Tribunal upholds tax department's method for valuing shares, emphasizing legal precedents.

The Tribunal ruled in favor of the tax department in a case concerning the valuation of original shares for a dealer. The dispute revolved around whether the cost of shares should be determined by spreading the original cost over all shares, including bonus shares. The Tribunal upheld the department's method of calculating the average cost of all shares, overturning the Commissioner (Appeals) decision that valued the shares based on the original cost to the appellant. The decision emphasized the importance of applying relevant legal precedents in determining the cost of shares sold for dealers.

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Issues:
- Valuation of original shares with reference to cost or averaging with bonus shares.
- Application of relevant legal precedents in determining cost of shares for a dealer.

Analysis:
1. The appeal involved a dispute regarding the valuation of original shares of a company by the tax department for the assessment year 1981-82. The department contested the Commissioner (Appeals) decision to value the shares based on the original cost to the appellant rather than averaging the cost with bonus shares received.

2. The assessee, a limited company engaged in share dealings, claimed a loss from the sale of 19900 original shares of a company, along with 4950 bonus shares. The department disagreed with the assessee's computation method and calculated the average cost of all shares, resulting in a profit instead of a loss. This decision was based on Supreme Court precedents regarding the spread of original cost over total shares held.

3. The assessee appealed to the Commissioner (Appeals), arguing that the method of valuation adopted should have been accepted. The Commissioner (Appeals) agreed with the assessee, citing a previous case and directed the tax department to accept the loss computation as presented by the assessee.

4. The department's representative contended that the Commissioner (Appeals) erred in applying the previous case to the current scenario. Referring to legal precedents, the representative argued that for a dealer in shares, the cost of shares sold should be determined by spreading the original cost over all shares held, including bonus shares, to calculate the average cost.

5. The assessee's representative supported the Commissioner (Appeals) decision, stating that the method of accounting regularly followed by the assessee valued bonus shares at nil and original shares at their original cost. The representative highlighted the method of valuation employed by the assessee and argued for upholding the Commissioner's decision.

6. Upon considering the arguments and facts presented, the Tribunal found merit in the revenue's contentions. Citing the Supreme Court decision in a similar case, the Tribunal concluded that the cost of shares sold should be determined by spreading the original cost over all shares, including bonus shares. The Tribunal disagreed with the application of a different precedent and restored the tax department's order, vacating the Commissioner (Appeals) decision.

7. Consequently, the appeal was allowed in favor of the tax department, emphasizing the importance of determining the cost of shares sold for a dealer based on relevant legal precedents and valuation methods.

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