Banking securities as stock-in-trade and invalid reopening beyond four years where disclosure failure was not shown.

Government securities held by a banking company under statutory liquidity requirements may be treated as stock-in-trade on the facts, because the banking scheme permits purchase and sale and the accounting label of "investment" is not conclusive; valuation at market value where lower than cost was therefore allowable, and the depreciation claim succeeded. Reassessment initiated beyond four years under section 147 was not sustainable where it rested on a later legal view and no failure by the assessee to disclose fully and truly all material facts was shown, so the reopening lacked jurisdiction and was invalid.

---

---

Issues: (i) Whether Government securities held by a banking company as part of its statutory liquidity requirement were stock-in-trade, so that depreciation on revaluation to market value was allowable in computing business income; (ii) Whether reassessment initiated beyond four years under section 147 was valid in the absence of failure by the assessee to disclose fully and truly all material facts.

Issue (i): Whether Government securities held by a banking company as part of its statutory liquidity requirement were stock-in-trade, so that depreciation on revaluation to market value was allowable in computing business income

Analysis: The banking statutory scheme required maintenance of a minimum level of approved Government securities, but did not prevent purchase and sale of such securities. The accounting treatment in the statutory balance-sheet as investments was not conclusive, because the prescribed banking forms did not permit alteration of headings and the real character had to be determined on the facts. The Board circular recognised that whether a security constituted stock-in-trade or investment was a factual question. The authorities and precedents relied on by the Revenue were distinguished, while the decisions recognising banking securities as trading assets were treated as applicable. Once the securities were held as trading assets, valuation at cost or market value, whichever was lower, was a recognised method.

Conclusion: The Government securities were stock-in-trade, and the depreciation on revaluation was allowable. The issue is decided in favour of the assessee.

Issue (ii): Whether reassessment initiated beyond four years under section 147 was valid in the absence of failure by the assessee to disclose fully and truly all material facts

Analysis: The reassessment was based on a subsequent legal view and not on any recorded failure of disclosure by the assessee. After the expiry of four years from the end of the relevant assessment years, the proviso to section 147 permitted reopening only where escapement was attributable to such failure. As no such failure was shown, the jurisdictional condition for reopening was not satisfied.

Conclusion: The reassessment was without jurisdiction and invalid. The issue is decided in favour of the assessee.

Final Conclusion: The Revenue's appeals failed on merits, and the assessee's cross objections succeeded on jurisdiction, resulting in the maintenance of the relief granted to the assessee and invalidation of the reopening.

Ratio Decidendi: For a banking company, Government securities maintained under statutory liquidity requirements may constitute stock-in-trade on the facts, and reassessment beyond four years is permissible only when escapement is attributable to the assessee's failure to disclose fully and truly all material facts.

---