Deputy Commissioner of Income-tax, Circle - 5, Pune V. The Visweshwar Sahakari Bank Ltd., Pune

ITA 1483/PUN/2017

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 6622 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-01-2021
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 12-06-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E (THROUGH VIRTUAL COURT) BEFORE SHRI WASEEM AHMED, AM AND SHRI PARTHA SARATHI CHAUDHURY, JM . / ITA NO.1483/PUN/2017 / ASSESSMENT YEAR : 2010-11 THE DY.COMMISSIONER OF INCOME TAX, ..... / APPELLANT CIRCLE 5, PUNE. / V/S. THE VISHWESHWAR SAHAKARI BANK LIMITED, / RESPONDENT 471/472, MARKET YARD, GULTEKDI, PUNE 411037, MAHARASHTRA. PAN : AAAAT0755G. ASSESSEE BY : SHRI KISHOR PHADKE. REVENUE BY : SHRI DEEPAK GARG. / DATE OF HEARING : 28.01.2021 / DATE OF PRONOUNCEMENT : 28. 01.2021 / ORDER PER WASEEM AHMED, AM: THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE O RDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 4, PUNE (HEREINAFT ER REFERRED AS CIT(A) FOR SHORT) DATED 27.03.2017 FOR THE ASSESSMENT YEAR 2010-11. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. ON THE FACT AND CIRCUMSTANCES OF THE CASE AND I N THE LAW, THE CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS .24,01,43,676/- BEING LOSS ON VALUATION OF HTM SECURITIES WHICH ARE CAPITAL IN NATURE. 2 2. FOR THIS AND SUCH OTHER REASONS AS MAY BE URGED AT THE TIME OF HEARING THE ORDER OF THE CIT(A) MAY BE VACATED AND THAT THE ASSESSING OFFICER BE RESTORED. 3. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IN THE PRESE NT CASE IS AN URBAN CO-OPERATIVE SOCIETY AND ENGAGED IN THE BUSINESS OF BANKING. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEE DINGS FOUND THAT THE ASSESSEE IN THE INCOME TAX RETURNS HAS CLAIMED LOSS ON VALUATION OF SECURITIES AMOUNTING TO RS. 24,01,43,676/- WHICH WAS NOT A CCOUNTED IN THE BOOKS OF ACCOUNTS. ACCORDINGLY, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE HAS ADOPTED DIFFERENT METHOD FOR VALUIN G ITS SECURITIES FOR THE PURPOSE OF INCOME TAX VIS--VIS FOR THE PREPARAT ION OF THE FINAL ACCOUNTS WHICH WERE MADE ACCORDING TO MERCANTILE SYSTEM OF ACCOUNTING. AS PER THE ASSESSING OFFICER, SUCH HYBRID SYSTEM OF ACCOUN TING IS NOT PERMISSIBLE UNDER THE PROVISIONS OF INCOME TAX ACT, 1961. HENCE, THE ASSESSING OFFICER DISALLOWED SUCH LOSS AND ADDED TO THE TO TAL INCOME OF THE ASSESSEE. HOWEVER, THE LD.CIT(A) WAS PLEASED TO DELETE THE ADDITION MADE BY THE AO. 4. BEING AGGRIEVED BY THE ORDER OF LD.CIT(A), THE REVENUE IS NOW IN APPEAL BEFORE US. 5. BOTH THE LEARNED DEPARTMENTAL REPRESENTATIVE AND LEA RNED AUTHORISED REPRESENTATIVE VEHEMENTLY SUPPORTED THE O RDER OF AUTHORITIES BELOW AS FAVOURABLE TO THEM. 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET, WE FIND THAT THE ITAT, PUNE BENCH IN THE OWN CASE OF THE ASSESSEE FOR THE A.Y. 2011-12 AND 2012-13, INVOLVING IDENTICAL ISSUE HAS DECIDED THE APPEAL IN FAVOUR OF THE ASSESSEE IN ITA NOS.782 & 783/PUN/2016 VIDE ORDER DATE D 12.02.2019. 3 THE RELEVANT EXTRACT OF THE ORDER FOR READY REFERENCE IS REPRODUCED AS UNDER : 4. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH T HE MATERIAL AVAILABLE ON RECORD. THE FIRST OBJECTION BY THE AO WAS THAT THE ASSESSEE COULD NOT HAVE CLAIMED DEDUCTION DE HORS R OUTING IT THROUGH THE BOOKS OF ACCOUNT AND THE RESULTANT PROF IT AND LOSS ACCOUNT. IN OUR CONSIDERED OPINION, THERE IS NO ME RIT IN THE VIEW POINT OF THE DEPARTMENT IN VIEW OF THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF KEDARNATH JUTE MANUFACTURING C OMPANY VS. CIT (1971) 82 ITR 363(SC). IN THAT CASE, SOME LIABILIT Y ON ACCOUNT OF SALES TAX AROSE WHICH WAS NOT ALLOWED AS DEDUCTION BY THE AO ON THE GROUND THAT THE ASSESSEE HAD DENIED ITS LIABILI TY TO PAY THE AMOUNT AND HAD NOT MADE PROVISION FOR SUCH AN AMOUNT IN ITS BOOKS OF ACCOUNT. THIS VIEW CAME TO BE ECHOED BY THE HON BLE HIGH COURT. WHEN THE MATTER CAME BEFORE THE HONBLE SUPREME COU RT, THEIR LORDSHIPS OBSERVED THAT IF AN ASSESSEE UNDER SOME MISAPPREHENSION OR MISTAKE FAILS TO MAKE AN ENTRY I N THE BOOKS OF ACCOUNT AND ALTHOUGH, UNDER THE LAW, A DEDUCTION MU ST BE ALLOWED BY THE ITO, THE ASSESSEE WILL NOT BE DEBARRED FROM SUCH DEDUCTION. IT WAS FURTHER HELD THAT WHETHER THE ASSESSEE IS E NTITLED TO A PARTICULAR DEDUCTION OR NOT WILL DEPEND ON THE PROV ISION OF LAW RELATING THERETO AND NOT ON THE VIEW WHICH THE ASSE SSEE MIGHT TAKE OF HIS RIGHTS NOR CAN THE EXISTENCE OR ABSENCE OF E NTRIES IN THE BOOKS OF ACCOUNT BE DECISIVE OR CONCLUSIVE IN THE MATTER . IT IS, THEREFORE, PALPABLE FROM THE RATIO DECIDENDI LAID DOWN IN THIS CASE THAT RECORDING OR NOT RECORDING OF ANY TRANSACTION IN TH E BOOKS OF ACCOUNT CANNOT BE A DECISIVE TEST FOR ALLOWING OR NOT ALLOW ING A DEDUCTION. IF AN ASSESSEE IS OTHERWISE ENTITLED THE DEDUCTION, TH E SAME HAS TO BE ALLOWED, SUBJECT TO CONTRARY PROVISIONS, IF ANY, E VEN IF IT WAS NOT PROPERLY REFLECTED IN THE BOOKS OF ACCOUNT. WE, TH EREFORE, DO NOT COUNTENANCE THE VIEW TAKEN BY THE AUTHORITIES BELOW ON THIS SCORE. 5. HAVING CROSSED THIS HURDLE, THE NEXT QUESTION IS WHETHER THE ASSESSEE IS ENTITLED, AS PER LAW, TO CLAIM DEDUCTIO N BY VALUING ITS SECURITIES AT COST OR MARKET PRICE, WHICHEVER IS L ESS. FACTUAL MATRIX IS THAT THE ASSESSEE ORIGINALLY VALUED ITS SECURITI ES AS PER THE METHOD SUGGESTED BY THE RBI. HOWEVER, LATER ON, SUCH VAL UATION WAS REVISED TO BE IN ACCORDANCE WITH THE METHOD : COST OR MARKET PRICE, WHICHEVER IS LESS. IN THE CASE OF A BANK, SECURITI ES OF THE NATURE AS HELD BY THE ASSESSEE IN THE EXTANT CASE ARE IN THE NATURE OF STOCK IN TRADE. IT IS AN ESTABLISHED PRINCIPLE OF LAW THAT STOCK CAN BE LAWFULLY VALUED UNDER THE METHOD: COST OR MARKET PRICE, WHI CHEVER IS LESS. THE HONBLE SUPREME COURT IN CHAINRUP SAMPATRAM VS. CIT (1953) 24 ITR 481 (SC) HAS LAID DOWN THIS PRINCIPLE WHICH HAS BEEN SCRUPULOUSLY FOLLOWED IN NUMEROUS JUDGMENTS. IN VI EW OF THE ABOVE RATIO FLOWING FROM CHAINRUP SAMPATRAM (SUPRA), WE H OLD THAT THE ASSESSEE WAS ENTITLED TO VALUE ITS SECURITIES UNDER THE METHOD : COST OR MARKET PRICE, WHICHEVER IS LESS. IT IS T RITE LAW THAT IF A METHOD OF VALUATION HAS BEEN CHANGED FROM ONE RECOG NIZED METHOD TO ANOTHER RECOGNIZED METHOD, THEN SUCH A CHANGE CA NNOT BE REJECTED IF IT IS CONSISTENTLY FOLLOWED. NOTHING HAS BEEN BR OUGHT ON RECORD TO DEMONSTRATE THAT THE NEW METHOD OF VALUATION WAS NO T CONSISTENTLY FOLLOWED BY THE ASSESSEE. ERGO, WE DO NOT SEE ANY E MBARGO IN THE ASSESSEE SWITCHING OVER TO THE NEW METHOD OF VALUAT ION OF SECURITIES, COST OF MARKET PRICE, WHICHEVER IS LESS. 6. NOW COMES TO QUANTUM OF THE AMOUNT OF LOSS CLAIM ED BY THE ASSESSEE UNDER THE NEW METHOD OF VALUATION OF SECUR ITIES. IT IS SEEN 4 FROM THE ASSESSMENT ORDER THAT THE AO HAS MADE AN A DDITION OF RS.97.57 LAKH ON ACCOUNT OF ADJUSTMENT ON VALUATIO N. EVEN THE GROUND RAISED BY THE ASSESSEE, AS REPRODUCED ABOVE, ALSO SAYS THAT THE LOSS OF RS.97.57 LAKH OCCURRED ON ACCOUNT OF LO SS ON VALUATION OF SECURITIES. ON BEING CALLED UPON TO EXPLAIN HOW TH E LOSS OF RS.97.57 LAKH WAS COMPUTED, THE LD. AR SUBMITTED THAT THE AM OUNT OF RS.97.57 LAKH WAS, IN FACT, LOSS AFTER MAKING SEVER AL ADJUSTMENTS IN THE COMPUTATION OF TOTAL INCOME. HE COULD NOT SPEC IFICALLY POINT OUT AS TO HOW THIS LOSS WAS COMPUTED. SIMILAR WAS THE POSITION WITH THE LD. DR AS WELL. IN THE ABSENCE OF ANY CLARITY ON T HE COMPUTATION OF AMOUNT OF LOSS ARISING DUE TO CHANGE IN THE VALUATI ON OF SECURITIES UNDER THE NEW METHOD OF COST OR MARKET PRICE, WHIC HEVER IS LESS, WE SET-ASIDE THE IMPUGNED ORDER AND REMIT THE MATTE R TO THE FILE OF AO FOR DETERMINING THE AMOUNT OF LOSS ARISING BY TH E APPLICATION OF METHOD COST OF MARKET PRICE, WHICHEVER IS LESS TO THE SECURITIES HELD BY THE ASSESSEE BANK AS STOCK IN TRADE. IT IS ONLY AFTER DETERMINING SUCH A LOSS ON VALUATION OF SECURITIES THAT THE ULT IMATE FIGURE OF LOSS WILL BE DETERMINED. NEEDLESS TO SAY, THE AO WILL G IVE A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 7. BEFORE PARTING WITH THE MATTER, WE WOULD LIKE TO CLARIFY ON AN ISSUE CONCERNED WITH THE CHANGE IN THE METHOD OF VA LUATION OF SECURITIES. ON A SPECIFIC QUERY, THE LD. AR SUBMIT TED THAT THE ASSESSEE WAS EARLIER VALUING SUCH SECURITIES AS PER A METHOD PRESCRIBED BY THE RBI, RESULTING INTO SOME LOSS TO BE AMORTIZED OVER CERTAIN NUMBER OF COMING YEARS. ONCE WE HAVE HELD T HAT THE NEW METHOD OF VALUATION HAS TO BE FOLLOWED, WHICH WOULD ACCOUNT FOR LOSS ON DECLINE IN THE MARKET VALUE OF SECURITIES I N THE CONCERNED YEAR ITSELF, THERE CAN BE NO RATIONALE IN CONTINUIN G TO ALLOW LOSSES IN SUBSEQUENT YEARS UNDER THE OLD METHOD OF VALUATION OF SECURITIES AS PER RBI, WHICH ADMITTEDLY RESULTED INTO AMORTIZATIO N OF LOSS IN SOME SUBSEQUENT YEARS. THE AO IS DIRECTED TO EXAMINE THI S ASPECT ALSO, WHICH IS CONNECTED WITH THE DETERMINATION OF LOSS O N VALUATION OF SECURITIES UNDER THE NEW METHOD OF COST OR MARKET P RICE, WHICHEVER IS LESS. IT SHOULD BE ENSURED THAT THE ASSESSEE DO ES NOT GET DOUBLE DEDUCTION. 8. FACTUAL MATRIX FOR THE A.Y. 2012-13 IS MUTATIS M UTANDIS SIMILAR TO THAT OF THE PRECEDING YEAR EXCEPT FOR TH E AMOUNT OF DISALLOWANCE OF RS.5,35,47,228/- MADE BY THE AO AND SUSTAINED IN THE FIRST APPEAL. FOLLOWING THE VIEW TAKEN HEREINA BOVE, WE SET-ASIDE THE IMPUGNED ORDER AND DIRECT THE AO TO DETERMINE T HE ISSUE AS ORDERED SUPRA. THE FACTS OF THE CASE IN HAND ARE IDENTICAL TO THE FACTS OF THE CASE AS DISCUSSED ABOVE. THEREFORE, RESPECTFULLY FOLLOWING THE SAME, WE SET ASIDE THE ISSUE TO THE FILE OF ASSESSING OFFICER TO ADJUDICATE THE SAME AFRESH IN THE LIGHT OF THE ABOVE STATED DISCUSSION AND AS PER THE PROVISIONS OF LAW. HENCE, THE GROUND OF APPEAL OF REVENUE IS ALLOWED FOR THE S TATISTICAL PURPOSES. 5 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLOWED FOR S TATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS THE 28 TH DAY OF JANUARY, 20201 SD/- SD/- (PARTHA SARATHI CHAUDHURY) (WASEEM AHMED) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / PUNE; / DATED : 28 TH JANUARY, 2021. YAMINI / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(APPEALS) 4, PUNE. 4. THE PR.CIT-3, PUNE. 5. , , , / DR, ITAT, B BENCH, PUNE. 6. ! / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE.