Sri. SURESH K. JAJOO, MUMBAI V. ACIT CIR 4(2), MUMBAI

ITA 474/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7425 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2010
• Appeal Filed By: Assessee
• Bench Allotted: E
• Assessment Year: 2000-2001
• Appeal Filed On: 21-01-2009
• Court: TRIBUNAL
• Department Lawyers: HEMANT J LAL
• Assessee Lawyers: S E DASTUR
• Keywords: Reopening of assessment; Capital asset; Gift; Recovery proceedings; Search and seizure; Share purchase agreement; Rule of consistency; Period of limitation; Additional evidence; Reasonable cause; Difference of opinion; Validity of assessment; Block assessment; Tax effect; Revised return; Reason to believe; Change of opinion; Reassessment proceedings; Rule 8D; Capital Gains
• Section: 143(3); 14A; 143(1); 143(2); 32; 147; 27; 148; 37; 6; 132; 28; 10; 2; 11; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E BEFORE SHRI P.M.JAGTAP (AM) & N.V. VASUDEVAN (JM) I.T.A.NO. 474/MUM/09 (ASSESSMENT YEAR : 2000-01) SHRI SURESH K. JAJOO 7/10, BOTAWALA BUILDING 1 ST FLOOR, HORNIMAN CIRCLE MUMBAI-400 001. PAN/GIR NO. : AAFPJ0070J VS. ACIT CIRCLE 4(2) AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. APPELLANT RESPONDENT I.T.A.NO. 475/MUM/09 (ASSESSMENT YEAR : 2000-01) SMT. VIMLA S. JAJOO 7/10, BOTAWALA BUILDING 1 ST FLOOR, HORNIMAN CIRCLE MUMBAI-400 001. PAN/GIR NO. : ADAPJ8747J VS. ACIT CIRCLE 4(2) AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. APPELLANT RESPONDENT ASSESSEE BY : SHRI S.E.DASTUR DEPARTMENT BY : SHRI HEMANT J.LAL CIT D.R. ORDER PER BENCH :- ITA NO. 475/MUM/09 IS AN APPEAL BY THE ASSESSEE BY NAME SMT. VIMLA S. JAJOO AGAINST THE ORDER DATED 2.12.2008 OF LEARNED CIT(A)-IV, MUMBAI RELATING TO A.Y. 2000-01. ITA NO. 474/MUM/09 IS ALSO AN APPEAL BY THE ASSESS EE BY NAME SHRI SURESH K. JAJOO AGAINST THE ORDER DATED 2.12.2 008 OF LEARNED CIT(A)- IV, MUMBAI RELATING TO A.Y. 2000-01. SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 2 2. ISSUES INVOLVED IN BOTH THE ABOVE APPEALS ARE ID ENTICAL AND ARISE OUT OF IDENTICAL FACTS AND CIRCUMSTANCES. THESE APP EALS WERE HEARD TOGETHER. WE DEEM IT CONVENIENT TO PASS THIS CONSOL IDATED ORDER. 3. FACTS AND CIRCUMSTANCES UNDER WHICH, THESE APPEA LS ARISES FOR CONSIDERATION ARE AS FOLLOWS :- THE ASSESSEE SMT. VIMLA S. JAJOO IS AN INDIVIDUAL. SHE IS IN THE BUSINESS OF DEALING IN SHARES AND INVESTMENTS. FOR A.Y. 2000-01, RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 9.08,99,794 /- WAS FILED BY HER ON 27.10.2000. THE RETURN WAS PROCESSED U/S. 143(1) AN D NO SCRUTINY WAS DONE IN HER CASE FOR THE RELEVANT ASSESSMENT YEAR. SHE HAD DURING THE A.Y. 2000-01, PURCHASED 1,00,000 EQUITY SHARES OF D SQ SOFTWARE ON 9.4.99 ON SPOT DELIVERY BASIS FOR A PURCHASE CONSID ERATION OF RS. 3,39,71,750/-. OUT OF THE ABOVE, 63000 SHARE WERE S OLD ON 24.3.2000 AND BALANCE 37,000 WAS SOLD ON 30-3-2000 AS PER THE BROKERS CONTRACT NOTE DT. 30.3.2000. SHE CLAIMED THAT THE SALE OF 63 ,000 SHARES WERE MADE ON 8.4.2000 AS PER BROKER BILL FOR SETT NO. 01 . SHE OFFERED FOR TAX AS SHORT TERM CAPITAL GAINS THE CAPITAL GAIN ON SAL E OF 63,000 SHARES IN AY 01-02. THE SALE IN RESPECT OF 37,000 SHARES WAS CLAIMED AS LONG TERM AND OFFERED TO TAX A SUM OF RS. 5,33,85,080/- AS LO NG TERM CAPITAL GAINS IN A.Y. 2001-02. ACCORDING TO HER THE BROKER RAISE D THE BILL FOR THIS TRANSACTION IN THE BROKER BILL FOR SETT NO.02 ON 12 .4.2000 AND DELIVERY OF SHARES AND ITS CORRESPONDING PAY-IN-PAY OUT TOOK PL ACE ONLY ON 12.4.2000. SINCE THE CORRESPONDING SALE AND DELIVE RY HAD TAKEN PLACE ONLY ON 12.4.2000, THE CAPITAL GAIN ON SALE OF 37,0 00 SHARES WAS CLAIMED TO BE A LONG TERM CAPITAL GAIN AND OFFERED TO TAX I N AY 01-02. THE EXPRESSIONS LONG TERM CAPITAL GAIN, SHORT TERM C APITAL GAIN LONG TERM CAPITAL ASSET AND SHORT TERM CAPITAL ASSET HAS BEEN DEFINED IN SEC.2 OF THE ACT AS FOLLOWS: SEC.2(42A)'SHORT-TERM CAPITAL ASSET' MEANS A CAPITA L ASSET HELD BY AN ASSESSEE FOR NOT MORE THAN TWELVE MONTHS IMMEDIATELY PRECEDI NG THE DATE OF ITS TRANSFER. SEC.(29A)'LONG-TERM CAPITAL ASSET' MEANS A CAPITAL ASSET WHICH IS NOT A SHORT TERM CAPITAL ASSET. SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 3 SEC.(29B)'LONG-TERM CAPITAL GAIN' MEANS CAPITAL GAI N ARISING FROM THE TRANSFER OF A LONG TERM CAPITAL ASSET. SEC.(42B)'SHORT-TERM CAPITAL GAIN' MEANS CAPITAL GA IN ARISING FROM THE TRANSFER OF A SHORT TERM CAPITAL ASSET. THEREFORE DEPENDING UPON THE DATE OF SALE THE CAPIT AL GAIN WILL BE LONG TERM CAPITAL GAIN OR SHORT TERM CAPITAL GAIN. T HE TAX IMPLICATIONS ON THE CAPITAL GAIN BEING TREATED AS SHORT TERM OR LONG TERM ARE DIFFERENT. BY ORDER DATED 27.2.2004 U/S. 143(3) OF THE ACT, TH E ASSESSING OFFICER ASSESSED THE LONG TERM CAPITAL GAIN SO OFFERED BY T HE ASSESSEE IN A.Y. 2001-02 OBSERVING AS FOLLOWS :- THE ASSESSEE HAS DISCLOSED LONG TERM CAPITAL GAINS OF RS. 5,11,69,819/- IN ITS ORIGINAL RETURN WHICH HAS BEEN REVISED TO 5,19,06,039/- AS PER THE REVISED RETURN. THE DETAIL S OF SUCH GAIN HAVE BEEN FILED AS PER ANNEXURE-I TO THE COMPUTATIO N OF INCOME. DURING THE COURSE OF ASSESSMENT, THE ISSUE OF CAPIT AL GAIN HAS BEEN EXAMINED. ACCORDING TO THE DETAILS FILED BY TH E ASSESSEE, THE ASSESSEE HAS PURCHASED 3,7000 SHARES OF DSQ SOFTWAR E ON 9.4.2099 FOR A PURCHASE CONSIDERATION OF RS. 1,25,6 0,020/-. THE SCRIPS HAVE BEEN PURCHASED IN SPOT MARKET CALCUTTA STOCK EXCHANGE THROUGH BROKING COMPANY HERALD EQUITY PVT. LTD. THESE HOLDINGS HAVE BEEN SOLD ON 12.4.2000 FOR RS. 6,59,45,100/- THERE IS A LONG TERM CAPITAL GAINS CLAIM OF RS. 5,3 3,85,080/- ON THESE TRANSACTIONS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE HAS FURNISHED DISTINCTIVE NUMBER OF SC RIPS AND DETAILS OF SALE. ACCORDING TO CONTRACT NOTE FURNISH ED THE DATE OF CONTRACT IS 30.3.2000. HOWEVER, THE TRANSACTIONS HA S BEEN CARRIED FORWARD AS PER EXCHANGE RULES AND FINALLY SETTLED I N SETTLEMENT PERIOD (30.3.2000 TO 6.4.2000). THE BROKER, HERALD EQUITY PVT. LTD. HAS RAISED A BILL ON 12.4.2000 FOR THESE TRANSACTIO NS MARKING DELIVERY OF SHARES. THE ASSESSEE HAS CLAIMED THAT T HE BROKER HAS RAISED THESE BILLS AFTER SCHEDULE PAY-IN/PAY OUT OF SECURITIES TO STOCK EXCHANGE WHICH WAS COMPLETED ON 12.4.2000. AS PER THE BROKERS BILLS WHICH IS CLAIMED BY THE ASSESSEE AS BROKERS NOTE THE HOLDING PERIOD EXCEEDS ONE YEAR AND THEREFORE THERE IS LONG TERM CAPITAL GAINS ON THE SALE OF THESE SHARES. THE SUBMISSIONS OF THE ASSESSEE HAVE BEEN CAREFULLY CONSIDERED. AS PER THE DELIVERY OF SHARE AND BROKER S BILL THERE IS AN INCIDENCE OF LONG TERM CAPITAL GAINS ON THE SALE OF THESE SHARES. HOWEVER, IF THE TRANSACTION IS ASSUMED TO BE COMPLE TED ON THE FIRST DATE OF CONTRACT I.E. 30.3.2000 AND THE SUBSE QUENT FORMALITIES ARE ONLY COMPLETION OF THESE TRANSACTIONS THEN CAPI TAL GAIN WILL SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 4 RELATE BACK TO THE EARLIER YEAR I.E. A.Y. 2000-01. THE ASSESSEE HAS FURNISHED THE COPY OF LEDGER ACCOUNT IN THE BOOKS O F THE BROKER WHERE THE SALE BILL IS CREDITED TO ASSESSEES ACCOU NT ON 12.4.2000. AS THE ASSESSEE HAS ALREADY OFFERED THIS INCOME IN A.Y. 2001-02, THE SAME IS ASSESSED IN THIS YEAR TO PROTECT THE IN TEREST OF REVENUE. 4. THE ASSESSING OFFICER ISSUED NOTICE U/S. 148 OF THE ACT ON 22.3.2007 FOR AY 00-01. BEFORE ISSUE OF SUCH NOTIC E I.E., ON 21.3.2007 THE ASSESSING OFFICER RECORDED FOLLOWING REASONS U/ S. 147 OF THE ACT. SMT. VIMLA S. JAJOO : A.Y. 2000-01 :- 1) FROM THE A.Y. 2001-02, IT IS SEEN THAT THE ASSESSEE HAD PURCHASED 1,00,000 SHARES OF DSQ SOFTWARE ON 9.4.19 99 (ON SPOT BASIS) FOR A PURCHASE CONSIDERATION OF RS. 3,3 9,71,750/-. OUT OF THESE 63,000 SHARES HAVE BEEN SOLD ON 8.4.20 00 AND THE BALANCE 37,000 HAVE BEEN REPORTEDLY SHOWN AS SO LD ON 12.4.2000. THE ASSESSEE HAS CLAIMED THE SALE IN RES PECT OF 37,000 SHARES AS LONG TERM AND OFFERED FOR TAX A SU M OF RS. 5,33,85,080 AS LONG TERM CAPITAL GAINS IN A.Y. 2001 -02. 2) DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSEE FURNISHED THE BROKERS CONTRACT NOTES FOR PURCHASE A ND SALE. IT WAS SEEN THAT THE SHARES HAD BEEN PURCHASED ON 9.4. 1999 VIDE THE BROKERS BILL NO. SPOTI9992000-00006 DATED 9.4.1 999. THE SALE BILL NO. GROUP A/001/0033 DATED 8.4.2000 SHOWS SALE OF 63000 SHARES ON DELIVERY BASIS AND SIMULTANEOUS SALE AND PURCHASE OF 57000 SHARES (ON FORWARD BASIS). THE DA TE OF TRANSACTION WAS 30.3.2000. THEN AGAIN VIDE BROKERS BILL NO. GROUP A/002/0009 DATED 12.4.2000, A SALE OF FURTHER 57000 SHARES HAS BEEN SHOWN ON DELIVERY BASIS. BUT THE DA TE OF TRANSACTION IS 30.3.2000 ONLY. THE TRANSACTION HAD BEEN CARRIED OUT ON THE STOCK EXCHANGE IN SETTLEMENT PER IOD (30.3.2000 TO 6.4.2000). THE BILL WAS REPORTEDLY RA ISED BY THE BROKER, HERALD EQUITY P. LTD. (IN WHICH THE ASSESSE ES HUSBAND SURESH K. JAJOO IS A DIRECTOR) FOR THIS SETTLEMENT ON 12.4.2000 FOR THESE TRANSACTIONS AFTER COMPLETION OF THE SETT LEMENT PERIOD. 3) CAPITAL GAINS ARE TAXABLE ON ACCRUAL BASIS, AND IN THE CASE OF LISTED SECURITIES, THE DATE OF TRANSACTION IS THE D ATE OF SALE/PURCHASE OF THE SECURITY. THEREFORE THE SHARES WERE TRANSFERRED ON 30.3.2000 I.E. BEFORE THE COMPLETION OF ONE YEAR FROM THE DATE OF PURCHASE. AS PER CIRCULAR NO. 704 OF CBDT DATED 28.4.1995, THE DATE OF BROKERS NOTE IS TO BE TREATED AS THE DATE OF TRANSFER PROVIDED SUCH TRANSACTIONS ARE FOLLOWED BY DELIVERY. THE EXTRACT OF THE CIRCULAR IS AS UNDER : - SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 5 THE BOARD IS OF THE OPINION THAT IT IS THE DATE OF BROKERS NOTE THAT SHOULD BE TREATED AS THE DATE OF TRANSFER IN CASES OF SALE TRANSACTIONS OF SECURITIES PROVIDED SUCH TR ANSACTIONS ARE FOLLOWED UP BY DELIVERY OF SHARES AND ALSO THE TRANSFER DEEDS. SIMILARLY, IN RESPECT OF THE PURCHASERS OF T HE SECURITIES, THE HOLDING PERIOD SHALL BE RECKONED FR OM THE DATE OF BROKERS NOTE FOR PURCHASE ON BEHALF OF THE INVESTORS. IN CASE THE TRANSACTIONS TAKE PLACE DIRE CTLY BETWEEN THE PARTIES AND NOT THROUGH STOCK EXCHANGES , THE DATE OF CONTRACT OF SALE AS DECLARED BY THE PARTIES SHALL BE TREATED AS THE DATE OF TRANSFER PROVIDED IT IS FOLL OWED UP BY ACTUAL DELIVERY OF SHARES AND THE TRANSFER DEEDS. 4) THE BROKERS BILL FOR SETTLEMENT PERIOD IS DRAWN AF TER THE PAY- IN/PAY OUT DATE I.E. AFTER DELIVERY IS MADE AND PAY MENTS RECEIVED/MADE. THE FACT THAT THE CBDT HAS ENVISAGED A SCENARIO WHERE DELIVERY MAY NOT PLACE AFTER ISSUE O F BROKERS NOTE MEANS THAT THEY DID NOT WANT TO TREAT THE BROK ERS BILL AS THE REQUISITE DATE BUT THE CONTRACT NOTE ISSUED BY THE BROKER. ACCORDINGLY SHORT TERM CAPITAL GAINS ON SALE OF THE SE SHARES HAD ACCRUED ON 30.3.2000, I.E. RELEVANT TO A.Y. 200 0-01. 5) SINCE, THE ASSESSEE HAS OFFERED THIS INCOME IN A.Y. 2001-02 AS LONG TERM CAPITAL GAIN, THE SAME WAS ACCEPTED IN TH AT YEAR BY THE ASSESSING OFFICER PROTECTIVELY, WITH THE OFFICE NOTE THAT THE TAXABILITY OF THE SAME IN PRECEDING YEAR ON THE BAS IS OF DATE OF CONTRACT BE EXAMINED BY REOPENING THE PRECEDING YEA R, IF DEEMED FIT. 6) ACCORDINGLY THE SHORT TERM CAPITAL GAINS OF RS. 5,3 3,85,080 HAVE ESCAPED ASSESSMENT FOR THE A.Y. 2000-01. AS PE R EXPLANATION 2, CLAUSE (C)(II) ALSO, THE CAPITAL GAI NS HAVE BEEN ASSESSED AT TOO LOW A RATE AS LONG TERM CAPITAL GAI NS IN RESPECT OF A.Y. 2001-02. IT IS, THEREFORE PROPOSED THAT THE A.Y. 2000-01 BE REOPENED SINCE THE INCOME HAS ESCAPED ASSESSMENT . THE TAX EFFECT AND INCOME ESCAPING ASSESSMENT EXCEEDS THE L IMITS LAID AS PER SECTION 149(1)(B) READ WITH EXPLANATION THER ETO. SD/- (CHATURBHUJ DAS) ASST. COMMISSIONER OF INCOME TAX CIRCLE 4(2), MUMBAI 5. IN THE REASSESSMENT PROCEEDINGS, THE ASSESSEE TO OK A STAND THAT THE TRANSACTION OF SALE BECOMES COMPLETE ONLY WHEN THE ACTUAL DELIVERY OF SHARES AND PAYMENT WAS MADE. THE DETAILS OF TRADING , SETTLEMENT SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 6 MECHANISM AND CARRY FORWARD SYSTEM FOLLOWED BY THE STOCK EXCHANGE WERE GIVEN BY THE ASSESSEE. THE ASSESSEE EXPLAINED THAT THE CONTRACT NOTES ISSUED BY THE BROKER FOR TRANSACTION EFFECTED IN THE SETTLEMENT PERIOD WERE NOT TREATED AS PURCHASE OR SALE OF SHAR ES. THE PURCHASE OR SALE OF SHARES WERE TREATED COMPLETE ONLY WHEN ACTU AL DELIVERY OF SHARES IS GIVEN AND THE PAY IN/PAY OUT ARE DONE FOR THE TR ANSACTION AND THE BROKER ISSUES BROKERS BILL FOR THE SAME. THE ASSES SEE RELIED ON THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF HAJI & ANDERSON P. LTD., 47 ITR 790, WHEREIN IT WAS HELD T HAT IN THE ABSENCE OF DEFINITION OF THE TERM SALE UNDER THE INCOME TAX ACT, 1961 FOR DETERMINATION OF THE DATE OF SALE, ONE MUST RESORT TO THE SALE OF GOODS ACT, 1930, IN CASES OF MOVABLE PROPERTIES. IT WAS S UBMITTED THAT SHARES AND SECURITIES BEING MOVABLE PROPERTY ARE TREATED A S GOODS U/S. 2(7) OF THE SALE OF GOODS ACT, 1930 AND THAT UNDER SECTION 4 OF THE SALE OF GOODS ACT, 1930 A SALE TAKES PLACE WHEN THE PROPERTY IN G OODS IS TRANSFERRED FROM THE SELLER TO THE BUYER. IT WAS FURTHER SUBMIT TED THAT THE PROVISIONS OF SALES OF GOODS ACT, 1930 PROVIDES THAT A PROPERT Y IN THE GOODS PASSES AT A TIME WHEN THE PARTIES TO THE TRANSACTION INTEN D IT TO PASS. IT WAS URGED THAT TRANSFER OF OWNERSHIP IN GOODS IS COMPLE TE ONLY WITH DELIVERY IN PURSUANCE OF AN AGREEMENT TO SELL. RELIANCE WAS PLACED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F CIT VS. BHURANGYA COOL CO., 34 ITR 802 WHEREIN IT WAS HELD THAT THE T ITLE IN THE MOVABLE PROPERTY PASSES WHEN THEY ARE ACTUALLY DELIVERED TO THE BUYER. FURTHER RELIANCE WAS PLACED ON THE DECISION IN THE CASE OF V.R. SHEIAT VS. PRANIANT J. THAKUR, 45 COMP. CASES 43, WHEREIN THE HONBLE SUPREME COURT HELD THAT THE INTEREST UNDER AN AGREEMENT OF SALE OF SHARES PASSES FROM SELLER TO THE BUYER, ON DELIVERY OF THE SHARE CERTIFICATE ACCOMPANIED WITH DULY EXECUTED TRANSFER FORM. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE HONBLE MADRAS HIGH COURT IN CASE O F CIT VS. M. RAMASWAMY, 151 ITR 122 AND KERALA HIGH COURT IN CAS E OF RAJAGIRI RUBBER AND PRODUCE CO. VS. CIT, 203 ITR 663 FOLLOWI NG THE ABOVE REFERRED SUPREME COURT DECISION, WHEREIN IT WAS HEL D THAT BETWEEN THE SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 7 TRANSFEROR AND THE TRANSFEREE, THE TRANSACTION IS C OMPLETE WHEN THE SHARE CERTIFICATE ARE HANDED OVER BY DELIVERY. 6. THE ASSESSING OFFICER RELIED UPON CIRCULAR NO. 7 04 DATED 28.4.95 OF CBDT. THE CIRCULAR GIVES INSTRUCTIONS REGARDING DETERMINATION OF THE DATE OF TRANSFER AND HOLDING PERIOD FOR PURPOSES OF CAPITAL GAINS QUA TRANSACTIONS IN SECURITIES. THE CBDT HAS INSTRUCTE D OFFICERS OF THE REVENUE TO ADOPT THE DATE OF BROKERS NOTE/BILL AS D ATE OF TRANSFER PROVIDED SUCH TRANSACTION IS FOLLOWED BY DELIVERY. IT HAS TO BE MENTIONED THAT BEFORE THE ASSESSING OFFICER, THE ASSESSEE DID NOT RAISE ANY OBJECTION REGARDING VALIDITY OF REOPENING OF ASSESSMENT PROCE EDINGS. HOWEVER, BEFORE LEARNED CIT(A), THE ASSESSEE RAISED GROUND N O. 1 IN WHICH, HE RAISED THE ISSUE WITH REGARD TO VALIDITY OF INITIAT ION OF REASSESSMENT PROCEEDINGS U/S. 148 OF THE ACT. HOWEVER, IN COURSE OF HEARING BEFORE LEARNED CIT(A), THE ASSESSEE DID NOT PRESS FOR ADJU DICATION OF THIS GROUND OF APPEAL AND LEARNED CIT(A) THEREFORE DISMISSED TH E AFORESAID GROUND. 7. THE FACTS IN THE CASE OF THE ASSESSEE SHRI SURES H JAJOO IS ALSO IDENTICAL. HE IS AN INDIVIDUAL. HE IS ALSO IN THE BUSINESS OF DEALING IN SHARES AND INVESTMENTS. FOR A.Y. 2000-01, RETURN O F INCOME DECLARING TOTAL INCOME OF RS. 11,78,38,800/- WAS FILED BY HIM ON 27.10.2000. THE RETURN WAS PROCESSED U/S. 143(1) AND NO SCRUTINY WA S DONE IN HIS CASE FOR THE RELEVANT ASSESSMENT YEAR. DURING THE A.Y. 2 000-01, HE HAD PURCHASED 2,00,000 EQUITY SHARES OF DSQ SOFTWARE ON 5.4.99 AND 7.4.99 ON SPOT DELIVERY BASIS FOR A PURCHASE CONSIDERATION OF RS. 7,43,61,500/-. THESE SHARES WERE SOLD ON 24.3.2000 AS PER BROKERS CONTRACT NOTE IN THE SETTLEMENT PERIOD 23.3.2000 TO 30.3.2000 FOR RS. 46 ,81,22,650/- AND A LONG TERM CAPITAL GAIN OF RS. 39,37,61,150/- WAS DE CLARED ON THESE TRANSACTIONS IN A.Y. 2001-02. ACCORDING TO HIM THE BROKER RAISED THE BILL FOR THIS TRANSACTION IN THE BROKER BILL DT.8.4.2000 AND DELIVERY OF SHARES AND ITS CORRESPONDING PAY-IN-PAY OUT TOOK PLACE ONL Y ON 8.4.2000. SINCE THE CORRESPONDING SALE AND DELIVERY HAD TAKEN PLACE ONLY ON 8.4.2000, SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 8 THE CAPITAL GAIN ON SALE WAS CLAIMED TO BE A LONG T ERM CAPITAL GAIN AND OFFERED TO TAX IN AY 01-02. 8. THE ASSESSING OFFICER PASSED AN ASSESSMENT ORDER U/S. 143(3) OF THE ACT FOR A.Y. 2001-02 DATED 27.2.2004; WHEREBY H E ASSESSED LONG TERM CAPITAL GAIN AS DECLARED BY THE ASSESSEE GIVING ALM OST IDENTICAL REASONS AS WERE GIVEN IN CASE OF SMT. VIMLA JAJOO, WHICH WE HAVE ALREADY EXTRACTED IN THE EARLIER PART OF THIS ORDER. THE A SSESSING OFFICER ISSUED NOTICE U/S. 148 OF THE ACT FOR AY 00-01 DATED 22.3. 2007 AFTER RECORDING FOLLOWING REASONS :- SHRI SURESH JAJOO : A.Y. 2000-01 :- 1) FROM THE A.Y. 2001-02, IT IS SEEN THAT THE ASSESSEE HAD PURCHASED 2,00,000 SHARES OF DSQ SOFTWARE ON 5&7.4.1999 (ON S POT BASIS) FOR A PURCHASE CONSIDERATION OF RS. 7,43,61,500/-. THESE HOLDINGS HAVE BEEN SOLD ON 24.3.2000 FOR RS. 46,81,22,650/- AND LONG TERM CAPITAL GAIN OF RS. 39,37,61,150/- HAVE BEEN D ECLARED ON THESE TRANSACTIONS. 2) DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSEE FURNISHED THE DISTINCTIVE NUMBERS AND THE BROKERS CONTRACT NOTES DATED 24.3.2000. IT WAS FOUND THAT THE DATE OF TRAN SACTION WAS AS 24.3.2000. THE TRANSACTION HAD BEEN CARRIED OUT ON THE STOCK EXCHANGE IN SETTLEMENT PERIOD (23.3.2000 TO 30.3.20 00). THE BILL WAS REPORTEDLY RAISED BY THE BROKER, HERALD EQUITY P. LTD. ( IN WHICH THE ASSESSEE IS A DIRECTOR) FOR THIS SETTLEME NT ON 8.4.2000 FOR THESE TRANSACTIONS AFTER COMPLETION OF THE SETT LEMENT PERIOD. 3) CAPITAL GAINS ARE TAXABLE ON ACCRUAL BASIS, AND IN THE CASE OF LISTED SECURITIES, THE DATE OF TRANSACTION IS THE D ATE OF SALE/PURCHASE OF THE SECURITY. THEREFORE THE SHARES WERE TRANSFERRED ON 24.3.2000 I.E. BEFORE THE COMPLETION OF ONE YEAR FROM THE DATE OF PURCHASE. AS PER CIRCULAR NO. 704 OF CBDT DATED 28.4.1995, THE DATE OF BROKERS NOTE IS TO BE TREATE D AS THE DATE OF TRANSFER PROVIDED SUCH TRANSACTIONS ARE FOLLOWED BY DELIVERY. THE EXTRACT OF THE CIRCULAR IS AS UNDER :- THE BOARD IS OF THE OPINION THAT IT IS THE DATE OF BROKERS NOTE THAT SHOULD BE TREATED AS THE DATE OF TRANSFER IN CASES OF SALE TRANSACTIONS OF SECURITIES PROVIDED SUCH TR ANSACTIONS ARE FOLLOWED UP BY DELIVERY OF SHARES AND ALSO THE TRANSFER DEEDS. SIMILARLY, IN RESPECT OF THE PURCHASERS OF T HE SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 9 SECURITIES, THE HOLDING PERIOD SHALL BE RECKONED FR OM THE DATE OF BROKERS NOTE FOR PURCHASE ON BEHALF OF THE INVESTORS. IN CASE THE TRANSACTIONS TAKE PLACE DIRE CTLY BETWEEN THE PARTIES AND NOT THROUGH STOCK EXCHANGES , THE DATE OF CONTRACT OF SALE AS DECLARED BY THE PARTIES SHALL BE TREATED AS THE DATE OF TRANSFER PROVIDED IT IS FOLL OWED UP BY ACTUAL DELIVERY OF SHARES AND THE TRANSFER DEEDS. 4) THE BROKERS BILL FOR SETTLEMENT PERIOD IS DRAWN AF TER THE PAY- IN/PAY OUT DATE I.E. AFTER DELIVERY IS MADE AND PAY MENTS RECEIVED/MADE. THE FACT THAT THE CBDT HAS ENVISAGED A SCENARIO WHERE DELIVERY MAY NOT PLACE AFTER ISSUE OF BROKERS NOTE MEANS THAT THEY DID NOT WANT TO TREAT THE BROKERS BILL A S THE REQUISITE DATE BUT THE CONTRACT NOTE ISSUED BY THE BROKER. AC CORDINGLY SHORT TERM CAPITAL GAINS ON SALE OF THESE SHARES HAD ACCR UED ON 24.3.2000, I.E. RELEVANT TO A.Y. 2000-01. 5) SINCE, THE ASSESSEE HAS OFFERED THIS INCOME IN A.Y. 2001-02 AS LONG TERM CAPITAL GAIN, THE SAME WAS ACCEPTED IN TH AT YEAR BY THE ASSESSING OFFICER PROTECTIVELY, WITH THE OFFICE NOT E THAT THE TAXABILITY OF THE SAME IN PRECEDING YEAR ON THE BAS IS OF DATE OF CONTRACT BE EXAMINED BY REOPENING THE PRECEDING YEA R, IF DEEMED FIT. 6) ACCORDINGLY THE SHORT TERM CAPITA GAINS OF RS. 39,3 7,61,150/- HAVE ESCAPED ASSESSMENT FOR THE A.Y. 2000-01. AS PE R EXPLANATION 2, CLAUSE (C)(II) ALSO, THE CAPITAL GAINS HAVE BEEN ASSESSED AT TOO LOW A RATE AS LONG TERM CAPITAL GAINS IN RESPECT OF A.Y. 2001-02. IT IS, THEREFORE PROPOSED THAT THE A.Y. 2000-01 BE REO PENED SINCE THE INCOME HAS ESCAPED ASSESSMENT. THE TAX EFFECT AND I NCOME ESCAPING ASSESSMENT EXCEEDS THE LIMITS LAID AS PER SECTION 149(1)(B) READ WITH EXPLANATION THERETO. SD/- (CHATURBHUJ DAS) ASST. COMMISSIONER OF INCOME TAX CIRCLE 4(2), MUMBAI 9. IN THE REASSESSMENT PROCEEDINGS, SHRI SURESH JAJ OO TOOK A STAND REGARDING TAXABILITY OF LONG TERM CAPITAL GAIN DECL ARED IN A.Y. 2001-02 AS SHORT TERM CAPITAL GAIN IN A.Y. 2000-01, WHICH WERE IDENTICAL AS WERE TAKEN IN THE CASE OF SMT. VIMLA JAJOO. THE ASSESSIN G OFFICER, HOWEVER, REJECTED THE CLAIM OF THE ASSESSEE AND BROUGHT TO T AX SHORT TERM CAPITAL GAIN IN A.Y. 2000-01 FOR IDENTICAL REASONS AS WERE GIVEN IN THE CASE OF SMT.VIMLA JAJOO. BEFORE THE ASSESSING OFFICER, ASS ESSEE DID NOT RAISE SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 10 ANY GROUND REGARDING VALIDITY OF REOPENING OF ASSES SMENT PROCEEDINGS; BUT BEFORE LEARNED CIT(A), THE ASSESSEE RAISED THE GROUND REGARDING VALIDITY OF INITIATION OF REASSESSMENT PROCEEDINGS, WHICH WAS GROUND NO. 1. HOWEVER, AT THE TIME OF HEARING, THE ASSESSEE DI D NOT PRESS FOR ADJUDICATION OF THE AFORESAID GROUND; AND THEREFORE THE SAID GROUND WAS DISMISSED. 10. IN THESE APPEALS IN THE CASE OF BOTH THE ASSESS EES, THEY HAVE FILED APPLICATION SEEKING ADMISSION OF FOUR ADDITIONAL GR OUNDS OF APPEAL. OUT OF 4 GROUNDS OF APPEAL, GROUND NO. 1 & 4 RELATE TO VALIDITY OF INITIATION OF REASSESSMENT PROCEEDINGS. GROUND NO. 1 & 4 WHICH AR E IDENTICAL IN BOTH THE ASSESSEES READS AS FOLLOWS :- 1) THE REOPENING OF THE ASSESSMENT FOR A.Y. 2000-01 ON THE FACTS AND IN THE CIRCUMSTANCES IS BAD IN LAW. 2) THE LEARNED CIT(A) OUGHT TO HAVE HOLD THAT ASSESSME NT FOR A.Y. 2001-02 THOUGH CALLED PROTECTIVE IS A SUBSTANT IVE ASSESSMENT AS THE OFFICER HAS RAISED THE DEMAND FOR THE CAPITAL GAINS ON THE SALE OF 37,000 SHARES. 11. IN THE APPLICATION FOR ADMISSION OF ADDITION GR OUNDS, ASSESSEES HAVE STATED THAT IN COURSE OF CONFERENCE WITH THE S ENIOR COUNSEL, IT TRANSPIRED THAT REOPENING OF THE ASSESSMENT BY THE ASSESSING OFFICER WAS BAD IN LAW AND THEREAFTER THE ABOVE 2 ADDITIONAL GR OUNDS WERE FILED. IT IS THE PLEA OF THE ASSESSEE THAT ADJUDICATION OF THESE ADDITIONAL GROUNDS DO NOT REQUIRE EXAMINATION OF ANY NEW FACTS AND ARE ME RE AMPLIFICATION OF THE ORIGINAL GROUNDS CHALLENGING THE VALIDITY OF AS SESSMENT OF SHORT TERM CAPITAL GAIN IN THE HANDS OF THE ASSESSEES FOR A.Y. 2000-01. 12. LEARNED DR OPPOSED THE PRAYER OF THE ASSESSEES FOR ADMISSION OF ADDITIONAL GROUNDS OF APPEAL. IN THIS REGARD, LEARN ED DR POINTED OUT THAT THE ASSESSEES DID NOT CHALLENGE THE VALIDITY OF REA SSESSMENT PROCEEDINGS BEFORE THE ASSESSING OFFICER. BEFORE LEARNED CIT(A) , ASSESSEES CHALLENGED THE VALIDITY OF REASSESSMENT PROCEEDINGS BUT DID N OT PRESS FOR ADJUDICATION OF SAID GROUNDS. ACCORDING TO HIM, RIG HT OF AN ASSESSEE TO SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 11 FILE ADDITIONAL GROUNDS OF APPEAL IS DEPENDENT ON T HE CONDITION THAT HE/SHE SHOULD ADDUCE REASONABLE CAUSE FOR NOT HAVIN G RAISED GROUNDS SOUGHT TO BE RAISED BY WAY OF ADDITIONAL GROUNDS IN THE ORIGINAL GROUNDS. IT WAS FURTHER SUBMITTED THAT IT IS OFTEN SAID THAT THE REVENUE CANNOT HAVE CHANGE OF OPINION ON A POINT OF LAW. THE SAME APPROACH SHOULD ALSO BE APPLIED WHEN THE ASSESSEE SEEKS TO RAISE A POINT OF LAW. HE PLACED RELIANCE ON THE DECISION OF MUMBAI BENCH OF THE ITA T IN THE CASE OF BATLIBOI & CO., VS. DCIT, 67 ITD 397; WHEREIN IT WA S HELD THAT THERE SHOULD BE EXISTENCE OF GOOD REASONS FOR NOT RAISING THE GROUND AT THE ORIGINAL STAGE. 13. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE REASON FOR NOT RAISING THE ISSUE WITH REGARD TO VALIDITY OF INITIA TION OF REASSESSMENT PROCEEDINGS WAS THAT PROPER LEGAL ADVICE CAME ONLY WHEN THERE WAS A CONFERENCE WITH SENIOR COUNSEL AND THEREFORE ADDITI ONAL GROUND WAS FILED REGARDING VALIDITY OF INITIATION OF REASSESSMENT PR OCEEDINGS. IT WAS REITERATED THAT THE FACTS ARE ALREADY AVAILABLE ON RECORD; AND THEREFORE, ADDITIONAL GROUND HAS TO BE ADMITTED FOR ADJUDICATI ON. IT WAS ALSO SUBMITTED THAT IN GROUND NO. 1 IN BOTH THE APPEALS, THE ASSESSEES HAVE CHALLENGED THE ACTION OF THE REVENUE IN TAXING THE SHORT TERM CAPITAL GAINS IN A.Y. 2000-01; AND THIS GROUND WOULD BE GOO D ENOUGH TO COVER POINT OF VALIDITY OF INITIATION OF PROCEEDINGS U/S. 148 OF THE ACT. IT WAS SUBMITTED THAT VALIDITY OF INITIATION OF REASSESSME NT PROCEEDINGS IS AN ISSUE WITH REGARD TO JURISDICTION AND GOES TO THE R OOT OF THE CASE. THE FACT THAT IT WAS NOT RAISED BEFORE THE ASSESSING OFFICER AND NOT PRESSED BEFORE LEARNED CIT(A) WAS NOT A BAR TO RAISE THE SAME BEFO RE ITAT. IN THIS REGARD RELIANCE WAS PLACED BY LEARNED COUNSEL FOR THE ASSE SSEE ON THE DECISION OF HON'BLE P&H HIGH COURT IN THE CASE OF VIJAY KUMA R JAIN VS. CIT, 99 ITR 349 (P&H); WHEREIN, IT WAS LAID DOWN THAT THE A SSESSEE WAS NOT PRECLUDED FROM URGING A GROUND BEFORE THE TRIBUNAL CHALLENGING THE VALIDITY OF NOTICE U/S. 148 FOR THE REASON THAT THE SAME GROUND WAS RAISED BEFORE LEARNED CIT(A); BUT WAS GIVEN UP. REL IANCE WAS ALSO PLACED SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 12 ON THE DECISION OF HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF J.K. OIL MILLS CO. LTD. VS. CIT, 105 ITR 53 (ALL); WHEREIN I T WAS LAID DOWN THAT WHERE A GROUND WAS NOT PRESSED BEFORE LEARNED CIT(A ), ACTING ON THE LEGAL ADVICE AND WHEN THE ASSESSEE ULTIMATELY FINDS THAT IT WAS NOT A CORRECT ADVICE, THE TRIBUNAL SHOULD ALLOW THE ASSESSEE TO R AISE THE SAID GROUND IN AN APPEAL BEFORE IT. THE COURT HELD THAT CONDUCT OF THE ASSESSEE IN SUCH CASES WILL NOT AMOUNT TO ESTOPPEL. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE AR E OF THE VIEW THAT NORMALLY THE JURISDICTION OF TRIBUNAL IS NOT CONFIN ED ONLY TO POINT WHICH WAS CONSIDERED BY LEARNED CIT(A); BUT IT EXTENDS TO SUBJECT MATTER OF ENTIRE TAX PROCEEDINGS. IN THE PRESENT CASE, THE AS SESSEE HAS SOUGHT TO RAISE AN ADDITIONAL GROUND CHALLENGING THE VALIDITY OF INITIATION OF REASSESSMENT PROCEEDINGS. AS RIGHTLY CONTENDED BY L EARNED COUNSEL FOR THE ASSESSEE, THE ISSUE GOES TO THE ROOT OF THE CAS E AND JURISDICTION OF THE ASSESSING OFFICER TO PASS THE ORDER OF ASSESSMENT U /S. 148 OF THE ACT. THE ISSUE DOES NOT REQUIRE INVESTIGATION OF ANY NEW FACTS AND CAN BE ADJUDICATED ON THE BASIS OF EVIDENCE ALREADY AVAILA BLE ON RECORD. THE ASSESSEE IN OUR OPINION HAS ADDUCED SUFFICIENT REAS ON FOR NOT RAISING THIS ADDITIONAL GROUND AS PART OF THE ORIGINAL GROUND OF APPEAL VIZ., LEGAL ADVICE. IT IS ONLY IN COURSE OF CONFERENCE WITH THE SENIOR COUNSEL THAT THE ASSESSEE WAS ENLIGHTENED ABOUT THE MERIT OF THE ADD ITIONAL GROUND AND THEREFORE PRESENT APPLICATION HAS BEEN FILED. IN TH ESE CIRCUMSTANCES, WE ADMIT THE AFORESAID TWO ADDITIONAL GROUNDS FOR ADJU DICATION. SINCE, THE AFORESAID GROUNDS WILL GO TO THE ROOT OF THE MATTER AND VALIDITY OF ASSESSMENT FRAMED U/S. 148 OF THE ACT, WE DEEM IT P ROPER TO CONSIDER THE AFORESAID ISSUE FIRST. 15. AN INITIAL OBJECTION WAS RAISED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE REQUIRED APPROVAL AS CONTEMPLATED BY SEC.151OF THE ACT FOR PROCEEDING TO ISSUE NOTICE U/S.148 WAS NOT OBTAINED. THE LEARNED D.R. PRODUCED THE RELEVANT APPROVAL OF THE CIT(4), MUMBAI. WE HAVE PERUSED THE SAME AND ARE SATISFIED THAT THE REQUIRE D APPROVAL U/S.151 SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 13 HAS BEEN OBTAINED AND THEREFORE THE OBJECTION RAISE D BY THE ASSESSEES IN THIS REGARD IS REJECTED. 16. WE HAVE ALREADY NOTICED THAT THE FACTS WITH REG ARD TO SALE OF 37,000 SHARES OF DSQ SOFTWARE PURCHASED BY MRS. VIM LA JAJOO ON 9.4.1999 AND SOLD BY HER ON 12.4.2000. IN A.Y. 2001 -02, SHE CLAIMED THAT THESE SHARES WERE PURCHASED ON 9.4.1999 AND SO LD ON 12.4.2000; AND THEREFORE CAPITAL GAIN ON SALE OF THE ABOVE SHA RES WERE LONG TERM CAPITAL GAIN. WE HAVE ALSO NOTICED THAT THE ASSESSI NG OFFICER WHILE FRAMING ASSESSMENT FOR A.Y. 2001-02, EXPRESSED AN O PINION THAT ACCORDING TO CONTRACT NOTE OF BROKER FURNISHED BY T HE ASSESSEE WHICH WAS DATED 30,3,2000, SALE OF SHARES SHOULD BE CONSIDERE D AS HAVING BEEN CONCLUDED ON 30.3.2000 FALLING WITH THE PREVIOUS YE AR RELEVANT TO A.Y. 2000-01. THE ASSESSING OFFICER IN THE SAID ASSESSME NT ORDER HAS FURTHER RECORDED THE SUBMISSIONS OF THE ASSESSEE THAT THE D ATE OF BROKERS BILL IS THE DATE OF SALE I.E. 12.4.2000; AND THEREFORE, SAL E SHOULD BE TREATED AS COMPLETE ONLY ON 12.4.2000 I.E. PERIOD FALLING WITH IN PREVIOUS YEAR RELEVANT TO A.Y. 2001-02. THE ASSESSING OFFICER DID NOT COME TO ANY DEFINITE CONCLUSION ON THIS ISSUE. HE EXPRESSED THE OPINION THAT AS PER THE DELIVERY OF SHARES AND BROKERS BILL, THERE IS ONLY AN INCIDENT OF LONG TERM CAPITAL GAINS ON SALE OF SHARES. HE, HOWEVER, EXPRESSED AN OPINION THAT IF THE DATE OF CONTRACT NOTE OF THE BROKER IS TAKEN, THEN THE TRANSACTION WILL RELATE BACK TO THE A.Y. 2000-01 AN D THE CAPITAL GAIN WILL ALSO BE SHORT TERM CAPITAL GAIN. THEREAFTER THE ASS ESSING OFFICER HAS MERELY MADE THE FOLLOWING OBSERVATIONS AS THE ASSESSEE HAS ALREADY OFFERED THIS INCOME IN A.Y. 2001-02, THE SAME IS ASSESSED IN THIS YEAR TO PROTECT INTERE ST OF THE REVENUE. 17. FACTS IN THE CASE OF SHRI SURESH JAJOO ARE ALSO IDENTICAL AND ARE NOT REPEATED HEREIN FOR THE SAKE OF BREVITY. 18. LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT TO THE MANNER IN WHICH, THE ASSESSMENT WAS COMPLETED FOR A.Y. 2001-0 2 AND FIRSTLY SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 14 SUBMITTED THAT THE ASSESSMENT DONE FOR A.Y. 2001-02 BY THE ASSESSING OFFICER AS ABOVE CANNOT BE SAID TO BE A PROTECTIVE ASSESSMENT IN THE STRICT SENSE OF THE TERM. ACCORDING TO HIM, IT IS AN ASSES SMENT PURE AND SIMPLE. IN THIS REGARD, HE ALSO POINTED OUT THAT PURSUANT T O THE AFORESAID ORDER OF THE ASSESSMENT, DEMAND FOR TAX WAS ALSO RAISED. IN THIS REGARD, OUR ATTENTION WAS DRAWN TO PAGE NO. 6&7 OF THE ASSESSEE S PAPER BOOK IN THE CASE OF MRS. VIMLA JAJOO; AND PAGE NO. 8-10 IN THE CASE OF SHRI SURESH JAJOO. ACCORDING TO LEARNED COUNSEL FOR THE ASSESSE E, WHENEVER, PROTECTIVE ASSESSMENT IS DONE, NOTICE OF DEMAND IS NOT RAISED AND EVEN IF A DEMAND IS SO RAISED, THE ASSESSING OFFICER HAS TO MAKE A SPECIFIC MENTION THAT THE ASSESSEE NEED NOT PAY THE DEMAND A TTRIBUTABLE TO ANY SUM TAXED ON PROTECTIVE BASIS. IT WAS FURTHER SUBMI TTED BY HIM THAT EVEN AS ON DATE, ORDER PASSED BY THE ASSESSING OFFICER F OR A.Y. 2001-02 STANDS AND HAS NOT BEEN DISTURBED BY A PROCESS KNOWN TO LA W. FOR THE PROPOSITION THAT IN THE CASE OF PROTECTIVE ASSESSME NT, NO DEMAND IS GENERALLY RAISED, LEARNED COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE FOLLOWING TWO DECISIONS :- JAGANATH HANUNUMAN BAKSH VS. ITO, 31 ITR 603 (CAL) SUNIL KUMAR VS. CIT, 139 ITR 880 (BOM) 19. HIS NEXT SUBMISSION WAS THAT IF THE ASSESSMENT DONE FOR A.Y. 2001-02 WAS REALLY A PROTECTIVE ASSESSMENT, THERE W AS NO REASON FOR THE ASSESSING OFFICER TO ISSUE A NOTICE U/S. 148 OF THE ACT AFTER DELAY OF MORE THAN THREE YEARS. IN THIS REGARD, HE POINTED OUT TH AT THE ASSESSING OFFICER PASSED THE ORDER U/S. 143(3) IN THE CASE OF BOTH TH E ASSESSEES FOR A.Y. 2001-02 ON 27.2.2004. NOTICE U/S. 148 FOR A.Y. 2000 -01 WAS ISSUED BY THE ASSESSING OFFICER IN THE CASE OF BOTH THE ASSES SEES ONLY ON 22.3.2007. ACCORDING TO HIM, THE DELAY IN THE ISSUE OF NOTICE TO MAKE A SUBSTANTIVE ASSESSMENT ALSO POINTS OUT TO THE FACT THAT THE ASSESSMENTS FOR AY 01-02 WERE IN FACT WAS NOT A PROTECTIVE ASSE SSMENT. 20. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT IF REALLY, THE ASSESSING OFFICER BELIEVED THAT THE INCOME OFFERED BY THE ASSESSEE FOR A SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 15 PARTICULAR ASSESSMENT YEAR IS TO BE TAXED ONLY IN A NOTHER ASSESSMENT YEAR, THEN IT IS FOR THE ASSESSING OFFICER TO FIRST REOPEN ASSESSMENT YEAR TO WHICH, HE BELIEVES THE INCOME RELATES TO AND MAK E SUBSTANTIVE ASSESSMENT AND THEN MAKE A PROTECTIVE ASSESSMENT IN OTHER YEAR. IN OTHER WORDS, IT WAS SUBMITTED THAT PROTECTIVE ASSES SMENT SHOULD ALWAYS FOLLOW A SUBSTANTIVE ASSESSMENT. ACCORDING TO HIM, IN THE ABOVE FACTS AND CIRCUMSTANCES, IT CANNOT BE SAID THAT THE ASSES SING OFFICER ENTERTAINED REASONABLE BELIEF THAT INCOME CHARGEABL E TO TAX FOR A PARTICULAR ASSESSMENT YEAR HAS ESCAPED ASSESSMENT. THE LEARNED COUNSEL FOR THE ASSESSEE IN THIS REGARD RELIED ON T HE DECISION OF HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF NARESH C. BHARG AVA VS. ITO, (1974) TAX (LR) 7(ALL). IN THE AFORESAID CASE, IT WAS HELD THAT WHERE INCOME SOUGHT TO BE ASSESSED BY ISSUE OF NOTICE U/S. 148 O F THE ACT, HAS ALREADY BROUGHT TO TAX, THERE CANNOT BE ANY BELIEF REGARDIN G ESCAPEMENT OF INCOME AND THE NOTICE U/S. 148 SHOULD BE HELD TO BE BAD IN LAW. FURTHER RELIANCE WAS PLACED ON THE DECISION OF HON'BLE SUPR EME COURT IN THE CASE OF LAKSHMIPATI SINGH MITTAL VS. CIT, 70 ITR (SN-10) (SC); WHEREIN IT WAS LAID DOWN THAT INCOME CANNOT BE TAXED TWICE. 21. IT WAS FURTHER SUBMITTED THAT THE BELIEF REGARD ING ESCAPEMENT OF INCOME ENTERTAINED BY THE ASSESSING OFFICER IS CONT RARY TO LAW AS IN ACCORDANCE WITH THE PROVISIONS OF SALE OF GOODS ACT , SALE IS COMPLETE ONLY ON DELIVERY. THE ISSUE WHICH WE NEED TO EXAMINE ARE ON TWO ASPECTS :- (I) WHETHER THE CAPITAL GAIN ON SALE OF SHARES WAS TAXED AS LONG TERM CAPITAL GAINS IN A.Y. 2001-02 ONLY ON PRO TECTIVE BASIS? (II) IF THEY WERE TAXED NOT ON PROTECTIVE BASIS, TH EN CAN IT BE SAID THAT THERE WAS ESCAPEMENT OF INCOME CHARGEABLE TO TAX? 22. ON THE ABOVE TWO ISSUES, LEARNED DR SUBMITTED T HAT THE ASSESSMENT MADE BY THE ASSESSING OFFICER FOR A.Y. 2 001-02 ONLY TO PROTECT THE INTEREST OF REVENUE. IN THIS REGARD, IT WAS SUBMITTED BY HIM THAT WHEN A PARTICULAR SUM IS OFFERED TO TAX IN PAR TICULAR ASSESSMENT SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 16 YEAR, THE ASSESSING OFFICER HAS NO OPTION BUT TO TA X IT. ACCORDING TO HIM, JUST BECAUSE A SUM HAS ALREADY BEEN TAXED, IT CANNO T BE SAID THAT THERE WAS NO ESCAPEMENT OF INCOME CHARGEABLE TO TAX. IN T HIS REGARD, IT WAS SUBMITTED BY HIM THAT IF THE CAPITAL GAIN ON SALE O F SHARES IS CONSIDERED AS SHORT TERM CAPITAL GAINS THEN RATE OF TAX PAYABL E WOULD BE DIFFERENT; AND CONSEQUENTLY, THERE WOULD BE A GREATER LIABILIT Y TO TAX IN THE HANDS OF THE ASSESSEE COMPARED TO TAXING CAPITAL GAIN AS LON G TERM CAPITAL GAINS IN A.Y. 2001-02. THUS, ACCORDING TO HIM, BELIEF ENT ERTAINED BY THE ASSESSING OFFICER REGARDING ESCAPEMENT OF INCOME WA S REASONABLE BELIEF; AND THEREFORE, REASSESSMENT PROCEEDINGS HAS TO BE H ELD AS PROPER. 23. BEFORE US BOTH THE LEARNED COUNSEL FOR THE ASSE SSEE AND THE LEARNED D.R. HAVE RELIED ON THE DECISION OF MUMBAI BENCH OF THE ITAT IN THE CASE OF M.P. RAMACHANDRAN VS. DCIT, ITA NO. 587 /MUM/05. IN THE AFORESAID CASE, FACTS WERE THAT IN ASSESSMENT U/S. 143(3) FOR A.Y. 1997- 98 WAS COMPETED ON 25.2.2000. ON 3.11.2000, THERE W AS A SEARCH AND CONSEQUENT THERE TO, NOTICE U/S. 148 DATED 26.3.200 3 WAS ISSUED TO THE ASSESSEE. CONSEQUENT TO THE SEARCH, BLOCK ASSESSMEN T ORDER WAS FRAMED ON 30.11.2008 IN WHICH, SUM OF RS. 5.27 CRORES WAS HELD TO BE EXPENDITURE NOT RELATED TO THE BUSINESS OF THE ASSE SSEE AND CONSIDERED AS UNDISCLOSED INCOME FOR THE BLOCK PERIOD. IN THE REASSESSMENT PROCEEDINGS U/S. 148, VERY SAME AMOUNT WAS ADDED ON A PROTECTIVE BASIS. WHEN THE ASSESSING OFFICER MADE AFORESAID A DDITION IN THE REASSESSMENT PROCEEDINGS U/S. 148, HE NOTICED THAT THE ORDER OF THE ASSESSING OFFICER IN THE BLOCK ASSESSMENT MAKING TH E ADDITION HAS ALREADY DELETED BY LEARNED CIT(A). THE APPEAL OF TH E REVENUE BEFORE THE TRIBUNAL WAS PENDING. THE ASSESSING OFFICER WHILE M AKING ADDITION IN THE REASSESSMENT PROCEEDINGS U/S. 148 HAD OBSERVED THAT THE ADDITION WAS BEING MADE ON PROTECTIVE MEASURE. IT IS IN THE AFORESAID BACKGROUND OF FACT, QUESTION OF VALIDITY OF INITIATION OF REAS SESSMENT PROCEEDINGS HAD COME UP FOR CONSIDERATION BEFORE THE TRIBUNAL. SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 17 24. THE TRIBUNAL FIRSTLY EXPLAINED THE CONCEPT OF P ROTECTIVE ASSESSMENT, WHICH WAS JUDICIALLY RECOGNIZED IN THE CASE OF LALJI HARIDAS VS. ITO, 43 ITR 387 (SC). THE HON'BLE SUPREME COURT HELD THAT WHERE IT APPEARS TO THE IT AUTHORITIES THAT CERTAIN INCOME H AS BEEN RECEIVED DOING THE RELEVANT ASSESSMENT YEAR; BUT IT IS NOT CLEAR W HO HAS RECEIVED THAT INCOME AND PRIMA FACIE, IT APPEARS THAT INCOME MAY HAVE BEEN RECEIVED EITHER BY THE A OR B OR BY BOTH TOGETHER, IT WOULD BE OPEN TO THE RELEVANT IT AUTHORITY TO DETERMINE THE SAID QUESTION BY TAKI NG APPROPRIATE PROCEEDINGS BOTH AGAINST A AND B. THE SUPREME COURT , HOWEVER OBSERVED THAT IN THE PROCEEDINGS TAKEN AGAINST THE ONE OR THE OTHER, AN EXHAUSTIVE ENQUIRY SHOULD BE MADE AND THE QUESTION AS TO WHO IS LIABLE TO PAY THE TAX IN QUESTION SHOULD BE DETERMINED AFT ER HEARING OBJECTIONS AND THAT THE PROCEEDINGS AGAINST THE OTHER PERSON M AY ALSO CONTINUE AND BE CONCLUDED BUT UNTIL PROCEEDINGS AGAINST THE ONE HAS BEEN FINALLY DETERMINED, NO ASSESSMENT ORDER SHOULD BE PASSED. A FINAL DETERMINATION HAD THEREFORE TO BE MADE IN ONE OF TH E PROCEEDINGS. 25. THE TRIBUNAL THEREAFTER OPINED THAT A PROTECTIV E ASSESSMENT IS NOT CONFINED TO MAKING ASSESSMENT OF SAME INCOME IN THE HANDS OF TWO DIFFERENT PERSONS; BUT CAN ALSO BE MADE IN THE CASE OF INCOME OF ONE PERSON WHERE THE ASSESSING OFFICER IS UNCERTAIN AS TO THE YEAR IN WHICH THE INCOME HAD BEEN EARNED. THE TRIBUNAL THEREAFTE R HELD THAT PROTECTIVE ASSESSMENT CANNOT BE INDEPENDENT OF SUBS TANTIVE ASSESSMENT BUT ALWAYS HAS TO BE LATER IN PINT OF TIME TO THE S UBSTANTIVE ASSESSMENT. 26. KEEPING IN MIND THE PRINCIPLES AS EXPLAINED ABO VE, LET US SEE WHETHER THE ASSESSMENT FOR A.Y. 2001-02 CAN BE SAID TO BE A PROTECTIVE ASSESSMENT. WE HAVE ALREADY EXTRACTED THE ORDER OF THE ASSESSING OFFICER FOR A.Y. 2001-02 IN PARA-3 OF THIS ORDER. 27. THE GIST OF THE CONCLUSION OF THE AO IN ASSESSM ENT FOR AY 01-02 IS THAT HE REFERS TO THE ASSESSEES SUBMISSION REGARDI NG THE DATE OF TRANSFER BEING ON 12-4-2000 WHEN THE BROKER RAISED THE BILL DATED 12-4-2000 SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 18 AFTER SCHEDULED PAY-IN/PAY-OUT OF SECURITIES TO STO CK EXCHANGE WHICH WAS COMPLETED ONLY ON 12-4-2000. THE AO HAS ACCEPT ED THE ABOVE CLAIM OF THE ASSESSEE BUT EXPRESSED A DOUBT THAT THE TRAN SACTION COULD BE SAID TO BE COMPLETED ON 30-3-2000 AS PER THE CONTRACT NO TE OF THE BROKER BECAUSE THE SUBSEQUENT EVENTS LIKE DELIVERY OF SHAR E CERTIFICATE AND RECEIPT OF PAYMENT ARE ONLY FORMALITIES AND THEREFO RE WHEN THESE FORMALITIES ARE COMPLETED THE DATE OF SALE WOULD RE LATE BACK TO THE DATE OF THE BROKERS CONTRACT NOTE. THE AO WAS ALSO SATISFI ED ON LOOKING INTO THE LEDGER ACCOUNT OF THE ASSESSEES AS PER THE BOOKS OF THE BROKER THAT PAYMENT WAS MADE ONLY ON 12.4.2000. FINALLY THE AO TAXED THE CAPITAL GAIN AS A LONG TERM CAPITAL GAIN AS OFFERED BY THE ASSESSEE. THE AO MADE THE FOLLOWING OBSERVATIONS: AS THE ASSESSEE HAS ALREADY OFFERED THIS INCOME IN AY 01-02, THE SAME IS ASSESSED N THIS YEAR TO PROTECT THE INTERES T OF THE REVENUE WHETHER THE ABOVE OBSERVATIONS ARE ENOUGH TO CONCLU DE THAT THE ASSESSMENT OF THE CAPITAL GAIN AS LONG TERM CAPITAL GAIN IN AY 01-02 BY THE AO WAS ONLY A PROTECTIVE ASSESSMENT? WE HAVE ALREADY SEEN THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF LALJI HARIDAS (SUPRA) WHEREIN THE HONBLE SUPREME COURT WHILE REC OGNIZING THE CONCEPT OF PROTECTIVE ASSESSMENT HAS VERY CLEARLY L AID DOWN THAT THERE MUST BE AN EXHAUSTIVE ENQUIRY AND THE QUESTION AS T O WHO IS LIABLE TO PAY (IN THIS CASE WHICH YEAR THE CAPITAL GAIN IS TO BE ASSESSED AND WHETHER AS LONG TERM CAPITAL GAIN IN AY 01-02 OR SH ORT TERM CAPITAL GAIN IN AY 00-01) SHOULD BE DETERMINED AFTER HEARING OBJ ECTIONS. HE SHOULD DETERMINE THE QUESTION IN THE CASE OF ONE PERSON (I N THIS CASE IN ONE AY) AND THEN CONCLUDE THE PROCEEDINGS IN THE CASE OF TH E OTHER PERSON( IN THIS CASE IN OTHER YEAR) IN WHOSE CASE ASSESSMENT H AS TO BE MADE PROTECTIVELY. THUS PROTECTIVE ASSESSMENT HAS TO BE DONE ONLY AFTER SUBSTANTIVE ASSESSMENT IS DONE. AN ASSESSMENT CAN BE CONSIDERED AS PROTECTIVE ONLY WHEN THERE IS SUBSTANTIVE ASSESSMEN T. THUS SUBSTANTIVE ASSESSMENT HAS TO PRECEDE PROTECTIVE ASSESSMENT. SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 19 28. IN THE PRESENT CASE, WE ARE OF THE VIEW THAT TH E OBSERVATIONS OF THE AO WHILE COMPLETING ASSESSMENT FOR AY 01-02 WHICH W E HAVE EXTRACTED ABOVE CANNOT BE SAID TO BE AN EXPRESSION OF HIS INT ENTION TO MAKE A PROTECTIVE ASSESSMENT OF THE CAPITAL GAIN AS LONG T ERM CAPITAL GAIN. IT IS AN ASSESSMENT PURE AND SIMPLE. FIRSTLY, THE WORDS USED BY THE AO DO NOT EXPRESS HIS INTENTION THAT THE LONG TERM CAPITA L GAIN IS BEING BROUGHT TO TAX BY WAY OF PROTECTIVE ASSESSMENT. SECONDLY, THERE IS NO SUBSTANTIVE ASSESSMENT ALREADY MADE TREATING THE CAPITAL GAIN A S SHORT TERM CAPITAL GAIN. THEREFORE THERE CAN BE NO PROTECTIVE ASSESSM ENT. THIRDLY, THERE HAS BEEN A DEMAND (WITHOUT ANY LIMITATION THAT IT S HOULD NOT BEEN RECOVERED) RAISED PURSUANT TO THE ABOVE ASSESSMENT WHICH ALSO SHOWS THAT THE SAID ASSESSMENT IS NOT A PROTECTIVE ASSESS MENT. THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M.P .RAMACHANDRAN (SUPRA) CLEARLY APPLIES TO THE FACTS OF THE PRESENT CASE. THE TRIBUNAL IN THE AFORESAID CASE HELD AS FOLLOWS:- COMING BACK TO OUR POINT WE HAVE TO EXAMINE WHETHE R PROTECTIVE ASSESSMENT/ ADDITION IS POSSIBLE U/S 147 IN RESPEC T OF THE SAME PERSON AND FOR THE SAME PERIOD. WHEN A REGULAR ASS ESSMENT IS MADE AND LATER ON IT COMES TO THE NOTICE OF THE AO THAT SOME INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT, HE CAN RESORT TO THESE PROVISIONS FOR REASSESSMENT. BUT IF, AS IS THE CASE UNDER CONSIDERATION, AFTER THE PASSING OF THE REGULAR ASS ESSMENT ORDER, THE AO HAS PASSED A BLOCK ASSESSMENT ORDER U/S 158B C PURSUANT TO SEARCH AND SEIZURE PROCEEDINGS U/S 132 AND INCLU DED ONE INCOME IN THE BLOCK ASSESSMENT, IS HE EMPOWERED TO INCLUDE THE SAME INCOME, ON PROTECTIVE BASIS, IN THE REASSESSME NT OF THE ORIGINAL REGULAR ASSESSMENT FOR THE YEAR, WHICH IS INCLUDED IN THE BLOCK PERIOD ? BEFORE ANSWERING THIS QUESTION, IT WILL BE RELEVANT TO SEE THE EFFECT OF THE ANSWER IN POSITIVE OR NEGA TIVE. IF THE ANSWER IS GIVEN IN AFFIRMATIVE IT WILL MEAN THAT THE AO IS EMPOWERED TO INCLUDE IT IN THE REASSESSMENT ON THE PROTECTIVE BA SIS. THUS THERE WILL BE PRESUMPTION THAT THOUGH THE AO HAD INCLUDED SUCH INCOME IN THE BLOCK ASSESSMENT, BUT HE STILL HAS TH E REASON TO BELIEVE THAT THIS INCOME IS ALSO TAXABLE IN THE REG ULAR ASSESSMENT. THIS PRESUMPTION WILL BELIE