Assistant Commissioner of Income-tax, V. Vyapari Sahakari Bank Maryadit, Solapur

ITA 41/PUN/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2829 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 1 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 08-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HITENDRA NINAWE
• Assessee Lawyers: S N DOSHI
• Keywords: Capital asset; Question of law; 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.41 AND 616/PN/2015 #& & / ASSESSMENT YEARS : 2010-11 & 2011-12 ACIT, CIRCLE-2, SOLAPUR . / APPELLANT V/S VYAPARI SAHAKARI BANK MARYADIT, 452, CHATI GALLI, WEST MANGALWAR PETH, SOLAPUR 413 002 PAN NO.AAAAV1118P . / RESPONDENT / ASSESSEE BY : SHRI S.N. DOSHI / REVENUE BY : SHRI HITENDRA NINAWE / ORDER PER R.K. PANDA, AM : ITA NO.41/PN/2015 FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 08-10-2014 OF THE CIT(A)-III, PUNE RELATING TO ASSESSMENT YEAR 2010-11 AND ITA NO. 616/PN/2015 FILED BY THE REVE NUE IS DIRECTED AGAINST THE ORDER DATED 11-02-2015 OF THE CIT(A)-7, PU NE RELATING TO ASSESSMENT YEAR 2011-12. SINCE IDENTICAL GROUNDS HAVE BEEN TAKEN BY THE REVENUE IN BOTH THE APPEALS, THEREFORE, THESE WERE H EARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. / DATE OF HEARING :03.02.2016 / DATE OF PRONOUNCEMENT:10.02.2016 2 ITA NOS.41 AND 616/PN/2015 2. FIRST WE TAKE UP ITA NO.41/PN/2015 FOR A.Y. 2010-11. IN GROUNDS OF APPEAL NO.1 TO 7 THE REVENUE HAS CHALLENGED THE ORDER OF THE CIT(A) IN DELETING THE ADDITION OF RS.1,58,24,201/- MADE BY THE AO ON ACCOUNT OF ACCRUED INTEREST ON NPA U/S.43D OF THE I.T. ACT. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A COOPERATIVE SOCIETY REGISTERED UNDER COOPERATIVE SOCIETIES ACT WITH LIC ENSE FROM RBI TO CARRY ON THE BUSINESS OF BANKING. THE MAIN ACTIVITY O F THE BANK IS TO ACCEPT DEPOSITS AND LEND MONEY TO THE BORROWERS AND A LSO INVEST IN VARIOUS DEPOSITS AND SECURITIES AS ALLOWED BY THE MAHARAS HTRA COOPERATIVE SOCIETIES ACT AND RBI. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO N OTED THAT THOUGH THE ASSESSEE BANK HAS BEEN CONSISTENTLY FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING FOR MAINTAINING ITS BOOKS, THE INTEREST RECEIVABLE ON NPAS WAS BEING ACCOUNTED FOR ON CASH BASIS, WHICH WAS ST ATED TO BE IN ACCORDANCE WITH THE RBI GUIDELINES. THE DETAILS OF INTERES T ON NPA FURNISHED BEFORE THE ASSESSING OFFICER ARE AS UNDER : NPA INTEREST RECEIVABLE AS PER BALANCE SHEET AS 31-03-2010 RS.1,19,90,944/- LESS : NPA INTEREST RECEIVABLE UPTO 31-30-2009 RS.61,6 6,243/- INTEREST ON NPA ACCOUNTS, WHICH HAS NOT BEEN CREDITED TO P&L ACCOUNT PERTAINING TO THE PERIOD 01-04-2009 TO 31-03-2010 RS.58,24,20 1/- 5. THE AO FOUND THAT AGAINST THE INTEREST RECEIVABLE ON N PA ACCOUNT SHOWN IN THE BALANCE SHEET, A CONTRA ENTRY WAS PASSED. ON BEING ASKED TO CLARIFY, THE ASSESSEE SOUGHT TO JUSTIFY ITS ACTION BY RELYING ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF UC O