TaxTMI 
TaxTMI 
2014 (1) TMI 1696
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....harashtra & Goa to the tune of Rs. 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 Rs. 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 profits should be computed after deducting the losses and expenditure incurred for the purpose of business. 3. Without prejudice to the contention that it is a business loss under sec 28 of the I.T.Act, alternatively, depreciation may be allowed as the difference between Assets acquired and Liabilities taken over represents intangible assets as contemplated under clause (ii) of Sec 32(1) of IT Act. 4. The Learned C.I.T. (A) III of Income Tax was not right legally as well as factually in not holding appellant bank's Held to Maturity securities as its Stock in Trade. lt may please be held that securities held by the appellant bank under....
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.... 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, which have been duly approved by the Reserve Bank of India. The assessee determined the excess of liabilities of the merged banks over the realizable value of assets taken-over and the same was claimed as a revenue loss. Such loss was computed at Rs. 2668.13 lacs, which was claimed as a deduction while computing the total income. The Assessing Officer and thereafter the CIT(A) has also disallowed the claim, against which assessee is in further appeal before us. 7. The first argument of the assessee was that the takeover of the business of the four banks was a prudent business decision and therefore the impugned loss which represented consideration for excess of liabilities ove....
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....anks, 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 merger, copies of which have been placed in the Paper Book, and contended that assessee has taken-over assets and liabilities including the customer's accounts/deposits, employees, the licenses and other statutory approvals of the merged banks, etc. and therefore it is asserted that the impugned amount reflects acquisition of an 'intangible' asset. At pages 42 to 43 and 61 to 78 of the Paper Book, the details of the manner of computing the excess of liabilities over the realizable values of the assets taken-over of the respective banks have been provided. On this basis, it is sought to be explained that the consideration paid over and above the intrinsic net worth of merged banks is nothing but payme....
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....ntral 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, which included its client base, operational branches of the bank at different places and also their employees, besides the licenses and other statutory approvals enjoyed by the Transferor Bank. Now, the case set-up by the assessee is that the acquisition of huge client base, operational branches of the banks and7 t he access to new money markets has resulted in a business advantage which is covered within the meaning of the expression "business or commercial rights of similar nature" as contemplated in clause (ii) of sub-section (1) of section 32 of the Act. 13. Therefore, the moot question is as to whether the aforesaid business/ commercial advantages, namely, taking over of huge client base, licenses....
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....nning 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 advantages detailed earlier, are liable to be considered as an intangible asset, being 'business or commercial rights of similar nature' contemplated u/s 32(1)(ii) of the Act. In our considered opinion, the plea of the assessee for allowance of depreciation in terms of section 32(1)(ii) of the Act cannot be faulted either in law or on facts. 15. The other objection 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. Therefore, having regard to the aforesaid discussion, in our view, on facts and in law the assessee is entitled for depreciation on th....
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....ost or market value whichever was lower. The assessee had claimed the depredation to the tune of Rs. 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 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 sale of the Securities. Merely because the Securities are kept under the head till the maturity, the said Security cannot be treated as a purely investment. Law is well settled that the Securities held by the Bank are in the nature of Stock-in-Trade. We may like to quote here the decision of the Hon'ble High Court of Kerala in the case of CIT....
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....nt 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, which is directed against an order of the Commissioner of Income Tax (Appeals)-III, Pune dated 31.11.2011 which, in turn, has arisen from an order dated 29.12.2010 passed by the Assessing Officer u/s 143(3) of the Act. 25. In this appeal, the following Grounds of Appeal have been raised by the assessee :- "1. The Learned C.I.T. (A) III of Income Tax was not justified in disallowing the claim on account of merged banks losses on the ground that the same is not a business loss on revenue a1cc2ount. The claim of the appellant bank for Rs. 4,45,543.00 be granted as it is a well established law that profits should be computed after deducting the losses and expenditure incurred for the purpose of business. 2. Without prejudice to the contention ....
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....eal 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 Rs. 5,12,75,445/- made by the Assessing Officer by invoking section 43D of the 1A3ct. In this regard, the pertinent dispute is with regard to categorization of bad and doubtful for the purposes of section 43D(a) of the Act. The assessee explained that the categorization was done as per the RBI guidelines, whereas the Assessing Officer noted that the categorization of NPAs and the amount of interest thereof was to be carried out in terms of Rule 6EA of the Income Tax Rules, 1962 (in short "the Rules") as prescribed in clause (a) of section 43D of the Act, and accordingly he computed an amount of Rs. 5,12,75,445/- which was liable to be added to the income. The aforesaid position has been accepted by the CIT(A) following the decision of the Mumbai Bench of the Tribunal in the case of GIC Housing Finance Ltd. vs. ....