CREDIT SUISSE FINANCE (INDIA) P.LTD, MUMBAI V. DCIT RG 6(2), MUMBAI

ITA 1435/MUM/2016

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 8956 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 15-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Business expenditure; Bad and doubtful debts; Set aside
• Section: 250; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C, MUMBAI BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA NO.1435/M/2016 ASSESSMENT YEAR: 2011-12 ITA NO.1436/M/2016 ASSESSMENT YEAR: 2010-11 M/S. CREDIT SUISSE FINANCE (INDIA) P. LTD., 9 TH FLOOR, CEEJAY HOUSE, DR. ANNIE BESANT ROAD, WORLI, MUMBAI 400 018 PAN: AAACB3741N VS. DEPUTY COMMISSIONER OF INCOME TAX, RANGE 6(2)(1), AAYAKAR BHAVAN, ROOM NO.504, 5 TH FLOOR, MAHARSHI KARVE MARG, MUMBAI 400 020 (APPELLANT) (RESPONDENT) ITA NOS.1415 & 1416/M/2016 ASSESSMENT YEARS: 2010-11 & 2011-12 DEPUTY COMMISSIONER OF INCOME TAX, RANGE 6(2)(1), ROOM NO.563, AAYAKAR BHAVAN, M.K. ROAD, CHURCHGATE, MUMBAI 20 VS. M/S. CREDIT SUISSE FINANCE (INDIA) P. LTD., 9 TH FLOOR, CEEJAY HOUSE, PLOT F, SHIVSAGAR ESTATE, DR. ANNIE BESANT ROAD, WORLI, MUMBAI 400 018 PAN: AAACB3741N (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI NISHANT THAKKAR, A.R. MS. JASMINE AMALSADVALA, A.R. REVENUE BY : SHRI H.N. SINGH, D.R. SHRI ABIRAMA KARTIKEYAN, D.R. DATE OF HEARING : 10.10.2018 DATE OF PRONOUNCEMENT : 21.12.2018 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDERS PASSED BY LD. CIT(A)-12, MUMBAI AND ARE RELATED TO ASSESSMENT YEA RS 2010-11 & 2011-12. ITA NO.1435/M/2016 & ORS M/S. CREDIT SUISSE FINANCE (INDIA) P. LTD. 2 SINCE IDENTICAL ISSUES ARE CONTESTED IN THESE APPEA LS, THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. 2. IN BOTH THE YEARS, THE ASSESSEE IS AGGRIEVED BY THE DECISION OF THE LD. CIT(A) IN CONFIRMING THE DISALLOWANCE OF MARK TO MA RKET LOSS CLAIMED ON CURRENT INVESTMENTS AND ALSO IN CONFIRMING THE DISA LLOWANCE OF REALISED LOSS ON SALE OF CURRENT INVESTMENTS. IN ASSESSMENT YEAR 20 10-11, THE ASSESSEE IS ALSO CHALLENGING THE JURISDICTION OF THE ASSESSING OFFIC ER IN PASSING THE IMPUGNED ASSESSMENT ORDER. 3. IN BOTH THE YEARS THE REVENUE IS AGGRIEVED BY TH E DECISION OF THE LD. CIT(A) IN HOLDING THAT THE INTEREST ACCRUED BUT NOT DUE ON CURRENT INVESTMENT IS NOT TAXABLE UNDER ACCRUAL SYSTEM OF ACCOUNTING. 4. THE FACTS RELATING TO THE CASE ARE DISCUSSED IN BRIEF. THE ASSESSEE COMPANY IS A NON BANKING FINANCIAL COMPANY. IT WAS ORIGINALLY FORMED UNDER THE NAME M/S. BOKADIA MARKETING AND FINANCE PVT. LT D. IN CHENNAI. IT WAS ACQUIRED BY THE PRESENT COMPANY DURING THE FINANCIA L YEAR 2008-09. CONSEQUENT THERETO, THE NAME OF THE ASSESSEE WAS CH ANGED TO THE PRESENT FORM W.E.F. 21.10.2008. THEREAFTER, ON 22.04.2009 THE A SSESSEE WAS PERMITTED TO TRANSFER HIS REGISTERED OFFICE FROM STATE OF TAMIL NADU TO STATE OF MAHARASHTRA. FOR ASSESSMENT YEARS 2010-11 & 2011-12 THE ASSESSEE FILED ITS RETURN OF INCOME TO THE DEPUTY COMMISSIONER OF INCOME TAX-3(1 ), MUMBAI. HOWEVER, THE ASSESSMENT FOR THE ASSESSMENT YEAR 2010-11 WAS COMPLETED BY THE ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE-1, CHE NNAI. HENCE, THE ASSESSEE HAS RAISED A LEGAL ISSUE CONTENDING THAT T HE ADDITIONAL COMMISSIONER OF INCOME TAX, CHENNAI DOES NOT HAVE JURISDICTION T O PASS THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2010-11. 5. WE SHALL FIRST TAKE UP THE ABOVE SAID LEGAL ISSU E. THE LD. A.R. SUBMITTED THAT THE ASSESSEE HAD CHANGED ITS ADDRESS IN THE PA N DATA WAY BACK ON 19 TH MAY 2009 AND ACCORDINGLY IT FILED THE RETURN OF INC OME FOR ASSESSMENT YEAR ITA NO.1435/M/2016 & ORS M/S. CREDIT SUISSE FINANCE (INDIA) P. LTD. 3 2009-10 ALSO AT MUMBAI. THEREAFTER, THE ASSESSEE A LSO FILED A LETTER REQUESTING TO TRANSFER THE FILE OF THE ASSESSEE FROM CHENNAI T O MUMBAI ON 6 TH SEPTEMBER 2010. SUBSEQUENTLY, THE ASSESSEE FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2010-11 WITH THE MUMBAI OFFICE ON 11.10.2010. HOWE VER, THE ASSESSING OFFICER, CHENNAI ISSUED NOTICE UNDER SECTION 143(2) OF THE ACT ON 25.08.2011. DESPITE REPEATED OBJECTIONS FILED BY THE ASSESSEE W ITH THE CHENNAI OFFICER, HE HAS PROCEEDED TO PASS THE IMPUGNED ASSESSMENT ORDER ON 15.02.2013. HE SUBMITTED THAT THE COMMISSIONER OF INCOME TAX, MUMB AI HAS ALSO APPROVED THE TRANSFER ON 16.01.2013 AND THE IMPUGNED ASSESSM ENT ORDER HAS BEEN PASSED SUBSEQUENT TO THE SAID APPROVAL. THE ASSESSEE PLAC ED RELIANCE ON THE PROVISIONS OF SECTION 124(3) OF THE ACT AND SUBMITT ED THAT THE ASSESSING OFFICER COULD NOT HAVE PASSED THE ASSESSMENT ORDER, ONCE AN OBJECTION WAS RAISED BY THE ASSESSEE. THE LD. A.R. PLACED RELIAN CE ON THE DECISION RENDERED IN THE CASE OF JOGINDER SINGH VS. CIT (6 TAXMAN 245 ) P&H AND ITO VS. GURUDEV SINGH (2004) 86 TTJ CHD 861 AND SUBMITTED T HAT THE IMPUGNED ASSESSMENT ORDER IS BAD IN LAW AND DESERVED TO BE Q UASHED. 6. ON THE CONTRARY, THE LD. D.R. SUBMITTED THAT THE REAL ISSUE RELATES TO TRANSFER OF CASE OF THE ASSESSEE FROM ONE JURISDICT ION TO ANOTHER JURISDICTION FALLING UNDER THE CONTROL OF DIFFERENT COMMISSIONER S. THE LD D.R SUBMITTED THAT THE TRANSFER OF CASE WAS APPROVED BY CIT, MUMB AI AFTER PASSAGE OF CONSIDERABLE TIME SUBSEQUENT TO THE ISSUE OF NOTICE UNDER SECTION 143(2) OF THE ACT. SINCE THE JURISDICTION OF THE ASSESSEE WAS LY ING WITH THE ASSESSING OFFICER, CHENNAI AS PER DEPARTMENTS RECORD, HE HAS ISSUED THE NOTICE UNDER SECTION 143(2) OF THE ACT AND HAS COMPLETED THE ASS ESSMENT ON 15.02.2013. ACCORDINGLY, HE SUBMITTED THAT THE CONTENTION OF TH E LD A.R IS LIABLE TO REJECTED. 7. WE HEARD THE PARTIES ON THE ISSUE AND PERUSED TH E RECORDS. WE NOTICE THAT THE LD. CIT(A) HAS ADDRESSED THIS ISSUE IN THE FOLLOWING WAY AND ACCORDINGLY DISMISSED THE GROUND OF THE ASSESSEE. ITA NO.1435/M/2016 & ORS M/S. CREDIT SUISSE FINANCE (INDIA) P. LTD. 4 5.2 GROUND OF APPEAL NO.1 STATES THAT JURISDICTION OVER THE CASE DOES NOT LIE WITH ASSESSING OFFICER AND HENCE THE ORDER PASSED BY THE AO IS BAD IN LAW. FROM THE SUBMISSION OF THE APPELLANT IT IS SEEN THAT THE OFF ICE OF THE CIT MUMBAI CONVEYED ITS NO OBJECTION TO TRANSFER THE CASE FROM CIT CHEN NAI TO CIT MUMBAI VIDE LETTER DATED 16.01.2013. IT IS A FACT THAT UNLESS AN ORDER U/S 127 IS PASSED BY THE CONCERNED CIT, THE ASSESSING OFFICER CANNOT TRANSFE R THE CASE FROM ITS JURISDICTION TO ANOTHER JURISDICTION. THIS IS AN INTERNAL ADMINISTR ATIVE ISSUE WHICH CANNOT BE THE SUBJECT MATTER OF APPEAL. ASSESSING OFFICER HAS NO OPTION BUT TO COMPLETE THE ASSESSMENT BEFORE IT GETS TIME BARRED WHICH IS REAF FIRMED BY THE HON. ALLAHABAD HIGH COURT'S DECISION IN THE CASE OF HINDUSTAN TRAN SPORT COMPANY. THE APPELLANT HAS GIVEN THE DECISION OF HON'BLE PUN JAB & HARYANA HIGH COURT IN THE CASE OF JOGINDER SINGH V CIT ( 6 TAXMA N 245). THE DECISION IS GOVERNED BY SECTION 124(4)/( 5)(B) AND ASSESSMENT ORDER U/S 132(5), THIS DECISION IS DELIVERED ON 9.09.1980. SUBSEQUENTLY, HON'BLE HIGH COURT OF A LLAHABAD IN THE CASE OF HINDUSTAN TRANSPORT COMPANY HAS GIVING THE FINDING WHICH IS SQUARELY APPLICABLE IN THIS CASE. THE RELEVANT PARAS OF THE ORDER IS REPRO DUCED AS UNDER : THE VARIOUS INCOME-TAX AUTHORITIES ARE OF CO-ORDINA TE JURISDICTION. WHAT FUNCTION OR JUNCTIONS WHICH AUTHORITY OR OFFICER SH ALL PERFORM IS LEFT TO BE DECIDED EITHER BY THE BOARD OR BY THE COMMISSIONER. THE ACT DOES NOT INY DOWN THE PRINCIPLES FOR ALLOCATION OF FUNCTIONS BY THE BOARD AND THE COMMISSIONER. SECTION 127 PROVIDES THAT OPPORTUNITY OF HEARING MAY BE GIVEN TO THE ASSESSES WHILE TRANSFERRING A CASE FRO M ONE PLACE TO ANOTHER. SINCE THE ASSESSES DOES NOT SUFFER ANY INCONVENIENC E OR PREJUDICE IF A CASE IS TRANSFERRED LOCALLY, NO SUCH OPPORTUNITY HAS BEEN P RESCRIBED. THUS, THE BOARD AND THE COMMISSIONER WILL EXERCISE THE POWER OF ALL OCATION OF FUNCTIONS TO VARIOUS AUTHORITIES OR OFFICERS IN THE EXIGENCY OF TAX COLLECTION WITH DUE REGARD TO THE CONVENIENCE OF THE ASSESSEE. IN OTHER WORDS, THE ALLOCATION IS A MEASURE OF ADMINISTRATIVE CONVENIENCE, IN SUCH A SI TUATION, THE CONCEPT OF JURISDICTION CANNOT BE IMPORTED AND, CERTAINLY, NOT IN THE SENSE OF INVALIDATING THE RESULTANT ACTION ON ACCOUNT OF THE DEFECT IN THE EXERCISE OF FUNCTIONS. SUB-SECTION (5) OF SECTION 124 PLACES AN EMBARGO AG AINST RAISING OF THE PLEA OF JURISDICTION AFTER THE ASSESSMENT HAS BEEN COMPL ETED. IN THE INSTANT CASE, SINCE THE PETITIONER HAD FILED A RETURN OF INCOME, HIS CASE WOULD BE COVERED BY CLAUSE (A) OF SUB-SECTION (5) OF SECTION 124. SE CTION 124(5) (A) PROVIDES THAT THE RIGHT IS LOST AS SOON AS THE ASSESSMENT HA S BEEN COMPLETED. EVEN WHERE THE RIGHT IS EXERCISED BEFORE THE ASSESSMENT IS COMPLETED, THE QUESTION HAS TO BE DECIDED BY THE COMMISSIONER OR B Y THE BOARD, THEREFORE, THE PETITIONER'S PLEA THAT THE ASSESSMENT IN QUESTI ON WAS WITHOUT JURISDICTION HAD TO FAIL. FROM THE ABOVE PROVISIONS OF THE ACT, IT U>AS APPAR ENT THAT THE ACT DOES NOT TREAT THE ALLOCATION OF FUNCTIONS TO VARIOUS AUTHOR ITIES OR OFFICERS AS ONE OF SUBSTANCE. IT TREATS THE MATTER AS ONE OF PROCEDURE AND THE DEFECT OF PROCEDURE DOES NOT INVALIDATE THE END ACTION. ITA NO.1435/M/2016 & ORS M/S. CREDIT SUISSE FINANCE (INDIA) P. LTD. 5 THE POWER IS ADMINISTRATIVE AND PROCEDURAL AND IS T O BE EXERCISED IN THE INTEREST OF EXIGENCIES OF LAX COLLECTION AND A DEFE CT ARISING FROM THE ALLOCATION OF FUNCTIONS IS A MERE IRREGULARITY WHIC H DOES NOT AFFECT THE RESULTANT ACTION. IN VIEW OF THE ABOVE THE PETITION ER'S PLEA THAT THE ASSESSMENT WAS WITHOUT JURISDICTION COULD NOT SUCCE ED. THUS, IN THE LIGHT OF THIS DECISION, IT IS HELD THA T THE A.O. MAY HAVE COMMITTED AN IRREGULARITY BUT IN SPITE OF IT, THE ORDER CANNOT B E HELD TO BE BAD IN LAW. THUS, THE APPELLANT'S SUBMISSION IS NOT ACCEPTED. FIRST GROUN D OF APPEAL IS DISMISSED. 8. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE ASSESSEE WAS ORIGINALLY ASSESSED TO INCOME TAX IN CHENNAI. IT I S SUBMITTED BY LD. D.R. THAT THE JURISDICTION OF THE ASSESSING OFFICER WOULD BE CHANGED BY PASSING A TRANSFER ORDER UNDER SECTION 127 OF THE ACT AND THE APPROVAL HAS TO BE GIVEN BY BOTH THE COMMISSIONERS, WHEN THE TRANSFER TAKES PLA CE FROM THE JURISDICTION OF ONE COMMISSIONER TO THE JURISDICTION OF ANOTHER COM MISSIONER. AS PER THE SYSTEM PREVAILING IN INCOME TAX DEPARTMENT, THOUGH THE RETURN OF INCOME WAS FILED IN MUMBAI OFFICE, YET THE JURISDICTION REMAIN ED WITH CHENNAI ASSESSING OFFICER IN VIEW OF THE FACT THAT THE RETURN WAS FIL ED ELECTRONICALLY. SINCE THE CASE OF THE ASSESSEE WAS NOT TRANSFERRED TO BOMBAY OFFICER AS PER THE RECORD OF THE DEPARTMENT, THE ASSESSING OFFICER, CHENNAI HAS ISSUED A NOTICE UNDER SECTION 143(2) OF THE ACT. WE AGREE WITH THE SUBMI SSION OF LD D.R THAT THE ASSESSING OFFICER HAVING ORIGINAL JURISDICTION CAN BE RELIEVED OF THE CASE ONLY IF THE TRANSFER OF CASE IS DONE AS PER THE PROVISIO NS OF SECTION 127 OF THE ACT. IN THIS CASE, ACCORDING TO THE ASSESSEE, THE COMMISSIO NER OF INCOME TAX, MUMBAI HAS APPROVED THE TRANSFER ON 16.01.2013. THE DETAI LS OF ORDER PASSED BY COMMISSIONER OF INCOME TAX, CHENNAI ARE NOT AVAILAB LE ON RECORD. IN THE ABSENCE OF THE SAME, IT MAY NOT BE POSSIBLE TO ASCE RTAIN AS TO WHETHER THE CASE OF THE ASSESSEE WAS TRANSFERRED PRIOR TO PASSING OF ASSESSMENT ORDER. UNDER THESE SET OF CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE LD. CIT(A) WAS JUSTIFIED IN REJECTING THE CONTENTIONS OF THE ASSESSEE ON THI S ISSUE. 