2019 (6) TMI 926 - AT - Income Tax

Reopening of assessment - original assessment u/s 143(3) - addition on account of Depreciation in the value of investment - AO merely give a reason that the closing stock is valued at cost or market whichever is less and the assessee has not filed security wise details of valuation of investments - HELD THAT - This claim of the assessee was made in the regular books of accounts and the claim was also appearing in the audited balance sheet. During the course of assessment proceedings u/s 143(3) on 5.11.2012 a letter was submitted along with necessary evidences to the Ld. DCIT Circle 1(1) Indore in compliance to the notices issued/s 142(1) against specific query raised by the Ld. A.O during the course of assessment proceedings. A.O after considering the submissions of the assessee accepted the claim of diminution in the value of investment at 16, 36, 000/- and accepted the returned income of the assessee vide order u/s 143(3) dated 28.12.12. There remains no doubt that proper disclosure of the claim of depreciation in the form of diminution of value of securities was made by the assessee in the regular return of income specific query was raised by the Ld. A.O for the alleged claim and detailed reply was filed along with necessary evidences in the form of circular issued by RBI and the accounting standards applicable for disclosure of such type of investments. Thus Proviso of Section 147 is not applicable on the assessee and the reopening of the assessment by issuance of notice u/s 148 is bad in law and the assessment made u/s 147 r.w.s. 143(3) dated 13.12.2017 deserves to be quashed. In the result Ground No.1 of the assessee is allowed. Depreciation in the valuation of investment of securities - HELD THAT - We observe that the assessee is engaged in the business of banking and providing credit facilities. As per the guidelines of RBI the assessee is required to invest in securities to be kept as fluid securities and are available for sale and are to valued every month on periodical basis. As per the RBI guidelines circular named classification in valuation of investments dated 26.11.2008 vide instruction No.17/2008 such security are required to be marked to market on the specified dates. Any diminution/increase in the value of the securities on the valuation date are to be debited/credited to Profit Loss Account as depreciation on investment or increment in investment as the case may be. Thus the investment held by the bank are nothing but in the nature of current assets which are regularly valued at the end of the month and diminution/increase in their valuation is booked as expenditure/income Similar issue came up before various judicial forums and we too have adjudicated similar issue in the case of Jhabua Dhar Kshetriya Gramin Bank Jhabua 2018 (9) TMI 533 - ITAT INDORE wherein we have allowed the claim of depreciation of diminution of investment . Thus as in the present case direct the revenue authorities to allow depreciation of diminution in the valuation of investment claimed by the assessee - Decided in favour of assessee.

Summary

Issues Involved:
1. Reopening of Assessment under Section 147 of the Income Tax Act.
2. Disallowance of Depreciation on Investments.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 147 of the Income Tax Act:

The assessee challenged the reopening of the assessment for the Assessment Year 2010-11 under Section 147 of the Income Tax Act, claiming it was beyond the four-year limit and constituted a mere change of opinion. The Tribunal noted that the original assessment was completed with full disclosure of all material facts, including the claim of depreciation on investments, which was supported by RBI guidelines and accounting standards. The Tribunal found that the reopening was based on the same facts already considered in the original assessment, thus constituting a change of opinion. Citing various judicial precedents, the Tribunal held that the reopening was bad in law and quashed the assessment proceedings under Section 147. Consequently, the disallowance of ?16,36,000 towards depreciation on securities was deleted, rendering Ground No.2 infructuous.

2. Disallowance of Depreciation on Investments:

For the Assessment Year 2012-13, the assessee claimed depreciation on investments amounting to ?57,95,185, which was disallowed by the Assessing Officer (AO) on the grounds that security-wise valuation details were not furnished and the basis of valuation was not provided. The CIT(A) upheld the disallowance, stating that the provision for investment fluctuation reserve should be set off against any diminution in the value of investments.

The Tribunal examined the facts and noted that the assessee, engaged in banking, was required to follow RBI guidelines for valuing securities. These securities were periodically marked to market, and any diminution in value was debited to the Profit & Loss Account as depreciation. The Tribunal referred to various judicial precedents, including the decision of the Gujarat High Court in CIT V/s Rajkot Dist. Co-Op Bank Ltd, which supported the assessee's claim for depreciation on investments as per RBI guidelines.

The Tribunal found that the lower authorities erred in disallowing the depreciation and held that the assessee was entitled to the claimed depreciation of ?57,95,185. The Tribunal set aside the orders of the lower authorities and directed the revenue authorities to allow the depreciation claimed by the assessee.

Conclusion:

The appeals for both Assessment Years 2010-11 and 2012-13 were allowed in favor of the assessee. The Tribunal quashed the reopening of the assessment for AY 2010-11 and allowed the depreciation on investments for AY 2012-13, following judicial precedents and RBI guidelines.