ORDER–Non-applicability of s. 52(1).
Ratio:
Assessment order allowing short-term capital loss to assessee would not be said to be erroneous and prejudicial, therefore, section 263 could not be invoked.
Held:
The order passed by the assessing officer allowing short-term capital loss to the assessee was in accordance with the provisions of law and although there might have been a situation where the assessing officer has to pass legally an order, which he did and thus, there was no error in the order of the assessing officer on this point. The error lies in the order of the Commissioner, who has completely ignored not only the provision of section 52(1) but has also ignored the written submission of the assessee which were based on the decisions of various High Courts and of the Supreme Court.
Application:
Also to current assessment years.
Income Tax Act 1961 s.263
ORDER
J.K. Verma, Accountant Member
1. It is an appeal against the order dated 8-8-1986 of the CIT, Jaipur Under Section 263 of the I.T. Act whereby he has set aside the order of the ITO, SIC-I, Jaipur dated 13-8-1984.
2. The brief facts of the case are that according to the CIT Jaipur the assessee Company had purchased on 31-12-1976, 200 shares of M/s Associated Soap-Stone Distributing Co. (P.) Ltd., (here in after referred to as ‘ ASDC’) and 500 shares of Jaipur Mineral Development Syndicate Pvt. Ltd. (here in after referred to as ‘JMDS’) for Rs. 7 lakhs. On 17-12-1979, the same shares were sold for Rs. 2,50,000 . Admittedly, the shares were purchased from close relatives of the Directors and they were sold to three Directors of the assessee-company. The assessee had claimed a short-term capital loss of Rs. 4,50,000, which was allowed by the ITO although as against a returned loss of Rs. 1,22,170 the income of the assessee-company was assessed at Rs. 14,52,760. The CIT considered the assessment order to be erroneous and prejudicial to the interest of revenue and issued a notice dated nil in July 1986 to the assessee asking it to show cause why the assessment order may not be cancelled or suitably modified. The main reason why he considered the order as erroneous and prejudicial to the interest of revenue was given in para-5 of that notice as under:-
5. The action of the ITO in allowing the loss as claimed without working out the correct market value on the date of purchase and sale and without having regard to the provisions of Section 52(1) of the IT Act, 1961 as the purchaser and seller are closely connected, is erroneous and prejudicial to the interest of revenue.
The assessee replied vide its letter dated 7-8-1986 where the CIT was informed that several of the facts given in his notice were incorrect such as the shares in the names of the three Directors had mot been registered and that they had not been shown in the wealth-tax returns of the concerned Directors. The assessee sought to substantiate it with the relevant record, which it stated, had also been examined by the ITO. It further pointed out that on 31-12-1976 the Co. had purchased 400 shares of ASDC @Rs. 1,000 each and ll00 shares of JMDS @Rs. 1,000 each. The names of the parties from whom they were purchased were also given. It was also informed that all the parties were assessed to Income-tax and they had also purchased these shares @ Rs. 1,000 each and they had sold the shares to the assessee-company at par. The assessee further explained the reasons why the shares of those Companies had been purchased and that too @ Rs. 1,000 each. It was also affirmed that the assessee-company had not shown the inflated value of the purchase price as alleged by the CIT. It further gave five reasons why it had sold 200 shares of ASDC @ Rs. 500 per share and 500 shares @ Rs. 300 per share of JMDS to the Directors of the Company. The first reason was that the holding of the shares of other Companies, who were also dealing in mining of soapstone, by the assessee-company would adversely affect the renewal of the mining lease of the assessee-company. Secondly, JMDS had closed their grinding factory at Dausa due to serious labour problem and the business of mining of JMDS was also not improving because of labour troubles at mines and same was the position of ASDC. Thirdly, it was felt that the business of those two Companies could not be improved without investing big amount on equipments and that was not possible for the assessee-company. Fourthly, the mining lease of the assessee-company was expiring in near future and the assessee-company had applied for renewal on 15-5-1980 but before that the shares were advised to be sold by the Advocate of the assessee-company, according to whom, the possession of substantial shares of other mining Companies would adversely affect the renewal as mentioned above and that is why these shares were sold on 17-12-1979. Fifthly, there were heavy financial liabilities over those two companies and after negotiations the shares of and JMDS were sold to two parties even below the break-up value. It was also clarified that the Company had to surrender 1516.04 hectares of mine out of total 2514 hectares and this should have been even more if the assessee had continued to hold the shares of other mining Companies, namely, JMDS and ASDC. The CIT was further informed that the ITO had already taken all these factors into consideration and after that being fully satisfied that the purchases and sales of shares under consideration were genuine and were for bona fide reasons had accepted the contentions of the assessee on this point.
