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TMI Blog2013 (8) TMI 1117X X X X Extracts X X X X X X X X Extracts X X X X ..... i) of the Act without appreciating the fact that the assessee failed to submit any supporting evidence to prove that whatever amount set aside by it constitutes 20% of the profits derived form the eligible business computed under the head Profits and gains of business & profession. 3. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of ₹ 53,89,699/- made on account of Reclassification of Capital Gains as Business income without appreciating the fact that the profit earned by the assessee on sale of securities held under obligation of RBI guidelines or otherwise is business income as the source of money for investing in all those securities is receipts out of banking business." 3. First ground relates to deletion of addition of ₹ 10,49,919/- made on account of premium amortization expenses. 4. Brief facts of the case are that the assessee is a Co-operative Society engaged in the business of banking and all forms of business enlisted in section 6 of Banking Regulation Act, 1949, out of which lending is the main activity predominantly to the members of Co-operative Bank. During the assessment proceedings, it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of The Bank of Rajasthan Ltd. ITA No. 3238/Mum/20l0 wherein reference to Instruction No. 17 of 26.11.2008 issued by CBDT for assessment of banks and para (vii) is reproduced as under. "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 Maturity (HTM), Held for Trading (HFT) and Avertable for Safe (AFS). Investments classified under HTM category need not be marked to market and are carried at acquisition cost unless these are more than the face value, in which case the premium should be amortized over the period remaining. In the case of HFT and AFS 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." In addition to the above CBDT Instruction, appellant relied on the decisions of "ITAT Bangalore in the case of National Co-operative Bank, Bangalore ITA Nos. 1090(Bang.)/2010 & 7(Bang.)/20ll for assessment years 2007-08 and 2008-09 and also deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t whatever amount set aside by it, constitutes 20% of the profits derived from the eligible business computed under the head ''Profit and Gains of business and profession" (before making any deduction under this clause) carried to such reserve account. In view of this, AO disallowed the said expenses. 9. Before Ld. CIT(A), assessee's submission was as follow:- "3.2 During the appellate proceedings, It was explained by appellant that during the assessment proceedings complete details of working out the 20% of profits derived, were furnished to the AO but the same were ignored by him. The same has been reiterated by appellant as under: "As regards Ground No. II about deduction u/s. 36(1)(viii) for ₹ 50,09,000/-, the details have been furnished as per para (2) of letter dated 06.08.2011 to the Assessing Officer in course of assessment proceedings. This is reproduced. Total interest Income on advances 1640.11 Interest income on Housing (86.41 tecs) and SSI Term Loan (530.52) tecs 616.93 Banking operation income 665.79 So taxable income from Housing loan and SSI long term loan is 250.44 20% special provision on above 50.09 Branch wise parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank wants. These investments are called non SLR investments. In the case of assessee, it has invested such surplus funds in NABARD bonds and earned Long Term Capital Gains of ₹ 41,16,375/-. Similarly, Short Term Capital Gains of Rs,12,73,323/- has been earned on investment in other different securities. Since, these investments are non SLR investments therefore the income earned out of it has no relation with banking business therefore they are shown under the head capital gains. However, the explanation of assessee was not accepted by AO on the ground that holding of securities cannot be presumed to be not a part of its business, nor can it be said that the securities are not part of stock in trade. 13. Before Ld. CIT(A), assessee's submission was as follows:- "4.2 During the appellate proceedings, it has been submitted by appellant that the bank has maintained its investments in SLR securities and non SLR securities. The SLR securities have been invested as per the guidelines of RBI and cannot be used for any other purposes. Since, maintaining the ratio securities is necessary for running the business of bank, income out of these SLR securities have been shown as inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en held by appellant as capital assets not as stock-in-trade as concluded by AO. In the earlier years also, in the similar fashion, appellant has been investing in the securities as capital assets and shown as Long Term as well as Short Term Capital Gains also on purchase and sale of bonds and mutual funds, which have been accepted by AO. The conclusion drawn by AO that any income arising from non-SLR securities it be held to be closely connected with the banking business so as to constitute its business income therefore profit earned by assessee on sale of securities held under obligation of RBI guidelines or otherwise is to be considered as business income instead of capital gains, is misplaced. There is basic difference between SLR and non-SLR securities. SLR securities are to be maintained by bank in the ratio prescribed by R.B.I to safeguard the money of customers and also to run its business. Without maintaining this ratio, credibility of banks will become vulnerable. But, a non-SLR security, which is purchased out of surplus funds, banks are free to invest or do business as per their discretion. They can invest it as capital asset or earn profit by doing business. The earnin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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