TaxTMI 
TaxTMI 
2015 (12) TMI 1420
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.... 58,31,581/-? 2. Whether on the facts and circumstances of the case and in law the Tribunal was right in upholding the depreciation claimed by the assessee at Rs. 17,59,00,087/- on investments on government securities "held to maturity" when such securities were held as a investments and not as 'stock-in-trade'? 3. Briefly stated the facts of the case are, assessee is a Regional Rural Bank registered under the Schedule of Reserve Bank of India. It caters to the needs of Agricultural and Cottage Industry sectors. It makes investment in Government and other securities. For the assessment year 2007-08, assessee declared a taxable income of Rs. 94,26,91,495/-. Assessment was completed and an income of Rs. 112,45,33,700/- was assessed against the returned income of Rs. 94,26,91,495/- by disallowing Rs. 17,59,00,087/- claimed towards depreciation on investment; Rs. 87,224/- claimed under Section 14A; Rs. 23,040/- towards Commission on Locker Rent; and Rs. 58,31,851/- towards Stale Drafts and Pay Orders. 4. For the assessment year 2008-09, the assessee filed it's income declaring an income of Rs. 93,25,06,010/- as per revised return. Assessment for the said peri....
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....,31,851/- added by the assessing authority under Section 41(1) of the Act. He strenuously contended that admittedly, the said amount came into the hands of the assessee as the purchasers of DD/Pay Orders had not claimed/encashed them. Therefore, the assessing authority was right in coming to the conclusion that the said amount which remained unclaimed in the hands of the assessee was 'profit' chargeable to tax under Section 41(1) of the Act. He further contended that the Tribunal misguided itself by placing reliance on the Judgments rendered by Co-ordinate Benches of the Tribunal in the case of Canara Bank (ITA No.390/BANG/2011 dated 8.6.2012) and Vijaya Bank (ITA No.455/BANG/2011 dated 22.6.2012). He further contended that the Judgments of the Tribunal on this issue are unsustainable in law in as much as, on the face of it, the unclaimed amount had remained in the hands of the assessee and chargeable to tax under Section 41(1) of the Act. 11. In support of the second question of law, namely, the depreciation on Investments in Government Securities "held to maturity", learned Counsel for the Revenue contended that the Tribunal grossly erred in rejecting it's appeal b....
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....ted that the amount which remained in the hands of the Bank pursuant to a draft or a pay order becoming stale is not an income in the hands of the assessee. He adverted to Section 41(1) of the Act and contended that by no stretch of imagination, the amount which had remained in the hands of the assessee could be considered to fall within the definition of 'profit chargeable to tax' under the said provision. According to him, the said amount is a liability which the Bank will have to discharge as and when a claim is lodged by the holder/payee of a draft/pay order. The amount held by the assessee is governed by the guidelines issued by the RBI in that behalf. The sum and substance of his argument is that the amount which had remained in the Bank pursuant to a draft/pay order becoming stale cannot be construed as 'profit chargeable to tax'. In support of his contentions, he placed reliance on the judgment of the Hon'ble Supreme Court in the case of Commissioner of Income Tax v. T.V. Sundaram Iyengar & Sons Limited reported in (1996) 222 ITR 344 . 15. With regard to the second question of law namely, the depreciation claimed in respect of the investments in Gover....
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....ability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or (b) the successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-metnioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year." 18. A careful perusal of the above provision leads us to infer that Section 41(1) can be pressed into service when an allowance or deduction is sought to be made in respect of loss, expenditure or trading liabilit....
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....e assessee was valuing the stock-in-trade at cost for the purpose of statutory balance sheet, and for the income-tax return, valuation was at cost or market value, whichever was lower. That practice was accepted by the Department and there was no justifiable reason for not accepting the same. Preparation of the balance-sheet in accordance with the statutory provision would not disentitle the assessee in submitting the income-tax return on the real taxable income in accordance with the method of accounting adopted by the assessee consistently and regularly. That cannot be dis-carded by the departmental authorities on the ground that the assessee was maintaining the balancesheet in the statutory form on the basis of the cost of the investments. In such cases, there is no question of following two different methods for valuing its stock-intrade (investments) because the bank was required to prepare the balance-sheet in the prescribed form and it had no option to change it. For the purpose of income-tax as stated earlier, what is to be taxed is the real income which is to be deduced on the basis of the accounting system regularly maintained by the assessee and that was done by the asse....