ACIT, CIR-36, KOLKATA, Kolkata V. Sri Kamal Kumar Dugar, Kolkata

ITA 1823/KOL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1570 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 9 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-07-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 12-06-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 23-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Cost of acquisition; Date of conversion; Right to appeal
• Section: 45(2); 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : KOLKATA [BEFORE HONBLE SRI A.T.VARKEY, JM & SHRI M.BALAG ANESH, AM ] I.T.A NO.1823/KOL/201 4 ASSESSMENT YEAR : 2010-1 1 A.C.I.T., CIRCLE-35, -VS.- SHRI KAMAL KUMAR DUGAR KOLKATA KOLKATA [PAN : ADEPD 5604 J] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : NONE FOR THE RESPONDENT : SHRI ANIL KOCHAR, ADVOC ATE DATE OF HEARING : 15.06.2017. DATE OF PRONOUNCEMENT : 07.07.2017 ORDER PER M.BALAGANESH, AM 1. THIS APPEAL OF THE REVENUE ARISES OUT OF THE ORD ER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -XX , KOLKATA [ IN SHORT THE L D CITA] IN APPEAL NO. 57/CIT(A)- XX/CIRCLE-35/2013-14/KOL. DATED 16-06-2014 AGAINST THE ORDER PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-35, KOLKATA [ IN SHORT THE LD AO] UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REF ERRED TO AS THE ACT] DATED 14.03.2013 FOR THE ASST YEAR 2010-11. 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS A S TO WHETHER THE LD CITA WAS JUSTIFIED IN TREATING THE TRANSACTION OF CONVERSION OF SHARES FROM STOCK IN TRADE TO INVESTMENT AND ITS SUBSEQUENT SALES AS LONG TERM CAPITAL GAINS AND NOT BUSINESS INCOME, IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESS EE IS AN INDIVIDUAL DERIVING INCOME FROM SALE OF SHARES. THE ASSESSEE MAINTAINS TWO SETS OF BOOKS OF ACCOUNTS. ONE IS IN THE TRADE NAME KAMAL KUMAR DUGAR & CO. THIS ACCOUNT IS MAINTAINED FOR THE PURPOSE OF 2 ITA NO.1823/KOL/2014 SHRI KAMAL KUMAR DUGAR A.YR.2010-11 2 RECORDING, INTER ALIA, TRADING IN SHAES. RELEVANT INCOME ARISING OUT OF TRADING IN SHARES IS CREDITED IN THE PROFIT AND LOSS ACCOUNT. CLOSIN G BALANCE IN THE SHARE TRADING ACCOUNT IS REFLECTED IN THE BALANCE SHEET AS TRADING STOCK. THE ASSESSEE MAINTAINS ANOTHER SET OF ACCOUNTS IN H IS PERSONAL NAME I.E KAMAL KUMAR DUGAR AND THE ASSESSEE RECORDS HIS INVESTMENT IN S HARES AND THE CAPITAL GAINS ARISING THEREFROM IN THIS SET OF ACCOUNTS. THUS, THERE AR E TWO SETS OF ACCOUNTS WHICH ARE BEING MAINTAINED BY THE ASSESSEE SINCE LONG. 3.1. THE ASSESSEE PURCHASED 50000 SHARES OF HFCL IN FOTEL LTD ON 2.6.2005 FOR TOTAL AMOUNT OF RS 2,12,50,000/- WHICH WERE NOTED IN THE BOOKS OF THE ASSESSEE MAINTAINED IN THE NAME KAMAL KUMAR DUGAR & CO.. THE NAME OF HF CL INFOTEL LTD WAS CHANGED TO QUADRANT TELEVENTURE LTD. ON 1.4.2008, THESE SHAR ES WERE TRANSFERRED FROM TRADING ACCOUNT TO INVESTMENT ACCOUNT AND ACCORDINGLY IT FO RMED PART OF THE STATEMENT OF ACCOUNTS MAINTAINED IN THE NAME OF KAMAL KUMAR DUGA R WHICH RELATES TO INVESTMENT PORTFOLIO OF THE ASSESSEE. ACCORDINGLY, THESE SHAR ES WERE APPEARING IN THE LIST OF SHARE INVESTMENT MAINTAINED IN THE PERSONAL BOOKS IN THE NAME OF KAMAL KUMAR DUGAR. THE LD AO HAD COMPLETED THE ASSESSMENTS FOR THE ASST YE ARS 2008-09 AND 2009-10 U/S 143(3) OF THE ACT ON 8.11.2010 AND 16.11.2011 RESPE CTIVELY, ACCEPTING THE DUAL PORTFOLIOS HELD BY THE ASSESSEE. 3.2. ACCORDINGLY, THE ASSESSEE SUBMITTED THAT HE HA D DERIVED INCOME FROM TRANSACTIONS IN SHARES. ONE IS TRADING PROFIT AND THE OTHER ONE IS CAPITAL GAINS. THE ASSESSEE SUBMITTED THE DETAILS OF GAINS DERIVED FROM TRADING ACTIVITY AND CAPITAL GAINS DERIVED ON INVESTMENT ACTIVITY SEPARATELY. ON 1.4.2008, THE A SSESSEE TRANSFERRED 50000 SHARES OF HFCL INFOTEL LTD FROM ITS TRADING PORTFOLIO TO INVE STMENT PORTFOLIO BY WAY OF CONVERSION FROM STOCK IN TRADE TO INVESTMENT FOR RS 2,12,50,000/-, BEING THE COST PRICE, AS THE MARKET PRICE FOR THE SAME WAS BELOW THE COST PRICE . THESE SHARES WERE 3 ITA NO.1823/KOL/2014 SHRI KAMAL KUMAR DUGAR A.YR.2010-11 3 SUBSEQUENTLY SOLD BY THE ASSESSEE IN THE OPEN MARKE T AND GAINS DERIVED THEREON WERE REPORTED AS LONG TERM CAPITAL GAINS BY THE ASSESSEE . THE ASSESSEE ALSO SUBMITTED HIS FINANCIAL STATEMENTS FOR THE YEARS ENDED 31.3.2008, 31.3.2009 AND 31.3.2010. IN THE SAID FINANCIAL STATEMENTS, THE ASSESSEE HAD DECLARE D THE FOLLOWING:- 31.3.08 31.3.09 31.3.10 CREDITS IN P&L ACCOUNT LONG TERM CAPITAL GAIN 7,22,011.06 NIL 1,05,35,614.99 SHORT TERM CAPITAL GAIN 2,31,707.55 NIL 82,87,036.00 PROFIT FROM PROPRIETORSHIP 9,03,25,524.76 72,59,726 .14 73,62,662.21 BALANCE SHEET ASSET SIDE KAMAL KUMAR DUGAR &CO (PROPRIETORY CONCERN) 4,06,84,560.24 (77,18,603.63) 2,41,90,059.51 INVESTMENT IN SHARES & DEBENTURES 99,33,725.90 4,75,41,835.90 3, 62,35,585.89 3.3. THE ASSESSEE ALSO SUBMITTED THE FINANCIAL STAT EMENTS OF HIS PROPRIETORY CONCERN KAMAL KUMAR DUGAR & CO. FOR THE YEARS ENDED 31.3. 2008, 31.3.2009 AND 31.3.2010. IN THE SAID FINANCIAL STATEMENTS, THE ASSESSEE HAD DECLARED THE FOLLOWING:- 31.3.08 31.3.09 31.3.10 BALANCE SHEET ASSET SIDE STOCK IN TRADE 3,87,87,632.50 7,08,95,876.36 9,53,96,985.47 BALANCE SHEET LIABILITY SIDE SUNDRY CREDITOR ASHIKA STOCK BROKING LTD 1,76,26,157.00 INCOME IN P&L ACCOUNT BROKERAGE & COMMISSION 89,064.06 2,74,092.89 79,754.18 4 ITA NO.1823/KOL/2014 SHRI KAMAL KUMAR DUGAR A.YR.2010-11 4 SHARE DEALING PROFIT 7,59,00,158.42 82,52, 064.48 45,69,718.25 SALES 50,73,97,067.01 15,67,38,010.88 93,74,98,835.71 CLOSING STOCK 3,87,87,632.50 7,08,95,876.36 9,53,96,985.47 EXPENSES IN P&L ACCOUNT OPENING STOCK 5,05,54,229.14 3,87,87,632.50 7,08,95,876.36 PURCHASES 47,73,91,010.39 18,71,47,376 .00 94,98,62,502.31 SECURITIES TRANSACTION TAX 21,09,500.28 3,43,934.00 22,85,152.00 NET PROFIT TRANSFERRED TO CAPITAL ACCOUNT 9,03,25,524.76 72,59,726. 14 73,62,662.21 3.4. THE ASSESSEE ALSO FURNISHED THE SUMMARY OF SHA RE TRADING ACCOUNT FOR THE ASST YEARS 2008-09 , 2009-10 , 2010-11 AND 2011-12 AS UN DER:- ASST YEAR CLOSING STOCK SHARE TRADING INCOME (INTRA DAY) TRADING INCOME (DELIVERY) TOTAL INCOME 2008-2009 3,87,87,632.50 7,59,00,158.42 1,82,39,459 .98 9,41,39,618.40 2009-2010 7,08,95,876.36 82,52,064.48 16,98,8 78.74 99,50,943.22 2010-2011 9,53,96,985.47 45,69,718.25 1,21,37,44 2.51 1,67,07,160.76 2011-2012 2,29,42,009.74 2,74,44,530.98 24,65,98 1.58 2,99,10,512.56 3.5. THE ASSESSEE SOLD 50000 SHARES OF HFCL INFOTEL LTD ON DIFFERENT DATES DURING THE YEAR. THE TOTAL SALE CONSIDERATION WAS RS 3,18,91, 865/- AND THE ACQUISITION COST OF THE SAME WERE RS 2,13,56,252/- RESULTING IN GAIN OF RS 1,05,35,613/-. THE ASSESSEE DISCLOSED THE SAME AS LONG TERM CAPITAL GAINS. IT WAS SUBMITTED THAT THE ASSESSEE CARRIES ON THE BUSINESS OF DEALING IN SHARES AS PROPRIETOR UNDER THE TRADE NAME & STYLE OF KAMAL KUMAR DUGAR & CO. , WHEREIN THE PROFIT AND LOSS IN RESPECT OF DEALING IN SHARES FROM THE SAID CONCERN WERE ALWAYS TREATED AS BUSINE SS INCOME AND NEVER AS CAPITAL GAINS 5 ITA NO.1823/KOL/2014 SHRI KAMAL KUMAR DUGAR A.YR.2010-11 5 IRRESPECTIVE OF THE PERIOD OF HOLDING. SHARES OF H FCL INFOTEL LTD WERE ACQUIRED BY THE ASSESSEE ON 2.6.2005 AND RECORDED IN THE PROPRIETOR SHIP CONCERN AND WERE HELD SINCE THEN AS STOCK IN TRADE TILL 31.3.2008. SHARES OF T HE COMPANY WERE NOT LISTED AT THE TIME OF PURCHASE AND SUBSEQUENTLY TILL 31.3.2008. THESE WERE HELD BY THE ASSESSEE TO BE RETAINED FOR A LONGER PERIOD AND THERE BEING NO VAL UE ADDITION DUE TO NON-LISTING OF THE SHARES IN THE STOCK EXCHANGE, THE ASSESSEE THOUGHT IT FIT AND PRUDENT TO TRANSFER THE SHARES FROM TRADING ACCOUNT TO INVESTMENT ACCOUNT A ND ACCORDINGLY ON 1.4.2008 , PASSED A JOURNAL ENTRY IN THE ACCOUNTS OF THE PROPR IETORSHIP BUSINESS BY DEBITING THE PERSONAL CAPITAL ACCOUNT AND CREDITING THE STOCK AC COUNT AT THE COST PRICE OF THE SHARES. THIS RESULTED IN NON-APPEARANCE OF THE STO CK IN THE BOOKS OF ACCOUNTS OF KAMAL KUMAR DUGAR & CO. DURING THE PERIOD ENDING ON 31.3 .2009 AND CONSEQUENTLY THE SAME APPEARED IN THE PERSONAL BALANCE SHEET OF KAMAL KUM AR DUGAR IN SELF ACCOUNT. NECESSARY SALE BILL WAS MADE BY THE CONCERN M/S KAM AL KUMAR DUGAR & CO., TO THE ASSESSEES INDIVIDUAL ACCOUNT. THE FAIR MARKET VAL UE FOR THE SHARES AS ON 31.3.2008 BASED ON THE