2014 (12) TMI 1351 - HC - Income Tax

Government securities allowable deduction - when it as kept under the classification available for sale was not in the nature of stock-in-trade by ignoring the subsequent RBI guidelines - allowing the claim of the assessee without taking into consideration the instructions of the RBI dated 2.9.2003 and the CBDT Circular 665 dated 05.10.1993 which did not contemplate such an allowance? - HELD THAT - This Court had an occasion to consider similar questions in the case of Karnataka Bank Ltd. vs- Assistant Commissioner of Income Tax 2013 (7) TMI 656 - KARNATAKA HIGH COURT assessee has maintained the accounts in terms of the RBI Regulations and he has shown it as investment. But consistently for more than two decades it has been shown has stock-in-trade and depreciation is claimed and allowed. Therefore, notwithstanding that in the balance sheet, it is shown as investment, for the purpose of Income tax Act, it is shown as stock-in-trade. Therefore, the value of the stocks being closely connected with the stock market, at the end of the financial year, while valuing the assets, necessarily the Bank has to take into consideration the market value of the shares. If the market value is less than the cost price, in law, they are entitled to deductions and it cannot be denied by the authorities under the pretext that it is shown as investment in the balance sheet - Decided in favour of the assessee and against the revenue

Summary

Issues:
1. Whether Government securities can be considered as an allowable deduction under the classification 'available for sale' disregarding RBI guidelines?
2. Whether the claim of the assessee was correctly allowed without considering RBI instructions and CBDT Circular?

Analysis:
1. The High Court considered the appeal by the revenue challenging the Tribunal's order granting relief to the assessee. The main issue was whether the Tribunal was correct in allowing the deduction for Government securities of a specific amount under the classification 'available for sale,' despite subsequent RBI guidelines. The Court referred to a previous judgment involving Karnataka Bank Ltd. where it was held that the method of accounting adopted by the taxpayer consistently and regularly cannot be disregarded by tax authorities based on their views on accounting methods or valuation. The Court emphasized that the RBI Act and Companies Act do not dictate permissible deductions under the Income Tax Act. Therefore, the assessee's treatment of investments as stock-in-trade for decades, claiming depreciation, should not be disallowed based on how it is shown in the balance sheet. The Court highlighted that the real income for tax purposes should be disclosed regardless of accounting entries.

2. The Court's decision was influenced by the earlier judgment, which stated that despite the assessee showing investments in the balance sheet, treating them as stock-in-trade for income tax purposes was acceptable. The Court emphasized that the market value of assets, like Government securities, should be considered at the end of the financial year, especially if the market value is less than the cost price. The authorities cannot deny deductions based on how the assets are classified in the balance sheet. The judgment favored the assessee, emphasizing that the approach of tax authorities should be in line with the legal position declared by the Apex Court. Consequently, the substantial questions of law were answered in favor of the assessee, leading to the dismissal of the appeal by the revenue. The order allowed the advocate for the respondent to file necessary documents within a specified timeframe.