TMI Blog1967 (6) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The Income-tax Officer started reassessment proceedings under section 34(1)(b) of the Act on February 7, 1958, to assess this deemed dividend income. In the meantime, the Income-tax Officer had completed the assessee's assessment for the subsequent year 1954-55, and h ad disallowed the assessee's claim for loss of Rs. 9,93,686 on the sale of shares for that year. In the course of that assessment proceedings the Income-tax Officer found that, (i) the loss claimed arose from the sale of shares of companies which were under the control of the Sahu Jain group, and (ii) that the purchases and sales of shares by the assessee-company were a part of the general rearrangement and transfer of shares originally held by the companies and others of the Sahu Jain group to gain control over these companies, from one to another with a view to shift the losses due to depreciation. The Income-tax Officer scrutinised the purchases and sales of the shares by the assessee and found that the shares were purchased from various companies controlled by this group and also from members of the Dalmia or the Jain families and that the shares have ultimately been sold to other companies of the group or to o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier meetings though such striking out was not initialed by the chairman of the board of directors. The Income-tax Officer, accordingly, held that these shares were being held by the assessee-company as investment and the transactions amounted to transfer of these shares from one company to another under the control of the Sahu Jain group due to some reasons other than the motive of trade and the resulting loss was not a trading loss. The Income-tax Officer therefore disallowed the claim for loss for the assessment year 1954-55. It his order of reassessment under section 34 for the assessment year 1953-54, the Income-tax Officer examined some of the major transactions of purchases and sales of shares and found that both the ultimate sellers and purchaser of the shares were companies and persons over whom the Dalmia and the Sahu Jain groups had direct or indirect control. Following his reasons for disallowing the claim for loss on sale of shares for the assessment year 1954-55, the Income-tax Officer disallowed the claim for loss of Rs. 5,14,295 in this year and reduced the loss allowed in the original assessment to that extent. On appeal from the order of assessment, the App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng would clearly indicate that the transactions were, in fact, dealings in shares. Further, the assessee's articles of association permitted the assessee to deal in shares. It was further contended that the word " investment " was inadvertently used in the earlier resolutions of the board of directors and that the resolution of August 27, 1952, correctly showed the position that the shares were held as stock-in-trade. It was further submitted that the magnitude and the volume of the transactions and the close intervals at which the purchases and sales were made clearly showed that these were trading transactions. The Tribunal negatived all the aforesaid contentions of the assessee. It held that as proceedings under section 34 had been validly initiated in this case to reasses the dividend income deemed to have been distributed by virtue of the order under section 23A, the Income-tax Officer was competent to include items other than those in respect of which notice had been issued and for this proposition it relied on the decision of the Punjab High Court in Jagan Nath's case, referred to by the Appellate Assistant Commissioner. The Tribunal further observed that neither the order s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the sale of the shares had been finalised on June 12, 1952, when the assessee was aware of its position regarding loss on the sale of these shares. The resolution of August 27, 1952, describing the shares, which had been acquired till then, as stock-in-trade was deliberately passed in order to prepare a case for the claim for the loss. The Tribunal agreed with the Appellate Assistant Commissioner that the purchase of the shares, on the sale of which the loss occurred, had been originally made as capital investment and it was only at the end of August, 1952, when the assessee had already incurred huge losses on the sale of these shares, that the assessee thought of recording the resolution treating those shares as stock-in-trade. The Tribunal was not impressed with the assessee's contention that the magnitude and frequency of the purchases and sales as also the short interval between transactions indicated that the purchases and sales were made under a scheme of profit-making. The Tribunal ultimately held that there was sample evidence on record to establish that the shares which were disposed of during the accounting period were acquired earlier as a measure of investment and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for which he could not have initiated separate proceedings under section 34, the assessee's substantial rights would be affected. He also submitted that the Punjab High Court in Jagan Nath Maheshwary's case, which had been relied on by the Tribunal, had not considered these aspects and the decision required reconsideration. It was next contended by Mr. Pal that, even if it be held that the proceeding under section 34(1)(b) was rightly initiated, there was no fresh information in the possession of the Income-tax Officer in consequence of which he could have any reason to believe that any income chargeable to tax had escaped assessment. At the time of the original assessment the assessee had produced its books of account before the Income-tax Officer and had furnished all information called for and on the scrutiny of such a ccounts and consideration of the information supplied, the Income-tax Officer had accepted the assessee's claim for loss on the sale of the shares as a trading loss. The successor Income-tax Officer had taken a different view in his assessment order for the subsequent year 1934-35 and following that view had disallowed the loss as not being a trading loss in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the assessment of an assessee is reopened under section 34(1)(a), the Income-tax Officer is not limited to any specific allegations of suppression mentioned in the notice. The entire assessment is liable to be reopened and if on such re-examination it is seen that, by reason of the failure of the assessee to disclose fully and truly all material facts, any other sums had also escaped assessment, it is within the jurisdiction of the Income-tax Officer to include them as well." Mr. Mitter further submitted that it was not correct to say that the Income-tax Officer's finding that the assessee's dealings in shares during the accounting year did not amount to normal trading activities was a mere change of opinion. The following facts which came to the knowledge of the Income-tax Officer during the assessment proceedings for 1954-55, were not disclosed at the time of the original assessment for 1953-54, namely, (1) that according to the minutes of the meetings of the board of directors, the shares were purchased as investments ; (2) that the shares were shown as investments in the balance-sheet of the earlier years ; (3) that the shares were purchased with money borrowed from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or failure on the part of an assessee to make a return of his income under section 22 for any year or to disclose fully and truly material facts necessary for his assessment for that year, income, profits or gains chargeable to income-tax have escaped assessment for that year, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under the Act, or excessive loss or depreciation allowance has been computed, or (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income, profits or gains chargeable to income-tax have escaped assessment for any year, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under this Act, or that excessive loss or depreciation allowance has been computed. he may in cases falling under clause (a) at any time within eight years and in cases falling under clause (b) at any time within four years of the end of that year, serve on the assessee, or, if the assessee is a company, on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the resolutions of the board of directors approving the purchase of shares as investment and the relative sale vouchers showing the sales as sales of investment were not disclosed to the Income tax Officer at the time of the original assessment. Even if such information came to the Income-tax Officer in the course of the assessment of a subsequent year, it would constitute information to justify the Income-tax Officer's belief that income had escaped assessment or that excessive loss had been computed. The observations of the Madras High Court in Family of V. A. M. Sankaralinga Nadar quoted above supports this view. A recent decision of the Gujarat High Court in Kanji Ranchhod v. Commissioner of Income-tax was brought to our notice. In that case, the Income-tax Officer had initiated reassessment proceedings under section 34(1)(a) to assess a credit entry of Rs. 21,352 which the assessee had failed to disclose. During the course of reassessment proceedings, the Income-tax officer found that the entry did not relate to a credit for the year of account and was not taxable in that years. He, however, found another cash credit of Rs. 13,300 which had also not been disclosed and included ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , to 10th June, 1952, and that the entire lot were sold between the 28th June, 1952, and 30th September, 1952, resulting in a loss of Rs. 50,354 and submitted that the magnitude and frequency of the purchases and sales would show that the assessee was dealing in shares. All the shares were purchased and sold at the prevailing market rates and were effected through recognised share brokers. The fact that the assessee had to borrow a large sum of money to purchase the shares would be further evidence that the assessee was dealing in shares. These facts together with the further fact that the assessee was permitted by its articles of association to deal in shares would, in the submission of the learned counsel, lead to the conclusion that the assessee was a dealer in shares. Mr. Pal referred us to the decision of the Supreme Court in Raja Bahadur Visheshwara Singh v. Commissioner of Income-tax, where it has been held that if, on the evidence which was before the Tribunal, i.e., the substantial nature of the transactions, the manner in which the books had been maintained, the magnitude of the sares purchased and sold and the ratio between the purchases and sales and the holdings, the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... still be a revenue loss. But it is riot permissible for Mr. Pal to advance this argument as it does not arise out of the questions referred to this court. Mr. Gouri Mitter submitted that the assessee was incorporated in 1949 with a share capital of Rs. 50,000. In the next year a substantial sum was borrowed from an allied company and shares were purchased and held as investment. In the year under reference also substantial purchases were made out of the original borrowing and the purchases were, according to the relevant resolutions of the board of directors of the assessee-company, shown as investment. When the time came for setting off the profits earned by the assessee, the resolution of the 27th August, 1952, was passed. As this resolution was ccntradictory to the previous resolutions, the word " investments " was deleted. Even more important was the fact that when these shales were sold, in the internal sale vouchers of the assessee-company the sales were shown as investments. Mr. Mitter referred us to the order of the Tribunal and pointed out that the Tribunal not only relied on the earlier resolutions of the board of directors but also on the sale vouchers and the further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which trading transactions were carried on alter the real character of the acquisition. On a consideration of the various resolutions of the assessee's board of directors approving the purchases of these shares, the treatment of the shares as investment in earlier years, and the relevant sale vouchers, the Tribunal has held that the shares were acquired as investment and were not purchased in the course of the assessee's business as a dealer in shares. The Tribunal had rejected the assessee's contention that the shares constituted its stock-in-trade as shown in the balance-sheet for the relevant accounting year and which was in accordance with the resolution of its board of directors dated the 25th August, 1952, as it was of the opinion that the resolution of the 27th August, 1952, was deliberately pased to convert a capital loss into a trading loss. The Tribunal refused to accept the assessee's explanation that the description of the shares as ivestments in the earlier resolutions was due to misapprebension which was rectified by the later resolution. The Tribunal has pointed out that even in the assessee's own sale vouchers these shares had been shown as investments and no attemp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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