Suvarnayug Sahakari Bank Ltd., Pune V. Jt. CIT, Pune

ITA 148/PUN/2013

• Counselvise Citation: 14824514 RSA 2013
• Duration Of Justice: 1 year(s) 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 03-06-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 15-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Business expenditure; Cost of acquisition; Revenue 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.148/PN/2013 (A.Y: 2009-10) SUVARNAYUG SAHAKARI BANK LTD. 1102/10/11, MARNE HEIGHTS, BUDHWAR PETH, PUNE 411002 PAN: AACAS4805L APPELLANT VS. JT. CIT, CIRCLE-6, PUNE RESPONDENT APPELLANT BY : SHRI VIJAY D . KENDHE RESPONDENT BY : SHRI M.M. CHATE DATE OF HEARING: 03.06.2014 DATE OF ORDER : 20.06.2014 ORDER PER SHAILENDRA KUMAR YADAV, J.M: THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEAL)-III, [IN SHO RT CIT(A)] PUNE, DATED 31.10.2012 FOR A.Y. 2009-10 ON THE FOLL OWING GROUNDS. 1. THE LEARNED CIT(A) APPEAL III HAS ERRED IN LAW AS W ELL AS IN FACTS WHILE CONFIRMING THE ORDER OF ASSESSING OF FICER JT CIT CIRCLE 6 MAKING AN ADDITION OF RS.38,62,956/- T O THE TAXABLE INCOME OF THE ASSESSEE BEING THE SAID AMOUN T AMORTIZATION OF PREMIUM OF PURCHASE OF GOVERNMENT O F SECURITIES PURCHASE FOR HTM (HELD TO MATURITY) SINC E THIS AMOUNT IS A LOSS TO THE ASSESSEE AND ALSO THE INTAN GIBLE ASSETS / EXPENDITURE AND HENCE DEDUCTIBLE PROPORTIONATELY OVER PERIOD OF LIFE OF THE ASSET. 2. THE ASSESSEE CRAVES THE RIGHT TO ADD, ALTER, MODIFY , ANNUAL OR ALL TOGETHER CANCEL ANY OF THE AFORESAID GROUNDS OF APPEAL. 2 ITA NO.148 OF 13 SUVARNAYUG SAHAKARI BANK LTD 2. AT THE OUTSET OF HEARING, THE LEARNED AUTHORIZED REPRESENTATIVE HAS POINTED OUT THAT THIS CASE IS CO VERED BY THE ASSESSEES OWN CASE FOR A.Y. 2008-09, WHEREIN A SIM ILAR POINT HAS BEEN DECIDED IN FAVOUR OF ASSESSEE BY OBSERVING AS UNDER: 4.1 BEFORE US IT WAS POINTED OUT THAT THIS ISSUE I S COVERED IN FAVOUR OF ASSESSEE BY THE ORDER OF ITAT IN ITA NO.1413/PN/2011 ORDER DATED 08-08-2013 IN CASE OF A CIT VS. PUNE PEOPLES COOPERATIVE BANK WHEREIN FOLLOWING RATIO IN CASE OF ACIT VS. ALIBAG COOPERATIVE URBAN BANK L TD. VIDE ITA NO.2173/PN/2012 ORDER DATED 23-09-2013 SIMILAR ISSUE HAS BEEN DECIDED IN FAVOUR OF ASSESSEE BY HOL DING 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 TH E VARIOUS DECISIONS CITED BEFORE US. WE FIND AN IDEN TICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN THE CASE O F NASHIK 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. AFTER 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 PROVIDING 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 COOPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK'. 3 ITA NO.148 OF 13 SUVARNAYUG SAHAKARI BANK LTD 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 SHOULD 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 PROPOSED TO AMEND SECTION 2(24) TO PROVIDE THAT PROFITS AND GAINS OF BUSINESS OF BANKING (INCLUDING PROVIDING CREDIT FACILITIES) CARRIED ON BY A CO-OPERATIVE SOCIETY WI TH 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 SPECIFICALLY 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 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 UNLESS THE COST IS MORE THAN THE FACE VALUE, IN WHICH CASE THE PREMIUM SHOULD BE AMORTISED OVER THE PERIOD REMAINING TO MATURITY. THE 4 ITA NO.148 OF 13 SUVARNAYUG SAHAKARI BANK LTD 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 2008 DATED 26.11.2008, ON 'ASSESSMENT OF BANK - CHECK LIST FOR DEDUCTION, STATES AS UNDER: 'AS PER RBI GUIDELINES DATED 16TH 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 CLASSIFIED 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 FORMING 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 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, 5 ITA NO.148 OF 13 SUVARNAYUG SAHAKARI BANK LTD 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 PURCHASE 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 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. 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 OR DER OF THE LD.CIT(A) DELETING THE ADDITION. ACCORDINGLY, THE ORDER OF THE LD.CIT(A) IS UPHELD AND THE GROUNDS RA ISED BY THE REVENUE ARE DISMISSED. 4.2 NOTHING CONTRARY WAS BROUGHT TO OUR NOTICE. F ACTS BEING SIMILAR, SO FOLLOWING THE REASONING IN THE AB OVE DECISIONS CITED (SUPRA) WE HOLD THAT AO WAS NOT JUS TIFIED IN MAKING ADDITION OF RS.36,62,956/- BEING AMORTIZATIO N OF PREMIUM PAID ON PURCHASE OF GOVERNMENT SECURITIES. SINCE THE AMOUNT IS OF NATURE OF REVENUE EXPENDITURE EXPE NDED OUT PERTAINING TO RELEVANT PREVIOUS YEAR, HENCE, AL LOWABLE AS BUSINESS EXPENDITURE U/S.36(VII) OF THE INCOME TAX ACT. 2.1 EVEN BEFORE US, NOTHING CONTRARY WAS BROUGHT TO OUR KNOWLEDGE ON BEHALF OF REVENUE. FACTS BEING SIMILA R, SO FOLLOWING THE SAME REASONING, WE HOLD THAT THE ASSESSING OFFI CER WAS NOT 6 ITA NO.148 OF 13 SUVARNAYUG SAHAKARI BANK LTD JUSTIFIED IN MAKING ADDITION OF 38,62,956/- BEING AMORTIZATION OF PREMIUM PAID ON PURCHASE OF GOVERNMENT SECURITIE S. SINCE THE AMOUNT IS OF NATURE OF REVENUE EXPENDITURE EXPE NDED OUT PERTAINING TO RELEVANT PREVIOUS YEAR, HENCE, ALLOWA BLE AS BUSINESS EXPENDITURE U/S.36(VII) OF THE INCOME TAX ACT. THE ASSESSING OFFICER IS DIRECTED ACCORDINGLY. 3. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED. PRONOUNCED IN THE OPEN COURT ON THIS THE DAY 20 TH OF JUNE, 2014. SD/- SD/- (R.K. PANDA) (SHAILENDRA KUMAR YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 20 TH JUNE, 2014 GCVSR COPY TO:- 1) ASSESSEE 2) DEPARTMENT 3) THE CIT(A)-III, PUNE 4) THE CIT-III, PUNE 5) THE DR, A BENCH, I.T.A.T., PUNE. 6) GUARD FILE BY ORDER //TRUE COPY// SENIOR PRIVATE SECRETARY, I.T.A.T., PUNE