The Delhi High Court, in a recent decision, remanded a case to the Assessing Officer ( AO ) for a fresh assessment of a case relating to held-to-maturity ( HTM ) securities. The petitioner, Punjab National Bank, challenged an order made by the Income Tax Appellate Tribunal ( ITAT ), in which the ITAT classified profits from the sale of HTM securities as business income instead of capital gains and disallowed a business loss of ₹10Cr on purchase of such securities.
The petitioner bank declared profits from selling HTM securities under the head of capital gains, asserting that these securities were held as investments until maturity. Later, the petitioner claimed a business loss of ₹10 Cr due to the conversation of HTM securities into stock in trade. The revenue classified the profits as business income and disallowed the business loss claim based on insufficient documentation to substantiate the loss. The AO asserted that the petitioner failed to provide essential details, such as the acquisition cost and the selling price of the securities, which are necessary to substantiate the loss.
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The Commissioner of Income Tax (Appeals)[CIT(A)] upheld the AO’s finding, stating that the bank had not maintained adequate records in either its books of accounts or during the assessment proceedings. The ITAT also supported the Revenue’s argument and stated that the scale and frequency of the petitioner’s transactions justified the classification of profits as “business income”.
The Petitioner, aggrieved by these decisions, appealed to the Delhi High Court under Section 260A of the Income Tax Act, challenging both the classification of profits from HTM securities and the rejection of its business loss claim. Before the court, the petitioner argued that HTM securities are investments, not business assets. Any profit or loss arising from their sale or conversion should be classified under capital gains. The petitioner asserted that if profits from HTM securities are treated as business income, losses incurred during their conversion into stock-in-trade should also be allowed as business losses.
The petitioner further submitted that necessary documents supporting its claim for business losses were submitted during the appellate proceedings and that the ITAT’s finding of insufficient evidence was incorrect. Revenue counsel argued that Punjab National Bank’s transactions in the HTM securities were significant and frequent, indicating a business activity and justifying the classification of profits as business income. Revenue also contended that the petitioner failed to provide solid evidence, such as selling prices and acquisition costs, to substantiate its business loss claim.
Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here
After hearing both sides, the Delhi High Court upheld the ITAT’s conclusion that the profits from HTM securities should be treated as business income. The court noted that the petitioner had previously accepted this classification and held that further examination of the matter is required. The Court recognised that the petitioner had submitted all relevant documents during the legal proceedings, and the ITAT’s findings that the petitioner failed were factually incorrect.
The two-judge bench, consisting of Justice Vibhu Bakhru and Justice Swarana Kanta Sharma, remanded the matter to the AO for revaluation. The court directed the AO to properly investigate the petitioner’s claim and review all the relevant materials provided, and as a result, the appeal was disposed of.
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