TaxTMI 
TaxTMI 
2016 (7) TMI 276
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....f securities Rs. 8,39,17,500/-. Aggrieved by the assessment order dated 31-03-2013, the assessee carried the matter in appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) vide impugned order accepted the appeal of the assessee and deleted the additions made by the Assessing Officer. Now, the Revenue is in appeal assailing the order of Commissioner of Income Tax (Appeals). 3. Shri K.K. Mishra representing the Department submitted that the Govt. Securities were held by the assessee under Held to Maturity for several years. The assessee changed the method of valuation of securities from 'cost' to 'cost or market price', whichever is less in financial year 2009-10. The Commissioner of Income Tax (Appeals) has erred in presuming that the assessee will follow the changed method continuously. The Commissioner of Income Tax (Appeals) has also erred in presuming that the change of method of valuation by assessee was in a bonafide manner. The assessee was holding the Govt. Securities under HTM states since long and premium paid on investment under HTM category was amortized over the balance period of maturity. Due to change in method of valu....
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....he authorities below. We have also considered the decision on which the ld. AR of the assessee has placed reliance in support of his contentions. The Commissioner of Income Tax (Appeals) has deleted the addition of Rs. 8,39,17,500/- on account of difference in valuation of securities by holding as under: "5.3 As regards "change in method of valuation of Government Securities", I observe that during the year under consideration, appellant bank has changed the method of valuation of Government securities from at 'cost' to the "cost or market price whichever is lower", which is within the parameters of accounting standard relating to banks. Further, appellant contended and explained that as the value of Government securities was diminishing day by day, true and fair picture of financial statement was not reflected in its books of account. In order to reflect the true and correct pictures 'and real statement of affairs of the financial position of the Bank, they had adopted correct method showing the correct value of Government securities to overcome and avoid imaginary notional income in their hands. Therefore, appellant bank was compelled to change .the present m....
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....Asstt. CIT (2007) 112 ITJ (Del)(SB) 917; Karnataka Bank Ltd Vs. Asst. Commissioner of Income Tax (2013) 94 DTR (Kat) 448 dt. 11th March 2013. In view of the principle laid down in the decisions cited supra, am of the considered view that guideline issued by the RBI cannot override the provision of the I T Act and appellant has to follow the provision of Income-tax Act, while computing income for the purposes of Income tax Act. Therefore, A.O's view is not tenable. 5.5 As regards, classification of Government securities into 3 different categories i.e. Held to Maturity (HTM), Available for Sale (AFS) and Held for Trading (HIT). Various courts have held that all Government securities are stock in trade irrespective of its classification "HTM", "AFS" and "AFT and loss claimed due to the change in method in valuation is allowable. I find that the appellant has claimed the depreciation/diminution in value of Government securities at the yearend i.e.as on 31-03-2010 atRs.8,39,17,500/-. The appellant has claimed that the said Government securities are stock in trade of the banking business carried out by it. Appellant bank has not claimed arty amortization i.e. difference bet....
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.... 1984 149 ITR 759 Mad. Similarly in the case of CIT Vs. Delta Plantation Ltd. (1993) 71 Taxman 329 (Cal.) it was held that the change in method of valuation must be bonafide and such method must not be restricted to a particular year. The appellant has furnished Tax Audit Reports till A.Y. 2013-14 which show that from A.Y. 2010- 11 onwards it was following the cost or market price whichever is less for valuation of its government securities. Thus the appellant has -been consistent in following the changed method of valuation after A.Y. 2010-11. 5.6 The appellant vide letter dated 02/01/2014 has stated that Government securities held by the appellant bank are entirely its stock in trade. Appellant bank has valued Government securities at "Cost" up to 31/03/2009. However, during the year under consideration, appellant bank has changed its method of valuation of Government securities for the purpose of Income-tax from "Cost" price to "Cost or Market price whichever is less" and accordingly, its valuation was adopted as on 31/03/2010. It is settled law that the Government securities held by the Banking industries are stock in trade, irrespective of its classification ....
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....of the assessee and direct the AO to allow depreciation / fall in value of investment in Government Securities including those classified under HTM category. No doubt (he value in opening stock in the next year would correspondingly be adjusted. This issue is decided in favour of the assessee." 6. Since the issue under consideration is identical to that of AY 2006-07 in assessee's own case, respectfully following the same we uphold the directions of Ld.CIT(A) with a direction to AO to follow the same in this year also as per the order of ITAT supra. Accordingly, ground No. 2 raised by the revenue is dismissed." The A.O directed accordingly. Therefore, this ground of appeal is allowed. 5.7 As regards shifting of investments from one category to another, RBI has issued the following guidelines: "Shifting of investments: Banks may shift investments to/from HTM category with the approval of the Board of Directors once in a year. Such shifting will normally be allowed at the beginning of the accounting year. No further shifting to/from this category will be allowed during the remaining part of that accounting year. Banks may shif....
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....of investments from one category to another. Resolution is reproduced as under:- Resolution No.20(2): As per guidelines issued by the Reserve Bank India, Bank has to invest in Government Securities minimum at 15% of its Time and Demand Liabilities and to classify the same investment in 3 categories such as Held to Maturity (HTM), Available For Sale (AFS) and Held For Trading (HFT). According to the instruction of RBI, Bank has right to change the classification at beginning of every financial year, according to that, any internal changes can be done in classification of Government Securities. The President or the Managing Director has authorized to change the classification subject to RBI's guidelines, and maintain SIR Ratio. The appellant vide submission dated 30/12/2103 has however, stated that till date it has not shifted HTM govt, securities into Available for Sale (AFS) or Held for Trading (HIT). The Hon'ble rrxr, Pune in I.T.A. No.996/PN/2012 in the case of ACIT Circle-3(1), Dhule Vs. The Shahada People Co-operative Bank Ltd., Shahada, Nandurbar dated 27/08/2013 in paragraph 5 'has stated that in the case of Bank of Baroda as we....
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....hown as investment, for the purpose of L T. 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. In that view of the matter, the order passed by the authorities holding that in view of the RBI guidelines, the assessee is stopped from treating the investment as stock-in-trade is not correct. That finding recorded by the authorities is hereby set aside. The appeal is allowed. The matter is remanded back to the assessinq authority and he shall look into these entries in accordance with law. - Chainrup Sampatram Vs. CIT (1953) 24 ITR 481 (SC), UCO Bank Vs CIT(1999) 154 CTR (SC) 88 ; (1999) 237 ITR 889 (SC), United Commercial Bank Vs. CIT (1999) 156 CTR (SC) 380 : (1999) 240 ITR 355 (SC) and Southern Technologies Ltd. Vs. It. CIT (2010) 228 CTR (SC) 440 : (2010) 34 DTR (SC) 11 : (201....
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....is is accepted, certain consequences normally follow. The opening stock of the base year of change is valued on the same basis as the closing stock. Whether the change is to a higher level or to a lower level, the Revenue normally does not seek to revise the valuation of earlier years. It neither seeks to raise additional assessments, nor does it admit relief under the "error or mistake" provisions. 3. it is not possible to define with precision what amounts to a change of basis. It is a convenience, both to the taxpayer and to the Revenue, not to regard every change in the method of valuation as a change of basis. In particular, the Revenue encourages the view that change which involves no more than a greater degree of accuracy, or a refinement, should not be treated as a change of basis, whether the change results in a higher or a lower valuation. In such cases the new change valuation is applied at the end of the year without amendment of the opening valuation." (underlining ours). This court, while holding that there is no need to change the valuation of the opening stock for the year when there is change in value of the closing stock due to a change in the me....
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....ing the claim of bonus of Rs. 12,76,657/-. I find from the assessment order that A.O has inter alia discussed and stated in Para no.5.2 of the order that: "On perusal of computation of income it was found that assessee has claimed the deduction of Rs. 28,72,823/-, whereas on going through the audit report it is seen from column No.21 B(a) that the bonus of Rs. 15,96,166/- paid on 09-08- 2010 on or before the due date for furnishing the return of income on the previous year. Therefore, the excess claim of Rs. 12,76,657/- is hereby disallowed and added to the total income of the assessee u/s. 43 B of the I T Act. " 6.1 During the course of appellate proceedings, counsels of the appellant has argued and explained entire facts and also filed written explanation cited supra. It is inter alia stated that: (i) Appellant submits that the learned A.O failed to appreciate correct position in this regard and made the addition. As regards Bonus payable, appellant bank submits as under: Bonus payable as per balance sheet as at 31/03/2010....................... Rs. 28,72,823/- Less: Entry reserved due to excess provision Rs. 12,59,585/- ....