Income Tax Appellate Tribunal - Mumbai
Yashodhan Industrial Investment Co. ... vs Assistant Commissioner Of Income Tax on 26 February, 2001
Equivalent citations: [2002]82ITD201(MUM)
ORDER
R.V. Easwar, J.M.
1. These are five appeals by the assessee to the asst. yrs. 1985-86 to 1989-90.
2. One of the issues, which is covered by the first two grounds for the asst. yrs. 1985-86 to 1988-89 and the only grounds for the asst. yr. 1989-90 and which is common to all the five years is whether the assessee is entitled to the deduction in respect of the fall in the value of the shares as claimed in the P&L a/c. The loss claimed is as under for the different years under appeal:
Asst. yr.
Loss claimed Rs.
1985-86 5,02,519 1986-87 31,388 1987-88 69,250 1988-89 69,504 1989-90 2,51,985 The assessee is a public limited company. In the P&L a/c for each of the years under appeal, the assessee debited the aforesaid losses as "value of investments written off". The AO was of the view that the losses were not allowable as business losses because they represented only the decrease in the value of the shares held by the company as investments and that the company had not carried on business as dealer in shares either during the relevant previous years or in the years prior thereto. The assessee's contention was that it was permitted by its memorandum of association to carry on business as an investment company and that in pursuance of such business the shares have been dealt with as stock-in-trade and have been valued at "cost or market price, whichever is lower". The AO found from the statement of accounts that the shares held by the assessee have not been treated as stock-in-trade but were shown as investments for the purpose of earning in income. It also appears that in the course of the assessment proceedings, it had been pointed out to the assessee that the loss was only a loss on revaluation of the investment and could not be allowed as deduction. The assessee would appear not to have objected to this. The AO proceeded to disallow the losses claimed as aforesaid in the assessments for the above reasons.
3. The assessee took up the matter in appeals before the CIT(A) and reiterated its contentions. In particular, it was submitted that the assessee had indulged in purchase and sale of shares in various years and the following details were submitted in support of the contention :
Accounting year Asst. yr.
Nature of transaction Amount Rs.
1978-79 1980-81 Loss on sale 3,54,988 1979-80 1981-82 Loss on sale 77,159 1980-81 1982-83 Nil Nil 1981-82 1983-84 Nil Nil 1983-84 1984-85 Loss on valuation of investment w/off 9,93,481 It was submitted on the basis of the above details that the losses for the asst. yrs. 1980-81 and 1981-82 had been allowed as deduction while computing the profits from the business and even in respect of the asst. yr. 1984-85 the loss on valuation of investments had also been accepted in the assessment. It was, therefore, contended that no different treatment should be accorded to the years under consideration. The assessee also placed reliance on the judgment of the Supreme Court in the case of Chainrup Sampatram v. CIT (1953) 24 ITR 481 (SC) and several other decisions. Reliance was also placed on the Book on Auditing by Spicer and Pegler, wherein a fall in the market value due to fluctuations in the market price was observed to be an allowable loss. The assessee also contended that the investment portfolio was held on trading account and, therefore, the loss in the valuation of shares so held was allowable as deduction.
4. We may also notice one other aspect of the matter. The assessee had purported to change the method of valuing the shares from the cost to the "cost or market price, whichever is lower", with effect from the asst. yr. 1984-85. This had resulted in the loss of Rs. 9,93,481 being claimed in the return, which was also accepted by the AO in the assessment, The assessment was, however, revised by the CIT under Section 263 of the Act and he set aside the same for being redone afresh. The ground on which the CIT set aside the assessment was that the allowance of the loss was not in accordance with law. This order was taken up in appeal to the Tribunal at the instance of the assessee and it would appear that the point argued before the Tribunal was that the theory of merger was applicable and, therefore, the assessment order which had been taken up on appeal by the assessee cannot be revised by the CIT under Section 263. There was a difference of opinion between the learned Members and the matter was finally resolved by the learned Third Member in favour of the CIT's jurisdiction to revise the assessment, by order dt. 1lth March, 1993. We are given to understand that till date, no assessment order has been passed giving effect to the directions of the CIT.
5. Turning now to the appeals before the CIT(A), he found that the assessee-company was originally carrying on business in the manufacture and sale of sugar under the name and style of Salar Jung Sugar Mills Ltd. which was sold as a going concern to another company by name India Sugars and Refineries Ltd. in June, 1972, for Rs. 26.68 lakhs. The sale price was paid in the form of shares in companies and book debts. In July, 1972, the memorandum of association of the assessee-company was changed and the following object was inserted :
"To carry on business as investment company, i.e. to carry on the activities of acquisition of shares, stocks, debenture and other securities as the principal business of the company and as a company established with the object of financing industrial enterprises."
The CIT(A) noted from the amended memorandum of association that the object of the company was to invest in shares and hold the shares as investments and there was no provision to enable the assessee to carry on any business as dealer in shares. He further found that for the asst. yr. 1977-78, an identical claim by the company to be treated as a dealer in shares was negatived by the ITO and the loss claimed was disallowed, which disallowance was also upheld by the CIT(A). There was no further appeal by the assessee to the Tribunal. For the asst. yr. 1984-85, the CIT(A) noted, as narrated earlier, that the order of the AO allowing the loss had been set aside by the CIT(A) under Section 263. So far as the question as to whether the assessee was a dealer in shares or an investor in shares is concerned, the CIT(A) held that neither from the basic documents such as the memorandum and articles of the company, nor from its accounts, can one draw the conclusion that the assessee was a dealer in shares. The assessee had no power to deal in the shares and the shares were shown in its accounts as investments. The assessee-company was also found to have invested in National Savings Certificates which according to the CIT(A) cannot be dealt with as shares. He also noted that if the shares had been held as the company's stock-in-trade, they would have been shown as opening and closing stocks in the accounts but they were not so shown and that they were shown in the balance sheet under the head 'investments', year after year.
6. Before the CIT(A), the assessee took up the contention that in the asst. yr. 1984-85, it had converted the investment into stock-in-trade and had accordingly changed the method of valuation of the shares from the historical cost method to the "cost or market price, whichever is lower" and any fall in the market price of the shares which are held as stock-in-trade should be allowed as deduction. The CIT(A) did not accept the contention on the ground that neither the documentation nor the conduct of the assessee nor even the entries made in the books of account established the claim that the company was a dealer in shares. As regards the assessee's claim that it was open to it to value the stock of shares on the basis of the rule "lower of the cost or market price" the CIT(A) was of the view that this can be accepted only if it is established by the assessee that the shares were held by it as stock-in-trade and not as investments. Since that was not established at all, the claim based on the change in the method of accounting was irrelevant. In this view of the matter, the CIT(A) rejected the assessee's contention that it was a dealer in the shares and that the losses on. revaluation of the shares claimed in the P&L a/c were allowable as deduction. He has summarised his findings and conclusions in para 19 of his order for the asst. yr. 1985-86. For the other years, he followed the order for the asst. yr. 1985-86 and rejected the assessee's claim.
7. The assessee is in further appeal before us for all the years contending that the shares were not held as investments but were held as stock-in-trade during the relevant accounting years and, therefore, the fall in the market value should be allowed as a loss. Mr. Trivedi, the learned counsel for the assessee, drew our attention to the details filed in pp. 117 to 119 of the paper book showing the profits taxed as business profits in the earlier years. These details have been furnished shareholding-wise. Our attention was also drawn to the letter dt. 18th Jan., 1989, written by the assessee to the CIT(A) which contained all the submissions of the assessee in respect of the asst. yr. 1985-86. Our attention was also drawn to the annual accounts for all the assessment years under appeal and which were placed in the paper book at pp. 18, 43, 68, 95, 132 and 171. These pages contain the P&L a/c for the relevant years which show a debit entry with the narration "value of investments written off". It was particularly pointed out that in respect of the accounting period commencing from 1st July, 1988, and ending with 31st March, 1989, the profit on sale of the investments amounting to Rs. 9,338 had been credited to the P&L a/c for that period and offered for tax as trading profit. The same has also been accepted in the assessment. It was further contended that the assessee had suffered double taxation because of the stand taken by the IT authorities. It was explained that though the IT authorities did not allow the loss arising on account of the fall in the market price of the shares for the years under appeal, while taxing the profits in the subsequent years they have taxed the difference between the sale price and the reduced market price. This according to Mr. Trivedi, has resulted in double taxation, once by way of disallowance of the loss and again by way of taxing the entire profits. Similar instances of double taxation were also pointed out by him with reference to p. 248 of the paper book, which contains the P&L a/c for the year ended 31st March, 1991, wherein profit of Rs. 1,14,371 has been credited as "profit on sale of investments (net)". The position is the same with reference to the asst. yr. 1992-93 in which year profit of Rs. 1,00,040 was credited to the P&L a/c. It was pointed out that the assessment for the asst. yr. 1992-93 has been completed accepting the profits as trading profits by order dt. 30th Sept., 1993, passed under Section 143(3) of the Act (page 325 of the paper book). On the basis of these facts, it was contended that the Department having in the earlier years accepted the assessee's claim of loss both on sale and on revaluation of the shares and in the subsequent years having accepted the profits on the sale of the shares as business profits, it was not open to the IT authorities to reject the assessee's claim for the year under appeal. It was contended by Mr. Trivedi that the conduct of the IT authorities showed that the assessee's claim that it was a dealer in shares is an accepted fact.
8. With regard to the claim that in the asst. yr. 1984-85 (year ended 30th June, 1983), the assessee had changed the method of valuation from historical cost to the "cost or market price, whichever is lower", Mr. Trivedi drew our attention to pp. 330 to 335 of the paper book, which contain the written submissions filed before the CIT(A). It was pointed out that the changed method was a recognised method, that the change was made for bona fide reasons and that the new method was also continued and consistently followed in the subsequent years and, therefore, the IT authorities ought to have accepted the assessee's contention that it was only a dealer in shares and not an investor in shares and ought to have allowed the assessee's claim on that basis. Reliance was placed on the following judgments :
(1) Investment Ltd. v. CIT (1970) 77 ITR 533 (SO);
(2) Fort Properties v. CIT (1994) 208 ITR 232 (Bom); and (3) Snowhite Food Products Co. Ltd. v. CIT (1983) 141 ITR 861 (Cal).
On the basis of the aforesaid arguments, Mr. Trivedi contended that the assessee was entitled to the deduction of the loss arising out of the fall in the market value of the shares in its assessments.
9. Mr; Trivedi raised another contention. Relying on the commentary in A. Ramaiya's Guide to the Companies Act, 14th Edn., at p. 2426, under the heading 'Meaning of investment company', he contended that though normally the word "investment" signifies only the acquisition and holding of shares and securities and thereby earning income by way of interest, dividend, etc., in actual practice, investment companies earned their income also by dealing in shares and securities. He, therefore, contended that the assessee-company should be considered as investment company as it has dealt in shares, as the past and future assessments would show.
10. The learned Departmental Representative, Mrs. Malathi Sridharan, on the other hand, drew our attention to the following findings recorded by the CIT(A) and heavily relied on them :
(i) As noted by the CIT(A) in para 14 of his order for the asst. yr. 1985-86, the assessee lost the issue for the asst. yr. 1977-78 before the CIT(A) and accepted the order of the CIT(A);
(ii) In the asst. yr. 1984-85, the directions of the CIT issued under Section 263 were upheld by the Tribunal which is a fact in favour of the Department;
(iii) The shares were shown as investment in the balance sheet which was inconsistent with the claim that the assessee was a dealer in shares;
(iv) The claim is not for allowance of an actual loss arising on sale of the shares but it is only for allowance of a notional loss in the market value of the shares which were not held as stock-in-trade but were held as investments;
(v) The manner in which the assessee acquired the shares--on the sale of its sugar unit in June, 1972--shows that the shares were capital acquisitions and, therefore, any loss in their market value can only be considered as a capital allowance;
(vi) There is no overt act or conduct on the part of the assessee to indicate that the shares hitherto held as investment were converted into stock-in-trade;
Besides placing strong reliance on the aforesaid findings of the CIT(A), the learned Departmental Representative put forth her own arguments in the following manner. She first submitted that the basic question to be considered in this case was whether the assessee was an investor or a dealer in shares and the other question viz., whether the method of valuing the shares as adopted by the assessee was proper or justified could arise for consideration only if the assessee is successful in the first question viz., that of establishing that it is a dealer in shares. She pointed out in this connection that as held by the Supreme Court in CIT v. Associated Industrial Development Company (1971) 82 ITR 586 (SC), the onus is heavily on the assessee to place material before the IT authorities and the Tribunal in support of its claim that the shares were held not as investment but as stock-in-trade. This duty, according to her, was more onerous in the present case because of the fact that the shares were capital acquisitions initially, had been shown as investment in the assessee's balance sheets, had not found a place in the trading or P&L a/c as opening or closing stock, which were all facts against the assessee's claim that it was a dealer in shares and further there was no evidence to show that the assessee was at least dealing in those shares in respect of which it had claimed loss on account of fall in the market value. She submitted that the principle laid down in Chainrup Sampatram (supra) to the effect that anticipated loss on fall in the market value can be allowed is confined to cases where the shares are held as stock-in-trade and cannot be extended to cases where they are held an investments. Adverting to the judgment of the Supreme Court in Raja Bahadur Visheshwara Singh v. CIT (1961) 41 ITR 685 (SC), the learned Departmental Representative submitted that in matters like this the past conduct of the IT authorities did not operate as res judicata or preclude them from holding that the assessee was not a dealer in shares but was only an investor. The same principle was also shown by the learned Departmental Representative to have been laid down by the Supreme Court in New Jahangir Vakil Mills Co. Ltd. v. CIT (1963) 49 ITR 137 (SC) and in Dalhousie Investment Trust Co. Ltd. v. CIT (1968) 68 ITR 486 (SC). She further submitted that the disclosure by the assessee in its accounts that the shares were held an investment (in the balance sheets for the year under appeal) is a very relevant factor to be considered in deciding the question whether the shares were held as stock-in-trade as claimed by the assessee. In support of this submission, the learned Departmental Representative drew our attention to Karamchand Thapar & Bros. (P) Ltd. v. CIT (1971) 82 ITR 899 (SC). She also submitted that an admission made in the assessee's own record as to the nature of a particular asset is also a very relevant fact in deciding the correctness of the assessee's claim and it is permissible for the IT authorities and the Tribunal to place reliance on the assessee's own record to show that the shares were held only as investment. Reliance in this connection was placed on the judgment of the Supreme Court in the case of Ashoka Viniyoga Ltd. v. CIT (1972) 84 ITR 264 (SC). It was submitted that the only condition is that the IT authorities or the Tribunal should have adequate material to justify their conclusion. Summing up the position in the present case, Mrs. Sridharan submitted that the loss claimed by the assessee is not a loss incurred in the course of trading in shares that at any rate, the assessee was unable to show how it could be regarded as a dealer in shares so as to be entitled to the loss. In other words, the state of evidence in the present case, according to her, was consistent only with the position that the assessee was an investor in shares and not otherwise.
