The DCIT, Circle-2, Surat V. The Prime Co-Operative Pvt.Ltd., Surat

ITA 2791/AHD/2012

• Counselvise Citation: 279120514 RSA 2012
• Duration Of Justice: 8 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 13-08-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 11-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P L KUREEL
• Assessee Lawyers: R N VEPARI
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Cost of acquisition
• Section: 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH BEFORE: SRI D.K TYAGI, JUDICIAL MEMBER AND SHRI T.R. MEENA, ACCOUNTANT MEM BER DY. COMMISSIONER OF INCOME-TAX, CIRCLE-2, ROOM NO. 110, 1 ST FLOOR, AAYAKAR BHAVAN, MAJURAGATE, SURAT-395001 (APPELLANT) VS PRIME CO-OPERATIVE BANK LTD, S.NO. 1 TO 5, OFFICE 101-T, KAILASDEEP COMPLEX, OPP. SUBJAIL, RING ROAD, SURAT-395002 PAN: AAAAOP5507G (RESPONDENT) REVENUE BY: SRI P.L. KUREEL, SR.D.R. ASSESSEE BY: SRI R.N. VEPARI, A.R. DATE OF HEARING : 13-08-2013 DATE OF PRONOUNCEMENT : 23-08-20 13 / ORDER PER : D.K. TYAGI, JUDICIAL MEMBER:- THIS IS THE REVENUES APPEAL AGAINST THE ORDER OF LD. CIT(A)-II SURAT DATED 17-09-2012. 2. THE REVENUE HAS TAKEN FOLLOWING THREE EFFECTIVE GROUNDS:- ITA NO. 2791/AHD/2012 ASSESSMENT YEAR 2009-10 I.T.A NO.2791/AHD/2012 A.Y. 2009-10 PAGE NO DCIT VS. PRIME CO-OPERATIVE BANK LTD. 2 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) SURAT HAS ERRED IN DELETING THE ADDITION OF RS. 10,49,919/- MADE ON ACCOUNT OF PREMIUM AMORTIZATION EXPENSES AS THE FACT THAT AS PER THE INCOME TAX ACT NO SUCH PROVISION HAS BEEN P ROVIDED U/S 36(1)(VII) TO ALLOW AMORTIZATION OF PREMIUM EXPENSE S INCURRED ON PURCHASE OF GOVT. SECURITIES, WAS NOT APPRECIATED. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 50 ,09,000/- MADE ON ACCOUNT OF DISALLOWANCE OF SPECIAL LONG TERM FINANC E FUND EXPENSES CLAIMED U/S 36(1)(VIII) OF THE ACT WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE FAILED TO SUBMIT ANY SUPPORT ING EVIDENCE TO PROVE THAT WHATEVER AMOUNT SET ASIDE BY IT CONSTITU TES 20% OF THE PROFITS DERIVED FORM THE ELIGIBLE BUSINESS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS & PROFESSION. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 53 ,89,699/- MADE ON ACCOUNT OF RECLASSIFICATION OF CAPITAL GAINS AS BUS INESS INCOME WITHOUT APPRECIATING THE FACT THAT THE PROFIT EARNE D BY THE ASSESSEE ON SALE OF SECURITIES HELD UNDER OBLIGATION OF RBI GUI DELINES OR OTHERWISE IS BUSINESS INCOME AS THE SOURCE OF MONEY FOR INVES TING IN ALL THOSE SECURITIES IS RECEIPTS OUT OF BANKING BUSINESS. 3. FIRST GROUND RELATES TO DELETION OF ADDITION OF RS. 10,49,919/- MADE ON ACCOUNT OF PREMIUM AMORTIZATION EXPENSES. 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A CO-OPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING AND ALL FORMS OF BUSINESS ENLISTED IN SECTION 6 OF BANKING REGULATION ACT, 1949, OUT OF W HICH LENDING IS THE MAIN ACTIVITY PREDOMINANTLY TO THE MEMBERS OF CO-OPERATI VE BANK. DURING THE ASSESSMENT PROCEEDINGS, IT WAS OBSERVED BY AO THAT THE ASSESSEE HAS CLAIMED PREMIUM (AMORTIZATION) EXPENSES OF RS. 10,4 9,919/-. ASSESSEE BOUGHT GOVERNMENT SECURITIES BY PAYING PREMIUM OVER ITS BOOK VALUE AND I.T.A NO.2791/AHD/2012 A.Y. 2009-10 PAGE NO DCIT VS. PRIME CO-OPERATIVE BANK LTD. 3 THIS PREMIUM HAS BEEN CLAIMED AS EXPENDITURE UNDER THE HEAD AMORTIZATION TILL THE MATURITY PERIOD AS PER GUIDELINES OF RBL. IN VIEW OF AO, THERE IS NO SUCH PROVISION OF AMORTIZATION OF PREMIUM EXPENSES INCURRED ON PURCHASE OF GOVERNMENT SECURITIES IN THE INCOME TAX ACT, THEREF ORE, HE PROPOSED TO DISALLOW THESE EXPENSES. THE EXPLANATION OF ASSESSE E THAT THE BANK HAS FOLLOWED THE GUIDELINES OF RBI AND ACCORDINGLY HAS SPREAD THE PREMIUM AMOUNT TILL MATURITY PERIOD OF THE GOVERNMENT SECUR ITIES AND HAS WRITTEN OFF THIS PROPORTIONATE AMOUNT IN P&L ACCOUNT, WAS NOT A CCEPTED BY AO ON THE GROUND THAT ASSESSEE GETS BENEFIT OF THIS EXPENDITU RE AS COST OF ACQUISITION WHENEVER IT SELLS THESE SECURITIES: AND REMAINING P ROFIT WILL BE TAXED IN THE HANDS OF ASSESSEE. CONSEQUENTLY, AMORTIZATION EXPEN SES OF RS.10,49,919/- WAS DISALLOWED BY AO AND ADDED BACK TO THE INCOME O F ASSESSEE. 5. BEFORE LD. CIT(A), ASSESSEES SUBMISSION WAS AS FOLLOWS:- 2.2 DURING THE APPELLATE PROCEEDINGS, IT WAS SUBMI TTED BY APPELLANT THAT ASSESSEE BANK IS PERMITTED TO INVEST IN GOVERN MENT SECURITIES/BONDS. THE RESERVE BANK OF INDIA (RBI) H AS ASKED THE BANKS TO CLASSIFY THE INVESTMENTS INTO THREE CATEGO RIES. (1) HELD TO MATURITY (2) HELD FOR TRADING (3) AVAILABLE FOR SALE IT WAS FURTHER SUBMITTED THAT AS PER THE GUIDELINES ISSUED BY RBI, INVESTMENTS CLASSIFIED UNDER THE HELD TO MATURITY C ATEGORY, THEY HAVE TO BE SHOWN AT COST OF ACQUISITION UNLESS SUCH COST IS MORE THAN FACE VALUE AND PREMIUM IS PAID ON ACQUIRING THE SECURITI ES. THIS PREMIUM IS REQUIRED TO BE AMORTIZED OVER THE PERIOD REMAINI NG TILL THE MATURITY. THE ASSESSEE BANK HAS ALLOWED THE GUIDELINES OF RBI AND ACCORDINGLY HAS PAID THE PREMIUM AMOUNT AND IN MATURITY PERIOD OF GOVERNMENT SECURITIES WRITTEN OFF THE PROPORTIONATE AM OUNT. IN P&L ACCOUNT. IT WAS ALSO POINTED OUT THAT WHENEVER THE GOVERNMENT SECURITIES ARE SOLD, THE PROFIT EARNED ON SUCH SALE IS CREDITED I.T.A NO.2791/AHD/2012 A.Y. 2009-10 PAGE NO DCIT VS. PRIME CO-OPERATIVE BANK LTD. 4 TO THE P&L ACCOUNT AND OFFERED FOR TAXATION, IT, TH EREFORE, FOLLOWS THAT THE EXTRA AMOUNT (PREMIUM) PAID BY THE ASSESSEE AUTOMATICALLY BECOMES BUSINESS EXPENDITURE ALLOW ABLE AS DEDUCTION. IN SUPPORT OF ITS SUBMISSIONS, ASSE SSEE RELIED ON THE DECISION OF MUMBAI BENCH TRIBUNAL IN THE CASE OF TH E BANK OF RAJASTHAN LTD. ITA NO. 3238/MUM/20L0 WHEREIN REFERE NCE TO INSTRUCTION NO. 17 OF 26.11.2008 ISSUED BY CBDT FOR ASSESSMENT OF BANKS AND PARA (VII) IS REPRODUCED AS UNDER. 'AS PER RBI GUIDELINES DATED 16 TH OCTOBER, 2000, THE INVESTMENT PORTFOLIO OF THE BANKS IS REQUIRED TO BE CLASSIFIED UNDER THREE CATEGORIES VIZ HELD TO MATURITY (HTM), HELD FOR TRA DING (HFT) AND AVERTABLE FOR SAFE (AFS). INVESTMENTS CLASSIFI ED UNDER HTM CATEGORY NEED NOT BE MARKED TO MARKET AND ARE C ARRIED AT ACQUISITION COST UNLESS THESE ARE MORE THAN THE FAC E VALUE, IN WHICH CASE THE PREMIUM SHOULD BE AMORTIZED OVER THE PERIOD REMAINING. IN THE CASE OF HFT AND AFS SECURITIES F ORMING STOCK IN TRADE OF THE BANK, THE DEPRECIATION/APPREC IATION IS TO BE AGGREGATED SCRIP WISE AND ONLY NET DEPRECIATION, IF ANY, IS REQUIRED TO BE PROVIDED FOR IN THE ACCOUNTS. THE LA TEST GUIDELINES OF THE RBI MAY BE REFERRED TO FOR ALLOWI NG ANY SUCH CLAIMS.' IN ADDITION TO THE ABOVE CBDT INSTRUCTION, APPELLAN T RELIED ON THE DECISIONS OF 'ITAT BANGALORE IN THE CASE OF NATIONA L CO-OPERATIVE BANK, BANGALORE ITA NOS. 1090(BANG.)/2010 & 7(BANG. )/20LL FOR ASSESSMENT YEARS 2007-08 AND 2008-09 AND ALSO DECIS ION OF ITAT COCHIN BENCH IN THE CASE OF CATHOLIC SYRIAN BANK LT D. VS. ACIT REPORTED IN 33 SOT 553 (2010), WHEREIN IT HAS BEEN HELD BY HON'BLE TRIBUNALS THAT IN VIEW OF THE CBDT INSTRUCTION DATE D 26.11.2008 DEDUCTION OF AMORTIZED EXPENDITURE ON PREMIUM ON GO VERNMENT SECURITIES IS AN ALLOWABLE EXPENDITURE. IN VIEW OF THESE FACTS AND LEGAL POSITION, APPELLANT PLEADED TO ALLOW THE APPEAL. 6. AFTER TAKING INTO CONSIDERATION THE SUBMISSION O F THE ASSESSEE, LD. CIT(A) DELETED THIS ADDITION BY OBSERVING AS UNDER: - 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND LE GAL POSITION ON THE ISSUE. THE ALLOWABILITY OF AMORTIZED EXPENSES ON PR EMIUM ON GOVERNMENT SECURITIES HAS BEEN PROVIDED U/S.36(1)(V II) OF THE ACT AND I.T.A NO.2791/AHD/2012 A.Y. 2009-10 PAGE NO DCIT VS. PRIME CO-OPERATIVE BANK LTD. 5 THESE PROVISIONS HAVE BEEN CLARIFIED AND EXPLAINED BY CBDT, NEW DELHT VIDE INSTRUCTION NO.17 2008 DATED 26.11.2008. AS PER THIS CLARIFICATION, INVESTMENTS OF BANKS CLASSIFIED UNDE R HTM (HELD TO MATURITY) CATEGORY NEED NOT BE MARKED TO MARKET AND ARE CARRIED AT ACQUISITION COST UNLESS THESE ARE MORE THAN THE FAC E VALUE, IN WHICH CASE, THE PREMIUM SHOULD BE AMORTIZED OVER THE PERI OD REMAINING TO MATURITY. ON THE BASIS OF THIS INSTRUCTION, DIFFERE NT TRIBUNALS, MENTIONED ABOVE BY ASSESSES, HAVE ALLOWED THE AMORT IZED EXPENDITURE. THE AO HAS IGNORED THE PROVISIONS OF INSTRUCTION WHICH IS BINDING ON HIM WHILE DISCUSSING THE ISSUE AND DI SALLOWING THE EXPENDITURE. SINCE, THE INSTRUCTIONS AND CIRCULARS ARE BINDING IN NATURE ON AO'S AND DIFFERENT TRIBUNALS HAVE GIVEN D ECISIONS AGAINST THE REVENUE, RESPECTFULLY FOLLOWING THE SAME, GROUN D OF APPEAL OF ASSESSEE IS ALLOWED AND ADDITION MADE BY AO IS DELE TED. SINCE LD. CIT(A) HAS GIVEN RELIEF TO THE ASSESSEE B Y PLACING RELIANCE ON VARIOUS DECISIONS OF TRIBUNALS ON THE ISSUE IN VIEW OF CBDT INSTRUCTION DATED 26-11-2008, WE FEEL NO NEED TO INTERFERE WITH THE ORDER PASSED BY HIM AND THE SAME IS HEREBY UPHELD. THIS GROUND OF THE REVENUE IS DISMISSED. 7. SECOND GROUND RELATES TO DELETION OF ADDITION OF RS. 50,09,000/- MADE ON ACCOUNT OF DISALLOWANCE OF SPECIAL LONG TERM FIN ANCE FUND EXPENSES CLAIMED U/S 36(1)(VIII) OF THE ACT. 8. BRIEF FACTS OF THE CASE ARE THAT DURING THE ASSE SSMENT PROCEEDINGS, IT WAS OBSERVED BY AO THAT THE ASSESSEE HAS CLAIMED SP ECIAL LONG TERM FINANCE FUND EXPENSES OF RS.50,09,000/- U/S.36(1)(V III) OF THE ACT. HOWEVER, IT WAS FURTHER OBSERVED THAT THE ASSESSEE DID NOT PROVE THAT WHATEVER AMOUNT SET ASIDE BY IT, CONSTITUTES 20% OF THE PROFITS DERIVED FROM THE ELIGIBLE BUSINESS COMPUTED UNDER THE HEAD ''PRO FIT AND GAINS OF BUSINESS AND PROFESSION' (BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE) CARRIED TO SUCH RESERVE ACCOUNT. IN VIEW OF THIS, AO DISALLOWE D THE SAID EXPENSES. I.T.A NO.2791/AHD/2012 A.Y. 2009-10 PAGE NO DCIT VS. PRIME CO-OPERATIVE BANK LTD. 6 9. BEFORE LD. CIT(A), ASSESSEES SUBMISSION WAS AS FOLLOW:- 3.2 DURING THE APPELLATE PROCEEDINGS, IT WAS EXPLA INED BY APPELLANT THAT DURING THE ASSESSMENT PROCEEDINGS COMPLETE DET AILS OF WORKING OUT THE 20% OF PROFITS DERIVED, WERE FURNISHED TO T HE AO BUT THE SAME WERE IGNORED BY HIM. THE SAME HAS BEEN REITERATED B Y APPELLANT AS UNDER: 'AS REGARDS GROUND NO. II ABOUT DEDUCTION U/S. 36(1 )(VIII) FOR RS.50,09,000/-, THE DETAILS HAVE BEEN FURNISHED AS PER PARA (2) OF LETTER DATED 06.08.2011 TO THE ASSESSING OFFICER IN COURSE OF ASSESSMENT PROCEEDINGS. THIS IS REPRODUCED. TOTAL INTEREST INCOME ON ADVANCES 1640.11 INTEREST INCOME ON HOUSING (86.41 TECS) AND SSI TERM LOAN (530.52) TECS 616.93 BANKING OPERATION INCOME 665.79 SO TAXABLE INCOME FROM HOUSING LOAN AND SSI LONG TERM LOAN IS 250.44 20% SPECIAL PROVISION ON ABOVE 50.09 BRANCH WISE PARTICULARS OF INTEREST ON HOUSING AND MACHINERY LOAN ARE FURNISHED.' 10. AFTER TAKING INTO CONSIDERATION THE SUBMISSION OF THE ASSESSEE, LD. CIT(A) DELETED THIS ADDITION BY OBSERVING AS UNDER: - 3.3 I HAVE CONSIDERED THE FACTS ON THE ISSUE, BASI S OF ADDITION MADE BY AO AND SUBMISSIONS OF APPELLANT. THE AO HAS WR ONGLY CONCLUDED THAT THE APPELLANT DID NOT PROVE THAT WHATEVER THE AMOUNT SET ASIDE BY IT, CONSTITUTES 20% OF PROFITS DERIVED FROM THE ELIGIB LE BUSINESS. ALL THE RELEVANT DETAILS ARE PRESENT IN THE P&L ACCOUNT ONL Y AND AO HIMSELF COULD HAVE COMPUTED THE 20% OF PROFIT DERIVED FROM ELIGIBLE BUSINESS. THE APPELLANT HAS AGAIN FURNISHED ALL THE REQUIRED DETAILS AND WORKED OUT THE PROFIT AMOUNTING TO 250.44 LACS, 20% OF PRO FIT THEREOF IS RS.50.09 I.T.A NO.2791/AHD/2012 A.Y. 2009-10 PAGE NO DCIT VS. PRIME CO-OPERATIVE BANK LTD. 7 LACS. AMOUNT CREDITED TO SPECIAL RESERVE IS RS.50,0 9,000/- WHICH IS 20% OF THE INCOME FROM HOUSING LOANS AND SSI LONG TERM LOANS. THIS WORKING HAS NOT BEEN CHALLENGE BY AO. IT IS THEREFORE HELD THAT THE APPELLANT HAS CLAIMED EXPENSES UNDER THIS HEAD AS PER PROVISIONS OF SECTION 36(1)(VIII) WHICH ARE ALLOWABLE TO HIM. IN THE RESULT, APPEAL O N THIS GROUND IS ALLOWED. SINCE THE ABOVE FINDING OF THE LD. CIT(A) REMAINED UNCONTROVERTED AT THE TIME OF HEARING BEFORE US, WE FEEL NO NEED TO INTER FERE WITH THE ORDER PASSED BY HIM AND THE SAME IS HEREBY UPHELD. THIS GROUND OF THE REVENUE IS ALSO DISMISSED. 11. THIRD GROUND RELATES TO DELETION OF ADDITION OF RS. 53,89,699/- MADE ON ACCOUNT OF RECLASSIFICATION OF CAPITAL GAINS AS BUSINESS INCOME. 12. BRIEF FACTS OF THE CASE ARE THAT DURING THE ASS ESSMENT PROCEEDINGS, IT WAS OBSERVED BY AO THAT THE ASSESSEE HAS CLAIMED LO NG TERM CAPITAL GAINS AND SHORT TERM CAPITAL GAINS OF RS.41,16,375/- AND RS.12,73,324/- RESPECTIVELY ON THE SALE OF SECURITIES. THE AO PROP OSED TO ASSESS THE CAPITAL GAINS AS BUSINESS INCOME. IN RESPONSE TO SHOW CAUSE NOTICE, ASSESSEE BANK EXPLAINED THAT AS THE OTHER BANKS, ASSESSEE BANK AL SO MAINTAINS STATUTORY LIQUIDITY RATIO (SLR) TO THE TUNE OF 25% OF TERM AN D DEMAND LIABILITIES. THIS SLR RATIO HAS TO BE MAINTAINED OUT OF THE FUND S AVAILABLE TO THE BANK AND IN ORDER TO MAINTAIN THE SLR, BANK HAS TO INVES T ITS FUNDS IN VARIOUS INVESTMENTS. THESE INVESTMENTS ARE STRICTLY FOR BAN KING PURPOSES AND BANK CANNOT USE IT FOR ANY OTHER PURPOSES. HOWEVER, THE EXCESS FUNDS AVAILABLE WITH BANK CAN BE INVESTED IN ANY OTHER WAY WHICH TH E BANK WANTS. THESE INVESTMENTS ARE CALLED NON SLR INVESTMENTS. IN THE CASE OF ASSESSEE, IT HAS INVESTED SUCH SURPLUS FUNDS IN NABARD BONDS AND EAR NED LONG TERM I.T.A NO.2791/AHD/2012 A.Y. 2009-10 PAGE NO DCIT VS. PRIME CO-OPERATIVE BANK LTD. 8 CAPITAL GAINS OF RS.41,16,375/-. SIMILARLY, SHORT TERM CAPITAL GAINS OF RS,12,73,323/- HAS BEEN EARNED ON INVESTMENT IN OT HER DIFFERENT SECURITIES. SINCE, THESE INVESTMENTS ARE NON SLR IN VESTMENTS THEREFORE THE INCOME EARNED OUT OF IT HAS NO RELATION WITH BANKIN G BUSINESS THEREFORE THEY ARE SHOWN UNDER THE HEAD CAPITAL GAINS. HOWEVER, THE EXPLANATION OF ASSESSEE WAS NOT ACCEPTED BY AO ON THE GROUND THAT HOLDING OF SECURITIES CANNOT BE PRESUMED TO BE NOT A PART OF ITS BUSINESS , NOR CAN IT BE SAID THAT THE SECURITIES ARE NOT PART OF STOCK IN TRADE. 13. BEFORE LD. CIT(A), ASSESSEES SUBMISSION WAS AS FOLLOWS:- 4.2 DURING THE APPELLATE PROCEEDINGS, IT HAS BEEN SUBMITTED BY APPELLANT THAT THE BANK HAS MAINTAINED ITS INVESTME NTS IN SLR SECURITIES AND NON SLR SECURITIES. THE SLR SECURITI ES HAVE BEEN INVESTED AS PER THE GUIDELINES OF RBI AND CANNOT BE USED FOR ANY OTHER PURPOSES. SINCE, MAINTAINING THE RATIO SECURITIES I S NECESSARY FOR RUNNING THE BUSINESS OF BANK, INCOME OUT OF THESE S LR SECURITIES HAVE BEEN SHOWN AS INCOME FROM BUSINESS. BUT NON VESTMEN TS ARE NOT STATUTORILY REQUIRED TO BE MADE BUT THE BANK MAKES WHEN THE FUNDS ARE IN EXCESS OF ITS NORMAL STATUTORY REQUIREMENT. THER EFORE, IN THAT VIEW OF THE MATTER, THE GAIN ARISING WILL HAVE TO BE TRE ATED CAPITAL GAIN. AFTER EXCLUDING STATUTORY SLR REQUIREMENTS, BANK IS FREE TO ITS FUNDS AS IT CHOOSES TO MAXIMIZE RETURNS. ANY PRUDENT BANK WOULD NOT GIVE THIS ENTIRE AMOUNT AS LOANS AND ADVANCES AND IT WOU LD LIKE TO KEEP SUFFER SEPARATELY AND KEPT OUTSIDE IN SAFE SECURITI ES. THESE ARE NOTHING BUT INVESTMENTS AND LIKE ANY OTHER COMMERCIAL ENTIT Y AND THE TREATMENT TO BE GIVEN WILL HAVE TO BE SAME THAT IS WHEN INCOME IS EARNED ON TRANSFER OF SUCH ASSETS. WHAT IS EARNED I S CAPITAL GAINS AND NOT BUSINESS INCOME. SO FAR AS STOCK IN TRADE IS CO NCERNED, THESE ARISE ON ACCOUNT OF FREQUENT ROLLING OF SECURITIES KEEPIN G A HAWK'S EYE ON DAILY MOVEMENT OF THE SECURITY AS IS DONE BY A PERS ON DOING BUSINESS OF SHARES AND SECURITIES. THAT IS NO SO. ONCE IT IS HELD THAT THESE SECURITIES ARE HELD AS INVESTMENT, THERE IS NO OPTI ON BUT TO TREAT THEM AS SUCH. IN VIEW OF THESE SUBMISSIONS, APPELLANT PL EADED THAT THE INCOME EARNED AS CAPITAL GAIN OUGHT NOT TO BE TREAT ED AS BUSINESS INCOME. I.T.A NO.2791/AHD/2012 A.Y. 2009-10 PAGE NO DCIT VS. PRIME CO-OPERATIVE BANK LTD. 9 14. AFTER TAKING INTO CONSIDERATION THE SUBMISSION OF THE ASSESSEE, LD. CIT(A) DELETED THIS ADDITION BY OBSERVING AS UNDER: - 4.3 I HAVE CONSIDERED THE FACTS ON THE ISSUE, CONC LUSION DRAWN BY AO AND SUBMISSIONS MADE BY APPELLANT. FROM THE FACT S NARRATED BY AO AS WELL AS APPELLANT, IT TRANSPIRES THAT ASSESSE E BANK MAINTAINS ITS INVESTMENTS INTO SLR SECURITIES AND NON-SLR SECURIT IES. MAINTAINING STATUTORY LIQUIDITY RATIO TO THE TUNE OF 25% OF TER M AND DEMAND LIABILITIES IS STATUTORY REQUIREMENT OF BANKS WITHO UT WHICH THEY CANNOT BE PERMITTED BY RBI TO RUN THEIR BUSINESS. S INCE, THESE SLR SECURITIES ARE REQUIREMENT OF THE BUSINESS OF BANKS , ANY INCOME EARNED OUT OF IT HAS TO BE TREATED AS BUSINESS INCO ME. IN THE CASE OF ASSESSEE, IT HAS RIGHTLY DONE SO. SO FAR AS THE NON -SLR SECURITIES CONCERNED BANK IS FREE TO UTILIZE THEM AS PER THEIR REQUIREMENTS AND MAKING OPPORTUNITIES OR FOR THE PURPOSE OF SAFE INV ESTMENTS. FOR THESE NON-SLR SECURITIES, THERE ARE NO BINDING GUIDELINES FOR THEIR UTILIZATIONS. IN CASE OF ASSESSEE BANK, IT HAS OPTE D TO CHOOSE THE SAFE INVESTMENTS IN SECURITIES AND EARNING GAIN ON APPRE CIATION IN VALUE OF PSU BONDS. THESE CITIES HAVE BEEN HELD BY APPELLANT AS CAPITAL ASSETS NOT AS STOCK-IN-TRADE AS CONCLUDED BY AO. IN THE EA RLIER YEARS ALSO, IN THE SIMILAR FASHION, APPELLANT HAS BEEN INVESTING I N THE SECURITIES AS CAPITAL ASSETS AND SHOWN AS LONG TERM AS WELL AS SH ORT TERM CAPITAL GAINS ALSO ON PURCHASE AND SALE OF BONDS AND MUTUAL FUNDS, WHICH HAVE BEEN ACCEPTED BY AO. THE CONCLUSION DRAWN BY AO THAT ANY INCOME ARISING FROM NON-SLR SECURITIES IT BE HELD T O BE CLOSELY CONNECTED WITH THE BANKING BUSINESS SO AS TO CONSTI TUTE ITS BUSINESS INCOME THEREFORE PROFIT EARNED BY ASSESSEE ON SALE OF SECURITIES HELD UNDER OBLIGATION OF RBI GUIDELINES OR OTHERWISE IS TO BE CONSIDERED AS BUSINESS INCOME INSTEAD OF CAPITAL GAINS, IS MISPLA CED. THERE IS BASIC DIFFERENCE BETWEEN SLR AND NON-SLR SECURITIES. SLR SECURITIES ARE TO BE MAINTAINED BY BANK IN THE RATIO PRESCRIBED BY R. B.I TO SAFEGUARD THE MONEY OF CUSTOMERS AND ALSO TO RUN ITS BUSINESS . WITHOUT MAINTAINING THIS RATIO, CREDIBILITY OF BANKS WILL B ECOME VULNERABLE. BUT, A NON-SLR SECURITY, WHICH IS PURCHASED OUT OF SURPLUS FUNDS , BANKS ARE FREE TO INVEST OR DO BUSINESS AS PER THEI R DISCRETION. THEY CAN INVEST IT AS CAPITAL ASSET OR EARN PROFIT BY DO ING BUSINESS. THE EARNING OUT OF THESE SECURITIES HAS TO BE CLASSIFIE D ON THE BASIS THAT THE TREATMENT BANK HAS GIVEN TO THEM IN THEIR BOOKS OF ACCOUNT. HERE, IN THE CASE OF APPELLANT, IT HAS TREATED T HESE NON-SLR SECURITIES I.T.A NO.2791/AHD/2012 A.Y. 2009-10 PAGE NO DCIT VS. PRIME CO-OPERATIVE BANK LTD. 10 AS INVESTMENTS THEREFORE THE PROFIT EARNED OUT OF I T HAS TO BE TREATED AS LONG TERM OR SHORT TERM CAPITAL GAINS DEPENDING ON THE PERIOD OF HOLDING. SINCE, APPELLANT HAS SHOWN LONG TERM CAPIT AL GAINS ON THOSE SECURITIES WHICH HAVE BEEN HELD FOR MORE THAN 12 MO NTHS, THEY HAVE RIGHTLY BEEN SHOWN AS SHORT CAPITAL GAIN. SIMILARL Y, .SECURITIES HELD FOR LESS THAN 12 MONTHS ARE ALSO RIGHTLY SHOWN AS S HORT TERM CAPITAL GAIN. IN VIEW OF THIS DISCUSSION, THE GROUND OF APP EAL IS ALLOWED. 15. AT THE TIME OF HEARING LD. DR SUBMITTED THAT LD . CIT(A) WHILE GIVING RELIEF TO THE ASSESSEE HAS NOT DISCUSSED ANYTHING A BOUT THE SUPREME COURT DECISION IN THE CASE OF SARDAR INDRA SINGH & SONS LTD VS. CIT CA NO. 40 OF 1952 DATED 23 SEPTEMBER, 1953 RELIED BY AO WHILE MA KING THIS ADDITION THEREFORE THE MATTER SHOULD BE SENT BACK TO THE FIL E OF AO FOR FRESH ADJUDICATION IN THE LIGHT OF SUPREME COURT DECISION IN THE CASE OF SARDAR INDRA SINGH(SUPRA). LEARNED COUNSEL OF THE ASSESS EE ON THE OTHER HAND RELIEF ON THE ORDER OF LD. CIT(A) AND TRIED TO DISTINGUISH THE FACTS OF THE CASE FROM THE FACTS OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF SARDAR INDRA SINGH(SUPRA). 16. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD, WE FIND THAT AO WHILE MAKING ADDITION OF RS. 53,89,699/- BY TREA TING SHORT TERM AND LONG TERM CAPITAL GAIN SHOWN BY THE ASSESSEE AS BUSINESS INCOME OF THE ASSESSEE HAD PLACED RELIANCE ON THE DECISION OF SUPREME COUR T IN THE CASE OF SARDAR INDRA SINGH(SUPRA) BUT THE LD. CIT(A) HAS TOTALLY I GNORED THIS FACT WHILE GIVING RELIEF TO THE ASSESSEE. THOUGH LEARNED COUN SEL OF THE ASSESSEE TRIED TO DISTINGUISH THE FACTS OF ASSESSEES CASE WITH THAT OF SUPREME COURT DECISION IN THE CASE OF SARDAR INDRA SINGH(SURPA), WE ARE O F THE CONSIDERED OPINION THAT THIS EXERCISE SHOULD BE DONE BY HIM BEFORE LD. CIT(A) AS WE ARE INCLINED TO RESTORE THE MATTER BACK TO THE FILE OF LD. CIT(A) FOR FRESH ADJUDICATION IN THE LIGHT OF SUPREME COURT DECISION IN THE CASE OF SARDAR I.T.A NO.2791/AHD/2012 A.Y. 2009-10 PAGE NO DCIT VS. PRIME CO-OPERATIVE BANK LTD. 11 INDRA SINGH(SUPRA). THIS GROUND OF REVENUE IS ALLO WED FOR STATISTICAL PURPOSE. 17. IN THE RESULT REVENUES APPEAL IS PARTLY ALLOWE D FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE SD/- SD/- (T.R. MEENA) ( D.K. TYAGI) ACCOUNTANT MEMBER J UDICIAL MEMBER AHMEDABAD : DATED 23/08/2013 AK / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,