Whether loss on account of depreciation in value of securities held as stock is notional and allowable as deduction?

Last updated: 25 July 2014

Court :
Bombay High Court

Brief :
Commissioner of Income Tax – Versus – HDFC Bank Ltd.

Citation :
In case under scrutiny of the Assessee Bank, the Assessing Officer completed the assessment and passed his Assessment Order under section 143(3)determining the total income of the Assessee at Rs.12,27,85,00,000/-.Subsequently it was noticed by the Appellant that a sum of Rs.87.11 lakhs had been debited to the profit and loss account by the Assessee, as a loss on account of transfer of securities from the category “Available for Sale” to “Held to Maturity” and the same had been allowed by the Assessing Officer. According to the Appellant, since the allowance of such a notional loss was erroneous and prejudicial to the interest of the Revenue, he invoked his powers under section 263 of the Act and passed an order directing the Assessing Officer to modify his Assessment Order and disallow the deduction of Rs.87.11 lakhs. It was held that 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. The assessee was entitled to claim a deduction for the depreciation in the value of the securities held by it.