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TMI Blog2018 (9) TMI 533X X X X Extracts X X X X X X X X Extracts X X X X ..... which are arising out of the assessment orders framed u/s 143(3) of the Act pertaining to Assessment Year 2008-09 to 2013-14 by ITA No. 107, 109, 111, 113 & 114/Ind/2017; (i) Disallowance of amortization of expenses on government securities for Assessment Years 2008-09 to 2012-13; (ii) Disallowance of claim u/s 36(1)(viia) of the Act for Assessment Year 2013-14. 5. Secondly the issue arising out of the orders framed u/s 143(3) r. w. s. 147 of the Act; (i) Challenging the validity of notice u/s 148 of the Act as well as the reassessment proceedings made u/s 147 of the Act. (ii) Disallowance of provision for bad and doubtful debts u/s 36(1)(viia) of the Act. (iii) Disallowance of excess provision for non performing of assets for Assessment Year 2009-10 (vi)Disallowance of amortization of expenses for government securities for Assessment Year 2011-12 6. Briefly stated facts as culled out from the records are that the assessee is a Regional Rural Co-operative Bank engaged in the business of banking in Jhabua and Dhar Districts. Return of income for Assessment Years 2008-09, 2009-10, 2010-11, 2012-13 and 2013-14 were duly submitted and the cases were selected for scrutiny. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the assessee made following written submissions challenging the validity of reopening of assessment for the Assessment Years 2008-09 to 2011-12 as under; "The assessee M/s Jhabua Dhar Kshetriya Gramin Bank: (hereinafter called the Bank) is a Regional Rural Bank (RRB) sponsored by Bank of Baroda (a nationalized bank). The shareholdings are held by the Central Govt. , State Govt. and the Sponsored Bank is. Bank of Baroda. No shares are issued for any private contribution. All the RRBs' are declared as a scheduled bank: by the Reserve Bank: of India. The assessee is governed by RRB Act 1976. The NABARD and RBI are supervisory and controlling authorities. 2. The assessee bank is a regular assessee and is filing the returns since many years. The returns for various years are filed as under. A. Y. Income Returned Date of filing return Claim u/s 36(1)(viia) 2008-09 -6, 75, 51, 723/- 29. 08. 2008 15, 90, 14, 543/- 2009-10 -15, 14, 30, 724/- 29. 09. 2009 16, 90, 61, 833/- 2010-11 -7, 93, 37, 806/- 21. 09. 2010 16, 66, 59, 199/- 2011-12 -12, 56, 76, 784/- 29. 09. 2011 16, 33, 02, 6391- The assessments for the A. Y. 2008-09; 2009-10 and 2010-11 were fram ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e only on the basis of actual provision made in the books and not on the basis of the allowability u/s 36(1)(viia). It is submitted that the assessee has made this claim on the basis of the decision of the Bangalore Bench in the case of Syndicate Bank. Subsequently, indirectly by way of a remark the Hon'ble Supreme Court in the case of Southern Technologies reported in 320 ITR 577 (Para 41 P. 610 of the report) has affirmed such a claim. However, the Hon'ble Tribunal Indore Bench in the case of Narmada Gramin Bank has held that the claim can be allowed only on the basis of actual provision made in the books of accounts. The matter is pending before the Hon'ble High Court of Madhya Pradesh. 5. The Ld. CIT(A) upheld the contention of the Ld. AO and dismissed the appeal on this ground. 6. While filing the returns the assessee has specifically claimed the said deduction and the Ld. AO has allowed the same after due consideration. Now the reopening of the assessment is a mere change of opinion and as such it is submitted that the action of reopening is bad in law and without jurisdiction. In this connection, attention is drawn to the following cases. District Cooper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... securities. From the details of the order sheet entry, it is clear that the Ld. AO asked for the details after considering the specific deduction claimed in the return u/s 36(1)(viia) (Page 26 of PB). This fact has also been mentioned in the original assessment framed, which is evident from Para 6 on page 02 of the assessment order. Thus it is submitted that all the material facts were already before the Ld. A. O and have been considered while framing the assessment. The same fact about claiming the deduction u/s 36(1)(viia) has been mentioned in the assessment order for the AY 2009-10 and 2010-11 with the identical wordings. Thus it is submitted that the reopening of the assessment is bad in law since all material facts were submitted during the assessment proceedings. It is a mere change of opinion on the same facts on record and as such, the assessments so framed deserve to be annulled. 11. On the other hand Ld. Departmental Representative vehemently argued in supporting the findings of Ld. CIT(A) and submitted that there was no change of opinion. However, Ld. Departmental Representative conceded to this fact that the reopening of assessment for the Assessment Year 2008-09 was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision was actually made in the profit and loss account. It is true that the details of the deduction claim u/s 136(1)(viia) was available on record but the legal angle of examining this claim was not discussed at length during the course of assessment u/s 143(3) of the Act. The claim of the assessee were based on certain judicial pronouncements which the Assessing Officer later on found to be favouring the revenue. This change of legality of the issue triggered the issuance of notice u/s 148 of the Act. It is not disputed that the notice issued u/s 148 of the Act for Assessment Year 2009-10 and 2010-11 are within the period of four years from the end of relevant assessment years. The reasons have duly been recorded and the need of issuance of notice was due to the alleged excess provisions claimed for provisions for bad and doubtful debts u/s 36(1)(viia). 15. We have gone through all the judgments relied by the assessee but do not find them to be applicable in the facts of the instant appeals and therefore in the given facts and circumstances of the case, find no inconsistency in the findings of Ld. CIT(A) confirming the validity of action taken by the Ld. A. O for issuing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue with regard to allowability of claim of deduction u/s 36(1)(viia) of the Act was decided after discussing various decisions of Hon'ble Supreme Court as well as High Court in para 11 to 16, the issue with regard to quantification of deduction u/s 36(1)(viia) was restored to the file of the Assessing Officer for recomputing the claim of deduction to the extent of amount written off in the books of account, even though such write off was not partywise. The contention of Ld. A. R was that full amount of provision for bad and doubtful debt should be allowed irrespective of entry made in the books of account. We are jot in agreement with the assessee's contention in so far as provision contained in clause (viia) of section 36 clearly starts with word "in respect of provision for bad and doubtful debt made by schedule bank..." Thus, to the extent of provision made for bad and doubtful debts in the books of account, can be allowed. We do not find any mistake in the order of the Tribunal, which can be rectified u/s 254(2) of the Act. On the contrary, the Tribunal, which can be rectified u/s 254(2) of the Act. On the contrary, the Tribunal has given a favourable finding and direction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the Tribunal. 24. The Ld. Counsel for the assessee submitted that; "1. The assessee M/s Jhabua Dhar Kshetriya Gramin Bank (hereinafter called the Bank) is a Regional Rural Bank (RRB) sponsored by Bank of Baroda (a nationalized bank). The shareholdings are held by the Central Govt. , State Govt. and the Sponsored Bank M/s. Bank of Baroda. No shares are issued for any private contribution. All the RRBs' are declared as a scheduled bank by the Reserve Bank of India. The assessee is governed by RRB Act 1976. The NABARD and RBI are supervisory and controlling authorities. 2. During all these years, the assessee has made a provision for amortization of the premium paid on the purchase of the Govt. securities which are held as stock in trade. The same has been provided as per the guidelines and instructions of the Reserve Bank of India. In this connection, the attention is drawn to the Circular of the Board bearing no. 599 dated 24/04/1991 which provides "The Board has considered the treatment to be accorded to securities held by the Banks. The question whether a particular item of investment in securities constitutes the stock in trade or a capital asset is a question of fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bank on the basis of Held to Maturity would mean that the valuation on the Book Value basis would be done and if the cost of acquisition is more than face value, then the premium paid should be amortised over a period remaining to maturity. In the instant case, the assessee has purchased the Govt. securities as a stock in trade and are held for the purposes of maintenance of SLR (Statutory Liquidity Ratio). They have been classified as 'Held on Maturity' . 