Deputy Commissioner of Income-tax, V. The Hasti Co.op. Bank Ltd., Dhule

ITA 507/PUN/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1975 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 01-03-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 13-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KK MISHRA
• Keywords: Depreciation; Question of law

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , , !'#'' $ , % & BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NO. 507/PN/2014 %' ( ')( / ASSESSMENT YEAR : 2010-11 DY. COMMISSIONER OF INCOME TAX, CIRCLE 3(1), DHULE ....... / APPELLANT ' / V/S. THE HASTI CO-OPERATIVE BANK LTD., HASTI SAHKAR DEEP, STATION ROAD, DONDAICHA, TAL.-SHINDKHEDA, DHULE 425408 PAN : AAAAT2798M / RESPONDENT ASSESSEE BY : SHRI SUNIL GANOO REVENUE BY : SHRI K.K. MISHRA / DATE OF HEARING : 01-03-2016 / DATE OF PRONOUNCEMENT : 02-05-2016 * / ORDER PER VIKAS AWASTHY, JM : THE PRESENT APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-I, NASHIK DAT ED 08-01-2014 FOR THE ASSESSMENT YEAR 2010-11. 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORD S ARE: THE ASSESSEE IS A CO-OPERATIVE SOCIETY ENGAGED IN THE BANKIN G BUSINESS. 2 ITA NO. 507/PN/2014, A.Y. 2010-11 THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMEN T YEAR 2010-11 ON 22-09-2011 DECLARING NIL INCOME. THE CASE OF THE ASSES SEE WAS SELECTED FOR SCRUTINY UNDER CASS AND ACCORDINGLY NOTICE U/S. 143(2) WAS ISSUED TO THE ASSESSEE ON 24-08-2011. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER MAD E ADDITIONS IN THE INCOME RETURNED BY THE ASSESSEE INTER ALIA ON ACC OUNT OF EXCESS CLAIM OF BONUS ` 12,76,657/- AND DIFFERENCE IN VALUATION OF SECURITIES ` 8,39,17,500/-. AGGRIEVED BY THE ASSESSMENT ORDER DATED 31-03-2013, T HE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE COMMISS IONER OF INCOME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APP EALS) VIDE IMPUGNED ORDER ACCEPTED THE APPEAL OF THE ASSESSEE AN D DELETED THE ADDITIONS MADE BY THE ASSESSING OFFICER. NOW, THE REVENUE IS IN APPEAL ASSAILING THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS). 3. SHRI K.K. MISHRA REPRESENTING THE DEPARTMENT SUBMITTED THAT THE GOVT. SECURITIES WERE HELD BY THE ASSESSEE UNDER HELD TO MATURITY FOR SEVERAL YEARS. THE ASSESSEE CHANGED THE METHOD OF VA LUATION OF SECURITIES FROM COST TO COST OR MARKET PRICE, WHICHEV ER IS LESS IN FINANCIAL YEAR 2009-10. THE COMMISSIONER OF INCOME TAX (APP EALS) HAS ERRED IN PRESUMING THAT THE ASSESSEE WILL FOLLOW THE CHANGE D METHOD CONTINUOUSLY. THE COMMISSIONER OF INCOME TAX (APPEALS) HA S ALSO ERRED IN PRESUMING THAT THE CHANGE OF METHOD OF VALUATIO N BY ASSESSEE WAS IN A BONAFIDE MANNER. THE ASSESSEE WAS HOLDING THE G OVT. SECURITIES UNDER HTM STATES SINCE LONG AND PREMIUM PAID O N INVESTMENT UNDER HTM CATEGORY WAS AMORTIZED OVER THE BALANCE PERIOD OF MATURITY. DUE TO CHANGE IN METHOD OF VALUATION, THE PRO FIT FOR THE YEAR UNDER CONSIDERATION WAS REDUCED BY ` 7,37,27,500/-. THE ASSESSEE 3 ITA NO. 507/PN/2014, A.Y. 2010-11 HAS MADE THE PAYMENT OF ADVANCE TAX OF ` 65,00,000/-, TDS OF ` 3,32,801/- AND CLAIMED REFUND OF ` 78,32,800/-. THIS INDICATES THAT THE DEDUCTION CLAIMED IN COMPUTATION OF INCOME IS AFTER THOU GHT. THE ASSESSEE HAS ALREADY IDENTIFIED ITS PERMANENT INVESTMENT C ATEGORY HTM. THEREFORE, THE CHANGE IN METHOD OF VALUATION IS NOT BONAFIDE. 3.1 ON THE ISSUE OF BONUS OF ` 12,76,657/-, THE LD. DR SUBMITTED THAT THE ASSESSEE HAD CLAIMED DEDUCTION OF ` 28,72,823/- IN RESPECT OF BONUS. THE BONUS WAS PAID TO THE EXTENT OF ` 15,96,166/- ON 09-08-2010 I.E. BEFORE DUE DATE OF FURNISHING THE RETURN OF INCOME. THE ASSESSEE HAS NOT CREDITED THE PROVISIONS OF ` 12,76,657/- TO THE PROFIT AND LOSS ACCOUNT. THEREFORE, THE SAME WAS DISALLOWED BY T HE ASSESSING OFFICER. THE COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE ADDITIONS MERELY ON THE GROUND THAT THE AUDITOR HAS GIV EN NECESSARY COMMENTS IN THIS REGARD IN THE AUDIT REPORT FOR THE ASSE SSMENT YEAR 2010-11. THE LD. DR PRAYED FOR REVERSING THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) AND RESTORING THE ORDER OF ASSESS ING OFFICER ON BOTH THE ISSUES. 4. AU CONTRAIRE SHRI SUNIL GANOO APPEARING ON BEHALF OF THE ASSESSEE VEHEMENTLY SUPPORTED THE FINDINGS OF COMMISSIONE R OF INCOME TAX (APPEALS) IN DELETING THE ADDITIONS. THE LD. AR SUBMITTED THAT THE MAIN OBJECTION RAISED BY THE ASSESSEE AGAINST CHANGE OF METHOD IN VALUATION OF STOCK IS THE REFUND OF ADVANCE TAX CLAIMED BY THE ASSESSEE. THE APPREHENSION OF THE ASSESSING OFFICER WAS WITHOUT ANY BASIS. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE CAN CHANGE T HE METHOD OF VALUATION IN A BONAFIDE MANNER. THERE IS NO BAR RESTRICTING THE ASSESSEE TO CHANGE THE METHOD OF VALUATION. IN SUPPORT OF HIS SUBMISSIONS, THE LD. AR PLACED RELIANCE ON THE FOLLOWING DECISIONS : 4 ITA NO. 507/PN/2014, A.Y. 2010-11 I. COMMISSIONER OF INCOME TAX VS. MODERN TERRY TOWELS LTD., 3 57 ITR 750 (BOM); II. COMMISSIONER OF INCOME TAX VS. CORPORATION BANK LTD., 174 ITR 616 (KAR); III. INDO-COMMERCIAL BANK LTD. VS. COMMISSIONER OF INCOME TAX, 4 4 ITR 22 (MAD). IN RESPECT OF DISALLOWANCE OF CLIAM OF BONUS, THE LD. AR PLACED RELIANCE ON THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPEALS). 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIE S BELOW. WE HAVE ALSO CONSIDERED THE DECISION ON WHICH THE LD. AR OF TH E ASSESSEE HAS PLACED RELIANCE IN SUPPORT OF HIS CONTENTIONS. THE COM MISSIONER OF INCOME TAX (APPEALS) HAS DELETED THE ADDITION OF ` 8,39,17,500/- ON ACCOUNT OF DIFFERENCE IN VALUATION OF SECURITIES BY HOLDING AS UNDER: 5.3 AS REGARDS 'CHANGE IN METHOD OF VALUATION OF G OVERNMENT SECURITIES', I OBSERVE THAT DURING THE YEAR UNDER C ONSIDERATION, APPELLANT BANK HAS CHANGED THE METHOD OF VALUATION OF GOVERNMENT SECURITIES FROM AT 'COST' TO THE 'COST OR MARKET PR ICE WHICHEVER IS LOWER', WHICH IS WITHIN THE PARAMETERS OF ACCOUNTIN G STANDARD RELATING TO BANKS. FURTHER, APPELLANT CONTENDED AND EXPLAINED THAT AS THE VALUE OF GOVERNMENT SECURITIES WAS DIMINISHI NG DAY BY DAY, TRUE AND FAIR PICTURE OF FINANCIAL STATEMENT WAS NO T REFLECTED IN ITS BOOKS OF ACCOUNT. IN ORDER TO REFLECT THE TRUE AND CORRECT PICTURES 'AND REAL STATEMENT OF AFFAIRS OF THE FINANCIAL POSITION OF THE BANK, THEY HAD ADOPTED CORRECT METHOD SHOWING THE CORRECT VALU E OF GOVERNMENT SECURITIES TO OVERCOME AND AVOID IMAGINA RY NOTIONAL INCOME IN THEIR HANDS. THEREFORE, APPELLANT BANK WA S COMPELLED TO CHANGE .THE PRESENT METHOD OF VALUATION OF STOCK, F ROM AT 'COST' TO THE 'COST OR MARKET PRICE WHICHEVER IS LOWER'. REASONS AND EXPLANATION FURNISHED THE APPELLANT BANK SHOW THAT THERE WAS A BONA FIDE NEED TO CHANGE THE METHOD OF VALUATION OF GOVT. SECURITI ES I.E. STOCK-IN- TRADE AND THE SAID CHANGE OF METHOD OF VALUATION WA S CONSISTENTLY FOLLOWED BY THE APPELLANT BANK IN THE SUBSEQUENT YE ARS. IN SUPPORT 5 ITA NO. 507/PN/2014, A.Y. 2010-11 THE APPELLANT BANK HAS FURNISHED TAX AUDIT REPORT FOR AY. 2013-14. I ALSO FIND FROM THE RATIOS LAID DOWN IN VARIOUS DE CISIONS RELIED UPON BY THE APPELLANT THAT 'ASSESSEE IS AT LIBERTY TO CHANGE HIS REGULAR METHOD OF ACCOUNTING BUT IT MUST BE EMPLOYE D REGULARLY THEREAFTER AND NOT FOR A CASUAL PERIOD, AS HELD BY THE JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF SARUPCHAND VS CIT (1936) 4 ITR 420 (BOM)'. IT IS FURTHER OBSERVED THAT 'BONAFIDE CHANGE IN THE BASIS OF VALUATION STOCK OF SECURITIES IS PERMISSIBLE WHE RE NEW METHOD IS FOLLOWED THEREAFTER REGULARLY. IT CANNOT BE REJECTED ON THE GROUND THAT IT IS DETRIMENTAL TO REVENUE, AS HELD I N THE CASE OF INDO COMMERCIAL BANK LTD VS CIT [1962] 44ITR 22 (MAD). S IMILAR VIEW IS ALSO LAID DOWN IN THE DECISIONS CIT VS CORPORATION BANK LTD [1988] 174 ITR 616 (KAR); UNITED COMMERCIAL BANK V. COMMIS SIONER OF INCOME TAX [1999] 106 TAXMAN 601/240 ITR 355 (SC); ECHKE LTD VS IT [2008] 173 TAXMAN 79(GUJ), AND CIT VS MODERN TER RY TOWELS LTD [2013] 357 ITR 750 (BORN) AND SYNDICATE BANK VS. DY CIT(2013) 26 ITR(TRIB) 501(BAG). I FIND FROM THE SUBMISSION AND INFORMATION FILED BY THE APPELLANT THAT THE METHOD OF VALUATION .ADOP TED IN RESPECT OF GOVERNMENT SECURITIES IS BONFIDE AND IT IS FOLLOWED THEREAFTER REGULARLY. 5.4 AS REGARDS, 'WHETHER RBI'S GUIDELINES CAN OVERR IDE THE PROVISION OF I T ACT', I HAVE CAREFULLY CONSIDERED THE SUBMIS SION OF THE APPELLANT. I OBSERVE FROM THE RATIOS LAID DOWN IN T HE DECISIONS RELIED UPON BY THE APPELLANT THAT RBI'S GUIDELINES CANNOT OVERRIDE THE PROVISION OF I T ACT AND APPELLANT HAS TO FOLLOW TH E PROVISION OF INCOME TAX ACT WHILE COMPUTING THE INCOME UNDER INC OME- TAX ACT. THIS VIEW IS FORTIFIED BY THE DECISIONS IN THE CASE S OF SOUTHERN TECHNOLOGIES LTD. (320 ITR 577 (SC); THE SINDHUDURG DIST. CENTRAL CO-OP BANK LTD. OF SINDHUDURG NAGARI, TAL KUDAL, DI ST. SINDHUDURG VS. INCOME-TAX OFFICER, WD. 2(4) KUDAL [ITA NO. 617 LPN/II/A. Y. 2007- 08] DT.02-03-2012 OF ITAT PUNE; NEW INDIA INDUSTRIES LTD. VS. ASSTT. CIT (2007) 112 ITJ (DEL)(SB) 917; KARNATAKA BANK LT D VS. ASST. COMMISSIONER OF INCOME TAX (2013) 94 DTR (KAT) 448 DT. 11 TH MARCH 2013. IN VIEW OF THE PRINCIPLE LAID DOWN IN THE DEC ISIONS CITED SUPRA, AM OF THE CONSIDERED VIEW THAT GUIDELINE ISSUED BY THE RBI CANNOT OVERRIDE THE PROVISION OF THE I T ACT AND APPELLANT HAS TO FOLLOW THE PROVISION OF INCOME-TAX ACT, WHILE COMPUTING INCOME FOR THE PURPOSES OF INCOME TAX ACT. THEREFORE, A.O'S VIEW I S NOT TENABLE. 5.5 AS REGARDS, CLASSIFICATION OF GOVERNMENT SECURI TIES INTO 3 DIFFERENT CATEGORIES I.E. HELD TO MATURITY (HTM), A VAILABLE FOR SALE 6 ITA NO. 507/PN/2014, A.Y. 2010-11 (AFS) AND HELD FOR TRADING (HIT). VARIOUS COURTS HA VE HELD THAT ALL GOVERNMENT SECURITIES ARE STOCK IN TRADE IRRESPECTI VE OF ITS CLASSIFICATION 'HTM', 'AFS' AND 'AFT AND LOSS CLAIM ED DUE TO THE CHANGE IN METHOD IN VALUATION IS ALLOWABLE. I FIND THAT THE APPELLANT HAS CLAIMED THE DEPRECIATION/DIMINUTION I N VALUE OF GOVERNMENT SECURITIES AT THE YEAREND I.E.AS ON 31-0 3-2010 AT ` 8,39,17,500/-. THE APPELLANT HAS CLAIMED THAT THE S AID GOVERNMENT SECURITIES ARE STOCK IN TRADE OF THE BAN KING BUSINESS CARRIED OUT BY IT. APPELLANT BANK HAS NOT CLAIMED A RTY AMORTIZATION I.E. DIFFERENCE BETWEEN THE COST PAID WITH A PREMIU M PRICE ON GOVERNMENT SECURITIES, AND ACTUAL FACE VALUE COST O F GOVERNMENT SECURITIES.' THE APPELLANT BANK HAS FURNISHED DETAI LS OF AMORTIZATION AMOUNT WHICH IS DEBITED TO P & L A/C OF THE RESPECTIVE YEAR, BUT ADDED BACK WHILE COMPUTING THE INCOME UNDER THE LT. ACT. THESE DETAILS ARE FURNISHED UPTO A.Y. 20L3-14. TILL A.Y. 2009-10, BANK CONSISTENTLY FOLLOWED THE METHOD AND HAD SHOWN PURC HASE PRICE OF THE GOVERNMENT SECURITIES AT 'COST 'AS PER AMOUNT P AID FOR PURCHASE OF SAID SECURITIES, AND ACCORDINGLY, CALCULATED BUS INESS PROFIT OR LOSS AS THE CASE MAY BE. DURING THE YEAR UNDER CONSIDERA TION, APPELLANT BANK HAS CHANGED THE METHOD OF VALUATION OF GOVERNM ENT SECURITIES FROM AT 'COST' TO THE 'COST OR MARKET PRICE WHICHEV ER IS LOWER', WHICH RESULTED IN A LOSS TO THE TUNE OF ` 8,39,17,500/-. ONCE A NEW METHOD OF VALUATION IS ADOPTED BY THE ASSESSEE THE SAME MU ST BE FOLLOWED ON CONSTANT BASIS IN THE NEAR FUTURE THOUGH IN THE YEAR OF CHANGE THE VALUATION WILL HAVE IMPACT UPON THE VALUATION OF CL OSING STOCK BUT THE SAME SHALL BE IRONED OUT IN THE SUBSEQUENT YEARS DU E TO VALUATION OF OPENING AND CLOSING STOCK ON THE SAME BASIS. THE AB OVE FINDINGS WERE OBSERVED BY THE HON'BLE COURT IN THE CASE OF C IT VS. CORPORATION BANK 174 ITR 616 (KARNATAKA). IN THIS CASE THE BANK WAS VALUING THE SECURITIES HELD AS STOCK IN TRADE O N 'COST BASIS' AND SUBSEQUENTLY CHANGED THE METHOD OF VALUATION TO 'CO ST OR MARKET PRICE' WHICHEVER IS LOWER. IT WAS HELD BY HON'BLE C OURT THAT THE ASSESSEE HAS RIGHT TO CHANGE THE METHOD OF VALUATIO N OF CLOSING STOCK PROVIDED THE CHANGE IS BONAFIDE AND THE SAME METHOD IS REGULARLY FOLLOWED THEREAFTER. THE PLEA OF REVENUE THAT THE CHANGE METHOD OF VALUATION SHOULD BE APPLIED FOR BOTH OPENING AND CL OSING STOCK WAS REJECTED BY THE COURT. IT WAS HELD BY THE HON'BLE C OURT THAT IN THE YEAR OF CHANGE THERE SHALL BE SOME IMPACT UPON PROF IT OF THE COMPANY BUT THE SAME SHALL BE IRONED OUT IN THE SUB SEQUENT YEARS DUE TO ADOPTION OF NEW METHOD OF VALUATION ON PERMA NENT BASIS THEREAFTER. THE HON'BLE COURT RELIED UPON THE FOLLO WING RULINGS OF VARIOUS COURTS WHILE DELIVERING ABOVE JUDGEMENT. 7 ITA NO. 507/PN/2014, A.Y. 2010-11 I) CHAINRUP SAMPAT RAM VS. CIT 1953 24 ITR 481 SC. II) INDO COMMERCIAL BANK VS. CIT 1962 44 ITR 22 MA D. ILL) BANK OF COCHIN LTD. VS. CIT 1974 ITR 93. IV) CIT VS. CARBORUNDUM UNIVERSAL LTD. 1984 149 IT R 759 MAD. SIMILARLY IN THE CASE OF CIT VS. DELTA PLANTATION L TD. (1993) 71 TAXMAN 329 (CAL.) IT WAS HELD THAT THE CHANGE IN ME THOD OF VALUATION MUST BE BONAFIDE AND SUCH METHOD MUST NOT BE RESTRICTED TO A PARTICULAR YEAR. THE APPELLANT HAS FURNISHED TAX AUDIT REPORTS TILL A.Y. 2013-14 WHICH SHOW THAT FRO M A.Y. 2010- 11 ONWARDS IT WAS FOLLOWING THE COST OR MARKET PRIC E WHICHEVER IS LESS FOR VALUATION OF ITS GOVERNMENT SECURITIES. TH US THE APPELLANT HAS -BEEN CONSISTENT IN FOLLOWING THE CHANGED METHOD OF VALUA TION AFTER A.Y. 2010-11. 5.6 THE APPELLANT VIDE LETTER DATED 02/01/2014 HAS STATED THAT GOVERNMENT SECURITIES HELD BY THE APPELLANT BANK AR E ENTIRELY ITS STOCK IN TRADE. APPELLANT BANK HAS VALUED GOVERNME NT SECURITIES AT 'COST' UP TO 31/03/2009. HOWEVER, DURING THE YE AR UNDER CONSIDERATION, APPELLANT BANK HAS CHANGED ITS METHO D OF VALUATION OF GOVERNMENT SECURITIES FOR THE PURPOSE OF INCOME-TAX FROM 'COST' PRICE TO 'COST OR MARKET PRICE WHICHEVE R IS LESS' AND ACCORDINGLY, ITS VALUATION WAS ADOPTED AS ON 31/03/ 2010. IT IS SETTLED LAW THAT THE GOVERNMENT SECURITIES HELD BY THE BANKING INDUSTRIES ARE STOCK IN TRADE, IRRESPECTIVE OF ITS CLASSIFICATION AS 'HTM' , 'AFS' AND 'AFT:', AS PER RATIO LAID DOWN. B Y THE DECISIONS CITED SUPRA, RELIED UPON BY THE APPELLANT. THE IDE NTICAL ISSUE HAS BEEN DECIDED BY THE JURISDICTIONAL IT AT PUNE AND H ELD THAT 'GOVERNMENT SECURITIES HELD BY THE BANK IS A STOCK- IN-TRADE AND HAS TO BE VALUED AT COST OR MARKET PRICE WHICHEVER LESS', IN THE FOLLOWING CASE: LATUR CO-OP BANK LTD VS DY CIT CIRCLE -2, NANDED [ITA NOS.778&792 /PN/2011- AY.2007-08 DT.31/08/2012] SANGLI BANK LTD. RAJWADA CHOWK, SANGLI VS. ACIT, CI RCLE-Z. SANGLI IN ITA NO.846/PN/2006 DT.30-05-2013. RECENTLY, THE HON. ITAT HYDERABAD IN THE CASE OF DY .CIT CIRCLE-L(I) HYDERABAD VS ANDHARA BANK LTD ( ITA NO 630JHYDJ2012 -A.Y.2007- 8) DT.4-10-2013-]2013-TIOL-IOSI-ITAT-HYD] HAS HELD AS FOLLOWS:- 8 ITA NO. 507/PN/2014, A.Y. 2010-11 'WE ARE OF THE OPINION THAT THE ASSESSEE BANK IS HO LDING VARIOUS GOVERNMENT SECURITIES IN ORDER TO COMPLY WI TH THE STATUTORY LIQUIDATED RATIO. THE BANK WOULD HAVE TO HOLD REQUISITE PERCENTAGE OF DEPOSITS IN THE FORM OF CAS H, GOLD, GOVERNMENT OR APPROVED SECURITIES. THE GOVERNMENT SECURITIES HELD FOR THE PURPOSE OF COMPLY WITH THE SIR HAS BEEN HELD TO BE STOCK IN TRADE AND THEREFORE VALUE OF THE SAME AS ON 31ST MARCH HAS TO BE MADE AND THERE IS A NY DEPRECIATION THE SAME SHOULD BE ALLOWED AS A REVENU E DEDUCTION. HOWEVER, THE RBI HAS ISSUED CIRCULAR WHE REIN THEY HAVE CLASSIFIED THE INVESTMENT MADE TO COMPLY WITH SIR REQUIREMENT AS 'HELD TO MATURITY' (HTM), 'AVAIL ABLE FOR SALE' (AFS) AND 'HELD FOR TRADE' (HFT). BASED ON TH E RBI CIRCULAR LOWER AUTHORITIES CAME TO THE CONCLUSION T HAT INVESTMENT IN GOVERNMENT SECURITIES WHICH ARE CLASS IFIED UNDER THE HEAD HTM CANNOT BE CONSIDERED AS STOCK IN TRADE AND THEREFORE DEPRECIATION IN VALUE OF SUCH SECURIT IES CANNOT BE ALLOWED AS A DEDUCTION. THE APEX COURT IN THE CASE OF UCO BANK LTD VS CIT REPORTED IN 240 ITR 355 = (2002- TIOL-851-SC-IT) HAS HELD THAT VALUE OF THE SECURITIES AT COST OR MARKET VALUE WHICHEVER IS LESS SHOULD BE ACCEPTED FOR INCOME TAX EVEN IF THE BANKS IN THEIR BOOKS DO NOT VALUE ON THAT BASIS. THEREFORE, IT IS AN ACCEPT ED PROPORTION THAT INVESTMENT MADE BY THE BANK TO COMPLY WITH THE SLR REQUIREMENT WOULD CONSTITUTE THEIR STO CK IN TRADE AND DEPRECIATION IN VALUE OF THE SAME IS AN ALLOWABLE DEDUCTION. 51. RESPECTFULLY FOLLOWING THE DECISIONS CITED BY T HE LEARNED COUNSEL FOR THE ASSESSEE, WE UPHOLD THE CLAIM OF THE ASSESSEE AND DIRECT THE AO TO ALLOW DEPRECIATIO N / FALL IN VALUE OF INVESTMENT IN GOVERNMENT SECURITIES INC LUDING THOSE CLASSIFIED UNDER HTM CATEGORY. NO DOUBT (HE V ALUE IN OPENING STOCK IN THE NEXT YEAR WOULD CORRESPONDINGL Y BE ADJUSTED. THIS ISSUE IS DECIDED IN FAVOUR OF THE AS SESSEE.' 6. SINCE THE ISSUE UNDER CONSIDERATION IS IDENTICAL TO THAT OF AY 2006-07 IN ASSESSEE'S OWN CASE, RESPECTFULLY FOL LOWING THE SAME WE UPHOLD THE DIRECTIONS OF LD.CIT(A) WITH A DIRECTION TO AO TO FOLLOW THE SAME IN THIS YEAR ALS O AS PER THE ORDER OF ITAT SUPRA. ACCORDINGLY, GROUND NO. 2 RAISED BY THE REVENUE IS DISMISSED.' 9 ITA NO. 507/PN/2014, A.Y. 2010-11 THE A.O DIRECTED ACCORDINGLY. THEREFORE, THIS GROUN D OF APPEAL IS ALLOWED. 5.7 AS REGARDS SHIFTING OF INVESTMENTS FROM ONE CA TEGORY TO ANOTHER, RBI HAS ISSUED THE FOLLOWING GUIDELINES: 'SHIFTING OF INVESTMENTS: BANKS MAY SHIFT INVESTMENTS TO/FROM HTM CATEGORY WI TH THE APPROVAL OF THE BOARD OF DIRECTORS ONCE IN A YE AR. SUCH SHIFTING WILL NORMALLY BE ALLOWED AT THE BEGINNING OF THE ACCOUNTING YEAR. NO FURTHER SHIFTING TO/FROM THIS C ATEGORY WILL BE ALLOWED DURING THE REMAINING PART OF THAT A CCOUNTING YEAR. BANKS MAY SHIFT INVESTMENTS FROM AFS CATEGORY TO HF T CATEGORY WITH THE APPROVAL OF THEIR BOARD OF DIRECT ORS. IN CASE OF EXIGENCIES, SUCH SHIFTING MAY BE DONE WITH THE APPROVAL OF THE CHIEF EXECUTIVE OF THE BANK, BUT SH OULD BE RATIFIED BY THE BOARD OF DIRECTORS. SHIFTING OF INVESTMENTS (ROM HIT CATEGORY TO AFS CA TEGORY IS GENERALLY NOT ALLOWED. HOWEVER, IT WILL BE PERMITTE D ONLY UNDER EXCEPTIONAL CIRCUMSTANCES SUCH AS MENTIONED I N PARAGRAPH 15.3.2 ABOVE, SUBJECT TO DEPRECIATION, IF ANY, APPLICABLE ON THE DATE OF TRANSFER, WITH THE APPROV AL OF THE BOARD OF DIRECTORS/INVESTMENT COMMITTEE. , TRANSFER OF SCRIPS FROM ONE CATEGORY TO ANOTHER, UN DER ALL CIRCUMSTANCES, SHOULD BE DONE AT THE ACQUISITION CO ST/BOOK- VALUE/MARKET VALUE ON THE DATE OF TRANSFER, WHICHEV ER IS THE LEAST, AND THE DEPRECIATION, IF ANY, ON SUCH TRANSF ER SHOULD BE FULLY PROVIDED FOR. THE APPELLANT HAS FURNISHED A COPY OF THE BOARD OF DIRECTORS RESOLUTION NO.11(6) PASSED IN THE MEETING HELD ON 30/05/2010 I N REGARD TO REVALUATION OF THE GOVERNMENT SECURITY WHICH IS AS FOLLOWS :- RESOLUTION NO.11(6) ON REVIEWING OF THE BALANCE SHEET, PROTIT .AND LOSS ACCOUNT AND INVESTMENT DETAILS OF GOVERNMENT SECURITIES OF THE FINANCIAL YEAR 2009-10. IT SEEMS THAT, BOOK VALUE O F INVESTMENT IN GOVERNMENT SECURITIES IS AT ` 80,77,25,652/- WHERE AS IT'S MARKET VALUE AS ON 31/03/2010 WAS AT ` 71,72,55,000/-. IT MEANS THAT INVESTMENT GOVERNMENT SECURITIES HAS DECLINED BY ` 8,39,17,500/-. 10 ITA NO. 507/PN/2014, A.Y. 2010-11 UPTO NOW, OUR BANK HAS TAKEN VALUATION OF GOVERNMEN T SECURITIES AS PER ORIGINAL VALUE (AT COST). THEREFO RE, THE NET PROFIT SHOWN IS NOT ACTUAL; IT'S ONLY ON THE PAPER. HENCE IT IS DECIDED THAT AT THE TIME OF FILING THE INCOME TAX R ETURN FOR THE F.Y. 2009-2010, THE VALUATION OF ALL GOVERNMENT SECURITIES ARE TO BE ADOPTED AT COST PRICE OR MARKE T PRICE, WHICHEVER IS LOWER. ACCORDING TO THE ABOVE, VALUATION OF THE ALL OUR IN VESTMENT IN GOVERNMENT SECURITIES FROM THE DATE OF 31/03/201 0 IS VALUED AS PER ABOVE RESOLUTION FOR THE INCOME TAX A CT AND TO BE CONSIDERED IN INCOME TAX RETURNS. HENCEFORTH, FO R THE INCOME TAX RETURNS IN FUTURE ALSO SHOULD BE SUBMITT ED AS PER THE COST OR MARKET VALUE WHICHEVER IS LOWER. RESOLUTION PASSED UNANIMOUSLY. THE APPELLANT HAS ALSO FURNISHED A COPY OF BOARD OF DIRECTORS RESOLUTION NO.20(2) PASSED IN THE MEETING DATED 01/ 04/2009 ON SHIFTING OF INVESTMENTS FROM ONE CATEGORY TO ANOTHE R. RESOLUTION IS REPRODUCED AS UNDER:- RESOLUTION NO.20(2): AS PER GUIDELINES ISSUED BY THE RESERVE BANK INDIA, BANK HAS TO INVEST IN GOVERNMENT SECURITIES MINIMUM AT 1 5% OF ITS TIME AND DEMAND LIABILITIES AND TO CLASSIFY THE SAME INVESTMENT IN 3 CATEGORIES SUCH AS HELD TO MATURITY (HTM), AVAILABLE FOR SALE (AFS) AND HELD FOR TRADING (HFT) . ACCORDING TO THE INSTRUCTION OF RBI, BANK HAS RIGHT TO CHANGE THE CLASSIFICATION AT BEGINNING OF EVERY FINANCIAL YEAR, ACCORDING TO THAT, ANY INTERNAL CHANGES CAN BE DONE IN CLASSIFICATION OF GOVERNMENT SECURITIES. THE PRESIDENT OR THE MANAGING DIRECTOR HAS AUTHORIZ ED TO CHANGE THE CLASSIFICATION SUBJECT TO RBI'S GUIDELIN ES, AND MAINTAIN SIR RATIO. THE APPELLANT VIDE SUBMISSION DATED 30/12/2103 HAS HOWEVER, STATED THAT TILL DATE IT HAS NOT SHIFTED HTM GOVT, SECURITIES INTO AVAILABLE FOR SALE (AFS) OR HELD FOR TRADING (HIT). THE HON'BLE RRXR, PUNE IN I.T.A. NO.996/PN/2012 IN THE CASE OF ACIT C IRCLE-3(1), DHULE VS. THE SHAHADA PEOPLE CO-OPERATIVE BANK LTD., SHAH ADA, NANDURBAR DATED 27/08/2013 IN PARAGRAPH 5 'HAS STAT ED THAT IN THE CASE OF BANK OF BARODA AS WELL AS KARUR VYASA BANK LTD. THE 11 ITA NO. 507/PN/2014, A.Y. 2010-11 VALUATION WAS TO BE MADE AT COST OR MARKET VALUE WH ICHEVER WAS LOWER. THE HON'BLE ITAT HAS ALSO STATED THAT SECURI TIES HELD TO MATURITY (HTM) ARE PART OF STOCK-IN-TRADE OF THE BA NK AND THERE IS NO JUSTIFICATION TO DECLINE THE CLAIM OF DEPRECIATION/ LOSS ON THE VALUATION OF THE SAID SECURITIES. THE HON'BLE HIGH COURT OF K AMATAKA 94 DTR (KAR.) 448 IN THE CASE OF KAMATAKA BANK LTD. VS . ACIT HAS HELD AS UNDER:- 'A METHOD OF ACCOUNTING ADOPTED BY THE TAXPAYER CONSISTENTLY AND THE REGULARLY CANNOT BE DISCARDED BY THE DEPARTMENTAL AUTHORITIES ON THE VIEW THAT HE SHOULD HAVE ADOPTED A DIFFERENT METHOD OF KEEPING- THE ACCOUNTS OR 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 WITH THE SAID REQUIREMENTS. RBI ACT O R COMPANIES ACT DO NOT DEAL WITH THE PERMISSIBLE DEDU CTIONS OR EXCLUSION UNDER THE IT ACT. FOR THE PURPOSE OF IT ACT, IF THE ASSESSEE HAS BEEN CONSISTENTLY TREATING THE VAL UE OF INVESTMENT FOR MORE THAN TWO DECADES AS INVESTMENT AS STOCK-IN-TRADE AND CLAIM DEPRECIATION, IT IS NOT OP EN TO THE AUTHORITIES TO DISALLOW THE SAID DEPRECIATION ON TH E GROUND THAT IN THE BALANCE-SHEET IT IS SHOWN AS INVESTMENT IN TERMS OF THE RBI REGULATIONS. THE RBI REGULATIONS, THE CO MPANIES ACT AND IT ACT OPERATE ALTOGETHER IN DIFFERENT FIELDS. THE QUESTION WHETHER THE ASSESSEE IS ENTITLED TO PARTIC ULAR DEDUCTION OR NOT WILL DEPEND UPON THE PROVISION OF LAW RELATING THERETO AND NOT THE WAY, IN WHICH THE ENTR IES ARE MADE IN THE BOOKS OF ACCOUNTS. IT IS NOT DECISIVE O R CONCLUSIVE IN THE MATTER. FOR THE PURPOSE OF LT. AC T WHICHEVER METHOD IS ADOPTED BY THE ASSESSEE, A TRUE PICTURE OF THE PROFITS AND GAINS I.E., REAL INCOME IS TO BE DISCLOSED. FOR DETERMINING THE REAL INCOME, THE ENTRIES IN THE BALANCE SHEET REQUIRED TO BE MAINTAINED IN THE STATUTORY FO RM MAY NOT BE DECISIVE OR CONCLUSIVE. IT IS OPEN TO THE IT O AS WELL AS THE ASSESSEE TO POINT OUT TRUE AND PROPER INCOME WH ILE SUBMITTING THE IT RETURNS. THE ASSESSEE HAS MAINTAINED THE ACCOUNTS IN TERMS O F THE RBI REGULATIONS AND HE HAS SHOWN THE SECURITIES AS INVESTMENT. BUT CONSISTENTLY FOR MORE THAN TWO DEC ADES IT HAS BEEN SHOWN AS STOCK-IN-TRADE AND DEPRECIATION I S. CLAIMED AND ALLOWED. THEREFORE, NOTWITHSTANDING THA T IN THE 12 ITA NO. 507/PN/2014, A.Y. 2010-11 BALANCE SHEET, IT IS SHOWN AS INVESTMENT, FOR THE P URPOSE OF L T. ACT IT IS SHOWN AS STOCK-IN-TRADE. THEREFORE, THE VALUE OF THE STOCKS BEING CLOSELY CONNECTED WITH THE STOCK M ARKET, AT THE END OF THE FINANCIAL YEAR, WHILE VALUING THE AS SETS, NECESSARILY THE BANK HAS TO TAKE INTO CONSIDERATION THE MARKET VALUE OF THE SHARES. IF THE MARKET VALUE IS LESS THAN THE COST PRICE, IN LAW, THEY ARE ENTITLED TO DEDUCT IONS AND IT CANNOT BE DENIED BY THE AUTHORITIES UNDER THE PRETE XT THAT IT IS SHOWN AS INVESTMENT IN THE BALANCE SHEET. IN THA T VIEW OF THE MATTER, THE ORDER PASSED BY THE AUTHORITIES HOL DING THAT IN VIEW OF THE RBI GUIDELINES, THE ASSESSEE IS STOP PED FROM TREATING THE INVESTMENT AS STOCK-IN-TRADE IS NOT C ORRECT. THAT FINDING RECORDED BY THE AUTHORITIES IS HEREBY SET A SIDE. THE APPEAL IS ALLOWED. THE MATTER IS REMANDED BACK TO T HE ASSESSINQ AUTHORITY AND HE SHALL LOOK INTO THESE EN TRIES IN ACCORDANCE WITH LAW. - CHAINRUP SAMPATRAM VS. CIT (1953) 24 ITR 481 (SC), UCO BANK VS CIT(1999) 154 CTR (SC) 88 ; (1999) 237 ITR 889 (SC), UNITED COMMERCIAL BANK VS. CIT (1999) 156 CTR (SC) 380 : (1999) 240 ITR 355 (SC) AND SOUTHERN TECHNOLOGIES LTD. VS. IT. CIT (2010) 228 CTR (SC) 440 : (2010) 34 DTR (SC) 11 : (2010) 320 ITR 577 (SC) APPLIED; AT VS. ING VYASYA BANK LTD. (2013) 94 DTR (KAR.) 425 NOT FOLLOWED. CONCLUSION: ASSESSEE BANK IS ENTITLED TO SHOW SECUR ITIES HELD BY IT AS INVESTMENT IN BALANCE-SHEET AS STOCK- IN-TRADE FOR INCOME-TAX PURPOSES'. IN VIEW OF THE ABOVE FACTS AND DISCUSSION AND RESPE CTFULLY FOLLOWING THE RATIOS LAID DOWN BY THE VARIOUS COURTS INCLUDIN G THE DECISION OF HON'BLE ITAT, PUNE IN REGARD TO CLASSIFICATION OF T HE SECURITIES AND THEIR VALUATION, I AM OF THE CONSIDERED VIEW THAT A O HAS NOT APPRECIATED THE FACTS CORRECTLY AND THEREFORE WAS N OT JUSTIFIED IN MAKING THE ADDITION OF ` 8,39,17,500/- ON ACCOUNT OF DISALLOWANCE OF DIMINUTION IN THE VALUATION OF GOVERNMENT SECURITIE S. THE ADDITION OF ` 8,39,17,5001- IS THEREFORE, DELETED. 6. THE ISSUE RELATING TO CHANGE IN METHOD OF VALUATION OF S TOCK HAS COME UP BEFORE THE HON'BLE BOMBAY HIGH COURT IN THE CAS E OF COMMISSIONER OF INCOME TAX VS. MODERN TERRY TOWELS LTD. (S UPRA). IN 13 ITA NO. 507/PN/2014, A.Y. 2010-11 THE SAID CASE THE ASSESSEE WAS REGULARLY FOLLOWING THE ME THOD OF VALUING CLOSING STOCK ON THE BASIS OF NET REALIZABLE VALUE. D URING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR 1997-98 THE AS SESSEE CHANGED THE METHOD OF VALUATION OF ITS CLOSING STOCK FROM THE NET REALIZABLE VALUE TO THE COST OR MARKET PRICE, WHICHEVER IS LOWER. AS A CON SEQUENCE OF THE CHANGE IN THE METHOD OF VALUING THE CLOSING STOCK THE VALU ATION OF CLOSING STOCK WENT DOWN BY RS. 6.17 CRORES. THE ASSESSING OFFICER DID NOT ACCEPT THE EXPLANATION OFFERED BY THE ASSESSEE FOR CHANGE IN THE METHOD OF VALUING THE CLOSING STOCK, VIZ., ACCOUNTING STANDA RD AS-2. IN FIRST APPEAL THE COMMISSIONER OF INCOME TAX (APPEALS) ACCEPT ED THE CONTENTIONS OF THE ASSESSEE AND DELETED THE ADDITION. TH E DEPARTMENT CARRIED THE MATTER IN APPEAL BEFORE THE TRIBUNAL. THE TRIB UNAL UPHELD THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS). THEREAFT ER, THE MATTER TRAVELLED TO THE HON'BLE HIGH COURT. THE HON'BLE HIGH COURT HELD AS UNDER: 19. THIS HIGH COURT IN MELMOULD CORPORATION V. CIT [1993] 202 ITR 789 (BOM) RELIED UPON THE BOOKLET TITLED VALUATION OF S TOCK AND WORK- INPROGRESSNORMALLY ACCEPTED ACCOUNTING PRINCIPLES BROUGHT OUT BY THE INDIAN MERCHANTS' CHAMBER ECONOMIC RESEARCH AND TRA INING FOUNDATION, WHICH MAY USEFULLY BE EXTRACTED HERE TO O (PAGE 792 OF 202 ITR) : '2. WHERE A CHANGE FROM ONE VALID BASIS TO ANOTHER VALID BASIS IS ACCEPTED, CERTAIN CONSEQUENCES NORMALLY FO LLOW. THE OPENING STOCK OF THE BASE YEAR OF CHANGE IS VALUED ON THE SAME BASIS AS THE CLOSING STOCK. WHETHER THE CHANGE IS T O A HIGHER LEVEL OR TO A LOWER LEVEL, THE REVENUE NORMALLY DOES NOT SEEK TO REVISE THE VALUATION OF EARLIER YEARS. IT NEITHER SEEKS TO RAISE ADDITIONAL ASSESSMENTS, NOR DOES IT ADMIT RELIEF UNDER THE 'ER ROR OR MISTAKE' PROVISIONS. 3. IT IS NOT POSSIBLE TO DEFINE WITH PRECISION WHAT AMOUNTS TO A CHANGE OF BASIS. IT IS A CONVENIENCE, BOTH TO THE TAXPAYER AND TO THE REVENUE, NOT TO REGARD EVERY CHANGE IN THE M ETHOD OF VALUATION AS A CHANGE OF BASIS. IN PARTICULAR, THE REVENUE 14 ITA NO. 507/PN/2014, A.Y. 2010-11 ENCOURAGES THE VIEW THAT CHANGE WHICH INVOLVES NO M ORE THAN A GREATER DEGREE OF ACCURACY, OR A REFINEMENT, SHOULD NOT BE TREATED AS A CHANGE OF BASIS, WHETHER THE CHANGE RESULTS IN A HIGHER OR A LOWER VALUATION. IN SUCH CASES THE NEW CHANGE VALUA TION IS APPLIED AT THE END OF THE YEAR WITHOUT AMENDMENT OF THE OPENING VALUATION.' (UNDERLINING OURS). THIS COURT, WHILE HOLDING THAT THERE IS NO NEED TO CHANGE THE VALUATION OF THE OPENING STOCK FOR THE YEAR WHEN THERE IS CHANGE IN VALUE OF THE CLOSING STOCK DUE TO A CHANGE IN THE METHOD, OBSERV ED AS UNDER (PAGE 795) : 'WHENEVER THERE IS A CHANGE IN THE METHOD OF VALUAT ION, THERE IS BOUND TO BE SOME DISTORTION IN CALCULATING THE PROFIT IN THE YEAR IN WHICH CHANGE TAKES PLACE. BUT IF CHANGE IS BROUGHT ABOUT BONA FIDE AND IS IN ACCORDANCE WITH THE NORMALLY AC CEPTED ACCOUNTING PRACTICE, THERE IS NO REASON WHY SUCH A CHANGE SHOULD NOT BE PERMITTED.' 20. IN THE CIRCUMSTANCES, THE VALUATION OF THE CLOS ING STOCK ON THE BASIS OF THE COST OR THE NET REALIZABLE VALUE, WHICH IS L OWER, DONE BY THE RESPONDENT-ASSESSEE WHICH IS MANDATORY REQUIREMENT OF LAW CANNOT BE FAULTED. IN VIEW OF THE ABOVE, QUESTION (C) ABOVE D OES NOT RAISE A SUBSTANTIAL QUESTION OF LAW. 7. THE HON'BLE MADRAS HIGH COURT IN THE CASE OF INDO-CO MMERCIAL BANK LTD. VS. COMMISSIONER OF INCOME TAX (SUPRA) HAS HELD T HAT THE ASSESSEE IS ENTITLED TO CHANGE HIS METHOD OF VALUATION PRO VIDED IT IS BONAFIDE AND THE CHANGED METHOD IS REGULARLY FOLLOWED. THE METHOD ADOPTED SHOULD BE IN ACCORDANCE WITH THE PROVISIONS OF TH E ACT AND ACCEPTED PRINCIPLES OF ACCOUNTANCY. 8. IN THE PRESENT CASE, THE REVENUE HAS NOT POINTED O UT ANY INFIRMITY IN THE METHOD ADOPTED BY THE ASSESSEE FOR VALUAT ION OF STOCK. THE APPEAL PERTAINS TO THE ASSESSMENT YEAR 2010-11, TH E LD. AR HAS STATED AT THE BAR THAT THE ASSESSEE IS FOLLOWING THE CHA NGED METHOD OF VALUATION OF STOCK EVEN TODAY. THE LD. DR HAS NOT CONTR OVERTED THE 15 ITA NO. 507/PN/2014, A.Y. 2010-11 STATEMENT MADE BY THE LD. AR. SINCE, THE METHOD OF VALU ATION OF STOCK HAS BEEN REGULARLY ADOPTED BY THE ASSESSEE THIS SHOWS THE BONAFIDE OF ASSESSEE IN CHANGING THE VALUATION METHOD. REDUCTION IN P ROFIT DUE TO CHANGE IN VALUATION METHOD OF STOCK CANNOT BE A REASON TO REJECT THE CLAIM OF ASSESSEE. WHENEVER, THERE IS CHANGE IN METHOD OF ACCOUNTING, THERE WOULD BE ABERRATIONS IN THE FINANCIAL RESULTS. WE DO NOT FIND INFIRMITY IN THE WELL REASONED AND DETAILED FINDINGS GIVEN BY TH E COMMISSIONER OF INCOME TAX (APPEALS). IT IS NOT THE CASE OF THE REVENUE THAT THE METHOD OF VALUATION OF STOCK ADOPTED B Y ASSESSEE IS INCONSISTENT WITH THE ACCOUNTING PRINCIPLES. THEREFORE, WE D O NOT FIND ANY MERIT IN THE GROUND NO. 2 RAISED BY THE REVENUE, THE SAME IS ACCORDINGLY DISMISSED. 9. IN SO FAR AS THE ISSUE RELATING TO DISALLOWANCE OF CLAIM O F BONUS, THE COMMISSIONER OF INCOME TAX (APPEALS) HAS DELETED THE A DDITION BY OBSERVING AS UNDER: 6. THE SECOND GROUND RELATES TO DISALLOWING THE CL AIM OF BONUS OF ` 12,76,657/-. I FIND FROM THE ASSESSMENT ORDER THAT A.O HAS INTER ALIA DISCUSSED AND STATED IN PARA NO.5.2 OF THE ORD ER THAT: 'ON PERUSAL OF COMPUTATION OF INCOME IT WAS FOUND T HAT ASSESSEE HAS CLAIMED THE DEDUCTION OF ` 28,72,823/-, WHEREAS ON GOING THROUGH THE AUDIT REPORT IT IS SEEN FROM C OLUMN NO.21 B(A) THAT THE BONUS OF ` 15,96,166/- PAID ON 09-08- 2010 ON OR BEFORE THE DUE DATE FOR FURNISHING THE R ETURN OF INCOME ON THE PREVIOUS YEAR. THEREFORE, THE EXCESS CLAIM OF ` 12,76,657/- IS HEREBY DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE U/S. 43 B OF THE I T ACT. ' 6.1 DURING THE COURSE OF APPELLATE PROCEEDINGS, COU NSELS OF THE APPELLANT HAS ARGUED AND EXPLAINED ENTIRE FACTS AND ALSO FILED WRITTEN EXPLANATION CITED SUPRA. IT IS INTER ALIA S TATED THAT: (I) APPELLANT SUBMITS THAT THE LEARNED A.O FAILED TO AP PRECIATE CORRECT POSITION IN THIS REGARD AND MADE THE ADDITION. AS REGARDS BONUS PAYABLE, APPELLANT BANK SUBMITS AS UN DER: 16 ITA NO. 507/PN/2014, A.Y. 2010-11 BONUS PAYABLE AS PER BALANCE SHEET AS AT 31/03/2010....................... ` 28,72,823/- LESS: ENTRY RESERVED DUE TO EXCESS PROVISION ` 12,59,585/- AND SHOWN IN THE ASSET SIDE OF BALANCE- SHEET IN THE AMOUNT OF MISC. SUNDRY DEBTOR OF ` 7525462/- WHICH INCLUDES SAID AMOUNT OF ` 1259585/- LESS: PREVIOUS YEARS BONUS ALREADY TAXED ` 17,072/- BONUS PAYABLE AS ON 31/03/2010 ` 15,96,166/- APPELLANT SUBMITTED HEREWITH THE COPY OF AUDIT REPO RT FOR YOUR HONOUR'S KIND PERUSAL AND DETAILS OF SUNDRY DE BTOR& BONUS ACCOUNTS ARE ENCLOSED. (II) AS APPELLANT BANK HAS PAID SAID OUTSTANDING BONUS PAYABLE OF ` 15,96,166/- ON 09-08-2010 I.E. BEFORE DUE DATE OF FILING OF RETURN OF INCOME WHICH IS NOT DIS PUTED BY AD. AS IT IS PAID WITHIN PERMISSIBLE TIME UNDER THE PROVISION OF SECTION 43 B OF THE IT ACT, IT IS CERTAINLY, ALLOWABLE U/S.43 B OF THE I T ACT. IN VIEW OF THE A CTUAL AND FACTUAL FACTS AS NARRATED ABOVE, THE LEARNED AO IS NOT JUSTIFIED IN DISALLOWING THE BONUS OF ` 12,76,657/-. IT IS, THEREFORE, REQUESTED TO YOUR KIND HONOUR THAT THE A DDITION MAY PLEASE BE DELETED. 6.2 I HAVE CAREFULLY CONSIDERED AND VERIFIED THE FACTS OF THE CASE. AS PER FINAL ACCOUNTS, BONUS A/C AND PROFIT AND LOSS A /C, I FIND THERE WAS A LIABILITY OF BONUS PAYABLE TO THE EXTENT OF ` 15,96,166/- ONLY WHICH WAS PAID BY APPELLANT ON 09-08-2010 I.E. BEFO RE THE DUE DATE FOR FURNISHING THE RETURN OF INCOME ON THE PREVIOUS YEAR. THE AUDITORS HAVE GIVEN THE NECESSARY COMMENTS IN THIS REGARD IN THE AUDIT REPORT FOR AY. 2010-11. UNDER THE CIRCUMSTANCES AND ON THE FACTS, AO IS NOT JUSTIFIED IN DISALLOWING THE BONUS WHICH WAS PAID ON 09/08/2010 I.E. BEFORE THE DUE DATE OF FILING THE R ETURN AND HENCE, ADDITION CANNOT BE SUSTAINED. THUS, ADDITION OF ` 12,76,657/- IS HEREBY DELETED. THE A.O. DIRECTED ACCORDINGLY. THI S GROUND OF APPEAL IS ALLOWED. 10. THE LD. DR HAS NOT BEEN ABLE TO SHOW AS TO HOW THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPEALS) ON THE ISSUE ARE PERVERSE. 17 ITA NO. 507/PN/2014, A.Y. 2010-11 THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPEALS) ARE WELL REASONED AND WE CONCUR WITH THE SAME. WE DO NOT FIND ANY MERIT IN THE GROUND NO. 1 RAISED BY THE REVENUE IN ITS APPEAL. AC CORDINGLY, THE SAME IS DISMISSED BEING DEVOID OF ANY MERIT. 11. THE OTHER GROUNDS (GROUND NOS. 3 TO 8) IN THE APPEA L BY THE REVENUE ARE EITHER IN SUPPORT OF GROUND NOS. 1 AND 2 O R ARE GENERAL IN NATURE. SINCE, THE GROUND NOS. 1 AND 2 OF THE APPEAL ARE DISMISSED, THE GROUNDS IN SUPPORT THEREOF ARE ALSO DISMISSED. 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON MONDAY, THE 02 ND DAY OF MAY, 2016. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED : 02 ND MAY, 2016 RK *+,%-.#/#)- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ' () / THE CIT(A)-I, NASHIK 4. ' / THE CIT-I, NASHIK 5. !*+ %%,- , ,- , . ./0 , / DR, ITAT, B BENCH, PUNE. 6. + 1 23 / GUARD FILE. // ! % // TRUE COPY// #4 / BY ORDER, %5 ,0 / PRIVATE SECRETARY, ,- , / ITAT, PUNE