Assistant Commissioner of Income-tax, V. The Karad Urban Co.op. Bank Ltd., Satara

ITA 320/PUN/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2686 (ITAT-PUNE)
• Duration Of Justice: 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 26-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: HITENDRA NINAWE
• Keywords: Depreciation; Cost of acquisition; Revenue expenditure

Judgement Text

] ]] ] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE ! ' , # $ BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM ITA NO.320/PN/2015 ASSESSMENT YEAR : 2010-11 THE ASSTT. COMMISSIONER OF INCOME TAX, SATARA CIRCLE, SATARA. .. APPELLANT VS. THE KARAD URBAN CO-OP. BANK LTD., 516/2, SHANIWAR PETH, KARAD, DIST. SATARA 415 110. PAN: AAAAT3981A ... RESPONDENT / DEPARTMENT BY : SHRI HITENDRA NINAWE / APPELLANT BY : SHRI M. K. KULKARNI / DATE OF HEARING : 03.02.2016 / DATE OF PRONOUNCEMENT: 17.02.2016 % / ORDER PER VIKAS AWASTHY, JM : THIS APPEAL BY THE DEPARTMENT IS DIRECTED AGAINST T HE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)- 4, PUNE DATED 27.01.2015 FOR THE ASSESSMENT YEAR 2010-11. 2. IN APPEAL, THE REVENUE HAS ASSAILED THE FINDINGS OF THE CIT(A) IN DELETING THE ADDITION OF RS.43,42,500/- ON ACCOUNT OF AMORTI ZATION OF PREMIUM ON GOVERNMENT SECURITIES HELD UNDER HTM CATEGORIES. 3. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RE CORDS ARE: THE ASSESSEE IS A CO-OPERATIVE BANK. THE ASSESSEE IS CARRYING ON BAN KING ACTIVITIES IN ACCORDANCE WITH INSTRUCTIONS, GUIDELINES AND CIRCULARS ISSUED BY RESERVE BANK OF INDIA (RBI) 2 ITA NO.320/PN/2015 FROM TIME TO TIME. THE ASSESSEE FILED ITS RETURN O F INCOME FOR THE IMPUGNED ASSESSMENT YEAR ON 12.10.2010 DECLARING TOTAL INCOM E OF RS.7,89,13,160/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND ACCORDINGLY NOTICE UNDER SECTION 143(2) OF THE INCOME TAX ACT, 1961 (IN SHOR T THE ACT) WAS ISSUED TO THE ASSESSEE ON 25.08.2011. DURING THE COURSE OF SCRUT INY ASSESSMENT, THE ASSESSING OFFICER MADE DISALLOWANCE INTER-ALIA ON ACCOUNT OF AMORTIZATION OF PREMIUM ON GOVERNMENT SECURITIES HELD UNDER HTM CATEGORY AMOUN TING TO RS.43,42,500/-. AGGRIEVED BY THE ASSESSMENT ORDER DATED 21.03.2013 , THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). 4. THE CIT(A) BY FOLLOWING THE DECISION OF THE TRIB UNAL IN ASSESSEES OWN CASE IN THE ASSESSMENT YEARS 2007-08 TO 2009-10, ACCEPTE D THE CLAIM OF THE ASSESSEE IN RESPECT OF AMORTIZATION OF PREMIUM ON GOVERNMENT SE CURITIES. AGAINST THESE FINDINGS OF THE CIT(A), THE DEPARTME NT IS IN APPEAL BEFORE THE TRIBUNAL. 5. SHRI M. K. KULKARNI APPEARING ON BEHALF OF THE A SSESSEE SUBMITTED AT THE OUTSET THAT THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NOS.103, 1454 & 2432/PN/2012 FOR THE ASSESSMENT YEARS 2007-08, 2008 -09 & 2009-10, RESPECTIVELY HAS DEALT WITH THIS ISSUE. THE TRIBUNAL AFTER CONS IDERING THE CBDT INSTRUCTION NO.17 OF 2008 DATED 26.11.2008 AND VARIOUS DECISION S ON THIS ISSUE, ALLOWED THE CLAIM OF THE ASSESSEE. THE LD. AR FURTHER RELIED O N THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. HDFC BANK LTD. REPORTED AS (2014) 366 ITR 505 (BOM.). 6. ON THE OTHER HAND, SHRI HITENDRA NINAWE REPRESEN TING THE DEPARTMENT VEHEMENTLY DEFENDED THE ASSESSMENT ORDER AND SUBMIT TED THAT THE AMORTIZATION OF 3 ITA NO.320/PN/2015 PREMIUM ON GOVERNMENT SECURITIES IS NOT A REVENUE E XPENDITURE. AS PER THE PROVISIONS OF INCOME TAX ACT THE CLAIM OF THE ASSES SEE CANNOT BE ACCEPTED. HOWEVER, THE LD. DR FAIRLY ADMITTED THAT THE ISSUE RAISED IN THE PRESENT APPEAL HAS BEEN ADJUDICATED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN THE ASSESSMENT YEARS 2007-08, 2008-09 & 2009-10. 7. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRES ENTATIVES OF BOTH THE SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIE S BELOW. THE ISSUE RELATING TO AMORTIZATION OF PREMIUM ON GOVERNMENT SECURITIES HE LD UNDER HTM CATEGORIES IS NO MORE RES-INTEGRA. THE TRIBUNAL HAS BEEN CONSISTENTLY HOLDING THAT AMO RTIZATION OF PREMIUM ON GOVERNMENT SECURITIES HELD UNDER HTM CATEGORY IS AN ALLOWABLE EXPENDITURE. THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NOS.103, 1454 & 2432/PN/2012 (SUPRA) VIDE COMMON OR DER DATED 31.01.2014 HAS DECIDED THIS ISSUE AS UNDER :- 4. THE LEARNED AUTHORIZED REPRESENTATIVE POINTED O UT THAT THE ISSUES IN GROUND NOS.2, 3 AND 4 OF ASSESSEES APPEALS ARE COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF ITAT, PUNE BENCH A IN ITA NO.449/PN/2012 VIDE ORDER DATED 05.08.2013 IN THE CASE OF DY.CIT VS. KALLAPPANNA AWADE ICHALKA RANJI JANATA SAHAKARI BANK LTD., WHEREIN, THE SIMILAR ISSUES WERE DECIDED BY T HE PUNE BENCH B IN FAVOUR OF ASSESSEE BY OBSERVING AS UNDER: 10. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED TH E VARIOUS DECISIONS CITED BEFORE US. WE FIND AN IDENTICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN THE CASE OF NAHSIK MERCHANT COOPERATIVE BANK LTD. (SUPRA). WE FIND THE TRIBUNAL HAS DISCUSSED THE ISSUE AND DISMISSED THE GROUNDS RAISE D BY THE REVENUE BY HOLDING AS UNDER : 4. AFTER GOING THROUGH RIVAL SUBMISSIONS AND MATE RIAL ON RECORD WE FIND THAT WITH THE ADVENT OF SECTION 80P(4) W.E.F. A.Y, 2007-08 HAS CLOSED THE DOORS FOR COOPERATIVE BANKS FOR CLAIMING THE BE NEFIT OF DEDUCTION U/S.80P(2)(A)(I) FROM THIS TOTAL INCOME. HOWEVER, T HE COOPERATIVE SOCIETY SHOULD NOW BE ENTITLED TO BE ASSESSED AS NORMAL BAN KING COMPANY. THE CLAUSE (4) INSERTED IN SECTION 80P HAS TAKEN AWAY T HE BENEFIT OF THE ERSTWHILE DEDUCTION AVAILABLE TO COOPERATIVE SOCIET Y IN CARRYING ON BUSINESS OF BANKING OR PROVIDING CREDIT FACILITY TO ITS MEMB ERS. THE NEW CLAUSE (4) INSERTED BY THE FINANCE ACT, 2006 W.E.F. 01-04-2007 READS AS UNDER : ' THE PROVISION OF THE SECTION WAS NOT IN RELATION TO ANY COOPERATIVE BANK OTHER THAN AGRICULTURAL CREDIT SOCIETY OR PRIM ARY COOPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK'. 