THE DY CIT 3(2), MUMBAI V. M/S. NATIONAL BANK FOR AGRICULTURE & RURAL DEVELOPMENT, MUMBAI

ITA 4591/MUM/2007

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8243 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 19-11-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 18-06-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revenue expenditure

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES I MUMBAI . . , / BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER /AND , SHRI RAJENDRA, ACCOUNTANT MEMBER I.TA. NO. 4591/MUM/2007 ASSESSMENT YEAR 2004-05 DY. COMMISSIONER OF INCOME TAX 3(2), R.NO.608, 6 TH FLOOR AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400 020. VS. M/S. NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT, C-24, G BLOCK, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI-400 051. PAN: AAACT 4020 G ( / APPELLANT ) ( ! / RESPONDENT ) REVENUE BY : SHRI P.K. SHUKLA ASSESSEE BY : SHRI K.K. VED ' # $% / DATE OF HEARING : 19-11-2012 &'( # $% / DATE OF PRONOUNCEMENT :19-11-2012 ) / O R D E R PER RAJENDRA, AM THE PRESENT APPEAL IS DIRECTED AGAINST THE ORDER DT . 30-03-2007 PASSED BY THE CIT(A)-III, MUMBAI. FOLLOWING GROUNDS OF APPEAL HA VE BEEN RAISED BY THE ASSESSING OFFICER (AO): 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF BROKEN PERIOD INTEREST ON CLOSING STOCK OF SECURITY OF RS. 19,74,79,149/- RELYING ON THE DECISION OF THE B OMBAY HIGH COURT IN THE CASE OF AMERICAN EXPRESS INTERNATIONAL BANKING CORPORATI ON VS. CIT 258 ITR 601. 2. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GR OUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. I.TA. NO. 4591/MUM/2007 NABARD 2 2. ASSESSEE, A PUBLIC SECTOR UNDERTAKING ENGAGED IN TH E BUSINESS OF CREDIT FOR AGRICULTURE & RURAL DEVELOPMENT, FILED ITS RETURN O F INCOME ON 30.10.2004 DECLARING TOTAL INCOME OF RS. 10,47,12,43,630/-. AO FINALISE D THE ASSESSMENT U/S.143(3) OF THE INCOME-TAX ACT,1961(ACT), ON 25.10.2005, DETERMININ G THE TOTAL INCOME AT RS.10,90,96,86,130/-. 2.1 DURING THE ASSESSMENT PROCEEDINGS, AO FOUND THAT AS SESSEE WAS TRADING IN GOVERNMENT SECURITIES AS WELL AS OTHER BONDS CARRYI NG OUT FIXED RATE OF INTEREST. ASSESSEE SUBMITTED THAT WHEN IT PURCHASED BONDS, IT WOULD BIFURCATE PRICE OF BONDS INTO TWO PARTS FIRST PART WAS ACCRUED INTEREST ON THE SECURITIES AND THE OTHER PART WAS THE VALUE OF SAID SECURITIES. IT WAS FURTHER S UBMITTED THAT ASSESSEE WAS DEBITING THE ACCRUED INTEREST FOR THE BREAKING PERIOD TO THE P&L A/C AS A REVENUE EXPENDITURE. AO ASKED THE ASSESSEE TO EXPLAIN WHY PRE-ACQUISITIO N BROKEN PERIOD INTEREST IN RESPECT OF SECURITIES BUT ALSO AS INVESTMENT AS WELL AS SEC URITIES HELD AS STOCK IN TRADE WHICH REMAINED UN-SOLD AT THE END OF THE YEAR SHOULD NOT BE DISALLOWED. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, AO HELD THAT BROKE N PERIOD INTEREST ON SECURITIES WAS NOT ALLOWABLE EXPENDITURE. HE ADDED AN AMOUNT OF RS . 19.74 CRORES TO THE TOTAL INCOME OF THE ASSESSEE. 3. ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPEA L AUTHORITY (FAA). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDER, HE HELD THAT APPELLANT WAS ENTITLED TO DEDUCTION ON ACCOUNT OF I NTEREST PAID FOR THE PRE-ACQUISITION BROKEN PERIOD, THAT SIMILAR ISSUE IN THE PRECEDING YEARS WERE DECIDED BY HIM IN FAVOUR OF THE ASSESSEE. HE DELETED THE ADDITION AMOUNTING TO RS. 19.74 CRORES MADE BY THE AO. 4. BEFORE US, DEPARTMENTAL REPRESENTATIVE (DR) RELIED UPON THE ORDER OF THE AO. AUTHORISED REPRESENTATIVE (AR) SUBMITTED THAT ISSUE UNDER CONSIDERATION WAS DECIDED IN FAVOUR OF THE ASSESSEE BY JUDGMENTS OF L & D BENCHES OF MUMBAI TRIBUNAL IN THE CASES OF KBC BANK N.V. (ITA NO. 2785/MUM/2004 A Y 2000-01) DT. 28-09-2012 AND DENA BANK (ITA NO. 3676/MUM/2000) [9 ITR (TRIB. ) 327 (MUM)/2012] RESPECTIVELY. HE ALSO RELIED UPON THE CASE OF CITI BANK N.A., MA DELIVERED BY THE HONBLE SUPREME COURT ON 12-08-2008. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE WITH US. WE FIND THAT IN THE CASE OF DENA BANK (SUPRA), THE MATTER HAS BEEN DEALT BY THE CO-ORDINATING BENCH AS UNDER: 4. THE SECOND ISSUE IN THIS APPEAL IS AGAINST THE DELE TION OF DISALLOWANCE OF RS. 81,21,716 BEING THE BROKEN PERIOD INTEREST. THE FAC TS APROPOS THIS GROUND ARE THAT THE ASSESSEE RECEIVED BROKEN PERIOD INTEREST OF RS.4,78 ,73,191 ON SECURITIES IN ITS OPENING STOCK WHICH WERE SOLD DURING THE YEAR. IT ALSO PAID AN AMOUNT OF RS. 5,50,74,387 AS BROKEN PERIOD INTEREST ON SECURITIES PURCHASED AND SOLD DURING THE YEAR. FURTHER, THE ASSESSEE PAID A SUM OF RS. 2,95,13,008 AS BROKEN PE RIOD INTEREST ON SECURITIES PURCHASED DURING THE YEAR AS REFLECTED IN THE CLOSI NG STOCK. ON BEING CALLED UPON TO JUSTIFY THE DEDUCTION OF INTEREST FOR BROKEN PERIOD , THE ASSESSEE STATED THAT SIMILAR PRACTICE WAS FOLLOWED BY IT IN THE PAST TREATING TH E INTEREST COMPONENT AS REVENUE ITEM. IT WAS FURTHER CLARIFIED THAT IN TRADING OF S ECURITIES, PURCHASE OR SALE PRICE INCLUDED A COMPONENT OF INTEREST DUE ON THE SECURIT IES TILL THE DATE OF PURCHASE/SALE. IT WAS CLAIMED THAT SINCE SUCH INTEREST RELATED TO CUR RENT INVESTMENTS, THE SAME WAS LIABLE TO BE CONSIDERED AS REVENUE INCOME/EXPENDITU RE. NOT CONVINCED, THE ASSESSING I.TA. NO. 4591/MUM/2007 NABARD 3 OFFICER CAME TO HOLD THAT THE BROKEN PERIOD INTERES T PAID ON SECURITIES IN CLOSING STOCK AMOUNTING TO RS. 81,21,716, WHICH WAS DEBITED TO TH E PROFIT AND LOSS ACCOUNT, WAS TO BE DISALLOWED. THE LEARNED COMMISSIONER OF INCOME-T AX (APPEALS) GOT CONVINCED WITH THE SUBMISSIONS ADVANCED ON BEHALF OF THE ASSE SSEE AND ORDERED DELETION OF THE ADDITION. 5. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSIN G THE RELEVANT MATERIAL ON RECORD, IT IS NOTED AS AN UNDISPUTED FACT THAT THE ASSESSEE WAS HOLDING THE SECURITIES AS CURRENT ASSETS. AT THE TIME OF PURCHASING SECURI TIES, THE ASSESSEE WAS BIFURCATING THE PURCHASE CONSIDERATION INTO TWO PARTS, VIZ., TH E FIRST PART TOWARDS THE INTEREST FOR THE PERIOD FROM THE DATE IT WAS LAST GRANTED UP TO THE DATE OF PURCHASE AND THE REMAINING PART TOWARDS THE PURCHASE PRICE OF SECURI TIES. SIMILARLY, IN RESPECT OF SALE OF SECURITIES, THE ASSESSEE WAS BIFURCATING THE SAL E CONSIDERATION INTO TWO PARTS, VIZ., THE FIRST PART TOWARDS INTEREST FOR THE PERIOD FROM WHICH IT WAS LAST GRANTED UP TO THE DATE OF SALE AND THE REMAINING PART TOWARDS THE VAL UE OF SECURITIES PURCHASED. HOWEVER, ON RECEIPT OF THE ACTUAL INTEREST, THE ASS ESSEE WAS OFFERING THE TOTAL AMOUNT AS INCOME. TO PUT IT IN DIFFERENT WORDS, SUPPOSE, A SECURITY WAS PURCHASED ON 1ST SEPTEMBER FOR RS. 110 AND THE INTEREST FOR THE PERI OD 1ST JULY TO 31ST AUGUST IS RS. 10 (WITH THE PRESUMPTION THAT INTEREST IS PAYABLE ON T HE 30TH JUNE AND THE 31ST DECEMBER), THE ASSESSEE WAS ACCOUNTING FOR SECURITI ES AT RS. 100 AND CLAIMING DEDUCTION FOR RS. 10. WHEN IT WAS RECEIVING INTERES T ON THE 31ST DECEMBER FOR THE PERIOD 1ST JULY TO 31ST DECEMBER, THE ENTIRE AMOUNT , SAY, RS. 30 (INCLUDING RS. 10 FOR THE PERIOD 1ST JULY TO 31ST AUGUST) WAS OFFERED FOR TAXATION. THE SAME TREATMENT WAS GIVEN IN RESPECT OF SECURITIES SOLD INASMUCH AS THE INTEREST FOR THE BROKEN PERIOD WAS ACCOUNTED FOR AS INCOME AT THE TIME OF SALE OF SECU RITIES ITSELF BECAUSE SUCH INTEREST WAS TO BE ULTIMATELY RECEIVED BY THE PURCHASER ON T HE CUT OFF DATES. WHEN SUCH SECURITIES ARE ADMITTEDLY HELD AS STOCK IN TRADE, W E FAIL TO UNDERSTAND AS TO HOW THE INTEREST FOR THE BROKEN PERIOD, WHICH IS INCOME/EXP ENDITURE FROM SUCH SECURITY, SHOULD NOT BE CONSIDERED AS REVENUE ITEM. THE ASSES SING OFFICER HAS ALBEIT GRANTED DEDUCTION IN RESPECT OF BROKEN PERIOD INTEREST IN R ESPECT OF SECURITIES WHICH WERE PURCHASED AND SOLD DURING THE YEAR BUT MADE ADDITIO N IN RESPECT OF BROKEN PERIOD INTEREST PAID ON THE SECURITIES IN THE CLOSING STOC K. THE ASSESSEE WAS REGULARLY FOLLOWING THIS METHOD OF ACCOUNTING. IF THE ASSESSI NG OFFICER WAS NOT SATISFIED WITH SUCH TREATMENT, HE WAS OBLIGED TO CORRESPONDINGLY I NCREASE THE VALUE OF OPENING STOCK OF SECURITIES BY WAY OF SUCH BROKEN PERIOD IN TEREST FOR THE LAST YEAR. BE THAT AS IT MAY, SINCE THE SECURITIES ARE CURRENT ASSETS OF THE ASSESSEE, THE BROKEN PERIOD INTEREST EXPENDITURE OR INCOME HAS TO BE ALLOWED AS DEDUCTIO N. RECENTLY, THE SPECIAL BENCH OF THE TRIBUNAL IN DEPUTY CIT V. BANK OF BAHRAIN AND K UWAIT [2010] 5 ITR (TRIB) 301 (MUMBAI)/[2010] 132 TTJ (MUMBAI) 505 HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING THAT THERE CANNOT BE ANY DISALL OWANCE ON ACCOUNT OF BROKEN PERIOD INTEREST PAID BY THE ASSESSEE. IN REACHING I TS CONCLUSION, THE TRIBUNAL RELIED ON THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COU RT IN AMERICAN EXPRESS INTERNATIONAL BANKING CORPN. V. CIT [2002] 258 ITR 601 (BOM)/[2002] 177 CTR 442 . RESPECTFULLY FOLLOWING THE JUDGMENT OF THE HONBL E JURISDICTIONAL HIGH COURT AND THE AFORENOTED SPECIAL BENCH ORDER, WE DISMISS THIS GROUND RAISED BY THE REVENUE. SIMILAR VIEW HAS BEEN TAKEN BY THE L BENCH OF THE ITAT IN THE CASE OF KBC BANK N.V. (SUPRA). 6. RESPECTFULLY FOLLOWING THE ORDER OF THE CO-ORDINATI NG BENCHES, WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. I.TA. NO. 4591/MUM/2007 NABARD 4 APPEAL FILED BY THE REVENUE STANDS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 9 TH NOVEMBER, 2012. SD/- SD/- ( . . / I.P. BANSAL ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI, *' DATE: 19 TH NOVEMBER, 2012 TNMM ) ) ) ) # ## # $+ $+ $+ $+ ,+($ ,+($ ,+($ ,+($ / COPY OF THE ORDER FORWARDED TO : 1. APP ELLANT 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR I BENCH, ITAT, MUMBAI 6. GUARD FILE !+$ $ //TRUE COPY// )' )' )' )' / BY ORDER, - -- - / . . . . DY./ASST. REGISTRAR , / ITAT, MUMBAI