1 IN HIGH COURT OF JUDICATURE AT MADRAS DATE : 27.01.2015 CORAM HONOURABLE MR. JUSTICE R.SUDHAKAR AND HONOURABLE MR. JUSTICE R.KARUPPIAH T.C.A. NO. 732 OF 2014 Commissioner of Income Tax Chennai. .. Appellant - Vs - M/s.Palanquin Investments P Ltd. New No.12 (Old No.71) 3rd Main Road, Kasturba Nagar Adyar, Chennai 600 020. .. Respondent Appeal filed under Section 260 of Income Tax Act against order dated 13.8.10 passed by Income Tax Appellate Tribunal, 'C' Bench, Chennai, made in ITA No.1660/Mds/2009. For Appellant : Mr. T.R.Senthil Kumar JUDGMENT (DELIVERED BY R.SUDHAKAR, J.) Aggrieved by order dated 13.8.10, passed by Income Tax Appellate Tribunal in dismissing appeal filed by it, Revenue is before this Court by filing present appeal. appellant/Revenue has raised following questions of law for consideration :- i) Whether on facts and in circumstances of 2 case, Tribunal was right in upholding decision of CIT (A) who had quashed order of assessing officer passed under Section 154 of Income Tax Act? ii) Whether on facts and in circumstances of case, Tribunal was right in not considering Section 94 (8) while dealing with issue on hand? 2. Shorn of unnecessary details, brief facts of case are that respondent/assessee filed return of income for assessment year 2004- 2005 declaring total income of Rs.9,10,880/=. assessee is carrying on business of investment and trading in shares. return of income comprised of long term capital gains to tune of Rs.3,67,213/= and short term capital gains to tune of Rs.6,27,049/= and income from other sources at Rs.1,017/=. short term capital gain was arrived at after setting off short term capital loss of Rs.34,30,444/=. assessment under Section 143 (3) of Income Tax Act was completed on 18.10.06. 3. On 3.3.08, notice under Section 154 of Income Tax Act was issued to respondent/assessee stating that claim of short term capital loss was not admissible, as assessee had, on 22.2.04 purchased 462474.292 units of Chola Freedom Fund at price of Rs.85 Lakhs. On 26.2.04, assessee received bonus units of 3,69,979.434. On 2.3.04, 4,20,603.713 units were redeemed for sum of Rs.43 Lakhs and proportionate cost of redeemed units was worked out by assessee at 3 Rs.77,30,444/=. After setting off consideration of Rs.43 Lakhs received on redemption, net loss was arrived at Rs.34,30,444/=, which amount was claimed as short term capital loss by assessee. Assessing Officer was of opinion that redeemed units could be original units or bonus units. It is further stand of Assessing Officer that even after redemption, 4,11,859.999 units were available with assessee. Therefore, assessing officer held that short term capital loss, claimed by assessee, was notional and not actual. 4. Assessing Officer, by relying on Sections 94 (1), 94 (4) and 94 (7) of Income Tax Act came to conclusion that there is mistake apparent on record appearing in assessment. However, assessee clarified that short term capital loss was correctly worked out under Section 94 (8) of Act, which is applicable to bonus units and cannot be made applicable to impugned assessment year, but only for next assessment year. However, Assessing Officer did not accept said contention of assessee and denied claim of short term capital loss. 5. Aggrieved against said assessment, respondent/assessee preferred appeal before CIT (Appeals), inter alia contending that Section 94 (8) came into operation only from assessment year 2005-2006 and, therefore, it cannot be referred to for making any disallowance for 4 assessment year 2004-2005. CIT (Appeals) agreed with contention of assessee and held that rectification made by assessing officer was not in order and, therefore, set aside same. 6. On appeal by Department against said order of CIT (Appeals), Tribunal was of view that rectification order dated 16.5.08 under Section 154 of Act (which is wrongly stated as 16.05.06 in order of Tribunal), shows that Assessing Officer himself was not sure whether redeemed units are original units or bonus units. Tribunal further held that Assessing Officer had presumed that Section 94 (8), which came into statute through Finance (No.2) Act, 2004, with effect from 1.4.2005 was retrospective. However, such view came to be clarified only after Tribunal decided issue in M/s.Marine Container Services (South) Pvt. Ltd. (ITA No. 384/Mds/2008 dated 18.7.08). Tribunal was of view that since Assessing Officer himself was not sure whether units sold by assessee were original or bonus units in case of doubt or ambiguity, it was held by Tribunal that question of rectification does not arise. Tribunal further held that order under Section 154 of Act could not be invoked when issue is debatable and rectification of mistake could be done only when error or mistake is apparent on record. Aggrieved against said order of Tribunal, Revenue is before this Court raising above questions of law. 5 7. Heard Mr. T.R.Senthil Kumar, learned standing counsel appearing for Revenue and perused materials available in typed set of documents. 8. On careful perusal of materials available on record and findings as given by CIT (Appeals) as also Tribunal for arriving at decision, this Court is in agreement with findings of Tribunal that when Assessing Officer is in doubt as to nature of units sold and fact that Section 94 (8) of Act being clarified by Tribunal to have retrospective operation only by subsequent decision of Tribunal, there is no scope for Assessing Officer to resort to Section 154 proceedings after having accepted assessee's stand and completed assessment under Section 143 of Act on 18.10.06. Therefore, this Court is of considered view that proceedings under Section 154 of Income Tax Act is not justified in facts and circumstances of present case. In view of above, this Court holds that CIT (Appeals) was justified in setting aside order of Assessing Officer, which was subsequently confirmed by Tribunal. 9. 2nd issue raised by way of other question of law becomes academic in view of above order of this Court. However, it is open to Department to raise such plea in appropriate case. 6 10. In view of findings as recorded above, this Court is of considered view that there is no questions of law, much less substantial questions of law that arises for consideration in this appeal. Accordingly, this appeal fails and same is dismissed. (R.S.J.) (R.K.J.) 27.01.2015 Index : Yes/No Internet : Yes/No GLN To 1. Commissioner of Income Tax Chennai. 2. Income Tax Appellate Tribunal 'C' Bench, Chennai. 7 R.SUDHAKAR, J. AND R.KARUPPIAH, J. GLN T.C.A. NO. 732 OF 2014 27.01.2015 Commissioner of Income-tax, Chennai v. M/s. Palanquin Investments P Ltd