High Court rules in favor of assessee on Government securities deduction despite RBI guidelines

The High Court ruled in favor of the assessee in a case concerning the deduction of Government securities under the 'available for sale' classification, despite RBI guidelines. The Court emphasized that tax authorities cannot disregard the taxpayer's consistent accounting method based on their views. It was held that the treatment of investments as stock-in-trade for decades should not be disallowed solely based on balance sheet presentation. The judgment favored the assessee, stating that market value should be considered for deductions, leading to the dismissal of the revenue's appeal.

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Issues:
1. Whether Government securities can be considered as an allowable deduction under the classification 'available for sale' disregarding RBI guidelinesRs.
2. Whether the claim of the assessee was correctly allowed without considering RBI instructions and CBDT CircularRs.

Analysis:
1. The High Court considered the appeal by the revenue challenging the Tribunal's order granting relief to the assessee. The main issue was whether the Tribunal was correct in allowing the deduction for Government securities of a specific amount under the classification 'available for sale,' despite subsequent RBI guidelines. The Court referred to a previous judgment involving Karnataka Bank Ltd. where it was held that the method of accounting adopted by the taxpayer consistently and regularly cannot be disregarded by tax authorities based on their views on accounting methods or valuation. The Court emphasized that the RBI Act and Companies Act do not dictate permissible deductions under the Income Tax Act. Therefore, the assessee's treatment of investments as stock-in-trade for decades, claiming depreciation, should not be disallowed based on how it is shown in the balance sheet. The Court highlighted that the real income for tax purposes should be disclosed regardless of accounting entries.

2. The Court's decision was influenced by the earlier judgment, which stated that despite the assessee showing investments in the balance sheet, treating them as stock-in-trade for income tax purposes was acceptable. The Court emphasized that the market value of assets, like Government securities, should be considered at the end of the financial year, especially if the market value is less than the cost price. The authorities cannot deny deductions based on how the assets are classified in the balance sheet. The judgment favored the assessee, emphasizing that the approach of tax authorities should be in line with the legal position declared by the Apex Court. Consequently, the substantial questions of law were answered in favor of the assessee, leading to the dismissal of the appeal by the revenue. The order allowed the advocate for the respondent to file necessary documents within a specified timeframe.

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