The Wai Urban Co.op. Bank Ltd., Satara V. Assistant Commissioner of Income-tax,

ITA 201/PUN/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1498 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 25-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Question of law; Cost of acquisition; Revenue expenditure
• Section: 145

Judgement Text

] IQ.KS ] IQ.KS ] IQ.KS ] IQ.KS IQ.KS IQ.KSIQ.KS IQ.KS IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , . . , # BEFORE MS. SUSHMA CHOWLA, JM AND SHRI R.K. PANDA, AM . / ITA NO.201/PN/2015 % % / ASSESSMENT YEAR : 2010-11 THE WAI URBAN CO-OP. BANK LTD., 591, GANPATI ALI, WAI, TALUKA WAI, DIST. SATARA PAN NO.AAABT 0059L . / APPELLANT V/S ACIT, SATARA CIRCLE, SATARA . / RESPONDENT / APPELLANT BY : SHRI KISHORE PHADKE / RESPONDENT BY : SHRI SUHAS KULKARNI, ADDL.CIT / ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 03-12-2014 OF THE CIT(A)-4, PUNE RELATING TO ASSESSMENT YEAR 2010-11. 2. THE ONLY EFFECTIVE GROUND RAISED BY THE ASSESSEE REA DS AS UNDER : THE LD.CIT(A)-4, PUNE AND LD. AO SATARA ERRED IN L AW AND ON FACTS IN DISALLOWING DEPRECIATION OF RS.55,89,000/- ON SHIFTING INVESTMENTS CATEGORIZED UNDER AVAILABLE FOR SALE (AFS) TO HEL D TO MATURITY (HTM) AS PER RBI GUIDELINES. / DATE OF HEARING :20.07.2016 / DATE OF PRONOUNCEMENT:29.07.2016 2 ITA NO.201/PN/2015 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS E NGAGED IN THE BUSINESS OF BANKING. IT FILED ITS RETURN OF INCOME ON 14 -10- 2010 DECLARING INCOME AT RS.1,63,05,891/-. DURING THE COURS E OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSE SSEE HAS CLAIMED INVESTMENT DEPRECIATION RESERVE OF RS.55,89,000/-. O N BEING QUESTIONED BY THE AO, IT WAS CLARIFIED THAT PROVISION M ADE FOR DEPRECIATION AND INVESTMENT AT RS.55.89 LAKHS WAS AS PER RBI GUIDELINES. IT WAS SUBMITTED THAT AS PER THE GUIDELINES OF THE RBI REGARDING TRANSFER OF AVAILABLE FOR SALE (AFS) TO HELD TO M ATURITY (HTM) CATEGORY INVESTMENT, THE CLAIM TOWARDS PROVISION OF DEPRECIATION ON ACCOUNT OF SUCH TRANSFER OF SECURITIES FRO M AFS TO HTM CATEGORY IS TO BE ALLOWED AS DECIDED BY THE BANGALOR E BENCH OF THE TRIBUNAL IN THE CASE OF STATE BANK OF MYSORE. THE CB DT INSTRUCTION NO.17/2008 DATED 26-11-2008 WAS ALSO BROUG HT TO THE NOTICE OF THE AO. 4. HOWEVER, THE AO WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. HE WAS OF THE VIEW THAT SHIFTING OF SECU RITIES FROM AFS TO HTM MAY BE ALLOWED AS PER RBI CIRCULAR BUT THE R ESULTANT LOSS COULD NOT BE ALLOWED AS DEDUCTION UNDER THE I.T. ACT . ACCORDING TO HIM LOSS OF SECURITIES HELD AS INVESTMENT COU LD BE RECOGNIZED AND CLAIMED ONLY AT THE TIME OF SALE/TRANSFER OR AT THE YEAR END ON THE BASIS OF THE PRINCIPLE LOWER OF COST O R MARKET VALUE. THUS HE OBSERVED THAT THE CONVERSION OF STOCK IN TRADE INTO ASSET/ INVESTMENT AS TRANSFER COULD NOT BE RE COGNIZED UNDER I.T. ACT AND CLAIM OF NOTIONAL LOSS BY THE BANK ON R E- CATEGORIZATION OF SECURITIES COULD NOT BE ALLOWED UNDER I.T . ACT. IT WAS THE CLAIM OF THE ASSESSEE THAT AS PER RBI GUIDELINES THE BANKS 3 ITA NO.201/PN/2015 ARE ALLOWED TO SHIFT SECURITIES FROM ONE CATEGORY TO THE OTHER AS PER NORMS. WHEN BANKS SHIFT INVESTMENT FROM AFS TO HTM CATEGORY, WHICH RESULTS IN DEPRECIATION IN THE VALUE OF INVESTMENTS, THE BANKS CLAIM THE SAME AS DEDUCTION IN THE PROFIT AND LOSS ACCOUN T . THE AO HOWEVER, NOTICED THAT THE SHIFTING OF SECURITIES IS OPTIONAL T O THE BANKS AND RBI GUIDELINES HAVE NOT BEEN ISSUED TO OVER RIDE THE MANDATORY PROVISIONS OF SECTION 145 OF THE I.T. ACT . RELYING ON THE DECISION OF HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS T.N. POWER FINANCE AND INFRASTRUCTURE DEVELOPMENT CORPORATIO N LT D. REPORTED IN 280 ITR 491 WHEREIN IT HAS BEEN HELD THAT RB I GUIDEL I NES CANNOT OVERRIDE THE MANDATORY PROVISIONS OF I.T. AC T AND CIT (A)-III, PUNE'S DECISION ON THE SAME ISSUE IN THE CAS E OF THE KARAD URBAN CO-OP BANK LTD., KARAD, SATARA FOR A.Y. 2009- 10, THE AO DISALLOWED AND ADDED BACK RS. 55,89,000/- TO THE TOTAL INCOME OF THE ASSESSEE. 5. BEFORE CIT(A) THE ASSESSEE MORE OR LESS REITERATED TH E SAME SUBMISSIONS. HOWEVER, THE LD.CIT(A) WAS ALSO NOT SATISFIED WIT H THE EXPLANATION GIVEN BY THE ASSESSEE AND UPHELD THE AD DITION MADE BY THE AO. WHILE DOING SO, HE OBSERVED THAT THE DE PRECIATION CLAIMED ON SHIFTING AND CONSEQUENT REVALUATION OF THE GOVER NMENT SECURITIES HELD UNDER AFS TO HTM CATEGORY CLAIMED BY THE ASSESSEE ONLY FOR INCOME-TAX PURPOSES CANNOT BE ALLOWED AS DEDUCTION. 6. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 7. THE LD. COUNSEL FOR THE ASSESSEE FILED A COPY OF THE D ECISION OF THE TRIBUNAL IN THE CASE OF KARAD URBAN COOPERATIVE BA NK LTD. VS. ACIT VIDE ITA NOS. 103, 1454 TO AND 2432/PN/2012 OR DER 4 ITA NO.201/PN/2015 DATED 31-01-2014 FOR A.YRS 2007-08, 2008-09 AND 2009-1 0 AND SUBMITTED THAT THE TRIBUNAL HAS ALLOWED THE CLAIM OF DEPREC IATION ON GOVERNMENT SECURITIES SHIFTED FROM AFS TO HTM SECURITIE S. REFERRING TO THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. HDFC BANK LTD. REPORTED IN 368 ITR 377 HE SU BMITTED THAT THE HONBLE HIGH COURT IN THE SAID DECISION HAS HELD THAT LOSS INCURRED ON ACCOUNT OF TRANSFER OF SECURITIES HELD UNDER C ATEGORY AVAILABLE FOR SALE AFS TO HTM WAS TO BE ALLOWED AS BUSINESS LOSS. REFERRING TO THE DECISION OF THE PUNE BENCH OF THE TRIBUN AL IN THE CASE OF COSMOS COOPERATIVE BANK LTD. VS. DCIT REPORTED IN 64 SOT 80 HE SUBMITTED THAT THE TRIBUNAL IN THE SAID DECISION HAS HELD SECURITIES HELD UNDER HTM SECURITIES ARE PART OF ITS STOCK IN TRADE. HE ALSO RELIED ON THE DECISION OF THE PUNE BENCH OF THE TR IBUNAL IN THE CASE OF ACIT VS. BANK OF MAHARASHTRA AND VICE VERSA VIDE ITA NO.1505/PN/2008 AND BATCH OF OTHER APPEALS ORDER DATED 17-09- 2014. HE ACCORDINGLY SUBMITTED THAT SINCE THE ISSUE ST ANDS DECIDED IN FAVOUR OF THE ASSESSEE BY VARIOUS DECISIONS, T HEREFORE, THE ORDER OF THE CIT(A) SHOULD BE SET ASIDE AND THE GR OUNDS RAISED BY THE ASSESSEE SHOULD BE ALLOWED. 8. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND HEAVILY RELIED ON THE ORDER OF THE CIT(A). 9. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE P APER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED T HE VARIOUS DECISIONS CITED BEFORE US. THE ONLY DISPUTE TO BE DECIDED IN THE IMPUGNED APPEAL IS REGARDING THE ALLOWABILITY OF LOSS ON ACCOUNT OF SHIFTING OF SECURITIES FROM AVAILABLE FOR SALE (AFS) TO 5 ITA NO.201/PN/2015 HELD TO MATURITY (HTM). ACCORDING TO THE AO LOSS ON SECU RITIES HELD AS INVESTMENT COULD BE RECOGNIZED AND CLAIMED ONLY A T THE TIME OF SALE/TRANSFER OF SUCH SECURITIES HELD AS STOCK IN T RADE COULD BE RECOGNIZED ONLY ON SALE OR TRANSFER OR AT THE YEAR END ON THE BASIS OF THE PRINCIPLE-LOWER OF COST OR MARKET VALUE. THER EFORE, THE CONVERSION OF STOCK IN TRADE INTO ASSET/INVESTMENT AS TR ANSFER COULD NOT BE RECOGNIZED UNDER I.T. ACT AND CLAIM OF NOTIO NAL LOSS BY THE BANK ON RE-CATEGORIZATION COULD NOT BE ALLOWED UNDER THE I.T. ACT. HE FURTHER OBSERVED THAT THE SHIFTING OF SECURITIES IS OPTIONAL TO THE BANKS AND RBI GUIDELINES CANNOT OVERRIDE THE MAN DATORY PROVISIONS OF SECTION 145 OF THE I.T. ACT. WE FIND THE LD.C IT(A) UPHELD THE ACTION OF THE AO IN HOLDING THAT DEPRECIATION CLA IMED ON SHIFTING AND CONSEQUENT REVALUATION OF THE GOVERNMENT SEC URITIES HELD UNDER AFS TO HTM CATEGORY ONLY FOR INCOME-TAX PUR POSES CANNOT BE ALLOWED AS DEDUCTION. 10. WE FIND AN IDENTICAL ISSUE HAD COME UP BEFORE THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF KARAD URBAN COOPE RATIVE BANK LTD. (SUPRA) WHERE THE GROUND RAISED BY THE ASSESS EE WAS AS UNDER : 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLO WANCE MADE BY THE A.O. OF THE CLAIM OF DEPRECIATION ON GOVERNMENT SECURITIES SHIFTED FROM AFS TO HTM SECURITIES OF RS.2,46,01,000/- HOLDIN G THAT RBI GUIDELINES COULD NOT OVERRIDE THE PROVISIONS OF THE I NCOME-TAX ACT, 1961. THE CIT(A) WAS UNDER OBLIGATION TO HONOUR THE C.B.D.T. INSTRUCTIONS AND THE JUDGMENT OF THE HON'BLE KERALA H IGH COURT IN LORD KRISHNA BANK CASE IN THIS RESPECT. THE CLAIM BE AL LOWED. 10.1 WE FIND THE TRIBUNAL DECIDED THE ISSUE IN FAOVUR OF THE ASSESSEE BY OBSERVING AS UNDER : 6 ITA NO.201/PN/2015 4. THE LEARNED AUTHORIZED REPRESENTATIVE POINTED OU T THAT THE ISSUES IN GROUND NOS.2, 3 AND 4 OF ASSESSEES APPEALS ARE COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF ITAT, PUNE BENCH A IN IT A NO.449/PN/2012 VIDE ORDER DATED 05.08.2013 IN THE C ASE OF DY.CIT VS. KALLAPPANNA AWADE ICHALKARANJI JANATA SAHAKARI B ANK LTD., WHEREIN, THE SIMILAR ISSUES WERE DECIDED BY THE PUNE BE NCH B IN FAVOUR OF ASSESSEE BY OBSERVING AS UNDER: 10. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSE SSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND AN IDENTICAL ISSUE HAD COME UP BEFORE THE TRIBUN AL IN THE CASE OF NAHSIK MERCHANT COOPERATIVE BANK LTD. (SUPRA) . WE FIND THE TRIBUNAL HAS DISCUSSED THE ISSUE AND DISMISSED THE GROUNDS RAISED BY THE REVENUE BY HOLDING AS UNDER : 4. AFTER GOING THROUGH RIVAL SUBMISSIONS AND MATERIAL ON RECORD WE FIND THAT WITH THE ADVENT OF SECTION 80P(4 ) W.E.F. A.Y, 2007-08 HAS CLOSED THE DOORS FOR COOPERATIVE BANKS FOR CLAIMING THE BENEFIT OF DEDUCTION U/S.80P(2)(A)(I) F ROM THIS TOTAL INCOME. HOWEVER, THE COOPERATIVE SOCIETY SHOULD NOW BE ENTITLED TO BE ASSESSED AS NORMAL BANKING COMPANY. THE C LAUSE (4) INSERTED IN SECTION 80P HAS TAKEN AWAY THE BENEFIT OF THE ERSTWHILE DEDUCTION AVAILABLE TO COOPERATIVE SOCIETY IN CARRYING ON BUSINESS OF BANKING OR PROVIDING CREDIT FACILITY TO ITS MEMBERS. THE NEW CLAUSE (4) INSERTED BY THE FINANCE AC T, 2006 W.E.F. 01-04-2007 READS AS UNDER : 'THE PROVISION OF THE SECTION WAS NOT IN RELATION TO A NY COOPERATIVE BANK OTHER THAN AGRICULTURAL CREDIT SOCI ETY OR PRIMARY COOPERATIVE AGRICULTURAL AND RURAL DEVELOPM ENT BANK'. 