BIFURCATION OF SHARES AND OTHER SECURITIES AND VALUATION OF SHARES

[S.C. WADHWA]

A Company is engaged in real estate business and also  trading in shares. Amount invested in securities other  than shares are being shown as investments.                             

The company also invests in PMS and the amount invested by it is bifurcated into shares and other investments i.e. shares transactions are shown as our trading activities and transactions in other securities are shown as investments in our books                                                                    

 Please advise whether it is correct.                                             

We are valuing our closing stocks(shares) at cost or market price whichever is less.

Please advise whether it is correct.

[CAGOPALJI AGRAWAL]

It is the decision/intention at the time of transaction to decide whehter it is meant for investment or for trading. One can have two portfolios.

Inventory has to be valued on the policy consistently followed by the assessee.

AI Summary

Securities classification: treat holdings as trading or investment by transaction intent and apply consistent valuation policy. Classification of securities depends on the commercial intention at the time of each transaction: trading securities are treated as inventory while long term holdings are investments, and a taxpayer may maintain segregated portfolios. Closing trading stock must be valued according to the taxpayer's uniform inventory valuation method, with the chosen approach (such as lower of cost or market) applied consistently.