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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI RAVISH SOOD, JM
आदेश / O R D E R
PER RAVISH SOOD, JUDICIAL MEMBER:
The present set of cross appeals filed by the assessee and the revenue are directed against the order passed by the CIT(A)-29, Mumbai, dated 20.11.2013 for A.Y. 2009-10, which in itself arises from the assessment order passed by the A.O under Sec. 143(3) of the Income Tax Act, 1961 (for short „Act‟), dated. 26.12.2011. We shall first take up the appeal of the revenue. The revenue had assailed the order of the CIT(A) by raising the following grounds of appeal before us:
“1. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the disallowance of Rs.25,29,602/- of unrealized pay slips even though there was no liability to pay the same which constituted deemed income of the assessee with the application of section 41(1) of I.T. Act, 1961.
2. On the facts and in the circumstances of the case and in law, the. Ld. CIT(A) has erred in deleting the addition made by the A.O on account of unidentified deposits of Rs. 41,72,658/- without appreciating the facts that the assessee has claimed these liabilities as outstanding for a number of years, but could not substantiate the genuineness of the same.
3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in accepting & adjudicating on the issue of amortization of premium on investments although the assessee had not filed, a claim in, this regard during assessment proceedings either by way of original return or revised return of income.
4. The appellant prays that the order the CIT(A) being erroneous in facts and in law be reversed and that of the Assessing Officer be restored.
The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.”
Briefly stated, the facts of the case are that the assessee which is a co-operative bank had e-filed its return of income for A.Y 2009-10 on 29.09.2009, declaring total income of Rs. 7,08,26,040/-. The return of income filed by the assessee was processed as such under Sec. 143(1)
P a g e | 3 & 979/Mum/2014 AY: 2009-10 ACIT Vs. Kokan Merchantile Co-op. Bank Ltd. of the Act. The case of the assessee was thereafter taken up for scrutiny assessment under Sec. 143(2).
During the course of the assessment proceedings the A.O observed that the assessee had shown an amount of Rs. 25,29,602/- under the head “other creditors”, which was claimed by it to be in the nature of unrealized pay slips. The assessee on being called upon the substantiate the genuineness and veracity of its aforesaid claim, submitted before the A.O that the unrealized pay slips were the pay slips which were issued but not presented for payment for a period of less than six months. The assessee in order to support its aforesaid claim submitted that the same was in conformity with the practice which was uniformly followed by all the banks in India and there was no deviation in the accounting principles followed by the bank as regards the same. However, the A.O not finding favour with the aforesaid claim of the assessee observed that as even the names and addresses of the payees were not to the knowledge of the bank, therefore, it could safely be concluded that the assessee did not have any liability to pay to the persons in respect of the aforesaid unrealized pay slips. The A.O on the basis of his aforesaid conviction treated the amount of Rs. 25,29,602/- as the income of the assessee under Sec. 41(1) of the Act.
The A.O further observed that the details of sundries furnished by the assessee for the year under consideration revealed a sum of Rs. 41,72,658/- shown under the head “sundry deposit”. However, as the assessee failed to furnish any explanation backed by any cogent evidence which could irrefutably prove the veracity of the aforesaid outstanding liability, therefore, the A.O treated the same as the P a g e | 4 & 979/Mum/2014 AY: 2009-10 ACIT Vs. Kokan Merchantile Co-op. Bank Ltd. deemed income of the assessee under Sec. 41(1) and made an addition of Rs. 41,72,657/- in the hands of the assessee.
5. The assessee during the course of the assessment proceedings came forth with a revised computation of income on 15.11.2011, wherein claim in respect of expenses on account of amortization on investments was raised by it for the first time. The assessee submitted that the revised computation of income placed on record be treated as a revised return of income and its income be assessed after considering the claim in respect of expenses on account of amortization on investments so raised by it. However, the A.O being of the view that the assessee could have filed a revised return of income under Sec. 139(5) latest by 31.03.2011, therefore, observing that the aforesaid claim of the assessee was beyond the said stipulated time period, declined to admit the same. The A.O while concluding as hereinabove relied on the judgment of the Hon’ble Supreme Court in the case of Goetze (India) Ltd. Vs. CIT (2006) 284 ITR 323 (SC). Alternatively, it was observed by the A.O that the assessee had in the immediately preceding year, viz. A.Y. 2008-09 debited a sum of Rs. 2,02,50,500/- as premium on investment amortized, which however was disallowed by his predecessor and the matter as on date was pending before the CIT(A). The A.O held a conviction that as the investments such as government securities and bonds were shown under the head “investments” which is a capital asset, therefore, any expenses paid for acquisition of a capital asset would be capital expenditure and could not be allowed as a deduction. The A.O on the basis of his aforesaid observations declined to admit the aforesaid claim of the assessee.
