MRS RAJNI DHARAMCHAND JAIN, MUMBAI v. DCIT 16(1), MUMBAI

ITA 1180/MUM/2006 | misc
Pronouncement Date: 09-04-2014 | Result: Partly Allowed

Appeal Details

RSA Number 118019914 RSA 2006
Assessee PAN ADBPJ8142J
Bench Mumbai
Appeal Number ITA 1180/MUM/2006
Duration Of Justice 8 year(s) 1 month(s) 23 day(s)
Appellant MRS RAJNI DHARAMCHAND JAIN, MUMBAI
Respondent DCIT 16(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 09-04-2014
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted I
Tribunal Order Date 09-04-2014
Date Of Final Hearing 17-02-2014
Next Hearing Date 17-02-2014
Assessment Year misc
Appeal Filed On 16-02-2006
Judgment Text
I IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH MUMBAI BEFORE SHRI D. KARUNAKARA RAO AM AND SHRI SANJAY GARG JM ./I.T.A. NO.1180/M/2006 ( / ASSESSMENT YEAR: 2002 - 2003 ) MRS. RAJNI D JAIN FLAT NO.1A GROUND FLOOR BANOO MANSION CUMBALA HILL MUMBAI 400 026. / VS. THE DCIT - 16(1) INCOME TAX OFFICE MATRU MANDIR MUMBAI. ./ PAN : ADBPJ 8142 J ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI DEVENDER MEHTA / RESPONDENT BY : SHRI ASHOK SURI DR / DATE OF HEARING : 17.2.2014 / DATE OF PRONOUNCEMENT : 09. 4.2014 / O R D E R PER D. KARUNAKARA RAO AM: THIS APPEAL FILED BY THE ASSESSEE ON 16.2.2006 IS AGAINST THE ORDER OF THE CIT (A) - XVI MUMBAI DATED 9.12.2005 FOR THE ASSESSMENT YEAR 2002 - 2003. 2. IN THIS APPEAL ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER : 1. THE ORDER PASSED BY THE LD CIT (A) CONFIRMING THE ASSESSMENT ORDER PASSED BY THE AO U/S 143(3) OF THE INCOME TAX ACT 1961 IS BOTH BAD IN LAW AND BAD IN FACTS. PROFIT ON EXPORT OF JEWELRY TREATED TREATED AS LONG TERM CAPITAL GAINS AND REJECTION OF ASSESSEES C LAIM FOR DEDUCTION U/S 80HHC 2. THE LD CIT (A) ERRED IN LAW AS WELL AS IN FACTS IN HOLDING THAT THE DATE OF CONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE WAS 8.5.2001 AND NOT 30.03.1998 AS CLAIMED BY THE ASSESSEE. 2.1. THE LD CIT (A) ERRED IN LAW AS WELL AS IN FACTS IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER WHEREBY PROFIT OF RS. 1 23 43 789/ - FROM EXPORT OF JEWELRY WHICH WAS HELD BY THE ASSESSEE AS STOCK IN TRADE WAS TAXED AS LONG TERM CAPITAL GAINS AT RS. 96 09 583/ - . 2.2. THE LD CIT (A) ERRED IN LAW AS WELL AS IN FACTS IN CONFIRMING THE REJECTION OF ASSESSEES CLAIM FOR DEDUCTION OF RS. 86 40 652/ - U/S 80HHC OF THE INCOME TAX ACT 1961 BY THE ASSESSING OFFICER. 3. THE FACTS NECESSARY FOR ADJUDICATION OF THE APPEAL ARE THAT THE ASSESSEE IS THE P ROPRIETOR OF M/S. RAJNI CREATIONS FILED THE RETURN OF INCOME DECLARING THE TOTAL 2 INCOME OF RS. 37 28 570/ - FOR THE AY 2002 - 03. THE RETURN FOR THE AY 2001 - 02 WAS ALSO FILED BELATEDLY ON THE SAME DATE. IN THE ASSESSMENT U/S 143(3) OF THE ACT AO NOTICED T HAT THE ASSESSEE EARNED EXPORT PROFITS OF RS. 1 23 43 789/ - AND CLAIMED DEDUCTION U/S 80HHC OF THE ACT. THERE ARE NO PURCHASES IN THE PROFIT AND LOSS ACCOUNT. HOWEVER AO FOUND THAT THE ASSESSEE DECLARED GOLD / SILVER O RNAMENTS AND DIAMOND JEWELRY UNDER VDIS SCHEME AMOUNTING TO RS. 20 01 539/ - AND HAVE OBTAINED THE CERTIFICATE ON 26 TH MARCH 1998 U/S 68(2) OF THE VDIS SCHEME. OUT OF THE SAID DISCLOSURE JEWELRY WORTH RS. 13 38 423/ - WAS CONVERTED INTO STOCK - IN - TRADE ON 30.3.1998 AND EXPORTED IN THE CURRE NT ASSESSMENT YEAR FOR CONSIDERATION OF RS. 1 37 13 592/ - . ON THIS ISSUE DURING THE ASSESSMENT PROCEEDINGS IT WAS SUBMITTED BY THE ASSESSEE THAT THERE WAS A CONVERSION OF CAPITAL ASSET INTO STOCK - IN - TRADE ON 30.3.1998. IN SUPPORT OF THE SAID CONVERSION ASSESSEE FIELD A NOTARIZED AFFIDAVIT COPY OF THE BALANCE SHEET AND A COPY OF THE VALUATION REPORT OF THE GOVERNMENT APPROVED VALUER DATED 25.2.2005 SHOWING THE VALUE OF THE ITEMS AS ON 30.3.1998. AO EXAMINED THE TAXABILITY OF THE SAID EXPORT INCOME UND ER THE HEAD CAPITAL GAINS OR BUSINESS INCOME. AO ALSO EXAMINED THE APPLICABILITY OF THE PROVISIONS OF SECTION 45(2) OF THE ACT ON THE ISSUE OF CONVERSION / TREATMENT GIVEN BY THE ASSESSEE. ASSESSEE FILED WRITTEN SUBMISSIONS ASCERTAINING THE FACT OF C ONVERSION AND THE APPLICABILITY OF THE PROVISIONS OF SECTION 45(2) OF THE ACT . AS PER THE ASSESSEE IT IS NOT THE REQUIREMENT OF THE LAW THAT THE PROFITS OF CAPITAL GAINS SHOULD BE DISCLOSED IN THE RETURN OF INCOME IN THE YEAR OF CONVERSION. FURTHER IT I S THE CASE OF THE ASSESSEE THAT THERE IS NO NEED FOR ASSESSEE TO BE ALREADY IN THE EXISTING BUSINESS BEFORE ANY SUCH CONVERSION OF CAPITAL ASSET INTO STOCK - IN - TRADE IS REPORTED. AO VIDE PARA 12 OF HIS ORDER HELD AS UNDER: 12. I AM NOT IN AGREEMENT WITH T HE CONTENTION OF THE ASSESSEE THAT INCOME EARNED BY HER SHOULD BE GIVEN DUAL TREATMENT AS SUGGESTED BY HER. FIRST OF ALL HER CONTENTION THAT THE ASSETS WERE CONVERTED INTO STOCK - IN - TRADE WAY BACK ON 30 TH MARCH 1998 HAS NO MERITS WHATSOEVER. SELF MADE D ECLARATION CANNOT BE THE CONCLUSIVE PROOF OF THE FACTS. THE ASSESSEE IS UNABLE TO PROVE THAT SHE HAD CARRIED ANY BUSINESS AT ANY TIME BEFORE AND AFTER 30 TH MARCH 1998 EXCEPT IN THE PRESENT ASSESSMENT YEAR. 4. HE MENTIONED IN DETAIL THAT THE A SSESSEE IS REQUIRED TO BE CARRY ON THE BUSINESS ON THE DATE OF CONVERSION OF ASSET INTO STOCK - IN - TRADE. HE ACCORDINGLY CONCLUDED VIDE PARA 15 OF HIS ORDER WHICH READS AS UNDER: 3 15. IN THE LIGHT OF THESE FACTS I HOLD THAT THE ASSESSEE HAS CONVERTED HIS ASSETS INTO STOCK - IN - TRADE ONLY IN THE ASSESSMENT YEAR 2002 - 2003 AS THE BUSINESS IS STARTED IN THAT ASSESSMENT YEAR ONLY. AS PER THE LAW FOR THE PURPOSE OF WORKING LONG TERM CAPITAL G AIN AND SECTION 48 THE FAIR MARKET VALUE IS FULL VALUE OF THE CONSIDERATION RECEIVED BY HER I.E. RS. 1 37 01 752/ - . THE INCOME EARNED BY THE ASSESSEE IN THE EXPORT OF THE JEWELRY HAS TO BE TAXED UNDER THE HEAD LTCG 5. FINALLY THE AO RECOMPUTED THE LONG TERM CAPITAL GAINS AT RS. 96 09 583/ - AFTER WORKING OUT THE INDEX COST AT RS. 40 72 629/ - AND ALLOWED THE EXPENSES U/S 48 OF THE ACT . EVENTUALLY AO DETERMINED THE TOTAL INCOME AT RS. 96 35 020/ - AGAINST THE RETURNED INCOME OF RS. 37 28 570/ - . IN SU MMARY IT IS THE CASE OF THE AO THAT (A) THE ASSESSEE COULD NOT PRODUCE ANY EVIDENCE REGARDING CONVERSION OF CAPITAL ASSET INTO STOCK - IN - TRADE ON 30.3.1998. SELF MADE DECLARATION CANNOT BE THE CONCLUSIVE PROOF; (B) THE ASSESSEE FILED THE RETURN OF INCOME F OR AY 2001 - 02 ON 30.3.2003 IN WHICH NO BUSINESS INCOME WAS SHOWN; (C) IN THE TAX AUDIT REPORT THE INFORMATION GIVEN BY THE ASSESSEE IN COLUMN NO.11(B) (WHETHER THERE HAS BEEN ANY CHANGE IN THE METHOD OF ACCOUNTING EMPLOYED VIS - - VIS THE METHOD EMPLOYED IN THE IMMEDIATELY PRECEDING PREVIOUS YEAR?) READ AS UNDER WHICH CLEAR SHOWED THAT IT WAS THE FIRST YEAR OF THE PROPRIETARY CONCERN I.E. THIS IS FIRST YEAR OF PROPRIETARY CONCERN. N.A; (D) PLAIN INTERPRETATION OF THE SECTION 48 SHOWS THAT (I) THERE SHOULD BE CONVERSION OF CAPITAL ASSET INTO STOCK - IN - TRADE OR TREATMENT OF CAPITAL ASSET AS STOCK - IN - TRADE BY THE ASSESSEE; (II) THE STOCK IN TRADE SHOULD BE OF THE BUSINESS CARRIED ON BY THE ASSESSEE; (III) THE FAIR MARKET OF THE ASSET ON THE DATE OF CONVERSION SHALL BE THE FULL VALUE OF THE CONSIDERATION RECEIVED. MATTER TRAVELLED TO THE FIRST APPELLATE AUTHORITY. 6. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY ASSESSEE MADE ELABORATE SUBMISSIONS AND DISPUTED THE FINDINGS OF THE AO. ASSESSEE CRI TICIZED THE DEPARTMENTAL STAND OF TREATING THE WHOLE EXPORT PROCEEDS AS LONG TERM CAPITAL GAINS AND INVOKING THE PRO VISIONS OF SECTION 48 AND IGNORING THE FACT OF CONVERSION OF ASSETS INTO STOCK - IN - TRADE. HE SUBMITTED TO CONSIDER SUCH CONVERSION ON 30.3.1 9 98 AND THE TREATMENT GIVEN IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. CIT (A) CONSIDERED THE SUBMISSIONS OF THE ASSESSEE. AS SEEN FROM PARA 3.1 OF THE IMPUGNED ORDER CIT (A) EXPLAINED THE PROVISIONS OF SECTION 45(2) AND CAME TO THE CONCLUSION THAT CARRYI NG ON ANY BUSINESS IS S IN E - Q UA - N ON FOR APPLICATION OF PROVISIONS OF SECTION 45(2) OF THE ACT. HE TREATED THE ASSESSEES NOTARIZED LETTER DATED 30.3.1998 AND THE 4 COPIES OF THE BALANCE SHEET FROM THE FY 1997 - 98 ONWARDS AS SELF SERVING DOCUMENTS AND THEY DO NOT INDICATE THE FACT OF CARRYING ON ANY BUSINESS BY THE ASSESSEE. THERE IS A REFERENCE TO THE AUDITORS IN THE AY 2002 - 2003 THAT THIS IS THE FIRST YEAR OF HER BUSINESS AND FINALLY HE CONFIRMED THE CONCLUSIONS OF THE AO AND THE SUMMARY FINDINGS OF THE CI T (A) ARE AS UNDER: (A) SECTION 45(2) RECOGNIZED CONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE AND PROVIDES FOR TAXABILITY IN THE YEAR OF SALE OR TRANSFER OF STOCK IN TRADE. IT HAS TWO TAX IMPLICATIONS VIZ. (I) PROFIT AND GAINS FROM BUSINESS AND (II) CAPITAL GAIN ON TRANSFER OF CAPITAL ASSET. (B) CONVERSION OF CAPITAL ASSET TAKEN PLACE ONLY IN THE CONTEXT OF A BUSINESS CARRIED ON BY THE ASSESSEE AND IT IS A SINE QUA NON FOR APPLICATION SECTION 45(2). THERE WAS NO PROOF OF ASSESSEE CARRYING ANY BUSINE SS BEFORE AND AFTER 31.3.1998 TILL ASSESSMENT YEAR 2002 - 2003. (C) HER DECLARATION AS WELL AS HER BALANCE SHEET AND CAPITAL ACCOUNT DID NOT INDICATE ABOUT CARRYING ON OF ANY BUSINESS DURING ASSESSMENT YEARS 1998 - 99 TO 2001 - 02. THE TAX AUDIT REPORT FILED BY HER INDICATED THAT ASSESSMENT YEAR 2002 - 2003 WAS THE FIRST YEAR OF HER PROPRIETARY CONCERN AND THERE WAS NO EVIDENCE THAT SHE WAS CARRYING ON THE BUSINESS IN THE PRECEDING ASSESSMENT YEARS ALSO. (D) SECTION 45(2) DOES NOT PERMIT CONVERSION OF CAPITAL ASSE T INTO STOCK IN TRADE IN THE PERSONAL ACCOUNT AND THEN ITS TRANSFER TO THE PROPRIETORSHIP CONCERN AT TWO DIFFERENT POINT OF TIME. THE CONVERSION HAS TO BE ONE EVENT ONLY. (E) THE CONVERSION ENTRY PASSED ON 30.3.1998 IS NOT A CREDIBLE PROOF IN THE ABSENCE OF HER CARRYING ON ANY BUSINESS. THE CASES RELIED UPON BY THE ASSESSEE WERE NOT APPLICABLE TO THE FACTS OF HER CASE. (F) THE PHRASE BUSINESS CARRIED ON BY HIM AS STATED IN SECTION 45(2) INDICATES PRESENT ACTIVITY AND NOT PRESENT INTENTION FOR FUTURE ACT IVITY. (G) CONSIDERING THE ABOVE FACTS THE DATE OF CONVERSION HAS TO BE TAKEN AS 8.5.2001. (H) THE AO WAS JUSTIFIED IN CONSIDERING EXPORT PROCEEDS AS FAIR MARKET VALUE ON THE DATE OF CONVERSION BECAUSE IT WAS NEAREST TO THE CONVERSION I.E. 8.5.2001. 6. 1. AGGRIEVED WITH THE SAME ASSESSEE FILED AN APPEAL BEFORE THE TRIBUNAL BY RAISING THE ABOVE MENTIONED GROUNDS. 7. DURING THE PROCEEDINGS BEFORE US SHRI DEVENDRA MEHTA LD COUNSEL FOR THE ASSESSEE EXPLAINED THE ABOVE FACTS OF THE CASE AND MENTIONED THAT THERE IS NO DISPUTE ON THE FIGURES. THE DISPUTE IS ONLY WITH REGARD TO (I) THE DATE OF CONVERSION / TREATMENT WITHI N THE MEANING OF SECTION 45(2) OF THE ACT. IN THIS REGARD ASSESSE RELIED ON THE NOTARIZED AFFIDAVIT OF THE ASSESSEE DATED 30.3.1998 THE COPIES OF THE BALANCE SHEETS WHICH REFLECTS THE FURNISHING OF THE DETAILS OF STOCK IN TRADE AFTER CONVERSION. (II) T HE COPY OF THE VALUATION REPORT OF THESE BOOKS OF ACCOUNTS ARE REJECTED BY THE REVENUE AS SELF - SERVING DOCUMENTS. IN THIS REGARD WE HAVE 5 PERUSED THE RELEVANT PAPERS FILED BEFORE US. ON THIS ISSUE WE FIND IT IS A CASE OF TAX PLANNING BY THE ASSESSEE OTH ERWISE ASSESSEE DOES NOT HAVE A TAXABLE INCOME FOR THE AYS 2008 - 2009 ONWARDS TILL THE YEAR 2000 - 2001. HOWEVER THE COPIES OF THE BALANCE SHEETS ARE PREPARED AND MADE AVAILABLE TO THE AO AT THE RELEVANT POINT OF TIME. ASSESSEE FILED THE RETURN OF INCOME F OR THE AY 2001 - 2002 ALONG WITH THE RETURN OF INCOME FOR THE AY 2002 - 03 AND IT DOES NOT INDICATE THE EARNI NG OF ANY BUSINESS INCOME. IT APPEARS THAT T HE ASSESSEE IS IN THE PROCESS OF REGULARIZING HER INCOME TAX FILES FROM THE AY 1998 - 99 TO 2001 - 02 AND ACT OF REGULARIZATION SEEMS TO BE IN ORDER. THEREFORE THE PROVISIONS OF SECTION 45(2) WHICH ALLOWS THE ASSESSEE TO CONVERT OR TREAT THE CONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE IS VERY MUCH IN ORDER. AO HAS NOT SUCCESSFULLY DEMONSTRATED THE ILLEGALIT Y OF THE ASSESSEE IN FURNISHING THE NOTARIZED AFFIDAVIT AND HE SIMPLY REJECTED THE SAME BY MERELY HOLDING IT AS A SELF - SERVING DOCUMENT. THEREFORE IN OUR OPINION 30.3.1998 AS THE DATE OF CONVERSION SHOULD NOT BE INFERRED. REGARDING THE REQUIREMENT OF T HE ASSESSEE CARRYING ON THE BUSINESS AS ON THE DATE OF SUCH CONVERSION THE CASE OF THE REVENUE IS THAT THE ASSESSEE SINCE NOT CARRIED ON ANY BUSINESS TILL THE CONVERTED STOCK IN TRADE IS EXPORTED AND THEREFORE ASSESSEE SHOULD NOT BE GIVEN THE BENEFIT OF SECTION 45(2). ON THE OTHER HAND THE CASE OF THE ASSESSEE IS THAT SUCH REQUIREMENT IS NOT ENVISAGED IN THE SAID PROVISIONS OF SECTION 45(2) OF THE ACT AND FURTHER MORE LD COUNSEL ARGUED THAT THE ASSESSEE CAN START THE BUSINESS WITH SUCH STOCK IN TRADE CO NVERTED AFTER 30.3.1998. TO SUPPORT THE ABOVE ASSERTION LD COUNSEL RELIED ON THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. JAHANGIR T. NAGREE (23 SOT 512). RELEVANT WRITTEN SUBMISSIONS GIVEN BY THE ASSESSEE IN THIS REGARD ARE NARRATED IN PARA 3.14 TO 3.16 WHICH READ AS UNDER: 3.14 AS REGARD CONTENTION OF THE C.I. T. (A). THAT THE PHRASE BUSINESS CARRIED ON BY HIM AS STATED IN SEC. 45(2) INDICATES PRESENT ACTIVITY AND NOT PRESENT INTENTION FOR FUTURE ACTIVITY IT IS SUBMITTED THAT THE HONBLE MUMBAI BENCH OF INCOME - TAX APPELLATE TRIBUNAL HELD IN THE CASE OF A.C.I.T. VS. JEHANGIR T. NAGREE (23 SOT 512) THAT THE WORDS BUSINESS CARRIED ON BY HIM DO NOT MEAN THAT BEFORE CONVERSION OF INVESTMENT OR CAPITAL ASSET IN TO STOCK - IN - TR ADE THE ASSESSEE MUST CARRY ON BUSINESS OF SHARE TRANSACTION OR SUCH A BUSINESS MUST BE IN EXISTENCE. IF THE ASSESSEE WOULD HAVE STARTED THE BUSINESS BY CONVERTING THE INVESTMENT INTO STOCK - IN - TRADE INSTEAD OF PURCHASING IT FROM THE MARKET COULD IT NOT BE CALLED THAT HE WAS IN THE BUSINESS OF TRADING IN SHARES ENABLING THE ASSESSEE TO AVAIL OF THE BENEFIT OF SECTION 45(2). THE RESTRICTIVE MEANING AS SUGGESTED BY THE REVENUE SHOULD NOT BE GIVEN TO THE WORDS BUSINESS CARRIED ON BY HIM IN THE LIGHT OF THE US E OF THE WORDS IN OTHER SECTIONS LIKE 6 SECTION 28(1 ). FROM ANY ANGLE JF THE FACTS OF THE CASE WERE VIEWED THE CONVERSION OF INVESTMENT IN SHARES AND SECURITIES IN STOCK - IN - TRADE WAS VALID AND THE ASSESSEE WAS ENTITLED TO BENEFIT OF SECTION 45(2) IN THE LI GHT OF HUGE VOLUME OF TRANSACTIONS IN SHARES. THUS CONVERSION OF INVESTMENT IN SHARES AND SECURITIES INTO STOCK - IN - TRADE WOULD BE VALID UNDER SECTION 45(2) EVEN IF BUSINESS OF TRADING OF SHARES IS NOT CARRIED ON BY AN ASSESSEE BEFORE SUCH CONVERSION. 3.15 IN THE ASSESSEES CASE SHE CONVERTED THE JEWELLERY INTO STOCK - IN - TRADE SOLELY FOR CARRYING ON JEWELLERY BUSINESS AND THE SAME WAS SHOWN AS STOCK - IN - TRADE IN THE RETURNS OF INCOME FILED BY HER. MERELY BECAUSE SHE ACTUALLY EXPORTED JEWELLERY IN THE ASSESSM ENT YEAR 2002 - 03 IT CANNOT BE SAID THAT SEC.45(2) OF THE ACT WAS APPLICABLE IN HER CASE IN THE ASSESSMENT YEAR 2002 - 03 AND NOT THE ASSESSMENT YEAR 1998 - 99 WHEN SHE CONVERTED THE JEWELLERY INTO STOCK - IN - TRADE. 3.16 AS REGARD CONTENTION OF THE CI. T. (A) AS WELL AS A. 0. THAT THE YEAR OF CONVERSION INTO STOCK - IN - TRADE WOULD BE ASSESSMENT YEAR 2002 - 03 [08.05.200] AS PER C.1T(A)] IT IS SUBMITTED THAT THE HONOURABLE MUMBAI BENCH OF INCOME - TAX APPELLATE TRIBUNAL HELD IN THE CASE OF A.C.I.T. VS. TATA HOUSING DE VELOPMENT CO. LTD. (139 TTJ 8) THAT CONSIDERING THE SCHEME OF THI4I IS CLEAR THAT IN CASE OF CONVERSION OF INVESTMENT INTO STOCK - IN - TRADE THERE MAY BE THREE SEPARATE YEARS INVOLVED AS IN THE INSTANT CASE; THE FIRST ONE IS THE YEAR WHEN THE ASSETS WERE PU RCHASED SECOND ONE IS THE YEAR IN WHICH THE INVESTMENT WAS CONVERTED INTO STOCK - IN - TRADE AND THIRD ONE IS WHEN STOCK - IN - TRADE WAS SOLD. SINCE ALL YEARS ARE SEPARATE YEARS AND RELATED ASSESSMENTS ARE ALSO FOR SEPARATE ASSESSMENT YEARS THE EXAMINATION OF THE TRANSACTION IS ALSO SUBJECT TO THREE ASSESSMENT YEARS BUT FOR DIFFERENT PURPOSES. THE GENUINENESS OF THE TRANSACTION CAN BE EXAMINED ONLY IN THE YEAR OF THE PURCHASE OF ASSETS. [IN THE INSTANT CASE BEFORE THE ASSESSMENT YEAR 1993 - 94J. FURTHER THE GEN UINENESS OF CONVERSION OF ASSETS FROM INVESTMENT INTO STOCK - IN - TRADE AND CALCULATION OF CAPITAL GAIN BY TAKING THE FAIR MARKET VALUE OF THE CAPITAL ASSETS ON THE DATE ON WHICH IT WAS CONVERTED OR TREATED AS STOCK - IN - TRADE AS THE SAME IS TO BE DEEMED AS FUL L VALUE OF THE CONSIDERATION RECEIVED AS A RESULT OF THE TRANSFER OF CAPITAL ASSETS CAN BE EXAMINED ONLY IN THE YEAR OF CONVERSION I.E. IN THE INSTANT CASE IN THE ASSESSMENT YEAR 1993 - 94. FURTHER IN THE YEAR OF SALE I.E. THE ASSESSMENT YEAR 1997 - 98 WHAT WAS TO BE SEEN WAS ONLY CHARGEABILITY OF CAPITAL GAIN AND BUSINESS INCOME. THE ASSESSING OFFICER DID NOT DISPUTE ABOUT THE CALCULATION OF RS. 6 19 02 450. HE DISPUTED ONLY THAT A SUM OF RS. 6 19 02 450 SHOWN BY THE ASSESSEE AS THE CAPITAL GAIN WAS A BUSINESS PRO/IT AS HE WAS OF THE VIEW THAT CONVERSION WAS NON GENUINE. THE ASSESSING OFFICER HAD TRIED TO EXAMINE THE GENUINENESS OF TRANSACTION AND ITS CONVERSION FROM INVESTMENT OF STOCK IN TRADE I N THE YEAR WHEN THE ASSET WAS SOLD AS STOCK IN TRADE. IN VIEW OF THE ABOVE DISCUSSION THE GENUINENESS OF THE TRANSACTION OR GENUINENESS OF CONVERSION OF ASSETS FROM INVESTMENT INTO STOCK IN TRADE WHICH HAS ALREADY BEEN CONVERTED IN EARLIER YEAR AND NOT DU RING THE RELEVANT YEAR CANNOT BE EXAMINED IN THE YEAR OF THE SALE OF STOCK IN TRADE. IN CAN BE EXAMINED ONLY IN THE YEAR WHEN THE ASSET WAS ACQUIRED OR CONVERTED FROM INVESTMENT INTO STOCK IN TRADE. IN THE INSTANT CASE THE ASSESSING OFFICER DID NOT DIS PUTE ABOUT THE GENUINENESS OF THE TRANSACTION IN THE YEAR OF PURCHASE AND IN THE YEAR OF CONVERSION FROM INVESTMENT INTO STOCK IN TRADE. IN VIEW OF THE CLEAR PROVISIONS OF SECTION 45(2) THE REVENUE WAS NOT CORRECT IN EXAMINING THE GENUINENESS OF THE TRAN SACTION IN THE YEAR UNDER CONSIDERATION WHEN ASSET WAS SOLD WHICH HAD BEEN CONVERTED FROM INVESTMENT INTO STOCK IN TRADE IN EARLIER YEAR. 7 8. REGARDING THE REVENUES CONTENTION THAT THE SAID CASES ARE DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE QUA ASSESSEES FAILURE TO REPORT CAPITAL GAINS IN THE YEAR OF SUCH CONVERSION I.E. 31.3.1998 IT IS THE ARGUMENT OF THE LD COUNSEL THAT THE PROVISIONS OF SECTION 45(2) DOES NOT MANDATES SUCH REPORTING. THESE PROVISIONS ONLY CALL FOR ASSESS EE TO DISPLAY THE TREATMENT OF THE CONVERSION IF ANY AND THE QUANTIFICATION OF THE CAPITAL GAINS IN THE YEAR OF CONVERSION IS NOT REQUIRED TO BE REPORTED AS SUCH GAINS ARE TAXABLY ONLY IN THE YEAR OF SALES OF THE STOCK IN TRADE. IN THIS WE HAVE PERUSED THE PROVISIONS OF SECTION 45(2) IN THE CASE OF M/S. SPECTRA SHARES & SCRIPS P. LTD. VS. ACIT VIDE ITA NO.293/HYD/2012 FOR AY 2006 - 07 . PARA 24 TO 27 OF THE SAID ORDER OF THE ITAT HYDERABAD (SUPRA) ARE RELEVANT IN THIS REGARD WHICH READ AS UNDER: 24. FOR ANSWERING THE SAME FIRST WE PROCEED TO EXPLAIN THE SAID PROVISIONS OF SECTION 45(2) OF THE ACT AND THE SAME READ AS UNDER: EXPLAINING OF THE PROVISIONS OF SECTION 45(2): 45. (1). (2) NOTWITHSTANDING ANYTHING CONTAINED IN SUB - SECTION (1) THE PROFITS OR GAINS ARISING FROM THE TRANSFER BY WAY OF CONVERSION BY THE OWNER OF A CAPITAL ASSET INTO OR ITS TREATMENT BY HIM AS STOCK - IN - TRADE OF A BUSINESS CARRIED ON BY HIM SHALL BE CHARGEABLE TO INCOME - TAX AS HIS INCOME OF THE PREVIOUS YEAR IN WHICH S UCH STOCK - IN - TRADE IS SOLD OR OTHERWISE TRANSFERRED BY HIM AND FOR THE PURPOSES OF SECTION 48 THE FAIR MARKET VALUE OF THE ASSET ON THE DATE OF SUCH CONVERSION OR TREATMENT SHALL BE DEEMED TO BE THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET. THE ABOVE SUB - SECTION DEEMS THAT THE CONVERSION BY THE OWNER OF OR TREATMENT OF CAPITAL ASSET INTO/AS STOCK - IN - TRADE GENERATES PROFITS OR GAINS. SUCH CONVERSION OR TREATMENT HAS TO BE DONE BY THE ASSESSEE AND NOT BY ANYBODY ELSE. THESE PROFITS OR GAINS ARE TAXABLE IN THE AY IN WHICH THE SAID STOCK IN TRADE OF THE BUSINESS IS SOLD. DATE OF CONVERSION IS DEEDED AS THE DATE OF TRANSFER FOR THE PURPOSE OF SECTION 48 OF THE ACT. FULL VALUE OF CONSIDERATION IS T HE FMV OF THE SHARE ON THE SAID DATE OF CONVERSION. 25. THE ABOVE PROVISIONS PROVIDE FOR THE COMPUTATION AND IT IS DONE IN TWO STEPS. FIRSTLY THE MARKET VALUE AS ON THE DATE OF CONVERSION HAS TO BE ASCERTAINED IN RESPECT OF THE SHARES/UNITS SOLD DURING THE YEAR. THE DIFFERENCE BETWEEN THE MARKET VALUE OF THE SHARES AND THEIR COST OF ACQUISITION HAS TO BE ASSESSED UNDER THE HEAD CAPITAL GAINS. THE SECOND STEP IS TO FIND OUT BUSINESS INCOME ON SALE OF SHARES/REDEMPTION OF UNITS FOR FINDING OUT THE DIF FERENCE BETWEEN THE SALE PRICE AND THE MARKET PRICE ON THE DATE OF CONVERSION OF THE STOCK IN TRADE. THERE IS NO DISPUTE ON THE ABOVE INTERPRETATION OF THE PROVISIONS BETWEEN THE PARTIES . 26 27. THEREFORE AO IS DUTY BOUND TO MAKE THE ASSESSMENT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT INCLUDING THE PROVISIONS OF SECTION 45(2) OF THE ACT. RELIANCE IS PLACED ON THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF CIBA OF INDIA LTD VS CIT 202 IT R 1 WHICH WAS IN FACT DECIDED IN THE CONTEXT OF ITATS FAILURE TO ISSUE DIRECTIONS. THE CIT(A) APPRECIATED THE CLAIM OF THE ASSESSEE AND UPHELD THE 8 APPLICABILITY OF THE PROVISIONS OF SECTION 45(2) OF THE ACT WITH WHICH WE AGREE. NOW WE SHALL TAKE UP THE PROCEDURAL ISSUES CONNECTED TO THE COMPUTATION OF THE IMPUGNED CAPITAL GAINS AND TO EXAMINE IF THE CIT(A) IS JUSTIFIED IN REJECTING THE BENEFITS OF SECTION 45(2) OF THE ACT. 9. ON THE OTHER HAND LD DR RELIED ON THE BOMBAY HIGH COURT JUDGMENT IN THE CAS E OF COMMISSIONER OF INCOME - TAX VS FORT PROPERTIES PVT. LTD. (BOM) 208 ITR 232 FOR THE PROPOSITION THAT THE ENTRIES IN THE BA LANCE SHEET ARE NOT REGARDED AS CONCLUSIVE AND PARA 18 OF THE SAID JUDGMENT OF THE HIGH COURT IS RELEVANT WHICH READS AS UNDER: 18. WE ALSO DO NOT FIND ANY INFIRMITY IN THE OBSERVATIONS OF THE TRIBUNAL IN REGARD TO THE EFFECT OF THE DESCRIPTION OF THE ABOVE PROPERTY IN THE BOOKS OF ACCOUNT OF THE ASSESSEE - COMPANY AS 'STOCK - IN - TRADE' IN THE DETERMINATION OF THE NATURE OF THE ASSE T. IT IS WELL - SETTLED THAT THE WAY IN WHICH ENTRIES ARE MADE BY AN ASSESSEE IN HIS BOOKS OF ACCOUNT IS NOT DETERMINATIVE OF THE QUESTION WHETHER THE ASSET WAS HELD AS A CAPITAL ASSET OR STOCK - IN - TRADE. THE ASSESSEE MAY BY MAKING ENTRIES WHICH ARE NOT IN CONFORMITY WITH THE FACTS OF THE CASE OR PROPER ACCOUNTANCY PRINCIPLES CONCEAL THE REAL NATURE OF THE ASSET OR TH E TRANSACTION. ENTRIES MADE BY HIM THEREFORE CANNOT BE REGARDED AS CONCLUSIVE ONE WAY OR THE OTHER. THE TRUE NATURE OF THE TRANSACTION I N EAC H CASE HAS TO BE DETERMINED ON A CONSIDERATION OF THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THAT CASE. 10. FROM THE FACTS DESCRIBED ABOVE AS WELL AS LEGAL PROPOSITIONS PUT FORWARDED BY BOTH THE PARTIES WE FIND THAT THE ASSESSEE IS IN THE PROCES S OF REGULARIZING HER TAX RETURNS FROM THE ASSESSMENT YEAR 2001 - 02. THE COPIES OF THE BALANCE SHEET AND THE PROFIT AND LOSS ACCOUNTS ENCLOSED TO THE RETURN ALTHOUGH FILED BELATEDLY SUGGEST THE CONVERSION OF THE JEWELRY INTO STOCK - IN - TRADE AND THE SAME AP PEARS TO BE VERY MUCH IN ORDER. IN VIEW OF THE FACT THAT THE AO HAS NOT BROUGHT ANY INCRIMINATING INFORMATION TO SUGGEST THAT THE RETURNS ARE INCORRECT OR INVALID. TO SUPPORT THE SAME ASSESSEE ALSO FILED A NOTARIZED AFFIDAVIT DATED 30.3.1998 ON THE STAM P PURCHASED ON 12 TH MARCH 1998. NOTHING ADVERSE WAS BROUGHT BY THE REVENUE AGAINST THIS PIECE OF EVIDENCE. SIMPLY DESCRIBING THE SAME AS SELF SERVING DOCUMENT IS NOT ACCEPTABLE. THEREFORE THE DATE OF 30.3.1998 SHOULD BE ACCEPTED AS A DATE OF CONVERSIO N OF THE STOCK. ON THE REQUIREMENT OF THE ASSESSEE TO BE CARRYING ON THE BUSINESS AT THE TIME OR POINT OF CONVERSION WE FIND AS DISCUSSED ABOVE THE DECISION OF THE ITAT MUMBAI BENCH IN THE CASE OF JAHANGIR T. NAGREE (SUPRA) HELPS THE ASSESSEE. RELEVA NT PARAS FROM THE SAID ORDER OF THE TRIBUNAL ARE ALREADY REPRODUCED ABOVE IN PARA 7 OF THIS ORDER. REGARDING THE OFFER OF CAPITAL GAINS IN THE 9 YEAR OF CONVERSION WE FIND THE SAME IS NOT MANDATED BY THE LAW. IN SUCH CIRCUMSTANCES WE ARE OF THE OPINION T HAT THE ORDER OF THE CIT (A) IS REQUIRED TO BE REVERSED. ACCORDINGLY GROUND NO.1 OF THE ASSESSEES APPEAL DISMISSED BEING GENERAL IN NATURE. GROUND NO.2 IS ALLOWED IN FAOVUR OF THE ASSESSEE. GROUND NO.2.1 AND 2.2 BEING CONSEQUENTIAL IN THEIR NATURE T HE SAID GROUNDS ARE DISMISSED AS ACADEMIC. ACCORDINGLY APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 11. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COUR T ON 0 9 T H APRIL 2014. S D / - S D / - (SANJAY GARG) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 9 . 4 . 2 0 1 4 . . ./ OKK SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. / DR ITAT MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER / (DY./ASSTT. REGISTRAR) / ITAT MUMBA I