5. THE INTENTION OF THE PROVISION MAY BE DERIVED MOR E PRECISELY FROM RELEVANT PARA 166 OF THE BUDGET SPEECH WHICH STA TED THAT : 'CO-OPERATIVE BANKS, LIKE ANY OTHER BANK, ARE LENDIN G INSTITUTIONS AND SHOULD PAY TAX ON THEIR PROFITS, PRIMA RY AGRICULTURAL CREDIT SOCIETIES (PACS) AND PRIMARY COO PERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK (PCARDB) STA ND ON A SPECIAL FOOTING AND WILL CONTINUE TO BE EXEMPT UNDER SECTION 80P OF THE INCOME TAX ACT. HOWEVER, I PROPOSE TO EXC LUDE ALL OTHER CO-OPERATIVE BANKS FROM THE SCOPE OF THAT SECTIO N'. ACCORDINGLY, SECTION 80P IS TO BE AMENDED TO GIVE EFF ECT TO THE ABOVE PROPOSAL. IT IS ALSO PROPOSED TO AMEND SECTION 2( 24) TO PROVIDE THAT PROFITS AND GAINS OF BUSINESS OF BANKING (I NCLUDING PROVIDING CREDIT FACILITIES) CARRIED ON BY A CO-OPER ATIVE SOCIETY WITH ITS MEMBERS SHALL BE INCLUDED IN THE DEFINITION O F 'INCOME' (WITH EFFECT FROM 1ST APRIL, 2007)'. 6. COOPERATIVE BANK UNLIKE OTHER COMMERCIAL BANKS A RE SUBJECTED TO DUAL CONTROL FROM BOTH RBI AS WELL AS FR OM STATE COOPERATIVE DEPARTMENT. THE ACCOUNTING TREATMENT FO R A COOPERATIVE BANK IS THEREFORE A RESULT OF GUIDELINES F ROM BOTH THE CONTROLLING AUTHORITIES. ORDINARILY A DEDUCTION IS NOT 7 ITA NO.201/PN/2015 AVAILABLE TO AN ASSESSEE UNLESS SPECIFICALLY PROVIDED UNDE R THE ACT. THIS IS IRRESPECTIVE OF ACCOUNTING TREATMENT PROV IDED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS. BUT AT THE SAME TIME IT WAS WELL SETTLED THAT DEDUCTION EXPRESSLY MENTIONED UND ER THE ACT ARE NOT EXHAUSTIVE AND PROFIT IS TO BE DERIVED AC CORDING TO ORDINARY COMMERCIAL PRINCIPLES. AS PER THE EXTANT RBI GUIDELINES DATED 01-07-2009 THE INVESTMENT PORTFOLIO OF THE BANKS IS REQUIRED TO BE CLASSIFIED UNDER 3 CATEGORIES VI Z., HELD THE MATURITY HTM), HELD FOR TRADING (HFT) AND AVAIL ABLE FOR SALE (AFS). THE VALUE OF EACH KIND OF INVESTMENT IS T O BE DONE IN THE FOLLOWING MANNER: SR.NO. CLASSIFICATION VALUATION NORMS OF INVEST MENT. 1. HTM THESE ARE CARRIED AT ACQUISITION COST UNLESS THE COST IS MORE THAN THE FACE VALUE, IN WHICH CASE THE PREMIUM SHOULD BE AMORTISED OVER THE PERIOD REMAINING TO MATURITY. THE PREMIUM IS REQUIRED TO BE AMORTISED OVER THE PERIOD REMAINING TO MATURITY. THIS APART, ANY PERMANENT DIMINUTION IN VA LUE SHALL FV SHALL GO ON TO REDUCE COST OF THE INVESTMENT. 2. AFS THE INDIVIDUAL SCRIPS IN THE AVAILABLE FOR SA LE CATEGORY WILL BE MARKED TO MARKET AT QUARTERLY OR AT MORE FR EQUENT INTERVALS. THESE INVESTMENTS ARE CONSIDERED TO FORM STOCK -IN- TRADE OF A BANK AND THEREFORE ARE TO BE VALUED AT C OST OR NRV, WHICHEVER IS LESS. FALL IN VALUE BELOW COST, THEREFORE , IS TO BE PROVIDED IMMEDIATELY, HOWEVER ANY NET APPRECIATION IN VALUE IS IGNORED AND NOT RECOGNIZED AS INCOME ON THE BASIS OF CONSERVATISM. 