ACIT, Circle-1, Aurangabad V. Samarth Sahkari Bank Ltd., Jalna

ITA 294/PUN/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 72220 (ITAT-PUNE)
• Duration Of Justice: 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 30-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S C SARANGI
• Assessee Lawyers: BANK EMPLOYEE
• Keywords: Capital asset; Business income; Depreciation; Revenue 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.294/PUN/2013 (ASST. YEAR: 2007-08) ASST. COMMISSIONER OF INCOME TAX, CIRCLE - 1, AURANGABAD APPELLANT VS. SAMARTH SAHAKARI BANK LTD., 1 ST FLOOR, PHULE MARKET, KADBIMANDI, JALNA - 431203 PAN:AABAS8051R RESPONDENT APPELLANT BY : SHRI S.C. SARANGI RESPONDENT BY : BANK EMPLOYEE DATE OF HEARING : 24-09-2013 DATE OF PRONOUNCEMENT : 27-09-2013 ORDER PER R.S. PADVEKAR, JM: THIS APPEALFILED BY THE REVENUE CHALLENGING THE IM PUGNED ORDER OF THE LD. CIT(A), AURANGABAD DATED 19-11-2012 FOR THE A.Y. 2007-08. 2. THE REVENUE HAS TAKEN THE FOLLOWING EFFECTIVE GR OUND. 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE CIT(A) WAS CORRECT IN TREATING THE AMORTIZATION OF PREMIUM PAID ON GOVERNMENT SECURITIES OF HELD TO MATURITY & AVAILABLE FOR SALE CATEGORY AS ALLOWABLE REVENUE EXPENDITURE. 3. THE BRIEFLY STATED FACTS ARE AS UNDER. THE ASSE SSEE IS A COOPERATIVE BANK. THE ASSESSEE HAS FILED THE RETUR N OF INCOME FOR THE A.Y. 2007-08 DECLARING TOTAL INCOME OF RS.5,87,360/ -. THE ASSESSEES CASE WAS SELECTED FOR SCRUTINY AND ASSESSMENT HAS B EEN COMPLETED U/S.143(3). THE ASSESSING OFFICER MADE DISALLOWANC E IN RESPECT OF PROVISION FOR DEPRECIATION ON THE INVESTMENT OF RS. 10,92,876/- AND 2 MADE ADDITION TO THE TOTAL INCOME. THERE IS NO DIS CUSSION IN THE ASSESSMENT ORDER IN RESPECT OF NATURE OF THE CLAIM OF THE ASSESSEE. THE ASSESSEE HAS CARRIED THE ISSUE BEFORE THE LD. CIT(A ) AND SUBMITTED THAT THE DEDUCTION OF RS.10,92,876/- IS ALLOWABLE AS PER THE RBI GUIDELINES AND HAS ALSO SUBMITTED THE WORKING OF THE AMORTIZAT ION OF PREMIUM IN RESPECT OF GOVERNMENT SECURITIES I.E. HELD TO MATUR ITY (HTM) CATEGORY OF RS.7,27,376/- AND THE REMAINING AMORTIZATION OF PRE MIUM IS TOWARDS AVAILABLE FOR SALE (AFS) CATEGORY. THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE FOLLOWING THE DECISION OF THE ITAT, MU MBAI IN THE CASE OF ACIT VS. BANK OF RAJASTHAN LTD. (2011) TIOL-35,ITAT , MUMBAI. 4. NOW, THE REVENUE IS IN APPEAL BEFORE US. WE HAV E HEARD THE LD.DR. WE FIND THAT THE ISSUE STANDS COVER IN FAVO UR OF THE ASSESSEE BY THE DECISION OF THIS TRIBUNAL IN THE CASE OFRATNAKA R BANK LTD., VS. ACIT, RANGE 2, KOLHAPUR IN ITA NO.789/PN/2010, DATED 28/0 2/2013, IN WHICH, AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE TRIBU NAL AND HELD AS UNDER: 6. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PART IES AND PERUSED THE RECORD. THE LD. COUNSEL ARGUED THAT AS PER THE CONSISTENT METHOD FOLLOWED BY THE ASSESSEE, BANK SE CURITIES ARE VALUED AT COST OR MARKET VALUE. HE FURTHER ARGUED THAT IF THE SECURITIES HELD UNDER AFS ARE TRANSFERRED TO THE HT M, THEN THE VALUATION IS TO BE DONE ON THE DATE OF TRANSFER AND IF THE MARKET VALUE IS LESS THAN THE COST OF THE SECURITIES THEN THE SAME IS PROVIDED AS A DEPRECIATION. HE VEHEMENTLY ARGUED T HAT THE GUIDELINES ISSUED BY THE RBI ARE BINDING ON THE BAN K UNDER THE BANKING REGULATION ACT AND ASSESSEE IS MAKING THE P ROVISION OF AMORTIZATION IS MADE TILL THE YEAR OR DATE OF MATUR ITY OF THE SAID SECURITY. THE LD. COUNSEL PLACED HIS RELIANCE ON T HE DECISION OF HON'BLE HIGH COURT OF KERALA IN THE CASE OF NIDUNGA DI BANK 264 ITR 545. HE ALSO PLACED HIS RELIANCE ON THE FOLLOW ING DECISIONS OF THE KARNATAKA BENCHES STATE BANK OF MYSORE VS. DCI T (2009) 33 SOT 7 (BANG)., LATUR URBAN CO-OPERATIVE BANK LTD. V S. DCIT 778 & 792/PN/2011 DATED 31.8.2012. WE HAVE ALSO HEARD THE LD. D.R. 3 7. THE ISSUE IN CONTROVERSY BEFORE US IS IN NARROW PASS. THE ASSESSEE IS A BANK AND ENGAGED INTO THE BANKING BUS INESS. THE ASSESSEE MADE THE CLASSIFICATION OF THE SECURITIES IN COMPLIANCE WITH THE GUIDELINES OF THE RBI I.E. (1) HELD TO MAT URITY (HTM) (2) AVAILABLE FOR SALE (AFS) AND (3) HELD FOR TREATING (HFT). IN THE CASE OF NIDUNGADI BANK LTD. (SUPRA), THE HON'BLE HI GH COURT OF KERALA HELD THAT ALL THE INVESTMENTS ARE IN THE NAT URE OF STOCK IN TRADE HELD BY THE ASSESSEE. SO FAR AS ISSUE BEFORE US IS CONCERNED, IT IS ONLY THE CONVERSION OF THE CLASSIFICATION OF THE SECURITY BY THE BANK. IT IS NOT DISPUTED IN THIS CASE THAT ASSESSE E IS CONSISTENTLY FOLLOWING THE SAID METHOD AND EVEN IF THE SECURITIE S ARE SOLD, FINALLY THE DEPRECIATION/LOSS WILL HAVE THE BEARING WHILE D ETERMINING THE PROFIT OR LOSSES WHEN THE SECURITIES ARE SOLD IN TH E OPEN MARKET. THE IDENTICAL ISSUE HAD COME BEFORE THE ITAT BANGAL ORE BENCH IN THE CASE OF STATE BANK OF MYSORE (SUPRA) AND TRIBUN AL HELD AS UNDER: 7.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE HA VE ALSO PERUSED THE RBI MASTER CIRCULAR AND OTHER CASE LAWS ON WHICH THE SENIOR COUNSEL HAS PLACED STRONG RELIANCE. THE HO N'BLE TRIBUNAL, BANGALORE BENCH 'B' IN ITA NO. 253/BANG/2007, DT.24 TH JAN., 2008 IN THE CASE OF ASSTT. CIT (LTU) VS. VIJAYABANK HAD AN OCCASION TO DEAL WITH A SIMILAR ISSUE. AFTER CONSIDERING THE RI VAL SUBMISSIONS, ANALYZING THE RBI GUIDELINES AND ALSO EXTENSIVELY Q UOTING VARIOUS JUDICIAL PRONOUNCEMENTS ON WHICH BOTH THE PARTIES H AVE PLACED THEIR RELIANCE, THE HON'BLE TRIBUNAL HAS OBSERVED THUS '15. FROM THE ABOVE, IT IS CLEAR THAT THE ASSESSEE IS TREATING THE SECURITIES HELD UNDER THE CATEGORY 'HELD FOR MATURITY' AS STOC K-IN-TRADE. IF THERE IS APPRECIATION IN THE MARKET VALUE AS COMPARED TO THE MARKET VALUE AT THE OPENING OF THE YEAR AND SUCH APPRECIATION IS ALSO A CCOUNTED FOR. IT IS NOT CLAIMING DEPRECIATION ONLY FOR THE YEARS, WHEN THE VALUE HAS GONE DOWN. IF THAT HAD BEEN THE CASE, THE ASSESSEE WOULD NOT HAVE ACCOUNTED FOR ANY APPRECIATION IN 3RD, 4TH AND 5TH YEAR. THE METHOD BY WHICH THE ASSESSEE BANK IS VALUING SECURITIES IS IN ACCOR DANCE WITH THE ACCOUNTING PRINCIPLES BY TREATING SUCH SECURITIES A S STOCK-IN-TRADE. MOREOVER, THE REVENUE ITSELF IS TREATING THE PROFIT ON MATURITY OF SUCH SECURITY AS BUSINESS INCOME AND, THEREFORE, SUCH SE CURITIES CANNOT BE TREATED AS CAPITAL ASSETS. 16. SPECIAL BENCH, DELHI IN THE CASE OF NEW INDIA I NDUSTRIES LTD. VS. ASSTT. CIT (2007) 112 TTJ (DEL) (SB) 917 : (2008) 1 DTR (D EL)(SB)(TRIB) 247 : (2007) 18 SOT 51 (DEL)(SB) : 2007-TIOL-389-ITAT-DEL -SB HAD AN OCCASION TO CONSIDER THE BINDING NATURE OF RBI GUID ELINES. THE SPECIAL BENCH HELD THAT RBI GUIDELINES IN RESPECT OF PROVIS ION FOR NPA ARE NOT BINDING IN THE COMPUTATION OF INCOME UNDER THE IT A CT. INCOME IS TO BE ASSESSED AS PER THE PROVISION OF THE IT ACT. THE MA DRAS HIGH COURT IN THE 4 CASE OF T.N. POWER FINANCE & INFRASTRUCTURE DEVELOP MENT CORPORATION LTD. VS. CIT (2007) 213 CTR (MAD) 610 : (2006) 280 ITR 4 91 (MAD) : (2006-TIOL-112-HC-MAD-IT HELD THAT PROVISION FOR NO N-PERFORMING THE ASSETS DEBITED TO P&L A/C IS NOT ALLOWABLE, AS DIRE CTIVE OF RBI MAY NOT OVERRIDE STATUTORY PROVISION. ONCE THE REVENUE IS A CCEPTING THAT PROFIT ARISING ON THE MATURITY OF INVESTMENT IS BUSINESS I NCOME, THEN IT CANNOT TAKE THE STAND THAT IT IS NOT STOCK-IN-TRADE. DURIN G THE COURSE OF PROCEEDINGS BEFORE US, THE LEARNED AUTHORISED REPRE SENTATIVE HAS FILED THE ASSESSMENT ORDER IN THE CASE OF THE ASSESSEE FO R THE ASST. YRS. 2000-01 TO 2002-03. THE DEPRECIATION CLAIMED IN ALL THESE ASST. YEARS HAS NOT BEEN DISALLOWED .THUS, THE REVENUE IS CONSISTEN TLY ACCEPTING THAT DEPRECIATION IS ALLOWABLE. THIS BENCH IN THE FOLLOW ING CASES HAS ALLOWED SUCH DEPRECIATION ON THE VALUATION OF THE SECURITIE S HELD BY THE BANK : (1) KARNATAKA BANK LTD. VS. JT. CIT ITA NO. 50/BANG /1997, DT. 27TH JULY, 2003; (2) ING VYSYA BANK LTD. VS. DY. CIT (2006) 6 SOT 60 6 (BANG). 17. CONSIDERING THE ABOVE DISCUSSION, IT IS HELD T HAT THE ASSESSEE IS ENTITLED TO VALUE ALL THE INVESTMENT AT COST PRICES OR MARKET VALUE WHICHEVER IS LOWER BY TREATING SUCH INVESTMENT AS S TOCK-IN-TRADE....' 7.3 THE HON'BLE TRIBUNAL IN ITA NO. 112/BANG/2008, DT.3RD DEC., 2008 IN THE CASE OF CORPORATION BANK VS. ASSTT.CIT 2009-TIOL-75-ITAT- BANG, BY FOLLOWING THE DECISION OF THE HON'BLE TRIB UNAL IN THE CASE OF ASSTT. CIT (LTU) VS. VIJAYA BANK (SUPRA), HAS HELD THAT '16. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE BEFORE US AND RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF UNITED COMMERCIAL BANK VS. CIT REFERRED SUP RA, IT IS HELD THAT THE ASSESSEE BANK IS ENTITLED TO VALUE ALL THE INVESTME NT AT COST PRICES OR MARKET VALUE WHICHEVER IS LOWER BY TREATING SUCH ST OCK-IN-TRADE.........' 7.4 IN RBI'S MASTER CIRCULAR, UNDER THE CAPTION 2 CLASSIFICATION, IT HAS BEEN MENTIONED THUS '(I) THE ENTIRE INVESTMENT PORTFOLIO OF THE BANKS (INCLUDING SLR SECURITIES AND NON-SLR SECURITIES) SHOULD BE CLASSI FIED UNDER THREE CATEGORIES VIZ., 'HELD TO MATURITY', 'AVAILABLE FOR SALE' AND 'HELD FOR TRADING'. HOWEVER, IN THE BALANCE SHEET, THE INVEST MENTS WILL CONTINUE TO BE DISCLOSED AS PER THE EXISTING SIX CLASSIFICATION S VIZ., (A) GOVERNMENT SECURITIES, (B) OTHER APPROVED SECURITIES, (C) SHAR ES, (D) DEBENTURES AND BONDS, (E) SUBSIDIARIES/JOINT VENTURES, AND (F) OTHER (CP MUTUAL FUND UNITS, ETC.). (II) BANKS SHOULD DECIDE THE CATEGORY OF THE INVEST MENT AT THE TIME OF ACQUISITION AND THE DECISION SHOULD BE RECORDED ON THE INVESTMENT PROPOSALS. 2.3 SHIFTING AMONG CATEGORIES : (I) BANKS MAY SHIFT INVESTMENTS TO/FROM HELD TO MAT URITY CATEGORY WITH THE APPROVAL OF THE BOARD OF DIRECTORS ONCE A YEAR. SUCH SHIFTING WILL NORMALLY BE ALLOWED AT THE BEGINNING OF THE ACCOUNT ING YEAR. NO FURTHER SHIFTING TO/FROM THIS CATEGORY WILL BE ALLOWED DURI NG THE REMAINING PART OF THAT ACCOUNTING YEAR.' 5 7.5 IN VIEW OF THE CLEAR-CUT GUIDELINES OF THE RBI AND RESPECTFULLY FOLLOWING THE FINDINGS OF THE HON'BLETRIBUNAL REFER RED SUPRA, THE CLAIM OF THE ASSESSEE TOWARDS PROVISION OF DEPRECIATION OF R S. 1,27,21,17,913 ON ACCOUNT OF TRANSFER OF SECURITIES FROM AFS CATEG ORY TO HTM CATEGORY IS ALLOWED. IT IS ORDERED ACCORDINGLY. 8. AS THE ISSUE IS DIRECTLY COVERED IN FAVOUR OF TH E ASSESSEE BY DECISION OF I.T.A.T. BANGALORE BENCH, WE DO NOT FIN D ANY REASON TO TAKE THE DIFFERENT VIEW. WE ACCORDINGLY, ALLOW THE CLAI M OF THE ASSESSEE AND GROUNDS TAKEN BY THE ASSESSEE ARE ALLOWED. 5. WE, THEREFORE, CONFIRM THE ORDER OF THE CIT(A) F OLLOWING THE DECISION IN THE CASE OF RATNAKARBANK LTD. (SUPRA) A ND THE GROUND TAKEN BY THE REVENUE IS DISMISSED. 6. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED . PRONOUNCED IN THE OPEN COURT ON THIS THE 27 TH DAY OF SEPTEMBER, 2013. SD/- SD/- (G.S. PANNU) (R.S. PADVEKAR) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED 27 TH SEPTEMBER, 2013 GCVSR COPY TO:- 1) DEPARTMENT 2) ASSESSEE 3) THE CIT(A), AURANGABAD 4) THE CIT, AURANGABAD 5) THE DR, B BENCH, I.T.A.T., PUNE 6) GUARD FILE //TRUE COPY// BY ORDER SENIOR PRIVATE SECRETARY ITAT PUNE BENCHES, PUNE