HIGH COURT OF
Commissioner of Income-tax
v.
Vimgi Investment (P.) Ltd.
MADAN B. LOKUR, V.B. GUPTA, JJ.
INCOME TAX APPEAL NO. 1433 OF 2006
February 14, 2007
Section 263 read with section 94,
of the Income-tax Act, 1961 - Revision - Of orders prejudicial to interest of
revenue - Assessment year 2001-2002 - Whether if it is assumed that two views
are possible on an issue, exercise of power by Commissioner under section 263
is not warranted - Held, yes - Assessee purchased certain units-cum-dividend of
mutual funds - After receiving dividend, assessee sold those units within two or three days at a loss - In its return
for relevant assessment year, assessee adjusted loss incurred in sale of units
against its business profits - Assessing Officer accepted bona fides of
transaction in question and, therefore, allowed said adjustment - However,
under section 263, Commissioner set aside assessment order on ground that
transaction entered into by assessee was not bonafide - On appeal, Tribunal
decided in favour of assessee and restored assessment order - In instant
appeal, on basis of amendment made to section 94 with reference to assessment
year 2002-03, revenue contended that Commissioner had validly exercised his
powers under section 263 - Whether since with reference to assessment year in
question, view taken by Assessing Officer was only possible view, there was no occasion for Commissioner to
exercise his powers under section 263 to revise order passed by Assessing Officer
and tax assessee on ground that transaction was an attempt to avoid tax - Held,
yes
The assessee purchased certain units - cum - dividend of mutual funds. After receiving the dividend, the assessee sold the said units within two or three days of the purchase at a loss. In his return for the assessment year 2001-2002, the assessee adjusted the loss incurred in the sale of units against the business profits. The Assessing Officer accepting the purchase and sale of the units to be bonafide upheld the adjustment of loss against the business profits. However, under section 263, the Commissioner set aside the assessment order on ground that the transaction was an attempt on part of assessee to avoid the tax. On appeal, the Tribunal upheld the order of the Assessing Officer.
On revenue’s appeal:
The assessee cited a recent decision rendered by Delhi High Court in CIT v. Vikram Aditya & Associates
(P.) Ltd. [2006] 287 ITR 268, wherein
also, the question of ‘dividend stripping’ had arisen and it was noted that
there was a gap in the law which was exploited by the assessee and that the
legislature had recognized this gap and taken steps to rectify it with effect
from the assessment year 2002-2003 by amending section 94. In so far as the instant appeal was
concerned, it was with reference to the assessment year 2001-02 when the gap in
the law still existed. [
On the other hand, the revenue contended that the Commissioner had
validly exercised his powers under section 263 to revise the order of
assessment. Two views had been canvassed,
one taken by the Assessing Officer and the other canvassed by the revenue on
the basis of the amendment made to section 94 with reference to the assessment
year 2002-2003. [
In Malabar Industrial Co. Ltd. v.
CIT [2000] 243 ITR 83/109 Taxman 66 the
Supreme Court held that if two views are possible on an issue and both the
views are reasonable then the Commissioner ought not to exercise power under
Section 263. [
In so far as the instant case was concerned, only one view was possible and
that was taken by the Assessing Officer and that view was valid with reference
to the assessment year 2001-02.
Therefore, there was no occasion for the Commissioner to exercise his
powers under section 263 to revise the order passed by the Assessing Officer
and tax the assessee on the ground that the transaction was an attempt to avoid
tax. The purchase and sale of units by
the Assessee was undoubtedly bona fide and that was accepted by the
Assessing Officer. Under those
circumstances, the question of the Commissioner invoking his powers under
section 263 would not arise. In view of
the decision of the Delhi High Court in Vikram
Aditya & Associates (P.) Ltd’s case (supra) there was no substance on the merits of
the case. [
In any event, in view of the decision of the Supreme Court in the case of
Malabar Industrial co. Ltd (Supra), the exercise of power by the
commissioner under section 263 is not warranted, if it is assumed that two
views are possible on the issue. [
Consequently, no substantial question of law arose for consideration
under section 260 A. [
In the result, the appeal was to be dismissed.