PRINCIPAL COMMISSIONER OF INCOME-TAX-07 V. M/S ORIENTAL BANK OF COMMERCE,

ITA/306/2016

AI Insights

The case involves an appeal by the Principal Commissioner of Income-Tax-07 against the order of the Income Tax Appellate Tribunal (ITAT), which had favored the Oriental Bank of Commerce in three contested issues for the assessment year 2007-08. The first issue was regarding the deletion of the addition related to the claimed loss due to the fall in value of investments held as stock in trade. The ITAT had found that the bank had consistently reflected these investments in its balance sheet and had complied with RBI directions, leading to a mark to market devaluation that was rightly debited to the P&L account. The second issue pertained to the ITAT allowing the bank to raise an additional ground concerning a deduction under Section 36(1)(vii) of the Income Tax Act, which the court found was a pure legal ground already supported by relevant facts on record. The third issue was about the classification of LAN/WAN equipment for depreciation purposes, where the ITAT agreed with the bank's classification as computer peripherals, essential for its network of computers, thus supporting a higher depreciation rate.

• Counselvise Citation: [2016] 140 COUNSELVISE.COM (IT) 744265 (HC-DELHI)
• Appeal Type: Others
• Pronouncement Date: 11-05-2016
• Assessment Year: misc
• Other Referred Cases: Karnataka Bank Ltd. v. Assistant Commissioner of Income Tax [2013] 356 ITR 549 (Kar.), Commissioner of Income Tax v. Bank of Baroda [2003] 262 ITR 334 (Bom), Commissioner of Income Tax v. HDFC Bank Ltd. [2014] 368 ITR 377 (Bom), United Commercial Bank v. Commissioner of Income Tax [1999] 240 ITR 355 (SC), Southern Technologies Ltd v. The Joint Commissioner of Income Tax [2010] 320 ITR 577 (SC), Commissioner of Income Tax v. ING VYSYA Bank Ltd. [2013] 356 ITR 532 (Kar.)
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: DILEEP SHIVPURI; SANJAY KUMAR
• Keywords: Depreciation; Income Tax; Investment; Stock-in-Trade; SLR Securities; Mark to Market Devaluation
• Section: 36(1)(vii)

Judgement Text

"ITA No. 306 of 2016 Page 1 of 4 $~ * IN THE HIGH COURT OF DELHI AT NEW DELHI 1. + ITA 306/2016 PRINCIPAL COMMISSIONER OF INCOME-TAX-07 ..... Appellant Through Mr. Dileep Shivpuri, Sr. Standing Counsel and Mr. Sanjay Kumar, Jr. Standing Counsel versus M/S ORIENTAL BANK OF COMMERCE ..... Respondent Through None CORAM: JUSTICE S. MURALIDHAR JUSTICE VIBHU BAKHRU O R D E R % 11.05.2016 1. This appeal by the Revenue against order dated 4th November, 2015 passed by the Income Tax Appellate Tribunal (‘ITAT’) in ITA No. 1937/Del/2011 and ITA No. 1961/Del/2011 for the assessment year (‘AY’) 2007-08 raises three grounds of challenge. 2. The first ground urged in the appeal is that ITAT has erred in law in deleting the addition pertaining to the claim of loss on account of fall in value of the investment held as stock in trade to the extent of Rs. 205.10 crores. 3. The ITAT found that the Assessee has been consistently reflecting the investment as stock-in-trade in its balance sheet. The ITAT has noted that ITA No. 306 of 2016 Page 2 of 4 the Assessee had in compliance with the direction of the Reserve Bank of India (RBI) transferred SLR securities appreciating to Rs. 1664.32 crores from the 'available for sale' category to the 'held to maturity' category during the AY in question. This resulted in mark to market devaluation of Rs. 205.43 crores which was debited to the P&L account. regarding maintaining a minimum amount of stock as reserve. The AO disallowed this by terming it as a notional and not a real loss. The ITAT disagreed and reversed the AO in light of the legal position explained in the decision of the High Court of Karnataka in Karnataka Bank Ltd. v. Assistant Commissioner of Income Tax [2013] 356 ITR 549 (Kar.) and the decisions High Court of Bombay in Commissioner of Income Tax v. Bank of Baroda [2003] 262 ITR 334 (Bom) and Commissioner of Income Tax v. HDFC Bank Ltd. [2014] 368 ITR 377 (Bom). The ITAT has noted that the above decisions referred to the decisions of the Supreme Court in United Commercial Bank v. Commissioner of Income Tax [1999] 240 ITR 355 (SC) and Southern Technologies Ltd v. The Joint Commissioner of Income Tax [2010] 320 ITR 577 (SC). 4. However, Mr. Shivpuri, learned Senior standing counsel appearing for the Revenue, seeks to place reliance on another decision of High Court of Karnataka in Commissioner of Income Tax v. ING VYSYA Bank Ltd. [2013] 356 ITR 532 (Kar.) where, in the facts of that case it was held that where the Assessee invested in securities for the purpose of complying with RBI instructions, such investments could not be termed as investment in the form of security ready for sale. 5. The Court is not persuaded to concur with the view expressed in ING ITA No. 306 of 2016 Page 3 of 4 VYSYA Bank Ltd. (supra) which appears to have been decided in the peculiar facts of that case. The Court prefers to adopt the reasoning in the decision the Karnataka High Court in Karnataka Bank Ltd. (supra) and the Bombay High Court in HDFC Bank Ltd. (supra). The Court accordingly declines to frame a question on this issue. 6. The second issue urged is that that ITAT ought not to have allowed the Assessee to raise an additional ground regarding the deduction claimed under Section 36(1)(vii) of the Act and ought not to have remanded the said issue to the AO for a fresh determination. 7. Having perused the impugned order, the Court finds that the ITAT accepted the plea of the Assessee that all the relevant facts in this regard were already on record. Only a pure legal ground was being urged on that basis. In the circumstances, the Court declines to frame a question on this issue as well. 8. The last issue urged is that the ITAT erred in deleting the addition on account of excess claim of depreciation on the LAN/WAN equipments. The Assessee claimed depreciation @ 60% by treating them as computer peripherals whereas the AO granted depreciation @ 15% by treating them as plant and machinery. 9. Mr. Shivpuri, urged that the said equipments were not essential for the working of computers in the Assessee's organization and, therefore, could not be treated as computer peripherals. The Court is unable to agree with the above submission. Where the Assessee uses a network of computers for its ITA No. 306 of 2016 Page 4 of 4 business purposes, the LAN/WAN equipment is an essential art of the computer system. The ITAT's view to the above effect cannot be said to be perverse. In the circumstances, the Court declines to frame a question on this issue as well. 10. The appeal is accordingly dismissed. S. MURALIDHAR, J VIBHU BAKHRU, J MAY 11, 2016 SM "