Valuation loss on securities stock-in-trade is deductible when closing stock is marked to market under a consistent accounting method.

Valuation loss on securities held as stock-in-trade was allowable where banks followed a consistent accounting method and closing stock was valued at cost or market value, whichever was lower. The Tribunal applied the principle that anticipated diminution in year-end stock value is deductible in computing business income, including for securities in available-for-sale and held-for-trading categories. It also noted that statutory balance-sheet presentation did not prevent recognition of the loss for tax purposes. The disallowance was deleted, and the assessee's deduction claim was accepted.

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Issues: Whether the assessee-bank was entitled to deduction of the valuation loss on securities held as stock-in-trade, and whether the disallowance of Rs. 4,02,87,000/- was sustainable.

Analysis: The claim concerned fall in value of securities held in the available for sale and held for trading categories. The applicable principle is that closing stock may be valued at cost or market value, whichever is lower, and anticipated loss reflected by year-end diminution in stock value is allowable in computation of business income. The Tribunal relied on the settled rule that the real income of a taxpayer must be computed on a consistent and regularly followed accounting method, and that banks are not precluded from recognising such diminution merely because statutory balance-sheet entries are prepared on a different basis. The Tribunal also noted that the revenue's own revision proceedings did not treat the loss as inherently inadmissible, but only questioned the examination of details.

Conclusion: The valuation loss on securities was allowable as a deduction. The disallowance of Rs. 4,02,87,000/- was deleted and the assessee succeeded.

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