2017 (5) TMI 1149 - AT - Income Tax

Disallowance of devaluation of investment in Govt.Securities - Held that - We do not find any merit in the action of lower authorities for disallowing loss arose on the year end revaluation of securities. Our view is supported by decision of Hon ble Bombay High Court in the case of CIT vs. HDFC Bank Ltd. (2014 (8) TMI 119 - BOMBAY HIGH COURT ). The loss claimed by the assessee bank is revenue in character and an allowable business loss. - Decided in favour of assessee

Summary

Issues Involved:
1. Disallowance of mark to market loss on government securities for AY 2009-10.
2. Disallowance of mark to market loss and bad debts on government securities for AY 2010-11.

Issue 1: Disallowance of mark to market loss on government securities for AY 2009-10:
The appellant, engaged in banking activities, claimed a loss of &8377; 37,08,022 on devaluation of government securities. The Assessing Officer (AO) disallowed the claim, stating it was of a contingent nature and would only occur upon transfer of investments. The CIT(A) upheld the AO's decision based on a previous year's case. The appellant argued that the loss was permissible as per RBI guidelines and CBDT instructions. The Revenue contended that government securities were capital assets, and depreciation due to diminution was not a revenue loss. The Tribunal referred to various precedents and held that the loss claimed by the appellant was revenue in character and allowable as a business loss, thereby allowing the appeal.

Issue 2: Disallowance of mark to market loss and bad debts on government securities for AY 2010-11:
The grounds of appeal raised by the Assessee were similar to the previous year's case for AY 2009-10. The Tribunal found the issues identical to the earlier year and applied the decision made for AY 2009-10 mutatis mutandis to the appeal for AY 2010-11. Consequently, both appeals of the assessee were allowed.

In conclusion, the Appellate Tribunal ITAT Ahmedabad ruled in favor of the appellant for both AY 2009-10 and AY 2010-11 concerning the disallowance of mark to market loss on government securities. The Tribunal held that the loss claimed was revenue in character and allowable as a business loss, based on RBI guidelines, CBDT instructions, and relevant judicial precedents.