Lower-of-cost-or-market valuation applies only when consistently adopted in accounts; notional investment loss was not deductible.

A bank can claim valuation loss on shares and securities only if the lower-of-cost-or-market method is consistently followed in its regular accounts; it cannot adopt a different basis solely for tax computation. The court noted that section 145 requires income to be computed according to the method of accounting regularly employed, and that selective invocation of commercial stock-valuation rules is not permissible. Because the bank had not valued its investments on that basis in its books, the claimed loss was treated as merely notional and not deductible. The revisional order was therefore upheld and the reference was answered against the assessee.

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Issues: (i) Whether the revisional order under section 263 was justified in cancelling the assessment on the ground that the assessee-bank could not claim a notional loss on revaluation of shares and securities without reflecting that method in its books of account. (ii) Whether the notional loss on valuation of investments at market price, as against book value, was admissible as a deduction in computing the assessee-bank's taxable income.

Issue (i): Whether the revisional order under section 263 was justified in cancelling the assessment on the ground that the assessee-bank could not claim a notional loss on revaluation of shares and securities without reflecting that method in its books of account.

Analysis: Section 145(1) requires income to be computed in accordance with the method of accounting regularly employed by the assessee. Stock valuation forms part of that method. The accepted commercial rule of valuing closing stock at cost or market value, whichever is lower, applies only when that basis is consistently followed in the accounts. A taxpayer cannot maintain one basis in the books and adopt a different basis only for tax computation. In the present case, the bank did not value its shares and securities in its accounts on the lower-of-cost-or-market basis.

Conclusion: The revisional view was correct, and the assessee was not entitled to succeed on this issue.

Issue (ii): Whether the notional loss on valuation of investments at market price, as against book value, was admissible as a deduction in computing the assessee-bank's taxable income.

Analysis: The rule permitting anticipated loss on closing stock is a principle of commercial accounting, but it cannot be invoked selectively for income-tax purposes when the same method is not adopted in preparing the accounts. The authorities and earlier acceptance in assessment years do not create estoppel. Since the assessee-bank's accounts were not prepared on the basis of cost or market value, whichever is lower, the claimed loss was only notional and did not represent a permissible deduction on the facts found. The decisions relied upon by the assessee did not assist it on these facts.

Conclusion: The claimed notional loss was not admissible, and the issue was decided against the assessee.

Final Conclusion: The reference was answered against the assessee and the Revenue succeeded on both questions.

Ratio Decidendi: A taxpayer may rely on the lower-of-cost-or-market valuation of stock only if that method is in fact consistently adopted in its regular accounts; a different basis cannot be used solely for tax computation to claim a notional loss.

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