THE HINDUSTAN CO OPERATIVE BANK LTD, MUMBAI v. JT CIT 13(3), MUMBAI

ITA 1501/MUM/2014 | 2009-2010
Pronouncement Date: 24-10-2016 | Result: Partly Allowed

Appeal Details

RSA Number 150119914 RSA 2014
Assessee PAN AABAT4355R
Bench Mumbai
Appeal Number ITA 1501/MUM/2014
Duration Of Justice 2 year(s) 7 month(s) 22 day(s)
Appellant THE HINDUSTAN CO OPERATIVE BANK LTD, MUMBAI
Respondent JT CIT 13(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 24-10-2016
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted H
Tribunal Order Date 24-10-2016
Date Of Final Hearing 30-06-2016
Next Hearing Date 30-06-2016
Assessment Year 2009-2010
Appeal Filed On 04-03-2014
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH MUMBAI BEFORE SHRI SANJAY ARORA A M AND SHRI AMARJIT SINGH J M ./ I.T.A. NO. 1501/MUM/2014 ( / ASSESSMENT YEAR: 2009 10 ) THE HINDUSTAN CO OPERATIVE BANK LTD. 4 A DEVI GALLI BABURAO BOBDE MARG LOKHAND BAZAR MUMBAI 400 009 / VS. JT. CIT 13(3) AAYKAR BHAVAN MUMBAI ./ ./ PAN/GIR NO. AABAT 4355 R ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI AMAR GAHLOT SHRI S. SRIRAM / RESPONDENT BY : SHRI B. SATYANARAYANA RAJA / DATE OF HEARING : 01.7.2016 / DATE OF PRONOUNCEMENT : 24 .10.2016 / O R D E R PER SANJAY ARORA A. M.: THIS IS AN A PPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS) 24 MUMBAI (CIT(A) FOR SHORT) DATED 19.11.2013 DISMISSING THE A SSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S.143(3) OF THE IN COME TAX ACT 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A.Y.) 2009 10 VIDE ORDER DATED 21.12.2011 . 2. THE ASSESSEE A CO OPERATIVE BANK IN THE BUSINESS OF BANKING GOVERNED BY THE B ANKING REGULATION A CT 1949 AS WELL AS THE MAHARASHTRA STATE C O OPERATIVE S OCIETIES ACT 1960 CLAIMED INVESTMENT L OSS ADJUSTED FROM IDR IN THE SUM OF RS. 80.9 91 L ACS IN THE COMPUTATION OF ITS BUSINESS INCOME FOR THE YEAR (PB P G S . 24 26). IT IS TH IS CLAIM 2 ITA NO. 1501/MUM/2014 (A.Y. 2009 - 10) THE HINDUSTAN CO - OPERATIVE BANK LTD. VS. JT. CIT DISALLOWED BY THE R EVENUE WHICH CONSTITUTES THE PRINCIPAL I SSUE ARISING FOR CONSIDERATION IN THE INSTANT APPEAL. THE FACTS /ARGUMENTS 3. A SUM OF RS.52.74 L ACS AND RS.28.251 L ACS (TOTAL : RS.80.991 L ACS) WAS TRANSFERRED FROM I NVESTMENT D EP RECIATION R ESERVE (I D R) TO I NVESTMENT F LUCTUATION F UND (IFF) I.E. ON 9 . 3 . 20 07 AND 4 . 4 . 2008 RESPECTIVELY I.E. BY CRE DI TING THE FORMER ACCOUNT AND DEBITING THE LATTER ACCOUNT (PB PGS . 1 2). THEREAFTER ON 4 . 4 . 2008 AN AMOUNT OF RS.52.02 LACS AND RS. 43.80 L ACS (TOTAL: RS.9 5.82 L ACS) BEING LOSS O N SHIFTING SECURITIES (6.01 G OI 20 28 AND 6. 1 7 GO I 2023) FROM AFS TO HTM CATEGORY WAS D EBI TED TO THE I DR ACCOUNT REDUCING THE BOOK VALUE OF THE SECURITIES ON ACCOUNT OF DEP RECIATION WITH REFERENCE TO THEIR MARKET VALUE AS ON THE DATE OF TRANSFER ( I.E. FROM AFS CATEGORY TO HTM CATEGORY) T ABULATED AS UNDER (PB PAGE 3/ ALSO REFER PARA 5 OF THE ASSESSMENT ORDER) : ( AMOUNT IN RS. ) PARTICULARS FACE VALUE BOOK VALUE MARKET VALUE APPRECIATION/ (DEPRECIATION) 6.01% GOI 2028 2 00 00 000 2 06 60 000 1 54 58 000 (52 02 000) 6.17% GOI 2023 2 00 00 000 2 06 60 000 1 63 80 000 (43 80 000) TOTAL 4 00 00 000 4 14 20 000 3 18 38 000 (95 82 000) AMOUNT TRANSFERRED FROM INVESTMENT DEPRECIATION RESERVE 80 99 100 THE AMOUNT OF RS. 80.9 91 L ACS WAS ACCORDINGLY CLAIMED AS SHIFTING LOSS. THE SHIFTING OF THE SECURITIES (FRO M AFS TO HTM CATEGORY) IT WAS EXPLAINED BY THE ASSESSEE WAS DONE WITH THE APPROVAL OF THE BOARD OF DIRECTORS WHICH IN TERMS OF THE RB I M ASTER C IRCULAR UB D.B PD(PCB) .MC.NO. /16.20 . 000/2008 09 (COPY ON RECORD/ PGS. 1 44 OF CASE LAW COMPILATION CLC) CAN BE SO DONE ONCE A YEAR USUALLY AT ITS BEGINNING. FURTHER THE SHIFTING I.E. FROM ONE CATEGORY TO ANOTHER SHOULD BE DONE AT ACQUISITION COST/BOOK VALUE/MARKET VALUE ON THE DATE OF TRANSFER WHICHEVER IS THE LE A S T AND THE DEP RECIAT ION IF ANY ON THE DATE OF SUCH TRANS FER FULLY PROVIDED FOR (PARA 15. 5 OF THE MASTER C IRCULAR UPDATED UP TO 30/6/2008). THE ACCOUNTING IS STRICTLY 3 ITA NO. 1501/MUM/2014 (A.Y. 2009 - 10) THE HINDUSTAN CO - OPERATIVE BANK LTD. VS. JT. CIT AS PER THE RBI GUIDELINES IN THE SAID C IRCULAR. THE MATTER I N FACT IS COVERED BY THE DECISION BY THE HON BLE JU RISDICTIONAL H IGH C OURT IN CIT VS. HDFC B ANK LTD . [ 2014 ] 368 ITR 377 (B OM ) (PGS . 45 48 OF CLC) BESIDES OTHER DECISIONS. ON BEING ENQUIRED INTO THE REASONS FOR THE SAID TRANSFER DURING HEARING IT WAS EXPLAINED V IDE N O TE DATED 1 . 7 . 2016 (PARA 1) THAT ANTICIPATING A REDUCTION IN THE MARKET VALUE OF THE TRANSFER RED SCRIPS IN FUTURE I.E. WITH REFERENCE TO THAT OBTAINING ON 4 . 4 . 