Pune District Central Co.op. Bank Ltd., Pune V. Dy. Commissioner of Income-tax,

ITA 1795/PUN/2013

• Counselvise Citation: 179524514 RSA 2013
• Duration Of Justice: 11 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-09-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 04-10-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: D V KOTWAL
• Keywords: Depreciation; Question of law; Cost of acquisition; Revenue expenditure
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.1795/PN/2013 (A.Y:2008-09) PUNE DISTRICT CENTRAL CO-OPERATIVE BANK LTD., 4B, B.J. ROAD, SADHU VISWANI CHOWK, PUNE 411001 PAN: AAAAP7372D APPELLANT VS. DY.CIT, CIRCLE 1(2), PUNE RESPONDENT APPELLANT BY : S/SHRI M.K. KULKARNI & D.V. KOTWAL RESPONDENT BY : SHRI RAJESH DAMOR DATE OF HEARING : 22.09.2014 DATE OF PRONOUNCEMENT : 22.09.2014 ORDER PER SHAILENDRA KUMAR YADAV : THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I, PUNE DA TED 30.08.2013 FOR A.Y.2008-09 ON THE FOLLOWING GROUNDS . 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE MAD E BY THE A.O. OF RS.2,20,68,302/- CLAIMED AS AMORTIZATIO N OF PREMIUM EXPENDITURE FOR HTM SECURITIES BY PAYMENT O F PREMIUM OVER AND ABOVE THE FACE VALUE OF SUCH SECUR ITIES. THE CIT(A) WAS NOT CORRECT IN CONFIRMING DISALLOWAN CE OF SUCH AMORTIZATION EXPENDITURE AS VARIOUS JUDICIAL PRECEDENTS OF HIGH COURT AND TRIBUNALS HAVE HELD IT TO BE AN ALLOWABLE EXPENDITURE. IT BE HELD ACCORDINGLY. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LD. CIT(A) WAS NOT CORRECT IN HIS DECISION TO DISAL LOW SUCH AMORTIZATION EXPENDITURE HOLDING THAT THERE WAS NO PROVISION IN THE I. T. ACT, 1961 TO ALLOW AMORTIZAT ION ITA NO.1795/PN/13 PUNE DIST. CENTRAL CO-OP. BANK LTD. PREMIUM AS DEDUCTION EITHER IN THE YEAR OF ACQUISIT ION OF HTM SECURITIES OR OVER THE PERIOD OF MATURITY ON DE FERRED BASIS. THIS ALSO RUNS CONTRARY TO CL. (VII) OF INST RUCTION NO. 17/2008 DT. 26-11-2008 OF CBDT. THE DEDUCTION CLAIM ED BE ALLOWED. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE DISA LLOWANCE MADE BY THE A.O. OF RS.20,00,000/- CALLING IT AS PR OVISION SIMPLICTER AS CONTINGENT LIABILITY. THE INVESTMENT FLUCTUATION FUND IS CREATED TO PROTECT THE WILD FLU CTUATIONS IN MARKET VALUE OF HTM SECURITIES WHICH ARE MADE AS COMPULSORY SLR INVESTMENTS AND WHICH ARE ALSO TREAT ED AS STOCK-IN-TRADE OF THE BANK. SINCE THIS IS FOR PROTE CTION OF SLR SECURITIES IT CANNOT BE CALLED A CONTINGENT PRO VISION AND IT BE ALLOWED AS DEDUCTION ACCORDINGLY. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LEVY OF INTEREST U/S 234A, 234B AND 234C IS NOT JUS TIFIED. THE LEVY OF INTEREST BE QUASHED. 5. THE APPELLANT CRAVES / LEAVE TO ADD, AMEND OR ALTER ANY OF THE ABOVE GROUNDS OF APPEAL. 2. AT THE OUTSET OF HEARING, THE LEARNED AUTHORIZED REPRESENTATIVE HAS SUBMITTED THAT HE IS NOT PRESSIN G GROUND NO.3, SO THE SAME IS DISMISSED AS NOT PRESSED. 2.1 THE ONLY ISSUE REMAINS IS WITH REGARD TO DISALL OWANCE MADE BY THE ASSESSING OFFICER OF RS.2,20,68,302/- CLAIME D BY THE ASSESSEE AS AMORTIZATION OF PREMIUM EXPENDITURE FOR HTM SECURITIES BY PAYMENT OF OVER AND ABOVE THE VALUE O F SUCH SECURITIES. THE LEARNED AUTHORIZED REPRESENTATIVE HAS POINTED OUT THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSE E BY ORDER OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. HD FC BANK LTD. (2014) 366 ITR 505 (BOM), WHEREIN THE HONBLE BOMBA Y HIGH COURT ON SIMILAR ISSUE, HELD AS UNDER: AS FAR AS QUESTION (C) IS CONCERNED, WE FIND THAT AN IDENTICAL QUESTION OF LAW WAS FRAMED AND ANSWERED IN FAVOUR O F THE ASSESSEE BY THIS COURT IN ITS JUDGMENT DATED JULY 4 , 2014, IN INCOME TAX APPEAL NO.1079 OF 2012, CIT V. LORD KRIS HNA BANK LTD. (NOW MERGED WITH HDFC BANK LTD.) (2014) 3 66 ITR 416 (BOM). MR. SURESH KUMAR FAIRLY STATED THAT QUE STION (C) REPRODUCED ABOVE IS COVERED BY THE SAID ORDER. IN VIEW ITA NO.1795/PN/13 PUNE DIST. CENTRAL CO-OP. BANK LTD. THEREOF, WE ARE OF THE VIEW THAT EVEN QUESTION (C) DOES NOT ARISE ANY SUBSTANTIAL QUESTION OF LAW THAT REQUIRES AN ANSWER FROM US. AND A SIMILAR VIEW HAS BEEN TAKEN BY ITAT, PUNE A BENCH IN THE CASE OF DY.CIT VS. KALLAPPANNA AWADE ICHALKARAN JI JANATA SAHAKARI BANK LTD. IN ITA NO.449/PN/2012 AND ANOTHE R BY OBSERVING AS UNDER: 10. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFI CER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE AS SESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BE FORE US. WE FIND AN IDENTICAL ISSUE HAD COME UP BEFORE THE T RIBUNAL IN THE CASE OF NAHSIK MERCHANT COOPERATIVE BANK LTD. ( SUPRA). WE FIND THE TRIBUNAL HAS DISCUSSED THE ISSUE AND DI SMISSED THE GROUNDS RAISED BY THE REVENUE BY HOLDING AS UND ER : 4. AFTER GOING THROUGH RIVAL SUBMISSIONS AND MATE RIAL ON RECORD WE FIND THAT WITH THE ADVENT OF SECTION 8 0P(4) W.E.F. A.Y, 2007-08 HAS CLOSED THE DOORS FOR COOPER ATIVE BANKS FOR CLAIMING THE BENEFIT OF DEDUCTION U/S.80P(2)(A)(I) FROM THIS TOTAL INCOME. HOWEVER, T HE COOPERATIVE SOCIETY SHOULD NOW BE ENTITLED TO BE ASSESSED AS NORMAL BANKING COMPANY. THE CLAUSE (4) INSERTED IN SECTION 80P HAS TAKEN AWAY THE BENEFIT OF THE ERSTWHILE DEDUCTION AVAILABLE TO COOPERATIVE SOCIET Y IN CARRYING ON BUSINESS OF BANKING OR PROVIDING CREDIT FACILITY TO ITS MEMBERS. THE NEW CLAUSE (4) INSERTE D BY THE FINANCE ACT, 2006 W.E.F. 01-04-2007 READS AS UN DER: ' THE PROVISION OF THE SECTION WAS NOT IN RELATION TO ANY COOPERATIVE BANK OTHER THAN AGRICULTURAL CREDIT SOCIETY OR PRIMARY COOPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK'. 5. THE INTENTION OF THE PROVISION MAY BE DERIVED M ORE PRECISELY FROM RELEVANT PARA 166 OF THE BUDGET SPEE CH WHICH STATED THAT : 'CO-OPERATIVE BANKS, LIKE ANY O THER BANK, ARE LENDING INSTITUTIONS AND SHOULD PAY TAX O N THEIR PROFITS, PRIMARY AGRICULTURAL CREDIT SOCIETIE S (PACS) AND PRIMARY COOPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK (PCARDB) STAND ON A SPECIAL FOOTIN G AND WILL CONTINUE TO BE EXEMPT UNDER SECTION 80P OF THE INCOME TAX ACT. HOWEVER, I PROPOSE TO EXCLUDE ALL O THER CO-OPERATIVE BANKS FROM THE SCOPE OF THAT SECTION'. ACCORDINGLY, SECTION 80P IS TO BE AMENDED TO GIVE E FFECT TO THE ABOVE PROPOSAL. IT IS ALSO PROPOSED TO AMEND SECTION 2(24) TO PROVIDE THAT PROFITS AND GAINS OF ITA NO.1795/PN/13 PUNE DIST. CENTRAL CO-OP. BANK LTD. BUSINESS OF BANKING (INCLUDING PROVIDING CREDIT FAC ILITIES) CARRIED ON BY A CO-OPERATIVE SOCIETY WITH ITS MEMBE RS SHALL BE INCLUDED IN THE DEFINITION OF 'INCOME' (WI TH EFFECT FROM 1ST APRIL, 2007)'. 6. COOPERATIVE BANK UNLIKE OTHER COMMERCIAL BANKS ARE SUBJECTED TO DUAL CONTROL FROM BOTH RBI AS WELL AS FROM STATE COOPERATIVE DEPARTMENT. THE ACCOUNTING TREATMENT FOR A COOPERATIVE BANK IS THEREFORE A RES ULT OF GUIDELINES FROM BOTH THE CONTROLLING AUTHORITIES. ORDINARILY A DEDUCTION IS NOT AVAILABLE TO AN ASSES SEE UNLESS SPECIFICALLY PROVIDED UNDER THE ACT. THIS IS IRRESPECTIVE OF ACCOUNTING TREATMENT PROVIDED BY TH E ASSESSEE IN ITS BOOKS OF ACCOUNTS. BUT AT THE SAME TIME IT WAS WELL SETTLED THAT DEDUCTION EXPRESSLY MENTIO NED UNDER THE ACT ARE NOT EXHAUSTIVE AND PROFIT IS TO B E DERIVED ACCORDING TO ORDINARY COMMERCIAL PRINCIPLES . AS PER THE EXTANT RBI GUIDELINES DATED 01-07-2009 THE INVESTMENT PORTFOLIO OF THE BANKS IS REQUIRED TO BE CLASSIFIED UNDER 3 CATEGORIES VIZ., HELD THE MATURI TY HTM), HELD FOR TRADING (HFT) AND AVAILABLE FOR SALE (AFS). THE VALUE OF EACH KIND OF INVESTMENT IS TO B E DONE IN THE FOLLOWING MANNER: SR.NO. CLASSIFICATION VALUATION NORMS OF INVESTMENT. 1. HTM THESE ARE CARRIED AT ACQUISITION COST UNLESS THE COST IS MORE THAN THE FACE VALUE, IN WHI CH CASE THE PREMIUM SHOULD BE AMORTISED OVER THE PERIO D REMAINING TO MATURITY. THE PREMIUM IS REQUIRED TO B E AMORTISED OVER THE PERIOD REMAINING TO MATURITY. TH IS APART, ANY PERMANENT DIMINUTION IN VALUE SHALL FV S HALL GO ON TO REDUCE COST OF THE INVESTMENT. 2. AFS THE INDIVIDUAL SCRIPS IN THE AVAILABLE FOR SALE CATEGORY WILL BE MARKED TO MARKET AT QUARTERLY OR AT MORE FREQUENT INTERVALS. THESE INVESTMENTS ARE CONSIDERED TO FORM STOCK-IN-TRADE OF A BANK AND THEREFORE ARE TO BE VALUED AT COST OR NRV, WHICHEVE R IS LESS. FALL IN VALUE BELOW COST, THEREFORE, IS TO BE PROVIDED IMMEDIATELY, HOWEVER ANY NET APPRECIATION IN VALUE IS IGNORED AND NOT RECOGNIZED AS INCOME ON THE BASIS O F CONSERVATISM. 3. HFT THE INDIVIDUAL SCRIPS IN THE HELD FOR TRADING CATEGORY WILL BE MARKED TO MARKET AT MONTHL Y OR AT MORE FREQUENT INTERVALS AND PROVIDED FOR AS IN T HE CASE OF THOSE IN THE AVAILABLE FOR SALE CATEGORY. ITA NO.1795/PN/13 PUNE DIST. CENTRAL CO-OP. BANK LTD. 7. IN PARA (VII) OF THE CBDT INSTRUCTION NO.17 OF 2008 DATED 26.11.2008, ON 'ASSESSMENT OF BANK - CHECK LIST FOR DEDUCTION, STATES AS UNDER: 'AS PER RBI GUIDELINES DATED I6TH OCTOBER, 2000, TH E INVESTMENT PORTFOLIO OF THE BANKS IS REQUIRED TO BE CLASSIFIED UNDER THREE CATEGORIES VIZ. HELD TO MATU RITY (HTM), HELD FOR TRADING (HFT) AND AVAILABLE FOR SAL E (AFS). INVESTMENTS CLASSIFIED UNDER HTM CATEGORY NE ED NOT BE MARKED TO MARKET AND ARE CARRIED AT ACQUISIT ION COST UNLESS THESE ARE MORE THAN THE FACE VALUE, IN WHICH CASE THE PREMIUM SHOULD BE AMORTISED OVER THE PERIO D REMAINING TO MATURITY. IN THE CASE OF HFT AND AFS SECURITIES FORMING STOCK IN TRADE OF THE BANK, THE DEPRECIATION/ APPRECIATION IS TO BE AGGREGATED SCRI P WISE AND ONLY NET DEPRECIATION, IF ANY, IS REQUIRED TO B E PROVIDED FOR IN THE ACCOUNTS. THE LATEST GUIDELINES OF THE RBI MAY BE REFERRED TO FOR ALLOWING ANY SUCH CLAIMS .' 8. THE ITAT, MUMBAI BENCH, IN THE CASE OF ACIT VS. THE BANK OF RAJASTHAN LTD. (2011) TIOL-35-ITAT-MUMBAI, HAS HELD THAT IN CASE OF BANKS, THE PREMIUM PAID IN EXC ESS OF FACE VALUE OF INVESTMENTS CLASSIFIED UNDER HTM CATEGORY WHICH HAS BEEN AMORTISED OVER THE PERIOD TILL MATURITY IS ALL OWABLE AS REVENUE EXPENDITURE SINCE THE CLAIM IS AS PER RBI G UIDELINES AND CBDT ALSO HAS DIRECTED TO ALLOW SUCH PREMIUM. I T HAS ALSO BEEN HELD IN THE CASE OF CATHOLIC SYRIAN BANK LTD. VS. ACIT THAT AMORTIZATION ON PURCHASE OF GOVERNMENT SE CURITIES WAS MADE AS PER PRUDENTIAL NORMS OF THE RBI AND SAM E WAS ALLOWABLE DEDUCTION. IN VIEW OF ABOVE, ASSESSEE WA S JUSTIFIED IN CONTENDING FOR AMORTIZATION OF PREMIUM PAID IN E XCESS OF FACE VALUE OF SECURITIES HELD TO MATURITY (HTM) CAT EGORY OR PERIOD REMAINING TILL MATURITY WAS FOUND REASONABLE BY THE CIT(A). ACCORDINGLY ADDITION OF RS.17,91,659/- MAD E BY THE ASSESSING OFFICER BY DISALLOWING AMOUNT TOWARDS AMO RTIZATION OF GOVERNMENT SECURITIES (HMT) WAS DELETED. THIS R EASONED FACTUAL AND LEGAL FINDING OF THE CIT(A) NEEDS NO IN TERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME. 9. AS A RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 10.1 RESPECTFULLY FOLLOWING THE DECISION OF THE COO RDINATE BENCH OF THE TRIBUNAL AND IN ABSENCE OF ANY CONTRAR Y MATERIAL BROUGHT TO OUR NOTICE AGAINST THE ABOVE CITED DECIS ION WE FIND NO INFIRMITY IN THE ORDER OF THE LD.CIT(A) DELETING THE ADDITION. ACCORDINGLY, THE ORDER OF THE LD.CIT(A) IS UPHELD A ND THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. ITA NO.1795/PN/13 PUNE DIST. CENTRAL CO-OP. BANK LTD. 2.2 NOTHING CONTRARY HAS BEEN BROUGHT TO OUR KNOWLE DGE ON BEHALF OF THE REVENUE. FACTS BEING SIMILAR, SO FOL LOWING THE SAME REASONING WE HOLD THAT IN CASE OF BANKS, THE PREMIU M PAID IN EXCESS OF FACE VALUE OF INVESTMENTS CLASSIFIED UNDE R HTM CATEGORY WHICH HAS BEEN AMORTISED OVER THE PERIOD TILL MATUR ITY IS ALLOWABLE AS REVENUE EXPENDITURE SINCE THE CLAIM IS AS PER RB I GUIDELINES AND CBDT ALSO HAS DIRECTED TO ALLOW SUCH PREMIUM. IN VIEW OF ABOVE, THE ASSESSEE IS JUSTIFIED IN CONTENDING THAT THE AMORTIZATION OF PREMIUM IN EXCESS OF FACE VALUE SECURITIES AS HT M, PERIOD REMAINING DIFFERENCE WAS FOUND REASONABLE. ACCORDI NGLY, THE DISALLOWANCE OF RS.2,20,68,302/- MADE BY THE ASSESS ING OFFICER CLAIMED AS AMORTIZATION OF PREMIUM EXPENDITURE FOR HTM SECURITIES BY PAYMENT OF PREMIUM OVER AND ABOVE THE FACE VALUE OF SUCH SECURITIES IS DIRECTED TO BE ALLOWED. 3. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS THE 22 ND DAY OF SEPTEMBER, 2014. SD/- SD/- (R.K. PANDA) (SHAILENDRA KUMAR YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED THE 22 ND SEPTEMBER, 2014 GCVSR COPY TO:- 1) ASSESSEE 2) THE DEPARTMENT 3) THE CIT(A)-I, PUNE 4) THE CIT-I, PUNE 5) THE DR, A BENCH, I.T.A.T., PUNE. 6) GUARD FILE BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, PUNE.