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TMI Blog2012 (6) TMI 295X X X X Extracts X X X X X X X X Extracts X X X X ..... IL CHATURVEDI, JJ. Samir Tekriwal for the Appellant. K.I. Thakkar for the Respondent. ORDER Anil Chaturvedi, Accountant Member This appeal of the Revenue is directed against the order of Ld. CIT(A), Gandhinagar's order dated 25-5-2010 for the assessment year 2007-08. The grounds of appeal before us are as under:- "1. The Ld. CIT(A) has erred in law and on facts in deleting the addition made on account of disallowance of loss of Rs. 30 lakhs, incurred on sale of government securities. 2. The Ld. CIT(A) has erred in law and on facts in not considering the decision rendered by Hon'ble Gujarat High Court in the case of Pari Mangaldas Girdhardas v. CIT(A) [1977] CTR 647 (Guj.). 3. On the facts and circumstances of the case the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. 4. It is therefore, prayed that the order of the Ld. CIT(A) may be set aside and that of the A.O. be restored to the above extent." 2. The brief facts of the case are that the assessee is a Co-operative bank engaged in banking business. It is also deriving interest income by investment in other banks, commercial income etc. The assessee filed its return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in which it has been reflected it in the books of accounts. He further observed that the magnitude and frequency in the transactions do not indicate it to be regarded as "business" but it was in the nature of once in a year kind of affair and therefore qualified to be an "investment activity". He further concluded that the motive of transaction was not to earn profit from purchase/sale of these transactions but derive income by way of dividend/capital gains. Relying on the decision of Pari Mangaldas Girdhardas v. CIT [1977] 6 CTR 647 (Guj.) the A.O. concluded that the loss sustained by the assessee from sale of Government Securities did not qualify to be considered as "business loss" but that of "capital loss" and accordingly held it to be "long term capital loss" as opposed to "business loss" held by the assessee. 6. Aggrieved by the decision of A.O., the assessee carried the matter before the Ld. CIT(A). CIT(A) allowed the appeal of the Assessee by observing as under:- "2.3 The matter has been considered. The Assessing Officer in deciding about the allowability of the claim of loss on account of Government securities has applied the ratios laid down for a normal entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the banks constitute their stock in trade or investment, and consequently whether the loss claimed by the banks on the valuation of their securities should be allowed as a deduction in computing their taxable profits". On this the clarification of CBDT is reproduced as under: "2. The matter has been considered by the Board and it has been decided that the securities must be regarded as stock in trade by the banks. Therefore, the claim of loss, if debited in the books of account, would be given the same treatment as is normally given to stock in trade ". 10. According to the Ld. D.R. the clarification given by CBDT will not be applicable to the Assessee for the reason that the assessee has not treated the investments as stock in trade. According to the Ld. D.R. if the assessee treats the investments as stock in trade then at each year end the investments needs to be valued at cost of market value whichever is lower. According to the Ld. D.R., the benefit of clarification given by CBDT in the circular can be availed by an assessee only if the investment is treated as stock in trade. Since in the present case, the Assessee has treated securities as investments and not as stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of the CIT(A) be set aside and that of the A.O. be upheld. 15. On the other hand, before us the Ld. AR argued and stated that method and way in which the investments are shown in the Balance sheet i.e. whether stock in trade or investments does not make any difference. The loss is allowable as business loss if the loss has been debited to the Profit and loss account. He further urged that in the case of the Assessee since the loss incurred is actual loss and not notional loss, the same has to be allowed as deduction. The Ld. A.R. strongly supported the decision of CIT(A) and also relied on the following decisions:- 1. Nedungadi Bank Ltd., ( supra ). 2. United Commercial Bank ( supra ). 3. Karur Vysya Bank Ltd., ( supra ). 4. Asstt. CIT v. Shriram Transport Finance Co. Ltd. [2011] 9 ITR (Trib) 543/[2012] 20 taxmann.com 332 (Chennai) 16. We have heard the rival contentions and perused the material on record. The undisputed facts of the case are that the assessee is a Co-operative bank registered under Gujarat Co-operative Societies Act and Reserve Bank of India. It is engaged in banking business. The provisions of the Banking Regulation Act as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld by it at the close of the assessment year? Thus in the facts of these circumstances it was held by Hon'ble High Court that notional loss on account of revaluation of securities was deductible. 19. In the case of United Commercial Bank ( supra ) the Hon'ble Supreme Court concluded as under: "Where the assessee-bank had been valuing its stock-in-trade (investments) "at cost" in the balance sheet but it had been valuing the same investments "at cost or market value, whichever is lower", for income-tax purposes for over 30 years, the same could not be discarded by the Revenue on the ground that assessee was maintaining balance sheet in the statutory form on the basis of the cost of the investments." 20. In the case of Shriram Transport Finance Ltd ( supra ) The facts were that the assessee company held securities and the diminution through valuation as on 31st March 2005 was debited to Profit and loss account and claimed as deduction. It was held that the investments in securities were a statutory direction which had to be necessarily complied with by the assessee, as it had public deposits. It was immaterial that they were shown under the classification "investments". ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether, in a case where the assessee purchases securities at a price determined with reference to their actual value as well as the interest accrued thereon till the date of purchase, the entire price paid for them would be in the nature of capital outlay or whether the interest portion could be claimed as a revenue expenditure. It was in this context that the Supreme Court held that whatever was the consideration which prompted the assessee to purchase securities, the price paid for them was in the nature of capital outlay and no part of it could be set off as expenditure against income accruing on those securities. The Court was not directly concerned with the issue whether the securities form part of stock-in-trade or capital assets." 23. Thus it can be seen that the facts of the cases on which the ld. A.R. are distinguishable on facts as also on law and therefore cannot be applied to the present case before us. 24. For valuing the closing stock, it is open to the assessee to value it at the cost or market value, whichever is lower. This discretion is available to an assessee. In the present case, assessee on its own volition has opted to treat the stock of Govt. securiti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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