2017 (10) TMI 478 - AT - Income Tax

Nature of loss - business loss OR capital loss - CIT(A) granted relief to the assessee and treated the loss arising of securities as business loss as per the claim of the assessee - Held that - It is the case of the assessee that the impugned loss arose on sale of securities and bonds emanated from investments which were sub-classified under available for sale (AFS) category at the time of purchase. In view of the aforesaid facts, we find merit in the claim of the assessee that the loss arising on sale of securities/bonds are of trading nature notwithstanding the fact that the securities were grouped under the head investment owing to the prescribed format of the RBI. We find that the order of the CIT(A) dealing with the issue is consistent with the CBDT instruction as well as the facts of the case and does not require any elaboration. Accordingly, we decline to interfere with the order of the CIT(A). - Decided against revenue Allowable business expenditure - Disallowance of construction of statue of Shri Sardar Patel at a circle in the town where the assessee is situated - Held that - It is trite that for the purpose of business contemplated under s.37 is wider in scope than the expression for the purpose of earning profits and may comprehend many acts incidental to the carry on of a business. Thus, so long as the expenditure has been incurred on the grounds of commercial expediency and in order to directly or indirectly facilitate the carry of the business, the fact that there was no compelling necessity to incur the expenditure on which deduction is claimed is an irrelevant consideration. The expenditure in the instant case has gone irretrievably in the course of carrying on of business. The expenses incurred has potential to increase the visibility of the assessee in the public at large and thus has bearing on business acceleration. Therefore, we find considerable merit in the claim of the assessee. Consequently, claim of the assessee towards urban development expenditure allowed. Claim of amortization of securities premium - Held that - We notice that this amount represents the excess of acquisition cost over the face value of Government securities taken under HTM category. We find that the issue is squarely covered in favour of assessee by the decision in the case of CIT vs. Rajkot Dist. Co-op Bank Ltd. in Tax Appeal 2014 (3) TMI 110 - GUJARAT HIGH COURT as placed reliance upon the CBDT Circular No.17 of 2008 and held that loss on account of premium paid on the face value of the security is required to be amortized for the remaining period of maturity. Thus the claim of the assessee towards amortization of security premium requires to be accepted. Assessee appeal allowed.

Summary

Issues Involved:
1. Classification of loss on sale of securities as business loss or capital loss.
2. Disallowance of urban development expenses for the construction of a statue.
3. Claim of amortization of securities premium.

Issue-wise Detailed Analysis:

1. Classification of Loss on Sale of Securities:
The Revenue challenged the relief granted by the CIT(A) where the loss of ?76,44,970/- declared by the assessee as 'business loss' was treated by the AO as 'capital loss'. The assessee, a Cooperative Bank, incurred this loss on the sale of securities and bonds, which it claimed as a business loss under section 6(1)(a) of the Banking Regulation Act. The AO treated the loss as Long Term Capital Loss (LTCL) because the securities were shown under 'investment' in the balance sheet. The CIT(A) granted relief, treating the loss as a business loss, observing that the securities were classified as 'Available For Sale' (AFS) and not 'Held to Maturity' (HTM). The CIT(A) noted that investment activities are normal banking activities and should be treated as stock in trade. This position was supported by CBDT Circular No. 665 and Instruction No. 17/2008, which recognized that the classification of securities as stock-in-trade or investment depends on the facts and circumstances, guided by RBI instructions. The Tribunal upheld the CIT(A)'s decision, finding it consistent with CBDT instructions and the facts of the case, and dismissed the Revenue's appeal.

2. Disallowance of Urban Development Expenses:
The assessee's appeal concerned the disallowance of ?4,35,821/- incurred for constructing a statue of Shri Sardar Patel as urban development expenses. The AO disallowed the expense, concluding it was not incurred wholly and exclusively for business purposes. The CIT(A) confirmed this, stating the expense was unrelated to banking business. The Tribunal, however, found merit in the assessee's claim, noting that the expense was revenue in nature and did not provide an enduring benefit. The Tribunal observed that such expenses enhance the visibility and brand image of the bank, thus facilitating business promotion. It concluded that the expenses were incurred on commercial expediency and allowed the claim.

3. Claim of Amortization of Securities Premium:
The assessee claimed amortization of securities premium amounting to ?1,91,690/-, representing the excess acquisition cost over the face value of Government securities under the HTM category. The Tribunal noted that this issue was covered by the decision of the Hon'ble Gujarat High Court in CIT vs. Rajkot Dist. Co-op Bank Ltd., which held that the loss on account of premium paid on the face value of the security should be amortized over the remaining period of maturity, as per CBDT Circular No. 17 of 2008. Consequently, the Tribunal accepted the assessee's claim.

Combined Result:
The Revenue's appeal in ITA No.1054/Ahd/2013 for AY 2009-10 was dismissed, and the Assessee's appeal in ITA No.1334/Ahd/2014 for AY 2010-11 was allowed.