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TMI Blog2018 (3) TMI 1895X X X X Extracts X X X X X X X X Extracts X X X X ..... lant has failed to produce any evidence either before the AO during assessment proceedings or before me during appellate proceedings that the appellant has suffered actual loss, thus do not find any infirmity in the action of the AO in disallowing the business loss claimed on account of conversion of securities into stock-in-trade - HELD THAT:- We find that the Assessing Officer as well as the learned CIT(A) has disallowed the deduction for the loss on the ground that the assessee failed to substantiate the claim and has not furnished the details of cost of acquisition and the selling price either in the return or during the assessment proceedings. Before us also, these details have not been furnished. We, therefore, find no good reasons to interfere with the order of the learned CIT(A). It is confirmed. The ground of appeal of the assessee is dismissed. Addition in respect of amount transferred from Inter Branch Transaction Blocked Accounts to Reserves routed through Profit Loss account - HELD THAT:- The issue at hand was covered by the decision of this Bench of the Tribunal in the case of assessee itself for AY 2005-06[ 2012 (5) TMI 437 - ITAT, NEW DELHI] As regards the applicabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound of appeal of the Revenue is allowed for statistical purposes. Addition on account of contribution of PNB Employees Pension Fund Trust - CIT(A) deleted the disallowance stating Pension Fund Trust of the assessee Bank is an approved fund. The assessee Bank had already remitted the amount to the Trust which is covered by the provisions of section 43B - The amount of contribution has increased rapidly due to implementation of mandatory Accounting Standard 15, upward revision of salaries, promotion of employees to higher cadre etc. - HELD THAT:- DR could not point out any specific error in the order of the learned CIT(A) by bringing any cogent, positive material on record. Therefore, we find that no good reasons to interfere with the orders of learned CIT(A) which is confirmed and the grounds of appeal of the Revenue is dismissed. Addition on capital expenditure debited to revenue which has been pointed out in the Tax Audit Report - CIT- A deleted the addition by observing that he agreed with the submission of the assessee that the amount is revenue nature - HELD THAT:- DR could not point out any specific error in the order of the learned CIT(A) by bringing any material on record, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing additional grounds of appeal which reads as under:- i. On the facts, in the circumstances and in law, the Bank should have been allowed deduction of ₹ 121.30 crore incurred on account of contribution to pension fund. It is prayed that deduction of ₹ 121.30 crore be allowed. ii. The ld. Commissioner of Income Tax (Appeals) was not justified to direct the Assessing Officer to verify the working of disallowances under section 14A as per Rule 8D and to restrict the addition as per Rule 8D whereas Rule 8D is not applicable on us. It is prayed that the addition being unwarranted be deleted." 4. At the time of hearing, the learned AR of the assessee submitted that he is not pressing these grounds of appeal and also made endorsement to this effect on the copy of the additional ground of appeal filed before the Tribunal. Hence, they are dismissed for want of prosecution. 5. Ground no. 1 and 3of the appeal are general in nature and hence required no separate adjudication by us. 6. Ground no. 2 of the appeal is directed against the order of the learned CIT(A) confirming the order of the AO treating profit on sale of held to maturity category securities of ₹ 27, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Maturity" has been taken to Profit & Loss A/c as per RBI guidelines. RBI issued a circular No. DBOD. No. BPBC. 11/21.04.141/2004-05 dated July 17, 2004 giving guidelines in respect of valuation of securities held under "Held to Maturity" category. The circular stipulates that valuation of "Held to Maturity" securities shall be made as under:- i. Investments classified under "Held to Maturity" category need not be marked to market and will be carried at acquisition cost unless it is more than the face value, in which case the premium should be amortized over the period remaining to maturity. ii. Banks should recognize any diminution, other than temporary, in the value of their investments in subsidiaries/joint ventures which are included under Held to Maturity category and provide thereof. Such diminution should be determined and provided for each investment individually. Further, in the Balance Sheet for the previous ended 31st March, 2006, in Schedule 17- Significant Accounting Policies, on page No. 71 the policy for valuation of investment in different categories is disclosed. Valuation of investment held under HTM category valued as "Valued at acquisition cost unless more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of the assessee held as under:- "I have carefully considered the facts of the case and have perused the order of the AO and the submissions made by the appellant. There is no denying the fact that the securities in question were held by the appellant Bank in HTM category following the RBI guidelines. Since these securities were held as long term investment; the same were in the nature of capital assets. However, on going through the details of transaction of these securities, I find that there has been frequent trading in these securities. In other words, it is not a case where the said securities were sold on one or two occasions during the year. It is a settled position of law that the nature of transactions is to be decided based on the frequency of transactions and the conduct of the appellant and not merely on the basis of the intention at the time of purchase. In the instant case, the presence of frequent trading in these securities indicates that the profits arising on such transactions are in the nature of business profits. The RBI has prescribed certain broad guidelines in respect of the classification of securities into three categories. However, there is no expres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital asset is converted into stock-in-trade, capital gain would be taxable and sale consideration would be the market value on the date of conversion. Once the capital asset is converted into stock-in-trade, it will suffer another incidence of tax under section 28 as normal business income where the cost of acquisition will be the cost of security and the sale consideration will be sale price, the difference between sale price and cost price equal business income. According to the AO, in this case, the assessee has failed to substantiate the claim and has not furnished the details of cost of acquisition and the selling price either in the return or during the assessment proceedings. The loss of ₹ 10,06,04,870/- is claimed in the computation of income but is not booked in the books of accounts. 18. On appeal before the learned CIT(A), the assessee submitted that full details were provided to the AO. The capital gain has been worked out by deducting the cost of securities from fair market value of the securities on the date of conversion of capital assets into stock-in-trade. Business loss of ₹ 10,06,04,870/- arising out of sale of such converted stock has been claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of capital asset into stock-in-trade but has accepted capital gain, is not correct. As discussed above, Section 45(2) creates a legal fiction for taxing capital gain on notional basis as that provision is a deeming provision. However, Section 45(2) is not applicable for business loss or business profit. Business loss or business profit is different from capital gain as the same is taxed at a different rate. In order to claim a business loss as a deduction, the appellant must show that it has actually suffered that loss. In the case under consideration, the appellant has failed to produce any evidence either before the AO during assessment proceedings or before me during appellate proceedings that the appellant has suffered actual loss. In view of the above discussion, I do not find any infirmity in the action of the AO in disallowing the business loss of ₹ 10,06,04,870/- claimed on account of conversion of securities into stock-in-trade. Therefore, this ground of appeal is rejected." 20. Before us, the AR of the assessee reiterated the submissions made before the learned CIT(A). On the other hand, the learned DR supported the orders of the authorities below. 21. After h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of T.V. Sundaram Iyengar and Songs Limited (222 ITR 344). According to the AO the amount transferred to General Reserves is the real income of the assessee Bank. 24. On appeal, the learned CIT(A) confirmed the action of the AO by following his order in the case of assessee itself for AY 2005-06 order dated 8.3.2007. 25. Before us, the ld. AR of the assessee submitted that the issue at hand was covered by the decision of this Bench of the Tribunal in the case of assessee itself for AY 2005-06 in ITA No. 2047/Del/2007, order dated 25.10.2011. The learned DR agreed with the submission of the AR of the assessee. We find that the Tribunal in the AY 2005-06 held as under:- "33. The facts of the case of the assessee are exactly similar to the facts before the Hon'ble Calcutta High Court in the case of Betts Hartley Huett and Co. Ltd. (supra). In that case, it was held that the transaction between the head office of the assessee and its branch in India was a transaction between the principal and principal. In law, there cannot be a valid transaction of sale between the branch and its head office. As it is ultimately based on a proposition that no person can enter into c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income either at the time of receipt or at the time of write off to the profit & loss account. In fact, the Reserve Bank of India has permitted them to close these differences to the profit & loss account with a rider that the sums in question are not permitted by the Reserve Bank of India to be used in the form of distribution of dividends and it was specifically made clear by the Reserve Bank of India that the obligation to discharge the liabilities arising thereunder is upon the bank. Meaning thereby, there is no question of the amounts being treated as income in the hands of the bank. We must appreciate that these transactions in the inter branch accounts are mere accounting entries. When the transactions were made to these accounts initially, these were not in the nature of income either of the branches involved or of the bank as a whole. It is a part of transactions on the real accounts and not on what is known as revenue accounts. Therefore, it is difficult to say that the amounts in question bear the same character as unclaimed deposit received from the customers by the assessee T.V.Sundaram Iyengar & Sons Ltd. 34. In the light of the discussions of these facts, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,481/- and loss on investment of ₹ 2,47,06,53,905/- by following his orders in the earlier years and taking the stand that though the depreciation / loss on revaluation has been done in accordance with the guidelines of the RBI, yet the facts remain that these provisions and losses are of notional nature and are not available. 30. Before the learned CIT(A), the assessee submitted that the investment has been valued as per the RBI guidelines. The value of investment at the end of the accounting year has been adopted at cost price or the market price, whichever is lower. The market price is worked out on the basis of various guidelines issued by the Reserve Bank of India and the AO has not disputed the basis of working out the market value. The method has been consistently and regularly followed and the same has been accepted at the appellate stage for the last so many years. The investments are stock-in-trade in the case of the appellant and the same has to be valued on cost or market price whichever is lower, which is a recognized principle for working out the value of closing stock in the mercantile system of accounting. Reliance was placed on the ratio of the judgment of H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts relief of ₹ 2,47,06,53,905/-. 33. Before us, the AR of the submitted that the issue was covered by the decision of the Bench of the Tribunal in the case of the assessee itself in AY 2005-06 in ITA No. 2873/Del/2007 dated 25.10.2011. 34. The learned DR relied on the order of the AO and the learned AR relied on the order of the learned CIT(A). We find that the Tribunal in the AY 2005-06 vide order dated 25.10.2011 held as under:- "The next dispute in the Revenue's appeal relates to the deletion of disallowance of depreciation in investment of ₹ 48,82,82,014/- We have heard both the sides and find that the issue is fully covered by the earlier years' orders right from AY 2001-01 to 2004-05. The learned CIT(A) has only followed the principle laid down by the Apex Court in the case of UCO Bank - 240 ITR 355. In the light of the aforesaid binding decision of the Apex Court, we do not find any infirmity in the order of CIT(A). The same is dismissed. 35. The learned DR could not pointed out any specific error in the order of the learned CIT(A). He also could not bring any material on record to show that the order of the Tribunal for AY 2005-06 was varied in appeal bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well as in subsequent year had treated such recovery as non-taxable. I, therefore, agree with the submissions of the ld. AR that the same should be allowed. The appellant gets relief of ₹ 42,33,78,370/-." 38. The learned DR relied on the order of the AO and the learned AR relied on the order of the learned CIT(A). 39. After considering the rival submissions and perusing the material available on record, we are of the considered opinion that the recovery relating to provision which were made in earlier years and not allowed as business deduction to the assessee is not taxable. However, the recovery made in excess of that amount i.e. relating to those provisions which were allowed as deduction to the assessee are to be treated as taxable income of the assessee. We find that neither of the lower authorities have examined the issue from this angle therefore, in our considered view, it will be just and fair to restore the matter back to the file of the AO to re-adjudicate the issue afresh in light of the observation made hereinabove after allowing reasonable and proper opportunity of hearing to the assessee. Thus, this ground of appeal of the Revenue is allowed for statistical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal of the Revenue, the grievance of the Revenue is that the learned CIT(A) in deleting the addition of ₹ 71,500/- made on capital expenditure debited to revenue which has been pointed out in the Tax Audit Report. 45. The brief facts of the case, are that, the AO observing that the audits have been pointed out in item 17(a) of the Tax Audit Report in Form 3CD that a sum of ₹ 2,64,26,437/- only in the computation of income. Accordingly, the AO had added back the difference of ₹ 71,510/-. Before the learned CIT(A), the assessee submitted that out of ₹ 71,510/- an amount of ₹ 68,180/- relates to security deposit for getting telephone connection and ₹ 3,330/- relates to telephone charges which were wrongly debited under the head "Safe, furniture and fixture". Since the expenses were of revenue nature, the same were not offered for tax. 46. The learned CIT(A), after considering the submissions of the assessee deleted the addition by observing that he agreed with the submission of the assessee that the amount of ₹ 71510/- is revenue nature. 47. The learned DR relied on the order of the AO and the learned AR relied on the order of the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no good reasons to interfere with the orders of learned CIT(A) which is confirmed and the grounds of appeal of the Revenue is dismissed. 53. In ground no. 8 of the appeal of the Revenue, the ld. CIT(A) erred in deleting the addition of ₹ 26,44,837/- made on extra depreciation claimed on goodwill. The AO while disallowing the claim of depreciation of ₹ 26,44,837/- and ₹ 2,82,486/- taking the plea that the depreciation claimed is over and above the depreciation chart as shown in the return of income and hence is not allowable. 54. Before the learned CIT(A), the assessee submitted that 26,44,837/- claimed as depreciation represents goodwill being intangible asset is eligible for depreciation under section 32 of the Income Tax Act. This is similar to Ground no. 12 which has been decided in favour of the appellant. Moreover, there has been no addition on this issue in the preceding years and later years by the AO himself. Accordingly, this issue is decided in favour of the appellant even on the principle of the precedence and consistency. 55. The learned DR relied on the order of the AO and the learned AR relied on the order of the learned CIT(A). The DR could not p ..... 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