P a g e | 5 & 979/Mum/2014 AY: 2009-10 ACIT Vs. Kokan Merchantile Co-op. Bank Ltd.
The A.O while framing the assessment further observed that though the assessee had exempt dividend income of Rs. 9,80,785/- during the year under consideration, but however, no expenditure attributable to earning of the said exempt income was shown by the assessee in its return of income. The assessee on being called upon to put forth an explanation as to why no disallowance under Sec. 14A r.w. Rule 8D was made by him, submitted that no expenses were incurred for either making of investments in the exempt income yielding investments or earning of the exempt income therefrom. However, the A.O not persuaded to accept the aforesaid claim of the assessee worked out the disallowance under Sec. 14A r.w. Rule 8D(2)(iii) at Rs. 1,00,000/- in the hands of the assessee.
Aggrieved, the assessee carried the matter in appeal before the CIT(A). The CIT(A) while deliberating on the sum of Rs. 25,29,602/- which though was shown by the asessee as “other creditors”, but however, was characterised as a ceased liability by the A.O under Sec. 41(1) of the Act, did find favour with the contention advanced by the assessee in support of its claim. The CIT(A) observed that the slips which were issued by the assessee but were not presented for payment for a period of less than six months and thus were lying unrealized at the end of the year, would not mean that the liability to pay on account of such unrealized slips had ceased to exist. The CIT(A) was not persuaded to be in agreement with the view taken by the A.O without placing any evidence on record which would had irrefutably proved that the loan liability had actually ceased to exist. The CIT(A) holding a conviction that as the conclusion arrived at by the A.O was merely based on presumption and not on the basis of any positive evidence placed on record, therefore, the cessation of liability so inferred by him could not be sustained. The CIT(A) further observed
P a g e | 6 & 979/Mum/2014 AY: 2009-10 ACIT Vs. Kokan Merchantile Co-op. Bank Ltd. that the same issue was decided by his predecessor in the assesses own case for A.Y. 2008-09, vide the latters order dated 11.07.2012. The CIT(A) on the basis of his aforesaid observations deleted the addition of Rs. 29,25,602/- made by the A.O under Sec. 41(1) of the Act.
The CIT(A) further adverted to the addition of Rs. 41,72,658/- pertaining to unidentified deposits which were shown by the assessee under the head “sundry deposits”, but however, were brought to tax by the A.O as ceased liability under Sec. 41(1) of the Act. The CIT(A) observed that the amount of Rs. 41,72,657/- represented the amounts which were deposited with a wrong mention of the account number or wrong mention of title, therefore, the proper credit of the said amounts could not be given to the accounts of the genuine account holders. The CIT(A) found favour with the contention of the assessee that it being a bank was simply a custodian of the money which it was liable to pay whenever demanded, even if the deposits were more than 30 years old. The CIT(A) persuaded to be in agreement with the aforesaid contention of the assessee, observed that as the aforesaid amount represented the ascertained liability for which the bank was merely a custodian and the same had to be paid as and when demanded, therefore, the same could not be characterized as a liability which had ceased to exist. It was further observed by the CIT(A) that as the A.O had added back the aforesaid sundry deposits on the presumption of cessation of liability, without placing any evidence on record that the above loan liability had actually ceased to exist, therefore, such unsubstantiated view of the A.O which was merely backed by a presumption and not by any positive evidence could not be sustained. The CIT(A) while concluding as hereinabove also observed that a similar addition which was made in the assesses own case for A.Y 2008-09 was deleted by his
P a g e | 7 & 979/Mum/2014 AY: 2009-10 ACIT Vs. Kokan Merchantile Co-op. Bank Ltd. predecessor, vide his order dated 11.07.2012. The CIT(A) on the basis of his aforesaid observations deleted the addition of Rs. 41,72,657/-.
The CIT(A) adverting to the disallowance of Rs. 1,00,000/- made by the A.O under Sec. 14A r.w. Rule 8D, observed that as the assessee had made a substantial investment of Rs. 2,00,00,000/- in exempt income yielding investments in shares, therefore, it could safely be concluded that expenses out of the common kitty, common management, common salaries paid to employees and management and other common expenses would be attributable to both the running of the business, as well as maintaining the aforesaid exempt income yielding investments of the assessee. The CIT(A) in the backdrop of his aforesaid observations, being of the view that the A.O had rightly disallowed an amount of Rs. 1,00,000/- under Sec. 14A r.w. Rule 8D(2)(iii), thus, sustained the addition of Rs. 1,00,000/- in the hands of the assessee.
The CIT(A) adverting to the claim of the assessee that the A.O had erred in wrongly disallowing the claim of premium on investment amortized of Rs. 1,74,90,500/-, observed that the A.O had declined to admit the aforesaid claim for the reason that as the assessee had failed to file a revised return of income within the time period stipulated under Sec. 139(5) i.e latest by 31.03.2011, therefore, the claim raised by the assessee before him on 15.11.2011 could not be admitted. The CIT(A) taking support of the judgment of the Hon‟ble High Court of Bombay in the case of CIT Vs. Pruthvi Broker and Share Holders Ltd (2012) 349 ITR 0336 (Bom), concluded that though the A.O in the backdrop of the judgment of the Hon‟ble Supreme Court in the case of Goetze (India) Ltd. Vs. CIT (2006) 284 ITR 323 (SC) could not have entertained the aforesaid claim for P a g e | 8 & 979/Mum/2014 AY: 2009-10 ACIT Vs. Kokan Merchantile Co-op. Bank Ltd. deduction/relief made by the assessee, otherwise where such claim was raised by filing a revised return of income, however, the appellate authorities were vested with a jurisdiction to entertain such a claim, as long as the same was borne from the facts available on record. The CIT(A) on the basis of his aforesaid observations admitted the aforesaid additional ground of appeal raised by the assessee before him. The CIT(A) observed that the investments under consideration by the assessee were in government securities which the assessee being a bank had to purchase as per the guidelines of the RBI in order to maintain the Statutory Liquidity Ratio (SLR). The CIT(A) further observed that the SLR was maintained by the bank by parking the funds in government securities issued by both the central as well as different state governments. The CIT(A) took cognizance of the fact that the assessee in order to maintain the SLR had to purchase the government securities from the open market as the same were actively traded, and its market price (value) varied on a day to day basis, depending upon the statutory regulation imposed by the RBI, requirement of the various banks and the prevailing interest regime in the national as well as international market. The CIT(A) after deliberating on the aforesaid facts held a conviction that as the said investments were long term and therefore had to be classified as „held to maturity‟ in accordance with the RBI guidelines, therefore, the premium paid on the investments in the said securities was clearly an expenditure which had to be necessarily incurred by the assessee in strict compliance to the guidelines of the RBI which was the controlling body. The CIT(A) on the basis of his aforesaid observations concluded that the amortization of premium paid on purchase of securities classified under the HTM category was an ascertained and determined loss to the bank, which not being expressly provided to be disallowed under any provisions of the Income tax act, 1961,
P a g e | 9 & 979/Mum/2014 AY: 2009-10 ACIT Vs. Kokan Merchantile Co-op. Bank Ltd. therefore, had to be allowed while computing the business income of the assessee. The CIT(A) in order to fortify his aforesaid view observed that the securities purchased by the assessee co-operative bank and classified under the category „Held to maturity‟ did form part of the „Stock in trade‟ of the assessee co-operative bank, because the same were purchased with a predominant motive of maintaining SLR of the bank and non maintenance of the same could lead to serious ramifications on the very existence the business of banking of the assessee. The CIT(A) further observed that the CBDT in its Instruction No. 17 of 2008, dated 26.11.2008 had given a check list of deductions which were to be granted in the assessment of the banks. The CIT(A) noted that at Clause No. 2(vii) of the aforesaid CBDT instruction No. 17 of 2007, the CBDT had instructed in relation to HTM category of government securities, as under : “Investment classified under HTM category need not be marked to market and are carried at acquisition cost unless these are more than the fact value, in which case the premium should be amortised over the period remaining to maturity.” The CIT(A) on the basis of his aforesaid observations concluded that as the amortization of premium paid on purchase of securities classified under the HTM category was an ascertained and determined business liability, therefore, it was allowable as an expenditure and the disallowance of the same was unwarranted. The CIT(A) thus in terms of his aforesaid observations deleted the addition of Rs. 1,74,90,500/- made in the hands of the assessee by the A.O. The CIT(A) while concluding as hereinabove, also observed that a similar view was taken in the assesses own case by his predecessor while disposing of the appeal of the assessee for A.Y. 2008-09, vide his order dated 11.07.2012.
P a g e | 10 & 979/Mum/2014 AY: 2009-10 ACIT Vs. Kokan Merchantile Co-op. Bank Ltd.
The CIT(A) thereafter adverted to the claim of the assessee that the A.O had erred in not allowing the deduction amounting to Rs. 50,00,000/- in respect of „Investment depreciation reserve‟. The CIT(A) observed that the aforesaid claim of deduction of Rs 50,00,000/- on account of investment depreciation reserve was raised by the assessee for the first time before him and was not taken up before the A.O at all. The CIT(A) observed that the contention of the assessee that it had raised such claim in its letter dated 15.11.2011 filed with the A.O, requesting that the same may be treated as a revised return of income, was proved to be incorrect on a perusal of the aforesaid letter, which revealed that no such claim was raised by the assessee before the A.O. Notwithstanding the aforesaid facts, the CIT(A) observed that even during the course of hearing of the appeal as the assessee had neither given any written submissions, nor furnished the details regarding the nature of such deduction and basis of allowability of the same, therefore, the validity of the said claim of deduction having not be established by the assessee, thus, could not be ascertained. The CIT(A) on the basis of his aforesaid observations declined to accept the claim of the assessee in respect of deduction of Rs. 50,00,000/- on account of the investment depreciation reserves.
That both the assessee and revenue being aggrieved with the order of the CIT(A) had carried the matter in appeal before us. The Ld. Authorized Representative (for short „A.R‟) at the very outset submitted that the issues assailed by the department in its appeal were squarely covered by the order passed by the Tribunal in the assesses own case for the immediately preceding year, viz. A.Y. 2008-09, which thereafter was again followed by the Tribunal while disposing of the appeal of the revenue in respect of the issue under consideration for A.Y. 2011-12. The Ld. A.R. in support of his aforesaid contention placed on record
P a g e | 11 & 979/Mum/2014 AY: 2009-10 ACIT Vs. Kokan Merchantile Co-op. Bank Ltd. the copies of the aforesaid orders passed by the coordinate benches of the Tribunal. The Ld. A.R. further adverting to the appeal filed by the assessee, submitted that the CIT(A) had erred in sustaining the disallowance of Rs. 1,00,000/- made by the A.O under Sec. 14A r.w. Rule 8D. The Ld. A.R. submitted that as no expenses were incurred by the assessee which could be attributed to the earning of the exempt income by the assessee, therefore, no disallowance under Sec. 14A r.w. Rule 8D(2)(iii) was called for in the hands of the assessee. The Ld. A.R. further adverting to the refusal on the part of the CIT(A) in accepting and consequential dismissing the ground of appeal raised by the assessee before him in respect of its claim of investment depreciation reserve of Rs. 50,00,000/-, submitted that the issue involved therein was squarely covered by the judgment of the Hon’ble High Court of Bombay in the case of CIT Vs. Bank of Baroda (2003) 262 ITR 334 (Bom). The Ld. A.R. placed on record the copy of the judgment of the Hon‟ble High Court passed in the case of Bank of Baroda (supra) and submitted that the Hon‟ble High Court in the said case after deliberating on the issue under consideration had upheld the order of the Tribunal and concluded that the assessee was entitled to deduction on account of depreciation/reduction in the value of investments and had rightly claimed the same as a loss. The Ld. A.R. taking support of the aforesaid judicial pronouncement, submitted that the lower authorities had erred in not allowing its claim of investment depreciation reserve of Rs. 50,00,000/-. Per Contra, the Ld. D.R. submitted that the CIT(A) had wrongly set aside the additions/disallowances made by the A.O. However, the Ld. D.R did not controvert the contention of the Ld. A.R. that the issues involved in the appeal of the department were covered by the orders passed by the coordinate benches of the Tribunal in the assesses own case for A.Ys 2008-09 and 2011-12.
P a g e | 12 & 979/Mum/2014 AY: 2009-10 ACIT Vs. Kokan Merchantile Co-op. Bank Ltd.
We have heard the authorized representatives for the both the parties, perused the orders of the lower authorities and the material available on record. We shall first advert to the disallowance of a sum of Rs. 25,29,602/- which though was shown by the assessee under the head “other creditors” in respect of the unrealized pay slips, but however, was held by the A.O as cessation of liability and added back to the income of assessee under Sec. 41(1) of the Act. We find that the CIT(A) being of the view that the slips which were issued by the assessee, but were not presented for payment for a period of less than six months and were lying unrealized at the end of the year, would not mean that the liability to pay on account of such unrealized slips had ceased to exist. We find that the CIT(A) holding a conviction that as the conclusion arrived at by the A.O was merely based on presumptions and not on the basis of any positive evidence placed on record, therefore, the cessation of liability so inferred by him could not be sustained. We further find that the CIT(A) taking note of the fact that the same issue was decided by his predecessor in the assesses own case for A.Y. 2008-09, vide the latters order dated 11.07.2012, had deleted the addition of Rs. 29,25,602/- made by the A.O under Sec. 41(1) of the Act.
We have deliberated on the facts and have given a thoughtful consideration to the same. We find ourselves to be in agreement with the view taken by the CIT(A) that in the absence of any positive evidence being placed on record by the A.O, which would irrefutably prove that the liability to pay on account of the unrealized slips had ceased to exist in the hands of the assessee, the same merely on the basis of presumptions could not be characterized as a liability which had ceased to exist. We are of the considered view that now when the P a g e | 13 & 979/Mum/2014 AY: 2009-10 ACIT Vs. Kokan Merchantile Co-op. Bank Ltd. assessee bank was showing the aforesaid amount of Rs. 29,25,602/- as an outstanding liability under the head “other creditors”, therefore, a very heavy onus was cast upon the revenue to disprove and dislodge the said claim of the assessee, before concluding that the said liability had ceased to exist. We are afraid that as the A.O had failed to place on record any positive evidence to support his view that the aforesaid outstanding liability had ceased to exist, and had only on the basis of presumptions so inferred, therefore, we are unable to persuade ourselves to be in agreement with the said view of the A.O. We are of the considered view that the CIT(A) rightly appreciating the facts of the case in the backdrop of the settled position of law had vacated the addition of Rs. 29,25,602/- made by the A.O in the hands of the assessee under Sec. 41(1) of the Act. We thus finding no infirmity in the order of the CIT(A), therefore, uphold the same. Before parting, we may herein observe that the coordinate bench of the Tribunal, i.e. ITAT Bench “A”, Mumbai in the assessee own case for A.Y. 2008-09, viz. ACIT Vs. M/s Kokan Mercantile Co-operative Bank Ltd. (ITA No. 6058/Mum/2012); dated 16.03.2016 had upheld the order of the CIT(A) and had deleted a similar disallowance of Rs. 12,09,832/- made by the A.O in respect of unrealized pay slips which were issued but not presented for payment. We further find that the order of the Tribunal was followed by another coordinate bench by the Tribunal, i.e. ITAT “E” Bench, Mumbai in the assesses own case for A.Y. 2011- 12, viz. DCIT Vs. M/s Kokan Mercantile Co-operative Bank Ltd. (ITA No. 281/Mum/2015); dated 28.07.2016. We thus in the backdrop of our aforesaid observations and finding no reason for taking a view different from that as arrived at by the aforesaid coordinate benches of the Tribunal, therefore, find no reason to dislodge the well reasoned order of the CIT(A) in respect of the issue under consideration. The Ground of Appeal No.1 raised by the revenue before us is dismissed.
P a g e | 14 & 979/Mum/2014 AY: 2009-10 ACIT Vs. Kokan Merchantile Co-op. Bank Ltd.
We now advert to the disallowance of Rs. 41,72,658/- made by the A.O on account of unidentified deposits lying with the bank. We find that the CIT(A) observed that as the aforesaid amount of Rs. 41,72,657/- represented the amounts which were deposited with a wrong mention of the account number or wrong mention of title, therefore, the proper credit to the genuine account holders account could not be given by the assessee. We find that the CIT(A) finding himself to be in agreement with the claim of the assessee that it being a bank was simply a custodian of the money which it was liable to pay whenever demanded, even if the deposits were more than 30 years old, observed that as the aforesaid amount represented the ascertained liability for which the bank was merely a custodian and the same had to be paid as and when demanded, therefore, the same could not be characterized as a liability which had ceased to exist. We further find that the CIT(A) had observed that as the A.O had added back the aforesaid sundry deposits shown in the accounts on the presumption of cessation of liability, without placing any evidence on record that the above loan liability had actually ceased to exist, therefore, such unsubstantiated view of the A.O which was merely backed by a presumption and not any positive evidence could not be sustained. We find that the CIT(A) further being of the view that a similar addition which was made in the assesses own case for A.Y 2008-09 was deleted by his predecessor, vide his order dated 11.07.2012, therefore, deleted the aforesaid addition of Rs. 41,72,657/- made by the A.O in the hands of the assessee under Sec. 41(1) of the Act.
We have given a thoughtful consideration to the facts pertaining to the issue under consideration. We find ourselves to be in agreement with the view taken by the CIT(A) that as the unidentified deposits
P a g e | 15 & 979/Mum/2014 AY: 2009-10 ACIT Vs. Kokan Merchantile Co-op. Bank Ltd. were lying with the bank as an ascertained liability for which the bank was merely a custodian and the same had to be paid as and when demanded, therefore, merely because the money lying under the said head without paying would not mean that the liability to pay the same had ceased to exist. We are of the considered view that in the absence of any positive evidence being placed on record by the A.O, which would irrefutably prove that the liability to pay on account of such unidentified deposits had ceased to exist in the hands of the assessee, the same merely on the basis of a presumption could not be characterized as a liability which had ceased to exist. We are of the considered view that now when the assessee bank was showing the aforesaid amount of unidentified deposits Rs. 41,72,657/- as an outstanding liability, therefore, as observed by us hereinabove, a very heavy onus was cast upon the revenue to disprove and dislodge the said claim of the assessee before concluding that the liability under consideration as claimed by the assessee had ceased to exist. We are afraid that here also as the A.O had failed to place on record any positive evidence to support his view that the aforesaid outstanding liability had ceased to exist, and had only on the basis of presumptions so inferred, therefore, we are unable to persuade ourselves to be in agreement with the said view of the A.O. We are of the considered view that the CIT(A) rightly appreciating the facts of the case in the backdrop of the settled position of law had vacated the addition of Rs. 41,72,657/- made by the A.O in the hands of the assessee under Sec. 41(1) of the Act. We thus finding no infirmity in the order of the CIT(A), therefore, uphold the same. Before parting, we may herein observe that the coordinate bench of the Tribunal, i.e. ITAT Bench “A”, Mumbai in the assessee own case for A.Y. 2008-09, viz. ACIT Vs. M/s Kokan Mercantile Co-operative Bank Ltd. (ITA No. 6058/Mum/2012); dated 16.03.2016 had upheld the order of the P a g e | 16 & 979/Mum/2014 AY: 2009-10 ACIT Vs. Kokan Merchantile Co-op. Bank Ltd. CIT(A) and had deleted a similar disallowance of Rs. 66,82,158/- made by the A.O in respect of unidentified deposits. We further find that the said order of the Tribunal was followed by another coordinate bench of the Tribunal, i.e. ITAT “E” Bench, Mumbai in the assesses own case for A.Y. 2011-12, viz. DCIT Vs. M/s Kokan Mercantile Co-operative Bank Ltd. (ITA No. 281/Mum/2015); dated 28.07.2016. We thus in the backdrop of our aforesaid observations and finding no reason for taking a view different from that as arrived at by the aforesaid coordinate benches of the Tribunal, therefore, find no reason to dislodge the well reasoned order of the CIT(A) in respect of the issue under consideration. The Ground of Appeal No.2 raised by the revenue before us is dismissed.
We shall now take up the contention of the revenue that the CIT(A) had erred in accepting and adjudicating on the issue of amortization of premium of investments, although the assessee had not filed the claim in this regard during the assessment proceedings, either by way of original return of income or a revised return of income. We have perused the facts available on record, and though are in agreement with the contention of the revenue that the claim of the assessee for deduction of expenses on account of premium paid of amortization on government securities amounting to Rs. 1,74,90,500/- was not raised either by way of a original return of income or a revised return of income, but however, was raised before the A.O during the course of the assessment proceedings vide a letter dated 15.11.2011 requesting that the said letter may be treated as a revised return of income for the year under consideration. We are further in agreement with the observation of the A.O that in the backdrop of the judgment of the Hon‟ble Supreme Court in the case of Goetze (India) Ltd. Vs. CIT (2006) 284 ITR 323 (SC), as the A.O was P a g e | 17 & 979/Mum/2014 AY: 2009-10 ACIT Vs. Kokan Merchantile Co-op. Bank Ltd. not vested with any powers to entertain a claim for deduction/relief raised by the assessee, except for those raised either in his original return of income or through a revised return, therefore, the declining on the part of the A.O to entertain the aforesaid claim raised by the assessee vide a letter dated 15.11.2011 was well in order. However, we are of the considered view that as observed by the CIT(A) in the backdrop of the judgment of the Hon’ble High Court of Bombay in the case of CIT Vs. Pruthvi Broker and Share Holders Ltd (2012) 349 ITR 0336 (Bom), no such restriction is placed on the appellate authorities for entertaining an additional claim of the assessee, as long as the same is found to be borne from the facts available on record. We are of the considered view that in the backdrop of the aforesaid judgment of the Hon‟ble High Court of Jurisdiction, no infirmity as regards admission by the CIT(A) of the aforesaid claim of amortization of premium of investments raised by the assessee on the basis of the facts available on record, followed by adjudication of the same, emerges from the records. We thus finding no infirmity on the part of the CIT(A) to admit and adjudicate the claim of amortization of premium of investment raised by the assessee on the basis of the facts available on record, therefore, uphold his order as regards the same. We further find that the CIT(A) had on the basis of well reasoned observations concluded that as the amortization of the premium paid on purchase of securities classified under the “HTM” category is an ascertained and determined business liability, therefore, the same being an allowable expenditure was wrongly disallowed by the A.O. We have perused the observations of the CIT(A) and find that he had after culling out the material aspects pertaining to the issue under consideration, viz. (i) that making of investments in government securities by the assessee bank were in the nature of statutory investments as per the guidelines of RBI; (ii) that the bank had to P a g e | 18 & 979/Mum/2014 AY: 2009-10 ACIT Vs. Kokan Merchantile Co-op. Bank Ltd. purchase the government securities in order to maintain the Statutory Liquidity Ratio (SLR) as per the guidelines of RBI by parking the funds in government securities issued by the central as well as state governments; and (iii) that as per the CBDT Instruction No. 17 of 2008, dated 26.11.2008 the investment port folio of the bank categorised under the head “Held to Maturity” (HTM) were not required to be marked to market and were carried at acquisition cost unless the same were more than the face value, in which case the premium was to be amortized over a period remaining to maturity, thus, in the backdrop of the aforesaid facts had concluded that as the amortization of premium paid on purchase of securities classified under the “HTM‟ category was an ascertained and determined loss to the bank which was not expressly disallowed by any provisions of the Income Tax Act, 1961, therefore, the same were to be allowed while computing the business income of the assessee bank. We are of the considered view that the CIT(A) had on the basis of a well reasoned order concluded that as the amortization premium of investment of government securities amounting to Rs. 1,74,90,500/- was an allowable revenue expenditure, therefore, the same had wrongly been disallowed by the A.O. We may herein observe that nothing has been submitted before us by the Ld. D.R. which could persuade us to conclude that the aforesaid observations of the CIT(A) suffers from any infirmity or are found to be perverse. We thus finding ourselves persuaded to be in agreement with the view taken by the CIT(A), therefore, uphold his order as regards admitting the aforesaid claim of the assessee and concluding that amortization premium of investments in government securities amounting to Rs. 1,74,90,500/-, being a revenue expenditure was allowable as a deduction. The Ground of Appeal No. 3 raised by the revenue before us is dismissed.
P a g e | 19 & 979/Mum/2014 AY: 2009-10 ACIT Vs. Kokan Merchantile Co-op. Bank Ltd. 18. The Ground of appeal
No. 4 & 5 raised by the revenue before us being general in nature are dismissed as not pressed.
19. The appeal of the revenue is dismissed in terms of our aforesaid observations.
We shall now advert to the appeal filed by the assessee. The assessee assailed the order of the CIT(A) before us on the following grounds of appeal : “1. On the facts and in the circumstances of the case and in law, the learned C.I.T. (A) erred in approving the action of the learned A.O. in disallowing an amount of Rs.1,00,000/- by invoking the provisions of section 14A read with rule 8D of the I.T. Rules 1962.
2. On the facts and in the circumstances of the case and in law, the learned C.I.T. (A) erred in not accepting and dismissing the ground of appeal pertaining to „investment depreciation reserve‟ claim amounting to Rs.50,00,000/-. The Appellant craves leave to add, alter amend or delete any or all of the grounds of appeal at any time.
21. We shall first take up the disallowance of Rs. 1,00,000/- made by the A.O under Sec. 14A r.w. Rule 8D. We find that the CIT(A) being of the view that as the assessee had made a substantial investment of Rs. 2,00,00,000/- in exempt income yielding investments in shares, therefore, it could safely be concluded that expenses out of the common kitty, common management, common salaries paid to employees and management and other common expenses would be attributable to both the running the business, as well as maintaining the aforesaid exempt income yielding investments of the assessee. We find that the CIT(A) in the backdrop of his aforesaid observations, being of the view that the A.O had rightly disallowed an amount of Rs. 1,00,000/- under Sec. 14A r.w. Rule 8D(2)(iii), thus, sustained the addition of Rs. 1,00,000/- in the hands of the assessee. We have P a g e | 20 & 979/Mum/2014 AY: 2009-10 ACIT Vs. Kokan Merchantile Co-op. Bank Ltd. deliberated on the issue under consideration and find that the A.O after recording his dissatisfaction with the claim of the assessee that as no expenses were incurred in respect of exempt income yielding investments and the earning of the exempt income, therefore, no disallowance under Sec. 14A r.w. Rule 8D was called for in its hands, had proceeded with and worked out the disallowance under Sec. 14A r.w. Rule 8D(2)(iii) of Rs. 1,00,000/- in the hands of the assessee. During the course of the hearing of the appeal the Ld. A.R. had furnished before us a chart which reveals that the dividend income of Rs. 9,80,735.55 was earned by the assessee in respect of UTI Master Value fund. The Ld. A.R. had further drawn our attention to a letter dated 12.12.2008 addressed to the assessee, which revealed that the entire income of Rs. 9,80,735.55 was directly credited to the bank account of the assessee as instructed on 08.12.2008. The Ld. A.R had thus tried to impress on us that as the dividend income on the aforesaid mutual fund was directly remitted to the bank account of the assessee, therefore, it could safely be concluded no expenses debited by the assessee in its profit & loss account were attributable to the earning of the aforesaid exempt dividend income. We have deliberated on the contention of the Ld. A.R. in the backdrop of the facts available on record and are unable to persuade ourselves to be in agreement with the same. We are of the considered view that though it remains as a matter of fact that certain expenses are related to collection of the exempt income, but however, we cannot remain oblivious of the fact that a major part of expenses viz. salary expenses, management expenses, miscellaneous expenses etc. would also be involved in management of the investment portfolio of the assessee, and taking of important decisions in respect of holding of the investments, who we find had made a substantial investment of Rs. 2,00,00,000/- in the UTI Master Value Fund. We find that the A.O had P a g e | 21 & 979/Mum/2014 AY: 2009-10 ACIT Vs. Kokan Merchantile Co-op. Bank Ltd. made a disallowance under Sec. 14A only under Rule 8D(2)(iii). We find no reason to dislodge the view of the CIT(A), who we find had upheld the disallowance of Rs. 1,00,000/- made by the A.O under Sec. 14A r.w. Rule 8D(2)(iii). We thus in terms of our aforesaid observations dismiss the Ground of Appeal No. 1 raised by the assessee before us.
We shall now take up the contention of the assessee that the CIT(A) had erred in not accepting and dismissing the ground of appeal pertaining to “Investment Depreciation Reserve” claim of the assessee amounting to Rs. 50,00,000/-. We find that the CIT(A) observed that the aforesaid claim of deduction of Rs 50,00,000/- on account of investment depreciation reserve was raised by the assessee for the first time before him, and was not taken up before the A.O at all. We further find that the claim of the assessee that it had raised the aforesaid issue in its letter dated 15.11.2011 was disproved by the CIT(A), who on a perusal of the aforesaid letter observed that no such claim was raised by the assessee before the A.O. We further find that notwithstanding the aforesaid facts, the CIT(A) observed that as even during the course of hearing of the appeal as the assessee had neither given any written submissions, nor furnished the details regarding the nature of such deduction and the basis of allowability of the same, therefore, the validity of the said claim of deduction having not be established by the assessee could not be ascertained, therefore, had for the said reason declined to accept the claim of the assessee in respect of deduction of Rs. 50,00,000/- on account of the investment depreciation reserves. Be that as it may, we find that the assessee had submitted before us that the issue under consideration is squarely covered by the judgment of the Hon’ble High Court of Bombay in the case of CIT Vs. Bank of Baroda (2003) 262 ITR 334 (Bom), wherein as averred by the Ld. A.R. the Hon‟ble High Court by upholding the P a g e | 22 & 979/Mum/2014 AY: 2009-10 ACIT Vs. Kokan Merchantile Co-op. Bank Ltd. order of the Tribunal had concluded that the assessee was entitled to deduction on account of depreciation in the value of the investments. We are of the considered view that as the assessee had not raised this claim before the lower authorities, nor the facts pertaining to the same emerges from the record, therefore, in all fairness we restore this matter to the file of the A.O for fresh adjudication. The A.O is directed to readjudicate the issue after deliberating on the facts involved in the case of the assessee, in the backdrop of the aforesaid judgment of the Hon’ble High Court of Bombay in the case of CIT Vs. Bank of Baroda (2003) 262 ITR 334 (Bom). Needless to say, the A.O shall during the course of the set aside proceedings afford reasonable opportunity of being heard to the assessee, who shall remain at a liberty to substantiate his aforesaid claim before the A.O. The Ground of Appeal No. 2 raised by the assessee is allowed for statistical purposes.
The appeal of the assessee is partly allowed in terms of our aforesaid observations.
The appeal of the assessee, viz. is partly allowed, while for the appeal of the revenue, viz. is dismissed, in terms of our aforesaid observations.
Order pronounced in the open court on 07.03.2018