The Co. Operative Bank of Rajkot Ltd., RAJKOT-GUJARAT V. The Additional Commissioner of Income Tax, Range-1, RAJKOT-GUJARAT

ITA 914/RJT/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 85418 (ITAT-RAJKOT)
• Duration Of Justice: 4 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 24-11-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 06-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AVINASH KUMAR
• Assessee Lawyers: DM RINDANI
• Keywords: Capital asset; Depreciation; Question of law; Cost of acquisition; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL AT RAJKOT . . , , , BEFORE S/SHRI G.C. GUPTA, VICE - PRESIDENT AND ANIL CHATURVEDI, ACCOUNTANT MEMBER) ITA NO . 914 / RJT /20 1 0 [ASSTT.YEAR : 200 7 - 200 8 ] AND ITA NO .349 / RJT /20 11 [ASSTT.YEAR : 2008 - 2009 ] THE CO - OPERATIVE BANK OF RAJKOT LTD. RAJKOT. / VS. THE ADDL. CIT, RANGE - 1, RAJKOT. ITA NO .920 / RJT /20 1 0 [ ASSTT.YEAR : 2007 - 2008 ] THE A DDL. CIT, RANGE - 1, RAJKOT / VS. THE CO - OPERATIVE BANK OF RAJKOT LTD. RAJKOT. ( / APPELLANT) ( / RESPONDENT) / ASSESSEE BY : SHRI D.M . RINDANI, CA / REVENUE BY : SHRI AVIN A SH KUMAR, DR / DATE OF HEARING : 24 TH NOVEMBER, 2014 / DATE OF PRONOUNCEMENT : 26 TH NOVEMBER, 2014 / O R D E R PER ANIL CHATURVEDI , ACCOUNTANT MEMBER : TH ESE ARE TWO ASSESSEE S APPEALS AND ONE REVENUE S APPEAL AGAINST FOR THE RESPECTIVE ORDERS OF THE CIT(A) FOR THE ASSTT.YEAR 2007 - 08 AND 2008 - 09. THESE ARE ITA NO.914 &920 / RJT /20 1 0 AND 349RJT/2011 - 2 - APPEALS ARE DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. WE THEREFORE PROCEED WITH THE FACTS FOR A.Y .2007 - 08. 2. THE FACTS AS CAN BE CULLED OUT FROM THE RECORDS ARE THAT THE ASSESSEE IS A COOPERATIVE BANK, CARRYING ON THE BANKING ACTIVITIES IN DIFFERENT CITIES OF GUJARAT. THE ASSESSEE HAS ELECTRONICALLY FILED ITS RETURN OF INCOME FOR A.Y.2007 - 08 ON 26/ 10/2007 DECLARING A TOTAL INCOME OF RS.7,47,40,210/ - . THE CASE WAS SELECTED FOR SCRUTINY, AND THEREAFTER, THE ASSESSMENT WAS FRAMED UNDER SECTION 143(3) VIDE ORDER DATED 14.12.2009 AND TOTAL INCOME WAS DETERMINED AT RS.8,43,40,170/ - . AGGRIEVED BY THE OR DER OF THE AO, THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A), WHO BY ORDER DATED 20.01.2010 GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE AFORESAID ORDER OF THE CIT(A), ASSESSEE AS WELL AS REVENUE ARE IN APPEAL BEFORE US. RESPECTIVE GROUND S ARE AS UNDER: ITA NO.914/ RJT /2010 : ASSTT.YEAR 2007 - 08 (ASSESSEE S APPEAL) 1. THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.68,25,000/ - BEING THE AMORTIZATION OF PREMIUM PAID ON INVESTMENTS UNDER HELD TO MATURITY CATEGORY HOLDING THAT THE SAME IS NOT A REVENUE EXPENDITURE IN NATURE. ITA NO.9 20 / RJT /2010 : ASSTT.YEAR 2007 - 08 (REVENUE S APPEAL) 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING ADDITION OF RS.27,74,965/ - MADE ON ACCOUNT OF DISALLOWANCE OF INTEREST PAYMENT ON SHARES LINKED DEPOSIT. 