Case Law Details
Maninagar Co. Op. Bank Ltd. Vs DCIT (ITAT Ahmedabad)
Introduction: This article dissects the case of Maninagar Co. Op. Bank Ltd. versus DCIT, as adjudicated by ITAT Ahmedabad for Assessment Year 2012-13. The primary concern revolves around the disallowance of depreciation claimed by the bank on Government Securities. Despite the continuous assertion by the bank that these were Available for Sale (AFS) securities, the Revenue authorities insisted on categorizing them as Held to Maturity (HTM), leading to the disallowance.
Detailed Analysis:
The bank, in computing its income, claimed depreciation of Rs. 4,68,391/- on Government Securities amounting to Rs. 8,23,72,763/-. The contention was that these securities were classified as AFS as per RBI guidelines, allowing depreciation based on their market value or cost at the year-end.
Despite the bank furnishing affidavits and reiterating the AFS classification, the Revenue authorities consistently labeled the securities as HTM. The disallowance was grounded in the belief that HTM securities could only be valued at cost, as per RBI guidelines.
The Ld. CIT(A) upheld the disallowance, citing RBI’s mandate for banks to keep a maximum of 25% of their securities in HTM category. However, the Ld. CIT(A) failed to establish how this justified categorizing all the securities as HTM.
Courts have consistently ruled in favor of allowing depreciation on AFS securities. The Ld. CIT(A) disregarded the bank’s continuous assertion and brushed aside the RBI classification as irrelevant.
The critical fact of determining the securities’ classification as AFS or HTM or HFT, pivotal for deciding the depreciation claim’s allowability, has been neglected by the authorities. The article argues for a reevaluation by the Assessing Officer to ascertain the correct classification before deciding the depreciation claim’s fate.
Conclusion: The ITAT Ahmedabad, recognizing the oversight in determining the securities’ classification, directs the issue back to the Assessing Officer. The bank’s continuous assertion of AFS classification and adherence to RBI guidelines should be thoroughly examined before dismissing the depreciation claim. This article provides an in-depth analysis of the case, shedding light on the intricacies of depreciation disallowance on Government Securities for Maninagar Co. Op. Bank Ltd. against DCIT.
Counsel for the assessee pointed out that despite the assessee repeatedly asserting the fact that these were AFS securities and even furnishing affidavit to this effect, the Revenue authorities consistently held the securities to be in the nature of HTM, Held to maturity, and noting that these could only be valued at their cost as per RBI guidelines, had disallowed the claim of depreciation on them.
At this juncture Ld. D.R. was asked as to whether there was any basis with the Revenue authorities for holding that these securities were HTM securities, to which none was pointed out to us from the orders of the authorities below
Considering the above, we find that the vital fact for determining the allowability of claim of depreciation on securities has not been determined by the authorities below. That though the assessee has been continuously asserting that the securities were AFS securities and had even furnished an affidavit for this purpose, the Revenue authorities for no logical reason or basis have held the securities to be HTM securities. The Ld.CIT(A) has brushed aside the assesses contention stating merely that RBI has mandated part of the securities maximum upto 25% to be kept in HTM category. How this establishes that the impugned securities in the present case were all categorized as HTM, we fail to understand. We are given to understand that though for the purposes of preparing the financial statement of the assesse, this classification of securities as required by RBI, is not to be disclosed therein but for RBI purposes, records of the securities pertaining to the categories to which it relates have to be maintained. We have also noted that courts have consistently held that depreciation on AFS is an allowable claim.
In view of the above, therefore we consider it fit to restore the issue back to the A.O. to first determine the classification of the securities whether AFS or HTM or HFT and thereafter decide the issue of allowability of claim of depreciation thereon as per law.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The present appeal has been filed by the Assessee against the order passed by the Commissioner of Income Tax (Appeals)-6, Ahmedabad, (in short referred to as CIT(A)), dated 17-05-2018, u/s. 250(6) of the Income Tax Act, 1961(hereinafter referred to as the “Act”) pertaining to Assessment Year (A.Y) 2012-2013.
2. Ground raised by the assessee reads as under:
1. The Ld. Commissioner of Income Tax (Appeals)-VI, Ahmedabad has erred in deciding that on facts and circumstances of the case, the reopening for A.Y 201213 was legal.
2. The re-assessment made for AY 2012-13 is illegal, ultra – vires and liable to be quashed as same was based on ” reasons recorded by Ld AO which is not specific and general in nature and formed on assumptions and presumptions.”
3. The Ld. Commissioner of Income Tax (Appeals)-VL Ahmedabad has erred in confirming addition of Rs. 4,68,391/- on account of disallowance of depreciation on Central and State Government Securities.
4. The Ld. Commissioner of Income Tax (Appeals)-VI, Ahmedabad misconstrued the circular of Reserve Bank Of India on investment by Co Op Bank and wrongly held that 25% of total investment must be kept in HTM Category.
5. The Ld. Commissioner of Income Tax (Appeals)-VI. Ahmedabad wrongly held that all investment of the bank was not of the AFS category inspite of full details and proof was provided that the total investment of Rs. 8,23,72,763.00 was of the AFS category.
2.1 Before us contentions were made only with respect to the merits of the case therefore the legal grounds raised in ground no. 1 & 2 challenging the validity of the proceedings in the present case u/s. 148 of the Act are dismissed.
3. As for ground raised in Ground no. 3 to 5, it was pointed to us by the 4. Counsel for the assessee that the issue in all the three grounds related to disallowance of claim of the assessee to depreciation in the value of Govt. Securities held by it. Ld. Counsel for the assessee contended that the assessee was a Cooperative Bank and that while computing its income for the year it had claimed depreciation in the value of Govt. securities held by it. Depreciation claimed being Rs.4,68,391/- on the Govt. Securities of Rs. 8,23,72,763/-. Ld. counsel for the assesse contended that the contention of the assessee all along was that these securities were classified as Available for Sale (AFS), as per the RBI guidelines in this regard which required all investments made by the assessee to be categorized as (i) Available for Sale (AFS) (ii) Held till maturity (HTM) and (iii) Held for trading (HFT). That as per the RBI guidelines such AFS securities are to be valued at their cost or market value whichever is less as at the end of the year and accordingly the depreciation in their value as at the end of the impugned year was claimed by the assessee amounting to Rs. 4,68,391/-. Ld. Counsel for the assessee contended that courts in various decisions have consistently held depreciation claimed on AFS securities being as per RBI guidelines and the AFS securities in any case being in the nature of stock in trade, depreciation on the same was allowable claim. In this regard, he drew our attention to the following decisions:
1. Assistant Commissioner of Income Tax v. The Ahmedabad District Co Op Bank Ltd – ITA No. 25/Ahd/2014
2. Assistant Commissioner of Income Tax v. The Mehsana Urban Co Op Bank Ltd — ITA No. 2703/Ahd/2011
3. The Naroda Nagrik Co Op Bank Ltd v. Assistant Commissioner of Income Tax – ITA No. 2358/Ahd/2012 & 2084/Ahd/2013
4. The Naroda Nagrik Co Op Bank Ltd v. Assistant Commissioner of Income Tax – ITA No. 3077/Ahd/2013
5. Commissioner of Income Tax v. Rajkot District Co Op Bank Ltd – Tax Appeal No. 56 of of 2013 (Hon’ble Gujarat HC)
5. More particularly our attention was drawn to the decision of the ITAT Ahmedabad Bench in the case of Mehsana Urban Co.Op Bank Ltd. (supra) and it was pointed out that in the said case, the issue was identical regarding claim of depreciation on AFS securities which was held as allowable by the ITAT. Ld. Counsel for the assessee pointed out that despite the assessee repeatedly asserting the fact that these were AFS securities and even furnishing affidavit to this effect, the Revenue authorities consistently held the securities to be in the nature of HTM, Held to maturity, and noting that these could only be valued at their cost as per RBI guidelines, had disallowed the claim of depreciation on them. Our attention was drawn to the findings of the Ld. CIT(A) at para 6.3 of his order as under:
6.3 After considering the findings of the AO and submissions of the appellant, this ground is adjudicated as under.
It is seen that the AO noted that the appellant is a cooperative bank had kept investments of Rs. 8,23,72,763/- under the head “State and Central Government Securities”. The AO further observed that this securities were in the category HTM since the investment in this category is held in fixed amount from year to year at the cost of acquisition. Since the investment was held at fixed amount from year to year at the cost of acquisition, therefore the AO concluded that investment of Rs. 8,23,72763/-was HTM category. The AO further held that depreciation is not liable on this investment under HTM category. Accordingly the AO disallowed deprecation 468390/-. The appellant is in appeal against this action of the A.O.
During the appeal proceedings the appellant submitted that the investment of Rs. 8,23,72,763/- is not under the category HTM. The appellant submitted that all investment under the head Central and state Government securities is under the Available For Sale (AFS) category. The appellant submitted that depreciation on Government securities is available in view of decision of judgment in case of CIT vs. Karnatak State Cooperative Apex Bank , 118 Taxmann 321(SC) of the Act. The appellant submitted vide letter 04.09.2017 it had submitted before AO all investment of bank are of AFS category. The appellant submitted that basic contention of AO that all investment of Rs. 8,23,72763/- is HTM category is wrong since as per RBI guideline no bank is permitted to keep more than 25% investment in HTM category. Submitting thus, the appellant submitted that addition of Rs. 4,68,391/- may be deleted.
After considering all facts and circumstances of the case I am not inclined to agree with the contention of the appellant. The main contention of the AO was that depreciation on HTM is not allowable. However, the appellant submitted that none of its investments is in HTM category. All the investment are in AFS category. An affidavit to this effect was furnished before the undersigned. This view is difficult to accept since banks are mandated by RBI to keep certain parts of their securities in HTM category which could be maximum upto 25%. The appellant’s reliance on judgment of Apex Court in CIT vs Karnataka State Cooperative Apex Bank (2001) 118 Taxman 321 (SC) is misplaced since the issue there was whether interest received on funds parked with SBI was exempt u/s 80P(2)(a)(i) of the Act. It is nowhere mentioned in the judgment that securities kept as AFS are stock-in-trade and depreciation on the same can be claimed. Therefore, it is held that the AO was justified in making addition of Rs. 4,68,391/-on account of disallowance of deprecation on Central and State Government Securities. Therefore, addition of Rs. 4,68,391/- is confirmed. This ground of appeal is rejected.
6. At this juncture Ld. D.R. was asked as to whether there was any basis with the Revenue authorities for holding that these securities were HTM securities, to which none was pointed out to us from the orders of the authorities below
7. Considering the above, we find that the vital fact for determining the allowability of claim of depreciation on securities has not been determined by the authorities below. That though the assessee has been continuously asserting that the securities were AFS securities and had even furnished an affidavit for this purpose, the Revenue authorities for no logical reason or basis have held the securities to be HTM securities. The Ld.CIT(A) has brushed aside the assesses contention stating merely that RBI has mandated part of the securities maximum upto 25% to be kept in HTM category. How this establishes that the impugned securities in the present case were all categorized as HTM, we fail to understand. We are given to understand that though for the purposes of preparing the financial statement of the assesse, this classification of securities as required by RBI, is not to be disclosed therein but for RBI purposes, records of the securities pertaining to the categories to which it relates have to be maintained. We have also noted that courts have consistently held that depreciation on AFS is an allowable claim.
7. In view of the above, therefore we consider it fit to restore the issue back to the A.O. to first determine the classification of the securities whether AFS or HTM or HFT and thereafter decide the issue of allowability of claim of depreciation thereon as per law.
8. Ground of appeal no. 3 to 5 is allowed for statistical purposes.
9. In effect, appeal field by the assessee is allowed for statistical purposes.
Order pronounced in the open court on 14-06-2022
