Sri.Vijay Mahantesh Co-Op Bank, V. JCIT,

ITA 434/BANG/2013

• Counselvise Citation: 43421114 RSA 2013
• Duration Of Justice: 1 year(s) 5 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 23-09-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 01-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: BIJOY KUMAR PANDA
• Assessee Lawyers: C R NULVI
• Keywords: Depreciation; Cost of acquisition; Bad and doubtful debts; Revised return

Judgement Text

ITA NOS.434 AND 529 OF 2013 SHRI VIJAY MAHANTESH CO OP.BANK HUNGUND BAGALKOT PAGE 1 OF 16 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE A BENCH, BANGALORE BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NO.434/BANG/2013 (ASSESSMENT YEAR: 2009-10) SHRI VIJAY MAHANTESH COOPERATIVE BANK LTD., COLLEGE ROAD, HUNGUND 587118 BAGALKOT PAN: AAAAS 4393 R VS. JT. COMMISSIONER OF INCOME TAX, BIJAPUR RANGE, BIJAPUR (APPELLANT) (RESPONDENT) ITA NO.529/BANG/2013 (ASSESSMENT YEAR: 2009-10) JT. COMMISSIONER OF INCOME TAX, BIJAPUR RANGE, BIJAPUR VS. SHRI VIJAY MAHANTESH COOPERATIVE BANK LTD., COLLEGE ROAD, HUNGUND 587118 BAGALKOT PAN: AAAAS 4393 R (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI C.R. NULVI, CA DEPARTMENT BY: SHRI BIJOY KUMAR P ANDA, (DR) DATE OF HEARING: 23/09/2014 DATE OF PRONOUNCEMENT: 26/09/2014 O R D E R PER RAJPAL YADAV, J.M. THE ASSESSEE AND THE REVENUE ARE IN CROSS APPEALS AGAINST THE ORDER OF THE LEARNED CIT (A) DATED 30.01.2013 P ASSED FOR ASSESSMENT YEAR 2009-10. THE ASSESSEE HAS TAKEN SEV EN GROUNDS OF APPEAL, BUT ITS GRIEVANCE REVOLVES AROUND THREE ISSUES ONLY: ITA NOS.434 AND 529 OF 2013 SHRI VIJAY MAHANTESH CO OP.BANK HUNGUND BAGALKOT PAGE 2 OF 16 A) THE LEARNED CIT (A) HAS ERRED IN CONFIRMING DISALLO WANCE OF RS.10,99,420/- B) LEARNED CIT (A) HAS ERRED IN CONFIRMING THE ADDITIO N OF RS.12,25,859/- WHICH WAS ADDED ON THE GROUND THAT INTEREST ON NON PERFORMING ASSET (NPA) AMOUNT OUGHT TO HAVE BEEN RECOGNISED BY THE ASSESSEE AS INCOME. C) LEARNED CIT (A) HAS ERRED IN DISALLOWING THE PROVIS IONS OF BAD AND DOUBTFUL DEBTS U/S 36(VIIA) OF RS. 6,78, 133/-. ITA NO.434/BANG/2013 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A COOPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSI NESS OF BANKING. IT HAS OBTAINED NECESSARY LICENSE FROM THE RBI ON 8.11.1985. IT HAS FILED ITS RETURN OF INCOME ON 30. 09.2009 DECLARING TOTAL INCOME OF RS.87,06,110/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND A NOTICE U/S 143(2) WAS ISSUED AND SERVED UPON THE ASSESSEE. ON AN ANALYSIS OF THE RECORD, IT REVEALED TO THE ASSESSING OFFICER THAT THE ASSESSEE HAS DEBITED A SUM OF RS.6,04,07,062/- TOWA RDS INTEREST ON DEPOSIT AND LOANS. ACCORDING TO THE A SSESSING OFFICER THE ASSESSEE OUGHT TO HAVE DEDUCTED THE TDS WHILE CREDITING THE ACCOUNTS OF THE DEPOSITORS. HE FOUND THAT THE ASSESSEE HAS NOT DEDUCTED THE TAX AT SOURCE WHILE M AKING PAYMENTS TOWARDS INTEREST EXCEEDING RS.10,000/- ON TIME DEPOSITS. THEREFORE, HE ISSUED A SHOW CAUSE NOTICE FOR MAKING DISALLOWANCE U/S 40(A)(IA). THE ASSESSEE CONTENDED THAT SUCH PAYMENTS ARE EXEMPT FROM TDS, AS PER SECTION 194(3) (V) OF THE INCOME TAX ACT, THEREFORE, IT HAS NOT DEDUCTED THE TAX AT SOURCE. ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLAN ATION OF THE ITA NOS.434 AND 529 OF 2013 SHRI VIJAY MAHANTESH CO OP.BANK HUNGUND BAGALKOT PAGE 3 OF 16 ASSESSEE. HE DISALLOWED THE CLAIM OF THE ASSESSEE A ND MADE AN ADDITION OF RS.10,99,420/-. 3. APPEAL TO THE CIT (A) DID NOT BRING ANY RELIEF T O THE ASSESSEE. 4. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THE TRIBUNAL IN T HE CASE OF A COOPERATIVE SOCIETY ENGAGED IN THE BANKING BUSIENSS . HE PLACED ON RECORD COPY OF THE TRIBUNALS ORDER IN ITA NO.1572/BANG/2013 FOR ASSESSMENT YEAR 2009-10 IN TH E CASE OF THE BAGALKOT DISTRICT CENTRAL COOP. BANK, BAGALKOT VS. JCIT. THIS ORDER HAS BEEN PRONOUNCED ON 30.05.2014. THE T RIBUNAL HAS MADE A DETAILED ANALYSIS OF THE ISSUE AND DELET ED THE DISALLOWANCE. ON THE OTHER HAND THE LEARNED DR RELI ED UPON THE ORDER OF THE ASSESSING OFFICER. THE DISCUSSION MADE BY THE TRIBUNAL IN PARGRAPH NO.15 ONWARDS READ AS UNDER: 15. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO T HE RIVAL SUBMISSIONS. WE ARE OF THE VIEW THAT THE SUBMISSIO NS MADE BY THE LEARNED COUNSEL FOR THE ASSESSEE DESERVES TO BE ACCEPTED. AS RIGHTLY CONTENDED BY HIM SEC.194A(3)(I)(B) OF TH E ACT IS A PROVISION WHICH MANDATES DEDUCTION OF TAX AT SOURCE BY A CO- OPERATIVE SOCIETY CARRYING ON THE BUSINESS OF BANKI NG, WHERE THE INCOME IN THE FORM OF INTEREST WHICH IS PAID BY SUCH SOCIETY IS IN EXCESS OF TEN THOUSAND RUPEES. SEC.1 94A(3)(V) OF THE ACT PROVIDES THAT TAX NEED NOT BE DEDUCTED AT S OURCE WHERE THE INCOME IN THE FORM OF INTEREST IS CREDITE D OR PAID BY A CO-OPERATIVE SOCIETY TO A MEMBER THEREOF OR TO AN Y OTHER CO- OPERATIVE SOCIETY. THIS PROVISION THEREFORE APPLIE S TO ALL CO- OPERATIVE SOCIETIES INCLUDING CO-OPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING. IT IS NOT POSSIBLE TO EXC LUDE CO- OPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKIN G FROM THE PROVISIONS OF SEC.194A(3)(V) OF THE ACT ON THE GROU ND THAT THE SAME IS COVERED BY THE PROVISIONS OF SEC.194A(3)(I) (B) OF THE ITA NOS.434 AND 529 OF 2013 SHRI VIJAY MAHANTESH CO OP.BANK HUNGUND BAGALKOT PAGE 4 OF 16 ACT. SEC.194A(3)(V) OF THE ACT REFERS TO PAYMENT B Y A CO- OPERATIVE SOCIETY TO A MEMBER AND PAYMENT BY A CO-O PERATIVE SOCIETY TO NON-MEMBER WOULD CONTINUE TO BE GOVERNED BY THE PROVISIONS OF SEC.194A(3)(I)(B) OF THE ACT. SIMILA RLY U/S.194A(3)(VIIA)(B) INTEREST ON DEPOSITS OTHER THA N TIME DEPOSITS EVEN IF THE PAYMENT IS MADE TO A NON-MEMBE R BY A CO-OPERATIVE SOCIETY, THE CO-OPERATIVE SOCIETY NEED NOT DEDUCT TAX AT SOURCE. THUS THIS SECTION CARVES OUT ANOTHE R EXCEPTION TO SEC.194A(3)(I)(B) OF THE ACT. WE DO NOT THINK T HAT ANY OF THE ABOVE PROVISIONS CAN BE CALLED A GENERAL PROVIS ION AND OTHER PROVISIONS CALLED SPECIFIC PROVISIONS. EACH PROVISION OVER-LAP AND IF READ IN THE MANNER AS INDICATED ABO VE, THERE IS PERFECT HARMONY TO THE VARIOUS PROVISIONS. WE DO N OT AGREE WITH THE VIEW EXPRESSED BY THE PUNE ITAT SMC IN THE CASE OF BHAGANI NIVEDITA SAHAKARI BANK LTD. (SUPRA) WHEN IT SAYS THAT CO-OPERATIVE SOCIETY AS MENTIONED IN CL. (V) I S A GENERAL SPECIES, WHEREAS THE OTHER FIVE CATEGORIES OF CO-OP ERATIVE SOCIETIES WHICH ARE SPECIFICALLY REFERRED TO IN OTH ER PROVISIONS ARE SPECIFIC CO-OPERATIVE SOCIETIES. THE FURTHER C ONCLUSION IN THE SAID DECISION THAT THE TERM CO-OPERATIVE SOCIE TY IN CL. (V) OF S. 194A(3) HAS TO BE INTERPRETED AS CO-OPERATIVE SOCIETY OTHER THAN CO-OPERATIVE BANK, IS AGAIN UNSUSTAINABL E. THE LAW IS WELL SETTLED THAT BY A PROCESS OF INTERPRETA TION ONE CANNOT ADD ON WORDS THAT ARE NOT FOUND IN THE TEXT OF THE STATUTE. SUCH A COURSE IS PERMITTED ONLY WHEN THER E IS CAUSES OMISUS. WE DO NOT THINK THAT THE PROVISIONS OF SEC.194A(3)(V) SUFFERS FROM ANY CAUSES OMISUS AS HA S BEEN INTERPRETED BY THE ITAT PUNE BENCH SMC. 16. WE ARE ALSO OF THE VIEW THAT THE DECISION OF THE HONBLE KERELA HIGH COURT IN THE CASE OF MOOLAMATTOM ELECTR ICITY BOARD EMPLOYEES CO-OP BANK LTD. (SUPRA) SUPPORTS TH E PLEA OF THE ASSESSEE BEFORE US. THE PETITIONERS IN THA T CASE WERE PRIMARY CREDIT SOCIETIES REGISTERED UNDER THE KERAL A CO- OPERATIVE SOCIETIES ACT. IN VIEW OF THE SPECIFIC PROVISIONS OF SEC.194A(3(VIIA) OF THE ACT, THEY CLAIMED THAT THEY NEED NOT DEDUCT TAX AT SOURCE ON INTEREST PAID. IT WAS SUBM ITTED BY THE PETITIONER THAT SUB-S.194A(3)(V) DEALS WITH SUCH IN COME CREDITED OR PAID BY A CO-OPERATIVE SOCIETY TO A MEM BER WHEREAS SUB-S. (3)(VIIA)(A) PROVIDES A TOTAL EXEMPT ION TO DEPOSITS WITH THE PRIMARY CREDIT SOCIETY. THE HONB LE KERALA HIGH COURT ACCEPTED THEIR PLEA AND IN THEIR JUDGMEN T HAVE OBSERVED THAT SEC.194A (3)(I) EXEMPTION LIMIT OF RS . 10,000 TO ITA NOS.434 AND 529 OF 2013 SHRI VIJAY MAHANTESH CO OP.BANK HUNGUND BAGALKOT PAGE 5 OF 16 INTEREST PAID ON TIME DEPOSITS WITH CO-OPERATIVE SO CIETIES ENGAGED IN CARRYING ON BUSINESS OF BANKING IS ALLOW ED BUT THAT DOES NOT MEAN THAT ALL CO-OPERATIVE SOCIETIES WHO HAVE CREDITED OR PAID EXCEEDING RS. 10,000 ARE LIABLE TO DEDUCT TAX AT SOURCE. THE COURT HELD THAT CO-OPERATIVE SOCIET Y ENGAGED IN CARRYING ON BUSINESS OF BANKING AND PRIMARY CRED IT SOCIETIES STAND ON DIFFERENT FOOTING AND BELONG TO DIFFERENT CLASS. THAT DOES NOT MEAN THAT SEC.194A(3)(V) OF TH E ACT IS APPLICABLE ONLY TO CO-OPERATIVE SOCIETIES OTHER THA N CO- OPERATIVE SOCIETIES CARRYING ON THE BUSINESS OF BAN KING AS OBSERVED IN PARA-37 OF ITS JUDGMENT THE PUNE ITAT I N THE CASE OF BHAGANI NIVEDITA SAH BANK LTD. (SUPRA). IN FACT IN PARA-2 OF CIRCULAR NO.9 DATED 11.9.2002, THE CBDT HAS VERY CLEARLY LAID DOWN THAT CO-OPERATIVE SOCIETIES CARRYING ON B ANKING BUSINESS WHEN IT PAYS INTEREST ON DEPOSITS BY ITS M EMBERS NEED NOT DEDUCT TAX AT SOURCE IN VIEW OF THE PROVISIONS OF SEC.194A(3)(V) OF THE ACT. 17. WE ALSO FIND THAT THE CBDT IN CIRCULAR NO.9 D ATED 11.9.2002 CLARIFIED CERTAIN ASPECTS WHICH ARE RELEV ANT TO THE PRESENT CASE. THE SAME READS THUS: CIRCULAR NO.9 OF 2002 SUB : TAX DEDUCTION AT SOURCE UNDER SECTION 194A O F THE INCOME-TAX ACT, 1961 APPLICABILITY OF THE PROVISIONS IN RESPE CT OF INCOME PAID OR CREDITED TO A MEMBER OF CO-OPERATIVE BANKREG. 11/09/2002 TDS 194A UNDER SECTION 194A OF THE INCOME-TAX ACT, 1961, TAX IS DEDUCTIBLE AT SOURCE FROM ANY PAYMENT OF INCOME BY WAY OF INTERES T OTHER THAN INCOME BY WAY OF INTEREST ON SECURITIES. CLAUSE (V) OF SUB-SECTION (3) OF SECTION 194A EXEMPTS SUCH INCOME CREDITED OR PAID B Y A CO-OPERATIVE SOCIETY TO A MEMBER THEREOF FROM THE REQUIREMENT OF TDS. ON THE OTHER HAND, CLAUSE (VIIA) OF SUB-SECTION (3) OF SECTION 1 94A EXEMPTS FROM THE REQUIREMENT OF TDS SUCH INCOME CREDITED OR PAID IN RESPECT OF DEPOSITS (OTHER THAN TIME-DEPOSITS MADE ON OR AFTER 1ST JULY , 1995) WITH A CO- OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINE SS OF BANKING. 2. REPRESENTATIONS HAVE BEEN RECEIVED IN THE BOARD SEEKING CLARIFICATION AS TO WHETHER A MEMBER OF A CO-OPERATIVE BANK MAY R ECEIVE WITHOUT TDS INTEREST ON TIME DEPOSIT MADE WITH THE CO-OPERA TIVE BANK ON OR AFTER 1ST JULY, 1995. THE BOARD HAS CONSIDERED THE MATTER AND IT IS CLARIFIED THAT A MEMBER OF A CO-OPERATIVE BANK SHAL L RECEIVE INTEREST ON BOTH TIME DEPOSITS AND DEPOSITS OTHER THAN TIME DEP OSITS WITH SUCH CO- ITA NOS.434 AND 529 OF 2013 SHRI VIJAY MAHANTESH CO OP.BANK HUNGUND BAGALKOT PAGE 6 OF 16 OPERATIVE BANK WITHOUT TDS UNDER SECTION 194A BY VI RTUE OF THE EXEMPTION GRANTED VIDE CLAUSE (V) OF SUB-SECTION (3 ) OF THE SAID SECTION. THE PROVISIONS OF CLAUSE (VIIA) OF THE SAID SUB-SEC TION ARE APPLICABLE ONLY IN CASE OF A NON-MEMBER DEPOSITOR OF THE CO-OP ERATIVE BANK, WHO SHALL RECEIVE INTEREST ONLY ON DEPOSITS OTHER THAN TIME DEPOSITS MADE ON OR AFTER 1ST JULY, 1995 WITHOUT TDS UNDER SECTION 1 94A. 3. A QUESTION HAS ALSO BEEN RAISED AS TO WHETHER NO RMAL MEMBERS, ASSOCIATE MEMBERS AND SYMPATHIZER MEMBERS ARE ALSO COVERED BY THE EXEMPTION UNDER SECTION 194A(3)(V). IT IS HEREBY CL ARIFIED THAT THE EXEMPTION IS AVAILABLE ONLY TO SUCH MEMBERS WHO HAV E JOINED IN APPLICATION FOR THE REGISTRATION OF THE CO-OPERATIV E SOCIETY AND THOSE WHO ARE ADMITTED TO MEMBERSHIP AFTER REGISTRATION IN AC CORDANCE WITH THE BYE-LAWS AND RULES. A MEMBER ELIGIBLE FOR EXEMPTION UNDER SECTION 194A(3)(V) MUST HAVE SUBSCRIBED TO AND FULLY PAID F OR AT LEAST ONE SHARE OF THE CO-OPERATIVE BANK, MUST BE ENTITLED TO PARTI CIPATE AND VOTE IN THE GENERAL BODY MEETINGS AND/OR SPECIAL GENERAL BODY M EETINGS OF THE CO-OPERATIVE BANK AND MUST BE ENTITLED TO RECEIVE S HARE FROM THE PROFITS OF THE CO-OPERATIVE BANK. [F. NO. 275/106/2000-IT(B)] (2002) 177 CTR (ST) 1 18. IT CAN BE SEEN FROM PARA-2 OF THE CIRCULAR REFE RRED TO ABOVE THAT THE CBDT HAS VERY CLEARLY LAID DOWN THAT CO- OPERATIVE SOCIETIES CARRYING ON BANKING BUSINESS WH EN IT PAYS INTEREST ON DEPOSITS BY ITS MEMBERS NEED NOT DEDUCT TAX AT SOURCE. THE ABOVE INTERPRETATION OF THE PROVISIONS BY THE CBDT WHICH IS IN FAVOUR OF THE ASSESSEE, IN OUR VIE W IS BINDING ON THE TAX AUTHORITIES. 5. WE DO NOT FIND ANY DISPARITY ON FACTS. ASSESSING OFFICER WAS OF THE OPINION THAT AS PER SUB CLAUSE (I) OF SECTIO N 194A(3), ONLY PAYER A COOPERATIVE SOCIETY HAS BEEN PROVIDED. THE NATURE OF PAYEE IS EXPRESSLY NOT DEFINED IN THE SAID CLAUSE T HAT MEANS ANY PAYMENT OF INTEREST TO MEMBER OR NON MEMBER OR TO C OOPERATIVE SOCIETY INCLUDING COOPERATIVE BANK ETC., ARE ALL CO VERED BY THE AMBIT OF CLAUSE (I). BUT THE TRIBUNAL HAS HELD THAT IF INTEREST IS BEING PAID TO MEMBERS, THEN TDS WOULD NOT BE DEDUCT ED. IT WAS NOT DEMONSTRATED BEFORE US THAT PAYMENT MADE BY THE ASSESSEE INCLUDING PAYMENT TO NON MEMBER. RESPECTFULLY FOLLO WING THE DECISION OF THE COORDINATE BENCH, WE DELETE THE DIS ALLOWANCE MADE BY THE ASSESSING OFFICER. ITA NOS.434 AND 529 OF 2013 SHRI VIJAY MAHANTESH CO OP.BANK HUNGUND BAGALKOT PAGE 7 OF 16 6. THE NEXT GRIEVANCE OF THE ASSESSEE IS THAT THE A SSESSING OFFICER HAS MADE AN ADDITION OF RS.12,25,859/- ON T HE PREMISE THAT ON NPA ACCOUNT THE ASSESSEE OUGHT TO HAVE RECO GNIZED THE INTEREST INCOME. ACCORDING TO THE ASSESSING OFFICER THE INTEREST RECEIVABLE ON NPA ACCOUNT HAS NOT BEEN CREDITED TO THE P&L ACCOUNT BUT THE SAME IS SHOWN ON BOTH THE SIDE OF T HE BALANCE SHEET. THEREFORE, HE MADE THE ADDITION. APPEAL TO T HE CIT (A) DID NOT BRING ANY RELIEF TO THE ASSESSEE. 7. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET SUBMITTED THAT THIS ISSUE HAS ALSO BEEN CONSIDERED IN THE CASE OF ANOTHER COOPERATIVE BANK AND THE TRIBUNAL HAS HELD THAT ACCRUAL OF INTEREST ON SUCH NPA ACCOUNT NOT TO BE RECOGNIZE D. THE FINDING OF THE TRIBUNAL IN THE CASE OF INCOME TAX OFFICER V S. M/S.SHIVA SAHAKARI BANK NIYAMITHA RENDERED IN ITA N O.257/BAN G/2012 READ AS UNDER: 8. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDE RED THEIR RIVAL CONTENTIONS, WE FIND THAT UNDISPUTEDLY THE ASSESSEE IS IN THE BANKING BUSINESS AND IS ALSO GOVERNED BY THE BANKING REGULA TIONS. WHETHER THE INTEREST ACCRUED ON NPA'S WHICH ARE DOUBTFUL OF BEI NG RECOVERED, SHOULD BE RECOGNIZED AS ASSESSEE'S INCOME ON ACCRUA L OR ON RECEIPT BASIS IS THE QUESTION BEFORE US. LET US FIRST CONSI DER THE APPLICABILITY OF THE DECISIONS RELIED UPON BY THE LEARNED DR. THE HO N'BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD WAS CONSIDERING THE ISSUE OF ALLOWABILITY OF PROVISIONS OF NPA U/S 36(1 )(VII) OF THE INCOME-TAX ACT WHILE THE CASE BEFORE US IS WITH REG ARD TO THE ACCRUAL OF INTEREST ON NPA'S AND RECOGNITION OF THE SAME ON RECEIPT BASIS AND NOT ON ACCRUAL BASIS. FURTHER, THE HON'BLE SUPREME COURT, WHILE HOLDING THAT THE RBI DIRECTIONS ARE ONLY NORMS AND ACT IN A DIFFERENT FIELD AS AGAINST THE INCOME-TAX ACT, HAS ALSO OBSER VED THAT COLLECTABILITY OF A RECEIPT IS DIFFERENT FROM ACCRU AL AND HENCE IN EACH CASE, THE ASSESSEE HAS TO PROVE THAT INTEREST IS NO T RECOGNIZED OR TAKEN INTO ACCOUNT DUE TO UNCERTAINTY IN CALCULATION OF I TA NO.257/B/12 THE INCOME AND IT IS FOR THE AO ACCEPT THE CLAIM OF THE ASSESSEE UNDER THE IT ACT OR NOT TO ACCEPT IT, IN WHICH CASE THERE WIL L BE ADDED- BACK EVEN UNDER THE REAL INCOME THEORY. IT WAS ALSO OBSERVED THAT THE INCOME-TAX ITA NOS.434 AND 529 OF 2013 SHRI VIJAY MAHANTESH CO OP.BANK HUNGUND BAGALKOT PAGE 8 OF 16 ACT IS TAX ON REAL INCOME I.E THE PROFITS ARRIVED A T ON COMMERCIAL PRINCIPLES SUBJECT TO THE PROVISIONS OF ACT BUT A P ROVISION FOR DOUBTFUL DEBTS IS ONLY A NOTIONAL EXPENSE WHICH IS A DEBIT T O THE P & L ACCOUNT WHICH IS EXPRESSLY DISALLOWED BY EXPLANATION TO SEC . 36(1)(VII) WHICH IF CLAIMED HAS GOT TO BE ADDED BACK TO THE TOTAL IN COME OF THE ASSESSEE BECAUSE ACT SEEKS TO TAX THE REAL INCOME AND FOR TH IS PURPOSE WRITE OFF IS A CONDITION FOR ALLOWANCE. IT IS, THEREFORE, CLE AR THAT THE FACTS OF THE CASE BEFORE THE APEX COURT ARE ENTIRELY ON A DIFFER ENT SET OF FACTS AND HENCE ITS FINDING ON NON-ALLOW ABILITY OF THE PROVI SIONS OF NPA'S CANNOT BE APPLIED TO THE FACTS OF THE CASE BEFORE U S BUT ITS OBSERVATION THAT FOR RECOGNIZING THE INTEREST INCOME ON NPA'S, AO HAS TO CONSIDER THE FACTS OF EACH CASE HAS RELEVANCE TO THE CASE BE FORE US. IN VIEW OF THE SAME, WE HOLD THAT THE DECISION OF THE HON'BLE SUPREME COURT IS ON A DIFFERENT SET OF FACTS. THE SECOND DECISION RELIE D UPON BY THE LEARNED DR IS THAT OF CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF INDIA EQUIPMENT LEASING LTD., WHICH IS ON THE SAME SET OF FACTS AS BEFORE US, AS IT WAS HELD IN FAVOUR OF THE REVENUE. COMING TO THE DECISIONS RELIED UPON THE LEARNED AR, WE ITA NO.257/B/12 FIND THAT THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CANFIN HOMES LTD., IS ALSO ON THE SAME SET FACTS AS BEFORE US AND IS BINDING O N THIS TRIBUNAL. IN THE SAID DECISION, AT PARA 8 OF THE ORDER, THE HON'BLE HIGH COURT HAS HELD AS UNDER : 'THEREFORE, IT IS CLEAR IF AN ASSESSEE ADOPTS MERCA NTILE SYSTEM OF ACCOUNTING AND IN HIS ACCOUNTS HE SHOWS A PARTICULA R INCOME AS ACCRUING, WHETHER THAT AMOUNT IS REALLY ACCRUED OR NOT IS LIABLE TO BRING THE SAID INCOME TO TAX. HIS ACCOUNT S SHOULD REFLECT TRUE AND CORRECT STATEMENT OF AFFAIRS. MERE LY BECAUSE THE SAID AMOUNT; ACCRUED WAS NOT REALIZED IMMEDIATELY C ANNOT BE A GROUND TO AVOID PAYMENT OF TAX. BUT, IF IN HIS AC COUNT IT IS CLEARLY STATED THAT THOUGH A PARTICULAR INCOME IS D UE TO HIM BUT IS NOT POSSIBLE TO RECOVER THE SAME, THEN IT CANNOT BE SAID TO HAVE BEEN ACCRUED AND THE SAID AMOUNT CANNOT BE BRO UGHT TO TAX. IN THE INSTANT CASE WE ARE CONCERNED WITH A NO N PERFORMING ASSET. AS THE DEFINITION OF NON PERFORMI NG ASSET SHOWS AN ASSET BECOMES NON PERFORMING WHEN IT CEASE S TO YIELD INCOME. NON PERFORMING ASSET IS AN ASSET IN RESPECT OF WHICH INTEREST HAS REMAINED UNPAID AND HAS BECOME PAST DU E. ONCE A PARTICULAR ASSET IS SHOWN TO BE A NON PERFORMING AS SET THEN THE ASSUMPTION IS IT IS NOT YIELDING ANY REVENUE. WHEN IT IS NOT YIELDING ANY REVENUE, THE QUESTION OF SHOWING THAT REVENUE AND PAYING TAX WOULD NOT ARISE. AS IS CLEAR FROM THE PO LICY ITA NO.257/B/12 GUIDELINES ISSUED BY THE NATIONAL HOUSI NG BANK, THE INCOME FROM NON PERFORMING ASSET SHOULD BE RECO GNIZED ONLY WHEN IT IS ACTUALLY RECEIVED. THAT IS WHAT THE TRIBUNAL HELD IN THE INSTANT CASE. THEREFORE, THE CONTENTION OF T HE REVENUE THAT IN RESPECT OF NON PERFORMING ASSETS EVEN THOUG H IT DOES NOT YIELD ANY INCOME AS THE ASSESSEE HAS ADOPTED A MERC ANTILE SYSTEM OF ACCOUNTING, HE HAS TO PAY TAX ON THE REVE NUE WHICH HAS ACCRUED NOTIONALLY IS WITHOUT ANY BASIS. IN THA T VIEW OF THE ITA NOS.434 AND 529 OF 2013 SHRI VIJAY MAHANTESH CO OP.BANK HUNGUND BAGALKOT PAGE 9 OF 16 MATTER, THE SECOND SUBSTANTIAL QUESTION FRAMED IS A NSWERED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE.' 9. IN VIEW OF THE SAME, RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT (CITED SUPRA), TH E REVENUE'S APPEAL IS DISMISSED . 8. THERE IS NO DISPARITY ON FACTS. THE POSITION OF LAW EXPLAINED BY THE TRIBUNAL (SUPRA) IS SQUARELY APPLICABLE ON T HE ASSESSEE. THE ALLEGED INTEREST INCOME ON NPA ACCOUNT IS NOT T O BE CREDITED TO THE P&L A/C . THE ADDITION MADE BY THE ASSESSING OFFICER IS DELETED. 9. IN THE NEXT GROUND OF APPEAL, THE ASSESSEE HAS P LEADED THAT PROVISION FOR BAD AND DOUBTFUL DEBT U/S 36(VIIA) HA S NOT BEEN ALLOWED BY THE ASSESSING OFFICER. WITH THE ASSISTAN CE OF THE LEARNED REPRESENTATIVES, WE HAVE GONE THROUGH THE R ECORD CAREFULLY. SECTION 36(1)(VIIA) AUTHORIZE ALLOWANCE OF A PROVISION FOR BAD AND DOUBTFUL DEBT AT 7 % OF THE TOTAL INC OME. THE LEARNED COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TOWARDS THIS CLAUSE. HOWEVER, HE FURTHER CONTENDED THAT THOUGH P ROVISION WAS NOT MADE BY THE ASSESSEE IN THE ACCOUNT, BUT A CLAI M WAS MADE IN THE RETURN OF INCOME. THIS CLAIM OUGHT TO HAVE B EEN ALLOWED BY THE ASSESSING OFFICER. HE PUT RELIANCE UPON THE ORDER OF THE ITAT IN THE CASE OF JAMKHANDI URBAN COOPERATIVE BAN K LTD, VS. ACIT RENDERED IN ITA NO.809/BANG/2011. 10. THE LEARNED CIT (A) WHILE CONFIRMING THE DISALL OWANCE HAS RECORDED THE FOLLOWING FINDS: 7.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE, ORDER OF THE ASSESSING OFFICER AND THE SUBMISSIONS MADE BY THE ASSESSEE. I HAVE ALSO GONE THROUGH THE DECISIONS OF THE HON'BLE BANGALORE BENCH ITAT ITA NOS.434 AND 529 OF 2013 SHRI VIJAY MAHANTESH CO OP.BANK HUNGUND BAGALKOT PAGE 10 OF 16 BANGALORE IN THE CASES OF SHRI BASAVESHWAR COOP. BANK LTD AND JAMKHANDI COOP. BANK LTD. IN THE SAID ORDERS OF THE ITAT, THE DECISION WAS RESTRICTE D TO THE POWER OF THE ASSESSING AUTHORITY AND USING THE INHERENT POWERS OF THE ITAT, THE ITAT ALLOWED THE CLAIM OF THE ASSESSEE. IN THE STATE BANK OF PATIALA CASE CITED SUPRA, IT HAS BEEN HELD BY THE HON'BLE HIGH COURT THAT IN ORDER TO CLAIM DEDUCTION U/S 36(1)(VIIA), IT IS NECESSARY TO MAKE A PROVISION EQ UAL TO THE AMOUNT CLAIMED AS DEDUCTION IN THE BOOKS OF ACCOUNTS FOR THE RELEVANT ASSESSMENT YEAR. RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE HIGH COURT OF PUNJAB AND HARYANA CITED SUPRA, I HOLD THAT THE ASSESSING OFFICER IS RIGHT IN DISALLO WING THE DEDUCTION U/S 36(1)(VIIA) OF RS.6,78,133/- AND AS SUCH THE ACTION OF THE ASSESSING OFFICER ON THIS COUNT IS CONFIRMED. 11. IN THE CASE OF JAMKHANDI URBAN COOPERATIVE BANK LTD, THE ASSESSEE MADE A PROVISION BUT IT WAS NOT CLAIMED IN THE RETURN OF INCOME AND NO REVISED RETURN WAS FILED. ASSESSING O FFICER DISALLOWED THE CLAIM OF THE ASSESSEE WITH REGARD TO ADVANCES MADE BY RURAL BRANCHES ON THE GROUND THAT IT WAS NO T CLAIMED IN THE RETURN OR THE ASSESSEE FAILED TO FILE REVISED R ETURN. ASSESSING OFFICER PUT RELIANCE UPON THE JUDGMENT OF THE HON'B LE SUPREME COURT IN THE CASE OF GOTZE INDIA LTD VS. CIT REPORT ED IN 284 ITR 323. THE TRIBUNAL HAS ENTERTAINED THIS GROUND AND S ET ASIDE THE ISSUE TO THE ASSESSING OFFICER FOR EXAMINATION AND ADJUDICATION ON MERIT. IN THE PRESENT CASE, THE ASSESSEE CONTEND ED THAT THE CLAIM WAS MADE IN THE RETURN, BUT PROVISION WAS NOT MADE IN THE BOOKS. WE DIRECTED THE LEARNED COUNSEL TO SHOW US T HE STATEMENT OF INCOME. HE PLACED ON RECORD THE CLAIM WHICH READ AS UNDER: LESS: DEDUCTIBLE EXPENDITURE AND INCOME TO BE EXCL UDED NPA PROVISION U/S 36(1)(IX) = RS.6,78,133 SUB CLAUSE (IX) OF SECTION 36(1) DEALS WITH ANY EXP ENDITURE BONAFIDELY INCURRED BY A COMPANY FOR THE PURPOSE OF PROMOTING ITA NOS.434 AND 529 OF 2013 SHRI VIJAY MAHANTESH CO OP.BANK HUNGUND BAGALKOT PAGE 11 OF 16 FAMILY PLANNING AMONGST ITS EMPLOYEES. IT DOES NOT TALK ABOUT ANY PROVISION FOR BAD AND DOUBTFUL DEBTS. THUS NEIT HER SPECIFICALLY DISCLOSED IN THE RETURN OF INCOME, NOR HAD A PROVISION MADE IN THE AUDITED ACCOUNTS. WE DO NOT FIND ANY BA SIS FOR THE ASSESSEE TO MAKE A CLAIM AT THIS STAGE. THEREFORE, THERE IS NO ERROR IN THE ORDER OF THE CIT (A) ON THIS GROUND, T HIS GROUND OF APPEAL IS REJECTED. OTHER GROUNDS ARE GENERAL IN NA TURE OR SUPPORTING ARGUMENTS QUA THESE THREE ISSUES. 12. IN VIEW OF THE ABOVE DISCUSSION, APPEAL OF THE ASSESSEE IN ITA NO.434/BANG/2013 IS PARTLY ALLOWED. ITA NO.529/BANG/2013 13. NOW WE TAKE THE APPEAL OF THE REVENUE IN APPEAL NO.529/BANG/2013. THE REVENUE HAS TAKEN FIVE GROUND S OF APPEAL, BUT ITS GRIEVANCES REVOLVES AROUND A SINGLE ISSUE WHEREBY IT HAS PLEADED THAT THE LEARNED CIT (A) HAS ERRED I N DELETING THE DISALLOWANCE OF RS.1,86,000/- AND RS.23,70,000/-. T HE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE BEING A COO PERATIVE BANK WAS STATUTORILY BOUND TO MAKE INVESTMENT IN GOVERNM ENT SECURITIES. IT HAS PURCHASED GOVT. SECURITIES ON PR EMIUM WHICH WERE TO BE REDEEMED ON THE EXPIRY OF THE PERIOD OF THE INVESTMENT AT PAR. THUS THE PREMIUM PAID BY THE ASS ESSEE ON GOVT. SECURITIES WAS AMORTIZED OVER A PERIOD OF TIM E HOLDING OF THESE SECURITIES AND CLAIMED PROPORTIONATELY. THE A SSESSEE HAD MADE A CLAIM OF RS.1,86,000/-. THE LEARNED ASSESSIN G OFFICER HAS DISALLOWED THIS CLAIM ON THE GROUND THAT IT IS CAPITAL IN NATURE. HE OBSERVED THAT INTEREST PAID ON PURCHASE OF SECURITIES TILL THE DATE OF PURCHASE CONSTITUTES CAPITAL EXPEN DITURE IN THE ITA NOS.434 AND 529 OF 2013 SHRI VIJAY MAHANTESH CO OP.BANK HUNGUND BAGALKOT PAGE 12 OF 16 CASE OF A BANK. SIMILARLY THE ASSESSEE HAS DEBITED A SUM OF RS.23,70,000/- ON ACCOUNT OF INVESTMENT FLUCTUATION RESERVES. THE ASSESSEE HAS INCURRED LOSS AND AS SUCH IT HAS C LAIMED SUCH LOSS IN THE FORM OF DEPRECIATION ON GOVT. OF INDIA SECURITIES WHICH REPRESENTS DIFFERENCES BETWEEN THE COST OF THE SECU RITY AND MARKET VALUE AS ON 31 ST MARCH. THE ASSESSING OFFICER HAS DISALLOWED THIS LOSS. DISSATISFIED WITH THE ACTION OF THE ASSESSING OFFICER, ASSESSEE CARRIED THE MATTER IN APPEAL BEFO RE THE FIRST APPELLATE AUTHORITY. THE CIT (A) HAS DELETED THE DI SALLOWANCE BY RECORDING THE FOLLOWING FINDINGS. 6.2 I HAVE EXAMINED THE FACTS OF THE CASE AND ALSO THE INSTRUCTION NO.17/2008 DATED 26.11.2008. THE APPELLANT IS A COOPERATIVE BANK AND IN ACCORDANCE WITH THE RBI REGULATIONS, GOVT. SECURITIES WERE HEL D BY THE APPELLANT AND VALUE THE SAME BY CONSIDERING THE MARKET VALUE AND WHEREBY THE REDUCTION IN THE VALUE IS CLAIMED BY WAY OF DEPRECIATION. SIMILARLY, THE APPELLANT PURCHASED GOVT. SECURITIES ON PREMIUM WHICH WERE TO BE REDEEMED ON THE EXPIRY OF THE PERIOD OF INVESTMENT AT PART. THUS, THE APPELLANT CLAIMED TO HAVE PAID PREMIUM ON GOVT. SECURITIES HELD TILL MATURITY AND AMORTIZED THE SAM E OVER A PERIOD OF HOLDING BY THE SAID SECURITY OR TE N YEARS WHICHEVER IS EARLIER. THE AMOUNT OF PREMIUM OF RS.1,86,000/- WAS DISALLOWED AS CAPITAL IN NATURE IN VIEW OF THE DECISION OF VIJAYA BANK V. ADDL. CIT 187 ITR 541 (SC) WHEREIN IT HAS BEEN HELD THAT INTEREST PAID ON PURCHASE OF SECURITIES T ILL THE DATE OF PURCHASE CONSTITUTES CAPITAL EXPENDITUR E IN THE CASE OF THE APPELLANT BANK. THE APPELLANT HAS DEBITED A SUM OF RS.25,56,000/- ON ACCOUNT OF DEPRECIATION ON GOI SECURITIES WHICH REPRESENTS DIFFERENCE BETWEEN THE COST OF THE SECURITY AND MARKET VALUE AS ON 31 ST MARCH. THE ASSESSING OFFICER HELD THAT THE SECURITIES HELD IS FOR LONG T ERM PERIOD AND THUS, IT WAS APPARENT THAT THE APPELLANT HAD INVESTED IN THE ABOVE SECURITIES FOR A LONG TER M PERIOD AND THUS, IT WAS APPARENT THAT THE APPELLANT HAD INVESTED IN THE ABOVE SECURITIES FOR A LONG TER M BASIS AND INVESTMENT CANNOT BE TERMED AS STOCK-IN- ITA NOS.434 AND 529 OF 2013 SHRI VIJAY MAHANTESH CO OP.BANK HUNGUND BAGALKOT PAGE 13 OF 16 TRADE. IN VIEW OF THE ABOVE, THE ASSESSING OFFICER HELD THAT THOUGH THE PROVISION IS AS PER RBI GUIDELINES, NOTIONAL LOSS IS NOT ALLOWABLE AS DEDUCTION AND ACCORDINGLY, HE DISALLOWED THE SAID CLAIM AS CAPITAL LOSS. 6.3 HOWEVER, FROM THE ASSESSMENT ORDER, IT IS OBSERVED THAT THE APPELLANT BANK HAS CLAIMED THE AMOUNT OF PREMIUM AS WELL AS LOSS ON SALE OF GOVT. SECURITIES AS PER THE GUIDELINES ISSUED BY THE RBI AND THE ASSESSING OFFICER HAS REACHED A FINDING THAT THE SECURITIES HELD ARE LONG TERM INVESTMENT WITHOUT SHOWING AS TO HOW THE SAME COULD NOT BE TREATED AS STOCK IN TRADE. IT IS FURTHER OBSERVED T HAT THE DEPRECIATION IS NOT ALLOWABLE ON PERMANENT INVESTMENTS WHICH ARE HELD TO MATURITY SECURITIES BUT IT IS ALLOWABLE ON CURRENT INVESTMENT CATEGORIZED AS HELD FOR TRADING AND AVAILABLE FOR SALE CATEGORY. IN THIS REGARD, RELIANCE IS PLACED UPON CIRCULAR NO.665 DATED 5.10.1993 AND INSTRUCTION NO.17 OF 2008 DATED 26.11.2008. SIMILARLY, ON GOING THROUGH THE ASSESSMENT ORDER AND THE DETAILS IT IS SEEN THAT THE PREMIUM AMORTIZED AT RS.1,86,000 THE SAID SECURITIES ARE HELD UNDER THE CATEGORY OF HELD TO MATURITY AS TH E SAME AS CONSIDERED AS LONG TERM INVESTMENTS BY THE ASSESSING OFFICER. IN VIEW OF THE INSTRUCTION NO.17 OF 2008, THE PREMIUM PAID ON SUCH GOVT. SECURITIES IS REQUIRED TO BE AMORTIZED OVER THE PERIOD REMAINING TO MATURITY AND SINCE THE APPELLANT BANK HAS CORRECTLY AMORTIZED THE SAME AND CLAIMED PREMIUM AT RS.1,86,000 THE SAME IS REQUIRED TO BE ALLOWED AS DEDUCTION. SINCE THE APPELLANT BANK HAS KEPT THE INVESTMENT UNDER THE CATEGORY OF HELD FOR MATURITY (HFM), THE DEDUCTIO N OF RS.1,86,000 ON ACCOUNT OF PREMIUM PAID IS ALLOWABLE DEDUCTION. 6.4 AS REGARDS DISALLOWANCE OF INVESTMENT FLUCTUATION RESERVE (DEPRECIATION ON LOSS) RS.23,70,000/- AS PER THE INSTRUCTION NO.17/2008, SUCH LOSS IS ALLOWABLE EXPENDITURE IN CASE THE SAME IS CATEGORIZED BY THE APPELLANT BANK UNDER THE CATEGORY OF HELD FOR TRADING (HFT) OR AVAILABLE FOR SALE (AFS). THE RELEVANT PORTION OF INSTRUCTION NO. 17 ITA NOS.434 AND 529 OF 2013 SHRI VIJAY MAHANTESH CO OP.BANK HUNGUND BAGALKOT PAGE 14 OF 16 OF 2008 DATED 26.11.2008 ISSUED BY THE CBDT IS REPRODUCED AS UNDER: AS PER RBI GUIDELINES DATED 16.10.2000, THE INVEST MENT PORTFOLIO OF THE BANKS IS REQUIRED TO BE CLASSIFIED UNDER THREE CATEGORIES VIZ HELD TO MATURITY (HTM), HELD FOR TRA DING (HFT) AND AVAILABLE FOR SALE (AFS). INVESTMENTS CLA SSIFIED UNDER HTM CATEGORY NEED NOT TO BE MARKED TO MARKET AND ARE CARRIED AT ACQUISITION COST UNLESS THESE ARE MORE T HAN THE FACE VALUE, IN WHICH CASE THE PREMIUM SHOULD BE AMORTIZE D OVER THE PERIOD REMAINING TO MATURITY. IN THE CASE OF HF T AND AFS SECURITIES FORMING STOCK IN TRADE OF THE BANK, THE DEPRECIATION IS TO BE AGGREGATED SCRIP WISE AND ONLY NET DEPRECI ATION, IF ANY, IS REQUIRED TO BE PROVIDED FOR IN THE ACCOUNTS . THE LATEST GUIDELINES OF THE RBI MAY BE REFERRED TO FOR ALLOWI NG ANY SUCH CLAIM. THEREFORE, THE APPELLANT HAVING CATEGORIZED THE SAI D SECURITIES AS STOCK IN TRADE I.E. HELD FOR TRADING (HFT) AND AVAILABLE FOR SALE (AFS) IS RIGHT IN CLAIMING LOSS DIFFERENCE AMOUNT BETWEEN SALE PRICE AND PURCHASE PRICE AS DEPRECIATION LOSS AS PER THE INSTRUCTION NO.17/2008. THE ASSESSING OFFICER HAS NOT BEEN ABLE TO ESTABLISH AS TO HOW THE SAID SECURITIES ARE INVESTMENTS AND NOT STOCK IN TRADE. THE APPELLANT HAS FOLLOWED THE GUIDELINES OF THE RBI IN CATEGORIZING ITS SECURITIES AND AS SUCH, THE ASSESSING OFFICER IS NOT JUSTIFIED IN DISALLOWING RS.23,70,000/- CLAIMED AS DEPRECIATION AND ACCORDINGLY, THE APPELLANTS THIS GROUND OF APPEAL IS ALLOWED. 14. WITH THE ASSISTANCE OF THE LEARNED REPRESENTATI VES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. THE FALLACY AT T HE END OF ASSESSING OFFICER BEGAN AT THE VERY START WITH REGA RD TO BOTH THESE ISSUES. WITH REGARD TO INVESTMENT FLUCTUATION RESERVES, WE FIND THAT THE ASSESSEE IN ITS REPLY POINTED OUT TO THE ASSESSING OFFICER THAT THE EXECUTIVE MEMBER OF THE SOCIETY HA D TAKEN A DECISION THAT ADDITIONAL FUNDS WITH THE SOCIETY BE INVESTED IN THE UTI INFRASTRUCTURE BONDS AND THESE BONDS ARE HELD F OR TRADE AND NOT FOR INVESTMENT. THE CIT (A) HAS PUT RELIANCE UP ON THE ITA NOS.434 AND 529 OF 2013 SHRI VIJAY MAHANTESH CO OP.BANK HUNGUND BAGALKOT PAGE 15 OF 16 CIRCULAR OF THE CBDT BEARING NO.17/2008 DATED 26.11 .2008 (EXTRACTED SUPRA) WHEREIN THE ASSESSING OFFICER HAS BEEN APPRAISED TO FIND OUT THE CLASSIFICATION OF THE INV ESTMENT PORTFOLIOS. THE BANKS ARE REQUIRED TO CLASSIFY THEI R INVESTMENT UNDER THREE CATEGORIES NAMELY, HELD TO MATURITY (HT M), HOLD FOR TRADING (HFT) AND AVAILABLE FOR SALE (AFS). THE INV ESTMENT CLASSIFIED UNDER HTM CATEGORY NEED NOT TO BE MARKED TO MARKET AND IS CARRIED AT ACQUISITION COST, UNLESS THESE AR E MORE THAN THE FACE VALUE, IN WHICH THE COST PREMIUM SHOULD BE AMO RTIZED OVER THE REMAINING PERIOD OF MATURITY. IN THE CASE OF HF T AND AFS SECURITY FORMING STOCK IN TRADE OF THE BANK, THE DE PRECIATION HAS TO BE AGGREGATED SCRIP-WISE AND ONLY NET DEPRECIATI ON, IF ANY, IS REQUIRED TO BE PROVIDED FOR IN THE ACCOUNTS. NOW TH E ASSESSEE HAS CONTENDED ON THE STRENGTH OF ITS BYELAWS AND ON THE BASIS OF THE DECISIONS TAKEN BY THE EXECUTIVE MEMBERS THAT I T HAD INVESTED SURPLUS FUNDS IN UIT INFRASTRUCTURE BONDS WHICH IS BEING KEPT AS STOCK IN TRADE. ASSESSING OFFICER SIM PLY OBSERVED THAT THESE WERE PURCHASED ON 12.12.2007 AND KEPT UP TO 31.03.2009, THEREFORE, IT BECAME INVESTMENT. AFTER CONCEIVING THESE FACTS, HE APPLIED THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF VIJAYA BANK (SUPRA), ONCE HE CONCEIV ED WRONG FACTS, THE RESULT WOULD BE WRONG. THE CIT (A) HAS O BSERVED THAT THE ASSESSING OFFICER HAS NOT BEEN ABLE TO ESTABLIS H AS TO HOW THE SAID SECURITIES ARE INVESTMENT AND NOT STOCK IN TRA DE. WE DO NOT FIND ANY ERROR IN THE FINDINGS OF THE C IT (A). FRO M PERUSAL OF THE ORDER OF THE ASSESSING OFFICER, PARAGRAPH 8 TO 8.5, NOWHERE, ANY REASON IS DISCERNIBLE AS TO HOW THESE TRADING STOCK COULD BE CONSIDERED AS INVESTMENT. THE ONLY REASON ASSIGNED BY HIM IS THE PERIOD OF RETAINING THESE SECURITIES. THIS SOLE CIRCUMSTANCE IS NOT SUFFICIENT TO TREAT THE TRADING STOCK AS INVEST MENT. WITH ITA NOS.434 AND 529 OF 2013 SHRI VIJAY MAHANTESH CO OP.BANK HUNGUND BAGALKOT PAGE 16 OF 16 REGARD TO AMORTIZATION OF PREMIUM IS CONCERNED, THE CIT (A) HAS BASED HER ORDER ON THE CIRCULAR ISSUED BY THE BOARD . THE INVESTMENT IN GOVT. SECURITY IF MADE ON PREMIUM, TH EN PREMIUM HAS TO BE AMORTIZED OVER THE PERIOD OF TIME. THE AS SESSEE HAS FOLLOWED THIS STEP AND CLAIMED DEDUCTION OF RS.1,86 ,000/-. ASSESSING OFFICER HAS ERRED IN DISALLOWING THIS CLA IM. CONSIDERING THE WELL REASONED ORDER OF THE CIT (A), WE DO NOT F IND ANY REASON TO INTERFERE IN IT. ACCORDINGLY APPEAL OF THE REVEN UE IS DEVOID OF ANY MERIT. 15. IN THE RESULT, APPEAL IN ITA NO.434/BANG/2013 I S PARTLY ALLOWED, WHEREAS APPEAL IN ITA NO.529/BANG/2013 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH SEPTEMBER, 2014. SD/- SD/- (JASON P. BOAZ) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE DATED 26 TH SEPTEMBER, 2014. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCHES, BANGALORE