2021 (4) TMI 477 - AT - Income Tax

Disallowance of broken period interest on purchase of securities - expenditure deductible as business expenditure - HELD THAT - As decided in own case AO has not disputed the aforesaid factual position, however, he has held that the Income Tax Act, 1961 will get precedence over the Banking Regulation Act, 1949. Thus, from the aforesaid facts it is clear, though, the assessee has held the securities as stock-in-trade, however, complying to the provisions of Banking Regulation Act, 1949, it has shown them as investment. But, for that reason itself, the nature and character of securities held as stock-in-trade will not change. Moreover, the Department has not disputed the fact that the income derived by the assessee from sale of securities has been offered as business income and the department has also accepted it. Applying the same logic, the expenditure incurred by way of payment of broken period interest while purchasing such securities must be treated as business expenditure. The decisions relied upon by the learned Authorised Representative clearly support this view. In aforesaid view of the matter, we uphold the decision of the learned Commissioner (Appeals) on this issue by dismissing the ground raised by the Revenue.

Summary

Issues:
1. Disallowance of broken period interest on purchase of securities.
2. Treatment of Govt Securities held by the bank as Stock in Trade for depreciation.

Analysis:
1. The Assessing Officer challenged the order deleting the disallowance of broken period interest on the purchase of securities, arguing it should be treated as capital expenditure. The CIT(A) allowed the appeal, following a decision of the Madras High Court. The Tribunal upheld the CIT(A)'s decision, emphasizing that the nature of securities as stock-in-trade should not change despite being classified as investments for regulatory compliance. The Tribunal dismissed the Revenue's appeal, citing a previous decision in favor of the assessee on a similar issue.

2. The second issue pertained to the treatment of Govt Securities held by the bank as Stock in Trade for depreciation. The AO rejected the claim, considering the securities as investments. However, the CIT(A) allowed the depreciation claim, treating the securities as stock-in-trade. The Tribunal, following its previous decision in the assessee's case, upheld the CIT(A)'s decision, emphasizing that since the securities were stock-in-trade, depreciation should be allowed. The Tribunal dismissed the Revenue's appeal, as the issues were found to be covered by previous decisions in favor of the assessee.

In conclusion, the Tribunal dismissed the Revenue's appeals, upholding the decisions of the CIT(A) on both issues. The Tribunal found no reason to interfere with the conclusions reached, as the issues were previously adjudicated in favor of the assessee by a coordinate bench. The judgments were pronounced on 17th March 2021.