2016 (10) TMI 101 - AT - Income Tax

Disallowance on depreciation claimed on valuation of Government Securities Held to Maturity (HTM) category - Held that - The issue raised by the Department in the appeals is no more res integra. The Tribunal has been consistently holding that Government Securities held under HTM category are part of stock-int-rade and allowed the amortization of premium on such Securities held under HTM category. The Hon ble Jurisdictional High Court has upheld the findings of Tribunal in the case of Commissioner of Income Tax Vs. HDFC Bank Ltd. 2014 (8) TMI 119 - BOMBAY HIGH COURT - Decided in favour of assessee

Issues Involved:
1. Disallowance of depreciation on Government Securities held under "Held to Maturity" (HTM) category.
2. Whether Government Securities held under HTM category constitute stock-in-trade.
3. Allowability of amortization of premium on Government Securities held under HTM category.
4. Cross-Objections filed by the assessee for the assessment year 2008-09.

Issue-wise Detailed Analysis:

1. Disallowance of Depreciation on Government Securities Held Under HTM Category:
The Revenue challenged the deletion of additions made on account of disallowance of depreciation claimed on Government Securities held under the HTM category. The Tribunal noted that the issue raised by the Department is no longer res integra as it has been consistently held that Government Securities under HTM are part of stock-in-trade. The Tribunal referenced the Hon'ble Bombay High Court's decision in the case of Commissioner of Income Tax Vs. HDFC Bank Ltd. (366 ITR 505) which upheld the Tribunal's findings on similar matters.

2. Whether Government Securities Held Under HTM Category Constitute Stock-in-Trade:
The Tribunal consistently held that Government Securities under HTM category are part of stock-in-trade. This position was supported by various decisions, including the Pune Bench of the Tribunal in the cases of Latur Urban Co-op. Bank Limited Vs. Dy. Commissioner of Income Tax and The Sangli Bank Ltd. Vs. ACIT. The Tribunal also referenced the Hon'ble Supreme Court’s decision in United Commercial Bank Vs. Commissioner of Income Tax (240 ITR 355) and the Hon'ble Karnataka High Court’s decision in Commissioner of Income Tax Vs. Corporation Bank Limited (174 ITR 616).

3. Allowability of Amortization of Premium on Government Securities Held Under HTM Category:
The Tribunal cited the Mumbai Bench's decision in Commissioner of Income Tax Vs. HDFC Bank Ltd. (ITA No. 4529/Mum/2005), which upheld the deletion of disallowance of loss due to diminution in value and amortization of premium on investments held to maturity. The Tribunal also referenced the Hon'ble Bombay High Court's dismissal of a substantial question of law regarding this issue, affirming the Tribunal's stance that the amortization of premium on HTM securities is allowable.

4. Cross-Objections Filed by the Assessee for the Assessment Year 2008-09:
The assessee filed Cross-Objections against the order of Commissioner of Income Tax (Appeals) for the assessment year 2008-09 but did not press the grounds raised. Consequently, the Cross-Objections were dismissed as not pressed.

Conclusion:
The Tribunal dismissed the appeals by the Revenue, finding no merit in their arguments and upheld the Commissioner of Income Tax (Appeals)'s deletion of the disallowance on depreciation and amortization of premium on Government Securities held under HTM category. The Cross-Objections filed by the assessee were also dismissed as not pressed. The order was pronounced in the open court on August 23, 2016.

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