CHIMANLAL K. MEHTA (HUF), MUMBAI v. DCIT 22(1), NAVI MUMBAI

ITA 2260/MUM/2009 | 2000-2001
Pronouncement Date: 09-03-2011 | Result: Allowed

Appeal Details

RSA Number 226019914 RSA 2009
Bench Mumbai
Appeal Number ITA 2260/MUM/2009
Duration Of Justice 1 year(s) 11 month(s)
Appellant CHIMANLAL K. MEHTA (HUF), MUMBAI
Respondent DCIT 22(1), NAVI MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 09-03-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted C
Tribunal Order Date 09-03-2011
Date Of Final Hearing 17-02-2011
Next Hearing Date 17-02-2011
Assessment Year 2000-2001
Appeal Filed On 09-04-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C MUMBAI BEFORE SHRI T.R. SOOD (AM) AND SMT. ASHA VIJAYARAGH AVAN (JM) ITA NOS. 2260 & 2261/MUM/2009 ASSESSMENT YEARS- 2000-01 & 2001-02 CHIMANLAL K. MEHTA (HUF) KEJRIWAL HOUSE 7-N GAMADIA ROAD MUMBAI-400 026 PAN-AABHC 5589H VS. THE DCIT 22(1) TOWER NO. 6 4 TH FLOOR VASHI RLY. STATION COMPLEX VASHI NAVI MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI SHRI H.P. MAHAJANI RESPONDENT BY: SHRI MEERAJ BANSAL O R D E R PER ASHA VIJAYARAGHAVAN (JM) THESE TWO APPEALS PREFERRED BY THE ASSESSEE ARE DIR ECTED AGAINST THE ORDERS DATED DT.23.1.2009 PASSED BY THE LD. CIT (A)-XXII MUMBAI FOR THE ASSESSMENT YEARS 2000-01 & 2001-02. AS THESE AP PEALS WERE HEARD TOGETHER AND INVOLVED CONNECTED ISSUES BOTH OF THE SE APPEALS ARE BEING DISPOSED OFF BY WAY OF THIS CONSOLIDATED ORDER. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF WAREHOUSING HE WAS ALSO HOLDING SHARES OF A CLOSELY HELD CO. M/S. YERROWDA INVESTMENTS LTD. THE RETURN OF INCOM E FOR A.Y. 2000-01 WAS FILED ON 25.10.2000 DECLARING TOTAL INCOME OF R S. 2 40 63 540/- AND TOTAL LOSS OF RS. 1 03 77 247 FOR THE A.Y. 2001-02. THE RETURN WAS PROCESSED U/S. 143(1) ON 29.3.2001 GRANTING REFUND OF RS. 12 819/- FOR THE A.Y. 2000-01 AND THE ASSESSMENT WAS COMPLETED U /S. 143(3) DETERMINING TO TOTAL INCOME AT RS. 32 07 398/- FOR A.Y. 2001-02. NOTICE U/S. 148 WAS ISSUED SEEKING TO REOPEN ASSESSMENT FO R A.YRS. 2000-01 & 2001-02. THE FOLLOWING REASONS WERE RECORDED: ITA NO. 2260 & 61/M/09 2 THE BOOK ENTRY OF ASSETS CONVERTED INTO STOCK-IN-T RADE AND STOCK-IN-TRADE RECONVERTED INTO INVESTMENT HAS RESU LTED INTO BUSINESS LOSS IN THE BOOK WHICH HAS BEEN CARRIED FO RWARD AND SET OFF IN SUBSEQUENT YEARS. THE EVENTS INDICATED THAT THE ASSESSEE WAS NOT ELIGIBLE FOR BENEFIT U/S. 45(2) AN D THEREFORE THE COMPUTATION OF INCOME FOR THESE TWO YEARS HAS R ESULTED IN WRONGLY ALLOWING LOSS OF RS. 1 28 98 491/- FOR A.Y. 2000-01 AND RS. 1 35 13 764/- FOR A.Y. 2001-02 ON SALE OF P ROPERTY SHARES. 3. BEFORE THE LOWER AUTHORITIES ASSESSEE SUBMITTED AS FOLLOWS: THE ASSESSEE WAS HOLDING SHARES OF YERROWDA INVESTM ENTS LTD. WHICH WERE ACQUIRED PRIOR TO 1.3.1996 AND WERE HELD AS INVESTMENTS. SHARES HELD AS INVESTMENT WERE CONVERT ED INTO STOCK-IN-TRADE ON 1.3.1996. THIS FACT WAS SUPPORTE D BY AN AFFIDAVIT AND WAS DISCLOSED IN THE RETURN OF INCOME FILED FOR A.Y. 1996-97. NECESSARY ACCOUNTING ENTRIES WERE PA SSED IN THE BOOKS OF ACCOUNT. BALANCE SHEET AS ON 31.3.199 6 ALONGWITH CAPITAL ACCOUNT INCOME & EXPENDITURE ACC OUNT WAS FILED WITH THE RETURN