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Issues: Whether the assessee-bank was entitled to value its investment portfolio at cost or market value whichever is lower by treating the investments as stock-in-trade, and consequently whether the disallowance and enhancement made in respect of depreciation/loss on such portfolio were sustainable.
Analysis: The investment portfolio was consistently maintained and valued by the assessee-bank under its regular accounting method. The dispute turned on whether securities held by the bank could be treated as stock-in-trade for income-tax purposes and whether valuation based on the lower of cost or market value could be rejected merely because the investments were also shown in accordance with banking guidelines. The decision applied the principle that taxable income must be computed on the basis of real income as reflected by a regularly followed accounting system, and that the treatment of securities as stock-in-trade justified valuation on a cost-or-market basis. The claim that the entire portfolio was capital in nature was not accepted.
Conclusion: The assessee-bank was entitled to value all investments at cost or market value whichever was lower as stock-in-trade, and the disallowance of Rs. 5,21,96,537 was deleted.
Ratio Decidendi: Where a bank consistently follows a recognized accounting method treating securities as stock-in-trade, its taxable income must be computed on the basis of real income and the investment portfolio may be valued at the lower of cost or market value.
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