C I T JAIPUR vs. R B KISHORECHAND MAHESHSWARI J

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ITR/11/2004HC RajasthanRJHC02001003200411 July 2013Author: NARENDRA KUMAR JAIN-II,MAHESHWARI DINESH8 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the order passed by the ITAT did not call for interference and the referred questions deserved to be answered against the revenue. The Court found that the issue of conversion of shares into stock-in-trade did not actually arise in Assessment Year 1983-84, as the conversion had been carried out in preceding assessment years, and the department had not raised any objection then. Therefore, the ITAT was justified in observing that when the conversion was accepted by the department in prior years and followed by the assessee in the current year, the assessee's claim was unexceptionable. This position was consistent with decisions concerning other assessees of the same group, even for subsequent assessment years, which had been approved by the High Court. Regarding the valuation of converted stock, the ITAT was also correct in holding that the market value on the date of conversion should be used. Consequently, questions 1 and 2 were answered against the revenue. Question 3, concerning the allowance of loss in the share business, was held to be consequential to the process adopted by the assessee and approved by the ITAT, and thus was also answered against the revenue. The reference case was disposed of accordingly.

What were the facts?

The assessee, R.B. Kishorechand Maheshwari, converted shares of private limited companies, mostly controlled by his family group, into stock-in-trade. For Assessment Year 1983-84, the Assessing Officer (AO) disallowed the trading loss claimed by the assessee, holding that private limited company shares with transfer restrictions, not quoted on stock exchanges, and held within a family group, could not be converted into stock-in-trade. The AO also contended that even if conversion was allowed, the debit to the trading account should be at cost, not market value on conversion. The Commissioner (Appeals) upheld the AO's order. The Income Tax Appellate Tribunal (ITAT), however, allowed the assessee's claim, noting that the conversion had been accepted by the department in preceding assessment years without objection. The ITAT also held that the value of converted stock should be at market value on the date of conversion, citing a Supreme Court decision. The revenue filed a reference application to the High Court.

What were the issues?

The Tribunal had to decide the following questions of law: 1. Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in accepting the trading results of the share account notwithstanding that the assessee converted shares of private limited companies, mostly controlled by his family group, into stock-in-trade, and these shares were not quoted on any stock exchange? 2. Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that on conversion of shares into stock-in-trade, the value of the converted stock as on the date of conversion should be taken at market value and not at cost? 3. Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in allowing the loss in shares business? Assessee's Contentions: The ITAT's decision was justified because the conversion of shares into stock-in-trade had been accepted by the department in preceding assessment years without objection, and the same basis was followed in the assessment year 1983-84. The ITAT correctly applied the principle that the value of converted stock should be the market value on the date of conversion, as per the Supreme Court decision in Bai Shirin Bai Kooka. Revenue's Contentions: The revenue contended that shares of private limited companies, which were restricted in transfer, not quoted on stock exchanges, and held within a family group, could not be converted into stock-in-trade. Furthermore, even if conversion was permissible, the value of such stock should be at cost, not market value on the date of conversion. The revenue sought to challenge the ITAT's findings on these points.

Which sections of the Income-tax Act were involved?

Section 68

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Income Tax Appellate Tribunal, Jaipur Bench, Jaipur (‘the ITAT’

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C.P.Goyal PA 7

D.B. Income Tax Reference No.11/2004 8

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