TaxTMI 
TaxTMI 
2012 (9) TMI 446
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....lowed on the ground that these „investments‟ were held as „stock in trade‟. (b) The AO also disallowed a sum of Rs.63,34,793/- on account of amortization of premium paid on purchase of securities. This amount was claimed on the ground that these were permanent securities which were intended to be held till maturity. However, the AO was of the view that it was a notional loss and was, therefore, not allowable. (c) The AO also made an addition of Rs.15.61 Crores on account of reverse entry made of interest paid to sellers of securities for the period 1.4.1993 to 31.3.1994. However, thereafter order was passed under Section 154 of the Act reducing the addition on account of reverse entry by Rs.13.52 Crores giving disallowance to the extent of Rs.2.09 Crores. The aforesaid three disallowances and additions have been maintained by the Commission of Income Tax (Appeal) as well as Income Tax Appellate Authority in the impugned order. The assessee has, therefore, filed ITA No.634/2009 challenging the orders dated 28th September, 2007 passed by the ITAT. 2. Second appeal, i.e. ITA No.660/2009 raises the identical issues which pertain to the assessm....
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....owance has been made on the ground that it is notional loss. While dealing with the case for the Assessment Year 1995-96, the Tribunal held as under: "We have perused the aforesaid order of the Tribunal. In that year, the issue before the Tribunal was whether the assessee was entitled to claim the loss resulting on account of the valuation of securities as on the last date of accounting year on the basis of cost or market value, whichever is lower. The Tribunal decided the issue in favour of the assessee. In our view, the argument of the learned counsel has to be accepted in so much that the principle to be applied for the present dispute will be the same. In that case, the loss arising on account of depreciation on investments was allowed by the Tribunal. In the present case, the premium paid by the assessee has been amortized over the remaining period of the securities. We see no difference between the two situations and therefore, delete the addition of Rs.1,54,31,255/-. It may be noted that the assessee is not claiming the premium in a single year but in amortizing the same over the remaining period which in our opinion is quite fair and reasonable." 5. Therefore, the moot q....
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....Supreme Court. 9. Learned counsel for the revenue, on the other hand, justified the decision of the ITAT on the ground that while treating these securities as „investment‟ the Tribunal had followed its own decision in the preceding year, i.e. Assessment Year 1995-96 and no appeal could be filed by the bank thereagainst as COD declined the approval to the assessee. 10. He also submitted that in so far as order of the ITAT in respect of Assessment Year 1975-76 is concerned, the Tribunal had only held that change in the method of accounting to comply with the RBI directives was bona fide. Therefore, mere fact that income arising from securities held by the assessee are being assessed as „business income‟ would be of no consequence. To support this plea, reliance was placed on the judgment of the Supreme Court in the case of Southern Technology Ltd. v. Joint Commissioner of Income Tax, [2010] 187 Taxman 346 (SC). 11. We have considered the respective submissions of the learned counsel for the parties. From the facts noted above, it becomes clear that in the year 1975-76, the Tribunal had approved the method of accounting adopted by the assessee to compl....
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....ctions, one is to discern the true character of the securities. 13. Significantly, the AO has not held that security shown as „investment‟ are not „stock in trade‟. The disallowance is made on the ground that it is notional loss. Case of the assessee is that Tribunal has proceeded on the presumption that depreciation is claimed on "permanent investments" whereas claim of deduction was towards depreciation on "current (trading) investments". However, as per the Revenue, under Section 6 of the Banking Regulation Act, 1949, a bank is entitled to hold securities either as „stock in trade‟ or as „investment‟ and there is no bar against trading by the bank. It was further argued by the Revenue that fluctuation in valuation of investments cannot be allowed as deduction for computing business income and that the onus to establish that the said securities were held as „stock in trade‟ was on the assessee which has not been discharged inasmuch as no trading account has been maintained by the assessee and value of opening and closing stock of securities etc. did not find place in income and expenditure account. The learned counsel....
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....ade, his own method of keeping accounts, and for that purpose, to value stock-in-trade either at cost or market price; (3) 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 accounts or of valuation; (4) The concept of real income is certainly applicable in judging whether there has been income or not, but in every case, it must be applied with care and within their recognized limits; (5) Whether the income has really accrued or arisen to the assessee must be judged in the light of the situation; (6) Under s.145 in a case where accounts are correct and complete but the method employed is such that in the opinion of the ITO, the income cannot be properly reduced therefrom, the computation shall be made in such manner and on such basis as the ITO may determine." 16. The matter needs to be examined from the aforesaid perspective. However, there is no determination in this manner by any of the authorities. We, thus, are of the opinion that matter needs to be remanded back to the AO to ascertain the true character of the s....