Appeal partially allowed, deduction restriction upheld. New ground on amortization of premium admitted for fresh adjudication.

The Tribunal partially allowed the appeal, upholding the restriction of the deduction under Section 36(1)(viia) to the provision made in the books, following the precedent set by the Punjab & Haryana High Court. However, the Tribunal admitted an additional ground regarding the amortization of premium on HTM securities for fresh adjudication by the Assessing Officer, in line with the Supreme Court and Bombay High Court judgments allowing new grounds to be raised at the appellate stage.

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Issues Involved:
1. Deduction under Section 36(1)(viia) of the Income-tax Act, 1961.
2. Amortization of premium on HTM (Held To Maturity) securities.

Issue-wise Detailed Analysis:

1. Deduction under Section 36(1)(viia) of the Income-tax Act, 1961:
The primary issue in this appeal revolves around the deduction allowable under Section 36(1)(viia) of the Income-tax Act for bad and doubtful debts. The assessee, a Co-operative Bank, claimed a deduction of Rs.1,29,04,346/- but had made a provision of only Rs.50,00,000/- in the books of account. The Assessing Officer restricted the deduction to the provision made, disallowing the balance Rs.79,04,346/-. The CIT(A) upheld this decision, leading to the appeal.

The controversy hinges on whether the deduction under Section 36(1)(viia) necessitates making a provision in the books of account. The assessee argued that the deduction is based on a percentage of aggregate average advances and not contingent on the provision made in the books. They cited several Tribunal decisions supporting their stance.

The Revenue, however, relied on the judgment of the Punjab & Haryana High Court in State Bank of Patiala vs. CIT, which held that making a provision in the books equal to the claimed deduction is mandatory. The Tribunal agreed with this interpretation, emphasizing that the deduction is "in respect of any provision for bad and doubtful debts made by" the bank. The Tribunal upheld the lower authorities' decision to restrict the deduction to the amount actually provided in the books, aligning with the High Court's judgment.

2. Amortization of Premium on HTM (Held To Maturity) Securities:
The assessee raised an additional ground seeking amortization of Rs.47,85,720/- for premium on HTM securities, referencing CBDT Circular No. 17/2008. This claim was not raised before the lower authorities. The Tribunal admitted this additional ground, citing the Supreme Court's judgment in National Thermal Power Co. Ltd. vs. CIT and the Bombay High Court's judgment in CIT vs. Pruthvi Brokers & Shareholders (P) Ltd., which allow raising new grounds at the appellate stage.

The Tribunal remitted the matter to the Assessing Officer for adjudication, directing that the assessee be given a reasonable opportunity to present material and submissions. The Assessing Officer is to consider and adjudicate the claim in accordance with the law.

Conclusion:
The appeal was partly allowed. The Tribunal upheld the restriction of the deduction under Section 36(1)(viia) to the provision made in the books, based on the precedent set by the Punjab & Haryana High Court. However, the additional ground concerning the amortization of premium on HTM securities was admitted for fresh adjudication by the Assessing Officer.

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