The Cosmos Co-operative Bank Ltd., Pune V. Assistant Commissioner of Income-tax,

ITA 663/PUN/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1532 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 07-07-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 11-05-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AJIT CHAWARE
• Keywords: Depreciation; Cost of acquisition; Bad and doubtful debts
• Section: 32; 37; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE PUNE BENCH A , PUNE , . . , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI R.K. PANDA, AM . / ITA NO. 610 /PN/20 1 5 / ASSESSMENT YEAR: 20 1 0 - 11 THE ASST. COMMISSIONER OF INCOME TAX, / CIRCLE 7 , PUNE . / APPELLANT VS. THE COSMOS CO - OP. BANK LTD., 269, SHANIWAR PETH, PUNE 411030 . / RESPONDENT PAN: AA AAT0742K . / ITA NO. 6 63 /PN/201 5 . / ITA NO. 6 63 /PN/201 5 / ASSESSMENT YEAR: 20 1 0 - 11 THE COSMOS CO - OP. BANK LTD., 269, SHANIWAR PETH, PUNE 411030 . / APPELLANT PAN: AAAAT0742K VS. THE ASST. COMMISSIONER OF INCOME TAX, THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE 7, PUNE . / RESPONDENT ASSESSEE BY : SHRI SUNIL GANOO REVENUE BY : SHRI AJIT CHAWARE / DATE OF HEARING : 0 7 .0 7 . 201 6 / DATE OF PRONOUNCEMENT: 22 . 0 7 .201 6 ITA NO . 610 /PN/201 5 ITA NO. 663 /PN/201 5 THE COSMOS CO - OP BANK LTD. 2 / ORDER PER SUSHMA CH OWLA, JM: THE CROSS APPEAL S FILED BY THE REVENUE AND THE ASSESSEE ARE AGAINST ORDER OF CIT (A) - 5 , PUNE , DATED 2 7 . 0 2 .201 5 RELATING TO ASSESSMENT YEAR 20 1 0 - 11 AGAINST ORDER PASSED UNDER SECTION 1 4 3 (3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) . 2. THE CROSS APPEALS FILED BY THE REVENUE AND THE ASSESSEE WERE HEARD TOGETHER 2. THE CROSS APPEALS FILED BY THE REVENUE AND THE ASSESSEE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3 . THE REVENUE IN ITA NO. 610 /PN/201 5 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1 . ON THE FACTS AN D IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN ALLOWING THE CLAIM ON ACCOUNT OF DEPRECIATION ON THE MERGED BANK LOSSES TREATED AS INTANGIBLE ASSETS. THE LEARNED CIT(A) FAILED TO APPRECIATE THE FACT THAT THERE IS NO PROVISION IN THE IT ACT UNDER WHICH THE GOODWILL CAN BE CLAIMED OR ALLOWED AS PROVISION IN THE IT ACT UNDER WHICH THE GOODWILL CAN BE CLAIMED OR ALLOWED AS DEDUCTION. SINCE THE BANKS THAT WERE MERGED WITH THE APPELLANT BANK HAD BEEN AMALGAMATED WHILE MERGER, IT COULD NOT BE SAID THAT THERE WERE ANY INTANGIBLE ASSETS EITHER BY WAY OF GOOD WILL OR OTHERW ISE, ON WHICH DEPRECIATION AS PROVIDED UNDER SECTION 32(1)(II) OF THE IT ACT, CAN BE ALLOWED AS DEDUCTION. 2 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN ALLOWING THE CLAIM OF DEPRECIATION LOSS INCURRED ON INVESTMENTS U NDER THE 'HELD TO MATURITY'(HTM) CATEGORY OF INVESTMENTS. THE LEARNED CIT(A) FAILED TO APPRECIATE THE FACT THAT THE RBI INSTRUCTION CLEARLY SPECIFIED THAT DEPRECIATION IN VALUE WAS TO BE CONSIDERED ONLY FOR SECURITIES HELD UNDER HFT AND AFS CATEGORY ARE TO BE CARRIED AT ACQUISITION COST AND THE SAID INSTRUCTION DOES NOT PROVIDE FOR ANY DEPRECIATION ON SECURITIES HELD UNDER THAT CATEGORY. 3 . THE ORDER OF THE ID. CIT(A) BE VACATED ON THIS ISSUE AND THAT OF A O BE RESTORED. 4 . THE LEARNED AUTHORIZED REPRESENTA TIVE FOR THE ASSESSEE AT THE OUTSET POINTED OUT THAT THE MAJORITY OF ISSUES RAISED IN THE PRESENT APPEAL FILED BY THE ASSESSEE AND THE REVENUE ARE COVERED BY THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.925/PN/2013, RELATING TO ASSESSMENT YEAR 20 09 - 10, ORDER DATED 20.05.2016. ITA NO . 610 /PN/201 5 ITA NO. 663 /PN/201 5 THE COSMOS CO - OP BANK LTD. 3 5 . THE ISSUE RAISED VIDE GROUND OF APPEAL NO.1 BY THE REVENUE IS AGAINST THE ORDER OF CIT(A) IN ALLOWING THE CLAIM OF DEPRECIATION ON THE MERGED BANK LOSSES TREATED AS INTANGIBLE ASSETS. 6 . THE LEARNED AUTHORIZED REPRES ENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE SAID ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL (SUPRA) VIDE PARA S 10 AND 11 OF THE ORDER. 7 . ON PERUSAL OF RECORD, WE FIND THAT SIMILAR ISSUE HAS ARISEN BEFORE THE TRIBUNAL IN ASSESSEES OW N CASE FROM ASSESSMENT YEAR 2007 - 08 ONWARDS. THE TRIBUNAL WHILE DECIDING THE APPEAL IN ASSESSMENT YEAR 2009 - 10 (SUPRA) HAD IN TURN, RELIED ON THE EARLIER ORDER OF TRIBUNAL RELATING TO ASSESSMENT YEARS 2007 - 08 AND 2008 - 09 AND HAD OBSERVED AS UNDER: - 10. A FTER HEARING BOTH THE SIDES, WE FIND IDENTICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE VIDE ITA NOS. 460 AND 461/PN/2012 FOR A.YRS 2007 - 08 AND 2008 - 09 ORDER DATED 23 - 01 - 2014. WE FIND THE TRIBUNAL HAS DECIDED THE ISSUE IN AND 2008 - 09 ORDER DATED 23 - 01 - 2014. WE FIND THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE RELEVANT OBSERVATION OF THE TRIBUNAL FROM PARA 11 TO 14 OF THE ORDER READ AS UNDER : 11. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. SECTION 32(1)(II) PRESCRIBES THAT IN RESPECT OF KNOWHOW, PATENTS, COPYRIGHTS, TRADEMARKS, LICEN CES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE, BEING INTANGIBLE ASSETS ACQUIRED ON OR AFTER 01.04.1998 OWNED WHOLLY OR PARTLY BY THE ASSESSEE AND USED FOR THE PURPOSES OF BUSINESS OR PROFESSION SHALL BE ENTITLED FOR ALLOWANC E OF DEPRECIATION AS PER THE PRESCRIBED RATES. THE CONTROVERSY BEFORE US IS AS TO WHETHER ON ACCOUNT OF MERGER OF FOUR BANKS ASSESSEE HAS ACQUIRED ANY ASSET WHICH FALLS IN THE MEANING OF EXPRESSION BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE SO AS TO BE ELIGIBLE FOR DEPRECIATION UNDER CLAUSE (II) OF SUB - SECTION (1) OF SECTION 32 OF THE ACT. 12. BEFORE PROCEEDING FURTHER, IT WOULD BE APPROPRIATE TO REFER TO THE SCHEME OF MERGER OF RESPECTIVE FOUR BANKS, COPIES OF WHICH HAVE BEEN PLACED IN THE PAPER BO OK. ALL THE SCHEMES OF THE MERGER ARE SIMILAR AND HAVE BEEN APPROVED BY THE RESERVE BANK OF INDIA IN TERMS OF THE RESPECTIVE STATUTORY PROVISIONS. THE SCHEME OF MERGER PROVIDES THAT THE ENTIRE UNDERTAKING, THE ENTIRE BUSINESS, ALL THE PROPERTIES (WHETHER I MMOVABLE OR IMMOVABLE, TANGIBLE OR INTANGIBLE) ASSETS, INVESTMENTS OF ALL KINDS, ALL CASH BALANCES WITH THE RBI AND OTHER BANKS MONEY AT CALL OR SHORT NOTICE, LOANS & ADVANCES, ANY OTHER CONTINGENCY RIGHTS OR BENEFITS, LEASE AND HIRE PURCHASE CONTRACTS AND ASSETS, RECEIVABLES, SECURITIZED ASSETS, LICENSES, FIXED ASSETS AND OTHER ASSETS, POWERS, CONSENTS, REGISTRATIONS, EXEMPTIONS, WAIVERS OF ALL KINDS AND WHERESOEVER SITUATE BELONGING TO, OR ENJOYED BY THE TRANSFEROR BANK HAVE BEEN TAKEN - OVER BY THE ASSESSE E. THE LIABILITIES TAKEN - OVER MEAN ALL DEBTS, DEMAND DEPOSITS, SAVING BANK DEPOSITS, TERM DEPOSITS, TIME AND DEMAND LIABILITIES, RUPEE BORROWINGS, BILLS PAYABLE, ITA NO . 610 /PN/201 5 ITA NO. 663 /PN/201 5 THE COSMOS CO - OP BANK LTD. 4 INTEREST ACCRUED, CAPITAL RESERVES AND SURPLUSES, WHETHER STATUTORY OR NOT AND ALL OTHER LIABI LITIES INCLUDING CONTINGENT LIABILITIES, DUTIES, UNDERTAKINGS AND OBLIGATIONS OF THE TRANSFEROR BANKS HAVE BEEN TAKEN BY THE ASSESSEE. IN - FACT, THE SCHEME SPECIFICALLY PROVIDES THAT ALL THE LICENSES/REGISTRATIONS OF THE BANK OR ITS BRANCHES ETC. ISSUED BY RESERVE BANK OF INDIA OR ANY AUTHORITY OF THE STATE/CENTRAL GOVERNMENT OR OTHER AUTHORITIES CONCERNED, ETC. STAND TRANSFERRED TO THE ASSESSEE BANK. SIMILAR IS THE POSITION WITH REGARD TO THE LIABILITIES OF THE TRANSFEROR BANK INCLUDING THE SAVINGS BANK ACC OUNT OR CURRENT BANK ACCOUNT OR ANY OTHER DEPOSITS OF THE CUSTOMERS. THE SCHEME ALSO ENVISAGED TAKINGOVER OF ALL THE EMPLOYERS OF THE TRANSFEROR BANK WHO WISHED TO CONTINUE IN SERVICE. IN SUM AND SUBSTANCE, ASSESSEE BANK TOOK OVER THE ENTIRE BUSINESS APPAR ATUS OF THE TRANSFEROR BANK, WHICH INCLUDED ITS CLIENT BASE, OPERATIONAL BRANCHES OF THE BANK AT DIFFERENT PLACES AND ALSO THEIR EMPLOYEES, BESIDES THE LICENSES AND OTHER STATUTORY APPROVALS ENJOYED BY THE TRANSFEROR BANK. NOW, THE CASE SET - UP BY THE ASSES SEE IS THAT THE ACQUISITION OF HUGE CLIENT BASE, OPERATIONAL BRANCHES OF THE BANKS AND THE ACCESS TO NEW MONEY MARKETS HAS RESULTED IN A BUSINESS ADVANTAGE WHICH IS COVERED WITHIN THE MEANING OF THE EXPRESSION BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATU RE AS CONTEMPLATED IN CLAUSE (II) OF SUB - SECTION (1) OF SECTION 32 OF THE ACT. 13. THEREFORE, THE MOOT QUESTION IS AS TO WHETHER THE AFORESAID BUSINESS/ COMMERCIAL ADVANTAGES, NAMELY, TAKING OVER OF HUGE CLIENT BASE, LICENSES, OPERATIONAL BANK BRANCHES IN DIFFERENT AREAS, ETC. CAN BE CONSIDERED TO FALL WITHIN THE EXPRESSION BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE CONTAINED IN SECTION 32(1)(II) OF THE ACT. IN THIS CONTEXT, ONE MAY REFER TO THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF AREVA T & D INDIA LTD. & ORS. (SUPRA). IN THE CASE BEFORE THE HONBLE HIGH COURT ASSESSEE COMPANY ACQUIRED THE BUSINESS OF THE TRANSFEROR LOCK, STOCK AND BARREL UNDER A SLUMP SALE AGREEMENT. THE AMOUNT OF CONSIDERATION PAID IN EXCESS OF THE NET VALUE O F TANGIBLE ASSETS TRANSFERRED, WAS CLAIMED AS PAYMENT MADE BY THE ASSESSEE FOR ACQUISITION OF VARIOUS BUSINESS AND COMMERCIAL RIGHTS, WHICH COMPRISED OF ACQUISITION OF VARIOUS BUSINESS AND COMMERCIAL RIGHTS, WHICH COMPRISED OF BUSINESS CLAIMS; BUSINESS INFORMATION; BUSINESS RECORDS; CONTRACTS; SKILLED EMPLOYEES; AND, KNOWHOW. SU CH ACQUISITION WAS CLAIMED TO BE AN ASSET IN THE NATURE OF BUSINESS OR COMMERCIAL RIGHTS CONTAINED IN SECTION 32(1)(II) OF THE ACT. THE HONBLE HIGH COURT CONCURRED WITH THE ASSESSEE AND HELD THAT THE ASSETS IN QUESTION, BEING INTANGIBLE ASSETS ACQUIRED UNDER SLUMP SALE AGREEMENT WERE IN THE NATURE OF BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE SPECIFIED IN SECTION 32(1)(II) OF THE ACT AND WERE ACCORDINGLY HELD ELIGIBLE FOR DEPRECIATION. 14. IN THE AFORESAID LIGHT, FACTUALLY SPEAKING, IN THE PRESE NT CASE, IT CAN BE SEEN THAT THE ASSESSEE BY ACQUIRING THE FOUR CO - OPERATIVE BANKS HAS ACQUIRED EXISTING RUNNING BANKING BUSINESSES COMPLETE WITH THE REQUIRED STATUTORY LICENSES, OPERATIONAL BANK BRANCHES, CUSTOMERS BASE AS ALSO THE EMPLOYEES, BESIDES OTHE R ASSETS. THE PLEA OF THE REVENUE IS THAT THE DIFFERENCE PAID BY THE ASSESSEE IN EXCESS OF LIABILITIES OVER THE REALIZABLE VALUES OF THE ASSETS TAKEN - OVER DOES NOT REPRESENT PAYMENT FOR ANY BUSINESS OR COMMERCIAL RIGHTS IS UNTENABLE. IN - FACT, THE IMPUGNED SUM REFLECTS THE AMOUNT PAID BY THE ASSESSEE OVER AND ABOVE THE NET WORTH OF THE BANKS WHICH HAVE BEEN TAKENOVER, WHICH OSTENSIBLY IS A REFLECTION OF THE VALUE OF THE AFORESAID INTANGIBLE ADVANTAGES OBTAINED BY THE ASSESSEE. SUCH ADVANTAGES ARE TO BE CONSI DERED IN THE NATURE OF BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE SPECIFIED IN SECTION 32(1)(II) OF THE ACT, HAVING REGARD TO THE PARITY OF REASONING LAID DOWN BY THE HONBLE DELHI HIGH COURT IN THE CASE OF AREVA T & D INDIA LTD. & ORS. (SUPRA). IN THE CASE OF SKS MICRO FINANCE LTD. (SUPRA), ASSESSEE ACQUIRED A RUNNING BUSINESS UNDER A SLUMP SALE AGREEMENT AND THE CONSIDERATION PAID INCLUDED, SUM PAID FOR ACQUIRING THE CLIENT BASE OF THE TRANSFEROR. THE ACQUISITION OF RIGHTS OVER THE ASSETS OF THE TR ANSFEROR, INCLUSIVE OF ITS CUSTOMERS BASE WAS HELD TO BE AN INTANGIBLE ASSET BEING BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE CONTEMPLATED IN SECTION 32(1)(II) OF THE ACT AND WAS HELD ELIGIBLE FOR ITA NO . 610 /PN/201 5 ITA NO. 663 /PN/201 5 THE COSMOS CO - OP BANK LTD. 5 DEPRECIATION. FOLLOWING THE AFORESAID DISCUSSION, IN THE PRESENT CASE, THE BUSINESS ADVANTAGES DETAILED EARLIER, ARE LIABLE TO BE CONSIDERED AS AN INTANGIBLE ASSET, BEING BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE CONTEMPLATED U/S 32(1)(II) OF THE ACT. IN OUR CONSIDERED OPINION, THE PLEA OF THE ASS ESSEE FOR ALLOWANCE OF DEPRECIATION IN TERMS OF SECTION 32(1)(II) OF THE ACT CANNOT BE FAULTED EITHER IN LAW OR ON FACTS. 11. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN THE IMMEDIATELY PRECEDING 2 ASSESSMENT YEARS, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 8 . THE ISSUE ARISING IN THE PRESENT APPEAL IS IDENTICAL TO THE ISSUE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE AND FOLLOWING THE SAME PARITY OF REASONING, WE DISMISS THE GROUND OF APPEAL NO.1 RAISED BY THE REVE NUE. IT MAY BE POINTED OUT HEREIN THAT THE CIT(A) WHILE DECIDING THE SAID ISSUE HAD SET - ASIDE THE VERIFICATION OF AMOUNT TO BE ALLOWED AS PER PARA 4.3.6. THE SAID OBSERVATIONS OF THE CIT(A) MAY BE KEPT IN MIND WHILE ALLOWING THE CLAIM OF ASSESSEE. 9 . TH E ISSUE IN GROUND OF APPEAL NO.2 RAISED BY THE REVENUE IS AGAINST THE ORDER OF CIT(A) IN ALLOWING THE CLAIM OF DEPRECIATION LOSS INCURRED ON INVESTMENTS HELD UNDER HTM CATEGORY OF INVESTMENTS. 1 0 . WE FIND THAT THE SAID ISSUE HAS ALSO ARISEN IN EARLIER A PPEALS RELATING TO ASSESSMENT YEARS 2007 - 08 AND 2008 - 09. IN THE FACTS OF THE PRESENT CASE, THE ASSESSING OFFICER HAD DISALLOWED SUM OF RS. 32, 00,68,545/ - CLAIMED AS DEPRECIATION ON INVESTMENT UNDER HTM SECURITIES. THE ASSESSEE CLAIMED TO HAVE AMORTIZED TH E PREMIUM OVER THE RESIDUAL LIFE OF PARTICULAR INVESTMENT AND THE SAME WAS COMPUTED BY REGULAR METHOD OF VALUATION ON INVESTMENT BEING FOLLOWED BY THE ASSESSEE BANK CONSISTENTLY IN PURSUANCE TO THE DIRECTIONS OF THE TRIBUNAL. WE FIND THAT SIMILAR ISSUE AR OSE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE AND IT WAS HELD AS UNDER: - 18. AFTER HEARING BOTH THE SIDES, WE FIND THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NOS. 460 AND 461/PN/2012 ORDER DATED 23 - 01 - 2014 FOR A.YRS. 2007 - 08 AND 2008 - 09 HAS ALLOWED THE CLAIM OF THE ASSESSEE BY OBSERVING AS UNDER : ITA NO . 610 /PN/201 5 ITA NO. 663 /PN/201 5 THE COSMOS CO - OP BANK LTD. 6 16. THE GROUND OF APPEAL NO. 4 IS WITH REGARD TO THE ASSESSEES CLAIM THAT THE SECURITIES HELD BY THE ASSESSEE BANK UNDER HELD TO MATURITY (HTM) CATEGORY CONSTITUTE ITS STOCK - IN - TRADE AND THE CONSEQUENTIAL LO SS ON VALUATION OF THE SAID SECURITIES AS ON 31.03.2007 ON THE BASIS OF COST OR MARKET VALUE WHICHEVER IS LOWER (ON THE BASIS OF INDIVIDUAL SCRIP) IS AN ALLOWABLE DEDUCTION. THE SAID CLAIM WAS MADE BY WAY OF AN ADDITIONAL GROUND OF APPEAL BEFORE THE CIT(A) , WHICH WAS ADMITTED BY HIM FOR ADJUDICATION BUT ON MERITS IT HAS BEEN DENIED. BEFORE US, THE CLAIM OF THE ASSESSEE IS THAT THE SECURITIES HELD BY THE ASSESSEE BANK ARE PART OF STOCK - IN - TRADE IRRESPECTIVE OF THEIR CLASSIFICATION AND THAT A SIMILAR MATTER H AS BEEN CONSIDERED BY THE PUNE BENCH OF THE TRIBUNAL IN THE CASES OF LATUR URBAN COOP. BANK LTD. IN ITA NO.778/PN/2011 FOR ASSESSMENT YEAR 2007 - 08 DATED 31.08.2012 AND THE SANGLI BANK LTD. IN ITA NO.846/PN/2006 FOR ASSESSMENT YEAR 2004 - 05 DATED 30.05.2013 WHEREIN SUCH SECURITIES ARE ACCEPTED AS STOCK - IN - TRADE. IT WAS CONTENDED THAT THE ISSUE IS COVERED BY THE AFORESAID PRECEDENTS. THE LEARNED DEPARTMENT REPRESENTATIVE HAS NOT DISPUTED THE AFORESAID FACTUAL MATRIX. 17. IN THIS CONTEXT, WE FIND THAT SO FAR AS SECURITIES HELD UNDER HTM CATEGORIES ARE CONCERNED, THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF LATUR URBAN COOP. BANK LTD. (SUPRA) HELD THAT SUCH SECURITIES HELD BY AN ASSESSEE BANK ARE PART OF ITS STOCK - IN - TRADE. FOLLOWING THE AFORESAID DECISION WE ARE UNABLE TO UPHOLD THE PLEA OF THE REVENUE THAT THE SECURITIES HELD BY THE ASSESSEE UNDER THE HTM CATEGORY ARE CAPITAL IN NATURE. THE FOLLOWING DISCUSSION IN THE ORDER OF THE TRIBUNAL IN THE CASE OF LATUR URBAN COOP. BANK LTD. (SUPRA) IS RELEVANT : - 1 4. WE HAVE HEARD THE PARTIES. THE LD COUNSEL PLACED HIS HEAVY RELIANCE ON THE DECISION OF THE HON'BLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. BANK OF BARODA AND IN THE CASE OF UCO BANK VS. CIT, 240 ITR 355 (SC). IN THE CASE OF BANK OF BARODA (SUPRA), T HE ISSUE BEFORE THEIR LORDSHIP WAS WHETHER THE ASSESSEE WAS ENTITLED FOR DEDUCTION ON ACCOUNT OF DEPRECIATION IN THE VALUE OF INVESTMENTS. THE METHOD OF ACCOUNT OF DEPRECIATION IN THE VALUE OF INVESTMENTS. THE METHOD OF VALUATION FOLLOWED BY THE ASSESSEE BANK WAS TO VALUE INVESTMENTS AT COST OR MARKET VALUE WHICHEVER WAS LOWER. THE ASSESSEE HAD CLAIMED THE DEPREDATION TO THE TUNE OF RS. 11,82,35,007/ - AND THE SAID DEPRECIATION WAS CLAIMED AS A DEDUCTION ITA NOS.460 & 461/PN/2012 A.YS. 2007 - 08 & 2008 - 09 10 WHICH WAS DISALLOWED BY THE A.O, BUT THE ASSESSEE BANK SUCCEEDED BEF ORE THE CIT(A). THE TRIBUNAL CONFIRMED THE ORDER OF THE CIT(A). THE REVENUE CARRIED THE ISSUE BEFORE THE HON'BLE HIGH COURT. THE CORE ISSUE WAS THE METHOD OF VALUATION ADOPTED BY THE ASSESSEE BANK FOR VALUING THE STOCK OF THE SECURITIES. THE HON'BLE HIGH C OURT FOLLOWED THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF UNITED COMMERCIAL BANK (SUPRA). 15. IN THE CASE OF UNITED COMMERCIAL BANK (SUPRA), EVEN THE ISSUE OF VALUATION OF THE STOCK IN TRADE OF THE INVESTMENT WAS BEFORE THE HON'BLE SUPREME COURT . IN THE CASE OF THE ASSESSEE, THE ISSUE IS REGARDING ALLOWABILITY OF THE LOSS ON THE SALE OF THE SECURITIES. MERELY BECAUSE THE SECURITIES ARE KEPT UNDER THE HEAD TILL THE MATURITY, THE SAID SECURITY CANNOT BE TREATED AS A PURELY INVESTMENT. LAW IS WELL S ETTLED THAT THE SECURITIES HELD BY THE BANK ARE IN THE NATURE OF STOCK - IN - TRADE. WE MAY LIKE TO QUOTE HERE THE DECISION OF THE HON'BLE HIGH COURT OF KERALA IN THE CASE OF CIT VS. NEDUNGADI BANK LTD., 264 ITR 545. IN THE SAID CASE, THE HON'BLE HIGH COURT HA S HELD THAT THE SECURITIES HELD BY THE BANK ARE IN THE NATURE OF STOCK - IN - TRADE. BOTH THE AUTHORITIES BELOW HAS MERELY GONE ON THE NOMENCLATURE OF THE HEAD UNDER WHICH THE SECURITIES ARE HELD. IN OUR CONSIDERED VIEW, NOMENCLATURE CANNOT BE DECISIVE FOR THE ASSESSEE BANK. WE, THEREFORE, HOLD THAT THE LOSS ON THE SALE OF THE SECURITIES IS REVENUE IN NATURE AND SAME IS ALLOWABLE. ACCORDINGLY, GROUND NO. 2 IS ALLOWED. ITA NO . 610 /PN/201 5 ITA NO. 663 /PN/201 5 THE COSMOS CO - OP BANK LTD. 7 18. FOLLOWING THE AFORESAID PRECEDENT, WE HOLD THAT THE CLAIM OF THE ASSESSEE IN GROUND OF APPEAL NO. 4 IS JUSTIFIED AND IS ALLOWABLE. 19. RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE THE ABOVE GROUND BY THE ASSESSEE IS ALLOWED. 1 1 . THE ISSUE ARISING IN THE PRESENT APPEAL IS IDENTICAL TO THE ISSUE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE AND FOLLOWING THE SAME PARITY OF REASONING, WE UPHOLD THE ORDER OF CIT(A) IN ALLOWING THE CLAIM OF ASSESSEE VIS - - VIS CLAIM OF DEPRECIATION LOSS INCURRED ON INVESTMENTS UNDER HTM CATEGORY OF INVESTMENTS. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE THUS, DISMISSED. 12. NOW, COMING TO THE APPEAL FILED BY THE ASSESSEE. THE ASSESSEE IN ITA NO.663/PN/2015 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED C.I.T.[A] HAS GROSSLY ERRED IN SUSTAINING THE DISALLOWANCE OF RS.2,30,52,692.91 MADE BY THE LEARNED ASSESSING OFFICER U/S 43D OF THE I.T. ACT 1961. THE SAID DISALLOWANCE BEI NG PATENTLY ILLEGAL, ARBITRARY, PERVERSE AND DEVOID OF MERITS AND DISALLOWANCE BEI NG PATENTLY ILLEGAL, ARBITRARY, PERVERSE AND DEVOID OF MERITS AND LEGALLY UNSUSTAINABLE THE SAME MAY PLEASE BE DELETED. 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED C.I.T.[A] HAS GROSSLY ERRED IN HOLDING THAT PROVISION FOR OTHER RECEIVABLES AMOUNTING TO RS.2,47,93,031.38 CONSTITUTED PART OF PROVISION FOR BAD AND DOUBTFUL DEBTS MADE U/S 36[1][VIIA] OF THE I.T. ACT 1961 AND HENCE NO SEPARATE DEDUCTION FOR THE SAME WAS ALLOWABLE TO THE APPELLANT ASSESSEE EVEN U/S 37 OF THE I.T. ACT 1 961. THIS FINDING / DECISION OF THE LEARNED C.I.T.[A] MAY PLEASE BE VACATED AND THE IMPUGNED DEDUCTION MAY PLEASE BE ALLOWED IN ADDITION TO THE DEDUCTION U/S 36[1][VIIA] OF THE I.T. ACT 1961 . 13. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FAIR LY POINTED OUT THAT THE ISSUE IN GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE IS SQUARELY COVERED AGAINST THE ASSESSEE BY THE ORDER OF TRIBUNAL. 14. THE ISSUE RAISED VIDE GROUND OF APPEAL NO.1 IS AGAINST THE DISALLOWANCE OF RS.2,30,52,692/ - MADE BY THE AS SESSING OFFICER UNDER SECTION 43D OF THE ACT. IN VIEW OF THE SUBMISSIONS OF THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE, THE SAID ITA NO . 610 /PN/201 5 ITA NO. 663 /PN/201 5 THE COSMOS CO - OP BANK LTD. 8 ISSUE IS DECIDED AGAINST THE ASSESSEE FOLLOWING THE EARLIER ORDER OF TRIBUNAL IN ASSESSEES OWN CASE AND HENCE, TH E GROUND OF APPEAL NO.1 IS DISMISSED. 15. THE ISSUE IN GROUND OF APPEAL NO.2 IS AGAINST THE CLAIM OF DEDUCTION ON ACCOUNT OF PROVISION MADE FOR OTHER RECEIVABLES AMOUNTING TO RS.2,47,93,031/ - CONSTITUTED PART OF PROVISION FOR BAD AND DOUBTFUL DEBTS MADE U NDER SECTION 36(1)(VIIA) OF THE ACT. 16. BRIEFLY, THE FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE HAD DEBITED SUM OF RS.2.47 CRORES UNDER THE HEAD PROVISION FOR OTHER RECEIVABLES IN THE PROFIT & LOSS ACCOUNT. BEFORE THE ASSESSING OFFICER, THE ASS ESSEE CLAIMED THAT THE PROVISION WAS MADE IN COMPLIANCE OF RESERVE BANK OF INDIA GUIDELINES, AS PER WHICH THE BANK WAS REQUIRED TO MAKE PROVISION FOR DUES WHICH REMAIN OUTSTANDING FOR MORE THAN 90 DAYS. THE PROVISION INCLUDED ADVANCES TO SUPPLIERS NOT REC OVERED, DEMAT CHARGES RECEIVABLE, LOCKER RENT CHARGES, HP CHARGES, MINIMUM BALANCE CHARGES NOT RECEIVED, ETC. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD ALREADY AVAILED PROVISION AMOUNTING TO RS. 5,34,66,449/ - EQUIVALENT TO 7.5% OF ITS TOTAL INCOME UNDER THE HEAD PROVISION FOR BAD AND DOUBTFUL DEBTS AND FURTHER, PROVISION OF RS.2.47 CRORES WAS IN ADDITION TO THAT. THE ASSESSING OFFICER OBSERVED THAT AS THE PROVISION ALLOWABLE UNDER SECTION 36(1)(VIIA) OF THE ACT HAD ALREADY BEEN AVAILED, NO FURTHE R DEDUCTION WAS ALLOWABLE TO THE ASSESSEE. FURTHER, IT WAS ALSO OBSERVED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAD FAILED TO FURNISH THE COPY OF RELEVANT GUIDELINES OF RESERVE BANK OF INDIA TO EXAMINE AS TO WHETHER THE PROVISO TO CLAUSE (VIIA) OF SEC TION 36(1) OF THE ACT WAS APPLICABLE TO THE IMPUGNED PROVISION OR NOT. HENCE, THE PROVISION CLAIMED OF RS.2,47,93,031/ - FOR OTHER RECEIVABLES WAS DISALLOWED BY THE ASSESSING OFFICER. 17. THE CIT(A) OBSERVED THAT FOR CLAIMING THE DEDUCTION, THE AMOUNT H AS TO BE ACTUALLY WRITTEN OFF UNDER SECTION 36(1)(VII) OF THE ACT. SINCE THE RECEIVABLES IN QUESTION ITA NO . 610 /PN/201 5 ITA NO. 663 /PN/201 5 THE COSMOS CO - OP BANK LTD. 9 WERE NOT WRITTEN OFF AS IRRECOVERABLE IN THE BOOKS OF ACCOUNT, THE SAME WERE NOT TO BE ALLOWED UNDER SECTION 36(1)(VII) OF THE ACT. HE FURTHER EXAMINED T HE PROVISION OF DEDUCTION UNDER SECTION 36(1)(VIIA) OF THE ACT AND OBSERVED THAT THE PROVISION MADE FOR RECEIVABLES DOES NOT CORRESPOND TO THE PROVISION MADE FOR BAD AND DOUBTFUL DEBTS. HE ALSO NOTED THE OBSERVATIONS OF ASSESSING OFFICER THAT THE DEDUCTIO N IN RESPECT OF PROVISION FOR BAD AND DOUBTFUL DEBTS AMOUNTING TO RS.5,34,66,449/ - HAD ALREADY BEEN AVAILED BY THE ASSESSEE UNDER SECTION 36(1)(VIIA) OF THE ACT IN THE COMPUTATION OF TOTAL INCOME AND NO FURTHER DEDUCTION WAS ALLOWABLE. THE CIT(A) ALSO HEL D THAT WHERE THE DEDUCTION UNDER SECTION 36(1)(VIIA) OF THE ACT HAD TO BE COMPUTED WITH REFERENCE TO SPECIFIED PERCENTAGE OF AGGREGATE OF RURAL ADVANCES CLEARLY SHOWS THAT THE PROVISION REFERRED TO IN SECTION 36(1)(VIIA) OF THE ACT WAS IN RESPECT OF ADVANC ES MADE BY THE BANK AND PROVISION FOR OTHER RECEIVABLES COULD NOT BE BROUGHT WITHIN THE AMBIT OF EXPRESSION PROVISION FOR BAD AND DOUBTFUL DEBTS. THE CIT(A) FURTHER HELD AS UNDER: - 7.2.2 .EVEN THE PROVISIONS ARE MADE FOR RECEIVABLES OVER 90 DAYS AS P ER RBI GUIDELINES AS CLAIMED BY THE APPELLANT, IT IS A MEASURE PRESCRIBED BY RBI AS AN ABUNDANT CAUTION, TO DEAL WITH A SITUATION WHERE BANKS ARE NOT TO SUFFER SHOCK OF ABUNDANT CAUTION, TO DEAL WITH A SITUATION WHERE BANKS ARE NOT TO SUFFER SHOCK OF SUDDEN DELINQUENCY THAT COULD HAPPEN IN FUTURE. THE POSSIBILITY THAT AN ADVANCE, WHICH IS FULLY RECOVERABLE, MAY NOT BE SO AT FUTURE DATE CANNOT BE A SUFFICIENT REASON TO CONSIDER A PROVISION MADE ON SUCH ADVANCES ALSO AS A PROVISION FOR BAD AND DOUBTFUL DEBTS. THUS, THE RECEIVABLES IN QUESTION CANNOT BE ALLOWED AS DEDUCTION UNDER SEC.36(1 )(VIIA). 18. FURTHER, THE CIT(A) PLACED RELIANCE ON THE RATIO LAID DOWN BY THE APEX COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. REPORTED IN 320 ITR 577 (SC), WHEREIN IT HAS BEEN HELD THAT THE AFORESAID DEDUCTION IS NOT ADMISSIBLE UNDER SECTION 37 O R SECTION 28 OF THE ACT. THE RELEVANT OBSERVATIONS OF THE CIT(A) ARE IN PARA 7.2.3 AT PAGE 29 OF THE APPELLATE ORDER. IN VIEW THEREOF, THE CIT(A) UPHELD THE ADDITION MADE BY THE ASSESSING OFFICER OF RS.2,47,93,031/ - . 19. THE ASSESSEE IS IN APPEAL AGAIN ST THE AFORESAID FINDING OF CIT(A). ITA NO . 610 /PN/201 5 ITA NO. 663 /PN/201 5 THE COSMOS CO - OP BANK LTD. 10 20. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS FAILED TO CONTROVERT THE FINDINGS OF CIT(A) VIS - - VIS CLAIM OF DEDUCTION MADE BY THE ASSESSEE. IN VIEW THEREOF, WE FIND NO MERIT IN THE CLAIM OF ASSESSEE A ND THE SAME IS DISMISSED. THE GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE IS THUS, DISMISSED. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, DISMISSED. 21. IN THE RESULT, BOTH THE APPEAL S OF REVENUE AND THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED ON THIS 22 ND DAY OF JU LY , 201 6 . SD/ - SD/ - ( R.K. PANDA ) ( SUSHMA CHOWLA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; D ATED : 22 ND JU LY , 201 6 . GCVSR GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT (A) - 5 , PUNE ; 4. / THE PR. CIT - 4 , PUNE ; 5. , , / DR A , ITAT, PUNE; 6. / GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE