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2015 (3) TMI 449 - AT - Income TaxDisallowance of loss on account of conversion of AFS securities to HTM securities - CIT(A) allowed 1/5th of the loss resulting from shifting of securities from AFS to HTM category - Held that - Method adopted by the assessee for valuing the securities while changing the category i. e. from AFS to HTM is as per the RBI circular and hence this is the accepted method. At the same time, we find that as per RBI circular assessee is to amortize depreciation (loss) for the period of five years. In this case the assessee in the P & L A/c, debited l/5th of the depreciation (loss) but by filing revised return the entire depreciation (loss) has been claimed. In our opinion, that is not as per the RBI circular. We therefore, uphold the order of the Ld. CIT to the extent that entire depreciation (loss) claimed by the assessee on conversion at the time of changing category of the securities from AFS to HTM is not as per law but the assessee at the most can claim depreciation (loss) to the extent of 1/5th each year for the period of Five years. We accordingly direct the AO to allow the depreciation (loss) to the extent of 1/5th of the total depreciation - Decided partly in favour of assessee. Non-allowance of premium amortized on HTM securities - Held that - The facts relating to the issue are that as per the guidelines of RBI, the banks are entitled to keep its investments under three categories i.e. Held To Maturity (HTM), Available For Sale (AFS) and Held For Trading (HFT). The HTM securities are in the nature of premium investment and are to be kept by the banks still the date of maturity. However, the AFS and HFT securities are in the nature of current investments and can be sold by the banks before the date of maturity. As per the guidelines of RBI with regard to current and permanent investments issued from time to time, the banks are permitted to change investments from one category to the other, subject to the condition that overall ratios of current to permanent investments are maintained as per the RBI requirements. The guidelines also prescribe that the investments classified as HTM securities are to be carried at acquisition cost. In the facts of the present case, the assessee had parked funds in HTM securities and during the year, the assessee had not shifted the securities to any other category. The premium paid on government securities were amortized in the books of account and the plea of the assessee was that the said premium was to be separated from the face value of the securities and booked as expenditure. Admittedly, the assessee was following the method of valuing its HTM securities at face value or cost. In view thereof, we find no merit in the ground of appeal No.3 raised by the assessee in this regard. The CIT(A) had dismissed the claim of the assessee in line with the order of Tribunal in appeal against the order of revision passed under section 263 of the Act on this count. - Decided against assessee. Rectification of mistake - CIT(A) cancelling the order passed u/s.154 by the Assessing Officer holding that the mistake sought to be rectified was not a patent mistake apparent from records - Held that - Under the provisions of section 154 of the Act, an order of assessment or an intimation issued under section 143(1) of the Act or section 200A(1) of the Act or any other order passed by any income tax authority referred to in section 116 of the Act, can be amended with a view to rectify any mistake apparent from the record. The first step to be seen before invoking the provisions of section 154 of the Act is that there is a mistake apparent from the record which can be rectified by the income tax authority who had passed the said order under the provisions of the Act. It has been held by the courts time and again that the debatable issues are not open to rectification under section 154 of the Act. See Volkart Brothers Vs. ITO 1971 (8) TMI 3 - SUPREME Court . The admissibility of amortization of premium on HTM securities as a deduction or not under the Income Tax Act is a debatable issue as is clear from the fact that the Pune Bench of the Tribunal in assessee s own case vide order dated 31.05.2013 had directed the Assessing Officer to allow 1/5th of the said expenditure. Further, the Tribunal in another decision dated 05.08.2013 had allowed the said expenditure in totality. The assessee is also in appeal against the order passed by the Tribunal in order passed under section 263 of the Act and the matter is pending before the Hon ble High Court and hence, the issue became debatable. - Decided against revenue. Depreciation in the value of 'Held to Maturity' securities claimed by the assessee bank disallowed - Held that - The issue raised before us is identical to the issue before the Tribunal in ACIT Vs. Bank of Maharashtra (supra) and following the same parity of reasoning, we hold that the change in method of accounting adopted by the assessee for valuing its HTM securities at lower of cost or market price is a bonafide change and the assessee is entitled to the claim of depreciation on value of HTM securities. The loss arising on account of AFS and HFT securities have already been accepted by the Assessing Officer. Consequently, we direct the Assessing Officer to allow the claim arising on account of depreciation on value of HTM securities. However, the change in method of valuation in HTM securities and its effect on the computation of income would be verified by the Assessing Officer. Accordingly, we direct the Assessing Officer to consider the plea of the assessee and re-work the income - Decided in favour of assessee for statistical purposes. Revision u/s 263 - 1/5th of the amortized amount of loss incurred of ₹ 29,29,15,335/- in assessment year 2005- 06 on account of conversion of securities from AFS to HTM should be allowed in accordance with the decision of the Hon ble Tribunal in assessment year 2005-06 - Held that - Pursuant to the order of Tribunal in assessee s own case against order passed under section 263 of the Act, where the Tribunal had directed that the expenditure claimed in assessment year 2005-06 is to be amortized and allowed for the years starting from assessment year 2005-06 to the extent of 1/5th in each year, we find merit in the plea of the assessee in this regard. Accordingly, we direct the Assessing Officer to allow 1/5th of the amortized amount of loss incurred in assessment year 2005-06 for the years under appeal, consequent to the order of Tribunal passed in appeal against order passed under section 263 of the Act relating to assessment year 2005-06. - Decided in favour of assessee. Addition in the hands of the assessee - non reconciliation of transactions reflected in international transactions of the assessee with the entries in the books of account - CIT(A) had directed the Assessing Officer to examine the claim of the assessee and delete the addition after verification - Held that - No merit in the ground of appeal in this regard as the CIT(A) had directed the Assessing Officer to carry out the verification exercise and after reconciliation, the Assessing Officer may decide the issue. We uphold the directions of CIT(A) in this regard and direct the Assessing Officer to carry out the reconciliation exercise and after verification decide the issue. - Decided against assessee.
Issues Involved:
1. Non-allowance of loss on conversion of AFS securities to HTM securities. 2. Non-allowance of premium amortized on HTM securities. 3. Rectification of assessment order under section 154. 4. Depreciation on HTM securities. 5. Reconciliation of international transactions. Detailed Analysis: 1. Non-allowance of Loss on Conversion of AFS Securities to HTM Securities: The assessee claimed a loss of Rs. 29,29,15,335/- due to the conversion of AFS securities to HTM securities. The CIT(A) allowed only 1/5th of this loss, following the Tribunal's earlier decision. The Tribunal upheld this decision, stating, "the assessee is only entitled to the claim to the extent of 1/5th of the depreciation (loss) arising on transfer of securities from AFS to HTM." The Revenue's appeal against this 1/5th allowance was dismissed, and the assessee's appeal for full allowance was also dismissed. 2. Non-allowance of Premium Amortized on HTM Securities: The assessee claimed Rs. 1,44,31,124/- as amortized premium on HTM securities. The CIT(A) disallowed this claim, referencing the Supreme Court's decision in Southern Technologies Ltd. vs. JCIT (2010) 320 ITR 577 (SC), which held that RBI guidelines do not override the Income Tax Act. The Tribunal upheld the CIT(A)'s decision, stating, "no separate treatment can be given to the premium paid by the assessee." 3. Rectification of Assessment Order under Section 154: The Revenue appealed against the CIT(A)'s cancellation of an order passed under section 154, which added back Rs. 3,90,09,806/- amortized premium. The CIT(A) held that the issue was debatable and not a "patent mistake apparent from records." The Tribunal upheld this view, citing the Supreme Court's decision in Volkart Brothers Vs. ITO, which states, "A decision on a debatable point of law is not a mistake apparent from the record." 4. Depreciation on HTM Securities: The assessee claimed depreciation on HTM securities valued at cost or market value, whichever was lower, amounting to Rs. 37,11,50,795/- for AY 2007-08 and Rs. 5,19,40,000/- for AY 2009-10. The CIT(A) disallowed these claims, treating HTM securities as capital assets. The Tribunal, however, allowed the assessee's claim, following its decision in ACIT vs. Bank of Maharashtra, which accepted the change in the method of valuation as bona fide. The Tribunal directed the Assessing Officer to verify and re-compute the income accordingly. 5. Reconciliation of International Transactions: The assessee challenged an addition of Rs. 7,40,292/- due to non-reconciliation of international transactions. The CIT(A) directed the Assessing Officer to verify and reconcile the transactions. The Tribunal upheld this direction, finding no merit in the assessee's appeal against the reconciliation process. Conclusion: - Appeals related to the non-allowance of full loss on conversion of AFS to HTM securities and the premium amortized on HTM securities were dismissed. - The rectification order under section 154 was invalidated due to the debatable nature of the issue. - The Tribunal allowed the depreciation on HTM securities, directing the Assessing Officer to verify and re-compute the income. - The reconciliation of international transactions was upheld, with directions for verification and reconciliation by the Assessing Officer.
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