M/S INDORE PARASPAR SAHKARI BANK LTD. ,INDORE vs. INCOME TAX OFFICER -2 (5) , INDORE

Indore Paraspar Sahakari Bank Ltd ITA No.441/Ind/2019 & ITA No.503/Ind/2018 आयकर अपील�य अ�धकरण, इंदौर �यायपीठ, इंदौर IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE HON'BLE KUL BHARAT, JUDICIAL MEMBER AND HON'BLE MANISH BORAD, ACCOUNTANT MEMBER

ITA No.441/Ind/2019 & ITA No.503/Ind/2018 Assessment Years: 2010-11 & 2012-13 M/s Indore Paraspar ACIT-1(1), Sahakari Bank Ltd, Vs. Indore 3/1, South Tukoganj, Indore (Appellant) (Respondent ) PAN No.AAAC17152E

Revenue by Shri R.S. Ambedkar, Sr.DR Assessee by Shri S.S. Deshpande,CA Date of Hearing 06.6.2019 Date of Pronouncement 18.6.2019

O R D E R PER MANISH BORAD, AM.

The above captioned two appeals are filed at the

instance of the assessee. Appeals No. 441/Ind/2019 &

No.503/Ind/2018 for Assessment Years 2010-11 & 2012-13 are

directed against the order of Ld. CIT(Appeals)-1 (in short ‘CIT(A)’),

Indore dated 18.02.2019 and 20.03.2018 respectively which are 1

Indore Paraspar Sahakari Bank Ltd ITA No.441/Ind/2019 & ITA No.503/Ind/2018 arising out of the order u/s 143(3) of the Income Tax Act 1961 (In

short the ‘Act’) dated 13.12.2017 and 30.03.2015 framed by ACIT-

1(1), Indore.

were heard together and are being disposed off by this common

order for the sake of convenience and brevity.

2008-09 for which following grounds of appeal have been raised.

ITA No. 441/Ind/2019

Assessment Year 2010-11

engaged in the business of banking and providing credit facilities.

The activities of the society are governed by the directives of the

Indore Paraspar Sahakari Bank Ltd ITA No.441/Ind/2019 & ITA No.503/Ind/2018 RBI. The return of income was filed on 15.10.10 declaring the

income of Rs. 45,66,540/-. The accounts are audited and the Tax

Audit Report is filed. During the course of the assessment

proceedings, the Ld AO specifically raised a query vide letter dated

22/10/2012 regarding the allowability of depreciation on

investments and vide letter dated filed 11.12.2012, the assessee

gave the reply and also drew attention to the RBI Circular. The

original assessment was completed on 28/12/2012 determining the

total income of Rs. 45,66,540/-. 5. Subsequently notice u/s 148 of the Act was issued on

25.11.2016 on the ground that the income has escaped the

assessment. This notice was issued after the expiry of four years

from the end of the Assessment Year 2010-11. The assessee raised

objection and filed the return under protest. However the Ld. A.O

reopened the assessment on the reason to believe that the income

amounting to Rs. 16,36,000/- has escaped assessment. While

framing the assessment, the Id. AO has made the addition of

Rs.16,36,000/- on account of Depreciation in the value of

investment. While making the addition, the Ld AO merely give a

reason that the closing stock is valued at cost or market whichever 3

Indore Paraspar Sahakari Bank Ltd ITA No.441/Ind/2019 & ITA No.503/Ind/2018 is less and the assessee has not filed security wise details of

valuation of investments. It was claimed before the Id. AO that the

said claim is allowable as per the provisions of the Law and the

guidelines of the RBI. Submissions made by the assessee were

considered by the Ld. A.O but were not found tenable and in the

reassessment proceedings u/s 143(3) r.w.s. 147 of the Act

depreciation of investment of Rs.16,36,000/- was disallowed and

added back to the income at Rs.45,66,540/- assessed u/s 143(3) of

the Act vide order dated 28.12.2012. Income accordingly assessed

at Rs.62,02,540/-. Aggrieved assessee preferred appeal before Ld.

