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TMI Blog2011 (5) TMI 942X X X X Extracts X X X X X X X X Extracts X X X X ..... before us two issues for adjudication, viz., (1) whether the Commissioner of Income-tax(A) erred in allowing the assessee's claim of depreciation of valuation of investment portfolio by treating the investments held by the bank as stock-in-trade, and (2) whether, the learned Commissioner of IncomeITA. tax(A) erred in deleting the addition of ₹ 31,82,49,475/- being expenditure related to exempt income. 02. Let us first take up the issue relating to claim of depreciation of valuation of investment portfolio. The relevant grounds of appeal read as under : "2.1. The learned Commissioner of Income-tax(A) erred in allowing the assessee's claim of depreciation of valuation of investment portfolio by treating the investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stment portfolio should be held under three categories, viz., 'Available for Sale' (AFS), 'Held to Maturity' (HTM), and 'Held for Trading' (HFT) and that the whole investment portfolio could not be classified as stock-in-trade. According to the circular, while depreciation was not available on financial assets in the HTM category, only net depreciation, if any, could be debited to the profit and loss account on assets in the AFS and HFT categories. The Assessing Officer observed that the CBDT had clarified, vide Circular No.665, dated.05.10.1993, that the Assessing Officer should determine on the facts and circumstances of each case as to whether any particular securities constituted stock-in-trade or investment, tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case is binding on us, facts and circumstances being the same. In the said decision cited above, the Tribunal in para nos.14 to 16 has held as under : "14. We are of the considered view that the decision of the Hon'ble Supreme Court in the case of United Commercial Bank v. Commissioner of Income-tax reported in 240 ITR 355 is directly applicable to the facts of the case on hand. As per the Head Note of the said decision, the Hon'ble Apex Court has held that preparation of the Balance sheet in accordance with the statutory provisions would not disentitle the assessee in submitting the Income-tax return on the real taxable income in accordance with the method of accounting adopted by the assessee consistently and regularly. For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und of appeal reads as under : "2.2 The learned Commissioner of Income-tax(A) erred in deleting the addition of ₹ 31,82,49,475/- being expenditure related to exempt income. The learned Commissioner of Income-tax(A) has failed to appreciate the fact for this assessment year 2007-08, the expenditure on exempt income was not worked out as an estimate but in accordance with section 14A(2) of the IT Act, 1961 read with Rule 9D of the IT Rules." 09. The brief facts as culled out from the records are that the bank had claimed that income aggregating to ₹ 32,74,96,281/- was exempt from tax. This income included interest of ₹ 18,78,75,389/- earned on tax-free bonds and dividend received of ₹ 14,96,20,892/-. The As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Daga Capital Management P. Ltd., (ITAT-Mum) (2009) 312 ITR (AT) 1 (SB) ; By placing the above orders on record, the learned DR contended that it is correct that the Assessing Officer followed Rule 8D. He also pleaded that it is for the assessee to establish with proof that so much has been incurred towards exempt income. 12. Per contra, the learned Chartered Accountant for the assessee placed on record a compilation comprising of the following materials : i) ITAT Bangalore decision in Corporation Bank v. I ITO in ITA.1119/Mang/87, dated.10.09.1991 ; ii) ITAT Bangalore decision in Syndicate Bank v. ACIT in ITA.1282 to 1284/Bang/2007, dated.9.10.2009 ; iii) Supreme Court decision in Munjal Sales Corpn v. Commissioner of Income-tax (200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the absence of the decision of jurisdictional High Court, the decisions of two other High Courts are starring at us while deciding this issue. Even though the decisions of other High Courts have persuasive value only, in the absence of jurisdictional High Court decision, it would be fit and proper for us to follow the decisions of other High Courts being superior forum. Thus, following the decisions cited supra of Bombay and Kerala High Court, we hold that Rule 8D is only prospective and cannot be applied for the assessment year 2007-08. 14. Now turning to the quantum of disallowance there is no dispute about the fact that the assessee himself has disallowed 5%, following the earlier decision of the Tribunal in assessee's own case. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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