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The Deputy Commissioner of Income Tax, Circle – 1, Jalgaon Versus Jalgaon Janta Sah. Bank Ltd. and Vica-Versa

2016 (10) TMI 101 - ITAT PUNE

Disallowance on depreciation claimed on valuation of Government Securities “Held to Maturity” (HTM) category - Held that:- The issue raised by the Department in the appeals is no more res integra. The Tribunal has been consistently holding that Government Securities held under HTM category are part of stock-int-rade and allowed the amortization of premium on such Securities held under HTM category. The Hon'ble Jurisdictional High Court has upheld the findings of Tribunal in the case of Commissio .....

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e order of Commissioner of Income Tax (Appeals) of even date for assessment year 2011-12. The assessee has filed Cross Objections for the assessment year 2008-09. In both the appeals, the Revenue has assailed the findings of Commissioner of Income Tax (Appeals) in deleting the addition made on account of disallowance on depreciation claimed on valuation of Government Securities Held to Maturity (HTM) category. Since, the issue raised in both the appeals is identical, these appeals are taken up t .....

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ed in the case of assessee for assessment year 2008-09 u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) admitting the loss of ₹ 10,72,98,310/-. Thereafter, reassessment proceedings were initiated and notice u/s. 148 of the Act was issued to the assessee on 20-03-2013. In reassessment proceedings the Assessing Officer made addition of ₹ 13,32,31,750/- on account of amortization of investment in Government Securities held under HTM category. Aggrieved by th .....

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004-05 decided on 30-05-2013. The Commissioner of Income Tax (Appeals) further draws strength to support his findings from the following decisions : i. United Commercial Bank Vs. Commissioner of Income Tax, 240 ITR 355 (SC); ii. Commissioner of Income Tax Vs. Corporation Bank Limited, 174 ITR 616 (Kar). 3. Similarly, in assessment year 2011-12 the Assessing Officer made addition of ₹ 2,73,37,590/- in respect of amortization of premium on Government Securities Held to Maturity (HTM) categor .....

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investment and hence, depreciation on the said securities is not allowable. The ld. DR contended that the investments are not liquid assets which can be categorized as stock-in-trade. The Commissioner of Income Tax (Appeals) has erred in deleting the additions by placing reliance on the decision of Hon'ble Supreme Court of India and the decision of Pune Bench of the Tribunal. The ld. DR contended that the investment in Government Securities held under HTM category is a capital investment and .....

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Assessing Officer and prayed for setting aside the impugned orders. 5. On the other hand Shri Jayesh Doshi appearing on behalf of the assessee submitted that the issue of allowability of amortization of premium on Government Securities held under HTM category has been adjudicated in favour of assessee by the Hon'ble Bombay High Court in the case of Commissioner of Income Tax Vs. HDFC Bank Ltd. reported as 366 ITR 505 (Bom). The ld. AR of the assessee further submitted that the Tribunal has b .....

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espect of Cross-Objections, the ld. AR of the assessee stated at the Bar that he is not pressing the same. 7. We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below. We have also considered the decisions on which the ld. AR of the assessee has placed reliance in support of his contentions. The only issue raised in the appeals by the Department is with respect to disallowance of depreciation claimed in valuation of Government .....

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decided on 29-06-2011 upheld the findings of Commissioner of Income Tax (Appeals) in deleting the disallowance of loss due to diminution in the value of the current investment and amortization of premium on investments held to maturity. The relevant extract of the findings of the Tribunal are as under: The next issue in the appeal of the Revenue for the assessment year 2001-02 is whether, in the facts and in the circumstances of the case, the Commissioner of Income-tax (Appeals) is justified in .....

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for the assess ment year 1999-2000, vide order dated April 27, 2011. The Commissioner of Income-tax (Appeals) has decided the issue in paragraph 10 as under : 10. Respectfully following the hon ble Bombay High Court decision in the case of CIT v. Bank of Baroda [2003 262 ITR 334 (Bom)] wherein the hon ble court held that loss debited to the profit and loss wherein the hon ble court held that loss debited to the profit and loss account due to decrease in value of securities is allowable as deduc .....

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nts at cost or market value , whichever was lower, for Income-tax purposes. The method followed consistently was valid and could not be rejected. In the present case, the facts being similar to the facts reported in UCO Bank, the Assessing Officer is directed to allow the revaluation of securities. However, for the computation of depreciation allowable, the Assessing Officer is also directed to revalue the securities in the same manner in the beginning of the year also. We find the Tribunal in t .....

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towards page 4 of the paper book, which is the method suggested by the RBI to be adopted by the banks in respect of permanent investments. Clause (ii) of point No. 1 of this, being valuation of permanent investments, which has been pressed into service by the learned authorised representative, reads as under : Permanent investments should be valued at cost and in case cost price is higher than the face value, the premium should be amortised over the remaining period of maturity of the security. .....

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the premium has to be amortized for the remaining period of maturity of the security. The learned authorised representative fairly conceded that details of such premium splitting over the remaining period of the maturity was not readily available and, hence, the matter be remitted to the file of the Assessing Officer for deciding it as per the above part of the Circular. No serious objection was taken by the learned Departmental representative. In view of these facts we set aside the impugned or .....

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or adjudication was : (C) Whether the Income-tax Appellate Tribunal is right in law in holding that the assessee is entitled for deduction with respect to the diminution in value of the investment and amortization of premium on investment held to maturity on the ground of mandate by the RBI guidelines thereby ignoring the decision of the Supreme Court in the case of Southern Technologies Ltd. v. Joint CIT [2010] 320 ITR 577 (SC) ?" The Hon'ble Jurisdictional High Court dismissed the sub .....

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w that even question (C) does not raise any substantial question of law that requires an answer from us. 10. The issue relating to securities held by assessee under HTM category constitute stock-in-trade and the consequential loss on valuation of said securities on the basis of cost or market value, whichever, is less whether allowable as deduction was raised in the case of Cosmos Co-op. Bank Ltd. Vs. DCIT (supra). The Tribunal decided the issue in favour of the assessee by holding as under : 16 .....

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cation but on merits it has been denied. Before us, the claim of the assessee is that the securities held by the assessee bank are part of stock-in-trade irrespective of their classification and that a similar matter has been considered by the Pune Bench of the Tribunal in the cases of Latur Urban Coop. Bank Ltd. in ITA No.778/PN/2011 for assessment year 2007-08 dated 31.08.2012 and The Sangli Bank Ltd. in ITA NO.846/PN/2006 for assessment year 2004-05 dated 30.05.2013 wherein such securities ar .....

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hold the plea of the Revenue that the securities held by the assessee under the HTM category are capital in nature. The following discussion in the order of the Tribunal in the case of Latur Urban Coop. Bank Ltd. (supra) is relevant :- 14. We have heard the parties. The Ld Counsel placed his heavy reliance on the decision of the Hon'ble High Court of Bombay in the case of CIT Vs. Bank of Baroda and in the case of UCO Bank Vs. CIT, 240 ITR 355 (SC). In the case of Bank of Baroda (Supra), the .....

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he order of the CIT(A). The Revenue carried the issue before the Hon'ble High Court. The core issue was the method of valuation adopted by the assessee Bank for valuing the stock of the Securities. The Hon'ble High Court followed the decision of Hon'ble Supreme Court in the case of United Commercial Bank (Supra). 15. In the case of United Commercial Bank (Supra), even the issue of valuation of the stock in trade of the investment was before the Hon'ble Supreme Court. In the case .....

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