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2015 (12) TMI 292 - ITAT AHMEDABAD

2015 (12) TMI 292 - ITAT AHMEDABAD - TMI - Addition on account of investment depreciation account - CIT(A) deleted the addition - as per revenue notional depreciation of Government of India securities as on 31.3.2008 which were held by the bank as investment and not as stock - Held that:- After going through the guidelines of RBI and CBDT Circular loss invoice the facts of the assessee that as per audited balance sheet of the assessee investment in Central and State Government Securities its boo .....

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Similar facts were examined in assessee’s own case by the Tribunal for AY 2007-08 allowing the claim of assessee as relying on United Commercial Bank vs. CIT [1999 (9) TMI 4 - SUPREME Court] - Decided in favour of assessee. - ITA No.1103/Ahd/2012 - Dated:- 14-10-2015 - Shri Rajpal Yadav, JM, & Manish Borad, AM. For The Appellant by Shri D. C. Mishra, Sr. DR For The Respondent by Shri A. C. Shah, AR ORDER PER Manish Borad, Accountant Member. This appeal by the Revenue is directed against the .....

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iation of Government of India securities as on 31.3.2008 which were held by the bank as investment and not as stock. 2. On the facts and in the circumstances of the case, the ld. CIT(A) ought to have upheld the order of the Assessing Officer. 3. It is, therefore, prayed that the order of the ld. CIT(A) may be set aside and that of the AO may be restored to the above extent. 2. Briefly stated the facts are that the assessee filed its return of income on 14.9.2008, showing total income of ₹ .....

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he Tribunal. We would like to mention here that as per the order of A.O. the addition on account of disallowance of provision of investment depreciation was made at ₹ 1,47,66,239/- whereas in the grounds of appeal filed by the Revenue the amount mentioned in ground no.1 is ₹ 1,47,48,785/-. There seems to be some typographical error on the part of Revenue while filing the grounds of appeal and, therefore, we rectify the figure for the appeal purpose at ₹ 1,47,66,239/-. 4. During .....

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y the investment in three categories. (a) Held to Maturity (b) Available for Sale (c) Held for Trading As per Para No.16.1 the available for sale and held for trading are to be valued mark to market i.e. cost or market price whichever is lower. According the bank has valued the securities at cost or market price whichever is lower. As per working, the fall in market is to the extent of ₹ 1,47,66,239. This fall is known as investment depreciation by the assessee bank. The investments so mad .....

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r, the ld. AO disallowed investment depreciation of ₹ 1,47,66,239 on the ground that the depreciation in value of securities is notional and not actual and that the government securities held are investment and not stock in trade. 1.3 It may please further be noted that the assessee follows mercantile system of method of accounting since years and it is accepted by the revenue. The ITAT Ahmedabad Bench has dismissed the Revenue appeal for AY 2007-08 following UCO Band decision and Woodward .....

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whichever is lower; (2) In the balance sheet, if the securities and shares are valued at cost but from that no firm conclusion can be drawn. A taxpayer is free to employ for the purpose of his trade, his own method of keeping accounts, and for that purpose, to value stock in trade either at cost or market price; (3) A method of accounting adopted by the taxpayer consistently and regularly cannot be discarded by the departmental authorities on the view that he should have adopted a different met .....

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he ITO, the income cannot be properly deduced therefrom, the computation shall be made in such manner and on such basis as the ITO may determine. 1.5 The assessee bank follows mercantile method of accounting consistently. The depreciation in investment has been provided and allowed consistently unless the AO has given a finding contrary to that effect the books cannot be rejected. The ratio laid down by SC in the case of United Commercial Bank vs. CIT 240 ITR 355 is followed recently by the SC i .....

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ntinuously for a given period of time needs to be presumed to be correct till the AO comes to the conclusion for reasons to be given that the system does not reflect the true and correct profits. 1.6 The Madras High Court in the case of Laxmi Vilas Bank Ltd. vs. CIT 284 ITR 93 applied the ratio laid down by United Commercial Bank vs. CIT 240 ITR 355 (SC). From the above, it is clear that the fall in market price in government securities held for trading is allowable as deduction. 1.7 The kind at .....

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has been decided that the securities must be regarded as stock-in-trade by the banks. Therefore, the claim of loss, if debited in the books of account, would be given the same treatment as is normally given to the stock-in-trade. From the above, it is clear that the provision made for investment depreciation is allowable as deduction. 2. It may please be noted that the CIT(A) has allowed the appeal for AY 2007-08. The facts are identical. The ITAT has dismissed the Revenue appeal for AY 2007-08 .....

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ee. Solitary grievance of the Revenue is that the learned CIT(A) has erred in allowing depreciation on account of investment amounting to ₹ 1.47 crores. With the assistance of the learned representatives, we have gone through the records carefully. We find that in para No.4, the learned AO has recorded a categorical finding that this provision has been made with regard to the securities held as investments. It is to be borne in mind that depreciation in a case of bank, on investment in gov .....

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held as stock-in-trade and not as long term investment. Hearing is adjourned to 17th August, 2015. Copy of this order is supplied to both the parties. From the above office order the ld. counsel of the assessee sought time to file Paper Book to demonstrate that these securities on which it has claimed investment depreciation were held as stock-in-trade and not as long term investment. 7. We have examined the record placed before us and the only issue to be examined is regarding the allowability .....

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nvestment portfolio (including SLR and non-SLR securities) under three categories viz:- i) Held to Maturity (HTM) ii) Available for Sale (AFS) iii) Held for Trading )HFT) Banks should decide the category of the investment at the time of acquisition and the decision should be recorded on the investment proposals. 15.2 Held to Maturity 15.2.1 Securities acquired by the banks with the intention to hold them upto maturity will be classified under Held to Maturity category. 15.2.2 The investments inc .....

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and debentures of private sector companies. Their investments in bonds of PSUs and shares (as permitted by RBI) should be classified under Held to Maturity category but these will not be counted for the purpose of specified ceiling under this category. 15.2.4 Profit on sale of investments in this category should be first taken to the P & L account and thereafter be appropriated to the investment Fluctuation Reserve. Less on sale will be recognized in the P & L a/c. 15.3 Held for Trading .....

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.3 and 15.5.4 below. 15.4 Available for Sale 15.4.1 Securities which do not fall within the above two categories will be classified under Available for Sale category. 15.4.2 Banks have the freedom to decide on the extent of holdings under Available for Sale category. This may be decided by them considering various aspects such as basis of intent, trading strategies, risks, management, capabilities, tax planning, manpower skills, capital position, etc. Further as per section 6 r.w.s. 5(b) & ( .....

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clarified by Circular No.665 of the CBDT dated 05.10.1993. The question whether a particular item of investment in securities constitutes stock in trade or a capital asset is a question of fact. In fact, the banks are generally governed by the instructions of the Reserve Bank of India from time to time with regard to the classification of assets and also the accounting standards for investments. The Board has, therefore, decided that the Assessing Officers should determine on the facts and circu .....

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der three categories viz. Held to Maturity (HTM), Held for Trading (HFT) and Available for Sale (AFS). Investments classified under HTM category need not be marked to market and are carried at acquisition cost unless these are more than the face value, in which case the premium should be amortized over the period remaining to maturity. In the case of HFT and AFS securities forming stock in trade of the bank, the depreciation/appreciation is to be aggregated scrip wise and only net depreciation, .....

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