CIT vs. HDFC Bank Ltd (Bombay High Court)

DATE: (Date of pronouncement)
DATE: July 22, 2014 (Date of publication)

Click here to download the judgement (HDFC_Bank_notional_loss.pdf)

Loss on account of depreciation in value of securities held as stock is not notional & is allowable as a deduction

A method of accounting adopted by the taxpayer consistently and regularly cannot be discarded by the Departmental authorities on the view that he should have adopted a different method of keeping the accounts or on valuation. Financial institutions like bank, are expected to maintain accounts in terms of the RBI Act and its regulations. The form in which, accounts have to be maintained is prescribed under the aforesaid legislation. Therefore, the account had to be in conformity with the said requirements. The RBI Act or the Companies Act do not deal with the permissible deductions or exclusion under the Income Tax Act. For the purpose of the Income Tax Act, the method of valuation followed by the assessee was to value the investments at cost or market value whichever was lower. The assessee was entitled to claim a deduction for the depreciation in the value of the securities held by it. The fact that the securities were not sold to a third party did not mean that the loss was notional (United Commercial Bank 240 ITR 355 (SC), Bank of Baroda 262 ITR 334 (Bom) & Karnataka Bank Ltd 356 ITR 549 (Kar) followed).

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