SAMASTIPUR KSHETRIYA GRAMIN BANK,PATNA V. DCIT, CIRCLE-3, DARBHANGA

ITA 34/PAT/2019

AI Insights

The case involves Samastipur Kshetriya Gramin Bank appealing against the orders of the Commissioner of Income-tax (Appeals), Jamshedpur, which confirmed the additions made by the Assessing Officer regarding the provision for amortization of premium paid on government securities. The Tribunal examined whether the amortization of the premium on government securities, which the bank purchased to maintain statutory liquidity ratio and capital adequacy norms, should be treated as revenue expenditure. The Tribunal found that the issue was similar to a previously decided case and ruled in favor of the bank, allowing the deduction.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 791262 (ITAT-PATNA)
• Duration Of Justice: 6 year(s) 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 28-01-2019
• Other Referred Cases: ACIT Vs. The Kalyanjanatasahakri Bank Ltd, CIT vs. HDFC Bank Ltd, Nedungadi Bank Ltd. vs. CIT, T.N Finance & Infrastructure Development Corporation Ltd. vs. CIT
• Laws Referred To: Regional Rural Banks Act, 1976, Banking Regulation Act 1949
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MD. AH CHOWDHARY
• Assessee Lawyers: NISHANT MAITIN
• Keywords: Set aside; Business income; Revenue expenditure; Bad and doubtful debts

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “PATNA” BENCH, PATNA BEFORE SHRI DUVVURU RL REDDY, VP AND SHRI RAJESH KUMAR, AM ITA Nos. 33& 34/PAT/2019 (Assessment Years: 2011-12& 2012-13) Samastipur Kshetriya Gramin Bank SamastipurKshetriya Gramin bank (merged with Dakshin Bihar Gramin bank) C/o Nirmal & Associates, CA, Nepali Kothi, Opp. Gasoline Petrol Pump, Boring Road, Patna, Bihar Vs. DCIT, Circle-3, DCIT, Darbhanga, Bihar (Appellant) (Respondent) PAN No. AAFAS8891R Assessee by : Shri Nishant Maitin, AR Revenue by : Shri Md. AH Chowdhary, DR Date of hearing: 26.11.2025 Date of pronouncement: 09.12.2025 O R D E R Per Rajesh Kumar, AM: This is an appeal preferred by the assessee against the order of the Commissioner of Income-tax (Appeals), Jamshedpur (hereinafter referred to as the “Ld. CIT(A)”] dated 16.10.2018 for the AY 2011- 12.As the facts and circumstances are exactly identical in both the appeals of the assessee, hence, we take ITA No.33/PAT/2019 and decide the issue. A.Y. 2011-12 ITA No.33/PAT/2019 2. The issue raised in ground no.1, is general in nature and requires no adjudication. Printed from counselvise.com Page | 2 ITA Nos.33 & 34/PAT/2019 SamastipurKshetriya Gramin Bank; AYs 2011-12 & 2012-13 3. The issue raised in ground nos.2 and 3 are against the order of learned CIT (A) confirming the addition as made by the learned AO on account of provision for amortization of premium paid on purchase of government securities of ₹34,18,516/. 3.1. The facts in brief are that the assessee is a bank constituted under Regional Rural Banks Act, 1976 and is engaged in carrying on business of banking activities and derives income from the business of bank activities as such. The assessee filed the return of income on 29.09.2011, declaring total income at ₹nil, after setting off all the carry forward losses. During the course of assessment proceedings, the learned AO observed from the profit and loss account that the assessee has debited a sum of ₹34,18,516/- on account of provision for amortization of investment which according to the learned AO was of capital nature and could not be allowed as Revenue expenditure and accordingly, the same was disallowed and added to the income of the assessee. 3.2. In the appellate proceedings, the learned CIT (A) confirmed the order of the learned AO. 3.3. After hearing the rival contentions and perusing the materials available on record, we find that the assessee is carrying on the banking business under the banking regulation Act 1949 and under Regional Rural Banks Act, 1976. The assessee is required to purchase government securities in order to maintain the capital adequacy norms in order to maintain the statutory liquidity ratio prescribed by Reserve Bank of India. The assessee purchased the securities at a premium and amortized the same over the period of maturity and claimed the amount as revenue expenditure. In our considered view, the premium amortized on the purchase of securities by the assessee Printed from counselvise.com Page | 3 ITA Nos.33 & 34/PAT/2019 SamastipurKshetriya Gramin Bank; AYs 2011-12 & 2012-13 is revenue expenditure and squarely covered by the decision of ACIT Vs. The kalyanjanatasahakri bank ltd, in ITA No. 8613/MUM/2010 for A.Y. 2007-08 and ors. vide order dated 30.09.2015, wherein the co- ordinate bench has held as under:- “7. We have carefully considered the rival submissions. Having considered the rival stands, we find no reason to interfere with the conclusion drawn by the CIT(A). Pertinently, assessee’s claim for amortization of premium paid on the purchase of Government securities classified as HTM is consistent with the prudential norms issued by the RBI. It is also undeniable that the acquisition of the Government securities under the HTM categories has been undertaken by the assessee in the course of carrying on the ‘banking business’ under the mandate of RBI. Ostensibly, the predominant motive to purchase securities is to maintain the statutory liquidity ratio prescribed by the RBI. The Central Board of Direct Taxes vide its circular No.665 dated 5/10/1995 also provides that the question as to whether any particular securities constitute stock-in-trade or investment in the case of a bank shall be determined, inter-alia, having regard to theguidelines issued by RBI from time to time. In this background, it would be relevant to refer to the judgment of the Hon’ble Kerala High Court in the case of Nedungadi Bank Ltd. (supra), wherein it has been held that securities held by a Co-operative society engaged in the business of banking would constitute the ‘stock-in-trade’ of thebusiness of the said society. Therefore, in the context of the present assessee, which is also a Co-operative society engaged in the business of banking, the impugned Government securities are liable to be considered as the stock-in-trade of its business of banking. Thus, considering the aforesaid fact- situation and also the mandate of the RBI, the amortization of premium paid on purchase of securities classified under HTM category is liable to be allowed as a deduction while computing the business income of the assessee bank. At this point, it would also be appropriate to refer to the judgment of the Hon’ble Jurisdictional High Court in the case of CIT vs. HDFC Bank Ltd. (2014) 89 CCH 0185 (Mum), wherein the assessee bank was held entitled for deduction with respect to the amortization of premium paid on acquisition of securities classified as HTM category on the ground ofthe mandate by RBI guidelines. In our considered opinion, the aforesaid judgment of the Hon’ble Bombay High Court clearly supports the inference reached by the CIT(A), which we hereby affirm. 7.1 Before parting, we may refer to the judgment of the Hon’ble Madras High Court in the case of T.N Finance & Infrastructure Development Corporation Ltd.,280 ITR 491(Mad), which has been relied upon by the Assessing Officer in support of his stand that the RBI guidelines do not over-ride the statutory provisions of the Act and, thus, amortization claimed by the assessee on the investment held in the HTM category cannot be allowed as a deduction. We have perused the said judgment of the Hon’ble Madras High Court and find that the same does not help the case of the Revenue. Firstly, the assessee before the Hon’ble Madras High Court was a non-banking financial corporation (i.e. NBFC), whereas the assessee before us is a Co-operative society engaged in the business of banking under licence from RBI, which is quite distinct from an entity enjoying status of NBFC. Moreover, in the case before Hon’ble Madras High Court, the claim of the assessee was in relation to section 36(1)(vii) of the Act on Printed from counselvise.com Page | 4 ITA Nos.33 & 34/PAT/2019 SamastipurKshetriya Gramin Bank; AYs 2011-12 & 2012-13 account of Provision for bad and doubtful debts; section 36(1)(vii) of the Act clearly prohibits allowability of a mere Provision for bad and doubtful debts. It is in this context the Hon’ble High Court noted that the precise conditions contained in section 36(1)(vii) of the Act would govern the situation and not the guidelines of the RBI while evaluating a claim for deduction under section 36(1)(vii) of the Act. What is to be allowed u/s. 36(1)(vii) of the Act is actual write- off of a bad debt and not a mere Provision for bad and doubtful debts. The claim before us is in respect of the amortization of premium paid on acquisition of Government Securities classified under HTM category on the ground of the mandate of the RBI, a proposition which is supported by the judgement of the Hon’ble Bombay High Court in the case of HDFC Bank (supra). Thus, the decision of Hon’ble Madras High Court in T.N Finance & Infrastructure Development Corporation Ltd. (supra) does not help the case of the Revenue in the present case. 7.2 Hence, we hereby affirm the order of CIT(A) and hold that the assessee is entitled for deduction on account of the amortization of premium paid on purchase of securities classified under HTM category. Thus, on this aspect the Revenue fails.” 3.4. We note that the facts of the case before us are materially same vis-a-vis facts in the above case as decided by the coordinate bench. We therefore, following the decision of the coordinate bench, set aside the order of the learned CIT (A) by holding that the premium amortized by the assessee as revenue expenditure and the learned AO is directed to allow the same. The ground no. 2 and 3 are allowed. 4. The issue raised in ground no.4 is against the order of learned CIT (A) confirming the disallowance of carry forward loss of ₹26,78,066/-. It was argued at the time of hearing that this has been allowed as set off by the department and therefore, ground is not pressed. Accordingly. The ground is dismissed as not pressed. 5. The appeal of the assessee is partly allowed. A.Y. 2012-13 ITA No.34/PAT/2019 6. The issue raised in this appeal of assessee is similar to one as decided by us in ITA No. 33/PAT/2019 for A.Y. 2011-12 (supra). Accordingly, Printed from counselvise.com Page | 5 ITA Nos.33 & 34/PAT/2019 SamastipurKshetriya Gramin Bank; AYs 2011-12 & 2012-13 our decision would, mutatis mutandis, apply to this appeal of assessee in ITA No. 34/PAT/2019. Hence, the assessee‘s appeal is allowed. 7. In the result, both the appeals of the assessee are partly allowed. Order pronounced in the open court on 09.12.2025. Sd/- Sd/- (DUVVURU RL REDDY) (RAJESH KUMAR) (VICE PRESIDENT) (ACCOUNTANT MEMBER) Patna, Dated: 09.12.2025 Sudip Sarkar, Sr.PS Copy of the Order forwarded to: BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Patna 1. The Appellant 2. The Respondent 3. CIT 4. DR, ITAT, 5. Guard file. Printed from counselvise.com "