ITO WD 1(3), KALYAN V. NAGRIK SAHAKARI BANK LTD, BHIWANDI

ITA 7224/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8692 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 04-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANUPAMA SINGLADR
• Keywords: Capital asset; Business income; Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, G MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER ITA NO.7224/MUM/2014 ASSESSMENT YEAR: 2010-11 INCOME TAX OFFICER, WARD-1(3), 1 ST FLOOR, MOHAN PLAZA, WAYALE NAGAR, KHADAKPADA, KALYAN / VS. M/S NAGRIK SAHAKARI BANK LTD. H. NO.27, PRABHU ALI, OPP. BANK OF INDIA, BHIWANI, MAHARASHTRA-421302 ( / REVENUE) ( !'# $ /ASSESSEE) PAN. NO . AAAAN0638A % & $ ' / DATE OF HEARING : 24/01/2017 & $ ' / DATE OF ORDER: 27/01/2017 ! / REVENUE BY MISS ANUPAMA SINGLA-DR !'# $ ! / ASSESSEE BY SHRI SUNIL MAKHIJA ITA NO.7224/MUM/2014 M/S NAGRIK SAHAKARI BANK LTD. 2 / O R D E R PER JOGINDER SINGH(JUDICIAL MEMBER) THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DATE D 21/08/2014 OF THE LD. FIRST APPELLATE AUTHORITY, MU MBAI. THE ONLY GROUND RAISED IN THE PRESENT APPEAL PERTAI NS TO DELETING THE ADDITION OF RS.51,11,957/- ON ACCOUNT OF AMORTIZATION OF PREMIUM ON GOVERNMENT SECURITIES IN HTM CATEGORY. 2. DURING HEARING, THE LD. DR, MISS. ANUPAMA SINGL A, DEFENDED THE ADDITION MADE BY THE ASSESSING OFFICER BY CONTENDING THAT WHILE DELETING THE ADDITION, THE LD . COMMISSIONER OF INCOME TAX (APPEAL) DID NOT APPRECI ATE THE FACTS IN RIGHT PERSPECTIVE. 2.1. ON THE OTHER HAND, SHRI SUNIL MAKHIJA, LD. CO UNSEL FOR THE ASSESSEE, DEFENDED THE IMPUGNED ORDER BY CO NTENDING THAT THE IMPUGNED ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL FOR ASSESSMENT YEAR 2006-07 (ITA NO.2964/MUM/2012) ORDER DATED 15/04/2016. THIS FACTUAL ASSERTION OF THE ASSESSEE WAS NOT CONTROVER TED BY THE REVENUE. 2.2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN VIEW O F THE ABOVE, WE ARE REPRODUCING HEREUNDER THE RELEVANT PO RTION FROM ORDER OF THE TRIBUNAL DATED 15/04/2016 FOR REA DY REFERENCE AND ANALYSIS:- ITA NO.7224/MUM/2014 M/S NAGRIK SAHAKARI BANK LTD. 3 1. THE PRESENT APPEAL IS FILED BY REVENUE AGAINST T HE ORDER OF CIT APPEAL DATED 24 JANUARY 2012 IN RESPECT OF AYS 2006 07. THE REVENUE HAS RAISED ONLY ONE ISSUE/ GROUND THAT CIT(A) ERRED IN HOLDING THAT THE PREMIUM PAID BY ASSESSEE FOR PURCHASE OF SECURITIES /BONDS IS REVENUE EXPENDITURE, IGNORING THE FACT THAT THE PREMIUM HAS BEEN PAID FOR PURCHASE OF SECURITIES/BONDS WHICH ARE APPEARING IN THE BALA NCE-SHEET AS CAPITAL ASSETS AND THEREFORE PAYMENT MADE IN CONNECTION WIT H PURCHASE OF CAPITAL ASSETS CANNOT BE TREATED AS REVENUE EXPENDITURE. 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS CO-OPERATIVE BANK. THE ASSESSEE FILED RETURN OF INCOME FOR RELEVANT ASSESS MENT YEAR OR 8TH MAY 2007, DECLARING TOTAL BUSINESS LOSS AT RS. 64,89,69 9/-. THE CASE WAS SELECTED FOR SCRUTINY. WHILE MAKING ASSESSMENT, AO OBSERVED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS BROU GHT CERTAIN INVESTMENT AT PREMIUM. A PART OF THE PREMIUM AMOUNTING TO RS. 42,94,695/-, WAS WRITTEN OFF IN THE INCOME AND EXPENDITURE ACCOUNT. AS THE PREMIUM WAS PAID ON THE INVESTMENTSWHICH ARE OF THE ASSETS OF T HE BANK AND THE EXPENSES INCURRED FOR ACQUIRING BOTH THE ASSETS ARE CAPITAL EXPENSES IN NATURE. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THIS AMOUNT DEBITED TO THE P&L AND ACCOUNT AS PREMIUM WRITTEN OFF SHOULD NOT BE DISALLOWED AND BE ADDED TO THE TOTAL INCOME AS THE SAME IS NOT TO REVENUE EXPENDITURE. THE ASSESSEE SUBMITTED ITS REPLY AND C ONTENDED THAT AS PER RULES, REGULATIONS AND GUIDELINES ISSUED BY RBI, TH E ASSESSEE ARE ALLOWED TO MAKE INVESTMENTS BE NOT TREATED AS CAPITAL EXPEN DITURE AS AGAINST DEFERRED REVENUE EXPENDITURE AS CLAIMED BY IT IN TH E INCOME OF RETURN FILED. IT WAS FURTHER CONTENDED THAT BEING A COOPERATIVE B ANK, THE ASSESSEE IS ALLOWED TO MAKE INVESTMENTS ONLY IN PARTICULAR SECU RITIES/ BONDS APPROVED BY RBI. TO COMPLY WITH THE RULES AND REGULATION AND TO MAXIMISE OUT PROFIT AND MAKE INVESTMENT THE ASSESSEE SELECTED THE BEST YIELD GIVEN SECURITIES/BONDS. THE BONDS AND SECURITIES WHICH WE RE PURCHASED HAVE ALREADY BEEN ISSUED AND ADMITTEDLY IN THE MARKET AR E AVAILABLE AT HIGHER PRICE THAN FACE VALUE. THE DIFFERENCE IN FACE VALUE AND THE MARKET VALUE IS PAID IN CONNECTION WITH ACQUIRING AN INCOME YIELDIN G ASSET WHICH IS APPROVED SECURITY BY RBI AND THEREFORE IS CLEARLY A N ALLOWABLE EXPENDITURE AGAINST THE INCOME EARNED. BY MAKING IN VESTMENT IN THE SAID SECURITIES / BONDS THE ASSESSEE GETS INCOME AND NO NEW ASSET HAS COME INTO EXISTENCE. THE CONTENTION OF ASSESSEE WAS NOT ACCEP TED BY THE AO. THE AO CONCLUDED THAT THE AMOUNT PAID IS TOWARD ACQUIRING ASSETS AND THE NATURE OF PAYMENT IS NOTHING BUT CAPITAL IN NATURE AND THE SAME CANNOT BE TREATED AS REVENUE EXPENDITURE. AND THE AMOUNT OF RS. 42,94 ,695/- WRITTEN OFF ON ACCOUNT OF PREMIUM PAID TOWARD ACQUIRING THE SECURI TIES/ BONDS ITA NO.7224/MUM/2014 M/S NAGRIK SAHAKARI BANK LTD. 4 (INVESTMENT) WAS DISALLOWED AND ADDED BACK TO THE T OTAL INCOME OF THE ASSESSEE IN THE ASSESSMENT ORDER. 3. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE FILED APPEAL BEFORE CIT(A). CIT(A) AFTER CONSIDERING THE FACT AND SUBMISSION OF ASSESSEE DELETED THE DISALLOWANCE / ADDITION AND ALLOWED THE APPEAL OF T HE ASSESSEE. AGGRIEVED BY THE ORDER OF CIT(A) THE REVENUE HAS FILED THE PR ESENT APPEAL BEFORE US. 4. WE HAVE HEARD THE LD. DR FOR THE REVENUE AND LD. AR FOR ASSESSEE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. LD DR FOR REVENUE ARGUED THAT CIT (A) WRONGLY DELETED THE ADDITION/ DISALLOWANCE MADE BY AO BY TREATING IT AS REVENUE EXPENDITURE. DR FOR REVENUE FURTHER ARGUED THAT ORDER OF CIT (A) BE REVERES AND ORDER OF AO MAY BE UPHOLD. ON THE OTHER HAND, AR FOR ASSESSEE ARGUED THAT CIT (A) HAS CONSI DERED THE FACTS OF PRESENT CASE IN CORRECT PERSPECTIVE AND DELETED THE DISALLOWANCE. WE HAVE CONSIDERED THE RIVAL CONTENTION OF THE PARTIES AND GIVEN CAREFUL CONSIDERATION TO THE ORDERS OF AUTHORITIES BELOW. C IT(A) WHILE PASSING THE ORDER GAVE ITS FINDING ON THE FOLLOWING MANNER: I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDER A ND THE SUBMISSION OF THE APPELLANT. I FIND THAT THE AO HAS NOT CONSIDERE D THE PRUDENTIAL NORMS PRESCRIBED BY THE RESERVE BANK OF INDIA AND HAS ALS O NOT CONSIDERED THE CBDT CIRCULAR NUMBER 665 DATED 05 OCTOBER, 1993, WH ICH HAS SPECIFICALLY BEEN ISSUED TO ENABLE THE AO TO COMPLE TE THE ASSESSMENT OF THE BANK BY CONSIDERING THE CIRCULARS AND GUIDELINES IS SUED BY RESERVE BANK OF INDIA, FROM TIME TO TIME. THE AO HAS ALSO NOT CONSI DERED THE FACT THAT GOVERNMENT SECURITIES ARE PURCHASED BY THE APPELLAN T CO-OPERATIVE BANK TO COMPLY WITH THE STATUTORY LIQUIDITY RATIO (SLR) REQ UIREMENT WITH THE BANK HAS TO MAINTAIN AT ANY COST IN ORDER TO CARRY OUT I TS BUSINESS OF BANKING. THE NONMAINTENANCE OF SLR BY THE BANK CAN HAVE SERI OUS RAMIFICATIONS ON THE VERY EXISTENCE AND CONTINUANCE OF BUSINESS OF B ANKING OF THE APPELLANT CO-OPERATIVE BANK. ALSO, THE PREMIUM ON THE PURCHAS E OF SECURITY IS PLACED BY THE BANK AT DIFFERENT POINTS OF TIME DEPENDING U PON THE PREVAILING INTEREST RATE RESIGN IN THE FINANCIAL SYSTEM OF THE COUNTRY AND THE OTHER AVAILABLE AVENUES OF INVESTMENT AND THE REQUIREMENT OF MAINTAINING THE SLR. THE MAIN OBJECT OF THE APPELLANT CO-OPERATIVE BANK WHILE PURCHASING THE GOVERNMENT SECURITY (UNDER HTM CATEGORY) AND PA YING PREMIUM ON SUCH SECURITIES OVER AND ABOVE ITS FACE VALUE IS TO MAINTAIN SLR. A BANK HAS TO REPAY THE MONIES AND DEPOSITS ACCEPTED BY IT ON DEMAND TO ITS ACCOUNT HOLDER AND DEPOSIT HOLDERS AND FOR THAT REA SON, IT HAS TO MAINTAIN CRR AND SLR AS PER STIPULATIONS OF RBI. SUCH OBLIGA TION OF REPAYMENT ON DEMAND TO ITS DEPOSITORS IS NOT THERE FOR NBCS, PF CS AND IDCS. 4.1 IN VIEW OF THE ABOVE FACTS AND THE JUDICIAL DEC ISIONS ON THE SUBJECT MATTER, I TAKE THE VIEW THAT, THE AMORTISATION OF P REMIUM PAID ON PURCHASE ITA NO.7224/MUM/2014 M/S NAGRIK SAHAKARI BANK LTD. 5 OF SECURITIES CLASSIFIED UNDER THE HTM CATEGORY IS AN ASCERTAINED AND DETERMINED LOSS FOR THE BANK AND AT THE SAME IS NOT EXPRESSLY DISALLOWED BY ANY PROVISIONS OF INCOME TAX ACT 1961, THE SAME HAS TO BE ALLOWED WHILE COMPUTING THE BUSINESS INCOME OF THE APPELLAN T BANK. MOREOVER, THE INTEREST INCOME OF THESE SECURITIES IS REGULARLY SH OWN BY THE APPELLANT AND HENCE AS PER THE MATCHING PRINCIPLE, THE DEDUCTION OF PREMIUM EXPENSES IS ALLOWABLE. FURTHER, THE SECURITIES PURCHASED BY THE APPELLANT CO-OPERATIVE BANK AND CLASSIFIED UNDER THE CATEGORY HELD TO MAT URITY DO FORM PART OF STOCK IN TRADE OF THE APPELLANT CO-OPERATIVE BANK , BECAUSE THE SAME ARE PURCHASED WITH AN PREDOMINANT MOTIVE OF MAINTAINING SLR OF THE PINK, NON-MAINTENANCE OF WHICH CAN HAVE SERIOUS RAMIFICAT IONS ON THE VERY EXISTENCE OF BUSINESS OF BANKING. THERE IS NO DISPU TE ABOUT THE QUANTUM OF LOSS. THE DISALLOWANCE IS, THEREFORE, UNWARRANTED. ACCORDINGLY, BOTH THE SUBSTANTIVE GROUNDS STAND ALLOWED. 5. WE MAY NOTE THAT THE ASSESSEE IS A CO-OPERATIVE BANK AND HAS TO FOLLOW CERTAIN STATUTORY OBLIGATION PRESCRIBED BY R BI FROM TIME TO TIME. AND TO MEET ONE OF THE IMPORTANT OBLIGATIONS OF PAY MENT/ REPAYMENT ON DEMAND, EVERY BANK HAS TO MAINTAIN CASH RESERVE RAT IO (CRR) AND STATUTORY LIQUIDITY RATIO (SLR) AS PRESCRIBED BY RB I. THE SLR IS MAINTAINED BY THE BANK BY INVESTING THE FUNDS IN GO VERNMENT SECURITIES. THE ASSESSEE HAD PAID THE PREMIUM ON PU RCHASE OF SUCH GOVERNMENT SECURITIES. WE MAY FURTHER NOTE THAT THE AMORTIZATION OF PREMIUM PAID ON PURCHASE OF SECURITIES CLASSIFIED U NDER THE CATEGORY HELD TO MATURITY AS PER THE CIRCULAR OF RBI, IS AKI N TO DIMINUTION IN THE VALUE OF INVESTMENT. THE ASSESSEE WHO IS CO-OPERATI VE BANK IS ALLOWED ONLY TO MAKE INVESTMENT IN PARTICULAR SECURITIES/BO NDS APPROVED BY RBI AND THAT THE ASSESSEE HAS ACQUIRED THE SECURITIES(S ) BOND AT A PREMIUM DOES NOT CHANGE THE CHARACTER OF THE EXPENDITURE. T HE ASSESSEE HAS WRITTEN OFF ONLY A PORTION OF PREMIUM PAID FOR ACQU IRING THE INVESTMENT AND NOT THE FACE VALUE, WHICH ACCORDING TO AO PROVE S THAT EVEN ASSESSEE IS AWARE THATWHATEVER EXPENDITURE IS INCUR RED HAS BEEN ACQUIRED HAS BEEN SPENT ON ACQUIRING ASSETS WHICH I S CAPITAL IN NATURE. WE HAS SEEN THAT ALL THE FACTS, INCLUDING THE GUIDE LINES OF RBI AND THE CIRCULAR OF CBDT DATED 05 OCTOBER, 1993, WHICH HAS SPECIFICALLY BEEN ISSUED TO ENABLE THE AO TO COMPLETE THE ASSESSMENT OF THE BANK BY CONSIDERING THE CIRCULARS AND GUIDELINES ISSUED BY RESERVE BANK OF INDIA, FROM TIME TO TIME WERE CONSIDERED BY THE CIT (A) AND GIVEN CONCLUSIVE FINDING OF FACT HOLDING THAT SECURITIES PURCHASED BY THE ASSESSEE BANK UNDER THE CATEGORY HELD TO MATURITY FORMED PART OF STOCK IN TRADE OF THE ASSESSEE BANK AS THE SAME ARE PURCHASED WITH AN PREDOMINANT MOTIVE OF MAINTAINING SLR OF THE BANK, NON-MAINTENANCE OF WHICH CAN HAVE SERIOUS RAMIFICATIONS ON THE EXIS TENCE OF BANKING BUSINESS AND DELETED THE DISALLOWANCE MADE BY AO. T HE ORDER OF ITA NO.7224/MUM/2014 M/S NAGRIK SAHAKARI BANK LTD. 6 CIT(A) IS REASONED ONE AND DOES NOT REQUIRE ANY INT ERFERENCE AT OUR END, THUS THE APPEAL OF REVENUE IS DISMISSED. 6. IN THE RESULT, APPEAL FILED BY REVENUE IS DISMIS SED. 2.3. WE FIND THAT THE COOPERATIVE BANK HAS TO FOLL OW CERTAIN STATUTORY OBLIGATIONS, PRESCRIBED BY RBI, F ROM TIME TO TIME. TO MEET OUT THE IMPORTANT OBLIGATION OF PAYMENT/REPAYMENT, ON DEMAND, EVERY BANK HAS TO MAINTAINED CASH RESERVES RATIO (CRR) AND STATUTORY LIQUIDITY RATIO (SLR) HAS PRESCRIBED BY RBI. THE SL R WAS MAINTAINED BY THE BANK BY INVESTING THE FUNDS IN GO VERNMENT SECURITIES. THE ASSESSEE PAID THE PREMIUM ON PURCH ASE OF SUCH GOVERNMENT SECURITIES. THE AMORTIZATION OF PRE MIUM PAID ON PURCHASE OF SECURITY, CLASSIFIED UNDER THE CATEGORY HELD TO BE MATURITY AS PER CIRCULAR OF RBI IS AKIN TO DIMINUTION IN THE VALUE OF INVESTMENT. THE ASSESSE E, BEING COOPERATIVE BANK, IS ALLOWED TO MAKE INVESTMENT IN PARTICULAR SECURITIES/BONDS, PROVED BY RBI AND THE ASSESSEE HA S ACQUIRED THE SECURITIES BONDS AT A PREMIUM, WHICH D OES NOT CHANGE THE CHARACTER OF EXPENDITURE. IN THE PRESE NT ASSESSMENT YEAR, THE ASSESSEE HAD WRITTEN OFF AN AM OUNT OF RS.51,11,957/- ON ACCOUNT OF AMORTIZATION OF PREMIU M ON GOVERNMENT SECURITIES. THE STAND OF THE REVENUE IS THAT AS THE PREMIUM HAS BEEN PAID ON INVESTMENT, WHICH WERE REFLECTED AS ASSETS IN THE BALANCE SHEET OF THE ASSESSEE, THE EXPENSES INCURRED ARE IN THE NATURE OF CAPITAL EXPE NDITURE. IN RESPONSE TO THE QUERY OF THE LD. ASSESSING OFFICER, THE ASSESSEE FILED SUBMISSIONS, WHICH HAVE BEEN REPRODU CED AT ITA NO.7224/MUM/2014 M/S NAGRIK SAHAKARI BANK LTD. 7 PAGE-3 OF THE IMPUGNED ORDER. HOWEVER, THE LD. ASSE SSING OFFICER HELD THAT THE IMPUGNED AMOUNT IS A CAPITAL EXPENDITURE. ON APPEAL BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEAL), THE FACTUAL MATRIX ALONG WITH VARIOUS CASE LAWS LIKE UCO BANK VS CIT 240 ITR 355 (SC), CI T VS BANK OF BARODA 262 ITR 334 (BOM.), CIT VS CITY UNIO N BANK LTD. (2007) 291 ITR 144 (MAD.) AND CIT VS KARUR VYS YA BANK LTD. 273 ITR 510 (MAD.), ETC. WERE CONSIDERED AND F OLLOWING THE DECISION IN THE CASE OF THE ASSESSEE FOR ASSESS MENT YEAR 2009-10 HELD THAT THE AMOUNT WRITTEN OFF BY THE ASS ESSEE AS AMORTIZATION OF PREMIUM ON GOVERNMENT SECURITIES IN HTM CATEGORY WAS AN ALLOWABLE EXPENDITURE. SINCE, THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE THAT TOO IN THE C ASE OF ASSESSEE ITSELF, THEREFORE, IN THE ABSENCE OF ANY C ONTRARY DECISION, WE AFFIRM THE STAND OF THE LD. COMMISSION ER OF INCOME TAX (APPEAL) AS THE ISSUE HAS BEEN DEALT WIT H IN A JUSTIFIABLE MANNER, RESULTING INTO DISMISSAL OF APP EAL OF THE REVENUE. FINALLY, THE APPEAL OF THE REVENUE IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 24/01/2017. SD/- SD/- ( MANOJ KUMAR AGGARWAL ) (JOGINDER SINGH) '!# / ACCOUNTANT MEMBER $!# /JUDICIAL MEMBER % MUMBAI; ) DATED : 27/01/2017 ITA NO.7224/MUM/2014 M/S NAGRIK SAHAKARI BANK LTD. 8 F{X~{T? P.S/. . . %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. +,- / THE APPELLANT (RESPECTIVE ASSESSEE) 2. ./,- / THE RESPONDENT. 3. 0 0 1$ ( + ) / THE CIT, MUMBAI. 4. 0 0 1$ / CIT(A)- , MUMBAI, 5. 34 .$! , 0 +' ! 5 , % / DR, ITAT, MUMBAI 6. 6' 7% / GUARD FILE. ! / BY ORDER, /3+$ .$ //TRUE COPY// /! (DY./ASSTT. REGISTRAR) , % / ITAT, MUMBAI