TaxTMI 
TaxTMI 
2010 (12) TMI 894
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....A.Y 2002-03 a return of income was filed on 28/10/2002 declaring total income of Rs.3,30,28,860/-. A order of assessment under section 143(3) was passed by the AO on 30/5/2005, determining the total income at Rs.67,24,99,570/-. The A.O issued a notice under section 148 of the Act on 3/7/2008. The reasons for issuing the notice under section 148 was that the assessee had claimed a total loss of Rs.2,73,18,401/- on valuation of investment. This loss also included a sum of Rs.65,51,826/- on account of amortization of premium paid for securities held under HTM (Held to Maturity) category. According to the AO since the securities held under HTM category will not be sold till maturity they were in the nature of investment and not stock in trade. The A.O was therefore, of the view that the claim of the assessee for amortization of premium paid at the time of purchase of the securities was in the nature of capital expenditure and cannot be allowed as deduction. It is for this reason that the AO initiated proceedings under section 147 of the Income Tax Act, 1961 (the Act) by issue of a notice under section 148 of the Act for making assessment of income which has escaped assessment. It is no....
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....x Act 1961 and that the treatment given by the assessee in the books of account in this regard would be decisive in the matter. The assessee thus pointed out that the securities on which premium was paid at the time of purchase and which were held under HTM category were held as stock in trade and not as investments. In fact also the securities under HTM has been sold in subsequent year and income/loss treated as business income/loss and not as capital gain/loss at all. That all income/loss what ever arised on account of investment (Stock in Trade) has been treated as business income/loss and always has been treated by department as business and assessed accordingly in all past year assessment by department. That always the interest earned in the case of the Bank, on all share and security assets are stock in trade and whatever the loss/profit arises from shares and securities is a business loss/profit and not in the nature of capital. The entire interest income of securities under whatever category had been and is being assessed in all these years as business income. Therefore, as such different categories of the income does not form (HTM) as capital in nature. Securities held und....
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....O however accepted the fact that the assessee treats the profit or loss on sale or redemption of securities held under HTM categories were offered by the assessee under the head business income/loss. The AO also accepted the fact that as per the RBI Master Circular dated 12/7/2005 amortization of premium paid on securities held in HTM category can be allowed. He was of the view that under the provisions of the IT Act such amortization cannot be allowed as deduction. 9. According to the AO, in respect of the HTM securities, the assessee follows two different systems which are inconsistent with each other. When the purchase price is less than the face value at which the security is ultimately sold, the difference is booked as profit only in the year of sale. But when the cost price is more than the face value, the loss is not booked in the year of sale but is spread over the period of holding. If the securities are held as investment, there is no question of allowing any amount till such time as they are sold or redeemed. Even if these securities are held as stock-in-trade, as per RBI's guidelines, the closing stock of securities in HTM category is valued at cost price, whi....
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....quisition cost unless it is more than the face value, in such case the premium should be amortized over the period remaining to maturity. The CIT(A) also found that RBI also has similar guidelines. The CIT(A) was of the view that the assessee was holding securities in question as stock in trade and, therefore, the amortization expenses claimed by the assessee in respect of premium paid at the time of purchase of securities should be allowed as deduction and as a revenue expenditure. Thus the claim of the assessee was directed to be accepted on merit also. 12. Aggrieved by the order of the CIT(A) the revenue has preferred the present appeal before the Tribunal. 13. In ground No.1, the revenue has challenged the order of the CIT(A), whereby the CIT(A) held that reassessment proceedings were not initiated in accordance with the provisions of section 147 of the Act. In the second ground of appeal the revenue has challenged the order of the CIT(A) whereby CIT(A) directed the AO to allow the claim of the assessee for deduction on account of amortization premium paid on securities held under HTM category. 14. We have heard the rival submissions. The ld. D.R r....
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....ck in trade and whatever the loss/profit are not in the nature of capital. The entire interest income of securities under whatever category had been and is being assessed in all these years as business income. Therefore, as such different categories of the income does not form(HTM) as capital in nature. 19. As stated earlier, the figure of Rs.65.62 lacs represents the amortization of premium for securities held under HTM category, which has been written off in terms of the RBI circular dated 16/10/2000. Para 14 of the said circular reads as under: "14. Investments classified under Held to Maturity category need not to be marked to market and will be carried at acquisition cost unless it is more than the face value, in which case the premium should be amortized over the period remaining to maturity." Vide RBI circular No.DBOD No.BP.B.C 32/21.04.08/2000-01 dated 16/10/2000, Bank may shift Investment to/from HTM category with approval of Board From/to other category. Further in terms of above referred circular, Profit on sale of Investments in HTM category should be taken to the profit and loss account. There it is very clear that securities held under HT....
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....e revenue in this appeal relates to disallowance of claim of amortization of premium paid on securities held under HTM category. This issue arises under identical facts and circumstances in which similar issue was decided by us in ITA No.2246/M/09. For the reasons stated therein this ground of appeal of the revenue is dismissed. 26. Ground No. 2 in this appeal is with regard to levy of interest under section 234D in our view is misconceived because the provisions of section 234D are relevant only in the context of a refund granted under section 143(1) of the Act and on a regular assessment no refund is due or the amount refunded exceeds the amount refundable on regular assessment. In the present case the assessment is one completed under section 147 of the Act. A original assessment under section 143(3) was made on 8/9/2006. The provisions of section 234D will not, therefore, apply. It is further seen that Explanation to section 234D makes it clear that an assessment made under section 147 for the first time will be regarded as a regular assessment for the purpose of section 234D. Admittedly the assessment under section 147 of the Act in the case of the assessee for A.Y 2....
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....me. In the A.Ys. 2000-01 and 2001-02, ITA No.504and505/JDPR/2004 similar addition were deleted vide order dated 23/3/2007. Again for the a.Y 2002-03 and 2003-04, the Tribunal vide its order dated 11/12/2008 has deleted the addition. The orders passed by the Tribunal for the A.Y 2002-03 and 2003-04 have been confirmed by the Hon'ble Bombay High Court vide its order dated 23/4/2010. In view of the above, Ground No.2 is dismissed. 34. Ground No. 3 raised by the revenue reads as follows: "On the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs.17,17,54,200/- made on account of deduction claimed u/s. 36(1)(viia) without appreciating the fact that the assessee has been consistently withholding details relevant to the quantification of the provisions for bad and doubtful advances, as provided in the provisions of section 36(1)(viia) despite the fact that Rule 6ABA gives the concrete method of determining the aggregate average advances made by the rural branches." 35. It is not in dispute before us that the aforesaid ground raised by the revenue is identical to ground No.2 raised by the Revenue in AY 20....
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....ce. The learned Departmental Representative has only relied on the assessment order but could not deny the contention of learned A.R that in earlier years also such deletions were made and the revenue has not filed appeal against the same. Meaning thereby this deletion has been accepted by the revenue made on similar facts. Otherwise also the bare reading of the section makes it clear that only advances made by rural branches is exempt even if it is made to persons(s) involved are not rural activities like the Food Corporation of India. In this case, the revenue has not challenged the similar deletions made by learned CIT(A) in respect of A.Ys 1995-96 and 1996-97 and therefore, it can be taken as acceptance of the deletion by the reasons being justified. Therefore, the deduction has to be computed on the average advances made by the rural branches i.e. the average of all advances made by the rural branches and same is not restricted only to rural advances made to persons(s) involved in rural activities. The only condition put is that the advances should be made by rural branches. It is not disputed that the branches named above, are not rural branches. Thus the computation of avera....