9. THE NEXT TWO ISSUES URGED BY THE ASSESSEE, WHICH ARE COMMON IN BOTH THE YEARS, RELATE TO DISALLOWANCE OF MARK TO MARKET LOSS ON THE VALUE OF CURRENT INVESTMENTS AND ALSO DISALLOWANCE OF REALISED LOSS ON SALE OF CURRENT ITA NO.1435/M/2016 & ORS M/S. CREDIT SUISSE FINANCE (INDIA) P. LTD. 6 INVESTMENTS. SINCE THE REASONING GIVEN BY THE AO F OR MAKING BOTH THE DISALLOWANCES IS COMMON, BOTH THE ISSUES ARE TAKEN UP AND ADDRESSED TOGETHER. 10. THE ASSESSEE IS REGISTERED WITH THE RESERVE BAN K OF INDIA AS A NON BANKING (NON DEPOSIT TAKING) FINANCIAL COMPANY. TH E ASSESSEE HAS INVESTED ITS FUNDS IN SECURITIES AND TREATED THE SAME AS ITS STOCK IN TRADE. ACCORDINGLY, AS AT THE YEAR END, THE ASSESSEE VALUED THE SECURIT IES AT COST OR MARKET PRICE WHICHEVER IS LESS. IN THIS PROCESS, THE VALUE OF CURRENT INVESTMENT AS AT THE YEAREND WAS FOUND TO HAVE DEPRECIATED BY RS.149.20 LAKHS AND 18.81 LAKHS RESPECTIVELY IN ASSESSMENT YEAR 2010-11 AND 2011-12 RESPECTIVELY. THE ASSESSEE CREATED PROVISION FOR DIMINUTION IN THE VA LUE OF SECURITIES AND CLAIMED THE SAME AS DEDUCTION. FURTHER, THE ASSESSEE HAD A LSO SOLD THE INVESTMENTS AND INCURRED LOSS OF RS.281.63 LAKHS AND RS.2051.70 LAK HS IN ASSESSMENT YEARS 2010-11 & 2011-12 RESPECTIVELY. THE ASSESSEE CLAIM ED THE SAME AS ITS TRADING LOSS. 11. THE ASSESSING OFFICER TOOK THE VIEW THAT THE AS SESSEE COMPANY HAS BEEN CLASSIFIED AS LOAN COMPANY BY RESERVE BANK OF IND IA AND FURTHER THE OBJECT CLAUSE OF THE COMPANY AS PER MEMORANDUM OF ASSOCIAT ION WAS TO CARRY ON THE BUSINESS OF MONEY LENDING, I.E., THE OBJECT OF THE COMPANY IS NOT TO ACT AS AN INVESTMENT COMPANY. ACCORDINGLY, THE ASSESSING OFF ICER TOOK THE VIEW THAT MAKING INVESTMENTS WAS NOT ACTIVITY OF THE ASSESSEE AND HENCE THE INVESTMENTS MADE BY THE ASSESSEE CANNOT BE CONSIDERED AS TRADIN G ASSETS, BUT SHOULD BE CONSIDERED AS ITS CAPITAL ASSET. ACCORDINGLY, HE TO OK THE VIEW THAT THE PROVISION FOR DIMINUTION IN VALUE OF INVESTMENTS AS AT THE YE AR END AND ALSO LOSS ON SALE OF INVESTMENTS ARE ON CAPITAL FIELD. THE ASSESSING OFFICER ALSO REFERRED TO THE QUERY RAISED BY RESERVE BANK OF INDIA (RBI) QUESTIO NING THE ASSESSEE FOR PARKING ITS FUNDS AS FIXED DEPOSITS WITH BANKS AND FURTHER QUESTIONING AS TO WHY THE REQUIRED PERCENTAGE OF PRINCIPAL BUSINESS W AS CARRIED OUT. THE AO FURTHER OBSERVED THAT THE MAKING INVESTMENTS IN SEC URITIES WAS NOT COMPULSORY FOR THE ASSESSEE, AS IT IS NON-DEPOSIT TAKING COMPA NY. FURTHER, AS PER THE ITA NO.1435/M/2016 & ORS M/S. CREDIT SUISSE FINANCE (INDIA) P. LTD. 7 PROVISIONS OF RBI ACT, THE ASSESSEE WAS NOT REQUIRE D TO MAKE ANY MANDATORY INVESTMENTS. ACCORDINGLY THE AO TOOK THE VIEW THAT THE INVESTMENTS MADE BY THE ASSESSEE CANNOT BE CONSIDERED AS PART OF ITS BU SINESS ACTIVITIES. THE AO FURTHER OBSERVED THAT THE ASSESSEE HAS SHOWN THE IN VESTMENT IN SECURITIES UNDER THE HEAD INVESTMENTS IN ITS BALANCE SHEET AND NOT AS CURRENT ASSETS. THE AO FURTHER NOTICED THAT A GROUP COMPANY NAMED M/S CRED IT SUISSE FIRST BOSTON (CYPRUS) LTD HAS TREATED THE SECURITIES PURCHASED B Y IT AS ITS INVESTMENT. HE FURTHER OBSERVED ACCORDINGLY HE HELD THAT THE DEDU CTION CLAIMED TOWARDS PROVISION FOR DIMINUTION IN THE VALUE OF SECURITIE S AND LOSS ON SALE OF SECURITIES ARE CAPITAL LOSSES IN THE HANDS OF THE ASSESSEE. ACCORDINGLY HE DISALLOWED BOTH THE CLAIMS. THE LD. CIT(A) ALSO CON FIRMED THE SAME. 12. DURING THE COURSE OF HEARING, THE ASSESSEE FILE D DETAILED SUBMISSION TO REVERT VARIOUS OBSERVATIONS MADE BY THE ASSESSING O FFICER. FOR THE SAKE OF CONVENIENCE WE EXTRACT BELOW THE WRITTEN SUBMISSION S FURNISHED BY THE ASSESSEE AFTER COMPLETION OF HEARING. DISALLOWANCE OF MARK - TO - MARKET AND REALISED LOSS ON CURRENT INVESTMENTS IT IS THE APPELLANT'S CASE THAT THE SECURITIES HELD BY IT HAVE BE SO HELD BY IT AS BUSINESS ASSETS, AS ITS STOCK, AND THEREFORE AS AT THE END OF THE YEAR IT IS REQUIRED TO VALUE SUCH STOCK AT COST OR MARKET VALUE WHICHEVER IS LOWER. ON SUCH A VALUATION, A LOSS OF RS 1,49,20,961 HAS RESULTED FOR AY 2010-11 AND OF RS 18,81,599 FOR AY 2011- 12. THIS LOSS IS AN ALLOWABLE DEDUCTION IN COMPUTIN G ITS BUSINESS INCOME FOR THE RESPECTIVE YEARS. THE APPELLANT SUBMITS AS UNDER: I. THE APPELLANT IS PERMITTED IN LAW TO HOLD AND TRADE IN SECURITIES AS ITS STOCK, II. THE APPELLANT HAS INDEED HELD THE SECURITIES AS ITS STOCK / BUSINESS ASSET. ONCE THAT IS SO THE LOSS ON SALE OF SUCH SECURITIES OUGHT TO BE ALLOWED AS A BUSINESS LOSS. III. INSOFAR AS THOSE SECURITIES WHICH ARE HELD AS AT TH E END OF THE YEAR, SUCH SECURITIES ARE LIABLE TO BE VALUED AT COST OR MARKE T VALUE WHICHEVER IS LOWER, AND THE RESULTANT LOSS, IF ANY, IS ALLOWABLE AS A D EDUCTION. TO SUBSTANTIATE EACH OF THE ABOVE ASSERTIONS, THE A PPELLANT SUBMITS AS UNDER: I. THE APPELLANT IS PERMITTED IN LAW TO HOLD A ND TRADE IN SECURITIES AS ITS STOCK. 