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TMI Blog2015 (11) TMI 581X X X X Extracts X X X X X X X X Extracts X X X X ..... urchase of securities classified under HTM category. - Decided against revenue. Loss suffered by the assessee on compulsory redemption of Sardar Sarovar Narmada Nigam Ltd.(SSNNL) Bonds - Held that:- The bank is obliged to pay interest to its depositors, which it generates by way of interest receipts from loans advanced and earnings from investments made in various securities and other incomes received during the course of banking activities. In this context, assessee explained before the lower authorities that the investment in the bonds of SSNNL was with the predominant objective of earning interest so as to service the burden of interest payments to the depositors. The assessee also explained that the bonds were traded on stock exchanges and that they were available as a source of liquidity, if required. It was, therefore, contended that such investment was a ‘stock-in-trade’ and any loss suffered therefrom is a revenue loss. In our considered opinion, the business of banking includes in its fold making of investments for the purpose of generating incomes which would service bank’s requirement of paying interest to its depositors. The assessee has consistently explained the ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have to classify their portfolio in three categories i.e. Available for Sale (AFS), Held to Maturity (HTM) and Held for Trading (HFT). Further, as per the Prudential norms for classification, valuation operation of investment portfolio by bank, the RBI prescribed that the investment classified under the category Held to maturity need not be marked to market but are required to be carried at acquisition cost, and in case the same is more than the face value, the premium paid over and above the face value of the securities shall be amortized over the period remaining to maturity. Accordingly, it was sought to be pointed out that the impugned amount of amortization of premium for the investment held under the category Held to Maturity was akin to diminution in the value of investment and was thus, an allowable deduction. The stand of the assessee was that all the investments made by the bank partake the nature of stock- in- trade as they have been made in the course of carrying out the business of banking. Before the Assessing Officer, assessee also relied upon decision of Cochin Bench of the Tribunal in the case of Catholic Syrian Bank Ltd. Vs. ACIT (2010) 38 SOT 553(Coch.), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in the case of CIT vs. Nedungadi Bank Ltd. 264 ITR 545(Ker), wherein it has been held that the securities held by Bank constituted their stock-in-trade. Apart therefrom, a reference has also been invited to the decision of the Pune Bench of the Tribunal in the case of Thane Janata Sahari Bank Ltd., ITA No. 1215/PN/2010 dated 31/01/2013, wherein, it has also been laid down that even the securities held under the category of HTM are part of stock-in-trade of the Bank and there was no justification to decline the claim of depreciation/loss on the value of securities as per mandate of Reserve Bank of India. 7. We have carefully considered the rival submissions. Having considered the rival stands, we find no reason to interfere with the conclusion drawn by the CIT(A). Pertinently, assessee s claim for amortization of premium paid on the purchase of Government securities classified as HTM is consistent with the prudential norms issued by the RBI. It is also undeniable that the acquisition of the Government securities under the HTM categories has been undertaken by the assessee in the course of carrying on the banking business under the mandate of RBI. Ostensibly, the pred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon ble Madras High Court was a non-banking financial corporation (i.e. NBFC), whereas the assessee before us is a Co-operative society engaged in the business of banking under licence from RBI, which is quite distinct from an entity enjoying status of NBFC. Moreover, in the case before Hon ble Madras High Court, the claim of the assessee was in relation to section 36(1)(vii) of the Act on account of Provision for bad and doubtful debts; section 36(1)(vii) of the Act clearly prohibits allowability of a mere Provision for bad and doubtful debts. It is in this context the Hon ble High Court noted that the precise conditions contained in section 36(1)(vii) of the Act would govern the situation and not the guidelines of the RBI while evaluating a claim for deduction under section 36(1)(vii) of the Act. What is to be allowed u/s. 36(1)(vii) of the Act is actual write- off of a bad debt and not a mere Provision for bad and doubtful debts. The claim before us is in respect of the amortization of premium paid on acquisition of Government Securities classified under HTM category on the ground of the mandate of the RBI, a proposition which is supported by the judgement of the Hon ble Bomb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) erred in deleting the addition of ₹ 68.00 lacs in as much as it was a loss suffered on liquidating the capital investment. According to the Ld. Departmental Representative, investing in Bonds is not a predominant activity in the business of banking being carried out by the assessee and, therefore, it is a case of investment in a long term asset and not of investment in stock-in-trade. 8.3 On the other hand, Ld. Representative for the assessee has reiterated the submissions put-forth before the lower authorities and contended that the impugned activity of acquiring the bonds was a part and parcel of the activity of banking being carried out by the assessee. Accordingly, the conclusion drawn by CIT(A) was sought to be defended. 8.4 We have carefully considered the rival submissions. The factual matrix in the present dispute lies in a narrow compass. During the year under consideration, the assessee has suffered a loss of ₹ 68.00 lacs on compulsory redemption of bonds of SSNNL, which were purchased by it from the secondary market in the past on 29/9/2005 for ₹ 4,68,00,000/-. The bonds were compulsorily redeemed by SSNNL on 4/1/2009 for ₹ 4,00,00,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich we do so. Thus, on this aspect also Revenue fails. 8.5 In the result, Revenue s appeal for Assessment Year 2009-10 is dismissed. 9. In so far as the appeal for Assessment Year 2008-09 is concerned, the only issue involved is the amortization of premium paid on purchase of securities under HTM category. This aspect has already been dealt with by us in the appeal for Assessment Year 2009-10 and our decision therein shall apply mutatis mutandis in Assessment Year 2008-09 also. Accordingly, for assessment year 2008-09 also, Revenue fails. 10. With respect to Assessment Year 2007-08, the first issue involved is the amortization of premium paid on purchase of securities under HTM category. This aspect has already been dealt with by us in the appeal for Assessment Year 2009-10and our decision therein shall apply mutatis mutandis in Assessment Year 2007-08 also. Accordingly, for assessment year 2007-08 also, Revenue fails. 11. The only other issue in the appeal for Assessment Year 2007-08 arises from the action of the CIT(A) in holding that assessment proceedings finalized by the Assessing Officer were invalid. 11.1 On this aspect, the relevant facts are that the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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