BANK V. CIT REPORTED IN 237 ITR 889. IT WAS ARGUED THAT IN THE SA ID DECISION, THE APEX COURT HAS HELD THAT INTEREST INCOME PERTAINING TO D OUBTFUL DEBTS IS 3 ITA NOS.41 AND 616/PN/2015 NOT REAL INCOME IN THE YEAR IN WHICH IT ACCRUED BUT ONLY WHEN IT IS REALIZED. IT WAS CLAIMED THAT THIS TREATMENT WAS ALSO IN CO NSONANCE WITH THE ACCOUNTING STANDARD 9 PRESCRIBED BY THE ICAI AND DIRECTIVES ISSUED BY THE RBI FROM TIME TO TIME. HOWEVER, THE ASSESSING OFFICE R DISTINGUISHED THE DECISION OF THE HON'BLE SUPREME COURT RE LIED UPON BY THE ASSESSING OFFICER STATING THAT THE SAID DECISION WAS IN THE CONTEXT OF A COMMERCIAL SCHEDULED BANK WHEREIN DEDUCTION U/S.43D WAS AVAILABLE BUT THE SAME COULD NOT BE EXTENDED TO NON-SCHEDULED C OOPERATIVE BANKS AS THEY HAVE BEEN EXPRESSLY EXCLUDED FROM THE PURVIEW OF SEC.43D. FURTHER SINCE THE ASSESSEE HAD BEEN FOLLOWING THE MERCAN TILE SYSTEM OF ACCOUNTING BY CREDITING ENTIRE INTEREST ON LOANS AND ADV ANCES TO ITS INCOME & EXPENDITURE ACCOUNTS, THE INTEREST ON STICKY ADVANCES W AS HELD TO BE LIABLE TO BE CONSIDERED AS INCOME OF THE ASSESS EE. HOLDING SO, THE INTEREST SHOWN AS RECEIVABLE ON NPAS AMOUNTING TO R S.58,24,201/- WAS ADDED BY THE AO TO THE INCOME OF THE ASSESSEE BANK. 6. IN APPEAL THE LD.CIT(A) FOLLOWING VARIOUS DECISIONS DELETED T HE ADDITION. 7. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 8. AFTER HEARING BOTH THE SIDES WE FIND IDENTICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y.2 008- 09. WE FIND THE TRIBUNAL IN ITA NO.888/PN/2012 ORDER DATED 26-09-2013 DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER : 5. THE NEXT ISSUE IS WITH REGARD TO ADDITION OF RS.22, 32,767/- WHICH REPRESENTS THE INTEREST RECEIVABLE ON NON-PERFORMING A SSETS (NPA) NOT TAKEN TO THE PROFIT AND LOSS ACCOUNT AS PER THE RBI GUIDELIN ES. THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUN AL IN THE CASE OF ACIT VS. OSMANABAD JANTA SAH. BANK LTD. IN ITA NO.795/PN/2 011 FOR A.Y. 2007-08 DATED 31-08-2012 WHEREIN THIS ISSUE HAS BEEN DECIDED BY OBSERVING AS UNDER: 4 ITA NOS.41 AND 616/PN/2015 7. IN THE CASE BEFORE US, ADMITTEDLY, ASSESSEE HAS DIRECTL Y TAKEN THE INTEREST TO THE BALANCE SHEET AND IT IS NOT ROUTE D THROUGH THE PROFIT & LOSS ACCOUNT. MOREOVER, THE ISSUE OF THE TAXABILITY OF THE INTEREST ON THE STICKY LOSSES/ADVANCES, IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE COORDINATE BENCHES IN THE CASE OF THE DURGA COOPERATIVE URBAN BANK LTD., VIJAYAWADA (SUPRA) AND KARNAVATI COOPERATIVE BANK LTD. (SUPRA). WE FIND NO REASON TO INTERFERE WITH THE REASONED ORDER OF THE LD.CIT(A) AND ACCORDINGLY THE SAME IS CONFIRMED. IN THE RESULT, THE REVENUES GROUND IS DISM ISSED. 6. FACTS BEING SIMILAR, SO FOLLOWING THE SAME REASONING , WE HOLD THAT THE CIT(A) WAS NOT JUSTIFIED IN SUSTAINING THE ADDITION OF RS.22,32,767/- REPRESENTING THE INTEREST RECEIVABLE ON NON-PERFORMIN G ASSETS. 9. FURTHER, THE HONBLE BOMBAY HIGH COURT IN THE CASE O F CIT VS. DEOGIRI NAGARI SAHAKARI BANK LTD. AND OTHERS REPORTED IN 379 ITR 24 HAS OBSERVED AS UNDER (SHORT NOTES) : THE ASSESSEES WERE COOPERATIVE BANKS. THE ASSESSING OFFICER TOOK THE VIEW THAT THE PROVISIONS OF SECTION 43D OF THE INCOME TAX A CT, 1961, COULD NOT BE APPLIED TO THE ASSESSEE BANKS AS THEY WERE NOT SCHEDULED BANKS BUT COOPERATIVE BANKS, AND THAT CONSIDERING THE PROVISIONS OF SECTION 43D, NON- SCHEDULED CO-OPERATIVE BANKS WERE SPECIFICALLY EXCLUDE D FROM THE SPECIAL PROVISIONS OF SECTION 43D REGARDING INTEREST ON STICKY A DVANCES. HE HELD THAT THE CENTRAL BOARD OF DIRECT TAXES CIRCULAR NO.F.201/ 81/84/ITA-II, DATED OCTOBER 9, 1984, WAS APPLICABLE ONLY TO BANKING COMP ANIES AND NOT TO NON- SCHEDULED BANKS AND CO-OPERATIVE BANKS. THE COMMISSIONE R (APPEALS) DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDITIONS O N ACCOUNT OF INTEREST ON STICKY ADVANCES. THIS WAS CONFIRMED BY THE TRIBUNAL . ON APPEALS : HELD, DISMISSING THE APPEALS, THAT THE ASSESSEE BEING A CO -OPERATIVE BANK WAS ALSO GOVERNED BY THE RESERVE BANK OF INDIA AND THUS TH E DIRECTIONS WITH REGARD TO THE PRUDENTIAL NORMS ISSUED BY THE RESERVE BA NK OF INDIA ARE EQUALLY APPLICABLE TO CO-OPERATIVE BANKS. THE PROVI SIONS OF SECTION 45Q OF THE RESERVE BANK OF INDIA ACT, 1934, HAVE AN OVERRID ING EFFECT VIS--VIS INCOME RECOGNITION UNDER THE COMPANIES ACT. HENCE, SECTION 45Q OF THE 1934 ACT SHALL HAVE THE OVERRIDING EFFECT OVER THE I NCOME RECOGNITION PRINCIPLE FOLLOWED BY CO-OPERATIVE BANKS. HENCE, TH E ASSESSING OFFICER HAS TO FOLLOW THE RESERVE BANK OF INDIA DIRECTIONS, 1998. T HUS, THE DELETION OF THE ADDITIONS ON ACCOUNT OF INTEREST ON STICKY ADVANCES WAS JUSTIFIED. 10. RESPECTFULLY FOLLOWING THE DECISION OF THE JURISDICTIONAL HIG H COURT CITED (SUPRA) AS WELL AS THE DECISION OF THE TRIBUNAL IN ASSE SSEES OWN CASE IN THE A.Y. 2008-09 WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A). ACCORDINGLY, THE SAME IS UPHELD. GROUNDS RAISED BY THE REVENUE ON THIS ISSUE ARE ACCORDINGLY DISMISSED. 5 ITA NOS.41 AND 616/PN/2015 11. IN GROUNDS OF APPEAL NO. 8 TO 11 THE REVENUE HAS C HALLENGED THE ORDER OF THE CIT(A) IN DELETING THE ADDITION OF RS.87,048/- M ADE BY THE AO ON ACCOUNT OF AMORTIZATION OF PREMIUM ON INVESTMENT. 12. FACTS OF THE CASE, IN BRIEF, ARE THAT THE AO DURING T HE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT T HE ASSESSEE BANK HAS DEBITED AN AMOUNT OF RS.87,048/- TOWARDS AMORTIZATION OF PREMI UM ON SECURITIES. ON BEING QUESTIONED BY THE AO IT WAS S UBMITTED THAT IT HAS AMORTIZED THE AMOUNT OF SUCH PREMIUM PAID ON GO VERNMENT SECURITIES WHICH ARE HELD UNDER THE CATEGORY 'HELD TO MATURITY' ONLY, AS PER THE PROVISIONS AND RULES OF RBI, WHICH ARE M ANDATORY TO ALL BANKS. HOWEVER, THE ASSESSING OFFICER WAS NOT CONVI NCED WITH THIS REPLY. HE OBSERVED THAT THE SECURITIES ACQUIRED BY BANKS WITH THE INTENTION TO HOLD THEM TILL MATURITIES ARE CLASSIFI ED AS HTM SECURITIES. THE AFS AND HFT SECURITIES ARE IN THE NATURE OF STO CK IN TRADE WHILE THE HTM SECURITIES ARE IN THE NATURE OF CAPITAL ASS ETS. HENCE, FOR THE PURPOSES OF COMPUTATION OF TAXABLE INCOME UNDER INC OME TAX ACT, FOR THEIR VALUATION AT YEAR END, THE AFS AND HFT SECURITIES ARE TO BE VALUED AT 'COST OR MARKET VALUES WHICHEVER ARE LESS ' PRINCIPLE. WHEREAS, HTM SECURITIES HAVE TO BE VALUED AT COST O NLY AND NOT AT 'COST OR MARKET VALUE WHICHEVER IS LESS' OR ANY OTH ER PRINCIPLE. WHILE IT MAY BE PRUDENT FROM BANKING POINT OF VIEW TO AMO RTIZE THE PREMIUM ON HTM, IT IS NOT ALLOWABLE UNDER INCOME TA X ACT. ALL CAPITAL ASSETS ARE TO BE VALUED AT COST ONLY AND NO PART THEREOF CAN BE CLAIMED AS REVENUE EXPENDITURE IN COMPUTING TAXABLE INCOME. HE ACCORDINGLY DISALLOWED THE AMOUNT OF RS.87,048/-. 6 ITA NOS.41 AND 616/PN/2015 13. IN APPEAL THE LD.CIT(A) FOLLOWING THE DECISION OF THE TRIB UNAL IN THE CASE OF JANTA SAHAKARI BANK LTD. VIDE ITA NO.819/PN/2010 DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND DELETED THE DISALLOWANCE. 14. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 15. AFTER HEARING THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, WE FIND THE ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE BY TH E DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF THE LAXM I COOPERATIVE BANK LTD. VIDE ITA NO.121/PN/2014 ORDER DATED 12-01-20 15 FOR A.Y. 2010-11. WE FIND THE TRIBUNAL FOLLOWING THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. HDFC BANK LTD. HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER : 6. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BO TH THE SIDES. THE ONLY ISSUE TO BE DECIDED IS REGARDING THE DISALLOWANCE OF AMORTIZATION OF PREMIUM ON GOVT. SECURITIES OF RS.25,93,929/- BY THE A O (RS.35,28,509/- AS CLAIMED BY THE ASSESSEE IN THE GROUNDS). WE FIND THE AO DISREGARDING THE CBDT INSTRUCTION NO.17/2008 DATED 26-11-2008 DISALLOW ED THE DEDUCTION OF AMORTIZATION OF PREMIUM BY FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD., REPO RTED IN 320 ITR 577. WE FIND THE LD.CIT(A) UPHELD THE DISALLOWANCE SO MADE B Y THE AO. WE FIND BEFORE THE HONBLE BOMBAY HIGH COURT IN THE CASE OF HDFC BANK LTD., (SUPRA) THE FOLLOWING SUBSTANTIAL QUESTION OF LAW WAS RAISED : C WHETHER THE ITAT IS RIGHT IN LAW IN HOLDING THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION WITH RESPECT TO THE DIMINUTIO N IN VALUE OF THE INVESTMENT AND AMORTIZATION OF PREMIUM ON INVESTMENT HELD TO MATURITY ON THE GROUND OF MANDATE BY RBI GUIDELINES THEREBY IGNORING THE DECISION OF THE SUPREME COURT IN THE CA SE OF SOUTHERN TECHNOLOGIES VS. CIT (320 ITR 577)? 6.1 WE FIND THE HONBLE HIGH COURT DISMISSED THE APPEA L FILED BY THE REVENUE ON THIS ISSUE BY OBSERVING AS UNDER : 7. AS FAR AS QUESTION (C) IS CONCERNED, WE FIND THAT A N IDENTICAL QUESTION OF LAW WAS FRAMED AND ANSWERED IN FAVOUR OF T HE ASSESSEE BY THIS COURT IN ITS JUDGEMENT DATED 04 TH JULY, 2014 IN INCOME TAX APPELLATE NO. 1079 OF 2012, COMMISSIONER OF INCOME TA X-2 VS. M/S. LORD KRISHNA BANK LTD., (NOW MERGED WITH HDFC BANK L TD., ). MR. SURESH KUMAR FAIRLY STATED THAT QUESTION (C) REPRODUC ED ABOVE IS COVERED BY THE SAID ORDER. IN VIEW THEREOF, WE ARE OF THE VIEW THAT 7 ITA NOS.41 AND 616/PN/2015 EVEN QUESTION (C) DOES NOT RAISE ANY SUBSTANTIAL QUESTION OF LAW THAT REQUIRES AN ANSWER FROM US. 6.2 WE FURTHER FIND THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF BHAVANI URBAN CO-OP BANK LTD.(SUPRA) FOLLOWING THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF BANK OF RAJASTHAN LTD., HAS ALSO ALLOWED SIMILAR CLAIM OF THE ASSESSEE. THEREFORE, RESPECTFULLY FOLLOWI NG THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF HDFC BANK LT D. AND IN ABSENCE OF ANY DISTINGUISHABLE FEATURES BROUGHT TO OUR NOTICE BY THE LD. DEPARTMENTAL REPRESENTATIVE, WE SET-ASIDE THE ORDER OF THE CIT(A) O N THIS ISSUE AND DIRECT THE AO TO DELETE THE DISALLOWANCE. GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 16. RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BEN CH OF THE TRIBUNAL CITED (SUPRA) AND IN ABSENCE OF ANY CONTRARY MA TERIAL BROUGHT TO OUR NOTICE WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) DELETING THE DISALLOWANCE. ACCORDINGLY, THE SAME IS UPHELD AND THE GROUNDS RAISED B Y THE REVENUE ARE DISMISSED. ITA NO.616/PN/2015 (A.Y. 2011-12) : 17. GROUNDS OF APPEAL NO.1 TO 5 BY THE REVENUE RELATE TO THE ORDER OF THE CIT(A) IN DELETING THE ADDITION OF RS.52,25,328/- MADE BY THE AO ON ACCOUNT OF ACCRUED INTEREST ON NPA U/S.43D OF THE I.T. ACT. 18. AFTER HEARING BOTH THE SIDES, WE FIND THE ABOVE GROUN DS ARE IDENTICAL TO GROUNDS OF APPEAL NO.1 TO 7 IN ITA NO.41/PN/20 15 FOR A.Y. 2010-11. WE HAVE ALREADY DECIDED THE ISSUE AND THE GRO UNDS RAISED BY THE REVENUE HAVE BEEN DISMISSED. FOLLOWING THE SAME REA SONINGS THESE GROUNDS BY THE REVENUE ARE DISMISSED. 19. GROUNDS OF APPEAL NO.6 TO 8 FILED BY THE REVENUE RELA TES TO THE ORDER OF THE CIT(A) IN DELETING THE ADDITION OF RS.1,03,588/- M ADE BY THE AO ON ACCOUNT OF AMORTIZATION OF PREMIUM OF GOVERNMENT SECURITIES. 8 ITA NOS.41 AND 616/PN/2015 20. AFTER HEARING BOTH THE SIDES, WE FIND THE ABOVE GROU NDS ARE IDENTICAL TO GROUNDS OF APPEAL NO.8 TO 11 IN ITA NO.41/PN/ 2015. WE HAVE ALREADY DECIDED THE ISSUE AND THE GROUNDS RAISED B Y THE REVENUE HAVE BEEN DISMISSED. FOLLOWING THE SAME REASONINGS THESE GROUNDS BY THE REVENUE ARE DISMISSED. 21. IN THE RESULT, BOTH THE APPEALS FILED BY THE REVENUE ARE DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 10-02-2016. SD/- SD/- ( VIKAS AWASTHY ) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE ; DATED : 10 TH FEBRUARY, 2016. ) *#,! -! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT(A ) - III & 7 , PUNE 4. 5. 6. THE CIT-III & 7 PUNE $ ''(, (, / DR, ITAT, B PUNE; - / GUARD FILE. / BY ORDER , // TRUE COPY // // TRUE COPY // // $ ' //TRUE C // /0 ' ( / SR. PRIVATE SECRETARY (, / ITAT, PUNE