2015 (6) TMI 311 - AT - Income Tax

Disallowance of provision for depreciation on government securities - CIT(A) deleted the addition - Held that - Hon ble Mumbai High court in case of CIT vs Bank of Baroda (2003 (3) TMI 80 - BOMBAY High Court) has held that Depredation in value of investment held by bank was allowable as deduction more so when the loss was debited to P&L A/c which was reflected as provision for liability in the balance sheet and the share and securities were valued at cost on the asset side Similar view has been taken in case of CIT vs Nedungadi Bank Ltd (2002 (11) TMI 29 - KERALA High Court). Therefore, depreciation in value was allowable even if specific instructions of the board were not there. Circular and instruction of the CBDT being squarely applicable on facts of assessee s case, so CIT(A) was justified in allowing the same which needs no interference from our side. - Decided in favour of assesse. Disallowance of provision for bad debts - CIT(A) deleted the addition - held that - It is proposed to amend the Explanation to the said item (fa) in view of the amendment to the definition of scheduled bank as given in the explanation to clause (viia) of sub-section 36 which excludes co-operative bank from purview of the said definition. This amendment is of consequential nature. This amendment will take effect retrospectively from 1st April, 2007 and will, accordingly, apply in relation to the assessment year 2007-08 and subsequent years. In view of this, no ambiguity remains on the issue and assessee had justified the computation of allowable deduction. In view of above, CIT(A) was justified in deleting the disallowance of the claim made u/s.36(1)(viia) - Decided in favour of assesse.

Summary

Issues involved:
1. Disallowance of provision for depreciation on government securities.
2. Disallowance of provision for bad debts under section 36(1)(viia).

Detailed Analysis:
1. Disallowance of provision for depreciation on government securities:
The appeal was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) concerning the disallowance of a provision for depreciation on government securities. The assessing officer disallowed the provision on the grounds that all provisions debited in the profit and loss account must be added back to the total income as per the Income Tax Act. The First Appellate Authority found that the bank correctly followed the guidelines issued by the Reserve Bank of India for the classification and valuation of investments. The bank regularly valued government securities held as Available for Sale (AFS) on a mark-to-market basis, which was verified and certified by the Reserve Bank of India. The CIT(A) allowed the claim of the assessee based on the regularly followed accounting method and various judicial pronouncements supporting the claim. The Tribunal upheld the CIT(A)'s decision, stating that the claim was allowable as per circulars and instructions, and there was no need for interference.

2. Disallowance of provision for bad debts under section 36(1)(viia):
The assessing officer disallowed the claim under section 36(1)(viia) in respect of provision for bad debts made by the Co-operative Bank for the assessment year 2007-08. The First Appellate Authority observed that the amendment making the provision applicable to Co-operative banks was effective from 01.04.2007 and not from the subsequent year as held by the assessing officer. The CIT(A) justified the deletion of the disallowance, stating that the amendment was substantive and applicable from the relevant assessment year. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had justified the computation of the allowable deduction and there was no ambiguity on the issue.

In conclusion, the Tribunal dismissed the appeal filed by the Revenue, upholding the decisions of the CIT(A) on both issues.