TaxTMI 
TaxTMI 
2013 (1) TMI 105
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....ments on valuation of securities after considering the Broken period interest of Rs.20,91,83,000/- 4. Briefly stated the facts of the case are as follows :- The assessee is a Public Sector Undertaking and is a subsidiary of State Bank of India and governed by the Banking Regulation Act, 1949. For the assessment year 1999-2000, assessment under section 143(3) of the Act was completed vide order dated 28/3/2002. The assessee-bank, in accordance with its investment policy and as per the guidelines issued by the Reserve Bank of India from time to time, invests in various securities. As per the RBI guidelines, the securities are categorized into two broad categories, namely, (i) available for sale (which was in the nature of 'stock-in-trade') and (ii) held to maturity (which was in the nature of 'investment'). On purchase of securities from secondary market, the assessee, in many instances, pays broken period of interest to the sellers security. The assessee had claimed broken period interest paid on its purchase of securities under "available for sale" category as revenue expenditure under the Income Tax Act, 1961. Th....
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....h both on the issue of maintainability of the appeals as well as on merits with regard to allowability of broken period interest expenditure paid on purchase of securities. The Hon'ble Tribunal vide its order in ITA No.21 & 22/Bang/2006 dated 29/3/2010 held that the finding of the CIT(A) was not maintainable in law and set aside the common order passed by the CIT(A) and remitted the issue to the CIT(A) for the disposal of the two appeals. The relevant finding of the Hon'ble Tribunal reads as follows:- "An assessment order may be revised or redone out of many compulsions rooted through enabling provisions of IT Act, 1961. But those root causes of an assessment order does not take away the jurisdiction of the Commissioner of Income Tax (Appeals) in adjudicating the grounds raised against those orders. In the present case, even though the assessments were revised as a result of orders passed under section 263, the assessment orders are still assessment orders subject to the appellate jurisdiction of the Commissioner of Income Tax (Appeals). Therefore, in fact and law, the Commissioner of Income Tax (Appeals) ought to have disposed off the appeals on merit". 5.....
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....e on sale of securities was offered to tax as "business income". e) The learned CIT(A) ought to have taken into cognizance the decision of the Hon'ble Supreme Court in the case of Citibank N.A. (Civil appeal No.1549 of 2006) wherein it was held that - * The interest income including BPI income on the sale of securities was offered to tax as "Business income" from the inception and hence the judgment in the case of Vijaya Bank has no application to the facts of the present case; and * Since the same was accepted by the Income Tax Department , the BPI expenditure on the purchase of securities should also be allowed as deduction while computing the "Business income" of the assessee. f) The learned CIT(A) ought to have placed reliance on the following judicial precedents where the BPI paid to the sellers of the securities has been held to be a revenue expenditure: * Appellant's own case fo....
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....onsidered for valuation of the closing stock of the securities, the same results in the incremental depreciation of Rs.21,52,60,000/- offered to tax by the appellant. The learned CIT(A) in not allowing the reduction of the incremental depreciation of Rs.21,52,60,000/- and in not allowing the reduction of the excess depreciation of Rs.60,77,000/- consequent to the inclusion of the BPI in the valuation of securities. 8. The learned DR supported the orders of the Income Tax Authorities. 8.1 The case which was heard on 7/8/2012 was reposted, to ascertain whether the Tribunal's order in ITA No.21 & 22/2006 dated 29/3/2010 was subject matter of the appeal before the Hon'ble High Court under section 260A of the Act. The learned AR as well as the learned DR submitted that the revenue has not filed appeal against the Tribunal's order in ITA No.21 & 22/2006 dated 29/3/2010 and the matter has not attained finality. Hence, we proceeded to dispose off the appeals on merits. 9. We have heard the rival submissions, perused the materials available on record and carefully gone through the case laws cited by both the parties. We are of the view ....
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.... Court in the case of Vijaya Bank Ltd. v CIT and subsequent to the decision, the CBDT vide Circular No.610 withdrew the earlier circular no.599. On further representation by the Indian Bank's Association, Circular No.665 was issued by the CBDT wherein it was stated that the decision of the Supreme Court in the case of Vijaya Bank was on the question of broken period interest and not on whether the securities constituted stock-in-trade or investment. The learned counsel for the assessee submitted that the decision of the Apex Court in 187 ITR 541 is not applicable to the facts of the case as the assessee has classified the securities purchased as stock-in-trade and accordingly the claim of loss on trading of investments as deductible in nature. The learned counsel further invited out attention on about the RBI guidelines and the Accounting Standard issued by the ICAI and claimed that the assessee is eligible for deduction and further relied upon the decision of the Apex Court ub Challapalli Sugars Ltd. v CIT (98 ITR 67) and Madras Industrial Investment Corporation Ltd. v CIT (225 ITR 802) wherein the Hon'ble Supreme Court hold that the principles of accounting should be considered w....
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....case. - Thus, the Supreme Court has finally concluded that "in the light of what we have discussed hereinabove, we find that the assessee's method of accounting does not result in loss of tax/revenue for the Department. That, there was no need to interfere with the method of accounting adopted by the assessee-bank. That, the judgment in the case of Vijaya Bank Ltd. (1991) 187 ITR 541 (SC), had no application to the facts of the case. For the reasons given above, the question posed before us is answered in the affirmative i.e. in favour of the assessee and against the revenue". 9.3 In the instant case, the assessee-bank, since its inception, has been offering the broken period interest income earned from the sale of securities (AFS category) as business income under section 28 of the Act and not as interest income under the head "Income from other sources". Accordingly, the broken period interest paid to the sellers of securities was claimed as an allowable deduction from its business income, under the Act. Applying the principles laid down by the Hon'ble Supreme Court in the case of Citibank, the Bank is entitled to claim the broken period interest expendit....