Valuation of shares for trading results should be based on market value, and deductions under section 24(1)(iv) of the Income Tax Act, 1961 should not be considered voluntary charges.

( 1 ) THESE references were made at the instance of the Revenue under Section 256 (1) of the Income Tax Act, 1961 ( hereinafter referred to as the Act ) by the Income-tax appellate Tribunal, Delhi Bench b , New Delhi ( hereinafter referred to as the Tribunal ), for opinion of this Court on the following questions :-

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that for ascertaining the trading result on the sale of shares, the value of the opening stock would continue to be taken at cost as followed by the assessee from year to year?"

"2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in allowing the amount of rs. 3,000/- as a charge on the income from property received by the assessee on partition and hence "deductible under section 24 (1) (iv) of the Income Tax Act, 1961?"1. The assessment year in question is 1977-78, the year ending being 31. 12. 1976. The assessee was being assessed is an individual. He sold the following shares in the year in question :- (i) 28641 ordinary shares of New Indian Rs. 85,923. 00 industries Ltd. @ Rs. 3. 00 (ii) 105870 deferred shares of New India Rs. 31,761. 00 industries Ltd. @ Rs. 0. 30 (iii) 120 shares of M. Gulab Singh and Sons Rs. 4,200. 00 (P) Ltd. @ Rs. 35. 00 rs. 1,21,884/- the said shares were being held as investment upto the assessment year 1963-64 and from the assessment year 1964-65, they were transferred from investment account to stock in trade account, whereafter the assessee had been dealing in shares and certain sales were made from time to time. Allegedly, the assessee had through out been showing opening stock of shares at cost and the closing stock of shares also for a number of years. The trading result in terms of the aforementioned practice adopted by the assessee was :- opening stock of share Rs. 4,85,898. 00 sale Rs. 1,21,884. 00 closing Stock Rs. 2,46,510. 45 loss Rs. 1,17,103. 59

( 2 ) THE contention of the assessee that the said amount be treated to be a loan was accepted by the assessing officer inter alia on the ground that when the assessee transferred the shares from investment account to stock-in-trade account, such transfers would have been assessed at the market value on the date of transfer. The assessing officer for coming to the said conclusion relied upon a decision of the Apex Court in Commissioner of Income Tax v. Bai Shrini bai K. Kooka, (19)46 ITR 86

( 3 ) ON the aforementioned ground, an addition of rs. 2,37,787/- was made. An appeal was taken thereagainst by the assessee wherein Commissioner of Income-tax (Appeals) ( in short, cit (A) ) came to the conclusion that the shares of Munshi Gulab Singh and Sons (P) Ltd. , which had been shown at Rs. 47. 37 per share could be brought down to Rs. 35. 00 in that year. CIT (A) upheld the order passed by the assessing officer. The matter was taken to the Tribunal wherein the learned Tribunal having regard to the fact that the system of valuing the shares at cost had continued in the past held :-

"20. It may be mentioned that the value of the shares sold in this year has come in the assessee s trading account from the earlier years and as the closing stock of the earlier year had been valued at cost, the same value has been adopted for the opening stock in this year. . . . "

( 4 ) THE Tribunal held that the principles laid down by the Apex court in Bai Shrini Bai K. Kooka s case ( Supra ) would not apply as therein the shares had been valued from year to year for a long period on cost basis and the trading results had been worked out on that basis, which had been accepted. The Tribunal observed that from the point of view of accountancy where a consistent method is adopted and the valuation of stock is done in a regular manner, the variation adopted by the Income Tax Officer in short, ito ) would not be justified. Referring to the decision of the Apex court in the case of Investments Ltd. v. Commissioner of