ACIT Vs DBS Bank Limited (ITAT Mumbai)
The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) dismissed the Revenue’s appeals for Assessment Years 2016–17 and 2017–18, thereby upholding the orders of the Commissioner of Income Tax (Appeals) [CIT(A)] which allowed deduction of loss arising from conversion of loan into equity shares under a corporate debt restructuring scheme. The assessee, a scheduled banking company, had advanced loans to a borrower which later underwent financial stress. Pursuant to an approved Corporate Debt Restructuring (CDR) package, part of the outstanding loan was compulsorily converted into equity shares at a preferential issue price. Although the shares were allotted earlier, they were credited into the bank’s demat account at a later date when the market value had fallen sharply. After adjusting overdue interest, the bank recognised and wrote off a net loss of ₹10.04 crore in its profit and loss account.
The Assessing Officer treated this loss as a capital loss, holding that once the loan was converted into equity, the bank held an investment and any diminution in value was on capital account. The Assessing Officer also rejected alternative claims under sections 28, 36(1)(vii), and 37(1), relying on judicial precedents holding that RBI guidelines cannot override the Income-tax Act. The CIT(A), however, deleted the disallowance by following the Tribunal’s own decision in the assessee’s case for Assessment Year 2015–16 on identical facts.
