TaxTMI 
TaxTMI 
2018 (12) TMI 1328
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.... also challenging the jurisdiction of the Assessing Officer in passing the impugned assessment order. 3. In both the years the Revenue is aggrieved by the decision of the Ld. CIT(A) in holding that the interest accrued but not due on current investment is not taxable under accrual system of accounting. 4. The facts relating to the case are discussed in brief. The assessee company is a non banking financial company. It was originally formed under the name M/s. Bokadia Marketing and Finance Pvt. Ltd. in Chennai. It was acquired by the present company during the financial year 2008-09. Consequent thereto, the name of the assessee was changed to the present form w.e.f. 21.10.2008. Thereafter, on 22.04.2009 the assessee was permitted to transfer his registered office from State of Tamil Nadu to State of Maharashtra. For assessment years 2010-11 & 2011-12 the assessee filed its return of income to the Deputy Commissioner of Income Tax-3(1), Mumbai. However, the assessment for the assessment year 2010-11 was completed by the Additional Commissioner of Income Tax, Range-1, Chennai. Hence, the assessee has raised a legal issue contending that the Additional Commissioner of Income Tax,....
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....of Appeal No.1 states that jurisdiction over the case does not lie with assessing officer and hence the order passed by the AO is bad in law. From the submission of the appellant it is seen that the Office of the CIT Mumbai conveyed its no objection to transfer the case from CIT Chennai to CIT Mumbai vide letter dated 16.01.2013. It is a fact that unless an order u/s 127 is passed by the concerned CIT, the assessing officer cannot transfer the case from its jurisdiction to another jurisdiction. This is an internal administrative issue which cannot be the subject matter of appeal. Assessing officer has no option but to complete the assessment before it gets time barred which is reaffirmed by the Hon. Allahabad High Court's decision in the case of Hindustan Transport Company. The appellant has given the decision of Hon'ble Punjab & Haryana High Court in the case of Joginder Singh v CIT ( 6 taxman 245). The decision is governed by section 124(4)/( 5)(b) and assessment order u/s 132(5), This decision is delivered on 9.09.1980. Subsequently, Hon'ble High Court of Allahabad in the case of Hindustan Transport Company has giving the finding which is squarely applicable....
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....ed. Thus, in the light of this decision, it is held that the A.O. may have committed an irregularity but in spite of it, the order cannot be held to be bad in law. Thus, the appellant's submission is not accepted. First ground of appeal is dismissed." 8. There is no dispute with regard to the fact that the assessee was originally assessed to income tax in Chennai. It is submitted by Ld. D.R. that the jurisdiction of the Assessing Officer would be changed by passing a transfer order under section 127 of the Act and the approval has to be given by both the commissioners, when the transfer takes place from the jurisdiction of one commissioner to the jurisdiction of another commissioner. As per the system prevailing in Income Tax Department, though the return of income was filed in Mumbai office, yet the jurisdiction remained with Chennai Assessing Officer in view of the fact that the return was filed electronically. Since the case of the assessee was not transferred to Bombay Officer as per the record of the department, the Assessing Officer, Chennai has issued a notice under section 143(2) of the Act. We agree with the submission of Ld D.R that the Assessing Officer h....
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....assets, but should be considered as its capital asset. Accordingly, he took the view that the provision for diminution in value of investments as at the year end and also loss on sale of investments are on capital field. The Assessing Officer also referred to the query raised by Reserve Bank of India (RBI) questioning the assessee for parking its funds as fixed deposits with Banks and further questioning as to why the required percentage of principal business was carried out. The AO further observed that the making investments in securities was not compulsory for the assessee, as it is non-deposit taking company. Further, as per the provisions of RBI Act, the assessee was not required to make any mandatory investments. Accordingly the AO took the view that the investments made by the assessee cannot be considered as part of its business activities. The AO further observed that the assessee has shown the investment in securities under the head "investments" in its Balance Sheet and not as current assets. The AO further noticed that a group company named M/s Credit Suisse First Boston (Cyprus) Ltd has treated the securities purchased by it as its Investment. He further observed Accor....
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....i) thereof, the Appellant is permitted to carry on the business of trading in securities stock, bonds, debentures or securities issued by a Government or local authority or other marketable securities of a like nature. 3. The AO relied on Circular dated December 6, 2006 (Annexure 2) to hold that since the Appellant is not an Investment NBFC, therefore, investments are not its business. The Appellant submits as under: a. The said communication relied upon by AO modifies the NBFC Acceptance of Public Deposits (Reserve Bank) Directions, 1998. b. Since the Appellant is not a deposit accepting NBFC, the Directions have no application and consequently any modification thereto is irrelevant. ii. The Appellant has indeed held the securities as its stock / business asset. Once that is so the loss on sale of such securities ought to be allowed as a business loss. 1. Treatment by Appellant in its accounts and acceptance of it by the Revenue: a. It is undisputed that in the books of accounts of the Appellant the securities held / traded in are treated as its stock. b. In the Tax Audit Report the Appellant has declared its business ....
