Bhavani Urban Co-Op Bank Ltd,, Beed v. ACIT Cir-2 Aurangabad, Aurangabad

ITA 610/PUN/2011 | 2007-2008
Pronouncement Date: 31-07-2013 | Result: Partly Allowed

Appeal Details

RSA Number 61024514 RSA 2011
Assessee PAN AAAAB1230E
Bench Pune
Appeal Number ITA 610/PUN/2011
Duration Of Justice 2 year(s) 2 month(s) 19 day(s)
Appellant Bhavani Urban Co-Op Bank Ltd,, Beed
Respondent ACIT Cir-2 Aurangabad, Aurangabad
Appeal Type Income Tax Appeal
Pronouncement Date 31-07-2013
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 31-07-2013
Date Of Final Hearing 30-07-2013
Next Hearing Date 30-07-2013
Assessment Year 2007-2008
Appeal Filed On 12-05-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV JUDICIAL MEMBER AND SHRI R.K. PANDA ACCOUNTANT MEMBER ITA NO. 610/PN/2011 (ASSTT.YEAR : 2007-08) BHAVANI URBAN CO-OP. BANK LD. SHASTRI CHOWK GEVRAI TAL : GEVRAI DIST : BEED. .. APPELLANT PAN NO.AAAAB 1230E VS. ACIT CIRCLE-2 AURANGABAD .. RESPONDENT APPELLANT BY : SHRI S.N. PURANIK RESPONDENT BY : SHRI RAJESH KUMAR DATE OF HEARING : 30-07-2013 DATE OF PRONOUNCEMENT : 31-07-2013 ORDER PER R.K. PANDA AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 25- 03-2011 OF THE CIT(A) AURANGABAD RELATING TO ASSES SMENT YEAR 2007-08. 2. THE ASSESSEE HAS TAKEN TOTAL 8 GROUNDS IN THE GR OUNDS OF APPEAL. HOWEVER AT THE TIME OF HEARING THE LD. COUNSEL FO R THE ASSESSEE DID NOT PRESS GROUNDS OF APPEAL NO.3 5 6 AND 7 FOR WHICH TH E LD. DEPARTMENTAL REPRESENTATIVE HAS NO OBJECTION. ACCORDINGLY THE ABOVE GROUNDS ARE DISMISSED AS NOT PRESSED. GROUND OF APPEAL NO. 8 BEING GENERAL IN NATURE IS DISMISSED. 3. GROUNDS OF APPEAL NO. 1 BY THE ASSESSEE READS AS UNDER : 1. ON THE FACTS & CIRCUMSTANCES OF THE CASE & AND IN LAW THE LD. CIT(A) ERRED IN CONFIRMING ADDITION OF RS.5 73 100/ - ON ACCOUNT OF FORFEITED SHARES MONEY. THE ADDITION OF RS.5 73 10 0/- MAY PLEASE BE DELETED AS IT IS NOT TAXABLE AT ALL UNDER INCOME TA X ACT. 2 3.1 FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSE E IS A CO-OPERATIVE BANK REGISTERED U/S.9(1) OF MAHARASTRA COOPERATIVE SOCIE TIES ACT 1960. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTED THAT THE BANK WAS ESTABLISHED IN 1995 AND FACE VALUE OF EACH SHARE WAS RS.25/- ONLY. IN 2003 THE BANK INCREASED THE F ACE VALUE OF EACH SHARE TO RS.100/- AND MEMBERS WERE ASKED TO POSSES MINIMUM 10 SHARES INST EAD OF SINGLE SHARE OF RS.25/-. SOME OF THE SHAREHOLDERS DID NOT DEPOSIT THE BALANCE AMOUNT TO COMPLETE THE MINIMUM SHAREHOLDING. THE INCOMPLETE S HARE BALANCE AS ON 31/03/2007 HAS BEEN TRANSFERRED TO RESERVE FUND. R ELYING ON VARIOUS DECISIONS THE AO ADDED THE FORFEITED INCOMPLETE SH ARE MONEY AMOUNTING TO RS.5 70 700/-U/S. 41(1) OF THE INCOME TAX ACT 1961 . 3.2 BEFORE THE CIT(A) THE ASSESSEE SUBMITTED THAT T HE FORFEITURE OF SHARE CAPITAL IS NOT A REVENUE RECEIPT AND THE CASES RELI ED ON BY THE AO ARE NOT APPLICABLE. THE ASSESSEE RELIED ON FOLLOWING DECIS IONS : (I) MAHINDRA & MAHINDRA LTD. 261 ITR 501 (BOM.) (II) PRISM CEMENT LTD. VS. JCIT (2006) 101 ITD 103 ( BOM.) (III) DCIT VS. BRIJLAXMI LEASING & FINANCE LTD. 118 ITD 546 (AHMEDABAD) 3.3 HOWEVER THE LD. CIT(A) WAS ALSO NOT CONVINCED WITH THE EXPLANATION GIVEN BY THE ASSESSEE AND UPHELD THE ADDITION MADE BY THE ASSESSING OFFICER BY HOLDING AS UNDER : 6.3 I HAVE CONSIDERED THE FACTS OF THE CASE ASS ESSMENT ORDER OF THE A.O. AND SUBMISSION OF THE AR OF THE APPELLANT. AS DISCUSSED IN THE ASSESSMENT ORDER AND DECISIONS OF THE HON'BLE SUPRE ME COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. T.V. SUNDARA M AYENGAR 222 ITR 344 (SC) HON'BLE HIGH COURT IN THE CASE OF ATL AS CYCLE INDUSTRIES VS. COMMISSIONER OF INCOME TAX 133 ITR 231 P&H (HC) SOLID CONTAINERS LIMITED VS. CIT 308 ITR 417 (BOMB AY) RAJASTHAN GOLDEN TRANSPORT CO. LTD. 249 ITR 723 RAJASTHAN AN D CIT VS. ARIES ADVERTISING PVT. LTD. 255 ITR 510 (MADRAS) S HOW THAT THE FORFEITURE OF SHARE CAPITAL IS NOTHING BUT INCOME O F THE ASSESSEE. THE 3 FACTS AND CIRCUMSTANCES OF THE CASES CIT ID BY THE APPELLANT ARE DISTINGUISHABLE FROM THE FACTS OF THIS CASE. FOR TH E REASONS GIVEN ABOVE AND RELYING ON THESE DECISIONS THE ADDITION MADE BY THE A.O. IS CONFIRMED AND GROUND NO.3 IS REJECTED. 3.4 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASS ESSEE IS IN APPEAL BEFORE US. 3.5 THE LD. COUNSEL FOR THE ASSESSEE STRONGLY CHALL ENGED THE ORDER OF THE CIT(A). HE SUBMITTED THAT THE DECISION OF THE HON BLE BOMBAY HIGH COURT IN THE CASE OF SOLID CONTAINERS LTD. (SUPRA) RELIED ON BY THE LD. CIT(A) IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. H E SUBMITTED THAT IN THAT CASE IT WAS HELD THAT WAIVER OF LOAN TAKEN FOR TRADING A CTIVITY CASH CREDIT FACILITY WOULD BE ASSESSEES INCOME SUBJECT TO TAX. HE SUBM ITTED THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. XYLON HOLD ING PVT. LTD VIDE TAX APPEAL NO.3704/2010 ORDER DATED 13-09-2012 FOLLOWIN G THE DECISION IN THE CASE OF MAHINDRA AND MAHINDRA REPORTED IN 261 ITR 5 01 (BOM.) HAS HELD THAT THE BENEFIT OF CESSATION OF LIABILITY TO REPAY A LOAN LIABILITY IS NOT TAXABLE EITHER U/S.41(1) OR 28(4) OF THE INCOME TAX ACT. 3.6 SO FAR AS THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. T.V.SUNDARAM IYENGER (SUPRA) IS CONCERNED HE SU BMITTED THAT THE SAID DECISION IS ALSO DISTINGUISHABLE AS IN THAT CASE TH E ADVANCES WERE RECEIVED DURING THE COURSE OF CARRYING ON BUSINESS. REFERRI NG TO THE DECISION OF THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF BRIJ LAXMI FINANCE LTD. REPORTED IN 118 ITD 546 AND THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF PRISM CEMENT LTD. REPORTED IN 101 ITD 103 HE SUB MITTED THAT FORFEITURE OF SHARE MONEY IS A CAPITAL RECEIPT AND NOT A REVENUE INCOME. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE LD.CIT(A) BE SET-AS IDE AND THE GROUND RAISED BY THE ASSESSEE BE ALLOWED. 4 3.7 THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHE R HAND HEAVILY RELIED ON THE ORDER OF THE LD.CIT(A). 4. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BY BOTH THE SIDES. THE ONLY ISSUE TO BE DECIDED IN THE IMPUGNED GROUND IS REGARDING THE TAXABILITY OF THE FORFEITURE OF SHARE APPLICATION MONEY. FROM THE DETAILS FURNISHED BY T HE ASSESSEE WE FIND THE BYE-LAWS OF THE BANK WERE AMENDED IN 2003 AND FACE VALUE OF SHARE WAS INCREASED TO RS.100/- PER SHARE FROM RS.10/- AND MI NIMUM HOLDING WAS TO BE 10 SHARES. FOR THAT PAYMENT WAS REQUIRED TO BE MAD E BY THE SHAREHOLDERS. IN THE AGM HELD ON 13-08-2006 A RESOLUTION WAS PASSED ACCORDING TO WHICH THOSE SHAREHOLDERS WHO DO NOT COMPLY THE CONDITION BY 31-03-2007 THE UNPAID/PARTLY PAID SHARES ETC. WILL BE FORFEITED AN D TRANSFERRED TO RESERVE ACCOUNT. ACCORDINGLY THE SHARES WORTH RS.5 73 000 /- WERE FORFEITED AND CREDITED TO RESERVE BEING CAPITAL RECEIPT. UNDER T HESE CIRCUMSTANCES THE ISSUE TO BE DECIDED IS AS TO WHETHER SUCH FORFEITUR E IS A CAPITAL RECEIPT OR A REVENUE INCOME. 4.1 WE FIND THE LD. CIT(A) FOLLOWING VARIOUS DECISI ONS AS PER PARA 6.3 OF HIS ORDER HELD THAT THE FORFEITURE OF SHARE CAPITAL IS NOTHING BUT INCOME OF THE ASSESSEE. IT IS THE CASE OF THE LD. COUNSEL FOR TH E ASSESSEE THAT THE DECISIONS RELIED ON BY THE LD.CIT(A) ARE DISTINGUIS HABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE SINCE IN ALL THOSE CASES THE ADVANCES RECEIVED WERE DURING THE COURSE OF BUSINESS WHEREAS IN THE I NSTANT CASE IT IS A CAPITAL RECEIPT. WE FIND VARIOUS BENCHES OF THE TRIBUNAL AFTER CONSIDERING THE 5 DECISION OF HONBLE SUPREME COURT IN THE CASE OF T. V. SUNDARAM IYENGER (SUPRA) HAVE HELD THAT SUCH RECEIPT ON ACCOUNT OF F ORFEITURE OF SHARE MONEY IS A CAPITAL RECEIPT. 4.2 WE FIND THE HONBLE SUPREME COURT IN THE CASE O F TRAVANCORE RUBBER AND TEA COMPANY LTD. VS. CIT REPORTED IN 243 ITR158 HAS HELD THAT FORFEITURE OF EARNEST MONEY AND ADVANCE BY VENDOR I S A CAPITAL RECEIPT. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF XYLON HOLD ING PVT. LTD. (SUPRA) AFTER CONSIDERING THE DECISION OF MAHINDRA & MAHIN DRA LTD. (SUPRA) HAS HELD THAT THE BENEFIT OF CESSATION OF LIABILITY TO REPAY A LOAN LIABILITY IS NOT TAXABLE EITHER U/S.28(IV) OR U/S.41(1) OF THE INCOM E TAX ACT. 4.3 WE FIND AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF BRIJLAXMI LEASING AND FINANCE LTD. (SUPRA) AFTER CONSIDERING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF T.V. SUNDARAM IYENGER (SUPRA) HAS HELD AS UNDER : WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON REC ORD. IN THE INSTANT CASE THE ASSESSEE WAS TO RECEIVE CALL MONEY IN RESP ECT OF SHARE AS PER THE TERMS OF PROSPECTUS AND THE ALLOTMENT LETTERS BUT THE SAME WERE NOT RECEIVED FROM SOME OF THE SHAREHOLDERS. IN THI S CASE THE SHARE APPLICATION MONEY WAS FORFEITED AS PER THE TERMS OF THE PROSPECTUS. THE ABOVE FACTS ARE NOT IN DISPUTE. THE SHORT QUES TION WHICH FALLS FOR OUR CONSIDERATION IS WHETHER THE ABOVE FORFEITURE A MOUNT IS TAXABLE UNDER PROVISIONS OF THE INCOME-TAX ACT 1961 OR NO T. THE LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENTLY PLACED RELIA NCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F CIT VS. T.V. SUNDARAM IYENGER AND SONS LTD. (1996) 222 ITR 344 F OR HIS CONTENTION THAT FORFEITED AMOUNT IS TAXABLE AS REVE NUE RECEIPT. HOWEVER WE FIND THAT THE FACTS OF THE CASE THAT WE RE BEFORE THE HONBLE SUPREME COURT ARE DISTINGUISHABLE FROM THE FACTS BEFORE US. IN THE INSTANT CASE NO SECURITY DEPOSIT OR ADVANCE RECEIVED FOR PERFORMANCE OF THE CONTRACT WAS FORFEITED. IN FAC T THE AMOUNT RECEIVED WAS AGAINST ISSUE OF SHARES AND ISSUE OF S HARES IS NOT THE BUSINESS OF THE ASSESSEE. THE SAME CANNOT BE TREAT ED AS A RECEIPT IN THE NORMAL COURSE OF THE BUSINESS OF THE ASSESSEE W HICH IS ENGAGED IN FINANCING AND LEASING BUSINESS. FURTHER THE ASSES SEE HAS ALSO NOT CREDITED THE FORFEITED AMOUNT IN ITS PROFIT AND LOS S ACCOUNT BUT IN CONTRADISTINCTION TO THAT IT HAS CREDITED THE SAME IN CAPITAL RESERVE ACCOUNT. IN THE ABOVE FACTS IN OUR CONSIDERED OPI NION OF THE TRIBUNAL 6 IN THE CASE OF PRISM CEMENT LTD. V. JOINT CIT[2006] 285 ITR (AT) 43 [2006] 103 TTJ (MUM) 63 IS MORE APPLICABLE WHICH WA S RENDERED BY THE TRIBUNAL AFTER DULY CONSIDERING THE AFORESAID D ECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT V. T.V. SU NDARAM IYENGER AND SONS LTD. [1996] 222 ITR 344. THE TRIBUNAL IN THE SAID CASE HAS HELD AS UNDER ( PAGE 54 OF 285 ITR (AT)) : 15. THUS THE EARNEST MONEY OR AN ADVANCE AMOUNT R ECEIVED ON ACCOUNT OF ISSUANCE OF NCDS IF FORFEITED ON ACC OUNT OF NON- PAYMENT OF CALL MONEY THE LOAN LIABILITY WOULD ONL Y CONVERT INTO A CAPITAL RECEIPT. IT WOULD NOT ASSUME THE CH ARACTER OF REVENUE RECEIPT OR BUSINESS OF THE ASSESSEE AS EVID ENT FROM THE FACTS OF THE CASE. THE ASSESSEES MAIN BUSINESS IS OF CEMENT AND IT WAS IN THE PROCESS OF SET OF CEMENT MANUFACTURIN G PLANT AT SATNA DURING THE IMPUGNED ASSESSMENT YEAR. IN THES E CIRCUMSTANCES WE ARE CONSTRAINED TO HOLD THAT THE AMOUNT RECEIVED BY THE ASSESSEE IN LIEU OF ISSUANCE OF NCD S WHICH WAS FORFEITED LATER ON ACCOUNT OF NON-PAYMENT OF CALL M ONEY ASSUMES THE CHARACTER OF CAPITAL RECEIPT WHICH EARL IER WAS SHOWN AS A LOAN LIABILITY IN THE BOOKS OF ACCOUNT O F THE ASSESSEE. IF WE CONSIDER THIS RECEIPT TO BE BUSINESS RECEIPT EVEN THEN IT WOULD NOT BE TAXABLE TO TAX UNDER THE PROVISIONS OF SECTION 41(1) OF THE ACT IN AS MUCH AS THERE WAS NO ALLOWA NCE OR DEDUCTION OF THIS LIABILITY IN THE EARLIER YEARS. IN VIEW OF THE ABOVE RESPECTFULLY FOLLOWING THE AF ORESAID DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL WE FIND NO REASON TO INTERFERE WITH THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS). IT IS CONFIRMED AND THE GROUND OF APPEAL OF THE REVENUE I S DISMISSED. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISS ED. 4.4 RESPECTFULLY FOLLOWING THE ABOVE DECISIONS WE H OLD THAT THE LD.CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDIT ION OF RS.5 73 100/- ON ACCOUNT OF FORFEITED SHARE MONEY AS TAXABLE. THE V ARIOUS DECISIONS RELIED ON BY LD.CIT(A) ARE DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. WE THEREFORE SET ASIDE THE ORDER O F THE LD.CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION. THE FIRST GROUND BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 5. GROUNDS OF APPEAL NO.2 BY THE ASSESSEE READS AS UNDER ; 2. THE LD.CIT(A) ERRED IN CONFIRMING ADDITION OF R S.15 80 000/- ON ACCOUNT OF DEPRECIATION ON GOVERNMENT SECURITIES HELD FOR TRADING 7 (VALUED AT LOWER OF COST OR NET REALIZABLE VALUE AS AT YEAR END DATE AS PER ACCOUNTING STANDARDS & RBI DIRECTIVES) HENCE TH E SAME ADDITION MAY PLEASE BE DELETED. 5.1 FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESS ING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE HAS PASSED RESOLUTION ON 30/01/2006 FOR CLASSIFICATION OF SECU RITIES ACCORDING TO WHICH THE BANK MAY SHIFT INVESTMENT TO/FROM HELD TO MATUR ITY CATEGORY WITH THE APPROVAL OF THE BOARD OF DIRECTORS ONCE IN A YEAR N ORMALLY AT THE BEGINNING OF THE ACCOUNTING YEAR AND NO FURTHER SHIFTING TO/F ROM THIS CATEGORY/ IS ALLOWED DURING THE REMAINING PART OF THE ACCOUNTING YEAR. THE AO OBSERVED THAT THE ASSESSEE HAS SHIFTED THE CATEGORY OF INVES TMENT FROM 'HELD TO MATURITY' TO AVAILABLE FOR SALE CATEGORY WHICH IS N OT ALLOWABLE AS PER THE RBI GUIDELINES. THE ASSESSEE HAS NOT RE-CATEGORIZ ED OR SHIFTED CATEGORY OF INVESTMENTS AT THE BEGINNING OF ACCOUNTING YEAR. HE OBSERVED THAT THE SAME HAS BEEN DONE THROUGH GENERAL BODY MEETING HELD ON 02-09-2006 WHICH IS NOT ALLOWABLE AS PER THE RBI GUIDELINES. IN VIEW OF THIS THE A.O HELD THAT LOSS INCURRED DUE TO DISPUTE OF THE INVESTMENT IS N OT AN ALLOWABLE EXPENDITURE. THE AO THEREFORE DISALLOWED RS.15 80 000/-. 5.2 BEFORE THE CIT(A) IT WAS SUBMITTED THAT ACCORDI NG TO RBI GUIDELINES SHIFTING OF CATEGORY MAY BE DONE 'NORMALLY' AT THE BEGINNING OF THE ACCOUNTING YEAR. IT WAS SUBMITTED THAT THE WORD U SED 'NORMALLY' SHOWS THAT IT IS NOT MANDATORY. FURTHER THE DELAY IN SHIFTI NG IS DUE TO ELECTION PROCESS OF BOARDS OF DIRECTORS AND AFTER ELECTIONS FIRST ME ETING OF BOARD OF DIRECTORS WAS HELD ON 29-06-2006. WITHOUT PREJUDICE IT WAS SUBMITTED THAT NO SUCH CONDITION IS PRESCRIBED UNDER THE I.T. ACT. 8 5.3 HOWEVER THE LD.CIT(A) WAS ALSO NOT SATISFIED W ITH THE EXPLANATION GIVEN BY THE ASSESSEE AND UPHELD THE ADDITION MADE BY THE AO BY HOLDING AS UNDER: 11.3 I HAVE CONSIDERED ASSESSMENT ORDER AND S UBMISSION OF THE APPELLANT. THERE IS DELAY OF ABOUT 5 MONTHS IN SHIF TING THE CATEGORY OF INVESTMENT. AS OBSERVED BY THE A.O. SUCH SHIFTI NG SHOULD BE NORMALLY DONE AT THE BEGINNING OF THE YEAR. THE USE OF WORD 'NORMALLY' INDICATES THAT IT IS NOT MANDATORY BUT D ELAY OF 5 MONTHS MAY NOT BE CONSIDERED AS NORMAL DELAY. IT HAS BEEN SUBMITTED BY THE APPELLANT THAT THERE IS NO SUCH PROVISION IN THE IN COME TAX ACT TO DISALLOW THE DEPRECIATION. THE SUBMISSION OF THE A PPELLANT IS NOT ACCEPTABLE. THE SECURITIES UNDER THE CATEGORY HEL D TO MATURITY ARE IN THE NATURE OF CAPITAL ASSET WHICH HAS TO BE VAL UED AT COST ONLY AND NO PART THEREOF CAN BE CLAIMED AS REVENUE EXPENDITU RE. IN VIEW OF THESE FACTS THE ADDITION MADE BY THE AO IS CONFIRM ED. 5.4 AGGRIEVED WITH SUCH ORDER OF CIT(A) THE ASSESSE E IS IN APPEAL BEFORE US. 6. AFTER HEARING BOTH THE SIDES WE FIND THE ABOVE I SSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF LATUR URBAN COOPERATIVE BANK LTD. VIDE ITA NO.778/PN/2011 AND ITA NO.792/PN/2011 FOR A.Y. 2007-08 ORDER DATED 31-08-2012. WE FIND THE TRIBUNAL AT PARA NOS. 13 TO 15 HAS HELD AS UNDER : 13. SO FAR AS 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/- I S DEBITED TO THE PROFIT & LOSS A/C ON ACCOUNT OF LOSS ON SALE OF SEC URITIES. THE A.O HAS FURTHER OBSERVED THAT THE ASSESSEE IN ITS SUBMI SSION HAS STATED THAT SECURITIES OF THE BANK ARE HELD UNDER THE HEAD TO MATURITY CATEGORY AND THEREFORE LOSS ARISING ON THE SALE OF INVESTM ENT IS IN THE NATURE OF CAPITAL LOSS AND THEREFORE THE SAME IS NOT ALLOWAB LE 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 PLAC ED 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 U CO BANK VS. CIT 240 ITR 355 (SC). IN THE CASE OF BANK OF BARODA (S UPRA) THE ISSUE BEFORE THEIR LORDSHIP WAS WHETHER THE ASSESSEE WAS ENTITLED FOR 9 DEDUCTION ON ACCOUNT OF DEPRECIATION IN THE VALUE O F INVESTMENTS. THE METHOD OF VALUATION FOLLOWED BY THE ASSESSEE BANK W AS TO VALUE INVESTMENTS AT COST OR MARKET VALUE WHICHEVER WAS L OWER. THE ASSESSEE HAD CLAIMED THE DEPRECIATION TO THE TUNE O F RS.11 82 35 007/- AND THE SAID DEPRECIATION WAS CLAIMED AS A DEDUCTIO N WHICH WAS DISALLOWED BY THE A.O BUT THE ASSESSEE BANK SUCCE EDED BEFORE THE CIT(A). THE TRIBUNAL CONFIRMED THE ORDER OF THE CIT (A). THE REVENUE CARRIED THE ISSUE BEFORE THE HONBLE HIGH COURT. T HE CORE ISSUE WAS THE METHOD OF VALUATION ADOPTED BY THE ASSESSEE BAN K FOR VALUING THE STOCK OF THE SECURITIES. THE HONBLE HIGH COURT F OLLOWED THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF UNITED COMM ERCIAL BANK (SUPRA). 15. IN THE CASE OF UNITED COMMERCIAL BANK (SUPRA) EVEN THE ISSUE OF VALUATION OF THE STOCK IN TRADE OF THE INVESTMEN T WAS BEFORE THE HONBLE SUPREME COURT. IN THE CASE OF THE ASSESSEE THE ISSUE IS REGARDING ALLOWABILITY OF THE LOSS ON THE SALE OF T HE SECURITIES. MERELY BECAUSE THE SECURITIES ARE KEPT UNDER THE HEAD TIL L THE MATURITY THE SAID SECURITY CANNOT BE TREATED AS A PURELY INVEST MENT. 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 O F THE HONBLE HIGH COURT OF KERALA IN THE CASE OF CIT VS. NEDUNGADI BA NK 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 ST OCK-IN-TRADE. BOTH THE AUTHORITIES BELOW HAS MERELY GONE ON THE NOMENC LATURE OF THE HEAD UNDER WHICH THE SECURITIES ARE HELD. IN OUR CO NSIDERED VIEW NOMENCLATURE CANNOT BE DECISIVE FOR THE ASSESSEE BA NK. WE THEREFORE HOLD THAT THE LOSS ON THE SALE OF THE SE CURITIES IS REVENUE IN NATURE AND SAME IS ALLOWABLE. ACCORDINGLY GROUND NO. 2 IS ALLOWED. 6.1 RESPECTFULLY FOLLOWING THE DECISION OF THE CO-O RDINATE BENCH OF THE TRIBUNAL WE SET ASIDE THE ORDER OF THE CIT(A) AND D IRECT THE AO TO DELETE THE ADDITION. GROUND OF APPEAL NO.2 BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 7. GROUNDS OF APPEAL NO.4 BY THE ASSESSEE READS AS UNDER ; 4. THE LD.CIT(A) ERRED IN CONFIRMING ADDITION OF R S.1 08 000/- ON ACCOUNT OF AMORTIZATION OF PREMIUM ON GOVERNMENT SE CURITIES AND THE SAME ADDITION MAY PLEASE BE DELETED. 7.1 FACTS OF THE CASE IN BRIEF ARE THAT THE AO M ADE AN ADDITION OF RS.1 08 000/- ON ACCOUNT OF AMORTIZATION OF PREMIU M ON GOVERNMENT SECURITIES IN THE CATEGORY OF INVESTMENT HELD TO MA TURITY (HTM). THIS PREMIUM REPRESENTS THE EXCESS OF ACQUISITION COST O VER THE FACE VALUE OF 10 HTM SECURITIES WHICH IS AMORTIZED BY THE BANK OVER THE REMAINING PERIOD OF MATURITY OR SOME OTHER BASIS. THE AO OBSERVED THAT DEDUCTION UNDER THE HEAD AMORTIZATION OF PERIOD IS NOT ALLOWABLE ACCORD ING TO PROVISIONS OF I.T. ACT. HE OBSERVED THAT THE RESERVE BANK OF INDIA H AS ISSUED MASTER CIRCULAR DATED 12-07-2006 ACCORDING TO WHICH INVESTMENTS HAV E TO BE CATEGORISED INTO THREE CATEGORIES (I) HELD TO MATURITY (HTM) ( II) AVAILABLE TO SALE (AFS) (III) HELD FOR TRADING (HFT). ACCORDING TO THE CIRCULAR AFS AND HFT SECURITIES ARE IN THE NATURE OF STOCK IN TRADE AND HTM SECURITIES ARE IN THE NATURE OF CAPITAL ASSETS. ALL THE CAPITAL ASSE TS ARE TO BE VALUED AT COST ONLY AND NO PART THEREOF CAN BE CLAIMED AS REVENUE EXPENDITURE WHILE COMPUTING TOTAL INCOME. THE ASSESSING OFFICER ACCO RDINGLY DISALLOWED RS.1 08 000/-. 7.2 BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE BAN K HAS STRICTLY FOLLOWED THE METHOD LAID DOWN BY THE RBI AND AMORTIZED PREMI UM PAID ON INVESTMENTS ACQUIRED OVER THE REMAINING PERIOD UPTO MATURITY ON YEARLY BASIS AND HENCE THE EXPENDITURE IS PART OF BANKING BUSINESS EXPENDITURE. 7.3 HOWEVER THE LD. CIT(A) WAS ALSO NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE AND UPHELD THE ADDITION MADE BY THE AO HOLDING THAT THIS AMOUNT IS CAPITAL IN NATURE AND THE SAME IS NO T ALLOWABLE UNDER SUB SECTION (1) OF SECTION 37. 7.4 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASS ESSEE IS IN APPEAL BEFORE US. 7.5 THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE IN VIEW OF CBDT INSTRUCTION NO.17/2008 DATED 26-11- 2008. FURTHER THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF BANK OF 11 RAJASTHAN LTD. VIDE ITA NO.3228/MUM/2010 ORDER DATE D 09-09-2011 AND THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF SRI SUBRAMANYESWARA COOPERATIVE BANK LTD. VS. ACIT VIDE ITA NO.488/BANG /2011 ORDER DATED 06-06-2012 FOR THE A.Y. 2008-09 HAS DECIDED IDENTIC AL ISSUE IN FAVOUR OF THE ASSESSEE. HE ACCORDINGLY SUBMITTED THAT THE ADDITI ON SHOULD BE DELETED. 7.6 THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHE R HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A). 