The South Indian Bank Ltd, Trichur V. ACIT, Trichur

ITA 149/COCH/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64842 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 06-08-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 25-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VENI RAJ
• Assessee Lawyers: MOHAN PULICKAL

Judgement Text

1 ITA NO. 09 & 10/COCH/2011 ITA NO.149 & 150/COCH/2011 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI B.R. BASKARA N(AM) I.T.A NO. 09 & 10/COCH/2011 (ASSESSMENT YEARS 2000-01 & 2001-02) & I.T.A NO. 149 & 150/COCH/2011 (ASSESSMENT YEARS 2002-03 & 2003-04) M/S SOUTH INDIAN BANK LTD VS A.C.I.T., CIR.1(1) SIB HOUSE, MISSION QUARTERS THRISSUR THRISSUR-680 001 PAN : AABCT0022F (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MOHAN PULICKAL RESPONDENT BY : MS. VENI RAJ DATE OF HEARING : 06-08-2012 DATE OF PRONOUNCEMENT : 18-09-2012 O R D E R PER N.R.S. GANESAN (JM) ALL THE FOUR APPEALS OF THE TAXPAYER ARE DIRECTED AGAINST THE INDEPENDENT ORDERS OF THE COMMISSIONER OF INCOME-TAX(A)-V, KOCHI FOR THE ASSESSMENT YEARS 2000-01 TO 2003-04. SINCE COMMON ISSUE ARISES FOR CO NSIDERATION WE HEARD ALL THE APPEALS TOGETHER AND DISPOSE THEM OFF BY THIS C OMMON ORDER. 2 ITA NO. 09 & 10/COCH/2011 ITA NO.149 & 150/COCH/2011 2. SHRI MOHAN PULICKAL, THE LD.REPRESENTATIVE FOR TH E TAXPAYER SUBMITTED THAT THE ONLY ISSUE ARISES FOR CONSIDERATION IS DISALLOW ANCE OF LOSS ON REVALUATION OF THE SECURITIES. THE LD.REPRESENTATIVE FOR THE TAXP AYER SUBMITTED THAT THE TAXPAYER BANKING COMPANY INVESTED FUNDS IN THE SECUR ITIES. DURING THE YEAR UNDER CONSIDERATION THE SECURITIES WERE REVALUED AS PER THE NORMS PRESCRIBED BY RESERVE BANK OF INDIA (RBI) AND THE LOSS WAS CLAIMED AS DEDUCTION. HOWEVER, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE TAXPA YER. ON APPEAL BY THE TAXPAYER IN ORIGINAL ROUND OF LITIGATION THIS TRIBUNAL DIREC TED THE ASSESSING OFFICER TO RECONSIDER THE MATTER ON THE GROUND THAT THE JUDGME NT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF NEDUNGADI BANK LTD (2003) 264 I TR 545 (KER) WAS NOT CONSIDERED BY THE ASSESSING OFFICER. IN THE SECOND ROUND OF LITIGATION THE ASSESSING OFFICER AGAIN DISALLOWED THE CLAIM OF THE TAXPAYER ON THE GROUND THAT THE TAXPAYER HAS NOT FILED THE BALANCE-SHEET OF THE RESPECTIVE COMPANIES WHERE INVESTMENTS WERE MADE. THE ASSESSING OFFICER PLACE D HIS RELIANCE ON THE ORDERS OF THIS TRIBUNAL IN THE CASE OF CATHOLIC SYRIAN BAN K LTD IN ITA NOS 284 & 381(COCH)/2006 DATED 14-03-2008. REFERRING TO THE JU DGMENT OF THE KERALA HIGH COURT IN COMMISSIONER OF INCOME-TAX VS LORD KRISHNA B ANK LTD I.T.A. NO.234 OF 2009 DATED 07-10-2010, THE LD.REPRESENTATIVE SUBMITTE D THAT THE HIGH COURT HAS APPROVED THE REVALUATION OF THE SECURITIES ON THE B ASIS OF THE GUIDELINES PRESCRIBED BY THE RBI. THE LD.COUNSEL FURTHER SUBM ITTED THAT THE KERALA HIGH COURT HAS PLACED ITS RELIANCE ON THE EARLIER JUDGME NT IN THE CASE OF NEDUNGADI BANK LTD (SUPRA). IN THE ABSENCE OF ANY SUGGESTION FROM THE ASSESSING AUTHORITY FOR COMPUTATION OF THE MARKET VALUE OF UNQUOTED SECU RITIES, THE RBI GUIDELINES HAVE TO BE FOLLOWED. THEREFORE, THE LOWER AUTHORIT IES ARE NOT JUSTIFIED IN REJECTING THE CLAIM OF THE TAXPAYER ON THE GROUND T HAT THE BALANCE-SHEET OF THE 3 ITA NO. 09 & 10/COCH/2011 ITA NO.149 & 150/COCH/2011 RESPECTIVE COMPANIES WAS NOT FILED. WHAT IS TO BE SEEN IS THE REALISABLE VALUE OF THE SECURITIES. 3. ON THE CONTRARY, MS. VENI RAJ, THE LD.DR SUBMITT ED THAT THE TAXPAYER HAS NOT FILED THE COPIES OF THE BALANCE-SHEET OF THE RES PECTIVE COMPANIES TO ESTABLISH THE VALUATION OF THE SECURITIES. ACCORDING TO THE LD.REPRESENTATIVE, IN THE ABSENCE OF BALANCE-SHEET OF THE RESPECTIVE COMPANIES, THE TA XPAYER CANNOT CLAIM ANY LOSS. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALS O PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ONLY QUESTION ARISES FOR CONSIDERATION IS WHETHER THE NOTIONAL LOSS SAID TO BE SUFFERED BY THE TAXPAYER O N REVALUATION OF THE SECURITIES IS ALLOWABLE AS DEDUCTION OR NOT. THIS ISSUE WAS C ONSIDERED BY THE JURISDICTIONAL HIGH COURT IN COMMISSIONER OF INCOME-TAX VS NEDUNGAD I BANK LTD (SUPRA) AND AFTER CONSIDERING THE JUDICIAL PRONOUNCEMENTS ON TH E SUBJECT FOUND THAT SECURITY HELD BY THE BANK CONSTITUTE THEIR STOCK IN TRADE OR I NVESTMENT. CONSEQUENTLY, THE LOSS CLAIMED BY THE BANK IN VALUATION OF THEIR SECUR ITIES SHOULD BE ALLOWED AS DEDUCTION IN COMPUTING THE TAXABLE PROFIT. IN VIEW OF THIS JUDGMENT OF THE KERALA HIGH COURT, THE LOSS SUFFERED BY THE TAXPAYER IN RE VALUATION OF THE SECURITIES HAS TO BE ALLOWED AS DEDUCTION. 5. IN THE CASE BEFORE US, THE TAXING AUTHORITY DISA LLOWED THE CLAIM OF THE TAXPAYER ON THE GROUND THAT THE BALANCE-SHEET OF THE RESPECTIVE COMPANIES WAS NOT FILED TO ESTABLISH THE VALUATION. THE CONTENTI ON OF THE TAXPAYER IS THAT THE VALUATION WAS MADE ON THE BASIS OF THE GUIDELINE IS SUED BY RBI TAKING INTO CONSIDERATION THE REALISABLE VALUE. IN FACT, AS SE EN FROM THE ORDER OF THE COMMISSIONER OF INCOME-TAX(A), THE TAXPAYER CLAIMED THAT THE REVALUATION WAS 4 ITA NO. 09 & 10/COCH/2011 ITA NO.149 & 150/COCH/2011 MADE ON THE BASIS OF THE GUIDELINE ISSUED BY THE RB I AND THE VALUE IS BASED ON REALIZABLE VALUE. THE TAXPAYER HAS ALSO BROUGHT TO THE NOTICE OF THE LOWER AUTHORITIES THAT IN SPITE OF THEIR BEST EFFORT, THE Y COULD NOT GET THE COPIES OF THE BALANCE-SHEET FROM THE RESPECTIVE COMPANY. THE QUES TION ARISES FOR CONSIDERATION IS THAT WHEN THE TAXPAYER VALUED THE SECURITIES ON THE BASIS OF THE REALIZABLE VALUE COULD IT BE ALLOWED AS LOSS IN THE ABSENCE OF THE COPIES OF THE BALANCE-SHEET OF THE RESPECTIVE COMPANY. ADMITTEDLY , THE ASSESSING AUTHORITY HAS NOT SUGGESTED ANY FORMULA FOR VALUATION OF THE UNQUOTED SHARES. ON IDENTICAL SITUATION THE KERALA HIGH COURT IN THE CASE OF LORD KRISHNA BANK LTD (SUPRA) EXAMINED THE ISSUE IN THE LIGHT OF THE LAW LAID DOW N BY THE KERALA HIGH COURT IN NEDUNGADI BANK LTD (SUPRA) AND OBSERVED AS FOLLOWS: .IT IS A SETTLED POSITION THROUGH VARIOUS DECISI ONS INCLUDING THAT OF THIS COURT IN COMMISSIONER OF INCOME-TAX VS.NEDUN GADI BANK LTD. REPORTED IN (2003) 264 ITR 545 THAT FOR TH E PURPOSE OF ASSESSMENT COST PRICE OR MARKET VALUE WHICHEVER I S LOW SHOULD BE ADOPTED. ADMITTEDLY MARKET VALUE IS N OT KNOWN AND SO MUCH SO, SOME METHOD HAS TO BE ADOPTED TO FI X THE MARKET VALUE AND THEREAFTER ONLY THE LOWER OF THE COST PRI CE OR THE MARKET VALUE HAS TO BE TAKEN FOR THE PURPOSE OF COMPUTATION OF PROFIT OR LOSS IN RESPECT OF THE UNSECURED SECURITIES. SENIO R COUNSEL APPEARING FOR THE ASSESSEE ITA NO.234/2009 PRODUCED RBI GUIDELINES BEFORE US WHEREIN THE RBI HAS SUGGESTED BANKS TO VALUE UNQUOTED CENTRAL GOVERNMENT SECURITIES ON THE BASIS OF THE PRICES / YTM RATES PUT OUT BY THE PDAI / FIMMJDA AT PERIODIC AL INTERVALS. YTM IS THE YIELD TO MATURITY METHOD ADOPTED FOR VAL UATION OF SECURITIES. IT IS SEEN THAT THE TRIBUNAL ACCEPTED THE ASSESSEES VALUATION WHICH IS BASED ON RBI GUIDELINES. RBI BE ING THE APEX BODY ISSUING GUIDELINES TO THE BANKS FOR VALUATION OF UNQ UOTED GOVERNMENT SECURITIES, WE FEEL IT IS THE RATIONAL BA SIS WHICH ASSESSEE WAS BOUND TO ADOPT. THE ASSESSING OFFICER ALSO HAS NOT COME OUT WITH ANY FORMULA FOR COMPUTATION OF MARKET VALUE OF UNQUOTED SECURITIES AND HE HAS NO CASE THAT THE RBI GUIDELINES FOR 5 ITA NO. 09 & 10/COCH/2011 ITA NO.149 & 150/COCH/2011 VALUATION IS IRRATIONAL. SO MUCH SO, WE FEEL THE T RIBUNAL RIGHTLY UPHELD ASSESSEES CLAIM FOR VALUATION OF UNQUOTED GO VERNMENT SECURITIES BASED ON RBI GUIDELINES. 6. THE RBI ISSUED GUIDELINES TO VALUE TO UNSECURED SHARES ON THE BASIS OF YTM, I.E. YIELD TO MATURITY METHOD ADOPTED FOR VALU ATION OF SECURITIES. THE KERALA HIGH COURT HAS ALSO FOUND THAT YTM RATES HAVE BEEN PUT OUT BY THE PDAI / FIMMDA AT PERIODICAL INTERVALS. THEREFORE, WHEN TH E TAXPAYER REVALUED THE ASSET ON THE BASIS OF THE GUIDELINE ISSUED BY THE RBI AT REALIZABLE VALUE I.E. YTM METHOD SUGGESTED BY RBI, THE TAXING AUTHORITY CANNOT FIND FAULT WITH TAXPAYER. AS OBSERVED BY KERALA HIGH COURT, THE ASSESSING AUTHORI TY HAS NOT COME OUT WITH ANY SUGGESTION / FORMULA FOR COMPUTATION OF MARKET VALUE OF UNQUOTED SHARES. IT IS ALSO NOT THE CASE OF THE REVENUE THAT THE GUIDELINE ISSUED BY THE RBI FOR VALUATION IS IRRATIONAL. IN THESE FACTS AND CIRCUMSTANCES, T HIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE LAW LAID DOWN BY THE JURISDICTIONA L HIGH COURT IN THE CASES OF NEDUNGADI BANK LTD (SUPRA) AND LORD KRISHNA BANK LTD ( SUPRA) IS APPLICABLE IN THE CASE OF THE PRESENT TAX PAYER ALSO. THEREFORE, BY RESPECTFULLY FOLLOWING THE JUDGMENT OF THE KERALA HIGH COURT IN THE CASE OF NED UNGADI BANK LTD (SUPRA) AND LORD KRISHNA BANK LTD (SUPRA) AND FOR THE REASONS ST ATED THEREIN THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ASSESSING A UTHORITY IS DIRECTED TO ALLOW THE NOTIONAL LOSS CLAIMED BY THE TAXPAYER ON REVALUATIO N OF THE SECURITIES AS DEDUCTION WHILE COMPUTING THE TOTAL INCOME. 7. IN THE RESULT ALL THE APPEALS OF THE TAXPAYER ST AND ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 18 TH SEPTEMBER, 2012. SD/- SD/- (B.R. BASKARAN) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 18 TH SEPTEMBER, 2012 PK/- 6 ITA NO. 09 & 10/COCH/2011 ITA NO.149 & 150/COCH/2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE COMMISSIONER OF INCOME-TAX 4. THE COMMISSIONER OF INCOME-TAX(A) 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH