Asst. CIT, Circle-2, Kolhapur V. The Ratnakar Bank Ltd., Kolhapur

ITA 1080/PUN/2012

• Counselvise Citation: 108024514 RSA 2012
• Duration Of Justice: 1 year(s) 6 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 11-11-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 28-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K MODI
• 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 NOS.1080 & 2384/PN/2012 (A.YS. 2008-09 & 2009-10) ADDL. CIT, RANGE-2, KOLHAPUR APPELLANT VS. THE RATNAKAR BANK LTD., 179, E WARD, MAHAVEER SHAHU MARKET YARD, KOLHAPUR PAN: AABCT3335M RESPONDENT APPELLANT BY : SHRI A.K. M ODI RESPONDENT BY : SHRI NIK HIL PATHAK DATE OF HEARING: 29.11.2013 DATE OF ORDER : 29.11.2013 ORDER PER SHAILENDRA KUMAR YADAV, J.M: BOTH THESE APPEALS PERTAINS TO SAME ASSESSEE FOR A .Y. 2008- 09 AND 2009-10 FILED BY THE REVENUE, SO THEY WERE H EARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. IN ITA NO.1080/PN/2012, THE REVENUE HAS RAISED T HE FOLLOWING COMMON GROUNDS IN BOTH THE APPEALS. (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT(A) HAS ERRED IN TREATING THE DEDU CTION CLAIMED BY THE ASSESSEE TOWARDS AMORTIZATI ON OF EXPENSES AMOUNTING TO RS.4,02,70,785/- AS CORRECT T HEREBY 2 ALLOWING THE APPEAL OF THE ASSESSEE, WHEREAS THE AS SESSING OFFICER HAS RIGHTLY ADDED BACK THE SAME TO THE TOTA L INCOME. (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT (A) HAS ERRED IN IGNORING THE FACT THA T THE APPEAL ON THE SAME ISSUE FOR A.Y.2006-07 WAS DISMISSED BY HIS PREDECESSOR BASED ON INSTRUCTION NO. 17 DATED 26.11 .2008. (3) THE APPELLANT PRAYS THAT THE ORDER OF THE COMMISSIO NER OF INCOME TAX (APPEALS), KOLHAPUR BE VACATED AND THAT OF (4) THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, RA ISED, ANY OF THE ABOVE, OR ANY OTHER GROUNDS RAISED. 3. IN ITA NO.2384/PN/2012, THE REVENUE HAS RAISED T HE FOLLOWING COMMON GROUNDS IN BOTH THE APPEALS. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT (A), ERRED IN ALLOWING THE CLAIMS OF ASSESSEE R EGARDING DEPRECIATION ON INVESTMENT IN GOVERNMENT SECURITIES AND AMORTIZATION OF PREMIUM PAID ON GOVERNMENT SECURITI ES PURCHASED IN ACCORDANCE WITH THE RESERVE BANK OF IN DIA GUIDELINES AND MASTER CIRCULAR ON INVESTMENT ISSUED BY RESERVE BANK OF INDIA ON 02.07.2006 WHICH, IN FACT, DO NOT SUPERSEDE THE PROVISIONS OF INCOME TAX ACT AND ARE NOT BINDING ON THE DEPARTMENT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN ALLOWING DEPRECIATION ON INVESTMENT IN GOVERNMENT SECURITIES WHICH CAN BE CLAIMED ONLY ON BUSINESS ASSETS AND NOT ON INVESTMENT IGNORING THE DEPARTMENT'S CONSISTENT STAND THAT DEPRECIATION IN VALUE OF SECURITIES IS ALLOWABLE IN CASES WHERE SECURITIES A RE HELD AS STOCK IN TRADE AND NOT AS CAPITAL INVESTMENT IN THE FORM OF HTM. 3. THE APPELLANT PRAYS THAT THE ORDER OF THE COMMISSIO NER OF INCOME TAX (APPEALS), KOLHAPUR BE VACATED AND TH AT OF THE ASSESSING OFFICER BE RESTORED. 4. THE APPELLANT CRAVES RIGHT TO ADD, ALTER, AMEND ANY OR ALL GROUNDS DURING HEARING OF APPEAL. 4. IN A.Y. 2008-09, THE ONLY ISSUE IS WITH REGARD TO DEDUCTION CLAIMED BY ASSESSEE TOWARDS AMORTIZATION EXPENSES A MOUNTING RS.4,02,70,785/-. AT THE OUTSET OF HEARING, LEARNE D AUTHORIZED 3 REPRESENTATIVE POINTED OUT THAT THIS ISSUE IS COVER ED IN FAVOUR OF ASSESSEE BY THE ORDER OF ITAT, PUNE BENCH IN THE CA SE OF NASHIK MERCHANTS CO-OPERATIVE BANK LTD., IN ITA NO.1254/PN /2011, WHEREIN THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOU R OF THE ASSESSEE BY OBSERVING AS UNDER: 4. AFTER GOING THROUGH RIVAL SUBMISSIONS AND MATER IAL 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 B ANKS FOR CLAIMING THE BENEFIT OF DEDUCTION U/S.80P(2)(A)(I) FROM THIS TOTAL INCOME. HOWEVER, THE COOPERATIVE SOCIETY SHOU LD NOW BE ENTITLED TO BE ASSESSED AS NORMAL BANKING COMPAN Y. THE CLAUSE (4) INSERTED IN SECTION 80P HAS TAKEN AWAY T HE BENEFIT OF THE ERSTWHILE DEDUCTION AVAILABLE TO COOPERATIVE SOCIETY IN CARRYING ON BUSINESS OF BANKING OR PROVIDING CREDIT FACILITY TO ITS MEMBERS. THE NEW CLAUSE (4) INSERTED BY THE FI NANCE ACT, 2006 W.E.F. 01-04-2007 READS AS UNDER : THE PROVISION OF THE SECTION WAS NOT IN RELATION T O 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 SPEE CH WHICH STATED 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 UN DER SECTION 80P OF THE INCOME TAX ACT. HOWEVER, I PROPOSE TO E XCLUDE ALL OTHER CO-OPERATIVE BANKS FROM THE SCOPE OF THAT SEC TION. ACCORDINGLY, SECTION 80P IS TO BE AMENDED TO GIVE E FFECT TO THE ABOVE PROPOSAL. IT IS ALSO PROPOSED TO AMEND SECTI ON 2(24) TO PROVIDE THAT PROFITS AND GAINS OF BUSINESS OF BANKI NG (INCLUDING PROVIDING CREDIT FACILITIES) CARRIED ON BY A CO- OPERATIVE SOCIETY WITH ITS MEMBERS SHALL BE INCLUDE D IN THE DEFINITION 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 4 COOPERATIVE BANK IS THEREFORE A RESULT OF GUIDELINE S FROM BOTH THE CONTROLLING AUTHORITIES. ORDINARILY A DEDUCTIO N IS NOT AVAILABLE TO AN ASSESSEE UNLESS SPECIFICALLY PROVID ED UNDER THE ACT. THIS IS IRRESPECTIVE OF ACCOUNTING TREATME NT PROVIDED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS. BUT AT THE SAME TIME IT WAS WELL SETTLED THAT DEDUCTION EXPRESSLY M ENTIONED UNDER THE ACT ARE NOT EXHAUSTIVE AND PROFIT IS TO B E DERIVED ACCORDING TO ORDINARY COMMERCIAL PRINCIPLES. AS PER THE EXTANT RBI GUIDELINES DATED 01-07-2009 THE INVESTME NT PORTFOLIO OF THE BANKS IS REQUIRED TO BE CLASSIFIED UNDER 3 CATEGORIES VIZ., HELD THE MATURITY HTM), HELD FOR T RADING (HFT) AND AVAILABLE FOR SALE (AFS). THE VALUE OF EACH KIND OF INVESTMENT IS TO BE DONE IN THE FOLLOWING MANNER : SR.NO. CLASSIFICATION 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. 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 LI ST FOR DEDUCTION, STATES AS UNDER: 5 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 T HESE ARE MORE THAN THE FACE VALUE, IN WHICH CASE THE PREMIUM SHOULD BE AMORTISED OVER THE PERIOD REMAINING TO MATURITY. IN THE CASE OF HFT AND AFS SECURITIES FORMING STOCK IN TRA DE OF THE BANK, THE DEPRECIATION/APPRECIATION IS TO BE AGGREG ATED SCRIP WISE AND ONLY NET DEPRECIATION, IF ANY, IS REQUIRED TO BE PROVIDED FOR IN THE ACCOUNTS. THE LATEST GUIDELINE S 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 EXC ESS OF FACE VALUE OF INVESTMENTS CLASSIFIED UNDER HTM CATE GORY WHICH HAS BEEN AMORTISED OVER THE PERIOD TILL MATUR ITY IS ALLOWABLE AS REVENUE EXPENDITURE SINCE THE CLAIM IS AS PER RBI GUIDELINES AND CBDT ALSO HAS DIRECTED TO ALLOW SUCH PREMIUM. IT HAS ALSO BEEN HELD IN THE CASE OF CATH OLIC SYRIAN BANK LTD. VS. ACIT THAT AMORTISATION ON PURC HASE OF GOVERNMENT SECURITIES WAS MADE AS PER PRUDENTIAL NO RMS OF THE RBI AND SAME WAS ALLOWABLE DEDUCTION. IN VIEW OF ABOVE, ASSESSEE WAS JUSTIFIED IN CONTENDING FOR AMO RTISATION OF PREMIUM PAID IN EXCESS OF FACE VALUE OF SECURITI ES HELD TO MATURITY (HTM) CATEGORY OR PERIOD REMAINING TILL MA TURITY WAS FOUND REASONABLE BY THE CIT(A). ACCORDINGLY AD DITION OF RS.17,91,659/- MADE BY THE ASSESSING OFFICER BY DIS ALLOWING AMOUNT TOWARDS AMORTISATION OF GOVERNMENT SECURITIE S (HMT) WAS DELETED. THIS REASONED FACTUAL AND LEGAL FINDING OF 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. NOTHING CONTRARY WAS BROUGHT TO OUR KNOWLEDGE ON B EHALF OF REVENUE. FACTS BEING SIMILAR, SO FOLLOWING THE SAM E REASONING, ASSESSING OFFICER IS DIRECTED TO ALLOW RS.4,02,70,7 85/- FOR A.Y 2008-09 AND RS.3,17,32,501/- FOR A.Y. 2009-10 ON AC COUNT OF AMORTIZATION EXPENSES AS CLAIMED BY ASSESSEE. AS S TATED ABOVE, THIS VIEW IS FORTIFIED BY THE DECISION OF ITAT, PUN E BENCH IN ITA 6 NO.1254/PN/2011 IN THE CASE OF NASHIK MARCHANT COOP ERATIVE BANK (SUPRA). 5. IN THE RESULT, BOTH THE APPEALS OF REVENUE ARE D ISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS THE DAY 29 TH OF NOVEMBER, 2013. SD/- SD/- (G.S. PANNU) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 29 TH NOVEMBER 2013 GCVSR COPY TO:- 1) DEPARTMENT 2) ASSESSEE 3) THE CIT(A), KOLHAPUR 4) THE CIT, KOLHAPUR 5) THE DR, B BENCH, I.T.A.T., PUNE. 6) GUARD FILE BY ORDER //TRUE COPY// SENIOR PRIVATE SECRETARY, I.T.A.T., PUNE