TaxTMI 
TaxTMI 
2017 (10) TMI 478
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....Officer (AO) as 'capital loss'. 4. The assessee is a Co-operative Bank registered under Gujarat Cooperative Society Act and is stated to be carrying on banking business under the supervision and control of Reserve Bank of India. The return filed by the assessee was subjected to scrutiny assessment. In the course of the scrutiny assessment, the AO found that the assessee, a Cooperative Bank has incurred loss of Rs. 76,44,970/- (Rs.66,70,790/- on sale of securities and Rs. 9,74,180/- on sale of bonds) on sale of securities which was claimed as business loss in terms of section 6(1)(a) of the Banking Regulation Act. The AO treated the aforesaid loss as Long Term Capital Loss (LTCL) on the ground that the assessee-bank has shown the purchase of securities under the head 'investment' in the balance sheet. 5. In the first appeal, the CIT(A) granted relief to the assessee and treated the loss arising of securities as business loss as per the claim of the assessee. The relevant para of the order of the CIT(A) reads as under:- "7. I have gone through the facts of the case, the returns of the appellant for the assessment year under appeal and accounts for three earlier years, the Assessm....
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.... though treated as banking assets (stock in trade) has to be shown in the balance sheet as Investment. 2) The above position has also been clarified 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 t:o 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 or 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. 228/3/3008 - ITA- III). Point no. VII of the said instructionITA "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 Ma....
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....nger times because of the nature of their business, it would not change the nature of the asset. Further, as held by Hon'ble Mumbai High court in the case of GIT vs Bank of Baroda (2003) 262 ITR 334; the mere fact that the banks are required as per RBI's guidelines to show I these in the balance sheet as investment would not affect the nature of the asset. The banks by the very nature of the business may have to park surplus trading funds in securities and although intended to be trading assets may have to keep them for longer periods if funds are not required. The treatment of securities of AFS categories 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. The Ld.DR relied upon the order of the AO. In furtherance the Ld.DR submitted that when the assessee itself has classified the securities held by it under the head 'investment', the profit/ loss arising o....
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.... inter-alia raised grievance towards disallowance of Rs. 4,35,821/- incurred by the way of construction of statue of Shri Sardar Patel at a circle in the town where the assessee is situated. 11. During the course of assessment proceedings, the AO noticed that the assessee has inter-alia claimed Rs. 4,35,821/- as urban development expenses which were incurred towards statue of Shri Sardar Patel to be installed on the circle in the town. It is the case of the assessee that the said expenditure was incurred towards larger corporate responsibility towards the residents of town where the assessee-bank is situated. The AO concluded that the said expenses cannot be said to be incurred wholly and exclusively for the purpose of its business and therefore is not a permissible business expenditure. 12. The CIT(A) confirmed the disallowance mainly on the ground that developing a circle in the town by installing a statue was nowhere related to the business of banking. The CIT(A) accordingly declined any relief. 13. Aggrieved, the assessee carried the matter before the Tribunal. 14. We have considered the rival submissions on the issue. We find ourselves in agreement with the contention rais....