Capital Local Area Bank Ltd. v. Addl. CIT

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The Tax Publishers2017 TaxPub(DT) 1800 (Asr-Trib) Capital Local Area Bank Ltd. v. Addl. CIT INCOME TAX ACT, 1961 --Business loss--AllowabilityLoss arising on transfer of securities from one category to another in line with RBI circular----Financial institutions like banks are expected to maintain accounts in terms of RBI Act and its regualtions, therefore, assessee bank was eligible for deduction of loss arising on transfer of securities from one category to another in line with RBI Circular dated 1-7-2006 on prudential norms for classification, valuation and operation of investment portfolio.--Assessee bank claimed deduction of loss arising on account of transfer of securities from 'available for sale' category to 'Held-to-Maturity' category in line with RBI Circular dated 1-7-2006 on prudential norms for classification, valuation and operation of investment portfolio of bank. AO held that such notional loss could not be allowed. *Held:* Financial institutions like banks are expected to maintain accounts in terms of the RBI Act and its regulations. The form in which accounts have to be maintained is prescribed under those regulations. Therefore, the accounts had to be in conformity with the said requirements. As per RBI circular banks are allowed to transfer securities from one category to another category once every year and the circular further provides that if because of such transfer any depreciation arises, the same should be fully provideed for. In view of this, loss arising on such transfer was allowable as deduction to the assessee. Income Tax Act, 1961 Section 28(i) *Relied:*CIT v. Bank of Baroda (2003) 262 ITR 334 (Bom-HC) and Karnataka Bank Ltd. v. Asstt. CIT (2013) 356 ITR 549 (Karn-HC). *REFERRED :* SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2017 TaxPub(DT) 1800 (Asr-Trib)

Capital Local Area Bank Ltd. v. Addl. CIT

INCOME TAX ACT, 1961

--Business loss--AllowabilityLoss arising on transfer of securities from one category to another in line with RBI circular----Financial institutions like banks are expected to maintain accounts in terms of RBI Act and its regualtions, therefore, assessee bank was eligible for deduction of loss arising on transfer of securities from one category to another in line with RBI Circular dated 1-7-2006 on prudential norms for classification, valuation and operation of investment portfolio.--Assessee bank claimed deduction of loss arising on account of transfer of securities from 'available for sale' category to 'Held-to-Maturity' category in line with RBI Circular dated 1-7-2006 on prudential norms for classification, valuation and operation of investment portfolio of bank. AO held that such notional loss could not be allowed. Held: Financial institutions like banks are expected to maintain accounts in terms of the RBI Act and its regulations. The form in which accounts have to be maintained is prescribed under those regulations. Therefore, the accounts had to be in conformity with the said requirements. As per RBI circular banks are allowed to transfer securities from one category to another category once every year and the circular further provides that if because of such transfer any depreciation arises, the same should be fully provideed for. In view of this, loss arising on such transfer was allowable as deduction to the assessee.

Income Tax Act, 1961 Section 28(i)

Relied:CIT v. Bank of Baroda (2003) 262 ITR 334 (Bom-HC) and Karnataka Bank Ltd. v. Asstt. CIT (2013) 356 ITR 549 (Karn-HC).

REFERRED :