The Vishweshwar Sahakari Bank Ltd., Pune V. Assistant Commissioner of Income-tax,

ITA 782/PUN/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 4930 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 25-05-2018
• Assessment Year: 2011-2012
• Appeal Filed On: 21-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HEMANT LEUVA
• Keywords: Revised return

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER . / ITA NOS.782 & 783/PUN/16 / ASSESSMENT YEARS : 2011-12 & 2012-13 THE VISHWESHWAR SAHAKARI BANK LTD., 471/472, MARKET YARD, GULTEKDI, PUNE 411 037 PAN : AAAAT0755G VS. ACIT, CIRCLE-7, PUNE APPELLANT RESPONDENT / ORDER PER R.S.SYAL, VP : THESE TWO APPEALS BY THE ASSESSEE RELATE TO THE ASSESSMENT YEARS 2011-12 AND 2012-13. SINCE COMMON ISS UE IS RAISED IN BOTH THE APPEALS, WE ARE, THEREFORE, PROCEED ING TO DISPOSE THEM OFF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. A.Y. 2011-12 : 2. GROUND NO.1, BEING THE ONLY EFFECTIVE GROUND, FOR TH E A.Y. 20-11-12 READS AS UNDER : APPELLANT BY SHRI SUNIL GANOO RESPONDENT BY SHRI HEMANT LEUVA DATE OF HEARING 11-02-2019 DATE OF PRONOUNCEMENT 12-02-2019 ITA NOS782 & 783/PUN/2016 THE VISHWESHWAR SAHAKARI BANK LTD., 2 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS GROSSLY ERRED IN CONFIRMING THE DISALLOWANCE OF RS.97,57,794.00 MADE BY THE LEARNED ASSESSING OFFICER ON ACCOUNT OF LOSS ON VALUATION OF SECURITIES. THE SAID DISALLOWANCE BEING BAD IN LAW, PATENTLY ILLEGAL, ARBITRARY, PERVERSE AND DEVOID OF MERITS THE SAME MAY PLEASE BE DELETED AND THE CLAIM OF THE APPELLANT BANK MAY PLEASE BE ACCEPTED. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSE E FILED ITS RETURN DECLARING TOTAL INCOME OF RS.14.68 CRORE AND ODD WHICH WAS SUBSEQUENTLY REVISED TO NIL INCOME. THE ASSESSING OFFICER (AO) OBSERVED THAT THE ASSESSEE HAD M ADE ADJUSTMENT OF RS.97,57,794/- IN THE REVISED RETURN ON AC COUNT OF VALUATION OF SECURITIES. IT WAS NOTICED BY THE AO THAT THE LOSS SO CLAIMED WAS NOT ACCOUNTED FOR IN THE BOOKS OF ACC OUNT. SINCE THE ASSESSEE ADOPTED A DIFFERENT METHOD OF VALUATION O F SECURITIES FOR INCOME-TAX PURPOSES AS WELL AS FOR DECLARING IN THE FINAL ACCOUNTS, THE AO HELD THAT SUCH A SYSTEM, RESULTING INTO SHOWING OF SUCH A LOSS, WAS IRREGULAR AND HENCE NOT PERMISSIBLE. ON BEING CALLED UPON TO EXPLAIN THE REASONS FO R SUCH A CHANGE IN THE METHOD OF VALUATION OF SECURITIES, THE ASSESSEE SUBMITTED THAT A CHANGE WAS EFFECTED IN THE METHOD OF VALUATION OF SECURITIES DURING THE YEAR AND IT WAS CONSISTENTLY FOLLOWED THEREAFTER. IN SUPPORT OF ITS CONTENTION, THE ASSESS EE RELIED ON CERTAIN DECISIONS. NOT CONVINCED, THE AO MADE AN ITA NOS782 & 783/PUN/2016 THE VISHWESHWAR SAHAKARI BANK LTD., 3 ADDITION OF RS.97,57,794/- IN THE COMPUTATION OF TOTAL INCOME WITH THE REMARKS ADJUSTMENT ON VALUATION. NO RELIEF WAS ALLOWED IN THE FIRST APPEAL, AGAINST WHICH THE ASSESSEE HAS APPROACHED THE TRIBUNAL. 4. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THE FIRST OBJECTION BY THE AO WAS THAT THE ASSESSEE COULD NOT HAVE CLAIMED DEDUCTION DE HORS ROUTING IT THROUGH THE BOOKS OF ACCOUNT AND THE RESULTANT PROFIT AND LOSS ACCOUNT. IN OUR CONSIDERED OPINION, THERE IS NO MERIT IN THE VIEW POINT OF THE DEPARTMENT IN VIEW OF THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF KEDARNATH JUTE MANUFACTURING COMPANY VS. CIT (1971) 82 ITR 363(SC) . IN THAT CASE, SOME LIABILITY ON ACCOUNT OF SALES TAX AROSE WHIC H WAS NOT ALLOWED AS DEDUCTION BY THE AO ON THE GROUND THAT THE ASSESSEE HAD DENIED ITS LIABILITY TO PAY THE AMOUNT AND HAD NOT MADE PROVISION FOR SUCH AN AMOUNT IN ITS BOOKS OF ACCOUNT. THIS VIEW CAME TO BE ECHOED BY THE HONBLE HIGH COURT. WHEN THE MATTER CAME BEFORE THE HONBLE SUPREME COURT, THEIR LORDSHIPS OBSERVED THAT IF AN ASSESSEE UNDER SOME MISAPPREHENSION OR MISTAKE FAILS TO MAKE AN ENTRY IN THE BOOKS OF ACCOUNT AND ALTHOUGH, UNDER THE LAW, A DEDUCTION ITA NOS782 & 783/PUN/2016 THE VISHWESHWAR SAHAKARI BANK LTD., 4 MUST BE ALLOWED BY THE ITO, THE ASSESSEE WILL NOT BE DEBARR ED FROM SUCH DEDUCTION. IT WAS FURTHER HELD THAT WHETHER THE ASSESSEE IS ENTITLED TO A PARTICULAR DEDUCTION OR NOT WILL DEPEND ON THE PROVISION OF LAW RELATING THERETO AND NOT ON THE VIEW WHICH THE ASSESSEE MIGHT TAKE OF HIS RIGHTS NOR CAN THE EXISTENCE OR ABSENCE OF ENTRIES IN THE BOOKS OF ACCOUNT BE DECISIVE OR CONCLUSIVE IN THE MATTER . IT IS, THEREFORE, PALPABLE FROM THE RATIO DECIDENDI LAID DOWN IN THIS CASE THAT RECORDING OR NOT RECORDING OF ANY TRANSACTION IN THE BOOKS OF ACCO UNT CANNOT BE A DECISIVE TEST FOR ALLOWING OR NOT ALLOWING A DEDUCTION. IF AN ASSESSEE IS OTHERWISE ENTITLED THE DEDUCTION, THE SAME HAS TO BE ALLOWED, SUBJECT TO CONTRARY PROVISIONS, IF ANY, EVEN IF IT WAS NOT PROPERLY REFLECTED IN THE BOOKS OF ACCOUNT. WE, THEREFORE, DO NOT COUNTENANCE THE VIEW TAK EN BY THE AUTHORITIES BELOW ON THIS SCORE. 5. HAVING CROSSED THIS HURDLE, THE NEXT QUESTION IS WHETHER THE ASSESSEE IS ENTITLED, AS PER LAW, TO CLAIM DEDUCTION BY VALUING ITS SECURITIES AT COST OR MARKET PRICE, WHICHEVER IS LESS. FACTUAL MATRIX IS THAT THE ASSESSEE ORIGINALLY VALUED ITS SECURITIES AS PER THE METHOD SUGGESTED BY THE RBI. HOWEV ER, LATER ON, SUCH VALUATION WAS REVISED TO BE IN ACCORDANCE WITH ITA NOS782 & 783/PUN/2016 THE VISHWESHWAR SAHAKARI BANK LTD., 5 THE METHOD : COST OR MARKET PRICE, WHICHEVER IS LESS. IN THE CASE OF A BANK, SECURITIES OF THE NATURE AS HELD BY THE AS SESSEE IN THE EXTANT CASE ARE IN THE NATURE OF STOCK IN TRADE. IT IS AN ESTABLISHED PRINCIPLE OF LAW THAT STOCK CAN BE LAWFULLY VALUED UNDER THE METHOD: COST OR MARKET PRICE, WHICHEVER IS LESS . THE HONBLE SUPREME COURT IN CHAINRUP SAMPATRAM VS. CIT (1953) 24 ITR 481 (SC) HAS LAID DOWN THIS PRINCIPLE WHICH HAS BEEN SCRUPULOUSLY FOLLOWED IN NUMEROUS JUDGMENTS. IN VIEW OF THE ABOVE RATIO FLOWING FROM CHAINRUP SAMPATRAM (SUPRA) , WE HOLD THAT THE ASSESSEE WAS ENTITLED TO VALUE ITS SECURITIES UNDER THE METHOD : COST OR MARKET PRICE, WHICHEVER IS LESS . IT IS TRITE LAW THAT IF A METHOD OF VALUATION HAS BEEN CHANGED FROM ONE RECOGNIZED METHOD TO ANOTHER RECOGNIZED METHOD, THEN SUCH A CHANGE CANNOT BE REJECTED IF IT IS CONSISTENTLY FOLLOWED. NOTHING HAS BEEN BROUGHT ON RECORD TO DEMONSTRA TE THAT THE NEW METHOD OF VALUATION WAS NOT CONSISTENTLY FOLLOWED BY THE ASSESSEE. ERGO, WE DO NOT SEE ANY EMBAR GO IN THE ASSESSEE SWITCHING OVER TO THE NEW METHOD OF VALUATION OF SECURITIES, COST OF MARKET PRICE, WHICHEVER IS LESS. 6. NOW COMES TO QUANTUM OF THE AMOUNT OF LOSS CLAIMED BY THE ASSESSEE UNDER THE NEW METHOD OF VALUATION OF SECURITIES . IT ITA NOS782 & 783/PUN/2016 THE VISHWESHWAR SAHAKARI BANK LTD., 6 IS SEEN FROM THE ASSESSMENT ORDER THAT THE AO HAS MADE AN ADDITION OF RS.97.57 LAKH ON ACCOUNT OF ADJUSTMENT ON VALUATION. EVEN THE GROUND RAISED BY THE ASSESSEE, AS REPRODUCED ABOVE, ALSO SAYS THAT THE LOSS OF RS.97.57 LAK H OCCURRED ON ACCOUNT OF LOSS ON VALUATION OF SECURITIES. ON BEING CALLED UPON TO EXPLAIN HOW THE LOSS OF RS.97.57 LAKH WAS COMPUTED, THE LD. AR SUBMITTED THAT THE AMOUNT OF RS.97.57 LAKH WAS, IN FACT, LOSS AFTER MAKING SEVERAL ADJUSTMENTS IN THE COMPUTATION OF TOTAL INCOME. HE COULD NOT SPECIFICALLY POINT OUT AS TO HOW THIS LOSS WAS COMPUTED. SIMILAR WAS THE POSITION WITH THE LD. DR AS WELL. IN THE ABSENCE OF ANY CLAR ITY ON THE COMPUTATION OF AMOUNT OF LOSS ARISING DUE TO CHANGE IN THE VALUATION OF SECURITIES UNDER THE NEW METHOD OF COST OR MARKET PRICE, WHICHEVER IS LESS, WE SET-ASIDE THE IMPUGN ED ORDER AND REMIT THE MATTER TO THE FILE OF AO FOR DETERMINING THE AMOUNT OF LOSS ARISING BY THE APPLICATION OF METHOD COST OF MARKET PRICE, WHICHEVER IS LESS TO THE SECURITIES HELD BY THE ASSESSEE BANK AS STOCK IN TRADE. IT IS ONLY AFTER DETERMININ G SUCH A LOSS ON VALUATION OF SECURITIES THAT THE ULTIMATE FIGURE O F LOSS WILL BE DETERMINED. NEEDLESS TO SAY, THE AO WILL GIVE A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. ITA NOS782 & 783/PUN/2016 THE VISHWESHWAR SAHAKARI BANK LTD., 7 7. BEFORE PARTING WITH THE MATTER, WE WOULD LIKE TO CLARIFY ON AN ISSUE CONCERNED WITH THE CHANGE IN THE METHOD OF VALUATION OF SECURITIES. ON A SPECIFIC QUERY, THE LD. AR SUBMITTED THAT THE ASSESSEE WAS EARLIER VALUING SUCH SECURITIES AS PER A METHOD PRESCRIBED BY THE RBI, RESULTING INTO SOME LOSS TO BE AMORTIZED OVER CERTAIN NUMBER OF COMING YEARS. ONCE WE HAVE HELD THAT THE NEW METHOD OF VALUATION HAS TO BE FOLLOWED, WHICH WOULD ACCOUNT FOR LOSS ON DECLINE IN THE MARKET VALUE OF SECURITIES IN THE CONCERNED YEAR ITSELF, THER E CAN BE NO RATIONALE IN CONTINUING TO ALLOW LOSSES IN SUBSEQUEN T YEARS UNDER THE OLD METHOD OF VALUATION OF SECURITIES AS PE R RBI, WHICH ADMITTEDLY RESULTED INTO AMORTIZATION OF LOSS IN SOME SUBSEQUENT YEARS. THE AO IS DIRECTED TO EXAMINE THIS ASPECT ALSO, WHICH IS CONNECTED WITH THE DETERMINATION OF LOSS ON VALUATION OF SECURITIES UNDER THE NEW METHOD OF COST OR MARKET PRICE, WHICHEVER IS LESS. IT SHOULD BE ENSURED THA T THE ASSESSEE DOES NOT GET DOUBLE DEDUCTION. 8. FACTUAL MATRIX FOR THE A.Y. 2012-13 IS MUTATIS MUTANDIS SIMILAR TO THAT OF THE PRECEDING YEAR EXCEPT FOR THE AMOUNT O F DISALLOWANCE OF RS.5,35,47,228/- MADE BY THE AO AND SUSTAINED IN THE FIRST APPEAL. FOLLOWING THE VIEW TAKEN ITA NOS782 & 783/PUN/2016 THE VISHWESHWAR SAHAKARI BANK LTD., 8 HEREINABOVE, WE SET-ASIDE THE IMPUGNED ORDER AND DIREC T THE AO TO DETERMINE THE ISSUE AS ORDERED SUPRA . 9. IN THE RESULT, BOTH THE APPEALS ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH FEBRUARY, 2019. SD/- SD/- (VIKAS AWASTHY) (R.S.SYAL) JUDICIAL MEMBER VICE PRESID ENT PUNE; DATED : 12 TH FEBRUARY, 2019 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. ( ) / THE CIT (APPEALS)-2, PUNE 4. 5. THE PR.CIT-1, PUNE , , / DR A, ITAT, PUNE; 6. / GUARD FILE. // TRUE COPY // / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE ITA NOS782 & 783/PUN/2016 THE VISHWESHWAR SAHAKARI BANK LTD., 9 DATE 1. DRAFT DICTATED ON 11-02-2019 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 11-02-2019 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *