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Income Tax Appellate Tribunal, “A’’ BENCH: BANGALORE
Before: SHRI CHANDRA POOJARI & SMT. BEENA PILLAI
O R D E R Per Beena Pillai Judicial Member: Present cross appeals have been filed by the assessee as well as revenue against orders dated 31/07/2017 and 29/03/2019 passed by the Ld.CIT(A)-5, Bangalore for assessment years 2008-09, 2011-12, 2013-14 to 2014-15 and 2016-17.
Application for condonation of delay in assesee’s appeal: At the outset the Ld.AR submitted that there is a delay of 605 days in filing appeal for assessment year 2008-09 filed by assessee. 2.1. He submitted that order dated 19/07/2017 passed by the Ld.CIT(A) was received by assessee on 13/10/2017, 2150/Bang/2017 ITA Nos.1761,1327, 2159, 2160/Bang/2019 C.O. Nos.55 and 56/Bang/2019 Page 3 of 27 however the appeal was filed on 09/08/2019. The Ld.AR placed reliance on the affidavit dated 06/08/2019 filed by one Mr.K.N Rajanna on behalf of assessee. It has been submitted therein that, the assessee was under bona fide belief that, there is no requirement to file appeal before this Tribunal against the order of the Ld.CIT(A), as relief on merits was granted, though validity of assessment under section 147 of the Act, was decided against by the Ld.CIT(A). However, subsequently, as the assessee approached the then representative who advised that in the event assessee seeks to challenge the decision of Ld.CIT(A) on the issue of validity of assessment under section 147 of the Act, it could be done so by virtue of Rule 27 of the Income tax Appellate Tribunal Rules, 1963. 2.2. Subsequently, assessee approached the present representatives, and insisted to file appeal before this Tribunal against the view taken by Ld.CIT(A) regarding validity of assessment under section 147 of the Act for the year under consideration. 2.3. He thus submitted that, the delay of 605 days is because of the above cited reason. The Ld.AR also emphasised that even if the condonation application is rejected, the assessee has alternative remedy virtue of Rule 27 of the Income tax Appellate Tribunal Rules, 1963.
ITA Nos.2082, 2150/Bang/2017 2159, 2160/Bang/2019 C.O. Nos.55 and 56/Bang/2019 Page 4 of 27 2.4. On the contrary, Ld.CIT.DR could not controvert the alternate remedy available with assessee, however placed reliance on following decisions objecting the condonation of delay: Jubilient Securities (P) Ltd. vs DCIT reported in (2018) 90 Taxmann.com 126 (Del) Decision of coordinate bench of this Tribunal in case of K.Chandrashekar Reddy vs Pr.CIT in ITA No. 2033 and 2034/B/2016 for assessment year 2009-10 and 2009 2011 by order dated 11/01/2019 Decision of coordinate bench of this Tribunal in case of M/s Karnataka Road Development Corporation Institute of Town Planner vs ACIT in ITA No. 133721339/B/2015 for assessment year 2002-03 to 2004-05 by order dated 21/08/2018 2.5. We have perused submissions advanced by both sides in light of records placed before us. Admittedly, there is delay in filing of present appeal before this Tribunal for the year under consideration. However, there is a bona fide reason due to which the assessee did not approach this Tribunal within the period of limitation. In the decision relied by Ld.CIT.DR, we note that the delay was not sufficiently explained, for this Tribunal to exercise the discretion. We also have analysed Rule 27, as alternate remedy that is available with assessee, even if the condonation is denied.
ITA Nos.2082, 2150/Bang/2017 2159, 2160/Bang/2019 C.O. Nos.55 and 56/Bang/2019 Page 5 of 27 2.6. From the averments in the affidavit in support of condonation of delay, it is apparent that the assessee being a layman acted by way of abundant caution by filing the present appeal before this Tribunal though with delay of 605 days. For this, he approached the present representatives and insisted to file the present appeal. We are satisfied with the reasoning given by assessee to substantiate the delay in filing the present appeal before this Tribunal. Accordingly by using the discretionary powers vested with this Tribunal we condone the delay of 605 days. Brief facts of the case are as under: 2. The assessee is a co-operative society registered under the provisions of Karnataka State Co-operative Societies Act, 1959, and under the Banking Regulations Act, 1939. It has been submitted that, the assessee is in the business of banking and the main object is to serve as the State Co- operative Bank. For the years under consideration, the Ld.AO observed that the assessee claimed deduction of contributions made to various funds like Common good fund, Special Assistance fund, PACS/DCCEB as Development fund, Rural Farmers Social Economic Fund and Co-operative Education Fund. It was submitted that, the assessee being the apex bank, for all co-operative ITA Nos.2082, 2150/Bang/2017 ITA Nos.1761,1327, 2159, 2160/Bang/2019 C.O. Nos.55 and 56/Bang/2019 Page 6 of 27 banks the state of Karnataka, and as per its objectives, it had certain obligations toward the member co-operative banks. The assessee thus submitted that, these expenditures are incurred for fulfilling these obligations. The assessee also relied on the copies of the bye laws of the bank, and also the objectives of the relevant provisions of Karnataka Co-operative Societies Bank. 2.1. The Ld.AO disallowed this expenditure, by holding that, the amounts are expended only after appropriation of profits and therefore not allowable as deduction. 2.2. The Ld.AO also noted that, financial assistance were provided to the member banks towards various purposes like infrastructure, computers, vehicles etc which were in the form of incentives as held by assessee. It was observed that assessee has given grants to DCC Banks, for purchase of computers, vehicles financial assistance to Goble and Socio Economic Development farmers financial assistance to PACS and infrastructural assistance to the member banks. The Ld.AO however rejected the submissions of assessee and made the disallowance of such expenditure incurred. 2.3. Another issue that is raised in assessment year 2013- 14 and assessment year 2014-15 are in respect of the loss on sale of securities. The Ld.AO during the relevant ITA Nos.2082, 2150/Bang/2017 ITA Nos.1761,1327, 2159, 2160/Bang/2019 C.O. Nos.55 and 56/Bang/2019 Page 7 of 27 assessment years observed that, the assessee had invested in securities which was treated as investments by the Ld.AO as against stock in trade, considered by assessee. On an appeal before the Ld.CIT(A), the disallowances made were deleted, by relying on the orders passed by coordinate bench of this Tribunal for assessment year 2007-08 in the assessee’s own case as well as his own order for assessment year 2012-13. In respect of allowing the loss on sale of securities for assessment year 2013-14 and 2014-15 the Ld.CIT(A) relied on his own order in assessee’s own case for assessment year 2012-13 and upheld the view of Ld.AO that, loss on sale of securities are to be classified as investments. Aggrieved by the orders passed by the Ld.CIT(A), revenue is in appeal before us now. At the outset, Ld.AR submitted that, the issue has been considered by coordinate bench of this Tribunal in assessment year 2007-08 and 2008-09. Some issues have also been considered by decision of Hon’ble Karnataka High Court, and therefore stands settled now. The Ld.AR filed a chart listing grounds that are common all the appeals raised by assessee as well as revenue, which has been marked and annexed as Annexure A and B to this order.
ITA Nos.2082, 2150/Bang/2017 2159, 2160/Bang/2019 C.O. Nos.55 and 56/Bang/2019 Page 8 of 27 The Ld.AR submitted that, assessee in and ITA no.1761/B/2019(A.Y:2008-09), raises legal plea challenging the validity of re-openaning u/s148 of the Act. Assessment year 2008-09 Ground No. 2-7 in ITA 1761 are raised in respect of validity of reassessment under section 147 of the Act, in assessment years 2008-09. At the outset, it has been submitted that, notice under section 148 of the Act, was issued on 03/09/2014 which was beyond the period of 4 years from the end of the relevant assessment year without there being any failure on part of the assessee in fully and truly disclosing the material facts necessary for assessment. The Ld.AR placed reliance on the decision of Hon’ble Supreme Court in case of Calcutta Discount Company Ltd. vs ITO reported in 41 ITR 191. It has been submitted by the Ld.AR that, the reasons recorded do not state that the assessee has failed to disclose fully and truly all material facts which is a jurisdictional requirement to issue notice under section 148 of the Act, issued beyond a period of 4 years. He submitted that, perusal of the records states that the alleged formation of belief is based on the proceedings for assessment year 2009-10 and 2012-13 and that, there was ITA Nos.2082, 2150/Bang/2017 ITA Nos.1761,1327, 2159, 2160/Bang/2019 C.O. Nos.55 and 56/Bang/2019 Page 9 of 27 no material on record other than the assessment records at the time of issuance of notice under section 148 of the Act for assessment years 2008-09 and 2008-09. Ld.AR relied on following decisions in support of his arguments: Dynacraft Air Controls v. Smt. Sneha Joshi and Others 355 ITR 102 (Bom) State Bank of Patiala v. CIT 375 ITR 109 (P&H) Ajay Oxychloride Floorings v. ACIT 283 ITR 169 (Bom) Sri Sakthi Textiles Ltd v. JCIT 340 ITR 144 (Mad) DIL Ltd v. ACIT 343 ITR 296 (Bom) Sitara Diamond Pvt Ltd v. DCIT 345 ITR 91 (Bom) ACIT v. ICICI Security Primary Dealership Ltd 348 ITR 299 CIT v. Ramakrishna Hegde [2010] 326 ITR 347 (Kar.) CIT v. Standard Chartered Finance Ltd. [2012] 207 Taxman 136 (Kar.) Parixit Industries (P.) Ltd. v. ACIT [2013] 352 1TR 349 (Gujarat) On the contrary, Ld.CIT.DR supported the order passed by the Ld.AO and submitted that information came to the knowledge of Ld.AO subsequently, would also form part of reason to believe of income having escaped assessment. We have perused submissions advanced by both sides in light of records placed before. The reasons recorded by the Ld.AO vide letter dated 17/11/2018 provided to assessee reads as under: “During the course of scrutiny for assessment year 2012-13, the assessee submitted the profit and loss account for assessment year 2011-12 also, wherein it was noticed that assessee has debited an amount of Rs.2,10,00,000/- as incentive to member ITA Nos.2082, 2150/Bang/2017 ITA Nos.1761,1327, 2159, 2160/Bang/2019 C.O. Nos.55 and 56/Bang/2019 Page 10 of 27 banks. This is nothing but utilisation of profits/surplus and cannot be allowed as expenses.” On the perusal of the above reasons recorded, it is clear that, there was no new material available with the Ld.AO for reopening the assessment beyond the period of 4 years. We also note that there is no satisfaction recorded by the Ld.AO regarding income having escaped assessment due to failure on behalf of assessee to fully and truly disclose all material facts, which is the necessary condition for reopening an assessment beyond a period of 4 years as stipulated under the Act. The reasons recorded also reveal that, there has been no new material available with the Ld.AO which could justify the reopening of a concluded assessment beyond a period of 4 years. We place reliance on following decision in support: CIT vs Kelvinator India Ltd. reported in 320 ITR 561 (SC) ACIT vs FIS Global Business Solutions India (P) Ltd. (2019) 262 Taxmann 369 (SC) Champ Energy Ventures Pvt.Ltd. vs ITO (2019) 102 taxmann.com 374 (Bom) ITO vs TechSpan India Pvt.Ltd., (2018) 92 taxmann.com 361 (SC) Respectfully following the ratio is laid down above decisions, we set aside and quash the notice dated 03/09/2014, seeking to reopen concluded assessment to 2150/Bang/2017 ITA Nos.1761,1327, 2159, 2160/Bang/2019 C.O. Nos.55 and 56/Bang/2019 Page 11 of 27 be bad in law. As we have set aside and quash the notice of reopening, consequential assessment order passed by the Ld.AO stands to be quashed and set-aside. We accordingly, allow the appeal filed by assessee for assessment 2008-09 in ITA No.1761/B/2019 stands allowed on legal issue raised. As we have quashed and setaside the assessment order passed for assessment year 2008-09, the appeal filed by revenue for assessment years 2008-09 being ITA no.2150/B/2017 stands infructuous. Accordingly, appeal filed by revenue in ITA no.2150 for assessment year 2008-09 stands dismissed. Appeal filed by Revenue: We shall consider the grounds as numbered in assessment year 2011-12 ITA No.1327: As per the Annexure A, grounds relating to department appeals following were the submissions: Ground No.1 relates to the jurisdiction of the impugned order passed by the Ld. CIT (A). Revenue has filed letter dated 26/08/2020, withdrawin the said appeals. Accordingly these grounds stands dismissed as withdrawn. Ground No.3 raised is against the decision of Ld.CIT(A) wherein the contribution to the member banks by assessee ITA Nos.2082, 2150/Bang/2017 ITA Nos.1761,1327, 2159, 2160/Bang/2019 C.O. Nos.55 and 56/Bang/2019 Page 12 of 27 to various funds was allowed as expenditure under section 37 of the Act. It has been submitted that this issue has been considered by coordinate bench of this Tribunal in assessee’s own case for assessment year 2007-08 and 2008-09 in and ITA No.264/B/2012 by order dated 29/02/2016 and 28/02/2013 respectively. The Ld.AR placed reliance on the orders passed by this Tribunal in ITA No.713 and 714/be/2013 for assessment year 2008-09 and 2009-10 by order dated 18/03/2016. On the contrary Ld.CIT.DR placed reliance on orders passed by the Ld.AO. We have perused submissions advanced by both sides in light of records placed before us. We note that this issue stands covered by the orders passed by coordinate bench of this Tribunal in assessee’s own case for assessment year 2008-09 and 2009-10 in ITA No.713& 714(Bang) 2013 by order dated 18/03/2016. A copy of the said order has been placed at page 604-614 of paper book volume 2 as under: “Even otherwise, the learned AR submitted that Hon'ble ITAT, Bangalore itself in its own case titled as 'The Karnataka State Co-operative Apex Bank Limited Vs The Joint Commissioner of Income-tax, Range-3, Bangalore, ITA No.1372/Bang/2014 in respect of assessment year 2007-08 vide order dated 29-02-2016 decided the issues pertaining to common good fund, special ITA Nos.2082, 2150/Bang/2017 ITA Nos.1761,1327, 2159, 2160/Bang/2019 C.O. Nos.55 and 56/Bang/2019 Page 13 of 27 assistance fund and payments to PACS/ DCCB fund in favour of the assessee allowed as deductions meaning thereby, the common grounds in both the appeals such as , i. PACS/DCCB development/common good fund. 11. iii. rural farmers socio-economic development fund are common, respectfully following the aforesaid judgment rendered by co-ordinate bench, the said grounds stands allowed in favour of the assessee Now coming to the farmers welfare fund it is submitted by the learned AR that according to the Rules, governing the rural farmers developing fund, farmer welfare fund is identified in a fund called rural farmer's socio- economic development fund and the same is also similar to the common fund and rural farmers socio-economic development fund. We have given our thoughtful consideration to the arguments advanced by both the parties and orders, documents on record and the facts and circumstances of the case and we are of the considered opinion, that nomenclature does not affect the substance of the head under which the matter falls, therefore, we do not have any hesitation to hold that Farmer Welfare Fund and Rural Farmers Socio-Economic Development Fund are alike same. Hence, the addition claimed by the-appellant under the head of farmer welfare fund in both the appeals are allowed to be deducted.” We also refer to the observations of coordinate bench of this Tribunal for assessment year 2007-08 in by order dated 29/02/2009 relied by coordinate banch herein above as under: “7. We heard the rival submissions and perused the material on record. It is undisputed fact that the assessee-co- operative bank had spent amount on the following funds: a) Common Good Fund Rs. 25,00,000/- b) Special Assistance Fund Rs.5,00,00,000/- c) Payment to PACS/DCCB Fund Rs.5,27,50,000/- d) Rural Farmers Socio Economic Rs. 33,93,782/- ITA Nos.2082, 2150/Bang/2017 ITA Nos.1761,1327, 2159, 2160/Bang/2019 C.O. Nos.55 and 56/Bang/2019 Page 14 of 27 ------------------------------ Rs.10,86,43,782/ It is not the case of the revenue that the above expenditure is capital in nature. The lower authorities had disallowed the above expenditure solely on the ground that it is only appropriation out of profits and not expenditure. The approach of the lower authorities cannot stand the test of law laid down by the Privy Council in the case of Indian Radio Cable Communications Co. Ltd. Vs. CIT (5 ITR 270) wherein it is laid down that when the assessee makes a payment which is computed in relation to profits, it is still an item of expenditure though ascertained by reference to the profits. The payment is not allowable as deduction only in the case of division of profits. Lord Maugham, speaking for the Privy Council held as follows: "It is not universally true to say that a payment the making of which is conditional on profits being earned cannot properly be described as an expenditure incurred for the purpose of earning such profits. The typical exception is that of a payment to a director or a manager of a commission on the profits of a company. It may,' however, be worth pointing out that an apparent difficulty here is really caused by using the word 'profits' in more than one sense. If a company having made an apparent net profit of £10,000 has then to pay £1,000 to directors or managers as the contractual recompense for their service during the year, it is plain that the real net profit is only £9,000." The above principle was followed subsequently by the Hon'ble Supreme Court in the case of Poona Electric Supply Co. Ltd. V.s CIT (57 ITR 521) and this principle was re-iterated again by the Hon'ble Supreme Court in the case of CIT vs. Travancore Sugars & Chemicals Ltd. (90 ITR 307). Thus, the principle laid down in all the above cases is that though an amount of expenditure is ascertained with reference to profits, it does not lose the character of expenditure. Therefore, the reasoning adopted by the AO and the Id. CIT(A) cannot be accepted.
However, we have to examine the issue from the view of allowability of this expenditure under the provisions of section 37(1) of the Act. The provisions of section 57 of the Karnataka Co-operative Societies Act, 1959 stipulate that 2% of its net 2150/Bang/2017 ITA Nos.1761,1327, 2159, 2160/Bang/2019 C.O. Nos.55 and 56/Bang/2019 Page 15 of 27 profit shall be contributed towards Co-operative Education Fund and it further stipulates that no dividend shall be declared without contributing to the Co-operative Education Fund and it also further stipulates that the net profit of a co- operative society shall be determined only in accordance with rules and regulations as may be prescribed for any class of co- operative society Pursuant to this, by-law No.XXI of the assessee-co-operative bank was framed as under: "XXI DISTRIBUTION OF PROFITS: Not less than 25% of the net profit shall be carried to the 1) Reserve Fund. Out of the balance of the net profit, contribution to the 2) Cooperative Education Fund and to the Sahakari Kalyana Nidhi be provided as laid down under the Act. The balance of net profit may be utilised for all or any of the 3) following purposes namely. a) dividend on share as fixed h the Board he paid to the members. Of the remaining balance a sum not less than 15% shall b) be contributed to the Agricultural Credit Stabilisation Fund. Of the remaining balance, a sum not less that 15% c) shall be contributed to the Bad and Doubtful Debt Reserve Fund. Of the remaining balance, a sum not less than 2% shall be d) contributed to the Bad and Doubtful Debt Reserve Fund. Of the remaining balance, a sum not less than 10% to the e) building fund. Of the remaining balance a sum not less than 15% to f) the Special Assistance Fund to the members of the Bank. Of the remaining balance a sum not less than 15% to the g) Primary Agricultural Credit Societies Development Fund. Of the remaining balance a sum not less than 2% to the h) Dividend Equalisation Fund. Of the remaining balance not less than 5% shall be i) contributed to the Farmers' Welfare Fund and The remaining balance shall be transferred to Reserve j) Fund of the Bank." 8.2 Pursuant to the above by-law, during the year under consideration, assessee-co-operative bank has spent the above sum. From perusal of the scheme of the above funds, it is clear that the fund contributed neither remains with the Apex Co-operative Bank nor comes back to the assessee-co-operative bank in other form. The amounts are spent only out of statutory obligation. The provisions of section 37(1) provides for deduction of any expenditure laid down or expended 2150/Bang/2017 ITA Nos.1761,1327, 2159, 2160/Bang/2019 C.O. Nos.55 and 56/Bang/2019 Page 16 of 27 wholly and exclusively for the purpose of business in computing the income chargeable under the head 'profits and gains business or profession'. The only exception is the capital expenditure or personal expenditure of the assessee or expenditure of nature described in other sections of Chapter IV of the Act. It is not the case of the revenue that contribution to the above fund is capital expenditure or in the nature of personal expense or expenditure described in any other sections in chapter IV. The only controversy is whether the amount spent out of above funds is an expenditure laid out 'wholly and exclusively for the purpose of business'. The expression 'for the purpose of business' had come up for interpretation before the Hon'ble Apex Court in the case of CIT vs. Malayalam Plantations Ltd.(53 ITR 140) wherein it was held that the expression 'for the purpose of business' is wider in scope than the expression 'for the purpose of earning profits'. It may include not only the day-today running of business but also rationalisation of its administration and modernisation of its machinery; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title; it may also comprehend payment of statutory dues and taxes imposed as a pre-condition to commence or for the carrying on of a usiness; it may comprehend many other acts incidental to the carrying on of a business. The only limitations that the purpose should be for the urpose of the business, that is to say, the expenditure incurred should be for the carrying on of business and the assessee should incur it in his capacity as a person carrying on the business. It cannot include sums spent for purpose unconnected with the business, Therefore, the question that requires consideration in this case is whether the contribution to the education fund under section 68 of the Maharashtra Co-operative Societies Act is an expenditure laid out wholly and exclusively for the purpose of the business of the assessee. 8.3Under the above by-law, different rates of contribution have been prescribed for different kinds of funds, needless to mention that these bye-laws are framed pursuant to the Karnataka Co-operative Societies Act, 1959. Therefore, it is a statutory obligation of the assessee-co-operative bank to contribute to the above fund. For allowance of expenditure, it is settled proposition of law that the expenditure should result in profit. In this connection, reference may be made to the decision of the Hon'ble Apex Court in the case of CIT vs. 2150/Bang/2017 ITA Nos.1761,1327, 2159, 2160/Bang/2019 C.O. Nos.55 and 56/Bang/2019 Page 17 of 27 Rajendra Prasad Moody (115 ITR 519). It may be further stated that one of the objects of the assessee-co-onrative bank is to develop or assist and co-operative the member district central co-operative banks and other co-operative societies and therefore the contribution was only made in further pursuance of the objects of the bank for which it was established and therefore it cannot be said that there is a business interest in incurring those expenditure and the law laid down by the Hon'ble Supreme Court in the case of S.A.Builders vs. CIT (288 ITR 1) is squarely applicable. 8.4The Hon'ble Bombay High Court in the case of CIT vs. State Bank of India (261 ITR 82), while dealing with the issue of allowability of subsidy granted by it to its subsidiary banks, held that by grant of subsidies it has got the business advantage and therefore, allowed deduction by holding as under: "Lastly, by giving subsidy to the State Bank of Patiala, the State Bank of Saurashtra, etc., for opening branches, assets were created, but these assets belonged to the subsidiaries. The assets did not belong to the State Bank of India. Similarly, profits were earned by the subsidiaries and not the State Bank of India. At the highest, by giving subsidy under section 48(1) of the Act, the State Bank of India got a business advantage. In the circumstances, we hold that the expenditure incurred by the State Bank of India in giving subsidies to the State Bank of Saurashtra, the State Bank of Patiala, etc., under section 48(1) of the said Act of 1959, represented revenue expenditure. Lastly, we may mention that in the case of Empire Jute Company Ltd. v. CIT [1980] 124 ITR 1, it has been held by the Supreme Court that what may be a capital receipt in the hands of the payee, need not necessarily be capital expenditure in relation to a payer. In the circumstances, there is no merit in the argument of the Department that because the subsidy is not income in the hands of the payee, it cannot be revenue expenditure in relation to the payer. 8.5 Thus viewed from this angle, the amounts spent cannot be disallowed. The reliance placed by the Id.CIT(DR) on the decision of the Hyderabad bench of Tribunal in the case of A.P.Mahesh Co- operative Urban Bank Ltd (supra) rests on the decision of the 2150/Bang/2017 ITA Nos.1761,1327, 2159, 2160/Bang/2019 C.O. Nos.55 and 56/Bang/2019 Page 18 of 27 Hon'ble Supreme Court in the case of Vellore Electric Corporation Ltd. Vs. CIT (227 ITR 557). On perusal of the said decision, it is clear that the decision is relating to creation of reserve fund which always remained with the assessee-corporation. Therefore, the ratio of decision in teh case of A P Mahesh Co-operative Urban Bank Ltd (supra) is not applicable to the facts of the case. We, direct the AO to allow the amount spent on the above fund of Rs.10,86,43,782/- as deduction while computing income of the assessee-co-operative bank.” There has been no material brought on record by revenue which could establish the facts being distinguishable in the present assessment years under consideration vis-a-vis the assessment years relied in support of the claim. We therefore do not find any infirmity in the view taken by Ld.CIT(A) and the same is upheld. Ld.AR submitted that this ground is common for all assessment years under consideration. Accordingly, applying the above view mutatis mutandis to all the years, we uphold the view taken by Ld.CIT(A). Accordingly, Ground No.3 raised by revenue for assessment years 2011-12 stands dismissed. Ground No.4 is in respect of the incentives given to the member banks that was allowed by Ld.CIT (A). The Ld.AR submitted that this expenditure is not incurred for personal purposes of purchase of assets and it is incurred for the purpose of business and in consequence to the objects of the society. He placed reliance on various decisions of Hon’ble Supreme Court and Karnataka High 2150/Bang/2017 ITA Nos.1761,1327, 2159, 2160/Bang/2019 C.O. Nos.55 and 56/Bang/2019 Page 19 of 27 Court, wherein such incentives have been held as an allowable expenditure. It has been submitted that it is the duty of the apex bank to assist and coordinate the member district co-operative banks and member co-operative societies to secure financial assistances. Therefore the above incentives are paid as per the objects of assessee and for the purposes of business. On the contrary Ld.CIT.DR placed reliance on orders passed by the Ld.AO. We have perused submissions advanced by both sides in light of records placed before us. Coordinate bench of this Tribunal in case of ACIT vs Shimoga District Milk Producers Societies Union Ltd., reported in (2014) 50 Taxmann.com 46 on identical issue observed and held as under: “19. We have heard the rival submission and perused the material on record. The grant of Rs. 10,000 each of the 50 milk producing co-operative societies was given by the assessee-society for the purpose of constructing their own building for milk collection and testing. The payment was permitted as per the byelaws of the society and was approved by the board of directors and ratified by the Joint Registrar of the Co-operative Societies, Government of Karnataka. The expenditure incurred did not bring into existence any capital asset to the assessee. We find that the said grant has been given by the assessee to milk producers' co-operative societies in order to put up a building to facilitate the collection of milk and testing it. The milk so 2150/Bang/2017 ITA Nos.1761,1327, 2159, 2160/Bang/2019 C.O. Nos.55 and 56/Bang/2019 Page 20 of 27 collected is handed over to the assessee-society. In this context it helps the assessee to carry out its business objects more effectively and hence the Commissioner of Income-tax (Appeals) has rightly held that the expenditure of Rs. 5 lakhs is deductible as revenue expenditure. Therefore, we uphold the Commissioner of Income-tax (Appeals) order. In the result, ground No.5 raised by the Revenue is dismissed.” We note that, the Ld.AO has reproduced the objects stated in the bylaws of the assessee and 1 of the objects states that it is the duty of the bank to develop, assessed and coordinate the members district co-operative Central bank and member co-operative society and to secure financial assistance. It is not the case of revenue that these are not incurred for the welfare of the member co-operative banks. It is also not the case of the revenue that the payment so made do not fall within the purview of the objectives of the society. Next on the facts before us are on a stronger footing since the payment/incentives have been made by assessee to the member banks for their welfare. Thus, an expenditure laid out or expended wholly and exclusively for the purpose of business qualifies for deduction as expenditure. In support we refer to and rely upon the observations of Hon’ble Supreme Court in case of CIT vs Malayalam plantations Ltd., reported in (1964) 53 ITR 140. We therefore do not find any infirmity in the view taken by Ld.CIT(A).
ITA Nos.2082, 2150/Bang/2017 2159, 2160/Bang/2019 C.O. Nos.55 and 56/Bang/2019 Page 21 of 27 Accordingly, Ground No.4 raised by revenue for assessment years 2011-12 stands dismissed. Accordingly, appeal filed by Revenue stands dismissed. Assessment Year 2013-14 & 2014-15 It has been submitted by both sides that the issues raised by revenue in ITA Nos.2159 & 2160 are identical and factually similar to grounds considered for assessment year 2011-12 hereinabove.It ia also submitted that factually there is no change and the disallowance made by Ld.AO are on identical reasoning. As the issues are factually identical and similar to issues considered hereinabove for assessment year 2011-12, the view taken therein are applied mutatis mutandis. Accordingly, appeals filed by revenue for assessment years 2013-14 & 2014-16 stands dismissed. Assessee’s appeal (Cross objection): CO 55&56(Assessment Year 2011-12 & 2016-17): As the appeals filed by revenue stands dismissed, the cross objections filed by assessee becomes infructuous. Accordingly the same is dismissed. Assessment years 2013-14 & 2014-15: In ITA no.2082 & 2083, assessee has raised following issue in Ground 2-3 is against upholding treatment of loss ITA Nos.2082, 2150/Bang/2017 ITA Nos.1761,1327, 2159, 2160/Bang/2019 C.O. Nos.55 and 56/Bang/2019 Page 22 of 27 and gain from sale of Government of India securities as long term capital gains by the Ld.CIT(A). The Ld. A.R. at the outset submitted that the issue stands squarely covered by coordinate bench of this tribunal in assessee’s own case for assessment year 2012-13. He submitted that learnt CIT (A) had followed his own decision for assessment year 2012-13 which has now been reversed by coordinate bench of this tribunal in assessee’s own case. On the contrary the Ld. DR relied on orders passed by learnt CIT (A). We have perused submissions advanced by both sides in light of records placed before us. We note that during the year under consideration assessee had earned loss of Rs.10,84,66,000/- and profit of Rs.25,50,500/- on sale of government of India securities. The Ld. AO noted that assessee had invested in PFC and IIFC resulting in loss which was set off against the profit on sale of government securities. The Ld. AO noticed that assessee invested in the said securities/bonds as its non- SLR investments which was in excess of the limit ITA Nos.2082, 2150/Bang/2017 ITA Nos.1761,1327, 2159, 2160/Bang/2019 C.O. Nos.55 and 56/Bang/2019 Page 23 of 27 prescribed by the RBI in its master circular No. RPCD.CO.RF.BC.26/07.02.03/2005-06. The Ld.AR submitted that assessee has been making these investments as stock in trade and accordingly claimed the above said loss as business loss. However, Ld. AO to the view that the above said investments are made by assessee over and above the limits prescribed by RBI and hence the these investments cannot be forming part of assessee’s business but can only be treated as investments in capital asset. The Ld.AR placed reliance on the decision of Hon’ble Supreme Court in case of United commercial bank vs CIT reported in 240 ITR 355, wherein it has been held that, all investments made by a banking company is to be considered as stock in trade. The Ld. ar contended that assessee made investments in the said bonds/securities as part of its business activities. It has also been submitted that since the holding in various types of securities was in excess as per RBI, assessee sold the same during the year under consideration. It is also submitted that assessee has been treating these bonds/securities as stock in trade in the earlier years also. The Ld.AR placed reliance on paragraph 5 of the order 2150/Bang/2017 ITA Nos.1761,1327, 2159, 2160/Bang/2019 C.O. Nos.55 and 56/Bang/2019 Page 24 of 27 passed by coordinate bench of this Tribunal in assessee’s own case for assessment year 2012-13 in ITA No. 1157/B/2017 by order dated 06/03/2020, wherein, this Tribunal considered the submissions of assessee and has observed as under:
“5. When a specific question was asked as to whether the impugned bonds/securities have been revalued in the past as at the year end to match with market price and whether the loss, if any,arising on such revaluation was allowed as deduction in the earlier years, the Ld. A.R. submitted that the assessee has revalued thesesecurities in the past and claimed the loss on such revaluation as deduction. In support of the same, the assessee furnished a letter along with supporting document to substantiate his contentions.
The Ld. D.R. on the contrary, supported the order passed by Ld. CIT(A).
We heard the parties and perused the record. According to the assessee, as per the decision rendered by Hon’ble Supreme Court in the case of United Commercial Bank, banking business shall include making investments also and hence the impugned investments are stock in trade only. It was also submitted that the assessee has revalued these securities as at the year end on marked to market basis. The said action of the assessee, further reinforces its contentions that the impugned securities were held as stock in trade only. We notice that both the tax authorities have taken the view that the investment made by the assessee over and above the limits prescribed by RBI for non-SLR investments should be considered as “Investments” only and not stock in trade. However, it is pertinent to note that the tax authorities have not brought any judgment or material in support of their view.
8. There should not be any dispute that if the assessee has revalued these securities as at the year end on marked to market basis, then it will show that these securities have been held as stock in trade only by the assessee. This exercise is without prejudice the assessee’s reliance on the decision rendered by Hon’ble Supreme Court in the case of United Commercial Bank (supra). Before us, the Ld. A.R. has furnished certain details to 2150/Bang/2017 ITA Nos.1761,1327, 2159, 2160/Bang/2019 C.O. Nos.55 and 56/Bang/2019 Page 25 of 27 substantiate its contentions that these securities have been revalued as at the year end. Since these are all new facts, which would support the contentions of the assessee and since these facts have not been verified by the A.O., we are of the view that this issue requires fresh examination at the end of the A.O. Accordingly, we set aside the order passed by Ld. CIT(A) on this issue and restore the same to the file of the A.O. for examining afresh by considering the evidences that were filed by the assessee before us and various decisions that may be relied upon by the assessee.” Both sides submitted that there is no difference in the facts for the year under consideration is with that of assessment year 2012-13. Accordingly respectfully following the view taken by coordinate bench of this tribunal in assessee’s own case here in above, we remand this issue back to the Ld.AO for fresh examination. Assessee is directed to furnish the details to substantiate its contention which then would be verified by the Ld.AO and consider the claim of assessee in accordance with law. In respect of the ground no.3 raised by assessee that the profit on sale of securities is business profit and are eligible for deduction under section 80 P (2) (a) of the act, Ld.AR had relied on the decision of Hon’ble Karnataka High Court in case of Karnataka bank Ltd. vs ACIT reported in 356 ITR 549. This issue becomes consequential to ground No. 2 considered herein above. Accordingly the Ld. AO is directed to grant the deduction under section 80 P (2) (a) of the act in accordance with law.
ITA Nos.2082, 2150/Bang/2017 2159, 2160/Bang/2019 C.O. Nos.55 and 56/Bang/2019 Page 26 of 27 Accordingly Ground no.2-3 raised by assessee for assessment years 2013-14 and 2014-15 stands allowed for statistical purposes In the result appeals filed by revenue stands dismissed, appeals filed by assessee stands allowed as indicated hereinabove and cross objection filed by assessee becomes infructuous. Order pronounced in open court on 8th April 2021.