TMI Blog2023 (2) TMI 844X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee. CIT clearly has no basis for finding the claim of the assessee of Provision in the value of investments to be not in accordance with law. We hold that the issue of the claim of the assessee of Provision in the value of investments was duly examined by the AO during assessment proceedings when the assessee had demonstrated the same to be in accordance with RBI guidelines, CBDT notifications and judicial decisions in this regard and the AO therefore had allowed the claim taking a plausible view on the matter. CIT has been unable to demonstrate how the claim was not allowable to the assessee. Therefore, we hold, there is no error in the Order of the AO allowing claim of provision for diminution in the value of investment - The order of the Ld. Pr. CIT holding so is accordingly set aside. Deduction on account of amounts routed not through the P L account but through Rural Development Fund and Sahkar Prachar Fund (separate funds) - CIT has held that the Assessing Officer should have ascertained whether the amounts so paid could be categorized as incurred wholly and exclusively for the purposes of business of the assessee. Clearly, there is no finding by the Ld. Pr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erroneous and prejudicial to the interest of revenue and directing the Ld. Assessing Officer to make fresh assessment by passing the order u/s 263 of the Income Tax Act, 1961 dated 22.03.2019. 3. As transpires from the order of the Ld. Pr. CIT, the assessment order passed by the Assessing Officer was found to be erroneous causing prejudice to the Revenue on account of three issues allegedly not properly examined by the Assessing Officer:- (i) Assessee s claim of provision for diminution in the value of investment to the tune of Rs.19,14,34,500/-; (ii) Assessee s claim of deduction of amounts reduced directly from Rural Development Fund and Sahkar Prachar Fund of Rs. 1,81,46,538/- and Rs.5,00,000/- respectively without routing the same through P L account; and (iii) Leave encashment of Rs.9,63,399/- claimed by the assessee but which was not paid before the due date of filing of return of income for the year and hence was required to be disallowed. 4. At the outset itself, learned Counsel for the assessee conceded that with respect to the issue of leave encashment being allowed to the assessee despite the same being not allowable under law, he conceded that the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the value of investments being to the tune of Rs.19,14,34,500/-. 7. It was also pointed out that as per RBI Circular No. 665 dated 05.10.1993 and CBDT Instruction No. 17 of 2008 dated 26.11.2008, the assessee was allowed to claim this provision of diminution in the value of investment made in accordance with the guidelines prescribed by the RBI. Various judicial decisions holding so were also brought to the notice of the Assessing Officer and even to the Ld. Pr. CIT, including the decision of the Hon ble jurisdictional High Court in the case of CIT Vs. Rajkot Dist. Co. Op. Bank Ltd., [2014) 43 taxmann.com 161 (Guj.). It was, therefore, pleaded before both the Ld. Pr. CIT and even before us that this issue of claim of provision for diminution in the value of investment to the tune of Rs.19,14,34,500/- had been examined in detail during the assessment proceedings by the Assessing Officer; the assessee had furnished all facts and basis for claim of the same, demonstrating the claim to be in accordance with RBI guidelines and CBDT circulars in this regard and also relevant judicial decisions and the Assessing Officer had allowed the claim taking a plausible view on the matter. 8. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een following guidelines issued by RBI, it should have created reserve/provision in the balance sheet or added back the amount in the statement to total income to determine the real income. It may be mentioned that RBI's direction is only in the context of presentation of NPA/investment in the balance sheet of an NBFC/Banking Co. and has nothing to do with computation of taxable, income or accounting concepts. Income Tax Act and RBI direction operate in different domains. Nature of expenditure under the Income Tax Act cannot be conclusively determined by the manner in which accounts are presented in term of RBI guidelines. (iii) In facts, CBDT had issued Instruction No. 17/2008 dated 26/11/2008 wherein it is provided that as per RBI guidelines dated 16th October 2000, the investment portfolio of the bank is required to be classified under three categories viz. Held to Maturity (HTM), Held for Trading (HFT) and Available for Sales (AFS). Investments classified under HTNA category need not be marked to market and are carried at acquisition cost unless these are of more than face value, in which case the premium V should be amortized over the period remaining to maturity. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 02/07/2007 in terms of accounting treatment of the Investment due to which claim of Rs.1914,34,500/- as provision remains unjustified. (vi) It is further observed from records that the assessee has made provision for premium amortizations of Rs.2,74,27,223/- considering securities as Held for Maturity and made another provisions for premium amortizations at Rs.19,14,34,500/- on the basis of Marked to Market which has been debited in Profit Loss Account prepared for the year under consideration. The assessee bank is writing off premium paid on purchase of securities over the remaining life of security and this is being allowed also. It seems that once the premium paid is written off, the same security cannot be revalued again on the same date to claim loss on revaluation because under any circumstances, bank will get principal amount on its maturity. Both the benefits cannot be claimed simultaneously i.e. writing off premium and claiming notional loss also on revaluations on year end. This matter has also remained to be examined by the Assessing Officer. (vii) As per section 37 of the Income-tax Act, any provision cannot be deducted from income. With refere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce with the RBI guidelines and CBDT circulars, is contrary to his own findings recorded at paragraph 3.1.2 (iii) of his order. In paragraph 3.1.2(iii) of his order, he himself notes that as per the RBI guidelines all investments are to be classified as AFS, HTM and HFT; and the investments classified as AFS are to be valued at Mark to Market and the depreciation/appreciation in their value is to be accounted for scrip wise; that the CBDT Instruction No. 17/2008 provides for allowance of any claims made in accordance with RBI guidelines relating to such investment by banks. The Ld. Pr. CIT further notes the facts in relation to the present case at paragraph No. 3.1.2(iv) of his order that during the impugned year the assessee had adopted this method of classification of investment as prescribed by the RBI guidelines and valued them as per the RBI guidelines. Having noted so, he has still gone on to hold that the provision for diminution in value of investment on account of valuation of AFS as per the prescribed RBI guidelines on Mark to Market basis was not in accordance with RBI guidelines and the claim of the assessee on the same was not in accordance RBI/CBDT notifications in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer and all explanation furnished by the assessee for the eligibility of the assessee s claim for deduction to the said amounts. As reproduced in the Ld. Pr. CIT s order at paragraph No. 4.1, the assessee had explained the facts relating to these claims stating that the amounts of Rs.1,81,46,538/- paid through Rural Development Fund was the advances given to 17 District Co-op. Banks to boost-up the recovery works of the bank and to reduce the NPA of the banks. The Ld. Pr. CIT has noted this fact at paragraph No.4.2(i) of his order also. The assessee had further explained that these funds had been created as appropriation from the profits of the assessee and, therefore, no deduction had been claimed while creating the funds; that, therefore, when amount was advanced out of these funds to the 17 District Co-operative Banks in accordance with the aims and objects of the assessee Co-operative Bank which was the State Nodal Co-operative Bank assisting the functioning of the District Cooperative Banks, the amounts so advanced was in lieu of the aims and objects of the assessee co-operative bank and had been rightly claimed as deduction despite having not been passed through the Profit a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account, but directly through the specific funds, he subsequently found no anomaly in the explanation offered by the assessee for the same that while creating the fund, the assessee had not claimed any deduction being appropriation of profit only and, therefore, deduction was claimed when actual advances were made out of these funds or when in the alternative the funds were actually utilized for the purpose created. The Ld. Pr. CIT s case is that the Assessing Officer should have inquired as to whether the District Co-operative Banks had utilized these amounts for their business purposes and only then allowed the claim to the assessee. On the merits of the issue, as long as it was established both to the Ld. Pr. CIT and to the Assessing Officer that the advances to the District Co-operative Banks had been made in accordance with aim and objects of the assessee for assisting the working of these banks, there cannot be any issue with regards to the allowance of this claim to the assessee. As long as it had been shown to both the Assessing Officer and Ld. Pr. CIT that the advances were made to boost-up the recovery of the Dist. Cooperative Banks and to reduce the NPA, how the District ..... X X X X Extracts X X X X X X X X Extracts X X X X
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