Asstt. CIT, B.K. Circle, Palanpur v. Chhapi Nagarik Sahakari Bank Ltd
[Citation -2016-LL-1020-53]

Citation 2016-LL-1020-53
Appellant Name Asstt. CIT, B.K. Circle, Palanpur
Respondent Name Chhapi Nagarik Sahakari Bank Ltd.
Court ITAT-Ahmedabad
Relevant Act Income-tax
Date of Order 20/10/2016
Assessment Year 2010-11
Judgment View Judgment
Keyword Tags government securities • cost of acquisition • government security • accounting method • mercantile basis • stock-in-trade • notional loss • market price
Bot Summary: CIT(A) erred in deleting the addition of Rs. 34,39,000/- made on account of notional loss on account of diminution in value of stock-in-trade of the Government Securities. During the course of the scrutiny assessment proceedings, the A.O. noticed that the assessee has debited Rs. 34,39,000/- on account of Government Securities depreciation provision. Assessee filed a detailed reply stating that its books of accounts are as per AS-13 for accounting of investment in which it is mentioned that the current investment must be valued and disclosed at lower of cost and fair market value. The contentions of the assessee did not find favour with the A.O. who was of the firm belief that a notional loss is debited by the assessee and the same cannot be allowed as per the provisions of the Act. The appellant is in banking business and has to follow guidelines issued by the RBI for investments in various government securities. The investment made in the government securities for which loss has been shown in profit and loss account is in the nature of stock-in-trade, as these have been classified according to the guidelines issued by the RBI. As the stock-in- trade is valued at the market price or the cost of acquisition whichever is less and the appellant has followed the same universally accepted accounting method, the loss debited to the profit and loss account is an allowable expenditure to the appellant. 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.


IN INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH (BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI S. S. GODARA, JUDICIAL MEMBER) ITA. No: 3027/AHD/2013 (Assessment Year: 2010-11) Asstt. CIT, B.K. Circle, V/S Chhapi Nagarik Sahakari Palanpur Bank Ltd., Bazar, At- Chhapi-385210 Tal. Vadgam Dist-Banaskantha (N.Guj) (Appellant) (Respondent) PAN: AAATN1395F Appellant by : Shri James Kurian, Sr. D.R. Respondent by : Shri A. C. Shah, A.R. ORDER Date of hearing : 14 -10-2016 Date of Pronouncement : 20 -10-2016 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. This appeal by Revenue is directed against order of Ld. CIT(A)-I, Ahmedabad dated 16.09.2013 pertaining to A.Y. 2010-11. 2 ITA No.3027/Ahd/2013 . A.Y. 2010-11 2. sole grievance of revenue is that ld. CIT(A) erred in deleting addition of Rs. 34,39,000/- made on account of notional loss on account of diminution in value of stock-in-trade of Government Securities. 3. Assessee is Co.Op. Bank filed its return of income on 07.10.2010 declaring total income at Rs. 50,91,200/-. return was selected for scrutiny assessment and accordingly statutory notices were issued and served upon assessee. 4. During course of scrutiny assessment proceedings, A.O. noticed that assessee has debited Rs. 34,39,000/- on account of Government Securities depreciation provision. assessee was asked to provide details and justify its claim. Assessee filed detailed reply stating that its books of accounts are as per AS-13 for accounting of investment in which it is mentioned that current investment must be valued and disclosed at lower of cost and fair market value. It was brought to notice of A.O. that investment in Government Securities are considered as stock-in-trade and valued at market price or cost whichever is lower. 5. contentions of assessee did not find favour with A.O. who was of firm belief that notional loss is debited by assessee and same cannot be allowed as per provisions of Act. Accordingly, A.O. made addition of Rs. 34,39,000/-. 3 ITA No.3027/Ahd/2013 . A.Y. 2010-11 6. Assessee carried matter before ld. CIT(A) and reiterated its contention. 7. Strong reliance was placed on decision of Hon ble Supreme Court in case of United Commercial Bank 240 ITR 355 and in case of Woodward Governor India Pvt. Ltd. 312 ITR 254. 8. After considering facts and submissions and judicial decisions relied upon by assessee, ld. CIT(A) held as under:- 5. I have gone through assessment order and submissions of A.R. of appellant carefully. reasons for making additions and submissions of appellant have been carefully gone through. appellant is in banking business and has to follow guidelines issued by RBI for investments in various government securities. investment made in government securities for which loss has been shown in profit and loss account is in nature of stock-in-trade, as these have been classified according to guidelines issued by RBI. As stock-in- trade is valued at market price or cost of acquisition whichever is less and appellant has followed same universally accepted accounting method, loss debited to profit and loss account is allowable expenditure to appellant. It has been found from past records of appellant that appellant is following this practice since many years and if higher value of any government security was found, it has taken by taking higher value in its books of accounts. This fact shows that appellant is maintaining books on mercantile basis of accounting and that is in order. Therefore, additions made are deserves to be deleted, therefore, it is deleted. Thus, this ground of appeal is allowed. 4 ITA No.3027/Ahd/2013 . A.Y. 2010-11 9. Aggrieved by this, revenue is before us. ld. D.R. could not bring any distinguishing decision in favour of revenue which may warrant different view. Per contra, ld. counsel for assessee heavily relied upon findings of First Appellate Authority. 10.After giving thoughtful consideration to orders of authorities below. We find that CBDT vide Circular No. 599 dated 24.04.1991 reported in 189 ITR 126 (Stat) has, interalia, issued guidelines, relevant portion read as under:- (i) Whether securities held by banks constitute their stock-in-trade or investment, and consequently whether loss claimed by banks on valuation of their securities should be allowed as deduction in computing their taxable profit? (ii) Whether . matter has been considered by Board and it has been decided that securities must be regarded as stock-in-trade by banks. Therefore, claim of loss, if debited in books of account, would be given same treatment as is normally given to stock-in-trade. 11.A perusal of aforementioned CBDT Circular considered in light of decision of Hon ble Supreme Court in case of UCO Bank and Woodward Governor (supra), we do not find any error or infirmity in 5 ITA No.3027/Ahd/2013 . A.Y. 2010-11 findings of ld. CIT(A). Appeal filed by Revenue is accordingly dismissed. Order pronounced in Open Court on 20 - 10- 2016. Sd/- Sd/- (S. S. GODARA) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad: True Copy Rajesh Copy of Order forwarded to:- 1. Appellant. 2. Respondent. 3. CIT (Appeals) 4. CIT concerned. 5. DR., ITAT, Ahmedabad. 6. Guard File. By ORDER Deputy/Asstt.Registrar ITAT,Ahmedabad Asstt. CIT, B.K. Circle, Palanpur v. Chhapi Nagarik Sahakari Bank Ltd
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