2008 THE TRANSFER DATE THESE WERE TRANSFERRED TO HTM CATEGORY (FROM AFS CATEGORY) TO AVOID FUTURE L OSSES. THIS IT WAS EXPLAINED I S A BUSINESS DECISION AS S IGNIFIED BY THE B OARD R ESOLUTION DATED 4 . 4 . 2008. AS REGARDS THE CLAIM OF THE AFS CATEGORY SECURITIES BEING STOCK IN TRADE OF THE BANK WHICH WAS EMPHASI Z ED BEFORE US WITH REFERENCE TO C B DT I NSTRUCTION NO. 17 OF 2008 DATED 26/11/2008 (PB PGS . 81 82 OF CLC ) SO THAT IT IS LIABLE TO BE VALUED ON EACH VALUATION DATE I.E. AS AT THE END OF EACH PREVIOUS YEAR AT COST OR MARKET VALUE WHICHEVER IS LESS THE FOL LOW ING INFORMATION WAS SUPPLIED ( BY THE LD. AR ) V IDE N O TE DATED 1 . 7 . 20 16 ( SUPRA ) : SR. NO. NAME OF S ECURITY MARKET VALUE AS ON 31.3.2006 (RS.) MARKET VALUE AS ON 31.3.2007 (RS.) MARKET VALUE AS ON 31.3.2008 (RS.) 1 6.01% GOI 2028 1 62 72 000 1 54 88 000 1 54 16 000 2 6.17% GOI 2023 1 70 04 000 1 63 38 000 1 62 56 000 T HE NON FOLLOWING OF THE VALUATI ON METHOD AFORESAID WAS SOUGHT TO BE JUSTIFIED IN TERMS OF THE BOARD I NSTRUCTION SUPRA (PARA VII) AS WELL AS THE RBI M ASTER C IRCULAR SUPRA (PARA 16 ) WHEREBY THOUGH THE H T F AND AFS CATEGORY SECURITIES ARE REQUIRED TO BE MARKED TO MARKET I.E. SCRIP W I S E THE SAME IS TO BE AGGREGATED (FOR ALL THE SECURITIES FALLING UNDER A PARTICULAR CATEGORY) AND WHILE THE NET APPRECIATION IS TO BE IGNORED THE NET DEP RECIATION PROVIDED FOR ( THROUGH IDR ACCOUNT ) WITHOUT CHANGING THE BOOK VALUE OF THE INDIVIDUAL SECURITIES . THE SAME IS ADJUSTED ON ITS SUBSEQUENT SALE OR TRANSFER TO ANOTHER CATEGORY. FOR EXAMPLE ( AS CITED IN THE NOTE ) THERE ARE T WO SECURITIES PURCHASED AT RS.100/ EACH (ACQUISITION COST ) IN THE AFS CATEGORY. AT THE 4 ITA NO. 1501/MUM/2014 (A.Y. 2009 - 10) THE HINDUSTAN CO - OPERATIVE BANK LTD. VS. JT. CIT END OF THE RELEVANT YEAR THE FIRST SECUR ITY APPRECIATES TO RS.140 / WHILE THE SECOND DEPRECIAT ES TO RS. 75 / . THERE IS THUS NET AP PRECIATION OF RS.1 5/ (RS.4 0 RS.25 ). THERE WOULD BE NO DEP RECIATION RESERVE CRE A TED NO R ANY C ORRESPONDING DEBIT TO THE P&L A CCOUNT. NEXT YEAR ON 4 TH APRIL (SAY) THE SECOND SECURIT Y IS TRANSFERRED TO HTM CATEGORY. THE SHIFTING LOSS WOULD BE RS.2 5 / (BOOK VALUE : RS.100 MARKET VALUE : RS.7 5 ) TO BE TAKEN TO THE P&L A CCOUNT. THE LD. CIT(A) AF TER CONSIDERING THE ASSESSEES CASE HELD AS UNDER : 4.3 DECISION : I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS MADE BY THE ASSESSEE. 4.3.1 IT IS NECESSARY TO EXAMINE THE ENTRIES PASSED BY THE ASSESSEE IN BOOKS OF ACCOUNT THAT IS P&L ACCOUNT AND BALANCE SHEET IN THIS REGARD. IT IS OBSERVED FROM THE RECORDS TH AT (1) ASSESSEE HAS MADE A PROVISION FOR 'INVESTMENT DEPRECIATION RESERVE' FOR RS . 24 05 000/ AND DEBITED THE SAME TO THE P&L ACCOUNT ABOVE THE NET PROFIT OF RS.3 45 31 529/ BUT HAS CLAIMED THE SAME AS REVENUE DEDUCTION WHILE COMPUTING THE TOTAL INCOME B ECAUSE THE SAME WAS NOT ADDED BACK TO THE BUSINESS INCOME IN THE COMPUTATION OF TOTAL INCOME FILED BY T HE ASSESSEE AND IT STANDS ALLOWED BY THE ASSESSING OFFICER ALSO. THIS IS IN ADDITION TO THE CLAIM FOR ADDITIONAL DEDUCTION OF RS.80 99 100/ MADE BY THE ASSESSEE IN THE COMPUTATION OF TOTAL INCOME (2) OPENING BALANCE OF RS.67 56 900/ IN THE 'INVESTMENT DEPRECIATION FUND' ACCOUNT AND PART OF THE OPENING BALANCE OF RS.8 25 100/ (55 26 000 47 00(900) 'IN THE 'INVESTMENT FLUCTUATION FUND' ACCOUNT TOTALING RS. 75 82 000/ WERE TRANSFERRED/CREDITED MAY BE TO 'STATE LOAN BOND & GOI SECURITIES' ACCOUNT WHICH WAS REDUCED BY RS.96 87 546/ (4 92 478 138 48 27 90592) FROM THE FIRST DAY OF THE YEAR TO THE LAST DAY OF THE FINANCIAL YEAR. IT APPEARS FROM THE RECOR DS THAT ASSESSEE HAS BEEN DEBITING P&L ACCOUNTS WITH AMOUNTS TOWARDS PROVISIONS FOR 'INVESTMENT DEPRECIATION' AND 'INVESTMENT FLUCTUATIONS' AND THESE WERE CLAIMED AS DEDUCTIONS IN THE COMPUTATIONS OF TOTAL INCOME AND WERE ALLOWED WHICH RESULTED IN THE BUIL DING OF OPENING BALANCES OF RS.67 56 900/ AND RS.55 26 000/ AS ON FIRST DAY OF THE FINANCIAL YEAR THAT IS 01/04/2008 IN THE 'INVESTMENT DEPRECIATION FUND' AND 'INVESTMENT FLUCTUATION FUND' ACCOUNTS RESPECTIVELY. THUS THERE IS SOME MIS MATCH OF FIGURES HOWEVER THE ASSESSEE HAS MADE A CLAIM FOR RS.80 99 100/ AND ASSESSING OFFICER HAS ALSO ADOPTED THAT FIGURE AND 5 ITA NO. 1501/MUM/2014 (A.Y. 2009 - 10) THE HINDUSTAN CO - OPERATIVE BANK LTD. VS. JT. CIT THEREFORE THE DISCUSSION IS RESTRICTED TO THE AMOUNT OF RS.80 99 100/ ONLY. THUS ALLOWING A FURTHER DEDUCTION FOR THE SAME ISSUE THAT IS DEPRECIATION IN VALUE OF SECURITIES DOES NOT ARISE IN FACTS AND IN LAW . 4.3.2 BASIC ISSUE IN THE APPEAL IS WHETHER DEDUCTION IN RESPECT OF DEPRECIATION IN RESPECT OF GOVT. SECURITIES WHICH ARE HELD AS 'INVESTMENTS' AS PER RBI GUIDELINES FOLLOWED BY TH E ASSESSEE AND ALL OTHER BANKS IS ALLOWABLE AS A REVENUE DEDUCTION WHILE COMPUTING THE BUSINESS INCOME OR NOT UNDER THE PROVISIONS OF I T. ACT 1961. BANKING BUSINESS IN THE COUNTRY IS BASICALLY GOVERNED BY BANKING REGULATION ACT RESERVE BANK OF INDIA ACT AND NEGOTIABLE INSTRUMENTS ACT AND OTHER APPLICABLE ACTS. GUIDELINES ISSUED BY RBI WHILE ADMINISTERING BANKING REGULATION ACT HAVE TO BE STRICTLY FOLLOWED AND THEREFORE ALL THE BANKS HAVE TO HOLD CERTAIN PERCENTAGE OF THEIR DEPOSITS AT THE END OF EVERY WEEKEND IN GOVT. SECURITIES AS INVESTMENTS TO COMPLY WITH STATUTORY REQUIREMENTS OF BANKING REGULATION ACT. BANKS CAN TRADE IN THESE GOVT. SECURITIES HELD AS INVESTMENTS AND GAINS AND LOSSES FROM THESE SECURITIES HAVE TO BE ACCOUNTED FOR AS TRADING GAINS A ND LOSSES ONLY AS PER RBI GUIDELINES EVEN THOUGH THESE GOVT. SECURITIES ARE HELD AS INVESTMENTS IN BOOKS BECAUSE THERE IS A CONTINUOUS TRADE IN GOVT. SECURITIES BY THE BANKS TO MEET WITH THE STATUTORY RESERVES ACCOUNT VIS A VIS THE DEPOSITS AVAILABLE WITH THE BANK AT THE WEEK END. THUS EVEN THOUGH THE GOVT. SECURITIES HAVE TO BE CLASSIFIED AS 'INVESTMENTS' IN BOOKS OF ACCOUNT BY ALL THE BANKS DOING BANKING BUSINESS IN INDIA THESE ARE IN ESSENCE ITEMS OF STOCK IN TRADE BECAUSE OF THE FLUCTUATING NATURE OF ITS BUSINESS OF COLLECTING DEPOSITS AND ADVANCING THE SAME TO THE BORROWERS AS PER RBI GUIDELINES. EVEN THOUGH APPARENTLY THESE APPEAR AS 'INVESTMENTS' IN THE BOOKS OF ACCOUNT OF ALL THE BANKS INCLUDING CO OPERATIVE BANKS THESE ARE NOTHING BUT ITEMS OF S TOCK IN TRADE AND HAVE TO BE DEALT WITH AT PAR WITH NORMAL BUSINESS PRACTICES AND PROVISIONS APPLICABLE TO STOCK IN TRADE AS PER ACCOUNTANCY PRINCIPLES AND RBI GUIDELINES. FUNDAMENTAL PRINCIPLE OF ACCOUNTANCY CLEARLY STATES THAT STOCK IN TRADE HAS TO BE VA LUED AT COST OR MARKET PRICE WHICHEVER IS LOWER AND EVEN IF IT IS NOT FOLLOWED IN ACCOUNTS IT HAS TO BE FOLLOWED FOR INCOME TAX PURPOSES UNLESS OTHERWISE STATED BY THE ASSESSEE. IN THE CASE OF THE ASSESSEE RBI GUIDELINES HAVE DIRECTED THE BANKS TO FOLL OW THE SAME PRINCIPLE AND PROVIDE FOR DEPRECIATION IN BOOKS OF ACCOUNT FOR DEPRECIATION IN INVESTMENTS HELD IN THE FORM OF GOVT. SECURITIES AND THE SAME HAS TO BE ALLOWED AS A DEDUCTION WHILE COMPUTING THE BUSINESS INCOME BECAUSE SINCE THESE GOVT. SECURITI ES DO NOT APPEAR AS STOCK IN TRADE BUT AS INVESTMENTS IN ITS BOOKS OF ACCOUNT 6 ITA NO. 1501/MUM/2014 (A.Y. 2009 - 10) THE HINDUSTAN CO - OPERATIVE BANK LTD. VS. JT. CIT AND THEREFORE A CORRESPONDING ENTRY BY WAY OF PHYSICAL ENTRY IN BOOKS OF ACCOUNT HAS TO BE PROVIDED AND THE SAME HAS BEEN DONE BY THE ASSESSEE FROM YEAR TO YEAR AND CLAIMED AS DEDUCTION AND ALLOWED BY THE REVENUE ALSO. THUS THERE IS NO SCOPE FOR ALLOWANCE OF THE SAME AS A DEDUCTION IN THE COMPUTATION OF TOTAL INCOME AGAIN ESPECIALLY WHEN IT HAS BEEN DONE FROM YEAR TO YEAR . THEREFORE ASSESS EE'S CLAIM FOR DEDUCTION OF RS.8 0 99 1 00/ IS PATENTLY ERRONEOUS AND A DUPLICATE CLAIM AND THE SAME IS REJECTED IN FACTS AND IN LAW. IN THIS CONNECTION THOUGH THE RELIANCE PLACED BY THE ASSESSEE ON THE DECISIONS IS CORRECT ASSESSEE'S CLAIM IS REJECTED ON FACTS SINCE IT IS A DUPLICATE CLAIM W HICH HAS ALREADY BEEN ALLOWED IN EARLIER YEARS AND ALLOWED TO THE EXTENT OF RS.24 05 000/ - IN THE CURRENT ASSESSMENT YEAR ALSO . THEREFORE THE GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. [EMPHASIS OURS] AGGRIEVED THE ASSESSEE IS IN APPEAL RAISI NG THE FOLLOWING GROUNDS : 2 . THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.80 99 100/ MADE BY THE RESPONDENT J CIT ON ACCOUNT OF INVESTMENT LOSS ON SHIFTING OF SECURITIES EVEN WHEN THERE IS NO DUPLICATION OF ANY CLAIM. 3. THE LD. CIT(A) ER RED IN CONFIRMING THE DISALLOWANCE ON ACCOUNT OF THE INVESTMENT LOSS EVEN WHEN THE ACCOUNTING TREATMENT WAS IN LINE WITH THE GUIDELINES LAID DOWN IN RBI'S MASTER CIRCULAR AND WHEN SUCH GUIDELINES ARE TO BE FOLLOWED AS PER CBDT S INSTRUCTION NO. 17 DATED 26.11.2008 AND CIRCULAR NO. 665 DATED 05.1 0.1993. T HE LD. DEPARTMENTAL REPRESENTATIVE (DR) WOULD BEFORE US REL Y ON THE ORDERS BY THE AUTHORITIES B ELOW ; TAKING US T HROUGH BOTH OF THEM . 4. W E HAVE HEARD THE PARTIES AND PERUSED THE MATERIAL ON RECORD. 4.1 I T IS PLAIN FROM THE READING OF THE IMPUGNED OR DER (REFER PARA 4.3 .2 ) THAT THE R EVENUE ADMITS THAT THE SECURITIES HELD AS STOCK IN TRADE HAVE TO BE VALUED AT COST OR MARKET VALUE WHICHEVER IS LESS WHICH IS ONLY AN EXP RESSION OF ONE OF THE FUNDAMEN TAL ACCOUNTING PRINCIPLES OF P RUDENCE THE OTHER TWO BEING S UBSTANCE OVER FORM AND M ATERIALITY THAT GOVERN ACCOUNTING POLICIES OF AN ENTERPRISE SINCE 7 ITA NO. 1501/MUM/2014 (A.Y. 2009 - 10) THE HINDUSTAN CO - OPERATIVE BANK LTD. VS. JT. CIT STATUTORILY MANDATED BY A CCOUNTING STANDARD (A S) I NOTIFIED BY CBDT U /S. 145 ( 2 ) OF THE A CT. THIS IN FACT IS A FUNDAMENTAL ACCOUNTING PREMISE JUDICIALLY WELL RECOGNIZED ( CHA INRUP SAMPATRAM VS. CIT [ 1953 ] 24 ITR 481 ( SC ) ) . A S EXPLAINED THEREIN IT IS THIS METHOD ONLY THAT LEADS TO DISCLOSING TRUE AND CORRECT PROFIT OR GAIN AND CORRESPONDING LY T HE T RUE STATE OF AFFAIRS. TH IS AS THE STOCK IN TRADE WHICH IS REALIZABLE IN THE ORDINARY COURSE OF TRADE BY DISPOSING IN THE MARKET CANNOT FETCH MORE THAN ITS MARKET VALUE W HICH HAS DECLINED BELOW COST SO THAT LOSS TO THAT EXTENT HAS ACCRU ED. THOUGH ONE COULD ARGUE T HAT THIS IS VALID ONLY WHERE ACCRUAL METHOD OF ACCOUNTING IS FOLLOWED THE SAME (ACCRUAL) IS ITSELF A FUNDAMENTAL ACCOUNTING ASSU MPTION ALSO REFER RED TO IN AS I ( SUPRA ) AND BESIDES BANK S FOLLOW MERCANTILE SYSTEM OF ACCOUNTING ONLY. THE QUESTION THEREFO RE IS IF THE INVESTMENTS UNDER REFERENCE REPRESENT STOCK IN TRADE OF THE ASSESSEE BANK OR ARE HELD AS INVESTMENTS . THE ASSESSEE WITH REFERENCE TO THE RBI M ASTER C IRCULAR (PARA 15) CLARIFIED THAT ALL PRIMARY (URBAN) CO OPERATIVE BANKS AS THE ASSESSEE BANK ARE REQUIRED TO CLASSIFY THEIR INVESTMENT PORTFOLIO (SLR AND NON SLR) UNDER THREE CATEGORIES AS UNDER : 15. CATEGORISATION OF INVESTMENTS 15.1 PRIMARY (URBAN) CO OPERATIVE BANKS ARE REQUIRED TO CLASSIFY THEIR ENTIRE INVESTMENT PORTFOLIO (INCLUDI NG SLR AND NON SLR SECURITIES) UNDER THREE CATEGORIES VIZ. (I) HELD TO MATURITY (HTM) (II) AVAILABLE FOR SALE (AFS) (III) HELD FOR TRADING (HFT) BANKS SHOULD DECIDE THE CATEGORY OF THE INVESTMENT AT THE TIME OF ACQUISITION AND THE DECISION SHOULD BE RECO RDED ON THE INVESTMENT PROPOSALS. W HILE THE HTM AND HF T S ECURITIES ARE BY DEFINITION SECURITIES THAT ARE REQUIRED TO BE HELD UP TO MATURITY AND WITH AN INTENT TO TRADE RESPECTIVELY AF S CATEGORY SECURITIES ARE THAT W HICH DO NOT FALL UNDER EITHER OF T HE SAID CATEGORIES (REFER 8 ITA NO. 1501/MUM/2014 (A.Y. 2009 - 10) THE HINDUSTAN CO - OPERATIVE BANK LTD. VS. JT. CIT PARA 15 OF THE MASTER CIRCULAR) . PRESUMABLY THEN THE SAME COULD BE HELD EITHER AS AN INVESTMENT OR AS STOCK IN TRADE . WE SAY SO AS ANY INVESTMENT ( CAPITAL ASSET ) COULD ALSO BE SOLD AT ANY TIME AND FURTHER BEING NOT A HTM S ECURITY IS NOT TO BE NECESSARILY HELD UP TO MATURITY . IT IS THE INTENT WITH WHICH ACQUIRED THAT IS DECISIVE. IT IS THUS ESSENTIALLY A MATTER OF FACT TO BE DETERMINED BY THE AO EVEN AS CLARIFIED BY THE BOARD PER ITS C IRCULAR NO. 665 DATED 5 . 10 . 1993 (PG S . 79 80 OF CLC) ISSUED FOLLOWING THE DECISION IN VIJAY A B ANK LTD. V S. CIT [ 1991 ] 187 ITR 541 (SC) EXP LA IN IN G IT. THE ASSESSEE IN THE PRESENT CASE CONTENDS TO HOLD THE AFS SECURITIES TO WHICH CATEGORY THE SECURITIES TRANSFERRED FALL AS STOCK IN TRADE MARKING THEM TO MARKET ON EACH VALUA TION DATE IN TERMS OF THE RBI M ASTER C IRCULAR (SUPRA ) ALSO PLAC ING RELIANCE ON CBDT I NSTRUCTION NO. 17/2008 DATED 26/11/20 0 8 (PARA VIII ) THE RELEVANT PART OF WHICH READS AS UNDER : (PG. 82/CLC) (VII) AS PER RBI GUID ELINES DATED 16TH OCTOBER 2000 THE INVESTMENT PORTFOLIO OF THE BANKS IS . . IN THE CASE OF HFT AND AFS SECURITIES FORMING STOCK IN TRADE OF THE BANK THE DEPRECIATION / APPRECIATION IS TO BE AGGREGATED SCRIP WISE AND ONLY NET DEPRECIATION IF ANY IS REQUIRED TO BE PROVIDED FOR IN THE ACCOUNTS. THE LATEST GUIDELINES OF THE RBI MAY BE REFERRED TO FOR ALLOWING ANY SUCH CLAIMS. (EMPHASIS OURS) THE PROFIT ON THE SALE O F H FT AN D AFS SECURITIES HOWEVER IS TO BE TAKEN TO THE P & L A C C O U N T . BY ALL AVAILABLE ACCOUNTS THEN THE IMPUGNED SECURITIES FALL ING UNDER THE AFS CATEGORY ARE THE ASSESSEE S STOCK IN TRADE EVEN AS THE R EVENUE HAS ISSUED NO DEFINITE FINDINGS IN THE MATTER WHICH IT OUGHT TO HAVE. WE THEREFORE PROCEED ON THAT BASIS. 4.2 THE ASSESSEE BY PROVIDING FOR AND CLAIMING NET DEPRECATION IN TERMS OF THE RBI CIRCULAR HAS CLAIMED DEPRECIATION ON EACH SECURITY COMPRISING (AFS) INVESTMENT PORTFOLIO. THAT THE SAME STAND S SET OFF WHOLLY OR PARTLY AS THE CASE MAY BE AGAINST APPRECIATION ON OTHER SECURITIES IN THE PORTFOLIO WOULD ONLY MAKE IT A CASE FOR 9 ITA NO. 1501/MUM/2014 (A.Y. 2009 - 10) THE HINDUSTAN CO - OPERATIVE BANK LTD. VS. JT. CIT CLAIMING THE APPRECIATED VALUE (TO THE EXTENT SET OFF AS THE NET APPRECIATION IS TO BE IGNORED) AS THE BOOK VALUE FOR RECKONING THE PROFIT OR GAIN ON ITS TRANSFER. THIS MAY BE DEMONSTRATED BY TAKING THE EXAMPLE OF THE TWO SECURITIES AS CITED BY THE ASSESSEE VIDE ITS NOTE (SUPRA): (AMT IN RS.) SR. NO. PARTICULARS COST MARKET VALUE (V D ) BOOK VALUE (*) 1 SECURIT Y A 100 75 75 2 SECURITY B 100 140 125 TOTAL 200 215 200 (VD) VALUATION DATE (*) (ASSUMED) THIS IS CLEARLY A CONVULSION OR A DISTORTION OF THE SIMPLE METHOD OF VALUING EACH ITEM OF STOCK IN TRADE AT ITS COST OR MARKET VALUE WHICHEVER IS LE SS. SECURITY B HAVING APPRECIATED THE SAME WOULD REQUIRE BEING VALUED AT RS.100/ RESULTING IN A DEPRECIATION AT RS.25/ I.E. ONLY QUA SECURITY A. BESIDES THE METHOD FOLLOWED WOULD LEAD TO FURTHER PROBLEMS IN ASSIGNING BOOK VALUES WHERE THERE ARE A NUMBER OF SECURITIES IN THE PORTFOLIO. THE ASSESSEE CAN NEITHER BE SAID TO BE VALUING ITS STOCK IN TRADE (AFS SECURITIES) AT COST OR AT COST AND MARKET VALUE WHICHEVER IS LESS. IT IS NOT SHOWN THAT THE VALUATION OF THE SECURITIES UNDER REFERENCE B EING CARRIED AT ACQUISITION COST WAS DISTURBED ON ACCOUNT OF OR BY AS CLAIMED CLAIMING NET DEPRECIATION AND IGNORING NET APPRECIATION (OF THE AGGREGATE VALUATION OF ALL THE AFS CATEGORY SECURITIES). CHANGE OF BOOK VALUE STANDS IN FACT PROSCRIBED BY TH E RBI GUIDELINES BEING AVOWEDLY FOLLOWED AND SCRUPULOUSLY. T HE CITED EXAMPLE (AT PARA 3 ) ALSO AFFIRMS THIS. THE ONLY REASONABLE AND POSSIBLE INTERPRETATION OF THE ASSESSEES CLAIM OF NET DEPRECIATION (THRO IDR A/C) WHICH STANDS ALLOWED FROM YEAR TO YEAR IN COMPUTING ITS ASSESSABLE INCOME IS OF CLAIM OF DEPRECIATION ON THE SECURITIES DEPRECIATED TO SOME EXTENT WITHOUT ALTERING THEIR BOOK VALUE S . THE REVENUES CONTENTION OF THE ASSESSEE BY CLAIMING DEPRECIATION FOR THE CURRENT YEAR WITH REFERENCE TO THE BOOK VALUE WHICH REMAIN S UNCH ANGED IS THUS PARTLY VALID IN AS MUCH 10 ITA NO. 1501/MUM/2014 (A.Y. 2009 - 10) THE HINDUSTAN CO - OPERATIVE BANK LTD. VS. JT. CIT AS THERE IS A DOUBLE CLAIM (OF DEPRECIATION) TO THAT EXTENT AS AT RS.10/ (SAY) QUA S ECURITY A (IN OUR EXAMPLE) WHERE THE APPRECIATION IN SECURITY B IS INSTEAD AT RS.15/ . TH E OBJECTION BY THE LD. CIT(A) IN THIS REGARD IS THUS VALID. 4. 3 TH E FOREGOING APART IN OUR VIEW THE ASSESSEES CLAIM IS EVEN OTHERWISE NOT VALID. T HE STOCK IN TRADE AS AT EACH V ALUATION DATE IS TO BE VALUED AT COST OR MARKET VALUE WHICHEVER IS LESS. IT IS ONLY AFTER 4 . 4 . 2008 THE TRANSFER DATE THAT THE SECURITIES SINCE TRANSFERRED TO HTM CATEGOR Y ARE LIABLE NOT TO BE MARKED TO MARKET AND SHALL CONTINU E TO BE VALUED A T THE LOWER OF THE COST OR MARKET VALUE AS ON THE DATE OF TRANSFER (4 . 4 . 2008 ) . THE TRANSFER BEING AT MARKET VALUE THE ASSESSEE IS ELIGIBLE TO CLAIM THE L OSS IF ANY IN THE FALL IN THE VALUE OF ITS STOCK IN TRADE SINCE THE LAST VALUATION D ATE IN AS MUCH AS THE MARKET VALUE AS ON THE TRANSFER DATE SHALL SUBSTITUTE THE ACQUISITION COST. THE D ATA SUPPLIED BY THE ASSESSEE IN THIS REGARD IS AS UNDER: (AMT IN RS. L ACS) SCRIP FACE VALUE BOOK VALUE (COST) MARKET VALUE (AS ON 31.3.2008) MARKET VALU E (AS ON TRANSFER DATE) 6.01% GOI 2028 200 206.60 154.16 154.58 6.17% GOI 2023 200 207.60 162.56 163.80 TOTAL 400 414.20 316.72 318.38 (REFER PARA 4 OF THE WRITTEN N OTE DATED 01.7.2016) W ITH REFERENCE TO THE IR CARRYING VALUE I.E. COST OR MARKET VAL UE WHICHEVER IS LESS THERE IS IN FACT AN INCREASE IN THE MARKET VALUE OF BOTH THE SECURITIES TRANSFERRED (FOR THE CURRENT YEAR) . ACCORDINGLY WE ARE UNABLE TO SEE AS TO HOW IN THE ADMITTED FACTS OF THE CASE ANY L OS S ARISES TO THE ASSESSEE ON THE SAID SHIFTING I.E. FOR THE YEAR UNDER REFERENCE? THIS WAS IN FACT PUT ACROSS TO THE LD. AR DURING HEARING WHO ONLY STATED OF THE SECURITIES HAVING BEEN V ALUED AS PER THE RBI GUIDELINES . IT IS TRITE LAW THAT EACH YEAR IS A SEPARATE AND INDEPENDENT UNIT OF ASSESSMENT FOR WHICH YEAR ALONE INCOME AS ASSESSABLE FOR THA T YEAR IS TO BE BROUGHT TO TAX . VALUATION OF STOCK IN TRADE IS AN IMPORTANT COMPONENT OF DETERMINING REAL INCOME. AS EXPLAINED IN CIT VS. 11 ITA NO. 1501/MUM/2014 (A.Y. 2009 - 10) THE HINDUSTAN CO - OPERATIVE BANK LTD. VS. JT. CIT BRITISH PAINTS IND IA LTD. [1991] 188 ITR 44 ( SC ) THE STOCK IN TRADE BOTH AT THE BEGINNING AND THE END OF THE YEAR IS TO BE PROPERLY VALUED FOLLOWING THE STANDARD ACCEPT ED PRINCIPLES OF COMMERCIAL ACCOUNTING TO ARRIVE AT THE TRUE AND CORRECT PROFIT FOR THE YEAR. NOT SO DOING WOULD LEAD TO A DISTORTED FIGURE OF INCOME . IN ITS WORDS WHICH FIND REPRODUCTION IN U NITED COMMERCIAL BANK VS. CIT [ 1990 ] 240 ITR 355 ( SC ) RELIED UPON BY THE ASSESSEE : (AT PG. 3 65) 'IT IS A WELL RECOGNISED PRINCIPLE OF COMMERCIAL ACCOUNTING TO ENT ER IN THE P&L A/C THE VALUE OF THE STOCK IN TRADE AT THE BEGINNING AND AT THE END OF THE ACCOUNTING YEAR AT COST OR MARKET PRICE WHICHEVER IS THE LOWER.' (PG. 51) THIS IS FOLLOWED BY FURTHER REPRODUCTION (AT PAGE 365 ) DILATING ON THIS ASPECT WHICH IS RELEVANT FROM THE STAND POINT OF THE PRESENT CASE AS UNDER: 'WHERE THE MARKET VALUE HAS FALLEN BEFORE THE DATE OF VALUATION AND ON THAT DATE THE MARKET VALUE OF THE ARTICLE IS LESS THAN ITS ACTUAL COST THE ASSESSEE IS ENTITLED TO VALUE THE ARTICLES AT MARKET VA LUE AND THUS ANTICIPATE THE LOSS WHICH HE WILL PROBABLY INCUR AT THE TIME OF THE SALE OF THE GOODS. VALUATION OF THE STOCK IN TRADE AT COST OR MARKET VALUE WHICHEVER IS THE LOWER IS A MATTER ENTIRELY WITHIN THE DISCRETION OF THE ASSESSEE. BUT WHICHEVER M ETHOD HE ADOPTS IT SHOULD DISCLOSE A TRUE PICTURE OF HIS PROFITS AND GAINS . IF ON THE OTHER HAND HE ADOPTS A SYSTEM WHICH DOES NOT DISCLOSE THE TRUE STATE OF AFFAIRS FOR THE DETERMINATION OF TAX EVEN IF IT IS IDEALLY SUITED FOR OTHER PURPOSES OF HIS BU SINESS SUCH AS THE CREATION OF A RESERVE DECLARATION OF DIVIDENDS PLANNING AND THE LIKE IT IS THE DUTY OF THE AO TO ADOPT ANY SUCH COMPUTATION AS HE DEEMS APPROPRIATE FOR THE PROPER DETERMINATION OF THE TRUE INCOME OF THE ASSESSEE . THIS IS NOT ONLY A R IGHT BUT A DUTY THAT IS PLACED ON THE OFFICER IN TERMS OF THE FIRST PROVISO TO S. 145 WHICH CONCERNS A CORRECT AND COMPLETE ACCOUNT BUT WHICH IN THE OPINION OF THE OFFICER DOES NOT DISCLOSE THE TRUE AND PROPER INCOME.' (PG. 52 ) THE ASSESSING OFFICER S OBJECTION TO THE ASSESSEES METHOD OF ACCOUNTING AS NOT DISCLOSING TRUE RESULTS (REFER PG. 5 OF THE ASSESSMENT ORDER) IS THUS CORRECT AND T HE ASSESSEES ALLUDING TO THE RBI GUIDELINES WOULD BE THEREFORE OF NO MOMENT. H OW COULD ONE MAY ASK APPRECIATION IN ONE SECURITY BE ADJUSTED AGAINST D EP RECIATION IN 12 ITA NO. 1501/MUM/2014 (A.Y. 2009 - 10) THE HINDUSTAN CO - OPERATIVE BANK LTD. VS. JT. CIT ANOTHER TO ARRIVE AT THE NET APPRECIATION ? EACH SECURITY CONSTITUTES A SEPARATE ITEM OF STOCK IN TRADE AND IS TO BE ACCORDINGLY VALU ED INDEPENDENTLY APPLYING THE C ONSERVATI SM PRINCIPLE OF C OST O R MARKET VALUE WHICHEVER IS LESS AND WHIC H THEREFORE CANNOT BE APPLIED ON AN AGGREGATE BASIS. WHY THE ASSESSEE COULD SELL/TRADE IN OR TRANSFER ( TO INVESTMENT CATEGORY) ANY SECURITY INDEPENDENT OF ANY OTHER. THE SAID GUIDELINES I.E. EVEN ASSUMING THEIR RELEVANCE ARE THUS ALSO INCONSISTENT WITH THE WELL ACCEPTED PRINCIPLES OF COMMERCIAL ACCOUNTING WHICH FORM THE CORNERSTONE FOR DETERMINING INCOME UNDER THE ACT AND HAVE FOUND ENDORSEMENT TIME AND AGAIN BY THE HONBLE A PEX C OURT . IN THE FACTS OF THAT CASE ( BRITISH PAINTS INDIA LTD. (SUPRA) ) THE ASSESSEE COMPANY ENGAGED IN THE MANUFACTURE AND SALE OF PAINTS HAD AS A CONSISTENT PRACTICE VALUED ITS GOODS IN PROCESS AND FINISHED GOODS AT COST OF RAW MATERIALS TOTALLY EXCLUDING OVERHEAD EXPENDITURE. THE INCOME TAX OFFICER WAS OF THE VIEW T HAT THERE WAS NO JUSTIFICATION TO RECOGNIZE THE PRACTICE OF VALUING STOCK OTHERWISE THAN IN ACCORDANCE WITH THE WELL RECOGNIZED PRINCIPLE OF ACCOUNTING WHICH REQUIRED THE STOCK TO BE VALUED AT COST (VIZ. RAW MATERIAL PLUS EXPENDITURE) OR MARKET PRICE WHIC HEVER IS LOWER. HE THEREFORE CALCULATED THE VALUE OF THE OPENING AND THE CLOSING STOCK BY ADDING THE OVERHEAD EXPENDITURE COMPUTING THE ASSESSEES INCOME ACCORDINGLY . THIS WAS UPHELD BY THE HONBLE APEX COURT HOLDING THAT THE OBJECT OF THE STOCK VALUAT ION IS THE CORRECT DETERMINATION OF THE PROFITS OR LOSS RESULTING FROM A YEARS TRADING. IT IS THE TRUE RESULTS OF THE TRADING ACTIVITY OF THAT YEAR THAT MUST BE DISCLOSED BY THE BOOKS (PG. 55). REPELLING THE ARGUMENT OF A CONSISTENT PRACTICE IT HELD AS U NDER: IT IS NOT ONLY THE RIGHT BUT THE DUTY OF THE ASSESSING OFFICER TO CONSIDER WHETHER OR NOT THE BOOKS DISCLOSE THE TRUE STATE OF ACCOUNTS AND THE CORRECT INCOME CAN BE DEDUCED THEREFROM. IT IS INCORRECT TO SAY AS CONTENDED ON BEHALF OF THE ASSESSE E THAT THE OFFICER IS BOUND TO ACCEPT THE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE THE CORRECTNESS OF WHICH HAD NOT BEEN QUESTIONED IN THE PAST. THERE IS NO ESTOPPEL IN THESE MATTERS AND THE OFFICER IS NOT BOUND BY THE METHOD FOLLOWED IN THE EARLIER YEARS. (PG. 53) 13 ITA NO. 1501/MUM/2014 (A.Y. 2009 - 10) THE HINDUSTAN CO - OPERATIVE BANK LTD. VS. JT. CIT IN FACT A CLOSE READING OF THE RBI C IRCULAR SUPRA REVEALS THAT IT REGARDS THE VARIOUS CATEGORIES AS ONLY INVESTMENT CATEGORIES I.E. AS INVESTMENTS. HOWEVER BEING AVAILABLE FOR SALE (AFS) OR H ELD FOR TRADING (HFT) THE CONTROLLING BANK ADVOCATES THE BANKS TO PROVIDE FOR THE NET DEP RECIA TION ON THE SE SECURITIES WHILE IGNORING THE NET AP P RECIATION. THIS IS DONE THROUGH THE IDR A/C AND THE (BOOK) VALUE OF THE IN DIVIDUAL SECURITIES IS NOT ALTERED. THIS ALSO EXPLAINS AS TO W HY THE ASSESSEE BANK CONTINUE S TO VALUE THE SECURITIES UNDER REFERENCE AT COST I.E. DESPITE A DECLINE IN THEIR MARKET VALUE S WIT H REFERENCE TO THE SAID COST. I DR IS THUS ONLY A PROVISION AND NOT A VALUATION METHOD (ALSO REFER PARA 17.8 OF THE M ASTER C IRCU LAR). WE HAVE IN FACT ALREADY EXPRESSED THAT THE METHOD ADOPTED BY THE ASSESSEE DOES NOT RE SULT IN DETERMINING CORRECT INCOME WHICH IS AS EXPLAINED THE MANDATE OF LAW. THE MANDATORY APPLICATION OF THE RBI GUIDELINES FOR THE PURPOSE OF PREPARING AND PRE SENTING ACCOUNTS OF THE CONS TITUENT BANKS NOTWITHSTANDING T HE SAME CANNOT OVERRIDE OR SUPPLANT EITHER THE ESTABLISHED PRINCIPLES OF COMMERCIAL ACCOUNTING SINCE STATUTORILY RECOGNIZ ED BESIDES HAVING JUDICIAL S ANCTION OR THE EXPRESS PROVISION S OF LAW. TH IS IN FACT IS THE RATIO OF THE DECISION IN UNITED COMMERCIAL BANK ( SUPRA ) WHEREIN THE ASSESSEE BANK WAS HELD ELIGIBLE FOR ITS INCOME DESPITE DIFFERENT TREATMENT IN BOOKS F OLLOWING RBI GUIDELINES BEING DETERMINED BY VALUING IT S STOCK IN TRADE AT COST O R MARKET VALUE WHICHEVER IS LESS. THE SAID DECISION RELIED UPON BY THE ASSESSEE IMPACTS IT ADVERSELY IN THE PRESENT CASE IN AS MUCH AS IT HAS BEEN RETURNING INCOME RATHER THAN BY FOLLOWING THE SAID PRINCIPLE THE R B I PRESCRIPTION WHICH IS CONTENDED TO HAVE BEEN SCRUPULOUSLY FOLLOWED AND GUIDE D THE PREPARATION OF ITS ACCOUNTS. THIS IS ALSO THE RATIO OF THE DECISIONS IN TER ALIA IN S OUTHERN T ECHNOLOGIES LTD V S. CIT [2010] 320 ITR 577 ( SC ) AND N EW INDIA INDUSTRIES LTD. VS. CIT (ASST.) [ 2000 ] 18 SOT 51 (D EL ) (SB) ( THE LATTER REFERRED TO IN STATE BANK OF MYSORE VS. CIT (DY.) [2009] 33 SOT 7 (BANG) RELIED UPON BY THE ASSESSEE) . THUS DESPITE OUR AGREEMENT WITH THE PROPOS ITION OF LOSS ON CONVERSION OF ITS SECURITIES FROM AFS T O HTM CATEGORY BEING DEDUCTIBLE THE BANK THEREBY CONVERTING ITS STOCK IN TRADE INTO A CAPITAL ASSET A 14 ITA NO. 1501/MUM/2014 (A.Y. 2009 - 10) THE HINDUSTAN CO - OPERATIVE BANK LTD. VS. JT. CIT PROPOSITION WHICH HAS FOUND ACCEPTANCE IN MANY A DECISION THE ASSESSEE CITING A FEW WE FIND NO SCOPE FOR THE APPLICATION OF THE SAME IN THE PRESENT CASE IN AS MUCH AS NO SUCH LOSS ARISES ON S UCH CONVERSION . EVEN IF THEREFORE THE ASSESSEE IS ABLE TO SHOW THAT IDR IS ALSO A VALUATION METHOD EVEN THOUGH INCORRECT NO CLAIM WITH REFERENCE TO THE IMPUGNED SECURITIES ARISES FOR THE CURRENT YEAR. IN FACT FOR SUCH A CLAIM TO BE MADE THE DEPRECIATION TO THE EXTENT REALIZED ON THE SALE/TRANSFER OF SECURITIES IS TO BE WRITTEN BACK BY CREDIT TO THE P&L ACCOUNT WHICH WORKS TO RS.66 LACS (RS.316.72 LACS RS.318.38 LACS /REFER PARA 4. 3 ) AND WHICH HA S CLEARLY NOT BEEN . THE PROPOSITION O F THE DEDUCTIBILITY OF THE SAID LOSS WITH WHICH WE PRINCIPALLY AGREE AND IS EVEN OTHERWISE BINDING HAVING BEEN UPHELD IN HDFC BANK LTD. (SUPRA) RELIED UPON INTER ALIA NOTWITHSTANDING WOULD BE OF NO CONSEQUENCE IN THE FACTS OF THE CASE . 4. 4 REFERENC E TO THE I DR INCIDENTALLY BRINGS ANOTHER ASPECT OF THE MATTER TO THE FORE TO WHICH WE MAY WITHOUT PREJUDICE A LSO ADVERT. AS AFORE STATED AND AS ALSO EXPLAINED AT LENGTH DURING HEARING I DR ACCOUNT IS A PROVISION FOR DEPRECIATION ON INVESTMENTS AS WHER E THERE IS A NET DEPRECIATION (ON MARK ING THE SECURITIES TO MARKET) WHICH IS CHARGED TO THE P&L ACCOUNT. THIS PROVISION IS BEING REGULARLY ALLOWED IN THE ASSESSEES TAX ASSESSMENTS. TO THE EXTENT THEREFORE THE IDR BALANCE COMPRISES NET DEPRECIATION SO PROVIDED ON THE SECURITIES UNDER REFERENCE THERE WOULD BE WHERE SO AS ALSO AFORE STATED DOUBLE DEDUCTION IN THE IMPUGNED CLAIM OF RS.80.991 LACS. THIS WOULD THOUGH BE REQUIRED TO BE VERIFIED/ASCERTAINED ; THE LD. AR BEFORE US STATING THAT THE SCRIP WISE BREAK UP OF IDR IS AVAILABLE. THE DEBIT OF THE TOTAL DECLINE IN THE REALI Z ABLE (MARKET) VALUE I.E. WITH REFERENCE TO THE COST OF ACQUISITION (BOOK VALUE) RS.95.82 LACS TO THE IDR ACCOUNT REDUCES ITS BALANCE TO NIL. THE SAID DEBIT BEING MET BY A TRANSFER OF RS.80.991 LACS FROM IFF ACCOUNT THERE IS THUS A REDUCTION IN THAT (LATTER) ACCOUNT BY THAT S U M. IT IS THEREFORE WRONG TO SAY THAT THE DECLINE IS MET BY TRANSFERS FROM IDR A/C (REFER PARA 3) AND IT IS ONLY BY DEBIT TO (I.E. TRANSFER FROM) IFF A/C. A R ECOUPMENT TO WHATEVER EXTENT IN VALUE ON SALE (REALIZATION) OF THE SECURITIES 15 ITA NO. 1501/MUM/2014 (A.Y. 2009 - 10) THE HINDUSTAN CO - OPERATIVE BANK LTD. VS. JT. CIT NOW CATEGORIZED AS HTM SECURITIES BEING QUOTED BELOW PAR SHALL STAND TO BE CREDITED TO THE IF F ACCOUNT WHICH THOUGH SHALL NOT STAND TO FORM PART OF THE BANKS TIER II CAP ITAL IN AS MUCH AS IT SHALL NOT BE A GAIN REALI Z ED ON SALE OF HFT OR AFS SECURITY BUT ONLY HTM SECURITY (REFER PARA 17 OF THE M ASTER C IRCULAR SUPRA). THE BANK HAS THUS UTILIZED ITS CAPITAL TO FUND THE LOSS IN VALUE OF ITS AFS SECURITIES NET DEPRECIATION ON WHICH IS EVEN OTHERWISE BEING PROVIDED IN TERMS OF THE RBI GUIDELINES. WHAT BUSINESS PURPOSE THE SAID UTILI Z ATION SERVE S WE ARE UNABLE TO UNDERSTAND NOR COULD BE EXPLAINED TO US BY THE LD. C OUNSEL APART FROM STATING IT TO BE A BUSINESS DECISION. WE S TATE SO AS THE SHIFT (IN CATEGORY) IS TO NECESSARILY SERV E A BUSINESS PURPOSE FOR IT TO BE A DEDUCT I BLE LOSS AND THE SAME CANNOT MERELY BE A DEVICE TO SAVE TAX. AS ARGUED BY THE LD. DR WITH REFERENCE TO THE DECISION IN CIT VS. ABDULLABHAI ABDULKADAR [1960] 41 ITR 545 ( SC) A LOSS BECOMES ALLOWABLE ONLY WHERE IT SPRINGS DIRECTLY FROM AND IS INCIDENTAL TO THE BUSINESS OF THE ASSESSEE . TRUE THE SHIFT IS PERMISSIBLE UNDER THE RBI GUIDELINES BUT BEING AVAILABLE FOR SALE SO THAT IT COULD BE SOLD OR AS THE CAS E MAY BE HELD TILL SUCH TIME AS CONSIDERED PROPER BY THE ASSESSEE INCLUDING UP TO MATURITY THE SHIFT HAS NO REVENUE IMPACT AS SUCH AND ITS BUSINESS PURPOSE REMAINS TO OUR MIND UNEXPLAINED AND WHICH WOULD THEREFORE WARRANT EXPLANATION WITH THE REVEN UE DOUBTING THIS ASPECT AS WELL. WHE THER THE FUTURE PRICE OF THE TRANSFERRED SECURITIES STAND S TO FALL AS STATED OR EVEN RISE ( SIMULTANEOUSLY STATED AT PARA 2 OF THE SAME NOTE DATED 1/7/2016 ) THE SHIFTING ( OF CATEGORY) WOULD MAKE NO DIFFERENCE. RATHER IN CASE OF FUTURE FALL IN PRICE THE BANK SHALL BE STUCK WITH THE (HTM) SECURITY/S WHICH IS OTHERWISE LIABLE TO BE SOLD CONTAINING THE LOSS. THE ASSESSEE IS RATHER INDEPENDENT OF ITS ACCOUNTING TREATMENT ELIGIBLE TO CLAIM THE LOSS IN THE (MARKET) VALUE OF THE AFS SECUR ITIES FROM YEAR TO YEAR I.E. PER ITS COMPUTATION OF INCOME . IS IT THEREFORE THAT IT DISCOVERS OF STANDING TO GAIN BY CLAIMING A TAX BREAK QUA THE SAID LOSS ON THE SAID SHIFT (TO THE HTM CATEGORY). WE MAY THOUGH CLARIFY THAT WE BY SAYING SO ISSU E NO DE FINITE FINDINGS IN THE MATTER BUT ONLY THAT OUR ORDER BEING APPEALABLE WHERE THE APPEAL AGAINST IT IS UPHELD ON THE 16 ITA NO. 1501/MUM/2014 (A.Y. 2009 - 10) THE HINDUSTAN CO - OPERATIVE BANK LTD. VS. JT. CIT PRINCIPAL REASON OF NO LOSS ARISING DURING THE YEAR THE SAME MAY REQUIRE BEING RESTORED TO THE FILE OF THE ASSESSING AUTHORITY FOR DETER MINING THE SAID BUSINESS PURPOSE IF ANY AS WELL AS THE EXTENT OF DUPLICATION IN T HE CLAIM . 4.5 THE FOREGOING DECIDES GDS. 2 AND 3; GD. 1 BEING NOT PRESSED BEFORE US SO THAT IT IS DISMISSED AS NOT PRESSED AS ARE GDS. 2 AND 3 ALBEIT ON MERITS. 5. GD. 4 AGITATES THE ADDITION IN THE SUM OF RS.2.18 LACS ON ACCOUNT OF UNEXPLAINED EXPENDITURE ON F URNITURE AND F IXTURE . THE AO OBSERVED THE ASSESSEE TO HAVE CLAIMED PURCHASE OF FURNITURE AND FIXTURE DURING THE YEAR AT RS.68.133 LACS OF WHICH RS.61.250 LACS S TOOD REFLECTED UNDER THE HEAD L AND & B UILDING (UNDER THE SUBHEAD R ENOVATION) SO THAT THERE WAS A NET ADDITION OF RS.60 52 091/ DURING THE YEAR. THE DEPRECIATION CHART HOWEVER REFLECTED AN ADDITION OF ONLY RS.58 34 182/ (PB PG. 15). THE DIFFERENCE OF RS.2 17 909/ WAS ACCORDINGLY ADDED AS UNEXPLAINED EXPENDITURE AND STOOD CONFIRMED FOR THE SAME REASON I.E. FOR WANT OF RECONCILIATION SO THAT AGGRIEVED THE ASSESSEE IS IN SECOND APPEAL. 6. WE HAVE HEARD THE PARTIES AND P ERUSED THE MATERIAL O N RECORD. WE FIND LITTLE BASIS FOR THE ADDITION. IF THE TOTAL ADDITION UNDER THE ACCOUNT HEAD F URNITURE AND F IX T URE IS RS.60.52 LACS (NET OF RENOVATION EXPENSES ) THE ENTIRE EXPENDITURE STAND S REFLECTED IN THE BOOKS SO THAT NO PART OF IT CAN BE CONSIDER ED AS UNEXPLAINED. IF ON THE OTHER HAND IT IS NOT SO AND THE ASSESSEE HAS WRONGLY CLAIMED DEPRECIATION ON A HIGHER SUM PER THE DEPRECIATION CHART THE DEPRECIATION CLAIM WOULD REQUIRE BEING REVISED. THE POINT IS : WH AT IS THE BASIS OF THE ASSESSEES CLAI M FOR THIS HIGHER SUM ? AND Q UA WHICH WE FIND NO BASIS. THE MATTER IS RESTORED TO THE FILE OF THE A.O. FOR DETERMIN ATION AND DECISION CONSISTENT WITH H IS FINDINGS. WE DECIDE ACCORDINGLY. 7. AS REGARDS GD.5 T HE ASSESSEE CLAIMING DEPRECIATION ON COMPUTERS WITH REFERENCE TO THE PURCHASE S MADE DURING THE YEAR AT RS.38.03 LACS COULD HOWEVER 17 ITA NO. 1501/MUM/2014 (A.Y. 2009 - 10) THE HINDUSTAN CO - OPERATIVE BANK LTD. VS. JT. CIT FURNISH DETAILS ONLY FOR RS.33.92 LACS. THE A.O. ACCORDINGLY ALLOWED DEPRECIATION WITH REFERENCE TO THE LOWER SUM RESULTING IN THE IMPUGNED DISALLOWANCE OF RS.2 46 33 5/ WHICH FOUND FAVOUR WITH THE LD. CIT(A) FOR THE SAME REASON. 8. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERIAL ON RECORD. B EFORE US THE LD. AR ADMITTED THAT THE ASSESSEE COULD NOT FURNISH BILLS TO THE EXTENT OF RS.4.11 LACS. HOWEVER IN VIEW OF THE SOME OF THE SAID PURCHASE S BEING IN THE SECOND HALF OF THE YEAR THE DEPRECIATION IMPACT OF THE SAME FOR THE YEAR WOULD ONLY BE RS.1 88 496 / (AND NOT RS.2 46 335/ ). THE EXPLANATION IS REASONABLE . S UBJECT TO THE VERIFICATION BY THE A.O. WE ALLOW THE ASSESSEES CLAIM. WE DECIDE ACCORDINGLY. 9. IN THE RESULT THE ASSESSEES APPEAL IS PARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON OCTOBER 24 201 6 SD/ SD/ ( AMARJIT SINGH ) (S ANJAY ARORA) / J UDICIAL MEMBER / A CCOUNTANT MEMBER MUMBAI ; DATED : 24 . 10 .201 6 . . ./ ROSHANI SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. / DR ITAT MUMBAI 6. / GUARD F ILE 18 ITA NO. 1501/MUM/2014 (A.Y. 2009 - 10) THE HINDUSTAN CO - OPERATIVE BANK LTD. VS. JT. CIT / BY ORDER / (DY./ASSTT. REGISTRAR) / ITAT MUMBAI