The Dharmej Peoples Co.Op.Bank Ltd., Petlad V. The CIT.-I, Baroda

ITA 881/AHD/2012

• Counselvise Citation: 88120514 RSA 2012
• Duration Of Justice: 3 year(s) 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 11-08-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 23-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D V SINGH SRDR
• Assessee Lawyers: S N SOPARKAR
• Keywords: Business income; Depreciation; Earning of tax free income
• Section: 14A; 263; 2

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD , , BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ./ I.T.A. NO.881/AHD/2012 ( / ASSESSMENT YEAR : 2007-08) THE DHARMAJ PEOPLES CO- OP.BANK LTD. NR.TOWER BAZAR AT & PO:DHARMAJ TAL.PETLAD 388 430 / VS. THE CIT-I AAYKAR BHAVAN RACE COURSE BARODA ./ ./ PAN/GIR NO. : AAACT 8600 Q ( ' / APPELLANT ) .. ( #' / RESPONDENT ) ' $ / APPELLANT BY : SHRI S.N.SOPARKAR, AR #' % $ / RESPONDENT BY : SHRI D.V. SINGH, SR.DR &'( % ) / DATE OF HEARING 12/08/2015 *+, % ) / DATE OF PRONOUNCEMENT 21/09/2015 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE LD.COMMISSIONER OF INCOME TAX-I, BARODA [CIT IN S HORT] DATED 29/02/2012 PERTAINING TO ASSESSMENT YEAR (AY) 2007- 08. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THE LD. COMMISSIONER OF INCOME TAX-I, BARODA HAS E RRED IN LAW AND IN FACTS IN THE REVISION OF THE ORDER OF ASSESS ING OFFICER MADE ITA NO.881 /AHD /2012 THE DHARMAJ PEOPLES CO-OP. BANK LTD. VS. CIT-I ASST.YEAR 2007-08 - 2 - U/S.143(3) DATED 27.11.2009 HOLDING THE SAME AS PRE JUDICIAL TO REVENUE AND ALSO DIRECTING A FRESH ASSESSMENT. 2. THE LD.COMMISSIONER OF INCOME TAX-I, BARODA HAS ERR ED IN LAW AND IN FACTS IN HOLDING THAT NO EVIDENCE HAS BEEN PLACE D ON RECORD TO ESTABLISH THE INVESTMENT IN GOVERNMENT SECURITIES B Y THE APPELLANT BANK CONSTITUTED ITS BUSINESS ACTIVITY AND DIRECTIN G THE A.O. TO VERIFY THE SAME AND CONSIDER THE ALLOWABILITY OF SET OFF O F LOSS ON SALE OF SUCH INVESTMENT AGAINST OTHER INCOME. 3. THE LD.COMMISSIONER OF INCOME TAX-I, BARODA HAS FUR THER ERRED IN LAW AND IN FACTS IN HOLDING THAT THE EXPENDITURE IN CURRED IN RELATION TO INCOME REQUIRED TO BE DISALLOWED BY THE APPLICAT ION OF RULE 8D AND DIRECTING THE A.O. TO VERIFY AND QUANTIFY SUCH DISALLOWANCE. 4. THE APPELLANT CRAVES LIBERTY TO ADD, ALTER, AMEND, REVISE OR SUBSTITUTE ANY OF THE GROUND(S) OF APPEAL CONTAINED HEREINABOVE. 