Dismissal of SLP Confirms Revenue Cannot Raise the Issue of Netting Security Appreciation for the First Time Before High Court
Dismissal of SLP Confirms Revenue Cannot Raise the Issue of Netting Security Appreciation for the First Time Before High Court
Issue
Whether the Revenue is permitted to raise a new legal plea regarding the “netting off” of security appreciation against depreciation under Section 145 before the High Court, when it had completely failed to raise or argue that specific issue before the Income Tax Appellate Tribunal.
Facts
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Assessment Year: 2004-05.
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The Claim: The assessee, a banking institution, claimed a tax deduction in its return of income to account for the depreciation/diminution in the market value of its investment portfolio.
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AO’s Disallowance: The Assessing Officer (AO) disallowed the deduction, concluding that any claimed depreciation on certain securities must be strictly netted off against the appreciation observed in other securities held within the portfolio.
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Tribunal’s Ruling: On appeal, the Income Tax Appellate Tribunal (ITAT) followed its own historical precedent from the assessee’s case for Assessment Year 2014-15 and ruled entirely in favor of the assessee bank.
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High Court Appeal: Aggrieved by the ITAT’s decision, the Revenue appealed to the High Court under Section 260A, attempting to re-introduce and argue the specific question of accounting methods and the netting off of appreciation.
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High Court Dismissal: The High Court refused to entertain the argument, holding that since the specific mechanics of netting appreciation were not explicitly raised or agitated by the Revenue before the Tribunal, it could not be introduced as a fresh grievance at the High Court stage.
Decision
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SLP Dismissed (In Favor of Assessee): The Supreme Court found no valid or compelling ground to interfere with the impugned order passed by the High Court.
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High Court Order Upheld: The Special Leave Petition (SLP) filed by the Revenue was summarily dismissed, confirming that the new grounds could not be admitted.
Key Takeaways
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New Pleas Barred at Higher Stages: A party (including the Revenue) cannot raise a fresh factual or legal issue before the High Court if it was not raised before the Income Tax Appellate Tribunal. The High Court’s jurisdiction under Section 260A is strictly restricted to “substantial questions of law” arising directly out of the Tribunal’s order.
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Binding Nature of Statutory Hierarchies: The ITAT is the final fact-finding authority. If the Revenue fails to argue a specific methodology (like netting off portfolio gains) before the ITAT, it waives its right to build an appeal around that omission at the High Court or Supreme Court level.
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Consistency for Banking Portfolios: While banks treat investment portfolios as stock-in-trade and routinely claim lower of cost or market value for valuation losses, any structural challenge to this accounting method by the department must be consistently built from the initial appellate stage, rather than introduced as an afterthought.