2012 (8) TMI 1243 - AT - Income Tax

Tribunal Affirms Deletion of Depreciation Loss Addition for Cooperative Bank; 21-Day Delay Deemed Insignificant

The Tribunal upheld the decision of the Commissioner of Income-tax (Appeals) to delete the addition related to the depreciation loss on investments by a ... Classification/recategorization of investments - shifting investments to/from Held to Maturity (HTM) category - requirement of Board approval - RBI circular permitting shifting normally at beginning of accounting year - reasonableness of delay / permissibility of short delay in procedural compliance - disallowance of depreciation on investments for procedural non-complianceShifting investments to/from Held to Maturity (HTM) category - RBI circular permitting shifting normally at beginning of accounting year - requirement of Board approval - reasonableness of delay / permissibility of short delay in procedural compliance - disallowance of depreciation on investments for procedural non-compliance - Whether the Assessing Officer was justified in disallowing the depreciation loss on investments on the ground that the Board's approval for reclassification was obtained 21 days after the beginning of the accounting year - HELD THAT: - The Tribunal examined the RBI circular which states that shifting of investments to/from the HTM category may normally be allowed at the beginning of the accounting year and requires Board approval. The word 'normally' in the circular concedes that some delay may occur for obtaining Board approval. The assessee obtained Board approval on 21.04.2006, within the first month of the accounting year; the Tribunal found a 21-day delay not to be substantial. The Assessing Officer's disallowance was based solely on this short delay and did not question the propriety of the securities' categorization itself. Given that the decision to reclassify was taken in the first month and the delay was minimal and explicable, the Tribunal held that the Assessing Officer was not justified in disallowing the depreciation and that the Commissioner (Appeals) was correct in deleting the addition. [Paras 3, 5]The disallowance of depreciation on account of the 21-day delay in Board approval is not justified; CIT(A)'s deletion of the addition is upheld and the Assessing Officer's order is set aside.Final Conclusion: The Revenue's appeal is dismissed and the order of the Commissioner of Income-tax (Appeals) deleting the addition is upheld; the assessee's cross-objection is rendered infructuous. The case involves an appeal by the Revenue regarding the deletion of an addition for loss incurred due to depreciation in the value of investments by a cooperative bank. The Assessing Officer disallowed the deduction due to a delay of 21 days in obtaining approval for shifting investments, which was challenged before the Commissioner of Income-tax (Appeals) and subsequently before the Appellate Tribunal. The Tribunal held that the delay of 21 days out of 365 days was normal and not substantial, and thus the disallowance was not justified. The Tribunal upheld the decision of the Commissioner of Income-tax (Appeals) to delete the addition. The Tribunal dismissed both the Revenue's appeal and the cross objection filed by the assessee in support of the Commissioner's decision.