TMI Blog2019 (6) TMI 926X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the assessee in the regular return of income, specific query was raised by the Ld. A.O for the alleged claim and detailed reply was filed along with necessary evidences in the form of circular issued by RBI and the accounting standards applicable for disclosure of such type of investments. Thus Proviso of Section 147 is not applicable on the assessee and the reopening of the assessment by issuance of notice u/s 148 is bad in law and the assessment made u/s 147 r.w.s. 143(3) dated 13.12.2017 deserves to be quashed. In the result Ground No.1 of the assessee is allowed. Depreciation in the valuation of investment of securities - HELD THAT:- We observe that the assessee is engaged in the business of banking and providing credit facilities. As per the guidelines of RBI the assessee is required to invest in securities to be kept as fluid securities and are available for sale and are to valued every month on periodical basis. As per the RBI guidelines, circular named classification in valuation of investments dated 26.11.2008 vide instruction No.17/2008, such security are required to be marked to market on the specified dates. Any diminution/increase in the value of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding the addition of ₹ 16,36,000/- being the amount of depreciation claimed as per the RBI guidelines. 3. The Ld. CIT(A) erred in not following the judgments cited before him for allowance of depreciation. The claim of depreciation on investment of fluid asset may please be allowed. 4. Brief facts of the case are that the assessee is a co-op. society engaged in the business of banking and providing credit facilities. The activities of the society are governed by the directives of the RBI. The return of income was filed on 15.10.10 declaring the income of ₹ 45,66,540/-. The accounts are audited and the Tax Audit Report is filed. During the course of the assessment proceedings, the Ld AO specifically raised a query vide letter dated 22/10/2012 regarding the allowability of depreciation on investments and vide letter dated filed 11.12.2012, the assessee gave the reply and also drew attention to the RBI Circular. The original assessment was completed on 28/12/2012 determining the total income of ₹ 45,66,540/-. 5. Subsequently notice u/s 148 of the Act was issued on 25.11.2016 on the ground that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rative Bank Ltd V/s DCIT (All) CIT Versus Fujistu Optel Ltd (359 ITR 67) Madhya Pradesh High Court CIT v/s. Trimurti Builders (M.P.) (246 CTR 308) CIT Vs. Kelvinator of India Ltd. (256 ITR (Del) CIT v/s Orient Craft Ltd (354 ITR 536) (Del) DIT vs. Rolls Royee Industrial Power India Ltd (2017) 82 taxmann.com 166 (Delhi High Court) Ranbaxy Laboratories Ltd Versus Deputy Commissioner of Income Tax and OTR 351 ITR 23 Delhi High Court. Rubamin Ltd. Vis. Love Kumar (253 ITR 432) (Guj.) Ashwamegh Co-operative Housing Society vis. DCIT (353 ITR 413) (Guj.) Metal Alloys Corporation v/s. ACIT (350 ITR 245) (Guj.) Mrs. Parveen P. Bharucha vis. CIT (348 ITR page 325) (Mumbai) NDT Systems vis. ITO (255 CTR page 113) (Born.) Vishwanath Engineers vis. ACIT (354 ITR page 211) (Guj.) Maruti Suzuki vis. DCIT (356 ITR page 209) 8. Per contra Ld. Departmental Representative vehemently argued and supported the orders of lower authorities. 9. We have he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 36,000/- has been debited to the P L A/c. The same represents the diminution in the value of investments in Govt. Securities. The securities which are not kept by the bank as HTM (held till maturity) are valued every month and the same are marked to market as per the RBI Circular. Any diminution in the value of the securities as on the valuation date are debited to P L A/c. As depreciation on investments. The same is done on the basis of Circular of the TBI named as Classification and valuation of Investments . The same is a business expenditure and incurred during the course of its banking business and hence is an allowable expenditure. The same has been made for last many years and has been accepted by the Department for the preceding years. 11. Ld. A.O after considering the submissions of the assessee accepted the claim of diminution in the value of investment at ₹ 16,36,000/- and accepted the returned income of the assessee vide order u/s 143(3) of the Act dated 28.12.12. There remains no doubt that proper disclosure of the claim of depreciation in the form of diminution of value of securities was made by the assessee in the regular return of income, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere duly served upon the assessee. Books of accounts and audited financial statements were placed on record. Ld. A.O on observing that the assessee has claimed depreciation on investment of ₹ 57,95,185/- directed the assessee to justify the claim. Assessee made necessary reply giving reference to the Reserve Bank of India guidelines which are statutorily required to be adhered by the assessee being engaged in the business of banking and providing credit facilities. However Ld. A.O did not allow this claim of ₹ 57,95,185/- observing that the security wise valuation of investments were not furnished and no basis of valuing securities have been furnished in order to arrive at a figure of depreciation on account of diminution in the value of investments. Ld. A.O also observed that the assessee has treated the investments as closing stock by valuing them at cost or market price, whichever is less basis. Ld. A.O therefore after disallowing ₹ 57,95,185/- towards depreciation of diminution in the value of investments, assessed loss of (-) ₹ 15,36,320/-. 18. Assessee preferred appeal before Ld. CIT(A) but failed to succeed as Ld. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e banks are trading in these securities and these securities are valued at cost or market value, whichever is lower. Thus, when the market prices are lesser, the securities are valued at the prevailing rates and the difference of cost and market value is charged as depreciation as per the RBI guidelines. The Id. AO' has made the additions merely on the ground that these are investments and the details are not filed. But complete details were filed before Ld. AO explaining the nature of the depreciation, its working and proper explanation was given. However, no efforts were made by him to understand the facts and no cognizance has been taken by him for any of the assessee's submissions. The additions made are totally baseless and deserves to be deleted. In this connection, we would like to draw your honour's kind attention to the decisions of various High Courts directly on this point who have specifically held it that the difference in value of investments should be treated as depreciation and is allowable as a deduction:- CIT V/s. Nendugada Bank 182 CTR p.403 (Kar} Bank of Baroda V/s. CIT 262 ITR p.334 (Ker.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. We have heard rival contentions and perused the records placed before us. The common issue relates to disallowance of amortization of premium paid on government securities. From perusal of the audited balance sheet it is revealed that the assessee being a Regional Rural co. operative Bank engaged in the business of banking is required to deposit certain amount in government securities as per the guidelines of Reserve Bank of India and to hold such securities till the maturity so as to maintain the Statutory Liquidity Ratio (SLR). In some cases value of acquisition of such securities is higher than the face value and such premium so paid is amortized as loss during the entire period of security. Assessee made similar claim but both the lower authorities did not allowed. 27. We find that the assessee has referred to various judgments placed in the paper book No.2 dated 26.4.2018. Similar facts came up for adjudication before Hon ble Gujarat High Court in the case of CIT V/s Rajkot Dist. Co-Op Bank Ltd Tax Appeal No.56/2013 dated 10/02/2014 and following question was raised for consideration before the Hon ble court; (i) Whether in the facts an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ace value, in which case the premium should be amortized over the period remaining to maturity. In the case of HFT and AFT securities forming stock-in-trade of the bank, the depreciation/appreciation is to be aggregated scrip-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. 7. The instructions clearly provide for amortization of premium paid on acquisition of securities when the same are acquired at the rate higher than the face value. Such amortization would have to be for the remaining period of maturity. This precisely the Tribunal had directed in the impugned order. Though contended, no contrary instructions of CBDT are brought to our notice. The instruction in question having been issued under section 119(2) of the Income-tax Act, 1961, would bind the Revenue. No question of law, therefore, arises. 8. Resultantly, the Tax Appeal is dismissed. Notice is discharged with no order as to costs. 30. We have examined the facts of the instant appeal and find that they are similar to the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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