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2016 (4) TMI 897

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....e identical. We treat ITA 3268/Ahd/2015 for assessment year 2010-11 as the lead case. 3. We come to relevant facts first. This appears to be second round of litigation between the parties. The assessee is a cooperative bank governed by state co-operative laws. There can hardly be a dispute that it is bound by Reserve Bank of India guidelines being the market regulator on accounting and fiscal issues. This regulator issued a master circular dated 01-07-2009 on investments by Primary (Urban) Co-operative Banks inter alia prescribing for categorization of its investment portfolio for the purpose of maintaining service lending ratio and other securities in Held to Maturity (HTM), Available for Sale and Held for Trading category. It further stipulates that co-operative banks shall classify their securities acquired with intention to hold them up to maturity under Held to Maturity category. The regulator bank issued further clarification that profit on sale of investments in above stated category would be first taken to the P & L account and thereafter the same shall be appropriated to the investment fluctuation reserves and losses arising from sale thereof would be recognize in the pro....

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.... thereof would be received if it had paid premium on its purchases. 5. The assessee preferred appeal. The CIT(A) affirmed Assessing Officer's action in his order dated 28-11-2013. The assessee filed ITA 3005/Ahd/2013 before the tribunal. A co-ordinate bench in its order dated 07-03-2014 remitted the issue back to the CIT(A) for fresh adjudication as per RBI guidelines with respect to valuation, accounting treatment and other procedural requirement to be followed in dealing with the impugned securities. The CIT(A) again affirms the Assessing Officer's action in his consequential order reading as under:- "5. Decision: I have carefully considered the facts of the case and submissions of the appellant. The AO has disallowed the claim of amortization expenses of the premium paid on purchase of the government securities claimed by the appellant amounting to Rs. Rs. 2,60,99,875/- for the reasons discussed in the assessment order in view of the observations that the appellant has not followed the RBI guidelines, and therefore, the securities could not be said to be "Held for Maturity". Subsequently, the Id. CIT(A) after detailed discussion in the appellate order has dismissed the ....

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....d to the Investment Fluctuation Reserve. Loss on sale will be recognised in the P&L A/c. 15.3 Held for Trading 15.3.1 Securities acquired by the banks with the intention to trade by taking advantage of the short-term price/interest rate movements will be classified under 'Held for Trading' category. 15.3.2 If banks are not able to sell the security within 90 days due to exceptional circumstances such as tight liquidity conditions, or extreme volatility, or market becoming unidirectional, the security should be shifted to the 'Available for Sale' category, subject to conditions stipulated in paragraphs 15.5.3 and 15.5.4 below. 15.4 Available for Sale 15.4.1 Securities which do not fall within the above two categories will be classified under 'Available for Sale 'category. 15.4.2 Banks have the freedom to decide on the extent of holdings under 'Available for Sale' category. This may be decided by them considering various aspects such as basis of intent, trading strategies, risk management capabilities, tax planning, manpower skills, capital position, etc. (Profit or loss on sale of investments in HFT & AFS categories should be taken to P&....

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....gory would not undergo any change after marking to market." 5.2. Further, for ready reference the CBDT Instruction No. 17 of 2008 dated 26/11/2008 on this issue on which the appellant has relied upon is also reproduced as under- "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 amortised 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 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." 5.3. Now, in the present appellate proceedings, the appellant has submitted the english version of the balance sheet along with separate manually prepared details of the investment in government securities unde....

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....ies of such recording of its categorization made in written format, if any, in the appellate proceedings which could have at least be available for verification. Thus, non furnishing of such record of categorization may be for the reason that either it has not been recorded by the bank or with some thought not found fit to be produced in any of the proceedings to the department. Thus, this condition of the RBI Circular does not get fulfilled. Even, there is no indication about the different categorizations of the securities in the balance sheets of the aforesaid years which could establish the claim of the appellant. (ii) As per the Clause 15.2.1 of circular, the securities acquired by the bank with the intention to hold them up to the maturity would have to be classified under the head to maturity category. The appellant has not submitted any details and documents, demonstrating the facts that the details of the permanent category security i.e. HTM, submitted and reproduced in the table noted above have been acquired with the intention to hold them up to the date of maturity. On the contrary, this intention is disproved with the fact that the securities at SI. No. A.3 i.e. 8....

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....depicted in the aforesaid table, it is found that, in the permanent category security at Sr. No. A.4 i.e. 6.35 GOI 2020 and at Sr. No. A.5 i.e. 6.30 GOI 2023 and Sr. No. A.6 i.e. 6.05 GOI 2019, conversion has taken place in F. Y. 2008-09, F. Y. 2007-08 & in F. Y. 2006-07 respectively. However, for such conversion, the appellant has not given any details and evidences to prove that this shifting was duly pre-approved by the Board of Directors and that too in the beginning of the year of shifting. Even, the Id. CIT(A) has observed in its first round of appellate order that in a single year, the appellant has sold the securities at three different timings i.e. on 30/11/2009, 25/03/2010 & 30/03/2010. Thus, the said clauses of the Circular have not been followed in spirit. Thus from the above discussion, it is apparent that the RBI Circular on which appellant relied upon itself has not been followed in toto. 5.5. Even the CBDT Circular on which appellant relied upon also emphasized that the investment portfolio of the bank is required to be classified under three categories i.e. STM, HFT and AFS. But, by not classifying these securities by the appellant in the balance sheet or ....