3. WE NOW PROCEED WITH THE ASSESSEE S APPEAL FOR A.Y.2007 - 08 IN ITA NO.914/ RJT /2010 WHICH IS WITH REFERENCE TO DISALLOWNACEN OF AMORTIZATION OF PREMIUM. 4 . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ON PERUSAL OF THE PROFIT & LOSS ACC OUNT, AO NOTICED THAT THE ASSESSEE HAS DEBITED RS.68.25 LAKHS IN ITA NO.914 &920 / RJT /20 1 0 AND 349RJT/2011 - 3 - THE P&L ACCOUNT FOR AMORTIZATION OF PREMIUM PAID ON INVESTMENTS UNDER HELD TO MATURITY CATEGORY . THE ASSESSEE WAS ASKED TO JUSTIFY THE CLAIM OF REVENUE EXPENDITURE. THE ASSESSEE INTER AL IA SUBMITTED THAT THE ASSESSEE WAS FOLLOWING RBI REGULATION WITH REG A RD TO SECURITIES HELD AND CLASSIFIED UNDER HELD TO MATURITY CATEGORY. THE ASSESSEE FURTHER RELIED ON CBDT CIRCULAR NO.665 DATED 5.10.1993. THE SUBMISSIONS OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE AO, AS HE WAS OF THE VIEW THAT THE CBDT CIRCULAR RELIED UPON BY THE ASSESSEE WAS WITH RESPECT TO QUESTION WHETHER A PARTICULAR ITEM OF INVESTMENT IN SECURITIES CONSTITUTES STOCK IN TRADE OR A CAPITAL ASSET. THE AO THEREAFT ER RELYING ON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF VIJAY BANK LTD., 187 ITR 541 H E LD THAT PREMIUM PAID ON INVESTMENTS UNDER THE HELD TO MATURITY CATEGORY IS TO BE CAPITAL OUTLAY OF THE ASSESSEE , AND THEREFORE, COULD NOT BE CONSIDERED AS REVENUE EXPENDITURE. HE ACCORDINGLY DISALLOWED THE CLAIM OF RS.68.25 LAKHS. 5 . AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A). THE CIT(A) CONFIRMED THE ORDER OF THE AO BY HOLDING AS UNDER: 5.......... I HAVE CA REFULLY CONSIDERED RIVAL CONTENTIONS. APPELLANT HAS RELIED HEAVILY ON CIRCULAR NO CIRCULAR NO. 665 DATE: 05 - 10 - 1993 OF THE CBDT AND GUIDELINES OF RBI. RELEVANT PARAGRAPHS OF CIRCULAR NO 665 DATED 5.10.1993 ARE AS UNDER : - '3. THE BOARD HAS RECONSIDERED THE TREATMENT TO BE ACCORDED TO SECURITIES HELD BY BANKS. IN THE CASE OF VIJAYA BANK LTD. (SUPRA), THE SUPREME COURT CONSIDERED THE ISSUE WHETHER, IN A CASE WHERE THE ASSESSEE PURCHASES SECURITIES AT A PRICE DETERMINED WITH REFERENCE TO THEIR ACTUAL VALU E AS WELL AS THE INTEREST ACCRUED THEREON TILL THE DATE OF PURCHASE, THE ENTIRE PRICE PAID FOR THEM WOULD BE IN THE NATURE OF CAPITAL OUTLAY OR WHETHER THE INTEREST PORTION COULD BE CLAIMED AS A REVENUE EXPENDITURE. IT WAS IN THIS CONTEXT THAT THE SUPREM E COURT HELD ITA NO.914 &920 / RJT /20 1 0 AND 349RJT/2011 - 4 - THAT WHATEVER WAS THE CONSIDERATION WHICH PROMPTED THE ASSESSEE TO PURCHASE SECURITIES, THE PRICE PAID FOR THEM WAS IN THE NATURE OF CAPITAL OUTLAY AND NO PART OF IT COULD BE SET OFF AS EXPENDITURE AGAINST INCOME ACCRUING ON THOSE SECURITIES. THE COURT WAS NOT DIRECTLY CONCERNED WITH THE ISSUE WHETHER THE SECURITIES FORM PART OF STOCK - IN - TRADE OR CAPITAL ASSETS. 4. THE QUESTION WHETHER A PARTICULAR ITEM OF INVESTMENT IN SECURITIES CONSTITUTES STOCK - IN - TRADE OR A CAPITAL ASSET IS A QUESTION OF FACT. IN FACT, THE BANKS ARE GENERALLY GOVERNED BY THE INSTRUCTIONS OF THE RESERVE BANK OF INDIA FROM TIME TO TIME WITH REGARD TO THE CLASSIFICATION OF ASSETS AND ALSO THE ACCOUNTING STANDARDS FOR INVESTMENTS. THE BOARD HAS, THEREFORE, DECIDED THAT THE ASSESSING OFFICERS SHOULD DETERMINE ON THE FACTS AND CIRCUMSTANCES OF EACH CASE AS TO WHETHER ANY PARTICULAR SECURITY CONSTITUTES STOCK - IN - TRADE OR INVESTMENT TAKING INTO ACCOUNT THE GUIDELINES ISSUED BY THE RESERVE BANK OF INDIA IN THIS REGARD FROM TIME T O TIME. IN THIS CIRCULAR BOARD HAS GIVEN DIRECTION TO THE AO TO DECIDE WHETHER THE PARTICULAR SECURITIES HELD BY THE APPELLANT ARE ITS STOCK IN TRADE OR INVESTMENTS, TAKING IN, TO ACCOUNT THE GUIDELINES ISSUED BY RESERVE BANK OF INDIA IN THIS REGARD. RELEVANT GUID ELINES ISSUED BY RESERVE BANK OF INDIA ARE THAT ENTIRE PORTFOLIO OF THE INVESTMENT OF THE BANK IS TO BE CLASSIFIED UNDER THREE CATEGORIES I.E. 1. HELD FOR MATURITY, 2. HELD FOR TRADING AND 3. AVAILABLE FOR SALE. SECURITIES ACQUIRED BY THE BANK WITH THE INT ENTION TO HOLD THEM TILL MATURITY IS CLASSIFIED UNDER THE CATEGORY OF HELD TO MATURITY. THE SECURITIES ACQUIRED BY THE BANKS WITH THE INTENTION TO TRADE BY TAKING ADVANTAGE OF THE. SHORT - TERM PRICE/INTEREST RATE MOVEMENTS WILL BE CLASSIFIED UNDER 'HELD FOR TRADING (HFT)'. THE SECURITIES WHICH DO NOT FALL WITHIN THE ABOVE TWO CATEGORIES WILL BE CLASSIFIED UNDER 'AVAILABLE FOR SALE (AFS)'. THE VALUATION TREATMENT ADVISED BY RBI IS THAT INVESTMENTS CLASSIFIED UNDER HTM NEED NOT BE MARKED TO MARKET AND WILL BE CARRIED AT ACQUISITION COST, UNLESS IT IS MORE THAN THE FACE VALUE, IN WHICH CASE THE PREMIUM SHOULD BE AMORTISED OVER THE PERIOD REMAINING TO MATURITY. THE BOOK VALUE OF THE SECURITY SHOULD CONTINUE TO BE REDUCED TO THE EXTENT OF THE AMOUNT AMORTISED DUR ING THE RELEVANT ACCOUNTING PERIOD. THE INDIVIDUAL SCRIPTS IN THE AVAILABLE FOR SALE CATEGORY WILL BE MARKED TO MARKET AT QUARTERLY OR AT MORE FREQUENT INTERVALS. THE INDIVIDUAL SCRIPS IN THE HELD FOR TRADING CATEGORY WILL BE MARKED TO MARKET AT MONTHLY OR AT MORE ITA NO.914 &920 / RJT /20 1 0 AND 349RJT/2011 - 5 - FREQUENT INTERVALS AND PROVIDED FOR AS IN THE CASE OF THOSE IN THE AVAILABLE FOR SALE CATEGORY. CONSEQUENTLY, THE BOOK VALUE OF THE INDIVIDUAL SECURITIES IN THIS CATEGORY WOULD ALSO NOT UNDERGO ANY CHANGE AFTER MARKING TO MARKET. ABOVE GUIDANCE P ROVIDED BY RBI CLEARLY SHOWS THAT INVESTMENTS' HELD TO MATURITY' ARE INVESTMENT OF THE BANK AND OTHER TWO CATEGORIES SUCH AS HELD FOR TRADING AND AVAILABLE FOR SALE ARE STOCK IN TRADE OF THE BANK. THE BANK ITSELF HAS TO DECIDE THE ISSUE ABOUT WHICH INVESTM ENTS IT WOULD LIKE TO KEEP UNDER THESE THREE CATEGORIES. THEREFORE THE INTENTION OF THE BANK IS VERY CLEAR IF SECURITY IS CLASSIFIED AS HELD TO MATURITY THEN THE BANK WOULD LIKE TO KEEP THESE ASSETS INTACT TILL IT MATURES AND INTENDS TO EARN INTEREST THERE ON. WHAT IS CLAIMED BY THE APPELLANT IS AMORTIZATION OF PREMIUM PAID BY THEM OVER AND ABOVE THE FACE VALUE OF SUCH SECURITIES WHICH IS REQUIRED TO BE WRITTEN OFF OVER THE UNEXPIRED MATURITY PERIOD OF INVESTMENTS CLASSIFIED AS 'HELD TO MATURITY'. THEREFORE THIS IS WRITING OFF OF THE PREMIUM PAID BY THE ASSESSEE FOR ACQUIRING SECURITIES HAVING HIGHER VALUE THAN ITS FACE VALUE BECAUSE OF ACCRUED INTEREST EMBEDDED IN THE SECURITIES. THIS IS IN CASE OF ASSETS HELD TO MATURITY ONLY AND NOT IN CASE OF INVESTMENTS AVAILABLE FOR SALE OR HELD FOR TRADING. IN THE OTHER TWO CATEGORIES BANKS ARE ALLOWED TO VALUE THEM AT COST OR MARKET VALUE WHICHEVER IS LESS. THIS DISTINCTION SUGGESTED BY RBI ALSO SHOWS THAT INVESTMENT HELD TO MATURITY ARE CAPITAL INVESTMENTS OF THE BANK S AND NOT STOCK IN TRADE. THEREFORE IN MY VIEW AO HAS CORRECTLY IDENTIFIED THAT THE INVESTMENTS UNDER CONSIDERATION UNDER 'HELD TO MATURITY' CATEGORY ARE NOT 'STOCK IN TRADE' BUT 'INVESTMENT' IN NATURE. NOW THE ISSUE ARISES WHETHER THE AMORTIZATION OF PREM IUM PAID THEREON IS ALLOWABLE AS DEDUCTION TO THE APPELLANT OR NOT. IT IS TRUE THAT RBI CIRCULAR ONLY PROVIDES FOR METHOD OF ACCOUNTING TO BE FOLLOWED AND DOES NOT DEAL WITH THE ISSUE WHETHER SUCH AMORTIZATION OF PREMIUM HAS TO BE CONSIDERED AS REVENUE EXP ENDITURE OR CAPITAL OUTLAY FOR THE PURPOSE OF COMPUTATION OF INCOME OF THE ASSESSEE FOR A PARTICULAR ASSESSMENT YEAR ACCORDING TO THE PROVISIONS OF INCOME - TAX ACT. HONOURABLE SUPREME COURT HAS RECENTLY HELD IN THE CASE OF SOUTHERN TECHNOLOGIES LIMITED V JC IT 320 ITR 577 (S C ) WHEREIN IT HAS BEEN HELD THAT RBI DIRECTIVES HAVE NOTHING TO DO WITH THE TAXABILITY OF THE ENTITIES GOVERNED BY THOSE DIRECTIONS' AND TAXABLE INCOME OF THE ASSESSEE IS REQUIRED TO' BE DETERMINED IN ACCORDANCE WITH THE PROVISION OF THE I NCOME TAX ACT 1961. AS THESE ITEMS 'HELD TO MATURITY' ARE INVESTMENTS, ANY PREMIUM PAID IS BASICALLY 'COST OF INVESTMENTS', AND THIS IS PURELY A CAPITAL EXPENDITURE. IT IS ALSO PERTINENT TO NOTE HERE THAT RBI HAS DIRECTED BANKS TO AMORTIZE THE ITA NO.914 &920 / RJT /20 1 0 AND 349RJT/2011 - 6 - PREMIUM AMOU NT OVER THE UNEXPIRED PERIOD OF THE TERM OF INVESTMENTS. THIS TERM MAY BE MORE THAN ONE YEAR - AND IT IS REQUIRED TO BE AMORTISED BASED ON TIME FACTOR. THEREFORE ONLY A PORTION OF SUCH PREMIUM IS AMORTISED DURING THE YEAR. IF THIS IS ALLOWABLE AS DEDUCTION T O THE APPELLANT IT SHOULD HAVE CLAIMED FULL AMOUNT OF PREMIUM PAID IN THE YEAR OF THE ACQUISITION ITSELF. THIS IS NOT THE CASE OF THE APPELLANT. APPELLANT BEFORE AO AS WELL AS BEFORE ME DID NOT STATE A PARTICULAR PROVISION OF THE INCOME TAX ACT UNDER WHICH SUCH AMORTISATION OF CAPITAL EXPENDITURE IS ALLOWABLE AS DEDUCTION. IT IS ALSO TRUE THAT AT THE IF SECURITIES HELD FOR MATURITY BY THE APPELLANT ARE SOLD PRIOR TO THEIR MATURITY DATE, SAME SHALL BE CHARGEABLE TO TAX AS CAPITAL GAIN AND THE PREMIUM PAID TH EREON SHALL BE COST OF ACQUISITION OF THOSE INVESTMENTS. IF , INVESTMENTS ARE HELD TO MATURITY THAN APPELLANT SHALL GET THE FACE VALUE OF THE ASSETS AT THE TIME OF MATURITY AND PREMIUM PAID THERE ON SHALL BE CAPITAL LOSS. FOR THIS REASON RBI HAS ISSUED DIR ECTION THAT IF INVESTMENT ARE PURCHASED AT A PREMIUM AND ARE CLASSIFIED AS 'HELD TO MATURITY', ITS PREMIUM SHOULD BE WRITTEN OFF OVER ITS UNEXPIRED MATURITY TIME. THEREFORE I AM OF THE VIEW THAT SECURITIES OF THE BANK CLASSIFIED AS HELD TO MATURITY ARE NOT STOCK IN TRADE OF THE BANK BUT INVESTMENTS AND THEREFORE AMORTIZATION OF PREMIUM PAID OVER THE FACE VALUE OF SUCH SECURITY IS NOT DEDUCTIBLE TO THE APPELLANT AS REVENUE EXPENDITURE AS THE SAME IS CAPITAL IN NATURE. HENCE, DISALLOWANCE OF RS 68,25,000/ - B EING THE AMORTISATION OF PREMIUM PAID ON INVESTMENTS UNDER 'HELD TO MATURITY' CATEGORY IS CONFIRMED, AS THE SAME IS NOT REVENUE EXPENDITURE IN NATURE. 6 . AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESSEE IS NOW IN APPEAL BEFORE US. BEFORE US, AT THE OU TSET, THE LEARNED A R SUBMITTED TH A T THE ISSUE IN THE PRESENT CASE IS NOW DIRECTLY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HON BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. RAJKOT DIST. CO - OP. BANK LTD., (2014) 222 TAXMAN 240 (GUJ). HE ALS O PLACED ON RECORD A COPY OF THE AFORESAID ORDER. HE, THEREFORE, SUBMITTED THAT IN VIEW OF THE AFORESAID DECISION OF THE HON BLE GUJARAT HIGH COURT, THE ISSUE IS TO BE DECIDED IN FAVOUR OF THE ASSESSEE . THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE ORDER OF THE CIT(A). ITA NO.914 &920 / RJT /20 1 0 AND 349RJT/2011 - 7 - 7 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE QUESTION BEFORE THE HON BLE GUJARAT HIGH IN THE CASE OF CIT VS. RAJKOT DIST. CO - OP. BANK (SUPRA) WAS WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE APPELLATE TRIBUNAL IS JUSTIFIED IN HOLDING THAT THE AO AND THE CIT(A) HAVE ERRED IN DISALLOWING THE AMORTIZATION OF SECURITY PREMIUM OF RS.40,30,000/ - . THE HON BL E HIGH COURT AFTER CONSIDERING THE CBDT CIRCULAR DATED 26.11.2008 DECIDED THE ISSUE BY HOLDING AS UNDER: 6. ON THE OTHER HAND, THE LEARNED COUNSEL SHRI TUSHAR HEMANI FOR THE RESPONDENT PLACED HEAVY RELIANCE ON THE SAID CBDT CIRCULAR DATED NOVEMBER 267, 2 008 AND CONTENDED THAT THE BENEFIT OF AMORTIZATION HAD TO BE GRANTED. THE ASSESSEE AS A COOPERATIVE BANK WAS BOUND BY THE RBI DIRECTIVES. AS PER SUCH DIRECTIVES, THE ASSESSEE HAD TO INVEST CERTAIN AMOUNTS IN GOVERNMENT SECURITIES AND TO HOLD THE SAME TI LL MATURITY. I N THE PROCESS OF ACQUISITION, IF THERE WAS ANY PREMIUM PAID ON THE FACE VALUE OF THE SECURITY, THE LOSS HAD TO BE AMORTIZED. PARAGRAPH (VII) OF THE CBDT CIRCULAR NO.17 OF 2008 DATED NOVEMBER 26,2008 WOULD APPLY. SUCH INSTRUCTIONS READS AS UNDER: (VII) AS PER RBI GUIDELINES DATED 16 TH OCTOB ER , 200 0 , THE INVESTMENT PORTFOLIO OF THE BANKS IS REQUIRED TO BE CLASSIFIED UNDER THREE CATEGORIES VIZ. HELD TO MATURITY (HTM), HELD FOR TRADING (HFT) AND AVAILABLE FOR SALE (AFS). INVESTMENTS CLASSIF IED UNDER HTM CATEGORY NEED NOT BE MARKED TO MARKET AND ARE CARRIED AT ACQUISITION COST UNLESS THESE ARE MORE THAN THE FACE VALUE, IN WHICH CASE THE PREMIUM SHOULD BE AMORTIZED OVER THE PERIOD REMAINING TO MATURITY. IN THE CASE OF HFT AND AFT SECURITIES F ORMING STOCK - IN - TRADE OF THE BANK, THE DEPRECIATION /APPRECIATION IS TO BE AGGREGATED SCRIP - WISE AND ONLY NET DEPRECIATION, IF ANY, IS REQUIRED TO BE PROVIDED FOR IN THE ACCOUNTS. THE LATEST GUIDELINES OF THE RBI MAY BE REFERRED TO FOR ALLOWING ANY SUCH CL AIMS . 7. THE INSTRUCTIONS CLEARLY PROVIDE FOR AMORTIZATION OF PREMIUM PAID ON ACQUISITION OF SECURITIES WHEN THE SAME ARE ACQUIRED AT THE RATE HIGHER THAN THE FACE VALUE. SUCH AMORTIZATION WOULD HAVE TO BE FOR THE REMAINING PERIOD OF MATURITY. THIS ITA NO.914 &920 / RJT /20 1 0 AND 349RJT/2011 - 8 - PRE CISELY THE TRIBUNAL HAD DIRECTED IN THE IMPUGNED ORDER. THOUGH CONTENDED, NO CONTRARY INSTRUCTIONS OF CBDT ARE BROUGHT TO OUR NOTICE. THE INSTRUCTION IN QUESTION HAVING BEEN ISSUED UNDER SECTION 119(2) OF THE INCOME TAX ACT, 1961, WOULD BIND THE REVENUE. NO QUESTION OF LAW, THEREFORE, ARISES. 8 . BEFORE US, THE REVENUE HAS NOT PLACED ANY CONTRARY BINDING DECISION IN SUPPORT OF ITS CASE NOR COULD IT POINT OUT ANY DISTINGUISHING FEATURE AS COMPARED TO THE PRESENT CASE. WE, THEREFORE, RESPECTFULLY, FOLLOWING THE DECISION OF THE HON BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. RAJKOT DISTRICT CO - OP. BANK LTD. (SUPRA) ARE OF THE VIEW THAT THE AMORTIZATION OF PREMIUM PAID ON ACQUISITION OF SECURITIES WOULD HAVE TO BE ALLO WED FOR THE REMAINING PERIOD OF MATURITY AND , THUS, HOLD TH A T THE ASSESSEE WOULD BE ELIGIBLE FOR DEDUCTION. THIS GROUND OF THE ASSESSEE IS ALLOWED. 9 . IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO.920 /RJT/ 2010 (REVENUE S APPEAL) 10 . THE GROUND OF THE REVENUE IS WITH RESPECT TO DELETION OF ADDITION OF RS.27,74,965/ - MADE ON ACCOUNT OF DISALLOWANCE OF INTEREST PAYMENT OF SHARE LINKED DEPOSIT. 11 . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTICED THAT THE ASSESSEE HAS CLAIMED I NTEREST/DIVIDEND AMOUNTING TO RS.27. 74 LAKHS AS PAYMENT OF ADDITIONAL SHARE CAPITAL RAISED FROM THE MEMBERS OF THE SOCIETY. THE ASSESSEE WAS ASKED TO JUSTIFY THE CLAIM AS REVENUE EXPENDITURE. THE ASSESSEE INTER ALIA SUBMITTED THAT THE INTEREST WAS PAID O N THE AMOUNT OF MEMBERS SHARE DEPOSIT AMOUNT, FOR WHICH THE RESOLUTION WAS ALSO PASSED BY THE BOARD OF DIRECTORS OF THE BANK. THE SUBMISSION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE AO, AS HE WAS OF THE VIEW THAT THE ADDITIONAL SHARE CAPITAL AMOUN TING TO RS.5.15 CRORES ITA NO.914 &920 / RJT /20 1 0 AND 349RJT/2011 - 9 - WAS APPEARED UNDER THE HEAD CAPITAL . HE WAS FURTHER OF THE VIEW THAT THE ADDITIONAL SHARE CAPITAL CLAIMED TO HAVE BEEN RAISED FROM THE SHARE HOLDERS AS DEPOSIT DOES NOT HAVE THE CHARACTER OF DEPOSIT AS THE PERIOD OF SUCH DEPOSIT IS NOT SPECIFIED. HE WAS FURTHER OF THE VIEW THAT THE ASSESSEE HAS FAILED TO PRODUCE EVIDENCE TO SUPPORT THE CLAIM THAT THE AMOUNTS ARE IN THE NATURE OF DEPOSITS. HE ACCORDINGLY DISALLOWED THE CLAIM OF INTEREST OF RS.27,74, 965/ - AND HELD IT TO BE IN TH E NATURE OF DIVIDEND PAID TO SHARE HOLDE R S OF THE SOCIETY. 1 2 . AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A), WHO AFTER CONSIDERING THE SUBMISSION O F THE ASSESSEE, DELETED THE ADDITION H OLDING AS UNDER: GROUND NO 3 AND 4 ARE RELATED TO DISALLOWANCE OF RS. 27,27,965/ - BEING INTEREST PAYMENTS ON SHARE LINKED DEPOSIT. FACTS OF THE CASE CAN BE PUT INTO NARROW COMPASS. APPELLANT IS A COOPERATIVE BANK CARRYING ON THE BANKING BUSINESS. IT HAS CLAIMED DEDUCTION OF INTEREST OF RS 27.74 LAKHS ON ADDITIONAL LINKING SHARE CAPITAL DEPOSIT RAISED FROM THE MEMBERS OF THE COOPERATIVE SOCIETY IN TERMS OF BOARD RESOLUTION DATED 31.7.2004. ACCORDING TO THAT RESOLUTION APPELLANT HAS DECIDED TO ACCEPT SHARE LINK DEPOSIT ON ALL NEW ADVANCES AND ACCEPT DEPOSIT OF 5 % OF UNSECURED LOANS, 2.5 % OF SECURED LOAN, AND 2.5 % OF SMALL ADVANCES AND ON THESE SHARE LINK DEPOSIT INTEREST @ 7 % WAS TO BE PAID. AS PER NOTE NO 7 OF SCHEDULE 19 OF ANNUAL ACCOUNTS IT IS STA TED THAT INTEREST/ DIVIDEND AMOUNT OF RS 27.74 LAKHS ON ADDITIONAL SHARE CAPITAL LINKING TO BORROWING IS INCLUDED IN INTEREST EXPENDED ON DEPOSIT ACCOUNT. IN THE ANNUAL ACCOUNTS, THE AMOUNT OF LINKING DEPOSIT IS SHOWN IN SCHEDULE - 1 OF SHARE CAPITAL AS AD DITIONAL SHARE CAPITAL - LINKING OF SHAREHOLDING TO BORROWING OF RS. 5.15 CROR E S. LD. AO HAS DISALLOWED THIS AMOUNT STATING THAT AS THE APPELLANT HAS SHOWN THIS AMOUNT UNDER HEAD SHARE CAPITAL DISTINCT FROM DEPOSITS TAKEN BY THE BANK AND FURTHER THE TERM O F THE FIXED DEPOSIT IS ALSO NOT MENTIONED. LD A WAS ALSO OF THE OPINION THAT APPELLANT HAS FAILED TO PROVE THAT THESE ARE DEPOSITS AND THEREFORE SHE HELD THAT SAME IS NOTHING BUT AN ADDITIONAL SHARE CAPITAL AND THE AMOUNT PAID IS NOTHING BUT THE DIVIDEND AND THEREFORE SAME IS DISALLOWED. APPELLANT SUBMITTED THAT ITA NO.914 &920 / RJT /20 1 0 AND 349RJT/2011 - 10 - THE CLASSIFICATION OF THIS SHARE DEPOSIT IN SCHEDULE - 1 AS SHARE CAPITAL DOES NOT ALTER THE BASIC CHARACTER OF THE AMOUNT ACCEPTED AS DEPOSIT. APPELLANT HAS STATED THAT THIS AMOUNT IS LINKING DEPOS IT FROM SHAREHOLDERS OF THE BANK WHICH IS ISSUED IN ACCORDANCE WITH THE RESOLUTION OF THE BANK SPECIFYING THE PERCENTAGE OF DEPOSIT TO BE ACCEPTED. APPELLANT ALSO PRODUCED THE COPY OF DEPOSIT CERTIFICATE ISSUED BY THE BANK TO SUCH SHAREHOLDERS. ON VERIFICA TION OF THE SAME IT IS FOUND THAT SUCH CERTIFICATE SHOWS NAME OF DEPOSITOR DATE OF DEPOSIT, AMOUNT OF DEPOSIT PERIOD OF DEPOSIT STATING THAT IT SHALL BE UP TO THE DATE OF HOLDING OF MEMBERSHIP OF THE BANK BY DEPOSITOR. THEREFORE IN FACT SAME IS DEPOSIT AN D MERELY CLASSIFICATION OF THIS SHARE LINK DEPOSIT IN SCHEDULE - 1 AS SHARE CAPITAL DOES NOT ALTER THE BASIC CHARACTER OF THE SUM RECEIVED AS DEPOSIT. AS THE SAME IS A DEPOSIT, APPELLANT IS ENTITLED TO DEDUCTION OF INTEREST PAID / PAYABLE ON THE SAME. IN VI EW OF THIS, DISALLOWANCE OF INTEREST PAYMENT OF RS.27,74,965/ - ON SHARE LINKED DEPOSIT IS DELETED. 1 3 . AGGRIEVED BY THE ORDER OF THE CIT(A) REVENUE IS NOW IN APPEAL BEFORE US. 1 4 . BEFORE THE LEARNED DR SUPPORTED THE ORDER OF THE AO, ON THE OTHER HAND, THE LEARNED AR REITERATED THE SUBMISSIONS MADE BEFORE THE AO AND THE CIT(A) AND SUPPORTED THE ORDER OF THE CIT(A). 1 5 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE CIT(A) WHILE DELETING THE ADDITION HAS GIVEN A FINDING THAT ON VERIFICATION OF DEPOSIT CERTIFICATE ISSUED BY THE BANK TO THE SHAREHOLDERS THAT THE CERTIFICATE SHOWED NAME OF DEPOSITOR, D A TE OF DEPOSIT, AMOUNT OF DEPOSIT, PERIOD O F DEPOSIT STATING THAT IT SHALL BE UPTO THE DATE OF HOLDING OF THE MEMBERSHIP OF THE BANK BY DEPOSITOR. HE HAS FURTHER GIVEN A FINDING TH A T THE AMOUNT RECEIVED BY THE BANK WAS IN THE NATURE OF DEPOSITS AND MERE C LASSIFICATION OF THIS S HARE LINK ED DEPOSIT DOES NOT ALTER THE BASIC CHARACTER OF THE SUM RECEIVED AS DEPOSIT. BEFORE US, THE REVENUE HAS NOT BROUGHT ON RECORD ANY MATERIAL TO CONTROVERT THE FI NDING OF THE CIT(A). I N VIEW OF THE AFORESAID REASONS, WE FIND NO REASON TO ITA NO.914 &920 / RJT /20 1 0 AND 349RJT/2011 - 11 - INTERFERE WITH THE ORDER OF THE CIT(A), AND THUS THE ORDER OF CIT(A) IS CONFIRMED. THUS, T HE GROUND OF THE REVENUE IS DISMISSED. 1 6 . IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED . 1 7 . NOW WE TAKE UP THE REVENUE S APPEAL FOR A.Y.2008 - 09 IN ITA NO.349/RJT/2011 AND THE GROUNDS RAISED IN IT READS AS UNDER: 1. THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.68,98,000/ - BEING THE AMORTIZATION OF PREMIUM PAID ON INVESTMENTS UNDER HELD TO MATURITY CATEGORY HOLDING THAT THE SAME IS NOT A REVENUE EXPENDITURE IN NATURE. 1 8. BOTH THE PARTIES BEFORE US SUBMITTED THAT THE FACTS AND CIRCUMSTANCES OF THE GROUND IN THE PRESENT APPEAL OF THE REVENUE IS IDENTICAL TO THE GROUND RAISED BY THE ASSESSEE IN ITA NO.914/RJT/2010 FOR A.Y.2007 - 08 EXCEPT FOR THE QUANTUM, AND THE SUBMISSIONS MADE BY THEM WHILE ARGUING THE GROUND FOR A.Y.2007 - 08 WOULD BE EQUALLY APPLICABLE TO THE PRESENT GROUND, AND THEREFORE, THIS APPEAL MAY ALSO BE DECIDED ACCORDINGLY. 1 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN VIEW OF SUBMISSIONS OF BOTH THE PARTIES, SINCE WE HAVE DECIDED THE GROUND IN THE APPEAL OF THE ASSESSEE FOR THE ASSTT.YEAR 2007 - 08 IN FAVOUR OF THE ASSESSEE, AND FOR THE SIMILAR RE ASONS RECORDED WHILE DECIDING THE APPEAL OF THE ASSESSEE FOR THE A.Y.2007 - 08 AND FOR SIMILAR REASONS, WE DISMISS THE APPEAL OF THE REVENUE AND DECIDE THE PRESENT APPEAL IN FAVOUR OF THE ASSESSEE. THUS, THE APPEAL OF THE REVENUE IS DISMISSED. 20 . IN THE RE SULT, BOTH THE APPEAL S OF THE ASSESSEE ARE ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONED HEREINABOVE. SD/ - SD/ - ( . . /G.C. GUPTA) /VICE - PRESIDENT ( / ANIL CHATURVEDI) /ACCOUNTANT MEMBER ITA NO.914 &920 / RJT /20 1 0 AND 349RJT/2011 - 12 - C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER AR, ITAT, RAJKOT