Pratmik Shilshak Sahakari Bank Ltd., Satara V. ACIT, Satara

ITA 1671/PUN/2012

• Counselvise Citation: 167124514 RSA 2012
• Duration Of Justice: 1 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 09-08-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K K OJHA
• Keywords: Capital asset; Depreciation; Revised return; Revenue expenditure
• Section: 43B; 143(3); 142(1); 234B; 37(1); 139(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE: SHRI G. S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO. 1671 /PN/201 2 ASSESSMENT YEAR : 200 7 - 08 PRATHAMIK SHIKSHAK SAHAKARI BANK L TD., 12B, RAVIWAR PETH, SATARA VS. ASST. COMMISSIONER OF INCOME - TAX, SATARA CIRCLE, SATARA (APPELLANT) (RESPONDENT) PAN NO. AAAAP0381L APPELLANT BY: SHRI M.K. KULKARNI RESPONDENT BY: SHRI K.K. OJHA DATE OF HEARING : 01 - 10 - 2013 DATE OF PRONOUN CEMENT : 25 - 10 - 2013 ORDER P ER R.S. PADVEKAR , JM : - IN T HIS APPEAL , THE ASSESSEE HAS CHALLEN GED THE IMPUGNED ORDER OF THE LD. CIT(A) - I II, PUNE DATED 2 8 - 10 - 201 1 FOR THE A.Y. 200 7 - 08 . THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS IN THE APPEAL : 1. ON THE FAC TS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN REJECTING THE GROUND OF APPEAL BEFORE HIM THAT THE REVISED RETURN WAS FILED IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN S. 139(5) OF THE ACT AND WAS NOT A NON - EST RETURN . 2. ON THE FACT S AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) FAILED TO APPRECIATE THE LEGAL POSITION BEFORE CONFIRMING THE ACTION OF THE A. 0. IN TREATING THE REVISED RETURN AS 'NON - EST RETURN' AS STATUTORY NOTICE U/S 142(1) WAS ISSUED AND SERVED DT. 06 - 07 - 20 09 AND THE REVISED RETURN WAS FILED PRIOR TO ASSESSMENT AND THEREFORE 'REVISED RETURN' WAS A VALID RETURN WITHIN THE MEANING OF S. 139(5) OF THE AC T SINCE SUCH REVISED RETURN WAS FILED BEFORE THE COMPLETION OF THE ASSESSMENT. IT BE HELD ACCORDINGLY. THE AD DITION THEREFORE, OF RS. 1,09,67,720/ - WAS UNWARRANTED AND ILLEGAL. IT BE HELD ACCORDINGLY. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE OF R S. 6,16,784/ - MADE BY 2 ITA NO. 1671/PN/2012, PRATHAMIK SHIKSHAK SAHAKARI BANK LTD., SATARA THE A. O. WHO TREATED THE TRANS FER OF HTM SECURITIES AS REALIZATION OF CAPITAL ASSET. THE ACTION CONFIRMED BY LD. CIT(A) IS CONTRARY TO RBI GUIDELINES WHICH ARE STATUTORY GUIDELINES AND SHOULD NOT HAVE BEEN IGNORED. THE DISALLOWANCE BE DELETED. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW IT WAS HELD BY THE HON'BLE TRIBUNAL IN DECIDING THE IDENTICAL ISSUE HELD AS THESE WERE GOVERNMENT SECURITIES AND THESE WERE ALSO AS A PART OF STATUTORY LIQUIDITY RATIO REQUIREMENT AND WAS A BUSINESS REQUIREMENT AND THEREFORE BEING SLR IN VESTMENT ARE EXTRICABLY LINKED TO THE CARRYING ON OF THE BUSINESS WHICH RENDERS IT AS THE BUSINESS ASSET. IN VIEW OF THIS NO ADDITION WAS CALLED FOR AND THE SAME BE DELETED. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN CON FIRMING THE DISALLOWANCE OF RS. 31057/ - MADE BY A. 0. INVOKING THE PROVISIONS OF S. 43B OF THE ACT. THE DISALLOWANCE BE QUASHED. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEVY OF INTEREST U/S 234B AND 234C IS NOT JUSTIFIED AND IN THE CIRCUM STANCES IT BE DELETED. 2. THE GROUND NOS. 1 AND 2 ARE IN RESPECT OF THE ADDITION OF RS.1,09,67,720/ - WHICH WAS MADE BY THE ASSESSING OFFICER ON THE BASIS OF THE REVISED RETURN FILED BY THE ASSESSEE BUT WHICH WAS TREATED AS NON - EST AND WITHOUT DECIDING THE ISSUE ON MERIT THE ADDITION WAS MADE. 3. THE FACTS WHICH ARE REVEALED FROM THE RECORD AS UNDER. THE ASSESSEE IS A CO - OPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING. FOR THE A.Y. 2007 - 08 THE ASSESSEE FILED THE RETURN OF INCOME DECLARING TOTAL IN COME AT RS.59,79,404/ - WHICH WAS FILED ON 23 - 10 - 2007. THE ASSESSEE ALSO FILED THE REVISED RETURN OF INCOME ON 21 - 06 - 2009 IN WHICH THE TOTAL REVISED INCOME DECLARED WAS O F RS.1,69,37,120/ - . T HE ASSESSEE CLAIMED THAT THE SAID RETURN HAS BEEN FILED AS PER T HE PROVISIONS OF SEC.139(5) OF THE INCOME - TAX ACT. THE ASSESSEES CASE WAS SELECTED FOR SCRUTINY BY ISSUING THE NOTICE U/S. 143(2) OF THE ACT AND ASSESSMENT HAS BEEN COMPLETED U/S. 143(3) OF THE ACT. IT APPEARS THAT IN THE REVISED 3 ITA NO. 1671/PN/2012, PRATHAMIK SHIKSHAK SAHAKARI BANK LTD., SATARA RETURN THE ASSESSEE WIT HDREW ITS CLAIM OF BAD AND DOUBTFUL D EBTS TO THE EXTENT OF RS.1,09,57,720/ - . T HOUGH THE ASSESSING OFFICER SOUGHT THE EXPLANATION OF THE ASSESSEE BUT ULTIMATELY MADE THE ADDITION ON THE BASIS OF THE REVISED RETURN FILED BY THE ASSESSEE WHICH WAS TREATED AS A NON - EST. THE MATTER WAS CARRIED BEFORE THE LD. CIT(A). THE LD. CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER AND REJECTED THE PLEA OF THE ASSESSEE THAT THE REVISED RETURN IN WHICH THE INCOME WAS ENHANCED BY THE ASSESSEE BY WITHDRAWING THE CLAIM OF BAD AND DOUBTFUL D EBTS TO THE EXTENT OF RS.1,09,67,720/ - WAS REVISED RETURN ONLY. HE SUBMITS THAT IF REVISED RETURN IS TREATED AS NON - EST THEN T HE ASSESSING OFFICER SHOULD HAVE INITIATED THE PROCEEDINGS U/S. 147. NOW THE ASSESSEE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE RECORD. ADMITTEDLY IN THE PRESENT CASE THE REVISED RETURN IS NOT FILED WITH THE TIME LIMIT ALLOWED U/S. 139(5) OF THE ACT I.E. UP TO 31 - 03 - 2009 BUT THE REVISED RETURN WAS FILED ON 21 - 06 - 2009 . H ENCE, THE SUBSEQUENT RETURN FILED BY THE ASSESSEE IN THE EYE OF LAW CANNOT BE TREATED AS VALID REVISED RETURN A S THERE IS NO PROVISION OF FILING BELATED REVISED RETURN . H ENCE, THE ASSESSING OFFICER AS WELL AS THE LD. CIT(A) HAVE RIGHTLY HELD THAT THE SUBSEQUENT RETURN FILED BY THE ASSESSEE CLAIMING THE SAME AS A REVISED RETURN WAS A NON - EST RETURN AND NO COGNIZANCE CAN BE TAKEN. BUT THE MAIN PLANK OF THE LEARNED COUNSEL IS THAT THE ASSESSING OFFICER HAS MADE THE ADDITION TAKING THE COGNIZANC E OF THE REVISED RETURN WHICH WAS TREATED AS A NON - EST WITHOUT DECIDING THE DISALLOWANCE OF THE BAD AND DOUBTFUL D EBTS ON MERIT. WE FIND FORCE IN THE ARGUMENT OF THE LEARNED COUNSEL . B OTH THE PARTIES HAVE NOT DECIDED THE ISSUE OF DISALLOWANCE OF CLAIM OF THE BAD AND DOUBTFUL D EBTS ON MERIT BUT MERELY RELIED ON THE WITHDRAWAL OF THE SAID CLAIM BY THE ASSESSEE IN THE SUBSEQUENT REVISED RETURN WHICH WAS TREATED AS A NON - EST. IN OUR OPINION, THE ASSESSING OFFICER SHOULD HAVE INDEPENDENTLY EXAMINED AND DECIDE D THE CLAIM OF THE BAD AND DOUBTFUL D EBTS WHICH WAS MADE IN THE 4 ITA NO. 1671/PN/2012, PRATHAMIK SHIKSHAK SAHAKARI BANK LTD., SATARA ORIGINAL RETURN AND SHOULD NOT HAVE MERELY DISALLOWED THE SAME W HILE CONSIDERING THE ORIGINAL RETURN IN THE SCRUTINY ASSESSMENT RELYING ON THE REVISED RETURN WHICH WAS TREATED AS A NON - EST. W E, THEREFORE, CONSIDER IT FIT TO RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO EXAMINE THE CLAIM OF THE ASSESSEE ON MERIT DISCARDING THE REVISED RETURN FILED BY THE ASSESSEE AND DECIDE THE SAME AFRESH. ACCORDINGLY , THE GROU ND NO. 1 IS DISMISSED AND GROUND NO. 2 IS ALLOWED FOR STATISTICAL PURPOSE S . 5. THE GROUND NO S . 3 AND 4 ARE IN RESPECT OF THE DISALLOWANCE OF RS.6,16,784/ - WHICH IS IN RESPECT OF THE PROVISION ON ACCOUNT OF A MORTIZATION OF PREMIUM OF GOVT. SECURITIES . O N EXAMINATION OF THE PROFIT AND LOSS ACCOUNT IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.6,16,784/ - ON ACCOUNT OF GOVERNMENT SECURITY PREMIUM A MORTIZATION WHICH WAS IN THE NATURE OF PROVISION. THE ASSESSING OFFICE R SOUGHT THE EXPLANATION OF THE ASSESSEE AND AS PER THE EXPLANATION GIVEN BY THE ASSESSEE THE ASSESSEE DEBITED DEPRECIATION ON GOVERNMENT SECURIT IES BY WAY OF A MORTIZATION OF PREMIUM PAID OVER AND ABOVE THE FACE VALUE OF THE GOVERNMENT SECURITIES AS EXP END ITURE. ACCORDING TO THE ASSESSEE , THE SAID EXPENDITURE IS ALLOWABLE DEDUCTION U/S. 37(1) OF THE ACT . THE ASSESSEE EXP LAINED THAT THE INVESTMENT S MADE BY THE BANK IN GOVERNMENT SECURITIES ARE MADE IN THE COURSE OF THE BANKING BUSINESS AND THE SECURITIES A RE IN THE NATURE OF CURRENT INVESTMENT S . THE ASSESSEE ALSO CONTENDED THAT THE SECURITIES ARE CLASSIFIED INTO THREE CATEGORIES I.E. (I) HELD FOR TRADING (HFT) , (II) AVAILABLE FOR SALE (AFS) AND (III) HELD TO MATURITY (HTM) . THE ASSESSING OFFICER WAS NOT I MPRESSED WITH THE EXPLANATION OF THE ASSESSEE. THE ASSESSING OFFICER REFERRED TO THE BALANCE SHEET OF THE ASSESSEE BANK AND OBSERVED THAT THE ASSESSEE HAS SHOWN THE AMOUNT INVEST ED IN GOVERNMENT SECURITIES AS I NVESTMENT AND NOT AS STOCK - IN - TRADE. HE ALSO OBSERVED THAT SECURITIES HELD UNDER HELD FOR TRADING (HFT) AND AVAILABLE FOR SALE (AFS) ARE IN THE NATURE OF STOCK - 5 ITA NO. 1671/PN/2012, PRATHAMIK SHIKSHAK SAHAKARI BANK LTD., SATARA IN - TRADE BUT SECURITIES HELD UNDER THE CATEGORY OF HTM ARE IN THE NATURE OF CAPITAL ASSETS. HE FURTHER OBSERVED THAT FOR THE PURPOSE OF INC OME TAX FOR THEIR VALUATION AT THE YEAR END, THE AFS AND HFT SECURITIES ARE TO BE VALUED AT COST OR MARKET WHICHEVER IS LESS BUT SECURITIES HELD UNDER HTM CATEGORY HAVE TO BE VALUED AT COST ONLY AND NOT AT COST OR MARKET WHICHEVER IS LESS. THE ASSESSING O FFICER FINALLY HELD THAT THE SECURITIES ON WHICH THE LOSS IS CLAIMED BY THE ASSESSEE BANK IS A CAPITAL LOSS AND CANNOT BE ALLOWED AS THE REVENUE LOSS , T HOUGH THE SAME IS DIFFERENTLY WORDED BY THE ASSESSING OFFICER. THE LD. CIT(A) HELD THAT IT IS NOT IN DI SPUTE THAT THE SECURITIES IN QUESTION WERE HELD IN THE CATEGORY OF HTM (INVESTMENTS) AND DURING THE YEAR THE ASSESSEE HAS NOT SHIFTED THE SECURITIES TO OTHER CATEGORIES. HE ALSO REFERRED TO THE DECISION OF THE APEX COURT IN THE CASE OF SOUTHERN TECHNOLOGI ES LTD. 320 ITR 577 AND REJECTED THE CLAIM OF THE ASSESSEE AND CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 6. WE HAVE HEARD THE PARTIES. THE TREATMENT OF SECURITIES HELD BY THE BANK WHETHER UNDER AFS, AFT OR HTM HAD COME FOR THE CONSIDERATION BEFORE THE ITAT, PUNE IN THE CASE OF LATUR URBAN CO - OP. BANK LTD. VS. ACIT, ITA NOS. 778 & 792/PN/2011 ORDER DATED 31 - 08 - 2012 IN WHICH THIS TRIBUNAL HAS HELD AS UNDER: 14. WE HAVE HEARD THE PARTIES. THE LD COUNSEL PLACED HIS HEAVY RELIANCE ON THE DECISION OF T HE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. BANK OF BARODA AND IN THE CASE OF UCO BANK VS. CIT, 240 ITR 355 (SC). IN THE CASE OF BANK OF BARODA (SUPRA), THE ISSUE BEFORE THEIR LORDSHIP WAS WHETHER THE ASSESSEE WAS ENTITLED FOR DEDUCTION ON ACCO UNT OF DEPRECIATION IN THE VALUE OF INVESTMENTS. THE METHOD OF VALUATION FOLLOWED BY THE ASSESSEE BANK WAS TO VALUE INVESTMENTS AT COST OR MARKET VALUE WHICHEVER WAS LOWER. THE ASSESSEE HAD CLAIMED THE DEPRECIATION TO THE TUNE OF RS. 11,82,35,007/ - AND T HE SAID DEPRECIATION WAS CLAIMED AS A DEDUCTION WHICH WAS DISALLOWED BY THE A.O, BUT THE ASSESSEE BANK SUCCEEDED BEFORE THE CIT(A). THE TRIBUNAL CONFIRMED THE ORDER OF THE CIT(A). THE REVENUE CARRIED THE ISSUE BEFORE THE HONBLE HIGH COURT. THE CORE ISS UE WAS THE METHOD OF VALUATION ADOPTED BY THE 6 ITA NO. 1671/PN/2012, PRATHAMIK SHIKSHAK SAHAKARI BANK LTD., SATARA ASSESSEE BANK FOR VALUING THE STOCK OF THE SECURITIES. THE HONBLE HIGH COURT FOLLOWED THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF UNITED COMMERCIAL BANK (SUPRA). 15. IN THE CASE OF UNITED COMMERCI AL BANK (SUPRA), EVEN THE ISSUE OF VALUATION OF THE STOCK IN TRADE OF THE INVESTMENT WAS BEFORE THE HONBLE SUPREME COURT. IN THE CASE OF THE ASSESSEE, THE ISSUE IS REGARDING ALLOWABILITY OF THE LOSS ON THE SALE OF THE SECURITIES. MERELY BECAUSE THE SECU RITIES ARE KEPT UNDER THE HEAD TILL THE MATURITY, THE SAID SECURITY CANNOT BE TREATED AS A PURELY INVESTMENT. LAW IS WELL SETTLED THAT THE SECURITIES HELD BY THE BANK ARE IN THE NATURE OF STOCK - IN - TRADE. WE MAY LIKE TO QUOTE HERE THE DECISION OF THE H ONBLE HIGH COURT OF KERALA IN THE CASE OF CIT VS. NEDUNGADI BANK LTD., 264 ITR 545. IN THE SAID CASE, THE HONBLE HIGH COURT HAS HELD THAT THE SECURITIES HELD BY THE BANK ARE IN THE NATURE OF STOCK - IN - TRADE. BOTH THE AUTHORITIES BELOW HAS MERELY GONE ON THE NOMENCLATURE OF THE HEAD UNDER WHICH THE SECURITIES ARE HELD. IN OUR CONSIDERED VIEW, NOMENCLATURE CANNOT BE DECISIVE FOR THE ASSESSEE BANK. WE, THEREFORE, HOLD THAT THE LOSS ON THE SALE OF THE SECURITIES IS REVENUE IN NATURE AND SAME IS ALLOWABLE. ACCORDINGLY, GROUND NO. 2 IS ALLOWED. 7. THE SAID DECISION WAS FOLLOWED SUBSEQUENTLY BY THIS TRIBUNAL IN THE CASE OF THE SANGLI BANK LTD. VS. ACIT, ITA NO. 846/PN/2006 ORDER DATED 30 - 05 - 2013 AND HELD AS UNDER: 7. SO FAR AS THE SECURITIES HELD UNDE R THE HTM CATEGORY THE I.T.A.T., PUNE HAS TAKEN A VIEW IN THE CASE OF LATUR URBAN CO - OPERATIVE BANK LTD. VS. ACIT ITA NOS. 778 AND 792/PN/2011 ORDER DATED 31 - 08 - 2012 THAT ALL THE SECURITIES HELD BY THE ASSESSEE ARE PART OF THE STOCK - IN - TRADE IRRESPECTIVE O F THEIR CLASSIFICATION. SO FAR AS THE TREATMENT OF THE ASSESSEE IN CLASSIFYING THE SECURITIES, IN OUR OPINION THE SECURITIES CLASSIFIED UNDER HTM CATEGORY IS ALSO PART OF THE STOCK - IN - TRADE. THERE IS RBI CIRCULAR AS PER WHICH THE ASSESSEE CAN AMORTIZE TH E DEPRECIATION OR LOSS ON THE CONVERSION OF SECURITIES FROM FST CATEGORY TO HTM CATEGORY. WE, THEREFORE, DO NOT AGREE WITH THE VIEW TAKEN BY THE LD. CIT(A) THAT THE SECURITIES HELD UNDER HTM ARE CAPITAL IN NATURE. WE ACCORDINGLY ALLOW THE GROUND NO. 1 TA KEN BY THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE IN LIGHT OF THE ABOVE DISCUSSION. 7 ITA NO. 1671/PN/2012, PRATHAMIK SHIKSHAK SAHAKARI BANK LTD., SATARA 8. SO FAR AS THE RELIANCE PLACED BY THE LD. CIT(A) ON THE DECISION OF THE APEX COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA ) , I N OUR OPINION , THE ISSUE BEFORE THE HON'BLE SUPREME COURT WAS IN RESPECT OF THE ALLOWABILITY OF CLAIM OF DEDUCTION U/S. 36(1)( VII ) AND NOT IN RESPECT OF TREATMENT OF SECURITIES HELD BY THE BANK. MOREOVER, THE SECURITIES ARE TO BE TREATED AS PART OF TH E STOCK - IN - TRADE . T HIS IS ALSO SUPPORTED BY THE DECISION OF THE APEX COURT AS WELL AS THE OTHER HIGH COURTS. WE, THEREFORE, HOLD THAT THE LOSS ON THE VALUATION OF THE SECURITIES HELD UNDER THE HTM CATEGORY IS ALLOWABLE AS REVENUE EXPENDITURE AND THE GROU ND NOS. 3 AND 4 ARE ALLOWED. 9. SO FAR AS THE GROUND NO. 5 IS CONCERNED THE LEARNED COUNSEL SUBMITS THAT HE IS NOT PRESSING GROUND NO. 5. AS GROUND NO. 5 IS NOT PRESSED, THE SAME IS DISMISSED AS NOT PRESSED. GROUND NO. 6 IS CONSEQUENTIAL. 10. IN THE RES ULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED FOR THE STATISTICAL PURPOSE S . PRONOUNCED IN THE OPEN COURT ON 25 - 10 - 2013 SD/ - SD/ - ( G.S. PANNU ) ( R.S. PADVEKAR ) ACCOUNTANT MEMBER JUDICIAL MEMBER RK /PS PUNE , DATED : 25 TH OCTOBER, 20 1 3 COPY TO 1 ASSESSEE 2 DEPARTMENT 3 THE CIT(A) - I I I, PUNE 4 THE CIT - I I I, PUNE 5 THE DR, ITAT, B BENCH, PUNE . 6 GUARD FILE. //TRUE COPY// BY ORDER PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL PUNE