ASST CIT CIR 2, THANE V. AMBERNATH JAI HIND CO OP BANK LTD, MUMBAI

ITA 6995/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75567 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 19-02-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 22-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M L PERUMAL
• Assessee Lawyers: H N MOTIWALA
• Keywords: Business income; Depreciation; Cost of acquisition; Revenue expenditure; Reassessment proceedings; Capital expenditure

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A MUMBAI . . , / , BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER /AND SHRI SANJAY ARORA, ACCOUNTANT MEMBER . / ITA NO. 7548/MUM/2011 ' ' ' ' # # # # / ASSESSMENT YEAR 2007-08 . / ITA NO. 6995/MUM/2012 ' ' ' ' # # # # / ASSESSMENT YEAR 2009-10 THE JCIT RG.2 / ACIT, CR.2, 2 ND FLOOR,, MOHAN PLAZA, WAYLE NAGAR, KHADAKPADA, KALYAN(W), DIST. THANE ' ' ' ' / VS. AMBERNATH JAI-HIND CO- OP. BANK LTD., 42, PURVADARSHAN, LT MARG, AMBERNATH (W) PIN 421 501. $ ./ % ./ PAN/GIR NO. : AAAAJO263F ( $& / APPELLANT ) .. ( '($& / RESPONDENT ) APPELLANT BY : SHRI M.L.PERUMAL RESPONDENT BY : S/SHRI H.N.MOTIWALA & PIYUSH CHHAJED ' ) *+ / DATE OF HEARING : 19/02/2014 ,# ) *+ / DATE OF PRONOUNCEMENT : 19/02/2014 - / O R D E R PER I.P.BANSAL, JM: BOTH THESE APPEALS ARE FILED BY THE REVENUE. THE Y ARE DIRECTED AGAINST TWO SEPARATE ORDERS PASSED BY LD. CIT(A)II, THANE DATED 22/7/2012 AND 27/08/2012 FOR ASSESSMENT YEARS 2007-08 AND 200 9-10 RESPECTIVELY. THE ITA NO. 7548/MUM/2011 ITA NO. 6995/MUM/2012 2 ISSUE INVOLVED IN BOTH THE APPEALS IS IDENTICAL. TH E GROUNDS OF APPEAL READ AS UNDER: GROUNDS OF APPEAL FOR A.Y 2007-09: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A)- II, THANE, IS RIGHT IN UPHOLDING THE ASSESSEES CLA IM THAT EXPENSES INCURRED ON ACCOUNT OF PREMIUM PAID ON PURCHASE OF GOVERNMENT S ECURITIES IS REVENUE EXPENDITURE AS AGAINST THE A.O.S VIEW OF IT BEING CAPITAL EXPENDITURE. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A)- II, THANE IS RIGHT IN HOLDING THAT THE EXPENSES INC URRED BY WAY PREMIUM PAID ON PURCHASE OF GOVERNMENT SECURITIES COULD BE AMORTIZE D AND DEBITED TO PROFIT & LOSS ACCOUNT. GROUNDS OF APPEAL FOR A.Y 2008-09: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) WAS RIGHT IN HOLDING THAT THE INVESTMENTS IN CASE OF BA NK ARE STOCK-IN TRADE, WHEN ADMITTEDLY, THE GOVERNMENT SECURITIES WERE TO BE HE LD BY THE BANK TILL ITS MATURITY. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) WAS RIGHT IN HOLDING THAT THE PROPORTIONATE AMOUNT DEBI TED TO PROFIT AND LOSS ACCOUNT IS REVENUE IN NATURE AND THUS ALLOWABLE EXPENDITURE. 2. THE PREMIUM AMOUNT PAID ON ACQUISITION OF GOVERN MENT SECURITIES WAS AMORTIZED BY THE ASSESSEE AND IN THIS PROCESS A SU M OF RS.22,65,480/- AND RS.28,41,713/- FOR A.Y 2007-08 AND A.Y 2009-10 RESP ECTIVELY WERE CLAIMED AS REVENUE EXPENDITURE UNDER THE HEAD AMORTIZATION OF INVESTMENT. HOWEVER, THE AO HAS TREATED SUCH EXPENDITURE AS CAPITAL EXPE NDITURE AND ADDED THE SAID AMOUNT TO THE INCOME OF THE ASSESSEE. THE DIS ALLOWANCE WAS AGITATED IN THE APPEAL FILED BEFORE LD. CIT(A) WHO HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE. THE DEPARTMENT IS AGGRIEVED, HENCE, HAS FILED THE AFOREMENTIONED GROUND: 3. AFTER NARRATING THE FACTS LD. DR RELIED UPON THE ORDER OF AO. 4. ON THE OTHER HAND, LD. AR SUBMITTED THAT THIS IS SUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE FOLLOWING DECISIONS OF THE T RIBBUNAL: 1. ITA NO.722 & 1003/COCH/2008 & ITA NO. 935/COCH /2008 IN THE CASE OF THE SOUTH INDIAN BANK LTD. ORDER DATE D 31/5/2011 ITA NO. 7548/MUM/2011 ITA NO. 6995/MUM/2012 3 2. CATHOLIC SYRIAN BANK LTD., VS. ACIT, 38 SOT 533 (COCH) 3. ACIT VS. OZER MERCHANT COOPERATIVE BANK LTD., ( 2014) 41 TAXMAN.COM 110(PUNE) 4. ACIT VS. THE BANK OF RAJASTHAN LTD., ITA NO .2246 TO 2250/MUM/2009 ORDER DATED 22/`12/2010. REFERENCE WAS MADE TO THE FOLLOWING OBSERVATIONS O F THE TRIBUNAL IN ITA NO.2246 TO 2250/MUM/2009: 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT I S NOT IN DISPUTE THAT IN THE CASE OF THE ASSESSEE ALL INVESTMENT IS STOCK IN TRA DE WHICH IS ACCEPTING BY THE DEPARTMENT SINCE LONG. FOR THE FIRST TIME THIS POI NT WAS RAISED IN THE ASSESSMENT YEAR 1982-83 TO 1984-85. IN THESE YEARS THE APPEL LATE TRIBUNAL JODHPUR BENCH, JODHPUR VIDE M.A.NOS. 2,3 &4 (JDPR)/2000 ORDER DATE D 14/12/2002 HAS HELD THAT IN THE CASE OF THE BANK(ASSESSEE) THE INVESTME NT IS STOCK IN TRADE AND ENTIRE LOSS ON ACCOUNT OF DIMINISHING IN VALUE HAS BEEN AL LOWED AS DEDUCTION. THIS JUDGMENT HAS BEEN ACCEPTED BY THE DEPARTMENT AND NO APPEAL WAS FILED BEFORE THE HONBLE RAJASTHAN HIGH COURT. 16. SINCE BEGINNING THE LOSS OF INVESTMENT BEING LO SS ON ACCOUNT OF DIMINISHING IN VALUE OF INVESTMENT(STOCK IN TRADE) INCLUDING AM ORTIZATION IS ALLOWED AS BUSINESS LOSS AND THE DEPARTMENT HAS ALLOWED THE SA ME AND ACCEPTED THIS POSITION SINCE LONG IN ALL THESE ASSESSMENT PROCEE DINGS. 17. IN THE CASE OF THE BANK ALL INVESTMENTS ARE STO CK IN TRADE AS HELD BY HONBLE SUPREME COURT IN THE CASE OF UCO BANK REPOR TED AT 240 ITR 355. THERE IS NO INVESTMENT IN THE NATURE OF INVESTMENT ON WHI CH THE EXPENDITURE/LOSS CAN BE TREATED IN THE NATURE OF CAPITAL EXPENDITURE. T HE SECURITIES ARE CATEGORIZED AS PER THE NORMS OF THE RBI. AS PER THE SIGNIFICANT ACCOUNTING POLICIES GIVEN IN SCHEDULE 17 ATTACHED WITH THE BALANCE SHEET EVERY Y EAR, THE FACT THAT ALL INVESTMENTS ARE STOCK IN TRADE HAS BEEN CLARIFIED I N THE CASE OF THE ASSESSEE. IT DOES NOT MEAN THE SECURITIES KEPT IN CATEGORY OF HT M CANNOT BE SOLD BEFORE THE MATURITY. THE HTM HAS BEEN SOLD IN SUBSEQUENT YEAR AND INCOME/LOSS TREATED AS BUSINESS INCOME/LOSS AND NOT AS CAPITAL GAIN/LOS S AT ALL. 18. ALL INCOME/LOSS WHATEVER ARISING ON ACCOUNT OF INVESTMENT(STOCK IN TRADE) INTEREST LOSS/PROFITS OR DIMINISHING OF INVESTMENT INCLUDING SECURITIES HELD UNDER HTM CATEGORY HAS BEEN TREATED AS BUSINESS INCOME/LO SS AND ALWAYS HAS BEEN TREATED BY DEPARTMENT AS BUSINESS AND ASSESSED ACCO RDINGLY IN ALL PAST YEAR ASSESSMENT BY DEPARTMENT. THE INTEREST EARNED IN T HE CASE OF THE BANK, ON ALL SHARE AND SECURITY ASSETS ARE STOCK IN TRADE AND WH ATEVER THE LOSS/PROFIT ARE NOT IN THE NATURE OF CAPITAL. THE ENTIRE INTEREST INCO ME OF SECURITIES UNDER WHATEVER CATEGORY HAD BEEN AND IS BEING ASSESSED IN ALL THES E YEARS AS BUSINESS INCOME. THEREFORE, AS SUCH DIFFERENT CATEGORIES OF THE INCO ME DOES NOT FORM(HTM) AS CAPITAL IN NATURE. ITA NO. 7548/MUM/2011 ITA NO. 6995/MUM/2012 4 19. AS STATED EARLIER, THE FIGURE OF RS. 65.62 LACS REPRESENTS THE AMORTIZATION OF PREMIUM FOR SECURITIES HELD UNDER HTM CATEGORY, WH ICH HAS BEEN WRITTEN OFF IN TERMS OF THE RBI CIRCULAR DATED 16/10/2000. PARA 14 OF THE SAID CIRCULAR READS AS UNDER: 14. INVESTMENTS CLASSIFIED UNDER HELD TO MATURITY CATEGORY NEED NOT TO BE MARKED TO MARKET AND WILL BE CARRIED AT ACQUIS ITION COST UNLESS IT IS MORE THAN THE FACE VALUE, IN WHICH CASE THE PREMI UM SHOULD BE AMORTIZED OVER THE PERIOD REMAINING TO MATURITY. VIDE RBI CIRCULAR NO.DBOD NO.BP.B.C 32/21.04.08/200 0-01 DATED 16/10/2000, BANK MAY SHIFT INVESTMENT TO/FROM HTM C ATEGORY WITH APPROVAL OF BOARD FROM/TO OTHER CATEGORY. FURTHER IN TERMS OF ABOVE REFERRED CIRCULAR, PROFIT ON SALE OF INVESTMENTS IN HTM CATEGORY SHOULD BE TAKEN TO THE PROFIT AND LOSS ACCOUNT. THERE IT IS VERY CLEAR THAT SECURITIES HELD UNDER HTM CATEGORY CAN BE SOLD BY BANK AT ANY POINT OF TIME. THEREFORE, THESE SECURITIES ARE BEING AS STOCK IN T RADE AND PROFIT/LOSS ON SALE OF THESE SECURITIES ARE TREATED AS BUSINESS I NCOME/LOSS. 20. THE ASSESSEE HAS FURTHER FILED A COPY OF CBDT I NSTRUCTION NO.17 DATED 26/11/2008 PUBLISHED IN 220 CTR (STATUTE PAGES 41 T O 44). THE CBDT IN PARA (VII) OF THIS INSTRUCTION HAS STATED THAT IN THE CA SES OF BANKS WHERE RBI HAD ISSUED GUIDELINES FOR ALLOWING DEDUCTION OF AMORTIZ ATION PREMIUM PAID ON SECURITIES UNDER HTM CATEGORY. THE RELEVANT PORTIO N OF INSTRUCTION IS AS UNDER: AS PER RBI GUIDELINES DATED 16 TH OCTOBER, 2000, THE INVESTMENT PORTFOLIO OF THE BANKS IS REQUIRED TO BE CLASSIFIED UNDER THR EE CATEGORIES VIZ. HELD TO MATURITY (HTM), HELD FOR TRADING (HFT) AND AVAILABL E FOR SALE (AFS). INVESTMENTS CLASSIFIED UNDER HTM CATEGORY NEED NOT BE MARKED TO MARKED AND ARE CARRIED AT ACQUISITION COST UNLESS T HESE ARE MORE THAN THE FACE VALUE, IN WHICH CASE THE PREMIUM SHOULD BE AMO RTIZED OVER THE PERIOD 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 SCRIP WISE AND ONLY NET DEPRECIATION, IF ANY, IS RE QUIRED TO BE PROVIDED FOR THE ACCOUNTS. THE LATEST GUIDELINES OF THE RBI MAY BE REFERRED TO FOR ALLOWING ANY SUCH CLAIMS. 21. SINCE THE CLAIM OF THE ASSESSEE IS AS PER RBI G UIDELINES AND CBDT HAS ALSO ISSUED DIRECTIONS TO ALLOW PREMIUM TO BE AMORT IZED REMAINING WITH THE MATURITY, THEREFORE, THE ASSESSING OFFICER IS DIRE CTED TO ALLOW THE CLAIM OF THE ASSESSEE AMOUNTING TO RS. 65,51,826/-. 22. SINCE THE CLAIM OF THE ASSESSEE IS ACCEPTED ON MERITS THE GROUND WITH REGARD TO CHALLENGING OF THE VALIDITY OF CIT(A)S O RDER HOLDING INITIATION OF REASSESSMENT PROCEEDINGS TO BE INVALID IS NOT TAKEN UP FOR CONSIDERATION. 23. IN THE RESULT, THIS APPEAL BY THE REVENUE IS DI SMISSED. 5. IT WAS POINTED OUT THAT THE EXPENSES RELATE TO HELD TO MATURITY (HTM) CATEGORY AND THIS POSITION HAS BEEN CLARIFIED IN RBI CIRCULAR DATED ITA NO. 7548/MUM/2011 ITA NO. 6995/MUM/2012 5 16/10/2000 IN PARA 14 AND THE POSITION EXPLAINED BY RBI HAS BEEN APPROVED BY CBDT VIDE INSTRUCTION NO.17 DATED 26/11/2008. IT WAS SUBMITTED THAT BOTH THE ABOVE MENTIONED DOCUMENTS I.E. GUIDELINE O F RBI AND CIRCULAR OF CBDT, ARE REFERRED IN THE AFOREMENTIONED ORDER. 6. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. THE ISSUE RAISED BY THE REVENUE IS SQ UARELY COVERED BY THE AFOREMENTIONED DECISION OF THE TRIBUNAL. RESPECTF ULLY FOLLOWING THE SAME WE DO NOT FIND ANY MERIT IN THE GROUNDS OF APPEAL RAIS ED BY THE REVENUE. ACCORDINGLY, BOTH THE APPEALS ARE DISMISSED. 7. IN THE RESULT, APPEALS FILED BY THE REVENUE ARE DISMISSED. . ORDER PRONOUNCED IN THE OPEN COURT ON 19 /02/2014 - ) ,# . /'0 19/02/2014 ) 1 SD/- SD/- ( / SANJAY ARORA ) ( . . / I.P. BANSAL ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; /' DATED 19 /02/2014 - - - - ) )) ) '*2 '*2 '*2 '*2 32#* 32#* 32#* 32#* / COPY OF THE ORDER FORWARDED TO : 1. $& / THE APPELLANT 2. '($& / THE RESPONDENT. 3. 4 ( ) / THE CIT(A)- 4. 4 / CIT 5. 251 '*' , , / DR, ITAT, MUMBAI 6. 16 7 / GUARD FILE. -' -' -' -' / BY ORDER, (2* '* //TRUE COPY// 8 88 8 / 9 9 9 9 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . ' . ./ VM , SR. PS