KIRIT VRAJLAL BABARIA, MUMBAI V. DCIT CIR 14(3), MUMBAI

ITA 2939/MUM/2009

• Counselvise Citation: 293919914 RSA 2009
• Duration Of Justice: 2 year(s) 1 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 02-06-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 07-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset
• Section: 143(3); 263; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, G, MUMBAI BEFORE S/SHRI D.K.AGARWAL (JM) AND R.K.PANDA (A.M ) ITA NO.2939/MUM/2009 (ASSESSMENT YEAR: 2004-05) SHRI KIRIT VRAJLAL BABARIA, 98, PRINCESS STREET, 1 ST FLOOR, MANSOOR BUILDING, MUMBAI-400002 PAN: AEOPB7212D DY. COMMISSIONER OF INCOME TAX 14(3), ROOM NO. 607, EARNEST HOUSE, NARIMAN POINT, MUMBAI-400023 APPELLANT V/S RESPONDENT APPELLANT BY : SHRI VIPU L JOSHI RESPONDENT BY : SHRI.PAVAN VED O R D E R PER D.K.AGARWAL (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 25.3.2009 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX-14, MUMBAI UNDER SECTI ON 263 OF THE INCOME TAX ACT, 1961(THE ACT). 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE AN INDIVIDUAL IS ENGAGED IN THE BUSINESS OF TRANSPO RT. RETURN WAS FILED DECLARING TOTAL INCOME OF RS.8,23 ,387/- INTERALIA CLAIMING THE LONG TERM CAPITAL LOSS RS.62,53,815/- CARRIED FORWARD TO SUBSEQUENT YEAR. HOWEVER, ASSESSMENT WAS COMPLETED AT AN INCOME OF RS.8,92,090/- WHEREIN THE AO HAS ACCEPTED THE ASSES SEES ITA NO.2939/MUM/2009 (ASSESSMENT YEAR: 2004-05) 2 CLAIM OF RS.62,53,815/- BEING LONG TERM CAPITAL L OSS CARRIED FORWARD TO SUBSEQUENT YEAR VIDE ORDER DATED 28.8.2006 PASSED UNDER SECTION 143(3) OF THE ACT. SUBSEQUENTLY, THE LEARNED COMMISSIONER OF INCOME TA X ON EXAMINATION OF THE RECORDS OBSERVED THAT : THERE WAS A LONG TERM CAPITAL LOSS OF RS.1,01,23,377/- ON ACCOUNT OF CONVERSION OF UNITS OF UTI US64 TO TAX FREE BONDS. AFTER SET OFF OF LONG TER M CAPITAL GAINS AGAINST THIS LOSS, THE NET RESULTAN T LONG TERM CAPITAL LOSS IS SHOWN AT RS.62,53,815/- AND TH E SAME HAS BEEN CLAIMED TO BE CARRIED FORWARD TO SUBSEQUENT ASSTT. YEAR. THE ASSESSING OFFICER IN H IS ASSESSMENT ORDER PASSED UNDER SECTION 143(3) HAS ALLOWED THE ASSESSEES CLAIM. IT MEANS, DURING THE YEAR THE ASSESSEE HAS EARNED LONG TERM CAPITAL GAINS OF RS.38,69,562/- WHICH IS SET OFF AGAINST THE LONG T ERM CAPITAL LOSS FROM CONVERSION OF UTI US64 TO TAX FR EE BONDS OF RS.1,01,23,377/- HOWEVER, IN VIEW OF PROVISIONS OF SECTION 10(33) OF THE I.T.ACT, ANY INCOME ARISING FROM THE TRANSFER OF CA PITAL ASSET BEING UNITS OF UNIT SCHEME 1964 OF UNIT TRU ST OF INDIA AND WHERE THE TRANSFER OF SUCH ASSET TAKES PL ACE ON OR BEFORE 1 ST APRIL 2002 IS EXEMPT FROM TAX. SIMILARLY, THE LOSS FROM SALE OF SUCH UNITS IS ALSO NOT TO BE CONSIDERED AND CANNOT BE CARRIED FORWARD. UNDER THE CIRCUMSTANCES, THERE WAS UNDER ASSESSMENT OF INCOME (LONG TERM CAPITAL GAINS) TO THE EXTENT OF RS.38,69,562/- FOR AY 2004-05 ACCORDINGLY, THE NOTICE UNDER SECTION 263 OF THE AC T DATED 17.3.2009 WAS ISSUED. IN RESPONSE, THE ASSESSEES AUTHORISED REPRESENTATIVE ATTENDED AND FILED WRITTE N SUBMISSIONS DATED 23.3.2009 AS UNDER :- 1) ACCORDING TO SECTION 10(33) OF I.T.ACT, ANY INCOME ARISING FROM THE TRANSFER OF CAPITAL GAINS, BEING UNITS OF UNITS SCHEME 1964 AND WHERE THE TRANSFER OF ITA NO.2939/MUM/2009 (ASSESSMENT YEAR: 2004-05) 3 SUCH ASSET TAKES PLACE ON OR AFTER 01/04/2002 IS EX EMPT. SINCE THE INCOME FROM TRANSFER OF CAPITAL ASSET IS UNIT 64 IS EXEMPT, IT IS THE LEGISLATIVE INTENT TO GIVE BENEFIT TO THE INVESTOR IN UNIT 64 UNITS WHO HAD LOST HEAVILY DURING THE DEBACLE OF UNIT TRUST OF INDIA WHERE UNIT 64 SCHEME WAS ITS FLAGSHIP SCHEME. WHEN INCOME IS TO BE EXEMPT, SIMILAR BENEFIT SHOULD ALSO BE GIVEN TO THE INVESTOR WHO HAS INCURRED LOSS. (IN FACT, EVERY IN VESTOR HAS INCURRED LOSS DURING CONVERSION OF THE UNITS I NTO BONDS). HENCE WHEN THERE IS LOSS IT SHOULD BE ALLO WED TO BE SET OFF AGAINST THE LONG TERM CAPITAL GAIN FROM SALE OF SHARES. 2) FURTHER THE EXEMPTION AS PROVIDED IN THE ACT DO NOT SPECIFY OR DEAL WITH THE NEGATIVE INCOME IN RES PECT OF THE SOURCE SPECIFIED UNDER THE PROVISIONS OF CHAPTE R III. THEY ARE JUST TO EXEMPT THE POSITIVE INCOME ARISING SUBJECT TO FULFILMENT OF THE CONDITIONS SPECIFIED I N CHAPTER III. WHEN A PARTICULAR INCOME ACCRUED TO THE ASSE SSEE IN RESPECT OF WHICH HE CAN CLAIM AN EXEMPTION UNDER THE PROVISIONS OF CHAPTER III, HE CANNOT BE FORCED TO CLAIM EXEMPTION. AS SUCH, AT HIS OPTION HE MAY CHOOSE TO GET THAT INCOME ASSESSED UNDER GENERAL PROVISIONS OF THE ACT IGNORING PROVISIONS OF CHAPTER III. THIS RULE SHOULD APPLY WHETHER THE INCOME IS POSITIVE OR NEGATIVE. A S SUCH, THE ASSESSEE IS ENTITLED TO GET HIS LOSS FROM THESE SOURCES COVERED BY CHAPTER III UNDER THE GENERAL PROVISIONS OF THE LAW AND IN THAT PROCESS CAN GET THAT LOSS SET OFF AGAINST OTHER INCOME UNDER THE PROVISI ONS OF SECTIONS 70 AND 71 OF THE INCOME TAX ACT, 1961. 3) IN OUR CASE, THERE IS A LOSS IN THE RELEVANT YE AR AND AS WE HAVE NOT CLAIMED EXEMPTION U/S 10(33) OF THE ACT, THE LOSSES ARISING IN RESPECT OF TRANSFER OF T HE UNITS SHALL BE ALLOWED TO BE SET OFF AGAINST OTHER INCOME UNDER THE PROVISIONS OF SECTIONS 70 AND 71. FURTHER SECT ION 14- A IS APPLICABLE IN RESPECT OF EXPENDITURE. LOSS IS DIFFERENT FROM EXPENDITURE. AS SUCH THE ASSESSEE I S ENTITLED TO SETTING OFF THE LOSS. 4) TO SUBSTANTIATE OUR CLAIM WE ENCLOSE HERE WITH THE LEGAL OPINION OF SHRI V.H.PATIL ON THE SUBJEC T WHICH IS SELF EXPLANATORY. 5) IN VIEW OF THE ABOVE POSITION AND EXPERT OPINION ENCLOSED THE SET OFF OF LOSSES HAVE BEEN RIGHTLY CLAIMED & ALLOWED IN THE ASSESSMENT OF A.Y.2004-05 AND 2005 - 06. WE REQUEST YOU TO MAINTAIN STATUS CO WITHOUT REVISION OF ASSESSMENTS AND OBLIGE ITA NO.2939/MUM/2009 (ASSESSMENT YEAR: 2004-05) 4 THE LEARNED COMMISSIONER OF INCOME TAX AFTER CONSI DERING THE ASSESSEES SUBMISSIONS, HOWEVER, OBSERVED THAT DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR 2004-05 THE ASSESSEE HAS CONVERTED UNITS OF UNIT SCHEME 1964 O F UTI INTO TAX FREE BONDS OF UTI. THE PURCHASE VALUE O F THESE UNITS WAS RS.1,66,06,907.21 AND THE CONVERSION VAL UE WAS RS.1,17,82,600.00. THUS THE ASSESSEE SUFFERED A LOS S OF RS.48,24,307.21 AND AFTER INDEXATION OF THE PURCHAS E VALUE THE TOTAL LOSS UNDER THE HEAD CAPITAL GAINS/LOSS WAS ARRIVED AT RS.1,01,23,377.32. THIS LOSS WAS SET OFF AGAINST OTHER CAPITAL GAINS ON SALE OF SHARES OF THE YEAR U NDER CONSIDERATION AND THE BALANCE CAPITAL LOSS OF RS.62,53,815.17 WAS CLAIMED TO BE CARRIED FORWARD. HE FURTHER OBSERVED THAT AS PER PROVISIONS OF SECTIO N 10(33), ANY INCOME ARISING FROM THE TRANSFER OF CAPITAL ASS ET, BEING THE UNIT OF THE UNITS SCHEME, 1964 AND WHERE THE T RANSFER OF SUCH ASSET TAKES PLACE AFTER 1 ST APRIL 2002 IS EXEMPT FROM TAX. THE ASSESSEE CONTENDS THAT THE EXEMPTION UNDE R SECTION 10(33) DO NOT SPECIFY OR DEAL WITH THE NEGA TIVE INCOME AS SUCH THE LOSS CAN BE ADJUSTED AGAINST OT HER CAPITAL GAINS. THE CONTENTION OF THE REPRESENTATIVE OF THE ASSESSEE THAT WHEN THERE IS A PROFIT THE SAME CAN B E CLAIMED AS EXEMPT U/S 10(33) AND WHEN THERE IS LOSS, THE L OSS CAN BE SET OFF AGAINST OTHER CAPITAL GAINS, CANNOT BE ACCE PTED. THE LEARNED COMMISSIONER OF INCOME TAX AFTER RELYI NG ON ITA NO.2939/MUM/2009 (ASSESSMENT YEAR: 2004-05) 5 THE DECISIONS IN DALMIA JAIN & CO. (65 ITR 408) (P AT) AND HARPRASAD AND CO.P. LTD. (99 ITR 118) (SC) AND THE DEFINITION OF INCOME AS PER SECTION 2(24) OF T HE ACT OBSERVED AND HELD AS UNDER : FROM THE ABOVE REPRODUCED PROVISIONS OF THE ACT, IT IS DISCERNIBLE THAT THE WORDS INCOME OR PROFITS AN D GAINS SHOULD BE UNDERSTOOD AS INCLUDING LOSSES ALS O, SO THAT, IN ONE SENSE PROFITS AND GAINS REPRESENT P LUS INCOME WHEREAS LOSSES REPRESENT MINUS INCOME. IN OTHER WORDS, LOSS IS NEGATIVE PROFIT. BOTH POSITIVE AND NEGATIVE PROFITS ARE OF THE REVENUE CHARACTER 9. SET OFF IMPLIES THAT THE TAX IS EXIGIBLE AND THE ASSESSEE WANTS TO ADJUST THE LOSS AGAINST PROFIT T O REDUCE THE TAX DEMAND. IT FOLLOWS THAT IF SUCH SET- OFF IS NOT PERMISSIBLE OR POSSIBLE OWNING TO THE INCOME O R PROFITS OF THE SUBSEQUENT YEAR BEING FROM A NON-TAX ABLE SOURCE, THERE WOULD BE NO POINT IN ALLOWING THE LOS S TO BE SET OFF OR CARRIED FORWARD. CONVERSELY, IF THE LOSS ARISING IN THE PREVIOUS YEAR WAS UNDER A HEAD NOT CHARGEABLE TO TAX, IT COULD NOT BE ALLOWED TO BE CA RRIED FORWARD AND ABSORBED AGAINST INCOME IN A SUBSEQUENT YEAR OR THE SAME YEAR FROM A TAXABLE SOURCE. 10. LET US ASSUME THAT IN THE SUBSEQUENT YEARS, WHE N THERE ARE CAPITAL GAINS WHICH ARE NOT TAXABLE (AS I N THE CASE OF SECTION 10(38) AND THE ASSESSEE HAS MADE HU GE CAPITAL GAINS FAR EXCEEDING THE LOSS DECLARED IN AY 2004- 05. THE ASSESSEE COULD NOT BE OBLIGED TO SHOW THOS E CAPITAL GAINS WHICH ARE NOT TAXABLE IN HIS RETURN F OR SET OFF AGAINST THE LONG TERM CAPITAL LOSS OF THE AY 20 04- 05 ON ACCOUNT OF CONVERSION OF UNITS OF UTI THE IN COME OF WHICH WAS NOT TAXABLE. 11. FROM WHAT HAS BEEN SAID ABOVE, IT FOLLOWS AS A NATURAL COROLLARY THAT DURING THE PREVIOUS YEAR REL EVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSE ES INCOME FROM CONVERSION OF UNITS OF UTI WAS NOT CHARGEABLE TO TAX AS PER SECTION 45 R.W.S 10(33) UN DER THE HEAD CAPITAL GAINS, AND ASSESSEE WAS NOT REQU IRED TO COMPUTE LOSSES ON THE SAME MERELY FOR THE PURPOS E OF GETTING THE SAME SET OFF AGAINST OTHER CAPITAL GAI NS AND CARRIED FORWARD TO NEXT YEAR. THE CAPITAL GAINS OR IF CAPITAL LOSSES ON ACCOUNT OF CONVERSION OF UNITS OF UTI ITA NO.2939/MUM/2009 (ASSESSMENT YEAR: 2004-05) 6 DID NOT FORM PART OF THE TOTAL INCOME OF THE ASS ESSEE WHICH COULD BE BROUGHT TO CHARGE, AND WERE, THEREF ORE, NOT REQUIRED TO BE SET OFF AGAINST THE OTHER CAPIT AL GAINS AND CARRIED FORWARD. 12. TAKING INTO CONSIDERATION ALL THE FACTS OF THE CASE AND THE VIEWS UPHELD BY THE HONBLE SUPREME COURT I N THE CASE OF HARPRASAD AND CO.PVT.LTD. (99 ITR 118) AND HONBLE PATNA HIGH COURT IN THE CASE OF DALMIA JAI N & CO. (65 ITR 408) (PAT), I AM OF THE OPINION THAT S INCE THE INCOME FROM CONVERSION OF UNITS OF UTI US64 IS EXEMPT FROM TAX UNDER SECTION 10(33), THE ASSESSEE WAS NOT REQUIRED TO CLAIM THE LOSS IN ITS COMPUTATION O F CAPITAL GAINS/LOSS. THE LONG TERM CAPITAL LOSS OF RS.1,01,23,377/- SHOULD HAVE BEEN DISALLOWED. THE ASSESSING OFFICER IS DIRECTED TO RECOMPUTE THE TOTA L INCOME OF THE ASSESSEE BY DISALLOWING THE LONG TE RM CAPITAL LOSS OF RS.1,01,23,377/- CLAIMED IN THE RE TURN OF INCOME. 3. BEING AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX, THE ASSESSEE IS IN APP EAL BEFORE US CHALLENGING IN ALL THE GROUNDS THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX UNDER SECTIO N 263 OF THE ACT DIRECTING THE AO TO RECOMPUTE THE TOTAL INCOME OF THE ASSESSEE BY DISALLOWING LONG TERM CAPITAL LOSS OF RS.1,01,23,377/- CLAIMED IN THE RETURN OF INCOME. 4. AT THE TIME OF HEARING, THE LEARNED COUNSEL FO R THE ASSESSEE WHILE REITERATING THE SAME SUBMISSIONS AS SUBMITTED BEFORE THE LEARNED COMMISSIONER OF INCOME TAX FURTHER SUBMITS THAT IN VIEW OF THE EXPERT OPINIO N GIVEN BY SHRI VIJAY H.PATIL, ADVOCATE, SUPREME COURT SUPPORT ED BY DECISION OF THE TRIBUNAL IN NAVIN BHARAT INDUSTRIES LTD. VS. DY.CIT (2004) 90 ITD 1(MUM) (TM) THE SET OFF OF LO SS HAS ITA NO.2939/MUM/2009 (ASSESSMENT YEAR: 2004-05) 7 BEEN RIGHTLY CLAIMED AND ALLOWED BY THE AO WHILE MA KING THE ASSESSMENT FOR THE ASSESSMENT YEAR UNDER CONSIDERAT ION. HE FURTHER SUBMITS THAT AFTER THE ASSESSMENT ORDER WA S PASSED, THE AO ISSUED SHOW CAUSE NOTICE DATED 2.3.2009 REG ARDING THE CLAIM OF LONG TERM CAPITAL LOSS OF UTI- US64, A ND IN RESPONSE, THE ASSESSEE FILED REPLY, THE COPY OF AO S LETTER AND ASSESSEES REPLY ARE APPEARING AT PAGES 5 TO 1 3 OF THE ASSESSEES PAPER BOOK. HE FURTHER SUBMITS THAT IN RESPONSE TO THE NOTICE ISSUED UNDER SECTION 263 OF THE ACT, THE ASSESSEE HAS AGAIN FILED HIS EXPLANATION APPEARING AT PAGES 3 AND 4 OF THE ASSESSEES PAPER BOOK. HE FURTHER SU BMITS THAT THE LEARNED COMMISSIONER OF INCOME TAX WITHOU T CONSIDERING THE ASSESSEES EXPLANATION IN FULL HAS STRAIGHTAWAY DIRECTED THE AO TO RECOMPUTE THE TOTA L INCOME OF THE ASSESSEE BY DISALLOWING THE LONG TERM CAPITA L LOSS OF RS.1,01,23,377/- BY RELYING ON THE TWO DECISIONS V IZ. DALMIA JAIN & CO. LTD.(SUPRA) AND HARPRASAD AND CO.P.LTD. (SUPRA). HE FURTHER SUBMITS THAT THE ISSUE IN THE AFORESAID CASES IS ENTIRELY DIFFERENT. THEREFORE, THE DECISIONS RELIE D ON BY THE LEARNED COMMISSIONER OF INCOME TAX ARE NOT APPLICA BLE TO THE FACTS OF THE PRESENT CASE. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITS THAT THE PROCEEDINGS UNDER SECTION 263 IS NOT APPLICABLE TO THE FACTS OF THE ASSESSEE S CASE AS THE AO HAS FOLLOWED ONE OF THE COURSES PERMISSIBLE IN LAW AND FOR THIS PROPOSITION THE RELIANCE WAS ALSO PLAC ED ON THE ITA NO.2939/MUM/2009 (ASSESSMENT YEAR: 2004-05) 8 DECISION IN MALABAR INDUSTRIAL CO. LTD. V. CIT [200 0] 243 ITR 83 ( SC), MANNESMANN DEMAG A.G. V. DY.CIT ((1995) 59 IT D 599 (DEL) AND OTHERS. HE FURTHER SUBMITS THAT THE DECISION OF THE AO CANNOT BE HELD TO BE ERRONEOUS SIMPLY BE CAUSE IN HIS ORDER HE DID NOT MAKE ELABORATE DISCUSSION IN T HAT REGARD AND FOR THIS PROPOSITION THE RELIANCE WAS ALSO PLAC ED ON THE DECISION IN CIT VS . GABRIEL INDIA LTD . ( 1993) 203 ITR 108 (BOM). HE FURTHER SUBMITS THAT SINCE THE LEARNED COMMISSIONER OF INCOME TAX HAS NOT DEALT WITH THE ASSESSEES OBJECTION, THE ORDER PASSED BY THE LEARN ED COMMISSIONER OF INCOME TAX IS NOT A VALID ORDER IN THE EYES OF LAW AND FOR THIS PROPOSITION THE RELIANCE WAS A LSO PLACED ON T.P.SRIVASTAVA & SONS LTD V. CIT (1978) 111 ITR 326 (ALL) AND ORIENT (GOA) LTD V/C CIT (1998) 66 ITD 479 (PUN E). THE LEARNED COUNSEL FOR THE ASSESSEE WHILE RELYING ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF DISTRIBUTORS (BARODA) P.LTD V/S UNION OF INDIA AND OTHERS (1985) 155 ITR 120 (SC), AND CIT V/S INDUSTRIAL I NVESTMENT TRUST CO.LTD (1968) 67 ITR 436 (BOM), STRONGLY RELI ED ON THE DECISION OF THE HON. CALCUTTA HIGH COURT IN ROYAL CALCUTTA TURF CLUB V/S CIT (1983)144 ITR 709 (CAL) WHEREIN IT HAS BEEN HELD THAT CLAUSE (27) OF S. 10 EXCLUDES IN EXPRESS TERMS ONLY ANY INCOME DERIVED F ROM A BUSINESS OF LIVE-STOCK BREEDING OR POULTRY OR D AIRY FARMING. IT DOES NOT EXCLUDE THE BUSINESS OF LIVESTOCK ITA NO.2939/MUM/2009 (ASSESSMENT YEAR: 2004-05) 9 BREEDING OR POULTRY OR DAIRY FARMING FROM THE OPER ATION OF THE ACT. THEREFORE, THE LOSSES SUFFERED BY THE ASSESSE E IN THE BROODMARES ACCOUNT AND IN THE PIG ACCOUNT WERE ADMI SSIBLE DEDUCTION IN COMPUTING ITS TOTAL INCOME. HE FURTHER SUBMITS THAT THE