Friday, June 14, 2013

Valuation loss is allowable even if stock-in-trade shown as investment in compliance of RBI guidelines

Even though assessee-bank disclosed shares as investments in balance sheet to comply with RBI Guidelines, it was not estopped from treating the same as stock-in-trade for income-tax and claiming valuation loss thereon as these shares had been consistently shown as stock-in-trade in income tax in the past years also

The High Court held as under:

1) For the purpose of IT Act, as the assessee had consistently been treating the value of investment for more than two decades as stock-in-trade and claiming valuation loss thereon, it was not open to the authorities to disallow the said loss on the ground that in the balance-sheet it was shown as investment in terms of the RBI Regulations;

2) The question whether the assessee was entitled to particular deduction or not would depend upon the provisions of law relating thereto and not the way, in which the entries were made in the books of account. It was not decisive or conclusive in the matter;

3) The value of the stocks being closely connected with the stock market, at the end of the financial year, while valuing the assets, necessarily the Bank had to take into consideration the market value of the shares;

4) If the market value of shares was less than the cost price, they were entitled to deductions and it couldn’t be denied by the authorities under the pretext that it was shown as investment in the balance sheet;

5) The order passed by the authorities holding that in view of the RBI guidelines, the assessee was estopped from treating the investment as stock-in-trade was not correct. That finding recorded by the authorities was to be set aside - Karnataka Bank Ltd. v. ACIT [2013] 34 150 (Karnataka)