COMMISSIONER OF INCOME TAX Vs. VENKATAPATHY G N

JUDGEMENT

(1.) AT the instance of the Department, the Tribunal referred the following two questions for the opinion of this Court under s. 256(1) of the IT Act, 1961, hereinafter referred to as the 'Act' :

(2.) THE assessee held 382 shares in the Coimbatore Pioneer Mills Ltd. He had been holding these shares even prior to 1st Jan., 1964. On 9th Feb., 1975 he received bonus shares in the ratio of 1:1 in respect of those 382 shares. Thus, as on 9th Feb., 1975 he was holding 764 shares. During the accounting year, relevant to the asst. yr. 1978-79, the assessee sold 167 original shares and 382 bonus shares for a total consideration of Rs. 60,340 (original shares were sold for Rs. 20,113 and bonus shares were sold for Rs. 40,227. In the return of income filed, the assessee showed a loss of Rs. 32,204. This loss has resulted by reason of adoption of the actual cost of the original shares at Rs. 258.50 per share being the fair market value as on 1st Jan., 1964 and the adoption of the actual cost of the bonus shares at half the value of the original shares, viz., at Rs. 129.25 per share. THE ITO accepted the loss returned and completed the assessment accordingly. Later the order of the ITO came to be scrutinised by the CIT. THE CIT found that the ITO had wrongly adopted the cost of acquisition of the bonus shares at Rs. 129.25. Accordingly, the CIT initiated proceedings under s. 263 of the IT Act, 1961, since the order passed by the ITO was erroneous and prejudicial to the interest of the Revenue. According to the CIT the correct cost of acquisition of the bonus shares should be as under : <FRM>JUDGEMENT_952_ITR225_1997Html1.htm</FRM>

(3.) WHILE considering a similar issue, the Supreme Court in Shekhawati General Traders Ltd. vs. ITO , held as under :