TMI Blog2014 (5) TMI 705X X X X Extracts X X X X X X X X Extracts X X X X ..... eated by the assessee during the Financial Year 2003-04 - The shares of Yield Investment Pvt. Ltd. were tradable shares whereas the shares of Off Shore India Limited were junk shares - The AO did not in fact apply discriminatory standard - He has demonstrated that the assessee valued the closing stock with respect to the shares of Yield Investment (P).Ltd. at the same rate at which they were valued at the beginning of the year whereas the block of 45,00,000 shares of Off Shore India Limited valued by the assessee on 1st April, 2003 at more than Rs. 5/- per share was valued on 31.3.2004 at Re.1/- only - It is not a fact that the assessee had given the same treatment to the shares of Off Shore India Limited and Yield Investment (P) Ltd. – thus, the order of the Tribunal is set aside - as opined by both the CIT (Appeals) and the learned Tribunal – The Valuation of the shares of Off Shore India Ltd. would be made in accordance with law and in doing so the Explanation to Rule 11 of 3rd Schedule to the Wealth Tax Act, 1957 may be taken into consideration by the AO - Decided against Revenue. - ITAT No. 206 of 2013, GA No. 3750 of 2013 - - - Dated:- 10-3-2014 - Girish Chandra Gupta An ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of shares of Offshore India Ltd. the reasons for which cannot be explained by the A/R. The assessing officer, in the circumstances, reduced the value of transfer from investment to stock-in-trade by a sum of Rs.2,47,05,000/-. Aggrieved by the order of the assessing officer, an appeal was preferred by the assessee before the CIT(A) who by his judgment and order dated 2nd June, 2008, allowed the appeal for the following reasons: The A.O. has justified the disallowance on the ground that the appellant followed different basis and method for accounting for recording transfer of shares from investment to stock and valuation of shares of Yield Investments (P) Ltd and Off-Shore India Ltd. I however, find that in both the cases the appellant have followed identical methods of accounting and valuation. The A.O. was not justified in accepting the accounting and valuation in the case of Yield Investments (P) Ltd and in not accepting the same accounting and valuation methodology in the case of Off- Shore India Ltd. In the factual background therefore, I have no hesitation in holding that the A.O. disputed the assessess s method of accounting for recording transfer of sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son to interfere with the order of the CIT(A), which is confirmed and the ground of Revenue is dismissed. The revenue has come up in appeal before this Court. The substantial question of law which arises in this appeal is, Whether the valuation of the shares of Off-Shore India Limited made on 1st April, 2003 when the block was transferred from investment to stock-in-trade was justified in law ? Mr. Khaitan, learned Senior Advocate appearing on behalf of the assessee, submitted that the valuation of the aforesaid shares of Off-Shore India Limited was made by the auditor on 29th March, 2004 at a minus sum of Rs.1.89 per share. Since the inventory could not be valued at a negative price, the entire block of shares of Off-Shore India Limited was valued at Re.1/-. He submitted that in doing so, the assessee followed the guidelines issued by the Reserve Bank of India. He drew our attention to paragraph 6(3) of the Non Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 1998 dated 31.1.1998, which is as follows : (3) Unquoted equity shares in the nature of current investments shall be valued at cost or break-up value, whichever is lower. However, NBFCs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... how that the value of these shares reached the minus figure of Re.1.89 per share on 29th March, 2004 over night. The fact on the contrary is that the aforesaid valuation was made by the auditor on the basis of the balance sheet for the financial year 2002-03. The fact that no provision for diminution of value of these shares during the financial year 2002-03 was made is a pointer, according to her, to show that the assessee consciously did not do so and sought to pass on the burdenupon the Revenue by the purported transfer from investment to stock in trade. So that the business profit could be set off against the aforesaid losses in investment suffered by the assessee.. She submitted that the ingenuity on the part of the assessee resorted to in order to avoid to pay tax for the profits earned from the business is apparent from the face of the record. Relying on a judgment of the Madras High Court in the case of R. Krishnaswamy Vs. Commissioner of Income Tax reported in 261 ITR 253, she submitted that the conversion into stock in trade was not a normal necessary step. It was on the contrary an artificial step introduced solely for the purpose of evading the liability to pay tax and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation date. He submitted that this Explanation was issued by the CBDT. Needless to mention that the assessee did not even follow the aforesaid Explanation in valuing the shares on 1st April, 2003. The order passed by the Assessing Officer was set aside by the CIT (Appeals) principally on the ground that different standards were applied by the Assessing Officer in accepting the valuation of the shares converted into stock in trade. It is a fact that the assessee had converted shares of Off Shore India Limited and Yield Investment (P) Ltd. The CIT (Appeals) held that The A.O. could not adopt diametrically opposite standards in relation to identical transactions which were carried out simultaneously and all essential attributes of both the transactions were same and identical. The A.O. was not justified in accepting tax effect involving transfer of shares of Yield Investment (P) Ltd. from Investments to stock in trade and out-rightly reject the taxation effect of transfer of shares in the case of Off Shares India Ltd. I, therefore, direct the A.O. to delete the addition of Rs. 2,47,05,000/. Ground No.1 is therefore allowed . The learned Tribunal has accepted the af ..... X X X X Extracts X X X X X X X X Extracts X X X X
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