2011 (5) TMI 942 - AT - Income Tax

Tribunal Upholds Bank's Depreciation Claim & Expenditure Deletion

The Tribunal dismissed the Revenue's appeal against the Commissioner of Income-tax (A)'s decisions regarding depreciation of the investment portfolio and ... - Issues involved: Appeal by Revenue for assessment year 2007-08 against Commissioner of Income-tax (A) order; Two issues for adjudication: (1) Depreciation of valuation of investment portfolio; (2) Deletion of addition of Rs. 31,82,49,475 being expenditure related to exempt income.Depreciation of Valuation of Investment Portfolio: The Revenue challenged the allowance of depreciation on valuation of investment portfolio treated as stock-in-trade by the bank. The Assessing Officer disallowed Rs. 292,77,56,969 under 'investment portfolio' as bank treated entire portfolio as stock-in-trade, not in line with RBI guidelines. The CBDT Circular No.665 directs adherence to RBI guidelines for valuation. The Commissioner of Income-tax (A) deleted the disallowance based on ITAT's decision for assessment year 2004-05, holding bank entitled to value investments at cost prices or market value, deleting Rs. 5,21,96,537 disallowance. The Tribunal upheld this decision, citing the United Commercial Bank case and dismissing Revenue's appeal.Deletion of Addition of Expenditure Relating to Exempt Income: The bank claimed Rs. 32,74,96,281 income exempt from tax, including interest on tax-free bonds and dividends. The Assessing Officer added Rs. 31,82,49,475 as expenditure incurred on earning exempt income. The Commissioner of Income-tax (A) deleted this addition, following ITAT decisions and holding Rule 8D prospective from assessment year 2008-09. The Tribunal upheld this decision, noting the bank's voluntary 5% disallowance and dismissing Revenue's appeal.In conclusion, the Tribunal dismissed the Revenue's appeal on both issues, upholding the Commissioner of Income-tax (A)'s decisions based on ITAT precedents and legal interpretations.