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TMI Blog2013 (6) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... to be part of its trading asset or as an asset held by way of stock-in-trade. While it is possible to convert any long term asset as part of a trading asset and the Income-tax Act also recognizes the same, it also deals with the consequences of such declaration. This is a clear case of investment in the securities, which cannot be characterized as stock-in-trade at all, as even as per the admission of the assessee and as per the relaxation, assuming it has any relevance, given by RBI, it can only be 30% of the investment which can be clothed with the character of stock-in-trade, as the assessee-bank had some freedom in exchanging such securities or any other form of security, it can be said that to this extent securities are available for sale, but the condition is that it again should be invested in any other security, so that requirement of investment in securities as per RBI guidelines/instructions is maintained by the bank. - Decided aganist the assessee. - IT Appeal No. 2886 OF 2005 - - - Dated:- 6-6-2012 - D.V. Shylendra Kumar and B. Manohar, JJ. M.V. Seshachala and K.V. Aravind for the Appellant. S. Parthasarathi for the Respondent. JUDGMENT 1. This a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1993-94. On filing of the returns of the company, the Assessing Officer has completed the assessment, after issuance of notice to the Assessee under Section 143 (2) of the Act as the Assessing Officer, prima facie found that many deductions, exemptions etc., as by way of expenditure or otherwise claimed by the Assessee were not admissible. 4. One such claim for deduction was the claim of the assessee for a sum of Rs. 1,09,10,252/- to be allowed as loss, in the wake of revaluation of securities classified as permanent assets. The assessee having valued its securities for investments which the assessee had held for the purpose of complying with the RBI instructions that a minimum percentage of its total deposits to be invested in such securities, in the wake of deposits that it had received from its customers as part of its business activity. The assessee had indicated such investment as a permanent asset and had claimed that it was held as stock-in-trade, being a part of the trading asset. 5. The assessee had claimed that though none of these securities had been actually transferred resulting in a loss, on sales, the loss was being computed on the premise that on valuing se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decided by the Tribunal. The Tribunal was of the opinion that it's earlier view should be followed in the case of the assessee also and reversed the view of the Assessing Officer as well as the CIT (Appeals) and held that the assessee is entitled to claim the amount of Rs. 1,09,10,252/- as business loss, attributable to fluctuation in the valuation of stocks which it had held and the value of securities having gone down in the market, as valued on the last day of the financial year. The Revenue is in appeal on this aspect and questions 1 and 2 relate to this issue. 8. The Assessing Officer while concluding the assessment found that the assessee's claim for writing off bad debts to the extent of Rs. 7,21,45,770/- was not justified to the entire extent that the situation was one attracting the provisions of Section 36(1)(vii-a) of the Act and was not a situation where the claim can be examined only in the light of the provisions of Section 36(1)(vii) of the Act and therefore examined the claim for bad debts from the angle of applicability of Section 36(1)(vii-a) of the Act. On noticing that the entitlement for claiming deduction towards bad debts, can only be in respect of the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tutory provision operates otherwise the assessee can claim the entire expenditure by way of deduction in terms of Section 37(1) of the Act. 12 . The Appellate Authority having remanded the question to the Assessing Officer for reexamination particularly on the aspect of expenditure incurred by the company on the employees who had accompanied the guests and delegates, the assessee having carried the matter further to the Tribunal on this question also and the Tribunal having opined in favour of the assessee, the Revenue has brought up, this question also for examination. 13. Yet another question that became contentious before the Assessing Officer was relating to the entitlement of deduction the assessee can claim under the provisions of Section 80M of the Act. The Assessing Officer having restricted the deduction having disallowed any amount equal to 5% of the deduction as expenditure incurred by the assessee for the purpose of earning dividend income eligible for deduction under Section 80M. The matter had been carried further but without success before the Appellate Commissioner and with success before the Tribunal. It is because of this view taken by the Tribunal, the Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not characterize that investment also as forming part of its stock-in-trade and to that extent it was disallowed; that such disallowance is not only fully justified but also a finding of fact we had referred to on principle of law and also the investment does not partake the character of stock-in-trade. Even in trading and business practices long lasting investment if at all is in the nature of capital asset and not a stock-in-trade as has been claimed by the assessee. Therefore submitted that the Tribunal while not recording a finding on this aspect in the assessee's case could not have modified or reversed the view taken by the Assessing Officer as affirmed by the First Appellate Authority, only by following-up and applying the ruling which it had rendered in the case of Karnataka Bank which was totally inapplicable or was not the view which held the field in the wake of subsequent development. Submits that the Tribunal having applied that as a reasoning for reversing the finding of the two lower authorities, the view of the Tribunal' on this aspect is not sustainable being a perverse finding and does calls for interference and the question on this aspect is to be answered in fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellate Authority could not have been disturbed by the Tribunal that too by applying a principle or ruling which it had rendered in the case of Karnataka Bank on the basis of the earlier Board Circular and as was the practice, that was being followed by the Banking companies based on the earlier Board circulars. 18. Submission is that the Tribunal has committed clear error in law in importing its decision in the case of Karnataka Bank to decide the present case; that on the finding recorded by the first two authorities it is clear that investments were not held as stock-in-trade and therefore, the Tribunal's view is required to be corrected. 19. For the sake of convenience we are extracting the Board Circular No.665 dated 5-10-1993 which reads as under: 1. By Circular No.599, dt. 24.4.1991 (see Clarification 2), it was clarified that securities held by banks must be regarded as their stock-in-trade and the claim of loss, if debited in the books of account, should be given the same treatment as it normally given to the stock-in-trade. It was also clarified that the interest paid for broken period on the purchase of securities must be regarded as revenue payment and allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its account on mercantile system of accounting that it had all along treated the investments in securities as part of its trading asset and the entire investment was taken as stock-in-trade which had been done uniformly following the practice of valuing such assets held and claimed by way of stock-in-trade for every year and had valued the same at market value for the purpose of making its profit and loss account and therefore, there was no occasion for the Assessing Officer or Appellate Authority to have taken a different view for the assessment year in question. Mr. Parthasarathy, submits that having regard to its earlier claim and the practice followed by the assessee having been allowed and recognised by the Revenue in respect of earlier years, there was absolutely no occasion for the Assessing Authority to have taken a different view, that even assuming for argument's sake, the Tribunal was not justified in placing reliance on its earlier decision in the case of Karnataka Bank for reversing the orders of the assessing authority and the first appellate authority, the view taken by the Tribunal to hold that the amount should be held as a part of business loss by revaluing the st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an NBFC. It has nothing to do with the computation or taxability of the provisions for NPA under the IT Act. It is submitted that it is not different in the matter of examining the tax liability or computing the income of the assessee and as to whether an asset is held as stock-in-trade or otherwise is a question that has to be answered independently than from any RBI guidelines relating to the method/and manner of an investment in securities and relaxation allowed by the RBI to the extent of 30% as investments being treated as current investment on this aspect. Though Sri. Parthasarathy learned counsel for the assessee had submitted that the assessee had been permitted by the RBI to value all its investments and not merely 30% of the investments treated as current investments, for the purpose of claiming loss if any, or computing their profits if any on valuing such investments at the end of the accounting period, we are of the view and as pointed by Sri. Seshachala that instructions regarding investments to be made by the Banking Company and the relaxation allowed by the RBI in respect of the manner of investment and the compulsion on the mode of investment is a matter which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. 28. Chambers 21st Century Dictionary, defines Stock-in-Trade as under: a something that is seen as fundamental to a particular trade or activity; b as adj. cliched -a story with stock-in-trade sentiments. 2 all the goods that a shopkeeper, etc. has for sale. Blacks Law Dictionary, sixth edition, defines stock-in-trade as under: The inventory carried by a retail business for sale in the ordinary course of business. Also, the tools and equipment owned and used by a tradesman. Law Lexicon by Sri P Ramanatha Aiyar, second edition, stock-in-trade is defined as under: Comprises all such chattels as are acquired for the purpose of being sold, or let to hire, in a person's trade. 29. Be that as it may, we are of the view that on the Assessees own declaration that it was permanent investment, the Tribunal could not have held otherwise as lasting asset and definitely cannot assume the character of Stock-in-trade. 30. While any investment in security can definitely become part of the stock-in-trade of a banking institution, no relevant question in' the. context of the present examination will be as to the nature of the security and for what purpose and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal could not and should not have upset such a finding by drawing a comparison to a situation prevailing in respect of some other bank and the view of the Tribunal in that case was based on the board circular which had held the field at the relevant point of time. Even otherwise, we find in the facts and circumstances, this is a clear case of investment in the securities, which cannot be characterized as stock-in-trade at all, as even as per the admission of the assessee and as per the relaxation, assuming it has any relevance, given by RBI, it can only be 30% of the investment which can be clothed with the character of stock-in-trade, as the assessee-bank had some freedom in exchanging such securities or any other form of security, it can be said that to this extent securities are available for sale, but the condition is that it again should be invested in any other security, so that requirement of investment in securities as per RBI guidelines/instructions is maintained by the bank. It is for this reason, we also reject the request of Sri Parthasarathy that the matter warrants remand to the Tribunal for reexamination on this aspect of the matter. Accordingly, questions 1 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (including hotel expenses or allowances paid in connection with such travelling) shall be allowed only to the extent, and subject to such conditions, if any, as may be prescribed. We have to hold that any expenditure incurred by the employer which comes within the scope of this definition and not being an expenditure incurred towards its employees vis- -vis any obligations or terms of employment, the expenditure inevitably partakes the character of entertainment expenditure and therefore the limitation stipulated in terms of Section 37(2) operates in allowing such an expenditure as deduction while computing the profits of the assessee. Therefore, this question is answered in the negative and against the assessee. Re: Questions 5 34. This question, relating to deduction that the assessee is entitled to in respect of the dividend income in terms of Section 80M of the Act and as to what amount is required to be deducted from the amount that qualifies for this deduction, in view of the fact that Section 80AA of the Act. This question is answered in favour of the assessee and against the revenue, for the reason that the revenue had not made out any case for deduction by demonst ..... X X X X Extracts X X X X X X X X Extracts X X X X
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