TMI Blog2012 (11) TMI 713X X X X Extracts X X X X X X X X Extracts X X X X ..... cost of acquisition of shares or market price or their fair market value is not impossible considering the availability of material on record. So far as the capital gain relatable to the capital asset so converted for the assessment year 2006-07, 1.4.2005 has to be taken as the date of conversion, which cannot be altered in respect of the capital assets sold in the relevant previous year. If any other assets are sold in the preceding assessment year 2005-06, assessment for which is allegedly reopened, about which there is no clarity before us, the date of conversion would be 1.4.2004. As there is need for data for determining the assessable capital gains upto the date of conversion and the business income upto the date of sale of the impugned capital asset for arriving at proper taxable ‘capital gains’ and the ‘business income’ within the meaning of the said provisions restore the matter to the file of the AO for computation - partly in favour of assessee. - ITA No.293/Hyd/2012 - - - Dated:- 27-7-2012 - SMT. ASHA VIJAYARAGHAVAN AND SHRI D.KARUNAKARA RAO, JJ. Appellant by : Shri Vijay Mehta Respondent by : Shri Dr M.S.Rao CIT DR ORDER Per D.Karun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. Thus, the ITAT disposed off the appeal of the assessee against the aforesaid order of the CIT u/s 263 of the Act vide its order dated 5th August, 2011, in ITA No.748/Hyd/2011, adjudicating against the assessee both on legal issues as well on merits, thereby confirming the findings of the CIT. A Miscellaneous Application filed by the assessee with a request to recall the above order of the Tribunal was also dismissed by the Tribunal vide its order dated 16th March, 2012 in MA No.193/Hyd/2011. Further, it has been brought to our notice that as of now, the Hon ble High Court of Andhra Pradesh is seized of the matter on legal and merits of the addition. 5. Consequent to the review order of the CIT u/s 263 of the Act, AO started the fresh assessment proceedings in pursuance of the direction of the CIT and passed the impugned order dated 23.8.2011 under S.143(3) read with S.263 of the Act In these proceedings, the assessing officer withdrew the exemption claimed under section 10 of the Act in respect of long term capital gains - LTCG of Rs.18,98,06,611/- and however, the assessee continued to claim the status of short term capital gains Rs.20,70,510/-. However, the AO/CIT/ITAT hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he benefits of sub-section (2) of S.45, mentioning that assessing officer has failed to provide trading account of shares and units sold during the financial year relevant to assessment year 2005-06. At the end, the CIT(A) dismissed the related ground of the assessee. 9. Aggrieved by the above order of the CIT(A), assessee filed the present appeal before us. Sri Vijay Mehta, Ld Counsel represented the assessee and Shri Dr M.S.Rao CIT DR represented the Revenue. 10. Learned counsel for the assessee mentioned that ground No.4 deals with the decision of the revenue in charging the impugned gains under the head business income against the assessee s claim of capital gains as claimed in the return. Assessee is of the view that the turnover of the assessee should not be treated as a trading turnover, as the shares/units sold are investments, as evident from the entries in the books of account of the assessee. In this regard, learned counsel reiterated various elaborate arguments undertaken by him before the various income-tax authorities below and also before the Hon ble Tribunal during the appeal proceedings in connection with the review order of the CIT. But the fact is that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtain whether an order sought to be revised under Section 263 is erroneous, it should be seen whether it suffers from any of the aforesaid forms of error. In our view, an order sought to be revised under Section 263 would be erroneous and fall in the aforesaid category of "errors" if it is, inter alia, based on an incorrect assumption of facts or an incorrect application of law or non-application of mind to something which was obvious and required application of mind or based on no or insufficient materials so as to affect the merits of the case and thereby cause prejudice to the interest of the revenue. 13. Examining the scope of the powers that may be exercised by the Commissioner in terms of S.263 of the Act, the Tribunal observed further as follows- 30. Section 263 of the Income-tax Act seeks to remove the prejudice caused to the revenue by the erroneous order passed by the Assessing Officer. It empowers the Commissioner to initiate suo moto proceedings either where the Assessing Officer takes a wrong decision without considering the materials available on record or he takes a decision without making an enquiry into the matters, where such inquiry was prima facie warrante ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim by the assessee stood automatically accepted without any scrutiny. The assessment order placed before us is clearly erroneous as it was passed without proper examination or enquiry or verification or objective consideration of the claim made by the assessee. The Assessing Officer has completely omitted the issue in question from consideration and made the assessment in an arbitrary manner. His order is a completely nonspeaking order. In our view, it was a fit case for the learned Commissioner to exercise his revisional jurisdiction under section 263 which he rightly exercised by cancelling the assessment order and directing the Assessing Officer to pass a fresh order considering the income declared by the assessee under the head long term capital gains amounting to Rs.18,98,06,611/- and short term capital gains at Rs.20,70,510/- together amounting to Rs.19,18,77,121/- as income under the head business . In our view, the assessee should have no grievance in the action of learned Commissioner. 35. It was however contended by the learned Counsel that the Assessing Officer had taken a possible view in accepting the return of the assessee with reference to head of income a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is not taking of any view that will take the matter under the scope of Section 263. The view taken by the Assessing Officer should not be a mere view in vacuum but a judicial view. It is well established that the Assessing Officer being a quasi-judicial authority cannot take a view, either against or in favour of the assessee /revenue, without making proper inquiries and without proper examination of the claim made by the assessee in the light of the applicable law. As already stated earlier, we are not able to appreciate on what material was placed before the Assessing Officer at the assessment stage to take such a view. The assessee has also not been able to lead enough evidence to show to us that any inquiry was made by the Assessing Officer in this regard. Therefore mere allegation that the Assessing Officer has taken a view in the matter will not put the matter beyond the purview of Section 263 unless the view so taken by the Assessing Officer is a judicial view consciously based upon proper inquiries and appreciation of all the relevant factual and legal aspects of the case. The judicial view taken by the Assessing Officer may perhaps place the matter outside the purview ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which can be drawn is that the income earned by the assessee out of sale and purchase of these shares was an income under the head profit and gains of business or profession . We see no justification in lengthy argument of the assessee s counsel that the profit arising to assessee on sale of shares acquired by it was assessable as income from capital gain . In our considered opinion, after considering the cumulative effect of the facts and circumstances of the case, the CIT is justified in treating the profit arising out of sale of shares acquired by the assessee as income from business. 14. Considering the binding nature of the decision of the coordinate Bench, we find no infirmity in the order of the CIT(A) on this issue. Even though an appeal is claimed to have been preferred by the assessee against the said decision of the coordinate Bench of this Tribunal, no order of the Hon ble High Court, either interim or final, affecting the enforceability of the said order of the Tribunal has been brought to our notice. In this view of the matter, respectfully following the said order of the coordinate Bench of the Tribunal in assessee s own case for the assessment year 2006-07 itse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost of acquisition should be assessed under the head capital gains ; (2) To find out the business income on the sale of the shares/redemption of units. The difference between sale price of the stock and the market price as on 1.4.2005 arrived at and subject the same to the provisions applicable to the income from the head profits and gains form business or profession . 17. It is evident from the orders of the revenue that during the proceedings before them, the AO asked the assessee to file the relevant computation and the assessee filed the details without prejudice to its original claim. In the remand proceedings, the assessing officer strongly objected to the applicability of the provisions of S.45(2) and to the alternative claim of the assessee, by holding that the assessee never actually converted the shares/units into the stock in trade and never treated such stock in the books of account as stock in trade by preparing a trading account, with opening balance, closing stock, etc. In response, the assessee submitted its helplessness and relied on the consistent method of accounting followed by it in the matters of valuation of the stock, bases of valuation, etc. and pra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ading in shares/units during the financial year relevant to AY 2005-06 also, all the investment held by the appellant in earlier years cannot be conclusively said as converted into stock in trade on 1.4.2005 only. Accordingly, till such time as at which the appellant expressly converts and treats such investments as stock in trade on a particular date, or the date of such conversion is determined after looking into the transactions of the appellant inv arioso scrips in the earlier years, the benefit of Sec.45(20 of the Act cannot be extended to the appellant 18. From the above, it is evident that the CIT(A) in principle accepted that the assessee s right in asking for the benefits of S.45(2) on the date of conversion of shares/units held as investments earlier into stock in trade. He however, ultimately could not come to a conclusion on the actual date of such conversion and ultimately observed that the assessee never conceded the fact of conversion of such investment into stock in trade, and therefore, in the absence of clarity on conversion, he held that the question of applicability of provisions of S.45(2) does not arise to other facts of the present case. He also di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee by the assessing officer, it is for the assessing officer to apply the provisions of sub-section (2) deeming that such a conversion or treatment as having been done by the assessee. It is the duty of the AO to make assessment as per the provisions of the Act and relied on various judgments to strengthen his argument. Further, he argued stating that by expecting the assessee to prepare the financial statements including the trading account demonstrating the said impugned conversion of shares, and submit the same for availing the benefits of section 45(2) of the Act, it amounts to asking for the impossible. Ld counsel reasoned by asking that how could the assessee alter the entries in the books when he entirely rely on the same entries and more so, when the matter is sub judice?. How could the assessee concede on this issue at this point of time subjecting himself to the double loss ie (i) on account of loss of the original claim of concessional tax rates specified in section 113A of the Act; and (ii) creating an evidence against himself by altering the entries. Elaborating the same, Ld counsel mentioned that when AO disturbed the claim of the assessee, it is for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the duty of the Tribunal, even without an alternative submission, to pass necessary consequential orders suo motu to give such further directions in the matter as the situation may warrant. 20. Without prejudice to the above arguments, he mentioned that the denial of deduction for want of clarity on the cost of acquisition and likely multiple rectification orders, assessee cannot be denied the benefit of the said sub-section (2) of s.45 of the Act. The learned counsel further summed up by saying that in the facts of the case, where the assessee raised an alternative ground without prejudice to the entries in the books of account and when the assessee supplied the computation detailing the manner in which the provisions of S.45(2) of the Act should be applied, the assessee cannot be denied the benefit for want of failure to furnish trading account, which is not the requirement of law. Further, he argued stating that for any reason, the law cannot be applied to the facts of a case, when under the procedural law it is not possible to compute the income applying the said provision, the stand taken by the assessing officer that the transactions in question are not the business t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits and gains from business or profession . This view is upheld by this Tribunal and the matter is pending before the Hon ble High Court. Impugned shares/MF are shown as investments in the Books of accounts of the assessee. It is undisputed fact that the AO thrust on the assessee conversion of shares so held as investment and refused to apply the provisions of section 45(2) on the reasoning that the assessee has neither conceded the said conversion nor made necessary entries in the books to that effect. Further, it is an undisputed fact that the in principle, the CIT(A) upheld the applicability of the said provisions and however, rejected the claim on the reasoning that the assessee neither conceded the said conversion nor made necessary entries in the books. Further reasoning given by the CIT(A) is that the conversion date of 1.4.2005 for the purpose of determining the FMV of the said shares is subjected to the alterations in view of the proposed proceedings u/s 148 of the Act. FMV value as on the date of conversion is needed to determine the capital gains in accordance with the provisions of subsection (2) of section 45 of the Act. Therefore, the limited dispute, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties. 27. In the instant case, admittedly the assessee, the owner of the capital asset, neither converted the capital asset into stock in trade nor treated the same into the stock in trade of the business of the assessee. However, the conclusions drawn by the AO and the CIT(A) are now approved by this Tribunal and as of now, said conversion is now a legal reality. Therefore, the provisions of section 45(2) of the Act cannot be made inapplicable to the instant case merely for the reason that the assessee, the owner of the capital asset, has neither converted into nor treated the impugned investment as the stock in trade voluntarily. In denial of the same to the assessee, the Revenue authorities have adopted the principle of literal interpretation which must not have been done by the revenue in order to avoid the absurdity of interpretation as rightly held by the CIT(A) probably in view of the ratio of the Apex Court in the case of K P Verghese (131 TTR 597). The relevant paras are as follows: A strictly literal reading of a statutory provision ignores several vital considerations which must always be borne in mind while interpreting such provision. The task of interpr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me as the date of conversion for the purpose of adopting the FMV of the said shares /units on the reasoning that they have proposal to reopen the assessment for the AY 2005-06 and for this AY, the date of conversion ought to be 1.4.2004 instead. For this objection of the revenue, the assessee s counter arguments are that the revenue has not successfully reopened the assessment, which is legally sustainable. The proceedings are not completed as on the date of this order. Revenue cannot deny the rightful benefits of section 45(2) of the Act to the assessee. In fact, it is the duty of the AO to apply the said provisions and in case the capital gains cannot be computed for any reasons of that kind, the AO must not disturb the claim of the assessee as done in this case. 30. This debate arises in view of the peculiar position of this case, where the proceedings for reopening of assessment under S.148 were initiated for assessment year 2005-06. It is the apprehension of the Revenue authorities that 1.4.2004 may turn out to be the date of conversion in respect of some assets considering the fact of reopened assessment proceedings for the assessment year 2005-06. The contention of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee need not alter the entries in the books of account, as demanded/insisted upon by the Department. This kind of concessions, if given by the assessee to the revenue, would be counterproductive to the assessee s method of accounting and in no case entries in the books shall be altered, as made out by the learned counsel for the assessee. In our opinion, the assessee cannot be put to loss on both the counts one on account of change in the head of income in respect of the impugned short term capital gains; and (2) on account of denial of benefits of S.45(2). The approach of literal interpretation of the provisions of the Act by the Revenue authorities cannot be appreciated considering the fact that conversion/treatment thrust on the assessee by the Revenue authorities, by itself, must be construed as conversion into stock in trade by the owner. 32. Regarding the date of conversion, it is trite law that every assessment year is an unit of an assessment. Any transaction can be accounted by applying accounting entries, arriving at the cost of acquisition of shares or market price or their fair market value is not impossible considering the availability of material on reco ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
