TMI Blog1998 (1) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... arket. The claim of the assessee is that it is holding shares and securities as stock-in-trade and was carrying on the business accordingly. Shri N.M. Ranka, appearing on behalf of the assessee started with the argument that the reasoning so given while rejecting the book version and its claim for loss is not based on correct footing. It is stated that the appellant is a scheduled bank to which the provisions of Banking Regulation Act, 1949 are applicable and its main business is banking business, finance business, shares and securities business which was being carrying on for the last several years and also accepted by the department. Appellant has to purchase and sale and also hold shares and securities both Governmental and semi-Governmental as stock-in-trade during the banking business. In the past, there was no such fluctuation in the yield rate of Government securities and as such there was no variation in the market value of Government and semi-Government securities. However, from the year 1981 or so, the securities were issued with a higher rate of interest and hence the market value of old securities which was about 3% or so has considerably gone down on account of which a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s such it constituted a business loss which is to be allowed by way of deduction. It is further stated that the books of account are being maintained on the basis of mercantile system and in such a situation, there is no question of any notional loss and whatever loss or profit is there, that has to be shown and accepted. The observation made in the impugned asst. order of treating it as a notional loss is stated to be against the factual position. A reference is also made to the decision in Whimster Co. v. IRC[1925] 12 TC 813. Another reference is made to Chainrup Sampatram v. CIT [1953] 24 ITR 481 (SC), Indo Commercial Bank Ltd. v. CIT [1962] 44 ITR 22 (Mad.) and CIT v. National Grindlays Bank Ltd [1983] 13 Taxman 420 (Mad.) as also to certain other cases. It is stated that the decisions refer-red to in the impugned assessment order relate to different set of circumstances and cannot be made applicable to the facts of the present case. It is also stated that the other observation of not showing it in the trading or profit and loss account is also not correct inasmuch as the accounts are maintained as per the provisions of Banking Regulation Act which specifically provides for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also in accordance with the principles of accountancy for valuing the closing stock at cost price or market price whichever is less. It is further stated that in the earlier years there was not much fluctuation in the yield rate of shares and securities though the appellant has opted for valuing the stock-in-trade at stock price or market price whichever is less only during the year under consideration. It was under a bona fide belief and as such the change in method of valuing the closing stock was correct and also followed in the subsequent years. In view of this, the change in valuing the closing stock being under a bona fide belief due to decline in the market rate should be accepted and the loss has to be allowed. It is also stated that the reference given to the different decisions as per the impugned asst. order is not correct and the case of the appellant stands on a different footing. In support of its plea, it has also refer-red to the decisions reported in Indo Commercial Bank Ltd 's case and National Grindlays Bank Ltd.'s case as also the decision of the ITAT, Calcutta Bench reported in ITA No. 1641, dated 19-10-86. As such, the crux of the appellant's contention is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing certain opening stock purchases profit on the debit side and showing certain sales and closing stock valued on the basis of market price. A note is also appended to the said trading a/c which otherwise in reality was not in existence at all as per the audited accounts and in the said note, it is stated that closing stock is valued as per the market price which was less than the cost and the profit on sale of shares and securities has been taxed as business profits. The attempt made by the appellant by casting a trading a/c in the course of appeal hearing also cannot come to its rescue firstly because there was no trading a/c maintained by the appellant as per the books of a/c or the audited accounts and secondly because if what the appellant says for valuing the closing stock on the basis of cost or market rate whichever is less is considered as carrying any weight whatsoever the fact cannot be lost sight of that the same principal is invariably to be applied in valuing the opening stock also inasmuch as the application of two different types of methods for the purpose of valuing the opening stock and the closing stock will give an altogether distorted picture and will not ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of IT Law, the factual position in respect of the trading activity, etc., cannot be lost sight of and since there was no trading activity as such there could not have been any trading a/c and in absence of any trading a/c also there was no question of showing any closing stock for the purpose of valuation and thereby claiming any deduction due to difference in the market rate. The contention of the appellant of bonafidely changing the system of accounting in respect of the valuation, can hardly survive in view of the factual position as referred to above. Taking into-consideration the totality of the facts as discussed above coupled with the reasoning given in the impugned assessment order, it appears that the claim of the appellant has correctly been negatived and hence no interference on this account is called for.' 5. We have examined the facts of these cases as well as the arguments put forth by the rival parties and material placed on record. We have also examined the case laws relied upon. It is a matter of common knowledge that the principles of res judicata are not applied to tax matters. Each assessment year is independent to each other and the income computed indepe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment year 1982-83 had been completed and a loss of more than Rs. 7 crores had been allowed. The CIT found that the loss on revaluation of shares and securities was never provided by the assessee-bank in its final accounts; but, for arriving at the taxable income, it had deducted a notional loss from the book profits by working out the difference between the book value of shares as shown its final accounts and the market price as prevailing on the last day of the previous year. The CIT revised the assessment holding that the assessee bank could not claim a loss which was not taken into account while preparing the final accounts, particularly when this loss related to notional revaluation of shares and securities. The Tribunal found that the loss arising on such revaluation had always been accepted by the department in earlier years in completing the income-tax assessment of the bank. The Tribunal cancelled the order of the CIT. On a reference: Held, (i) that the ITO was not bound by the method of stock valuation accepted by him in making the assessment in the earlier years." Then again "(ii) that the assessee in his case had not valued its stock of shares and securities i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are concerned, there is no dispute that the assessee follows the mercantile system of accounting and that stock-in-trade requires a revaluation at the end of the closing of accounting period to arrive at correct amount of profit or loss earned/suffered by the assessee. But the issue involved here is altogether different. 10. After considering the full facts of this case and the discussions above, we are of the opinion that investment in Government securities cannot be held as stock-in-trade. It is definitely long-term investment and, therefore, capital in nature. Profit or loss on such investment would arise only when this type of asset is finally transferred, sold or discarded. It cannot be revalued at the time of closing of each accounting period. Investments are always valued on the basis of cost price. Under the circumstances, we do not find any infirmity in the order passed by the CIT(A). This ground of appeal for all these three assessment years, therefore, stands dismissed. 11. The assessee has taken two other grounds of appeal, in Appeal No. 21 1/JP/90 for assessment year 1984-85. The first ground is in regard to disallowance under sec. 37(3A) of the Act. On this accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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