BOOK VALUE WAS LESSER BY RS 7 THAN THE COST PRICE BUT STILL KEEPING IN VIEW THE FACT THAT THE SAME WERE NOT BEING SOLD , THE AS SESSEE TRANSFERRED THE SHARES FROM THE BUSINESS ACCOUNT TO THE PERSONAL ACCOUNT AT COST PR ICE. THESE SHARES WERE LATER SOLD AND CAPITAL GAINS AROSE ON THE SAME WHICH WERE OFFE RED TO TAX IN THE RETURN OF INCOME. THE LD AO TREATED THE SAID GAINS OF RS 1,05,35,613/ - AS BUSINESS INCOME OF THE ASSESSEE IN THE ASSESSMENT. 4. IT WAS SUBMITTED BEFORE THE LD CITA THAT THE LD AO HAD NOT DISPUTED THE PURCHASE AND SALE OF THE SHARES. THE LD AO HAD OBSERVED THAT TH E ASSESSEE HAD CONVERTED FROM STOCK IN TRADE TO INVESTMENT WITH A VIEW TO EVADE TAXES A ND THAT THE ASSESSEE HAD TRANSFERRED THIS PARTICULAR SCRIP TO INVESTMENT ACCOUNT TO GET BENEFIT FROM THE FAVOURABLE TAX LAWS WHICH EXEMPTS THE GAINS ARISING ON SALE OF SHARES I F THE SECURITIES TRANSACTION TAX IS LEVIED ON SUCH SALES. IT WAS ARGUED THAT THE INCOME TAX ACT DOES NOT CONTAIN ANY PROVISIONS PROHIBITING THE CONVERSION OF SHARES FRO M TRADING ACCOUNT TO INVESTMENT 6 ITA NO.1823/KOL/2014 SHRI KAMAL KUMAR DUGAR A.YR.2010-11 6 ACCOUNT. THE ASSESSEE ALSO PLACED RELIANCE ON THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS DHANUKA AND SONS R EPORTED IN [1979] 124 ITR 24 (CAL) DATED 21.7.1978, IT HAD BEEN CATEGORICALLY HE LD THAT PROFIT AND GAINS ON SHARES TRANSFERRED FROM TRADING ACCOUNT TO INVESTMENT AT P REVAILING MARKET RATE IS NOT A TRANSACTION AT ALL BECAUSE A PERSON CANNOT HAVE TRA NSACTION WITH HIMSELF AND IN TURN SUCH PROFIT CANNOT BE TAXED. IF SUCH SHARES BE DISPOSED OF AT A VALUE OTHER THAN THE VALUE AT WHICH IT WAS TRANSFERRED FROM THE BUSINESS STOCK, T HE QUESTION OF CAPITAL LOSS OR CAPITAL GAIN WOULD ARISE. IT WAS ALSO SUBMITTED THAT IN S O FAR AS THE REFERENCE MADE BY THE LD AO TO THE DECISION OF THE HONBLE APEX COURT IN TH E CASE OF CIT VS H.HOLCK LARSEN REPORTED IN 160 ITR 67 (SC) , THAT THE SAME REFERS TO THE REPEATED AND REGULAR ACTIVITY OF BUYING AND SELLING OF SHARES AND INFERS THAT THE SA ME IS TO BE CONSIDERED AS BUSINESS ACTIVITY. ADMITTEDLY, THE REGULAR ACTIVITY OF BUYI NG AND SELLING OF SHARES WHICH THE ASSESSEE CARRIES IN HIS PROPRIETORSHIP CONCERN ARE ALL ALONG TREATED AS HIS BUSINESS INCOME. THE ASSESSEE HAD ONLY TRANSFERRED THE SHAR ES FROM STOCK WHICH WAS BEING HELD IN THE PROPRIETORSHIP CONCERN TO THE INVESTMENT ACC OUNT MUCH EARLIER THAN THE DATE OF SALE I.E ABOUT 16 MONTHS BACK. FURTHER , DURING T HE COURSE OF ASSESSMENT PROCEEDING FOR THE ASST YEAR 2009-10, THE ASSESSEE HAD SUBMITTED F ULL DETAILS OF TRANSFER OF SHARES FROM BUSINESS ACCOUNT TO INVESTMENT ACCOUNT. FURTHER TH E DETAILS OF INVESTMENT OF KAMAL KUMAR DUGAR (ASSESSEE HEREIN) WAS ALSO SUBMITTED WH ICH INCLUDED THE SHARES IN QUESTION. EVEN IN THE ITR-4, THE SAME WERE ALSO IN CORPORATED. ACCORDINGLY, IT WAS SUBMITTED THAT THERE BEING NOTHING WHICH PREVENTS T HE ASSESSEE TO TRANSFER THE STOCK TO INVESTMENT ACCOUNT AND WHICH HAVE BEEN DONE AS APPA RENT FROM THE RECORDS ITSELF ON 1.4.2008 THE GAIN ARISING ON SALE OF SHARES OF HFCL INFOTEL LTD IS TO BE TREATED AS GAIN ON LONG TERM SALE OF SHARES AND HENCE, THEREFORE , ARE EXEMPT U/S 10(38) OF THE ACT. 5. THE LD CITA TREATED THE GAINS AS CAPITAL GAINS A S AGAINST BUSINESS INCOME DETERMINED BY THE LD AO BY OBSERVING AS UNDER:- 7 ITA NO.1823/KOL/2014 SHRI KAMAL KUMAR DUGAR A.YR.2010-11 7 I HAVE PERUSED THE ASSESSMENT ORDER AND CONSIDERED THE SUBMISSION OF THE APPELLANT.. I FIND MERIT IN THE ARGUMENT OF THE APP ELLANT THAT THERE WERE TWO SEPARATE BOOKS OF ACCOUNT BEING MAINTAINED FOR TRAD ING AND INVESTMENT RESPECTIVELY. IN THE PROPRIETARY CONCERN, THE SHARE S WERE BEING SHOWN AS STOCK IN TRADE ONLY WHEREAS IN THE SELF-NAME THE SHARES WERE HELD FOR THE PURPOSE OF INVESTMENT. AT THE TIME OF CONVERSION OF THE SHARES OF M/S HFCL INFOTEL LTD ON 01.01.2008, THE MARKET PRICE OF THESE SHARES WAS BE LOW THE COST PRICE. THE SHARES WERE SOLD AFTER A GAP OF MORE THAN ONE YEAR, THEREF ORE, FUTURE PRICE OF THE SHARES ON THE DATE OF CONVERSION WAS UNKNOWN. THE SHARES W ERE CONVERTED WITH AN INTENTION TO HOLD IT FOR A LONGER PERIOD AS THE VAL UE OF THE SAME AT THAT TIME WAS NOMINAL. FURTHER, IN THE CASE OF CIT VS DHANUKA & SONS, THE HON'BLE CALCUTTA HIGH COURT HAS CATEGORICALLY HELD THAT SHARES TRANS FERRED FROM TRADING ACCOUNT TO INVESTMENT ACCOUNT AT PREVAILING MARKET RATE IS NOT A TRANSACTION AT ALL BECAUSE THE PERSON CANNOT HAVE TRANSACTION WITH HIMSELF AND IN TURN SUCH PROFIT CANNOT BE TAXED. IF SUCH SHARES BE DISPOSED OF AT A VALUE OTH ER THAN THE VALUE AT WHICH IT WAS TRANSFERRED FROM THE BUSINESS STOCK, THE QUESTION O F CAPITAL LOSS OR CAPITAL GAIN WOULD ARISE. BUT IN THE PRESENT CASE, AT THE TIME O F CONVERSION OF SHARES FROM TRADING ACCOUNT TO INVESTMENT ACCOUNT, THE PRICE OF SHARES WERE BELOW THE PURCHASE PRICE ON 01.04.2008. THEREFORE, IN VIEW OF THE FACT S, ABOVE DISCUSSION AND ALSO FOLLOWING THE RATIO OF THE JUDGMENT OF HON'BLE,HIGH COURT (CAL) IN THE CASE OF CIT VS. DHANUKA & SONS, FACTS OF THAT CASE ARE SIMILAR TO THE FACTS OF THE PRESENT CASE, I AM OF THE OPINION THAT THE CONVERSION OF SHARES OF M/S HFCL INFOTEL LTD FROM TRADING ACCOUNT TO INVESTMENT ACCOUNT WAS LEGITIMAT E, THEREFORE THE AO IS DIRECTED TO TREAT THE INCOME ON SALE OF THOSE SHARES AS INCO ME FROM LONG TERM CAPITAL GAIN AS AGAINST BUSINESS INCOME TREATED BY HIM. 6. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS- 1.ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN TREATING THE TRANSACTION OF CONVERSION OF SHARES FROM STOCK-IN-TRADE TO INVESTMENT AND ITS SUBSEQUENT SALES AS LTCG AND NOT BUSINESS INCOME. 2.ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN TREATING THE ABOVE TRANSACTION AS LTCG IGNORING THE FACT THAT THE REAL INTENTION OF THE ASSESSEE BEHIND CONVERTING THE SHARES- FROM STO CK-IN-TRADE TO INVESTMENT WAS ONLY TO EVADE TAX. 3. THE APPELLANT CRAVES THE LEAVE TO MAKE ANY ADDIT ION, ALTERATION, MODIFICATION OF GROUNDS AT THE APPELLATE STAGE. 7. NONE APPEARED ON BEHALF OF THE REVENUE WHEN THE CASE WAS CALLED FOR HEARING. THE REVENUE HAD NOT EVEN SOUGHT AN ADJOURNMENT BEFORE U S ON THE DATE OF HEARING. HENCE 8 ITA NO.1823/KOL/2014 SHRI KAMAL KUMAR DUGAR A.YR.2010-11 8 WE PROCEED TO DISPOSE OFF THIS APPEAL AFTER HEARING THE LD AR. THE LD AR STATED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF TH E HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF DEEPLOK FINANCIAL SERVICES LTD VS CIT I N ITA NO. 1 OF 2017 DATED 4.4.2017, IN FAVOUR OF THE ASSESSEE. 8. WE HAVE HEARD THE LD AR. THE FACTS STATED HEREI NABOVE REMAIN UNDISPUTED AND HENCE THE SAME ARE NOT REITERATED HEREIN FOR THE SAKE OF BREVITY. WE FIND THAT THE ISSUE UNDER DISPUTE BEFORE US IS SQUARELY COVERED BY THE DECISI ON OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF DEEPLOK FINANCIAL SERVICES LTD VS CIT IN ITA NO. 1 OF 2017 DATED 4.4.2017 , IN FAVOUR OF THE ASSESSEE. THE QUESTION BEFORE T HE HONBLE JURISDICTIONAL HIGH COURT IS AS BELOW:- WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE TRIBUNAL ERRED IN AFFIRMING THE ORDER OF THE AO DISREGARDING THE CONV ERSION OF THE TRADING SHARES INTO INVESTMENT SHARES AND TREATING THE LONG TERM C APITAL GAIN OF RS.22,27,819/- ARISING FROM THE SALE OF THOSE SHARES AS PROFIT OF TRADING IN SHARES AND BRINING THE SAME TO TAX? THE DECISION RENDERED THEREON IS AS BELOW:- SECTION 45(2) OF THE ACT PROVIDES FOR CONVERSION B Y THE OWNER OF A CAPITAL ASSET INTO OR ITS TREATMENT BY HIM AS STOCK-IN-TRADE OF A BUSINESS CARRIED ON BY HIM AS CHARGEABLE TO INCOME-TAX AS INCOME OF HIS PREVIOUS YEAR IN WHICH SUCH STOCK-IN- TRADE IS SOLD OR OTHERWISE TRANSFERRED BY HIM AND F AIR MARKET VALUE OF THE ASSET ON THE DATE OF SUCH CONVERSION OR TREATMENT SHALL BE D EEMED TO BE THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF T HE TRANSFER OF A CAPITAL ASSET. THE ACT HOWEVER DOES NOT PROVIDE FOR THE CONVERSION OF STOCK-IN-TRADE INTO CAPITAL ASSET. WHETHER OR NOT SUCH OMISSION WOULD OPERATE A S A BAR ON AN ASSESSEE IS A QUESTION THAT CAN BE ANSWERED ON THE BASIS OF A VIE W TAKEN BY A LEARNED SINGLE JUDGE OF THIS COURT IN THE CASE OF MANIRUDDIN BEPARI VS. THE CHAIRMAN OF THE MUNICIPAL COMMISSIONERS, DACCA DECIDED ON 16TH APRIL, 1935 AND REPORTED IN 40 CALCUTTA WEEKLY NOTES (CWN) 17 BEING AS FOLLOWS:- 'IT IS A FUNDAMENTAL PRINCIPLE OF LAW THAT A NATURA L PERSON HAS THE CAPACITY TO DO ALL LAWFUL THINGS UNLESS HIS CAPACITY HAS BEEN CURT AILED BY SOME RULE OF LAW. IT IS EQUALLY A FUNDAMENTAL PRINCIPLE THAT IN THE CASE OF A STATUTORY CORPORATION IT IS JUST 9 ITA NO.1823/KOL/2014 SHRI KAMAL KUMAR DUGAR A.YR.2010-11 9 THE OTHER WAY. THE CORPORATION HAS NO POWER TO DO A NYTHING UNLESS THOSE POWERS ARE CONFERRED ON IT BY THE STATUTE WHICH CREATES IT .' THIS VIEW FINDS SUPPORT FROM KIKABHAI PREMCHAND (SUPRA) WHERE THE SITUATION AT HAND WAS CONTEMPLATED AS WOULD APPEAR FROM THE FOLL OWING AS EXPRESSED IN THE DISSENTING VIEW: .. WHEN THE ASSET IS WITHDRAWN FROM THE STOCK-IN- TRADE OF THE BUSINESS THE POSITION IN MY OPINION WOULD BE NO DIFFERENT. SO FA R AS THIS BUSINESS IS CONCERNED THE ASSET WOULD GO OUT AND CEASE TO BE A PART OF IT S STOCK-IN-TRADE AND THIS AGAIN WOULD BE THE MEASURE OF THE PROFIT OR LOSS AS THE C ASE MAY BE OF THE BUSINESS QUA THAT PARTICULAR ASSET ' IN DHANUKA & SONS (SUPRA) THE SAME SITUATION WAS CO NTEMPLATED WHERE ON STOCK TRANSFERRED IN INVESTMENT ACCOUNT, THE QUESTION OF CAPITAL LOSS OR CAPITAL GAIN, WAS HELD, WOULD ARISE IF SUCH SHARES BE DISPOSED OF AT A VALUE OTHER THAN THE VALUE AT WHICH IT WAS TRANSFERRED FROM THE BUSINESS STOCK. W E, ON NOTICING THAT THE TRIBUNAL DID NOT REALLY HOLD OTHERWISE BUT HAD HELD AGAINST THE ASSESSEE ON THE POINT OF RESJUDICATA, HAD FORMULATED THE ABOVE QUESTION. NEV ERTHELESS FOR THE REASONS AFORESAID WE ANSWER THE QUESTION SUGGESTED BY THE A SSESSEE IN THE AFFIRMATIVE AND IN ITS FAVOUR. IN THAT REGARD THE SAID CIRCULAR DAT ED 29 TH FEBRUARY, 2016 HAS NO APPLICATION BECAUSE THE ASSESSEE'S STAND WAS NOT AC CEPTED BY THE REVENUE. SO FAR AS THE FORMULATED QUESTION RELATING TO RESJUDICATA IS CONCERNED, IN ANSWERING THE SAME REFERENCE MAY BE HAD TO THE DECI SION IN AMALGAMATED COALFIELDS LTD. & ANR. VS. JANAPADA SABHA CHHINDWAR A REPORTED IN AIR (1964) SC 1013 IN WHICH THE SUPREME COURT SAID, INTER ALIA, A S FOLLOWS:- . WHERE THE LIABILITY OF A TAX FOR A PARTICULAR YEAR IS CONSIDERED AND DECIDED DOES THE DECISION FOR THAT PARTICULAR YEAR OPERATE AS RES JUDICATA IN RESPECT OF THE LIABILITY FOR A SUBSEQUENT YEAR? IN A SENSE, THE LI ABILITY TO PAY TAX FROM YEAR TO YEAR IS A SEPERATE AND DISTINCT LIABILITY; IT IS BASED O N A DIFFERENT CAUSE OF ACTION FROM YEAR TO YEAR, AND IF ANY POINTS OF FACT OR LAW ARE CONSIDERED IN DETERMINING THE LIABILITY FOR A GIVEN YEAR, THEY CAN GENERALLY BE D EEMED TO HAVE BEEN CONSIDERED AND DECIDED IN A COLLATERAL AND INCIDENTAL WAY. THE TREND OF THE RECENT ENGLISH DECISIONS ON THE WHOLE APPEARS TO BE, IN THE WORDS OF LORD RADCLIFFE, 'THAT IT IS MORE IN THE PUBLIC INTEREST THAT TAX AND RATE ASSES SMENTS SHOULD NOT BE ARTIFICIALLY ENCUMBERED WITH ESTOPPELS (I AM NOT SPEAKING, OF CO URSE, OF THE EFFECT OF LEGAL DECISIONS ESTABLISHING THE LAW, WHICH IS QUITE A D IFFERENT MATTER), EVEN THOUGH IN THE RESULT, SOME EXPECTATIONS MAY BE FRUSTRATED AND SOME TIME WASTED. (VIDE SOCIETY OF MEDICAL OFFICERS OF HEALTH V. HOPE VALUA TION OFFICER[ [1960] 2 W.L.R. 404, 563. ]. THE BASIS FOR THIS VIEW IS THAT GENERA LLY, QUESTIONS OF LIABILITY TO PAY TAX ARE DETERMINED BY TRIBUNALS WITH LIMITED JURISD ICTION AND SO, IT WOULD NOT BE APPROPRIATE TO ASSUME THAT IF THEY DECIDE ANY OTHER QUESTIONS INCIDENTAL TO THE DETERMINATION OF THE LIABILITY FOR THE SPECIFIC PER IOD, THE DECISIONS OF THOSE 10 ITA NO.1823/KOL/2014 SHRI KAMAL KUMAR DUGAR A.YR.2010-11 10 INCIDENTAL QUESTIONS NEED NOT CREATE A BAR OF RES J UDICATA WHILE SIMILAR QUESTIONS OF LIABILITY FOR SUBSEQUENT YEARS ARE BEING EXAMINED. . THAT APART, THIS ASSESSEE LOST ITS RIGHT OF APPEAL TO THIS COURT ON THE QUESTION ARISING IN THE PREVIOUS ASSESSMENT YEAR ON ACCOUNT OF DELAY IN PREFERRING THE SAME. THERE WAS NO ADJUDICATION ON MERITS, OF ITS CLAIM OF CONVERSION, ON APPEAL TO THE HIGH COURT. THE ONLY REASON GIVEN BY THE TRIBUNAL I N REJECTING THE CLAIM OF THE ASSESSEE FOR THE PREVIOUS ASSESSMENT YEAR, AS WOULD APPEAR FROM ITS ORDER DATED 13TH MAY, 2011 (COPY HANDED UP), IS THAT TO THE TRIBUNAL IT APPEAR ED THERE IS NO PROVISION IN THE ACT IN RESPECT OF CONVERSION OF ST OCK-IN-TRADE INTO INVESTMENT AND ITS TREATMENT. HENCE, IT HELD THAT THE LOWER AUTHOR ITIES RIGHTLY MADE THE ADDITION AS THERE WAS UNDERSTATEMENT OF INCOME BY ANALYZING THE ASSESSEE'S TRADING AND INVESTMENT ACCOUNT IN SHARES. THUS, BEFORE US THERE IS NO IMPEDIMENT FOR THE ASSESSEE TO SEEK ADJUDICATION ON THE POINT. THE QUE STION FORMULATED IS ANSWERED ACCORDINGLY AND IN FAVOUR OF THE ASSESSEE. THE APPEAL IS DISPOSED OF. IN VIEW OF AFORESAID UNDISPUTED FACTS AND RESPECTFU LLY FOLLOWING THE JUDICIAL PRECEDENT RELIED UPON HEREINABOVE, WE FIND NO JUSTIFIABLE REA SON TO INTERFERE WITH THE ORDER OF THE LD CITA IN THIS REGARD. ACCORDINGLY THE GROUNDS RAI SED BY THE REVENUE ARE DISMISSED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE COURT ON 07.07.2017 SD/- SD/- [A.T.VARKEY] [ M.BALAGANESH ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 07.07.2017 [RG PS] 11 ITA NO.1823/KOL/2014 SHRI KAMAL KUMAR DUGAR A.YR.2010-11 11 COPY OF THE ORDER FORWARDED TO: 1. SHRI KAMAL KUMAR DUGAR, 504, VAISHNO CHAMBERS, 6 , BRABOURNE ROAD, KOLKATA- 700001. 2. A.C.I.T., CIRCLE-35, KOLKATA. 3..C.I.T.(A)-XX, KOLKATA 4. C.I.T.-XII, KOLKATA . 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVAT E SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S