TaxTMI Login
Just a moment...
Press 'Enter' to add multiple search terms. Rules for Better Search
When case Id is present, search is done only for this
of 
of 
No Folders have been created
Are you sure you want to delete "My most important" ?
NOTE:
of of 
All Case Laws
of of All Case Laws
Note
Bookmark
Share
Don't have an account? Register Here
of <h1>Assessee's Appeal Partly Allowed: Loss Disallowed Due to Pending Appeal & Settlement Timing</h1> <h3>State Bank Of Saurashtra. Versus Deputy Commissioner Of Income-Tax.</h3> The appeal by the assessee, a Scheduled Bank, was partly allowed. The disallowance of loss arising from security transactions with Punjab National Bank ... Business Expenditure Issues Involved:1. Disallowance of loss arising from security transactions with Punjab National Bank (PNB) and State Bank of Patiala (SBP).2. Whether the transactions are speculative in nature u/s 43(5) of the Act.3. Whether the transactions are illegal/not in accordance with law and therefore loss arising from such transactions is not allowable in accordance with Explanation to section 37(1) of the I.T. Act.4. Levy of interest u/s 234B.5. Allowance of depreciation on securities treating them as stock-in-trade.6. Disallowance of interest on the ground that interest-bearing funds have been transferred to non-business purposes.Summary:1. Disallowance of Loss Arising from Security Transactions:The assessee, a Scheduled Bank, claimed a loss of Rs. 288,07,38,158 due to security transactions with PNB and SBP. The loss with PNB was Rs. 243.21 crores, which arose due to a judgment and decree dated 11-3-1996 by the Special Court. The assessee admitted liability of Rs. 182 crores but disputed the remaining Rs. 61.23 crores. The CIT(A) upheld the disallowance, stating the liability was contingent as the appeal was pending before the Supreme Court. For SBP, the loss of Rs. 44.85 crores was claimed due to non-delivery of securities, settled in March 1996. The CIT(A) found the settlement occurred after the financial year, thus disallowing the claim.2. Speculative Nature of Transactions:The CIT(A) concluded that the transactions were not speculative u/s 43(5) of the Act. The transactions were intended for delivery, but due to breach, damages were awarded. The Supreme Court in Shantilal (P.) Ltd. held that a breach of contract resulting in damages is not a speculative transaction.3. Legality of Transactions:The CIT(A) held that the transactions were not illegal and thus not hit by Explanation to section 37(1). The Special Court did not declare the transactions illegal, and the Jankiraman Committee pointed out irregularities but did not term them illegal. The Supreme Court in BOI Finance Ltd. held that ready forward contracts are not invalidated by RBI's prohibition on buy-back arrangements.4. Levy of Interest u/s 234B:The issue of interest u/s 234B was remanded to the CIT(A) for a decision, as there was no discussion on this issue in the CIT(A)'s order.5. Depreciation on Securities:The CIT(A) allowed the claim of depreciation on securities, treating them as stock-in-trade. The bank consistently followed this method since 1977-78, and the Department accepted it in several years. The securities are required as per RBI guidelines and are closely connected with the banking business.6. Disallowance of Interest:The CIT(A) deleted the disallowance of interest of Rs. 20.20 crores, stating that the transactions were in the normal course of business and there was no direct nexus between borrowed funds and funds utilized for security transactions.Conclusion:The assessee's appeal was partly allowed, and the Revenue's appeal and cross objection were dismissed. The transactions were not speculative or illegal, and the loss was partly allowed. The issue of interest u/s 234B was remanded for a decision. The claim of depreciation on securities was upheld, and the disallowance of interest was deleted.
TaxTMI 
TaxTMI 
