The Ahmednagar Merchants Co.op. Bank Ltd.,Ltd.,, Ahmednagar v. Joint Commissioner of Income-tax,

ITA 1863/PUN/2013 | 2010-2011
Pronouncement Date: 29-04-2015 | Result: Allowed

Appeal Details

RSA Number 186324514 RSA 2013
Assessee PAN AAAAT3334M
Bench Pune
Appeal Number ITA 1863/PUN/2013
Duration Of Justice 1 year(s) 6 month(s) 14 day(s)
Appellant The Ahmednagar Merchants Co.op. Bank Ltd.,Ltd.,, Ahmednagar
Respondent Joint Commissioner of Income-tax,
Appeal Type Income Tax Appeal
Pronouncement Date 29-04-2015
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 29-04-2015
Date Of Final Hearing 13-10-2014
Next Hearing Date 13-10-2014
Assessment Year 2010-2011
Appeal Filed On 15-10-2013
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A PUNE BEFORE M S SUSHMA CHOWLA JUDICIAL MEMBER AND SHRI R.K. PANDA ACCOUNTANT MEMBER ITA NO. 1863 /PN/201 3 ASSESSMENT YEAR: 20 1 0 - 1 1 THE AHMEDNAGAR MERCHANTS CO - OPERATIVE BANK LIMITED M/S. SHANTILAL GA NDHI TAX CONSULTANT 146 AMBER PLAZA 1 ST FLOOR STATION ROAD AHMEDNAGAR 414001 . APPELLANT PAN: A AA AT3334M VS. THE JT. COMMISSIONER OF INCOME TAX AHMEDNAGAR RANGE AHMEDNAGAR . RESPONDENT ITA NO. 1981 /PN/201 3 ASSESSMENT YEAR: 20 1 0 - 1 1 T HE JT. COMMISSIONER OF INCOME TAX AHMEDNAGAR RANGE AHMEDNAGAR . APPELLANT VS. VS. THE AHMEDNAGAR MERCHANTS CO - OPERATIVE BANK LIMITED M/S. SHANTILAL GANDHI TAX CONSULTANT 146 AMBER PLAZA 1 ST FLOOR STATION ROAD AHMEDNAGAR 414001 . RESPOND ENT PAN: AAAAT3334M ASSESSEE BY : SHRI C.H. NANIWADEKAR DEPARTMENT BY : SHRI B.D. SINGH DEPARTMENT BY : SHRI B.D. SINGH DATE OF HEARING : 06 - 04 - 201 5 DATE OF PRONOUNCEMENT : 29 - 0 4 - 201 5 ORDER PER SUSHMA CHOWLA J M : THE CROSS APPEALS FILED B Y THE ASSESSEE AND REVENUE ARE AGAINST THE ORDER OF CIT (A) - I T/TP PUNE DATED 30 .0 8 .201 3 REL ATING TO ASSESSMENT YEAR 20 1 0 - 1 1 PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961 . ITA NO . 1863 /PN/201 3 ITA NO.1981/PN/2013 THE AHMEDNAGAR MERCHANTS COOPERATIVE BANK LTD. 2 2. THE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE WERE HEARD TO GETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3. THE ASSESSEE IN ITA NO. 1863 /PN/201 3 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : - 1 . THAT THE LEARNED CIT(APPEALS) IT/TP PUNE HAS ERRED ON FACTS AND IN LAW IN CONFI RMING THE ADDITION MADE BY A.O RS. 26 39 605/ - ON ACCOUNT OF UNCLAIMED LIABILITY AS APPEARING IN THE BALANCE SHEET. THE ADDITION MADE BY A.O. CONFIRMED BY CIT(APPEALS) IT/TP PUNE BE DELETED. 2 . TH AT YOUR APPELLANT PRAYS THAT HE MAY BE ALLOWED TO ADD TO ALTER OR TO AMEND THE ABOVE GROUNDS OF APPEAL. 4 . THE REVENUE IN ITA NO. 1981 /PN/201 3 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : - 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) IS CONTRARY TO LAW AND TO THE FACTS AND CIRCUMSTANCES OF THE C ASE. 2. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) GROSSLY ERRED IN 2. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) GROSSLY ERRED IN DELETING THE ADDITION OF RS.22 69 144/ - MADE BY THE ASSESSING OFFICER BY DISALLOWING THE ASSESSEE'S CLAIM OF DEDUCTION ON ACCOUNT OF PREMIUM PAID ON INVESTMENT IN GOVERNMENT SECURITIES . 3. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) GROSSLY ERRED IN H OLDING THAT AS THE ASSESSEE HAD MADE INVESTMENT IN THE 'HELD TO MATURITY' SECURITIES I N ACCORDANCE WITH THE RBI GUIDELINES TO CARRY ON THE BUSINESS OF BANKING AMORTIZATION OF THE PREMIU M PAID ON SUCH SECURITIES H AS THE ELEMENT OF REVENUE EXPENDITURE. 4. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) GROSSLY ERRED IN FAILING TO APPRECIATE THAT 'HELD TO MATURITY SECURITIES BEING INVESTMENTS ARE IN THE NATURE OF CAPITAL ASSETS AND NOT IN THE NATURE OF STOCK - IN - TRADE; AND THERE F ORE ANY EXPENDITURE INCURRED THEREON COULD ONLY BE CAPITAL EXPENDITURE NOT ADMISSIBLE AS DEDUCTION. EVEN IN THE MASTER CIRCULAR DATED 01 - 07 - 2013 ISSUED BY THE RESERVE BANK OF INDIA SECURITIES ACQUIRED BY THE BANKS 'WITH THE INTENTION TO HOLD THEM UPTO MATURITY' HAVE BEEN CLASSIFIED UNDER HTM WHICH CLEARLY ESTABLISH THAT THESE ARE CAPITAL ASSETS. 5. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) GROSSLY ERRED IN FAILING TO APPRECIATE THAT THE RBI GUIDELI NES ONLY CATEGORISE THE SECURITIES AS AFS HFT AND HTM AND DO NOT DEAL WITH THE ACCOUNTING TREATMENT OF THE PREMIUM PAID BY THE ASSESSEE ON SUCH SECURITIES: AND THEREFORE IT WAS ERRONEOUS ON THE PART OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) T O TREAT SUCH PREMIUM AS REVENUE EXPENDITURE MERELY BY REFERRING TO THE RBI GUIDELINES. ITA NO . 1863 /PN/201 3 ITA NO.1981/PN/2013 THE AHMEDNAGAR MERCHANTS COOPERATIVE BANK LTD. 3 6. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) GROSSLY ERRED IN FAILING TO APPRECIATE THAT UNDER THE INCOME - TAX ACT 1961 AN EXPENDITURE C AN BE CLAIMED AND ALLOWED A S DEDUCTION ONLY AS PER THE PROVISIONS OF THE SAID ACT AND IRRESPECTIVE OF WHAT IS STIPULATED IN ANY OTHER ACT OR RULES INCLUDING THE RBI GUIDELINES UNLESS SO SPECIFICALLY PROVIDED IN THE INCOME - ACT 1961. 7. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS ) GROSSLY ERRED IN DELETING THE ADDITION OF RS.22 12 817/ - WHICH HAD BEEN MADE BY THE ASSESSING OFFICER BY WAY OF DISALLOWING THE ASS E SSEE'S CLAIM OF DEDUCTION ON ACCOUNT OF PAYMENT OF BROKEN PERIOD INTEREST ON INVESTMENT IN THE 'HELD TO MATURITY' SECURIT IES. 8. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) GROSSLY ERRED IN FAILING TO APPRECIATE THAT AS THE H TM SECURITIES ARE IN THE NATURE OF INVESTMENTS AND NOT STOCK - IN - TRADE THE SAME PARTAKE THE NATURE OF CAPITAL ASSETS AND IN THE CIRCUMSTANCES AN Y LIABILITY INCURRED OR PAYMENT MADE FOR ACQUIRING SUCH INVESTMENTS COULD ONLY BE TREATED AS CAPITAL EXPENDITURE NOT ADMISSIBLE AS DEDUCTION. 9. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) GROSSLY ERRED IN DELETING THE ABOVE ADDITION BY RELYING ON THE D ECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF AMERICAN EXPRESS INTERNATIONAL BANKING CORPORATION VS. CIT 177 CTR (MUM) 442 WITHOUT APPRECIATING THAT THE ISSUE RELATING TO 'HELD TO MATURITY' SECURITIES WAS NOT DISCUSSED IN THE ABOVE C A SE. 10. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS] GROSSLY ERRED IN PRESUMING THE CORRECTNESS OF THE ASSESSE E 'S CLAIM THAT INTEREST ON THE PRESUMING THE CORRECTNESS OF THE ASSESSE E 'S CLAIM THAT INTEREST ON THE IMPUGNED SECURITIES HAD BEEN OFFERED TO TAX AS BUSINESS INCOME U/S.23 OF THE INCOME - TAX ACT WITHOUT CALLING F OR ANY DETAI LS OR EVIDENCES IN SUPPORT OF THE ABOVE CLAIM. 11. THE LEARNED COMMISSIONER OF INCOME - T AX (APPEALS) GROSSLY ERRED IN NOT TAKING COGNIZANCE OF THE FACT THAT EVEN IN THE MASTER CIRCULAR ISSUED BY THE RESERVE BANK OF INDIA ON THE SUBJECT 'PRUDENTIAL NORMS FOR C LASSIFICATION VALUATION AND OPERATION OF INVESTMENT PORTFOLIO BY BANKS' DATED JULY 01 2013 IT HAS BEEN CLEARLY STATED THAT THE ACCOUNTING TREATMENT IN RESPECT OF BROKEN PERIOD INTEREST PRESCRIBED IN THE SAID CIRCUL AR DOES NOT TAKE INTO A CCOUNT THE TAX IMPLICATIONS AND HENCE THE BANKS SHOULD COMPLY 'WITH THE REQUIREMENTS OF INCOME - T AX AUTHORITIES IN THE MANNER PRESCRIBED BY THEM'. 12. FOR THESE AND SUCH OTHER GROUNDS AS MAY B E URGED AT THE TIME OF THE HEARING THE ORDER OF THE LEAR NED COMMISSIONER OF I NCOME - TAX (APPEALS ) MAY BE VACATED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 13. THE APPELLANT CRAVES LEAVE TO ADD AMEND ALTER OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL DURING THE COURSE OF THE APPELLATE PROCEEDINGS BEFORE THE H ON'BLE TRIBUNAL. 5. THE ONLY ISSUE RAISED BY THE ASSESSEE IN ITS APPEAL IS AGAINST THE ADDITION MADE BY THE ASSESSING OFFICER OF RS.26 39 605/ - ON ACCOUNT OF UNCLAIMED LIABILITY APPEARING IN THE BALANCE SHEET. ITA NO . 1863 /PN/201 3 ITA NO.1981/PN/2013 THE AHMEDNAGAR MERCHANTS COOPERATIVE BANK LTD. 4 6. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE WAS A COOPERATIVE BANK AND HAD SEVERAL BRANCHES THROUGH WHICH IT WAS CARRYING ON ITS BUSINE SS. DURING THE YEAR UNDER CONSIDERATION IN THE BALANCE SHEET FILED THE ASSESSEE HAD SHOWN SUM OF RS.27 57 051/ - AS UNCLAIMED LIABILITY UNDER T HE HEAD SUNDRIES. THE ASSESSING OFFICER SHOW CAUSED THE ASSESSEE TO SUBSTANTIATE ITS LIABILITIES AND THEIR CURRENT STATUS AND WHY THE SAME SHOULD NOT BE WRITTEN BACK AS INCOME FOR THE YEAR. IN REPLY THE ASSESSEE POINTED OUT THAT THE SAID AMOUNTS REPRE SENT THE AMOUNTS OF DEMAND DRAFTS WHICH WERE PURCHASED BY THE CUSTOMERS BUT WERE NOT PRESENTED FOR CLEARING FOR MORE THAN SIX MONTHS. IT WAS ALSO CLARIFIED BY THE ASSESSEE THAT MOST OF THESE ENTRIES WERE CLEARED IN THE SUCCEEDING YEAR. THE ASSESSING OFF ICER PERUSED THE DETAILS AND NOTED THAT THE UNCLAIMED AMOUNTS IN RESPECT OF NON - ENCASHMENT OF DEMAND DRAFTS PERTAIN TO AS EARLY 2002 - 03 TO 2006 - 07 AND SOME UNCLAIMED AMOUNTS PERTAIN ED TO THE PERIOD AS EARLY 1995 - 96 . IN THE STATEMENT FURNISHED FOR THE SUBS EQUENT YEARS THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD PAID RS.1 77 446/ - AND TO THAT EXTENT THE LIABILITY SHOWN BY THE ASSESSEE WAS ALLOWED AND THE BALANCE OF RS.26 39 605/ - WAS ADDED AS INCOME OF THE ASSESSEE ON ACCOUNT OF EXTINGUISHMENT OF LIA BILITIES WITH RESPECT TO OLD ENTRIES. 7. THE CIT(A) UPHELD THE ORDER OF ASSESSING OFFICER SINCE ACCORDING TO PROVISIONS OF LIMITATION ACT THE LIABILITY OF THE ASSESSEE WAS NO LONGER ENFORCEABLE. RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY THE TH REE ME MBER BENCH OF HONBLE SUPREME COURT IN CIT VS. TVS SUNDARAM IYENGAR AND SONS LTD. (1996) 222 ITR 344 (SC) . 8. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 9. IT WAS POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT THE UNCLAIMED LIABILITY CONSTITUTED OF UNCLAIMED DEMAND DRAFTS AND ALSO INTER - BRANCH UN - RECONCILED TRANSFERS. IT WAS FURTHER POINTED OUT BY THE ITA NO . 1863 /PN/201 3 ITA NO.1981/PN/2013 THE AHMEDNAGAR MERCHANTS COOPERATIVE BANK LTD. 5 LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT THE CIT(A) HAD APPLIED THE RATIO LAID DOWN BY THE HONBLE S UPREME COURT IN CIT VS. TVS SUNDARAM IYENGAR AND SONS LTD. (SUPRA) WHICH WAS IN RELATION TO THE PROVISIONS OF SECTION 41(1) OF THE ACT. OUR ATTENTION WAS DRAWN TO THE RATIO LAID DOWN BY THE DELHI BENCH OF THE TRIBUNAL IN PUNJAB NATIONAL BANK VS. ACIT (20 12) 31 CCH 300 DELHC FOR THE PROPOSITION THAT THE TRANSACTIONS BETWEEN THE BRANCHES ACCOUNT RESULT IN AN INCOME TO THE BANK AND NO PERSON CAN MAKE PROFIT BY TRANSACTING WITH SELF. IT WAS FURTHER POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR TH E ASSESSEE THAT THE SAID LIABILITY IS BEING RECOGNIZED BY THE ASSESSEE AND CONSEQUENTLY THE RATIO LAID DOWN BY THE CHENNAI BENCH OF THE TRIBUNAL IN ACIT VS. KARUR VYSYA BANK LTD. (2013) 35 CCH 348 CHENTRIB IS SQUARELY APPLICABLE. ANOTHER RELIANCE WAS PLA CED ON THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN CIT VS. SUGAULI SUGAR WORKS (P) LTD. (1999) 236 ITR 518 (SC). 10. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED 10. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDER OF CIT(A). 11. WE HAVE HEARD THE RIVAL CONTE NTIONS AND PERUSED THE RECORD. THE ASSESSEE BANK IN THE BALANCE SHEET FILED FOR THE YEAR UNDER CONSIDERATION HAD SHOWN UNCLAIMED LIABILITY OF RS. 27 57 051/ - . THE EXPLANATION WITH REGARD TO THE NATURE OF SAID LIABILITY BY THE ASSESSEE BEFORE THE AUTHORITI ES BELOW WAS THAT THE SAME REPRESENTED THE UNCLAIMED DEMAND DRAFTS PURCHASED BY THE CUSTOMERS WHICH HAVE NOT BEEN PRESENTED FOR CLEARING FOR MORE THAN SIX MONTHS. THE SAID LIABILITIES WERE BEING RECOGNIZED BY THE ASSESSEE IN ACCORDANCE WITH THE GUIDELINE S OF THE RBI. FURTHER CLAIM OF THE ASSESSEE WAS THAT PART OF THE SAID AMOUNTS W AS ADJUSTED IN THE SUBSEQUENT YEARS. HOWEVER SUM OF RS.1 17 446/ - WAS THE AMOUNT PERTAINING TO CURRENT YEAR WHICH WAS PAID IN THE SUCCEEDING YEAR HENCE THE SAME AMOUNT WAS NOT ADDED IN THE HANDS OF THE ASSESSEE AND AN ADDITION OF THE BALANCE AMOUNT OF RS.26 39 605/ - WAS MADE IN THE HANDS OF THE ASSESSEE ON THE PREMISE THAT IN VIEW OF THE PROVISIONS OF LIMITATION ACT THERE ITA NO . 1863 /PN/201 3 ITA NO.1981/PN/2013 THE AHMEDNAGAR MERCHANTS COOPERATIVE BANK LTD. 6 WAS NO LIABILITY ON THE ASSESSEE TO PAY THE SAID AMO UNTS. THE ISSUE ARISING BEFORE US IS IN RELATION TO THE TREATMENT OF SAID LIABILITY RECOGNIZED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT. ONCE THE LIABILITY HAS BEEN SHOWN AND RECOGNIZED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT THEN EVEN IF THE LIABILITY I S UNCLAIMED AND RELATES TO EARLIER YEARS DOES NOT CONVERT IT INTO THE INCOME OF THE ASSESSEE. SUPPORT IN THIS REGARD IS DRAWN FROM THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN CIT VS. SUGAULI SUGAR WORKS (P) LTD. (SUPRA). HOWEVER IN CASE WHERE T HE ASSESSEE ON ITS OWN MOTION TRANSFER S THE SAID RECEIPTS THROUGH ITS PROFIT & LOSS ACCOUNT THEN ON ACCOUNT OF SUCH ACT OF THE ASSESSEE ITSELF THE AMOUNT CHANGES ITS CHARACTER AND BECOMES ASSESSEES OWN MONEY AND THE SAME IS TO BE TREATED AS INCOME OF TH E ASSESSEE AS PER THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN CIT VS. TVS SUNDARAM IYENGAR AND SONS LTD. (SUPRA) . HOWEVER IN THE FACTS OF THE PRESENT CASE THE ASSESSEE CONTINUES TO RECOGNIZE THE LIABILITY AND ONCE THE LIABILITY HAS BEEN SO RECOG NIZED BY THE ASSESSEE THERE IS NO MERIT IN TREATING THE SAME AS INCOME OF THE ASSESSEE THOUGH SOME OF THE AMOUNTS MAY NOT BE RECOVERABLE BY APPLICATION OF PROVISIONS OF LIMITATION ACT. WE FIND SUPPORT FROM THE RATIO LAID DOWN BY THE CHENNAI BENCH OF THE TRIBUNAL IN ACIT VS. KARUR VYSYA BANK LTD. (SUPRA) AND PUNE BENCH OF THE TRIBUNAL IN ACIT VS. PEOPLES CO - OPERATIVE BANK LTD. IN ITA NO.2197/PN/2012 RELATING TO ASSESSMENT YEAR 2009 - 10 ORDER DATED 29.09.2013. ACCORDINGLY WE DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS.26 39 605/ - . THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS ALLOWED. 12. NOW COMING TO THE APPEAL OF THE REVENUE. THE ISSUE IN GROUNDS OF APPEAL NOS.1 TO 8 RAISED BY THE REVENUE IS AGAINST THE DELETION OF ADDITION MADE BY THE ASSESSING OFFICER BY DISALLOWING THE ASSESSEES CLAIM OF DEDUCTION ON ACCOUNT OF PREMIUM PAID ON GOVERNMENT SECURITIES. THE REVENUE VIDE GROUNDS OF APPEAL NOS.9 TO 11 HAS RAISED THE ISSUE OF DELETION OF ADDITION MADE ON ACCOUNT OF BROKEN PERIO D INTEREST . ITA NO . 1863 /PN/201 3 ITA NO.1981/PN/2013 THE AHMEDNAGAR MERCHANTS COOPERATIVE BANK LTD. 7 13. BRIEFLY THE FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE IN ITS PROFIT & LOSS ACCOUNT HAD DEBITED A SUM OF RS. 22 12 817/ - AS PREMIUM PAID ON INVEST MENT IN GOVERNMENT SECURITIES AND HAD ALSO PAID BROKEN PERIOD INTEREST ON INVESTMENT ON GOVERNMENT SECURITIES. THE ASSESSING OFFICER SHOW CAUSED THE ASSESSEE TO EXPLAIN AS TO WHY BOTH THE SAID AMOUNTS SHOULD NOT BE TREATED AS CAPITAL EXPENDITURE BY THE ASSESSEE. THE ASSESSEE HAD CLAIMED THE AMORTIZATION ON HTM SECURITIES WHICH WAS REJEC TED BY THE ASSESSING OFFICER AS THE SAID SECURITIES WERE HELD BY THE ASSESSEE AS INVESTMENT AND NOT AS STOCK IN TRADE. FURTHER THE ASSESSING OFFICER ALSO TREATED THE BROKEN PERIOD INTEREST PAID TO OTHER BANKS OF RS.22 12 817/ - IN RESPECT OF INVESTMENTS I N GOVERNMENT SECURITIES WHICH WERE HELD BY THE ASSESSEE FOR PART OF THE FINANCIAL YEAR AS INCOME OF ASSESSEE AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 14. THE CIT(A) ALLOWED THE CLAIM OF ASSESSEE VIS - - VIS AMORTIZATION OF PREMIUM PAID ON HT M SECURITIES AS AN ALLOWABLE DEDUCTION IN TURN FOLLOWING THE PREMIUM PAID ON HT M SECURITIES AS AN ALLOWABLE DEDUCTION IN TURN FOLLOWING THE RATIO LAID DOWN BY THE DIFFERENT BENCHES OF THE TRIBUNAL INCLUDING THE PUNE BENCH OF THE TRIBUNAL IN LATUR URBAN CO - OPERATIVE BANK LTD. IN ITA NOS.778 AND 792/PN/2011 VIDE ORDER DATED 31.08.201 2 . FURTHER THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF BROKEN PERIOD INTEREST OF RS.22 12 817/ - WAS ALSO ALLOWED IN THE HANDS OF THE ASSESSEE IN VIEW OF THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN AMERICAN EXPRESS INTERNATIONAL BANKING C ORPORATION VS. CIT (2002) 177 CTR (BOM) 442 . 15. THE REVENUE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 16. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ISSUE OF PREMIUM PAID ON HTM SECURITIES AND ITS ALLOWABILITY IS SQUARE LY COVERED BY THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 2009 - 10. IN RESPECT OF THE SECOND ISSUE RAISED IN THE APPEAL BY THE REVENUE VIDE GROUNDS OF APPEAL NOS.9 TO 11 IS SQUARELY COVERED BY THE RATIO LAID ITA NO . 1863 /PN/201 3 ITA NO.1981/PN/2013 THE AHMEDNAGAR MERCHANTS COOPERATIVE BANK LTD. 8 DOWN BY THE HONBLE BOMBAY HIGH COURT IN AMERICAN EXPRESS INTERNATIONAL BANKING CORPORATION VS. CIT (SUPRA). 17. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDER OF ASSESSING OFFICER. 18. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE FIRST ISSUE ARISING IN THE PRESENT APPEAL FILED BY THE REVENUE IS WITH REGARD TO THE ALLOWABILITY OF AMORTIZATION PREMIUM PAID ON HTM SECURITIES AT RS. 22 69 144/ - . THE PUNE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 712/PN/20 13 RELATING TO ASSESSMENT YEAR 2009 - 10 VIDE ORDER DATED 27.11.2013 HAD ALLOWED THE CLAIM OF ASSESSEE IN TURN RELYING ON THE ORDER OF TRIBUNAL IN NAGAR URBAN CO - OPERATIVE BANK LTD. IN ITA NO.306/PN/2012 OBSERVING AS UNDER: - 2. THE ONLY ISSUE IS WITH REG ARD TO ADDITION MADE BY ASSESSING OFFICER WHO HAS DISALLOWED THE AMORTIZATION PREMIUM PAID ON GOVT. SECURITIES OF RS.23 13 525/ - . AT THE OUTSET OF HEARING LEARNED AUTHORIZED REPRESENTATIVE POINTED OUT THAT THIS ISSUE IS COVERED IN FAVOUR OF ASSESSEE BY TH E ORDER IN THE CASE OF NAGAR URBAN CO - OPERATIVE BANK LTD. IN ITA NO.306/PN/2012 WHEREIN CASE OF NAGAR URBAN CO - OPERATIVE BANK LTD. IN ITA NO.306/PN/2012 WHEREIN THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER: 4. WE HAVE HEARD THE PARTIES. WE FIND THAT THE ISSUE BEFORE US IS CLEARLY COVER ED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT PUNE BENCH IN THE CASE OF LATUR URBAN CO - OP. BANK LTD. IN ITA NO. 778 AND 792/PN/2011 ORDER DATED 31 - 8 - 2012. THE RELEVANT DISCUSSION AND FINDING OF THE TRIBUNAL ON THE ISSUE IS AS UNDER. 13. SO FAR A S GROUND NO. 2 IS CONCERNED IT IS IN RESPECT OF THE DISALLOWANCES ON THE LOSS ON SALE OF SURPLUS OF RS. 14 70 000/ - . THE A.O HAS OBSERVED THAT AN AMOUNT OF RS. 14 70 000/ - IS DEBITED TO THE PROFIT & LOSS A/C ON ACCOUNT OF LOSS ON SALE OF SECURITIES. THE A.O HAS FURTHER OBSERVED THAT THE ASSESSEE IN ITS SUBMISSION HAS STATED THAT SECURITIES OF THE BANK ARE HELD UNDER THE HEAD TO MATURITY CATEGORY AND THEREFORE LOSS ARISING ON THE SALE OF INVESTMENT IS IN THE NATURE OF CAPITAL LOSS AND THEREFORE TH E SAME IS NOT ALLOWABLE EXPENDITURE. THE A.O MADE THE ADDITION TO THE EXTENT OF RS. 14 70 000/ - . THE LD CIT(A) CONFIRMED THE ADDITION. 14. WE HAVE HEARD THE PARTIES. THE LD COUNSEL PLACED HIS HEAVY RELIANCE ON THE DECISION OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. BANK OF BARODA AND IN THE CASE OF UCO BANK VS. CIT 240 ITR 355 (SC). IN THE CASE OF BANK OF BARODA (2003) 262 ITR 334 (BOM) THE ISSUE BEFORE THEIR LORDSHIP WAS WHETHER THE ASSESSEE WAS ENTITLED FOR DEDUCTION ON ACCOUNT OF D EPRECIATION IN THE VALUE OF INVESTMENTS. THE METHOD OF VALUATION FOLLOWED BY THE ASSESSEE BANK WAS TO VALUE INVESTMENTS AT COST OR MARKET VALUE WHICHEVER WAS LOWER. THE ASSESSEE HAD CLAIMED THE DEPRECIATION TO THE TUNE OF RS. 11 82 35 007/ - AND THE SAID DEPRECIATION WAS CLAIMED AS A DEDUCTION WHICH WAS DISALLOWED BY THE A.O BUT THE ASSESSEE BANK SUCCEEDED BEFORE THE CIT(A). THE TRIBUNAL CONFIRMED THE ORDER OF THE CIT(A). THE REVENUE CARRIED THE ITA NO . 1863 /PN/201 3 ITA NO.1981/PN/2013 THE AHMEDNAGAR MERCHANTS COOPERATIVE BANK LTD. 9 ISSUE BEFORE THE HONBLE HIGH COURT. THE CORE ISSUE WAS T HE METHOD OF VALUATION ADOPTED BY THE ASSESSEE BANK FOR VALUING THE STOCK OF THE SECURITIES. THE HONBLE HIGH COURT FOLLOWED THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF UNITED COMMERCIAL BANK (SUPRA). 15. IN THE CASE OF UNITED COMMERCIAL BANK (SUPRA) EVEN THE ISSUE OF VALUATION OF THE STOCK IN TRADE OF THE INVESTMENT WAS BEFORE THE HONBLE SUPREME COURT. IN THE CASE OF THE ASSESSEE THE ISSUE IS REGARDING ALLOWABILITY OF THE LOSS ON THE SALE OF THE SECURITIES. MERELY BECAUSE THE SECURITIES ARE KEPT UNDER THE HEAD TILL THE MATURITY THE SAID SECURITY CANNOT BE TREATED AS A PURELY INVESTMENT. LAW IS WELL SETTLED THAT THE SECURITIES HELD BY THE BANK ARE IN THE NATURE OF STOCK - IN - TRADE. WE MAY LIKE TO QUOTE HERE THE DECISION OF THE HONBLE H IGH COURT OF KERALA IN THE CASE OF CIT VS. NEDUNGADI BANK LTD. 264 ITR 545. IN THE SAID CASE THE HONBLE HIGH COURT HAS HELD THAT THE SECURITIES HELD BY THE BANK ARE IN THE NATURE OF STOCK - IN - TRADE. BOTH THE AUTHORITIES BELOW HAVE MERELY GONE ON THE NO MENCLATURE OF THE HEAD UNDER WHICH THE SECURITIES ARE HELD. IN OUR CONSIDERED VIEW NOMENCLATURE CANNOT BE DECISIVE FOR THE ASSESSEE BANK. WE THEREFORE HOLD THAT THE LOSS ON THE SALE OF THE SECURITIES IS REVENUE IN NATURE AND SAME IS ALLOWABLE. ACCO RDINGLY GROUND NO. 2 IS ALLOWED. 2.1 MOREOVER THE SAID ISSUE IS ALSO DECIDED IN FAVOUR OF THE ASSESSEE BY OTHER CO - ORDINATE BENCH IN THE FOLLOWING CASES: I) DECISION OF BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF KRISHNA GRAMEENA BANK VS. ADDL. C IT (ITA NO. 146/BANG/2011 AND 224/BANG/2011 ORDER DATED 15 - 6 - 2012. II) DECISION OF BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF NATIONAL CO - OP. BANK LTD. VS. JT. CIT RANGE 3 BANGALORE (ITA NO. 1090/BANG/2010 AND 7/BANG/2011 ORDER DATED 11 - 5 - 2012). 1090/BANG/2010 AND 7/BANG/2011 ORDER DATED 11 - 5 - 2012). WE THEREFORE SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND ALLOW THE CLAIM OF THE ASSESSEE. 2.1 FACTS BEING SIMILAR SO FOLLOWING THE SAME REASONING WE HOLD THAT AMORTIZATION PREMIUM PAID ON GOVT. SECURITIES OF RS.23 13 525/ - DEBITED TO PROFIT AND LOSS ACCOUNT AS PER RBI GUIDELINES HAS TO BE ALLOWED BEING EXPENSES INCURRED DURING THE COURSE OF BUSINESS OF BANKING ASSESSING OFFICER IS DIRECTED ACCORDINGLY. 19. THE ISSUE ARISING BEFORE US IS SIMILAR TO THE ISSUE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2009 - 10 AND FOLLOWING THE SAME PARITY OF REASONING WE UPHOLD THE ORDER OF CIT(A) IN ALLOWING THE DEDUCTION ON ACCOUNT OF AMORTIZATION PREMIUM PAID ON GOVERNMENT SECURITIES. THE GROUNDS OF APPEAL NOS.1 TO 8 RAISED BY THE REVENU E ARE THUS DISMISSED. 20. THE SECOND ISSUE RAISED BY THE REVENUE VIDE GROUNDS OF APPEAL NOS.9 TO 11 VIS - - VIS THE ALLOWABILITY OF BROKEN PERIOD INTEREST. THE BANK IN THE COURSE OF CARRYING ON ITS BUSINESS HAD ACQUIRED CERTAIN SECURITIES ON WHICH INTERE ST WAS DUE. HOWEVER SINCE THE ASSESSEE WAS HOLDING THE SAID SECURITIES FOR PART OF THE ITA NO . 1863 /PN/201 3 ITA NO.1981/PN/2013 THE AHMEDNAGAR MERCHANTS COOPERATIVE BANK LTD. 10 ACCOUNTING PERIOD THE INTEREST DUE ON THE SAID SECURITIES FOR THE PERIOD WHEN THE SAID SECURITIES WERE HELD BY THE SEVERAL BANKS WERE CLAIMED AS DEDUCTION AS THE SAID AMOUNT WAS DUE TO THE SAID HOLDERS OF THE SECURITIES. CONSEQUENTLY THE ASSESSEE MADE A CLAIM OF DEDUCTION ON ACCOUNT OF BROKEN PERIOD INTEREST WHICH WAS NOT ALLOWED IN THE HANDS OF THE ASSESSEE . HOWEVER THE HONBLE BOMBAY HIGH COURT IN AMERICAN EXPRE SS INTERNATIONAL BANKING CORPORATION VS. CIT (SUPRA) HELD AS UNDER: - 9. THE DEPARTMENT HAS TAXED BROKEN PERIOD INTEREST RECEIVED AS BUSINESS INCOME. BU T THEY HAVE DENIED DEDUCTION FOR PAYMENT MADE FOR BROKEN PERIOD INTEREST AT THE TIME OF PURCHASE OF TH E SECURITY. ONCE THE DEPARTMENT SEEKS TO A SSESS BROKEN PERIOD INTEREST UNDER THE HEAD 'BUSINESS' THEN THE DEPARTMENT COULD NOT HAVE REJECTED THE IMPUGNED ADJUSTMENT IN THE METHOD OF ACCOUNTING ADOPTED BY THE BANK UNLESS THE DEPARTMENT WAS IN A POSITION TO PROVE THAT THE METHOD ADOPTED BY THE BANK DID NOT DISCLOSE THE TRUE AND PROPER INCOME. NOW WHEN THE ASSESSEE BOUGHT 4 - 3/4 PER CENT GO I 19 80 THE PURCHASE PRICE WAS RS. 4 92 000 AND THE INTEREST ON PURCHASE WAS RS. 5 871 . 53 WHICH WAS DEBITED TO INTEREST RE CEIVABLE ACCOUNT . HOWEVER THE SECURITY WAS PURCHASED FOR RS.4 92 000 WHICH WAS DEBITED TO ASSET ACCOUNT. THE FACE VALUE OF THE SECURITY RECEIVABLE ON REDEMPTION WAS RS.5 LAKHS. THIS DIFFERENCE OF RS.8 000 HAS BEEN ACCOUNTED FOR BY THE BANK ON A MONTHLY BASIS. THE DATE OF PURCHASE WAS 11 TH AUG. 1976. THE DATE OF REDEMPTION WAS 12TH MAY 19 8 0 AND THE DATE OF SALE WAS 6TH NOV. 1978. AS STATED ABOVE THE DIFFERENCE WAS RS.8 000 BETWEEN THE FACE VALUE AND THE AMOUNT PAID FOR THE SECURITY. THIS DIFFERENCE OF RS. 8 000 HAS FACE VALUE AND THE AMOUNT PAID FOR THE SECURITY. THIS DIFFERENCE OF RS. 8 000 HAS BEEN ACCOUNTED FOR BY THE BANK ON A MONTHLY BASIS. IF ONE TOTALS UP RS.118.43 RS.7 816 - 60 AND RS.64.97 THEN THE RESULTANT FIGURE IS RS.8 000. ACCORDINGLY THE DIFFERENCE OF RS.8 000 IS ACCOUNTED FOR IN THE PROFIT ON REVALUATION ACCOUNT. T HE AMOUNT BY WHICH VALUE OF THE SECURITY HAS BEEN INCREASED HAS BEEN OFFERED FOR TAX ON ACCRUAL BASIS IN THE APPROPRIATE ASSESSMENT YEARS DURING WHICH THE ASSESSEE HELD THE SECURITY I.E. FOR THE YEAR ENDING 31ST DEC. 1976 RS. 829 . 03; FOR THE YEAR ENDIN G 31ST DEC. 1977 RS. 2 131 . 80; AND FOR THE YEAR ENDING 31ST DEC. 1978 RS.1 806 ACCORDING TO THE DEPARTMENT PROFIT ON SALE OF SECURITY COMES TO RS.9 857 64 DURING THE ASST. YR. 1977 - 78. THIS IS CALCULATED ON THE BASIS THAT BROKEN PERIOD INTEREST PAYME NT WAS TOWARDS THE CAPITAL COST OF THE INVESTMENT. ON THAT BASIS ACCORDING TO THE DEPARTMENT PROFIT ON SALE OF SECURITY WHICH OUGHT TO BE TAXED WAS RS.9 857.64. THERE IS NO DIFFERENCE IN THE AMOUNT IN TAX WHETHER ONE ADOPTS THE ASSESSEE'S METHOD OR T HE DEPARTMENT'S METHOD. UNDER EITHER METHOD THE SAME AMOUNT IS OFFERED FOR TAX. THE DEPARTMENT HAS NOT BEEN ABLE TO SHOW IN THIS CASE AS TO WHY THE METHOD ADOPTED BY THE ASSESSEE - BANK OUGHT TO BE REJECTED. ON THE OTHER HAND THE DEPARTMENT HAS NOT BEEN AB LE TO EXPLAIN AS TO WHY BROKEN PERIOD INTEREST RECEIVED SHOULD BE TAXED WHEREAS BROKEN PERIOD INTEREST PAYMENT SHOULD BE DISALLOWED. IN THE CIRCUMSTANCES THE ORDER OF THE TRIBUNAL IS UPHELD. 10. THE AMOUNT WHICH THE ASSESSEE RECEIVED HAS BEEN BROUGHT TO TAX UNDER THE HEAD 'BUSINESS' UNDER S.2 8 . THE AMOUNT IS NOT BROUGHT TO TAX UNDER S. 18 OF THE IT ACT. AFTER BRINGING THE AMOUNT TO TAX UNDER THE HEAD 'BUSINESS' THE DEPARTMENT TAXED THE BROKEN PERIOD INTEREST RECEIVED ON SALE BUT AT THE SAME TIME DISA LLOWED BROKEN PERIOD INTEREST PAYMENT AT THE TIME OF PURCHASE AND THIS LED TO THE DISPUTE. HAVING ASSESSED THE AMOUNT RECEIVED BY THE ASSESSEE UNDER S. 28 THE ONLY LIMITED DISPUTE WAS WHETHER THE IMPUGNED ADJUSTMENTS IN THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE - BANK SHOULD BE DISCARDED. THEREFORE THE JUDGMENT IN VIJAYA BANK'S CASE HAS NO APPLICATION TO THE FACTS OF THE PRESENT CASE. CONTENTION THAT EVEN IF THE SECURITIES WERE TREATED AS PART OF THE TRADING ASSETS THE INCOME THEREFROM HAD TO BE AS SESSED UNDER S. 18 THE ACT ITA NO . 1863 /PN/201 3 ITA NO.1981/PN/2013 THE AHMEDNAGAR MERCHANTS COOPERATIVE BANK LTD. 11 AND NOT UNDER S. 28 AS INCOME FROM SECURITIES CAN ONLY COME WITHIN S. 18 AND NOT UNDER S. 28 IS NOT SUSTAINABLE. FIRSTLY AS STATED - ABOVE VIJAYA BANK'S CASE HAS NO APPLICATION TO THE FACTS OF THIS CASE. SECONDLY IN THE PRESENT CASE THE TRIBUNAL HAS FOUND THAT THE SECURITIES WERE HELD AS TRADING ASSETS . THIRDLY IT HAS BEEN HELD BY THE SUPREME COURT IN THE SUBSEQUENT DECISION THAT INCOME FROM SECURITIES CAN ALSO COME UNDER S.28 AS INCOME FROM BUSINESS. HAVING ASSESSED THE INC OME UNDER S. 28 THE DEPARTMENT OUGHT TO HAVE TAXED INTEREST FOR BROKEN PERIOD INTEREST RECEIVED AND THE DEPARTMENT OUGHT TO HAVE ALLOWED DEDUCTION FOR BROKEN PERIOD INTEREST PAID. 21. APPLYING THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN AME RICAN EXPRESS INTERNATIONAL BANKING CORPORATION VS. CIT (SUPRA) WE FIND NO MERIT IN THE ORDER OF ASSESSING OFFICER IN THIS REGARD. UPHOLDING THE ORDER OF CIT(A) WE DISMISS THE GROUNDS OF APPEAL NOS.9 TO 11 RAISED BY THE REVENUE. 22 . IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER P RONOUNCED ON THIS 29 TH DAY OF APRIL 201 5 . SD/ - SD/ - ( R.K. PANDA ) ( SUSHMA CHOWLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER P UNE DATED: 29 TH APRIL 201 5 . GCVSR COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A) - IT/TP PUNE ; 4) CIT(A) - IT/TP PUNE ; 5) THE DR A BENCH I.T.A.T. PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T. PUNE