ACIT, Circle - 40, Kolkata , Kolkata V. The West Bengal State Co-Operative Bank Ltd., Kolkata

ITA 325/KOL/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 9307 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-04-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 23-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Revenue expenditure; Capital expenditure; Set aside
• Section: 143(3)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH, KOLKATA (BENCH B) BEFORE SHRI ABY. T. VARKEY, JUDICIAL MEMBER AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER I.T.A. NOS.324 & 325/KOL/2018 (ASSESSMENT YEARS 2013-14 & 2014-15 RESPECTIVELY) ORDER PER M. BALAGANESH: THESE TWO APPEALS IN I.T.A. NOS.324 & 325/KOL/2018 FILED BY THE REVENUE ARE AGAINST THE ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS)-12, KOLKATA BOTH DATED 29.11.2017 AGAINST THE ORDERS OF ASSESSMENT PASSED U/S 143(3) OF THE INCOME TAX ACT (HEREINAFTER REFERRED TO AS THE ACT) ON 17.03.2016 AND 29.12.2016. 2. AS IDENTICAL ISSUES ARE INVOLVED IN BOTH THESE APPEALS, THEY ARE TAKEN TOGETHER AND DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 3. THE ONLY ISSUE INVOLVED IN THESE APPEALS IS AS TO WHETHER THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF BROKEN PERIOD INTEREST PAID BY THE ASSESSEE ON DEPOSITS AND BORROWINGS ETC. IN THE FACTS AND CIRCUMSTANCES OF THE CASE. A.C.I.T, CIRCLE-40, KOLKATA -VS- THE W.B. STATE CO-OP BANK LTD. [PAN : AAAAT7072N] (APPELLANT) .. (RESPONDENT) FOR THE APPELLANT SHRI ROBIN CHOWDHURY, ADDL.CIT, SR. DR. FOR THE RESPONDENT SHRI N.C. MONDAL, FCA DATE OF HEARING 26.03.2019 DATE OF PRONOUNCEMENT 03.04.2019 I.T.A. NOS.324 & 325/KOL/2018 ASSESSMENT YEARS 2013-14 & 2014-15 THE W.B. STATE CO-OP BANK LTD . 2 4. THE LD. AR AT THE OUTSET STATED THAT THIS ISSUE IS ALREADY COVERED IN FAVOUR OF THE ASSESSEE IN ASSESSMENT YEARS 2009-10 & 2010-11. HE PLACED ON RECORD A COPY OF THE TRIBUNAL ORDER FOR ASSESSMENT YEAR 2009-10 IN ITA NO.746/KOL/2013 DATED 30.11.2017 WHEREIN THE IMPUGNED ISSUE WAS REMANDED TO THE FILE OF THE LD. ASSESSING OFFICER BY THE TRIBUNAL WITH CERTAIN DIRECTIONS. HE ALSO PLACED ON RECORD THE COPY OF THE ASSESSMENT ORDER DATED 21.12.2018 FOR THE ASSESSMENT YEAR 2009-10 PASSED BY THE LD. ASSESSING OFFICER CONSEQUENT TO THIS TRIBUNAL ORDER WHEREIN THE ASSESSING OFFICER HAD ALLOWED THE CLAIM OF BROKEN PERIOD INTEREST ON PURCHASE OF GOVT. SECURITIES AS A DEDUCTION. THE LD. ASSESSING OFFICER ALSO PLACED ON RECORD A COPY OF THE TRIBUNAL ORDER IN ITS OWN CASE FOR ASSESSMENT YEAR 2010-11 IN ITA NO.237/KOL/2016 DATED 19.01.2018 WHEREIN THIS TRIBUNAL UPHELD THE ORDER OF THE LD. CIT(A) IN FOLLOWING THE DECISIONS OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF AMERICAN EXPRESS INTERNATIONAL BANKING CORPORATION V. COMMISSIONER OF INCOME TAX [2002] 125 TAXMANN 488 (BOM.) AND ACCORDINGLY DISMISSED THE APPEAL OF THE REVENUE. 5. THE LD. DR FAIRLY AGREED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THIS TRIBUNAL AND ALSO BY THE ORDER OF LD. ASSESSING OFFICER FOR ASSESSMENT YEAR 2009-10. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT THE LD. ASSESSING OFFICER IN GIVING EFFECT TO THIS TRIBUNAL FOR ASSESSMENT YEAR 2009-10 OBSERVED AS UNDER: THE BRIEF BACKGROUND OF THE CASE IS A UNDER:- IN THIS CASE, ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y.- 2009-10 ON 23.09.2009 DECLARING THE TOTAL INCOME OF RS.25,81,09,183/-. THE ASSESSEE CLAIMED AN EXPENSE A EXPENSES OF RS.3,57,66,893/- UNDER THE HEAD INTEREST ON DEPOSITS BORROWINGS ETC. THE AO DECLINED THE CLAIM OF THE ASSESSEE AND DISALLOWED THE EXPENSES TREATING IT AS CAPITAL EXPENDITURE IN ITS ORDER U/S 143(3) OF THE INCOME TAX ACT, 1961 DATED 23.11.2011. THE ASSESSEE HAS PREFERRED APPEAL BEFORE LD. CIT(A). LD. CIT(A) VIDE ORDER NO.- 358/CIT(A)-XXXVI/KO1./R.-59/11-12 DATED 21.01.2013 CONFIRMED THE DISALLOWANCE OF INTEREST PAID ON PURCHASES OF SECURITIES. AGGRIEVED BY THE ORDER OF LD. CIT(A), THE ASSESSEE PREFERRED AN APPEAL BEFORE ITAT. THE LD. ITAT, VIDE ORDER NO. ITA NO.- 746/KOL/2013 DATED 30.11.2017 SET ASIDE THE ORDER OF LD. I.T.A. NOS.324 & 325/KOL/2018 ASSESSMENT YEARS 2013-14 & 2014-15 THE W.B. STATE CO-OP BANK LTD . 3 CIT(A) AND REMITTED THE MATTER BACK TO THE FILE OF THE AO TO EXAMINE THE ISSUE AND DIRECTED THE AO TO MAKE AN ORDER AFRESH. DURING THE COURSE OF FRESH ASSESSMENT PROCEEDINGS, LETTER DATED 15.05.2018 WAS ISSUED TO THE ASSESSEE. IN RESPONSE TO THE LETTER, SRI N. C. MONDAL, FCA, AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED AND THE CASE WAS HEARD. SRI MONDAL ALSO PRODUCED WRITTEN SUBMISSIONS VIDE DATED 24.05.2018 AND CLARIFIED THE ISSUE BEFORE THE UNDERSIGNED. ASSESSEES SUBMISSION WAS DULY VERIFIED. THE ASSESSEE IN ITS SUBMISSION STATED THAT DURING THE YEAR THE ASSESSEE BANK PAID BROKEN PERIOD (PRE-ACQUISITION) INTEREST OF RS. 3,57,66,893/- ON PURCHASE OF GOVERNMENT SECURITIES AND DEBITED TO PROFIT & LOSS ACCOUNT UNDER THE HEAD INTEREST PAID ACCOUNT. AND IN THE SAME WAY BROKEN PERIOD INTEREST RECEIVED WAS CREDITED TO PROFIT & LOSS ACCOUNT UNDER THE HEAD INTEREST RECEIVED ACCOUNT. THE ASSESSEE FIRMLY CONTESTED THAT SAME PRINCIPAL OF ACCOUNTING SHOULD BE FOLLOWED FOR THE SAME NATURE OF EXPENDITURE/INCOME. THE ASSESSEE QUOTED THE CASE LAW OF HON'BLE SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME TAX, DELHI VS. M/S WOODWARD GOVERNOR INDIA P. LTD. IN SUPPORT OF ITS CLAIM. ASSESSEE'S SUBMISSION WAS TAKEN INTO CONSIDERATION AND IT IS FOUND THAT ASSESSEE'S CLAIM IS CORRECT. WHEN INTEREST RECEIVED ON SALE OF SECURITIES HAS BEEN CONSIDERED IN THE ASSESSMENT ORDER AS REVENUE INCOME, BY SAME ANALOGY INTEREST PAID ON PURCHASE OF SECURITIES SHOULD ALSO BE CONSIDERED AS REVENUE EXPENDITURE. THIS IS IN RESPECT TO THE MATCHING PRINCIPAL OF ACCOUNTING. FURTHER THAT HON'BLE ITAT FOR SAME ASSESSEE, ON SAME ISSUE FOR A.Y.-2010-11 HAD ACCEPTED THE STAND OF THE ASSESSEE. TO QUOTE FOR THE ITAT'S ORDER - THIS ACTION OF THE A.O. IS CONTRADICTORY AND HENCE IS NOT CORRECT. IF PRE ACQUISITION INTEREST ON PURCHASE OF A GOVT. SECURITY IS THE COST OF PURCHASE OF SUCH SECURITY, THEN PRE ACQUISITION INTEREST ON SALE OF THE SAME SECURITY SHOULD BE TREATED AS SALE PRICE OF SECURITY. OTHERWISE IN BOTH CASES THE PRE ACQUISITION INTEREST SHOULD BE TREATED AS REVENUE TRANSACTIONS. THE ASSESSEE IS CONSISTENTLY FOLLOW THE METHOD OF ACCOUNTING WHEREIN, PRE-ACQUISITION INTEREST OF SECURITY IS TREATED AS REVENUE EXPENDITURE AND PRE- ACQUISITION INTEREST ON SALE OF A GOVT. SECURITY IS TAKEN AS INCOME. THE CENTRAL BOARD OF DIRECT TAXES IN CIRCULAR NO.559 DATED 24.04.1999 189 ITR (ST) 126 HAS CLARIFIED THAT SECURITIES HELD BY BANK MUST BE REGARDED AS STOCK IN TRADE AND THAT INTEREST PAYMENTS AND RECEIPTS FROM BROKEN PERIOD ON PURCHASE OF SECURITIES MUST BE REGARDED AS STOCK IN TRADE AND THAT THE NET INTEREST ON SECURITIES SHOULD BE BROUGHT TO TAX AS BUSINESS AS BUSINESS INCOME. THIS CIRCULAR WAS LATER WITHDRAWN BY CBDT AND IT WAS CLARIFIED THAT THE ISSUE WHETHER A PARTICULAR INVESTMENT IN SECURITY WOULD CONSTITUTE STOCK IN TRADE OR NOT IS A QUESTION OF FACT. ALL THESE ISSUES HAVE NOT BEEN PROPERLY CONSIDERED BY THE A.O. OR THE LD. CITA). THE ADDITION UNDER SUCH CIRCUMSTANCES CANNOT BE SUSTAINED. THIS IS ALSO IN LINE WITH THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF AMERICAN EXPRESS INVESTMENT BANKS CO-OP. VS. CIT (2002) AS THE ITAT HAS STATED. BASED ON THE ABOVE, THE INCOME OF THE ASSESSEE IS COMPUTED AS RS.25,81,09,183/-. I.T.A. NOS.324 & 325/KOL/2018 ASSESSMENT YEARS 2013-14 & 2014-15 THE W.B. STATE CO-OP BANK LTD . 4 7. WE FIND THAT THE LD. ASSESSING OFFICER HAS ALSO PLACED RELIANCE ON THE DECISION OF THE BOMBAY HIGH COURT STATED SUPRA AND ALLOWED THE CLAIM OF THE ASSESSEE. HENCE THE IMPUGNED ISSUE BEFORE US STANDS SETTLED BY THE ORDER PASSED FOR ASSESSMENT YEAR 2009-10 BY THE LD. ASSESSING OFFICER CONSEQUENT TO TRIBUNAL ORDER. ACCORDINGLY, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) FOR BOTH THESE APPEALS. 8. IN THE RESULT, THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 03.04.2019. SD/- SD/- [A. T. VARKEY] [M. BALAGANESH] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 03.04.2019 [RS, SR.PS] COPY OF THE ORDER FORWARDED TO: 1. APPELLANT: ACIT, CIRCLE-40, KOLKATA. 2. RESPONDENT W.B STATE CO-OP BANK LTD., 24A, WATERLOO STREET, ESPLANADE, KOLKATA 700 069. 3. CIT(A)- KOLKATA. 4. CIT , KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. //TRUE COPY// BY ORDER ASSISTANT REGISTRAR, KOLKATA.