DCIT CIRCLE-1, Ranchi V. Ranchi Kshetriya Gramin Bank, Ranchi

ITA 192/RAN/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 9609 (ITAT-RANCHI)
• Duration Of Justice: 2 year(s) 9 month(s) 18 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 05-04-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 17-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P K MONDAL
• Assessee Lawyers: S K PODDARDEVESH PODDAR
• Keywords: Depreciation; Additional evidence
• Section: 143(3); 12; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, RANCHI BENCH, RANCHI BEFORE SHRI N.S SAINI, ACCOUNTANT MEMBER AND PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA NOS.191 & 192 /RAN/201 6 ASSESSMENT YEAR S : 2006 - 07 AND 2007 - 2008 DCIT, CIRCLE - 1, RANCHI. VS. RANCHI KSHETRIYA GRAMIN BANK, RAJENDRA PLACE, 5, MAIN ROAD, RANCHI PAN/GIR NO. AAAAR 4247 F (APPELLANT ) .. ( RESPONDENT ) C.O. NOS.11 & 12/RAN/2017 (IN ITA NOS.191 & 192/RAN/2016) ASSESSMENT YEARS: 2006 - 07 AND 2007 - 2008 RANCHI KSHETRIYA GRAMIN BANK, RAJENDRA PLACE, 5, MAIN ROAD, RANCHI VS. DCIT, CIRCLE - 1, RANCHI PAN/GIR NO. AAAAR 4247 F (APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY: SHRI S.K.PODDAR/DEVESH PODDAR, ADV REVENUE BY : SHRI P.K.MONDAL, JCIT DATE OF HEARING : 30 /05 / 201 8 DATE OF PRONOUNCEMENT : 31 /05/ 2018 O R D E R 2 PER N.S.SAINI, AM THESE ARE APPEALS FILED BY THE REVENUE AND CROSS OBJECTIONS FILED BY THE ASSESSEE A GAINST THE SEPARATE ORDER S OF THE CIT(A) , RANCHI BOTH DATED 4.2.2016 FOR THE ASSESSMENT YEAR 2006 - 07 & 2007 - 2008. ITA NO.191/RAN/2016: A.Y. 2006 - 07 2. THE SOLE ISSUE INVOLVED IN THIS APPEAL IS THAT THE CIT(A) ERRED IN CONFIRMING THE ADDITION OF 1,70,000/ - TOWARDS INCOME EARNED ON NON - SLR INVESTMENT. 3. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS INVESTED A SUM OF RS.11,62,20,000/ - IN NON - SLR ACCOUNT I.E. INVESTMENT IN BONDS & DEBENTURES AND EARNED INTEREST OF RS.1,70,00,000/ - . HE DISALLOWED RS.1,70,00,000/ - U/S. 80P(2)(A)(I) OF THE ACT, FOLLOWIN G THE DECISION FOR EARLIER YEAR I.E. 2005 - 06. 4. ON APPEAL, THE CIT(A) DELETED THE SAME OBSERVING AS UNDER: [6.4] I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND HAVE A PERUSED THE ASSESSMENT ORDER. BEFORE GOING TO THE MERITS OF THE MATTER IT WOUL D RELEVANT TO SETTLE THE ISSUE OF ACCEPTANCE OF THE DISALLOWANCE OF SIMILAR DEDUCTION IN ASSESSMENT YEAR - 2005 - 06 BY THE APPELLANT AND THAT ALSO BEING MADE A GROUND OF DISALLOWANCE FOR THE IMPUGNED YEAR. IT IS WELL SETTLED THAT THE PRINCIPLES OF RES - JUDUCAT A DO NOT APPLY TO INCOME TAX PROCEEDINGS. EACH YEAR HAS TO BE TREATED SEPARATELY BASED ON THE RELEVANT FACTS. DECISIONS ARRIVED AT IN ONE ASSESSMENT YEAR ARE BINDING NEITHER ON THE ASSESSEE NOR THE REVENUE IN RESPECT OF SUBSEQUENT ASSESSMENT YEARS. THE PRI NCIPLE OF ESTOPPEL HAS NO APPLICABILITY TO SUCCESSIVE ASSESSMENTS. MOREOVER, THE 3 CHALLENGE MOUNTED BY THE APPELLANT FOR THE IMPUGNED ASSESSMENT YEAR IS A LEGAL CHALLENGE. THERE IS NO ESTOPPEL AGAINST A STATUTE. THE APPELLANT, FOR THE CURRENT YEAR HAS STATE D THAT SUCH BENEFITS, WHICH IT MAY HAVE FOREGONE NOT BEING AWARE OF THE CORRECT STATUTORY POSITION, CAN BE LEGITIMATELY CLAIMED BASED ON JUDGMENTS OF THE COURTS. [6.5] NON - SLR INVESTMENTS OF REGIONAL RURAL BANKS ARE MADE SUBJECT TO THE GUIDELINES ISSUED BY THE RESERVE BANK OF INDIA. THE GUIDELINES ISSUED IN NOVEMBER, 2003 APPLICABLE TO THE ASSESSMENT YEAR UNDER REFERENCE WERE : - RPCD.CO.RRB.BC/03.05.34/2003 - 04 NOVEMBER, 2003 ADDRESSED TO THE CHAIRMAN OF ALL RRBS/SPONSOR BANK DEAR SIR, DRAFT PRUDENTIAL GUIDELINES ON INVESTMENT IN NON - SLR DEBT SECURITIES PLEASE REFER TO OUR CIRCULAR RPCD.NO.RRB.BC.76/03.05.34/1996 - 97 DATED DECEMBER 13, 1996 REGARDING AVENUES OF INVESTMENT OF SURPLUS NON - SLR FUNDS OF REGIONAL RURAL BANKS IN TERMS OF WHICH RRBS ARE PERMITTED TO INVEST THEIR NON - SLR SURPLUS FUNDS IN CERTAIN AVENUES SUBJECT TO THE TERMS AND CONDITIONS LAID DOWN FROM TIME TO TIME. PARAGRAPH 133 OF THE STATEMENT ON MONETARY AND CREDIT POLICY FOR THE YEAR 2002 - 03 EMPHASIZED THAT BANKS SHOULD OBS ERVE FURTHER PRUDENCE IN ORDER TO CONTAIN THE RISK ARISING OUT OF NON - SLR INVESTMENT PORTFOLIO OF BANKS. 2. SEBI HAS SINCE ADVISED THE GUIDELINES REQUIRED TO BE COMPLIED WITH BY LISTED COMPANIES MAKING ISSUE OF DEBT SECURITIES ON A PRIVATE PLACEMENT BASIS AND LISTED ON AL STOCK EXCHANGE VIDE CIRCULAR SEBI/MRD/SE/AT/36/2003/30/9 DATED SEPTEMBER 30, 2003. 3. IN ORDER TO CONTAIN THE RISKS ARISING OUT OF NON - SLR INVESTMENT PORTFOLIO OF BANKS, IN PARTICULAR THROUGH PRIVATE PLACEMENT, WE ENCLOSE IN THE ANNEX TH E DRAFT GUIDELINES PROPOSED TO BE ISSUED BY THE RESERVE BANK ON BANKS' INVESTMENT IN NON - SLR DEBT SECURITIES WHICH, INTER ALIA, COVERING THE FOLLOWING: - I. THE NEED FOR STRENGTHENING THE INTERNAL RATING SYSTEMS, II. FIXING PRUDENTIAL LIMITS, III. REVIE W BY THE BOARD, AND 4 IV. DISCLOSURES IN 'NOTES ON ACCOUNTS' TO THE BALANCE SHEET. 4. A COPY OF THE DRAFT GUIDELINES ARE ALSO PLACED ON THE RESERVE BANK WEBSITE (WWW.RBI.ORG.IN). YOU MAY PLEASE FURNISH YOUR FEEDBACK ON THE ABOVE DRAFT GUIDELINES WITHIN A W EEK FROM THE DATE OF THIS LETTER TO ENABLE US TO FINALISE THE PROPOSED GUIDELINES. YOURS FAITHFULLY. (C.S.MURHTY) CHIEF GENERAL MANGER IN - CHARGE NNEX GUIDELINES ON INVESTMENTS BY RRBS IN NON - SLR DEBT SECURITIES COVERAGE 1. THESE GUIDELINES COVER BANKS' INVESTMENTS IN NON - SLR DEB T INSTRUMENTS / SECURITIES ISSUED BY CORPORATES, BANKS, ALL INDIA FINANCIAL INSTITUTIONS AND STATE AND CENTRAL GOVERNMENT SPONSORED INSTITUTIONS, ETC. THE GUIDELINES WILL APPLY TO INVESTMENTS BOTH IN THE PRIMARY MARKET AS W ELL AS THE SECONDARY MARKET. IT MAY BE NOTED THAT BANKS SHOULD NOT INVEST IN NON - SLR DEBT SECURITIES OF ORIGINAL MATURITY OF LESS THAN ONE - YEAR OTHER THAN COMMERCIAL PAPER AND CERTIFICATES OF DEPOSITS WHICH ARE COVERED UNDER RBI GUIDELINES. 2. DEFINITIONS OF A FEW TERMS USED IN THESE GUIDELINES HAVE BEEN FURNISHED IN APPENDIX I WITH A VIEW TO ENSURE UNIFORMITY IN APPROACH WHILE IMPLEMENTING THE GUIDELINES. REGULATORY, REQUIREMENTS 3. BANKS SHOULD UNDERTAKE USUAL DUE DILIGENCE IN RESPECT OF INVESTMENTS IN NON - SLR SECURITIES. PRESENT RBI REGULATIONS PRECLUDE BANKS FROM EXTENDING CREDIT FACILITIES FOR CERTAIN PURPOSES. BANKS SHOULD ENSURE THAT SUCH ACTIVITIES ARE NOT FINANCED BY WAY OF FUNDS RAISED THROUGH THE NON - SLR SECURITIES. 4. BANKS MUST NOT INVEST IN UNRATED DEBT SECURITIES, UNLISTED SECURITIES AND UNLISTED SHARES OF ALL INDIA FINANCIAL INSTITUTIONS(AFIS). 5. THE SECURITIES EXCHANGE BOARD OF INDIA (SEBI) VIDE THEIR CIRCULAR DATED SEPTEMBER 30, 2003 HAVE STIPULATED REQUIREMENTS THAT LIST ED COMPANIES ARE REQUIRED TO COMPLY WITH FOR MAKING ISSUE OF DEBT 5 SECURITIES ON A PRIVATE PLACEMENT BASIS AND LISTED ON A STOCK EXCHANGE. ACCORDING TO THIS CIRCULAR ANY LISTED COMPANY, MAKING ISSUE OF DEBT SECURITIES ON A PRIVATE PLACEMENT BASIS AND LISTED ON A STOCK EXCHANGE, HAS TO MAKE FULL DISCLOSURES (INITIAL AND CONTINUING) IN THE MANNER PRESCRIBED IN SCHEDULE II OF THE COMPANIES ACT 1956, SEBI (DISCLOSURE AND INVESTOR PROTECTION) GUIDELINES, 2000 AND THE LISTING AGREEMENT WITH THE EXCHANGES. FURTHERM ORE, THE DEBT SECURITIES SHALL CARRY A CREDIT RATING OF NOT LESS THAN INVESTMENT GRADE FROM A CREDIT RATING AGENCY REGISTERED WITH THE SEBI. BANKS SHOULD ENSURE THAT THEY MAKE ALL FRESH NON - SLR DEBT INVESTMENTS ONLY IN LISTED DEBT SECURITIES OF COMPANIES W HICH COMPLY WITH THE REQUIREMENTS OF THE SEBI CIRCULAR DATED SEPTEMBER 30, 2003. INTERNAL ASSESSMENTS 6. SINCE NON - SLR SECURITIES ARE MOSTLY IN THE FORM OF CREDIT SUBSTITUTES, BANKS ARE ADVISED TO (I) SUBJECT ALL THEIR INVESTMENT PROPOSALS RELATING TO NON - SLR SECURITIES TO CREDIT APPRAISAL ON PAR WITH THEIR CREDIT PROPOSALS, IRRESPECTIVE OF THE FACT THAT THE PROPOSED INVESTMENTS MAY BE IN RATED SECURITIES, (II) MAKE THEIR OWN INTERNAL CREDIT ANALYSIS AND RATING EVEN IN RESPECT OF RATED ISSUES AND THAT THEY SHOULD NOT ENTIRELY RELY ON THE RATINGS OF EXTERNAL AGENCIES, AND (III) STRENGTHEN THEIR INTERNAL RATING SYSTEMS WHICH SHOULD ALSO INCLUDE BUILDING UP OF A SYSTEM OF REGULAR (QUARTERLY OR HALF - YEARLY) TRACKING OF THE FINANCIAL POSITION OF THE ISSUER WITH A VIEW TO ENSURING CONTINUOUS MONITORING OF THE RATING MIGRATION OF THE ISSUERS/ISSUES. FIXING OF PRUDENTIAL LIMITS 7. THE BOARD OF DIRECTORS OF BANKS SHOULD FIX A PRUDENTIAL LIMIT FOR THEIR TOTAL INVESTMENT IN NON - SLR SECURITIES SUBJECT TO EXISTING LIMITS PRESCRIBED BY RBI AND SUB - LIMITS FOR THE FOLLOWING DEBT SECURITIES - A. BONDS OF PUBLIC SECTOR UNDERTAKINGS B. BON DS / EQUITY OF ALL INDIA FINANCIAL INSTITUTIONS C. UNSECURED REDEEMABLE BONDS FLOATED BY NATIONLISED BANKS D. INFRASTRUCTURE BONDS FLOATED BY ALL INDIA FINANCIAL INSTITUTIONS E. UNITS OF UTI THE TOTAL INVESTMENTS IN (A) TO (D) ABOVE SHOULD NOT EXCEED 10 P ER CENT OF THE BANKS TOTAL DEPOSITS AS ON MARCH 31, OF THE PREVIOUS YEAR, WITH A SUB - CEILING OF 5 PER CENT OF INCREMENTAL DEPOSITS FOR INVESTMENTS COVERED UNDER (E). 8. BANKS WHICH HAVE EXPOSURE TO INVESTMENTS IN NON - SLR SECURITIES IN EXCESS OF THE PRUDEN TIAL LIMIT PRESCRIBED ABOVE AS ON 31ST MARCH 2003 6 SHOULD NOT MAKE ANY FRESH INVESTMENT IN SUCH SECURITIES TILL THEY ENSURE COMPLIANCE WITH THE ABOVE PRUDENTIAL LIMIT. 9. AS A MATTER OF PRUDENCE, BANKS SHOULD STIPULATE ENTRY - LEVEL MINIMUM RATINGS/ QUALITY STANDARDS AND INDUSTRY - WISE, MATURITY - WISE, DURATION - WISE, ISSUER - WISE ETC. LIMITS TO MITIGATE THE ADVERSE IMPACTS OF CONCENTRATION AND THE RISK OF ILLIQUIDITY. ROLE OF BOARDS 10. BANKS SHOULD ENSURE THAT THEIR INVESTMENT POLICIES DULY APPROVED BY THE BOA RD OF DIRECTORS ARE FORMULATED AFTER TAKING INTO ACCOUNT ALL THE RELEVANT ISSUES SPECIFIED IN THESE GUIDELINES ON NON - SLR INVESTMENT. BANKS SHOULD PUT IN PLACE PROPER RISK MANAGEMENT SYSTEMS FOR CAPTURING AND ANALYSING THE RISK IN RESPECT OF NON - SLR INVEST MENT AND TAKING REMEDIAL MEASURES IN TIME. BANKS SHOULD ALSO PUT IN PLACE APPROPRIATE SYSTEMS TO ENSURE THAT INVESTMENT IN PRIVATELY PLACED INSTRUMENTS IS MADE IN ACCORDANCE WITH THE SYSTEMS AND PROCEDURES PRESCRIBED UNDER RESPECTIVE BANK'S INVESTMENT POLI CY. 11. THE BOARD SHOULD DEVISE A SYSTEM TO ENSURE THAT THE LIMITS PRESCRIBED IN PARAGRAPHS 7 ABOVE ARE SCRUPULOUSLY COMPLIED THE BOARDS SHOULD APPROPRIATELY ADDRESS THE ISSUE OF ENSURING COMPLIANCE WITH THE PRUDENTIAL LIMITS ON AN ONGOING BASIS, INCLUDIN G BREACHES, IF ANY, DUE TO RATING MIGRATION. 12. BOARDS OF 'BANKS SHOULD REVIEW THE FOLLOWING ASPECTS OF NON - SLR INVESTMENT TWICE A YEAR : - A. TOTAL BUSINESS (INVESTMENT AND DIVESTMENT) DURING THE REPORTING PERIOD. B. COMPLIANCE WITH THE PRUDENTIAL LIM ITS PRESCRIBED BY THE BOARD FOR NON - SLR INVESTMENT. C. RATING MIGRATION OF THE ISSUERS/ ISSUES HELD IN THE BANK'S BOOKS AND CONSEQUENT DIMINUTION IN THE PORTFOLIO QUALITY. D. EXTENT OF NON PERFORMING INVESTMENTS IN THE NON - SLR CATEGORY. DISCLOSURES 14. IN ORDER TO HELP IN THE CREATION OF A CENTRAL DATABASE ON PRIVATE PLACEMENT OF DEBT, A COPY OF ALL OFFER DOCUMENTS SHOULD BE FILED WITH THE CREDIT INFORMATION BUREAU (INDIA) LTD. (CIBIL) BY THE INVESTING BANKS. WHEN BANKS THEMSELVES RAISE DEBT THROUGH PRIV ATE PLACEMENT, THEY SHOULD ALSO FILE A COPY OF THE OFFER DOCUMENT WITH CIBIL. 7 15. BANKS SHOULD DISCLOSE THE DETAILS OF THE ISSUER COMPOSITION OF NON - SLR INVESTMENTS AND THE NON PERFORMING NON - SLR INVESTMENTS IN THE 'NOTES ON ACCOUNTS' OF THE BALANCE SHEET , AS INDICATED IN APPENDIX II. DEMAT FORM 6. RRBS SHOULD MAKE INVESTMENT IN NON - SLR SECURITIES IN DEMATERIALISED FORM ONLY. TRADING AND SETTLEMENT IN DEBT SECURITIES 17. AS PER THE SEBI GUIDELINES, ALL TRADES WITH THE EXCEPTION OF THE SPOT TRANSACTIONS, IN A LISTED DEBT SECURITY, SHALL BE EXECUTED ONLY ON THE TRADING PLATFORM OF A STOCK EXCHANGE. IN ADDITION TO COMPLYING WITH THE SEBI GUIDELINES, BANKS SHOULD ENSURE TH AT ALL SPOT TRANSACTIONS IN LISTED AND UNLISTED DEBT SECURITIES ARE REPORTED ON THE NDS AND SETTLED THROUGH THE CCIL FROM A DATE TO BE NOTIFIED BY RBI. APPENDIX I GUIDELINES ON INVESTMENTS BY RRBS IN NON - SLR INVESTMENT PORTFOLIO DEFINITIONS (VIDE PARA 2 OF THE GUIDELINES) 1. WITH A VIEW TO IMPARTING CLARITY AND TO ENSURE THAT THERE IS NO DIVERGENCE IN THE IMPLEMENTATION OF THE GUIDELINES, SOME OF THE TERMS USED IN THE GUIDELINES ARE DEFINED BELOW. 2. A SECURITY WILL BE TREATED AS RATED IF IT IS SUBJEC TED TO A DETAILED RATING EXERCISE BY AN EXTERNAL RATING AGENCY IN INDIA WHICH IS REGISTERED WITH SEBI AND IS CARRYING A CURRENT OR VALID RATING. THE RATING RELIED UPON WILL BE DEEMED TO BE CURRENT OR VALID IF I. THE CREDIT RATING LETTER RELIED UPON IS NOT MORE THAN ONE MONTH OLD ON THE DATE OF OPENING OF THE ISSUE, AND II. THE RATING RATIONALE FROM THE RATING AGENCY IS NOT MORE THAN ONE YEAR OLD ON THE DATE OF OPENING OF THE ISSUE, AND THE RATING LETTER AND THE RATING RATIONALE IS A PART OF THE OFFER DOC UMENT. IV. IN THE CASE OF SECONDARY MARKET ACQUISITION, THE CREDIT RATING OF THE ISSUE SHOULD BE IN FORCE AND CONFIRMED FROM THE MONTHLY BULLETIN PUBLISHED BY THE RESPECTIVE RATING AGENCY. 8 SECURITIES WHICH DO NOT HAVE A CURRENT OR VALID RATING BY AN EXTE RNAL 3 RATING AGENCY WOULD BE DEEMED AS UNRATED SECURITIES. 3. THE INVESTMENT GRADE RATINGS AWARDED BY EACH OF THE EXTERNAL RATIN AGENCIES OPERATING IN INDIA WOULD BE IDENTIFIED BY THE IBA/ FIMMDA THESE WOULD ALSO BE REVIEWED BY IBA/ FIMMDA AT LEAST ONCE A YEAR. 4. A 'LISTED' DEBT SECURITY IS A SECURITY WHICH IS LISTED IN A STOCK EXCHANGE. IF NOT SO, IT IS AN 'UNLISTED' DEBT SECURITY. 5. A NON PERFORMING INVESTMENT (NPI), SIMILAR TO A NON PERFORMING ADVANCE (NPA), IS ONE WHERE : I. INTEREST/ INSTALMENT (INCLUDING MATURITY PROCEEDS) IS DUE AND REMAINS UNPAID FOR MORE THAN 180 DAYS. THE DELINQUENCY PERIOD WOULD BECOME 90 DAYS WITH EFFECT FROM 31ST MARCH 2004. II. THE ABOVE WOULD APPLY MUTATIS - MUTANDIS TO PREFERENCE SHARES WHERE THE FIXED DIVIDEND IS NOT PAID. III. IN THE CASE OF EQUITY SHARES, IN THE EVENT THE INVESTMENT IN THE SHARES OF ANY COMPANY IS VALUED AT RE.1 PER COMPANY ON ACCOUNT OF THE NON AVAILABILITY OF THE LATEST BALANCE SHEET , THOSE EQUITY SHARES WOULD ALSO BE RECKONED AS NPI. IV. IF ANY CREDIT FACILITY AVAILED BY THE ISSUER IS NPA IN THE BOOKS OF THE BANK, INVESTMENT IN ANY OF THE SECURITIES ISSUED BY THE SAME ISSUER WOULD ALSO BE TREATED AS NPI. APPENDIX II PRUDENTIAL GUIDELINES ON MANAGEMENT OF THE NON - SLR INVESTMENT PORTFOLIO BY RRBS DISCLOSURES REQUIREMENTS (VIDE PARA 15 OF THE GUIDELINES) BANKS SHOULD MAKE THE FOLLOWING DISCLOSURES IN THE 'NOTES ON ACCOUNTS' OF THE BALANCE SHEET IN RESPECT OF THEIR NO N - SLR INVESTMENT PORTFOLIO, WITH EFFECT FROM THE FINANCIAL YEAR ENDING 31 MARCH 2004. 