Sree Subramanyeswara co-operative Bank Limited, Bangalore V. ACIT, Bangalore

ITA 1068/BANG/2010

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6101 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-05-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 01-05-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 08-09-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: BIJOY KUMAR
• Keywords: Capital asset; Depreciation; Bad and doubtful debts; Tax effect; Revised return
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NO.1068/BANG/2010 ASSESSMENT YEAR : 2007-08 SREE SUBRAMANYESWARA CO-OPERATIVE BANK LTD., # 106, R.V. ROAD, VISVESHWARAPURAM, BANGALORE 560 004. PAN : AAAAS 4418F VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 3(1), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI RAGHAVENDRA CHAKRAVARTHY, C.A. RESPONDENT BY : SHRI BIJOY KUMAR PANDA, ADDL.CIT(DR) DATE OF HEARING : 01.05.2014 DATE OF PRONOUNCEMENT : 09.05.2014 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 29.3.2010 OF THE CIT(APPEALS)-II, BANGALORE RELATING TO ASSESSME NT YEAR 2007-08. ITA NO.1068/BANG/2010 PAGE 2 OF 12 2. THE ASSESSEE HAS FILED CONCISED AND REVISED GROU NDS OF APPEAL WHICH ARE TAKEN UP FOR ADJUDICATION. 3. GROUNDS NO.1, 2 & 7 ARE GENERAL IN NATURE AND CA LLS FOR NO ADJUDICATION. 4. GROUND NO.6 WITH REGARD TO CHARGING OF INTEREST U/S. 234B AND 234C OF THE INCOME TAX ACT, 1961 (ACT) IS PURELY CONSEQU ENTIAL AND THE AO IS DIRECTED TO GIVE CONSEQUENTIAL RELIEF IF NECESSARY. 5. GROUND NO.3 RAISED BY THE ASSESSEE READS AS FOLL OWS:- 3. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) I S NOT JUSTIFIED IN UPHOLDING THE DISALLOWANCE OF RS.12,50 ,000/- CLAIMED U/S 36(1)(VIII) OF THE ACT UNDER THE FACTS AND CIRC UMSTANCES OF THE CASE. 6. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT DEDUCTION U/S. 36(1)(VIII) OF THE ACT IS AVAIL ABLE ONLY FROM A.Y. 2008-09 AS PER THE AMENDED LAW AND THEREFORE THE ISSUE RAIS ED IN GROUND NO.3 IS NOT PRESSED FOR THE PRESENT ASSESSMENT YEAR. ACCOR DINGLY THIS GROUND RAISED BY THE ASSESSEE IS DISMISSED. 7. GROUND NO.4 RAISED BY THE ASSESSEE READS AS FOLL OWS:- 4. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) I S NOT JUSTIFIED IN UPHOLDING THE DISALLOWANCE OF RS.22,44 ,223/- BEING AMORTIZATION OF PREMIUM PAID ON INVESTMENT UNDER TH E FACTS AND CIRCUMSTANCES OF THE CASE. ITA NO.1068/BANG/2010 PAGE 3 OF 12 8. THE ASSESSEE IS A COOPERATIVE BANK REGISTERED UN DER THE CO- OPERATIVE SOCIETIES ACT, CARRYING ON BANKING BUSINE SS. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASS ESSEE HAD DEBITED IN ITS PROFIT & LOSS ACCOUNT A SUM OF RS.22,44,223 UND ER THE HEAD LOSS ON AMORTIZATION OF PREMIUM PAID ON GOVT. SECURITIES. THE AO CALLED UPON THE ASSESSEE TO EXPLAIN THE AFORESAID LOSS. THE ASSESS EE EXPLAINED VIDE ITS LETTER DATED 23.12.2009 THAT THE ASSESSEE MADE CERT AIN INVESTMENTS IN SECURITIES WHICH WERE TO BE HELD UNDER THE CATEGORY HELD TO MATURITY (HTM FOR SHORT). THESE SECURITIES WERE ACQUIRED BY PAYING A PREMIUM. THE ASSESSEE SUBMITTED THAT IT THE NORMAL PRACTICE IN BANKING BUSINESS THAT THE PREMIUM PAID ON ACQUIRING SECURITIES HELD UNDER THE CATEGORY HTM ARE SPREAD OVER AND CLAIMED IN EQUAL INSTALMENTS AS A D EDUCTION IN THE P&L ACCOUNT OVER THE PERIOD OF THE SECURITY. THE ASSES SEE THUS REQUESTED THAT THE AFORESAID DEDUCTION CLAIMED HAD TO BE ALLOWED A S A DEDUCTION. THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSE E OBSERVING AS FOLLOWS:- THE SUBMISSIONS OF THE ASSESSEE HAVE BEEN GONE T HROUGH, BUT THEY CANNOT BE ACCEPTED BECAUSE OF THE FOLLOWIN G REASONS. AMORTISATION OF PREMIUM IS THE ELEMENT ARRIVED AT BY CALCULATING THE PREMIUM PAID ON CERTAIN INVESTMENTS CLASSIFIED AS HELD TO MATURITY BY THE ASSESSEE BANK. THESE SEC URITIES CLASSIFIED AS HELD TO MATURITY ARE PERMANENT LONG TERM INVESTMENTS MADE BY THE ASSESSEE BANK SO IT IS CLEA RLY UNDERSTOOD THAT THESE CANNOT BE TREATED AS STOCK IN TRADE OF THE ASSESSEE LIKE AVAILABLE FOR SALE AND HELD FOR TRADING CA TEGORY. SO ONCE IT IS ESTABLISHED THAT THESE ARE NOT STOCK IN TRADE NO CHARGE ITA NO.1068/BANG/2010 PAGE 4 OF 12 CAN BE MADE ON REVENUE. BUT HOWEVER, AT THE TIME O F DISPOSING OFF THE ASSET RELEVANT CAPITAL GAIN OR LOSS CAN BE BOOKED. 9. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) CONF IRMED THE ORDER OF THE ASSESSING OFFICER. 10. BEFORE THE CIT(A), THE ASSESSEE SPECIFICALLY CO NTENDED AS FOLLOWS:- 3.2 AO FAILED TO NOTE THAT, ASSESSEE EARNED MORE INCOME BY WAY OF INTEREST FROM THE DATE OF ISSUE TO THE DATE OF PURCHASES PLUS EARNINGS TO THE DATE OF MATURITY AND THAT INTE REST IS OFFERED FOR TAXATION IN THE REGULAR COURSE, HENCE THESE CIR CUMSTANCES PREVAILING TO PAY PREMIUM ON PURCHASES ARE ALLOWABL E TO AMORTIZE, DISALLOWABILITY RESULTS IN DOUBLE TAXATIO N. 3.3 IF PREMIUM IS NOT AMORTIZED, ON MATURITY THE F ACE VALUE SHALL BE CREDITED TO THE INVESTMENT ACCOUNT AND THE DEBIT BALANCE SHALL REMAIN IN THE INVESTMENT ACCOUNT WHICH IS NOT IONAL AND THIS IS NOTHING BUT A LOSS AND THE ENTIRE DEBIT BALANCE IF CHARGED TO THE REVENUE IN THE YEAR OF MATURITY THOUGH ARBITRARY BU T NEGATE THE PROFIT, THIS IS NOT PERMITTED IN TERMS OF THE ABOVE RBI CIRCULAR. THE FACTS THOUGH EXPLAINED DURING THE SCRUTINY, AO FAILED TO UNDERSTAND AND TO APPLY HIS MIND BUT ON THE CONTRAR Y WRONGLY CITED T.N.POWER FINANCE AND INFRASTRUCTURE DEVELOPM ENT CORPORATION LTD., VS JOINT COMMISSIONER OF INCOME T AX CASE AS REPORTED IN (2006) 280 ITR 491 SINCE THE SAID CASE REFERS TO WRITE OFF OF BAD DEBTS/NON PERFORMING ASSETS U/S 36(L)(VI I) AND NOT THE AMORTIZATION OF PREMIUM. 11. THE CIT(APPEALS), HOWEVER, DID NOT ACCEPT THE A FORESAID CONTENTION AND HELD THAT SECURITIES HELD IN THE CATEGORY OF HT M ARE CAPITAL ASSETS AND THEREFORE ARE EXIGIBLE TO CAPITAL GAIN OR CAPITAL L OSS AT THE TIME OF THEIR SALE AND NO CLAIM FOR DEDUCTION CAN BE MADE ON REVENUE A CCOUNT. THE CIT(A) ALSO HELD THAT THE RBI GUIDELINES WITH REGARD TO SE CURITIES HELD IN DIFFERENT ITA NO.1068/BANG/2010 PAGE 5 OF 12 CATEGORIES WERE NOT RELEVANT WHILE COMPUTING INCOME UNDER THE INCOME-TAX ACT. 12. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS), THE ASSESSEE HAS RAISED GROUND NO.4 BEFORE THE TRIBUNAL. 13. AT THE TIME OF HEARING OF THE APPEAL, IT WAS PO INTED OUT BY THE LD. COUNSEL FOR THE ASSESSEE THAT IN ASSESSEES OWN CAS E, SIMILAR ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSES SEE FOR THE A.Y. 2008- 09 IN ITA NO.488/BANG/2011 BY ORDER DATED 6.6.2012. ON THE AFORESAID ISSUE, THIS TRIBUNAL HELD AS FOLLOWS:- 3. THE ASSESSEE IS A CO-OPERATIVE BANK ENGAGED IN THE BUSINESS OF PROVIDING LONG TERM FINANCE FOR INDUSTR IAL, AGRICULTURAL DEVELOPMENT, DEVELOPMENT OF INFRASTRUC TURE AND HOUSING, BESIDES REGULAR BANKING ACTIVITIES. THE AS SESSEE FILED ITS RETURN OF INCOME ORIGINALLY THROUGH E-RETURN DECLAR ING TAXABLE INCOME OF RS.3,58,81,750/- AFTER CLAIMING AMORTIZAT ION OF RS.22,44,300/- BEING THE PREMIUM PAID ON GOI SECURI TIES HELD TO MATURITY (HTM) AS MATCHING INCOME BEING THE INTERES T RECEIVED ON SUCH SECURITIES CREDITED TO PROFIT & LOSS ACCOUN T BUT DUE TO CONFUSION, HAS FILED REVISED RETURN OF INCOME MAKIN G THE SAID AMOUNT AS INADMISSIBLE BESIDES RE-CALCULATING DEDUC TIONS AT 7.5% ON PROFIT U/S 36(1)(VIIA) FOR PROVISION FOR BAD AND DOUBTFUL DEBTS THUS BEING THE REVISED TAXABLE INCOME AS RS.3,70,90 ,500/- AND ON GIVEN TO UNDERSTAND THAT IT IS NOT CORRECT, THE ASS ESSEE HAS WITHDRAWN THE REVISED RETURN. BUT THE AO HAS NOT CO NSIDERED THE WITHDRAWAL. THUS, THE CLAIM OF AMORTIZATION OF `22, 44,300/- STOOD DISALLOWED. 4. AGGRIEVED, THE ASSESSEE MOVED THE MATTER IN APP EAL BEFORE THE FIRST APPELLATE AUTHORITY. THE CIT(A) WAS OF THE VIEW THAT THE INCOME IS TO BE COMPUTED AS PER THE PROVISIONS OF THE INCOME-TAX AC T AND NOT UNDER THE PROVISIONS OF THE RBI OR ANY DIRECTION IS SUED THERE- ITA NO.1068/BANG/2010 PAGE 6 OF 12 UNDER. IN VIEW OF THIS LEGAL POSITION, HE DID NOT F IND ANY INFIRMITY IN THE AOS OBSERVATION. HENCE, HE CONFIRMED THE DI SALLOWANCE OF RS.22,44,300/-. 5. THE ASSESSEE IS STILL AGGRIEVED AND IS ON SECON D APPEAL BEFORE US WITH THIS ISSUE WITH THE GROUNDS OF APPEA L EXTRACTED ELSEWHERE OF THIS ORDER. AT THE TIME OF HEARING, LEARNED COUNSEL FOR THE A SSESSEE PLACED ON RECORD PAPER BOOK CONSISTING OF 15 PAGES. HE ALSO PLACED ON RECORD DECISION OF THIS TRIBUNAL IN THE C ASE OF SIR M.VISWESWARAYA CO-OPERATIVE BANK LTD., IN ITA NO.1122/BANG/2010 DATED 11-5-2012 AND PLEADED THAT THE POINT AT ISSUE IS NOW SQUARELY COVERED BY THE SAID DECISI ON. 6. WE HAVE ALSO HEARD THE LEARNED DEPARTMENTAL REPRESENTATIVE AND CONSIDERED THE FACTS AND MATERIA LS ON RECORD INCLUDING THE CONTENTS OF THE PAPER BOOK AND THE DE CISION OF THE TRIBUNAL. WE FIND THAT THE DECISION DATED 11-5-2012 IN THE CASE OF M.VISWESWARAYA CO-OPERATIVE BANK LTD., (SUPRA) IS E XACTLY ON THE VERY SAME ISSUE AND IT COVERS THE POINT AT ISSU E IN THE PRESENT CASE. ONE OF THE MEMBERS OF THIS BENCH IS ALSO A PA RTY TO THE ORDER CITED SUPRA. IN THE CASE OF M.VISWESWARAYA CO -OPERATIVE BANK LTD., (SUPRA), THE TRIBUNAL HAS ALLOWED THE CL AIM OF THE ASSESSEE BY OBSERVING AS UNDER: 08. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT FACTS AND MATERIALS ON RECORD. WE HAVE ALSO CONSIDERED THE FINDINGS OF THE VARIOUS BENCHES OF T HE TRIBUNAL, AS UNDER : (I) CATHOLIC SYRIAN BANK LTD V. ACIT (2010) 38 SOT 553 (COCH) : AN IDENTICAL ISSUE TO THAT OF THE SUBJECT MATTER UNDER CONSIDERATION HAD ARISEN BEFORE THE COCHIN BENCH. AFTER ANALYZING THE ISSUE IN DEPTH, THE BENC H HAS OBSERVED THAT WITH REGARD TO AMORTIZATION OF PREMIUM ON PURCHASE OF GOVERNMENT SECURITIES, IT WAS CLARIFIED THAT THIS WAS MADE AS PER THE PRUDENTIAL NORMS OF THE RBI. FOLLOWING THE TRIBUNAL DECISION IN THE ASSESSEE'S OWN CASE AND CONSIDERING THAT THE ASSESSEE BANK IS FOLLOWING ITA NO.1068/BANG/2010 PAGE 7 OF 12 CONSISTENT AND REGULAR METHOD OF ACCOUNTING SYSTEM, THERE IS NO JUSTIFICATION IN INTERFERING WI TH THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) ON THIS ISSUE OF AMORTIZATION OF PREMIUM ON GOVERNMENT SECURITIES. UNITED COMMERCIAL BANK V. CIT (1999) 156 CTR (SC) 380 ; (1999) 240 ITR 355 (SC) AND SOUTH INDIAN BANK LTD., (ITA NO.126/COCH/2004, DATED.___ SEPT, 2005 FOLLOWED.' (II) THE KHANAPUR CO-OP BANK LTD V. ITO ITA NO.141/PNJ/2011, DATED.8.9.2011 : THE HON'BLE BENCH OF PANAJI TRIBUNAL HAD RECORDED ITS FINDINGS THAT '6. LIKEWISE, THE PREMIUM AMORTIZED AT RS.1,78,098/- IS CLAIMED TO BE IN RESPECT OF SECURITIES HELD UNDER THE CATEGORY 'HELD TO MATURITY'. THE ASSESSING OFFICER HAS TAKEN THEM AS LONG TERM INVESTMENTS. IN OTHER WORDS, HE HAS ACCEPTED THE ASSESSEE'S CLAIM THAT THE SECURITI ES ARE 'HELD TO MATURITY'. THAT BEING SO AND HAVING REGARD TO THE CBDT INSTRUCTION NO.17 OF 2008 DATED.26.11.2008 AS REPRODUCED HEREIN ABOVE, THE PREMIUM PAID ON SUCH GOVERNMENT SECURITIES IS REQUIRED TO BE AMORTIZED OVER THE PERIOD REMAINING TO MATURITY ..........' (III) IN THE CASE OF CORPORATION BANK V. ACIT, M'LO RE IN ITA.112/BANG/2008(BANG), FOR THE ASSESSMENT YEAR 2004-05, THE EARLIER BENCH HAD ALSO HELD A SIMILAR VIEW. IN THE LIGHT OF THE ABOVE DISCUSSION AND THE CASE LAWS DISCUSSED SUPRA, TAKING INTO ACCOUNT THE TOTALITY OF THE FACTS AND MATERIALS, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE IS ENTITLED TO CLAIM THIS DEDUCTION AND HENCE WE ALLOW THE GROUNDS OF THE ASSESSEE RELATING TO THIS ISSUE. HENCE, FOLLOWING THE DECISION OF THIS TRIBUNAL CITE D SUPRA, WE ARE ALLOWING THE ASSESSEES APPEAL IN THIS CASE ALSO. ITA NO.1068/BANG/2010 PAGE 8 OF 12 14. FOLLOWING THE AFORESAID DECISION OF THE TRIBUNA L, WE HOLD THAT THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION ON ACCOUNT OF AMORTIZATION OF PREMIUM. GROUND NO.4 IS ACCORDINGLY ALLOWED. 15. GROUND NO.5 RAISED BY THE ASSESSEE READS AS FOL LOWS:- 5. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) I S NOT JUSTIFIED IN UPHOLDING THE DISALLOWANCE OF RS.85,35 ,000/- / BEING LOSS CLAIMED ON SALE OF SECURITIES UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. 16. THE ASSESSEE HAD ORIGINALLY PURCHASED GOVERNME NT SECURITIES GOL 7.46%-2017 FOR RS.5,86,35,000 WHICH WAS CATEGORIZED UNDER AVAILABLE FOR SALE (AFS) & HELD FOR TRADING (HFT). SINCE THE INV ESTMENT WAS MADE IN THE NATURE OF AFS/HFT, THE ASSESSEE CREATED DEPRECI ATION RESERVE ON THE SAME AT THE END OF EACH FINANCIAL YEAR BASED ON THE MARKET VALUE AS ON THE DATE OF CLOSURE OF ACCOUNTS FOR EACH YEAR AND ACCOR DINGLY CUMULATIVE BALANCE IN DEPRECIATION ON INVESTMENTS ACCOUNT AND MORE SPECIFICALLY FOR THE SECURITIES UNDER CONSIDERATION STOOD AT RS.85,3 5,000 AS ON 31.03.2006. 17. DURING THE YEAR UNDER APPEAL THE ASSESSEE SOLD THE SECURITIES FOR A NET CONSIDERATION OF RS.4,88,45,000 RESULTING INTO A LOSS OF RS.97,90,000. ALSO, DURING THE YEAR UNDER CONSIDERATION THE ASSES SEE EARNED PROFIT ON SALE OF KARNATAKA STATE FINANCIAL CORPORATION BANK SLR BONDS AMOUNTING TO RS.4,35,000/- AND CLAIMED A NET LOSS OF RS . 93 ,55,000. ITA NO.1068/BANG/2010 PAGE 9 OF 12 18. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER DISALLOWED THE CLAIM TO THE EXTENT OF RS.85,35,000 ON THE GROUND THAT THE ASSESSEE HAD ALREADY CLAIMED A DEPRECIATION ON THE SAME AND THE SAID DISALLOWANCE WAS UPHELD BY THE LD. CIT(A). 19. BEFORE US IT WAS SUBMITTED THAT THE DISALLOWANC E MADE BY THE AUTHORITIES BELOW ARE UNJUSTIFIED AND ERRONEOUS. IT WAS SUBMITTED THAT THE ASSESSEE WAS ELIGIBLE FOR CLAIM OF DEDUCTION U/S 80 P(2) OF THE ACT UP TO A.Y: 2006-07. BY WAY OF AMENDMENT TO SEC.80P OF THE ACT, SUB-SECTION (4) WAS INTRODUCED BY FINANCE ACT, 2006 W.E.F 01.04.200 7 THEREBY MAKING THE CO-OPERATIVE BANKS INELIGIBLE FOR CLAIM OF DEDUCTIO N U/S 80P(2) OF THE ACT FROM A.Y. 2007-08. IN THE LIGHT OF THE LAW AS IT S TOOD PRIOR TO THE AMENDMENT, THE LEARNED COUNSEL FOR THE ASSESSEE SUB MITTED THAT NOTWITHSTANDING THE FACT THAT THE ASSESSEE CLAIMED THE REDUCTION IN VALUE OF SECURITIES AS DEDUCTION IN THE PAST, SINCE THE ENTI RE INCOME OF THE ASSESSEE WAS EXEMPT U/S. 80P(2) OF THE ACT, THE CLAIM FOR D EDUCTION MADE IN THE EARLIER YEARS WAS SUPERFLUOUS AND INCONSEQUENTIAL. IT WAS FURTHER SUBMITTED THAT THE CLAIM MADE BY THE ASSESSEE IS IRRESPECTIVE OF THE SALE CONSIDERATION RECEIVED ON SALE OF SECURITIES AS THE RESERVE CREATED EARLIER IS ONLY SETTING ASIDE THE PROFITS OF THE CO-OPERATIVE BANK AS RESERVES TO MAKE GOOD FUTURE LOSSES IF ANY THAT MAY OCCUR TO THE BAN K. ITA NO.1068/BANG/2010 PAGE 10 OF 12 20. WE HAVE CONSIDERED THE SUBMISSION OF THE LEARNE D COUNSEL FOR THE ASSESSEE. IN THIS REGARD, WE FIND THAT THE ASSESSI NG OFFICER IN THE ORDER OF ASSESSMENT ON THE ABOVE ISSUE HELD AS FOLLOWS:- THE ASSESSEE HAD DEDUCTED AN AMOUNT OF RS. 93,55 ,000/- TOWARDS SALE OF SECURITIES FROM ITS TOTAL INCOME BE FORE ARRIVING AT THE NET PROFIT. WHEN THE ASSESSEES AUTHORISED REPR ESENTATIVE WAS ASKED TO EXPLAIN THE SAME, HE STATED THAT IT WA S LOSS ON SALE OF SECURITIES HELD FOR TRADE (HFT). WHEN THE ASSESSEE S AUTHORISED REPRESENTATIVE WAS ASKED THE AMOUNT OF INVESTMENTS MADE IN THE GOVERNMENT SECURITIES WHICH WERE SOLD DURING THE YE AR, AND THE DEPRECIATION ON THE SAME CLAIMED DURING THE EARLIER YEARS THE DETAILS ARE AS UNDER: VALUE OF INVESTMENT AS ON 31/03/2005 7.46% 2017 GOVT OF INDIA SECURITIES PURCHASE VALUE (18/09/2013) 58,635,000 LESS: DEPRECIATION AS ON 31/03/2006 8,535,000 ---------------- VALUE AS ON 31/03/2006 5,01,00,000 LESS: SALE PRICE OF THE SECURITIES 4,88,45,000 ----------------- LOSS 12,55,000 PROFIT FROM KSFC SLR BONDS 4,35,000 ---------------- NET LOSS 8,20,000 ---------------- FROM THE ABOVE IT IS CLEAR THAT THE ACTUAL LOSS ON SALE OF GOVT SECURITIES HELD FOR TRADE WAS RS.8,20,000/- AGAINST WHICH THE CLAIM WAS RS. 93,55,000/-. THEREFORE THE EXCESS CLA IM OF LOSS ON SALE OR GOVT SECURITIES (HFT) OF RS. 85,35,000/- IS DISALLOWED. ITA NO.1068/BANG/2010 PAGE 11 OF 12 21. WE ARE OF THE VIEW THAT THE CLAIM MADE BY THE A SSESSEE IS NOT IN ACCORDANCE WITH THE METHOD OF ACCOUNTING FOLLOWED B Y THE ASSESSEE IN THE MANNER IN WHICH THE TRANSACTIONS HAS BEEN RECORDED IN ITS BOOKS OF ACCOUNTS. ADMITTEDLY, ON THE VERY SAME SECURITY, T HE ASSESSEE HAD CLAIMED DEPRECIATION IN VALUE TO THE EXTENT OF RS.8 5,35,000 IN THE PAST. WHILE COMPUTING ITS LOSS ON SALE OF SECURITIES, THE ASSESSEE HAS NOT REDUCED THIS LOSS FROM THE COST WHILE COMPUTING THE LOSS. THE REASONING GIVEN BY THE ASSESSEE IS THAT IN THE EARLIER YEARS THE ASSESSEES INCOME WAS EXEMPT U/S. 80P(2)(A)(I) OF THE ACT AND BY REAS ON OF INSERTION OF SECTION 80P(4) FROM 1.4.2007, COOPERATIVE BANKS BEC AME INELIGIBLE TO CLAIM DEDUCTION OF ITS INCOME U/S. 80P(2)(A)(I) OF THE AC T. THE ASSESSEE THEREFORE ARGUES THAT DEDUCTION CLAIMED IN THE EARLIER YEARS DID NOT HAVE ANY TAX EFFECT AND THEREFORE THE VERY SAME SUM IS BEING CLA IMED AS DEDUCTION IN THE PRESENT ASSESSMENT YEAR. IN OUR VIEW, THIS CLA IM MADE BY THE ASSESSEE IS CONTRARY TO THE METHOD OF ACCOUNTING AD OPTED BY THE ASSESSEE. THE LAW IS WELL SETTLED THAT INCOME FROM BUSINESS H AS TO BE COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULARLY FOLLOWED BY THE ASSESSEE. THE CLAIM MADE BY THE ASSESSEE IS CONTRA RY TO THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE AND CANNOT BE A LLOWED. ALLOWING THE CLAIM OF THE ASSESSEE WOULD MEAN THAT SAME CLAIM IS ALLOWED TWICE. IT MAY BE TRUE THAT THE CLAIM ALLOWED IN THE PAST HAS NO T AX IMPLICATION. NEVERTHELESS, THAT CANNOT BE A GROUND TO ALLOW THE LOSS IN THE PRESENT ASSESSMENT YEAR, WHEN THE ASSESSEES INCOME IS TAXA BLE. WE ARE ITA NO.1068/BANG/2010 PAGE 12 OF 12 THEREFORE OF THE VIEW THAT THE CLAIM MADE BY THE AS SESSEE CANNOT BE ACCEPTED. CONSEQUENTLY GROUND NO.5 RAISED BY THE A SSESSEE IS DISMISSED. 22. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 9 TH DAY OF MAY , 2014 . SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASUDEVA N ) ACCOUNTANT MEMBER JUDICIAL MEMBE R BANGALORE, DATED, THE 9 TH MAY , 2014 . /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.