2020 (1) TMI 1685 - AT - Income Tax

Loss on account of deterioration of value on Govt. Security kept with the Bank - Depreciation on value of Government Securities as same is Stock-in-trade and valued at cost or market price whichever is lower - HELD THAT - Assessee is a Co.op. Bank and as per mandate assessee has to keep certain investment with itself in order to maintain Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR) if any loss or deterioration is caused to the value of stock, it is charged to profit and loss account. In our considered opinion, same is allowable as deduction u/s. 37 as Govt. Securities are part of liquid assets, stock in trade. We draw support from a case in the matter of Pr. CIT, Patiala vs. State Bank of Patiala 2017 (2) TMI 125 - PUNJAB AND HARYANA HIGH COURT where in similar facts and circumstances, relief was granted to the assessee. Law is well settled that the Securities held by the Bank are in the nature of stock-in-trade. In view of the above, we direct A.O. to deleted addition as claimed by the assessee. Appeal filed by the Assessee is allowed.

Summary

Issues:
- Justification of confirming addition claimed as depreciation on Government Securities
- Failure to consider relevant judgment in the case
- Allowability of the claim for deduction on the deterioration of value of Government Securities

Analysis:
1. The appeal was filed by the Assessee against the order confirming the addition of Rs. 2,44,325 claimed as depreciation on Government Securities. The Assessee argued that the securities were stock-in-trade and should be valued at cost or market price, whichever is lower. The contention was that the depreciation on Government Securities was a systematic allocation of deterioration in value over its useful life, not as contemplated in section 32 of the Act.

2. The Assessee further argued that as per the Banking Regulation Act, every bank is required to invest in Government Securities to maintain reserve ratios. However, the Assessing Officer (A.O.) rejected the claim, stating that investments made to preserve Statutory Liquidity Ratio (SLR) are low interest bearing, with negligible cost value deterioration. The A.O. disallowed the claim, leading to the first statutory appeal before the Commissioner of Income Tax (Appeals) who upheld the A.O.'s decision.

3. The Appellate Tribunal, after reviewing the relevant records and orders, found that the Assessee, being a Co-operative Bank, had to maintain certain investments to comply with SLR and CRR requirements. Considering Government Securities as part of liquid assets and stock-in-trade, the Tribunal allowed the deduction under section 37. The Tribunal cited precedents from Punjab and Haryana High Court and ITAT Pune Bench to support its decision, emphasizing that securities held by banks are akin to stock-in-trade.

4. Consequently, the Tribunal directed the A.O. to delete the addition of Rs. 2,44,325 claimed by the Assessee, thereby allowing the appeal filed by the Assessee. The judgment highlighted the specific nature of Government Securities for banks and the method of valuation followed by banking institutions, ultimately supporting the Assessee's claim for deduction based on the deterioration of the securities' value.