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2015 (3) TMI 449 - AT - Income TaxDisallowance of loss on account of conversion of AFS securities to HTM securities - CIT(A) allowed 1/5th of the loss resulting from shifting of securities from AFS to HTM category - Held that - Method adopted by the assessee for valuing the securities while changing the category i. e. from AFS to HTM is as per the RBI circular and hence this is the accepted method. At the same time we find that as per RBI circular assessee is to amortize depreciation (loss) for the period of five years. In this case the assessee in the P Held to Maturity securities claimed by the assessee bank disallowed - Held that - The issue raised before us is identical to the issue before the Tribunal in ACIT Vs. Bank of Maharashtra (supra) and following the same parity of reasoning we hold that the change in method of accounting adopted by the assessee for valuing its HTM securities at lower of cost or market price is a bonafide change and the assessee is entitled to the claim of depreciation on value of HTM securities. The loss arising on account of AFS and HFT securities have already been accepted by the Assessing Officer. Consequently we direct the Assessing Officer to allow the claim arising on account of depreciation on value of HTM securities. However the change in method of valuation in HTM securities and its effect on the computation of income would be verified by the Assessing Officer. Accordingly we direct the Assessing Officer to consider the plea of the assessee and re-work the income - Decided in favour of assessee for statistical purposes. Revision u/s 263 - 1/5th of the amortized amount of loss incurred of Rs. 29, 29, 15, 335/- in assessment year 2005- 06 on account of conversion of securities from AFS to HTM should be allowed in accordance with the decision of the Hon ble Tribunal in assessment year 2005-06 - Held that - Pursuant to the order of Tribunal in assessee s own case against order passed under section 263 of the Act where the Tribunal had directed that the expenditure claimed in assessment year 2005-06 is to be amortized and allowed for the years starting from assessment year 2005-06 to the extent of 1/5th in each year we find merit in the plea of the assessee in this regard. Accordingly we direct the Assessing Officer to allow 1/5th of the amortized amount of loss incurred in assessment year 2005-06 for the years under appeal consequent to the order of Tribunal passed in appeal against order passed under section 263 of the Act relating to assessment year 2005-06. - Decided in favour of assessee. Addition in the hands of the assessee - non reconciliation of transactions reflected in international transactions of the assessee with the entries in the books of account - CIT(A) had directed the Assessing Officer to examine the claim of the assessee and delete the addition after verification - Held that - No merit in the ground of appeal in this regard as the CIT(A) had directed the Assessing Officer to carry out the verification exercise and after reconciliation the Assessing Officer may decide the issue. We uphold the directions of CIT(A) in this regard and direct the Assessing Officer to carry out the reconciliation exercise and after verification decide the issue. - Decided against assessee.
Issues Involved:
1. Non-allowance of loss on conversion of AFS securities to HTM securities. 2. Non-allowance of premium amortized on HTM securities. 3. Rectification of assessment order under section 154. 4. Depreciation on HTM securities. 5. Reconciliation of international transactions. Detailed Analysis: 1. Non-allowance of Loss on Conversion of AFS Securities to HTM Securities: The assessee claimed a loss of Rs. 29,29,15,335/- due to the conversion of AFS securities to HTM securities. The CIT(A) allowed only 1/5th of this loss, following the Tribunal's earlier decision. The Tribunal upheld this decision, stating, "the assessee is only entitled to the claim to the extent of 1/5th of the depreciation (loss) arising on transfer of securities from AFS to HTM." The Revenue's appeal against this 1/5th allowance was dismissed, and the assessee's appeal for full allowance was also dismissed. 2. Non-allowance of Premium Amortized on HTM Securities: The assessee claimed Rs. 1,44,31,124/- as amortized premium on HTM securities. The CIT(A) disallowed this claim, referencing the Supreme Court's decision in Southern Technologies Ltd. vs. JCIT (2010) 320 ITR 577 (SC), which held that RBI guidelines do not override the Income Tax Act. The Tribunal upheld the CIT(A)'s decision, stating, "no separate treatment can be given to the premium paid by the assessee." 3. Rectification of Assessment Order under Section 154: The Revenue appealed against the CIT(A)'s cancellation of an order passed under section 154, which added back Rs. 3,90,09,806/- amortized premium. The CIT(A) held that the issue was debatable and not a "patent mistake apparent from records." The Tribunal upheld this view, citing the Supreme Court's decision in Volkart Brothers Vs. ITO, which states, "A decision on a debatable point of law is not a mistake apparent from the record." 4. Depreciation on HTM Securities: The assessee claimed depreciation on HTM securities valued at cost or market value, whichever was lower, amounting to Rs. 37,11,50,795/- for AY 2007-08 and Rs. 5,19,40,000/- for AY 2009-10. The CIT(A) disallowed these claims, treating HTM securities as capital assets. The Tribunal, however, allowed the assessee's claim, following its decision in ACIT vs. Bank of Maharashtra, which accepted the change in the method of valuation as bona fide. The Tribunal directed the Assessing Officer to verify and re-compute the income accordingly. 5. Reconciliation of International Transactions: The assessee challenged an addition of Rs. 7,40,292/- due to non-reconciliation of international transactions. The CIT(A) directed the Assessing Officer to verify and reconcile the transactions. The Tribunal upheld this direction, finding no merit in the assessee's appeal against the reconciliation process. Conclusion: - Appeals related to the non-allowance of full loss on conversion of AFS to HTM securities and the premium amortized on HTM securities were dismissed. - The rectification order under section 154 was invalidated due to the debatable nature of the issue. - The Tribunal allowed the depreciation on HTM securities, directing the Assessing Officer to verify and re-compute the income. - The reconciliation of international transactions was upheld, with directions for verification and reconciliation by the Assessing Officer.
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