3. HFT THE INDIVIDUAL SCRIPS IN THE HELD FOR TRADING CATEGORY WILL BE MARKED TO MARKET AT MONTHLY OR AT MORE FREQ UENT INTERVALS AND PROVIDED FOR AS IN THE CASE OF THOSE IN T HE AVAILABLE FOR SALE CATEGORY. 7. IN PARA (VII) OF THE CBDT INSTRUCTION NO.17 OF 20 08 DATED 26.11.2008, ON 'ASSESSMENT OF BANK - CHECK LIST FOR DED UCTION, STATES AS UNDER: 'AS PER RBI GUIDELINES DATED I6TH OCTOBER, 2000, THE INVESTMENT PORTFOLIO OF THE BANKS IS REQUIRED TO BE C LASSIFIED UNDER THREE CATEGORIES VIZ. HELD TO MATURITY (HTM), HELD FOR TRADING (HFT) AND AVAILABLE FOR SALE (AFS). INVESTME NTS CLASSIFIED UNDER HTM CATEGORY NEED NOT BE MARKED TO M ARKET AND ARE CARRIED AT ACQUISITION COST UNLESS THESE ARE MO RE THAN THE FACE VALUE, IN WHICH CASE THE PREMIUM SHOULD BE A MORTISED OVER THE PERIOD REMAINING TO MATURITY. IN THE CASE O F HFT AND AFS SECURITIES FORMING STOCK IN TRADE OF THE BANK, TH E DEPRECIATION/ APPRECIATION IS TO BE AGGREGATED SCRIP WISE AND ONLY NET DEPRECIATION, IF ANY, IS REQUIRED TO BE PRO VIDED FOR IN THE ACCOUNTS. THE LATEST GUIDELINES OF THE RBI MAY BE REFERRED TO FOR ALLOWING ANY SUCH CLAIMS.' 8 ITA NO.201/PN/2015 8. THE ITAT, MUMBAI BENCH, IN THE CASE OF ACIT VS. TH E BANK OF RAJASTHAN LTD. (2011) TIOL-35-ITAT-MUMBAI, HAS HELD T HAT IN CASE OF BANKS, THE PREMIUM PAID IN EXCESS OF FACE VALUE OF INVESTMENTS CLASSIFIED UNDER HTM CATEGORY WHICH HAS BEE N AMORTISED OVER THE PERIOD TILL MATURITY IS ALLOWABLE AS REVENUE EXPENDITURE SINCE THE CLAIM IS AS PER RBI GUIDELINES A ND CBDT ALSO HAS DIRECTED TO ALLOW SUCH PREMIUM. IT HAS ALSO BEE N HELD IN THE CASE OF CATHOLIC SYRIAN BANK LTD. VS. ACIT THA T AMORTIZATION ON PURCHASE OF GOVERNMENT SECURITIES WAS M ADE AS PER PRUDENTIAL NORMS OF THE RBI AND SAME WAS ALLOWAB LE DEDUCTION. IN VIEW OF ABOVE, ASSESSEE WAS JUSTIFIED IN CONTENDING FOR AMORTIZATION OF PREMIUM PAID IN EXCE SS OF FACE VALUE OF SECURITIES HELD TO MATURITY (HTM) CATEGORY O R PERIOD REMAINING TILL MATURITY WAS FOUND REASONABLE BY THE C IT(A). ACCORDINGLY ADDITION OF RS.17,91,659/- MADE BY THE A SSESSING OFFICER BY DISALLOWING AMOUNT TOWARDS AMORTIZATION OF GOVERNMENT SECURITIES (HMT) WAS DELETED. THIS REASONED FACTUAL AND LEGAL FINDING OF THE CIT(A) NEEDS NO INT ERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME. 9. AS A RESULT, THE APPEAL FILED BY THE REVENUE IS DISM ISSED. 10.1 RESPECTFULLY FOLLOWING THE DECISION OF THE COOR DINATE BENCH OF THE TRIBUNAL AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE AGAINST THE ABOVE CITED DECISIO N WE FIND NO INFIRMITY IN THE ORDER OF THE LD.CIT(A) DELETING THE ADDITION. ACCORDINGLY, THE ORDER OF THE LD.CIT(A) IS UPHELD A ND THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 4.1 NOTHING CONTRARY WAS BROUGHT TO OUR KNOWLEDGE. F ACTS BEING SIMILAR, SO FOLLOWING THE SAME REASONING, THE DISALLOWAN CE MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT(A) ARE SE T ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE SAME. SIMI LAR ISSUE AROSE IN OTHER APPEALS OF ASSESSEE. FACTS BEING SIMILAR IN OTHE R ASSESSEES APPEAL, SO FOLLOWING THE SAME REASONING CORRESPONDING I SSUE IN OTHER APPEALS OF ASSESSEE ARE ALSO DECIDED IN FAVOUR OF ASSESSEE. T HE ASSESSING OFFICER IS DIRECTED ACCORDINGLY. 11. WE FURTHER FIND THE HONBLE BOMBAY HIGH COURT IN THE C ASE OF HDFC BANK LTD. (SUPRA) HAS HELD THAT LOSS INCURRED ON ACCOUNT OF TRANSFER OF SECURITIES HELD UNDER CATEGORY AFS TO HTM WAS TO BE ALLOWED AS BUSINESS LOSS. THE RELEVANT OBSERVATION OF THE HONBLE HIGH COURT READS AS UNDER : 7. AFTER PERUSING THE ORDER PASSED BY THE APPELLANT DATED 23RD MARCH 2009 AND THE IMPUGNED ORDER PASSED BY THE ITAT, WE FIND THAT THE ITAT WAS FULLY JUSTIFIED IN SETTING ASIDE THE ORDER OF THE APPELLANT DATED 23RD MARCH 2009 AND ALLOWING THE DEDUCTION OF RS.87. 11 LAKHS TO THE ASSESSEE. IN THIS REGARD, THE RELIANCE PLACED BY MR. MIST RY, THE LEARNED SENIOR COUNSEL APPEARING ON BEHALF OF THE RESPONDENT - ASSESSEE ON THE 9 ITA NO.201/PN/2015 JUDGMENT OF THIS COURT IN THE CASE OF BANK OF BARODA (SUPRA) IS WELL FOUNDED. THE FACTS BEFORE THE DIVISION BENCH IN THE C ASE OF BANK OF BARODA (SUPRA) WERE THAT THE ASSESSEE BANK HAD IN ITS POSSE SSION DURING THE RELEVANT ASSESSMENT YEAR SHARES AND SECURITIES WORTH SEV ERAL CRORES. THE METHOD OF VALUATION FOLLOWED BY THE ASSESSEE WAS TO VALUE THE INVESTMENTS AT COST OR MARKET VALUE WHICHEVER WAS LOWER . DURING THE YEAR OF ACCOUNT, DEPRECIATION WITH REGARD TO THE SEC URITIES HELD BY THE ASSESSEE BANK WAS TO THE TUNE OF RS. 11,82,35,007/- AND T HEREFORE, THE ASSESSEE BANK CLAIMED A DEDUCTION WITH REFERENCE TO THE SAID DEPRECIATION. THIS WAS DISALLOWED BY THE INCOME TAX OF FICER. BEING AGGRIEVED, THE ASSESSEE BANK WENT IN APPEAL TO THE CIT (APPEALS) WHO TOOK THE VIEW THAT THE SAID INVESTMENTS WERE RIGHTLY V ALUED AT THE END OF THE YEAR AT COST OR MARKET VALUE WHICHEVER WAS LOWER AND THE DIFFERENCE ARISING AS A RESULT OF THIS VALUATION HAD TO BE ALLOWED TO THE ASSESSEE AS A LOSS. THE REVENUE, BEING AGGRIEVED BY THE ORDER OF TH E CIT (APPEALS) CARRIED THE MATTER FURTHER TO THE TRIBUNAL WHO CONF IRMED THE ORDER OF THE CIT (APPEALS). IN VIEW THEREOF, THE REVENUE APPROACH ED THIS COURT BY WAY OF A REFERENCE. ON THESE FACTS, THE QUESTION OF LAW FR AMED BY THIS COURT WAS AS FOLLOWS :- '(A) WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE ASSESSEE WAS ENTIT LED TO DEDUCTION ON ACCOUNT OF DEPRECIATION IN THE VALUE O F INVESTMENTS AND, CONSEQUENTLY, DEBITING DISALLOWANCE OF RS.11 ,82,35,00 7 ?' 8. THIS COURT, IN ANSWERING THE AFORESAID QUESTION OF LAW IN FAVOUR OF THE ASSESSEE AND PLACING RELIANCE ON THE JUDGMENT OF THE SU PREME COURT IN THE CASE OF UNITED COMMERCIAL BANK V. CIT [1999] 240 ITR 355/106 TAXMAN 601 HELD AS UNDER I- 'IN OUR VIEW, THE JUDGMENT OF THE SUPREME COURT IN UNITED COMMERCIAL BANK'S CASE [1999] 240 ITR 355 SQUARELY A PPLIES TO THE FACTS OF THIS CASE. IN FACT, THE PRESENT CASE BEFORE US I S ON A STRONGER FOOTING BECAUSE IN THE CASE OF UNITED COMMERCIAL BANK , THE LOSS WAS NOT DEBITED TO THE PROFIT AND LOSS ACCOUNT WHEREAS IN THIS CASE, AS CAN BE SEEN FROM THE WORKING AT PAGES 25 AND 26 OF THE PA PER- BOOK, THE LOSS OF RS.11,82,35,007/- HAS BEEN DEBITED TO THE PROFI T AND LOSS ACCOUNT WHICH IS REFLECTED AS A PROVISION FOR LIABILIT Y IN THE BALANCE- SHEET AND THE SHARES AND SECURITIES WERE VALUED AT COST O N THE ASSETS SIDE. FOR THE REASONS GIVEN HEREINABOVE, WE ANSWER THE ABOVE QUOTED QUESTION IN THE AFFIRMATIVE, I.E. IN FAVOUR OF THE A SSESSEE-BANK AND AGAINST THE DEPARTMENT.' 9. IN THE PRESENT CASE, WE FIND THAT THE FACTS AND ISSUE S THAT ARE COVERED BY THE AFORESAID JUDGMENT SQUARELY APPLY TO THE FACTS AND ISSUES RAISED IN THE PRESENT APPEAL. NOT ONLY ARE WE IN FULL AGREEMEN T WITH THE JUDGMENT OF THIS COURT IN THE CASE OF BANK OF BARODA (SUPRA) BUT WE ARE BOUND BY THE SAME. WE THEREFORE RESPECTFULLY FOLLOW THE RATIO LAID DOWN IN THE SAID JUDGMENT. 10. WE FIND THAT EVEN THE JUDGMENT OF THE KARNATAKA HIGH COURT IN THE CASE OF KARNATAKA BANK LTD. (SUPRA), RELIANCE ON WHICH WAS PLACED BY MR MISTRY, SQUARELY COVERS THE ISSUE RAISED IN THIS APPEAL. THE FACTS IN THE CASE BEFORE THE KARNATAKA HIGH COURT WERE THAT THE A SSESSEE WAS HOLDING SECURITIES IN DIFFERENT CATEGORIES AS MANDATED BY THE R BI MASTER CIRCULAR DATED 1ST SEPTEMBER 2003. THE ASSESSEE TREATED SUCH SECURI TIES AS STOCK- IN-TRADE AND CLAIMED DEPRECIATION ON THE BOOK VALUE AFTER VALUING THE 10 ITA NO.201/PN/2015 SECURITIES AT COST OR MARKET VALUE WHICHEVER WAS LOWER. THE REVENUE REFUSED TO ACCEPT THE ASSESSEE'S PLEA FOR THE DEDUCTION A ND DISALLOWED THE SAME AND ADDED BACK TO THE TOTAL INCOME THE SAID AMOUNT. AGGRIEVED BY THE SAID ORDER, THE ASSESSEE PREFERRED AN APPEAL BEF ORE THE CIT (APPEALS). THE SAME WAS DISMISSED UPHOLDING THE CONTENTIO N OF THE ASSESSING AUTHORITY. AGGRIEVED THEREBY, THE ASSESSEE PREFER RED AN APPEAL TO THE TRIBUNAL. THE TRIBUNAL INTER ALIA HEL D THAT SINCE THE SECURITIES ON WHICH THE DEPRECIATION HAD BEEN CLAIMED ON THE EARLIER YEARS HAD NOT BEEN IDENTIFIED, THE ISSUE WAS RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR CONSIDERATION AFRESH AND PARTLY ALL OWED THE APPEAL. BEING AGGRIEVED BY THE SAID ORDER, KARNATAKA BANK LT D. PREFERRED AN APPEAL TO THE KARNATAKA HIGH COURT UNDER SECTION 260 A OF THE ACT. AFTER DISCUSSING VARIOUS JUDGMENTS OF THE SUPREME COURT, THE K ARNATAKA HIGH COURT HELD AS UNDER :- 'FROM THE AFORESAID JUDGMENTS OF THE APEX COURT, NOW IT IS CLEAR THAT A METHOD OF ACCOUNTING ADOPTED BY THE TAXPAYER CONSISTE NTLY AND REGULARLY CANNOT BE DISCARDED BY THE DEPARTMENTAL A UTHORITIES ON THE VIEW THAT HE SHOULD HAVE ADOPTED A DIFFERENT METHOD OF KEEPING THE ACCOUNTS OR ON VALUATION. FINANCIAL INSTITUTIONS LIKE BANK, ARE EXPECTED TO MAINTAIN ACCOUNTS IN TERMS OF THE RBI ACT AND ITS R EGULATIONS. THE FORM IN WHICH, ACCOUNTS HAVE TO BE MAINTAINED IS PRESC RIBED UNDER THE AFORESAID LEGISLATION. THEREFORE, THE ACCOUNT HAD TO BE IN CONFORMITY WITH THE SAID REQUIREMENTS. THE RBI ACT OR THE COMPAN IES ACT DO NOT DEAL WITH THE PERMISSIBLE DEDUCTIONS OR EXCLUSION UNDER THE INCOME TAX ACT. FOR THE PURPOSE OF THE INCOME TAX ACT, IF T HE ASSESSEE HAS CONSISTENTLY BEEN TREATING THE VALUE OF INVESTMENT FOR MORE THAN TWO DECADES THE INVESTMENTS AS STOCK-IN-TRADE AND CLAIMED D EPRECIATION, IT IS NOT OPEN TO THE AUTHORITIES TO DISALLOW THE SAID DEP RECIATION ON THE GROUND THAT IN THE BALANCE- SHEET IT IS SHOWN AS INVESTM ENT IN TERMS OF THE RBI REGULATIONS. THE RBI REGULATIONS, THE COMPANI ES ACT AND THE INCOME TAX ACT OPERATE ALTOGETHER IN DIFFERENT FIEL DS. THE QUESTION WHETHER THE ASSESSEE IS ENTITLED TO PARTICULAR DEDUCTION OR NOT WILL DEPEND UPON THE PROVISION OF LAW RELATING THERETO AN D NOT THE WAY, IN WHICH THE ENTRIES ARE MADE IN THE BOOKS OF ACCOUNT. I T IS NOT DECISIVE OR CONCLUSIVE IN THE MATTER. FOR THE PURPOSE OF THE INCO ME TAX ACT WHICHEVER METHOD IS ADOPTED BY THE ASSESSEE, A TRUE PICT URE OF THE PROFITS AND GAINS, I.E. REAL INCOME IS TO BE DISCLOSED. FOR DETERMINING THE REAL INCOME, THE ENTRIES IN THE BALANCE-SHEET IS REQUIRED TO BE MAINTAINED IN THE STATUTORY FORM MAY NOT BE DECISIVE OR CONCLUSIVE. IT IS OPEN TO THE INCOME TAX OFFICER AS WELL AS THE ASSESSEE TO POINT OUT TRUE AND PROPER INCOME WHILE SUBMITTING THE INCOME T AX RETURNS. EVEN IF THE ASSESSEE UNDER SOME MISREPRESENTATION OR MISTAKE FAI LS TO MAKE AN ENTRY IN THE BOOKS OF ACCOUNT, ALTHOUGH UNDER LAW , A DEDUCTION MUST BE ALLOWED BY THE INCOME TAX OFFICER, THE ASSESSEE WIL L NOT LOSE ANY RIGHT ON CLAIMING OR WILL BE DEBARRED FROM BEING AL LOWED THE DEDUCTION. THEREFORE, THE APPROACH OF THE AUTHORITI ES IN THIS REGARD IS CONTRARY TO THE WELL SETTLED LEGAL POSITION AS DECLARE D BY THE APEX COURT. IN THE INSTANT CASE, THE ASSESSEE HAS MAINTAINED THE ACCOU NTS IN TERMS OF THE RBI REGULATIONS AND HE HAS SHOWN IT AS INVESTMENT . BUT CONSISTENTLY FOR MORE THAN TWO DECADES IT HAS BEEN SHOWN AS STOCK-IN- TRADE AND DEPRECIATION IS CLAIMED AND ALLOWED. THERE FORE, NOTWITHSTANDING THAT IN THE BALANCE-SHEET, IT IS SHOWN AS INVESTMENT, FOR THE PURPOSE OF INCOME TAX ACT, IT IS SHOWN AS STOCK -IN-TRADE. THEREFORE, THE VALUE OF THE STOCKS BEING CLOSELY CONNE CTED WITH THE STOCK MARKET, AT THE END OF THE FINANCIAL YEAR, WHIL E VALUING THE ASSETS, 11 ITA NO.201/PN/2015 NECESSARILY THE BANK HAS TO TAKE INTO CONSIDERATION THE MARKET VALUE OF THE SHARES. IF THE MARKET VALUE IS LESS THAN THE COST PRI CE, IN LAW, THEY ARE ENTITLED TO DEDUCTIONS AND IT CANNOT BE DENIED B Y THE AUTHORITIES UNDER THE PRETEXT THAT IT IS SHOWN AS INVESTMENT IN THE BALANCE- SHEET.' (EMPHASIS SUPPLIED) 11. WE THEREFORE FIND THAT THE ISSUE RAISED IN THIS APP EAL IS ALSO SQUARELY COVERED BY THE JUDGMENT OF THE KARNATAKA HI GH COURT IN THE CASE OF KARNATAKA BANK LTD. (SUPRA). 12. IN VIEW THEREOF, WE FIND NO INFIRMITY IN THE OR DER PASSED BY THE ITAT. THE PRESENT APPEAL DOES NOT RAISE ANY SUBSTANTIAL QUESTION OF LAW AS PROJECTED BY THE LEARNED COUNSEL APPEARING FOR THE APPELLANT. THE APPEAL IS THEREFORE DISMISSED. NO ORDER AS TO COSTS. 12. IN VIEW OF THE DECISIONS CITED (SUPRA) AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE WE SET ASIDE THE ORDER OF THE CIT(A) AND ALLOW THE GROUND OF APPEAL RAISED BY THE ASSESSEE. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29-07-2016. SD/- SD/- ( SUSHMA CHOWLA ) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER IQ.KS PUNE ; DATED : 29 TH JULY , 2016. LRH'K ' (*+ ,+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. % ( ) - THE CIT(A)-4, PUNE 4. % S / THE CIT-4, PUNE 5. ( ++, , , , IQ.KS / DR, ITAT, A PUNE; 6. 0 / GUARD FILE. / BY ORDER , ( + //TRUE COPY// 23 + , / SR. PRIVATE SECRETARY ,, IQ.KS / ITAT, PUNE