The Mayani Urban Co Op. Bank Ltd., Sangli V. ITO, Ward-3, Satara

ITA 261/PUN/2013

• Counselvise Citation: 26124514 RSA 2013
• Duration Of Justice: 1 year(s) 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 28-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P S NAIK
• Keywords: Capital asset; Business income; Depreciation; Cost of acquisition
• Section: 143(3)

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. 261 /PN/20 1 3 ASSESSMENT YEAR : 200 7 - 08 THE MAYANI URBAN CO - OP. BANK LTD., A/P MAYANI, TAL. KHANAPUR, SANGLI VS. ITO, WARD 3, SATARA (APPELLANT) (RESPONDENT) PAN NO. AAAAT7489H APPELLANT BY: SHRI NIKHIL PATHAK RESPONDENT BY: SHRI P.S. NAIK DATE OF HEARING : 15 - 0 9 - 2014 DATE OF PRONOUNCEMENT : 16 - 0 9 - 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 DATED 09 - 11 - 2012 FOR THE A.Y. 2007 - 08. THE ASSESSEE HAS TAKEN THE MULTIPLE GROUNDS BUT FOLLOWING IS THE EFFECTIVE GROUND : 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.182000/ - MADE BY THE LEARNED A.O. IN RESPECT OF EXPENDITURE CLAIMED IN THE NATURE OF AMORTIZATION OF PREMIUM PAID ON GOVT. SECURITIES CLASSIFIED AS HELD TO MATURITY WITHOUT APPRECIATING THAT AS P ER LAW, THE ADDITION IS NOT JUSTIFIED. 2. THE FACTS WHICH ARE REVEALED FROM THE RECORD AS UNDER. THE ASSESSEE IS A CO - OPERATIVE BANK. THE ASSESSEE FILED THE RETURN OF INCOME FOR THE A.Y. 2007 - 08 WHICH WAS SELECTED FOR SCRUTINY AND ASSESSMENT OF THE AS SESSEE HAS BEEN COMPLETED U/S. 143(3) OF THE INCOME - TAX ACT. IN RESPECT OF THE ISSUE OF DISALLOWANCE ON AMORTIZATION OF THE PREMIUM PAID ON GOVT. SECURITIES, THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE 2 ITA NO. 261 /PN/2013, THE MAYANI URBAN CO - OP. BANK LTD., SANGLI HAS DEBITED AN AMOUNT OF RS.1,82,000/ - ON AC COUNT OF PREMIUM AMORTIZATION OF GOVT. SECURITY. IN THE OPINION OF THE ASSESSING OFFICER THE SAID EXPENDITURE IS A CAPITAL IN NATURE. THE ASSESSING OFFICER, ACCORDINGLY, DISALLOWED THE SAME AND MADE THE ADDITION TO THE TOTAL INCOME. 3. THE ASSESSEE CHAL LENGED THE ADDITION BEFORE THE LD. CIT(A). BEFORE THE LD. COMMISSIONER THE ASSESSEE CONTENDED THAT AS PER THE RBI GUIDELINES EVERY CO - OPERATIVE BANK HAS TO INVEST 10% OF THE DEPOSITS PLUS SHARE CAPITAL PLUS RESERVES OF THE BANK IN GOVT. SECURITIES. THE A SSESSEE STATED THAT THE IMPUGNED SECURITIES WERE ACQUIRED BY THE ASSESSEE BY PAYING A PREMIUM WHICH WERE HELD BY THE ASSESSEE UNDER THE CATEGORY OF HELD TO MATURITY (HTM) WITH A MATURITY PERIOD OF 15 YEARS. THE ASSESSEE SUBMITTED BEFORE THE LD. COMMISSION ER THAT SAID EXCESS PRICE PAID OVER THE FACE VALUE OF THE SECURITY NEEDED TO BE AMORTIZED BY THE BANK OVER THE PERIOD OF ITS MATURITY AS THE ASSESSEE BANK HAS TO REFLECT THE VALUE OF THE INVESTMENTS AS PER MARKET VALUE OR BOOK VALUE, WHICHEVER IS LESS, IN ITS BOOKS OF ACCOUNT. IN THE OPINION OF LD. COMMISSIONER THE SECURITIES HELD UNDER THE CATEGORY HELD TO MATURITY (HTM) ARE IN THE NATURE OF PERMANENT INVESTMENT AND THOSE ARE ON CAPITAL ACCOUNT. THE LD. COMMISSIONER CONFIRMED THE ACTION OF THE ASSESSING OFFICER. NOW, THE ASSESSEE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE PARTIES. THE LD. COUNSEL SUBMITS THAT THE ISSUE STANDS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT, B BENCH, PUNE IN THE CASE OF SOLAPUR JANATA SAHAKAR I BANK LTD., SOLAPUR VS. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE - 1, SOLAPUR, ITA NO. 2534/PN/2012 ORDER DATED 17 - 01 - 2014. THE LD. COUNSEL HAS 3 ITA NO. 261 /PN/2013, THE MAYANI URBAN CO - OP. BANK LTD., SANGLI FILED THE COPY OF THE ORDER IN THE CASE OF SOLAPUR JANATA SAHAKARI BANK LTD., SOLAPUR (SUPRA) WHICH IS PLACED O N RECORD. 5. IN THE CASE OF SOLAPUR JANATA SAHAKARI BANK LTD., SOLAPUR (SUPRA) THE ISSUE WAS WHETHER THE SECURITIES HELD/CLASSIFIED AS HTM ARE IN THE NATURE OF CAPITAL ASSET. THE TRIBUNAL HELD AS UNDER: 3. WE HAVE HEARD THE PARTIES. WE FIND THAT THE ISS UE 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 BANK 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 EXPENDITURE/LOSS CAN BE TREATED IN THE NATURE OF CAPITAL EXPENDITU RE. 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 INVESTMENTS 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. 18. ALL INCOME/LOSS WH ATEVER 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 AND ALWAYS HAS BEEN TREATED BY DEPARTMENT AS BUSINESS AND ASSES SED 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 4 ITA NO. 261 /PN/2013, THE MAYANI URBAN CO - OP. BANK LTD., SANGLI LOSS/PROFIT ARE NOT IN THE NATURE OF CAPITAL. THE ENTIRE INTEREST INCOME OF SECURIT IES 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. INVESTMENTS 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 RBI 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 SHOULD 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 TREATED 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 HAD ISSUED GUIDELINES FOR ALLOWING DEDUCTION OF AMORTIZATION P REMIUM 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 TO BE CLASSIFIED UNDER THREE CATEGORIES VIZ. HELD TO 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 THE 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 5 ITA NO. 261 /PN/2013, THE MAYANI URBAN CO - OP. BANK LTD., SANGLI IN TRADE OF THE BANK, THE DEPRECIATION/APPRECIATION IS TO BE AGGREGATED SCRIP WISE AND ONLY NET DEPRECIATION, IF ANY, IS REQUIRED TO BE PROVIDED FOR THE ACCOUNTS. TH E 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, LAT UR 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 - TRADE RESPECTIVE OF THE CLASSIFICATION MADE AS PER THE RBI GUIDE LINES. 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 BOMBAY IN THE CASE OF CIT VS. BANK OF BARODA AND IN THE CASE OF UC O 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 VALUE OF INVESTMENTS. THE METHOD OF VALUATION FOLLOWED BY THE A SSESSEE 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 CLAIMED AS A DEDUCTION WHICH WAS DISALLOWED BY THE A.O, BUT THE A SSESSEE BANK SUCCEEDED BEFORE THE CIT(A). THE TRIBUNAL CONFIRMED THE ORDER OF THE CIT(A). THE REVENUE CARRIED THE ISSUE BEFORE THE HONBLE HIGH COURT. THE CORE ISSUE WAS THE METHOD OF VALUATION ADOPTED BY THE ASSESSEE BANK FOR VALUING THE STOCK OF THE SE CURITIES. THE HONBLE HIGH COURT FOLLOWED THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF UNITED COMMERCIAL BANK (SUPRA). 6 ITA NO. 261 /PN/2013, THE MAYANI URBAN CO - OP. BANK LTD., SANGLI 15. IN THE CASE OF UNITED COMMERCIAL BANK (SUPRA), EVEN THE ISSUE OF VALUATION OF THE STOCK IN TRADE OF THE INVESTMENT WAS BEF ORE 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 P URELY 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 THE CASE OF CIT VS. NEDUNGADI BANK LTD., 264 ITR 545. IN THE S AID 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 UNDER WHICH THE SECURITIES ARE HELD. IN OUR CONSIDERED VIEW, NOM ENCLATURE 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 ALLOWED. 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. IN THE LIGHT OF THE ABOVE DISCUSSION AND FOLLOWING THE DECISION IN THE CASE OF BANK OF RAJASTHAN LT D. (SUPRA) AND THE LATUR URBAN CO - OP. BANK LIMITED (SUPRA), WE, ALLOW THE APPEAL FILED BY THE ASSESSEE AND DELETE THE ADDITION MADE BY THE ASSESSING OFFICER. 6. AS THE FACTS ARE IDENTICAL, WE, THEREFORE, FOLLOWING THE PRINCIPLES LAID DOWN IN THE CASE OF S OLAPUR JANATA SAHAKARI BANK LTD., SOLAPUR 7 ITA NO. 261 /PN/2013, THE MAYANI URBAN CO - OP. BANK LTD., SANGLI (SUPRA) DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE AND RELEVANT GROUND TAKEN BY THE ASSESSEE IS ALLOWED. 7. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 16 - 0 9 - 2014 SD/ - SD/ - ( G.S. PANNU ) ( R.S. PADVEKAR ) ACCOUNTANT MEMBER JUDICIAL MEMBER RK /PS PUNE , DATED : 16 TH SEPTEMBER, 2014 COPY TO 1 ASSESSEE 2 DEPARTMENT 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 ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE