THE COMMISSIONER OF INCOME TAX-V vs. RAJIV S MARADIA

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TAXAP/672/2011HC GujaratGJHC24025374201120 June 2012Author: HONOURABLE MR. JUSTICE VIJAY MANOHAR SAHAI,HONOURABLE MR. JUSTICE N.V.ANJARIA4 pages

AI SummaryDismissed

What did the High Court hold?

The High Court held that the shares of Mardia Chemicals Ltd. were converted into stock-in-trade in Assessment Year 1998-99, and this conversion was accepted by the Assessing Officer in the assessment framed under Section 143(3) for that year. Subsequent assessments up to Assessment Year 2001-02 were also completed under Section 143(3), accepting the shares as stock-in-trade. Therefore, the Assessing Officer lacked jurisdiction to question this treatment in the assessment year under appeal. The court reasoned that once an assessment under Section 143(3) is completed for a particular year, it presumes that all transactions in the books of account for the previous year have been scrutinized. The CIT(A) and the Tribunal rightly concluded that the AO had lost jurisdiction to re-examine the classification of shares as stock-in-trade, as this position had been accepted since Assessment Year 1998-99 and in subsequent years. The court found no infirmity in the Tribunal's findings and concluded that no substantial question of law arose.

What were the facts?

The Revenue appealed against an order of the Income Tax Appellate Tribunal (ITAT) dated October 15, 2010, concerning Assessment Year 2002-03. The assessee, Rajiv S Maradia, declared his total income as Rs. 9,72,628, treating shares of Mardia Chemicals Limited as stock-in-trade. The assessee was a promoter of Mardia Chemicals Limited and had provided an undertaking to ICICI Bank that these shares would not be transferred or disposed of. The Assessing Officer (AO) believed this was a colorable device to avoid tax, re-calculated the net profit to Rs. 27,18,908, and completed the assessment under Section 143(3) on March 30, 2005. The CIT(A) partly allowed the appeal, holding that the shares were converted to stock-in-trade in Assessment Year 1998-99 and the undertaking did not curtail this right. The ITAT confirmed the CIT(A)'s decision.

What were the issues?

1. Whether the Appellate Tribunal was right in law and on facts in not appreciating that by showing the value of shares as opening stock at a much higher price and closing stock at a much lower price in the Profit & Loss Account, the assessee concealed his real taxable income and employed a colorable device to avoid tax liability? (Question of law and fact, concerning concealment of income and tax avoidance). 2. Whether the Appellate Tribunal was right in law and on facts in not appreciating that there was no transaction at all during the relevant period and the assessee merely showed the value of shares as opening stock and closing stock in the Profit & Loss Account, thereby avoiding tax liability on his real taxable income? (Question of law and fact, concerning the nature of share valuation and tax avoidance). Assessee's Contentions: Not recorded in the judgment. Revenue's Contentions: The assessee used a colorable device by showing shares as stock-in-trade with fluctuating values to conceal real taxable income and avoid tax liability. The valuation of shares as opening and closing stock without actual transactions during the period was a method to evade tax.

Which sections of the Income-tax Act were involved?

Section 260A,Section 143(3)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances

TAXAP/672/2011 1/4 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL No. 672 of 2011 For Approval and Signature: HONOURABLE MR.JUSTICE V. M. SAHAI HONOURABLE MR.JUSTICE N.V. ANJARIA ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment? 2 To be referred to the Reporter or not? 3 Whether their Lordships wish to see the fair copy of the judgment? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder? 5 Whether it is to be circulated to the civil judge? ========================================================= THE COMMISSIONER OF INCOME TAX-V Versus RAJIV S MARADIA ========================================================= Appearance : MRS MAUNA M BHATT for Appellant None for Opponent(s) : 1, ========================================================= CORAM : HONOURABLE MR.JUSTICE V. M. SAHAI and HONOURABLE MR.JUSTICE N.V. ANJARIA Date : 20/06/2012

ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE N.V. ANJARIA) The Revenue has preferred this appeal invoking Section 260A of the Income Tax Act, 1961 (hereinafter referred to as 'the Act', for sake of brevity) to challenge the order dated 15th October 2010 of the Income

TAXAP/672/2011 2/4 JUDGMENT Tax Appellate Tribunal, Ahmedabad BenchB in ITA No.900/Ahd/2006.

0 Appellant has raised following two questions formulated in the memorandum of appeal, as substantial question of law. “[A] Whether the Appellate Tribunal is right in law and on facts in not appreciating the facts of the case that by showing the value of the shares as opening stock at a much higher price and closing stock at a much lower price in Profit & Loss Account the assessee has concealed his real taxable income; it is a colorable device of the assessee to avoid tax liability? [B] Whether the Appellate Tribunal is right in law and on facts in not appreciating that there was no transaction at all during the relevant period and the assessee has merely shown the value of the shares as opening stock and closing stock in Profit & Loss Account and thus avoided tax liability on his real taxable income?”

0 We have heard learned counsel Mrs. Mauna Bhatt for the appellant.

0 The respondent assessee while filing his return of income for the Assessment Year 200203, declared his total income to be Rs.9,72,628/ and showed the shares of Mardia Chemicals Limited as stockintrade. The assessee was the promoter of Mardia Chemicals Limited, which had taken loan from ICICI Bank Limited and while securing that loan, the assessee had given undertaking to the Bank that the shares in question would not be transferred, assigned, pledged or disposed of in any manner and no encumbrance thereon would be created. The Assessing Officer was of the view that mere entry in the books of account was not determinative to treat the shares as stockintrade. According to him, the assessee had thereby concealed the real nature of the assets. The Officer

TAXAP/672/2011 3/4 JUDGMENT recast the profit and loss account and reworked the net profit putting it at Rs.27,18,908/ as against the figure of loss shown by the assessee. The assessment was under Section 143(3) of the Act and was completed on 30th March 2005. 4.1 The assessee filed appeal before the CIT(A)III, Ahmedabad, who by order dated 23rd January 2006 partly allowed the appeal of the assessee. The findings of the Appellate Commissioner were twofold. Firstly, he recorded that the assessee had converted his investment of shares into stockintrade in the income year 199899 and accordingly in the corresponding assessment year 199899 the shares were shown in the books of account as stockintrade. Further and secondly, the Commissioner (Appeals) held on merits that eventhough the undertaking was given by the assessee before the ICICI Bank Limited, it in no way curtailed the right of the assessee to convert his investment into stockin trade.

2 The Commissioner (Appeals) directed the Assessing Officer to withdraw the consequential disallowances. The Tribunal considered the issue in the appeal preferred by the Revenue and confirmed the decision of the Commissioner (Appeals) by the impugned order. The Income Tax Tribunal recorded its findings as under: “Admittedly the shares of Mardia Chemicals Ltd. were converted into stockintrade by the assessee in the assessment year 199899. For that assessment year, the Assessing Officer framed the assessment under section 143(3) wherein he accepted the conversion of shares of Mardia Chemicals Ltd. into stockintrade. In the subsequent assessment years, i.e. upto assessment year 200102 also, the assessments were framed under section 143(3) of the Act. These being the facts and circumstances, we are of the view that Learned Commissioner of Income Tax (Appeals) rightly took the

TAXAP/672/2011 4/4 JUDGMENT view that in the assessment year under appeal, the Assessing Officer has no jurisdiction to disallow the assessee's claim.”

0 From the facts on record, it transpired that the shares in question were treated by the assessee in the Assessment Year 199899 as stockin trade. The Assessment for that year was finalized and the conversion of shares into stockintrade remained unquestioned. For the subsequent assessment years also the assessment was finalized in accordance with law, and the books of account of the assessee reflected same position with regard to those shares treated as stockintrade. In that background, the Commissioner (Appeals) and the Tribunal both rightly concluded that the Assessing Officer had lost his jurisdiction to question the showing of shares as stockintrade, as such position was obtained since Assessment Year 199899 and the department had accepted in the subsequent years also. Once the assessment under Section 143(3) of the Act was completed for particular assessment year, it would raise a valid presumption that all the transactions reflected in the books of account of the assessee during the previous year had been scrutinized and checked.

0 In above view, no infirmity is seen in the findings and conclusion recorded by the Tribunal in its impugned order. They are proper and justified. In the facts of the case, no substantial question of law arises for consideration of this Court. The present Tax Appeal, therefore, cannot be entertained.

0 Accordingly, this Tax Appeal is dismissed. [V. M. SAHAI, J.] [N. V. ANJARIA, J.] Amit

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