Assistant Commissioner of Income-tax, V. Alibag Co.op. Urban Bank Ltd., Raigad

ITA 698/PUN/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1179 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 09-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HITENDRA NINAVE
• Assessee Lawyers: SUBODH RATNAPARKHI
• Keywords: Depreciation; Cost of acquisition; Revenue expenditure; Capital expenditure

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. 698/PN/2014 %' ( ')( / ASSESSMENT YEAR : 2010-11 ASSTT. COMMISSIONER OF INCOME TAX, PANVEL CIRCLE, INCOME TAX OFFICE, 3 RD FLOOR, TRIFED TOWER, SECTOR-17, OPP.-KHANDA COLONY, NEW PANVEL, DISTT.-RAIGAD ....... / APPELLANT ' / V/S. ALIBAG CO-OPERATIVE URBAN BANK LTD., 2 ND FLOOR, ALIBAG URBAN BANK, MAHARSHI KARVE ROAD, ALIBAG, DISTT.-RAIGAD PAN : AAAJA0261F / RESPONDENT ASSESSEE BY : SHRI SUBODH RATNAPARKHI REVENUE BY : SHRI HITENDRA NINAVE / DATE OF HEARING : 13-08-2015 / DATE OF PRONOUNCEMENT : 31-08-2015 * / ORDER PER VIKAS AWASTHY, JM : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-I, THANE DATED 13-12 -2013 FOR THE ASSESSMENT YEAR 2010-11. THE ONLY ISSUE RAISED BY THE REVENUE IN APPEAL IS AGAINST ALLOWING THE AMORTIZATION OF PREMIUM ON INV ESTMENT 2 ITA NO. 698/PN/2014, A.Y. 2010-11 IN GOVERNMENT SECURITIES HELD TO MATURITY (HTM). THE GROU ND RAISED BY THE REVENUE IN APPEAL IS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD. CIT(A)-I, THANE HAS ERRED IN APPRECIATING THE FACT THAT THE SECURITIES UNDER THE CATEGORIES OF HTM ARE IN THE NATURE OF CA PITAL ASSET AND HENCE PREMIUM PAID THEREON IS ALSO A CAPITAL EXPENDITURE AND THEREFORE IS NOT ALLOWABLE REVENUE EXPENDITURE. 2. THE BRIEF FACTS OF THE CASE ARE : THE ASSESSEE IS A C O-OPERATIVE BANK. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSE SSMENT YEAR 2010-11 ON 24-09-2010 DECLARING TOTAL INCOME OF RS.19,41,52 0/-. DURING THE COURSE OF SCRUTINY ASSESSMENT, THE ASSESSING OFFICER MADE ADDITION OF RS.24,57,800/- ON ACCOUNT OF AMORTIZATION ON GOV ERNMENT SECURITIES HELD TO MATURITY (HTM). AGGRIEVED BY THE ASSESSMENT ORDER DATED 16-10-2012, T HE ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONER OF I NCOME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS) BY PLACING RELIANCE ON THE DECISION OF PUNE BENCH OF THE TRIBUNAL IN T HE CASE OF ACIT VS. PUNE PEOPLES CO-OPERATIVE BANK LTD. IN ITA NO. 1413/PN/2011 DECIDED ON 08-08-2013 AND MUMBAI BENCH O F THE TRIBUNAL IN THE CASE OF ACIT VS. THE BANK OF RAJASTHAN LT D.; (2011) TIOL-35-ITAT-MUMBAI ACCEPTED THE APPEAL OF THE ASSESSE E. NOW, THE REVENUE IS IN APPEAL AGAINST THE ORDER OF COMMISSIONER OF I NCOME TAX (APPEALS). 3. SHRI SHRI SUBODH RATNAPARKHI APPEARING ON BEHALF OF TH E ASSESSEE SUBMITTED AT THE OUTSET THAT THE ISSUE RAISED BY THE REVENUE IN APPEAL IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE B Y THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 2173/PN/201 2 FOR THE 3 ITA NO. 698/PN/2014, A.Y. 2010-11 ASSESSMENT YEAR 2009-10 DECIDED ON 23-09-2013. THE LD. AR PLACE D ON RECORD A COPY OF THE ORDER OF TRIBUNAL IN ITA NO. 2173/PN/2012. 4. THE LD. DR VEHEMENTLY SUPPORTED THE FINDINGS OF ASSES SING OFFICER. HOWEVER, WHEN CONFRONTED WITH THE ORDER OF CO-OR DINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YE AR 2009-10, THE LD. DR FAIRLY ADMITTED THAT THE ISSUE IN APPEAL HAS BEE N DECIDED IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE IN THE EA RLIER ASSESSMENT YEAR. 5. BOTH SIDES HEARD. ORDERS OF THE AUTHORITIES BELOW PER USED. WE FIND THAT THE ISSUE RAISED IN THE APPEAL IS IDENTICAL TO ONE ALREADY ADJUDICATED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 2173/PN/2012 FOR THE ASSESSMENT YEAR 2009-10 DECIDED ON 23-09-2013. THE RELEVANT EXTRACT OF THE ORDER OF TRIBUNAL IS AS UNDER: 6. WE HAVE CONSIDERED THE ARGUMENTS MADE BY THE LD . DEPARTMENTAL REPRESENTATIVE AND PERUSED THE ORDERS OF THE ASSES SING OFFICER AND THE CIT(A). WE FIND AN IDENTICAL ISSUE HAD COME UP BEF ORE THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. PUNE PEOPLES C OOPERATIVE BANK LTD. WE FIND THE TRIBUNAL VIDE ITA NO.1413/PN/2011 ORDER DATED 08-08-2013 HAS REJECTED THE APPEAL FILED BY THE REVENUE WHEREI N THE CIT(A) HAD ALLOWED THE CLAIM OF THE ASSESSEE ON ACCOUNT OF AMO RTIZATION OF PREMIUM ON INVESTMENTS TO THE TUNE OF RS.45,67,178/-. THE R ELEVANT OBSERVATIONS OF THE TRIBUNAL READ AS UNDER : 8. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND AN IDENTICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN THE CASE OF NAHSIK MERCHANT COOPERATIVE BANK LTD. (SUPRA). WE FIND THE TRIBUNAL HAS DISCUSSED THE ISSUE AND DISMISSED THE GROUNDS RAISED BY THE REVENUE BY HOLDING AS UNDER : 4. AFTER GOING THROUGH RIVAL SUBMISSIONS AND MATE RIAL ON RECORD WE FIND THAT WITH THE ADVENT OF SECTION 80P( 4) W.E.F. 4 ITA NO. 698/PN/2014, A.Y. 2010-11 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) INSERTE D BY THE FINANCE ACT, 2006 W.E.F. 01-04-2007 READS AS UNDER : 'THE PROVISION OF THE SECTION WAS NOT IN RELATION TO ANY COOPERATIVE BANK OTHER THAN AGRICULTURAL CRE DIT SOCIETY OR PRIMARY COOPERATIVE AGRICULTURAL AND RUR AL DEVELOPMENT BANK'. 5. THE INTENTION OF THE PROVISION MAY BE DERIVED M ORE PRECISELY FROM RELEVANT PARA 166 OF THE BUDGET SPEE CH WHICH STATED THAT : 'CO-OPERATIVE BANKS, LIKE ANY OTHER B ANK, ARE LENDING INSTITUTIONS AND SHOULD PAY TAX ON THEIR PR OFITS, PRIMARY AGRICULTURAL CREDIT SOCIETIES (PACS) AND PR IMARY COOPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK (PCARDB) STAND ON A SPECIAL FOOTING AND WILL CONTIN UE TO BE EXEMPT UNDER SECTION 80P OF THE INCOME TAX ACT. HOWEVER, I PROPOSE TO EXCLUDE ALL OTHER CO-OPERATIV E BANKS FROM THE SCOPE OF THAT SECTION'. ACCORDINGLY, SECTI ON 80P IS TO BE AMENDED TO GIVE EFFECT TO THE ABOVE PROPOSAL. IT IS ALSO PROPOSED TO AMEND SECTION 2(24) TO PROVIDE THAT PRO FITS AND GAINS OF BUSINESS OF BANKING (INCLUDING PROVIDING C REDIT FACILITIES) CARRIED ON BY A CO-OPERATIVE SOCIETY WI TH ITS MEMBERS SHALL BE INCLUDED IN THE DEFINITION OF 'INC OME' (WITH EFFECT FROM 1ST APRIL, 2007)'. 6. COOPERATIVE BANK UNLIKE OTHER COMMERCIAL BANKS ARE 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 DEDU CTION 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 BE DERIVED ACCORDING TO ORDINARY COMMERCIAL PRINCIP LES. AS 5 ITA NO. 698/PN/2014, A.Y. 2010-11 PER THE EXTANT RBI GUIDELINES DATED 01-07-2009 THE 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 VAL UE OF EACH KIND OF INVESTMENT IS TO BE DONE IN THE FOLLOW ING MANNER: SR.NO. CLASSIFICATION VALUATION NORMS OF INVESTMENT . 1. HTM THESE ARE CARRIED AT ACQUISITION COST UNLES S THE COST IS MORE THAN THE FACE VALUE, IN WHICH CASE THE PREMIUM SHOULD BE AMORTISED OVER THE PERIOD REMAINI NG TO MATURITY. THE PREMIUM IS REQUIRED TO BE AMORTISED O VER THE PERIOD REMAINING TO MATURITY. THIS APART, ANY PERMA NENT 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 A T MORE FREQUENT INTERVALS. THESE INVESTMENTS ARE CONSIDERE D TO FORM STOCK-IN-TRADE OF A BANK AND THEREFORE ARE TO BE VALUED AT COST OR NRV, WHICHEVER IS LESS. FALL IN V ALUE BELOW COST, THEREFORE, IS TO BE PROVIDED IMMEDIATEL Y, HOWEVER ANY NET APPRECIATION IN VALUE IS IGNORED AN D NOT RECOGNIZED AS INCOME ON THE BASIS OF CONSERVATISM. 3. HFT THE INDIVIDUAL SCRIPS IN THE HELD FOR TRAD ING CATEGORY WILL BE MARKED TO MARKET AT MONTHLY OR AT MORE FREQ UENT INTERVALS AND PROVIDED FOR AS IN THE CASE OF THOSE IN THE AVAILABLE FOR SALE CATEGORY. 7. IN PARA (VII) OF THE CBDT INSTRUCTION NO.17 OF 2008 DATED 26.11.2008, ON 'ASSESSMENT OF BANK - CHECK LIST FOR DEDUCTION, STATES AS UNDER: 'AS PER RBI GUIDELINES DATED I6TH OCTOBER, 2000, TH E INVESTMENT PORTFOLIO OF THE BANKS IS REQUIRED TO BE CLASSIFIED UNDER THREE CATEGORIES VIZ. HELD TO MATU RITY (HTM), HELD FOR TRADING (HFT) AND AVAILABLE FOR SAL E (AFS). INVESTMENTS CLASSIFIED UNDER HTM CATEGORY NEED NOT BE MARKED TO MARKET AND ARE CARRIED AT ACQUISITION COS T UNLESS THESE ARE MORE THAN THE FACE VALUE, IN WHICH CASE THE PREMIUM SHOULD BE AMORTISED OVER THE PERIOD 6 ITA NO. 698/PN/2014, A.Y. 2010-11 REMAINING TO MATURITY. IN THE CASE OF HFT AND AFS SECURITIES FORMING STOCK IN TRADE OF THE BANK, THE DEPRECIATION/ APPRECIATION IS TO BE AGGREGATED SCRI P WISE AND ONLY NET DEPRECIATION, IF ANY, IS REQUIRED TO B E PROVIDED FOR IN THE ACCOUNTS. THE LATEST GUIDELINES OF THE RBI MAY BE REFERRED TO FOR ALLOWING 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 EXCESS OF FACE VALUE OF INVESTMENTS CLASSIFIED UNDER HTM CATEGORY WHICH HAS BEEN AMORTI SED OVER THE PERIOD TILL MATURITY IS ALLOWABLE AS REVENUE EXPEND ITURE SINCE THE CLAIM IS AS PER RBI GUIDELINES AND CBDT ALSO HAS DI RECTED TO ALLOW SUCH PREMIUM. IT HAS ALSO BEEN HELD IN THE CASE OF CATHOLIC SYRIAN BANK LTD. VS. ACIT THAT AMORTIZATION ON PURCHASE OF GOVERNMENT SECURITIES WAS MADE AS PER PRUDENTIAL NORMS OF THE RBI AND SAME WAS ALLOWABLE DEDUCTION. IN VIEW OF ABOVE, ASSESSEE WA S JUSTIFIED IN CONTENDING FOR AMORTIZATION OF PREMIUM PAID IN EXCE SS OF FACE VALUE OF SECURITIES HELD TO MATURITY (HTM) CATEGORY OR PERIO D REMAINING TILL MATURITY WAS FOUND REASONABLE BY THE CIT(A). ACCOR DINGLY ADDITION OF RS.17,91,659/- MADE BY THE ASSESSING OFFICER BY DIS ALLOWING AMOUNT TOWARDS AMORTIZATION OF GOVERNMENT SECURITIES (HMT) WAS DELETED. THIS REASONED FACTUAL AND LEGAL FINDING OF THE CIT( A) NEEDS NO INTERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME. 9. AS A RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 8.1 RESPECTFULLY FOLLOWING THE DECISION OF THE COOR DINATE BENCH OF THE TRIBUNAL AND IN ABSENCE OF ANY CONTRARY MATE RIAL BROUGHT TO OUR NOTICE AGAINST THE ABOVE CITED DECISION WE FIND NO INFIRMITY IN THE ORDER OF THE LD.CIT(A) DELETING THE ADDITION. ACCORDINGLY, THE ORDER OF THE LD.CIT(A) IS UPHELD AND THE GROUNDS RA ISED BY THE REVENUE ARE DISMISSED. 6.1 RESPECTFULLY FOLLOWING THE DECISION OF THE COOR DINATE BENCH OF THE TRIBUNAL AND IN ABSENCE OF ANY CONTRARY MATERIAL BR OUGHT TO OUR NOTICE BY THE LD. DEPARTMENTAL REPRESENTATIVE WE FIND NO INFI RMITY IN THE ORDER OF THE LD.CIT(A). ACCORDINGLY, THE SAME IS UPHELD AND THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 6. WE FIND THAT THERE IS NO CHANGE IN THE FACTS IN THE IMP UGNED ASSESSMENT YEAR. WE FIND NO REASON TO TAKE A CONTRARY VIEW. THE ISSUE 7 ITA NO. 698/PN/2014, A.Y. 2010-11 REGARDING AMORTIZATION OF PREMIUM ON INVESTMENT IN GOVERNM ENT SECURITIES HELD TO MATURITY (HTM) HAS BEEN REPEATEDLY RAI SED AND THE TRIBUNAL HAS BEEN CONSISTENTLY DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE. WE RESPECTFULLY FOLLOW THE DECISION OF THE TRIBUN AL AND DISMISS THE APPEAL OF THE REVENUE. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON MONDAY, THE 31 ST DAY OF AUGUST, 2015. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED : 31 ST AUGUST, 2015 RK *+,%-.#/#)- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ' () / THE CIT(A)-I, THANE 4. ' / THE CIT-II, THANE 5. !*+ %%,- , ,- , . ./0 , / DR, ITAT, B BENCH, PUNE. 6. + 1 23 / GUARD FILE. // ! % // TRUE COPY// #4 / BY ORDER, %5 ,0 / PRIVATE SECRETARY, ,- , / ITAT, PUNE