2. BRIEFLY STATED FACTS ARE THAT THE CASE OF THE ASSESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S.143( 3) OF THE INCOME TAX ACT,1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRAMED VIDE ORDER DATED 27/11/2009, THEREBY THE ASSESSING OFFICER (AO IN SHORT) MADE DISALLOWANCE OF RS.62,500/- AND COMPUTED TAXABLE IN COME AT RS.12,14,779/- AS AGAINST THE TOTAL TAXABLE INCOME AS PER RETURN OF RS.11,52,279/-. SUBSEQUENTLY, THE LD.CIT REVISED T HE ASSESSMENT ORDER BY INITIATING THE PROCEEDINGS U/S.263 OF THE ACT. THE LD.CIT WHILE FRAMING THE ORDER U/S.263 OF THE ACT, SET ASIDE TH E ASSESSMENT ORDER DATED 27/11/2009 AND DIRECTED TO REASSESS THE INCOME AFTE R EXAMINING THE ISSUE AFRESH. ITA NO.881 /AHD /2012 THE DHARMAJ PEOPLES CO-OP. BANK LTD. VS. CIT-I ASST.YEAR 2007-08 - 3 - 3. GROUND NOS.1 TO 3 ARE INTER-CONNECTED AND, THERE FORE, THE SAME ARE DECIDED TOGETHER. THE LD.SR.COUNSEL FOR THE ASSESS EE SHRI S.N.SOPARKAR SUBMITTED THAT THE ORDER OF THE LD.CIT IS UNJUSTIFI ED AND BASED UPON NON- APPRECIATION IN RIGHT PERSPECTIVE. HE SUBMITTED THAT THE AO IN THE REGULAR ASSESSMENT HAD MADE ENQUIRY IN DETAIL. HE DREW OUR ATTENTION TOWARDS PAGE NOS.25 TO 29 AND ALSO PAGE NOS.48 & 49 OF THE PAPER-BOOK OF THE ASSESSEE, WHEREIN THE NOTICES ISSUED U/S.142 (1) OF THE ARE ENCLOSED. THE LD.SR.COUNSEL FOR THE ASSESSEE SUBMITTED THAT IT IS NOT THE CASE WHERE THE AO HAS NOT APPLIED MIND AND HAS NOT MADE ENQUI RIES. HE SUBMITTED THAT THE AO HAD MADE THOROUGH ENQUIRY AND AFTER SAT ISFYING ITSELF PASSED THE ASSESSMENT ORDER. HE SUBMITTED THAT THE REASON ING OF THE LD.CIT FOR REVISING THE ORDER IS ILL-FOUNDED AND CONTRARY TO T HE SETTLED PRINCIPLES OF LAW. HE SUBMITTED THAT THE LD.CIT INITIATED THE PR OCEEDINGS ON THE BASIS THAT THE LOSS OF RS.30,80,000/- WAS DEBITED TO INV ESTMENT DEPRECIATION FUND IN THE BALANCE SHEET AND ALSO REDUCED FROM TH E TOTAL BUSINESS INCOME. AS PER SECTION 70 OF THE ACT, THE LOSS ON ACCOUNT OF SALE OF GOVERNMENT SECURITIES IS LONG TERM CAPITAL LOSS A ND IS REQUIRED TO BE SET OFF AGAINST ANY CAPITAL GAINS ONLY AND NOT FROM OTHER HEADS OF INCOME. HE SUBMITTED THAT THIS ISSUE WAS DULY CON SIDERED BY THE AO AS THE AO HAD MADE A SPECIFIC QUERY. IN SUPPORT OF TH IS CONTENTION, HE DREW OUR ATTENTION TOWARDS PAGE NO.49 OF THE PAPER-BOOK, WHEREIN AS PER CLAUSE(8), THE AO HAS ASKED TO EXPLAIN HOW THE AMOU NT OF RS.380,80,000/- IS AN ALLOWABLE EXPENSE. FURTHER, HE SUBMITTED THAT THE ITA NO.881 /AHD /2012 THE DHARMAJ PEOPLES CO-OP. BANK LTD. VS. CIT-I ASST.YEAR 2007-08 - 4 - OTHER REASONING OF THE LD.CIT WAS THAT THE ASSESSEE HAD CLAIMED EXEMPTED INTEREST INCOME AND DIVIDEND INCOME OF RS.15,97,250 /-. ON SCRUTINY OF BALANCE-SHEET AS ON 31/03/2007 REVEALED THAT THERE WERE DEPOSITS WORTH RS.34,48,33,450/- (CURRENT ACCOUNT, SAVING ACCOUNT AND FIXED DEPOSIT ACCOUNT) ON WHICH ASSESSEE HAS PAID INTEREST OF RS. 2,75,55,485/- (AS PER P&L ACCOUNT). FURTHER, VERIFICATION REVEALED THAT THERE WAS INVESTMENT IN SSNL, MUTUAL FUNDS, ETC. (SCHEDULE 4) VALUED AT RS.1,53,41,188/- (TOTAL INVESTMENT RS.16,83,16,712/-) ON WHICH EXEM PTED INCOME OF RS.15,97,250/- WAS RECEIVED. AS PER SECTION 14A OF THE ACT, DEDUCTION IS NOT ADMISSIBLE IN RESPECT OF EXPENDITURE INCURRED B Y THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME AND EXPENDITURE INCURRED BY WAY OF INTEREST, ETC. HAS T O BE DISALLOWED AS PER RULE 8D OF THE IT RULES. THE LD.SR.COUNSEL FOR THE ASSESSEE SUBMITTED THAT ON BOTH THE COUNTS, IT IS MISPLACED AND CONTRA RY TO THE SETTLED POSITION OF LAW. HE SUBMITTED THAT IT WAS POINTED OUT TO TH E LD.CIT IN THE WRITTEN SUBMISSIONS THAT THE ASSESSEE IS A CO-OPERATIVE BAN K AND IS CARRYING ON ITS ACTIVITIES AS PER VARIOUS PROVISIONS OF THE BAN KING REGULATION ACT 1949 AND RBI ACT, CO-OPERATIVE SOCIETY ACT, ETC. IT WAS SUBMITTED THAT AS PER SECTION 5(B) OF THE BANKING REGULATION ACT, BANKING MEANS FOR THE PURPOSE OF LENDING OR INVESTMENT, OF DEPOSIT OF MONEY FROM THE PUBLIC, RE-PAYABLE ON DEMAND OR OTHERWISE AND WITHD RAWAL BY CHEQUES, DRAFTS OR OTHERWISE. THE LD.SR.COUNSEL FOR THE AS SESSEE SUBMITTED THAT IT WAS SUBMITTED BEFORE THE LD.CIT THAT DEPOSIT INTO T HE GOVERNMENT SECURITY ITA NO.881 /AHD /2012 THE DHARMAJ PEOPLES CO-OP. BANK LTD. VS. CIT-I ASST.YEAR 2007-08 - 5 - IS NORMAL BUSINESS ACTIVITY OF THE ASSESSEE. THER EFORE, ANY LOSS OCCURRED ON THE SALE OF SUCH GOVERNMENT SECURITY WAS A TRADI NG LOSS AND THIS LOSS WAS RIGHTLY REQUIRED TO BE SET OFF AGAINST THE BUSI NESS INCOME. IN SUPPORT OF THIS CONTENTION, HE PLACED RELIANCE ON THE DECIS ION OF THE TRIBUNAL (ITAT MUMBAI I BENCH) IN THE CASE OF DY.DIRECTOR OF INCOME TAX (INTL. TAXATION) VS. CHOHUNG BANK IN ITA NOS.1081, 1082 & 1191/MUM/2004 & OTHERS AND ALSO THE DECISION OF TH E CO-ORDINATE BENCH (ITAT DELHI E BENCH) IN THE CASE OF MIND A INVESTMENT IN ITA NO.4046/DEL/2009 FOR AY 2006-07 DATED 13/10/201 0. THE LD.SR.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE E XEMPTED INCOME WAS EARNED OUT OF INVESTMENT MADE FROM INTEREST-FREE FU NDS AVAILABLE WITH THE ASSESSEE-BANK. HE SUBMITTED THAT ON BOTH THE COUNT S THE ACTION OF THE LD.CIT WAS NOT JUSTIFIED AND WAS CONTRARY TO THE JU DICIAL PRONOUNCEMENTS. 3.1. ON THE CONTRARY, LD.SR.DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ORDER OF THE AO WAS ER RONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE WHICH I S EVIDENT FROM THE FACT THAT THE AO HAS NOT GIVEN ANY FINDING IN THE ASSESS MENT ORDER AS TO HOW THE LOSS CLAIMED BY THE ASSESSEE IS A BUSINESS LOSS AND NOT A CAPITAL LOSS. MOREOVER, THE AO HAS NOT GIVEN ANY FINDING AS TO HO W THE RULE 8D WOULD NOT BE APPLICABLE ON THE FACTS OF THE PRESENT CASE. ITA NO.881 /AHD /2012 THE DHARMAJ PEOPLES CO-OP. BANK LTD. VS. CIT-I ASST.YEAR 2007-08 - 6 - 4. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE DECISIONS RELIED UPON BY THE LD.SR.C OUNSEL FOR THE ASSESSEE. THE LAW IS WELL SETTLED THAT THE POWER CONFERRED U/ S.263 OF THE ACT ON THE LD.CIT IS TO BE EXERCISED WITH TWO BASIC INGREDIENT S ARE FULFILLED; NAMELY, THE ORDER OF THE AO IS ERRONEOUS AS WELL AS PREJUDI CIAL TO THE INTERESTS OF THE REVENUE AND IF ONE OF THE INGREDIENTS IS MISSIN G, THEN THE LD.CIT WOULD NOT BE JUSTIFIED FOR EXERCISING THE JURISDICT ION U/S.263 OF THE ACT FOR REVISING THE ORDER PASSED U/S.143(3) OF THE ACT. THE ORDER OF THE AO CAN BE TERMED AS ERRONEOUS IF THE AO HAS NOT CARRIED OU T ANY ENQUIRY WITH REGARD TO ANY CLAIM EVEN IF THE ENQUIRY HAS BEEN CA RRIED OUT. THE FINDING ON THE PARTICULAR CLAIM OR THE ISSUE IS CONTRARY TO THE PROVISIONS OF LAW OR THE LAW LAID DOWN BY THE COURT ON THE PARTICULAR IS SUE. IN THE CASE IN HAND, THERE IS NO DISPUTE WITH REGARD TO THE FACT T HAT THE AO HAS NOT RECORDED ANY FINDING IN RESPECT OF THE QUERIES RAIS ED IN THE NOTICES ISSUED U/S.142(1) OF THE ACT DATED 06/07/2009 AND 23/10/20 09. THERE WAS A SPECIFIC QUERY BY THE AO AND THE ASSESSEE HAD GIVEN A SPECIFIC REPLY THEREOF. THE LD.CIT INITIATED THE PROCEEDINGS ON T HE GROUND THAT THE ASSESSEE HAD PURCHASED 6.25% GOI 2018 SECURITY VAL UED AT RS.2 CRORES (2,00,000 UNITS EACH OF RS.100/-) ON 18.04.2005. T HE SAME WERE SOLD ON 10/07/2006 (I.E. AFTER 1 YEAR AND 3 MONTHS) AT RS.1 ,69,20,000/- AND THE LOSS OF RS.30,80,000/- WAS DEBITED TO INVESTMENT D EPRECIATION FUND IN THE BALANCE-SHEET AND ALSO REDUCED FROM THE TOTAL B USINESS INCOME. THE ITA NO.881 /AHD /2012 THE DHARMAJ PEOPLES CO-OP. BANK LTD. VS. CIT-I ASST.YEAR 2007-08 - 7 - LD.CIT WAS OF THE OPINION THAT AS PER SECTION 70 OF THE ACT, THE LOSS ON ACCOUNT OF SALE OF GOVERNMENT SECURITIES IS LONG T ERM CAPITAL LOSS AND IS REQUIRED TO BE SET OFF AGAINST ANY CAPITAL G AINS ONLY AND NOT FROM OTHER HEADS OF INCOME. ANOTHER GROUND FOR INITIA TING PROCEEDINGS WAS THAT ON VERIFICATION OF THE PROFIT AND LOSS ACCOUNT FOR THE YEAR 2006-07 RELEVANT TO AY 2007-08 AND STATEMENT OF COMPUTATION OF INCOME, IT IS SEEN THAT ASSESSEE HAD CLAIMED EXEMPTED INTEREST IN COME AND DIVIDEND INCOME OF RS.15,97,250/- (RS.4,93,250/- + RS.11,04, 000/-). SCRUTINY OF BALANCE-SHEET AS ON 31/03/2007 REVEALED THAT THERE WERE DEPOSITS WORTH RS.34,48,33,450/- (CURRENT ACCOUNT, SAVING AC COUNT AND FIXED DEPOSIT ACCOUNT) ON WHICH ASSESSEE HAS PAID INTERES T OF RS.2,75,55,485/- (AS PER P&L A/C.). FURTHER, VERIFICATION REVEALED THAT THERE WAS INVESTMENT IN SSNL, MUTUAL FUNDS, ETC. (SCHEDULE 4) VALUED AT RS.1,53,41,188/- (TOTAL INVESTMENT RS.16,83,16,712/ -) ON WHICH EXEMPTED INCOME OF RS.15,97,250/- WAS RECEIVED. AS PER SE CTION 14A OF THE IT ACT, DEDUCTION IS NOT ADMISSIBLE IN RESPECT OF EXPE NDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME AND EXPENDITURE INCURRED BY WAY OF INTEREST, ETC. HAS TO BE DISALLOWED AS PER RULE 8D OF THE IT RULES. 4.1. ON THE FIRST GROUND, THE CONTENTION OF THE ASS ESSEE IS THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY TH E DECISION OF THE COORDINATE BENCH (ITAT MUMBAI I BENCH) RENDERED IN THE CASE OF ITA NO.881 /AHD /2012 THE DHARMAJ PEOPLES CO-OP. BANK LTD. VS. CIT-I ASST.YEAR 2007-08 - 8 - DY.DIT (INTL.-TAXATION) VS. CHOHUNG BANK(SUPRA). I T WAS SUBMITTED THAT THE SALE AND PURCHASE OF THE SECURITY IS A NORMAL B USINESS ACTIVITY OF THE ASSESSEE. 4.2. FURTHER, IT WAS CONTENTED THAT THE SECOND GRO UND WHICH IS IN RESPECT OF INVOCATION OF PROVISIONS OF SECTION 14A OF THE A CT, THE ASSESSEE HAD NOT UTILIZED INTEREST-BEARING FUND FOR PURCHASING T HE SECURITIES WHICH HAS RESULTED INTO THE EARNING OF EXEMPTED INCOME. IT WAS CONTENTED THAT BOTH THESE ISSUES WERE THOROUGHLY EXAMINED BY THE AO AND THE AO HAD RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE. IT WAS FURTHER CONTENDED THAT IF ANYTHING ADVERSE IS FOUND AGAINST THE ASSESSEE THAT IS REQUIRED TO BE RECORDED IN THE ASSESSMENT ORDER BUT NOT RECORDING THE FINDING, HOWEVER AFTER THOROUGHLY EXAMINING AND SATISFYING ITSELF WO ULD NOT MAKE AN ORDER OF THE AO AS ERRONEOUS AND PREJUDICIAL TO THE INTER ESTS OF THE REVENUE. THUS, ON BOTH THE COUNTS, THE LD.CIT WAS NOT JUSTIF IED IN INVOKING THE PROVISIONS OF SECTION 263 OF THE ACT. 4.3. AFTER CONSIDERING THE TOTALITY OF THE FACTS AN D THE CASE-LAWS AS RELIED UPON BY THE LD.COUNSEL FOR THE ASSESSEE, WE FIND FORCE INTO THE CONTENTION OF THE LD.COUNSEL FOR THE ASSESSEE THAT THE LD.CIT WAS NOT JUSTIFIED IN TERMING THE ORDER OF THE AO AS ERRONEO US AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE HONBLE HIGH C OURT OF GUJARAT IN THE CASE OF CIT VS. TORRENT POWER LTD. REPORTED AT (201 4) 363 ITR 474(GUJ.) HAS HELD AS UNDER:- ITA NO.881 /AHD /2012 THE DHARMAJ PEOPLES CO-OP. BANK LTD. VS. CIT-I ASST.YEAR 2007-08 - 9 - 11. WE NOTICE THAT THIS APPEAL CONCERNS THE YEAR 2 006-2007 AND THE APPLICATION OF RULE 8D OF THE INCOME TAX RULES HAS COME INTO BEING FROM 2007-2008 WHICH HAS BEEN HELD PROSPECTIVE BY THIS C OURT, FOLLOWING THE JUDGEMENT OF BOMBAY HIGH COURT IN CASE OF GODREJ AN D BOYCE MFG. COL. LTD V. DEPUTY COMMISSIONER OF INCOME TAX AND ANOTHER RE PORTED IN (2010) 328 ITR 81(BOM), WHERE BOMBAY HIGH COURT HAS QUASHED TH E ORDER AND JUDGEMENT OF SPECIAL BENCH RENDERED IN M/S.DAGA CAP ITAL(SUPRA), THIS COURT IN CASE OF COMMISSIONER OF INCOME-TAX IV V. SINTEX INDUSTRIES LTD. REPORTED IN (2013) 33 TAXMANN.COM 240(GUJARAT), WAS CONSIDERING THE ISSUE PERTAINING TO DISALLOWANCE OF PART OF REMUNERATION PAID TO THE DI RECTORS. THE ASSESSING OFFICER NOTED THE FACT THAT THE ASSESSEE HAD EARNED EXEMPT INCOME UNDER SECTION 10(35) OF THE ACT ARISING OUT OF MUTUAL FUN D INVESTMENT AND, THEREFORE, HELDTHE OPINION THAT THE EXPENDITURE INC URRED FOR EARNING EXEMPT INCOME SHOULD BE DISALLOWED UNDER SECTION 14A OF TH E ACT AND WHEN NO BIFURCATION WAS MADE BY THE ASSESSEE, THE ASSESSING OFFICER DISALLOWED THE TOTAL EXPENDITURE UNDER SUCH HEAD AND ADDED BACK TH E ENTIRE SUM BEING THE AMOUNT OF SALARY OF THE DIRECTORS TO THE INCOME OF THE ASSESSEE. BOTH THE TRIBUNAL AND THE COMMISSIONER DID NOT APPROVE SUCH DECISION, RELYING ON JUDGEMENT OF BOMBAY HIGH COURT IN CASE OF GODREJ & BOYCE MFG. CO. LTD (SUPRA) BY HOLDING THAT IN ABSENCE OF RULE 8D OF TH E INCOME-TAX RULES, NO DISALLOWANCE CAN BE MADE UNDER SECTION 14A OF THE A CT. WHEN SUCH DECISION WAS UNDER CHALLENGE BEFORE THIS COURT IT HELD THUS : 4. WITH RESPECT TO PROPOSITION THAT RULE 8D IS NOT RETROSPECTIVE IN OPERATION, WE HAVE NO HESITATION IN AGREEING WITH T HE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCE & MAN UFACTURING CO. (SUPRA). PREVIOUSLY ALSO, WE HAD OCCASION TO DEAL W ITH THE SAID RULE AND HELD AS AND THE BOMBAY HIGH COURT HAS DONE. THA T, HOWEVER, DOES NOT MEAN IN OUR PRIMA-FACIE OPINION THAT NO DI SALLOWANCES CAN BE MADE UNDER SECTION 14A OF THE ACT BY BIFURCATING THE EXPENDITURE IN A REASONABLE MANNER TOWARDS EARNING OF THE TAXABLE INCOME AND TAX EXEMPT INCOME. 5. IN THE PRESENT CASE, SINCE THE AMOUNT INVOLVED I S NOT VERY LARGE, WE RESERVE OUR FINAL CONCLUSION ON SUCH AN ISSUE IN AP PROPRIATE CASE. THEREFORE, WE ARE NOT INCLINED TO ENTERTAIN THIS TA X APPEAL. HOWEVER, WE SHOULD NOT BE SEEN TO HAVE CONFIRMED THE TRIBUNA L'S VIEW ON THE ITA NO.881 /AHD /2012 THE DHARMAJ PEOPLES CO-OP. BANK LTD. VS. CIT-I ASST.YEAR 2007-08 - 10 - ASPECT THAT IN ABSENCE OF RULE 8D, NO DISALLOWANCES CAN BE MADE UNDER SECTION 14A OF THE ACT, BY PROPORTIONATE BIFU RCATION OF THE EXPENDITURE. 12. IN THE INSTANT CASE, HOWEVER, AS DISCUSSED HERE -IN- ABOVE, IT CLEARLY EMERGES FROM THE MATERIAL ON RECORD THAT NO EXPENDITURE WAS INCU RRED FOR EARNING EXEMPTED INCOME AND THAT BEING THE QUESTION OF FACT, WE HOLD THAT DISALLOWANCE OF 1% OF INTEREST EXPENDITURE ARTIFICIALLY OR ON THE BASIS O F ASSUMPTION RIGHTLY HAS NOT BEEN SUSTAINED BY THE TRIBUNAL. 4.4. THE ASSESSEE HAS DEMONSTRATED THAT INVESTMENTS WERE MADE OUT OF INTEREST-FREE FUNDS. UNDER THESE FACTS, THE LD.CIT (A) WAS NOT JUSTIFIED TO RESTORE THE ISSUE WITH REGARD TO DISALLOWANCE OF EX PENDITURE U/S.14A OF THE ACT TO THE FILE OF AO FOR FRESH DECISION. IN R ESPECT OF LONG TERM CAPITAL LOSS, IT IS DEMONSTRATED BY THE ASSESSEE TH AT INVESTMENTS IN GOVERNMENT SECURITIES, IS NORMAL BUSINESS ACTIVITY OF THE ASSESSEE. THE COORDINATE BENCH (ITAT MUMBAI I BENCH) IN ITA NO S.1081, 1082 & 1191/MUM/2004 IN THE CASE OF DY.DIT (INTL. TAXATION ) IN PARAS-5 & 6 DECIDED THE ISSUE BY HOLDING THAT THE ASSESSEE IS A BANK GOVERED BY THE RULES OF THE RBI. AS PER SUCH GUIDELINES THE SECUR ITIES ARE REQUIRED TO BE DIVIDED INTO TWO CATEGORIES, VIZ.(A) PERMANENT INVE STMENT AND (B) CURRENT INVESTMENT. THE DISTINCTION BETWEEN THE TWO IS THA T THE SECURITIES PURCHASED WITH THE INTENTION OF RETAINING IT TILL T HE MATURITY OF THE SECURITIES ARE TO BE CLASSIFIED AS PERMANENT INVES TMENT, WHEREAS THE SECURITIES ACQUIRED BY THE BANK WITH THE INTENTION OF TRADING BY TAKING ADVANTAGE OF SHORT-TERM PRICE/INTEREST, ARE TO BE C ONSIDERED AS CURRENT INVESTMENTS. THE SECURITIES FROM WHICH THE ASSESS EE HAS INCURRED LOSS ITA NO.881 /AHD /2012 THE DHARMAJ PEOPLES CO-OP. BANK LTD. VS. CIT-I ASST.YEAR 2007-08 - 11 - WERE DEPICTED AS CURRENT INVESTMENT AS HAS ALSO B EEN NOTED BY THE AO IN THE ASSESSMENT ORDER. A CERTIFICATE FROM CHARTE RED ACCOUNTANT CERTIFYING THAT THE SECURITIES SOLD BY THE ASSESSEE