Income Tax Appellate Tribunal - Amritsar
Asstt. Commissioner Of Income Tax, ... vs M/S Capital Local Area Bank Ltd., ... on 15 March, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH; AMRITSAR
(CAMP AT JALANDHAR)
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
Vs. Addl. CIT-III,
M/s. Capital Local Area Bank
Ltd., Jalandhar.
Jalandhar.
PAN: AABCC3632Q
(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
Vs. Dy. CIT-III,
M/s. Capital Local Area Bank
Ltd., Jalandhar.
Jalandhar.
PAN: AABCC3632Q
(Appellant) (Respondent)
I.T.A No.402(Asr)/2010
Assessment Year: 2007-08
Vs. M/s. Capital Local Area Bank
DCIT, Ltd.,
Range-III, Jalandhar. Midas Corporate Park, 3rd 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., Vs. DCIT,
Midas Corporate Park, 3rd Range-III, Jalandhar.
floor,
37, G.T. Road,
Jalandhar.
PAN:AABCC3632Q
(Cross Objector) (Respondent)
ITA No.233(Asr)/2010
Assessment Year: 2006-07
I.T.A No.117(Asr)/2011
Assessment Year: 2008-09
Vs. M/s. Capital Local Area Bank
Dy CIT, Ltd.,
Range-III, Jalandhar. Midas Corporate Park, 3rd 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., Vs. DCIT,
Midas Corporate Park, 3rd Range-III, Jalandhar.
floor,
37, G.T. Road,
Jalandhar.
PAN:AABCC3632Q
(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
Vs. M/s. Capital Local Area Bank
ACIT, Ltd.,
Circle-3, Jalandhar. 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 Vs. Dy. CIT,
Ltd., Range-III, Jalandhar.
Midas Corporate Park, 3rd
floor,
37, G.T. Road,
Jalandhar.
PAN:AABCC3632Q
(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
Vs. M/s. Capital Local Area Bank
Addl. CIT,
Ltd.,
Circle-VI, Jalandhar.
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:15.03.2017
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 2011-12.
2. For the sake of convenience, the issues raised by the assessee as well as by Revenue in various appeals are summarized as under:
SNo. Case No. A.Y Remarks Issued Involved
1. ITA No.209/Asr/2010 2006-07 Assessee's 1. Disallowance of loss
appeal Rs.37,51,000/- on inter-
transfer revaluation of
investment
2. ITA No.233/Asr/2010 2006-07 Revenue A) Disallowance of
appeal 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 Against penalty
appeal u/s.271(l)©
4. CO. 32/Asr/2010 2007-08 Assessee's Disallowance of loss of
CO 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 1. Disallowance of broken
appeal period interest
Rs.Rs.38,64,067/-
6. ITA No. 521/Asr/2013 2007-08 Revenue Against penalty
appeal u/s.271(l)©
7. ITA No. 523/Asr/2013 2007-08 'A' appeal Against penalty u/s.271(1)©
8. ITA No. 117/Asr/2011 2008-09 Revenue 1.Disallowance of appeal 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 1.Disallowance of CO Rs.35,12,593/-loss on revaluation of inter-
category investments.
2.Rs. 1,50,000/-
disallowance of key man insurance premium
10. ITA 2008-09 Revenue Against penalty No.522/ASsr/2013 appeal u/s.271(l)©
11. ITA No. 524/Asr/2013 2008-09 'A' appeal -do-
-do- ITA No. 119/Asr/2013 2009-10 Revenue 1.Disallownace of broken
appeal 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 1.Disallowance of broken appeal 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 1.Disallowance of appeal 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 issues are involved in these appeals and therefore, for the sake 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:2008-09 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 Registrar, ITAT, Amritsar. It was submitted that on receipt of Revenue's appeal on 19.04.2011, the Cross Objections were prepared/finalized on 28.04.2011 and were sent through couriers namely M/s Dolphin Service, 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. Having sent the CO by courier, it was believed to have reached the Tribunal 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 fixed for hearing on several occasions, but no effective hearing took place on any such date. Since, the whole bunch of cases were fixed on a single date and 7 adjourned as such to another date, one to one appeals 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 for hearing was prepared, to segregate cases having only issue of 'Key Man Insurance' 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 hearing, though the revenue's appeal did figure in the cause list.
Therefore, vide letter dated 03.09.2014, the assessee asked the status of its C.O from the Registrar, ITAT, Amritsar & in reply the assessee received a letter dated 31.03.2015, from the Assistant Registrar, ITAT Amritsar intimating that as per records of his office, no cross objection has been filed till date, therefore, on receipt of the said letter dated 31.03.2015 the assessee filed a fresh C.O, thus, 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 submitted 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 been filed afresh. The Ld. AR submitted that the facts and circumstances stated hereinabove, which caused the delay do not leave any shadow of doubt that there was no malafide involved at any stage. Therefore, it was prayed that there was sufficient cause to prevent the assessee from presenting the Cross Objection in time and therefore, delay may be condoned. 8
6. The Ld. DR had no objection to the condonation of delay in filing of Cross Objections and finding the reasons for delay in filing of Cross Objections as bonafide we condoned the delay and the Ld. AR was directed to proceed with his arguments.
7. The Ld. AR invited our attention to the brief synopsis filed by him and submitted that assessee is a commercial bank and was engaged in all kinds of banking business for which it was strictly governed by Banking Regulation Act 1949 and enforced through the Reserve Bank of India (RBI). Being a banking company investments made in Govt. Securities, shares and bonds etc. in the normal course was one of the most significant, mandatory and regular banking activity which was strictly regulated by the RBI by issue of periodical 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 extensively read from the synopsis. The Ld. AR first took up the appeals filed by assessee and it was submitted that there were three issues involved in Assessee's appeals and it's Cross Objections. As regards the first issue of disallowance of loss on inter transfer revaluation of investment, the Ld. AR submitted that assessee had been maintaining three portfolios of investments such as "Held to maturity" "Held for Trading" & "Available for sale". It was submitted that the as per RBI guidelines, 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 permitted to inter-transfer the securities among the three categories. It was further submitted that as per RBI guidelines the transfer of securities among the categories has to be done at market prices. It was submitted that during these years, the assessee had made certain inter-transfer of securities and while recording the transfer the securities were valued at market prices and therefore, had suffered loss which it had claimed in its P&L Accounts. It was submitted that another type of loss which the assessee had booked in its P&L Accounts related to diminution in the valuation of securities at the close of the year. The Ld. AR submitted that the Ld. CIT(A) has upheld the action of Assessing Officer in disallowing the loss booked by assessee on inter-transfer of securities in between the year whereas he has allowed relief to the assessee which the assessee had booked on account of demunition in the valuation of securities at the close of year. The Ld. AR submitted that the Ld. CIT(A) had held that 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 sale of securities, notional loss was not allowable and which could be allowed only on valuation of stock held at the close of accounting period. The Ld. CIT(A) further held that since the assessee had valued its investment in held to maturity category at cost prices, even if the market price was 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 Categories'. In respect of 10 the objections raised by Ld. CIT(A), the Ld. AR submitted 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 upheld by ITAT, the investment in securities was a trading activity and therefore, entire stock held round the year was stock in trade and hence, entitled to revaluation and assessee was entitled to book the loss sustained on such revaluation. It was submitted that in "Held for Trading category" the investment made was to be disposed off within 90 days and in available of sale category the sale was to be made after 90 days. 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 outside 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 submitted that if no transfer within the categories had been effected the loss would have been more. While for non shifting, of course the revaluation loss would have been nil, the provision for depreciation on 31st March, would have been more. It was submitted that in the case of Bank transfer of securities in the middle of year was pari materia with the sale of 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 twin reasoning, that the HTM was valued at cost and that claim of loss in the middle of the year was not as per IT Act, are untenable qua the fact that once the investments made by bank is accepted as trading activity, 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 attention 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-operative Bank Ltd. 289 ITR 6 (SC), it was held that investment made by Banking concern, to which Banking Regulation Act 1949 applies, are part of the business of banking and therefore, income arising from such investments is attributable to the business of banking falling under the head"Profit & Gains of Business & Profession". It was submitted that in par -4 the Board has decided that no appeals may henceforth be filed on this ground by the officers of the Department and appeals already filed be withdrawn/not pressed for. The Ld. AR submitted that the claim of the assessee is well supported by the following High Court 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 Bank 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 assessee's claim deserves to be allowed in full.
9. Regarding other disallowance of "Key Man Insurance Premium"
involved in assessee's appeal, the Ld. AR submitted that premium on Key Man Insurance Policy is covered in favour of assessee 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. (India) 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 Revenue's appeals, the Ld. AR submitted that there are two issues in Revenues's appeal which related to disallowance on account of depreciation of investments and disallowance of broken period interest. The Ld. AR submitted that assessee's claim of depreciation of investments by filing revised return has been brought in dispute by the Department. It was submitted that assessee had charged the said loss on valuation of closing stock of investments held under 'available for sale' and 'held for trading' categories. In original return, 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 ITAT. However, after the 13 receipt of Tribunal's order dated 11.07.2008 for A.Y.2002-03 & 2004-05, the assessee claimed these loss as a trading loss by filing revised returns. It was submitted that Assessing Officer disallowed the claim holding that the revised return was invalid being out of time, as mandated Sec.139(5). The Assessing Officer further disallowed the claim holding that loss incurred could not be allowed as the assessee did not sell the securities. The Ld. CIT(A) accepted the claim by way of revised return by relying on the decision of Hon'ble jurisdictional in CIT vs. Ramco International, 322 ITR 306 (P&H), wherein deduction u/s 80IB, claimed during assessment was held allowable notwithstanding that such a claim was not made in the return of income. It was submitted that on merits the Ld. CIT(A) relied on Apex Court decision in the case of United Commercial Bank Ltd. vs. CIT 240 ITR 355 (SC), to allow relief to the assessee. He also relied on ITAT Amritsar Bench decision in assessee's own case for A.Y.2002-03 & 2004-05 supra, holding that assessee's investment in securities was stock in trade. It was submitted that assessee's claim by way of revised return was rightly accepted by Ld. CIT(A) in view of binding decision of Hon'ble P& H High Court in the case of Ramco International (supra), wherein the Hon'ble 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 Hon'ble Bombay High Court in Bal Mukand Acharaya vs. DCIT (2009) 310 ITR 310 (Bom). It was submitted 14 that Hon'ble Supreme Court in the case of CIT vs. Mahendra Mills (2001), 243 ITR 56 (SC) commenting on the Board circular No.114/(XL-
35) dt.4.4.1955, has held that it was AO's responsibility to draw assessee's attention to claims/relief he was entitled to in the course of assessment proceedings. The Ld. AR submitted that the Apex Court decision in the case of United Commercial Bank Ltd. squarely applies to this case, which the ld. CIT(A) has lucidly discussed and followed to allow the assessee's claim. The Ld. AR further invited our attention to CBDT Circular No.18/2015 dated 02.11.2015 clarifying that income arising from such investments is attributable to business of banking under the head "Profit and Gains of Business & Profession".
As regards deletion of addition on account of broken period interest (BPI) on purchase of securities, it was submitted 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 not warrant to be capitalized. It was submitted that ld. CIT(A) relied 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 Bank of India and SLP filed by Revenue has been dismissed by Hon'ble Apex Court as reported in 268 ITR (st.)261. The Ld. CIT(A) also took note 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, referring to dismissal of department's SLP in the case of Union Bank of India, 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 International Bank(supra).
As regards penalty appeals filed by Assessee & Revenue, the Ld. AR submitted that in cases Ld. CIT(A) has given relief and deleted the penalties holding that no inaccurate particulars were 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 that where he upheld the addition, there he has confirmed the penalties and assessee is in appeal in those cases. It was submitted that penalty appeals may be disposed off taking into account the decision of the Hon'ble Bench in respect of quantum proceedings.
