Viramgam Mercantile Co.Op.Bank Ltd., Ahmedabad V. The ACIT.,Circle-6, Ahmedabad

ITA 2900/AHD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80349 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 27-08-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 22-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B KULSHRESTHA
• Assessee Lawyers: S N DIVATIA
• Keywords: Depreciation; Principle of natural justice; Revised return
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL CHATURVEDI , A.M.) I. T. A. NO. 2900 / AHD/ 20 1 1 (A SSESSMENT YEAR: 2008 - 09) VIRAMGAM MERCANTILE CO - OP BANK LTD. MOHANBHAI PATEL MARKET VIRAMGAM, DT. AHMEDABAD - 382150 V/S ACIT, CIRCLE - 6, AHMEDABAD (APPELLA NT) (RESPONDENT) PAN: AABAT 4076B APPELLANT BY : SHRI S.N. DIVATIA, A.R. RESPONDENT BY : SHRI B. KULSHRESTHA, SR. D.R. ( )/ ORDER DATE OF HEARING : 27 - 08 - 2014 DATE OF PRONOUNCEMENT : 12 - 09 - 2014 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL IS FILED BY THE ASSES SEE AGAINST THE ORDER OF CIT(A) - XI, AHMEDABAD DATED 04.10.2011 FOR A.Y. 2008 - 09. 2. THE FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. 3. ASSESSEE IS A CO - OPERATIVE BANK. IT FILED ITS ORIGINAL RETURN OF INCOME FOR A.Y. 08 - 09 ON 12.07.2008 DECLARING TOTAL INCOME OF RS. 23,45,990 / - . ITA NO 2900/AHD/2011 . A.Y. 2008 - 09 2 SUBSEQUENTLY IT REVISED THE RETURN OF INCOME ON 23.07.2008 SHOWING THE TOTAL INCOME OF RS. 20,30,058/ - . THE CASE WAS SELECTED FO R SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED U/S. 143(3) VIDE ORDER DATED 23.11.2010 AND TOTAL INCOME WAS D ETERMINED AT RS. 69,80,010 / - . AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) VIDE ORDER DATED 04 . 10.2011 GRA NTED PARTIAL RELIEF TO THE ASSESSEE . AGGRIEVED BY THE ORDER CIT(A), ASSESSEE IS NOW IN APPEAL BEFOR E US AND HAS RAISED FOLLOWING GROUNDS: - 1.1 THE ORDER PASSED U/S.250 ON 4.10.2011 FOR A.Y.2008 - 09 BY CIT(A) - XI, ABAD UPHOLDING THE DISALLOWANCE OF GRATUITY PAYMENT OF RS.3,15,933 AND LOSS ON VALUATION OF SHARES OF RS.45,49,017/ - MADE BY AO IS WHOLLY ILLEGAL, UNLAWFUL AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE. 1.2 THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND OR ON FACTS IN NOT CONSIDERING FULLY AND PROPE RLY THE SUBMISSIONS MADE AND EVIDENCE PRODUCED BY THE APPELLANT WITH REGARD TO THE IMPUGNED DISALLOWANCES. 2.1 THE LD.CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE THE PAYMENT OF GRATUITY OF RS.3, 15,93 3. 2.2 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LD.CIT(A) OUGHT NOT TO HAVE UPHELD THE DISALLOWANCE OF GRATUITY PAYMENT OF RS.3,15,933. 3.1 THE LD.CIT(A) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF THE CLAIM MADE BY THE APPELLA NT IN RESPECT OF FALL IN VALUE OF INVESTMENT BY RS. 45,49,017 PROVIDED IN THE BOOKS AS PER RBI NORMS. 