Income Tax Appellate Tribunal - Pune
Jalgaon Janta Sahakari Bank Ltd.,, vs Department Of Income Tax on 23 August, 2016
आयकर अपील
य अ धकरण "बी" यायपीठ पण
ु े म ।
IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH, PUNE
ी वकास अव थी, या यक सद य एवं ी #द
प कुमार के$डया, लेखा सद य के सम' ।
BEFORE SHRI VIKAS AWASTHY, JM AND SHRI PRADIP KUMAR KEDIA, AM
आयकर अपील सं. / ITA Nos. 837 & 838/PN/2015
नधा*रण वष* / Assessment Years : 2008-09 & 2011-12
The Deputy Commissioner of Income Tax,
Circle - 1, Jalgaon
.......अपीलाथ / Appellant
बनाम / V/s.
Jalgaon Janta Sah. Bank Ltd.,
117/119, "Seva", Navi Peth,
Jalgaon - 425001
PAN : AAAAJ0477D
......
यथ / Respondent
#,या'ेप सं. / CO No. 28/PN/2016
नधा*रण वष* / Assessment Year : 2008-09
Jalgaon Janta Sah. Bank Ltd.,
117/119, "Seva", Navi Peth,
Jalgaon - 425001
PAN : AAAAJ0477D
.......अपीलाथ / Appellant
बनाम / V/s.
The Deputy Commissioner of Income Tax,
Circle - 2, Jalgaon
......
यथ / Respondent
Assessee by : Shri Jayesh Doshi
Revenue by : Shri Hitendra Ninawe
सन
ु वाई क तार ख / Date of Hearing : 23-08-2016
घोषणा क तार ख / Date of Pronouncement : 23-08-2016
2
ITA Nos. 837 & 838/PN/2015
and CO No. 28/PN/2016
आदे श / ORDER
PER VIKAS AWASTHY, JM :
These two appeals by the Revenue are against the order of Commissioner of Income Tax (Appeals)-2, Nashik dated 25-03-2015 for the assessment year 2008-09 and the order of Commissioner of Income Tax (Appeals) of even date for assessment year 2011-12. The assessee has filed Cross Objections for the assessment year 2008-09.
In both the appeals, the Revenue has assailed the findings of Commissioner of Income Tax (Appeals) in deleting the addition made on account of disallowance on depreciation claimed on valuation of Government Securities "Held to Maturity" (HTM) category.
Since, the issue raised in both the appeals is identical, these appeals are taken up together for adjudication and are decided by this common order.
For the sake of convenience we are extracting the facts from the appeal of the Revenue in ITA No. 837/PN/2015 for assessment year 2008-09.
2. The brief facts of the case as emanating from records are: The assessee is a Scheduled Co-op. Bank. The assessee filed its return of income for the assessment year 2008-09 showing taxable income as Nil and claimed current year loss `10,73,80,780/-. The assessment proceedings were completed in the case of assessee for assessment year 2008-09 u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") admitting the loss of `10,72,98,310/-. Thereafter, reassessment proceedings were initiated and notice u/s. 148 of the Act was issued to the assessee on 20-03-2013. In reassessment 3 ITA Nos. 837 & 838/PN/2015 and CO No. 28/PN/2016 proceedings the Assessing Officer made addition of `13,32,31,750/- on account of amortization of investment in Government Securities held under HTM category.
Aggrieved by the assessment order dated 23-03-2014, the assessee preferred appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) deleted the entire addition by placing reliance on the decisions of Pune Bench of the Tribunal in the case of Latur Urban Co-op. Bank Limited Vs. Dy. Commissioner of Income Tax in ITA No. 778/PN/2011 for assessment year 2007-08 decided on 31-08-2012 and in the case of The Sangli Bank Ltd. Vs. ACIT in ITA No. 846/PN/2006 for assessment year 2004-05 decided on 30-05-2013. The Commissioner of Income Tax (Appeals) further draws strength to support his findings from the following decisions :
i. United Commercial Bank Vs. Commissioner of Income Tax, 240 ITR 355 (SC);
ii. Commissioner of Income Tax Vs. Corporation Bank Limited, 174 ITR 616 (Kar).
3. Similarly, in assessment year 2011-12 the Assessing Officer made addition of `2,73,37,590/- in respect of amortization of premium on Government Securities "Held to Maturity" (HTM) category. In first appeal, the Commissioner of Income Tax (Appeals) deleted the addition by placing reliance on the decisions of Hon'ble Supreme Court of India, Hon'ble Karnataka High Court and the Pune Bench of the Tribunal. Now, the Revenue is in appeal against the orders of Commissioner of Income Tax (Appeals) in deleting the addition in both the impugned assessment years.
4
ITA Nos. 837 & 838/PN/2015 and CO No. 28/PN/2016
4. Shri Hitendra Ninawe representing the Department submitted that the securities held under HTM category are long term investment and hence, depreciation on the said securities is not allowable. The ld. DR contended that the investments are not liquid assets which can be categorized as stock-in-trade. The Commissioner of Income Tax (Appeals) has erred in deleting the additions by placing reliance on the decision of Hon'ble Supreme Court of India and the decision of Pune Bench of the Tribunal. The ld. DR contended that the investment in Government Securities held under HTM category is a capital investment and not stock-in-trade, therefore, the valuation of HTM category investment at cost or market price, whichever is less does not arise. As per CBDT Circular No. 665 dated 05-10-1993 it is for the Assessing Officers to 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 to time. The ld. DR vehemently supported the findings of Assessing Officer and prayed for setting aside the impugned orders.
5. On the other hand Shri Jayesh Doshi appearing on behalf of the assessee submitted that the issue of allowability of amortization of premium on Government Securities held under HTM category has been adjudicated in favour of assessee by the Hon'ble Bombay High Court in the case of Commissioner of Income Tax Vs. HDFC Bank Ltd. reported as 366 ITR 505 (Bom). The ld. AR of the assessee further submitted that the Tribunal has been consistently holding that the Government Securities held under HTM category are stock-in-trade and allowed the amortization of premium on such Securities held under HTM category. In support of his submissions, the ld. AR placed reliance on the 5 ITA Nos. 837 & 838/PN/2015 and CO No. 28/PN/2016 decision of Co-ordinate Bench of the Tribunal in the case of Cosmos Co-op. Bank Ltd. Vs. DCIT reported as 64 SOT 90 (Pune-Trib.). The ld. AR further submitted that there are several decisions of the Tribunal wherein similar view has been taken.
6. In respect of Cross-Objections, the ld. AR of the assessee stated at the Bar that he is not pressing the same.
7. We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below. We have also considered the decisions on which the ld. AR of the assessee has placed reliance in support of his contentions. The only issue raised in the appeals by the Department is with respect to disallowance of depreciation claimed in valuation of Government Securities held under HTM category. The issue raised by the Department in the appeals is no more res integra. The Tribunal has been consistently holding that Government Securities held under HTM category are part of stock-in- trade. The Hon'ble Jurisdictional High Court has upheld the findings of Tribunal in the case of Commissioner of Income Tax Vs. HDFC Bank Ltd. (supra).
8. The Mumbai Bench of the Tribunal in the case of Commissioner of Income Tax Vs. HDFC Bank Ltd. in ITA No. 4529/Mum/2005 decided on 29-06-2011 upheld the findings of Commissioner of Income Tax (Appeals) in deleting the disallowance of loss due to diminution in the value of the current investment and amortization of premium on investments held to maturity. The relevant extract of the findings of the Tribunal are as under:
6
ITA Nos. 837 & 838/PN/2015 and CO No. 28/PN/2016 "The next issue in the appeal of the Revenue for the assessment year 2001-02 is whether, in the facts and in the circumstances of the case, the Commissioner of Income-tax (Appeals) is justified in deleting the disallowance of loss due to diminution in the value of the current investment and amortisation of premium on investments held to maturity.
We have heard the learned Departmental representative as well as the learned authorised representative of the assessee and considered the relevant material on record. The learned authorised representative has pointed out that this issue has been considered and decided by the Tribunal in the case of Lord Krishna Bank Ltd. in ITA No. 118/Coch/2007 for the assess ment year 1999-2000, vide order dated April 27, 2011. The Commissioner of Income-tax (Appeals) has decided the issue in paragraph 10 as under :
"10. Respectfully following the hon'ble Bombay High Court decision in the case of CIT v. Bank of Baroda [2003 262 ITR 334 (Bom)] wherein the hon'ble court held that loss debited to the profit and loss wherein the hon'ble court held that loss debited to the profit and loss account due to decrease in value of securities is allowable as deduction and the hon'ble Supreme Court in the case of United Commercial Bank v. CIT [1999] 240 ITR 355 (SC) where the hon'ble court reversing the decision of the High Court held that nationalised bank governed by the Banking Regulation Act. The bank is following the mercantile system of accounting both for book keeping as well as tax purposes. The bank is valuing stock-in-trade (investments) 'at cost' in the balance-sheet in accordance with the Banking Regulation Act and valuing very same investments 'at cost' or 'market value', whichever was lower, for Income-tax purposes. The method followed consistently was valid and could not be rejected. In the present case, the facts being similar to the facts reported in UCO Bank, the Assessing Officer is directed to allow the revaluation of securities. However, for the computation of depreciation allowable, the Assessing Officer is also directed to revalue the securities in the same manner in the beginning of the year also."
We find the Tribunal in the case of Lord Krishna Bank Ltd. (supra) has considered and adjudicated the issue in paragraphs 3 and 4 as under :
"3. We have heard the rival submissions and perused the relevant material on record. The learned authorised representative has relied on Circular DBOD. No. BP.BC.29/21.04.048/98, dated April 11, 1998, issued by the Reserve Bank of India prescribing the method to be followed for valuation of Government and other securities. The learned authorised representative invited our attention towards page 4 of the paper book, which is the method suggested by the RBI to be adopted by the banks in respect of permanent investments. Clause (ii) of point No. 1 of this, being valuation of permanent investments, which has been pressed into service by the learned authorised representative, reads as under :7
ITA Nos. 837 & 838/PN/2015 and CO No. 28/PN/2016 '"Permanent" investments should be valued at cost and in case cost price is higher than the face value, the premium should be amortised over the remaining period of maturity of the security. On the other hand, where the cost price is less than the face value, the difference should be ignored and should not be amortised or taken to income account since the amount represents unrealized gain.'
4. When we view the above method of valuation, it comes to notice that the permanent investment should be valued at cost and where such cost price is higher than the face value, 'the premium should be amortized for the remaining period of maturity of the security'. From the above, it is clear that the premium has to be amortized for the remaining period of maturity of the security. The learned authorised representative fairly conceded that details of such premium splitting over the remaining period of the maturity was not readily available and, hence, the matter be remitted to the file of the Assessing Officer for deciding it as per the above part of the Circular. No serious objection was taken by the learned Departmental representative. In view of these facts we set aside the impugned order and restore the matter to the file of the Assessing Officer for deciding this point in accordance with the above noted method."
Therefore, respectfully following the order of the Tribunal we decide the issue in favour of the assessee and against the Revenue and confirm the order of the Commissioner of Income-tax (Appeals) on this issue."
9. The Department carried the matter in appeal before the Hon'ble Bombay High Court. One of the substantial question of law before the Hon'ble Court for adjudication was :
"(C) Whether the Income-tax Appellate Tribunal is right in law in holding that the assessee is entitled for deduction with respect to the diminution in value of the investment and amortization of premium on investment held to maturity on the ground of mandate by the RBI guidelines thereby ignoring the decision of the Supreme Court in the case of Southern Technologies Ltd. v. Joint CIT [2010] 320 ITR 577 (SC) ?"
The Hon'ble Jurisdictional High Court dismissed the substantial question of law on this issue by observing as under :
"As far as question (C) is concerned, we find that an identical question of law was framed and answered in favour of the assessee by this court in its judgment dated July 4, 2014, in Income Tax Appeal No. 1079 of 2012, 8 ITA Nos. 837 & 838/PN/2015 and CO No. 28/PN/2016 CIT v. Lord Krishna Bank Ltd. (now merged with HDFC Bank Ltd.) [2014] 366 ITR 416 (Bom). Mr. Suresh Kumar fairly stated that question (C) reproduced above is covered by the said order. In view thereof, we are of the view that even question (C) does not raise any substantial question of law that requires an answer from us."
10. The issue relating to securities held by assessee under HTM category constitute stock-in-trade and the consequential loss on valuation of said securities on the basis of cost or market value, whichever, is less whether allowable as deduction was raised in the case of Cosmos Co-op. Bank Ltd. Vs. DCIT (supra). The Tribunal decided the issue in favour of the assessee by holding as under :
"16. The Ground of Appeal No. 4 is with regard to the assessee's claim that the securities held by the assessee bank under Held to Maturity (HTM) category constitute its stock-in-trade and the consequential loss on valuation of the said securities as on 31.03.2007 on the basis of cost or market value whichever is lower (on the basis of individual scrip) is an allowable deduction. The said claim was made by way of an Additional Ground of Appeal before the CIT(A), which was admitted by him for adjudication but on merits it has been denied. Before us, the claim of the assessee is that the securities held by the assessee bank are part of stock-in-trade irrespective of their classification and that a similar matter has been considered by the Pune Bench of the Tribunal in the cases of Latur Urban Coop. Bank Ltd. in ITA No.778/PN/2011 for assessment year 2007-08 dated 31.08.2012 and The Sangli Bank Ltd. in ITA NO.846/PN/2006 for assessment year 2004-05 dated 30.05.2013 wherein such securities are accepted as stock-in-trade. It was contended that the issue is covered by the aforesaid precedents. The learned Department Representative has not disputed the aforesaid factual matrix.
17. In this context, we find that so far as securities held under HTM categories are concerned, the Pune Bench of the Tribunal in the case of Latur Urban Coop. Bank Ltd. (supra) held that such securities held by an assessee bank are part of its stock-in-trade. Following the aforesaid decision we are unable to uphold the plea of the Revenue that the securities held by the assessee under the HTM category are capital in nature. The following discussion in the order of the Tribunal in the case of Latur Urban Coop. Bank Ltd. (supra) is relevant :-9
ITA Nos. 837 & 838/PN/2015 and CO No. 28/PN/2016 "14. We have heard the parties. The Ld Counsel placed his heavy reliance on the decision of the Hon'ble 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 (Supra), the issue before their Lordship was whether the assessee was entitled for deduction on account of depreciation 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 depredation 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 issue before the Hon'ble High Court. The core issue was the method of valuation adopted by the assessee Bank for valuing the stock of the Securities. The Hon'ble High Court followed the decision of Hon'ble 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 Hon'ble 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 Hon'ble High Court of Kerala in the case of CIT Vs. Nedungadi Bank Ltd., 264 ITR 545. In the said case, the Hon'ble High Court has held that the securities held by the Bank are in the nature of stock-in-trade. Both the authorities below has merely gone on the nomenclature 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. Accordingly, Ground No. 2 is allowed."
18. Following the aforesaid precedent, we hold that the claim of the assessee in Ground of Appeal No. 4 is justified and is allowable." The Tribunal has been consistently taking similar view in respect of the Government Securities held under HTM category.
11. The ld. DR has not been able to place on record any decision of Hon'ble Apex Court to controvert the law laid down by the Hon'ble Jurisdictional High Court on the issue. We find no reason to take any 10 ITA Nos. 837 & 838/PN/2015 and CO No. 28/PN/2016 contrary view. Accordingly, the appeals of the Revenue are dismissed being devoid of any merit.
12. The assessee has filed Cross-Objections against the order of Commissioner of Income Tax (Appeals) in the assessment year 2008-09. The ld. AR of the assessee stated at the Bar that he is not pressing the grounds raised in Cross-Objections. Accordingly, the Cross-Objections of the assessee are dismissed as not pressed.
13. In the result, the appeals by the Revenue and the Cross- Objections of the assessee are dismissed.
Order pronounced in the open court after the hearing on Tuesday, the 23rd day of August, 2016.
Sd/- Sd/-
(Pradip Kumar Kedia) (Vikas Awasthy)
लेखा सद य / ACCOUNTANT MEMBER या यक सद य / JUDICIAL MEMBER
पुणे / Pune; !दनांक / Dated : 23rd August, 2016
RK
आदे श क. # त0ल प अ1े षत / Copy of the Order forwarded to :
1. अपीलाथ / The Appellant.
2. यथ / The Respondent.
3. आयकर आयु$त (अपील) / The CIT(A)-2, Nashik
4. Pr. Commissioner of Income Tax-2, Nashik
5. 'वभागीय त न*ध, आयकर अपील य अ*धकरण, "बी" ब-च, पुणे / DR, ITAT, "B" Bench, Pune.
6. गाड0 फ़ाइल / Guard File.
//स या'पत त // True Copy// आदे शानुसार / BY ORDER, नजी स*चव / Private Secretary, आयकर अपील य अ*धकरण, पण ु े / ITAT, Pune