7.2 We have considered the rival submissions. We have also perused the RBI Master Circular and other case laws on which the Sr. Counsel has placed strong reliance. The Hon’ble ITAT, Bangalore Bench ‘B’ in ITA No: 253/Bang/2007 dated: 24.1.2008 in the case of ACIT (LTU) vs. Vijaya Bank had an occasion to deal with a similar issue. After considering the rival submissions, analyzing the RBI Guidelines and also extensively quoting various judicial pronouncements on which both the parties have placed their reliance, the Hon’ble Tribunal has observed thus –
“15. From the above, it is clear that the assessee is treating the securities held under the, category ‘held for maturity’ as stock-in-trade. If there is appreciation in the market value as compared to the market value at the opening of the year and such appreciation is also accounted for. It is not claiming depreciation only for the years, when the value has gone down. If that had been the case, the assessee would not have accounted for any appreciation in 3rd, 4th and 5th year. The method by which the assessee bank is valuing securities is in accordance with the accounting principles by treating such securities as stock-in-trade. Moreover, the revenue itself is treating the profit on maturity of such security as business income and, therefore, such securities cannot be treated as capital assets.
16. Special Bench, Delhi in the case of New India Insurance vs. ACIT (2007) 18 SOT 51 had an occasion to consider the binding nature of RBI Guidelines. The Special Bench held that R BI Guidelines in respect of provision for NPA are not binding in the computation of income under the Income-tax Act. Income is to be assessed as per the provision of the Income-tax Act. The Madras High Court in the case of Tamilnadu Power and Infrastructure Development Corporation Ltd. vs. CIT 286 ITR 491 held that 96+provision for non-performing the assets debited to P & L account is not allowable, as directive of Reserve Bank of India may not override statutory provision. Once the Revenue is accepting that profit arising on the maturity of investment is business income, then it cannot take the stand that it is not stock-in-trade. During the course of proceedings before us, the learned AR has filed the assessment order in the case of the assessee for the asst. year 2000-01 to 2002-03. The depreciation claimed in all these asst. years has not been disallowed Thus, the revenue is consistently accepting that depreciation is allowable. This Bench in the following cases has allowed such depreciation on the valuation of the securities held by the Bank:
1) The Karnataka Bank Ltd. vs. JCIT in ITA No:50/BANG/97 dt:27th Jul, 03
2) ING Vysya Bank Ltd vs. DCIT (2006)(6) SOT 606 BANG.
17. Considering the above discussion, it is held that the assessee is entitled to value all the investment at cost prices or market value whichever is lower by treating such investment as stock in trade. ,,, ,,, ,,, ,,, ,,, ,,, ,,,”
7.3. The Hon’ble Tribunal in ITA No:112/Bang/ 2008 dated: 3.12.2008 in the case of Corporation Bank vs. ACIT, by following the decision of the Hon’ble Tribunal in the case of ACIT vs. Vijaya Bank referred supra, has held that –
“16. Considering the facts and circumstances of the case before us and respectfully following the decision of the Hon’ble Supreme Court in the case of United Commercial Bank vs. CIT referred supra, it is held that the assessee bank is entitled to value all the investment at cost prices or market value whichever is lower by treating such stock-in-trade. ……… ……… …”
7.4 In RBI’s Master Circular, under the caption 2 Classification, it has been mentioned thus –
“(i) The entire investment portfolio of the banks (including SLR securities and non-SLR securities) should be classified under three categories viz., ‘Held to maturity’, ‘Available for Sale’ and “Held for Trading’. However, in the balance sheet, the investments will continue to be disclosed as per the existing six classifications viz., a) government securities, b) Other approved securities, c) shares, d) debentures and bonds, e)subsidiaries/ joint ventures and f) other (CP Mutual Fund Units, etc.).
(ii) Banks should decide the category of the investment at the time of acquisition and the decision should be recorded on the investment proposals.
2.3. Shifting among categories:
i) Banks may shift investments to/from Held to maturity category with the approval of the Board of Directors once a year. Such shifting will normally be allowed at the beginning of the accounting year. No further shifting to/from this category will be allowed during the remaining part of that accounting year.
7.5. In view of the clear cut guidelines of the RBI and respectfully following the findings of the Hon’ble Tribunal referred supra, the claim of the assessee towards provision of depreciation of Rs.127,21,17, 913 on account of transfer of securities from AFS Category to HTM Category is allowed. It is ordered accordingly.