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UTILITY SUPPLY PRIVATE LIMITED,MUMBAI vs DCIT CENTRAL CIRCLE 8(4) MUMBAI, MUMBAI | BharatTax

UTILITY SUPPLY PRIVATE LIMITED,MUMBAI vs. DCIT CENTRAL CIRCLE 8(4) MUMBAI, MUMBAI

ITA 3585/MUM/2024Status: DisposedITAT Mumbai03 April 2025AY 2017-1864 pages

AI SummaryN/A

Facts

The assessee, M/s. Utility Supply Private Limited, declared income for AY 2017-18. Following a search and seizure operation, the AO invoked Section 56(2)(viia) of the Income Tax Act, alleging that the assessee purchased shares of certain companies at less than their fair market value, and made a significant addition to income. The assessee contended that these shares were held as "stock-in-trade" for trading purposes, not as "capital assets," and challenged the validity of the approval granted for the assessment under Section 153D.

Held

The Tribunal found that the approval granted by the Additional Commissioner under Section 153D was mechanical, granted in haste (on the same day as submission and close to the time-barring date), and thus declared it invalid, rendering the assessment order void ab-initio. On merits, the Tribunal ruled that Section 56(2)(viia) is an anti-abuse provision not intended to tax transactions undertaken in the normal course of business where shares are held as "stock-in-trade" and therefore not applicable to the assessee's case. Consequently, the addition made by the AO was deleted.

Key Issues

1. Whether the approval granted under Section 153D of the Income Tax Act for the assessment was valid, considering the mechanical nature and lack of application of mind. 2. Whether Section 56(2)(viia) of the Income Tax Act is applicable to shares held by the assessee as "stock-in-trade" for regular business activities, or only to shares categorized as "capital assets."

Sections Cited

250, 143(1), 132, 153A, 153B, 153D, 56(2)(viia), 56(2)(vii), 2(14), 47, 50C, 148, 269SS, 269T, 10AA

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCH “F”, MUMBAI

Before: SHRI NARENDER KUMAR CHOUDHRY & MS. PADMAVATHY S

For Appellant: Shri Dhaval Shah, Ld. A.R

For Respondent: Ms. Smiti Samant, Ld. D.R

Hearing: 23.01.2025Pronounced: 03.04.2025

Per : Narender Kumar Choudhry, Judicial Member:

This appeal has been preferred by the Assessee against the order dated 14.06.2024, impugned herein, passed by the Ld. Commissioner of Income Tax (Appeals) (in short Ld. Commissioner) u/s 250 of the Income Tax Act, 1961 (in short ‘the Act’) for the A.Y. 2017-18.

M/s. Utility Supply Private Limited 2. Brief facts relevant for adjudication of the instant appeal are that the Assessee has claimed that it is also engaged in share trading and investment activities and during the assessment year under consideration, has declared income at Rs. 14,090/- by filing its return of income on dated 11.10.2017, which was processed u/s 143(1) of the Act.

Subsequently, on dated 22.03.2018 a search and seizure action u/s 132 of the Act was conducted in the case of Aachman Group and other related entities by the DDIT (Investigation), Unit- 6(1), Mumbai. The case of the Assessee was also covered under such search and seizure operation and consequently notice dated 06.12.2019 u/s 153A of the Act, was issued to the Assessee, in response to which the Assessee filed its return of income on dated 10.12.2019, declaring total income at Rs.”14,090/-”.

Thereafter, various statutory notices were issued, in response to which the Assessee from time to time, attended the proceedings and filed the requisite details, as called for. On verification of the details filed by the Assessee during the course of assessment proceedings and examining the return of income, it was observed by the Assessing Officer (AO) that the Assessee, during the assessment year under consideration, has purchased following shares:

"The assessee is a company registered with the Registrar of companies under the Companies Act 1956. The assessee is carrying on the business of investment and trading in shares and securities. During the year under consideration assessee has bought 33000 shares @ Rs. 10 per share of Robert Commercial (P) Ltd by making payment by way of account payee cheque of Rs. 3,30,000/-, Similarly it has purchased 50000 shares of M/s. Muktamani Distributors (P) Ltd @ Rs. 10 per shares by making payment by way of account payee cheque of Rs.5,00,000/-, 30000 shares of M/s. Navratna Management Pvt Ltd @ Rs. 10 per shares by making payment by way of account payee cheque of Rs. 3,00,000/-, 60000 shares of M/s. Mecons Commtrade Put Ltd @ Rs. 10 per shares by making payment by way of account payee cheque of Rs. 6,00,000/-, 330000 shares of Aachman Vanijya Pvt Ltd @ Rs. 10 per shares by making payment by way of account payee cheque of Rs.33,00,000/-. Here it is pertinent to M/s. Utility Supply Private Limited bring to your goodself notice that the said shares were purchased by the assessee for trading purposes and not not as an investment so as to be categorized as capital assets (Property). Before proceeding further it is worthwhile to discuss the provisions of section 56(2)(viia) of the IT Act 1961 which is reproduced here under. “where a firm or a company not being a company in which the public are substantially interested, receives, in any previous year, from any person or persons, on or after the 1st day of June, 2010 but before the 1st day of April, 2017, any property, being shares of a company not being a company in which the public are substantially interested, (i) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property; (ii) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration: Provided that this clause shall not apply to any such property received by way of a transaction not regarded as transfer under clause (via) or clause (vic) or clause (vicb) or clause (vid) or clause (vii) of section 47. Explanation. For the purposes of this clause, "fair market value of a property. being shares of a company not being a company in which the public are substantially interested, shall have the meaning assigned to it in the Explanation to clause (vii);" 1.1. A plain reading of the said section, its provision & explanation it is crystal clear that the intent of the revenue is not to tax the transactions entered into during the normal course of business or trade the profits of which are taxable under specific head of income. Before proceeding further your good offices attention is drawn to the definition of property as defined in section 56(2)(vii) of the Act. Wherein the definition of property is discussed. The definition discussed therein will have same meaning in the extended proviso to section 56(2)(vita) because the said proviso is an extension of section 56(2)(vii) only. If your goodself read the section strictly and harmoniously you will admit and appreciate that the proviso to the said section applies only in case of the property which is in the nature of capital asset in the hands of the recipient but would not apply where the property is in the nature of stock in trade, of any business of such recipient M/s. Utility Supply Private Limited 1.2. Further the said explanation prescribes the method for valuation of fair market value of the share which is discussed in para (b) to clause h of section 56(2)(vii). 1.3. The said proviso also says fair market value of a property (emphasis provided) which is defined in clause (d) to para 4 of section 56(2)(vii). If the meaning of property is read strictly and holistically it speaks of FMV of capital asset. Further capital asset is defined in section 2(14). The said section is produced above for better understanding as under. “capital asset” means- (a) property of any kind held by an assessee, whether or not connected with his business or profession; (b) any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 (15 of 1992), Your goodself attention is now drawn to para below clause (b) of section 2(14) which reads as under: "but does not include- (i) any stock-in trade other than the securities referred to in sub- clause (b), consumable stores or raw materials held for the purposes of his business or profession: (ii) personal effects, that is to say, movable property (including wearing apparel and furniture) held for personal use by the assessee or any member of his family dependent on him, but excludes- a) jewellery; b) archaeological collections; c) drawings; d) paintings; e) sculptures; or f) any work of art" Any stock in trade [other than the securities referred in sub clause(b)] consumable stores of raw materials held for the purposes of his business or profession. From the above definition it is crystal clear that securities held for the purposes of business is not a capital asset unless it is for investment purposes. 1.4. Moreover, if the meaning of property as provided in clause (d) to para (h) of section 56(2)(vii) is read in its true sense and strictly M/s. Utility Supply Private Limited your goodself will appreciate that all the assets mentioned in this clause i.e. from (i) to (ix) are in the nature of enduring and capital assets only and the concept of valuation of fair market value strictly applies in case of a property in the nature of capital asset. Therefore, to treat out of these capital assets shares and securities as non capital asset will defeat the purpose of this section because the main reason for introducing this provision was to curb black money. As far as purchases of shares and securities are concerned it can be for both capital or trading and the treatment depend upon the intention of the assessee and the entries passed in the books of accounts. If the intention of the assessee is to treat the purchase of stock as capital assets it will appear as Investment in balance sheet whereas in case for trading purposes it will appear as closing stock in balance sheet hence the true test is the intention, purpose and recording of same in books of accounts. The treatment of capital asset will decide the profit which can be as either STCG or LTCG or business profit. Hence it is crystal clear that purchase of share and security can be for both Investment and trading, in the impugned assessee's case the shares have been shown as trading asset in balance sheet, which was filed prior to search action it cannot be said now that it is for investment purposes. By doing so the meaning of capital asset will get defeated. Since in the case of assessee the shares have been purchased for trading purposes only and have been shown as such in balance sheet and read with the provision strictly & in harmonious manner it should not be interpreted as investment without any cogent/valid reason. 1.6 In view thereof your goodself will appreciate that the provision of section 56(2)(viia) are not applicable on purchases of shares for trading purposes. In this connection support is taken from the decision of Hon'ble ITAT Jaipur in the case of ITA No.392/JP/2019. 1.7 In view of the aforesaid facts and submission your good offices will find and appreciate that assessee company has bought the shares for trading purposes only and have correctly been shown as closing stock under the head current asset before the date of search it could not be now treated as investment for the purposes of invocation of provisions of section 56(2)(vita) without any valid reason. Since the aforesaid provision applies only to investment being capital asset and not as trading stock it has no application to the facts of the assessee's case. It is therefore submitted that the shares have been purchased at the prevailing market value & no addition as proposed in the notice should be made."

M/s. Utility Supply Private Limited 7. The AO though considered the aforesaid submissions of the Assessee, but found the same not acceptable, on the following reasons: “That section 56(2)(viia) of the Act was inserted by Finance Act, 2010 to prevent the practice of transferring of unlisted shares at a price different from the fair market value (i.e. no or inadequate consideration) of the shares and also included within its ambit transactions undertaken in shares of the company (not being a company in which public are substantially interested) either for inadequate consideration or without consideration, where recipient is a firm or a company (not being a company in which public are substantially interested). The Assessee has claimed to be engaged in the business of investments and trading of the shares and securities, however, from the website https://www.zaubacorp.com, the Assessee is identified being engaged in the business of other wholesale includes specialized wholesale not covered in any of the previous categories and wholesale is a variety of goods without any particular specialization. Further, the Assessee also contended that the section 56(2)(viia) of the Act is an extension of section 56(2)(vii) and section 56(2)(viia) of the Act is applicable only to the capital assets, however, sections 56(2)(vii) and 56(2)(viia) of the Act of the Act, are clearly distinguishable from each other. It is very clear from the definition of section 56(2)(vii) and 56(2)(viia) of the Act that section 56(2)(vii) of the Act is applicable to the individual and HUF only and section 56(2)(viia) of the Act is applicable to Firm and Private Company Assessee. Beside, this section 56(2)(viia) of the Act is applicable to the disallowance of shares of private companies only but not to “any property” as mentioned in the section 56(2)(vii) of the Act. Further, the non-applicability clause is also very clear in both the sections. Beside the above, the explanation applicable for section 56(2)(viia) of the Act is only related to “fair market value” as described in the explanation to section 56(2)(vii) of the Act, not all the explanation. In the light of above, it is very clear that the section 56(2)(viia) of the Act is not an extension of section 56(2)(vii) of the Act. Therefore, the contention of the Assessee is not acceptable at all.

14.

Thereafter, the case of the Assessee was considered by the Ld. Commissioner but not found acceptable and therefore he ultimately affirmed the aforesaid addition, by observing and holding as under: “10. During the appeal proceedings, it is contended that the appellant company is in the business of investment and trading in shares and securities. To support its contention, the appellant has submitted a copy of memorandum of association. It is submitted that, the alleged shares were purchased for the purpose of trading and not as an investment. In the Balance sheet also, these shares are shown as stock in trade and not as an investment. The provisions of section 56(2)(viia) are applicable for investment in capital assets and not for the regular business/trading activities. The appellant has further submitted that, on the M/s. Utility Supply Private Limited similar facts in case of related concerns namely Muktamani Distributors Pvt Ltd and Alishan Distributors Pvt. Ltd, the Ld CIT (A) has allowed the appeal by bolding that, the purchase of shares was for the trading purpose. I have considered the Assessee order, submission of appellant and report received from the A.O. The appellant contended that the alleged shares have been purchased for trading activity and for the same it has relied on entries made in the balance sheet showing the same as stock in trade This, the sole contention of the appellant is that the shares were purchased as part of regular trading activity of the appellant and hence the provision of section 56(2)(viia) are not applicable. The appellant has also submitted that the Id. OIT(A) or the same fact in the appellant sister concerns namely Muktamani Distributors Pvt. Ltd and Aalishan Distributors Pvt. Ltd has held that the purchase of shares are for trading purpose and hence provision of section 56(2)(viia) are not applicable. The appellant has also furnished the copies of the CIT(A) orders. 11.2 Now it is to be determined from the facts whether the appellant has purchased these alleged shares for the purpose of trading. On verification of the financials for the A.Y 2017- 18, It is seen that the appellant has purchased the shares of the various related entities. The details are as under:- 2017-18 1. Navratan 3000 300000 2819100 Management Pvt. Ltd. 50000 50000 2471500 2. Muktamani Distributors Pvt. Ltd. 60000 600000 2360400 3. Mecons Commotrade Pvt. Ltd.

5. Inventories 49,23,000. It is seen that the reserve and surplus is mainly on account of receipt of security premium. In the profit and loss account the total receipts are shown as Nil. From the above, It can be seen that the appellant itself is a paper company not carrying out any business activity. 11.6 From the perusal of the financials of the alleged four companies i.e. M/s. Muktamani. Distributors Pvt. Ltd, M/s. Navratan Management Pvt. Ltd, M/s. Mecons Commotrade Pvt. Ltd and M/s. Aachman Vanijya Pvt. Ltd, it is seen that these companies are also paper companies not carrying out any actual business activities. The shares of these companies are not listed and hence are not available L for trading on public platform. All M/s. Utility Supply Private Limited these companies are related concerns of the appellant and are closely held companies. 1.1.7. From the above discussion, it is evident that the appellant and the concerned companies are related entities which are closely held. The shares of these companies are not available for the trading purpose. From the financials of the appellant and these 4 companies it evident that, these are paper companies and not doing any business activities, In the backdrop of these facts, the contention of the appellant that the purchase of the shares of these related entities are for the trading purpose, is contradictory to the facts on record. It is also evident that no such trading activity has been carried out by the appellant. These shares are still held by the appellant. 11.8 Thus the whole facts demonstrate that, the acquisition of shares of these paper companies by the appellant is not for the purpose of business but for the purpose of acquiring stakes in these companies. Thus, the purchase is for investment purpose. and not for the trading purpose. Just because, in the balance sheet the appellant has classified/shown the same as stock in träde, the real intent of the transactions will not alter. Entries in the books of accounts are not determinative or conclusive. 11.8.2 The Honble Supreme Court in case of Kedarnath Jute Mfg com. Vs CIT(82 ITR 363) has held as under-(SC) "Whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might taken of Its right nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter. The assessee who was maintaining accounts on the mercantile system was fully justified in claiming deduction of the amount of sales tax which it was liable under the law to pay during the relevant accounting year. The liability remained intact even after the assessee had taken appeals to higher authorities or courts which failed. The appeal was consequently allowed and the judgment of the High Court was set aside." 11.8.3 The Honble Supreme Court in case of Taparia Tools Ltd Vs JCIT (55 taxmann.com 361) has held as under- "19.......merely because a different treatment was given in the books of account cannot be a factor which would deprive the Assessee from claiming the entire expenditure as a deduction. It has been held repeatedly by this Court that entries in the books of account are not determinative or conclusive and the matter is to be examined on the touchstone of provisions contained in the Act [See Kedamath Jute Mfg. Co. Ltd. v. CIT (1971) 82 ITR 363 (SC); M/s. Utility Supply Private Limited Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT [1997] 227 ITR 172/93 Taxman 502 (SC); Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1 (SC) and United Commercial Bank v. CIT [1999] 240 ITR 355/106 Taxman 601 (SC)." 11.8.4 Hon'ble Supreme Court in the case of Taparia Tools held that merely because a different treatment was given in the books of accounts cannot be a factor which would deprive the Assessee from claiming the entire expenditure as a deduction. It has been held repeatedly by this Court that entries in the books of accounts are not determinative or conclusive and the matter is to be examined on the touchstone of provisions contained in the Act. 11.9 In view of the above discussion, it is evident that the real intent to purchase the shares is not trading but to acquire the stakes in the related concerns. I have also perused the orders of Ld. CIT(A) submitted by the appellant, however I defer with the decision of my predecessor Ld. CIT(A). The appellant has not contested the valuation of shares (FMV). Accordingly, the addition made by the A. of Rs.14,70,85,848/- is confirmed. The appeal on this ground no 1 an additional ground is thus DISMISSED.”

“That in the instant case, the draft assessment order was submitted by the AO, to the Ld. Addl. Commissioner at the fag end of the assessment proceedings, on 27-12-2019 being a Friday, whereas the time barring date was 31.12.2019, which goes to show that 28.12.2019 and 29.12.2019 were Saturday and Sunday and therefore the approving authority was having only two working days in his hand i.e. 27.12.2019 and 30.12.2019 for granting the approval, in order to enable the AO to pass the final assessment order on 31.12.2019 and therefore there was no reasonable or sufficient time was available with the Ld. Additional Commissioner to apply his mind on the issues involved. And therefore the instant case is also covered by the Hon’ble Orissa High Court in the case of ACIT vs. Serajuddin & Co. (150 taxmann.com 146), wherein the Hon’ble High Court by pointing out that there are three mandatory conditions for an approval to be valid and in the absence of any reason in the approval to show that the draft orders are correct and merely using the words “seen” “approved” will not satisfy the condition of law. In that particular case the approval was sought only two days prior to the dead line like in the instant case and therefore the approval involved in the instant case is liable to be declared as invalid and not in accordance with law”. Moreover, the Ld. Additional Commissioner on the very same date i.e. 27-12-2019 as mentioned above has also granted approval in the cases of other entities by composite approval, which shows that the approving authority did not have sufficient time to go through and apply his mind to each M/s. Utility Supply Private Limited of the draft assessment orders separately, while granting the requisite approvals. Even otherwise the Ld. Addl. Commissioner has granted common approval for seven assessment years, instead of separate approval for each year as mandated in law and as clarified by the Hon’ble High Court of Allahabad in the case of PCIT vs. Sapna Gupta 147 taxmann.com 288 by holding that the approval for each assessment year is required to be given separately. Most importantly, from the approval, it is clear that there is no reference or discussion of any documents found during search, statements recorded of various persons, submissions filed by the Assessee during search and post search proceedings etc. and therefore, in absence of any such discussion, it cannot be said that the approving authority has applied its mind to the facts of the case before according approval. There is not even bare minimum whisper or mentioning of any reasons as to how the draft orders put before him were correct and legally valid. Mere mentioning that the draft orders have been perused and approved without even briefly stating how they are correct, cannot satisfy the conditions of law. “The Hon’ble Madhya Pradesh High Court as well in the case of CIT Vs. S. Goyanka Lime and Chemicals Ltd. (56 taxmann.com 390) also dealt with the situation, wherein the Ld. Commissioner accorded the approval by using the words “Yes, I am satisfied” without making any records as to how he was satisfied. Thus, the Hon'ble High Court held such approval as a mere mechanical approval. The Ld. Counsel further submitted that such order of the Hon'ble High Court has stands affirmed by the Hon'ble Apex Court in the case of S. Goyanka Lime and Chemical Ltd. 64 taxmann.com 313”.

In the above case, the approval granted had been struck down by the Hon'ble Orissa High Court for inter alia the following reasons (Para 22 and 23 of the order, page 217 of the Case Law Paper Book No. 2): (a) ...there is not even a token mention of the draft orders having been perused by the Additional Commissioner. The letter simply grants an approval. (b)...it is an admitted position that the assessment orders are totally silent about the Assessing Officer having written to the Additional Commissioner seeking his approval or the Additional Commissioner having granted such approval. Interestingly, the assessment orders were passed on 30-12-2010 without mentioning the above fact. None of the above deficiencies exist in the present case. The Addl. CIT clearly states that the draft assessment orders have been perused. Further, the assessment order clearly mentions at Para 8 that the order is passed after seeking necessary approval u/s 153D of the IT Act 1961 of the AddI CIT(CR)-8, Mumbai vide letter dated 27.12.2019. (iii) Pr. CIT v/s Sapna Gupta [2023] 147 taxmann.com 288 (Allahabad) In the above case, the approval granted was held to be mechanical in nature as the Hon'ble Court held that: "21. In the instant case, the draft assessment order in 85 cases i.e. for 85 assessment years placed before the approving authority on 30- 12-2017 was approved on same day i.e. 30-12-2017.......... It is humanly impossible to go through the records of 85 cases in one day to apply independent mind to appraise the material before the Approving Authority. "(Page 228 of the Case Law Paper Book no. 2). In the instant case, approval, though granted on the same day, was granted in 7 cases of one group. There is a massive difference in the number of cases seen and approved in the relied upon case and the present case. The Id. AR also produced a chart showing that approval had been granted by the same Addl. CIT in 12 cases on 27/12/2019. Even if this number, though unverified from records, is treated as correct, 12 is still significantly less than 85, which was the number approved in the case of Sapna Gupta in a single day. Further, the 12 cases comprise of 7 cases of the present group and 3 other assessees. This number cannot be held comparable to the number approved in the Sapna Gupta case.

M/s. Utility Supply Private Limited (iv) Rishabh Buildwell P. Ltd. v/s DCIT & others ITAT Delhi In the above case, the approval was held to be invalid as the Approving Authority had directed the DCIT to ensure that seized materials and the findings of the appraisal report to be incorporated in the final assessment order. The Hon'ble ITAT concluded that there is no provision to alter, modify, adjust, amend or rework the order once approval has been accorded and the approval granted is a conditional approval, which is not valid. In the present case, though the approval of the draft assessment order is subject to some conditions, none of these conditions relate to any modifications or alterations in the draft assessment order. The conditions relate to a comprehensive office note being prepared, intimation being sent to AOs of third parties, examination of wealth tax implications and violations of sections 269SS/T etc. None of these directions or actions have any effect on the draft assessment order. These are in the nature of housekeeping activities that the AO is being directed to complete so that the file is ready for audit etc. The approval is not conditional as the draft order is not being asked to be modified in any manner. In fact, the directions on issues or aspects to be included in the office note clearly show due application of mind by the Approving Authority as aspects related to seized material, appraisal report, returns filed etc. have all been listed by the Addl. CIT. Even if the list is alleged to be a standard, general list, as alleged by the learned AR, the fact remains that the very existence of a check-list indicates application of mind. Hence the facts of the present case are completely different from that of the relied upon case. Whether an approval is mechanical depends upon the facts of the case and none of the case laws relied upon have facts similar to the present case. Hence it is submitted that the appellant has not been able to substantiate the allegation of 'mechanical approval' or 'invalid approval' by the Approving Authority”.

M/s. Utility Supply Private Limited 22. As rightly pointed out by learned counsel for the Assessee there is not even a token mention of the draft orders having been perused by the Additional CIT. The letter simply grants an approval. In other words, even the bare minimum requirement of the approving authority having to indicate what the thought process involved was is missing in the aforementioned approval order. While elaborate reasons need not be given, there has to be some indication that the approving authority has examined the draft orders and finds that it meets the requirement of the law. As explained in the above cases, the mere repeating of the words of the statute, or mere "rubber stamping" of the letter seeking sanction by using similar words like 'see' or 'approved' will not satisfy the requirement of the law. This is where the Technical Manual of Office Procedure becomes important. Although, it was in the context of Section 158BG of the Act, it would equally apply to Section 153D of the Act. There are three or four requirements that are mandated therein, (i) the AO should submit the draft assessment order "well in time". Here it was submitted just two days prior to the deadline thereby putting the approving authority under great pressure and not giving him sufficient time to apply his mind; (ii) the final approval must be in writing; (iii) The fact that approval has been obtained, should be mentioned in the body of the assessment order. 23.……………………………………………………………………………… ………………………………………………………………………………… …………………………………………………………………………. 24..…………………………………………………………………………… ………………………………………………………………………………… …………………………………………………………………………….

42.

The Assessee in response to show cause filed its reply and claimed that said shares were purchased by the Assessee for the trading purposes only and not as an investment shown to be categorized as capital assets (property). The Assessee further claimed that plain reading of section 56(2)(viia) of the Act and its provisions and explanation, it is crystal clear that the intent of the Revenue was not to tax the transactions entered into during the normal course of business or treat the profit of which are taxable under specific heads of income. The Assessee before the AO also demonstrated the definition of property as defined in section 56(2)(vii) of the Act and claimed that because the provisions of section 56(2)(viia) of the Act, are an extension of section 56(2)(vii) only and therefore the provisions of such section, have to be read harmoniously with provisions of section 56(2) (vii) of the Act. The Assessee further claimed that capital asset is defined in section 2(14) of the Act, which does not include “(i) any stock in trade [other than the securities referred to in sub clause (b)], consumable stores or raw materials held for the purposes of his business or profession”. From the definition of “Capital Asset”, it is clear that the securities held for the purposes of business is not a “capital M/s. Utility Supply Private Limited asset unless” it is for the investment purposes. The Assessee further claimed that it has bought the shares for trading purposes only and therefore has shown the same as “stock in trade” under the head “current asset” before the date of search itself and therefore the same cannot be treated as investment for the purposes of invocation of provisions of section 56(2)(viia) of the Act, without any valid reason. Since the aforesaid provision, applies only to investment being capital asset and not as trade in stock, and therefore it has no application to the facts of the Assessee’s case. As the shares, have been purchased at the prevailing market value and therefore no addition as proposed in the show cause notice be made.

49.

On the contrary, the Ld. D.R. submitted that drawing upon the definition of “property” given in section 56(2)(vii) of the Act is not correct as section 56(2)(viia) of the Act clearly states that the provisions would apply to “property” booked in the nature of shares. When the provisions of this specific section, specify the asset to which the section is to apply, then there is no scope for importing the definition for another section. The primary rule of interpretation is to interpret the words as they are, there should not be addition or substitution of words in the construction of statutes and its interpretation. When a definition is not embedded in a particular provision itself, then only meaning can be imported from analogues section. Hence, the claim of the Assessee “for importing the definition of word “property” from section 56(2)(vii) of the Act, when the definition is contained, within section 56(2)(viia) itself to mean share of a company not being a company in which the public are substantially interested”, is untenable. Vide proviso to section56(2)(viia) of the Act, the legislature in its wisdom has exempted transactions arising from business re-organization, however no exception has been provided, if the shares are purchased as “stock in trade” and in the absence of any such exemption, the exemption cannot be inserted into the provisions of the Act, by drawing parallels with analogues section. From the provisions of clause 13.2 and 13.4 of the Circular M/s. Utility Supply Private Limited no.5/2010 dated 03.06.2010, it is clear that the intention of the legislature was not to remove the stock in trade from the purview of section 56(2)(viia) of the Act. The legislature was clearly alive to the fact, for exempting “stock in trade” from the purview of section 56(2)(vii) of the Act, the act was amended and section 56(2)(viia) of the Act was brought into existence. Despite exempting stock in trade from section 56(2)(vii) of the Act, the legislature in its wisdom did not make any such exemption while introducing section 56(2)(viia) of the Act, hence there is no reason for not applying the provisions of section 56(2)(viia) of the Act, to the shares purchased as stock in trade. DECISION 50. We have heard the parties and perused the material available on record and given thoughtful consideration to the findings of the Authorities below on the issue under consideration and rival contentions raised by the parties and observe that the following question emerge:

"56(2)(vii) where an individual or a Hindu undivided family receives, in any previous year, from any person or persons on or after the 1st day of October, 2009 but before the 1st day of April, 2017,- (a) any sum of money, without consideration, the aggregate value of which exceeds fifty thousand M/s. Utility Supply Private Limited rupees, the whole of the aggregate value of such sum; (b) any immovable property- (1) without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property (ii) for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration: Provided that where the date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of the agreement may be taken for the purposes of this sub-clause: Provided further that the said proviso shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by any mode other than cash on or before the date of the agreement for the transfer of such immovable property, (c) any property, other than immovable property. (i) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property; (ii) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration: Provided that where the stamp duty value of immovable property as referred to in sub-clause (b) is disputed by the assessee on grounds mentioned in sub-section (2) of section 50C, the Assessing Officer may refer the valuation of such property to a Valuation Officer, and the provisions of section 500 and sub-section (15) of section 155 shall, as far as may be, apply in relation to the stamp duty value of such property for the purpose of sub-clause (b) as they apply for valuation of capital asset under those sections: Provided further that this clause shall not apply to any sum of money or any property received- a) from any relative; or M/s. Utility Supply Private Limited b) on the occasion of the manage of the individual; or c) under a will or by way of inheritance; or d) in contemplation of death of the payer or donor, as the case may be, or e) from any local authority as defined in the Explanation to clause (20) of section 10; or f) from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or g) from any trust or institution registered under section 12AA; or h) by way of transaction not regarded as transfer under clause (vicb) or clause (vid) or clause (vii) of section 47. Explanation. For the purposes of this clause,- a) "assessable" shall have the meaning assigned to it in the Explanation 2 to sub-section (2) of section 500 b) fair market value of a property, other than an immovable property, means the value determined in accordance with the method as may be prescribed; c) "jewellery" shall have the meaning assigned to it in the Explanation to sub-clause (ii) of clause (14) of section 2: d) "property" means the following capital asset of the assessee, namely: i. immovable property being land or building or both; ii. shares and securities; iii. jewellery; iv. archaeological collections; v. drawings: vi. paintings; vii. sculptures; vitt. any work of art; or ix. bullion; (e) "relative" means, (i) in case of an individual- A. spouse of the individual; B. brother or sister of the individual; C. brother or sister of the spouse of the individual; M/s. Utility Supply Private Limited D. brother or sister of either of the parents of the individual; E. any lineal ascendant or descendant of the individual; F. any lineal ascendant or descendant of the spouse of the individual; G. spouse of the person referred to in items (B) to (F); and H. (ii) in case of a Hindu undivided family, any member thereof, "stamp duty value" means the value adopted or assessed or assessable by any authority of the Central Government or a State Government for the purpose of payment of stamp duty in respect of an immovable property."

13.

Taxation of certain transactions without consideration or for inadequate consideration ************ 13.1 Under the previously existing provisions of section 56(2) (vii), any sum of money or any property in kind which is received without consideration or for inadequate consideration (in excess of the prescribed limit of Rs. 50,000/-) by an individual or an HUF is chargeable to income tax in the hands of recipient under the head ‘income from other sources’. However, receipts from relatives or on the occasion of marriage or under a will are outside the scope of this provision. The existing definition of property for the purposes of section 56(2)(vii) includes immovable property being land or building or both, shares and securities, jewellery, archeological collection, drawings, paintings, sculpture or any work of art. 13.2 These are anti-abuse provisions which were applicable only if an individual or an HUF is the recipient. Therefore, transfer of shares of a company to a firm or a company, instead of an individual or an HUF, without consideration or at a price lower than the fair market value was not attracted by the anti-abuse provision In order to prevent the practice of transferring unlisted shares at prices much below their fair market M/s. Utility Supply Private Limited value, section 56 was amended to also include within its ambit transactions undertaken in shares of a company (not being a company in which public are substantially interested) either for inadequate consideration or without consideration where the recipient is a firm or a company (not being a company in which public are substantially interested). It is also provided to exclude the transactions undertaken for business reorganization, amalgamation and demerger which are not regarded as transfer under clauses (via), (vic), (vicb), (vid) and (vii) of section 47 of the Act. 13.3 Applicability -This amendment has been made effective from 1st June, 2010 and accordingly, apply in relation to the assessment year 2011-12 and subsequent years. 13.4 The provisions of section 56(2) (vii) were introduced as a counter evasion mechanism to prevent laundering of unaccounted income. The provisions were intended to extend the tax net to such transactions in kind. The intent is not to tax the transactions entered into in the normal course of business or trade, the profits of which are taxable under specific head of income. Therefore, the definition of property has been amended to provide that section 56(2)(vii) will have application to the ‘property’ which is in the nature of a capital asset of the recipient and therefore would not apply to stock-in-trade, raw material and consumable stores of any business of such recipient.

“6. We have considered the rival submissions and perused the material on record. We have also carefully examined the decisions cited before us. Insofar as the factual aspect of the issue is concerned, there is no dispute that the assessee is importing diamond for re-export after sorting and grading. It is also not disputed that for carrying out such activity, assessee has a registered unit in SEZ, Surat. So it is governed under the SEZ Act. Section 10AA of the Act, which is introduced in the statute by virtue of SEZ Act, provides exemption for a specified period to SEZ units in respect of profits and gains derived from export of articles or things manufactured or produced or from services. It is the claim of the assessee from the very inception that import of diamonds for re-export is in the nature of services. Admittedly, the expression 'services' has not been defined either under Section 2 or Section 10AA of the Act. Therefore, we have to look to the meaning of 'services' as defined under the SEZ Act and the rules framed thereunder since the provision of Section 10AA of the Act was introduced by the SEZ Act. As per the definition of 'services' under the SEZ Rules, 2006, trading also comes within its ambit. Section 51 of the SEZ Act has Solitaire Diamond Exports an overriding effect to the extent that it makes clear that if there is any inconsistency between the SEZ Act and rules framed thereunder and any other law, the M/s. Utility Supply Private Limited provisions of SEZ Act and rules framed thereunder would prevail. In the aforesaid circumstances, in the absence of definition of 'services' under Section 10AA of the Act, 'services' as defined under the SEZ Act and rules framed thereunder would be relevant. As discussed earlier, the definition of 'services' under the SEZ Act and rules framed thereunder encompasses trading activity also. Therefore, import of diamonds for re-export though, may be in the nature of a trading activity, but is certainly in the nature of 'services', hence would qualify for deduction under Section 10AA of the Act. In the case of Goenka Diamonds & Jewellers Ltd. (supra), the Tribunal, after examining the provisions of Section 10AA of the Act vis-à-vis the SEZ Act and rules framed thereunder, had concluded that since the definition of 'services' under the SEZ Act also includes trading activity, the activity relating to import of diamonds for re- export would qualify for deduction under Section 10AA of the Act. The aforesaid decision of the Tribunal was upheld by the Hon'ble Rajasthan High Court while discussing a batch of appeals filed by the Revenue against the decision of the Tribunal. The judgment of the Hon'ble Rajasthan High Court was delivered on 24.08.2017 in Income Tax Appeal no. 222 of 2012 and others. It is relevant to observe, in the aforesaid case also, the assessee had its unit in Surat SEZ. Similar view was again expressed by the Mumbai Bench of the Tribunal in the case of the same assessee in and 216/JP/2014 dated 10.01.2018. The other decisions cited by the learned AR also express similar view. Therefore, consistent with the view taken by the different Benches of the Tribunal, we are of the view that assessee is eligible to claim deduction under Section 10AA of the Act, since, the activity of import of Solitaire Diamond Exports diamonds for re-exporting comes within the nature of 'services' as provided under Section Section 10AA of the Act.”

"4.2 Applying the ratio of above decision, coordinate bench of Mumbai Tribunal in ACIT V/s Subodh Menon (103 Taxmann.com 15), observed that the provisions of Section 56(2)(vii) does not apply to bona-fide business transaction. The CBDT Circular No.1/2011 dated 06/04/2011 explaining the provision of section 56(2)(vii) specifically states that the section was inserted as a counter evasion mechanism to prevent money laundering of unaccounted income. In paragraph 13.4 thereof, it is stated that "the intention was not to tax transactions carried out in the normal course of business or trade, the profit of which are taxable under the specific head of income". Therefore, the aforesaid transactions, as carried out in normal course of business, would not attract the rigors of provisions of Sec.56(2)(vii). 4.3 We also concur with the submissions of Ld. AR that the provision of Section 56(2)(vii) were anti-abuse provision inserted post abolition of Gift Tax Act. The same is evident from CBDT Circular No. 05/2010 dated 03/06/2010 which provided that Section 56 is being introduced as an anti-abuse measure. The same is fortified in CBDT Circular No. 01/2011 dated 06/04/2011 which also provided that these provisions are anti- abuse provisions which were applicable only if an M/s. Utility Supply Private Limited individual or an HUF is the recipient. Therefore, transfer of shares of a company to a firm or a company, instead of an individual or an HUF, without consideration or at a price lower than the fair market value does not attract the anti-abuse provision. Further, the provisions of section 56(2)(vii) were introduced as a counter evasion mechanism to prevent laundering of unaccounted income. The provisions were intended to extend the tax net to such transactions in kind. The intent is not to tax the transactions entered into in the normal course of business or trade, the profits of which are taxable under specific head of income...." On the basis of the same, it could be inferred that provisions of section 56(2)(vii) were introduced as an anti- abuse measure and to prevent laundering of unaccounted income under the garb of gifts, after abolition of the Gift Tax Act. Upon perusal of orders of lower authorities, we find that there are no such allegations and no case of tax evasion or tax abuse has been made out against the assessee. In fact, the transactions are ordinary transactions of issue of right shares to existing shareholders in proportion to their existing shareholding and therefore, no case of abuse or tax evasion could be made out against the assessee.”

M/s. Utility Supply Private Limited 7.4.2 It is an admitted fact that during the course of assessment proceedings, the appellant had submitted before the Ld. AO that the shares under considerations were purchased for trading purposes and held as stock in trade. It was also submitted before the Ld. AO that the appellant is engaged in the business of investments and trading of shares and securities. The appellant had further contended that provisions of sec 56(2)(viia) are applicable to only capital assets. The said fact has been acknowledged by the Ld. AO in Paras 6.2 and 6.2.1 of the impugned assessment order. From perusal of the impugned assessment order, it is observed that the Ld. AO has specifically not rejected the said claim of the appellant or has given any finding that the shares under considerations were investment/Capital asset of the appellant, but in said Para 6.2 of the assessment order has made a passing remark that "...However, from the website "https://www.zaubacorp.com" it was identified that M/s Muktamani Distributors Private Limited is engaged in the business of wholesale on a fee or contract basis which includes commission agents, brokers and auctioneers and all other wholesalers who trade on behalf and on the account of others." Other than the said observations, the Ld. AO has not given any adverse finding on the claim of the appellant that the shares under consideration purchased for trading were purchased for trading purposes and held as stock in trade. 7.4.3 On said observations of the Ld. AO, the appellant has made detailed submissions, as discussed above. During the course of appellate proceedings, the appellant was requested to submit copy of its Memorandum and Article of Association and in pursuance thereto, the appellant has submitted the same. From perusal of said MOA/AA it is observed that under the head "Other Objects" Para 6, Page 8 of MOA/AA, it has been mentioned as under. “6. To acquire, purchase, sell, transfer, subscribe, invest, hold dispose of and/or deal in share, stocks, debentures, debentures stocks, unique bonds, mutual fund share, unit securities, commercial papers or other financial instruments and/or obligations issued by any company or companies, constituted or carry on business in India or elsewhere or issued or guaranteed by any government state sovereign dominions, municipalities, public authorities or bodies, financial institutions, banks, insurance companies, corporation, public sector undertaking and/or trust whether in India or elsewhere." From the above, it is evident that through "Other Objects" the appellant is authorized to purchase and sell of shares or deal in shares. A copy of the said MOA/AA was forwarded to the Ld. AO, with a request to go through the same and submit comments thereof. In pursuance to the same, the Ld. AO has reiterated the findings given by the then Ld. AO in the impugned assessment order and submitted that said issue has been examined by the then Ld. AO while completing the assessment proceedings and the same have been elaborately discussed in the assessment order. 7.4.4 From perusal of the Balance sheet of the relevant year it is observed that the appellant has shown shares both as "Investment" under Non-current Investment and as "Inventories". The appellant has M/s. Utility Supply Private Limited shown the Investment in shares at Rs.86,81,950/-and "Inventories" at Rs.6,15,000/- I am in agreement with the contentions of the appellant that any assessee can have shares both as investment and stock in trade, since legally there is no bar on the same. I am also in agreement with the arguments of the appellant that the entries in books of accounts need to be treated as true until and unless proven that the same is false or otherwise / The Ld. AO has not raised any doubt in respect of entries of inventory of shares made by the appellant in its books of account, except quoting the information available https://www.zaubacorp.com. Further the Ld. AO neither has specifically rejected the contentions on said the Ld. AO neither has rejected the books nor e contentions of the ie appellant that the shares under considerations were purchased for trading purposes during the normal course of business and held as stock in trade. It is also a fact that the Ld. AO has not given any finding that the shares under considerations were investments of the appellant. Even in her report, the Ld. AO has not made any adverse comments on the "other objects" of the appellant as per its MOA/AA. Moreover, while invoking the provisions of sec 56(2)(viia) of the Act, the Ld. AO has not held the shares under considerations as "Capital assets" since, he has not made addition on that ground, but has held that the Explanation applicable to sec 56(2)(viia) of the Act is only related to "Fair Market Value" as defined in the Explanation to sec 56(2)(vii) and the same is not applicable to all the Explanations thereto, i.e. to sec 56(2)(vii) of the Act. In view of the above discussions, the facts and circumstances of the case, the shares under considerations are to be treated as purchased for trading purposes during the normal course of business and held as stock-in-trade. 7.4.5 Now the question arises as to whether the provisions of sec 56(2)(viia) of the Act are applicable to any share purchased for trading purposes during the normal course of business and held as inventory/stock in trade. In this respect the appellant has made elaborate submissions. To understand the issue, it is pertinent to analyze the various provisions of Act, especially the section 56 of the Act. Section 56 of the Act provides that income of every kind which is not to be excluded from total income under the Act shall be chargeable to income tax under the head "Income from other sources", if it is not chargeable to income tax under any of the head specified in sec 14, items A to E. In the present case, it is an admitted fact that the shares under considerations were purchased for trading purposes during normal course of business and the same were held as stock in trade in appellant's books of account. Hence, the income or loss arising thereof needs to computed and taxed under the head "Profits and gains of business or profession". Thus, by virtue of provisions of sec 56(1) of the Act, any income which is chargeable to tax under the head "Profits and gains of business or profession" shall be excluded from the purview of sec 56 of the Act. The said statutory provisions were again reiterated in Memorandum to the Finance Bill 2010, through which the provisions of sec 56(2) (vila) was inserted in the Act, and it was explained therein that The provisions of section 56(2)(vii) were introduced as a counter evasion mechanism to prevent laundering of unaccounted income under the garb of gifts, particularly after abolition of the Gift Tax Act. The provisions were intended to extend the tax net to such transactions in M/s. Utility Supply Private Limited kind. The intent is not to tax the transactions entered into in the normal course of business or trade, the profits of which are taxable under specific head of Income. It is, therefore, proposed to amend the definition of property so as to provide that section 56(2)(vii) will have application to the property which is in the nature of a capital asset of the recipient and therefore would not apply to stock-in-trade, raw material and consumable stores of any business of such recipient." The above clarifications in the Memorandum to Finance Bill 2010, does not leave any doubt that the transactions which are in the nature of business or profession and income thereof is taxable under the head "Profits and gains of business or profession" is outside the purview of provisions of sec 56 of the Act. It is pertinent to note that the said clarification in respect of "Property" u/s 56(2)(vii) has been given in the Memorandum to Finance Bill 2010 through which the provisions of sec 56(2)(viia) was inserted in the Act. 7.4.6 The Ld. AO has held that the provisions of Explanation to sec 56(2)(viia) of the Act, which stipulates that "For the purposes of this clause, "fair market value" of a property, being shares of a company not being a company in which the public are substantially interested, shall have the meaning assigned to it in the Explanation to clause (vii) would only borrow the meaning of "Fair market value" from the Explanation to clause (vii) and will not borrow the meaning of "Property" defined therein. In this context it is important to analyze the relevant provision. The sec 56(2)(vila) of the Act deals with item/specie that is 'shares of a company not being a company in which public are substantially interested." Though said sec 56(2)(viia) of the Act is in relation to said item/specie, but said section does not mention "shares of a company not being a company in which public are substantially interested" as such, but before said item/specie the legislature has used the word "any property". Rather the provision of sec 56(2) (viia) provides that "where a firm or a company not being a company in which the public are substantially interested, receives, in any previous year, from any person or persons, on or after the 1st day of June, 2010 (but before the 1st day of April, 2017), any property, being shares of a company not being a company in which the public are substantially interested From simple reading of provisions of sec 56(2)(vila) of the Act, it is evident that the item/specie mentioned therein is not "shares of a company not being a company in which public are substantially interested" as such but the item/specie therein should be any property. being shares of a company not being a company in which the public are substantially interested. Hence, to fall under sec 56(2)(vila) of the Act, shares of a company not being a company in which public are substantially interested first has to fall within the definition or category of "Property". The same is further strengthened by the fact that the Proviso to said sec 56(2)(viia) of the Act refers to "any such property” and not to shares of a company not being a company in which public are substantially interested as such. 7.4.7 The Explanation to sec 56(2)(viia) of the Act stipulates that "For the purposes of this clause, "fair market value" of a property, being shares of a company not being a company in which the public are substantially interested, shall have the meaning assigned to it in the M/s. Utility Supply Private Limited Explanation to clause (vii)". From the above it is also evident that the Explanation to sec 56(2)(viia) of the Act also refers to "fair market value" of a property, being shares of a company not being a company in which the public are substantially interested. Hence, before provisions of sec 56(2)(vila) of the Act can be invoked in respect of any shares of a company not being a company in which the public are substantially interested, first it has to be proved that the same falls within the definition of "Property". Further, said Explanation to sec 56(2)(viia) of the Act, does not stipulate that the "fair market value of a property, being shares of a company not being a company in which the public are substantially interested, shall be determined as prescribed in Explanation to clause (vii), but the same provides that "shall have the meaning assigned to it in the Explanation to clause (vii)". So, the Explanation to sec 56(2) (viia) of the Act borrows the meaning of "fair market value" of such shares assigned to it in the Explanation to clause (vii) and it is an admitted fact that Explanation to sec 56(2)(vii) of the Act stipulates that Property means "Capital asset of assessee and therein the same also includes shares and securities. Therefore, when as per Explanation to sec 56(2)(vii), the meaning of "fair market value of any shares can only be in respect of property, being capital assets, so the same meaning has to assigned in sec 56(2)(viia) by virtue of Explanation thereto. 7.4.8 Further, the Explanation to sec 56(2) (vii) of the Act, defines the fair market value as "fair market value of a property, other than an immovable property, means the value determined in accordance with the method as may be prescribed. The said definition of "fair market value" in sec 56(2)(vii) of the Act is also with relation to a property, other than an immovable property and hence again one has to go to the definition of "property" given therein which also includes shares & securities. There is no separate definition of "fair market value of a share of a company not being a company in which the public are substantially interested under sec 56(2)(vii) of the Act. Therefore, the provision of sec 56(2) (vii) of the Act prescribes method of determination of "fair market value" of any shares and securities which are capital asset of the assessee and no method or mechanism has been prescribed therein to determine the "fair market value of any shares & securities, which are not capital asset of the company, ie which are held as inventory/stock. The Ld AO's argument that the Explanation to sec 56(2)(villa) would only borrow the meaning of "fair market value" from clause (b) of Explanation to sec 56(2)(vii) and the same will not extend to other clauses of Explanation to sec. 56(2) is not supported by the law, since in Explanation to sec 56(2) (vila) there is no such restriction and rather the Explanation to sec 56(2)(viia) talks of Explanation to sec 56(2)(vii) as such, without specifying any clause/sub-clause therein. In view of above discussions, I am in agreement with the contention of the appellant that if the arguments of the Ld. AO that Explanation to sec 56(2)(viia) of the Act would not borrow the definition of "Property" as per Explanation to sec 56(2)(vii) of the Act is accepted then the entire machinery provision for determining the "fair market value" in sec 56(2)(viia) would fail. 7.4.9 It is also pertinent to note that the Memorandum to the Finance Bill 2010, through which the provisions of sec 56(2) (viia) of the Act M/s. Utility Supply Private Limited were inserted in the statute also explained that consequential amendment are proposed in section 2(24) to include the value of such shares in the definition of income and section 49, to provide that the cost of acquisition of such shares will be the value which has been taken into account and has been subjected to tax under the provisions of section 56(2). The simple logic of bringing said consequential amendment in sec 49 of the Act was that having taxed the fair market value as per provisions of sec 56(2)(viia) of the Act, in order to avoid double taxation such enhanced cost to be allowed to the assessees when they transferred such shares subsequently. It is an admitted fact that provisions of sec 49 of the Act is applicable to capital asset and computation of Capital gain. In this respect, it is important to note that the provisions of sec 49(4) of the Act, which provides that where the capital gain arises from transfer of a property, the value of which has been subject to income tax under clause (vii) or clause (viia) or clause (x) of sub-section (2) of section 56, the cost of acquisition of such property shall be deemed to be the value which has been taken into account for the purposes of the said clause (vii) or clause (vila) or clause (x). No such consequential amendments were brought in the provisions dealing with the computation of income from business and profession and it can never be the intention of the legislature to tax doubly, where such shares were held as inventory/stock in trade, i.e. once under section 56(2)(viia) of the Act and again not allowing enhanced cost while selling such shares held as inventory/stock in trade. This also makes evident that the provisions of sec 56(2)(viia) of the Act are applicable to only such shares which are held as capital asset. 7.4.10 Whenever, the legislature wanted to tax any deeming income on any transactions, specific provisions have been brought on statue in this respect. For example, income on transfer of a capital asset is taxable under the head "Capital Gain" and when the legislature wanted to tax deeming income on transfer of any particular capital asset, brought provisions of sec 500 of the Act by the Finance Act 2002, w.e.f 01.04.2003, which provided to adopt the stamp duty value in certain cases, on transfer by an assessee of a capital asset, being land or building or both. Since, gains on transfer of any capital asset is assessable under the head "Capital Gain", so to tax such deeming income thereof the legislature inserted sec 50C of the Act in chapter IV- E, which deals with the "Capital gains". Similarly, when the legislature wanted to tax such deeming income on transfer of particular assets other than capital assets, i.e. inventory/stock in trade, then provisions of sec 43CA of the Act was inserted by the Finance Act 2013, w.e.f 01.04.2014. It is pertinent to note that sec 43CA was inserted in Chapter IV-D, which deals with "Profits and gains of business or profession. 7.4.11 The "capital asset has been defined u/s 2(14) of the Act and the same stipulates that the capital asset means 1. property of any kind held by an assessee, whether or not connected with his business or profession; 2. any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made M/s. Utility Supply Private Limited under the Securities and Exchange Board of India Act, 1992 (15 of 1992) but does not include any stock-in-trade, other than any securities referred in (b) above, consumables stores or raw materials held for the purposes of his business or profession. From the above, it is evident that the stock-in-trade, other than (b) above, is specifically excluded from the definition of "Capital asset" 7.4.12 In view of the above discussions and the provisions of the Act, I am of the considered opinion that provisions of sec 56(2)(viia) of the Act are not applicable to any shares of a company not being a company in which the public are substantially interested, which was purchased for trading purposes during the normal course of business and held as inventory or stock in trade. Hence, the Ld. AO was AO was not justified in invoking the provisions of sec 56(2)(viia) in respect of shares under consideration, which were purchased for trading purposes during the normal course of business and held as inventory or stock in trade. Therefore, the impugned addition of Rs.51,69,985/- made u/s 56(2)(viia) is DELETED. The Ground/Revised Ground No.1 raised in appeal is ALLOWED.”

68.

Coming to the another finding of the Ld. Commissioner to the effects that the entries in the books of account are not determinative or conclusive and the matter is to be examined on the touchstone of provision explained in the Act as held by the Hon’ble Apex Court in the case of Taparia Tools Ltd. Vs Jt. CIT [2015] 55 taxmann.com 361, however, in our view the entries in the books of account cannot be brushed aside simply on the assumption and presumption and in the absence of substantive material contrary, as done in the instant case. Admittedly the Assessee had shown the shares under consideration as “stock in trade”. The then Ld. CIT(A) in the sister concerns of the Assessee has accepted similar treatment of the shares as “stock in trade” and therefore the Ld. Commissioner in this case was supposed to follow the rule of consistency and would not have deviated from the decision of the then Ld. CIT(A)/his Ld. Predecessor, without analyzing and contradicting the order passed by his Ld. Predecessor. However, the Ld. Commissioner simply in a single line M/s. Utility Supply Private Limited differed with the decision of his predecessor (kindly refer para 11.9 of the impugned order) and acted against the principle of 'stare decisis' (to stand by decided cases) which is as old, as the establishment of the courts. It is derived from legal maxim 'stare decisis et non quieta movere'. It is best to adhere to decisions and not to disturb questions, which have been put at rest. When a point of law has been settled, it forms a precedent which is not to be ordinarily departed afterwards. When the same point comes for consideration again in litigation, the scales of justice must be kept even and steady. A principle of law should not change from case to case. The judgments are not to be altered or changed in accordance with the individual opinions or private sentiments of the judges. The primary duty of the judiciary is to maintain rule of law. The law does not change with the opinion of the judges. In a given case the opinion of the judges may change, the principles of law however must remain on surer foundations until there is any change in legislation, or the society needs such change, as reminded again and again by the Hon’ble Apex Court and High Courts. And therefore on this aspect as well, the impugned order is liable to be set aside.

69.

From the aforesaid analyzations, we reiterate that in this case, the Assessee has been able to establish that it is also involved in the business of investments and trading of shares and securities and during the year under consideration had purchased the shares under consideration for trading purposes in the normal course of business and held the shares as “stock in trade” in its books of account. The objects clauses as appear in MOU/AA of the Assessee also support the claim of the Assessee qua share trading etc.. Further, admittedly, MOU/AA was verified by both the authorities below and was not doubted. Further, definition of any term, except of “fair market value” has not prescribed in the provisions of section M/s. Utility Supply Private Limited 56(2)(viia) of the Act, which was expanded through the provisions of section 56(2)(vii), by Finance Act, 2010 and the circular no.1/2011 dated 06.04.2011 and therefore the definition of “property” as prescribed in the provision of section 56(2)(vii) of the Act, is required to be imported for interpreting the terms mentioned in sub clause (viia) of section 56(2) of the Act. Further, the definition of “property” as prescribed under sub clause (vii) of section 56(2) of the Act, was amended by the CBDT vide Circular no. 1/2011 read with Explanatory Notes thereto and has excluded any “stock in trade” other than any securities held by incidental investor, which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1952 (15) of 1992. As the Assessee has treated and disclosed the aforesaid shares of the companies as, “stock in trade” in its financial and it is also a fact that the authorities below neither doubted the financials nor rejected the books of accounts of the Assessee, in any of the provisions of the Act. The Assessee out of three stocks has sold shares of one scrip namely M/s Mecons Commotrade Ltd. Pvt. and therefore this fact also supports the claim of the Assessee qua share trading etc.. It is also a fact that the Assessee has treated some of the shares as investment and some of the shares as “stock in trade” which also goes to show that the Assessee has given reasonable treatment to the respective shares. Further, the provisions of section 56(2)(vii) and 56(2)(viia) of the Act were introduced as tax evasion mechanism to prevent the laundering of unaccounted money but not to tax the transactions entered into, in the normal course of business or treat the profits of which are taxable under specific head of income and it is not the case here, of the Department that the Assessee has made the transactions, as a tax evasion mechanism and laundered unaccounted income.