Income Tax Appellate Tribunal - Ahmedabad
The Acit, Circle-7,, Ahmedabad vs The Ahmedabad District Co.Op. Bank ... on 1 December, 2017
आयकर अपील
य अ धकरण, अहमदाबाद यायपीठ 'ए' अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
" A " BENCH, AHMEDABAD
सव ी महावीर साद, या यक सद य एवं Ekuh'k cksjM, लेखा सद य के सम ।
BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER And
SHRI, MANISH BORAD, ACCOUNTANT MEMBER
आयकर अपील सं./I.T.A. No.25/Ahd/2014
( नधा रण वष / Assessment Year :2007-08)
Assistant Commissioner of बनाम/ The Ahmedabad
Income Tax, Vs. District Co.op Bank
Circle - 7, Ltd.
Ahmedabad. Nr. Income Tax
Office, Gandhi Bridge
Naka, Ashram Road,
Ahmedabad.
थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AAAAT 1067 D
(अपीलाथ" /Appellant) .. ( #यथ" / Respondent)
अपीलाथ" ओर से / Appellant by : Shri Jayant Jhaveri, Sr.D.R.
#यथ" क% ओर से/Respondent by : Shri A. N. Shah, A.R.
ु वाई क% तार*ख /
सन Date of Hearing 28/11/2017
घोषणा क% तार*ख /Date of Pronounce ment 01/12/2017
आदे श / 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 dated 03/10/2013 for the Assessment Year (AY) 2007-08, on the following Grounds:
ITA No. 25/Ahd/2014ACIT 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 mere change of opinion.
ii. The ld.CIT(A) has erred in law and on facts in deleting disallowance of Rs.5,84,33,430/- made on account of the claim for deduction for government securities premium written off without reading and truly interpreting the RBFs circular dated 04.09.1992 (Annexure-II- Accounting Standards). The CIT(A) ought to have enhanced the assessment by directing the A.O. to disallow the whole sum of Rs.6,58,93,230/- debited in the Profit & Loss Account. iii. On the facts and circumstances of the case, the Ld. Commissioner of Income tax (A) ought to have upheld the order of the Assessing Officer. iv. It is therefore, prayed that the order of the Ld. Commissioner of Income tax (A) may be set-aside and that of the Assessing Officer be restored.
2. The relevant facts as culled out from the materials on record are as under:-
In this case, return of income was filed on 02/11/2007 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 returned income. Thereafter the case was re-opened u/s.147 of the I.T. Act after recording reasons for re-opening (Satisfaction Note). A notice 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, reason for re-
opening the assessment (satisfaction note) and the same is re-produced as under: -
"On verification from the assessment records revealed 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 the previous year relevant to the Assessment Year 2007-08 and the same 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 maturity, there was downward trend in its market price and therefore, as 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 business in terms of Reserve Bank of India.
On perusal of Balance Sheet of the assessee for the year ended 31st March, 2007 it is noticed from Item No.4 (A) INVESTMENTS 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). Whereas the assessee had debited an amount of Rs.6,58,93,230/- in the profit & 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 revealed 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 "Provision for Bad and Doubtful Debt Fund:, apart from "Provision for income Tax 2006- 07" of Rs.3,65,00,000/- and "provision for Investment Depreciation Fund" of Rs.30,00,000/-. However, perusal of the "Statement of Computation of Income" furnished by the assessee along with the return of income, revealed that the amount of "Provision for Bad and Doubtful Debt Fund" of Rs.1,00,00,000/- was not added back to 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 wholly and exclusively for the purposes of the business or profession, the same was required to disallowed .
I, therefore, have reason to believe that the income to the tune likely to amounting to Rs.6,84,33,430/- (5,84,33,430/- + 1,00,00,000/-) his escaped assessment within the meaning of section 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 ease to re-open the assessment u/s 147 of the 1 T Act."
3.1. In compliance, the assessee has field submission 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-open the assessment of our client for A.Y. 2007-08 on the basis of reasons recorded for re- opening the assessment u/s 147 of the Income Tax Act, 1961, copy of which has been supplied to us on 28/11/2011. In this connection, we strongly object to the proposed re-opening of the assessment 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, copy of which is enclosed herewith with ready reference. It has been clearly noted that assessment proceedings have been duly attended from time to time and required details have been submitted during the course of assessment proceedings.
2. It is submitted that as stated in the reasons recorded 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 consideration 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 evidences 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/-. As such, deductions have been correctly allowed after due consideration and, therefore, there cannot be any reason to re-open the assessment and re-opening under such facts and circumstances of the case shall 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, submitted that duly finalized assessment cannot be re-opened on the basis of change of opinion.
4. It is submitted that our claim as stated above is duly supported by the following judgments:
(i) CIT v. Kelvmator of India Ltd. [(2002) 256 ITR 1 (Delhi-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 herewith.
5. Without prejudice to the above, it is submitted that proposed re- opening is not based on valid reasons because the deductions 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 been validly allowed by the Additional Commissioner of Income Tax, Range-7, Ahmedabad on fully satisfying with the complete details, information, explanations and written submissions along 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 regard it is submitted 6.1 As per definition under Banking Regulation Act, banking means the accepting, for the purpose of lending or investment, 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 surplus funds in such securities as will be easily realizable for the purpose of its banking business. Further, investments in securities are also statutorily required to be made. Such investments, even though, are payable at a certain specified period or that there was no variation in them, such investments are stock-in-trade 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 there from is part of banking business income. Income from investments by bank was also held deductible as banking business income u/s.80P(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 standard and method of valuation of closing stock consistently adopted from year to year which is also required to be following by bank as per the provisions of Banking Regulation Act and the guidelines issued by Resent Bank of India, such investments by bank are in nature of stock-in-trade held by bank for its banking 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 of account securities which were purchased at premium price have 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. Further, during the period of its maturity, market price of such securities may fall and, therefore, costs thereof in the books will disclose higher value. However, as per the requirements under the Banking 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 necessary to disclose correct value of such investments in securities in the Balance Sheet. Copy of the Circular was submitted during the course of assessment proceedings and again submitted herewith for ready reference. In view thereof, the amount paid by way of premium as well as loss on account of decrease in value of such securities is required to be recorded in the books by writing off the amount of premium/loss proportionately, every year over the period of maturity of such securities. Thus, value of securities is required to be reduced to the extent of amount of premium 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/2014ACIT vs. The Ahmedabad District co. Op Bank Ltd.
Asst.Year -2007-08 -7- Accordingly, during the course of assessment proceedings, statement giving complete details of Government Securities Premium Written Off amounting to Rs.6,58,93,230/- was submitted and for claiming deduction in respect thereof, the same has been correctly debited to Profit & Loss Account for the year and the same is rightly allowed as business loss in the original assessment. Copy of the statement is also enclosed herewith. Moreover, this claim is duly supported by the judgments of the Hon'ble Supreme Court as well as of the Hon'ble High Court of Gujarat in case of the assessee 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 ITR 6 (SC)]
5. Addl.ClT v. Ahmedabad Dist, Co.Op. Bank Ltd. [101 ITR 733 (Guj)] 6.5 In view of the above, it is strongly submitted that re-opening of assessment cannot be resorted to disallowing the claim 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 of provision for Bad & Doubtful Debt of Rs.1,00,00,000/- which has been debited to Profit & Loss Account.
ITA No. 25/Ahd/2014ACIT 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/ 2004-05 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 during 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 information in respect of non- performing assets and provision for bad & doubtful debt made during the year in accordance therewith. Copy of this statement 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 cannot be now disallowed by resorting to re-opening of the assessment."
2.3 The contention of the assessee were considered. However, on going through the submission, nowhere assessee explained the reasons of difference in book value of investment in Central and 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 minus Rs.4,39,96,28,226/- market value). Whereas the assessee has debited an amount of Rs.6,58,93,230/- in the P&L accounts towards "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/2014ACIT 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 heard both the parties. The Appellant is a co-operative society registered under the Gujarat Co-operative Societies Act, 1961, carrying on banking business and therefore also governed by the Banking Regulation Act, 1949. For the year under consideration, return of income of Rs.11,92,82,398/- was filed by the Appellant on 02/11/2007.
4.1 The assessment under consideration was finalized by order dated 15/12/2009 passed u/s.143(3) of the act, 1961. Thereafter, AO issued on 30/03/2011, notice u/s.148 of the I.T. Act, 1961 proposing to re-open the assessment for A.Y. 2007-08 and above request by the assessee reason recorded for reopening the assessment and also supply to the assessee. Same were for disallowing claim for deduction 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/-.
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 credible 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 Regulation Act as well as RBI guideline.
In support of its contention assessee also filed balance 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 subsequent year no proceedings for re-opening was done. In our considered opinion, without credible evidence or material in hand no addition can be made. We are surprised to note that similar facts and circumstances of the case in earlier assessment year of 2005-06, 2006-07, appellant contentions were accepted in preceding u/s.143(3) and even subsequent 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 in the previous year and in subsequent years.
ITA No. 25/Ahd/2014ACIT vs. The Ahmedabad District co. Op Bank Ltd.
Asst.Year -2007-08
- 11 -
6. In our opinion, ld. CIT(A) has passed detailed and reasoned order and we do not find any infirmity in the order passed 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
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( MANISH BORAD ) (MAHAVIR PRASAD)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad; Dated 01/12/2017
Priti yadav, Sr. PS
आदे श क ! त#ल$प अ%े$षत/Copy of the Order forwarded to :
1. अपीलाथ" / The Appellant
2. #यथ" / The Respondent.
3. संबं1धत आयकर आयु3त / Concerned CIT
4. आयकर आयु3त(अपील) / The CIT(A)-XIV, Ahmedabad.
5. 6वभागीय त न1ध, आयकर अपील*य अ1धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड फाईल / Guard file.
आदे शानुसार/ BY ORDER, स#या6पत त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad