The S.K.Dist.Central Co.op.Bank Ltd., Sabarkantha V. Asstt.Commissioner of Income Tax,S.K. Circle, Sabarkantha

ITA 3268/AHD/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 9378 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 16-02-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 20-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: A C SHAH
• Keywords: Depreciation; Cost of acquisition; Non compliance
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH BEFORE: S H RI N.K. BILLAIYA , ACCOUNTANT MEMBER AND SHR I S. S. GODARA , JUDICIAL MEMBER THE S.K. DIST. CENTRAL CO.OP. BANK LTD., HIMATNAGAR - 383001, DIST: SABARKANTHA PAN: AAAAT1019P (APPELLANT) VS THE ACIT, S.K. CIRCLE, AAYAKAR BHAVAN, NR. GANDHI TOWN HALL, HIMATNAGAR - 383001, DIST: SABARKANTHA (RESPON DENT) REVENUE BY : SMT. USHA SHROTE , SR. D . R. ASSESSEE BY: S H RI A.C. SHAH , A.R. DATE OF HEARING : 16 - 02 - 2 016 DATE OF PRONOUNCEMENT : 26 - 02 - 2 016 / ORDER P ER : S. S. GODARA , JUDICIAL MEMBER : - THESE TWO ASSESSEE S APPEAL S FOR A.Y. 2010 - 11 & 2012 - 13 , AR ISE FROM ORDER OF THE CIT(A) - 2 , AHMEDABAD DATED 26 - 10 - 2015 IN APPEAL NOS. CIT(A) - VIII/119/ACIT, SK CIRCLE, HMT/2014 - 15 AND NOW CIT(A) - 2/188/ACIT , SK CIRCLE, HMT/2014 - 15 AND CIT(A) - 2/278/DCIT, SK CIRCLE, HMT/2014 - 15 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . I T A NO S . 3268 - 3269 / A HD/20 15 A S SESSMENT YEAR 2010 - 11 & 2012 - 13 I.T.A NO S. 3268 - 3269 /AHD/20 15 A.Y. 2010 - 11 & 2012 - 13 PAGE NO THE S.K. DIST. CENTRAL CO.OP. BANK LTD VS. ACIT 2 2. THE ASSESSEE S IDENTICAL PLEADINGS IN THE TWO INSTANT APPEALS AVER THAT THE CIT(A) HAS ERRED IN CONFIRMING DISALLOWANCE OF RS. 2,60,99,875/ - AND RS. 82,44,601/ - IN THE NATURE OF AMORTIZATION OF PREMIUM PAID ON HELD TO MATURITY(HTN) GOVERNMENT SECURITIES. BO TH PARTIES ARE AD - IDEM THAT FA CT S OF TWO ASSESSMENT YEARS IN QUESTION QUA THE ABOVE STATED AMO RTIZATION ISSUE ARE IDENTICAL. WE TREAT ITA 3268/AHD/2015 FOR ASSESSMENT YEAR 2010 - 11 AS THE LEAD CASE. 3. WE COME TO RELEVANT FACTS FIRST. THIS APPEARS TO BE SECOND ROUND OF LITIGATION BETWEEN THE PARTIES. THE ASSESSEE IS A CO - OPERATIVE BANK GOVERNED BY STATE CO - OPERATIVE LAWS. THERE CAN HARDLY BE A DISPUTE THAT IT IS BOUND BY RESERVE BANK OF INDIA GUIDELINES BEING THE MARKET REGULATOR ON ACCOUNTING AND FISCAL ISSUE S . THIS REGULATOR ISSUED A MASTER CIRCULAR DATED 01 - 07 - 2009 ON INVESTMENTS BY PRIMARY ( URBAN) CO - OPERATIVE BANKS INTER ALIA PRESCRIBING FOR CATEGORIZATION OF ITS INVESTMENT PORTFOLIO FOR THE PURPOSE OF MAINTAINING SERVICE LENDING RATIO AND OTHER SECURITIES IN HELD TO MATURITY (HTM), AVAILABLE FOR SALE AND HELD FOR TRADING CATEGORY. IT FURTH ER STIPULATES THAT CO - OPERATIVE BANKS SHALL CLASSIFY THEIR SECURITIES ACQUIRED WITH INTENTION TO HOLD THEM UP TO MATURITY UNDER HELD TO MATURITY CATEGORY. THE REGULATOR BANK ISSUED FURTHER CLARIFICATION THAT PROFIT ON SALE OF INVESTMENTS IN ABOVE STATED C ATEGORY WOULD BE FIRST TAKEN TO THE P & L ACCOUNT AND THEREAFTER THE SAME SHALL BE APPROPRIATED TO THE INVESTMENT FLUCTUATION RESERVES AND LOSSES ARISING FROM S ALE THEREOF WOULD BE RECOGNIZE IN THE PROFIT AND LOSS ACCOUNT. CLAUSE 15.5 PERMITTED SHIFTING OF INVESTMENTS FROM I.T.A NO S. 3268 - 3269 /AHD/20 15 A.Y. 2010 - 11 & 2012 - 13 PAGE NO THE S.K. DIST. CENTRAL CO.OP. BANK LTD VS. ACIT 3 HELD TO MATURITY CATEGORY WITH THE BOARD OF DIRECTORS APPROVAL ONCE IN A YEAR. IT EMERGES THAT THE CENTRAL BOARD OF DIRECT TAXES (THE BOARD) ISSUED INSTRUCTION NO. 17 OF 2008 DATED 26 - 11 - 2008 IN VIEW OF ABOVE STATED MASTER CIRCULAR THA T THE INVESTMENT PORTFOLIO IN ABOVE STATED THREE CATEGORIES FOLLOWED BY ITS CLASSIFICATION IN HTM CATEGORY NEED NOT BE MARKED TO MARKET AND ARE CARRIED AT ACQUISITION COST UNLESS THESE ARE MORE THAN THE FACE VALUE IN WHICH THE CASE THE PREMIUM SHOULD BE AM ORTIZED OVER THE PERIOD REMAINING TO MATURITY. 4. WE COME TO THE IMPUGNED ASSESSMENT PROCEEDINGS IN THIS BACKDROP OF RBI S MASTER CIRCULAR AND BOARD S INSTRUCTIONS HEREINABOVE. THE ASSESSEE DEBITED THE IMPUGNED SUM OF RS. 2,60,99,875/ - TOWARDS PREMIUM ON INVEST MENTS RIGHT OF DURING THE YEAR. THE ASSESSING OFFICER OBSERVED IN ASSESSMENT ORDER DATED 22 - 03 - 2013 THAT IT HAD NOT SOLD THE INVESTMENTS AND THEREFORE, THE ABOVE STATED WRITE OFF WOULD NOT BE ALLOWABLE. THE ASSESSEE FILED ITS REPLY INTER ALIA ST ATING THAT IT HAD PURCHASED ITS INVESTMENTS AND WHEN THE PREMIUM IS PAID, THE SAME IS REQUIRED TO BE AMORTIZED OVER A PERIOD OF THE SECURITY IN QUESTION AS PER RBI GUIDELINES IRRESPECTIVE OF THE FACT THAT THIS INVESTMENT IS SOLD OR OTHERWISE. IT QUOTED CO NSISTENCY AS WELL BY HIGHLIGHTING THE FACT THAT THE VERY AMORTIZATION IS BEING CONSISTENC Y FOLLOWED AND ALLOWED AS DEDUCTION FROM SINCE ASSESSMENT YEAR 2007 - 08 ONWARDS. THE ASSESSING OFFICER IN ASSESSMENT ORDER DID NOT DISPUTE THE FACTUM OF RBI REQUIREMEN T AND GUIDELINES ISSUED FROM TIME TO TIME. HOWEVER, HE WAS OF THE VIEW THAT THE ASSESSEE S ACTION IN DEBITING FROM P & L ACCOUNT THE AMOUNT I.T.A NO S. 3268 - 3269 /AHD/20 15 A.Y. 2010 - 11 & 2012 - 13 PAGE NO THE S.K. DIST. CENTRAL CO.OP. BANK LTD VS. ACIT 4 IN QUESTION WAS NOT AN ACTUAL EXPENDITURE TO BE ALLOWABLE. HE QUOTED CASE LAW OF UCO BANK VS. CIT 240 ITR 355 BY D ISTINGUISHING FACTS OF THE TWO CASES THAT THIS BANK HAD WRITTEN OFF PREMIUM PAID ON SECURITIES ON REMAINING LIFE THEREOF AS AGAINST THE PREMIUM BEING PAID TO BE WRITTEN OFF AND AGAIN REVALUATION OF SECURITIES TO CLAIM LOSS. HE HELD THAT BOTH THESE BENEFIT S OF PREMIUM WRITING OFF AND NOTIONAL LOSS WOULD NOT BE SIMULTANEOUSLY ALLOWABLE. ALL THIS DISCUSSION LED TO THE IMPUGNED DISALLOWANCE OF ASSESSEE S AMORTIZATION CLAIM OF RS. 2,60,99,875/ - AFTER BEING CONCLUDED BY THE ASSESSING OFFICER THAT IT WAS NOT TRA DING REGULARLY IN THESE SECURITIES AND PRINCIPAL VALUE THEREOF WOULD BE RECEIVED IF IT HAD PAID PREMIUM ON ITS PURCHASES. 5 . THE ASSESSEE PREFERRED APPEAL. THE CIT(A) AFFIRMED ASSESSING OFFICER S ACTION IN HIS ORDER DATED 28 - 11 - 2013. THE ASSESSEE FILE D ITA 3005/AHD/2013 BEFORE THE TRIBUNAL. A CO - ORDINATE BENCH IN ITS ORDER DATED 07 - 03 - 2014 REMITTED THE ISSUE BACK TO THE CIT(A) FOR FRESH ADJUDICATION AS PER RBI GUIDELINES WITH RESPECT TO VALUATION, ACCOUNTING TREATMENT AND OTHER PROCEDURAL REQUIREMENT TO BE FOLLOWED IN DEALING WITH THE IMPUGNED SECURITIES. THE CIT(A) AGAIN AFFIRMS THE ASSESSING OFFICER S ACTION IN HIS CONSEQUENTIAL ORDER READING AS UNDER: - 5. DECISION: I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS OF THE APPE LLANT. THE AO HAS DISALLOWED THE CLAIM OF AMORTIZATION EXPENSES OF THE PREMIUM PAID ON PURCHASE OF THE GOVERNMENT SECURITIES CLAIMED BY THE APPELLANT AMOUNTING TO RS. RS.2,60,99,875/ - FOR THE REASONS DISCUSSED IN THE ASSESSMENT ORDER IN VIEW OF THE OBSERVA TIONS THAT THE APPELLANT HAS NOT FOLLOWED THE RBI GUIDELINES, AND THEREFORE, THE SECURITIES COULD NOT BE SAID TO BE I.T.A NO S. 3268 - 3269 /AHD/20 15 A.Y. 2010 - 11 & 2012 - 13 PAGE NO THE S.K. DIST. CENTRAL CO.OP. BANK LTD VS. ACIT 5 'HELD FOR MATURITY'. SUBSEQUENTLY, THE ID. CIT( A) AFTER DETAILED DISCUSSION IN THE APPELLATE ORDER HAS DISMISSED THE GROUNDS OF THE APPEAL MAINLY FOR THE REASON THAT IN ABSENCE O F VERIFICATION TO PROVE THAT THOSE SECURITIES WERE HELD FOR MATURITY AND ALSO IN ABSENCE OF FOLLOWING AS WELL AS VIOLATION OF THE GUIDELINES GIVEN IN THE RBI CIRCULAR AND THE CBDT CIRCULAR, THE CLAIM OF AMORTIZATION MADE BY THE APPELLANT WAS DENIED. THE APPELLANT HAS TOTALLY FAILED TO PROVE THAT THE SAID CLAIM WAS IN RESPECT OF SECURITIES HELD FOR MATURITY '. THE APPELLANT WAS UNABLE TO PROVE THAT IT HAD THE PORTFOLIO OF THE GOVERNMENT SECURITIES UNDER THE CATEGORY OF HELD FOR MATURITY . 5.1. IN THIS REGARD, BEFORE COMING TO THE FACTS OF THE CASE, IT WOULD BE NECESSARY TO GO THROUGH THE RBI CIRCULAR DATE D 02/07/2007, ON WHICH THE APPELLANT RELIED, WHEREBY PARA 15 TO 16.3 DEALS WITH THE VARIOUS CATEGORIES OF INVESTMENTS. FOR READY REFERENCE, THE SAME ARE REPRODUCED AS UNDER: - ' 15 CATEGORIZATION OF INVESTMENTS 15.1 PRIMARY (URBAN] CO - OPERATIVE BANKS ARE R EQUIRED TO CLASSIFY THEIR ENTIRE INVESTMENT PORTFOLIO (INCLUDING SLR AND NON - SLR SECURITIES] UNDER THREE CATEGORIES VIZ. - (I) HELD TO MATURITY (HTM) (II) AVAILABLE FOR SALE ( AFS) (III]HELD FOR TRADING (HFT) BANKS SHOULD DECIDE THE CATEGORY OF THE INVESTME NT AT THE TIME OF ACQUISITION AND THE DECISION SHOULD BE RECORDED ON THE INVESTMENT PROPOSALS. 15.2 HELD TO MATURITY 15.2.1 SECURITIES ACQUIRED BY THE BANKS WITH THE INTENTION TO HOLD THEM UP TO MATURITY WILL BE CLASSIFIED UNDER 'HELD TO MATURITY' CATEGOR Y. 15.2.2 THE INVESTMENTS INCLUDED UNDER 'HELD TO MATURITY' CATEGORY SHOULD NOT EXCEED 25 PER CENT OF THE BANK'S TOTAL INVESTMENTS. HOWEVER, BANKS ARE PERMITTED TO EXCEED THE LIMIT OF 25 PER CENT OF THEIR TOTAL INVESTMENTS UNDER HTM CATEGORY PROVIDED, A) THE EXCESS COMPRISES ONLY OF SLR SECURITIES I.T.A NO S. 3268 - 3269 /AHD/20 15 A.Y. 2010 - 11 & 2012 - 13 PAGE NO THE S.K. DIST. CENTRAL CO.OP. BANK LTD VS. ACIT 6 B) THE TOTAL SLR SECURITIES HELD IN THE HTM CATEGORY IS NOT MORE THAN 25 PER CENT OF THEIR NDTL AS ON THE LAST FRIDAY OF THE SECOND PRECEDING FORTNIGHT. 15.2.3 PRIMARY (URBAN) CO - OPERATIVE BANKS ARE NOT PERMITTED TO INVEST IN BONDS AND DEBENTURES OF PRIVATE SECTOR COMPANIES. THEIR INVESTMENTS IN BONDS OF PSUS AND SHARES (AS PERMITTED BY RBI) SHOULD BE CLASSIFIED UNDER 'HELD TO MATURITY' CATEGORY BUT THESE WILL NOT BE COUNTED FOR THE PURPOSE OF SPECIFIED CEILING UNDER THIS CATEGORY. 15.2.4 PROFIT ON SALE OF INVESTMENTS IN THIS CATEGORY SHOULD BE FIRST TAKEN TO THE P&L ACCOUNT AND THEREAFTER BE APPROPRIATED TO THE INVESTMENT FLUCTUATION RESERVE. LOSS ON SALE WILL BE RECOGNISED IN THE P&L A/C. 15.3 HELD FOR TRADING 15.3.1 SECURITIES ACQUIRED BY THE BANKS WITH THE INTENTION TO TRADE BY TAKING ADVANTAGE OF THE SHORT - TERM PRICE/INTEREST RATE MOVEMENTS WILL BE CLASSIFIED UNDER 'HELD FOR TRADING' CATEGORY. 15.3.2 IF BANKS ARE NOT ABLE TO SELL THE SECURITY WITHIN 90 DAYS DUE TO EXCEPTIONAL CIRCUMSTANCES SUCH AS TIGHT LIQUIDITY CONDITIONS, OR EXTREME VOLATILITY, OR MARKET BECOMING UNIDIRECTIONAL, THE SECURITY SHOULD BE SHIFTED TO THE 'AVAILABLE FOR SALE' CATEGORY, SUBJECT TO CONDITIONS ST IPULATED IN PARAGRAPHS 15.5.3 AND 15.5.4 BELOW. 15.4 AVAILABLE FOR SAL E 15.4.1 SECURITIES WHICH DO NOT FALL WITHIN THE ABOVE TWO CATE GORIES WILL BE CLASSIFIED UNDER AVAILABLE FOR SALE 'CATEGORY. 15.4.2 BANKS HAVE THE FREEDOM TO DECIDE ON THE EXTENT OF H OLDINGS UNDER 'AVAILABLE FOR SALE' CATEGORY. THIS MAY BE DECIDED BY THEM CONSIDERING VARIOUS ASPECTS SUCH AS BASIS OF INTENT, TRADING STRATEGIES, RISK MANAGEMENT CAPABILITIES, TAX PLANNING, MANPOWER SKILLS, CAPITAL POSITION, ETC. (PROFIT OR LOSS ON SALE O F INVESTMENTS IN HFT & AFS CATEGORIES SHOULD BE TAKEN TO P&L ACCOUNT). I.T.A NO S. 3268 - 3269 /AHD/20 15 A.Y. 2010 - 11 & 2012 - 13 PAGE NO THE S.K. DIST. CENTRAL CO.OP. BANK LTD VS. ACIT 7 1.5.5 SHIFTING OF INVESTMENTS 15.5.1 BANKS MAY SHIFT INVESTMENTS TO/FROM 'HELD TO MATURITY' CATEGORY WITH THE APPROVAL OF THE BOARD OF DIRECTORS ONCE IN A YEAR. SUCH SHIFTING WILL NORM ALLY BE ALLOWED AT THE BEGINNING OF THE ACCOUNTING YEAR. NO FURTHER SHIFTING TO/FROM THIS CATEGORY WILL BE ALLOWED DURING THE REMAINING PART OF THAT ACCOUNTING YEAR. 15.5.2 BANKS MAY SHIFT INVESTMENTS FROM 'AVAILABLE FOR SALE CATEGORY TO 'HELD FOR TRADIN G' CATEGORY WITH THE APPROVAL OF THEIR BOARD OF DIRECTORS. IN CASE OF EXIGENCIES, SUCH SHIFTING MAY BE DONE WITH THE APPROVAL OF THE CHIEF EXECUTIVE OF THE BANK, BUT SHOULD BE RATIFIED BY THE BOARD OF DIRECTORS. 15.5.3 SHIFTING OF INVESTMENTS FROM 'HELD F OR TRADING' CATEGORY TO 'AVAILABLE FOR SALE' CATEGORY IS GENERALLY NOT ALLOWED. HOWEVER, IT WILL BE PERMITTED ONLY UNDER EXCEPTIONAL CIRCUMSTANCES SUCH AS MENTIONED IN PARAGRAPH 15.3.2 ABOVE, SUBJECT TO DEPRECIATION, IF ANY, APPLICABLE ON THE DATE OF TRANS FER, WITH THE APPROVAL OF THE BOARD OF DIRECTORS/INVESTMENT COMMITTEE. 15.5.4 TRANSFER OF SCRIPS FROM ONE CATEGORY TO ANOTHER, UNDER ALL CIRCUMSTANCES, SHOULD BE DONE AT THE ACQUISITION COST/BOOK VALUE/MARKET VALUE ON THE DATE OF TRANSFER, WHICHEVER IS TH E LEAST, AND THE DEPRECIATION, IF ANY, ON SUCH TRANSFER SHOULD BE FULLY PROVIDED FOR. 15.6 CLASSIFICATION OF INVESTMENTS IN THE BALANCE SHEET FOR THE PURPOSE OF BALANCE SHEET, THE INVESTMENTS SHOULD CONTINUE TO BE CLASSIFIED IN THE FOLLOWING CATEGORIES: ( I) GOVERNMENT SECURITIES (II) OTHER APPROVED SECURITIES (III) SHARES (IV) BONDS OF PSUS (V) OTHERS 16 VALUATION OF INVESTMENTS 16.1 VALUATION STANDARDS 16.1.1 INVESTMENTS CLASSIFIED UNDER 'HELD TO MATURITY' CATEGORY NEED NOT BE MARKED TO MARKET AND WILL BE CARRIED AT I.T.A NO S. 3268 - 3269 /AHD/20 15 A.Y. 2010 - 11 & 2012 - 13 PAGE NO THE S.K. DIST. CENTRAL CO.OP. BANK LTD VS. ACIT 8 ACQUISITION COST UNLESS IT IS MORE THAN THE FACE VALUE, IN WHICH CASE THE PREMIUM SHOULD BE AMORTISED OVER THE PERIOD REMAINING TO MATURITY. 16.1.2 THE INDIVIDUALS SCRIP IN THE 'AVAILABLE FOR SALE' CATEGORY WILL BE MARKED TO MARKET AT THE YE AR - END OR AT MORE FREQUENT INTERVALS. THE BOOK VALUE OF THE INDIVIDUALS SECURITIES WOULD NOT UNDERGO ANY CHANGE AFTER THE REVALUATION. 16.1.3 THE INDIVIDUALS SCRIP IN THE 'HELD FOR TRADING' CATEGORY WILL BE MARKED TO MARKET AT MONTHLY OR AT MORE FREQUENT INTERVALS. THE BOOK VALUE OF INDIVIDUALS SECURITIES IN THIS CATEGORY WOULD NOT UNDERGO ANY CHANGE AFTER MARKING TO MARKET.' 5.2. FURTHER, FOR READY REFERENCE THE CBDT INSTRUCTION NO. 17 OF 2008 DATED 26/11/2008 ON THIS ISSUE ON WHICH THE APPELLANT HAS REL IED UPON IS ALSO REPRODUCED AS UNDER - 'AS PER RBI GUIDELINES DATED 16TH OCTOBER 2000, THE 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 NEED NOT BE MARKED TO MARKET AND ARE CARRIED AT ACQUISITION COST UNLESS THESE ARE MORE THAN THE FACE VALUE, IN WHICH CASE THE PREMIUM SHOULD BE AMORTISED OVER THE PERIOD REMAINING TO MATURITY. IN THE CASE OF HFT AND AFS SECURITIES FORMING STOCK IN TRADE OF THE B ANK, THE DEPRECIATION / APPRECIATION IS TO BE AGGREGATED WISE AND ONLY NET DEPRECIAT ION, IF ANY, IS REQUIRED TO BE PR OVIDED FOR IN THE ACCOUNTS. THE LATEST GUIDELINES OF THE RBI MAY BE REFERRED TO FOR ALLO WING ANY SUCH CLAIMS.' 5.3. NOW, IN THE PRESENT APPELLATE PROCEEDINGS, THE APPELLANT HAS SUBMITTED THE ENGLISH VERSION OF THE BALANCE SHEET ALONG WITH SEPARATE MANUALLY PREPARED DETAILS OF THE INVESTMENT IN GOVERNMENT SECURITIES UNDER TWO HEADS I.E. ON E PERMANENT CATEGORY SECURITY WHICH IS CLAIMED TO 'HELD FOR MATURITY' AND ANOTHER CURRENT CATEGORY SECURITY WHICH IS CLAIMED TO BE 'HELD FOR TRADING / AVAILABLE FOR SALE' FOR THE PERIOD FROM F. Y. 2006 - 07 TO F. Y. 2009 - 10. THE SUMMARY OF THE SAME IS AS UND ER: - I.T.A NO S. 3268 - 3269 /AHD/20 15 A.Y. 2010 - 11 & 2012 - 13 PAGE NO THE S.K. DIST. CENTRAL CO.OP. BANK LTD VS. ACIT 9 F. Y. 2005 - 06 F. Y. 2006 - 07 F. Y. 2007 - 08 F. Y. 2008 - 09 F. Y. 2009 - 10 A) PERMANE NT CATEGORY SECURITY (CLAIMED TO BE HIM) A.1 10.03GOI 2019 200000000 200000000 200000000 20000000 0 200000000 A.2 8.35 GOI 2022 300 000000 300000000 300000000 30000000 0 300000000 A.3 8.07 GOI 20 17 40000000 40000000 40000000 40000000 A.4 6.35 GOI 2020 250000000 250000000 250000000 10000000 0 A.5 6. 30 GOI 2023 , 200000000 250000000 225000000 A.6 6. 05 GOI 201 9 120000000 50000000 A.7 7.50% GOI 2034 40000000 B) CURRENT CATEGORY SECURITY (CLAIMED TO BE AFS /HFT) F. Y. 2005 - 06 F. Y. 2006 - 07 F. Y. 2007 - 08 F. Y. 2008 - 09 F.Y.2009 - 10 B.1 6.30GO 12023 50000000 25000000 I.T.A NO S. 3268 - 3269 /AHD/20 15 A.Y. 2010 - 11 & 2012 - 13 PAGE NO THE S.K. DIST. CENTRAL CO.OP. BANK LTD VS. ACIT 10 B.2 6. 05 GOI 201 9 40000000 110000000 50000000 B.3 6.30GO1 2023 B.4 8.07GOI2 017 40000000 B.5 6.35GOI 2020 10000000 0 B.6 8.31% GUJARAT SDL 2020 100000000 B.7 8.34% MAHA RASH TRA SDL 2020 50000000 B.8 8.38% MAHARASH TRA SDL 2020 50000000 5.4. THE APPELLANT HAS MAINLY RELIED UPON THE RBI CIRCULAR AND ALSO ON THE DECISIONS / JUDGMENTS OF VARIOUS COURTS, STATING THAT AS PER THE SAID CIRCULARS, THE AMORTIZATION OF THE PREMIUM PAID ON THE SECURITIES HELD FOR MATURITY MAY BE GRANTED. HOWEVER, ON PERUSAL OF THE DETAILS AND DOCUMENTS SUBMITTED AND VERIFYING THOSE WITH THE RBI CIRCULAR, IT IS NOTICED THAT THE APPELLANT HAS NOT COMPLIED WITH THE VARIOUS CL AUSES OF THE SAID RBI CIRCULAR AND TH E DEFICIENCIES / NON COMPLIA NCE AS PER THE CLAUSES OF CIRCULAR ARE DISCUSSED AS UNDER: - NON COMPLIANCE OF THE CLAUSES OF RBI CIRCULAR DATED 02/07/2007) I.T.A NO S. 3268 - 3269 /AHD/20 15 A.Y. 2010 - 11 & 2012 - 13 PAGE NO THE S.K. DIST. CENTRAL CO.OP. BANK LTD VS. ACIT 11 (I) AS PER THE CLAUSE NO. 15.1, THE SAID CIRCULAR STATES THA T THE BANK SHOULD DECIDE THE CATEGORY OF THE INVESTMENT AT THE TIME OF ACQUISITIO N ITSELF AND THE DECISION SHOULD BE RECORDED ON THE INVESTMENT PROPOSALS. IT IS WORTH HERE TO MENTION THAT THE APPELLANT AT THE FIRST TIME DURING THE PRESENT SET ASIDE APPELL ATE PROCEEDINGS HAS SUBMITTED THE M ANUAL DETAILS OF THE SECURITIES 'HELD TO MATURITY' UNDER THE HEAD PERMANENT CATEGORY SECURITY AND THE AFS AND HFT UNDER THE CATEGORY OF CURRENT CATEGORY SECURITY PREPARED FOR THE PERIOD OF F INANCIAL YEAR 2005 - 06 TO 2009 - 1 0 WHICH HAS BEEN REPRODUCED IN THE ABOVE TABLE. THE APPELLANT HAS NOT GIVEN ANY BASIS TO VERIFY THE VERACITY OF THE CATEGORIZATION OF SECURITIES UNDER DIFFERENT HEADS. THERE ARE NO WAYS TO CHECK THAT THE AFORESAID CATEGORIZATION SUBMITTED WERE IN ORDER AS PER THE RECORDS OF THE BANK. MORE PARTICULARLY WHEN THE APPELLANT HAD NOT SUBMITTED SUCH DETAILS OF CATEGORIZATION IN THE ASSESSMENT PROCEEDINGS BEFORE THE AO AND IN THE FIRST ROUND OF APPEALS BEFORE THE THEN CIT(A)'S IN SPITE OF VARIOUS REQUISITIONS MA DE DURING THOSE PROCEEDINGS. WHETHER THE SECURITIES SHOWN UNDER THE HEAD OF PERMANENT CATEGORY I.E. HTM ARE BELONGING TO THAT CATEGORY ONLY OR NOT IS TOTALLY UNVERIFIABLE. AS NOTED ABOVE, THAT THE APPELLANT OUGHT TO HAVE RECORDED IN WRITING THE CATEGORY OF THE INVESTMENT AT THE TIME OF ACQUISITION THEREOF AS DECIDED BY THE BANK ON THE INVESTMENT PROPOSALS ITSELF, BUT THE APPELLANT HAS NOT PROVIDED COPIES OF SUCH RECORDING OF ITS CATEGORIZATION MADE IN WRITTEN FORMAT, IF ANY, IN THE APPELLATE PROCEEDINGS WHI CH COULD HAVE AT LEAST BE AVAILABLE FOR VERIFICATION. THUS, NON FURNISHING OF SUCH RECORD OF CATEGORIZATION MAY BE FOR THE REASON THAT EITHER IT HAS NOT BEEN RECORDED BY THE BANK OR WITH SOME TH OUGHT NOT FOU ND FIT TO BE PRODUCED IN ANY OF THE PRO CEEDINGS TO THE DEPARTMENT. THUS, THIS CONDITION OF THE RBI CIRCULAR DOES NOT GET FULFILLED. EVEN, THERE IS NO INDICATION ABOUT THE DIFFERENT CATEGORIZATIONS OF THE SECURITIES IN THE BALA NCE SHEE TS OF THE AFORESAID YEARS WHICH COULD ESTABLISH THE CLAIM OF THE APPELLANT. (II) AS PER THE CLAUSE 15.2.1 OF CIRCULAR, THE SECURITIES ACQUIRED BY THE BANK WITH THE INTENTION TO HOLD THEM UP TO THE MATURITY WOULD HAVE TO BE CLASSIFIED UNDER THE HEAD TO MATURITY CATEGORY. THE APPELLANT HAS NOT SUBMITTED ANY DETAILS AND DOCUMENTS, I.T.A NO S. 3268 - 3269 /AHD/20 15 A.Y. 2010 - 11 & 2012 - 13 PAGE NO THE S.K. DIST. CENTRAL CO.OP. BANK LTD VS. ACIT 12 DEMONSTRATING THE FACTS THAT THE DETAILS OF THE PERMANENT CATEGORY SECURITY I.E. HTM, SUBMITTED AND REPRODUCED IN THE TABLE NOTED ABOVE HAVE BEEN ACQUIRED WITH THE INTENTION TO HOLD THEM UP TO THE DATE OF MATURITY. ON THE CONTRARY, THIS INTE NTION IS DISPROVED WITH THE FACT THAT THE SECURITIES AT SI. NO. A.3 I.E. 8.07 GOI 2017 IN WHICH INVESTMENT WAS MADE IN A. Y. 2005 - 06, FIRSTLY THOSE WERE CONVERTED INTO THE CURRENT CATEGORY IN F. Y. 2008 - 09 (REF. B - 4 IN TABLE) AND SUBSEQUENTLY IN F. Y. 2009 - 10, THOSE WERE SOLD FULLY. SIMILARLY, THE INVESTMENT IN THE SO CALLED HTM CATEGORY MENTIONED AT A.4 I.E. 6.35 GOI 2020, THE INVESTMENT MADE THEREIN UP TO F. Y. 2007 - 08 AT RS.25 CRORES WERE REDUCED IN THE SUBSEQUENT YEAR I.E. F. Y. 2008 - 09 TO RS.10 CRORES . THUS, THERE WAS SALE OF THESE SECURITIES TO THE EXTENT OF RS.5 CRORES AND THE CONVERSION OF THOSE IN TO CURRENT CATEGORY AT RS.10 CRORES (REF. SR. NO. B - 5 OF TABLE). EVEN THIS CONVERSION OF RS. 10 CRORES WAS ALSO SOLD IN THE SUBSEQUENT YEAR I.E. F. Y. 20 09 - 10. LIKEWISE, THE PERMANENT CATEGORY SECURITY AT SI. NO. A.5 (I.E. 6.30GOI 2023), WHICH WAS AT RS.25 CRORES DURING F. Y. 2006 - 07 WAS REMAINED AT RS.22.50 CRORES IN F. Y. 2007 - 08 AND THUS SOLD OF RS.2.50 CRORES. THEREAFTER IN F. Y. 2008 - 09, THE BALANCE SECURITIES WERE ALSO SOLD. FURTHER, WITH REGARD TO THE PERMANENT CATEGORY SECURITY I.E. HTM AT SI. NO. A.6 I.E. 6.05GOI 2019 IN WHICH THE INVESTMENT WAS AT RS. 12 CRORES DURING F. Y. 2005 - 06 WAS REMAINED AT RS. 5 CRORE DURING F. Y. 2006 - 07 AND THE BALANCE OF RS. 7 CRORE WAS CONVERTED INTO CURRENT CATEGORY (REF. B - 2 IN TABLE). THEREAFTER, IN SUBSEQUENT YEAR I.E. F. Y. 2007 - 08, THE TOTAL INVESTMENT IN PERMANENT CATEGORY AT RS. 5 CRORE WAS SOLD LEAVING NO BALANCE. LIKEWISE IN CURRENT CATEGORY, INVESTMENT OF R S. 7 CRORES WAS SOLD LEAVING THE BALANCE OF RS.5 CRORES. FROM ALL THE AFORESAID INSTANCES, IT IS VERY MUCH CLEAR THAT THE APPELLANT HAS NOT HELD THESE SECURITIES TILL THEIR MATURITY DATE, RATHER WITHIN A SPAN OF 2 - 3 YEARS TIME, THE SAME HAVE BEEN SOLD D IRECTLY OR SOLD AFTER CONVERTING PARTIALLY TO THE CURRENT CATEGORY. THUS, THE INTENTION OF THE APPELLANT, OF KEEPING THOSE SECURITIES TILL THE MATURITY HAS NOT BEEN SEEN, AND ACCORDINGLY, THE SECURITIES CLAIMED TO BE SHOWN AS HELD TILL MATURITY IS NOT FOUN D CORRECT. I.T.A NO S. 3268 - 3269 /AHD/20 15 A.Y. 2010 - 11 & 2012 - 13 PAGE NO THE S.K. DIST. CENTRAL CO.OP. BANK LTD VS. ACIT 13 (III) AS PER CLAUSE 15.5.1 OF THE CIRCULAR, BANKS MAY SHIFT THE INVESTMENT TO / FROM HELD TO MATURITY CATEGORY WITH THE APPROVAL OF THE BOARD OF DIRECTORS ONCE IN A YEAR. SUCH SHIFTING WILL NORMALLY BE ALLOWED AT THE BEGINNING OF THE ACCOUNTING YEAR. NO FURTHER SHIFTING TO / FROM THIS CATEGORY WILL BE ALLOWED DURING THE REMAINING PART OF THAT ACCOUNTING YEAR. FROM THE DETAILS SUBMITTED AND DEPICTED IN THE AFORESAID TABLE, IT IS FOUND THAT, IN THE PERMANENT CATEGORY SECURITY AT SR. NO. A.4 I.E. 6.35 GOI 2020 AND AT SR. NO. A.5 I.E. 6.30 GOI 2023 AND SR. NO. A.6 I.E. 6.05 GOI 2019, CONVERSION HAS TAKEN PLACE IN F. Y. 2008 - 09, F. Y. 2007 - 08 & IN F. Y. 2006 - 07 RESPECTIVELY. HOWEVER, FOR SUCH CONVERSION, THE APPELLANT HAS NOT GIVEN ANY DETAILS AND EV IDENCES TO PROVE THAT THIS SHIFTING WAS DULY PRE - APPROVED BY THE BOARD OF DIRECTORS AND THAT TOO IN THE BEGINNING OF THE YEAR OF SHIFTING. EVEN, THE ID. CIT(A) HAS OBSERVED IN ITS FIRST ROUND OF APPELLATE ORDER THAT IN A SINGLE YEAR, THE APPELLANT HAS SOL D THE SECURITIES AT THREE DIFFERENT TIMINGS I.E. ON 30/11/2009, 25/03/2010 & 30/03/2010. THUS, THE SAID CLAUSES OF THE CIRCULAR HAVE NOT BEEN FOLLOWED IN SPIRIT. THUS FROM THE ABOVE DISCUSSION, IT IS APPARENT THAT THE RBI CIRCULAR ON WHICH APPELLANT RELIE D UPON ITSELF HAS NOT BEEN FOLLOWED IN TOTO. 5.5. EVEN THE CBDT CIRCULAR ON WHICH APPELLANT RELIED UPON ALSO EMPHASIZED THAT THE INVESTMENT PORTFOLIO OF THE BANK IS REQUIRED TO BE CLASSIFIED UNDER THREE CATEGORIES I.E. STM, HFT AND AFS. BUT, BY NOT CLASSI FYING THESE SECURITIES BY THE APPELLANT IN THE BALANCE SHEET OR THE ANNEXED RECORDS / DOCUMENTS, THE PROVISIONS OF THE SAID CBDT CIRCULAR IS NOT COMPLIED WITH BY THE APPELLANT. THUS, IT WAS NOT IN ACCORDANCE TO THE CBDT CIRCULAR. 5.6. THE APPELLANT HAS RE LIED TO THE JUDGEMENT OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. RAJKOT DISTRICT CO - OPERATIVE BANK LTD. HOWEVER, ON GOING THROUGH THE SAME, IT IS FOUND THAT THE FACTS OF THAT CASE ARE NOT AT PAR WITH THE FACTS OF APPELLANT. IN THE ABOVE CITED CAS E, THERE IS NO OBSERVATION ABOUT THE NON - COMPLIANCE OF VARIOUS PROVISIONS OF RBI CIRCULAR, WHILE THE CASE OF THE APPELLANT IS REVERSE. LIKEWISE THE RATIO LAID DOWN ON OTHER CASE LAWS CITED BY THE I.T.A NO S. 3268 - 3269 /AHD/20 15 A.Y. 2010 - 11 & 2012 - 13 PAGE NO THE S.K. DIST. CENTRAL CO.OP. BANK LTD VS. ACIT 14 APPELLANT ARE ALSO NOT APPLICABLE OVER THE FACTS OF THE AP PELLANT'S CASE. 5.7. IN VIEW OF THE AFORESAID DISCUSSION, THE CLAIM OF THE AMORTIZATION OF THE PREMIUM ASKED FOR BY THE APPELLANT HAS CORRECTLY BEEN DISALLOWED BY THE AO, AND THEREFORE, THE SAME IS CONFIRMED. 6 . WE HAVE HEARD RIVAL SUBMISSIONS. TH ERE CAN HARDLY BE ANY DISPUTE THAT THE ASSESSEE HAS TO MANDATORILY COMPLY WITH MARKET REGULAR RBI S CIRCULARS ISSUED FROM TIME TO TIME INCLUDING THOSE DEALING WITH THE INSTANT ISSUE OF INVESTMENTS IN SECURITIES, THEIR CLASSIFICATION AND OTHER PROCEDURAL AS PECTS. THERE IS FURTHER NO DISPUTE ABOUT THE ASSESSEE HAVING HELD ITS HTM SECURITIES AS PER THE ABOVE STATED MASTER CIRCULAR. WE ARE CONSCIOUS OF THE FACT THAT NON - COMPLIANCE THEREOF ENTAILS PENAL CONSEQUENCES WHICH ARE NOWHERE FORTHCOMING OR DISCUSSED B Y THE LOWER AUTHORITIES . THE ASSESSEE FILES BEFORE US ITS STATEMENT OF DETAILS OF GOVT. SECURITY FOR THE PURPOSE OF MAINTAINING SERVICE LENDING RATIO RIGHT FROM FINANCIAL YEAR 2005 - 06 TO 2009 - 10 ALONG WITH ITS RELEVANT BOARD S RESOLUTION CLASSIFYING THE S AME TO BE IN PERMANENT CATEGORY. WE HAVE ALREADY R ECORDED THAT IT HAS BEEN ALLOWED THE IMPUGNED RELIEF THROUGHOUT WITHOUT ANY DISALLOWANCE BEING MADE. COPIES OF THE ASSESSMENT ORDERS FOR ASSESSMENT YEAR 2007 - 08 TO 2009 - 10 FORM PART OF THE RECORDS . WE COME TO THE CIT(A) S FINDINGS UNDER CHALLENGE ALLEGING THE ASSESSESE AS NOT TO HAVE FILED THE RELEVANT DETAILS. WE ARE OF THE OPINION THAT ONCE THE ABOVE EXTRACTED PORTION COMPRISES A TABULATION CHART OF PERMANENT CATEGORY SECURITY RIGHT FROM FINANC IAL YEAR 2005 - 06 TO 2009 - 10, NO SUCH CASE OF NON - FURNISHING OF RELEVANT DETAILS CAN BE I.T.A NO S. 3268 - 3269 /AHD/20 15 A.Y. 2010 - 11 & 2012 - 13 PAGE NO THE S.K. DIST. CENTRAL CO.OP. BANK LTD VS. ACIT 15 STATED TO HAVE ARISEN IN THE IMPUGNED ASSESSMENT YEAR. THE CIT(A) S REASONING IS THEREFORE NOT SUSTAINABLE. WE FIND THAT THE HON BLE JURISDICTIONAL HIGH COURT IN CIT V S. RAJKOT DIST. CENTRAL CO - OPERATIVE BANK 222 TAXMAN 240 (GUJ) TAKES NOTE OF CIRCULAR NO. 17 DATED 26 - 11 - 2008 WHEREIN THE S AID ASSESSEE HAD PURCHASED GOVT. SECURITIES AT A PRICE HIGHER THAN THEIR FACE VALUE FOR HOLDING THAT THE RELEVANT PREMIUM PAID THEREU PON HAS TO BE AMORTIZED FOR REMAINING PERIOD OF MATURITY. THE REVENUE FAILS TO POINT OUT ANY EXCEPTION ON FACTS, LAW OR JUDICIAL CONSISTENCY IN THE INSTANT CASE. WE ACCORDINGLY CONCLUDE THAT THE ASSESSEE IS ENTITLED FOR ITS AMORTIZATION OF PREMIUM PAID O N GOVT. SECURITIES AS PER RBI GUIDELINES QUA ITS SUM DEBITED OF RS. 2,60,99,875/ - IN QUESTION. THIS DISALLOWANCE STANDS DELETED ACCORDINGLY. ITA 3268/AHD/2015 SUCCEEDS. 7 . WE FOLLOW OUR DISCUSSION HEREINABOVE IN ITA 3269/AHD/2015 FOR ASSESSMENT YEAR 201 2 - 13 RAISING THE SAME ISSUE OF AMORTIZATION OF PREMIUM PAID ON GOVT. SECURITIES IN ABSENCE OF ANY DISTINCTION POINTED OUT ON FACTS OR LAW. 8 . BOTH THESE ASSESSEE S APPEALS ARE ALLOWED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 26 - 02 - 201 6 SD/ - SD/ - ( N.K. BILLAIYA ) ( S. S. GODARA ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD : DATED 26 /02 /2016 I.T.A NO S. 3268 - 3269 /AHD/20 15 A.Y. 2010 - 11 & 2012 - 13 PAGE NO THE S.K. DIST. CENTRAL CO.OP. BANK LTD VS. ACIT 16 AK / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. C IT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,