Solapur Janata Sahakari Bank Ltd., Solapur V. ACIT, Circle-1, Solapur

ITA 2534/PUN/2012

• Counselvise Citation: 253424514 RSA 2012
• Duration Of Justice: 1 year(s) 1 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 21-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S P WALIMBE
• Keywords: Capital asset; Business income; Depreciation; Cost of acquisition; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE: SHRI G. S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO. 2534 /PN/20 1 2 ASSESSMENT YEAR : 200 9 - 10 SOLAPUR JANATA SAHAKARI BANK LTD., GAGANBHARARI, SHIVSMARAK SANKUL, GOLDFINCH PETH, SOLAPUR VS. ASSTT. COMMISSIONER OF INCOME TAX , CIRCLE - 1, SOLAPUR (APPELLANT) (RESPONDENT) PAN NO. AAAAS3627C APPELLANT BY: SHRI PRAMOD SHINGTE RESPONDENT BY: SHRI S .P. WALIMBE DATE OF HEARING : 15 - 01 - 2014 DATE OF PRONOUNCEMENT : 27 - 01 - 2014 ORDER PER R.S . PADVEKAR , JM : - THIS APPEAL IS FILED BY THE ASSESSEE CHALLENGING THE IMPUGNED ORDER OF THE LD. CIT(A) - III, PUNE FOR THE A.Y. 200 9 - 10. THE ASSESSEE HAS TAKEN THE MULTIPLE GROUNDS BUT HE SOLITARY ISSUE WHICH ARISES FOR OUR CONSIDERATION IS WHETHER THE LD. CIT(A) - III, PUNE IS JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF RS.1,49,57,000/ - MADE BY THE ASSESSING OFFICER IN RESPECT OF THE AMOUNT OF THE AMORTIZATION OF PREMIUM ON INVESTMENT DEBITE D TO THE PROFIT AND LOSS ACCOUNT. 2. THE FACTS WHICH ARE REVEALED FROM THE RECORD AS UNDER. THE ASSESSING OFFICER HAS OBSERVED THAT AS PER THE MASTER CIRCULAR ISSUED BY THE RBI DATED 17 - 07 - 2004, ALL THE CO - OPERATIVE BANK ARE REQUIRED TO CLASSIFIED THEIR ENTIRE INVESTMENT PORTFOLIO S IN THREE CATEGORIES I.E. (I) HELD TO MATURITY (HTM), (II) AVAILABLE FOR SALE (AFS) AND (III) HELD FOR TRADING (HFT). AS NOTED BY THE ASSESSING OFFICER , THE SECURITIES CLASSIFIED BY AFS AND HFT SECURITIES ARE IN THE NATURE OF S TOCK IN TRADE WHILE THE HTM 2 ITA NO. 2534/PN/2012, SOLAPUR JANATA SAHAKARI BANK LTD., SOLAPUR SECURITIES ARE IN THE NATURE OF CAPITAL ASSETS. HE HAS FURTHER NOTED THAT FOR THE PURPOSE OF INCOME - TAX, FOR THEIR VALUATION AT YEAR END, THE AFS AND HFT SECURITIES ARE TO BE VALUED AT COST OR MARKET VALUE WHICHEVER IS LESS WHE REAS THE HTM SECURITIES HAVE TO BE VALUED TO BE COST ONLY AND NOT AT COST OR MARKET VALUE. THE ASSESSING OFFICER ALSO REFERRED TO THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF VIJAYA BANK LTD. VS. ADDL. CIT 187 ITR 541 (SC). THE ASSESSING OFFI CER MADE THE ENTIRE DISALLOWANCE OF RS.1,49,57,000/ - AND MADE THE ADDITION TO THE TOTAL INCOME OF THE ASSESSEE. THE ASSESSEE CHALLENGED THE ADDITION BEFORE THE LD. CIT(A) BUT WITHOUT SUCCESS AS THE ADDITION WAS CONFIRMED. NOW THE ASSESSEE IS IN APPEAL BE FORE US. 3. WE HAVE HEARD THE PARTIES. WE FIND THAT THE ISSUE STANDS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT, MUMBAI BENCH, MUMBAI IN THE CASE OF ACIT, CENTRAL CIRCLE 233, MUMBAI VS. BANK OF RAJASTHAN LTD., ITA NO. 2246 TO 2250/MUM/2009 ORDER DATED 22 - 12 - 2010. IN THE SAID DECISION , THE TRIBUNAL HAS REFERRED TO SUBSEQUENT DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF UCO BANK, 240 ITR 355. THE OPERATIVE PART OF THE FINDING OF THE CO - OPERATIVE BENCH IN THE CASE OF BAN K OF RAJASTHAN LTD. (SUPRA) IS AS UNDER : 17. IN THE CASE OF THE BANK ALL INVESTMENTS ARE STOCK IN TRADE AS HELD BY HON'BLE SUPREME COURT IN THE CASE OF UCO BANK REPORTED AT 240 ITR 355. THERE IS NO INVESTMENT IN THE NATURE OF INVESTMENT ON WHICH THE EXPEN DITURE/LOSS CAN BE TREATED IN THE NATURE OF CAPITAL EXPENDITURE. THE SECURITIES ARE CATEGORIZED AS PER THE NORMS OF THE RBI. AS PER THE 'SIGNIFICANT ACCOUNTING POLICIES' GIVEN IN SCHEDULE 17 ATTACHED WITH THE BALANCE SHEET EVERY YEAR, THE FACT THAT ALL INV ESTMENTS ARE STOCK IN TRADE HAS BEEN CLARIFIED IN THE CASE OF THE ASSESSEE. IT DOES NOT MEAN THE SECURITIES KEPT IN CATEGORY OF HTM CANNOT BE SOLD BEFORE THE MATURITY. THE HTM HAS BEEN SOLD IN SUBSEQUENT YEAR AND INCOME/LOSS TREATED AS BUSINESS INCOME/LOSS AND NOT AS CAPITAL GAIN/LOSS AT ALL. 3 ITA NO. 2534/PN/2012, SOLAPUR JANATA SAHAKARI BANK LTD., SOLAPUR 18. ALL INCOME/LOSS WHATEVER ARISING ON ACCOUNT OF INVESTMENT(STOCK IN TRADE) INTEREST LOSS/PROFITS OR DIMINISHING OF INVESTMENT INCLUDING SECURITIES HELD UNDER HTM CATEGORY HAS BEEN TREATED AS BUSINESS INCOME/LOSS AN D ALWAYS HAS BEEN TREATED BY DEPARTMENT AS BUSINESS AND ASSESSED ACCORDINGLY IN ALL PAST YEAR ASSESSMENT BY DEPARTMENT. THE INTEREST EARNED IN THE CASE OF THE BANK, ON ALL SHARE AND SECURITY ASSETS ARE STOCK IN TRADE AND WHATEVER THE LOSS/PROFIT ARE NOT IN THE NATURE OF CAPITAL. THE ENTIRE INTEREST INCOME OF SECURITIES UNDER WHATEVER CATEGORY HAD BEEN AND IS BEING ASSESSED IN ALL THESE YEARS AS BUSINESS INCOME. THEREFORE, AS SUCH DIFFERENT CATEGORIES OF THE INCOME DOES NOT FORM(HTM) AS CAPITAL IN NATURE. 19 . AS STATED EARLIER, THE FIGURE OF RS. 65.62 LACS REPRESENTS THE AMORTIZATION OF PREMIUM FOR SECURITIES HELD UNDER HTM CATEGORY, WHICH HAS BEEN WRITTEN OFF IN TERMS OF THE RBI CIRCULAR DATED 16/10/2000. PARA 14 OF THE SAID CIRCULAR READS AS UNDER: '14. IN VESTMENTS CLASSIFIED UNDER HELD TO MATURITY CATEGORY NEED NOT TO BE MARKED TO MARKET AND WILL BE CARRIED AT ACQUISITION COST UNLESS IT IS MORE THAN THE FACE VALUE, IN WHICH CASE THE PREMIUM SHOULD BE AMORTIZED OVER THE PERIOD REMAINING TO MATURITY.' VIDE R BI CIRCULAR NO.DBOD NO.BP.B.C 32/21.04.08/2000 - 01 DATED 16/10/2000, BANK MAY SHIFT INVESTMENT TO/FROM HTM CATEGORY WITH APPROVAL OF BOARD FROM/TO OTHER CATEGORY. FURTHER IN TERMS OF ABOVE REFERRED CIRCULAR, PROFIT ON SALE OF INVESTMENTS IN HTM CATEGORY SHO ULD BE TAKEN TO THE PROFIT AND LOSS ACCOUNT. THERE IT IS VERY CLEAR THAT SECURITIES HELD UNDER HTM CATEGORY CAN BE SOLD BY BANK AT ANY POINT OF TIME. THEREFORE, THESE SECURITIES ARE BEING AS STOCK IN TRADE AND PROFIT/LOSS ON SALE OF THESE SECURITIES ARE TR EATED AS BUSINESS INCOME/LOSS. 20. THE ASSESSEE HAS FURTHER FILED A COPY OF CBDT INSTRUCTION NO.17 DATED 26/11/2008 PUBLISHED IN 220 CTR (STATUTE PAGES 41 TO 44). THE CBDT IN PARA (VII) OF THIS INSTRUCTION HAS STATED THAT IN THE CASES OF BANKS WHERE RBI H AD ISSUED GUIDELINES FOR ALLOWING DEDUCTION OF AMORTIZATION PREMIUM PAID ON SECURITIES UNDER HTM CATEGORY. THE RELEVANT PORTION OF INSTRUCTION IS AS UNDER: 'AS PER RBI GUIDELINES DATED 16TH OCTOBER, 2000, THE INVESTMENT PORTFOLIO OF THE BANKS IS REQUIRED T O BE CLASSIFIED UNDER THREE CATEGORIES VIZ. HELD TO 4 ITA NO. 2534/PN/2012, SOLAPUR JANATA SAHAKARI BANK LTD., SOLAPUR MATURITY (HTM), HELD FOR TRADING (HFT) AND AVAILABLE FOR SALE (AFS). INVESTMENTS CLASSIFIED UNDER HTM CATEGORY NEED NOT BE MARKED TO MARKED AND ARE CARRIED AT ACQUISITION COST UNLESS THESE ARE MORE THAN T HE FACE VALUE, IN WHICH CASE THE PREMIUM SHOULD BE AMORTIZED OVER THE PERIOD REMAINING TO MATURITY. IN THE CASE OF HFT AND AFS SECURITIES FORMING STOCK IN TRADE OF THE BANK, THE DEPRECIATION/APPRECIATION IS TO BE AGGREGATED SCRIP WISE AND ONLY NET DEPRECIA TION, IF ANY, IS REQUIRED TO BE PROVIDED FOR THE ACCOUNTS. THE LATEST GUIDELINES OF THE RBI MAY BE REFERRED TO FOR ALLOWING ANY SUCH CLAIMS.' 21. SINCE THE CLAIM OF THE ASSESSEE IS AS PER RBI GUIDELINES AND CBDT HAS ALSO ISSUED DIRECTIONS TO ALLOW PREMIUM TO BE AMORTIZED REMAINING WITH THE MATURITY, THEREFORE, THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE CLAIM OF THE ASSESSEE AMOUNTING TO RS. 65,51,826/ - . 4. WE FURTHER FIND THAT THIS ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT, PUNE IN THE CASE OF LATUR URBAN CO - OP. BANK LIMITED, LATUR VS. DY. CIT, CIRCLE - 3, NANDED, ITA NOS. 778 & 792/PN/2011 ORDER DATED 31 - 08 - 2012. IN THE SAID CASE THE TRIBUNAL HAS HELD THAT ALL THE SECURITIES HELD BY THE BANK FORM PART OF THE STOCK - IN - TR ADE RESPECTIVE OF THE CLASSIFICATION MADE AS PER THE RBI GUIDELINES. THE OPERATIVE PART OF THE DECISION OF THE TRIBUNAL IS AS UNDER: 14. WE HAVE HEARD THE PARTIES. THE LD COUNSEL PLACED HIS HEAVY RELIANCE ON THE DECISION OF THE HONBLE HIGH COURT OF BOMB AY 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 DEPRECIATION IN THE VA LUE OF INVESTMENTS. THE METHOD OF VALUATION 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 THE SAID DEPRECIATION WAS CLAI MED AS A DEDUCTION WHICH WAS DISALLOWED BY THE A.O, BUT THE ASSESSEE BANK SUCCEEDED BEFORE THE CIT(A). THE TRIBUNAL CONFIRMED THE ORDER 5 ITA NO. 2534/PN/2012, SOLAPUR JANATA SAHAKARI BANK LTD., SOLAPUR OF THE CIT(A). THE REVENUE CARRIED THE ISSUE BEFORE THE HONBLE HIGH COURT. THE CORE ISSUE WAS THE METHOD OF VALUATIO N ADOPTED BY THE ASSESSEE BANK FOR VALUING THE STOCK OF THE SECURITIES. THE HONBLE HIGH COURT FOLLOWED THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF UNITED COMMERCIAL BANK (SUPRA). 