11. The Ld. DR on the other hand, submitted that the assessee had not booked loss at the close of the year but had booked loss during the years and had booked notional loss and therefore, assessee was not entitled to claim the same as assessee had not incurred any loss. It was submitted that by changing the categories of investments, the assessee had hypotheticaly claimed loss on the investments which was not 16 permissible. The Ld. DR submitted that the Circular No.18/2015 dated 2.11.2015 as relied on by the assessee was not applicable to the facts and circumstances of the case as the issue highlighted 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 from capital gains and this circular would be applicable to the facts and circumstances of the present case had the assessee claimed loss on actual sale of securities and therefore, for this reason the Department cannot 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 through the material placed on record. The issue of disallowance on inter transfer of investments has been raised in various appeals/ cross objections and the decision on this issue will dispose off the issue in 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 one category to another. The claim of the assessee was disallowed by Assessing Officer on the premise that loss not incurred cannot be allowed whatever be the treatment in books of account. The Assessing Officer observed that loss 17 claimed by assessee was not incurred on the valuation date i.e. at the close of accounting period but on the date of transfer from one category to another during the previous year. The Assessing Officer held that while loss of depreciation of investment held as closing stock is allowed as deduction it cannot be said for revaluation carried out during middle of the year. The Assessing Officer held that since there was no sale of securities notional loss was not allowable and which 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 2002-03, the assessee in the return of income had declared the capital gain earned on sale of securities held under available of sale category under the head capital gain but in assessment framed u/s 143(3), the Assessing Officer assessed the gain of sale on such securities as business income holding the same as trading activities. The Ld. CIT(A), however, reversed the order of Assessing Officer but on Revenues Appeal, the Hon'ble ITAT, Amritsar vide its order dated 11.07.2008 reversed the 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 reported 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 overriding 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 activities is attributable to the profits and gains of business of a Bank. Therefore, from the above, it becomes amply clear that any loss sustained by assessee while valuing the stocks at the close of accounting year is a business loss. The dispute in the assessee's appeals is with respect to loss on 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 loss 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 for inter category transfer at the market rates and the shortfall in either category, 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 the RBI guidelines was maintained, but sustaining of a much bigger loss was saved, when the market value of the said securities in two categories had further depleted as on the close of year as the securities were transferred to held to 19 maturity by category where the investments were valued 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, Jalandhar for A.Y2006-07.
Sir, Apropos discuss on held on the last date of hearing, further information and clarifications as sought for to justify 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 operates within the regulatory domain of RBI is not in dispute. Being a banking Company, it has ;o ensure the SRR and SLR limits round the year on daily basis by way of making investments in various Government securities, bonds and shares etc. Again this investment, as per RBI guidelines, has to be essentially made in either of the three categories i.e. (i) Held for trading (ii) Available for sale and (iii) Held to maturity. Linder the first category, the securities have to be sold within 90 days; under the second category, there is a lock in period of 90 days, whereafter 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 incidental to business activity, as per settled law, are held as stock in trade.
3. Now during the year, as per details given in Annexure A, two of the major Govt securities, held under "available for sale" category, were due for transfer after the expiry of 90 days. Now there were two options; one was to sell the same in open market and the other was inter category shifting i.e. shifting to 'held to maturity' category. So however, the second option was exercised, which resulted into loss of Rs.37.50 lacs. If the first option had been exercised, the repercussions to follow would have been more disadvantageous. The open market sale would also have been effected at the same 20 rates, at which inter category shifting was done, inasmuch as, in both the situations the shifting or sale had to be done only at market rates. Outside sale would have multiplied third party transactions, alongside execution of avoidable documentation with physical delivery of securities and also movement of funds. Even in local banking, the funds involved at Rs crores, were bound to be held up for a day or two, resulting into substantial interest loss. Still further, in the event of outside sale, the replenishment of stocks under the category 'held to maturity', to the extent of shifting made, was inevitable, by making fresh purchases to maintain the requisite level of SLR. Therefore, third party sale of securities would have been an exercise in sheer futility. Thus by not having done so, and further by having valued the securities as on the close 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. While for non shifting, of course the revaluation loss would have been nil, the provision for depreciation on 31st March would have worked out at Rs.97,93,754 (as per Annexure C) and profit on shares 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 profits by Rs.15,38,000/-( 83,26,103.97 - 98,64,104). A summary marked as Annexure A of these projections is appended for ready reference.
5. On the issue of valuation of securities under the category 'held to maturity', the same being long term investments, are valued at cost, which conforms to Accounting Standard-13 (AS-13), which states that current investments should be valued at cost or fair market value, which ever is lower. Long term investments are generally valued at cost. Significantly, if contrary to above position, the securities 'held to maturity' are also valued at lower 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 prejudice to revenue has been caused by valuing the third category of securities at cost.
6. The above facts and figures also amply disclose that what the assessee bank did while providing for depreciation and revaluation loss, was wholly an act undertaken in the normal course of its business devoid of any deliberations, much less with the motive to evade payment of taxes. The belated claim of 'revaluation loss and depreciation' by way of a revised return, was of course an aftermath of Tribunal's order holding, at the instance of revenue, that investments in securities by the Bank were stock in trade. Be that as it may, the department cannot be allowed to make a volte- face now when earlier in assessee's own case it had taken a stand which was successfully pursued till the level of ITAT. 21
7. Additionally, following supporting details are enclosed 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 -inter category
transfer;
d) Half yearly reports sent to RBI on review of
investment
portfolio of the bank;
It is hoped, the information provided hereinabove will 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 tried 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 Account as in the held to maturity category the securities were valued at cost prices and further depletion in it's value at the time of close of year was not booked.
The Ld. CIT(A) has not considered these submissions 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 allowable is not correct as in the case of Banks action of transfer of the securities in the middle of year is pari materia with the sale of stock in normal course with gain/loss booked in P & L Account. Therefore, charging of such 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 notional basis and is booked only at the time of actual sale. This can be clarified by taking an hypothetical example. Lets assume that one security has been purchased for Rs.1000/- in held for Trading category. Such security 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 security 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 therefore, the loss already claimed as business loss will be nullified when the security is actually sold as in that case the cost price will be taken of Rs.950/- and not at Rs.1000/- Since, under all categories of securities the income is taxable as business income, the effect of booking loss at the time of inter transfer is Revenue neutral.
The Hon'ble Bombay High Court in the case of CIT vs. HDFC Bank Ltd. 360 ITR 377 has held that the claim of assessee for loss on transfer of securities from category "available for sale" to 'Held to Maturity' was an allowable deduction. While holding so the Hon'ble Court has followed the earlier decisions of Bomaby High Court in CIT vs. Bank of Baroda 262 ITR 334 and Karnataka High Court in Karnata Bank Ltd. ACIT 356 ITR 549(Kar). Following the above three decision on identical issue the Hon'ble ITAT 'E' Bench Delhi in ITA 1937/Del/2011 of 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 deduction.
The findings of the Bombay High Court in the case of CIT Vs. HDFC Bank Ltd. (supra) squarely applies to the facts and circumstances of the case. The Hon'ble Bombay High Court while giving relief to the Assessee in respect of loss on account of transfer of securities from category of 'available for sale' to "Held to maturity" 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 the sake of convenience the findings of Hon'ble 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 question 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 Division 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 of the Karnataka High Court in the case of Karnataka Bank Ltd. vs. Assistant Commissioner of Income Tax, reported in (2013) 356 ITR 546. We will analyze these two judgments later, after we advert to the facts in the present case.
4. The facts stated briefly are that the Assessee Bank, 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 after the requisite notices were issued to the Assessee, the Assessing Officer completed the assessment and passed his Assessment Order under section 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 Appellant that a sum of Rs.87.11 lakhs had been debited to the profit and loss account by the Assessee, as a loss on account of transfer of securities from the category "Available for Sale" to "Held to Maturity" and the same had been allowed by the 24 Assessing Officer. According to the Appellant, since the allowance of such a notional loss was erroneous and prejudicial to the 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 Assessing 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 person but had only done a re- classification from "Available for Sale" to "Held to Maturity" categories, the said transfer did not result in any actual loss to the Assessee and therefore the allowance thereof was erroneous and prejudicial to the interest of the Revenue.
6. Being aggrieved by the order passed by the Appellant under section 263 of the Act, the Assessee Bank filed an Appeal before the ITAT, Mumbai Bench. After hearing the representatives of the Assessee as well as the Revenue, the ITAT held that even though the Assessee 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 Assessee on merits and without going into the jurisdictional issue. We find that the ITAT, after examining the entire factual matrix of the matter and 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 case 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 the category "Available for Sale" to "Held to Maturity" was an allowable deduction, and therefore set aside the order passed by the Appellant under section 263 of the Act. Being aggrieved by this order, the Revenue is in Appeal before us.
7. After perusing the order passed by the Appellant dated 23rd March 2009 and the impugned order passed by the ITAT, we find that the ITAT was fully justified in setting aside the order of the Appellant dated 23rd March 2009 and allowing the deduction of Rs.87.11 lakhs, to the Assessee. In this regard, the reliance placed by Mr Mistry, the learned Senior Counsel appearing on behalf of the Respondent - 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 had'in its possession during the relevant assessment year shares and securities worth several crores. The method of valuation followed by the Assessee was to value the investments at cost or market value whichever was lower. During the year of account, depreciation with regard to the 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. Being aggrieved, the Assessee Bank went in appeal to the CIT (Appeals) who 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) carried the matter further to the Tribunal who confirmed the order of the CIT (Appeals). In view thereof, the Revenue approached this Court by way of a reference. On these facts, the question of law framed by this Court was as follows:-
"(A) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was entitled to deduction on account of depreciation in the value of investments and, consequently, debiting disallowance of Rs.11,82,35,007 ?".
8. This Court, in answering the aforesaid question of law in favour of the Assessee and placing reliance on the judgment of the 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 before us is on a stronger footing because in the case of United Commercial Bank, the loss was not debited to the profit and loss account whereas in this case, as can be seen from the working at pages 25 and 26 of the paper- book, the loss of Rs.11,82,35,007/- has been debited to the profit and loss account which is reflected as a provision for liability in the balance-sheet and the shares and securities were valued at cost on the assets side.
For the reasons given hereinabove, we answer the above 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 and issues that are covered by the aforesaid judgment squarely apply to the facts and issues raised in the present Appeal. Not only are we in full agreement 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 Karnataka High Court in-the case of Karnataka Bank Ltd. (supra), reliance on which was placed by Mr Mistry, squarely covers the issue raised in this Appeal. The facts in the case before the Karnataka High Court were that the Assessee was Holding securities in different categories as mandated by the RBI Master Circular dated 1st September 2003. The Assessee treated such securities as stock- in- trade and claimed depreciation on the book value after valuing the securities at cost or market value whichever was lower. The Revenue refused to accept the Assessee's plea for the deduction and disallowed the same and added back to the total income the said amount. Aggrieved by the said order, the Assessee preferred an Appeal before the CIT (Appeals). The same was dismissed upholding the contention of the Assessing 26 Authority. Aggrieved thereby, the Assessee preferred an Appeal to the TribunaljyTne Tribunal inter alia held that since the securities on which the depreciation had been claimed on the earlier years had not been identified, the issue was restored to the file of the Assessing Officer for consideration' aTresh and partly allowed the Appeal. Being aggrieved by the said order, Karnataka Bank Ltd. preferred an Appeal to the Karnataka High Court under section 260A of the Act. After discussing various judgments of the Supreme Court, the Karnataka High Court held as under:-
"From the aforesaid judgments of the apex court, now it is clear that a method of accounting adopted by the taxpayer 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 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 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- sheet 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 whether 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 disclosed.. For determining the real income, the entries in the balance- sheet is required to be maintained in the statutory form may not be decisive or conclusive. It is open to the Income Tax Officer as well as the assessee to point out true and proper income while submitting the income 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 Income Tax Officer, the assessee will not lose any right on claiming or will be debarred from being allowed the deduction. Therefore, the approach of the authorities in this regard is contrary to the well settled legal position as declared by the apex court.
In the instant case, the assessee has maintained the 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 allowed. Therefore, notwithstanding that in the balance-sheet , it is shown as 27 investment, for the purpose of Income Tax Act, it is 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 consideration 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 shown as investment in the balance-sheet."
We further find that ITAT Delhi Bench 'E' in the case of Oriental Bank of Commerce in ITA No.1937/Del/2011 in its order dated 04.11.2015 has deleted similar disallowance by following the judgment in the case of HDFC Bank Ltd. (supra). The findings of Hon'ble Bench are reproduced below.
"10. Ground no.1 & 3 of appeal of the assessee is with respect to disallowance of the claim of loss on account of fall in value of investments held as stock-in-trade amounting to rs.205.43 crores. The brief facts of the case is that pursuanct to the direction of RBI the bank has trasnferred SLR securities aggregating to 1664.32 crores from 'Available for sale' category to 'Held to Maturity' category during the year. Due to this, mark to market devaluaitn of Rs.205.43 croes has been debited to the P & L Account. Further deduction of Rs.205.10 crores was also claimed being fall in value of i n v e st m en t s a s o n 3 1 M ar c h 2 0 0 7, w h i ch i s all o w e d a s d e d uct i on . D ur in g t h e c o ur s e of a ss e s sm en t pr o ce e di n g s, A O di s all o w e d t h e d e d u ct i on c la im e d of R s. 2 0 5. 4 3 cr or e s f or t h e r ea s o n t h at it i s l o s s ar i s in g o ut of pr ov i si on s in t h e b o o k s an d t h er ef or e it i s n ot i on al l os s an d n ot r ea l. A s se s se e car r ie d t h e m at t er b ef or e CI T ( A) w h o i n t ur n c o n c ur r in g w it h t h e v iew s of a s se s sin g of f i c er c o n f ir me d t h e di sa ll ow an c e. Th e r ef or e, as s es s ee h a s r ai se d t h is gr o un d b ef or e u s.
11. Before us Id. AR sub mitted tha t RBI c ircula r pro vides for tran sfe r of securitie s fro m 'a vaila ble for sa le' ca tego ry to 'held to matu rity' c atego ry once in a ye ar. The B oard o f the Direc tors of the Bank autho rize s such tran sfe r and suc h lo ss is charged to pro fit and loss ac coun t of th e ba nk. He sub mitted tha t loss arising the refro m is not a notiona l lo ss b ut re al loss arisin g on accoun t o f p rinc ip les of va luation of s tock s on th e ba sis of co st or marke t valu e which e ve r les s, AO and C IT (A) both ha ve erred in terming it a s notiona l lo ss. He further su b mitted th at in ca se of the ass e ssee in earlie r yea rs su ch lo s s has been allo wed witho ut d ispu te in a sse ss men t proceed ings . He furthe r sub mitted th at th is is sue is co ve red in fa vou r of the asse ssee b y d ecision of Sta te Bank o f M ysore vs. DC IT 33 SOT 7 (Bangalo re ). He submitte d tha t Hon'ble Bo mba y High Court in 10 7 DTR 395 has no w confirmed th e dec is ion of Bangalore Bench of ITAT. Therefo re, the disallo wance of Rs. 205 .43 c rores ma y be de le ted.28
12. Ld. DR re lied on the orde r o f lo we r au tho rities an d sub mitted tha t this is a notiona l los s.
13. We have ca re fully con sid ered the riva l conten tions. During th e yea r, asse ssee ha s debited th e loss o f Rs. 205.43 crores aris ing o f on acco unt of tran sfe r o f se curitie s of Rs. 1664.32 cro res fro m 'a va ilab le fo r sa le ' catego ry to 'held to maturity' ca tego ry in terms of re solution of the Board of Dire cto rs o f th e a ppellan t. Cla im h as a risen becau se o f the circ ula r iss ued b y Rese rve Ba nk of Ind ia on p ruden tia l no rms fo r cla ss ification, va lua tion and ope ra tio n of in ves tmen t portfo lio b ank da ted I s ' J u ly, 2006. According to tha t circu lar the banks a re allowed to trans fer se curitie s fro m one catego ry to ano th er categ ory once e ve ry yea r at the leas t va lue of following :-
(a)cqu isition cos t
(b)Book va lue and
(c)Ma rke t va lue.
It is further p ro vid ed tha t if bec ause of s uch tran sfe r an y dep recia tion arises, it shou ld be fu lly pro vided fo r. The c la im of the a sses see is th at th is los s shou ld be allo wed as deduction bec ause of trans fer o f secu ritie s fro m one ca tego ry to ano th er ca tego ry. Th ere fore , the issu e in app eal is tha t whether a bank ing c ompan y c la ims the loss, ba sed on circu la rs and ins tru ctions of Re serve Bank of Ind ia, is allo wable beca use o f tran s fer o f security fro m ca tego ry of "a va ilable fo r sa le " to "he ld to ma tu rity". This iss ue no w no longe r su rvives in vie w o f two de cis ions of Hon 'ble Karna tak a High Court in ca se of Karn ata ka Bank Ltd . vs. As sis tan t Commiss ioner o f Inc o me Tax 356 ITR 549 and CIT vs. Bank o f Baroda 262 ITR 334 and a d ecisio n of honou rab le Bo mb a y H igh Court in ca se of C IT vs . HD FC Bank Ltd. reported a t 368 ITR 377 cons idering d ecis ion of honourab le sup re me co urt in ca se o f u nited co mmercia l bank V C IT 2 40 ITR 355 and So uthe rn tec hnolog ies Limited V J t C IT 3 20 ITR 5 77, where in Hon'ble High Court ha s he ld 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 raised in the present Appeal. Not only are we in full agreement with the judgment of this Court in the case of Bank of Baroda (supra) but we are bound by the same. We therefore respectfully follow the ratio laid down in the said judgment.
10. We find that even the judgment of the Karnataka High Court in the case of Karnataka Bank Ltd. (supra), reliance on which was placed by Mr Mistry, squarely covers the issue raised in this Appeal. The facts in the case before the Karnataka High Court were that the Assessee was holding securities in different categories as mandated by the RBI Master Circular dated 1st September 2$03. The Assessee treated such securities as stock-in-trade and claimed depreciation on the book value after valuing the securities at cost or market value whichever was lower. The Revenue refused to accept the Assessee's plea for the deduction and disallowed the same and added back to the total income the said amount. Aggrieved by the said order, the Assessee preferred an Appeal before the CIT (Appeals). The same 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 securities on which the depreciation had been claimed on the earlier years had not been identified, the issue was restored to the file of the Assessing Officer for consideration afresh and partly allowed the Appeal. Being aggrieved by the said order, Karnataka Bank Ltd. preferred an Appeal to the 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, now 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 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, 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-sheet 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 whether 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 disclosed. For determining the real income, the entries in the balance- sheet is required to be maintained in the statutory form may not be decisive or conclusive. It is open to the Income Tax Officer as well as the assessee to point out true and proper income while submitting the income 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 Income Tax Officer, the assessee will not lose any right on claiming or will be debarred from being allowed the deduction. Therefore, the approach of the authorities in this regard is contrary to the well settled legal position as declared by the apex court.
In the instant case, the assessee has maintained the 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 allowed.
Therefore, notwithstanding that in the balance-sheet, it is shown as investment, for the purpose of Income Tax Act, it is shown as stock-in-trade. Therefore, the value of the stocks being closely 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 projected by the learned counsel appearing for the Appellant. The Appeal is therefore dismissed."
14. Therefore , we fin d that the issue raised in this appea l squarely c ove red b y the d ecision of Hon 'ble Ka rna taka High Court as well a s Mu mba i High Court in fa vou r o f asss esse e. The refo re, resp ectfu lly fo llowin g tho se judicia l prec eden ts, we re verse the orde r of C IT (A) a nd de lete the disa llowan ce of Rs . 20 5.43 cro res on a ccoun t of cla im of loss o f tran sfe r of security fro m 'a va ilab le for sa le' ca tego ry to 'held to ma turity' ca te gory b y the appe llant b ank in accordan ce with direc tion/ c ircu lar o f Reserve Bank of Ind ia. "
30
In view of the facts and circumstances of the present cases and in view of the judicial precedents, we are in agreement 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 assessee in view of the above judicial precedents in the case of Bank of Baroda 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 Hon'ble Punjab & Haryana High Court in its decision in the case of CIT vs. Ramco International, 332 ITR 306(P&H), has held that the assessee's claim for allowing deduction u/s 80IB during the assessment proceedings was to be considered notwithstanding that such a claim was not made in the return of income.
The Hon'ble Punjab & Haryana High Court had distinguished, the Hon'ble Supreme Court order in the case of Goetze (India) Ltd. vs. CIT 284 ITR 323 (SC), where the Hon'ble Supreme Court had held that Assessing Officer has no power to entertain the claim made by assessee other than by filing revised return. The Hon'ble Punjab & Haryana High Court has held and noted that assessee was not making 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 revised returns in view of the Tribunal Order in the case of assessee itself for Asst. Year: 2002-03 & 2004-05 wherein on appeal filed by Revenue the income/loss from the valuation of securities was held to be income attributable 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 applicable as in that case revised return was not filed.
We further find that the Hon'ble Supreme Court in CIT vs. Mahendra Mills 243 ITR 56(SC) commenting on the Board circular No.114/(XL-35) dt. 4.04.1955 which fastened the AO with the responsibility to draw assessee's attention to claims/reliefs he was entitled to in the course of assessment proceedings, held that the said circular imposes a duty on the officers of the department to assist the tax payers in every reasonable way, particularly in the matter of claiming and securing relief in the presents cases. Since Assessee had filed revised returns in view of the Tribunal order which was in favour of Revenue, therefore, the claim of the assessee through revised return which though became belated cannot be denied as assessee was rightly entitled to the allowance in view of the decisions of Hon'ble Supreme Court in the case of United Commercial Bank. Therefore, this grievance of Revenue is rejected.
15. Now coming to the issue of broken period interest which the Assessing Officer had disallowed to the assessee and 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, which may be yearly or half yearly and when the assessee purchased a bond for investment certain interest had already accrued on that bond. The assessee debited the accrued interest on bond as expenditure in the P&L Account as broken period interest while the balance amount of purchase cost after reducing this interest was taken as investments of stock in trade in balance sheet. The Assessing Officer disallowed such expenditure on 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 Hon'ble Rajsthan High Court wherein the Rajasthan High Court had applied the case of Vijay Bank Ltd. vs. CIT 187 ITR 541(SC). However, the Hon'ble Bombay High Court in the case of American Express International Banking Corp. vs. CIT 258 ITR 601(Bom) has noted that broken period interest received by the assessee was charged to tax as business income and therefore, the deduction for payment made for broken period at the time of purchase of these securities could not be denied. It was held that having assessed the income from the securities u/s 28, the department ought to have allowed deduction of payment of broken period interest as Revenue expenditure. The Hon'ble Court further held that there was no difference in the amount of tax whether one adopted the assessee's method or department's method since under the other method the same amount was offered to tax. The Hon'ble Bombay High Court had clearly 33 distinguished the decision of Vijay Bank Ltd. vs. CIT 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 should be an inclusive cost which was paid by the purchaser of the security but he has followed the case of American Express International bank (supra) for the reasons that SLP filed by the Department against the decision of Hon'ble Bombay High Court in the case of Union Bank of India which had followed the decision of American Express International Bank (supra) had been dismissed by Hon'ble Supreme Court. Therefore, he has rightly held that view of Hon'ble Bombay High Court that interest from broken period should be allowed as deduction as has been upheld by Hon'ble 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 followed 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 grievance 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 disallowance of inter-transfer of securities and further the Revenue's appeal for the issues relating to disallowance on account of depreciation of investments and on account 34 of disallowance of broken period interest are decided against the Revenue.
16. Now coming to the disallowance of premium paid 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 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. (India) Pvt. Ltd. vs. DCIT. In view of the above, the issue of 'Key Man Insurance" is also decided in favour of assessee. The findings of Hon'ble Tribunal in the case of Suri Sons vs. ACIT in ITA No.37(Asr)/2010 are reproduced below.
"8. Let us now come back to the core issue before us. 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 policies can be allowed on the facts of this case. As to what constitutes 'keyman insurance policy', we find guidance from the Explanation below Section 10(10D), as it stood at the relevant point of time, which defined the keyman 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 first- mentioned person or is or was connected in any manner 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 of 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 employee of the assessee or is related to the business of the assessee is any manner.
35
11. Dealing with both the limbs of the above requiremenst, a coordinate bench of this Tribunal, in the case of Shri Nidhi Corporation (supra), has observed as follows:
It appears that after the assessee has purchased these policies, IRDA came up with circular dated 27th April 2005 that partnership insurance in the name of partner will not be covered 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 Insurance Scheme from two reputed insurance companies there was no such regulation. The other objections of the Revenue are that the deduction of the premium under Keyman insurance cannot be allowed in the case of partnership firm, is not tenable in view of the decision of the Hon'ble Jurisdictional High Court in B.N. Exports (supra), wherein, it has been held that if the Keyman Insurance Policy is obtained on a life of a partner, to safeguard the firm against a disruption of business, then the payment for premium on such policy is liable for deduction as business expenditure. Thus, even if a Keyman insurance has been taken in the name of a partner by the partnership firm, then also the deduction has to be allowed on the payment of premium. The other main objections of the learned Commissioner (Appeals) has been that firstly, these are not insurance policy as such but are mainly for capital appreciation under the investment scheme and secondly, the assessee has not received the maturity sum but it has been assigned to the partners, therefore, the assessee cannot be given deduction for any premium paid. Insofar as the first objection of the learned Commissioner (Appeals) is concerned, we declined 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 funds for capital appreciation or under any other investment scheme, will not make any material difference.
(Emphasis, by underlining, supplied by us)
12. We are in considered agreement with the views so expressed by our distinguished colleagues. As long as a policy is an insurance policy, whether it involves a capital appreciation or is under any other investment scheme, it meets the tests laid down under section 10(10D).
13. The requirement of pure insurance policy is something which is not laid down by the statute. Yet, it is this which 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 cannot be open to supply the same. The concepts of term policy, pure life policy and the IRDA guidelines find no mention in the statutory provisions. But 36 even if these concepts ought to be incorporated in this statutory provision of the Income Tax Act to make it more meaningful and workable, it cannot be open to any judicial forum to supply these omissions. Relying upon Hon'ble Supreme Court's judgment 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 principle that a matter which has not been provided in the statute but should have been there, cannot be supplied by us, as, to do so will be clearly beyond the call and scope of our duty which is only to interpret the law as it exists. Hon'ble Supreme Court, in the case of Smt. Tarulata Shyam vs. CIT 1977 CTR (SC) 275 : (1977) 108 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 the language of sections........ is clear and unambiguous. There is no scope for importing into the statute the words which are not there. Such interpretation would be, not to construe, but to amend the statute. Even if there be a casus omissus, the defect can be remedied only by legislation and not by judicial interpretation......To us, there appears no justification to depart from normal rule of construction according to which the intention of legislature is primarily to be gathered from the words used in the statute. It will be well to recall the words of Rowlatt. J. in Cape Brandy Syndicate vs. IRC (1921) 1 KB 64 (KB) at p. 71, that :
"........... in a taxing Act one has to look at merely what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used."
Once it is shown that the case of the assessee comes 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 (supra), relied upon by the assessee, Their Lordships of Hon'ble Supreme Court have referred to, with approval, Maxwell on Interpretation of Statutes' observation that "A case not provided for in a statute is not to be dealt with 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 be 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 statute or section must be construed together and every clause 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 makes a consistent enactment of the whole statute".
15. It is also important to bear in mind the fact that the IRDA guidelines, no matter how relevant as these guidelines may be, have no role to play in the interpretation of the statutory provisions. IRDA is a body controlling the insurance companies and its guidance is relevant on how the insurance companies should conduct their business. Beyond this limited role, these guidelines 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 Income Tax Act, the Income Tax Act specifically provides so, such as in the case of Explanation 2 to Section 2 (42A) which provides that "the expression "security" shall have the meaning assigned 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 provisions of the Income tax Act, 1961. In this view of the matter, learned Assessing Officer's observations to the effect that, ""that the policy taken is keyman as per definition given in the Income Tax Act, 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 legally 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 authorities below have paid a lot of emphasis on the contention that the insurance policies in question were not termed as keyman insurance policies but nothing turns on that aspect, even if that be so, either. The keyman insurance policy is a defined concept and as long as it meets the requirements of this definition, the terminology given by the insurers have no relevance for the purposes of the Income Tax Act. All that is necessary is that it should be a life insurance policy, whether pure life insurance policy or not- as such criterion is not set out anywhere in the stature, and it should be taken on the life of a person who is, or has been, an employee of the assessee or 38 any other person who is or was connected in any manner 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 authorities below on the circulars issued by the IRDA. It may, therefore, be appropriate to briefly deal with the IRDA and the impact of the circulars issued by the IRDA. IRDA, i.e. Insurance Regulatory and Development Authority, 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 other law for the time being in force, the Authority shall have the duty to regulate, promote and ensure orderly growth of the insurance business and re-insurance business.
(2) Without prejudice to the generality of the provisions contained in sub-section (1), the powers and functions of the Authority shall include, -
(a) issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or cancel such registration;
(b) protection of the interests of the policy holders in matters concerning assigning of policy, nomination by policy 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 conduct and practical training for intermediary or insurance intermediaries and agents;
(d) specifying the code of conduct for surveyors and loss assessors;
(e) promoting efficiency in the conduct of insurance business;
(f) promoting and regulating professional organisations connected with the insurance and re-insurance business;
(g) levying fees and other charges for carrying out the purposes of this Act;
(h) calling for information from, undertaking inspection of, conducting enquiries and investigations including audit of the insurers, intermediaries, insurance intermediaries and other organisations connected with the insurance business;
(i) control and regulation of the rates, advantages, terms and conditions that may be offered by insurers in respect of general insurance business not so controlled and regulated by the Tariff 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 rendered by insurers and other insurance intermediaries;
(k) regulating investment of funds by insurance companies;
(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 Advisory Committee;39
(o) specifying the percentage of premium income of the insurer to finance schemes for promoting and regulating professional organisations referred to in clause (f);
(p) specifying the percentage of life insurance business 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 prescribed.
17. Clearly, therefore, IRDA is primarily to "regulate, 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 in the business of the insurance. It does not, and cannot, regulate the conduct of the policy holders. As in Section 14(2)(b), if at all it has anything to do with the policyholders, it is protection of interest of the policyholders. It is in this background that we have 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 matter of sale of keyman insurance.
We shall conduct a detailed examination of the policies marketed in March 2005 and shall come up with detailed guidelines on the sale of keyman insurance at the appropriate time. In the meantime, it has been decided that only term insurance policy will henceforth be issued as 'keyman insurance cover'.
Your company is requested to ensure that your company follows this circular till fresh guidelines are issued.
18. A plain look at the above circular shows that it deals with aberrations in sale of keyman insurance policies and 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 marketed as keyman insurance cover. However, it does not alter the requirements of Section 10(10D) which is for 'life insurance policy'. What can be sold as a 'life insurance policy' taken by a business entity for its employee, former employee or any other person important for business of such an entity is between the insurance regulator and insurance service provider. However, once it has been 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 life cover or term cover or a growth or guaranteed return policy, it is eligible for coverage of Section 10(10D). It is not open to us to 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 about 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 under the scheme of the Act.
19. What IRDA regulates is issuance of life insurance policies by the insurance companies to the policyholders on the lives of its employees, former employees and key personnel but once such a policy is issued it cannot but be treated as a 'keyman insurance cover' as it essentially meets the requirement of Section 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 of the first- mentioned person or is or was connected in any manner whatsoever with the business of the first-mentioned person". The mandate of Section 10(10D) does not put any further tests, nor can we infer the same.
20. The Assessing Officer has questioned commercial expediency of taking the keyman insurance policies on the short grounds that
(a) the fall in turnover, apparently according to the Assessing Officer, shows that there was no commercial benefit from taking 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 assigned 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 expediency. As for the fall in turnover, the benefit of an expenditure cannot be, by any stretch of logic, relevant to determine its commercial expediency, and, in any case. Such a benefit of hindsight cannot be available at the point 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 making. As for the other issues raised by the Assessing Officer as such, we may refer to the following observations made, in this context, by Hon'ble Delhi High Court in the case of CIT Vs Rajan Nanda etc. [(2012) 349 ITR 8 (Del)]:
25. After giving our due and thoughtful consideration to the submissions of the parties of both sides, we feel that the assessee has been able to make out a case in its favour and order of the Tribunal does not call for any interference. We are persuaded by the following reasons in support of this view of ours:
(i) The Department has itself allowed the expenditure incurred on the premium paid for keyman insurance policies in previous years as business expenditure under Section 37 of the Act. Right from 1991-92 upto 1993-94 and thereafter even in respect of Assessment Year 1997-98, the expenditure was allowed. Though thereafter, the expenditure was disallowed, but again the claim was accepted for the 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 relied upon the CBDT's Circular dated 18.2.1998. This Circular is binding on the Income Tax Department, which categorically stipulates that premium on keyman policy should be allowed as business expenses. The assessee would, naturally, take into consideration such clarifications issued by the CBDT and would act on the basis thereof. When the assessee was given the impression, by means of the aforesaid Circular, that if expenditure is incurred on the keyman policy, it would be treated as business expenditure. There is no reason for the Department to deviate therefrom when it comes to the assessment.
(iii) The nature of expenditure incurred on keyman insurance policy has even been judicially considered and Bombay High Court has held in B.N. Exports (supra) that this expenditure is to be allowed as business expenditure, in the following words:
"The effect of Section 10(10D) is that monies which are received under a life insurance policy are not included in the computation of the total income of a person for a previous year. However, any sum received under a Keyman insurance 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 another 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 was connected in any manner whatsoever with the business of the subscriber" are wider than what would be subsumed under a contract of employment. The latter part makes it clear that a Keyman insurance policy for the purposes of Clause (10D) is not confined to a situation where there is a contract of employment. Clause (10D) relates to the treatment for the purpose of taxation of moneys received under an insurance policy. In this appeal, the court has to determine the question of expenditure incurred towards the payment of insurance premium on a Keyman insurance policy. The circular which has been issued by the Central Board of Direct Taxes clarifies the position by stipulating that the premium paid for a Keyman insurance policy is allowable as business expenditure. In the present case, on the question whether the premium which was paid by the firm could have been allowed as business expenditure, there is a finding of fact by the Tribunal that the firm had not taken insurance for the personal benefit of the partner, but for the benefit of the firm, in order to protect itself against the set back that may be caused on account of the death of a partner. The object and purpose of a Keyman insurance policy is to protect the business against a financial 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 expenditure incurred on the premium paid towards such a policy only to a situation where the policy is in respect of the life of an employee. A Keyman insurance policy is obtained on the life of a partner to safeguard the firm against a disruption of the business that may result due to the premature death of a partner. Therefore, the expenditure which is laid out for the payment of premium on such a policy is incurred wholly and exclusively for the purposes of business."
(iv) The argument of Mr. N.P. Sahni, learned counsel for the Revenue that taking such keyman insurance policy every year and thereafter assigning the same to the beneficiaries may be treated as colourable device, may not be correct. 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 in favour of the beneficiaries, what cannot be ignored that this 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 the touchstone of Section 37 of the Act and to see as to whether such expenditure is permissible or not. No doubt, the object of a keyman insurance policy is to enable business organizations to insure the life of a keyman in order to protect the business against the financial loss which may occur in the likely eventuality of premature death. Such an expenditure is treated as business expenditure by the Department itself and recognized as such in Circular dated 18.2.1998. The expenditure is to be seen at the time it is incurred. Merely because the policy was assigned after sometime would not mean that the expenditure incurred in the first instance would lose the flavour of it being ^business expenditure'.
(vi) Once the legal provisions and the outlook of Department itself based on such legal provisions permit the assessee to have the tax planning of this nature, and the course of action taken by the assessee is permissible under law, 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 itself, there cannot be any question of raising the issue of want of business expediency. The learned counsel for the respondent is right in his submission that the Department could not sit on the armchair of the assessee and decide as to whether it was appropriate on business expediency for the assessee to incur such an expenditure or not. If the transaction is 43 otherwise valid in law and is a part of tax planning, merely because it has resulted in reduction of tax, such expenditure cannot be ignored raising the issue of underlying motive of entering into this type of transaction. Various judgments cited by the learned counsel for the respondents clearly get attracted to this Court.
(Emphasis, by underlining, supplied by us)
21. Respectfully following the esteemed views of Hon'ble 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 the employees of the insurance companies, nothing turns on these statements. 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 on its keymen, as have been undisputedly taken in this case, the same satisfies the requirement of Section 10(10D). In view of these detailed discussions, as also bearing in mind entirety of the case, we uphold the grievance of the assessee and delete the impugned disallowance of Rs.1,49,99,922. The assessee gets the relief accordingly." We find that facts & circumstances of Ground No.5 in 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 assessee as well as by Revenue, we find that ITA No. 349, 521 & 522 are appeals filed by Revenue. The Assessing Officer had imposed penalties on the assessee on account of the addition made A.O on account of revaluation of investments, broken period interest and premium paid for 'Key Man Insurance Policy'. The Ld. CIT(A) has deleted the penalties by holding that assessee cannot be held to have furnished inaccurate 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 present order has 44 allowed relief to the assessee on account of loss claimed on revaluation of investment during the year and at the close of year and further on account of broken period interest and also on account of 'Key Man Insurance Policy' and therefore, the quantum additions has been deleted in this consolidated order and in view of the above penalties cannot be sustained and therefore, the appeals filed by Revenue in ITA No. 349, 521, 522 are dismissed.
19. Now coming to appeal filed by assessee on account 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 Premium" paid by assessee and which has been confirmed by Ld. CIT(A). However, we have deleted the disallowance on account of "Key Man Insurance Premium" in the present order and therefore, quantum addition has been deleted and therefore, the penalty cannot be imposed and in view 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 dismissed 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. KAPOOR)
JUDICIAL MEMBER ACCOUNTANT 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