AI Drafter 
TaxTMI 
TaxTMI 
2015 (10) TMI 2048
X X X X Extracts X X X X
X X X X Extracts X X X X
....CIT(A) has erred in holding that the loss of Rs. 1,84,13,730/- is arisen due to valuation of closing stock of the units and the same cannot be disallowed by invoking the section 94(7). 3. On the facts and circumstances of the case and in law, the impugned order of the Ld.CIT(A) is contrary to law and consequently merits to be set aside and that of the Assessing Officer be restored. 4. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary." 3. Whereas the assessee has taken the following cross objections: Assessee's cross objection: "On the facts and circumstances of the case and in law, the reopening proceedings u/s 147 of Income Tax Act, 1961 are bad in law and requires to be squashed." 4. Since the assessee in his cross objections has raised a legal issue as to the validity of the reopening of the assessment under section 147 of the Act, we take it first for discussion. The original return filed by the assessee was processed under section 143(1) on 24.03.05. The case was selected for scrutiny and the assessment under section 143(3) was completed on 19.12.06. Thereafter, the AO reopened the assessment observing that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o so has resulted in the escapement of income of Rs. 5,21,76,870/-. It is further observed during the assessment proceedings for A.Y.2005-06 that the assessee has incurred a loss of Rs. 1,84,13,730/- on purchase and sale of mutual funds which is covered by section 94(7) of the I.T. Act. This loss should have been disallowed in the assessment for A.Y.2004-05. Complete details of loss incurred on account of purchase and sale of units of mutual funds is given as under: Name of the Fund Loss booked on A/c. of valuation of closing stock in A.Y.2004- 05 Loss booked in A.Y.2005- 06 on account of sale of units Total Loss Amount of dividend Sundaram Growh (- )73,24,992 (-) 15,87,182 (-) 89,12,174 75,71,122 Sundaram Bond Saver (- )21,59,160 NIL (- )21,51,221 19,37,656 Principal Index Fund- Div. (- )78,41,587 (-)37,69,664 (-)1,16,11,251 71,60,474 Reliance Growth Fund Div. (-)1,03,82,093 (- )39,45,195 (-)1,43,27,289 1,03,82,093 Total (-)2 77,07,832 (-)93,02,041 (-)3,70,01,935 2,70,51,345 These losses were incurred on account of redemption of units of mutual funds purchased during F.Y.2003-....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessee and not the stock in trade, was nothing else but a change of opinion. He has further submitted that classification of shares and units of mutual funds whether as investments or inventeries is a highly subjective issue which depends upon a number of facts which differ from case to case. No single formula is prescribed to differentiate between the two. The CBDT vide its circular No.4/2007 dated 15.06.07 has laid down certain parameters to be observed while making the distinction between the shares held by the assessee as investment or stock in trade viz. the intention of the assessee at the time of purchasing/dealing in shares or units; the number of scripts dealt in with; frequency of transactions and magnitude of investment; duration and length of time for which the said units are held by the assessee; the nature of transactions involved; the intention of the assessee to earn quick profits; the treatment and characterization with the securities in the books of accounts of the assessee etc. He submitted that the entire details of sale and purchase of shares and mutual funds were submitted to the AO during the time of original assessment. Though the AO has not specifically di....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... No new material or evidence had come into the possession of the AO to form a belief that the mutual funds transactions were to be treated as capital in nature. There was neither any new evidence nor any information before the AO to change or form his belief regarding the nature or the head under which the loss from mutual funds were to be computed. The view/computation of the loss from mutual funds as business loss done by the AO during original assessment proceedings was not only the possible view but also the correct view as has also been held by the Ld. CIT(A) in the impugned order. The Hon'ble Bombay High Court in the case of "Asian Paints Ltd. vs. DCIT" (2009) 308 ITR 195 (Bom.), while relying upon the full bench decision of the Hon'ble Delhi High Court in the case of 'CIT vs. Kelvinator India Ltd." (2002) 256 ITR 1, has observed that when a regular order of assessment is passed in terms of section 143(3) of the Act, a presumption can be raised that such an order has been passed on application of mind. Such a presumption can also be raised to the effect that in terms of clause (e) of section 114 of the Indian Evidence Act that judicial and official acts have been regularly pe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s prior to the record date of dividend and sells or transfers such units within a period of nine months after such date, then the loss is to be disallowed. However, we find that during the year under consideration the assessee had not sold or transferred the securities/mutual funds. The loss arrived at by the assessee was on account of diminution in the value of the stock as compared to the market value. The units were lying in the stock of the assessee at the close of the financial year. Under such circumstances, the provisions of section 94(7) were not attracted in this case. As per the accounting practice prevalent to value the stock in trade at cost or market price whichever is lower, the loss was arrived at, after valuing the units at market price and the same was claimed business loss. Neither the amended provisions of section 94(7) were applicable for the year under consideration nor otherwise attracted in this case. We find that even the AO was also of the view that the provisions of section 94(7) were contingent upon the redemption of units. While framing assessment for A.Y. 2005-06 wherein the AO had formed the view to reopen the assessment for A.Y. 2004-05 i.e. for the y....