INCOME TAX ACT, 1961

Section 37(1)

Business expenditure - Depreciation on conversion of securities classified as held to maturity (HTM) to those classified as available for sale (AFS) - Assessee was a cooperative society engaged in banking business -

Assessee, a cooperative society engaged in banking business claimed depreciation on conversion of securities classified as held to maturity (HTM) to those classified as available for sale (AFS). The same was disallowed by AO primarily for the reason that the Held to Maturity securities were capital assets and the loss, therefore, was capital in nature and there was no specific provisions under the IT Act allowing such loss in the case of assessee. Held: Assessee had converted held to maturity securities to available for sale securities which resulted in depreciation of their value to the extent of Rs. 9,07,85,000. Clearly this conversion and its valuation was in accordance with the guidelines issued by the RBI as reproduced above for Co-operative Banks. The said guidelines also required full provision to be made for the depreciation so effected. The said valuation is approved by the income computation and disclosure standard issued under the Act which though applicable from assessment year 2017-18 is still reflective of the position of the department/revenue in this regard. The activity of investments by banks being accepted by AO as its business activity and claim of assessee to depreciation in value on conversion of held to maturity securities to available for sale securities, being in accordance with RBI guidelines in this regard and even the Accounting Standards recommended under the Act, the claim was allowable for the purposes of computing its business income.

REFERRED :

FAVOUR : Inassessee's favour.

A.Y. : 2010-11

INCOMET TAX ACT, 1961

Section 4

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