ACIT, Circle - 4, Kolkata, Kolkata V. M/s. Trade Apartments Ltd., Kolkata

ITA 1632/KOL/2008

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3203 (ITAT-KOLKATA)
• Duration Of Justice: 4 year(s) 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 13-05-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 21-08-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: L K S DAHIYA
• Assessee Lawyers: D S DAMLE FCA PER SHRI
• Keywords: Capital asset; Business income; Tax effect; Date of conversion; Fair market value; Tax effect
• Section: 45(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOL KATA [BEFORE SHRI N.S.SAINI, A.M. & SHRI MAHAVIR SINGH, J.M. ] I.T.A. NO.1632/KOL/2008 : ASSESSMENT YEAR : 2004-05 ACIT, CIRCLE-4, KOLKATA VS- M/S. TRADE APARTMENTS LTD.,KOLKATA PAN : AABCT 2117P ( APPELLANT ) ( RESPONDENT ) DATE OF CONCLUDING THE HEARING : 11.06.2013 DATE OF PRONOUNCING THE ORDER : 21.06.2013 APPEARANCES : FOR THE APPELLANT : SHRI L.K.S. DAHIYA, SR.DR : FOR THE RESPONDENT : SHRI D.S. DAMLE, FCA O R D E R 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 2 ND JUNE, 2008 FOR THE ASSESSMENT YEAR 2004-05. 2. IN THE REVENUES APPEAL, THE FOLLOWING GROUND HA S BEEN TAKEN:- 1. THAT THE LD. CIT(A) HAS ERRED IN DELETING THE AD DITION ON VALUATION OF CONVERTED SHARE OF OFF-SHORE INDIA LTD. TO THE TUN E OF RS.2,47,05,000/-, WHILE THE ASSESSEE HAS TAKEN TWO CONTRADICTORY MET HODS FOR VALUATION OF THE SAME SHARE FOR THE SAME ASSESSMENT YEAR. 3. FROM THE ORDER OF THE AO, WE NOTE THAT THE ASSES SEE WAS HOLDING SHARES OF OTHER BODY CORPORATE BOTH BY WAY OF LONG-TERM INVES TMENTS AND STOCK IN TRADE. AS ON 31.03.2003, THE ASSESSEE HELD SHARES IN OTHER BO DIES CORPORATE HAVING VARYING COSTS OF RS.4,00,97,271/-. THE INVESTMENT IN SHARES , INTER ALIA , INCLUDED 28,43,800 SHARES OF YIELD INVESTMENTS LTD. AND 45,00,000 SHAR ES OF OFF-SHORE INDIA LTD., WHOSE CARRYING COST AS ON 31.03.2003 WAS RS.1,53,56 ,520/- AND RS.2,47,05,000/- RESPECTIVELY. DURING THE PREVIOUS YEAR, RELEVANT TO ASSESSMENT YEAR 2004-05, THE ASSESSEE COMPANY RESOLVED TO CONVERT EQUITY SHARES HELD IN THESE TWO COMPANIES 2 I.T.A. NO.1632/KOL/2008 M/S. TRADE APARTMENTS LTD. A.Y .2004-05 FROM INVESTMENT TO STOCK-IN-TRADE IN ITS BOOKS OF A CCOUNTS FOR THE YEAR ENDED 31.03.2004. THE ASSESSEE PASSED ACCOUNTING ENTRIES TRANSFERRING THE CARRYING COST OF THESE TWO SHARES FROM INVESTMENT TO TRADING ACCO UNT. ACCORDINGLY, IN ITS PROFIT & LOSS A/C. FOR THE YEAR ENDED 31.03.2004, THE ASSE SSEE DEBITED SUM OF RS.4,00,61,520/- ON ACCOUNT OF TRANSFER OF INVESTME NTS TO STOCK IN TRADE. IN RESPECT OF SHARES HELD ON TRADING ACCOUNT, THE ASSESSEE REG ULARLY FOLLOWED PRINCIPLE OF THE LOWER OF THE COST OR THE MARKET VALUE IN VALUATION OF INVENTORY WHEREAS INVESTMENTS WERE VALUED AT COST. FOR THE PURPOSE OF ARRIVING AT THE VALUE OF THE INVENTORY, THE ASSESSEE FOLLOWED ACCOUNTING STANDAR D-13 AS ALSO RBIS PRUDENTIAL GUIDELINES, ACCORDING TO WHICH SHARES OF UNLISTED C OMPANIES WERE VALUED EITHER AT COST OR BREAK-UP VALUE WHICHEVER IS LOWER. IN THE C OURSE OF ASSESSMENT, THE ASSESSEE HAD FURNISHED DETAILS OF BREAK-UP VALUE OF EQUITY SHARES OF OFF-SHORE INDIA LTD. AS CERTIFIED BY M/S. BOSE AND CHAKRABORT Y, CHARTERED ACCOUNTANT, IN WHICH THE BREAK-UP VALUE OF THE SAID SHARES WAS CER TIFIED AT (-) 1.89 PER SHARE. THE SAID BREAK-UP VALUE WAS CERTIFIED BY THE CHARTERED ACCOUNTANT, BASED ON THE FIGURES REFLECTED IN THE AUDITED ACCOUNTS OF M/S. O FF-SHORE INDIA LTD. FOR THE YEAR ENDED 31.03.2003. THE AO, THEREFORE, HELD THAT WHEN ON 01.04.2003, THE ASSESSEE CONVERTED SHARES OF OFF-SHORE INDIA LTD. FROM INVES TMENTS TO STOCK-IN-TRADE, THE MARKET VALUE OR BREAK-UP VALUE OF THESE SHARES HAD ALREADY BECOME NEGATIVE AND THE SAME WAS VALUED BY THE ASSESSEE ON 31.03.2004 A T RE.1/-. GOING BY THE SAME YARDSTICK, THE ASSESSEE SHOULD HAVE ACCOUNTED THE C ONVERSION OF INVESTMENT 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 WA S 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 A SSESSEE WAS ENTITLED TO CLAIM THE COST OF SUCH STOCK-IN-TRADE AT RE.1/- AND NOT R S.2,47,05,000/- AS CLAIMED AND THEREFORE IN ARRIVING AT THE TOTAL INCOME, THE AO D ISALLOWED THE SAID COST OF RS.2,47,05,000/-. 3 I.T.A. NO.1632/KOL/2008 M/S. TRADE APARTMENTS LTD. A.Y .2004-05 4. ON APPEAL, THE LD. CIT(A), FOR THE REASONS ELABO RATELY SET OUT IN PARA 4 OF HIS ORDER, DELETED THE SAID DISALLOWANCE. AGAINST THE D ELETION 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 FACT S OF THE ASSESSEES CASE. ACCORDINGLY, THE LD. DR SUBMITTED THAT IN GRANTING RELIEF TO THE ASSESSEE, THE CIT(A) BLINDLY ACCEPTED THE ASSESSEES EXPLANATION REGARDING ENTRIES PASSED IN THE BOOKS IN CONFORMITY WITH THE ACCOUNTING STANDARDS I SSUED BY THE INSTITUTE OF CHARTERED ACCOUNTS OF INDIA. HE STATED THAT IN THE BALANCE-SHEET FOR THE YEAR ENDED ON 31.03.2003, SHARES OF OFF-SHORE INDIA LTD. WERE DISCLOSED AT CARRYING COST OF RS.2,47,05,000/- BUT AS PER THE BALANCE-SHEET OF TH E SAID INVESTEE COMPANY, IT WAS VERY MUCH APPARENT THAT ITS MARKET VALUE WAS NIL BE CAUSE BREAK-UP VALUE PER SHARE AS CERTIFIED BY THE CIT(A) WAS (-) RS.1.89 PER SHAR E. ACCORDING TO CIT(DR), THE DOCUMENTS, WHICH THE ASSESSEE PLACED BEFORE THE AO, CLEARLY ESTABLISHED THAT THE SHARES WERE TRANSFERRED FROM INVESTMENTS TO STOCK-I N-TRADE DID NOT HAVE ANY INTRINSIC VALUE OR MARKET VALUE AND THEREFORE IN IT S BOOKS OF ACCOUNTS, SUCH TRANSFER HAD TO BE RECORDED WITH REFERENCE TO THE INTRINSIC VALUE OF THE SHARES, WHICH COULD AT BEST BE TAKEN AT RE.1/-. BY ADOPTING THE CARRYIN G COST AS THE BASIS FOR PASSING OF THE ACCOUNTING ENTRIES. THE ASSESSEE HAD TAKEN UNDU E BENEFIT OF SUCH CARRYING COST WHICH WAS NOT PERMISSIBLE AS PER THE LEGAL PROVISIO NS, THOUGH SUCH ACCOUNTING METHODS HAVE BEEN MADE IN CONFORMITY WITH THE ACCOU NTING STANDARDS. THE LD. CIT,DR FURTHER ARGUED THAT PROVISIONS OF SECTION 45 (2) OF THE INCOME-TAX ACT, 1961 