TMI Blog2014 (1) TMI 1696X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the CIT(A) to the effect that the amalgamation in question is not by way of purchase but is an amalgamation by merger, in our view, is no ground to deny the claim of the assessee, which is otherwise well founded. - Decided in favour of assessee Securities held under Held to Maturity (HTM) category - whether constitute its stock-in-trade and the consequential loss on valuation of the said securities as on 31.03.2007 on the basis of cost or market value whichever is lower (on the basis of individual scrip) is an allowable deduction? - Held that:- So far as securities held under HTM categories are concerned, the Pune Bench of the Tribunal in the case of Latur Urban Coop. Bank Ltd. (2015 (3) TMI 920 - ITAT PUNE ) held that such securities held by an assessee bank are part of its stock-in-trade. Following the aforesaid decision we are unable to uphold the plea of the Revenue that the securities held by the assessee under the HTM category are capital in nature. Both the authorities below has merely gone on the nomenclature of the head under which the Securities are held. Thus nomenclature cannot be decisive for the assessee Bank. We, therefore, hold that the loss on the sale of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and a consolidated order is being passed for the sake of convenience and brevity. 2. The appeal for assessment year 2007-08 is directed against an order of the Commissioner of Income Tax (Appeals)-III, Pune dated 31.03.2011 which, in turn, has arisen from an order dated 29.12.2009 passed by the Assessing Officer u/s 143(3) of the Income-tax Act, 1961 (in short the Act ). 3. In this appeal, assessee has raised the following Grounds of Appeal :- 1. The Learned C.I.T. (A) III of Income Tax was not justified in rejecting the appellant bank's claim in respect of Loss of Investment in Apex urban Cooperative Bank of Maharashtra Goa to the tune of ₹ 2,77,90,000.00. The Bank had to provide for the loss as Investment Dimunition Reserve as per the directions of RBI. The claim of the assessee should be allowed in view of the binding nature of the RBI instructions. 2. The Learned C.I.T. 2( A) III of Income Tax was not justified in disallowing the claim on account of merged banks losses of ₹ 2668.13 lacs on the ground that the same is not a business loss on revenue account. The claim of the appellant bank be granted as it is a well established law that profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.1 raised by the assessee is with regard to a sum of ₹ 2,77,90,000/- representing loss on account of dimunition in the value of shares held in Apex Urban Co-operative Bank of Maharashtra held by the assessee. The Assessing Officer 3a s well as the CIT(A) have disallowed the loss on the ground that it is only a notional loss and not allowable deduction under the Act. The said Ground has not been pressed before us at the time of hearing and the same is accordingly dismissed as Not Pressed . 6. The Ground of Appeal Nos. 2 and 3 are in relation to a sum of ₹ 2668.13 lacs which was claimed as loss on account of takeover of four banks by the assessee by way of merger. In this regard, the relevant facts are that during the year under consideration, assessee had taken-over four banks, namely, Annapurna Mahila Sahakari Bank Ltd., Hyderabad, Manasa Coop. Urban Bank Ltd., Hyderabad, Co-op. Bank of Ahmedabad Ltd., Ahmedabad and Unnati Coop. Bank Ltd., Vadodara in terms of the respective schemes of merger as per the approvals of the Reserve Bank of India. The assessee took over the business properties, assets and liabilities of the four banks in terms of the respective schemes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abilities and such takeover included huge client base alongwith the fully functional branches of the respective banks which provided the assessee bank with easy and immediate access to the money markets of the localities where the merged banks were functioning. Thus, assessee bank was saved the hassle of getting licenses for opening new branches and that too in different States. It was, therefore, pointed out that the impugned sum, being consideration paid on account of excess of liabilities of the merged banks over the realizable values of the assets taken-over of such banks, was nothing but a consideration paid towards various business advantages derived by the assessee on account of merger of banks, and the same is liable to be treated as an intangible asset within the mea5n ing of section 32(1)(ii) of the Act. In support, reliance has been placed on the judgment of the Hon ble Delhi High Court in the case of Areva T D India Ltd. Ors. vs. DCIT, (2012) 345 ITR 421 (Delhi) and also the decision of the Hyderabad Bench of the Tribunal in the case of SKS Micro Finance Ltd. vs. DCIT, (2013) 37 taxmann.com 192 (Hyderabad Trib.). The learned counsel referred to the scheme of mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns, exemptions, waivers of all kinds and wheresoever situate belonging to, or enjoyed by the Transferor Bank have been taken-over by the assessee. The liabilities taken-over mean all debts, demand deposits, saving bank deposits, term deposits, Time and Demand liabilities, rupee borrowings, bills payable, interest accrued, capital reserves and surpluses, whether statutory or not and all other liabilities including contingent liabilities, duties, undertakings and obligations of the Transferor Banks have been taken by the assessee. In-fact, the scheme specifically provides that all the licenses/registrations of the bank or its branches etc. issued by Reserve Bank of India or any authority of the State/Central Government or other authorities concerned, etc. stand transferred to the assessee Bank. Similar is the position with regard to the liabilities of the Transferor Bank including the savings bank account or current bank account or any other deposits of the customers. The scheme also envisaged taking over of all the employers of the Transferor Bank who wished to continue in service. In sum and substance, assessee bank took over the entire business apparatus of the Transferor Bank, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e values of the assets taken-over does not represent payment for any business or commercial rights is untenable. In-fact, the impugned sum reflects the amount paid by the assessee over and above the net worth of the banks which have been taken over, which ostensibly is a reflection of the value of the aforesaid intangible advantages obtained by the assessee. Such advantages are to be considered in the nature of business or commercial rights of similar nature specified in section 32(1)(ii) of the Act, having regard to the parity of reasoning laid down by the Hon ble Delhi High Court in the case of Areva T D India Ltd. Ors. (supra). In the case of SKS Micro Finance Ltd. (supra), assessee acquired a running business under a slump sale agreement and the consideration paid included, sum paid for acquiring the client base of the transferor. The acquisition of rights over the assets of the transferor, inclusive of its customers base was held to be an intangible asset being business or commercial rights of similar nature contemplated in section 32(1)(ii) of the Act and was held eligible for depreciation. Following the aforesaid discussion, in the present case, the business advant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld the plea of the Revenue that the securities held by the assessee under the HTM category are capital in nature. The following discussion in the order of the Tribunal in the case of Latur Urban Coop. Bank Ltd. (supra) is relevant :- 14. We have heard the parties. The Ld Counsel placed his heavy reliance on the decision of the Hon'ble High Court of Bombay in the case of CIT Vs. Bank of Baroda and in the case of UCO Bank Vs. CIT, 240 ITR 355 (SC). In the case of Bank of Baroda (Supra), the issue before their Lordship was whether the assessee was entitled for deduction on account of depreciation in the value of investments. The method of valuation followed by the assessee Bank was to value investments at cost or market value whichever was lower. The assessee had claimed the depredation to the tune of ₹ 11,82,35,007/- and the said depreciation was claimed as a deduction which was disallowed by the A.O,1 0but the assessee Bank succeeded before the CIT(A). The Tribunal confirmed the order of the CIT(A). The Revenue carried the issue before the Hon'ble High Court. The core issue was the method of valuation adopted by the assessee Bank for valuing the stock of the Secur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed the same on the ground that it was only a contingent liability which cannot be allowed. The CIT(A) has also sustained the disallowance following the judgment of the Hon ble Supreme Court in the case of Southern Technologies Ltd. vs. JCIT, (2010) 320 ITR 577 (SC). 22. Factually, it is not in dispute that the impugned claim is a contingent Provision made on the basis of a percentage on the value of standard assets. The Provision does not reflect any particular debt which is doubtful or bad and it is only a general and non-specific Provision and it has been rightly classified as a contingent provision by the income-tax authorities. In-fact, the learned counsel for the assessee, at the time of hearing, fairly conceded the contingent nature of the provision and therefore the lower authorities made no mistake in disallowing the same in view of the judgment of the Hon ble Supreme Court in the case of Southern Technologies Ltd. (supra). Accordingly, the aforesaid Ground of Appeal raised by the assessee is dismissed. 23. In the result, the appeal of the assessee for assessment year 2007-08 is partly allowed. 24. Now, we may take-up the appeal for assessment year 2008-09, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned C.I.T. (A) III of Income Tax was not right legally as well as factually in holding that Sec 43 D applies to the appellant bank. The Learned C.I.T. (A) III of Income Tax has overlooked the fact that the appellant bank being a scheduled bank, the RBI directions should be applied to identify the Doubtful Debts as prescribed u/s 43D. lt is therefore prayed that addition sustained on account of Sec 43 D may be quashed being illegal and devoid of any merit. 26. It was a common point between the parties that the Grounds of Appeal Nos. 1, 2, 3, 4 and 5 raised in assessment year 2008-09 are pari-materia to the Grounds of Appeal Nos. 2, 3, 4, 5 and 6 considered by us in the earlier paragraphs in relation to the assessment year 2007-08. Therefore our decision on such Grounds of Appeal in assessment year 2007-08 would apply mutatis-mutandis on these Grounds of Appeal also and as a result (i) Ground of Appeal No. 1 is dismissed as Not Pressed ; (ii) Ground of Appeal Nos. 2 and 3 are allowed; and, (iii) Ground of Appeal Nos. 4 and 5 are dismissed. 27. The last Ground remaining in this appeal by way of Ground of Appeal No. 6 relates to a disallowance of ₹ 5,12,75,445/- made ..... X X X X Extracts X X X X X X X X Extracts X X X X
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