ASST CIT CIR 3, KALYAN V. DOMBIVLI NAGARI SAHAKARI BANK LTD, DOMBIVALI

ITA 7444/MUM/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2875 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2010-2011
• Appeal Filed On: 18-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: R K MULCHANDANI
• Keywords: Capital asset; Business income; Depreciation; Cost of acquisition

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI D BENCH , MUMBAI BEFORE SHRI SHAILEND RA K UMAR YADAV, JUDICIAL MEMBER, AND SHRI RAJESH KUMAR , ACCOUNTANT MEMBER . ITA. NO. 744 4 / M UM /20 1 3 (ASSESSMENT YEAR: 2 0 1 0 - 1 1 ) A SSTT. C OMMISSIONER OF I NCOME - T AX , CIRCLE - 3, 2 ND FLOOR, RANI MANSION, MURBAD ROAD, KALYAN (W) - 421301 APPELLANT VS. DOMBIVLI NAGARI SAHAKARI BANK LTD. , P/52, MADHUKUNJ, MIDC, PHASE - II, SONARPADA, DOMBIVLI (EAST) 421 204 RESPONDENT PAN: AAATD3444K / BY APPELLANT : SHRI VIVEK ANAND OJHA , D.R. / BY RESPONDENT : SHRI R. K. MULCHANDANI, A.R. / DATE OF HEARING : 07 . 1 0.2015 / DATE OF PRONOUNCEMENT : 28 . 1 0 .201 5 ORDER PER SHAILENDRA KUMAR YADAV, J . M: THIS APPEAL HAS BEEN FILED BY REVENU E AGAINST THE ORDER OF COMMISSIONER OF INCOME - TAX (APPEALS) - II , THANE , DATED 2 1 . 1 0 . 20 1 3 FOR A.Y. 20 1 0 - 1 1 ON FOLLOWING GROUND S : I T A NO . 744 4 / M UM / 1 3 A.Y. 1 0 - 1 1 [ AC IT VS. DOMBIVLI NAGARI SAHAKARI BANK LTD. ] PAGE 2 1. WHETHER O N THE FACTS & IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE HONBLE CIT(A) ERRED IN DELETING THE ADDITION OF RS.99,45,910/ - BEING AMORTIZATION OF PREMIUM PAID ON PURCHASE OF SECURITIES CLASSIFIED UNDER THE HTM CATEGORY. 2. WHETHER ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE H ONBLE CIT(A) ERRED IN HOLDING THAT AMORTIZATION OF PREMIUM PAID ON PURCHASE OF SECURITIES CLASSIFIED UNDER THE HTM CATEGORY IS AN ASCERTAINED AND DETERMINED LOSS FOR THE BANK AND THE SAME IS REQUIRED TO BE ALLOWED WHILE COMPUTING THE BUSINESS INCOME OF T HE ASSESSEE BANK. 3. WHETHER ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE CIT(A) FAILED TO CONSIDER THE FACT THAT THE ASSESSEE HAD HELD THE SECURITIES AS INVESTMENTS. THEREFORE, WHEN SUCH SECURITIES ARE SOLD AND ENCASHED AT THE TIME OF MATURITY, THE PROFIT/LOSS ARISING THEREON IS TO BE CONSIDERED UNDER THE HEAD CAPITAL GAINS, AND THE AMORTIZATION CLAIMED BY THE ASSESSEE ON INVESTMENTS HELD IN THE PERMANENTS CATEGORY CANNOT BE ALLOWED TO BE DEDUCTED WHILE COMPUTING THE TOTAL INCOM E. 2. ASSESSEE BANK IS ENGAGED IN BUSINESS OF BANKING AS DEFINED U/S.5 OF THE BANKING REGULATION ACT, 1949. DURING YEAR UNDER CONSIDERATION IT HAD CLAIMED DEDUCTION OF RS.1,11,27,736/ - ON ACCOUNT OF AMORTIZATION OF PREMIUM PAID ON GOVERNMENT SECURITIES HELD AS HTM. ASSESSING OFFICER AFTER CONSIDERING THE SUBMISSION OF ASSESSEE OBSERVED THAT ENTIRE INVESTMENT PORTFOLIO OF BANK INCLUDING SLR SECURITIES AND NON - SLR SECURITIES SHOULD BE CLASSIFIED UNDER THREE CATEGORIES VIZ. HELD TO MATURITY, AVAILABLE F OR SALE & HELD FOR TRADING. THE SECURITIES CATEGORIZED AS HELD TO MATURITY (HTM) ARE ACQUIRED WITH INTENTION TO HOLD THEM UPTO MATURITIES WHILE OTHER TWO I T A NO . 744 4 / M UM / 1 3 A.Y. 1 0 - 1 1 [ AC IT VS. DOMBIVLI NAGARI SAHAKARI BANK LTD. ] PAGE 3 SECURITIES ARE ACQUIRED WITH INTENTION TO TRADE BY TAKING ADVANTAGE OF SHORT TERM PRICE/INTEREST R ATE MOVEMENTS. IN VIEW OF THESE FACT, ASSESSING OFFICER WAS OF THE VIEW THAT HTM SECURITIES ARE IN NATURE OF CAPITAL ASSET AND NOT STOCK IN TRADE AND HENCE SHOULD BE VALUED ONLY AT THE COST OF MARKET PRICE, WHICHEVER IS LOWER AND ULTIMATELY, HELD THAT AMO RTIZATION CLAIMED BY ASSESSEE AND INVESTMENT HELD IN PERMANENT CATEGORY CANNOT BE ALLOWED TO BE DEDUCTED WHILE COMPUTING TAXABLE INCOME. 3. MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY, WHEREIN VARIOUS CONTENTIONS WERE RAISED ON BEHALF OF ASS ESSEE AND HAVING CONSIDERED THE SAME, CIT(A) GRANTED RELIEF TO ASSESSEE. SAME HAS BEEN OPPOSED ON BEHALF OF REVENUE , INTER ALIA STATING THAT CIT(A) ERRED IN DELETING THE ADDITION OF RS.99,45,910/ - BEING AMORTIZATION OF PREMIUM PAID ON PURCHASE OF SECURIT IES CLASSIFIED UNDER THE HTM CATEGORY . ACCORDINGLY, ORDER OF CIT(A) BE SET ASIDE AND THAT OF ASSESSING OFFICER BE RESTORED. ON OTHER HAND, LEARNED AUTHORIZED REPRESENTATIVE SUPPORTED THE ORDER OF CIT(A). 4 . AFTER GOING THROUGH RIVAL SUBMISSIONS AND MAT ERIAL ON RECORD, WE FIND THAT AMORTIZATION OF PREMIUM PAID ON HTM SECURITIES HAVE BEEN ALLOWED AS DEDUCTION BY CIT(A) IN EARLIER YEARS IN ASSESSEES OWN CASE FOR A.Y. 2009 - 10. LEARNED AUTHORIZED REPRESENTATIVE POINTED OUT THAT TRIBUNAL HAS UPHELD THE ORDE R OF CIT(A) BY OBSERVING AS UNDER: I T A NO . 744 4 / M UM / 1 3 A.Y. 1 0 - 1 1 [ AC IT VS. DOMBIVLI NAGARI SAHAKARI BANK LTD. ] PAGE 4 2.3 WE HAVE HEAD THE SUBMISSIONS OF THE DR AND HAVE PERUSED THE MATERIAL BEFORE US. WE FIND THAT ASSESSEE BANK IS A COOPERATIVE BANK AND IT HAS TO FOLLOW THE GUIDELINES ISSUED BY THE RBI. IT HAS TO MAINTAIN SLR AND HA S TO INVEST IN SECURITIES AS PER THE DIRECTIONS OF THE FEDERAL BANK. VALUATION OF SECURITIES CLASSIFIED AS HTM HAS TO BE DONE IN A PARTICULAR MANNER. CO - OPERATIVE BANKS, AS COMPARED TO PRIVATE BANKS, FUNCTION DIFFERENTLY. WE FIND THAT AS PER THE RBI GUI DELINES (DATED 16.10.2000) THE INVESTMENT PORTFOLIOS OF THE BANKS ARE REQUIRED TO BE CLASSIFIED UNDER THREE CATEGORIES VIZ. HELD TO MATURITY (HTM), HELD FOR TRADING (HFT) AND AVAILABLE FOR SALE (AFS), THAT INVESTMENTS CLASSIFIED UNDER HTM CATEGORY ARE NOT TO BE TREATED AS MARKED TO MARKET AND ARE TO BE CARRIED AT ACQUISITION COST UNLESS THESE ARE MORE THAN THE FACE VALUE, THAT IN SUCH CASES, THAT PREMIUM HAS TO BE AMORTISED OVER THE PERIOD REMAINING TO MATURITY, THAT THE D EPRECIATION / APPRECIATION IS TO BE AGGREGATED SCRIP - WISE AND ONLY NET DEPRECIATION IS REQUIRED TO BE PROVIDED FOR IN THE ACCOUNTS. WE ALSO FIND THAT CBDT, VIDE ITS CIRCULAR NO.17 DT.26.11.2008 (PARA VII) HAS DEALT THE ISSUE OF HTM (HELD TO MATURITY) CATEGORY SECURITIES IN THE FOLLOWING MANNER: 'AS PER RBI GUIDELINES DATED 16TH OCTOBER, 2000, THE INVESTMENT PORTFOLIO OF THE BANK IS REQUIRED TO BE CLASSIFIED UNDER THREE CATEGORIES VIZ. HELD TO MATURITY (HTM), HELD FOR TRADING (HFT) AND AVAILABLE FOR SALE (AFS). INVESTMENTS CLASSIFIED UNDE R HTM CATEGORY NEED NOT BE MARKED TO MARKET AND RE CARRIED AT ACQUISITION COST UNLESS THESE ARE MORE THAN THE FACE VALUE, IN WHICH CASE THE PREMIUM SHOULD BE AMORTIZED OVER THE PERIOD REMAINING TO MATURITY. IN THE CASE OF HFT AND AFS SECURITIES FORMING STO CK IN TRADE AND 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 LATEST GUIDELINES OF THE RBI MAY BE PREFERRED TO FOR ALLOWING ANY SUCH CLAIMS '. FROM THE ABOVE IT IS CLEAR THAT THE ASSESSEE - BANK WAS FOLLOWING THE GUIDELINES AND INSTRUCTION ISSUED BY THE RBI AND THE TREATMENT GIVEN BY IT IN THE BOOKS OF ACCOUNTS TO THE I T A NO . 744 4 / M UM / 1 3 A.Y. 1 0 - 1 1 [ AC IT VS. DOMBIVLI NAGARI SAHAKARI BANK LTD. ] PAGE 5 SECURITIES WAS ALSO AS PER THE ABOV E REFERRED CIRCULAR OF THE CBDT . CASES REL IED UPON BY THE DR ARE ABOUT PRIVATE BANKS OR INSTITUTIONS. THEREFORE, CONFIRMING THE ORDER OF THE FAA, WE DECIDE EFFECTIVE GROUND OF APPEAL AGAINST THE AO . AS A RESULT, APPEAL FILED BY AO STANDS DISMISSED. FACTS BEING SIMILAR, SO, FOLLOWING SAME REASON ING, WE ARE NOT INCLINED TO INTERFERE IN THE FINDING OF CIT(A) WHO HAS RIGHTLY DELETED THE ADDITION OF RS.99,45,910/ - BEING AMORTIZATION OF PREMIUM PAID ON PURCHASE OF SECURITIES CLASSIFIED UNDER HMT CATEGORY. OUR THIS VIEW IS FORTIFIED BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN CASE OF CIT VS. HDFC BANK LTD. [2014] 89 CCH 0185 (MUM HC) . 5 . AS A RESULT, APPEAL FILED BY REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS THE 28TH DAY OF OCTO BER , 201 5 . SD/ - SD/ - ( RAJESH KUMAR ) ( SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI : DATED 28 / 1 0 /2015 S.K.SINHA / COPY OF ORDER FORWARDED TO: - 1 . / REVENUE 2 . / ASSESSEE 3 . / CONCERNED CIT 4 . - / CIT (A) 5 . , , / DR, ITAT, MUMBAI 6 . / GUARD FILE. BY ORDER / , / ,