2015 (10) TMI 929 - AT - Income Tax

High Court upholds stock valuation based on RBI guidelines; Tribunal dismisses Revenue's appeal on expenses to clubs.

The High Court upheld the valuation of closing stock of securities based on RBI guidelines. The Tribunal dismissed the Revenue's appeal, affirming the ... Addition on account of valuation of closing stock of securities - CIT(A) deleted the addition - Held that:- It has not been disputed by the Department that change in method of valuation of securities was in accordance with RBI directions and non-adherence thereto by Scheduled Banks will have attracted adversity with RBI guidelines. The Scheduled Banks cannot refuse to implement such directions. Therefore, the change in pattern of valuation in respect of impugned securities is bona fide. The Hon'ble Uttarakhand High Court in the case of CIT vs. Nainital Bank Ltd.(2007 (3) TMI 253 - UTTARANCHAL HIGH COURT) has upheld the judgment of Tribunal holding that the assessee being a banking company, the RBI guidelines were binding on it and therefore, valuation of investment on the basis of RBI guidelines was justified. In view of the above, we find no infirmity in the order of the ld. CIT(A). The assessee's pattern of valuation of securities being in accordance with RBI directions cannot be interfered with. Our view is fortified by the judgement of Hon'ble Uttarakhand High Court in the case of CIT vs. Nainital Bank Ltd. (supra). Thus the order of the ld. CIT(A) on the issue of securities is upheld. - Decided against revenue. Disallowance of expenses claimed to have been paid to various clubs - CIT(A) deleted the addition - Held that:- Apropos club fee expenses, various judicial authorities in the case of Lloyd Steel Industries Ltd. vs. ACIT [2007 (10) TMI 459 - ITAT MUMBAI ] and Gujarat State Export Corporation Ltd. vs. CIT (1993 (9) TMI 52 - GUJARAT High Court) and Otis Elevators Co. Ltd. vs. CIT (1991 (4) TMI 53 - BOMBAY High Court) have also laid down the same view i.e. payment of club fees made with a view to enable the assessee to improve its business relation and prospectus is allowable expenditure. Thus in view of the above judgements, we uphold the order of the ld. CIT(A). - Decided against revenue. Issues involved:- Valuation of closing stock of securities- Disallowance of expenses claimed to be paid to various clubsValuation of closing stock of securities:The appeals were filed by the Revenue against orders of the CIT(A) for different assessment years. The main issue was the valuation of closing stock of securities. The assessee contended that the method of valuation changed to Scripwise valuation from AY 1993-94 onwards. The AO, however, adopted the global basis for valuation, resulting in an addition. The CIT(A) deleted the addition, citing consistency with earlier decisions and RBI guidelines. The method of valuation followed by the assessee was accepted in previous years, leading to the deletion of the addition made by the AO. The High Court upheld the valuation based on RBI guidelines. The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision on the valuation issue.Disallowance of expenses claimed to be paid to various clubs:The second issue involved the disallowance of expenses claimed to be paid to clubs. The assessee argued that such expenses were incurred to promote banking business and were allowable under section 37(1) of the Act. Previous decisions supported the allowability of club membership fees as business expenses. The Tribunal upheld the CIT(A)'s decision to delete the disallowance of club expenses, citing precedents and the purpose of such expenses in improving business relations. The Revenue's appeal on this issue was dismissed.In conclusion, the Tribunal dismissed the Revenue's appeals concerning the valuation of closing stock of securities and the disallowance of expenses paid to clubs, upholding the CIT(A)'s decisions based on consistency with earlier rulings and legal provisions.