESSEE. IF NO INCOME HAS MATERIALISED, THERE CAN BE NO LIABILITY TO TAX ON A HYPOTHETICAL INCOME. IT IS NOT THE HYPOTHETICAL ACCRUAL OF INCOM E BASED ON THE MERCANTILE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASS ESSEE THAT HAS TO BE TAKEN INTO ACCOUNT, BUT WHAT SHOULD BE CO NSIDERED IS WHETHER THE INCOME HAS REALLY MATERIALISED OR RESUL TED TO THE ASSESSEE. THE QUESTION WHETHER REAL INCOME HAS MATE RIALISED TO THE ASSESSEE HAS TO BE CONSIDERED WITH REFERENCE TO COMMERCIAL AND BUSINESS REALITIES OF THE SITUATION IN WHICH TH E ASSESSEE HAS BEEN PLACED AND NOT WITH REFERENCE TO HIS SYSTEM OF ACCOUNTING. 4.5 AFTER CONSIDERING ALL THE FACTS AND CIRCUMSTAN CES OF THE CASE, I AM OF THE VIEW THAT THERE IS CONSIDERABLE MERIT I N THE SUBMISSION OF THE ASSESSEE REGARDING THE NOTIONAL I NTEREST INCOME WHICH HAS NOT BEEN ACTUALLY RECEIVED BY THE ASSESSE E AND AS SUCH THE AO IS NOT JUSTIFIED TO MAKE THE ADDITION ON THE BASIS OF NOTIONAL INTEREST INCOME ONLY AND ACCORDINGLY, THE ADDITION MADE BY THE AO IS DELETED. 7. DURING THE ARGUMENT, LD. COUNSEL OF THE ASSESSEE SUBMITTED VARIOUS ORDERS AND JUDGMENTS OF THE TRIBUNAL INCLUDING JUDGMENT OF ITAT DELHI BENCH H IN THE CASE OF ASSESSEES COOPERATIVE BANK IN I.T.A. N O. 5549/D/12 DATED 21.6.13 ITA NO.3310/DEL/12 AY: 2009-10 7 FOR ASSESSMENT YEAR 2009-10 IN THE CASE OF DCIT VS VAISH COOPERATIVE NEW BANK LTD. WHEREIN THE ISSUE OF NOTIONAL INTEREST ON NON-PERFORMING ASSETS (NPA) HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE WI TH FOLLOWING OBSERVATIONS AND CONCLUSION:- 5. BEFORE THE LD. CIT (A) ASSESSEE SUBMITTED THAT ASSESSING OFFICER WAS NOT JUSTIFIED TO MAKE THE ADD ITION IN THIS CASE AS THE LOAN/PRINCIPAL AMOUNT HAS BECOME BAD (N PA) AND AT THE SAME TIME THE ASSESSEE HAD NOT RECEIVED ANY INT EREST INCOME AND AS SUCH NO REAL INCOME HAS ACCRUED TO THE ASSES SEE. THE ASSESSEE FURTHER PLACED RELIANCE UPON ACCOUNTING ST ANDARDS 9 IN THIS REGARD. IT WAS FURTHER SUBMITTED THAT NO INTE REST WOULD BE SAID TO HAVE ACCRUED TO THE ASSESSEE AS THE LOANS T HEREOF WAS OF DOUBTFUL RECOVERY. IN THIS REGARD, ASSESSEE REFERRE D TO VARIOUS CASE LAWS AS UNDER :- (1) CIT VS. SHOORJI VALLABHDAS & CO. 46 ITR 144 ( SC) [1962] (2) CIT VS. VASISTH CHAY VYAPAR LTD., 330 ITR 440(DELHI),2011, (3) DIT VS. BRAHMAPUTRA CAPITAL FINANCIAL SERVICES LTD, 335 ITR 182 (DELHI), 2011 (4) TRO VS. CUSTODIAN, 293 ITR 369 (DEL) (5) BARKHA INVESTMENT & TRADING CO. P.LTD. VS. CIT, 281 ITR 31(GUJ) (6) CIT VS. NANITAL BANK LTD, 309 ITR 335 (UTTARAK HAND) (7) CIT VS. ELGI FINANCE LTD, 293 ITR 357 (MAD) (8) CIT VS. MOTOR CREDIT CO. P. LTD. 127 ITR 572 ( MAD) [1981] (9) CIT VS. COIMBATORE LAKSHMI INV. & FINANCE CO. L TD. 331 ITR 229 (MAD) [2011] 6. UPON CONSIDERATION OF THE ABOVE, THE LD. C IT(A) OPINED THAT HE WAS OF THE VIEW THAT THERE WAS CONSIDERABLE MERIT IN THE ITA NO.3310/DEL/12 AY: 2009-10 8 SUBMISSION OF THE ASSESSEE REGARDING THE NOTIONAL I NTEREST INCOME WHICH HAS NOT BEEN ACTUALLY RECEIVED BY THE ASSESSE E AND AS SUCH THE ASSESSING OFFICER IS NOT JUSTIFIED TO MAKE THE ADDITION ON THE BASIS OF NOTIONAL INTEREST INCOME ONLY AND ACCORDIN GLY, THE ADDITION MADE BY THE ASSESSING OFFICER WAS DELETED. 7. AGAINST THE ABOVE ORDER, REVENUE IS IN APPEAL BE FORE US. WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE REC ORDS. WE FIND THAT THE INTEREST IN THIS CASE WAS DUE ON NON- PERFORMING ASSETS (NPA). AS PER THE RBI GUIDELINE IN THIS REGA RD, INTEREST ON NPAS IS NOT TO BE RECOGNIZED. ACCOUNTING STANDARD 9 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANT OF INDIA ALS O PROVIDES THAT INCOME IS TO BE RECOGNIZED ONLY WHEN THERE IS SOME REASONABLE CERTAINTY ABOUT THE RECEIPT OF THE INCOME. WE, FURT HER, FIND THAT THIS VIEW IS ALSO SUPPORTED BY THE DECISIONS, AS M ENTIONED ABOVE. WE FIND THAT IN THE CASE OF CIT VS. ELGI FINANCE LT D. 293 ITR 357, HONBLE MADRAS HIGH COURT HAS HELD THAT INTERE ST ON NON- PERFORMING ASSET IS NOT TO BE RECOGNIZED IN LIGHT O F THE RBI NOTIFICATION AND ACCOUNTING STANDARD 9 ISSUED BY TH E INSTITUTE OF CHARTERED ACCOUNTANT OF INDIA. 8. IN THE LIGHT OF AFORESAID DISCUSSION AND PRE CEDENTS. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A). ACCORDINGLY, WE UPHOLD THE SAME. IN VIEW OF ABOVE, AT THE VERY OUTSET, WE MAY POINT OUT THAT THE AO WRONGLY MENTIONED THAT THE GUIDELINES OF RBI AND CIRCULARS ARE NOT BINDING UPON THE INCOME TAX AUTHORITIES AS URBAN COOPERATIVE BANKS A RE BOUND TO FOLLOW INCOME RECOGNITION POLICY DECIDED BY THE RBI AND WHEN RBI HAS MADE IT CLEAR THAT COOPERATIVE BANKS SHOULD NOT TAKE TO INCOME ACCOUNT INTEREST ON PERFORMING ASSETS ON ACCRUAL BASIS, THEN IT IS NOT APPROPRIATE FOR THE COOPERATIVE BANKS TO RECOGNISE INTEREST ON NON-PERFORMING ASSETS AS THEI R INCOME ON NATIONAL BASIS. THEREFORE, BASIS OF THE ACTION OF THE AO IS NOT SUS TAINABLE AND IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. WE FURTHER NOTE TH AT WHERE NO INCOME HAS RESULTED IN THE HANDS OF THE ASSESSEE COOPERATIVE B ANK AS INTEREST ON NPA, THEN ITA NO.3310/DEL/12 AY: 2009-10 9 THE SAME CANNOT BE HELD AS INCOME ACCRUED TO THE AS SESSEE MERELY ON THE GROUND THAT THE ASSESSEE HAD BEEN FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. WE ARE UNABLE TO AGREE WITH THE CONCLUSION OF THE CIT( A) THAT IF NO INCOME HAS MATERIALISED IN THE HANDS OF THE ASSESSEE AS ACTUAL ACCRUAL OF INTEREST FROM NPA, THEN THERE CAN BE NO LIABILITY TO TAX ON HYPOTHETIC AL INCOME. IT IS NOT A HYPOTHETICAL ACCRUAL INCOME BASED ON MERCANTILE SYS TEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE THAT HAS TO BE TAKEN INTO ACCOUNT B UT THE CRUX OF THE ISSUE IS THAT WHETHER THE INCOME HAS REALLY MATERIALISED OR ACCRU ED TO THE ASSESSEE AS INTEREST ON NPA. WE ARE ALSO IN AGREEMENT WITH THE OBSERVAT IONS OF THE CIT(A) THAT THE QUESTION WHETHER REAL INCOME AS MATERIALISED TO THE ASSESSEE HAS TO BE CONSIDERED WITH REFERENCE TO BUSINESS AND COMMERCIA L REALITY OF THE SITUATION IN WHICH THE ASSESSEE HAS BEEN PLACED AND NOT WITH REF ERENCE TO HIS SYSTEM OF ACCOUNTING. 8. ON THIS ISSUE, IT IS RELEVANT TO NOTE THAT AS PE R RBI CIRCULAR NO. UBD.PCB.MC.3/09.14.000/2009-10 DATED 1.7.2009, THE INCOME RECOGNITION POLICY FROM NPA HAS BEEN SET OUT AS FOLLOWS:- 4.1 INCOME RECOGNITION POLICY 4.1.1 THE POLICY OF INCOME RECOGNITION HAS TO BE O BJECTIVE AND BASED ON THE RECORD OF RECOVERY. INCOME FROM NON-P ERFORMING ASSETS (NPA) IS NOT RECOGNISED ON ACCRUAL BASIS BUT IS BOOKED AS INCOME ONLY WHEN IT IS ACTUALLY RECEIVED. THEREFOR E, BANKS SHOULD NOT TAKE TO INCOME ACCOUNT INTEREST ON NON-P ERFORMING ASSETS ON ACCRUAL BASIS. ITA NO.3310/DEL/12 AY: 2009-10 10 9. IT IS PERTINENT TO MENTION THAT ALL COOPERATIVE BANKS INCLUDING THE ASSESSEE ARE BOUND TO FOLLOW RBI CIRCULAR (SUPRA) FOR RECOGN ITION OF INCOME FROM NPA AND IN DERIVATION THEREFROM MAY CREATE SERIOUS PROB LEMS FOR THE VIOLATING BANK. HENCE, CONCLUSION OF THE AO WAS NOT CORRECT THAT RB I GUIDELINES/CIRCULARS ARE NOT BINDING ON THE INCOME TAX AUTHORITIES. PER CON TRA, WHEN THE ASSESSEE COOPERATIVE BANK IS FOLLOWING INCOME RECOGNITION PO LICY SET OUT BY THE RBI, THEN IT CANNOT BE COMPELLED TO FOLLOW OTHER METHOD OF RECOGNITION AND INCOME TAX AUTHORITIES HAVE TO CONSIDER THIS ASPECT BEFORE MAKING ANY DISALLOWANCE OR ADDITION IN THIS REGARD. 10. AT THIS POINT, WE RESPECTFULLY TAKE COGNIZANCE OF THE JUDGMENT OF COORDINATE BENCH OF DELHI H BENCH DATED 21.6.13 I N ASESSEES OWN GROUP COOPERATIVE BANK CASE (SUPRA) WHEREIN IT HAS BEEN E XPRESSLY HELD THAT AS PER RBI GUIDELINES, THE INTEREST ON NPA IS NOT TO BE RECOGN ISED AND ALSO AS PER ACCOUNTING STANDARD 9 ISSUED BY INSTITUTE OF CHART ERED ACCOUNTANTS OF INDIA, THAT INCOME IS TO BE RECOGNISED ONLY WHEN THERE IS SOME REASONABLE CERTAINLY ABOUT THE RECEIPT OF INCOME. IN VIEW OF ABOVE, WE HAVE NO REASON TO TAKE A DEVIATED VIEW FROM THE ORDER OF THE TRIBUNAL (SUPRA ) AND THEREFORE, WE ARE UNABLE TO SEE ANY VALID REASON TO INTERFERE WITH TH E CONCLUSION OF THE FIRST APPELLATE AUTHORITY AND THUS, WE UPHOLD THE SAME. ACCORDINGLY, GROUND NO. 1 OF THE REVENUE BEING DEVOID OF MERITS IS DISMISSED. ITA NO.3310/DEL/12 AY: 2009-10 11 GROUND NO.2 11. APROPOS GROUND NO. 2 OF THE REVENUE, LD. DR SUBMITT ED THAT THE CIT(A) ERRED IN DELETING THE ADDITION OF RS.6,20,669/- MAD E BY THE AO UNDER THE HEAD PREMIUM EXPENDITURE ON GOVT. SECURITIES ON THE BASI S OF THAT THE BUY AND SALE OF THE GOVT. SECURITIES IS A NORMAL BUSINESS ACTIVITY AND THE PREMIUM EXPENDITURE IS A NORMAL BUSINESS EXPENDITURE LD. DR SUPPORTING TH E ACTION OF THE ASSESSING OFFICER SUBMITTED THAT PREMIUM PAID ON GOVERNMENT S ECURITIES WAS AN EXPENDITURE BEING ADMISSIBLE IN NATURE WHICH WAS NO T ALLOWABLE, THEREFORE, THE ASSESSING OFFICER RIGHTLY MADE ADDITION IN THIS REG ARD. LD. COUNSEL VEHEMENTLY POINTED OUT THAT CIT(A) GRANTED RELIEF TO THE ASSES SEE WITHOUT ANY JUSTIFIED REASON AND BASIS, THEREFORE, THE SAME MAY BE SET AS IDE BY RESTORING THAT OF THE ASSESSING OFFICER. 