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2015 (6) TMI 311 - ITAT AHMEDABAD

2015 (6) TMI 311 - ITAT AHMEDABAD - TMI - Disallowance of provision for depreciation on government securities - CIT(A) deleted the addition - Held that:- Hon'ble Mumbai High court in case of CIT vs Bank of Baroda (2003 (3) TMI 80 - BOMBAY High Court) has held that "Depredation in value of investment held by bank was allowable as deduction more so when the loss was debited to P&L A/c which was reflected as provision for liability in the balance sheet and the share and securities were valued at co .....

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IT(A) deleted the addition - held that:- It is proposed to amend the Explanation to the said item (fa) in view of the amendment to the definition of "scheduled bank" as given in the explanation to clause (viia) of sub-section 36 which excludes co-operative bank from purview of the said definition. This amendment is of consequential nature. This amendment will take effect retrospectively from 1st April, 2007 and will, accordingly, apply in relation to the assessment year 2007-08 and subsequent ye .....

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RA KUMAR YADAV, J.M: This appeal has been filed by Revenue against the order of Commissioner of Income Tax (Appeals), Gandhinagar, Ahmedabad, dated 17.01.2011 for A.Y. 2007-08 on the following grounds. 1. The learned CIT(Appeals) has erred in law and on facts in deleting the addition of ₹ 91,03,750/-, made on account of disallowance of provision for depreciation on government securities. 2. The learned CIT(Appeals) has erred in law and on facts in deleting the addition of ₹ 8,05,841/ .....

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ct. b) assessee has shown Government Securities in the Balance sheet as investment and debited the profit and loss account on account of provision for depreciation amounting to ₹ 91,03,750/- which is not allowable under the Act. 3. Matter was carried before the First Appellate Authority, wherein various contentions were raised on behalf of assessee. CIT(A) found that CBDT has issued instruction for assessment of banks vide its Instruction No. 17/2008 dated 26.11.2008 (F. No. 228/3/3008 - I .....

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ining to maturity. In the case of HF and AFS securities forming stock in trade of the bank, the depreciation/appreciation is to be aggregated scrip wise and only net depreciation, if any, is required to be provided for in the accounts. The latest guidelines of the RBI may be referred to for allowing any such claims." 3.1 Bank has correctly followed guidelines issued by the Reserve Bank of India for the classification and valuation of Investment. As per this guideline, individual scrip in av .....

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ss account as an expense. The method and computation has been verified and certified by Reserve Bank of India in its Inspection Report dated 5th December, 2007. Following are the year- wise provision amount for the depreciation in values of Government securities. Sr. No. Financial Year Amount of Provision for Depn. In Government Securities Debited to P&L Account (Amt. in Rs.) 1. 2002-03 13,55,000.00 2. 2003-04 12,44,750.00 3. 2004-05 Nil 4. 2005-06 3,30,000.00 Income Tax assessment for the a .....

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n No. 17/2008 issued by CBDT, Decision of the Bank of Baroda 262 ITR 334 (BOM) and CIT vs. Nedungadi Bank Ltd (2003) 130 TAXMAN 93 (Ker) were requested to be considered and based on the regularly followed accounting method, the claim of provision for depreciation in the value of securities was requested to be allowed. Having considered the same, CIT(A) has allowed the claim of assessee. 4. Same has been opposed before us on behalf of Revenue inter alia submitted that deletion of addition of S .....

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ment activities is normal banking activity and should be treated as banking stock in trade. The format of balance sheet has been prescribed by legislature and bank has to report their financial result in that format only. As per this format, investment in Government security though treated as banking assets (stock in trade) has to be shown in the balance sheet as investment. Further, banks are showing gain or loss arises from sale of security as business income/loss rather than capital gain. The .....

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e on the facts and circumstances of each case as to whether any particular security constitutes stock-in-trade or investment taking into account the guidelines issued by the Reserve Bank of India in this regard from time to time. " CBDT has further issued instruction for assessment of banks vide its Instruction No. 17/2008 dated 26.11,2008 (F. No. 228/3/3008 - ITA-III). Point no. VII of the said instruction, which has been discussed above. The accounts had been maintained and shown as per R .....

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to the P&L account and not expenses does not carry any weight in view of Reserve Bank of India directions and CBDT instructions discussed above. The circular and the instruction of the board as quoted above are squarely applicable in this case, where the provision for depreciation on the "available for sale' category of securities has correctly been claimed. So, claim of assessee is allowable as per circular and instruction. Similar claim of depreciation and value of Government sec .....

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e balance sheet and the share and securities were valued at cost on the asset side " Similar view has been taken by Hon ble Kerala High Court in case of CIT vs Nedungadi Bank Ltd (2003) 130 TAXMAN 93 (Ker). Therefore, depreciation in value was allowable even if specific instructions of the board were not there. Circular and instruction of the CBDT being squarely applicable on facts of assessee s case, so CIT(A) was justified in allowing the same which needs no interference from our side. We .....

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erative bank other than primary agriculture credit society or a primary co-operative agriculture and rural development bank, an amount (not exceeding seven and one half percent) of the total income (computed before making any deduction under this clause and chapter VIA) and an amount not exceeding ten percent of the aggregate average advance made by the rural branches of such back computed in the prescribed manner. It is very clear that as per Finance Act.2007, for co-operative bank this is only .....

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