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Income Tax Appellate Tribunal, SURAT BENCH, SURAT
Before: SHRI PAWAN SINGH, Honble & Dr.SHRI ARJUN LAL SAINI, Honble
सुनवाई की तारीख/ Date of hearing: 30.12.2020 उ�घोषणा क� तार�ख/Pronouncement on: 30.12.2020 आदेश /O R D E R PER PAWAN SINGH, JUDICIAL MEMEBER: 1. This appeal by assessee is directed against the order of ld.Commissioner of Income Tax (Appeals)-I[CIT(A)], Surat dated 08.02.2013 for assessment year (AY) 2009-10. The assessee has raised the following grounds of appeal: “1. The learned CIT Appeals-I has erred in disallowing expenditure of premium paid on investment amortized of Rs.79,05,467/- without considering the facts submitted by the assessee.
2. The learned CIT Appeals-I has erred in disallowing expenditure of process charges for MICR of Rs.34,75,188/- without considering the facts submitted by the assessee.
3. The appellant craves to add, to alter, to amend or to modify all any of grounds of appeal.”
2. Brief facts of the case are that the assessee is a Co-operative Bank. The assessee filed its Return of Income for the A.Y. The Surat People’s Co-operative Bank Limited Vs. ACIT Circle-4, Surat. A.Y. 2009-10 2009-10 on 17.09.2009 declaring total income of Rs.24,16,31,680/-. The case was selected for scrutiny. The ld.Assessing Officer after issuing show cause notice and considering the submission/explanation of assessee, made disallowance of premium paid on investment amortized of Rs.79,05,267/- and disallowance of Rs.34,75,188/- on account of non-deduction of tax at source for processing charges of MICR to State Bank of India.
3. On appeal before the ld. CIT(A), both the disallowances were upheld. Further, aggrieved the assessee has filed present appeal before this Tribunal.
4. We have heard the submission of the ld. Authorised Representative (AR) of the assessee and the ld. Departmental Representative (DR) for the Revenue.
5. Ground No.1 relates to disallowance of expenditure on premium paid on investment amortized of Rs.79,05,467/-. The ld.AR of the assessee submits that this ground of appeal is covered in favour of the assessee by the decision of the Tribunal in assessee’s own case for A.Y.2010-11 and A.Y.2012-13 in ITA No’s.2573/AHD/2014 and 1726/AHD/2016 respectively. In both the assessment years similar disallowances were made by the Assessing Officer, on similar expenditure of premium paid on investment amortized, however, on appeal before the ld.CIT(A), the 2 The Surat People’s Co-operative Bank Limited Vs. ACIT Circle-4, Surat. A.Y. 2009-10 disallowance was deleted and on further appeal before the Tribunal the order of ld.CIT(A) in both the years were upheld. The ld.AR for the assessee filed the copy of order of the Tribunal dated 03.12.2019 for A.Y. 2010-11 and A.Y. 2012-13 (supra).
On the other hand, the ld. DR for the Revenue supported the order of the ld.AO.
We have considered the submission both the parties and perused the order of the Lower Authorities carefully and the decision of Co-ordinate Bench of Tribunal in assessee’s own case for A.Y. 2011-12 and 2012-13 dated 03.10.2019(supra). We find that on identical set of facts in assessee’s own case for A.Y. 2011-12 and 2012-13, the Tribunal while affirming the order of the ld.CIT(A) passed the following order. “10. We have heard the rival submissions and perused the relevant material on record. We find that the issue is duly covered by the decision of Ahmedabad Tribunal in the case of ACIT v. Chanasma Nagrik Sahkari Bank Ltd. [2017] 86 taxmann.com 8 (Ahmedabad-Trib) wherein it was held as under: “7.1 After considering the above facts, I have carefully considered the reasoning of the AO justifying the disallowance made by him and the submissions made by the appellant in this regard and the facts of the case including the accounting in earlier years. The following material observations are made on the issue: (1) As per Section 6 read with Section 5(b) and (c) Banking regulation Act and as per the guideline issued by the Reserve Bank Of India, Investment activities is the normal banking activity and should be treated as banking stock in trade. The format of the balance sheet has been prescribed by the legislature and bank has to report their financial result in that format only. As per this format the Investment in Non-SLR Securities though treated as banking assets (stock in trade) has to be shown in the balance sheet as Investment. 3 The Surat People’s Co-operative Bank Limited Vs. ACIT Circle-4, Surat. A.Y. 2009-10 (2) The above position has also been clarified by Circular no. 665 of the CBDT dated 05-10-1993. "The question whether a particular item of investment in securities constitutes stock-in-trade or a capital asset is a question of fact In fact, the banks are generally governed by the instructions of the Reserve Bank of India from time to time with regard t:o the classification of assets and also the accounting standards for investments, The Board has, therefore, decided that the Assessing Officers should 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." CBDT has further issued instruction for the assessment of banks vide its Instruction No. 17/2008 dated 26.11.2008 (F. No. 228/3/3008 — ITA- III). Point no. VII of the said instruction— "As per RBI guidelines dated 16th October 2000, the Investment portfolio of the banks is required to be classified under three categories viz. Held to Maturity (HTM), Held for Trading (HFT) and Available for Sale (AFS). Investments classified under HTM category need not be marked to market and are carried at acquisition cost unless these are more than the face value, in which case the premium should be amortized over the period remaining to maturity. In the case of HFT and AFS securities forcing stock in trade of the bank, the depreciation / appreciation is to be aggregated scrip wise and only net depreciation, if any, is required to be provided for in the accounts. The latest guidelines of the RBI may be referred to for allowing any such claims," In such circumstances, where the same method of accounting is followed and allowed from year to year, such claim has been held to be allowable by the different courts. The Hon'ble Mumbai High court in the ease of CIT v. Bank of Baroda (2003) 262 ITR 334 has held that "Depreciation in value of investment held by bank was allowable as deduction, more so when the loss was debited to P&L A/c which was reflected as provision for liability in the balance sheet and the share and securities were valued at cost on the asset side. Same proposition has been upheld by Kerala High Court in case of CIT v. Nedungadi Bank Ltd. (2003) 130 Taxman 93. Therefore, even the depreciation in value if had been claimed from year to year, was allowable. Now this allowance of depreciation, which is a provision for loss on the basis of market value; is in effect the application of well known and well accepted principle of valuation of closing stock at 'cost or market price whichever is lower'. This method in fact allows for notional loss. Now, this allowance of depreciation held allowable by the board circular and the different decisions of the High Courts, have been made and could have been made only on the basis of these securities being treated as stock in trade. The assessee has been following consistent method of in effect claiming no depreciation (writing back any provision of depreciation in P&L account (IDR) for computation of total income) and thus valuing closing stock at cost only for showing the income in its returns. In nut 4 The Surat People’s Co-operative Bank Limited Vs. ACIT Circle-4, Surat. A.Y. 2009-10 shell, as discussed above, the bank has claimed loss in respect of securities which it had always meant to hold as trading assets and shown as AFS as per RBI's guidelines and classifications. Just because the banks have to keep them for longer times because of the nature of their business, it would not change the nature of the asset. Further, as held by Hon'ble Mumbai High court in the case of GIT v. Bank of Baroda (2003) 262 ITR 334; the mere fact that the banks are required as per RBI's guidelines to show I these in the balance sheet as investment would not affect the nature of the asset. The banks by the very nature of the business may have to park surplus trading funds in securities and although intended to be trading assets may have to keep them for longer periods if funds are not required. The treatment of securities of AFS categories has to be seen in contradiction and contrast with securities of HTM category which are purchased and held for the purpose of Investment only. The circular and instruction of the CBDT being squarely applicable, leaves no doubt on the allowability of the assessee's claim. The ground of appeal
is allowed to the extent that the loss is to be taken as business loss.'
6. The Ld. DR relied upon the order of the AO. In furtherance the Ld. DR submitted that when the assessee itself has classified the securities held by it under the head 'investment', the profit/ loss arising on sale of such securities held as investment have been rightly treated to be of capital nature by the AO.
7. The Ld.AR, on the other hand, relied upon the order of the CIT (A). The Ld. AR submitted that the assessee is in peculiar business of banking which is regulated by the RBI. The RBI has prescribed a format whereby the securities held are declared under the head 'investment' and further are classified as 'Held to maturity (HTM)' Held for trading (HFT)' and 'available for sale (AFS)' as per Reserve Bank of India's Instruction. The Ld.AR submitted that RBI mandatorily requires the banks to classify the investment in government securities as noted above. It was submitted that assessee-company being in banking business is required to compulsorily prepare its balance-sheet as per the provisions of Banking Regulation Act. A standard balance-sheet format is thus prescribed wherein there is specific head 'investment' where the aforesaid securities giving rise to the impugned loss were reflected as per norms & procedure. The notified format does not provide for bifurcation between the securities so held towards 'investment' or 'stock in-trade'. It was submitted that owing to litigation of this type, the issue stands clarified by the CBDT Circular No.665 dated 05/10/1993 as referral to by CIT (A). Therefore, in view of the peculiar facts situation, no interference with the order of the CIT (A) is called for.
8. We have considered the rival submissions and perused the orders of the authorities below. It is the case of the assessee that the impugned loss arose on sale of securities and bonds emanated from investments which were sub-classified under 'available for sale' (AFS) category at the time of purchase. In view of the aforesaid facts, we find merit in the claim of the assessee that the loss arising on sale of securities/bonds are of trading nature notwithstanding the fact that the securities were grouped under the head 'investment' owing to the 5 The Surat People’s Co-operative Bank Limited Vs. ACIT Circle-4, Surat. A.Y. 2009-10 prescribed format of the RBI. We find that the order of the CIT (A) dealing with the issue is consistent with the CBDT instruction as well as the facts of the case and does not require any elaboration. Accordingly, we decline to interfere with the order of the CIT(A).”
We find that the Government securities from the market which has been classified as “held to maturity” (HTM) category and therefore, premium paid over and above the face value of Rs.79,05,467/- over the remaining period of maturity and same is allowable as deduction. As per RBI guidelines dated 16th October 2000, the Investment portfolio of the banks is required to be classified under three categories viz. Held to Maturity (HTM), Held for Trading (HFT) and Available for Sale (AFS). Investments classified under HTM category need not be marked to market and are carried at acquisition cost unless these are more than the face value, in which case the premium should be amortized over the period remaining to maturity. This was explained by the CBDT vide Instruction No. 17 of 2008 dated 26.11.2008 according which investment of banks clarified under HTM category need not be marked to market and are carried at cost unless these are more than face value, in which case, the premium should be amortized over the period remaining to maturity. The Tribunal in the case of State Bank of Saurashtra Bhavnagar v. DCIT 93 ITD 662 (Ahmedabad), Catholic Syrian Bank Ltd. v. ACIT [2010] 38 SOT 553 (Cochin) held that in view of Instruction dated 26.11.2008, deduction of amortized expenditure on premium on Government Securities is allowable as expenditure. Further, Hon`ble Jurisdictional High Court in the case of CIT-Rajkot-2 v. Rajkot District Co-Operative bank Ltd. [2014] 43 taxmann.com 161 (Gujarat) wherein it was held that in terms of Circular No. 17 dated 26.11.2008, where Co-operative Bank Ltd. purchases certain Government Securities in order to maintain statutory liquidity ratio (SLR) at a price higher than their face value, premium so paid has to be amortized for remaining period of maturity. In the light of above facts and circumstances, we are of the considered opinion, the amortization expenditure on government securities held as HTM are allowable as deduction. We find that the CIT (A) has rightly allowed this grounds of appeal in favour of the assessee. In view of these facts and circumstances, and following the above decision of Tribunal as well as Hon’ble High Courts, this grounds of appeal of the Revenue is therefore, dismissed.”
The Surat People’s Co-operative Bank Limited Vs. ACIT Circle-4, Surat. A.Y. 2009-10 8. Considering the consistent view of the Tribunal in assessee’s own case for A.Y. 2011-12 and 2012-13 respectfully following this, the ground no.1 raised by the assessee allowed.
In the result, Ground No.1 of the assessee is allowed.
Ground No.2 relates to disallowance of processing charges for MICR of Rs.34,75,188/-. The ld.AR of the assessee submits that during the year under consideration. The assessee paid MICR charges to State Bank of India (SBI), is not covered under the professional or managerial fees as described in section 194J. There is no human action is involved in making process of MICR. The MICR is undertaken in a mechanical way. Thus, the services rendered by the SBI is neither managerial nor consultancy services and thus no tax was deductible under section 194J for such activities. Therefore, no tax was deducted before making payment of such charges. In support of his submissions, the ld.AR of the assessee relied upon the decision of Ahmedabad Tribunal in Karnavati Co- operative Bank Ltd. vs. Dy.CIT [2017] 17 Taxmann.com 239 (AHD) and Hon'ble Apex Court in CIT vs. Kotak Services Limited 383 ITR 1.
11. In alternative submission, the ld.AR of the assessee submits that the recipient of MICR charges i.e. SBI has included such charges in their income and had paid tax on such receipt. Once the recipient has offered such charges to the tax, 7 The Surat People’s Co-operative Bank Limited Vs. ACIT Circle-4, Surat. A.Y. 2009-10 therefore, no disallowance is sustainable at the hand of payee. The ld.AR submits that the ld.AO may be directed to verify the fact. The assessee would submit the necessary evidence for his verification.
On the other hand, the ld. DR for the Revenue supported the order of Lower Authorities. The ld. DR further submits that the Ahmedabad Tribunal in Canara Bank case, reported vide 116 TTJ 689 held that the assessee was liable to deduct tax at source on such transactions.
We have considered the submission of both the parties and perused the orders of Lower Authorities carefully. Before us, the ld.AR of the assessee in his alternative submission vehemently submitted that the SBI i.e. recipient of MICR charges have included those receipts in their income and have offered the same for taxation. Therefore, no disallowance be sustained at the hand of payee/ assessee. We find convincing force in his submission and are of the view that once the recipient has offered the amount for taxation, no disallowance at the hand of payee. Therefore, we direct the ld.AO to verify the fact if the SBI have paid the tax on MICR charges paid by the assessee, the disallowance is made in case of assessee be deleted. In the result, ground no.2 is allowed for statistical purposes.
The Surat People’s Co-operative Bank Limited Vs. ACIT Circle-4, Surat. A.Y. 2009-10 14. In the result, Ground No.2 of the assessee allowed for statistical purpose. 15. To sum up, appeal of the assessee is partly allowed. Order announced on 30th December 2020 by placing the result on the notice board.