The ITO, Ward-10(4), Ahmedabad v. Shri Rakesh S. Maradia, Ahmedabad

ITA 902/AHD/2006 | 2002-2003
Pronouncement Date: 15-10-2010 | Result: Dismissed

Appeal Details

RSA Number 90220514 RSA 2006
Assessee PAN AAPPM5972Q
Bench Ahmedabad
Appeal Number ITA 902/AHD/2006
Duration Of Justice 4 year(s) 6 month(s) 1 day(s)
Appellant The ITO, Ward-10(4), Ahmedabad
Respondent Shri Rakesh S. Maradia, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 15-10-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 15-10-2010
Date Of Final Hearing 17-08-2010
Next Hearing Date 17-08-2010
Assessment Year 2002-2003
Appeal Filed On 13-04-2006
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL : B BENCH : AHMEDABA D (BEFORE HON'BLE SHRI G.D. AGRAWAL V.P.(AZ) & HON BLE SHRI T.K. SHARMA J.M. ) I.T.A. NO. 902/AHD./2006 ASSESSMENT YEAR : 2002-2003 INCOME TAX OFFICER WARD-10(4) AHMEDABAD -VS.- RAKESH S. MARADIA AHMEDABAD (PAN : AAPPM 5972 Q) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ANIL KUMAR SR . D.R. RESPONDENT BY : SHRI P.D. SHAH O R D E R PER SHRI T.K. SHARMA JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS AGAINST THE OR DER DATED 23.01.2006 OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-III AHMEDABAD FOR THE ASSESSMENT YEAR 2002-03. 2. BRIEF FACTS RELATING TO CONTROVERSY INVOLVED IN THIS APPEAL ARE THAT THE ASSESSEE IS AN INDIVIDUAL. FOR THE ASSESSMENT YEAR UNDER APPEAL H E FILED THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS.1 39 467/- ON 31.07.2002 ALONG WITH CO PY OF BALANCE-SHEET PROFIT & LOSS A/C. AND CAPITAL ACCOUNT. THE ASSESSEE DERIVED INCOME FROM S ALARY AND BUSINESS. ON PERUSAL OF RETURN OF INCOME AND COPIES OF ACCOUNTS FILED ALONGWITH THE R ETURN OF INCOME THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS SHOWN THE SHARES OF M ARDIA CHEMICALS LTD. AS STOCK-IN-TRADE. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE IS A P ROMOTER OF MARDIA CHEMICALS LTD. M/S. MARDIA CHEMICALS LTD. HAS TAKEN LOAN FROM ICICI BAN K LTD. TO WHICH THE ASSESSEE HAS GIVEN A UNDERTAKING NOT TO DISPOSE OFF HIS SHARES INCLUDING THE FUTURE ACQUISITION IF ANY TILL THE ENTIRE LOAN IS REPAID. THE ASSESSING OFFICER IN THE ASSESS MENT ORDER ALSO OBSERVED THAT THE SAID LOAN IS STILL OUTSTANDING. AS PER ICICI BANK THESE SHARES WERE NOT TAKEN INTO CUSTODY BUT THE UNDERTAKING GIVEN BY THE ASSESSEE ON STAMP PAPER IS SUFFICIENT FOR ENFORCING THEIR CLAIM. THE RELEVANT CLAUSE OF THE AGREEMENT IS REPRODUCED BY T HE ASSESSING OFFICER IN THE ASSESSMENT YEAR WHICH IS AS UNDER :_ (IX) UNDERTAKING FOR NON-DISPOSAL OF SHAREHOLDINGS 2 ITA NO. 902/AHD/2006 THE BORROWER SHALL NOT RECOGNIZE OR REGISTER ANY TR ANSFER OF SHARES IN THE BORROWERS CAPITAL MADE OR TO BE MADE BY PROMOT ERS THEIR FRIENDS OR ASSOCIATES AS MAY BE SPECIFIED BY THE LEAD INSTI TUTION. THE BORROWER SHALL OBTAIN AND FURNISH TO THE LEAD INSTITUTION SU ITABLE UNDERTAKINGS FROM SUCH PERSON FOR GIVING EFFECT TO THE ABOVE. 2.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS O N THE BASIS OF UNDERTAKING GIVEN BY THE ASSESSEE TO ICICI BANK LTD. THE ASSESSING OFFICER ISSUED A SHOW-CAUSE NOTICE DATED 15.03.2005 TO THE ASSESSEE BY ASKING HOW THE SHARES OF MARADIA CHEMICALS LTD. CAN BE TREATED AS STOCK-IN- TRADE. IN REPLY DATED 28.03.2005 THE ASSESSEE SUBM ITTED THAT THE UNDERTAKING GIVEN BY ME AS A PROMOTER TO ICICI BANK LTD. HAS NOTING TO DO WITH THE SHARES HELD BY ME AS STOCK-IN-TRADE DURING THE YEAR UNDER CONSIDERATION AND FURTHER IN VIEW OF THE ONGOING LITIGATION FOR LAST 5-6 YEARS WITH ICICI BANK LTD. INCLUDING THE PENDING LE GAL CLAIM OF MARADIA CHEMICALS LTD. AGAINST ICICI BANK FOR RECOVERY OF MORE THAN 5600 CRORES T HE UNDERTAKING IS MERE A PIECE OF PAPER WITHOUT ANY LEGAL SANCTITY. 2.2. AFTER CONSIDERING THE REPLY OF THE ASSESSEE T HE ASSESSING OFFICER IN THE ASSESSMENT ORDER OBSERVED THAT THE ASSESSEE HAS GIVEN UNDERTAKING TO ICICI BANK LTD. IN HIS CAPACITY AS A PROMOTER OF MARADIA CHEMICALS LTD. WHEREIN THE ASS ESSEE HAS AGREED THAT THE SHARES CANNOT BE TRANSFERRED ASSIGNED DISPOSE OFF PLEDGE OR CREAT E ANY LIEN OR ENCUMBER THEIR EXISTING OR FUTURE SHAREHOLDING IN MARADIA CHEMICALS LTD. THE ASSESSIN G OFFICER FURTHER OBSERVED THAT MERELY MAKING AN ENTRY IN THE BOOKS OF ACCOUNTS IS NOT DET ERMINATIVE OF THE QUESTION WHETHER THE ASSET WAS HELD AS CAPITAL ASSET OR STOCK-IN-TRADE. THE AS SESSEE BY MAKING SUCH ENTRIES IN THE BOOKS OF ACCOUNTS WHICH ARE NOT IN CONFORMITY WITH THE FACT S OF THE CASE OR PROPER ACCOUNTING PRINCIPLES CONCEAL THE REAL NATURE OF THE ASSET OR THE TRANSAC TION. TO SUM UP THE ASSESSING OFFICER TOOK THE VIEW THAT THE SHARES OF MARADIA CHEMICALS LTD. CANN OT BE TREATED AS STOCK-IN-TRADE. HE ACCORDINGLY RECAST THE PROFIT & LOSS A/C. AND DISAL LOWED THE LOSS OF RS.33 89 980/- CLAIMED BY THE ASSESSEE. 3. ON APPEAL BEFORE THE LEARNED COMMISSIONER OF IN COME TAX (APPEALS) THE ASSESSEE FILED A DETAILED WRITTEN SUBMISSION. THE LEARNED COMMISSI ONER OF INCOME TAX (APPEALS) CALLED THE REMAND REPORT FROM THE ASSESSING OFFICER. AFTER CON SIDERING THE REMAND REPORT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DELETED THE DIS ALLOWANCE OF LOSS OF RS.33 89 980/-. THE 3 ITA NO. 902/AHD/2006 DETAILED REASONS GIVEN BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IN THE IMPUGNED ORDER IN PARA 8 READS AS UNDER :- 8. I HAVE CAREFULLY CONSIDERED THE RELEVANT FACTS AND PROVISIONS OF LAW WITH REGARD TO THE ISSUE INVOLVED. I FIND FROM THE RECOR DS THAT THE APPELLANT CONVERTED ITS INVESTMENT INTO STOCK IN TRADE IN THE PERIOD R ELEVANT TO A Y. 98-99. THE ASSESSMENTS FOR THE ASSTT. YEARS 98-99 TO 01-02 WER E ALL COMPLETED UNDER SCRUTINY U/S. 143(3) OF THE ACT AND THE ACTION OF THE APPELL ANT IN THIS REGARD WAS NOT QUESTIONED IN ACCORDANCE WITH THE PAST RECORDS TH E APPELLANT HAD SHOWN THE VALUE OF SHARES OF M/S. MARDIA CHEMICALS LTD AS OP ENING STOCK IN THE P&L ACCOUNT. THERE WAS NO TRANSACTION DURING THE RELEVA NT PREVIOUS YEAR AND THE VALUE OF THESE SHARES AS AT THE YEAR END WAS SHOWN AS CLO SING STOCK. FROM THE RECORDS THEREFORE IT EMANATES THAT THERE WAS NO ACTION BY THE APPELLANT DURING THE RELEVANT PREVIOUS YEAR WHICH COULD BE A SUBJECT MAT TER OF SCRUTINY OR COULD BE QUESTIONED ONCE THE ACTION OF THE APPELLANT OF CONV ERTING THE INVESTMENT IN MARDIA CHEMICALS LTD. INTO STOCK IN TRADE IN AY 98-99 HAD BEEN ACCEPTED THROUGH A SCRUTINY ASSESSMENT. MERE FACT THAT THERE WAS NO IN QUIRY OR NOT MENTIONING OF THE SAME IN THE ASSESSMENT ORDER WOULD NOT JUSTIFY ANY FINDINGS ON THE ISSUE IN THIS ASSESSMENT YEAR. THIS IS FOR THE REASON THAT WHEN A N ASSESSMENT IS COMPLETED UNDER SCRUTINY U/S. 143(3) THERE WOULD BE A PRESUM PTION THAT ALL TRANSACTION CONDUCTED BY THE ASSESSEE DURING THE YEAR HAVE BEEN THOROUGHLY SCRUTINIZED. FURTHER TO ABOVE IF THERE WAS ANY INFIRMITY IN THE ASSESSMENT ORDER REMEDIAL ACTION OUGHT TO HAVE BEEN TAKEN. BUT IT IS SEEN THA T NO SUCH STEP WAS TAKEN FOR THE A.Y. 98-99 WHEREIN THE CAUSE OF ACTION AROSE AND TI ME LIMITATION FOR ANY REMEDIAL ACTION FOR THAT ASSESSMENT YEAR HAS SINCE EXPIRED I THUS FIND THAT THE ACTION OF THE APPELLANT OF CONVERTING THE SAID SHARES FROM INVEST MENT TO STOCK-IN-TRADE IN THE AY 98-99 HAS SINCE BEEN_ACCEPTED_FINALLY BY THE DEPART MENT AND THE VALUATION OF SHARES IN THE OPENING AND CLOSING STOCK IN THE SUBS EQUENT YEAR WAS MERE CONSEQUENCE OF ACTION OF THE APPELLANT IN THE A.Y. 98-99 WHEREIN THE INVESTMENT WAS CONVERTED INTO STOCK-IN-TRADE. COMING TO THE ME RITS OF THE ISSUE I AT THE CASE OF THE APPELLANT WAS AN A MUCH BETTER FOOTING THAN THAT OF M/S. BIRAJ INVESTMENT P. LTD RELIED UPON BY THE APPELLANT WHEREIN THE JURIS DICTIONAL ITAT AHMEDABAD HAS UPHELD THE RIGHT OF AN ASSESSEE TO SELL OR DEAL OTH ERWISE WITH THE SHARES IN VIOLATION OF A CONTRACTUAL AGREEMENT THROUGH WHICH SUCH SHARES WERE PLEDGED WITH THE IDBI. THE JUDGMENT OF HON'BLE ITAT AHMEDA BAD IS BASED ON ANOTHER JUDGMENT OF THE HON'BLE MADRAS HIGH COURT IN THE CA SE OF A.M.P. ARUNACHALAM REFERRED TO ABOVE. THIS IS FOR THE REASON THAT THE APPELLANT HAD EVEN NOT PLEDGED THE SHARES TO THE ICICI BANK THE ONLY ACT THE APPE LLANT DID WAS TO FURNISH AN UNDERTAKING TO THE ICICI BANK THAT HE WILL NOT TRAN SFER ASSIGN DEPOSE OF PLEDGE CHARGE OR CREATE ANY LIEN ON THE EXISTING OR FUTURE SHARE HOLDINGS OF M/S. MARDIA CHEMICALS LTD AS LONG AS THE MONEY REMAINED DUE FRO M M/S. MARDIA CHEMICALS LTD. TO THE ICICI BANK. THIS UNDERTAKING OF THE APP ELLANT TO THE ICICI BANK WAS OBVIOUSLY A CONSEQUENCE OF DISBURSEMENT OF THE SANC TIONED FUNDS BY THE ICICI BANK THE ICICI BANK DEFAULTED ON THIS AND FOR THAT REASON M/S MARDIA CHEMICALS LTD. WAS IN LITIGATION WITH THE ICICI BAN K AND IN FACT WAS CLAIMING FOR DAMAGES OF SUBSTANTIAL AMOUNT FROM THE ICICI BANK. ONCE THE ICICI BANK DEFAULTED IN PERFORMANCE OF THE CONTRACT THE UNDER TAKING GIVEN BY THE APPELLANT WAS NO MORE ENFORCEABLE. FURTHER TO ABOVE EVEN IF THERE WAS ANY BREACH OF THE UNDERTAKING GIVEN BY THE APPELLANT TO THE ICICI BAN K IT WAS A MATTER BETWEEN THE APPELLANT AND THE ICICI BANK AND THE APPELLANT'S LI ABILITY COULD BE TO THE EXTENT OF 4 ITA NO. 902/AHD/2006 CONSEQUENTIAL PAYMENT OF DAMAGES TO THE ICICI BANK IF ANY. SUCH AN UNDERTAKING IN NO WAY LIMITS THE RIGHT OF THE APPELLANT TO TAKE DECISION WITH REGARD TO THE SHARES IN QUESTION ON THE BASIS OF COMMERCIAL EXPED IENCY. THE RIGHT OF THE ASSESSEE TO TREAT THE INVESTMENT AS STOCK IN TRADE WAS TO BE EXERCISED BY THE ASSESSEE AS PER HIS OWN WISDOM AND IN ACCORDANCE WI TH THE COMMERCIAL EXPEDIENCY. THERE WAS NO PROVISION IN LAW WHICH EN ABLED ASSESSING OFFICER TO QUESTION OR INTERFERE WITH SUCH DISCRETION/OPTION O F AN ASSESSEE. A REFERENCE OF SUCH A RIGHT OF AN ASSESSEE IS ALSO PROVIDED IN SEC TION 45(2) OF THE ACT. THE PROVISIONS ALSO PROVIDE FOR THE POINT OF TIME AT WH ICH THE CAPITAL GAIN IF ANY ON ACCOUNT OF SUCH CONVERSION WAS TO BE BROUGHT TO TAX . IN THE APPELLANT'S CASE THERE WAS NO FINAL SALE OF SHARES AND THEREFORE THE POIN T OF TIME WHEN SUCH CAPITAL GAIN COULD BE BROUGHT TO TAX HAD NOT YET COME. FURTHER T O ABOVE AS PER THE CALCULATIONS GIVEN BY THE APPELLANT IN FACT THERE WAS A CAPITAL LOSS AT THE TIME OF CONVERSION OF INVESTMENT INTO STOCK IN TRADE IN THE PERIOD RELEVANT TO A.Y. 98-99 AND THEREFORE NO CAPITAL GAIN ACCRUED TO THE APPEL LANT AS A CONSEQUENCE OF THIS ACTION IN THE PERIOD RELEVANT TO A.Y. 98-99. THERE WERE A NUMBER OF DECISIONS WHICH RECOGNIZE THAT THE LEGALITY OF A BUSINESS DEC ISION WAS INDEPENDENT OF THE TAXABILITY OF INCOME/LOSS FROM SUCH AN ACTIVITY. TH E APEX COURT IN THE CASE OF CIT VS. S.C. KOTHARI 82 ITR 794 CLEARLY LAID DOWN THIS PRINCIPLE WHILE AFFIRMING THE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE ABOVE CASE. THE SOME PRINCIPLE WAS FURTHER UPHELD BY THE APEX COURT IN THE CASE OF CIT VS. KURJI JINABHAI KOTECHA (1977) 107 ITR 101 (SC). DURING THE COURSE OF ON GO ING BUSINESS ACTIVITY ASSESSEE ENTERS INTO A CONTRACT AND ALSO ON OCCASIO NS VIOLATES TERMS OF CONTRACT OUT OF BUSINESS EXPEDIENCY. IT CANNOT BE SAID THAT IN SUCH A SITUATION THE INCOME OR LOSS EARNED BY THE ASSESSEE COULD BE IGNORED. ON THE CONTRARY APEX COURT IN THE CASE OF CIT -VS.- AHMEDABAD COTTON MANUFACTURIN G 205 ITR 163 WENT A STEP FURTHER AND HELD THAT DAMAGES PAYABLE BY ASSESSEE AS A CONSEQUENCE OF SUCH BREACH OF CONTRACT WAS ALSO ALLOWABLE AS DEDUCTION. THIS PRINCIPLE WAS ALSO LAID DOWN BY THE HON'BLE ALLAHABAD HIGH COURT IN THE CAS E OF KAMALAPOT MOTILAL VS. CIT (1976) 104 ITR 783 (ALL) . I THEREFORE HOLD T HAT THE UNDERTAKING GIVEN BY THE APPELLANT TO THE ICICI BANK IN NO WAY HINDERED THE RIGHT OF THE APPELLANT TO CONVERT HIS INVESTMENT INTO STOCK IN TRADE IN THE P ERIOD RELEVANT TO A.Y. 98-99 AND THE CONSEQUENTIAL PROFIT/LOSS IF ANY WAS TO BE REC OGNIZED FOR TAXABLE PURPOSE. THE UNDERTAKING GIVEN BY THE APPELLANT TO ICICI BANK WA S A MATTER BETWEEN HIM AND THE ICICI BANK AND SUCH AN UNDERTAKING DID NOT DEPR IVE THE APPELLANT TO CLAIM THE BENEFIT OF LOSS WHEN THE VALUE OF SHARES OF M/S. MA RDIA CHEMICALS LTD. FELL DOWN SUBSTANTIALLY. I THEREFORE FIND THAT THE AO HAD NO JURISDICTION TO DISALLOW THE APPELLANTS CLAIM IN THIS REGARD FIRSTLY BECAUSE THE RE WAS NO CAUSE OF ACTION IN THE PERIOD RELEVANT TO THIS ASSESSMENT YEAR AND SECONDL Y EVEN ON MERITS THE BUSINESS DECISION BY THE APPELLANT IN THIS REGARD CANNOT BE QUESTIONED AS PER THE WELL ESTABLISHED POSITION OF LAW AS DISCUSSED ABOVE. THE A.O. IS THEREFORE DIRECTED TO WITHDRAW THE CONSEQUENTIAL DISALLOWANCE MADE AND GR ANT APPROPRIATE RELIEF TO THE APPELLANT. THIS GROUND OF APPEAL IS THEREFORE TREA TED AS ALLOWED. AGGRIEVED WITH THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS) THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL ON THE FOLLOWING GROUNDS :- (1) THE LD. CIT(A.) HAS ERRED IN LAW AND ON FACTS ON CONSIDERING THE ASSESSEES PLEA THAT THE ASSESSEE CONVERSION OF INV ESTMENT INTO STOCK 5 ITA NO. 902/AHD/2006 IN TRADE MADE IN A.Y. 1998-1999 HAS SINCE BEEN ACCE PTED FINALLY BY THE DEPARTMENT. (2) THE LD. CIT(A.) FURTHER ERRED IN LAW AND ON FAC TS IN ALLOWING RELIEF OF RS.33 89 980/- ACCEPTING THE ASSESSEES CLAIM TH AT THE ASSESSEE IS FREE TO SELL HIS SHARE HOLDINGS OF MCL. (3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. CIT(A.) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFF ICER TO THAT EXTENT. 4. AT THE TIME OF HEARING BEFORE US ON BEHALF OF R EVENUE SHRI ANIL KUMAR LD. SR. D.R. APPEARED AND CONTENDED THAT THE ASSESSEE IS A PROMO TER OF MARDIA CHEMICALS LTD. THE SAID COMPANY HAS TAKEN LOAN FROM ICICI BANK LTD. TO WHIC H THE ASSESSEE HAS GIVEN AN UNDERTAKING NOT TO DISPOSE OFF HIS SHARES INCLUDING THE FUTURE ACQUISITION IF ANY TILL THE ENTIRE LOAN IS REPAID . THE LOAN IS STILL OUTSTANDING IN THE CASE OF COMPAN Y. AS PER ICICI BANK THESE SHARES WERE NOT TAKEN INTO CUSTODY BUT THE UNDERTAKING HAD BEEN GIV EN BY THE ASSESSEE ON STAMP PAPER IS SUFFICIENT FOR ENFORCING THEIR CLAIM. THE RELEVANT CLAUSE OF THE SAID AGREEMENT IS AS UNDER :- (IX) UNDERTAKING FOR NON-DISPOSAL OF SHAREHOLDINGS THE BORROWER SHALL NOT RECOGNIZE OR REGISTER ANY TR ANSFER OF SHARES IN THE BORROWERS CAPITAL MADE OR TO BE MADE BY PROMOT ERS THEIR FRIENDS OR ASSOCIATES AS MAY BE SPECIFIED BY THE LE AD INSTITUTION. THE BORROWER SHALL OBTAIN AND FURNISH TO THE LEAD INSTI TUTION SUITABLE UNDERTAKINGS FROM SUCH PERSON FOR GIVING EFFECT TO THE ABOVE. 4.1. THE LD. D.R. SUBMITTED THAT IN VIEW OF THE UND ERTAKING GIVEN BY THE ASSESSEE TO ICICI BANK LTD. THE SHARES OF MARDIA CHEMICALS LTD. CANN OT BE TRANSFERRED ASSIGNED DISPOSE OFF PLEDGE OR CREATE ANY LIEN OR ENCUMBER THEIR EXISTIN G OR FUTURE SHAREHOLDING IN MARDIA CHEMICALS LTD. THESE SHARES ARE HELD BY THE ASSESSEE AS INVES TMENT AND THESE CANNOT BE TREATED AS STOCK-IN- TRADE. CONTINUING HIS ARGUMENT THE LD. D.R. SUBMIT TED THAT BEFORE THE ASSESSING OFFICER THE ASSESSEE SUBMITTED THAT THE UNDERTAKING GIVEN BY ME AS A PROMOTER TO ICICI BANK LTD. HAS NOTHING TO DO WITH THE SHAR4ES HELD BY ME AS STOCK- IN-TRADE DURING THE YEAR UNDER CONSIDERATION AND FURTHER IN VIEW OF THE ONGOING LITIGATION FOR L AST 5-6 YEARS WITH ICICI BANK LTD. INCLUDING THE PENDING LEGAL CLAIM OF MARDIA CHEMICALS LIMITED AGA INST ICICI BANK FOR RECOVERY OF MORE THAN 5600 CRORES THE UNDERTAKING IS MERE A PIECE OF PAP ER WITHOUT ANY LEGAL SANCTITY. 6 ITA NO. 902/AHD/2006 4.2. THE LD. D.R. SUBMITTED THAT KEEPING IN VIEW TH ESE FACTS THE ASSESSING OFFICER RIGHTLY TOOK THE VIEW THAT MERELY MAKING ENTRY IN THE BOOKS OF ACCOUNTS IS NOT DETERMINATIVE OF THE QUESTION WHETHER THE ASSET WAS HELD AS CAPITAL ASSE T OR STOCK-IN-TRADE. THE ENTRIES MAKE IN THE BOOKS OF ACCOUNTS TREATING THESE SHARES AS STOCK-IN -TRADE ARE NOT IN CONFORMITY WITH THE PROPER ACCOUNTING PRINCIPLES. THEREFORE THE ASSESSING OFF ICER RIGHTLY TOOK THE VIEW THAT THESE SHARES CANNOT BE TREATED AS STOCK-IN-TRADE. THEREFORE THE LOSS ARISING OUT OF THE DIFFERENCE BETWEEN THE OPENING STOCK AND CLOSING STOCK OF MARDIA CHEMICALS CANNOT BE ALLOWED AS BUSINESS LOSS. THE LD. D.R. ACCORDINGLY CONTENDED THAT THE VIEW TAKEN BY T HE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) BE REVERSED AND THAT OF ASSESSING OFFICER BE RESTORED. 5. ON THE OTHER HAND SHRI P.D. SHAH LD. COUNSEL A PPEARING ON BEHALF OF THE ASSESSEE VEHEMENTLY SUPPORTED THE ORDER OF LEARNED COMMISSIO NER OF INCOME TAX (APPEALS). THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THE COPY OF ASSES SMENT ORDER STATEMENT OF TAXABLE INCOME AND PROFIT & LOSS A/C. FOR THE ASSESSMENT YEARS 1998-99 TO 2002-03. HE SUBMITTED THAT THE ASSESSING OFFICER FRAMED THE ASSESSMENT FOR THE ASSESSMENT YE ARS 1998-99 TO 2001-02 UNDER SECTION 143(3). THIS HAS BEEN MENTIONED BY THE LEARNED COMM ISSIONER OF INCOME TAX (APPEALS) IN PARA 8 OF THE IMPUGNED ORDER. HE SUBMITTED THAT THE SHAR ES IN QUESTION OF MARDIA CHEMICALS LTD. WERE CONVERTED INTO STOCK-IN-TRADE IN THE ASSESSMENT YEA R 1998-99. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THERE IS NO BAR TO PLEDGE THE STOCK- IN-TRADE THEREFORE THE VIEW TAKEN BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) BE UPH ELD. 6. HAVING HEARD BOTH THE SIDES WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF AUTHORITIES BELOW. RIVAL SUBMISSIONS WERE ALSO CONSIDERED. ADMI TTEDLY THE SHARES OF MARDIA CHEMICALS LTD. WERE CONVERTED INTO STOCK-IN-TRADE BY THE ASSESSEE IN THE ASSESSMENT YEAR 1998-99. FOR THAT ASSESSMENT YEAR THE ASSESSING OFFICER FRAMED THE A SSESSMENT UNDER SECTION 143(3) WHEREIN HE ACCEPTED THE CONVERSION OF SHARES OF MARDIA CHEMICA LS LTD. INTO STOCK-IN-TRADE. IN THE SUBSEQUENT ASSESSMENT YEARS I.E. UPTO ASSESSMENT Y EAR 2001-02 ALSO THE ASSESSMENTS WERE FRAMED UNDER SECTION 143(3) OF THE ACT. THESE BEING THE FACTS AND CIRCUMSTANCES WE ARE OF THE VIEW THAT LEARNED COMMISSIONER OF INCOME TAX (APPEA LS) RIGHTLY TOOK THE VIEW THAT IN THE ASSESSMENT YEAR UNDER APPEAL THE ASSESSING OFFICER HAS NO JURISDICTION TO DISALLOW THE ASSESSEES CLAIM. IN THIS REGARD FIRSTLY BECAUSE THERE WAS NO CAUSE OF ACTION IN THE PERIOD RELEVANT TO THE 7 ITA NO. 902/AHD/2006 ASSESSMENT YEAR UNDER APPEAL AND SECONDLY EVEN ON MERITS THE BUSINESS DECISION BY THE ASSESSEE IN THIS REGARD CANNOT BE QUESTIONED AS PER THE WELL ESTABLISHED POSITION OF LAW AS DISCUSSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IN THE IMPUGNED ORDER. WE THEREFORE INCLINE TO UPHOLD THE ORDER OF LEARNED COMMISSIONER OF INCO ME TAX (APPEALS) AND REJECT THIS GROUND OF APPEAL RAISED BY THE REVENUE. 7. IN THE RESULT THE APPEAL FILED BY THE DEPARTMEN T IS DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 15.10.20 10 SD/- SD/- (G.D. AGRAWAL) (T.K. SHARMA ) VICE-PRESIDENT (AZ) JUDICIAL MEMBER DATED : 15 / 10 / 2010 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT(A.) CONCERNED (4) CIT CONCERNED (5) D.R. ITAT AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT AHMEDABAD LAHA/SR.P.S.