WERE UNDER CURRENT INVESTMENT CATEGORY HAS BEEN GIVEN TO THE LOWER AU THORITIES. WHEN IT IS SO THE SECURITIES IN THE NATURE OF CURRENT INVESTME NTS AUTOMATICALLY BECOME THE STOCK-IN-TRADE OF THE ASSESSEE AND NOT I NVESTMENT. IT IS A SETTLED LEGAL POSITION THAT THE NOMENCLATURE GIVEN BY THE PARTIES TO A PARTICULAR TRANSACTION IS NOT MATERIAL TO DECIDE IT S CHARACTER. RATHER IT IS THE TRUE NATURE OF THE TRANSACTIONS, WHICH MATTERS. WHEREAS ANY PROFIT OR LOSS FROM THE SALE OF INVESTMENT IS TAXED UNDER T HE HEAD CAPITAL GAIN, SUCH PROFIT OR LOSS FROM THE SALE OF STOCK-IN-TRAD E IS CONSIDERED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSI ON. THE INSTANT LOSS OF RS.77,000, ARISING FROM THE SALE OF STOCK-IN-TRADE REFERRED TO AS CURRENT INVESTMENTS, IN OUR CONSIDERED OPINION HAS BEEN R IGHTLY HELD BY THE LEARNED CIT(A) TO BE A BUSINESS LOSS. ACCORDINGLY THIS GROUND IS NOT ACCEPTED. IN THE PRESENT CASE, THE ASSESSEE HAS S HOWN THE INVESTMENT AS STOCK-IN-TRADE AS NOTED BY THE LD.CIT THAT THE SECU RITY WAS SOLD WITHIN ONE YEAR AND THREE MONTHS OF THE PURCHASE THAT IT S HOWS THAT IT WAS NOT THE PERMANENT INVESTMENT OF THE BANK AS THE BANK HA S NOT WAITED TILL THE MATURITY OF THE SECURITY. THEREFORE, IN OUR CONS IDERED VIEW, THE LD.CIT WAS NOT JUSTIFIED IN EXERCISING HER JURISDICTION U/ S.263 OF THE ACT. THUS, GROUND NOS.1 TO 3 OF ASSESSEES APPEAL ARE ALLOWED . ITA NO.881 /AHD /2012 THE DHARMAJ PEOPLES CO-OP. BANK LTD. VS. CIT-I ASST.YEAR 2007-08 - 12 - 5. GROUND NO.4 IS GENERAL IN NATURE WHICH REQUIRES NO INDEPENDENT ADJUDICATION. IN THE LIGHT OF ABOVE DISCUSSION, WE HEREBY QUASH THE IMPUGNED ORDER BEING UNJUSTIFIED. 6. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE COURT ON MONDAY, THE 21 ST DAY OF SEPTEMBER, 2015 AT AHMEDABAD. SD/- SD/- ( ) ( ) ( PRAMOD KUMAR ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 21/ 09 /2015 0)..& , '.&../ T.C. NAIR, SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. ' / THE APPELLANT 2. #' / THE RESPONDENT. 3. 123 4 / CONCERNED CIT 4. 4 ( ) / THE CIT(A)-CONCERNED 5. 5'6 &23 , ) 23 , , 1 / DR, ITAT, AHMEDABAD 6. 689 :( / GUARD FILE. / BY ORDER, #5 //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 15.9.15 (DICTATION-PAD 24+ PAGES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER ..15.9.15 3. OTHER MEMBER... 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.21.9.15 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 21.9.15 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER