Income Tax Appellate Tribunal - Ahmedabad
Deputy Commissioner Of Income-Tax vs Rameshbhai Manibhai Patel. on 13 September, 1993
Equivalent citations: (1994)48TTJ(AHD)317
ORDER
R. N. SINGHAL, A.M. :
In this appeal by the Department objection is taken to the cancellation of reassessment made under S. 147(b).
2. Facts relevant to the issue are that assessee held, inter alia, 1200 equity shares of Metro Wood & Engineering Works Pvt. Ltd. Out of these 1200 shares assessee had acquired 500 shares at the rate of Rs. 100 per share at a total cost of Rs. 50,000 in the year 1957 and rest of the 700 shares were received by the assessee as bonus in the years 1966, 1967 and 1968. He sold all the 1200 equity shares in the previous year relevant to this appeal and at the time of original assessment the ITO accepted the working of capital gains furnished by the assessee. Therein, the assessee had adopted the substituted value of 500 original shares as on 1st January, 1964 by invoking the provisions of S. 55(2) at the rate of Rs. 172 per share (Rs. 86,000 in all). The assessee also took the value of 700 bonus shares by spreading out the said substituted value of Rs. 172 per share and arrived at a figure of Rs. 71.67 per share for the bonus shares (Rs. 50,169 in all). So from the total sale price of Rs. 2,10,000 assessee claimed cost at Rs. 1,36,169 (Rs. 86,000 plus Rs. 50,169) which gave rise to capital gains of Rs. 74,000 and add. The original assessment was made on 30th March, 1982 by accepting the working given by the assessee.
The Assessing Officer subsequently noted the Honble Madras High Court decision dt. 17th January, 1983 in the case of CIT v. T.V.S. & Sons Ltd. (1983) 143 ITR 644 (Mad) and treated it as fresh information on the point of law for reopening the case under S. 147(b). Consequently, he completed the reassessment by allowing the cost to the assessee in a sum of Rs. 86,000 only. This obviously resulted in gains being computed in respect of those shares at a figure the capital higher by Rs. 50,169; obviously because the element of cost pertaining to the bonus shares was not separately allowed. On appeal, the CIT(A) wrote a fairly detailed order and held that the reopening of the case was bad. He naturally did not go into the quantification of capital gains.
3. Before us, the learned Departmental Representative submitted that after the date of original assessment when the Madras High Court decision came to the notice of the Assessing Officer it certainly constituted fresh information and the Assessing Officer was entitle to reopen the case under S. 147(b). He cited Gujarat High Court decision in the case of K. Mansukhram & Sons vs. CIT (1982) 133 ITR 65 (Guj) and Bombay High Court decision in Trustees of Seth Hemant Bhagubhai Trust vs. CIT (1991) 190 ITR 494 (Bom) and went to the extent of saying that the Tribunal should now uphold the reassessment made even on merits in view of the fact that on this point Departments view has been upheld in the Gujarat High Court decisions in the case of Almbic Chemical Works Ltd. (No. 1) vs. CIT (1992) 194 ITR 497 (Guj) and Alembic Chemical works Co. Ltd. (No. 2) vs. CIT (1992) 194 ITR 514 (Guj).
4. The learned advocate for the assessee, however, submitted that the Honble Calcutta High Court decisions in the case of CIT vs. Steel Group Ltd. (1981) 131 ITR 234 (Cal) and CIT vs. General Investment Co. Ltd. (1981) 131 ITR 366 (Cal) were on this point in favour of the assessee. He submitted that those two Calcutta High Court decisions were not taken note of in the Honble Madras High Court decision in the case of CIT vs. T.V.S. & Sons Ltd. (supra) which was the basis of the Assessing Officer invoking the provisions of S. 147(b). He further submitted that the Department has actually accepted the decision of the Honble Calcutta High Court decision in the case of CIT vs. Steel Group Ltd. (supra) and in this view of the matter, the Assessing Officer was not justified in invoking the provisions of S. 147(b). The learned advocate in all fairness specifically conceded that ordinarily a High Court decision would constituted information on point of law for invoking the provisions of S. 147(b) and he further submitted that perhaps even a view expressed by an IAC (now Dy. CIT) in proceedings under S. 144B may constitute such information for the Assessing Officers working in that Range. He, however, submitted that since the Honble Calcutta High Court decisions had been accepted by the Board the Assessing Officer was not justified in reopening the matter under S. 147(b).
5. In regard to the learned Departmental Representatives request that in view of the Honble Gujarat High Court decisions in Alembic Chemical Works Ltd. (No.1) vs. CIT (supra) and Alembic Chemical Works Co. Ltd. (No. 2) vs. CIT (supra) the reassessment should be confirmed, the learned advocate submitted that even in the above mentioned Gujarat High Court decisions the Honble Calcutta High Court decisions in CIT vs. Steel Group Ltd. (supra) and CIT vs. General Investment Co. Ltd. (supra) were not referred to. He therefore, submitted that worst coming to worst the matter on merits deserves to be considered by the CIT(A) first and the Tribunal should not proceed to render a decision on merits when the merits have not been considered by the CIT(A) at all.
6. In the course of discussion, reference was also made to the Honble Supreme Court in Shekhawati General Traders Ltd. vs. ITO (1971) 82 ITR 788 (SC) and the Supreme Court decision in CIT vs. Simon Carves Ltd. (1976) 105 ITR 212 (SC).
7. We have very carefully considered the rival submissions and also perused the decisions cited before us. First and foremost point is regarding the validity of reopening under S. 147(b). As already mentioned the learned advocate for the assessee was fair enough to submit that ordinarily a High Court decision may constitute a valid information for invoking the provisions of S. 147(b). His objection is that the Honble Calcutta High Court decisions rendered earlier in point of time were in his favour and they were not referred to in the Honble Madras High Court decision which has formed the basis of reopening under S. 147(b). A perusal of the Honble Calcutta High Court decisions shows that therein whole lots of original and bonus shares were not sold. In the case before the Madras High Court the whole lot of original and bonus shares was sold. Actually the main plank of that decision is this factum. In the case before us the whole lot of original and bonus shares is sold. Therefore, in the instant case, this special circumstances existed which formed the main plank of the Honble Madras High Court decision. This aspect coupled with the fact that in judging the validity of reopening under S. 147(b) the appellate authority or for that matter even Court is not expected to substitute its view in the matter but has merely to see whether the reasons given have a nexus with the underassessment. In other words, even if two views are possible the view taken by the Assessing Officer would be accepted so long as it is a reasonable and plausible view. We are clearly of the opinion that the Assessing Officer on the basis of the Honble Madras High Court decision could have reasonably thought and formed a belief that underassessment had taken place. Therefore, the order of the CIT(A) on this point deserves to be reversed. We need only point out the specific sentence from the order of the CIT(A), which according to us, was clearly erroneous. That is on page 3 and is as follows :
".......... The subsequent pronouncement of the Madras High Court cannot be treated as settled law and, accordingly, it cannot be the basis of reopening of the assessment under S. 147(b) ..."
As already indicated the learned advocate for the assessee himself has in all fairness conceded that subsequently pronounced High Court decision can constitute information. In the context of sentence reproduced above we need only further mention that pronouncement need not be treated as settled law for the purpose of S. 147(b).
8. This brings us to the learned Departmental Representatives submission that the Tribunal should uphold reassessment on merits in view of the Honble Gujarat High Court decision in Alembic Chemical Works Ltd. (No.1) vs. CIT (supra) and Alembic Chemical Works Co. Ltd. (No. 2) vs. CIT (supra). The learned advocate for the assessee is right that ordinarily the matter should be restored to the file of the CIT(A) when merits have not been considered by him at all. The learned Departmental Representative is perhaps right in mentioning that in the meantime if there is a decision of the jurisdictional High Court available then the Tribunal can consider and apply the same for cutting short the avoidable litigation. On a careful study and detailed analysis we find that the ratio decidendi of the Honble Gujarat High Court decisions in the cases of Alembic Chemical Works Ltd. (No. 1) and Alembic Chemical Works Ltd. (No. 2) (supra) cannot be mechanically applied to the facts of this case. In the cases decided by the Honble Gujarat High Court the aspect of substitution of cost under S. 55(2) by fair market price on a specified date was not involved. In the case before us the substitution under S. 55(2) has been actually allowed in respect of 500 shares originally purchased by the assessee. Therefore, in the interest of justice, it would be better to restore the matter of quantification of capital gains to the file of CIT(A).
9. Before parting, we may further mention that the quantification as done in the original assessment also cannot be finally treated as correct. The reason is that averaging out the cost of bonus shares has been done in the original assessment with reference to the substituted cost of Rs. 172 per share and not as per the original cost price of Rs. 100 per share. The quantification of capital gains in such situations has given rise to various possibilities and various High Court decisions. As on this date perhaps a reasonable view would be that wherever substitution under S. 55(2) takes place for the relevant shares that is the final figure and for the subsequently acquired bonus shares the averaging out should be done with reference to the original cost and not the substituted fair market price under S. 55(2) - refer Supreme Court decision in Shekhawati General Traders Ltd. vs. ITO (supra) and Bombay High Court decision in W. H. Brady & Co. Ltd. vs. CIT (1979) 119 ITR 359 (Bom). We, however, do not express any final opinion at this stage in this case on this point, all the more so because we are restoring the quantification of capital gains to the file of the CIT(A).
10. In effect, Departments appeal is allowed and the cancellation of reassessment under S. 147(b) is vacated. The CIT(A) would decide the quantification on merits after giving the assessee and the Department reasonable opportunity of being heard.