CIT(A) challenging the reopening of assessment as well as

challenging the disallowance of depreciation but failed to get any

relief.

take up Ground No.1 of assessee’s appeal for Assessment Year

2010-11 challenging the reopening of the assessment u/s 147 of

the Act.

has been reopened beyond four years on the ground that the claim 4

Indore Paraspar Sahakari Bank Ltd ITA No.441/Ind/2019 & ITA No.503/Ind/2018 of depreciation on securities is not allowable. During the course of

the assessment proceedings in first round a specific query was

raised about the allowability of the deduction and a complete explanations was given along with the Circulars of the Reserve

Bank of India. The Accounting Standards were also provided. After

considering all the submissions the claim was allowed by the Ld

AO. Now the reopening of the assessment is a mere change of

opinion and as such it is submitted that the action of reopening is

bad in law and without jurisdiction: In this connection, attention is

drawn to the following cases.

District Cooperative Bank Ltd V/s DCIT (All) CIT Versus Fujistu Optel Ltd (359 ITR 67) Madhya Pradesh High Court CIT v/s. Trimurti Builders (M.P.) (246 CTR 308) CIT Vs. Kelvinator of India Ltd. (256 ITR (Del) CIT v/s Orient Craft Ltd (354 ITR 536) (Del) DIT vs. Rolls Royee Industrial Power India Ltd (2017) 82 taxmann.com 166 (Delhi High Court) Ranbaxy Laboratories Ltd Versus Deputy Commissioner of Income Tax and OTR 351 ITR 23 Delhi High Court . Rubamin Ltd. Vis. Love Kumar (253 ITR 432) (Guj.) Ashwamegh Co-operative Housing Society vis. DCIT (353

Indore Paraspar Sahakari Bank Ltd ITA No.441/Ind/2019 & ITA No.503/Ind/2018 ITR 413) (Guj.) Metal Alloys Corporation v/s. ACIT (350 ITR 245) (Guj.) Mrs. Parveen P. Bharucha vis. CIT (348 ITR page 325) (Mumbai) NDT Systems vis. ITO (255 CTR page 113) (Born.) Vishwanath Engineers vis. ACIT (354 ITR page 211) (Guj.) Maruti Suzuki vis. DCIT (356 ITR page 209)

argued and supported the orders of lower authorities.

placed before us and carefully gone through the judgment referred

by Ld. Counsel for the assessee. In Ground No.1 the assessee has

challenged the reopening of the assessment proceedings u/s 147 of

the Act as bad in law. We find that the notices u/s 148 of the Act

was issued on 25.11.2016 which is beyond four years from the end

of the assessment year 2010-11. The proviso to Section 147 of the

Act provides that where the assessment u/s 143(3) or u/s 147 has

been made for the relevant assessment year, no action shall be

taken under this section after the expiry of four years from the end

of the relevant assessment year, unless any income chargeable to

Indore Paraspar Sahakari Bank Ltd ITA No.441/Ind/2019 & ITA No.503/Ind/2018 tax has escaped assessment for such assessment year by reason of

the failure on the part of the assessee to make a return u/s 139 or

in response to a notice issued u/s 142(1) or section 148 or to

disclose fully and truly all material facts necessary for his

assessment for that assessment year. Examining the facts of the

case in the light of provision of Section 147 of the Act, we find that

the return u/s 139 of the Act was filed, notice u/s 142(1) of the

Act was duly served, assessment u/s 143(3) of the Act has been

framed and proper responses given to notice u/s 148 of the Act.

Two things which needs to be proved by Revenue Officer are that (i)

whether any income chargeable to tax have escaped the assessment

by failure on the part of the assessee (ii) whether assessee has not

disclosed fully and truly of material facts necessary for the

assessment.

A.O has mentioned that the assessee has wrongly claimed

depreciation of investment. This claim of the assessee was made in

the regular books of accounts and the claim was also appearing in

the audited balance sheet. During the course of assessment

Indore Paraspar Sahakari Bank Ltd ITA No.441/Ind/2019 & ITA No.503/Ind/2018 proceedings u/s 143(3) of the Act on 5.11.2012 a letter was

submitted along with necessary evidences to the Ld. DCIT, Circle

1(1), Indore in compliance to the notices issued/s 142(1) of the Act

against specific query raised by the Ld. A.O during the course of

assessment proceedings. Para 8 of the said letter reads as follows:-

“8. Regarding the admissibility of Depreciation on investment, it is submitted that the diminution in the value of investments of Rs.16,36,000/- has been debited to the P&L A/c. The same represents the diminution in the value of investments in Govt. Securities. The securities which are not kept by the bank as HTM (held till maturity) are valued every month and the same are marked to market as per the RBI Circular. Any diminution in the value of the securities as on the valuation date are debited to P&L A/c. As depreciation on investments. The same is done on the basis of Circular of the TBI named as “Classification and valuation of Investments”. The same is a business expenditure and incurred during the course of its banking business and hence is an allowable expenditure. The same has been made for last many years and has been accepted by the Department for the preceding years.”

accepted the claim of diminution in the value of investment at

Rs.16,36,000/- and accepted the returned income of the assessee

vide order u/s 143(3) of the Act dated 28.12.12. There remains no

doubt that proper disclosure of the claim of depreciation in the form

Indore Paraspar Sahakari Bank Ltd ITA No.441/Ind/2019 & ITA No.503/Ind/2018 of diminution of value of securities was made by the assessee in the

regular return of income, specific query was raised by the Ld. A.O

for the alleged claim and detailed reply was filed along with

necessary evidences in the form of circular issued by RBI and the

accounting standards applicable for disclosure of such type of

investments.

the Act as referred above is not applicable on the assessee and the

reopening of the assessment by issuance of notice u/s 148 of the

Act is bad in law and the assessment made u/s 147 r.w.s. 143(3) of

the Act dated 13.12.2017 deserves to be quashed. In the result

Ground No.1 of the assessee is allowed.

r.w.s. 143(3) of the Act dated 13.12.2017, the disallowance made

by the A.O of Rs.16,36,000/-towards the amount of depreciation

claimed on the securities as per RBI guidelines stands deleted.

Ground No.2 of the assessee therefore becomes infructuous and

consequential to Ground No.1.

Indore Paraspar Sahakari Bank Ltd ITA No.441/Ind/2019 & ITA No.503/Ind/2018 14. Ground No.3 is general in nature which needs no

adjudication.

2010-11 vide ITA No.441/Ind/2019, stands allowed.

Assessment Year 2012-13 raising following grounds of appeal; 1. The Ld. CIT(A) has erred in upholding the disallowance of depreciation on investment of securities. 2. The remark made by the Ld. A.O and the Ld. CIT(A) that basis of valuation have not been furnished is contrary to the facts. The reason for disallowing given that the balance sheet reflects the provision for investment fluctuation reserve and as such the loss should be set-off against the provision already made is bad in law and hence the disallowance made deserves to be deleted. 3. The depreciation on securities claimed by the assessee may please be directed to be allowed. 4. The assessee prays to alter, amend, add or delete any of the grounds of appeal.

return of income for the Assessment Year 2012-13 was filed on

30.09.2012 which was further revised on 21.11.2012 declaring total

loss at (-) Rs.73,31,502/- . Necessary notices u/s 143(2) and

142(1) were duly served upon the assessee. Books of accounts and

audited financial statements were placed on record. Ld. A.O on

observing that the assessee has claimed depreciation on investment 10

Indore Paraspar Sahakari Bank Ltd ITA No.441/Ind/2019 & ITA No.503/Ind/2018 of Rs.57,95,185/- directed the assessee to justify the claim.

Assessee made necessary reply giving reference to the Reserve Bank

of India guidelines which are statutorily required to be adhered by

the assessee being engaged in the business of banking and

providing credit facilities. However Ld. A.O did not allow this claim

of Rs.57,95,185/- observing that the security wise valuation of

investments were not furnished and no basis of valuing securities

have been furnished in order to arrive at a figure of depreciation on

account of diminution in the value of investments. Ld. A.O also

observed that the assessee has treated the investments as closing

stock by valuing them at cost or market price, whichever is less

basis. Ld. A.O therefore after disallowing Rs.57,95,185/- towards

depreciation of diminution in the value of investments, assessed

loss of (-) Rs.15,36,320/-.

succeed as Ld. CIT(A) confirmed the disallowance observing as

follows;

“Ground l Nos. l& 2: Through these grounds of appeal. the appellant has challenged the addition Rs.57,95,185/- on account of depreciation on the investment of fluid assets. The fluctuation in the value of investment is not acceptable 11

Indore Paraspar Sahakari Bank Ltd ITA No.441/Ind/2019 & ITA No.503/Ind/2018 because the appellant has shown its securities under the head investment in the assets side of the balance sheet. No basis or valuing. the securities have been furnished in order to arrive at a figure or depreciation on account or diminution in the value of investments. The balance sheet of the appellant reflects provision for ‘investmcnt fluctuation reserve’ to the tune of Rs.62,19,218/- as on 31.3.11 and also on 31.3.12 which is higher than the amount claimed under depreciation on investment. The appellant had already created provision and reserve in earlier years for this amount. and must have claimed this amount as expenditure in respective years. Thus. Even if any diminution in the value of investments is noticed by quantifying the value of each security, the loss, if any so calculated should be first set-off against the provision already made for this purpose. Therefore. the addition made by AO amounting to Rs.57,95,185/- is confirmed. Therefore, the appeal on these grounds is Dismissed”.

of Rs.57,95,185/- represents the diminution in the value of

investments in Govt. Securities. Certain securities are required to

be kept by the bank as Fluid securities and are available for sale

and are valued on periodical basis. As per the RBI Guidelines, the

same are required to be 'marked to market' on the specified dates.

Any diminution in the value of the securities on the valuation date

are debited to P&L A/c as depreciation on investments. The investments thus held by the bank are nothing .but in the nature of

current assets which are regularly traded and valued at the end of 12

Indore Paraspar Sahakari Bank Ltd ITA No.441/Ind/2019 & ITA No.503/Ind/2018 the .month and as such any diminution in the value is booked as an

expenditure. The same is done on the basis of Circular of the REI

named as “Classification and valuation of Investments", and the

Circular of the Board dated 26.11.2008 vide Instruction No.

17/2008 and the Accounting standards. The banks are trading in

these securities and these securities are valued at cost or market

value, whichever is lower. Thus, when the market prices are lesser,

the securities are valued at the prevailing rates and the difference of

cost and market value is charged as depreciation as per the RBI

guidelines. The Id. AO' has made the additions merely on the

ground that these are investments and the details are not filed. But

complete details were filed before Ld. AO explaining the nature of

the depreciation, its working and proper explanation was given.

However, no efforts were made by him to understand the facts and

no cognizance has been taken by him for any of the assessee's

submissions. The additions made are totally baseless and deserves

to be deleted. In this connection, we would like to draw your

honour's kind attention to the decisions of various High Courts

directly on this point who have specifically held it that the

difference in value of investments should be treated as depreciation 13

Indore Paraspar Sahakari Bank Ltd ITA No.441/Ind/2019 & ITA No.503/Ind/2018 and is allowable as a deduction:-

CIT V/s. Nendugada Bank 182 CTR p.403 (Kar}

Bank of Baroda V/s. CIT 262 ITR p.334 (Ker.)

CIT V/s. Karur Vyasya Bank 273 ITR p.51 0 (Mad.)3

covered in its favour by the recent decision of Hon’ble Tribunal in

the case of Jhabua Dhar Kshetriya Gramin Bank, Jhabua ITA

No.106 to 114/Ind/2017 order dated 06.09.2018 deciding the

similar issue in favour of the assessee placing reliance on the

judgment of Hon’ble Gujarat High Court in the case of CIT V/s

Rajkot Dist. Co-Op Bank Ltd Tax Appeal No.56/2013 dated

10.02.2014.

the orders of lower authorities but failed to controvert the

submissions made by the Ld. Counsel for the assessee.

placed before us. The sole issue raised in this appeal of the

assessee for Assessment year 2012-12 relates to the disallowance of 14

Indore Paraspar Sahakari Bank Ltd ITA No.441/Ind/2019 & ITA No.503/Ind/2018 depreciation in the valuation of investment of securities at

Rs.57,95,185/-. We observe that the assessee is engaged in the

business of banking and providing credit facilities. As per the

guidelines of RBI the assessee is required to invest in securities to

be kept as fluid securities and are available for sale and are to

valued every month on periodical basis. As per the RBI guidelines,

circular named ‘classification in valuation of investments’ dated

26.11.2008 vide instruction No.17/2008, such security are required

to be ‘marked to market’ on the specified dates. Any

diminution/increase in the value of the securities on the valuation

date are to be debited/credited to Profit & Loss Account as

depreciation on investment or increment in investment as the case

may be. Thus the investment held by the bank are nothing but in

the nature of current assets which are regularly valued at the end

of the month and diminution/increase in their valuation is booked

as expenditure/income. The assessee has made similar claim of

diminution in the value of securities/investments of Rs.57,95,185/-

and both the lower authorities have not allowed this claim.