SPECIFICALLY DEALS WITH THE SITUATION CONCERNI NG OF CONVERSION OF INVESTMENTS INTO STOCK-IN-TRADE AND IT REQUIRES THAT IN SUCH A CASE, THE INCOME HAS TO BE COMPUTED WITH REFERENCE TO FAIR MARKET VALUE AS THE CAPITAL ASSET ON THE DATE OF CONVERSION. SUCH PROVISIONS OF SECTION 45(2) WERE S PECIFICALLY INCORPORATED IN THE STATUTE AND WHICH WERE CONTRARY TO THE ACCOUNTING S TANDARD-13 OF THE ICAI, THE INCOME HAD TO BE COMPUTED WITH REFERENCE TO PROVISI ONS OF SECTION 45(2) AND NOT 4 I.T.A. NO.1632/KOL/2008 M/S. TRADE APARTMENTS LTD. A.Y .2004-05 IN CONFORMITY WITH THE ACCOUNTING ENTRIES PASSED IN ACCORDANCE WITH ACCOUNTING STANDARD PRESCRIBED BY THE ICAI. HE SUBMITTED THAT IT IS A SETTLED LEGAL PROPOSITION THAT THE ACCOUNTING STANDARDS PRESCRIBED BY THE ICA I COULD NOT OVERRIDE THE STATUTORY PROVISIONS OF THE INCOME-TAX ACT, 1961 AN D SINCE IN THE PRESENT CASE, THE SECTION 45(2) CONTAINS SPECIFIC PROVISION, THIS HAD TO BE TAKEN INTO ACCOUNT IN COMPUTING THE INCOME. IF SUCH PROVISION WAS APPLIED , THEN ON THE DATE OF CONVERSION, MARKET VALUE WAS NIL AND THEREFORE, THE ASSESSEE COULD NOT ADOPT ANY ARTIFICIAL HIGHER CARRYING COST AS THE COST OF ACQU IRING OF TRADING STOCK. HE, THEREFORE URGED FOR REVERSAL OF THE CIT(A)S ORDER AND RESTORATION OF THE ORDER OF THE AO. 6. THE LD. A.R. OF THE ASSESSEE, ON THE OTHER HAND, FULLY SUPPORTED THE ORDER OF THE LD. CIT(A). HE SUBMITTED THAT ASSESSEES ACCOUN TS WERE MAINTAINED IN CONFORMITY WITH THE ACCOUNTING STANDARD ISSUED BY T HE ICAI AS ALSO ON THE BASIS OF NBFCS 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 TRANSF ER SHOULD BE MADE AT THE LOWER OF COST OR CARRYING AMOUNT ON THE DATE OF TRANSFER. TH E LD. A.R. SUBMITTED THAT ASSESSEES BALANCE-SHEET AS ON 31 ST MARCH, 2003 WAS ACCEPTED BY THE DEPARTMENT IN ITS ASSESSMENT FOR THE EARLIER YEAR. ACCORDINGLY, T HE CARRYING COST OF SHARES OF OFF- SHORE INDIA LTD. AND YIELD INVESTMENTS LTD. WERE AP PROVED AND THE SAME WERE NOT DISTURBED. THE CARRYING COST OF INVESTMENTS AS ON 3 1.03.2003 AUTOMATICALLY BECAME THE CARRYING COST AS ON 01.04.2003, WHICH WA S 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-SHO RE 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 DO NE IN CONFORMITY WITH THE ACCOUNTING STANDARDS WHICH WERE MANDATORY FOR THE A SSESSEE TO FOLLOW. THE LD. A.R. SUBMITTED THAT THE CARRYING COST FOR EACH SHAR E OF YIELD INVESTMENTS LTD. WAS 5 I.T.A. NO.1632/KOL/2008 M/S. TRADE APARTMENTS LTD. A.Y .2004-05 RS.5.40 PER SHARE AND THAT OF OFF-SHORE INDIA LTD. WAS RS.5.49 PER SHARE. BASED ON SUCH CARRYING COST, THE ASSESSEES BALANCE-SHEET AS ON 31.03.2003 WAS DRAWN UP AND THE SAME WAS ACCEPTED BY THE REVENUE IN THE ASS ESSMENT FOR THE ASSESSMENT YEAR 2003-04. AS PER AS-13, THE TRANSFER OF LONG TE RM INVESTMENT TO CURRENT INVESTMENT AS ON 01.04.2003 HAD TO BE NECESSARILY D ONE AT SUCH CARRYING COST AND NOT WITH REFERENCE TO THE MARKET VALUE OR BREAK-UP VALUE OF SHARES. THE LD. A.R. SUBMITTED