The Gozaria Nagrik Sahkari Bank Ltd., Mehsana V. The Dy.CIT, Patan Circle, Patan

ITA 3077/AHD/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5839 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-05-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 03-05-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 26-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VILAS V SHINDE
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Bad and doubtful debts
• Section: 37; 6

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD .., , BEFORE SHRI S.S. GODARA, JUDICIAL MEMBER & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ I.T.A. NO.3077/AHD/2013 ( / ASSESSMENT YEAR : 2010-11 ) THE GOZARIA NAGRIK SAHKARI BANK LTD. BAZAR AT & POST GOZARIA 382 825 MEHSANA / VS. THE DCIT PATAN CIRCLE PATAN $ ./ ./ PAN/GIR NO. : AAAAT 1074 G ( $' / APPELLANT ) .. ( ($' / RESPONDENT ) $') / APPELLANT BY : SHRI SANJAY R.SHAH, AR ($'*) / RESPONDENT BY : SHRI VILAS V.SHINDE, SR.DR +,*- / DATE OF HEARING 03/05/2017 ./0*- / DATE OF PRONOUNCEMENT 16/ 05/2017 / O R D E R PER PRADIP KUMAR KEDIA, AM: THE CAPTIONED APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-GANDHINA GAR, [CIT(A) IN SHORT] DATED 06/09/2013 FOR THE ASSESSMENT YEAR (AY) 2009-10. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE R EAD AS UNDER:- ITA NO.3077/AHD /2013 THE GOZARIA NAGARIK SAHAKARI BANK LTD. VS. DCIT ASST.YEAR 2010-11 - 2 - 1. THE ORDER PASSED BY THE LEARNED CIT(A) IS BAD I N LAW AND CONTRARY TO THE PROVISIONS OF LAW & FACTS. 2. THE LEARNED CIT(A) ERRED IN LAW AS WELL AS ON F ACTS IN CONFIRMING THE DISALLOWANCE MADE BY AO WITH RESPECT TO PROVISION FOR DEPRECIATION IN VALUE OF GOVERNMENT SECURITIES AS PER RBI GUIDELINES FOR A SUM OF RS.35,45,050/-. 2.1. THE LEARNED CIT(A) AS WELL AS AO ERRED IN TRE ATING STOCK IN TRADE OF THE APPELLANT BANK AS INVESTMENT. THE CIT(A) FA ILED TO UNDERSTAND THAT AS PER THE BANKING REGULATION ACT AND GUIDELIN ES ISSUED BY THE RBI TRADING STOCK HAS TO BE SHOWN INVESTMENT. 2.2. YOUR APPELLANT SUBMITS THAT SUCH DEPRECIATION IN VALUE IS ALLOWABLE AS BUSINESS EXPENDITURE/BUSINESS LOSS U/S.28 R.W.S. 37 OF THE ACT. IT IS SUBMITTED THAT IT BE SO HELD NOW. 2.3. THE LEARNED CIT(A) AS WELL AS AO ERRED IN DIS REGARDING INSTRUCTIONS AND CIRCULARS ISSUED BY CBDT FOR ASSES SMENT OF BANKS IN MAKING ABOVE DISALLOWANCES. 3. THE LEARNED CIT(A) ERRED IN LAW AS WELL AS ON F ACTS IN CONFIRMING THE DISALLOWANCE MADE BY AO WITH RESPECT TO PREMIUM AMO RTIZATION EXPENSES ON GOVERNMENT SECURITIES AS PER GUIDELINES OF RBI FOR A SUM OF RS.4,57,920/-. 4. THE LEARNED CIT(A) AS WELL AS AO ERRED IN DISAL LOWING THE PROVISION ON STANDARD ASSETS OF RS.1,50,000/- U/S.3691)(VII) R.W.S.36(1)(VIIA) AND 43D OF THE ACT CLAIMED BY THE APPELLANT. 5. THE LEARNED CIT(A) ERRED IN CONFIRMING CHARGING OF INTEREST U/S.234A, 234B, 234C AND 234D OF THE ACT. ITA NO.3077/AHD /2013 THE GOZARIA NAGARIK SAHAKARI BANK LTD. VS. DCIT ASST.YEAR 2010-11 - 3 - 3. GROUND NO.1 IS GENERAL IN NATURE WHICH REQUIRE N O INDEPENDENT ADJUDICATION. 4. GROUND NO.2 CONCERNS LOSS ON ACCOUNT OF DEPRECIA TION IN VALUE OF GOVERNMENT SECURITIES SHOWN AS INVESTMENT. IT IS T HE CLAIM OF THE ASSESSEE THAT DEPRECIATION IN VALUE IS ALLOWABLE AS BUSINESS EXPENDITURE/BUSINESS LOSS UNDER S.28 R.W.S.37 OF TH E INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT'). WE FI ND THAT THE AFORESAID ISSUE IS SQUARELY COVERED IN FAVOUR OF ASSESSEE IN ITS OWN CASE FOR AY 2007-08 IN ITA NO.1026/AHD/2011 ORDER DATED 13/03/2 005 AND AY 2009-10 IN ITA NO.369/AHD/2013 ORDER DATED 19/10/20 16. THE RELEVANT PARA OF THE ORDER OF THE TRIBUNAL IN ITA NO.1026/AH D/2011 (SUPRA) IS REPRODUCED HEREUNDER FOR READY REFERENCE:- 5. AFTER GOING THROUGH RIVAL SUBMISSIONS AND MATER IAL ON RECORD, WE FIND THAT AS PER SECTION 6 READ WITH SEC TION 5(B) AND (C) BANKING REGULATION ACT AND AS PER GUIDELINE ISSUED BY THE RESERVE BANK OF INDIA, INVESTMENT ACTIVITIES IS NORMAL BANK ING ACTIVITY AND SHOULD BE TREATED AS BANKING STOCK IN TRADE. THE F ORMAT OF BALANCE SHEET HAS BEEN PRESCRIBED BY LEGISLATURE AND BANK H AS TO REPORT THEIR FINANCIAL RESULT IN THAT FORMAT ONLY. AS PER THIS FORMAT, INVESTMENT IN GOVERNMENT SECURITY THOUGH TREATED AS BANKING ASSETS (STOCK IN TRADE) HAS TO BE SHOWN IN THE BALA NCE SHEET AS INVESTMENT. FURTHER, BANKS ARE SHOWING GAIN OR LOS S ARISES FROM SALE OF SECURITY AS BUSINESS INCOME/LOSS RATHER THA N CAPITAL GAIN. THE ABOVE POSITION HAS ALSO BEEN CLARIFIED BY CIRCU LAR NO. 665 DATED 05-10-1993. ITA NO.3077/AHD /2013 THE GOZARIA NAGARIK SAHAKARI BANK LTD. VS. DCIT ASST.YEAR 2010-11 - 4 - 'THE QUESTION WHETHER A PARTICULAR ITEM OF INVESTME NT IN SECURITIES CONSTITUTES STOCK-IN-TRADE OR A CAPITAL ASSET IS A QUESTION OF FACT IN FACT, THE BANKS ARE GENERALLY G OVERNED BY THE INSTRUCTIONS OF THE RESERVE BANK OF INDIA FROM TIME TO TIME WITH REGARD TO THE CLASSIFICATION OF ASSETS AN D ALSO THE ACCOUNTING STANDARDS FOR INVESTMENTS. THE BOARD HAS , THEREFORE, DECIDED THAT THE ASSESSING OFFICERS SHOU LD DETERMINE ON THE FACTS AND CIRCUMSTANCES OF EACH CA SE AS TO WHETHER ANY PARTICULAR SECURITY CONSTITUTES STOCK-I N-TRADE OR INVESTMENT TAKING INTO ACCOUNT THE GUIDELINES ISSUE D BY THE RESERVE BANK OF INDIA IN THIS REGARD FROM TIME TO T IME. ' CBDT HAS FURTHER ISSUED INSTRUCTION FOR ASSESSMENT OF BANKS VIDE ITS INSTRUCTION NO. 17/2008 DATED 26.11,2008 (F. NO . 228/3/3008 ITA-III). POINT NO. VII OF THE SAID INSTRUCTION, WHICH HAS BEEN DISCUSSED ABOVE. THE ACCOUNTS HAD BEEN MAINTAINED AND SHOWN AS PER RBI GUIDELINES. THE DEPRECIATION OF ASSETS HAS BEEN CLAIMED ON SECURITIES WHICH HAD BEEN CLASSIFIED AS AVAILABLE FOR SALE (AFS). AS PER THE BOARD'S CIRCULAR, THE DEPRECIATION IS TO BE AGGREGATED SCRIP WISE AND NET DEPRECIATION, IF ANY, IS REQUIRE D TO BE PROVIDED FOR IN THE ACCOUNTS. SAME IS THE CLAIM OF ASSESSEE. ASSESSING OFFICER HAS NOT REBUTTED ANY OF THE ABOVE CONTENTIO N LEGAL AS WELL AS FACTUAL ASPECTS OF THE ISSUE. THE CONTENTION OF ASSESSING OFFICER THAT ONLY PROVISION HAS BEEN DEBITED TO THE P&L ACC OUNT AND NOT EXPENSES DOES NOT CARRY ANY WEIGHT IN VIEW OF RESER VE BANK OF INDIA DIRECTIONS AND CBDT INSTRUCTIONS DISCUSSED AB OVE. THE CIRCULAR AND THE INSTRUCTION OF THE BOARD AS QUOTED ABOVE ARE SQUARELY APPLICABLE IN THIS CASE, WHERE THE PROVISI ON FOR DEPRECIATION ON THE 'AVAILABLE FOR SALE' CATEGORY O F SECURITIES HAS CORRECTLY BEEN CLAIMED. SO, CLAIM OF ASSESSEE IS A LLOWABLE AS PER CIRCULAR AND INSTRUCTION. SIMILAR CLAIM OF DEPRECI ATION AND VALUE OF GOVERNMENT SECURITIES WAS MADE AND ALLOWED IN EA RLIER ASSESSMENT YEAR. IN SUCH CIRCUMSTANCES, SAME METHOD OF ITA NO.3077/AHD /2013 THE GOZARIA NAGARIK SAHAKARI BANK LTD. VS. DCIT ASST.YEAR 2010-11 - 5 - ACCOUNTING HAS BEEN FOLLOWED AND DISALLOWED FROM YE AR TO YEAR. SUCH CLAIM HAS BEEN ALLOWED BY VARIOUS JUDICIAL PRO NOUNCEMENTS. HON'BLE MUMBAI HIGH COURT IN CASE OF CIT VS BANK OF BARODA (2003) 262 ITR 334 HAS HELD THAT 'DEPREDATION IN VA LUE OF INVESTMENT HELD BY BANK WAS ALLOWABLE AS DEDUCTION MORE SO WHEN THE LOSS WAS DEBITED TO P&L A/C WHICH WAS REFLECTED AS PROVISION FOR LIABILITY IN THE BALANCE SHEET AND THE SHARE AN D SECURITIES WERE VALUED AT COST ON THE ASSET SIDE ' SIMILAR VIEW HA S BEEN TAKEN BY HONBLE KERALA HIGH COURT IN CASE OF CIT VS NEDUNGA DI BANK LTD (2003) 130 TAXMAN 93 (KER). THEREFORE, DEPRECIATIO N IN VALUE WAS ALLOWABLE EVEN IF SPECIFIC INSTRUCTIONS OF THE BOARD WERE NOT THERE. CIRCULAR AND INSTRUCTION OF THE CBDT BEING SQUARELY APPLICABLE ON FACTS OF ASSESSEES CASE, SO CIT(A) W AS JUSTIFIED IN ALLOWING THE SAME WHICH NEEDS NO INTERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME. 5. WE SEE NO REASONS TO DEPART WITH THE VIEW ALREAD Y TAKEN BY THE TRIBUNAL. 6. GROUND NO.2 OF ASSESSEES APPEAL IS ALLOWED. 7. GROUND NO.3 RELATES TO PREMIUM AMORTIZATION EXPE NSES ON GOVERNMENT SECURITIES. AS POINTED OUT BY THE LD. AR FOR THE ASSESSEE, WE FIND THAT THE ISSUE IS SQUARELY COVERED IN FAVOU R OF ASSESSEE BY THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN CASE OF CIT VS. RAJKOT DISTRICT CO-OPERATIVE BANK LTD. IN TAX APPEAL NO.56 OF 2013, ORDER DATED 10/02/2014. ACCORDINGLY, GROUND NO.3 OF ASSE SSEES APPEAL IS ALLOWED. ITA NO.3077/AHD /2013 THE GOZARIA NAGARIK SAHAKARI BANK LTD. VS. DCIT ASST.YEAR 2010-11 - 6 - 8. GROUND NO.4 CONCERNS CLAIM OF LOSS TOWARDS PROVI SION OF STANDARD ASSETS. 8.1. IT IS THE CASE OF THE ASSESSEE THAT A PROVISIO N OF RS.1,50,000/- WAS MADE ON THE STANDARD ASSETS AS MANDATORILY REQUIRED BY THE RESERVE BANK OF INDIA. THIS PROVISION IS MEANT TO BE FOR THE B AD DEBTS COMPONENTS OF THE STANDARD ASSETS. IT WAS CLAIMED THAT THOUGH TH E PROVISION FOR BAD DEBT IS NOT EXPRESSLY ALLOWED AS PER INCOME TAX ACT, BUT AS PER SECTION 36(1)(VIIA) BANKS ARE ALLOWED TO CLAIM PROVISION OF BAD AND DOUBTFUL DEBTS SUBJECT TO 7.5% OF THE GROSS TOTAL INCOME AND 10% OF AVERAGE RURAL ADVANCES. IN THIS CASE, THE ASSESSEE BANK WHILE CO MPUTING THE TOTAL INCOME ADDED BACK PROVISION OF RS.1,50,000/- AND CL AIMED AS DEDUCTION UNDER S.36(1)(VIIA) WHICH WELL WITHIN THE LIMITS PR ESCRIBED. IT IS FURTHER CONTENDED ON BEHALF OF ASSESSEE THAT THE PURPOSE OF CREATING THE PROVISIONS ON THE STANDARD ASSETS IS TO PROVIDE FOR BAD DEBTS COMPONENTS IN IT. 8.2. THE LD.AR FOR THE ASSESSEE RELIED UPON THE DE CISION OF THE CO- ORDINATE BENCH OF TRIBUNAL IN ITS OWN CASE IN ASSES SMENT YEARS 2007-08 AND 2009-10. ITA NO.3077/AHD /2013 THE GOZARIA NAGARIK SAHAKARI BANK LTD. VS. DCIT ASST.YEAR 2010-11 - 7 - 8.3. THE LD.DR FOR THE REVENUE, ON THE OTHER HAND, RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F SOUTHERN TECHNOLOGIES LTD. VS. JT.CIT 320 ITR (2010)577 (SC) TO SUPPORT THE ORDER OF THE CIT(A). 8.4. IN REJOINDER, THE LD.AR POINTED OUT THE AFORES AID DECISION CONCERN NON-BANKING FINANCIAL COMPANIES (NBFCS) TO WHICH SU CH INCENTIVE OF DEDUCTION UNDER S.36(1)(VIIA) HAS NOT BEEN PROVIDED . IT WAS SUBMITTED THAT THE LINE OF BUSINESS OPERATIONS OF NBFC AND BA NK ARE QUITE DIFFERENT. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND TH AT THE HONBLE APEX COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD .(SUPRA) HAS CLEARLY OBSERVED THAT BY WAY OF SPECIAL PROVISION UNDER S.3 6(1)(VIIA), THE BANKS ARE ALLOWED TO CLAIM DEDUCTION SUBJECT TO A CEILING OR A LIMIT. AS PER SECTION 36(1)(VIIA), THE BANKS ARE ENTITLED TO CLAI M DEDUCTION CERTAIN PRESCRIBED PERCENTAGES OF THE AVERAGE ADVANCE MADE BY THE RURAL BRANCHES OF SUCH BANKS. HOWEVER, RELEVANT FACTS AB OUT THE ADVANCE BY THE RURAL BRANCH REQUIRES TO BE VERIFIED IN THE LIG HT OF SECTION 36(1)(VIIA) READ WITH RULE 6ABA OF THE INCOME TAX RULES, 1963. ACCORDINGLY, WE CONSIDER IT EXPEDIENT THAT THE ISSUE IS REVISITED B Y THE AO DE NOVO IN ACCORDANCE WITH LAW IN THE LIGHT OF PROVISIONS OF S ECTION 36(1)(VIIA) OF THE ACT AFTER GIVING PROPER OPPORTUNITY OF BEING HE ARD TO THE ASSESSEE. ITA NO.3077/AHD /2013 THE GOZARIA NAGARIK SAHAKARI BANK LTD. VS. DCIT ASST.YEAR 2010-11 - 8 - 10. AS A RESULT, GROUND NO.4 OF ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 11. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 16/ 05/2017 SD/- SD/- (..) ( ) ( S.S. GODARA ) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 16/ 05 /2017 4..+,.+../ T.C. NAIR, SR. PS !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. $' / THE APPELLANT 2. ($' / THE RESPONDENT. 3. 567- 8- / CONCERNED CIT 4. 8- ( ) / THE CIT(A)-GANDHINAGAR 5. 9:-+67 , 670 , 5 / DR, ITAT, AHMEDABAD 6. <, / GUARD FILE. / BY ORDER, (9-- //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 4.5.17 (DICTATION-PAD 10- PAGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 5.5.17 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.16.5.17 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 16.5.17 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER