Deputy Commissioner of Income tax, Pune V. M/s. Pune Cantonment Sahakari Bank Ltd, Pune

ITA 435/PUN/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 0818 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 28-02-2019
• Assessment Year: 2007-2008
• Appeal Filed On: 20-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABHIJIT HALDAR
• Assessee Lawyers: DHIRAJ DANDGAVEL
• Keywords: Depreciation; Business expenditure; Question of law; Cost of acquisition; Bad and doubtful debts
• Section: 260A; 43D; 250; 145; 148; 56; 154

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI ANIL CHATURVEDI, AM AND SHRI PARTHA SARATHI CHAUDHURY, JM . / ITA NOS.435 & 436/PUN/2017 / ASSESSMENT YEARS : 2007-08 AND 2012-13 THE DY. C OMMISSIONER OF I NCOME TAX , CIRCLE 7, PUNE. . / APPELLANT V/S M/S. PUNE CANTONMENT SAHAKARI BANK LTD., 150, RADIANT HOUSE, MAHATMA GANDHI ROAD CAMP, PUNE 411001. PAN : AAAAP1811H. . / RESPONDENT ASSESSEE BY : SHRI DHIRAJ DANDGAVEL. REVENUE BY : SHRI ABHIJIT HALDAR. / ORDER PER ANIL CHATURVEDI, AM : THESE TWO APPEALS FILED BY THE REVENUE ARE EMANATING OUT OF A CONSOLIDATED ORDER OF COMMISSIONER OF INCOME TAX (A), PUNE- 5, PUNE DATED 20.10.2016 FOR THE ASSESSMENT YEARS 2007-08 AND 2012-13, RESPECTIVELY. 2. BEFORE US, AT THE OUTSET, BOTH THE PARTIES SUBMITTED T HAT THOUGH THE APPEALS FILED BY THE REVENUE ARE FOR TWO DIFFERENT ASSE SSMENT YEARS BUT THE FACTS AND ISSUES INVOLVED IN BOTH THE APPEALS AR E IDENTICAL EXCEPT FOR THE ASSESSMENT YEAR AND THE AMOUNTS INVOLVE D AND THE LD.CIT(A) HAS ALSO PASSED A CONSOLIDATED ORDER AND THEREFO RE THE / DATE OF HEARING : 28.02.2019 / DATE OF PRONOUNCEMENT: 27.03.2019 2 SUBMISSIONS MADE BY THEM WHILE ARGUING ONE APPEAL WOULD BE EQUALLY APPLICABLE TO THE OTHER APPEAL ALSO AND THUS, BOTH THE A PPEALS CAN BE HEARD TOGETHER. IN VIEW OF THE AFORESAID SUBMISSIONS OF B OTH THE PARTIES, WE, FOR THE SAKE OF CONVENIENCE, PROCEED TO DISPOS E OF BOTH THE APPEALS BY A CONSOLIDATED ORDER. 3. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RE CORD ARE AS UNDER :- ASSESSEE IS A CO-OPERATIVE BANK ENGAGED IN THE BUSINES S OF ACCEPTANCE OF DEPOSITS AND GIVING LOANS. ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y. 2007-08 ON 31.10.2007 DECLARING TOTAL LOSS O F RS.2,24,47,498/-. THEREAFTER, ORDER U/S 154 OF THE ACT W AS PASSED AND DEDUCTION OF RS.2,19,44,280/- U/S 36(1)(VIIA) WAS WITHDRAWN AND THE TOTAL INCOME WAS DETERMINED AT RS.15,81,901/-. THERE AFTER, THE CASE WAS RE-OPENED BY ISSUING NOTICE U/S 148 OF THE ACT AND THEREAFTER RE-ASSESSMENT WAS FRAMED VIDE ORDER DT.05.03.2015 AND TH E TOTAL INCOME WAS DETERMINED AT RS.2,49,20,300/-. AGGRIEVED BY TH E ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO VID E CONSOLIDATED ORDER DATED 20.10.2016 FOR A.YS. 2007-08 AND 2012-13, GRANTED SUBSTANTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF LD.CIT(A), REVENUE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS : 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES AN D IN LAW, THE CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE ON ACCOUNT O F ACCRUED INTEREST ON NPAS AND FAILED TO APPRECIATE T HAT THE ASSESSEE IS A NON-SCHEDULED CO-OPERATIVE BANK AND T HE PROVISIONS OF SECTION 43D ARE NOT APPLICABLE TO THE ASSESSEE. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES AND I N LAW, THE LD.CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE ON ACCOUNT O F ACCRUED INTEREST ON NPAS AND FAILED TO APPRECIATE T HAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG AND THEREFORE SUCH ACCRUED INTEREST ON NPAS SHOULD BE I NCLUDED IN THE INCOME FOR THE YEAR BY VIRTUE OF SECTION 145 OF THE IT ACT. 3 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE ON ACCOUNT O F ACCRUED INTEREST ON NPAS AND FAILED TO APPRECIATE T HE DECISION OF THE APEX COURT IN THE CASE OF SOUTHERN TECHNOLOGIES (320 ITR 577) WHEREIN THE SUPREME COURT HAS HELD THAT THE PRUDENT IAL NORMS ISSUED BY THE RBI CANNOT OVERRIDE THE PROVISIONS OF THE INCOME TAX ACT FOR COMPUTING TAXABLE INCOME. 4. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE ON ACCOUNT O F ACCRUED INTEREST ON NPAS AND FAILED TO APPRECIATE THE DECISION OF THE MADRAS HIGH COURT IN THE CASE OF SHAKTI FINANCE LTD (31 TAXMANN.COM 305) WHEREIN THE HON'BLE HIGH COURT HAS HELD THAT ACCRUED INTEREST ON NPAS IS TO BE CONSIDERED AS INC OME FOR THE YEAR AND IS TAXABLE. 5. WITHOUT PREJUDICE TO THE ABOVE, WHETHER THE LD. CIT(A) OUGHT TO HAVE REMITTED TO THE AO TO APPLY THE PROVISIONS OF RULE 6EA. 3.1. SIMILAR GROUNDS HAVE BEEN RAISED BY THE REVENUE IN I TA NO.436/PUN/2017 FOR A.Y. 2012-13. 4. WE FIRST TAKE UP REVENUES APPEAL IN ITA NO.435/ PUN/2017. GROUND NOS.1 TO 5 IN APPEAL FOR A.Y. 2007-08 ARE IN TER-CONNECTED AND ARE SIMILAR TO GROUND NOS.1 TO 5 OF APPEAL FOR A.Y. 2012-13. WE THEREFORE PROCEED TO DISPOSE OF THE AFORESAID GR OUNDS. 4.1. ON PERUSAL OF THE BALANCE-SHEET, AO NOTICED THAT ASSE SSEE HAD ACCRUED INTEREST OF RS.1,96,28,483/- ON THE LOANS AND ADVA NCES WHICH WERE TERMED AS BAD DEBTS BY THE ASSESSEE. THE AFORES AID INTEREST ACCRUED WAS NOT CONSIDERED BY THE ASSESSEE AS INCOME. IN RESPONSE TO THE QUERY OF THE AO AS TO WHY THE ACCRUED INTEREST OF LOANS AND ADVANCES WHICH ARE TERMED AS BAD ARE NOT CONSIDERED A S INCOME, ASSESSEE MADE DETAILED SUBMISSIONS WHICH WERE NOT FOUND ACCEPTABLE TO THE AO. ASSESSEE SUBMITTED THAT IT WAS FOLLOWING THE PRUDENTIAL NORMS ON INCOME RECOGNITION, ASSET CLASSIFICATION AS DIRECTE D BY RBI AND IT BEING A CO-OPERATIVE BANK IT HAS TO FOLLOW THE GUIDE LINES OF THE 4 RBI. IT WAS FURTHER THE SUBMISSION OF THE ASSESSEE THAT THE RECOGN ITION OF INCOME ON NPA ACCOUNT HAS TO BE RECOGNIZED AS ACCRU AL RECEIPT BASIS AS PER THE GUIDELINES OF RBI. THE SUBMISSIONS OF THE ASSESSEE WERE NOT FOUND ACCEPTABLE TO AO AS AO WAS OF THE VIEW T HAT RBI GUIDELINES CANNOT OVERRIDE THE INCOME TAX ACT. AO WAS FU RTHER OF THE VIEW THAT PROVISIONS OF SEC.43D ARE NOT APPLICABLE TO THE C O-OPERATIVE BANKS FOR THE YEAR UNDER CONSIDERATION AND THEREFORE T HE BENEFIT CANNOT BE EXTEND TO THE ASSESSEE. HE THEREFORE HELD TH AT THE INTEREST INCOME OF RS.1,96,28,483/- AS INCOME OF THE ASSESSEE AND MADE ITS ADDITION. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED T HE MATTER BEFORE LD.CIT(A), WHO DECIDED THE ISSUE IN FAVOUR OF ASSESSEE BY OBSERVING AS UNDER : 7.3 I HAVE PERUSED THE MATERIAL ON RECORD AND THE SUBMISSIONS MADE BY THE APPELLANT BANK CAREFULLY. I TEND TO AGREE W ITH THE CONTENTIONS OF THE APPELLANT BANK. I ALSO FIND THAT A SIMILAR ISS UE HAS BEEN DECIDED BY THE HONBLE ITAT PUNE IN ITS ORDER IN THE CASE OF W ESTERN MAHARASHTRA DEVELOPMENT CORPORATION LTD VS . DC I T (2008) 114 ITJ (PUNE) 54 WHEREIN IT HAS ELABORATELY CONSIDERED A SIMILAR SITUAT I ON WHERE RECOVERY ON INTEREST ON SEED MONEY LOAN GIVEN BY THE ASSESSEE C OMPAN Y WAS EXTREMELY LOW AND POSSIBILITY OF RECOVERING THESE A MOUNTS WAS SOMEWHAT REMOTE. IN THE SAID CASE, THE HON'BLE ITAT HAS OBSERVED THAT NO DOUBT THERE IS A LEGAL RIGHT TO RECEIVE THE INTE REST BUT THERE ARE ALSO GROUND REAL I TIES WHICH DO NO T PERMIT STRICT ENFORCEMENT OF THIS RIGHT . WHILE HOLDING THAT SUCH I NTERE S T EV E N THOUGH ACCRUED AS PER MERCANTILE SYSTEM OF ACCOUNTING BUT DID NOT G IVE REAL INCOME TO THE ASSESSEE . THE HON'BLE ITAT PUNE HAS DECIDED THE ISSUE ON ACC R U E D INTEREST ON NPA ADVANCES NOT TO BE CONSIDERED AS INCOME IN FAVOUR O F THE BANK IN MANY CASES A FEW OF WHICH ARE MENTIONED BELOW: ACIT VS OSMANABAD JANTA SAHKARI BANK LTD ITA NO. 795/PN/2011 DTD . 31.08.2012 . ACIT VS SIDDHESHWAR SAHKARI BANK LTD ITA NO . 794/PN/2011 DATED 31.08 . 2012 ACI T VS DEVNAGARI SAHKARI BANK LTD ITA NO. 817 & 1114/PN/2011 DTD. 28 . 09.201 2 . ACIT VS MAHARASHTRA NAGRI SAHKARI NANDED BANK ITA NO.1713/PN/2011 DAT E D 28.0 2 .2013 . 7.4 THOUGH THERE ARE DIVERSE VIEWS ON THE ISSUE OF INTEREST ON NPA ACCOUNTS OF DIFFERENT HIGH COURTS AS IN THE CASE OF CIT VS VASISHT CHAY VYAPAR LTD . 330 ITR 4 4 0 WHEREIN TH E DELHI HIGH COURT RULED IN FAVOUR OF THE A SSESSEE BY HOLDING TH AT INTEREST INCOME ON NPA IS NOT TAXABLE ON ACCRUAL BASIS , T HE HON'BLE M ADRAS HI GH COURT ON THE OTHER HAND IN THE CASE OF SHAKTI FINANCE LTD. 31 TA X MANN.COM 3 05 H AS TAK E N THE STAND 5 THAT INTEREST INCOME ON NPA IS TA X ABLE ON ACCRUAL BASIS , HOWEV ER , AT PRESENT AS THERE ARE NO JURISDICTIONAL H I GH COURT DECISIONS ON THIS ISSU E AND THE JURISDICTIONAL BENCH HAS RULED IN FAVOUR OF THE BAN KS IN VARIOUS CASES. RESPECTFULLY FOLLOWING THE JURISDICTIONAL I TAT THE ACTION OF THE AO TO TAX ACCRUED INTEREST ON NPA ACCOUNTS IS NOT JUST IFIED IN LAW. THE AO IS DIRECTED TO DELETE THE SAID ADDITION. THESE GRO UNDS OF APPEAL NOS.3 AND 4 FOR THE BOTH YEARS ARE ALLOWED. AGGRIEVED BY THE ORDER OF LD.CIT(A), REVENUE IS NOW BEFORE US. 5. BEFORE US, LD.DR SUPPORTED THE ORDER OF AO. LD.A.R. ON THE OTHER HAND, REITERATED THE SUBMISSIONS MADE BEFORE AO AN D LD.CIT(A) AND SUBMITTED THAT THE ISSUE IN THE PRESENT CASE IS ALSO COVERED IN ASSESSEES FAVOUR BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. DEOGIRI NAGARI SAHAKARI BANK LTD., (2015) 379 ITR 24 (BOM). HE THUS SUPPORTED THE ORDER OF LD.CIT(A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESP ECT TO TAXING OF INTEREST ACCRUED ON NPAS. WE FIND THAT THE CO-ORDINATE BENCH OF THE TRIBUNAL HAS HELD THAT INTEREST ON NPAS CANNOT BE SAID T O BE ACCRUED TO THE ASSESSEE AND THEREFORE NOT CHARGEABLE TO TAX. WE FURTHER FIND THAT HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. DE OGIRI NAGARI SAHAKARI BANK LTD., (2015) 379 ITR 24 (BOM) HAS HELD THAT P RUDENTIAL NORMS ISSUED BY RESERVE BANK OF INDIA ARE APPLICABLE TO C O-OPERATIVE BANKS AND THAT INTEREST ON STICKY ADVANCES ARE NOT TA XABLE. WE FURTHER FIND THAT HONBLE GUJARAT HIGH COURT IN THE CASE OF PCIT VS. SHRI MAHILA SEVA SAHAKARI BANK LTD., (2017) 395 ITR 324 (GUJ ) AFTER CONSIDERING THE RESERVE BANK OF INDIA GUIDELINES, RESERVE B ANK OF INDIA ACT, 1934, SEC.45Q OF NON-BANKING COMPANIES PRUDEN TIAL NORMS (RESERVE BANK) DIRECTIONS, 1998 & SEC.43D OF I.T. ACT HAS HELD AS UNDER : THE EXPRESSION 'BANKING COMPANY' HAS BEEN DEFINED UNDER SECTION 5(C) OF THE BANKING REGULATION ACT, 1949 TO MEAN ANY COMPANY WHICH 6 TRANSACTS THE BUSINESS OF BANKING IN INDIA. PART V OF THE 1949 ACT BEARS THE HEADING 'APPLICATION OF THE ACT TO CO-OPE RATIVE SOCIETIES'. SECTION 56 THEREOF PROVIDES THAT THE PROVISIONS OF THE ACT, AS IN FORCE FOR THE TIME BEING, SHALL APPLY TO, OR IN RELATION TO T HE CO-OPERATIVE SOCIETIES AS THEY APPLY TO, OR IN RELATION TO BANKING COMPANI ES SUBJECT TO THE MODIFICATIONS STATED THEREUNDER. CLAUSE (A) OF SECT ION 56, PROVIDES THAT THROUGHOUT THE ACT, UNLESS THE CONTEXT OTHERWISE R EQUIRES- REFERENCES TO A 'BANKING COMPANY' OR 'THE COMPANY' OR 'SUCH COMPA NY' SHALL BE CONSTRUED AS REFERENCES TO A 'CO-OPERATIVE BANK'. S ECTION 2(I) OF THE RESERVE BANK OF INDIA ACT, 1934 PROVIDES THAT' CO-OPERATIVE BANK', 'CO- OPERATIVE CREDIT SOCIETY', 'DIRECTOR', 'PRIMARY AGR ICULTURAL CREDIT SOCIETY', 'PRIMARY CO-OPERATIVE SOCIETY' AND 'PRIMARY CREDIT SOCIETY' SHALL HAVE THE MEANING RESPECTIVELY ASSIGNED TO THEM IN PART V OF THE 1949 ACT. THEREFORE, THE EXPRESSION 'BANKING COMPANY' WOULD T AKE WITHIN ITS SWEEP A CO-OPERATIVE BANK. SECTION 45Q OF THE RESERVE BANK OF INDIA ACT, 1934, IS IN CHAPTER III-B OF THE ACT. THE PROVISIONS OF CHAPTER III-B HAVE AN OVERRIDING EFFECT QUA OTHER ENACTMENTS TO THE EXTENT THEY ARE INCONSISTEN T WITH THE PROVISIONS CONTAINED THEREIN. IN ORDER TO REFLECT A BANK'S ACT UAL FINANCIAL POSITION IN ITS BALANCE-SHEET, THE RESERVE BANK HAS INTRODUCED PRUDENTIAL NORMS FOR INCOME RECOGNITION, ASSET CLASSIFICATION AND PROVIS IONING FOR ADVANCES PORTFOLIO OF THE CO-OPERATIVE BANKS. THE GUIDELINES PROVIDED THEREUNDER ARE MANDATORY AND IT IS INCUMBENT UPON ALL CO-OPERA TIVE BANKS TO FOLLOW THEM. INCOME FROM NON-PERFORMING ASSETS IS NOT RECOGNIZED ON ACCRUAL BASIS BUT IS BOOKED AS INCOME ONLY WHEN IT IS ACTUALLY RE CEIVED. THEREFORE, BANKS SHOULD NOT .TAKE TO INCOME ACCOUNT, THE INTER EST ON NON- PERFORMING ASSETS ON ACCRUAL BASIS. THE HONBLE HIGH COURT WHILE DISMISSING THE APPEAL OF REVE NUE OBSERVED AS UNDER : THAT IN VIEW OF THE MANDATE OF THE RESERVE BANK OF INDIA GUIDELINES THE ASSESSEE COULD NOT RECOGNIZE INCOME FROM NON- PERFO RMING ASSETS ON ACCRUAL BASIS AND COULD BOOK SUCH INCOME ONLY WHEN IT WAS ACTUALLY RECEIVED. THE BENEFIT CLAIMED BY THE ASSESSEE WAS N OT UNDER ANY PROVISION OF THE INCOME-TAX ACT, 1961. THE ASSESSEE BEING BOUND BY THE RESERVE BANK OF INDIA GUIDELINES WHICH WERE ISSUED UNDER THE PROVISIONS OF THE RESERVE BANK OF INDIA ACT, 1934 HAD NOT SHOWN THE INTEREST ON NON-PERFORMING ASSETS AS INCOME. BY VIR TUE OF THE PROVISIONS OF SECTION 45Q OF THE RESERVE BANK OF INDIA ACT, 1934, THE PROVISIONS OF CHAPTER III THEREOF HAD AN OVERRIDING EFFECT OVER O THER LAWS INCLUDING THE 1961 ACT. THEREFORE, NOTWITHSTANDING THE PROVISIONS OF S ECTION 43D OF THE 1961 ACT, SINCE THE PROVISIONS OF SECTION 45Q OF THE 1934 ACT HAD AN OVERRIDING EFFECT VIS-A-VIS INCOME RECOGNITION PRIN CIPLES IN THE COMPANIES ACT, 1956, THE ASSESSING OFFICER WAS BOUND TO FOLLOW THE RESER VE BANK OF INDIA DIRECTIONS SO-FAR AS INCOME RECOGNITION WA S CONCERNED. BEFORE US, REVENUE HAS NOT PLACED ANY CONTRARY BINDING D ECISION IN ITS SUPPORT. WE THEREFORE FIND NO REASON TO INTERFERE W ITH THE ORDER OF LD.CIT(A). THUS, ALL THE GROUNDS OF REVENUE IN ITA 7 NO.435/PUN/2017 AND GROUNDS 1 TO 5 OF REVENUES APPE AL IN ITA NO.436/PUN/2017 ARE DISMISSED. 7. NOW, WE TAKE UP GROUND NO.6 OF REVENUES APPEAL FOR A.Y. 2012-13 I.E., WITH RESPECT TO DISALLOWANCE OF CLAIM OF DEPRECIATION OF RS.29,34,750/-. 7.1. ON PERUSING THE DETAILS, AO NOTICED THAT ASSESSEE HAS CLAIMED DEPRECIATION ON INVESTMENTS AMOUNTING TO RS.29,34,750/-. T HE ASSESSEE WAS ASKED TO JUSTIFY THE CLAIM. IT WAS SUBMIT TED THAT THE DEPRECIATION WAS CLAIMED ON SECURITIES HELD BY THE BANK UN DER THE AVAILABLE FOR SALE (AFS) CATEGORY WHICH NEEDS TO BE VALUED AT MARKED TO MARKET AS PER THE PRUDENTIAL NORMS ISSUED BY THE RBI. IT WAS FURTHER SUBMITTED THAT SINCE THE SECURITIES WERE HELD UND ER THE CATEGORY OF AFS, THE BANK HAD WORKED OUT THE DEPRECIAT ION AMOUNT WHENEVER THE MARKET RATE IS LESSER THAN THE ACQUISITION COST AND CLAIMED THE AMOUNT OF DEPRECIATION AS BUSINESS EXPENDITURE . THE SUBMISSION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO T HE AO. AO WAS OF THE VIEW THAT R.B.I GUIDELINES HAS NO ROLE IN COMPUT ATION OF INCOME FOR INCOME TAX PURPOSE AND FURTHER ASSESSEE HAD NOT MADE ANY ACTUAL LOSS AND IT WAS ONLY NOTIONAL LASS BASED ON TH E RATES PREVAILING ON THE LAST DATE OF FINANCIAL YEAR. HE WAS FURT HER OF THE VIEW THAT LOSS IS CONTINGENT IN NATURE AND CANNOT BE ALLOW ED TO BE SET OFF OF AGAINST THE TAXABLE INCOME. HE ACCORDINGLY DENIED TH E CLAIM OF DEPRECIATION. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CAR RIED THE MATTER BEFORE LD.CIT(A), WHO FOLLOWING THE DECISION OF HONBLE B OMBAY HIGH COURT IN THE CASE OF CIT VS. HDFC BANK LTD REPORTE D IN (2014) 368 ITR 377 AND THE DECISION OF KARNATAKA HIGH COURT IN THE CASE OF KARNATAKA BANK LIMITED VS. ACIT REPORTED IN 356 ITR 54 6 DECIDED THE 8 ISSUE IN FAVOUR OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF LD.CIT(A), REVENUE IS NOW IN APPEAL BEFORE US. 8. BEFORE US, LD.D.R. SUPPORTED THE ORDER OF AO. LD.A.R. ON THE OTHER HAND REITERATED THE SUBMISSIONS MADE BEFORE AO AN D LD.CIT(A) AND FURTHER SUBMITTED THAT IN VIEW OF THE DECISION OF HONB LE BOMBAY HIGH COURT IN THE CASE OF HDFC BANK (SUPRA), NO INTERFEREN CE TO THE ORDER OF LD.CIT(A), IS CALLED FOR. HE THUS SUPPORTED THE O RDER OF LD.CIT(A). 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESP ECT TO DISALLOWANCE OF CLAIM OF DEPRECIATION. WE FIND THAT LD.CIT(A) WH ILE DECIDING THE ISSUE IN FAVOUR OF ASSESSEE HAD RELIED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. HDFC BA NK LTD., (ITA NO.250 OF 2012 DT.17.07.2014) WHICH HAS BEEN REPRODUCE D BY CIT(A) UNDER PARA 10.03 OF HER ORDER : 10.3 I HAVE PERUSED THE MATERIAL ON RECORD AND SUB MISSION MADE BY THE APPELLANT CAREFULLY. I FIND THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE APPELLANT IN THE CASE OF CIT VS. HDFC BANK LTD. ITA NO. 250 OF 2012 DATED 10.07.2014 WHEREIN IN THE DECISIO N THE HONBLE MUMBAI HIGH COURT AT PARAGRAPH 7 TO 12 HAS STATED A S UNDER : 7. AFTER PERUSING THE ORDER PASSED BY THE APPELLANT DATED 23 RD MARCH 2009 AND THE IMPUGNED ORDER PASSED BY THE ITA T, WE FIND THAT THE ITAT WAS FULLY JUSTIFIED IN SETTING ASIDE THE ORDER OF THE APPELLANT DATED 23 RD MARCH 2009 AND ALLOWING THE D EDUCTION OF RS.87.11 LAKHS TO THE ASSESSEE. IN THIS REGARD, THE RELIANCE PLACED BY MR MISTRY, THE LEARNED SENIOR COUNSEL APP EARING ON BEHALF OF THE RESPONDENT - ASSESSEE ON THE JUDGMENT OF THIS COURT IN THE CASE OF COMMISSIONER OF INCOME TAX V/S BANK OF BARODA (SUPRA) IS WELL FOUNDED. THE FACTS BEFORE TH E DIVISION BENCH IN THE CASE OF CIT V/S BANK OF BARODA (SUPRA) WERE THAT THE ASSESSEE BANK HAD IN ITS POSSESSION DURING THE RELEVANT ASSESSMENT YEAR SHARES AND SECURITIES WORTH SEVERAL CRORES. THE METHOD OF VALUATION FOLLOWED BY THE ASSESSEE WAS TO VALUE THE INVESTMENTS AT COST OR MARKET VALUE WHICHEVER WAS L OWER. DURING THE YEAR OF ACCOUNT, DEPRECIATION WITH REGARD TO TH E SECURITIES HELD BY THE ASSESSEE BANK WAS TO THE TUNE OF RS.11, 82,35,007/- AND THEREFORE, THE ASSESSEE BANK CLAIMED A DEDUCTIO N WITH REFERENCE TO THE SAID DEPRECIATION. THIS WAS DISALL OWED BY THE 9 INCOME TAX OFFICER. BEING AGGRIEVED, THE ASSESSEE B ANK WENT IN APPEAL TO THE CIT (APPEALS) WHO TOOK THE VIEW THAT THE SAID INVESTMENTS WERE RIGHTLY VALUED AT THE END OF THE Y EAR AT COST OR MARKET VALUE WHICHEVER WAS LOWER AND THE DIFFERENCE ARISING AS A RESULT OF THIS VALUATION HAD TO BE ALLOWED TO THE ASSESSEE AS A LOSS. THE REVENUE, BEING AGGRIEVED BY THE ORDER OF THE CIT (APPEALS) CARRIED THE MATTER FURTHER TO THE TRIBUNA L WHO CONFIRMED THE ORDER OF THE CIT (APPEALS). IN VIEW T HEREOF, THE REVENUE APPROACHED THIS COURT BY WAY OF A REFERENCE . ON THESE FACTS, THE QUESTION OF LAW FRAMED BY THIS COURT WAS AS FOLLOWS :- '(A) WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE AS SESSEE WAS ENTITLED TO DEDUCTION ON ACCOUNT OF DEPRECIATIO N IN THE VALUE OF INVESTMENTS AND, CONSEQUENTLY, DEBITING DISALLOWANCE OF RS.11,82,35,007 ?' 8. THIS COURT, IN ANSWERING THE AFORESAID QUESTION OF LAW IN FAVOUR OF THE ASSESSEE AND PLACING RELIANCE ON THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF UNITED COMMERCIAL BANK V/S CIT, REPORTED IN (1999) 240 ITR 355(SC) HELD AS UND ER :- 'IN OUR VIEW, THE JUDGMENT OF THE SUPREME COURT IN UNITED COMMERCIAL BANK'S CASE (1999) 240 ITR 355 SQUARELY APPLIES TO THE FACTS OF THIS CASE. IN FACT, THE PRESENT CASE BEFORE US IS ON A STRONGE R FOOTING BECAUSE IN THE CASE OF UNITED COMMERCIAL BANK, THE LOSS WAS NOT DEBITED TO THE PROFIT AND LOSS ACCOUNT WHER EAS IN THIS CASE, AS CAN BE SEEN FROM THE WORKING AT PAGES 25 AND 26 OF THE PAPER-BOOK, THE LOSS OF RS.11,82,35,0 07/- HAS BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT WHI CH IS REFLECTED AS A PROVISION FOR LIABILITY IN THE BALAN CE-SHEET AND THE SHARES AND SECURITIES WERE VALUED AT COST O N THE ASSETS SIDE. FOR THE REASONS GIVEN HEREINABOVE, WE ANSWER THE AB OVE QUOTED QUESTION IN THE AFFIRMATIVE, I.E. IN FAVOUR OF THE ASSESSEE-BANK AND AGAINST THE DEPARTMENT.' 9. IN THE PRESENT CASE, WE FIND THAT THE FACTS AND ISSUES THAT ARE COVERED BY THE AFORESAID JUDGMENT SQUARELY APPLY TO THE FACTS AND ISSUES RAISED IN THE PRESENT APPEAL. NOT ONLY A RE WE IN FULL AGREEMENT WITH THE JUDGMENT OF THIS COURT IN THE CA SE OF CIT V/S BANK OF BARODA (SUPRA) BUT WE ARE BOUND BY THE SAME . WE THEREFORE RESPECTFULLY FOLLOW THE RATIO LAID DOWN I N THE SAID JUDGMENT. 10. WE FIND THAT EVEN THE JUDGMENT OF THE KARNATAKA HIGH COURT IN THE CASE OF KARNATAKA BANK LTD. (SUPRA), RELIANC E ON WHICH WAS PLACED BY MR MISTRY, SQUARELY COVERS THE ISSUE RAISED IN THIS APPEAL. THE FACTS IN THE CASE BEFORE THE KARNATAKA HIGH COURT WERE THAT THE ASSESSEE WAS HOLDING SECURITIES IN DI FFERENT CATEGORIES AS MANDATED BY THE RBI MASTER CIRCULAR D ATED 1ST SEPTEMBER 2003. THE ASSESSEE TREATED SUCH SECURITIE S AS STOCK- IN-TRADE AND CLAIMED DEPRECIATION ON THE BOOK VALUE AFTER VALUING THE SECURITIES AT COST OR MARKET VALUE WHICHEVER WA S LOWER. THE REVENUE REFUSED TO ACCEPT THE ASSESSEE'S PLEA FOR T HE DEDUCTION AND DISALLOWED THE SAME AND ADDED BACK TO THE TOTAL INCOME THE SAID AMOUNT. AGGRIEVED BY THE SAID ORDER, THE ASSES SEE PREFERRED AN APPEAL BEFORE THE CIT (APPEALS). THE SAME WAS DI SMISSED UPHOLDING THE CONTENTION OF THE ASSESSING AUTHORITY . AGGRIEVED 10 THEREBY, THE ASSESSEE PREFERRED AN APPEAL TO THE TR IBUNAL. THE TRIBUNAL INTER ALIA HELD THAT SINCE THE SECURITIES ON WHICH THE DEPRECIATION HAD BEEN CLAIMED ON THE EARLIER YEARS HAD NOT BEEN IDENTIFIED, THE ISSUE WAS RESTORED TO THE FILE OF T HE ASSESSING OFFICER FOR CONSIDERATION AFRESH AND PARTLY ALLOWED THE APPEAL. BEING AGGRIEVED BY THE SAID ORDER, KARNATAKA BANK L TD. PREFERRED AN APPEAL TO THE KARNATAKA HIGH COURT UND ER SECTION 260A OF THE ACT. AFTER DISCUSSING VARIOUS JUDGMENTS OF THE SUPREME COURT, THE KARNATAKA HIGH COURT HELD AS UND ER :- 'FROM THE AFORESAID JUDGMENTS OF THE APEX COURT, NO W IT IS CLEAR THAT A METHOD OF ACCOUNTING ADOPTED BY THE TA XPAYER CONSISTENTLY AND REGULARLY CANNOT BE DISCARDED BY T HE DEPARTMENTAL AUTHORITIES ON THE VIEW THAT HE SHOULD HAVE ADOPTED A DIFFERENT METHOD OF KEEPING THE ACCOUNTS O R ON VALUATION. FINANCIAL INSTITUTIONS LIKE BANK, ARE EX PECTED TO MAINTAIN ACCOUNTS IN TERMS OF THE RBI ACT AND ITS REGULATIONS. THE FORM IN WHICH, ACCOUNTS HAVE TO BE MAINTAINED IS PRESCRIBED UNDER THE AFORESAID LEGISL ATION. THEREFORE, THE ACCOUNT HAD TO BE IN CONFORMITY WITH THE SAID REQUIREMENTS. THE RBI ACT OR THE COMPANIES ACT DO NOT DEAL WITH THE PERMISSIBLE DEDUCTIONS OR EXCLUSI ON UNDER THE INCOME TAX ACT. FOR THE PURPOSE OF THE IN COME TAX ACT, IF THE ASSESSEE HAS CONSISTENTLY BEEN TREA TING THE VALUE OF INVESTMENT FOR MORE THAN TWO DECADES THE INVESTMENTS AS STOCK-IN-TRADE AND CLAIMED DEPRECIAT ION, IT IS NOT OPEN TO THE AUTHORITIES TO DISALLOW THE SAID DEPRECIATION ON THE GROUND THAT IN THE BALANCE-SHEE T IT IS SHOWN AS INVESTMENT IN TERMS OF THE RBI REGULATIONS . THE RBI REGULATIONS, THE COMPANIES ACT AND THE INCOME T AX ACT OPERATE ALTOGETHER IN DIFFERENT FIELDS. THE QUE STION WHETHER THE ASSESSEE IS ENTITLED TO PARTICULAR DEDU CTION OR NOT WILL DEPEND UPON THE PROVISION OF LAW RELATING THERETO AND NOT THE WAY, IN WHICH THE ENTRIES ARE MADE IN T HE BOOKS OF ACCOUNT. IT IS NOT DECISIVE OR CONCLUSIVE IN THE MATTER. FOR THE PURPOSE OF THE INCOME TAX ACT WHICH EVER METHOD IS ADOPTED BY THE ASSESSEE, A TRUE PICTURE O F THE PROFITS AND GAINS, I.E. REAL INCOME IS TO BE DISCLO SED. FOR DETERMINING THE REAL INCOME, THE ENTRIES IN THE BAL ANCE- SHEET IS REQUIRED TO BE MAINTAINED IN THE STATUTORY FORM MAY NOT BE DECISIVE OR CONCLUSIVE. IT IS OPEN TO TH E INCOME TAX OFFICER AS WELL AS THE ASSESSEE TO POINT OUT TR UE AND PROPER INCOME WHILE SUBMITTING THE INCOME TAX RETUR NS. EVEN IF THE ASSESSEE UNDER SOME MISREPRESENTATION O R MISTAKE FAILS TO MAKE AN ENTRY IN THE BOOKS OF ACCO UNT, ALTHOUGH UNDER LAW, A DEDUCTION MUST BE ALLOWED BY THE INCOME TAX OFFICER, THE ASSESSEE WILL NOT LOSE ANY RIGHT ON CLAIMING OR WILL BE DEBARRED FROM BEING ALLOWED THE DEDUCTION. THEREFORE, THE APPROACH OF THE AUTHORITI ES IN THIS REGARD IS CONTRARY TO THE WELL SETTLED LEGAL P OSITION AS DECLARED BY THE APEX COURT. IN THE INSTANT CASE, THE ASSESSEE HAS MAINTAINED TH E ACCOUNTS IN TERMS OF THE RBI REGULATIONS AND HE HAS SHOWN IT AS INVESTMENT. BUT CONSISTENTLY FOR MORE T HAN TWO DECADES IT HAS BEEN SHOWN AS STOCK-IN-TRADE AND DEPRECIATION IS CLAIMED AND ALLOWED. THEREFORE, NOTWITHSTANDING THAT IN THE BALANCE-SHEET , IT IS S HOWN AS INVESTMENT, FOR THE PURPOSE OF INCOME TAX ACT, IT I S SHOWN AS STOCK-IN-TRADE. THEREFORE, THE VALUE OF THE STOC KS BEING CLOSELY CONNECTED WITH THE STOCK MARKET, AT THE END OF THE FINANCIAL YEAR, WHILE VALUING THE ASSETS, NECESSAR ILY THE 11 BANK HAS TO TAKE INTO CONSIDERATION THE MARKET VALU E OF THE SHARES. IF THE MARKET VALUE IS LESS THAN THE CO ST PRICE, IN LAW, THEY ARE ENTITLED TO DEDUCTIONS AND IT CANN OT BE DENIED BY THE AUTHORITIES UNDER THE PRETEXT THAT IT IS SHOWN AS INVESTMENT IN THE BALANCE-SHEET.' (EMPHASIS SUPPLIED.) BEFORE US, REVENUE HAS NOT PLACED ANY CONTRARY BINDING D ECISION IN ITS SUPPORT. IN VIEW OF THE AFORESAID FACTS, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A). THUS, GROUND NO.6 OF REVENUES APPEAL IN ITA NO.436/PUN/2017 IS DISMISSED. 10. IN THE RESULT, BOTH THE APPEALS OF REVENUE ARE DIS MISSED. ORDER PRONOUNCED ON 27 TH DAY OF MARCH, 2019. SD/- SD/- ( PARTHA SARATHI CHAUDHURY ) ( ANIL CHATURVEDI ) ! / JUDICIAL MEMBER '! / ACCOUNTANT MEMBER PUNE; DATED : 27 TH MARCH, 2019. YAMINI #$%&'('% / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3 . 4. 5. 6. CIT(A), PUNE-5, PUNE. . THE PR.CIT, PUNE-4, PUNE. '#$ %%&',) &', / DR, ITAT, B PUNE; $*+,/ GUARD FILE. / BY ORDER , / / TRUE COPY / / //T// TRUE COPY // -./%0&1 / SR. PRIVATE SECRETARY ) &', / ITAT, PUNE.