The Naroda Nagrik Co.Op.Bank Ltd., Ahmedabad V. The ACIT.,Circle-8, Ahmedabad

ITA 2084/AHD/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5837 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-05-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 01-05-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 08-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRADEEP KUMAR MAJUMDARSR
• Keywords: Capital asset; Depreciation; Bad and doubtful debts

Judgement Text

,, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH (SMC), AHMEDABAD .., , BEFORE SHRI S.S. GODARA, JUDICIAL MEMBER & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER 1. ./ I.T.A. NO.2358/AHD/2012 2. ./ I.T.A. NO.2084/AHD/2013 ( / ASSESSMENT YEARS : 2009-10 & 2010-11) THE NARODA NAGRIK CO- OP.BANK LTD. A-1-2, DHARAMSUT SOCIETY GURUKUL MEMNAGAR ROAD MEMNAGAR AHMEDABAD-380 052 / VS. THE ACIT CIRCLE-6 AHMEDABAD $ ./ ./ PAN/GIR NO. : AAAAT 9803 D ( $' / APPELLANT ) .. ( ($' / RESPONDENT ) $') / APPELLANT BY : SHRI HEM CHHAJED, AR ($'*) / RESPONDENT BY : SHRI PRADEEP KUMAR MAJUMDAR,SR.DR +,*- / DATE OF HEARING 01/05/2017 ./0*- / DATE OF PRONOUNCEMENT 16/ 05/2017 / O R D E R PER PRADIP KUMAR KEDIA, AM: THESE TWO CAPTIONED APPEALS BY THE ASSESSEE ARE DI RECTED AGAINST THE SEPARATE ORDERS OF THE LD.COMMISSIONER OF INCOM E TAX(APPEALS)-XI, AHMEDABAD [CIT(A) IN SHORT] DATED 28/08/2012 AND 06/06/2013 PERTAINING TO ASSESSMENT YEARS (AYS) 2009-10 & 2010 -11 RESPECTIVELY. ITA NOS.2358/AHD/2012 & ITA NO.2084/AHD/2013 THE NARODA NAGRIK CO-OP.BANK LTD. VS. ACIT ASST.YEARS 2009-10 & 2010-11 - 2 - THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DIS POSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. ITA NO.2358/AHD/2012 AY 2009-10 2. THE SOLITARY GROUND OF APPEAL RAISED BY THE ASSE SSEE READS AS UNDER:- THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN UPHO LDING DISALLOWANCE MADE BY LD.A.O. OF RS.37,08,022/- INCU RRED BY APPELLANT ON DEVALUATION OF INVESTMENT IN GOVT.SECU RITIES. 3. BRIEFLY STATED, ASSESSEE IS ENGAGED IN THE BUSIN ESS OF BANKING ACTIVITY. THE RETURN OF INCOME OF THE ASSESSEE FOR THE AY 2009-10 WAS SUBJECTED TO SCRUTINY ASSESSMENT. IN THE COURSE OF ASSESSMENT, THE ASSESSING OFFICER (AO) OBSERVED THAT THE ASSESSEE H AS DEBITED AN AMOUNT OF RS.37,08,022/- UNDER THE HEAD MARK TO MARKET L OSS ON GOVERNMENT SECURITY. IT WAS EXPLAINED BY THE ASSESSEE THAT IT HAS PURCHASED DIFFERENT TYPES OF GOVERNMENT SECURITIES AND THERE IS A DIFFE RENCE IN THE BOOK VALUE OF SECURITY AS ON THE CLOSING DAY OF FINANCIAL YEAR QUA THE MARKET VALUE ON THAT DATE. IT WAS CLAIMED THAT THE AFORESAID LO SS REPRESENTS THE DIFFERENCE BETWEEN THE BOOK VALUE AND THE MARKET VA LUE. THE AO HOWEVER NOTED THAT THE AFORESAID EXPENDITURE WAS OF CONTINGENT NATURE SINCE THE LOSS HAS NOT CRYSTALLIZED AND WOULD ACTUA LLY OCCUR, IF ANY, ONLY ON THE TRANSFER OF INVESTMENTS AND NOT PRIOR THERET O. HE ACCORDINGLY ITA NOS.2358/AHD/2012 & ITA NO.2084/AHD/2013 THE NARODA NAGRIK CO-OP.BANK LTD. VS. ACIT ASST.YEARS 2009-10 & 2010-11 - 3 - PROCEEDED TO DISALLOW THE AFORESAID LOSS OF RS.37,0 8,022/- CLAIMED ON MARK TO MARKET BASIS ON SECURITIES. 4. THE CIT(A) FOLLOWED ITS DECISION ON THE CONTROVE RSY AROSE IN THE PRECEDING YEAR IN ASSESSEES OWN CASE IN AY 2009-10 AND REJECTED THE APPEAL OF THE ASSESSEE. 5. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 6. THE LD.AR FOR THE ASSESSEE MR.HEM CHHAJED SUBMIT TED THAT THE ASSESSEE HAS CLAIMED MARK TO MARKET LOSS ON GOVERN MENT SECURITIES WHICH HAVE BEEN HELD FOR TRADING (HFT) AND AVAIL ABLE FOR SALE (AFS) AS PER RESERVE BANK OF INDIAS INSTRUCTIONS BY MAKING CORRESPONDING INCREASE IN INVESTMENT DEPRECIATION RESERVE ACCOUNT. IT WAS CONTENDED THAT THE AO HAS WRONGLY DENIED THE CLAIM OF THE ASSESSEE IN IGNORANCE OF THE TRUE SPIRIT OF CBDTS INSTRUCTION NO.17/2008 DATED 26/11/2008. THE LD.AR SUBMITTED THAT THE RBI MANDATORILY REQUIRES THE BANK TO CLASSIFY THE INVESTMENT IN GOV ERNMENT SECURITIES UNDER THE CATEGORY; NAMELY HELD FOR TRADING (HFT) ; AVAILABLE FOR SALE (AFS) AND HELD FOR MATURITY (HTM). IT WAS SUBMITTED THAT THE ASSESSEE BEING A BANK IS REQUIRED TO PREPARE ITS BA LANCE-SHEET AS PER THE PROVISIONS OF THE BANKING REGULATION ACT. THE BALA NCE-SHEET FORMAT IS THUS PRESCRIBED WHEREIN THERE IS SPECIFIC HEAD INV ESTMENT WHERE THE ITA NOS.2358/AHD/2012 & ITA NO.2084/AHD/2013 THE NARODA NAGRIK CO-OP.BANK LTD. VS. ACIT ASST.YEARS 2009-10 & 2010-11 - 4 - AFORESAID SECURITIES WAS HELD ARE REFLECTED. THE N OTIFIED FORMAT DOES NOT PROVIDE FOR BIFURCATION BETWEEN THE SECURITIES SO H ELD BETWEEN THE INVESTMENT AND STOCK-IN-TRADE. IT WAS THUS CON TENDED THAT THE REVENUE HAS MISDIRECTED ITSELF IN LAW IN DENYING TH E CLAIM TOWARDS DIMINUTION LOSS IN DISREGARD OF TRUE PURPORT OF FAC T SITUATION. 7. THE LD.DR, ON THE OTHER HAND, RELIED UPON THE OR DERS OF THE AUTHORITIES BELOW AND IN FURTHERANCE SUBMITTED THAT RBI NORMS DO NOT OVERRIDE THE PROVISIONS OF INCOME TAX ACT. THE GOV ERNMENT SECURITIES HAVE BEEN SHOWN TO BE CAPITAL ASSETS IN THE BALAN CE-SHEET AND THEREFORE DEPRECIATION ON ACCOUNT OF DIMINUTION OF SUCH SECUR ITIES IS NOT PERMISSIBLE AS REVENUE LOSS. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. THE ISSUE FOR CONSIDERATION IS WHETHER PROVISION FOR DIMINUTION L OSS ON GOVERNMENT SECURITIES SHOWN UNDER THE HEAD INVESTMENT IS PER MISSIBLE BUSINESS LOSS AS CLAIMED BY THE ASSESSEE OR NOT. WE FIND THAT TH E ISSUE IS NO LONGER RES INTEGRA . THE ISSUE CAME UP FOR CONSIDERATION IN THE CASE OF CIT VS. BANK OF BARODA 262 ITR 364 AND CIT VS. NEDUNGADI BANK LT D. 130 TAXMAN 93 (KER.) AND FOLLOWED BY THE COORDINATE BENCH OF T HE TRIBUNAL IN THE CASE OF ITO VS. GOZARIA NAGARIK SAHKARI BANK LTD. I N ITA NO.1026/AHD/2011 FOR AY 2007-08 DATED 13/08/2015 AS WELL AS IN THE ITA NOS.2358/AHD/2012 & ITA NO.2084/AHD/2013 THE NARODA NAGRIK CO-OP.BANK LTD. VS. ACIT ASST.YEARS 2009-10 & 2010-11 - 5 - CASE OF ACIT VS. MEHSANA URBAN COOPERATIVE BANK LTD . IN ITA NO.2703/AHD/2011 FOR AY 2008-09 ORDER DATED 14/10/2 015. 8.1. THE RELEVANT OPERATIVE OF THE ORDER OF THE TRIBUNAL IN ITA NO.2703/AHD/2011 FOR AY 2008-09 AS RELIED UPON BY T HE ASSESSEE IS REPRODUCED HEREUNDER:- 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH THE FACTS OF THE CASE. ASSESSEE HAS SOLD GOVERNMENT SECURITIES AND M ET NET LOSS OF RS.3,28,78,600/- AFTER ADJUSTMENT OF PROFIT OF RS.5 .35,800/- AND PREMIUM ON PURCHASE OF SECURITIES OF RS.11,01,000/- TOTAL AMOU NTING TO RS.3.39,79,600/-. GUIDELINES OF RBI AS WELL AS CBDT CIRCULAR NO.665 D ATED 5.10.1993 HAVE BEEN ELABORATELY DISCUSSED IN THE ORDER OF CIT(A) A ND RELEVANT EXTRACT OF THE SAME HAVE BEEN REPRODUCED ABOVE IN OUR ORDER. AS PE R RBI GUIDELINES SECURITIES PURCHASED BY THE PRIMARY URBAN CO-OP, BA NKS CAN BE CLASSIFIED UNDER THREE HEADS - I) HELD TO MATURITY (HTM) II) AVAILABLE FOR SALE (AFS) III) HELD FOR TRADING (HFT) THE LOSS INCURRED BY TH E ASSESSEE OF RS.3,39,79,600/- IS FROM SALE OF SECURITIES HELD FO R 'AVAILABLE FOR SALE (AFS) AND THE DETAILED WORKING OF THE SAME HAS BEEN PROVI DED BY THE ID. AR OF THE ASSESSEE IN THE PAPER BOOK. THESE SECURITIES WHICH ARE AVAILABLE FOR SALE WHICH ARE HELD BY THE ASSESSEE AS PER THE RBI GUIDE LINES TO KEEP APART SOME OF THE ASSETS IN THE SPECIFIED MODE AT CERTAIN PERC ENTAGE WHICH ARE INTER ASST. YEAR 2008-09 ALIA KNOWN AS CLR AND SLR AND THE PROF IT/LOSS ON SALE OF SUCH SECURITIES (AFS) CANNOT BE TREATED AS CAPITAL GAIN/ LOSS. FURTHER THE ID. AR HAS REFERRED TO THE JUDICIAL PRONOUNCEMENT OF TH E ITAT, MUMBAI BENCH IN THE CASE OF YES BANK LTD, VS. DY.CIT IN ITA NOS.583 3 & 5910 (MUM) OF 2012 & 2829 (MUM) OF 2013 FOR AYS 2006-07 & 2007- 08 DAT ED JULY 21, 2015 WHEREIN IT WAS HELD - ITA NOS.2358/AHD/2012 & ITA NO.2084/AHD/2013 THE NARODA NAGRIK CO-OP.BANK LTD. VS. ACIT ASST.YEARS 2009-10 & 2010-11 - 6 - '12. IT IS PERTINENT TO MENTION THAT A SINGLE LARGE ST TEST TO DECIDE WHETHER THE SECURITY IS HELD AS CAPITAL ASSET OR IN STOCK-IN-TR ADE IS THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE. MERELY BECAUSE SO ME ITEMS SO PURCHASED HAPPEN TO BE HELD TILL MATURITY CANNOT CONVERT WHAT IS ACQUIRED AS STOCK IN TRADE INTO A CAPITAL ASSET AT A LATER POINT OF TIME . INTENTION AT THE TIME OF PURCHASE IS RELEVANT AND NOT A SUBSEQUENT EVENT OF HOLDING THE SECURITY FOR A LONGER PERIOD. INSTRUCTION NO. 17/2008 DATED 26.11. 2008 ISSUED BY THE CBDT WHEREIN, AT PARA VI. IT HAS BEEN CLEARLY STATED THA T IN THE CASE OF HFT AND AFS SECURITIES OF THE BANK, THE DEPRECIATION AND APPREC IATION TO BE AGGREGATED SCRIPT WISE AND ONLY DEPRECIATION, IF ANY, IS REQUI RED TO BE PROVIDED IN THE ACCOUNTS. 13. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY MERIT IN THE ACTION OF LOWER AUTHORITIES FOR DISALLOWING LOSS AROSE ON THE YEAR END REVALUATION OF SECURITIES. OUR VIEW IS SUPPORTED BY DECISION OF HO N'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. HDFC BANK LTD. (2014) 226 TA XMAN 132/49 TAXMANN.COM 335, UNITED COMMERCIAL BANK VS. CIT (19 99) 240 ITR 355/106 TAXMAN 601 (SO. INVESTMENT LTD, VS. CIT (1970) 77 I TR 533 (SO AND CIT VS. BANK OF BARODA (2003) 262 ITR 334/129 TAXMAN 716 (B OM). RESPECTFULLY FOLLOWING THE DECISION OF HON'BLE SUPREME COURT AND HON'BLE BOMBAY HIGH COURT AND CONSIDERING THE CLASSIFICATION OF SECURIT Y SO MADE AND THE LOSS AROSE ON ACCOUNT OF REVALUATION OF SECURITIES ARE R EQUIRED TO BE ALLOWED. ACCORDINGLY, WE SET ASIDE THE ORDER OF BOTH THE LOW ER AUTHORITIES AND MATTER IS RESTORED BACK TO THE FILE OF AO FOR DECIDING AFRESH IN THE LIGHT OF OUR ABOVE OBSERVATION. WE DIRECT ACCORDINGLY.' ASST. YEAR 2008-09 WE, THEREFORE, ON THE BASIS OF O UR EXAMINATION OF FACTS VIS- A-VIS RBI GUIDELINES AND ABOVE REFERRED CBDT CIRCUL ARS AS WELL AS RELYING ON THE DECISION OF IT AT, MUMBAI BENCH, SEE NO REASON TO INTERFERE WITH THE ORDER OF CIT(A) AND THE SAME IS HEREBY UPHELD. THIS GROUND OF REVENUE IS DISMISSED. 8.2. IN PARITY WITH THE JUDICIAL PRECEDENTS ON THE ISSUE AND FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNA L AS NOTED ABOVE, WE HOLD THAT THE LOSS CLAIMED BY THE ASSESSEE BANK IS REVENUE IN CHARACTER AND AN ALLOWABLE BUSINESS LOSS. ITA NOS.2358/AHD/2012 & ITA NO.2084/AHD/2013 THE NARODA NAGRIK CO-OP.BANK LTD. VS. ACIT ASST.YEARS 2009-10 & 2010-11 - 7 - 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ITA NO.2084/AHD/2013 - AY 2010-11 10. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE RE AD AS UNDER:- 1) THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THE ORDER OF THE LD.A.O. FOR ADDITION/DISALLOWANCE MADE OF RS .32,00,000/- FOR THE MARK TO MARKET LOSS ON GOVT.SECURITIES. 2) THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THE ORDER OF THE LD.AO FOR DISALLOWANCE OF BAD DEBTS TO THE E XTENT OF RS.1,57,038/-. 11. WE FIND THAT THIS APPEAL OF THE ASSESSEE IS IDENTICAL TO THE FACTS OF THE ITA NO.2358/AHD/2012 FOR AY 2009-10(SUPRA). IN VIEW OF THE PARI MATERIA FACTS CONCERNING THE IDENTICAL ISSUE, OUR DECISION IN ITA NO.2358/AHD/2012 SHALL APPLY MUTATIS MUTANDIS TO THIS APPEAL OF THE ASSESSEE. 12. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 16 / 0 5 /201 7 SD/- SD/- (..) ( ) ( S.S. GODARA ) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 16/ 05 /2017 4..+,.+../ T.C. NAIR, SR. PS ITA NOS.2358/AHD/2012 & ITA NO.2084/AHD/2013 THE NARODA NAGRIK CO-OP.BANK LTD. VS. ACIT ASST.YEARS 2009-10 & 2010-11 - 8 - !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. $' / THE APPELLANT 2. ($' / THE RESPONDENT. 3. 567- 8- / CONCERNED CIT 4. 8- ( ) / THE CIT(CC)-XI, AHMEDABAD 5. 9:-+67 , 670 , 5 / DR, ITAT, AHMEDABAD 6. <, / GUARD FILE. / BY ORDER, (9-- //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 4.5.17 (DICTATION-PAD 10- PAGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 6.5.17 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.16.5.17 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 16.5.17 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER