Assistant Commissioner of Income-tax, V. Nagar Urban Co.op.Bank Ltd., Shinde & Sons, Ahmednagar

ITA 1982/PUN/2013

• Counselvise Citation: 198224514 RSA 2013
• Duration Of Justice: 1 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 06-05-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 08-11-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Depreciation; Principle of natural justice; Revenue expenditure; Capital expenditure
• Section: 143(3); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE MS SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.1861/PN/2013 ASSESSMENT YEAR : 2010-11 NAGAR URBAN CO-OP. BANK LTD., C/O- M/S SHANTILAL GANDHI, TAX CONSULTANT, 146 AMBER PLAZA, 1 ST FLOOR, STATION ROAD, AHMEDNAGAR 414 001. PAN: AAAAN0509L . APPELLANT VS. THE JT. COMMISSIONER OF INCOME TAX, AHMEDNAGAR RANGE, AHMEDNAGAR. . RESPONDENT ITA NO.1982/PN/2013 ASSESSMENT YEAR : 2010-11 THE ASSTT. COMMISSIONER OF INCOME TAX, AHMEDNAGAR CIRCLE, AHMEDNAGAR. . APPELLANT VS. NAGAR URBAN CO-OP. BANK LTD., PO BOX NO.7, CENTRAL BANK ROAD, AHMEDNAGAR. PAN: AAAAN0509L . RESPONDENT ASSESSEE BY : SHRI C. H. NANIWADEKAR DEPARTMENT BY : SHRI RAJESH DAMOR DATE OF HEARING : 06-05-2015 DATE OF PRONOUNCEMENT : 20-05-2015 ORDER PER SUSHMA CHOWLA, JM: THE CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE ARE AGAINST THE ORDER OF CIT(A)-IT/TP, PUNE DATED 30.08.2013 RELATI NG TO ASSESSMENT YEAR 2010-11 PASSED UNDER SECTION 143(3) OF THE INCOME T AX ACT, 1961. ITA NO.1861/PN/2013 ITA NO.1982/PN/2013 2 2. THE CROSS APPEALS FILED BY THE ASSESSEE AND REVE NUE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLID ATED ORDER FOR THE SAKE OF CONVENIENCE. 3. THE ASSESSEE IN ITA NO.1861/PN/2013 HAS RAISED T HE FOLLOWING GROUNDS OF APPEAL:- 1. THAT THE LEARNED CIT(APPEALS)IT/TP PUNE HAS ERR ED ON THE FACTS AND IN LAW IN CONFIRMING ADDITION OF RS.29,58,672/- MADE B Y AO ON ACCOUNT OF UNCLAIMED LIABILITY. THAT ADDITION MADE OF RS.29,58 ,672/- BY AO AND CONFIRMED BY CIT(A)IT/TP PUNE MAY BE DELETED. 2. THAT THE LEARNED CIT(A)IT/TP PUNE HAS ERRED ON T HE FACTS AND IN LAW IN NOT ALLOWING FULL RELIEF FOR TOTAL ADDITION OF RS.6 8,24,624/- MADE BY AO ON ACCOUNT OF AMOUNT CREDITED TO RESERVE FUND, ALLOWED ONLY PA RTIAL RELIEF OF RS.34,534/- AND CONFIRMED THE ADDITION MADE OF RS.51,43,594/- ON AC COUNT OF UNCLAIMED DIVIDEND. THAT THE ADDITION MADE BY A.O ON ACCOUNT OF UNCLAIM ED DIVIDEND AND CONFIRMED BY CIT(A)IT/TP PUNE MAY BE DELETED. 3. THAT THE LEARNED CIT(APPEALS) IT/TP PUNE HAS ERR ED ON THE FACTS AND IN LAW IN NOT ALLOWING FULL RELIEF FOR TOTAL ADDITION MADE OF RS.32,03,254/- UNDER THE HEAD BALANCES IN SUSPENSE ACCOUNT SHOWN IN BALANCE SHEET, ALLOWED ONLY PARTIAL RELIEF OF RS.12,31,141/- AND CONFIRMED THE ADDITION OF RS.19,72,113/-. THAT THE ADDITION OF RS.19,72,113/- MADE BY AO AND CONFIRMED BY CIT(APPEALS) IT/TP PUNE MAY BE DELETED. 4. THAT YOUR APPELLANT PRAYS THAT HE MAY BE ALLOWED TO ADD, TO ALTER, TO AMEND OR TO DELETE ANY OF THE ABOVE GROUNDS OF APPE AL. 4. THE REVENUE IN ITA NO.1982/PN/2013 HAS RAISED TH E FOLLOWING GROUNDS OF APPEAL:- 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) IS CONTRARY TO LAW AND TO THE FACTS AND CIRCUMSTANC ES OF THE CASE. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) G ROSSLY ERRED IN DELETING THE ADDITION OF RS.10,00,000/- MADE BY THE ASSESSING OFFICER BY DISALLOWING THE ASSESSEE'S CLAIM OF DEDU CTION ON ACCOUNT OF PREMIUM PAID ON INVESTMENT IN GOVERNMENT SECURITIES . 3. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) G ROSSLY ERRED IN HOLDING THAT AS THE ASSESSEE HAD MADE INVE STMENT IN THE 'HELD TO MATURITY' SECURITIES IN ACCORDANCE WITH THE RBI GUIDELINES TO CARRY ON THE BUSINESS OF BANKING, AMORTIZATION OF THE PREMIU M PAID ON SUCH SECURITIES HAS THE ELEMENT OF REVENUE EXPENDITURE. 4. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) G ROSSLY ERRED IN FAILING TO APPRECIATE THAT 'HELD TO MATURI TY' SECURITIES, BEING INVESTMENTS, ARE IN THE NATURE OF CAPITAL ASSETS AN D NOT IN THE NATURE OF STOCK-IN-TRADE; AND, THEREFORE, ANY EXPENDITURE INC URRED THEREON COULD ONLY BE CAPITAL EXPENDITURE NOT ADMISSIBLE AS DEDUC TION. EVEN IN THE MASTER CIRCULAR DATED 01.07.2013 ISSUED BY THE RESE RVE BANK OF INDIA, ITA NO.1861/PN/2013 ITA NO.1982/PN/2013 3 SECURITIES ACQUIRED BY THE BANKS 'WITH THE INTENTIO N TO HOLD THEM UPTO MATURITY' HAVE BEEN CLASSIFIED UNDER HTM WHICH CLEA RLY ESTABLISH THAT THESE ARE CAPITAL ASSETS. 5. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) G ROSSLY ERRED IN FAILING TO APPRECIATE THAT THE RBI GUIDELI NES ONLY CATEGORIZE THE SECURITIES AS AFS, HFT AND HTM AND DO NOT DEAL WITH THE ACCOUNTING TREATMENT OF THE PREMIUM PAID BY THE ASSESSEE ON SU CH SECURITIES; AND, THEREFORE, IT WAS ERRONEOUS ON THE PART OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) TO TREAT SUCH PREMIUM AS REVENUE EXPENDITURE MERELY BY REFERRING TO THE RBI GUIDELINES. 6. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) G ROSSLY ERRED IN FAILING TO APPRECIATE THAT UNDER THE INCOM E-TAX ACT, 1961, AN EXPENDITURE CAN BE CLAIMED AND ALLOWED AS DEDUCTION ONLY AS PER THE PROVISIONS OF THE SAID ACT AND IRRESPECTIVE OF WHAT IS STIPULATED IN ANY OTHER ACT OR RULES, INCLUDING THE RBI GUIDELINES, U NLESS SO SPECIFICALLY PROVIDED IN THE INCOME- TAX ACT, 1961. 7. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) G ROSSLY ERRED IN DELETING THE ADDITION OF RS.40,41,408/- WH ICH HAD BEEN MADE BY THE ASSESSING OFFICER BY WAY OF DISALLOWING THE ASSESSEE'S CLAIM OF DEDUCTION ON ACCOUNT OF PAYMENT OF BROKEN PERIOD IN TEREST ON INVESTMENT IN THE 'HELD TO MATURITY' SECURITIES. 8. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) G ROSSLY ERRED IN FAILING TO APPRECIATE THAT AS THE HTM SECU RITIES ARE IN THE NATURE OF INVESTMENTS, AND NOT STOCK-IN-TRADE, THE SAME PA RTAKE THE NATURE OF CAPITAL ASSETS AND, IN THE CIRCUMSTANCES, ANY LIABI LITY INCURRED OR PAYMENT MADE FOR ACQUIRING SUCH INVESTMENTS COULD O NLY BE TREATED AS CAPITAL EXPENDITURE NOT ADMISSIBLE AS DEDUCTION. 9. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) G ROSSLY ERRED IN DELETING THE ABOVE ADDITION BY RELYING ON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF AMERICAN E XPRESS INTERNATIONAL BANKING CORPORATION VS. CIT, 177 CTR (MUM) 442, WITHOUT APPRECIATING THAT THE ISSUE RELATING TO 'HE LD TO MATURITY' SECURITIES WAS NOT DISCUSSED IN THE ABOVE CASE. 10. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) G ROSSLY ERRED IN PRESUMING THE CORRECTNESS OF THE ASSESSEE' S CLAIM THAT INTEREST ON THE IMPUGNED SECURITIES HAD BEEN OFFERED TO TAX AS BUSINESS INCOME U/S.28 OF THE INCOME-TAX ACT, WITHOUT CALLING FOR A NY DETAILS OR EVIDENCES IN SUPPORT OF THE ABOVE CLAIM. 11. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) G ROSSLY ERRED IN NOT TAKING COGNIZANCE OF THE FACT THAT EVE N IN THE MASTER CIRCULAR ISSUED BY THE RESERVE BANK OF INDIA ON THE SUBJECT 'PRUDENTIAL NORMS FOR CLASSIFICATION, VALUATION AND OPERATION O F INVESTMENT PORTFOLIO BY BANKS' DATED JULY 01, 2013, IT HAS BEEN CLEARLY STATED THAT THE ACCOUNTING TREATMENT IN RESPECT OF BROKEN PERIOD IN TEREST PRESCRIBED IN THE SAID CIRCULAR 'DOES NOT TAKE INTO ACCOUNT THE T AX IMPLICATIONS AND, HENCE, THE BANKS SHOULD COMPLY WITH THE REQUIREMENT S OF INCOME-TAX AUTHORITIES IN THE MANNER PRESCRIBED BY THEM'. 12. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) G ROSSLY ERRED IN DELETING THE ADDITION OF RS.1,30,93,000/- TOWARDS THE ASSESSEE'S CLAIM IN RESPECT OF 'PROVISION FOR NPA I NVESTMENT IN MADHAVPURA MERCANTILE CO-OPERATIVE BANK LTD.' WITHO UT IN ANY MANNER EXAMINING THE REPORT DATED 24.02.2010 OF THE RBI AU DITORS AND ALSO BY APPLYING THE DECISIONS IN THE CASES OF BHARAT EARTH MOVERS LTD. VS. CIT ITA NO.1861/PN/2013 ITA NO.1982/PN/2013 4 (2000) 245 ITR 428 (SC) AND ROTORK CONTROLS INDIA (P) LTD. VS. CIT (2009), 314 ITR 62 (SC), WHICH HAD BEEN RENDERED IN DIFFERENT CONTEXTS AND HENCE ARE NOT APPLICABLE TO THE IMPUGNED CLAIM. 13. FOR THESE AND SUCH OTHER GROUNDS AS MAY BE URGED A T THE TIME OF THE HEARING, THE ORDER OF THE LEARNED COMMISSIONER OF INCOME- TAX(APPEALS) MAY BE VACATED AND THAT OF THE ASSESSI NG OFFICER BE RESTORED. 14. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL DURING THE COURSE OF TH E APPELLATE PROCEEDINGS BEFORE THE HON'BLE TRIBUNAL. 5. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESS EE, AT THE OUTSET, POINTED OUT THAT THE ISSUE RAISED IN THE PRESENT CROSS-APPE ALS IS COVERED BY DIFFERENT DECISIONS OF THE TRIBUNAL AND THE ORDER OF THE HON BLE BOMBAY HIGH COURT IN CIT VS. HDFC BANK LTD., (2014) 89 CCH 0185 MUM-HC. 6. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVE NUE PLACED RELIANCE ON THE ORDERS OF THE CIT(A) AND ASSESSING OFFICER RESP ECTIVELY. 7. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSE SSEE WAS A CO-OPERATIVE BANK ENGAGED IN THE CARRYING ON THE BUSINESS OF BAN KING. THE ASSESSEE ALSO PROVIDED DEPOSITORY SERVICES, GENERAL INSURANCE SER VICES AND ALSO SAFE-DEPOSIT LOCKERS. THE ASSESSEE HAD THIRTY EIGHT BRANCHES DU RING THE YEAR UNDER CONSIDERATION. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THERE WAS UNCLAIMED AMOUNT OF RS.29,58,672/- W HICH REPRESENTED THE AMOUNT OF DEMAND DRAFT (DD) PURCHASED BY THE CUSTOM ERS BUT NOT PRESENTED FOR CLEARING FOR MORE THAN SIX MONTHS. AFTER CONSIDERI NG THE REPLY OF THE ASSESSEE IN THIS REGARD, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE AMOUNTS OF UNCLAIMED LIABILITY HAD BECOME BARRED BY TIME AND HENCE INCOM E ON THAT ACCOUNT HAD TO BE RECOGNIZED IN THE HANDS OF THE ASSESSEE. THE ADDIT ION OF RS.29,58,672/- WAS MADE ON THIS ACCOUNT. FURTHER, ADDITION OF RS.32,0 3,254/- WAS MADE ON SIMILAR GROUND ON ACCOUNT OF AMOUNTS LYING IN THE SUSPENSE ACCOUNT. ANOTHER ADDITION MADE IN THE HANDS OF THE ASSESSEE WAS ON ACCOUNT OF CREDITS IN THE RESERVE FUND ACCOUNT OF RS.68,42,624/-. THE ASSESSEE HAD C REDITED ITS GENERAL RESERVE ITA NO.1861/PN/2013 ITA NO.1982/PN/2013 5 WITH THE ABOVE RECEIPTS DURING THE YEAR UNDER CONSI DERATION. THE BREAKUP OF THE RECEIPTS IS TABULATED UNDER PARA 5 OF THE ASSESSMEN T ORDER. THE ASSESSING OFFICER NOTED THAT WHERE THE ASSESSEE HAD CERTAIN L IABILITIES WHICH HAD ACCUMULATED OVER THE PERIOD OF TIME, THE SAID LIABI LITIES GOT EXTINGUISHED WITH THE PASSAGE OF TIME AND BECOME AMOUNTS AVAILABLE WITH T HE ASSESSEE FOR FREE USE. THE ASSESSEE WHILE TRANSFERRING THE SAID AMOUNT TO THE GENERAL RESERVE ACCOUNT, AS PER THE ASSESSING OFFICER, HAD ACKNOWLE DGED THE EXTINGUISHMENT OF SUCH LIABILITIES AND ALSO ACKNOWLEDGED THE INCOME C HARACTERISTIC OF THE SAID AMOUNTS AND THE SAID CREDITS WERE HELD TO BE INCOME OF THE ASSESSEE AND ADDITION OF RS.68,42,624/- WAS MADE IN THE HANDS OF THE ASSESSEE. 8. ANOTHER ADDITION MADE IN THE HANDS OF THE ASSESS EE WAS ON ACCOUNT OF INVESTMENT IN GOVERNMENT SECURITIES I.E. PREMIUM AM ORTIZED BY THE ASSESSEE IN VIEW OF THE RBI GUIDELINES IN RESPECT OF HTM SECURI TIES. ACCORDINGLY, THE ADDITION OF RS.10,00,000/- WAS MADE ON THIS ACCOUNT . ANOTHER ADDITION WAS MADE ON ACCOUNT OF CLAIM OF BROKEN PERIOD INTEREST OF RS.40,41,408/- PAYABLE TO OTHER BANKS IN RESPECT OF HIS INVESTMENT IN GOVERNM ENT SECURITIES. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAD MADE A PROVISION OF RS.1,30,93,000/- AGAINST NPA INVESTMENT IN MADHAVPU RA MERCANTILE CO- OPERATIVE BANK LTD.. THE EXPLANATION OF THE ASSESS EE VIS--VIS THE SAID PROVISION WAS THAT THE SAID CLAIM WAS THAT AS PER THE AUDIT C ONDUCTED BY THE RBI, THE SAID AMOUNT WAS DIRECTLY DEBITED TO THE PROFIT & LOSS AC COUNT BEING LOSS IN INVESTMENT AND THE AMOUNT WAS NOT CLAIMED AS PROVISION FOR NPA INVESTMENT. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE AMOUNT D EBITED BY THE ASSESSEE WAS CLEARLY A PROVISION AND NOT DETERMINED AND HENCE TH E SAME WAS DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSESSEE. 9. IN APPEAL, THE CIT(A), IN TURN, RELYING ON THE R ATIO LAID DOWN BY THE VARIOUS BENCHES OF THE TRIBUNAL VIS--VIS THE PREMIUM PAID ON AMORTIZATION OF GOVERNMENT SECURITIES IN HTM, ALLOWED THE CLAIM OF THE ASSESSEE TO THE EXTENT OF ITA NO.1861/PN/2013 ITA NO.1982/PN/2013 6 RS.10,00,000/-. THE CIT(A) FURTHER ALLOWED THE CLA IM OF THE ASSESSEE IN RESPECT OF BROKEN PERIOD TO THE EXTENT OF RS.40,41,408/-, I N TURN, RELYING ON THE RATIO LAID DOWN BY THE MUMBAI BENCH OF THE TRIBUNAL IN AMERICA N EXPRESS INTERNATIONAL BANK CORPORATION VS. CIT, 177 CTR 442 (MUM). THE C IT(A) ALSO ALLOWED THE CLAIM OF THE EXPENDITURE DEBITED ON ACCOUNT OF NPA INVESTMENT IN MADHAVPURA MERCANTILE CO-OPERATIVE BANK LTD.. THE CIT(A), HOW EVER, UPHELD THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNCLAIM ED LIABILITY OF RS.29,58,672/- AND ALSO ON ACCOUNT OF CREDIT TO RESERVE FUND ACCOU NT OF RS.68,42,624/-. THE CIT(A) FURTHER UPHELD THE ADDITION OF RS.51,43,594/ - ON ACCOUNT OF UNCLAIMED DIVIDEND BUT IN RESPECT OF THE OUTSTANDING BALANCE IN THE SUSPENSE ACCOUNT OF RS.32,03,254/-, THE CIT(A) DELETED THE ADDITION OF RS.12,31,141/- BEING THE BANKS LIABILITY TOWARDS M/S MILAN TRADERS, BUT UPH ELD THE BALANCE ADDITION OF RS.19,72,113/-. 10. BOTH THE ASSESSEE AND THE REVENUE ARE IN APPEAL AGAINST THE RESPECTIVE FINDINGS OF THE CIT(A) AND HAVE RAISED SEPARATE GRO UNDS OF APPEAL. 11. THE FIRST ISSUE RAISED BY THE ASSESSEE IS AGAIN ST THE ADDITION CONFIRMED BY THE CIT(A) ON ACCOUNT OF UNCLAIMED LIABILITY OF RS. 29,58,672/-. AS POINTED OUT BY US IN PARAS HEREINABOVE, THE SAID LIABILITY WAS ON ACCOUNT OF UNCLAIMED DDS ISSUED BY THE BANK, WHICH WERE NOT PRESENTED IN THE BANK. 12. WE FIND THAT SIMILAR ISSUE OF RECOGNITION OF UN CLAIMED LIABILITY AND ITS NON- TAXABILITY AROSE BEFORE THE PUNE BENCH OF THE TRIBU NAL IN THE AHMEDNAGAR MERCHANTS CO-OPERATIVE BANK LTD. VS. JCIT VIDE ITA NO.1863/PN/2013 AND OTHER RELATING TO ASSESSMENT YEAR 2010-11, ORDER DA TED 29.04.2015, IT WAS HELD AS UNDER :- 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE RECORD. THE ASSESSEE BANK IN THE BALANCE SHEET FILED FOR THE YE AR UNDER CONSIDERATION HAD SHOWN UNCLAIMED LIABILITY OF RS.27,57,051/-. THE E XPLANATION WITH REGARD TO THE NATURE OF SAID LIABILITY BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW WAS THAT THE ITA NO.1861/PN/2013 ITA NO.1982/PN/2013 7 SAME REPRESENTED THE UNCLAIMED DEMAND DRAFTS PURCHA SED BY THE CUSTOMERS, WHICH HAVE NOT BEEN PRESENTED FOR CLEARING FOR MORE THAN SIX MONTHS. THE SAID LIABILITIES WERE BEING RECOGNIZED BY THE ASSESSEE I N ACCORDANCE WITH THE GUIDELINES OF THE RBI. FURTHER CLAIM OF THE ASSESS EE WAS THAT PART OF THE SAID AMOUNTS WAS ADJUSTED IN THE SUBSEQUENT YEARS. HOWE VER, SUM OF RS.1,17,446/- WAS THE AMOUNT PERTAINING TO CURRENT YEAR, WHICH WA S PAID IN THE SUCCEEDING YEAR, HENCE THE SAME AMOUNT WAS NOT ADDED IN THE HA NDS OF THE ASSESSEE AND AN ADDITION OF THE BALANCE AMOUNT OF RS.26,39,605/- WAS MADE IN THE HANDS OF THE ASSESSEE ON THE PREMISE THAT IN VIEW OF THE PRO VISIONS OF LIMITATION ACT, THERE WAS NO LIABILITY ON THE ASSESSEE TO PAY THE SAID AM OUNTS. THE ISSUE ARISING BEFORE US IS IN RELATION TO THE TREATMENT OF SAID L IABILITY RECOGNIZED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT. ONCE THE LIABILI TY HAS BEEN SHOWN AND RECOGNIZED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT, THEN EVEN IF THE LIABILITY IS UNCLAIMED AND RELATES TO EARLIER YEARS, DOES NOT CO NVERT IT INTO THE INCOME OF THE ASSESSEE. SUPPORT IN THIS REGARD IS DRAWN FROM THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN CIT VS. SUGAULI SUGAR WORKS (P) LT D. (SUPRA). HOWEVER, IN CASE WHERE THE ASSESSEE ON ITS OWN MOTION TRANSFERS THE SAID RECEIPTS THROUGH ITS PROFIT & LOSS ACCOUNT, THEN ON ACCOUNT OF SUCH ACT OF THE ASSESSEE ITSELF, THE AMOUNT CHANGES ITS CHARACTER AND BECOMES ASSESSEES OWN MONEY AND THE SAME IS TO BE TREATED AS INCOME OF THE ASSESSEE AS PER THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN CIT VS. TVS SUNDARAM IYENG AR AND SONS LTD. (SUPRA). HOWEVER, IN THE FACTS OF THE PRESENT CASE , THE ASSESSEE CONTINUES TO RECOGNIZE THE LIABILITY AND ONCE THE LIABILITY HAS BEEN SO RECOGNIZED BY THE ASSESSEE, THERE IS NO MERIT IN TREATING THE SAME AS INCOME OF THE ASSESSEE THOUGH SOME OF THE AMOUNTS MAY NOT BE RECOVERABLE B Y APPLICATION OF PROVISIONS OF LIMITATION ACT. WE FIND SUPPORT FROM THE RATIO LAID DOWN BY THE CHENNAI BENCH OF THE TRIBUNAL IN ACIT VS. KARUR VYSYA BANK LTD. ( SUPRA) AND PUNE BENCH OF THE TRIBUNAL IN ACIT VS. PEOPLES CO-OPERATIVE BANK LTD ., IN ITA NO.2197/PN/2012 RELATING TO ASSESSMENT YEAR 2009-10, ORDER DATED 29 .09.2013. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS.26,39,605/-. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, ALLOWED. 13. THE ISSUE ARISING IN GROUND OF APPEAL NO.1 IS I DENTICAL TO THE ISSUE BEFORE THE PUNE BENCH OF THE TRIBUNAL AND FOLLOWING THE SA ME PARITY OF REASONING, WE DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS.29,58,672/-. THE GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE IS, THUS ALLO WED. 14. THE SECOND ISSUE IN GROUND OF APPEAL NO.2 RAISE D BY THE ASSESSEE IS AGAINST THE ADDITION OF RS.51,43,594/- ON ACCOUNT O F UNCLAIMED DIVIDEND. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT SIMILAR ISSUE HAD ARISEN BEFORE THE PUNE BENCH OF THE TRIBUNAL IN AHM EDNAGAR SHAHAR SAHAKARI BANK LTD. VS. ACIT VIDE ITA NO.1862/PN/2013 AND OTH ER RELATING TO ASSESSMENT YEAR 2010-11, ORDER DATED 20.02.2015, AND TRIBUNAL HAD ALLOWED THE CLAIM OF THE ITA NO.1861/PN/2013 ITA NO.1982/PN/2013 8 ASSESSEE. WE FIND THAT SIMILAR ISSUE/ADDITION MADE ON ACCOUNT OF UNPAID DIVIDEND AROSE BEFORE THE TRIBUNAL AND IT WAS HELD AS UNDER :- 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL STANDS A ND FIND NO MERIT IN THE STAND OF THE REVENUE. QUITE CLEARLY, THE DIVIDEND IS PAID BY THE BANK OUT OF TAX PAID PROFITS. DIVIDENDS ARE DECLARED OUT OF SUCH P ROFITS AND IS TO BE UNDERSTOOD AS AN APPORTIONMENT OF INCOME. IF FOR ANY REASON, THE DIVIDEND SO DECLARED IS NOT ACTUALLY DISBURSED AND WERE TO BE ADDED BACK TO THE TAXABLE INCOME, IT WOULD MEAN A DOUBLE TAXATION. THEREFORE, THERE IS NO JUS TIFICATION FOR TAXING UNCLAIMED DIVIDEND AS A CESSATION OF LIABILITY. NO DOUBT, CESSATION OF LIABILITY MAY BE A TAXABLE EVENT BUT ONLY IN SITUATIONS WHERE SUCH LIA BILITY HAS ENTERED THE COMPUTATION OF TAXABLE INCOME ON AN EARLIER OCCASIO N. QUITE CLEARLY, THE DECLARATION OF DIVIDEND DOES NOT ENTER THE COMPUTAT ION OF TAXABLE INCOME AS THE DIVIDEND IS DECLARED OUT OF THE PROFITS REMAINING A FTER TAXATION. 6. IN SO FAR AS, THE RELIANCE PLACED BY THE CIT(A) ON THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF TVS SUNDARAM I YENGAR AND SONS LTD. (SUPRA) IS CONCERNED, THE SAME IS QUITE MISPLACED. IN THE CASE BEFORE THE HONBLE SUPREME COURT, ASSESSEE HAD RECEIVED DEPOSI TS IN THE COURSE OF HIS BUSINESS WHICH WERE ORIGINALLY TREATED AS CAPITAL R ECEIPT. SOME OF THE DEPOSITS WERE NEITHER CLAIMED NOR RETURNED TO THE DEPOSITORS . SUCH UNRETURNED AND UNCLAIMED DEPOSITS WERE TAXED BY THE REVENUE, WHICH WAS UPHELD BY THE HONBLE SUPREME COURT. AS PER THE HONBLE SUPREME COURT, BY LAPSE OF TIME, THE CLAIM OF DEPOSITS BECAME TIME-BARRED AND THE AM OUNTS ATTAINED A TOTALLY DIFFERENT QUALITY. ACCORDING TO THE HONBLE SUPREM E COURT, SUCH SURPLUS BECAME A TRADE SURPLUS BECAUSE THE AMOUNTS WERE RECEIVED O RIGINALLY IN THE COURSE OF TRADING TRANSACTIONS, THOUGH TREATED AS A CAPITAL R ECEIPT ORIGINALLY. QUITE CLEARLY, THE FACT-POSITION BEFORE THE HONBLE SUPREME COURT WAS QUITE DIFFERENT FROM THE ISSUE BEFORE US. 15. THE ADDITION IN THE HANDS OF THE ASSESSEE HAS B EEN UPHELD BY THE CIT(A) FOLLOWING THE RATIO LAID DOWN BY THE HONBLE SUPREM E COURT IN CIT VS. TVS SUNDARAM IYENGAR AND SONS LTD., (1996) 222 ITR 344 (SC) AND IN VIEW OF THE ORDER OF THE TRIBUNAL IN AHMEDNAGAR SHAHAR SAHAKARI BANK LTD. VS. ACIT (SUPRA) WHEREIN SIMILAR RELIANCE WAS PLACED BY THE CIT(A) O N THE JUDGEMENT OF THE HONBLE SUPREME COURT, WE FIND NO MERIT IN THE ORDE R OF THE CIT(A) WHERE THE UNCLAIMED DIVIDEND WAS NOT ESTABLISHED TO BE A RECE IPT OF THE ASSESSEE IN THE COURSE OF ITS TRADING TRANSACTIONS. FOLLOWING THE SAME PARITY OF REASONING, WE DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS.51,43,594/-. THUS, THE GROUND OF APPEAL NO.2 IS ALLOWED. ITA NO.1861/PN/2013 ITA NO.1982/PN/2013 9 16. THE ISSUE IN GROUND OF APPEAL NO.3 RAISED BY TH E ASSESSEE IS AGAINST THE PARTIAL ADDITION OF RS.19,72,113/- ON ACCOUNT OF TH E BALANCE SHOWN IN THE SUSPENSE ACCOUNT. 17. WE TAKE-UP THE BRIEF FACTS RELATING TO THE ISSU E WITH REGARD TO THE OUTSTANDING BALANCE IN THE SUSPENSE ACCOUNT OF RS.3 2,03,254/-. THE EXPLANATION OF THE ASSESSEE WAS THAT MANY BORROWERS OF LOAN WER E AGAINST GOLD AND WHEN THE LOAN WAS NOT CLEARED WITHIN THE TIME, THE GOLD PLEDGED WITH THE BANK WAS AUCTIONED. ON MANY OCCASIONS, THE REALIZATION AMOU NTS WERE MUCH MORE THAN THE LOAN AMOUNTS. THE EXCESS AMOUNT SO RECEIVED WA S KEPT IN THE SUSPENSE ACCOUNT. THE PLEA OF THE ASSESSEE BEFORE THE LOWER AUTHORITIES WAS THAT THE EXCESS SO RECEIVED WAS NOT THE INCOME OF THE ASSESS EE BANK BUT THE SAME WERE IN THE NATURE OF DEPOSIT AND HAD TO BE RETURNED TO THE PERSON WHOSE GOLD WAS PLEDGED TO THE BANK. APART FROM THE AMOUNT IN THE SUSPENSE ACCOUNT ALSO CONSISTED OF AMOUNT OF TENDER DEPOSITED BY THE CONT RACTORS AND ALSO SECURITY DEPOSITS. THE ASSESSING OFFICER HAD MADE AN ADDITI ON OF THE ENTIRE LOAN OF RS.32,03,254/-. 