THAT IT HAS BEEN HELD BY THE HONBLE SUPR EME COURT IN THE CASE OF CIT- VS- U.P. STATE INDUSTRIAL DEVELOPMENT CORPORATION R EPORTED IN 225 ITR 703 (SC) THAT WHERE THE STATUTORY PROVISIONS ARE NOT IN CONF LICT WITH THE ACCOUNTING STANDARDS OR ACCEPTED COMMERCIAL PRINCIPLES OF ACCO UNTING, THEN IN SUCH CASE, THE INCOME HAS TO BE COMPUTED ON THE BASIS OF ACCOUNTIN G STANDARDS OR ACCEPTED COMMERCIAL PRINCIPLES OF ACCOUNTING. THE LD. A.R. A RGUED IN THE PRESENT CASE THAT SECTION 45(2) OF THE ACT WAS NOT APPLICABLE BECAUSE THE SHARES OF OFF-SHORE INDIA LTD. WERE NOT TRANSFERRED OR SOLD DURING THE YEAR. HE SUBMITTED THAT SECTION 45(2) OF THE I.T. ACT, 1961 COMES INTO FORCE NOT IN THE Y EAR IN WHICH CONVERSION TAKES PLACE BUT IT COMES INTO PLAY IN THE YEAR IN WHICH T HE CONVERTED CAPITAL ASSET IS ACTUALLY SOLD OR TRANSFERRED. THE LD. A.R. FURTHER SUBMITTED THAT IN THE ASSESSEES CASE, ENTIRE SHAREHOLDING OF OFF-SHORE INDIA LTD. R EMAINED WITH THE ASSESSEE TILL 31.03.2004 AND THEREFORE THERE DID NOT OCCUR ANY OC CASION TO INVOKE SECTION 45(2) OF THE ACT. THE LD. A.R. FURTHER SUBMITTED THAT PRO VISION OF SECTION 45(2) DEALT WITH COMPUTATION OF INCOME TO BE MADE UNDER THE HEAD CA PITAL GAINS WHEREAS IN THE PRESENT CASE, THE ISSUE CONCERNED WITH THE COMPUTAT ION OF INCOME UNDER THE HEAD PROFIT AND GAINS OF THE BUSINESS AND IN THE CONTE XT OF WHICH THE QUESTION OF DETERMINATION OF COST OF TRADING COST WAS NOT DEALT WITH BY ANY SPECIFIC PROVISION OF THE INCOME TAX ACT, 1961. THE LD. A.R., THEREFOR E SUBMITTED THAT THERE WAS NO STATUTORY PROVISION UNDER CHAPTER IVD DEALING WITH COMPUTATION OF BUSINESS INCOME WHICH WAS CONTRARY TO AS-13 AND IN ABSENCE O F ANY CONTRARY PROVISION, THE ACCOUNTING AS DONE BY THE ASSESSEE IN CONFORMITY WI TH AS-13 HAD TO BE ACCEPTED FOR THE PURPOSE OF ASSESSEES INCOME UNDER THE HEAD PROFIT & GAINS FROM 6 I.T.A. NO.1632/KOL/2008 M/S. TRADE APARTMENTS LTD. A.Y .2004-05 BUSINESS. THE LD. A.R. FURTHER POINTED OUT THAT IN THE RELEVANT YEAR, THE ASSESSEE HAD TRANSFERRED SHARES OF YIELD INVESTMENTS LTD. AN D OFF-SHORE INDIA LTD. FROM THE INVESTMENTS TO STOCK-IN-TRADE. CARRYING COST OF THE SE SHARES WAS RS.5.40 PER SHARE AND RS.5.49 PER SHARE. IN THE CASE OF YIELD INVESTM ENTS 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 4 5,00,000 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 COS T AND IN THE ASSESSMENT, THE AO DID NOT DISPUTE THE BASIS ADOPTED BY THE ASSESSEE I N RELATION TO YIELD INVESTMENTS LTD. THE AO, HOWEVER, DISPUTED THE METHOD OF ACCOUN TING ONLY IN RELATION TO CONVERSION IN RESPECT OF OFF-SHORE INDIA LTD. THE L D. A.R. FURTHER SUBMITTED THAT IN RESPECT OF ALL UNQUOTED SHARES, THE ASSESSEE FOLLOW ED THE PRINCIPLE OF LOWER OF THE COST OR BREAK-UP VALUE METHOD. FOR THE PURPOSE OF D ETERMINING THE BREAK-UP OF UNQUOTED SHARES, THE AUDITED BALANCE-SHEET OF THE I NVESTEE COMPANY AS ON 31.03.2003 WERE TAKEN INTO ACCOUNT BY FOLLOWING THE SAME METHOD. THE BREAK-UP VALUE OF THE QUOTED SHARES OF YIELD INVESTMENTS PVT . LTD. WAS DETERMINED AT RS.4.94 PER SHARE. THIS BREAK-UP VALUE WAS ARRIVED AT WITH REFERENCE TO BALANCE- SHEET OF YIELD INVESTMENTS PVT. LTD. AS ON 31.03.20 03. AS ON 31.03.2004, THE ASSESSEE CONTINUED TO HOLD 3,43,800 SHARES OF YIELD INVESTMENTS PVT. LTD. OUT OF 28,43,800 SHARES TRANSFERRED OUT OF INVESTMENTS. AS AGAINST THE CARRYING COST OF RS.5.40 PER SHARE AS ON 01.04.2003, THE REMAINING 3 ,43,800 SHARES WERE VALUED AT BREAK-UP VALUE METHOD AS ON 31.03.2004 AT THE RATE OF RS.4.94 PER SHARE. AS A RESULT, THE VALUATION LOSS OF RS.1,58,148/- IN RESP ECT OF STOCK IN TRADE OF YIELD INVESTMENTS PVT. LTD. WAS ALLOWED BY THE AO. THE LD . A.R. FURTHER SUBMITTED THAT THE ASSESSEE FOLLOWED THE SAME METHOD OF VALUATION OF STOCK IN THE CASE OF OFF- SHORE INDIA LTD. ALSO. HOWEVER, SINCE IN THE LATTER CASE, THE BREAK-UP VALUE OF EACH SHARE WAS (-) RS.1.89; FOR IDENTIFICATION PURPOSES, THE VALUE OF STOCK IN TRADE OF SHARES OF OFF-SHORE INDIA LTD. WAS TAKEN AT RE.1/-. IT WAS FURTHER SUBMITTED THAT IN THE CASE OF SHARES OF BOTH THE COMPANIES, THE ASSES SEE HAD FOLLOWED THE IDENTICAL 7 I.T.A. NO.1632/KOL/2008 M/S. TRADE APARTMENTS LTD. A.Y .2004-05 BASIS OF ACCOUNTING FOR RECORDING TRANSFER FROM INV ESTMENT TO STOCK IN TRADE AND ALSO THE BASIS OF ADOPTING FOR VALUATION IN BOTH TH E CASES WAS IDENTICAL. IN THE CASE OF YIELD INVESTMENTS PVT. LTD., THE AO DID NOT FIND ANY INFIRMITY IN THE ACCOUNTING METHODS ADOPTED BY THE ASSESSEE BUT THE SAME METHOD OF ACCOUNTING FOLLOWED IN RELATION TO SHARES OF OFF-SHORE INDIA LTD. WAS OUTR IGHTLY REJECTED. THE LD. A.R. FURTHER SUBMITTED THAT THE AO COULD NOT SELECTIVELY APPROVE THE SAME METHOD OF ACCOUNTING AND METHOD OF VALUATION FOR ONE SHARE AN D REJECT THE SAME IN RELATION TO ANOTHER. THE LD. A.R. THEREFORE, PLEADED FOR UPHOLD ING THE ORDER OF THE LD. CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT IN PARA 4 OF THE CIT(A)S ORDER, HE HAS ELABORATELY SET OUT THE FACT UAL ASPECT CONCERNING THE DISPUTE INVOLVED IN THE PRESENT APPEAL AND FOR THE SAKE OF CLARITY, WE DEEM IT FIT TO REPRODUCE THE FINDINGS OF THE LD. CIT(A) AS UNDER: 4. I HAVE CONSIDERED THE SUBMISSIONS OF THE A/R A ND PERUSED THE IMPUGNED ORDER. THE PRIMARY QUESTION IN THE PRESENT APPEAL I S 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 I N TRADE AS ON 1.4.2003. FROM THE FACTS ON RECORD I FIND THAT TILL 31 ST MARCH 2003 THE SHARES OF OFF- SHORE INDIA LTD. & YIELD INVESTMENT (P) LTD. WERE H ELD BY THE APPELLANTS AS ITS INVESTMENT (LONG TERM). PURSUANT TO THE ACCOU NTING 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 APPL ICABLE TO NBFCS. AS ON 31 ST MARCH 2003, 45,00,000 SHARES OF OFF-SHORE INDIA LT D. WERE CARRIED IN THE BALANCE SHEET @ RS.5.49 PER SHARE AGGREGATING T O 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 ASSES SMENT 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 1 ST APRIL 2003 THE BOARD OF DIRECTORS OF