Banking investment valuation at lower of cost or market value recognised as deductible income-tax loss

For a banking assessee, investments in shares and securities may be valued for income-tax purposes at cost or market value, whichever is lower, because the real income of the business must be determined on a realistic basis. Statutory balance-sheet treatment under the Banking Regulation Act does not make the accounting entries conclusive for tax purposes. Where the market value has fallen below cost by the valuation date, the resulting diminution may be recognised as a deductible loss, and debiting it to the profit and loss account supports that treatment. The earlier Supreme Court principle on valuation of bank securities was treated as applicable.

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Issues: Whether a nationalised bank was entitled, for income-tax purposes, to value its investments in shares and securities at cost or market value whichever was lower and claim the resulting depreciation as a deductible loss.

Analysis: The valuation method adopted by the assessee was examined in the light of the governing principle that the true income of a banking business must be ascertained on a realistic basis. The statutory balance-sheet requirements under the Banking Regulation Act, 1949 did not make the entries conclusive for income-tax purposes. The decisive consideration was that where the market value of shares and securities had fallen below cost by the valuation date, the assessee could adopt the lower market value for determining real income. The earlier Supreme Court ruling on similar valuation of bank securities was treated as fully applicable, and the fact that the loss had been debited to the profit and loss account strengthened the assessee's case.

Conclusion: The assessee-bank was entitled to value the investments at cost or market value whichever was lower and to claim the depreciation as a deductible loss.

Ratio Decidendi: For a banking assessee, securities may be valued for income-tax purposes at cost or market value whichever is lower, because statutory balance-sheet treatment does not preclude recognition of the real income or loss arising from such valuation.

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