Banking investment portfolio valuation loss on government securities treated as allowable business loss under settled precedent.

Year-end revaluation or diminution in value of government securities held by a bank in its investment portfolio was treated as a business loss where the securities are valued under banking and regulatory norms. The ITAT followed settled precedent that mark-to-market depreciation on such securities is not a notional capital loss, but a trading loss arising in the course of banking business. The loss was therefore held to be revenue in character and allowable in computing income.

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Issues: Whether the loss claimed on year-end revaluation or diminution in value of government securities held by a bank under the investment portfolio is allowable as a revenue or business loss.

Analysis: The Tribunal noted that the controversy was no longer res integra and had been resolved in earlier decisions recognising that government securities classified by banks under the relevant investment categories are to be valued in accordance with banking and regulatory norms. It followed the settled view that the depreciation or diminution arising from mark to market valuation of such securities, particularly where the securities are treated as part of the investment portfolio under banking regulations, is not a notional capital loss but a trading or business loss allowable in computing income.

Conclusion: The loss on revaluation of government securities was held to be revenue in character and allowable as a business loss, in favour of the assessee.

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