Income Tax Appellate Tribunal - Ahmedabad
Naroda Nagrik Co.Op.Bank Ltd.,, ... vs Acit.,Circle-8,, Ahmedabad on 16 May, 2017
आयकर अपील
य अ धकरण, अहमदाबाद यायपीठ, 'डी' अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
" D " BENCH (SMC), AHMEDABAD
सव ी एस.एस.गोदारा, या यक सद य एवं द प कुमार के डया, लेखा सद य के सम ।
BEFORE SHRI S.S. GODARA, JUDICIAL MEMBER &
SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER
1. आयकर अपील सं./I.T.A.No.2358/Ahd/2012
2. आयकर अपील सं./I.T.A. No.2084/Ahd/2013
( नधा रण वष / Assessment Years : 2009-10 & 2010-11)
The Naroda Nagrik Co- बनाम/ The ACIT
op.Bank Ltd. Vs. Circle-6
A-1-2, Dharamsut Society Ahmedabad
Gurukul Memnagar Road
Memnagar
Ahmedabad-380 052
थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AAAAT 9803 D
(अपीलाथ' /Appellant) .. ( (यथ' / Respondent)
अपीलाथ' ओर से / Appellant by : Shri Hem Chhajed, AR
(यथ' क* ओर से/Respondent by : Shri Pradeep Kumar Majumdar,Sr.DR
ु वाई क* तार ख /
सन Date of Hearing 01/05/2017
घोषणा क* तार ख /Date of Pronounce ment 16/ 05/2017
आदे श / O R D E R
PER PRADIP KUMAR KEDIA, AM:
These two captioned appeals by the Assessee are directed against the separate orders of the Ld.Commissioner of Income Tax(Appeals)-XI, Ahmedabad ['CIT(A)' in short] dated 28/08/2012 and 06/06/2013 pertaining to Assessment Years (AYs) 2009-10 & 2010-11 respectively.
ITA Nos.2358/Ahd/2012 & ITA No.2084/Ahd/2013The Naroda Nagrik Co-op.Bank Ltd. vs. ACIT Asst.Years -2009-10 & 2010-11 -2- These appeals were heard together and are being disposed of by this consolidated order for the sake of convenience.
ITA No.2358/Ahd/2012 - AY 2009-102. The solitary ground of appeal raised by the Assessee reads as under:-
The Ld.CIT(A) has erred in law and on facts in upholding disallowance made by Ld.A.O. of Rs.37,08,022/- incurred by appellant on devaluation of investment in Govt.Securities.
3. Briefly stated, assessee is engaged in the business of banking activity. The return of income of the assessee for the AY 2009-10 was subjected to scrutiny assessment. In the course of assessment, the Assessing Officer (AO) observed that the assessee has debited an amount of Rs.37,08,022/- under the head 'mark to market loss on government security'. It was explained by the assessee that it has purchased different types of government securities and there is a difference in the book value of security as on the closing day of financial year qua the market value on that date. It was claimed that the aforesaid loss represents the difference between the book value and the market value. The AO however noted that the aforesaid expenditure was of contingent nature since the loss has not crystallized and would actually occur, if any, only on the transfer of investments and not prior thereto. He accordingly ITA Nos.2358/Ahd/2012 & ITA No.2084/Ahd/2013 The Naroda Nagrik Co-op.Bank Ltd. vs. ACIT Asst.Years -2009-10 & 2010-11 -3- proceeded to disallow the aforesaid loss of Rs.37,08,022/- claimed on 'mark to market' basis on securities.
4. The CIT(A) followed its decision on the controversy arose in the preceding year in assessee's own case in AY 2009-10 and rejected the appeal of the assessee.
5. Aggrieved, the assessee is in appeal before the Tribunal.
6. The Ld.AR for the assessee Mr.Hem Chhajed submitted that the assessee has claimed 'mark to market loss on government securities' which have been 'Held for Trading (HFT)' and 'Available for Sale (AFS)' as per Reserve Bank of India's instructions by making corresponding increase in 'Investment Depreciation Reserve Account'. It was contended that the AO has wrongly denied the claim of the assessee in ignorance of the true spirit of CBDT's instruction No.17/2008 dated 26/11/2008. The Ld.AR submitted that the RBI mandatorily requires the Bank to classify the investment in government securities under the category; namely 'Held for Trading (HFT)'; 'Available for Sale' (AFS) and 'Held for Maturity (HTM)'. It was submitted that the assessee being a bank is required to prepare its balance-sheet as per the provisions of the Banking Regulation Act. The balance-sheet format is thus prescribed wherein there is specific Head 'investment' where the ITA Nos.2358/Ahd/2012 & ITA No.2084/Ahd/2013 The Naroda Nagrik Co-op.Bank Ltd. vs. ACIT Asst.Years -2009-10 & 2010-11 -4- aforesaid securities was held are reflected. The notified format does not provide for bifurcation between the securities so held between the 'investment' and 'stock-in-trade'. It was thus contended that the Revenue has misdirected itself in law in denying the claim towards diminution loss in disregard of true purport of fact situation.
7. The Ld.DR, on the other hand, relied upon the orders of the authorities below and in furtherance submitted that RBI norms do not override the provisions of Income Tax Act. The government securities have been shown to be 'capital assets' in the balance-sheet and therefore depreciation on account of diminution of such securities is not permissible as revenue loss.
8. We have carefully considered the rival submissions. The issue for consideration is whether provision for diminution loss on government securities shown under the head 'investment' is permissible business loss as claimed by the assessee or not. We find that the issue is no longer res integra. The issue came up for consideration in the case of CIT vs. Bank of Baroda 262 ITR 364 and CIT vs. Nedungadi Bank Ltd. 130 Taxman 93 (Ker.) and followed by the Coordinate Bench of the tribunal in the case of ITO vs. Gozaria Nagarik Sahkari Bank Ltd. in ITA No.1026/Ahd/2011 for AY 2007-08 dated 13/08/2015 as well as in the ITA Nos.2358/Ahd/2012 & ITA No.2084/Ahd/2013 The Naroda Nagrik Co-op.Bank Ltd. vs. ACIT Asst.Years -2009-10 & 2010-11 -5- case of ACIT vs. Mehsana Urban Cooperative Bank Ltd. in ITA No.2703/Ahd/2011 for AY 2008-09 order dated 14/10/2015.
8.1. The relevant operative of the order of the Tribunal in ITA No.2703/Ahd/2011 for AY 2008-09 as relied upon by the assessee is reproduced hereunder:-
"8. We have heard the rival contentions and gone through the facts of the case. Assessee has sold government securities and met net loss of Rs.3,28,78,600/- after adjustment of profit of Rs.5.35,800/- and premium on purchase of securities of Rs.11,01,000/- total amounting to Rs.3.39,79,600/-. Guidelines of RBI as well as CBDT Circular No.665 dated 5.10.1993 have been elaborately discussed in the order of CIT(A) and relevant extract of the same have been reproduced above in our order. As per RBI guidelines securities purchased by the primary urban co-op, banks can be classified under three heads -
i) Held to Maturity (HTM)
ii) Available for Sale (AFS)
iii) Held for Trading (HFT) The loss incurred by the assessee of Rs.3,39,79,600/- is from sale of securities held for "Available for Sale (AFS) and the detailed working of the same has been provided by the Id. AR of the assessee in the Paper Book. These securities which are available for sale which are held by the assessee as per the RBI guidelines to keep apart some of the assets in the specified mode at certain percentage which are inter Asst.
Year 2008-09 alia known as CLR and SLR and the profit/loss on sale of such securities (AFS) cannot be treated as capital gain/loss. Further the Id.
AR has referred to the judicial pronouncement of the ITAT, Mumbai Bench in the case of Yes Bank Ltd, vs. Dy.CIT in ITA Nos.5833 & 5910 (Mum) of 2012 & 2829 (Mum) of 2013 for AYs 2006-07 & 2007- 08 dated July 21, 2015 wherein it was held -
ITA Nos.2358/Ahd/2012 & ITA No.2084/Ahd/2013The Naroda Nagrik Co-op.Bank Ltd. vs. ACIT Asst.Years -2009-10 & 2010-11 -6- "12. It is pertinent to mention that a single largest test to decide whether the security is held as capital asset or in stock-in-trade is the intention of the assessee at the time of purchase. Merely because some items so purchased happen to be held till maturity cannot convert what is acquired as stock in trade into a capital asset at a later point of time. Intention at the time of purchase is relevant and not a subsequent event of holding the security for a longer period. Instruction No. 17/2008 dated 26.11.2008 issued by the CBDT wherein, at para vi. It has been clearly stated that in the case of HFT and AFS Securities of the Bank, the depreciation and appreciation to be aggregated script wise and only depreciation, if any, is required to be provided in the accounts.
13. In view of the above, we do not find any merit in the action of lower authorities for disallowing loss arose on the year end revaluation of securities. Our view is supported by decision of Hon'ble Bombay High Court in the case of CIT vs. HDFC Bank Ltd. (2014) 226 Taxman 132/49 taxmann.com 335, United Commercial Bank vs. CIT (1999) 240 ITR 355/106 Taxman 601 (SO. Investment Ltd, vs. CIT (1970) 77 ITR 533 (SO and CIT vs. Bank of Baroda (2003) 262 ITR 334/129 Taxman 716 (Bom). Respectfully following the decision of Hon'ble Supreme Court and Hon'ble Bombay High Court and considering the classification of security so made and the loss arose on account of revaluation of securities are required to be allowed. Accordingly, we set aside the order of both the lower authorities and matter is restored back to the file of AO for deciding afresh in the light of our above observation. We direct accordingly."
Asst. Year 2008-09 We, therefore, on the basis of our examination of facts vis- a-vis RBI guidelines and above referred CBDT Circulars as well as relying on the decision of IT AT, Mumbai Bench, see no reason to interfere with the order of CIT(A) and the same is hereby upheld. This ground of Revenue is dismissed."
8.2. In parity with the judicial precedents on the issue and following the decision of the Coordinate Bench of the Tribunal as noted above, we hold that the loss claimed by the assessee bank is revenue in character and an allowable business loss.
ITA Nos.2358/Ahd/2012 & ITA No.2084/Ahd/2013The Naroda Nagrik Co-op.Bank Ltd. vs. ACIT Asst.Years -2009-10 & 2010-11 -7-
9. In the result, the appeal of the assessee is allowed.
ITA No.2084/Ahd/2013 - AY 2010-1110. The grounds of appeal raised by the Assessee read as under:-
1) The Ld.CIT(A) has erred in law and on facts in upholding the order of the Ld.A.O. for addition/disallowance made of Rs.32,00,000/- for the mark to market loss on Govt.Securities.
2) The Ld.CIT(A) has erred in law and on facts in upholding the order of the Ld.AO for disallowance of bad debts to the extent of Rs.1,57,038/-.
11. We find that this appeal of the assessee is identical to the facts of the ITA No.2358/Ahd/2012 for AY 2009-10(supra). In view of the pari materia facts concerning the identical issue, our decision in ITA No.2358/Ahd/2012 shall apply mutatis mutandis to this appeal of the assessee.
12. In the result, both the appeals of the assessee are allowed.
This Order pronounced in Open Court on 16 / 05/2017
Sd/- Sd/-
(एस.एस.गोदारा) ( द प कुमार के डया)
या यक सद य लेखा सद य
( S.S. GODARA ) ( PRADIP KUMAR KEDIA )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 16/ 05 /2017
ट .सी.नायर, व. न.स./T.C. NAIR, Sr. PS
ITA Nos.2358/Ahd/2012 & ITA
No.2084/Ahd/2013
The Naroda Nagrik Co-op.Bank Ltd. vs. ACIT
Asst.Years -2009-10 & 2010-11
-8-
आदे श क ! त#ल$प अ%े$षत/Copy of the Order forwarded to :
1. अपीलाथ' / The Appellant
2. (यथ' / The Respondent.
3. संबं6धत आयकर आयु8त / Concerned CIT
4. आयकर आयु8त(अपील) / The CIT(CC)-XI, Ahmedabad
5. 9वभागीय त न6ध, आयकर अपील य अ6धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड फाईल / Guard file.
आदे शानुसार/ BY ORDER, स(या9पत त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad
1. Date of dictation .. 4.5.17 (dictation-pad 10- pages attached at the end of this appeal-file)
2. Date on which the typed draft is placed before the Dictating Member ... 6.5.17
3. Other Member...
4. Date on which the approved draft comes to the Sr.P.S./P.S.................
5. Date on which the fair order is placed before the Dictating Member for pronouncement......
6. Date on which the fair order comes back to the Sr.P.S./P.S.......16.5.17
7. Date on which the file goes to the Bench Clerk.....................16.5.17
8. Date on which the file goes to the Head Clerk..........................................
9. The date on which the file goes to the Assistant Registrar for signature on the order..........................
10. Date of Despatch of the Order..................