2012 (9) TMI 753 - AT - Income Tax

Addition on account of valuation of investment portfolio Assessee is a Bank treating the investments as stock-in-trade Bank showing opening and closing stock securities valued at cost or market value whichever is lower as prescribed by RBI for the purpose of books of accounts AO observe that assessee has followed RBI guidelines for the purpose of books of account but not for computation of income for the purpose of income tax purposes Held that - Following the decision in case of United Commercial Bank (1999 (9) TMI 4 - SUPREME COURT) assessee Bank is entitled to value all the investment at cost prices or market value whichever is lower by treating such investment as stock-in-trade. Decision in favour of assessee

Summary

Issues Involved:
Appeals against deletion of addition made by AO under investment portfolio head.

Analysis:
The department's appeals challenged the deletion of an addition made by the Assessing Officer (AO) under the investment portfolio head. The department contended that the CIT(A) erred in allowing the depreciation claim of the valuation of the investment portfolio by treating the investments as stock-in-trade. The department argued that only real profit or loss, not notional loss, should be recognized under the Income Tax Act. The CBDT Circular No.665 directed the Assessing Officer to follow RBI guidelines for valuation of investment portfolios held by banks. The AO rejected the assessee's claim, stating that while the bank followed RBI guidelines for accounting purposes, it did not do so for income tax computation. The assessee, a nationalized bank, explained that it treated investments as stock-in-trade for tax purposes, following RBI guidelines for valuation. The assessee relied on the Supreme Court judgment in UCO Bank v. CIT. The CIT(A), considering previous ITAT decisions in favor of the assessee, allowed the claim. The department's appeals were based on the AO's stance, but the CIT(A) decision was upheld due to consistent ITAT rulings favoring the assessee.

The key contention revolved around the treatment of investments as stock-in-trade for tax purposes, following RBI guidelines for valuation. The department argued against recognizing notional losses and insisted on real profit or loss recognition under the IT Act. However, the CIT(A) and ITAT decisions favored the assessee's approach, citing the consistency of treating securities as stock-in-trade for valuation. The assessee's reliance on the UCO Bank v. CIT judgment and previous ITAT decisions supported their position. The department's appeals were dismissed as the issue was deemed to be settled in favor of the assessee based on previous ITAT rulings.

The judgment highlighted the importance of following RBI guidelines for valuation of investment portfolios held by banks for income tax computation. The CIT(A) decision, supported by previous ITAT rulings, emphasized the consistency of treating securities as stock-in-trade for valuation purposes. The assessee's approach, in line with the UCO Bank v. CIT judgment, was upheld, leading to the dismissal of the department's appeals. The dispute centered on the treatment of notional losses and the recognition of real profit or loss under the IT Act, with the final decision favoring the assessee's method of valuation based on RBI guidelines and consistent ITAT rulings.