M/S MAHAVEER CO-OPERATIVE BANK LTD. vs. THE COMMISSIONER

-: 1 :- IN THE HIGH COURT OF KARNATAKA DHARWAD BENCH DATED THIS THE 12TH DAY OF MARCH, 2014 PRESENT THE HON’BLE MR.JUSTICE A. S. BOPANNA AND THE HON’BLE MR.JUSTICE B. SREENIVASE GOWDA ITA.5004/2011 & ITA.5005/2011 BETWEEN: M/s The Mahaveer Co-operative Bank Limited. Renuka Towers, Anantshyan Galli, Belgaum. Represented by its Chief Executive Officer: Smt.Vinoda Shrikant Gowda, Aged about 46 years. ... Appellant (By Sri.S. Parthasarathi & Sri.H.R.Kambiyavar, Advs.) A N D: The Assistant Commissioner Of Income Tax, Circle-1, Belgaum. ... Respondent (By Sri.Y.V. Raviraj, Adv.) These Income Tax Appeals are filed under Section 260A of the Income Tax Act, 1961, praying to formulate the substantial questions of law and allow the appeal and set aside the order of the Income Tax Appellate Tribunal dated

-: 2 :- 30.11.2010 bearing ITA Nos.216 & 217 (PNJ)/2009 (By Revenue) for the assessment years 2005-06 & 2006-07. These ITAs coming on for hearing this day, A.S.Bopanna J., delivered the following: JUDGMENT The appellant is before this Court assailing the order dated 30.11.2010 passed in ITA.216 and ITA.217 (PNJ)/2009 for the assessment years 2005-2006 and 2006-2007. By the said order the appeals preferred by the appellant herein have been dismissed by the Tribunal. 2. Following questions of law have been raised for consideration: “ (i) Whether the findings of the Tribunal that the Government securities classified in accordance with RBI Regulations would be held to be capital asset when the appellant-bank treated the same as part of its business assets and claimed depreciation in the value of such securities in accordance with the consistent method followed by it, is contrary to law and unsustainable? (ii) Whether the findings of the Tribunal regarding the valuation of securities is contrary to the valuation of securities done with the consistent method of accounting followed in the past and approved, and the resultant loss was liable to be allowed as

-: 3 :- depreciation or in the alternative as a business loss, is justified?” 3. We have heard the learned Counsel for the parties and perused the appeal papers. 4. The question in that regard is with regard to the “securities held to maturity” and the “securities held for trading” being treated for the purpose of claiming depreciation due to market fluctuations. Since the appellant had followed the RBI guidelines and had assessed the “securities held for maturity” and claimed depreciation, the deduction claimed was not allowed. The contention of the Revenue is that the depreciation and deduction would be allowed only if securities are held for trading and not held for maturity. The practice being followed by the appellant in respect of stocks held for maturity is also to assess the same at the end of the year keeping in view the fluctuations in the markets, and thereafter to assess the same.

-: 4 :- 5. The contention on behalf of the Revenue is that in view of the provisions contained in Section 145A(a)(i) of the Income Tax Act, the procedure followed by the appellant- Co-operative Bank is not justified. In that regard, the Tribunal having noticed the rival contentions has accepted the contention of the Revenue and rejected the contention putforth by the assessee by arriving at the conclusion that the RBI guidelines cannot be cited as a procedure and accounting practice for computation of income. It is in that regard the instant question has arisen for consideration. 6. Having noticed the contentions, the judgment of Division Bench of this Court in ITA.172/2009 dated 11.03.2013 relied on by the learned Counsel for the assessee/appellant, would be relevant for consideration and decision making on both the questions of law raised herein. Before taking notice of the said decision, the contention of the learned Counsel for the Revenue that the Tribunal has arrived at the conclusion that the RBI guidelines cannot over- ride the Income Tax Act by relying on the decision of the

-: 5 :- Hon’ble Supreme Court is to be noticed. In that regard, the Tribunal no doubt has referred to the decision of the Hon’ble Supreme Court in the case of Southern Technologies Ltd Vs. the Joint commissioner of Income Tax, reported in (2010) 320 ITR 577. Having taken note of the same it is also to be noticed that the very same decision has been referred to by the Division Bench of this Court while deciding ITA.No.172/2009. In addition to the said decision, the Division Bench has also referred to the decision of the Hon’ble supreme Court in the case of Commissioner of Income Tax vs. ING Vysya Bank Ltd., in ITA No.2886/2005 disposed of on 6.6.2012 and has ultimately concluded as follows: “8. From the aforesaid judgments of the Apex Court, now it is clear that the method of accounting adopted by the tax payer consistently and regularly cannot be discarded by the Departmental authorities on the view that he should have adopted a different method of keeping the accounts or on valuation. Financial institutions like Bank, are expected to maintain accounts in terms of the RBI Act and its regulations. The form in which, accounts have to be maintained is prescribed under the aforesaid legislation. Therefore, the

-: 6 :- account had to be inconformity with the said requirements. RBI Act or Companies Act do not deal with the permissible deductions or exclusion under the IT Act. For the purpose of IT Act, if the assessee has consistently treating the value of investment for more than two decades as investment as stock-in-trade and claim depreciation, it is not open to the authorities to disallow the said depreciation on the ground that in the balance-sheet it is shown as investment in terms of the RBI Regulations.

The RBI Regulations, the Companies Act and IT Act operate altogether in different fields. The question whether the assessee is entitled to particular deduction or not will depend upon the provision of law relating thereto and not the way, in which the entries are made in the books of accounts. It is not decisive or conclusive in the matter. For the purpose of IT Act whichever method is adopted by the assessee, a true picture of the profits and gains i.e. real income is to be disclosed. For determining the real income, the entries in the balance sheet is required to be maintained in the statutory form may not be decision or conclusive. It is open to the Income Tax Officer as well as the assessee to point out true and proper income while submitting the income tax returns. Even if the assessee under some misrepresentation or mistake fails to make an entry in the books of accounts, although under law, a deduction must be allowed by the Income Tax Officer, the assessee will not lose any right on claiming or will be debarred from being allowed the deduction. Therefore, the approach of the authorities in this regard is contrary to the well settled legal position as declared by the Apex Court.

-: 7 :- 9. In the instant case, the assessee has maintained the accounts in terms of the RBI Regulations and he has shown it as investment. But consistently for more than two decades it has been shown as stock-in- trade and depreciation is claimed and allowed. Therefore, notwithstanding that in the balance sheet, it is shown as investment, for the purpose of Income-Tax Act, it is shown as stock-in-trade. Therefore, the value of the stocks being closely connected with the stock market, at the end of the financial year, while valuing the assets, necessarily the Bank has to take into consideration the market value of the shares. If the market value is less than the cost price, in law, they are entitled to deductions and it cannot be denied by the authorities under the pretext that it is shown as investment in the balance sheet.” A perusal of the conclusion reached by the Division Bench of this Court would indicate that, the practice which is presently followed by the appellant/Co-operative Bank has been approved by this Court after referring to the decision rendered by the Hon’ble Supreme Court. In that view of the matter, we are of the opinion that the Tribunal was not justified in passing the order impugned herein.

-: 8 :- 7. Accordingly, the questions of law raised herein are answered in favour of the assessee and against the revenue by setting aside the order impugned herein. The appeals are accordingly allowed. SD/- JUDGE

SD/-

JUDGE sub/-