Banking deductions on government securities and standard-asset provisions depend on accepted investment treatment and statutory conditions.

Banks may treat depreciation on government securities held in the investment portfolio as a deductible business loss or expenditure where the securities form part of banking stock-in-trade and the claim is consistent with prior accepted treatment. Premium amortisation on government securities is also deductible when covered by binding precedent for banks. A provision on standard assets made in line with RBI requirements may qualify for deduction under the bank bad-debt regime, but only after verification of the prescribed limits and relevant factual conditions, including the rural advances component. The first two claims were allowed, while the third was remitted for fresh examination.

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Issues: (i) Whether depreciation in the value of government securities held by a bank as investment was allowable as business expenditure or business loss; (ii) whether premium amortisation on government securities was allowable as a deduction; (iii) whether the provision made on standard assets was deductible under the provision governing banks' bad and doubtful debts.

Issue (i): Whether depreciation in the value of government securities held by a bank as investment was allowable as business expenditure or business loss.

Analysis: The securities were held in the course of banking business and were to be treated in accordance with the banking and regulatory framework governing banks' investment portfolio. The issue stood covered by earlier Tribunal decisions in the assessee's own case and by binding administrative guidance recognizing that such securities, though shown as investments in the balance sheet, form part of banking stock-in-trade. The Tribunal found no reason to depart from the earlier view and noted that the claim was consistent with the treatment accepted in prior years.

Conclusion: The claim was allowed in favour of the assessee.

Issue (ii): Whether premium amortisation on government securities was allowable as a deduction.

Analysis: The issue was stated to be squarely covered by the judgment of the jurisdictional High Court in favour of banks claiming such amortisation on government securities. In the absence of any distinguishing feature, the Tribunal followed the binding precedent and accepted the claim.

Conclusion: The claim was allowed in favour of the assessee.

Issue (iii): Whether the provision made on standard assets was deductible under the provision governing banks' bad and doubtful debts.

Analysis: The Tribunal noted that the provision was made pursuant to RBI requirements and that deduction for banks under the relevant statutory provision is subject to verification of the prescribed limits and related factual conditions, including the rural advances component. Since those facts had not been examined adequately, the matter was required to be re-examined by the Assessing Officer in accordance with law after granting proper opportunity to the assessee.

Conclusion: The issue was restored to the Assessing Officer for fresh consideration.

Final Conclusion: The appeal succeeded on the substantive claims relating to depreciation on government securities and premium amortisation, while the claim relating to provision on standard assets was sent back for fresh adjudication and was treated as allowed for statistical purposes.

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