3. Thereafter, the assessee also tried to explain the legal position to the CIT that provisions of Section 52(1) were not applicable because the assessee-company had neither suppressed the price when the shares were purchased nor suppressed the sale value and that full purchase and sale consideration were recorded correctly in the books. It was further explained that the capital gain computed by invoking Section 52(1) is not on any fictional accrual or fictional receipt and that Section 52(1) does not deem income to account be received which, in fact, never accrued or was never received. It was also explained that according to Section 52(1), it was to be determined as to how much more consideration had been received by the assessee than what was declared by him and that if the assessee had fully declared the consideration for which the assests were actually sold then the provisions of Section 52(1) were not applicable. If was further explained that Section 52(1) does not affect the honest and bona fide transactions where the consideration received by the assessee has been correctly declared or disclosed by him. The assessee also supported his submissions with the decisions of Hon’ble Madras and Calcutta High Courts. The assessee had raised technical objections to the effect that the action Under Section 263 could not be taken because assessee’s assessment was completed after obtaining directions from the IAC Under Section 144B.
4. Despite these written submissions and personal explanations given by the counsel for the assessee at the time of hearing, the ld. CIT Jaipur summarily rejected all these contentions. He held that since the assessee-company and the other two companies were carrying on similar business it was incredible that the management of these companies were not knowing the potential of their mines and that they could not obtain expert opinion before embarking upon the sale of the shares. He held that the purchases of the shares were collusive and again the sale of shares at prices below the break-up value was also on flimsy ground because the Companies were enjoying handsome profits during the period relevant to assessment year 1980-81. He came to the conclusion that the assessee-company had inflated the purchase value and under-stated the sale consideration with an object to facilitate the avoidance of tax. He also observed in para 5 of his order as under:-
Further, as pointed out above, the share-holders and directors of the assessee-company and other two companies are closely related to each other and the transactions of purchases and sale of shares otherwise than for adequate consideration attracted the provisions of Section 52(1) of the Act. The ITO’s action in not applying these provisions and consequently allowing short-term capital loss to the extent of Rs. 4,50,000 without working out the correct value of shares on the dates of the purchase and sale was certainly erroneous and prejudicial to the interest of revenue.
He also rejected the technical objections of the assessee regarding the order of ITO having been passed under the directions of IAC Under Section 144B and set aside the assessment order with the following directions:-
The assessment order is hereby set-aside on the limited point with the directions that the ITO would recompute the short-term capital gains/loss by calculating the purchase and sale value of the shares in accordance with the law/rules and re-frame the assessment after giving the assessee an opportunity of being heard and allowing to place any evidence on record in respect of its contentions.
5. Shri N.M. Ranka, the ld. counsel for the assessee, who appeared before us, submitted that the ITO, during the course of assessment proceedings, had raised a specific query on the subject as per the letter on page 1 of the paper book and the assessee had given a specific reply on this point as per page 3 of the paper book vide its letter dated 12-4-1938. Thereafter, this point was further clarified vide assessee’s letter dated 21-11-1983 when it, was pointed out that the correct date of sale of shares was wrongly typed in the earlier letter as 31-12-1979 instead of 17-12-1979 and, thus, it was only a short-term capital loss. He submitted that this showed that the ITO had actively applied his mind to this point and was satisfied regarding assessee’s contentions. He submitted that thereafter the entire factual and legal position was explained to the CIT in his proceedings Under Section 263, which we have already mentioned in the earlier part of this order. He submitted that nothing was found by any departmental authority that anything over and above the agreed value passed during the purchase or sale of these shares and hence he question whether the provisions of Section 52(1) of IT Act could apply to assessee’s case particularly after the decision in K.P. Varghese v. ITO [1981] 131 ITR 597(SC). He submitted that according to that decision, the burden lay on the revenue, which it had failed to discharge, namely, whether even a rupee had passed beyond what was recorded in the books of account. He submitted that CIT’s basis of taking action Under Section 263 was that break-up value of the shares should have been worked out at Rs. 499 against Rs. 300 per share sold. He submitted that although the CIT had not gone into the question of the fair market value of the shares yet even if what he stated were taken as the market value, he questioned whether that could be substituted as the purchase price received by the assessee in the absence of anything having passed between the transferee and the transferor. The ld. counsel referred us to the decisions of the Hon’ble Supreme Court and various High Courts in CIT v. Shivakami Co. (P.) Ltd. [1986] 159 ITR 71/25 Taxman 80K (SC), Madanmohan Kishanlal v. CIT [1985] 151 ITR 746 (Guj.), CIT v. Rikadas Dhuraji [1976] 103 ITR 111 (Mad.), CIT v. Ramkrishna Ramnath Properties (P.) Ltd. [1984] 147 ITR 742 (Bom.) and Darshan kumar oswal v. CIT so also H.B. Ghosh v. CIT [1977] 110 ITR 247 (All.). He explained that the pre-requisites of Section 52(1) were that the purchaser should be directly or indirectly connected with the assessee and the ITO should have reason to believe. He submitted that in the instant case while it was admitted that the parties were connected but the ITO had no reason to believe that the transfer was affected with the object of avoidance or reduction of the liability of the assessee Under Section 45. He submitted that the CIT could not direct the ITO to apply Section 52 because that was within the judicial discretion of the ITO and the judicial discretion of the ITO was not subordinate to the CIT. The third requirement of Section 52(1) was that the transfer was effected for reduction of tax liability. He submitted that this requirement was also non-existent in this case. The fourth requirement of Section 52(1) was that full value of the consideration shall betaken to be the fair market value of the asset with the previous approval of the “Inspecting Assistant Commissioner”. He questioned whether in a case where the CIT had determined the value of the assets, was any scope for taking previous approval of the IAC left. He submitted that all the four requirements were cumulative and in the instant case, except perhaps the first, none other existed. He further submitted that in this case the CIT had alleged that when the assessee purchased the shares, it had paid more price than their correct market price. He questioned whether the ITO could re-compute the purchase price of the asset under any provision of Income-tax Law. In this context he referred to the provisions of Section 55(2) regarding “cost of acquisition”. He submitted that nowhere in these provisions or anywhere-else the ITO was given powers to substitute fair market value at lower price than shown although according to the IT Act, a higher price could be substituted. He further submitted that in the instant case the seller of the shares are assessed to Income-tax and wealth-tax and the same value had been shown by them in their income-tax and wealth-tax assessments. He submitted that if what the CIT says is accepted, could Income-tax and wealth-tax assessments of those assessees be revised and could loss be granted to them. He further referred to provisions of Section 48(1)(a)(u) and submitted to that even if the cost of acquisition was more than the fair market value, according to that Section, that had to be allowed as cost of acquisition and the CIT had no authority to direct that cost to be taken at a lower value. He further submitted that the Id ITO was aware of the Supreme Court decision in the case of K.P. Vargheese (supra) and he knew he could not substitute the values of purchase and sales in this case and that is why he had decided the case and completed the assessment according to law and the ld. CIT could not direct him to do otherwise. The ld. counsel also referred us to the decision of the Hon’ble Madhya Pradesh High Court case of CIT v. Smt. Sethani Godwaribai [1981] 127 ITR 349 where it had been held that in such a case as is alleged by the CIT, though it is not factually correct in assessee’s case, the difference could attract gift-tax assessment but could not be subjected to capital gains tax. To the same effect, according to him, is the decision in Addl. CIT v. M. Ranga Pai [1975] 100 ITR 413 (Kar.). He finally submitted that in this case the transaction was genuine and bona fide, the provisions of Section 52(1) could not be invoked. For this proposition also, he referred to the decisions in M. Ranga Pai’s case (supra) and Addl. CIT v. Mrs. Avtar Mohan Singh [1982] 136 ITR 645 (Delhi).
The ld. D/R, on the other hand, submitted that the ITO had allowed the short-term loss of Rs. 4.5 lakhs without giving any reasons or without discussing the matter in the assessment order passed by him. He submitted that the ITO might have issued a letter to the assessee but there is nothing to show that he had applied his mind to the reply filed by the assessee. He submitted that the circumstances that the assessee-company and the company whose shares were purchased were sister-concems and that the shares which were purchased in July 1976 @ Rs. 1,000 per share whereas their break-up value was Rs. 398 per share or nil did arouse strong suspicion. Further, the shares were held by the wives of the Directors of the assessee-company and hence the transaction smacked of colourable device. Further, the Companies of Golecha Group of which the assessee is one of the Companies, provided funds to wives of Companies Directors to acquire the shares of ASDC and JMDS. The loans remained un-paid till the shares were sold by the assessee-company and sale consideration was adjusted against loans advanced to acquire these shares and finally the assessee-company. These factors arouse strong suspicion. He further argued that K.P. Varghese’s case (supra) was entirely on the question of capital gains and he questioned if the same could be applied to the case of loss and whether the assessee had really incurred a loss. In order to support his arguments that the CIT did have jurisdiction Under Section 263, he referred us to the decisions reported in Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR Addl. CIT [1975] 99 ITR 375 (Delhi), Thalibai E. Jain v. ITO [1975] 101 ITR 1 (Kar.) and 111 ITR 302 (Guj.) (sic). He submitted that even if an assessment was completed in a routine manner, the CIT had jurisdiction Under Section 263 to set-aside that assessment. He further argued that in the instant case not only the sale consideration was low but even the purchases had been inflated and hence, according to him, the ratio of decision in the case of K.P. Varghese (supra) was not applicable but the ratio of decision in the case of McDowell & Co. Ltd. v. CTO [1985] 154 ITR 148 (SC) was applicable. He submitted that since the ld. counsel for the assessee had not pressed his objection regarding applicability of Section 263 where assessment order was passed under directions Under Section 144B, he was not pressing that point.
7. In reply, Shri Ranka submitted that the Assessing Officer mentions only those points in his order which were not accepted by him and it was not necessary for him to discuss the point regarding shares when he was satisfied with the detailed explanation given by the assessee in reply to his queries. He further submitted that since for the purposes of Income-tax “income” includes “loss”, the ratio of K.P. Varghese’ s case (supra) would apply to a case of capital loss as well as to the case of capital gains because loss is nothing than negative profits. For this purpose, he referred to Section 28 of the IT Act where both profits and loss have been referred to and submitted that in a good number of Supreme Court decisions it had been held that the provisions dealing with profits are also applicable to cases of loss. He further argued that so far as attacking the purchase consideration is concerned, firstly it could not be done as had already been argued by him and secondly even if it was to be questioned, it could have been done in the assessment year for which the relevant previous year was calendar year 1976, i.e., in assessment year 1977-78, which assessment had been completed much earlier. He submitted that what the CIT had done was that he had directed the ITO to modify the purchase price also for which the Id, CIT had no jurisdiction under the Act as already argued by him and which could not be done for the simple reason that pertained to the assessment year 1977-78, which was beyond the jurisdiction of the ld. CIT Under Section 263 also. He further submitted that if the arguments of the ld. D/R are accepted that the “gains” does not include “losses”, Section 52 would not be at all applicable because that Section talks of capital gains only. He finally argued that so far as the applicability of ratio of decision of McDowell & Co. Ltd.’s case (supra) was concerned, it was totally inapplicable and if at all it were applicable, the ld. CIT should have mentioned this point and should have made that as one of the bases for setting aside the order of the ITO.
8. We have carefully considered the arguments from both the sides and have also perused the material on record.
9. So far as the question as to whether the provisions of Section 52 would cover a question of loss also, we are of the opinion that this would be only of academic interest and no useful purpose would be served for the revenue if the arguments of ld. D/R are considered on the subject. We agree with Shri Ranka that in case the word “gains” does not include losses also as argued by the ld. D/R, the order of the ld. CIT will loose its very basis because it had been passed on the premises that the ITO had not taken into consideration the provisions of Section 52(1) and Section 52(1) deals only with the question of capital gains and not capital loss. However, we are of the opinion that since the consideration of profits or gains from any source would also include consideration of losses also from that source, the question of short-term capital loss cannot be said to be beyond the scope of consideration of Section 52 of the IT Act. Taken in that light, it would be obvious that all the case law laid down on the question of taxability or other-wise of capital gains Under Section 52 of the IT Act would as well be applicable to cases where capital losses are claimed by understating sale considerations and are otherwise covered by the provisions of that Section for the purposes of reduction or avoidance of tax liability. Hence this argument of the learned D/R is rejected.
10. The objection regarding Section 263 not being applicable in cases where assessment order was passed after directions Under Section 144B of the IT Act was not seriously pressed by the ld. counsel for the assessee and hence it is rejected. Even otherwise we have, no doubt, in our mind that after explanation inserted w.e.f. 1-10-1984 to Section 263 of the IT Act, Section 263 would cover such cases and as held by the Hon’ble Supreme Court recently in the case of CIT v. P. Doraiswamy Chetty [1990] 183ITR 559, even subsequent insertion of Explanation, though not retrospective in its operation, serves as a legislative exposition of the import of a Section Hence this objection is rejected on merits also.
11. Regarding the question of applicability of provisions of Section 52(1) of the IT Act on the basis of which the ld. CIT has come to the conclusion that the order of the ITO was erroneous insofar as it were prejudicial to the interests of revenue, we find that the provisions of Section 52 of the IT Act have drawn the attention of various High Courts and the Hon’ble Supreme Court since long. We may mention only a few of them in chronological order. As back as in the case of M. Ranga Pai (supra), it was held that the heading to Section 52 can be read as a preamble to the Section and that this provision was intended to apply only to cases of understatement of consideration for the transfer of a capital asset and not where the full consideration is shown in the deed itself.
11.1 Then, in the case of Smt. Sethani Godwaribai (supra), it was held that the object behind Section 52(1) is evidenced by the heading of the Section, which is “consideration for transfer incases of under-statement” and that if the sale deed correctly shows the consideration received by the assessee, it is not possible to apply any of the sub-sections of Section 52, for, in such a case, there cannot be any intention to avoid the tax by under-stating the consideration. Further, if a bona fide transfer is made to a person connected with the assessee for inadequate consideration, the transaction may be regarded as a gift to the extent of the shortfall in consideration for purposes of liability to gift-tax. But this short-fall in consideration, when the transaction is genuine and when the assessee does not receive more than what is stated in the deed of transfer cannot be deemed to be capital gains by invoking Section 52 (2).
11.2 Thereafter came the final exposition on Section 52 in the decision of the Hon’ble Supreme Court in the case of K.P. Varghese (supra) where their Lordships of the Supreme Court, infer alia, laid down that the onus of establishing that the conditions of taxability are fulfilled, is always on the revenue. On pages 606 to 607 of the report, Their Lordships observed as under:-
Now, it is necessary to bear in mind that when capital gains are computed by invoking Sub-section (1). It is not any fictional accrual or receipt of income which is brought to tax. Sub-section (1) does not deem income to accrue or to be received which in fact never accrued or was never received. It seeks to bring within the net of taxation only that income which has accrued or is received by the assessee as a result of the transfer of the capital asset. But since the actual consideration received by the assessee is not declare or disclosed an in most of the cases, if not all, it would be possible for the ITO to determine precisely what is the actual consideration received by the assessee or in other words how much more consideration is received by the assessee than that declared by him, Sub-section (1) provides that the fair market value of the transfer shall be taken to be the FULL VALUE of the consideration for the transfer which has accrued to or is received by the assessee.
Their Lordships further took note of the position that the scope of Sub-section (1) of Section 52 was extremely restricted and thereafter observed on page 607 itself:
Such cases would not be within the reach of Sub-section (1) and the assessee, though dishonest, would escape the rigour of the provision enacted in that sub-section.
In the same decision on page 617 of the report, Their Lordships had also observed that if a capital asset is transferred for a consideration below its market value, the difference between the market value and the full value of the consideration received in respect of the transfer would amount to a gift liable to tax under the GT Act, 1958, but if it is also charged to capital gains tax, it would be an anomalous result, which could never have been contemplated by the Legislature, since the IT Act, 1961 and the GT Act, 1958, are parts of an integrated scheme of taxation and the same amount which is chargeable as gift could not be intended to be charged also as capital gains.
11.3 Thereafter in the case of Mrs. Avtar Mohan Singh (supra), Their Lordships of the Delhi High Court also laid down that if the transfer of a capital asset is not bona fide and the declared consideration is lower than the consideration received, it would be a case of under-statement and that would be attracted provisions of Section 52. On the other hand if the transfer is bona fide and the declared consideration is the actual consideration received, there would be no declaration of an under-statement. In such a case, the difference between the declared consideration and the fair market value would be a gift in the common and ordinary accepted sense of the word.
11.4 Again in the case of Ramkrishna Ramnath Properties (P.) Ltd. (supra), it was laid down that Under Section 52 of the IT Act, actual under-statement of consideration has to be established by the revenue and the assessment of capital gains cannot be made dependent only on the fair market value as determined by the departmental valuer. Therefore, where no material existed to support the actual under-statement of consideration on transfer of property except the determination of the fair market value by the Departmental valuer, there could be no capital gain assessable under Section 52 of the IT Act, 1961.
12. We would presume that when the ITO completed the assessmenton 13-8-1984, the legal expositions of Section 52 of the IT Act reported upto Ramkrishna Ramnath Properties (P.) Ltd.’s case (supra) were available with him and he became aware of the fact that although he had raised a query with the assessee with an intention to reject the claim of short-term capital loss claimed by the assessee, he could not do it legally and hence although he made substantial additions to the income of the assessee. On other points he did not disallow the claim of short-term capital loss of Rs. 4.5 lacs, which it is obvious he contemplated when he had raised the query during the course of assessment proceedings to which the assessee replied vide his letter dated 19-2-1983/12-4-1983 (page 1 of paper book at page 3). It was obvious that the parties were closely related to each other but there was neither any indication, nor reason to believe, nor perhaps there could have been a proof of the fact that the actual consideration received by the assessee-company on the sale of shares was more and that what was recorded in the books of account was under-statement of sale consideration. In these circumstances, we agree with the ld. counsel for the assessee that it was not necessary for the ITO to have discussed those points in the assessment order which he was deciding by accepting the contentions of the assessee and which he could not disprove. We do not agree with the argument of the learned D/R that even if he had not mentioned it in the assessment order, he should have mentioned it in an office note because after the provisions of Section 52 had been interpreted by the Appex Court and-after it had become the law of the land, it was not necessary for the ITO to leave an office note on this point. No ITO can be expected to presume that his higher authorities would be so ignorant about law that he has to leave an office not even regarding those matters, which are so obvious that every one is supposed to know them. If what is canvassed by the ld. D/R is accepted, it may lead to a situation where each assessing officer has to write in the assessment order or in an office note why deductions and exemptions admissible under the Income-tax Act had been allowed in each case.
13. Unfortunately, it appears that in the present case, the ld. CIT was perhaps not aware of the legal situation as it obtained when the ITO passed the assessment order. None the less even thereafter the cases which were reported were not much different than what had already been laid down. Thus, in the case of Madan Mohan Kishanlal (supra), Their Lordships of the Gujarat High Court held that when capital gains are computed by invoking Sub-section (1) of Section 52 it. is not any fictional accrual or receipt of an income which is brought to tax. Sub-section (1) does not deem income to accrue or to be received, which in fact, never accrued or was never received. It seeks to bring within the net of taxation only that income which has accrued or has been received by the assessee as a result of the transfer of the capital.
14. Finally, perhaps only shortly before the learned CIT issued the notice Under Section 263 and finally passed his order Under Section 263 setting aside the assessment order, Their Lordships of the Hon’ble Supreme Court again laid down in the case of Shivakami Co.(P.)Ltd. (supra) with reference to Section 12B of the IT Act, 1922, which is in pari materia with Section 52 of the IT Act, 1961 (which provisions were also actively considered by Their Lordships in Their judgment) that though the Legislation in question is to remedy a social evil and should be read broadly and should be so read that the object is fulfilled, yet the onus of establishing a condition of taxability must be fulfilled by the revenue. Secondly, unless there is evidence that more than what was stated was received, no higher price can be taken to be the basis for computation of capital gains. Thirdly, that capital gains tax was intended to tax the gains of an assessee, not what an assessee might have gained and that what is not gained cannot be computed as gained. They further laid down that all laws fiscal or otherwise, must be both reasonably and justly interpreted whenever possible. Capital gains tax is not a tax on what might have been received or could have been taxed.
15. It appears that even these freshly decided cases of that time escaped the notice of the ld. CIT while deciding the case of the appellant company. Even if for some reasons it might not have been possible for the ld. CIT to have kept himself abreast with the cases being decided by various High Courts and the Hon’ble Supreme Court and being reported in various reporting Magazines and Reporters, even a reading of any commentary on the Income-tax Law such as that of Sampath Iyengar 7th Edition published in 1981-82 should have apprised him about the meaning of Section 52 of the IT Act and about what was contemplated under that Section Thus, on page 2202 of Sampath Iyengar’s above-mentioned 7th Revised Edition, the ld. Authors have written on the basis of a good number of decided cases as under:-
Thus, in order to attract the provisions of sub-section (1), the consideration mentioned in the deed must have been under-stated and the assessee must have received more than what is stated in the document. The mere fact that the assessee transfers it to a person directly or indirectly connected with him for a nominal sum for more than one reason may not be construed as to partake of the object of avoiding or reducing the liability of the assessee.
16. It appears that the learned CIT had not only not taken the trouble of deciphering the meaning of the provisions of Section 52 himself but had not even gone through the decisions of almost all the High Courts and the Hon’ble Supreme Court which had bearing on the subject with unanimity of their contents regarding the meaning and interpretation of Section 52. Even if on account of his busy administrative schedule, the ld. CIT could not find time to go through those decisions and understand them, the power Under Section 263 being quasi-judicial, it was incumbent on him to have applied his mind actively to the written submissions given before him on behalf of the assessee during the course of proceedings Under Section 263 before him. A reading of those submissions, which have been summarised by us in the initial part of this order, would indicate that the assessee had only given a summary of the various decided cases, which were reported till that time and had even quoted two decisions, namely, the one decided by the Madras High Court and the other decided by the Calcutta High Court and still it appears that the learned CIT did not try to apply his mind to the legal aspects of those submissions.
17. The result of what we have discussed is obvious it would show that whereas the order passed by the ITO allowing short-term capital loss to the assessee was in accordance with the provisions of law as interpreted by various High Courts so also by the Hon’ble Supreme Court and although there might have been a situation where the helplessness of the Revenue might have been staring the ITO in the face yet in the circumstances as contemplated in the case of Shivakami Co. (P.) Ltd. (supra), he had to pass a legally correct order, which he did and thus, there was no error in the order of the ITO on this point. We need not mention that in view of what we have mentioned in this order the error lies in jhe order of the ld. CIT, who has completely ignored not only the provisions of Section 52(1) of the IT Act but has ignored the written submissions of the assessee which were based on the decisions of various High Courts and of the Hon’ble Supreme Court.
18. We further agree with the ld. counsel for the assessee that the directions of the ld. CIT to consider the question of the purchase price of the shares is beyond his jurisdiction because that question was relevant to the assessment year 1977-78 and not to the assessment year 1980-81 for which the CIT had issued notice Under Section 263 and hence on the basis of directions of ld. CIT Under Section 263 for the assessment year 1980-81, the ITO cannot disturb a completed assessment for the assessment year 1977-78.
19. In the result, the order Under Section 263 passed by the ld. CIT is cancelled. The appeal filed by the assessee is allowed.