SAID DECISION IN ROYAL CALCUTTA TURF CLU B (SUPRA) HAS BEEN PASSED IN FAVOUR OF THE ASSESSEE AFTER CONSIDERING THE DECISION RELIED ON BY THE LEARNED COMMISSIONER OF INCOME TAX IN HARPRASAD AND CO.P .LTD (SUPRA). HE FURTHER SUBMITS THAT WHILE EXERCISING POWER UNDER SECTION 263 OF THE ACT, IN THE CASE OF TH E ASSESSEE, THE LEARNED COMMISSIONER OF INCOME TAX DIRECTED T HE AO TO RECOMPUTE THE ASSESSEES TOTAL INCOME BY DISALLOWI NG THE LONG TERM CAPITAL LOSS OF RS.1,01,23,377/-. HOWEV ER, UNDER THE LAW, THE LEARNED COMMISSIONER OF INCOME TAX CAN NOT GIVE SUCH DIRECTIONS TO THE AO TO COMPLETE THE ASS ESSMENT IN A PARTICULAR MANNER AND FOR THIS PROPOSITION THE RELIANCE WAS ALSO PLACED ON THE DECISION OF THE TRIBUNAL IN PIEM HOTELS LIMITED V/S DY. COMMISSIONER OF INCOME TAX IN ITA NO.523/MUM/2009 (AY 2004-05) ORDER DATED 13.8.2010 , WHEREIN IN VIDE PARAGRAPHS 21 AND 22 OF THE ORDER IT HAS BEEN HELD THAT WHILE REMANDING THE MATTER THE COMMI SSIONER OF INCOME TAX OUGHT NOT TO HAVE GIVEN SPECIFIC DIR ECTION TO COMPLETE THE ASSESSMENT IN A PARTICULAR MANNER. HE THEREFORE SUBMITS THAT SINCE THE AO HAS TAKEN ONE OF THE POSSIBLE VIEWS, THEREFORE, THE LEARNED COMMISSIONE R OF ITA NO.2939/MUM/2009 (ASSESSMENT YEAR: 2004-05) 10 INCOME TAX WAS NOT JUSTIFIED IN DIRECTING THE AO TO RECOMPUTE THE INCOME BY DISALLOWING THE LONG TERM C APITAL LOSS OF RS.1,01,23,377/- AND THEREFORE, THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX BE CANCELLED . 5. ON THE OTHER HAND, THE LEARNED D.R. WHILE RELYI NG ON THE ORDER OF THE COMMISSIONER OF INCOME TAX, AT THE OUTSET SUBMITS THAT SECTION 10(33) OF THE ACT FAL LS UNDER CHAPTER III UNDER THE HEAD INCOMES WHICH DO NOT FORM PART OF THE TOTAL INCOME, THEREFORE, SECTION 10(33) IS AN EXEMPTION PROVISION AND NOT A PROVISION FOR TAXING THE INCOME. UNDER THE ACT THE EXEMPTION PROVISION ARE DIFFERENT THAN THE TAXING PROVISIONS OF INCOME. IT IS SETT LED LAW THAT WHILE TAXING THE INCOME IF TWO VIEWS ARE POSSIBLE, THE VIEW FAVOURABLE TO THE ASSESSEE SHOULD BE TAKEN. HOWEVE R, IN THE CASE OF EXEMPTION THE VIEW FAVOURABLE TO THE REVE NUE SHOULD BE APPLIED. SINCE IT IS A CASE OF EXEMPTION PROVISION, THEREFORE THE VIEW FAVOURABLE TO THE REVENUE IS AP PLICABLE AND FOR THIS PROVISION THE RELIANCE WAS ALSO PLACED ON THE DECISION OF HONBLE SUPREME COURT IN MANGALORE CHE MICALS AND FERTILIZERS LTD. V/S DY.COMMISSIONER OF COMME RCIAL TAXES AND ORS. (1992) SUPPL. 1.S.C.C.21, AND NOVOP AN INDIA LTD. V/S COLLECTOR OF CENTRAL EXCISE AND CUSTOMS IN APPEAL (CIVIL) 3556 OF 1984 ORDER DATED 14.9.1994, (1994 ) SUPPL. (3) SCR 459 WHEREIN IT HAS BEEN HELD THAT THE PRI NCIPLE ITA NO.2939/MUM/2009 (ASSESSMENT YEAR: 2004-05) 11 THAT IN CASE OF AMBIGUITY, A TAXING STATUTE SHOULD BE CONSTRUED IN FAVOUR OF THE ASSESSEE ASSUMING THAT THE SAID PRINCIPLE IS GOOD AND SOUND DOES NOT APPLY TO THE CONSTRUCTION OF AN EXCEPTION OR AN EXEMPTING PROVI SION, THEY HAVE TO BE CONSTRUED STRICTLY. HE FURTHER SUBMI TS THAT THE DECISIONS RELIED UPON BY THE LEARNED COUNSEL FOR TH E ASSESSEE ARE NOT APPLICABLE AS THOSE CASES ARE UN DER DIFFERENT PROVISIONS OF INCOME TAX ACT, 1922 AND NO T ON THE ISSUE UNDER DISPUTE, IN THE ASSESSEES CASE. HE FURTHER SUBMITS THAT IN ANY CASE, THE DECISIONS RELIED UPO N BY THE LEARNED COUNSEL FOR THE ASSESSEE ARE NOT APPLICABL E AS THE SAID DECISION ARE GIVEN WITHOUT CONSIDERING THE DE CISIONS OF THE HONBLE SUPREME COURT IN MANGALORE CHEMICALS A ND FERTILIZERS LTD AND NOVOPAN INDIA LTD (SUPRA). ON THE RELIANCE PLACED BY THE LEARNED COUNSEL FOR THE ASSE SSEE THAT THE CLAIM WAS MADE ON THE BASIS OF THE LEGAL OPINI ON, THE LEARNED