The Mahanagar Co.op. Bank Ltd., Pune V. Deputy Commissioner of Income-tax ,

ITA 1644/PUN/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1653 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 01-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANIL CHAWARE
• Keywords: Question of law; Cost of acquisition; Revenue expenditure; Capital expenditure
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , . . , , . . , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI R.K. PANDA, AM . / ITA NO. 1644 /PN/201 4 / ASSESSMENT YEAR : 20 0 8 - 0 9 THE MAHANAGAR CO - OP. BANK LTD., (FORMERLY KNOWN AS AGRASEN URBAN CO - OP. BANK LTD.) 52, P S PLAZA, YERWADA, PUNE 41 10 06 . / APPELLANT PAN: AA BTA2487N VS. THE DY. COMMISSIO NER OF INCOME TAX, CIRCLE 1 (1), PUNE . / RESPONDENT / APPELLANT BY : SHRI SUHAS P. BORA / RESPONDENT BY : SHRI ANIL CHAWARE / DATE OF HEARING : 04 .0 7 . .201 6 / DATE OF PRONOUNCEMENT: 04 . 0 7 .201 6 / ORDER PER SUSHMA CHOWLA, J M : TH IS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF CIT (A) - I , PUNE , TH IS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF CIT (A) - I , PUNE , DATED 30 . 05 .20 14 RELATING TO ASSESSMENT YEAR 20 0 8 - 0 9 AGAINST ORDER PASSED UNDER SECTION 1 4 3(3) OF THE I NCOME - TAX ACT , 1961 (IN SHORT THE ACT) . 2 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE : - 1 . THE LEARNED CIT(A) HAS ERRED IN CONFIRMING ADDITION MADE BY THE A . O . AMOUNTING TO R S .6 , 24 ,9 35 / - MA DE ON ACCOUNT OF AMORTIZATION OF PREMIUM ON THE GROUND THAT IT I S NOT ALLO W ABLE DEDUCTION UNDER INCOME TAX ACT , ON THE GROUND THAT IT I S NOT ALLO W ABLE DEDUCTION UNDER INCOME TAX ACT , ITA NO. 1644 /PN/20 1 4 THE MAHANAGAR CO.OP BANK LTD. 2 1961 , RELYING UPON THE DECISION OF ITAT PUNE BENCH IN THE CASE OF JANATA SAHAKARI BANK LTD . 2 . THE LEARNED CIT(A) HAS ERRED IN NOT FOLLOWING VARI OUS FOLLOWING DECISIONS 2 . THE LEARNED CIT(A) HAS ERRED IN NOT FOLLOWING VARI OUS FOLLOWING DECISIONS OF ITAT PUNE BENCH AND OTHERS SUBMITTED BY THE APPELLANT. I) ACIT VS . BANK OF RAJASTHAN LTD. (2011 - TIOL - 35 - ITAT - MUM) II) CATHOLIC SYRIAN BANK LTD . VS. ASSTT . CIT 038 SOT 0553 III) SOUTH INDIA BANK LTD. (ITAT APPEAL NO . 126 (COCH) OF 2004 DTD. 19.09 . 2005) IV) HON ' BLE ITAT PUNE BENCH ALSO IN THE CASE OF PUNE PEOPLES BANK HAS DECIDED THE ISSUE IN FAVOUR OF THE BANK IN ITA NO.1847 1 PN / 2012 O R DER DT . 3 1 . 1 02013, BY RELYING UPON THE DECISION IN THE CASE OF RATNAKAR BANK LTD VS ACIT ITA NO . 789/PN/201 0 ORDER DT . 08.02 . 2013 AS WELL AS LATUR URBAN CO - OP BANK LTD VS. DCIT ITA NO . 778 & 792 / PN / 20 11 ORDER DT . 3 1 . 08 . 20 1 2 . 3. THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THE CONTENTION OF THE APPELLANT THAT IT IS REVENUE EXPENDITURE AND ALLOWABLE U/S 37 OF THE ACT . 3. THE ONLY ISSUE RAISED IN THE PRESENT APPEAL IS AGAINST THE ADDITION MADE ON ACCOUNT OF AMORTIZATION OF PREMIUM PAID ON HTM SECURITIES. 4. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE AT THE OUTSET POINTED OU T THAT THE ISSUE IS SQUARELY COVERED BY THE ORDER OF TRIBUNAL IN ACIT POINTED OU T THAT THE ISSUE IS SQUARELY COVERED BY THE ORDER OF TRIBUNAL IN ACIT VS. THE AHMEDNAGAR DISTRICT CENTRAL CO - OPERATIVE BANK LTD. IN ITA NO. 1983 /PN/201 3 , RELATING TO ASSESSMENT YEAR 2010 - 11, ORDER DATED 2 0.02.2015 . 5. BRIEFLY, IN THE FACTS OF THE PRESENT C ASE, THE ASSESSEE BANK WAS A CO - OPERATIVE BANK. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD OPERATIVE BANK. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD CLAIMED DEDUCTION OF RS. 6,24 , 935 / - AS AMORTIZATION OF PREMIUM PAID ON ACQUISITION OF HELD TO MATURITY (HTM) SECURITIES AND THE SAME HAS BEEN DISALLOWED B Y THE ASSESSING OFFICER. ITA NO. 1644 /PN/20 1 4 THE MAHANAGAR CO.OP BANK LTD. 3 6. THE CIT(A) IN TURN, FOLLOWING THE ORDER OF PUNE BENCH OF TRIBUNAL IN THE CASE OF JANATA SAHAKARI BANK LTD. IN ITA NO.819/PN/2010, ORDER DATED 31.05.2013 , CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER . 7. WE HAVE HEARD T HE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING IN THE PRESENT APPEAL IS IN RESPECT OF AMORTIZATION OF PREMIUM PAID ON GOVERNMENT SECURITIES. THE ASSESSEE WAS A CO - OPERATIVE BANK. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE CLAIMED A DEDUCTION OF RS. 6,24,935 / - AS AMORTIZATION OF PREMIUM PAID ON ACQUISITION OF CERTAIN SECURITIES. THE ASSESSEE HAD PURCHASED SOME SECURITIES AT AN ACQUISITION COST WHICH WAS HIGHER THAN THE FACE VALUE OF THE SECURITIES. THE SAID SECURITIES HAD BEEN CLAS SIFIED BY THE ASSESSEE AS HELD TO MATURITY (HTM SECURITIES). THESE WERE THE SECURITIES, WHICH WERE ACQUIRED BY THE BANK WITH AN INTENTION TO HOLD THEM UPTO THE MATURITY OF THE SECURITIES. THE AMOUNT IN EXCESS OF THE FACE VALUE PAID BY THE ASSESSEE WAS AMORTIZED OVER THE LIFE OF THE SECURITIES AND PROPORTIONATE BY THE ASSESSEE WAS AMORTIZED OVER THE LIFE OF THE SECURITIES AND PROPORTIONATE CLAIM WAS MADE DURING THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE. IN APPEAL, THE CIT(A) HAD CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER . 8. WE FIND THAT THE SIMILAR ISSUE AROSE BEFORE THE TRIBUNAL IN JCIT VS. THE SOLAPUR JANTA SAHAKARI BANK LTD. IN ITA NO.40/PN/2015 , RELATING TO ASSESSMENT YEAR 2010 - 11, ORDER DATED 10.02.2016 , WHEREIN, IN TURN RELYING ON THE ORDERS OF TRIBUNAL IN ACIT VS. ALIBAGH CO - OPERATIVE URBAN BANK LTD., IN ITA NO.2173/PN/2012 RELATING TO ASSESSMENT YEAR 2009 - 10, ORDER DATED 23.09.2013 AND IN ITA NO.698/PN/2014, RELATING TO ASSESSMENT YEAR 2010 - 11, ORDER DATED 31.08.2015. THE TRIBUNAL HAD ALLOWED THE DEDUCTION CLAIMED BY THE ASSESSEE, IN TURN FOLLOWING THE RATIO LAID DOWN BY THE TRIBUNAL IN EARLIER ITA NO. 1644 /PN/20 