The Acit Circle 7 Ahmedabad v. The Ahmedabad District Co Op Bank Ltd Ahmedabad

In The Income Tax Appellate Tribunal A Bench Ahmedabad Ekuhk Cksjm Ekuhk Cksjm Ekuhk Cksjm Ekuhk Cksjm Before Shri Mahavir Prasad Judicial Member And Shri Manish Borad Accountant Member I T A No 25 Ahd 2014 Assessment Year 2007 08 Assistant Commissioner Of Income Tax Circle 7 Ahmedabad Vs The Ahmedabad District Co Op Bank Ltd Nr Income Tax Office Gandhi Bridge Naka Ashram Road Ahmedabad Pan Gir No Aaaat 1067 D Appellant Respondent Appellant By Shri Jayant Jhaveri Sr D R Respondent By Shri A N Shah A R Date Of Hearing 28 11 2017 Date Of Pronouncement 01 12 2017 O R D E R Per Mahavir Prasad Judicial Member This Is An Appeal By The Department Against The Order Of The Commissioner Of Income Tax Appeals Xiv Ahmedabad Appeal No Cit A Xiv Ac Cir 7 283 2011 12 Vide Order Date D 03 10 2013 For The Assessment Year Ay 2007 08 On The Follow Ing Grounds Ita No 25 Ahd 2014 Acit Vs The Ahmedabad District Co Op Bank Ltd Asst Year 2007 08 2 I The Ld Cit A Has Erred In Law And On Facts Of The Case In Quashing The Re Assessment Proceedings By Holding That It Was Me Re Change Of Opinion Ii The Ld Cit A Has Erred In Law And On Facts In Dele Ting Disallowance Of Rs 5 84 33 430 Made On Account Of The Claim For D Eduction For Government Securities Premium Written Off Without R Eading And Truly Interpreting The Rbfs Circular Dated 04 09 1992 An Nexure Ii Accounting Standards The Cit A Ought To Have Enh Anced The Assessment By Directing The A O To Disallow The Wh Ole Sum Of Rs 6 58 93 230 Debited In The Profit Loss Accou Nt Iii On The Facts And Circumstances Of The Case The Ld Commissioner Of Income Tax A Ought To Have Upheld The Order Of Th E Assessing Officer Iv It Is Therefore Prayed That The Order Of The Ld C Ommissioner Of Income Tax A May Be Set Aside And That Of The Ass Essing Officer Be Restored 2 The Relevant Facts As Culled Out From The Materi Als On Record Are As Under In This Case Return Of Income Was Filed On 02 11 2 007 Declaring Total Income Of Rs 11 92 82 398 The Assessment U S 143 3 Of The I T Act Was Finalized On 15 12 2009 Accepting The Retur Ned Income Thereafter The Case Was Re Opened U S 147 Of The I T Act After Recording Reasons For Re Opening Satisfaction Note A Notic E U S 148 Was Issued On Dated 30 03 2011 Which Was Duly Served Upon The Assessee 2 2 During The Course Of Assessment Proceedings Re Ason For Re Opening The Assessment Satisfaction Note And The Same Is Re Produced As Under On Verification From The Assessment Records Reveale D That The Assessee Has Debited An Amount Of Rs 6 58 93 230 In The Profit Loss Account Ita No 25 Ahd 2014 Acit Vs The Ahmedabad District Co Op Bank Ltd Asst Year 2007 08 3 Towards Government Security Premium Off During Th E Previous Year Relevant To The Assessment Year 2007 08 And The Sam E Was Allowed During The Previous Year In The Books Of Accounts Securities Which Were Purchased At Premium Price Have Been Disclosed In The Books Of Accounts However During The Period Of Its Maturit Y There Was Downward Trend In Its Market Price And Therefore A S Per The Requirements Under The Banking Regulation Value Of Such Investment In Securities Was Recorded In The Books By Writing Off The Amount Of Such Premium Treating Such Loss As Part Of Banking Busi Ness In Terms Of Reserve Bank Of India On Perusal Of Balance Sheet Of The Assessee For The Year Ended 31 St March 2007 It Is Noticed From Item No 4 A Invest Ments In Central And State Government Securities That The Difference Between The Book Value And Market Value Was Rs 74 59 800 Rs 4 40 70 88 026 Books Value Minus Rs 4 39 96 28 226 Market Value Wher Eas The Assessee Had Debited An Amount Of Rs 6 58 93 230 In