Sst. Dy. Commissioner of Income-tax, Nashik V. Vishwash Cooperative Bank Ltd,, Nashik

ITA 1439/PUN/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 67091 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 17-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANN KAPTUAMA
• Keywords: Capital asset; Business income; Depreciation; Revenue expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE BEFORE: SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI R.K. PANDA , ACCOUNTANT MEMBER ITA NO. 14 39 / P N/ 20 11 ASSESSMENT YEAR : 200 8 - 09 DY. COMMISSIONER OF INCOME - TAX, CENTR AL CIRCLE - 1, GADKARI CHOWK, OLD AGRA ROAD, NASHIK VS. VISHWASH COOPERATIVE BANK LTD., VISHWA - VISHWAS PARK, DATYE NAGAR, NEAR NAVRACHNA SCHOOL, GANGAPUR ROAD, NASHIK (APPELLANT) (RESPONDENT) PAN NO. AAAAV0793L APPELLANT BY: MS. ANN KAPTUAMA RESPONDENT BY: SHRI NIKHIL PATHAK DATE OF HEARING : 2 7 - 06 - 2013 DATE OF PRONOUNCEMENT : 28 - 06 - 2013 ORDER P ER R.S. PADVEKAR , JM : IN T HIS APPEAL , THE REVENUE HAS CHALLENG ED THE IMPUGNED ORDER OF THE LD.CIT(A) - I, NASHIK DATED 1 3 - 09 - 2011 F OR THE A.Y. 200 8 - 09 . THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS: 1. WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) - I, NASHIK WAS JUSTIFIED IN DELETING THE ADDITION OF RS.5,15,000/ - MADE ON ACCOUNT OF CLAIMING EXPENDITURE TOWARDS AMORT IZATION OF PREMIUM ON INVESTMENT HELD TILL MATURITY. 2. WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) - I, NASHIK WAS JUSTIFIED IN DELETING THE ADDITION OF RS.8,25,000/ - MADE ON ACCOUNT OF CLAIMING EXPENDITURE TOWARDS DIMINUTION IN THE MARKET VALUE OF MSRDC BONDS. 2. THE ASSESSEE IS A CO - OPERATIVE BANK. THE RETURN OF INCOME FILED BY THE ASSESSEE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT HAS BEEN COMPLETED U/S. 143(3) OF THE INCOME - TAX ACT. THE ASSESSING OFFICER HAS OBSERVED THA T THE ASSESSEE HA S DEBITED AN AMOUNT OF RS.13,40,000/ - UNDER THE HEAD INVESTMENT P REMIUM AMORTIZATION. THE ASSESSEE HAS STATED THAT THE AMOUNT OF RS.13,40,000/ - HAS BEEN CLAIMED AS A 2 ITA NO.14 39 /PN/2011, VISHWASH CO - OPERATIVE BANK LTD., NASHIK DEDUCTION FOR AMORTIZATION OF THE PREMIUM ON GOVERNMENT SECURITIES WHI CH HA VE BEEN HELD BY THE BANK UNDER HELD TILL MATURITY (HTM). THE ASSESSING OFFICER HAS NOTED THAT THE AMOUNT OF RS.13,40,000/ - COMPRISES OF RS.8,25,000/ - FOR MSRDC BONDS AND RS.5,15,000/ - FOR GOVERNMENT SECURITIES PREMIUM. THE ASSESSEE HAS STATED THAT T HE SAID SECURITIES AND BONDS ARE MAINTAINED AS PER RBI GUIDELINES. THE ASSESSEE ALSO RELIED ON THE DECISION OF THE CASE OF CIT VS. NAINITAL BANK LTD. 309 ITR 335 (UTTRANCHAL H.C.). THE ASSESSING OFFICER WAS OF THE OPINION THAT AS THE SECURITIES AND BOND S ARE HELD TILL MATURITY , HENCE, THOSE ASSETS ARE CAPITAL ASSETS AND NOT IN STOCK - IN - TRADE AND ACCORDINGLY MADE THE DISALLOWANCE OF RS.13,40,000/ - . THE REASON GIVEN BY THE ASSESSING OFFICER IS THAT THE GOVERNMENT SECURITIES AND MSRDS BONDS ARE IN THE NATU RE OF THE CAPITAL ASSETS AND HENCE , CANNOT BE ALLOWED AS REVENUE EXPENDITURE. THE LD. CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE. NOW THE REVENUE IS IN APPEAL BEFORE US. 3. THE LEARNED COUNSEL SUBMITS THAT THE AMOUNT OF RS.13,40,000/ - COMPRISES OF A MORTIZATION ON PREMIUM O N GOVERNMENT SECURITIES OF RS.5,15,000/ - AND DIMINUTION IN THE MARKET VALUE OF MSRDC BONDS OF RS.8,25,000/ - . H E ALSO RELIED ON THE DECISION OF THE ITAT, PUNE IN THE CASE OF RATNAKAR BANK LTD. , ITA NO. 789/PN/2010 DATED 08 - 02 - 2013 A S WELL AS THE DECISION IN THE CASE OF LATUR URBAN CO - OPERATIVE BANK LTD. VS. DCIT ITA NOS. 778 & 792/PN/2011 DATED 31 - 08 - 2012. HE SUBMITS THAT AS THE SECURITIES AS WELL AS BONDS ARE HELD BY THE ASSESSEE BANK FORM PART OF THE STOCK - IN - TRADE AND HENCE THE S AME CANNOT BE TREATED AS A CAPITAL ASSETS. 4. WE HAVE ALSO HEARD THE LD. DR WHO SUPPORT ED THE ORDER OF THE ASSESSING OFFICER . I N THE CASE OF LATUR URBAN CO - OPERATIVE BANK LTD. (SUPRA) THE ISSUE OF LOSS ON SALE OF SECURITIES WHICH WERE HELD UNDER THE 3 ITA NO.14 39 /PN/2011, VISHWASH CO - OPERATIVE BANK LTD., NASHIK HEAD HELD TO MATURITY (HTM) HAS COME FOR THE CONSIDERATION BEFORE THE TRIBUNAL AND THE TRIBUNAL HAS HELD AS UNDER: 14. WE HAVE HEARD THE PARTIES. THE LD COUNSEL PLACED HIS HEAVY RELIANCE ON THE DECISION OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT V S. BANK OF BARODA AND IN THE CASE OF UCO BANK VS. CIT, 240 ITR 355 (SC). IN THE CASE OF BANK OF BARODA (SUPRA), THE ISSUE BEFORE THEIR LORDSHIP WAS WHETHER THE ASSESSEE WAS ENTITLED FOR DEDUCTION ON ACCOUNT OF DEPRECIATION IN THE VALUE OF INVESTMENTS. TH E METHOD OF VALUATION FOLLOWED BY THE ASSESSEE BANK WAS TO VALUE INVESTMENTS AT COST OR MARKET VALUE WHICHEVER WAS LOWER. THE ASSESSEE HAD CLAIMED THE DEPRECIATION TO THE TUNE OF RS. 11,82,35,007/ - AND THE SAID DEPRECIATION WAS CLAIMED AS A DEDUCTION WHIC H WAS DISALLOWED BY THE A.O, BUT THE ASSESSEE BANK SUCCEEDED BEFORE THE CIT(A). THE TRIBUNAL CONFIRMED THE ORDER OF THE CIT(A). THE REVENUE CARRIED THE ISSUE BEFORE THE HONBLE HIGH COURT. THE CORE ISSUE WAS THE METHOD OF VALUATION ADOPTED BY THE ASSESS EE BANK FOR VALUING THE STOCK OF THE SECURITIES. THE HONBLE HIGH COURT FOLLOWED THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF UNITED COMMERCIAL BANK (SUPRA). 15. IN THE CASE OF UNITED COMMERCIAL BANK (SUPRA), EVEN THE ISSUE OF VALUATION OF THE STOCK IN TRADE OF THE INVESTMENT WAS BEFORE THE HONBLE SUPREME COURT. IN THE CASE OF THE ASSESSEE, THE ISSUE IS REGARDING ALLOWABILITY OF THE LOSS ON THE SALE OF THE SECURITIES. MERELY BECAUSE THE SECURITIES ARE KEPT UNDER THE HEAD TILL THE MATURITY, T HE SAID SECURITY CANNOT BE TREATED AS A PURELY INVESTMENT. LAW IS WELL SETTLED THAT THE SECURITIES HELD BY THE BANK ARE IN THE NATURE OF STOCK - IN - TRADE. WE MAY LIKE TO QUOTE HERE THE DECISION OF THE HONBLE HIGH COURT OF KERALA IN THE CASE OF CIT VS. N EDUNGADI BANK LTD., 264 ITR 545. IN THE SAID CASE, THE HONBLE HIGH COURT HAS HELD THAT THE SECURITIES HELD BY THE BANK ARE IN THE NATURE OF STOCK - IN - TRADE. BOTH THE AUTHORITIES BELOW HAS MERELY GONE ON THE NOMENCLATURE OF THE HEAD UNDER WHICH THE SECUR ITIES ARE HELD. IN OUR CONSIDERED VIEW, NOMENCLATURE CANNOT BE DECISIVE FOR THE ASSESSEE BANK. WE, THEREFORE, HOLD THAT THE LOSS ON THE SALE OF THE SECURITIES IS REVENUE IN NATURE AND SAME IS ALLOWABLE. ACCORDINGLY, GROUND NO. 2 IS ALLOWED. 5. IN TH E CASE OF RATNAKAR BANK LTD (SUPRA) THE TRIBUNAL HAS HELD AS UNDER: 7. THE ISSUE IN CONTROVERSY BEFORE US IS IN NARROW PASS. THE ASSESSEE IS A BANK AND ENGAGED INTO THE BANKING BUSINESS. THE ASSESSEE MADE THE CLASSIFICATION OF THE SECURITIES IN COMPLIANC E WITH THE GUIDELINES OF THE RBI I.E. (1) HELD TO MATURITY (HTM) (2) AVAILABLE FOR SALE (AFS) AND (3) HELD FOR TREATING (HFT). IN THE CASE OF NIDUNGADI BANK LTD. (SUPRA), THE HON'BLE HIGH COURT OF KERALA HELD THAT ALL THE INVESTMENTS ARE IN THE NATURE OF STOCK IN 4 ITA NO.14 39 /PN/2011, VISHWASH CO - OPERATIVE BANK LTD., NASHIK TRADE HELD BY THE ASSESSEE. SO FAR AS ISSUE BEFORE US IS CONCERNED, IT IS ONLY THE CONVERSION OF THE CLASSIFICATION OF THE SECURITY BY THE BANK. IT IS NOT DISPUTED IN THIS CASE THAT ASSESSEE IS CONSISTENTLY FOLLOWING THE SAID METHOD AND EVEN IF THE SECURITIES ARE SOLD, FINALLY THE DEPRECIATION/LOSS WILL HAVE THE BEARING WHILE DETERMINING THE PROFIT OR LOSSES WHEN THE SECURITIES ARE SOLD IN THE OPEN MARKET. THE IDENTICAL ISSUE HAD COME BEFORE THE ITAT BANGALORE BENCH IN THE CASE OF STATE BANK OF MYSORE (SUPRA) AND TRIBUNAL HELD AS UNDER: 7.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE HAVE ALSO PERUSED THE RBI MASTER CIRCULAR AND OTHER CASE LAWS ON WHICH THE SENIOR COUNSEL HAS PLACED STRONG RELIANCE. THE HON'BLE TRIBUNAL, BANGALORE BENCH 'B' I N ITA NO. 253/BANG/2007, DT. 24TH JAN., 2008 IN THE CASE OF ASSTT. CIT (LTU) VS. VIJAYA BANK HAD AN OCCASION TO DEAL WITH A SIMILAR ISSUE. AFTER CONSIDERING THE RIVAL SUBMISSIONS, ANALYZING THE RBI GUIDELINES AND ALSO EXTENSIVELY QUOTING VARIOUS JUDICIAL P RONOUNCEMENTS ON WHICH BOTH THE PARTIES HAVE PLACED THEIR RELIANCE, THE HON'BLE TRIBUNAL HAS OBSERVED THUS '15. FROM THE ABOVE, IT IS CLEAR THAT THE ASSESSEE IS TREATING THE SECURITIES HELD UNDER THE CATEGORY 'HELD FOR MATURITY' AS STOCK - IN - TRADE. IF THER E IS APPRECIATION IN THE MARKET VALUE AS COMPARED TO THE MARKET VALUE AT THE OPENING OF THE YEAR AND SUCH APPRECIATION IS ALSO ACCOUNTED FOR. IT IS NOT CLAIMING DEPRECIATION ONLY FOR THE YEARS, WHEN THE VALUE HAS GONE DOWN. IF THAT HAD BEEN THE CASE, THE A SSESSEE WOULD NOT HAVE ACCOUNTED FOR ANY APPRECIATION IN 3RD, 4TH AND 5TH YEAR. THE METHOD BY WHICH THE ASSESSEE BANK IS VALUING SECURITIES IS IN ACCORDANCE WITH THE ACCOUNTING PRINCIPLES BY TREATING SUCH SECURITIES AS STOCK - IN - TRADE. MOREOVER, THE REVENUE ITSELF IS TREATING THE PROFIT ON MATURITY OF SUCH SECURITY AS BUSINESS INCOME AND, THEREFORE, SUCH SECURITIES CANNOT BE TREATED AS CAPITAL ASSETS. 16. SPECIAL BENCH, DELHI IN THE CASE OF NEW INDIA INDUSTRIES LTD. VS. ASSTT. CIT (2007) 112 TTJ (DEL) (SB) 9 17 : (2008) 1 DTR (DEL)(SB)(TRIB) 247 : (2007) 18 SOT 51 (DEL)(SB) : 2007 - TIOL - 389 - ITAT - DEL - SB HAD AN OCCASION TO CONSIDER THE BINDING NATURE OF RBI GUIDELINES. THE SPECIAL BENCH HELD THAT RBI GUIDELINES IN RESPECT OF PROVISION FOR NPA ARE NOT BINDING IN T HE COMPUTATION OF INCOME UNDER THE IT ACT. INCOME IS TO BE ASSESSED AS PER THE PROVISION OF THE IT ACT. THE MADRAS HIGH COURT IN THE CASE OF T.N. POWER FINANCE & INFRASTRUCTURE DEVELOPMENT CORPORATION LTD. VS. CIT (2007) 213 CTR (MAD) 610 : (2006) 280 ITR 491 (MAD) : (2006 - TIOL - 112 - HC - MAD - IT HELD THAT PROVISION FOR NON - PERFORMING THE ASSETS DEBITED TO P&L A/C IS NOT ALLOWABLE, AS DIRECTIVE OF RBI MAY NOT OVERRIDE STATUTORY PROVISION. ONCE THE REVENUE IS ACCEPTING THAT PROFIT ARISING ON THE MATURITY OF INVES TMENT IS BUSINESS INCOME, THEN IT CANNOT TAKE THE STAND THAT IT IS NOT STOCK - IN - TRADE. DURING THE COURSE OF PROCEEDINGS BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE HAS FILED THE ASSESSMENT ORDER IN THE CASE OF THE ASSESSEE FOR THE ASST. YRS. 2000 - 01 T O 2002 - 03. THE DEPRECIATION CLAIMED IN ALL THESE ASST. YEARS HAS NOT B EEN DISALLOWED .THUS, THE REVENUE IS CONSISTENTLY ACCEPTING THAT DEPRECIATION IS ALLOWABLE. THIS BENCH IN THE FOLLOWING CASES HAS ALLOWED SUCH DEPRECIATION ON THE VALUATION OF THE SECURI TIES HELD BY THE BANK : 5 ITA NO.14 39 /PN/2011, VISHWASH CO - OPERATIVE BANK LTD., NASHIK (1) KARNATAKA BANK LTD. VS. JT. CIT ITA NO. 50/BANG/1997, DT. 27TH JULY, 2003; (2) ING VYSYA BANK LTD. VS. DY. CIT (2006) 6 SOT 606 (BANG). 17. CONSIDERING THE ABOVE DISCUSSION, IT IS HELD THAT THE ASSESSEE IS ENTITLED TO VALUE ALL THE INVESTMENT AT COST PRICES OR MARKET VALUE WHICHEVER IS LOWER BY TREATING SUCH INVESTMENT AS STOCK - IN - TRADE....' 7.3 THE HON'BLE TRIBUNAL IN ITA NO. 112/BANG/2008, DT. 3RD DEC., 2008 IN THE CASE OF CORPORATION BANK VS. ASSTT. CIT 2009 - TIOL - 75 - ITAT - BAN G, BY FOLLOWING THE DECISION OF THE HON'BLE TRIBUNAL IN THE CASE OF ASSTT. CIT (LTU) VS. VIJAYA BANK (SUPRA), HAS HELD THAT '16. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE BEFORE US AND RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE SUPREME C OURT IN THE CASE OF UNITED COMMERCIAL BANK VS. CIT REFERRED SUPRA, IT IS HELD THAT THE ASSESSEE BANK IS ENTITLED TO VALUE ALL THE INVESTMENT AT COST PRICES OR MARKET VALUE WHICHEVER IS LOWER BY TREATING SUCH STOCK - IN - TRADE.........' 7.4 IN RBI'S MASTER CI RCULAR, UNDER THE CAPTION 2 CLASSIFICATION, IT HAS BEEN MENTIONED THUS '(I) THE ENTIRE INVESTMENT PORTFOLIO OF THE BANKS (INCLUDING SLR SECURITIES AND NON - SLR SECURITIES) SHOULD BE CLASSIFIED UNDER THREE CATEGORIES VIZ., 'HELD TO MATURITY', 'AVAILABLE FO R SALE' AND 'HELD FOR TRADING'. HOWEVER, IN THE BALANCE SHEET, THE INVESTMENTS WILL CONTINUE TO BE DISCLOSED AS PER THE EXISTING SIX CLASSIFICATIONS VIZ., (A) GOVERNMENT SECURITIES, (B) OTHER APPROVED SECURITIES, (C) SHARES, (D) DEBENTURES AND BONDS, (E) S UBSIDIARIES/JOINT VENTURES, AND (F) OTHER (CP MUTUAL FUND UNITS, ETC.). (II) BANKS SHOULD DECIDE THE CATEGORY OF THE INVESTMENT AT THE TIME OF ACQUISITION AND THE DECISION SHOULD BE RECORDED ON THE INVESTMENT PROPOSALS. 2.3 SHIFTING AMONG CATEGORIES : (I) BANKS MAY SHIFT INVESTMENTS TO/FROM HELD TO MATURITY CATEGORY WITH THE APPROVAL OF THE BOARD OF DIRECTORS ONCE A YEAR. SUCH SHIFTING WILL NORMALLY BE ALLOWED AT THE BEGINNING OF THE ACCOUNTING YEAR. NO FURTHER SHIFTING TO/FROM THIS CATEGORY WILL BE ALLOWED DURING THE REMAINING PART OF THAT ACCOUNTING YEAR.' 7.5 IN VIEW OF THE CLEAR - CUT GUIDELINES OF THE RBI AND RESPECTFULLY FOLLOWING THE FINDINGS OF THE HON'BLE TRIBUNAL REFERRED SUPRA, THE CLAIM OF THE ASSESSEE TOWARDS PROVISION OF DEPRECIATION OF RS. 1,2 7,21,17,913 ON ACCOUNT OF TRANSFER OF SECURITIES FROM AFS CATEGORY TO HTM CATEGORY IS ALLOWED. IT IS ORDERED ACCORDINGLY. 8. AS THE ISSUE IS DIRECTLY COVERED IN FAVOUR OF THE ASSESSEE BY DECISION OF I.T.A.T. BANGALORE BENCH, WE DO NOT FIND ANY REASON TO TAKE THE DIFFERENT VIEW. WE ACCORDINGLY, ALLOW THE CLAIM OF THE ASSESSEE AND GROUNDS TAKEN BY THE ASSESSEE ARE ALLOWED. 6 ITA NO.14 39 /PN/2011, VISHWASH CO - OPERATIVE BANK LTD., NASHIK 6. IN OUR OPINION THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BANK BY THE DECISION IN CASE OF LATUR URBAN CO - OPERATIVE B ANK LTD. (SUPRA) AS WELL AS RATNAKAR BANK LTD. (SUPRA) . W E FIND NO REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A). BOTH THE GROUNDS TAKEN BY THE REVENUE ARE DISMISSED. 7 . IN THE RESULT, THE REVENUES APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN CO URT ON 28 - 0 6 - 20 1 3 SD/ - SD/ - ( R.K. PANDA ) ( R.S. PADVEKAR ) ACCOUNTANT MEMBER JUDICIAL MEMBER RK /PS PUNE , DATED : 28 TH JUNE, 20 1 3 COPY TO 1 DEPARTMENT 2 ASSESSEE 3 THE CIT(A) - I, NASHIK 4 THE CI T - I, NASHIK 5 THE DR, ITAT, A BENCH, PUNE . 6 GUARD FILE. //TRUE COPY// BY ORDER PRIVATE SECRETARY INCOME TAX APPELL ATE TRIBUNAL, PUNE