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Income Tax Appellate Tribunal, AHMEDABAD “B” BENCH
Before: SHRI PRADIP KUMAR KEDIA & SHRI MAHAVIR PRASAD
PER MAHAVIR PRASAD, JUDICIAL MEMBER
This appeal filed by the Assessee is directed against the order of the Ld. CIT(A)-4, Vadodara dated 06.12.2016 pertaining to A.Y. 2012-13 and solely ground have been taken by the assessee that ld.CIT(A) has grievously erred in 2 . A.Y. 2012-13 law and on facts of confirming the disallowance of loss on sale of securities of Rs. 7,54,500/- as business loss.
Facts of the case are that the appellant is a cooperative society engaged in the business of banking. It is duly registered under the Gujarat Co-op. Society Act and carry on the banking business under the supervision of RBI. It had filed his return of income for A.Y.2012-13 on 31.07.2012 declaring total income of Rs.92,87,229.
2.1 During the course of asstt. proceedings, the AO noticed that the appellant had debited in P&L account Rs.7,54,500/- on account of loss on sale of securities. The AO disallowed the same on the ground that the loss was in capital nature. The AO made further additions also and completed the assessment u/s.143(3) on the total income of Rs.1,22,72,640/-.
Thereafter assessee preferred first statutory appeal before the ld. CIT(A) wherein it was pointed out that the appellant bank was required to make investment in specified Govt. Securities as per RBI Norms. Accordingly, the bank had purchased 6.3% Govt. Securities on 07.05.2003 and its interest income was shown as business income. Therefore, the loss on sale of such securities was claimed as business loss. The appellant relied upon the decision in its own case given by Hon. Gujarat High Court for A.Y.2002-03 vide tax appeal No.2447 of 2009 dated 21.06.2016. However, CIT(A) has confirmed the disallowance by a non-speaking order and on erroneous fact that the appellant was not able to prove as to how purchase and sale of securities was a part of its business.
3 . A.Y. 2012-13 5. We have gone through the relevant record and impugned order. Assessee has purchased 6.3 Govt. Securities on 07.05.2003 and its interest was shown as business income and claimed loss on sale of such securities was as business loss.
In support of its contention, assessee filed details pertaining to details of the Govt. Securities at page no. 11 of the paper book:
ANNEXURE-M (AS ON 31-03-2012) Cent. Govt. Loan 235,439,099.00 State Govt. Loan 40,454,112.00 Govt. Bills 9,797,985.00 Total 285,691,196.00
As we can see as per RBI guidelines, it was mandatory on the part of the assessee to purchase 6.3% of its total capital income securities and assessee did not have any option if any loss incurred on account of purchase of such Govt. bonds that kind of loss to be allowable loss.
In support of its contention, assessee also cited a judgment of assessee’s own case which were delivered on 21.06.2016 in favour of assessee and relevant Para of the judgment is reproduced:
“When the matter was carried before the CIT (Appeals), he took somewhat a different stand. CIT (Appeals) was of the opinion that certain proceeds on sale of securities were invested by the assessee with Madhavpura Mercantile Coop. Bank. Ltd. which was doubtful investments. In any case, the same was not 4 . A.Y. 2012-13 approved under section 71 of the Gujarat Cooperative Societies Act. He, therefore found that non-utilization of sale proceeds would not fall within the normal banking business and the capital gain would not be eligible for deduction under section 80P(2)(a)(i) of the Act. Once again, the issue reached the Tribunal. The Tribunal by the impugned common judgment allowed the assessee's appeal relying on the decision of the Tribunal in the case of Rajkot Nagrik Sahakari Bank Limited. Revenue, thereupon, presented this Tax Appeal raising following question:
"Whether on the facts and in the circumstances of the case, the Tribunal was right in law in allowing the deduction u/s.80P(2)(a)(i) in contradiction to the assesses having income from capital gains not attributable to regular banking business of the assessee ?”
Though at different stages different authorities have viewed the situation somewhat differently the Revenue has framed the questions which are identically worded the questions that arise are (i) what would be the effect of income of the assessee from what the Assessing Officer referred to as non-banking profits and (ii) whether on account of assessee investing sale proceeds of securities with Banks and Financial Institutions not approved under section 71 of the Gujarat Cooperative Societies Act, can deduction under section SOP of the Act be denied?
In so far as first question is concerned, it does not pose any serious difficulty. As already noted, the assessee was relying on .the decision of the Special Bench of the Tribunal in the case of Surat District Cooperative Bank (supra). At the stage when the Assessing Officer decided the issue, the Revenue had carried the decision in further appeal. However, subsequently, by virtue of the decision of the Apex Court in the case of C.I.T. v. Karnataka State Coop. Apex Bank, 251 ITR 194, the entire issue has been settled and decided in favour of the assessee. The Apex 5 . A.Y. 2012-13 Court held and observed that there is nothing in the phraseology of section 80P(2)(a)(i) which makes it applicable only to income derived from working or circulating capital. It was further observed that from investment made, in compliance with statutory provisions to enable it to carry on banking business out of reserve fund by a cooperative society is exempt under section 80P(2)(a)(i) of the Act and placement of such funds being imperative for the purpose of carrying on banking business, income therefrom would be income from the assesses 's business. In that view of the matter, the Revenue's objection to the deduction claimed by the assessee to its so called non-banking profits must rest here.
With respect to the second aspect, counsel for the Revenue vehemently contended that the assessee had parked its funds out of sale proceeds of securities with banks and institutions which are not approved under section 71 of the Gujarat Cooperative Societies Act. He, therefore, submitted that such irregular investments cannot qualify for deduction under section 80P(2) of the Act. Had the question been with respect to deduction on the income derived from such investments, we would have been inclined to examine th issue further. However, in the present case, facts are contrary. As held and observed by the CIT (Appeals) in both the cases, the assessee had derived income from sale of Government securities and other approved investments. Such proceeds were thereafter invested in securities and deposits which may not have been approved under section 71 of the Gujarat Cooperative Societies Act. What we are concerned with is the treatment that such income out of sale proceeds and securities should receive and not what income from further investments should receive. In short, claim for deduction under section 80P(2) of the Act raised by the assessee related to income derived from sale of approved securities.
6 . A.Y. 2012-13 That being the position, the assessee was justified in claiming deduction as available under law. In our view, therefore, the Tribunal committed no error. No question of law arises. Tax Appeals are, therefore, dismissed."
In light of the above settled legal position, we are not giving elaborate reasons and answer the question raised in this appeal in favour of the assessee and against the revenue. Accordingly, the appeal is dismissed.”
Respectfully following the Hon’ble jurisdictional High Court judgment, we allow the appeal of the assessee.
In the result, appeal filed by the Assessee is allowed.
Order pronounced in Open Court on 29 - 07- 2019