The Ahmednagar Sahar Sahakari Bank ... vs Department Of Income Tax

Asstt. Commissioner of Income Tax, Ahmednagar Circle, Ahmednagar. .... Appellant

Vs.

The Ahmednagar Sahar Sahakari Bank Ltd., Sarwatha, Navi Peth, Ahmednagar PAN : AAABB0323R .... Respondent

Department by : Shri Rajesh Damor Assessee by : Shri C. H. Naniwadekar Date of hearing : 23-03-2015 Date of pronouncement : 30-03-2015

ORDER

PER G. S. PANNU, AM

The captioned appeal by the Revenue is directed against an order of

the Commissioner of Income Tax (Appeals)-IT/TP, Pune dated 18.11.2013

which, in turn, has arisen from an order dated 20.10.2010 passed by the

Assessing Officer u/s 143(3) of the Income-tax Act, 1961 (in short "the Act")

pertaining to the assessment year 2008-09.

2. In this appeal, the solitary dispute raised by the Revenue is with regard

to a disallowance of Rs.11,38,171/- made by the Assessing Officer on account

of amortization of premium paid for acquisition of securities categorized as

Held to Maturity (HTM), which has since been deleted by the CIT(A).

3. In brief, the relevant facts are that the assessee is a Co-operative Bank

registered under the Maharashtra Co-operative Societies Act, 1960 and is

carrying on the business of banking in terms of a license issued by the

Reserve Bank of India (RBI). Assessee claimed deduction for amortization of

premium paid on acquisition of securities categorized as HTM, which was 2 ITA No.298/PN/2014

disallowed by the Assessing Officer on the ground that such securities are

capital in nature. The CIT(A) has deleted the addition of Rs.11,38,171/-

following the decision of the Pune of the Tribunal in the case of Latur Urban

Co-operative Bank vs. DCIT vide ITA No.778/PN/2011 dated 31.08.2012

wherein the similar issue has been decided in favour of the assessee. Against

such a decision of the CIT(A), Revenue is in appeal before us,

4. Before us, it was a common point between the parties that similar issue

of the allowability of Premium on Amortization of HTM Securities, arose before

Pune Bench of the Tribunal in the case of Pune District Central Co-operative

Bank Ltd. vs. Addl.CIT in ITA No.1796/PN/2013 relating to assessment year

2009-10 vide order dated 28th November 2014, it was held as under:-

"10. ...... We find that a similar issue of allowability or deduction on account of amortization of premium expenditure for HTM securities arose before Pune Bench of the Tribunal in assessee's own case in ITA No.1795/PN/2013 relating to assessment 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 disallowance made by the Assessing Officer of Rs.2,20,68,302/- claimed by the assessee as amortization of premium expenditure for HTM securities by payment of over and above the value of such securities. The learned Authorized Representative has pointed out that this issue is covered in favour of the assessee by order of the Hon'ble 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 of the assessee by this court in its judgment dated July 4, 2014, in Income Tax Appeal No.1079 of 2012, CIT v. Lord Krishna Bank Ltd. (now merged with HDFC Bank Ltd.) (2014) 366 ITR 416 (Bom). Mr. Suresh Kumar fairly stated that question (C) reproduced above is covered by the said order. In view thereof, we are of the view that even question (C) does not arise any substantial question 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 Ichalkaranji Janata Sahakari Bank Ltd. in ITA No.449/PN/2012 and another by observing as under:

3 ITA No.298/PN/2014 "10. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find an identical issue had come up before the Tribunal in the case of Nahsik Merchant Cooperative Bank Ltd. (Supra). We find 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 material 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 entitled to be assessed as normal banking company. The clause (4) inserted in section 80P has taken away the benefit of the erstwhile deduction available to cooperative society in carrying on business 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 society or primary cooperative agricultural and rural development bank".

5. The intention of the provision may be derived more precisely from relevant Para 166 of the budget speech which stated that : "Co-

operative banks, like any other bank, are lending institutions and should pay tax on their profits, Primary Agricultural Credit Societies (PACS) and Primary Cooperative Agricultural 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 2(24) to provide that profits and gains of business of banking (Including providing credit facilities) carried on by a co-operative society with its members shall be included in the definition of 'income' (with effect from 1st April, 2007)".

6. Cooperative bank unlike other commercial banks are subjected to dual control from both RBI 4 ITA No.298/PN/2014

as well as from state cooperative department. The accounting treatment for a cooperative bank is therefore a result of guidelines from both the controlling authorities. Ordinarily a deduction is not available to an assessee unless specifically provided under the Act. This is irrespective of accounting treatment provided by the 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 commercial 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), Held for Trading (HFT) and Available for Sale (AFS). The value of each kind of investment is to be done in the following manner:

Sr.No. Classification Valuation Norms of Investment.

1.....

2.....

3.....

7. In para (vii) of the CBDT Instruction No.17 of 2008 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 held that in case of banks, the premium paid in excess of face value of investments classified under HTM category which has been amortised over the period till maturity is allowable as revenue expenditure since the claim is as per RBI Guidelines and CBDT also has directed to allow such premium. It has also been held in the case of Catholic Syrian Bank Ltd. Vs. ACIT that amortization on purchase of Government securities was made as per prudential norms of the RBI and same was allowable deduction. In view of above, assessee was justified in contending for amortization of premium paid in excess of face value of securities held to maturity (HTM) category or period remaining till maturity was found reasonable by the CIT(A). Accordingly addition of Rs.17,91,659/- made by the Assessing Officer by disallowing amount towards amortization of Government Securities (HMT) was deleted. This 5 ITA No.298/PN/2014

reasoned factual and legal finding of the CIT(A) needs 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 Coordinate Bench of the Tribunal and in absence of any contrary material brought to our notice against the above cited decision we find no infirmity in the order of the Ld.CIT(A) deleting the addition. Accordingly, the order of the Ld.CIT(A) is upheld and the grounds raised by the Revenue are dismissed."

2.2 Nothing contrary has been brought to our knowledge on behalf of the Revenue. Facts being similar, so following the same reasoning we hold that in case of banks, the premium paid in excess of face value of investments classified under HTM category which has been amortised over the period till 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 contending that the amortization of premium in excess of face value securities as HTM, period remaining difference was found reasonable. Accordingly, the disallowance of Rs.2,20,68,302/- made by the Assessing Officer claimed as amortization of premium expenditure for HTM securities by payment of premium over and above the face value of such securities is directed to be allowed."

11. The Hon'ble Bombay High Court in CIT Vs. HDFC Bank (supra) held that the assessee therein was entitled to deduction with respect to the diminution in the value of investments and amortization of premium on investments Held To Maturity 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 assessee's own case for assessment year 2008-09 and Hon'ble Bombay High Court in CIT Vs. HDFC Bank (supra). We hold that amortization of premium expenditure for securities Held To Maturity in view of RBI guidelines are allowable business expenditure in the case of assessee. The grounds of appeal No.1 and 2 raised by the assessee are thus, allowed."

5. We further find that the Hon'ble Bombay High Court in case of HDFC

Bank Ltd. (supra) in Income Tax Appeal No.330 of 2012 vide order dated

23.07.2014, on a similar issue on account of deduction with respect to

diminution in the value of investment and amortization of premium on

investment (Held To Maturity) after referring to the mandate of the RBI

Guidelines, and the decision of the Hon'ble Supreme Court in the case of 6 ITA No.298/PN/2014

Southern Technologies vs. JCIT, (2010) 320 ITR 577 (SC) had dismissed the

appeal filed by the Revenue.

6. The issue arising in the present appeal is identical to the issue decided

by the Pune Bench of the Tribunal in the case of Pune District Central Co-

operative Bank Ltd. (supra) and also the Hon'ble Bombay High Court in the

case of HDFC Bank Ltd. (supra), and following the same parity of reasoning,

we hold that the assessee is entitled to the deduction of Rs.11,38,171/- being

the premium on Amortization of Securities. Accordingly, we hereby affirm the

action of CIT(A) in deleting the disallowance of Rs.11,38,171/- representing

amortization of premium paid on Government Securities under the HTM

category. Thus on this aspect, Revenue fails.

7. In the result, the appeal of the Revenue is dismissed.

Order pronounced on 30 th March, 2015.

Sd/- Sd/- (SUSHMA CHOWLA) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER

Pune, Dated: 30 th March, 2015. Sujeet

Copy of the order is forwarded to: - 1) The Assessee; 2) The Department; 3) The CIT(A)-IT/TP, Pune; 4) The CIT-IT/TP, Pune; 5) The DR "A" Bench, I.T.A.T., Pune; 6) Guard File.

By Order //True Copy//

Assistant Registrar I.T.A.T., Pune