Commissioner of Income Tax vs Vimgi Investment P. Ltd.

The Revenue is aggrieved by an order dated September 30, 2005, passed by the Income Tax Appellate Tribunal, New Delhi Bench ""B"" in

I.T.A. No. 1371/Del/2005 relevant for the assessment year 2001-02.

The assessed had purchased some units of mutual funds which were cum dividend. The units were sold within two or three days of purchase but

after receiving the dividend. The dividend received by the assessed was about Rs. 3.72 crores and the units were sold at a loss of about Rs. 4.45

crores. The loss incurred in the sale of units was adjusted by the assessed against the business profits.

The Assessing Officer, while assessing the return of the assessed, accepted the bona fides of the transaction and did not cast any doubt upon the

genuineness of the sale of the units and, Therefore, adjusted the loss on account of sale against the business profits.

The Commissioner of Income Tax, however, had a different view and invoked the powers entrusted to him u/s 263 of the Income Tax Act,

1961, to revise the order on the ground that the transaction entered into by the assessed was not bona fide.

After hearing the assessed, the Commissioner set aside the assessment order and directed the Assessing Officer to make a fresh assessment

order after enquiry and after giving an opportunity of hearing to the assessed. Feeling aggrieved by the order passed by the Commissioner, the

assessed preferred an appeal before the Tribunal which allowed the appeal and that is how the matter is before us u/s 260A of the Income Tax

Act.

Our attention has been drawn by learned Counsel for the respondent to a recent decision rendered by this court in Commissioner of Income

Tax Vs. Vikram Aditya and Associates P. Ltd., . In that case 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 assessed and that the Legislature had recognised this gap and taken steps to rectify it with effect from

the assessment year 2002-03 by amending Section 94 of the Act. In so far as the present appeal is concerned, it is with reference to the

assessment year 2001-02 when the gap in the law still existed.

The contention urged by learned Counsel for the Revenue is that the Commissioner had validly exercised his powers u/s 263 of the Act to revise

the order of assessment. Two views have been canvassed before us, one taken by the Assessing Officer and the other canvassed by learned

Counsel for the Revenue on the basis of the amendment made to Section 94 of the Act with reference to the assessment year 2002-03.

In MALABAR INDUSTRIAL CO. LTD. Vs. COMMISSIONER OF INCOME TAX, 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 u/s 263 of the Act.

We find that in so far as the present case is concerned, only one view is 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 u/s 263 of

the Act to revise the order passed by the Assessing Officer and tax the assessed on the ground that the transaction was an attempt to avoid tax.

The purchase and sale of units by the assessed was undoubtedly bona fide and this was accepted by the Assessing Officer. Under these

circumstances, the question of the Commissioner invoking his powers u/s 263 of the Act would not arise. Following the decision of this court in

Commissioner of Income Tax Vs. Vikram Aditya and Associates P. Ltd., , we find no substance on the merits of the case.

In any event, in view of the decision of the Supreme Court in MALABAR INDUSTRIAL CO. LTD. Vs. COMMISSIONER OF INCOME

TAX, the exercise of power by the Commissioner u/s 263 of the Act is not warranted, if it is assumed that two views are possible on the issue.

Consequently, we are of the opinion that no substantial question of law arises for our consideration u/s 260A of the Act.

Accordingly, the appeal is dismissed.