JT CIT RG 3, KALYAN V. THE DOMBIVILI NAGRI SAHAKARI BANK LTD, MUMBAI

ITA 7484/MUM/2012

• Counselvise Citation: 748419914 RSA 2012
• Duration Of Justice: 1 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 27-02-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 18-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJEEV JAIN
• Keywords: Capital asset; Business income; Depreciation; Cost of acquisition; Revised return

Judgement Text

, MH MHMH MH INCOME TAX APPELLATE TRIBUNAL,MUMBAI - D BENCH. , LAT; XXZ LAT; XXZ LAT; XXZ LAT; XXZ BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & SANJAY GA RG,JUDICIAL MEMBER /. ITA NO.7484/MUM/2012, ! ! ! ! / ASSESSMENT YEAR-2009-10 JT. CIT RANGE-3, 2 ND FLOOR, RANI MANSION, MURBAD ROAD, KALYAN(W) KALYAN-421301 VS M/S THE DOMBIVILI NAGRI SAHAKARI BANK LTD. P-52, MADHUKUNJ, SONARPADA, MIDC, KALYAN SHILL ROAD, DOMBIVLI, MUMBAI. PAN:AAATD3444K ( '# / APPELLANT) ( $%'# / RESPONDENT) & ' / REVENUE BY : SHRI SANJEEV JAIN () () () () ' ' ' ' / ASSESSEE BY : NONE & && & )* )* )* )* / DATE OF HEARING : 27-02-2014 +,! & )* / DATE OF PRONOUNCEMENT : 12-03-2014 , 1961 & && & 254 )1( )-) )-) )-) )-) . . . . ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM : CHALLENGING THE ORDER DT.24.09.2012 OF THE CIT(A)-I ,THANE,ASSESSING OFFICER (AO) HAS RAISED FOLLOWING GROUNDS OF APPEAL 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.3,98,53,423/- BEING AMORTIZATION OF PREMIUM PAID ON PURCHASE OF SECURITIES CLASSIFIED UNDER THE HIM CAT EGORY. 2.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT AMORTIZATION OF PREMIUM PAID ON PUR CHASE OF SECURITIES CLASSIFIED UNDER THE HTM CATEGORY IS AN ASCERTAINED AND DETERM INED LOSS FOR THE BANK AND THE SAME IS REQUIRED TO BE ALLOWED WHILE COMPUTING THE BUSINESS INCOME OF THE ASSESSEE BANK. 3.ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD.CIT(A) FAILED TO CONSIDER THE FACT THAT THE ASSESSEE HAD HELD THE SE CURITIES AS INVESTMENTS.THEREFORE, WHEN SUCH SECURITIES ARE SOLD AND ENCASHED AT THE T IME 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 COM PUTING THE TOTAL INCOME. 4.THE APPELLANT CRAVES LEAVE TO ADD, AMEND ALTER OR DELETE ANY GROUND OF APPEAL. 2. ASSESSEE,ENGAGED IN THE BUSINESS OF BANKING,FILED I TS RETURN OF INCOME ON 29.09.2009 DECLARING TOTAL INCOME OF RS.5.80CRORES.AO FINALISED THE ASSE SSMENT ORDER U/S.143(3) OF THE ACT,ON 30.11. 2011,DETERMINING THE TOTAL INCOME AT RS.9,40,01,580 /-. 2 ITA NOS. 7484/MUM/2012 M/S THE DOMBIVILI NAGRI SAHAKARI BANK LTD. EFFECTIVE GROUND OF APPEAL IS ABOUT DELETING THE AD DITION OF RS. 3.98 CRORES BEING AMORTISATION OF PREMIUM PAID ON PURCHASE OF SECURITIES .DURING THE ASSESSMENT PROCEEDINGS AO FOUND THAT THE ASSESSEE BANK HAD,IN THE P&L A/C.,CREDITED AN AMOUN T OF RS. 41,17,83,696/- UNDER THE HEAD INTEREST & INCOME ON INVESTMENT EXCLUDING A SUM OF RS.3,98,53,423/-TOWARDS AMORTISATION OF PREMIUM ON SECURITIES UNDER HTM CATEGORY,THAT A DED UCTION OF RS. 3.98 CRORES WAS CLAIMED FOR AMORTIZATION OF PREMIUM ON INVESTMENT IN GOVERNMEN T SECURITIES (HTM),THAT THE ASSESSEE HAD CLAIMED THAT SUCH REDUCTION FROM INCOME ALLOWABLE A S PER ACT IN VIEW OF THE RESERVE BANK OF INDIAS GUIDELINE IN RESPECT OF INVESTMENT PORTFOLI O OF THE BANKS ISSUED,VIDE MASTER CIRCULAR- PRUDENTIAL NORMS FOR CLASSIFICATION,VALUATION AND O PERATION OF INVESTMENT PORTFOLIO BY BANKS- RBI NO.2004-05/51 DBOD NO. BP.BC.L1/2L.04.141/2004-05 D ATED 17-07-2004.AFTER ANALYSING THE CIRCULAR,AO HELD THAT THE SECURITIES AVAILABLE FOR SALE AND SECURITIES HELD FOR TRADING WERE IN THE NATURE OF STOCK-IN-TRADE WHILE THE SECURITIES HEL D TO MATURITY WERE IN THE NATURE OF CAPITAL ASSETS,THAT FOR THE PURPOSE OF INCOME-TAX, FOR THEI R VALUATION AT THE YEAR END, THE AFS AND HFT SECURITIES WERE TO BE VALUED AT COST OR MARKET WHIC HEVER WAS LESS PRINCIPLE, THAT THE HTM SECURITIES HAD TO BE VALUED AT COST ONLY AND NOT AT COST OR MARKET WHICHEVER IS LESS OR ANY OTHER PRINCIPLE,THAT THE ASSESSEE BANK ITSELF HAD ADDED B ACK THE SAID AMOUNT IN THE ORIGINAL COMPUTATION OF INCOME,THAT IT FILED A REVISED RETURN WHEREIN TH E AMOUNT OF RS.3,98,53,423/-WAS NOT CONSIDERED WHICH WAS AN AFTERTHOUGHT ON THE PART OF THE ASSESSEE,THAT THE ISSUE FOR CONSIDE RATION RELATED TO ALLOWANCE OF PART OF PREMIUM PAID ON INVESTMENTS KE PT IN PERMANENT CATEGORY,THAT THE INVESTMENTS WERE HELD TILL THE MATURITY DATE,THAT S AME WERE NOT HELD BY THE BANK AS STOCK-IN TRADE WHICH SHOULD BE VALUED AS PER MARKET PRICE OR COST PRICE,THAT THE ASSESSEE HAD VALUED THE PERMANENT INVESTMENTS AT A LOWER PRICE AS PER GUIDE LINES ISSUED BY RBI,THAT THE INVESTMENT HELD NOT AS STOCK IN TRADE COULD NOT BE VALUED AT THE YE AR-END FOR THE PURPOSES OF INCOME TAX.REFERRING TO THE DECISION OF HONBLE MADRAS HIGH COURT DELIVE RED IN THE CASE OF T.N. POWER FINANCIAL & INFRASTRUCTURE DEVELOPMENT CORPORATION LTD.,HE HELD THAT RBI GUIDELINES COULD NOT OVERRIDE STATUTORY PROVISIONS OF THE ACT,THAT VALUATION OF S TOCKS AND SECURITIES HELD AS STOCK IN TRADE HAD TO BE DONE ON MARKET PRICE OR COST PRICE WHICHEVER WAS LOWER,THAT WHERE STOCKS & SECURITIES WERE HELD AS INVESTMENTS THE VALUATION COULD NOT BE MADE FOR THE PURPOSE OF INCOME TAX AS PER RBI GUIDELINES,THAT AMORTISATION OF PREMIUM PAID COULD NOT BE TREATED AN ALLOWABLE.AS A RESULT,THE AMORTISATION OF PREMIUM OF RS.3,98,53,423/- WAS ADD ED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 2.1. AGAINST THE ORDER OF THE AO ASSESSEE PREFERRED AN A PPEAL BEFORE THE FIRST APPEAL AUTHORITY (FAA).IT WAS SUBMITTED BEFORE HIM THAT THE ASSESSEE HAD PURCHASED GOVERNMENT SECURITIES UNDER THE HEAD HTM WHICH WERE STOCK IN TRADE,THAT THE INT EREST INCOME EARNED FROM THE INVESTMENT UNDER ALL THE CATEGORIES HAD BEEN ACCOUNTED FOR AS BUSINESS INCOME AND HAD BEEN OFFERED FOR TAXATION, THAT THE PROFIT AND LOSS ON THE SALE OF S UCH SECURITIES WAS ACCOUNTED FOR AS BUSINESS INCOME AND HAD BEEN CREDITED OR DEBITED TO THE P&L ACCOUNT OF THE BANK.AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDE R HE HELD THAT SIMILAR ISSUE WAS ADJUDICATED BY HIS PREDECESSOR FOR IMMEDIATE PRECEDING AY.,THAT AP PEAL FILED BY THE ASSESSEE WAS DECIDED IN FAVOUR OF THE ASSESSEE.HE FURTHER HELD THAT THE AS SESSEE HAD TO MAINTAIN THE STATUTORY LIQUIDITY RATIO (SLR) AS PER THE RBI GUIDELINES THAT IT HAD TO INVEST IN GOVT. SECURITIES, WHICH WERE TRADED IN THE OPEN MARKET,THAT SAID INVESTMENTS WERE LONG TERM AND THEREFORE HAD BEEN CLASSIFIED AS HTM IN ACCORDANCE WITH THE RBI GUIDELINES,THAT PREMIUM PAID ON THE INVESTMENTS IN THOSE SECURITIES WAS NOTHING BUT AN EXPENDITURE,WHICH HAD TO BE NECE SSARILY INCURRED IN ORDER TO FOLLOW THE GUIDELINES OF THE RBI, THAT THE AMORTISATION OF PRE MIUM PAID ON PURCHASE OF SECURITIES CLASSIFIED UNDER THE HTM CATEGORY WAS AN ASCERTAINED AND DETERMINED INCOME / LOSS TO THE BANK, THAT IT HAD TO BE ALLOWED WHILE COMPUTING THE BUSINESS INCOME O F THE ASSESSEE BANK.FINALLY,HE DELETED THE ADDITION MADE BY THE AO. 2.2. BEFORE US,DEPARTMENTAL REPRESENTATIVE (DR) SUBMITTE D THAT AMORTIZATION OF PREMIUM PAID WAS NOT ALLOWABLE EXPENDITURE.HE RELIED UPON THE DE CISION OF BANQUE INDOSUEZ(28TAXMANN.COM. 121). 3 ITA NOS. 7484/MUM/2012 M/S THE DOMBIVILI NAGRI SAHAKARI BANK LTD. 2.3. WE HAVE HEARD THE SUBMISSIONS OF THE DR AND HAVE PE RUSED 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 HAS 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 DIFFERE NTLY.WE FIND THAT AS PER THE RBI GUIDELINES (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 TR ADING (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 RE MAINING TO MATURITY,THAT THE DEPRECIATION/ APPRECIATION IS TO BE AGGREGATED SCRIP-WISE AND ONL Y NET DEPRECIATION IS REQUIRED TO BE PROVIDED FOR IN THE ACCOUNTS.WE ALSO FIND THAT CBDT,VIDE ITS CIR CULAR NO.17 DT. 26-11-2008 (PARA VII) HAS DEALT THE ISSUE OF HTM (HELD TO MATURITY) CATEGORY SECURI TIES IN THE FOLLOWING MANNER: AS PER RBI GUIDELINES DATED 16 TH OCTOBER, 2000, THE INVESTMENT PORTFOLIO OF THE BAN K IS REQUIRED TO BE CLASSIFIED UNDER THREE CATEGORIES VIZ. HELD T O MATURITY (HTM), HELD FOR TRADING (HFT) AND AVAILABLE FOR SALE (AFS).INVESTMENTS CLASSIFIED UND ER 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 REMAINI NG 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 REQU IRED TO BE PROVIDED FOR IN THE ACCOUNTS.THE LATEST GUIDELINES OF THE RBI MAY BE REFERRED TO FOR ALLOWI NG ANY SUCH CLAIMS. FROM THE ABOVE IT IS CLEAR THAT THE ASSESSEE-BANK W AS FOLLOWING THE GUIDELINES AND INSTRUCTION ISSUED BY THE RBI AND THE TREATMENT GIVEN BY IT IN THE BOOKS OF ACCOUNTS TO THE SECURITIES WAS ALSO AS PER THE ABOVE REFERRED CIRCULAR OF THE CBDT.CASE S RELIED UPON BY THE DR ARE ABOUT PRIVATE BANKS OR INSTITUTIONS.THEREFORE,CONFIRMING THE ORDE R OF THE FAA,WE DECIDE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. AS A RESULT ,APPEAL FILED BY THE AO STANDS DISMISSED. 0)1 () V VV VF/KDJH F/KDJH F/KDJH F/KDJH 2 3 UK UKUK UK 4 & ) 56. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH MARCH, 2014 . . & +,! 8 9 12 EKPZ EKPZ EKPZ EKPZ , 201 4 , & - : SD/- SD/- ( LAT; XXZ LAT; XXZ LAT; XXZ LAT; XXZ / SANJAY GARD) ( / RAJENDRA) / JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, 9 /DATE: 12.03.2014. SK . . . . & && & $); $); $); $); <;!) <;!) <;!) <;!) / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / '# 2. RESPONDENT / $%'# 3. THE CONCERNED CIT(A)/ = > , 4. THE CONCERNED CIT / = > 5. DR D BENCH, ITAT, MUMBAI / ;?- $) M MM MH HH H , . . . 6. GUARD FILE/ - 0 %;) %;) %;) %;) $) $)$) $) //TRUE COPY// . / BY ORDER, @ / 5 DY./ASST. REGISTRAR , /ITAT, MUMBAI