12. REPLYING TO THE ABOVE, LD. COUNSEL OF THE ASSES SEE SUBMITTED THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DISALLOWING THE GENUINE PREMIUM EXPENDITURE WHICH WAS A NORMAL BUSINESS EXPENDITURE AND THE SAME WAS ALLOWABLE AS THE SAME WAS INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. ON BEHALF OF THE ASSESSEE, IT WAS ALSO SUBMITTED TH AT THE BUYING AND SALE OF GOVERNMENT SECURITIES IS A PART OF NORMAL BUSINESS ACTIVITY OF THE ASSESSEE, AS ITA NO.3310/DEL/12 AY: 2009-10 12 SUCH, THE PREMIUM EXPENDITURE OR DEDUCTION OR WRITE OFF SHOULD BE ALLOWED. LD. COUNSEL VEHEMENTLY CONTENDED THAT THE ASSESSEE WAS GRANTED RELIEF ON CORRECT AND JUSTIFIED REASONS, THEREFORE, IMPUGNED ORDER MA Y KINDLY BE UPHELD. 13. LEARNED COUNSEL OF THE ASSESSEE ALSO POINTED OU T SOME ORDERS OF THE TRIBUNAL INCLUDING ORDER OF ITAT PUNE IN THE CASE O F SATARA DISTRICT CENTRAL CO. OP. BANK LTD. VS DCIT DATED 30.12.14 IN ITA NO. 253 7/PN/2012 FOR AY 2009- 10, ORDER OF ITAT AHMEDABAD B BENCH IN THE CASE O F DCIT VS SURAT NATIONAL COOPERATIVE BANK LTD. DATED 23.8.2013 IN ITA NO. 27 93/AHD/2012 FOR AY 2009-10 AND ORDER OF ITAT BANGALORE A BENCH IN TH E CASE OF M/S SIR M. VISWESWARAYA COOPERATIVE BANK LTD. VS JCIT DATED 11 .5.12 IN ITA NO.1122/BANG/2010 FOR AY 2007-08 AND SUBMITTED THAT THE ASSESSEE IS ENTITLED TO CLAIM THE EXPENDITURE ON ACCOUNT OF AMORTISATION OF PREMIUM HELD TILL MATURITY (HTM) GOVERNMENT SECURITIES AND THEREFORE, THE FIRST APPELLATE AUTHORITY WAS QUITE CORRECT IN GRANTING RELIEF TO T HE ASSESSEE ON THIS ISSUE. LD. COUNSEL HAS ALSO DRAWN OUR ATTENTION TOWARDS CHART FILED ALONG WITH WRITTEN SUBMISSIONS OF THE ASSESSEE DATED 27.6.15 WHICH EXP LICITLY CLARIFY THE DETAILS OF GOVERNMENT SECURITIES PURCHASED AT PREMIUM AS ON 31 .3.2009 AMOUNTING TO RS.6,20,669 WHEREIN AMORTISATION DURING FINANCIAL P ERIOD 2008-09 GOVERNMENT SECURITY HELD TILL MATURITY HAS BEEN SUBMITTED. LE ARNED DEPARTMENTAL ITA NO.3310/DEL/12 AY: 2009-10 13 REPRESENTATIVE HAS NOT DISPUTED THIS FACT THAT THIS CHART ALONG WITH RELEVANT SUBMISSIONS WAS SUBMITTED TO THE AUTHORITIES BELOW BY THE ASSESSEE. 14. ON CAREFUL CONSIDERATION OF RIVAL SUBMISSIONS O F BOTH THE SIDES, AT THE VERY OUTSET, WE FIND IT APPROPRIATE TO NOTE PROPOSITION LAID DOWN BY ITAT PUNE BENCH IN THE CASE OF SATARA DISTRICT CENTRAL CO. OP. BAN K LTD. VS DCIT (SUPRA) WHERE IN PARA 10, AFTER CONSIDERING THE PROPOSITION LAID DOWN BY ITAT PUNE BENCH ITSELF IN THE CASE OF PUNE DISTRICT CENTRAL CO. OP. BANK LTD. VS DCIT (SUPRA) IN ITA NO. 1796/PN/2013 ORDER DATED 28.11.14 RELATING TO AY 2009-10, IT HAS BEEN HELD THAT THE ASSESSEE IS ENTITLED TO THE CLAIM OF EXPENDITURE ON ACCOUNT OF AMORTISATION PREMIUM HELD TILL MATURITY GOVERNMENT SECURITIES. THE RELEVANT OPERATIVE PART OF THE ORDER OF THE TRIBUNAL READS T HUS:- 8. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF T HE LEARNED CIT(A). THE A.R. POINTED OUT THAT THE ISSUE IN THE PRESENT APPEAL IS SQUARELY COVERED BY THE RATIO LAID DOWN B Y THE TRIBUNAL, PUNE BENCH, IN THE CASE OF PUNE DISTRICT CENTRAL CO. OPERATIVE BANK LTD., ITA NO.1796/PN/2013, VIDE ORDE R DATED 28TH NOVEMBER 2014, RELATING TO ASSESSMENT YEAR 200 9-10 AND HONBLE BOMBAY HIGH COURT IN CIT V/S HDFC BANK LTD. , 366 ITR 505 (BOM.). 9. THE A.R. FOR THE REVENUE PLACED RELIANCE ON THE ORDER OF THE CIT(A). 10. WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED THE RECORD. THE ISSUE ARISING IN THE PRESENT APPEAL IS WITH REG ARD TO AMORTIZATION OF PREMIUM ON HTM SECURITIES. THE CASE OF THE ASSESSEE WAS THE BANKS WERE GIVEN PERMISSION TO SHI FT SECURITIES FROM AFS TO HTM ON OR BEFORE 31ST MARCH 2005. FOR T HE PURPOSE, YEAR AND VALUATION OF AFS WAS DONE AND PRI CE PAID FOR ITA NO.3310/DEL/12 AY: 2009-10 14 THE HTMS OVER THE FACE VALUE WAS AMORTIZED FOR A PE RIOD OF FIVE YEARS AND BOOKED AS EXPENDITURE, AS PER RBI NORMS. THE CASE OF THE REVENUE WAS THAT THE HTM SECURITIES WERE HELD O N CAPITAL ACCOUNT AND THE PREMIUM PAID FORMS INTEGRAL PART OF THE COST OF CAPITAL ASSET AND THE SAME CANNOT BE SEGREGATED FRO M THE COST AND CLAIMED AS DEDUCTION. IDENTICAL ISSUE AROSE BEF ORE THE TRIBUNAL, PUNE BENCH, IN THE CASE OF PUNE DISTRICT CENTRAL CO. OPERATIVE BANK LTD. (SUPRA), WHEREIN THE TRIBUNAL H ELD AS UNDER:- 10. WE FIND THAT A SIMILAR ISSUE OF ALLOWABILITY O R DEDUCTION ON ACCOUNT OF AMORTIZATION OF PREMIUM EXPENDITURE FOR HTM SECURITIES AROSE BEFORE PUNE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.1795/PN/2013 RELATING TO ASSESSM ENT YEAR 2008-09 VIDE ORDER DATED 22.09.2014 WHEREIN, IT WAS HELD AS UNDER:- 2.1 THE ONLY ISSUE REMAINS IS WITH REGARD TO DISA LLOWANCE MADE BY THE ASSESSING OFFICER OF RS.2,20,68,302/- C LAIMED BY THE ASSESSEE AS AMORTIZATION OF PREMIUM EXPENDITURE FOR HTM SECURITIES BY PAYMENT OF OVER AND ABOVE THE VALUE O F SUCH SECURITIES. THE LEARNED AUTHORIZED REPRESENTATIVE H AS POINTED OUT THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASS ESSEE BY ORDER OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS . HDFC BANK LTD. (2014) 366 ITR 505 (BOM), WHEREIN THE HON BLE BOMBAY HIGH COURT ON SIMILAR ISSUE, HELD AS UNDER: AS FAR AS QUESTION (C) IS CONCERNED, WE FIND THAT AN IDENTICAL QUESTION OF LAW WAS FRAMED AND ANSWERED IN FAVOUR O F THE ASSESSEE BY THIS COURT IN ITS JUDGMENT DATED JULY 4 , 2014, IN INCOME TAX APPEAL NO.1079 OF 2012, CIT V. LORD KRIS HNA BANK LTD. (NOW 7 THE SATARA DISTRICT CENTRAL CO. OP. BAN K LTD. MERGED WITH HDFC BANK LTD.) (2014) 366 ITR 416 (BOM ). MR. SURESH KUMAR FAIRLY STATED THAT QUESTION (C) REPROD UCED ABOVE IS COVERED BY THE SAID ORDER. IN VIEW THEREOF, WE ARE OF THE VIEW THAT EVEN QUESTION (C) DOES NOT ARISE ANY SUBSTANTIAL QU ESTION OF LAW THAT REQUIRES AN ANSWER FROM US. AND A SIMILAR VIEW HAS BEEN TAKEN BY ITAT, PUNE A BENCH IN THE CASE OF DY.CIT VS. KALLAPPANNA AWADE ICHALKARAN JI JANATA SAHAKARI BANK LTD. IN ITA NO.449/PN/2012 AND ANOTHE R BY OBSERVING AS UNDER: 10. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) ITA NO.3310/DEL/12 AY: 2009-10 15 AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. W E FIND AN IDENTICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN THE CASE OF NAHSIK MERCHANT COOPERATIVE BANK LTD. (SUPRA). WE F IND THE TRIBUNAL HAS DISCUSSED THE ISSUE AND DISMISSED THE GROUNDS RAISED BY THE REVENUE BY HOLDING AS UNDER : 4. AFTER GOING THROUGH RIVAL SUBMISSIONS AND MATE RIAL 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 DEDUCTION U/S.80P(2)(A)(I) FROM THIS TOTAL INCOME. HOWEVER, THE COOPERATIVE SOCIETY SHOULD NOW BE ENTI TLED TO BE ASSESSED AS NORMAL BANKING COMPANY. THE CLAUSE (4) INSERTED IN SECTION 80P HAS TAKEN AWAY THE BENEFIT OF THE ERSTW HILE DEDUCTION AVAILABLE TO COOPERATIVE SOCIETY IN CARRYING ON BUS INESS 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 COOPERATIVE BANK OTHER THAN AGRICULTURAL CREDIT SOC IETY OR PRIMARY COOPERATIVE AGRICULTURAL AND RURAL DEVELOPM ENT BANK'. 5. THE INTENTION OF THE PROVISION MAY BE DERIVED MO RE PRECISELY FROM RELEVANT PARA 166 OF THE BUDGET SPEECH WHICH S TATED THAT : 'CO-OPERATIVE BANKS, LIKE ANY OTHER BANK, ARE LENDI NG INSTITUTIONS AND SHOULD PAY TAX ON THEIR PROFITS, PRIMARY AGRICU LTURAL CREDIT SOCIETIES (PACS) AND PRIMARY COOPERATIVE AGRICULTUR AL AND RURAL DEVELOPMENT BANK (PCARDB) STAND ON A SPECIAL FOOTING AND WILL CONTINUE TO BE EXEMPT UNDER SECTION 80P OF THE INCOME TAX ACT. HOWEVER, I PROPOSE TO EXCLUDE ALL OTHER CO -OPERATIVE BANKS FROM THE SCOPE OF THAT SECTION'. ACCORDINGLY, SECTION 80P IS TO BE AMENDED TO GIVE EFFECT TO THE ABOVE PROPOSAL. IT IS ALSO PROPOSED TO AMEND SECTION 8 THE SATARA DISTRICT CEN TRAL CO. OP. BANK LTD. 2(24) TO PROVIDE THAT PROFITS AND GAINS O F BUSINESS OF BANKING (INCLUDING PROVIDING CREDIT FACILITIES) CAR RIED ON BY A CO- OPERATIVE SOCIETY WITH ITS MEMBERS SHALL BE INCLUDE D IN THE DEFINITION OF 'INCOME' (WITH EFFECT FROM 1ST APRIL, 2007)'. 6. COOPERATIVE BANK UNLIKE OTHER COMMERCIAL BANKS A RE SUBJECTED TO DUAL CONTROL FROM BOTH RBI AS WELL AS FROM STATE COOPERATIVE DEPARTMENT. THE ACCOUNTING TREATMENT FO R A COOPERATIVE BANK IS THEREFORE A RESULT OF GUIDELINE S FROM BOTH THE CONTROLLING AUTHORITIES. ORDINARILY A DEDUCTION IS NOT AVAILABLE TO ITA NO.3310/DEL/12 AY: 2009-10 16 AN ASSESSEE UNLESS SPECIFICALLY PROVIDED UNDER THE ACT. THIS IS IRRESPECTIVE OF ACCOUNTING TREATMENT PROVIDED BY TH E ASSESSEE IN ITS BOOKS OF ACCOUNTS. BUT AT THE SAME TIME IT WAS WELL SETTLED THAT DEDUCTION EXPRESSLY MENTIONED UNDER THE ACT ARE NOT EXHAUSTIVE AND PROFIT IS TO BE DERIVED ACCORDING TO ORDINARY C OMMERCIAL PRINCIPLES. AS PER THE EXTANT RBI GUIDELINES DATED 01-07-2009 THE INVESTMENT PORTFOLIO OF THE BANKS IS REQUIRED TO BE CLASSIFIED UNDER 3 CATEGORIES VIZ., HELD THE MATURITY HTM), HE LD FOR TRADING (HFT) AND AVAILABLE FOR SALE (AFS). THE VAL UE OF EACH KIND OF INVESTMENT IS TO BE DONE IN THE FOLLOWING M ANNER: SR.NO. CLASSIFICATION VALUATION NORMS OF INVESTMENT . 1.. 2.. 3.. 7. IN PARA (VII) OF THE CBDT INSTRUCTION NO.17 OF 2 008 DATED 26.11.2008, ON 'ASSESSMENT OF BANK - CHECK LIST FOR DEDUCTION, STATES AS UNDER: 'AS PER RBI GUIDELINES..' 8. THE ITAT, MUMBAI BENCH, IN THE CASE OF ACIT VS. THE BANK OF RAJASTHAN LTD. (2011) TIOL-35- ITAT-MUMBAI, HAS HEL D THAT IN CASE OF BANKS, THE PREMIUM PAID IN EXCESS OF FACE V ALUE OF INVESTMENTS CLASSIFIED UNDER HTM CATEGORY WHICH HAS BEEN AMORTISED OVER THE PERIOD TILL MATURITY IS ALLOWABL E AS REVENUE EXPENDITURE SINCE THE CLAIM IS AS PER RBI GUIDELINE S AND CBDT ALSO HAS DIRECTED TO ALLOW SUCH PREMIUM. IT HAS ALS O BEEN HELD IN THE CASE OF CATHOLIC SYRIAN BANK LTD. VS. ACIT THAT AMORTIZATION ON PURCHASE OF GOVERNMENT SECURITIES WAS MADE AS PE R PRUDENTIAL NORMS OF THE RBI AND SAME WAS ALLOWABLE DEDUCTION. IN VIEW OF ABOVE, ASSESSEE WAS JUSTIFIED IN CONTEND ING FOR AMORTIZATION OF PREMIUM PAID IN EXCESS OF FACE VALU E OF SECURITIES HELD TO MATURITY (HTM) CATEGORY OR PERIOD REMAINING TILL 9 THE SATARA DISTRICT CENTRAL CO. OP. BANK LTD. MATURITY WAS FOUND REASONABLE BY THE CIT(A). ACCORDINGLY ADDITION OF R S.17,91,659/- MADE BY THE ASSESSING OFFICER BY DISALLOWING AMOUNT TOWARDS AMORTIZATION OF GOVERNMENT SECURITIES (HMT) WAS DEL ETED. THIS REASONED FACTUAL AND LEGAL FINDING OF THE CIT(A) NE EDS NO INTERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME. 9. AS A RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 10.1 RESPECTFULLY FOLLOWING THE DECISION OF THE COO RDINATE BENCH OF THE TRIBUNAL AND IN ABSENCE OF ANY CONTRARY MATE RIAL BROUGHT TO OUR NOTICE AGAINST THE ABOVE CITED DECISION WE F IND NO INFIRMITY IN THE ORDER OF THE LD.CIT(A) DELETING THE ADDITION . ACCORDINGLY, ITA NO.3310/DEL/12 AY: 2009-10 17 THE ORDER OF THE LD.CIT(A) IS UPHELD AND THE GROUND S RAISED BY THE REVENUE ARE DISMISSED. 2.2 NOTHING CONTRARY HAS BEEN BROUGHT TO OUR KNOWL EDGE ON BEHALF OF THE REVENUE. FACTS BEING SIMILAR, SO FOLL OWING THE SAME REASONING WE HOLD THAT IN CASE OF BANKS, THE PREMIU M PAID IN EXCESS OF FACE VALUE OF INVESTMENTS CLASSIFIED UNDE R HTM CATEGORY WHICH HAS BEEN AMORTISED OVER THE PERIOD T ILL MATURITY IS ALLOWABLE AS REVENUE EXPENDITURE SINCE THE CLAIM IS AS PER RBI GUIDELINES AND CBDT ALSO HAS DIRECTED TO ALLOW SUCH PREMIUM. IN VIEW OF ABOVE, THE ASSESSEE IS JUSTIFIED IN CONT ENDING THAT THE AMORTIZATION OF PREMIUM IN EXCESS OF FACE VALUE SEC URITIES AS HTM, PERIOD REMAINING DIFFERENCE WAS FOUND REASONAB LE. ACCORDINGLY, THE DISALLOWANCE OF RS.2,20,68,302/- M ADE BY THE ASSESSING OFFICER CLAIMED AS AMORTIZATION OF PREMIU M EXPENDITURE FOR HTM SECURITIES BY PAYMENT OF PREMIU M OVER AND ABOVE THE FACE VALUE OF SUCH SECURITIES IS DIRECTED TO BE ALLOWED. 11. THE HONBLE BOMBAY HIGH COURT IN CIT VS. HDFC B ANK (SUPRA) HELD THAT THE ASSESSEE THEREIN WAS ENTITLED TO DEDUCTION WITH RESPECT TO THE DIMINUTION IN THE VALUE OF INVE STMENTS AND AMORTIZATION OF PREMIUM ON INVESTMENTS HELD TO MATU RITY ON THE GROUND OF MANDATE OF THE RBI GUIDELINES. THE ISSUE RAISED IN THE PRESENT APPEAL IS IDENTICAL TO THE ISSUE BEFORE THE PUNE BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSM ENT YEAR 2008-09 AND HONBLE BOMBAY HIGH COURT IN CIT VS. HD FC BANK (SUPRA). WE HOLD THAT AMORTIZATION OF PREMIUM EXPENDITURE FOR SECURITIES HELD TO MATURITY IN VIEW OF RBI GUID ELINES ARE ALLOWABLE BUSINESS EXPENDITURE IN THE CASE OF ASSES SEE. THE GROUNDS OF APPEAL NO.1 AND 2 RAISED BY THE ASSESSEE ARE THUS, ALLOWED. 10 THE SATARA DISTRICT CENTRAL CO. OP. BA NK LTD. 11. FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THA T THE ASSESSEE IS ENTITLED TO THE CLAIM OF EXPENDITURE OF RS.31,73,359/-, ON ACCOUNT OF AMORTIZATION OF PREMIUM ON HTM SECURI TIES. THUS, THE GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE IS ALLOWED. 15. IT IS ALSO RELEVANT TO NOTE THAT AS PER INSTRUC TION NO. 17/2008 DATED 26.11.2008 OF THE INCOME TAX DEPARTMENT, IT HAS BEE N DIRECTED TO THE REVENUE AUTHORITIES THAT AS PER RBI GUIDELINES DATED 16.10. 2000, THE INVESTMENT PORTFOLIO ITA NO.3310/DEL/12 AY: 2009-10 18 OF THE BANKS IS REQUIRED TO BE CLASSIFIED UNDER THR EE CATEGORIES VIZ. HELD TO MATURITY (HTM), HELD FOR TRADING (HFT) AND AVAILABL E FOR SALE (AFS) AND THE INVESTMENT CLASSIFIED UNDER HTM CATEGORY NEED NOT B E MARKED TO MARKET AND ARE CARRIED AT ACQUISITION COST UNLESS THESE ARE MO RE THAN THE FACE VALUE AND IN THESE CASES, PREMIUM SHOULD BE AMORTISED OVER PERIO D REMAINING TO MATURITY. THE RELEVANT INSTRUCTION NO. (VII) READS AS UNDER: - (VII) AS PER RBI GUIDELINES DATED 16TH OCTOBER, 20 00, 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). INVEST MENTS CLASSIFIED UNDER HTM CATEGORY NEED NOT BE MARKED TO MARKET AND ARE CARRIED AT ACQUISITION COST UNLESS THESE AR E MORE THAN THE FACE VALUE, IN WHICH CASE THE PREMIUM SHOULD BE AMORTISED OVER THE PERIOD REMAINING TO MATURITY IN THE CASE O F 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 PR OVIDED FOR IN THE ACCOUNTS. THE LATEST GUIDELINES OF THE RBI MAY BE REFERRED TO FOR ALLOWING ANY SUCH CLAIMS. 16. ON THE BASIS OF FOREGOING DISCUSSION, WE REACH TO A LOGICAL CONCLUSION THAT THE CIT(A) WAS RIGHT IN GRANTING RELIEF TO THE ASSE SSEE ON THIS ISSUE AS TO WHEN THE ASSESSEE COOPERATIVE BANK IS HOLDING GOVERNMENT SECURITIES TILL ITS MATURITY, THE PREMIUM PAID BY THE ASSESSEE COOPERATIVE BANK T HEREON IS A NECESSARY EXPENDITURE FOR THE PURPOSE OF BUSINESS OF THE ASSE SSEE COOPERATIVE BANK AND THUS, THE SAME IS AN ALLOWABLE EXPENDITURE UNDER TH E PROVISIONS OF THE ACT AND ITA NO.3310/DEL/12 AY: 2009-10 19 THE FIRST APPELLATE AUTHORITY WAS CORRECT IN GRANTI NG RELIEF TO THE ASSESSEE. ACCORDINGLY, GROUND NO. 2 OF THE REVENUE BEING DEVO ID OF MERITS IS ALSO DISMISSED. 17. IN THE RESULT, THE APPEAL OF THE REVENUE BEING DEVOID OF MERITS IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16.10.2015. SD/- SD/- (L.P. SAHU) (C.M. GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 16TH OCTOBER, 2015 GS COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASSTT. REGISTRAR