NAGAR URBAN CO-OP BANK LTD,AHMEDNAGAR vs. DEPUTY COMMISSIONER OF INCOME TAX, AHMEDNAGAR CIRCLE, AHMEDNAGAR

Being aggrieved by the above additions made by the Ld. Assessing Officer (“AO”), the assessee preferred an appeal before the Ld. CIT(A) by raising the following two grounds of appeal in Form No. 35:

“1. That the learned Dy. Commissioner of Income Tax Ahmednagar Circle Ahmednagar has erred on the facts and in law in making addition on account of credits in Reserve Fund A/c of the following: a) Unclaimed Amount Rs. 2643370/- b) Unpaid Dividend Rs. 2005137/- c) Excess Cash Rs. 83912 That the additions made may please be deleted.

2. That the learned Dy. Commissioner of Income Tax Ahmednagar Circle, Ahmednagar has erred on the facts and in law in disallowing Amortization of Premium paid on Govt. Securities Rs. 463808/- debited to P & L A/c That the amortization of premium have been debited as per guidelines of RBI. That the addition made may be deleted.”

93966/- u/s 41(1) of I. T. Act. That the addition made U/s 41(1) is unwarranted, that the addition made be deleted. Ground No. 2: That the learned Assistant Commissioner of Income Tax, Ahmednagar Circle, Ahmednagar has erred in not accepting in submission made during the course of hearing for allowing deduction for depreciation on Govt. Securities at Rs. 1,12,00,000/- which is an allowable revenue expenditure. That deduction for depreciation on Govt. Securities claimed at Rs.1,12,00,000/-be allowed in full. Ground No. 3: That the learned Assistant Commissioner of Income Tax, Ahmednagar Circle, Ahmednagar has erred in not accepting the claim made during the course of hearing for allowing tax free income earned by way of dividend. That the income claimed exempt i.e. dividend on Mutual funds at Rs.14,87,135/- be allowed."

7. The assessee challenged the order of the Ld. CIT(A) before the Tribunal and the Tribunal vide order dated 24.03.2021 restored the issue to the file of the Ld. CIT(A) with a direction to adjudicate the issues raised in additional grounds of appeal on merit in accordance with law after affording due opportunity of being heard to the assessee.

no. 2 and 3, which were not adjudicated by the then Ld. CIT (Appeals) on two counts. Relevant part of the order dated 20.07.2017 of the CIT (Appeals) is extracted as under: "8.4. I do not find any merit in the of the appellant on two counts.: Firstly: The issues are not arising out of the order of the Assessing Officer as no such disallowance /discussion has been made in the order. Secondly: also if any such claim could not be made in the original return, the appellant was entitled to made such claim by filing a revised return as held in the case Goetze (India) Ltd. vs. Commissioner of Income-tax 157 Taxmann 1 by Hon'ble Supreme Court. In this case Hon'ble Supreme Court has clearly held that an assessee cannot make any fresh claim otherwise than filing revised return."

8. Hon'ble ITAT has set aside the matter to the file of CIT (Appeals) holding that decision of Hon'ble Supreme Court in Goetze (India) Ltd. (supra) is limited to the powers of the assessing authority and does not impinge on the powers of the appellate authorities like CIT(A). Thus, Hon'ble ITAT has considered only the second issue/reason mentioned as above by the Ld. CIT (Appeals) to dismiss the additional grounds 2 and 3 raised by the appellant. However, Hon'ble ITAT has neither considered nor given any finding/direction on the first issue raised by the CIT (Appeals) i.e., "the issues are not arising out of the order of the Assessing Officer as no such disallowance/ discussion has been made in the order.

9. It is seen from the Appellate order dated 20.07.2017, that Ld. CIT (Appeals) has called for a remand report from the AO, as the issues related to the additional grounds of appeal no. 2 and 3 are not arising out of the order of the AO. 9.1 In his remand report dated 18.04.2017, the AO stated the following, among other things:  the additional evidences produced before the Ld. CIT (Appeals) were already submitted before the AO

 the additional claim was not supported with any documentary evidences,

 which was the reason for not considering the same while passing the assessment order. 9.2 Further, it was mentioned in the Remand Report that the appellant filed a rectification application u/s 154 of the Act, for claim of depreciation on the Government Securities / exemption of dividend income which the appellant sought to achieve through the additional grounds of appeal no. 2 and 3, and that the rectification application was rejected as there was no mistake apparent from record. Having tried all possible remedies before the assessing authority, the appellant raised the two additional grounds in question during the appellate proceedings in the first round.

10. This is not a case where the appellant/assessee made a fresh claim for the first time before the CIT (Appeals) by way of additional grounds. In the remand report dated 18.04.2017, the AO has given a categorical finding that the additional evidences produced before the CIT (Appeals) were also submitted during the assessment proceedings and that the additional claims in question pertaining to the depreciation on the Government Securities and exemption of dividend income were not supported with any documentary evidences. This categorical finding of the AO in the remand report clearly shows that the appellant raised the two claims in question during the assessment proceedings and that the additional evidences were considered and rejected by the AO as 'insufficient' to allow the claims in question.

11. Adjudication of the two additional grounds in question require examination of financial statements and books of account of the appellant. In order to ascertain whether the appellant has correctly claimed the depreciation on Government securities, one has to examine whether the classification and valuation of investments are made in accordance with the prudential norms prescribed by Reserve Bank of India read with clarifications/directions given by RBI. The appellant in his written submission filed before me stated that the entire investment portfolio is classified into three categories, viz, Held to Maturity (HTM), Available for Sale (AFS) and Held for Trading (HFT) in line with the guidelines / directions of Reserve Bank of India. One has to examine the basis for such a classification and whether it has been correctly done by the appellant. Securities under 'Held to Maturity' are to be stated at acquisition costs unless such costs are higher than the face value, in which case the premium should be amortized over the remaining period of maturity. Securities under 'Available for sale' are required to be valued scrip wise and depreciation/ appreciation is to be segregated category wise. While net appreciation is ignored, net depreciation under each category has to be provided for. Finally, the securities under 'Held for Trading' are to be valued at market price and the net depreciation under each category has to be provided for and the net appreciation, if any, has to be ignored. Further, in order to exempt the dividend earned on mutual funds, one has to examine whether the company declaring dividends had paid dividend distribution tax (DDT) before making the dividend payment. In order to decide the matter on merits as directed by Hon'ble Tribunal, I have to make a detailed examination of the accounts/financial statements of the appellant as above, for which in the present faceless regime there is no other option except calling for a remand report from the AO. However, my brother CIT (Appeals) had already called for the remand report from the AO and the AO has submitted the remand report dated 18.04.2017 giving a categorical finding that the evidences produced by the appellant before him were insufficient to allow the claims in question.

12. Hon'ble SUPREME COURT OF INDIA in National Thermal Power Co. Ltd. vs. Commissioner of Income-tax [1998] 229 ITR 383 (SC) held that the Tribunal has jurisdiction to examine a question of law which arises from the facts as found by the authorities below and having a bearing on the tax liability of the assessee. No such question of law (which is going to the core of the matter) is emerging out of the facts of the present case. Further, no new evidences than those already produced before the Assessing Officer were produced before me.

no. 2 and 3 for adjudication on merits in obedience of the direction of Hon'ble ITAT, I am unable to allow these grounds in favour of the appellant, for the simple reason that the evidences in this regard were already considered and rejected by the AO as insufficient and that the appellant has not brought any new evidences before me. Therefore, the additional grounds of appeal no. 2 and 3 are dismissed.

14. In the result, the appeal is dismissed.”

9. Aggrieved with such order of the Ld. CIT(A), the assessee is in appeal before the Tribunal by raising following grounds of appeal :

1. That the learned CIT (A) NFAC Income Tax Department has erred on the facts and in law in dismissing the appeal which was before him for fresh adjudication, remanded by ITAT, for claim made during the course of hearing, not claimed in ITR nor filed Revised ITR for claim of exempt dividend Rs. 1487135/- and Depreciation on Govt. Securities Rs. 11200000/- as the appellant has not filed any new evidences. There was no necessity for submitting new evidences, which were already on records as the order passed by CIT (A) is bad in law and deserves to be set-aside or the relief may be granted as claimed.

2. That the appellant prays that he may be allowed to add, to alter or to amend the above ground of appeal.”

10.1 He further relied on the submissions made before the Ld. CIT(A) in respect of the above claims and reiterated the same before us which are as reproduced below :

“SUBMISSION: DATE OF HEARING ON 20/10/2022 The appellants, a Co-op bank doing business of Banking as per provision of Banking Regulation Act since last many years. The appellant has filed his ITR for A.Y. 12-13 declaring therein total income of Rs. 125958432/-. The appellant's case was selected for scrutiny. The appellant made all the submissions along with necessary evidences as asked by the A.O from time to time. During the course of hearing the appellant came to know that while preparing computation of total income the expenses on account of Depreciation on Govt. Securities debited to P & L A/c at Rs. 11200000/- were added to the net profit however as the same were eligible as expenses, remained inadvertently to be deducted from the total income and also the income earned as Dividend on Investment in Mutual Fund at Rs. 1487135/- were remained to be claimed as exempt. As the time limit for filing of revised return was over the appellant filed a letter Dt. 09/02/2015 along with revised computation of total income before the A.O stating all these facts and requested the A.O to allow all these claims while framing the assessment order. The AO did not accept the said claim on ground that: No revised returns have been filed. The A.O along with other additions disallowed our claimed made during the course assessment. The assessment order was agitated in appeal, in appeal the other additions were deleted, however the claim made for allowance of: Depreciation on Govt. Securities Rs. 11200000/- Dividend Rs. 1487135/- Were not allowed, on the same ground that the appellant has not filed revised return for claiming these allowable expenses debited to P & L A/c remained to be claimed and which were added backs to N.P being not eligible. As the appellant could not succeed in 1st Appeal, the 2nd appeal against the said order of CIT (A) was filed before ITAT Pune. The Hon ITAT Bench Pune after going through facts of case and the various case laws put before them, have set aside the order to the file of CIT(A) to decide the issue on merits by their order Dt. 24/03/2021 ITA No. 2555/PUN/2017. Now said issues are before you your honour.

1. Depreciation on Govt. Securities Rs. 11200000/- The appellant Bank has been making investments in Govt. Securities, these held under three categories, these are unquoted.

In view of these decisions the depreciation on Govt. Securities is an allowable expenditure. It is further bring to your notice that the Jurisdictional Bombay High Court Bench at Aurangabad in our own case have held as under in Appeal No. 60 of 2014. Para No. 8: As far as the question of allowing the provision for depreciation of Govt. Securities is concerned, the Tribunal has considered the said aspect considering that the coordinate Bench has already taken such a view so also have considered the regular practice adopted by the Bank of seeking depreciation on such securities as is held by the judgement of Apex Court in the case of United Commercial Bank. (Copy enclosed) We also rely on the other High Court's Decisions: Kerala Heard both the parties. Case file perused. CIT V/s Nedungdi Bank Ltd., 182 CTR 0403. CIT V/s Lord Krishna Bank Ltd., 339 ITR 0606. Karnataka Н.С. Karnataka Bank Ltd V/s Asstt. Com of Income, 356 ITR 0549. In the above case the Dept.'s SLP was rejected SLP(c) no 17458 of 2015. CIT V/s Corporation Bank. The Department's SLP SLP No. 15887 of 2019 have also been dismissed by the Apex Court. In view of the above stated facts and case laws and jurisdictional Bombay High Court's decision in our own case it is submitted that the expenses debited under the head Provision for Depreciation on Govt. Securities of Rs. 11200000/- be allowed.

It is therefore request that the Divided Income earned on Mutual Funds be allowed as exempt.”

10.2 The Ld. AR also emphasized on the CBDT Circular No. 599 dated 24.04.1991 and submitted that the depreciation on Government Securities is an allowable expenditure in view of the same (Page 62 of the paper book refers).

10.3 He further submitted that the impugned issue pertaining to claim of depreciation on Govt. Securities is covered in favour of the assessee by the decision of the Co-ordinate Bench of the Tribunal in assessee‟s own case for AYs 2008-09 and 2011-12. The Hon‟ble Bombay High Court has also upheld the order of the ITAT involving previous AYs allowing the said claim of the assessee. He, accordingly, prayed that appropriate relief may be granted to the assessee and the impugned order of the Ld. CIT(A) may be set aside.

13. As regards, the claim of depreciation on Govt. Securities amounting to Rs.1,12,00,000/-, the Ld. AR submitted that the impugned issue is covered in favour of the assessee by the decision of the Co-ordinate Bench of the Tribunal in assessee‟s own case for AYs 2008-09 and 2011-12 and the decision of the Hon‟ble Bombay High Court in the appeal filed by the Revenue in of 2014 dated 27.03.2015. We have perused the order of the Tribunal in & 281/PN/2015 for AYs 2008-09 and 2011-12 in assessee‟s own case dated 12.02.2016. The relevant observations and findings of the Tribunal in the said case is reproduced below : “6. We have heard the submissions made by the Ld. Departmental Representative and perused the material available on record. We have also considered the decision of Coordinate Bench of the Tribunal in ITA No.1982/PN/2013 (Supra). The solitary ground raised in the present appeal is against confirming of disallowance of Rs.15,11,333/- debited to the profit and loss account under the head „amortization of premium paid on Government Securities‟. We find an identical issue had come up before the Tribunal in assessee‟s own case in an appeal filed by the Revenue in ITA No.1982/2013. The Tribunal decided the issue in favour of the assessee with the following observations : “21. The issue in grounds of appeal No.2 to 6 is against the deletion of addition made by the Assessing Officer on account of premium paid on investment in Government securities totaling Rs.10,00,000/-.

22. We find the similar issue of amortization of premium paid on investment in HTM securities arose before the Tribunal in The Ahmednagar Merchants Cooperative Bank Ltd. vs. JCIT (supra) and the claim of the assessee was allowed holding as under :-

18. We have heard the rival contentions and perused the record. The first issue arising in the present appeal filed by the Revenue is with regard to the allowability of amortization premium paid on HTM securities at Rs.22,69,144/-. The Pune Bench of the Tribunal in assessee‟s own case in ITA

No.712/PN/2013, relating to assessment year 2009-10 vide order dated 27.11.2013 had allowed the claim of assessee, in turn relying on the order of Tribunal in Nagar Urban Cooperative Bank Ltd. in observing as under:- “2. The only issue is with regard to addition made by Assessing Officer who has disallowed the amortization premium paid on Govt. Securities of Rs.23,13,525/-. At the outset of hearing, learned Authorized Representative pointed out that this issue is covered in favour of assessee by the order in the case of Nagar Urban Co- operative Bank Ltd., in wherein the Tribunal has decided the issue in favour of the assessee by observing as under: “ 4. We have heard the parties. We find that the issue before us is clearly covered in favour of the assessee by the decision of ITAT Pune Bench in the case of Latur Urban Co-op. Bank Ltd. in ITA No. 778 and 792/PN/2011, order dated 31-8-2012. The relevant discussion and finding of the Tribunal on the issue is as under. “13. So far as Ground No. 2 is concerned, it is in respect of the disallowances on the loss on sale of surplus of Rs. 14,70,000/-. The A.O has observed that an amount of Rs. 14,70,000/- is debited to the Profit & Loss A/c on account of loss on sale of securities. The A.O has further observed that the assessee in its submission has stated that securities of the Bank are held under the head “to maturity category” and, therefore, loss arising on the sale of investment is in the nature of capital loss and therefore, the same is not allowable expenditure. The A.O made the addition to the extent of Rs. 14,70,000/-. The Ld CIT(A) confirmed the addition.

15. In the case of United Commercial Bank (Supra), even the issue of valuation of the stock in trade of the investment was before the Hon‟ble Supreme Court. In the case of the assessee, the issue is regarding allowability of the loss on the sale of the Securities.

Merely because the Securities are kept under the head till the maturity, the said Security cannot be treated as a purely investment. Law is well settled that the Securities held by the Bank are in the nature of Stock-in-Trade. We may like to quote here the decision of the Hon‟ble High Court of Kerala in the case of CIT Vs. Nedungadi Bank Ltd., 264 ITR 545. In the said case, the Hon‟ble High Court has held that the securities held by the Bank are in the nature of stock-in-trade. Both the authorities below have merely gone on the nomenclature of the head under which the Securities are held. In our considered view, nomenclature cannot be decisive for the assessee Bank. We, therefore, hold that the loss on the sale of the Securities is revenue in nature and same is allowable. Accordingly, Ground No. 2 is allowed”. 2.1 Moreover, the said issue is also decided in favour of the assessee by other co-ordinate Bench in the following cases: i) Decision of Bangalore Bench of the Tribunal in the case of Krishna Grameena Bank Vs. Addl. CIT (ITA No. 146/Bang/2011 and 224/Bang/2011 order dated 15- 6- 2012. ii) Decision of Bangalore Bench of the Tribunal in the case of National Co-op. Bank Ltd. Vs. Jt. CIT Range 3 Bangalore (ITA No. 1090/Bang/2010 and 7/Bang/2011, order dated 11-5-2012). We therefore set aside the order of the CIT(A) on this issue and allow the claim of the assessee.” 2.1 Facts being similar, so following the same reasoning, we hold that amortization premium paid on Govt. Securities of Rs.23,13,525/- debited to Profit and Loss Account, as per RBI guidelines has to be allowed being expenses incurred during the course of business of banking, Assessing Officer is directed accordingly.”

Nos.1 to 8 raised by the Revenue are thus, dismissed.”

23. We find that the Tribunal had allowed the claim of the assessee, wherein, in turn, relying the order of the Tribunal in Nagar Urban Cooperative Bank Ltd. (supra). Following the same parity of reasoning, we uphold the order of the CIT(A) in allowing the deduction on account of amortization of premium paid on HTM securities at Rs.10,00,000/-. The grounds of appeal No.2 to 6 raised by the Revenue are thus, dismissed.”

7. The Ld. Departmental Representation has not placed any material on record to controvert the finding of the Tribunal. Respectfully following the above decision of the Coordinate Bench, we direct the AO to delete the addition of Rs.15,11,333/- on account of amortization of premium paid on Government Securities.

8. In the result, the impugned order is set aside and the appeal of the assessee is allowed.”

13.1 On appeal filed by the Revenue, the Hon‟ble Bombay High Court in the case of Nagar Urban Co-op. Bank Ltd. (supra) decided the impugned issue in favour of the assessee by observing as under : “8. As far as the question of allowing the provision for depreciation of Government securities is concerned, the Tribunal has considered the said aspect considering that the coordinate Bench has already taken such a view so also have considered the regular practice adopted by the Bank for seeking depreciation on such securities as is held by the judgment of the Apex Court in the case of United Commercial Bank (referred supra).

13.2 The CBDT Circular No. 599 dated 24.04.1991 also supports the claim of the assessee wherein it has been clarified that the securities held by the banks must be regarded as stock-in-trade by the banks. We also find that various High Courts and also the Hon‟ble Supreme Court in the case of United Commercial Bank Vs. CIT (1999) 156 CTR (SC) 380 has held that the investments in Govt. Securities are current assets and not capital assets. The said decision of the Hon‟ble Supreme Court has duly been considered by the Hon‟ble Bombay High Court in assessee‟s own case (supra). Respectfully following the decision(s) of the Co-ordinate Bench of the Tribunal and the Hon‟ble Bombay High Court in assessee‟s own case (supra) and in the absence of any contrary material/judicial precedent brought on record by the Revenue, we set aside the order of the Ld. CIT(A) on the impugned issue and allow the claim of depreciation on Govt. Securities amounting to Rs.1,12,00,000/-.

14. As regards the issue pertaining to claim of dividend income earned from investments in mutual funds made by the assessee during the relevant AY 2012-13 as exempt, we notice that the Ld. AO did not consider the revised computation of income filed by the assessee during the assessment proceedings before him as the assessee could not file the revised return of income being time barred. In its submissions filed before the Ld. CIT(A) in compliance to remand report of the Ld. AO, the assessee has agitated that the Ld. AO refused to accept the evidence which as per law he ought to have admitted and also did not call for any evidence/ details in respect of the impugned claim of the assessee. The Ld. AO therefore has not provided the assessee with sufficient opportunity to produce further details in respect of its claim. The assessee submitted the details of tax free dividend income of Rs.14,87,135/- before the Ld. CIT(A) the details of which are placed at page 44 of the paper book. However, the same has not been taken into consideration by the Ld. CIT(A). Neither the Ld. AO or the Ld. CIT(A) has denied the fact that the assessee has earned the tax free dividend income during the relevant AY 2012-13 which has been duly substantiated by the assessee before us by filing the requisite supporting evidence thereof. In this view of the matter, we deem it fit in the interest of justice, to set aside the order of the Ld. CIT(A) on the impugned issue and allow the claim of the assessee in respect of the dividend income of Rs.14,87,135/- as exempt. The ground raised by the assessee is accordingly allowed.

Order pronounced in the open court on 08th April, 2025.

Sd/- Sd/- (R.K. Panda) (Astha Chandra) JUDICIAL MEMBER VICE PRESIDENT पुणे / Pune; दिन ांक / Dated : 08th April, 2025. रदि आदेश की प्रधिधलधप अग्रेधर्ि / Copy of the Order forwarded to : अपील र्थी / The Appellant. 1. प्रत्यर्थी / The Respondent. 2. 3. The Pr. CIT concerned. दिभ गीय प्रदिदनदि, आयकर अपीलीय अदिकरण, “ए” बेंच, 4. पुणे / DR, ITAT, “A” Bench, Pune. ग र्ड फ़ इल / Guard File. 5. //सत्य दपि प्रदि// True Copy// आिेश नुस र / BY ORDER,

िररष्ठ दनजी सदचि / Sr. Private Secretary आयकर अपीलीय अदिकरण ,पुणे / ITAT, Pune