Loss on securities held for trading and classified as available for sale under RBI guidelines is business loss

Brief of the Case

ITAT Ahmedabad held In the case of ACIT vs. The Mehsana Urban Co-op. Bank Ltd. that intention of assessee at the time of purchase of securities is relevant factore to decide whether it is held for trading or investment . In this case , the banks as per their nature of the business may have to park surplus trading funds in securities and although intended to be trading assets may have to keep them for longer periods if funds are not required. These securities are classified as available for sale as per the RBI guidelines to keep apart some of the assets in the specified mode at certain percentage which are known as CLR and SLR. The profit/loss on sale of such securities (AFS) cannot be treated as capital gain/loss.

Facts of the Case

The return of income for AY 2008-09 was filed on 29.9.2009 declaring total income at Rs.11,39,98,430/-. The case was selected for scrutiny on CASS and assessment proceedings was initiated so as to complete assessment under section 143(3) of the Act. The AO completed the assessment by making addition including addition by way of disallowing claim of assessee of loss on sale of securities by treating it as long term capital loss instead of business loss at Rs.3,39,79,600. The AO relied on the judgment of Pari Mangaldas Girdhardas vs. CIT (1997) CTR 647 (Guj) while making these additions.

Contention of the Assessee

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