Anil Chaturvedi, A.M:— This appeal is filed by the Assessee against the order of CIT(A)-VIII, Ahmedabad dated 28.11.2013 for A.Y 2010-2011.

2. The facts as culled out from the material on record are as under.

3. Assessee is a Co-operative Society engaged in the Banking business and Insurance agency business. Assessee electronically filed its return of income for A.Y 2010-2011 on 18.09.2010 showing total income of Rs. 2,25,37,550/-. The case was selected for scrutiny and thereafter the assessment was framed under section 143(3) vide order dated 22.03.2013 and the total income was determined at Rs. 4,86,37,430/-. Aggrieved by the order of A.O, 28.11.2013 dismissed the appeal of the Assessee. Aggrieved by the aforesaid order of CIT(A), the Assessee is now in appeal before us and has raised the following grounds:—

1. The learned CIT(A) has erred in confirming the disallowance of Rs. 2,60,99,875 being the amortization of premium paid on government securities on the ground that the assessee is not trading in such securities in as much as the amortization is to be provided as per RBI Guidelines and that it is allowable as deduction as per Instruction No. 17 dated 26-11-2008.

1.1 The appellant says and submits that the amortization has been provided since years by the bank and that it is consistently allowed as deduction.

2. The learned CIT(A) has erred in holding that the government securities on which is the amortization is claimed is not held to maturity since there are transactions of sale during the year in as much as there is no bar of selling the government securities even if it is held to maturity.

3. The learned CIT(A) has erred in interpreting the guideline issued by the RBI and not following Instruction No. 17 dated 26-11-2008.

4. Though the Assessee has raised various grounds, the only effective ground is with respect to disallowance of Amortization of premium paid on Government securities.

5. During the course of assessment proceedings, A.O noticed that Assessee has debited Rs. 2,60,99,875/- towards premium on investment written off paid for certain Government securities. He also noted that though Assessee had not sold investment, but premium on investments was written off and claimed as expenses. A.O was of the view that though the assessee had followed the RBI directions, the RBI directions were in the context of presentation of NPA/investment in the Balance Sheet of the banks and had nothing to do with the computation of taxable income. He was further of the view that since there was no sale of investment, the loss debited in the Profit and Loss account and claimed as expenses was not an actual expenditure and therefore not allowable. He accordingly disallowed the claim of expenses and added the provision of Rs. 2,60,99,875/- which was debited by the Assessee to its Profit and Loss account. Aggrieved by the order of A.O, Assessee carried the matter before CIT(A). CIT(A) upheld the order of A.O by holding as under:—

“2.3…………………. A perusal of RBI guidelines shows that the bank has to classify the security or the investment at the time of purchase and follow the procedure prescribed by the Reserve Bank of India.

The claim of the appellant is that it has classified certain securities which were Government of India Bonds as ‘Held to Maturity’ and in accordance with the RBI guidelines amortised the premium paid on purchase of the security. Considering the guidelines issued by the CBDT in Circular No. 17 (supra) and the preponderance of the judicial opinion on the issue the appellant would be entitled to claim the amortization cost as a deduction in case for the securities held by it are HTM in accordance with the guidelines issued by the RBI.

In order to ascertain whether the appellant bank has correctly classified the securities as HTM or the claim that the securities have been ‘Held to Maturity’, the appellant was asked vide order sheet noting dated 23/10/2013 to prove that securities were classified as ‘Held to Maturity’. On the appointed date certain details were furnished indicating the details of securities held in the account as on 31/03/2010. It also furnished an English translation of the balance sheet in which the investment. In Central and State Government Security was indicated. However no detail or evidence to show that the securities indicated in the balance sheet were HTM was furnished, therefore, the appellant was once again asked to furnish evidence to prove that the securities shown were HTM. It was also asked to give details of securities in the account/portfolio which has been categorised by it as HTM. On the appointed date a chart indicating the securities held from 31/03/2007 to 31/03/2010 was furnished. A perusal of the chart reflected that complete details about the securities held have not been given. Accordingly the appellant was asked to furnish details of HTM from 01/04/2006 and also the transactions there in. The appellant's AR on the last date of hearing submitted that since the details were old-he was unable to file the same.

In order to find out the correct position the details of investment in earlier years were obtained from the AO. The details received show that there is a variation in the investment in state and Government securities in every year. The quanta of investment in various years are as under:—

Sr. No. Date Investment (Rs.) 1 31/03/2007 120,00,00,000/- 2 31/03/2008 109,00,00,000/- 3 31/03/2009 74,00,00,000/- 4 31/03/2010 58,00,00,000/-

An examination of the details show that the appellant bank had also been selling certain securities from this account during the earlier years as well as during the present year. The appellant bank publishes its annual account in local language that is Gujarati. However, it has also furnished an English translation of the balance sheet and profit and loss account for the year. A perusal of the balance sheet shows that the investments have been shown in item No. 4 of the balance sheet on the asset side. The appellant had total investment of Rs. 952256875.00 as on 31/03/2009 and it increased to Rs. 1753727000.00 as on 31/03/2010. Further as per item number 4(i) the investment in Central and State Government securities have been shown which are stated to be at book value. The investment in Central and State Government securities was for Rs. 74 crore at the beginning of the year and it was reduced to Rs. 58 crores at the end of the year. The appellant explained that it had sold securities of Rs. 20 crore during the year and has also purchased the security of Rs. 4 crore during the year. Further perusal of the security held by the appellant show that these are Government of India securities which are maturing in subsequent years. For the sake of understanding, the appellant had a security which is named as ‘10.03 GOI 2019’, the year 2019 show the year of maturity. Similarly there are other securities which were due for maturity in the year 2022, 2023, 2026, 2017 and so on. It is important to note the appellant has sold four securities which were ‘6.35% GOI 2020’ during the year. It is apparent from the above table that the appellant had been selling the securities in the earlier years as the investment in any of the two years was not constant.

The above circumstances clearly show that the appellant's claim that the securities were Held to Maturity1 is not borne out by facts. First of all in the balance sheet there is no such indication that the securities were HTM. The balance sheet only indicates that it was an investment in Central and State Government securities. The RBI guidelines reproduced above clearly mandates that the investments should be clearly classified. Had it been properly classified the same would have been shown by the bank in the balance sheet also. Secondly, the RBI guidelines (Para 16.5.1) also restrict the conversion of one type of security to the other esp. the HTM. It also prescribes that the conversion from HTM type of security to other can be done only once in a year, normally at the beginning of the year, whereas the appellant has sold the securities at three different times during the year. First sale was made by the appellant on 30/11/2009, second on 25/03/2010 and two other sales were made on 30/03/2010. This is in clear violation to the guidelines laid down by the RBI. On one side the appellant is claiming that the amortisation expenses are being claimed as per the guidelines issued by the RBI which are acceptable by the Department, on the other hand the RBI guidelines are not being followed. The appellant has expressed its inability to furnish the complete details for last four-five years which would have enabled me to examine whether the appellant had really maintained the securities as HTM or it was a simple investment in security which was not to be kept till maturity and can be sold whenever it is needed. It may be either AFS or HFT. Since the appellant has not co-operated, apparently, to avoid getting exposed it can be concluded that the securities held by it were not HTM. The intentions as well as the behaviour of the appellant by not holding the securities till maturity and selling the same before maturity clearly show that the securities were not HTM. It has neither classified it as HTM nor kept it till maturity.

The appellant has also claimed that it has been following the similar accounting practice in earlier years and claimed the amortisation expenses there also and has requested that on the principle of consistency the deduction should be allowed. It is a known fact that the income of the co-operative banks was not taxable till A.Y 2005-2006. Since the income was exempt no serious scrutiny was done till that year. Subsequently it appears that the facts have not been clearly examined by the AO in subsequent years. It is a settled legal principle that principle of res judicata is not applicable to income tax proceedings unless the facts are identical. It is clear from the preceding discussion that the facts in earlier years have not been examined and have not been clearly brought out. The appellant is not furnishing the current facts even now. It has also been held by honourable Supreme Court in the famous landmark judgment in the case of Distributors (Baroda) (155 ITR 120) that mistake once committed should not be perpetuated forever.

The appellant has also relied on certain judicial pronouncements, which have been reproduced in the relevant pages where the submissions of the appellant are mentioned. I have carefully perused all the judgments however the same are not applicable to the present facts. The facts in the present case are different. In none of the case the factual discussions about the securities held have been made. In the present case it has been demonstrated clearly that the claim of the appellant that the securities were held by it as HTM is factually incorrect. Therefore, the judgments are respectfully distinguished.

In view of the above discussion it is held that the amortisation expenses claimed by the appellant on account of the premium paid for purchase of government security, which is claimed to have been held by it as HTM, are not allowable as deduction. It has been clearly demonstrated in the preceding discussion that the securities are not “Held to Maturity” as claimed by the appellant”.

6. Aggrieved by the order of CIT(A), the Assessee is now in appeal before us.

7. Before us, the ld. A.R reiterated the submissions made before CIT(A). He further submitted RBI requires the Assessee to maintain statutory Liquidity Ratio (SLR) and for that it is required to invest in Government Securities. The Securities are at times purchased at premium to the face value. RBI guidelines require that the premium paid on the purchase of securities needs to be amortised over the life of security. He further submitted that the premium which has been written off is allowable as deduction as per the Master Circular of RBI. He also placed on record the copy of the aforesaid circular. He further submitted that Assessee has been consistently following the policy of writing of the premium in earlier years and the same was also accepted by the Department. He further submitted that Assessee in the past had purchased certain securities which were Government of India bonds and was classified as “Held to Maturity” (HTM) in accordance with RBI guidelines and the premium paid on the purchase of securities was also amortised as per RBI guidelines. He further submitted that though the Assessee had sold the securities before the maturity date, but the same was not prohibited by the guidelines of RBI. He also placed reliance on the decision of United Commercial Bank v. CIT, (1999) 240 ITR 355 (SC) and the decision of Gujarat High Court in the case of CIT v. Rajkot District Co-operative Bank Tax Appeal No. 56.A/2013 order dated 10.02.2014 He therefore submitted that by following the guidelines prescribed under RBI, the Assessee has correctly claimed the expenditure and the same should therefore be allowed.

8. The ld. D.R on the other hand pointed to the findings of CIT(A) and pointed to the fact that CIT(A) has given a finding that the Assessee's claim that the securities were “held to maturity” is not borne out of by facts. He further submitted that CIT(A) has noted that the RBI guidelines prescribes that the conversion of security from HTM to others categories can be done only ones in a year and after following the guidelines prescribed by RBI but Before CIT(A), Assessee had expressed its inability to furnish complete details so as to enable him to examine as to whether the Assessee has really maintained the securities in HTM category. He therefore submitted that in the absence of necessary details, the CIT(A) was fully justified in upholding the order of A.O He thus supported the order of A.O and CIT(A).

9. We have heard the rival submissions and perused the material on record. Before us, the issue is about the allowability of amortization of premium of securities which are sold before the maturity date but held under “Held to Maturity (HTM)” category. Before us the ld. A.R has submitted that the securities that were purchased were held by it under “Held To Maturity” category and though the same were sold before its maturity but it had followed the accounting treatment prescribed by RBI and therefore the same is allowable. On the other hand, we find that CIT(A) has noted that certain requirements as stated in the RBI circular is required to be followed by an Assessee for conversion of security from HTM to other category. He has also noted that to ascertain as to whether the Assessee has correctly classified the securities as HTM and followed the guidelines prescribed by RBI, the Assessee was asked to furnish the details, which the Assessee failed to furnish. CIT(A) has noted that the Assessee has failed to follow the RBI guidelines. In view of the contrary submissions of both the parties, we are of the view that in all fairness and in the interest of justice, the issue needs to be re-examined more so with respect to following by the Assessee of the applicable guidelines prescribed by RBI with respect to the valuation, accounting treatment and other procedural requirements. We therefore remit the issue to the file of CIT(A) for him to examine the issue afresh in the light of the applicable RBI guidelines, the decisions relied by Assessee and thereafter decide the issue afresh as per law by way of a speaking order. Needless to state that CIT(A) shall grant adequate opportunity of hearing to both the parties. The Assessee is also directed to co-operate by promptly submitting the necessary details called for by CIT(A) in this regard. Thus this ground of Assessee is allowed for statistical purposes.

10. In the result, the appeal of Assessee is allowed for statistical purposes.