D.R. SUBMITS THAT THE SAID OPINION IS NOT APPLICABLE AS THE LEGAL OPINION IS NOT SUPPORTED BY ANY DECI SION ON THE ISSUE UNDER DISPUTE, IN THE CASE OF THE ASSESSEE. HE FURTHER SUBMITS THAT THE REFERENCE MADE BY THE LEARNED COUN SEL FOR THE ASSESSEE TO THE AOS LETTER DATED 2.3.2009 AN D ITS REPLY ARE NOT APPLICABLE TO THE PRESENT CASE AS THE LETTE R WAS ISSUED AFTER COMPLETION OF ASSESSMENT AND THE PRES ENT ISSUE IS UNDER SECTION 263 OF THE ACT. HE FURTHER SUB MITS THAT IN VIEW OF THE ABOVE, IT IS NOT A CASE WHERE TWO VIEW S ARE ITA NO.2939/MUM/2009 (ASSESSMENT YEAR: 2004-05) 12 POSSIBLE, AND, THEREFORE, THE LEARNED COMMISSIONER OF INCOME TAX WAS FULLY JUSTIFIED IN DIRECTING THE AO TO DISALLOW LONG TERM CAPITAL LOSS OF RS.1,01,23,377/- CLAIMED BY THE ASSESSEE AND HIS ORDER BE UPHELD. 6. IN THE REJOINDER, THE LEARNED COUNSEL FOR THE A SSESSEE WHILE REITERATING HIS SUBMISSIONS FURTHER SUBMITS THAT BOTH THE DECISIONS RELIED UPON BY THE LEARNED COMMISSION ER OF INCOME TAX ARE UNDER THE OLD INCOME TAX ACT, 1922, THEREFORE, THE LEARNED D.R.WAS NOT JUSTIFIED IN ARG UING THAT THE DECISIONS RELIED ON BY THE ASSESSEES COUNSEL A RE UNDER 1922 ACT INASMUCH AS THE RATIO OF THE DECISION IN R OYAL CALCUTTA TURF CLUB (SUPRA) IS FULLY APPLICABLE TO THE CASE OF THE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSESSE E WHILE SUPPORTING THE LEGAL OPINION GIVEN TO THE ASSESSEE AGAIN SUBMITS THAT THE ORDER PASSED BY THE LEARNED COMM ISSIONER OF INCOME TAX IS LIABLE TO BE CANCELLED AND THE OR DER PASSED BY THE AO BE RESTORED. 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF T HE RIVAL PARTIES AND PERUSED THE MATERIALS AVAILABLE O N RECORD. IT IS SETTLED LAW THAT THE SCOPE OF APPLICATION OF SECTION 263 OF THE ACT IS GOVERNED BY THE PRINCIPLES SET OUT I N MALABAR INDUSTRIAL CO.LTD. V. CIT (2000) 243 ITR 83(SC) AS REAFFIRMED IN CIT V.MAX INDIA LTD (2007) 295 ITR 28 2 (SC). IT HAS BEEN HELD THAT THE PHRASE PREJUDICIAL TO TH E INTERESTS ITA NO.2939/MUM/2009 (ASSESSMENT YEAR: 2004-05) 13 OF THE REVENUE USED IN SECTION 263 OF THE ACT HA S TO BE READ IN THE CONJUNCTION WITH AN ERRONEOUS ORDER P ASSED BY THE ASSESSING OFFICER. THUS, IT IS NOT, AS IF IN E VERY CASE WHERE THERE IS LOSS OF REVENUE, AS A CONSEQUENCE OF AN ORDER PASSED BY THE ASSESSING OFFICER, IT CAN BE TREAT ED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. CONS EQUENTLY, IF THE ASSESSING OFFICER HAS ADOPTED ONE OF THE COURS ES PERMISSIBLE IN LAW, WHICH RESULTED IN LOSS OF REVEN UE OR WHERE TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFICER HA S TAKEN ONE VIEW WITH WHICH THE COMMISSIONER OF INCOME TAX DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS O RDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE UNLESS THE VIEW TAKEN BY THE ASSESSING OFFICER IS UNSUSTAINABLE IN LAW. 8. IN JEWEL OF INDIA V. ACIT [2010] 325 ITR 92 (BO M) IT HAS BEEN OBSERVED (PAGE 94): SECTION 263 OF THE INCOME TAX ACT, 1961 HAS ALREAD Y BEEN INTERPRETED BY THE APEX COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. V. CIT [2000] 243 ITR 8 3, WHEREIN THE APEX COURT HELD THAT A BARE READING OF SECTION 263 OF THE INCOME TAX ACT, 1961, MAKES IT C LEAR THAT THE PRE-REQUISITE FOR THE EXERCISE OF JURISDIC TION BY THE COMMISSIONER SUO MOTO UNDER IT, IS THAT THE ORD ER OF THE INCOME-TAX OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE COMMISSIONER HAS TO BE SATISFIED THE FOLLOWING CONDITIONS, NAMELY (I) THE ORDER OF THE ASSESSING OFFICER SOUGHT TO BE REVISED IS ERRONEOUS, AND (II) IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IF ON E OF THEM IS ABSENT THE ORDER OF THE INCOME-TAX OFFICER IS ERRONEOUS BUT IT IS NOT PREJUDICIAL TO THE REVENUE OR IF IT IS NOT ERRONEOUS BUT IS PREJUDICIAL TO THE REVENUE RECOURSE CANNOT BE HAD NO SECTION 263(1) OF THE INCOME-TAX ACT. ITA NO.2939/MUM/2009 (ASSESSMENT YEAR: 2004-05) 14 THEIR LORDSHIPS AFTER CONSIDERING THE DECISION IN T HE CASE OF CIT VS. MAX INDIA LTD. (2007) 295 ITR 282 (SC) WHER EIN THE HONBLE APEX COURT HAS EXPLAINED ITS EARLIER DECISI ON IN MALABAR INDUSTRIAL CO. LTD. VS. CIT (SUPRA) HAVE FU RTHER OBSERVED THAT (PAGE NO. 95) :- BEARING IN MIND THE INTERPRETATION OF THE APEX COU RT, AS PER PROVISIONS U/S 263 OF THE ACT, IF ONE TURNS TO THE ORDER OF THE COMMISSIONER OF INCOME-TAX 18, MUMBA I REVISIONAL ORDER PASSED U/S 263 OF THE INCOME TAX A CT, 1961, IT WOULD BE CLEAR THAT NO FINDING IS RECORDED BY THE REVISIONAL AUTHORITY THAT THE ORDER IS PREJUDIC IAL TO THE INTERESTS OF THE REVENUE. THE TENOR OF THE AFORESAID PARAGRAPHS ONLY LEAD TO THE CONCLUSION TH AT THE ORDER WAS FOUND TO BE ERRONEOUS BY THE REVISION AL AUTHORITY, HOWEVER, NOWHERE THE FINDING IS RECORDED THAT THE IMPUGNED ORDER PASSED BY THE A.O. IS PREJUDICIA L TO THE INTEREST OF THE REVENUE. IT HAS BEEN HELD (PAGE 95):- IN THE ABSENCE OF A POSITIVE FINDING THAT THE ORD ER WAS NOT IN THE INTERESTS OF THE REVENUE, IT WAS NOT OPE N FOR THE REVISIONAL AUTHORITY TO ASSUME JURISDICTION. I N THIS VIEW OF THE MATTER, THE IMPUGNED ORDER INVOKING UND ER SECTION 263 OF THE INCOME-TAX ACT WAS ERRONEOUS. CONSEQUENTLY, THE REVISIONAL AUTHORITY WAS NOT JUST IFIED IN SETTING ASIDE THE ORDER PASSED BY THE ASSESSING OFFICER......... 9 . APPLYING THE RATIO OF THE DECISIONS TO THE FACTS O F THE PRESENT CASE, WE FIND THAT THE LEARNED COMMISSIONE R OF INCOME TAX WHILE EXAMINING THE RECORD, IN EXERCI SE OF HIS POWERS U/S 263 OF THE ACT IN PARAGRAPH 4 OF THE SA ID NOTICE, OBSERVED AS UNDER : 4. THEREFORE, I AM OF THE OPINION THAT TO THE EXTE NT OF DISCREPANCY POINTED OUT AS ABOVE, THERE IS AN UNDER ASSESSMENT OF INCOME AND ORDER PASSED BY THE AO U/ S 143(3) ON 28.8.2006 IS CONSIDERED AS ERRONEOUS IN S O FAR ITA NO.2939/MUM/2009 (ASSESSMENT YEAR: 2004-05) 15 AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE. T HE SAME IS PROPOSED TO BE REVISED U/S 263 OF THE ACT. HOWEVER, IF WE TURN TO THE ORDER OF THE COMMISSIO NER OF INCOME TAX PASSED UNDER SECTION 263 OF THE ACT, I T WOULD BE CLEAR THAT NO FINDING IS RECORDED BY THE LEARNED COMMISSIONER OF INCOME TAX THAT THE ORDER PASSED B Y THE AO IS ERRONEOUS AND IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE IMPUGNED ORDER PASS ED BY THE LEARNED COMMISSIONER OF INCOME TAX, THE RELEVA NT PARAGRAPHS OF WHICH HAVE ALREADY BEEN REPRODUCED IN PARAGRAPH 2 OF THIS ORDER, ONLY LEAD TO THE CONCLUS ION THAT THE LEARNED COMMISSIONER OF INCOME TAX WHILE EXERCISIN G HIS POWER UNDER SECTION 263 OF THE ACT DIRECTED THE AO TO COMPLETE THE ASSESSMENT IN A PARTICULAR MANNER I.E. TO RE- COMPUTE THE TOTAL INCOME OF THE ASSESSEE BY DISALL OWING THE LONG TERM CAPITAL LOSS OF RS.1,01,23,377/- CLAIMED IN THE RETURN. THUS, IN THE ABSENCE OF ANY POSITIVE FIND ING THAT THE ORDER PASSED BY THE AO IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE, IT IS N OT OPEN FOR THE LEARNED COMMISSIONER OF INCOME TAX TO ASSUME JURISDICTION AND HENCE THE LEARNED COMMISSIONER OF INCOME TAX WAS NOT JUSTIFIED IN SETTING ASIDE THE ORDER PA SSED BY THE AO WITH CERTAIN DIRECTIONS. ITA NO.2939/MUM/2009 (ASSESSMENT YEAR: 2004-05) 16 10. IN ROYAL CALCUTTA TURF CLUB V/S CIT(SUPRA) IT HAS BEEN HELD AT PAGE 710 (HEADNOTES) ; HELD, THAT CLAUSE (27) OF SECTION 10 EXCLUDES IN EXPRESS TERMS ONLY ANY INCOME DERIVED FROM A BUSIN ESS OF LIVE-STOCK BREEDING OR POULTRY OR DAIRY FARMING . IT DOES NOT EXCLUDE THE BUSINESS OF LIVESTOCK BREEDING OR P OULTRY OR DAIRY FARMING FROM THE OPERATION OF THE ACT. THEREFORE, THE LOSSES SUFFERED BY THE ASSESSEE IN T HE BROODMARES ACCOUNT AND IN THE PIG ACCOUNT WERE ADMISSIBLE DEDUCTION IN COMPUTING ITS TOTAL INCOME . 11. AT THIS STAGE, IT IS ALSO USEFUL TO THE ANALOGOUS PROVISION CONTAINED IN THE CENTRAL EXCISE AND SALT ACT (1 OF 1944). THE HONBLE SUPREME COURT WHILE CONSIDERING THE ABOVE S AID PROVISION HELD THAT THE AUTHORITY WHILE EXERCISING SUCH POWER CANNOT DIRECT THE LOWER AUTHORITY TO COMPLETE THE A SSESSMENT IN PARTICULAR MANNER. THE OBSERVATION OF THE HONB LE APEX COURT IN THE CASE OF UNION OF INDIA VS . TATA ENGIN EERING AND LOCOMOTIVES CO. LTD. REPORTED IN AIR 1998 SC 287 IS AS FOLLOWS (PAGE 288): IN OUR VIEW, THIS WRIT PETITION SHOULD NOT HAVE BE EN ENTERTAINED BY THE HIGH COURT AT ALL. THE ASSISTAN T COLLECTOR IS ENTITLED TO COMPLETE THE ASSESSMENT AS HE THINKS FIT IN EXERCISE OF THE JUDGMENT AND ACCORDIN G TO HIS UNDERSTANDING OF THE LAW AND FACTS. FOR THIS PURPOSE, HE CAN CALL FOR AND EXAMINE WHATEVER DOCUMENTS HE CONSIDERS RELEVANT. IF THE ASSISTANT COLLECTOR FAILS TO FOLLOW ANY JUDGMENT OF THE HIGH COURT OR THIS COURT, THE ASSESSEE HAD ADEQUATE STATUTORY REMEDIES BY WAY OF AN APPEAL AND REVISION AGAINST T HE ASSESSMENT ORDER. THE COURT SHOULD NOT TRY TO CONT ROL THE MODE AND MANNER IN WHICH AN ASSESSMENT SHOULD ITA NO.2939/MUM/2009 (ASSESSMENT YEAR: 2004-05) 17 BE MADE. IF THE ASSISTANT COLLECTOR IS OF THE VIEW THAT ENQUIRIES ARE NECESSARY TO BE MADE AS TO THE PRICE AT WHICH TRUCKS WERE SOLD AT THE REGIONAL SALES OFFICE , THE COURT CANNOT STOP HIM FROM MAKING SUCH ENQUIRIE S A READING OF THE ABOVE SAID JUDGMENT WOULD CLEARLY SHOW THAT WHILE REMANDING THE MATTER, THE LEARNED COMMISSIONE R OF INCOME TAX OUGHT NOT TO HAVE GIVEN A SPECIFIC DIREC TION TO COMPLETE THE ASSESSMENT IN A PARTICULAR MANNER. 12. THERE IS NO QUARREL WITH THE PRINCIPLES ENUNCI ATED IN THE TWO DECISIONS OF THE HONBLE SUPREME COURT, REL IED ON BY THE LEARNED D.R. HOWEVER, IN THE PRESENT CASE, THE ISSUE IS ENTIRELY DIFFERENT INASMUCH AS THE DISPUTE IS ABOUT ALLOWABILITY AND CARRY FORWARD OF LONG TERM CAPITAL LOSS, THEREFORE, THE DECISIONS RELIED UPON BY THE LEARNE D DR ARE DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 13. IN THIS VIEW OF THE MATTER, WE ARE OF THE VIEW THAT IN THE ABSENCE OF A POSITIVE FINDING OF APPLICATION OF TWIN CONDITIONS THAT THE ORDER SOUGHT TO BE REVISED IS E RRONEOUS AND IT IS PREJUDICIAL TO THE INTERESTS OF THE REVEN UE, IT WAS NOT OPEN FOR THE LEARNED COMMISSIONER OF INCOME TAX TO ASSUME JURISDICTION. FURTHER, THE LEARNED COMMISSIO NER OF INCOME TAX WHILE SETTING ASIDE THE ASSESSMENT OUGHT NOT TO HAVE GIVEN SPECIFIC DIRECTIONS TO THE A.O. TO COMPL ETE THE ASSESSMENT IN A PARTICULAR MANNER. FURTHERMORE THE AO HAS ITA NO.2939/MUM/2009 (ASSESSMENT YEAR: 2004-05) 18 TAKEN ONE OF THE POSSIBLE VIEW WHICH IS VALID IN LA W. ACCORDINGLY, WE HOLD THAT THE ORDER PASSED BY THE L EARNED COMMISSIONER OF INCOME TAX U/S 263 SQUARELY FALLS O UTSIDE THE PURVIEW OF SECTION 263 OF THE ACT AND HENCE TH E SAME IS CANCELLED. THE GROUNDS TAKEN BY THE ASSESSEE ARE, THEREFORE, ALLOWED. 14. IN THE RESULT, THE ASSESSEES APPEAL STANDS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 8TH JUNE,2011 SD SD (R.K.PANDA) (D.K.AGARWAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 8TH JUNE, 2011 SRL COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH 6. GUARD FILE. BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI