Judgment

GROVER, J. :- These appeals by certificate from a judgment of the Rajasthan High Court involve a common question relating to the computatation of capital gains in respect of sale of certain shares.

2. It is necessary to refer to the facts in civil Appeal No. 2039/68 only. The assessee is a company incorporated under the Indian companies Act, 1956 having its registered office at Jaipur. For the assessment year 1962-63 relevant to the previous year ending March 31, 1962 the assessee filed its return before the Income Tax Officer, company circle No. 1, Jaipur. On March 29, 1949, the assessee had acquired 12,000 ordinary shares of the Orient Paper Mills of the face value of Rs. 10 each. On this holding it received 12,000 bonus shares on or about April 28, 1951. It again received 60,000 bonus shares on or about June 4, 1954 and further acquired 25,200 right shares on June 26, 1961. It sold 22,000 shares during the assessment year 1962-63. It is common ground that these shares which were sold were out of the 24,000 shares which it held prior to January 1,1954. The price realized on account of the sale of 22,000 shares during the assessment year 1962-63 was Rupees 8,45,110/-. The assessee calculated the cost price of 22,000 shares sold by it at the market rate prevailing on January 1, 1954 which came to Rs. 8,63,500/-. The assessee had also acquired 15,000 ordinary shares of Birla Jute Manufacturing Company before January 1, 1954. It got 41,250 bonus shares in original holding after January 1,1954. It further got 22,500 right shares for the nominal value of Rupees 3,60,000. The assessee sold 15,000 shares during the assessment year 1962-63 and the sale price realized was Rs. 4,54,130. The assessee calculated the cost price, of 15, 000 shares sold by if at the market value prevailing on January 1, 1954 which came to as. 6,45,000 /-. Thus according to the assessee the cost of acquisition of the said shares in the two companies came to as. 15, 09,400 while they were sold for Rs. 12,09,240 and thereby the assessee suffered a capital loss of Rupees 2,10,160. The assessee filed a statement giving all these details. From that statement it was clear that the 22,000 shares of the Orient Paper Mills and the 15,000 shares of the Birla Jute Mfg. Co. which were sold during the assessment year 1962-63 were those which it had acquired or received by 2390 way of bonus shares prior to January 1, 1954.

3. Thc Income Tax Officer by his assessment order dated July 20, 1964 accepted the statement furnished by the assessee and held that it had suffered a capital loss of Rs. 2,10,160/- which was directed to be carried forward. By means of a notice dated January 4, 1967 the Income Tax Officer informed the assessee that he had reasons to believe that income chargeable to tax for the assessment year 1962-63 had escaped assessment within the meaning of Section 147 of the Income-tax Act, 1961, hereinafter called the "Act". This notice was accompanied by a letter in which it was stated:

"While working out the cost you claimed the prevalent market price as on 1-1-1954 in complete disregard of the fact that the same shares had been given bonus shares in the subsequent years after 1-54." The SC had laid down in the case of Dalmia Investment, (1964) 52 ITR 567 that while working out the capital gains the cost has to be worked out by averaging cost of the original shares amongst the original shares and bonus shares taken together. Your claim of the cost, therefore, was incorrect. By following erroneous method you claimed and were allowed loss of Rs. 2, 10,160/-in assessment year 1962-63 and Rs. 45,176/- in assessment year 1964-65. Against this the cost in assessment year 1962-63 would come much less and instead of capital losses a figure of capital gain will get computed."

The assessee sent a letter dated February 9, 1967 to the Income Tax Officer saying that it had exercised its option under Section 55 (2) of the Act and in accordance therewith the cost of acqui