The Pr Ofit Loss Account Towards Government Security Premium Written Off Thus There Is Apparent Excess Claim Of Expenses Rs 5 84 33 430 On This Account On Verification From The Assessment Records Reveale D That During The Previous Year Relevant To The Assessment Year 2007 08 The Assessee Had Debited An Amount Of Rs 2 00 00 000 Towards P Rovision For Bad And Doubtful Debt Fund Apart From Provision For Income Tax 2006 07 Of Rs 3 65 00 000 And Provision For Investme Nt Depreciation Fund Of Rs 30 00 000 However Perusal Of The S Tatement Of Computation Of Income Furnished By The Assessee Al Ong With The Return Of Income Revealed That The Amount Of Provision F Or Bad And Doubtful Debt Fund Of Rs 1 00 00 000 Was Not Added Back T O Total Income Whereas The Other Two Previous Had Been Added Back Since The Amount Of Provision For Bad And Doubtful Debt Fund Of Rs 1 00 00 000 Was Not Laid Out Or Expended Wholl Y And Exclusively For The Purposes Of The Business Or Profession The Same Was Required To Disallowed I Therefore Have Reason To Believe That The Incom E To The Tune Likely To Amounting To Rs 6 84 33 430 5 84 33 43 0 1 00 00 000 His Escaped Assessment Within The Meaning Of Sectio N 147 Of The I T Ita No 25 Ahd 2014 Acit Vs The Ahmedabad District Co Op Bank Ltd Asst Year 2007 08 4 Act 1 Am Therefore Satisfied That This Is A Fit E Ase To Re Open The Assessment U S 147 Of The 1 T Act 3 1 In Compliance The Assessee Has Field Submissi On On 01 12 2011 The Same Is Re Produced As Under This Is With Reference To Your Notice No Acit Cir 7 Notice 143 2 2011 12 Dated 28 11 2011 Proposing To Re Ope N The Assessment Of Our Client For A Y 2007 08 On The Basis Of Reas Ons Recorded For Re Opening The Assessment U S 147 Of The Income Tax Ac T 1961 Copy Of Which Has Been Supplied To Us On 28 11 2011 In Thi S Connection We Strongly Object To The Proposed Re Opening Of The A Ssessment On The Following Grounds 1 The Assessment Under Consideration Was Finalized By Order Dated 15 12 2009 Passed U S 143 3 Of The I T Act 1961 By The Additional Commissioner Of Income Tax Range 7 Ahmedabad Cop Y Of Which Is Enclosed Herewith With Ready Reference It Has B Een Clearly Noted That Assessment Proceedings Have Been Duly Attended From Time To Time And Required Details Have Been Submitted Durin G The Course Of Assessment Proceedings 2 It Is Submitted That As Stated In The Reasons Recor Ded For Re Opening The Assessment The Proceedings For Re Opening Have Been Initiated For Disallowing Claim For Deductions In Respect Of Government Securities Premium Written Off Amounting To Rs 6 58 93 230 As Well As Provision For Bad Doubtful Debt Amounting To Rs 1 00 00 000 3 It Is Submitted That The Assessment Under Considera Tion Has Been Duly Finalized After Taking Into Consideration All The Information And Materials Required And Submitted During The Course Of Assessment Proceedings Including Complete Details Information Explanations And Written Submissions Along With Supporting Evide Nces In Respect Of Government Securities Premium Written Off Amount Ing To Rs 6 58 93 230 As Well As Provision For Bad Dou Btful Debt Amounting To Rs 1 00 00 000 As Such Deductions Have Been Correctly Allowed After Due Consideration And Ther Efore There Cannot Be Any Reason To Re Open The Assessment And Re Opening Under Such Facts And Circumstances Of The Case Shal L Amount To Ita No 25 Ahd 2014 Acit Vs The Ahmedabad District Co Op Bank Ltd Asst Year 2007 08 5 Merely A Change Of Opinion It Is Therefore Submi Tted That Duly Finalized Assessment Cannot Be Re Opened On The Bas Is Of Change Of Opinion 4 It Is Submitted That Our Claim As Stated Above Is D Uly Supported By The Following Judgments I Cit V Kelvmator Of India Ltd 2002 256 Itr 1 D Elhi Fb Ii Saurashtra Cement Chem Ind Ltd V Cit 1995 213 Itr 523 Guj Iii Dclt V Pasupati Spg Wvg Mills Ltd 2010 6 Itr Trib 789 Del Copies Of Gists Of Above Judgments Are Enclosed Her Ewith 5 Without Prejudice To The Above It Is Submitted Tha T Proposed Re Opening Is Not Based On Valid Reasons Because The D Eductions Claimed In Respect Of Government Securities Premium Written Off Amounting To Rs 6 58 93 230 As Well As Provision For Bad Doubtful Debt Amounting To Rs 1 00 00 000 Have B Een Validly Allowed By The Additional Commissioner Of Income Ta X Range 7 Ahmedabad On Fully Satisfying With The Complete Det Ails Information Explanations And Written Submissions A Long With Supporting Evidences Submitted During The Course Of Assessment Proceedings In This Regard 6 It Is Further Submitted That Claim For Deduction In Respect Government Securities Premium Written Off Amounting To Rs 6 53 93 230 Is Rightly Allowable In This Rega Rd It Is Submitted 6 1 As Per Definition Under Banking Regulation Act Ban King Means The Accepting For The Purpose Of Lending Or Invest Ment Of Deposits Of Money From Public Repayable On Demand Or Otherwise And Withdrawable By Cheque Draft Order Or Otherwise 6 2 Thus Investment Forms Part Of Banking Business It Is Normally The Business Of A Bank To Lay Out Its Idle And Surp Lus Funds In Such Securities As Will Be Easily Realizable For Th E Purpose Of Its Banking Business Further Investments In Securitie S Are Also Statutorily Required To Be Made Such Investments Even Though Are Payable At A Certain Specified Period Or That T Here Was No Variation In Them Such Investments Are Stock In Tr Ade And Not Ita No 25 Ahd 2014 Acit Vs The Ahmedabad District Co Op Bank Ltd Asst Year 2007 08 6 Considered In Nature Of Investments And Income Ther E From Is Part Of Banking Business Income Income From Invest Ments By Bank Was Also Held Deductible As Banking Business I Ncome U S 80 P 2 A I Of Income Tax Act 1961 Till Such Deduction Was Allowable In Earlier Years 6 3 In Accordance With The Well Accepted Accounting Sta Ndard And Method Of Valuation Of Closing Stock Consistently A Dopted From Year To Year Which Is Also Required To Be Following By Bank As Per The Provisions Of Banking Regulation Act And Th E Guidelines Issued By Resent Bank Of India Such Investments By Bank Are In Nature Of Stock In Trade Held By Bank For Its Banki Ng Business And Such Stock In Trade Is Required To Be Valued At Costs Or Market Value Whichever Is Less 6 4 In This Regard It Is Submitted That In The Books O F Account Securities Which Were Purchased At Premium Price Ha Ve Been Disclosed At Costs Including Such Premium However Such Securities Fire Redeemable At Its Face Value And As Such On Redemption On Maturity Bank Will Receive Only Face Value And There Will Be Loss To The Extent Of Premium Paid F Urther During The Period Of Its Maturity Market Price Of Such Se Curities May Fall And Therefore Costs Thereof In The Books Wil L Disclose Higher Value However As Per The Requirements Under The B Anking Regulation Act As Well As The Guidelines Issued By The Reserve Bank Of India Under Annexure Ii Of Rbi Circular No Rpcd No Rf Bc 17 A 4 92 93 Dated 04 09 1992 It Is Necessar Y To Disclose Correct Value Of Such Investments In Secur Ities In The Balance Sheet Copy Of The Circular Was Submitted D Uring The Course Of Assessment Proceedings And Again Submitte D Herewith For Ready Reference In View Thereof The Amount Pa Id By Way Of Premium As Well As Loss On Account Of Decrease In V Alue Of Such Securities Is Required To Be Recorded In The Books By Writing Off The Amount Of Premium Loss Proportionately Every Y Ear Over The Period Of Maturity Of Such Securities Thus Value Of Securities Is Required To Be Reduced To The Extent Of Amount Of P Remium Written Off And Securities Are Carried Over To Next Year At Such Reduced Costs In The Books Of Accounts I E In The Balance Sheet Ita No 25 Ahd 2014 Acit Vs The Ahmedabad District Co Op Bank Ltd Asst Year 2007 08 7 Accordingly During The Course Of Assessment Procee Dings Statement Giving Complete Details Of Government Sec Urities Premium Written Off Amounting To Rs 6 58 93 230 W As Submitted And For Claiming Deduction In Respect The Reof The Same Has Been Correctly Debited To Profit Loss Ac Count For The Year And The Same Is Rightly Allowed As Business Lo Ss In The Original Assessment Copy Of The Statement Is Also Enclosed Herewith Moreover This Claim Is Duly Supported By The Judgments Of The Honble Supreme Court As Well As O F The Honble High Court Of Gujarat In Case Of The Assess Ee Bank Itself Viz Ahmedabad Dist Co Op Bank Ltd 101 Itr 733 Guj As Under 1 Bihar State Co Op Bank Ltd V Cit 39 Itr 114 Sc 2 Cit V Karnataka State Co Op Apex Bank 251 Itr 194 Sc 3 Cit V Ramnathpuram District Co Op Central Bank Ltd 255 Itr 423 Sc 4 Cit V Nawanshahar Central Co Op Bank Ltd 289 It R 6 Sc 5 Addl Clt V Ahmedabad Dist Co Op Bank Ltd 101 I Tr 733 Guj 6 5 In View Of The Above It Is Strongly Submitted That Re Opening Of Assessment Cannot Be Resorted To Disallowing The Cl Aim Which Has Been Validly Allowed In The Original Assessment 7 It Is Further Submitted That Claim For Deduction In Respect Provision For Bad Doubtful Debt Amounting To Rs 1 00 00 000 Is Rightly Allowable In This Regard It Is Submitted As Under 7 1 Deduction Has Been Claimed By The Bank In Respect O F Provision For Bad Doubtful Debt Of Rs 1 00 00 000 Which Has Been Debited To Profit Loss Account Ita No 25 Ahd 2014 Acit Vs The Ahmedabad District Co Op Bank Ltd Asst Year 2007 08 8 7 2 Such Provision For Bad Doubtful Has Been Made As Per Guidelines Issued By Resent Bank Of India In This Regard Under Circular No Rbi 2004 05 379 Rpcd Rf Bc No 82 07 37 02 200 4 05 Dated March 1 2005 Copy Of Which Was Submitted During The Course Of Assessment Proceedings And Again Submitted Herewith For Ready Reference In This Regard It Is Submitted That Duri Ng The Course Of Assessment Proceedings The Bank Submitted Copy Of Detailed Statement Submitted By The Bank To Rbi Along With Its Audited Accounts Which Statement Gives The Working And Complete Informatio N In Respect Of Non Performing Assets And Provision For Bad Doubtful Debt Made During The Year In Accordance Therewith Copy Of This Stat Ement Is Also Enclosed Herewith For Ready Reference It Was Also Explained That The Same Is Within Stipulations Specified U S 36 Viia Of The Lt Act 1961 7 3 In View Of The Above It Is Submitted That Claim In Respect Of Deduction For Provision For Bad Doubtful Debt Has Been Rightly Allowed In The Original Assessment And The Same Can Not Be Now Disallowed By Resorting To Re Opening Of The Assess Ment 2 3 The Contention Of The Assessee Were Considered However On Going Through The Submission Nowhere Assessee Expl Ained The Reasons Of Difference In Book Value Of Investment In Central A Nd State Government Securities As Appearing In The Balance Sheet As At 31 03 2007 Of Rs 74 59 800 Rs 4 40 70 88 026 Book Value Minu S Rs 4 39 96 28 226 Market Value Whereas The Asse Ssee Has Debited An Amount Of Rs 6 58 93 230 In The P L Accounts Towa Rds Government Security Premium Written Off Thus There Is An Excess Claim Of Expenses Of Rs 5 84 33 430 Rs 6 58 93 230 Minus Rs 74 59 800 Therefore The Said Excess Claim Is Disallowed And Added Back To The Total Income Of The Assessee And Finally Disallowance Of Rs 5 84 33 430 Was Made Against The Assessee Ita No 25 Ahd 2014 Acit Vs The Ahmedabad District Co Op Bank Ltd Asst Year 2007 08 9 3 Against The Said Order Assessee Preferred First Statutory Appeal Before The Ld Cit A Who Allowed The Appeal Of The Assessee 4 We Have Gone Through The Relevant Record And Hea Rd Both The Parties The Appellant Is A Co Operative Society Re Gistered Under The Gujarat Co Operative Societies Act 1961 Carrying On Banking Business And Therefore Also Governed By The Banking Regulati On Act 1949 For The Year Under Consideration Return Of Income Of R S 11 92 82 398 Was Filed By The Appellant On 02 11 2007 4 1 The Assessment Under Consideration Was Finalize D By Order Dated 15 12 2009 Passed U S 143 3 Of The Act 1961 Ther Eafter Ao Issued On 30 03 2011 Notice U S 148 Of The I T Act 1961 Pr Oposing To Re Open The Assessment For A Y 2007 08 And Above Request By Th E Assessee Reason Recorded For Reopening The Assessment And Also Supp Ly To The Assessee Same Were For Disallowing Claim For Deduction In Re Spect Of Government Securities Premium Written Off Amounting To Rs 6 58 93 230 As Well As Provision For Bad Doubtful Debt Amounting To Rs 1 00 00 000 4 2 We Have Considered The Facts In Our Opinion Ld Ao Failed To Record The Correct And Credible Material Which Led To Formation Of Satisfactory And Reason To Believe That Income Has Escaped In Several Ita No 25 Ahd 2014 Acit Vs The Ahmedabad District Co Op Bank Ltd Asst Year 2007 08 10 High Court Decision Are There That Without Any Cred Ible Evidences Or Failure On The Part Of The Assessee To Disclose The Material Fact Is Bad In Law And Required To Be Quashed 5 So Far As Ground No 2 Is Concerned That Assessee Is A Co Operative Bank And Subject To Tax Audit And Nothing Contrary Has Been Recorded In The Audit Report And Monitored Under Banking Regula Tion Act As Well As Rbi Guideline In Support Of Its Contention Assessee Also Filed B Alance Sheet Alongwith Copies Of Assessment Order U S 143 3 For Asst Year 2005 06 2006 07 2008 09 And 2009 10 And In These Years In Scrutiny Proceedings Each And Every Facts And Explanation Related To The Issued Have Been Decided In Favour Of The Assessee And There Was No Any Negative Finding Or Disallowance Were Made By The Department And On Similar Facts And Circumstances Of The Case In Previous Year And In S Ubsequent Year No Proceedings For Re Opening Was Done In Our Conside Red Opinion Without Credible Evidence Or Material In Hand No Addition C An Be Made We Are Surprised To Note That Similar Facts And Circumstan Ces Of The Case In Earlier Assessment Year Of 2005 06 2006 07 Appell Ant Contentions Were Accepted In Preceding U S 143 3 And Even Subsequen T Year 2008 09 And 2009 10 Contention Of The Assessee Were Accepted We Just Fail To Understand How This Controversy Arose In The Year Of 2007 08 When Government Securities Premium Amount Was Figuring I N The Previous Year And In Subsequent Years Ita No 25 Ahd 2014 Acit Vs The Ahmedabad District Co Op Bank Ltd Asst Year 2007 08 11 6 In Our Opinion Ld Cit A Has Passed Detailed A Nd Reasoned Order And We Do Not Find Any Infirmity In The Order Passe D By The Ld Cit A Therefore Appeal For The Revenue Is Dismissed 7 In The Result Appeal Filed By The Department Is Dismissed This Order Pronounced In Open Court On 01 12 2017 Sd Sd Ekuhk Cksjm Ekuhk Cksjm Ekuhk Cksjm Ekuhk Cksjm Egkohj Izlkn Egkohj Izlkn Egkohj Izlkn Egkohj Izlkn Ys Kk Lnl U Kf D Lnl Ys Kk Lnl U Kf D Lnl Ys Kk Lnl U Kf D Lnl Ys Kk Lnl U Kf D Lnl Manish Borad Mahavir Prasa D Accountant Member Judicial Member Ahmedabad Dated 01 12 2017 Priti Yadav Sr Ps Copy Of The Order Forwarded To 1 The Appellant 2 The Respondent 3 012 3 Concerned Cit 4 3 45 The Cit A Xiv Ahmedabad 5 678 12 12 0 Dr Itat Ahmedabad 6 89 Guard File By Order 6 True Copy Dy Asstt Registrar Itat Ahmedabad