TaxTMI 
TaxTMI 
2021 (3) TMI 466
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....penditure in relation to exempt income. 1.1 Ld. Commissioner of Income Tax (Appeals) has further erred on facts and in law in holding that the assessee has not come forward with the evidence that it has used its own funds in making investments ignoring that the fact is evident from the Balance Sheet itself. 1.2 Ld. Commissioner of Income Tax (Appeals) has also erred on facts and in law in not appreciating that the assessee holds shares/ securities as stock in trade and not as investment and therefore rule 8D is not applicable. 1.3 The revenue's grounds read as under:- i. Whether on the facts and in the circumstances of the case and in law, Ld.CIT(A) was right in deleting the addition of Rs. 42,47,09,377/- holding that the interest on Government and other securities has to be included in the income on due basis as against the accrual basis? ii Whether on the facts and in the circumstances of the case and in law, Ld.CIT(A) was right in deleting the addition of Rs. 27,22,94,532/- on account of amortization on HTM securities without appreciating the fact that diminution in value of investment in securities under HTM category is notional loss....
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..... Amortization of Securities held under HTM Category Rs. 2722.94 Lacs 4. Depreciation on Securities under AFS and HFT category Rs. 650.87 Lacs 5. Broken period interest on securities Rs. 64351.48 Lacs The assessee is aggrieved by confirmation of disallowance u/s 14A wherein revenue is aggrieved by the action of Ld. CIT(A) in granting relief to the assessee on issues tabulated at serial nos. 2 to 5. Our findings and adjudication to all the issues would be as follows. 5. Disallowance u/s 14A:- 5.1 It transpired that the assessee earned tax free income aggregating to Rs. 421.18 Lacs in the form of interest on tax free bonds and dividend on shares and mutual funds. However, no disallowance was offered u/s 14A read with Rule 8D. The assessee defended its stand before Ld. AO by way of elaborate written submissions, which have already been extracted in para 2.2 of the assessment order. However, relying upon certain judicial decisions and distinguishing the decisions as relied upon by assessee, Ld. AO invoked the provisions of Rule 8D and computed aggregate disallowance of Rs. 1204.31 Lacs which comprised-off of interest disallowance u/r 8D(2)(ii) for Rs. 1....
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.... go into the details and will compute the disallowance in view of these observations. This issue is remanded back to the file of the AO. Since the facts are shown to be identical this year, in principle, we hold that interest disallowance u/s 14A r.w.r. 8D(2)(ii) would not be sustainable subject to verification by Ld. AO that assessee's own funds far exceed the investments made by the assessee. The issue of expense disallowance in terms of Rule 8D(2)(iii) would stand restored back to the file of Ld. AO with similar directions. The ground, thus raised before us, stands allowed for statistical purposes. Since this is the only issue in assessee's appeal, the appeal stand allowed for statistical purposes. 6. Broken period interest:- 6.1 The term 'Broken period interest' represent interest component paid by the assessee on the interest-bearing government securities when purchased from the market. The interest on government securities is normally payable half-yearly. When the government securities are traded, the purchaser has to pay to the seller not only the purchase price of the securities, but also the interest accrued on the purchased securities from the last due date of th....
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....mputations which were evident from the fact that interest as well as gains / loss on securities were offered to tax as 'Business Income'. The aforesaid treatment was accepted by Ld. AO. It was also noted that the assessee was following this consistent system of accounting for more than last 20 years which was also accepted by Hon'ble Rajasthan High Court in assessee's own case for AYs 2000-01 to 2002-03 and 2005-06. The adjudication of Hon'ble High Court order dated 17/05/2017 was extracted in para 4.3.3 of the impugned order wherein this issue was answered in assessee's favor. It was held that broken period interest in respect of all the three categories of securities was revenue in nature as per the system of accounting regularly followed by the assessee and also on the ground that the investments were treated as stock-in-trade for Income Tax purposes. Therefore, the disallowance was to be deleted. Aggrieved, the revenue is in further appeal before us. 6.5 We find that this issue is contained in paras-115 to 119 of Tribunal's order in assessee's own case for AY 2008-09, ITA Nos.3644/Mum/2016 & 4563/Mum/2016 order dated 03/02/2020 wherein a finding was rendered that similar ....
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....tioned orders of the Tribunal and Bombay High Court. The right to receive interest on securities arises on due date only, which falls after the accounting year and, accordingly, it cannot be taxed in the accounting year itself. Hence, in view of the above discussion, we decided this issue in favor of assessee and accordingly, this ground of revenue's appeal is dismissed. Since no change in facts has been demonstrated before us, respectfully following the above decision of Tribunal, we dismiss this ground of revenue's appeal. 8. Amortization on securities held under HTM category:- 8.1 The assessee debited a sum of Rs. 2722.94 Lacs on account of amortization in respect of the securities held under held-to-maturity (HTM) category as per RBI guidelines. In respect of HTM securities, the bank followed two different systems which were inconsistent with each other. When the purchase price of securities is less than the face value at which the security is ultimately sold, the difference is booked as profit only in the year of sale. But when the cost price is more than the face value the loss is not booked in the year of sale but it is spread over the period of holding. Th....
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....this issue is contained in paras-134 to 137 of Tribunal's order in assessee's own case for AY 2008-09 wherein the issue was found to be squarely covered in assessee's favor for AY 1995- 96 by the order of Tribunal dated 17/09/2009. This decision was followed in AY 1996-97 vide order dated 26/07/2013. Further, Hon'ble Bombay High Court dismissed revenue's appeal, on this issue, for AY 1996-97. The Ld. CIT(A) has also relied upon appellate orders for earlier years. Therefore, facts being identical, we dismiss this ground of revenue's appeal. 9. Depreciation on securities under 'Available for sale (AFS)' and 'Held for Trading (HFT) category:- 9.1 The assessee claimed depreciation of Rs. 650.87 Lacs on securities held under Available-for-sale (AFS) category. There was no investment under Held-for-trading (HFT) category. The opening provision was Rs. 1679.28 Lacs whereas closing provision was Rs. 1638.05 Lacs. Upon perusal of details, it transpired that the closing provision was worked out by adding net depreciation under different investment categories as tabulated below: - Category Appreciation Depreciation Net Depreciation Govt. Securities Rs. 4369923 ....
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.... without netting of the appreciation in other securities held as a part of investment. The Bombay High Court has dismissed the appeal of the Revenue and has decided the issue in favour of the assessee. It is argued that the facts of the present case are exactly same as in the aforesaid case of Union Bank of India. This issue stands covered by the judgement of the jurisdictional High Court. The facts of the assessee's case and the facts in the decision of the Bombay High Court in the case of Harinagar Sugar Mills Ltd. vs. CIT [1994] 207 ITR 901 (Bombay), relied by the AO are different. In the aforesaid decision, the assessee had changed the method of valuing stock in the year under consideration, whereas in the assessee's case, there is no change in the method of valuation. Also, in that case, sugar was valued differently by bifurcating the stock into 'levy sugar' and 'free sugar'. The Court's conclusion is based on the fact that there was no justification for bifurcation of sugar between free and levy sugar. The Mumbai Tribunal in the case of DCIT vs. Majestic Holdings and Finvest (P.) Ltd. [2010] 2 ITR(T) 407 (Mumbai) has noted that the reliance of the Departmental....