2017 (9) TMI 1344 - AT - Income Tax

Allowability of broken period interest as deduction - Held that - Respectfully following the ratio laid down in Citi Bank N.A 2012 (9) TMI 523 - SUPREME COURT and in assessee s own case for assessment year 2001 02 2011 (6) TMI 812 - ITAT MUMBAI allowed deduction claimed on account of broken period interest - Decided in favour of assessee. Claim of depreciation on different category of securities - whether the claim of depreciation on different categories of securities viz. ASF HFT and HTM is allowable by holding them as stock in trade or whether as held by the Assessing Officer they are to be treated as investments of the assessee? - Held that - We find the issue is no more res integra in view of the decisions referred to by the learned Commissioner (Appeals). In case of Yes Bank Ltd. (2015 (1) TMI 1012 - ITAT MUMBAI) the Co ordinate Bench allowed depreciation claimed on AFS and HFT categories of securities by holding them as stock in trade. Further in case of HDFC Bank Ltd. (2014 (8) TMI 119 - BOMBAY HIGH COURT) while dismissing the Revenue s appeal on the issue has upheld the decision of the Tribunal in allowing deduction claimed on diminution in value of securities. Learned Departmental Representative has not brought any contrary decision to our notice to defer from the ratio laid down in the decisions relied upon by the learned Commissioner (Appeals). In view of the aforesaid we uphold the order of the learned Commissioner (Appeals) on this issue by dismissing the grounds raised. - Decided against revenue

Summary

Issues Involved:
1. Allowability of broken period interest as a deduction.
2. Claim of depreciation on different categories of securities.
3. Validity of reopening under section 147 of the Income Tax Act.

Detailed Analysis:

1. Allowability of Broken Period Interest as a Deduction:

The primary issue in these appeals concerns the allowability of broken period interest as a deduction. The assessee, a company engaged in banking, claimed a deduction for broken period interest, which the Assessing Officer (AO) disallowed, treating it as a capital expenditure. The AO relied on the Supreme Court's decision in Vijaya Bank Ltd. v/s ACIT, arguing that the purchase price of Held-To-Maturity (HTM) securities includes broken period interest, thus making it part of the capital outlay.

The assessee contended that broken period interest is a charge on revenue account as per market practice and Reserve Bank of India (RBI) guidelines. The Commissioner (Appeals) sided with the assessee, referencing the Tribunal's decision in the assessee's own case for A.Y. 2001-02 and the Bombay High Court's decision in CIT vs. HDFC Bank Ltd., which allowed broken period interest as a deduction. The Tribunal upheld the Commissioner (Appeals)'s order, noting that the Jurisdictional High Court and the Supreme Court had previously ruled in favor of treating broken period interest as revenue expenditure, distinguishing it from the Vijaya Bank case.

2. Claim of Depreciation on Different Categories of Securities:

The second issue pertains to the assessee's claim for depreciation on securities held under Approved For Sale (AFS) and Held For Trading (HFT) categories. The AO disallowed the depreciation claim, classifying these securities as investments rather than stock-in-trade. The Commissioner (Appeals) overturned this decision, citing the Tribunal's rulings in similar cases and the Bombay High Court's judgment in Bank of Baroda, which treated such securities as stock-in-trade, thus allowing depreciation.

The Tribunal affirmed the Commissioner (Appeals)'s order, referencing consistent judicial precedents that recognized AFS and HFT securities as stock-in-trade for banks, thereby permitting depreciation. The Tribunal noted that the Departmental Representative did not provide any contrary decisions to challenge this view.

3. Validity of Reopening Under Section 147 of the Income Tax Act:

The assessee challenged the validity of the reopening of assessments under section 147 of the Income Tax Act. However, since the Tribunal upheld the Commissioner (Appeals)'s decisions on the merits of the deductions and depreciation claims, the legal issue of reopening became academic. Consequently, the Tribunal dismissed the assessee's appeals on this ground as infructuous.

Conclusion:

The Tribunal dismissed all the appeals, upholding the Commissioner (Appeals)'s decisions on allowing broken period interest as a deduction and permitting depreciation on AFS and HFT securities. The issue of reopening under section 147 was deemed academic and not adjudicated. The order was pronounced in open court on 06.09.2017.