1. NON-BANKING FINANCIAL COMPANIES ARE GOVERN ED UNDER CHAPTER IIIB OF THE RESERVE BANK OF INDIA ACT, 1933. AS PER SECTION 45IA NO NON-BANKING FINANCIAL COMPANY CAN COMMENCE ITS BUSINESS UNLESS IT IS REGISTERED AS ITA NO.1435/M/2016 & ORS M/S. CREDIT SUISSE FINANCE (INDIA) P. LTD. 8 PRESCRIBED UNDER THE SECTION. THE APPELLANT IS REGI STERED AS A NON-DEPOSIT- ACCEPTING NON-BANKING FINANCIAL INSTITUTION (NBFC) UNDER SECTION 45IA OF THE RESERVE BANK OF INDIA ACT, 1934 (RBI ACT) (CERT IFICATE OF REGISTRATION AT PAGE 200 OF THE PB OF AY 2010-11). 2. AS AN NBFC, SECTION 451 (A) READ WITH (C) LAYS DOWN THE BUSINESS THAT CAN BE CARRIED ON BY A NBFC. AS PER CLAUSE (II) THE REOF, THE APPELLANT IS PERMITTED TO CARRY ON THE BUSINESS OF TRADING IN SE CURITIES STOCK, BONDS, DEBENTURES OR SECURITIES ISSUED BY A GOVERNMENT OR LOCAL AUTHORITY OR OTHER MARKETABLE SECURITIES OF A LIKE NATURE. 3. THE AO RELIED ON CIRCULAR DATED DECEMBER 6, 2006 (ANNEXURE 2) TO HOLD THAT SINCE THE APPELLANT IS NOT AN INVESTMENT NBFC, THEREFORE, INVESTMENTS ARE NOT ITS BUSINESS. THE APPELLANT SUB MITS AS UNDER: A. THE SAID COMMUNICATION RELIED UPON BY AO M ODIFIES THE NBFC ACCEPTANCE OF PUBLIC DEPOSITS (RESERVE BANK) DIRECT IONS, 1998. B. SINCE THE APPELLANT IS NOT A DEPOSIT ACCEPTING NBFC, THE DIRECTIONS HAVE NO APPLICATION AND CONSEQUENTLY ANY MODIFICATION THERETO IS IRRELEVANT. II. THE APPELLANT HAS INDEED HELD THE SECURITI ES AS ITS STOCK / BUSINESS ASSET. ONCE THAT IS SO THE LOSS ON SALE OF SUCH SEC URITIES OUGHT TO BE ALLOWED AS A BUSINESS LOSS. 1. TREATMENT BY APPELLANT IN ITS ACCOUNTS AND ACCEPTANCE OF IT BY THE REVENUE: A. IT IS UNDISPUTED THAT IN THE BOOKS OF ACCO UNTS OF THE APPELLANT THE SECURITIES HELD / TRADED IN ARE TREATED AS ITS STOCK. B. IN THE TAX AUDIT REPORT THE APPELLANT HAS DECLARED ITS BUSINESS TO BE BUSINESS OF DEALING IN SECURITIES [PAGE 97, 9 8, 105, 116 OF THE PB (AY 2010-11), PAGE 58, 59, 66, 79-82 OF T HE PB (AY 2011-12)] C. THE INTEREST INCOME FROM SECURITIES EARNED D URING THE YEAR AMOUNTING TO RS 20.46 CRORES FOR AY 2010-11 AND RS 58.23 CRORES FOR AY 2011-12 HAS BEEN ASSESSED AS BUSINESS INCOME [PAGE 75 OF THE PB (AY 2010-11), PAGE 31 OF PB (AY 2011-12)]. D. THE EXPENSES INCURRED ON PURCHASE OF THESE SE CURITIES (I.E. BROKERAGE EXPENSE OF RS 1.58 LACS AND CUSTODIAL FEE S OF RS 25.92 LACS FOR AY 2010-11 AND BROKERAGE EXPENSE OF RS 12.94 LACS AND CUSTODIAL FEES OF RS 63.67 LACS FOR AY 201 1-12) HAVE BEEN ALLOWED AS BUSINESS EXPENDITURE [PAGE 76 OF PB (AY 2010-11), PAGE 32 OF PB (AY 2011-12)]. 2. ENQUIRY BY THE RESERVE BANK OF INDIA: ITA NO.1435/M/2016 & ORS M/S. CREDIT SUISSE FINANCE (INDIA) P. LTD. 9 THE REGULATOR OF NBFCS VIZ. THE RBI HAS ACCEPTED TH E HOLDING OF SECURITIES BY THE APPELLANT TO BE ON BUSINESS ACCOUNT, IN OTHER W ORDS ITS STOCK. THIS IS EVIDENT FROM THE FOLLOWING: A. AS PER CIRCULAR NO. 81 DATED 19 OCTOBER 2006, AN NBFC AS ITS PRINCIPAL BUSINESS SHOULD AT LEAST HOLD 50% OF ITS ASSETS IN FINANCIAL ASSETS AND AT LEAST 50% INCOME FROM FINANCIAL INCOM E. [PAGE 153 OF PB (AY 2011-12)] B. THE BALANCE SHEET OF THE APPELLANT AS ON 3 1 MARCH 2009 SHOWS RS 663 CRORES INVESTED IN FIXED DEPOSITS, MAKING TH EM THE PRIMARY ASSET [SCHEDULE TO THE FINANCIAL STATEMENTS AT PAGE 73 OF PB (AY 2010-11), PAGE 28 OF PB(AY 2011-12)]. C. FIXED DEPOSITS ARE NOT TREATED AS FINANCIA L ASSETS AS PER CIRCULAR 259 DATED 15 MARCH 2012 READ WITH SECTION 45L(C)(II ) OF THE RBI ACT, 1934 [CIRCULAR AT PAGE 245 OF PB (AY 2010-11), PAGE 155 OF PB (AY 2011-12)]. D. IN VIEW OF THE ABOVE, THE RBI ISSUED A NOT ICE TO THE APPELLANT UNDER SECTION 45N OF THE RBI ACT FOR NON-COMPLIANCE WITH CIRCULAR NO. 81 [NOTICE ISSUED BY RBI AT PAGE 213 OF PB (AY 2010-11), PAGE 293 OF PB (AY 2011-12)]. E. IN REPLY TO THE ABOVE NOTICE, THE APPELLAN T FILED RESPONSE [PAGE 215 OF PB (AY 2010-12), PAGE 297 OF PB (AY 2011-12) ] STATING THAT THE FIXED DEPOSITS HAD BEEN WITHDRAWN AND IN ITS ST EAD SECURITIES PURCHASED; AND FORWARDED ITS BALANCE SHEET AS AT 31 MARCH 2010 (SCHEDULES TO THE FINANCIAL STATEMENTS AT PAGE 72 A ND 73 OF PB (AY 2010-11), THE YEAR UNDER CONSIDERATION]. F. FURTHER, THE APPELLANT ALSO SUBMITTED ITS BUSINESS PLAN AND THE NECESSARY ACTION THAT IT HAS UNDERTAKEN TO COMPLY W ITH THE PROVISIONS OF SECTION 451 OF THE RBI ACT BY 31 MARC H 2010 [PAGE 233 OF PB (AY 2010-11)]. G. IN ADDITION TO THE ABOVE, THE APPELLANT WA S ALSO ASKED BY THE RBI TO FURNISH A CERTIFIED STATEMENT OF FINANCIAL A SSETS AND FINANCIAL INCOME ON 20 APRIL 2010 [PAGE 239 OF PB (AY 2010-11 ), PAGE 295 OF PB (AY 2011-12)]. THE APPELLANT FILED A CERTIFIED S TATEMENT [PAGE 242 OF PB (AY 2010-11), PAGE 296 OF PB (AY 2011-12)]. THE AFORESTATED CHANGE IN HOLDING HAS BEEN ACCEPTED BY THE RBI AS BEING IN COMPLIANCE WITH ITS NORMS, THEREBY ESTABLISHING THA T THE SECURITIES WERE HELD AS A PART OF ITS PRINCIPAL BUSINESS AND NOT AS INVESTMENTS ON CAPITAL ACCOUNT. 3. THE ACTUAL MANNER IN WHICH THE SECURITIES H AVE BEEN HELD AND DEALT WITH: A. THE DETAILS OF SECURITIES PURCHASED, SOLD AND HELD BY THE APPELLANT DURING THE YEAR IS TABULATED AT PAGE 116 OF THE PB FOR AY 2010-11 AND PAGE 79-82 OF THE PB FOR AY 2011-12. B. THE APPELLANT HAS FROM THE AFOREMENTIONED T ABLE MADE SOME CRUCIAL ANALYSIS THAT WILL SUPPORT ITS SUBMISSION O F HAVING HELD THE SECURITIES ON TRADE ACCOUNT. THE ANALYSIS IS AN NEXED HERETO AND MARKED ANNEXURE 3. ITA NO.1435/M/2016 & ORS M/S. CREDIT SUISSE FINANCE (INDIA) P. LTD. 10 C. FACTORS SUCH AS MAGNITUDE, FREQUENCY, RATIO OF SALES TO PURCHASES COULD BE RELEVANT IN ORDER TO DECIDE WHET HER THE INVESTMENTS ARE IN THE NATURE OF CAPITAL OR BUSINES S: I. SUTLEJ COTTON MILLS [100 ITR 706 (SC)] II. PVS RAJU [340 ITR 75(AP)] D. THE VOLUME/ FREQUENCY WITH WHICH THE SECUR ITIES ARE DEALT WITH ALSO SUPPORT THE CATEGORISATION BY THE APPELLA NT. RELIANCE IS PLACED ON THE FOLLOWING DECISIONS: I. RADIALS INTERNATIONAL [367 ITR 1 (DEL)] II. SADHANA NABERA [2586/MUM/2009] THE ANNEXURE 3 SUBMITTED WITH YOUR HONOURS DURING T HE HEARING PROVIDES THE VOLUME AND FREQUENCY OF THE DEALING IN SECURITIES BY THE APPELLANT WHICH SUPPORT IT'S CONTENTION THAT THE SE CURITIES WERE HELD AS CURRENT INVESTMENTS. III. INSOFAR AS THOSE SECURITIES WHICH ARE HEL D AS AT THE END OF THE YEAR, SUCH SECURITIES ARE LIABLE TO BE VALUED AT COST OR MARKET VALUE WHICHEVER IS LOWER, AND THE RESULTANT LOSS, IF ANY, IS ALLOWABLE AS A DEDUCTION. 1. THE HON'BLE SUPREME COURT IN CHAINRUP SAMPA TRAM [28 ITR 481 (SC)] HAS SETTLED THE LAW ON VALUATION OF STOCK AND HAS HELD THAT STOCK NEEDS TO BE VALUED AT COST OR MARKET VALUE WH ICHEVER IS LOWER AND IF SUCH VALUATION RESULTS INTO A LOSS, THE SUCH LOSS, ALBEIT NOTIONAL, WILL BE TAKEN INTO ACCOUNT. 2. THE ABOVE VIEW WAS REITERATED BY THE HON'BL E SUPREME COURT, THIS TIME IN THE CONTEXT OF BANKS, IN THE CASE OF U CO BANK [240 ITR 355 (SC)] WHERE THE HON'BLE SUPREME COURT HELD THAT THE LOSS ARISING ON ACCOUNT OF SUCH VALUATION WAS ALLOWABLE AS A DED UCTION IN COMPUTING PROFITS. THIS DECISION HAS BEEN FOLLOWED BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF BANK OF BARODA [26 2 ITR 334 (BOM)]. 3. MOREOVER, AS PER PARAGRAPH 6(L)(D)(IV) AND 6(2) OF THE NON- BANKING FINANCIAL NON-DEPOSIT ACCEPTING OR HOLDING) COMPANIES PRUDENTIAL NORMS (RESERVE BANK) DIRECTIONS, 2007 [P AGE 248, 250, 256 OF PB (AY 2010-11), PAGE 158, 160, 166 OF PB (A Y 2011-12)] THE APPELLANT IS REQUIRED TO VALUE THE SECURITIES ON TH E BASIS OF COST OR MARKET VALUE WHICHEVER IS LOWER AND RECOGNISE RESUL TANT LOSS IF ANY. REBUTTAL TO THE AO'S FINDINGS IN THE ASSESSMENT ORD ER: A. APPELLANT HAS CLASSIFIED SECURITIES UNDER 'CURRENT INVESTMENTS'. THE ASSESSING OFFICER HOLDS THAT SINCE THE APPELLAN T HAS ITSELF CLASSIFIED THE SECURITIES HELD AS INVESTMENT BY DISCLOSING THE SEC URITIES HELD UNDER THE HEAD 'CURRENT INVESTMENTS' IN ITS BALANCE SHEET, THE APP ELLANT CANNOT NOW BE ALLOWED TO CONTEND THAT THE SECURITIES ARE HELD AS ITS STOCK O R BUSINESS ASSET. ITA NO.1435/M/2016 & ORS M/S. CREDIT SUISSE FINANCE (INDIA) P. LTD. 11 THE APPELLANT SUBMITS AS UNDER: I. THE SECURITIES HELD BY IT ARE DISCLOSED UNDER THE C APTION OF CURRENT INVESTMENTS. IT IS CLARIFIED THAT SUCH CLASSIFICATI ON IS AS PRESCRIBED IN THE FORMAT OF THE BALANCE SHEET AS NOTIFIED BY THE RBI VIDE NOTIFICATION NO.193 DATED 22 FEBRUARY 2007 BY THE R BI [PAGE 248 TO 275 OF THE PB CAY 2010-11), PAGE 158 TO 189 OF PB ( AY 2011-12)]. II. THE APPELLANT RELIES ON THE DECISION OF THE HON'BLE HYD. BENCH OF THE ITAT IN THE CASE OF PENINSULAR INVESTMENTS [120 TTJ 96 (HYD)] AFFIRMED BY THE HIGH COURT (213 TAXMAN 327), WHICH HELD THAT CLASSIFICATION UNDER THE HEAD 'CURRENT INVESTMENTS' DOES NOT MEAN THAT THE SECURITIES ARE HELD ON CAPITAL ACCOUNT AND THAT THE SECURITIES HELD BY THE NBFC (VIZ. PENINSULAR INVESTMENTS) WERE ITS STOCK. B. NO RELIANCE CAN BE PLACED ON THE NON-BANKIN G FINANCIAL NON-DEPOSIT ACCEPTING OR HOLDING) COMPANIES PRUDENTIAL NORMS (R ESERVE BANK) DIRECTIONS, 2007 THE ASSESSING OFFICER HOLDS THAT INSOFAR AS RELIANC E ON PARAGRAPH 6(L)(D)(IV) AND 6(2) OF THE NON-BANKING FINANCIAL NON-DEPOSIT ACCEPTING OR HOLDING) COMPANIES PRUDENTIAL NORMS (RESERVE BANK) DIRECTIONS, 2007, T HE SAID DIRECTIONS ARE ONLY PRUDENTIAL NORMS AND DO NOT AFFECT COMPUTATION OF I NCOME UNDER THE INCOME-TAX ACT, 1961. THE ASSESSING OFFICER RELIES ON THE DECI SION IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. [(2010) 187 TAXMAN 346] IN SUPPOR T. THE APPELLANT SUBMITS AS UNDER: I. THE DECISION IN THE CASE OF SOUTHERN TECHNOLOGIE S LTD. [(2010) 187 TAXMAN 346] HAS NO APPLICATION IN AS MUCH AS THE HON'BLE S UPREME COURT IN THAT CASE WAS CONCERNED WITH APPLICABILITY OF THE PRUDEN TIAL NORMS TO THE EXTENT THEY WERE CONTRARY TO THE PROVISIONS OF THE ACT. IN THAT CASE THE PRUDENTIAL NORMS REQUIRED THE PROFITS OF THE YEAR TO BE REDUCE D BY A PROVISION MADE FOR DOUBTFUL DEBTS. SIMILAR DEDUCTION WAS CLAIMED B Y SOUTHERN TECHNOLOGIES LTD. IN COMPUTING ITS INCOME UNDER THE ACT. THE HON 'BLE SUPREME COURT HELD THAT THE REQUIREMENT OF THE PRUDENTIAL NORMS CANNOT OVERRIDE A SPECIFIC PROHIBITION CONTAINED IN THE ACT AND HENCE THE DEDU CTION WAS HELD NOT TO BE ALLOWABLE. IN THE PRESENT CASE, VALUATION OF CURREN T INVESTMENTS HELD AS BUSINESS ASSETS (STOCK) AT COST OR MARKET VALUE WHI CHEVER IS LOWER IS CONSISTENT WITH THE ACT AND THE AFORE CITED DECISIO NS OF CHAINRUP SAMPATRAM [28ITR 481 (SO], UCO BANK [240 ITR 355 (S O] AND BANK OF BARODA [262 ITR 334 (BOM)]. II. THE HON'BLE DELHI HIGH COURT HAS IN THE CASE OF VASHISTH CHAY VYAPAR [330 ITR 440 (DEL)] APPROVED OF THE AFOREMENTIONED DISTI NCTION. C. WHILE THE APPELLANT CLAIMS SECURITIES ARE H ELD ON TRADE ACCOUNT, ITS GROUP CONCERN VIZ. CREDIT SUISSE FIRST BOSTON CLAIMS THAT SECURITIES CLAIMED ARE ON CAPITAL ACCOUNT. THE ASSESSING OFFICER RELIES ON THE DECISION IN THE CASE OF CREDIT SUISSE FIRST BOSTON [23 TAXMANN.COM 424 (BOM)] TO HOLD THAT THE APPELLANT IS ADOPTING ITA NO.1435/M/2016 & ORS M/S. CREDIT SUISSE FINANCE (INDIA) P. LTD. 12 SHIFTING/CONVENIENT STANDS IN CHARACTERISING SECURI TIES HELD. THE ASSESSING OFFICER RELYING ON THE AFORESAID DECISION HELD THAT WHILE THE APPELLANT CLAIMS SECURITIES ARE HELD ON TRADE ACCOUNT, ITS GROUP CON CERN VIZ. CREDIT SUISSE FIRST BOSTON CLAIMS THAT SECURITIES CLAIMED ARE ON CAPITA L ACCOUNT. THE APPELLANT SUBMITS AS UNDER: I. THE DECISION IN THE CASE OF CREDIT SUISSE FIRST BOSTON [23 TAXMANN.COM 424 (BOM)] IS WHOLLY INAPPLICABLE AS IN THAT CASE THE ASSESSEE THERE WAS A FOREIGN INSTITUTIONAL INVEST (FII) AND AS AN FLL, IT WAS PR OHIBITED FROM TRADING IN SECURITIES. II. THAT FITS ARE PROHIBITED FROM CARRYING ON BUSIN ESS IN INDIA, AND, THEREFORE PROHIBITED IN TRADING OF SECURITIES, AS HAS BEEN RE COGNISED BY THE HON'BLE TRIBUNAL IN THE CASE OF PLATINUM INVESTMENT (33 TAXMANN.COM 298) 13. WE HEARD RIVAL CONTENTIONS ON THESE ISSUES AN D PERUSED THE RECORD. THE ASSESSEE CLAIMED THAT IT IS HOLDING THE INVESTMENTS AS ITS TRADING ASSETS AND ACCORDINGLY CLAIMED BOTH THE DEDUCTIONS REFERRED AB OVE. THE AO, ON THE CONTRARY, PLACED RELIANCE ON THE CLASSIFICATION OF COMPANY BY RBI AND ALSO RELIED UPON THE SHOW CAUSE NOTICE ISSUED BY THE RBI FOR SUPPORTING HIS VIEW THAT THE ASSESSEES BUSINESS ACTIVITIES CANNOT BE C ONSIDERED AS MAKING INVESTMENTS. THE AO HAS ALSO OBSERVED THAT THE ASS ESSEE HAS SHOWN THE INVESTMENTS MADE IN SECURITIES AS INVESTMENTS IN THE BALANCE SHEET AND NOT AS CURRENT ASSETS. SINCE THE ASSESSEE IS NOT ENTIT LED TO ACCEPT PUBLIC DEPOSITS, THE AO HAS ALSO TAKEN THE VIEW THAT THERE IS NO MAN DATORY REQUIREMENT FOR MAKING INVESTMENTS HE FURTHER NOTICED THAT A GROUP COMPANY OF THE ASSESSEE NAMED M/S CREDIT SUISSE FIRST BORSTON (CYPRUS) LTD HAS SHOWN PURCHASE OF SECURITIES AS ITS INVESTMENTS. ACCORDINGLY, THE AO HAS TAKEN THE VIEW THAT THE INVESTMENTS MADE BY THE ASSESSEE SHOULD BE CONSIDER ED AS CAPITAL ASSETS AND ACCORDINGLY REJECTED THE BOTH THE CLAIMS. 14. HOWEVER, A PERUSAL OF DETAILED REPLY GIVEN B Y THE ASSESSEE WOULD SHOW THAT THE ASSESSING OFFICER HAS NOT CORRECTLY INTERP RETED THE PROVISIONS OF RBI ACT. THE ASSESSEE HAS SUBMITTED THAT , AS PER THE PROVISIONS OF SEC.45I(C) OF THE RBI ACT, IT IS PERMITTED TO CARRY ON THE BUSINE SS OF TRADING IN SECURITIES. THE ASSESSEE HAS ALSO POINTED OUT THAT THE CIRCULAR DATED 06-12-2006 RELIED UPON BY THE AO RELATES TO THE NBFC WHICH ACCEPT DEP OSITS. SINCE THE ASSESSEE ITA NO.1435/M/2016 & ORS M/S. CREDIT SUISSE FINANCE (INDIA) P. LTD. 13 DID NOT ACCEPT DEPOSITS, THE SAID CIRCULAR IS NOT A PPLICABLE TO THE ASSESSEE. WITH REGARD TO THE QUERY RAISED BY THE RBI BY WAY O F SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED THAT FIXED DEPOSITS HELD BY THE ASSESSEE WAS NOT CONSIDERED AS FINANCIAL INSTRUMENTS AND HENCE THE RBI HAS GIVE N SHOW CAUSE NOTICE. SUBSEQUENTLY, IT HAS WITHDRAWN THE FIXED DEPOSITS A ND HAS MADE INVESTMENT IN SECURITIES. THE SAID MODIFICATION DONE BY THE ASSE SSEE HAS BEEN ACCEPTED BY RBI, MEANING THEREBY, THE RBI DOES NOT HAVE ANY OBJ ECTION IN PURCHASING SECURITIES AND HOLDING THE SAME AS STOCK IN TRADE. WITH REGARD TO THE OBSERVATION OF THE AO THAT THE ASSESSEE HAS SHOWN T HE INVESTMENTS AS INVESTMENTS IN THE BALANCE SHEET, THE ASSESSEE HA S SUBMITTED THAT IT WAS CONSTRAINED TO PREPARE BALANCE SHEET AS PER THE FOR MAT PRESCRIBED BY THE RBI. FURTHER THE ASSESSEE HAS ALSO PLACED ITS RELIANCE O N THE DECISION RENDERED BY HYDERABAD BENCH OF TRIBUNAL IN THE CASE OF PENINSUL AR INVESTMENTS (120 TTJ 96)(HYD), WHICH HAS SINCE BEEN APPROVED BY THE HON BLE ANDHRA PRADESH HIGH COURT REPORTED IN 213 TAXMAN 327, WHEREIN IT W AS HELD THAT THE CLASSIFICATION OF SECURITIES UNDER THE HEAD CURREN T INVESTMENTS DOES NOT MEAN THAT THE SECURITIES ARE HELD ON CAPITAL ACCOUNT AND THE SECURITIES HELD BY THE ASSESSEE BEING NBFC WERE ITS STOCK. 15. THE AO HAD TAKEN THE VIEW THAT THE GROUP CONC ERN OF THE ASSESSEE NAMED CREDIT SUISSE FIRST BOSTON (CYPRUS) LTD HAD SHOWN T HE SECURITIES AS ITS INVESTMENT, WHILE THE ASSESSEE IS CLAIMING ITS INVE STMENT AS TRADING ASSETS. ACCORDINGLY, THE AO HAS TAKEN THE VIEW THAT THE ASS ESSEE IS ADOPTING DIFFERENT STANDS TO SUIT ITS CONVENIENCE IN CHARACTERISING TH E SECURITIES HELD. THE LD A.R SUBMITTED THAT THE ABOVE SAID GROUP COMPANY IS A FO REIGN INSTITUTIONAL INVESTOR (FII) AND THE FIIS ARE PROHIBITED FROM TRADING IN S ECURITIES, I.E., THEY ARE PROHIBITED FROM CARRYING ON BUSINESS IN INDIA, WHIC H WAS NOTED DOWN BY THE TRIBUNAL IN THE CASE OF PLATINUM INVESTMENT (33 TAX MANN.COM 298). ACCORDINGLY, THE LD A.R SUBMITTED THAT THE AO WAS N OT CORRECT IN LAW IN TAKING SUPPORT FROM THE FACTS AVAILABLE IN THE ABOV E SAID GROUP COMPANY. ITA NO.1435/M/2016 & ORS M/S. CREDIT SUISSE FINANCE (INDIA) P. LTD. 14 16. THE ASSESSEE HAS FURNISHED THE DETAILS OF SE CURITIES PURCHASED, SOLD AND HELD BY THE ASSESSEE AT PAGE 116 OF THE PAPER BOOK FILED FOR AY 2010-11 AND AT PAGES 79-82 OF THE PAPER BOOK FILED FOR AY 2011-12. THE LD A.R SUBMITTED THAT THE VOLUME, FREQUENCY, RATIO OF SALES TO PURCH ASES WOULD SHOW THAT THE ASSESSEE WAS CARRYING TRADING ACTIVITY IN INVESTMEN TS. THE ASSESSEE HAS PLACED ITS RELIANCE ON THE DECISION RENDERED BY HONBLE SU PREME COURT IN THE CASE OF SUTLEJ COTTON MILLS (SUPRA), THE DECISION RENDERED BY HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF PVS RAJU (SUPRA), THE DEC ISION RENDERED BY HONBLE DELHI HIGH COURT IN THE CASE OF RADIALS INTERNATION AL (SUPRA) AND THE DECISION RENDERED BY MUMBAI BENCH OF TRIBUNAL IN THE CASE OF SADHANA NABERA (SUPRA). 17. BEFORE US, THE LD D.R PLACED HIS RELIANCE O N THE DECISION RENDERED BY HONBLE DELHI HIGH COURT IN THE CASE OF MODERATE LE ASING & CAPITAL SERVICES LTD (2012)(19 TAXMANN.COM 164)(DELHI) AND THE DECIS ION RENDERED BY CHENNAI BENCH OF TRIBUNAL IN THE CASE OF REPCO HOME FINANCE LTD (2018)(92 TAXMANN.COM 230). IT IS THE CONTENTION OF THE ASSE SSEE THAT BOTH THE DECISIONS RELIED UPON BY THE LD D.R HAVE BEEN RENDERED ON DIF FERENT SET OF FACTS AND HENCE THE SAME CANNOT BE TAKEN SUPPORT OF. THE WRI TTEN SUBMISSION MADE BY THE WITH REGARD TO THE ABOVE SAID TWO CASE LAWS ARE EXTRACTED BELOW:- A. MODERATE LEASING & CAPITAL SERVICES LTD. (2012) 19 TAXMANN.COM 164 (DELHI): I. THIS WAS A CASE WHERE THE ASSESSEE THEREIN HELD TWO PORTFOLIOS, ONE INVESTMENT AND THE OTHER STOCK. THE ASSESSEE SOLD S HARES FROM THE INVESTMENT PORTFOLIO AND CLAIMED THE LOSS ON SUCH S ALE AS BUSINESS LOSS. THE HON'BLE HIGH COURT HELD THAT 'WHEN TWO PORTFOLIOS ARE MAINTAINED AND SHARES IN QUESTION ARE SHOWN IN INVESTMENT PORTFOLI O, THAT WOULD BE A VERY DOMINANT FACTOR DISCLOSING THE INTENTION OF THE ASS ESSEE AS FAR AS S HARES IN QUESTION ARE CONCERNED. ' II. THE ABOVE FACT PATTERN IS COMPLETELY DISTINGU ISHABLE FROM THE FACTS OF OUR CASE. IN THE CASE CITED THE ASSESSEE TOOK DIFFE RENT STAND IN ITS BOOKS AND THAT FOR INCOME-TAX PURPOSES AND CONSEQUENTLY THE P LEA OF THE ASSESSEE THEREIN WAS REJECTED. WHERE AS IN THE CASE BEFORE Y OUR HONOURS THE ASSESSEE HAS IN ACCOUNTS AS WELL AS IN ITS FILINGS BEFORE THE INCOME-TAX AUTHORITIES TREATED THE SECURITIES HELD AS ITS STOC K (CURRENT INVESTMENTS) AND VALUED THEM AT COST OR MARKET VALUE WHICHEVER IS LO WER. ITA NO.1435/M/2016 & ORS M/S. CREDIT SUISSE FINANCE (INDIA) P. LTD. 15 B. REPCO HOME FINANCE LTD. (2018) 92 TAXMANN.C OM 230 (CHENNAI TRIB.): I. IN THE CASE THE FACTS FOUND BY THE HON'BLE TRI BUNAL WERE - '9. ... AS SEEN FROM THE FACTS OF THE CASE, THE ASSESSEE WA S ENGAGED IN THE HOUSING FINANCE ACTIVITY AND NOT AT ALL ENGAGED IN TRADING IN SHARES. THE BUYING OF THE SHARES WAS ONLY THE INTENTION OF HOLD ING IT AS AN INVESTMENT. THE ASSESSEE HAS NO INTENTION TO TRADE IN SHARES. 9.1 THE INVESTMENT IN SHARES ARE CLASSIFIED AS LONG TERM INVESTMENTS OR CURRENT INVESTMENT AND LONG TERM INVESTMENTS ARE VA LUED ON HISTORICAL COST METHOD. ON THE OTHER HAND, CURRENT INVESTMENTS ARE VALUED AT COST OR MARKET VALUE WHICHEVER IS LOWER. IN OTHER WORDS, IN VESTMENT IN SHARES WERE NOT AT ALL CONSIDERED AS STOCK IN TRADE AS THE ASSE SSEE WAS NOT DEALING IN SHARES. ONCE THE SHARES ARE TREATED AS INVESTMENTS, LOSS ARISING OUT OF PURCHASE AND SALE OF SHARES IS ONLY A CAPITAL LOSS AND IT IS NOT A BUSINESS LOSS. IN OTHER WORDS, ASSESSEE HAVING CARRIED ON NO BUSIN ESS ACTIVITY AND TREATED THE SHARES AS INVESTMENTS FROM YEAR TO YEAR, INCOME OR LOSS ARISING OUT OF SALE OF SUCH TREATMENT ACCORDED TO IT BY THE ASSESS EE IN ITS RETURN OF INCOME; CONTRARY TO THE TREATMENT GIVING IN THE BOOKS OF ACCOUNTS . HENCE THIS GROUND OF APPEAL OF ASSESSEE STANDS REJECTED.' (EMPHASIS SUPPLIED) II. THE ABOVE FACT PATTERN IS COMPLETELY DISTINGUISHABL E FROM THE FACTS OF OUR CASE. IN THE CASE CITED THE ASSESSEE TOOK DI FFERENT STAND IN ITS BOOKS AND THAT FOR INCOME-TAX PURPOSES AND CONSEQUENTLY T HE PLEA OF THE ASSESSEE THEREIN WAS REJECTED. WHERE AS IN THE CASE BEFORE Y OUR HONOURS THE ASSESSEE HAS IN ACCOUNTS AS WELL AS IN ITS FILINGS BEFORE THE INCOME-TAX AUTHORITIES TREATED THE SECURITIES HELD AS ITS STOC K (CURRENT INVESTMENTS) AND VALUED THEM AT COST OR MARKET VALUE WHICHEVER IS LOWER. 18. ON HEARING RIVAL CONTENTIONS, WE ARE OF THE VIEW THAT THERE IS MERIT IN THE SUBMISSIONS MADE BY THE ASSESSEE, AS THE VARIOUS PO INTS NOTED DOWN BY THE ASSESSING OFFICER HAS RIGHTLY BEEN ADDRESSED BY THE ASSESSEE. BOTH THE CASE LAWS RELIED UPON BY LD D.R HAVE BEEN RENDERED ON DI FFERENT SET OF FACTS AND HENCE THEY CANNOT BE TAKEN SUPPORT BY THE REVENUE. ACCORDINGLY WE HOLD THAT THE ASSESSEE HAS HELD THE SECURITIES AS ITS TRADING ASSETS ONLY. 19. THE ASSESSEE HAS PLACED ITS RELIANCE ON THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE CASE OF CHAINRUP SAMPATRAM (28 ITR 481)(SC) TO SUBMIT THAT THE STOCK IN TRADE HAS TO BE VALUED AT COST OR MARKET VALUE, WHICHEVER IS LESS. IT WAS SUBMITTED THAT THE ABOVE SAID PRINCIPLE WAS REITERATED BY HONBLE SUPREME COURT IN THE CASE OF UCO BANK (2 40 ITR 355)(SC) AND IT WAS FURTHER HELD THAT THE LOSS ARISING ON ACCOUNT O F VALUATION OF CLOSING STOCK IS ITA NO.1435/M/2016 & ORS M/S. CREDIT SUISSE FINANCE (INDIA) P. LTD. 16 ALLOWABLE AS DEDUCTION. THE ABOVE SAID DECISION WA S FOLLOWED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF BANK OF BARODA (26 2 ITR 334). THE LD A.R SUBMITTED THAT THE RBI CIRCULAR (PAPER BOOK PAG ES 248, 250 AND 256 OF AY 2010-11) ALSO REQUIRES THAT SECURITIES SHOULD BE VALUED ON THE BASIS OF COST OR MARKET VALUE, WHICHEVER IS LOWER AND SHOULD RECO GNISE THE RESULTANT LOSS, IF ANY. HENCE, WE ARE OF THE VIEW THAT THE PROVISION FOR DIMINUTION IN THE VALUE OF INVESTMENTS IS ALLOWABLE AS DEDUCTION AS PER THE PRINCIPLE LAID DOWN BY THE HONBLE SUPREME COURT IN THE ABOVE SAID CASES. ACC ORDINGLY, WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE IN BOTH THE YEARS UNDER CONSIDERATION AND DIRECT THE AO TO ALLOW THE CLAIM OF THE ASSESSE E IN BOTH THE YEARS. 20. SINCE WE HAVE HELD THAT THE INVESTMENTS HELD BY THE ASSESSEE AS TRADING ASSETS, THE REALISED LOSS ON SALE OF INVESTMENTS SH ALL CONSTITUTE BUSINESS LOSS ONLY IN THE HANDS OF THE ASSESSEE. ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE IN BOTH THE YEARS UNDER CONSIDERATION AND DIRECT THE AO TO ALLOW THE DEDUCTION OF THE SAME IN BOTH THE Y EARS. 21. WE SHALL NOW TAKE UP THE APPEALS FILED BY THE REVENUE, WHEREIN THE REVENUE IS CHALLENGING THE DECISION OF LD CIT(A) IN HOLDING THAT THE INTEREST ACCRUED BUT NOT DUE IS NOT TAXABLE. 22. THE AO NOTICED THAT, IN THE YEAR RELEVANT TO AY 2010-11, THE ASSESSEE HAS PAID BROKEN PERIOD INTEREST WHILE PURCHASING TH E SECURITIES THAT HAS ACCRUED UPTO THE DATE OF PURCHASE OF SECURITIES TO THE TUNE OF RS.75.14 LAKHS. THE AO ALSO NOTICED THAT THE ASSESSEE HAS CREDITED ITS PRO FIT AND LOSS ACCOUNT WITH RS.1010.10 LAKHS, BEING THE INTEREST ACCRUED BUT NO T DUE. THUS, THE NET INTEREST INCOME WAS RS.934.96 LAKHS FOR AY 2010-11. IN RESP ECT OF SECURITIES, THE INTEREST IS PAYABLE ONLY ON COUPON DATE. HENCE, AT THE TIME OF PURCHASE/SALE OF SECURITIES, THE INTEREST ACCRUED FROM THE PREVIOUS COUPON DATE TO THE DATE OF PURCHASE/SALE IS DEDUCTED/COLLECTED FROM THE SALE C ONSIDERATION. SINCE THE ITA NO.1435/M/2016 & ORS M/S. CREDIT SUISSE FINANCE (INDIA) P. LTD. 17 INTEREST WAS PAYABLE ONLY ON COUPON DATE, THE ASSES SEE IS FOLLOWING THE SYSTEM OF OFFERING INTEREST INCOME ON COUPON DATE, EVEN TH OUGH IT ACCOUNTED BROKEN PERIOD INTEREST PAID ON PURCHASE OF SECURITIES AND ALSO RECOGNISED INTEREST ACCRUED BUT NOT DUE ON SECURITIES HELD BY IT, AS IT S INCOME. HENCE,FOR THE PURPOSE OF INCOME TAX, THE ASSESSEE EXCLUDED BOTH T HE ITEMS, I.E., BOTH CLAIM OF BROKEN PERIOD INTEREST DEBITED TO P & L ACCOUNT AND THE INTEREST ACCRUED BUT NOT DUE CREDITED TO PROFIT AND LOSS ACCOUNT WHILE COMPUTING TOTAL INCOME, I.E., IN EFFECT, THE NET INTEREST OF RS.934.96 LAKH S WAS EXCLUDED FROM THE PROFIT AND CONSEQUENTLY NOT OFFERED AS INCOME,. THE AO TO OK THE VIEW THAT THE INTEREST ACCRUES ON TIME BASIS AND ACCORDINGLY TOOK THE VIEW THAT THE ASSESSEE SHOULD HAVE OFFERED THE ABOVE SAID AMOUNT AS ITS IN COME. THE ASSESSEE HAD PLACED ITS RELIANCE ON THE DECISION RENDERED BY ITA T SPECIAL BENCH IN THE CASE OF DCIT VS. BANK OF BAHRAIN (ITA NO.4404 & 1883/MUM /2004). THE AO, HOWEVER, TOOK THE VIEW THAT THE PROVISIONS OF SEC.1 45 HAVE BEEN AMENDED WITH EFFECT FROM 1.4.1997 AND THE ASSESSEES CAN NO LONGE R FOLLOW HYBRID SYSTEM OF ACCOUNTING AND HENCE THE ASSESSEE IS MANDATORILY RE QUIRED TO FOLLOW MERCANTILE SYSTEM OF ACCOUNTING. THE AO ACCORDINGLY EXPRESSED THE VIEW THAT THE TRIBUNAL, IN THE ABOVE SAID CASE, DID NOT TAKE NOTE OF AMENDMENT BROUGHT INTO SEC. 145 OF THE ACT. ACCORDINGLY HE ASSESSED THE INTEREST ACCRUED BUT NOT DUE AMOUNTING TO RS.934.96 LAKHS AS INCOME OF THE ASSES SEE FOR AY 2010-11. ON IDENTICAL REASONING, THE AO ASSESSED RS.273.00 LAKH S AS INCOME OF THE ASSESSEE IN AY 2011-12. 23. THE LD CIT(A) NOTICED THAT AN IDENTICAL ISS UE HAS BEEN CONSIDERED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF DIT (INTER NATIONAL TAXATION) VS. CREDIT SUISSE FIRST BOSTON (CYPRUS) LTD (23 TAXMANN .COM 424), WHEREIN IT WAS HELD THAT WHEN AN INSTRUMENT OR AN AGREEMENT STIPUL ATES THAT INTEREST SHALL BE PAYABLE AT A SPECIFIED DATE, INTEREST DOES NOT ACCR UE TO HOLDER THEREOF ON ANY DATE PRIOR THERETO. ACCORDINGLY, FOLLOWING THE ABO VE SAID BINDING DECISION OF JURISDICTIONAL HIGH COURT, THE LD CIT(A) DELETED TH E ADDITION MADE BY THE AO ITA NO.1435/M/2016 & ORS M/S. CREDIT SUISSE FINANCE (INDIA) P. LTD. 18 IN BOTH THE YEARS ON ACCOUNT OF INTEREST ACCRUED BU T NOT DUE. THE REVENUE IS AGGRIEVED. 24. WE HEARD THE PARTIES ON THIS ISSUE AND PERU SED THE RECORD. WE NOTICE THAT THE LD CIT(A) HAS FOLLOWED THE BINDING DECISIO N RENDERED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF CREDIT SUISSE FIRS T BOSTON (CYPRUS) LIMITED (SUPRA). HENCE WE HAVE NO OTHER OPTION BUT TO UPHO LD THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE. 25. IN THE RESULT, BOTH THE APPEALS OF THE ASS ESSEE ARE TREATED AS ALLOWED AND BOTH THE APPEALS OF REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21.12.2018 . SD/- SD/- (RAM LAL NEGI) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 21.12.2018. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.