THE CONCEPT OF REASSESS MENT WHICH IS ALWAYS THERE TO TAX AN INCOME WHICH IS CHARGEABLE T O TAX BUT HAS ESCAPED ASSESSMENT. IN ORDER TO GIVE A DIFFERENT CO LOUR, THE LD. DR CONTENDED THAT THIS DISALLOWANCE WAS MADE ON PROTEC TIVE BASIS ONLY AND HENCE CANNOT BE EQUATED WITH THE SUBSTANTI VE DISALLOWANCE. WE HAVE NOTED ABOVE ABOUT THE VALIDI TY AND SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 20 PRESUMPTION OF THE PROTECTIVE ASSESSMENT IN GENERAL . PROTECTIVE ASSESSMENT CANNOT BE INDEPENDENT OF SUBSTANTIVE ASS ESSMENT. THUS PROTECTIVE ASSESSMENT IS ALWAYS SUCCESSIVE TO THE SUBSTANTIVE ASSESSMENT. THERE MAY BE A SUBSTANTIVE ASSESSMENT WITHOUT ANY PROTECTIVE ASSESSMENT, BUT THERE CANNOT BE ANY PROTECTIVE ASSESSMENT WITHOUT THERE BEING A SUBSTAN TIVE ASSESSMENT. IN SIMPLE WORDS THERE HAS TO BE SOME SU BSTANTIVE ASSESSMENT/ADDITION FIRST WHICH ENABLES THE AO TO M AKE A PROTECTIVE ASSESSMENT/ADDITION. SUBSTANTIVE ADDITIO N/ASSESSMENT IS MADE IN THE HANDS OF THE PERSON IN WHOSE HANDS T HE AO PRIMA FACIE HOLDS THE OPINION THAT THE INCOME IS RIGHTLY TAXAB LE. HAVING DONE SO AND WITH A VIEW TO PROTECT THE INTEREST O F THE REVENUE, IF THE AO IS NOT SURE THAT THE PERSON IN WHOSE HANDS H E HAD MADE THE SUBSTANTIVE ADDITION RIGHTLY, HE EMBARKS UPON T HE PROTECTIVE ASSESSMENT. THUS THE PROTECTIVE ASSESSMENT IS BASIC ALLY BASED ON THE DOUBT OF THE AO AS DISTINCT FROM HIS BELIEF WHI CH IS THERE IS THE SUBSTANTIVE ASSESSMENT. OBVIOUSLY THERE IS NO PLA CE FOR `DOUBT IN THE SCHEME OF REASSESSMENT, AS IT HAS TO BE BELI EF OF THE AO ABOUT THE ESCAPEMENT OF INCOME, WHICH IS THE FOUNDA TION FOR ASSESSMENT OR REASSESSMENT U/S 147. EVEN IF FOR A MOMENT WE AGREE WITH THE LD. DR THAT THE PROTECTIVE ADDITION IS DIFFERENT FROM SUBSTANTIVE ADDITION AND HENCE THE REASSESSMENT PRO CEEDINGS BE UPHELD, WE FIND THAT ULTIMATELY THE SAME CONCLUSION WILL FOLLOW IF THE SUBSTANTIVE ADDITION IS STRUCK DOWN AT A PLACE WHERE IT WAS MADE. IN SUCH A SCENARIO THE PROTECTIVE ADDITION WI LL GET CONVERTED INTO SUBSTANTIVE ADDITION IN THE REASSESSMENT. THAT WILL ALSO RUN CONTRARY TO THE FORMAT OF REASSE SSMENT, BEING TO TAX AN INCOME WHICH HAS ESCAPED ASSESSMENT . IN THAT CASE AGAIN IT WILL TANTAMOUNT TO REOPENING ASSESSM ENT ON THE BASIS OF AN ITEM OF INCOME OR DISALLOWANCE, WHICH HAS ALREADY BEEN MADE IN BLOCK ASSESSMENT OF THE ASSESSEE, THER EBY LEAVING NO INCOME ESCAPING ASSESSMENT. UNDER THESE CIRCUMST ANCES WE ARE SATISFIED THAT HAVING MADE ADDITION OF RS.527.8 5 LAKHS IN THE BLOCK ASSESSMENT, THE ASSESSING OFFICER WAS NOT JUS TIFIED IN FORMING THE BELIEF, EITHER ON SUBSTANTIVE OR PROTE CTIVE BASIS, THAT THE SAME INCOME HAS ESCAPED ASSESSMENT IN THE INSTA NT YEAR. IN CIT VS. WIPRO FINANCE LTD. (SUPRA) THERE WAS SEARCH ACTION ON THE ASSESSEE. SOME INCOME WAS ASSESSED AS UNDISCLOSED I NCOME FOR THE BLOCK PERIOD. THE AO MADE ADDITION FOR THE SAME IN REGULAR ASSESSMENT ON PROTECTIVE BASIS. WHEN THE MATTER CA ME UP BEFORE THE HONBLE HIGH COURT, IT WAS HELD THAT THE SAME I NCOME WHICH WAS ASSESSED AS THE UNDISCLOSED INCOME FOR THE BLOC K PERIOD, COULD NOT HAVE BEEN ASSESSED EVEN ON PROTECTIVE BAS IS IN REGULAR ASSESSMENTS UNDER SECTION 143 FOR THOSE YEARS. IN THE INSTANT CASE WE ARE CONCERNED WITH THE REASSESSMENT, IN WHI CH THERE ARE MORE RESTRAINTS ON THE POWER OF THE AO. WE, THEREFO RE, HOLD THAT THE INITIATION OF REASSESSMENT PROCEEDINGS ON THIS COUNT CANNOT BE UPHELD. SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 21 29. IF THE ABOVE ASSESSMENT FOR AY 01-02 IS NOT A PROTECTIVE ASSESSMENT BUT ASSESSMENTS PURE AND SIMPLE, CAN THE AO ENTERTA IN A BELIEF THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT? T HE CONTENTION OF THE LEARNED D.R. ON THE ABOVE ASPECT WAS PLACING RE LIANCE ON THE WORDINGS OF EXPLN. 2( C)(II) TO SEC.147 OF THE ACT, WHICH LAYS DOWN THAT FOR THE PURPOSES OF SECTION 147, THE FOLLOWING SHALL AL SO BE DEEMED TO BE CASES WHERE INCOME CHARGEABLE TO TAX HAS ESCAPED AS SESSMENT, NAMELY WHERE AN ASSESSMENT HAS BEEN MADE, BUT SUCH INCOME HAS BEEN ASSESSED AT TOO LOW A RATE. ACCORDING TO THE LEARN ED D.R. SHORT TERM CAPITAL GAINS ARE TAXED AT HIGHER RATE COMPARED TO LONG TERM CAPITAL GAIN AND IF THE CAPITAL GAIN IS CONSIDERED AS HAVING RES ULTED IN THE HANDS OF THE ASSESSEE IN AY 00-01 IT WOULD BE SHORT TERM CAP ITAL GAIN SINCE THE SHARES WERE HELD BY THE ASSESSEE FOR LESS THAN A PE RIOD 12 MONTHS. THEREFORE ACCORDING TO THE LEARNED D.R. THERE WAS E SCAPEMENT OF INCOME AND THE BELIEF ENTERTAINED BY THE AO THAT THERE WAS ESCAPEMENT OF INCOME CANNOT BE FOUND FAULT WITH. 30. THE LAW ON THIS ASPECT IS VERY CLEAR. THE B ELIEF ENTERTAINED BY THE AO SHOULD BE THAT OF A HONEST AND REASONABLE PERSON BASED UPON REASONABLE GROUNDS. THE REASON TO BELIEVE SHOULD B E HELD IN GOOD FAITH AND SHOULD NOT BE A MERE PRETENCE. 31. IN THE PRESENT CASE, THE AO BROUGHT TO TAX THE CAPITAL GAIN AS A LTCG IN AY 01-02. THAT TREATMENT OF THE CAPITAL GA IN IN AY 01-02 STILL REMAINS. WE HAVE ALREADY HELD THAT SUCH ASSESSMENT IS NOT ON A PROTECTIVE BASIS BUT ON A SUBSTANTIVE BASIS. IN SU CH CIRCUMSTANCES HOW CAN THE AO ENTERTAIN BELIEF THAT THE CAPITAL GAIN I N QUESTION IS SHORT TERM CAPITAL GAIN. HIS BELIEF THAT CAPITAL GAIN HAS BEE N BROUGHT TO TAX AT TOO LOW A RATE CAN BE SAID TO BE HELD IN GOOD FAITH AND NOT AS A PRETENCE ONLY WHEN THE CONTRARY BELIEF OF THE AO IN THE FORM OF A N ASSESSMENT OF THE VERY SAME CAPITAL GAIN AS LONG TERM CAPITAL GAIN IN AY 01-02 DOES NOT EXIST. THEREFORE THERE CANNOT BE ANY BELIEF THAT C APITAL GAIN HAS BEEN ASSESSED AT TOO LOW A RATE. THE HONBLE ALLAHABAD H IGH COURT IN THE CASE SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 22 OF NARESH CHANDRA BHARGAVA VS. ITO 1974 TAX L R 7 ( ALL) HAS HELD THAT WHERE INCOME WHICH IS SOUGHT TO BE BROUGHT TO TAX B Y ISSUE OF NOTICE U/S.148 IS ALREADY ASSESSED IN ANOTHER ASSESSMENT Y EAR, THE ISSUE OF NOTICE U/S.148 IS NOT PERMISSIBLE. THE HONBLE BOMB AY HIGH COURT IN THE CASE OF CIT VS. H.N.SHINDORE 113 ITR 679(BOM) HAD A N OCCASION TO DEAL WITH SIMILAR ISSUE. THE FACTS IN THE AFORESAID CAS E WERE THAT IN 1950, THE CASE OF THE ASSESSEE WAS REFERRED TO THE INCOME-TAX INVESTIGATION COMMISSION. IN 1952, THE COMMISSION SUBMITTED ITS R EPORT AND, ON THE BASIS OF THE REPORT, REVISED ASSESSMENTS WERE MADE ON THE ASSESSEE IN RESPECT OF THE ASSESSMENT YEARS 1943-44 TO 1946-47. IN 1955, THE ASSESSEE FILED A PETITION IN THE SUPREME COURT CHAL LENGING THE VALIDITY OF THE TAXATION ON INCOME (INVESTIGATION COMMISSION) A CT, 1947, AND THE REVISED ASSESSMENTS. IN 1956, THE INCOME-TAX OFFICE R ISSUED NOTICES FOR REASSESSMENT UNDER SECTION 34(1A) OF THE INDIAN INC OME-TAX ACT, 1922, FOR THE ASSESSMENT YEARS 1943-44 TO 1946-47. THE SA ID NOTICE U/S.34(1A) FOR REASSESSMENT WERE CHALLENGED BY THE ASSESSEE. THE TRIBUNAL HELD ON THE FACTS THAT THE REASSESSMENT PROCEEDINGS HAD NOT BEEN VALIDLY INITIATED. ON A REFERENCE, THE HONBLE BOMBAY HIGH COURT HELD, THAT THE FACTS SHOWED THAT THE REVENUE HAD NOT TREATED THE R EVISED ASSESSMENTS OR THE RECOVERY PROCEEDINGS AS ILLEGAL. IT WAS, THE REFORE, IMPOSSIBLE FOR THE INCOME-TAX OFFICER TO HAVE ENTERTAINED A REASONABLE BELIEF THAT INCOME HAD ESCAPED ASSESSMENT WHEN HE ISSUED THE NOTICES U NDER SECTION 34(1A). THE INCOME-TAX OFFICER HAD NO JURISDICTION TO INITIATE THE REASSESSMENT PROCEEDINGS. THE HONBLE DELHI HIGH CO URT IN THE CASE OF CIT VS. R.DALMIA 135 ITR 346(DELHI) HAD AN OCCASION TO DEAL WITH IDENTICAL CASE. THE FACTS BEFORE THE HONBLE DELHI HIGH COURT WERE THAT IN ASSESSMENT YEAR 1960-61, THE ITO SOUGHT TO TAX I N THE HANDS OF THE ASSESSEE A SUM OF RS. 6,25,000 RECEIVED AS DIVIDEND . OF THIS AMOUNT, THE ASSESSEE HAD ALREADY DISCLOSED THE SUM OF RS. 3,12, 500 IN THE EARLIER ASSESSMENT YEAR 1959-60, AND HAD PAID TAX THEREON. THIS AMOUNT WAS SOUGHT TO BE TAXED ON THE BASIS THAT THE DECLARATIO N OF THE DIVIDEND WAS AT A GENERAL MEETING HELD DURING THE PREVIOUS YEAR RELEVANT TO THAT SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 23 ASSESSMENT YEAR. IT WAS CLAIMED THAT THE BALANCE OF RS. 3,12,500 BELONGED TO A THIRD PARTY AND THEREFORE NOT TAXABLE IN THE HANDS OF THE ASSESSEE. THE HONBLE COURT UPHELD THE ORDER OF TH E TRIBUNAL AND HELD THAT THE SUM OF RS. 3,12,500 ALREADY ASSESSED FOR T HE ASSESSMENT YEAR 1959-60, COULD NOT AGAIN BE ASSESSED FOR THE ASSESS MENT YEAR 1960-61, SINCE THE ORDERS OF THE INCOME-TAX AUTHORITIES FOR THE EARLIER YEAR HAD BECOME FINAL; THE TAXING OF THE SAME ITEMS OF INCOM E TWICE IN THE HANDS OF THE SAME PERSON FOR THE SAME PURPOSE WAS NOT PER MISSIBLE IN LAW. THOUGH THIS DECISION WAS NOT RENDERED IN THE CONTEX T OF VALIDITY OF INITIATION OF REASSESSMENT PROCEEDINGS, THE PRINCIP LE LAID DOWN THEREIN THAT THERE CANNOT BE TAXATION OF SAME INCOME TWICE CAN ONLY MEAN THAT THE BELIEF OF ESCAPEMENT OF INCOME CANNOT BE ENTERT AINED BY THE AO. 32. THE CONDITION PRECEDENT FOR VALID INITIATIO N OF REASSESSMENT PRESCRIBED IN SEC.147 ARE MEANT TO ENSURE THAT THER E IS FINALITY TO ASSESSMENTS AND TO ENSURE THAT THERE IS NO ARBITRAR Y EXERCISE OF POWER TO REOPEN A CONCLUDED ASSESSMENT. THEREFORE THE EXIST ENCE OF CONDITION PRECEDENT FOR RE OPENING HAVE TO BE SATISFIED BEFOR E THE AO CAN PROCEED TO ASSUME JURISDICTION TO PASS AN ORDER OF REASSESS MENT. WE ARE OF THE VIEW, THAT IN THE PRESENT CASE, THE CONDITION PRECE DENT FOR VALID INITIATION OF REASSESSMENT PROCEEDINGS HAVE NOT BEEN SATISFIED IN AS MUCH AS THE BELIEF THAT INCOME CHARGEABLE TO TAX HAS ESCAPED AS SESSMENT DOES NOT EXIST. IN THE CIRCUMSTANCES WE HOLD THAT INITIATIO N OF REASSESSMENT IS BAD IN LAW AND CONSEQUENTLY THE ORDER OF ASSESSMENT IS HELD TO BE BAD HENCE ANNULLED. 33. SINCE THE INITIATION OF REASSESSMENT IS HELD TO BE BAD IN LAW, THERE MAY NOT BE ANY NECESSITY TO DEAL WITH THE APPEAL ON MERITS. HOWEVER AS BOTH THE PARTIES HAVE MADE ELABORATE SUBMISSIONS BE FORE US ON MERITS, WE DEEM IT PROPER TO DECIDE THE CASE ON MERITS ALSO . THE GROUNDS OF APPEAL OF THE ASSESSEE WHICH IS COMMON IN BOTH THE APPEALS WHICH RELATE TO THE MERITS OF THE CASE ARE CONTAINED IN GR.NO.1 WHICH READS AS FOLLOWS: SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 24 1(I) THE LEARNED CIT(A) GROSSLY ERRED IN ADDING A S UM OF RS. 5,33,85,030/- AS SHORT TERM CAPITAL GAINS AS AGAINS T THE SAME BEING OFFERED TO TAX AS LONG TERM CAPITAL GAIN S BY THE APPELLANT IN A.Y. 2001-02. (II) HE GROSSLY ERRED IN NOT FOLLOWING THE CIRCULAR NO. 704 WHEREIN THE DATE OF BROKER NOTE/BILL IS TO BE TREAT ED AS DATE OF TRANSFER PROVIDED SUCH TRANSACTION IS FOLLOWED B Y DELIVERY. 34. ADDITIONAL GROUND NO.2 AND 3 ALSO ARE AN AMPLIF ICATION OF GROUND NO.1 AND THEY ARE ADMITTED FOR ADJUDICATION. THEY READ AS FOLLOWS: 3) THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE CA PITAL GAINS ARISING ON : A) SALE OF 63,000 SHARES HAS BEEN ASSESSED FOR A.Y. 2001-02 ON THE BASIS OF THE BROKERS BILL DATED 8.4.2000/ACTUAL DELIVERY (THE CONTRACT NOTE BEING DATED 24.3.2000) B) IN PREVIOUSLY AS WELL AS SUBSEQUENT YEARS HAVE BEEN MADE ON THE BASIS OF THE BROKERS BILL/ACTUAL DELIVE RY. C) SALE OF 20,000 SHARES OUT OF THE TOTAL TRANSACTION OF 57,000/- SHARES WAS ASSESSED FOR A.Y. 2001-02 ON THE BASIS OF THE BROKERS BILL/ACTUAL DELIVERY OF S HARES (THE CONTRACT NOTE BEING DATED 30.3.2000) BUT THE CAPITAL GAIN ON THE SALE OF THE 37,000 SHARES IMPUGNED IN THE PRESENT APPEAL AND FORM PART OF THE TRANSACTION OF 57,000/- SHARES HAS BEEN ASSESSED FO R THE A.Y. 2000-01 EVEN THOUGH THE SAME STOOD AND STANDS ASSESSED FOR A.Y. 2001-02. 4) THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE AC TUAL SALE TOOK PLACE AT THE RATE OF ON THE BROKERS BILL AND N OT AS PER THE RATE ON THE CONTRACT NOTE. 35. ON MERITS THE ISSUE THAT HAS TO BE DECIDED IS A S TO WHAT IS THE POINT OF TIME AT WHICH THE TRANSFER BY WAY OF SALE OF SHARES BY THE ASSESSEES IS COMPLETE. WHETHER THE TRANSFER IS COM PLETE ON THE DATE WHEN THE CONTRACT NOTE IS MADE? OR ON THE DATE ON WHICH THE SHARE CERTIFICATES TOGETHE R WITH THE TRANSFER DEEDS ARE DELIVERED BY THE SELLER TO THE PURCHASER AND THE PAYMENT IS RECEIVED BY THE SELLER? SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 25 36. BEFORE US IN THE CASE BOTH THE ASSESSEES AN APP LICATION FOR ADMITTING ADDITIONAL EVIDENCE HAS BEEN FILED. THE ADDITIONAL EVIDENCE IS MAINLY TO SUPPORT THE PLEA OF THE ASSESSEE AS PROJE CTED IN ADDITIONAL GROUND NO.2 AND 3. IT IS THE PLEA OF THE ASSESSEES IN THE APPLICATION FOR ADMISSION OF ADDITIONAL EVIDENCE THAT THE AO WHILE FRAMING ASSESSMENTS IN THE CASE OF BOTH THE ASSESSEES FOR SUBSEQUENT YE ARS HAS ACCEPTED THE DATE OF TRANSFER OF SHARES AS THE DATE ON WHICH THE BROKER RAISING A BILL AFTER COMPLETION OF ALL FORMALITIES LIKE DELIVERY O F SECURITIES ETC., AND NOT THE DATE OF THE BROKERS NOTE. THE ASSESSEES THEREF ORE WANT TO RELY ON THE ORDER OF ASSESSMENT IN THE CASE OF ASSESSEES FOR S UBSEQUENT A.Y. IN THE CASE OF VIMLA S.JAJOO, THE DOCUMENTS SOUGHT TO BE F ILED ARE SUMMARY OF TRANSACTION OF SALE OF SHARES FOR AY 01-02, 02-03 A ND 03-04 INCLUDING THE DETAILS OF THE RELEVANT BROKERS BILLS, THE ORDER OF ASSESSMENT U/S.143(3) FOR AY 01-02 AND 03-04, INTIMATION U/S.143(1) FOR A Y 02-03 AND ORDER OF THE TRIBUNAL IN AY 02-03 QUASHING THE ORDER OF CIT U/S.263 OF THE ACT. IN THE CASE OF SURESH K.JAJOO THE DOCUMENTS SOUGHT TO BE FILED ARE SUMMARY OF TRANSACTION OF SALE OF SHARES FOR AY 01- 02, 02-03 AND 03-04 INCLUDING THE DETAILS OF THE RELEVANT BROKERS BILLS , THE ORDER OF ASSESSMENT U/S.143(3) FOR AY 01-02 AND 03-04, ORDER OF ASSESSMENT U/S143(3) READ WITH SEC.147 FOR AY 02-03 AND ORDER OF THE TRIBUNAL IN AY 02-03 AND 03-04 QUASHING THE ORDER OF CIT U/S.26 3 OF THE ACT. IT WAS SUBMITTED THAT THE DOCUMENTS SOUGHT TO BE FILED AS ADDITIONAL EVIDENCE ARE ALREADY ON RECORD OF THE AO IN THE EARLIER AND SUBSEQUENT YEARS AND THEIR AUTHENTICITY CANNOT BE DOUBTED. IT WAS ALSO SUBMITTED THAT THESE DOCUMENTS SURFACED MUCH EARLIER TO THE DISPUTE IN T HE PRESENT APPEALS AND THEREFORE THERE CANNOT BE ANY PREJUDICE TO THE REVENUE NOR CAN BE THERE BE ANY OBJECTION TO THEIR ADMISSIBILITY. RELY ING ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG VS. CIT 193 ITR 321(SC), IT WAS ARGUED ON BEHALF OF THE ASS ESSEE THAT WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE DIFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND P ARTIES HAVE ALLOWED SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 26 THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING TH E ORDER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE C HANGED IN A SUBSEQUENT YEAR. WE WILL DEAL WITH THE ADMISSIBILITY AS WELL A S THE RELEVANCY OF THESE DOCUMENTS LATER, IF NECESSITY ARISES. AT PRESENT W E WILL DEAL WITH THE APPEAL ON MERITS DE HORS THE ADDITIONAL EVIDENCE. 37. WE SHALL NOW RECAPITULATE THE FACTS IN THE CASE OF BOTH THE ASSESSEES. IN THE CASE OF MRS.VIMLA JAJOO, SHE PUR CHASED 1,00,000 SHARES OF DSQ SOFTWARE LTD. (HEREINAFTER REFERRED T O AS DSQ) ON 9.04.1999 ON SPOT BASIS. WHEN SHARES ARE PURCHASED ON SPOT BASIS THE TRANSACTION IS SETTLED ON THE VERY SAME DAY OR WITH IN NEXT TWO DAYS. THE BROKERS CONTRACT NOTE EVIDENCING PURCHASE IS AT PAG E-1 OF ASSESSEES PAPER BOOK. IT IS DATED 9.4.1999. THE BROKERS BILL REGARDING THE ABOVE PURCHASE IS AT PAGE-3 OF THE ASSESSEES PAPER BOOK. OUT OF THE ABOVE THE ASSESSEE SOLD 57,000 SHARES. THE BROKERS CONTRACT NOTE REGARDING THE SALE IS AT PAGE-2 OF THE ASSESSEES PAPER BOOK. IT IS DATED 30-3-2000. IT REFERS TO THE FACT THAT THE CONTRACT IS A FORWARD C ONTRACT. IT REFERS TO THE SETTLEMENT PERIOD FROM 23-3-2000 TO 30-3-2000. THE PRICE AT WHICH THE SHARES WERE TO BE SOLD WAS RS.1778.48 PS. PER SHARE . IN A FORWARD CONTRACT THE PERSON ENTERING INTO A CONTRACT IN SPECIFIED SHARES IN A SETTLEMENT CYCLE OF SEVEN DAYS HAS THE OPTION OF CA RRYING FORWARD HIS TRANSACTION TO THE NEXT SETTLEMENT CYCLE. HE ALSO HAS AN OPTION OF OFFSETTING THE TRANSACTION BY AN OPPOSITE TRANSACTI ON IN THE SAME SETTLEMENT. THE ASSESSEE CARRIED FORWARD THIS TRAN SACTION OF SALE OF SHARES. THE BROKER RAISED A BILL DATED 8-4-2000 IN WHICH THE TRANSACTION OF SALE OF SHARES AT RS.1778.48 PS. IS REFLECTED AN D A CORRESPONDING PURCHASE OF SHARES OF THE SAME QUANTITY OF 57,000 S HARES FOR RS.1782.30 PS. IS SHOWN AS CARRIED FORWARD. THUS THE TRANSAC TION WAS CARRIED FORWARD TO BE SETTLED IN THE NEXT SETTLEMENT PERIOD 30-3-2000 TO 6-4-2000 AT A PRICE OF RS.1782.30 PS. WHICH IS HIGHER THAN T HE PRICE AT WHICH THE SHARES WERE TO BE SOLD IN THE BROKERS CONTRACT NOTE DATED 30-3-2000. THERE IS ANOTHER BILL OF THE BROKER DATED 12-4-2000 WHICH EVIDENCES THE FACT THAT ULTIMATELY 57000 SHARES WERE SOLD AT RS.1 782.30 PS. THE BILL SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 27 REFERS TO DATE OF SALE AS 30-3-2000 FOLLOWED BY THE WORD D. THIS DOES NOT MEAN THAT THERE WAS DELIVERY OF SHARES ON 30-3- 2000. THE TRANSACTION BEING A FORWARD TRANSACTION THERE CANNO T BE DELIVERY ON 30-3- 2000. THE DATE OF ACTUAL DELIVERY OF SHARES WAS 1 1-4-2000 AND THE DATE OF PAYMENT IS 12-4-2000 AS PER THE FINDING OF THE C IT(A). IN THE ORDER OF ASSESSMENT FOR AY 01-02, THE AO HAS OBSERVED THAT T HE TRANSACTION COULD BE SAID TO BE COMPLETED ON 30-3-2000 AS PER THE CON TRACT NOTE OF THE BROKER BECAUSE THE SUBSEQUENT EVENTS LIKE DELIVERY OF SHARE CERTIFICATE AND RECEIPT OF PAYMENT ARE ONLY FORMALITIES AND THE REFORE WHEN THESE FORMALITIES ARE COMPLETED THE DATE OF SALE WOULD RE LATE BACK TO THE DATE OF THE BROKERS CONTRACT NOTE. THE AO WAS ALSO SATISFI ED ON LOOKING INTO THE LEDGER ACCOUNT OF THE ASSESSEES AS PER THE BOOKS OF THE BROKER THAT PAYMENT WAS MADE ONLY ON 12.4.2000. THE ABOVE FACT S ARE ACCEPTED BY THE AO EVEN IN THE ASSESSMENT ORDER FOR AY 00-01 WH ICH IS SUBJECT MATTER OF THE PRESENT APPEAL. 38. IN THE CASE OF SURESH JAJOO HE PURCHASED 1,50, 000 SHARES AND 50,000 SHARES OF DSQ SOFTWARE LTD. (HEREINAFTER REF ERRED TO AS DSQ) ON 5.04.1999 AND 7.4.1999 ON SPOT BASIS. WHEN SHARES ARE PURCHASED ON SPOT BASIS THE TRANSACTION IS SETTLED ON THE VERY S AME DAY OR WITHIN NEXT TWO DAYS. THE BROKERS CONTRACT NOTE EVIDENCING PUR CHASE IS AT PAGE-1 AND 2 OF ASSESSEES PAPER BOOK. IT IS DATED 5.4.199 9 AND 7.4.1999 RESPECTIVELY. THE CORRESPONDING BROKERS BILL REGARD ING THE ABOVE PURCHASE IS AT PAGE-4 AND 5 OF THE ASSESSEES PAPER BOOK. THE ASSESSEE SOLD ALL THE ABOVE SHARES. THE BROKERS CONTRACT NO TE REGARDING THE SALE IS AT PAGE-2 OF THE ASSESSEES PAPER BOOK. IT IS DATE D 24-3-2000. IT REFERS TO THE FACT THAT THE CONTRACT IS A FORWARD CONTRACT . IT REFERS TO THE SETTLEMENT PERIOD FROM 23-3-2000 TO 30-3-2000. THE BROKERS BILL REGARDING THE ABOVE SALE IS DATED 8.04.2000. THE B ILL REFERS TO DATE OF SALE AS 24-3-2000 FOLLOWED BY THE WORD D. THIS D OES NOT MEAN THAT THERE WAS DELIVERY OF SHARES ON 24-3-2000. THE TRA NSACTION BEING A FORWARD TRANSACTION THERE CANNOT BE DELIVERY ON 24- 3-2000. THE DATE OF DELIVERY AND DATE OF PAY OUT WAS 8.4.2000 AS PER TH E FINDINGS OF THE SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 28 CIT(A). IN THE ORDER OF ASSESSMENT FOR AY 01-02, TH E AO HAS OBSERVED THAT THE TRANSACTION COULD BE SAID TO BE COMPLETED ON 24-3-2000 AS PER THE CONTRACT NOTE OF THE BROKER BECAUSE THE SUBSEQU ENT EVENTS LIKE DELIVERY OF SHARE CERTIFICATE AND RECEIPT OF PAYMEN T ARE ONLY FORMALITIES AND THEREFORE WHEN THESE FORMALITIES ARE COMPLETED THE DATE OF SALE WOULD RELATE BACK TO THE DATE OF THE BROKERS CONTRA CT NOTE. THE AO WAS ALSO SATISFIED ON LOOKING INTO THE LEDGER ACCOUNT O F THE ASSESSEES AS PER THE BOOKS OF THE BROKER THAT PAYMENT WAS MADE ONLY ON 8.4.2000. THE ABOVE FACTS ARE ACCEPTED BY THE AO EVEN IN THE ASSE SSMENT ORDER FOR AY 00-01 WHICH IS SUBJECT MATTER OF THE PRESENT APPEAL . 39. IN THE ORDER OF ASSESSMENT FOR THE A.Y.2000-01 IN THE CASE OF BOTH THE ASSESSEES, THE AO HAS COME TO THE CONCLUSION TH AT THE BROKERS NOTE IS THE DATE ON WHICH THE SALE OF SHARES TAKES PLACE . IN COMING TO THE ABOVE CONCLUSION, THE AO HAS PLACED RELIANCE ON CIR CULAR NO.704 OF CBDT DATED 28-4-1995. THE PROVISIONS OF THE ACT DR AW A DISTINCTION BETWEEN A SHORT-TERM CAPITAL GAIN AND LONG-TERM CAP ITAL GAINS AND ACCORD DIFFERENT TREATMENT FOR THE PURPOSE OF LEVY OF TAX ON SUCH GAIN. THE ISSUE WHETHER A PARTICULAR ASSET IS A LONG-TERM ASSET OR SHORT-TERM ASSET DEPENDS ON THE PERIOD OF HOLDING OF THE CAPITAL ASS ET BY THE ASSESSEE. IN THE CASE OF 'TRANSFER OF SHARES', THERE WAS CONFUSI ON AS WHAT SHOULD BE CONSIDERED AS DATE OF PURCHASE AND DATE OF SALE FOR THE PURPOSE OF ASCERTAINING WHETHER THE CAPITAL ASSET WAS A SHORT- TERM CAPITAL ASSET OR LONG-TERM ASSET. THEREFORE, CBDT ISSUED CLARIFICATI ON VIDE CIRCULAR NO. 704, DATED 28-4-1995 WHERE IT WAS MENTIONED THAT WH EN SHARES ARE TRANS-ACTED THROUGH STOCK EXCHANGES, IT IS THE ESTA BLISHED PROCEDURE THAT THE BROKERS FIRST ENTER INTO CONTRACTS FOR PURCHASE /SALE OF SECURITIES AND THEREAFTER, FOLLOW IT UP WITH DELIVERY OF SHARES, A CCOMPANIED BY TRANSFER DEEDS DULY SIGNED BY THE REGISTERED HOLDERS. THE SE LLER IS ENTITLED TO RECEIVE THE CONSIDERATION AGREED TO AS ON THE DATE OF CONTRACT. IN SUCH CASES, IT WAS CLARIFIED THAT THE DATE OF TRANSFER O F SHARES SHOULD BE THE DATE OF BROKER'S NOTE PROVIDED SUCH TRANSACTIONS WE RE FOLLOWED UP BY DELIVERY OF SHARES AND ALSO THE TRANSFER DEEDS. THE BOARD FURTHER CLARIFIED SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 29 THAT IN RESPECT OF THE TRANSACTIONS OF SHARES DIREC TLY BETWEEN THE PARTIES AND NOT THROUGH STOCK EXCHANGE, DATE OF CONTRACT OF SALE AS DECLARED BY THE PARTIES SHALL BE TREATED AS THE DATE OF TRANSFE R PROVIDED IT IS FOLLOWED UP BY ACTUAL DELIVERY OF SHARES AND THE TRANSFER DE EDS. 40. THE CIT(A)S SPECIFIC FINDINGS IN THE CASE OF M RS.VIMALA JAJOO WAS THAT THE DATE OF ACTUAL DELIVERY OF SHARES WAS ON 11-4-2000 AND THE DATE OF PAYMENT WAS 12-4-2000. IN THE CASE OF SURESH JA JOO, THE DATE OF ACTUAL DELIVERY OF SHARES AND DATE OF PAY OUT WAS 8 -4-2000. THE CIT(A) RELIED ON THE DECISION OF THE ITAT AMRITSAR BENCH I N THE CASE OF MAX TELECOM VENTURES VS. ACIT 301 ITR (AT) 90 (AMR.) WH ICH DECISION WAS BASED ON THE CBDT CIRCULAR NO. 704 DATED 28.4.1995 ALREADY REFERRED TO BY US IN THE EARLIER PART OF THIS ORDER. THE CIT(A ) ALSO HELD IN THE CASE OF VIMLA JAJOO THAT THE CONTRACT OF SALE WAS ON 30.3.2 000 AND PAYMENT HAS BEEN RECEIVED AS PER THE RATES PREVAILING ON 30.3.2 000 AND NOT AS PER RATES PREVAILING ON 11.4.2000 DATE OF ACTUAL DELIVE RY OR 12.4.2000 AS PER THE DATE OF PAYMENT. THEREFORE DATE OF SALE HAS TO BE TAKEN AS PER CONTRACT NOTE AND THE DATE OF SALE OF SHARES WAS 24 .3.2000. THE CIT(A) ALSO HELD IN THE CASE OF SURESH JAJOO THAT THE CONT RACT OF SALE WAS ON 24.3.2000 AND PAYMENT HAS BEEN RECEIVED AS PER THE RATES PREVAILING ON 24.3.2000 AND NOT AS PER RATES PREVAILING ON 8.4.20 00 DATE OF ACTUAL DELIVERY AND THE DATE OF PAYMENT. THEREFORE DATE O F SALE HAS TO BE TAKEN AS PER CONTRACT NOTE AND THE DATE OF SALE OF SHARES WAS 24.3.2000. 41. CONSEQUENT TO THE ABOVE CONCLUSIONS, THE CAPITA L GAIN ON SALE OF SHARES WAS HELD TO BE SHORT TERM CAPITAL GAIN AND B ROUGHT TO TAX ACCORDINGLY. AGGRIEVED BY THE ORDERS OF THE CIT(A) , THE ASSESSEE HAS RAISED THE AFORESAID GROUNDS OF APPEAL BEFORE THE T RIBUNAL. 42. THE SUBMISSION OF THE LEARNED COUNSEL FOR THE A SSESSEE WAS THAT U/S.45 PROFIT OR GAINS ARISING FROM THE TRANSFER OF A CAPITAL ASSET EFFECTED IN THE PREVIOUS YEAR SHALL BE CHARGEABLE TO INCOME TAX UNDER THE HEAD CAPITAL GAINS AND SHALL BE DEEMED TO BE INCOME OF T HE PREVIOUS YEAR IN SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 30 WHICH THE TRANSFER TOOK PLACE. SEC. 2(47) DEFINES TRANSFER AND AMONG OTHER THINGS ALSO INCLUDES TRANSFER BY WAY OF SALE. THE MODE OF TRANSFER APPLICABLE IN THE CASE OF THE ASSESSEE IS SALE. IT WAS SUBMITTED BY HIM THAT SHARES ARE GOODS WITHIN THE MEANING OF THE S ALE OF GOODS ACT, 1930(SGA) AND THEREFORE THE PROVISIONS CONTAINED TH EREIN AS TO THE POINT OF TIME WHEN TRANSFER TAKES PLACE WOULD BE RELEVANT . HE REFERRED TO THE PROVISIONS OF SEC.4 OF THE SGA AND SUBMITTED THAT T HERE IS A DIFFERENCE BETWEEN SALE AND AN AGREEMENT FOR SALE. ACCORDING TO HIM THE BROKERS NOTE IS ONLY AN AGREEMENT FOR SALE. THE CONDITION A TTACHED TO THE AGREEMENT FOR SALE S THAT THERE WILL BE DELIVERY OF SHARE CERTIFICATES TOGETHER WITH INSTRUMENT OF TRANSFER IN FAVOUR OF T HE TRANSFEREE. THE FURTHER CONDITION IS THAT ON RECEIPT OF THE SHARE C ERTIFICATE AND INSTRUMENT OF TRANSFER DULY SIGNED, THE SALE CONSID ERATION HAS TO BE PAID. IT WAS THEREFORE CONTENDED THAT SALE IS COMPLETE IN THE CASE OF SALE THROUGH BROKERS ONLY WHEN THERE IS DELIVERY OF SHAR ES TOGETHER WITH THE INSTRUMENT OF TRANSFER DULY SIGNED AND CONSIDERATIO N FOR SALE IS RECEIVED. 43. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE FOLLOWING DECISIONS IN SUPPORT OF HIS CONTENTION THAT SALE OF SHARES IS COMPLETE ONLY WHEN THERE IS DELIVERY OF SHARE CERTIFICATE TOGETHE R WITH INSTRUMENT OF TRANSFER DULY SIGNED BY THE TRANSFEROR. CIT VS. M. RAMASWAMY 151 ITR 122 (MADRAS) RAJAGIRI RUBBER AND PRODUCE CO. LTD. V S. CIT 203 ITR 663(KER) AND VASUDEV RAMCHANDRA SHELAT V. PRANLAL J AYANAND THAKAR [1975] 45 COMP CAS 43 (SC). THE LEARNED COUNSEL FO R THE ASSESSEE DREW OUT ATTENTION TO THE DATE OF DELIVERY AND DATE OF P AYMENT IN THE CASE OF BOTH THE ASSESSEES WHICH IN THE CASE OF MRS.VIMALA JAJOO ON 11-4-2000 AND 12-4-2000 RESPECTIVELY. IN THE CASE OF SURESH JAJOO, THE DATE OF ACTUAL DELIVERY OF SHARES AND DATE OF PAY OUT WAS 8 -4-2000. IT WAS HIS SUBMISSION THAT IN THE CASE OF BOTH THE ASSESSEE TH E DATE OF TRANSFER BY WAY OF SALE WAS BEYOND A PERIOD OF 12 MONTHS FROM T HE DATE OF PURCHASE WHICH WAS 9.4.1999 IN THE CASE OF VIMLA JAJOO AND 5 .4.99 AND 7-4-99 RESPECTIVELY IN THE CASE OF SURESH JAJOO. THUS THE CAPITAL GAIN IN THE CASE OF BOTH THE ASSESSEES WAS LONG TERM CAPITAL GA IN. SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 31 44. ON THE RELIANCE PLACED BY THE REVENUE AUTHORITI ES ON CIRCULAR NO.704 OF CBDT DATED 28.4.1995, THE LEARNED COUNSEL SUBMITTED THAT CIRCULAR OF CBDT IS CONTRARY TO THE PROVISIONS OF L AW REGARDING WHEN SALE CAN BE SAID TO HAVE TAKEN PLACE. TO THAT EXTENT TH EY ARE BAD. IT WAS SUBMITTED THAT CIRCULARS CONTRARY TO LAW ARE NOT BI NDING. IT WAS ALSO SUBMITTED BY HIM THAT THE CIRCULAR TO THE EXTENT IT TONES DOWN THE RIGOR OF THE LAW TO PROVIDE RELIEF TO THE ASSESSEE ARE BI NDING ON THE REVENUE AUTHORITIES. ACCORDING TO HIM IN CASES WHERE IT SU ITS AN ASSESSEE TO CLAIM THAT DATEOF BROKERS CONTRACT NOTE IS THE DATE OF TRANSFER, THE REVENUE HAS TO ACCEPT SUCH A CLAIM. OTHERWISE, THE AO IS BOUND TO ACCEPT THE DATE OF TRANSFER IN ACCORDANCE WITH LAW WHICH IS THE SGA IN THE PRESENT CASE. IN THIS REGARD RELIANCE WAS PLACE D BY HIM ON THE FOLLOWING DECISIONS HIDUSTAN AERONAUTICS LTD. VS. C IT 243 ITR 808(SC) AND TISCO VS. N.C.UPADYAYA & ANOTHER 96 ITR 1 (SC). 45. ON THE RELIANCE PLACED BY THE REVENUE AUTHORITI ES ON THE DECISION OF THE AMRITSAR BENCH OF ITAT IN THE CASE OF MAX TE LECOM VENTURES VS. ACIT 301 ITR (AT) 90 (AMR.), THE LEARNED COUNSEL BR OUGHT TO OUR NOTICE THE DECISION OF THE ITAT MUMBAI BENCH IN THE CASE O F MRS. HAMI ASPI BALSARA (TAXPAYER) V ACIT. [2009-TIOL-789-ITAT-MUM] , WHEREIN THE DECISION OF THE AMRITSAR BENCH IN THE CASE OF MAX TELECOM VENTURES VS. ACIT 301 ITR (AT) 90 (AMR.) WAS DISTINGUISHED AND H ELD TO BE NOT GOOD LAW. 46. OUR ATTENTION WAS ALSO DRAWN TO THE MANUAL ON T HE WORKING OF THE STOCK EXCHANGE, MUMBAI TO HIGHLIGHT THE MODE OF EFF ECTING DELIVERY AFTER SALE IN A SETTLEMENT PERIOD AND THE MANNER IN WHICH THE BUYER OF SHARES PAYS-IN THE MONEY AND HOW THE SELLER OF THE SHARES IS PAID-OUT THE MONEY. 47. REFERENCE WAS ALSO MADE TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF THE INSTALLMENT SUPPLY LTD. VS . STO 1974(4) SCC SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 32 739, WHICH EXPLAINS THE DIFFERENCE BETWEEN SALE AND AN AGREEMENT FOR SALE AND THE POINT OF TIME WHEN SALE IS COMPLETE IN A HIRE PURCHASE TRANSACTION. 48. PER CONTRA, THE LEARNED D.R. SUBMITTED THAT BRO KERS NOTE IS SALE NOT AGREEMENT FOR SALE. ACCORDING TO HIM BROKERS NO TE EVIDENCES PURCHASE OR SALE OF SHARES AS THE CASE MAY BE. IT I S A LEGALLY ENFORCEABLE DOCUMENT. IT WAS SUBMITTED BY HIM THAT AN INVESTOR CANNOT DIRECTLY TRANSACT IN A STOCK EXCHANGE AND HAS TO TRANSACT ON LY THROUGH A BROKER WHO IS A MEMBER OF THE STOCK EXCHANGE. IT WAS FURT HER SUBMITTED BY HIM THAT BEFORE A BROKER TRANSACTS ON BEHALF OF A CLIEN T HE HAS TO ENTER INTO A CLIENT BROKER AGREEMENT AS PER THE NORMS PRESCRIBED IN THE SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI). ACCORDING TO H IM, WHEN AN INVESTOR PLACES AN ORDER FOR SALE OF SECURITIES AND WHEN THE BROKER SELLS IT ON BEHALF OF THE CLIENT AND ISSUES A BROKERS NOTE, WHI CH IS A DOCUMENT ISSUED BY THE BROKER IMMEDIATELY ON CONCLUSION OF T HE SALE BY HIM ON BEHALF OF HIS CLIENT, SALE IS COMPLETE. ACCORDING TO HIM SALE IS COMPLETE WHEN THE BROKER ISSUES CONTRACT NOTE OR BROKERS CON TRACT NOTE. HE PLACED STRONG RELIANCE ON THE PROVISIONS OF SGA. S EC.19 LAYS DOWN THE GENERAL RULE THAT THERE IS TRANSFER OF OWNERSHIP IN GOODS IN A CONTRACT OF SALE AT THE POINT OF TIME AS THE PARTIES TO THE CON TRACT INTEND AS PER THE AGREEMENT BETWEEN THE PARTIES. SUCH INTENTION OF TH E PARTIES SHALL BE GATHERED FROM THE TERMS OF THE CONTRACT, THE CONDUC T OF THE PARTIES AND CIRCUMSTANCES OF THE CASE. UNLESS A DIFFERENT INTE NTION APPEAS RULES CONTAINED IN SEC.20 TO 24 ARE TO BE APPLIED FOR ASC ERTAINING THE INTENTION OF THE PARTIES REGARDING THE TIME OF PASSING OF OWN ERSHIP IN GOODS. THE LEARNED D.R. PLACED STRONG RELIANCE ON SEC.20 O F SGA WHICH LAYS DOWN THAT IN AN UNCONDITIONAL CONTRACT FOR SALE OF SPECIFIC GOODS IN A DELIVERABLE STATE, THE PROPERTY IN THE GOODS PASSES TO THE BUYER WHEN THE CONTRACT IS MADE, AND IT IS IMMATERIAL WHETHER THE TIME OF PAYMENT OF THE PRICE OR THE TIME OF DELIVERY OF THE GOODS, OR BOTH , IS POSTPONED. ACCORDING TO HIM SHARES ARE SPECIFIC GOODS IN A DEL IVERABLE STATE AND THEREFORE PROPERTY IN GOODS PASSED TO THE BUYER WHE N THE CONTRACT IS SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 33 MADE WHEN THE SELLER PLACES ORDER FOR SALE AND THE SAME IS EXECUTED BY THE BROKER BY ACTUALLY SELLING IT. THEREFORE THE S ALE IS COMPLETED WHEN THE BROKER ISSUES BROKERS NOTE. FURTHER RELIANCE W AS PLACED BY HIM ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF GURBAX SINGH VS. KARTAR SINGH & OTHERS 254 ITR 112 (SC) WHEREIN IT WAS HELD THAT IN VIEW OF THE PROVISIONS OF SECTION 47 OF THE REGISTR ATION ACT, 1908, A DOCUMENT ON SUBSEQUENT REGISTRATION WILL TAKE EFFEC T FROM THE TIME WHEN IT WAS EXECUTED AND NOT FROM THE TIME OF REGISTRATI ON. HE PLACED STRONG RELIANCE ON THE DECISION OF THE DECISION OF THE ITA T AMRITSAR BENCH IN THE CASE OF MAX TELECOM VENTURES LTD.(SUPRA). HE THUS SUBMITTED THAT THE DECISIONS OF THE CIT(A) HAS TO BE UPHELD. 49. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED IN REJOIND ER THAT TRANSFER OF OWNERSHIP IN GOODS IS NECESSARY TO CONC LUDE THAT THERE WAS A SALE AND IN THIS REGARD RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ALAPATHI VENKATRAM AIAHA VS. CIT 57 ITR 185 (SC) WHEREIN IT WAS HELD THAT BEFORE C APITAL GAIN COULD BE BROUGHT TO TAX TITLE MUST PASS BY ANY OF T HE MODES VIZ., SALE, EXCHANGE OR TRANSFER. IN THE CONTEXT 'TRANSFER' MEANS EFFECTIVE CONVEYANCE OF THE CAPITAL ASSET TO THE TRANSFEREE. 50. WE HAVE HEARD THE RIVAL SUBMISSIONS. THERE IS NO DISPUTE REGARDING FACTS OF THE CASE. THEY ARE AS FOLLOWS. THE ASSESSEE MRS.VIMLA JAJOO, PURCHASED 1,00,000 SHARES OF DSQ SOFTWARE LT D. (HEREINAFTER REFERRED TO AS DSQ) ON 9.04.1999 ON SPOT BASIS. WH EN SHARES ARE PURCHASED ON SPOT BASIS THE TRANSACTION IS SETTLED ON THE VERY SAME DAY OR WITHIN NEXT TWO DAYS. THE BROKERS CONTRACT NOTE EVIDENCING PURCHASE IS AT PAGE-1 OF ASSESSEES PAPER BOOK. IT IS DATED 9.4.1999. THE BROKERS BILL REGARDING THE ABOVE PURCHASE IS AT PAGE-3 OF T HE ASSESSEES PAPER BOOK. THUS THERE IS NO DISPUTE THAT DATE OF PURCHA SE WAS 9-4-1999. SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 34 51. OUT OF THE ABOVE THE ASSESSEE SOLD 57,000 SHAR ES. THE BROKERS CONTRACT NOTE REGARDING THE SALE IS AT PAGE-2 OF TH E ASSESSEES PAPER BOOK. IT IS DATED 30-3-2000. IT REFERS TO THE FAC T THAT THE CONTRACT IS A FORWARD CONTRACT. IT REFERS TO THE SETTLEMENT PERIO D FROM 23-3-2000 TO 30- 3-2000. THE PRICE AT WHICH THE SHARES WERE TO BE S OLD WAS RS.1778.48 PS. PER SHARE. IN A FORWARD CONTRACT THE PERSON ENTERING INTO A CONTRACT IN SPECIFIED SHARES IN A SETTLEMENT CYCLE OF SEVEN DAYS HAS THE OPTION OF CARRYING FORWARD HIS TRANSACTION TO THE NEXT SETTLE MENT CYCLE. HE ALSO HAS AN OPTION OF OFFSETTING THE TRANSACTION BY AN O PPOSITE TRANSACTION IN THE SAME SETTLEMENT. THE ASSESSEE CARRIED FORWARD THIS TRANSACTION OF SALE OF SHARES. THE BROKER RAISED A BILL DATED 8-4 -2000 IN WHICH THE TRANSACTION OF SALE OF SHARES AT RS.1778.48 PS. IS REFLECTED AND A CORRESPONDING PURCHASE OF SHARES OF THE SAME QUANTI TY OF 57,000 SHARES FOR RS.1782.30 PS. IS SHOWN AS CARRIED FORWARD. TH US THE TRANSACTION WAS CARRIED FORWARD TO BE SETTLED IN THE NEXT SETTL EMENT PERIOD 30-3-2000 TO 6-4-2000 AT A PRICE OF RS.1782.30 PS. WHICH IS H IGHER THAN THE PRICE AT WHICH THE SHARES WERE TO BE SOLD IN THE BROKERS CON TRACT NOTE DATED 30-3- 2000. THERE IS ANOTHER BILL OF THE BROKER DATED 12 -4-2000 WHICH EVIDENCES THE FACT THAT ULTIMATELY 57000 SHARES WER E SOLD AT RS.1782.30 PS. THE BILL REFERS TO DATE OF SALE AS 30-3-2000 F OLLOWED BY THE WORD D. THIS DOES NOT MEAN THAT THERE WAS DELIVERY OF SHARE S ON 30-3-2000. THE TRANSACTION BEING A FORWARD TRANSACTION THERE CANNO T BE DELIVERY ON 30-3- 2000. THE DATE OF ACTUAL DELIVERY OF SHARES WAS 1 1-4-2000 AND THE DATE OF PAYMENT IS 12-4-2000 AS PER THE FINDING OF THE C IT(A). 52. IN THE CASE OF SURESH JAJOO HE PURCHASED 1,50,0 00 SHARES AND 50,000 SHARES OF DSQ SOFTWARE LTD. (HEREINAFTER REF ERRED TO AS DSQ) ON 5.04.1999 AND 7.4.1999 ON SPOT BASIS. WHEN SHARES ARE PURCHASED ON SPOT BASIS THE TRANSACTION IS SETTLED ON THE VERY S AME DAY OR WITHIN NEXT TWO DAYS. THE BROKERS CONTRACT NOTE EVIDENCING PUR CHASE IS AT PAGE-1 AND 2 OF ASSESSEES PAPER BOOK. IT IS DATED 5.4.199 9 AND 7.4.1999 RESPECTIVELY. THE CORRESPONDING BROKERS BILL REGARD ING THE ABOVE PURCHASE IS AT PAGE-4 AND 5 OF THE ASSESSEES PAPER BOOK. THUS THERE IS SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 35 NO DISPUTE REGARDING THE DATE OF PURCHASE WHICH IS 5.4.1999 AND 7.4.1999. 53. THE ASSESSEE SOLD ALL THE ABOVE SHARES. THE BR OKERS CONTRACT NOTE REGARDING THE SALE IS AT PAGE-2 OF THE ASSESSEES P APER BOOK. IT IS DATED 24-3-2000. IT REFERS TO THE FACT THAT THE CONTRACT IS A FORWARD CONTRACT. IT REFERS TO THE SETTLEMENT PERIOD FROM 23-3-2000 TO 3 0-3-2000. THE BROKERS BILL REGARDING THE ABOVE SALE IS DATED 8.04 .2000. THE BILL REFERS TO DATE OF SALE AS 24-3-2000 FOLLOWED BY THE WORD D. THIS DOES NOT MEAN THAT THERE WAS DELIVERY OF SHARES ON 24-3-2000 . THE TRANSACTION BEING A FORWARD TRANSACTION THERE CANNOT BE DELIVER Y ON 24-3-2000. THE DATE OF DELIVERY AND DATE OF PAY OUT WAS 8.4.2000 A S PER THE FINDINGS OF THE CIT(A). UNDER SEC.45 PROFIT OR GAINS ARISING FR OM THE TRANSFER OF A CAPITAL ASSET EFFECTED IN THE PREVIOUS YEAR SHALL B E CHARGEABLE TO INCOME TAX UNDER THE HEAD CAPITAL GAINS AND SHALL BE DEEME D TO BE INCOME OF THE PREVIOUS YEAR IN WHICH THE TRANSFER TOOK PLACE. SE C. 2(47) DEFINES TRANSFER AS FOLLOWS: 'TRANSFER', IN RELATION TO A CAPITAL ASSET, INCLUDE S,- (I) THE SALE, EXCHANGE OR RELINQUISHMENT OF THE ASS ET; OR (II) THE EXTINGUISHMENTS OF ANY RIGHTS THEREIN; OR (III) THE COMPULSORY ACQUISITION THEREOF UNDER ANY LAW; OR (IV) IN A CASE WHERE THE ASSET IS CONVERTED BY THE OWNER THEREOF INTO, OR IS TREATED BY HIM AS, STOCK-IN-TRADE OF A BUSINESS CARRIED ON BY HIM, SUCH CONVERSION OR TREATMENT; OR (V) ANY TRANSACTION INVOLVING THE ALLOWING OF THE P OSSESSION OF ANY IMMOVABLE PROPERTY TO BE TAKEN OR RETAINED IN PART PERFORMANCE OF A CONTRACT OF THE NATURE REFERRED TO IN SECTION 53A OF THE TRANSFER OF PROPERTY ACT, 1882 (4 OF 1882); OR (VI) ANY TRANSACTION (WHETHER BY WAY OF BECOMING A MEMBER OF, OR ACQUIRING SHARES IN, A CO-OPERATIVE SOCIETY, COMPAN Y OR OTHER ASSOCIATION OF PERSONS OR BY WAY OF ANY AGREEMENT O R ANY ARRANGEMENT OR IN ANY OTHER MANNER WHATSOEVER) WHIC H HAS THE EFFECT OF TRANSFERRING, OR ENABLING THE ENJOYMENT O F, ANY IMMOVABLE PROPERTY. EXPLANATION.-FOR THE PURPOSES OF SUB-CLAUSES (V) AN D (VI), 'IMMOVABLE PROPERTY' SHALL HAVE THE SAME MEANING AS IN CLAUSE (D) OF SECTION 268UA.' 54. AS PER THE DEFINITION OF TRANSFER U/SEC.2(47) T RANSFER IN RELATION TO A CAPITAL ASSET, AMONG OTHER MODES OF TRANSFER, TO INCLUDE SALE, EXCHANGE SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 36 OR RELINQUISHMENT OF THE CAPITAL ASSET. THE MODE O F TRANSFER APPLICABLE IN THE CASE OF THE ASSESSEE IS SALE. SHARES ARE GO ODS WITHIN THE MEANING OF THE SALE OF GOODS ACT, 1930(SGA) AND THEREFORE T HE PROVISIONS CONTAINED THEREIN AS TO THE POINT OF TIME WHEN TRAN SFER TAKES PLACE WOULD BE RELEVANT. THE PROVISIONS OF SEC.4 OF THE SGA IS AS FOLLOWS: 4. SALE AND AGREEMENT TO SELL (1) A CONTRACT OF SALE OF GOODS IS A CONTRACT WHERE BY THE SELLER TRANSFERS OR AGREES TO TRANSFER THE PROPERTY IN GOO DS TO THE BUYER FOR A PRICE. THERE MAY BE A CONTRACT OF SALE BETWEE N ONE PART- OWNER AND ANOTHER. (2) A CONTRACT OF SALE MAY BE ABSOLUTE OR CONDITION AL. (3) WHERE UNDER A CONTRACT OF SALE THE PROPERTY IN THE GOODS IS TRANSFERRED FROM THE SELLER TO THE BUYER, THE CONTR ACT IS CALLED A SALE, BUT WHERE THE TRANSFER OF THE PROPERTY IN THE GOODS IS TO TAKE PLACE AT A FUTURE TIME OR SUBJECT TO SOME CONDITION THEREAFTER TO BE FULFILLED, THE CONTRACT IS CALLED AN AGREEMENT TO S ELL. (4) AN AGREEMENT TO SELL BECOMES A SALE WHEN WHEN T HE TIME ELAPSES OR THE CONDITIONS ARE FULFILLED SUBJECT TO WHICH THE PROPERTY IN THE GOODS IS TO BE TRANSFERRED. 55. A READING OF SEC.4(1) SHOWS THAT WHEN A PERSON WANTS TO SELL SHARES HE HAS TO OFFER TO TRANSFER HIS RIGHT, TITLE AND INTEREST IN FAVOUR OF AN INTENDING BUYER. THE SELLER HAS TO THEREFORE DE LIVER SHARE CERTIFICATES TOGETHER WITH THE INSTRUMENT OF TRANSFER DULY SIGNE D BY HIM SO THAT TRANSFER OF OWNERSHIP CAN BE EFFECTED IN FAVOUR OF THE PURCHASER. PRESENTLY SHARES ARE NOT HELD IN PHYSICAL FORM AND ARE EVIDENCED BY ENTRY WITH THE DEPOSITORY PARTICIPANTS REGARDING OWNERSHI P OF SHARES IN A PARTICULAR COMPANY. NEVERTHELESS EVIDENCE REGARDIN G OWNERSHIP IN THE FORM OF DETAILS OF DEPOSITORY PARTICIPANT AND INSTR UMENT OF TRANSFER HAVE TO BE GIVEN TO THE BROKER BY THE SELLER. THE SELLE RS BROKER IN TURN HAS TO DELIVER IT TO THE PURCHASERS BROKER AND SUCH DELIVE RY WOULD BE SUBJECT TO THE CONDITION THAT THE PURCHASER HAS MADE PAYMENT. TILL SUCH TIME DELIVERY IS EFFECTED AND DOCUMENTS ARE HANDED OVER BY THE SELLER TO HIS BROKER THERE CANNOT BE A CONCLUDED SALE. IN OTHER WORDS THE BROKERS CONTRACT NOTE IS ONLY AN AGREEMENT TO SELL SUBJECT TO THE CONDITION THAT SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 37 THE SELLER WILL DELIVER THE DOCUMENTS TO HIS BROKER . ON SUCH DELIVERY BY THE SELLER THE BROKER WILL EFFECT PAYMENT. IT IS O NLY THEREAFTER CAN IT BE SAID THAT THE SALE IS COMPLETE. THE ISSUE HAS COME UP FOR CONSIDERATION IN SEVERAL CASES AND THE LEADING CASE IS THE DECISI ON OF THE HONBLE SUPREME COURT IN THE CASE OF VASUDEV RAMCHANDRA SH ELAT V. PRANLAL JAYANAND THAKAR [1975] 45 COMP CAS 43 (SC). IN THE SAID CASE THERE WAS A GIFT OF SHARES BY THE DONOR TO THE DONEE UNDE R A GIFT DEED WHICH WAS FOLLOWED BY DELIVERY OF SHARE CERTIFICATES TO T HE DONOR TOGETHER WITH BLANK TRANSFER FORMS (INSTRUMENT OF TRANSFER). THE DONOR DIED BEFORE THE REGISTRATION OF THE TRANSFER IN THE REGISTER OF THE COMPANY. THE QUESTION BEFORE THE HONBLE COURT WAS WHETHER THE TRANSFER W AS COMPLETE. THE HONBLE SUPREME COURT HELD THAT THE TRANSFER IS COM PLETE ON THE DELIVERY OF SHARE CERTIFICATE TOGETHER WITH THE INSTRUMENT O F TRANSFER DULY SIGNED TO THE DONEE BY THE DONOR. THE AFORESAID RULING HA S APPLIED IN CASES DECIDED UNDER THE INCOME TAX ACT, 1961. IN CIT VS. M.RAMASWAMY 151 ITR 122 (MADRAS) THE FACTS WERE THAT THE ASSESSEE S OLD CERTAIN SHARES IN A COMPANY TO ANOTHER COMPANY CONSISTING OF HIMSELF, HIS BROTHER AND FATHER AND INCURRED A CAPITAL LOSS. THE ITO HELD TH AT AS THE ALLEGED TRANSFER DID NOT FIND A PLACE IN THE SHARE CERTIFIC ATE REGISTER MAINTAINED BY THE COMPANY, THE SALE COULD NOT BE CONSIDERED AS COMPLETE AND THE ASSESSEE CONTINUED TO BE THE OWNER OF THE SHARES. C ONSEQUENTLY, HE REJECTED THE ASSESSEE'S CLAIM FOR ADJUSTMENT OF THE CAPITAL LOSS ARISING IN THE TRANSACTION, AGAINST THE CAPITAL GAINS ARISING ON ACCOUNT OF SALES OF OTHER SHARES. THE TRIBUNAL HELD THAT ONCE THE SALE WAS EFFECTED, THE TRANSACTION BETWEEN THE TRANSFEROR AND THE TRANSFER EE WOULD BE COMPLETE AND, MERELY BECAUSE THE COMPANY HAD NOT RECOGNISED THE TRANSFER AND MADE ENTRIES IN ITS REGISTER, IT CANNOT BE SAID THA T THE TRANSFER WAS INCOMPLETE. IN THIS VIEW, THE TRIBUNAL UPHELD THE C LAIM OF THE ASSESSEE THAT HE WAS ENTITLED TO THE ADJUSTMENT OF THE CAPIT AL LOSS AGAINST THE CAPITAL GAINS. ON A REFERENCE THE HONBLE MADRAS H IGH COURT HELD THAT WHERE, AS BETWEEN THE TRANSFEROR AND THE TRANSFEREE , ALL FORMALITIES HAVE BEEN GONE THROUGH, SUCH AS THE EXECUTION OF A DOCUM ENT OF TRANSFER AND SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 38 THE PHYSICAL HANDING OVER OF THE SHARES BY THE TRAN SFEROR TO THE TRANSFEREE, THE SHARES SHOULD BE TAKEN TO HAVE BEEN TRANSFERRED TO THE TRANSFEREE, THOUGH UNTIL THE TRANSFER OF SHARES IS REGISTERED IN THE COMPANY'S BOOKS IN ACCORDANCE WITH COMPANY LAW, THE TRANSFER WOULD NOT ENABLE THE TRANSFEREE TO EXERCISE THE RIGHTS OF A SHAREHOLDER VIS-A-VIS THE COMPANY. THE DECISION IN THE CASE OF SHELAT (V. R.) V. P.J. THAKAR [1975] 45 COMP CAS 43 (SC) WAS FOLLOWED. IN THE CA SE OF RAJAGIRI RUBBER AND PRODUCE CO. LTD. VS. CIT 203 ITR 663(KER), THE HONBLE KERELA HIGH COURT HAD TO DEAL WITH A CASE WHERE THE ASSESSEE-CO MPANY WHICH HELD SHARES OF OTHER COMPANIES PASSED A RESOLUTION AND T HE SHARE CERTIFICATES WERE DELIVERED AND CONSIDERATION WAS ALSO RECEIVED DURING THE ACCOUNTING PERIOD RELEVANT TO THE ASSESSMENT YEAR 1978-79. AS BETWEEN THE TRANSFEROR AND THE TRANSFEREE, THE TRANSACTION WAS COMPLETE. THE HONBLE COURT HELD THAT IN THE CASE OF TRANSFER OF SHARES, FOR PURPOSES OF SECTION 45 OF THE INCOME-TAX ACT, 1961, AS BETWEEN THE TRAN SFEROR AND THE TRANSFEREE, THE TRANSACTION IS COMPLETE WHEN THE SH ARE CERTIFICATES ARE HANDED OVER. THE MERE FACT THAT THE COMPANY HAS NOT REGISTERED THE TRANSFERS IN ITS BOOKS WOULD NOT JUSTIFY THE CLAIM THAT THE TRANSFER TOOK PLACE ONLY LATER. THE SALE OF SHARES WOULD THEREFO RE BE COMPLETE ONLY WHEN THE SHARE CERTIFICATE TOGETHER WITH THE RELEVA NT INSTRUMENT OF TRANSFER DULY SIGNED IS DELIVERED AND SALE CONSIDER ATION IS RECEIVED. 56. THE NEXT ASPECT THAT NEEDS TO BE EXAMINED IS RE GARDING THE CIRCULAR NO.704 DATED 28.4.1995. THE PROVISIONS OF THE ACT DRAW A DISTINCTION BETWEEN A SHORT-TERM CAPITAL GAIN AND L ONG-TERM CAPITAL GAINS AND ACCORD DIFFERENT TREATMENT FOR THE PURPOSE OF L EVY OF TAX ON SUCH GAIN. THE ISSUE WHETHER A PARTICULAR ASSET IS A LON G-TERM ASSET OR SHORT- TERM ASSET DEPENDS ON THE PERIOD OF HOLDING OF THE CAPITAL ASSET BY THE ASSESSEE. IN THE CASE OF 'TRANSFER OF SHARES', THER E WAS CONFUSION AS WHAT SHOULD BE CONSIDERED AS DATE OF PURCHASE AND DATE O F SALE FOR THE PURPOSE OF ASCERTAINING WHETHER THE CAPITAL ASSET W AS A SHORT-TERM CAPITAL ASSET OR LONG-TERM ASSET. THEREFORE, CBDT I SSUED CLARIFICATION VIDE CIRCULAR NO. 704, DATED 28-4-1995 WHERE IT WAS MENT IONED THAT WHEN SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 39 SHARES ARE TRANS-ACTED THROUGH STOCK EXCHANGES, IT IS THE ESTABLISHED PROCEDURE THAT THE BROKERS FIRST ENTER INTO CONTRAC TS FOR PURCHASE/SALE OF SECURITIES AND THEREAFTER, FOLLOW IT UP WITH DELIVE RY OF SHARES, ACCOMPANIED BY TRANSFER DEEDS DULY SIGNED BY THE RE GISTERED HOLDERS. THE SELLER IS ENTITLED TO RECEIVE THE CONSIDERATION AGR EED TO AS ON THE DATE OF CONTRACT. IN SUCH CASES, IT WAS CLARIFIED THAT THE DATE OF TRANSFER OF SHARES SHOULD BE THE DATE OF BROKER'S NOTE PROVIDED SUCH T RANSACTIONS WERE FOLLOWED UP BY DELIVERY OF SHARES AND ALSO THE TRAN SFER DEEDS. THE BOARD FURTHER CLARIFIED THAT IN RESPECT OF THE TRANSACTIO NS OF SHARES DIRECTLY BETWEEN THE PARTIES AND NOT THROUGH STOCK EXCHANGE, DATE OF CONTRACT OF SALE AS DECLARED BY THE PARTIES SHALL BE TREATED AS THE DATE OF TRANSFER PROVIDED IT IS FOLLOWED UP BY ACTUAL DELIVERY OF SH ARES AND THE TRANSFER DEEDS. 57. THE CIRCULAR OF CBDT IS CONTRARY TO THE PROVISI ONS OF LAW REGARDING THE POINT OF TIME WHEN SALE CAN BE SAID TO HAVE TAK EN PLACE. ACCORDING TO THE LEARNED D.R., THE CIRCULAR IS CONCLUSIVE AS TO THE POINT OF TIME WHEN SALE OF SHARES CAN BE SAID TO HAVE TAKEN PLACE. TH E LAW IS WELL SETTLED THAT CIRCULARS ISSUED BY THE CBDT CAN NEITHER IMPOS E A BURDEN ON THE TAXPAYER OR OTHERWISE PUT HIM IN A WORSE POSITION T HAN HE WAS UNDER THE STATUTE, NOR CAN IT PRE-EMPT OR OVERRIDE ANY JUDICI AL INTERPRETATION OF A PROVISION BY THE COURTS. THE CBDT CAN RELAX THE RI GOUR OF THE LAW OR GRANT RELIEF WHICH IS NOT TO BE FOUND IN THE TERMS OF THE STATUTE AND TO THAT EXTENT THEY ARE BINDING ON THE INCOME TAX AUTH ORITIES. IN THE CASE OF HINDUSTAN AERONAUTICS LTD. VS. CIT 243 ITR 808(S C) THE HONBLE SUPREME COURT HAS HELD THAT CIRCULARS OR INSTRUCTIO NS GIVEN BY THE BOARD ARE NO DOUBT BINDING IN LAW ON THE AUTHORITIE S UNDER THE ACT BUT WHEN THE SUPREME COURT OR THE HIGH COURT HAS DECLAR ED THE LAW ON THE QUESTION ARISING FOR CONSIDERATION IT WILL NOT BE O PEN TO A COURT TO DIRECT THAT A CIRCULAR SHOULD BE GIVEN EFFECT TO AND NOT T HE VIEW EXPRESSED IN THE DECISION OF THE SUPREME COURT OR THE HIGH COURT. I N TISCO VS. N.C.UPADYAYA & ANOTHER 96 ITR 1 (SC) IDENTICAL PROP OSITION HAS BEEN LAID DOWN. IT IS THUS CLEAR THAT CIRCULARS TO THE E XTENT OF GIVING RELIEF TO SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 40 THE ASSESSEE ARE BINDING BUT WHERE THEY IMPOSE AN A DDITIONAL BURDEN NOT CONTEMPLATED IN THE ACT THEY ARE NOT BINDING. THERE MAY BE CASES WHERE IT WOULD SUIT AN ASSESSEE TO CLAIM THE DATE O F BROKERS NOTE AS THE DATE OF SALE. IF THEY DO SO, THE CIRCULAR CAN HELP THEM TO SUPPORT THEIR PLEA AND THE SAME WILL BE BINDING ON REVENUE AUTHOR ITIES AND THEY CANNOT SAY THAT DATE OF TRANSFER IS NOT THE DATE OF BROKERS NOTE. IT IS ONLY IN SUCH A SITUATION THE CIRCULAR WILL BE BENEFICIAL TO THE ASSESSEE AND THEREFORE BINDING ON THE AO. IN A SITUATION WHERE ADOPTING THE DATE OF BROKERS NOTE AS THE DATE OF TRANSFER IS NOT ADVANTA GEOUS TO AN ASSESSEE HE CAN FALL BACK UPON THE CORRECT DATE OF TRANSFER IN ACCORDANCE WITH LAW IGNORING THE CIRCULAR. 58. WE ARE ALSO OF THE VIEW THAT EVEN CIRCULAR NO.704 DATED 28.4.1995 RECOGNISES THE FACT THAT TRANSFER OF SHARES IS C OMPLETE ONLY ON DELIVERY AND PAYMENT. IF IN LAW THE POSITION IS OTH ERWISE THERE WAS NO NEED TO HAVE ISSUED THE CIRCULAR AT ALL. TH E CIRCULAR BECAME NECESSARY BECAUSE THERE WAS CONFUSION AS WHAT SHOULD BE CONSIDERED AS DATE OF PURCHASE AND DATE OF SALE FOR THE PURPOSE OF ASCERTAINING WHETHER THE CAPITAL ASSET WAS A SHORT-TERM CAPITAL ASSET OR LONG-TERM ASSET. THE CIRCULAR TOOK NOTE OF THE PROCEDURE WHEN SHARES ARE TRANS-ACTED THROUGH STOCK EXCHANGES THAT BROKERS FIRST ENTER INTO CONTRACTS FOR PURCHASE/SALE OF SECURITIES AND THEREAFTER, FOLLOW IT UP WITH DELIVERY OF SHARES, ACCOMPANIED B Y TRANSFER DEEDS DULY SIGNED BY THE REGISTERED HOLDERS FO LLOWED BY PAYMENT. THE CIRCULAR CLARIFIED THAT THE DATE OF TRANSFER O F SHARES SHOULD BE THE DATE OF BROKER'S NOTE PROVIDED SUCH TRAN SACTIONS WERE FOLLOWED UP BY DELIVERY OF SHARES AND ALSO THE TRANSFE R DEEDS. THE BOARD FURTHER CLARIFIED THAT IN RESPECT OF THE TRANSAC TIONS OF SHARES DIRECTLY BETWEEN THE PARTIES AND NOT THROUGH S TOCK EXCHANGE, DATE OF CONTRACT OF SALE AS DECLARED BY THE PA RTIES SHALL BE TREATED AS THE DATE OF TRANSFER PROVIDED IT IS FOLLOWED UP BY SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 41 ACTUAL DELIVERY OF SHARES AND THE TRANSFER DEEDS. THE CIRC ULAR THUS RECOGNIZES THE FACT POSITION IN LAW THAT TRANSFER IS COMPLET E ONLY WHEN SHARE CERTIFICATES TOGETHER WITH TRANSFER DEED DULY SIGNED ARE DELIVERED AND PAYMENT RECEIVED BY THE SELLER. 59. THE LEARNED D.R.S RELIANCE ON SEC.20 OF SGA WH ICH LAYS DOWN THAT IN AN UNCONDITIONAL CONTRACT FOR SALE OF SPECIFIC G OODS IN A DELIVERABLE STATE, THE PROPERTY IN THE GOODS PASSES TO THE BUYE R WHEN THE CONTRACT IS MADE, AND IT IS IMMATERIAL WHETHER THE TIME OF PAYM ENT OF THE PRICE OR THE TIME OF DELIVERY OF THE GOODS, OR BOTH, IS POST PONED IS AGAIN NOT ACCEPTABLE. WE HAVE ALREADY HELD THAT THE TRANSFER BY WAY OF SALE THROUGH A SHARE BROKER IN A STOCK EXCHANGE IS COMPL ETE ONLY WHEN THE DELIVERY OF SHARE CERTIFICATE TOGETHER WITH INSTRUM ENT OF TRANSFER DULY SIGNED IS DELIVERED AND CONSIDERATION FOR THE TRANS FER IS PAID. THUS WHEN THE BROKER ISSUES A CONTRACT NOTE THERE IS NO SALE. THE CONTRACT IS SUBJECT TO THE CONDITION THAT THE SELLER WILL DELIV ER SHARE CERTIFICATE TOGETHER WITH INSTRUMENT OF TRANSFER DULY SIGNED. THUS IT CANNOT BE SAID THAT THE CONTRACT IS UNCONDITIONAL. THEREFORE SEC. 20 OF THE SGA WILL NOT APPLY SINCE THE CONTRACT IS NOT UNCONDITIONAL CONTR ACT FOR SALE. THE RELIANCE PLACED BY THE LEARNED D.R. ON THE DECISION IN THE CASE OF GURBAX SINGH VS. KARTAR SINGH & OTHERS 254 ITR 112 (SC) IS IN THE CONTEXT OF THE POINT OF TIME WHEN A REGISTERED DOCUMENT WILL TAKE EFFECT AND THE HONBLE SUPREME COURT REFERRED TO THE PROVISIONS OF SECTION 47 OF THE REGISTRATION ACT, 1908, TO HOLD THAT THE REGISTERED DOCUMENT WI LL OPERATE FROM THE DATE OF THE DOCUMENT AND NOT FROM THE DATE OF REGIS TRATION. WE ARE OF THE VIEW THAT THE SAID PRINCIPLE CANNOT BE APPLIED IN A CASE OF SALE OF SHARES WHICH DOES NOT REQUIRE ANY REGISTRATION. 60. IN THE DECISION OF THE AMRITSAR BENCH OF ITAT I N THE CASE OF MAX TELECOM VENTURES LTD.(SUPRA), THE MATERIAL FACTS WE RE THAT THE ASSESSEE, ENTERED INTO AN AGREEMENT TITLED 'SHARE PURCHASE AG REEMENT' WITH TELECOM INVESTMENTS INDIA PRIVATE LIMITED (IN SHORT 'TIP') ON 17-3-1998 SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 42 FOR SALE OF RS. 40 LAKHS EQUITY SHARES OF RS. 10 EA CH FOR A CONSIDERATION OF RS. 5,49,51,32,184. IN THE RETURN OF INCOME FILED F OR THE ASSESSMENT YEAR 1998-99, THE ASSESSEE HAD SHOWN CAPITAL GAINS ARISI NG ON THE SALE OF 40 LAKHS EQUITY SHARES TO M/S. TIP. HOWEVER, THE ASSES SEE HAD CLAIMED EXEMPTION IN RESPECT OF SUCH CAPITAL GAINS UNDER SE CTION 10(23G) OF THE INCOME-TAX ACT, 1961 ( IN SHORT 'THE ACT'). THE ASS ESSMENT WAS TAKEN UP UNDER SCRUTINY. DURING THE COURSE OF ASSESSMENT PRO CEEDINGS, THE ASSESSEE FILED A REVISED RETURN OF INCOME ON 29-10- 1999 WITH A NOTE STATING THAT THE LONG-TERM CAPITAL GAIN ON THE SALE OF SHARES WAS DISCLOSED IN THE RETURN AS AN ABUNDANT PRECAUTION. HOWEVER, THE AGREEMENT FOR SALE OF SHARES CONTAINED CERTAIN COND ITIONS TO BE COMPLIED WITH BEFORE THE SALE. SINCE SOME OF THE CONDITIONS HAD NOT BEEN COMPLIED WITH AND TRANSFER DEEDS OF SHARES AND SHARE CERTIFI CATES WERE HANDED TO THE PURCHASER ON 23-4-1998 ALONG WITH RECEIPT OF CO NSIDERATION, THE ASSESSEE STATED THAT LONG-TERM CAPITAL GAIN ON SALE OF SHARES WAS LIABLE TO BE CONSIDERED IN THE ASSESSMENT YEAR 1999-2000. THE CONDITIONS WERE COMPLIED WITH IN APRIL, 1998. THE ASSESSING OFFICER HELD THAT THE OFFER NOT TO SELL AND ACCEPTANCE OF THE PARTIES TO PURCHASE B ECAME FINAL AS SOON AS THE SAME WAS SIGNED BY ALL THE PARTIES. THE SALE WA S FOLLOWED BY DELIVERY OF SHARES IN PURSUANCE OF THE AGREE-MENT. THUS, THE ASSESSING OFFICER HELD THAT THE TRANSACTION WAS COVERED BY CBDT'S CIR CULAR NO. 704 AND, THEREFORE, THE DATE OF CONTRACT OF SALE SHALL BE TH E DATE OF TRANSFER PROVIDED THE SAME WAS FOLLOWED UP BY ACTUAL DELIVER Y OF SHARES AND THE TRANSFER DEEDS. ACCORDINGLY THE ASSESSING OFFICER H ELD THAT THE MATERIAL DATE FOR SALE OF SHARES WAS 17-3-1998, I.E., WHEN A CONTRACT DOCUMENT WAS EXECUTED BY ALL THE PARTIES CONCERNED. IN THE A PPEAL BEFORE THE TRIBUNAL, THE TRIBUNAL RELIED ON THE JUDGMENT OF H ON'BLE KERALA HIGH COURT IN THE CASE OF K.N. NARAYANAN V. ITO [1988] 1 73 ITR 61. THE FACTS OF THAT CASE BEFORE THE HON'BLE HIGH COURT WERE THA T 'N' ENTERED INTO A CONTRACT ON BEHALF OF HIMSELF AND HIS RELATIVES AND NOMINEES WHEREBY HE AGREED TO SELL A TOTAL OF 1,19,760 SHARES NOT LATER THAN 31-3-1979, AT AN AGREED PRICE. THE SALE OF SHARES WAS CONDITIONAL UP ON THE VENDOR SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 43 OBTAINING THE NECESSARY SANCTION OF THE GOVERNMENT OF INDIA AND OTHER AUTHORI-TIES. THE CONTRACT LAID DOWN THAT IN THE EV ENT OF FAILURE TO SELL THE TOTALITY OF SHARES, THE SHARES ALREADY SOLD HAD TO BE RESOLD TO THE ORIGINAL VENDOR AND THE MONEY HAD TO BE RETURNED TO THE ORIG INAL VENDEE. 40,000 SHARES COULD NOT BE SOLD FOR WANT OF SANCTION OF TH E CONCERNED AUTHORITIES. THE ASSESSEES SUBMITTED THEIR RETURNS AND INCLUDED THEREIN THE CAPITAL GAINS ARISING FROM SALE OF SHARES. SUBS EQUENTLY, HOWEVER, THEY CLAIMED THAT NO CAPITAL GAINS AROSE BECAUSE THE SAL E BEING CONDITIONAL COULD NOT TAKE PLACE UNTIL THE ENTIRE NUMBER OF SHA RE WERE SOLD. HOWEVER, THE ASSESSING OFFICER REJECTED SUCH SUBMISSIONS AND BROUGHT CAPITAL GAINS TO TAX WHICH WAS DECLARED IN THE RESPECTIVE R ETURNS BY THE ASSESSEES. ON APPEAL, THE LD. CIT(A) UPHELD THE ORD ER OF THE ASSESSING OFFICER. THE ASSESSEE FILED A WRIT PETITION BEFORE THE HON'BLE KERALA HIGH COURT. THE WRIT PETITION WAS DISMISSED BY THE HON'B LE KERALA HIGH COURT. WHILE DISMISSING THE WRIT PETITION, THE HON'BLE HIG H COURT HELD THAT IN THE EVENT OF THE TOTALITY OF 1,19,760 SHARES NOT BE ING TRANSFERRED BY REASON OF THE FAILURE TO GET THE NECESSARY SANCTION OF THE AUTHORITIES, EVEN THE SHARES TRANSFERRED ARE TO BE RETRANSFERRED AND THE AMOUNT PAID WAS TO BE RETURNED. THE HON'BLE KERALA HIGH COURT HELD THAT WHAT HAD BEEN SOLD, HAD TO BE RESOLD AND THE MONEY PAID HAD TO BE REPAID IN THE EVENT OF EVEN ONE SHARE OUT OF THE TOTALITY OF SHARES COV ERED BY THE AGREEMENT REMAINING UNSOLD. THE HIGH COURT FURTHER OBSERVED T HAT THIS WAS HOW THE PARTIES UNDERSTOOD TRANSACTION AT ALL MATERIAL TIMES AND THIS WAS THE REASON FOR THE FILING OF THE RETURNS SHOWING CAPITA L GAINS. THUS, IT WAS HELD THAT THE ASSESSING OFFICER WAS JUSTIFIED IN BR INGING TO TAX THE RESULTANT CAPITAL GAIN ON TRANSFER OF SHARES ON THE DATE OF EXECUTION OF THE CONTRACT. FOLLOWING THE SAID DECISION THE TRIBU NAL HELD THAT THE ENTIRE AGREEMENT WAS EXECUTED ON 17-3-1998 AMONG THE PARTI ES WAS ACTED UPON. THE APPROVAL OF GOVERNMENT AUTHORITIES HAD BE EN RECEIVED THE SHARES WERE DELIVERED ALONG WITH TRANSFER DEEDS ON 23-4-1998. THEREFORE, THE CASE OF THE ASSESSEE WAS FULLY COVERED BY THE A FORESAID CIRCULAR OF THE SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 44 BOARD AS THE DATE OF TRANSFER FOR THE PURPOSE OF SE CTION 45 WOULD BE 17- 3-1998 AND NOT 23-4-1998. 61. RECENTLY THE MUMBAI BENCH OF THE ITAT IN THE CA SE OF MRS. HAMI ASPI BALSARA (TAXPAYER) V ACIT. [2009-TIOL-789-ITAT -MUM] HAD AN OCCASION TO CONSIDER THE DECISION OF THE AMRITSAR B ENCH IN THE CASE OF MAX TELECOM VENTURES LTD. (SUPRA) AND CIRCULAR NO.7 04 DATED 28-4- 1995. THE FACTS IN THE AFORESAID CASE WAS THAT THE ASSESSEE, BEING PART OF A PROMOTER GROUP, HELD SHARES IN 3 COMPANIES. TH E PROMOTER GROUP ENTERED INTO A SHARE PURCHASE AGREEMENT (SPA) ON 27 JANUARY 2005 WITH DABUR INDIA LTD. (BUYER) TO SELL THEIR SHARES IN TH E 3 COMPANIES, ON THE TERMS AND CONDITIONS AS AGREED IN THE SPA. THE SPA CONTEMPLATED THAT THE TRANSACTION WILL BE COMPLETED ON 1 APRIL 2005 A FTER ALL THE PARTIES HAVE FULFILLED THEIR OBLIGATIONS UNDER THE SPA. TH E ASSESSEE DID NOT OFFER CAPITAL GAINS ON THE TRANSFER OF SHARES IN TH E RETURN OF INCOME FILED FOR AY 2004-05 FOR THE REASON THAT SINCE THE TRANSF ER OF SHARES WAS COMPLETED IN APRIL 2005, CAPITAL GAINS AROSE IN AY 06-07. THE AO AND THE CIT(A) HELD THAT THE TRANSFER WAS COMPLETE ON THE D ATE WHEN THE AGREEMENT WAS ENTERED INTO. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE ITAT. THE ISSUE BEFORE THE TRIBUNAL WAS AS TO WHET HER THE CAPITAL GAINS AROSE ON THE EXECUTION OF THE SPA ON 27 JANUA RY 2005 OR ON THE COMPLETION OF THE TRANSACTION IN APRIL 2005. THE T RIBUNAL HELD AS FOLLOWS: REVENUES' MAIN CONTENTION IS THAT ON ACCOUNT OF SU BSTANTIAL EXTINGUISHMENT OF RIGHTS IN PURSUANCE TO SHARE PURC HASE AGREEMENT, THE TRANSFER TOOK PLACE ON 27.1.2005. PE R CONTRA, THE ASSESSEE'S CLAIM IS THAT WHEN THE DELIVERY OF SHARE S WAS OVER AND ALL THE CONVENTS CONTEMPLATED IN THE SHARE PURCHASE AGREEMENT BECAME IRREVOCABLE ON 1.4.2005 THEN ONLY TRANSFER W AS COMPLETE AND, ACCORDINGLY, THE INVESTMENT MADE BY THE ASSESS EE IN THE SPECIFIED SECURITIES WITHIN SIX MONTHS RECKONED FRO M 1.4.2005 ENTITLED THE ASSESSEE FOR EXEMPTION UNDER SECTION 5 4EC. IN THE FIRST PLACE, WE ARE IN AGREEMENT WITH THE CONTENTIO N OF ID COUNSEL FOR THE ASSESSEE THAT SALE AS CONTEMPLATED U/S. 2(4 7)(I) AND EXTINGUISHMENT RIGHTS AS CONTEMPLATED U/S. 2(47)(II ) ARE NOT MUTUALLY INTER CHANGEABLE. IF A PARTICULAR TRANSACT ION IS THE TRANSACTION OF SALE THEN UNLESS THE SALE IS COMPLET E, NO TRANSFER CAN BE SAID TO HAVE TAKEN PLACE BECAUSE, AS RIGHTLY POINTED OUT BY SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 45 LD COUNSEL FOR THE ASSESSEE, THERE WILL ALWAYS BE E XTINGUISHMENT OF RIGHTS IN CASE OF SALE AND IF A SINGLE RIGHT OUT OF THE ENTIRE BUNDLE OF PROPERTY IN CAPITAL ASSET IS EXTINGUISHED, THEN, THE TRANSFER WOULD BE TAKEN AS COMPLETE. THIS WILL LEAD TO ABSUR D SITUATION. HAD IT BEEN THE INTENTION OF LEGISLATURE TO TREAT T HE TRANSFER ON THE BASIS OF EXTINGUISHMENT OF ANY RIGHT IN CAPITAL ASS ET THEN THERE WAS NO NECESSITY OF INCLUDING SALE AND EXCHANGE IN THE DEFINITION OF TRANSFER UNDER SECTION 2{47). IT IS WELL SETTLED PRINCIPLE OF INTERPRETATION THAT NO WORD IN AN STATUTE IS SUPERF LUOUS AND EACH WORD HAS TO BE ASSIGNED SPECIFIC MEANING IN THE CON TEXT IN WHICH IT IS USED. WE FURTHER FIND LOT OF SUBSTANCE IN THE ARGUMENT OF ID COUNSEL IN THIS REGARD WITH REFERENCE TO INCLUSION OF CLAUSE (V) IN THE DEFINITION OF TRANSFER UNDER SECTION 2(47} ONLY WITH REFERENCE TO IMMOVABLE PROPERTY AND NOT WITH REFERENCE TO MOVABL E PROPERTY. IN THE PRESENT CASE WHEN FINAL DELIVERY OF SHARES T OOK PLACE ON 1/15-4-2005 AND, THEREFORE, IN VIEW OF THE DECISION IN THE CASE OF M.RAMASWAMY (SUPRA) AND RAJGIRI RUBBER AND PRODUCE CO.(SUPRA), IN OUR OPINION, TRANSFER OF SHARES TOOK PLACE ON 1/15.4.2005. THIS VIEW IS FULLY SUPPORTED BY THE DE CISION OF THE HON'BLE SUPREME COURT IN THE CASE OF SHELLATE VR V. PJ THAKKAR, 45 COMPANY CASE 43 WHEREIN, IT WAS HELD THAT PROCED URE REQUIRED BY LAW WAS TO BE COMPLIED WITH AND, ACCORDINGLY, DE LIVERY OF SHARE CERTIFICATE ALONGWITH TRANSFER DEED HAD TO BE HANDE D OVER TO PURCHASER IN ORDER TO COMPLETE THE TRANSFER. THE TRIBUNAL OBSERVED AS FOLLOWS ON THE DECISION OF THE AMRITSAR BENCH IN THE CASE OF MAX TELECOM VENTURES LTD. (SUPRA) AND C BDT CIRCULAR NO.204 DATED 28-4-1995: 12. NOW COMING TO THE DECISION OF THE AMRITSAR ITAT IN THE CASE OF MAXTELECON VENTURES (SUPRA). WE ARE OF THE OPINION THAT THE SAID DECISION WAS RENDERED WITH REFERENCE TO KN NARAYANAN (SUPRA) WITHOUT CONSIDERING THE SUBSEQUENT DECISION OF THE SAME HIGH COURT IN THE CASE OF 203 ITR 663(SUPRA). MOREO VER, SAID DECISION HAS NOT TAKEN INTO CONSIDERATION THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF SHELLATE V R V. PJ THAKKAR, 45 COMPANY CASE 43(SUPRA). IN THIS CASE TH E SUPREME COURT HAS CLEARLY LAID DOWN THAT WHERE, AS BETWEEN THE TRANSFEROR AND THE TRANSFEREE, ALL FORMALITIES HAVE BEEN GONE THROUGH, SUCH AS THE EXECUTION OF DOCUMENT OF TRANSFER AND A PHYS ICAL HANDING OVER OF THE SHARES BY THE TRANSFERORS TO THE TRANSF EREE, THE SHARES SHOULD BE TAKEN TO HAVE BEEN TRANSFERRED TO THE TRA NSFEREE, THOUGH UNTIL THE TRANSFER OF SHARE IS REGISTERED IN ACCORD ANCE WITH THE COMPANIES LAW, THE TRANSFER COULD NOT ENABLE THE TR ANSFEREE TO EXERCISE RIGHTS OF THE SHAREHOLDER VIS-A-VIS THE CO MPANY. THUS, IN SUM AND SUBSTANCE, THE TRANSFER OF SHARE IS COMPLET E WHEN THE SHARE CERTIFICATE ALONGWITH DULY EXECUTED TRANSFER DEED IS HANDED SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 46 OVER TO THE TRANSFEREE. THEREFORE, WE, RESPECTFULLY , DO NOT AGREE WITH THE PROPOSITION LAID DOWN IN THE SAID DECISION . 13. NOW COMING TO THE CIRCULAR NO.704 DT.28.4.1995. THIS CIRCULAR DEALS WITH TWO SITUATIONS. FIRSTLY, SHARES LISTED O N STOCK EXCHANGE AND TRANSFER TAKING PLACE THROUGH BROKERS. SECONDLY , TRANSACTIONS TAKING PLACE DIRECTLY BETWEEN THE PARTIES AND NOT T HROUGH STOCK EXCHANGE. WE ARE CONCERNED WITH THE SECOND SITUATIO N. IN THIS REGARD, IT IS MENTIONED IN THE CIRCULAR AS UNDER:- 'IN CASE THE TRANSACTIONS TAKE PLACE DIRECTLY BETWE EN THE PARTIES NOT THROUGH STOCK EXCHANGES THE DATE OF CO NTRACT OF SALE AS DECLARED BY THE PARTIES SHALL BE TREATED AS THE DATE OF TRANSFER PROVIDED IT IS FOLLOWED UP BY THE ACTUA L DELIVERY OF SHARES AND THE TRANSFER DEEDS. THIS CLEARLY SHOWS THAT THE DATE OF CONTRACT OF SAL E WILL BE THE DATE WHICH THE PARTIES HAVE AGREED TO. NO OTHER DATE CAN SUBSTITUTE THE DATE AS DECLARED BY THE PARTIES. IN THE PRESENT CAS E, THE DATE OF CONTRACT OF SALE AS UNDERSTOOD BY THE PARTIES IS 1. 4.2005 AND THE SAME CANNOT BE SUBSTITUTED BY THE DATE OF SHARE PUR CHASE AGREEMENT BECAUSE COMPLETION DATE WAS SPECIFIED IN ARTICLE 6 OF THE SHARE PURCHASE AGREEMENT, WHICH WAS NOT LATER T HAN 4.4.2005 OR SUCH OTHER LATER DATE THAT WAS MUTUALLY AGREED I N WRITING. AS PER ARTICLE 6, ON THE COMPLETION DATE THE ATTORNEY WAS TO RECEIVE LETTERS OF DISCHARGE FROM THE LENDERS RECORDING THE UNCONDITIONAL AND IRREVOCABLE DISCHARGE OF THE GUARANTEES AND THE CANCELLED THE ORIGINAL GUARANTEES. THIS OCCURRED ON 1.4.2005. THE REFORE, THE DATE OF CONTRACT OF SALE AS DECLARED BY THE PARTIES IN THE SHARE PURCHASE AGREEMENT WAS 1.4.2005. THE DIRECTORS RESI GNED ON THE DATE AS PER THE SAID ARTICLE. THEREFORE, THE CONTRA CT WAS COMPLETED ON FULFILLMENT OF CONDITIONS CONTEMPLATED IN ARTICL E 6 WHICH TOOK PLACE ON 1.4.2005. THUS, FROM THE VERY BEGINNING, T HE PARTIES HAD DECLARED THE DATE OF CONTRACT OF SALE SUBJECT TO FU LFILLMENT OF CONDITIONS AND, THEREFORE, ON THE DATE OF FULFILLME NT OF ABOVE CONDITIONS, THE DATE OF CONTRACT OF SALE CRYSTALLIZ ED. WE ARE, THEREFORE, OF THE OPINION THAT THIS CIRCULAR IN NO WAY PREJUDICE THE ASSESSEE'S CLAIM. 62. THE ABOVE DECISION CLEARLY SUPPORTS THE PLEA OF THE ASSESSEE RAISED BEFORE US THAT THE CBDT CIRCULAR NO.304 DATED 28-4- 1995 CANNOT BE THE BASIS TO CONCLUDE THAT THE DATE OF SALE IS THE DATE OF THE BROKERS CONTRACT NOTE. AS ALREADY STATED IT IS CONTRARY TO THE PROVI SIONS OF LAW AND THEREFORE TO THAT EXTENT NOT BINIDING IN THE CASE O F THE ASSESSEES. SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 47 63. FOR THE REASONS GIVEN ABOVE, WE HOLD THAT THE D ATE OF TRANSFER SHARES WAS 12-4-2000 IN THE CASE OF VIMLA JAJOO AND 8-4-2000 IN THE CASE OF SURESH JAJOO AND CONSEQUENTLY THE CAPITAL G AIN ON TRANSFER BY SALE WAS A LONG TERM CAPITAL GAIN WHICH WAS ALREADY ASSESSED TO TAX BY THE AO IN AY 01-02. THE ASSESSMENT OF THE CAPITAL GAIN AS SHORT TERM CAPITAL GAIN IN AY 00-01 IS THEREFORE HELD TO BE IN CORRECT. THE RELEVANT GROUNDS OF APPEAL OF THE ASSESSEE ARE ALLOWED. IN VIEW OF THE ABOVE CONCLUSION, WE ARE NOT GOING INTO THE ADMISSIBILITY OF THE ADDITIONAL EVIDENCE SOUGHT TO BE FILED BEFORE US AND THE ARGUM ENT REGARDING APPLICABILITY OF THE RULE OF CONSISTENCY. 64. GROUND NO. 2 RAISED BY BOTH THE ASSESSEES IN TH EIR ORIGINAL GROUNDS OF APPEAL READ AS FOLLOWS :- THE LEARNED CIT(A) GROSSLY ERRED IN DIRECTING THE ASSESSING OFFICER TO RECOMPUTE THE DISALLOWANCE U/S. 14A BY APPLYING RULE 8D AND IGNORED THAT : A) BY VIRTUE OF PROVISO TO SECTION 14A OF THE I.T. ACT , 1961 (WHICH IS W.R.E.F. 11.5.2001) THE ASSESSING OFFICER CANNOT REASSESS U/S. 147 SO AS TO MAKE DISALLOWANCE U/S. 1 4A. B) WITHOUT PREJUDICE TO THE ABOVE, LEARNED CIT(A) GROS SLY ERRED IN GIVING DIRECTION TO APPLY RULE 8D AND IGNORED TH AT THE INSERTIONS OF SUB-SECTION (2) AND (3) TO SECTION 14 A BY THE FINANCE ACT, 2006 ARE W.E.F. 1.4.2007 AND NOT RETRO SPECTIVE IN NATURE. 65. FACTS NECESSARY FOR ADJUDICATION OF GROUND NO. 2 ARE AS FOLLOWS :- WE HAVE ALREADY NOTICED THAT THE ASSESSMENT IN THE CASE OF BOTH THE ASSESSEES FOR A.Y. 2000-01 WAS REOPENED TO BRING TO TAX CAPITAL GAIN ON SALE OF SHARES, WHICH WERE TREATED AS LONG TERM CAP ITAL GAIN, ASSESSMENT YEAR 2001-02 AS SHORT TERM CAPITAL GAIN IN A.Y. 200 0-01 I.E. ASSESSMENT YEAR INVOLVED IN THIS APPEAL. 66. WE HAVE ALSO SEEN THAT IN THE REASONS RECORDED FOR REOPENING ASSESSMENT THERE WERE NO OTHER REASONS ASSIGNED EXC EPT THE REASON THAT SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 48 CAPITAL GAIN ON SALE OF SHARES WAS WRONGLY TAXED AS LONG TERM CAPITAL GAIN. IN THE RE-ASSESSMENT PROCEEDINGS, THE ASSESSI NG OFFICER, MADE A DISALLOWANCE OF RS. 70,466/-( IN THE CASE OF VIMLA S. JAJOO) AND RS.10,000/- (IN THE CASE OF SURESH K. JAJOO) OUT OF INTEREST EXPENSES CLAIMED IN PROFIT AND LOSS ACCOUNT, ON THE GROUND T HAT THESE WERE EXPENSES INCURRED IN EARNING INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. THE ASSESSING OFFICER INVOKED THE PR OVISIONS OF SECTION 14A OF THE ACT. THE ASSESSING OFFICER DID SO BECAUSE BO TH THE ASSESSEES HAD INCOME UNDER THE HEAD DIVIDEND, WHICH WAS TAX FRE E. LEARNED CIT(A) CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICE R. 67. BEFORE US, LEARNED COUNSEL FOR THE ASSESSEE RAI SED PRELIMINARY OBJECTION. HE REFERRED TO THE PROVISO TO SECTION 1 4A OF THE ACT AND SUBMITTED THAT THE PROVISO SPECIFICALLY BARRED REOP ENING OF AN ASSESSMENT FOR INVOKING PROVISION OF SECTION 14A OF THE ACT. ON BEHALF OF THE REVENUE, IT WAS SUBMITTED THAT PROVISO TO SECTI ON 14A ONLY BARS REOPENING OF AN ASSESSMENT TO MAKE A DISALLOWANCE U /S. 14A OF THE ACT BUT IN A CASE, WHERE THE ASSESSMENT IS OTHERWISE VA LIDLY RE-OPENED, THERE IS NO BAR ON THE PART OF THE ASSESSING OFFICER TO I NVOKE PROVISIONS OF SECTION 14A OF THE ACT. LEARNED COUNSEL FOR THE AS SESSEE IN THIS REGARD BROUGHT TO OUR NOTICE THAT SIMILAR OBJECTION WAS RA ISED AND CONSIDERED BY THE TRIBUNAL IN THE CASE OF THACKER & CO. LTD. VS. ITO, 106 ITD 141 (MUM) AND THIS TRIBUNAL HELD THAT EVEN IF AN ASSESS MENT IS INVALIDLY REOPENED, THAT DOES NOT GIVE A LICENSE TO THE ASSES SING OFFICER TO INVOKE SECTION 14A IN RESPECT OF AN ASSESSMENT FOR ASSESSM ENT PRIOR TO 1.4.2001. HE ALSO RELIED ON THE DECISION OF MUMBAI BENCH OF THE ITAT TAKING A SIMILAR VIEW IN THE CASE OF JCIT VS. BOMBA Y DYEING MANUFACTURING CO. LTD., 125 TTJ 263. 68. WE HAVE CONSIDERED THE RIVAL SUBMISSION. SEC.14 -A(1) OF THE ACT PROVIDES THAT FOR THE PURPOSES OF COMPUTING THE TOT AL INCOME UNDER CHAPTER IV NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHIC H DOES NOT FORM PART SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 49 OF THE TOTAL INCOME UNDER THE ACT. PROVISO TO SEC. 14-A PROVIDES AS FOLLOWS: PROVIDED THAT NOTHING CONTAINED IN THIS SECTION S HALL EMPOWER THE ASSESSING OFFICER EITHER TO REASSESS UNDER SEC. 147 OR PASS AN ORDER ENHANCING THE ASSESSMENT OR REDUCING A REFUND ALREADY MADE OR OTHERWISE INCREASING THE LIABILITY OF THE A SSESSEE UNDER SEC.154, FOR ANY ASSESSMENT YEAR BEGINNING ON OR BE FORE THE 1 ST DAY OF APRIL, 2001. THE ISSUE THAT ARISES IN GROUND NO. 2 IS REGARDING THE POWER OF THE AO TO MAKE A DISALLOWANCE IN REASSESSMENT AND IS SIMILAR TO THE ISSUE WHICH WAS CONSIDERED BY THE MUMBAI BENCH OF THE ITAT IN T HE CASE OF THACKER & CO. LTD. (SUPRA). THE AFORESAID CASE RELATES TO A .Y. 1999-2000. ASSESSMENT WAS REOPENED U/S. 148 OF THE ACT FOR THE REASONS WHICH DID NOT RELATES TO MAKING A DISALLOWANCE U/S. 14A OF TH E ACT. HOWEVER, IN COURSE OF REASSESSMENT PROCEEDINGS, THE ASSESSING O FFICER SOUGHT TO INVOKE SECTION 14A OF THE ACT. THE REVENUE TOOK A S TAND THAT WHEN ASSESSMENT WAS VALIDLY REOPENED, THERE IS NO BAR UN DER THE PROVISO TO SECTION 14A OF THE ACT ON THE PART OF THE ASSESSING OFFICER TO MAKE A DISALLOWANCE. THE TRIBUNAL CONSIDERED THE ISSUE AND HELD AS FOLLOWS :- THE CIRCULAR NO. 11 DT. 23RD JULY, 2001, THE BOARD HAS REDUCED THE RIGOR OF THE PROVISIONS OF S. 14A BY PROVIDING IN PARA 4 OF THE CIRCULAR THAT WHERE ASSESSMENT PROCEEDINGS HAVE BEC OME FINAL BEFORE 1 APRIL, 2001, THEN SUCH PROCEEDINGS SHOULD NOT BE REOPENED UNDER S. 147. THE BOARD HAS REFERRED TO TH E FINALITY OF THE ASSESSMENT PROCEEDINGS, WHICH IS DIFFERENT FROM THE COMPLETION OF THE ASSESSMENT PROCEEDINGS BY FORMAL ORDER OF ASSESSMENT. IT IS THE SETTLED LEGAL POSITION THAT A SSESSMENT PROCEEDINGS ARE INITIATED BY FILING OF THE RETURNS. NOW, THEREFORE, THE QUESTION ARISES WHETHER THE ASSESSMENT PROCEEDI NGS BECAME FINAL AFTER THE EXPIRY OF THE PERIOD OF LIMITATION PROVIDED UNDER S. 143(2). EVEN WHERE INTIMATION IS NOT ISSUED BUT THE PERIOD OF LIMITATION PROVIDED IN S. 143(2) HAS EXPIRED, THE A SSESSMENT PROCEEDINGS BECAME FINAL. THEREFORE, SUCH CASES WOU LD FALL WITHIN THE AMBIT OF PARA 4 OF THE BOARD CIRCULAR. CONSEQUE NTLY, THE AO IS PROHIBITED FROM TAKING ANY ACTION UNDER S. 147. IT IS A SETTLED LEGAL POSITION THAT WHAT CANNOT BE DONE DIRECTLY CANNOT B E DONE INDIRECTLY. IF THE AO IS PROHIBITED TO TAKE ANY ACT ION UNDER S. 147 IN TERMS OF THE PROVISO TO S. 14A, THEN HE IS ALSO PROHIBITED FROM REASSESSING THE INCOME EVEN THOUGH THE NOTICE UNDER S. 148 WAS VALID. IF THE AO IS PERMITTED TO TAKE ACTION IN THE VALID REASSESSMENT PROCEEDINGS, THEN THE PURPOSE OF THE P ROVISO WOULD SHRI SURESH K. JAJOO SMT. VIMLA S. JAJOO 50 BE DEFEATED. THE OBJECT OF THE PROVISO IS TO STOP T HE AO COMPLETELY FROM TAKING ANY ACTION WHERE THE ASSESSMENT PROCEED INGS HAVE BECOME FINAL. ACCORDING TO THE SETTLED RULE OF INTE RPRETATION, THE INTERPRETATION IN WHICH AUGMENT THE OBJECT SHOULD B E PREFERRED RATHER THAN THE INTERPRETATION WHICH FRUSTRATE THE SAME. IN VIEW OF THE ABOVE DISCUSSION, THE ACTION OF THE AO IN DISAL LOWING THE EXPENDITURE IN THE REASSESSMENT PROCEEDINGS WAS NOT JUSTIFIED SINCE THE PERIOD OF LIMITATION UNDER S. 143(2) HAD ALREADY EXPIRED BEFORE 1ST APRIL, 2001.VIPIN KHANNA VS. CIT (2002) 175 CTR (P&H) 335 : (2002) 255 ITR 220 (P&H) RELIED ON. (UN DERLINING BY US FOR EMPHASIS) 69. SIMILAR VIEW HAS BEEN EXPRESSED BY THE MUMBAI B ENCH OF THE ITAT IN THE CASE OF BOMBAY DYEING MANUFACTURING CO. LTD. (SUPRA). IN VIEW OF THE ABOVE, WE HOLD THAT THE DISALLOWANCE MADE U/S. 14A DESERVES TO BE DELETED AND THE SAME IS HEREBY DELETED. 70. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE S ARE ALLOWED. ORDER HAS BEEN PRONOUNCED ON 31 ST DAY OF MARCH, 2010. SD/- (N.V.VASUDEVAN) JUDICIAL MEMBER SD/- (P.M.JAGTAP) ACCOUNTANT MEMBER DATED : 31 ST MARCH, 2010 COPY TO : 1. THE ASSESSEE 2. THE RESPONDENT 3. THE CIT(A)-CONCERNED. 4. THE CIT, CONCERNED. 5. THE DR CONCERNED, MUMBAI 6. GUARD FILE BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI PS