Kallapanna Awade Ichalkaranji Janata Sah. Bank Ltd., Ichalkaranji V. JCIT, Ichalkaranji Range, Ichalkaranji

ITA 2205/PUN/2012

• Counselvise Citation: 220524514 RSA 2012
• Duration Of Justice: 1 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 05-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S P WALIMBE
• Keywords: Capital asset; Depreciation; Opportunity of being heard; Cost of acquisition; Revenue expenditure
• Section: 234B; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 2352/PN/2012 (ASSESSMENT YEAR 2009-10) DEPUTY COMMISSIONER OF INCOME TAX, ICHALKARANJI CIRCLE, ICHALKARANJI, DIST. KOLHAPUR. .. APPELLANT VS. KALLAPPANNA AWADE ICHALKARANJI JANATA SAHAKARI BANK LTD., WARD NO.12, H.NO.169B, JANATA BANK BHAVAN MAIN ROAD, ICHALRAKANJI, DIST. KOLHAPUR. .. RESPONDENT PAN NO.AAAAI 0111M ITA NO. 2205/PN/2012 (ASSESSMENT YEAR 2009-10) KALLAPPANNA AWADE ICHALKARANJI JANATA SAHAKARI BANK LTD., WARD NO.12, H.NO.1, MAIN ROAD, JANARA BANK BHAVAN, ICHALRAKANJI. .. APPELLA NT PAN NO.AAAAI 0111M VS. JOINT COMMISSIONER OF INCOME TAX, ICHALKARANJI RANGE, ICHALKARANJI, DIST. KOLHAPUR. .. RESPONDENT ASSESSEE BY : SHRI M.K. KULKARNI REVENUE BY : SHRI S.P. WALIMBE DATE OF HEARING : 05-12-2013 DATE OF PRONOUNCEMENT : 30-12-2013 ORDER PER R.K. PANDA, AM : THESE ARE CROSS APPEALS. THE FIRST ONE IS FILED BY THE REVENUE AND THE SECOND ONE FILED BY THE ASSESSEE AND ARE DI RECTED AGAINST THE ORDER DATED 27-09-2012 OF THE CIT(A), KOLHAPUR RELA TING TO ASSESSMENT YEAR 2009-10. FOR THE SAKE OF CONVENIEN CE, BOTH THE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. 2 ITA NO.2352/PN/2012 (BY REVENUE) : 2. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE CIT(A) ERRED IN ALLOWING THE CLAIMS OF ASSESSEE REGARDING DEPRE CIATION ON INVESTMENT IN GOVT. SECURITIES AND AMORTIZATION OF PRE MIUM PAID ON GOVT. SECURITIES PURCHASE IN ACCORDANCE WITH THE RESERV E BANK OF INDIA ON 02-07-2006 WHICH, IN FACT, DO NOT SUPERSEDE THE PROVISIONS OF I.T. ACT AND ARE NOT BINDING ON THE DEPARTMENT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE TH E CIT(A) ERRED IN ALLOWING DEPRECIATION ON INVESTMENT IN GOVT . SECURITIES WHICH CAN BE CLAIMED ONLY ON BUSINESS ASSETS AND NOT ON INVESTM ENT IGNORING THE DEPARTMENTS CONSISTENT STAND THAT DEPRECI ATION IN VALUE OF SECURITIES IS ALLOWABLE IN CASES WHERE SECURITIES ARE H ELD AS STOCK IN TRADE AND NOT AS CAPITAL INVESTMENT IN THE FORM OF HT M. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE TH E CIT(A) ERRED IN ALLOWING AMORTIZATION OF PREMIUM PAID ON G OVT. SECURITIES PURCHASED BY ASSESSEE IGNORING THE LEGAL PROVISIONS THAT A LL CAPITAL ASSETS ARE TO BE VALUED AT COST ONLY AND NO PART THEREO F CAN BE CLAIMED AS REVENUE EXPENDITURE IN COMPUTING TOTAL INCOME. 4. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A), KOLHAPUR BE VACATED AND THAT OF THE AO BE RESTORED. 2.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE IS A SCHEDULED COOPERATIVE BANK ENGAGED IN THE BANKING BUSINESS RE GULATED UNDER BANKING REGULATION ACT, 1949 AND AS PER RBI GUIDELI NES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTED FROM THE AUDITED ACCOUNTS THAT THE ASSESSEE HAS MADE PROVISION OF RS .1,00,37,000/- AS DEPRECIATION PROVIDED FOR SHIFTING ON INVESTMENTS. HE NOTED FROM THE RECORD THAT DURING THE F.Y. 2004-05 RELEVANT TO A.Y . 2005-06, THE ASSESSEE HAD SHIFTED ITS SECURITIES OF AVAILABLE FO R SALE (AFS) CATEGORIES TO HELD TO MATURITY (HTM) CATEGORIES AND ACCORDINGLY LOSS IN THE VALUE OF THE GOVT. SECURITIES WAS AMORTISED OVER A PERIOD OF 5 YEARS FROM THE F.Y. 2004-05 TO F.Y. 2008-09, I.E. 2 0% OF SUCH LOSS IS WRITTEN OFF EVERY YEAR. FOR THE YEAR UNDER CONSIDE RATION, THE ASSESSEE HAS DEBITED TO ITS P&L A/C. RS.1,00,37,000/- UNDER THE HEAD PROVISIONS. SIMILARLY, THE ASSESSEE HAD DEBITED OT HER EXPENDITURE AT 3 RS.3,72,68,660/- WHICH CONSISTS OF RS.89,35,271/- O N ACCOUNT OF AMORTIZATION OF PREMIUM ON INVESTMENTS. AS REGARDS THIS CLAIM OF PROVISION OF DEPRECIATION ON INVESTMENT TO THE TUNE OF RS.1,00,37,000/- AND AMORTISATION OF PREMIUM PAID O N PURCHASE OF GOVT. SECURITIES OF RS.89,35,271/- THE ASSESSEE WAS REQUESTED BY THE AO TO EXPLAIN THESE CLAIMS AND TO SHOW CAUSE AS TO WHY THE SAME SHOULD NOT BE DISALLOWED AND ADDED TO THE TOTAL INC OME. 2.2 THE AO NOTED THAT IN THE IMMEDIATELY PRECEDING A.Y., I.E. 2007-08 HIS PREDECESSOR HAD ALLOWED DEDUCTION ON AC COUNT OF DEPRECIATION ON INVESTMENT TO THE TUNE OF RS.1,00,3 7,000/- AND AMORTISATION PREMIUM PAID ON PURCHASE OF GOVT. SECU RITIES AMOUNTING TO RS.98,05,185/-. HOWEVER, THE CIT HAS INVOKED TH E PROVISIONS OF SECTION 263 AND SET-ASIDE THE ORDER OF THE AO HOLDI NG THAT THE DEDUCTION OF THESE AMOUNTS ARE NOT ALLOWABLE. REJE CTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE THE AO DISALLOWE D THE CLAIM OF ASSESSEES DEPRECIATION ON INVESTMENT TO THE TUNE O F RS.1,00,37,000/- AND AMORTISATION OF PREMIUM PAID ON GOVT. SECURITIE S OF RS.95,09,922/-. HE ACCORDINGLY ADDED THE SAME TO T HE TOTAL INCOME OF THE ASSESSEE. 3. IN APPEAL THE LD.CIT(A) FOLLOWING HIS ORDER FOR A.Y. 2008-09 DELETED THE ADDITIONS MADE BY THE AO BY HOLDING AS UNDER : 4. THE ISSUES RAISED AT GROUNDS NO. 1 AND 2 IN APPEAL ARE REGARDING DEPRECIATION CLAIMED ON INVESTMENTS IN GOVE RNMENT SECURITIES OF RS.1,00,37,000/- AND DISALLOWANCE OF RS.8 9,35,271/- ON ACCOUNT OF PREMIUM PAID ON GOVERNMENT SECURITIES. TH E GROUNDS AS RAISED BY THE APPELLANT READ AS UNDER: 4 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED ASSESSING OFFICER 1) A) ERRED IN DISALLOWING AN AMOUNT OF RS.1,00,37,0 00/- BEING DEPRECIATION ON INVESTMENTS IN GOVT. SECURITIE S. 2) A) ERRED IN DISALLOWING AN AMOUNT OF RS.89,35,271/- BEING AMORTIZATION OF PREMIUM PAID ON GOVT. SECURITIES PURCHASED BY THE APPELLANT AND CLASSIF IED UNDER HELD TO MATURITY (HTM). 5. THE ABOVE ISSUES HAD COME UP IN APPEAL BEFORE ME I N THE APPELLANT'S OWN CASE FOR ASSESSMENT YEAR 2008-09 WHICH W AS DEALT WITH EXHAUSTIVELY IN APPEAL BEARING NO, ICH/35 7/10-11 DATED 07/12/2011. THE RELEVANT PORTION OF MY DECISIO N IS REPRODUCED AS UNDER: 16. INSTRUCTION NO. 17 PARAGRAPH 7 IS VERY CLEAR. IT CLEARLY LAYS DOWN THAT THE LATEST GUIDELINES OF THE RE SERVE BANK OF INDIA SHOULD BE REFERRED TO FOR ALLOWING ANY SUCH CLAIMS. THE FIRST CLAIM RELEVANT TO DEPRECIATION IN V ALUE OF SECURITIES TO THE TUNE OF RS.1,00,37,000/- ON ACCOUNT OF SHIFTING OF SECURITIES IS FROM AFS AND HFT CATEGORY TO HTM CATEGORY OF INVESTMENTS. THE MASTER CIRCULAR ON INVESTMENT ISSUED BY THE RESERVE BANK OF INDIA ON 02/07/2006 CLEARLY LAYS DOWN THAT AS A SPECIAL CASE, TH E COOPERATIVE BANK MAY SHIFT SECURITIES FROM AND TO HTM CATEGORY. THE RESERVE BANK OF INDIA NORMS IN RESPECT O F SCHEDULE URBAN CO-OPERATIVE BANKS HAD, ON 02/09/2004 ALLOWED THE SHIFTING OF SLR SECURITIES TO NOT MORE TH AN 25% OF NDTL PROVIDED THAT THE DEPRECIATION ON SUCH SHIFTING SHOULD BE FULLY PROVIDED HOWEVER, IN VIEW OF THE DIFFICULTIES BEING FACED, BY THE URBAN CO-OPERATIVE BANKS IN MEETING THE PROVISIONING REQUIREMENT, THE RESERVE BANK OF INDIA, VIDE NO.UBD(PCB).CIR.41/16.20.200/20 04- 05 DATED 28/03/2005 ALLOWED THE AMORTIZATION OF COS T OVER A MAXIMUM PERIOD OF FIVE YEARS COMMENCING FROM THE YEAR 2005. HENCE, THE CLAIM MADE BY THE APPELLA NT IS IN ACCORDANCE WITH THE EXTANT RESERVE BANK OF INDIA GUIDELINES PROVIDING FOR PROVISIONING REQUIREMENT BETWEEN THE BOOK VALUE AND THE FACE VALUE. HENCE, T HIS DEDUCTION IS ALLOWABLE TO THE APPELLANT. 17. FURTHER, IN RESPECT OF AMORTIZATION OF PREMIUM PAID ON; PURCHASE OF GOVERNMENT SECURITIES TO BE HELD IN HT M CATEGORY TO THE TUNE OF RS.95,09,922/-, THE SAME IS IN ACCORDANCE WITH THE MASTER CIRCULAR REFERRED TO ABOV E. THIS CIRCULAR CLEARLY STATES THAT INVESTMENTS CLASSIFIED UNDE R HTM CATEGORY WILL BE CARRIED OUT AT ACQUISITION COST UNLESS IT IS MORE THAN THE FACE VALUE IN WHICH CASE THE PREM IUM I.E. THE DIFFERENCE BETWEEN THE COST AND THE FACE VALUE SH OULD BE AMORTIZED OVER THE PERIOD REMAINING TO MATURITY. I FIND THAT THE APPELLANT HAD MADE A CLAIM OF RS.95,09,922/ - DURING THE RELEVANT PREVIOUS YEAR, WHICH WAS THE VALU E REQUIRED TO BE AMORTIZED DURING THE RELEVANT PREVIO US YEAR IN RESPECT OF SECURITIES PURCHASED FOR HOLDING IN HTM CATEGORY. AS PER THE RBI NORMS, THE PREMIUM IS REQUI RED TO BE AMORTIZED OVER THE PERIOD REMAINING TO MATURITY. HENCE, THERE IS NO INFIRMITY IN THIS CLAIM ALSO WHICH IS MADE BY THE APPELLANT BANK. 5 18. IN VIEW OF THE CLEAR-CUT GUIDELINES OF THE RESE RVE BANK OF INDIA, THE CLAIM OF THE APPELLANT TOWARDS PROVISION OF DEPRECIATION ON FRESH INVESTMENTS OVER THE LIFE OF THE SECURITY PURCHASED AND AMORTIZED AND THE PREMIUM IN RESPECT OF SECURITIES SHIFTED TO HTM CATEGOR Y IS ALLOWABLE AS A DEDUCTIBLE EXPENSE. GROUND NOS. 1 AND 2 IN APPEAL ARE ALLOWED. MY DECISION RENDERED ABOVE FOR ASSESSMENT YEAR 2008-09 W ILL APPLY TO THE YEAR UNDER CONSIDERATION AS WELL IN VIEW OF ID ENTICAL FACTS AND CIRCUMSTANCES. ACCORDINGLY, THE APPEALS RAISED AT GROU NDS NO. 1 AND 2 ARE ALLOWED. 4. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVE NUE IS IN APPEAL BEFORE US. 5. AFTER HEARING BOTH THE SIDES WE FIND IDENTICAL I SSUE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR AND THE TRIBUNAL VIDE ITA NO.449/PN/12 AND CO NO.130/PN/2013 ORDER DATED 05-08-2013 HAS DI SMISSED THE GROUNDS RAISED BY THE REVENUE BY HOLDING AS UNDER : 10. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HA VE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE F IND AN IDENTICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN THE CASE OF N AHSIK MERCHANT COOPERATIVE BANK LTD. (SUPRA). WE FIND THE TRIBUNA L HAS DISCUSSED THE ISSUE AND DISMISSED THE GROUNDS RAISED BY THE REVENUE BY HOLDING AS UNDER : 4. AFTER GOING THROUGH RIVAL SUBMISSIONS AND MATE RIAL ON RECORD WE FIND THAT WITH THE ADVENT OF SECTION 80P(4) W.E. F. A.Y. 2007-08 HAS CLOSED THE DOORS FOR COOPERATIVE BANKS FOR CLAIMING THE BENEFIT OF DEDUCTION U/S.80P(2)(A)(I) FROM THIS TOTAL INCOME. HOWEVER, THE COOPERATIVE SOCIETY SHOULD NOW BE ENTITLED TO BE AS SESSED AS NORMAL BANKING COMPANY. THE CLAUSE (4) INSERTED IN SECTION 80P HAS TAKEN AWAY THE BENEFIT OF THE ERSTWHILE DEDUCTION A VAILABLE TO COOPERATIVE SOCIETY IN CARRYING ON BUSINESS OF BANK ING OR PROVIDING CREDIT FACILITY TO ITS MEMBERS. THE NEW CLAUSE (4) INSERTED BY THE FINANCE ACT, 2006 W.E.F. 01-04-2007 READS AS UNDER : ' THE PROVISION OF THE SECTION WAS NOT IN RELATION TO ANY COOPERATIVE BANK OTHER THAN AGRICULTURAL CREDIT SOCIETY OR PRIM ARY COOPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK'. 5. THE INTENTION OF THE PROVISION MAY BE DERIVED M ORE PRECISELY FROM RELEVANT PARA 166 OF THE BUDGET SPEE CH WHICH STATED THAT : 'CO-OPERATIVE BANKS, LIKE ANY OTHER B ANK, ARE LENDING INSTITUTIONS AND SHOULD PAY TAX ON THEIR PROFITS, P RIMARY AGRICULTURAL CREDIT SOCIETIES (PACS) AND PRIMARY COOPERATIVE AGR ICULTURAL AND 6 RURAL DEVELOPMENT BANK (PCARDB) STAND ON A SPECIAL FOOTING AND WILL CONTINUE TO BE EXEMPT UNDER SECTION 80P OF THE INCOME TAX ACT. HOWEVER, I PROPOSE TO EXCLUDE ALL OTHER CO-OPE RATIVE BANKS FROM THE SCOPE OF THAT SECTION'. ACCORDINGLY, SECTI ON 80P IS TO BE AMENDED TO GIVE EFFECT TO THE ABOVE PROPOSAL. IT IS ALSO PROPOSED TO AMEND SECTION 2(24) TO PROVIDE THAT PROFITS AND GAI NS OF BUSINESS OF BANKING (INCLUDING PROVIDING CREDIT FACILITIES) CARRIED ON BY A CO- OPERATIVE SOCIETY WITH ITS MEMBERS SHALL BE INCLUDE D IN THE DEFINITION OF 'INCOME' (WITH EFFECT FROM 1ST APRIL, 2007)'. 6. COOPERATIVE BANK UNLIKE OTHER COMMERCIAL BANKS ARE SUBJECTED TO DUAL CONTROL FROM BOTH RBI AS WELL AS FROM STATE COOPERATIVE DEPARTMENT. THE ACCOUNTING TREATMENT FO R A COOPERATIVE BANK IS THEREFORE A RESULT OF GUIDELINE S FROM BOTH THE CONTROLLING AUTHORITIES. ORDINARILY A DEDUCTION IS NOT AVAILABLE TO AN ASSESSEE UNLESS SPECIFICALLY PROVIDED UNDER THE ACT. THIS IS IRRESPECTIVE OF ACCOUNTING TREATMENT PROVIDED BY TH E ASSESSEE IN ITS BOOKS OF ACCOUNTS. BUT AT THE SAME TIME IT WAS WELL SETTLED THAT DEDUCTION EXPRESSLY MENTIONED UNDER THE ACT AR E NOT EXHAUSTIVE AND PROFIT IS TO BE DERIVED ACCORDING TO ORDINARY COMMERCIAL PRINCIPLES. AS PER THE EXTANT RBI GUIDEL INES DATED 01- 07-2009 THE INVESTMENT PORTFOLIO OF THE BANKS IS RE QUIRED TO BE CLASSIFIED UNDER 3 CATEGORIES VIZ., HELD THE MATURI TY HTM), HELD FOR TRADING (HFT) AND AVAILABLE FOR SALE (AFS). THE VALUE OF EACH KIND OF INVESTMENT IS TO BE DONE IN THE FOLLOWING M ANNER: SR.NO. CLASSIFICATION VALUATION NORMS OF INVESTMENT . 1. HTM THESE ARE CARRIED AT ACQUISITION COST UNLES S THE COST IS MORE THAN THE FACE VALUE, IN WHICH CASE THE PREM IUM SHOULD BE AMORTISED OVER THE PERIOD REMAINING TO MATURITY. TH E PREMIUM IS REQUIRED TO BE AMORTISED OVER THE PERIOD REMAINING TO MATURITY. THIS APART, ANY PERMANENT DIMINUTION IN VALUE SHALL FV S HALL GO ON TO REDUCE COST OF THE INVESTMENT. 2. AFS THE INDIVIDUAL SCRIPS IN THE AVAILABLE FOR SALE CATEGORY WILL BE MARKED TO MARKET AT QUARTERLY OR AT MORE FR EQUENT INTERVALS. THESE INVESTMENTS ARE CONSIDERED TO FORM STOCK-IN- TRADE OF A BANK AND THEREFORE ARE TO BE VALUED AT C OST OR NRV, WHICHEVER IS LESS. FALL IN VALUE BELOW COST, THEREF ORE, IS TO BE PROVIDED IMMEDIATELY, HOWEVER ANY NET APPRECIATION IN VALUE IS IGNORED AND NOT RECOGNIZED AS INCOME ON THE BASIS O F CONSERVATISM. 3. HFT THE INDIVIDUAL SCRIPS IN THE HELD FOR TRAD ING CATEGORY WILL BE MARKED TO MARKET AT MONTHLY OR AT MORE FREQUENT INT ERVALS AND PROVIDED FOR AS IN THE CASE OF THOSE IN THE AVAILAB LE FOR SALE CATEGORY. 7. IN PARA (VII) OF THE CBDT INSTRUCTION NO.17 OF 2008 DATED 26.11.2008, ON 'ASSESSMENT OF BANK - CHECK LIST FOR DEDUCTION, STA TES AS UNDER: 'AS PER RBI GUIDELINES DATED I6TH OCTOBER, 2000, TH E INVESTMENT PORTFOLIO OF THE BANKS IS REQUIRED TO BE CLASSIFIED UNDER THREE CATEGORIES VIZ. HELD TO MATURITY (HTM), HELD FOR TR ADING (HFT) AND AVAILABLE FOR SALE (AFS). INVESTMENTS CLASSIFIED UN DER HTM CATEGORY NEED NOT BE MARKED TO MARKET AND ARE CARRI ED AT ACQUISITION COST UNLESS THESE ARE MORE THAN THE FAC E VALUE, IN WHICH CASE THE PREMIUM SHOULD BE AMORTISED OVER THE PERIOD REMAINING TO MATURITY. IN THE CASE OF HFT AND AFS S ECURITIES 7 FORMING STOCK IN TRADE OF THE BANK, THE DEPRECIATIO N/ APPRECIATION IS TO BE AGGREGATED SCRIP WISE AND ONL Y NET DEPRECIATION, IF ANY, IS REQUIRED TO BE PROVIDED FO R IN THE ACCOUNTS. THE LATEST GUIDELINES OF THE RBI MAY BE R EFERRED TO FOR ALLOWING ANY SUCH CLAIMS.' 8. THE ITAT, MUMBAI BENCH, IN THE CASE OF ACIT VS. THE BANK OF RAJASTHAN LTD. (2011) TIOL-35-ITAT-MUMBAI, HAS H ELD THAT IN CASE OF BANKS, THE PREMIUM PAID IN EXCESS OF FACE V ALUE OF INVESTMENTS CLASSIFIED UNDER HTM CATEGORY WHICH HAS BEEN AMORTISED OVER THE PERIOD TILL MATURITY IS ALLOWABL E AS REVENUE EXPENDITURE SINCE THE CLAIM IS AS PER RBI GUIDELINE S AND CBDT ALSO HAS DIRECTED TO ALLOW SUCH PREMIUM. IT HAS ALS O BEEN HELD IN THE CASE OF CATHOLIC SYRIAN BANK LTD. VS. ACIT THAT AMORTIZATION ON PURCHASE OF GOVERNMENT SECURITIES WAS MADE AS PE R PRUDENTIAL NORMS OF THE RBI AND SAME WAS ALLOWABLE DEDUCTION. IN VIEW OF ABOVE, ASSESSEE WAS JUSTIFIED IN CONTEND ING FOR AMORTIZATION OF PREMIUM PAID IN EXCESS OF FACE VALU E OF SECURITIES HELD TO MATURITY (HTM) CATEGORY OR PERIOD REMAINING TILL MATURITY WAS FOUND REASONABLE BY THE CIT(A). ACCORDINGLY AD DITION OF RS.17,91,659/- MADE BY THE ASSESSING OFFICER BY DIS ALLOWING AMOUNT TOWARDS AMORTIZATION OF GOVERNMENT SECURITIE S (HMT) WAS DELETED. THIS REASONED FACTUAL AND LEGAL FINDI NG OF THE CIT(A) NEEDS NO INTERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME. 9. AS A RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 10.1 RESPECTFULLY FOLLOWING THE DECISION OF THE COORD INATE BENCH OF THE TRIBUNAL AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE AGAINST THE ABOVE CITED DECISION WE FIND NO IN FIRMITY IN THE ORDER OF THE LD.CIT(A) DELETING THE ADDITION. ACCO RDINGLY, THE ORDER OF THE LD.CIT(A) IS UPHELD AND THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 5.1 SINCE THE LD.CIT(A) WHILE ALLOWING THE CLAIM OF THE ASSESSEE HAS FOLLOWED HIS ORDER FOR A.Y. 2008-09 IN ASSESSEE S OWN CASE WHICH HAS BEEN UPHELD BY THE TRIBUNAL, THEREFORE, RESPECT FULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR AND IN ABSENCE OF ANY CON TRARY MATERIAL BROUGHT TO OUR NOTICE THE ORDER OF LD.CIT(A) ON THE SE ISSUES ARE UPHELD AND THE GROUNDS RAISED BY THE REVENUE ON THI S ARE DISMISSED. 8 ITA NO.2205/PN/2012 (BY ASSESSEE) : 6. GROUND OF APPEAL NO.1 BY THE ASSESSEE READS AS U NDER : ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION MADE BY THE AO OF RS.2,53,517/- ON ACCOUNT OF BANK GUARANTEE COMMISSION RECEIVED FOR UNEXPIRED PERIOD. THE ADDITION BE DELETED. 6.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE AO DU RING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAD RECEIVED AN AMOUNT OF RS.2,53,517/- IN ADVANCE. THIS AMOUNT WAS THE BANK GUARANTEE COMMISSION RECEIVED DURING THE RELEVANT P REVIOUS YEAR BUT NOT SHOWN AS INCOME AS THE SAME PERTAINED TO A PERI OD SUBSEQUENT TO THE CLOSE OF THE FINANCIAL YEAR. WHEN ASKED AS TO W HY INCOME RECEIVED IN ADVANCE SHOULD NOT BE TREATED AS INCOME, THE ASS ESSEE SUBMITTED THAT AS THE PERIOD OF OPERATION OF GUARANTEE HAS NO T ENDED, THIS IS THE INCOME WHICH HAS BEEN RECEIVED IN ADVANCE, WHICH CA NNOT BE CONSIDERED AS INCOME ACCRUED DURING THE YEAR IN WHI CH IT WAS RECEIVED. THE ASSESSING OFFICER NOTED THAT COMMISSI ON IS ALWAYS RECEIVED IN ADVANCE IN RESPECT OF A DEFERRED PAYMEN T GUARANTEE. IN CASE THE GUARANTEE IS ENCASHED, THE SAME WOULD BE A LOSS SUFFERED DURING THE COURSE OF BUSINESS AND THE ASSESSEE BANK WOULD BE ENTITLED TO CLAIM THE LOSS AS A BUSINESS LOSS DURING THE REL EVANT PERIOD. ACCORDING TO THE ASSESSING OFFICER, BANK GUARANTEE COMMISSION IS NOT A CONTINGENT RECEIPT OR ADVANCE WHICH IS RETURNABLE AT THE END OF THE GUARANTEE PERIOD. HENCE, THE AMOUNT OF COMMISSION R ECEIVED ON ISSUANCE OF BANK GUARANTEE HAS NOTHING TO DO WITH T HE PERIODICITY OF THE BANK GUARANTEE. IT IS LIABLE TO BE TAXED AS INC OME OF THE ASSESSEE BANK IN THE YEAR IN. WHICH THE GUARANTEE IS ISSUED AND ACCORDINGLY, THE SAME WAS BROUGHT TO TAX AS INCOME OF THE RELEVANT P REVIOUS YEAR. 9 7. THE ASSESSEE DREW THE ATTENTION OF THE CIT(A) RE GARDING THE ACCOUNTING TREATMENT GIVEN TO THE BANK GUARANTEE CO MMISSION. IT WAS SHOWN THAT COMMISSION FROM THE DATE OF ISSUE OF GUARANTEE TILL THE END OF THE ACCOUNTING PERIOD IS CREDITED TO COMMISS ION RECEIVED UNDER THE HEAD OF 'PROFIT AND LOSS ACCOUNT' AND THE COMMI SSION RECEIVED FOR THE BALANCE PERIOD IS CREDITED TO BANK GUARANTEE CO MMISSION ADVANCE UNDER THE HEAD 'OTHER LIABILITIES' AND THIS IS TRAN SFERRED TO THE COMMISSION RECEIPT ACCOUNT DURING THE SUBSEQUENT YE ARS, DEPENDING UPON THE NUMBER OF YEARS INVOLVED. IT WAS EXPLAINED THAT THIS SYSTEM OF ACCOUNTING FOR BANK GUARANTEE COMMISSION HAS BEE N APPLIED BY THE ASSESSEE BANK SINCE VERY INCEPTION. IT WAS STATED T HAT AS PER PRUDENTIAL NORMS OF INCOME RECOGNITION, AMOUNTS RECEIVED IN AD VANCE IS NOT INCOME OF THE YEAR OF RECEIPT BECAUSE, THE PERIOD O F SERVICE IS NOT YET OVER. THE ASSESSEE HAS ALSO MADE REFERENCE TO AS-9 WHICH STATES THAT INCOME SHOULD BE RECOGNIZED PROPORTIONATELY FOR THE RESPECTIVE YEARS FOR WHICH IT HAS BEEN RECEIVED. 8. HOWEVER, THE LD.CIT(A) WAS NOT SATISFIED WITH TH E ARGUMENTS ADVANCED BY THE ASSESSEE AND UPHELD THE DISALLOWANC E MADE BY THE AO BY HOLDING AS UNDER : 9. I HAVE CONSIDERED THE FACTS RELEVANT TO THIS CASE A ND I DO NOT AGREE WITH THE CONTENTION PUTFORTH BY THE APPELLANT . GUARANTEE COMMISSION IS IN THE NATURE OF FEE TAKEN FOR THE PURPO SE OF ISSUE OF GUARANTEE COMMISSION. IT IS A ONE-TIME CHARGE FOR THE SERVICES PROVIDED BY THE APPELLANT. IT IS NOT A LIABILITY WHI CH HAS TO BE RETURNED TO THE CUSTOMERS/ CLIENTS WHO HAVE AVAILED OF THE GUAR ANTEE FROM THE BANK. THIS FEES IS NOT RETURNABLE TO THE CLIENTS. AS STA TED, IT IS A ONE- TIME CHARGE AND IS RECEIVED IMMEDIATELY ON ISSUE OF GU ARANTEE. THE WHOLE SUM IS RECEIVED AND ACCRUES TO THE ASSESSEE AT THE T IME OF ISSUANCE OF GUARANTEE ITSELF. IT IS A TRITE LAW THAT AC COUNTING ENTRIES DO NOT DETERMINE THE NATURE OR TAXABILITY OF A CERTAIN RECEIPT IN THE HANDS OF AN ASSESSEE. HENCE, THE FACT THAT THE APPELLANT HAS B EEN GIVING A CERTAIN TREATMENT TO GUARANTEE COMMISSIONS SINCE A LONG TIME HAS NO BEARING IN DETERMINING THE NATURE OF TAXABILITY OF GUARANTEE COMMISSIONS RECEIVED. SINCE THE AMOUNT IS RECEIVED, WHI CH ACCRUES TO THE APPELLANT BANK IMMEDIATELY ON ISSUE OF THE GUARAN TEE, THE WHOLE 10 AMOUNT IS TAXABLE IN THE YEAR OF RECEIPT ITSELF. THE APPELLANT FAILS ON THIS GROUND. 8.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REV ENUE IS IN APPEAL BEFORE US. 9. THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO TH E DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DCIT ( INTERNATIONAL TAXATION) VS. BANK OF BAHRAIN AND KUWAIT REPORTED I N 5 ITR 301 SUBMITTED THAT THE SPECIAL BENCH IN THE SAID DECISI ON HAS HELD THAT THE INCOME HAS TO BE RECOGNIZED WITH REFERENCE TO THE Y EAR WHEN THE RIGHT TO RECEIVE THE SAME ACCRUES. IT WILL BE INCORRECT TO TAX THE ENTIRE RECEIPT DURING THE YEAR IN WHICH IT IS RECEIVED. W HAT RELATES TO THE YEAR ALONE SHOULD BE TAKEN INTO CONSIDERATION. IN OTHER WORDS, THE AMOUNT RECEIVED SHOULD BE SPREAD OVER THE PERIOD OF THE GU ARANTEE. REFERRING TO THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. BANK OF TOKYO REPORTED IN 71 TAXMANN 85 HE SUBM ITTED THAT THE HONBLE HIGH COURT IN THE SAID DECISION HAS HELD TH AT INCOME FROM BANK GUARANTEE COMMISSION DID NOT ACCRUE OR ARISE I N THE YEAR IN WHICH GUARANTEE AGREEMENTS WERE ENTERED AND INCOME SHOULD BE SPREAD OVER THE PERIOD TO WHICH THE GUARANTEE COMMI SSION RELATES AND SHOULD BE ASSESSED PROPORTIONATELY. HE ALSO RELIED ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF KRISHAK BHARATI CO-OP. LTD. VS. DY.CIT (2012) 23 TAXMANN.COM 265 (DELHI) A ND PROVISIONS OF SECTION 65 AND SECTION 49A OF THE MAHARASHTRA ST ATE COOPERATIVE SOCIETIES ACT, 1960. 10. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHE R HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A). 11 11. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAV E ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND IN THE INSTANT CASE THE AO BROUGHT TO TAX THE ENTIRE AMOUNT OF GUARANTEE CO MMISSION RECEIVED IN ADVANCE. WE FIND IN APPEAL THE LD.CIT( A) UPHELD THE ACTION OF THE AO ON THE GROUND THAT THE GUARANTEE C OMMISSION IS IN THE NATURE OF FEE TAKEN FOR THE PURPOSE OF ISSUE OF GUARANTEE WHICH IS A ONE-TIME CHARGE FOR THE SERVICES PROVIDED BY THE AS SESSEE BANK AND IT IS NOT A LIABILITY WHICH HAS TO BE RETURNED TO THE CUSTOMERS/CLIENTS WHO HAS AVAILED OF THE GUARANTEE FROM THE BANK. ACCORDI NG TO HIM, FEE IS NOT RETURNABLE TO THE CLIENTS AND THE WHOLESUM IS R ECEIVED AND ACCRUES TO THE ASSESSEE AT THE TIME OF ISSUANCE OF GUARANTE E ITSELF. 11.1 IT IS THE CASE OF THE LD. COUNSEL FOR THE ASSE SSEE THAT THE INCOME HAS TO BE RECOGNIZED WITH REFERENCE TO THE YEAR WHE N RIGHT TO RECEIVE THE SAME ACCRUES AND IT WILL BE INCORRECT TO TAX TH E ENTIRE RECEIPT DURING THE YEAR IN WHICH IT IS RECEIVED. ACCORDING TO HIM WHAT RELATES TO THE YEAR ALONE SHOULD BE TAKEN INTO CONSIDERATIO N AND THE AMOUNT RECEIVED IN ADVANCE SHOULD BE SPREAD OVER THE PERIO D OF GUARANTEE. 11.2 WE FIND THE SPECIAL BENCH OF THE TRIBUNAL IN T HE CASE OF BANK OF BAHRAIN AND KUWAIT (SUPRA) AT PARA 25 OF THE ORD ER HAS OBSERVED AS UNDER : 25. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE RECORD OF THE CASE. THE FUNDAMENTAL PRINCIPLE OF TAXING THE INCOME UNDER THE MERCANTILE SYSTEM OF ACCOUNTING IS TIME OF ITS CRUC IAL. IT IS NOT MATERIAL WHETHER THE AMOUNT HAS BEEN RECEIVED AT THE TIME OF ACCRUAL OR NOT. THE INCOME IS SAID TO ACCRUE WHEN THE ASSESSEE ACCRUES THE RIGHT TO RECEIVE THE SAME. THEREFORE, THE BASIC QUESTION T O BE ANSWERE D IS AS TO AT WHAT STAGE THE ASSESSEE ACQUIRED ABSOLUTE RIGHT TO RECEIVE THE INC OME. THE PRINCIPLE HAS BEEN SUCCINCTLY ENUNCIATED BY THE HONBLE SUPREME C OURT IN THE CASE OF E.D. 12 SASSOON & CO. LTD. & ORS. (SUPRA), WHEREIN, AFTER C ONSIDERING THE OBSERVATIONS OF HONBLE JUSTICE MUKERJI, J. IN THE CASE OF ROGER S PYATT SHELLAC & CO. VS. SECRETARY OF STATE FOR INDIA (1925) 1 ITC 363 AT P. 371 CONSIDERED THE TERM 'ACCRUES, ARISES AND IS RECEIVED' AND ALSO THE OBSE RVATIONS OF LORD JUSTICE FRY QUOTED BY HON'BLE JUSTICE MUKERJI, J. IN COLQUHOUN VS. BROOKS & ORS. 2 TAX CASES 490 (HL) DECISION, OBSERVED AS UNDER: 'IT IS CLEAR THEREFORE THAT INCOME MAY ACCRUE TO AN ASSESSEE WITHOUT THE ACTUAL RECEIPT OF THE SAME. IF THE ASSESSEE ACQUIRES A RIG HT TO RECEIVE THE INCOME, THE INCOME CAN BE SAID TO HAVE ACCRUED TO HIM THOUGH IT MAY BE RECEIVED LATER ON ITS BEING ASCERTAINED. THE BASIC CONCEPTION IS THAT HE MUST HAVE ACQUIRED A RIGHT TO RECEIVE THE INCOME. THERE MUST BE A DEBT O WED TO HIM BY SOMEBODY.' IN THE LIGHT OF ABOVE DECISION, THE ISSUE NEEDS TO BE EXAMINED. LEARNED CIT- DEPARTMENTAL REPRESENTATIVE HAS POINTED OUT THAT TH E DECIDING FACTOR WOULD BE WHETHER THE GUARANTEE COMMISSION IS REFUNDABLE O R NOT. IF THE GUARANTEE COMMISSION WAS REFUNDABLE THEN IT CANNOT BE SAID TH AT ABSOLUTE RIGHT TO THE COMMISSION HAD ACCRUED IN FAVOUR OF THE ASSESSEE AT THE TIME OF EXECUTION OF CONTRACT FOR FURNISHING GUARANTEE BY IT BUT IF THE GUARANTEE COMMISSION WAS NOT DEPENDENT UPON THE PERIOD OF GUARANTEE AND, THU S, HAD ACCRUED IN FAVOUR OF THE ASSESSEE ON THE DATE OF EXECUTION OF CONTRAC T FOR FURNISHING GUARANTEE THEN THE SAME HAS TO BE TAXED IN THE YEAR IN WHICH THE GUARANTEE WAS FURNISHED IRRESPECTIVE OF THE PERIOD TO WHICH GUARA NTEE REMAINED ALIVE. THIS IS SO BECAUSE THE GUARANTEE COMMISSION CANNOT BE APPOR TIONED WITH REFERENCE TO THE PERIOD OVER WHICH THE GUARANTEE EXTENDED. EV EN IN THE CASE OF BANK OF TOKYO LTD. (SUPRA) HEAVILY RELIED UPON BY LEARNED C OUNSEL FOR THE ASSESSEE, THIS PRINCIPLE HAS BEEN ACCEPTED, WHICH IS EVIDENT FROM THE OBSERVATIONS NOTED IN PARA 22 ABOVE. WE, THEREFORE, RESTORE THIS MATTE R BACK TO THE FILE OF THE AO TO EXAMINE THE ISSUE IN THE LIGHT OF ABOVE DISCUSSI ON AND IF HE FINDS THAT AS PER THE TERM, THE COMMISSION WAS REFUNDABLE ON THE REVO CATION OF GUARANTEE, THEN THE GUARANTEE COMMISSION IS TO BE SPREAD OVER THE P ERIOD FOR WHICH THE GUARANTEE IS GIVEN ELSE IT IS TO BE TAXED IN THE YE AR THE GUARANTEE HAD ACTUALLY BEEN GIVEN IRRESPECTIVE OF THE PERIOD FOR WHICH IT IS SPREAD. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 11.3 RESPECTFULLY FOLLOWING THE ABOVE SAID DECISION WE RESTORE THE ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO DEC IDE THE ISSUE AFRESH IN THE LIGHT OF THE DIRECTIONS GIVEN THEREIN. THE AO SHALL DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. THI S GROUND BY THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PUR POSES. 12. GROUND OF APPEAL NO.2 BY THE ASSESSEE READ AS U NDER : ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION MADE BY THE AO OF RS.6,56,249/- ON ACCOUNT OF UNCLAIMED DIVIDEND. THE ADDITION BEING WITHOUT JURISDICTION BE DELETED. 13 12.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE AO D URING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED FROM THE AUDITED ACCOU NTS THAT THE ASSESSEE HAD SHOWN AN AMOUNT OF RS.6,56,249/- AS UN CLAIMED DIVIDEND WHICH WAS SHOWN IN STATUTORY RESERVE FUND INSTEAD O F INCOME. THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE TH AT DIVIDENDS HAD BEEN DECLARED OUT OF THE NET PROFITS OF THE BANK ON WHICH TAX HAD ALREADY BEEN PAID AND, THEREFORE, IT IS NOT A RECEI PT OR INCOME OF THE BANK BUT THESE ARE ASSESSEES OWN FUNDS ON WHICH TA XES HAVE BEEN PAID. THE AO HELD THAT ONCE DIVIDEND IS DECLARED T HE SAME BECOMES PROPERTY OF THE SHAREHOLDER AND THE BANK REMAINS A CUSTODIAN OF THESE AMOUNTS ON BEHALF OF THE SHAREHOLDER. WHENEVER THE BANK ACQUIRES THE AUTHORITY TO APPROPRIATE THE PROPERTY HELD IN C USTODY ON BEHALF OF THE SHAREHOLDERS FOR ITS OWN PERSONAL USAGE THEN, T HE SAME HAS TO BE TREATED AS ITS INCOME AND SHOULD BE CREDITED TO THE PROFIT AND LOSS ACCOUNT. HE ACCORDINGLY MADE ADDITION OF RS.6,56,2 49/- TO THE TOTAL INCOME OF THE ASSESSEE. 13. BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE PRO FIT HAS BEEN APPROPRIATED IN ACCORDANCE WITH BY-LAW NO.45 WHICH PRESCRIBED THE MANNER IN WHICH THE PROFITS ARE TO BE APPROPRIATED EVERY YEAR. THIS BY-LAW PROVIDES FOR DECLARATION AND PAYMENT OF DIVI DEND AND ITS TRANSFER TO STATUTORY RESERVE FUND IF THE DIVIDEND IS NOT CLAIMED BY THE SHAREHOLDERS FOR MORE THAN THREE YEARS. ACCORDING TO THE ASSESSEE, THIS IS A MERE TRANSFER ENTRY FROM ONE ACCOUNT TO A NOTHER ACCOUNT. THESE ARE THEIR OWN FUNDS ON WHICH TAXES HAVE ALREA DY BEEN PAID AND HENCE IS NOT A TAXABLE INCOME. THE FOLLOWING DECISI ONS WERE ALSO RELIED UPON BY THE ASSESSEE : 14 1. ADDL. CIT, RANGE-2, MUZAFFARNAGAR VS. M/S. GULSHAN MERCANTILE URBAN CO-OP. BANK LTD. ITA NO.4981/DEL/2010 2. APEX URBAN CO-OP BANK OF MAHARASHTRA & GOA LTD. V S. ITO (2012) 134 ITD 118 (MUMBAI). 14. HOWEVER THE LD.CIT(A) WAS NOT CONVINCED WITH TH E EXPLANATION GIVEN BY THE ASSESSEE AND UPHELD THE AD DITION MADE BY THE AO BY HOLDING AS UNDER : 13. I HAVE GIVEN CAREFUL CONSIDERATION TO THE SUBMISSI ON OF THE APPELLANT WITH REFERENCE TO THE FACTS ON RECORD AND I HAVE ALSO PERUSED THE CASE LAWS RELIED ON BY THE APPELLANT. I FIND THA T IN THE CASE OF ADDL. CIT, RANGE-2, MUZAFFARNAGAR VS. M/S. GULSHAN MERCANTIL E URBAN CO-OP. BANK LTD. (SUPRA), THE ASSESSING OFFICER HAD ADDED THE AMOUNT OF RS.10,23,246/- AS INCOME OF THE CO-OPERATIVE BANK UND ER SECTION 41(1) OF THE INCOME-TAX ACT. THE TRIBUNAL UPHELD T HE DECISION OF THE CIT(A) WHO HAD PROVIDED RELIEF ON THE GROUND THAT D IVIDEND PAID HAS NOT BEEN CHARGED TO PROFIT AND LOSS ACCOUNT AND HENC E THERE COULD NOT BE CESSATION OF LIABILITY WHICH HAS ALREADY BEEN CLAIM ED AS AN EXPENSE OR A DEDUCTION IN EARLIER YEAR AS MANDATED IN SECTIO N 41(1). THIS CASE DOES NOT COME TO THE AID OF THE APPELLANT BECAUSE IN THE IMPUGNED ASSESSMENT, THE PROVISIONS OF SECTION 41(1) HAVE NOT BEEN INVOKED. 14. SIMILARLY, IN THE CASE OF APEX URBAN CO-OP. BA NK OF MAHARASHTRA & GOA LTD. V. ITO (SUPRA), AN AMOUNT OF R S.1.91 CRORES BEING THE AMOUNT OF UNCLAIMED DIVIDEND OF EARLIER Y EARS AND CREDITED TO THE PROFIT AND LOSS ACCOUNT UNDER THE HEAD 'MISCELL ANEOUS INCOME' WAS TREATED AS INCOME OF THE CO-OPERATIVE BANK BY THE ASSESSING OFFICER. THE TRIBUNAL UPHELD THE FINDING OF THE CIT (A) THAT DIVIDENDS DECLARED WAS AN APPLICATION OF INCOME AND NOT AN EXP ENSE DEBITED TO THE PROFIT AND LOSS ACCOUNT WHICH WAS ALLOWED AS A DEDU CTION WHILE COMPUTING THE TOTAL INCOME OF THE APPELLANT OF THE EARLIER YEARS. HENCE, IT WAS HELD THAT THE PROVISIONS OF SECTION 31 W OULD NOT BE APPLICABLE AS THIS WAS NOT A CESSATION OF LIABILITY. THI S DECISION ALSO DOES NOT COME TO THE AID OF THE APPELLANT BECAUSE IT DOES NOT DEAL WITH THE ISSUE AND THE GROUND ON THE BASIS OF WHICH ADDITION HAS BEEN MADE IN THE CASE UNDER CONSIDERATION. 15. IN THE CASE OF THE APPELLANT, IT IS PASSAGE OF OWN ERSHIP OF THE AMOUNTS UNDER CONSIDERATION WHICH HAS BEEN CONSIDERED A S GIVING RISE TO INCOME OF THE APPELLANT. THERE CANNOT BE ANY DOUBT THAT ONCE THE DIVIDEND IS DECLARED BY THE CO-OPERATIVE BANK, T HE BANK MERELY REMAINS A CUSTODIAN OF THE AMOUNTS OF DIVIDEND ON BEHA LF OF THE SHAREHOLDERS. THE AMOUNT WHICH REMAINS IN THE CUSTODY O F THE CO- OPERATIVE BANK WOULD BEAR THE CHARACTER OF A LIABIL ITY OWED BY THE APPELLANT BANK TO THE OWNERS OF THE AMOUNT. IT IS THU S AN ADVANCE OR A DEPOSIT HELD BY THE BANK ON BEHALF OF OTHERS. IN CASE SUCH AMOUNTS WHICH BEAR THE CHARACTER OF AN ADVANCE OR A DEPOSIT IN THE HANDS OF THE BANK CHANGES ITS CHARACTER AND BECOMES A RECEIPT I N THE NATURE OF OWN FUNDS AND THEREFORE INCOME, THE SAME HAS TO BE TA XED AS INCOME OF THE APPELLANT BANK. IN THIS CASE, THE UNCLAIMED DI VIDENDS LOST THEIR ORIGINAL CHARACTER OF AN APPROPRIATION FROM THE PRO FITS OF A FINANCIAL YEAR ONCE IT WAS DECLARED AS DIVIDEND AND HENCE TO BE THE INCOME OF ANOTHER PERSON. THE BANK REMAINED A MERE CUSTODIAN OF THOSE AMOUNTS AND HELD THE AMOUNTS WITH ITSELF ON BEHALF OF THE 15 SHAREHOLDERS. DUE TO THE OPERATION OF LAW OR STATUTORY PROVISIONS OF THE CO-OPERATIVE BANK, THESE AMOUNTS NO LONGER REMAIN ED PAYABLE TO THE SHAREHOLDERS. IT IS IMMATERIAL AT THIS POINT THAT T HE AMOUNTS WERE APPROPRIATED OUT OF PROFITS OF EARLIER YEARS BECAUSE A S STATED EARLIER, THE CHARACTER OF THE SUMS ADDED HAD UNDERGONE A CHANG E AS SOON AS THE SAME WERE DECLARED TO BE DIVIDEND AND HENCE, PRO PERTY OF OTHER PERSONS. IT IS THIS PROPERTY OF OTHER PERSONS WHICH HAS P ASSED ON TO THE APPELLANT BANK DUE TO PASSAGE OF TIME AND OPERATI ON OF LAW. THE SAME HAS OCCURRED IN THE PROCESS OF ITS BANKING BUSINESS. H ENCE, SUCH RECEIPTS WILL PARTAKE THE CHARACTER OF INCOME FROM B ANKING BUSINESS OF THE APPELLANT DURING THE PREVIOUS YEAR IN WHICH THE AMOUNTS ARE APPROPRIATED FROM THE DIVIDENDS PAYABLE AMOUNT TO AN Y OTHER STATUTORY RESERVES ACCOUNTS AS LONG AS THE APPELLANT BANK RETAINS THE AUTHORITY AND THE RIGHTS TO USE IT IN ANY MANNER DURI NG THE COURSE OF ITS BUSINESS. THUS, IN VIEW OF THIS DISCUSSION, I HOLD THAT THE ASSESSING OFFICER HAS RIGHTLY TREATED THE AMOUNT OF RS.6,56,249 /- AS INCOME OF THE APPELLANT. THE APPEAL ON THIS GROUND IS DISMISSED. 14.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE AS SESSEE IS IN APPEAL BEFORE US. 15. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY CHALL ENGED THE ORDER OF THE CIT(A). REFERRING TO THE PROVISIONS OF SECTI ON 49A OF THE MAHARASHTRA STATE COOPERATIVE SOCIETIES ACT, 1960 H E DREW THE ATTENTION OF THE BENCH AS TO HOW THE SOCIETY SHOULD CALCULATE THE NET PROFITS. REFERRING TO THE SAID PROVISIONS HE SUBMI TTED THAT THE SOCIETY IS REQUIRED TO CALCULATE THE NET PROFIT AFTER DEDUC TING THE EXPENSES LISTED THEREIN FROM THE GROSS PROFITS AND THE LIST DOES NOT INCLUDE DIVIDEND PAYABLE TO MEMBERS. HE SUBMITTED THAT THE DIVIDEND IS PAID OUT OF NET INCOME WHICH IS ARRIVED AT AFTER PAYMENT OF INCOME-TAX. IN VIEW OF THIS UNCLAIMED DIVIDEND TRANSFERRED TO RESE RVE FUND IS A RESIDUE PORTION OF DIVIDEND AMOUNT APPROPRIATED TO RESERVE FUND ON WHICH INCOME-TAX HAS ALREADY BEEN PAID BY THE BANK AND ADDITION OF THE SAME AMOUNTS TO DOUBLE TAXATION WHICH IS NOT PE RMISSIBLE IN LAW. 15.1 REFERRING TO THE DECISION OF THE DELHI BENCH O F THE TRIBUNAL IN THE CASE OF ADDL.CIT VS. M/S. GULSHAN MERCANTILE UR BAN COOPERATIVE BANK LTD. MUZAFFARNAGAR VIDE ITA NO.4981/DEL/2010 O RDER DATED 29- 16 11-2011 FOR A.Y. 2007-08 HE SUBMITTED THAT UNDER ID ENTICAL CIRCUMSTANCES THE UNCLAIMED DIVIDEND ADDED BY THE A O WAS DELETED BY THE CIT(A) AND ON FURTHER APPEAL THE TRIBUNAL DI SMISSED THE APPEAL FILED BY THE REVENUE. HE ACCORDINGLY SUBMITTED THA T THE UNCLAIMED DIVIDEND TAXED BY THE AO AND UPHELD BY THE CIT(A) S HOULD BE DELETED. 16. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHE R HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A). 17. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES. THE LD. DEPARTMENTAL REPRESENTATIVE COULD NOT CONTR OVERT THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT DIVIDEND HAS BEEN PAID OUT OF NET INCOME WHICH IS ARRIVED AT AFTER PA YMENT OF INCOME-TAX AND THE UNCLAIMED DIVIDEND TRANSFERRED TO RESERVE F UND IS AN AMOUNT ON WHICH INCOME-TAX HAS ALREADY BEEN PAID AND ADDIT ION OF THE SAME AMOUNTS TO DOUBLE TAXATION. 17.1 WE FIND IDENTICAL ISSUE HAD COME UP BEFORE THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF M/S.GULSHAN MERCANTILE URBAN COOPERATIVE BANK LTD. (SUPRA). IN THE SAID DECISION THE TRIBUN AL UPHELD THE DECISION OF THE CIT(A) WHO DELETED THE ADDITION MAD E BY THE AO ON ACCOUNT OF UNCLAIMED DIVIDEND AND THE GROUNDS RAISE D BY THE REVENUE WERE DISMISSED. THE OPERATIVE PARA OF THE ORDER OF THE TRIBUNAL READS AS UNDER : 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD AS WELL AS THE ORDER OF LD.CIT(A) . THE ASSESSING OFFICE HAD MADE ADDITION ON THE GROUND THAT AMOUNT OF UNPAID DIVIDEND WAS TO BE DEPOSITED IN THE GOVERNMENT ACCOUN T AFTER CERTAIN PERIOD. IN THIS CASE, THERE IS NO DISPUTE THAT THE A MOUNT OF DIVIDEND PAID HAS NOT BEEN CHARGED TO P&L ACCOUNT. IT FORMS P ART OF APPROPRIATION OF INCOME. THEREFORE, WHEN THE ASSESSEE PAID DIVIDEND TO THE SHAREHOLDERS, THE AMOUNT WAS NOT DEBITED TO P&L ACCOUNT AND, 17 THEREFORE, THE PROVISIONS OF SECTION 41(1) ARE NOT APP LICABLE AS THERE IS NO CESSATION OF LIABILITY. THEREFORE, IN OUR CONSIDER ED OPINION, LD.CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION. 17.2 RESPECTFULLY FOLLOWING THE DECISION OF THE DEL HI BENCH OF THE TRIBUNAL, WE SET-ASIDE THE ORDER OF THE CIT(A) ON T HIS ISSUE AND DIRECT THE AO TO DELETE THE ADDITION. THIS GROUND BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 18. GROUND OF APPEAL NO.3 BY THE ASSESSEE READ AS U NDER : ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEVY OF INTEREST U/S.234A, 234B AND 234C IS NOT JUSTIFIED AND IN THE CIRCUMSTANCES IT BE DELETED. 18.1 AFTER HEARING BOTH THE SIDES, WE ARE OF THE OP INION THAT CHARGING OF INTEREST U/S.234A, 234B AND 234C ARE MANDATORY A ND CONSEQUENTIAL IN NATURE. ACCORDINGLY, THIS GROUND BY THE ASSESSE E IS DISMISSED. 19. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES PRONOUNCED IN THE OPEN COURT ON 30-12-2013. SD/- SD/- (R.S. PADVEKAR) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED : 30 TH DECEMBER, 2013 SATISH COPY OF THE ORDER IS FORWARDED TO : 1. THE ASSESSEE 2. THE DEPARTMENT 3. THE CIT(A), KOLHAPUR 4. THE CIT, KOLHAPUR 5. DR B BENCH, PUNE 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE