ORDER
A. Kalyanasundharam, A.M.
1. The assessee-individual has filed this appeal aggrieved by the order of the CIT passed under s. 263 of the IT Act, 1961 (hereinafter referred to as ‘the Act’). The grievance of the assessee in this appeal is with reference to the order of the CIT by which he had withdrawn the deduction that was allowed in computing the long-term capital gains and in holding the transaction of sale of shares as in the nature of a business activity.
2. The brief facts of the case are that the assessee had purchased 2,50,000 equity shares of Indo-Gulf Fertilizers & Chemicals Ltd. (hereinafter referred to as IGFCL) at the average rate of Rs. 12.64 per share. The payments of purchases were made by S. Kumars Research Services (hereinafter referred to as SKRS), a concern belonging to her parents. SKRS were maintaining the account of the assessee in which all transactions of the assessee, viz. Purchases, payments on behalf of the assessee, sales on behalf of the assessee and collections on behalf of the assessee were all recorded. In June, 1990, the assessee purchased 7,00,000 equity shares of IGFCL at an average price of Rs. 18,87 per share for a total consideration of Rs. 1,32,08,500. The assessee with a view to pay the consideration of the purchase of 7,00,000 shares, sold off 2,50,000 shares that were purchased in August, 1988, for an average price of Rs. 42.10 per share and realised Rs. 1,05,25,000.
The assessee had filed a return of income showing long-term capital gains on sale of 250000 equity shares at Rs. 29,30,000 after deducting from the sale consideration of Rs. 1,05,25,000 the cost of transfer and claiming deductions as are permitted under s. 48(2) of the Act to the tune of Rs. 44,05,000. This has been so stated by her in the Annexure ‘A’ to the return of income wherein she had given the particulars of acquisition of shares in 1988, sale in 1990, gap of 22 months from the purchase to the sale, mode of transfer, etc. The returned income was in a way accepted in the intimation that was sent under s. 143(1)(a) of the Act. This was followed by an enquiry from the AO in regard to the investments made by the assessee along with sources thereof including copies of capital accounts for the earlier assessment years along with the balance sheets for both the years. This was followed by another enquiry of verification of the sources of investment along with the complete statements of assets and liabilities for the financial years ending 31st March, 1989, to 31st March, 1993. This was replied by the assessee wherein she had stated that all the supporting evidence in regard to the brokers’ bills, etc. have been furnished along with receipts, loan confirmations, copies of ledger account and detailed bank accounts summary. There was again a detailed letter from the AO wherein he had called upon the assessee to produce such records from which the income could be computed for advance tax purposes or for filing of the return. In the letter dt. 15th February, 1994, of the AO, in para 5 he had specifically called upon the assessee to explain in regard to the acquisition of 7,00,000 shares of IGFCL during 1990 which were in addition to 2,50,000 shares of the same company purchased in the earlier years. He has asked the assessee to explain the sources of funds from which the purchase of 7,00,000 additional shares in 1990 was possible. He had also called for confirmation from the creditors as appearing in their books. This was replied by the assessee sometime in March, 1994, before the conclusion of the assessment wherein she had enclosed the confirmations from the parties in regard to receipt of shares from the assessee and supply of shares to the assessee. The confirmations in regard to supply of 1,75,000 and 5,25,000 shares were also provided along with the said letter. The detailed copy of the bank account was also provided in support of the payments made for acquiring the shares and payments received on sale of shares. The AO, after verifying all these, had concluded the assessment at the figure returned by the assessee.
3. The CIT on 8th November, 1995, issued a notice under s. 263 of the Act to the assessee. In this notice the CIT had referred to the long-term capital gains declared by the assessee on sale of 2,50,000 shares of IGFCL. The CIT had observed in the notice that the 2,50,000 shares acquired in 1988 were with the help of loans from SKRS. He further observed that the said shares were sold at Rs. 1,05,25,000 in September, 1990. He also observed that the assessee had acquired 7,00,000 shares in 1990. He further observed that the shares purchased in 1988 were sold off in 1990 and the shares that were purchased in 1990 were sold off in the year 1991. He further observed that huge purchases and sales were made of only one company and that too by raising loans, when the father-in-law of the assessee, Mr. Aditya Vikram Birla was the Vice-Chairman of that company. He further observed that considering these circumstances the AO in the asst. yr. 1992-93 had treated the gain on the sale of shares as income from business. He further observed that when in a subsequent year viz., asst. yr. 1992-93, the AO having treated the gain on sale of shares as income from business, his predecessor by accepting the claim of the assessee that it is long-term capital gains on sale of shares led to failure on the part of the AO to make proper enquiries. He was further confirming his view by mentioning in the notice that the CIT(A) in his order against the order of asst. yr. 1992-93 had confirmed the views of the AO. He accordingly called upon the assessee to place her objections because he felt that the order of the AO was erroneous and prejudicial to the interests of Revenue, in regard to treating the gain on sale of shares as long-term capital gains instead of income from business. The assessee placed the various facts in her reply to the CIT that it was not a case of taking of loan from SKRS, but it was utilising her own running account in that firm in which all collections, receipts and payments and investments were recorded. The assessee referring to the observations of the CIT in regard to the conclusion of the AO for the asst. yr. 1992-93 having been confirmed by the CIT(A) in his order, submitted that merely because another officer had taken a different view does not mean that there was an error in the order of the AO. It was further contended before the CIT that it is necessary to bring about the error in the order of the AO and that should base on the records for that assessment year and should not have been based upon the records and conclusion of a different assessment year. It was accordingly submitted that there is neither any error nor any prejudice caused to the Revenue. It was further submitted that the assessee does not deal in shares and merely because there were some purchases and sales, it should not be taken to mean that the assessee is carrying on the business in shares. These submissions did not find favour with the CIT and he has observed as under in his order under s. 263 of the Act :
“23. To sum up, the AO failed entirely to enquire into an important perspective of the issue, namely, the nature of income from the sale of IGFCL. All the transactions relating to these shares had been completed by 5th November, 1991. Even though the case was heard between 2nd November, 1993, and 8th March, 1994 and the assessment was completed on 24th March, 1994, that is, long after these transactions for the subsequent year as well had been completed, the AO failed to obtain the relevant facts as discussed particularly in para. 10.3 and in other preceding paragraphs. This failure was of a nature as to render the assessment order erroneous. Secondly, the AO allowed the claim of deduction of Rs. 44,05,000 under s. 40(2) of the Act which was inadmissible since the profit from the sale of shares was income from business. This underassessment resulted into the loss of revenue due to the State and hence the order was prejudicial to the interest of Revenue. Finally, by a well-planned scheme of earning profits, the assessee took plunges in the waters of trade during the period relevant to four assessment years, namely, 1989-90, 1990-91, 1991-92 and 1992-93. These adventures, if not ventures in the nature of trade, resulted into huge profits of Rs. 73,35,000 and Rs. 2,57,42,175 during the asst. yrs. 1991-92 and 1992-93 respectively. However, for the assessment year, the income earned in furtherance and execution of a well-planned profit making scheme was incorrectly assessed as income from long-term capital gains.”
4. On the above facts, the submissions before us basically were that the assessing authorities have lost track of the fact that the shares that were purchased in June, 1990, by the assessee needed to be funded, or to put it in other words, the assessee had to find sources from which she could pay the consideration for the purchase of 7,00,000 shares. The shares of IGFCL, which was around Rs. 15 per share in 1988 went up to Rs. 42 per share in 1990 and it was still further rising up. Because the assessee wanted money immediately so as to wipe out the liability in regard to the purchase of 7,00,000 shares, the best price that was available in September, 1990, was opted for because the sale consideration was just sufficient to match the purchase liability. The plea was that any person, who by selling 2,50,000 shares if is in a position to buy 7,00,000 shares would obviously do so, but such an action does not necessarily mean that it was so done with a view to carry on the business. He submitted that the purpose of holding the shares, more than earning the dividend, is to ensure improvement in the capital more than anything else. He submitted that all these facts and figures were available with the AO when he concluded the assessment. These facts are not denied by the CIT. The CIT’s basis is with reference to the observations and the views taken by the CIT(A) for the asst. yr. 1992-93. He submitted that the CIT has based this as leading to an error and causing prejudice to the Revenue. He submitted that if the view taken in a different year is to be taken or treated as the correct view, because it is beneficial to the Revenue, then obviously the CIT is right. But at the same time, merely because the AO had not gone into the question of the closeness of relationship between the assessee and the Vice-Chairman of the company of which the assessee had purchased and sold the shares, by holding that she had inside information, would not lead to a situation of lack of enquiry or examination. He submitted that as he has been held by the Gujarat High Court in CWT vs. Amichand C. Shah (HUF) ITR 659 (Guj), ‘records’ should mean records of the assessment year. He submitted that if the records has to mean of records that may not be available to the AO, then the action of the CIT is very well justified. But this does not appear to be the intention of the law-makers. He submitted that when each assessment year is independent of the other assessment year and the principle of res judicata does not apply in assessment proceedings and on that basis if in the asst. yr. 1992-93 there were certain more informations that were available to the AO based on which he had come to a different conclusion, it would not automatically lead to the conclusion that in the earlier year also such information would have been available or were available but the AO omitted to look into. He submitted that it is not the case of the CIT that these informations were available, existing while concluding the assessment for the present assessment year. He accordingly contended that in such a situation the action of the CIT is clearly unwarranted.
On the issue whether the transaction could lead to the belief or impression that it was a business, then the onus is heavily on the AO to establish so. He submitted that it is very much necessary to keep in mind that the intention of the purchase of the shares is very important. He submitted that the assessee at the time when she purchased the shares in 1988 had no inclination of dealing in shares, but had kept them as mere investments. It was a chance happening that an opportunity came whereby she could acquire good quantity of shares for almost the same price by selling off lesser quantity of shares. Therefore, this particular transaction could never be treated as in the nature of a business transaction. He submitted that even if the sale is with a view to make a profit that alone cannot be the criteria for deciding that there was a business intention. He relied on several authorities, such as Janki Ram Bahadur Ram vs. CIT (1965) 57 ITR 21 (SC), Karam Chand Thapar & Bros. (P) Ltd. vs. CIT (1971) 82 ITR 899 (SC), Dalhousie Investment Trust Co. Ltd. vs. CIT (1968) 68 ITR 486 (SC), Ashok Kumar Jalan vs. CIT (1991) 187 ITR 316 (Bom), CIT vs. V. A. Trivedi (1988) 172 ITR 95 (Bom) and Port Properties (P) Ltd. vs. CIT (1994) 208 ITR 232 (Bom) and few others. He accordingly contended that there was no error and because there was no error no prejudice that was caused to the Revenue. He submitted that merely because by not allowing the deductions that are permissible under s. 48 of the Act the Department would be benefited by recovery of tax, could not be the ground for holding that there was prejudice caused to the Revenue. He submitted that a deduction that is permissible under the Act is allowable to the assessee on satisfaction of the conditions and, therefore, this could not be the basis for holding that the transaction is one of business.
5. The Departmental Representative, on the other hand, supported strongly the order of the CIT. He submitted that had only the AO been vigilant knowing that the lady is the wife of one of the leading industrialists and, therefore, had every opportunity of knowing inside information, the transaction should have been examined in that light. He submitted that it was a well-planned affair to make huge profits and give it the colour of capital transaction. He submitted that all transactions of purchase and sale were effected by the assessee only after she was married to the industrialist and this is an important feature. He submitted that the word “records” means all the available records under the Act. He referred to certain decisions, including CIT vs. Gabrial India Ltd. (1993) 203 ITR 108 (Bom). He submitted that even where two opinions are possible, revision is permissible has been so held by the Gujarat High Court in CIT vs. M. M. Khambhatwala (1992) 198 ITR 144 (Guj). On facts, he submitted that it must be kept in mind that the amount was borrowed initially for the purchase of the shares and again for the repurchase of larger quantity of shares there were borrowals and in settlement of the borrowings only the shares were sold, which all go to show that the intention was to make profit only. He relied on CIT vs. Sutlej Cotton Mills Supply Agency Ltd. (1975) 100 ITR 706 (SC), Bhagirath Prasad Bilgaiya vs. CIT (1983) 139 ITR 916 (MP), Juggilal Kamlapat vs. CIT (1970) 75 ITR 186 (SC), G. Venkataswami Naidu & Co. vs. CIT (1959) 35 ITR 594 (SC), Tribhuvandas Vallabhdas vs. CIT (1966) 61 ITR 518 (Bom), Hemchand Hirachand Shah vs. CIT (1994) 206 ITR 55 (Guj), Indian Metals & Ferro Alloys Ltd. vs. CIT (1993) 203 ITR 729 (Ori), Raja Bahadur Kamakhya Narain Singh vs. CIT (1970) 77 ITR 253 (SC) and CIT vs. Smt. Minal Rameshchandra (1987)167 ITR 507 (Guj). The further plea raised was that there was no compelling reason for purchase of 7,00,000 shares.
6. The rival submissions have been very carefully considered. It was pointed out during the hearing that even in asst. yr. 1989-90, the assessee did sell off some of the shares, but of a different company and the income therefrom had been assessed under the head ‘Capital gains’. The assessee had been holding shares of different companies and all the acquisition, no doubt, had commenced after she was married to Mr. Kumarmangalam Birla in the year 1989. 2,50,000 shares were purchased in 1988, i.e., before her marriage and the source from which the purchase was made was from her individual current account with her parents’ family concern, SKRS. The copies of the ledger account of the assessee in the books of SKRS have been provided which go to show that all the accounts were merged into SKRS and it was accordingly the source from which the initial investment in 2,50,000 shares was made. 7,00,000 shares came to be purchased in June, 1990, at an average rate of Rs. 18,87 per share and the total purchase value was Rs. 1,32,08,500. The assessee necessarily had to find sources from which she could pay off this amount. She waited for an opportune time when the share value propped up and the value that was found to be reasonable in September was accepted as the value would substantially cover the purchase liability. On the face of it, it is clear that the desire to hold larger number of shares was the reason behind the transaction of purchase and the sale of the earlier holdings. The resultant effect, of course, is that the capital worth of the person also goes up substantially. But to conclude that the said transaction was intended with a profit motive in the circumstances of the case is not correct because, as observed earlier, the desire was to hold larger number of shares by funding the purchase by sale of lesser number of shares taking into account the share value as going up in the market. In the circumstances of the case, we are of the view that the transaction was one of capital transaction and not of business and, therefore, the result of the transaction, the gain thereof, is obviously a long-term capital gain because it suffices the condition of holding of shares.
Coming to the legality of the revision, we may observe that the Gujarat High Court in Amichand C. Shah (HUF)’s case (supra) had categorically held that the subsequent year’s findings could not be the basis for revision of an earlier assessment order. In that case the property was valued at a particular amount. In the subsequent assessment year the assessee had declared a higher value for the property. Because of such higher value declared by the assessee revision was proposed for the earlier assessment year. The Gujarat High Court was concerned with the term “record of any proceedings” and they have held that records of the proceedings mean the records based on which orders were passed. We may also observe that Courts have been repeatedly holding that it is permissible for the assessing authorities to take a different view in a later year. We may not need to travel to the various decisions of various High Courts and Supreme Court, but it would suffice to state that what is decided in one year may not apply to the following year, which has been so held by the Supreme Court in Radhasoami Satsang vs. CIT (1992) 193 ITR 321 (SC). It was precisely for this reason that the Bombay High Court in CIT vs. Shree Nirmal Commercial Ltd (1995) 213 ITR 361 (Bom) had observed that where a fundamental aspect permeating through the different assessment years has been found as a fact, one way or the other the authorities have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in the subsequent year. This particular decision is so provided to emphasise that the settled matter should not be disturbed.
Accordingly upholding the various issues raised before us, we set aside the order of the CIT.
7. In the result, the appeal is allowed.