STATE BANK OF INDIA (SUCCESSOR TO STATE BANK OF BIKANER & JAIPUR), MUMBAI V. ACIT -CIRCLE 2(2)(1), MUMBAI

ITA 2824/MUM/2018

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 3635 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-03-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2014-2015
• Appeal Filed On: 04-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAYANT JHAVERI LD
• Assessee Lawyers: C NARESH LD
• Keywords: Business income; Depreciation; Business expenditure; Earning of tax free income; Rule 8D
• Section: 143(3); 14A; 207; 13; 119; 92CA; 145; 6

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI , , BEFORE HONBLE SHRI MAHAVIR SINGH, VP AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM ./ ITA NO. 2824/MUM/2018 ( / ASSESSMENT YEAR : 2014-15 ) STATE BANK OF INDIA (SUCCESSOR TO STATE BANK OF BIKANER & JAIPUR) FINANCIAL REPORTING & TAXATION DEPT. 3 RD FLOOR, CORPORATE CENTRE MADAM CAMA ROAD, NARIMAN POINT MUMBAI-400 021 / VS. A CIT, CIRCLE - 2(2)(1) AAYKAR BHAWAN, M.K.ROAD MUMBAI-400 020 %& ./ ./PAN/GIR NO. AADCS-4750-R ( &( /APPELLANT ) : ( )*&( / RESPONDENT ) & ./ ITA NO. 3187/MUM/2018 ( / ASSESSMENT YEAR : 2014-15 ) D CIT - 2(2)(1) AAYKAR BHAWAN, M.K.ROAD MUMBAI-400 020 / VS. STATE BANK OF INDIA (SUCCESSOR TO STATE BANK OF BIKANER & JAIPUR) FINANCIAL REPORTING & TAXATION DEPT. 3 RD FLOOR, CORPORATE CENTRE MADAM CAMA ROAD, NARIMAN POINT MUMBAI-400 021 %& ./ ./PAN/GIR NO. AADCS-4750-R ( &( /APPELLANT ) : ( )*&( / RESPONDENT ) ASSESSEE BY : SHRI C.NARESH-LD.AR REVENUE BY : SHRI JAYANT JHAVERI-LD.CIT-DR / DATE OF HEARING : 01/02/2021 / DATE OF PRONOUNCEMENT : 03/03/2021 2 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) :: 1.1 AFORESAID CROSS-APPEALS FOR ASSESSMENT YEAR [IN SHORT REFERRED TO AS AY] 2014-15 CONTEST THE ORDER OF LD. COMMISSIO NER OF INCOME-TAX (APPEALS)-5, MUMBAI, [IN SHORT REFERRED TO AS CIT( A)], APPEAL NO. CIT(A)-5/ITO-2(2)(4)/IT-72/17-18 DATED 31/01/2018 . 1.2 THE GROUNDS TAKEN BY THE ASSESSEE READ AS UNDER :- 1. LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERR ED ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OF EXPENSES OF RS.12,04 ,31,307/- U/S 14A READ WITH RULE 8D BY NOT ACCEPTING THE CONTENTION OF ASSESSEE THAT AS SESSEE HAS NOT INCURRED ANY EXPENDITURE IN RELATION TO EXEMPT INCOME. 1.1 LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS FU RTHER ERRED ON FACTS AND IN LAW IN HOLDING THAT THE ASSESSEE HAS NOT COME FORWARD WITH THE EVIDENCE THAT IT HAS USED ITS OWN FUNDS IN MAKING INVESTMENTS IGNORING THAT THE FACT IS EVIDENT FROM THE BALANCE SHEET ITSELF. 1.2 LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ALSO ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE ASSESSEE HOLDS SHARES/ SECURI TIES AS STOCK IN TRADE AND NOT AS INVESTMENT AND THEREFORE RULE 8D IS NOT APPLICABLE. 1.3 THE REVENUES GROUNDS READ AS UNDER:- I. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, LD.CIT(A) WAS RIGHT IN DELETING THE ADDITION OF RS.42,47,09,3 77/- HOLDING THAT THE INTEREST ON GOVERNMENT AND OTHER SECURITIES HAS TO BE INCLUDED IN THE INCOME ON DUE BASIS AS AGAINST THE ACCRUAL BASIS? II WHETHER ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE AND IN LAW, LD.CIT(A) WAS RIGHT IN DELETING THE ADDITION OF RS.27,22,94,5 32/- ON ACCOUNT OF AMORTIZATION ON HTM SECURITIES WITHOUT APPRECIATING THE FACT THAT DIMIN UTION IN VALUE OF INVESTMENT IN SECURITIES UNDER HTM CATEGORY IS NOTIONAL LOSS/CAPITAL LOSS WH ICH CAN BE RECOGNIZED ONLY AT THE TIME OF SALE OF SUCH SECURITIES? III) WHETHER ON THE FACTS AND IN THE CIRCUMSTAN CES OF THE CASE AND IN LAW, LD.CIT(A) WAS RIGHT IN DELETING THE ADDITION OF RS.6,50,87,061/- MADE ON ACCOUNT OF DEPRECIATION ON SECURITIES WITHOUT APPRECIATING THE FINDING OF AO T HAT GLOBAL BASIS OF DEPRECIATION APPLICABLE INSTEAD OF ASSESSEE'S METHOD OF CHARGING DEPRECIATION ON CATEGORY WISE BASIS? IV) WHETHER ON THE FACTS AND IN THE CIRCUMSTAN CES OF THE CASE AND IN LAW, LD.CIT(A) WAS RIGHT IN DELETING THE ADDITION OF RS.643,51,48,054/ - HOLDING THAT THE BROKEN PERIOD INTEREST ON PURCHASE OF SECURITIES IS DEDUCTIBLE AS BUSINESS EXPENDITURE IGNORING THE JUDGMENT OF THE CASE OF COMMISSIONER OF INCOME TAX V/S. BANK OF RAJASTHAN LTD. (2009) (316 ITR 391) WHICH DECIDED THE ISSUE IN FAVOUR OF THE REVENUE? 2. THE LEARNED COUNSEL FOR ASSESSEE, SHRI C. NARESH , AT THE OUTSET, SUBMITTED THAT THE ISSUES OF CROSS-APPEALS STOOD SQ UARELY ADJUDICATED BY 3 TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2008-09, ITA NOS.3644/MUM/2016 & 4563/MUM/2016 ORDER DATED 03/02 /2020. A COPY OF THE ORDER HAS BEEN PLACED ON RECORD. THE LD. CIT -DR, THOUGH RELIED UPON ASSESSMENT FRAMED BY LD. AO BUT COULD NOT CONT ROVERT THE FACT THAT ALL THE ISSUES HAVE ALREADY BEEN DELVED INTO BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE IN THE CITED O RDER. 3. WE HAVE CAREFULLY HEARD THE RIVAL SUBMISSIONS AN D GONE THROUGH THE ORDERS OF LOWER AUTHORITIES AND THE CITED ORDER OF TRIBUNAL. OUR ADJUDICATION TO THE SUBJECT MATTER OF CROSS-APPEAL WOULD BE AS GIVEN IN SUCCEEDING PARAGRAPHS. THE ERSTWHILE ASSESSEE NAMEL Y STATE BANK OF BIKANER & JAIPUR (IN WHOSE NAME THE ASSESSMENT HAS BEEN FRAMED) IS A NATIONALIZED BANK. AN ASSESSMENT WAS FRAMED FOR THE YEAR UNDER CONSIDERATION U/S 143(3) R.W.S. 92CA ON 23/02/2017 WHEREIN CERTAIN ADDITIONS / ADJUSTMENTS WERE MADE. HOWEVER, UPON FU RTHER APPEAL, LD. CIT(A) HAS GRANTED CERTAIN RELIEF TO THE ASSESSEE V IDE ORDER DATED 31/01/2018 AND THE SAID ORDER HAS GIVEN RISE TO CRO SS-APPEALS BEFORE US. 4. AS EVIDENT FROM GROUNDS OF CROSS-APPEALS, THE FO LLOWING ISSUES FORM SUBJECT MATTER OF CROSS-APPEAL BEFORE US: - NO. NATURE OF ADDITION AMT. (RS.) 1. DISALLOWANCE U/S 14A RS.1204.31 LACS 2. INTEREST ON GOVT. & OTHER SECURITIES ON ACCRUAL BASIS INSTEAD OF DUE BASIS RS.4247.09 LACS 3. AMORTIZATION OF SECURITIES HELD UNDER HTM CATEGORY RS.2722.94 LACS 4. DEPRECIATION ON SECURITIES UNDER AFS AND HFT CATEGORY RS.650.87 LACS 5. BROKEN PERIOD INTEREST ON SECURITIES RS.64351.48 LACS THE ASSESSEE IS AGGRIEVED BY CONFIRMATION OF DISALL OWANCE U/S 14A WHEREIN REVENUE IS AGGRIEVED BY THE ACTION OF LD. C IT(A) IN GRANTING 4 RELIEF TO THE ASSESSEE ON ISSUES TABULATED AT SERIA L NOS. 2 TO 5. OUR FINDINGS AND ADJUDICATION TO ALL THE ISSUES WOULD B E AS FOLLOWS. 5. DISALLOWANCE U/S 14A:- 5.1 IT TRANSPIRED THAT THE ASSESSEE EARNED TAX FREE INCOME AGGREGATING TO RS.421.18 LACS IN THE FORM OF INTEREST ON TAX FR EE BONDS AND DIVIDEND ON SHARES AND MUTUAL FUNDS. HOWEVER, NO DISALLOWANC E WAS OFFERED U/S 14A READ WITH RULE 8D. THE ASSESSEE DEFENDED ITS ST AND BEFORE LD. AO BY WAY OF ELABORATE WRITTEN SUBMISSIONS, WHICH HAVE ALREADY BEEN EXTRACTED IN PARA 2.2 OF THE ASSESSMENT ORDER. HOWE VER, RELYING UPON CERTAIN JUDICIAL DECISIONS AND DISTINGUISHING THE D ECISIONS AS RELIED UPON BY ASSESSEE, LD. AO INVOKED THE PROVISIONS OF RULE 8D AND COMPUTED AGGREGATE DISALLOWANCE OF RS.1204.31 LACS WHICH COM PRISED-OFF OF INTEREST DISALLOWANCE U/R 8D(2)(II) FOR RS.1112.28 LACS AND INDIRECT EXPENSE DISALLOWANCE U/R 8D(2)(III) FOR RS. 92.03 L ACS. ACCORDINGLY, THE SAME WAS ADDED BACK TO THE INCOME OF THE ASSESSEE W HILE FRAMING THE ASSESSMENT. 5.2 THE LD. CIT(A) UPHELD THE ACTION OF LD. AO IN C OMPUTING THE DISALLOWANCE SINCE THE STATUTORY REQUIREMENTS OF SE C.14A(2) R.W.R 8D WERE DULY COMPLIED WITH BY LD. AO AND FURTHER, THE ASSESSEE COULD NOT PROVE THE NEXUS BETWEEN BORROWED FUNDS AND INVESTME NTS MADE. THE ASSESSEE, IN THE OPINION OF LD. CIT(A), FAILED TO E STABLISH ITS CLAIM THAT OWN FUNDS AND NOT BORROWED FUNDS WERE UTILIZED FOR MAKING INVESTMENTS IN TAX FREE INCOME YIELDING INVESTMENTS AND THEREFO RE, THE DISALLOWANCE WAS TO BE CONFIRMED. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 5.3 WE FIND THAT THIS ISSUE IS CONTAINED IN PARAS-3 8 TO 49 OF TRIBUNALS ORDER IN ASSESSEES OWN CASE FOR AY 2008-09, ITA NO S.3644/MUM/2016 5 & 4563/MUM/2016 ORDER DATED 03/02/2020 WHEREIN THE ISSUE HAS BEEN CONCLUDED WITH FOLLOWING OBSERVATIONS: - 48. WE NOTED FROM THE ABOVE DISCUSSION THAT, THE IS SUE OF DISALLOWANCE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D(2)(II) OF THE RULES IN REGARD TO INTEREST, IS COVERED BY THE DECISION OF HONBLE BOMBAY HIGH COUR T IN THE CASE OF HDFC LTD. (SUPRA), WHEREIN IT IS CLEARLY HELD THAT NO DISALLO WANCE CAN BE MADE IN THE RELATION TO INTEREST EXPENSES AS ASSESSEES OWN NON-INTEREST BE ARING FUNDS FAR EXCEED THE INVESTMENT AS DETAILS ARE NOTED ABOVE AND HENCE, TH IS ISSUE OF THE REVENUES APPEAL IS DISMISSED. 49. AS REGARDS TO THE ISSUE OF DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D(2)(III) OF THE RULES, THE ADMINISTRATIVE EXPENSE S THE INVESTMENT MADE IN SUBSIDIARIES / STRATEGIC INVESTMENT WHILE COMPUTING DISALLOWANCE IS DECIDED AGAINST THE ASSESSEE IN VIEW OF THE DECISION OF SUPREME COU RT IN THE CASE OF MAXOPP INVESTMENT LTD., (SUPRA). HOWEVER, IT IS TO CLARIFY THAT THOSE STRATEGIC INVESTMENT WHICH HAVE NOT YIELDED ANY EXEMPT INCOME DURING THE YEAR ARE TO BE EXCLUDED FOR THE PURPOSES OF COMPUTING AVERAGE VALUE OF INVESTME NT. EVEN OTHERWISE, THE LAW IS NOW SETTLED THAT THE INVESTMENT WHICH ARE GIVING EX EMPT INCOME DURING THE YEAR ARE TO BE CONSIDERED FOR THE PURPOSE OF DISALLOWANCE U/ S 14A OF THE ACT READ WITH RULE 8D(2)(III) OF THE RULES, I.E. THE ADMINISTRATIVE EX PENSES FOR THE PURPOSE OF COMPUTING AVERAGE VALUE OF INVESTMENT. WE DIRECT THE AO ACCOR DINGLY. THE AO WILL GO INTO THE DETAILS AND WILL COMPUTE THE DISALLOWANCE IN VIEW O F THESE OBSERVATIONS. THIS ISSUE IS REMANDED BACK TO THE FILE OF THE AO. SINCE THE FACTS ARE SHOWN TO BE IDENTICAL THIS YEAR , IN PRINCIPLE, WE HOLD THAT INTEREST DISALLOWANCE U/S 14A R.W.R. 8D(2)(II) WOULD NOT BE SUSTAINABLE SUBJECT TO VERIFICATION BY LD. AO THAT ASSESSEES OWN FUNDS FAR EXCEED THE INVESTMENTS MADE BY THE ASSESSEE. TH E ISSUE OF EXPENSE DISALLOWANCE IN TERMS OF RULE 8D(2)(III) WOULD STAN D RESTORED BACK TO THE FILE OF LD. AO WITH SIMILAR DIRECTIONS. THE GROUND, THUS RAISED BEFORE US, STANDS ALLOWED FOR STATISTICAL PURPOSES. SINCE THIS IS THE ONLY ISSUE IN ASSESSEES APPEAL, THE APPEAL STAND ALLOWED FOR STA TISTICAL PURPOSES. 6. BROKEN PERIOD INTEREST:- 6.1 THE TERM BROKEN PERIOD INTEREST REPRESENT INT EREST COMPONENT PAID BY THE ASSESSEE ON THE INTEREST-BEARING GOVERN MENT SECURITIES WHEN PURCHASED FROM THE MARKET. THE INTEREST ON GOV ERNMENT SECURITIES IS NORMALLY PAYABLE HALF-YEARLY. WHEN THE GOVERNMEN T SECURITIES ARE 6 TRADED, THE PURCHASER HAS TO PAY TO THE SELLER NOT ONLY THE PURCHASE PRICE OF THE SECURITIES, BUT ALSO THE INTEREST ACCRUED ON THE PURCHASED SECURITIES FROM THE LAST DUE DATE OF THE INTEREST T ILL THE DATE OF PURCHASE OF THE SECURITIES. THIS INTEREST IS REFERRED TO AS THE BROKEN PERIOD INTEREST. 6.2 DURING THE YEAR, THE ASSESSEE PAID BROKEN-PERIO D INTEREST OF RS.64351.48 LACS AND LIKEWISE RECEIVED BROKEN-PERIO D INTEREST OF RS.62243.31 LACS. THE DIFFERENTIAL OF THE TWO I.E. RS.2108.16 LACS WAS CLAIMED AS DEDUCTION ON THE REASONING THAT INTEREST PAID AND CHARGED TO PROFIT & LOSS ACCOUNT AS EXPENDITURE IS OFFERED TO TAX AS INTEREST INCOME BY CREDITING PROFIT & LOSS ACCOUNT ON THE RECEIPT O F COUPON INTEREST ON ITS DUE DATE OR ON SALE OF SECURITY IF IT PRECEDES THE DUE DATE OF INTEREST PAYMENT. IT WAS SUBMITTED THAT INVESTMENTS WERE HEL D AS STOCK-IN-TRADE AND COULD NOT BE TREATED AS CAPITAL OUTLAY AND THER EFORE, INTEREST COULD NOT BE CAPITALIZED. TO SUPPORT THE SAME, ATTENTION WAS DRAWN TO CBDT CIRCULAR NO.18/2015 DATED 02/11/2015 WHICH CLARIFIE D THAT INVESTMENTS MADE BY BANKING CONCERN WOULD FORM PART OF BUSINESS OF BANKING. 6.3 HOWEVER, LD. AO OPINED THAT THE EXPENDITURE SHO ULD BE ADDED TO THE COST OF SECURITIES SO PURCHASED BY THE ASSESSEE AS HELD BY HONBLE RAJASTHAN HIGH COURT IN CIT V/S BANK OF RAJASTHAN LTD. 2009 316 ITR 391) WHICH CONSIDERED THE DECISION OF HONBLE APEX COURT IN VIJAYA BANK LTD. V/S ADDL. CIT (1991 187 ITR 341) . IT WAS CONCLUDED BY LD. AO THAT INVESTMENTS IN SECURITIES WERE CAPITAL IN N ATURE BECAUSE A BANK MAKES LONG-TERM AS WELL AS SHORT-TERM CAPITAL INVES TMENT IN SECURITIES. THE MAIN BUSINESS OF THE BANK IS BANKING AND NOT TH E TRADING OF SECURITIES AND EARNING PROFIT FROM THE SAME. FURTHE R SIMILAR DISALLOWANCES WERE CONFIRMED BY LEARNED FIRST APPEL LATE AUTHORITY FOR AYS 2007-08 TO 2012-13 AS WELL AS BY TRIBUNAL FOR AYS 2 001-02, 2002-03 & 7 2005-06. THEREFORE, THE BROKEN PERIOD INTEREST EXPE NDITURE OF RS.64351.48 LACS WAS DISALLOWED AND ADDED TO THE IN COME OF THE ASSESSEE, COMPLETELY DISREGARDING THE BROKEN PERIOD INTEREST OFFERED TO TAX BY THE ASSESSEE. 6.4 THE LD. CIT(A), INTER-ALIA, NOTED THAT THE ASSE SSEE AS A SCHEDULED BANK WAS REQUIRED TO INVEST IN SECURITIES NOTIFIED BY RBI FOR VARIOUS STATUTORY COMPLIANCES AS PER RBI GUIDELINES APPLICA BLE TO BANKS AND THEREFORE, THE ASSESSEE PURCHASED / SOLD THE SECURI TIES FROM TIME TO TIME IN COMPLIANCE WITH BANKING REGULATIONS ACT, 1949. T HE SECURITIES WERE SHOWN AS INVESTMENTS IN BALANCE SHEET BUT TREATED A S STOCK-IN-TRADE FOR THE PURPOSE OF INCOME TAX COMPUTATIONS WHICH WERE E VIDENT FROM THE FACT THAT INTEREST AS WELL AS GAINS / LOSS ON SECUR ITIES WERE OFFERED TO TAX AS BUSINESS INCOME. THE AFORESAID TREATMENT WAS A CCEPTED BY LD. AO. IT WAS ALSO NOTED THAT THE ASSESSEE WAS FOLLOWING T HIS CONSISTENT SYSTEM OF ACCOUNTING FOR MORE THAN LAST 20 YEARS WHICH WAS ALSO ACCEPTED BY HONBLE RAJASTHAN HIGH COURT IN ASSESSEES OWN CASE FOR AYS 2000-01 TO 2002-03 AND 2005-06. THE ADJUDICATION OF HONBLE HIGH COURT ORDER DATED 17/05/2017 WAS EXTRACTED IN PARA 4.3.3 OF THE IMPUGNED ORDER WHEREIN THIS ISSUE WAS ANSWERED IN ASSESSEES FAVOR . IT WAS HELD THAT BROKEN PERIOD INTEREST IN RESPECT OF ALL THE THREE CATEGORIES OF SECURITIES WAS REVENUE IN NATURE AS PER THE SYSTEM OF ACCOUNTI NG REGULARLY FOLLOWED BY THE ASSESSEE AND ALSO ON THE GROUND THAT THE INV ESTMENTS WERE TREATED AS STOCK-IN-TRADE FOR INCOME TAX PURPOSES. THEREFORE, THE DISALLOWANCE WAS TO BE DELETED. AGGRIEVED, THE REVE NUE IS IN FURTHER APPEAL BEFORE US. 6.5 WE FIND THAT THIS ISSUE IS CONTAINED IN PARAS-1 15 TO 119 OF TRIBUNALS ORDER IN ASSESSEES OWN CASE FOR AY 2008 -09, ITA 8 NOS.3644/MUM/2016 & 4563/MUM/2016 ORDER DATED 03/02 /2020 WHEREIN A FINDING WAS RENDERED THAT SIMILAR ISSUE STOOD COV ERED IN ASSESSEES OWN CASE FOR AYS 1991-92 TO 1994-95 (ORDER DATED 19 /05/2008) WHICH WAS FOLLOWED BY TRIBUNAL IN SUBSEQUENT YEARS. FURTH ER, HONBLE BOMBAY HIGH COURT UPHELD DECISION OF TRIBUNAL BY DISMISSIN G REVENUES APPEAL FOR AY 1996-97 VIDE ORDER DATED 01/08/2016. ANOTHER FACT AS NOTED BY LD. CIT(A) IS THAT THE ASSESSEE WAS FOLLOWING SAME ACCOUNTING POLICY, IN THIS REGARD, FOR LAST MORE THAN 20 YEARS. THEREFORE , WE FIND NO INFIRMITY IN THE IMPUGNED ORDER IN DELETING THIS DISALLOWANCE. T HE GROUND RAISED BY REVENUE STAND DISMISSED. 7. INTEREST ON GOVT. & OTHER SECURITIES ON ACCRUAL BASIS INSTEAD OF DUE BASIS 7.1 THE ASSESSEE, IN ITS STATEMENT OF COMPUTATION, DEDUCTED INTEREST INCOME OF RS.1548.06 CRORES INCLUDED IN PROFIT ON A CCRUAL BASIS AND ADDED INTEREST INCOME OF RS.1505.59 CRORES ON DUE B ASIS. IT WAS EXPLAINED THAT INTEREST ON GOVERNMENT & OTHER SECUR ITIES HAS BEEN ACCOUNTED FOR ON ACCRUAL BASIS IN THE BOOKS OF ACCO UNT. HOWEVER, THE SAID INTEREST HAS BEEN INCLUDED IN THE INCOME OF TH E BANK ON DUE BASIS SINCE THE BANK GETS THE RIGHT TO RECEIVE THE SAID I NTEREST ONLY WHEN IT BECOMES DUE. IN SUPPORT, THE ATTENTION WAS DRAWN TO FAVORABLE DECISIONS OF TRIBUNAL FROM AYS 1989-90 TO 2004-05. 7.2 HOWEVER, LD. AO OPINED THAT DEDUCTION WAS NOT A LLOWABLE BECAUSE AS PER THE PROVISIONS OF SECTION 145(1) OF THE INCO ME TAX ACT, THE TAXABLE INCOME WAS TO BE COMPUTED ON THE BASIS OF M ETHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE UNLES S IT WAS AGAINST THE NORMAL ACCOUNTANCY PRINCIPLES OR THERE WERE STATUTO RY PROVISIONS GIVING CONTRARY / DIFFERENT TREATMENT TO SOME ITEMS. ACCOR DINGLY, DEDUCTION SO 9 CLAIMED BY THE ASSESSEE WAS NOT AVAILABLE. CONSEQUE NTLY, THE DIFFERENTIAL AMOUNT I.E. RS.4247.09 LACS WAS ADDED TO THE INCOME OF THE ASSESSEE. 7.3 THE LD. CIT(A) REVERSED THE STAND OF LD. AO BY RELYING UPON THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE FOR AYS 20 09-10 TO 2012-13 WHEREIN IT WAS HELD THAT THE INTEREST INCOME WAS TO BE TAXED ON DUE BASIS AND NOT ON ACCRUAL BASIS. AGGRIEVED, THE REVE NUE IS IN FURTHER APPEAL BEFORE US. 7.4 WE FIND THAT THIS ISSUE IS CONTAINED IN PARAS- 107 TO 114 OF TRIBUNALS ORDER IN ASSESSEES OWN CASE FOR AY 2008 -09 WHEREIN THE ISSUE HAS BEEN CONCLUDED IN ASSESSEES FAVOR WITH F OLLOWING OBSERVATIONS: - 114. WE NOTED THAT THIS GROUND OF APPEAL IS COVERED IN FAVOUR OF THE ASSESSEE VIDE THE AFOREMENTIONED ORDERS OF THE TRIBUNAL AND BOMBA Y HIGH COURT. THE RIGHT TO RECEIVE INTEREST ON SECURITIES ARISES ON DUE DATE O NLY, WHICH FALLS AFTER THE ACCOUNTING YEAR AND, ACCORDINGLY, IT CANNOT BE TAXE D IN THE ACCOUNTING YEAR ITSELF. HENCE, IN VIEW OF THE ABOVE DISCUSSION, WE DECIDED THIS ISSUE IN FAVOR OF ASSESSEE AND ACCORDINGLY, THIS GROUND OF REVENUES APPEAL IS DISMISSED. SINCE NO CHANGE IN FACTS HAS BEEN DEMONSTRATED BEFO RE US, RESPECTFULLY FOLLOWING THE ABOVE DECISION OF TRIBUNAL, WE DISMIS S THIS GROUND OF REVENUES APPEAL. 8. AMORTIZATION ON SECURITIES HELD UNDER HTM CATEGO RY:- 8.1 THE ASSESSEE DEBITED A SUM OF RS. 2722.94 LACS ON ACCOUNT OF AMORTIZATION IN RESPECT OF THE SECURITIES HELD UNDE R HELD-TO-MATURITY (HTM) CATEGORY AS PER RBI GUIDELINES. IN RESPECT OF HTM SECURITIES, THE BANK FOLLOWED TWO DIFFERENT SYSTEMS WHICH WERE INCO NSISTENT WITH EACH OTHER. WHEN THE PURCHASE PRICE OF SECURITIES IS LES S THAN THE FACE VALUE AT WHICH THE SECURITY IS ULTIMATELY SOLD, THE DIFFE RENCE IS BOOKED AS PROFIT ONLY IN THE YEAR OF SALE. BUT WHEN THE COST PRICE I S MORE THAN THE FACE 10 VALUE THE LOSS IS NOT BOOKED IN THE YEAR OF SALE BU T IT IS SPREAD OVER THE PERIOD OF HOLDING. THE LD. AO OPINED THAT IF THE SE CURITIES ARE HELD AS INVESTMENTS, THERE WOULD BE NO QUESTION OF ALLOWANC E OF ANY AMOUNT TILL SUCH TIME AS THE SECURITIES ARE SOLD OR MATURED. EV EN OTHERWISE IF THE SECURITIES WERE HELD AS STOCK-IN-TRADE, AS PER RBI S GUIDELINES, THE METHOD OF VALUATION OF CLOSING STOCK ADOPTED IN RES PECT OF SECURITIES IN HTM CATEGORY WOULD BE COST PRICE WHICH WAS ONE OF T HE TWO RECOGNIZED METHOD OF VALUATION. SINCE THE COST PRICE WOULD BE CONSTANT, THERE WOULD BE NO QUESTION OF DEDUCTION OF ANY AMOUNT UNDER COM MERCIAL PRINCIPLES EVEN IF HTM SECURITIES ARE ACCEPTED TO BE HELD AS S TOCK-IN-TRADE FOR THE ASSESSEE. WHATEVER LOSS IS SUFFERED ON SALE OF REDE MPTION OF SECURITIES WILL CONSTITUTE LOSS IN THE YEAR OF SALE OR REDEMPT ION. THEREFORE, NO DEDUCTION WOULD BE AVAILABLE TO THE ASSESSEE. THE A SSESSEE POINTED OUT THAT RBI CIRCULAR FOR FINANCIAL YEAR 2012-13 SPECIF ICALLY PROVIDED THAT IN CASE OF PERMANENT DIMINUTION, THE EXCESS OF ACQUISI TION COST OVER THE FACE VALUE IS TO BE AMORTIZED OVER THE REMAINING PE RIOD OF SECURITIES. THEREFORE, THE ACTION OF ASSESSEE IN CLAIMING THE D EDUCTION WAS IN LINE WITH THE SAID CIRCULAR WHICH WAS ALSO THE MANDATE O F CBDT CIRCULAR NO. 17/2008 DATED 26/11/2008. IT WAS ALSO SUBMITTED THA T SIMILAR ISSUE WAS HELD IN ASSESSEES FAVOR BY FIRST APPELLATE ORDERS FOR AYS 2005-06 TO 2011-12. THE REVENUES APPEAL FOR AY 2005-06 STOOD DISMISSED BY TRIBUNAL ON THIS ISSUE. 8.2 HOWEVER, THE ASSESSEES SUBMISSIONS WERE REJECT ED BY LD. AO ON THE GROUND THAT THOUGH THE CLAIM WAS MADE AS PER RB I GUIDELINES, HOWEVER, THESE GUIDELINES WERE MEANT ONLY AS GUIDIN G FACTORS TO DETERMINE COMMERCIAL PROFITS FOR VARIOUS PURPOSES O N CONSERVATISM PRINCIPLES. THE TOTAL INCOME HAS TO BE COMPUTED AS PER MANDATE OF 11 INCOME TAX ACT AND A RECOGNIZED SYSTEM OF ACCOUNTIN G HAS TO BE FOLLOWED U/S 145 OF THE ACT. THEREFORE, THE AFORESA ID AMOUNT WAS DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSE SSEE. 8.3 THE LD. CIT(A) REVERSED THE STAND OF LD. AO BY RELYING UPON APPELLATE ORDERS FOR AYS 2005-06, 2006-07, 2009-10 TO 2012-13 WHEREIN IT WAS HELD THAT DEDUCTION FOR AMORTIZATION OF PREM IUM PAID ON PURCHASE OF SECURITIES UNDER HTM CATEGORY WOULD BE AN ALLOWA BLE DEDUCTION. THE FINDINGS GIVEN IN APPELLATE ORDER FOR AY 2009-10 HA S BEEN EXTRACTED IN PARA 7.4.2 OF THE IMPUGNED ORDER. AGGRIEVED, THE R EVENUE IS IN FURTHER APPEAL BEFORE US. 8.4 WE FIND THAT THIS ISSUE IS CONTAINED IN PARAS-1 34 TO 137 OF TRIBUNALS ORDER IN ASSESSEES OWN CASE FOR AY 2008 -09 WHEREIN THE ISSUE WAS FOUND TO BE SQUARELY COVERED IN ASSESSEE S FAVOR FOR AY 1995- 96 BY THE ORDER OF TRIBUNAL DATED 17/09/2009. THIS DECISION WAS FOLLOWED IN AY 1996-97 VIDE ORDER DATED 26/07/2013. FURTHER, HONBLE BOMBAY HIGH COURT DISMISSED REVENUES APPEAL, ON THIS ISSU E, FOR AY 1996-97. THE LD. CIT(A) HAS ALSO RELIED UPON APPELLATE ORDER S FOR EARLIER YEARS. THEREFORE, FACTS BEING IDENTICAL, WE DISMISS THIS G ROUND OF REVENUES APPEAL. 9. DEPRECIATION ON SECURITIES UNDER AVAILABLE FOR SALE (AFS) AND HELD FOR TRADING (HFT) CATEGORY:- 9.1 THE ASSESSEE CLAIMED DEPRECIATION OF RS.650.87 LACS ON SECURITIES HELD UNDER AVAILABLE-FOR-SALE (AFS) CATEGORY. THERE WAS NO INVESTMENT UNDER HELD-FOR-TRADING (HFT) CATEGORY. THE OPENING PROVISION WAS RS.1679.28 LACS WHEREAS CLOSING PROVISION WAS RS.16 38.05 LACS. UPON PERUSAL OF DETAILS, IT TRANSPIRED THAT THE CLOSING PROVISION WAS WORKED OUT 12 BY ADDING NET DEPRECIATION UNDER DIFFERENT INVESTME NT CATEGORIES AS TABULATED BELOW: - CATEGORY APPRECIATION DEPRECIATION NET DEPRECIATION GOVT. SECURITIES RS. 4369923 RS. 92844995 RS. 88475071 OTHER APPROVED SECURITIES RS. NIL RS. NIL RS.NIL SHARES RS.497349058 RS.380006795 RS.48916899 DEBENTURES & BONDS RS. 80605536 RS.8141492 RS.NIL SUBSIDIARIES/ JOINT VENTURES RS.NIL RS.NIL RS.NIL OTHERS RS. 3783577 RS. 30197540 RS. 26413963 TOTAL RS.586108094 RS.5111 90822 RS. 163805934 9.2 THE LD. AO OPINED THAT THIS WAY OF WORKING WAS NOT IN COHERENCE WITH GUIDELINES LAID DOWN BY CBDT IN INSTRUCTION NO . 17 OF 2008 DATED 26/11/2008 WHICH MANDATE THAT APPRECIATION / DEPREC IATION IS TO BE AGGREGATED SCRIP WISE AND ONLY NET DEPRECIATION, IF ANY IS REQUIRED TO BE PROVIDED IN THE ACCOUNTS. AS AGAINST THE SAME, THE ASSESSEE FIRST COMPARED THE NET DEPRECIATION IN EACH OF THE SIX CA TEGORIES AND THEN ADDED THE NET DEPRECIATION WHEREAS THE DEPRECIATION FOR ALL THE CATEGORIES SHOULD BE COMPARE WITH APPRECIATION WITH ALL THE CATEGORIES AND ONLY NET DEPRECIATION SHOULD BE PROVIDED. SINCE THE DIFFERENTIAL OF AGGREGATE OF APPRECIATION AND DEPRECIATION, AS TABU LATE ABOVE, IS APPRECIATION (NET) OF RS.749.17 LACS, NO DEPRECIATI ON IS TO BE ALLOWED. THE ASSESSEE DEFENDED ITS STAND BY SUBMITTING THAT THE ASSESSEE WAS FOLLOWING CONSISTENT METHOD OF VALUING ITS INVESTME NTS AND THE SAME WAS IN CONFORMITY WITH POLICY SUGGESTED BY RBI. HOWEVER , THE SAID PLEA COULD 13 NOT FIND FAVOR WITH LD. AO WHO DISALLOWED THIS CLAI M MADE BY THE ASSESSEE. 9.3 THE LD. CIT(A) REVERSED THE STAND OF LD. AO BY RELYING UPON ORDER OF TRIBUNAL IN ASSESSEES OWN CASE FOR AYS 2002-03, 2004-05 & 2005- 06. SIMILAR VIEW WAS TAKEN IN APPELLATE ORDERS FOR SUBSEQUENT YEARS. THE FINDINGS GIVEN IN APPELLATE ORDER FOR 2009-10 HAS B EEN EXTRACTED IN PARA 8.4.2 OF THE IMPUGNED ORDER. AGGRIEVED, THE REVENUE IS IN FURTHER APPEAL BEFORE US. 9.4 WE FIND THAT THIS ISSUE IS CONTAINED IN PARAS-6 0 TO 68 OF TRIBUNALS ORDER IN ASSESSEES OWN CASE FOR AY 2008-09 WHEREIN THE ISSUE HAS BEEN CONCLUDED IN ASSESSEES FAVOR BY OBSERVING AS UNDER: - 68. THE ASSESSEE ALSO RELIED ON THE JUDGEMENT OF TH E BOMBAY HIGH COURT IN THE CASE OF UNION BANK OF INDIA DATED 08.02.2016 IN ITA 1977 OF 2013. THE ASSESSEE IN THIS CASE FOR THE PURPOSE OF ITS BOOKS WAS NETTING OFF THE DEPRECIATION IN ITS SECURITIES AGAINST APPRECIATION IN OTHER SECURITIES WHILE FOR TAX PURPOSE, THE ASSESSEE HAS BEEN CLAIMING GROSS DEPRECIATION THAT IS WITHOUT NE TTING OF THE APPRECIATION IN OTHER SECURITIES HELD AS A PART OF INVESTMENT. THE BOMBAY HIGH COURT HAS DISMISSED THE APPEAL OF THE REVENUE AND HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. IT IS ARGUED THAT THE FACTS OF THE PRESENT CASE ARE EXACT LY SAME AS IN THE AFORESAID CASE OF UNION BANK OF INDIA. THIS ISSUE STANDS COVERED B Y THE JUDGEMENT OF THE JURISDICTIONAL HIGH COURT. THE FACTS OF THE ASSESSE ES CASE AND THE FACTS IN THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF HA RINAGAR SUGAR MILLS LTD. VS. CIT [1994] 207 ITR 901 (BOMBAY), RELIED BY THE AO ARE D IFFERENT. IN THE AFORESAID DECISION, THE ASSESSEE HAD CHANGED THE METHOD OF VA LUING STOCK IN THE YEAR UNDER CONSIDERATION, WHEREAS IN THE ASSESSEES CASE, THER E IS NO CHANGE IN THE METHOD OF VALUATION. ALSO, IN THAT CASE, SUGAR WAS VALUED DIF FERENTLY BY BIFURCATING THE STOCK INTO 'LEVY SUGAR' AND 'FREE SUGAR'. THE COURTS CON CLUSION IS BASED ON THE FACT THAT THERE WAS NO JUSTIFICATION FOR BIFURCATION OF SUGAR BETWEEN FREE AND LEVY SUGAR. THE MUMBAI TRIBUNAL IN THE CASE OF DCIT VS. MAJESTIC HO LDINGS AND FINVEST (P.) LTD. [2010] 2 ITR(T) 407 (MUMBAI) HAS NOTED THAT THE REL IANCE OF THE DEPARTMENTAL REPRESENTATIVE ON THE JUDGEMENT OF THE BOMBAY HIGH COURT IN THE CASE OF HARINAGAR SUGAR MILLS LTD. IS MISCONCEIVED INASMUCH AS IN THAT CASE THERE WAS NOTHING TO SHOW THE BIFURCATION OF THE CLOSING STIC K OF SUGAR INTO LEVY SUGAR AND FREE SUGAR AND HENCE, THE ASSESSEE WAS OBLIGATED TO VALU E THE ENTIRE STOCK AT ONE VALUE. IN THE ASSESSEES CASE AS WELL, EACH SCRIP IS DIFFE RENT AND THEREFORE REQUIRES INDEPENDENT VALUATION. THE CIT DR PLACED RELIANCE O N THE DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF JCIT VS. DENA BANK [2012] 2 0 TAXMANN.COM 278 (MUMBAI). IN THE AFOREMENTIONED CASE, THE SECURITY WAS PURCHA SED IN YEAR 1 AT RS. 100 AND THE MARKET PRICE AT THE END OF THE YEAR WAS RS. 90. ACC ORDINGLY, THE STOCK WAS VALUED AT MARKET PRICE OF RS. 90 BEING LOWER THAN THE COST. I N YEAR 2, THE MARKET PRICE WENT 14 UPTO RS. 95. ACCORDINGLY, THE STOCK WAS VALUED AT M ARKET PRICE OF RS. 95 BEING LOWER THAN THE COST. HOWEVER, SUPPOSE IN YEAR 3, THE MARK ET VALUE RISES TO RS. 120, IN SUCH A SITUATION, THE STOCK WOULD BE VALUED AT COST I.E RS. 100, BEING LOWER THAN THE MARKET PRICE. THE MUMBAI TRIBUNAL HELD THAT EXCESS OF APPRECIATION OVER THE COST PRICE WOULD NOT BE CONSIDERED FOR VALUING THE CLOSI NG STOCK. IN THE PRESENT CASE, WE ARE NOT CONCERNED WITH A SCENARIO WHERE IN THE LAT ER YEAR THE DEPRECIATION PROVIDED IN EARLIER YEARS IS REDUCED. FURTHER, THE DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF DEUTSCHE BANK A.G VS. DCIT [2003] 86 ITD 431 (MU MBAI), RELIED BY THE AO IS IN CONNECTION WITH VALUATION OF FOREIGN EXCHANGE FORWA RD CONTRACTS. IN THIS CASE THE ASSESSEE DID NOT ACCOUNT FOR IN THE FINANCIAL STATE MENT THE ANTICIPATED/CONTINGENT PROFITS FROM THE CONTRACTS TO THE EXTENT NOT SETTLE D AS ON THE LAST DAY OF THE ACCOUNTING YEAR WHEREAS ANY LOSS ON SUCH CONTRACTS WAS PROVIDED FOR BY A CHARGE IN THE PROFIT AND LOSS ACCOUNT ON THE BEST ESTIMATES. THE DEPARTMENT BROUGHT TO TAX THE PROFIT ON SUCH FORWARD EXCHANGE CONTRACTS AND STATE D THAT ONE METHOD FOR VALUATION OF THE ENTIRE STOCK OF SECURITIES SHOULD BE FOLLOWE D. THIS RESULTED IN A SITUATION OF TAXING APPRECIATION OF STOCK, WHICH GOES AGAINST TH E GENERAL AND SETTLED PRINCIPLE OF NON-TAXATION OF NOTIONAL INCOME, AS LAID BY THE SUP REME COURT IN THE CASE OF SANJEEV WOLLEN MILLS VS. CIT [2005] 279 ITR 434 (SC ) AND OTHERS DISCUSSED SUPRA. HENCE, WE ARE OF THE VIEW THAT THIS DISALLOWANCE OF DEPRECIATION/ REDUCING OF DEPRECIATION ON APPRECIATION IN THE VALUE OF SECURI TIES HELD AS AVAILABLE FOR SALE AND HELD FOR TRADING CATEGORY ARE ALLOWABLE. WE DIRECT THE AO ACCORDINGLY . THE LD. CIT(A) HAS ALSO RELIED UPON VARIOUS FAVORAB LE ORDERS OF EARLIER YEARS WHILE ADJUDICATING THE ISSUE. FACTS BEING IDE NTICAL, RESPECTFULLY FOLLOWING THE ABOVE DECISION OF TRIBUNAL, WE DISMIS S THIS GROUND OF REVENUES APPEAL. CONCLUSION 10. THE ASSESSEES APPEAL STAND ALLOWED FOR STATIST ICAL PURPOSES. THE REVENUES APPEAL STAND DISMISSED. ORDER PRONOUNCED ON 03 RD MARCH, 2021 SD/- SD/- (MAHAVIR SINGH) (MANOJ KUMAR AGGARWAL) / VICE PRESIDENT / ACCOUNTANT MEMBER MUMBAI; DATED : 03/03/2021 SR.PS, KASARLA THIRUMALESH/SR.PS, JAISY VARGHESE !'! / COPY OF THE ORDER FORWARDED TO : 1. &( / THE APPELLANT 15 2. )*&( / THE RESPONDENT 3. 1 ( ) / THE CIT(A) 4. 1 / CIT CONCERNED 5. 23),4 , 4 , / DR, ITAT, MUMBAI 6. 3567 / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.