1 4 THE MAHANAGAR CO.OP BANK LTD. 4 YEARS. FURTHER, THE HONBLE BOMBAY HIGH COURT IN CIT VS. HDFC BANK LTD. (2014) 366 ITR 505 (BOM) HAS HELD AS UNDER: - 4. WE DO NOT AGREE. IN THE CASE AT HAND, AS RECORDED BY THE ITAT, UNDISPUTEDLY THE ASSESSEES OWN FUNDS AND OTHER NON - INTEREST BEARING FUNDS WERE MORE THAN THE INVESTMENT IN THE TAX FREE SECURITIES. THE ITAT THEREFORE HELD THAT THERE WAS NO BASIS FOR DEEMING THAT THE ASSESSEE HAD USED THE BORROWED FUNDS FOR INVESTMENT IN TAX FREE SECURITIES. ON THIS FACTUAL ASPECT, THE ITAT DID NOT FIND ANY MERIT IN THE CONTENTION RAISED BY THE REVENUE AND THEREFORE, ACCORDINGLY ANSWERED THE QUESTION IN FAVOUR OF THE ASSESSEE. ON GOING THROUGH THE ORDER OF THE CIT(APPEALS) DATED 28 TH MARCH 2005 AS WELL AS THE IMPUGNED ORDER, WE DO NOT FIND THAT THE CIT(APPEALS) OR THE ITAT ERRED IN HOLDING IN FAVOUR OF THE ASSESSEE. IN THIS REGARD, THE SUBMISSION OF MR MISTRY, THE LEARNED SENIOR COUNSEL APPEARING ON BEHALF OF THE ASSESSEE, THAT THIS ISSUE IS SQUARELY COVERED BY A JUDGMENT OF THIS COURT IN THE CASE OF COMMISSIONER OF INCOME TAX V/S RELIANCE UTILITIES AND POWER LTD., REPORTED IN (2009) 313 ITR 340 (BOM) IS WELL FOUNDED. THE FACTS OF THAT CASE WERE THAT THE ASSESSEE VIZ. M/S RELIANCE UTILITIES AND POWER LTD. HAD INVESTED CERTAIN AMOUNTS IN RELIANCE GAS LTD. AND RELIANCE STRATEGIC INVESTMENTS LTD. IT WAS THE CASE OF THE ASSESSEE THAT THEY THEMSELVES WERE IN THE BUSINESS OF GENERATION OF POWER AND THEY HAD EARNED REGULAR BUSINE SS INCOME THEREFROM. THE INVESTMENTS MADE BY THE ASSESSEE IN M/S RELIANCE GAS LTD. AND M/S RELIANCE STRATEGIC INVESTMENTS LTD. WERE DONE OUT OF THEIR OWN FUNDS AND WERE IN THE REGULAR COURSE OF BUSINESS AND THEREFORE NO PART OF THE INTEREST COULD BE DISAL LOWED. IT WAS ALSO POINTED OUT THAT THE ASSESSEE HAD BORROWED RS.43.62 CRORES BY WAY OF ISSUE OF DEBENTURES AND THE SAID AMOUNT WAS UTILIZED AS CAPITAL EXPENDITURE AND INTER - CORPORATE DEPOSIT. IT WAS THE ASSESSEES SUBMISSION THAT NO PART OF THE INTEREST BEARING FUNDS (VIZ. ISSUE OF DEBENTURES) HAD GONE INTO MAKING INVESTMENTS IN THE SAID TWO COMPANIES. IT WAS POINTED OUT THAT THE INCOME FROM THE OPERATIONS OF THE ASSESSEE WAS RS.313.53 CRORES OUT THAT THE INCOME FROM THE OPERATIONS OF THE ASSESSEE WAS RS.313.53 CRORES AND WITH THE AVAILABILITY OF OTHER INTEREST FREE FUNDS WITH T HE ASSESSEE THE AMOUNT AVAILABLE FOR INVESTMENTS OUT OF ITS OWN FUNDS WERE TO THE TUNE OF RS.398.19 CRORES. IN VIEW THEREOF, IT WAS SUBMITTED THAT FROM THE ANALYSIS OF THE BALANCE - SHEET, THE ASSESSEE HAD ENOUGH INTEREST FREE FUNDS AT ITS DISPOSAL FOR MAKI NG THE INVESTMENTS. THE CIT (APPEALS) ON EXAMINING THE SAID MATERIAL, AGREED WITH THE CONTENTION OF THE ASSESSEE AND ACCORDINGLY DELETED THE ADDITION MADE BY THE ASSESSING OFFICER AND DIRECTED HIM TO ALLOW THE SAME UNDER THE PROVISIONS OF THE INCOME TAX A CT, 1961. THE REVENUE BEING AGGRIEVED BY THE ORDER PREFERRED AN APPEAL BEFORE THE ITAT WHO UPHELD THE ORDER OF THE CIT (APPEALS) AND DISMISSED THE APPEAL OF THE REVENUE. FROM THE ORDER OF THE ITAT, THE REVENUE APPROACHED THIS COURT BY WAY OF AN APPEAL. AFT ER EXAMIN ING THE ENTIRE FACTUAL MATRIX OF THE MATTER AND THE LAW ON THE SUBJECT, THIS COURT HELD AS UNDER: - IF THERE BE INTEREST - FREE FUNDS AVAILABLE TO AN ASSESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME TIME THE ASSESSEE HAD RAISED A LOAN IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM THE INTEREST - FREE FUNDS AVAILABLE. IN OUR OPINION, THE SUPREME COURT IN EAST INDIA PHARMACEUTICAL WORKS LTD. V. CIT (1997) 224 ITR 627 HAD THE OCCASION TO CONSIDER THE DECISION OF THE CALCUTTA HIGH COURT IN W OOLCOMBERS OF INDIA LTD. (1982) 134 ITR 219 WHERE A SIMILAR ISSUE HAD ARISEN. BEFORE THE SUPREME COURT IT WAS ARGUED THAT IT SHOULD HAVE BEEN PRESUMED THAT IN ESSENCE AND TRUE CHARACTER THE TAXES WERE PAID OUT OF THE PROFITS OF THE RELEVANT YEAR AND NOT OU T OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS AND IN THESE CIRCUMSTANCES THE APPELLANT WAS ENTITLED TO CLAIM THE DEDUCTIONS. THE SUPREME COURT NOTED THAT THE ARGUMENT HAD ITA NO. 1644 /PN/20 1 4 THE MAHANAGAR CO.OP BANK LTD. 5 CONSIDERABLE FORCE, BUT CONSIDERING THE FACT THAT THE CONTENTION HAD NOT BEEN ADVANCED EARLIER IT DID NOT REQUIRE TO BE ANSWERED. IT THEN NOTED THAT IN WOOLCOMBERS OF INDIA LTD.'S CASE (1982) 134 ITR 219 THE CALCUTTA HIGH COURT HAD COME TO THE CONCLUSION THAT THE PROFITS WERE SUFFICIENT TO MEET THE ADVANCE TAX LIABILITY AND TH E PROFITS WERE DEPOSITED IN THE OVER DRAFT ACCOUNT OF THE ASSESSEE AND IN SUCH A CASE IT SHOULD BE PRESUMED THAT THE TAXES WERE PAID OUT OF THE PROFITS OF THE YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS. IT NOTED THAT TO RAISE THE PRESUMPTION, THERE WAS SUFFICIENT MATERIAL AND THE ASSESSEE HAD URGED THE CONTENTION BEFORE THE HIGH COURT. THE PRINCIPLE, THEREFORE, WOULD BE THAT IF THERE WERE FUNDS AVAILABLE BOTH INTEREST - FREE AND OVER DRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST - FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY IF THE INTEREST - FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENT. IN THIS CASE THIS PRESUMPTION IS ESTABLISHED CONSIDERING THE FINDING OF FACT BOT H BY THE COMMISSIONER OF INCOME - TAX (APPEALS) AND THE INCOME - TAX APPELLATE TRIBUNAL. (EMPHASIS SUPPLIED ) 5. WE FIND THAT THE FACTS OF THE PRESENT CASE ARE SQUARELY COVERED BY THE JUDGMENT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. (SUPRA). THE FIN DING OF FACT GIVEN BY THE ITAT IN THE PRESENT CASE IS THAT THE ASSESSEE'S OWN FUNDS AND OTHER NON - INTEREST BEARING FUNDS WERE MORE THAN THE INVESTMENT IN THE TAX - FREE SECURITIES. THIS FACTUAL POSITION IS NOT ONE THAT IS DISPUTED. IN THE PRESENT CASE, UNDIS PUTEDLY THE ASSESSEE'S CAPITAL, PROFIT RESERVES, SURPLUS AND CURRENT ACCOUNT DEPOSITS WERE HIGHER THAN THE INVESTMENT IN THE TAX - FREE SECURITIES. IN VIEW OF THIS FACTUAL POSITION, AS PER THE JUDGMENT OF THIS COURT IN THE CASE OF RELIANCE UTILITIES AND POWE R LTD. (SUPRA), IT WOULD HAVE TO BE PRESUMED THAT THE INVESTMENT MADE BY THE ASSESSEE WOULD BE OUT OF THE INTEREST - FREE FUNDS AVAILABLE WITH THE ASSESSEE. WE THEREFORE, ARE UNABLE TO AGREE WITH THE SUBMISSION OF MR SURESH KUMAR THAT THE TRIBUNAL HAD ERRED IN DISMISSING THE SUBMISSION OF MR SURESH KUMAR THAT THE TRIBUNAL HAD ERRED IN DISMISSING THE APPEAL OF THE REVENUE ON THIS GROUND. WE DO NOT FIND THAT QUESTION (A) GIVES RISE TO ANY SUBSTANTIAL QUESTION OF LAW AND IS THEREFORE REJECTED. 6. EVEN AS FAR AS QUESTION (B) IS CONCERNED, WE FIND NO INFIRMITY IN THE ORDERS PASSED BY THE CIT (APPEALS) OR THE ITAT. IN DECIDING THIS ISSUE, CIT (APPEALS) AND THE ITAT HAVE MERELY FOLLOWED THE JUDGMENT OF THIS COURT IN THE CASE OF AMERICAN EXPRESS INTERNATIONAL BANKING CORPORATION V/S COMMISSIONER OF INCOME TAX, REPORTED IN (2002) 258 ITR 601. ON GOING THROUGH THE SAID JUDGMENT, WE FIND THAT QUESTION (B) REPRODUCED ABOVE AND PROJECTED AS SUBSTANTIAL BY MR SURESH KUMAR IS SQUARELY ANSWERED BY THE JUDGMENT OF THIS COURT IN THE CASE OF AMERICAN EXPRESS INTERNATIONAL BANKING CORPORATION (SUPRA). IN VIEW THEREOF, WE DO NOT FIND THAT EVEN QUESTION (B) GIVES RISE TO ANY SUBSTANTIAL QUESTION OF LAW THAT NEEDS TO BE ANSWERED BY THIS COURT. 7. AS FAR AS QUESTION (C) IS CONCERNED, WE FIND THAT AN IDENTICAL QUESTION OF LAW WAS FRAMED AND ANSWERED IN FAVOUR OF THE ASSESSEE BY THIS COURT IN ITS JUDGEMENT DATED 4TH JULY, 2014 IN INCOME TAX APPEAL NO.1079 OF 2012, COMMISSIONER OF INCOME TAX - 2 V/S M/S LORD KRISHNA BANK LTD. (NOW MERGED WITH HDFC BANK LTD.). MR SURESH KUMAR FAIRLY STATED THAT QUESTION (C) REPRODU CED ABOVE IS COVERED BY THE SAID ORDER. IN VIEW THEREOF, WE ARE OF THE VIEW THAT EVEN QUESTION (C) DOES NOT RAISE ANY SUBSTANTIAL QUESTION OF LAW THAT REQUI RES AN ANSWER FROM US. ITA NO. 1644 /PN/20 1 4 THE MAHANAGAR CO.OP BANK LTD. 6 9. FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT THE ASSESSEE IS ENT ITLED TO THE CLAIM OF DEDUCTION ON ACCOUNT OF AMORTIZATION OF PREMIUM PAID ON GOVERNMENT SECURITIES HELD IN HTM CATEGORY. DISMISSING THE ORDER OF CIT(A), WE ALLOW THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE . 10 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 4 TH DAY OF JULY , 201 6 . SD/ - SD/ - ( R.K. PANDA ) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 4 TH JULY , 201 6 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 1. / THE APPELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT (A) - I , PUNE ; 4. / THE CIT - I , PUNE ; 5. , , / DR A , ITAT, PUNE; 6. / GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE