DCIT, Bangalore V. M/s National Co-operative Bank Ltd., Bangalore

ITA 1317/BANG/2013

• Counselvise Citation: 131721114 RSA 2013
• Duration Of Justice: 1 year(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 23-09-2014
• Assessment Year: 2010-2011
• Appeal Filed On: 05-09-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P DHIVAHAR J
• Keywords: Depreciation; Cost of acquisition; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A : BANGALORE BEFORE SHRI RAJPAL YADAV , JUDICIAL MEMBER A ND SHRI JASON P.BOAZ, ACCOUNTANT MEMBER ITA NO. 13 17 / BANG/20 13 (ASSESSMENT YEAR: 2010 - 11 ) DEPUTY COMMISSIONER OF INCOME - TAX , CIRCLE 3(1) , BANGALORE . APPELLANT VS. NATIONAL CO - OPERATIVE BANK LTD., 73/1, GANDHI BAZAAR MAIN ROAD, BANGALORE. RESPONDENT PAN:AA ABT0126C APPELLANT BY: SHRI P.DHIVAHAR, JCIT(DR) RESPONDENT BY: NONE. DATE OF HEA RING : 23 - 09 - 2014 . DATE OF PRONOUNCEMENT: 26 - 09 - 2014 . O R D E R PER JASON P BOAZ, AM : THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A) - II, BANGALORE, DATED 19/6/2013 FOR ASSESSMENT YEAR 2010 - 11. 2. THE FACTS OF THE CASE, BRIEFLY, ARE AS UNDER: - 2.1 THE ASSESSEE, A CO - OPERATIVE BANK REGISTERED UNDER THE CO - OPERATIVE SOCIETIES ACT, FILED ITS RETURN OF INCOME FOR ITA NO. 13 17 /BANG/20 13 NATIONAL CO - OPERATIVE BANK LTD., PAGE 2 OF 7 ASSESSMENT YEAR 2010 - 11 ON 14/10/2010 ADMITTING INCOME OF RS.38,71,695/ - . THE RETURN WAS PROCESSED U/S 143(1) OF THE INCOME - TAX ACT, 1961[HEREINAFTER REFERRED TO AS 'THE ACT'] AND THE CASE WAS SUBSEQUENTLY TAKEN UP FOR SCRUTINY. THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT BY ORDER DATED 31/12/2012 WHEREIN THE INCOME OF THE ASSESSEE WAS DETERMINED AT RS.1,1 1,60,510/ - AS AGAINST THE RETURNED INCOME OF RS.38,71,695/ - DUE TO THE DISALLOWANCE OF THE ASSESSEE S CLAIMS FOR DEDUCTION OF THE PROVISION FOR BAD AND DOUBTFUL DEBTS AND AMORTIZATION OF PREMIUM ON INVESTMENTS HELD IN THE CATEGORY OF HELD TO MATURITY ( H TM FOR SHORT). 2.2 AGGRIEVED BY THE ORDER OF ASSESSMENT FOR ASSESSMENT YEAR 2010 - 11 DATED 31/12/2012, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) - II, BANGALORE. THE LD.CIT(A) DISPOSED OF THE ASSESSEE S APPEAL BY ORDER DATED 19/6/2013 ALLOWING T HE ASSESSEE PARTIAL RELIEF. 3. REVENUE BEING AGGRIEVED BY THE ORDER OF THE CIT(A) - II, BANGALORE FOR ASSESSMENT YEAR 2010 - 11 DATED 19/6/2013, IS IN APPEAL BEFORE THIS TRIBUNAL RAISING THE FOLLOWING GROUNDS: 1. THE ORDER OF LD.CIT(A) IS CLEARLY OPPOSED TO LAW AS FAR AS THE FINDINGS ARE PERVERSE, CONTRARY TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND HENCE NOT SUSTAINABLE. ITA NO. 13 17 /BANG/20 13 NATIONAL CO - OPERATIVE BANK LTD., PAGE 3 OF 7 2. THE LD.CIT(A) ERRED IN ALLOWING AMORTIZATION OF PREMIUM ON SECURITIES STATED AS HELD TO MATURITY WITHOUT APPRECIATING THAT THIS ISSUE IS BEING CONTESTED BY THE DEPARTMENT IN FURTHER APPEALS IN SOME CASES ON THE GROUND THAT IT DOES NOT REPRESENT THE REVENUE EXPENDITURE AND SUCH DEDUCTION WILL BE ALLOWED AS DEDUCTION IN THE YEAR OF SALE/REDEMPTION OF THOSE SECURITIES AND THUS NO T REACHED FINALLY . IN RESPONSE TO THE NOTICE OF HEARING SHRI MANASA UDUPA, PARTNER IN M/S.H.R.SURESH & CO., CHARTERED ACCOUNTANTS, FILED AN APPLICATION FOR ADJOURNMENT. ON PERUSAL OF THE RECORD WITH THE ASSISTANCE OF THE LEARNED DEPARTMENTAL REPRESENTA TIVE, WE FIND THAT THE ISSUE INVOLVED IN THE APPEAL IS COVERED IN FAVOUR OF THE ASSESSEE. THEREFORE, WE DID NOT SEE ANY REASON TO ADJOURN THE HEARING. IN THE APPLICATION, SHRI MANASA UDUPA CONTENDED THAT HE IS TRAVELLING IN CONNECTION WITH TAX AUDITS AND COMPANY RETURN FILING. IN OUR OPINION, IT IS NOT SUCH AN IMPORTANT ISSUE WHICH SHOULD BE PREFERRED IN PLACE OF CONTESTING THE APPEAL BEFORE THE TRIBUNAL. THEREFORE, THE APPLICATION IS REJECTED. WE PROCEED TO DECIDE THE APPEAL EX - PARTE QUA THE ASSESSEE. 4. THE GROUND RAISED AT SL.NO.1 IS GENERAL IN NATURE AND THEREFORE NO ADJUDICATION IS CALLED FOR THEREON. 5.1 THE GROUND RAISED AT SL.NO.2 IS THE ONLY ISSUE OF DISPUTE BEFORE US FOR ADJUDICATION. IN THIS GROUND, REVENUE CONTENDS THAT THE LD.CIT(A) W AS WRONG IN ALLOWING THE ASSESSEE S CLAIM FOR AMORTIZ ATION OF PREMIUM ON SECURITIES IN THE CATEGORY HTM SINCE ITA NO. 13 17 /BANG/20 13 NATIONAL CO - OPERATIVE BANK LTD., PAGE 4 OF 7 THE ISSUE HAS NOT REACHED FINALITY AS THE DEPARTMENT IS CONTESTING THIS ISSUE AT HIGHER APPELLATE FORUMS. THE LD. DR WAS HEARD IN SUPPORT OF THE GROUND RAISED. 5. 2 WE HAVE CAREFULLY CONSIDERED THE MATERIAL ON RECORD, INCLUDING THE JUDICIAL DECISIONS . ON PERUSAL OF THE LD.CIT(A) S ORDER, W E FIND THAT SIMILAR ISSUE OF CLAIM FOR DEDUCTION ON ACCOUNT OF AMORTIZATION OF PREMIUM ON SECURITIES WAS CONSIDERED BY A CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE S CASE FOR ASSESSMENT YEARS 2007 - 08 AND 2008 - 09 AND HELD THE ISSUE IN FAVOUR OF THE ASSESSEE. THE RELEVANT PORTION OF THE ORDER OF THE CO - ORDINATE BENCH IN ITA NO.1090/BANG/2010 AND ITA NO .7/BANG/2011 DATED 12/5/2012 AT PARAS 4.6 AND 4.6.1 IS EXTRACTED HEREUNDER: 4.6 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND DILIGENTLY PERUSED THE RELEVANT CASE RECORDS. WE HAVE ALSO DULY PERUSED THE FINDINGS OF VARIOUS BENCHES OF THE TRIB UNALS WHICH ARE CONSIDERED 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 BENCH H AS 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 ASSESSEE S OWN CASE) AND CONSIDERING THAT THE ASSE SSEE BANK IS FOLLOWING CONSISTENT AND REGULAR METHOD OF ACCOUNTING SYSTEM, THERE IS NO JUSTIFICATION IN INTERFERING WITH THE ORDER OF THE CIT (A) ON THIS ISSUE OF AMORTIZATION OF PREMIUM ON GOVERNMENT SECURITIES. UNITED COMMERCIAL BANK V. CIT (1999) 156 CT R (SC) 380; (1999) 240 ITR 355 (SC) AND SOUTH INDIAN BANK LTD (ITA NO.126/COCH/2004 DT. 219TH SEPT. 2005 FOLLOWED. 9 ITA NOS.1090 & 07(B)/2011 ITA NO. 13 17 /BANG/20 13 NATIONAL CO - OPERATIVE BANK LTD., PAGE 5 OF 7 (II) THE KHANAPUR CO - OP BANK LTD V. ITO ITA NO.141/PNJ/2011 DATED: 8.9.2011: THE HON BLE BENCH OF PANAJI T RIBUNAL 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 SECURITIES 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 IN ITA NO.112/BANG/2008 FOR THE ASSESSMENT YEAR 2004 - 05, THE EARLIER BENCH HAD ALSO HELD A SIMILAR VIEW. 4.61 TAKING INTO ACCOUNT THE TOTALITY OF T HE ISSUE AS DISCUSSED ABOVE AND IN CONFORMITY WITH THE FINDINGS OF THE HON BLE BENCHES OF THE TRIBUNALS CITED SUPRA, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION. IT IS ORDERED ACCORDINGLY. 5.3 FOLLOWING THE ABOVE MENTIONED DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE S OWN CASE FOR ASSESSMENT YEARS 2007 - 08 AND 2008 - 09 IN ITA NO.1090/BANG/2010 AND ITA NO.7/BANG/2011 DATED 17/5/2012, WE HOLD THAT THE ASSESSEE IS ENTITLED FOR AMORTIZATION OF THE PREMIUM ON INVESTMENT IN SECURITIES HELD IN THE HELD TO MATURITY CATEGORY . THERE IS NO DISPUTE WITH REGARD TO THE PROPOSITION THAT PREMIUM PAID BY THE ASSESSEE ON PURCHASE OF SECURITIES HELD UNDER THE CATEGORY HELD TO MATURITY IS TO BE AMORTIZED BEC AUSE THE CBDT HAS ALSO ISSUED A CIRCULAR IN THIS CONNECTION. THE LD.CIT(A) HAS FOLLOWED THE ORDER OF THE ITAT FOR EARLIER YEAR. THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM OF THE ASSESSEE BY TREATING IT AS A CAPITAL EXPENDITURE. THE LD. FIRST APPELLAT E AUTHORITY ITA NO. 13 17 /BANG/20 13 NATIONAL CO - OPERATIVE BANK LTD., PAGE 6 OF 7 HAS GIVEN AN ADDITIONAL DIRECTION WHEREBY AMORTIZATION WOULD BE FOR A PERIOD OF 5 YEARS BUT SOURCE OF THIS DIRECTION IS NOT DISCERNIBLE. THE CIRCULAR OF THE BOARD BEARING NO.17/2008 DATED 26 - 11 - 2008 IN THIS RESPECT READ AS UNDER: AS PER RBI GUIDELINES DATED 16.10.2000, 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 CLASSIFIED UNDER HTM CATEGORY NEED NOT TO B E MARKED TO MARKET AND ARE CARRIED AT ACQUISITION COST UNLESS THESE ARE MORE THAN THE FACE VALUE, IN WHICH CASE THE PREMIUM SHOULD BE AMORTIZED OVER THE PERIOD REMAINING TO MATURITY. IN THE CASE OF HFT AND AFS SECURITIES FORMING STOCK IN TRADE OF THE BANK, THE DEPRECIATION 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 CLAIM . A PERUSAL OF THE CIRCULAR REVEALS THAT IT PROVIDED FOR AMORTIZATION DURING THE PERIOD SECURITIES ARE HELD BY THE ASSESSEE. THEREFORE, WE MODIFY THE DIRECTION OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO VERIFY THE PERIOD OF INVESTMENT AND THEN PERMIT THE ASSESSEE TO AMORTIZE THE PREMIUM DUR ING THAT PERIOD. IN VIEW OF THE ABOVE, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. 6. IN THE RESULT, REVENUE S APPEAL IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 26 TH SEPTEMBER , 2014. SD/ - SD/ - ( RAJPAL YADAV ) (JASON P BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMBER EKSRINIVASULU ITA NO. 13 17 /BANG/20 13 NATIONAL CO - OPERATIVE BANK LTD., PAGE 7 OF 7 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME - TAX APPEL LATE TRIBUNAL BANGALORE .