TaxTMI 
TaxTMI 
2019 (1) TMI 1654
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....tax Act, 1961 ("the Act") under the normal provisions of the Act and also while computing the book profits under section 115 JB of the Act. 3. Ld. CIT(A) in appeal deleted all these three additions. Hence the revenue is before us in these appeals. Ground 1: Depreciation on securities 4. Learned Assessing Officer found that the assessee had claimed deduction of Rs. 167,45,36,493/- for the assessment year 2011-12 and Rs. 348,36,62,436/in respect of the assessment year 2012-13 on account of depreciation on investment on account of valuation of securities. Case of the assessee is banked upon the RBI guidelines and that the investment portfolio of the banks is required to be classified under three categories, namely, held to maturity (HTM), held for trading (HFT) and available for sale (AFS); that in the investments classified under HTM category need not be marked to market and are carried at an acquisition cost unless these are more than the face value, in which case the premium should be amortised over the period remaining to maturity; that in case of HFT and AFS, that the depreciation/appreciation is to be aggregated scrip wise and only netted appreciation, if any, is ....
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....on the other hand not carrying forward the impact of this claim of diminution on the value of securities in the opening stock. Ld. DR placed reliance on the decision of the Hon'ble Apex Court in the case of Southern Technologies Vs. ACIT [2010] 187 Taxman 346 (SC). 8. We have perused the record and the case law relied upon by both the sides. It is an admitted fact that the assessee being a nationalized bank is governed by the Banking Regulation Act, 1949; that they are following mercantile system of accounting both for book keeping purpose as well as for tax purposes; that they have been valuing the stock-in-trade (investments) "at cost" in the balance sheet whereas for the same period of time the appellant has been valuing the very same investment "at cost or market value, whichever is lower" for income tax purposes; that it is an established rule of commercial practice and accountancy that closing stock can be valued at cost or market price, whichever is lower. It could be seen from the record that the question as to the reflection of the investments being stock in trade in the audit report, profit and loss account and the annual report with the question of the value of securi....
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.... the stock, on the sale of the scrip, the cost price but not the reduced price was taken as the cost of acquisition and thereby any less amount was offered to tax. The entire edifice of the case of revenue is based on the theoretical suspicion of the Ld. Assessing officer that inasmuch as the assessee has not been showing in the balance sheet reduced value of the scrip but the cost price of the scrip as the value of the scrip, when the securities were sold it is the cost price of the scrip but not the reduced value of the scrip that was taken to estimate the profits and as a consequence of which the less amount has been offered to tax. It is a verifiable fact with reference to the sales of securities, if any, that took place during the year orinearlier or subsequent years. Such an exercise has not been undertaken by the learned Assessing officer but merely basing on the figures reflected in the balance sheet which was prepared in accordance with the RBI guidelines, learned Assessing officer reached a conclusion that there was an escapement of income due to the preparation of the balance sheet in a particular way, as prescribed by the RBI. 12. If we appreciate the facts of ....
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....n trust, which employees of bank will become members; Bank will become members and the bank is required to contribute the fund towards pension fund trust as per actuary evaluation carried out at the end of the financial year. It was further argued that carrying up banking business and funding the pension trust out of the income of banking are made obligation under the Act and the provisions of pension fund trust regulation makes it amply clear that payment directly attributable, compulsory and statutory for carrying on business on banking and should be allowed as a direction. It was further submitted that the liability on account of contribution to pension fund is a recurring liability and not a one-time liability. It was submitted that Rule 87 applies to ordinary annual contributions and not to anything other than annual contribution. It was further submitted that keeping in view the actual method of accounting, consistently followed by the bank, the aforesaid contribution is an allowable business expenditure being incurred wholly and exclusively for the purpose of business and compliance to AS-15, subject to provisions of section 43B. 17. Ld. CIT(A) found that on similar....
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....cern are part of the business or banking and therefore the expenses incurred for the purpose of such investment is the business investment. He further submitted that as is held by the Hon'ble Apex Court in the case of Maxopp investment Ltd vs. CIT (2018) 402 ITR 640 (SC), holding off the investment becomes a business activity of the assessee as a business proposition and whether the dividend is earned or not becomes immaterial. He further brought to our notice the observations of the Hon'ble Apex Court to the effect that in case where the bank holds the investments as stock in trade it would be a quirk of fate that when the investee company declared a dividend, those shares are held by the assessee, though the assessee has to ultimately trade those shares by selling them to earn profits. He, therefore, submits that inasmuch as the Hon'ble Apex Court made a clear distinction between the proposition laid down in the case of Maxopp investments Ltd vs. CIT (2011) 15 taxman.com 390 (Delhi) and the proportion laid down in the case of PCIT vs. state bank of Patiala (2017) 78 taxmann.com 3. He submitted that though the Hon'ble Apex Court rejected the theory of dominant intention, did not l....
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....held by as stock in trade. The Hon'ble Supreme Court was considering the question that has arisen under varied circumstances where the shares/stocks were purchased by a company for the purpose of gaining control over the said company or as "stock in trade", though incidentally income is also generated in the form of dividends as well. 24. It was argued before the Hon'ble Apex Court that though incidentally income was also generated in the form of dividends, the dominant intention for purchasing the shares was not to earn the dividend income but to acquire and retain the controlling business in the company in which shares were invested, or for the purpose of trading in the shares as business activity. 25. After considering the entire case law on this aspect in the light of the peculiar facts involved in both the matters, the Hon'ble Apex Court vide paragraph No. 39 and 40 held as follows:- 39) In those cases, where shares are held as stock-in-trade, the main purpose is to trade in those shares and earn profits therefrom. However, we are not concerned with those profits which would naturally be treated as 'income' under the head 'profits and gains from business and pro....
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....estee company that would necessarily be earned by the assessee and the assessee alone. Therefore, even at the time of investing into those shares, the assessee knows that it may generate dividend income as well and as and when such dividend income is generated that would be earned by the assessee. In contrast, where the shares are held as stock-in-trade, this may not be necessarily a situation. The main purpose is to liquidate those shares whenever the share price goes up in order to earn profits. In the result, the appeals filed by the Revenue challenging the judgment of the Punjab and Haryana High Court in State Bank of Patiala also fail, though law in this respect has been clarified hereinabove." 26. It is, therefore, clear from the above observations of the Hon'ble Apex Court that depending upon the facts of each case, the expenditure incurred in acquiring the shares will have to be apportioned. Hon'ble Apex Court held that the tribunal and the Hon'ble High Court of Punjab and Haryana arrived at a correct conclusion by setting aside the disallowance under section 14 A of the Act in respect of the dividend earned on the shares held as stock in trade, because such shares were ....