1986 (10) TMI 54 - AT - Income Tax

Summary

Issues Involved:
1. Conversion of shares from investment to stock-in-trade.
2. Genuineness of the business of dealing in shares.
3. Relevance of seized papers.
4. Allegation of tax avoidance.
5. Admissibility of additional evidence.
6. Summoning of witnesses.
7. Treatment of dividend and interest income.
8. Perquisite value of telephone expenses.
9. Personal use of motor car.

Detailed Analysis:

1. Conversion of Shares from Investment to Stock-in-Trade:
The assessee claimed that shares held as investments were converted into stock-in-trade on 30-8-1980. The ITO accepted this conversion for most shares but not for shares in three companies: Cellulose Products of India Ltd., Gujchem Distillers India Ltd., and Manish Organics India Ltd. The Commissioner (Appeals) found that the conversion was genuine and noted that the shares were freely tradable in the stock market. The Commissioner (Appeals) concluded that the conversion of shares into stock-in-trade was genuine and that the assessee had carried on the business of dealing in shares.

2. Genuineness of the Business of Dealing in Shares:
The Commissioner (Appeals) observed that the assessee had made a clear declaration of converting his investment portfolio into stock-in-trade and had maintained separate books of account. The assessee continued to trade in shares both in his proprietary business and through partnerships. The infrequent trading of the three companies' shares was attributed to declining market prices. The Commissioner (Appeals) concluded that the business of dealing in shares was genuine.

3. Relevance of Seized Papers:
The revenue argued that the seized papers indicated that the conversion of shares was a sham. However, the Commissioner (Appeals) found that the papers merely reflected opinions and clarifications sought by family members regarding potential family separation. The Commissioner (Appeals) noted that the family arrangement had not been fully acted upon and that there were deviations from its terms. The seized papers did not prove that the business of dealing in shares was sham.

4. Allegation of Tax Avoidance:
The revenue contended that the conversion of shares was a device to avoid tax. The Commissioner (Appeals) rejected this argument, stating that the conversion was genuine and that the motive of tax evasion could not be attributed to the assessee. The Commissioner (Appeals) held that even if the family arrangement was a device, there was no intention to avoid tax.

5. Admissibility of Additional Evidence:
The revenue argued that the Commissioner (Appeals) erred in admitting additional evidence without recording reasons and without giving an opportunity to the ITO. The Commissioner (Appeals) clarified that no new evidence was introduced and that the information was already before the ITO and the IAC. The Tribunal found no substance in the revenue's grounds and rejected them.

6. Summoning of Witnesses:
The revenue's request to summon witnesses was rejected by the Commissioner (Appeals), who found that the IAC had already considered the aspects mentioned in the application. The Tribunal upheld this decision.

7. Treatment of Dividend and Interest Income:
The Commissioner (Appeals) relied on a previous decision in the assessee's case and deleted the addition of dividend income of Rs. 11,200 and interest income of Rs. 1,325. The Tribunal upheld this decision based on its earlier order.

8. Perquisite Value of Telephone Expenses:
The Commissioner (Appeals) reduced the perquisite value of telephone expenses from Rs. 2,490 to Rs. 500. The Tribunal upheld this reduction, noting that the entire amount had been deleted in the previous year.

9. Personal Use of Motor Car:
The Commissioner (Appeals) reduced the addition for personal use of a motor car by Rs. 8,374. The Tribunal upheld this decision based on its earlier order.

Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the Commissioner (Appeals)'s findings on all issues. The conversion of shares into stock-in-trade was found to be genuine, and the business of dealing in shares was not a sham. The seized papers did not prove tax avoidance, and additional evidence was properly considered. The treatment of dividend and interest income, telephone expenses, and personal use of a motor car was upheld in favor of the assessee.