9911796707
|
Home
Issues Involved:
1. Depreciation on stock-in-trade. 2. Reopening of assessment under section 147 of the Income-tax Act, 1961. 3. Treatment of broken period interest. Detailed Analysis: 1. Depreciation on Stock-in-Trade: The Revenue's primary objection was against the CIT (Appeals) deleting depreciation on stock-in-trade, which was disallowed by the Assessing Officer. The Revenue contended that the assessee had changed its method of accounting by revaluing Government securities at market value instead of cost price, which was not permissible. The Revenue relied on the Supreme Court decision in CIT v. British Paints (India) Ltd. and the Calcutta High Court decision in CIT v. UCO Bank to support its position. The CIT (Appeals) held that the Government securities were purchased and sold by the bank as stock-in-trade, relying on the Circular of the Board No. 665, dated 5-10-1993, and various judicial precedents, including the decision of the Karnataka High Court in CIT v. Corporation Bank Ltd. The CIT (Appeals) concluded that the securities held by the bank were stock-in-trade, and the depreciation arising from the fall in market value of these investments should be allowed as a deduction. The Tribunal upheld the CIT (Appeals)'s decision, emphasizing that the assessee's method of accounting was consistent with the guidelines issued by the Reserve Bank of India and the Board's Circular No. 665. The Tribunal also referred to the Supreme Court decision in United Commercial Bank v. CIT, which supported the assessee's method of accounting for stock-in-trade. 2. Reopening of Assessment under Section 147: The assessments for the years 1982-83, 1983-84, and 1984-85 were reopened under section 147 on the ground that income chargeable to tax had escaped assessment due to the allowance of depreciation on investment and broken period interest. The reopening was based on the Supreme Court decision in Vijaya Bank Ltd. v. Addl. CIT, which held that investment in Government securities is a capital outlay. The assessee challenged the reopening, arguing that there was no failure on its part to disclose fully and truly all material facts necessary for the assessment. The CIT (Appeals) upheld the reopening, stating that there was prima facie reason to believe that a deduction was wrongly allowed in the original assessment. The Tribunal, however, held that the reopening was invalid as it was done beyond the stipulated time of four years without any failure on the part of the assessee to disclose material facts. The Tribunal emphasized that reopening based solely on a change in judicial interpretation, without any failure by the assessee, was not permissible after the lapse of four years. 3. Treatment of Broken Period Interest: The Revenue also contended that broken period interest paid on the purchase of Government securities should be treated as capital expenditure and not as revenue expenditure. The CIT (Appeals) disagreed, holding that broken period interest paid for the purchase of securities should be treated as revenue expenditure and allowed as a deduction. The Tribunal upheld the CIT (Appeals)'s decision, relying on the Supreme Court decision in United Commercial Bank and the Kerala High Court decision in South Indian Bank Ltd. The Tribunal noted that investments in Government securities were part of the bank's stock-in-trade, and any expenditure incurred on acquiring these stock-in-trade, including broken period interest, should be treated as revenue expenditure. Conclusion: The Tribunal dismissed the Revenue's appeals and allowed the assessee's cross-objections, holding that: - The investments in Government securities were part of the bank's stock-in-trade, and depreciation on these investments was allowable. - The reopening of assessments under section 147 was invalid as it was based solely on a change in judicial interpretation and was done beyond the stipulated time without any failure on the part of the assessee to disclose material facts. - Broken period interest paid on the purchase of Government securities should be treated as revenue expenditure and allowed as a deduction.
|
