Income Tax Appellate Tribunal - Pune
Nagar Urban Co-Operative Bank Ltd.,, ... vs Assessee on 26 November, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "B", PUNE
BEFORE SHRI SHAILENDRA KUMAR YADAV,
JUDICIAL MEMBER, AND
SHRI G.S. PANNU, ACCOUNTANT MEMBER
ITA No.711/PN/2013
A.Y. 2009-10
Nagar Urban Co-op Bank Ltd.,
Post Box No.7, Central Bank Road,
Ahmed Nagar - 414001
PAN: AAAAN0509L Appellant
Vs.
Addl. CIT,
Ahmednagar Range Respondent
Appellant by : Shri C.H. Nani Wadekar
Respondent by : Shri A.K. Modi
Date of Hearing: 26.11.2013
Date of order : 27.11.2013
ORDER
PER SHAILENDRA KUMAR YADAV, J.M:
This appeal has been filed by assessee against the order of Commissioner of Income Tax (Appeal)-I, (short CIT(A)-I) Pune for A.Y. 2009-10 on the following grounds.
1. That the learned Commissioner of Income Tax (Appeal)l has erred in confirming the additions made by the A.O who has disallowed amortization of premium paid on Govt. Securities Rs.15,11,333/-debited to P & L A/c. That the Amortization of premium paid on Govt. Securities Rs.15,11,333/- debited to P & L A/c as per RBI guidelines be allowed in full as being the expenses incurred during the course of business of banking.
2. That the learned Commissioner of Income Tax (Appeal)l has erred in confirming the additions made by the A.O who has disallowed provision for depreciation on Govt. Securities debited to P & L A/c Rs.51,06,000/- as per RBI guidelines. That the depreciation on Govt. Securities debited to P & L A/c as per RBI guidelines be allowed in full as being the expenses incurred during the course of business of banking.
23. That the learned CIT (A) has erred in confirming the addition made by A.O. on account of Suspense account balance Rs.16,11,421/-. That the balance in suspense account represents various sums which remained payable at the end of year, which are paid or payable on demand by the customer.
That the addition made is unwarranted. That the addition made be deleted.
4. That your appellant prays that he may be allowed to add, to alter, or amend or to delete any of the above grounds of appeal.
2. First issue is with regard to addition made by Assessing Officer who has disallowed the amortization premium paid on Govt. Securities of Rs.15,11,333/-. At the outset of hearing, learned Authorized Representative pointed out that this issue is covered in favour of assessee by the order in his own case for A.Y. 2007-08 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 covered 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 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/- 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, the 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 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 3 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 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 have 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".
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. CIT (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).
We therefore set aside the order of the CIT(A) on this issue and allow the claim of the assessee."
2.2 Facts being similar, so following the same reasoning, we hold that disallowance of expenses under head "amortization of premium paid to Govt. Securities" debited to Profit and Loss Account are not 4 justified the amortization of premium paid on Govt. Securities be allowed as claimed by assessee, Assessing Officer is directed accordingly.
3. Next issue is with regard to addition made by Assessing Officer who has disallowed the provision for depreciation on Govt. Securities debited to Profit & Loss Account of Rs.51,06,000/- as per RBI guidelines. This issue is covered by the decision in the case of State of Saurashtra Vs. Dy. CIT, Ahmedabad A Bench by holding as under:
"It is an admitted fact that the bank is required to invest and to keep invested certain specified percentage of its demand and time liabilities as prescribed by the RBI from time-to-time, in certain approved securities and, therefore, such investments in securities has to be closely and intimately connected with the business of the assessee. The issue has been concluded in favour of the assessee in earlier years and the matter has not been allowed to be proceeded further and the appeal failed for want of permission of COD. The securities are required in the normal course of banking business which requires keeping of enough cash and easily realizable securities to meet any possible demand of the depositors. They are so required as per guidelines of RBI. The Circular No. 599, dt. 24th April, 1991 also declared such securities as stock-in-trade of the banks, though the later circular has left it open for the decision of the AO to decide whether they are stock-in-trade or not. The assessee is following the system of valuation regularly from asst. yr. 1977-78 and claiming depreciation in its IT return and same are being accepted by the Department-in some cases by the ITO and in some other cases by the CIT(A). Therefore, the attempt to file further appeal to the Tribunal has failed because even COD has not permitted to proceed with the matter. In these circumstances, the CIT(A) was justified in allowing the claim of the assessee."
3.1 Nothing contrary was brought to our knowledge on behalf of revenue. Facts being similar, so following the same reasoning, depreciation on securities held by bank as stock entry is directed to be allowed.
4. Next issue is with regard to the addition made by Assessing Officer on account of suspense account balance of Rs.16,11,421/-. The Assessing Officer has recorded the finding that although specific 5 query was raised, this amount has not been able to reconciled by the assessee. Accordingly, same was added by Assessing Officer by invoking the provisions of section 41(1) of I.T Act which was confirmed by CIT(A).
4.1 The learned Authorized Representative before us submitted that CIT(A) was not justified in confirming the addition made by Assessing Officer on account of suspense account of Rs.16,11,421/- . The balance in suspense account represents various sums which remain payable at the end of the year which was paid or payable on demand by customers, so addition was not warranted. Accordingly, same be deleted. Learned Authorized Representative submitted that he is ready to justify its claim as per law for which no opportunity was given by lower authorities. In view of this, we restore this issue to Assessing Officer with a direction to decide the same on facts and law after providing due opportunity of hearing.
5. In the result, appeal filed by assessee is partly allowed.
Pronounced in the open Court on this the day 27th of November, 2013.
Sd/- Sd/-
(G.S. PANNU) (SHAILENDRA KUMAR YADAV)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Pune, Dated: 27th November 2013
GCVSR
Copy to:-
1) Assessee
2) Department
3) The CIT(A)-I, Pune
4) The CIT-I, Pune
5) The DR, "B" Bench, I.T.A.T., Pune.
6) Guard File
//True copy//
By Order
Senior Private Secretary,
I.T.A.T., Pune