ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE - 6, , PUNE vs. M/S. JANATA SAHAKARI BANK LTD,, PUNE

ORDER

PER D. KARUNAKARA RAO, AM:

by the assessee are as under :- “1. On the fact and the circumstances of the case and in the law, the CIT (A) has erred in deleting the disallowance of Rs. 6,00,64,835/- being depreciation in respect of HTM securities which are capital in nature?

2. On the fact and the circumstances of the case and in the law, the CIT (A) has erred in deleting addition of Rs. 73,55,848/- on account of profit on sale of investments.

3. For this and such other reasons as may be urged at the time of hearing, the order of the CIT(A) may be vacated and that of the Assessing Officer be restored.

4. The appellant craves leave to add, amend, alter or delete any of the above grounds of appeal during the course of appellate proceedings before the Hon’ble Tribunal.”

3. Before us, at the outset, ld. Counsel for the assessee brought our attention to the above extracted grounds and submitted that the same stands covered in favour of the assessee by virtue of the order of the Tribunal in assessee’s own case for the assessment years 2005-06 to 2010-11 vide and others dated 25.02.2015 read with the judgement of the Jurisdictional High Court in assessee’s own case vide Income Tax Appeal No.817 of 2016 and others dated 10.12.2018. Giving the background facts of the case, ld. Counsel for the assessee submitted that this is a case where the Assessing Officer held HTM securities. Disallowing the claim of the assessee, Assessing Officer made addition of Rs.6,00,64,835/- as per the discussion given in para 3 to 3.5 of the assessment order. The CIT(A) on perusal of the assessment records noted that certain issues were not considered by the Assessing Officer in the original assessment proceedings. As per the CIT(A), the said loss was wrongly allowed as business loss as HTM securities were in the nature of capital assets and loss incurred on sale of those securities was a capital loss. The assessee had valued the investment at the market rate prevailing on the date of shifting which had resulted in the loss, which was debited to Profit & Loss Account. The Assessing Officer noted that as per RBI guidelines, the banks were allowed to shift securities from one category to the others and on such shifting, if it results in any depreciation in value of investments, the same can be claimed as deduction in the Profit & Loss Account. However, under the Income-tax Act, loss arising on such shifting of AFS to HTM securities, was not an allowable deduction. The CIT(A) denied the same and held that the assessee bank can value the same at cost/market price whichever is less therefore I hold that Profit or Loss on sale of security for the purpose of tax should also be allowed and profit/loss in respect of the same security should be deducted/added while computing the income. The CIT(A) allowed the said issue in favour of the assessee.

4. Further, on account of profits or investments, the Assessing Officer made addition of Rs.73,55,848/- (para 4 of the assessment order). The CIT(A) following the said order of the Tribunal in assessee’s own case (supra) granted the relief to the assessee. The contents of para 4.2.1 to 5.2 of the order of the CIT(A) are relevant in this regard.

5. Aggrieved with the above decision of the CIT(A), the Revenue is in appeal before us with the grounds extracted above.

6. Before us, at the outset, ld. Counsel for the assessee filed a copy of the order of the Tribunal in assessee’s own case (supra) as well as the judgement of the Hon’ble Bombay High Court in assessee’s own case (supra) where the Hon’ble High Court affirmed the said decision of the Tribunal (supra). The ld. Counsel submitted that the assessee claimed loss of violation of HTM securities (securities are capital in nature) as an allowable loss. The Hon’ble Bombay High Court in assessee’s own case (supra) granted relief to the assessee affirming the order of the Tribunal and relying on the judgment in the case of CIT vs. Thane Bharat Sahakari Bank Ltd. (Income Tax Appeal No.1117 of 2013) rendered on 17th March, 2015. The relevant questions and Hon’ble High Court (supra) are extracted hereunder :- “2. The Revenue urges the following reframed common Priya Soparkar 2 35 itxa 817-16, 819-16, 832-16 and 837-16-0 question of law before us as under: "Whether on the facts and in the circumstances of the case and in law, the Hon'ble Income Tax Appellate Tribunal was justified in deleting the addition for relevant assessment year in allowing loss of valuation of Held to Maturity (HTM) securities, when HTM securities are capital in nature?"

raised by the appellant are treated as allowed for statistical purposes.

5. In ground No. 2, the appellant is aggrieved against the addition of Rs. 73,55,848/- on account of profit on sale of securities. The Assessing Officer during the assessment proceeding noticed that the assessee had credited an amount of Rs. 1,88,60,112/- on account of profit on sale of securities. However, in the computation of income the assessee deducted the same and added back an amount of Rs. 1,15,04,264/- which was calculated on cost or market price whichever is lower. The Assessing Officer after considering the submission filed on behalf of the appellant held as under in the assessment order: ………..

5.2 I have considered the facts of the case and I am in concurrence with the arguments taken on behalf of the appellant. The bank value it’s securities in the books of account as per the guidelines issued by the RBI. Accordingly the profit/loss on sale of securities is calculated in the books by comparing the book value of each security and its selling price. The said profit/loss is debited or credited as the case may be to the P & L account. However for the purpose of income tax, all the securities are treated as stock-in-trade. Since while dealing with ground No.1 relating to HTM Category of Govt. Securities, it has been held that the appellant bank can value the same at cost/market price whichever is less therefore I hold that Profit or Loss on sale of security for the purpose of Income Tax should also be allowed and profit/loss in respect of the same security should be deducted/added while computing the income. With these observations, the ground No.2 is treated as allowed.”