ACIT Vs The Karad Urban Co. Op. G Bank Ltd. (ITAT Pune)
In the case of ACIT vs. The Karad Urban Co-operative Bank Ltd. (ITAT Pune), the tribunal addressed the issue of whether the cooperative bank could claim a deduction for depreciation on its “Available for Sale” (AFS) securities. The Assessing Officer (AO) had disallowed the claim of ₹34.5 crore under Section 37 of the Income Tax Act for Assessment Year (AY) 2018-19. The AO argued that the provision for depreciation charged to the Profit and Loss Account did not qualify as a deductible expense. However, the Commissioner of Income Tax (Appeals) [CIT(A)] reversed this disallowance, leading the Revenue to appeal before the ITAT.
The ITAT relied on its own earlier rulings and precedents, including decisions in The Karad Urban Co-op Bank Ltd. vs. Addl. CIT (for AYs 2007-08 to 2010-11) and other cases involving cooperative banks. In these rulings, the tribunal had consistently held that depreciation on AFS securities, which are marked to market as per Reserve Bank of India (RBI) guidelines, should be treated as a legitimate expense. The tribunal highlighted that such investments form part of the bank’s stock-in-trade, and the valuation of these investments follows RBI prudential norms.
Judicial precedents such as the DCIT vs. Kallappanna Awade Ichalkaranji Janata Sahakari Bank Ltd. and ACIT vs. The Bank of Rajasthan Ltd. were also cited to strengthen the position. In these cases, depreciation on AFS securities was allowed as a deduction, considering it a revenue expense necessary for the bank’s operations. The ITAT noted that the Revenue failed to present any contrary evidence or arguments to challenge the CIT(A)’s findings or past tribunal decisions.
Further, the tribunal referred to RBI guidelines that mandate marking AFS securities to market value at regular intervals, recognizing net depreciation in value while ignoring appreciation. These norms ensure prudence in financial reporting and align with commercial principles. The CBDT’s Instruction No. 17 of 2008 was also considered, which supports deductions for depreciation under such RBI norms.
The ITAT ultimately dismissed the Revenue’s appeal, reinforcing that cooperative banks, like other banking institutions, are entitled to claim depreciation on AFS investments. This decision aligns with earlier tribunal judgments and upholds the principle that banking operations should adhere to both legal and commercial standards.
FULL TEXT OF THE ORDER OF ITAT PUNE
