Assistant Commissioner of Income-tax, V. The Hasti Co-op. Bank Ltd., Dhule

ITA 1649/PUN/2016

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 6164 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-01-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 29-07-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRI
• Keywords: Depreciation; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUNE BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI PARTHA SARATHI CHAUDHURY, JM . / ITA NO. 1649/PUN/2016 / ASSESSMENT YEAR : 2012-13 ACIT, DHULE CIRCLE, DHULE ....... / APPELLANT / V/S. THE HASTI CO-OPERATIVE BANK LTD., HASTI SAHAKAR DEEP, STATION AREA, DONDAICHA, TAL : SHINDKHEDA, DHULE 425 408 PAN : AAAAT2798M / RESPONDENT ASSESSEE BY : SHRI SUNIL GANOO REVENUE BY : SHRI PANKAJ GARG / DATE OF HEARING : 31.12.2018 / DATE OF PRONOUNCEMENT : 09.01.2019 / ORDER PER D. KARUNAKARA RAO, AM: THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A)-1, NASHIK, DATED 16-05-2016 FOR THE A.Y. 2012-13. ALLOWABILITY OF LOSS QUA THE CLAIM OF DIMINUTION IN VALUE OF GOVERNMENT SECURITIES IS THE ISSUE FOR ADJUDICATION BEFORE US. 2. BRIEFLY STATED, RELEVANT FACTS OF THE ASSESSEE INCLUDE THAT THE ASSESSEE IS A COOPERATIVE BANK ENGAGED IN THE BUSINESS OF BANKING. THE ASSESSEE FILED ITS RETURN ON 19-09-2012 DECLARING TOTAL INCOME OF RS.7,71,03,850/- FOR THE YEAR 2 ITA NO.1649/PUN/2016 THE HASTI CO-OPERATIVE BANK LTD., UNDER CONSIDERATION. ASSESSEE CLAIMED THE LOSS OF RS.1,22,10,000/- IN THE RETURN OF INCOME AND IT RELATES TO THE VALUATION OF GOVERNMENT SECURITIES OF HTM STATUS. HOWEVER, DURING THE ASSESSMENT PROCEEDINGS, ASSESSING OFFICER QUESTIONED THE ALLOWABILITY OF SUCH CLAIM OF NOTIONAL LOSS ON ACCOUNT OF VALUATION OF GOVERNMENT SECURITIES. IN RESPONSE TO QUERY FROM THE ASSESSING OFFICER, THE ASSESSEE SUBMITTED THAT THE ASSESSEE CONSISTENTLY FOLLOWING A METHOD FOR VALUING THE SECURITIES UNDER HTM STATUS FOR MANY YEARS AND THE SAME WAS ACCEPTED BY THE DEPARTMENT. THEREFORE, AS THE SAID METHOD OF VALUATION I.E. COST OR MARKET VALUE, WHICHEVER IS LESS, NEEDS TO BE ACCEPTED. IN THE ASSESSMENT PROCEEDINGS, NOT CONVINCED WITH THE EXPLANATION GIVEN BY THE ASSESSEE, AO DENIED THE SAID CLAIM OF LOSS OF RS.1,22,10,000/- TO THE ASSESSEE. CONSEQUENTLY, IN THE ASSESSMENT PROCEEDINGS U/S.143(3) OF THE ACT, THE AO DETERMINED THE TOTAL INCOME AT RS.8,93,13,850/- AFTER MAKING ADDITION OF RS.1,22,10,000/-. 3. AGGRIEVED BY THE ASSESSMENT ORDER DATED 25-03-2015, THE ASSESSEE FILED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY, WHO ALLOWED THE CLAIM OF THE ASSESSEE RELYING ON CATENA OF JUDGMENTS OF HIGH COURT/SUPREME COURT AND AS WELL AS THE DECISIONS OF ITAT, PUNE INCLUDING THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF SARUPCHAND VS. CIT 4 ITR 420 (BOM.), JUDGMENT OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. CORPORATION BANK 174 ITR 616 (KAR.), ETC. HENCE, AGGRIEVED WITH THE SAID ORDER OF THE CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL CONTESTING THE ORDER OF CIT(A) BY RAISING THE FOLLOWING GROUNDS : 3 ITA NO.1649/PUN/2016 THE HASTI CO-OPERATIVE BANK LTD., THE GROUNDS OF APPEAL STATED BELOW ARE WITHOUT PREJUDICE TO EACH OTHER. THE ORDER OF THE LD.CIT(A) IS CONTRARY TO LAW AND TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 1] THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS.1,22,00,000/- MADE ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION ON DIMINUTION OF VALUE OF GOVERNMENT SECURITIES . 2] THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN RECORDING THE FINDINGS THAT METHOD OF VALUATION ADOPTED BY THE ASSESSEE FOR GOVERNMENT SECURITIES IS BONAFIDE . 3] THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN STATING THAT GOVERNMENT SECURITIES ARE STOCK IN TRADE IRRESPECTIVE OF ITS CLASSIFICATION SUCH AS HTM, AFS & AFT AND LOSS CLAIMED DUE TO CHANGE METHOD IN VALUATION IS ALLOWABLE. 4] THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THE FACT THAT CHANGED METHOD OF VALUATION SHOULD HAVE BEEN APPLIED FOR BOTH OPENING AND CLOSING STOCK AS HAS BEEN HELD BY THE VARIOUS COURT OF LAWS. IT IS THEREFORE PRAYED THAT THE ORDER OF THE LD. CIT(A) MAY PLEASE BE SET ASIDE AND THAT OF AO BE RESTORED. 5] THE APPELLANT CRAVES LEAVE TO ADD, ALTER, MODIFY, DELETE AMEND ANY OF THE GROUNDS WITH PRIOR PERMISSION OF THE HONBLE ITAT, AS PER THE CIRCUMSTANCES OF THE CASE. 6] THE APPELLANT PRAYS LEAVE TO ADDUCE SUCH FURTHER EVIDENCE TO SUBSTANTIATE HIS CASE AS THE OCCASION MAY DEMAND WITH PRIOR PERMISSION OF THE HONBLE ITAT. 4. LD. DR FOR THE REVENUE VEHEMENTLY OPPOSED THE DECISION OF CIT(A). RELYING ON THE ARGUMENTATIVE GROUNDS ABOVE, LD. AR SUBMITTED THAT ASSESSEE IS NOT PERMITTED TO CHANGE THE METHOD OF VALUATION OF GOVERNMENT SECURITIES. LD. CIT(A) ERRED IN APPROVING THE CHANGE IN METHOD OF VALUATION AS THE SAME SHOULD HAVE BEEN APPLIED FOR BOTH OPENING AND CLOSING STOCK. THUS, LD. DR PRAYED FOR REVERSING THE ORDER OF CIT(A). 4 ITA NO.1649/PUN/2016 THE HASTI CO-OPERATIVE BANK LTD., 5. ON THE OTHER HAND, LD. AR FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS A COVERED ONE IN FAVOUR OF THE ASSESSEE BY VIRTUE OF THE SERIOUS DECISIONS OF ITAT, PUNE AS WELL AS JUDGMENTS OF VARIOUS HIGH COURTS/SUPREME COURT. IN THIS CASE, CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE HOLDING THAT SECURITIES HELD TO MATURITY (HTM) ARE PART OF STOCK IN TRADE AND THERE IS NO JUSTIFICATION TO DECLINE THE CLAIM OF LOSS BY WAY OF DIMINUTION IN THE VALUATION OF SECURITIES OF HTM CATEGORY. THUS, LD. AR FOR THE ASSESSEE PRAYED FOR UPHOLDING THE DECISION OF CIT(A) AND DISMISSING THE APPEAL FILED BY THE REVENUE. 6. WE HEARD BOTH THE SIDES AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. THE GROUNDS ARE ARGUMENTATIVE IN NATURE. THE SOLITARY ISSUE FOR ADJUDICATION IN THE APPEAL OF REVENUE IS WHETHER THE LOSS BY WAY OF DIMINUTION IN VALUE OF HTM SECURITIES IS ALLOWABLE OR NOT. BONAFIDE OF THE CHANGE THE METHOD OF VALUATION OF GOVT. SECURITIES ADOPTED BY THE ASSESSEE IS THE ARGUMENT OF THE ASSESSING OFFICER. ON GOING THROUGH THE ORDER OF CIT(A) AND THE JUDGMENTS/DECISIONS RELIED THEREUPON, WE FIND THE ISSUE IS A SETTLED ONE AT THE LEVEL OF APEX COURT FOLLOWED BY THE JURISDICTIONAL HIGH COURT AND THE PUNE BENCH IN A SERIES OF DECISIONS. FOR THE SAKE OF COMPLETENESS, WE EXTRACT THE OPERATIONAL PARA NO.7.6 OF THE ORDER OF CIT(A) AND THE SAME READS AS UNDER : 7.6 IN VIEW OF THE ABOVE FACTS AND DISCUSSION AND RESPECTFULLY FOLLOWING THE RATIOS LAID DOWN BY THE VARIOUS COURTS INCLUDING THE DECISION OF HONBLE ITAT, PUNE IN REGARD TO CLASSIFICATION OF THE SECURITIES AND THEIR VALUATION, I AM OF THE CONSIDERED VIEW THAT AO HAS NOT APPRECIATED THE FACTS CORRECTLY AND THEREFORE WAS NOT JUSTIFIED IN MAKING THE ADDITION OF RS.1,22,10,000/- ON ACCOUNT OF DISALLOWANCE OF DIMINUTION IN THE VALUATION OF GOVERNMENT SECURITIES. THE ADDITION OF RS.1,22,10,000/- IS THEREFORE, DELETED. 5 ITA NO.1649/PUN/2016 THE HASTI CO-OPERATIVE BANK LTD., 7. ON PERUSAL OF THE FACTS, WE FIND THAT THE GOVERNMENT SECURITIES UNDER CONSIDERATION ARE THE ONES HTM. THESE SECURITIES CONSTITUTE THE STOCK IN TRADE AND THEY ARE REQUIRED TO BE VALUED AT COST OF MARKET VALUE, WHICHEVER IS LOWER. IN FOLLOWING THE TRITE LAW, NO MALAFIDE CAN BE ATTRIBUTED TO THE ASSESSEE. THE REQUIREMENT OF MAKING ADJUSTMENTS TO THE OPENING AND CLOSING STOCK OF SUCH GOVERNMENT SECURITIES IS ALREADY APPROVED BY THE COURTS. HOWEVER, THE ASSESSING OFFICER HAS NOT DONE ADJUSTMENTS TO THE OPENING STOCK FOR THIS YEAR IN THE ASSESSMENT. VALUE OF THE STOCK- GOVERNMENT SECURITIES FLUCTUATE DEPENDING ON THE MARKET CONDITIONS AND THEREFORE, THE DIMINUTION IN VALUE OF THE GOVERNMENT SECURITIES IS NOT UNCOMMON IN MATTERS OF VALUATION OF SECURITIES OF HTM STATUS AT THE END OF THE YEAR. WE FIND RELEVANT TO EXTRACT THE LEGAL PROPOSITION ON THE ISSUE UNDER CONSIDERATION LAID DOWN FROM THE JURISDICTIONAL HIGH COURT IN THE CASE OF SARUPCHAND (SUPRA). THE HELD PORTION OF THE SAME IS EXTRACTED AS FOLLOWS :- AN ASSESSEE IS ENTITLED TO CHANGE THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY HIM. WHAT HE MUST ALTER, HOWEVER, IS HIS REGULAR METHOD, THAT IS TO SAY, HE MUST ABANDON WHAT UP TO THAT TIME, HAS BEEN HIS REGULAR METHOD, AND START A NEW REGULAR METHOD, AND NOT MERELY A NEW METHOD A CAUSAL PERIOD. THE QUESTION WHETHER THE REGULAR METHOD OF ACCOUNTING HAS BEEN CHANGED IS A PURE QUESTION OF FACT UPON WHICH THE COMMISSIONER CANNOT BE DIRECTED TO STATE A CASE; BUT IF THE REGULAR METHOD HAS BEEN CHANGED IN FACT THE COMMISSIONER IS BOUND TO RECOGNIZE THE CHANGED METHOD. 8. ON THIS ISSUE OF BONAFIDE OF THE CHANGE IN THE METHOD, THE LD. DR HAS NOT BROUGHT ANY ADVERSE MATERIAL TO PROVE THE SAME IS NOT BONAFIDE. CONSIDERING THE SAME, WE UPHOLD THE ORDER OF CIT(A) IN HOLDING THAT THE AO WAS NOT JUSTIFIED IN MAKING ADDITION OF RS.1,22,10,100/- ON ACCOUNT OF DISALLOWANCE OF 6 ITA NO.1649/PUN/2016 THE HASTI CO-OPERATIVE BANK LTD., DIMINUTION IN THE VALUATION OF GOVERNMENT SECURITIES. THUS, THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE DISMISSED. 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON 09 TH JANUARY, 2019. SD/- SD/- (PARTHA SARATHI CHAUDHURY) (D. KARUNAKARA RAO) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / PUNE; / DATED : 09 TH JANUARY, 2019 SATISH / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT (APPEALS)-1, NASHIK 4. THE PR. CIT-1, NASHIK. 5. , , , / DR, ITAT, B BENCH, PUNE. 6. / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE.