M/s. Vishwas Co-operative Bank Ltd, Nashik V. Deputy Commissioner of Income tax, Nashik

ITA 1060/PUN/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 8629 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 2 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-07-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 27-04-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Cost of acquisition; Bad and doubtful debts
• Section: 143(3); 201; 13; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE VIRTUAL COURT BEFORE SH RI R.S. SYAL, VICE PRESIDENT AND SH RI S.S. VISWANETHRA RAVI , J UDICIAL MEMBER ITA NO.1 060 /PUN/201 7 / ASSESSMENT YEAR : 20 12 - 13 M/S. VISHWAS CO - OPERATIVE BANK LTD., VISHWAVISHVAS PARK, SAWARKAR NAGAR, GANGAPUR ROAD, NASHIK 422013 PAN : AAAAV0793L VS. DCIT , CIRCLE - 1, NASHIK APPELLANT RESPONDENT / ORDER PER R.S.SYAL, VP : TH IS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 15.02.2017 PASSED BY THE CIT (A) - 1, NASHIK IN RELATION TO THE ASSESSMENT YEAR 201 2 - 13 . 2. THE FIRST THREE GROUNDS ARE AGAINST THE CONFIRMATION OF DISALLOWAN CE OF RS.2,65,85,821/ - MADE BY THE ASSESSING OFFICER IN RESPECT OF DEDUCTION CLAIMED BY THE ASSESSEE ON ACCOUNT OF A SSESSEE BY SHRI SANKET JOSHI RE VENUE BY SHRI AJAY DHOKE DATE OF HEARING 1 7 - 07 - 2020 DATE OF PRONOUNCEM ENT 17 - 0 7 - 2020 ITA NO . 1060 /PUN/ 201 7 M/S. VISHWAS CO - OP BANK LTD. 2 DIMINUTION IN THE MARKET VALUE OF GOVERNMENT SECURITIES CLASSIFIED UNDER THE CATEGORY HELD TO MATURITY. 3. BRI EFLY STATED, THE FACTS OF TH E CASE ARE THAT THE ASSESSEE, A C O - OPERATIVE BANK , C LAIMED DEDUCTION IN THE COMPUTATION OF INCOME AMOUNTING TO RS.2,65,85,621/ - ON ACCOUNT OF DIMINUTION IN VALUE OF GOVERNMENT SECURITIES - HELD TILL MATURITY. SUCH SECURITIES WERE PURCHASED AT PREMIUM. THE ASSESSEE SEPARATELY AMORTIZED THE PREMIUM TO THE TUNE OF RS.7,00,000/ - IN PROFIT AND LOSS ACCOUNT. THEREAFTER, THE ASSESSEE COMPUTED DIFFERENCE BETWEEN THE FACE VALUE OF THE SECURITIES HELD T ILL MATURITY AND THE IR MARKET VALUE AS AT THE YEAR END. S UCH DIFFERENCE AMOUNTING TO RS.2,65,85,621/ - WAS CLAIMED AS DEDUCTION IN THE COMPUTATION OF TOTAL INCOME WITHOUT ROUTING IT THROUGH PROFIT AND LOSS ACCOUNT. THE ASSESSING OFFICER DID NOT ACCEPT THE CLAIM OF ASSESSEE ON THE GROUND THAT PRIMARILY , THE SECUR ITIES WE RE IN THE NATURE OF INVESTMENTS AND SECONDLY, THE AMOUNT WAS NOT DEBITED TO THE PROFIT AND LOSS ACCOUNT. HE THEREFORE, MAD E DISALLOWANCE OF RS.2.65 CRORE IN THE COMPUTATION OF TOTAL INCOME, WHI CH CAME TO BE AF FIRMED IN THE FIRST A PPE AL . AGGRIEVED THEREBY, THE ASSESSEE IS BEFORE THE TRIBUNAL. ITA NO . 1060 /PUN/ 201 7 M/S. VISHWAS CO - OP BANK LTD. 3 4 . WE HAVE HEARD BOTH THE SIDES THROUGH VIRTUAL COURT AND GONE THROUGH THE RELEVANT MATERIAL ON RECORD. ADMITTEDLY, AN AMOUNT OF RS.2.65 CRORES AND ODD IS IN RELATION TO THE DIMINUTION IN THE VALUE OF GOVERNME NT SECURITIES - HELD TILL MATURITY BY THE ASSESSEE IN TERMS OF RBI NORMS. THE ASSESSEE WORKED OUT THE DIFFERENCE BETWEEN THE FACE VALUE OF SECURITIES, SAY AT RS.100/ - AND THE MARKET VAL UE OF SECURITIES AS AT YEAR END, SAY AT RS.80/ - AND CLAIMED THE DIFF ERENCE OF RS.20/ - AS DEDUCTIBLE IN THE COMPUTATION OF TOTAL INCOME, WHICH HAS NOT BEEN ALLOWED. WE WILL ANALYZE THE REASON S GIVEN BY THE AUTHORITIES BELOW FOR MAKING AND CONFIRMING OF THIS DISALLOWANCE . THE FIRST SUCH REASON ASSIGNED BY THE AO IS THAT THE ASSESSEE DID NOT RECORD THE DIMINUTION VALUE OF SECURITIES TO THE EXTENT OF RS.2.65 CRORES IN THE BOOKS OF ACCOUNT. IN OUR CONSIDERED OPINION, THIS FACT IS OF NO SIGNIFICANCE. THE ESSENCE OF THE MATTER IS TO EXAMINE AS TO WHETHER A PARTICULAR EXPENDITUR E /LOSS IS DEDUCTIBLE AND NOT WHETHER THE SAME IS RECORDE D IN THE BOOKS OF ACCOUNT . IF A PARTICULAR AMOUNT IS DEDUCTIBLE AS PER LAW , THE SAME HAS TO BE ALLOWED AS DEDUCTION IRRESPECTIVE OF THE FACT TH AT IT WAS NOT RECORDED IN THE BOOKS OF ACCOUNT. IT IS F URTHER NOTICED THAT THE ASSESSEE DID NOT RECORD SUCH DIMINUTION OF VALUE OF SECURITIES TO THE EXTENT OF RS.2.65 CRORES IN ITS BOOKS OF ACCOUNT SO AS TO SATISFY ITA NO . 1060 /PUN/ 201 7 M/S. VISHWAS CO - OP BANK LTD. 4 THE RBI NORMS, WHICH PROVIDE FOR VALUING THE SECURITIES A S SUCH WITHOUT ANY DIMINUTION IN THEIR VALUE AT THE YEAR END. THE RBI GUIDELINES MANDATE REFLECTION OF CERTAIN TRANSACTIONS IN A CERTAIN WAY AND DO NOT SUPERSEDE THE TAXING PRINCIPLES. 5. THE SECOND POINT OF CONTROVERSY IS THE TREATMENT OF THE SECURITIES AS INVESTMENT OR STOCK - IN - TRADE. WH ERE AS THE CASE OF ASSESSING O FFICER IS THAT SUCH SECURITIES WERE IN THE NATURE OF INVESTMENT A S THESE WERE HELD TILL MATURITY AND AS SUCH, THERE W AS NO QUESTION OF TREATING THEM AS STOCK - IN - TRADE, THE ASSESSEE HAS CANVASSED A VIEW THAT SUCH SECURITIES AR E ITS STOCK - IN - TRADE AS THE BANKS RETAIN THE SECURITIES ONLY AS STOCK - IN - TRADE AND NOT AS INVESTMENT. THE LD. AR HAS RELIED ON THE JUDGMENT OF THE HONBLE J URISDICTIONAL HIGH COURT IN PR.CIT VS. BANK OF MAHARASHTRA (2019) 410 ITR 413 (BOM) , IN WHICH, IN ID ENTICAL CIRCUMSTANCES, THE HONBLE BOMBAY HIGH COURT HELD THAT THE SECURITIES HELD BY THE ASSESSEE BANK AS `HELD TILL MATURITY WILL NOT BE TREATED AS INVESTMENT. NO CONTRARY POINT OF VIEW HAS BEEN BROUGHT TO OUR NOTICE BY THE LD. DR. RESPECTFULLY FOLLOWI NG THE PRECEDENT, WE OVERTURN THE IMPUGNED ORDER ON THIS SCORE AND HOLD THAT SUCH SECURITIES SHOULD BE TAKEN AS STOCK - IN - TRADE AND NOT INVESTMENTS. ITA NO . 1060 /PUN/ 201 7 M/S. VISHWAS CO - OP BANK LTD. 5 6. THE NEXT POINT IS THE COMPUTATION OF AMOUNT OF DIMINUTION VALUE ON SECURITIES. IN THE ABOVE HYPOTHETIC AL EXAMPLE, WE NOTICED THAT THE SECURITIES WITH FACE VALUE OF RS.100/ - HAD MARKET VALUE OF RS.80/ - AS AT THE END OF THE YEAR AND THE ASSESSEE CLAIMED DEDUCTION IN RESPECT OF RS.20 / - , BEING, DIFFERENCE BETWEEN THE TWO. ORDINARILY, THERE CAN BE NO DIFFICULTY IN VALUING SECURITIES AT COST OR MARKET PRICE, WHICHEVER IS LESS AND ALLOW ING DEDUCTION ACCORDINGLY. BUT , THE QUESTION THAT ARISES IN THE INSTANT CASE IS THAT HOW PROFIT WILL BE COMPUTED AT THE TIME OF THEIR SALE WHEN SUCH SECURITIES ARE NOT REFLECTED ON MARKET VALUE IN THE BOOKS OF AC COUNT. IN THIS REGARD, THE L D. AR WAS REQUIRED TO PLACE ON R ECORD TRAIL OF EVENT TILL SALE QUA THE SECURITIES. ON THE NEXT DATE OF HEARING, S UCH DETAILS WERE PLACED ON RECORD, AS PER WHICH, IT IS EVIDENT THAT THE SECURITI ES WHICH WERE VALUED AT RS.80/ - AT THE YEAR - END , WHEN SOLD IN A YEAR LATER, SAY AT RS.105/ - , THE ASSESSEE REFLECTED PROFIT AT RS.25/ - , WHICH SHOWS THAT THE REDUCED MARKET VALUE WAS CONSIDERED BY THE ASSESSEE AT THE TIME OF COMPUTATION OF INCO ME FROM SALE OF SUCH SECURITIES. N OT ON LY THIS, TH E ASSESSEE REFLECTED SUCH PROFIT ON SALE AS `B USINESS INCOME AND NOT C APITAL GAIN . ITA NO . 1060 /PUN/ 201 7 M/S. VISHWAS CO - OP BANK LTD. 6 7. THE LD. DR HARPED ON THE POINT THAT IN ADDITION TO THE DIMINUTION IN THE VALUE OF SUCH SECURITIES, THE ASSESSEE ALSO AMORTIZED PR EMIUM ON SUCH INVESTMENT S, WHICH AMOUNTED TO DOUBLE DEDUCTION; FIRSTLY, AS PREMIUM ON YEAR TO YEAR BASIS AND SECONDLY, DIFFERENCE BETWEEN THE MARKET VALUE AND THE FACE VALUE OF THE SECURITIES. IN TH IS REGARD, WE FIND THAT THE AMOUNT OF PREMIUM ON INVESTMEN T HAS BEEN SEPARATELY CLAIMED AS DEDUCTION BY THE ASSESSEE. SUCH PREMIUM HAS BEEN OFFLOAD ED FROM THE PURCHASE COST TO BRING SUCH SECURITIES AT FACE VALUE AND ALL THE SUBSEQUENT CALCULATIONS FOR VALUING AT THE MARKET PRICE AT THE END OF THE YEAR AND CALCUL ATION OF PROFIT AT THE TIME OF SALE OF IN A LATER YEAR, HAVE BEEN DONE WITH REFERENCE TO THE FACE VALUE WITHOUT PREMIUM. THUS, IT IS CLEAR THAT THE AMOUNT OF PREMIUM ON INVESTMENT HAS NOT BEEN TAKEN INTO CONSIDERATION AT THE TIME OF COMPUTING DIMINUTION O F THE VALUE OF THE SECURITIES. MOREOVER, THE AO HAS NOT MADE ANY SEPARATE DISALLOWANCE TOWARDS WRITE OFF OF PREMIUM ON THESE SECURITIES . WE, THEREFORE, ORDER TO DELETE THE ADDITION OF RS.2.65 CRORES AND ODD. THUS, THESE THREE GROUNDS ARE ALLOWED . ITA NO . 1060 /PUN/ 201 7 M/S. VISHWAS CO - OP BANK LTD. 7 8. T HE ONLY OTHER SURVIVING ISSUE IN THIS APPEAL IS PROJECTED THROUGH GROUND NO.4, BEING, CONFIRMATION OF DISALLOWANCE U/S 36(1)(VIIA) OF THE ACT AMOUNTING TO RS. 37,56,718/ - . 9 . SUCCINCTLY, THE FACTS OF THIS GROUND ARE THAT THE ASSESSEE CLAIMED DEDUCTION OF RS. 44,25,718/ - ON ACCOUNT OF 10% AVERAGE OF ADVANCES FOR RURAL BRANCHES . THE AO OBSERVED THAT THE PROVISION ON ACCOUNT OF BAD AND DOUBTFUL DEBTS WAS MADE IN THE PROFIT AND LOSS ACCOUNT TO THE TUNE OF RS.6,69,000/ - . CONSIDERING THE MANDATE OF SECTION 36(1 )(VIIA) OF THE ACT, HE ALLOWED DEDUCTION ONLY TO THE EXTENT OF PROVISION MADE AND THE EXCESS AMOUNT OF RS. 37,56,718/ - WAS DISALLOWED U/S 36(1)(VIIA) READ WITH SECTION 36(2)(V ) OF THE ACT. THE LD. CIT(A) ECHOED T HE ASSESSMENT ORDER ON THIS COUN T. 10 . WE H AVE HEARD BOTH THE SIDES AND GONE THROUGH THE RELEVANT MATERIAL ON RECORD. SECTION 36(1)(VIIA) OF THE ACT SPECIFICALLY PROVIDES FOR ALLOWING DEDUCTION ` IN RESPECT OF ANY PROVISION OF BAD AND DOUBTFUL DEBTS MADE BY THE ASSESSEE. IT IS SEEN THAT S IMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THE PUNE BENCHES OF TRIBUNAL IN ADDL.CIT VS. BANK OF MAHARASHTRA (2014) 41 CCH ITA NO . 1060 /PUN/ 201 7 M/S. VISHWAS CO - OP BANK LTD. 8 108 (PUNE - TRIB.) , A COPY OF WHICH HAS BEEN PLACED ON RECORD B Y THE LD. AR. IN THIS CASE , THE TRIBUNAL DID NOT ALLOW DEDUCTION U/S 36(1)( VIIA) OF THE ACT IN RESPECT OF THE AMOUNT OF PROVISION WHICH WAS NOT M ADE IN THE BOOKS OF ACCOUNT. IN REACHI NG THIS CONCLUSION, THE TRIBUNAL RELIED ON THE DECISION OF THE HONBLE HIGH COURT OF PUNJAB & HARYANA IN THE CASE OF STATE BANK OF PATIALA VS. CIT (2005) 272 ITR 54 (P&H) AND ALSO AN OTHER ORDER OF PUNE BENCHES OF TRIBUNAL IN THE CASE OF SHRI MAHALAKSHMI COOPERATIVE BANK LTD. IN ITA NO.1658/P N/2011, DATED 29.10.2013. RELEVANT DISCUSSION HAS BEEN MADE IN PARA 29 OF THE TRIBUNALS ORDER IN THE CASE OF BANK OF MAHARASHTRA (SUPRA) . THE LD. AR FAIRLY ADMITTED THAT THE PUNE BENCHES OF TR IBUNAL HAVE DECIDED THI S ISSUE AGAINST THE ASSESSEE. H E , HOWEVER, RELIED ON THE DECISION OF DELHI BENCHES OF TRIBUNAL IN ACIT VS. PRATHMA BANK IN ITA NO.4090/DEL/2013. W E HAVE ALSO GONE THROUGH THIS ORDER WHICH HAS ALLOWED DEDUCTION ON THE AMOUNT OF PROVISION WHICH WAS NOT DEBITED TO THE PROFIT AND LOSS ACCOUNT BY, PRIMARILY , RELYING ON THE ORDER IN THAT ASSESSEES OWN CASE PASSED U/S 263 OF THE ACT. IT GOES WITHOUT SAY I NG THAT THE PARAMETERS FOR REVISION U/S 263 OF THE A CT ARE QUITE DISTINCT FROM THOSE OF ASSESSMENT U/S 143(3) OF THE ACT. IN VIEW OF THE FACT THAT THE ISSUE UNDER CONSIDERATION IS DIRECTLY ITA NO . 1060 /PUN/ 201 7 M/S. VISHWAS CO - OP BANK LTD. 9 COVERED BY THE DIRECT JUDGMENT OF HONBLE HIGH COURT OF PUNJAB & H ARYANA IN THE CASE OF STATE BANK OF PATIALA VS. CIT (2005) 272 ITR 54 (P&H) AND TWO OTHER DECISIONS OF PUNE BENCHES OF TRIBUNAL, RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE DISALLOWANCE. THIS GROUND IS DISMISSED. 11 . IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH JULY , 2020 SD/ - SD/ - ( S.S. VISWANETHRA RAVI ) ( R.S.SYAL ) JUDICIAL MEMBER VICE PRESIDENT PUNE ; DATED : 17 TH JULY , 2020 GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. THE CIT (A) - 1, NASHIK 4 . 5. THE P R. CIT - 1 , NASHIK DR B BENCH , ITAT, PUNE 6 . / GUARD FILE / BY ORDER, / / TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE ITA NO . 1060 /PUN/ 201 7 M/S. VISHWAS CO - OP BANK LTD. 10 DATE 1. DRAF T DICTATED ON 1 7 - 07 - 2020 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 1 7 - 07 - 2020 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRON OUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *