Adinath Investment & Trading Co, Ludhiana V. ACIT, Ludhiana

ITA 531/CHANDI/2016

• Counselvise Citation: [2023] 100 COUNSELVISE.COM (IT) 6584 (ITAT-CHANDIGARH)
• Duration Of Justice: 7 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 18-07-2023
• Assessment Year: 1993-1994
• Appeal Filed On: 08-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Depreciation; Carry forward of business losses; Cost of acquisition; Set aside; Capital Gains
• Section: 147; 148; 154; 143(1)

Judgement Text

आयकर अपीलीय अिधकरण,च᭛डीगढ़ ᭠यायपीठ “ए” , च᭛डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “A”, CHANDIGARH ᮰ी संजय गगᭅ, ᭠याियक सद᭭य एवं ᮰ी िवᮓम ᳲसह यादव, लेखा सद᭭य BEFORE: SHRI. SANJAY GARG, JM & SHRI. VIKRAM SINGH YADAV, AM आयकर अपील सं./ ITA NO. 531/Chd/ 2016 िनधाᭅरण वषᭅ / Assessment Year : 1993-94 Adinath Investment & Trading Co. (Now known as Adishwar Enterprises LLP), Ludhiana बनाम The Asst. CIT Circle-1, Ludhiana ̾थायी लेखा सं./PAN NO: AAACA0176E अपीलाथᱮ/Appellant ᮧ᭜यथᱮ/Respondent िनधाᭅᳯरती कᳱ ओर से/Assessee by : Shri Pankaj Gupta, Advocate and Shri Rishit Dhingra, CA राज᭭व कᳱ ओर से/ Revenue by : Smt. Amanpreet Kaur, Sr. DR सुनवाई कᳱ तारीख/Date of Hearing : 19/07/2023 उदघोषणा कᳱ तारीख/Date of Pronouncement : 12/10/2023 आदेश/Order PER VIKRAM SINGH YADAV, A.M. : This is an appeal filed by the assessee against the order of the Ld. CIT(A)-1, Ludhiana dt. 29/02/2016 pertaining to Assessment Year 1993-94 wherein the sole ground of appeal relates to not allowing the claim of loss of Rs. 1,94,54,400/- due to fall in value of equity share of M/s Vardhman Spinning & General Mills Ltd. 2. Briefly, the facts of the case are that the assessee company filed its return of income, in the status of investment company in which public are not substantially interested, wherein it has reported its share of income from M/s Adinath Syndicate amounting to Rs. 75936/- as exempt under section 10(2A) of the Act under the head “Profit & Gains of Business/profession”. It has claimed capital loss on account of sale of non convertible portion of debentures of M/s Vardhman Spinning & General Mills Ltd. amounting to Rs. 9,87,485/-. Further it has claimed capital loss due to fall in value of equity share of M/s Vardhman Spinning & General Mills Ltd. amounting to Rs. 1,94,54,400/-. Thus total loss amounting to Rs. 2,04,41,885/- was claimed to be carry forward to next year 2 under the head “Capital Gain”. Besides that, the assessee company has reported dividend income of Rs. 11,62,438/- and interest income of Rs. 1,63,695/- and after claiming expenses and deductions under section 80-M has reported taxable income of Rs. 2,45,900/-. The return of income was processed under section 143(1) of the Act at the returned income of Rs. 2,45,900/- on 31/03/1994. 3. Thereafter, the AO while completing the assessment proceedings for subsequent year i.e; A.Y. 1995-96 observed that in the impugned A.Y. i.e; 1993- 94, the assesee has claimed capital loss of Rs. 2,04,41,885/- on account of sale of non convertible portion of debenture of M/s Vardhman Spinning & General Mills Ltd. and due to fall in the value of share of M/s Vardhman Spinning & General Mills Ltd. due to renunciation of its rights. The AO held that this was only a notional loss and was not allowable for the purpose of calculating the total income of the assessee. Accordingly, the AO issued a notice under section 148 dt. 06/02/1997 and proceedings were reopened u/s 147 of the Act. 4. During the reassessment proceedings, notices were issued and submissions were called for and matter was discussed with Ld. Counsel for the Assessee and the AO following the findings in A.Y. 1995-96 disallowed the claim of the assessee for carry forward of capital loss of Rs. 2,04,41,885/-. The AO refer to the assessment order for A.Y. 1995-96 wherein it was held that it was only a notional loss and that the assessee was a trader in share and therefore the income / loss earned by the assessee company by transaction in shares is to treated as business income. 5. The assessee carried the matter in appeal before the Ld. CIT(A)-1, Ludhiana. The Ld. CIT(A), Ludhiana referred to the order passed by his predecessor for A.Y. 1995-96 dt. 23/11/1998 and following the same held that the applicant was not a trader in share but the shares were held by it as investment and therefore the gain / loss from the sale of these shares represented capital gain / loss. 3 6. Subsequently, the assessee moved a rectification application before the Ld. CIT(A), Ludhiana and stated that besides the grounds, wherein the AO has held that the assessee company was not an investor but was a dealer in share and debenture, which were adjudicated by the Ld. CIT(A) while his order dt. 03/03/2003, the assessee also took other specific grounds of appeal relating to disallowance of loss on sale of debentures amounting to Rs. 9,87,485/- as well as disallowing the cost of acquisition of right to subscribe share of M/s Vardhman Spinning & General Mills Ltd. amounting to Rs. 2,72,36,160/- being the fall in market price of the original shares relatable to the right to subscribe partial convertible debentures relying on the decision of Hon’ble Supreme Court in case of Miss Dhun Dadabhoy Kapadia vs. CIT(1967) 63 ITR 651. 7. The Ld. CIT(A) while his order dt. 08/05/2006 adjudicated these grounds of appeal, namely Ground No. 4, 5 and 6 which were not adjudicated earlier and the relevant findings of the ld CIT(A) read as under: “The facts in this regard are that the appellant was holding 177886 equity shares of M/s. Vardhman Spinning & General Mills Ltd. on I I.I 1.92. The Company on that date (i.e. 11.11.92 being the record dale) under section 81 of the Companies Act announced a Rights Issue of Partly Convertible Debentures to the existing shareholders in the ratio of 1 Debenture for every 2 shares held as on record date. Therefore, the appellant was entitled to apply for 88933 rights to PCD on the basis of its original shares. The appellant retained 24085 rights, and renounced the balance 64848 rights @ Rs.l20A per right and received Rs.7781760/- as rights renunciation premium. The market quotation of equity share of Vardhman Spinning & General Mills Ltd. in Ludhiana Stock Exchange were as under: Last Cum Right Quotation On 30.10.92 Rs. 610.00 per share Last First Ex-right Quotation on 11.11.92 Rs. 400.00 per share Rs. 210.00 per share The appellant deducted this fall in the value on relatable original shares from the right renunciation premium received by it by relying on the Judgment of the Hon'ble Supreme Court in the case of Miss Dhun Dadabhoy Knpadia reported in 63 ITR 651. Excerpts from 63 ITR 651(SC) page 655 line 9 from top of para 2:- “A concomitant of the acquisition of the new right was the depreciation in the value of the old shares, and the depreciation may, in a commercial sense, be deemed to be the value of the right which she subsequently transferred. The 4 capital gain made by her would, therefore, be represented only by the difference between the money realised on transfer of the right, and the amount which she lost in the form of depreciation of her original shares in order to acquire that right." The calculation of loss suffered by appellant was as under: Right renunciation premium received on 64848 Rs. 77,81,760/- Rights @ Rs. 120 per right i.e. 64848 x 120 Less Fall in Value of relatable 129696 original Share @ Rs. 210 per share i.e. 129696 x 210 Rs. 2,72,36,160/- Rs. 19454400/- The Assessing Officer disallowed the loss claimed by the Appellant on the basis of the findings recorded in the assessment year 1995-96 by holding that it was only a notional loss and also that the appellant was a trader in shares, whereas in the case before Hon'ble Supreme Court, the person was an investor in shares, and hence the judgment of Apex Court was distinguishable on facts. In this regard, the appellant has placed reliance on the following judgments where the ratio laid down by the Hon'ble Apex Court was followed :- 1. CIT Va. K.A. Patch 81 ITR 413 (Bom.) 2. CIT Va. Oberoi Building & Inv. (P) Ltd. 203 ITR 403 (Cal.) Besides, a catena of judgments of the Hon'ble ITAT Delhi, Hyderabad, Bombay, and Chandigarh Benches were also filed before me where the judgment of the Hon'ble Supreme Court was followed, the last being the order dated 22.07.03 of the Hon'ble ITAT Chandigarh in 1TA No.482/Chandi/97 for A.Y.93-94 in the case of Mrs. Shakun Oswal. The appellant has also relied on the instructions under section, 144A dated 16.03.2000 issued by the Addl. CIT, Range-I ,Ludhiana in the case of Paras Finance & Trading Co. For A,Y. 93-94, where the loss by fall in value of original shares on renunciation of rights was allowed to the assessee, following the ratio laid down by the Hon'ble Apex Court. The Ld. Counsel also invited my attention to a recent Third Member decision in the case of ITC Ltd Vs. DCIT reported in 80 TTJ 15 (Cal), wherein the Hon'ble Third Member concurred with the Accountant Member that the capital gains or losses, on renunciation of rights entitlements, are to computed in the manner approved by the Hon'ble Supreme Court in the matter of Ms Dhun Dada Bhoy Kapadia Vs. CIT (1967) 63 ITR 651 (SC). In respectfully deference to the judgment of Hon'ble Supreme Court in the case of Dhun Dadabhoy Kapadia, I allow the ground of appeal in favour of the appellant and direct the assessing officer to allow the loss by fall in value of shares of Rs. 1,94,54,400 as claimed by the appellant. Following the ratio of Hon'ble Bombay High Court in the case of K.A. Patch, the loss by fall in value is also allowable to the appellant if considered as a trader as business loss. However, in view of my order dated 3.3.03 in appeal No. ROT 5 1/2002-03 holding that the appellant was not a trader in shares and the shares held by the appellant were investments, loss by way of fall in value of shares claimed by the appellant would be Capital loss. 8. Against the original order passed by the Ld. CIT(A), Ludhiana dt. 03/03/2003, the Revenue moved in appeal before the Tribunal. The Coordinate Bench vide its consolidated order dt. 15/05/2006 in ITA No. 437 & 438/Chd/2003 set aside the order of the Ld. CIT(A) and held that the income derived by the assessee was assessable under the head “income from business or profession” and not under the head “capital gain” and that the same was not to be set off against the brought forward capital loss. While holding so, the Coordinate Bench taken into consideration the paper book filed by the assessee as well as the application under section 158A considering that the issue stands covered against the assessee by the order of the Tribunal in assessee’s own case for A.Y. 1995-96. Accordingly, the application filed by the assessee under section 158A was also accepted and it was held that since the matter for A.Y. 1995-96 is pending in the High Court, the decision of the Hon’ble High Court or of the Hon’ble Supreme Court on the issue in A.Y. 1995-96 will also be applicable for A.Y. 1993-94 and 1994-95 as agreed by the parties before it. During the course of hearing, the Ld. AR stated at the BAR that the matter is still pending adjudication before the Hon’ble High Court for A.Y. 1995-96 and therefore as on the date of the present hearing, the order so passed by the Tribunal dt. 15/05/2006 continues to remain valid. 9. Further, against the subsequent order of the Ld. CIT(A) dt. 08/05/2006, the Revenue moved a separate appeal before the Tribunal. The Coordinate Bench vide its order dt. 28/12/2006 in ITA No. 626/Chd/2006 disposed off the said appeal wherein the order of the Ld. CIT(A) was set aside and the AO was directed to consider the set off and carry forward of losses claimed by the assessee on account of sale of non convertible portion of debenture of M/s Vardhman Spinning & General Mills Ltd. and loss due to fall in value of equity 6 share of M/s Vardhman Spinning & General Mills Ltd. in accordance with and in consequence to the decision of the Tribunal in assessee’s own case for the impugned assessment year dt. 15/05/2006 and the relevant findings are contained at para 2, 3 and 4 of its order which read as under: “The main grounds of appeal preferred by the revenue are as follows: 1. "That the learned CIT(Appeals) has erred in law and facts in allowing short term capital loss of Rs.9,87,485/- on sale of non convertible debentures ignoring the fact that the assessee was not an investor but trader in shares/debentures." 2. That the learned CIT(Appeals) has erred in law and facts in allowing capital loss on renunciation of right in shares ignoring the fact that the assessee was a trader and not an investor and natural loss could not have been allowed to a trader." The impugned appeal has been preferred against the order of the CIT(Appeals) passed u/s 154 of the Act. The background is that originally the CIT(Appeals) decided the appeal vide his order dated 3.3.03 whereby the abovesaid grounds remained to be disposed of. On the application by the assessee u/s 154 of the Act, the CIT(Appeals) has passed in impugned order which revenue is contesting. 3. In brief, the background of the impugned dispute is as follows: The assessee company filed its return of income for the assessment year 1993-94 declaring a net taxable income of Rs.2,45,895/-. The assessee declared income/loss under the heads profits & gains of business, capital gains as well as income from other sources. Under the head capital gains', the assessee declared a loss of Rs 2,04,41,885/- which was said to be carried forward to the next year. At the time of finalization of assessment proceedings, the Assessing Officer treated the assessee as a dealer in shares and therefore, income/loss declared under the head 'capital gains' was held to be assessable as an income under the head income from business and profession'. This aspect was carried in dispute before the CIT(Appeals), who vide his order dated 3.3.03 decided the issue in favour of the assessee. The Tribunal in the appeal of the revenue set aside the order of the CIT(Appeals) and held that the income/set off derived by the assessee under the head 'capital gain' was assessable as income under the head ‘income from business or profession'. Thus, the assessee was held to be a dealer in share and the sale of shares was held to be on revenue account. This position continues to prevail presently also. Both the parties, therefore, agreed that the issues raised in the present appeal are required to be adjudicated in the light of the prevailing legal position holding the field in view of the decision of the Tribunal for the assessment year 1993-94 in ITA Nos. 437 & 438/Chandi/03 dated 18.5.2006. 4. The learned counsel for the assessee submitted that he would be satisfied if the matter is restored back to the file of the Assessing Officer to consider the loss claimed by the assessee in its return under the head 'capital gains' in 7 accordance with the order of the Tribunal. As a result, I set aside the order of the CIT(Appeals) and direct the Assessing Officer to consider the set off and carry forward of the loss claimed by the assessee on account of sale of non-convertible portion of debentures of Verdhman Spinning & General Mills Ltd. and loss due to the fall in value of equity shares of VSGM Ltd. in accordance with and in consequence to the decision of the Tribunal in assesse's own case for the impugned assessment year.” 10. The AO in the set aside proceedings refer to the decision of the Tribunal dt. 15/05/2006 wherein it was held that income derived by the assessee was assessable under the head “income from business or profession” and not under the head “capital gain” and that the same was not to be set off against the brought forward capital loss. The AO held that the assessee has been held to be a trader in share and not a investor. It was held by the AO that any gain or loss that will arise under the head “income from business or profession” will arise only where there has been a actual transfer of share and in this case as there has been no transfer and its just a notional loss and therefore the notional loss of Rs. 1,94,54,400/- arising due to loss of fall in value of equity share of M/s Vardhman Spinning & General Mills Ltd. will not be allowed to be carry forward. 11. The assessee again moved in appeal before the Ld. CIT(A), Ludhiana who vide the impugned order dt. 29/02/2016 has dismissed the appeal of the assessee and the relevant findings are contained in para 2.5 which read as under: “2.5 I have considered the facts, the basis of the disallowance made and the argument of the AR during the course of assessment as well as appellate proceedings. The Hon'ble ITAT in its consolidated order for A.Y. 1993-94 and A.Y. 1994-95 in ITA No.437 and 438 in the appellant's own case held that income derived by the assessee is assessable under the head income from business and profession and not under the head capital gains and the same was not to be set off against brought forward capital loss. In giving the said finding, the Hon'ble ITAT relied on its own order in assessee's case for A.Y. 1995-96, in ITA No.591/Del/99. Subsequently, against the CIT(Appeals) order u/s 154 for the Appeal No.25/OT/IT/CITIAH/LD/2014-15 impugned year, the Hon'ble ITAT set-aside the order of the CIT(A) and directed the AO to consider the set-off and carry-forward of the loss claimed by the assessee on account of sale of non-convertible portion of debentures due to fall in value of shares of Vardhman Spinning and general Mills Ltd, in accordance with and in consequence of the decision of the Hon'ble Tribunal in assessee's own case for the impugned assessment year. 8 Accordingly, the AO rightly held that the loss on fall in value of equity shares of M/s Vardhman Spinning and General Mills being notional in nature will not be allowed to the assessee under the head 'capital loss' as the assessee is trader in shares. The loss or gain to be allowed will be under the head 'Income from business & profession', and will be allowed when there is actual transfer of shares, since there has been no actual transfer of shares, and it is only a notional loss has and therefore, even under the head 'Income from business & profession' there is no loss arising due to fall in the value of shares. It is not to be allowed as a 'capital loss' in any case, as the appellant has been held to be a trader in shares by the Hon'ble ITAT. The reliance placed by the AR on the case of Miss. Dhun Dadabhoi Kapadia vs. CIT 1967 (063) ITR 0651 (SC) dated 31.10.1996 and by the decision in the case of the Hon'ble Mumbai High Court in CIT vs. K.A. Patch (1971) 81 ITR 413 (Bombay) is misplaced as the said cases are distinguishable on facts. In the case of Miss Dhun Dadabhoi Kapadia vs. CIT (SC)(Supra), under a resolution passed at an extraordinary general meeting of the company, the appellant as a holder of 710 ordinary shares, became entitled to purchase new ordinary shares. The appellant chose to renounce her right to all the 710 ordinary shares instead of taking the shares herself, as per the option given to her, and sold the same in the open market. On the issue of the new ordinary shares, the value of her old ordinary shares had depreciated because the assets of the company remained stationary. while the number of shares increased and it was in consideration of the said depreciation in her original holdings that she had been given the right to purchase these new ordinary shares or to renounce them in favour of some other person to make up the loss suffered on the original shares. It was on consideration on these facts that it was held that the net capital gain by her was not represented by the whole amount of it and that the net capital gain can only be computed after deducting the amount of loss incurred by her in her original asset of old shares. Further, in the case of CIT vs. K. A. Patch (Bombay ) (Supra), the assessee on receipt of offer of 'rights issue', exercised the option to sell his right to subscribe to new shares and under the circumstances, it was held that it was necessary to set-off fall in value of original shares held by the assessee l.e. the depreciation in old shares on account of rights issue of shares was set-off against amount realized by sale of right. However, in the case of the appellant, the loss in the fall in value of equity shares is merely a notional loss as there has been no actual transfer of the shares. Therefore, the AO was justified in holding that the notional capital loss of Rs.1,94,54,400/-, due to fall in value of equity shares of M/s VSGM is not allowable even as a business loss. This ground of appeal is dismissed.” 12. Against the said findings and direction of the Ld. CIT(A), the assessee is again in appeal before us. It is therefore for the third time, the matter has travelled to the Tribunal and it was therefore essential to lay down the litigation history as we have noted above in order to determine the specific grievance of the assessee. 13. During the course of hearing, the Ld. AR submitted that given the litigation history of the assessee, the limited issue which is now before the Tribunal is 9 whether the assessee should be allowed the carry forward of business losses of Rs. 1,94,54,400/- or not. 14. It was submitted that the Ld. Assessing officer, in order dated 28.12.2007, held that, "The loss on fall in value of equity shares of M/s. Vardhman Spinning & General Mills being notional in nature will not be allowed to the assessee under the head "Capital loss" as the assessee is trader in shares. In this case, as there has been no transfer, it is just a notional loss and therefore, there will be no loss even under the head "Income from business and profession" of Rs. 19454400/- arising due to loss of fall in value of equity shares of M/s. Vardhman Spinning & General Mills Ltd", 15. The Ld. CIT(A) also upheld the action of the AO on the ground that the assessee did not sell any shares and as a result business loss is notional and cannot be allowed. 16. It was submitted that the Ld. CIT(A) erred in holding so as the calculations reproduced above clearly reflect that the assessee sold 64848 shares or rights and received Rs. 77,81,760/-. Assessee was entitled to these additional shares or rights because it was holding 1,29,696 old shares and as a result cost of acquisition of such additional shares or rights was the amount by which price of old shares reduced (as reproduced above). Now, as the cost of acquisition of these shares or rights was Rs. 2,72,36,160/- (i.e. cost is more than sale consideration) therefore assessee in view of the judgments of Hon'ble Supreme Court and High Courts claimed the differential as loss. Thus, contentions of the Ld.CIT(A) are against the facts of the case and also the legal position crystallized by the various Courts including the Hon'ble Apex Court. In all these cases there was notional loss only. 17. The assessee in support of its contention relies on the following judgments; 10  Miss Dhun Dadabhoy Kapadia vs. CIT, (1967) 63 ITR 651 (SC) "A concomitant of the acquisition of the new right was the depreciation in the value of the old shares, and the depreciation may, in a commercial sense, be deemed to be the value of the right which she subsequently transferred. The capital gain made by her would, therefore, be represented only by the difference between the money realised on transfer of the right, and the amount which she lost in the form of depreciation of her original shares in order to acquire that right. Looked at in this manner also, it is clear that the net capital gain by her would be represented by the amount realised by her on transferring the right to receive new shares, after deducting therefrom the amount of depreciation in the value of her original shares".  CIT Vs. K.A. Patch, (1971) 81 ITR 413 (Bom) "We had pointed out to Mr. Joshi that the facts of our case were not only similar, but identical, to those before the Supreme Court in Dhun Kapadia's case. Mr. Joshi made various attempts to distinguish our case from the case of Dhun Kapadia; but, in our opinion, he could not point out any effective distinction. One of the distinctions he sought to make was that Dhun Kapadia's case was a case of capital gains whereas the case before us is of business profits. Now, in our opinion, it is a distinction which does exist, but it makes no difference, because in the case of both capital gcins and revenue profit the amount is ascertained by deducting the cost price form the sale proceeds. In the case of capital gains the excess is a gain in the capital, whereas in the case of business profits, the excess is a revenue profit, but none the less, basically, both are profits. Of course, the fact whether it is capital gain or business profit merely affects the incidence and the rate of tax and the actual amount of tax may vary because of that reason, but the method of calculating the actual amount does not very and is the same. We do not see any distinction which makes a difference between the facts in the case before us and those before the Supreme Court in Dhun Kapadia's case. We are, therefore, bound by the principles laid down by the Supreme Court in that case and we propose to decide this reference on the basis of those principles".  CIT vs. Motichand Construction Co. Pvt. Ltd., (2003) 261ITR 70 (Bom) The Hon'ble Bombay High Court following its own judgment and that of Hon'ble Supreme Court (both cited above) held that the assessee will be entitled to loss which occurred due to renunciation of rights.  ACIT vs. Acropolish Investments Ltd, (2010) 328 ITR 664 (Guj) "The position therefore is that for the year under consideration in a case where rights entitlement offered to an existing shareholder are renounced in favour of a 11 third party, the transaction has to be worked out and the resultant gain or loss computed on the basis of the principles laid down by the apex Court in the case of Miss Dhun Dadabhoy Kapadia (supra) wherein it is stated In working out capital gain or loss, the principles that have to be applied are those which are apart of the commercial practice or which an ordinary man of business will resort to when making computation for his business purposes. The principles of accounting indicated by us above are clearly the principle that must be applied in order to find out the net capital gain or loss arising out of a transaction of the nature with which we are concerned...." 11. Thus, applying the principles laid down by the apex Court in the case of Miss Dhun DadabhoyKapadia ( supra) the Court does not find any case made out to interfere with the decision of the Tribunal holding that the assessee was entitled to the short-term capital loss claimed by the assessee. Therefore, in the facts and circumstances of the case the contention regarding the apex Court decision not being applicable due to change in the scheme of the Act does not merit acceptance. Similarly, the submission regarding the entitlement being to shares in the case before the apex Court and in the present case the entitlement being to convertible debentures is a distinction without any difference in principle.".  Navin Jindal vs. ACIT, (2006) 280 ITR 608 (P&H). The facts are as under; "The assessee held 1,500 shares in M/s. Jindal Strips Company. The company decided to issue rights shares and offered 1,875 rights shares at the rate of Rs. 100 per share with an option of renouncement. The assessee decided to renounce the rights shares in favour of M/s. Colorado Trading Company at the rate of Rs. 30 per share. In this manner, he realised Rs. 56,250 from the renouncement. The assessee claimed that due to issue of new rights shares, there was a sharp fall in the market value of shares already held by him. In this process, the value of his old shareholding depleted and resulted in a loss of Rs. 3 lakhs. He claimed this loss against the price of Rs. 56,250 realised on account of renouncement of his rights for issue of rights shares and claimed the balance loss of Rs. 2,43,750 as "short-term capital loss" The Ld.AO in the above noted case allowed the fall in value of old shares as cost of acquisition of rights or shares renounced in view of the judgment of the Supreme Court in Miss Dhun Dadabhoy Kapadia v. CIT(supra)and accepted the contention of the assessee that there was a net capital loss to the tune of Rs. 2,43,750. However, he held that the loss was in the nature of long-term capital loss and not short-term capital loss as claimed by the assessee. Thus, the department itself accepted the view point of the various Hon'ble Courts of the country and allowed the loss to the appellant in this case. However, in the assessee's case under appeal the department has taken a different stand though such stand is in divergence with the facts of the case and the law (as applicable to the assessment year under consideration) crystallized by the Hon'ble Supreme Court and followed by different High Courts and also the department itself. 12  CIT vs. Oberoi Building and Investment Pvt. Ltd., (1994) 203 ITR 0403 (Cal) "The net capital gain or loss to the assessee would be the difference between the value of the capital asset and the cash in her hands after she had renounced her right and realised the cash value in respect of it, and the value of the capital asset including the right which she possessed just before these new shares were issued and before she realised any cash in respect of the right by renouncing it in favour of some other person".  CIT vs. New Ambadi Investments P. Ltd., (2008) 304 ITR 0211 (Mad) The assessee in this case claimed the short-term capital loss of Rs. 22,42,053 for the transaction on the ground that the resultant fall in the market value of the existing shares should be deducted from the amounts received, relying on the decision of the apex court in the case of Miss Dhun Dodabhoy Kapadia v. CIT. The Hon'ble Court held that "In view of the decision of the apex court in Miss Dhun Dadabhoy Kapadia v. CIT[1967] 63 ITR 651 and the decision of the Bombay High Court in CIT v. Motichand Construction Co. P. Ltd. [2003] 261 ITR 70, we find that the law is well-settled on the point and, therefore, we hold that the assessee is entitled to claim the capital loss that had arisen due to transfer of rights issue to partly convertible debentures". 18. It was submitted that a perusal of the above judgments clearly reflect that the facts therein are identical to that of the assessee. The assessee also, as reproduced above, calculated gain as difference between amount realized on transfer of rights and the amount of depreciation in old shares. In view of the factual and legal position as enumerated above and prevailing at that point of time, the assessee claims that the loss incurred by it due fall in value of the shares as a result of renunciation of rights be allowed as business loss. 19. Per contra, the Ld. DR has relied on the order and the findings of the AO as well as that of the Ld.CIT(A). It was submitted that the facts in case of Miss Dhun Dadabhoy Kapadia vs. CIT(supra) are totally distinguishable as rightly held by the Ld. CIT(A) and similarly the various other decisions referred by the Ld. AR are also distinguishable on facts. It was submitted that there is no infirmity in the 13 findings of the Ld. CIT(A) and therefore the appeal filed by the assessee deserves to be dismissed. 20. We have heard the rival contentions and purused the material available on record. In case of CIT Vs. K.A. Patch (supra), the relevant facts before the Bombay High were as follows. In that case, the assessee an individual was carrying on business as a share broker wherein he used to regularly deal in shares of various companies which were traded by him as his stock in trade. The relevant stock which was under consideration were 1750 original shares of Tata Iron and Steel Co. Ltd. (TISCO) which the assessee had purchased before beginning of the accounting year and which were held by him as his stock in trade. The assessee’s practice was to account for shares held by him as his stock in trade at actual cost from year to year and he does not value the holding of the stock at the market price but continue to carry forward his holding from year to year at its original cost. During the relevant period, the TISCO came out with a right issue wherein the existing share holders were offered right to subscribe one new share for every five existing shares held by them. The assessee under the terms of the offer had a right to subscribe for 350 new shares of the right issue by paying Rs. 75 of the Face Value of each of the new share or to renounce the right and sell his right to the new shares. The assessee exercised the option to sell his right to subscribe to the 350 new shares offered to him and realised a sum of Rs. 27,500/-. In his assessment, the assessee initially claimed for the amount of Rs. 27,500/- being exempt from tax because it was a capital gain as it was the realisation of an accretion to his original stock in trade. In the alternative it was contended that where the realisation was his revenue profit then to the extent that the value of his existing stock in trade being the 1750 original shares had fallen as a result of the right issue, the fall of depreciation should be set off against the said sum of Rs. 27,500/- and if that was done, there would be a loss of Rs. 39,250/-. The ITO as well as the Appellate Commissioner held that the said sum of Rs. 27,500/- was business profit and was liable to tax. The Tribunal upheld 14 the second contention of the assessee and held that as against the realisation of Rs. 27,500/- by sale of his right, it was necessary to set off the fall in the value of the original 1750 shares and on that basis there was a loss and no profit. Against the decision of the Tribunal, a reference was made before the Hon’ble Bombay High Court at the instance of the Commissioner of Income Tax, Bombay. 21. In the aforesaid factual matrix of the case, the Hon’ble High Court held that there is no dispute that the original 1,750 shares were held by the assessee as his stock-in-trade. The assessee has given up his contention that Rs. 27,500 was a capital gain. There is therefore no dispute that the profit, if any, made by reason of the sale of the assessee's 350 shares of the rights issue would be his business profit and taxable as such. The only question is as to the method of calculating the profit, if any, bearing in mind his second contention. It was held that there is no dispute that in view of the fact that the assessee had all along maintained his stock at its original cost without revaluing it at the end of every year, the actual cost of 1,750 shares would be as shown in his books of account. There is no dispute that the new shares offered under the rights issue were to rank pari passu with the existing old ordinary shares and that a shareholder who exercised his right to subscribe to the appropriate number of shares offered to him would have to pay Rs. 75 per share to the company, that being the face value of each share. 22. Further the Hon’ble Bombay High Court referred to the decision of Hon’ble Supreme Court in case of Miss Dhun Dadabhoy Kapadia Vs. CIT (Supra) and referred to the facts in the said case wherein the assessee, who was not a dealer in shares, held by way of investment 710 ordinary shares in the Tata Iron and Steel Co. Ltd. The company made an offer to her by which she was entitled to apply for 710 new ordinary shares at a premium with an option of either taking the shares or renouncing them, wholly or partly, in favour of others. The 15 assessee renounced her right to all the 710 new shares and realised Rs. 45,262.50. The department sought to tax the whole sum of Rs. 45,262.50 as a capital gain. The assessee, however, contended that on the issue of the new shares the value of her old shares depreciated, since the market quotation of the old shares which was Rs. 253 per share immediately before the isue of the new shares fell to Rs. 198.75 immediately after the issue of the new shares and that as a result of this depreciation she suffered a capital loss in the old shares to the extent of Rs. 37,630 and that she was entitled to set off that loss against the capital gain of Rs. 45,262.50. She contended that, in the alternative, her right to receive the new shares was a right which was embedded in her old shares and, consequently, when she realised the sum of Rs. 45,262.50 by selling her right, the capital gain should be computed after deducting from that amount the value of the embedded right which became liquidated. The Supreme Court held that the assessee was entitled to deduct from the sum of Rs. 45,262.50 the loss suffered by way of depreciation in her holding of the old shares. The Hon’ble High Court then refers to the judgment of the Hon’ble Supreme Court at pages 654-55 of the report as follows : "At the time, therefore, when the appellant renounced her right to take these new shares, the capital asset which she actually possessed consisted of her old 710 shares plus this right to take 710 new shares. At the time of her transaction, her old shares were valued at Rs. 253 per share, so that the capital asset in her possession can be treated to be the cash value of 710 multiplied by Rs. 253 of the old shares plus this right to obtain new shares. After she had transferred this right to obtain new shares, the capital assets that came into her hands were the 710 old shares, which became valued at Rs. 198.75 per share, together with the sum of Rs. 45,262.50. The net capital gain or loss to the appellant obviously would be the difference between the value of the capital asset and the cash in her hands after she had renounced her right and realised the cash value in respect of it, and the value of the capital asset including the right which she possessed just before these new shares were issued and before she realised any cash in respect of the right by renouncing it in favour of some other person. As we have indicated above, the value of the capital asset, after renouncement, would be 710 multiplied by Rs. 198.75 plus the sum of Rs. 45,262.50 while the value of the asset, immediately before the renouncement, would be 710 multiplied by Rs. 253 there being no cash value at that time of the right to be taken into account. Thus, the capital gain or loss would be worked out at Rs. 45,262.50 after deducting from it the sum worked out at 710 multiplied by the difference between Rs. 253 and Rs. 198.75. This last amount comes to a little more than the sum of Rs. 37,630 which 16 the appellant claimed should be deducted from Rs. 45,262.50 in computing her capital gain. The claim made by the appellant was thus clearly justified because the net capital gain by her in the transaction, which consisted of issue of new shares together with her renouncement of the right to receive new shares and make some money thereby, could only be properly computed in the manner indicated by us above. In the alternative, the case can be examined in another aspect. At the time of the issue of new shares, the appellant possessed 710 old shares and she also got the right to obtain 710 new shares. When she sold this right to obtain 710 new shares and realised the sum of Rs. 45,26250 she capitalised that right and converted it into money. The value of the right may be measured by setting off against the appreciation in the face value of the new shares the depreciation in the old shares and, consequently, to the extent of the depreciation in the value of her original shares, she must be deemed to have invested money in acquisition of this new right. A concomitant of the acquisition of the new right was the depreciation in value of the old shares, and the depreciation may, in a commercial sense, be deemed to be the value of the right which she subsequently transferred. The capital gain made by her would, therefore, be represented only by the difference between the money realised on transfer of the right, and the amount which she lost in the form of depreciation of her original shares in order to acquire that right. Looked at in this manner also, it is clear that the net capital gain by her would be represented by the amount realised by her on transferring the right to receive new shares, after deducting therefrom the amount of depreciation in the value of her original shares, being the loss incurred by her in her capital asset in the transaction in which she acquired the right for which she realised the cash. This method of looking at the transaction also leads to the same conclusion which we have indicated in the preceding paragraph. The view that we have taken finds support from the principle laid down by this court for valuation of bonus shares issued by a company to holders of original shares in the case of Commissioner of Income-tax v. Dalmia Investment Co. Ltd. [1964] 52 ITR 567 /[1964] 7 SCR 210 (SC)" 23. The Hon’ble High Court held that the above observations of the Supreme Court appearing at page 654 hold that the correct method for evaluating the capital gain was to find out the aggregate of the ex-right value of the holding of the old shares and the actual cash received by the sale of the right to the new rights shares and deduct therefrom the cum-right value of the holding of the old shares. At page 655 of the report the observations put it in a different way when it is stated that the capital gain has to be ascertained by ascertaining the excess of the amount of appreciation in the face value of the new shares which would be the sale proceeds of the right to the new rights shares over the 17 amount of depreciation in the old shares which would be the same as the difference between the cum-right market value and the ex-right market value of the old shares. The Hon’ble High Court held that the facts in the present case were not only similar but identical to those before the Hon’ble Supreme Court in case of Miss Dhun Dadabhoy Kapadia Vs. CIT (supra) and there appears to be no distinguishing features and held that it was bound to apply principles laid down by the Hon’ble Supreme Court. 24. Further, referring to the contention of the DR wherein he sought to make distinction that the case of Miss Dhun Dadabhoy Kapadia Vs. CIT (supra) was a case of capital gain whereas the case before us is of business profit. The Hon’ble High Court held that it is a distinction which does exist but it makes no difference because in the case of both capital gains and revenue profit the amount is ascertained by deducting the cost price from the sale proceeds. In case of capital gains the excess is a gain in the capital whereas in the case of business profits the excess is a revenue profit but nonetheless both are profits. Of course the fact whether it is a capital gain or business profits merely affects the incidence and the rate of tax and the actual amount of tax may vary because of that reason but the method of calculating the actual amount does not vary and is the same. 25. In the instant case as the matter stands as of date and held by the Coordinate Benches (Supra), the assessee had purchased the shares of M/s Vardhman Spinning & General Mills not as investment but for the purpose of sale at profit, the share so dealt are held as stock in trade and the profit derived from the sale of such shares was therefore a revenue receipt liable to Income Tax under the head “income from business or profession” and not under the head “capital gain”. At the beginning of the F.Y relevant to the impugned assessment year, the assessee was holding 1,77,866 equity shares of M/s Vardhman Spinning & General Mills thereafter on the record date i.e. 11/11/1992, the company 18 came out with the right issue of partially convertible debenture to the existing share holders in the ratio of one debenture for every two shares held. The assessee was therefore became entitle to apply for 88,933 partially convertible debenture on the basis of its original share holding. The assessee retained 24,085 rights and renounce the balance 64,848 right @ Rs. 120/- per right and received a sum of Rs. 77,81,760/- as right renunciation premium. There is no dispute that the said amount is chargeable to tax as business profit. The assessee has however worked out the fall in the value of original shares amounting to Rs 2,72,36,160/- and has claimed the same as an eligible deduction while offering its income to tax. The same has however resulted in a net business loss of Rs 1,94,54,400/- which it has sought to carried forward to subsequent years. The said fall in the value has been worked out based on the market quotation in Ludhiana Stock Exchange wherein prior to the right issue, on 30/10/1992 last cum right price of the shares were Rs. 610/- per share and the first Ex-right price of the share on 11/11/1992 was Rs. 400/- per share resulting in fall in the price of the share by Rs. 210/- per share. The cum right price and ex-right price per share has not been disputed by the Revenue nor the quantum of fall in value of original shares so arrived has been disputed by the Revenue. 26. We therefore find that the facts of the present case are pari-materia with fact of the case before the Hon’ble Bombay High Court in case of CIT vs. K.A. Patch (supra) wherein the preposition laid down by the Hon’ble Supreme Court in case of Miss Dhun Dadabhoy Kapadia Vs. CIT (supra) has been followed and it has been held that it would make no difference where the shares are held as stock in trade or as an investment as the profits have to be worked out in a commercial sense taking into account the relevant accounting principles. 27. In the instant case, the business profits have to be ascertained by ascertaining the excess of the amount of appreciation in the face value of the new shares which would be the sale proceeds of the right to the new rights 19 shares over the amount of depreciation in the old shares which would be the same as the difference between the cum-right market value and the ex-right market value of the old shares. The assessee has rightly computed the same where right renunciation premium on 64688 rights have been determined at Rs 7781760 and depreciation in the value of the old shares have been determined at Rs 27236160/- and the net business loss of Rs 1,94,54,400/- has been claimed to be carried forward. 28. In light of aforesaid discussions and in absence of any contrary authority of the jurisdictional High Court or that of the Supreme Court brought to our notice, we do not see a reason but to follow the preposition laid down by the Bombay High Court in case of CIT Vs. K. Patch (supra). We accordingly set-aside the order so passed by the ld CIT(A) and allow the ground of appeal so raised by the assessee and the AO is hereby directed to allow the carry forward of business loss of Rs 1,94,54,400/- to subsequent years. 29. In the result, appeal of the assessee is allowed. Order pronounced in the open Court on 12/10/2023 Sd/- Sd/- संजय गगᭅ िवᮓम ᳲसह यादव (SANJAY GARG) ( VIKRAM SINGH YADAV) ᭠याियक सद᭭य / JUDICIAL MEMBER लेखा सद᭭य/ ACCOUNTANT MEMBER AG Date: 12/10/2023 आदेश कᳱ ᮧितिलिप अᮕेिषत/ Copy of the order forwarded to : 1. अपीलाथᱮ/ The Appellant 2. ᮧ᭜यथᱮ/ The Respondent 3. आयकर आयुᲦ/ CIT 4. आयकर आयुᲦ (अपील)/ The CIT(A) 5. िवभागीय ᮧितिनिध, आयकर अपीलीय आिधकरण, च᭛डीगढ़/ DR, ITAT, CHANDIGARH 6. गाडᭅ फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar