- (1.) In this reference under Section 256(1) of the I.T. Act, 1961, the following question has been referred to this court: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that in computing the profit or loss arising from the sale of 160 bonus shares of M/s. Kamarhati Co. Ltd., a sum of Rs. 85,233 should be deducted as the cost of the said shares from the sale proceeds ?"
(2.) The question arises in respect of the assessment for the assessment year 1972-73. The assessee is a dealer in shares and was holding 200 ordinary shares of M/s. Kamarhati Co. Ltd. as stock-in-trade. These shares were acquired by it at Rs. 1,92,000, that is to say, at the rate of Rs. 960 per share. By virtue of its shareholding, the assessee got 160 bonus shares in the said company allotted to it on 31st December, 1948. The assessee sold all its original shares by the end of the accounting year relevant to the assessment year 1952-53. The assessee sold 76 shares, 25 shares and 100 shares (original shares) of the aforesaid company in the accounting years relevant to the assessment years 1950-51, 1951-52 and 1952-53. In the assessment for these assessment years, the profit and loss resulting from the sales of the aforesaid shares was determined on the basis of the cost of these shares at Rs. 960 per share. But in those years as well as in the subsequent years, the assessee was valuing the closing stock of its bonus shares at the end of each year at nil. In the previous year, relevant to the assessment year under reference 1972-73, the assessee sold all the 160 bonus shares of M/s. Kamarhati Co. Ltd. In the profit and loss account of the year, the assessee credited the profit resulting from the sale of these shares by valuing the cost at nil, just as it was valuing the closing stock of these shares at nil at the end of each year. The profit and loss account of that year disclosed a loss of Rs. 3,17,484. But, in the return filed for the assessment year, the assessee claimed that the loss disclosed in the profit and loss account should further be enhanced by Rs. 87,516, on the ground that by mistake the profit resulting from the sale of 160 bonus shares of M/s. Kamarhati Co. Ltd. was credited in the profit and loss account by taking the cost of these shares as nil whereas the cost of these shares should be taken at Rs. 87,516. The assessee claimed that the cost of 200 original shares should be spread over these shares and also the 160 bonus shares in order to determine the cost of 160 bonus shares and that if it was so spread the cost of 160 bonus shares would be Rs. 87,516 and not nil as accounted for by the assessee in the accounts. The ITO rejected the assessee's contention.
(3.) There was an appeal before the AAC. The AAC reversed the decision of the ITO and directed the ITO to determine the cost of the bonus shares sold in the light of the principles laid down by the Supreme Court in the case of CIT v. Dalmia Investment Co. Ltd. , and determine afresh the profit and loss account arising out of the sale of shares on that basis.;