Bank securities treated as stock-in-trade: depreciation on market value decline allowed under lower-of-cost-or-market valuation.

Where a bank holds government securities as stock-in-trade, closing valuation at cost or market value, whichever is lower, is permissible and the resulting depreciation is deductible in computing taxable income. The Tribunal applied the RBI framework distinguishing held to maturity, available for sale, and held for trading securities, and noted that CBDT circulars also recognise that bank securities may constitute trading assets depending on the facts. Following the assessee's accepted treatment in an earlier year, it upheld the depreciation claim on investment securities and rejected the Revenue's challenge.

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Issues: Whether the loss arising from depreciation in the value of government securities held by a bank was allowable as a deduction where the securities were treated as stock-in-trade and valued at cost or market value, whichever was lower.

Analysis: The bank's investment portfolio was examined in the light of RBI guidelines classifying securities under held to maturity, available for sale, and held for trading. The CBDT circulars referred to in the record also recognised that bank securities may constitute stock-in-trade depending on the facts and the RBI framework. The Tribunal followed the position already accepted in the assessee's own earlier year and applied the settled principle that, where securities form trading assets, valuation at market value below cost is permissible and the resulting depreciation is allowable in computing taxable income.

Conclusion: The depreciation claim on investment securities was held allowable and the Revenue's challenge failed.

Ratio Decidendi: Where bank securities are held as stock-in-trade, their closing value may be taken at cost or market value, whichever is lower, and the resulting depreciation is deductible.

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