2018 (8) TMI 1558 - HC - Income Tax

Bad debts - Status of the assessee as Scheduled Bank - the name of the assessee bank was not reflected in the second schedule of the Reserve Bank of India Act, 1934, as on date of assessment - disallowance of deduction of bad debts u/s 36(1)(viia)(a) - Held that - There were three Gramin banks. All of which were duly notified as scheduled banks as per the Government notification dated 02.01.2006 all these three banks were amalgamated under a Government notification bringing into existence Saurashtra Gramin Bank i.e. the present respondent-assessee. On account of such facts, Commissioner of Income Tax (Appeals) and the Tribunal concurrently held that the respondent bank would also be a scheduled bank and consequently allowed the bad debts under section 36(1)(viia)(a) of the Act. Such being the position, we find no error in the view. No question of law arises. Disallowance of the deduction of Amortized Government Security Premium - Held that - Similar question came up for consideration of before this Court in COMMISSIONER OF INCOME TAX RAJKOT II VERSUS RAJKOT DIST. CO-OP BANK LTD. C/O. AD. VYAS AND CO. 2014 (3) TMI 110 - GUJARAT HIGH COURT as held as per the directives, the assessee had to invest certain amounts in Government securities and to hold the same till maturity - In the process of acquisition, if there was any premium paid on the face value of the security, the loss had to be amortised - The instructions clearly provide for amortisation of premium paid on acquisition of securities when the same are acquired at the rate higher than the face value - Such amortisation would have to be for the remaining period of maturity - This precisely the Tribunal had directed in the order - no contrary instructions of CBDT are brought to notice - The instruction in question having been issued under section 119(2) of the Income Tax Act, 1961, would bind the Revenue thus, there was no question of law arises Decided against Revenue. Addition of accrued interest on advances which had become NPA - Held that - This issue is squarely covered by the judgment of the Division Bench of this Court in case of Principal Commissioner of Income Tax v. Shri Mahila Sewa Sahakari Bank Ltd. 2016 (8) TMI 377 - GUJARAT HIGH COURT . This question is also therefore not required to be considered.

Summary

Issues:
1. Categorization of the respondent-assessee bank as a Scheduled Bank for deduction of bad debt under section 36(1)(viia)(a) of the Income Tax Act, 1961.
2. Deletion of disallowance of Amortized Government Security Premium.
3. Addition of accrued interest on advances which had become NPA.

Issue 1 - Categorization of the respondent-assessee bank:
The appeal raised questions regarding the status of the respondent-assessee bank as a Scheduled Bank for the purpose of claiming the benefit of deduction of bad debt under section 36(1)(viia)(a) of the Income Tax Act, 1961. The Assessing Officer initially refused to treat the bank as a scheduled bank for the assessment year 2007-08. However, it was established that three Gramin banks were amalgamated to form the respondent bank, which was notified as a scheduled bank by the Government. Both the Commissioner of Income Tax (Appeals) and the Tribunal agreed that the respondent bank should be considered a scheduled bank, entitling it to the deduction of bad debts under the Act. The High Court found no error in this view and concluded that no question of law arose in this regard.

Issue 2 - Deletion of disallowance of Amortized Government Security Premium:
The second question raised in the appeal concerned the deletion of disallowance made by the Assessing Officer regarding the deduction of Amortized Government Security Premium. The Court referred to a similar case where the Tribunal had directed the amortization of premium paid on the acquisition of securities when acquired at a rate higher than the face value, in accordance with RBI guidelines. The Court upheld the Tribunal's decision, citing the CBDT Circular and RBI directives that mandated the amortization of such premiums over the remaining period of maturity. No contrary instructions from the CBDT were presented, and the Court held that the instruction in question, issued under the Income Tax Act, would bind the Revenue. Consequently, the Court found no question of law to be addressed in this matter.

Issue 3 - Addition of accrued interest on NPA advances:
The final issue revolved around the addition of accrued interest on advances that had become Non-Performing Assets (NPA). The Tribunal had deleted this addition, prompting the Revenue to appeal. However, the High Court noted that a previous judgment of the Division Bench had already addressed and settled this issue. Referring to the precedent, the Court concluded that there was no need to reconsider this question. As a result, the Tax Appeal was dismissed.

In conclusion, the High Court of Gujarat addressed the issues raised in the appeal concerning the categorization of the respondent-assessee bank, the deletion of disallowance of Amortized Government Security Premium, and the addition of accrued interest on NPA advances. The Court affirmed the decisions of the lower authorities regarding the bank's scheduled status and the amortization of premium, while also relying on a previous judgment to resolve the matter of accrued interest on NPA advances.