4 ITA NO.320/PN/2015 5. THE INTENTION OF THE PROVISION MAY BE DERIVED M ORE PRECISELY FROM RELEVANT PARA 166 OF THE BUDGET SPEECH WHICH STATED THAT : 'CO-OPERATIVE BANKS, LIKE ANY OTHER BANK, ARE LENDING INSTITUTION S AND SHOULD PAY TAX ON THEIR PROFITS, PRIMARY AGRICULTURAL CREDIT SOCIETIE S (PACS) AND PRIMARY COOPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK (PCARDB) STAND ON A SPECIAL FOOTING AND WILL CONTINUE TO BE EXEMPT UN DER SECTION 80P OF THE INCOME TAX ACT. HOWEVER, I PROPOSE TO EXCLUDE ALL O THER CO-OPERATIVE BANKS FROM THE SCOPE OF THAT SECTION'. ACCORDINGLY, SECTI ON 80P IS TO BE AMENDED TO GIVE EFFECT TO THE ABOVE PROPOSAL. IT IS ALSO PR OPOSED TO AMEND SECTION 2(24) TO PROVIDE THAT PROFITS AND GAINS OF BUSINESS OF BANKING (INCLUDING PROVIDING CREDIT FACILITIES) CARRIED ON BY A CO-OPE RATIVE SOCIETY WITH ITS MEMBERS SHALL BE INCLUDED IN THE DEFINITION OF 'INC OME' (WITH EFFECT FROM 1ST APRIL, 2007)'. 6. COOPERATIVE BANK UNLIKE OTHER COMMERCIAL BANKS ARE SUBJECTED TO DUAL CONTROL FROM BOTH RBI AS WELL AS FROM STATE CO OPERATIVE DEPARTMENT. THE ACCOUNTING TREATMENT FOR A COOPERATIVE BANK IS THEREFORE A RESULT OF GUIDELINES FROM BOTH THE CONTROLLING AUTHORITIES. O RDINARILY A DEDUCTION IS NOT AVAILABLE TO AN ASSESSEE UNLESS SPECIFICALLY PROVID ED UNDER THE ACT. THIS IS IRRESPECTIVE OF ACCOUNTING TREATMENT PROVIDED BY TH E ASSESSEE IN ITS BOOKS OF ACCOUNTS. BUT AT THE SAME TIME IT WAS WELL SETTL ED THAT DEDUCTION EXPRESSLY MENTIONED UNDER THE ACT ARE NOT EXHAUSTIV E AND PROFIT IS TO BE DERIVED ACCORDING TO ORDINARY COMMERCIAL PRINCIPLES . AS PER THE EXTANT RBI GUIDELINES DATED 01-07-2009 THE INVESTMENT PORTFOLI O OF THE BANKS IS REQUIRED TO BE CLASSIFIED UNDER 3 CATEGORIES VIZ., HELD THE MATURITY HTM), HELD FOR TRADING (HFT) AND AVAILABLE FOR SALE (AFS) . THE VALUE OF EACH KIND OF INVESTMENT IS TO BE DONE IN THE FOLLOWING MANNER : SR.NO. CLASSIFICATION VALUATION NORMS OF INVESTMENT . 1. HTM THESE ARE CARRIED AT ACQUISITION COST UNLES S THE COST IS MORE THAN THE FACE VALUE, IN WHICH CASE THE PREMIUM SHOU LD BE AMORTISED OVER THE PERIOD REMAINING TO MATURITY. THE PREMIUM IS RE QUIRED TO BE AMORTISED OVER THE PERIOD REMAINING TO MATURITY. THIS APART, ANY PERMANENT DIMINUTION IN VALUE SHALL FV SHALL GO ON TO REDUCE COST OF THE INVESTMENT. 2. AFS THE INDIVIDUAL SCRIPS IN THE AVAILABLE FOR SALE CATEGORY WILL BE MARKED TO MARKET AT QUARTERLY OR AT MORE FREQUENT I NTERVALS. THESE INVESTMENTS ARE CONSIDERED TO FORM STOCK-IN-TRADE O F A BANK AND THEREFORE ARE TO BE VALUED AT COST OR NRV, WHICHEVER IS LESS. FALL IN VALUE BELOW COST, THEREFORE, IS TO BE PROVIDED IMMEDIATELY, HOWEVER A NY NET APPRECIATION IN VALUE IS IGNORED AND NOT RECOGNIZED AS INCOME ON TH E BASIS OF CONSERVATISM. 3. HFT THE INDIVIDUAL SCRIPS IN THE HELD FOR TRAD ING CATEGORY WILL BE MARKED TO MARKET AT MONTHLY OR AT MORE FREQUENT INT ERVALS AND PROVIDED FOR AS IN THE CASE OF THOSE IN THE AVAILABLE FOR SALE C ATEGORY. 7. IN PARA (VII) OF THE CBDT INSTRUCTION NO.17 OF 2008 DATED 26.11.2008, ON 'ASSESSMENT OF BANK - CHECK LIST FOR DEDUCTION, STA TES AS UNDER: 'AS PER RBI GUIDELINES DATED I6TH OCTOBER, 2000, TH E INVESTMENT PORTFOLIO OF THE BANKS IS REQUIRED TO BE CLASSIFIED UNDER THREE CATEGORIES VIZ. HELD TO MATURITY (HTM), HELD FOR TRADING (HFT) AND AVAILABLE FOR SALE (AFS). INVESTMENTS CLASSIFIED UNDER HTM CATEGORY NE ED NOT BE MARKED TO MARKET AND ARE CARRIED AT ACQUISITION COST UNLESS T HESE ARE MORE THAN THE FACE VALUE, IN WHICH CASE THE PREMIUM SHOULD BE AMO RTISED OVER THE PERIOD REMAINING TO MATURITY. IN THE CASE OF HFT AND AFS S ECURITIES FORMING STOCK IN TRADE OF THE BANK, THE DEPRECIATION/ APPRECIATIO N IS TO BE AGGREGATED SCRIP WISE AND ONLY NET DEPRECIATION, IF ANY, IS REQUIRED TO BE PROVIDED FOR IN THE ACCOUNTS. THE LATEST GUIDELINES OF THE RBI MAY BE R EFERRED TO FOR ALLOWING ANY SUCH CLAIMS.' 5 ITA NO.320/PN/2015 8. THE ITAT, MUMBAI BENCH, IN THE CASE OF ACIT VS. THE BANK OF RAJASTHAN LTD. (2011) TIOL-35-ITAT-MUMBAI, HAS HELD THAT IN C ASE OF BANKS, THE PREMIUM PAID IN EXCESS OF FACE VALUE OF INVESTMENTS CLASSIFIED U NDER HTM CATEGORY WHICH HAS BEEN AMORTISED OVER THE PERIOD TILL MATURITY IS ALL OWABLE AS REVENUE EXPENDITURE SINCE THE CLAIM IS AS PER RBI GUIDELINES AND CBDT A LSO HAS DIRECTED TO ALLOW SUCH PREMIUM. IT HAS ALSO BEEN HELD IN THE CASE OF CATHO LIC SYRIAN BANK LTD. VS. ACIT THAT AMORTIZATION ON PURCHASE OF GOVERNMENT SECURIT IES WAS MADE AS PER PRUDENTIAL NORMS OF THE RBI AND SAME WAS ALLOWABLE DEDUCTION. IN VIEW OF ABOVE, ASSESSEE WAS JUSTIFIED IN CONTENDING FOR AMORTIZATION OF PRE MIUM PAID IN EXCESS OF FACE VALUE OF SECURITIES HELD TO MATURITY (HTM) CATEGORY OR PE RIOD REMAINING TILL MATURITY WAS FOUND REASONABLE BY THE CIT(A). ACCORDINGLY ADDITI ON OF RS.17,91,659/- MADE BY THE ASSESSING OFFICER BY DISALLOWING AMOUNT TOWARDS AMORTIZATION OF GOVERNMENT SECURITIES (HMT) WAS DELETED. THIS REASONED FACTUA L AND LEGAL FINDING OF THE CIT(A) NEEDS NO INTERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME. 9. AS A RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 10.1 RESPECTFULLY FOLLOWING THE DECISION OF THE COO RDINATE BENCH OF THE TRIBUNAL AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE AGAINST THE ABOVE CITED DECISION WE FIND NO INFIRMITY IN THE ORDER OF THE LD.CIT(A) DELETING THE ADDITION. ACCORDINGLY, THE ORDER OF THE LD.CIT(A) IS UPHELD A ND THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 4.1 NOTHING CONTRARY WAS BROUGHT TO OUR KNOWLEDGE. FACTS BEING SIMILAR, SO FOLLOWING THE SAME REASONING, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT(A) ARE SET ASIDE AND THE ASSES SING OFFICER IS DIRECTED TO ALLOW THE SAME. SIMILAR ISSUE AROSE IN OTHER APPEALS OF ASSESSEE. FACTS BEING SIMILAR IN OTHER ASSESSEES APPEAL, SO FOLLOWING THE SAME REAS ONING CORRESPONDING ISSUE IN OTHER APPEALS OF ASSESSEE ARE ALSO DECIDED IN FAVOU R OF ASSESSEE. THE ASSESSING OFFICER IS DIRECTED ACCORDINGLY. 8. IN VIEW OF THE ABOVE ORDER OF THE CO-ORDINATE BE NCH, WE DO NOT FIND ANY INFIRMITY IN THE IMPUGNED ORDER OF CIT(A). ACCORDI NGLY, APPEAL OF THE REVENUE IS DISMISSED BEING DEVOID OF ANY MERIT. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 17 TH DAY OF FEBRUARY, 2016. SD/- SD/- ( R.K. PANDA ) ( VIKAS AWASTHY ) / ACCOUNTANT MEMBER # / JUDICIAL MEMBER PUNE ; DATED : 17 TH FEBRUARY, 2016. 6 ITA NO.320/PN/2015 %&'#()!*!+( / COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-4, PUNE; 4) THE CIT-4, PUNE; 5) THE DR B BENCH, I.T.A.T., PUNE; 6) GUARD FILE. %, / BY ORDER , ' # //TRUE COPY// $%& # '( / SR. PRIVATE SECRETARY ) '*, / ITAT, PUNE