UNITED COMMERCIAL BANK, CALCUTTA versus COMMISSIONER OF INCOME TAX, WEST BENGAL-III CALCUTTA.

Citation: [1999] SUPP. 3 S.C.R. 254 · Decided: 29-09-1999 · Supreme Court of India · Bench: D.P. WADHWA · Disposal: Appeal(s) allowed

Judgment (excerpt)

A 
B 
UNITED COMMERCIAL BANK, CALCUTTA 
v. 
COMMISSIONER OF INCOME TAX, 
WEST BENGAL-III CALCUTTA. 
SEPTEMBER 29, 1999 
[D.P. WADHWA AND M.B. SHAH, JJ.] 
Income Tax Act, 1961-S.145-Stock-in-trade (investments}-Valua-
tion of-Nationalised Bank-Valuing its stock-in-trade at cost in balance sheet 
C and valuing the same at cost or market value whichever was lower for the 
purposes of Income Tax-Method followed consistently for thirty years and 
accepted by Department-Assessment year 1982-83-Assessee Bank submit-
ting tax return claiming notional loss on account of valuation of closing stock 
of securities at market value-Permissibility of-Held, closing stock can be 
D valued at cost or market value whichever was lower--Method adopted by a 
tax payer consistently cannot be discarded by the Department on the ground 
that he should have adopted a different method of keeping accounts or of 
valuation-Assessee Bank's claim allowed-Banking Regulation Act, 1949 
Ss.29 and 53. 
E 
Appellant-assessee, a Nationalised Bank, had been valuing its stock-
in-trade at cost in its balance sheet. However for the purposes of Income 
Tax return, it had been valuing the very same investment at cost or market 
value whichever was lower. The said method of valuation was adopted 
consistently for the least 30 years and was accpeted by the Department. 
F Central Government by a Notification dated 12.5.1982, exempted the as~ 
sessee bank from mentioning its market value of the investments under 
different sub-heads separately within brackets in the balance sheet. For 
the Assessment Year 1982-83, assessee Bank claimed notional loss on 
account of closing stock of securities at market value, which ws allowed 
G by Inspecting Assistant Commissioner of lricome Tax. However, Commis-
sioner of Income Tax rejected the claim holding that assessee Bank had 
no right to calculate profit or loss in trading account by excluding it from 
its own final accounts. On appeal, Income Tax Appellate Tribunal allowed 
the deduction of notional loss from book profit on the ground that the 
assessee Bank was following the same method of valuation for claiming 
H loss consistently for the last 30 years. On reference, High Court came to 
254 
; 
UNITED COMMERCIAL BANK v. C.I.T. 
255 
the conclusion that since the Bank had not followed the method of cost A 
or market value whichever was lower, in preparing accounts consistently, 
it could not claim notional method of stock valuation only for the pur-
poses of Income Tax. Hence the present appeal. 
Allowing the appeal, the Court 
HELD : 1. It is an established rule of commercial practice and ac-
ccountancy that closing stock can be valued at cost or market value 
Whichever is lower. In the balance sheet, if the securities and shares are 
valued at cost but from that no firm conclusion can be drawn, a taxpayer is 
free to employ, for the purpose of his trade, his own method of keeping 
accounts, and for that purpose, to value stock-in-trade either at cost or 
market price. Hence, for the purpose of income tax whichever method is 
adopted by the assesee a true picture of the profits and gains, that is to say, 
B 
c 
the real income is to be disclosed. For determining the real income, the 
entries in a balance sheet required to be maintained in the statutory form, 
may not be decisive or conclusive. In such cases, it is open to the Income Tax D 
Officer as well as the assessee to point out the true and proper income while 
submitting the income tax return. Under S.145 of the Act, in a case where 
accounts are correct and complete but the method employed is such that in 
the opinion of the Income Tax Officer, the income cannot be properly 
deduced therefrom, the computation shall be made in such manner and on 
E 
such basis as the Income Tax Officer may determine. 
[262-D; 263-A-B; 265-E; 267-E-F] 
Chainrnp Sampatram v. Commissioner of Income Tax, West Bengal, 
(1953) 24 ITR 481 and UCO Bank v. CIT, (1999) 237 ITR 889, relied on. 
State of Travancore v. CIT, Kerala, (1986) 158 ITR 192 and Commr. 
of Income Tax v. British Paints India Ltd., (1991) 188 ITR 44, held inap-
plicable. 
Navnit Lal (C) Javeri v. K.K Sen, (1965) 56 ITR SC 198 and Keshavji 
Ravji & Co. v. CIT, (1990) 183 ITR 1 SC, referred to. 
2. A method of accounting adopted by .the tax payer consistently 
and regularly cannot be discarded by the departmental authorities on the 
view that he should have adopted a different method of keeping accounts 
or of valuatio

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