11. Thereafter, Mrs. Sridharan proceeded to address arguments with reference to each one of the contentions raised by Mr. Trivedi for the assessee. With reference to the contention that the profits and losses arising from the sale of the shares were assessed as business profits or losses by the IT authorities themselves and with reference to the relevant pages in the paper book to which our attention had been drawn by Mr. Trivedi, she contended that this was not relevant to the issue before us. She pointed out that the profits or losses which were considered as business profits or losses in those assessments were actual or real profits or losses in the sense that they arose on the sale of the shares, whereas the loss claimed now is notional, arising merely out of a fall in the market price of the shares and, therefore, the past conduct of the IT authorities was not relevant to the controversy now before the Tribunal nor can be relied upon by the assessee. With reference to the argument of Mr. Trivedi that the profits on the sale of shares in respect of which the loss had been claimed in the years under appeal, have been assessed as business profits when they were actually sold in the subsequent years and with reference to the arguments put forth by him that this supported the assessee's claim that it was only a dealer and not an investor, Mrs. Sridharan submitted that in the subsequent years' assessment orders there was no informed decision or conscious finding that the assessee was a dealer in shares. She submitted that the assessee had offered the profit under the head 'business' in those years and without any examination of the issue, the profits were assessed as returned and this cannot be equated with a finding recorded consciously by the AO that the assessee is a dealer in shares. Our attention in this connection was drawn to the assessment order under Section 143(3) for the asst. yr. 1992-93, which is placed at p. 325 of the paper book and it was submitted that there is no discussion in this order on the question whether the assessee was a dealer or investor in shares. Our attention was drawn to the judgment of the Hon'ble Bombay High Court in Aditya Textile Industries (P) Ltd. v. CIT (1994) 209 ITR 779 (Bom), wherein the High Court had held that the Tribunal was right in interpreting its order for the earlier year and holding that the relevant issue was not decided by the AO or the Tribunal on the merits. It was, therefore, submitted that in the absence of any positive finding in the assessment orders for the subsequent assessment years to the effect that the profits were being assessed as business profits only because the assessee is a dealer in shares, those orders could not be relied upon by the assesses or at any rate, those orders are not of much evidentiary value. In answer to Mr. Trivedi arguments based on the assessee's right to change its method of valuation of the stock by changing the same from the historical cost to the principle "cost or market whichever is lower", the learned Departmental Representative submitted that it is premature to decide whether in the present case, it was proper for the assessee to change the method of valuation of shares as this question can arise only if the basic question, viz., whether the assessee is a dealer or investor in shares is first decided. As regards the claim on behalf of the assessee that there was double taxation, firstly because of the disallowance of the loss and secondly because of the assessment of the difference between the sale price of the shares sold in the subsequent years and the reduced value adopted by the assessee, the learned Departmental Representative submitted that this is the result of the assessee's own doing and that nothing prevented the assessee from claiming in the assessments of the later years that double taxation should be eleminated and the profits should be assessed only insofar as they represented the difference between the sale price and the historical cost. It was pointed out that it was assessee' duty to keep its rights alive by taking appropriate proceedings against the later assessment orders and if that is not done, the Department cannot be faulted, With reference to the P&L a/cs for the years under appeal to which our attention had been drawn by Mr. Trivedi on behalf of the assessee, Mrs. Sridharan pointed out that the entries made therein, on the basis of which the assessee claimed the losses, do not advance its case because they clearly refer to the shares as "investments" and not as stock-in-trade. It was further pointed out that in the balance sheet as on 30th June, 1984. In Schedule B forming part of the balance sheet, note 2 disclosed the basis of the valuation of the "investment"; it was, therefore, submitted that the company itself did not treat the shares in question as stock-in-trade but described them as investments in its accounts which is a strong piece of evidence in support of the Department's stand. Further, it was pointed out that there was no mention in the balance sheet for that year about any change in the method of accounting. As regards the reliance placed by Mr. Trivedi on the observations appearing in Ramalya's Guide to the Companies Act, 14th Edn. In support of his claim that the assessee having actually dealt in shares should be considered as an investment company, Mrs. Sridharan submitted that the real test, even assuming that an investment company would include a company which purchases and sells shares for profit, is to see whether the assessee actually bought and sold shares in the years under appeal and whether the loss claimed has arisen out of actual dealing in shares and securities. She contended that the assessee failed this test.
12. On the basis of the above arguments, Mrs. Sridharan, the learned Departmental Representative submitted that the only conclusion possible on the facts of the present case is that the assessee is an investor and not a dealer.
13. In the course of his reply, Mr. Trivedi, the learned counsel for the assessee, contended that the Tribunal's order for the asst. yr. 1984-85 was not an order on merits, but it merely affirmed the jurisdiction of the CIT under Section 263 and should not be construed as having decided the merits against the assessee. With reference to the argument of the learned Departmental Representative, that the assessment orders wherein the assessee's claim for assessing the profits or losses on the sale of shares as business profits or business losses did not show any application of mind, he drew our attention to the assessment order for the asst. yr. 1980-81 which is placed at p. 1 of the paper-book and pointed out that this order was passed after receiving the instructions of the IAC under Section 144B of the Act and, therefore, it cannot be stated that there was no application of mind: Our attention was also drawn to the assessment order for asst. yr. 1981-82 in which the claim of the assessee had been accepted by an order passed under Section 143(3) (page 3 of the paper-book). Mr. Trivedi also drew our attention to the returns and the assessment orders for the asst. yrs. 1989-90, 1992-93 and 1993-94 which are all placed in the paper book and submitted that all these would show that the Department had consistently accepted the assessee's claim that it was a dealer in shares and had completed the assessments on that basis.
14. With reference to the argument of the learned Departmental Representative that there is no res judicata or estoppel in income-tax proceedings, Mr. Trivedi drew our attention to the judgment of the Bombay High Court in the case of HA. Shah & Co. v. CIT/CEPT (1956) 30 ITR 618 (Bom) and contended that though estoppel or res judicata are not applicable to income-tax proceedings, it was necessary that there should be consistency in the stand taken by the IT authorities and a departure from the consistent stand should be justified on the basis of fresh facts or changed legal position. He submitted that as held in this judgment, a decision properly arrived at can be revised only if it is arbitrary, perverse or unjust and the Department not having shown that the earlier and subsequent assessments fell under this classification, the claim of the assessee for the years under appeal should be accepted.
15. We have carefully considered the facts of the case in the light of the rival contentions. In our opinion, the assessee is not entitled to succeed. It is not in dispute that the shares were acquired by the assessee as part of the sale consideration for the sugar mill which is sold in June, 1972. Thereafter, the memorandum of association was altered to include an object clause enabling the assessee to carry on business as investment company, i.e. "to carry on the activities of acquisition of shares, stocks, debentures and other securities as the principal business of the company and as a company established with the object of financing industrial enterprises". The object clause in terms did not authorise the company to deal in shares but that may not be conclusive and it is open to the assessee-company to show by leading evidence that it was in fact dealing in shares and not acting merely as an investor. But, the onus on the company, in such a situation is heavy. In the accounts of the assessee-company, the share were not shown as stock-in-trade but were shown as investments. This is clear on a reference to the balance sheet for the various years which have been compiled in the paper-book. The shares would have been normally shown as stock-in-trade if the company had at any time desired to deal in them and not merely hold them as investments. Thus, the memorandum of association coupled with the manner in which the accounts were maintained, showed that the shares in question were held only as investments. Now, if the assessee-company had desired to convert its investments either wholly or partly into stock-in-trade pursuant to the desire to trade in them as a dealer, there ought to have been a deliberate or conscious decision to that effect or an overt act or conduct showing a clear intention to trade in the shares. Such an intention, in the case of a company would have normally manifested itself in the form of a Board resolution, to say the least. This is not the case. We should have thought that in the case of a company which did not in terms have authority to deal in shares, an attempt would have been made to alter the memorandum of association by taking the power to act as dealer in shares. This also has not been done. The onus, therefore, which was heavily upon the assessee to show that it is not merely an investor but is also a dealer in shares and securities has not been discharged. The learned Departmental Representative was right in placing heavy reliance on the judgment of the Supreme Court in the case of CIT v. Associated Industrial Development Co. (P) Ltd. (supra). It was held in this case that the question whether a particular holding of shares is by way of investment or forms part of the stock-in-trade is a matter which is within the knowledge of the assessee who holds the shares and it should, in normal circumstances, be in a position to produce evidence from its records as to whether it has maintained any distinction between those shares which are its stock-in-trade and those which are held by way of investment. If the assessee makes no attempt to make out a case in its favour, the IT authorities would be justified in rejecting the claim. In Ashoka Viniyoga Ltd. v. CIT (supra), the company passed resolutions approving the purchase of shares and described them as investment. At some later stage, the word 'investment' was struck out. No material was placed before the IT authorities to show why in the original resolution it was mentioned that the shares represented investment and why the word investment was struck off later. The sale vouchers also described the shares as investment. On these facts, it was held that the Tribunal, which held that the shares were held as investment, was right in doing so by placing reliance on the resolutions as originally recorded and also on the sale vouchers. The ratio of this decision, as rightly pointed out by the learned Departmental Representative, is that the assessee's own records can be relied upon for arriving at a conclusion consistent therewith and if the assessee wants to challenge the same, if could do so, but the onus is very heavy upon it and there must be satisfactory explanation or other overwhelming evidence in support of the challenge. In the present case, the ratio of this judgment is fully applicable because both in the balance sheets as well as the schedules thereto, the shares have been treated only as investments and valued accordingly. The very entry of write off in the relevant P&L a/c described the shares as investments. The shares did not find a place in the trading account. There was no opening or closing stock of shares shown in the trading or P&L a/c. In the background of these facts, the onus was heavy upon the assessee to displace the natural inference that the shares were held only as investment and such an onerous task has not been fulfilled.
16. The past and subsequent assessments on which heavy reliance has been placed on behalf of the assessee, in our opinion, cannot debar the IT authorities from examining the question closely in the years under appeal, not merely because there is no res indicate or estoppel in income-tax proceedings but more so because in those assessments there is no informed decision or conscious finding that the assessee is a dealer in shares. The profits and losses were merely accepted on the basis of return and though some of the assessments were made under Section 143(3), there is no discussion on this aspect. At best, such orders can only be considered to be neutral in the sense that they are not against the assessee but it is not possible to accept the argument that by assessing the profits or losses as business profits or losses, the IT authorities had recorded a conscious finding to the effect that the assessee is a dealer in shares. We have gone through the assessment orders for those years and we find that in none of those orders is there any discussion on the question. The assessment order for asst. yr. 1980-81, though passed under Section 143(3) r/w Section 144B, does not contain any discussion as to the nature of the profits or losses arising on the sale of the shares. The same is the position for the asst. yr, 1981-82. In respect of the asst. yr. 1984-85 also, the assessment has been made under Section 143(3) but there is no discussion about the allowance of loss of Rs. 9,93,481 arising on account of valuation of the investments. The assessments for the later years viz., 1992-93 and 1993-94, also do not contain any discussion on this point. On the other hand, in the assessment order for the asst, yr. 1992-93, there is a reference to the assessee being an investment company. This itself shows that there was no application of mind on the part of the AO as to the nature of profits arising on sale of the shares, because if he has stated that the assessee was an investment company, it follows that the profits have to be treated as capital gains; the fact that they were assessed as business profits without any discussion itself shows lack of application of mind on the part of AO. The same is the position for the asst. yr. 1993-94 wherein also there is no discussion in the assessment order on this aspect of the matter, The judgment of the Bombay High Court in the case of Aditya Textile Industries (P) Ltd. v. CIT (supra) cited by the learned Departmental Representative supports her contention that there should be a conscious decision in the earlier years on such an important issue and in the absence of such a decision, those orders cannot operate as res judicata or estoppel and the Department is entitled to examine the question in another year. The judgment of the Supreme Court in the case of Dalhousie Investment Trust Co. Ltd. v. CIT (supra) goes further and says that even if there is a decision of the Department in the earlier years that the transactions were in the nature of change of investments, it was not binding in the proceedings for assessment of the subsequent years.
17. There is also another aspect of the matter. In the past and subsequent assessments, except the asst, yr. 1984-85, the profits or losses arose on actual sale of the shares whereas for the years under appeal, the losses claimed represent not actual losses but losses arising out of the fall in the market price of the investments. Therefore, there is a difference in the factual position also and at least for this reason, the past assessments cannot constitute res judicata or estoppel. So far as the years ended 31st March, 1989, 31st March, 1991 and 31st March, 1992 are concerned, the profits arose on sale of the shares no doubt, but even such profit has been described in the P&L a/c for these years as "profit on sale of investments" (pp. 171, 248 & 287 of the paper book). Thus, the factual position in the subsequent assessment years also is different. Therefore, even assuming that the Department has consistently assessed the profits or losses in the past and the subsequent years under the head 'business', still that decision cannot be applied to the years under appeal because of the difference in the crucial fact viz., that for the years under appeal, the losses claimed arise not out of actual sales but out of the fall in the market price of the investments. A decision taken by the IT authorities, even assuming that such a decision was taken consciously after due application of mind--though that is not the case here--on a particular set of facts and circumstances cannot be imported into a different set of facts and circumstances and it cannot be successfully contended that the same decision should hold good in a different context. Thus, we are of the opinion that the assessment of profits or losses arising out of the sale of the shares in the asst. yrs. 1980-81 and 1981-82 as well as in the subsequent assessment years viz., 1992-93 and 1993-94, cannot advance the assessee's case. The mere reliance placed on those assessments does not absolve the assessee of its onus.
18. The next question is whether there is anything to show that the investments were converted into stock-in-trade at any point of time. We may recall the argument of the learned Departmental Representative that there is nothing to show that the shares held as investment were converted into stock-in-trade. We must give effect to this argument. As already noted, in Schedule B to the balance sheet as on 30th June, 1984, in note 2, the assessee-company has furnished the basis of the valuation of the "investments". They have not been described as stock-in-trade. They have not entered the trading & P&L a/c. They find a place only in the balance sheet and that too as investments. This is not merely for the year ended 30th June, 1984, but the same position holds good for the other years under appeal also as we find from the relevant balance sheets. Thus, the claim that the investments were converted into stock-in-trade has no basis at all and is not borne out either by the accounts of the assessee-company or by its conduct or by any minutes or resolutions passed at the Board meetings. It follows that the claim that there was a change in the method of valuing the stock-in-trade from the historical cost method to the 'cost or market whichever is lower' method is hollow and wholly untenable. The question of change in the method of valuing the shares, as rightly pointed out by Mrs. Sridharan on behalf of the Department, can arise only if the shares were held as stock-in-trade in the first place. If they have been held as investments, as in the present case, right through, and if there is no evidence of they being converted into stock-in-trade, there is no question of change in the method of valuing them as part of the method of accounting.
19. The learned counsel for the assessee had referred to the judgment of the Supreme Court in the case of Investment Ltd. (supra). In that case, the assessee had described the shares as investment in the balance sheet and it was held that this was not conclusive and that no decisive inference arises therefrom. This part of the judgment may appear to support the assessee before us, but at p. 536 of the report, there is reference to the ITO holding, in the assessments for three other years, that the shares and securities were the stock-in-trade of the assessee-company. As we have already seen, such an express or conscious decision is absent in the present case in the assessments of the past or subsequent years. Further, the Supreme Court has not said that such a finding by the ITO in the other years is conclusive or binding on him, but has only held that the finding is good and cogent evidence of the nature of the transactions in shares and securities. In the present case, even if it is held that there is an express decision or finding by the AO in the past or subsequent years to the effect that the assessee was holding the shares as stock-in-trade, that would not help the assessee because in those years, the assessee had actually sold the shares, whereas in the years under consideration, the assessee has described the loss as "value of investments written off". Further, in the case before the Supreme Court, the assessee had actually suffered a loss on the sale of the securities which was refused to be allowed as a business loss. Thus, there are features in the present case which distinguish it from the case before the Supreme Court.
20. The judgment of the Bombay High Court in the case of Fort Properties (P) Ltd. v. CIT (supra) cited by Mr. Trivedi, is also not applicable. In that case, it was held that the way in which entries were made in the books of account was not decisive of the question whether the asset was held as a capital asset or stock-in-trade. In the present case, the assessee has consistently described the shares as investment in its accounts. This is so for a number of years including the years ended 31st March, 1989, 31st March, 1992 and 31st March, 1993, in which years some of the shares were sold and the profits were shown in the P&L a/c as profits on sale of investments. The shares had been originally acquired by the assessee on sale of its sugar unit, which was itself a capital asset and thus even in the original instance, the shares were capital acquisitions. There is no overt act or conduct or documentary evidence to show an intention on the part of the assessee-company to hold the shares as stock-in-trade at any point of time. Such consistent conduct on the part of the assessee over a long period of time certainly gives rise to a fair and reasonable inference, in the absence of any evidence to the contrary, that the shares were held only as investments and not as stock-in-trade.
21. Mr. Trivedi had referred to Ramalya's Commentary on the Companies Act to contend that an investment company would also include a company which deals in shares and securities i.e. by buying shares with a view to selling them later at higher prices or selling them with a view to buying them later at lower prices. Even if this view is considered to be correct, what comes in the way of the assessee before us is that for the years under appeal, there has been no sale of the shares but what is claimed as a loss is only the fall in the market price of the shares. This can be allowed only if the shares have been held as stock-in-trade, but as we have seen earlier, there is no evidence to that effect. Therefore, the claim based on the observations of the learned author cannot be accepted.
22. There was a reference on behalf of the assessee to double taxation in the subsequent assessment years. As rightly pointed out by the learned Departmental Representative, this is the assessee's own doing and nothing prevented the assessee from offering for taxation only the excess of the sale price over the historical cost of the shares on the ground that the difference between the historical cost and the market price of the shares, which was claimed as a loss in the years under appeal, has not been allowed as a deduction. At any rate, the assessee has to pursue its remedies against those assessments to eliminate any double taxation. Those years are not before us. We may venture to add that if anything, this shows lack of application of mind on the part of the AO who mechanically brought the profits on the sale of the investments to tax in the subsequent years as business profits. The assessee has raised additional grounds to the effect that suitable directions should be given to the AO to eliminate double taxation in the subsequent assessment years. Since those years are not before us, it would be beyond our jurisdiction to issue any such directions. We reject the additional grounds.
23. The learned Departmental Representative had pointed out that the assessee had lost the identical issue before the CIT(A) for the asst. yr. 1977-78 and did not pursue the matter further as noticed by the CIT(A) in para 14 of his order for the asst. yr. 1985-86. The learned counsel for the assessee did not dispute the fact. Similarly, in the asst. yr. 1984-85, the directions of the CIT under Section 263 have been upheld by the Tribunal but only on the question of jurisdiction and the merits have not been decided by the Tribunal. The order of the Tribunal cannot, therefore, be stated to have decided the present issue on merits.
24. To sum up, we hold as under :
(1) The shares in question were acquired by the assessee as capital acquisitions in June, 1972, on sale of its sugar unit.
(2) They were held as investments and have also been described as such in the balance sheets. The shares have not been held as stock-in-trade and there is no evidence to show that the investments were converted into stock-in-trade at any point of time. Therefore, it follows that there is no merit in the claim that the assessee was entitled to change the method of valuation of the shares.
(3) The losses claimed in the years under appeal arose not on actual sales, but represent the fall in the market value of the shares, compared to the historical cost.
(4) The past years' and subsequent years' assessments cannot operate against the Department's stand for the years under appeal.
(5) The assessee has not discharged its onus to show that it is a dealer in the shares.
25. For all the above reasons, we reject the assessee's claim for allowance of the losses on account of the fall in the value of the investments written off in the P&L a/c for all the years under appeal.
26. There are a few other grounds in each of the years which remain to be disposed of. In respect of the asst. yr. 1985-86, ground No. 3 is against the disallowance of the bad and doubtful debts of Rs. 37,535. This is dismissed as not pressed.
27. For the asst. yr. 1986-87, ground No. 3 is to the effect that the IT authorities were not justified in making the addition of Rs. 2 lakhs in respect of provision for bonus relating to earlier years written back. The provision relates to the year ended 30th June, 1972. The amount of the provisions has been taken by the company to the reserve account. The assessee's contention was that since there was nothing on record to show that the liability ceased to exist in the accounting year relevant to the asst. yr. 1986-87, the provisions of Section 41(1) cannot apply. The CIT(A) noticed that the assessee has itself written back the sundry credit balance of Rs. 2 lakhs to the P&L a/c and this amount represents the bonus provision. The entry has been passed after 13 years and, therefore, the CIT(A) came to the conclusion that the liability to pay bonus had ceased. He also noticed that many of the employees in respect of whom the provision was made would have left the services or may have even passed away. Under these circumstances, he held that the write back of the provision was properly taxed.
28. The learned counsel for the assessee relied upon the judgment of the Supreme Court in the CIT v. Sugauli Sugar Works (P) Ltd. (1999) 236 ITR 518 (SC). He also stated that the provision to pay bonus was not allowed as deduction in the earlier years and hence the provisions of Section 41(1) are not attracted. The claim that the provision was not allowed as deduction in the earlier year was not controverted by the learned Departmental Representative. Under these circumstances, the judgment of the Supreme Court cited supra is applicable. Respectfully following the same, we delete the addition and allow the ground.
29. Ground No. 4 which is against the levy of interest of Rs. 1,83,662 under Section 217 is consequential. The AO is directed to give consequential relief.
30. For the asst. yr. 1987-88, the other grounds may be dealt with. Ground No. 3 is against the disallowance of depreciation of Rs. 60,729 on vats leased out by the assessee. The IT authorities have rejected the claim on the ground that the vats were not put to use during the accounting year. The learned counsel for the assessee has filed certificates which are placed at pages 351 and 352 of the paper book, from the factory managers of the lessee-companies to the effect that the wooden vats which were taken on lease from the assessee-company were put to use throughout the year. These certificates are dt. 14th Sept., 1990. They are additional, evidence, which were not before the IT authorities. However, having regard to the nature of the claim and in the interests of substantial justice, we admit them and restore the matter to the file of the AO who is directed to examine the claim in the light of the additional evidence and decide the issue in accordance with the law. Adequate opportunity may be given to the assessee.
31. Ground No. 4 relating to the deduction against the capital gains is dismissed as not pressed.
32. Ground No. 5 which is against the levy of interest under Section 217 is consequential.
33. For the asst. yr. 1988-89, ground No. 3 which is against the disallowance of triple shift depreciation on vats is dismissed as not pressed.
34. Ground No. 4 relating to interest under Section 217 is consequential.
35. For the asst. yr. 1989-90, there is no ground other than ground against the disallowance of the loss arising on account of fall in the value of investments written off which we have already dealt with.
36. Before closing, we place on record our appreciation for the very able and well-prepared arguments advanced by Mrs. Malathi Sridharan, the learned Departmental Representative.
37. In the result, while the appeal for the asst. yrs. 1985-86 and 1989-90 are dismissed, the appeals for the asst. yrs. 1986-87, 1987-88 and 1988-89 are partly allowed. The assessee is directed to pay costs which we assess at Rs. 5,000. The amount shall be deposited within 4 months from the date of receipt of this order with the Registry of the Tribunal and may be drawn by the Department by making an application for this purpose.