COMMISSIONER OF INCOME TAX Vs. UCO BANK

JUDGEMENT

(1.) In this reference at the instance of the Revenue, the following questions have been referred by the Tribunal for the opinion of this court under Section 256(1) of the Income-tax Act, 1961, for the assessment year 1982-83 :

(2.) The facts leading to this reference are as under : The assessee is a banking company. The assessment of the assessee-bank was originally completed by the Inspecting Assistant Commissioner (Assessment), Range-III, Calcutta, on March 19, 1985, on a total income of Rs. 2,57,59,020. Subsequently, the Commissioner of Income-tax initiated proceedings under Section 263 of the Income-tax Act, 1961. The Commissioner found that, in completing the assessment of the assessee-bank, the Inspecting Assistant Commissioner had allowed loss to the extent of Rs. 7,45,35,029 on account of revaluation of shares and securities appearing under the heading "Investments" in the balance-sheet of the assessee-bank.

(3.) The Commissioner found that the loss or profit on revaluation is never provided by the assessee-bank in its final accounts ; but, for arriving at the taxable income, it has deducted a notional loss from the book profit by working out the difference between the book value of shares as shown in its final accounts and the market price as prevailing on the last day of the relevant previous year. This, according to the Commissioner, was purely a hypothetical and/or contingent loss which was neither provided nor reflected in the books of account and the same was being claimed only for the purposes of income-tax assessment on notional basis. The Commissioner felt that since the taxable income has to be computed in accordance with the method of accounting consistently employed by an assessee, 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.