IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI “B” BENCH: NEW DELHI

(THROUGH VIDEO CONFERENCING)

BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER &
DR.B.R.R.KUMAR, ACCOUNTANT MEMBER

ITA No.4073/Del/2018

Assessment Year : 2014-15

Sarva Haryana Gramin Bank, vs ACIT,

H.O.Near Bajrang Bhawan, Rohtak Circle,

Delhi Road, Rohtak, Haryana. Rohtak.

PAN-AAKAS1464M

APPELLANT RESPONDENT

Appellant by Sh.Vivek Gupta, CA

Respondent by Ms. Alka Gautam, Sr. DR

Date of Hearing 25.08.2021

Date of Pronouncement 25.10.2021

ORDER

PER KUL BHARAT, JM :

This appeal filed by the assessee pertaining to assessment year 2014-15
is directed against the order of Ld. CIT(A), Rohtak dated 02.04.2018.
The assessee has raised following grounds of appeal:-

1). “That the order u/s 143(3) dated 27/12/2016 of the Ld AO and
confirmed by the Ld. CIT(A), is against the facts of the case and
provisions of the law.

2. That on the facts and circumstances of the case and provisions of
the law, the Ld. AO as well as Ld. CIT(A) erred in making/confirming
the disallowance of Rs. 97,84,459/- u/s 14A read with Rule 8D of
IT Act against the exempted income of dividend and tax free income
of Rs. 1,28,58,978/-.
ITA No.4073/Del/2018
Assessment Year : 2014-15

3. That without on the facts and circumstances of the case and
provisions of the law, the Ld. AO as well as Ld. CIT(A) erred in
making/confirming the disallowance of Rs.62,06,818/- in respect of
amortisation of premium paid at the time of purchase of securities
over the remaining period of securities.

4. That the appellants request be allowed to add, modify and delete
any other ground (s) of appeal.

2. Facts giving rise to the present appeal are that the case of the assessee
was picked up for scrutiny assessment and the assessment u/s 143(3) of the
Income tax Act, 1961 (“the Act”) was framed vide order dated 27.12.2016.

3. The Assessing Officer after considering the submissions of the assessee
made additions in respect of disallowance by invoking the provision of section
14A of the Act of Rs.97,84,459/-, of Rs.4,31,22,000/- on account of interest
accrued on Non Performing Asset (“NPA”), disallowance of premium of
Rs.62,06,818/- claimed on account of the amortization in respect of the
securities held under the head “Held to Maturity” and disallowance of
Rs.12,13,000/- debited in P&L A/c as provision for fraud.

4. Aggrieved against this, the assessee preferred the appeal before Ld.
CIT(A) who after considering the submissions and material placed before him,
deleted the addition of Rs.4,31,22,000/- i.e. interest accrued on NPA and
Rs.12,13,000/- in respect of the provision made for fraud/embezzlement and
rest of the two additions of Rs.97,84,459/- and Rs.62,06,818/- related to
disallowance made u/s 14A of the Act and amortization of premium
respectively were sustained.

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Assessment Year : 2014-15

5. Aggrieved against this, the assessee is in appeal before this Tribunal.

6. Ground No.1 raised by the assessee is general in nature, needs no
adjudication.

7. Ground No.2 is against the sustaining the disallowance of
Rs.97,84,459/- made u/s 14A of the Act.

8. Ld. Counsel for the assesse reiterated the submissions as made in the
written submissions. Ld. Counsel for the assessee submitted that both the
authorities below have failed to appreciate the fact in right perspective. He
submitted that no disallowance in respect of interest expenditure u/s 14A of
the Act could be made where the assessee had sufficient funds to make the
investment out of own surplus interest free funds. He submitted that the
reliance as placed by the Ld.CIT(A) on the judgement of Hon’ble Supreme Court
rendered in the case of Maxopp Investment Ltd. vs CIT in Civil Appeal Nos.104-
109 of 2015 is misplaced. He submitted that on the contrary, this judgement
helps the assessee’s case. He further submitted that the assessee is a banking
company and investment in share and securities is a regular business activity
of the assessee. Moreover, the investment was made out of own surplus fund,
hence disallowance of interest expenditure ought not to have been made.

9. On the contrary, Ld. Sr. DR supported the orders of the authorities
below. She submitted that the Assessing Officer correctly, invoked the
provision of section 14A of the Act and computed the disallowance as per Rule
8D of the Income Tax Rules, 1962.

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ITA No.4073/Del/2018
Assessment Year : 2014-15

10. We have heard the rival contentions and perused the material available

on record. We find merit into the contentions of the Ld. Counsel for the

assessee that Ld.CIT(A) has mis-directed himself by wrongly applying the ratio

of the judgement of Hon’ble Supreme Court in the case of Maxopp Investment

Ltd. vs CIT (supra). Infact, the judgement of Hon’ble Supreme Court in the case

of Maxopp Investment Ltd. (supra) supports the case of the assessee. Moreover,

the Hon’ble Apex Court in later judgement rendered in Civil Appeal No.9606 of

2011 in the case of South Indian Bank Ltd. vs CIT after considering the

judgement rendered in the Maxopp Investment Ltd. (supra) clarified as under:-

25. “Proceeding now to another aspect, it is seen that the Central Board
of Direct Taxes (CBDT) had issued the Circular no. 18 of 2015 dated
02.11.2015, which had analyzed and then explained that all shares and
securities held by a bank which are not bought to maintain Statutory
Liquidity Ratio (SLR) are its stock-in-trade and not investments and income
arising out of those is attributable, to business of banking. This Circular
came to be issued in the aftermath of CIT Vs. Nawanshahar Central
Cooperative Bank Ltd. wherein this Court had held that investments made
by a banking concern is part of their banking business. Hence the income
earned through such investments would fall under the head Profits &
Gains of business. The Punjab and Haryana High Court, in the case of Pr.
CIT, vs. State Bank of Patiala while adverting to the CBDT Circular,
concluded correctly that shares and securities held by a bank are stock in
trade, and all income received on such shares and securities must be
considered to be business income. That is why Section 14A would not be
attracted to such income.

26. Reverting back to the situation here, the Revenue does not contend
that the Assessee Banks had held the securities for maintaining the
Statutory Liquidity Ratio (SLR), as mentioned in the circular. In view of this

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Assessment Year : 2014-15

position, when there is no finding that the investments of the Assessee are
of the related category, tax implication would not arise against the
appellants, from the said circular.

27. The aforesaid discussion and the cited judgments advise this Court
to conclude that the proportionate disallowance of interest is not
warranted, under Section 14A of Income Tax Act for investments made in
tax free bonds/ securities which yield tax free dividend and interest to
Assessee Banks in those situations where, interest free own funds
available with the Assessee, exceeded their investments. With this
conclusion, we unhesitatingly agree with the view taken by the learned
ITAT favouring the assessees.

28. The above conclusion is reached because nexus has not been
established between expenditure disallowed and earning of exempt
income. The respondents as earlier noted, have failed to substantiate their
argument that assessee was required to maintain separate accounts. Their
reliance on Honda Siel (Supra) to project such an obligation on the
assessee, is already negated. The learned counsel for the revenue has
failed to refer to any statutory provision which obligate the assessee to
maintain separate accounts which might justify proportionate
disallowance.

29. In the above context, the following saying of Adam Smith in his
seminal work – The Wealth of Nations may aptly be quoted:

“The tax which each individual is bound to pay ought to be certain
and not arbitrary. The time of payment, the manner of payment, the
quantity to be paid ought all to be clear and plain to the contributor
and to every other person.”

Echoing what was said by the 18th century economist, it needs to be
observed here that in taxation regime, there is no room for presumption
and nothing can be taken to be implied. The tax an individual or a
corporate is required to pay, is a matter of planning for a tax payer and the
Government should endeavour to keep it convenient and simple to achieve

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Assessment Year : 2014-15

maximization of compliance. Just as the Government does not wish for
avoidance of tax equally it is the responsibility of the regime to design a
tax system for which a subject can budget and plan. If proper balance is
achieved between these, unnecessary litigation can be avoided without
compromising on generation of revenue.
30. In view of the forgoing discussion, the issue framed in these appeals
is answered against the Revenue and in favour of the assessee. The
appeals by the Assessees are accordingly allowed with no order on costs.”

Respectfully following the above-referred judgement of Hon’ble Supreme
Court, we hereby direct the Assessing Officer to delete the addition.

11. Ground No.3 is against the disallowance of Rs.62,06,818/- confirmed in
respect of amortization of premium paid at the time of purchase of securities
over the remaining period of securities.

12. Ld. Counsel for the assessee reiterated the submissions as made before
the Ld.CIT(A). Ld. Counsel for the assessee submitted that the assessee
company being a banking company had to hold investment as per RBI norms
in HTM (“held to maturity”) category and in this investment when the cost price
was more than the face value than premium was spread over the period of
holding. It was contended that this practice is continuously followed by the
assessee and accepted by the Revenue in earlier years also and this practice
had been duly disclosed in Schedule 17. It is further contended that the
Assessing Officer wrongly interpreted the CBDT Circular No.17 dated
26.11.2008. However, Ld.CIT(A) did not accept the contention of the assessee
and sustained the addition. He contended that law is well settled law that

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amortization premium is in the nature of revenue expenditure and hence,
allowable. In support of this, Ld. Counsel for the assessee placed reliance on
various judicial pronouncements.

13. On the contrary, Ld. Sr. DR opposed these submissions and supported
the orders of the authorities below.

14. We have heard the rival contentions and perused the material available
on record. The Co-ordinate Bench of this Tribunal in ITA No.1334/Ahd/2014
& Others in the case of The Chanasma Nagrik Sahakari Bank Ltd. vs ACIT
decided the identical issue by observing as under:-

15. “As regards claim of amortization of securities premium amounting
to Rs.1,91,690/-, we notice that the aforesaid amount represents the
excess of acquisition cost over the face value of Government securities
taken under HTM category. We find that the issue is squarely covered in
favour of assessee by the decision of the Hon’ble Jurisdictional High Court
in the case of CIT vs. Rajkot Dist. Co-op Bank Ltd. in Tax Appeal No.56 of
2013 dated 10/02/2014. The Hon’ble Gujarat High Court placed reliance
upon the CBDT Circular No.17 of 2008 and held that loss on account of
premium paid on the face value of the security is required to be amortized
for the remaining period of maturity.
16. In view of the binding judicial fiat, the claim of the assessee towards
amortization of security premium requires to be accepted.”

15. The facts and issue are identical as were in ITA No.1334/Ahd/2014
(supra) therefore, respectfully following the decision of the Co-ordinate Bench
in ITA No.1334/Ahd/2014 (supra), we hereby direct the Assessing Officer to
delete the addition. This ground of assessee’s appeal is allowed.

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Assessment Year : 2014-15

16. In the result, the appeal of the assessee is allowed.

Above decision was pronounced on conclusion of Virtual Hearing in the
presence of both the parties on 25th October, 2021.

Sd/- Sd/-

(DR. B.R.R.KUMAR) (KUL BHARAT)
ACCOUNTANT MEMBER JUDICIAL MEMBER

*Amit Kumar* ASSISTANT REGISTRAR
Copy forwarded to: ITAT, NEW DELHI

1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT

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