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2024 (5) TMI 537 - ITAT AHMEDABADDisallowance of loss on sale of Government Securities - permissible business loss or not? - AO has disallowed the loss on the presumption that Central and State Government securities, the year for maturity of which was specified as 2028 and 2034, were not business stock-in-trade but were in the nature of investments - HELD THAT:- As per Section 6 of the Banking Regulation Act, in addition to the business of banking, a banking company may also engage in buying and selling of securities and such buying and selling is considered as part of its business activities. Therefore, the investment in Central and State Government Securities as appearing in the balance sheet of the company were its business assets and in the nature of stock-in-trade. Merely because they were shown as investment in the balance sheet they don’t become capital asset, as buying and selling of the securities including Government securities is part of business activity of the assessee company. Further, the CBDT had issued a Circular No.599 dated 24.04.1991 giving clarification regarding treatment of securities as stock-in-trade or investment by the Banks. CBDT has categorically clarified that the securities held by Banks must be regarded as stock-in-trade of the Banks. Therefore, the loss on Government securities of Rs. 38,55,000/- as debited in the books of accounts of the assessee has to be treated as loss in stock-in-trade and not a capital loss in investments. As this loss was in the nature of business loss, the AO was not correct in disallowing the same. In view of these facts, the CIT(A) was not correct in confirming the order of the AO disallowing the loss. Accordingly, the AO is directed to allow the loss in Government securities claimed by the assesse as business loss. Depreciation on Government securities claimed by the assessee bank - HELD THAT:- Depreciation on Government Securities was deterioration in the value of security. In essence, this was a loss claimed on valuation of the security. As clarified by the CBDT vide Circular No. 599, reproduced earlier, the loss claimed by the banks on valuation of their securities was a business loss and an allowable deduction. We accordingly hold that the depreciation on Government securities claimed by the assessee bank is allowable, as deduction. Appeal preferred by the assessee is allowed.
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