TMI Blog2010 (12) TMI 894X X X X Extracts X X X X X X X X Extracts X X X X ..... er has misconceived the provisions that only advances which were for rural purposes has to be considered for the purpose of computing deduction u/s. 36(1)(viia) - Decided in favor of the assessee - ITA No. 2246/Mum/2009, ITA No. 2247/Mum/2009, ITA No. 2248/Mum/2009, ITA No. 2249/Mum/2009, ITA No. 2250/Mum/2009 - - - Dated:- 22-12-2010 - N.V. Vasudevan, T.R. Sood, JJ. Reena Jha Tripathi for the Appellant K. Gopal for the Respondent ORDER Bench: These are appeals by the revenue against the following orders of CIT(A) relating to the following assessment years. S.No. CIT(A)/order date Assessment year ITA No. 1. CIT(A) C.VIII 29/01/2009 2002-03 ITA 2246/M/2009 2. CIT(A) C.VIII 30/01/2009 2003-04 ITA 2247/M/2009 3. CIT(A) C.VIII 30.01.2009 2004-05 ITA 2248/M/2009 4. CIT(A) C.VIII 30.01.2009 2005-06 ITA 2249/M/2009 5. CIT(A) C.VIII 30.01.2009 2006-07 ITA 2250/M/2009 2. First we shall take up for consideration ITA No.2246/M/09 for A.Y. 2002-03. 3. The facts giving rise to this app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TM category in Schedule - 17 of Significant Accounting Policies attached with the balance sheet. The assessee further pointed out that as far as the assessee is concerned all investments are stock in trade and this fact has been accepted by the department in the past and diminution in the value of stock in trade has been allowed as deduction in the case of the assessee. Reference was made to the decision of the ITAT Jodhpur Bench in ITA No.209 to 211/JP/90 for A.Y 1982-83 to 1984-85 and MA No.2, 3 and 4/JDPR/2000, wherein the Jodhpur Bench in assessee's own case had held that in the case of the assessee all investments are its stock in trade and the loss on account of diminution in valuation has to be allowed as a deduction. The assessee pointed out that this view of the Tribunal in assessee's own case was accepted by the department and there was no appeal filed before the Hon'ble High Court. 5. The assessee also drew the attention of the AO to the decision of the Hon'ble Supreme Court in the case of UCO Bank, 240 ITR 355, wherein it was held that under the Banking Regulation Act the banks are required to show securities held by it as investment but that does not mean that they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sregarded. 7. Apart from the above the assessee also pointed out that while completing the original assessment u/s. 143(3)(3) of the Act the AO by his order dated 30/3/2005 at page 14 Sub-point No.7 allowed the deduction on account of depreciation on investment being stock in trade of Rs.2,73,18,401/- by giving a break-up of the figures in bracket as follows: (Rs.2,07,66,575 + 65,51,826). Thus according to the assessee the matter has been considered by the AO and after due application of mind has been allowed by the AO and, therefore, it cannot be said that there was any failure on the part of the assessee to fully and truly disclose all material facts necessary for the purpose of completion of the assessment for the relevant assessment year. 8. The A.O however, did not accept the plea of the assessee. He held that securities held under HTM categories are intended to be held till maturity. According to him banks are permitted to hold 25% of the securities in the HTM categories. They were allowed to interchange from HTM category to HFT (held for trading) and AFS (available for sale).. According to the AO since the assessee held the securities in question under HTM catego ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ording to the AO, in the DBOD circular dated 6/9/2001, although the RBI has laid down certain norms regarding BPI, it has also clarified that the said accounting treatment does not taken into account taxation implications and hence the banks should comply with the requirements of the income tax authorities in the manner prescribed by them. Therefore, the assessee's claim of deduction of premium of Rs.65,51,826/- amortized in respect of HTM securities was disallowed and added back to the total income. 11. Against the aforesaid order of the AO the assessee preferred an appeal before the CIT(A). The CIT(A) held that the reopening of assessment under section 147 of the Act was not valid because the assessment was reopened after a period of 4 years from the end of the relevant assessment year and there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment for that assessment year. The CIT(A) also held that the claim of the assessee was to be allowed. In this regard the CIT(A) relied on the CBDT Circular No.17 dated 26/11/2008, wherein it has been squarely laid down that investments classified under HTM cate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment proceedings. 17. In the case of the Bank all investments are stock in trade as held by Hon'ble Supreme Court in the case of UCO Bank reported at 240 ITR 355. There is no investment in the nature of investment on which the expenditure/loss can be treated in the nature of capital expenditure. The securities are categorized as per the norms of the RBI. As per the "Significant Accounting Policies" given in schedule 17 attached with the Balance Sheet every year, the fact that all investments are stock in trade has been clarified in the case of the Assessee. It does not mean the securities kept in category of HTM cannot be sold before the maturity. The HTM has been sold in subsequent year and Income/loss treated as business income/loss and not as capital gain/loss at all. 18. All income/loss whatever arising on account of investment(stock in trade) Interest loss/profits or diminishing of investment including securities held under HTM category has been treated as business income/loss and always has been treated by department as business and assessed accordingly in all past year assessment by department. The interest earned in the case of the Bank, on all share and sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any, is required to be provided for the accounts. The latest guidelines of the RBI may be referred to for allowing any such claims." 21. Since the claim of the assessee is as per RBI guidelines and CBDT has also issued directions to allow premium to be amortized remaining with the maturity, therefore, the Assessing Officer is directed to allow the claim of the assessee amounting to Rs.65,51,826/-. 22. Since the claim of the assessee is accepted on merits the ground with regard to challenging of the validity of CIT(A)'s order holding initiation of reassessment proceedings to be invalid is not taken up for consideration. 23. In the result, this appeal by the revenue is dismissed. ITA No. 2247/Mum/2209 - A.Y. 2003-04: 24. The facts and circumstances on the ground of appeal under which this appeal arises for consideration are identical to the facts and circumstances under which the appeal of the revenue for A.Y 2002-03 was decided. For the reasons stated in the order in ITA No.2246/M/09 this appeal of the revenue is dismissed. ITA No. 2248/Mum/2009-A.Y. 2004-05:- 25. The first ground of appeal raised by the revenue in this appeal relates to disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issed. ITA No. 2250/Mum/2009-A.Y. 2006-07:- 31. The first ground of appeal raised by the revenue in this appeal relates to disallowance of claim of amortization of premium paid on securities held under HTM category. This issue arises under identical facts and circumstances in which similar issue was decided by us in ITA No.2246/M/09. For the reasons stated therein this ground of appeal of the revenue is dismissed. 32. Ground No. 2 raised by the revenue reads as follows: "On the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs.3,83,402/- made on account of excess cash received at the cash counters of the branches on account of errors such as mentioning of incorrect account numbers by the depositors are identified, the excess cash so received by the assessee is its income for the relevant year." 33. Similar addition was made in the earler years i.e. A.Y 1995-96 onwards. The same was deleted by Hon'ble ITAT Bench in Appeal Nos. 226-227/JDPR/2000. the ld. CIT(A) granted relief following the same. In the A.Ys. 2000-01 and 2001-02, ITA No.504and505/JDPR/2004 similar addition were deleted vide order dated 23/3/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition made by the Assessing Officer. 20. At the time of hearing, it was brought to our notice that similar issue had come up for consideration in assessee's own case in A.Y 1998-99 in ITA No.11/JIP/03 ITAT Jodhpur Bench. The Tribunal has noticed that the advances which were considered for the claim of deduction on account of bad debts by the assessee related to the advances given by rural branches. The Assessing Officer was of the view that for eligibility of claim of deduction u/s. 36(1)(viia) of the Act, that the advances made by rural branches should be rural advances i.e. one made to persons involved in rural activities. This stand of the Assessing Officer was rejected by the Tribunal for the following reasons: "The bare reading of section 36(1)(viia) mades it clear that the advance made by the rural branches are exempt under this section, irrespective of the facts that these are made to persons(s) involved in the rural activities or otherwise. The above section is extracted below for ready reference. The learned Departmental Representative has only relied on the assessment order but could not deny the contention of learned A.R that in earlier years also such deletio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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