INCOME TAX ACT, 1961

Section 37(1)

Business expenditure - Disallowance of deduction claimed on account of diminution in the market value of Government securities classified under the category 'Held to Maturity' - Allowability -

Assessee claimed deduction on account of diminution in value of Government securities--'Held till Maturity'. Such securities were purchased at premium. Assessee separately amortized the premium in profit and loss account. Thereafter, assessee computed difference between the face value of the securities 'Held till Maturity' and their market value as at the year end. Such difference was claimed as deduction in the computation of total income without routing it through profit and loss account. AO did not accept the claim of assessee on the ground that primarily, the securities were in the nature of investments and secondly, the amount was not debited to the profit and loss account. He therefore, made the disallowance. Held: The essence of matter was to examine as to whether a particular expenditure/loss was deductible and not whether the same is recorded in the books of account. If a particular amount is deductible as per law, the same has to be allowed as deduction irrespective of the fact that it was not recorded in the books of account. It was further noticed that assessee did not record such diminution of value of securities in its books of account so as to satisfy the RBI norms, which provide for valuing the securities as such without any diminution in their value at the year end. RBI guidelines mandate reflection of certain transactions in a certain way and do not supersede the taxing principles. Thus, ground of appeal was allowed.

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2012-13

INCOME TAX ACT, 1961

Section 36(1)(viia)

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