2016 (8) TMI 266 - HC - Income Tax

Revision u/s 263 - Commissioner had held that the shares sold were stock-in-trade and not investment - Held that - In the present case, the shares and securities were acquired much earlier and all throughout they were treated as stockintrade. It was only on 31.03.1993, viz. when Resolution was passed by the Board of Directors of the assessee company, that they were converted into investment. Therefore, for the purpose of the Act, the relevant date shall be the date on which the asset was acquired, which is 31.03.1993. The Assessing Officer completely lost sight of the aforesaid relevant aspect while passing the assessment order, which was corrected by the CIT(A) in proceedings u/s.263 of the Act and rightly affirmed by the Tribunal. In view of the aforesaid discussion, both the questions are answered in favour of the Revenue and against the assessee.

Summary

Issues involved:
1. Interpretation of the order under Section 263 of the Income Tax Act, 1961.
2. Determination of whether shares sold were stock-in-trade or investment.

Analysis:

Issue 1: Interpretation of the order under Section 263 of the Income Tax Act, 1961.
The case involved an appeal against the order passed by the Income Tax Appellate Tribunal, Ahmedabad Bench, regarding the conversion of shares from stock-in-trade to investment by a public limited company. The Commissioner initiated proceedings under section 263, setting aside the assessment and directing a fresh assessment. The appellant challenged this decision, arguing that the Tribunal misunderstood the conversion of shares and the assessment order was lawful. The appellant relied on legal precedents to support their position, emphasizing that the Notice issued by the CIT(A) lacked reasons and the entire proceedings were erroneous. However, the Senior Advocate for the Revenue contended that the conversion of shares indicated a claim for tax benefits, justifying the CIT(A)'s actions. The court considered the facts, including the Resolution converting shares into investment, and upheld the CIT(A)'s order under section 263 as correct and in line with the law.

Issue 2: Determination of whether shares sold were stock-in-trade or investment.
The crucial question in this issue was whether the shares sold by the company were to be treated as stock-in-trade or investment for the purpose of capital gains taxation. The appellant argued that the relevant date for determining the nature of the asset should be when the shares were converted into investment, i.e., 31.03.1993. They cited legal cases to support their position. On the other hand, the Revenue contended that the shares were initially treated as stock-in-trade, and the CIT(A) rightly pointed out the inconsistency in the company's claim. The court analyzed the facts, emphasizing the conversion of shares into investment on 31.03.1993 and concluded that the assessment order, which resulted in long-term capital loss, was corrected by the CIT(A) under section 263. The court ruled in favor of the Revenue, determining that the shares sold were indeed investment and not stock-in-trade. The appeal was disposed of accordingly.

This detailed analysis of the judgment provides a comprehensive understanding of the legal issues involved and the court's reasoning in resolving those issues.