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TMI Blog2017 (1) TMI 614X X X X Extracts X X X X X X X X Extracts X X X X ..... on 145 and 145A of the Act. In view of the above facts and circumstances, we are of the view that the allowability of deduction u/s 37(1) of the Act and deduction for the provisions for depreciation the assessee is entitled to. Thus we confirm the order of the CIT (A) deleting the addition made by the AO and dismiss the appeal of the Revenue - Decided in favour of assessee Disallowance of expenses relatable to exempt income by invoking the provisions of Section 14A of the Act read with Rule 8D - Held that:- We find that assessee has not claimed any exempt income and hence this issue is covered in favour of assessee by the decision of Hon’ble Delhi High Court in the case of Cheminvest ltd. (2015 (9) TMI 238 - DELHI HIGH COURT), wherein it is held that if there is no exempted income claimed by the assessee, no disallowance can be made by invoking the provisions of Section 14A read with Rule 8D of the Rules. - Decided in favour of assessee Disallowance of tds credit - Held that:- The assessee fairly stated that he is ready to produce evidences before AO and AO may be directed to verify the same and allow credit for TDS. We find no reason not to direct the AO accordingly. Henc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per guidelines of RBI. 3. On the facts and circumstances of the case ad in law, the Ld. CIT(A) erred in accepting the treatment given to the investment by the assessee company and treating the entire investment in securities as current investments and resultantly entire investments as stock-in-trade and accepting the accounting treatment given by the assessee I showing the closing stock of these securities at marked to market value as the end of the financial year, even when such accounting was not in consonance with the RBI guidelines. 4. On the facts and circumstances of the case ad in law, the Ld. CIT(A) erred in failing to appreciate that the assessee company being a NBFC and regulated by the RBI is bound to divide investment as current investments and long term investment on the lines of investment by the Banks as Held For Maturity. Available For Sale, Held For Trading and treat only current investment as stock-in-trade and show at marked to market value at the end of the financial year while showing the long term investment at book value at the end of the financial year at par with the treatment given by the Banks for similar securities (Held For Maturity. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investment at cost or market value whichever is lower and either credit or debited the gain or loss. The loss is debited under the nomenclature provision, but it is actual valuation loss. The AO has rejected this claim of the appellant for the reasons as reproduced earlier on in this order. However, it is seen that the action of the AO is not based on the analysis of the facts of the case as was before him. The AO has not taken into consideration the nature of the business of the appellant even though he has accepted it and that the stock in trade of the appellant are securities which the appellant has termed as current investments in its books of accounts. These are the stock in trade of the appellant in which the appellant has regularly carried out the business in the year. The AO has also not considered the fact that the valuation of closing stock of securities has been carried on as per the mercantile / actual system of accounting regularly employed by the appellant and the method so employed by the appellant is duly supported by the RBI norms read with AS-13 of the Institute of Chartered Accountants. It is also seen that the appellant has taken into consideration provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled. The rejection cannot be based simple on the nomenclatures used by the appellant to describe a claim. This enquiry / examination has not been done by the AO. It is seen that the appellant has maintained details of stock in trade and has made available its valuation to the AO. The AO has not pointed out any defect noticed that would show that the stock in trade has not been valued properly to disclose the correct income. From the details available, it is clear that the appellant was maintaining its account on the Mercantile system. It is seen the valuation of stock in trade has been done by the appellant on the basis of cost price or market price whichever is less. The valuation has been done as by the method regularly followed by the appellant. The fall in value of investment in the case of 11.3% India Government Bond amounting to ₹ 62 lakhs has been evidenced by the appellant by way of the prevailing rates. It is also seen that the difference or the interest accrued on the discounted bonds have been credited to the Profit Loss A/c. and offered for taxation. The AO has made no remarks on the same in the assessment order. The case of Gujarat State Investment Ltd. v/s. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies held by them and constituted stock-in-trade. The learned Counsel for the assessee referred to Schedule 7 of the final accounts and the following quoted securities were held as current investments as on 31-03-2008:- Securities Quantity Book Value (Rs. in thousands) Year of sale Government Securities 11.30% GOI Bonds 2010 100,00,000 10,83,400 2010 Certificate of Deposits Commercial Papers Vijaya Bank State Bank of Indore 50,00,000 80,00,000 4,57,706 7,66,852 2009 2009 IDBI HDFC 50,00,000 80,00,000 4,63,638 7,56,343 2009 2009 Corporate Bonds 9.32% HDFC 9,85,000 9,91,120 2009 It was claimed by the assessee that these securities were sold in the next year or in the year thereafter and have not been held as long term. 5. We find from the above facts that the assessee held these securities as current investments as stock-in-tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the mercantile system of accounting and the loss claimed by the assessee was not debited in the profit and loss account. Against the order of the Commissioner under Section 263 of the Act, the assessee- bank preferred an appeal to the Tribunal which took the view that the assessee had claimed the loss by following the same method which it was following for the last 30 years. Consequently, the order passed by the Commissioner under Section 263 was set aside. Against the said order of the Tribunal, two questions were referred for opinion to the High Court. Answering the said questions, the High Court observed that the assessee-bank had not valued the stock of shares and securities in its books of account in accordance with the method of cost or market price whichever is lower ; if this method was not followed in preparing the investment trading account, then the assessee-bank cannot claim notional loss/notional method of stock valuation for computing income. The High Court took the view that the book results could be rejected by the Income-tax Officer under Section 145(1) of the Income-tax Act if the method adopted by the assessee-bank did not disclose a proper and true income. Tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aking proper entries in the balance-sheet could hardly be a ground for not assessing the real income. The Supreme Court came to the conclusion on the above arguments that where the market value of shares and securities had fallen below the cost before the date of valuation and where on the date of valuation, the market value is less than the actual cost then the assessee was entitled to value the articles at market price and the assessee was entitled to claim the loss which the assessee would probably incur at the time of the sale of shares and securities. That, whichever method the assessee adopts, it should disclose the true picture of profits and gains. That, for determining the real income, the entries in the balance-sheet were required to be maintained in the statutory form. However, such entries in the balance-sheet were not decisive or conclusive. In such cases, it was open to the Income-tax Officer and the assessee to ascertain the true and proper income while submitting the income-tax returns. That, for valuing the closing stock, it was open to the assessee to value the stock at cost or market price whichever is lower. That, the assessee was valuing the stock-in-trade at c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee that interest has been shown on accrual basis even after the due date of coupon period till 31.03.2008. The order is neither erroneous nor prejudicial to the interest of revenue on this point. I also accept the argument of the assessee that it was granted license/regulator of NBFC without any permission to invite public deposits. The assessee company was therefore not required to maintain certain securities in the form of SLR and has therefore correctly considered all the investments as current investment and treated them as stock in trade. The assessee‟s contention in this regard has also been found correct. (ii) As regards broken period interest, the case laws cited by the assessee [Citibank N.A. (Civil Appeal No. 1549 of 2006 dated 12th August, 2008), American Express International Banking Corporation (258 ITR 601) (Bombay), Deutsche Bank AG (Income Tax reference No. 500 of 1997)] are not applicable to the facts of the present case. In the present case, it is not the case that broken period interest realized on sale have been brought to tax as income, while deduction on account of broken period interest for purchase is being disallowed in entirety. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the CIT (A), the same has become infructuous and the same is dismissed as such. 8. Now, coming to the assessee s appeal in ITA No.1276/Mum/2015 for the assessment year 2009-10, the second issue in this appeal of assessee is as regards to the order of CIT (A) confirming the action of the AO in making disallowance of expenses relatable to exempt income by invoking the provisions of Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (hereinafter the rules ). 9. At the outset, Ld. Counsel for the assessee stated the fact that there is no exempted income in the hands of the assessee. For this he referred to the computation of income wherein, he has not make any claim of exempted income. He stated that once there is no exempted income u/s 10 (34) of the Act, Revenue cannot invoke the provisions of Section 14A of the Act. For this he relied on the decision of the Hon ble Delhi High Court rendered in the case of Cheminvest Ltd. Vs CIT 378 ITR 33 (Delhi) wherein it is held as under:- 23. In the context of the facts enumerated hereinbefore the Court answers the question framed by holding that the expression does not form part of the total income‟ i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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