OF INCOME INCORPORATING THESE ENTRIES. THIS FACT OF CONVERSION OF INVESTMENTS INTO STOCK-I N-TRADE WAS ACCEPTED BY THE I.T. DEPARTMENT AND NO QUESTIONS WE RE RAISED. THIS FACT HAS BEEN MENTIONED IN THE ASSESS MENT ORDER U/S. 143(3) DT. 29.2.2000 FOR A.Y. 1997-98. FURTHE R ALSO THIS FACT HAS BEEN MENTIONED IN THE ORDER U/S. 154 FOR T HE A.Y. 1996-97 DT. 29.2.2000. PARTS OF SUCH SHARES (CONVE RTED INTO STOCK-IN-TRADE_ WERE SOLD IN PREVIOUS YEAR ENDED 31 .3.1997 RELEVANT TO A.Y. 1997-98. THESE SHARES WHICH WERE CONVERTED INTO STOCK-IN-TRADE WITH AN INTENTION TO DEAL IN THEM WERE SOLD AND THE RESULTANT SURPLUS WAS SPLIT INTO TWO PARTS ONE GIVING RISE TO CAPITAL GAINS COMPUTED U/S. 45( 2) AND THE OTHER GIVING RISE TO BUSINESS INCOME COMPUTED BY TA KING THE FAIR MARKET VALUE ON THE DATE OF CONVERSION OF SHAR ES INTO STOCK-IN-TRADE AS COST OF SUCH SHARES FOR COMPUTING BUSINESS INCOME. THE WORKING OF RESULTANT CAPITAL GAINS AND BUSINESS INCOME APPEARS IN THE ASSESSMENT ORDER. THIS HIGHLIGHTS T HE FACT OF CONVERSION OF SHARES HELD AS INVESTMENTS INTO STOCK -IN-TRADE AND ACCEPTANCE OF SUCH CONVERSION AND RESULTANT WOR KING OF CAPITAL GAINS AND BUSINESS INCOME BY THE I.T. DEPAR TMENT. THUS THE FACT OF CONVERSION OF INVESTMENTS INTO ST OCK-IN-TRADE ITA NO. 2260 & 61/M/09 3 AND THE FACT THAT THE ASSESSEE HAS STARTED DEALING IN SUCH SHARES (EXCLUDING THE SHARES WHICH HAVE SUBSEQUENTL Y I.E. ON 30.11.1998 BEEN RECONVERTED INTO INVESTMENTS I.E. O THER ASSETS FIXED ASSETS) HAS BEEN ACCEPTED BY THE I.T. DEPARTMENT. DURING THE PREVIOUS YEAR ENDED 31.3.2000 (A.Y. 2000 -01) THE ASSESSEE HAS SOLD 1760 SHARES HELD BY IT AS STOCK-I N-TRADE AND THE RESULTANT PROFIT HAS BEEN SPLIT INTO 2 PART S-CAPITAL GAINS U/S. 45(2) AND BUSINESS INCOME. IN THE PROFI T & LOSS ACCOUNT PREPARED FOR REFLECTING PROFIT/LOSS ARISING ON THIS ACTIVITY (OF DEALING IN PROPERTY SHARES) THE ASSES SEE HAD CLAIMED DEDUCTION FOR INTEREST PAID ON MONEYS BORRO WED FOR BUYING SHARES HELD AS STOCK-IN-TRADE. THE LOANS WE RE TAKEN IN EARLIER YEARS AND INTEREST PAYMENTS HAVE BEEN MADE EVERY YEAR AND DEBITED TO PROFIT & LOSS ACCOUNT. THE INT EREST PAID IS ALLOWABLE U/S. 36(1)(III). ONCE IT IS ACCEPTED THA T THE ASSESSEE IS DEALING IN PROPERTY SHARES INTEREST PAID HAS TO BE ALLOWED IRRESPECTIVE OF THE FACT THAT THE FUNDS BORROWED WE RE USED FOR ACQUIRING SHARES WHICH ARE NOT YEAR SOLD AND THE AS SESSEE CONTINUES TO HOLD SUCH SHARES AT THE YEAR END. ALL OTHER EXPENSES INCURRED WHOLLY AND EXCLUSIVELY FOR THE PU RPOSE OF THIS BUSINESS ARE ALLOWABLE. THE REASONS RECORDED THAT THE BOOK ENTRY OF ASSETS CONVERTED INTO STOCK-IN-TRADE AND STOCK-IN-TRADE RECONVERTED INTO FIXED ASSETS HAS RESULTED IN BUSINESS LOSS IN THE BOOKS W HICH HAS BEEN CARRIED FORWARD AND SET OFF IN SUBSEQUENT YEAR ARE CONTRARY TO FACTS ON RECORD AND DO NOT INSPIRE CONF IDENCE. MERE BOOK ENTRIES DO NOT RESULT IN TAXABLE INCOME UNLESS SO SPECIFICALLY PROVIDED FOR E.G. U/S. 45(2). IT IS T HE ACTUAL SALE OF SUCH CONVERTED/RECONVERTED ASSET (SHARES) WHICH GIV ES RISE TO TAXABLE INCOME/LOSS. REASONS RECORDED SEEK TO CHAL LENGE THE FACT OF CONVERSION/RECONVERSION (WHICH AS MENTIONED CANNOT BE DONE) AND NOT THE ACTUAL SALE TRANSACTION GIVING RISE TO CAPITAL GAIN U/S. 45(2) AND BUSINESS LOSS. THE RE ASSESSMENT PROCEEDINGS ARE THEREFORE BAD IN LAW AND MUST BE D ROPPED. IT THEREFORE CANNOT BE SAID BY THE REVENUE THAT THE ASSESSEE WAS NOT ELIGIBLE FOR BENEFIT U/S. 45(2) (SEC. 45(2 ) DOES NOT SEEK TO CONFER ANY BENEFIT ON THE ASSESSEE. IT ACT UALLY SEEKS TO BRING IN TAX NET SOMETHING WHICH BEFORE THE INTR ODUCTION OF SEC. 45(2) WAS NOT TAXABLE AT ALL). THE COMPUTATIO N OF SURPLUS ON SALE OF SHARES BY THE ASSESSEE IS THEREFORE COR RECT AND DESERVES TO BE ACCEPTED. ITA NO. 2260 & 61/M/09 4 THE REASONS RECORDED ARE FINAL AND CANNOT NOW BE SUPPLEMENTED OR CHANGED TO SUPPORT THE REASSESSMENT . 4. THE LD. CIT(A) HELD THAT THE AO WAS JUSTIFIED IN REOPENING THE ASSESSMENT AND ISSUE OF NOTICE U/S. 147/148 OF THE I.T. ACT 1961. THE LD. CIT(A) HELD THAT THERE WAS RELEVANT MATERIAL BE FORE THE LD. AO TO FORM A REASONABLE AND BONAFIDE BELIEF THAT INCOME OF THE ASSESSEE HAD ESCAPED ASSESSMENT. 5. ON FURTHER APPEAL THE LD. COUNSEL FOR THE ASSES SEE SHRI H.P. MAHAJANI REITERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT(A). 6. THE LD. DEPARTMENTAL REPRESENTATIVE SHRI MEERAJ BANSAL RELIED ON THE ORDER OF THE AO AND LD. CIT(A). 7. WE HEARD BOTH THE PARTIES. WE FIND THAT THE RE ASONS RECORDED ARE CONTRARY TO FACTS ON RECORDS. MERE BOOK ENTRIES DO NOT RESULT IN TAXABLE INCOME IT IS THE ACTUAL SALE OF SUCH CONVERTED/ RE CONVERTED SHARES WHICH GIVES RAISE TO TAXABLE INCOME OR LOSS. THE REASONS RECORDED AT PAGE 41 SEEK TO CHALLENGE THE FACTS OF CONVERSION/RECONVERS ION OF SHARES AND NOT THE ACTUAL SALE TRANSACTION GIVING RISE TO CAPITAL GAIN AND BUSINESS LOSS. THE DEPARTMENT CANNOT CHALLENGE CONVERSION OF SHARE S HELD AS INVESTMENT INTO STOCK ENTRY NOW AFTER HAVING ACCEP TED IT IN THE PAST AND THE ASSESSMENTS HAVE BECOME FINAL IN THE PAST YEARS . THE RE-ASSESSMENT PROCEEDINGS ARE THEREFORE BAD IN LAW. 8. THE DECISION OF THE SUPREME COURT IN THE CASE OF GKN DRIVESHAFTS VS ITO 259 ITR 19 HAS HELD THAT IF THE REASONS RECO RDED DO NOT JUSTIFY THE RE-ASSESSMENT I.E. IF THE ASSESSEE SATISFY THE AO THAT THERE IS NO ESCAPEMENT OF INCOME AS ALLEGED BY THE REVENUE ON T HE BASIS OF THE REASONS RECORDED THE AO HAS TO DROP RE-ASSESSMENT PROCEEDINGS. HENCE APPLYING THE RATIO OF THE DECISION OF 259 ITR 19 (SUPRA) THE ITA NO. 2260 & 61/M/09 5 REOPENING OF THE ASSESSMENT IS BAD IN LAW AND HENC E THE ASSESSEES APPEAL IS TO BE ALLOWED ON THIS GROUND. 9. THE OTHER GROUNDS RAISED BY THE ASSESSEE ARE TH EREFORE NOT ADJUDICATED UPON. 10. IN THE RESULT THE APPEALS FILED BY THE ASSESSE E ARE ALLOWED. ORDER PRONOUNCED ON THIS 9 TH DAY OF MARCH 2011 SD/- SD/- ( T.R. SOOD) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED 9 TH MARCH 2011 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR C BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR I.T.A.T MUMBAI ITA NO. 2260 & 61/M/09 6 DATE INITIALS 1 DRAFT DICTATED ON: 2 . 0 3 .201 1 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 3 .0 3 .2011 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK: DATE ON WHICH FILE GOES TO AR _________ ______ 10 . DATE OF DISPATCH OF ORDER: _________ ______