TaxTMI 
TaxTMI 
2015 (3) TMI 449
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....year 2010-11 against order passed under section 143(3) of the Act. 2. All the appeals relating to the same assessee were heard together and are being disposed of by this consolidated order for the sake of convenience. 3. First we shall take the cross appeals filed by the assessee and the Revenue relating to assessment year 2005-06. 4. The assessee has raised the following grounds of appeal in ITA No.21/PN/2014:- 1] The learned CIT(A) erred in not allowing the entire loss of Rs. 29,29,15,335/- incurred by the assessee bank on account of conversion of AFS securities to HTM securities. 2] The learned CIT(A) erred in allowing 1/5th of the total loss of Rs. 29,29,15,335/- without appreciating that the entire loss incurred by the assessee bank was allowable as a deduction while computing the income of the assessee bank. 3] The learned CIT(A) erred in not allowing the amount of Rs. 1,44,31,124/- being the amount of premium amortized on HTM securities without appreciating that the said amount was allowable in view of the RBI guidelines and hence, the same should have been allowed while computing the total income of the assessee bank. 4] The appellant craves leave to add, alter, amen....
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....oted that certain issues were not considered by the Assessing Officer in the original assessment proceedings and the order of the Assessing Officer was found to be erroneous and prejudicial to the interest of Revenue on (i) depreciation loss on investment amortized at Rs. 29,29,15,335/- was allowed, (ii) sum of Rs. 1,44,31,124/- debited on account of premium on investment amortized, and (iii) sum of Rs. 5,15,25,300/- was debited on account of depreciation on investments - others, being loss on sale of securities. As per the CIT, the said loss was wrongly allowed as business loss as HTM securities were in the nature of capital assets and loss incurred on sale of those securities was a capital loss. Consequent thereto, the CIT-I, Pune passed order under section 263 of the Act, dated 31.03.2010 and the issues were set-aside to the file of Assessing Officer for examination. The Assessing Officer in the second round of assessment proceedings in relation to the issue of depreciation (loss) on investments amortized at Rs. 29,29,15,335/- noted that the assessee had shifted AFS securities to HTM securities. During shifting of the same, the assessee had valued the investment at the market ra....
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....ntative for the assessee that the Tribunal had disallowed the claim of the assessee in its entirety. However, the claim was made to allow the said expenditure in entirety. The CIT(A) in line with the order of the Tribunal in ITA No.819/PN/2010 relating to assessment year 2005-06 vide order dated 31.05.2013 directed the Assessing Officer to allow 1/5th of the total depreciation loss of Rs. 29.29 crores for the year under consideration. In other words, depreciation of Rs. 5,85,83,066/- was directed to be allowed in the hands of the assessee. On the other issue of amortization of premium on HTM securities, the CIT(A) referred to the ratio laid down by the Hon'ble Apex Court in Southern Technologies Ltd. Vs. JCIT (2010) 320 ITR 577 (SC) and pointed out that the RBI guidelines or the prudential norms issued by the RBI were not intended to regulate the Income-tax laws. Consequently, the disallowance of amortization of premium on investments of Rs. 1.44 crores was upheld by the CIT(A). 12. The assessee is in appeal against both the additions made by the CIT(A). The Revenue has also challenged the directions of CIT(A). 13. The learned Authorized Representative for the assessee pointed ou....
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....ect the AO to allow the depreciation (loss) to the extent of 1/5th of the total depreciation (loss) of Rs. 29,29,15,335/- and to the extent we hold that the assessment order is erroneous." 16. In line with the directions of the Tribunal which have not been disturbed by any of the higher forums, we hold that the assessee is only entitled to the claim to the extent of 1/5th of the depreciation (loss) arising on transfer of securities from AFS to HTM. The CIT(A) having followed the directions of the Tribunal, cannot be faulted with. Accordingly, we uphold the order of CIT(A) in this regard and dismiss the grounds of appeal Nos.1 and 2 raised by the assessee and grounds of appeal Nos.1 to 3 raised by the Revenue. 17. The issue in ground of appeal No.3 raised by the assessee before us is with regard to non-allowance of premium amortized on HTM securities amounting to Rs. 1,44,31,124/-. The said issue also arose before the Tribunal (supra) and vide order dated 31.05.2013, it was held as under:- "10. So far as the second issue is concerned which is also the basis for exercising the revisionary jurisdiction, we find that there is force in the argument of the Ld. CIT (DR). The assessee c....
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....nd during the year, the assessee had not shifted the securities to any other category. The premium paid on government securities were amortized in the books of account and the plea of the assessee was that the said premium was to be separated from the face value of the securities and booked as expenditure. The Tribunal in the case of the assessee had held that even where the assessee had paid premium as cost of acquisition of the securities, the same should remain as composite cost for acquiring the securities, subject to valuation at the end of each year as prescribed by the RBI and no separate treatment could be given to the premium paid by the assessee. Admittedly, the assessee was following the method of valuing its HTM securities at face value or cost. In view thereof, we find no merit in the ground of appeal No.3 raised by the assessee in this regard. The CIT(A) had dismissed the claim of the assessee in line with the order of Tribunal in appeal against the order of revision passed under section 263 of the Act on this count. Upholding the order of CIT(A), we find no merit in the ground of appeal No.3 raised by the assessee and the same is dismissed. 19. As a result, both the....
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....t and added back premium on investment amortized at Rs. 3,90,09,806/- to the total income of the assessee. 22. In appeal, the CIT(A) held that the issue relating to the admissibility of amortization of premium as deduction under Income Tax Act was highly debatable and contentious in nature. Reference was made to the ratio laid down by the Pune Bench of the Tribunal in assessee's own case in ITA No.819/PN/2010 relating to assessment year 2005-06, wherein vide order dated 31.05.2013, the Assessing Officer was directed to allow the expenditure to the extent of 1/5th of the total depreciation loss. However, the Tribunal in the case of another assessee in subsequent order dated 05.08.2013 in the case of Kallappanna Awade Ichalkaranji Janata Sahakari Bank Ltd. in ITA No.449/PN/2012, relating to assessment year 2008- 09, had taken a contrary view and the addition made on account of amortization of HTM securities was deleted. The CIT(A) further observed that merely because the assessee himself had added premium on investment amortized while computing the total income for assessment years 2007-08 and 2008-09, does not make the issue plain and not debatable and the same could be subject mat....
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....f the Act. The Hon'ble Supreme Court in Volkart Brothers Vs. ITO (supra) had held as under:- "A mistake apparent from the record must be an obvious and patent mistake and not something which can be established by a long-drawn process of reasoning on points on which there may conceivably be two opinions. A decision on a debatable point of law is not a mistake apparent from the record. The power of the officers mentioned in s. 154 of the IT. Act, 1961 to correct "any mistake apparent from the record" is undoubtedly not more than that of the High Court to entertain a writ petition on the basis of an "error apparent on the face of the record". 27. The mistake apparent from the record must be obvious and patent mistake. Further, the decision on a debatable point of law is not a mistake apparent from record. In the facts of the present case, the Assessing Officer in the original round of assessment proceedings had allowed the claim of deduction on account of premium on investment amortized at Rs. 3,90,09,806/-. However, pursuant to the order passed by the Assessing Officer relating to assessment year 2005-06 under section 143(3) r.w.s. 263 of the Act, the said amount was added back to ....
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....High Court and hence, the issue became debatable. Further, in any case, the Assessing Officer had exercised the powers under section 154 of the Act prior to the passing of order of the Tribunal dated 31.05.2013. Such exercise of the power by the Assessing Officer under section 154 of the Act is invalid. Even otherwise, in order to give effect to the finding of Tribunal in a year different from the year under consideration, the Hon'ble Supreme Court in Mepco Industries Ltd. Vs. CIT (supra) had held that the right to rectify mistakes under section 154 of the Act could not be invoked in a case of mere change of opinion. In the facts of the case before the Hon'ble Supreme Court, the said power was exercised under section 154 of the Act subsequent to the decision of Hon'ble Supreme Court on the issue of subsidiary received after commencement of production, was revenue receipt, which was originally held to be not taxable on the ground that it was capital receipt. The Hon'ble Supreme Court in Mepco Industries Ltd. Vs. CIT (supra) further held that a rectifiable mistake was a mistake which was obvious and not something which had to be established by a long drawn process of reasoning or whe....
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....be considered as part of the stock in trade for Income Tax purposes. b. The entries in the books of accounts were not determinative of the correct nature of the securities purchased by the bank and hence, the classification of the securities made by the assessee in the books was not relevant. c. The activity of purchase and sale of securities was in the course of the normal banking business of the assessee bank and hence, the said securities were in the nature of stock in trade. d. Even though the securities were classified in HTM category, the bank was permitted to sell them before the maturity date and hence, it was not correct to hold that HTM securities were capital assets of the assessee bank. e. The issue involved was covered in favour of the assessee bank by various decisions and the decisions relied upon by the learned CIT (A) were distinguishable on the facts of the present case. 6. The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal. 31. The assessee also raised additional ground of appeal, which reads as under:- "The assessee submits that without prejudice to its grounds of appeal raised in A.Y. 2005-06, it is submitted that....
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....n could be made irrespective of the necessary entries being made in the books of account. However, where the investments were not stock in trade, but were held as an investment by the assessee, then the same had to be valued at cost and the depreciation in the value of investment in question was not allowable as a deduction in computing business income of the assessee. 35. The assessee is in appeal against the order of CIT(A). 36. It was pointed out by the learned Authorized Representative for the assessee that assessment year 2007-08 was the first year of change in the method of accounting and the HTM securities were valued at cost or market value, whichever was lower. The learned Authorized Representative for the assessee further pointed out that as per the RBI guidelines, the HTM securities had to be valued at cost or market value, whichever was less and in the return of income after valuing the HTM securities at cost or market value, whichever was less, the assessee had claimed depreciation on value of securities. It was the plea of learned Authorized Representative for the assessee that it was a bonafide change and this change in method of valuing the securities was an accep....
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....he respective premiums. During the year under consideration, after adopting the change in method of accounting for valuing its HFT securities at cost or market value, the assessee had claimed depreciation on value of securities amounting to Rs. 37,11,50,795/- in assessment year 2007-08 and Rs. 5,19,40,000/- in assessment year 2009-10. This change was adopted by the assessee in return of income filed for the year under consideration as is evident from the computation of income filed at pages 1 to 3 of the Paper Book. The assessee had booked the deduction on account of investment at cost price or market price, whichever was less on account of all securities i.e. HTM, AFS and HFT at Rs. 55,40,28,096/- in assessment year 2007-08. Admittedly, the Assessing Officer had allowed the claim of the assessee vis-à-vis depreciation on value of securities relating to AFS, HFT in the assessment order passed under section 143(3) of the Act. However, the depreciation (loss) arising on account of valuation of the HTM securities at cost or market price, whichever was less, amounting to Rs. 37,11,50,795/- was not allowed by the Assessing Officer while completing assessment for assessment year 2....
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....ee bank continues to value the HTM investments at cost, following the RBI guidelines. As per the learned CIT-DR, the HTM securities cannot be considered as stock-in-trade since they are to be held till maturity and are not available for sale or trading thereof. The learned CIT-DR asserted that in the account books, following the RBI guidelines, the HTM Securities are treated differently than the AFS / HFT securities. It is explained that wherever the cost of acquisition of HTM securities is higher than its face value, the premium is amortized over the remaining period of maturity and where the cost prize is less than the face value, the difference is ignored as per the RBI guidelines. However, securities in AFS Category are marked to market price and the securities in HFT category are held at original cost and are valued at monthly intervals at market rates. In sum and substance, the RBI guidelines have been pressed into service by the learned CIT-DR to emphasize that the HTM securities stand on a different footing than the AFS/HFT securities. It has also been submitted before us that assessee has not furnished any details to show that the securities under the HTM category have bee....
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....instant assessment year of 2005-06 and in subsequent years, that assessee has changed the method of valuation for the purposes of its income-tax computation whereby assessee has valued the closing stock of securities / investments at lower of cost or market value. The resultant effect of such change in the assessment year 2005-06 amounting to Rs. 359,24,58,508/- is not accepted by the Revenue, and hence the impugned addition of Rs. 359,24,58,508/-. 18. Factually speaking, the change in the method of valuation has been partly accepted by the Revenue and we say so for the reason that qua the investments classified as AFS and HFT there is no dispute and, the valuation of such closing stock at lower of cost or market value, has been accepted. The dispute is only with regard to the closing stock of HTM securities, which according to the Assessing Officer, should continue to be valued 'at cost' only for the purposes of income-tax computation. 19. In the present context, the judgement of the Hon'ble Karnataka High Court in the case of Corporation Bank Ltd. (supra) is relevant. The issue before the Hon'ble High Court was with regard to the method of valuation of stock-in-trade adopted by....
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....ments in assessment year 2005-06 assessee claimed deduction for a loss of Rs. 359,24,58,508/-. The effect of the change in method of valuation on the computation of income for the purposes of income tax is a matter of factual appreciation, which is liable to be verified by the Assessing Officer appropriately. For the aforesaid purpose, we therefore direct the Assessing Officer to consider the stand of the assessee stated aforesaid and thereafter re-work the income of the assessee accordingly. Needless to mention, the assessee shall provide necessary workings to the Assessing Officer, including the Investment Trading Account and / or such other workings which would enable the Assessing Officer to re-work the income of the assessee in accordance with our decision in the earlier paragraphs. The Assessing Officer shall allow the assessee an appropriate opportunity of being heard and thereafter re-work the computation of income as per law and keeping in mind the aforesaid directions. Thus, on Ground of Appeal No.1 assessee succeeds." 43. In view of the directions of the Tribunal in the case of ACIT Vs. Bank of Maharashtra (supra), in order to give the effect of the change in the method....
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....er. 3. The learned CIT(A) erred in holding that the 'HTM' securities were in the nature of investments and not stock in trade by stating the following reasons - a. The 'HTM' securities held by the assessee bank were in the nature of investments having regard to the principles laid down by CBDT Circular No. 4 of 2007 dated 15.06.2007. b. There were only a few occasions where the assessee bank had sold the HTM securities before maturity in the earlier years and holding of the same till maturity had resulted in handsome profits for the assessee bank and hence, the intention of the assessee bank was to hold the HTM securities till maturity. c. In view of the decision of Hon'ble Karnataka High Court in the case of ING Vyasya Bank Ltd. [ITA No. 2886 of 2005], the HTM securities held by the assessee bank were in the nature of capital assets. d. The decision of Hon'ble Supreme Court in the case of UCO Bank Ltd. vs. CIT [240 ITR 355] was distinguishable on facts and hence, not applicable to the instant case. 4. The learned CIT(A) failed to appreciate that the HTM securities held by the assessee bank were in the nature of stock in trade and not capital assets an....