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3. The three respondent-companies are investment companies of Lalbhai group (also known as Arvind group). The fourth respondent-assessee Shri Anangbhai Ajaybhai is also a person belonging to the same group.

4. Shri Narendra Kumar, the learned AO has passed elaborate orders in the cases of the three respondent-companies. The facts relating to these cases are briefly as under:

The assessee filed a return of income declaring total income at NIL on 31st Dec., 1993. The return was processed under Section 143(1)(a). Subsequently, a revised return of income was furnished on 30th March, 1994, declaring NIL income. The assessee also claimed short-term capital loss of Rs. 12,88,000 in respect of sale of "Right offer", to be carried forward to subsequent years. The assessee was holding 27,990 shares of Arvind Mills Ltd. The cost price was shown at Rs. 6,00,638. The average cost of each share came to Rs. 22, Out of this, 5,000 shares were sold during the previous year. Arvind Mills Ltd. declared rights in the ratio of one convertible debenture for 10 shares held as on 18th Aug., 1992 (the record date). The assessee thus became entitled to get 2,800 rights in the ratio of 1:10. The assessee did not subscribe for the right offer of debentures but preferred to sell (renounce) these rights in favour of other group companies at the rate of Rs. 200 per right. The sale proceeds of Rs. 5,60,000 so received by way of consideration for the aforesaid transfer of right offer was credited as profit in the P&L a/cs. At the time of filing of the original return, no income attributable to aforesaid sale consideration of right offer transferred by the assessee was shown in view of the judgment of the Hon'ble Supreme Court in the case of CIT v. B.C. Srinivasa Setty (1981) 128 ITR 294 (SC) in which it was held that where cost of acquisition cannot be envisaged, no tax on capital gain can be levied. However, in the revised return the assessee claimed a loss of Rs. 12,88,000 in relation to the aforesaid transfer of right offer on the basis of interpretation of the judgment of the Hon'ble Supreme Court in the case of Miss Dhun Dadabhoy Kapadia v. CIT (supra). The value of shares of Arvind Mills Ltd. on 23rd July, 1992, as quoted on Ahmedabad Stock Exchange immediately prior to announcement of right offer was Rs. 246 per share. The first ex-right quotation as on 24th July, 1992, was Rs. 180. Thus there was a fall of Rs. 66 per share as a result of announcement of right offer by Arvind Mills Ltd. Since the one right was announced for 10 shares, the cost of one right was determined by the assessee at Rs. 660 per right on the basis of judgment of the Hon'ble Supreme Court in the case of Miss Dhun Dadabhoy Kapadia (supra). The assessee accordingly claimed loss of Rs. 12,88,000 at the rate of Section 460 per right offer (Rs. 660 being cost of one right computed as aforesaid minus Rs. 200 being sale price of right offer], in respect of 2,800 rights transferred by them.

The assessee submitted original return showing total income of Rs. 16,840 on 24th Dec., 1993. They filed a revised return on 30th March, 1994, declaring same income but also claiming carry forward of short-term capital loss of Rs. 18,55,180 on the sale of right offer issued by Arvind Mills Ltd. for allotment of one convertible debenture for 10 shares held. The assessee was holding 40,333 shares of Arvind Mills Ltd. costing Rs. 8,44,660 as per the assessee's balance sheet. The average cost of one share comes to about Rs. 20. The assessee became entitled for 4,033 rights for the shares held. They preferred to renounce/sell those rights to one of the group concerns M/s Arvind Polycoat Ltd. and received sale consideration at the rate of Rs. 200 per right amounting to Rs. 8,06,600. No capital gain/loss was shown at the time of filing of the original return on the aforesaid sale consideration of Rs. 8,06,600 received by the assessee, on the basis of the decision of the Hon'ble Supreme Court in the case of B.C. Srinivasa Setty (supra). However, in the revised return the assessee claimed loss on the basis of the judgment of the Hon'ble Supreme Court in the case of Miss Dhun Dadabhay Kapadia (supra) on similar basis. The loss was worked out as under:

5. The AO in the assessment orders of the respondent-companies has observed that all these assessees were owning certain shares of Arvind Mills Ltd. The average cost of such shares owned by all of them ranged between Rs. 20 to Rs. 22 per share as per their respective balance sheets. These assessees did not subscribe to the convertible debentures but opted to sell or renounce such right offer to other group concerns of the same group at the rate of Rs. 200 per right. The cum-right market value of one share of Arvind Mills Ltd. immediately prior to announcement of right offer was Rs. 246 per share and ex-right value after announcement of right offer was Rs. 180 per share. Thus, there was a decline in the market value of such shares by a sum of Rs. 66. However, the sale of right offer by these assessees did not affect the cost of original shares by these assessees. Even after announcement of right offer, the value of each share was Rs. 180. The market value of such shares as on 31st March, 1993, was Rs. 100 per share. The original cost of acquisition of these shares was approximately Rs. 20 to Rs. 22 per share. Thus, there was no depreciation in the original cost/value of these shares shown in the balance sheets of these respective assessees.

5.4. The AO has also given a detailed chart on pp. 10 and 11 of the assessment order in the case of Ajax Investments Ltd., giving complete details of rights of FCD transferred by various companies of this group in favour of Arvind Polycoat Ltd. M/s Arvind Polycoat Ltd. is also a company of the same group who had availability of finances with them. They made major investments in the right issue of Arvind Mills Ltd. by purchasing rights for FCD at the rate of Rs. 200 per FCD from various other companies of the same group. The details of other group companies who had invested in the right issue of Arvind Mills Ltd. by purchase of rights from other group companies, could not be gathered by the AO till completion of assessments in question. He has, however, observed that the whole scheme of operation of transfer of rights for FCD inter se between the companies of the share group are similar.