2014 (8) TMI 389 - HC - Income Tax

High Court affirms assessee's right to revalue securities for tax assessment years, rejects Revenue's appeal

The High Court dismissed the Revenue's appeals for the assessment years 1996-97 and 1997-98, affirming the assessee's right to revalue securities and ... Revaluation of securities - Reduction in closing stock on loss – Held that:- Securities held by the assessee-bank are the stock-in-trade of the business of the assessee-banks and the notional loss suffered on account of the revaluation of the said securities at the close of the year is an allowable deduction in the computation of the profits - The tribunal had rightly following the decision Commissioner of Income Tax Vs. The Nedungadi Bank Ltd. [2002 (11) TMI 29 - KERALA High Court] was of the view that the securities so retained should be and have to be treated as stock-in-trade of the assessee - reduction in market price of the securities held as stock in trade has to be taken on record and in the books – no question of law arises for consideration – Decided against revenue. Issues:1. Whether the assessee was entitled to revalue the securities and claim a reduction in the closing stock on account of loss on revaluation.Analysis:The judgment pertains to two appeals by the Revenue for assessment years 1996-97 and 1997-98. The main issue raised was regarding the entitlement of the assessee to revalue securities and claim a reduction in closing stock due to revaluation loss. The assessment order highlighted that the securities were retained by the assessee to maintain the Statutory Liquidity Ratio (SLR) as mandated by the Reserve Bank of India (RBI). The revaluation of securities was conducted in accordance with RBI guidelines to ensure compliance with the prescribed SLR. However, the assessment order lacked comprehensive details related to the issue at hand, and the appellate orders also did not provide a complete factual background.The tribunal, in dismissing the appeal, relied on a judgment of the Kerala High Court in a similar case involving a bank and upheld the view of the first appellate authority. The Kerala High Court decision emphasized that securities retained by the bank to maintain SLR must be treated as stock-in-trade of the assessee. This interpretation was supported by previous judgments, including one affirmed by the Supreme Court. The reduction in the market price of securities held as stock in trade was deemed necessary and had to be reflected in the books.Based on the clear legal position established by the Kerala High Court and supported by relevant precedents, the High Court concluded that no question of law arose for consideration in the present appeals. Therefore, the appeals were dismissed, affirming the assessee's entitlement to revalue securities and claim a reduction in closing stock based on the loss on revaluation.