By Jagdish D. Shah, Jagdish T. Punjabi, Chartered Accountants
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Part B — Unreported Decisions
(Full texts of the following Tribunal decisions are available
at the Society’s office on written request. For members desiring that the
Society mails a copy to them, Rs.30 per decision will be charged for
photocopying and postage.)
17 ACIT v. Pal Enterprises
Pvt. Ltd.
ITAT ‘H’ Bench, Mumbai
Before M. A. Bakshi (VP) and
V. K. Gupta (JM)
ITA No. 1994/Mum./2005
A.Y. : 2001-02. Decided on : 20-10-2008
Counsel for revenue/assessee : Anadi Nath Mishra/ Jayesh
Dadiya
(i) S. 28(iv) of the Income-tax Act, 1961 — Dividend
on shares held in assessee’s name pending settlement of dispute — Whether such
receipt could be taxed in the assessee’s hand u/s.28(iv) — Held, No.
(ii) S. 145 of the Income-tax Act, 1961 — Shares held
as stock-in-trade valued at lower of cost or market price — In the absence of
trading during the year whether loss on account of lower market price could be
disallowed — Held, No.
Per V. K. Gupta :
Facts :
(A) Re : Dividend received on shares :
In terms of the family settlement certain shares held by the
assessee were to be transferred to Walchand & Co. Pvt. Ltd. However, on account
of certain reasons, the same could not be transferred. However, the physical
possession of the share certificates was handed over to the solicitors. The
dividend received by the assessee during the intervening period was shown as
liability in its accounts. According to the AO, had there been a dispute, the
same would have been so disclosed in the accounts of the assessee. Therefore, in
the absence thereof, the AO treated the same as benefit or perquisite chargeable
to tax u/s.28(iv) of the Act.
On appeal the CIT(A) held that the provisions of S. 28(iv)
could be applied only in a case where benefit or perquisite was received in kind
or when the assessee had credited such amount in the profit and loss account.
Accordingly, the addition made was deleted.
(B) Re : Loss arising on account of valuation of shares held as
stock-in-trade at market value :
The assessee was holding shares of Premier Automobile Ltd. —
both as investment and as stock-in-trade. As per its method of valuation, the
stock was valued at lower of cost or market price. On account of fall in the
market price of the shares, the shares held as stock were valued at the lower
figure which was claimed as loss. According to the AO, the assessee who belonged
to the promoter group of Premier Automobiles, would be holding the shares with
the sole motive of retaining the control. Therefore, it cannot be recognised as
stock-in-trade.
On appeal the CIT(A) noted that the assessee was an
investment company and these shares were held as stock-in-trade which were
valued at lower of cost or market price in accordance with the method
consistently followed, hence there was no justification in making addition on
account of the same.
Before the Tribunal, the Revenue justified the order of the
AO, on the ground that the shares held as stock-in-trade, without any
transaction of sale and purchase, could not be a proper source of loss, hence
the same was not allowable.
Held :
(A) The Tribunal noted that the impugned sum represented
dividend which was received from the year starting from F.Y. 1995-96 and
secondly, in some of those years, dividend income was exempt. Further,
according to the Tribunal, the provisions of S. 28(iv) could be applied only
in a case where an actual income was received by the assessee in the garb of
some benefits or perquisites and which were not shown as chargeable to tax.
According to the Tribunal, that was not so in the case of the assessee.
Accordingly, the order of the CIT(A) was upheld and the addition made on this
account was deleted.
(B) The Tribunal noted the facts that the assessee was
having shares — both as investment as well as stock-in-trade. The method of
valuation of stock was one consistently followed and accepted. Further, it
noted that the assessee was having substantial brought forward loss. Hence,
the practice followed cannot be termed as tax saving device. In view thereof,
the order of the CIT(A) was upheld.
