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TMI Blog2022 (9) TMI 448X X X X Extracts X X X X X X X X Extracts X X X X ..... urities Rs.9,07,85,000/- 2. Addition of Interest on NPA Rs.29,11,000/- Both the above were deleted in appeal by the Ld.CIT(A) ,aggrieved by which the Revenue has come up in appeal before us. 3. Ground of appeal no. 1 raised by the Revenue reads as under: 1. The Ld. CIT(A)-2, Rajkot has erred in law and on facts in deleting the disallowance of depreciation claimed on securities of Rs.9.07.85,000/-. 3.1. As transpires from the order of the authorities below, the assessee had claimed depreciation on conversion of securities classified as Held to Maturity (HTM) to those classified as Available for Sale (AFS). The same was disallowed by the A.O. primarily for the reason that the HTM securities were capital assets and the loss therefore was capital in nature and there was no specific provisions under the Income Tax Act allowing such loss in the case of the assessee. 4. Before the ld. CIT(A), we have noted, the assessee explained that dealing in shares and securities was treated as part of the business of Banking as per Section 6(1)(a) of the Banking Regulation Act and all such investments were required to be categorized as (i) Held to Maturity (HTM) (ii) Available for Sale (AFS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purposes of its Income Tax return had valued its stock in trade at a different method as that followed for the purposes of its balance sheet prepared under the Banking laws and which method had been consistently accepted by the department for the last 30 years, no disallowance could be made on account of the assessee having followed a different method for valuing its stock in trade for Income Tax return purposes. 7. It was also pointed out that Courts had on several occasions held that the assessee was entitled to claim depreciation on securities though notional in nature. It was further pointed out that the Hon,ble High Court of Bombay in various decisions had held the claim of deduction on account of depreciation in value of investments on conversion of AFS securities to HTM securities to be in line and in accordance with the decision of the Hon'ble Apex Court in UCO Bank (supra). Our attention was drawn to the following decision in the case of CIT vs. Bank of Baroda (2003) 129 taxmann.com 716, and CIT-2, Mumbai vs. HDFC Bank Ltd. (2014) 52 taxmann.com 333. 7.1 The assessee accordingly contended that it had claimed depreciation in value of securities on shifting from HTM ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchasing and selling of bonds, scrips or other forms of securities on behalf of constituents or others, the negotiating of loans and advances; the receiving of all kinds of bonds, scrips or valuables on deposit or for safe custody or otherwise; the providing of safe deposit vaults; the collecting and transmitting of money and securities; (b) acting as agents for any Government or local authority or any other person or persons; the carrying on of agency business of any description 13. Taking note of the same, the Hon'ble apex court, in the case of Nawanshahar Central Coooperative (supra) held that income arising from investments of Banks, being attributable to business of banking, fall under the head "Profits and Gains of Business and Profession". In line with the said decision the CBDT issued a circular No.18/2015 dated 2nd November 2015 (P.B 31) directing all incomes from investments of banks, including non SLR securities, to be treated as business income and expenses against the same to be allowed accordingly. 14. Going forward we have further noted that as per Master Circular issued by RBI on Investments by Primary (Urban) Cop-operative Banks dated 1st July 2009,copy plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the valuation of such securities in accordance with Guidelines issued by RBI in this regard. The relevant portion of the ICDS VIII placed before us at P.B 40 is as under Scope 1. This part of Income Computation and Disclosure Standard deals with securities held by a scheduled bank or public financial institutions formed under a Central or a State Act or so declared under the Companies Act, 1956 (1 of 1956) or the Companies Act, 2013 (18 of 2013). Definitions 2(1) The following terms are used in this part of Income Computation and Disclosure Standard with the meanings specified: (a). "Scheduled Bank" shall have the meaning assigned to it in clause (ii) of the Explanation to clause (viia) of sub-section (1) of section 36 of the Act. (b). "Securities" shall have the meaning assigned to it in clause (h) of Section 2 of the Securities Contract (Regulation) Act, 1956 (42 of 1956) and shall include share of a company in which public are not substantially interested; 2(2) Words and expressions used and not defined in this part of Income Computation and Disclosure Standard but defined in the Act shall have the meaning respectively assigned to them in the Act. Classifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he impugned addition relates to the reduction in the quantum of interest receivable on bad and doubtful advances from the balance as at the beginning of the year to that as at the end of the year being Rs. 71,37,000/- and Rs. 42,26,000/- respectively which was on account of the interest having been received during the year and was subjected to tax by the AO for the reason that the assessee was not able to prove that it had been taxed on accrual basis in earlier years. 24. The contention of the assessee all along we have noted has been that the impugned interest receivable as at the beginning of the year amounting to Rs. 71,37,000/- pertained to an advance given to Moviya Seva Sahakari Mandali Ltd. which advance was classified as a NPA long back in 1992, impugned FY before us being 2009-10.That the interest accrued was subjected to tax on accrual basis and the receipt of Rs. 29,11,000/- during the year was on the recommendations of the Vaidyanathan Committee and since this amount received during the year had already been taxed in earlier years on accrual basis, the same could not be subjected to tax again in the impugned year. The assessee had contended that it had been accounting ..... X X X X Extracts X X X X X X X X Extracts X X X X
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