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.... to comply with the provisions of section 451 of the RBI Act by 31 March 2010 [Page 233 of PB (AY 2010-11)]. g. In addition to the above, the Appellant was also asked by the RBI to furnish a certified statement of financial assets and financial income on 20 April 2010 [Page 239 of PB (AY 2010-11), Page 295 of PB (AY 2011-12)]. The Appellant filed a certified statement [Page 242 of PB (AY 2010-11), Page 296 of PB (AY 2011-12)]. The aforestated change in holding has been accepted by the RBI as being in compliance with its norms, thereby establishing that the securities were held as a part of its principal business and not as investments on capital account. 3. The actual manner in which the securities have been held and dealt with: a. The details of securities purchased, sold and held by the Appellant during the year is tabulated at Page 116 of the PB for AY 2010-11 and Page 79-82 of the PB for AY 2011-12. b. The Appellant has from the aforementioned table made some crucial analysis that will support its submission of having held the securities on trade account. The analysis is annexed hereto and marked Annexure 3. c. Factors such ....
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....curities held under the head 'Current Investments" in its Balance Sheet, the Appellant cannot now be allowed to contend that the securities are held as its stock or business asset. The Appellant submits as under: i. The securities held by it are disclosed under the caption of Current Investments. It is clarified that such classification is as prescribed in the format of the balance sheet as notified by the RBI vide Notification No.193 dated 22 February 2007 by the RBI [Page 248 to 275 of the PB CAY 2010-11), Page 158 to 189 of PB (AY 2011-12)]. ii. The Appellant relies on the decision of the Hon'ble Hyd. Bench of the ITAT in the case of Peninsular investments [120 TTJ 96 (Hyd)] affirmed by the High Court (213 Taxman 327), which held that classification under the head "Current Investments" does not mean that the securities are held on capital account and that the securities held by the NBFC (viz. Peninsular Investments) were its stock. B. No reliance can be placed on the Non-Banking Financial Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 The Assessing Officer holds that insofar as reliance on ....
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....ssessee there was a Foreign Institutional Invest (FII) and as an Fll, it was prohibited from trading in securities. ii. That Fits are prohibited from carrying on business in India, and, therefore prohibited in trading of securities, as has been recognised by the Hon'ble Tribunal in the case of Platinum Investment (33 taxmann.com 298)" 13. We heard rival contentions on these issues and perused the record. The assessee claimed that it is holding the investments as its trading assets and accordingly claimed both the deductions referred above. The AO, on the contrary, placed reliance on the classification of company by RBI and also relied upon the show cause notice issued by the RBI for supporting his view that the assessee's business activities cannot be considered as making investments. The AO has also observed that the assessee has shown the investments made in securities as "investments" in the Balance Sheet and not as current assets. Since the assessee is not entitled to accept public deposits, the AO has also taken the view that there is no mandatory requirement for making investments He further noticed that a group company of the assessee named M/s Credit Suisse ....
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.... Ld A.R submitted that the above said group company is a Foreign Institutional Investor (FII) and the FIIs are prohibited from trading in securities, i.e., they are prohibited from carrying on business in India, which was noted down by the Tribunal in the case of Platinum Investment (33 taxmann.com 298). Accordingly, the Ld A.R submitted that the AO was not correct in law in taking support from the facts available in the above said group company. 16. The assessee has furnished the details of securities purchased, sold and held by the assessee at page 116 of the paper book filed for AY 2010-11 and at pages 79-82 of the paper book filed for AY 2011-12. The Ld A.R submitted that the volume, frequency, ratio of sales to purchases would show that the assessee was carrying trading activity in investments. The assessee has placed its reliance on the decision rendered by Hon'ble Supreme Court in the case of Sutlej Cotton Mills (supra), the decision rendered by Hon'ble Andhra Pradesh High Court in the case of PVS Raju (supra), the decision rendered by Hon'ble Delhi High Court in the case of Radials International (supra) and the decision rendered by Mumbai bench of Tribunal in the case of....
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.... investment in shares were not at all considered as stock in trade as the assessee was not dealing in shares. Once the shares are treated as investments, loss arising out of purchase and sale of shares is only a capital loss and it is not a business loss. In other words, assessee having carried on no business activity and treated the shares as investments from year to year, income or loss arising out of sale of such treatment accorded to it by the assessee in its return of income; contrary to the treatment giving in the books of accounts. Hence this ground of appeal of assessee stands rejected." (emphasis supplied) . The above fact pattern is completely distinguishable from the facts of our case. In the case cited the Assessee took different stand in its books and that for income-tax purposes and consequently the plea of the assessee therein was rejected. Where as in the case before Your Honours the assessee has in accounts as well as in its filings before the income-tax authorities treated the securities held as its stock (current investments) and valued them at cost or market value whichever is ." 18. On hearing rival contentions, we are of the view that there is meri....
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....ticed that the assessee has credited its profit and loss account with Rs. 1010.10 lakhs, being the interest accrued but not due. Thus, the net interest income was Rs. 934.96 lakhs for AY 2010-11. In respect of securities, the interest is payable only on coupon date. Hence, at the time of purchase/sale of securities, the interest accrued from the previous coupon date to the date of purchase/sale is deducted/collected from the sale consideration. Since the interest was payable only on coupon date, the assessee is following the system of offering interest income on coupon date, even though it accounted broken period interest paid on purchase of securities and also recognised interest accrued but not due on securities held by it, as its income. Hence,for the purpose of income tax, the assessee excluded both the items, i.e., both claim of broken period interest debited to P & L account and the "interest accrued but not due" credited to Profit and Loss account while computing total income, i.e., in effect, the net interest of Rs. 934.96 lakhs was excluded from the profit and consequently not offered as income,. The AO took the view that the interest accrues on time basis and accordingly ....