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2007 (2) TMI 187 - HC - Income TaxClaim for bad debts written off - advances made by rural branches - HELD THAT - CIT (A) as well as the Tribunal, were of the firm opinion that the assessee has not claimed any debts written off in respect of rural branch in the earlier year. If that be so, we find no error in the order of the Tribunal in holding that the claim of bad debts in relation to non-rural branches of the assessee-bank is allowable. Accordingly, this issue is answered in favour of the assessee and against the Revenue. Appeals are dismissed
Issues:
1. Assessment of interest on securities based on accrual basis. 2. Allowability of bad debts in relation to non-rural branches. 3. Reduction claimed for diminution in the value of investments. Issue 1: Assessment of Interest on Securities The Assessing Officer included interest on securities on an accrual basis for computing total income, as the assessee followed accrual basis for recording interest. However, the Division Bench of the High Court held that interest on securities should be taxed only on specified due dates as per the third proviso to section 145(1) of the Act. This decision was based on previous judgments and the method of accounting regularly employed by the assessee. Issue 2: Allowability of Bad Debts Regarding bad debts, the Assessing Officer disallowed the claim exceeding the provision under section 36(1)(viia) without distinguishing between urban and rural branches. The Commissioner of Income-tax and the Tribunal allowed the claim for bad debts written off in relation to non-rural branches, as no debts written off for rural branches were claimed earlier. The decision was supported by a judgment emphasizing the legislative intent to prevent double benefits for scheduled banks. Issue 3: Reduction Claimed for Diminution in Investments The Assessing Officer rejected the claim for diminution in the value of investments due to a pending reference application. However, the Tribunal allowed the claim, stating that changes in market value could be considered as depreciation. The High Court upheld this decision, citing precedent that allows changing the method of valuation for government securities to market value and claiming depreciation on the difference. In conclusion, the High Court dismissed the appeals, upholding the decisions in favor of the assessee on all three issues. The judgment provided detailed reasoning based on legal provisions, previous judgments, and established principles in tax law.
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