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2017 (10) TMI 477 - AT - Income TaxValidity of Order u/s. 263 - Treating the loss as a notional loss - Held that - 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 - See CIT Vs. HDFC Bank Ltd. 2014 (7) TMI 724 - BOMBAY HIGH COURT The claim of the assessee for loss on the transfer of securities from the category Available for Sale to Held to Maturity is an allowable deduction we find merit in the contention of the assessee/appellant. Since the loss in question is allowable the Ld. CIT has no jurisdiction to exercise the powers under section 263 of the Act. We accordingly set aside the impugned order passed by the Ld. CIT u/s 263 of the Act as bad in law - Decided in favour of assessee.
Issues Involved:
1. Validity of Order u/s. 263 2. Treating the loss as a notional loss Issue 1: Validity of Order u/s. 263: The assessee appealed against the order passed by the Commissioner of Income Tax (CIT) setting aside the assessment order for the assessment year 2010-11 under section 263 of the Income Tax Act, 1961. The CIT observed that the assessee had debited a substantial amount on account of loss due to shifting of securities, which the CIT deemed as notional loss not arising from actual transactions. The assessee contended that the order passed by the Assessing Officer was not erroneous or prejudicial to the interest of revenue. The Hon'ble Bombay High Court's judgment in a similar case involving HDFC Bank was cited by the assessee to support their claim that such losses were allowable deductions. The High Court upheld the assessee's claim, emphasizing that the loss on transfer of securities was an allowable deduction. The ITAT Mumbai Bench also supported this view, setting aside the revisional order passed by the CIT. Consequently, the ITAT allowed the appeal of the assessee, highlighting that the loss claimed was permissible and the CIT's order under section 263 was unjustified. The appeal was allowed, emphasizing that the loss was allowable, rendering the CIT's exercise of power under section 263 invalid. Issue 2: Treating the loss as a notional loss: The second issue revolved around the treatment of the loss of a specific amount debited by the assessee to its Profit and Loss Account as a notional loss. The CIT directed the Assessing Officer to redo the assessment, considering this loss as not allowable. The Departmental Representative supported the CIT's decision, arguing that the loss was notional and should not be allowed. However, the assessee relied on the judgment of the Hon'ble Bombay High Court in the HDFC Bank case, where a similar loss was considered an allowable deduction. The High Court's decision favored the assessee, stating that the loss on transfer of securities was indeed an allowable deduction. Given the precedent set by the High Court and the ITAT's decision in a similar case, the ITAT allowed the appeal, emphasizing that the loss was permissible and should be considered while computing the total income. As a result, the impugned order was set aside, and the appeal filed by the assessee for the assessment year 2010-2011 was allowed. This detailed analysis of the judgment highlights the issues of validity of the order under section 263 and the treatment of the loss as a notional loss, showcasing the legal arguments, precedents, and decisions that led to the final outcome in favor of the assessee.
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