3.2 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LD. CIT(A) OUGHT NOT TO HAVE UPHELD THE REJECTION OF THE CLAIM MADE BY THE APP ELLANT IN RESPECT OF FALL IN THE VALUE OF INVESTMENT PROVIDED IN THE BOOKS AS PER RBI NORMS. GROUND NO. 1.1 AND 1.2 BEING GENERAL AND NOT ADJUDICATED. GROUND NO. 2 IS WITH RESPECT TO DISALLOWANCE OF PAYMENT OF GRATUITY OF RS. 3,15,933/ - . 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O N OTICED THAT ASSESSEE HAD CLAIMED EXPENSES U/S 40A(7) OF RS. 3,15,933/ - ON ACCOUNT OF GRATUITY TRANSFER TO STAFF LIC ACCOUNT. A.O NOTICED THAT ASSESSEE HAD REDUCED THE AMOUNT FROM ASSET (I.E. INVESMENT) AND LIABILITIE S SIDE (I.E. ITA NO 2900/AHD/2011 . A.Y. 2008 - 09 3 PROVISION) BUT NO EXPENSE WAS SHOWN IN THE PROFIT AND LOSS ACCOUNT BUT IN THE REVISED RETURN, THE CLAIM OF EXPENDITURE WAS MADE. A.O WAS OF THE VIEW THAT THE CLAIM OF GRATUITY TO BE PAYABLE AND CLAIMED U/S. 40A(7) WAS NOT ALLOWABLE SINCE THE AMOUNT WAS NOT RO U TED THROUGH THE REGULAR BOOKS OF ACCOUNTS AND SINCE IT DID NOT FIND PLACE UNDER THE EXPENSES. HE THEREFORE ADDED THE AFORESAID SUM TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT( A). CIT(A) UPHELD THE ORDER OF A.O BY HOLDING AS UNDER: - 2.2 I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSION. I HAVE ALSO GONE THROUGH ASSESSMENT ORDER AND THE SUBMISSIONS MADE BY THE A.R. IT IS SEEN THAT THE APPELLANT HAS NOT CLAIMED THIS DEDUCTION IN TH E ORIGINAL RETURN. THIS DEDUCTION IS CLAIMED IN THE REVISED RETURN. THIS SHOWS THAT THE APPELLANT WAS NOT CERTAIN ABOUT ALLOWANCE OF THE GRATUITY. IT IS FURTHER NOTICED THAT PAYMENT OF RS. 3,15,993/ - WAS DIRECTLY MADE TO THE EMPLOYEE OF THE APPELLANT NAMEL Y SHRI V.K. KANZARIA BY THE PENSION AND GRATUITY SCHEME DEPARTMENT OF LIFE INSURANCE CORPORATION OF INDIA. THIS PAYMENT WAS MADE AGAINSTPOLICY NO.GGCA 60 292. THIS AMOUNT WAS CREDITED IN THE SB A/C. OF SHRI V.K. KANZARIA, SB A/C. NO. 1120 WITH THE APPELLANT BANK. THIS MAKES IT VERY CLEAR THAT THE APPELLANT HAS NOT MADE PAYMENT TO SHRI V - K - KANZARIA BUT THE PAYMENT HAS COME FROM LIFE INSURANCE CORPORATION OF INDIA. WITH THESE FACTS WE HAVE TO CONSIDER ALLOWABILITY OF GRATUITY PAYMENT AS PER THE PROVISIONS OF S ECTION 40A(7) OF THE I.T. ACT. AS PER THE PROVISIONS OF SECTION 40A(7) DEDUCTION FOR GRATUITY PAYMENT IS ALLOWABLE ONLY IF THE FOLLOWING CONDITIONS ARE FULFILLED. (I) WHERE IT IS PAID OR HAS BECOME PAYABLE DURING THE ACCOUNTING YEAR. (II) WHERE A CONTRIBU TION IS MADE TOWARDS AN APPROVED GRATUITY FUND OR A PROVISIONS IS MADE FOR SUCH CONTRIBUTION. (III) WHERE A CONTRIBUTION MADE TOWARDS AN UNAPPROVED GRATUITY FUND UNDER A TRUST. 