The Commissioner Of Income Taxchennai v. M/S.palanquin Investments P Ltd.new

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM THE HONOURABLE MR. JUSTICE R.SUDHAKARANDTHE HONOURABLE MR. JUSTICE R.KARUPPIAH T.C.A. NO. 732 OF 2014 The Commissioner of Income TaxChennai. ... Appellant- Vs - M/s.Palanquin Investments P Ltd.New No.12 (Old No.71)3[rd] Main Road, Kasturba NagarAdyar, Chennai 600 020. ... Respondent Appeal filed under Section 260 A of the Income Tax Act againstthe order dated 13.8.10 passed by the Income Tax Appellate Tribunal,'C' Bench, Chennai, made in ITA No.1660/Mds/2009 against the order ofthe commissioner of Income Tax (Appeals)-V, Chennai, dated 16/3/09made in ITA. No. 015/2008-09 against the Deputy Commissioner ofIncome-Tax; Company Circle V(1), Chennai, dated 18/10/06 made inPan/GIR No. AAACP 4289P for the Assessment year 2004-05. For Appellant: Mr. T.R.Senthil KumarJUDGMENT Aggrieved by the order dated 13.8.10, passed by the Income TaxAppellate Tribunal in dismissing the appeal filed by it, the Revenueis before this Court by filing the present appeal. Theappellant/Revenue has raised the following questions of law forconsideration :-“i) Whether on the facts and in the circumstancesof the case, the Tribunal was right in upholding thedecision of the CIT (A) who had quashed the order ofthe assessing officer passed under Section 154 of theIncome Tax Act? https://hcservices.ecourts.gov.in/hcservices/ ii) Whether on the facts and in the circumstancesof the case, the Tribunal was right in notconsidering Section 94 (8) while dealing with theissue on hand?” 2. Shorn of unnecessary details, the brief facts of the case arethat the respondent/assessee filed return of income for theassessment year 2004-2005 declaring a total income of Rs.9,10,880/=.The assessee is carrying on business of investment and trading inshares. The return of income comprised of long term capital gains tothe tune of Rs.3,67,213/= and short term capital gains to the tune ofRs.6,27,049/= and income from other sources at Rs.1,017/=. The shortterm capital gain was arrived at after setting off short term capitalloss of Rs.34,30,444/=. The assessment under Section 143 (3) of theIncome Tax Act was completed on 18.10.06. 3. On 3.3.08, notice under Section 154 of the Income Tax Act wasissued to the respondent/assessee stating that the claim of shortterm capital loss was not admissible, as the assessee had, on 22.2.04purchased 462474.292 units of Chola Freedom Fund at a price of Rs.85Lakhs. On 26.2.04, the assessee received bonus units of 3,69,979.434.On 2.3.04, 4,20,603.713 units were redeemed for a sum of Rs.43 Lakhsand the proportionate cost of the redeemed units was worked out bythe assessee at Rs.77,30,444/=. After setting off the considerationof Rs.43 Lakhs received on redemption, the net loss was arrived atRs.34,30,444/=, which amount was claimed as short term capital lossby the assessee. The Assessing Officer was of the opinion that theredeemed units could be the original units or bonus units. It is thefurther stand of the Assessing Officer that even after redemption,4,11,859.999 units were available with the assessee. Therefore, theassessing officer held that the short term capital loss, claimed bythe assessee, was notional and not actual. 4. The Assessing Officer, by relying on Sections 94 (1), 94 (4)and 94 (7) of the Income Tax Act came to conclusion that there is amistake apparent on the record appearing in the assessment. However,the assessee clarified that the short term capital loss was correctlyworked out under Section 94 (8) of the Act, which is applicable tobonus units and cannot be made applicable to the impugned assessmentyear, but only for the next assessment year. However, the AssessingOfficer did not accept the said contention of the assessee and deniedthe claim of short term capital loss. 4. The Assessing Officer, by relying on Sections 94 (1), 94 (4)and 94 (7) of the Income Tax Act came to conclusion that there is amistake apparent on the record appearing in the assessment. However,the assessee clarified that the short term capital loss was correctlyworked out under Section 94 (8) of the Act, which is applicable tobonus units and cannot be made applicable to the impugned assessmentyear, but only for the next assessment year. However, the AssessingOfficer did not accept the said contention of the assessee and deniedthe claim of short term capital loss. 5. Aggrieved against the said assessment, the respondent/assesseepreferred appeal before the CIT (Appeals), inter alia contending thatSection 94 (8) came into operation only from the assessment year2005-2006 and, therefore, it cannot be referred to for making anydisallowance for the assessment year 2004-2005. The CIT (Appeals)agreed with the contention of the assessee and held that the rectification made by the assessing officer was not in order and,therefore, set aside the same. 6. On an appeal by the Department against the said order of theCIT (Appeals), the Tribunal was of the view that the rectificationorder dated 16.5.08 under Section 154 of the Act (which is wronglystated as 16.05.06 in the order of the Tribunal), shows that theAssessing Officer himself was not sure whether the redeemed units areoriginal units or bonus units. The Tribunal further held that theAssessing Officer had presumed that Section 94 (8), which came intothe statute through Finance (No.2) Act, 2004, with effect from1.4.2005 was retrospective. However, such a view came to beclarified only after the Tribunal decided the issue in M/s.MarineContainer Services (South) Pvt. Ltd. (ITA No. 384/Mds/2008 dated18.7.08). The Tribunal was of the view that since the AssessingOfficer himself was not sure whether the units sold by the assesseewere original or bonus units in case of doubt or ambiguity, it washeld by the Tribunal that the question of rectification does notarise. The Tribunal further held that the order under Section 154 ofthe Act could not be invoked when the issue is debatable andrectification of mistake could be done only when the error or mistakeis apparent on record. Aggrieved against the said order of theTribunal, the Revenue is before this Court raising the abovequestions of law. 7. Heard Mr. T.R.Senthil Kumar, learned standing counselappearing for the Revenue and perused the materials available in thetyped set of documents. 8. On a careful perusal of the materials available on record andthe findings as given by the CIT (Appeals) as also the Tribunal forarriving at the decision, this Court is in agreement with thefindings of the Tribunal that when the Assessing Officer is in doubtas to the nature of the units sold and the fact that Section 94 (8)of the Act being clarified by the Tribunal to have retrospectiveoperation only by the subsequent decision of the Tribunal, there isno scope for the Assessing Officer to resort to Section 154proceedings after having accepted the assessee's stand and completedthe assessment under Section 143 of the Act on 18.10.06. Therefore,this Court is of the considered view that the proceedings underSection 154 of the Income Tax Act is not justified in the facts andcircumstances of the present case. In view of the above, this Courtholds that the CIT (Appeals) was justified in setting aside the orderof the Assessing Officer, which was subsequently confirmed by theTribunal. 9. The 2[nd] issue raised by way of the other question of lawbecomes academic in view of the above order of this Court. However,it is open to the Department to raise such a plea in appropriate case. 9. The 2[nd] issue raised by way of the other question of lawbecomes academic in view of the above order of this Court. However,it is open to the Department to raise such a plea in appropriate case. 10. In view of the findings as recorded above, this Court is ofthe considered view that there is no questions of law, much lesssubstantial questions of law that arises for consideration in thisappeal. Accordingly, this appeal fails and the same is dismissed. Sd/-Asst. Registrar /true copy/ Sub Asst. Registrar.To1. The Commissioner of Income Tax Chennai.2. The Assistant Registrar, The Income Tax Appellate Tribunal 'C' Bench, Chennai.3. The Commissioner of Income Tax(Appeals) V, Chennai.4. The Deputy Commissioner of Income Tax, Company circle V(1), Chennai.+1cc to Mr.T.R.Senthil Kumar, Advocate, S.R.No.3908/15 T.C.A. NO. 732 OF 2014CA(co)EU 25.2.15