The Dy. C.I.T., Jalandhar V. M/s. Capial Local Area Bank Ltd, Jalandhar

ITA 402/ASR/2010

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8700 (ITAT-AMRITSAR)
• Duration Of Justice: 6 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 25-01-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 23-09-2010

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR (CAMP AT JALANDH AR ) BEFORE SH. A.D.JAIN, JUDICIAL MEMBER AND SH. T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A NO.209(ASR)/2010 ASSESSMENT YEAR: 2006-07 M/S. CAPITAL LOCAL AREA BANK LTD., JALANDHAR. PAN: AABCC3632Q VS. ADDL. CIT-III, JALANDHAR. (APPELLANT) (RESPONDENT) I.T.A NO.523(ASR)/2013 ASSESSMENT YEAR: 2007-08 I.T.A NO.524(ASR)/2013 ASSESSMENT YEAR: 2008-09 I.T.A NO.150(ASR)/2013 ASSESSMENT YEAR: 2009-10 M/S. CAPITAL LOCAL AREA BANK LTD., JALANDHAR. PAN: AABCC3632Q VS. DY. CIT-III, JALANDHAR. (APPELLANT) (RESPONDENT) I.T.A NO.402(ASR)/2010 ASSESSMENT YEAR: 2007-08 DCIT, RANGE-III, JALANDHAR. VS. M/S. CAPITAL LOCAL AREA BANK LTD., MIDAS CORPORATE PARK, 3 RD FLOOR, 37, G.T. ROAD, JALANDHAR. PAN:AABCC3632Q (APPELLANT) (RESPONDENT) 2 CROSS OBJECTION NO.32(ASR)/2010 (ARISING OUT OF ITA NO.402(ASR)/2010) ASST. YEAR 2007-08 M/S. CAPITAL LOCAL AREA BANK LTD., MIDAS CORPORATE PARK, 3 RD FLOOR, 37, G.T. ROAD, JALANDHAR. PAN:AABCC3632Q VS. DCIT, RANGE-III, JALANDHAR. (CROSS OBJECTOR) (RESPONDENT) ITA NO.233(ASR)/2010 ASSESSMENT YEAR: 2006-07 I.T.A NO.117(ASR)/2011 ASSESSMENT YEAR: 2008-09 DY CIT, RANGE-III, JALANDHAR. VS. M/S. CAPITAL LOCAL AREA BANK LTD., MIDAS CORPORATE PARK, 3 RD FLOOR, 37, G.T. ROAD, JALANDHAR. PAN:AABCC3632Q (APPELLANT) (RESPONDENT) CROSS OBJECTION NO.13(ASR)/2015 (ARISING OUT OF ITA NO.117(ASR)/2011) ASST. YEAR: 2008-09 M/S. CAPITAL LOCAL AREA BANK LTD., MIDAS CORPORATE PARK, 3 RD FLOOR, 37, G.T. ROAD, JALANDHAR. PAN:AABCC3632Q VS. DCIT, RANGE-III, JALANDHAR. (CROSS OBJECTOR) (RESPONDENT) I.T.A NO.602(ASR)/2016 ASSESSMENT YEAR: 2012-13 3 I.T.A NO.603(ASR)/2016 ASSESSMENT YEAR: 2013-14 I.T.A NO.349(ASR)/2012 ASSESSMENT YEAR: 2006-07 I.T.A NO.557(ASR)/2014 ASSESSMENT YEAR: 2011-12 I.T.A NO.288(ASR)/2013 ASSESSMENT YEAR: 2010-11 ACIT, CIRCLE-3, JALANDHAR. VS. M/S. CAPITAL LOCAL AREA BANK LTD., 37, G.T. ROAD, JALANDHAR. PAN:AABCC3632Q (APPELLANT) (RESPONDENT) CROSS OBJECTION NO.36(ASR)/2013 (ARISING OUT OF ITA NO.288(ASR)/2013) ASST. YEAR: 2008-09 M/S. CAPITAL LOCAL AREA BANK LTD., MIDAS CORPORATE PARK, 3 RD FLOOR, 37, G.T. ROAD, JALANDHAR. PAN:AABCC3632Q VS. DY. CIT, RANGE-III, JALANDHAR. (CROSS OBJECTOR) (RESPONDENT) I.T.A NO.521(ASR)/2013 ASSESSMENT YEAR: 2007-08 I.T.A NO.522(ASR)/2013 ASSESSMENT YEAR: 2008-09 I.T.A NO.119(ASR)/2013 ASSESSMENT YEAR: 2009-10 4 ADDL. CIT, CIRCLE-VI, JALANDHAR. VS. M/S. CAPITAL LOCAL AREA BANK LTD., JALANDHAR. PAN: AABCC3632Q (APPELLANT) (RESPONDENT) APPELLANT BY: SH. J.S.BHASIN (ADV.) RESPONDENT BY: SH. BHAWANI SHANKAR (DR.) DATE OF HEARING: 25.01.2017 DATE OF PRONOUNCEMENT:15.03.201 7 ORDER PER T. S. KAPOOR (AM): THIS IS A BUNCH OF 18 APPEALS CONSISTING OF APPEALS AND CROSS OBJECTIONS FILED BY ASSESSEE AS WELL AS BY REVENUE AGAINST THE SEPARATE ORDERS OF LD. CIT(A) FOR ASST. YEARS:2006-07 TO 201 1-12. 2. FOR THE SAKE OF CONVENIENCE, THE ISSUES RAISED BY THE ASSESSEE AS WELL AS BY REVENUE IN VARIOUS APPEALS ARE SUMMARIZE D AS UNDER: SNO. CASE NO. A.Y REMARKS ISSUED INVOLVED 1. ITA NO.209/ASR/2010 2006-07 ASSESSEE'S APPEAL 1. DISALLOWANCE OF LOSS RS.37,51,000/- ON INTER- TRANSFER REVALUATION OF INVESTMENT 2. ITA NO.233/ASR/2010 2006-07 REVENUE APPEAL A) DISALLOWANCE OF RS.45,75,307/- ON A/C OF 'DEPRECIATION ON INVESTMENT' B) DISALLOWANCE OF BROKEN PERIOD INTEREST RS.19,11,491/- 3. ITA NO.349/ASR/2012 2006-07 REVENUE APPEAL AGAINST PENALTY U/S.271(L) 4. CO. 32/ASR/2010 2007-08 ASSESSEE'S CO DISALLOWANCE OF LOSS OF RS.76,92,103/- ON REVALUATION OF INTER - 5 TRANSFER OF SE6.CURITIES/INVESTMENTS. 2.DISALLOWANCE OF RS.1,50,000/- ON 'KEYMAN INSURANCE'. 5. ITA NO.402/ASR/2010 2007-08 REVENUE'S APPEAL 1. DISALLOWANCE OF BROKEN PERIOD INTEREST RS.RS.38,64,067/- 6. ITA NO. 521/ASR/2013 2007-08 REVENUE APPEAL AGAINST PENALTY U/S.271(L) 7. ITA NO. 523/ASR/2013 2007-08 'A' APPEAL AGAINST PEN ALTY U/S.271(1) 8. ITA NO. 117/ASR/2011 2008-09 REVENUE APPEAL 1.DISALLOWANCE OF RS.12,14,308/- ON A/C OF 'DEPRECIATION ON INVESTMENT'. 2.DISALLOWANCE OF BROKEN PERIOD INTEREST RS.67,03,152/- 9. CO. NO /ASR/2015 2008-09 ASSESSEE'S CO 1.DISALLOWANCE OF RS.35,12,593/-LOSS ON REVALUATION OF INTER- CATEGORY INVESTMENTS. 2.RS. 1,50,000/- DISALLOWANCE OF KEY MAN INSURANCE PREMIUM 10. ITA NO.522/ASSR/2013 2008-09 REVENUE APPEAL AGAINST PENALTY U/S.271(L) 11. ITA NO. 524/ASR/2013 2008-09 'A' APPEAL -DO- -DO- ITA NO. 119/ASR/2013 2009-10 REVENUE APPEAL 1.DISALLOWNACE OF BROKEN PERIOD INTER OF RS.25,92,483/- 12. ITA NO. 150/ASR/2013 2009-10 'A' APPEAL 1.DISALLOWANCE OF RS.25,17,905/- ON A/C OF LOSS ON REVALUATION. 2.DISALLOWANCE OF RS.1,50,000/- ON 'KEYMAN INSURANCE'. 13. ITA NO. 288/ASR/2013 2010-11 REVENUE APPEAL 1.DISALLOWANCE OF BROKEN PERIOD INTER OF RS.4398880/-. 2.DISALLOWANCE OF RS.49,06,346/- ON OF 'DEPRECIATION ON INVESTMENT' 14. CO NO. 36/ASR/2013 2010-11 CO BY 'A' 1. DISALLOWANCE OF RS.1,50,000/- 'KEYMAN INSURANCE'. 15. ITA NO.557/ASR/2014 2011-12 REVENUE'S APPEAL 1.DISALLOWANCE OF RS.70,47,000/- AS DEPRECIATION ON INVESTMENT. 2.DISALLOWANCE OF BPI OF RS.3162722/-. 6 16. ITA NO.602/ASR/2016 2012-13 -DO- 1. DISALLOWANCE RS. 1,06,08,300/- DEPRECIATION ON INVESTMENT; 2. DISALLOWANCE OF BROKEN PERIOD INTEREST RS.85,49,250/- 17. ITA NO.603/ASR/2016 2013-14 -DO- RS.94,73,652/- DISALLOWANCE OF BROKEN PERIOD INTEREST ON INVESTMENT. 3. THESE APPEALS WERE HEARD TOGETHER AND COMMON ISS UES ARE INVOLVED IN THESE APPEALS AND THEREFORE, FOR THE SA KE OF CONVENIENCE A COMMON AND CONSOLIDATED ORDER IS BEING PASSED. 4. AT THE OUTSET, THE LD. AR INVITED OUR ATTENTION TO THE FACT THAT CROSS OBJECTIONS FILED BY ASSESSEE IN ASST. YEAR:20 08-09 WERE DELAYED BY A PERIOD OF 1422 DAYS AND REASON FOR DELAY WAS THE NON DELIVERY OF ORIGINAL C.O FILED BY ASSESSEE WITH THE ASSISTANT R EGISTRAR, ITAT, AMRITSAR. IT WAS SUBMITTED THAT ON RECEIPT OF REVEN UES APPEAL ON 19.04.2011, THE CROSS OBJECTIONS WERE PREPARED/FINA LIZED ON 28.04.2011 AND WERE SENT THROUGH COURIERS NAMELY M/S DOLPHIN S ERVICE, MANDI FENTON GANJ, JALANDHAR ON THE SAME DATE I.E. ON 28. 04.2011 ITSELF,, AS PER RECEIPT NO.228359 GIVEN BY THE SAID COURIER. HA VING SENT THE CO BY COURIER, IT WAS BELIEVED TO HAVE REACHED THE TRIBUN AL IN NORMAL COURSE. 5. THEREAFTER, FURTHER APPEALS AND CROSS OBJECTIONS WERE FILED BY REVENUE AND ASSESSEE FOR ASST. YEARS 2009-10, 2010- 11 AND 2011-12, AND THE WHOLE BUNCH OF CASES WERE SIMULTANEOUSLY FI XED FOR HEARING ON SEVERAL OCCASIONS, BUT NO EFFECTIVE HEARING TOOK PL ACE ON ANY SUCH DATE. SINCE, THE WHOLE BUNCH OF CASES WERE FIXED ON A SIN GLE DATE AND 7 ADJOURNED AS SUCH TO ANOTHER DATE, ONE TO ONE APPEA LS FIXED FOR HEARING, WERE NOT TAKEN PARTICULAR NOTE OF IN NORMAL COURSE. IT WAS FURTHER SUBMITTED THAT WHEN THE APPEALS WERE FIXED FOR HEARING ON 26.08.2014, YEAR-WISE LIST OF ALL THE CASES FIXED F OR HEARING WAS PREPARED, TO SEGREGATE CASES HAVING ONLY ISSUE OF KEY MAN IN SURANCE AND THE OTHERS HAVING MULTIPLE ISSUES. WHILE PREPARING THIS LIST, IT CAME TO NOTICE THAT OUR C.O FOR A.Y:2008-09 WAS NOT LISTED FOR HEA RING, THOUGH THE REVENUES APPEAL DID FIGURE IN THE CAUSE LIST. THEREFORE, VIDE LETTER DATED 03.09.2014, THE ASSESS EE ASKED THE STATUS OF ITS C.O FROM THE REGISTRAR, ITAT, AMRITSA R & IN REPLY THE ASSESSEE RECEIVED A LETTER DATED 31.03.2015, FROM T HE ASSISTANT REGISTRAR, ITAT AMRITSAR INTIMATING THAT AS PER RECORDS OF HIS OFFICE, NO CROSS OBJECTION HAS BEEN FILED TILL DATE, THEREFORE, ON R ECEIPT OF THE SAID LETTER DATED 31.03.2015 THE ASSESSEE FILED A FRESH C.O, TH US, THE C.O NOW FILED INVOLVED A DELAY OF 1422 DAYS INCLUSIVE 0F 210 DAYS TAKEN BY THE REGISTRY TO REPLY OUR LETTER DATED 03.09.2014. IT WAS SUBMIT TED THAT THE NON DELIVERY OF ORIGINAL C.O WAS FIRST TRACED ON 26.08. 2014 AND ON RECEIPT OF REPLY FROM REGISTRAR, AMRITSAR BENCH, THE C.O HAS B EEN FILED AFRESH. THE LD. AR SUBMITTED THAT THE FACTS AND CIRCUMSTANCES S TATED HEREINABOVE, WHICH CAUSED THE DELAY DO NOT LEAVE ANY SHADOW OF D OUBT THAT THERE WAS NO MALAFIDE INVOLVED AT ANY STAGE. THEREFORE, IT WA S PRAYED THAT THERE WAS SUFFICIENT CAUSE TO PREVENT THE ASSESSEE FROM P RESENTING THE CROSS OBJECTION IN TIME AND THEREFORE, DELAY MAY BE CONDO NED. 8 6. THE LD. DR HAD NO OBJECTION TO THE CONDONATION O F DELAY IN FILING OF CROSS OBJECTIONS AND FINDING THE REASONS FOR DELAY IN FILING OF CROSS OBJECTIONS AS BONAFIDE WE CONDONED THE DELAY AND TH E LD. AR WAS DIRECTED TO PROCEED WITH HIS ARGUMENTS. 7. THE LD. AR INVITED OUR ATTENTION TO THE BRIEF SY NOPSIS FILED BY HIM AND SUBMITTED THAT ASSESSEE IS A COMMERCIAL BANK AN D WAS ENGAGED IN ALL KINDS OF BANKING BUSINESS FOR WHICH IT WAS STRI CTLY GOVERNED BY BANKING REGULATION ACT 1949 AND ENFORCED THROUGH T HE RESERVE BANK OF INDIA (RBI). BEING A BANKING COMPANY INVESTMENTS MA DE IN GOVT. SECURITIES, SHARES AND BONDS ETC. IN THE NORMAL COU RSE WAS ONE OF THE MOST SIGNIFICANT, MANDATORY AND REGULAR BANKING ACT IVITY WHICH WAS STRICTLY REGULATED BY THE RBI BY ISSUE OF PERIODICA L GUIDELINES/ INSTRUCTIONS AND MONITORED BY SEEKING REGULAR AUDIT REPORTS AND ALSO BY MAKING SURPRISE CHECKS. 8. THE LD. AR RELIED ON THE WRITTEN SYNOPSIS AND EX TENSIVELY READ FROM THE SYNOPSIS. THE LD. AR FIRST TOOK UP THE APP EALS FILED BY ASSESSEE AND IT WAS SUBMITTED THAT THERE WERE THREE ISSUES I NVOLVED IN ASSESSEES APPEALS AND ITS CROSS OBJECTIONS. AS REGARDS THE F IRST ISSUE OF DISALLOWANCE OF LOSS ON INTER TRANSFER REVALUATION OF INVESTMENT, THE LD. AR SUBMITTED THAT ASSESSEE HAD BEEN MAINTAINING THR EE PORTFOLIOS OF INVESTMENTS SUCH AS HELD TO MATURITY HELD FOR TR ADING & AVAILABLE FOR SALE. IT WAS SUBMITTED THAT THE AS PER RBI GUI DELINES, THE ASSESSEE WAS REQUIRED TO MENTION AND CLASSIFY THE SECURITIES AS TO WHETHER THEY 9 WERE TO BE HELD TO MATURITY HELD FOR TRADING OR AVAILABLE FOR SALE, AT THE TIME OF PURCHASE OF SECURITIES AND IT WAS PERMI TTED TO INTER-TRANSFER THE SECURITIES AMONG THE THREE CATEGORIES. IT WAS F URTHER SUBMITTED THAT AS PER RBI GUIDELINES THE TRANSFER OF SECURITIES AM ONG THE CATEGORIES HAS TO BE DONE AT MARKET PRICES. IT WAS SUBMITTED THAT DURING THESE YEARS, THE ASSESSEE HAD MADE CERTAIN INTER-TRANSFER OF SEC URITIES AND WHILE RECORDING THE TRANSFER THE SECURITIES WERE VALUED A T MARKET PRICES AND THEREFORE, HAD SUFFERED LOSS WHICH IT HAD CLAIMED I N ITS P&L ACCOUNTS. IT WAS SUBMITTED THAT ANOTHER TYPE OF LOSS WHICH THE A SSESSEE HAD BOOKED IN ITS P&L ACCOUNTS RELATED TO DIMINUTION IN THE VA LUATION OF SECURITIES AT THE CLOSE OF THE YEAR. THE LD. AR SUBMITTED THAT TH E LD. CIT(A) HAS UPHELD THE ACTION OF ASSESSING OFFICER IN DISALLOWI NG THE LOSS BOOKED BY ASSESSEE ON INTER-TRANSFER OF SECURITIES IN BETWEEN THE YEAR WHEREAS HE HAS ALLOWED RELIEF TO THE ASSESSEE WHICH THE ASSESS EE HAD BOOKED ON ACCOUNT OF DEMUNITION IN THE VALUATION OF SECURITIE S AT THE CLOSE OF YEAR. THE LD. AR SUBMITTED THAT THE LD. CIT(A) HAD HELD T HAT LOSS WAS NOT INCURRED ON THE VALUATION DATE I.E. AT THE CLOSE OF ACCOUNTING PERIOD. THE LD. CIT(A) FURTHER HELD THAT SINCE THERE WAS NO SAL E OF SECURITIES, NOTIONAL LOSS WAS NOT ALLOWABLE AND WHICH COULD BE ALLOWED O NLY ON VALUATION OF STOCK HELD AT THE CLOSE OF ACCOUNTING PERIOD. THE L D. CIT(A) FURTHER HELD THAT SINCE THE ASSESSEE HAD VALUED ITS INVESTMENT I N HELD TO MATURITY CATEGORY AT COST PRICES, EVEN IF THE MARKET PRICE W AS LOWER THAN COST, THERE WAS NO RATIONAL FOR VALUATION OF INVESTMENTS AT MARKET PRICES IN THE CASE OF AVAILABLE FOR SALE AND HELD FOR TRADING CA TEGORIES. IN RESPECT OF 10 THE OBJECTIONS RAISED BY LD. CIT(A), THE LD. AR SUB MITTED THAT SECURITIES HELD IN HTM CATEGORY WERE VALUED AT COST AS PER THE RBI NORMS AND NOT OTHERWISE. THEREFORE, IRRESPECTIVE OF ITS TREATMENT IN ACCOUNTS, IN VIEW OF REVENUE OWN STAND TAKEN IN A.Y. 2002-03 AND UPHEL D BY ITAT, THE INVESTMENT IN SECURITIES WAS A TRADING ACTIVITY AND THEREFORE, ENTIRE STOCK HELD ROUND THE YEAR WAS STOCK IN TRADE AND HENCE, E NTITLED TO REVALUATION AND ASSESSEE WAS ENTITLED TO BOOK THE LOSS SUSTAINE D ON SUCH REVALUATION. IT WAS SUBMITTED THAT IN HELD FOR TRA DING CATEGORY THE INVESTMENT MADE WAS TO BE DISPOSED OFF WITHIN 90 DA YS AND IN AVAILABLE OF SALE CATEGORY THE SALE WAS TO BE MADE AFTER 90 D AYS. THE TWO OPTIONS WERE EITHER TO SELL THE SAME IN OPEN MARKET, OR TO GO FOR INTER CATEGORY TRANSFER AT THE MARKET RATES. THE OPEN MARKET SALE WOULD HAVE BEEN EFFECTED AT THE SAME RATES, AT WHICH INTER CATEGORY SHIFTING WAS DONE, AND THEREFORE, IN BOTH THE SITUATIONS I.E., SHIFTING OR SALE THE ASSESSEE WOULD HAVE BOOKED THE LOSS. IT WAS SUBMITTED THAT OUTSID E SALE WOULD HAVE MULTIPLIED THIRD PARTY TRANSACTIONS, AND WOULD HAVE RESULTED INTO LOSS IN THE FORM OF LOSS AND INTEREST ON FUNDS REQUIRED FOR MAKING THE BALANCE AMONG THE CATEGORIES OF SECURITIES. THE LD. AR SUBM ITTED THAT IF NO TRANSFER WITHIN THE CATEGORIES HAD BEEN EFFECTED TH E LOSS WOULD HAVE BEEN MORE. WHILE FOR NON SHIFTING, OF COURSE THE REVALUA TION LOSS WOULD HAVE BEEN NIL, THE PROVISION FOR DEPRECIATION ON 31 ST MARCH, WOULD HAVE BEEN MORE. IT WAS SUBMITTED THAT IN THE CASE OF BANK TRA NSFER OF SECURITIES IN THE MIDDLE OF YEAR WAS PARI MATERIA WITH THE SALE O F STOCK IN NORMAL 11 COURSE. THEREFORE, CHARGING OF SUCH LOSS/GAIN IN P& L ACCOUNT WAS NOT UNUSUAL. THE LD. AR FURTHER SUBMITTED THAT LD. CIT(A)S TWI N REASONING, THAT THE HTM WAS VALUED AT COST AND THAT CLAIM OF LOSS I N THE MIDDLE OF THE YEAR WAS NOT AS PER IT ACT, ARE UNTENABLE QUA THE F ACT THAT ONCE THE INVESTMENTS MADE BY BANK IS ACCEPTED AS TRADING ACT IVITY, AND THE STOCKS HELD REPRESENTING STOCK IN TRADE ANY FLUCTUATION IN ITS RATES/VALUATION WHETHER SOLD/TRANSFERRED DURING OR AT THE YEAR END, HAS TO BE ALLOWED AS A TRADING GAIN/LOSS. THE LD. AR INVITED OUR ATTENTI ON TO THE CBDT CIRCULAR NO.18/2005 DATED 02.11.2015 WHEREIN IN THE LIGHT OF APEX COURT DECISION IN CIT VS. NAWASHAR CENTRAL CO-OPERA TIVE BANK LTD. 289 ITR 6 (SC), IT WAS HELD THAT INVESTMENT MADE BY BAN KING CONCERN, TO WHICH BANKING REGULATION ACT 1949 APPLIES, ARE PART OF THE BUSINESS OF BANKING AND THEREFORE, INCOME ARISING FROM SUCH INV ESTMENTS IS ATTRIBUTABLE TO THE BUSINESS OF BANKING FALLING UND ER THE HEADPROFIT & GAINS OF BUSINESS & PROFESSION. IT WAS SUBMITTED T HAT IN PAR -4 THE BOARD HAS DECIDED THAT NO APPEALS MAY HENCEFORTH BE FILED ON THIS GROUND BY THE OFFICERS OF THE DEPARTMENT AND APPEAL S ALREADY FILED BE WITHDRAWN/NOT PRESSED FOR. THE LD. AR SUBMITTED THA T THE CLAIM OF THE ASSESSEE IS WELL SUPPORTED BY THE FOLLOWING HIGH CO URT DECISIONS. (I) CIT VS. HDFC BANK LTD. 368 ITR 377 (BOM). (II) ITAT E BENCH DELHI IN ITA NO.1937(DEL/2011 IN THE CASE OF OBC VS. ADDL. CIT (III) ITAT C BENCH DELHI IN THE CASE OF PUNJAB & SIND B ANK 12 (IV) ITAT JAIPUR BENCH IN STATE BANK OF BIKANER & JAIPUR VS ACIT 111DTR 81 (JP.) (TRIB.) IN VIEW OF ALL THE ABOVE REASONS, AND ALSO THE CBDT INSTRUCTIONS AND THE JUDICIAL PRECEDENTS, THE LD. AR ARGUED THAT THE ASSESSEES CLAIM DESERVES TO BE ALLOWED IN FULL. 9. REGARDING OTHER DISALLOWANCE OF KEY MAN INSURA NCE PREMIUM INVOLVED IN ASSESSEES APPEAL, THE LD. AR SUBMITTED THAT PREMIUM ON KEY MAN INSURANCE POLICY IS COVERED IN FAVOUR OF ASSESS EE BY VARIOUS DECISIONS OF ITAT, AMRITSAR BENCH IN THE CASE OF M/ S SURI SONS VS. ACIT IN ITA NO.37/ASR/2011, AND M/S F.C.SONDHI & CO. (IN DIA) PVT. LTD. VS. DCIT, AND M/S VISHAL TOOLS & FORGINGS PVT. LTD. VS. ADDL. CIT, IN APPEAL NO.117(ASR)/2010. 10. AS REGARDS THE REVENUES APPEALS, THE LD. AR S UBMITTED THAT THERE ARE TWO ISSUES IN REVENUESS APPEAL WHICH RELATED T O DISALLOWANCE ON ACCOUNT OF DEPRECIATION OF INVESTMENTS AND DISALLOW ANCE OF BROKEN PERIOD INTEREST. THE LD. AR SUBMITTED THAT ASSESSEES CLAI M OF DEPRECIATION OF INVESTMENTS BY FILING REVISED RETURN HAS BEEN BROUG HT IN DISPUTE BY THE DEPARTMENT. IT WAS SUBMITTED THAT ASSESSEE HAD CHAR GED THE SAID LOSS ON VALUATION OF CLOSING STOCK OF INVESTMENTS HELD UNDE R AVAILABLE FOR SALE AND HELD FOR TRADING CATEGORIES. IN ORIGINAL RETU RN, IT WAS ADDED BACK UNDER THE CONFUSION THAT IT WAS NOT A TRADING LOSS, INASMUCH AS, BY THEN ASSESSEE HAD BEEN CONTESTING ITS CASE BEFORE THE IT AT. HOWEVER, AFTER THE 13 RECEIPT OF TRIBUNALS ORDER DATED 11.07.2008 FOR A. Y.2002-03 & 2004-05, THE ASSESSEE CLAIMED THESE LOSS AS A TRADING LOSS B Y FILING REVISED RETURNS. IT WAS SUBMITTED THAT ASSESSING OFFICER DISALLOWED THE CLAIM HOLDING THAT THE REVISED RETURN WAS INVALID BEING OUT OF TIME, A S MANDATED SEC.139(5). THE ASSESSING OFFICER FURTHER DISALLOWE D THE CLAIM HOLDING THAT LOSS INCURRED COULD NOT BE ALLOWED AS THE ASSE SSEE DID NOT SELL THE SECURITIES. THE LD. CIT(A) ACCEPTED THE CLAIM BY WA Y OF REVISED RETURN BY RELYING ON THE DECISION OF HONBLE JURISDICTIONAL I N CIT VS. RAMCO INTERNATIONAL, 322 ITR 306 (P&H), WHEREIN DEDUCTION U/S 80IB, CLAIMED DURING ASSESSMENT WAS HELD ALLOWABLE NOTWITHSTANDIN G THAT SUCH A CLAIM WAS NOT MADE IN THE RETURN OF INCOME. IT WAS SUBMIT TED THAT ON MERITS THE LD. CIT(A) RELIED ON APEX COURT DECISION IN TH E CASE OF UNITED COMMERCIAL BANK LTD. VS. CIT 240 ITR 355 (SC), TO A LLOW RELIEF TO THE ASSESSEE. HE ALSO RELIED ON ITAT AMRITSAR BENCH DEC ISION IN ASSESSEES OWN CASE FOR A.Y.2002-03 & 2004-05 SUPRA, HOLDING T HAT ASSESSEES INVESTMENT IN SECURITIES WAS STOCK IN TRADE. IT WAS SUBMITTED THAT ASSESSEES CLAIM BY WAY OF REVISED RETURN WAS RIGHT LY ACCEPTED BY LD. CIT(A) IN VIEW OF BINDING DECISION OF HONBLE P& H HIGH COURT IN THE CASE OF RAMCO INTERNATIONAL (SUPRA), WHEREIN THE HONBLE APEX COURT IN THE CASE OF GOETZE (INDIA) LTD. VS. CIT 284 ITR 323 (SC ) WAS CONSIDERED AND DISTINGUISHED. SIMILAR VIEW HAS BEEN TAKEN BY HONBLE BOMBAY HIGH COURT IN BAL MUKAND ACHARAYA VS. DCIT (2009) 310 ITR 310 (BOM). IT WAS SUBMITTED 14 THAT HONBLE SUPREME COURT IN THE CASE OF CIT VS. M AHENDRA MILLS (2001), 243 ITR 56 (SC) COMMENTING ON THE BOARD CIR CULAR NO.114/(XL- 35) DT.4.4.1955, HAS HELD THAT IT WAS AOS RESPONSI BILITY TO DRAW ASSESSEES ATTENTION TO CLAIMS/RELIEF HE WAS ENTITL ED TO IN THE COURSE OF ASSESSMENT PROCEEDINGS. THE LD. AR SUBMITTED THAT T HE APEX COURT DECISION IN THE CASE OF UNITED COMMERCIAL BANK LTD. SQUARELY APPLIES TO THIS CASE, WHICH THE LD. CIT(A) HAS LUCIDLY DISCUSS ED AND FOLLOWED TO ALLOW THE ASSESSEES CLAIM. THE LD. AR FURTHER INVITED OU R ATTENTION TO CBDT CIRCULAR NO.18/2015 DATED 02.11.2015 CLARIFYING THA T INCOME ARISING FROM SUCH INVESTMENTS IS ATTRIBUTABLE TO BUSINESS O F BANKING UNDER THE HEAD PROFIT AND GAINS OF BUSINESS & PROFESSION. AS REGARDS DELETION OF ADDITION ON ACCOUNT OF BROK EN PERIOD INTEREST (BPI) ON PURCHASE OF SECURITIES, IT WAS SU BMITTED THAT BROKEN PERIOD INTEREST WAS DEBITED IN THE P&L ACCOUNTS AND THE ENTIRE INTEREST WAS CREDITED TO INTEREST EARNED HEAD AS AND WHEN RECEIVED. THEREFORE, ITS EFFECT WAS REVENUE NEUTRAL AND HENCE, IT DID NO T WARRANT TO BE CAPITALIZED. IT WAS SUBMITTED THAT LD. CIT(A) RELIE D ON BOMBAY HIGH DECISION IN AMERICAN EXPRESS INTERNATIONAL BANKING CORPORATION VS. CIT (2002) 258 ITR 601 (BOM). IT WAS SUBMITTED THAT THE CASE OF AMRICAN EXPRESS (SUPRA) WAS FOLLOWED IN THE CASE OF UNION B ANK OF INDIA AND SLP FILED BY REVENUE HAS BEEN DISMISSED BY HONBLE APEX COURT AS REPORTED IN 268 ITR (ST.)261. THE LD. CIT(A) ALSO TOOK NOT E OF ITAT DELHI BENCH DECISION DATED 20.11.2008 IN PUNJAB & SIND BANK VS. DCIT, AND ITA 15 NO.2047/DEL/1007 AND 1504/DEL/1999 WHEREIN, REFERRI NG TO DISMISSAL OF DEPARTMENTS SLP IN THE CASE OF UNION BANK OF IN DIA, THE BENCH DIRECTED THE AO TO ALLOW THE BROKEN PERIOD INTEREST . IT WAS SUBMITTED THAT ITAT MUMBAI BENCH IN JT. CIT VS. M/S DENA BANK, ITA NO.3676/MUM/2000, A.Y.1996-97 ALSO ALLOWED CLAIM OF BPI INTEREST, FOLLOWING BOMBAY HIGH COURT IN AMERICAN EXPRESS INT ERNATIONAL BANK(SUPRA). AS REGARDS PENALTY APPEALS FILED BY ASSESSEE & REV ENUE, THE LD. AR SUBMITTED THAT IN CASES LD. CIT(A) HAS GIVEN REL IEF AND DELETED THE PENALTIES HOLDING THAT NO INACCURATE PARTICULARS WE RE FURNISHED. WHILE HOLDING SO THE LD. CIT HAD RELIED ON THE APEX COURT DECISION IN THE CASE OF RELIANCE PETRO PRODUCTS LTD. IT WAS SUBMITTED TH AT WHERE HE UPHELD THE ADDITION, THERE HE HAS CONFIRMED THE PENALTIES AND ASSESSEE IS IN APPEAL IN THOSE CASES. IT WAS SUBMITTED THAT PENALT Y APPEALS MAY BE DISPOSED OFF TAKING INTO ACCOUNT THE DECISION OF TH E HONBLE BENCH IN RESPECT OF QUANTUM PROCEEDINGS. 11. THE LD. DR ON THE OTHER HAND, SUBMITTED THAT TH E ASSESSEE HAD NOT BOOKED LOSS AT THE CLOSE OF THE YEAR BUT HAD BO OKED LOSS DURING THE YEARS AND HAD BOOKED NOTIONAL LOSS AND THEREFORE, A SSESSEE WAS NOT ENTITLED TO CLAIM THE SAME AS ASSESSEE HAD NOT INCU RRED ANY LOSS. IT WAS SUBMITTED THAT BY CHANGING THE CATEGORIES OF INVEST MENTS, THE ASSESSEE HAD HYPOTHETICALY CLAIMED LOSS ON THE INVESTMENTS W HICH WAS NOT 16 PERMISSIBLE. THE LD. DR SUBMITTED THAT THE CIRCULA R NO.18/2015 DATED 2.11.2015 AS RELIED ON BY THE ASSESSEE WAS NOT APPL ICABLE TO THE FACTS AND CIRCUMSTANCES OF THE CASE AS THE ISSUE HIGHLIGH TED IN THE CIRCULAR IS THAT THE LOSS/PROFIT ON THE SALE OF INVESTMENTS BY BANKING COMPANY HAS TO BE TAKEN AS BUSINESS INCOME AND NOT AS INCOME FR OM CAPITAL GAINS AND THIS CIRCULAR WOULD BE APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE HAD THE ASSESSEE CLAIMED LOSS ON ACTUA L SALE OF SECURITIES AND THEREFORE, FOR THIS REASON THE DEPARTMENT CANNO T WITHDRAW THE APPEALS FILED AS SUGGESTED BY LD. AR. 12. AS REGARDS REVENUES APPEALS, THE LD. DR HEAVILY PLACED HIS RELIANCE ON THE ORDERS OF ASSESSING OFFICER. 13. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE T HROUGH THE MATERIAL PLACED ON RECORD. THE ISSUE OF DISALLOWANC E ON INTER TRANSFER OF INVESTMENTS HAS BEEN RAISED IN VARIOUS APPEALS/ CRO SS OBJECTIONS AND THE DECISION ON THIS ISSUE WILL DISPOSE OFF THE ISSUE I N VARIOUS APPEALS/CROSS OBJECTIONS. FOR THE SAKE OF CONVENIENCE, WE TAKE UP THE APPEAL IN ITA NO.209(ASR)/2010 FOR ASST. YEAR:2006-07 WHEREIN THE ASSESSEE HAD CLAIMED A LOSS OF RS.37,51,000/- ON REVALUATION OF SECURITIES AND INVESTMENTS ON INTER-TRANSFER OF SECURITIES FROM ON E CATEGORY TO ANOTHER. THE CLAIM OF THE ASSESSEE WAS DISALLOWED BY ASSESSI NG OFFICER ON THE PREMISE THAT LOSS NOT INCURRED CANNOT BE ALLOWED WH ATEVER BE THE TREATMENT IN BOOKS OF ACCOUNT. THE ASSESSING OFFICE R OBSERVED THAT LOSS 17 CLAIMED BY ASSESSEE WAS NOT INCURRED ON THE VALUATI ON DATE I.E. AT THE CLOSE OF ACCOUNTING PERIOD BUT ON THE DATE OF TRANS FER FROM ONE CATEGORY TO ANOTHER DURING THE PREVIOUS YEAR. THE ASSESSING OFFICER HELD THAT WHILE LOSS OF DEPRECIATION OF INVESTMENT HELD AS CL OSING STOCK IS ALLOWED AS DEDUCTION IT CANNOT BE SAID FOR REVALUATION CARR IED OUT DURING MIDDLE OF THE YEAR. THE ASSESSING OFFICER HELD THAT SINCE THERE WAS NO SALE OF SECURITIES NOTIONAL LOSS WAS NOT ALLOWABLE AND WHIC H COULD BE ALLOWED ONLY ON THE VALUATION OF STOCK HELD AT THE CLOSE OF THE ACCOUNTING PERIOD. THE LD. CIT(A) HAS ALSO CONFIRMED THIS DISALLOWANCE HOLDING SIMILAR FINDINGS. WE FIND THAT DURING ASSESSMENT PROCEEDINGS 2002-0 3, THE ASSESSEE IN THE RETURN OF INCOME HAD DECLARED THE CAPITAL GA IN EARNED ON SALE OF SECURITIES HELD UNDER AVAILABLE OF SALE CATEGORY UN DER THE HEAD CAPITAL GAIN BUT IN ASSESSMENT FRAMED U/S 143(3), THE ASSES SING OFFICER ASSESSED THE GAIN OF SALE ON SUCH SECURITIES AS BUS INESS INCOME HOLDING THE SAME AS TRADING ACTIVITIES. THE LD. CIT(A), HOW EVER, REVERSED THE ORDER OF ASSESSING OFFICER BUT ON REVENUES APPEAL, THE HONBLE ITAT, AMRITSAR VIDE ITS ORDER DATED 11.07.2008 REVERSED T HE ORDER OF CIT(A) BY HEAVILY RELYING ON APEX COURT DECISIONS RENDERED IN THE CASE OF CIT VS. NAWASHAR CENTRAL CO-OPERATIVE BANK REPORTED IN 289 ITR 6 (SC) AND ALSO IN CIT VS. KARNATAKA STATE CO-OPERATIVE BANKS REPOR TED IN 251 ITR 194 (SC), WHICH HELD THAT INVESTMENT IN SECURITIES WAS BUSINESS ACTIVITIES OF BANK. THE RBI GUIDELINES WERE ALSO HELD TO BE NOT O VERRIDING THE 18 PROVISIONS OF INCOME TAX ACT. IN VIEW OF APEX COURT DECISIONS, THE ASSESSEE OPTED NOT TO GO IN FOR FURTHER APPEAL AND THUS, THE MATTER HAD ATTAINED FINALITY. CIRCULAR NO.18/2015 DATED 02.11. 2015 ALSO CLARIFIES THAT INVESTMENTS MADE BY A BANKING COMPANY ARE PART OF BUSINESS ACTIVITIES OF THE BANK AND ANY INCOME FROM THESE AC TIVITIES IS ATTRIBUTABLE TO THE PROFITS AND GAINS OF BUSINESS OF A BANK. THE REFORE, FROM THE ABOVE, IT BECOMES AMPLY CLEAR THAT ANY LOSS SUSTAINED BY A SSESSEE WHILE VALUING THE STOCKS AT THE CLOSE OF ACCOUNTING YEAR IS A BUS INESS LOSS. THE DISPUTE IN THE ASSESSEES APPEALS IS WITH RESPECT TO LOSS O N INTER-TRANSFER OF THESE SECURITIES. THE LD. CIT(A) THOUGH ADMITTED THAT THE LOSS INCURRED BY ASSESSEE AT THE CLOSE OF THE YEAR WAS A BUSINESS LO SS AND ALLOWED THE SAME AGAINST WHICH REVENUE IS IN APPEAL WHEREAS IN THE CASE OF INTER- TRANSFER OF SECURITIES DURING THE YEAR, THE LD. CIT (A), UPHELD THE ACTION OF ASSESSING OFFICER. WE FIND THAT IN TRADING CATEGORY , THE INVESTMENT WAS TO BE DISPOSED OF WITHIN 90 DAYS AND IN AVAILABLE FOR SALE CATEGORY THE INVESTMENT WAS TO BE DISPOSED OF AFTER 90 DAYS. THE TWO OPTIONS WERE EITHER TO SELL THE SAME IN OPEN MARKET, OR TO GO FO R INTER CATEGORY TRANSFER AT THE MARKET RATES AND THE SHORTFALL IN EITHER CAT EGORY, HAD TO BE IMMEDIATELY RECOUPED BY INFUSING FRESH INVESTMENTS UNDER THE AFFECTED CATEGORY TO MAINTAIN THE REQUISITE CRR/SLR LIMITS. BY INTER TRANSFER OF SECURITIES, NOT ONLY FINE BALANCE CONSISTENT WITH T HE RBI GUIDELINES WAS MAINTAINED, BUT SUSTAINING OF A MUCH BIGGER LOSS WA S SAVED, WHEN THE MARKET VALUE OF THE SAID SECURITIES IN TWO CATEGORI ES HAD FURTHER DEPLETED AS ON THE CLOSE OF YEAR AS THE SECURITIES WERE TRAN SFERRED TO HELD TO 19 MATURITY BY CATEGORY WHERE THE INVESTMENTS WERE VAL UED AT TRANSFER PRICE. THE ASSESSEE HAD FILED DETAILED SUBMISSIONS BEFORE LD. CIT(A) AS CONTAINED IN PB 81 TO 84 WHICH ARE REPRODUCED BELOW . TO, THE COMMISSIONER OF INCOME TAX(APPEALS), JALANDHAR. IN REF: IT APPEAL OF CAPITAL LOCAL AREA BANK, JALAN DHAR FOR A.Y2006-07. SIR, APROPOS DISCUSS ON HELD ON THE LAST DATE OF HEARING , FURTHER INFORMATION AND CLARIFICATIONS AS SOUGHT FOR TO JUS TIFY THE LOSS CLAIMED ON INTER CATEGORY TRANSFER OF SHARES/SECURITIES , ARE FURNISHED AS UNDER: 1. THE REVALUATION OF SHARES/SECURITIES, LEADING TO LOSS OF RS.37,50,796.97, WAS NECESSITATED FOR REASONS WELL BEYOND THE CONTROL OF ASSESSEE BANK. THAT THE ASSESSEE BANK OP ERATES WITHIN THE REGULATORY DOMAIN OF RBI IS NOT IN DISPUTE. BEI NG A BANKING COMPANY, IT HAS ;O ENSURE THE SRR AND SLR LIMITS RO UND THE YEAR ON DAILY BASIS BY WAY OF MAKING INVESTMENTS IN VARI OUS GOVERNMENT SECURITIES, BONDS AND SHARES ETC. AGAIN THIS INVESTMENT, AS PER RBI GUIDELINES, HAS TO BE ESSENT IALLY MADE IN EITHER OF THE THREE CATEGORIES I.E. (I) HELD FOR TR ADING (II) AVAILABLE FOR SALE AND (III) HELD TO MATURITY. LINDER THE FIRST C ATEGORY, THE SECURITIES HAVE TO BE SOLD WITHIN 90 DAYS; UNDER TH E SECOND CATEGORY, THERE IS A LOCK IN PERIOD OF 90 DAYS, WHE REAFTER THE SECURITIES CAN BE SOLD, AND UNDER THE LAST CATEGORY , THE SECURITIES ARE HELD TILL MATURITY. 2. NOW AS TO VALIATION OF THESE SECURITIES, WHILE THE FIRST TWO CATEGORIES ARE VALUED AT LOW OF THE COST OR MARKET PRICE, THE THIRD ONE IS VALUED AT COST, IN ACCORDANCE WITH ACCOUNTING STANDARD-13 (AS-13). NEEDLESS TO MENTION THAT ALL INVESTMENTS, BEING INC IDENTAL TO BUSINESS ACTIVITY, AS PER SETTLED LAW, ARE HELD AS STOCK IN TRADE. 3. NOW DURING THE YEAR, AS PER DETAILS GIVEN IN ANNEXU RE A, TWO OF THE MAJOR GOVT SECURITIES, HELD UNDER AVAILABLE FOR SA LE CATEGORY, WERE DUE FOR TRANSFER AFTER THE EXPIRY OF 90 DAYS. NOW T HERE WERE TWO OPTIONS; ONE WAS TO SELL THE SAME IN OPEN MARKET AN D THE OTHER WAS INTER CATEGORY SHIFTING I.E. SHIFTING TO HELD TO M ATURITY CATEGORY. SO HOWEVER, THE SECOND OPTION WAS EXERCISED, WHICH RES ULTED INTO LOSS OF RS.37.50 LACS. IF THE FIRST OPTION HAD BEEN EXER CISED, THE REPERCUSSIONS TO FOLLOW WOULD HAVE BEEN MORE DISADV ANTAGEOUS. THE OPEN MARKET SALE WOULD ALSO HAVE BEEN EFFECTED AT THE SAME 20 RATES, AT WHICH INTER CATEGORY SHIFTING WAS DONE, I NASMUCH AS, IN BOTH THE SITUATIONS THE SHIFTING OR SALE HAD TO BE DONE ONLY AT MARKET RATES. OUTSIDE SALE WOULD HAVE MULTIPLIED TH IRD PARTY TRANSACTIONS, ALONGSIDE EXECUTION OF AVOIDABLE DOCU MENTATION WITH PHYSICAL DELIVERY OF SECURITIES AND ALSO MOVEMENT O F FUNDS. EVEN IN LOCAL BANKING, THE FUNDS INVOLVED AT RS CRORES, WER E BOUND TO BE HELD UP FOR A DAY OR TWO, RESULTING INTO SUBSTANTIA L INTEREST LOSS. STILL FURTHER, IN THE EVENT OF OUTSIDE SALE, THE REPLENIS HMENT OF STOCKS UNDER THE CATEGORY HELD TO MATURITY, TO THE EXTEN T OF SHIFTING MADE, WAS INEVITABLE, BY MAKING FRESH PURCHASES TO MAINTA IN THE REQUISITE LEVEL OF SLR. THEREFORE, THIRD PARTY SALE OF SECURI TIES WOULD HAVE BEEN AN EXERCISE IN SHEER FUTILITY. THUS BY NOT HAV ING DONE SO, AND FURTHER BY HAVING VALUED THE SECURITIES AS ON THE C LOSE OF YEAR I.E.31.3.06, THE TOTAL LOSS SUSTAINED WAS RS.37,50, 796.97 + RS.45,75,307/- = RS.83,26,103-97. 4. IF FOR A MOMENT, NO TRANSFER WITHIN THE CATEGORIES HAD BEEN EFFECTED, THE SCENE WOULD HAVE BEEN MORE TARDY. WHI LE FOR NON SHIFTING, OF COURSE THE REVALUATION LOSS WOULD HAVE BEEN NIL, THE PROVISION FOR DEPRECIATION ON 31 ST MARCH WOULD HAVE WORKED OUT AT RS.97,93,754 (AS PER ANNEXURE C) AND PROFIT ON SHAR ES AT 70350 (AS PER ANNEXURE B) WOULD ALSO HAVE BEEN LOST. THUS THE TOTAL LOSS ON THIS ACCOUNT WOULD HAVE CALCULATED AT RS.98,64,104/ -, WHICH IF DEBITED IN BOOKS, WOULD HAVE REDUCED THE TAXABLE PR OFITS BY RS.15,38,000/-( 83,26,103.97 - 98,64,104). A SUMMAR Y MARKED AS ANNEXURE A OF THESE PROJECTIONS IS APPENDED FOR REA DY REFERENCE. 5. ON THE ISSUE OF VALUATION OF SECURITIES UNDER THE CATEGORY HELD TO MATURITY, THE SAME BEING LONG TERM INVESTMENTS, AR E VALUED AT COST, WHICH CONFORMS TO ACCOUNTING STANDARD-13 (AS-13), W HICH STATES THAT CURRENT INVESTMENTS SHOULD BE VALUED AT COST O R FAIR MARKET VALUE, WHICH EVER IS LOWER. LONG TERM INVESTMENTS A RE GENERALLY VALUED AT COST. SIGNIFICANTLY, IF CONTRARY TO ABOVE POSITION, THE SECURITIES HELD TO MATURITY ARE ALSO VALUED AT LO WER OF THE COST OR MARKET RATE, AS IN THE CASE OF OTHER TWO CATEGORIES SUPRA, THEN IT WOULD HAVE RESULTED INTO ORDINARY BUSINESS LOSS OF RS.3.54 CRORES, INASMUCH AS THE MARKET VALUE OF ALL SUCH SECURITIES HAD NOTED A SUBSTANTIAL FALL AS ON 31.3.2006. THEREFORE, NO PRE JUDICE TO REVENUE HAS BEEN CAUSED BY VALUING THE THIRD CATEGORY OF SE CURITIES AT COST. 6. THE ABOVE FACTS AND FIGURES ALSO AMPLY DISCLOSE THA T WHAT THE ASSESSEE BANK DID WHILE PROVIDING FOR DEPRECIATION AND REVALUATION LOSS, WAS WHOLLY AN ACT UNDERTAKEN IN THE NORMAL CO URSE OF ITS BUSINESS DEVOID OF ANY DELIBERATIONS, MUCH LESS WIT H THE MOTIVE TO EVADE PAYMENT OF TAXES. THE BELATED CLAIM OF REVAL UATION LOSS AND DEPRECIATION BY WAY OF A REVISED RETURN, WAS OF CO URSE AN AFTERMATH OF TRIBUNALS ORDER HOLDING, AT THE INSTA NCE OF REVENUE, THAT INVESTMENTS IN SECURITIES BY THE BANK WERE STO CK IN TRADE. BE THAT AS IT MAY, THE DEPARTMENT CANNOT BE ALLOWED TO MAKE A VOLTE- FACE NOW WHEN EARLIER IN ASSESSEES OWN CASE IT HAD TAKEN A STAND WHICH WAS SUCCESSFULLY PURSUED TILL THE LEVEL OF IT AT. 21 7. ADDITIONALLY, FOLLOWING SUPPORTING DETAILS ARE ENCL OSED TO BUTTRESS THE POSITIONS EXPLAINED HEREINABOVE: A) DETAILS OF DEPRECIATION ON GOVT SECURITIES A/C; B) DETAILS OF DEPRECIATION ON EQUITY SHARES; C) VALUATION OF GOVT SECURITIES UNDER HELD TO MATURITY ON31.3.06; D) DETAILS OF REVALUATION OF INVESTMENTS -IN TER CATEGORY TRANSFER; D) HALF YEARLY REPORTS SENT TO RBI ON REVIEW OF INVESTMENT PORTFOLIO OF THE BANK; IT IS HOPED, THE INFORMATION PROVIDED HEREINABOVE W ILL BE FOUND OF INTEREST AND IN ORDER, FOR TAKING A FAIR AND REASONABLE VIEW IN THE MATTER. BY WAY OF THESE EXPLANATIONS THE ASSESSEE HAD TRIE D TO EXPLAIN THAT IF IT HAD NOT TRANSFERRED THE SECURITIES TO HELD TO MATURITY CATEGORY, IT WOULD HAVE CLAIMED MORE LOSS IN ITS PROFIT & LOSS A CCOUNT AS IN THE HELD TO MATURITY CATEGORY THE SECURITIES WERE VALUED AT COST PRICES AND FURTHER DEPLETION IN ITS VALUE AT THE TIME OF CLOSE OF YEA R WAS NOT BOOKED. THE LD. CIT(A) HAS NOT CONSIDERED THESE SUBMISSION S IN THE RIGHT PERSPECTIVE. THE REASONING GIVEN BY LD. CIT(A) THAT ANY LOSS ON INTER-TRANSFER OF SECURITIES IN MIDDLE OF THE YEAR WAS NOT ALLOWABL E IS NOT CORRECT AS IN THE CASE OF BANKS ACTION OF TRANSFER OF THE SECURIT IES IN THE MIDDLE OF YEAR IS PARI MATERIA WITH THE SALE OF STOCK IN NORMAL CO URSE WITH GAIN/LOSS BOOKED IN P & L ACCOUNT. THEREFORE, CHARGING OF SUC H TOTAL LOSS/GAIN IN TRADING PROFIT & LOSS WAS NOT UNUSUAL. IN FACT THAT LOSS BOOKED BY ASSESSEE ON INTER-TRANSFER OF SECURITIES AND ON ITS ACTUAL SALE CANNOT 22 EXCEED THE TOTAL LOSS IF IT IS NOT BOOKED ON NOTION AL BASIS AND IS BOOKED ONLY AT THE TIME OF ACTUAL SALE. THIS CAN BE CLARIF IED BY TAKING AN HYPOTHETICAL EXAMPLE. LETS ASSUME THAT ONE SECURITY HAS BEEN PURCHASED FOR RS.1000/- IN HELD FOR TRADING CATEGORY. SUCH S ECURITY IS TRANSFERRED TO HELD TO MATURITY CATEGORY AT THE MARKET VALUE OF RS.950/- AND THEREFORE, THE ASSESSEE WOULD BOOK A LOSS OF RS.50 ON INTER-TRANSFER OF SECURITY. IN HELD TO MATURITY CATEGORY WHEN THE SEC URITY IS MATURED THE ASSESSEE WILL BOOK PROFIT ON THE BASIS OF MATURITY VALUE MINUS, THE COST PRICE WHICH IN THE PRESENT CASE IS RS.950/- AND THE REFORE, THE LOSS ALREADY CLAIMED AS BUSINESS LOSS WILL BE NULLIFIED WHEN THE SECURITY IS ACTUALLY SOLD AS IN THAT CASE THE COST PRICE WILL B E TAKEN OF RS.950/- AND NOT AT RS.1000/- SINCE, UNDER ALL CATEGORIES OF SEC URITIES THE INCOME IS TAXABLE AS BUSINESS INCOME, THE EFFECT OF BOOKING L OSS AT THE TIME OF INTER TRANSFER IS REVENUE NEUTRAL. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS . HDFC BANK LTD. 360 ITR 377 HAS HELD THAT THE CLAIM OF ASSESSE E FOR LOSS ON TRANSFER OF SECURITIES FROM CATEGORY AVAILABLE FOR SALE TO HELD TO MATURITY WAS AN ALLOWABLE DEDUCTION. WHILE HOLDING SO THE HONBLE C OURT HAS FOLLOWED THE EARLIER DECISIONS OF BOMABY HIGH COURT IN CIT VS. B ANK OF BARODA 262 ITR 334 AND KARNATAKA HIGH COURT IN KARNATA BANK LT D. ACIT 356 ITR 549(KAR). FOLLOWING THE ABOVE THREE DECISION ON IDE NTICAL ISSUE THE HONBLE ITAT E BENCH DELHI IN ITA 1937/DEL/2011 O F OBC VS.ADDL. CIT 23 HAS HELD THE CLAIM OF LOSS ON TRANSFER OF SECURITY FROM CATEGORY AVAILABLE FOR SALE TO HELD TO MATURITY WAS AN ALLOWABLE DE DUCTION. THE FINDINGS OF THE BOMBAY HIGH COURT IN THE CASE O F CIT VS. HDFC BANK LTD. (SUPRA) SQUARELY APPLIES TO THE FACT S AND CIRCUMSTANCES OF THE CASE. THE HONBLE BOMBAY HIGH COURT WHILE GI VING RELIEF TO THE ASSESSEE IN RESPECT OF LOSS ON ACCOUNT OF TRANSFER OF SECURITIES FROM CATEGORY OF AVAILABLE FOR SALE TO HELD TO MATURI TY HAS ALSO RELIED ON THE CASE LAW OF CIT VS. BANK OF BARODA, WHEREIN THE HON BLE COURT HAD HELD THAT LOSS ON ACCOUNT OF DIMINUTION IN VALUATION OF SECURITIES AT THE CLOSE OF FINANCIAL YEAR WAS A LOSS ON STOCK IN TRADE AND HAD ALLOWED DEPRECIATION IN THE VALUATION OF SECURITIES. FOR TH E SAKE OF CONVENIENCE THE FINDINGS OF HONBLE COURT ARE REPRODUCED BELOW. 3. WE ARE UNABLE TO ACCEPT THE SUBMISSION OF MR. SURESH KUMAR ON BEHALF OF THE APPELLANT/REVENUE THAT ANY SUBSTANTIAL QUEST ION OF LAW ARISE IN THE PRESENT CASE THAT REQUIRE OUR ANSWER. WE FIND THAT ISSUE RAISED IN THIS APPEAL IS SQUARELY COVERED BY A JUDGMENT OF A DIVIS ION BENCH OF THIS COURT IN THE CASE OF COMMISSIONER OF INCOME TAX V/S BANK OF BARODA, REPORTED IN (2003) ITR 334 AND A JUDGMENT OF A DIVISION BENCH O F THE KARNATAKA HIGH COURT IN THE CASE OF KARNATAKA BANK LTD. VS. ASSIST ANT COMMISSIONER OF INCOME TAX, REPORTED IN (2013) 356 ITR 546. WE WILL ANALYZE THESE TWO JUDGMENTS LATER, AFTER WE ADVERT TO THE FACTS IN TH E PRESENT CASE. 4. THE FACTS STATED BRIEFLY ARE THAT THE ASSESSEE BAN K, BEING A PUBLIC LIMITED COMPANY, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2005- 06 ON 29TH OCTOBER 2005 DECLARING A TOTAL INCOME OF RS.9,10,41,00,000/-. THE SAID ASSESSMENT WAS SELECTED FOR SCRUTINY AND A FTER THE REQUISITE NOTICES WERE ISSUED TO THE ASSESSEE, THE ASSESSING OFFICER COMPLETED THE ASSESSMENT AND PASSED HIS ASSESSMENT ORDER UNDER SE CTION 143(3) ON 28TH FEBRUARY, 2007 DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS. 12,27,85,00,000/-. 5. SUBSEQUENTLY IT WAS NOTICED BY THE APPELLAN T THAT A SUM OF RS.87.11 LAKHS HAD BEEN DEBITED TO THE PROFIT AND LOSS ACCOU NT BY THE ASSESSEE, AS A LOSS ON ACCOUNT OF TRANSFER OF SECURITIES FROM TH E CATEGORY 'AVAILABLE FOR SALE' TO 'HELD TO MATURITY' AND THE SAME HAD BEEN A LLOWED BY THE 24 ASSESSING OFFICER. ACCORDING TO THE APPELLANT, SINC E THE ALLOWANCE OF SUCH A NOTIONAL LOSS WAS ERRONEOUS AND PREJUDICIAL TO TH E INTEREST OF THE REVENUE, HE INVOKED HIS POWERS UNDER SECTION 263 OF THE ACT AND PASSED AN ORDER DATED 21ST MARCH 2T)09 DIRECTING THE ASSES SING OFFICER TO MODIFY HIS ASSESSMENT ORDER AND DISALLOW THE DEDUCTION RS. 87.11 LAKHS. IN A NUTSHELL, THE APPELLANT MAINLY HELD THAT SINCE THE ASSESSEE BANK HAD NOT TRANSFERRED THE SECURITIES TO ANY OTHER THIRD PERSO N BUT HAD ONLY DONE A RE- CLASSIFICATION FROM 'AVAILABLE FOR SALE' TO 'HELD T O MATURITY' CATEGORIES, THE SAID TRANSFER DID NOT RESULT IN ANY ACTUAL LOSS TO THE ASSESSEE AND THEREFORE THE ALLOWANCE THEREOF WAS ERRONEOUS AND P REJUDICIAL TO THE INTEREST OF THE REVENUE. 6. BEING AGGRIEVED BY THE ORDER PASSED BY THE AP PELLANT UNDER SECTION 263 OF THE ACT, THE ASSESSEE BANK FILED AN APPEAL B EFORE THE ITAT, MUMBAI BENCH. AFTER HEARING THE REPRESENTATIVES OF THE ASS ESSEE AS WELL AS THE REVENUE, THE ITAT HELD THAT EVEN THOUGH THE ASSESSE E HAD CHALLENGED THE ORDER OF THE APPELLANT PASSED UNDER SECTION 263 OF THE ACT ON THE GROUND THAT THE JURISDICTIONAL CONDITIONS FOR INVOKING THE SAID POWERS WERE NOT SATISFIED, THE ITAT ALLOWED THE APPEAL OF THE ASSES SEE ON MERITS AND WITHOUT GOING INTO THE JURISDICTIONAL ISSUE. WE FIN D THAT THE ITAT, AFTER EXAMINING THE ENTIRE FACTUAL MATRIX OF THE MATTER A ND AFTER RELYING UPON ITS OWN JUDGMENTS IN THE CASE OF STATE BANK OF MYSORE V/S DCIT, REPORTED IN 33 SOT 7 (BANG) AND ACIT V/S VIJAYA BANK, RENDERED IN INCOME TAX APPEAL NO.253/BANG/2007 DATED 24TH JANUARY 2008 AS WELL AS THE JUDGMENT OF THE KARNATAKA HIGH COURT IN THE CAS E OF KARNATAKA BANK LTD. (SUPRA), HELD THAT THE CLAIM OF THE ASSESSEE FOR THE LOSS OF RS.87.11 LAKHS ON THE TRANSFER OF SECURITIES FROM T HE CATEGORY 'AVAILABLE FOR SALE' TO 'HELD TO MATURITY' WAS AN ALLOWABLE DE DUCTION, AND THEREFORE SET ASIDE THE ORDER PASSED BY THE APPELLANT UNDER S ECTION 263 OF THE ACT. BEING AGGRIEVED BY THIS ORDER, THE REVENUE IS IN AP PEAL BEFORE US. 7. AFTER PERUSING THE ORDER PASSED BY THE APPELLA NT 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 T HE APPELLANT DATED 23RD MARCH 2009 AND ALLOWING THE DEDUCTION OF RS.87.11 L AKHS, TO THE ASSESSEE. IN THIS REGARD, THE RELIANCE PLACED BY MR MISTRY, THE LEARNED SENIOR COUNSEL APPEARING ON BEHALF OF THE RESPONDEN T - ASSESSEE ON THE JUDGMENT OF THIS COURT IN THE CASE OF COMMISSIONER OF INCOME TAX V/S BANK OF BARODA (SUPRA) IS WELL FOUNDED. THE FACTS BEFORE THE DIVISION BENCH IN THE CASE OF CIT V/S BANK OF BARODA (SUPRA) WERE THAT THE ASSESSEE BANK HADIN ITS POSSESSION DURING THE RELE VANT ASSESSMENT YEAR SHARES AND SECURITIES WORTH SEVERAL CRORES. THE MET HOD OF VALUATION FOLLOWED BY THE ASSESSEE WAS TO VALUE THE INVESTMEN TS AT COST OR MARKET VALUE WHICHEVER WAS LOWER. DURING THE YEAR OF ACCOU NT, DEPRECIATION WITH REGARD TO THE SECURITIES HELD BY THE ASSESSEE BANK WAS TO THE TUNE OF RS.11,82,35,007/- AND THEREFORE, THE ASSESSEE BANK CLAIMED A DEDUCTION WITH REFERENCE TO THE SAID DEPRECATION. THIS WAS DISALLOWED BY THE INCOME TAX OFFICER. BEIN G AGGRIEVED, THE ASSESSEE BANK WENT IN APPEAL TO THE CIT (APPEALS) W HO TOOK THE VIEW THAT THE SAID INVESTMENTS WERE RIGHTLY VALUED AT THE END OF THE YEAR AT COST OR 25 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 THE CIT (APPEALS) C ARRIED THE MATTER FURTHER TO THE TRIBUNAL WHO CONFIRMED THE ORDER OF THE CIT (APPEALS). IN VIEW THEREOF, THE REVENUE APPROACHED THIS COURT BY WAY O F A REFERENCE. ON THESE FACTS, THE QUESTION OF LAW FRAMED BY THIS COU RT 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 ENTITLED TO DEDUCTION ON ACCOUNT OF DEPRECIATION IN THE VALUE O F INVESTMENTS AND, CONSEQUENTLY, DEBITING DISALLOWANCE OF RS.11,8 2,35,007 ?'. 8. THIS COURT, IN ANSWERING THE AFORESAID QUESTI ON OF LAW IN FAVOUR OF THE ASSESSEE AND PLACING RELIANCE ON THE JUDGMENT OF TH E SUPREME COURT IN THE CASE OF UNITED COMMERCIAL BANK V/S CIT, REPORTED IN (1999) 240 ITR 355(SC) HELD AS UNDER: 'IN OUR VIEW, THE JUDGMENT OF THE SUPREME COURT IN UNITED COMMERCIAL BANK'S CASE (1999) 240 ITR 355 SQUARELY APPLIES TO THE FACTS OF THIS CASE. IN FACT, THE PRESENT CASE BEFOR E US IS ON A STRONGER FOOTING BECAUSE IN THE CASE OF UNITED COMMERCIAL BA NK, THE LOSS WAS NOT DEBITED TO THE PROFIT AND LOSS ACCOUNT WHER EAS IN THIS CASE, AS CAN BE SEEN FROM THE WORKING AT PAGES 25 AND 26 OF THE PAPER- BOOK, THE LOSS OF RS.11,82,35,007/- HAS BEEN DEBITE D TO THE PROFIT AND LOSS ACCOUNT WHICH IS REFLECTED AS A PROVISION FOR LIABILITY IN THE BALANCE-SHEET AND THE SHARES AND SECURITIES WERE VA LUED AT COST ON THE ASSETS SIDE. FOR THE REASONS GIVEN HEREINABOVE, WE ANSWER THE AB OVE QUOTED QUESTION IN THE AFFIRMATIVE, I.E. IN FAVOUR OF THE ASSESSEE-BANK AND AGAINST THE DEPARTMENT.' 9. IN THE PRESENT CASE, WE- FIND THAT THE FACTS A ND ISSUES THAT ARE COVERED BY THE AFORESAID JUDGMENT SQUARELY APPLY TO THE FAC TS AND ISSUES RAISED IN THE PRESENT APPEAL. NOT ONLY ARE WE IN FULL AGREEME NT WITH THE JUDGMENT OF THIS COURT IN THE CASE OF CIT V/S 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 KARNA TAKA 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 ASSESSEE WAS HOLDING SECURITIES IN DIFFERENT CATEGORIES AS MANDATED BY T HE RBI MASTER CIRCULAR DATED 1ST SEPTEMBER 2003. THE ASSESSEE TREATED SUCH SECURITIES AS STOCK- IN- TRADE AND CLAIMED DEPRECIATION ON THE BOOK VALU E AFTER VALUING THE SECURITIES AT COST OR MARKET VALUE WHICHEVER WAS LO WER. THE REVENUE REFUSED TO ACCEPT THE ASSESSEES PLEA FOR THE DEDUC TION AND DISALLOWED THE SAME AND ADDED BACK TO THE TOTAL INCOME THE SAID AM OUNT. AGGRIEVED BY THE SAID ORDER, THE ASSESSEE PREFERRED AN APPEAL BE FORE THE CIT (APPEALS). THE SAME WAS DISMISSED UPHOLDING THE CONTENTION OF THE ASSESSING 26 AUTHORITY. AGGRIEVED THEREBY, THE ASSESSEE PREFERRE D AN APPEAL TO THE TRIBUNALJYTNE TRIBUNAL INTER ALIA HELD THAT SINCE T HE SECURITIES ON WHICH THE DEPRECIATION HAD BEEN CLAIMED ON THE EARLIER YE ARS HAD NOT BEEN IDENTIFIED, THE ISSUE WAS RESTORED TO THE FILE OF THE ASSESSIN G OFFICER FOR CONSIDERATION' ATRESH AND PARTLY ALLOWED THE APPEAL . BEING AGGRIEVED BY THE SAID ORDER, KARNATAKA BANK LTD. PREFERRED AN AP PEAL TO THE KARNATAKA HIGH COURT UNDER SECTION 260A OF THE ACT. AFTER DIS CUSSING VARIOUS JUDGMENTS OF THE SUPREME COURT, THE KARNATAKA HIGH COURT HELD AS UNDER:- FROM THE AFORESAID JUDGMENTS OF THE APEX COURT, NO W IT IS CLEAR THAT A METHOD OF ACCOUNTING ADOPTED BY THE TAXPAYER CONS ISTENTLY AND REGULARLY CANNOT BE / DISCARDED BY THE DEPARTMENTAL AUTHORITIES ON THE VIEW THAT HE SHOULD HAVE ADOPTED A DIFFERENT ME THOD OF KEEPING THE ACCOUNTS OR ON VALUATION. FINANCIAL INSTITUTION S LIKE BANK, ARE EXPECTED TO MAINTAIN ACCOUNTS IN TERMS OF THE RBI A CT AND ITS REGULATIONS. THE FORM IN WHICH, ACCOUNTS HAVE TO BE MAINTAINED IS PRESCRIBED UNDER THE AFORESAID LEGISLATION. THEREFO RE, THE ACCOUNT HAD TO BE IN CONFORMITY WITH THE SAID REQUIREMENTS. THE RBI ACT OR THE COMPANIES ACT DO NOT DEAL WITH THE PERMISSIBLE DEDUCTIONS OR EXCLUSION UNDER THE INCOME TAX ACT. FOR THE PURPOSE OF THE INCOME TAX ACT,,J/THE ASSESSEE HAS CONSISTENTLY BEEN TREA TING THE VALUE OF INVESTMENT FOR MORE THAN TWO DECADES THE INVESTMENT S AS STOCK-IN- TRADE AND CLAIMED DEPRECIATION, IT IS NOT OPEN TO T HE AUTHORITIES TO DISALLOW THE SAID DEPRECIATION ON THE GROUND THAT I N THE BALANCE- SHEET IT IS SHOWN AS INVESTMENT IN TERMS OF THE RBI REGULATIONS. THE RBI REGULATIONS, THE COMPANIES ACT AND THE INCOME T AX ACT OPERATE ALTOGETHER IN DIFFERENT FIELDS. THE QUESTION WHETHE R THE ASSESSEE IS ENTITLED TO PARTICULAR DEDUCTION OR NOT WILL DEPEND UPON THE PROVISION OF LAW RELATING THERETO AND NOT THE WAY, IN WHICH THE ENTRIES ARE MADE IN THE BOOKS OF ACCOUNT. IT IS NOT DECISIVE OR CONCLUSIVE IN THE MATTER. FOR THE PURPOSE OF THE IN COME TAX ACT WHICHEVER METHOD IS ADOPTED BY THE ASSESSEE, A TRUE PICTURE OF THE PROFITS AND GAINS, I.E. REAL INCOME IS TO BE DISCLO SED.. FOR DETERMINING THE REAL INCOME, THE ENTRIES IN THE BAL ANCE- 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 TAX RETURNS. EVEN IF THE ASSESSEE UNDER SOME MISREPRESENTATION OR MISTAKE FAILS TO MAKE AN ENTRY IN THE BOOKS OF ACCOUNT, ALTHOUGH UNDER LAW, A DEDUCTION MUST BE AL LOWED BY THE INCOME TAX OFFICER, THE ASSESSEE WILL NOT LOSE ANY RIGHT ON CLAIMING OR WILL BE DEBARRED FROM BEING ALLOWED THE DEDUCTIO N. THEREFORE, THE APPROACH OF THE AUTHORITIES IN THIS REGARD IS CONTR ARY TO THE WELL SETTLED LEGAL POSITION AS DECLARED BY THE APEX COUR T. IN THE INSTANT CASE, THE ASSESSEE HAS MAINTAINED TH E ACCOUNTS IN TERMS OF THE RBI REGULATIONS AND HE HAS SHOWN IT AS INVESTMENT. BUT CONSISTENTLY FOR MORE THAN TWO DECADES IT HAS B EEN SHOWN AS STOCK-IN-TRADE AND DEPRECIATION IS CLAIMED AND ALLO WED. THEREFORE, NOTWITHSTANDING THAT IN THE BALANCE-SHEET , IT IS S HOWN AS 27 INVESTMENT, FOR THE PURPOSE OF INCOME TAX ACT, IT I S SHOWN AS STOCK- IN-TRADE. THEREFORE, THE VALUE OF THE STOCKS BEING CLOSELY CONNECTED WITH THE STOCK MARKET, AT THE END OF THE FINANCIAL YEAR,'WHILE VALUING THE ASSETS, NECESSARILY THE BANK HAS TO TAKE INTO C ONSIDERATION THE MARKET VALUE OF THE SHARES. IF THE MARKET VALUE IS LESS THAN THE COST PRICE, IN LAW, THEY ARE ENTITLED TO DEDUCTION SAND IT CANNOT BE DENIED BY THE AUTHORITIES UNDER THE PRETEXT THAT IT IS SHO WN AS INVESTMENT IN THE BALANCE-SHEET .' WE FURTHER FIND THAT ITAT DELHI BENCH E IN THE C ASE OF ORIENTAL BANK OF COMMERCE IN ITA NO.1937/DEL/2011 IN ITS ORD ER DATED 04.11.2015 HAS DELETED SIMILAR DISALLOWANCE BY FOLL OWING THE JUDGMENT IN THE CASE OF HDFC BANK LTD. (SUPRA). THE FINDINGS OF HONBLE BENCH ARE REPRODUCED BELOW. 10. GROUND NO.1 & 3 OF APPEAL OF THE ASSESSEE IS W ITH RESPECT TO DISALLOWANCE OF THE CLAIM OF LOSS ON ACCOUNT OF FALL IN VALUE OF IN VESTMENTS HELD AS STOCK-IN-TRADE AMOUNTING TO RS.205.43 CRORES. THE BRIEF FACTS OF T HE CASE IS THAT PURSUANCT TO THE DIRECTION OF RBI THE BANK HAS TRASNFERRED SLR S ECURITIES AGGREGATING TO 1664.32 CRORES FROM AVAILABLE FOR SALE CATEGORY T O HELD TO MATURITY CATEGORY DURING THE YEAR. DUE TO THIS, MARK TO MARKET DEVALU AITN OF RS.205.43 CROES HAS BEEN DEBITED TO THE P & L ACCOUNT. FURTHER DEDUCTIO N OF RS.205.10 CRORES WAS ALSO CLAIMED BEING FALL IN VALUE OF INVESTMENTS AS ON 31 MARCH 2007, WHICH IS ALLOWED AS DEDUCTION. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO DISALLOWED THE DEDUCTION CLAIMED OF RS. 205.43 CRORES FOR THE REASON THAT IT IS LOSS ARISING OUT O F PROVISIONS IN THE BOOKS AND THEREFORE IT IS NOTIONAL LOSS AND NOT REA L. ASSESSEE CARRIED THE MATTER BEFORE CIT (A) WHO IN TURN CONCU RRING WITH THE VIEWS OF ASSESSING OFFICER CONFIRMED THE DISALLOWAN CE. THEREFORE, ASSESSEE HAS RAISED THIS GROUND BEFORE US. 11. BEFORE US ID. AR SUBMITTED THAT RBI CIRCULAR P ROVIDES FOR TRANSFER OF SECURITIES FROM AVAILABLE FOR SALE CATEGORY TO H ELD TO MATURITY CATEGORY ONCE IN A YEAR. THE BOARD OF THE DIRECTORS OF THE B ANK AUTHORIZES SUCH TRANSFER AND SUCH LOSS IS CHARGED TO PROFIT AND LOS S ACCOUNT OF THE BANK. HE SUBMITTED THAT LOSS ARISING THEREFROM IS NOT A NOTI ONAL LOSS BUT REAL LOSS ARISING ON ACCOUNT OF PRINCIPLES OF VALUATION OF ST OCKS ON THE BASIS OF COST OR MARKET VALUE WHICHEVER LESS, AO AND CIT (A) BOTH HAVE ERRED IN TERMING IT AS NOTIONAL LOSS. HE FURTHER SUBMITTED THAT IN C ASE OF THE ASSESSEE IN EARLIER YEARS SUCH LOSS HAS BEEN ALLOWED WITHOUT DI SPUTE IN ASSESSMENT PROCEEDINGS. HE FURTHER SUBMITTED THAT THIS ISSUE I S COVERED IN FAVOUR OF THE ASSESSEE BY DECISION OF STATE BANK OF MYSORE VS. DC IT 33 SOT 7 (BANGALORE). HE SUBMITTED THAT HONBLE BOMBAY HIGH COURT IN 107 DTR 395 HAS NOW CONFIRMED THE DECISION OF BANGALORE BEN CH OF ITAT. THEREFORE, THE DISALLOWANCE OF RS. 205.43 CRORES MA Y BE DELETED. 28 12. LD. DR RELIED ON THE ORDER OF LOWER AUTHORITI ES AND SUBMITTED THAT THIS IS A NOTIONAL LOSS. 13. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTEN TIONS. DURING THE YEAR, ASSESSEE HAS DEBITED THE LOSS OF RS. 205.43 CRORES ARISING OF ON ACCOUNT OF TRANSFER OF SECURITIES OF RS. 1664.32 CRORES FROM AVAILABLE FOR SALE CATEGORY TO HELD TO MATURITY CATEGORY IN TERMS OF RESOLUTION OF THE BOARD OF DIRECTORS OF THE APPELLANT. CLAIM HAS ARISEN BEC AUSE OF THE CIRCULAR ISSUED BY RESERVE BANK OF INDIA ON PRUDENTIAL NORMS FOR CLASSIFICATION, VALUATION AND OPERATION OF INVESTMENT PORTFOLIO BAN K DATED I S ' JULY, 2006. ACCORDING TO THAT CIRCULAR THE BANKS ARE ALLOWED TO TRANSFER SECURITIES FROM ONE CATEGORY TO ANOTHER CATEGORY ONCE EVERY YEAR AT THE LEAST VALUE OF FOLLOWING:- (A)CQUISITION COST (B)BOOK VALUE AND (C)MARKET VALUE. IT IS FURTHER PROVIDED THAT IF BECAUSE OF SUCH TRAN SFER ANY DEPRECIATION ARISES, IT SHOULD BE FULLY PROVIDED FOR. THE CLAIM OF THE ASSESSEE IS THAT THIS LOSS SHOULD BE ALLOWED AS DEDUCTION BECAUSE OF TRAN SFER OF SECURITIES FROM ONE CATEGORY TO ANOTHER CATEGORY. THEREFORE, THE IS SUE IN APPEAL IS THAT WHETHER A BANKING COMPANY CLAIMS THE LOSS, BASED ON CIRCULARS AND INSTRUCTIONS OF RESERVE BANK OF INDIA, IS ALLOWABLE BECAUSE OF TRANSFER OF SECURITY FROM CATEGORY OF AVAILABLE FOR SALE TO HELD TO MATURITY. THIS ISSUE NOW NO LONGER SURVIVES IN VIEW OF TWO DECISIO NS OF HONBLE KARNATAKA HIGH COURT IN CASE OF KARNATAKA BANK LTD. VS. ASSISTANT COMMISSIONER OF INCOME TAX 356 ITR 549 AND CIT VS. BANK OF BARODA 262 ITR 334 AND A DECISION OF HONOURABLE BOMBAY HIGH CO URT IN CASE OF CIT VS. HDFC BANK LTD. REPORTED AT 368 ITR 377 CONSIDER ING DECISION OF HONOURABLE SUPREME COURT IN CASE OF UNITED COMMERCI AL BANK V CIT 240 ITR 355 AND SOUTHERN TECHNOLOGIES LIMITED V JT CIT 320 ITR 577, WHEREIN HONBLE HIGH COURT HAS HELD AS UNDER:- 9. IN THE PRESENT CASE, WE FIND THAT THE FACTS AND ISSUES THAT ARE COVERED BY THE AFORESAID JUDGMENT SQUARELY APPLY TO THE FACTS AND ISSUES RAI SED IN THE PRESENT APPEAL. NOT ONLY ARE WE IN FULL AGREEMENT WITH THE JUDGMENT OF THIS COURT IN T HE 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 HIG H COURT IN THE CASE OF KARNATAKA BANK LTD. (SUPRA), RELIANCE ON WHICH WAS PLACED BY MR MI STRY, SQUARELY COVERS THE ISSUE RAISED IN THIS APPEAL. THE FACTS IN THE CASE BEFORE THE KARNATAKA HIGH COURT WERE THAT THE ASSESSEE WAS HOLDING SECURITIES IN DIFFERENT CATEGORIES AS MANDA TED BY THE RBI MASTER CIRCULAR DATED 1ST SEPTEMBER 2$03. THE ASSESSEE TREATED SUCH SECURITIE S AS STOCK-IN-TRADE AND CLAIMED DEPRECIATION ON THE BOOK VALUE AFTER VALUING THE SECURITIES AT C OST OR MARKET VALUE WHICHEVER WAS LOWER. THE REVENUE REFUSED TO ACCEPT THE ASSESSEE'S PLEA FOR T HE DEDUCTION AND DISALLOWED THE SAME AND ADDED BACK TO THE TOTAL INCOME THE SAID AMOUNT. AGG RIEVED BY THE SAID ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (APPEALS). THE S AME WAS DISMISSED UPHOLDING THE CONTENTION OF THE ASSESSING AUTHORITY'. AGGRIEVED THEREBY, THE ASSESSEE PREFERRED AN APPEAL TO THE TRIBUNAL. THE TRIBUNAL INTER ALIA HELD THAT SINCE THE SECURIT IES ON WHICH THE DEPRECIATION HAD BEEN CLAIMED ON THE EARLIER YEARS HAD NOT BEEN IDENTIFIED, THE I SSUE WAS RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR CONSIDERATION AFRESH AND PARTLY ALLOWED THE APPEAL. BEING AGGRIEVED BY THE SAID ORDER, KARNATAKA BANK LTD. PREFERRED AN APPEAL TO T HE KARNATAKA HIGH COURT UNDER SECTION 260A OF THE ACT. AFTER DISCUSSING VARIOUS JUDGMENTS OF THE SUPREME COURT, THE KARNATAKA HIGH COURT HELD AS UNDER : 29 'FROM THE AFORESAID JUDGMENTS OF THE APEX COURT, NO W IT IS CLEAR THAT A METHOD OF ACCOUNTING ADOPTED BY THE TAXPAYER CONSISTENTLY AND REGULARLY CANNOT BE DISCARDED BY THE DEPARTMENTAL AUTHORITIES 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 REGULATIONS. THE FORM IN WHICH, ACCOUNTS HAVE TO BE MAINTAINED IS PRESCRIBED UNDER THE AFORESAID LEGISLATION. THEREFORE, THE ACC OUNT HAD TO BE IN CONFORMITY WITH THE SAID REQUIREMENTS. THE RBI ACT OR THE COMPANIES ACT DO N OT DEAL WITH THE PERMISSIBLE DEDUCTIONS OR EXCLUSION UNDER THE INCOME TAX ACT. FOR THE PURPOSE OF THE INCOME TAX ACT, IF THE ASSESSEE HAS CONSISTENTLY BEEN TREATING THE VALUE OF INVESTMENT FOR MORE THAN TWO DECADES THE INVESTMENTS AS STOCK-IN-TRADE AND CLAIMED DEPRECIATION, IT IS NOT OPEN TO THE AUTHORITIES TO DISALLOW THE SAID DEPRECIATION ON THE GROUND THAT IN THE BALANCE-SHEE T IT IS SHOWN AS INVESTMENT IN TERMS OF THE RBI REGULATIONS. THE RBI REGULATIONS, THE COMPANIES ACT AND THE INCOME TAX ACT OPERATE ALTOGETHER IN DIFFERENT FIELDS. THE QUESTION WHETHE R THE ASSESSEE IS ENTITLED TO PARTICULAR DEDUCTION OR NOT WILL DEPEND UPON THE PROVISION OF LAW RELATING THERETO AND NOT THE WAY, IN WHICH THE ENTRIES ARE MADE IN THE BOOKS OF ACCOUNT. IT IS NOT DECISIVE OR CONCLUSIVE IN THE MATTER. FOR THE PURPOSE OF THE INCOME TAX ACT WHICHEVER METHOD IS ADOPTED BY THE ASSESSEE, A TRUE PICTURE OF THE PROFITS AND GAINS, I.E. REAL INCOME IS TO BE DI SCLOSED. FOR DETERMINING THE REAL INCOME, THE ENTRIES IN THE BALANCE- SHEET IS REQUIRED TO BE MAI NTAINED IN THE STATUTORY FORM MAY NOT BE DECISIVE OR CONCLUSIVE. IT IS OPEN TO THE INCOME TA X OFFICER AS WELL AS THE ASSESSEE TO POINT OUT TRUE AND PROPER INCOME WHILE SUBMITTING THE INCOME TAX RETURNS. EVEN IF THE ASSESSEE UNDER SOME MISREPRESENTATION OR MISTAKE FAILS TO MAKE AN ENTRY IN THE BOOKS OF ACCOUNT, ALTHOUGH UNDER LAW, A DEDUCTION MUST BE ALLOWED BY THE INCOM E TAX OFFICER, THE ASSESSEE WILL NOT LOSE ANY RIGHT ON CLAIMING OR WILL BE DEBARRED FROM BEING AL LOWED THE DEDUCTION. THEREFORE, THE APPROACH OF THE AUTHORITIES IN THIS REGARD IS CONTRARY TO TH E WELL SETTLED LEGAL POSITION AS DECLARED BY THE APEX COURT. IN THE INSTANT CASE, THE ASSESSEE HAS MAINTAINED TH E ACCOUNTS 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 A LLOWED. THEREFORE, NOTWITHSTANDING THAT IN THE BALANCE-SHEE T, IT IS SHOWN AS INVESTMENT, FOR THE PURPOSE OF INCOME TAX ACT, IT IS SHOWN AS STOCK-IN-TRADE. T HEREFORE, THE VALUE OF THE STOCKS BEING CLOSELY CONNECTED WITH THE STOCK MARKET, AT THE END OF THE FINANCIAL YEAR, WHILE VALUING THE ASSETS, NECESSARILY THE BANK HAS TO TAKE INTO CONSIDERATION THE MARKET VALUE OF THE SHARES. IF THE MARKET VALUE IS LESS THAN THE COST PRICE, IN LAW, THEY ARE ENTITLED TO DEDUCTIONS AND IT CANNOT BE DENIED BY 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 APPEAL IS ALSO SQUARELY COVERED BY THE JUDGMENT OF THE KARNATAKA HIGH COURT IN THE CASE OF KARNATAKA BANK LTD. (SUPRA). 12. IN VIEW THEREOF, WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE IT AT. THE PRESENT APPEAL DOES NOT RAISE ANY SUBSTANTIAL QUESTION OF LAW AS P ROJECTED BY THE LEARNED COUNSEL APPEARING FOR THE APPELLANT. THE APPEAL IS THEREFORE DISMISSED. 14. THEREFORE, WE FIND THAT THE ISSUE RAISED IN T HIS APPEAL SQUARELY COVERED BY THE DECISION OF HONBLE KARNATAKA HIGH COURT AS WELL AS MUMBAI HIGH COURT IN FAVOUR OF ASSSESSEE. THEREFORE, RESPECTFUL LY FOLLOWING THOSE JUDICIAL PRECEDENTS, WE REVERSE THE ORDER OF CIT (A ) AND DELETE THE DISALLOWANCE OF RS. 205.43 CRORES ON ACCOUNT OF CLA IM OF LOSS OF TRANSFER OF SECURITY FROM AVAILABLE FOR SALE CATEGORY TO HEL D TO MATURITY CATEGORY BY THE APPELLANT BANK IN ACCORDANCE WITH DIRECTION/ CI RCULAR OF RESERVE BANK OF INDIA. 30 IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE PRES ENT CASES AND IN VIEW OF THE JUDICIAL PRECEDENTS, WE ARE IN AGREEMEN T WITH THE ARGUMENTS OF ASSESSEE AND THE ISSUE OF LOSS ON INTER-TRANSFER OF SECURITIES OF DECIDED IN FAVOUR OF ASSESSEE. THE ISSUE OF DEPRECIATION ON SECURITIES AT THE CLOSE OF FINANCIAL YEAR IS ALSO DECIDED IN FAVOUR OF ASSE SSEE IN VIEW OF THE ABOVE JUDICIAL PRECEDENTS IN THE CASE OF BANK OF BA RODA AS RELIED AS RELIED ON IN THE CASE OF HDFC BANK LTD. 14. NOW COMING TO THE GRIEVANCE OF REVENUE THAT LD. CIT(A) HAS WRONGLY CONSIDERED THE LOSS CLAIMED BY ASSESSEE IN THE REVISED RETURN AS THE RETURN WAS FILED BEYOND LIMITATION PERIOD. WE FIND THAT HONBLE PUNJAB & HARYANA HIGH COURT IN ITS DECISION IN THE CASE OF CIT VS. RAMCO INTERNATIONAL, 332 ITR 306(P&H), HAS HELD TH AT THE ASSESSEES CLAIM FOR ALLOWING DEDUCTION U/S 80IB DURING THE AS SESSMENT PROCEEDINGS WAS TO BE CONSIDERED NOTWITHSTANDING TH AT SUCH A CLAIM WAS NOT MADE IN THE RETURN OF INCOME. THE HONBLE PUNJAB & HARYANA HIGH COURT HAD DISTIN GUISHED, THE HONBLE SUPREME COURT ORDER IN THE CASE OF GOETZE ( INDIA) LTD. VS. CIT 284 ITR 323 (SC), WHERE THE HONBLE SUPREME COURT H AD HELD THAT ASSESSING OFFICER HAS NO POWER TO ENTERTAIN THE CLA IM MADE BY ASSESSEE OTHER THAN BY FILING REVISED RETURN. THE HONBLE PU NJAB & HARYANA HIGH COURT HAS HELD AND NOTED THAT ASSESSEE WAS NOT MAKI NG ANY FRESH CLAIM AND HAD DULY FURNISHED THE DOCUMENTS AND SUBMITTED THE FORM FOR CLAIM U/S 80IB AND THEREFORE, THERE WAS NO REQUIREMENT OF ANY REVISED RETURN. 31 IN THE PRESENT CASES, THE ASSESSEE HAD FILED REVISE D RETURNS IN VIEW OF THE TRIBUNAL ORDER IN THE CASE OF ASSESSEE ITSELF FOR A SST. YEAR: 2002-03 & 2004-05 WHEREIN ON APPEAL FILED BY REVENUE THE INCO ME/LOSS FROM THE VALUATION OF SECURITIES WAS HELD TO BE INCOME ATTRI BUTABLE TO THE BUSINESS OF THE ASSESSEE AND THEREFORE, THE CASE LAW OF HON BLE SUPREME COURT IN THE CASE OF GOETZE INDIA LTD. (SUPRA) IS NOT APPLIC ABLE AS IN THAT CASE REVISED RETURN WAS NOT FILED. WE FURTHER FIND THAT THE HONBLE SUPREME COURT IN CIT VS. MAHENDRA MILLS 243 ITR 56(SC) COMMENTING ON THE BOA RD CIRCULAR NO.114/(XL-35) DT. 4.04.1955 WHICH FASTENED THE AO WITH THE RESPONSIBILITY TO DRAW ASSESSEES ATTENTION TO CLAI MS/RELIEFS HE WAS ENTITLED TO IN THE COURSE OF ASSESSMENT PROCEEDINGS , HELD THAT THE SAID CIRCULAR IMPOSES A DUTY ON THE OFFICERS OF THE DEPA RTMENT TO ASSIST THE TAX PAYERS IN EVERY REASONABLE WAY, PARTICULARLY IN THE MATTER OF CLAIMING AND SECURING RELIEF IN THE PRESENTS CASES. SINCE AS SESSEE HAD FILED REVISED RETURNS IN VIEW OF THE TRIBUNAL ORDER WHICH WAS IN FAVOUR OF REVENUE, THEREFORE, THE CLAIM OF THE ASSESSEE THROUGH REVISE D RETURN WHICH THOUGH BECAME BELATED CANNOT BE DENIED AS ASSESSEE WAS RIG HTLY ENTITLED TO THE ALLOWANCE IN VIEW OF THE DECISIONS OF HONBLE SUPRE ME COURT IN THE CASE OF UNITED COMMERCIAL BANK. THEREFORE, THIS GRIEVANC E OF REVENUE IS REJECTED. 15. NOW COMING TO THE ISSUE OF BROKEN PERIOD INTERE ST WHICH THE ASSESSING OFFICER HAD DISALLOWED TO THE ASSESSEE AN D WHICH LD. CIT(A) 32 HAS ALLOWED. IN THIS RESPECT, WE FIND THAT INTEREST IS PAYABLE ON BONDS AT SPECIFIC INTEREST RATES AND SPECIFIC INTERVALS, WH ICH MAY BE YEARLY OR HALF YEARLY AND WHEN THE ASSESSEE PURCHASED A BOND FOR I NVESTMENT CERTAIN INTEREST HAD ALREADY ACCRUED ON THAT BOND. THE ASSE SSEE DEBITED THE ACCRUED INTEREST ON BOND AS EXPENDITURE IN THE P&L ACCOUNT AS BROKEN PERIOD INTEREST WHILE THE BALANCE AMOUNT OF PURCHAS E COST AFTER REDUCING THIS INTEREST WAS TAKEN AS INVESTMENTS OF STOCK IN TRADE IN BALANCE SHEET. THE ASSESSING OFFICER DISALLOWED SUCH EXPENDITURE O N THE GROUND THAT PURCHASE COSTS OF INVESTMENT COULD NOT BE SPLIT UP ORDINARILY BETWEEN INVESTMENT AND INTEREST EXPENDITURE. WHILE HOLDING THAT ASSESSING OFFICER RELIED ON THE DECISIONS OF HONBLE RAJSTHAN HIGH COURT WHEREIN THE RAJASTHAN HIGH COURT HAD APPLIED THE CASE OF VIJAY BANK LTD. VS. CIT 187 ITR 541(SC). HOWEVER, THE HONBLE BOMBAY HIGH C OURT IN THE CASE OF AMERICAN EXPRESS INTERNATIONAL BANKING CORP. VS. CI T 258 ITR 601(BOM) HAS NOTED THAT BROKEN PERIOD INTEREST RECEIVED BY T HE ASSESSEE WAS CHARGED TO TAX AS BUSINESS INCOME AND THEREFORE, TH E DEDUCTION FOR PAYMENT MADE FOR BROKEN PERIOD AT THE TIME OF PURCH ASE OF THESE SECURITIES COULD NOT BE DENIED. IT WAS HELD THAT HAVING ASSESSED THE INCOME FROM THE SECURITIES U/S 28, THE DEPARTMENT O UGHT TO HAVE ALLOWED DEDUCTION OF PAYMENT OF BROKEN PERIOD INTEREST AS R EVENUE EXPENDITURE. THE HONBLE COURT FURTHER HELD THAT THERE WAS NO DI FFERENCE IN THE AMOUNT OF TAX WHETHER ONE ADOPTED THE ASSESSEES ME THOD OR DEPARTMENTS METHOD SINCE UNDER THE OTHER METHOD TH E SAME AMOUNT WAS OFFERED TO TAX. THE HONBLE BOMBAY HIGH COURT H AD CLEARLY 33 DISTINGUISHED THE DECISION OF VIJAY BANK LTD. VS. C IT AND HELD THAT CASE LAW WAS NOT APPLICABLE TO THE FACTS. THE LD. CIT(A) HAS NOTED IN HIS DECISION THAT THOUGH BANK OF RAJSTHAN LTD. (SUPRA) DOES MAKE A STRONG CASE THAT THE VALUE OF PURCHASES MADE BY ASSESSEE S HOULD BE AN INCLUSIVE COST WHICH WAS PAID BY THE PURCHASER OF T HE SECURITY BUT HE HAS FOLLOWED THE CASE OF AMERICAN EXPRESS INTERNATI ONAL BANK (SUPRA) FOR THE REASONS THAT SLP FILED BY THE DEPARTMENT AGAINS T THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF UNION BANK OF INDIA WHICH HAD FOLLOWED THE DECISION OF AMERICAN EXPRESS INTER NATIONAL BANK (SUPRA) HAD BEEN DISMISSED BY HONBLE SUPREME COURT . THEREFORE, HE HAS RIGHTLY HELD THAT VIEW OF HONBLE BOMBAY HIGH COURT THAT INTEREST FROM BROKEN PERIOD SHOULD BE ALLOWED AS DEDUCTION AS HAS BEEN UPHELD BY HONBLE APEX COURT. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, WE ARE IN AGREEMENT WITH THE DETAILED FINDINGS AS NOTED BY LD. CIT(A) IN HIS ORDER AND THEREFORE, THE LD. CIT(A) HAS RIGHTLY NOT FOLLO WED THE JUDGMENT OF CIT VS. BANK OF RAJSTHAN AND DECISION OF APEX COURT IN THE CASE OF VIJAYA BANK LTD. VS. CIT(SUPRA). THEREFORE, THIS GRIEVANC E OF THE REVENUE IS ALSO DISMISSED. IN VIEW OF THE ENTIRE DISCUSSION AND IN VIEW OF THE FACTS AND CIRCUMSTANCES AND JUDICIAL PRECEDENTS, WE ALLOW THE APPEALS AND CROSS OBJECTIONS OF ASSESSEE RELATING TO ISSUE OF DISALLO WANCE OF INTER-TRANSFER OF SECURITIES AND FURTHER THE REVENUES APPEAL FOR THE ISSUES RELATING TO DISALLOWANCE ON ACCOUNT OF DEPRECIATION OF INVESTME NTS AND ON ACCOUNT 34 OF DISALLOWANCE OF BROKEN PERIOD INTEREST ARE DECID ED AGAINST THE REVENUE. 16. NOW COMING TO THE DISALLOWANCE OF PREMIUM P AID ON ACCOUNT OF KEY MAN INSURANCE POLICY WHICH THE LD. CIT(A) HAS CONFIRMED, WE FIND THAT THE ISSUE OF PAYMENT OF KEY MAN INSURANCE IS SQUARELY COVERED IN FAVOUR OF ASSESSEE BY THE DECISIONS OF ITAT AMRITSA R BENCH IN THE CASE OF M/S SURI SONS VS. ACIT IN ITA NO.37(ASR)/2011 AND M /S. F.C. SONDHI & CO. (INDIA) PVT. LTD. VS. DCIT. IN VIEW OF THE ABOV E, THE ISSUE OF KEY MAN INSURANCE IS ALSO DECIDED IN FAVOUR OF ASSESSEE. T HE FINDINGS OF HONBLE TRIBUNAL IN THE CASE OF SURI SONS VS. ACIT IN ITA N O.37(ASR)/2010 ARE REPRODUCED BELOW. 8. LET US NOW COME BACK TO THE CORE ISSUE BEFORE U S. THE SHORT QUESTION THAT WE HAVE TO REALLY ADJUDICATE IS AS TO WHETHER THE PREMIUM OF RS 1,49,99,922 PAID ON THE KEYMAN INSURANCE POLICIE S CAN BE ALLOWED ON THE FACTS OF THIS CASE. AS TO WHAT CONSTITUTES KEY MAN INSURANCE POLICY, WE FIND GUIDANCE FROM THE EXPLANATION BELOW SECTION 10 (10D), AS IT STOOD AT THE RELEVANT POINT OF TIME, WHICH DEFINED THE KEYMA N INSURANCE POLICY AS FOLLOWS: FOR THE PURPOSES OF THIS CLAUSE, 'KEYMAN INSURANCE POLICY' MEANS A LIFE INSURANCE POLICY TAKEN BY A PERSON ON THE LIFE OF ANOTHER PERSON WHO IS OR WAS THE EMPLOYEE OF THE FI RST- MENTIONED PERSON OR IS OR WAS CONNECTED IN ANY MANN ER WHATSOEVER WITH THE BUSINESS OF THE FIRST-MENTIONED PERSON 9. VIDE FINANCE ACT 2013, THE FOLLOWING WORDS HAVE BEEN ADDED TO THIS DEFINITION- AND INCLUDES SUCH POLICY WHICH HAS BEEN ASSIGNED TO A PERSON, AT ANY TIME DURING THE TERM O F THE POLICY, WITH OR WITHOUT ANY CONSIDERATION . 10. ALL THAT IS REQUIRED FOR AN INSURANCE POLICY TO MEET THE REQUIREMENTS OF SECTION 10(10D), THEREFORE, HAS TO BE (A) IT SHOULD BE A LIFE INSURANCE POLICY; (B) IT SHOULD BE TAKEN BY THE ASSESSEE ON THE LIFE OF ANOTHER PERSON WHO IS, OR WAS, AN EMPLO YEE OF THE ASSESSEE OR IS RELATED TO THE BUSINESS OF THE ASSES SEE IS ANY MANNER. 35 11. DEALING WITH BOTH THE LIMBS OF THE ABOVE REQUIR EMENST, A COORDINATE BENCH OF THIS TRIBUNAL, IN THE CASE OF S HRI NIDHI CORPORATION (SUPRA), HAS OBSERVED AS FOLLOWS: IT APPEARS THAT AFTER THE ASSESSEE HAS PURCHASED TH ESE POLICIES, IRDA CAME UP WITH CIRCULAR DATED 27TH APRIL 2005 TH AT PARTNERSHIP INSURANCE IN THE NAME OF PARTNER WILL NOT BE COVERE D UNDER KEYMAN INSURANCE BUT AS A TERM INSURANCE COVER. THUS, SUCH IRDA CIRCULAR CANNOT BE ADVERSELY VIEWED IN CASE OF THE ASSESSEE AS WHEN THE ASSESSEE HAS TAKEN THE POLICY UNDER KEYMAN INSURANC E SCHEME FROM TWO REPUTED INSURANCE COMPANIES THERE WAS NO S UCH REGULATION. THE OTHER OBJECTIONS OF THE REVENUE ARE THAT THE DEDUCTION OF THE PREMIUM UNDER KEYMAN INSURANCE CAN NOT BE ALLOWED IN THE CASE OF PARTNERSHIP FIRM, IS NOT TEN ABLE IN VIEW OF THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT I N B.N. EXPORTS (SUPRA), WHEREIN, IT HAS BEEN HELD THAT IF THE KEYM AN INSURANCE POLICY IS OBTAINED ON A LIFE OF A PARTNER, TO SAFEG UARD THE FIRM AGAINST A DISRUPTION OF BUSINESS, THEN THE PAYMENT FOR PREMIUM ON SUCH POLICY IS LIABLE FOR DEDUCTION AS BUSINESS EXP ENDITURE. THUS, EVEN IF A KEYMAN INSURANCE HAS BEEN TAKEN IN THE NA ME OF A PARTNER BY THE PARTNERSHIP FIRM, THEN ALSO THE DEDU CTION HAS TO BE ALLOWED ON THE PAYMENT OF PREMIUM . THE OTHER MAIN OBJECTIONS OF THE LEARNED COMMISSIONER (APPEALS) HA S BEEN THAT FIRSTLY, THESE ARE NOT INSURANCE POLICY AS SUCH BUT ARE MAINLY FOR CAPITAL APPRECIATION UNDER THE INVESTMENT SCHEME AN D SECONDLY, THE ASSESSEE HAS NOT RECEIVED THE MATURITY SUM BUT IT H AS BEEN ASSIGNED TO THE PARTNERS, THEREFORE, THE ASSESSEE C ANNOT BE GIVEN DEDUCTION FOR ANY PREMIUM PAID. INSOFAR AS THE FIRS T OBJECTION OF THE LEARNED COMMISSIONER (APPEALS) IS CONCERNED, WE DEC LINED TO AGREE WITH THIS CONCLUSION, BECAUSE ONCE THE ASSESSEE HAS BOUGHT A POLICY UNDER A LIFE INSURANCE SCHEME, THEN WHETHER THE INSURANCE COMPANY IS MAKING INVESTMENT IN MUTUAL FU NDS FOR CAPITAL APPRECIATION OR UNDER ANY OTHER INVESTM ENT SCHEME, WILL NOT MAKE ANY MATERIAL DIFFERENCE. (EMPHASIS, BY UNDERLINING, SUPPLIED BY US) 12. WE ARE IN CONSIDERED AGREEMENT WITH THE VIEWS S O EXPRESSED BY OUR DISTINGUISHED COLLEAGUES. AS LONG AS A POLI CY IS AN INSURANCE POLICY, WHETHER IT INVOLVES A CAPITAL APPRECIATION OR IS UNDER ANY OTHER INVESTMENT SCHEME, IT MEETS THE TESTS LAID DO WN UNDER SECTION 10(10D). 13. THE REQUIREMENT OF PURE INSURANCE POLICY IS SOM ETHING WHICH IS NOT LAID DOWN BY THE STATUTE. YET, IT IS THIS WH ICH HAS BEEN INFERRED BY THE AUTHORITIES BELOW. 14. EVEN IF SUCH AN INFERENCE IS DESIRABLE, AS LONG AS IT DOES NOT EMERGE FROM THE PLAIN WORDS OF THE STATUTE, IT CANN OT BE OPEN TO SUPPLY THE SAME. THE CONCEPTS OF TERM POLICY, PURE LIFE POLICY AND THE IRDA GUIDELINES FIND NO MENTION IN THE STATUTOR Y PROVISIONS. BUT 36 EVEN IF THESE CONCEPTS OUGHT TO BE INCORPORATED IN THIS STATUTORY PROVISION OF THE INCOME TAX ACT TO MAKE IT MORE MEA NINGFUL AND WORKABLE, IT CANNOT BE OPEN TO ANY JUDICIAL FORUM T O SUPPLY THESE OMISSIONS. RELYING UPON HONBLE SUPREME COURTS JUD GMENT IN THE CASE OF TARULATA SHYAM VS CIT [(1977) 108 ITR 245 (SC)], A COORDINATE BENCH OF THIS TRIBUNAL, IN THE CASE OF TATA TEA LIMITED VS JCIT [(2003) 87 ITD 351 (CAL)] , HAS EXPLAINED THIS PRINCIPLE AS FOLLOWS: 8. CASUS OMISSUS, WHICH BROADLY REFERS TO THE PRINC IPLE THAT A MATTER WHICH HAS NOT BEEN PROVIDED IN THE STATUTE BUT SHOULD HAVE BEEN THERE, CANNOT BE SUPPL IED BY US, AS, TO DO SO WILL BE CLEARLY BEYOND THE CALL AND SCOPE OF OUR DUTY WHICH IS ONLY TO INTERPRET THE LA W AS IT EXISTS. HONBLE SUPREME COURT, IN THE CASE OF SMT. TARULATA SHYAM VS. CIT 1977 CTR (SC) 275 : (1977) 1 08 ITR 345 (SC) AT P 356 HAS OBSERVED : 'WE HAVE GIVEN ANXIOUS THOUGHT TO THE PERSUASIVE ARGUMENTS..... (WHICH) IF ACCEPTED, WILL CERTAINLY SOFTEN THE RIGOUR OF THIS EXTREMELY DRASTIC PROVISION AND BRING IT MORE IN CONFORMITY WITH LOGIC AND EQUITY. BUT TH E LANGUAGE OF SECTIONS........ IS CLEAR AND UNAMBIGUO US. THERE IS NO SCOPE FOR IMPORTING INTO THE STATUTE TH E WORDS WHICH ARE NOT THERE. SUCH INTERPRETATION WOUL D BE, NOT TO CONSTRUE, BUT TO AMEND THE STATUTE. EVEN IF THERE BE A CASUS OMISSUS, THE DEFECT CAN BE REMEDIE D ONLY BY LEGISLATION AND NOT BY JUDICIAL INTERPRETATION......TO US, THERE APPEARS NO JUSTIFI CATION TO DEPART FROM NORMAL RULE OF CONSTRUCTION ACCORDIN G TO WHICH THE INTENTION OF LEGISLATURE IS PRIMARILY TO BE GATHERED FROM THE WORDS USED IN THE STATUTE. IT WIL L BE WELL TO RECALL THE WORDS OF ROWLATT. J. IN CAPE BRA NDY SYNDICATE VS. IRC (1921) 1 KB 64 (KB) AT P. 71, THA T : '........... IN A TAXING ACT ONE HAS TO LOOK AT MER ELY WHAT IS CLEARLY SAID. THERE IS NO ROOM FOR ANY INTENDMEN T. THERE IS NO EQUITY ABOUT A TAX. THERE IS NO PRESUMP TION AS TO A TAX. NOTHING IS TO BE READ IN, NOTHING IS T O BE IMPLIED. ONE CAN ONLY LOOK FAIRLY AT THE LANGUAGE U SED.' ONCE IT IS SHOWN THAT THE CASE OF THE ASSESSEE COME S WITHIN THE LETTER OF LAW, HE MUST BE TAXED, HOWEVER GREAT THE HARDSHIP MAY APPEAR TO THE JUDICIAL MIND TO BE.' EVEN IN THE CASE OF CIT VS. NATIONAL TAJ TRADERS (S UPRA), RELIED UPON BY THE ASSESSEE, THEIR LORDSHIPS OF HON BLE SUPREME COURT HAVE REFERRED TO, WITH APPROVAL, MAXW ELL ON INTERPRETATION OF STATUTES OBSERVATION THAT 'A CASE NOT PROVIDED FOR IN A STATUTE IS NOT TO BE DEALT WI TH MERELY BECAUSE THERE SEEMS NO GOOD REASON WHY IT SHOULD HAVE BEEN OMITTED, AND THAT THE OMISSION 37 APPEARS IN CONSEQUENCE TO HAVE BEEN UNINTENTIONAL'. THEIR LORDSHIPS THEN OBSERVED THAT 'IN OTHER WORDS, UNDER THE FIRST PRINCIPLE, A CASUS OMISSUS CANNOT B E SUPPLIED BY THE COURT EXCEPT WHEN REASON FOR IT IS FOUND TO BE IN THE FOUR CORNERS OF THE STATUTE ITSELF BUT AT THE SAME TIME A CASUS OMISSUS SHOULD NOT BE READILY INFERRED AND FOR THAT PURPOSE ALL THE PARTS OF A ST ATUTE OR SECTION MUST BE CONSTRUED TOGETHER AND EVERY CLA USE OF A SECTION SHOULD BE CONSTRUED WITH REFERENCE TO THE CONTEXT AND OTHER CLAUSES THEREOF SO THAT THE CONSTRUCTION TO BE PUT ON A PARTICULAR PROVISION MA KES A CONSISTENT ENACTMENT OF THE WHOLE STATUTE'. 15. IT IS ALSO IMPORTANT TO BEAR IN MIND THE FACT T HAT THE IRDA GUIDELINES, NO MATTER HOW RELEVANT AS THESE GUIDELI NES MAY BE, HAVE NO ROLE TO PLAY IN THE INTERPRETATION OF THE STATUT ORY PROVISIONS. IRDA IS A BODY CONTROLLING THE INSURANCE COMPANIES AND I TS GUIDANCE IS RELEVANT ON HOW THE INSURANCE COMPANIES SHOULD COND UCT THEIR BUSINESS. BEYOND THIS LIMITED ROLE, THESE GUIDELINE S DO NOT AFFECT HOW THE PROVISIONS OF THE INCOME TAX ACT ARE TO BE CONSTRUED. WHENEVER THE PROVISIONS OF THE OTHER STATUTUTES ARE TO BE TAKEN INTO ACCOUNT, FOR INTERPRETING THE PROVISIONS OF THE INC OME TAX ACT, THE INCOME TAX ACT SPECIFICALLY PROVIDES SO, SUCH AS IN THE CASE OF EXPLANATION 2 TO SECTION 2 (42A) WHICH PROVIDES THA T THE EXPRESSION 'SECURITY' SHALL HAVE THE MEANING ASSIGN ED TO IT IN CLAUSE (H) OF SECTION 2 OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956 )]. IT CANNOT, THEREFORE, BE OPEN TO US TO TURN TO THE GUIDELINES OF THE IRDA TO INTERPRET THE PROV ISIONS OF THE INCOME TAX ACT, 1961. IN THIS VIEW OF THE MATTER, L EARNED ASSESSING OFFICERS OBSERVATIONS TO THE EFFECT THAT, THAT THE POLICY TAKEN IS KEYMAN AS PER DEFINITION GIVEN IN THE INCOME TAX AC T, I.E. POLICY TAKEN BY A PERSON ON THE LIFE OF ANOTHER PERSON AND ALSO FULFILLING THE TERMS AND CONDITIONS LAID DOWN BY IRDA IN THIS REGARD , NECESSITY AND EXPEDIENCY OF THE PERSON BEING KEYMAN AND THE POLICY TAKEN FOR THE BENEFIT OF THE ASSESSEE FIRM (EMPHASIS, BY UNDERLING, SUPPLIED BY THE AO) ARE DEVOID OF ANY L EGALLY SUSTAINABLE MERITS. THE FULFILMENT OF IRDA TERMS AND CONDITIONS IS WHOLLY ALIEN TO THE PRESENT CONTEXT. AS FOR THE POLICY BEING TAKEN FOR THE BENEFIT OF THE ASSESSEE FIRM, AS LONG AS IT IS FOR THE PURPOSE OF TAKING AN INSURANCE POLICY ON THE LIFE OF A PERSON WHO IS RELATED TO THE FIRM, THE SAME CANNOT BE CALLED INTO QUESTION EITHER. WE HAVE ALSO NOTED THAT THE A UTHORITIES BELOW HAVE PAID A LOT OF EMPHASIS ON THE CONTENTION THAT THE I NSURANCE POLICIES IN QUESTION WERE NOT TERMED AS KEYMAN INSURANCE POLICI ES BUT NOTHING TURNS ON THAT ASPECT, EVEN IF THAT BE SO, EITHER. THE KEY MAN INSURANCE POLICY IS A DEFINED CONCEPT AND AS LONG AS IT MEETS THE REQUIRE MENTS OF THIS DEFINITION, THE TERMINOLOGY GIVEN BY THE INSURERS HAVE NO RELEV ANCE FOR THE PURPOSES OF THE INCOME TAX ACT. ALL THAT IS NECESSARY IS THAT I T SHOULD BE A LIFE INSURANCE POLICY, WHETHER PURE LIFE INSURANCE POLIC Y OR NOT- AS SUCH CRITERION IS NOT SET OUT ANYWHERE IN THE STATURE, A ND IT SHOULD BE TAKEN ON THE LIFE OF A PERSON WHO IS, OR HAS BEEN, AN EMPLOY EE OF THE ASSESSEE OR 38 ANY OTHER PERSON WHO IS OR WAS CONNECTED IN ANY MAN NER WHATSOEVER WITH THE BUSINESS OF THE ASSESSEE. THESE CONDITIONS ARE CLEARLY SATISFIED ON THE FACTS OF THE CASE BEFORE US. 16. A LOT OF EMPHASIS HAS BEEN PLACED BY THE AUTHOR ITIES BELOW ON THE CIRCULARS ISSUED BY THE IRDA. IT MAY, THEREFORE, B E APPROPRIATE TO BRIEFLY DEAL WITH THE IRDA AND THE IMPACT OF THE CIRCULARS ISSUED BY THE IRDA. IRDA, I.E. INSURANCE REGULATORY AND DEVELOPMENT AUT HORITY, IS SET UP UNDER THE INSURANCE REGULATORY AND DEVELOPMENT ACT 1999. SECTION 14 OF THE INSURANCE REGULATORY AND DEVELOPMENT ACT, 1999, DESCRIBES THE DUTIES, POWERS AND FUNCTIONS OF THE IRDA AS FOLLOWS : 14. DUTIES, POWERS AND FUNCTIONS OF AUTHORITY. (1) SUBJECT TO THE PROVISIONS OF THIS ACT AND ANY O THER LAW FOR THE TIME BEING IN FORCE, THE AUTHORITY SHALL HAVE THE DUTY T O REGULATE, PROMOTE AND ENSURE ORDERLY GROWTH OF THE INSURANCE BUSINESS AND RE-INSURANCE BUSINESS. (2) WITHOUT PREJUDICE TO THE GENERALITY OF THE PROV ISIONS CONTAINED IN SUB-SECTION (1), THE POWERS AND FUNCTIONS OF THE AU THORITY SHALL INCLUDE, - (A) ISSUE TO THE APPLICANT A CERTIFICATE OF REGIST RATION, RENEW, MODIFY, WITHDRAW, SUSPEND OR CANCEL SUCH REGISTRATION; (B) PROTECTION OF THE INTERESTS OF THE POLICY HOLD ERS IN MATTERS CONCERNING ASSIGNING OF POLICY, NOMINATION BY POLIC Y HOLDERS, INSURABLE INTEREST, SETTLEMENT OF INSURANCE CLAIM, SURRENDER VALUE OF POLICY AND OTHER TERMS AND CONDITIONS OF CONTRACTS OF INSURANCE; (C) SPECIFYING REQUISITE QUALIFICATIONS, CODE OF C ONDUCT AND PRACTICAL TRAINING FOR INTERMEDIARY OR INSURANCE INTERMEDIARI ES AND AGENTS; (D) SPECIFYING THE CODE OF CONDUCT FOR SURVEYORS A ND LOSS ASSESSORS; (E) PROMOTING EFFICIENCY IN THE CONDUCT OF INSURAN CE BUSINESS; (F) PROMOTING AND REGULATING PROFESSIONAL ORGANISA TIONS CONNECTED WITH THE INSURANCE AND RE-INSURANCE BUSINESS; (G) LEVYING FEES AND OTHER CHARGES FOR CARRYING OU T THE PURPOSES OF THIS ACT; (H) CALLING FOR INFORMATION FROM, UNDERTAKING INSP ECTION OF, CONDUCTING ENQUIRIES AND INVESTIGATIONS INCLUDING A UDIT OF THE INSURERS, INTERMEDIARIES, INSURANCE INTERMEDIARIES AND OTHER ORGANISATIONS CONNECTED WITH THE INSURANCE BUSINESS; (I) CONTROL AND REGULATION OF THE RATES, ADVANTAGE S, TERMS AND CONDITIONS THAT MAY BE OFFERED BY INSURERS IN RESPE CT OF GENERAL INSURANCE BUSINESS NOT SO CONTROLLED AND REGULATED BY THE TAR IFF ADVISORY COMMITTEE UNDER SECTION 64U OF THE INSURANCE ACT, 1938 (4 OF 1938); (J) SPECIFYING THE FORM AND MANNER IN WHICH BOOKS OF ACCOUNT SHALL BE MAINTAINED AND STATEMENT OF ACCOUNTS SHALL BE RE NDERED BY INSURERS AND OTHER INSURANCE INTERMEDIARIES; (K) REGULATING INVESTMENT OF FUNDS BY INSURANCE CO MPANIES; (L) REGULATING MAINTENANCE OF MARGIN OF SOLVENCY; (M) ADJUDICATION OF DISPUTES BETWEEN INSURERS AND INTERMEDIARIES OR INSURANCE INTERMEDIARIES; (N) SUPERVISING THE FUNCTIONING OF THE TARIFF ADVI SORY COMMITTEE; 39 (O) SPECIFYING THE PERCENTAGE OF PREMIUM INCOME OF THE INSURER TO FINANCE SCHEMES FOR PROMOTING AND REGULATING PROFES SIONAL ORGANISATIONS REFERRED TO IN CLAUSE (F); (P) SPECIFYING THE PERCENTAGE OF LIFE INSURANCE BU SINESS AND GENERAL INSURANCE BUSINESS TO BE UNDERTAKEN BY THE INSURER IN THE RURAL OR SOCIAL SECTOR; AND (Q) EXERCISING SUCH OTHER POWERS AS MAY BE PRESCRI BED. 17. CLEARLY, THEREFORE, IRDA IS PRIMARILY TO REGUL ATE, PROMOTE AND ENSURE ORDERLY GROWTH OF THE INSURANCE BUSINESS AND RE-INSURANCE BUSINESS. IN DOING SO, AS EVIDENT FROM SECTION 14( 2)(A) TO (Q) ABOVE, IT REGULATES THE CONDUCT OF THE SERVICE PROVIDERS I N THE BUSINESS OF THE INSURANCE. IT DOES NOT, AND CANNOT, REGULATE TH E CONDUCT OF THE POLICY HOLDERS. AS IN SECTION 14(2)(B), IF AT ALL I T HAS ANYTHING TO DO WITH THE POLICYHOLDERS, IT IS PROTECTION OF INTERES T OF THE POLICYHOLDERS. IT IS IN THIS BACKGROUND THAT WE HA VE TO SEE THE CIRCULARS ISSUED BY THE IRDA. IN THE CIRCULAR DATED 27 TH APRIL, 2005, THE IRDA STATES AS FOLLOWS: THE AUTHORITY IS AWARE THAT SOME OF THE ABERRATIONS HAVE TAKEN PLACE IN THE MONTH OF MARCH 2005 IN THE MATTE R OF SALE OF KEYMAN INSURANCE . WE SHALL CONDUCT A DETAILED EXAMINATION OF THE POLI CIES MARKETED IN MARCH 2005 AND SHALL COME UP WITH DETAI LED GUIDELINES ON THE SALE OF KEYMAN INSURANCE AT THE A PPROPRIATE TIME. IN THE MEANTIME, IT HAS BEEN DECIDED THAT ONL Y TERM INSURANCE POLICY WILL HENCEFORTH BE ISSUED AS KEYM AN INSURANCE COVER . YOUR COMPANY IS REQUESTED TO ENSURE THAT YOUR COMPA NY FOLLOWS THIS CIRCULAR TILL FRESH GUIDELINES ARE ISS UED. 18. A PLAIN LOOK AT THE ABOVE CIRCULAR SHOWS THAT I T DEALS WITH ABERRATIONS IN SALE OF KEYMAN INSURANCE POLICIES AN D IT IS WAS A DIRECTION TO THE INSURANCE COMPANIES THAT EFFECT 27 TH APRIL 2005 ONLY TERM INSURANCE POLICIES SHOULD BE ISSUED AS KEYMAN INSURANCE COVER. THAT IS BETWEEN THE REGULATORY AUTHORITY AND THE INSURANCE COMPANIES AS TO WHAT SHOULD BE ALLOWED TO BE MARKET ED AS KEYMAN INSURANCE COVER. HOWEVER, IT DOES NOT ALTER THE REQ UIREMENTS OF SECTION 10(10D) WHICH IS FOR LIFE INSURANCE POLICY . WHAT CAN BE SOLD AS A LIFE INSURANCE POLICY TAKEN BY A BUSINESS EN TITY FOR ITS EMPLOYEE, FORMER EMPLOYEE OR ANY OTHER PERSON IMPOR TANT FOR BUSINESS OF SUCH AN ENTITY IS BETWEEN THE INSURANCE REGULATOR AND INSURANCE SERVICE PROVIDER. HOWEVER, ONCE IT HAS BE EN SOLD AS A LIFE INSURANCE POLICY ON THE KEYMAN TO THE BUSINESS, AS LONG AS IT IS IN THE NATURE OF LIFE INSURANCE POLICY, WHETHER PURE L IFE COVER OR TERM COVER OR A GROWTH OR GUARANTEED RETURN POLICY, IT I S ELIGIBLE FOR COVERAGE OF SECTION 10(10D). IT IS NOT OPEN TO US T O INFER THE WORDS WHICH ARE NOT THERE ON THE STATUTE AND THEN PROCEED TO GIVE LIFE AND EFFECT TO THE SAME. WE HAD DETAILED DISCUSSIONS ABO UT THIS ASPECT OF THE MATTER IN PARAGRAPH NUMBERS 10 TO 15 ABOVE, AND , AS WE HAVE 40 HELD THERE, SUCH AN EXERCISE IS NOT PERMISSIBLE UND ER THE SCHEME OF THE ACT. 19. WHAT IRDA REGULATES IS ISSUANCE OF LIFE INSURAN CE POLICIES BY THE INSURANCE COMPANIES TO THE POLICYHOLDERS ON THE LIVES OF ITS EMPLOYEES, FORMER EMPLOYEES AND KEY PERSONNEL BUT O NCE SUCH A POLICY IS ISSUED IT CANNOT BUT BE TREATED AS A KEY MAN INSURANCE COVER AS IT ESSENTIALLY MEETS THE REQUIREMENT OF S ECTION 10(10D) BECAUSE IT IS A A LIFE INSURANCE POLICY TAKEN BY A PERSON ON THE LIFE OF ANOTHER PERSON WHO IS OR WAS THE EMPLOYEE O F THE FIRST- MENTIONED PERSON OR IS OR WAS CONNECTED IN ANY MANN ER WHATSOEVER WITH THE BUSINESS OF THE FIRST-MENTIONED PERSON. THE MANDATE OF SECTION 10(10D) DOES NOT PUT ANY FUR THER TESTS, NOR CAN WE INFER THE SAME. 20. THE ASSESSING OFFICER HAS QUESTIONED COMMERCIAL EXPEDIENCY OF TAKING THE KEYMAN INSURANCE POLICIES ON THE SHOR T GROUNDS THAT (A) THE FALL IN TURNOVER, APPARENTLY ACCORDING TO T HE ASSESSING OFFICER, SHOWS THAT THERE WAS NO COMMERCIAL BENEFIT FROM TAK ING THE KEYMAN INSURANCE COVER; (B) THE INSURANCE POLICY WAS TAKEN FOR THE BENEFIT OF THE PARTNER RATHER THAN THE FIRM; AND (C) NO NECESSITY OR EXPEDIENCY OF THE PERSON BEING KEYMAN AND THE POLICY BEING TAKEN FOR THE BENEFIT OF THE FIRM WAS ESTABLISHED. WHEN BENEFIT OF POLICY WAS ASSIGNE D TO THE INSURED, THE POLICY CANNOT BE SAID TO BE FOR THE BENEFIT OF THE ASSESSEE FIRM. WE SEE NO MERITS IN THESE OBJECTIONS TO THE COMMERCIAL EXPEDI ENCY. AS FOR THE FALL IN TURNOVER, THE BENEFIT OF AN EXPENDITURE CANNOT BE, BY ANY STRETCH OF LOGIC, RELEVANT TO DETERMINE ITS COMMERCIAL EXPEDIENCY, AN D, IN ANY CASE. SUCH A BENEFIT OF HINDSIGHT CANNOT BE AVAILABLE AT THE POI NT OF TIME WHEN BUSINESS DECISIONS ARE MADE; MORE OFTEN THAN NOT, THESE ARE THE TOOLS OF POST MORTEM OF EVENTS, RATHER THAN INPUTS FOR THE DECISION MAKI NG. AS FOR THE OTHER ISSUES RAISED BY THE ASSESSING OFFICER AS SUCH, WE MAY REFER TO THE FOLLOWING OBSERVATIONS MADE, IN THIS CONTEXT, BY HO NBLE DELHI HIGH COURT IN THE CASE OF CIT VS RAJAN NANDA ETC. [(2012) 349 ITR 8 (DEL)] : 25. AFTER GIVING OUR DUE AND THOUGHTFUL CONSIDERATI ON TO THE SUBMISSIONS OF THE PARTIES OF BOTH SIDES, WE FEEL T HAT THE ASSESSEE HAS BEEN ABLE TO MAKE OUT A CASE IN ITS FA VOUR AND ORDER OF THE TRIBUNAL DOES NOT CALL FOR ANY INTERFE RENCE. WE ARE PERSUADED BY THE FOLLOWING REASONS IN SUPPORT O F THIS VIEW OF OURS: (I) THE DEPARTMENT HAS ITSELF ALLOWED THE EXPENDITU RE INCURRED ON THE PREMIUM PAID FOR KEYMAN INSURANCE P OLICIES IN PREVIOUS YEARS AS BUSINESS EXPENDITURE UNDER SEC TION 37 OF THE ACT. RIGHT FROM 1991-92 UPTO 1993-94 AND THE REAFTER EVEN IN RESPECT OF ASSESSMENT YEAR 1997-98, THE EXP ENDITURE WAS ALLOWED. THOUGH THEREAFTER, THE EXPENDITURE WAS DISALLOWED, BUT AGAIN THE CLAIM WAS ACCEPTED FOR TH E ASSESSMENT YEARS 2001-02 AND 2002-03. PRINCIPLE OF CONSISTENCY WOULD, THEREFORE, BY APPLICABLE IN SUCH A CASE. 41 (II) THE TRIBUNAL HAS RIGHTLY REFERRED TO AND RELIE D UPON THE CBDT'S CIRCULAR DATED 18.2.1998. THIS CIRCULAR IS B INDING ON THE INCOME TAX DEPARTMENT, WHICH CATEGORICALLY STIP ULATES THAT PREMIUM ON KEYMAN POLICY SHOULD BE ALLOWED AS BUSINESS EXPENSES. THE ASSESSEE WOULD, NATURALLY, T AKE INTO CONSIDERATION SUCH CLARIFICATIONS ISSUED BY THE CBD T AND WOULD ACT ON THE BASIS THEREOF. WHEN THE ASSESSEE W AS GIVEN THE IMPRESSION, BY MEANS OF THE AFORESAID CIRCULAR, THAT IF EXPENDITURE IS INCURRED ON THE KEYMAN POLICY, IT WO ULD BE TREATED AS BUSINESS EXPENDITURE . THERE IS NO REASON FOR THE DEPARTMENT TO DEVIATE THEREFROM WHEN IT COMES TO TH E ASSESSMENT. (III) THE NATURE OF EXPENDITURE INCURRED ON KEYMAN INSURANCE POLICY HAS EVEN BEEN JUDICIALLY CONSIDERED AND BOMB AY HIGH COURT HAS HELD IN B.N. EXPORTS (SUPRA) THAT THIS EX PENDITURE IS TO BE ALLOWED AS BUSINESS EXPENDITURE, IN THE FO LLOWING WORDS: 'THE EFFECT OF SECTION 10(10D) IS THAT MONIES WHICH ARE RECEIVED UNDER A LIFE INSURANCE POLICY ARE NOT INCL UDED IN THE COMPUTATION OF THE TOTAL INCOME OF A PERSON FOR A P REVIOUS YEAR. HOWEVER, ANY SUM RECEIVED UNDER A KEYMAN INSU RANCE POLICY IS TO BE RECKONED WHILE COMPUTING THE TOTAL INCOME. FOR THAT PURPOSE, A KEYMAN INSURANCE POLICY MEANS A LIFE INSURANCE POLICY TAKEN BY A PERSON ON THE LIFE OF A NOTHER PERSON WHO IS OR WAS IN EMPLOYMENT AS WELL AS ON A PERSON ON WHO IS OR WAS CONNECTED IN ANY MANNER WHATSOEVER WITH THE BUSINESS OF THE SUBSCRIBER. THE WORDS 'IS OR WA S CONNECTED IN ANY MANNER WHATSOEVER WITH THE BUSINES S OF THE SUBSCRIBER' ARE WIDER THAN WHAT WOULD BE SUBSUM ED UNDER A CONTRACT OF EMPLOYMENT . THE LATTER PART MAKES IT CLEAR THAT A KEYMAN INSURANCE POLICY FOR THE PURPOS ES OF CLAUSE (10D) IS NOT CONFINED TO A SITUATION WHERE T HERE IS A CONTRACT OF EMPLOYMENT. CLAUSE (10D) RELATES TO THE TREATMENT FOR THE PURPOSE OF TAXATION OF MONEYS REC EIVED UNDER AN INSURANCE POLICY. IN THIS APPEAL, THE COUR T HAS TO DETERMINE THE QUESTION OF EXPENDITURE INCURRED TOWA RDS THE PAYMENT OF INSURANCE PREMIUM ON A KEYMAN INSURANCE POLICY. THE CIRCULAR WHICH HAS BEEN ISSUED BY THE C ENTRAL BOARD OF DIRECT TAXES CLARIFIES THE POSITION BY STI PULATING THAT THE PREMIUM PAID FOR A KEYMAN INSURANCE POLICY IS ALLOWABLE AS BUSINESS EXPENDITURE. IN THE PRESENT C ASE, ON THE QUESTION WHETHER THE PREMIUM WHICH WAS PAID BY THE FIRM COULD HAVE BEEN ALLOWED AS BUSINESS EXPENDITUR E, THERE IS A FINDING OF FACT BY THE TRIBUNAL THAT THE FIRM HAD NOT TAKEN INSURANCE FOR THE PERSONAL BENEFIT OF THE PAR TNER, BUT FOR THE BENEFIT OF THE FIRM, IN ORDER TO PROTECT IT SELF AGAINST THE SET BACK THAT MAY BE CAUSED ON ACCOUNT OF THE D EATH OF A PARTNER. THE OBJECT AND PURPOSE OF A KEYMAN INSURAN CE POLICY IS TO PROTECT THE BUSINESS AGAINST A FINANCI AL SET BACK 42 WHICH MAY OCCUR, AS A RESULT OF A PREMATURE DEATH, TO THE BUSINESS OR PROFESSIONAL ORGANIZATION. THERE IS NO RATIONAL BASIS TO CONFINE THE ALLOWABILITY OF THE EXPENDITUR E INCURRED ON THE PREMIUM PAID TOWARDS SUCH A POLICY ONLY TO A SITUATION WHERE THE POLICY IS IN RESPECT OF THE LIF E OF AN EMPLOYEE. A KEYMAN INSURANCE POLICY IS OBTAINED ON THE LIFE OF A PARTNER TO SAFEGUARD THE FIRM AGAINST A DISRUP TION OF THE BUSINESS THAT MAY RESULT DUE TO THE PREMATURE D EATH OF A PARTNER. THEREFORE, THE EXPENDITURE WHICH IS LAID O UT FOR THE PAYMENT OF PREMIUM ON SUCH A POLICY IS INCURRED WHO LLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS .' (IV) THE ARGUMENT OF MR. N.P. SAHNI, LEARNED COUNSE L FOR THE REVENUE THAT TAKING SUCH KEYMAN INSURANCE POLICY EV ERY YEAR AND THEREAFTER ASSIGNING THE SAME TO THE BENEF ICIARIES MAY BE TREATED AS COLOURABLE DEVICE, MAY NOT BE COR RECT. THOUGH THIS ARGUMENT APPEARS TO BE ATTRACTIVE WHEN WE LOOK INTO THE FACT THAT THE ASSESSEE HAD BEEN TAKING THE POLICIES AND THEREAFTER ASSIGNING THE SAME YEAR AFTER YEAR I N FAVOUR OF THE BENEFICIARIES, WHAT CANNOT BE IGNORED THAT T HIS COURSE OF ACTION IS PERMITTED BY THE DEPARTMENT ITSELF AS STATED IN CBDT'S CIRCULAR DATED 18.2.1998. (V) THE EXPENDITURE INCURRED HAS TO BE TESTED ON TH E TOUCHSTONE OF SECTION 37 OF THE ACT AND TO SEE AS T O WHETHER SUCH EXPENDITURE IS PERMISSIBLE OR NOT. NO DOUBT, T HE OBJECT OF A KEYMAN INSURANCE POLICY IS TO ENABLE BUSINESS ORGANIZATIONS TO INSURE THE LIFE OF A KEYMAN IN ORD ER TO PROTECT THE BUSINESS AGAINST THE FINANCIAL LOSS WHI CH MAY OCCUR IN THE LIKELY EVENTUALITY OF PREMATURE DEATH. SUCH AN EXPENDITURE IS TREATED AS BUSINESS EXPENDITURE BY T HE DEPARTMENT ITSELF AND RECOGNIZED AS SUCH IN CIRCULA R DATED 18.2.1998. THE EXPENDITURE IS TO BE SEEN AT THE TIM E IT IS INCURRED. MERELY BECAUSE THE POLICY WAS ASSIGNED AF TER SOMETIME WOULD NOT MEAN THAT THE EXPENDITURE INCURR ED IN THE FIRST INSTANCE WOULD LOSE THE FLAVOUR OF IT BEI NG BUSINESS EXPENDITURE' . (VI) ONCE THE LEGAL PROVISIONS AND THE OUTLOOK OF D EPARTMENT ITSELF BASED ON SUCH LEGAL PROVISIONS PERMIT THE AS SESSEE TO HAVE THE TAX PLANNING OF THIS NATURE, AND THE COURS E OF ACTION TAKEN BY THE ASSESSEE IS PERMISSIBLE UNDER L AW, THE ARGUMENT OF COLOURABLE DEVICE CANNOT BE ADVANCED BY THE REVENUE. WHEN EXPENDITURE OF THIS NATURE IS TREATED BUSINESS EXPENDITURE' PER SE BY THE DEPARTMENT ITS ELF, THERE CANNOT BE ANY QUESTION OF RAISING THE ISSUE OF WANT OF BUSINESS EXPEDIENCY. THE LEARNED COUNSEL FOR THE RE SPONDENT IS RIGHT IN HIS SUBMISSION THAT THE DEPARTMENT COUL D NOT SIT ON THE ARMCHAIR OF THE ASSESSEE AND DECIDE AS TO WH ETHER IT WAS APPROPRIATE ON BUSINESS EXPEDIENCY FOR THE ASSE SSEE TO INCUR SUCH AN EXPENDITURE OR NOT. IF THE TRANSACTIO N IS 43 OTHERWISE VALID IN LAW AND IS A PART OF TAX PLANNIN G, MERELY BECAUSE IT HAS RESULTED IN REDUCTION OF TAX, SUCH E XPENDITURE CANNOT BE IGNORED RAISING THE ISSUE OF UNDERLYING M OTIVE OF ENTERING INTO THIS TYPE OF TRANSACTION . VARIOUS JUDGMENTS CITED BY THE LEARNED COUNSEL FOR THE RESPONDENTS CL EARLY GET ATTRACTED TO THIS COURT. (EMPHASIS, BY UNDERLINING, SUPPLIED BY US) 21. RESPECTFULLY FOLLOWING THE ESTEEMED VIEWS OF H ONBLE DELHI HIGH COURT, WE REJECT THE STAND OF THE AUTHORITIES BELOW ON THIS ASPECT OF THE MATTER AS WELL. AS FOR THE STATEMENT MADE BY T HE EMPLOYEES OF THE INSURANCE COMPANIES, NOTHING TURNS ON THESE STA TEMENTS. WHAT CONSTITUTES A KEYMAN INSURANCE POLICY UNDER SECTION 10(10D) IS NOT DEPENDENT ON WHAT IS IT TREATED EVEN BY THE INSURER ; AS LONG AS THE ASSESSEE IS ALLOWED TO TAKE LIFE INSURANCE POLICY O N ITS KEYMEN, AS HAVE BEEN UNDISPUTEDLY TAKEN IN THIS CASE, THE SAME SATISFIES THE REQUIREMENT OF SECTION 10(10D). IN VIEW OF THESE DE TAILED DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF TH E CASE, WE UPHOLD THE GRIEVANCE OF THE ASSESSEE AND DELETE THE IMPUGN ED DISALLOWANCE OF RS.1,49,99,922. THE ASSESSEE GETS THE RELIEF ACC ORDINGLY. WE FIND THAT FACTS & CIRCUMSTANCES OF GROUND NO.5 I N THE PRESENT APPEAL ARE SIMILAR, THEREFORE, RESPECTFULLY FOLLOWING THE ABOVE TRIBUNAL ORDERS, WE ALLOW GROUND NO.5. IN VIEW OF THE ABOVE JUDICIAL PRECEDENTS, THE ISSUE OF KEY MAN INSURANCE IS ALSO DECIDED IN FAVOUR OF ASSESSSEE. 18. NOW COMING TO THE PENALTY APPEALS FILED BY ASSE SSEE AS WELL AS BY REVENUE, WE FIND THAT ITA NO. 349, 521 & 522 ARE AP PEALS FILED BY REVENUE. THE ASSESSING OFFICER HAD IMPOSED PENALTIE S ON THE ASSESSEE ON ACCOUNT OF THE ADDITION MADE A.O ON ACCOUNT OF R EVALUATION OF INVESTMENTS, BROKEN PERIOD INTEREST AND PREMIUM PAI D FOR KEY MAN INSURANCE POLICY. THE LD. CIT(A) HAS DELETED THE P ENALTIES BY HOLDING THAT ASSESSEE CANNOT BE HELD TO HAVE FURNISHED INAC CURATE PARTICULARS OF INCOME AND HAD DELETED THE PENALTIES RELYING ON THE CASE LAW OF RELIANCE PETRO CHEMICALS LTD. 230 ITR 320 (SC). WE IN THE PR ESENT ORDER HAS 44 ALLOWED RELIEF TO THE ASSESSEE ON ACCOUNT OF LOSS C LAIMED ON REVALUATION OF INVESTMENT DURING THE YEAR AND AT THE CLOSE OF YEAR AND FURTHER ON ACCOUNT OF BROKEN PERIOD INTEREST AND ALSO ON ACCOU NT OF KEY MAN INSURANCE POLICY AND THEREFORE, THE QUANTUM ADDITI ONS HAS BEEN DELETED IN THIS CONSOLIDATED ORDER AND IN VIEW OF THE ABOVE PENALTIES CANNOT BE SUSTAINED AND THEREFORE, THE APPEALS FILED BY REVEN UE IN ITA NO. 349, 521, 522 ARE DISMISSED. 19. NOW COMING TO APPEAL FILED BY ASSESSEE ON ACCOU NT OF PENALTY U/S 271(1) (C) IS IN ITA NO. 523, THE ASSESSING OFFICER HAD IMPOSED PENALTY ON ACCOUNT OF DISALLOWANCE OF KEY MAN INSURANCE PREMI UM PAID BY ASSESSEE AND WHICH HAS BEEN CONFIRMED BY LD. CIT(A) . HOWEVER, WE HAVE DELETED THE DISALLOWANCE ON ACCOUNT OF KEY MAN INS URANCE PREMIUM IN THE PRESENT ORDER AND THEREFORE, QUANTUM ADDITION HAS BEEN DELETED AND THEREFORE, THE PENALTY CANNOT BE IMPOSED AND IN VIE W OF THE ABOVE, THE APPEAL FILED BY ASSESSEE IN ITA NO.523(ASR)/2013 IS ALLOWED. 20. IN NUTSHELL, THE APPEALS FILED BY REVENUE ARE D ISMISSED WHEREAS THE APPEALS AND CROSS OBJECTIONS FILED BY ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15.03 .2017. SD/- SD/- (A.D. JAIN) (T. S. K APOOR) JUDICIAL MEMBER ACCOU NTANT MEMBER DATED:15.03.2017. /PK/ PS. 45 COPY OF THE ORDER FORWARDED TO: (1) THE ASSESSEE: (2) THE (3) THE CIT(A), (4) THE CIT, (5) THE SR DR, I.T.A.T., TRUE COPY BY ORDER