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Income Tax Appellate Tribunal, MUMBAI BENCH “ C”, MUMBAI
आयकर अपीलीय अिधकरण मुंबई पीठ “सी ”,मुंबई �ी िवकास अव�थी, �ाियक सद� एवं सु�ी प�ावती. एस, लेखाकार सद� के सम� IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “ C”, MUMBAI BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER& MS. PADMAVATHY.S, ACCOUNTANT MEMBER आअसं.2006/मुं/2023 (िन.व. 2012-13) (A.Y.2012-13) आअसं.2007/मुं/2023 (िन.व. 2013-14) ITA NO.2007/MUM/2023 (A.Y.2013-14) आअसं.2001/मुं/2023 (िन.व. 2014-15) (A.Y.2014-15) Dy. Commissioner of Income-tax 6(1)(1), Mumbai, Room No.504, 5th Floor, Aaykar Bhavan, M.K.Road, Mumbai – 400 020 ...... अपीलाथ�/Appellant बनाम Vs. M/s. Credit Suisse Finance (India) Pvt. Ltd. 9th Floor, Ceejay House, Plot F, Shivsagar Estate, Dr.Annie Besant Road, Worli, Mumbai – 400 018. PAN: AAACB-3741-N ..... �ितवादी/Respondent Revenue by : Shri H.M.Bhatt Assessee by : Shri Percy Pardiwala with Shri Paras Savla & Shri Harsh Savla सुनवाई की ितिथ/ Date of hearing : 16/10/2023 घोषणा की ितिथ/ Date of pronouncement : 18/10/2023 आदेश/ORDER PER VIKAS AWASTHY, JM:
The appeals by the Revenue for Assessment Years 2012-13, 2013-14 and 2014-15 are directed against the orders of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [in short ‘the CIT(A)’], for the respective Assessment Years. All the impugned orders are of even date i.e. 30/03/2023.
Shri Percy Pardiwala appearing on behalf of the assessee submitted at the outset that appeals of the Revenue for Assessment Year 2012-13 and 2013-14 are liable to be dismissed on account of low tax effect in the light of CBDT Circular No.17/2019 dated 08/08/2019.
A perusal of grounds of appeal shows that for Assessment Years 2012- 13 the tax effect in the appeal is Rs. 38,19,528/- and the tax effect in ITA No.2007/Mum/2023 for Assessment Year 2013-14 is Rs.4,13,605/-. No material is placed on record by the Revenue to show that the issues involved in the aforesaid appeals falls under exceptions provided in Para-10 of CBDT Circular No.3/18 dated 11/07/2018 and the subsequent amendment to the Circular vide letter dated 20/08/2018. No other Circular or Notification from the Board is brought to the notice of Bench to highlight that the issue involved in the aforesaid appeals falls under exception to the monetary limit for filing of the appeals by the Department. Hence, in the facts of the case and documents on record, appeals of the Revenue in ITA No.2006 & 2007/Mum/2023 for Assessment Years 2012-13 and 2013-14, respectively are dismissed on account of low tax effect.
Liberty is granted to the Department for recalling of this order within the time specified under the provisions of the Act by filing an appropriate application substantiating that the issues involved in the appeals fall under any of the exceptions specified by the Board by way of notification/circular prior to the date of passing of this order.
The Revenue in appeal has raised the following grounds:
1. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is justified in deleting the disallowance on account of provision for mark to market loss in value of current investments amounting to Rs. 1,71,61,730/-. 2. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is justified in granting deduction for opening provision for mark-to market loss in value of current investment of Rs. 13,56,082/- credited to P&L Account for financial year ended 31st March, 2014," 3. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is justified in allowing loss incurred on sale of current investment of Rs. 10,30,78,181/- treating the same as capital loss." 4. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is right in holding that the securities held by the assessee are trading assets and not capital assets; that it should be valued on the basis of cost or market value whichever is lower and that, resultantly, it is a business loss, therefore, the assessee is eligible for claim of deduction in diminution in value of investments?" 6. Shri H.M.Bhatt representing the Department vehemently defended the assessment order and prayed for reversing the findings of CIT(A) on the issues assailed by the Revenue in ground No.1 to 4 of appeal.
The ld.Counsel for the assessee submits that the issue raised by the Revenue in appeal have been decided by the Tribunal in assessee's own case in the preceding Assessment Years. The ld.Counsel for the assessee placed on record copy of the Tribunal order in for Assessment Year 2011-12 and ITA NO.1436/Mum/2016 for Assessment Year 2010-11 decided vide common order dated 21/12/2018. The ld.Counsel for the assessee pointed that there is no change in the facts in the impugned assessment year.
Both sides heard. The assessee is a registered Non-banking Finance Company. The assessee is engaged in the business of providing loans and advances. The assessee held debt securities as current investments in accordance with the Accounting Standards and the assessee’s investment policy. Accordingly, the assessee adopted the method of valuing current investments at cost or market value, whichever is less. As per the valuation method, where the market value of current investment is less than the cost, the provision made for mark to market loss is created and charged to the Profit & Loss Account. In assessment proceedings the Assessing Officer disallowed provision made for mark to market loss. The Assessing Officer further held that the loss on sale of current investment is capital in nature. In first appellate proceedings, the CIT(A) deleted the additions made by Assessing Officer following the order of Tribunal in assessee's own case for assessment year 2010-11 and 2011-12, hence, the present appeal.
The Revenue in ground No.1 and 2 of appeal has assailed the findings of CIT(A) in deleting disallowance on account of provision for mark to market losses and granting deduction for opening provision for mark to market losses in value of current investments. In ground No.3 and 4 of appeal the Revenue has assailed the findings of CIT(A) in allowing loss incurred on sale of current investment, treating the same as business loss. We find that in the Assessment Years 2010-11 and 2011-12 identical additions were made. The matter travelled to the Tribunal. The Co-ordinate Bench vide order dated 21/12/2018 (supra), after examining the facts of the case decided both the issues in favour of the assessee. The relevant extract of the Tribunal order for assessment year 2010-11 and 2011-12 is reproduced herein under:
13. We heard rival contentions on these issues and perused the record. The assessee claimed that it is holding the investments as its trading assets and accordingly claimed both the deductions referred above. The AO, on the contrary, placed reliance on the classification of company by RBI and also relied upon the show cause notice issued by the RBI for supporting his view that the assessee’s business activities cannot be considered as making investments. The AO has also observed that the assessee has shown the investments made in securities as “investments in the Balance Sheet and not as current assets. Since the assessee is not entitled to accept public deposits, the AO has also taken the view that there is no mandatory requirement for making investments He further noticed that a group company of the assessee named M/s Credit Suisse First Borston (Cyprus) Ltd has shown purchase of securities as its investments. Accordingly, the AO has taken the view that the investments made by the assessee should be considered as Capital Assets and accordingly rejected the both the claims.
However, a perusal of detailed reply given by the assessee would show that the assessing officer has not correctly interpreted the provisions of RBI Act. The assessee 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 Hyderabad bench of Tribunal in the case of Peninsular Investments (120 TTJ 96)(Hyd), which has since been approved by the Hon’ble Andhra Pradesh High Court reported in 213 Taxman 327, wherein it was held that the classification of securities under the head “current investments” does not mean that the securities are held on capital account and the securities held by the assessee being NBFC were its stock.
The AO had taken the view that the group concern of the assessee named Credit Suisse First Boston (Cyprus) Ltd had shown the securities as its investment, while the assessee is claiming its investment as trading assets. Accordingly, the AO has taken the view that the assessee is adopting different stands to suit its convenience in characterising the securities held. The Ld A.R submitted that the above said group company is a Foreign Institutional Investor (FII) and the FIIs are prohibited from trading in securities, i.e., they are prohibited from carrying on business in India, which was noted down by the Tribunal in the case of Platinum Investment (33 taxmann.com 298). Accordingly, the Ld A.R submitted that the AO was not correct in law in taking support from the facts available in the above said group company.
The assessee has furnished the details of securities purchased, sold and held by the assessee at page 116 of the paper book filed for AY 2010-11 and at pages 79-82 of the paper book filed for AY 2011-12. The Ld A.R submitted that the volume, frequency, ratio of sales to purchases would show that the assessee was carrying trading activity in investments. The assessee has placed its reliance on the decision rendered by Hon’ble Supreme Court in the case of Sutlej Cotton Mills (supra), the decision rendered by Hon’ble Andhra Pradesh High Court in the case of PVS Raju (supra), the decision rendered by Hon’ble Delhi High Court in the case of Radials International (supra) and the decision rendered by Mumbai bench of Tribunal in the case of Sadhana Nabera (supra).
Before us, the Ld D.R placed his reliance on the decision rendered by Hon’ble Delhi High Court in the case of Moderate Leasing & Capital Services Ltd (2012)(19 taxmann.com 164)(Delhi) and the decision rendered by Chennai bench of Tribunal in the case of REPCO Home Finance Ltd (2018)(92 taxmann.com 230). It is the contention of the assessee that both the decisions relied upon by the Ld 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. 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) and valued them at cost or market value whichever is lower. B. REPCO Home Finance Ltd. (2018) 92 taxmann.com 230 (Chennai Trib.): i. In the case the facts found by the Hon'ble Tribunal were - "9. ... As seen from the facts of the case, the assessee was engaged in the housing finance activity and not at all engaged in trading in shares. The buying of the shares was only the intention of holding it as an investment. The assessee has no intention to trade in shares. 9.1 The investment in shares are classified as long term investments or current investment and long term investments are valued on historical cost method. On the other hand, current investments are valued at cost or market value whichever is lower. In other words, investment in shares were not at all considered as stock in trade as the assessee was not dealing in shares. Once the shares are treated as investments, loss arising out of purchase and sale of shares is only a capital loss and it is not a business loss. In other words, assessee having carried on no business activity and treated the shares as investments from year
to year, income or loss arising out of sale of such treatment accorded to it by the assessee in its return of income; contrary to the treatment giving in the books of accounts. Hence this ground of appeal of assessee stands rejected." (emphasis supplied) 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) and valued them at cost or market value whichever is lower.”
18. On hearing rival contentions, we are of the view that there is merit in the submissions made by the assessee, as the various points noted down by the assessing officer has rightly been addressed by the assessee. Both the case laws relied upon by Ld D.R have been rendered on different set of facts and hence they cannot be taken support by the Revenue. Accordingly we hold that the assessee has held the securities as its trading assets only.
19. The assessee has placed its reliance on the decision rendered 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 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. [Emphasized by us] No contrary material has been placed on record by the Revenue distinguishing the decision of Co-ordinate Bench or the facts in the impugned assessment year. The CIT(A) has deleted the addition following the above referred order in assessee's own case in Assessment Year 2010-11 and 2011-12. We do not find any infirmity in the impugned order, hence, the same is upheld. The appeal of Revenue is dismissed being devoid of any merit.
Order pronounced in the open court on Wednesday the 18th day of October, 2023.