Rajkot District Co Operative Bank Ltd., RAJKOT-GUJARAT V. The Assistant Commissioner or Income Tax, Circle - II, RAJKOT-GUJARAT

ITA 252/RJT/2011

• Counselvise Citation: [2012] 120 COUNSELVISE.COM (IT) 0062 (ITAT-RAJKOT)
• Duration Of Justice: 1 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 19-07-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 31-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANKUR GARG
• Assessee Lawyers: ASHA D VYAS
• Keywords: Business income; Depreciation; Cost of acquisition

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBULAL; RAJKOT BENCH, RAJKOT . .. . . . . . , , , , . .. . . . . . , , , , $ $ $ $ BEFORE SHRI T. K. SHARMA, JM AND SHRI D. K . SRIVASTAVA, AM ITA NO.252/RJT/2011 / ASSESSMENT YEAR 2008-09 RAJKOT DISTRICT CO-OPERATIVE BANK LTD. V. ASS ISTANT COMMISSIONER OF INCOME TAX C/O A D VYAS & CO., CIRCLE-II, RAJKOT CHARTERED ACCOUNTANT KOTECHANAGAR, MAIN ROAD, OPP KOTECHA GIRLS HIGH SCHOOL, ABOVE PATIDAR MANDAP SERVICE, RAJKOT PAN: AAAARO564K DATE OF HEARING : 19.7.2012 DATE OF PRONOUNCEMENT : 31.8.2012 ASSESSEE BY : MS. ASHA D VYAS REVENUE BY : SHRI ANKUR GARG / // / ORDER . .. . . . . . /D. K. SRIVASTAVA: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) ON 28.4.2011 ON THE FOLLOWING GROUND: THE LD. CIT(A)III, RAJKOT HAS GRIEVOUSLY ERRED IN CONFIRMING THE DISALLOWANCE OF THE LOSS ON AMORTIZATION OF SECURIT Y PREMIUM OF RS.40,30,000/- 2. THE ASSESSEE IS A CO-OPERATIVE BANK. IT IS ENGAG ED IN BANKING BUSINESS. IT FILED ITS RETURN OF INCOME ON 19.9.2008 RETURNIN G NIL INCOME, WHICH WAS SUBSEQUENTLY REVISED ON 28.7.2009 RETURNING THE TOT AL INCOME AT RS.4,14,65,298/-. AFTER PROCESSING, THE RETURN WAS TAKEN UP FOR SCRUTINY. THE AO PERUSED THE STATEMENT SHOWING COMPUTATION OF INCOME FILED ALONG WITH THE 2 ITA NO.252/RJT/2011 RETURN OF INCOME AND NOTICED THAT THE ASSESSEE HAD CLAIMED DEDUCTION ON ACCOUNT OF AMORTIZATION OF SECURITIES PREMIUM AMOU NTING TO RS.40,30,000/-. THE AO CALLED UPON THE ASSESSEE TO EXPLAIN THE REASONS FOR MAKING THE AFORESAID CLAIM. IN REPLY, THE ASSESSEE FILED A WRITTEN STATE MENT IN WHICH IT WAS STATED THAT THE INVESTMENT PORTFOLIO OF THE BANKS IS REQUIRED BY THE RESERVE BANK OF INDIA GUIDELINES DATED 16.10.2000 TO BE CLASSIFIED UNDER THREE CATEGORIES, I.E., HTM (HELD TO MATURITY), HFT (HELD FOR TRADING) AND AFS (AVAILABLE FOR SALE). IT WAS FURTHER POINTED OUT THAT THE SECURITIES CLASSIFIED UNDER THE HTM CATEGORY WERE REQUIRED TO BE CARRIED AT ACQUISITION COST UNLESS T HE ACQUISITION COST WAS MORE THAN FACE VALUE IN WHICH CASE THE AMOUNT OF PREMIUM WAS REQUIRED TO BE AMORTIZED OVER THE PERIOD REMAINING TO MATURITY. B ASED ON THE AFORESAID GUIDELINES, THE ASSESSEE CLAIMED THAT THE IMPUGNED SUM AS ELIGIBLE FOR DEDUCTION. THE AO CONSIDERED THE SUBMISSIONS OF THE ASSESSEE. HE, HOWEVER DISALLOWED THE SAME WITH THE FOLLOWING OBSERVATIONS : 5. I HAVE CAREFULLY CONSIDERED THE SUBMISSION MADE BY THE ASSESSEE. AS PER SECTION OF 24 OF THE BANKING REGUL ATION ACT AND ON THE BASIS OF THE GUIDELINES ISSUED BY THE RBI THE B ANKS HAVE TO KEEP MINIMUM PERCENTAGE OF ITS FUNDS IN GOVERNMENT SECUR ITIES WHICH IS KNOWN AS STATUTORY LIQUIDITY RATIO (SLR). THE BANKS ARE REQUIRED TO MAINTAIN A MINIMUM RATIO IN TACT AS TO SATISFY THE INTEREST OF THE GENERAL PUBLIC WHO ARE DEALING WITH THE BANK. THE A SSESSEE IS MADE INVESTMENT IN APPROVED GOVERNMENT SECURITIES IN ORD ER TO KEEP THE SLR REQUIREMENT INTACT. THEREFORE THE INVESTMENT MA DE BY THE ASSESSEE BANK IN APPROVED GOVERNMENT SECURITIES UND ER HTM CATEGORY ARE TO SATISFY WITH THE SLR REQUIREMENT. HENCE THE 3 ITA NO.252/RJT/2011 SECURITIES SET APART BY THE BANK TO MAINTAIN THE ST ATUTORY LIQUIDITY RATIO IS NOT STOCK-IN-TRADE OF THE BANK, TO CLAIM THE LOS S. THE ASSESSEE HAS CLAIMED AMORTIZATION ON HTM CATEGORY OF SECURITIES. THE BANK CANNOT SELL THE SECURITIES MARKED UNDER HTM CATEGORY AND I T SHOULD BE HELD BY THE BANK TILL ITS MATURITY. FURTHER, AS FAR AS N O TRANSACTION OF SECURITIES IS UNDERTAKEN, THE LOSS IS NOT CRYSTALLI ZED.' IT IS VERY OBVIOUS THAT WHEN THERE IS NO SALE, IT CANNOT BE ACCEPTED T HAT THERE IS ANY LOSS. WHEN THE INVESTMENT PURCHASED BY THE ASSESSEE IS HELD AND KEPT WITH THE BANK TO MAINTAIN THE STATUTORY REQUIR EMENT OF THE ASSESSEE, IT CANNOT BE SAID THE ASSESSEE INCURRED A NY LOSS. 6. PERMANENT INVESTMENTS ARE THOSE WHICH BANKS INT END TO HOLD TILL MATURITY AND CURRENT INVESTMENTS ARE THOSE WHI CH BANKS INTEND TO DEAL IN I.E., BUY AND SELL ON A DAY-TO-DAY BASIS. C URRENT INVESTMENTS CAN BE CONSIDERED AS STOCK-IN-TRADE WHEREAS PERMANE NT INVESTMENTS ARE NOT HELD FOR SALE. THEREFORE ALSO THE INVESTMEN T MADE IN GOVERNMENT SECURITIES MARKED HTM IS A PERMANENT INV ESTMENT. HENCE ANY LOSS OR PROFIT ARISE OR ACCRUED OUT OF TH E PERMANENT INVESTMENT SHALL ONLY BE A CAPITAL GAIN OR CAPITAL LOSS. THEREFORE ALSO THE LOSS CAN ONLY BE CRYSTALLIZED ON ITS MATURITY. THEREFORE, THE DIFFERENCE BETWEEN THE MARKET VALUE OF THE SECURITI ES HELD TO MATURITY AND THEIR COST TREATED AS DEPRECIATION IN THE VALUE OF INVESTMENT HELD TO MAINTAIN SLR CANNOT BE ALLOWED A S A DEDUCTION IN COMPUTING THE BUSINESS INCOME OF THE ASSESSEE IS NO T ACCEPTABLE AND THE AMORTIZATION CANNOT BE ALLOWED. THEREFORE, THE CLAIM OF THE ASSESSEE FOR AMORTIZATION OF LOSS ON GOVERNMENT SEC URITIES HELD FOR 4 ITA NO.252/RJT/2011 MAINTAINING OF SLR UNDER HTM CATEGORY CANNOT BE ALL OWED AS LOSS AS THE LOSS HAS NOT BEEN CRYSTALLIZED. HENCE, THE A MORTIZATION OF RS. 40.30,000/- CLAIMED IN THE COMPUTATION OF IS DISALLOWED AND ADD ED TO THE TOTAL INCOME OF THE ASSESSEE. I AM SATISFIED TH AT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME HENCE PE NALTY PROCEEDINGS U/S 271(1)(C) IS INITIATED SEPARATELY. 3. AGGRIEVED BY THE ORDER PASSED BY THE AO, THE ASS ESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) UPON WHICH THE L D. CIT(A) CONFIRMED THE ORDER PASSED BY THE AO ON THE GROUND THAT THE SECURITIES UNDER HTM CATEGORY WERE NOT STOCK-IN-TRADE. ACCORDING TO HIM THEY WERE HELD IN CAPITAL FIELD AND THEREFORE ANY LOSS RELATING TO THEM COULD BE CONSIDERED AT TH E TIME OF THEIR TRANSFER. 4. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE THIS TRIBUNAL. IN SUPPORT OF APPEAL, THE LD. AR FO R THE ASSESSEE RELIED UPON THE ORDER PASSED BY THE MUMBAI BENCH OF THIS TRIBUNAL O N 9.9.2011 IN DCIT V. BANK OF RAJASTHAN LTD., ITA NO.3238/MUM/2010 (AY-200-08) . ACCORDING TO HER, THE AFORESAID ORDER SQUARELY COVERED THE ISSUE UNDER AP PEAL IN FAVOUR OF THE ASSESSEE. 5. IN REPLY, THE LD. DR SUPPORTED THE ORDER PASSED BY THE CIT(A). 6. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY CON SIDERED THEIR SUBMISSIONS. THE ASSESSEE SOUGHT AMORTIZATION OF SE CURITIES PREMIUM IN RESPECT OF INVESTMENT HELD UNDER HTM CATEGORY, WHIC H WORKED OUT TO RS.40,30,000/-. THE AO HAS DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE SAID LOSS CLAIMED BY THE ASSESSEE WAS HYPO THETICAL IN THE YEAR UNDER APPEAL AND THAT LOSS IF ANY WOULD BE ELIGIBLE FOR C ONSIDERATION AT THE TIME OF 5 ITA NO.252/RJT/2011 TRANSFER OF SECURITIES. ACCORDING TO HIM, THE ELEME NT OF LOSS OR PROFIT COULD BE DETERMINED ONLY ON SALE/TRANSFER OF SECURITIES. ON APPEAL, THE LD. CIT(A) HAS HELD THAT THE INVESTMENT HELD BY THE ASSESSEE IN HTM CA TEGORY WERE NOT CAPABLE OF DETERMINATION AND THEREFORE THE LOSS IF ANY COULD B E CONSIDERED IN THE YEAR OF SALE AND NOT IN THE YEAR UNDER APPEAL. 7. THE LD. AR FOR THE ASSESSEE CLAIMS THAT SIMILAR ISSUE HAS BEEN CONSIDERED AND ALLOWED BY THIS TRIBUNAL IN FAVOUR OF THE ASSES SEE IN DCIT V. BANK OF RAJSTHAN LTD (SUPRA). A COPY OF THE SAID ORDER HAS BEEN PLACED BEFORE US IN WHICH THIS TRIBUNAL HAS HELD AS UNDER: 8. IN GROUND NO. 3, THE REVENUE HAS CHALLENGED THE ACTION OF THE LEARNED CIT(APPEALS) IN DELETING THE ADDITION OF RS.11,77,2 3,000/- MADE BY THE AO BY WAY OF DISALLOWANCE OF DEDUCTION CLAIMED BY T HE ASSESSEE ON ACCOUNT OF AMORTIZATION OF PREMIUM PAID FOR SECURIT IES HELD UNDER HELD TO MATURITY (HTM) CATEGORY. 9. THE AMORTIZED AMOUNT OF PREMIUM PAID FOR SECURIT IES HELD UNDER HTM CATEGORY AMOUNTING TO RS.11.77 CRORES WAS CLAIMED B Y THE ASSESSEE AS DEDUCTION IN ITS COMPUTATION OF TOTAL INCOME. THE S AME, HOWEVER, WAS DISALLOWED BY THE AO HOLDING THAT THE EXPENDITURE I NCURRED ON PREMIUM PAID FOR SECURITIES HELD UNDER HTM CATEGORY WAS A C APITAL EXPENDITURE NOT ALLOWABLE AS DEDUCTION. HE HELD THAT THE SAID SECUR ITIES WERE IN THE NATURE OF INVESTMENT AND NOT STOCK IN TRADE. ON APPEAL, TH E LEARNED CIT(APPEALS) DELETED THE DISALLOWANCE MADE BY THE AO ON THIS ISS UE. BESIDES RELYING ON HIS OWN ORDER IN ASSESSEES OWN CASE ON A SIMILA R ISSUE FOR THE EARLIER YEAR, THE LEARNED CIT(APPEALS) ALSO RELIED ON CBDT INSTRUCTION NO. 6 ITA NO.252/RJT/2011 17/2008 DATED 26-11-2008 PUBLISHED IN 220 CTR (STAT UTE) PAGE 41. HE HELD THAT THE ASSESSEE COMPANY WAS BOUND TO CLASSIF Y ITS INVESTMENT AS PER RBI GUIDELINES DATED 16-10-2010 AND AS PER THE SAID GUIDELINES, INVESTMENT CLASSIFIED UNDER HTM CATEGORY WAS REQUIR ED TO BE CARRIED AT ACQUISITION COST UNLESS IT WAS MORE THAN THE FACE V ALUE. HE HELD THAT THE PREMIUM ON SUCH INVESTMENTS WAS ALSO REQUIRED TO BE AMORTIZED OVER THE PERIOD REMAINING TO MATURITY. HE HELD THAT THE CLAI M OF THE ASSESSEE THUS WAS AS PER RBI GUIDELINES AND CBDT INSTRUCTION WHIC H CLARIFIED THAT PREMIUM AMORTIZED OVER THE PERIOD REMAINING TO MATU RITY WAS LIABLE TO BE ALLOWED AS DEDUCTION. 10. AT THE TIME OF HEARING BEFORE US, THE LEARNED R EPRESENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THIS ISSUE IS ALSO SQUAR ELY COVERED IN FAVOUR OF THE ASSESSEE BY THE VARIOUS ORDERS OF THE TRIBUNAL PASSED IN ASSESSEES OWN CASE FOR EARLIER YEARS. COPIES OF THE SAID ORDE RS ARE PLACED ON RECORD BEFORE US AND A PERUSAL OF THE SAME SHOWS THAT IN O NE OF SUCH ORDERS DATED 22ND DEC., 2010 PASSED IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2002-03 TO 2006-07, THE COORDINATE BENCH OF T HIS TRIBUNAL HAS DIRECTED THE AO TO ALLOW THE PREMIUM AMORTIZED BY T HE ASSESSEE OVER THE PERIOD REMAINING TO MATURITY HOLDING THAT THE SAME WAS CLAIMED AS PER THE RELEVANT RBI GUIDELINES AND EVEN THE CBDT HAS ISSUE D INSTRUCTIONS TO ALLOW THE SAME. RESPECTFULLY FOLLOWING THE SAID ORD ER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER YEARS, WE UPHOLD TH E IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) GIVING RELIEF TO THE ASSES SEE ON THIS ISSUE AND DISMISS GROUND NO. 3 OF THE REVENUES APPEAL. 7 ITA NO.252/RJT/2011 8. IT IS EVIDENT FROM THE ABOVE THAT THE ISSUE UNDE R APPEAL IS COVERED IN FAVOUR OF THE ASSESSEE BY THE AFORESAID DECISION OF THIS TRIBUNAL. RESPECTFULLY FOLLOWING THE SAID DECISION, THE IMPUGNED ADDITION MADE BY THE AO AND CONFIRMED BY THE CIT(A) IS DELETED. APPEAL FILED BY THE ASSESSEE IS ALLOWED. ) + 31-08-2012 ) ORDER PRONOUNCED ON 31 -08-2012 SD SD ( .. / T. K. SHARMA) ( .. / D. K. SRIVASTAVA) /JUDICIAL MEMBER / ACCOUNTANT MEMBER /RAJKOT: 31-08-2012. SRL/- ) )) ) ./ ./ ./ ./ 0/ 0/ 0/ 0/ / COPY OF ORDER FORWARDED TO:- 1. 3 / APPELLANT-. 2. .53 / RESPONDENT-. 3. 9 / CONCERNED CIT 4. 9- / CIT (A). 5. / ., , / DR, ITAT, RAJKOT 6. / GUARD FILE. / BY ORDER , TRUE COPY SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL, RAJKOT :