Nagar Urban Co-operative Bank Ltd., Ahmednagar V. Addl. CIT, Ahmednagar Range, Ahmednagar

ITA 711/PUN/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 5262 (ITAT-PUNE)
• Duration Of Justice: 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 20-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K MODI
• Keywords: Depreciation

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.711/PN/2013 A.Y. 2009-10 NAGAR URBAN CO-OP BANK LTD., POST BOX NO.7, CENTRAL BANK ROAD, AHMED NAGAR - 414001 PAN: AAAAN0509L APPELLANT VS. ADDL. CIT, AHMEDNAGAR RANGE RESPONDENT APPELLANT BY : SHRI C.H. N ANI WADEKAR RESPONDENT BY : SHRI A.K . MODI 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 FOR A.Y. 2009-10 ON THE FOLLOWING GROUNDS. 1. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL )L HAS ERRED IN CONFIRMING THE ADDITIONS MADE BY THE A.O W HO HAS DISALLOWED AMORTIZATION OF PREMIUM PAID ON GOVT. SE CURITIES RS.15,11,333/-DEBITED TO P & L A/C. THAT THE AMORTI ZATION OF PREMIUM PAID ON GOVT. SECURITIES RS.15,11,333/- DEBITED TO P & L A/C AS PER RBI GUIDELINES BE ALLOWED IN FULL AS BEING THE EXPENSES INCURRED DURING THE COURSE OF BU SINESS OF BANKING. 2. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL )L HAS ERRED IN CONFIRMING THE ADDITIONS MADE BY THE A.O W HO HAS DISALLOWED PROVISION FOR DEPRECIATION ON GOVT. SECU RITIES DEBITED TO P & L A/C RS.51,06,000/- AS PER RBI GUID ELINES. THAT THE DEPRECIATION ON GOVT. SECURITIES DEBITED T O P & L A/C AS PER RBI GUIDELINES BE ALLOWED IN FULL AS BEI NG THE EXPENSES INCURRED DURING THE COURSE OF BUSINESS OF BANKING. 2 3. THAT THE LEARNED CIT (A) HAS ERRED IN CONFIRMING TH E ADDITION MADE BY A.O. ON ACCOUNT OF SUSPENSE ACCOUNT BALANCE RS.16,11,421/-. THAT THE BALANCE IN SUSPENSE ACCOUNT REPRESENTS VARIOUS SUMS WHICH REMAINED PAYABLE AT THE END OF YEAR, WHICH AR E PAID OR PAYABLE ON DEMAND BY THE CUSTOMER. THAT THE ADDITION MADE IS UNWARRANTED. THAT THE ADD ITION MADE BE DELETED. 4. THAT YOUR APPELLANT PRAYS THAT HE MAY BE ALLOWED TO ADD, TO ALTER, OR AMEND OR TO DELETE ANY OF THE ABOVE GROUN DS OF APPEAL. 2. FIRST ISSUE IS WITH REGARD TO ADDITION MADE BY A SSESSING OFFICER WHO HAS DISALLOWED THE AMORTIZATION PREMIUM PAID ON GOVT. SECURITIES OF RS.15,11,333/-. AT THE OUTSET OF HEA RING, LEARNED AUTHORIZED REPRESENTATIVE POINTED OUT THAT THIS ISS UE IS COVERED IN FAVOUR OF ASSESSEE BY THE ORDER IN HIS OWN CASE FOR A.Y. 2007-08 IN ITA NO.306/PN/2012, WHEREIN THE TRIBUNAL HAS DECIDE D THE ISSUE IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER: 4. WE HAVE HEARD THE PARTIES. WE FIND THAT THE IS SUE BEFORE US IS CLEARLY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT PUNE BENCH IN THE CASE OF LATUR URBAN CO-OP. B ANK LTD. IN ITA NO. 778 AND 792/PN/2011, ORDER DATED 31-8-20 12. THE RELEVANT DISCUSSION AND FINDING OF THE TRIBUNAL ON THE ISSUE IS AS UNDER. 13. SO FAR AS GROUND NO. 2 IS CONCERNED, IT IS IN RESPECT OF THE DISALLOWANCES ON THE LOSS ON SALE OF SURPLUS OF RS. 14,70,000/-. THE A.O HAS OBSERVED THAT AN AMOUNT OF RS. 14,70,00 0/- IS DEBITED TO THE PROFIT & LOSS A/C ON ACCOUNT OF LOSS ON SALE OF SECURITIES. THE A.O HAS FURTHER OBSERVED THAT THE ASSESSEE IN ITS SUBMISSION HAS STATED THAT SECURITIES OF THE B ANK ARE HELD UNDER THE HEAD TO MATURITY CATEGORY AND, THEREFO RE, LOSS ARISING ON THE SALE OF INVESTMENT IS IN THE NATURE OF CAPITAL LOSS AND THEREFORE, THE SAME IS NOT ALLOWABLE EXPENDITUR E. THE A.O MADE THE ADDITION TO THE EXTENT OF RS. 14,70,000/-. THE LD CIT(A) CONFIRMED THE ADDITION. 14. WE HAVE HEARD THE PARTIES. THE LD COUNSEL PLAC ED HIS HEAVY RELIANCE ON THE DECISION OF THE HONBLE 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), THE ISSUE BEFORE THEIR LORDSHIP WAS WHETHER THE ASSESSEE WAS ENTITLED FOR DEDUCTION ON ACCOUNT OF DEPRECIATION IN THE VALUE OF INVESTMENTS. THE METH OD OF 3 VALUATION FOLLOWED BY THE ASSESSEE BANK WAS TO VALU E INVESTMENTS AT COST OR MARKET VALUE WHICHEVER WAS L OWER. THE ASSESSEE HAD CLAIMED THE DEPRECIATION TO THE TUNE O F RS. 11,82,35,007/- AND THE SAID DEPRECIATION WAS CLAIME D AS A DEDUCTION WHICH WAS DISALLOWED BY THE A.O, BUT THE ASSESSEE BANK SUCCEEDED BEFORE THE CIT(A). THE TRIBUNAL CONF IRMED THE ORDER OF THE CIT(A). THE REVENUE CARRIED THE ISSUE BEFORE THE HONBLE HIGH COURT. THE CORE ISSUE WAS THE METHOD OF VALUATION ADOPTED BY THE ASSESSEE BANK FOR VALUING THE STOCK OF THE SECURITIES. THE HONBLE HIGH COURT FOLLOWED T HE DECISION OF HONBLE SUPREME COURT IN THE CASE OF UNITED COMM ERCIAL BANK (SUPRA). 15. IN THE CASE OF UNITED COMMERCIAL BANK (SUPRA), EVEN THE ISSUE OF VALUATION OF THE STOCK IN TRADE OF THE INV ESTMENT WAS BEFORE THE HONBLE SUPREME COURT. IN THE CASE OF T HE ASSESSEE, THE ISSUE IS REGARDING ALLOWABILITY OF THE LOSS ON THE SALE OF THE SECURITIES. MERELY BECAUSE THE SECURITIES ARE KEP T UNDER THE HEAD TILL THE MATURITY, THE SAID SECURITY CANNOT BE TREATED AS A PURELY INVESTMENT. LAW IS WELL SETTLED THAT THE S ECURITIES HELD BY THE BANK ARE IN THE NATURE OF STOCK-IN-TRADE. W E MAY LIKE TO QUOTE HERE THE DECISION OF THE HONBLE HIGH COUR T OF KERALA IN THE CASE OF CIT VS. NEDUNGADI BANK LTD., 264 ITR 545. IN THE SAID CASE, THE HONBLE HIGH COURT HAS HELD THAT THE SECURITIES HELD BY THE BANK ARE IN THE NATURE OF ST OCK-IN-TRADE. BOTH THE AUTHORITIES BELOW HAVE MERELY GONE ON THE NOMENCLATURE OF THE HEAD UNDER WHICH THE SECURITIE S ARE HELD. IN OUR CONSIDERED VIEW, NOMENCLATURE CANNOT BE DECI SIVE FOR THE ASSESSEE BANK. WE, THEREFORE, HOLD THAT THE LO SS ON THE SALE OF THE SECURITIES IS REVENUE IN NATURE AND SA ME IS ALLOWABLE. ACCORDINGLY, GROUND NO. 2 IS ALLOWED. 2.1 MOREOVER, THE SAID ISSUE IS ALSO DECIDED IN FAV OUR OF THE ASSESSEE BY OTHER CO-ORDINATE BENCH IN THE FOLLOWIN G CASES: I) DECISION OF BANGALORE BENCH OF THE TRIBUNAL IN T HE CASE OF KRISHNA GRAMEENA BANK VS. ADDL. CIT (ITA NO. 146/BANG/2011 AND 224/BANG/2011 ORDER DATED 15-6- 2012. II) DECISION OF BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF NATIONAL CO-OP. BANK LTD. VS. JT. CIT RANGE 3 BANGA LORE (ITA NO. 1090/BANG/2010 AND 7/BANG/2011, ORDER DATE D 11-5-2012). WE THEREFORE SET ASIDE THE ORDER OF THE CIT(A) ON T HIS ISSUE AND ALLOW THE CLAIM OF THE ASSESSEE. 2.2 FACTS BEING SIMILAR, SO FOLLOWING THE SAME REAS ONING, WE HOLD THAT DISALLOWANCE OF EXPENSES UNDER HEAD AMORTIZAT ION OF PREMIUM PAID TO GOVT. SECURITIES DEBITED TO PROFIT AND LOS S ACCOUNT ARE NOT 4 JUSTIFIED THE AMORTIZATION OF PREMIUM PAID ON GOVT. SECURITIES BE ALLOWED AS CLAIMED BY ASSESSEE, ASSESSING OFFICER I S DIRECTED ACCORDINGLY. 3. NEXT ISSUE IS WITH REGARD TO ADDITION MADE BY AS SESSING OFFICER WHO HAS DISALLOWED THE PROVISION FOR DEPRECIATION O N GOVT. SECURITIES DEBITED TO PROFIT & LOSS ACCOUNT OF RS.5 1,06,000/- AS PER RBI GUIDELINES. THIS ISSUE IS COVERED BY THE DECIS ION IN THE CASE OF STATE OF SAURASHTRA VS. DY. CIT, AHMEDABAD A BENCH BY HOLDING AS UNDER: IT IS AN ADMITTED FACT THAT THE BANK IS REQUIRED T O INVEST AND TO KEEP INVESTED CERTAIN SPECIFIED PERCENTAGE OF ITS D EMAND AND TIME LIABILITIES AS PRESCRIBED BY THE RBI FROM TIME -TO-TIME, IN CERTAIN APPROVED SECURITIES AND, THEREFORE, SUCH IN VESTMENTS IN SECURITIES HAS TO BE CLOSELY AND INTIMATELY CONNECT ED WITH THE BUSINESS OF THE ASSESSEE. THE ISSUE HAS BEEN CONCLU DED IN FAVOUR OF THE ASSESSEE IN EARLIER YEARS AND THE MAT TER HAS NOT BEEN ALLOWED TO BE PROCEEDED FURTHER AND THE APPEAL FAILED FOR WANT OF PERMISSION OF COD. THE SECURITIES ARE REQUI RED IN THE NORMAL COURSE OF BANKING BUSINESS WHICH REQUIRES KE EPING OF ENOUGH CASH AND EASILY REALIZABLE SECURITIES TO MEE T ANY POSSIBLE DEMAND OF THE DEPOSITORS. THEY ARE SO REQU IRED AS PER GUIDELINES OF RBI. THE CIRCULAR NO. 599, DT. 24TH A PRIL, 1991 ALSO DECLARED SUCH SECURITIES AS STOCK-IN-TRADE OF THE BANKS, THOUGH THE LATER CIRCULAR HAS LEFT IT OPEN FOR THE DECISION OF THE AO TO DECIDE WHETHER THEY ARE STOCK-IN-TRADE OR NOT . THE ASSESSEE IS FOLLOWING THE SYSTEM OF VALUATION REGUL ARLY FROM ASST. YR. 1977-78 AND CLAIMING DEPRECIATION IN ITS IT RETURN AND SAME ARE BEING ACCEPTED BY THE DEPARTMENT-IN SOME C ASES BY THE ITO AND IN SOME OTHER CASES BY THE CIT(A). THER EFORE, THE ATTEMPT TO FILE FURTHER APPEAL TO THE TRIBUNAL HAS FAILED BECAUSE EVEN COD HAS NOT PERMITTED TO PROCEED WITH THE MATT ER. IN THESE CIRCUMSTANCES, THE CIT(A) WAS JUSTIFIED IN AL LOWING THE CLAIM OF THE ASSESSEE. 3.1 NOTHING CONTRARY WAS BROUGHT TO OUR KNOWLEDGE O N BEHALF OF REVENUE. FACTS BEING SIMILAR, SO FOLLOWING THE SAM E REASONING, DEPRECIATION ON SECURITIES HELD BY BANK AS STOCK EN TRY IS DIRECTED TO BE ALLOWED. 4. NEXT ISSUE IS WITH REGARD TO THE ADDITION MADE B Y ASSESSING OFFICER ON ACCOUNT OF SUSPENSE ACCOUNT BALANCE OF R S.16,11,421/-. THE ASSESSING OFFICER HAS RECORDED THE FINDING THAT ALTHOUGH SPECIFIC 5 QUERY WAS RAISED, THIS AMOUNT HAS NOT BEEN ABLE TO RECONCILED BY THE ASSESSEE. ACCORDINGLY, SAME WAS ADDED BY ASSES SING OFFICER BY INVOKING THE PROVISIONS OF SECTION 41(1) OF I.T ACT WHICH WAS CONFIRMED BY CIT(A). 4.1 THE LEARNED AUTHORIZED REPRESENTATIVE BEFORE US SUBMITTED THAT CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ADD ITION MADE BY ASSESSING OFFICER ON ACCOUNT OF SUSPENSE ACCOUNT OF RS.16,11,421/- . THE BALANCE IN SUSPENSE ACCOUNT REPRESENTS VARIO US SUMS WHICH REMAIN PAYABLE AT THE END OF THE YEAR WHICH WAS PAI D OR PAYABLE ON DEMAND BY CUSTOMERS, SO ADDITION WAS NOT WARRANTED. ACCORDINGLY, SAME BE DELETED. LEARNED AUTHORIZED REPRESENTATIVE SUBMITTED THAT HE IS READY TO JUSTIFY ITS CLAIM AS PER LAW FOR WHI CH NO OPPORTUNITY WAS GIVEN BY LOWER AUTHORITIES. IN VIEW OF THIS, W E RESTORE THIS ISSUE TO ASSESSING OFFICER WITH A DIRECTION TO DECIDE THE SAME ON FACTS AND LAW AFTER PROVIDING DUE OPPORTUNITY OF HEARING. 5. IN THE RESULT, APPEAL FILED BY ASSESSEE IS PARTL Y ALLOWED. 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