THE APPELLANT RESOLVED TO TRANSFER SHARES OF THE SAID 2 COMPANIES (WHICH WERE BOTH UNQUOTED), FROM INVESTM ENTS TO STOCK IN 8 I.T.A. NO.1632/KOL/2008 M/S. TRADE APARTMENTS LTD. A.Y .2004-05 TRADE. THE TRANSFER OF THESE 2 SHARES FROM INVEST MENTS TO STOCK IN TRADE WAS RECORDED IN THE APPELLANTS BOOKS IN CON FORMITY WITH THE ACCOUNTING STANDARD-13 & ACCORDINGLY THE TRANSFER W ERE ACCOUNTED AT CARRYING COST OF THESE SHARES. ACCORDINGLY, SHARES OF OFF-SHORE INDIA LTD. WERE TRANSFERRED FROM INVESTMENT TO STOCK IN TRADE @ RS.5.49 PER SHARE AND SHARES OF YIELD INVESTMENT (P) LTD. WERE TRANSFERRE D @RS.5.40 PER SHARE. FROM THE IMPUGNED ORDER IT APPEARED THAT THE TRANSF ER OF SHARES OF YIELD INVESTMENT PVT. LTD. FROM INVESTMENT TO STOCK IN TRADE, CARRIED OUT AT THE CARRYING COST WAS ACCEPTED BY THE A.O. THIS FAC T INDICATES THAT THE METHOD OF ACCOUNTING FOLLOWED BY THE APPELLANT IN R ELATION TO THE SAID TRANSFER OF SHARES WAS ACCEPTED BY THE A.O. THE APP ELLANT FOLLOWED THE SAME ACCOUNTING METHOD AND PRINCIPLES IN RELATION TO TRA NSFER OF SHARES OF OFF- SHORE INDIA LTD. WHICH ONLY WAS DISPUTED BY THE A.O . IN THE IMPUGNED ORDER. IT IS ALSO FOUND FROM THE IMPUGNED ORDER THA T PART OF THE SHARES OF YIELD INVESTMENT PVT. LTD. TRANSFERRED TO STOCK IN TRADE ON 1.4.2003 WERE SOLD DURING THE YEAR AND THE LOSS ARISING THERE FRO M WAS ASSESSED PARTLY UNDER THE HEAD CAPITAL GAINS AS REQUIRED U/S 45(2 ) AND PARTLY AS BUSINESS LOSS. THE REMAINING SHARES OF YIELD INVE STMENT P. LTD. REMAINED IN STOCK AS ON 31.3.2004. AS AT THE END OF THE FINA NCIAL YEAR 2003-04, ALL THE SHARES OF OFF-SHORE INDIA LTD., WHICH WERE TRANSFER RED TO STOCK IN TRADE, REMAINED IN STOCK. SINCE BOTH THE INVESTEE COMPANIE S WERE CLOSELY HELD AND THEIR SHARES WERE NOT QUOTED ON ANY RECOGNIZED STOC K EXCHANGES, VALUATION OF BOTH THE SHARES WAS CARRIED OUT BY FOLLOWING THE PRINCIPLE OF AT COST OR BREAK-UP VALUE, WHICHEVER IS LOWER BASIS AS REQUIR ED BY ACCOUNTING STANDARD-13 & PRUDENTIAL GUIDELINES OF RBI. FROM TH E DETAILS FURNISHED BEFORE ME, I FIND THAT FOR THE PURPOSE OF VALUATION OF STOCK IN TRADE ON THE ABOVE BASIS THE APPELLANT COMPUTED THE BREAK-UP VA LUE OF SHARES WITH REFERENCE TO THE LAST AVAILABLE BALANCE SHEET OF TH E INVESTEE COMPANIES, I.E. FOR THE YEAR ENDED 31 ST MARCH 2003. AS PER THE BALANCE SHEET AS OF 31 ST MARCH 2003, THE BREAK-UP VALUE OF SHARES OF YIELD I NVESTMENT (P) LTD. WAS RS.4.94 PER SHARE, GIVING AGGREGATE VALUE OF RS.16, 98,372/- FOR 3,43,800 SHARES, AS AGAINST THE CARRYING COST OF RS.5.40 PER SHARE AT WHICH THESE SHARES CONVERTED FROM INVESTMENT TO STOCK IN TRADE AS ON 1.4.2003. AS A RESULT OF THIS METHOD OF INVENTORY VALUATION THE AP PELLANT 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 & CHAKRABORT Y, CHARTERED ACCOUNTANTS, AT (-VE) RS.1.89 PER SHARE. SINCE INVE NTORY CAN NOT BE VALUED IN NEGATIVE TERMS, THE SHARES OF OFF-SHORE INDIA LT D. WERE VALUED AT TOKEN AMOUNT OF RE.1/-. FROM PERUSAL OF THE SCHEDULE OF I NVESTMENT 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 O F M/S. ORGANISED 9 I.T.A. NO.1632/KOL/2008 M/S. TRADE APARTMENTS LTD. A.Y .2004-05 INVESTMENTS LTD. CONSOLIDATED INDUSTRIAL FUND LTD. CANAL INVESTMENTS & INDUSTRIES LTD & FIGRO CHEM P LTD WERE ALSO SIMILAR LY 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 ABO VE FACTUAL BACKGROUND, I FIND THAT THE APPELLANT FOLLOWED SAME ACCOUNTING ME THODS AND PRINCIPLES FOR ACCOUNTING THE TRANSFER OF SHARES OF 2 COMPANIES FR OM INVESTMENTS TO STOCK IN TRADE. THE APPELLANT FOLLOWED SAME METHO D OF INVENTORY VALUATION FOR VALUING INVENTORY OF UNSOLD SHARES OF THE SAID TWO COMPANIES AS ON 31 ST MARCH 2004. THE A.O. ACCEPTED THE APPELLANTS METH OD OF ACCOUNTING AND METHOD OF INVENTORY VALUATION IN REL ATION TO SHARES OF YIELD INVESTMENT (P) LTD. BUT DISPUTED THE VERY SAME ACCO UNTING AND INVENTORY VALUATION METHOD IN RELATION TO SHARES OF OFF-SHORE INDIA LTD. I FURTHER FIND THAT APPELLANTS METHOD OF INVENTORY VALUATION WAS SAME IN RESPECT OF ALL SHARES OF UNLISTED/UNQUOTED COMPANIES & THE SHARES OF UNQUOTED COMPANIES WERE ALWAYS VALUED ON THE PRINCIPLE OF LOWER OF TH E COST OR BREAK UP VALUE. FOR THIS PURPOSE BREAK UP VALUE WAS CALCULA TED ON THE BASIS OF BALANCE SHEET OF THE INVESTEE COMPANIES FOR THE PRE CEDING YEAR. WHEREVER THE BREAK UP VALUE OF THE UNQUOTED SHARES WAS NEGAT IVE, THE APPELLANT VALUED SHARES OF SUCH COMPANIES AT TOKEN AMOUNT OF RE.1/-. THESE ACCOUNTING METHODS AND PRINCIPLE OF INVENTORY VALUA TION WAS UNIFORMLY FOLLOWED AND BARRING SHARES OF OFF-SHORE INDIA LTD. THE A.O. DID NOT DISPUTE OR DISBELIEVE THE SAID METHOD OF ACCOUNTING OR METH OD OF VALUATION IN ANY OTHER CASE & RATHER HE ACCEPTED APPELLANTS ALL OTH ER TRANSACTIONS. THE A.O. HAS JUSTIFIED THE DISALLOWANCE ON THE GROUND THAT T HE APPELLANT FOLLOWED DIFFERENT BASIS AND METHOD FOR ACCOUNTING FOR RECOR DING TRANSFER OF SHARES FROM INVESTMENT TO STOCK AND VALUATION OF SHARE S OF YIELD INVESTMENTS (P) LTD AND OFF-SHORE INDIA LTD. I HOWEVER, FIND TH AT IN BOTH THE CASES THE APPELLANT HAVE FOLLOWED IDENTICAL METHOD OF ACCOUNT ING AND VALUATION. THE A.O. WAS NOT JUSTIFIED IN ACCEPTING THE ACCOUNTING AND VALUATION IN THE CASE OF YIELD INVESTMENTS (P) LTD AND IN NOT ACCEPTING T HE SAME ACCOUNTING AND VALUATION METHODOLOGY IN THE CASE OF OFF-SHORE INDI A LTD. IN THE FACTUAL BACKGROUND THEREFORE, I HAVE NO HESITATION IN HOLDI NG THAT THE A.O. DISPUTED THE ASSESSEES METHOD OF ACCOUNTING FOR RECORDING T RANSFER OF SHARES OF OFF- SHORE INDIA LTD. MERELY BECAUSE IT RESULTED IN SUBS TANTIAL REDUCTION OF INCOME. THE APPELLANT FOLLOWED IDENTICAL ACCOUNTING METHOD AND PRINCIPLES FOR RECORDING TRANSFER OF SHARES OF YIELD INVESTMEN T P LTD & OFF-SHORE INDIA LTD, FROM INVESTMENTS TO STOCK IN TRADE AND THE APPELLANT FOLLOWED SAME PRINCIPLES OF INVENTORY VALUATION FOR VALUING SHARES OF BOTH THE COMPANIES AS ON 31ST MARCH 2004. IN THE CIRCUMSTANC ES, WHEN THE A,O. ACCEPTED 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 DISP UTE AND REJECT THE SAME ACCOUNTING METHOD AND PRINCIPLES ONLY IN RELATION T O SHARES OF OFF-SHORE 10 I.T.A. NO.1632/KOL/2008 M/S. TRADE APARTMENTS LTD. A.Y .2004-05 INDIA LTD. THE A.O. COULD NOT ADOPT DIAMETRICALLY O PPOSITE STANDARDS IN RELATION TO IDENTICAL TRANSACTIONS WHICH WERE CARRI ED OUT SIMULTANEOUSLY AND ALL ESSENTIAL ATTRIBUTES OF BOTH THE TRANSACTIONS W ERE SAME AND IDENTICAL. THE A.O. WAS NOT JUSTIFIED IN ACCEPTING TAX EFFECT INVO LVING TRANSFER OF SHARES OF YIELD INVESTMENT (P) LTD. FROM INVESTMENTS TO ST OCK IN TRADE AND OUT- RIGHTLY REJECT THE TAXATION EFFECT OF TRANSFER OF S HARES 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 SECTIO N 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 ACCOUNTING AND AS NO SPECIFIC ERROR IN TH E ORDER OF THE LD. CIT(A) COULD BE POINTED OUT BY THE REVENUE, HE FULLY SUPPORTED T HE ORDER OF THE LD. CIT(A). 7.3 WE FIND THAT IN THE INSTANT CASE, THE CASE OF T HE ASSESSEE IS THAT IT VALUES UNQUOTED SHARES ON THE BASIS OF FAIR MARKET VALUE, WHICH IS IN CASE OF UNQUOTED SHARES DETERMINED ON THE BASIS OF BREAK-UP VALUE OF THE LAST AVAILABLE BALANCE- SHEET. IN THE INSTANT CASE, SHARES OF TWO COMPANIES WERE CONVERTED AS ON 01.04.2003 FROM INVESTMENT TO STOCK IN TRADE. BOTH THESE SHARES WERE VALUED AT FAIR MARKET VALUE BEING LESS THAN COST AS ON 31.03.2003 AND THE SAME WAS DULY ACCEPTED BY THE DEPARTMENT. ON THE VERY SAME VALUE, THE SAID SHARES WERE CONVERTED INTO STOCK IN TRADE ON THE IMMEDIATELY NE XT DATE I.E. 01.04.2003. THUS, THE SHARES WERE CONVERTED INTO STOCK IN TRADE ON TH E FAIR MARKET VALUE AS ON THE DATE OF CONVERSION. OUT OF THE SHARES OF TWO COMPAN IES WHICH WERE CONVERTED ON THE SAME SYSTEM, THE DEPARTMENT HAS ACCEPTED THE SY STEM AS CORRECT IN THE CASE OF YIELD INVESTMENTS PVT. LTD. AND HAS DISPUTED ONLY I N THE CASE OF OFF-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 A VAILABLE BALANCE-SHEET AS ON THAT 11 I.T.A. NO.1632/KOL/2008 M/S. TRADE APARTMENTS LTD. A.Y .2004-05 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, WE FIND THAT NO SPECIFIC ERROR IN THE ORDER OF THE LD. CIT(A) COULD BE POINTED OUT BY THE REVENUE BY BRINGING ANY RELEVANT MATERIAL ON RECORD. WE, TH EREFORE, DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE CIT(A), W HICH IS CONFIRMED AND THE GROUND OF REVENUE IS DISMISSED. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. THIS ORDER IS PRONOUNCED IN THE COURT ON 21 ST JUNE, 2013. SD/- SD/- (MAHAVIR SINGH) (N. S. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBE R DATED : 21 ST JUNE, 2013 COPY OF THE ORDER FORWARDED TO: 1. M/S. TRADE APARTMENTS LTD., 31, N.S.ROAD, KOLKATA-7 00 001 2. ACIT, CIRCLE-4, KOLKATA 3. THE CIT(A), KOLKATA 4. CIT, KOLKATA 5. DR, KOLKATA BENCHES, KOLKATA TRUE COPY, BY ORDER, ASSTT. REGISTRAR , ITAT, KOLKATA TALUKDAR(SR.P.S.) 12 I.T.A. NO.1632/KOL/2008 M/S. TRADE APARTMENTS LTD. A.Y .2004-05