18. THE CIT(A) HAD ACCEPTED THE PLEA OF THE ASSESSE E VIS--VIS THE BANKS LIABILITY TOWARDS THE CREDIT BALANCE IN THE OVERDRA FT ACCOUNT OF THE CUSTOMER M/S MILAN TRADERS TO THE EXTENT OF RS.12,31,141/-. HOW EVER, THE CIT(A) WAS OF THE VIEW THAT THOUGH THE AMOUNT REPRESENTED BANKS LIAB ILITY BUT SINCE IT HAD REMAINED UNPAID FOR A LONG TIME, IT CEASED TO BE LI ABILITY AND FOLLOWING THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN CIT VS. T VS SUNDARAM IYENGAR AND SONS LTD. (SUPRA), THE CIT(A) UPHELD THE ADDITION O F RS.19,72,113/- ON ACCOUNT OF UNCLAIMED LIABILITY. WE FIND THAT THE ISSUE OF THE OUTSTANDING BALANCE IN SUSPENSE ACCOUNT TO THE EXTENT OF RS.19,72,113/- IS A LIABILITY RECOGNIZED BY THE ASSESSEE BANK IN ITS BOOKS OF ACCOUNT. THE EXCESS AMOUNT RECEIVED BY THE ASSESSEE ON THE SALE OF GOLD PLEDGED WITH IT BY THE CUSTOMERS, WHO HAD BORROWED LOAN AGAINST SUCH GOLD, AFTER IT HAD BEEN ADJUSTED AGAINST LOAN ITA NO.1861/PN/2013 ITA NO.1982/PN/2013 10 BORROWED AND THE EXCESS AMOUNT WAS KEPT IN THE SUSP ENSE ACCOUNT. THE SAID EXCESS AMOUNT UNDOUBTEDLY RELATES TO THE PERSONS WH O HAD PLEDGED THEIR GOLD WITH THE ASSESSEE BANK AND IS NOT THE INCOME OR PRO PERTY OF THE ASSESSEE. MERELY BECAUSE, THE SAID AMOUNTS HAD REMAINED UNPAI D FOR A LONG TIME DOES NOT EXTINGUISH THE LIABILITY OF THE ASSESSEE VIS--VIS THE SAME. WE FIND NO MERIT IN THE ORDER OF THE ASSESSING OFFICER IN HOLDING THE SAID ADDITION OF RS.19,72,113/- AS INCOME OF THE ASSESSEE. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS.19,72,113/-. 19. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSES SEE IN THIS REGARD HAD PLACED RELIANCE ON THE RATIO LAID DOWN BY THE CHENN AI BENCH OF THE TRIBUNAL IN ACIT VS. KARUR VYSYA BANK LTD., (2013) 35 CCH 0348, WHEREIN IT WAS HELD THAT THE UNCLAIMED BALANCE AND SURPLUS OF JEWELLERY AUCT ION COULD NOT BE ADDED TO THE INCOME OF THE ASSESSEE. FOLLOWING THE SAME, THE GR OUND OF APPEAL NO.3 IS ALLOWED. 20. NOW, COMING TO THE APPEAL FILED BY THE REVENUE. THE FIRST GROUND OF APPEAL RAISED BY THE REVENUE IS GENERAL IN NATURE A ND HENCE THE SAME IS DISMISSED. 21. THE ISSUE IN GROUNDS OF APPEAL NO.2 TO 6 IS AGA INST THE DELETION OF ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF PREMIUM PAID ON INVESTMENT IN GOVERNMENT SECURITIES TOTALING RS.10,00,000/-. 22. WE FIND THE SIMILAR ISSUE OF AMORTIZATION OF PR EMIUM PAID ON INVESTMENT IN HTM SECURITIES AROSE BEFORE THE TRIBUNAL IN THE AHM EDNAGAR MERCHANTS CO- OPERATIVE BANK LTD. VS. JCIT (SUPRA) AND THE CLAIM OF THE ASSESSEE WAS ALLOWED HOLDING AS UNDER :- 18. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE RECORD. THE FIRST ISSUE ARISING IN THE PRESENT APPEAL FILED BY THE RE VENUE IS WITH REGARD TO THE ITA NO.1861/PN/2013 ITA NO.1982/PN/2013 11 ALLOWABILITY OF AMORTIZATION PREMIUM PAID ON HTM SE CURITIES AT RS.22,69,144/-. THE PUNE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CA SE IN ITA NO.712/PN/2013, RELATING TO ASSESSMENT YEAR 2009-10 VIDE ORDER DATE D 27.11.2013 HAD ALLOWED THE CLAIM OF ASSESSEE, IN TURN RELYING ON THE ORDER OF TRIBUNAL IN NAGAR URBAN CO- OPERATIVE BANK LTD. IN ITA NO.306/PN/2012, OBSERVIN G AS UNDER:- 2. THE ONLY ISSUE IS WITH REGARD TO ADDITION MADE BY ASSESSING OFFICER WHO HAS DISALLOWED THE AMORTIZATION PREMIUM PAID ON GOVT. SECURITIES OF RS.23,13,525/-. AT THE OUTSET OF HEAR ING, LEARNED AUTHORIZED REPRESENTATIVE POINTED OUT THAT THIS ISSUE IS COVER ED IN FAVOUR OF ASSESSEE BY THE ORDER IN THE CASE OF NAGAR URBAN CO -OPERATIVE BANK LTD., IN ITA NO.306/PN/2012, WHEREIN THE TRIBUNAL H AS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER: 4. WE HAVE HEARD THE PARTIES. WE FIND THAT THE IS SUE BEFORE US IS CLEARLY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT PUNE BENCH IN THE CASE OF LATUR URBAN CO-OP. B ANK LTD. IN ITA NO. 778 AND 792/PN/2011, ORDER DATED 31-8-2012. THE RELEVANT DISCUSSION AND FINDING OF THE TRIBUNAL ON THE ISSUE IS AS UNDER. 13. SO FAR AS GROUND NO. 2 IS CONCERNED, IT IS IN RESPECT OF THE DISALLOWANCES ON THE LOSS ON SALE OF SURPLUS OF RS. 14,70,000/-. THE A.O HAS OBSERVED THAT AN AMOUNT OF RS. 14,70,00 0/- IS DEBITED TO THE PROFIT & LOSS A/C ON ACCOUNT OF LOSS ON SALE OF SECURITIES. THE A.O HAS FURTHER OBSERVED THAT THE ASSESSEE IN ITS SUBMISSION HAS STATED THAT SECURITIES OF THE BANK ARE HELD UNDER THE HEAD TO MATURITY CATEGORY AND, THEREFORE, LO SS ARISING ON THE SALE OF INVESTMENT IS IN THE NATURE OF CAPITAL LOSS AND THEREFORE, THE SAME IS NOT ALLOWABLE EXPENDITURE. THE A.O MADE TH E ADDITION TO THE EXTENT OF RS. 14,70,000/-. THE LD CIT(A) CONFI RMED THE ADDITION. 14. WE HAVE HEARD THE PARTIES. THE LD COUNSEL PLAC ED HIS HEAVY RELIANCE ON THE DECISION OF THE 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 (2003) 262 ITR 334 (BOM), THE ISSUE BEFORE T HEIR LORDSHIP WAS WHETHER THE ASSESSEE WAS ENTITLED FOR DEDUCTION ON ACCOUNT OF DEPRECIATION IN THE VALUE OF INVESTMENTS. THE M ETHOD OF VALUATION FOLLOWED BY THE ASSESSEE BANK WAS TO VALU E INVESTMENTS AT COST OR MARKET VALUE WHICHEVER WAS L OWER. THE ASSESSEE HAD CLAIMED THE DEPRECIATION TO THE TUNE O F RS. 11,82,35,007/- AND THE SAID DEPRECIATION WAS CLAIME D AS A DEDUCTION WHICH WAS DISALLOWED BY THE A.O, BUT THE ASSESSEE BANK SUCCEEDED BEFORE THE CIT(A). THE TRIBUNAL CONF IRMED THE ORDER OF THE CIT(A). THE REVENUE CARRIED THE ISSUE BEFORE THE HONBLE HIGH COURT. THE CORE ISSUE WAS THE METHOD OF VALUATION ADOPTED BY THE ASSESSEE BANK FOR VALUING THE STOCK OF THE SECURITIES. THE HONBLE HIGH COURT FOLLOWED THE D ECISION OF HONBLE SUPREME COURT IN THE CASE OF UNITED COMMERC IAL BANK (SUPRA). 15. IN THE CASE OF UNITED COMMERCIAL BANK (SUPRA), EVEN THE ISSUE OF VALUATION OF THE STOCK IN TRADE OF THE INV ESTMENT WAS BEFORE THE HONBLE SUPREME COURT. IN THE CASE OF T HE ASSESSEE, THE ISSUE IS REGARDING ALLOWABILITY OF THE LOSS ON THE SALE OF THE SECURITIES. MERELY BECAUSE THE SECURITIES ARE KEP T UNDER THE HEAD TILL THE MATURITY, THE SAID SECURITY CANNOT BE TREATED AS A ITA NO.1861/PN/2013 ITA NO.1982/PN/2013 12 PURELY INVESTMENT. LAW IS WELL SETTLED THAT THE S ECURITIES HELD BY THE BANK ARE IN THE NATURE OF STOCK-IN-TRADE. WE M AY LIKE TO QUOTE HERE THE DECISION OF THE HONBLE HIGH COURT O F 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 SECU RITIES HELD BY THE BANK ARE IN THE NATURE OF STOCK-IN-TRADE. BOTH THE AUTHORITIES BELOW HAVE MERELY GONE ON THE NOMENCLATURE OF THE HEAD UNDER WHICH THE SECURITIES ARE HELD. IN OUR CONSIDERED VI EW, NOMENCLATURE CANNOT BE DECISIVE FOR THE ASSESSEE BA NK. WE, THEREFORE, HOLD THAT THE LOSS ON THE SALE OF THE SE CURITIES IS REVENUE IN NATURE AND SAME IS ALLOWABLE. ACCORDIN GLY, GROUND NO. 2 IS ALLOWED. 2.1 MOREOVER, THE SAID ISSUE IS ALSO DECIDED IN FAV OUR OF THE ASSESSEE BY OTHER CO-ORDINATE BENCH IN THE FOLLOWING CASES: I) DECISION OF BANGALORE BENCH OF THE TRIBUNAL IN T HE CASE OF KRISHNA GRAMEENA BANK VS. ADDL. CIT (ITA NO. 146/BA NG/2011 AND 224/BANG/2011 ORDER DATED 15-6-2012. II) DECISION OF BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF NATIONAL CO-OP. BANK LTD. VS. JT. CIT RANGE 3 BANGA LORE (ITA NO. 1090/BANG/2010 AND 7/BANG/2011, ORDER DATED 11-5-20 12). WE THEREFORE SET ASIDE THE ORDER OF THE CIT(A) ON T HIS ISSUE AND ALLOW THE CLAIM OF THE ASSESSEE. 2.1 FACTS BEING SIMILAR, SO FOLLOWING THE SAME REAS ONING, WE HOLD THAT AMORTIZATION PREMIUM PAID ON GOVT. SECURITIES OF RS .23,13,525/- DEBITED TO PROFIT AND LOSS ACCOUNT, AS PER RBI GUIDELINES H AS TO BE ALLOWED BEING EXPENSES INCURRED DURING THE COURSE OF BUSINESS OF BANKING, ASSESSING OFFICER IS DIRECTED ACCORDINGLY. 19. THE ISSUE ARISING BEFORE US IS SIMILAR TO THE I SSUE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2009-10 AND FOLLOWING THE SAME PARITY OF REASONING, WE UPHOLD THE ORDER OF CIT(A) IN ALLO WING THE DEDUCTION ON ACCOUNT OF AMORTIZATION PREMIUM PAID ON GOVERNMENT SECURITI ES. THE GROUNDS OF APPEAL NOS.1 TO 8 RAISED BY THE REVENUE ARE THUS, DISMISSE D. 23. WE FIND THAT THE TRIBUNAL HAD ALLOWED THE CLAIM OF THE ASSESSEE, WHEREIN, IN TURN, RELYING THE ORDER OF THE TRIBUNAL IN NAGAR URBAN CO-OPERATIVE BANK LTD. (SUPRA). FOLLOWING THE SAME PARITY OF REASONING, W E UPHOLD THE ORDER OF THE CIT(A) IN ALLOWING THE DEDUCTION ON ACCOUNT OF AMOR TIZATION OF PREMIUM PAID ON HTM SECURITIES AT RS.10,00,000/-. THE GROUNDS OF A PPEAL NO.2 TO 6 RAISED BY THE REVENUE ARE THUS, DISMISSED. 24. THE ISSUE IN GROUNDS OF APPEAL NO.7 TO 11 IS AG AINST THE DELETION OF ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT O F PAYMENT OF BROKEN PERIOD INTEREST ON INVESTMENT HELD IN THE HTM SECURITIES. ITA NO.1861/PN/2013 ITA NO.1982/PN/2013 13 25. IN THIS CONTEXT, THE BRIEF FACTS RELATING TO TH E ISSUE ARE THAT THE ASSESSEE HAD CLAIMED THE SAID DEDUCTION ON ACCOUNT OF HOLDIN G THE SECURITIES FOR PART OF THE PREVIOUS YEAR AND THE INTEREST RELATABLE TO THE SEC URITIES HELD BY THE PREVIOUS OWNER WAS DEBITED TO THE PROFIT & LOSS ACCOUNT AS P AYMENT OF BROKEN PERIOD INTEREST ON INVESTMENT TOTALING RS.40,41,408/-. WE FIND SIMILAR ISSUE OF ALLOWABILITY OF BROKEN PERIOD INTEREST AROSE BEFORE THE TRIBUNAL IN THE AHMEDNAGAR MERCHANTS CO-OPERATIVE BANK LTD. VS. JCI T (SUPRA), WHEREIN THE TRIBUNAL VIDE PARAS 20 AND 21 FOLLOWING THE RATIO L AID DOWN BY THE HONBLE BOMBAY HIGH COURT IN AMERICAN EXPRESS INTERNATIONAL BANKING CORPORATION VS. CIT (SUPRA) HELD AS UNDER :- 20. THE SECOND ISSUE RAISED BY THE REVENUE VIDE GR OUNDS OF APPEAL NOS.9 TO 11 VIS--VIS THE ALLOWABILITY OF BROKEN PERIOD INTE REST. THE BANK IN THE COURSE OF CARRYING ON ITS BUSINESS HAD ACQUIRED CERTAIN SECUR ITIES, ON WHICH INTEREST WAS DUE. HOWEVER, SINCE THE ASSESSEE WAS HOLDING THE S AID SECURITIES FOR PART OF THE ACCOUNTING PERIOD, THE INTEREST DUE ON THE SAID SEC URITIES FOR THE PERIOD WHEN THE SAID SECURITIES WERE HELD BY THE SEVERAL BANKS WERE CLAIMED AS DEDUCTION AS THE SAID AMOUNT WAS DUE TO THE SAID HOLDERS OF THE SECU RITIES. CONSEQUENTLY, THE ASSESSEE MADE A CLAIM OF DEDUCTION ON ACCOUNT OF BR OKEN PERIOD INTEREST, WHICH WAS NOT ALLOWED IN THE HANDS OF THE ASSESSEE. HOWE VER, THE HONBLE BOMBAY HIGH COURT IN AMERICAN EXPRESS INTERNATIONAL BANKIN G CORPORATION VS. CIT (SUPRA) HELD AS UNDER:- 9. THE DEPARTMENT HAS TAXED BROKEN PERIOD INTERES T RECEIVED AS BUSINESS INCOME. BUT, THEY HAVE DENIED DEDUCTION FO R PAYMENT MADE FOR BROKEN PERIOD INTEREST AT THE TIME OF PURCHASE OF T HE SECURITY. ONCE THE DEPARTMENT SEEKS TO ASSESS BROKEN PERIOD INTEREST U NDER THE HEAD 'BUSINESS', THEN THE DEPARTMENT COULD NOT HAVE REJE CTED THE IMPUGNED ADJUSTMENT IN THE METHOD OF ACCOUNTING ADOPTED BY T HE BANK UNLESS THE DEPARTMENT WAS IN A POSITION TO PROVE THAT THE METH OD ADOPTED BY THE BANK DID NOT DISCLOSE THE TRUE AND PROPER INCOME. N OW, WHEN THE ASSESSEE BOUGHT 4-3/4 PER CENT GOI 1980, THE PURCHA SE PRICE WAS RS.4,92,000 AND THE INTEREST ON PURCHASE WAS RS.5,8 71.53, WHICH WAS DEBITED TO INTEREST RECEIVABLE ACCOUNT. HOWEVER, T HE SECURITY WAS PURCHASED FOR RS.4,92,000, WHICH WAS DEBITED TO ASS ET ACCOUNT. THE FACE VALUE OF THE SECURITY RECEIVABLE ON REDEMPTION WAS RS.5 LAKHS. THIS DIFFERENCE OF RS.8,000 HAS BEEN ACCOUNTED FOR BY TH E BANK ON A MONTHLY BASIS. THE DATE OF PURCHASE WAS 11 TH AUG., 1976. THE DATE OF REDEMPTION WAS 12TH MAY, 1980, AND THE DATE OF SALE WAS 6TH NO V., 1978. AS STATED ABOVE, THE DIFFERENCE WAS RS.8,000 BETWEEN THE FACE VALUE AND THE AMOUNT PAID FOR THE SECURITY. THIS DIFFERENCE OF RS .8,000 HAS BEEN ACCOUNTED FOR BY THE BANK ON A MONTHLY BASIS. IF ON E TOTALS UP RS.118.43, RS.7,816-60 AND RS.64.97, THEN THE RESULTANT FIGURE IS RS.8,000. ACCORDINGLY, THE DIFFERENCE OF RS.8,000 IS ACCOUNTE D FOR IN THE PROFIT ON REVALUATION ACCOUNT. THE AMOUNT, BY WHICH VALUE OF THE SECURITY HAS BEEN INCREASED, HAS BEEN OFFERED FOR TAX ON ACCRUAL BASIS IN THE APPROPRIATE ASSESSMENT YEARS DURING WHICH THE ASSES SEE HELD THE ITA NO.1861/PN/2013 ITA NO.1982/PN/2013 14 SECURITY I.E. FOR THE YEAR ENDING 31ST DEC., 1976, RS. 829.03; FOR THE YEAR ENDING 31ST DEC., 1977, RS. 2,131.80; AND FOR THE Y EAR ENDING 31ST DEC., 1978, RS.1,806, ACCORDING TO THE DEPARTMENT, PROFIT ON SALE OF SECURITY COMES TO RS.9,857,64 DURING THE ASST. YR. 1977-78. THIS IS CALCULATED ON THE BASIS THAT BROKEN PERIOD INTEREST PAYMENT WAS T OWARDS THE CAPITAL COST OF THE INVESTMENT. ON THAT BASIS, ACCORDING TO THE DEPARTMENT, PROFIT ON SALE OF SECURITY, WHICH OUGHT TO BE TAXED, WAS R S.9,857.64. THERE IS NO DIFFERENCE IN THE AMOUNT IN TAX, WHETHER ONE ADO PTS THE ASSESSEE'S METHOD OR THE DEPARTMENT'S METHOD. UNDER EITHER MET HOD, THE SAME AMOUNT IS OFFERED FOR TAX. THE DEPARTMENT HAS NOT B EEN ABLE TO SHOW IN THIS CASE AS TO WHY THE METHOD ADOPTED BY THE ASSES SEE-BANK OUGHT TO BE REJECTED. ON THE OTHER HAND, THE DEPARTMENT HAS NOT BEEN ABLE TO EXPLAIN AS TO WHY BROKEN PERIOD INTEREST RECEIVED S HOULD BE TAXED WHEREAS BROKEN PERIOD INTEREST PAYMENT SHOULD BE DI SALLOWED. IN THE CIRCUMSTANCES, THE ORDER OF THE TRIBUNAL IS UPHELD. 10. THE AMOUNT WHICH THE ASSESSEE RECEIVED HAS BEE N BROUGHT TO TAX UNDER THE HEAD 'BUSINESS' UNDER S.28. THE AMOUNT IS NOT BROUGHT TO TAX UNDER S. 18 OF THE IT ACT. AFTER BRINGING THE AMOU NT TO TAX UNDER THE HEAD 'BUSINESS', THE DEPARTMENT TAXED THE BROKEN PERIOD INTEREST RECEIVED ON SALE, BUT AT THE SAME TIME, DISALLOWED BROKEN PERIO D INTEREST PAYMENT AT THE TIME OF PURCHASE AND THIS LED TO THE DISPUTE. H AVING ASSESSED THE AMOUNT RECEIVED BY THE ASSESSEE UNDER S. 28, THE ON LY LIMITED DISPUTE WASWHETHER THE IMPUGNED ADJUSTMENTS IN THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE-BANK SHOULD BE DISCARDED. T HEREFORE, THE JUDGMENT IN VIJAYA BANK'S CASE HAS NO APPLICATION T O THE FACTS OF THE PRESENT CASE. CONTENTION THAT EVEN IF THE SECURITI ES WERE TREATED AS PART OF THE TRADING ASSETS, THE INCOME THEREFROM HAD TO BE ASSESSED UNDER S. 18 THE ACT AND NOT UNDER S. 28 AS INCOME FROM SECUR ITIES CAN ONLY COME WITHIN S. 18 AND NOT UNDER S. 28 IS NOT SUSTAINABLE . FIRSTLY, AS STATED- ABOVE, VIJAYA BANK'S CASE HAS NO APPLICATION TO THE FACTS OF THIS CASE. SECONDLY, IN THE PRESENT CASE, THE TRIBUNAL HAS FOU ND THAT THE SECURITIES WERE HELD AS TRADING ASSETS. THIRDLY, IT HAS BEEN HELD BY THE SUPREME COURT IN THE SUBSEQUENT DECISION THAT INCOME FROM S ECURITIES CAN ALSO COME UNDER S.28 AS INCOME FROM BUSINESS. HAVING A SSESSED THE INCOME UNDER S. 28, THE DEPARTMENT OUGHT TO HAVE TAXED INT EREST FOR BROKEN PERIOD INTEREST RECEIVED AND THE DEPARTMENT OUGHT T O HAVE ALLOWED DEDUCTION FOR BROKEN PERIOD INTEREST PAID. 21. APPLYING THE RATIO LAID DOWN BY THE HONBLE BOM BAY HIGH COURT IN AMERICAN EXPRESS INTERNATIONAL BANKING CORPORATION VS. CIT (SUPRA), WE FIND NO MERIT IN THE ORDER OF ASSESSING OFFICER IN THIS REG ARD. UPHOLDING THE ORDER OF CIT(A), WE DISMISS THE GROUNDS OF APPEAL NOS.9 TO 1 1 RAISED BY THE REVENUE. 26. THE ISSUE RAISED IN THE PRESENT APPEAL IS IDENT ICAL TO THE ISSUE BEFORE THE TRIBUNAL IN THE AHMEDNAGAR MERCHANTS CO-OPERATIVE B ANK LTD. VS. JCIT (SUPRA) AND FOLLOWING THE SAME PARITY OF REASONING, WE UPHO LD THE ORDER OF THE CIT(A) IN DELETING THE ADDITION OF RS.40,41,408/-. THE GROUN DS OF APPEAL NO.7 TO 11 RAISED BY THE REVENUE ARE THUS, DISMISSED. ITA NO.1861/PN/2013 ITA NO.1982/PN/2013 15 27. THE LAST ISSUE IN GROUND OF APPEAL NO.12 IS IN RELATION TO DELETION OF ADDITION OF RS.1,30,93,000/- ON ACCOUNT OF PROVISIO N FOR NPA, INVESTMENT IN MADHAVPURA MERCANTILE CO-OPERATIVE BANK LTD.. 28. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAD MADE PROVISION OF RS.1,30,9 3,000/- TOWARDS NPA INVESTMENT IN MADHAVPURA MERCANTILE CO-OPERATIVE BA NK LTD.. THE SAID PROVISION WAS ADDED BACK IN THE STATEMENT OF COMPUT ATION OF INCOME AND THE ASSESSEE WAS SHOW-CAUSED TO EXPLAIN AS TO WHY THE S AME SHOULD NOT BE DISALLOWED AND ADDED BACK TO THE TOTAL INCOME. IN REPLY, THE ASSESSEE SUBMITTED THAT THE SAID PROVISION WAS MADE AS PER THE AUDIT C ONDUCTED BY THE RBI AND ACTUALLY THERE WAS NO NECESSITY FOR MAKING THE SAID PROVISION, INSTEAD THE SAME SHOULD HAVE BEEN DEBITED TO THE PROFIT & LOSS ACCOU NT BEING LOSS OF INVESTMENT AS THE MADHAVPURA MERCANTILE CO-OPERATIVE BANK LTD. LICENSE HAD BEEN CANCELLED BY THE RBI. THE ASSESSING OFFICER REJECT ED THE PLEA OF THE ASSESSEE TREATING THE SAME AS INCOME OF THE ASSESSEE. 29. THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE AG AINST WHICH REVENUE IS IN APPEAL. 30. ON THE PERUSAL OF THE RECORD, WE FIND THAT ASSE SSEE HAD TIED-UP WITH MADHAVPURA MERCANTILE CO-OPERATIVE BANK LTD. SINCE 1989 AND THE TRANSACTIONS BETWEEN THE TWO WERE SMOOTHLY GOING ON. AS ON 25.0 8.2005 THE BANK BALANCE WITH MADHAVPURA MERCANTILE CO-OPERATIVE BANK LTD. W AS RS.1,42,50,884/- IN THE FORM OF FIXED DEPOSIT. HOWEVER, DUE TO LIQUIDITY C RUNCH AND UNETHICAL PRACTICES FOLLOWED BY THE MADHAVPURA MERCANTILE CO-OPERATIVE BANK LTD., THE RBI INITIATED PROCEEDINGS AGAINST THE SAID BANK AND SUGGESTED ITS REVIVAL PLAN, WHICH WAS NOT SUCCESSFUL DUE TO THE SAID BANKS NEGATIVE NET WORT H. OUT OF TOTAL DEPOSIT OF RS.1,42,50,884/-, THE ASSESSEE COULD ONLY COLLECT R S.11,57,884/-. AFTER THE AUDITORS OF THE RBI CARRIED OUT AUDIT OF THE ASSESS EE BANK, SUGGESTION WAS MADE ITA NO.1861/PN/2013 ITA NO.1982/PN/2013 16 TO MAKE THE PROVISION OF LOSS OF INVESTMENT AS PER THE REPORT DATED 24.02.2010. ACCORDINGLY, THE ASSESSEE MADE A PROVISION FOR THIS NPA ROUTING IT THROUGH PROFIT & LOSS ACCOUNT. SUBSEQUENTLY, THE LICENSE OF MADHA VPURA MERCANTILE CO- OPERATIVE BANK LTD. WAS ALSO CANCELLED WHICH RESULT ED INTO ACTUAL LOSS OF INVESTMENT FOR THE BANK. THE PLEA OF THE ASSESSEE BEFORE US WAS THAT THE SAME WAS ASCERTAINED LOSS AND IT RESULTED INTO ACTUAL LO SS OF INVESTMENT FOR THE ASSESSEE BANK. THE FINDING OF THE CIT(A) IN THIS R EGARD WAS THAT THOUGH THE AMOUNT HAS NOMENCLATURE OF INVESTMENT BUT IT WAS A REVENUE FIELD. THE LOSS OF SUCH INVESTMENT AS PER THE CIT(A) WOULD BE A REVENU E LOSS AND NOT CAPITAL LOSS. THE PROVISION CREATED ON CONCRETE BASIS WHICH WAS E QUAL TO THE INVESTMENT MADE WAS HELD BY THE CIT(A) TO BE ALLOWABLE IN THE HANDS OF THE ASSESSEE. RELIANCE IN THIS REGARD WAS PLACED ON THE RATIO LAI D DOWN BY THE HONBLE SUPREME COURT IN BHARAT EARTH MOVERS LTD. VS. CIT, (2000) 245 ITR 428 (SC) AND ROTORK CONTROL INDIA (P) LTD. VS. CIT, (2009) 3 14 ITR 62 (SC). 31. ON THE PERUSAL OF THE COPY OF THE BALANCE SHEET FILED AS ON 31.03.2010 WHICH ALONG WITH THE ANNEXURES ARE PLACED AT PAGES 46 TO 52 OF THE PAPER BOOK, IT TRANSPIRES THAT IN THE DETAILS OF SUNDRIES (LIAB ILITIES) AS ON 31.03.2010, THE ASSESSEE HAD INCLUDED THE LOSS FOR INVESTMENT AMOUN TING TO RS.1,30,93,000/-. THE TOTAL OF THE SUNDRIES (LIABILITIES) OF RS.6,81, 79,808/- HAS BEEN SHOWN AS LIABILITY BY THE ASSESSEE IN ITS BALANCE SHEET UNDE R THE HEAD OTHER LIABILITIES. THE ASSESSEE, ON THE OTHER HAND, IN THE PROFIT & LO SS ACCOUNT FOR THE FINANCIAL YEAR 2009-10 HAD BOOKED THE EXPENDITURE ON ACCOUNT OF PROVISION FOR NPA INVESTMENT IN MADHAVPURA MERCANTILE CO-OPERATIVE BA NK LTD. AT RS.1,30,93,000/-. THE PERUSAL OF THE ABOVE-SAID DE TAILS DOES NOT REFLECT WHETHER THE ASSESSEE HAD WRITTEN-OFF THE SAID INVESTMENTS I N ITS BOOKS OF ACCOUNT. IN CASE, THE INVESTMENTS ARE RECOGNIZED IN THE BOOKS O F ACCOUNT THEN THE PROVISION MADE IN RESPECT OF SUCH INVESTMENT IS NOT TO BE ALL OWED AS AN EXPENDITURE IN THE HANDS OF THE ASSESSEE. WE ALSO FIND NO MERIT IN TH E RELIANCE PLACED UPON BY THE CIT(A) ON THE RATIO LAID DOWN BY THE HONBLE SUPREM E COURT IN BHARAT EARTH ITA NO.1861/PN/2013 ITA NO.1982/PN/2013 17 MOVERS LTD. VS. CIT (SUPRA), WHERE IT HAS BEEN LAID DOWN THAT THE DEDUCTION IS TO BE ALLOWED IN RESPECT OF LIABILITY WHICH MAY HAVE T O BE QUANTIFIED AND DISCHARGED AT A FUTURE DATE. IN THE FACTS OF THE PRESENT CASE BEFORE US, THE ISSUE IS IN RELATION TO AN INVESTMENT MADE BY THE ASSESSEE WITH MADHAVPU RA MERCANTILE CO- OPERATIVE BANK LTD. AND IN VIEW OF THE FINANCIAL ST RAIN FACED BY THE SAID BANK AND ALSO BECAUSE OF THE ADVICE OF THE AUDITORS, WHETHER PROVISION OF SUCH NPA INVESTMENT IS TO BE ALLOWED AS BUSINESS LOSS IN THE HANDS OF THE ASSESSEE OR AS CAPITAL LOSS. SINCE THE ISSUE HAS NOT BEEN CONSIDE RED IN TOTAL PERSPECTIVE AND FOLLOWING THE PRINCIPLES OF NATURAL JUSTICE, WE ARE OF THE VIEW THAT THE MATTER BE REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER, WHO SHALL AFTER VERIFYING THE STAND OF THE ASSESSEE, VIS--VIS THE ENTRIES MADE B Y THE ASSESSEE IN ITS BOOKS OF ACCOUNT, SHALL RE-ADJUDICATE THE ISSUE IN ACCORDANC E WITH LAW. THE ASSESSING OFFICER SHALL PROVIDE REASONABLE OPPORTUNITY OF BEI NG HEARD TO THE ASSESSEE. THUS, GROUND OF APPEAL NO.12 RAISED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 32. RESULTANTLY, WHEREAS THE APPEAL OF THE ASSESSEE IS ALLOWED THAT OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 20 TH DAY OF MAY, 2015. SD/- SD/- (R.K. PANDA) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 20 TH MAY, 2015 SUJEET COPY OF THE ORDER IS FORWARDED TO: - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)IT/TP, 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 I.T.A.T., PUNE