TMI Blog2018 (12) TMI 1328X X X X Extracts X X X X X X X X Extracts X X X X ..... th the years. Since we have held that the investments held by the assessee as trading assets, the realised loss on sale of investments shall constitute business loss only in the hands of the assessee. Accordingly we set aside the order passed by Ld CIT(A) on this issue in both the years under consideration and direct the AO to allow the deduction of the same in both the years. Revenue is challenging the decision of Ld CIT(A) in holding that the interest accrued but not due as not taxable - CIT(A) noticed that an identical issue has been considered in the case of DIT (International Taxation) vs. Credit Suisse First Boston (Cyprus) Ltd ( [2012 (8) TMI 17 - BOMBAY HIGH COURT] wherein it was held that when an instrument or an agreement stipulates that interest shall be payable at a specified date, interest does not accrue to holder thereof on any date prior thereto. Accordingly, following the above said binding decision of jurisdictional High Court, the Ld CIT(A) deleted the addition made by the AO in both the years on account of interest accrued but not due. The revenue is aggrieved wrongfully - decided in favour of assessee. - ITA No.1435/M/2016 And ITA Nos.1415 & 1416/M/2016 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly it filed the return of income for assessment year 2009-10 also at Mumbai. Thereafter, the assessee also filed a letter requesting to transfer the file of the assessee from Chennai to Mumbai on 6th September 2010. Subsequently, the assessee filed its return of income for assessment year 2010-11 with the Mumbai office on 11.10.2010. However, the Assessing Officer, Chennai issued notice under section 143(2) of the Act on 25.08.2011. Despite repeated objections filed by the assessee with the Chennai officer, he has proceeded to pass the impugned assessment order on 15.02.2013. He submitted that the Commissioner of Income Tax, Mumbai has also approved the transfer on 16.01.2013 and the impugned assessment order has been passed subsequent to the said approval. The assessee placed reliance on the provisions of section 124(3) of the Act and submitted that the Assessing Officer could not have passed the assessment order, once an objection was raised by the assessee. The Ld. A.R. placed reliance on the decision rendered in the case of Joginder Singh vs. CIT (6 taxman 245) P H and ITO vs. Gurudev Singh (2004) 86 TTJ Chd 861 and submitted that the impugned assessment order is bad in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missioner. The Act does not Iny down the principles for allocation of functions by the Board and the Commissioner. Section 127 provides that opportunity of hearing may be given to the assesses while transferring a case from one place to another. Since the assesses does not suffer any Inconvenience or prejudice if a case is transferred locally, no such opportunity has been prescribed. Thus, the Board and the Commissioner will exercise the power of allocation of functions to various authorities or officers in the exigency of tax collection with due regard to the convenience of the assessee. In other words, the allocation is a measure of administrative convenience, In such a situation, the concept of jurisdiction cannot be imported and, certainly, not in the sense of invalidating the resultant action on account of the defect in the exercise of functions. Sub-section (5) of section 124 places an embargo against raising of the plea of jurisdiction after the assessment has been completed. In the instant case, since the petitioner had filed a return of income, his case would be covered by clause (a) of sub-section (5) of section 124. Section 124(5) (a) provides that the right is los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r passed by Commissioner of Income Tax, Chennai are not available on record. In the absence of the same, it may not be possible to ascertain as to whether the case of the assessee was transferred prior to passing of assessment order. Under these set of circumstances, we are of the view that the Ld. CIT(A) was justified in rejecting the contentions of the assessee on this issue. 9. The next two issues urged by the assessee, which are common in both the years, relate to disallowance of mark to market loss on the value of current investments and also disallowance of realised loss on sale of current investments. Since the reasoning given by the AO for making both the disallowances is common, both the issues are taken up and addressed together. 10. The assessee is registered with the Reserve Bank of India as a Non Banking (non deposit taking) Financial Company. The assessee has invested its funds in securities and treated the same as its stock in trade. Accordingly, as at the year end, the assessee valued the securities at cost or market price whichever is less . In this process, the value of current investment as at the yearend was found to have depreciated by ₹ 149.20 lak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12. During the course of hearing, the assessee filed detailed submission to revert various observations made by the Assessing Officer. For the sake of convenience we extract below the written submissions furnished by the assessee after completion of hearing. DISALLOWANCE OF MARK-TO-MARKET AND REALISED LOSS ON CURRENT INVESTMENTS It is the Appellant's case that the securities held by it have be so held by it as business assets, as its stock, and therefore as at the end of the year it is required to value such stock at cost or market value whichever is lower. On such a valuation, a loss of ₹ 1,49,20,961 has resulted for AY 2010-11 and of ₹ 18,81,599 for AY 2011- 12. This loss is an allowable deduction in computing its business income for the respective years. The Appellant submits as under: i. The Appellant is permitted in law to hold and trade in securities as its stock, ii. The Appellant has indeed held the securities as its stock / business asset. Once that is so the loss on sale of such securities ought to be allowed as a business loss. iii. Insofar as those securities which are held as at the end of the year, such securiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness income [Page 75 of the PB (AY 2010-11), Page 31 of PB (AY 2011-12)]. d. The expenses incurred on purchase of these securities (i.e. brokerage expense of ₹ 1.58 lacs and custodial fees of ₹ 25.92 lacs for AY 2010-11 and brokerage expense of ₹ 12.94 lacs and custodial fees of ₹ 63.67 lacs for AY 2011-12) have been allowed as business expenditure [Page 76 of PB (AY 2010-11), Page 32 of PB (AY 2011-12)]. 2. Enquiry by the Reserve Bank of India: The Regulator of NBFCs viz. the RBI has accepted the holding of securities by the Appellant to be on business account, in other words its stock. This is evident from the following: a. As per Circular No. 81 dated 19 October 2006, an NBFC as its principal business should at least hold 50% of its assets in financial assets and at least 50% income from financial income. [Page 153 of PB (AY 2011-12)] b. The balance sheet of the Appellant as on 31 March 2009 shows ₹ 663 crores invested in fixed deposits, making them the primary asset [Schedule to the financial statements at Page 73 of PB (AY 2010-11), Page 28 of PB(AY 2011-12)]. c. Fixed deposits are not treated as financial assets as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion by the Appellant. Reliance is placed on the following decisions: i. Radials International [367 ITR 1 (Del)] ii. Sadhana Nabera [2586/Mum/2009] The Annexure 3 submitted with your Honours during the hearing provides the volume and frequency of the dealing in securities by the Appellant which support it's contention that the securities were held as current investments. iii. Insofar as those securities which are held as at the end of the year, such securities are liable to be valued at cost or market value whichever is lower, and the resultant loss, if any, is allowable as a deduction. 1. The Hon'ble Supreme Court in Chainrup Sampatram [28 ITR 481 (SC)] has settled the law on valuation of stock and has held that stock needs to be valued at cost or market value whichever is lower and if such valuation results into a loss, the such loss, albeit notional, will be taken into account. 2. The above view was reiterated by the Hon'ble Supreme Court, this time in the context of banks, in the case of UCO Bank [240 ITR 355 (SC)] where the Hon'ble Supreme Court held that the loss arising on account of such valuation was allowable as a deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Appellant submits as under: i . The decision in the case of Southern Technologies Ltd. [(2010) 187 Taxman 346] has no application in as much as the Hon'ble Supreme Court in that case was concerned with applicability of the prudential norms to the extent they were contrary to the provisions of the Act. In that case the prudential norms required the profits of the year to be reduced by a provision made for doubtful debts. Similar deduction was claimed by Southern Technologies Ltd. in computing its income under the Act. The Hon'ble Supreme Court held that the requirement of the Prudential Norms cannot override a specific prohibition contained in the Act and hence the deduction was held not to be allowable. In the present case, valuation of current investments held as business assets (stock) at cost or market value whichever is lower is consistent with the Act and the afore cited decisions of Chainrup Sampatram [28ITR 481 (SO], UCO Bank [240 ITR 355 (SO] and Bank of Baroda [262 ITR 334 (Bom)]. ii. The Hon'ble Delhi High Court has in the case of Vashisth Chay Vyapar [330 ITR 440 (Del)] approved of the aforementioned distinction. C. While the Appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has submitted that , as per the provisions of sec.45I(c) of the RBI Act, it is permitted to carry on the business of trading in securities. The assessee has also pointed out that the Circular dated 06-12-2006 relied upon by the AO relates to the NBFC which accept deposits. Since the assessee did not accept deposits, the said Circular is not applicable to the assessee. With regard to the query raised by the RBI by way of show cause notice, the assessee submitted that fixed deposits held by the assessee was not considered as financial instruments and hence the RBI has given show cause notice. Subsequently, it has withdrawn the fixed deposits and has made investment in securities. The said modification done by the assessee has been accepted by RBI, meaning thereby, the RBI does not have any objection in purchasing securities and holding the same as stock in trade. With regard to the observation of the AO that the assessee has shown the investments as Investments in the Balance Sheet, the assessee has submitted that it was constrained to prepare Balance Sheet as per the format prescribed by the RBI. Further the assessee has also placed its reliance on the decision rendered by Hydera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D.R have been rendered on different set of facts and hence the same cannot be taken support of. The written submission made by the with regard to the above said two case laws are extracted below:- A. Moderate Leasing Capital Services Ltd. (2012) 19 taxmann.com 164 (Delhi): i. This was a case where the Assessee therein held two portfolios, one investment and the other stock. The assessee sold shares from the investment portfolio and claimed the loss on such sale as business loss. The Hon'ble High Court held that when two portfolios are maintained and shares in question are shown in investment portfolio, that would be a very dominant factor disclosing the intention of the assessee as far as shares in question are concerned. ii. The above fact pattern is completely distinguishable from the facts of our case. In the case cited the Assessee took different stand in its books and that for income-tax purposes and consequently the plea of the assessee therein was rejected. Where as in the case before Your Honours the assessee has in accounts as well as in its filings before the income-tax authorities treated the securities held as its stock (current investments) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndered by Hon ble Supreme Court in the case of Chainrup Sampatram (28 ITR 481)(SC) to submit that the stock in trade has to be valued at cost or market value, whichever is less. It was submitted that the above said principle was reiterated by Hon ble Supreme Court in the case of UCO Bank (240 ITR 355)(SC) and it was further held that the loss arising on account of valuation of closing stock is allowable as deduction. The above said decision was followed by Hon ble Bombay High Court in the case of Bank of Baroda (262 ITR 334). The Ld A.R submitted that the RBI Circular (Paper book pages 248, 250 and 256 of AY 2010-11) also requires that securities should be valued on the basis of cost or market value, whichever is lower and should recognise the resultant loss, if any. Hence, we are of the view that the Provision for diminution in the value of investments is allowable as deduction as per the principle laid down by the Hon ble Supreme Court in the above said cases. Accordingly, we set aside the order passed by Ld CIT(A) on this issue in both the years under consideration and direct the AO to allow the claim of the assessee in both the years. 20. Since we have held that the investme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence the assessee is mandatorily required to follow mercantile system of accounting. The AO accordingly expressed the view that the Tribunal, in the above said case, did not take note of amendment brought into sec. 145 of the Act. Accordingly he assessed the interest accrued but not due amounting to ₹ 934.96 lakhs as income of the assessee for AY 2010-11. On identical reasoning, the AO assessed ₹ 273.00 lakhs as income of the assessee in AY 2011-12. 23. The Ld CIT(A) noticed that an identical issue has been considered by the Hon ble Bombay High Court in the case of DIT (International Taxation) vs. Credit Suisse First Boston (Cyprus) Ltd (23 taxmann.com 424), wherein it was held that when an instrument or an agreement stipulates that interest shall be payable at a specified date, interest does not accrue to holder thereof on any date prior thereto. Accordingly, following the above said binding decision of jurisdictional High Court, the Ld CIT(A) deleted the addition made by the AO in both the years on account of interest accrued but not due. The revenue is aggrieved. 24. We heard the parties on this issue and perused the record. We notice that the Ld CIT(A) has f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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