TMI Blog2015 (12) TMI 295X X X X Extracts X X X X X X X X Extracts X X X X ..... e of such securities (AFS) cannot be treated as capital gain/loss. As decided in Yes Bank Ltd. vs. Dy.CIT [2015 (1) TMI 1012 - ITAT MUMBAI ] Decision of the Hon'ble Bombay High Court in the case of CIT v. HDFC Bank (2014 (7) TMI 724 - BOMBAY HIGH COURT) and that of the Bangalore bench of the Tribunal in the case of State Bank of Mysore (2009 (5) TMI 610 - ITAT BANGALORE) are in support of assessee’s claim of provision for re-valuation in respect of securities transferred from HTM to AFS category should be allowed as a deduction. - Decided in favour of assessee. - ITA No.2703/Ahd/2011 - - - Dated:- 14-10-2015 - Shri Rajpal Yadav, JM, Manish Borad, AM. For The Appellant : Shri D. C. Mishra, Sr. DR For The Respondent : Shri S. N. Soparkar, AR ORDER PER Manish Borad, Accountant Member. This appeal of the Revenue is filed against the order of CIT(A), Gandhinagar, Ahmedabad dated 1/8/2011. The assessment order was passed by DCIT, Mehsana Circle, Mehsana, under section 143(3) of the I.T. Act, 1961 (herein after referred to as the Act) for A.Y. 2008-09. Following effective ground has been raised in this appeal by the Revenue:- 1. The ld. CIT(A) has erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... securities 26,25,35,800 Less sales price 22,91,21,400 Loss (-) 3,34,14,400 Less profit on sales of securities (+) 5,35,800 Loss (-) 3,28,78,600 Add purchased premium written off 11,01,000 3,39,79,600 Rs.32878600/- has been written off as loss made on sales ₹ 1101000/- the purchase premium written off on the basis of RBI guideline to show fair profit of the bank. 4. According to the provisions of section 6 rws 5(b) (c) of the Banking Regulation Act held that the transaction of securities forms part of the banking business bank can purchase and sell securities without affection the statutory SLR. Section 24 of the Banking Regulation Act provides that every cooperative bank shall maintain in cash or unencumbered approved securities an amount which shall not, at the close of business on any day, be less than 25% or such other percentage not exceeding 40% of the total of its Demand Time Liabilities in In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c) How the assessee dealt with during the time the asset was with the assessee ? In the books of accounts in balance sheet there are shown as nvestment (d) How the assessee-itself has returned the income from the activities ? In the past, the entire income of the bank was treated exempt u/s 80P(2)(a)(i) of IT Act. However, the assessee has shown the Govt. Securities under the head nvestment (e) Whether the memorandum of association authorizes such an activity ? Memorandum of Association authorizes the bank to transact in Govt. securities. (f) Whether frequency, continuity and regularity of transactions of purchase and sale maintained? The assessee does not enage regularly, frequently and continuously in purchase/sale of Govt. securities. The volume/magnitude of transaction is also not such to qualify it to be a regular business activity in the nature of business. 4. On application of the aforesaid tests to the facts of the case AO concluded that it is now apparent that o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rve 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 acquisition cost unless these are more than the face value, in which case the premium should be amortized over the period remaining to maturity. In the case of HFT and AFS securities forming stock in trade of the bank, the depreciation/appreciation is to be aggregated scrip wise and only net depreciation, if any, is required to be provided for in the accounts. The latest guidelines of the RBI may be referred to for allowing any such claims . In such circumstances, where the same method of accounting is followed and allowed from year to year, such claim has been held to be allowable by the different courts. The Hon ble Mumbai High Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the year and sold within very short period of few months. The loss also consists of some securities purchased in January, 2007 and sold in May, 2007 itself. So the AO is not correct to say that securities were meant to be held for very long periods and therefore were in nature of capital investments. This has to be seen in contradiction and contrast with securities of HTM category which are purchased and held for the purpose of investment only. The circular and instruction of the CBDT being squarely applicable, leaves no doubt on the allowability of the assessee s claim. The ground of appeal is allowed to the extent that the loss is to be taken as business loss. 6. Aggrieved, the Revenue is now in appeal before the Tribunal. The ld. DR relied on the order of AO. 7. On the other hand, the ld. AR relied on the order of CIT(A) and also referred to the written submissions made before the CIT(A), the relevant portion of which is reproduced below : The purchase and sales of securities are banking business day to day activities of the bank. It is not investments. The main provision of section 6 r.w.s. 5(b) section 24 section 29 banking regulation Act 1949 are applicab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be rejected at the whims of the department. In investment Ltd. vs. CIT (1970) 77 ITR 533 (SC) it was held that a method of accounting followed by the assessee cannot be rejected by the department on the notion that it would have been better had to assessee followed a different method of accounting. (ii) In our case we have valued the securities at cost price said is consistently followed as held in the case. 1. Investment Ltd. vs. CIT (1970) 77 ITR 533 (SC) 2. Balapur Vibhag Jangal Kamdar Mandali Ltd. vs. CIT (1982) 135 ITR 91 (Guj) 3. CIT vs. Advance Construction Co. Ltd. (2005) 275 ITR 30 (Guj) 4. CIT vs. Kamalsan (2004) 188 CTR 145 (Mad) 5. Asst. CIT vs. Shree Krishna Salk Industries (1998) 60 TTJ (Ahm Trib) 164 Further submissions to our facts dated 11.12.2010 Our is a schedule co-op bank, governed, controller administered by RBI Gujarat State Co-op. Societies Act. During the business of banking under license issued by RBI since last 25 years. During the year under consideration we have sold the government securities etc. made net loss of ₹ 3,28,78,600/- after adjustment of profit of ₹ 5,35,800/- premium on purchase of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .599 dt.24.04.1991 of CBDT (copy attached) which is applicable to us, as there has been no change in the functioning of the bank since then. 1. According to Malabar Co-op. Central Bank Ltd. vs. CIT (1975) 101 ITR 87 (Ker) securities held by bank in view of statutory requirement are stock in trade hence income from such securities is business income. 2. Rajasthan Financial Corporation vs. CIT (1967) 65 ITR 112 (Raj) the assessee financial corporation was established for financing industrial concern it invested surplus with it in Govt. securities. It was held that loss sustained or selling the securities to meet the financial consistent was business loss. In State Bank of Hyderabad vs. CIT (1988) 171 ITR 232 (AP) State Bank of Hyderabad vs. CIT (1985) 151 ITR 703 (AP) it was held that the investment in securities made by the assessee bank being a statutory obligation, can be treated as a transaction in the course of carrying on of trade. Thus, any income arising from any such securities would be assessable as business income. - United commercial Bank vs. CIT (1999) 106 taxman 601(SC) - ITO vs. J K Bank Ltd. (2005) 611 ITCL 206 (Ars. Tribunal) - As buying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Further the ld. AR has referred to the judicial pronouncement of the ITAT, Mumbai Bench in the case of Yes Bank Ltd. vs. Dy.CIT in ITA Nos.5833 5910 (Mum) of 2012 2829 (Mum) of 2013 for AYs 2006-07 2007- 08 dated July 21, 2015 wherein it was held - 12. It is pertinent to mention that a single largest test to decide whether the security is held as capital asset or in stock-in-trade is the intention of the assessee at the time of purchase. Merely because some items so purchased happen to be held till maturity cannot convert what is acquired as stock in trade into a capital asset at a later point of time. Intention at the time of purchase is relevant and not a subsequent event of holding the security for a longer period. Instruction No.17/2008 dated 26.11.2008 issued by the CBDT wherein, at para vi. It has been clearly stated that in the case of HFT and AFS Securities of the Bank, the depreciation and appreciation to be aggregated script wise and only depreciation, if any, is required to be provided in the accounts. 13. In view of the above, we do not find any merit in the action of lower authorities for disallowing loss arose on the year end revaluation of securitie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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