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2018 (12) TMI 1328 - AT - Income TaxInterest accrued but not due on current investment - taxability under accrual system of accounting - Disallowance of mark to market loss on the value of current investments - Disallowance of realised loss on sale of current investments - Held 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 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. Provision for diminution in the value of investments is allowable as deduction as per the principle laid down by the Hon ble Supreme Court in CHAINRUP SAMPATRAM VERSUS COMMISSIONER OF INCOME-TAX, WEST BENGAL 1953 (10) TMI 2 - SUPREME COURT .Accordingly, we set aside the order passed by Ld CIT(A) on this issue in both the years under consideration and direct the AO to allow the claim of the assessee in both the years. Since we have held that the investments held by the assessee as trading assets, the realised loss on sale of investments shall constitute business loss only in the hands of the assessee. Accordingly we set aside the order passed by Ld CIT(A) on this issue in both the years under consideration and direct the AO to allow the deduction of the same in both the years. Revenue is challenging the decision of Ld CIT(A) in holding that the interest accrued but not due as not taxable - CIT(A) noticed that an identical issue has been considered in the case of DIT (International Taxation) vs. Credit Suisse First Boston (Cyprus) Ltd ( 2012 (8) TMI 17 - BOMBAY HIGH COURT wherein it was held that when an instrument or an agreement stipulates that interest shall be payable at a specified date, interest does not accrue to holder thereof on any date prior thereto. Accordingly, following the above said binding decision of jurisdictional High Court, the Ld CIT(A) deleted the addition made by the AO in both the years on account of interest accrued but not due. The revenue is aggrieved wrongfully - decided in favour of assessee.
Issues Involved:
1. Jurisdiction of the Assessing Officer (AO). 2. Disallowance of mark-to-market loss on current investments. 3. Disallowance of realized loss on the sale of current investments. 4. Taxability of interest accrued but not due on current investments. Issue-wise Detailed Analysis: 1. Jurisdiction of the Assessing Officer (AO): The assessee challenged the jurisdiction of the AO in Chennai, arguing that the assessment should have been conducted in Mumbai following the change of address in the PAN data and the subsequent request to transfer the file. Despite objections, the AO in Chennai completed the assessment. The CIT(A) dismissed the appeal, stating that the transfer of jurisdiction is an internal administrative issue that cannot be the subject matter of appeal. The decision was reaffirmed by referencing the Allahabad High Court's decision in Hindustan Transport Company, which emphasized that allocation of functions among tax authorities is a matter of administrative convenience and does not invalidate the resultant action. The Tribunal upheld this view, noting that the transfer of jurisdiction requires an order under section 127 of the Act, and the details of such an order were not available on record. 2. Disallowance of Mark-to-Market Loss on Current Investments: The assessee, a non-banking financial company, claimed a deduction for the diminution in the value of securities held as stock in trade. The AO disallowed this, arguing that the investments were capital assets, not trading assets, based on the classification by the Reserve Bank of India (RBI) and the company's balance sheet presentation. The Tribunal found that the AO misinterpreted the RBI Act and the relevant circulars, noting that the assessee is permitted to trade in securities. The Tribunal also referenced the decision in Peninsular Investments, which supported the classification of securities as stock in trade for NBFCs. Consequently, the Tribunal allowed the deduction for the diminution in the value of securities. 3. Disallowance of Realized Loss on Sale of Current Investments: The AO disallowed the realized loss on the sale of securities, treating them as capital losses. The Tribunal, however, held that since the investments were trading assets, the realized loss should be treated as a business loss. The Tribunal referenced multiple judicial precedents, including the Supreme Court's decision in Chainrup Sampatram and UCO Bank, which support the valuation of stock at cost or market value, whichever is lower. The Tribunal directed the AO to allow the deduction for the realized loss on the sale of securities. 4. Taxability of Interest Accrued but Not Due on Current Investments: The AO included the interest accrued but not due as taxable income, arguing that the assessee should follow the mercantile system of accounting. The CIT(A) reversed this, relying on the Bombay High Court's decision in Credit Suisse First Boston (Cyprus) Ltd, which held that interest does not accrue until the specified date of payment. The Tribunal upheld the CIT(A)'s decision, noting that the binding precedent from the jurisdictional High Court must be followed. Conclusion: The Tribunal allowed the assessee's appeals, directing the AO to allow the deductions for the mark-to-market loss and realized loss on the sale of securities, and upheld the CIT(A)'s decision on the non-taxability of interest accrued but not due. The revenue's appeals were dismissed.
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