Asst. Comm. of Income-tax, Circle-4, Pune V. Pune Peoples Co.op. Bank Ltd, Pune

ITA 1413/PUN/2011

• Counselvise Citation: 141324514 RSA 2011
• Duration Of Justice: 1 year(s) 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 06-08-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 11-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y K BHASKAR
• Assessee Lawyers: SUNIL PATHAK
• Keywords: Capital asset; Depreciation; Cost of acquisition; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 1413/PN/2011 (ASSTT.YEAR : 2008-09) ACIT, CIRCLE-4, A WING, 2 ND FLOOR, PMT COMMERCIAL COMPLEX, SHANKERSET ROAD, SWARGATE, PUNE-411037 .. APPELLANT VS. PUNE PEOPLES COOPERATIVE BANK LTD., 606, SADASHIV PETH, NEAR JAIHIND COLLECTION, LAXMI ROAD, PUNE. .. RESPONDENT PAN NO. AAAAP 6104H APPELLANT BY : SHRI Y.K. BHASKAR RESPONDENT BY : SHRI SUNIL PATHAK & SHRI SUHAS BORA DATE OF HEARING : 06-08-2013 DATE OF PRONOUNCEMENT : 08-08-2013 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 10-08-2011 OF THE CIT(A) II, PUNE RELATING TO ASS ESSMENT YEAR 2008-09. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A COOPERATIVE BANK ENGAGED IN THE BUSINESS OF BANKING ACTIVITIES. DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICE D THAT THE ASSESSEE HAS CLAIMED EXPENSES ON ACCOUNT OF AMORTIZATION OF PREM IUM ON INVESTMENTS TO THE TUNE OF RS.45,67,178/- IN THE PROFIT AND LOSS ACCOUNT. ON BEING QUESTIONED BY THE ASSESSING OFFICER TO JUSTIFY THE SAME THE ASSESSEE 2 EXPLAINED THAT AS PER BANKING REGULATION ACT AND GU IDELINES OF RBI, INVESTMENT HELD IN GOVERNMENT SECURITIES ARE TO BE CATEGORISED AS PER THE PRINCIPLES AND GUIDELINES OF RBI AND ANY PREMIUM PA ID ON ACQUISITION OF SUCH INVESTMENT IS ALLOWABLE ON PRO-RATA BASIS. RE FERRING TO THE PROVISIONS OF SECTION 36(III)(A) AND 37 OF THE INCOME TAX ACT IT WAS ARGUED THAT SUCH AMORTIZATION WAS NOT A CAPITAL EXPENDITURE. IT WAS EXPLAINED THAT THE EXPENDITURE WAS INCURRED DURING THE COURSE OF CARRY ING ON BANKING ACTIVITY BY THE ASSESSEE. THEREFORE, AS PER BANKING REGULAT ION ACT INVESTMENT WAS PART OF BANKING BUSINESS AND THE EXPENDITURE WAS AL LOWABLE AS DEDUCTION BEING REVENUE IN NATURE. 3. HOWEVER, THE AO WAS NOT CONVINCED WITH THE ARGUM ENTS ADVANCED BY THE ASSESSEE. HE OBSERVED THAT THE DIRECTIVES OF R BI CONCERNING MAINTENANCE AND VALUATION OF SECURITIES BY THE BANK S ARE CONTAINED IN THE MASTER CIRCULAR UPTO 30-06-2006 WHICH PRESCRIBES TH E FOLLOWING 3 CATEGORIES OF SECURITIES : I. AVAILABLE FOR SALE (AFS) II. HELD FOR TRADING (HFT) III. HELD TO MATURITY (HTM) 3.1 THE ASSESSING OFFICER DISCUSSED THE ABOVE 3 CAT EGORIES IN DETAIL AND CAME TO THE CONCLUSION THAT THE SECURITIES ON WHICH PREMIUM HAS BEEN PAID, I.E. HTM WERE CAPITAL ASSETS. HE ACCORDINGLY DISAL LOWED AN AMOUNT OF RS.45,67,178/- ON ACCOUNT OF AMORTIZATION OF PREMIU M ON INVESTMENTS HOLDING THE SAME TO BE CAPITAL IN NATURE. 3 4. IN APPEAL THE LD.CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOWING VARIOUS JUDICIAL DECISIONS. HE FURTHER N OTED THAT CBDT CIRCULAR NO.17 DATED 26-11-2008 STATES THAT THE INVESTMENTS CLASSIFIED UNDER HTM CATEGORY NEED NOT BE MARKED TO MARKET AND COULD BE CARRIED AT ACQUISITION COST UNLESS IT WAS MORE THAN THE FACE VALUE, IN SUC H CASE PREMIUM SHOULD BE AMORTIZED OVER THE PERIOD REMAINING TO THE MATURITY . 5. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVE NUE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME -TAX (APPEALS) IS CONTRARY TO LAW AND TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) GROSSLY ERRED IN ALLOWING THE ASSESSEE'S APPEAL INSTEAD OF CONFIRMIN G THE ASSESSING OFFICER'S ORDER. 3. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) GROSSLY ERRED IN HOLDING THAT THE AMORTIZATION OF THE PREMIUM PAID O N SECURITIES WAS AN ALLOWABLE EXPENDITURE U/S 37 OF THE INCOME-TAX ACT, 1961. 4. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) GROSSLY ERRED IN FAILING TO APPRECIATE THAT THE SECURITIES HELD BY T HE ASSESSEE FALLING IN THE HTM CATEGORY WERE CAPITAL ASSET AND, THEREFORE, WER E SUBJECT TO CAPITAL GAINS OR LOSS AT THE TIME OF REDEMPTION AND THE PRE MIUM PAID ON THESE SECURITIES, BY NO MEANS, WAS AN EXPENDITURE OF REVE NUE NATURE. 5. FOR THESE AND SUCH OTHER GROUNDS AS MAY BE URG ED AT THE TIME OF HEARING, THE ORDER OF THE LEARNED CIT (APPEALS) MAY BE VACATED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 6. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AME ND ANY OR ALL THE GROUNDS OF APPEAL. 6. THE LD. DEPARTMENTAL REPRESENTATIVE HEAVILY RELI ED ON THE ORDER OF THE ASSESSING OFFICER. 4 7. THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER H AND WHILE SUPPORTING THE ORDER OF THE CIT(A) SUBMITTED THAT THE ISSUE ST ANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE PUNE BENCH OF T HE TRIBUNAL IN THE CASE OF DCIT VS. NASHIK MERCHANT COOPERATIVE BANK LTD. VIDE ITA NO.1254/PN/2011 AND CO NO.96/PN/2011 ORDER DATED 29 -04-2013 FOR THE A.Y. 2007-08. HE ACCORDINGLY SUBMITTED THAT THE GR OUNDS RAISED BY THE REVENUE SHOULD BE DISMISSED. 8. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH 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 IS SUE 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 DI SMISSED THE GROUNDS RAISED BY THE REVENUE BY HOLDING AS UNDER : 4. AFTER GOING THROUGH RIVAL SUBMISSIONS AND MATE RIAL 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 DEDUC TION 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 COMPANY. THE CLAUSE (4) INSERTED IN SECTION 80P HAS TAKEN AWAY THE BENEFIT OF THE ERSTWHILE DEDUCTION A VAILABLE TO COOPERATIVE SOCIETY IN CARRYING ON BUSINESS OF BANKING OR PROVI DING CREDIT FACILITY TO ITS MEMBERS. THE NEW CLAUSE (4) INSERTED BY THE FINANCE ACT, 200 6 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 C OOPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK'. 5. THE INTENTION OF THE PROVISION MAY BE DERIVED M ORE PRECISELY FROM RELEVANT PARA 166 OF THE BUDGET SPEECH WHICH STATED THAT : ' CO-OPERATIVE BANKS, LIKE ANY OTHER BANK, ARE LENDING INSTITUTIONS AND SHOULD PAY TAX ON THEIR PROFITS, PRIMARY AGRICULTURAL CREDIT SOCIETIES (PACS) AND PRIMARY CO OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK (PCARDB) STAND ON A SPECIAL FOOTING AND WILL CONTINUE TO BE EXEMPT UNDER SECTION 80P OF THE INCOME TAX AC T. HOWEVER, I PROPOSE TO 5 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 PROPOSED TO AMEND SECTION 2(24) TO PROVIDE THAT PRO FITS AND GAINS OF BUSINESS OF BANKING (INCLUDING PROVIDING CREDIT FACILITIES) CAR RIED ON BY A CO-OPERATIVE SOCIETY WITH ITS MEMBERS SHALL BE INCLUDED IN THE DEFINITIO N 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 COOPERA TIVE DEPARTMENT. THE ACCOUNTING TREATMENT FOR A COOPERATIVE BANK IS THER EFORE A RESULT OF GUIDELINES FROM BOTH THE CONTROLLING AUTHORITIES. ORDINARILY A DEDUCTION IS NOT AVAILABLE TO AN ASSESSEE UNLESS SPECIFICALLY PROVIDED UNDER THE ACT. THIS IS IRRESPECTIVE OF ACCOUNTING TREATMENT PROVIDED BY THE ASSESSEE IN IT S BOOKS OF ACCOUNTS. BUT AT THE SAME TIME IT WAS WELL SETTLED THAT DEDUCTION EX PRESSLY MENTIONED UNDER THE ACT ARE NOT EXHAUSTIVE AND PROFIT IS TO BE DERIVED ACCORDING TO ORDINARY COMMERCIAL PRINCIPLES. AS PER THE EXTANT RBI GUIDEL INES 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 AVAILABLE 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 UNLES S 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 B E AMORTISED OVER THE PERIOD REMAINING TO MATURITY. THIS APART, ANY PERMANENT DI MINUTION 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 I NTERVALS. 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 BE LOW 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 TRAD ING CATEGORY WILL BE MARKED TO MARKET AT MONTHLY OR AT MORE FREQUENT INTERVALS AND PROVID ED 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, STA TES AS UNDER: 'AS PER RBI GUIDELINES DATED I6TH OCTOBER, 2000, TH E 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 NE ED 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 AMO RTISED OVER THE PERIOD REMAINING TO MATURITY. IN THE CASE OF HFT AN D AFS SECURITIES FORMING STOCK IN TRADE OF THE BANK, THE DEPRECIATIO N/ APPRECIATION IS TO 6 BE AGGREGATED SCRIP WISE AND ONLY NET DEPRECIATION, IF ANY, IS REQUIRED TO BE PROVIDED FOR IN THE ACCOUNTS. THE LATEST GUIDELI NES 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 EXCESS OF FACE VALUE OF INVESTMENTS CLASSIFIED UNDER HTM CATEGORY WHICH HAS BEEN AMORTISED OVER THE PERIOD TILL MATURITY IS ALLOWABLE AS REVENUE EX PENDITURE 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 T HAT AMORTIZATION ON PURCHASE OF GOVERNMENT SECURITIES WAS MADE AS PER PRUDENTIAL NO RMS OF THE RBI AND SAME WAS ALLOWABLE DEDUCTION. IN VIEW OF ABOVE, ASSESSEE WA S JUSTIFIED IN CONTENDING FOR AMORTIZATION OF PREMIUM PAID IN EXCESS OF FACE VALU E OF SECURITIES HELD TO MATURITY (HTM) CATEGORY OR PERIOD REMAINING TILL MATURITY WA S 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 SECURITIE S (HMT) WAS DELETED. THIS REASONED FACTUAL AND LEGAL FINDING OF THE CIT(A) NE EDS NO INTERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME. 9. AS A RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 8.1 RESPECTFULLY FOLLOWING THE DECISION OF THE COOR DINATE BENCH OF THE TRIBUNAL AND IN ABSENCE OF ANY CONTRARY MATERIAL BR OUGHT TO OUR NOTICE AGAINST THE ABOVE CITED DECISION WE FIND NO INFIRMI TY 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 DI SMISSED. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS THE 08 TH DAY OF AUGUST 2013. SD/- SD/- (SHAILENDRA KUMAR YADAV) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED : 08 TH AUGUST 2013 SATISH 7 COPY OF THE ORDER IS FORWARDED TO : 1. THE ASSESSEE 2. THE DEPARTMENT 3. THE CIT(A)-II, PUNE 4. THE CIT-II, PUNE 5. D.R. A BENCH, PUNE 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE