Assistant Commissioner of Income-tax, V. The Ahmednagar Sahar Sahakari Bank Ltd., Ahmednagar

ITA 2122/PUN/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8449 (ITAT-PUNE)
• Duration Of Justice: 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 04-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Cost of acquisition; Revenue expenditure; Capital expenditure

Judgement Text

INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 2122/PN/2013 (ASSESSMENT YEAR : 2007-08) ACIT, AHMEDNAGAR CIRCLE, AHMEDNAGAR .. APPLICANT VS. THE AHMEDNAGAR SAHAR SAHAKARI BANK LTD., SARWATHA, NAVI PETH, AHMEDNAGAR .. RESPONDENT PAN NO. AAABB0323R ASSESSEE BY : SHRI C.H. NANIWADEKAR DEPARTMENT BY : SHRI RAJESH DAMOR DATE OF HEARING : 28-10-2014 DATE OF PRONOUNCEMENT : 31-10-2014 ORDER PER R.S. PADVEKAR, JM : THIS APPEAL IS FILED BY THE REVENUE CHALLENGING THE IMPUGNED ORDER OF THE LD.CIT(A)-IT/TP, PUNE DATED 05-09-2013 FOR THE A.Y. 2007-08. THE REVENUE HAS TAKEN THE MU LTIPLE GROUNDS BUT FOLLOWING ARE THE EFFECTIVE GROUNDS: 2 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) GROSSLY ERRED IN DELETING THE ADDITION OF RS.11,38, 171/- MADE BY THE ASSESSING OFFICER BY DISALLOWING THE ASSESSEE'S CLAIM OF DEDUCTION ON ACCOUNT OF PREMIUM PAID ON INVESTMENT IN GOVERNMENT SECURITIES. 3 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) GROSSLY ERRED IN HOLDING THAT AS THE ASSESSEE HAD M ADE INVESTMENT IN THE 'HELD TO MATURITY' SECURITIES IN ACCORDANCE WITH THE RBI GUIDELINES TO CARRY ON THE BUSINESS OF BANKING, AMORTIZATION OF THE PREMIUM PA ID ON SUCH SECURITIES HAS THE ELEMENT OF REVENUE EXPENDITURE. 2 4 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) GROSSLY ERRED IN FAILING TO APPRECIATE TH AT 'HELD TO MATURITY' SECURITIES, BEING INVESTMENTS, A RE IN THE NATURE OF CAPITAL ASSETS AND NOT IN THE NATURE OF STOCK-IN-TRADE; AND, THEREFORE, ANY EXPENDITURE INCURRED THEREON COULD ONLY BE CAPITAL EXPENDITURE NOT ADMISSIBLE AS DEDUCTION. EVEN IN THE MASTER CIRCULA R DATED 01.07.2013 ISSUED BY THE RESERVE BANK OF INDI A, SECURITIES ACQUIRED BY THE BANKS 'WITH THE INTENTIO N TO HOLD THEM UPTO MATURITY' HAVE BEEN CLASSIFIED UNDER HTM WHICH CLEARLY ESTABLISH THAT THESE ARE CAPITAL ASSETS. 2. FACTS WHICH ARE REVEALED FROM THE RECORD AS UNDE R. THE ASSESSEE IS A COOPERATIVE SOCIETY ENGAGED IN THE BU SINESS OF BANKING. THE ASSESSEE HAS MADE THE CLAIM OF RS.11, 38,171/- UNDER THE HEAD PREMIUM PAID ON GOVERNMENT SECURITI ES. AS STATED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER , THE SAID PREMIUM REPRESENTS EXCESS ACQUISITION COST OVER THE FACE VALUE IN RESPECT OF CERTAIN GOVERNMENT SECURITIES WHICH A RE HELD UNDER HELD TO MATURITY (HTM) CATEGORY AND THE SAID AMOU NT IS WRITTEN OFF ON THE BASIS OF UNEXPIRED PERIOD OF MATURITY. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE SECURITIES HELD UNDER AVAILABLE FOR SALE (AFS) AND HELD FOR TRADING (H FT) ARE IN THE NATURE OF STOCK IN TRADE. WHILE THE HTM SECURITIES ARE IN THE NATURE OF CAPITAL ASSETS. AS NOTED BY THE ASSESSIN G OFFICER, FOR THE PURPOSE OF INCOME TAX ACT, MORE PARTICULARLY FO R THE VALUATION AT THE YEAR END, THE AFS AND HFT SECURITI ES ARE TO BE VALUED AT COST OR MARKET PRICE, WHICHEVER IS LESS; WHEREAS THE HTM SECURITIES ARE TO BE VALUED AT COST ONLY BUT NO T AT COST OR MARKET PRICE, WHICHEVER IS LESS. 2.1 HE ALSO NOTED THAT THE PREMIUM ON THE HTM SEC URITIES IS NOT ALLOWABLE AS THE SAID SECURITIES CONSTITUTED CA PITAL ASSETS. IT APPEARS THAT THE ASSESSEE HAD SHIFTED THE INVESTMEN T UNDER 3 CATEGORY AFS TO HTM. AS PER THE CONTENTION OF THE ASSESSEE HE IS PERMITTED BY THE RBI TO SHIFT SECURITIES FROM ONE CATEGORY TO ANOTHER CATEGORY. THE ASSESSING OFFICER HAS NOT ED THAT THE INCOME TAX ACT DOES NOT RECOGNISE CONVERSION OF STO CK IN TRADE AS TRANSFER WHICH IS SIMPLY RE-CATEGORISATION OF SE CURITIES EFFECTED PURSUANT TO BOARDS RESOLUTION. THE ASSES SING OFFICER HAS OBSERVED THAT WHEN THE SAID SECURITIES WOULD BE SOLD, AFTER HAVING BEEN CONVERTED INTO CAPITAL ASSETS- THE COMP UTATION MECHANISM OF CAPITAL GAINS AS PER THE INCOME TAX AC T WOULD FAIL, IF LESS CLAIM IS ALLOWED TO BE REDUCED FROM THE COS T OF THE SECURITIES. THE ASSESSING OFFICER, THEREFORE, DECL INED TO ALLOW THE CLAIM OF THE ASSESSEE. 3. THE ASSESSEE CHALLENGED THE ACTION OF THE ASSESS ING OFFICER BEFORE THE LD.CIT(A) WHO FOLLOWING THE DECISION OF THE JURISDICTIONAL TRIBUNAL, (ITAT, PUNE) IN THE FOLLOW ING CASES ALLOWED THE CLAIM OF THE ASSESSEE : 1. LATUR URBAN CO-OPERATIVE BANK VS. DCIT ITA NO.778/PN/2011 2. NAGAR URBAN CO-OPERATIVE BANK LTD., VS. DCIT ITA NO.306/PN/2012 3. ACIT VS. BANK OF RAJASTHAN (ITAT MUMBAI) NOW THE REVENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD . THE LD. COUNSEL SUBMITS THAT THE ISSUE STANDS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THIS TRIB UNAL IN THE CASE OF NAGAR URBAN CO-OPERATIVE BANK LTD. VS. ADDL.CIT IN ITA NO.711/PN/2013 ORDER DATED 27-11-2013. THE LD. COU NSEL ALSO FILED THE COPY OF THE ORDER OF THE TRIBUNAL WHICH I S PLACED ON 4 RECORD. WE FIND THAT IDENTICAL ISSUE HAS COME FOR THE CONSIDERATION AND THE TRIBUNAL ALLOWED THE CLAIM OF THE ASSESSEE. THE OPERATIVE PART OF THE DECISION OF THE TRIBUNAL IS AS UNDER : 2. FIRST