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TMI Blog2024 (11) TMI 1089X X X X Extracts X X X X X X X X Extracts X X X X ..... 8D(ii) of the Income-tax Rules, 1962 (hereinafter the 'Rules'). For this, assessee has raised the first jurisdictional issue that the provisions of section 14A of the Act does not apply to the case of assessee as it is in the banking business and the exempt income is business income from banking as the assessee has kept these shares/investments as stock in trade. 3. At the outset, the ld.counsel for the assessee stated the facts that during the year under consideration the assessee has disclosed tax free income of Rs. 5,54,88,860/- and assessee suo-moto disallowed administrative expenses directly relatable to earn this exempt income at Rs. 5,23,970/-. The ld.counsel for the assessee stated that the issue now stands covered by the decision of Hon'ble Supreme Court in the case of South Indian Bank Ltd., vs. CIT, reported in 130 Taxmann.com 178, wherein it is held that wherever the assessee bank keep shares and securities and held the same as stock-in-trade and not bought to maintain Statutory Liquidity Ratio and also not kept as investment, income arising out of those is attributable to business of banking and hence, provisions of section 14A of the Act does not apply to the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rities held by assessee bank as stock-in-trade and not investment, we principally agreeing with the argument of the ld.counsel for the assessee that this issue is covered but for verification purpose, we remit this issue back to the file of the AO. The AO is directed to first give a finding as regards to the fact that these shares and securities are held as 'stock-in-trade' or as 'investment' in assessee's bank balance sheet and in case, these are held as investment, the AO will recompute the disallowance by applying the provisions of section 14A of the Act r.w.rule 8D of the Rules as per law after considering the facts and circumstances of the case. Accordingly this issue of the assessee's appeal is remanded back to the file of the AO. The order of CIT(A) and that of the AO are set aside and matter referred back to the AO. This issue of assessee's appeal is allowed for statistical purposes. 6. The second issue in this appeal of assessee is as regards to the order of CIT(A) upholding the disallowance of claim made by the assessee of loss on treasury investments being mark-to-market loss. For this, assessee has raised following the ground No.2:- "2. Denial of deduction for provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, the year when the financial instruments are actually sold), however inevitable it may appear, cannot be a loss on trading of the present year. A loss which is apprehended to arise as a result of fall in the market, however probable or certain the loss may be, cannot be claimed as deduction from the profits of the accounting year, for the loss is not actually suffered in the current year. It is pertinent to not here that the deduction has been claimed by the appellant owing to valuation of investments held as per the market rate; and not on account of valuation of stock-in-hand at cost or market value whichever is lower. 7.5 In view of the facts and circumstances of the case, and the prevailing position of law applicable on such facts, and respectfully following the binding judicial precedents, find that AO has correctly made the disallowance of provision for diminution in value of investments, as the same was a notional loss only, arising due to valuation of securities at market rates. The disallowance of provision made on this account amounting Rs. 1,02,66,292/- is accordingly sustained. This Ground of appeal is dismissed. Aggrieved, assessee came in appeal before the Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in UCO Bank's case (supra) squarely applied to the facts of instant case. In fact, that instant case was on a stronger footing because in the case of UCO Bank (supra), the loss was not debited to the profit and loss account whereas in instant case, the loss had been debited to the profit and loss account which was reflected as a provision for liability in the balance sheet and shares and securities were valued at cost on the assets side. [Para 4]. Therefore, the Appellant was entitled to deduction on account of depreciation in the value of investments" 9.1 The ld.counsel for the assessee also relied on the decision of Hon'ble Madras High Court in the case of Lakshmi Villas Bank Ltd., vs. CIT reported in 154 taxman 301, wherein the Hon'ble Madras High Court in similar facts allowed the claim of assessee as under:- "In the instant case, the Appellant, was dealing with purchase and sale of Government securities. The profit and loss on the sale of Government securities had been assessed as business income/loss under the Act. The Appellant bank had always been treating Government securities as stock-in- trade. It was further noticed that whenever there was depreciation/app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r as loss or income. Hence, we find that the assessee's claim is perfectly alright and hence, the order of AO and that of the CIT(A) is reversed and the claim of assessee is allowed. This issue of assessee's appeal is allowed. 11. The next issue in this appeal of assessee is as regards to the order of CIT(A) disallowing the claim of deduction claimed on account of interest on delayed payment of service tax. For this, assessee has raised the following ground No.3:- "Denial of deduction for interest on delayed payment of service tax The NFAC/learned CIT(A) erred in upholding the disallowance made by the ACIT on account of interest on late payment of service tax of Rs. 15,07,018/- by holding the same to be penal in nature instead of compensatory in nature." 14. On this issue, we have heard rival contentions and gone through facts and circumstances of the case. The AO during the course of assessment proceedings on perusal of profit & loss account noticed that the assessee has claimed as deduction an amount of Rs. 15,07,018/- on account of interest on late payment of service tax. According to AO, this is penal in nature and hence, the same is not allowable as deduction. The CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of penalty. The decision in case of Haji Aziz & Abdul Shakoor Bros. [Supra] is thus distinguishable. It is equally well settled that payment of interest is compensatory in nature and would not partake the character of penalty. Reference in this respect can be had to the decision of Supreme Court in case of Commissioner of Income Tax v. Luxmi Devi Sugar Mills P. Limited, reported in [1991] 188 ITR 41 and in case of Mahalakshmi Sugar Mills Company v. Commissioner of Income-tax, Delhi, reported in (1980) 123 ITR 429. As the issue is covered, we allow the claim of assessee and hence, this issue of assessee's appeal is allowed. 15. The next two issues i.e, Ground No.4 for claim of amortization of premium on HTM securities and vide ground No 5 claimed as deduction for perquisite charged in the hands of employees on exercise of ESOPS. For this, the ld.counsel raised the following ground Nos.4 & 5:- 4. Non-consideration of claim of amortization of premium on HTM securities The NFAC/ learned CIT(A) erred in not considering the claim of deduction for amortization of premium on HTM securities of Rs 6,92,21,39 2/- merely on the basis that the claim was not made in the tax returns and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted fact that the appellant has made a suo-moto disallowance of the said premium on amortization of HTM securities amounting Rs. 6,92,21,392/- in the computation of income. The scrutiny notice under section 143(2) was issued on 18.07.2017. The appellant has filed a revised return of income on 29.03.2018, i.e. during the pendency of the assessment proceedings, wherein the appellant has again made suo-moto disallowance in the computation of income in respect of this issue. Thus, the appellant has taken a considered stand on this issue, both in the original return, as also in the revised return, which was filed during the pendency of assessment proceedings. The appellant had adequate opportunity to reconsider his stand on this issue in the revised return of income, which was filed almost eight months after the onset of the scrutiny assessment proceedings. This is not a case where merely a fresh claim has been made during the assessment proceedings by way of filing a letter. Rather, the appellant has sought to change its stand on the same issue, on same set of facts, which runs contrary to the computation of income made in both the original as well as revised return of income. On thes ..... X X X X Extracts X X X X X X X X Extracts X X X X
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