9 1) ISSUER COMPOSITION OF NON SLR INVESTMENTS (RS. IN CRORE) N O ISSUER AMOU NT EXTENT OF PRIVATE PLACEME NT EXTENT OF BELOW INVESTME NT GRADE SECURITIES ALREADY INVESTED EXTENT OF UNRATED SECURITI ES ALREADY INVESTE D EXTENT OF UNLISTED SECURITI ES 1 2 3 4 5 6 7 1. PSU 2. FIS 3. BANKS 4 PT.CORPORATES 5. SUBSIDIARIES/JOI INT VENTURES 6. OTHERS 7. PROVISION HELD TOWARDS DEPRECIATION XXX XXX XXX XXX TOTAL NOTE.1 * TOTAL UNDER COLUMN 3 SHOULD TALLY WITH THE TOTAL INVESTMENTS INCLUDED UNDER THE FOLLOWING CATEGORIES IN THE BALANCE SHEET. A. SHARES B. DEBENTURES AND BONDS C. SUBSIDIARIES/JOINT VENTURES D. OTHERS 2. AMOUNTS REPORTED UNDER COLUMNS 4,5,6 & 7 ABOVE MAY NOT BE MUTUALLY EXCLUSIVE II) NON PERFORMING NON - SLR INVESTMENTS PARTICULARS AMOUNT (RS.CRORE) OPENING BALANCE ADDITIONS DURING THE YEAR SINCE 1 ST APRIL REDUCTIONS DURING THE ABOVE PERIOD CLOSING BALANCE TOTAL PROVISIONS HELD 6. 6 PERUSAL OF THE GUIDELINES MAKES IT CLEAR THAT THE APPELLANT, IN MAKING NON - SLR INVESTMENTS WAS BOUND BY THE GUIDELINES OF THE RBI. THE AO HAS ADMITTED THAT THERE WAS NO DISPUTE THAT THE 10 APPELLANT WAS A REGIONAL RURAL BANK AND HAD TO BE TREATED AS A COOP. SOCIETY. THIS FACTUAL POSITION MAKES THE APPELLANT A BANK WHICH HAS A SPONSOR BANK AND WHICH IS URN REGULATORY CONTROL OF RBI. [6.71 THE HON'BLE SUPREME COURT IN THE CASE OF BIHAR STATE COT BANK LTD. V CIT 39 ITR 114 (SC) HAS HELD 'IN THE INSTANT C ASE THE CO - OPE RATIVE SOCIETY WAS A BANK. ONE OF ITS OBJECTS WAS TO CARRY ON THE GENERAL BUSINESS OF BANKING. LIKE OTHER BANKS MONEY WAS ITS STOCK - IN - TRADE OR CIRCULATING CAPITA ITS NORMAL BUSINESS WAS TO DEAL IN MONEY AND CREDIT. IT COULD NOT BE SAID THA B USINESS OF SUCH A BANK CONSISTED ONLY IN RECEIVING DEPOSITS AND LENDING MONO ITS MEMBERS OR SUCH OTHER SOCIETIES AS WERE MENTIONED IN THE OBJECTS AND WHEN IT LAID OUT ITS MONEYS SO THAT THEY MIGHT BE READILY AVAILABLE TO MEET DEMAND OF ITS DEPOSITORS IF AN D WHEN THEY AROSE, IT WAS NOT A LEGITIMATE MODE CARRYING ON OF ITS BANKING BUSINESS. THE MONEYS LAID OUT IN THE FORM OF DEPOSITS WOULD NOT CEASE TO BE A PART OF T CIRCULATING CAPITAL OF THE ASSESSEE NOR WOULD THEY CEASE T O FORM PART OF ITS BANKING BUSINES S. THE RETURNS FLOWING FROM THEM WOULD FORM PART OF ITS PROFITS FROM I BUSINESS. IN A COMMERCIAL SENSE THE DIRECTORS O F THE COMPANY OWED IT TO THE BANK TO MAKE INVESTMENTS WHICH EARNED THEM INTEREST INSTEAD OF LETTING MONEYS LIE ID1 IT COULD NOT BE SAID TH AT THE FUNDS OF THE BANK WHICH WERE NOT LENT TO BORROWERS B WERE LAID OUT IN THE FORM OF DEPOSITS IN ANOTHER BANK TO ADD TO THE PROFIT INSTEAD LYING IDLE NECESSARILY CEASED TO BE A PART OF THE STOCK - IN - TRADE OF THE BANK, OR THAT THE INTEREST ARISING THEREFROM DID NOT FORM PART OF ITS BUSINESS PROFITS. UNDER TD BYE - LAWS ONE OF THE OBJECTS OF THE APPELLANT BANK WAS TO CARRY ON THE GENER AL BUSINESS OF BANKING AND THEREFORE, SUBJECT TO THE CO - OPERATIVE SOCIETIES ACT, IT H4 TO CARRY O N ITS BUSINESS IN THE MANNER THAT ORDINARY BANKS DO.'. THIS VIEW W REITERATED IN THE CASE OF CIT V SRI RAM SAHKARI BANK LTD 266 ITR 632 (SC). [6.8] CONSIDERING THE JUDGEMENT OF THE HON'BLE SUPREME COURT T INTEREST EARNED BY THE APPELLANT ON NON - SLR SECUR ITIES WOULD ALSO BE TERMED QUALIFYING FOR DEDUCTION U/S.80P. IT COULD NOT BE SAID THAT THE FUNDS OF THE MAKES THE APPELLANT A BANK WHICH HAS A SPONSOR BANK AND WHICH IS UNDER THE REGULATORY CONTROL OF RBI. \ [6.7] THE HON'BLE SUPREME COURT IN THE CASE OF BIHAR STATE CO - OPERATIVE BANK LTD. V CIT 39 ITR 114 (SC) HAS HELD 'IN THE INSTANT CASE THE CO - OPERATIVE SOCIETY WAS A BANK. ONE OF ITS OBJECTS WAS TO CARRY ON THE GENERAL BUSINESS OF BANKING. LIKE OTHER BANKS MONEY WAS ITS STOCK - IN - TRADE OR CIRCULATING CA PITAL AND ITS NORMAL BUSINESS WAS TO DEAL IN MONEY AND CREDIT. IT COULD NOT BE SAID THAT THE 11 BUSINESS OF SUCH A BANK CONSISTED ONLY IN RECEIVING DEPOSITS AND LENDING MONEY TO ITS MEMBERS OR SUCH OTHER SOCIETIES AS WERE MENTIONED IN THE OBJECTS AND THAT WHE N IT LAID OUT ITS MONEYS SO THAT THEY MIGHT BE READILY AVAILABLE TO MEET THE DEMAND OF ITS DEPOSITORS IF AND WHEN THEY AROSE, IT WAS NOT A LEGITIMATE MODE OF CARRYING ON OF ITS BANKING BUSINESS. THE MONEYS LAID OUT IN THE FORM OF DEPOSITS WOULD NOT CEASE T O BE A PART OF THE CIRCULATING CAPITAL OF THE ASSESSEE NOR WOULD THEY CEASE TO FORM PART OF ITS BANKING BUSINESS. THE RETURNS FLOWING FROM THEM WOULD FORM PART OF ITS PROFITS FROM ITS BUSINESS. IN A COMMERCIAL SENSE THE DIRECTORS OF THE COMPANY OWED IT TO THE BANK TO MAKE INVESTMENTS WHICH EARNED THEM INTEREST INSTEAD OF LETTING MONEYS LIE IDLE. IT COULD NOT BE SAID THAT THE FUNDS OF THE BANK WHICH WERE NOT LENT TO BORROWERS BUT WERE LAID OUT IN THE FORM OF DEPOSITS IN ANOTHER BANK TO ADD TO THE PROFIT INST EAD OF LYING IDLE NECESSARILY CEASED TO BE A PART OF THE STOCK - IN - TRADE OF THE BANK, OR THAT THE INTEREST ARISING THEREFROM DID NOT FORM PART OF ITS BUSINESS PROFITS. UNDER THE BYE - LAWS ONE OF THE OBJECTS OF THE APPELLANT BANK WAS TO CARRY ON THE GENERAL B USINESS OF BANKING AND THEREFORE, SUBJECT TO THE CO - OPERATIVE SOCIETIES ACT, IT HAD TO CARRY ON ITS BUSINESS IN THE MANNER THAT ORDINARY BANKS DO.'. THIS VIEW WAS REITERATED IN THE CASE OF CIT V SRI RAM SAHKARI BANK LTD 266 ITR 632 (SC). [6.8] CONSIDERIN G THE JUDGEMENT OF THE HON'BLE SUPREME COURT THE INTEREST EARNED BY THE APPELLANT ON NON - SLR SECURITIES WOULD ALSO BE TERMED AS QUALIFYING FOR DEDUCTION U S.80P. IT COULD NOT BE SAID THAT THE FUNDS OF THE APPELLANT BANK WHICH WERE NOT LENT TO BORROWERS BUT WERE LAID OUT IN THE FORM OF DEPOSITS IN NON - SLR SECURITIES UNDER THE GUIDANCE OF THE RBI TO ADD TO THE PROFIT INSTEAD OF LYING IDLE NECESSARILY CEASED TO BE A PART OF THE STOCK - IN - TRADE OF THE BANK, OR THAT THE INTEREST ARISING THEREFROM DID NOT FORM PAR T OF ITS BUSINESS PROFITS. UNDER THE BYE - LAWS ONE OF THE OBJECTS OF THE APPELLANT BANK WAS TO CARRY ON THE GENERAL BUSINESS OF BANKING AND THEREFORE, SUBJECT TO THE CO - OPERATIVE SOCIETIES ACT, IT HAD TO CARRY ON ITS BUSINESS IN THE MANNER THAT ORDINARY BAN KS DO. GROUND OF APPEAL IS ALLOWED. 5. AFTER HEARING THE RIVAL SUBMISSIONS AND PERUSING THE ORDERS OF LOWER AUTHORITIES, WE FIND THAT HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. MUZAFFARNAGAR KSHETRIYA GRAMIN BANK LTD. (2013) 256 CTR (ALL.) 322 HAS 12 HELD THAT THE QUESTION AS TO WHETHER THE BUSINESS IS DERIVED FROM OR ATTRIBUTABLE TO SLR OR NON - SLR FUNDS WOULD NOT MAKE ANY DIFFERENCE FOR THE PURPOSES OF QUALIFYING THE INTER EST EARNED BY THE CO - OPERATIVE BANK U/S 80(P)(2)(A)(I) AS THE DEPOSITS OF SURPLUS IDLE MONEY AVAILABLE FROM WORKING CAPITAL, INCLUDING RESERVES, EXCESS COLLECTION OF INTEREST TAX AND OTHER INCOMES ARE ALL ATTRIBUTABLE TO THE BUSINESS OF BANKING. THE INTERE ST FROM SUCH DEPOSITS CANNOT BE SAID TO BE BEYOND THE LEGITIMATE BUSINESS ACTIVITIES OF THE BANK. 6. WE FIND THAT THE ORDER OF THE CIT(A) IS IN CONSONANCE WITH THE DECISION OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF MUZAFFARNAGAR KSHETRIYA GRAMIN BA NK LTD (SUPRA) . WE, THEREFORE, UPHOLD THE FIND INGS OF THE CIT(A) AND DISMISS THE GROUND OF APPEAL OF THE REVENUE. ITA NO.192/RAN/16: ASST.YEAR: 2007 - 08 7. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS THAT THE CIT(A) ERRED IN DELETING THE ADDITION 47,57,67, 000/ - ON ACCOUNT OF PRIOR PERIOD EXPENSES. 8. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD MENTIONED PRIOR PERIOD EXPENDITURE IN ITS RETURN AT RS.47,57,67,000/ - . ON EXAMINATION OF THE CLAIM, THE ASSESSING OFFICER FOUND THAT THE SAME WAS CARRIED FORWARD LOSSES, WHICH THE ASSESSEE HAD WRONGLY CLASSIFIED. SINCE THE ASSESSEE WAS 13 NOT ABLE TO FILE ANY DOCUMENTARY EVIDENCES AS REGARDS THE CLAIM OF CARRIED FORWARD LOSSES, HE DISALLOWED THE DEDUCTION FOR THE SAME. 9. ON APPEAL, THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE BY OBSERVING AS UNDER: 5.1 THOUGH HE CLAIMED UNABSORBED LOSS FROM THE ASSESSMENT YEAR 2000 - 2001 TILL ASSESSMENT YEAR 2007 - 08, HE COULD SUBSTANTIVE THE CLAIM OF LOSSES ONLY FOR THE A.YS. 2003 - 04, 2004 - 05, 2005 - 06, 2006 - 07 & 2007 - 08. FOR THESE YEARS, HE FILED THE COPIES OF THE ACKNOW LEDGEMENT SHEET PROVING THE FACT OF FILING RETURN OF INCOME AND THE ORDERS PASSED BY THE RESPECTIVE AOS U/S.143(3) OF THE I.T.ACT, 1961. THE DETAILS OF THE LOSSES COMPUTED AND A LLOWED TO BE CARRIED FORWARD FOR THESE ORDERS WERE AS FOLLOWS; SL.N O. AYS ORDER U/S DATE OF ORDER ASSESSED INCOME/LOSS DATE OF FILING DUE DATE OF FILING REMARKS 1. 2003 - 04 143(3) 102.2006 ( - )35325000 2.6.2004 31.10.04 2 2004 - 05 143(3) 22.12.06 ( - )17855000 2.6.04 31.10.04 3. 2005 - 06 143(3) 27.12.07 ( - )38372400 31.10.05 31.10.05 4. 2006 - 07 143(30 8.12.08 ( - )51553000 2.11.06 31.10.06 5. 2007 - 08 143(3) ( - )20275000 24.10.07 31.10.07 5.2 I HAVE CONSIDERED THE SUB MISSIONS OF THE APPELLANT AND TH E ALSO PERUSED THE ASSESSMENT ORDER. ALL THE GROUNDS OF APPEAL RELATE TO THE COMMON ISSUE OF CARRIED FORWARD AND SET OFF OF BUSINESS LOSS. THEY ARE ACCORDINGLY DISPOSED OF IN A COMPOSITE MANNER. 5.3 THE AO IN THE ASSESSMENT ORDER HAS MENTIONED THAT THE APPELLANT HAD MENTIONED PRIOR PERIOD EXPENDITURE IN ITS RETURN AT RS.47,5 7,67,000/ - . ON EXAMINATION OF THE CLAIM, THE ASSESSING OFFICER FOUND THAT THE SAME WAS CARRIED FORWARD LOSSES, WHICH THE APPELLANT HAD WRONGLY CLASSIFIED. SINCE THE ASSESSEE WAS NOT ABLE TO FILE ANY DOCUMENTARY EVIDENCES AS REGARDS THE CLAIM OF CARRIED FO RWARD LOSSES, THE SAME WAS NOT ALLOWED BY THE AO. 5.4 I HAVE PERUSED THE ACKNOWLEDGEMENT SHEET EVIDENCING FILING OF RETURN OF INCOME AS WELL AS THE COPIES OF THE ORDERS U/S.143(3) OF THE INCOME TAX ACT, 1961 FOR THE YEARS MENTIONED ABOVE. THESE ARE 14 DOCUMENTS WHICH WERE AVAILABLE WITH THE AO. THEREFORE, THE ADMISSION OF THESE DOCUMENTS IS NOT CONSIDERED AS ADDITIONAL EVIDENCE. MOREOVER, SINCE THE APPELLANT HAS BEEN ABLE TO SUBMIT DOCUMENTARY EVIDENCE WITH REGARD TO ASSESSMENT YEARS 2003 - 04, 2004 - 05, 2005 - 06 & 206 - 07 ONLY, THE LOSSES PERTAINING TO THESE YEARS INCLUDING THE IMPUGNED YEAR ARE BEING CONSIDERED. 5.5 EXAMINING THE ABOVE TABLE, IT IS SEEN THAT THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2003 - 04 WHICH WAS DUE ON 31.10.2003 WAS FILED ON 2.6 .2004. THIS RETURN OF INCOME WAS FILED BEYOND THE DATE PRESCRIBED U/S.139(1). SECTION 139 IS A PROCEDURAL STATUTORY PROVISION OF THE ACT AND SECTION 80, BEING A PART OF CHAPTER - VI, IS A SUBSTANTIVE PROVISION. SECTION 0 BELONGS TO AN AREA OF SUBSTANTIVE PROVISION OF THE ACT. UNDER THE 1922 ACT THERE WAS NO RESTRICTION CORRESPONDING TO RESTRICTION PLACED UNDER SECTION 80 AFTER 1.4.1985 FOR CARRY FORWARD AND SET OFF OF LOSSES. THE RESTRICTION UNDER SECTION 80 UPTO 31.3.1985 WAS IN PARI MATERIA WITH THE LA W AS IT EXISTED IN 1922 ACT, BECAUSE SECTION 80 PROVIDED FOR CARRY FORWARD OF LOSSES TO THE FOLLOWING YEAR9S) SUBJECT TO THE CONDITION THAT THE RETURN WAS FILED UNDER SECTION 139. AFTER THE AMENDMENT OF SECTION 80 WITH EFFECT FROM 1.4.1985, THE CONDITION IMPOSED FOR CARRY FORWARD AND SET OFF OF LOSS IS THAT THE LOSS WHICH IS ELIGIBLE FOR CARRY FORWARD AND SET OFF SHOULD BE DETERMINED IN PURSUANCE OF A RETURN FILED WITHIN THE TIME ALLOWED UNDER SECTION 139(1) OR WITHIN THE EXTENDED TIME UNDER THE SAID SECTI ON. THUS, THE CONDITION IMPOSED UNDER SECTION 80 WHICH IS A SUBSTANTIVE PROVISION OF THE ACT W.E.F. 1.4.1985 IS MATERIALLY DIFFERENT THAN THE CONDITION PREVAILING UPTO 31.3.185. SINCE SECTION 80 BELONGS TO THE AREA OF MANDATORY PROVISIONS, IT IS NECESSAR Y TO SATISFY THE CONDITIONS FOR BEING ENTITLED TO THE BENEFIT OF CARRY FORWARD AND SET OFF OF LOSS TO THE FOLLOWING YEAR(S). (PEERLESS GENERAL INSURANCE CO LTD VS. JCIT, 85 ITR 215(CAL). IN THE AFOREMENTIONED CASE THE JUDGEMENT OF THE HONBLE SUPREME COU RT IN THE CASE OF CIT VS. KULU VALLEY TRANSPORT COMPANY (P) LTD., 77 ITR 518 (SC) WAS ALSO DISCUSSED AFTER DISCUSSING THE FACTS BEFORE THE HONBLE SUPREME COURT IT WAS HELD THAT THE DECISION OF THE SUPREME COURT IN CIT VS. KULU VALLEY TRANSPORT CO. PVT.L TD., (1970 77 ITR 51 8 RESTED ON THE PROVISIONS OF T H E ACT AS THEY EXISTED AT THE RELEVANT POINT OF TIME (I.E. ASSESSMENT YEARS 1953 - 54 AND 1954 - 55) AND IN VIEW OF THE AMENDMENT OF SECTION 80 BY THE TAXATION LAWS (AMENDMENT) ACT, 1984 W.E.F. 1.4.1985, THE R ATIO DECIDENDI LAID DOWN BY THE SUPREME COURT IN THE AFOREMENTIONED DECISION WAS NOT APPLICABLE TO THE FACTS OF CASES AFTER AMENDMENT TO SECTION 80 OF THE ACT. THEREFORE, NO BENEFIT OF CARRIED FORWARD OF BUSINESS LOSS FOR ASSESSMENT YEAR 2003 - 04 WOULD BE ALLOWED. 15 5.6 THE APPELLANT HAD FILED AN APPEAL IN TERMS OF SECTION 246A OF THE ACT FOR THE ASSESSMENT YEAR 2006 - 07. THIS HAS BEEN DISPOSED OF IN APPEAL NO.410/RAN/OTH/2008 - 09. THE AO SHALL ALLOW CARRIED FORWARD OF LOSSES FOR A.Y. 2006 - 07 BASED ON THE LOS S DETERMINED AFTER GIVING EFFECT TO THE APPELLATE ODDER. 5.7 BASED ON THE ABOVE, CARRIED FORWARD OF LOSSES IS ALLOWED AS DETERMINED VIDE ORDERS U/S.143(3) OF THE I.T.ACT, 1961 FOR ASSESSMENT YE A R 2004 - 05, 2005 - 06, 2006 - 07 AND 2007 - 08. 10. LD D.R. RELIED ON THE ORDER OF THE ASSESSING OFFICER WHEREAS LD A.R. SUPPORTED THE ORDER OF THE ASSESSING OFFICER. 11. WE FIND THAT MERELY RELYING ON THE ORDER OF THE ASSESSING OFFICER, LD D.R. COULD NOT POINT OUT ANY SPECIFIC ERROR IN THE ABOVE FINDINGS OF THE CIT(A). HENCE, WE DO NOT SEE ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE CIT(A), WHICH IS HEREBY CONFIRMED AND GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 12. THE ASSESSEE HAS FILED CROSS OBJECTIONS SUPPORTING THE ORDER OF THE CIT(A). 13. WE FIND THAT THE CROSS OBJECTIONS FOR BOTH THE ASSESSMENT YEARS FILED BY THE ASSESSE E ARE TIME BARRED BY 282 DAYS . THE ASSESSEE HAS NOT FILED CONDONATION PETITIONS FOR CONDONING THE DELAY IN FILING THE CROSS OBJECTION WITHIN THE TIME PERIOD. HENCE, WE DISMISS THE CROSS OBJECTIONS AS UN - ADMITTED. 16 14. IN THE RESULT APPEALS FILED BY THE REVENUE AND CROSS OBJECTIONS FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRON OUNCED IN THE OPEN COURT ON 3 1 /05 /201 8 S D / - S D / - (PAVAN KUMAR GADALE) (N.S SAINI) JUDICIAL MEMBER A CCOUNTANT MEMBER RANCHI; DATED 3 1 /05 /201 8 B.K.PARIDA, SPS COPY OF THE ORDER FORWARDED TO : BY ORDER, SR.PS, ITAT, CAMP AT RANCHI 1. THE APPELLANT : DCIT, CIRCLE - 1, RANCHI 2. THE RESPONDENT: RANCHI KSHETRIYA GRAMIN BANK, RAJENDRA PLACE, 5, MAIN ROAD, RANCHI 3. THE CIT(A), RANCHI 4. PR. CIT , RANCHI 5. DR, ITAT, RANCHI 6. GUARD FILE. //TRUE COPY//