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Dy. Commissioner of Income Versus M/s. Deccan Grameena Bank

Depreciation on securities held as stock in trade - Deduction of broken period of interest - Dis-allowance of deduction claimed u/s. 36(1)(viia) of Income Tax Act - Held that:- We find that the issue on Depreciation on securities (premium on govt. securities) for ₹ 9,76,74,332/- is squarely covered by the order of the ITAT Hyderabad in the case of AP Grameena Vikas Bank [2014 (3) TMI 724 - ITAT HYDERABAD] for the relevant A.Y 2009-10, Vijaya Bank [1990 (9) TMI 5 - SUPREME Court] and Nedung .....

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3 issued by the CBDT. Hence, respectfully following the order of the Coordinate Benches, we dismiss Ground No.3 of Revenue’s appeal. - Decided against the revenue. - ITA No. 1742/Hyd/2014 - Dated:- 25-3-2015 - Shri P.M. Jagtap And Smt.Asha Vijayaraghavan JJ. For the Appellant : Smt. G. Aparna Rao, DR For the Respondent : Shri T. Umakanth ORDER Per Smt. Asha Vijayaraghavan, J.M. This is an appeal filed by the Revenue against the order of the ld CIT (A)-VI Hyderabad dated 29.08.2014 passed for A.Y .....

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2/- 2. Addition on account of disallowance of broken period interest on purchase of securities held as stock in trade ₹ 3,73,12,444/- 3. Addition on account of disallowance of deduction claimed u/s. 36(1)(viia) of IT Act ₹ 4,44,52,560. 3. For the year under reference the assessee has filed the revised return of income on 31.03.2012, admitting an income of ₹ 43,09,08,818/- as against the income of ₹ 52,85,83,150/- admitted in original return of income filed on 09.10.2010. .....

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r this proposition the AO relied on the decision of Assam High Court in the case of Sunanda Rao Deka Vs. CIT (210 ITR 988), wherein it was held that filing of revised return after discovery of omission or wrong statement in original return is not by itself sufficient to bring revised return in the ambit of Sec. 139(5) of the Income Tax Act, but further requirement is that omission or wrong statement in original return due to bonafide inadvertence or mistake on part of assessee. 4. The ld CIT (A) .....

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e observations in this regard appear to be factually incorrect. The CIT (A) further held that as regards the claim of depreciation on securities to the extent of ₹ 976,74,332/-, which is an issue of debate, was not claimed by assessee in original return, as such filed revised return of income, within the due date, while claiming such depreciation. The CIT (A) concluded that the omission to claim such allowance, definitely amounts to reasonable ground for filing the revised return and held .....

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rt). We find no infirmity with the order of the CIT (A). For the AY 2010-11 the assessee has filed its return on 9.10.2010 by declaring a net taxable income of ₹ 52,85,83,150. After filing original return, the assessee found that there is an omission of claim of depreciation on investment of ₹ 9,76,74,332 held as stock-in-trade. To offset the omission, the assessee has filed revised on 31.03.2012 which is with the statutory period allowed under the I.T. Act, 1961. 6. A revised return .....

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tally computing the income of the assessee, then to enable the assessee to communicate such information to the revenue, the facility or revised return is given. However, the omission or wrong statement must be discovered by the assessee himself and must be bonafide. During the course of assessment proceedings, assessee has submitted written statement dated 11.03.2013 informing the reasons for submission of revised return and the same was reproduced as under: At the time of filing original return .....

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in original return of income, on the ground that the revised return of income was not acceptable. The other reason for disallowing the claim was that the assessee's sources of investments being public money, supposed to invest in securities and banks and investments in derivatives is not in consonance with its objectives and such investments are in contravention of information provided in annual report of the bank. Hence, it was held that the claim is against the directives of RBI and disal .....

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to the closing balances, is treated as depreciation and be allowed as deduction. The assessee relied on the order of the Hon'ble ITAT in the case of SBH Vs. DCIT in ITA No. 1232/Hyd./2006and decision of Kerala High Court in the case of CIT Vs. Nedungadi Bank Ltd. (264 ITR 545), to support their claim. 9. The CIT (A) perused the submissions of the assessee and the observations of the AO. The CIT (A) held as follows: As could be seen from the facts, the AO failed to appreciate that the appell .....

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d to maturity. It is also relevant to hold, that even if the securities are classified as held to maturity (HTM), the courts have held that even if the securities which are held in permanent category, are supposed to be dealt in market, with the very nature of these investments is to trade in securities and as such treated as stock in trade for the assessee banks. It was also held that where there is no distinction between the categories of securities, the assessee can provide depreciation on se .....

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373,12,444/- made towards the broken period of interest in acquiring the securities, which are held as stock in trade by the assessee bank relying on the decision of Supreme Court in the case of Vijaya Bank Vs. ClT, reported in 187 ITR 541. 12. The assessee objected for such disallowance and submitted that the securities were held as stock in trade on the lines of State Bank of Hyderabad, which is the holding bank of the assessee bank, where the similar claim was upheld by the Hon'ble' .....

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s. CIT (supra), wherein the investments in securities were considered as capital investments and as such the interest on such acquisition was treated as disallowable expenses. However, in this case, the investments in securities were treated as stock in trade, which was not disputed by the AO, either. Further, vide the decisions by various High Courts and Supreme Court, subsequent to the decision of Vijaya Bank case (supra), have held that interest for broken period should be treated as part of .....

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on acquisition of securities held as stock in trade, is much allowable expense and as such the disallowance of ₹ 373,12,444/- made by the AO was held to be unsustainable by the CIT (A). This ground of appeal is treated as allowed by the CIT (A). Addition on account of disallowance of deduction claimed u/s. 36(l)(viia) of IT Act ₹ 4.44,52,560/- 15. While computing the total income for the year under reference the AO has disallowed the claim of ₹ 4,44,52,560/-, made by the asses .....

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provision was unwarranted and the said claim towards bad and doubtful debts under 7.5% category is disallowed to be added back to the returned income and brought to tax. 16. The assessee s objection for such disallowance/addition was on the ground that the provisions of Sec. 36(1)(viia) permits banking company to claim a deduction not exceeding 7 .5% of total income computed, towards bad and doubtful debts. The assessee relied on the decision of ITAT, Hyderabad, in the case of SBH Vs. DCIT (ITA .....

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the AO. The CIT (A) held as follows: As could be seen from the facts of the case brought on record, the assessee claimed a deduction of ₹ 4,44,52,560/- being the deduction @7.5% of the total income, as peer the provisions of Sec. 36( l)(viia) before claiming deductions u/s. Chapter VI A and the deduction under said clause, while computing the total income. The AO disallowed the same on the ground that there was no necessity of such provision, with the advances secured and no provision for .....

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of ₹ 1,96,65,088 claimed towards the doubtful and bad debts of rural advances, which was allowed by the AO . 18. The ld CIT (A) held that it is also a fact that, no other deductions were claimed by the assessee bank u/s 36(1)(vii) towards write off of bad debts. In this context it is relevant to refer to the decision of the ITAT Hyderabad, in the case of State Bank of Hyderabad vs. DCIT dated 28.11.2008 in ITA No.1232/Hyd/2006 wherein the Tribunal held that deduction u/s 36(1)(viia) of th .....

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IT (A) was of the opinion that there is no infirmity in the claim of the assessee. Accordingly the addition of ₹ 4,44,52,560 was held to be unsustainable and this ground of appeal was treated as allowed by the CIT (A). 19. Aggrieved, the Department is in appeal before us and raised the following grounds: 1. The order of ld CIT (A) is against facts of the case. 2. Whether the ld CIT (A) is correct in considering the contents of revised return and allowing the depreciation on securities held .....

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