8. AFTER HEARING BOTH THE SIDES WE FIND THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF BANK OF RAJASTHAN LTD. (SUP RA) HAD AN OCCASION TO DECIDE SUCH AN ISSUE IN FAVOUR OF THE ASSESSEE. TH E RELEVANT OBSERVATION OF THE TRIBUNAL AT PARA 9 AND 10 OF THE ORDER READ AS UNDER : 9. THE AMORTIZED AMOUNT OF PREMIUM PAID FOR SECURI TIES HELD UNDER HTM CATEGORY AMOUNTING TO RS.11.77 CRORES WAS CLAIMED BY THE ASSESSEE AS DEDUCTION IN ITS COMPUTATION OF TOT AL INCOME. THE SAME HOWEVER WAS DISALLOWED BY THE AO HOLDING THA T THE EXPENDITURE INCURRED ON PREMIUM PAID FOR SECURITIES HELD UNDER HTM CATEGORY WAS A CAPITAL EXPENDITURE NOT ALLOWABLE AS DEDUCTIO N. HE HELD THAT THE SAID SECURITIES WERE IN THE NATURE OF INVESTMEN T AND NOT STOCK IN TRADE. ON APPEAL THE LEARNED CIT(APPEALS) DELETED THE DISALLOWANCE MADE BY THE AO ON THIS ISSUE. BESIDES RELYING ON H IS OWN ORDER IN ASSESSEES OWN CASE ON A SIMILAR ISSUE FOR THE EARL IER YEAR THE LEARNED CIT(APPEALS) ALSO RELIED ON CBDT INSTRUCTION NO.17/ 2008 DATED 26- 11-2008 PUBLISHED IN 220 CTR (STATUTE) PAGE 41. HE HELD THAT THE ASSESSEE COMPANY WAS BOUND TO CLASSIFY ITS INVESTME NT AS PER RBI GUIDELINES DATED 16-10-2010 AND AS PER THE SAID GUI DELINES INVESTMENT CLASSIFIED UNDER HTM CATEGORY WAS REQUIR ED TO BE CARRIED AT ACQUISITION COST UNLESS IT WAS MORE THAN THE FAC E VALUE. HE HELD THAT THE PREMIUM ON SUCH INVESTMENTS WAS ALSO REQUI RED TO BE AMORTIZED OVER THE PERIOD REMAINING TO MATURITY. H E HELD THAT THE CLAIM OF THE ASSESSEE THUS WAS AS PER RBI GUIDELINE S AND CBDT INSTRUCTION WHICH CLARIFIED THAT PREMIUM AMORTIZED OVER THE PERIOD REMAINING TO MATURITY WAS LIABLE TO BE ALLOWED AS D EDUCTION. 10. AT THE TIME OF HEARING BEFORE US THE LEARNED R EPRESENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THIS ISSUE IS ALSO SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE VARIOUS ORDERS OF THE TRIBUNAL PASSED IN ASSESSEES OWN CASE FOR EARLIER YEARS. COPIES OF T HE SAID ORDERS ARE PLACED ON RECORD BEFORE US AND A PERUSAL OF THE SAM E SHOWS THAT IN ONE OF SUCH ORDERS DATED 22 ND DEC. 2010 PASSED IN ASSESSEES OWN 12 CASE FOR ASSESSMENT YEARS 2002-03 TO 2006-07 THE C OORDINATE BENCH OF THIS TRIBUNAL HAS DIRECTED THE AO TO ALLOW THE P REMIUM AMORTIZED BY THE ASSESSEE OVER THE PERIOD REMAINING TO MATURI TY HOLDING THAT THE SAME WAS CLAIMED AS PER THE RELEVANT RBI GUIDELINES AND EVEN THE CBDT HAS ISSUED INSTRUCTIONS TO ALLOW THE SAME. RE SPECTFULLY FOLLOWING THE SAID ORDER OF THE TRIBUNAL IN ASSESSE ES OWN CASE FOR EARLIER YEARS WE UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE AND DISMISS GROUND NO.3 OF THE REVENUES APPEAL. 8.1 SIMILAR VIEW HAS BEEN TAKEN BY THE BANGALORE BE NCH OF THE TRIBUNAL IN THE CASE OF SUBRAMANYESWARA COOPERATIVE BANK LTD . (SUPRA). RESPECTFULLY FOLLOWING THE DECISIONS CITED ABOVE TH E GROUND RAISED BY THE ASSESSEE IS ALLOWED. 9. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS THE 31 ST DAY OF JULY 2013. SD/- SD/- (SHAILENDRA KUMAR YADAV) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE DATED : 31 ST JULY 2013 SATISH COPY OF THE ORDER IS FORWARDED TO : 1. THE ASSESSEE 2. THE DEPARTMENT 3. THE CIT(A) AURANGABAD 4. THE CIT AURANGABAD 5. D.R. A BENCH PUNE 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL PUNE