15. IN THE CASE OF UNITED COMMERCIAL BANK (SUPRA), EVEN THE ISSU E OF VALUATION OF THE STOCK IN TRADE OF THE INVESTMENT WAS BEFORE THE HONBLE SUPREME COURT. IN THE CASE OF THE ASSESSEE, THE ISSUE IS REGARDING ALLOWABILITY OF THE LOSS ON THE SALE OF THE SECURITIES. MERELY BECAUSE THE SECURITIES ARE KEPT UNDER THE HEAD TILL THE MATURITY, THE SAID SECURITY CANNOT BE TREATED AS A PURELY INVESTMENT. LAW IS WELL SETTLED THAT THE SECURITIES HELD BY THE BANK ARE IN THE NATURE OF STOCK - IN - TRADE. WE MAY LIKE TO QUOTE HERE THE DECISION OF THE HONBLE HIGH COURT OF KERALA IN T HE CASE OF CIT VS. NEDUNGADI BANK LTD., 264 ITR 545. IN THE SAID CASE, THE HONBLE HIGH COURT HAS HELD THAT THE SECURITIES HELD BY THE BANK ARE IN THE NATURE OF STOCK - IN - TRADE. BOTH THE AUTHORITIES BELOW HAS MERELY GONE ON THE NOMENCLATURE OF THE HEAD UN DER WHICH THE SECURITIES ARE HELD. IN OUR CONSIDERED VIEW, NOMENCLATURE CANNOT BE DECISIVE FOR THE ASSESSEE BANK. WE, THEREFORE, HOLD THAT THE LOSS ON THE SALE OF THE SECURITIES IS REVENUE IN NATURE AND SAME IS ALLOWABLE. ACCORDINGLY, GROUND NO. 2 IS AL LOWED. 5. SO FAR AS THE REFERENCE BY THE ASSESSING OFFICER TO THE DECISION OF THE VIJAYA BANK LTD. (SUPRA) IS CONCERNED , IN OUR OPINION IN THE SUBSEQUENT DECISION IN THE CASE OF UNITED COMMERCIAL BANK VS. CIT 240 ITR 355 (SC) , THE ISSUE OF VALUATION OF STOCK - IN - TRADE OF SECURITIES HELD BY THE BANK WAS REFERRED TO THE HON'BLE SUPREME COURT AND IT IS HELD THAT IT IS OPEN TO THE ASSESSEE TO VALUE IT AT THE COST OR MARKET VALUE WHICHEVER IS LOWER AND METHOD OF ACCOUNTING ADOPTED BY THE TAX PAYER CONSISTENTLY AND REGULARLY CANNOT BE DISCARDED BY THE DEPARTMENT AUTHORITY. THE LAW IS WELL SETTLED THAT ALL THE SECURITIES HELD BY THE BANK ARE PART OF THE STOCK - IN - TRADE IRRESPECTIVE OF THE FACT HOW THE CLASSIFICATION IS MADE . I N THE LIGHT OF THE ABOVE DISCUSSION AND FOLLOWING THE DECISION IN THE CASE OF 6 ITA NO. 2534/PN/2012, SOLAPUR JANATA SAHAKARI BANK LTD., SOLAPUR BANK OF RAJASTHAN LTD. (SUPRA) AND THE LATUR URBAN CO - OP. BANK LIMITED (SUPRA) , W E , ALLOW THE APPEAL FILED BY THE ASSESSEE AND DELETE THE ADDITION MADE BY THE ASSESSING OFFICER. 6. IN THE RESULT, THE ASSESSEES AP PEAL IS ALLOWED . PRONOUNCED IN THE OPEN COURT ON 27 - 01 - 2014 SD/ - SD/ - ( G.S. PANNU ) ( R.S. PADVEKAR ) ACCOUNTANT MEMBER JUDICIAL MEMBER RK /PS PUNE , DATED : 27 TH JANUARY, 2014 COPY TO 1 ASSESSEE 2 DEPAR TMENT 3 4 THE CIT(A) - III, PUNE THE CIT - III, PUNE 5 THE DR, ITAT, B BENCH, PUNE. 6 GUARD FILE. //TRUE COPY// BY ORDER PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL PUNE