2.3 THE APPELLANT'S CASE DOES NOT FALL IN CONDITION NO. II & III AS MENTIONED A BOVE THE APPELLANT'S ONLY CONTENTION IS THAT THE PAYMENT OF GRATUITY HAS BEEN MADE TO AN EMPLOYEE AND ACCORDINGLY THIS IS AN ALLOWABLE EXPENDITURE AS PER CLAUSE (I) AS MENTIONED ABOVE. HOWEVER, IT IS SEEN THAT THE PAYMENT HAS NOT BEEN MADE BY THE APPELLANT . THE PAYMENT HAS COME DIRECTLY FROM THE LIFE INSURANCE CORPORATION OF INDIA. SINCE THE PAYMENT WAS NOT MADE BY THE APPELLANT ACCORDINGLY EVEN THE CONDITION AS MENTIONED IN PARA (I) ABOVE IS ALSO NOT FULFILLED. 5. AGGRIEVED BY THE ORDER OF CIT(A) , ASSESSEE I S NOW IN APPEAL BEFORE US. 6. B EFORE US, THE LD. A.R. SUBMITTED THAT AS PER THE GUIDELINES OF RBI, THE STAFF GRATUITY FUND OF ITS EMPLOYEES WAS MAINTAINED THROUGH LIC . HE SUBMITTED THAT THE DEDUCTION ON ACCOUNT OF GRATUITY WAS CLAMED WHEN ACTUAL PAYMENT OF GRATUITY WAS MADE TO THE CONCERNED EMPLOYEE AND NOT WHEN THE AMOUNT WAS PAID TO LIC. HE FURTHER SUBMITTED THAT THE ITA NO 2900/AHD/2011 . A.Y. 2008 - 09 4 AFORESAID POLICY OF ACCOUNTING WAS CONSISTENTLY FOLLOWED BY ASSESSEE AND FURTHER THERE WAS NO DUBLE DEDUCTION CLAIMED. HE THEREFORE SUBMITTE D THAT THE CLAIM OF ASSESSEE BE ALLOWED IN THE YEAR UNDER CONSIDERATION . THE LD. D.R. ON THE OTHER HAND SUPPORTED THE ORDER OF A.O AND CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. BEFORE US, LD. A.R. HAS SUBMITTED THAT IT WAS MAINTAINING GRATUITY FUND WITH LIC OF INDIA IN ACCORDANCE WITH GUIDELINES OF RBI AND WHEN THE P AYMENT WAS MADE TO LIC OF INDIA , A SSESSEE HAD NOT CLAIMED THE DEDUCTION BUT HAD CLAIMED THE SAME WHEN THE ACTUAL PAYMENT OF GRATUITY WAS MADE TO THE CONCERNED EMPLOYEE AND THEREFORE IT IS NOT A CASE OF CLAIM OF DOUBLE DEDUCTION . BEFORE US, REVENUE HAS NOT PLACED ANY MATERIAL ON RECORD TO CONTROVERT THE SUBMISSIONS OF THE ASSESSEE. FURTHER R EVENUE HAS ALSO NOT PLACED ANY MATERIAL ON RECORD TO S HOW THAT ASSESSEE HAS CLAIMED THE DEDUCTION OF EXPENSES WHEN THE AMOUNT WAS PLACED WITH LIC . IN VIEW OF THE AFORESAID FACTS, WE ARE OF THE VIEW THAT THE ASSESSEE IS ENTITLED TO DEDUCTION IN THE YEAR UNDER REVIEW AND WE THEREFORE DELETE T HE ADDITION MADE B Y THE A.O. THUS THIS GROUND OF ASSESSEE IS ALLOWED. GROUND NO. 3 IS WITH RESPECT TO DISALLOWANCE ON DEPRECIATION ON INVESTMENT OF R S. 45,49,019/ - . 8. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NOTICED THAT ASSESSEE HAS CLAIMED LOSS ON ACCOUNT OF MUTU AL FUND WHICH WAS STATED TO BE DEPRECIATION ON INVESTMENT. A.O WAS OF THE VIEWS THAT THE CLAIM OF LOSS ON ACCOUNT OF DEPRECIATION OF MUTUAL FUND WAS NOT ADMISSIBLE BECAUSE ITA NO 2900/AHD/2011 . A.Y. 2008 - 09 5 THE ASSESSEE WAS SHOWING MUTUAL FUNDS UNDER THE HEAD INVESTMENT AND THE SURPLUS FUND S WERE INVEST ED IN MUTUAL FUNDS AND THE MUTUAL FUNDS WERE HAVING LOC K IN PERIOD OF 3 YEARS. HE WAS OF THE VIEW THAT THE LOSS OR GAIN ON THE MUTUAL FUND WOULD OCCUR ONLY AFTER ITS REDEMPTION, MATURITY OR TERMINATION OF THE SCHEME. IN THE PRESENT CASE, THE ASSESSEE HAD NEITHER REDEEMED THE INVESTMENT NOR THE SCHEMES HAVE BEEN TERMINATED AND THEREFORE THE LOSS ON ACCOUNT OF INVESTMENT DEPRECIATION WAS NOT ALLOWABLE AS DEDUCTION. HE ACCORDINGLY DISALLOWED THE CLAIM DEDUCTION. AGGRIEVED BY THE ORDER OF A.O, AS SESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) UPHELD THE ORDER OF A.O BY HOLDING AS UNDER: - 3.2 I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. I HAVE ALSO GONE THROUGH ASSESSMENT ORDER AND THE SUBMISSION MADE BY THE APPELLANT. IT IS SEEN THAT THE APPELLA NT HAS MADE AN INVESTMENT OF RS. 1,80,00,000/ - IN THE MUTUAL FUNDS. THESE INVESTMENTS ARE REFLECTED IN THE BALANCE SHEET UNDER THE MAJOR HEAD 'OTHER INVESTMENTS'. THE APPELLANT'S CONTENTION IS THA T IN THE BALANCE SHEET, THESE INVESTMENTS NEEDS TO BE VALUED ON NAV BASIS. THE APPELLANT IS CONTENDING THAT PRACTICE IS DULLY APPROVED BY THE RBI. 3.3 AS MENTIONED ABOVE, THESE INVESTMENTS ARE DECLARED UNDER THE HEAD 'OTHER INVESTMENTS'. IT IS NOT THE APPELLANT'S CASE THAT THESE INVESTMENTS HAVE BEEN MADE AS PER STATUT ORY REQUIREMENTS OF RBI. IN FACT, THE APPELLANT HAS MADE THESE INVESTMENTS FOR BETTER RETURNS. IT IS ALSO NOTICED THAT IN PARA 12A, FORM NO. 3 CD, THE AUDITOR HAD TREATED THIS INVESTMENTS AS CLOSING STOCK AND MADE THE FOLLOWING COMMENTS : 'INVESTMENTS IN S ECURITIES/MF ARE CLASSIFIED AND VALUED AS PER RBI GUIDELINES. A SECURITY IS EXCLUSIVELY HELD FOR MATURITY, IS VALUED AT LOWER COST OR MARKET VALUE AS PER THE GUIDELINES. SECURITIES HELD FOR MATURITY ARE VALUED COST AND PREMIUM, IF ANY PAID AMORTISED EQUALL Y OVER AN UNEXPLAINED PERIOD THIS SHOWS THAT THERE IS A BIG CONTRADICTION IN THE APPELLANT'S ACCOUNT. THESE SECURITIES CANNOT BE REFLECTED AND ARE NOT REFLECTED IN THE P & L A/C. AS CLOSING STOCK. THUS, THE VALUATION OF THESE SECURITIES CANNOT BE MADE AS PER THE GUIDELINES FOR VALUATION OF CLOSING STOCK. THIS WAY, THE ASSESSEE'S CONTENTION OF VALUING THESE SECURITIES AT NAV FOR CLOSING STOCK PURPOSES AND THE AUDITOR'S OBSERVATIONS ARE MISPLACED AND DESERVED TO BE REJECTED SUMMARILY. SIMILARLY, THE RBI GUID ELINES AS SUBMITTED BY THE APPELLANT READ AS UNDER: 'INVESTMENTS IN QUOTED DEBT/MONEY MARKET MUTUAL FUND UNITS SHOULD BE VALUED AS PER STOCK EXCHANGE QUOTATIONS. INVESTMENTS IN NON - QUOTED MUTUAL FUNDS UNITS ARE TO BE VALUED ON THE BASIS OF THE LATEST RE - PU RCHASE PRICE DECLARED BY THE MUTUAL FUNDS IN RESPECT OF EACH PARTICULAR SCHEME. IN CASE OF FUNDS WITH A LOCK - IN - PERIOD, OR WHERE REPURCHASE PRICE/MARKET QUOTE IS NOT AVAILABLE, UNITS COULD BE VALUED AT NAV. IF N V IS NOT AVAILABLE, THEN THESE COULD BE VALU ED AT COST, TILL THE END OF THE LOCK - IN PERIOD. ' 3.4 PERUSAL OF THIS GUIDELINE FURTHER REVEALS THAT AS PER RBI GUIDELINES THESE UNITS CAN BE VALUED AT NAV. EVEN THESE GUIDELINES ARE NOT BINDING ON THE APPELLANT. IN VIEW OF THE ABOVE MENTIONED FACT, I HOLD THA T THESE INVESTMENTS WERE MADE FOR EARNING BETTER PROFITS AND IN LOSS OR GAIN IN RESPECT OF THESE SECURITIES/MUTUAL FUNDS ARE TO BE TAXED AS STCG OR LTCG AS THE CASE MAY BE. SINCE THE APPELLANT HAS NOT TRANSFERRED/SOLD THESE SECURITIES ACCORDINGLY THERE IS NOT OCCASION TO CLAIM LOSS OR PROFITS ON THESE INVESTMENTS. 3.5 IN VIEW OF ABOVE FACTS, I ENTIRELY AGREE WITH THE FINDINGS OF THE A.O. IN A RESULT DISALLOWANCE OF RS. 45,49,017/ - MADE BY THE A.O. IS CONFIRMED. THIS GROUND OF APPEAL IS DISMISSED. ITA NO 2900/AHD/2011 . A.Y. 2008 - 09 6 9. AGGRIEVED BY T HE ORDER OF CIT(A) ASSESSEE IS NOW IN APPEAL BEFORE US. 10. BEFORE US, AT THE OUTSET, THE LD. A.R. SUBMITTED THAT THE ISSUE IN THE PRESENT CASE IS NOW COVERED BY THE VARIOUS DECISIONS IN ASSESSEE S FAVOUR. HE CITED THE DECISIONS IN THE CASE OF CIT VS. HDFC B ANK (ITA NO. 250/A/2012 ) OF BOMBAY HIGH COURT, DECISION OF CHENNAI BENCH IN THE CASE OF INDIAN BANK VS. JCIT, DECISION OF PUNE BENCH IN THE CASE OF SANGLI BANK LTD. VS. ACIT IN ITANO. 846/PN/2006 ORDER DATED 30.05.2013 AND OTHER DECISIONS. HE THEREFORE SUB MITTED THAT SINCE THE ISSUE I S COVERED IN ASSESSEE S FAVOUR THE GROUND OF ASSESSEE BE ALLOWED. THE LD. D.R. ON THE OTHER HAND RELIED ON THE ORDER OF A.O AND CIT(A). 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WIT H RESPECT TO THE LOSS IN VALUE OF INVESTMENT IN MUTUAL FUNDS ARISING ON ACCOUNT OF THE DIFFERENCE BETWEEN THE COST OF UNITS AND THE NAV ON THE LAST DAY OF THE ACCOUNTING YEAR ON ACCOUNT OF VALUATION . BEFORE US THE LD. A.R. HAS SUBMITT ED THAT THE ISSUE IS COVE RED IN FAVOUR OF THE ASSESSEE I N V IEW OF THE DECISIONS CITED B Y THE LD. A.R . WE FIND THAT THE AFORESAID DECISIONS WERE NOT BEFORE CIT(A) WHEN THE ISSUE WAS DECIDED BY HIM. WE THEREFORE FEEL THAT THE ISSUE N EEDS TO BE RE - LOOKED AT HIS END I N VIEW OF THE VARIOUS DECISIONS CITED BY LD. A.R. WE THEREFORE REMIT THE ISSUE BACK TO THE FILE OF CIT(A) TO DECIDE THE ISSUE AFRESH IN THE LIGHT OF DECISIONS CITED BY AR AND IN ACCORDANCE WITH LAW . NEEDLESS TO STATE THAT CIT(A) SHALL GRANTED ADEQ UATE OPPORTUNITY OF HEARING TO BOTH THE PARTIES. IN THE RESULT, THIS GROUND OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ITA NO 2900/AHD/2011 . A.Y. 2008 - 09 7 12. IN THE RESULT, THIS APPEAL OF ASSESS EE IS ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN OPEN COURT ON 12 - 09 - 201 4 . SD/ - SD/ - (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APP ELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD