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Issues Involved:
1. Assessability of interest taken to the interest suspense account. 2. Legality of the system of valuation of stock-in-trade adopted by the assessee. Summary: Issue 1: Assessability of Interest The first issue concerns whether the interest of Rs. 4,15,343 taken directly to the interest suspense account is assessable to income-tax. The court held that this issue is wholly covered by the ruling of the Supreme Court in State Bank of Travancore v. CIT [1986] 158 ITR 102. Accordingly, the question was answered in the negative and in favor of the Revenue. Issue 2: Valuation of Stock-in-Trade The second issue pertains to the valuation of the stock-in-trade of the banking business of the assessee for the assessment year 1975-76. The assessee, a banking company, sought to write off Rs. 17,12,230 as depreciation due to a fall in the market value of investments. The Income-tax Officer disallowed this claim, noting that the assessee had consistently valued investments at cost in the past. However, the Commissioner of Income-tax (Appeals) upheld the assessee's claim, stating that securities being stock-in-trade could be valued at cost or market value, whichever is lower. The Commissioner also noted that the change in valuation method was bona fide and followed thereafter. The Tribunal upheld the Commissioner's decision, leading to the Revenue's appeal. The Revenue contended that the change in valuation method was not bona fide and should not be approved. The court referred to British Paints India Ltd. v. CIT [1978] 111 ITR 53, which laid down principles for the valuation of closing stock, emphasizing that the method must be fair and consistently followed. The court noted that the Income-tax Officer disallowed the claim on three grounds: (i) the established practice of valuing investments at cost, (ii) the inconsistency of using different methods for opening and closing stock, and (iii) the loss not being written off in the books of account. However, the court held that the assessee is entitled to value the closing stock at cost or market value, whichever is lower, provided the change is bona fide and consistently followed. The court further referenced Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC) and CIT v. Shoorji Vallabhdas and Co. [1962] 46 ITR 144 (SC), which support the principle that the absence of entries in the books of account does not preclude the assessee from claiming deductions or losses. The court concluded that the Tribunal was justified in approving the method of valuation adopted by the assessee for the relevant assessment year. Therefore, the second question was answered in the affirmative and against the Revenue. Supplementary Opinion: RAJENDRA BABU J. concurred, emphasizing that the change in the method of valuation of stock should be bona fide and consistently followed. He noted that the Revenue's contention that the loss was not adjusted in the books of account was not sufficient to discard the assessee's claim. The Commissioner (Appeals) and the Tribunal found the change bona fide and followed in subsequent years. Hence, the Tribunal's view prevailed.
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