Income Tax Appellate Tribunal - Pune
Samarth Sahkari Bank Ltd.,, Aurangabad vs Department Of Income Tax on 24 September, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "B", PUNE
BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER
AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER
ITA No.294/PUN/2013
(Asst. Year: 2007-08)
Asst. Commissioner of Income Tax,
Circle - 1, Aurangabad Appellant
Vs.
Samarth Sahakari Bank Ltd.,
1st Floor, Phule Market,
KadbiMandi, Jalna - 431203
PAN:AABAS8051R Respondent
Appellant by : Shri S.C. Sarangi
Respondent by : Bank employee
Date of hearing : 24-09-2013
Date of Pronouncement : 27-09-2013
ORDER
PER R.S. PADVEKAR, JM:
This appealfiled by the Revenue challenging the impugned order of the Ld. CIT(A), Aurangabad dated 19-11-2012 for the A.Y. 2007-08.
2. The Revenue has taken the following effective ground.
1. Whether on the facts and in the circumstances of the case, the CIT(A) was correct in treating the amortization of premium paid on government securities of "Held to Maturity" & "Available For Sale" category as allowable revenue expenditure.
3. The briefly stated facts are as under. The assessee is a cooperative bank. The assessee has filed the return of income for the A.Y. 2007-08 declaring total income of Rs.5,87,360/-. The assessee's case was selected for scrutiny and assessment has been completed u/s.143(3). The Assessing Officer made disallowance in respect of provision for depreciation on the investment of Rs.10,92,876/- and 2 made addition to the total income. There is no discussion in the assessment order in respect of nature of the claim of the assessee. The assessee has carried the issue before the Ld. CIT(A) and submitted that the deduction of Rs.10,92,876/- is allowable as per the RBI guidelines and has also submitted the working of the amortization of premium in respect of government securities i.e. Held to Maturity (HTM) category of Rs.7,27,376/- and the remaining amortization of premium is towards Available for Sale (AFS) category. The Ld. CIT(A) allowed the claim of the assessee following the decision of the ITAT, Mumbai in the case of ACIT Vs. Bank of Rajasthan Ltd. (2011) TIOL-35,ITAT, Mumbai.
4. Now, the Revenue is in appeal before us. We have heard the Ld.DR. We find that the issue stands cover in favour of the assessee by the decision of this Tribunal in the case ofRatnakar Bank Ltd., Vs. ACIT, Range 2, Kolhapur in ITA No.789/PN/2010, dated 28/02/2013, in which, an identical issue has been considered by the Tribunal and held as under:
"6. We have heard the rival submissions of the parties and perused the record. The Ld. Counsel argued that as per the consistent method followed by the assessee, bank securities are valued at cost or market value. He further argued that if the securities held under AFS are transferred to the HTM, then the valuation is to be done on the date of transfer and if the market value is less than the cost of the securities then the same is provided as a depreciation. He vehemently argued that the guidelines issued by the RBI are binding on the bank under the Banking Regulation Act and assessee is making the provision of amortization is made till the year or date of maturity of the said security. The Ld. Counsel placed his reliance on the decision of Hon'ble High court of Kerala in the case of Nidungadi Bank 264 ITR 545. He also placed his reliance on the following decisions of the Karnataka Benches 'State Bank of Mysore Vs. DCIT (2009) 33 SOT 7 (Bang)., Latur Urban Co-operative Bank Ltd. Vs. DCIT 778 & 792/PN/2011 dated 31.8.2012. We have also heard the Ld. D.R. 3
7. The issue in controversy before us is in narrow pass. The assessee is a bank and engaged into the banking business. The assessee made the classification of the securities in compliance with the guidelines of the RBI i.e. (1) Held to Maturity (HTM) (2) Available for sale (AFS) and (3) Held for treating (HFT). In the case of Nidungadi Bank Ltd. (supra), the Hon'ble High Court of Kerala held that all the investments are in the nature of stock in trade held by the assessee. So far as issue before us is concerned, it is only the conversion of the classification of the security by the Bank. It is not disputed in this case that assessee is consistently following the said method and even if the securities are sold, finally the depreciation/loss will have the bearing while determining the profit or losses when the securities are sold in the open market. The identical issue had come before the ITAT Bangalore Bench in the case of State Bank of Mysore (supra) and Tribunal held as under:
"7.2 We have considered the rival submissions. We have also perused the RBI master circular and other case laws on which the senior counsel has placed strong reliance. The Hon'ble Tribunal, Bangalore Bench 'B' in ITA No. 253/Bang/2007, dt.24th Jan., 2008 in the case of Asstt. CIT (LTU) vs. VijayaBank had an occasion to deal with a similar issue. After considering the rival submissions, analyzing the RBI guidelines and also extensively quoting various judicial pronouncements on which both the parties have placed their reliance, the Hon'ble Tribunal has observed thus--
"15. From the above, it is clear that the assessee is treating the securities held under the category 'held for maturity' as stock-in-trade. If there is appreciation in the market value as compared to the market value at the opening of the year and such appreciation is also accounted for. It is not claiming depreciation only for the years, when the value has gone down. If that had been the case, the assessee would not have accounted for any appreciation in 3rd, 4th and 5th year. The method by which the assessee bank is valuing securities is in accordance with the accounting principles by treating such securities as stock-in-trade. Moreover, the Revenue itself is treating the profit on maturity of such security as business income and, therefore, such securities cannot be treated as capital assets.
16. Special Bench, Delhi in the case of New India Industries Ltd. vs. Asstt. CIT (2007) 112 TTJ (Del) (SB) 917 : (2008) 1 DTR (Del)(SB)(Trib) 247 : (2007) 18 SOT 51 (Del)(SB) : 2007-TIOL-389-ITAT-DEL-SB had an occasion to consider the binding nature of RBI guidelines. The Special Bench held that RBI guidelines in respect of provision for NPA are not binding in the computation of income under the IT Act. Income is to be assessed as per the provision of the IT Act. The Madras High Court in the 4 case of T.N. Power Finance & Infrastructure Development Corporation Ltd.
vs. CIT (2007) 213 CTR (Mad) 610 : (2006) 280 ITR 491 (Mad) :
(2006-TIOL-112-HC-MAD-IT held that provision for non-performing the assets debited to P&L a/c is not allowable, as directive of RBI may not override statutory provision. Once the Revenue is accepting that profit arising on the maturity of investment is business income, then it cannot take the stand that it is not stock-in-trade. During the course of proceedings before us, the learned Authorised Representative has filed the assessment order in the case of the assessee for the asst. yrs. 2000-01 to 2002-03. The depreciation claimed in all these asst. years has not been disallowed .Thus, the Revenue is consistently accepting that depreciation is allowable. This Bench in the following cases has allowed such depreciation on the valuation of the securities held by the bank :
(1) Karnataka Bank Ltd. vs. Jt. CIT ITA No. 50/Bang/1997, dt. 27th July, 2003;
(2) ING Vysya Bank Ltd. vs. Dy. CIT (2006) 6 SOT 606 (Bang).
17. Considering the above discussion, it is held that the assessee is entitled to value all the investment at cost prices or market value whichever is lower by treating such investment as stock-in-trade...."
7.3 The Hon'ble Tribunal in ITA No. 112/Bang/2008, dt.3rd Dec., 2008 in the case of Corporation Bank vs. Asstt.CIT 2009-TIOL-75-ITAT- BANG, by following the decision of the Hon'ble Tribunal in the case of Asstt. CIT (LTU) vs. Vijaya Bank (supra), has held that--
"16. Considering the facts and circumstances of the case before us and respectfully following the decision of the Hon'ble Supreme Court in the case of United Commercial Bank vs. CIT referred supra, it is held that the assessee bank is entitled to value all the investment at cost prices or market value whichever is lower by treating such stock-in-trade........."
7.4 In RBI's master circular, under the caption 2 classification, it has been mentioned thus--
"(i) The entire investment portfolio of the banks (including SLR securities and non-SLR securities) should be classified under three categories viz., 'held to maturity', 'available for sale' and 'held for trading'. However, in the balance sheet, the investments will continue to be disclosed as per the existing six classifications viz., (a) Government securities, (b) other approved securities, (c) shares, (d) debentures and bonds, (e) subsidiaries/joint ventures, and (f) other (CP mutual fund units, etc.).
(ii) Banks should decide the category of the investment at the time of acquisition and the decision should be recorded on the investment proposals.
2.3 Shifting among categories :
(i) Banks may shift investments to/from held to maturity category with the approval of the board of directors once a year. Such shifting will normally be allowed at the beginning of the accounting year. No further shifting to/from this category will be allowed during the remaining part of that accounting year."5
7.5 In view of the clear-cut guidelines of the RBI and respectfully following the findings of the Hon'bleTribunal referred supra, the claim of the assessee towards provision of depreciation of Rs. 1,27,21,17,913 on account of transfer of securities from AFS category to HTM category is allowed. It is ordered accordingly."
8. As the issue is directly covered in favour of the assessee by decision of I.T.A.T. Bangalore Bench, we do not find any reason to take the different view. We accordingly, allow the claim of the assessee and grounds taken by the assessee are allowed".
5. We, therefore, confirm the order of the CIT(A) following the decision in the case of RatnakarBank Ltd. (Supra) and the ground taken by the Revenue is dismissed.
6. In the result, The Revenue's appeal is dismissed.
Pronounced in the open Court on this the 27th day of September, 2013.
Sd/- Sd/-
(G.S. PANNU) (R.S. PADVEKAR)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Pune, Dated 27th September, 2013
GCVSR
Copy to:-
1) Department
2) Assessee
3) The CIT(A), Aurangabad
4) The CIT, Aurangabad
5) The DR, "B" Bench, I.T.A.T., Pune
6) Guard File
//True copy//
By Order
Senior Private Secretary
ITAT Pune Benches, Pune