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The Ahmednagar Merchants Co-operative Bank Limited Versus The Jt. Commissioner of Income Tax, Ahmednagar Range, Ahmednagar and vice-versa

Addition made on account of unclaimed liability appearing in the Balance Sheet - Held that:- The assessee continues to recognize the liability and once the liability has been so recognized by the assessee, there is no merit in treating the same as income of the assessee though some of the amounts may not be recoverable by application of provisions of Limitation Act. - Decided in favour of assessee

Addition on account of premium paid on Government securities - Held that:- The issue bef .....

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We, therefore, hold that Addition made on account of premium paid on investment in Government securities is to be deleted - Decided in favour of assessee

Allowability of broken period interest Held that:- There is no difference in the amount in tax, whether one adopts the assessee's method or the Department's method. Under either method, the same amount is offered for tax. The Department has not been able to show in this case as to why the method adopted by the assessee-bank ought to .....

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HMA CHOWLA, JM: The cross appeals filed by the assessee and Revenue are against the order of CIT(A)-IT/TP, Pune, dated 30.08.2013 relating to assessment year 2010-11 passed under section 143(3) of the Income Tax Act , 1961. 2. The Cross appeals filed by the assessee and the Revenue were heard together and are being disposed of by this consolidated order for the sake of convenience. 3. The assessee in ITA No. 1863/PN/2013 has raised the following grounds of appeal:- 1. That the learned CIT(Appeal .....

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eals) is contrary to law and to the facts and circumstances of the case. 2. The learned Commissioner of Income-tax (Appeals) grossly erred in deleting the addition of ₹ 22,69,144/- made by the Assessing Officer by disallowing the assessee's claim of deduction on account of premium paid on investment in Government Securities. 3. The learned Commissioner of Income-tax (Appeals) grossly erred in holding that as the assessee had made investment in the "Held to Maturity" securitie .....

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uction. Even in the Master Circular dated 01-07-2013 issued by the Reserve Bank of India, securities acquired by the banks "with the intention to hold them upto maturity" have been classified under HTM which clearly establish that these are capital assets. 5. The learned Commissioner of Income-tax (Appeals) grossly erred in failing to appreciate that the RBI guidelines only categorise the securities as AFS, HFT and HTM and do not deal with the accounting treatment of the premium paid b .....

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t or Rules, including the RBI guidelines, unless so specifically provided in the Income-Act, 1961. 7. The learned Commissioner of Income-tax (Appeals) grossly erred in deleting the addition of ₹ 22,12,817/- which had been made by the Assessing Officer by way of disallowing the assessee's claim of deduction on account of payment of broken, period interest on investment in the "Held to Maturity" securities. 8. The learned Commissioner of Income-tax (Appeals) grossly erred in fa .....

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erican Express International Banking Corporation Vs. CIT, 177 CTR (Mum) 442, without appreciating that the issue relating to "Held to Maturity" securities was not discussed in the above case. 10. The learned Commissioner of Income-tax (Appeals] grossly erred in presuming the correctness of the assessee's claim that interest on the impugned securities had been offered to tax as business income u/s.23 of the Income-tax Act, without calling for any details or evidences in support of t .....

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ions and, hence, the banks should comply "with the requirements of Incometax Authorities in the manner prescribed by them". 12. For these and such other grounds as may be urged at the time of the hearing, the order of the learned Commissioner of Income-tax (Appeals) may be vacated and that of the Assessing officer be restored. 13. The appellant craves leave to add, amend, alter or delete any of the above grounds of appeal during the course of the appellate proceedings before the Hon .....

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d liability under the head Sundries . The Assessing Officer show caused the assessee to substantiate its liabilities and their current status and why the same should not be written back as income for the year. In reply, the assessee pointed out that the said amounts represent the amounts of Demand Drafts which were purchased by the customers, but were not presented for clearing for more than six months. It was also clarified by the assessee that most of these entries were cleared in the succeedi .....

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he assessee on account of extinguishment of liabilities with respect to old entries. 7. The CIT(A) upheld the order of Assessing Officer since according to provisions of Limitation Act, the liability of the assessee was no longer enforceable. Reliance was placed on the ratio laid down by the Three Member Bench of Hon ble Supreme Court in CIT Vs. TVS Sundaram Iyengar and Sons Ltd. (1996) 222 ITR 344 (SC). 8. The assessee is in appeal against the order of CIT(A). 9. It was pointed out by the learn .....

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Delhi Bench of the Tribunal in Punjab National Bank Vs. ACIT (2012) 31 CCH 300 Del HC, for the proposition that the transactions between the branches account result in an income to the bank and no person can make profit by transacting with self. It was further pointed out by the learned Authorized Representative for the assessee that the said liability is being recognized by the assessee and consequently, the ratio laid down by the Chennai Bench of the Tribunal in ACIT Vs. Karur Vysya Bank Ltd. .....

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lanation with regard to the nature of said liability by the assessee before the authorities below was that the same represented the unclaimed Demand Drafts purchased by the customers, which have not been presented for clearing for more than six months. The said liabilities were being recognized by the assessee in accordance with the guidelines of the RBI. Further claim of the assessee was that part of the said amounts was adjusted in the subsequent years. However, sum of ₹ 1,17,446/- was t .....

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Once the liability has been shown and recognized by the assessee in its books of account, then even if the liability is unclaimed and relates to earlier years, does not convert it into the income of the assessee. Support in this regard is drawn from the ratio laid down by the Hon ble Supreme Court in CIT vs. Sugauli Sugar Works (P) Ltd. (supra). However, in case where the assessee on its own motion transfers the said receipts through its Profit & Loss Account, then on account of such act of .....

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s may not be recoverable by application of provisions of Limitation Act. We find support from the ratio laid down by the Chennai Bench of the Tribunal in ACIT Vs. Karur Vysya Bank Ltd. (supra) and Pune Bench of the Tribunal in ACIT Vs. People s Co-operative Bank Ltd., in ITA No.2197/PN/2012 relating to assessment year 2009-10, order dated 29.09.2013. Accordingly, we direct the Assessing Officer to delete the addition of ₹ 26,39,605/-. The grounds of appeal raised by the assessee are thus, .....

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it & Loss Account had debited a sum of ₹ 22,12,817/- as premium paid on investment in Government securities and had also paid broken period interest on investment on Government securities. The Assessing Officer show caused the assessee to explain as to why both the said amounts should not be treated as capital expenditure by the assessee. The assessee had claimed the amortization on HTM securities, which was rejected by the Assessing Officer as the said securities were held by the asse .....

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lowing the ratio laid down by the different Benches of the Tribunal including the Pune Bench of the Tribunal in Latur Urban Co-operative Bank Ltd. in ITA Nos.778 and 792/PN/2011, vide order dated 31.08.2012. Further, the addition made on account of disallowance of broken period interest of ₹ 22,12,817/- was also allowed in the hands of the assessee, in view of the ratio laid down by the Hon ble Bombay High Court in American Express International Banking Corporation Vs. CIT (2002) 177 CTR ( .....

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can Express International Banking Corporation Vs. CIT (supra). 17. The learned Departmental Representative for the Revenue placed reliance on the order of Assessing Officer. 18. We have heard the rival contentions and perused the record. The first issue arising in the present appeal filed by the Revenue is with regard to the allowability of amortization premium paid on HTM securities at ₹ 22,69,144/-. The Pune Bench of the Tribunal in assessee s own case in ITA No. 712/PN/2013, relating to .....

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he order in the case of Nagar Urban Co-operative Bank Ltd., in ITA No.306/PN/2012, wherein the Tribunal has decided the issue in favour of the assessee by observing as under: 4. We have heard the parties. We find that the issue before us is clearly covered in favour of the assessee by the decision of ITAT Pune Bench in the case of Latur Urban Co-op. Bank Ltd. in ITA No. 778 and 792/PN/2011, order dated 31-8-2012. The relevant discussion and finding of the Tribunal on the issue is as under. 13. S .....

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l loss and therefore, the same is not allowable expenditure. The A.O made the addition to the extent of ₹ 14,70,000/-. The Ld CIT(A) confirmed the addition. 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 (2003) 262 ITR 334 (Bom), the issue before their Lordship was whether the assessee was ent .....

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e the Hon ble High Court. The core issue was the method of valuation adopted by the assessee Bank for valuing the stock of the Securities. The Hon ble High Court followed the decision of Hon ble Supreme Court in the case of United Commercial Bank (Supra). 15. In the case of United Commercial Bank (Supra), even the issue of valuation of the stock in trade of the investment was before the Hon ble Supreme Court. In the case of the assessee, the issue is regarding allowability of the loss on the sal .....

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de. Both the authorities below have merely gone on the nomenclature of the head under which the Securities are held. In our considered view, nomenclature cannot be decisive for the assessee Bank. We, therefore, hold that the loss on the sale of the Securities is revenue in nature and same is allowable. Accordingly, Ground No. 2 is allowed . 2.1 Moreover, the said issue is also decided in favour of the assessee by other co-ordinate Bench in the following cases: i) Decision of Bangalore Bench of t .....

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paid on Govt. Securities of ₹ 23,13,525/- debited to Profit and Loss Account, as per RBI guidelines has to be allowed being expenses incurred during the course of business of banking, Assessing Officer is directed accordingly. 19. The issue arising before us is similar to the issue before the Tribunal in assessee s own case in assessment year 2009-10 and following the same parity of reasoning, we uphold the order of CIT(A) in allowing the deduction on account of amortization premium paid .....

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d when the said securities were held by the several banks were claimed as deduction as the said amount was due to the said holders of the securities. Consequently, the assessee made a claim of deduction on account of broken period interest, which was not allowed in the hands of the assessee. However, the Hon ble Bombay High Court in American Express International Banking Corporation Vs. CIT (supra) held as under:- 9. The Department has taxed broken period interest received as business income. Bu .....

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t GOI 1980, the purchase price was ₹ 4,92,000 and the interest on purchase was ₹ 5,871.53, which was debited to Interest Receivable Account. However, the security was purchased for ₹ 4,92,000, which was debited to Asset Account. The face value of the security receivable on redemption was ₹ 5 lakhs. This difference of ₹ 8,000 has been accounted for by the bank on a monthly basis. The date of purchase was 11th Aug., 1976. The date of redemption was 12th May, 1980, and .....

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n increased, has been offered for tax on accrual basis in the appropriate assessment years during which the assessee held the security i.e. for the year ending 31st Dec., 1976, ₹ 829.03; for the year ending 31st Dec., 1977, ₹ 2,131.80; and for the year ending 31st Dec., 1978, ₹ 1,806, According to the Department, profit on sale of security comes to ₹ 9,857,64 during the asst. yr. 1977-78. This is calculated on the basis that broken period interest payment was towards the .....

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en able to explain as to why broken period interest received should be taxed whereas broken period interest payment should be disallowed. In the circumstances, the order of the Tribunal is upheld. 10. The amount which the assessee received has been brought to tax under the head "Business" under s.28. The amount is not brought to tax under s. 18 of the IT Act. After bringing the amount to tax under the head "Business", the Department taxed the broken period interest received o .....

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