ACIT, Mangalore V. M/s Corporation Bank, Mangalore

ITA 794/BANG/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60748 (ITAT-BANGALORE)
• Duration Of Justice: 9 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 06-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S K AMBASTHA CITIDR
• Keywords: Capital asset; Business income; Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K., JUDICIAL MEMBER ITA NOS.794 & 795/BANG/2011 ASSESSMENT YEARS : 2008-09 & 2009-10 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 2(1), MANGALORE. VS. M/S. CORPORATION BANK, H.O. MANGALADEVI TEMPLE ROAD, PANDESHWAR, MANGALORE. PAN: AAACC 7245E APPELLANT RESPONDENT APPELLANT BY : SHRI ANANTHAN, C.A. RESPONDENT BY : SHRI S.K. AMBASTHA, CIT-I(DR) DATE OF HEARING : 18.06.2012 DATE OF PRONOUNCEMENT : 18.06.2012 O R D E R PER N.K. SAINI, ACCOUNTANT MEMBER THESE TWO APPEALS BY THE DEPARTMENT ARE DIRECTED AGAINST THE SEPARATE ORDERS EACH DATED 11.07.2011 OF THE CI T(APPEALS), MYSORE. ITA NO.794 & 795/BANG/11 PAGE 2 OF 7 2. SINCE THE ISSUES INVOLVED ARE COMMON IN BOTH THE SE APPEALS WHICH WERE HEARD TOGETHER, SO THESE ARE BEI NG DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIE NCE. 3. COMMON EFFECTIVE GROUNDS RAISED IN THESE APPEALS READ AS UNDER:- 2. THE LEARNED CIT(A) HAS ERRED IN ALLOWING THE ASSESSEES CLAIM OF DEPRECIATION OF VALUATION OF INVESTMENT PORTFOLIO BY TREATING THE INVESTMENTS HE LD BY THE BANK AS STOCK-IN-TRADE. 3. THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE BANK HAS FOLLOWED THE RBI GUIDELINES FOR VALUATION OF INVESTMENT PORTFOLIO FO R THE PURPOSE OF BOOKS BUT HAS TREATED THE ENTIRE INVESTM ENTS AS STOCK-IN-TRADE AND VALUED THE SAME AS PER LEAST OF COST OF MARKET VALUE, VALUES FOR INCOME TAX PURPOSE ONLY TH EREBY MAKING A CLAIM FOR A NOTIONAL LOSS. ONLY REAL PROF IT/LOSS CAN BE RECOGNIZED UNDER THE IT ACT AND NOT THE NOTI ONAL LOSS ARRIVED AT BY VALUING INVESTMENT PORTFOLIO AS PER LCM VALUES. 4. THE CBDT CIRCULAR NO.665 DIRECTS THE ASSESSING OFFICER TO APPROACH THE ISSUE OF VALUATION OF INVES TMENT PORTFOLIO HELD BY THE BANKS IN LINE WITH THE RBI GUIDELINES ISSUED FROM TIME-TO-TIME. THE LD. CIT(A) HAS NOT CONSIDERED THIS CIRCULAR PROPERLY. 4. FROM THE ABOVE GROUNDS, IT WOULD BE CLEAR THAT T HE ONLY GROUND OF THE DEPARTMENT RELATES TO THE DELETION OF ADDITION MADE BY THE AO UNDER THE HEAD INVESTMENT PORTFOLIO. 5. THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASSE SSEE IS ONE OF THE LEADING NATIONALIZED BANKS. THE ASSESSEE IN IT S INCOME COMPUTATION STATEMENT HAD MADE ADJUSTMENT OF Q 2,14,65,414 AND Q 12,70,90,997 FOR THE A.YS. 2008-09 & 2009-10 IN RE SPECT OF ITA NO.794 & 795/BANG/11 PAGE 3 OF 7 INVESTMENTS. THE AO ASKED THE ASSESSEE TO EXPLAIN THE CLAIM MADE AS ADJUSTMENT IN RESPECT OF INVESTMENTS. THE ASSESSEE EXPLAINED THAT IT WAS TREATING INVESTMENT AS STOCK- IN-TRADE FOR INCOME-TAX PURPOSES AND THEREFORE PROFIT/LOSS AS PE R BOOKS WAS REVERSED AND PROFIT/LOSS AS PER TRADING ACCOUNT WAS OFFERED TO TAX. THE ASSESSEE ALSO PROVIDED DETAILS WITH RESPECT TO VALUATION OF INVESTMENT PORTFOLIO HELD BY IT AND EXPLAINED THAT FOR COMPUTATION OF TAXABLE INCOME FOR INCOME TAX PURPOSES, THE TRADING ACCOUNT WAS DRAWN UP SHOWING OPENING AND CLOSING STOCK SECURITI ES VALUED AT COST OR MARKET VALUE, THE BROKEN PERIOD INTEREST RE CEIVED/PAID ON PURCHASE/SALE OF SECURITIES AND RESULTANT LOSS WAS CLAIMED AS DEDUCTION FROM TAXABLE INCOME. IT WAS STATED THAT THE VALUATION OF SECURITIES AS PRESCRIBED BY RBI HAD BEEN FOLLOWED F OR THIS ASSESSMENT YEAR ALSO FOR THE PURPOSES OF BOOKS OF A CCOUNTS. RELIANCE WAS PLACED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF UCO BANK V. CIT REPORTED IN 240 ITR 355. 6. THE ASSESSING OFFICER HOWEVER DID NOT FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE BY OBSERVING THAT CIRCU LAR NO.665 ISSUED BY THE CBDT MADE IT CLEAR THAT THE BANK HAS TO ADOPT GUIDELINES ISSUED BY THE RBI WITH RESPECT TO VALUAT ION OF INVESTMENT PORTFOLIO AND ALSO ACCOUNTING STANDARDS OF INVESTMENTS. HE ALSO OBSERVED THAT THE ASSESSEE HAS FOLLOWED RBI GUIDELINES FOR THE PURPOSE OF BOOKS OF ACCOUNT, BUT NOT FOR CO MPUTATION OF INCOME FOR THE PURPOSE OF INCOME TAX PURPOSES. AC CORDINGLY THE CLAIM OF THE ASSESSEE WAS REJECTED. ITA NO.794 & 795/BANG/11 PAGE 4 OF 7 7. THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A ) AND STATED THAT THE ITAT IN ITA NO.102/BANG/2008 FOR THE A.Y. 2004-05 IN ASSESSEES OWN CASE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE VIDE ORDER DATED 03.12.2008 AND ALSO IN THE CASE OF ACIT, LTU, BANGALORE V. VIJAYA BANK IN ITA NO.253/BANG/2007, O RDER DATED 24.01.2008. THE SAID DECISION WAS ALSO FOLLOWED BY THE ITAT IN ASSESSEES OWN CASE FOR THE A.Y. 2007-08 VIDE ORDE R DATED 31.05.2011 IN ITA NO.710/BANG/2010. 8. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND BY FOLLOWING THE AFORESAID DECISIONS O F ITAT IN ASSESSEES OWN CASE, ALLOWED THE CLAIM OF THE ASSES SEE. NOW THE DEPARTMENT IS IN APPEAL. 9. THE LD. DR SUPPORTED THE ORDER OF THE AO, HOWEVE R COULD NOT REBUTT THE OBSERVATIONS OF THE LD. CIT(A). 10. IN HIS RIVAL SUBMISSIONS, THE LD. COUNSEL FOR T HE ASSESSEE AT THE VERY OUTSET STATED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE VIDE ORDER DATED 31.05.2011 IN ASSE SSEES OWN CASE IN ITA NO.710/BANG/2010 FOR THE A.Y. 2007-08, COPY OF THE SAID ORDER WAS FURNISHED. 11. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE P ARTIES AND THE MATERIAL AVAILABLE ON THE RECORD, IT IS NOTICED THAT A SIMILAR ISSUE HAVING IDENTICAL FACTS HAS BEEN DECIDED IN FAVOUR O F THE ASSESSEE VIDE THE AFORESAID REFERRED TO ORDER DATED 31.05.20 11 IN ITA NO.710/BANG/2010 FOR THE A.Y. 2007-08 IN ASSESSEES OWN CASE ITA NO.794 & 795/BANG/11 PAGE 5 OF 7 AND THE RELEVANT FINDINGS HAS BEEN GIVEN IN PARAS 5 TO 7, WHICH READ AS UNDER:- 05. AT THE TIME OF HEARING, THOUGH THIS IS REVENU E'S APPEAL, THE LEARNED CHARTERED ACCOUNTANT APPEARING FOR THE ASSESSEE, PLACED ON RECORD A XEROX COPY OF THE ORDER OF THE TRIBUNAL IN ITA 112/BANG/2008 FOR THE ASSESS MENT YEAR 2004-05 AND DREW OUR ATTENTION TO PARA NOS.14 TO 16 OF THE SAID ORDER AND PLEADED THAT THE ISSUE ON HAN D IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE. WE HAVE ALSO HEARD THE LEARNED DR AND CONSIDERED THE FACTS AND MATERIALS ON RECORD. 06. IN OUR CONSIDERED OPINION, THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEE'S OWN CASE IS BINDING ON US, FACTS AND CIRCUMSTANCES BEING THE SAME. IN THE SAID DECISION CITED ABOVE, THE TRIBUNAL IN P ARA NOS.14 TO 16 HAS HELD AS UNDER : '14. WE ARE OF THE CONSIDERED VIEW THAT THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF UNITED COMMERCIAL BANK V. COMMISSIONER OF INCOME-TAX REPORTED IN 240 ITR 355 IS DIRECTLY APPLICABLE TO THE FACTS OF THE CASE ON HAND. AS PER THE HEAD NOTE OF THE SAID DECISION, THE HON'BLE APEX COURT HAS HELD THAT PREPARATION OF THE BALANCE SHEET IN ACCORDANCE WITH THE STATUTORY PROVISIONS WOULD NOT DISENTITLE THE ASSESSEE IN SUBMITTING THE INCOME-TAX RETURN ON THE REAL TAXABLE INCOME IN ACCORDANCE WITH THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE CONSISTENTLY AND REGULARLY. FOR THE PURPOSE OF INCOME TAX, WHAT IS TO BE TAXED IS REAL WHICH IS TO BE DEDUCTED ON T HE BASIS OF ACCOUNTING SYSTEM REGULARLY MAINTAINED BY THE ASSESSEE. 15. FURTHER, THE METHOD BY WHICH THE ASSESSEE BANK IS VALUING SECURITIES IS IN ACCORDANCE WITH TH E ACCOUNTING PRINCIPLES BY TREATING SUCH SECURITIES A S STOCK-IN-TRADE. MOREOVER, THE REVENUE ITSELF IS TREATING THE PROFIT ON MATURITY OF SUCH SECURITY AS BUSINESS INCOME AND, THEREFORE, SUCH SECURITIES CANNOT BE TREATED AS CAPITAL ASSETS. 16. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE BEFORE US AND RESPECTFULLY FOLLOWING THE ITA NO.794 & 795/BANG/11 PAGE 6 OF 7 DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF UNITED COMMERCIAL BANK V. COMMISSIONER OF INCOME-TAX REFERRED SUPRA, IT IS HELD THAT THE ASSESSEE BANK IS ENTITLED TO VALUE ALL THE INVESTME NT AT COST PRICES OR MARKET VALUE WHICHEVER IS LOWER BY TREATING SUCH INVESTMENT AS STOCK-IN-TRADE. WE, THEREFORE, DELETE THE DISALLOWANCE OF Q . 5,21,96,537/- MADE BY THE LEARNED COMMISSIONER OF INCOME-TAX(A). OUR DECISION IS ALSO IN LINE WITH THE DECISION OF THE HON'BLE ITAT, BANGALORE BENCH 'B' IN ITA NO.253/BANG/2007, DATED 24.1.2008 IN THE CASE OF ACIT (LTU), BANGALORE V. VIJAYA BANK.' 07. FOLLOWING OUR ABOVE DECISION, THIS ISSUE IS DEC IDED IN FAVOUR OF THE ASSESSEE BY DISMISSING THE GROUNDS OF APPEAL RAISED BY THE REVENUE. 12. SO RESPECTFULLY FOLLOWING THE AFORESAID REFERRE D TO ORDER DATED 31.05.2011 IN ITA NO.710/BANG/2010 FOR THE A. Y. 2007-08 IN ASSESSEES OWN CASE, THE ISSUE STANDS COVERED IN FA VOUR OF THE ASSESSEE, WE THEREFORE DO NOT SEE ANY MERIT IN THES E APPEALS OF THE DEPARTMENT. 13. IN THE RESULT, THE APPEALS BY THE DEPARTMENT AR E DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 18 TH DAY OF JUNE, 2012. SD/- SD/- ( GEORGE GEORGE K. ) ( N.K. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 18 TH JUNE , 2012. DS/- ITA NO.794 & 795/BANG/11 PAGE 7 OF 7 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.