ACIT 16(1), MUMBAI v. MAULIK DEEPAK MEHTA, MUMBAI

ITA 2441/MUM/2009 | 2002-2003
Pronouncement Date: 07-09-2011 | Result: Dismissed

Appeal Details

RSA Number 244119914 RSA 2009
Assessee PAN AHQPM6638K
Bench Mumbai
Appeal Number ITA 2441/MUM/2009
Duration Of Justice 2 year(s) 4 month(s) 21 day(s)
Appellant ACIT 16(1), MUMBAI
Respondent MAULIK DEEPAK MEHTA, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 07-09-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 07-09-2011
Date Of Final Hearing 29-08-2011
Next Hearing Date 29-08-2011
Assessment Year 2002-2003
Appeal Filed On 16-04-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH MUMBAI BEFORE SHRI R.S. SYAL (AM) AND SHRI VIJAY PAL RAO (JM) ITA NOS. 2441/M/2009 ASSESSMENT YEAR:2002-2003 THE ACIT CIRCLE-16(1) MATRU MANDIR MUMBAI-400 009. SHRI MAULIK DEEPAK MEHTA KEJRIWAL HOUSE 7N GAMADIA ROAD MUMBAI 400 026. PAN: AHQPM6638K (APPELLANT) (RESPONDENT) APPELLANT BY: RESPONDENT BY: SHRI V.V. SHASTRY SHRI SANJEEV JOSHI DATE OF HEARING: DATE OF PRONOUNCEMENT: 29-08-2011 07-09-2011 O R D E R PER VIJAY PAL RAO (JM): THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 24-12.2008 OF CIT (A) FOR THE ASSESSMENT YEAR 2002-03. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS IN THIS APPEAL: 1. THAT THE SHARES WERE CONVERTED IN THE YEAR 1996 AND ANY PROFIT AND LOSS ARISING OUT OF THE SALE OF SHARES AFTER THE DA TE OF CONVERSION AND THE VALUATION THEREOF WILL BE GUIDED BY THE COMMON ACCOUNTING PRINCIPLES FOR THE CONDUCT OF BUSINESS AS FAR AS T HE TRADING BUSINESS IS CONCERNED 2. THAT SECTION 45(2) DEALS WITH THE MODE OF COMPUT ATION OF CAPITAL GAINS WHICH IS THE DIFFERENCE BETWEEN THE FAIR MARK ET VALUE OF THE ASSET AS ON THE DATE OF CONVERSION OF INVESTMENT IN TO STOCK IN TRADE AND THE COST OF INVESTMENT AND IT IS IN NO WAY COME S IN THE WAY OF DETERMINING THE BUSINESS PROFITS UNDER COMMERCIAL P RINCIPLES. ITA NO. 2441/M/2009 SHRI MOULIK DEEPAK MEHTA 2 3. THE CIT (A) ERRED IN HOLDING THAT THE AO WAS NOT RIGHT IN REVALUING THE CLOSING STOCK BASED ON THE MARKET VALUE ON THE DATE OF CONVERSION OF THE ASSET INTO STOCK IN TRADE OR THE MARKET VALUE ON THE DATE WHEN A PART OF THE STOCK WAS SOLD. 3. WE HAVE HEARD THE LEARNED DR AS WELL AS LEARNED AR AND CONSIDERED THE RELEVANT RECORD. AT THE OUT SET WE NOTE THAT THIS ISSUE CAME BEFORE THIS TRIBUNAL IN THE CASE OF ASSESSEES GRAND MOTHER SMT. KANTABEN C MEHTA IN ITA NO. 2855/M/2009 AND THIS TRIBUNAL VIDE ORDER DATED 21 ST MAY 2010 HAS ADJUDICATED THIS ISSUE IN PARA 12 & 13 AS UNDER: 12. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND R ELEVANT RECORD. THE PROVISIONS OF SECTION 45(2) WOULD APPL Y ONLY AT THE EVENT OF TRANSFER OR SALE OF THE STOCK-IN-TRADE BEING CONVERTED FROM INVESTMENT AND NOT PRIOR TO THAT. AS PER SECTION 45(2) THE MARKET VALUE OF THE ASSET IS DEEM ED TO BE THE FULL VALUE OF SALE CONSIDERATION OF THE ASSET CONVERTED FROM INVESTMENT TO STOCK-IN-TRADE FOR COMPUTATION O F CAPITAL GAIN AS ON THE DATE OF CONVERSION BUT TAXABLE IN T HE YEAR OF TRANSFER OR SALE OF THE SAID ASSET AFTER CONVERSIO N INTO STOCK-IN-TRADE. THUS THE DEEMING PROVISION APPLIE S ONLY FOR CALCULATING THE CAPITAL GAINS COMPONENT IN THE TRANSACTION OF CONVERSION BUT ONLY AT THE TIME OF T RANSFER OR SALE OF THE SAID STOCK-IN-TRADE. THUS THE MARKET VALUE AS ON THE DATE OF CONVERSION OF THE ASSET INTO STOCK-I N-TRADE IS RELEVANT ONLY FOR COMPUTATION OF CAPITAL GAINS AND NOT FOR THE VALUATION OF UNSOLD OR UNTRANSFORMED STOCK-IN-T RADE. IN THE CASE OF CIT VS. SHRISHAKTI TRADING CO.(SUPRA ) THE HONBLE JURISDICTION HIGH COURT HAS HELD THAT LEGAL FICTION ARE FOR DEFINITE PURPOSE AND THEY ARE LIMITED TO TH E PURPOSE FOR WHICH THEY ARE CREATED AND CAN NOT THE APPLY BE YOND THAT LEGITIMATE FIELD SIMILARLY IN THE CASE OF CIT VS. MOTHER INDIA REFRIGERATION INDUSTRIES PVT LTD (SUPRA) THE HONBLE SUPREME COURT HAS HELD THAT IT IS WELL SETTLED LEGA L FICTION ARE CREATED FOR LEGITIMATE PURPOSE AND SHOULD NOT B E EXTENDED BEYOND THAT. 13. THUS THE SALE CONSIDERATION DEEMED UNDER SECTIO N 45(2) CANNOT BE TAKEN AS COST OF UNSOLD STOCK. THE ASSESSEE IS CONSISTENTLY FOLLOWING THE METHOD OF VA LUATION OF CLOSING STOCK ON THE BASIS OF COST OR MARKET PR ICE WHICHEVER IS LESS. THEREFORE THE METHOD ADOPTED BY THE ASSESSEE CANNOT BE FOUND FAULTY. EVEN OTHERWISE WHE N THE OPENING STOCK IS VALUED BY THE METHOD OF COST OR M ARKET PRICE WHICHEVER IS LOWER THEN THE DIFFERENT METHO D CANNOT BE ADOPTED FOR VALUATION OF CLOSING STOCK. THE MAR KET PRICE ITA NO. 2441/M/2009 SHRI MOULIK DEEPAK MEHTA 3 AS ON THE DATE OF CONVERSION CANNOT BE OBSERVED AS COST OF ACQUISITION OF THE UNSOLD STOCK. ACCORDINGLY WE F IND NO ERROR OR ILLEGALITY IN THE IMPUGNED ORDER OF THE CI T(A). 4. THEREAFTER IN ASSESSEES OWN CASE FOR THE ASSES SMENT YEAR 2003-04 THE COORDINATE BENCH OF THIS TRIBUNAL BY FOLLOWING THE ORDER IN THE CASE OF KANTABEN C MEHTA (SUPRA) DECIDED THE ISSUE IN PARA 4 OF THE OR DER DATED 2 ND JULY 2010 AS UNDER: .. 13. THUS THE SALE CONSIDERATION DEEMED UNDER SECTIO N 45(2) CANNOT BE TAKEN AS COST OF UNSOLD STOCK. THE ASSESSEE IS CONSISTENTLY FOLLOWING THE METHOD OF VA LUATION OF CLOSING STOCK ON THE BASIS OF COST OR MARKET PR ICE WHICHEVER IS LESS. THEREFORE THE METHOD ADOPTED BY THE ASSESSEE CANNOT BE FOUND FAULTY. EVEN OTHERWISE WHE N THE OPENING STOCK IS VALUED BY THE METHOD OF COST OR M ARKET PRICE WHICHEVER IS LOWER THEN THE DIFFERENT METHO D CANNOT BE ADOPTED FOR VALUATION OF CLOSING STOCK. THE MAR KET PRICE AS ON THE DATE OF CONVERSION CANNOT BE OBSERVED AS COST OF ACQUISITION OF THE UNSOLD STOCK. ACCORDINGLY WE F IND NO ERROR OR ILLEGALITY IN THE IMPUGNED ORDER OF THE CI T(A). 5. SINCE FACTS AND ISSUES IN THIS YEAR ARE PARI-MATERIA WITH AY 2003-04; THEREFORE BY FOLLOWING THE EARLIER ORDERS OF THIS TRIBUNAL WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 6. IN THE RESULT THE APPEAL OF THE REVENUE IS DISM ISSED. THE ORDER WAS PRONOUNCED IN OPEN COURT ON 7 TH SEPTEMBER 2011 SD/- SD/- (R.S. SYAL) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE :07-09-2011 AT :MUMBAI OKK ITA NO. 2441/M/2009 SHRI MOULIK DEEPAK MEHTA 4 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) MUMBAI CONCERNED 4. THE CIT MUMBAI CITY CONCERNED 5. THE DR B BENCH ITAT MUMBAI // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI