Shah, J. - (1.) This appeal is filed by UCO Bank, Calcutta against the judgment and order dated 25th July, 1991 passed by the High Court of Calcutta in Income-tax Reference No. 73 of 1989. At the instance of Revenue, the Income-tax Appellate Tribunal referred the following two questions for the opinion of the High Court under Section 256(1) of the Income-tax Act, 1961 for the assessment year 1982-83:-"1. Whether on the facts and in the circumstances of the case, the Tribunal is justified in law in cancelling the CIT's order under Section 263 of the Income-tax Act holding that the case of State Bank of Travancore v. C.I.T., Kerala, 158 ITR 102 is not applicable to the facts of the present case 2. Whether on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the notional loss in the investment trading (India) to the extent of Rs.7,45,35.029 by working out a difference between the book value of shares as shown in the final account and their market price as on the last due (sic) of the accounts, is admissible to be deducted from the book profits of the assessee-Bank -
(2.) The High Court answered both the questions in the negative and in favour of the Revenue and arrived at the conclusion that stock valuation of shares shown in Bank's final accounts could not be permitted to be revalued at market value for income-tax purposes only.
(3.) The aforesaid questions arise in the context of the fact that appellant-assessee- Bank submitted return for the assessment year 1982-83 contending that there was notional loss of Rs. 7,45,35,029 on account of closing stock of securities at the market value. The Inspecting Assistant Commissioner of Income-tax, Assistant Range-III, Calcutta by the assessment order dated 19th March, 1985 accepted the same. The Commissioner of Income-tax, West Bengal by order dated 9th March, 1987 under S. 263 of the Income-tax Act, 1961 (hereinafter referred to as "the Act") set aside the said assessment order by holding that the Bank had no right to calculate profit or loss arising out of investment trading account as it has excluded it from the preparation of its own final accounts. Unless a Bank itself accepts the position by incorporating such loss or profit in the final accounts, it would have no right to put across such hypothetical loss for the purpose of income-tax assessment. The practice followed by the Bank is entirely contrary to the decision rendered by this Court in State Bank of Travancore v. CIT, Kerala, (1986) 158 ITR 102. The assessee was following mercantile system of accounting and loss claimed by the assessee had not been debited in the books of accounts.;