Loss Due To Sale Of Government Securities By Bank Is “Business Loss”; ITAT Allows Income Tax Deduction

The Ahmedabad Bench of Income Tax Appellate Tribunal (ITAT) has held that loss due to the sale of government securities by banks is a “business loss” and the income tax deduction is allowable under Section 37 of the Income Tax Act.

The bench of T.R. Senthil Kumar (Judicial Member) and Narendra Prasad Sinha (Accountant Member) have observed that the depreciation of government securities was a deterioration in the value of security. In essence, this was a loss claimed on the valuation of the security. As clarified by the CBDT in Circular No. 599, the loss claimed by the banks on the valuation of their securities was a business loss and an allowable deduction.

The appellant/assessee is in the business of banking activity. The AO initiated proceedings under Section 147, and the assessment was completed. The case was reopened for the reason that the assessee had claimed a loss on the sale of government securities in the P&L account, and according to the AO, such expenditures can be set off only against similar capital gains. The assessee had claimed depreciation on government securities, and as per the reason recorded by the AO, the claim of depreciation was admissible only in respect of business assets. The loss on sale of government securities was disallowed in the re-assessment proceeding, which was upheld by the CIT (A).

The appellant contended that the loss on sale of government securities was part of the business activity of the bank, irrespective of its classification under the guidelines of the Reserve Bank of India, and such business loss was allowable under the provisions of the Income Tax Act.

The department contended that the assessee had no stock-in-trade in the balance sheet and the “Central and State Government Securities” were appearing under the heading 'Investments'. Therefore, the loss on investments was rightly treated as capital loss by the AO, which has been correctly confirmed by the CIT (A).

The tribunal noted that merely because they were shown as investments in the balance sheet, they do not become capital assets, as the buying and selling of securities, including government securities, is part of the business activity of the assessee company.

The ITAT held that the depreciation on government securities claimed by the assessee bank is allowable as a deduction.

Counsel For Appellant: Rahul Patel

Counsel For Respondent: V. K. Mangla

Case Title: Kankaria Maninagar Nagarik Sahakari Bank Ltd. Versus Deputy Commissioner of Income Tax

Case No.: I.T.A. Nos. 2349 & 2350/Ahd/2018

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