Asst. CIT, Panvel Circle, Raigad V. Alibaug Co-op Urban Bank Ltd., Raigad

ITA 1120/PUN/2013

• Counselvise Citation: 112024514 RSA 2013
• Duration Of Justice: 1 year(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 23-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S P WALIMBE
• Assessee Lawyers: SUBODH RATNAPARKHI
• Keywords: Capital asset; Depreciation; Cost of acquisition; Revenue expenditure
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE: SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 1120 / P N/ 20 1 3 ASSESSMENT YEAR : 200 8 - 09 ASSTT. COMMISSIONER OF INCOME TAX, PANVEL CIRCLE, PANVEL, DISTT. - RAIGAD VS. ALIBAUG CO - OP. URBAN BANK LTD., MAHARSHI KARVE ROAD, ALIBAUG, DISTT. - R A IGAD (APPELLANT) (RESPONDENT) PAN NO. AAAJA0261F APPELLANT BY: SHRI S.P. WALIMBE RESPONDENT BY: SHRI SUBODH RATNAPARKHI DATE OF HEARING : 26 - 05 - 2014 DATE OF PRONOUNCEMENT : 29 - 05 - 2014 ORDER PER R.S . PADVEKAR , JM : - THIS APPEAL IS FILED BY THE REVENUE CHALLENGING THE IMPUGNED ORDERS OF THE LD. CIT(A) - I, THANE DATED 0 8 - 02 - 2013 FOR THE A.Y. 200 8 - 09 . THE REVENUE HAS TAKEN THE FOLLOWING EFFECTIVE GROUND IN THE APPEAL: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) - I, THANE HAS ERRED IN APPRECIATING THE FACT THAT THE SECURITIES UNDER THE CATEGORIES OF HTM ARE IN THE NATURE OF CAPITAL ASSET AND HENCE PREM IUM PAID THEREON IS NOT ALLOWABLE EXPENDITURE. 2. THE FACTS WHICH ARE REVEALED FROM THE RECORD AS UNDER. THE ASSESSEE IS A CO - OPERATIVE BANK AND ENGAGED IN THE BUSINESS OF BANKING. THE ASSESSING OFFICER HAS OBSERVED THAT ON PERUSAL OF THE PROFIT AND L OSS ACCOUNT IT WAS NOTICED THAT THE BANK HAD CLAIMED AN EXPENDITURE OF RS.24,57,800/ - UNDER THE HEAD AMORTIZATION OF PREMIUM ON GOVT. SECURITIES. THE ASSESSING OFFICER ASKED THE ASSESSEE TO PROVE THE ALLOWABILITY OF SAID EXPENDITURE AS REVENUE EXPENDITURE DEBITED TO THE PROFIT. THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE 2 ITA NO. 1120/PN/2013, ALIBAUG CO - OP. URBAN BANK LTD., RAIGAD BANK PURCHASED GOVT. SECURITIES UNDER THE HELD TO MATURITY (HTM) CATEGORY, WHICH ARE STOCK IN TRADE AND REPRESENT THE EXCESS OF ACQUISITION COST OVER THE FACE VALUE, WHIC H IS AMORTIZED BY THE BANK AS PER RBI GUIDELINES. THE ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE BANK AS IN HIS OPINIO N THE PREMIUM ON THE SECURITIES IS AN EXPENDITURE WHICH IS CAPITAL IN NATURE AND HENCE, SAME WAS NOT ALLOWABLE U/S. 37(1) OF THE INCOME - TAX ACT. THE ASSESSING OFFICER, THEREFORE, DISALLOWED THE AMOUNT OF AMORTIZATION OF THE PREMIUM ON GOVT. SECURITIES DEBITED TO THE PROFIT AND LOSS ACCOUNT WHICH WAS TO THE EXTENT OF RS.24,57,800/ - AND MADE ADDITION TO THE INCOME OF THE ASSESSEE. THE ASSESSEE CARRIED THE ISSUE BEFORE THE LD. CIT(A) AND LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE. NOW THE REVENUE IS IN APPEAL BEFORE US. 3. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. THE LD. COUNSEL SUBMITS THAT THE IDENTICAL I SSUE HA S COME FOR THE CONSIDERATION BEFORE THE HON'BLE TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 2009 - 10 AND THE TRIBUNAL HAS DECIDED THE SAID ISSUE IN FAVOUR OF THE ASSESSEE DISMISSING THE APPEAL FILED BY THE REVENUE. THE ASSESSEE FILED THE COPY OF TH E TRIBUNAL ORDER IN ASSESSEES OWN CASE FOR THE A.Y. 2009 - 10 ITA NO. 2173/PN/2012 DATED 23 - 09 - 2013 WHICH IS PLACED ON RECORD. IN THE A.Y. 2009 - 10 THE IDENTICAL ISSUE HA S COME FOR THE CONSIDERATION BEFORE THE TRIBUNAL . T HE LD. CIT(A) HAS GIVEN THE RELIEF TO THE ASSESSEE AND AGAINST THAT THE REVENUE HAD COME IN APPEAL, THE TRIBUNAL DISMISSED THE APPEAL FILED BY THE REVENUE. THE OPERATIVE PART OF THE FINDINGS AND REASONS OF THE TRIBUNAL IS AS UNDER: 6. WE HAVE CONSIDERED THE ARGUMENTS MADE BY THE LD. DEPART MENTAL REPRESENTATIVE AND PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A). WE FIND AN IDENTICAL ISSUE HAD COME UP BEFORE THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. PUNE PEOPLES COOPERATIVE BANK LTD. WE FIND THE TRIBUNAL VIDE ITA NO .1413/PN/2011 ORDER DATED 08 - 08 - 2013 HAS REJECTED THE APPEAL FILED BY THE REVENUE WHEREIN THE CIT(A) HAD ALLOWED THE 3 ITA NO. 1120/PN/2013, ALIBAUG CO - OP. URBAN BANK LTD., RAIGAD CLAIM OF THE ASSESSEE ON ACCOUNT OF AMORTIZATION OF PREMIUM ON INVESTMENTS TO THE TUNE OF RS.45,67,178/ - . THE RELEVANT OBSERVATIONS OF THE TRIBUNAL READ AS UNDER: 8. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND AN IDENTICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN THE CASE OF NAHSIK MERCHANT COOPERATIVE BANK LTD. (SUPRA). WE FIND THE TRIBUNAL HAS DISCUSSED THE ISSUE AND DISMISSED THE GROUNDS RAISED BY THE REVENUE BY HOLDING AS UNDER : 4. A FTER GOING THROUGH RIVAL SUBMISSIONS AND MATERIAL 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 CLAIMING THE BENEFIT OF DEDUCTION U/S.80P(2)(A)(I) FROM THIS TOTAL INCOME. HOWEVER , THE COOPERATIVE SOCIETY SHOULD NOW BE ENTITLED TO BE ASSESSED AS NORMAL BANKING COMPANY. THE CLAUSE (4) INSERTED IN SECTION 80P HAS TAKEN AWAY THE BENEFIT OF THE ERSTWHILE DEDUCTION AVAILABLE TO COOPERATIVE SOCIETY IN CARRYING ON BUSINESS OF BANKING OR P ROVIDING CREDIT FACILITY TO ITS MEMBERS. THE NEW CLAUSE (4) INSERTED 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 SOCIETY OR PRIMARY COO PERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK'. 5. THE INTENTION OF THE PROVISION MAY BE DERIVED MORE PRECISELY FROM RELEVANT PARA 166 OF THE BUDGET SPEECH WHICH STATED THAT : 'CO - OPERATIVE BANKS, LIKE ANY OTHER BANK, ARE LENDING INSTITUTIONS AND SHOUL D PAY TAX ON THEIR PROFITS, PRIMARY AGRICULTURAL CREDIT SOCIETIES (PACS) AND PRIMARY COOPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK (PCARDB) STAND ON A SPECIAL FOOTING AND WILL CONTINUE TO BE EXEMPT UNDER SECTION 80P OF THE INCOME TAX ACT. HOWEVER, I PROPOSE TO EXCLUDE ALL OTHER CO - OPERATIVE BANKS FROM THE SCOPE OF THAT SECTION'. ACCORDINGLY, SECTION 80P IS TO BE AMENDED TO GIVE EFFECT TO THE ABOVE PROPOSAL. IT IS ALSO 4 ITA NO. 1120/PN/2013, ALIBAUG CO - OP. URBAN BANK LTD., RAIGAD PROPOSED TO AMEND SECTION 2(24) TO PROVIDE THAT PROFITS AND GAINS OF BUSINESS OF BAN KING (INCLUDING PROVIDING CREDIT FACILITIES) CARRIED ON BY A CO - OPERATIVE SOCIETY WITH ITS MEMBERS SHALL BE INCLUDED IN THE DEFINITION OF 'INCOME' (WITH EFFECT FROM 1ST APRIL, 2007)'. 6. COOPERATIVE BANK UNLIKE OTHER COMMERCIAL BANKS ARE SUBJECTED TO DUAL CONTROL FROM BOTH RBI AS WELL AS FROM STATE COOPERATIVE DEPARTMENT. THE ACCOUNTING TREATMENT FOR A COOPERATIVE BANK IS THEREFORE A RESULT OF GUIDELINES FROM BOTH THE CONTROLLING AUTHORITIES. ORDINARILY A DEDUCTION IS NOT AVAILABLE TO AN ASSESSEE UNLESS SP ECIFICALLY PROVIDED UNDER THE ACT. THIS IS IRRESPECTIVE OF ACCOUNTING TREATMENT PROVIDED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS. BUT AT THE SAME TIME IT WAS WELL SETTLED THAT DEDUCTION EXPRESSLY MENTIONED UNDER THE ACT ARE NOT EXHAUSTIVE AND PROFIT IS TO BE DERIVED ACCORDING TO ORDINARY COMMERCIAL PRINCIPLES. AS PER THE EXTANT RBI GUIDELINES DATED 01 - 07 - 2009 THE INVESTMENT PORTFOLIO OF THE BANKS IS REQUIRED TO BE CLASSIFIED UNDER 3 CATEGORIES VIZ., HELD THE MATURITY HTM), HELD FOR TRADING (HFT) AND AVAILA BLE FOR SALE (AFS). THE VALUE OF EACH KIND OF INVESTMENT IS TO BE DONE IN THE FOLLOWING MANNER: SR. NO. CLASSIFICATION VALUATION NORMS OF INVESTMENT. 1. HTM THESE ARE CARRIED AT ACQUISITION COST UNLESS THE COST IS MORE THAN THE FACE VALUE, IN WHICH CASE T HE 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. AF S 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 LE SS. 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 MARK ED TO MARKET AT MONTHLY OR AT MORE 5 ITA NO. 1120/PN/2013, ALIBAUG CO - OP. URBAN BANK LTD., RAIGAD 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 2008 DATED 26.11.2008, ON 'ASSESSMENT OF BANK - CHECK LIST FOR DEDUCTION, STATES AS UNDER: 'AS PER RBI GUIDELINES DATED I6TH 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). INVESTMENTS CLASSI FIED UNDER HTM CATEGORY NEED NOT BE MARKED TO MARKET AND ARE CARRIED AT ACQUISITION COST UNLESS THESE 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 F ORMING STOCK IN TRADE OF THE BANK, THE DEPRECIATION/ APPRECIATION IS TO BE AGGREGATED SCRIP WISE AND ONLY NET DEPRECIATION, IF ANY, IS REQUIRED TO BE PROVIDED FOR IN THE ACCOUNTS. THE LATEST GUIDELINES OF THE RBI MAY BE REFERRED TO FOR ALLOWING ANY SUCH CL AIMS.' 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 AMORTISED OVER THE PERIOD TILL MATURITY 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 CATHOLIC SYRIAN BANK LTD. VS. ACIT THAT AMORTIZATION ON PURCH ASE OF GOVERNMENT SECURITIES WAS MADE AS PER PRUDENTIAL NORMS OF THE RBI AND SAME WAS ALLOWABLE DEDUCTION. IN VIEW OF ABOVE, ASSESSEE WAS JUSTIFIED IN CONTENDING FOR AMORTIZATION OF PREMIUM PAID IN EXCESS OF FACE VALUE OF SECURITIES HELD TO MATURITY (HTM) CATEGORY OR PERIOD REMAINING TILL MATURITY WAS FOUND REASONABLE BY THE CIT(A). ACCORDINGLY ADDITION OF RS.17,91,659/ - MADE BY THE ASSESSING OFFICER BY DISALLOWING AMOUNT TOWARDS AMORTIZATION OF GOVERNMENT SECURITIES (HMT) WAS DELETED. THIS REASONED FACT UAL 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. 6 ITA NO. 1120/PN/2013, ALIBAUG CO - OP. URBAN BANK LTD., RAIGAD 8.1 RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE AGAINST THE ABOVE CITED DECISION WE FIND NO INFIRMITY IN THE ORDER OF THE LD.CIT(A) DELETING THE ADDITION. ACCORDINGLY, THE ORDER OF THE LD.CIT(A) IS UPHELD AND THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 6.1 RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE BY THE LD. DEPARTMENTAL REPRESENTATIVE WE FIND NO INFIRMITY IN THE ORDER OF THE LD.CIT(A). ACCORDINGLY, THE SAME IS UPHELD AND THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED 4. WE, THEREFORE, FOLLOWING THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 2009 - 10, CONFIRM THE ORDER OF TH E LD. CIT(A) ON THE ISSUE OF AMORTIZATION OF THE PREMIUM ON GOVT. SECURITIES HELD UNDER THE CATEGORY OF HTM AND GROUND TAKEN BY THE REVENUE IS DISMISSED. 5. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 29 - 05 - 20 1 4 SD/ - SD/ - ( R.K. PANDA ) ( R.S. PADVEKAR ) ACCOUNTANT MEMBER JUDICIAL MEMBER RK /PS PUNE , DATED : 29 TH MAY, 20 1 4 COPY TO 1 ASSESSEE 2 DEPARTMENT 3 THE CIT(A) - I, THANE 4 THE CIT - I, THANE 5 THE DR, I TAT, B BENCH, PUNE . 6 GUARD FILE. //TRUE COPY// BY ORDER PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL PUNE