Accounting treatment of bank securities cannot override tax law where stock-in-trade is consistently valued for income purposes.

A bank's securities, consistently treated as stock-in-trade, cannot be denied depreciation merely because they were shown as investments in RBI-compliant balance-sheet accounts; tax treatment depends on the true legal character and the assessee's regular method of accounting, not on presentation alone. RBI guidelines govern regulatory disclosure and accounting form, but they do not displace the Income-tax Act in computing taxable income. Where the assessee's long-standing valuation method reflects commercial accounting and properly discloses income, it cannot be overridden simply by the book description of the assets. The adverse view was set aside and the matter required fresh assessment on that legal basis.

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Issues: (i) Whether securities held by a bank and consistently treated as stock-in-trade could be denied depreciation merely because they were shown as investments in the balance-sheet under RBI guidelines; (ii) Whether RBI guidelines govern the computation of taxable income under the Income-tax Act, 1961 so as to displace the assessee's consistent method of valuation.

Issue (i): Whether securities held by a bank and consistently treated as stock-in-trade could be denied depreciation merely because they were shown as investments in the balance-sheet under RBI guidelines.

Analysis: The method of accounting regularly employed by an assessee cannot be rejected unless income cannot properly be deduced therefrom. The Court applied the settled principle that for income-tax purposes the true and proper income must be determined on the basis of real income, and that entries in the balance-sheet are not conclusive. A bank may maintain accounts in the form required by regulatory directions, but the character of the asset for tax purposes depends on the legal nature of the holding and the consistent treatment adopted in earlier years.

Conclusion: The denial of depreciation on the footing that the securities were not stock-in-trade merely because they were shown as investments was not justified; the assessee's claim was accepted.

Issue (ii): Whether RBI guidelines govern the computation of taxable income under the Income-tax Act, 1961 so as to displace the assessee's consistent method of valuation.

Analysis: RBI directions and the Income-tax Act operate in different fields. Regulatory accounting requirements may govern disclosure and presentation in financial statements, but they do not determine deductibility or taxability under the Income-tax Act. The valuation of closing stock according to commercial accounting principles remains relevant, and the assessee's long-standing treatment of the securities as stock-in-trade could not be overridden merely by their description in RBI-compliant accounts.

Conclusion: RBI guidelines did not control the computation of taxable income, and the assessee's consistent treatment for tax purposes could not be displaced on that basis.

Final Conclusion: The appeal succeeded on the substantive questions, the adverse findings were set aside, and the matter was sent back for fresh assessment in accordance with the legal position declared.

Ratio Decidendi: Regulatory accounting requirements do not override the Income-tax Act, and a consistently followed method of accounting for valuing stock-in-trade cannot be disregarded unless it fails to disclose the true income.

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