The ACIT, Circle-1, RAJKOT-GUJARAT V. Rajkot People Co.Op. Bank Ltd., RAJKOT-GUJARAT

ITA 506/RJT/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2410 (ITAT-RAJKOT)
• Duration Of Justice: 2 year(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-01-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 21-12-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 11-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C S ANJARIA
• Assessee Lawyers: DM RINDANI
• Keywords: Business income; Depreciation; Question of law; Cost of acquisition; Revenue expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKO T [CONDUCTED THROUGH E-COURT AT AH MEDABAD] (BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER) ITA NO: 506/RJT/2013 (ASSESSMENT YEAR: 2009-10) A.C.I.T., CIRCLE-1, RAJKOT V/S RAJKOT PEOPLE CO-OPERATIVE BANK LTD., SABHASAD BHAVAN 1 MANHAR PLOT, GONDAL ROAD, RAJKOT (APPELLANT) (RESPONDENT) PAN: AAAAR0526P APPELLANT BY : SHRI C.S. ANJARIA, D.R. RESPONDENT BY : SHRI D.M. RINDANI, C.A. ( )/ ORDER DATE OF HEARING : 21-12-2015 DATE OF PRONOUNCEMENT : 05-12-2015 PER ANIL CHATURVEDI, ACCOUNTANT MEMBER 1. THIS APPEAL FILED BY THE REVENUE IS AGAINST THE ORD ER OF CIT(A), JAMNAGAR DATED 18.09.2013 FOR A.Y. 2009-10. ITA NO 506/A HD/2013 . A.Y. 2009-1 0 2 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. 3. ASSESSEE IS A CO.OP. BANK REGISTERED WITH GUJARAT S TATE CO.OP. SOCIETIES ACT AND HOLDING BANKING LICENSE UNDER BANKING REGULATIO N ACT. ASSESSEE ELECTRONICALLY FILED ITS RETURN OF INCOME FOR A.Y. 2009-10 ON 08-07-2009 DECLARING TOTAL INCOME AT RS. 2,12,27,140/-. SUBSEQ UENTLY IT REVISED THE RETURN OF INCOME ON 18.09.2009. THE CASE WAS SELECT ED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED UNDER SECTION 143(3) VIDE ORDER DATED 18.10.2011 AND THE TOTAL INCOME WAS DETERMINED AT R S. 2,44,36,400/-. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED TH E MATTER BEFORE LD. CIT(A) WHO VIDE ORDER DATED 18.09.2013 ALLOWED THE APPEAL OF THE ASSESSEE. AGGRIEVED BY THE AFORESAID ORDER OF LD. C IT(A), REVENUE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING EF FECTIVE GROUND:- 1. THE LD. CIT(A) HAS ERRED IN MAKING DELETION OF ADDI TION OF RS. 32,09,263/- ON ACCOUNT OF AMORTIZATION OF PREMIUM PAID ON INVESTMENT. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NO TICED THAT ASSESSEE HAS CLAIMED RS. 32,09,263/- ON ACCOUNT OF PREMIUM WRITT EN OFF ON GOVERNMENT SECURITIES. ASSESSEE WAS ASKED TO JUSTIFY ITS CLAIM . THE SUBMISSIONS OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE A.O. AS HE WAS OF THE VIEW THAT THE GOVERNMENT SECURITIES ARE NOT STOCK IN TRADE BUT AR E HELD TO MATURITY (HTM) SECURITIES AND THEY PERTAKE THE NATURE OF INV ESTMENTS. HE WAS FURTHER OF THE VIEW THAT INVESTMENT IN SECURITIES UNDER HTM CATEGORY IS A CAPITAL INVESTMENT. HE ACCORDINGLY DISALLOWED THE WRITE OFF OF PREMIUM OF RS. 32,09,263/-. AGGRIEVED BY THE ORDER OF A.O., ASSESS EE CARRIED THE MATTER BEFORE LD. CIT(A) WHO DELETED THE ADDITION BY HOLDI NG AS UNDER:- ITA NO 506/A HD/2013 . A.Y. 2009-1 0 3 6.I HAVE DULY CONSIDERED THE SUBMISSION OF THE APPE LLANT, AND ALSO GONE THROUGH THE ASSESSMENT ORDER. 6.1 I AM INCLINED TO AGREE WITH THE APPELLANT'S VIE W THAT THE PREMIUM WRITTEN OFF ON GOVERNMENT SECURITIES HELD UNDER HTM AS PER R.B.I, GUIDELINES IS VERY MUCH IN THE NATURE OF REVENUE EXPENDITURE, NOT CAPITAL EXPENDIT URE AS HELD BY THE AO. THE REASONS FOR TREATMENT AS REVENUE EXPENDITURE ARE AS FOLLOWS: (I) THE GOVERNMENT SECURITIES HELD UNDER HTM' CATEG ORY IS VERY MUCH ALLOWED TO BE TRADED AS PER RBI GUIDELINES. THESE SECURITIES ANE IN THE NATURE OF STOCK-IN-TRADE AS PER CLAUSE (VII) OF THE CBDT INSTRUCTION NO. 17/2008 DT D. 26/11/2008. (II) IF THE , GOVERNMENT SECURITIES HELD UNDER HTM IS STOCK-IN-TR ADE, THEN ALL THE PROVISIONS APPLICABLE ON 'INCOME FROM BUSINESS & PROFESSION' W ILL BE VERY MUCH APPLICABLE ON THIS STOCK-IN-TRADE TOO. FOR E.G. IF THE MARKET VALUE OF THIS STOCK AT THE END OF THE FINANCIAL YEAR IS REDUCED COMPARED TO THE OPENING VALUE, THE LOSS HAS TO BE BOOKED AS BUSINESS LOSS AND IF THE VALUE GETS INCREASED THE INCOME HAS TO B E BOOKED AS BUSINESS INCOME. (III) THE GOVERNMENT SECURITIES IN QUESTION ARE HEL D BY BANK FOR COMPLYING WITH THE REQUIREMENTS OF MAINTAINING THE SLR AS REQUIRED UND ER THE PROVISIONS OF BANKING REGULATION ACT, 1949. ALTHOUGH THEY ARE MARKED FOR MATURITY WHICH APPEARS TO BE GIVING COLOUR OF INVESTMENT TO IT, BUT IN THE REALITY THEY ARE STOCK-IN-TRADE AS THE BANK IS FREE TO TRADE WITH THIS STOCK. THE ONLY CONDITION IS THAT W HILE ENGAGING IN PURCHASE AND SALE OF GOVERNMENT SECURITIES THE STATUTORY SLR SHOULD NOT BE DISTURBED. (IV) THE APPELLANT IS NOT AT ALL ENGAGED IN PURCHAS E AND SALE OF SECURITIES BUT HAD INVESTED MONEY IN GOVERNMENT SECURITIES ONLY FOR TH E PURPOSE OF COMPLYING WITH THE PROVISIONS OF BANKING REGULATION ACT FOR MAINTAININ G THE SLR. (V) THE APPELLANT HAS FOLLOWED ACCOUNTING METHOD A S PRESCRIBED BY THE RESERVE BANK OF INDIA FOR VALUATION OF INVESTMENT / STOCK-IN -TRADE CONSISTENTLY AND INCOME FROM INVESTMENT/STOCK-IN-TRADE HAS ALWAYS BEEN OFFERED A S BUSINESS INCOME. HENCE, IN VIEW OF THE ABOVE FACTS IT IS HELD THAT T HE PREMIUM WRITTEN OFF IS VERY MUCH IN THE NATURE OF REVENUE EXPENDITURE AND SHOULD BE ALL OWED. ACCORDINGLY THE ADDITION MADE ON THIS ACCOUNT IS HEREBY DELETED. ITA NO 506/A HD/2013 . A.Y. 2009-1 0 4 5. AGGRIEVED BY THE ORDER OF LD. CIT(A), REVENUE IS N OW IN APPEAL BEFORE US. 6. BEFORE US, AT THE OUTSET, THE LD. A.R. AR SUBMITTED THAT THE ISSUE IN THE PRESENT EASE IS NOW DIRECTLY COVERED IN FAVOUR OF T HE ASSESSEE BY THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN ASSESSEES OWN CASE I.E. IN THE CASE OF C1T VS. RAJKOT DIST. CO-OP. LTD., REPORTED IN (2014) 222 TAXMAN 24 0 (GUJ). HE ALSO PLACED ON RECORD A COPY OF THE AFORESAID ORDER. HE, THER EFORE, SUBMITTED THAT IN VIEW OF THE AFORESAID DECISION OF THE HON'BLE GUJARAT COURT, NO INTERFERENCE TO THE ORDER OF LD. CIT(A) I S CALLED FOR AND THE ISSUE IS TO BE DECIDED IN FAVOUR OF THE ASSESSEE. THE LEARNE D DR, ON THE OTHER HAND, SUPPORTED THE ORDER OF THE CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ISSUE IN THE PRESENT CASE IS ABOUT THE DEDUCTION OF AMORTIZATION PREMIUM ON GOVERNMENT SECURITIES. WE FIND THAT AN I DENTICAL QUESTION WAS BEFORE HONBLE GUJARAT HIGH COURT IN THE APPEAL OF REVENUE IN THE CASE OF RAJKOT DIST CO-OP. BANK LTD. WHERE THE QUESTION WAS WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE APPELLATE TRIBUNAL IS JUSTIFIED IN HOLDING THAT THE AO AND THE CIT(A) HAVE ERRED IN DISALLOWING THE AMORTIZATION OF SECURITY PREMIUM OF RS.40,30.000/-. THE HON'BLE HIGH COURT AFTER CONSIDERING THE CBDT CIRCULAR DATED 26.1 1.2008 DECIDED THE ISSUE BY HOLDING AS UNDER: 6 ON THE OTHER HAND, THE LEARNED COUNSEL SHRI TUSH AR HEMANI FOR THE RESPONDENT PLACED HEAVY RELIANCE ON THE SAID CBDT CIRCULAR DATED NOVE MBER 267, 2008 AND CONTENDED THAT THE BENEFIT OF AMORTIZATION HAD TO BE GRANTED. THE ASSESSEE AS A COOPERATIVE BANK WAS BOUND BY THE RBI DIRECTIVES. AS PER SUCH DIRECTIVES , THE ASSESSEE HAD TO INVEST CERTAIN AMOUNTS IN GOVERNMENT SECURITIES AND TO HOLD THE SA ME TILL MATURITY. IN THE PROCESS OF ITA NO 506/A HD/2013 . A.Y. 2009-1 0 5 ACQUISITION, IF THERE WAS ANY PREMIUM PAID ON THE F ACE VALUE OF THE SECURITY, THE LOSS HAD TO BE AMORTIZED. PARAGRAPH (VII) OF THE CBDT CIRCUL AR NO. 17 OF 2008 DATED NOVEMBER 26, 2008 WOULD APPLY. SUCH INSTRUCTIONS READS ASS U NDER: (VII) AS PER RBI GUIDELINES DATED 16 TH OCTOBER, 2000, THE INVESTMENT PORTFOLIO OF THE BANKS IS REQUIRED TO BE CLASSIFIED UNDER THREE CATE GORIES 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 CARRI ED AT ACQUISITION COST UNLESS THESE ARE MORE THAN THE FACE VALUE, IN WHICH CASE THE PRE MIUM SHOULD BE AMORTIZED OVER THE PERIOD REMAINING TO MATURITY. IN THE CASE OF HFT AN D AFT SECURITIES FORMING STOCK-IN- TRADE OF THE BANK, THE DEPRECIATION/APPRECIATION IS TO BE AGGREGATED SCRIP-WISE AND ONLY NET DEPRECIATION, IF ANY, IS REQUIRED TO BE PROVIDE D FOR IN THE ACCOUNTS. THE LATEST GUIDELINES OF THE RBI MAY BE REFERRED TO FOR ALLOWI NG ANY SUCH CLAIMS 7.THE INSTRUCTIONS CLEARLY PROVIDE FOR AMORTIZATION OF PREMIUM PAID ON ACQUISITION OF SECURITIES WHEN THE SAME ARE ACQUIRED AT THE RATE HIGHER THAN THE FACE VALUE. SUCH AMORTIZATION WOULD HAVE TO BE FOR THE REMAINING PER IOD OF .MATURITY. THIS PRECISELY THE TRIBUNAL HAD DIRECTED IN THE IMPUGNED ORDER. THOUGH CONTENDED, NO CONTRARY INSTRUCTIONS OF CBDT ARE BROUGHT TO OUR NOTICE. THE INSTRUCTION IN QUESTION HAVING BEEN ISSUED TINDER SECTION 119(2) OF THE INCOME TAX ACT, 1961, WOULD BIND THE REVENUE. NO QUESTION OF LAW, THEREFORE, ARISES. 8. WE ALSO FIND THAT SIMILAR ISSUE AROSE IN APPEAL OF ASSESSEE FOR A.Y. 07-08 & 08-09. THE CO-ORDINATE BENCH OF TRIBUNAL BY ORDER D ATED 26.11.2014 IN ITA NO. 914 & 920/RJT/2010 AND 349/RJT/2011 DECIDED THE ISSUE IN FAVOUR OF ASSESSEE. 9. BEFORE US, THE REVENUE HAS NOT PLACED ANY CONTRARY BINDING DECISION IN SUPPORT OF ITS CASE NOR COULD IT POINT OUT ANY DIST INGUISHING FEATURE IN THE PRESENT CASE AS COMPARED TO THOSE OF EARLIER YEARS. WE, THEREFORE, RESPECTFULLY, FOLLOWING THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. RAJKOT DISTRICT CO-OP. BANK LTD. (S UPRA) AND THE DECISION OF ITA NO 506/A HD/2013 . A.Y. 2009-1 0 6 CO-ORDINATE BENCH FOR EARLIER YEARS ARE OF THE VIEW THAT IN THE PRESENT CASE, NO INTERFERENCE TO THE ORDER OF LD. CIT(A) IS CALLE D FOR. THUS THIS GROUND OF THE REVENUE IS DISMISSED. 10. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 05- 01 - 2016. SD/- SD/- (RAJPAL YADAV) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,RAJ KOT