TaxTMI 
TaxTMI 
2018 (12) TMI 1328
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....ssessing 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, Chennai does not have jurisdiction to pass the....
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....ot 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 in this case. The relevant paras of the order is reproduced as un....
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.... 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 having original jurisdiction can be relieved of the case only if the transfer of case is done as p....
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.... 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 Accordingly he held that the deduction claimed towards "provision for diminution in the value of securities"....
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....ity 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 to be business of dealing in securities [Page 97, 98, 105, 116 of the PB (AY 2010-11), Page 58, 59, 66, 79-82 of the PB (AY 2011-12)] c. The interest income from securities earned during the year amounting ....
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.... [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 as magnitude, frequency, ratio of sales to purchases could be relevant in order to decide whether the investments are in the nature of capital or business: i. Sutlej Cotton Mills [100 ITR 706 (SC)] ii. PVS Raju [340 ITR 75(AP)] d. The volume/ frequency with which the securities are dealt with also....
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....ance 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 Paragraph 6(l)(d)(iv) and 6(2) of the Non-Banking Financial Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007, the said directions are only prudential norms and do not affect computation of income under the Income-tax Act, 1961. The Assessing Officer relies on the decision in the case of Southern Technologies Ltd. [(2010) 187 Taxman 346] in support. The Appellant....
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....ing 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 First Borston (Cyprus) Ltd has shown purchase of securities as its investments. Accordingly, the AO has taken the view that the investments made by the assessee should be considered as Capital Assets and accordingly rejected the both the claims. 14. However, a perusal of detailed reply given by the assessee would show that the assessing officer has not correctly interpreted the provisions of RBI Act. The assessee has submitted that , as per the provisions....
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....ssee 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 Sadhana Nabera (supra). 17. Before us, the Ld D.R placed his reliance on the decision rendered by Hon'ble Delhi High Court in the case of Moderate Leasing & Capital Services Ltd (2012)(19 taxmann.com 164)(Delhi) and the decision rendered by Chennai bench of Tribunal in the case of REPCO Home Finance Ltd (2018)(92 taxmann.com 230). It is the contention of the assessee that both the decisions relied upon by the Ld D.R have been rendered on different set of facts....
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.... 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 merit in the submissions made by the assessee, as the various points noted down by the assessing officer has rightly been addressed by the assessee. Both the case laws relied upon by Ld D.R have been rendered on different set of facts and hence they cannot be taken support by the Revenue. Accordingly we hold that the assessee has held the securities as its trading assets only. 19. The assessee has placed its reliance on the decision rendered by Hon'ble Supreme Court in the case of Chainrup Sampatram (28 ITR 481)(SC) ....
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....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 took the view that the assessee should have offered the above said amount as its income. The assessee had placed its reliance on the decision rendered by ITAT Special bench in the case of DCIT vs. Bank of Bahrain (ITA No.4404 & 1883/Mum/2004). The AO, however, took the view that the provisions of sec.145 have been amended with effect from 1.4.1997 and the assessees can no longer follow Hybrid system of accounting and hence the assessee is mandatorily required to follow mercantile system of accounting. The AO accordingly e....