Indore Paraspar Sahakari Bank Ltd ITA No.441/Ind/2019 & ITA No.503/Ind/2018 24. We find that similar issue came up before various judicial

forums and we too have adjudicated similar issue in the case of

Jhabua Dhar Kshetriya Gramin Bank, Jhabua (supra) wherein we

have allowed the claim of depreciation of diminution of investment

observing as follows;

Indore Paraspar Sahakari Bank Ltd ITA No.441/Ind/2019 & ITA No.503/Ind/2018 securities held under “Held to maturity (HTM) category” as per RBI guidelines are not meant to earn profit but are required to be kept as they are till maturity?” 28. Further the facts in this case are mentioned below: “2.1 The respondent-assessee is a cooperative bank. As per the Reserve Bank of India guidelines, it is required to deposit certain amounts in Government securities and to hold the same till maturity in order to maintain Statutory Liquidity Ratio (SLR). In certain cases, the acquisition of such securities is at a value higher than the face value of the security itself. The respondent-assessee claimed such premium so paid in acquiring the securities as a loss amortized over the entire period of security” 29. Hon’ble Court decided in favour of the assessee finding merit in the following submissions made by the Ld. Counsel for the assessee placing reliance on the CBDT Circular dated 26.11.2008. “6. On the other hand, the learned counsel Shri Tushar Hemani for the respondent placed heavy reliance on the said CBDT Circular dated November 26, 2008 and contended that the benefit of amortization had to be granted. The assessee as a cooperative bank was bound by the RBI directives. As per such directives, the assessee had to invest certain amounts in Government securities and to hold the same till maturity. In the process of acquisition, if there was any premium paid on the face value of the security, the loss had to be amortized. Paragraph (vii) of the CBDT Circular No.17 of 2008 dated November 26, 2008 would apply. Such instruction reads as under: “(vii) As per RBI guidelines dated 16th October, 2000, the investment portfolio of the banks is required to be classified under three categories viz. Head to Maturity (HTM), Held for Trading (HTF) and Available for Sale (AFS). Investments classified under HTM category

Indore Paraspar Sahakari Bank Ltd ITA No.441/Ind/2019 & ITA No.503/Ind/2018 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 AFT securities forming 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.” 7. The instructions clearly provide for amortization of premium paid on acquisition of securities when the same are acquired at the rate higher than the face value. Such amortization would have to be for the remaining period of maturity. This precisely the Tribunal had directed in the impugned order. Though contended, no contrary instructions of CBDT are brought to our notice. The instruction in question having been issued under section 119(2) of the Income-tax Act, 1961, would bind the Revenue. No question of law, therefore, arises. 8. Resultantly, the Tax Appeal is dismissed. Notice is discharged with no order as to costs.” 30. We have examined the facts of the instant appeal and find that they are similar to the facts adjudicated by the Hon’ble High Court of Gujarat in the case of CIT V/s Rajkot Dist. Co-Op Bank Ltd (supra). Therefore Respectfully following the judgment of Hon’ble High Court of Gujarat, we are of the considered opinion that both the lower authorities erred in confirming the addition and the assessee has rightly claimed the amortization of loss in the value of government securities and the same is liable to be treated as business expenditure. In the result this common issue is decided in favour of the assessee and the relevant grounds raised in Assessment Year 2008-09 to Assessment Year 2012-13 in I.T.A. No. 107, 109, 111, 112, & 133/Ind/2017 stands allowed.”

Indore Paraspar Sahakari Bank Ltd ITA No.441/Ind/2019 & ITA No.503/Ind/2018 25. We therefore respectfully following the above decision of the

Tribunal as well as judgments and decisions relied therein find that

the issue raised in this appeal is squarely covered in favour of the

assessee and both the lower authorities erred in disallowing the

diminution in value of investment in securities. We accordingly set

aside the orders of lower authorities and allow the appeal of the

assessee and direct the revenue authorities to allow depreciation of

diminution in the valuation of investment claimed by the assessee

at Rs.,57,95,185/-.

13 stands allowed.

Year 2010-11 and 2012-13 vide ITA No.441/Ind/2019 & ITA

No.503/Ind/2018 are allowed.

The order pronounced in the open Court on 18.06.2019

Sd/- Sd/-

( KUL BHARAT) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER �दनांक /Dated : 18 June, 2019 /Dev

Indore Paraspar Sahakari Bank Ltd ITA No.441/Ind/2019 & ITA No.503/Ind/2018 Copy to: The Appellant/Respondent/CIT concerned/CIT(A) concerned/ DR, ITAT, Indore/Guard file. By order Asstt.Registrar, I.T.A.T., Indore