ASSISTANT COMMISSIONER OF INCOME-TAX vs. HUTATMA SAHAKARI BANK LTD.,, SANGLI

आदेश / ORDER

PER ANIL CHATURVEDI, AM :

This appeal filed by the Revenue is emanating out of the order of 1. Commissioner of Income Tax (A) – 1, Kolhapur dt.08.03.2016 for the assessment year 2011-12.

2.1 Assessee is a co-operative bank stated to be engaged in the business of banking. Assessee electronically filed its return of income

for A.Y. 2011-12 on 27.09.2011 declaring total income of

Rs.68,27,391/-. The case was selected for scrutiny and thereafter

assessment was framed u/s 143(3) of the Act vide order dt.28.03.2014

and the total income was determined at Rs.1,39,89,101/-. Aggrieved

by the order of AO, assessee carried the matter before Ld.CIT(A) who

vide order dt. 08.03.2016 (in appeal No.SLI/175/14-15) decided the

issue in favour of the assessee. Aggrieved by the order of Ld.CIT(A),

Revenue is now in appeal before us and has raised the following

grounds :

“1. On the facts and in the circumstances of the case and in Law, the CIT(A) erred in deleting the addition of Rs.50,83,585/- on account of provisions for depreciation on securities Held to Maturity (HTM). 2. On the facts and in the circumstances of the case, it can be seen that the CIT(A) has not brought on record any facts to show that the securities categorized as "Held to Maturity" were shifted to the category of "Available for Sale" or "Held for Trading" by giving effect in Audited Accounts and Notes on accounting policy. 3. The CIT(A) erred in ignoring that assessee during the course of assessment proceedings and in Statement of Facts claimed' that the investment were of the nature of HTM category. The CIT (A), without providing opportunities to the Assessing Officer, as per Rule 46A(3) of I.T. Rules, 1962, admitted change of stand that investment in securities were 'AFS' category. 4. On the facts and in the circumstances of the case, the CIT(A) erred in allowing the deduction in the form of provision for depreciation, without examining the market value and its basis of valuation at the end of relevant financial year.”

Revenue has raised various grounds but all the grounds are inter-

connected and are on a single issue.

assessee had claimed Rs.50,83,585/- as provision for depreciation on

HTM Securities. The assessee was asked to explain as to why the

depreciation claimed should not be disallowed in view of the decision

of Hon’ble Karnataka High Court in the case of CIT Vs. ING Vysya

Bank Ltd reported in 356 ITR 532. Assessee inter-alia submitted that

HTM Securities have been held by the assessee as investments and

not as stock-in-trade and it has proportionately amortized the

premium actually paid at the time of purchase of securities above the

face value till the year of maturity. The submission of the assessee

was not found acceptable to the AO as he was of the view that HTM

securities are not held for trading and are investments held till

maturity and therefore they are capital in nature. AO was therefore of

the view that any increase or decrease in the value of these

investments cannot be marked to market and no depreciation can be

claimed thereof. He therefore, following the decision of Hon’ble

Karnataka High Court in the case of ING Vysya Bank Ltd., (supra)

disallowed the claim of depreciation on HTM Securities of

Rs.50,83,585/-. Aggrieved by the order of Ld.CIT(A), Revenue carried

the matter before Ld.CIT(A), who decided the issue by holding as

under :

“10. In this ground of appeal the appellant has raised the issue of depreciation on investments made by the bank and held under the Available for Sale (AFS) category. However, it is seen that the appellant has claimed the said securities as held under Held to Maturity (HTM) category at the time of assessment and while making representation before the assessing officer. However, during the appellate proceedings, realizing their mistake, the authorized representative of the appellant has brought to my attention that said securities were held under AFS category and not under HTM category. 11. I have gone through the assessment order and the submission made before me along with necessary evidences. It can be seen from all the documents laid before me that the impugned securities were held by the bank under AFS category and not HTM category. These securities in question have been shifted vide a resolution of the Board

of Directors of the bank during the financial year 2010-11 relevant to assessment year 2011-12. It can be seen from the RBI circular enclosed that the bank was allowed to shift to and from HTM category and that they were to be shifted at the amortized cost. The authorized representative of the appellant has submitted in their submission that the misrepresentation before the assessing officer was on account of oversight. Further, the assessing officer has also not verified the nature of the securities in question while completing the assessment.”

Aggrieved by the order of Ld.CIT(A), Revenue is now in appeal before

us.

out that before AO it was assessee’s stand that the investments were

held as HTM Securities whereas before Ld.CIT(A), it was assessee’s

submission that the securities were held under AFS category and not

as HTM category and the miss-representing before the AO was on

account of oversight. He pointed to the observations of Ld.CIT(A),

wherein it was noted by Ld.CIT(A) that the AO has not verified the

nature of securities in question while completing the assessment. He

further submitted that no opportunity was granted to the AO during

the Appellate Proceedings and no remand report was called for by

Ld.CIT(A). He therefore submitted that the principles of natural

justice demands that an opportunity be granted to the AO and the

matter be remitted to AO. Ld.A.R. did not controvert the submissions

made by Ld.D.R. but however supported the order of Ld.CIT(A).

on record. The issue in the present ground is with respect to allowing

the depreciation on investments. It is an undisputed fact that before

AO assessee submitted that the securities were held under HTM

category but before Ld.CIT(A) assessee’s contention was that the

securities were held under AFS category. No submissions were made

by assessee before AO that the Securities were held by it under AFS

category and consequently there is no finding of the AO on it. We

find that Ld.CIT(A) has also noted that the AO has not verified the

nature of securities while completing the assessment. We further find

that no remand report was called for by Ld.CIT(A) and he had relied

on the evidence filed by assessee while deciding this issue. In view of

the aforesaid facts, we are of the view that following the principles of

natural justice, AO should be granted an opportunity to examine the

evidences submitted by assessee before Ld.CIT(A). We therefore remit

the ground to the file of AO and direct him to decide the issue after

considering the evidences and submissions of assessee in accordance

with the law. Needless to state that AO shall grant reasonable

opportunity of hearing to the assessee. With these directions, we

restore the issue to the file of AO. Thus, the grounds of the

Revenue are allowed for statistical purposes.

statistical purposes.

Order pronounced on 15th day of March, 2018.

Sd/- Sd/- (VIKAS AWASTHY) (ANIL CHATURVEDI) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER

पुणे Pune; �दनांक Dated : 15th March, 2018. Yamini

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent 3. CIT(A)-1, Kolhapur / CIT(A) concerned. 4. The Addl.CIT / Jt.CIT / CIT concerned. 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “बी” / DR, 6. ITAT, “B” Pune; गाड� फाईल / Guard file.

आदेशानुसार/ BY ORDER

// True Copy //

व�र�ठ �नजी स�चव / Sr. Private Secretary आयकर अपील�य अ�धकरण ,पुणे / ITAT, Pune.