ASSISTANT COMMISSIONER OF INCOME-TAX vs. THE HASTI CO-OP. BANK LTD., DHULE

Briefly stated, relevant facts of the assessee include that the assessee is a Cooperative Bank engaged in the business of banking. The assessee filed its return on 19-09-2012 declaring total income of Rs.7,71,03,850/- for the year

Aggrieved by the assessment order dated 25-03-2015, the assessee filed an appeal before the First Appellate Authority, who allowed the claim of the assessee relying on catena of judgments of High Court/Supreme Court and as well as the decisions of ITAT, Pune including the judgment of jurisdictional High Court in the case of Sarupchand Vs. CIT 4 ITR 420 (Bom.), judgment of Hon’ble Karnataka High Court in the case of CIT Vs. Corporation Bank 174 ITR 616 (Kar.), etc. Hence, aggrieved with the said order of the CIT(A), the Revenue is in appeal before the Tribunal contesting the order of CIT(A) by raising the following grounds :

Ld. DR for the Revenue vehemently opposed the decision of CIT(A). Relying on the argumentative grounds above, Ld. AR submitted that assessee is not permitted to change the method of valuation of Government Securities. Ld. CIT(A) erred in approving the change in method of valuation as the same should have been applied for both opening and closing stock. Thus, Ld. DR prayed for reversing the order of CIT(A).

On the other hand, Ld. AR for the assessee submitted that this issue is a covered one in favour of the assessee by virtue of the serious decisions of ITAT, Pune as well as judgments of various High Courts/Supreme Court. In this case, CIT(A) allowed the claim of the assessee holding that securities Held to Maturity (HTM) are part of stock in trade and there is no justification to decline the claim of loss by way of diminution in the valuation of securities of HTM category. Thus, ld. AR for the assessee prayed for upholding the decision of CIT(A) and dismissing the appeal filed by the Revenue.

We heard both the sides and perused the orders of the authorities below. The grounds are argumentative in nature. The solitary issue for adjudication in the appeal of Revenue is whether the loss by way of diminution in value of HTM securities is allowable or not. Bonafide of the change the method of valuation of Govt. Securities adopted by the assessee is the argument of the Assessing Officer. On going through the order of CIT(A) and the judgments/decisions relied thereupon, we find the issue is a settled one at the level of Apex Court followed by the jurisdictional High Court and the Pune Bench in a series of decisions. For the sake of completeness, we extract the operational para No.7.6 of the order of CIT(A) and the same reads as under : “7.6

On perusal of the facts, we find that the Government Securities under consideration are the ones HTM. These securities constitute the stock in trade and they are required to be valued at cost of market value, whichever is lower. In following the trite law, no malafide can be attributed to the assessee. The requirement of making adjustments to the opening and closing stock of such Government Securities is already approved by the Courts. However, the Assessing Officer has not done adjustments to the opening stock for this year in the assessment. Value of the stock- Government Securities fluctuate depending on the market conditions and therefore, the diminution in value of the Government Securities is not uncommon in matters of valuation of securities of HTM status at the end of the year. We find relevant to extract the legal proposition on the issue under consideration laid down from the Jurisdictional High Court in the case of Sarupchand (supra). The held portion of the same is extracted as follows :- “An assessee is entitled to change the method of accounting regularly employed by him. What he must alter, however, is his regular method, that is to say, he must abandon what up to that time, has been his regular method, and start a new regular method, and not merely a new method a causal period. The question whether the regular method of accounting has been changed is a pure question of fact upon which the Commissioner cannot be directed to state a case; but if the regular method has been changed in fact the Commissioner is bound to recognize the changed method.”

On this issue of bonafide of the change in the method, the ld. DR has not brought any adverse material to prove the same is not bonafide. Considering the same, we uphold the order of CIT(A) in holding that the AO was not justified in making addition of Rs.1,22,10,100/- on account of disallowance of 6 The Hasti Co-operative Bank Ltd., diminution in the valuation of Government Securities. Thus, the grounds of appeal raised by the Revenue are dismissed.

In the result, appeal of the Revenue is dismissed. Order pronounced on 09th January, 2019. (PARTHA SARATHI CHAUDHURY) (D. KARUNAKARA RAO) "याियक सद"य/JUDICIAL MEMBER लेखा सद"य/ACCOUNTANT MEMBER पुणे / Pune; "दनांक / Dated : 09th January, 2019 Satish आदेश क" "ितिलिप अ"ेिषत / Copy of the Order forwarded to : अपीलाथ" / The Appellant.

The Pr. CIT-1, Nashik. िवभागीय "ितिनिध, आयकर अपीलीय अिधकरण, “बी” ब"च, 5. पुणे / DR, ITAT, “B” Bench, Pune. गाड" फ़ाइल / Guard File. 6. आदेशानुसार / BY ORDER, //// Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.