The Nashik Merchants Co.Op Bank Ltd., Nashik V. Dy. Comm. of Income-tax, Nashik

CO 96/PUN/2011

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 8583 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 5 month(s) 3 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 29-04-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 29-11-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 25-11-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Depreciation; Cost of acquisition; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER , AND SHRI G.S. PANNU, ACCOUNTANT MEMBER. ITA.NO.1254/PN/2011 (ASSESSMENT YEAR 2007-08) DCIT, CIRCLE-1, NASHIK, .. APPELLANT VS. THE NASHIK MERCHANT CO-OP. BANK LTD., A-16, BABUBHAI RATHI CHOWK, SATPUR, NASHIK. .. RESPONDENT PAN: AAAAT3324K CO. 96/PN/2011 (ASSESSMENT YEAR 2007-08) THE NASHIK MERCHANT CO-OP. BANK LTD., A-16, BABUBHAI RATHI CHOWK, SATPUR, NASHIK. .. APPELLANT PAN NO.AAAAT3324K VS. DCIT, CIRCLE-1, NASHIK, .. RESPONDENT ASSESSEE BY : SHRI ABHAY AVCHAT REVENUE BY : SHRI ACHAL SHARMA DATE OF HEARING : 18.04.2013 DATE OF PRONOUNCEMENT : 29.04.2013 ORDER PER SHAILENDRA KUMAR YADAV, JM : THESE APPEALS BY THE REVENUE AND THE CROSS OBJECTI ON FILED BY THE ASSESSEE ARE ARISING FROM THE SAME ORDER OF THE CIT(A). SO THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY TH IS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2 2. REVENUE HAS RAISED THE FOLLOWING GROUNDS : 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A)-II, NASHIK WAS JUSTIFIED IN DELETING THE ADDITION OF RS.17,91,659/- MADE ON ACCOUNT OF CLAIMING EXPENDIT URE TOWARDS AMORTIZATION OF INVESTMENT HELD TILL MATURI TY. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A)-II, NASHIK WAS JUSTIFIED IN CONFIRMI NG THE AMOUNT OF AMORTIZATION AS REVENUE EXPENDITURE. 3. THE APPELLANT PRAYS THE ORDER OF THE ASSESSING O FFICER MAY BE RESTORED. 4. THE APPELLANT PRAYS TO ADDUCE SUCH FURTHER EVIDE NCE TO SUBSTANTIATE HIS CASE. 5. THE APPELLANT PRAYS LEAVE TO ADD, ALTER, CLARIFY , AMEND AND OR WITHDRAW ANY GROUNDS OF APPEAL AS AND WHEN THE O CCASION DEMANDS. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COOPERATIVE BANK (AOP) COVERED UNDER THE AEGIS OF MULTI STATE C O-OPERATIVE ACT. THE ASSESSEE IS ENGAGED IN BUSINESS OF BANKING AND PROVIDING FINANCE SERVICES. THE ASSESSEE HAD FILED RETURN O F INCOME FOR A.Y. 2007-08 ON 19-10-2007. THE CONCERNED ASSESSING OFF ICER COMPLETED THE ASSESSMENT U/S.143(3) BY ADDING A SUM OF RS.17,91,659/- ON ACCOUNT OF DISALLOWANCE OF AMOUNT S TOWARDS THE AMORTIZATION OF GOVERNMENT SECURITY. THE ASSESSEE DURING ASSESSMENT PROCEEDINGS SUBMITTED THAT IT WAS MANDAT ORY ON ITS PART TO COMPLY WITH THE DIRECTIONS ISSUED BY RBI FR OM TIME TO TIME. ASSESSEE HAD TO PARK A CERTAIN PERCENTAGE OF ITS NE T DEMAND AND TIME LIABILITY IN FORM OF STATUTORY LIQUID RATIO SL R WITH THE RBI. THIS AMOUNT OF SLR WAS MAINTAINED BY ASSESSEE IN FO RM OF INVESTMENT IN GOVERNMENT SECURITIES. SINCE THE GOV ERNMENT SECURITIES WAS THROUGH ITS SGL ACCOUNT (ELECTRONIC FORMAT) WITH MSC BANK LTD. FURTHER, THE SAID INVESTMENTS WERE C LASSIFIED AS HTM (HELD TO MATURITY) AND SO HELD IN THE PORTFOLIO OF THE BANK. ASSESSEE HAD PROCURED THESE INVESTMENTS AT A PREMIU M AND SUCH THE REDEMPTION OF THE SAID SECURITIES WOULD AT ALL TIME BE AT THE FACE VALUE WHICH IS LESS THAN PURCHASE PRICE. ASSESSEE HAD AVAILED THE 3 OPTION OF AMORTIZING THIS PREMIUM OVER THE LIFE OF THE INVESTMENT. THIS METHOD WAS SELECTED BY ASSESSEE AS THE AMOUNT SO INVESTED WOULD HAVE TAKEN CARE OF INVESTMENT NEEDS. THE ASS ESSING OFFICER DID NOT ACCEPT THIS CONTENTION AND ADDED THE AMOUNT OF AMORTIZATION TO THE RETURNED INCOME. 3. MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AU THORITY WHO AFTER CONSIDERING VARIOUS CONTENTIONS RAISED ON BEH ALF OF ASSESSEE ALLOWED THE CLAIM OF THE ASSESSEE. SAME HAS BEEN O PPOSED ON BEHALF OF REVENUE INTER ALIA SUBMITTED THAT CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION OF RS.17,91,695/- MADE ON ACCOUNT OF CLAIMING EXPENDITURE TOWARDS AMORTIZATION OF INVEST MENT HELD TILL MATURITY AND REQUESTED TO SET ASIDE THE ORDER OF CI T(A) ON THIS ISSUE AND RESTORE THAT OF ASSESSING OFFICER. ON THE OTH ER HAND LEARNED AR SUPPORTED THE ORDER OF CIT(A). 4. AFTER GOING THROUGH RIVAL SUBMISSIONS AND MATERI AL ON RECORD WE FIND THAT WITH THE ADVENT OF SECTION 80P(4) W.E. F. A.Y. 2007-08 HAS CLOSED THE DOORS FOR COOPERATIVE BANKS FOR CLAI MING THE BENEFIT OF DEDUCTION U/S.80P(2)(A)(I) FROM THIS TOTAL INCOM E. HOWEVER, THE COOPERATIVE SOCIETY SHOULD NOW BE ENTITLED TO BE AS SESSED AS NORMAL BANKING COMPANY. THE CLAUSE (4) INSERTED IN SECTIO N 80P HAS TAKEN AWAY THE BENEFIT OF THE ERSTWHILE DEDUCTION AVAILAB LE TO COOPERATIVE SOCIETY IN CARRYING ON BUSINESS OF BANKING OR PROVI DING CREDIT FACILITY TO ITS MEMBERS. THE NEW CLAUSE (4) INSERT ED BY THE FINANCE ACT, 2006 W.E.F. 01-04-2007 READS AS UNDER : THE PROVISION OF THE SECTION WAS NOT IN RELATION TO ANY COOPERATIVE BANK OTHER THAN AGRICULTURAL CREDIT SOC IETY OR PRIMARY COOPERATIVE AGRICULTURAL AND RURAL DEVELOPM ENT BANK. 5. THE INTENTION OF THE PROVISION MAY BE DERIVED MO RE PRECISELY FROM RELEVANT PARA 166 OF THE BUDGET SPEECH WHICH S TATED THAT : CO-OPERATIVE BANKS, LIKE ANY OTHER BANK, ARE LENDI NG INSTITUTIONS AND SHOULD PAY TAX ON THEIR PROFITS, P RIMARY AGRICULTURAL CREDIT SOCIETIES (PACS) AND PRIMARY CO OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK (PCARDB) ST AND ON A SPECIAL FOOTING AND WILL CONTINUE TO BE EXEMPT UNDE R SECTION 80P OF THE INCOME TAX ACT. HOWEVER, I PROPOSE TO EXCLU DE ALL OTHER CO-OPERATIVE BANKS FROM THE SCOPE OF THAT SECTION. ACCORDINGLY, 4 SECTION 80P IS TO BE AMENDED TO GIVE EFFECT TO THE ABOVE PROPOSAL. IT IS ALSO PROPOSED TO AMEND SECTION 2(2 4) TO PROVIDE THAT PROFITS AND GAINS OF BUSINESS OF BANKING (INCL UDING PROVIDING CREDIT FACILITIES) CARRIED ON BY A CO-OPE RATIVE SOCIETY WITH ITS MEMBERS SHALL BE INCLUDED IN THE DEFINITIO N OF INCOME (WITH EFFECT FROM 1ST APRIL, 2007). 6. COOPERATIVE BANK UNLIKE OTHER COMMERCIAL BANKS A RE SUBJECTED TO DUAL CONTROL FROM BOTH RBI AS WELL AS FROM STATE COOPERATIVE DEPARTMENT. THE ACCOUNTING TREATMENT FO R A COOPERATIVE BANK IS THEREFORE A RESULT OF GUIDELINES FROM BOTH THE CONTROLLING AUTHORITIES. ORDINARILY A DEDUCTION IS NOT AVAILAB LE TO AN ASSESSEE UNLESS SPECIFICALLY PROVIDED UNDER THE ACT. THIS IS IRRESPECTIVE OF ACCOUNTING TREATMENT PROVIDED BY THE ASSESSEE IN IT S BOOKS OF ACCOUNTS. BUT AT THE SAME TIME IT WAS WELL SETTLE D THAT DEDUCTION EXPRESSLY MENTIONED UNDER THE ACT ARE NOT EXHAUSTIV E AND PROFIT IS TO BE DERIVED ACCORDING TO ORDINARY COMMERCIAL PRI NCIPLES. AS PER THE EXTANT RBI GUIDELINES DATED 01-07-2009 THE INVE STMENT PORTFOLIO OF THE BANKS IS REQUIRED TO BE CLASSIFIED UNDER 3 CATEGORIES VIZ., HELD THE MATURITY HTM), HELD FOR TRADING (HFT ) AND AVAILABLE FOR SALE (AFS). THE VALUE OF EACH KIND OF INVESTM ENT IS TO BE DONE IN THE FOLLOWING MANNER: SR.NO. CLASSI FICATION OF INVESTMENT VALUATION NORMS 1 HTM THESE ARE CARRIED AT ACQUISITION COST UNLESS THE COST IS MORE THAN THE FACE VALUE, IN WHICH CASE THE PREMIUM SHOULD BE AMORTISED OVER THE PERIOD REMAINING TO MATURITY. THE PREMIUM IS REQUIRED TO BE AMORTISED OVER THE PERIOD REMAINING TO MATURITY. THIS APART, ANY PERMANENT DIMINUTION IN VALUE SHALL FV SHALL GO ON TO REDUCE COST OF THE INVESTMENT. 2 AFS THE INDIVIDUAL SCRIPS IN THE AVAILABLE FOR SALE CATEGORY WILL BE MARKED TO MARKET AT QUARTERLY OR AT MORE FREQUENT INTERVALS. THESE INVESTMENTS ARE CONSIDERED TO FORM STOCK-IN-TRADE OF A BANK AND THEREFORE ARE TO BE VALUED AT COST OR NRV, WHICHEVER IS LESS. FALL IN VALUE BELOW COST, THEREFORE, IS TO BE PROVIDED IMMEDIATELY, HOWEVER ANY NET APPRECIATION IN VALUE IS IGNORED AND NOT RECOGNIZED AS INCOME ON THE BASIS OF CONSERVATISM. 5 3 HFT THE INDIVIDUAL SCRIPS IN THE HELD FOR TRADING CATEGORY WILL BE MARKED TO MARKET AT MONTHLY OR AT MORE FREQUENT INTERVALS AND PROVIDED FOR AS IN THE CASE OF THOSE IN THE AVAILABLE FOR SALE CATEGORY. 7. IN PARA (VII) OF THE CBDT INSTRUCTION NO.17 OF 2 008 DATED 26.11.2008, ON ASSESSMENT OF BANK CHECK LIST FOR DEDUCTION, STATES AS UNDER: AS PER RBI GUIDELINES DATED 16 TH OCTOBER, 2000, THE INVESTMENT PORTFOLIO OF THE BANKS IS REQUIRED TO BE CLASSIFIED UNDER THREE CATEGORIES VIZ. HELD TO MATURITY (HTM), HELD FOR TRADING (HFT) AND AVAILABLE FOR SALE (AFS). INVEST MENTS CLASSIFIED UNDER HTM CATEGORY NEED NOT BE MARKED TO MARKET AND ARE CARRIED AT ACQUISITION COST UNLESS THESE AR E MORE THAN THE FACE VALUE, IN WHICH CASE THE PREMIUM SHOULD BE AMORTISED OVER THE PERIOD REMAINING TO MATURITY. I N THE CASE OF HFT AND AFS SECURITIES FORMING STOCK IN TRADE OF THE BANK, THE DEPRECIATION/APPRECIATION IS TO BE AGGREGATED S CRIP WISE AND ONLY NET DEPRECIATION, IF ANY, IS REQUIRED TO B E PROVIDED FOR IN THE ACCOUNTS. THE LATEST GUIDELINES OF THE RBI MAY BE REFERRED TO FOR ALLOWING ANY SUCH CLAIMS. 8. THE ITAT, MUMBAI BENCH, IN THE CASE OF ACIT VS. THE BANK OF RAJASTHAN LTD. (2011) TIOL-35-ITAT-MUMBAI, HAS HELD THAT IN CASE OF BANKS, THE PREMIUM PAID IN EXCESS OF FACE VALUE OF INVESTMENTS CLASSIFIED UNDER HTM CATEGORY WHICH HAS BEEN AMORTI SED OVER THE PERIOD TILL MATURITY IS ALLOWABLE AS REVENUE EXPEND ITURE SINCE THE CLAIM IS AS PER RBI GUIDELINES AND CBDT ALSO HAS DI RECTED TO ALLOW SUCH PREMIUM. IT HAS ALSO BEEN HELD IN THE CASE OF CATHOLIC SYRIAN BANK LTD. VS. ACIT THAT AMORTISATION ON PURCHASE OF GOVERNMENT SECURITIES WAS MADE AS PER PRUDENTIAL NORMS OF THE RBI AND SAME WAS ALLOWABLE DEDUCTION. IN VIEW OF ABOVE, ASSESSE E WAS JUSTIFIED IN CONTENDING FOR AMORTISATION OF PREMIUM PAID IN EXCE SS OF FACE VALUE OF SECURITIES HELD TO MATURITY (HTM) CATEGORY OR PE RIOD REMAINING TILL MATURITY WAS FOUND REASONABLE BY THE CIT(A). ACCOR DINGLY ADDITION OF RS.17,91,659/- MADE BY THE ASSESSING OFFICER BY DISALLOWING AMOUNT TOWARDS AMORTISATION OF GOVERNMENT SECURITIE S (HMT) WAS 6 DELETED. THIS REASONED FACTUAL AND LEGAL FINDING O F THE CIT(A) NEEDS NO INTERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME. 9. AS A RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 10. THE CROSS OBJECTION IN CO NO.96/PN/2011 IS NOTH ING BUT SUPPORTING THE ORDER OF THE CIT(A). SO THE ISSUE R AISED BY WAY OF CROSS OBJECTION GOES ACADEMIC. SAME IS DISMISSED A CCORDINGLY. 11. AS A RESULT, THE APPEAL FILED BY THE REVENUE AN D THE CO FILED BY THE ASSESSEE ARE DISMISSED. PRONOUNCED IN THE OPEN ON THIS THE 29 TH DAY OF APRIL 2013. SD/- SD/- (G.S. PANNU) (SHAILENDRA KUMAR Y ADAV ) ACCOUNTANT MEMBER JUDICIAL MEMB ER SATISH PUNE, DATED THE 29 TH APRIL 2013. COPY OF THE ORDER IS FORWARDED TO: 1. THE ASSESSEE 2. THE DEPARTMENT 3. THE CIT(A)-II, NASHIK 4. THE CIT-I, NASHIK 5. THE DR B BENCH, PUNE. 6. GUARD FILE BY ORDER //TRUE COPY// PRIVATE SECRETARY, INCOME TAX APPELLATE TRI BUNAL, PUNE.