The Tax Publishers2013 TaxPub(DT) 1881 (Karn-HC) : (2013) 356 ITR 0549 : (2013) 263 CTR 0299 : (2013) 216 TAXMAN 0192 : (2013) 094 DTR 0448

Income Tax Act, 1961

--DepreciationAllowability Treatment of investment as stock-in-trade--Assessee, a banking institution treated securities as stock-in-trade and claimed depreciation on book value after valuing the securities at lowest of cost or market value. Revenue disallowed depreciation claim on the ground that the real income of the bank had to be computed on the basis of the RBI Guidelines as per which it had been shown as investment Assessee contended that the classification was relevant only for the purpose of actual provisions in the accounts and not for the purpose of computing the taxable income and requested that depreciation in the value of investments be allowed as that was claimed consistently and allowed as such in the income-tax assessment during the last more than two decades. Held: The assessee had maintained the accounts in terms of the RBI Regulations and it had shown it as investment. But, consistently for more than two decades it as been shown has stock-in-trade and depreciation was claimed and allowed. Therefore, notwithstanding that in the balance sheet, it was shown as investment, for the purpose of Income Tax Act, it was shown as stock-in-trade. Therefore, if the market value was less than the cost price, in law, assessee was entitled to deductions and it could not be denied by the authorities under the pretext that it was shown as investment in the balance sheet. Thus, order passed by the authorities holding that in view of the RBI guidelines, the assessee was estopped from treating the investment as stock-in-trade was to be set-aside and the matter was remanded back to the assessing authority.

Income Tax Act, 1961 Section 32(1)

In the Karnataka High Court

N. Kumar & B. Manohar, J.J.

Karnataka Bank Ltd. v. Asstt. CIT

IT Appeal No. 172 of 2009

11 March, 2013

Appellant by : P. Dinesh and S. Parthasarathi

Respondent by : K. V. Aravind

JUDGMENT

N. Kumar, J.

This appeal is by the assessee challenging the order passed by the Income Tax Appellate Tribunal (hereinafter referred to as the Tribunal) partly allowing the appeal filed by the assessee holding that the real income of the Bank has to be computed on the basis of the RBI guidelines when the claim of the assessee on erosion but investments available for sale is not allowable because it does not have the ingredient of stock in trade and hence no depreciation thereon can be allowed.

2. Assessee is the Banking institution. As per the Reserve Bank of India (RBI) Master Circular dated 1-9-2003, the assessee is required to classify the securities held into category of :

(a) Available for Sale

(b) Held to Maturity &

(c) Held for Trading.

The assessee treated such securities as stock-in-trade and claimed depreciation on book value after valuing the Securities at lowest of cost or market value as consistently followed earlier. The revenue refusing to accept the assessees plea that classification of Securities as per RBI guidelines was not mandatory for the purpose of computing income under the Act and observed that assessees treatment of securities held as stock-in-trade valued at lowest of cost or market rate, was defective and violation of RBI guidelines. Therefore, the assessees claim of depreciation on securities under Income Tax Act, 1961 is not allowable on the whole Investment Portfolio (Securities) which is classified as stock-in-trade.

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