ISSUE IS WITH REGARD TO ADDITION MADE BY ASSESSING OFFICER WHO HAS DISALLOWED THE AMORTIZATION PREMIUM PAID ON GOVT. SECURITIES OF RS.15,11,333/-. AT THE OUTSET O F HEARING, LEARNED AUTHORIZED REPRESENTATIVE POINTED OUT THAT THIS ISSUE IS COVERED IN FAVOUR OF ASSESSEE BY THE ORDER IN HIS O WN CASE FOR A.Y. 2007-08 IN ITA NO.306/PN/2012, WHEREIN THE TRI BUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY OBSE RVING 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.14,70,000 /- IS DEBITED TO THE PROFIT & LOSS A/C ON ACCOUNT OF LOSS ON SALE OF SECURITIES. THE A.O HAS FURTHER OBSERVED THAT THE A SSESSEE IN ITS SUBMISSION HAS STATED THAT SECURITIES OF THE BANK A RE HELD UNDER THE HEAD 'TO MATURITY CATEGORY' AND, THEREFORE, LOS S ARISING ON THE SALE OF INVESTMENT IS IN THE NATURE OF CAPITAL LOSS AND THEREFORE, THE SAME IS NOT ALLOWABLE EXPENDITURE. T HE A.O MADE THE ADDITION TO THE EXTENT OF RS.14,70,000/-. THE L D CIT(A) CONFIRMED THE ADDITION. 14. WE HAVE HEARD THE PARTIES. THE LD COUNSEL PLAC ED HIS HEAVY RELIANCE ON THE DECISION OF THE HON'BLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. BANK OF BARODA AND IN THE CASE OF UCO BANK VS. CIT, 240 ITR 355 (SC). IN THE CASE OF BANK OF BARODA (SUPRA), THE ISSUE BEFORE THEIR LORDSHIP WAS WHETHER THE ASSESSEE WAS ENTITLED FOR DEDUCTION ON ACCOUNT OF D EPRECIATION IN THE VALUE OF INVESTMENTS. THE METHOD OF VALUATIO N FOLLOWED BY THE ASSESSEE BANK WAS TO VALUE INVESTMENTS AT COST OR MARKET VALUE WHICHEVER WAS LOWER. THE ASSESSEE HAD CLAIMED THE DEPRECIATION TO THE TUNE OF RS.11,82,35,007/- AND T HE SAID DEPRECIATION WAS CLAIMED AS A DEDUCTION WHICH WAS D ISALLOWED BY THE A.O, BUT THE ASSESSEE BANK SUCCEEDED BEFORE THE CIT(A). THE TRIBUNAL CONFIRMED THE ORDER OF THE CIT(A). THE REVENUE CARRIED THE ISSUE BEFORE THE HON'BLE HIGH COURT. TH E CORE ISSUE WAS THE METHOD OF VALUATION ADOPTED BY THE ASSESSEE BANK FOR VALUING THE STOCK OF THE SECURITIES. THE HON'BLE HI GH COURT FOLLOWED THE DECISION OF HON'BLE SUPREME COURT IN T HE CASE OF UNITED COMMERCIAL 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 HON'BLE SUPREME COURT. IN THE CASE OF TH E ASSESSEE, THE ISSUE IS REGARDING ALLOWABILITY OF THE LOSS ON THE SALE OF THE SECURITIES. MERELY BECAUSE THE SECURITIES ARE KEPT UNDER THE 5 HEAD TILL THE MATURITY, THE SAID SECURITY CANNOT BE TREATED AS A PURELY INVESTMENT. LAW IS WELL SETTLED THAT THE SEC URITIES HELD BY THE BANK ARE IN THE NATURE OF STOCK-IN-TRADE. WE MA Y LIKE TO QUOTE HERE THE DECISION OF THE HON'BLE HIGH COURT O F KERALA IN THE CASE OF CIT VS. NEDUNGADI BANK LTD., 264 ITR 54 5. IN THE SAID CASE, THE HON'BLE HIGH COURT HAS HELD THAT THE SECURITIES HELD BY THE BANK ARE IN THE NATURE OF STOCK-IN-TRAD E. BOTH THE AUTHORITIES BELOW HAVE MERELY GONE ON THE NOMENCLAT URE OF THE HEAD UNDER WHICH THE SECURITIES ARE HELD. IN OUR CO NSIDERED VIEW, NOMENCLATURE CANNOT BE DECISIVE FOR THE ASSES SEE BANK. WE, THEREFORE, HOLD THAT THE LOSS ON THE SALE OF TH E SECURITIES IS REVENUE IN NATURE AND SAME IS ALLOWABLE. ACCORDINGL Y, GROUND NO. 2 IS ALLOWED'. 2.1 MOREOVER, THE SAID ISSUE IS ALSO DECIDED IN FA VOUR OF THE ASSESSEE BY OTHER CO-ORDINATE BENCH IN THE FOLLOWIN G 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- 2012). WE THEREFORE SET ASIDE THE ORDER OF THE CIT(A) ON T HIS ISSUE AND ALLOW THE CLAIM OF THE ASSESSEE.' 2.2 FACTS BEING SIMILAR, SO FOLLOWING THE SAME REA SONING, WE HOLD THAT DISALLOWANCE OF EXPENSES UNDER HEAD 'AMOR TIZATION OF PREMIUM PAID TO GOVT. SECURITIES' DEBITED TO PROFIT AND LOSS ACCOUNT ARE NOT JUSTIFIED THE AMORTIZATION OF PREMI UM PAID ON GOVT. SECURITIES BE ALLOWED AS CLAIMED BY ASSESSEE, ASSESSING OFFICER IS DIRECTED ACCORDINGLY. 4.1 WE WOULD LIKE TO REFER TO THE DECISION OF THIS TRIBUNAL IN THE CASE OF SANGLI BANK IN ITA NO.846/PN/2006 ORDER DA TED 30-05- 2013 IN WHICH THE IDENTICAL CONTROVERSY HAS COME FO R THE CONSIDERATION. THE OPERATIVE PART OF THE DECISION OF THE TRIBUNAL IS AS UNDER : 4. WE FIND THAT THE ASSESSEE HAS CLASSIFIED THE S ECURITIES IN THE THREE CATEGORIES (A) HELD TILL MATURITY (HTM), (B) AVAILABLE FOR SALE (AFS) AND (C) HELD FOR TRADING (HFT). THE ASSESSING OFFICER WAS OF THE OPINION THAT THE LOSS ON DIMINUT ION OF THE VALUE OF THE SECURITIES CANNOT BE CHARGED TO THE PR OFIT AND LOSS ACCOUNT IN THE CASE OF SECURITIES HELD UNDER THE CA TEGORY OF HTM. WE FIND THAT THE ASSESSEE BANK HAS FOLLOWED TH E RBI GUIDELINES ITA NO. 846/PN/2006, THE SANGLI BANK LTD .. SANGLI AND AS PER THE RBI GUIDELINES THE ASSESSEE HAS MADE THE PROVISION OF RS.9.45 CRORES ON ACCOUNT OF DIMINUTIO N IN VALUE OF SECURITIES. IN THIS CASE, AN AMOUNT OF RS.1,48,96,0 27/- BEING AMORTIZATION IN RESPECT OF DIMINUTION IN THE VALUE OF THOSE SECURITIES ATTRIBUTABLE TO FINANCIAL YEAR 2003-04 W AS ADDED TO THE INCOME IN THE COMPUTATION. THE PROFIT ON ACTUAL REALIZATION 6 ON SALE OF THE SECURITIES OF RS.23.20 CRORES HAD BE EN CREDITED TO THE PROFIT AND LOSS ACCOUNT AND THIS METHOD IS CONS ISTENTLY FOLLOWED BY THE ASSESSEE IN PRECEDING YEARS. 5. WE FURTHER FIND THAT AS PER THE WORKING MADE BY THE ASSESSEE THERE IS NO LOSS OF REVENUE WHICH IS CLEAR FROM THE WORKING GIVEN ON PAGE NO. 4 OF THE ORDER OF THE LD. CIT(A). (RS. IN LACS) PROFIT : (III) (ACTUAL) 2746.06 PROFIT : (IV) (ACTUAL 108.56 ---------- 2854.62 LESS : LOSS (VI) (ACTUAL) 425.24 ----------- 2429.38 LESS : DIMINUTION IN VALUE (VII) 588.37 ------------ 1841.01 ADD : DIMINUTION CLAIM ALLOWED OPENING STOCK 900.36 ----------- 2741.37 LESS : DIMINUTION IN VALUE IN CLOSING (VII) STOCK 945.00 ---------- NET RS. 1796.37 ---------- 6. WE FIND THAT THE RESERVATION OF LD. CIT(A) IS T HAT THERE IS THE DEFERMENT OF THE REVENUE THAN ACTUAL LOSS OF RE VENUE. WE DO NOT AGREE WITH THE OPINION OF LD. CIT(A). ADMITTEDL Y THE SAID METHOD IS CONSISTENTLY FOLLOWED BY THE BANK IN THE PRECEDING YEARS AND THE SAME HAS BEEN ACCEPTED WITHOUT RAISIN G ANY QUESTION. IF AT THIS JUNCTURE WE GO WITH THE STAND OF THE REVENUE THEN THAT WILL DISTORT THE ENTIRE PICTURE. ADMITTED LY WHATEVER THE EXPENDITURE IS AMORTIZED THE SAME IS ADDED BACK WHE N THE SECURITIES ARE SOLD. ANOTHER ASPECT WE ARE TO CONSI DER IS ITA NO. 846/PN/2006, THE SANGLI BANK LTD.. SANGLI THAT THE METHOD AND PRACTICE ADOPTED BY THE ASSESSEE WAS NEVER CHANGED BY THE ASSESSING OFFICER IN PAST. 7. SO FAR AS THE SECURITIES HELD UNDER THE HTM CAT EGORY THE I.T.A.T., PUNE HAS TAKEN A VIEW IN THE CASE OF LATU R URBAN CO- OPERATIVE BANK LTD. VS. ACIT ITA NOS. 778 AND 792/P N/2011 ORDER DATED 31-08-2012 THAT ALL THE SECURITIES HELD BY THE ASSESSEE ARE PART OF THE STOCK-IN-TRADE IRRESPECTIV E OF THEIR CLASSIFICATION. SO FAR AS THE TREATMENT OF THE ASSE SSEE IN CLASSIFYING THE SECURITIES, IN OUR OPINION THE SECU RITIES CLASSIFIED UNDER HTM CATEGORY IS ALSO PART OF THE STOCK-IN-TRA DE. THERE IS RBI CIRCULAR AS PER WHICH THE ASSESSEE CAN AMORTIZE THE DEPRECIATION OR LOSS ON THE CONVERSION OF SECURITIE S FROM FST CATEGORY TO HTM CATEGORY. WE, THEREFORE, DO NOT AGR EE WITH THE VIEW TAKEN BY THE LD. CIT(A) THAT THE SECURITIES HE LD UNDER HTM ARE CAPITAL IN NATURE. WE ACCORDINGLY ALLOW THE GRO UND NO. 1 TAKEN BY THE ASSESSEE AND DIRECT THE ASSESSING OFFI CER TO ALLOW THE CLAIM OF THE ASSESSEE IN LIGHT OF THE ABOVE DIS CUSSION. 7 4.2 IN OUR OPINION ISSUE IS COVERED IN FAVOUR OF TH E ASSESSEE BANK. WE, THEREFORE, CONFIRM THE ORDER OF THE LD.C IT(A) AND DISMISS THE GROUNDS TAKEN BY THE REVENUE. 5. IN THE RESULT, REVENUES APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 31-10-2014. SD/- SD/- (R.K. PANDA) (R.S. PADV EKAR) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE DATED: 31 ST OCTOBER, 2014 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. CIT(A)-IT/TP, PUNE 4. CIT-IT/TP, PUNE 5. THE D.R, A PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // ASSISTANT REGISTRAR, ITAT, PUNE BENCHES, PUNE