2023 (1) TMI 291 - HC - Income Tax

Unrealized gains on revaluation of forward contracts as the bank accounts - whether Tribunal is right in law in setting aside claim of assessee relating to unrealized gains on revaluation of forward contracts as the bank accounts were admittedly prepared on accrual basis and revenue was recognized following mercantile method except for certain items which were accounted on cash basis? - depreciation in value of investment in HTM Securities - disallowances made u/s 36(1) (viia) - disallowance made u/s 14A - disallowances on account of AFS and HFT category of investments by relying upon the decisions which has not reached finality and even when the assessing authority rightly disallowed the depreciation on investment of Available for Sale (AFS) and held for trading (HFT) category investment and added to the taxable income - HELD THAT - As submitted that in view of the disposal of 2023 (1) TMI 243 - KARNATAKA HIGH COURT these two appeals do not survive for consideration. He further submitted that the Revenue has filed these two appeals challenging the findings recorded by the ITAT, Income Tax Appellate Tribunal in Revenue's appeals and those issues were not under consideration before the ITAT. Therefore, these appeals are superfluous and unnecessary. The said submission is not opposed by Shri K.V.Aravind, learned Senior Standing Counsel.

Issues:
1. Unrealized gains on revaluation of forward contracts
2. Depreciation in value of investment in HTM Securities
3. Disallowances made under section 36(1)(viia) of the Act
4. Disallowance made under section 14A of the Act
5. Disallowances on account of AFS and HFT category of investments

Unrealized Gains on Revaluation of Forward Contracts:
The High Court considered the issue of unrealized gains on revaluation of forward contracts. The Tribunal had set aside the claim of the assessee related to these gains, citing that bank accounts were prepared on an accrual basis and revenue was recognized following the mercantile method. The Court analyzed whether the Tribunal was correct in law to reject the claim, especially when the bank accounts were prepared on an accrual basis. The Tribunal's decision was upheld, emphasizing the method of revenue recognition followed by the bank.

Depreciation in Value of Investment in HTM Securities:
Another issue addressed was the allowance of depreciation in the value of investment in HTM Securities. The Tribunal had allowed the depreciation, ignoring the fact that the securities were treated as stock-in-trade by the assessee-bank. The Court examined whether the Tribunal was correct in law to permit the depreciation on these securities, despite them being considered as stock-in-trade by the bank. The Court's decision was not explicitly mentioned in the summary provided.

Disallowances Made Under Section 36(1)(viia) of the Act:
The Court also deliberated on the disallowances made under section 36(1)(viia) of the Act. The assessing authority had disallowed these claims based on an earlier judgment, even though it had not reached finality. The Court assessed whether the Tribunal was correct in law to set aside these disallowances, especially when the judgment relied upon by the assessing authority was not finalized. The Court's decision was not explicitly mentioned in the summary provided.

Disallowance Made Under Section 14A of the Act:
Furthermore, the issue of disallowance made under section 14A of the Act was examined. The Tribunal had deleted this disallowance, even though the conditions for invoking the provisions were fully satisfied in the case of the assessee. The Court considered whether the Tribunal was correct in law to remove this disallowance, despite the fulfillment of conditions for invoking the provisions. The Court's decision was not explicitly mentioned in the summary provided.

Disallowances on Account of AFS and HFT Category of Investments:
Lastly, the Court analyzed the disallowances on account of Available for Sale (AFS) and Held for Trading (HFT) category of investments. The assessing authority had disallowed the depreciation on these investments and added them to the taxable income. The Tribunal, however, set aside these disallowances based on decisions that had not reached finality. The Court reviewed whether the Tribunal was correct in law to reject the assessing authority's disallowances on these investments. The Court's decision was not explicitly mentioned in the summary provided.

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