4. While framing the assessments of the years, the Ld. AO disallowed the claim of assessee for amortisation of income. The Ld. AO observed that the securities are held up to the maturity and are in the nature of capital asset and as such they have to be valued at cost. He further observes that it may be prudent from the banking point of view to amortise the premium on HTM but is not allowable under the Income tax Act. On this basis, the Ld. AO disallowed the claim of the assessee for amortization of expenses on Govt. securities. The details of disallowances for amortization are as under. A. Y. 2008- 09 - Rs. 58, 35, 000 A. Y. 2009- 10 - Rs. 55, 80, 080 A. Y. 2010- 11 - Rs. 56, 91, 000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m. ) of 2009, dated 22-12-2010] (vii) Catholic Syrian Bank Ltd v. Asstt. CIT [2010] 38 SOT 553 (Coch. ) (viii) Khanapur Co-op. Bank Ltd. v. ITO [IT Appeal No. 141 (PNJ) of 2011] (ix) Sri. Visweswaraya Co-op. Bank v. Jt. CIT [IT Appeal No. 1122 (Bang. ) of 2010, dated 11-5-2012] (x) Dy. CIT v. Nasik Merchants Co-op. Bank Ltd. [IT Appeal No. 1254 (PN) of 2011] (xi) Asstt. CIT v. Ahmednagar Shahar Sahakari Bank Ltd. [IT Appeal No. 298 (PN) of 2014, dated 30-3-2015], etc. 25. Per contra the Ld. Departmental Counsel supported the orders of lower authorities. 26. We have heard rival contentions and perused the records placed before us. The common issue relates to disallowance of amortization of premium paid on government securities. From perusal of the audited balance sheet it is revealed that the assessee being a Regional Rural co. operative Bank engaged in the business of banking is required to deposit certain amount in government securities as per the guidelines of Reserve Bank of India and to hold such securities till the maturity so as to maintain the Statutory Liquidity Ratio (SLR). In some cases value of acquisition of such securities is higher than the face valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 008 dated November 26, 2008 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 classified under three categories viz. Head to Maturity (HTM), Held for Trading (HTF) and Available for Sale (AFS). Investments classified under HTM category need not be marked to market and are carried at acquisition cost unless these are more than the face value, in which case the premium should be amortized over the period remaining to maturity. In the case of HFT and 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 referred 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 Tribunal had directed in the impugned order. Though contended, no contrary instructions of CBDT are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Y. 2009- 10 the Ld. AO has made the addition of Rs. 6, 13, 39, 600/- on account of disallowance of alleged excess provision for NPA. Ld. A. O made the addition on the basis of audit objection in sub para 2 of para 4 on notes to accounts wherein it has been stated that the provision of NPA amounting to Rs. 948. 62 Lacs was maintained as against the required provision under NPA norms of Rs. 335. 23 Lacs (P. Y. Rs. 1180. 31 Lacs). Bank has decided to retain provision made in past years amounting to Rs. 613. 39 lacs to be adjusted in future due to uncertainty of receiving 75 overdue amounts from the borrowers involved in case of debt relief scheme. It is submitted that this note was already appearing in the notes on account and was before the Ld. AO while passing the order u/s 143(3). The same has been accepted during the course of original assessment proceedings. The reopening on the same facts is bad in law. Even on merits no addition can be made on this account it is merely a note given by auditors which clearly stated that the provision would be adjusted in future against the overdue amounts from the borrowers involved in the case of debt relief scheme 2008. The provisions which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chnologies Ltd V/s ACIT (320 ITR 577) that guidelines provided by RBI cannot over ride the provisions of Income Tax Act. RBI guidelines are for the purpose of maintaining the balance sheet and financial statements for the stake holders so as to give true and fair view of the financials of the bank. Claiming of deduction for bad and doubtful debts as well as provision for bad and doubtful debts for the borrowers involved in Debt Relief Scheme, 2008 needs to be examined in the light of provisions of Income Tax Act applicable to the assessee. We find that the observations of the Ld. Assessing Officer are also not very clear and only the auditors remarks have been discussed and similarly Ld. CIT)(A) has also not given clear finding on this issue. 38. In our considered view this issue needs to be set aside to the file of Ld. CIT(A) for fresh adjudication. Needless to mention that proper opportunity being heard to be provided to the assessee and also direct the assessee to bring necessary details for calculating the provisions of bad and doubtful debts as well as the details of over due debts from the borrowers involved in debt relief scheme of 2008 so that the issue can be decided on m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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