TMI Blog2013 (7) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... f-Shore India Ltd. As on 01.04.2003, the fair market value of Off-Shore India Ltd. was determined on the basis of break-up value of last available balance-sheet as on that date, which was also accepted by the Revenue as the market value as on 31.03.2003, there was no reason to dispute that the same was not the market value as on 01.04.2003 on the basis of data available on that date. Thus, no specific error in the order of the CIT(A) could be pointed out by the Revenue by bringing any relevant material on record - ground of Revenue is dismissed. - I.T.A. No.1632/Kol/2008 - - - Dated:- 21-6-2013 - Shri N. S. Saini, A.M. And Shri Mahavir Singh, J.M.,JJ. For the Appellant : Shri L. K. S. Dahiya, Sr. DR For the Respondent : Shri D. S. Damle, FCA ORDER Per Shri N. S. Saini, A.M. This is an appeal filed by the Revenue against the order of the CIT(A)-IV, Kolkata dated the 2nd June, 2008 for the assessment year 2004-05. 2. In the Revenue's appeal, the following ground has been taken:- "1. That the Ld. CIT(A) has erred in deleting the addition on valuation of converted share of Off-shore India Ltd. to the tune of Rs.2,47,05,000/-, while the assessee has taken two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to stock-in-trade on the same market value i.e. Re.1/- for the entire stock holding of Off-Shore India Ltd. and therefore, the assessee was not correct in transferring the investment to stock-in-trade at the carrying value of Rs.2,47,05,000/-. The AO, therefore, held that when the market value or break-up value of the shares of Off- Shore India Ltd. as on 01.04.2003 was Re.1/-; the assessee was entitled to claim the cost of such stock-in-trade at Re.1/- and not Rs.2,47,05,000/- as claimed and therefore in arriving at the total income, the AO disallowed the said cost of Rs.2,47,05,000/-. 4. On appeal, the ld. CIT(A), for the reasons elaborately set out in para 4 of his order, deleted the said disallowance. Against the deletion of the said addition, the Revenue is in appeal before us. 5. Before us, the ld. CIT,DR submitted that the ld. CIT(A) allowed the relief to the assessee without properly appreciating the facts of the assessee's case. Accordingly, the ld. DR submitted that in granting relief to the assessee, the CIT(A) blindly accepted the assessee's explanation regarding entries passed in the books in conformity with the accounting standards issued by the Institute of Char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fully supported the order of the ld. CIT(A). He submitted that assessee's accounts were maintained in conformity with the accounting standard issued by the ICAI as also on the basis of NBFC's Prudential Norms (Reserve Bank) Directions, 1998. Referring to para 23 of AS-13, the ld. A.R. pointed out that where long term investments are reclassified as current investments then the transfer should be made at the lower of cost or carrying amount on the date of transfer. The ld. A.R. submitted that assessee's balance-sheet as on 31st March, 2003 was accepted by the department in its assessment for the earlier year. Accordingly, the carrying cost of shares of Off- Shore India Ltd. and Yield Investments Ltd. were approved and the same were not disturbed. The carrying cost of investments as on 31.03.2003 automatically became the carrying cost as on 01.04.2003, which was the first day of the previous year for the assessment year 2004-05. On 01.04.2003, the assessee transferred equity shares of Yield Investments Ltd. and Off-Shore India Ltd. from investments to trading account. The accounting effect for such transfer was required to be given in the accounts and the same would only be done in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with AS-13 had to be accepted for the purpose of assessee's income under the head "Profit Gains from business". The ld. A.R. further pointed out that in the relevant year, the assessee had transferred shares of Yield Investments Ltd. and Off-Shore India Ltd. from the investments to stock-in-trade. Carrying cost of these shares was Rs.5.40 per share and Rs.5.49 per share. In the case of Yield Investments Ltd., the number of shares was 28,43,800 and the carrying cost was Rs.1,53,56,250/-. In the case of Off- Shore India Ltd., the total number of shares were 45,00,000 and carrying cost was Rs.2,47,05,000/-. In both the cases, the conversion from investments to stock-in- trade was carried out at the aforesaid carrying cost and in the assessment, the AO did not dispute the basis adopted by the assessee in relation to Yield Investments Ltd. The AO, however, disputed the method of accounting only in relation to conversion in respect of Off-Shore India Ltd. The ld. A.R. further submitted that in respect of all unquoted shares, the assessee followed the principle of lower of the cost or break-up value method. For the purpose of determining the break-up of unquoted shares, the audited bal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal is whether the A.O. was justified in substituting the value of shares of M/s. Off-Shore India Ltd. at the time of its transfer from "Investments" to "Stock in trade" as on 1.4.2003. From the facts on record I find that till 31st March 2003 the shares of Off- Shore India Ltd. Yield Investment (P) Ltd. were held by the appellants as its "Investment (long term)". Pursuant to the accounting method consistently followed, the investments were carried in the Balance Sheet in the manner prescribed by Accounting Standard-13 (AS-13) read with Prudential Guidelines of Reserve Bank of India applicable to NBFCs. As on 31st March 2003, 45,00,000 shares of Off-Shore India Ltd. were carried in the Balance Sheet @ Rs.5.49 per share aggregating to Rs.2,47,05,000. 28,43,800 shares of Yield Investment (P) Ltd. were carried @ Rs.5.40 per share aggregating to Rs.1,53,56,250/-. In the assessment order for A.Y. 2003-04 carrying cost of these two investments was accepted by the A.O. and the carrying cost was not disturbed. Effective 1st April 2003 the Board of Directors of the appellant resolved to transfer shares of the said 2 companies (which were both unquoted), from "Investments" to "stock in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.4.2003. As a result of this method of inventory valuation the appellant recognized loss of Rs.1,58,148/- in respect of inventory of shares of Yield Investment P. Ltd. in its accounts and the same was also allowed by the A.O. in the impugned assessment. Based on the same principles the break up value of Off-Shore India Ltd. was determined by M/s. Bose Chakraborty, chartered Accountants, at (-ve) Rs.1.89 per share. Since inventory can not be valued in negative terms, the shares of Off-Shore India Ltd. were valued at token amount of Re.1/-. From perusal of the Schedule of Investment and Stock in trade annexed to the Audited Balance Sheet as at 31.3.2004, I find that by following the same method of valuation the shares of M/s. Organised Investments Ltd. Consolidated Industrial Fund Ltd. Canal Investments Industries Ltd Figro Chem P Ltd were also similarly valued at Re.1/-. In the impugned order the valuation of shares of these companies at token value of Re.1/- was accepted by the A.O. In the above factual background, I find that the appellant followed same accounting methods and principles for accounting the transfer of shares of 2 companies from "Investments" to "Stock in tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cepted the said method of accounting, accounting principles and basis of inventory valuation in relation to shares of Yield 'Investment Pvt. Ltd. there appears no legal justification for the A.O. to dispute and reject the same accounting method and principles only in relation to shares of Off-Shore India Ltd. The A.O. could not adopt diametrically opposite standards in relation to identical transactions which were carried out simultaneously and all essential attributes of both the transactions were same and identical. The A.O. was not justified in accepting tax effect involving transfer of shares of Yield Investment (P) Ltd. from "Investments" to "stock in trade" and out- rightly reject the taxation effect of transfer of shares in the case of Off-Shore India Ltd." 7.1 Before us, the ld. CIT(DR) has urged to support the order of the AO by placing strong reliance on the provisions of section 45(2) of the Income Tax Act, 1961. 7.2 On the other hand, the ld. A.R. submitted that there is no dispute about the applicability of the provisions of section 45(2) of the Act. The fair market value of the shares on the date of the conversion was taken as per the regularly followed system of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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