ACIT CIR 3, THANE V. THE THANE JANATA SAHAKARI BANK, THANE

ITA 6090/MUM/2012

• Counselvise Citation: 609019914 RSA 2012
• Duration Of Justice: 1 year(s) 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 10-06-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 05-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ADGIRI
• Keywords: Business income; Depreciation; Business expenditure; Cost of acquisition; Revised return; Revenue expenditure

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - E BENCH. .. , ! , BEFORE S/SH.I.P.BANSAL, JUDICIAL MEMBE R & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO.6090/MUM/2012, ' ' ' ' # # # # / ASSESSMENT YEAR-2009-10 ACIT CEN CIR 3, VARDAAN LOWER GROUND FLOOR, MIDC, WAGLE INDL. ESTATE, THANE. VS THE THANE JANATA SAHAKARI BANK, MADHUKAR BHAVAN, ROAD NO. 16, WAGLE ESTATE, THANE (W). PAN: AAAAT4026E ( $% / APPELLANT) ( &'$% / RESPONDENT) ( ) / REVENUE BY : SHRI B. YADGIRI '*+ '*+ '*+ '*+ ) ) ) ) / ASSESSEE BY : NONE ' ' ' ' ( (( ( +, +, +, +, / DATE OF HEARING : 10-06-2014 -.# ( +, / DATE OF PRONOUNCEMENT : 10-06-2014 ' ' ' ' , 1961 ( (( ( 254 )1( +/+ +/+ +/+ +/+ 0 0 0 0 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM ! ! ! ! ' ' ' ' : CHALLENGING THE ORDER DATED 11.07.2012 OF THE CIT(A )-I,THANE,ASSESSING OFFICER (AO) HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1.ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A)-L, THANE HAS ERRED IN APPRECIATING THE FACT THAT THE EXPENDITURE INCURRED AT THE TIME OF PURCHASE OF HTM SECURITY AT A PRICE HIGHER THAN THE MATURED PRICE IS NOT ALLOWABL E AS REVENUE EXPENDITURE. 2.ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A)-I, THANE HAS ERRED IN APPRECIATING THE FACT THAT WHILE SHIFTING THE SECUR ITIES, THE HTM SECURITY SHOULD HAVE BEEN VALUED AT COST AND DIMINUTION IN VALUE IS NOT ALLOWABLE AS BU SINESS EXPENSES. 3.THE APPELLANT PRAYS THE ORDER OF THE LD. CIT(A)-L , THANE, MAY BE VACATED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 4.THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER ANY GROUND/GROUNDS, WHICH MAY BE NECESSARY. 2. ASSESSEE,ENGAGED IN THE BUSINESS OF BANKING ,FILED ITS RETURN OF INCOME ON 29.09.2009, DECLARING TOTAL INCOME OF RS. 47.68 CRORES.LATER ON A REVISED RETURN WAS FILED ON 25.02.2011 DECLARING INCOME AT RS.51.26 CRORES.ASSESSING OFFICER(AO)FINA LISED THE ASSESSMENT U/S.143(3) OF THE ACT,ON 26.12.2011,DETERMINING THE TOTAL INCOME AT RS.59.50 CRORES. 3. EFFECTIVE GROUND OF APPEAL PERTAINS TO HELD TO MATU RITY SECURITIES(HTM)AND DIMINUTION IN THEIR VALUE.DURING THE ASSESSMENT PROCEEDINGS AO FOUND TH AT THE ASSESSEE HAD DEBITED AN AMOUNT OF RS.2.34 CRORES UNDER THE HEAD AMORTI -SATION OF PRE MIUM ON GOVERNMENT SECURITIES,THAT IT HAD FURTHER CLAIMED A DEDUCTION OF RS.1.07 CRORES ON AC COUNT OF AMORTISATION OF PREMIUM ON SECURITIES ACQUIRED ON MERGER OF ANOTHER BANK, THAT THE ASSESSEE HAD DEBITED AN AMOUNT OF RS.5.47 CRORES IN P&L ACCOUNT UNDER THE HEAD EXPENDITURE PR OVISION AND CONTINGENCIES.HE DIRECTED THE ASSESSEE TO FILE EXPLANATION IN THIS REGARD. HE DIR ECTED THE ASSESSEE TO FILE EXPLANATION IN THIS REGARD.VIDE ITS LETTER DATED 06.05.2011 IT WAS STAT ED BY THE ASSESSEE THAT CLAIM WAS MADE BY IT ABOUT THE DIMINUTION OF VALUE OF INVESTMENT ON SHIF TING OF SECURITIES FROM AVAILABLE FOR SALE(AFS) 2 ITA NO. 6090/MUM/2012 TO HTM CATEGORY.AFTER CONSIDERING THE SUBMISSIONS O F THE ASSESSEE,HE HELD THAT THE EXCESS OF HTM SECURITIES WAS NOT TREATED AS INCOME,THAT DIFFE RENCE COULD NOT ALLOWED AS EXPENDITURE,THAT GAIN AND LOSS WERE TO BE REALISED ON MATURITY,THAT DIFFERENCE IN AMORTISATION AND DIMINUTION IN VALUE OF INVESTMENT FROM AFS TO HTM COULD NOT BE A LLOWED AS BUSINESS EXPENDITURE.HE MADE AN ADDITION OF 8.88 CRORES(RS.2.34 CRORES+1.07 CRORES +5.47 CRORES) TO THE INCOME OF THE ASSESSEE. 4. AGAINST THE ORDER OF THE AO ASSESSEE PREFERRED AN A PPEAL BEFORE THE FIRST APPEAL AUTHORITY (FAA).AFTER CONSIDERING THE SUBMISSIONS OF THE ASSE SSEE AND THE ASSESSMENT ORDER HE HELD THAT IDENTICAL ISSUE HAD ARISEN IN THE AY..2007-08,THAT HIS PREDECESSOR HAD DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE,THAT WHILE DECIDING THE APPEAL FILE D BY THE ASSESSEE FOR THE YEAR 2008-09 HE HAD FOLLOWED THE ORDER OF HIS PREDECESSOR.HE FURTHER HE LD THAT THE ASSESSEE WAS ENTITLED TO CLAIM OF AMORTISATION OF PREMIUM IN THE YEAR UNDER APPEAL , THAT THE INTEREST INCOME ON THE SECURITIES WAS REGULARLY SHOWN BY THE ASSESSEE AND HENCE AS PER TH E MATCHING PRINCIPLE, THE DEDUCTION OF PREMIUM EXPENSES WAS ALLOWABLE,THAT THE SECURITIES PURCHASED BY THE ASSESSEE CO-OP. BANK AND CLASSIFIED UNDER THE CATEGORY HELD TO MATURITY FO RM PART OF STOCK-IN-TRADE OF THE ASSESSEE ,THAT SAME WERE PURCHASED WITH AN PREDOMINANT MOTIVE OF M AINTAINING SLR OF THE BANK, NON MAINTENANCE OF WHICH COULD HAVE SERIOUS RAMIFICATIO NS ON THE VERY EXISTENCE OF BUSINESS OF BANKING,THAT THE AMORTISATION OF PREMIUM PAID ON PU RCHASE OF SECURITIES CLASSIFIED UNDER THE HTM CATEGORY WAS AN ASCERTAINED AND DETERMINED BU SINESS LOSS TO THE BANK AND THERE WAS NO DISPUTE ABOUT THE QUANTUM OF LOSS,THAT SAME WAS NOT EXPRESSLY ALLOWABLE BY ANY PROVISIONS OF THE ACT, THAT IT HAD TO HE ALLOWED WHILE COMPUTING THE BUSINESS INCOME OF THE ASSESSEE.HE FURTHER HELD THAT THAT THE ASSESSEE HAD ACQUIRED ONE COOPERATIVE BANK,THAT AMOUNT OF AMORTISATION OF PREMIUM PAID ON GOVERNMENT SECURITIES ORIGINALLY PURCHASED BY THAT BANK LTD.WAS AN ALLOWABLE EXPENDI - TURE FOR THE REASONS STATED EARLIER.IN SHORT,HE ALL OWED BOTH THE CLAIMS MADE BY THE ASSESSEE,WITH REGARD TO THE AMORTISATION.IN RESPECT OF LOSS ARISI NG DUE TO SHIFTING OF INVESTMENT FROM AFS TO HTM CATEGORY,HE HELD THAT SAME WAS PERMITTED BY THE GUIDELINES ISSUED BY THE RESERVE BANK OF INDIA ON 16.10.2008,THAT SIMILAR ISSUE HAD BEEN ALS O CONSIDERED IN THE CASE OF STATE BANK OF MYSORE(33 SOT 7),THAT THE TRIBUNAL HAD HELD THAT TH E DIMINUTION IN THE VALUE OF SECURITIES CONSEQUENT TO CONVERSION OF SECURITIES FROM AFS CAT EGORY TO HTM CATEGORY WAS AN ALLOWABLE EXPENDITURE. 5. BEFORE US, DEPARTMENTAL REPRESENTATIVE (DR) SUPPORT ED THE ORDER OF THE AO.AS STATED EARLIER,NO ONE APPEARED ON BEHALF OF THE ASSESSEE. WE HAVE PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE GUIDELINES OF THE BANK REGULATOR, RESERVE BANK OF INDIA (RBI) ARE RELEVANT IN THIS C ONTEXT,THAT AS PER THE RBI GUIDELINES (DT. 16 TH OCTOBER,2000),THE INVESTMENT PORTFOLIOS OF THE BANK S ARE REQUIRED TO BE CLASSIFIED UNDER THREE CATEGORIES VIZ. HELD TO MATURITY (HTM), HELD FOR TR ADING (HFT)AND AVAILABLE FOR SALE (AFS), THAT INVESTMENTS CLASSIFIED UNDER HTM CATEGORY ARE NOT TO BE TREATED AS MARKED TO MARKET AND ARE TO BE CARRIED AT ACQUISITION COST UNLESS THESE ARE MORE THAN THE FACE VALUE, THAT IN SUCH CASES, THAT PREMIUM HAS TO BE AMORTISED OVER THE PERIOD RE MAINING TO MATURITY,THAT THE CASES OF HFT AND AFS SECURITIES FORM STOCK-IN-TRADE OF THE BANK, THA T THE DEPRECIATION/APPRECIATION IS TO BE AGGREGATED SCRIP-WISE AND ONLY NET DEPRECIATION IS REQUIRED TO BE PROVIDED FOR IN THE ACCOUNTS.WE ALSO FIND THAT CBDT,VIDE ITS CIRCULAR NO.17 DT. 26- 11-2008 (PARA VII) HAS DEALT THE ISSUE OF HTM (HELD TO MATURITY) CATEGORY SECURITIES IN THE FOLLO WING MANNER: AS PER RBI GUIDELINES DATED 16 TH OCTOBER, 2000, THE INVESTMENT PORTFOLIO OF THE BAN K IS REQUIRED TO BE CLASSIFIED UNDER THREE CATEGORIES VIZ. HELD T O MATURITY (HTM), HELD FOR TRADING (HFT) AND AVAILABLE FOR SALE (AFS).INVESTMENTS CLASSIFIED UND ER HTM CATEGORY NEED NOT BE MARKED TO MARKET AND RE CARRIED AT ACQUISITION COST UNLESS THESE ARE MORE THAN THE FACE VALUE, IN WHICH CASE THE PREMIUM SHOULD BE AMORTIZED OVER THE PERIOD REMAINI NG TO MATURITY. IN THE CASE OF HFT AND AFS SECURITIES FORMING STOCK IN TRADE OF THE BANK, THE DEPRECIATION/APPRECIATION IS TO BE AGGREGATED 3 ITA NO. 6090/MUM/2012 SCRIP WISE AND ONLY NET DEPRECIATION,IF ANY,IS REQU IRED TO BE PROVIDED FOR IN THE ACCOUNTS.THE LATEST GUIDELINES OF THE RBI MAY BE REFERRED TO FOR ALLOWI NG ANY SUCH CLAIMS. FROM THE ABOVE IT IS CLEAR THAT THE ASSESSEE-BANK W AS FOLLOWING THE GUIDELINES AND INSTRUCTION ISSUED BY THE RBI AND THE TREATMENT GIVEN BY IT IN THE BOOKS OF ACCOUNTS WAS ALSO AS PER THE ABOVE REFERRED CIRCULAR OF THE CBDT.WE ARE ALSO OF THE OP INION THAT THE FAA HAS RIGHTLY HELD THAT DIMINUTION IN VALUE OF SECURITIES ON CONVERSION FRO M AFS TO HTM CATEGORY IS AN ALLOWABLE EXPENDITURE.WE ARE OF THE OPINION THAT HIS ORDER DO ES NOT SUFFER FROM ANY LEGAL INFIRMITY.CONFIRM -ING HIS ORDERS AND FOLLOWING THE ORDER OF THE BANG ALORE ITAT,DELIVERED IN THE MATTER OF STATE BANK OF MYSORE(SUPRA),WE DECIDE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. AS A RESULT,APPEA L FILED BY THE AO STANDS DISMISSED. 1+2 '*+ 1+2 '*+ 1+2 '*+ 1+2 '*+ , 3 4 ( / , 3 4 ( / , 3 4 ( / , 3 4 ( / ' '' '5 ( + 67 5 ( + 67 5 ( + 67 5 ( + 67. .. . ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH ,JUNE,2014 0 ( -.# 8 9' 10 TWU , 201 4 . ( / : SD/- SD/- ( .. / I.P. BANSAL) ( ! ! ! ! / RAJENDRA) / JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, 9' /DATE: 10.06 . 2014. SK 0 0 0 0 ( (( ( &+; &+; &+; &+; < ;#+ < ;#+ < ;#+ < ;#+ / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / $% 2. RESPONDENT / &'$% 3. THE CONCERNED CIT(A)/ = > , 4. THE CONCERNED CIT / = > 5. DR E BENCH, ITAT, MUMBAI / ;?/ &+' , . . . 6. GUARD FILE/ / 1 ';+ ';+ ';+ ';+ &+ &+&+ &+ //TRUE COPY// 0' / BY ORDER, @ / 6 DY./ASST. REGISTRAR , /ITAT, MUMBAI