Case Law Details
Brief of the Case
Delhi High Court held In the case of CIT vs. M/s Abhinandan Investment Ltd. that there is no necessity or occasion for trader to separately determine the cost of acquisition of each item of goods sold by him; he is only required to prepare a trading account while reflecting the aggregate sales and purchases. Thus, in a case of a trader, the principle of ascertaining notional cost attributable to the rights entitlement is neither necessary nor apposite. Further there is no scope to provide for a deduction of notional business loss which is neither incurred by the Assessee nor recorded in its audited books of accounts on the basis of notional costs of acquisition which are neither incurred by the Assessee, nor form a part of its audited accounts. It would be erroneous to impute notional cost after the Assessee has drawn up its Profit and Loss Account in accordance with the mandatory accounting standards and in accordance with the provisions of Section 211 of the Companies Act, 1956.
Facts of the Case
The Assessee is one of the companies belonging to the Jindal Group and was incorporated in the year 1983. The Jindal Group is mainly engaged in manufacturing and production of ferrous metal and alloys. M/s Jindal Iron & Steel Co. Ltd. (JISCO) & Jindal Strips Limited (JSL) and Saw Pipes Ltd. are among the principal manufacturing companies of the Jindal Group. In addition to the manufacturing concerns, Jindal Group also includes investment companies – such as the Assessee – which, inter alia, hold shares of the other manufacturing companies. During the initial assessment year i.e. AY 1984-85, the Assessee company made investments in shares of the following companies:- (i) JSL, 79,800 equity shares, (ii) Nalwa Steels Ltd., 50,000 equity shares and (iii) JISCO 3,50,000 equity shares. At the material time, the shares of the aforesaid companies were not quoted at the stock exchange.
The AO noted that in the previous year relevant to AY 1988-89, the shares of JSL were quoted at the Delhi Stock Exchange. The Assessee had further purchased 7500 shares of JISCO during the said year at Rs.1,35,000/- and the same were reflected in the closing stock at a value of Rs.97,500/-. The Assessee company further made a purchase of 40,000 shares of JISCO on 31st July, 1992 at a consideration of Rs.1,20,00,000/- i.e. Rs.300/- per share and sold 1,40,000 shares on 9th March, 1993 at a total price of Rs.3.92 crores i.e. Rs.280/- per share to JSL. On 4th April, 1991 the Directors of the Assessee company passed a resolution to the effect that the shares and debentures held in various companies which were shown as stock-in-trade were to be now reflected as investment as the said securities were intended to be retained on a long term basis.
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