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2015 (12) TMI 292

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..... lowing the claim of assessee as relying on United Commercial Bank vs. CIT [1999 (9) TMI 4 - SUPREME Court] - Decided in favour of assessee. - ITA No.1103/Ahd/2012 - - - Dated:- 14-10-2015 - Shri Rajpal Yadav, JM, Manish Borad, AM. For The Appellant by Shri D. C. Mishra, Sr. DR For The Respondent by Shri A. C. Shah, AR ORDER PER Manish Borad, Accountant Member. This appeal by the Revenue is directed against the order of CIT(A) VIII, Ahmedabad, dated 17.2.2012 pertaining to AY 2008-09. The assessment was framed by DCIT, Sabarkantha Circle, Himatnagar, u/s 143(3) of the I.T. Act, 1961 (herein after referred to as the Act) on 26.11.2010. The Revenue has raised the following grounds of appeal :- 1. The ld. CIT(A) has erred in law and on facts in deleting the addition of ₹ 1,47,48,785/- on account of investment depreciation account without appreciating the fact that the said amount was notional depreciation of Government of India securities as on 31.3.2008 which were held by the bank as investment and not as stock. 2. On the facts and in the circumstances of the case, the ld. CIT(A) ought to have upheld the order of the Assessing Officer. 3. .....

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..... s required to amortize the premium paid on securities over its life in case of investments held to maturity. In case of the investment held for trading and available for sale, they are to be valued mark to market i.e. at cost or market rate whichever is lower. 1.2 The ld. AO accepted the provision for amortization of ₹ 1,26,69,000 as allowable in last para on page no.2 after the reply of assessee. However, the ld. AO disallowed investment depreciation of ₹ 1,47,66,239 on the ground that the depreciation in value of securities is notional and not actual and that the government securities held are investment and not stock in trade. 1.3 It may please further be noted that the assessee follows mercantile system of method of accounting since years and it is accepted by the revenue. The ITAT Ahmedabad Bench has dismissed the Revenue appeal for AY 2007-08 following UCO Band decision and Woodward Governance decision. 1.4 The investments held by the bank are stock in trade and that the valuation is to be made at cost or market price whichever is lower. If the market price is lower than the said provision should be allowed as deduction. The Supreme Court in the .....

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..... reasons to be given that the system does not reflect the true and correct profits. 1.6 The Madras High Court in the case of Laxmi Vilas Bank Ltd. vs. CIT 284 ITR 93 applied the ratio laid down by United Commercial Bank vs. CIT 240 ITR 355 (SC). From the above, it is clear that the fall in market price in government securities held for trading is allowable as deduction. 1.7 The kind attention is drawn to the Board Circular No.599 dated 24.04.1991 (189 ITR 126 (Stat). The relevant portion is reproduced as under: (i) Whether the securities held by the banks constitute their stock-in-trade or investment, and consequently whether the loss claimed by the banks on the valuation of their securities should be allowed as deduction in computing their taxable profits? (ii) Whether . The matter has been considered by the Board and it has been decided that the securities must be regarded as stock-in-trade by the banks. Therefore, the claim of loss, if debited in the books of account, would be given the same treatment as is normally given to the stock-in-trade. From the above, it is clear that the provision made for investment depreciation is al .....

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..... preciation of ₹ 1,47,66,239/- on the securities held as stock-intrade. Before analyzing the facts of the case we would like to discuss about the guidelines of R.B.I. as well as CBDT Circular No.665 dated 5.10.1993. As per the master Circular of RBI on investments by Primary (Urban) Co-operative Banks dated 2nd July, 2007, categorization of investments have been provided in the following manner :- 15. Primary (urban) co-operative banks are required to classify their entire investment portfolio (including SLR and non-SLR securities) under three categories viz:- i) Held to Maturity (HTM) ii) Available for Sale (AFS) iii) Held for Trading )HFT) Banks should decide the category of the investment at the time of acquisition and the decision should be recorded on the investment proposals. 15.2 Held to Maturity 15.2.1 Securities acquired by the banks with the intention to hold them upto maturity will be classified under Held to Maturity category. 15.2.2 The investments included under Held to Maturity category should not exceed 25 per cent of the bank s total investments. However, banks are permitted to exceed the limit of 25 per cent of .....

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..... d by Circular No.665 of the CBDT dated 05.10.1993. The question whether a particular item of investment in securities constitutes stock in trade or a capital asset is a question of fact. In fact, the banks are generally governed by the instructions of the Reserve Bank of India from time to time with regard to the classification of assets and also the accounting standards for investments. The Board has, therefore, decided that the Assessing Officers should determine on the facts and circumstances of each case as to whether any particular security constitutes stock in trade as investment taking into account the guidelines issued by the Reserve Bank of India in this regard from time to time. CBDT has further issued instruction for the assessment of banks vide its instruction no.17/2008 dated 26.11.2008 (F.No.228/3/2008 ITAIII) Point No.VII of the said instruction As per RBI guidelines dated 16th October 2000, the investment portfolio of the banks is required to be classified under three categories viz. Held to Maturity (HTM), Held for Trading (HFT) and Available for Sale (AFS). Investments classified under HTM category need not be marked to market and are carried at .....

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