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TMI Blog2008 (12) TMI 745X X X X Extracts X X X X X X X X Extracts X X X X ..... ers being general in nature:- (i) The Ld. CIT(A) erred in confirming the disallowance of Rs. 5,05,73,414/- being "investment Portfolio"; and (ii) The Ld. CIT (A) erred in enhancing the assessment by Rs. 16,23,122/- being depreciation in valuation of investment portfolio allowed by the Ld. AO. Disallowances of Rs. 5,05,73,414/- and Rs. 16,23,122/- (enhancement):- 3. During the examination of the books of account, the Ld. A.O. found that the assessee Bank had claimed a deduction of Rs. 5.05 Crores towards loss on valuation of its investment portfolio treating it as stock-in-trade. On a query, the assessee Bank had explained to the Ld. AO that it had been classifying all investment Portfolio as stock-in-trade and valuing the closing stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as listed out the procedure to be adopted as per the RBI's guidelines as under: (1) The entire investment portfolio should be held under three categories of 'available for sale' 'held to maturity' and 'held for trading'. (2) Each of the above three categories are further divided into six classifications under which investment Portfolio should be held as under: (i) Government securities (ii) Other approved Securities (iii) Shares (iv) Debentures and Bonds (v) Investments in Joint Ventures and associates (vi) Others (3) The whole investment portfolio cannot be classified as stock-in-trade. (4) In the case of 'available for sale' and 'held for trading' categories, only the net depreciation, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee Bank had approached the Ld. CIT (A) for redressal. The Ld. CIT(A), after considering the forceful agreements put forth by the assessee Bank and also heavily relying on the circular of RBI, had rejected the contention of the assessee Bank and disallowed the entire depreciation of Rs. 5,21,96,537/- which included a sum of Rs. 16,23,122/- allowed by the Ld. AO. While doing so, he had also placed reliance on the various decisions of the Hon'ble Apex Court to support his decision. 9. During the course of proceedings before us, the learned counsel for the assessee Bank, a paper book which contains:- (i) copies of letters/explanation furnished before the Ld. AO; (ii) copy of a letter addressed to the Ld. CIT(A); (iii) copy of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16.10.2000, investments by banks were to be categorized under three categories, viz. "held to maturity", "available for sale" and "held for trading". The category of the investment is to be decided at the time of acquisition and such acquisition is to be recorded on investment proposal. In respect of all investment classified under "held to maturity", these are to be carried at acquisition cost; if it is more than the face value and if it is less than the face value, then the premium should be amortized over the period remaining to maturity. 11. It was, further, submitted by the assessee Bank that the value to be determined as per the RBI guidelines cannot be a bar to claim depreciation on such category, of such investment in the books of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al income which is to be deducted on the basis of accounting system regularly maintained by the assessee. 15. Further, the method by which the assessee Bank is valuing securities is in accordance with the accounting principles by treating such securities as stock-in-trade. Moreover, the revenue itself is treating the profit on maturity of such security as business income and, therefore, such securities cannot be treated as capital assets. 16. Considering the facts and circumstances of the case before us and respectfully following the decision of the Hon'ble Supreme Court in the case of United Commercial Bank vs. CIT referred Supra, it is held that the assessee Bank is entitled to value all the investment at cost prices or market value ..... X X X X Extracts X X X X X X X X Extracts X X X X
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