ACIT, Jaipur V. STATE BANK OF BIKANER & JAIPUR, Jaipur

ITA 755/JPR/2003

• Counselvise Citation: 75523114 RSA 2003
• Duration Of Justice: 10 year(s) 8 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 1997-1998
• Appeal Filed On: 07-11-2003
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K KHANDELWAL
• Keywords: Depreciation
• Section: 37(1)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH, JAIPUR (BEFORE SHRI R.P. TOLANI AND SHRI T.R. ME ENA) ITA NOS. 755, 756, 757 & 758/JP/2003 ASSESSMENT YEARS: 1997-98, 1998-99, 1999-2000 & 2 000-01 THE ACIT VS. M/S. STATE BANK OF BIKANER & JAIPU R CIRCLE- 6 TILAK MARG, C-SCHEME JAIPUR JAIPUR (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P.C. PARWAL DEPARTMENT BY: SHRI A.K. KHANDELWAL DATE OF HEARING: 16-07-2014 DATE OF PRONOUNCEMENT: 25-07-2014 ORDER PER R.P. TOLANI, JM THESE ARE THE FOUR APPEALS FILED BY THE REVENUE A GAINST FOUR DIFFERENT ORDERS OF THE LD. CIT(A)-II, JAIPUR DATED 28-08-200 3 AND 29-08-2003 FOR THE ASSESSMENT YEARS 1997-98, 1998-99, 1999-2000 AND 2 0001-01 RESPECTIVELY. 2.1 THE GROUNDS RAISED BY THE ASSESSEE IN ALL THE A BOVE APPEALS ARE COMMON. HOWEVER, FOR THE SAKE OF CONVENIENCE, THE G ROUNDS RAISED IN THE ABOVE APPEALS ARE SUMMARIZED AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A)-II, JAIPUR HAS ERRED IN :- (I) DELETING THE ADDITION OF RS. 40,39,47,845/- FOR A.Y. 1997-98, RS. 52,28,27,254/- FOR A.Y. 1998-99, RS. 2 43,28,21,506/- FOR A.Y. 1999-2000 AND RS. 19,24,87, 907/- FOR A.Y. 2000-01 RESPECTIVELY ON ACCOUNT OF VALUATION OF CLOSING STOCK OF SECURITIES. (II) DELETING THE DISALLOWANCE OF RS. 1,21,131/- FO R A.Y. 1997-98, RS. 1,12,227/- FOR A.Y. 1998-99, RS. 2,51,819/- FOR A.Y. 1999-2000 AND RS.87,740/- FOR A.Y. 2000-01 RESPECTIVELY MADE ON ACCOUNT OF EXPENSES CLAIMED T O HAVE BEEN PAID TO VARIOUS CLUBS. 3.1 APROPOS, GROUND NO. 1 THE LD. DR RELIED ON THE ORDER OF THE AO. 3.2 THE LD. COUNSEL FOR THE ASSESSEE ON THE HAND CO NTENDS THAT THE ASSESSEE APART OF FROM THE BANKING BUSINESS, ALSO P URCHASE AND SALE THE SECURITIES WHICH ARE ITS STOCK IN TRADE. THE STOCK OF SHARES AND SECURITIES ARE VALUED AT COST OR MARKET VALUE WHICHEVER IS LOWER. TILL ASSESSMENT YEAR 1992-93 THE METHOD OF VALUATION OF CLOSING STOCK AT COST OR MARKET VALUE WHICHEVER IS LOWER WAS ON GLOBAL BASIS. ON THIS BA SIS THE TOTAL COST OF STOCK OF ALL SHARES/ SECURITIES IS COMPARED WITH TOTAL OF MARKET VALUE OF THESE SHARES AND SECURITIES. IN CASE SUCH VALUE IS LOWER THAN THE ACTUAL COST OF THE STOCK OF SHARES AND SECURITIES, THE SAME IS CLAIMED AS DEDUCTION BY WAY OF PROVISION FOR DEPRECIATION IN THE VALUE OF SHARES A ND SECURITIES AND IF THERE IS ANY APPRECIATION, THE SAME IS IGNORED. FROM AY 1993 -94 THE METHOD OF VALUATION OF CLOSING STOCK AT COST OR MARKET VALUE WHICHEVER IS LOWER ON GLOBAL BASIS WAS CHANGED TO SCRIPWISE VALUATION. IN SCRIPWISE VALUATION THE COST OF EACH SCRIP IS COMPARED WITH ITS MARKET VALU E AND THE LOWER OF TWO IS 3 TAKEN AS THE VALUE OF CLOSING STOCK AT THE YEAR-END BY WAY OF PROVISION FOR DEPRECIATION IN THE VALUATION OF STOCK. THIS METHOD HAS BEEN CONSISTENTLY FOLLOWED FROM AY 1993-94 ONWARDS. IN AY 1993-94 TO AY 1996-97 THE DEPARTMENT HAS NOT ACCEPTED THE CHANGES METHOD OF V ALUATION AND MADE THE ADDITION BY ADOPTING THE GLOBAL BASIS FOR VALUATION . HOWEVER IN APPEAL, THE LD CIT(A) ACCEPTED THE CHANGED METHOD OF VALUATION AND DELETED THE ADDITION. AGAINST THIS DELETION, THE DEPARTMENT SOU GHT PERMISSION FROM COD TO PURSUE THIS ISSUE BEFORE THE HONBLE ITAT. THIS WAS NOT ALLOWED AND CONSEQUENTLY ITAT DISMISSED THE APPEAL FILED BY TH E DEPARTMENT FOR WANT OF THE COD PERMISSION. IN THE YEAR UNDER CONSIDERATIO N, THE AO BY FOLLOWING THE GLOBAL BASIS OF VALUATION AS AGAINST THE SCRIP- WISE METHOD OF VALUATION OF SECURITIES MADE AN ADDITION OF RS.40,39,47,845/- A S PER THE DISCUSSION ON PAGE 10-12 OF THE ORDER. IN MAKING SUCH ADDITION HE ADOPTED THE VALUE OF OPENING STOCK AS PER THE ASSESSEE WHICH WAS ON SCRI P BASIS, INSTEAD OF SUBSTITUTING IT BY THE GLOBAL BASIS. 3.3 THE LD. CIT(A) DELETED THE ADDITION BY FOLLOWIN G OBSERVATIONS:- I HAVE GONE THROUGH THE ORDER, ARGUMENTS AND WRITTE N SUBMISSION OF THE APPELLANTS A.R. THE MATTER IS FU LLY COVERED BY THE APPEAL ORDERS OF LD. CIT(A) FOR PRECEDING FO UR YEARS I.E. 1993-94, 1994-95, 1995-96, AND 1996-97. I HAVE ALSO CONSIDERED THE MATER IN MY APPELLATE ORDERS FOR THE ASSESSMENT 4 YEARS 2001-02 AND 2002-03. THE ISSUE IS EXACTLY COV ERED BY THE APPEAL OF PRECEDING FOUR YEARS. I FIND NO REASON TO DEVIATE FROM THE EARLIER DECISIONS. THE VALUATION HAS BEEN DONE ON THE BASIS OF RBI GUIDELINES AND AS PER METHOD REGULARLY FOLLO WED. ACCORDINGLY, THIS GROUND OF APPEAL IS ACCEPTABLE. T HEREFORE, ADDITION MADE ON THIS ACCOUNT IS DELETED. THE APPEL LANT WILL GET RELIEF OF RS. 40,39,47,845/- IN ASSESSMENT YEAR 199 7-98 (FIGURE OF RS. 41,31,26,681 WRONGLY QUOTED BY BANK) 3.4 THE LD. COUNSEL FOR THE ASSESSEE FURTHER CONTEN DS THAT THE METHOD OF VALUATION FOLLOWED BY THE ASSESSEE FOR VALUATION OF STOCK AND SECURITIES ON SCRIPWISE BASIS AS AGAINST THE GLOBAL BASIS ADOPTED BY THE AO HAS BEEN ACCEPTED IN APPEAL FOR ASSESSMENT YEAR 1993-94 WHEN THE CHANGE WAS MADE FOR THE FIRST TIME. FOR THIS YEAR AND FOR THE SUBSE QUENT YEARS TILL AY 1996-97 THE DEPARTMENTAL APPEAL ON THIS ISSUE HAS BEEN DISM ISSED BY THE ITAT. THUS ONCE THE METHOD OF VALUATION AS ADOPTED BY THE ASSE SSEE HAS BEEN CONSISTENTLY FOLLOWED AND ACCEPTED IN EARLIER YEARS , THE ADDITION MADE BY THE AO BY FOLLOWING THE GLOBAL METHOD OF VALUATION IS R IGHTLY DELETED BY LD CIT(A). THE LD. AR RELIED ON THE ORDER OF THE HON'B LE UTTARAKHAND HIGH COURT IN THE CASE OF CIT VS. NAINITAL BANK LTD., 30 9 ITR 335 IN WHICH IT HAS BEEN HELD THAT RBI GUIDELINES IS BINDING ON THE BAN K AND THEREFORE, THE VALUATION OF INVESTMENT ON THE BASIS OF RBI GUIDELI NES IS JUSTIFIED. THE LD. 5 AR FURTHER SUBMITTED THAT THE AO IN EACH YEAR UNDER APPEAL HAS ACCEPTED THE VALUATION OF THE OPENING STOCK OF SHARES AND SECURI TIES ON SCRIPWISE BASIS BUT HAS CHANGED THE VALUATION OF CLOSING STOCK OF SHARE S AND SECURITIES ON GLOBAL BASIS. THIS HAS RESULTED IN DOUBLE ADDITION. IN FAC T THE ASSESSEE DEBIT THE DEPRECIATION IN THE VALUATION OF STOCK OF SHARES AN D SECURITIES IN THE PROFIT AND LOSS ACCOUNT BY MAKING PROVISION FOR SUCH AMOUN T. IN AY 1997-98, ADDITIONAL PROVISION OF RS.12,56,000/- WAS MADE. IN SUBSEQUENT YEAR PART OF THE PROVISION SO MADE WAS WITHDRAWN AND INCLUDED IN THE INCOME AS PER THE TABLE GIVEN IN PARA 5.2 PAGE 5 OF THE ORDER OF CIT( A). THEREFORE ALSO THE ADDITION MADE BY THE AO HAS RESULTED INTO MULTIPLE ADDITION IN DIFFERENT YEARS. 4.1 AS REGARDS THE GROUND NO. 2, THE LD. DR RELIED ON THE ORDER OF THE AO. 4.2 APROPOS THE ISSUE ABOUT CLUB EXPENSES, LD. COUN SEL FOR ASSESSEE CONTENDS THAT AS A POLICY THE BANK PERMITS ITS MANG ER TO BECOME THE MEMBER OF VARIOUS CLUBS LIKE LION CLUB, ROTARY CLUB, BANKE RS CLUB ETC. WHICH HELPS THE BANK IN PROMOTING ITS BAKING BUSINESS. SIMILAR ADDITIONS HAVE BEEN DELETED BY THE LD. CIT(A) IN PRECEDING YEARS AND TH E DEPARTMENTAL APPEALS HAVE BEEN DISMISSED FOR WANT OF COD PERMISSION. REL IANCE IS PLACED IN FOLLOWING JUDGEMENTS. 6 1. LLOYD STEEL INDUSTRIES LTD. VS. ACIT 20 SOT 40 (MUM .) 2. GUJARAT STATE EXPORT CORPORATION LTD. VS. ACIT, 209 ITR 649 (GU.) WHEREIN IT HAS BEEN HELD THAT CLUB MEMBERSHIP FEE A ND SUBSCRIPTION ENABLES THE ASSESSEE TO IMPROVE ITS BUSINESS AND IT IS ALLO WABLE U/S 37(1) OF THE ACT. 5.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ASSESSEE HAS FILED THE REL EVANT RBI CIRCULAR DBOD NO.BC.129/21.04.043/92 DATED 27-04-1992 ADDRESSED T O ALL SCHEDULED COMMERCIAL BANKS AND IT HAS TO BE IMPLEMENTED FROM ACCOUNTING YEAR 1992- 93 ONWARDS. THE RELEVANT PARAGRAPH REGARDING VALUAT ION OF INVESTMENT IS AS UNDER:- 3. INVESTMENT STANDARDS FOR INVESTMENTS THE INVESTMENT PORTFOLIO OF A BANK WOULD NORMALLY CONSIST OF BOTH APPROVED SECURITIES (PR EDOMINANTLY GOVT. SECURITIES) AND OTHERS (SHARES, DEBENTURES AND BONDS), IT HAS BEEN DECIDED THAT THE INVESTMENTS IN APPROVED S ECURITY BIFURCATED INTO PERMANENT AND CURRENT INVESTMENT S. PERMANENT INVESTMENTS ARE THOSE WHICH BANKS INTEND TO HOLD TILL MATURITY AND CURRENT INVESTMENTS ARE THOSE WHICH BA NKS INTEND TO DEAL IN I.E. BUY AND SELL ON A DAY-TO-DAY BASIS. ON THIS BASIS, BANKS SHOULD CLASSIFY THE EXISTING INVESTMENTS IN A PPROVED SECURITIES INTO THE AFORESAID TWO CATEGORIES. IT HA S BEEN DECIDED THAT TO BEGIN WITH BANKS SHOULD KEEP NOT MORE THAN 70 PER CENT 7 OF THEIR INVESTMENTS IN THE PERMANENT CATEGORY THE ACCOUNTING YEAR 1992-93. THIS RATIO WILL HAVE TO BE BROUGHT DO WN TO 50 PER CENT IN DUE COURSE. ALL SUBSEQUENT PURCHASES WILL A LSO BE REQUIRED TO BE CLASSIFIED SUITABLY. WE HAVE NO OBJE CTION TO BANKS INTER-CHANGING THE INVESTMENTS FROM ONE CATEG ORY TO ANOTHER WITH THE PRIOR AUTHORIZATION OF THE BOARD O F DIRECTORS, IN WHICH CASE DEPRECIATION, IF ANY, WILL HAVE TO BE FULLY PROVIDED FOR. WHILE THE DEPRECIATION IN RESPECT OF PERMANENT INVESTMENTS IS NOT LIKELY TO AFFECT THEIR REALIZABL E VALUE AND THEREFORE, NEED NOT BE PROVIDED FOR DEPRECIATION IN THE CURRENT INVESTMENTS SHOULD BE FULLY PROVIDED FOR. PERMANENT INVESTMENTS COULD BE VALUED AT COST UNLESS IT IS MO RE THAN THE FACE VALUE, IN WHICH CASE THE PREMIUM HAS TO BE AMO RTISED OVER THE PERIOD REMAINING FOR MATURITY OF THE SECURITY. BANKS ARE NOT EXPECTED TO SELL SECURITIES IN THE PERMANENT CATEGO RY FREELY, BUT IT IF THEY DO SO LOSS ON SUCH TRANSACTIONS IN SECUR ITIES IN THIS CATEGORY HAS TO BE WRITTEN OFF. BESIDES, ANY GAIN S HOULD BE TAKEN TO CAPITAL RESERVE ACCOUNT. IT HAS NOT BEEN DISPUTED BY THE DEPARTMENT THAT CHA NGE IN METHOD OF VALUATION OF SECURITIES WAS IN ACCORDANCE WITH RBI DIRECTIONS AND NON- ADHERENCE THERETO BY SCHEDULED BANKS WILL HAVE ATTR ACTED ADVERSITY WITH RBI GUIDELINES. THE SCHEDULED BANKS CANNOT REFUSE T O IMPLEMENT SUCH DIRECTIONS. THEREFORE, THE CHANGE IN PATTERN OF VAL UATION IN RESPECT OF 8 IMPUGNED SECURITIES IS BONA FIDE. THE HON'BLE UTTAR AKHAND HIGH COURT IN THE CASE OF CIT VS. NAINITAL BANK LTD. , 309 ITR 335 (U TTRAKHAND) HAS UPHELD THE JUDGMENT OF TRIBUNAL HOLDING THAT THE ASSESSEE BEING A BANKING COMPANY, THE RBI GUIDELINES WERE BINDING ON IT AND THEREFORE, VALUATION OF INVESTMENT ON THE BASIS OF RBI GUIDELINES WAS JUST IFIED. WHILE HOLDING SO, THE ITAT DELHI BENCH JUDGMENT IN THE CASE OF TEDCO INVESTMENT & FINANCIAL SERVICES (P) LTD. VS. DCIT 87 (2003) ITD 298 (DEL.) WAS TAKEN INTO CONSIDERATION AND IT WAS AFFIRMED BY THE HON'B LE UTTRAKHAND HIGH COURT. IN VIEW OF THE ABOVE, WE FIND NO INFIRMITY I N THE ORDER OF THE LD. CIT(A). THE ASSESSEE'S PATTERN OF VALUATION OF SECU RITIES BEING IN ACCORDANCE WITH RBI DIRECTIONS CANNOT BE INTERFERED WITH. OUR VIEW IS FORTIFIED BY THE JUDGEMENT OF HON'BLE UTTARAKHAND HIGH COURT IN THE CASE OF CIT VS. NAINITAL BANK LTD. (SUPRA). THUS THE ORDER OF THE L D. CIT(A) ON THE ISSUE OF SECURITIES IS UPHELD. HENCE, THE GROUND NO. 1 OF TH E REVENUE IN ALL THE ASSESSMENT YEARS RAISED ABOVE ARE DISMISSED. 6.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. APROPOS CLUB FEE EXPENSES, VAR IOUS JUDICIAL AUTHORITIES IN THE CASE OF LLOY STEEL INDUSTRIES LTD. VS. ACIT AND GUJARAT STATE EXPORT CORPORATION LTD. VS. CIT (SUPRA) AND OTIS ELEVATORS CO. LTD. VS. CIT (1992) 195 ITR 682 (BOM.) HAVE ALSO LAID DOWN THE SAME VIE W I.E. PAYMENT OF CLUB 9 FEES MADE WITH A VIEW TO ENABLE THE ASSESSEE TO IMP ROVE ITS BUSINESS RELATION AND PROSPECTUS IS ALLOWABLE EXPENDITURE. THUS IN VI EW OF THE ABOVE JUDGEMENTS, WE UPHOLD THE ORDER OF THE LD. CIT(A). HENCE, GROUND NO. 2 OF THE REVENUE IN ALL THE ASSESSMENT YEARS RAISED ABOV E ARE DISMISSED. 7.0 IN THE RESULT, THE APPEALS OF THE REVENUE ARE DISMISSED. THE ORDER PRONOUNCED IN OPEN COURT ON 25H JULY , 2014. SD/- SD/- (T.R. MEENA) (R.P. TOLANI) ACCOUNTANT MEMBER JUDICIAL MEMBER JAIPUR DATED: 25H JULY, 2014 *MISHRA COPY FORWARDED TO:- 1. THE ACIT, CIRCLE- 6,JAIPUR 2. M/S. STATE BANK OF BIKANER & JAIPUR, JAIPUR 3. THE LD. CIT 4. THE LD. CIT(A), JAIPUR BY ORDER 5..THE LD. DR 6.THE GUARD FILE (ITA NO. 755/JP/2003) AR ITAT, JAIPUR 10