Bhagini Nivedita Sahakari Bank Ltd., Pune V. Dy. CIT, Circle 1(1), Pune

ITA 690/PUN/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 5264 (ITAT-PUNE)
• Duration Of Justice: 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 18-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S B WALIMBE
• Keywords: Depreciation; Cost of acquisition; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO.690/PN/2013 A.Y. 2009-10 BHAGINI NIVEDITA SAHAKARI BANK LTD., 387/388, NARAYAN PETH, RASHTRABHASHA BHAVAN, MUNJABA LANE, PUNE - 411030 PAN : AAAAB0289K APPELLANT VS. DY. CIT, CIRCLE 1(1), PUNE RESPONDENT APPELLANT BY : SMT. DEEPA KHARE RESPONDENT BY : SHRI S.B . WALIMBE DATE OF HEARING: 26.11.2013 DATE OF ORDER : 27.11.2013 ORDER PER SHAILENDRA KUMAR YADAV, J.M: THIS APPEAL HAS BEEN FILED BY ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEAL)-I, (SHORT CIT(A )-I) PUNE, DATED 01.02.2013 FOR A.Y. 2009-10 ON THE FOLLOWING GROUNDS. 1. THAT THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS I N CONFIRMING DISALLOWANCE OF RS.13,50,000/- ON ACCOUN T OF AMORTIZATION OF PREMIUM PAID ON GOVT. SECURITIES HE LD UNDER HTM CATEGORY ON THE GROUND OF BEING IN THE NATURE OF CAPITAL EXPENDITURE. 2. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, MODIFY OR SUBSTITUTE ANY GROUND OF APPEAL AT THE TIME OF HEAR ING. 2. AT THE OUTSET OF HEARING, LEARNED AUTHORIZED REP RESENTATIVE POINTED OUT THAT THIS ISSUE IS COVERED IN FAVOUR OF ASSESSEE BY THE 2 ORDER OF ITAT, PUNE BENCH IN THE CASE OF NASHIK MER CHANTS CO- OPERATIVE BANK LTD., IN ITA NO.1254/PN/2011, WHEREI N THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASS ESSEE BY OBSERVING AS UNDER: 4. AFTER GOING THROUGH RIVAL SUBMISSIONS AND MATER IAL ON RECORD WE FIND THAT WITH THE ADVENT OF SECTION 80P( 4) W.E.F. A.Y. 2007-08 HAS CLOSED THE DOORS FOR COOPERATIVE B ANKS FOR CLAIMING THE BENEFIT OF DEDUCTION U/S.80P(2)(A)(I) FROM THIS TOTAL INCOME. HOWEVER, THE COOPERATIVE SOCIETY SHOU LD NOW BE ENTITLED TO BE ASSESSED AS NORMAL BANKING COMPAN Y. THE CLAUSE (4) INSERTED IN SECTION 80P HAS TAKEN AWAY T HE BENEFIT OF THE ERSTWHILE DEDUCTION AVAILABLE TO COO PERATIVE SOCIETY IN CARRYING ON BUSINESS OF BANKING OR PROVI DING CREDIT FACILITY TO ITS MEMBERS. THE NEW CLAUSE (4) INSERTED BY THE FINANCE ACT, 2006 W.E.F. 01-04-2007 READS AS UNDER : THE PROVISION OF THE SECTION WAS NOT IN RELATION T O ANY COOPERATIVE BANK OTHER THAN AGRICULTURAL CREDIT SOC IETY OR PRIMARY COOPERATIVE AGRICULTURAL AND RURAL DEVELOPM ENT BANK. 5. THE INTENTION OF THE PROVISION MAY BE DERIVED MO RE PRECISELY FROM RELEVANT PARA 166 OF THE BUDGET SPEE CH WHICH STATED THAT : CO-OPERATIVE BANKS, LIKE ANY OTHER BANK, ARE LENDI NG INSTITUTIONS AND SHOULD PAY TAX ON THEIR PROFITS, P RIMARY AGRICULTURAL CREDIT SOCIETIES (PACS) AND PRIMARY CO OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK (PCARDB) ST AND ON A SPECIAL FOOTING AND WILL CONTINUE TO BE EXEMPT UN DER SECTION 80P OF THE INCOME TAX ACT. HOWEVER, I PROPOSE TO E XCLUDE ALL OTHER CO-OPERATIVE BANKS FROM THE SCOPE OF THAT SEC TION. ACCORDINGLY, SECTION 80P IS TO BE AMENDED TO GIVE E FFECT TO THE ABOVE PROPOSAL. IT IS ALSO PROPOSED TO AMEND SECTI ON 2(24) TO PROVIDE THAT PROFITS AND GAINS OF BUSINESS OF BANKI NG (INCLUDING PROVIDING CREDIT FACILITIES) CARRIED ON BY A CO- OPERATIVE SOCIETY WITH ITS MEMBERS SHALL BE INCLUDE D IN THE DEFINITION OF INCOME (WITH EFFECT FROM 1ST APRIL, 2007). 6. COOPERATIVE BANK UNLIKE OTHER COMMERCIAL BANKS A RE SUBJECTED TO DUAL CONTROL FROM BOTH RBI AS WELL AS FROM STATE COOPERATIVE DEPARTMENT. THE ACCOUNTING TREATM ENT FOR A COOPERATIVE BANK IS THEREFORE A RESULT OF GUIDELI NES FROM BOTH THE CONTROLLING AUTHORITIES. ORDINARILY A DED UCTION IS NOT AVAILABLE TO AN ASSESSEE UNLESS SPECIFICALLY PR OVIDED UNDER THE ACT. THIS IS IRRESPECTIVE OF ACCOUNTING T REATMENT PROVIDED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS. BUT AT THE SAME TIME IT WAS WELL SETTLED THAT DEDUCTION EX PRESSLY MENTIONED UNDER THE ACT ARE NOT EXHAUSTIVE AND PROF IT IS TO 3 BE DERIVED ACCORDING TO ORDINARY COMMERCIAL PRINCI PLES. AS PER THE EXTANT RBI GUIDELINES DATED 01-07-2009 T HE INVESTMENT PORTFOLIO OF THE BANKS IS REQUIRED TO BE CLASSIFIED UNDER 3 CATEGORIES VIZ., HELD THE MATURITY HTM), HE LD FOR TRADING (HFT) AND AVAILABLE FOR SALE (AFS). THE V ALUE OF EACH KIND OF INVESTMENT IS TO BE DONE IN THE FOLLOW ING MANNER: SR.NO. CLASSIFICATION OF INVESTMENT VALUATION NORMS 1 HTM THESE ARE CARRIED AT ACQUISITION COST UNLESS THE COST IS MORE THAN THE FACE VALUE, IN WHICH CASE THE PREMIUM SHOULD BE AMORTISED OVER THE PERIOD REMAINING TO MATURITY. THE PREMIUM IS REQUIRED TO BE AMORTISED OVER THE PERIOD REMAINING TO MATURITY. THIS APART, ANY PERMANENT DIMINUTION IN VALUE SHALL FV SHALL GO ON TO REDUCE COST OF THE INVESTMENT. 2 AFS THE INDIVIDUAL SCRIPS IN THE AVAILABLE FOR SALE CATEGORY WILL BE MARKED TO MARKET AT QUARTERLY OR AT MORE FREQUENT INTERVALS. THESE INVESTMENTS ARE CONSIDERED TO FORM STOCK-IN- TRADE OF A BANK AND THEREFORE ARE TO BE VALUED AT COST OR NRV, WHICHEVER IS LESS. FALL IN VALUE BELOW COST, THEREFORE, IS TO BE PROVIDED IMMEDIATELY, HOWEVER ANY NET APPRECIATION IN VALUE IS IGNORED AND NOT RECOGNIZED AS INCOME ON THE BASIS OF CONSERVATISM. 3 HFT THE INDIVIDUAL SCRIPS IN THE HELD FOR TRADING CATEGORY WILL BE MARKED TO MARKET AT MONTHLY OR AT MORE FREQUENT INTERVALS AND PROVIDED FOR AS IN THE CASE OF THOSE IN THE AVAILABLE FOR SALE CATEGORY. 4 7. IN PARA (VII) OF THE CBDT INSTRUCTION NO.17 OF 2 008 DATED 26.11.2008, ON ASSESSMENT OF BANK CHECK LI ST FOR DEDUCTION, STATES AS UNDER: AS PER RBI GUIDELINES DATED 16 TH OCTOBER, 2000, THE INVESTMENT PORTFOLIO OF THE BANKS IS REQUIRED TO BE CLASSIFIED UNDER THREE CATEGORIES VIZ. HELD TO MATURITY (HTM), HELD FOR TRADING (HFT) AND AVAILABLE FOR SALE (AFS). INVEST MENTS CLASSIFIED UNDER HTM CATEGORY NEED NOT BE MARKED TO MARKET AND ARE CARRIED AT ACQUISITION COST UNLESS T HESE ARE MORE THAN THE FACE VALUE, IN WHICH CASE THE PREMIUM SHOULD BE AMORTISED OVER THE PERIOD REMAINING TO MA TURITY. IN THE CASE OF HFT AND AFS 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 PROVIDED FOR IN THE ACCOUNTS. THE L ATEST GUIDELINES OF THE RBI MAY BE REFERRED TO FOR ALLOWI NG ANY SUCH CLAIMS. 8. THE ITAT, MUMBAI BENCH, IN THE CASE OF ACIT VS. THE BANK OF RAJASTHAN LTD. (2011) TIOL-35-ITAT-MUMBAI, HAS HELD THAT IN CASE OF BANKS, THE PREMIUM PAID IN EXC ESS OF FACE VALUE OF INVESTMENTS CLASSIFIED UNDER HTM CATE GORY WHICH HAS BEEN AMORTISED OVER THE PERIOD TILL MATUR ITY IS ALLOWABLE AS REVENUE EXPENDITURE SINCE THE CLAIM IS AS PER RBI GUIDELINES AND CBDT ALSO HAS DIRECTED TO ALLOW SUCH PREMIUM. IT HAS ALSO BEEN HELD IN THE CASE OF CATH OLIC SYRIAN BANK LTD. VS. ACIT THAT AMORTISATION ON PURC HASE OF GOVERNMENT SECURITIES WAS MADE AS PER PRUDENTIAL NO RMS OF THE RBI AND SAME WAS ALLOWABLE DEDUCTION. IN VIEW OF ABOVE, ASSESSEE WAS JUSTIFIED IN CONTENDING FOR AMO RTISATION OF PREMIUM PAID IN EXCESS OF FACE VALUE OF SECURITI ES HELD TO MATURITY (HTM) CATEGORY OR PERIOD REMAINING TILL MA TURITY WAS FOUND REASONABLE BY THE CIT(A). ACCORDINGLY AD DITION OF RS.17,91,659/- MADE BY THE ASSESSING OFFICER BY DISALLOWING AMOUNT TOWARDS AMORTISATION OF GOVERNME NT SECURITIES (HMT) WAS DELETED. THIS REASONED FACTUA L AND LEGAL FINDING OF THE CIT(A) NEEDS NO INTERFERENCE F ROM OUR SIDE. WE UPHOLD THE SAME. 9. AS A RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 2.1 FACTS BEING SIMILAR, SO FOLLOWING THE SAME REAS ONING, ASSESSING OFFICER IS DIRECTED TO ALLOW RS.13,50,000 /- ON ACCOUNT OF AMORTIZATION PREMIUM PAID ON GOVT. SECURITIES HE LD UNDER HTM CATEGORY. 5 3. IN THE RESULT, APPEAL FILED BY ASSESSEE IS ALLOW ED. PRONOUNCED IN THE OPEN COURT ON THIS THE DAY 27 TH OF NOVEMBER, 2013. SD/- SD/- (G.S. PANNU) (SHAILENDRA KUMAR YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 27 TH NOVEMBER 2013 GCVSR COPY TO:- 1) ASSESSEE 2) DEPARTMENT 3) THE CIT(A)-I, PUNE 4) THE CIT-I, PUNE 5) THE DR, B BENCH, I.T.A.T., PUNE. 6) GUARD FILE //TRUE COPY// BY ORDER SENIOR PRIVATE SECRETARY, I.T.A.T., PUNE