1. This appeal under Section 260-A of the Income Tax Act, 1961 (‘the Act’ for short) is by the Revenue, questioning the correctness of the order dated 10th March 2005 passed by the Income Tax Appellate Tribunal, Bangalore Bench in ITA No.382 (Bang)/1997.

2. In this Appeal, the Revenue has urged many questions of law for our consideration and in terms of the order dated 21-8-2006, while admitting the appeal, the following questions of law had been framed for examination as arising out of the order of the Tribunal:

(1) Whether, the Tribunal was correct in holding that in proceeding to hold that loss of Rs.1,09,10,252/-on revaluation of security in an allowable deduction.?

(2) Whether, the Tribunal was correct in holding that the conclusion drawn by the Assessing Officer that the securities held by the assessee were Government Security and as per RBI introduction they had to be held for a period of more than 10-15 years as permanent assets which would assume the character of a capital asset over which the question of allowing law an account of revaluation of capital assets did not arise?

(3) Whether, the Tribunal was correct in holding that the Assessing Officer had correctly granted relief in respect of bad debts claim of a sum of Rs.1,96,71,030/-and the balance claim of Rs.5,24,74,740/-had been correctly disallowed as the requirement of Section 36(1)(vii) and 36(1)(vii-a) had not been complied with by the assessee.

(4) Whether the Tribunal was correct in holding that the Assessing Officer had correctly disallowed the claim made by the assessee regarding entertainment expenditure of Rs.16,21,016/-on the basis that 50% should be treated a expenditure relating to staff and cannot be brought under the rigor of Section 37(2) of the Act as there was no evidence produced to support such a claim nor was a claim in this regard was made in the return of income.

(5) Whether, the Tribunal was correct in holding that the judgment of Can Bank Financial Services was applicable to the facts of the present case when the Assessing Officer had held that the deduction under Section 80M was allowable in respect of net dividend income after deducting expenses relating to such income and not on the gross dividend as claimed by the assessee.

3. The Assessee is a public limited Banking Company carrying on the activities of banking and the assessment year is 1993-94. On filing of the returns of the company, the Assessing Officer has completed the assessment, after issuance of notice to the Assessee under Section 143 (2) of the Act as the Assessing Officer, prima facie found that many deductions, exemptions etc., as by way of expenditure or otherwise claimed by the Assessee were not admissible.

4. One such claim for deduction was the claim of the assessee for a sum of Rs.1,09,10,252/-to be allowed as loss, in the wake of revaluation of securities classified as permanent assets. The assessee having valued its securities for investments which the assessee had held for the purpose of complying with the RBI instructions that a minimum percentage of its total deposits to be invested in such securities, in the wake of deposits that it had received from its customers as part of its business activity. The assessee had indicated such investment as a permanent asset and had claimed that it was held as stock-in-trade, being a part of the trading asset.

5. The assessee had claimed that though none of these securities had been actually transferred resulting in a loss, on sales, the loss was being computed on the premise that on valuing securities at market value on the last date of the financial year, the market value of the assets having gone down, the assessee had incurred a loss of Rs.1,09,10,252/-as the market value of the securities was less than the cost of acquisition and the security being held as stock-in-trade, the assessee is entitled to evaluate the stocks at the market value and therefore can claim it as a business loss, which in fact was the