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Nagar Urban Co-op. Bank Ltd. Versus. The Jt. Commissioner of Income Tax & The Asstt. Commissioner of Income Tax,

2015 (5) TMI 1029 - ITAT PUNE

Addition on account of unclaimed liability - Held that:- Smilar issue of recognition of unclaimed liability and its non-taxability arose before the Pune Bench of the Tribunal in The Ahmednagar Merchants Co-operative Bank Ltd. vs. JCIT [2015 (4) TMI 1088 - ITAT PUNE] wherein held 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. As the .....

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f the assessee in the course of its trading transactions. - Decided in favour of assessee

Partial addition on account of the balance shown in the suspense account - Held that:- Reliance on the ratio laid down by the Chennai Bench of the Tribunal in ACIT vs. Karur Vysya Bank Ltd., (2013 (11) TMI 923 - ITAT CHENNAI) wherein it was held that the unclaimed balance and surplus of jewellery auction could not be added to the income of the assessee - Decided in favour of assessee

A .....

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lature cannot be decisive for the assessee Bank. 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

Addition made on account of payment of broken period interest on investment held in the HTM securities - 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 .....

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y the assessee with Madhavpura Mercantile Cooperative Bank Ltd. and in view of the financial strain faced by the said Bank and also because of the advice of the Auditors, whether provision of such NPA investment is to be allowed as business loss in the hands of the assessee or as capital loss. Since the issue has not been considered in total perspective and following the principles of natural justice, we are of the view that the matter be remitted back to the file of the Assessing Officer, who s .....

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ssessee 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 Revenue were heard together and are being disposed of by this consolidated order for the sake of convenience. 3. The assessee in ITA No.1861/PN/2013 has raised the following grounds of appeal:- 1. That the learned CIT(Appeals)IT/TP Pune has erred on the facts and in law in confi .....

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claimed dividend. That the addition made by A.O on account of unclaimed dividend and confirmed by CIT(A)IT/TP Pune may be deleted. 3. That the learned CIT(Appeals) IT/TP Pune has erred on the facts and in law in not allowing full relief for total addition made of ₹ 32,03,254/- under the head balances in suspense account shown in balance sheet, allowed only partial relief of ₹ 12,31,141/- and confirmed the addition of ₹ 19,72,113/-. That the addition of ₹ 19,72,113/- made .....

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₹ 10,00,000/- 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" securities in accordance with the RBI guidelines to carry on the business of banking, amortization of the premium paid on such securities Has the element of revenue expenditure .....

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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 categorize the securities as AFS, HFT and HTM and do not deal with the accounting treatment of the premium paid by the assessee on such securities; and, therefore, it was erroneous on the part of the learned Commissioner of Income-tax (Appeals) to treat such premium as reve .....

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ly erred in deleting the addition of ₹ 40,41,408/- 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 failing to appreciate that as the HTM securities are in the nature of investments, and not stock-in-trade, the same partake the nature of capital assets and, i .....

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urities 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.28 of the Income-tax Act, without calling for any details or evidences in support of the above claim. 11. The learned Commissioner of Income-tax (Appeals) grossly erred in not taking cognizance of the fact that even in the Master Circular issu .....

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sioner of Income-tax (Appeals) grossly erred in deleting the addition of ₹ 1,30,93,000/- towards the assessee's claim in respect of "provision for NPA investment in Madhavpura Mercantile Co-operative Bank Ltd." without in any manner examining the report dated 24.02.2010 of the RBI Auditors and also by applying the decisions in the cases of Bharat Earth Movers Ltd. vs. CIT (2000) 245 ITR 428 (SC) and Rotork Controls India (P) Ltd. Vs. CIT (2009), 314 ITR 62 (SC), which had bee .....

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ve for the assessee, at the outset, pointed out that the issue raised in the present cross-appeals is covered by different decisions of the Tribunal and the order of the Hon ble Bombay High Court in CIT vs. HDFC Bank Ltd., (2014) 89 CCH 0185 Mum-HC. 6. The Ld. Departmental Representative for the Revenue placed reliance on the orders of the CIT(A) and Assessing Officer respectively. 7. Briefly, the facts of the case are that the assessee was a co-operative bank engaged in the carrying on the busi .....

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is regard, the Assessing Officer was of the view that the amounts of unclaimed liability had become barred by time and hence income on that account had to be recognized in the hands of the assessee. The addition of ₹ 29,58,672/- was made on this account. Further, addition of ₹ 32,03,254/- was made on similar ground on account of amounts lying in the suspense account. Another addition made in the hands of the assessee was on account of credits in the Reserve Fund Account of ₹ 68 .....

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eneral Reserve account, as per the Assessing Officer, had acknowledged the extinguishment of such liabilities and also acknowledged the income characteristic of the said amounts and the said credits were held to be income of the assessee and addition of ₹ 68,42,624/- was made in the hands of the assessee. 8. Another addition made in the hands of the assessee was on account of investment in Government securities i.e. premium amortized by the assessee in view of the RBI Guidelines in respect .....

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s that the said claim was that as per the audit conducted by the RBI, the said amount was directly debited to the Profit & Loss Account being loss in investment and the amount was not claimed as provision for NPA investment. The Assessing Officer was of the view that the amount debited by the assessee was clearly a provision and not determined and hence the same was disallowed and added back to the income of the assessee. 9. In appeal, the CIT(A), in turn, relying on the ratio laid down by t .....

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the expenditure debited on account of NPA investment in Madhavpura Mercantile Co-operative Bank Ltd.. The CIT(A), however, upheld the addition made by the Assessing Officer on account of unclaimed liability of ₹ 29,58,672/- and also on account of credit to Reserve Fund Account of ₹ 68,42,624/-. The CIT(A) further upheld the addition of ₹ 51,43,594/- on account of unclaimed dividend but in respect of the outstanding balance in the suspense account of ₹ 32,03,254/-, the CI .....

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d liability was on account of unclaimed DDs issued by the Bank, which were not presented in the Bank. 12. We find that similar issue of recognition of unclaimed liability and its nontaxability arose before the Pune Bench of the Tribunal in The Ahmednagar Merchants Co-operative Bank Ltd. vs. JCIT vide ITA No.1863/PN/2013 and Other relating to assessment year 2010-11, order dated 29.04.2015, it was held as under :- 11. We have heard the rival contentions and perused the record. The assessee bank i .....

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ssessee was that part of the said amounts was adjusted in the subsequent years. However, sum of ₹ 1,17,446/- was the amount pertaining to current year, which was paid in the succeeding year, hence the same amount was not added in the hands of the assessee and an addition of the balance amount of ₹ 26,39,605/- was made in the hands of the assessee on the premise that in view of the provisions of Limitation Act, there was no liability on the assessee to pay the said amounts. The issue .....

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see on its own motion transfers the said receipts through its Profit & Loss Account, then on account of such act of the assessee itself, the amount changes its character and becomes assessee s own money and the same is to be treated as income of the assessee as per the ratio laid down by the Hon ble Supreme Court in CIT Vs. TVS Sundaram Iyengar and Sons Ltd. (supra). However, in the facts of the present case, the assessee continues to recognize the liability and once the liability has been s .....

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Assessing Officer to delete the addition of ₹ 26,39,605/-. The grounds of appeal raised by the assessee are thus, allowed. 13. The issue arising in ground of appeal No.1 is identical to the issue before the Pune Bench of the Tribunal and following the same parity of reasoning, we direct the Assessing Officer to delete the addition of ₹ 29,58,672/-. The ground of appeal No.1 raised by the assessee is, thus allowed. 14. The second issue in ground of appeal No.2 raised by the assessee i .....

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unal and it was held as under :- 5. We have carefully considered the rival stands and find no merit in the stand of the Revenue. Quite clearly, the dividend is paid by the bank out of tax paid profits. Dividends are declared out of such profits and is to be understood as an apportionment of income. If for any reason, the dividend so declared is not actually disbursed and were to be added back to the taxable income, it would mean a double taxation. Therefore, there is no justification for taxing .....

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undaram Iyengar and Sons Ltd. (supra) is concerned, the same is quite misplaced. In the case before the Hon ble Supreme Court, assessee had received deposits in the course of his business which were originally treated as capital receipt. Some of the deposits were neither claimed nor returned to the depositors. Such unreturned and unclaimed deposits were taxed by the Revenue, which was upheld by the Hon ble Supreme Court. As per the Hon ble Supreme Court, by lapse of time, the claim of deposits b .....

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the Hon ble Supreme Court in CIT vs. TVS Sundaram Iyengar and Sons Ltd., (1996) 222 ITR 344 (SC) and in view of the order of the Tribunal in Ahmednagar Shahar Sahakari Bank Ltd. vs. ACIT (supra) wherein similar reliance was placed by the CIT(A) on the judgement of the Hon ble Supreme Court, we find no merit in the order of the CIT(A) where the unclaimed dividend was not established to be a receipt of the assessee in the course of its trading transactions. Following the same parity of reasoning, .....

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n were against gold and when the loan was not cleared within the time, the gold pledged with the bank was auctioned. On many occasions, the realization amounts were much more than the loan amounts. The excess amount so received was kept in the suspense account. The plea of the assessee before the lower authorities was that the excess so received was not the income of the assessee bank but the same were in the nature of deposit and had to be returned to the person whose gold was pledged to the ba .....

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t represented bank s liability but since it had remained unpaid for a long time, it ceased to be liability and following the ratio laid down by the Hon ble Supreme Court in CIT vs. TVS Sundaram Iyengar and Sons Ltd. (supra), the CIT(A) upheld the addition of ₹ 19,72,113/- on account of unclaimed liability. We find that the issue of the outstanding balance in suspense account to the extent of ₹ 19,72,113/- is a liability recognized by the assessee bank in its books of account. The exc .....

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the assessee vis-à-vis the same. We find no merit in the order of the Assessing Officer in holding the said addition of ₹ 19,72,113/- as income of the assessee. Accordingly, we direct the Assessing Officer to delete the addition of ₹ 19,72,113/-. 19. The Ld. Authorized Representative for the assessee in this regard had placed reliance on the ratio laid down by the Chennai Bench of the Tribunal in ACIT vs. Karur Vysya Bank Ltd., (2013) 35 CCH 0348, wherein it was held that the .....

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₹ 10,00,000/-. 22. We find the similar issue of amortization of premium paid on investment in HTM securities arose before the Tribunal in The Ahmednagar Merchants Cooperative Bank Ltd. vs. JCIT (supra) and the claim of the assessee was allowed holding as under :- 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 .....

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ned Authorized Representative pointed out that this issue is covered in favour of assessee by the 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 .....

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rity category and, therefore, loss arising on the sale of investment is in the nature of capital 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 Ba .....

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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 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 .....

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ble High Court has held that the securities held by the Bank are in the nature of stock-in-trade. 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 .....

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ee. 2.1 Facts being similar, so following the same reasoning, we hold that amortization premium 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, w .....

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um paid on HTM securities at ₹ 10,00,000/-. The grounds of appeal No.2 to 6 raised by the Revenue are thus, dismissed. 24. The issue in grounds of appeal No.7 to 11 is against the deletion of addition made by the Assessing Officer on account of payment of broken period interest on investment held in the HTM securities. 25. In this context, the brief facts relating to the issue are that the assessee had claimed the said deduction on account of holding the securities for part of the previous .....

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l Banking Corporation vs. CIT (supra) held as under :- 20. The second issue raised by the Revenue vide grounds of appeal Nos.9 to 11 vis-à-vis the allowability of broken period interest. The bank in the course of carrying on its business had acquired certain securities, on which interest was due. However, since the assessee was holding the said securities for part of the accounting period, the interest due on the said securities for the period when the said securities were held by the sev .....

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for broken period interest at the time of purchase of the security. Once the Department seeks to assess broken period interest under the head "Business", then the Department could not have rejected the impugned adjustment in the method of accounting adopted by the bank unless the Department was in a position to prove that the method adopted by the bank did not disclose the true and proper income. Now, when the assessee bought 4-3/4 per cent GOI 1980, the purchase price was ₹ 4,92 .....

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above, the difference was ₹ 8,000 between the face value and the amount paid for the security. This difference of ₹ 8,000 has been accounted for by the bank on a monthly basis. If one totals up ₹ 118.43, ₹ 7,816-60 and ₹ 64.97, then the resultant figure is ₹ 8,000. Accordingly, the difference of ₹ 8,000 is accounted for in the Profit On Revaluation Account. The amount, by which value of the security has been increased, has been offered for tax on accrua .....

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according to the Department, profit on sale of security, which ought to be taxed, was ₹ 9,857.64. 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 be rejected. On the other hand, the Department has not been able to explain as to why broken period inte .....

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period interest payment at the time of purchase and this led to the dispute. Having assessed the amount received by the assessee under s. 28, the only limited dispute was-whether the impugned adjustments in the method of accounting adopted by the assessee-bank should be discarded. Therefore, the judgment in Vijaya Bank's case has no application to the facts of the present case. Contention that even if the securities were treated as part of the trading assets, the income therefrom had to be .....

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sessed the income under s. 28, the Department ought to have taxed interest for broken period interest received and the Department ought to have allowed deduction for broken period interest paid. 21. Applying the ratio laid down by the Hon ble Bombay High Court in American Express International Banking Corporation Vs. CIT (supra), we find no merit in the order of Assessing Officer in this regard. Upholding the order of CIT(A), we dismiss the grounds of appeal Nos.9 to 11 raised by the Revenue. 26 .....

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investment in Madhavpura Mercantile Co-operative Bank Ltd.. 28. The brief facts relating to the issue are that the assessee for the year under consideration had made provision of ₹ 1,30,93,000/- towards NPA investment in Madhavpura Mercantile Co-operative Bank Ltd.. The said provision was added back in the statement of computation of income and the assessee was show-caused to explain as to why the same should not be disallowed and added back to the total income. In reply, the assessee subm .....

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evenue is in appeal. 30. On the perusal of the record, we find that assessee had tied-up with Madhavpura Mercantile Co-operative Bank Ltd. since 1989 and the transactions between the two were smoothly going on. As on 25.08.2005 the bank balance with Madhavpura Mercantile Co-operative Bank Ltd. was ₹ 1,42,50,884/- in the form of fixed deposit. However, due to liquidity crunch and unethical practices followed by the Madhavpura Mercantile Co-operative Bank Ltd., the RBI initiated proceedings .....

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uently, the license of Madhavpura Mercantile Cooperative Bank Ltd. was also cancelled which resulted into actual loss of investment for the bank. The plea of the assessee before us was that the same was ascertained loss and it resulted into actual loss of investment for the assessee bank. The finding of the CIT(A) in this regard was that though the amount has nomenclature of investment but it was a revenue field. The loss of such investment as per the CIT(A) would be a revenue loss and not capit .....

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to 52 of the Paper Book, it transpires that in the details of sundries (liabilities) as on 31.03.2010, the assessee had included the loss for investment amounting to ₹ 1,30,93,000/-. The total of the sundries (liabilities) of ₹ 6,81,79,808/- has been shown as liability by the assessee in its Balance Sheet under the head other liabilities . The assessee, on the other hand, in the Profit & Loss Account for the financial year 2009-10 had booked the expenditure on account of provisi .....

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