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The ACIT Patan Circle, Patan Versus 1. The Chanasma Nagrik Sahakari Bank Ltd. And Vice-Versa

2017 (10) TMI 478 - ITAT AHMEDABAD

Nature of loss - ‘business loss’ OR ‘capital loss’ - CIT(A) granted relief to the assessee and treated the loss arising of securities as business loss as per the claim of the assessee - Held that:- It is the case of the assessee that the impugned loss arose on sale of securities and bonds emanated from investments which were sub-classified under ‘available for sale’ (AFS) category at the time of purchase. In view of the aforesaid facts, we find merit in the claim of the assessee that the loss ar .....

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of construction of statue of Shri Sardar Patel at a circle in the town where the assessee is situated - Held that:- It is trite that ‘for the purpose of business’ contemplated under s.37 is wider in scope than the expression ‘for the purpose of earning profits’ and may comprehend many acts incidental to the carry on of a business. Thus, so long as the expenditure has been incurred on the grounds of commercial expediency and in order to directly or indirectly facilitate the carry of the business .....

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rban development expenditure allowed. - Claim of amortization of securities premium - Held that:- We notice that this amount represents the excess of acquisition cost over the face value of Government securities taken under HTM category. We find that the issue is squarely covered in favour of assessee by the decision in the case of CIT vs. Rajkot Dist. Co-op Bank Ltd. in Tax Appeal [2014 (3) TMI 110 - GUJARAT HIGH COURT] as placed reliance upon the CBDT Circular No.17 of 2008 and held that .....

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R ORDER PER PRADIP KUMAR KEDIA - AM: The captioned appeals by the Revenue and Assessee are directed against the separate orders of the Commissioner of Income Tax(Appeals)-Gandhinagar [CIT(A) in short] dated 23/01/2013 and dated 13/01/2014 arising in the matter of assessment orders dated 28/12/2011 and 13/02/2013 passed for the Assessment Years (AYs) 2009-10 & 2010-11 respectively. 2. Both the appeals were heard together and are being disposed of together by way of this consolidated order for .....

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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 ₹ 76,44,970/- (Rs.66,70,790/- on sale of securities and ₹ 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 sh .....

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lant and the remand report. Before going into the legal aspect and deciding the case, I Would like to innumerate the important facts and the accounting method and how the assessee had been disclosing the income. These are: i. The assessee's all securities are being held as AFS (Available For Sale) and HTM (Held to Maturity). No securities are being held as Held for Trading' i.e., HFT ii. None of the HTM (Held to Maturity) securities held have been sold during the year. The premium has be .....

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hem back from year to year while computing the total income for the purpose of income-tax. v. In the remand proceedings as reported by the AO that some of the securities Were (subsequently converted into HTM. No case of reverse transfer has been pointed out. Therefore, as far as the income-tax returns and computation of income are concerned; the appellant, has not claimed any diminution in value of assets held in the AFS (Available For Sale) category securities, as far as the incometax returns a .....

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r the guideline issued by the Reserve Bank Of India, Investment activities is the normal banking activity and should be treated as banking stock in trade. The format of the balance sheet has been prescribed by the legislature and bank has to report their financial result in that format only. As per this format the Investment in Non-SLR Securities 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 .....

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es 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 clas .....

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reciation, 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 the ease of CIT vs Bank of Baroda (2003) 262 ITR 334 has held that "Depreciation in value of investment held by bank was allowable as d .....

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alue; is in effect the application of well known and well accepted principle of valuation of closing stock at cost or market price whichever is lower . This method in fact allows for notional loss. Now, this allowance of depreciation held allowable by the board circular and the different decisions of the High Courts, have been made and could have been made only on the basis of these securities being treated as stock in trade. The assessee has been following consistent method of in effect claimin .....

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ess, 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 period .....

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nce the Ld.DR submitted that when the assessee itself has classified the securities held by it under the head investment , the profit/ loss arising on sale of such securities held as investment have been rightly treated to be of capital nature by the AO. 7. The Ld.AR, on the other hand, relied upon the order of the CIT(A). The Ld.AR submitted that the assessee is in peculiar business of banking which is regulated by the RBI. The RBI has prescribed a format whereby the securities held are declare .....

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rmat is thus prescribed wherein there is specific head investment where the aforesaid securities giving rise to the impugned loss were reflected as per norms & procedure. The notified format does not provide for bifurcation between the securities so held towards investment or stock in-trade . It was submitted that owing to litigation of this type, the issue stands clarified by the CBDT Circular No.665 dated 05/10/1993 as referral to by CIT(A). Therefore, in view of the peculiar facts situati .....

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ading nature notwithstanding the fact that the securities were grouped under the head investment owing to the prescribed format of the RBI. We find that the order of the CIT(A) dealing with the issue is consistent with the CBDT instruction as well as the facts of the case and does not require any elaboration. Accordingly, we decline to interfere with the order of the CIT(A). 9. In the result, appeal of the Revenue is dismissed. ITA No.1334/Ahd/2014 - AY 2010-11 - Assessee s appeal 10. In the cap .....

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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 .....

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hat the expenses can be said to have been incurred for the purposes of business for the simple reason that such incurring of expenses adds to the visibility of the assessee-bank amongst its stakeholders. The expenditure thus incurred can be rationally said to have been incurred for the promotion of the assessee s ongoing business and thus an allowable business expenditure. Such incurring of expenditure would presumably enhance the brand image of the assessee. The expenditure incurred is thus for .....

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