DCIT 2(3), MUMBAI V. CENTURION BANK LTD, MUMBAI

ITA 4879/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56308 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 28-12-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 11-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A C TEJPAL
• Assessee Lawyers: YOGESH R THAR
• Keywords: Depreciation; Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, A.M. AND SHRI V. DURGA RAO, J.M. ITA NO. 4879/MUM/2009 ASSESSMENT YEAR: 2002-03 DY. COMMISSIONER OF INCOME-TAX-2(3), APPE LLANT R.NO. 556, AAYAKAR BHAVAN, MUMBAI. VS. M/S HDFC BANK LTD., RESPONDENT (CONSEQUENT TO MERGER OF CENTURIAN BANK LTD.) 1 ST FLOOR, HDFC BANK HOUSE, SENAPATI BAPAT MARG, LOWER PAREL, MUMBAI 400 013. (PAN AAACC2272R) APPELLANT BY : MR. A.C. TEJPAL RESPONDENT BY : MR. YOGESH R. THAR DATE OF HEARING : 28/12/2011 DATE OF PRONOUNCEMENT : 30/12/2011 ORDER PER B. RAMAKOTAIAH, A.M.: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF CIT(A)-4, MUMBAI PASSED ON 11/03/2010 FOR ASSESSMEN T YEAR 2002- 03. 2. GROUND NO. 1 IS GENERAL IN NATURE. GROUND NO. 2 PERTAINS TO ISSUE OF ALLOWING THE DIMINUTION VALUE OF INVESTMEN TS AMOUNTING TO RS. 9,45,50,267/- ON THE REASON THAT THE SUCH SECUR ITIES WERE HELD BY THE ASSESSEE BANK AS STOCK-IN-TRADE. THE REVENUE HA S CONTESTED THAT THE SECURITIES HELD BY THE ASSESSEE AS INVESTMENT, HENCE, THEY ARE NOT ALLOWABLE. ITA NO. 4879/MUM/10 HDFC BANK LTD. 2 3. IN THE ASSESSMENT ORDER, THE AO NOTED THAT THE A SSESSEE HAD CLAIMED DIMINUTION IN VALUE OF INVESTMENTS TO THE E XTENT OF RS. 9,45,50,267/- AS DEDUCTION. THE AO, THEREFORE, HELD THAT THE SAID CLAIM WAS NOT ALLOWABLE ON THE REASON THAT THE SECU RITIES HELD BY THE BANK AS INVESTMENT. THE CIT(A) FOLLOWING THE FINDI NG IN THE SETTLEMENT COMMISSIONS ORDER, AND FOLLOWING THE DE CISION OF CIT VS. BANK OF BARODA, 262 ITR 334(BOM) ALLOWED THE SAID C LAIM OF THE ASSESSEE. AGGRIEVED, THE REVENUE IS IN APPEAL BEFO RE US. 4. AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSES SEE SUBMITTED THAT THIS ISSUE WAS COVERED BY THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. BA NK OF BARODA (SUPRA) AND DCIT VS. NEDUNGADI BANK LTD., 264 ITR 5 45 (KER.) AND FURTHER BY THE CO-ORDINATE BENCHES OF ITAT IN EARLI ER YEARS. THE LEARNED DR, ON THE OTHER HAND, NOT CONTROVERTED THE FACTS AVAILABLE ON RECORD. 5. AFTER CONSIDERING THE SUBMISSIONS AND EXAMINING THE RECORD, WE ARE OF THE VIEW THAT THERE IS NO REASON TO DIFFER F ROM THE FINDING OF THE CIT(A) AND THERE IS NO DISPUTE THAT THE LOSS DUE TO DIMINUTION IN VALUE OF CURRENT INVESTMENTS IS ALLOWABLE AS HELD BY THE SETTLEMENT COMMISSION. LEGALLY ALSO THIS ISSUE IS COVERED BY T HE DECISION OF ITAT, MUMBAI H, MUMBAI IN THE CASE OF HDFC BANK LTD. VI DE ORDER DATED 29/06/11 IN ITA NO. 4529/MUM/05 AND OTHERS, WHEREIN THE TRIBUNAL HAS HELD AS UNDER:- 11. WE HAVE HEARD THE ID DR AS WEFL AS THE ID AR O F THE ASSESSEE AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE ID AR HAS POINTED OUT THAT THIS ISSUE HAS BEEN CONSIDERED AND DECIDED BY THE TRIBUN AL IN THE CASE OF M/S LORD KRISHNA BANK LTD IN ITA NO.118/COCH/2007 FOR AY 199 9-00 VIDE ORDER DATED 27.4.2011. THE CIT(A) HAS DECIDED THE ISSUE IN PARA 10 AS UNDER: 10. RESPECTFULLY FOLLOWING THE HON BI BOMBAY HIGH COURT DECISION IN THE CASE OF CIT VS BANK OF BARODA (262 ITR 334) WHEREIN THE HON BLE COURT HELD THAT LOSS ITA NO. 4879/MUM/10 HDFC BANK LTD. 3 DEBITED TO PROFIT & LOSS ACCOUNT DUE TO DECREASE IN VALUE OF SECURITIES IS ALLOWABLE AS DEDUCT/ON AND THE HON BLE SUPREME COU RT IN THE CASE OF UNITED COMMERCIAL BANK VS VIT 240 ITR 355 WHERE THE HON B LE COURT REVERSING THE DECISION OF THE HIGH COURT HELD THAT NATIONALISED B ANK GOVERNED BY BANKING REGULATION ACT. BANK IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING BOTH FOR BOOK KEEPING AS WELL AS TAX PURPOSES. BANK IS VALUING ST OCK IN TRADE (IN VESTMENTS) AT COST IN BALANCE SHEET IN ACCORDANCE WITH BANKING R EGULATION ACT AND VALUING VERY SAME IN VESTMENTS AT COST OR MARKET VALUE WHICHEVER WAS LOWER FOR INCOME TAX PURPOSES. METHOD FOLLOWED CONSISTENTLY W AS VALID AND COULD NOT BE REJECTED. IN THE PRESENT CASE THE FACTS BEING SIMIL AR TO THE FACTS REPORTED IN UCO BANK, THE ASSESSING OFFICER IS DIRECTED TO ALLOW TH E REVALUATION OF SECURITIES. HOWEVER, FOR THE COMPUTATION OF DEPRECIATION ALLOWA BLE, THE ASSESSING OFFICER IS A/SO DIRECTED TO REVALUE THE SECURITIES IN THE SAME MANNER IN THE BEGINNING OF THE YEAR A/SO. 11.1 WE FIND THE TRIBUN& IN THE CASE OF LORD KRISHN A BANK LTD (SUPRA) HAS CONSIDERED AND ADJUDICATED THE ISSUE IN PARA 3 & 4 AS UNDER: 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE LEARNED A.R. HAS REILED ON CIRCULAR DBO D.NO.BP.BC.29/21. 04.048/98 DATED 11TH APRIL, .1998 ISSUED BY THE RES ERVE BANK OF/ND/A PRESCRIBING THE METHOD TO BE FOLLOWED FOR VALUATION OF GOVERNME NT AND OTHER SECURITIES. THE LEARNED A.R. INVITED OUR ATTENTION TOWARDS PAGE 4 O F THE PAPER BOOK, WHICH IS THE METHOD SUGGESTED BY THE RB? TO BE ADOPTED BY THE BA NKS IN RESPECT OF PERMANENT INVESTMENTS. CLAUSE (II) OF POINT NO.1 OF THIS, BEI NG VALUATION OF PERMANENT IN VESTMENTS, WHICH HAS BEEN PRESSED INTO SERVICE BY T HE ID. AR, READS AS UNDER: PERMANENT INVESTMENTS SHOULD BE VALUED AT COST AN D IN CASE COST PRICE IS HIGHER THAN THE FACE VALUE, THE PREMIUM SHOULD BE A MORTISED OVER THE REMAINING PERIOD OF MATURITY OF THE SECURITY. ON TH E OTHER HAND, WHERE THE COST PRICE IS LESS THAN THE FACE VALUE, THE DIFFERE NCE SHOULD BE IGNORED AND SHOULD NOT BE AMORTISED OR TAKEN TO INCOME ACCOUNT SINCE THE AMOUNT REPRESENTS UNREALIZED GAIN. 4. WHEN WE VIEW THE ABOVE METHOD OF VALUATION, IT C OMES TO NOTICE THAT THE PERMANENT INVESTMENT SHOULD BE VALUED AT COST AND W HERE SUCH COST PRICE IS HIGHER THAN THE FACE VALUE, THE PREMIUM SHOULD BE AMORTIZED FOR THE REMAINING PERIOD OF MATURITY OF THE SECURITY FROM THE ABOVE IT IS DEAR THAT THE PREMIUM HAS TO BE AMORTIZED FOR THE REMAINING PERIOD OF MATURIT Y OF THE SECURITY. THE LEARNED A. R. FAIRLY CONCEDED THAT DETAILS OF SUCH PREMIUM SPLITTING OVER THE REMAINING PERIOD OF THE MATURITY WAS NOT READILY AVAILABLE AN D HENCE THE MATTER BE REMITTED TO THE FILE OF A.O. FOR DECIDING IT AS PER THE ABOV E PART OF THE CIRCULAR. NO SERIOUS OBJECTION WAS TAKEN BY THE LEARNED DEPARTMENTAL REP RESENTATIVE. IN VIEW OF THESE ITA NO. 4879/MUM/10 HDFC BANK LTD. 4 FACTS WE SET ASIDE THE IMPUGNED ORDER AND RESTORE T HE MATTER TO THE FILE OF A. 0. FOR DECIDING THIS POINT IN ACCORDANCE WITH THE ABOVE NO TED METHOD. 11.2 THEREFORE, RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL WE DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REV ENUE AND CONFIRM THE ORDER OF THE CIT(A) ON THIS ISSUE. 6. RESPECTFULLY FOLLOWING THE SAID DECISIONS, WE CO NFIRM THE ORDER OF CIT(A) ON THIS COUNT AND DISMISS THE GROUND RAIS ED BY THE REVENUE. 7. GROUND NO. 3 IS WITH REFERENCE TO THE DISALLOWAN CE OF BAD DEBTS AMOUNTING TO RS. 12,80,24,103/- ON THE REASON THAT THE BAD DEBTS WERE NOT BONA-FIDE. 8. THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE NOT ONLY ON THE BASIS OF DIRECTIONS OF SETTLEMENT COMMISSION ORDER FOR AY 1999-00 AND 2001-02 BUT ALSO BY THE PRINCIPLES LAID DOWN BY THE SPECIAL BENCH DECISION OF ITAT IN THE CASE OF OMAN INTERNAT IONAL, 100 ITD 285(MUM SB). THE CIT(A) ALSO FOLLOWED THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TRF LIMITED V. CIT, 323 ITR 397 (SC) AND DIRECTED THE AO TO ALLOW THE CLAIM BAD DEBTS CLAIM OF THE ASSESSEE. 9. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD AS WELL AS THE ORDERS OF THE AUTHORITIES BELOW, IT IS OBSERVED THA T SINCE THE ASSESSEE HAS WRITTEN OFF THE BAD DEBTS IN ITS BOOKS OF ACCOUNT, THE CLAIM OF BAD DEBT IS REQUIRED TO BE ALLOWED AS HELD BY THE APEX COURT I N THE CASE OF TRF LTD. (SUPRA) THAT , IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS I RRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. THEREFORE, THERE IS NO NEED TO DISTURB THE FINDINGS OF THE CIT(A) BOTH ON FACTS AND IN LAW AND THE ORDER OF THE CIT(A) IS HEREBY UPHELD. ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS DISMISSED. ITA NO. 4879/MUM/10 HDFC BANK LTD. 5 10. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF DECEMBER, 2011. SD/- SD/- (V. DURGA RAO) ( B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNT ANT MEMBER MUMBAI, DATED: 30 TH DECEMBER, 2011. KV COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, C BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI.