2016 (5) TMI 1514 - HC - Income Tax

Loss on account of fall in value of the investment held as stock in trade - ITAT deleted the addition - HELD THAT - The Court is not persuaded to concur with the view expressed in ING VYSYA Bank Ltd. 2013 (6) TMI 43 - KARNATAKA HIGH COURT which appears to have been decided in the peculiar facts of that case. The Court prefers to adopt the reasoning in the decision in Karnataka Bank Ltd. 2013 (7) TMI 656 - KARNATAKA HIGH COURT and HDFC Bank Ltd. 2014 (7) TMI 724 - BOMBAY HIGH COURT . The Court accordingly declines to frame a question on this issue. Deduction claimed under Section 36(1)(vii) - ITAT allowed the Assessee to raise an additional ground AND remanded the said issue to the AO for a fresh determination - HELD THAT - Having perused the impugned order, the Court finds that the ITAT accepted the plea of the Assessee that all the relevant facts in this regard were already on record. Only a pure legal ground was being urged on that basis. In the circumstances, the Court declines to frame a question on this issue as well. Addition on account of excess claim of depreciation on the LAN/WAN equipments - Assessee claimed depreciation @ 60% by treating them as computer peripherals whereas the AO granted depreciation @ 15% by treating them as plant and machinery - HELD THAT - As urged that the said equipments were not essential for the working of computers in the Assessee's organization and, therefore, could not be treated as computer peripherals. The Court is unable to agree with the above submission. Where the Assessee uses a network of computers for its business purposes, the LAN/WAN equipment is an essential art of the computer system. The ITAT's view to the above effect cannot be said to be perverse. In the circumstances, the Court declines to frame a question on this issue as well.

Summary

Issues:
1. Addition pertaining to loss on account of fall in value of investment held as stock in trade.
2. Allowing the Assessee to raise an additional ground regarding deduction claimed under Section 36(1)(vii) and remanding the issue to the AO.
3. Deletion of addition on account of excess claim of depreciation on LAN/WAN equipments.

Analysis:

Issue 1:
The first ground of challenge in the appeal was the deletion of the addition pertaining to the claim of loss on account of a fall in the value of the investment held as stock in trade. The ITAT noted that the Assessee consistently reflected the investment as stock-in-trade in its balance sheet. The Assessee transferred SLR securities from the 'available for sale' category to the 'held to maturity' category as per RBI directions, resulting in mark to market devaluation. The AO disallowed this as a notional loss, but the ITAT disagreed citing legal positions from various High Court and Supreme Court decisions. The Court declined to frame a question on this issue, disagreeing with the view expressed in a specific High Court decision.

Issue 2:
The second issue raised was regarding the ITAT allowing the Assessee to raise an additional ground on the deduction claimed under Section 36(1)(vii) and remanding the issue to the AO. The Court found that all relevant facts were on record, and only a legal ground was being urged. Consequently, the Court declined to frame a question on this issue, upholding the ITAT's decision.

Issue 3:
The last issue pertained to the deletion of the addition on account of an excess claim of depreciation on LAN/WAN equipments. The Assessee claimed depreciation at 60% as computer peripherals, while the AO granted 15% as plant and machinery. The Court disagreed with the Revenue's argument that the equipments were not essential for the working of computers, stating that LAN/WAN equipment is crucial for a computer system when used in a business context. The Court found the ITAT's view reasonable and declined to frame a question on this issue.

In conclusion, the appeal by the Revenue was dismissed by the Court, upholding the decisions of the ITAT on all three grounds of challenge.