ORIENTAL BANK OF COMMERCE,GURGAON vs. ACIT, NEW DELHI

Assessee has filed the appeal against the Order dated 27.12.2012 passed by the Ld. Commissioner of Income Tax (Appeals)-XVI, Delhi pertaining to assessment year 2007-08 on the following ground:-

2. The Ld. CIT(A) as well as AO has failed to appreciate that the claim made by the bank is in accordance with accepted accounting principles of valuation of stock in trade at cost or market value. The RBI circular permitted banks to shift from AFS (Available for Sale) i.e. stock in trade to HTM (Held to Maturity) at cost or market value whichever is less as on the date of shifting after providing for the loss due to fall in value of the securities. This is an actual debit to the Profit & loss account and not a notional entry. Therefore, there is no concealment of income. The penalty should be cancelled. 3. Appellant has filed all the details justifying the claim in the return, based on the accepted accounting principles, RBI circular, the script wise valuation of stock in trade as on date of shifting based on FIMMDA rates, the investment committee approval dated 20th April 2006 etc and the case laws. Therefore, the CIT(A) is factually incorrect while alleging in his order that the assessee has failed to offer any explanation on wrong claim of expenses was bonafide. Hence, the penalty should be deleted. 4. The CIT(A) has failed to appreciate that, on merits also, the assessee's case is fully covered by the decision of Bangalore Bench of ITAT in the case of State Bank of Mysore vs. DCIT reported in [2009] 33 SOT 7 (Bang.) wherein the ITAT after considering the facts of the case allowed the claim of the bank . Therefore also there is no case of levying penalty as the claim of the assessee on quantum is duly supported by judicial decisions. 5. The appellant further contends that the claim is bonafide and no information / explanation / particulars furnished by the assessee were found to be wrong / incorrect by the AO as well as CIT(A). The case of the appellant is not hit by the explanation to section 271 (1 )(c). Therefore, the penalty levied on the above basis is not justifiable as per law and deserves to be deleted. 6. The above grounds are independent and without prejudice to one and other. 7. The appellant may be allowed to add, amend and forgo any of the ground at the time of hearing.

3. At the time of hearing, Ld. Authorised Representative of the Assessee, Sh. KVSR Krishna, CA stated that the quantum on which the penalty has been imposed, has already been deleted by the ITAT in (AY 2007-08) vide order dated 4.11.2015. He further stated that against the Tribunal’s order dated 4.11.2015, as aforesaid, the Department went in Appeal before the Hon’ble High Court of Delhi and the Hon’ble High Court of Delhi in ITA No. 306/2016 vide order dated 11.5.2016 has dismissed the appeal of the Revenue title as Principal Commissioner of Income Tax-7 vs. M/s Oriental Bank of Commerce. In this behalf he filed the copies of the Tribunal’s order dated 4.11.2015 and Hon’ble High Court of Delhi order dated 11.5.2016 in assessee’s own case.

4. On the other hand, Ld. DR relied upon the orders of the authorities below.

We find that in assessee’s own case in for A.Y. 2007-08 vide order dated 4.11.2015, the Tribunal had adjudicated the issue vide para no. 13 to 14 at pages 8 to 11 and deleted the quantum addition in this regard. For the sake of convenience, we are reproducing the relevant portion of the Tribunal order dated 4.11.2015 as under:-

“13. We have carefully considered the rival contentions.

During the year, assessee has debited the loss of Rs. 205.43 crores arising of on account of transfer of securities of Rs. 1664.32 crores from ‘available for sale’ category to ‘held to maturity’ category in terms of resolution of the Board of Directors of the appellant. Claim has arisen because of the circular issued by Reserve Bank of India on prudential norms for classification, valuation and operation of investment portfolio bank dated 1st July, 2006. According to that circular the banks are allowed to transfer securities from one category to another category once every year at the least value of following :-

(a) Acquisition cost (b) Book value and (c) Market value.

It is further provided that if because of such transfer any depreciation arises, it should be fully provided for. The claim of the assessee is that this loss should be allowed as deduction because of transfer of securities from one category to another category. Therefore, the issue in appeal is that whether a banking company claims the loss, based on circulars and instructions of Reserve Bank of India, is allowable because of transfer of security from category of “available for sale” to “held to maturity”. This issue now no longer survives in view of two decisions of Hon’ble Karnataka High Court in case of Karnataka Bank Ltd. vs. Assistant Commissioner of Income Tax 356 ITR 549 and CIT vs. Bank of Baroda 262 ITR 334 and a decision of honourable Bombay High Court in case of CIT vs. HDFC Bank Ltd. reported at 368 ITR 377 considering decision of honourable supreme court in case of united commercial bank V CIT 240 ITR 355 and Southern technologies Limited V Jt CIT 320 ITR 577, wherein Hon’ble High Court has held as under:-

“9. In the present case, we find that the facts and issues that are covered by the aforesaid judgment squarely apply to the facts and issues raised in the present Appeal. Not only are we in full agreement with the judgment of this Court in the case of Bank of Baroda (supra) but we are bound by the same. We therefore respectfully follow the ratio laid down in the said judgment.

Aggrieved by the said order, the Assessee preferred an Appeal before the CIT (Appeals). The same was dismissed upholding the contention of the Assessing Authority. Aggrieved thereby, the Assessee preferred an Appeal to the Tribunal. The Tribunal inter alia held that since the securities on which the depreciation had been claimed on the earlier years had not been identified, the issue was restored to the file of the Assessing Officer for consideration afresh and partly allowed the Appeal. Being aggrieved by the said order, Karnataka Bank Ltd. preferred an Appeal to the Karnataka High Court under section 260A of the Act. After discussing various judgments of the Supreme Court, the Karnataka High Court held as under :—

"From the aforesaid judgments of the apex court, now it is clear that a method of accounting adopted by the taxpayer consistently and regularly cannot be discarded by the Departmental authorities on the view that he should have adopted a different method of keeping the accounts or on valuation. Financial institutions like bank, are expected to maintain accounts in terms of the RBI Act and its regulations. The form in which, accounts have to be maintained is prescribed under the aforesaid legislation. Therefore, the account had to be in conformity with the said requirements. The RBI Act or the Companies

Act do not deal with the permissible deductions or exclusion under the Income Tax Act. For the purpose of the Income Tax Act, if the Assessee has consistently been treating the value of investment for more than two decades the investments as stock-in-trade and claimed depreciation, it is not open to the authorities to disallow the said depreciation on the ground that in the balance-sheet it is shown as investment in terms of the RBI Regulations. The RBI Regulations, the Companies Act and the 8

Income Tax Act operate altogether in different fields. The question whether the assessee is entitled to particular deduction or not will depend upon the provision of law relating thereto and not the way, in which the entries are made in the books of account. It is not decisive or conclusive in the matter. For the purpose of the Income Tax Act whichever method is adopted by the assessee, a true picture of the profits and gains, i.e. real income is to be disclosed. For determining the real income, the entries in the balance sheet is required to be maintained in the statutory form may not be decisive or conclusive. It is open to the Income

Tax Officer as well as the assessee to point out true and proper income while submitting the income tax returns. Even if the assessee under some misrepresentation or mistake fails to make an entry in the books of account, although under law, a deduction must be allowed by the Income Tax Officer, the assessee will not lose any right on claiming or will be debarred from 9 being allowed the deduction. Therefore, the approach of the authorities in this regard is contrary to the well settled legal position as declared by the apex court.

In the instant case, the assessee has maintained the accounts in terms of the RBI Regulations and he has shown it as investment. But consistently for more than two decades it has been shown as stock-in-trade and depreciation is claimed and allowed.

Therefore, notwithstanding that in the balance- sheet, it is shown as investment, for the purpose of Income Tax Act, it is shown as stock-in-trade.

Therefore, the value of the stocks being closely connected with the stock market, at the end of the financial year, while valuing the assets, necessarily the bank has to take into consideration the market value of the shares. If the market value is less than the cost price, in law, they are entitled to deductions and it cannot be denied by the authorities under the pretext that it is shown as investment in the balance-sheet." (emphasis supplied)

does not raise any substantial question of law as projected by the learned counsel appearing for the Appellant. The Appeal is therefore dismissed.”

Therefore, respectfully following those judicial precedents, we reverse the order of CIT (A) and delete the disallowance of Rs. 205.43 crores on account of claim of loss of transfer of security from ‘available for sale’ category to ‘held to maturity’ category by the appellant bank in accordance with direction/ circular of Reserve Bank of India.”

5.1 We further find considerable cogency in the assessee’s A.R. contention that against the Tribunal order dated 4.11.2015, the Department went in appeal before the Hon’ble High Court of Delhi in and the Hon’ble High Court of Delhi vide order dated 11.5.2016 has dismissed the appeal of the Revenue vide para no. 2 to 5 at pages 2 to 4 title as Principal Commissioner of Income Tax-7 vs. M/s Oriental Bank of Commerce. For the sake of convenience, we are reproducing the relevant portion of the order dated 11.5.2016 passed by the Hon’ble High Court of Delhi as under:-

“2. The first ground urged in the appeal is that ITAT has erred in law in deleting the addition pertaining to the claim of loss on account of fall in value of the investment held as stock in trade to the extent of Rs. 205.10 Crores.

The AO disallowed this by terming it as a notional and not a real loss. The IT AT disagreed and reversed the AO in light of the legal position explained in the decision of the High Court of Karnataka in Karnataka Bank Ltd. v. Assistant Commissioner of Income Tax [2013] 356 ITR 549 (Kar.) and the decisions High Court of Bombay in Commissioner of Income Tax v.

Bank of Baroda [2003] 262 ITR 334 (Bom) and [2014] 368 ITR 377 (Bom). The ITAT has noted that the above decisions referred to the decisions of the Supreme Court in United Commercial Bank v.

Commissioner of Income Tax [1999] 240 ITR 355 (SC) and Southern Technologies Ltd v. The Joint Commissioner of Income Tax [2010] 320 ITR 577 (SC).

5. The Court is not persuaded to concur with the view expressed in ING VYSYA Bank Ltd. (supra) which appears to have been decided in the peculiar facts of that case. The Court prefers to adopt the reasoning in the decision the Karnataka High Court in Karnataka Bank Ltd. (supra) and the Bombay High Court in HDFC Bank Ltd. (supra). The Court accordingly declines to frame a question of this issue.”

5.2 Keeping in view of the facts and circumstances of the case, we find that the addition on which the penalty in dispute was levied, has already been deleted by the ITAT vide order dated 4.11..2015 in & Ors. (AY 2007-08) in assessee’s own case and the order of the Tribunal was affirmed by the Hon’ble High Court vide its order dated 11.5.2016 by dismissed the ITA 306/2016 filed by the Revenue, as aforesaid, hence, the penalty in dispute will not survive. Accordingly, we cancel the orders of the authorities below and delete the penalty in dispute and allow the Appeal filed by the Assessee.

Order pronounced in the Open Court on 04/08/2016.