Assistant Commissioner of Income tax, Aurangabad V. M/s. Vaidynath Urban Co-op. Bank Ltd, Beed

ITA 2846/PUN/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9144 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 3 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 15-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANIL KUMAR CHAWARE
• Keywords: Depreciation; Business expenditure; Period of limitation; Time period of passing order; Condonation of delay; Revised return; Revenue expenditure

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , . , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI D. KARUNAKAR A RAO, AM . / ITA NOS.125 & 2846/PUN/2016 / ASSESSMENT YEARS : 2011-12 & 2012-13 ACIT, CIRCLE-3, AURANGABAD . /APPELLANT VS. VAIDYANATH URBAN COOPERATIVE BANK LTD., HEAD OFFICE, PARLI VAIJNATH, DIST. BEED 431 515 PAN : AAAAV0305N . / RESPONDENT / APPELLANT BY : SHRI ANIL KUMAR CHAWARE / RESPONDENT BY : SHRI S.N. PURANIK / DATE OF HEARING : 20.03.2018 / DATE OF PRONOUNCEMENT: 23.03.2018 / ORDER PER D. KARUNAKARA RAO, AM : THERE ARE 2 APPEALS FILED BY THE REVENUE UNDER CONSIDERA TION. THEY ARE FILED AGAINST THE ORDERS OF CIT(A)-2, AURANGABAD DATED 05-11-2015 AND 21-10-2016 FOR THE A.YRS 2011-12 AND 2012-13 RESPECTIV ELY. THE GROUNDS RAISED BY THE REVENUE ARE IDENTICAL AND THEREFORE, THEY A RE CLUBBED TOGETHER AND ADJUDICATED IN THIS COMPOSITE ORDER. WE SHALL FIRST TAKE UP THE APPEAL FOR A.Y. 2011-12. ITA NO.125/PUN/2016 A.Y. 2011-12 2. REQUEST FOR CONDONATION OF DELAY OF 17 DAYS : AT THE OUTSET, IN CONNECTION WITH THE DELAY OF 17 DAYS IN FILING THE APPEAL, LD. DR FOR THE REVENUE REFERRED TO THE LETTER ISSUED BY ACIT, CIRCLE-3, A URANGABAD DATED 15-03-2018 INTIMATING THAT THERE IS CLERICAL MISTAKE IN MENT IONING THE DATE 2 OF RECEIPT OF ORDER AS 09-11-2015 INSTEAD OF 30-11-2015. OTHERWISE, THE LIMITATION PERIOD EXPIRES ON 28-1-2016 WHEREAS THE APPEAL HAS BEEN FILED ON 25-01-2016. THEREFORE, LD. DR SUBMITTED THAT THE APPEA L HAS BEEN FILED IN TIME. 3. AFTER HEARING THE PARTIES AND CONSIDERING THE REASONA BLE CAUSE OF MENTIONING THE DATE OF RECEIPT OF ORDER, WE ADMIT THE APPE AL FILED BY THE REVENUE FOR ADJUDICATION. 4. GROUND RAISED BY THE REVENUE READS AS UNDER : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.CIT(A)-2, AURANGABAD ERRED IN DELETING THE ADDITION MADE BY DISALLOWING THE DEPRECIATION AND LOSSES ON ACCOUNT OF MERGER OF SIN HAGAD CO-OP. BANK SANJIVANI COOPERATIVE BANK AMOUNTING TO RS.66,03,00 0/-. 5. BRIEFLY STATED RELEVANT FACTS ARE THAT THE ASSESSEE IS A COOPERATIVE SOCIETY AND ENGAGED IN THE BANKING ACTIVITIES. ASSESSEE FILED THE RETURN OF INCOME ON 30-09-2011 DECLARING TOTAL INCOME OF RS.6.35 CROR ES (ROUNDED OFF). SUBSEQUENTLY, THE ASSESSEE FILED REVISED RETURN ON 31 -03-2013 DECLARING TOTAL INCOME OF RS.7.05 CRORES (ROUNDED OFF). AT THE END OF THE ASSESSMENT PROCEEDINGS U/S.143(3) OF THE ACT, THE ASSESSE D INCOME IS DETERMINED AT RS.11,81,70,030/-. AO MADE ADDITION OF RS.4,76,32,334/- ON ACCOUNT OF INTEREST ACCRUED ON NPA AS PER THE DISCUSSIO N GIVEN IN PARA NO.4 OF THE ASSESSMENT ORDER. ON THIS ISSUE, THE CIT(A) GRANTE D RELIEF TO THE ASSESSEE RELYING ON THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. DEOGIRI NAGARI SAHAKARI BANK LIMITED, AURANGABAD VIDE ITA NO.53/2014 AND OTHERS. REVENUE HAS NOT RAISED ANY GRO UND ON THIS RELIEF GRANTED BY THE CIT(A). 6. DURING THE ASSESSMENT PROCEEDINGS, ANOTHER ISSUE CAM E UP FOR SCRUTINY OF THE AO RELATES TO CLAIM OF DEDUCTION OF EXPENDIT URE INCURRED ON ACCOUNT OF MERGER OF TWO BANKS. RS.16.17,000/- IS THE EX PENDITURE 3 INCURRED IN CONNECTION WITH MERGER OF SINHGAD SAHAKARI BANK LTD. SIMILARLY, RS.49,86,000/- IS THE EXPENDITURE INCURRED IN CONNE CTION WITH MERGER OF SANJIVANI URBAN CO.OP BANK. THE TOTAL EXPENDITURE ON MERGER OF BOTH THE BANKS WORKS OUT TO RS.66,03,000/- BEING AN AM OUNT OF DEPRECIATION ON INTANGIBLE ASSETS AND GOODWILL ACQUIRED BY T HE ASSESSEE IN THE SAID MERGER PROCESS OF TWO BANKS. ALTHOUGH THE CLAIM OF DEDUCTION WAS MADE IN THE ORIGINAL RETURN OF INCOME THE SAME WAS WITHDR AWN WHILE FILING THE REVISED RETURN OF INCOME. HOWEVER, DURING THE ASSES SMENT PROCEEDINGS, ASSESSEE REPEATED THE SAID CLAIM OF DEDUCTION AND SUBMITT ED FOR ALLOWING OF THE SAME. AO DID NOT ALLOW THIS CLAIM AND HE RELIED ON HIS D ECISION FOR THE A.Y. 2010-11 IN THE ASSESSEES OWN CASE. IT IS THE CAS E OF THE AO THAT THE LOSS OF THE SAID BANKS WERE NOT ELIGIBLE SINCE THEY DID NOT FILE THEIR RETURN OF INCOME IN TIME. SIMILAR CLAIM WAS MADE IN EARLIER ASSESSMENT Y EAR A.Y. 2009-10 ALSO AND THUS THE DEPARTMENT IS CONSISTENTLY REJECTING THE CLAIM OF SUCH LOSSES. EVENTUALLY, THE LOSS OF RS.66,3,000/- WAS NOT ALLOWED. 7. DURING THE FIRST APPELLATE PROCEEDINGS, ON THIS ISSUE OF DISALLOWANCE OF CLAIM OF RS.66,03,000/- THE CIT(A) GRANTED RELIEF RELYING ON THE DECISION OF PUNE BENCH OF THE TRIBUNAL IN THE CASE OF THE COSMOS CO.OP BANK LTD. VS. DCIT ITA NOS. 460 & 461/PN/2012 DATED 23-01-2014, DATED 23-01- 2014 FOR THE A.YRS. 2007-08 AND 2008-09. IT IS THE DECIS ION OF THE TRIBUNAL THAT THE CLAIM OF THE ASSESSEE IN RESPECT OF EXCESS OF LIAB ILITIES OVER THE ASSETS OF MERGED BANKS CONSTITUTES AN ALLOWABLE DEDUCTION . THE CIT(A) EXTRACTED THE RELEVANT PARA NO.14 AND 15 OF THE SAID ORDER OF TRIBU NAL AS PER THE DISCUSSION GIVEN IN PARA NO.8 TO 10 OF HIS ORDER. 8. AGGRIEVED WITH THE ORDER OF CIT(A) THE REVENUE IS IN AP PEAL BEFORE US WITH THE GROUND EXTRACTED ABOVE. 9. LD. DR FOR THE REVENUE RELIED ON THE ORDER OF THE AO DUTIFULLY. 4 10. BEFORE US, LD. COUNSEL FOR THE ASSESSEE BROUGHT OUR A TTENTION TO THE FACTS AND SUBMITTED THAT THE CLAIM OF EXPENDITURE/LOSS OF RS.66,03,000/- WAS RELATABLE TO THE MERGER OF SINHGAD SAHAKARI BANK LTD . AND SANJIVANI URBAN CO.OP BANK. THIS AMOUNT CONSTITUTES EXCESS LIABILIT IES OVER THE ASSETS OF THE BANKS. ON SIMILAR FACTS, THE PUNE BENCH OF THE TRIBUNAL IN T HE CASE OF THE COSMOS CO-OP. BANK LTD. VS. DCIT (SUPRA) HAS ALLOWED THE CLAIM OF THE ASSESSEE. THEREFORE, LD. COUNSEL PRAYED FOR CO NFIRMING THE ORDER OF CIT(A). 11. WE HEARD BOTH THE PARTIES ON THE LIMITED ISSUE RELATI NG TO THE DEPRECIATION AND LOSSES ON ACCOUNT OF MERGER OF SINHGAD CO-OP BANK AND SANJIVANI CO-OP. BANK. WE HAVE ALSO PERUSED THE ORDERS OF THE REVENUE AND THE DECISIONS RELIED ON BY BOTH THE PARTIES ON THIS IS SUE. WE FIND THE CIT(A) HAS DEALT WITH AN IDENTICAL ISSUE IN THE CASE OF THE C OSMOS CO-OP BANK LTD. VS. DCIT (SUPRA) AND DELETED THE ADDITION. FOR THE SAKE OF COMPLETENESS, WE PROCEED TO EXTRACT THE OPERATIONAL PAR A NOS. 8 TO 10 AS FOLLOWS : 8. GROUND NOS.3 & 4 ARE CONCERNED WITH THE DISALLO WANCE OF RS.66,03,000/- BEING THE DEDUCTION OF EXPENDITURE I NCURRED ON ACCOUNT OF MERGER OF SINHGAD BANK (RS.16,17,000/-) AND SANJIVA NI URBAN CO-OP. BANK (RS.49,86,000/-) BEING THE AMOUNT OF DEPRECIATION O N INTANGIBLE ASSET AND GOODWILL ACQUIRED BY MERGER OF THE ABOVE TWO BANKS WITH THE ASSESSEE BANK. ALTERNATIVELY, THE ASSESSEE HAS CLAIMED THAT THE AB OVE AMOUNT MAY BE ALLOWED AS DEFERRED REVENUE EXPENDITURE BEING 1/5 TH OF THE TOTAL EXPENDITURE ON ACCOUNT OF EXCESS OF LIABILITY OVER ASSETS ON ME RGER OF THE ABOVE MENTIONED TWO BANK WITH THE ASSESSEE BANK. IT WAS PRAYED THA T THE SAME MAY BE ALLOWED AS A REGULAR BANKING BUSINESS EXPENDITURE, WHICH IS ALLOWABLE UNDER THE INCOME TAX ACT. 9. DURING THE F.Y.2007-08, THE ASSESSEE HAS TAKEN O VER SINGHAD SAHAKARI BANK LIMITED, PATHRI. THE VALUE OF ALL BUS INESS LIABILITIES OVER THE ASSETS OF THIS BANK WAS RS.80,80,936/-. SIMILARLY IN THE F.Y. 2008-09, THE ASSESSEE BANK HAD TAKEN OVER SANJIVANI URBAN CO-OP. BANK LIMITED. THE VALUE OF LIABILITY OVER ASSETS WAS RS.2,49,30,268/- . BOTH THE MERGERS WERE APPROVED BY THE RBI AS WELL AS CO-OPERATIVE DEPARTM ENT OF MAHARASHTRA GOVERNMENT. THE ASSESSEE SUBMITTED THAT THE DIFFER ENCE PAID BY THE ASSESSEE BEING THE EXCESS OF LIABILITIES OVER ASSET S REPRESENTS PAYMENT OF ACQUISITION OF COMMERCIAL RIGHTS OF SIMILAR NATURE WHICH IS LIABLE TO BE CONSTRUED AS AN INTANGIBLE ASSETS CONTEMPLATED U/S. 32(1)(II) OF THE ACT. THE ASSESSEE ALSO DREW MY ATTENTION TO THE DECISION OF THE HONBLE ITAT PUNE BENCH, PUNE, IN THE CASE OF COSMOS CO-OP. BANK LTD. , IN ITA NOS. 460 & 461/PN/2012 FOR THE A.Y. 2007-08 AND 2008-09, WHERE IN THE CLAIM OF THE ASSESSEE IN RESPECT OF EXCESS OF LIABILITIES OVER A SSETS OF THE MERGED BANKS WAS ALLOWED. THE ASSESSEE HAD CLAIMED THAT THIS EX CESS AMOUNT PAID 5 REPRESENTED ACQUISITION OF AN INTANGIBLE ASSETS AS CONTEMPLATED UNDER SECTION 32(1)(II) OF THE ACT, ON WHICH DEPRECIATION WOULD B E ALLOWABLE. THIS CLAIM WAS ALLOWED BY THE HONBLE TRIBUNAL IN THE FOLLOWING WO RDS : 14. IN THE AFORESAID LIGHT, FACTUALLY SPEAKING, IN THE PRESENT CASE, IT CAN BE SEEN THAT THE ASSESSEE BY ACQUIRING THE FOUR CO- OPERATIVE BANKS HAS ACQUIRED EXISTING RUNNING BANKING BUSINESSES COMPLE TE WITH THE REQUIRED STATUTORY LICENSES, OPERATIONAL BANK BRANC HES, CUSTOMERS BASE AS ALSO THE EMPLOYEES, BESIDES OTHER ASSETS. THE PL EA OF THE REVENUE IS THAT THE DIFFERENCE PAID BY A.YS. 2007-08 & 2008-0 9 THE ASSESSEE IN EXCESS OF LIABILITIES OVER THE REALIZABLE VALUES OF THE ASSETS TAKEN-OVER DOES NOT REPRESENT PAYMENT FOR ANY BUSINESS OR COMM ERCIAL RIGHTS IS UNTENABLE. IN-FACT, THE IMPUGNED SUM REFLECTS THE A MOUNT PAID BY THE ASSESSEE OVER AND ABOVE THE NET WORTH OF THE BANKS WHICH HAVE BEEN TAKEN- OVER, WHICH OSTENSIBLY IS A REFLECTION OF TH E VALUE OF THE AFORESAID INTANGIBLE ADVANTAGES OBTAINED BY THE ASSESSEE. SUC H ADVANTAGES ARE TO BE CONSIDERED IN THE NATURE OF 'BUSINESS OR COMM ERCIAL RIGHTS OF SIMILAR NATURE' SPECIFIED IN SECTION 32(1)(II) OF T HE ACT, HAVING REGARD TO THE PARITY OF REASONING LAID DOWN BY THE HON'BLE DE LHI HIGH COURT IN THE CASE OF AREVA T & D INDIA LTD. & ORS. (SUPRA). IN T HE CASE OF SKS MICRO FINANCE LTD. (SUPRA), ASSESSEE ACQUIRED A RUNNING B USINESS UNDER A SLUMP SALE AGREEMENT AND THE CONSIDERATION PAID INC LUDED, SUM PAID FOR ACQUIRING THE CLIENT BASE OF THE TRANSFEROR. TH E ACQUISITION OF RIGHTS OVER THE ASSETS OF THE TRANSFEROR, INCLUSIVE OF ITS CUSTOMERS BASE WAS HELD TO BE AN 'INTANGIBLE ASSET' BEING 'BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE' CONTEMPLATED IN SECTION 32(1)(II) O F THE ACT AND WAS HELD ELIGIBLE FOR DEPRECIATION. FOLLOWING THE AFORESAID DISCUSSION, IN THE PRESENT CASE, THE BUSINESS ADVANTAGES DETAILED EARL IER, ARE LIABLE TO BE CONSIDERED AS AN INTANGIBLE ASSET, BEING 'BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE' CONTEMPLATED U/S 32(1)(II) OF TH E ACT. IN OUR CONSIDERED OPINION, THE PLEA OF THE ASSESSEE FOR ALLOWANCE OF DEPRECIATION IN TERMS OF SECTION 32(1)(II) OF THE ACT CANNOT BE FAULTED E ITHER IN LAW OR ON FACTS. 15. THE OTHER OBJECTION OF THE CIT(A) TO THE EFFECT THAT THE AMALGAMATION IN QUESTION IS NOT BY WAY OF PURCHASE BUT IS AN AMA LGAMATION BY MERGER, IN OUR VIEW, IS NO GROUND TO DENY THE CLAIM OF THE ASSESSEE, WHICH IS OTHERWISE WELL- FOUNDED. THEREFORE, HAVING REGARD TO THE AFORESAID DISCUSSION, IN OUR VIEW, ON FACTS AND IN LAW THE ASSESSEE IS ENTITLED FOR DEPRECIATION ON THE IMPUGNED SUM FOR A CQUISITION OF BUSINESS OF COMMERCIAL RIGHTS CONTEMPLATED IN SECTI ON 32(1)(II) OF THE ACT. THUS, ON THE GROUND OF APPEAL NO.3, ASSESSEE SUCCEE DS. 10. RESPECTFULLY FOLLOWING THE ABOVE DECISION GIVEN IN THE CASE OF COSMOS BANK, I HOLD THAT THE ACQUISITION OF RIGHT OVER THE ASSETS OF THE TRANSFEROR INCLUSIVE OF ITS CUSTOMER BASE AND THE REQUIRED STA TUTORY LICENSES OPERATIONAL BRANCHES ETC. IS AN INTANGIBLE ASSET BEING BUSIN ESS OR COMMERCIAL RIGHT OF SIMILAR NATURE CONTEMPLATED IN SECTION 32(1)(II) O F THE ACT, WHICH IS ELIGIBLE FOR DEPRECIATION. HENCE, THE ASSESSEE SUCCEEDS ON THIS GROUND ALSO. SINCE GROUND NO.3 IS DECIDED IN FAVOUR OF THE ASSESSEE, G ROUND NO.4 DOES NOT REQUIRE ADJUDICATION. FROM THE ABOVE, IT IS EVIDENT THAT THE CIT(A) HAS RELIED D UTIFULLY ON THE DECISION OF COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF THE COSMOS CO- OP BANK LTD. VS. DCIT (SUPRA). IN OUR VIEW, THE ORDER OF THE CIT(A) IS FAIR AND REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 6 12. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ITA NO.2846/PUN/2016 A.Y. 2012-13 13. IT WAS BROUGHT TO OUR NOTICE THAT THE SUBMISSIONS M ADE BY THE PARTIES ARE IDENTICAL TO THE ONE ALREADY ADJUDICATED BY US IN CON NECTION WITH APPEAL ITA NO.125/PUN/2016 FOR THE A.Y. 2011-12. 14. AFTER HEARING BOTH THE SIDES, WE FIND, IN THAT APPEAL, THE ISSUE RAISED BY THE REVENUE IS SETTLED ONE IN FAVOUR OF THE ASSESSEE AND DISMISSED THE GROUNDS RAISED BY THE REVENUE. THEREFORE, WE FIND NO RE ASON TO DEVIATE FROM THE SAME FOR THIS ASSESSMENT YEAR ALSO. ACCORDINGLY , WE DISMISS THE GROUNDS RAISED BY THE REVENUE FOR THE A.Y. 2012-13. 15. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. 16. TO SUM UP, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED ON THIS 23 RD DAY OF MARCH, 2018. SD/- SD/- (SUSHMA CHOWLA) (D.KARUNAKAR A RAO ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / PUNE; DATED : 23 RD MARCH, 2018. SATISH / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. ( ) / THE CIT(A)-2, AURANGABAD 4. / THE CIT-2, AURANGABAD 5. , , A / DR A, ITAT, PUNE; 6. / GUARD FILE. / BY ORDER, //TRUE COPY// //TRUE COPY// SENIOR PRI VATE SECRETARY , / ITAT, PUNE