ACIT, Circle-3(2),, Hyderabad v. M/s Spectra Shares & Scrips Private Limited,, Hyderabad

ITA 1062/HYD/2013 | 2010-2011
Pronouncement Date: 05-11-2014 | Result: Dismissed

Appeal Details

RSA Number 106222514 RSA 2013
Assessee PAN AADCS4013R
Bench Hyderabad
Appeal Number ITA 1062/HYD/2013
Duration Of Justice 1 year(s) 3 month(s) 27 day(s)
Appellant ACIT, Circle-3(2),, Hyderabad
Respondent M/s Spectra Shares & Scrips Private Limited,, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 05-11-2014
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 05-11-2014
Assessment Year 2010-2011
Appeal Filed On 08-07-2013
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B HYDERABAD BEFORE SHRI P.M. JAGTAP ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY JUDICIAL MEMBER ITA NOS. 1059 1060 1061 & 1062/HYD/2013 ASSESSMENT YEARS : 2005 06 2007-08 2009-1 0 & 2010-11 ASST. COMMISSIONER OF INCOME- TAX CIRCLE 3(2) HYDERABAD. M/S SPECTRA SHARES AND SCRIPS PVT. LTD. HYDERABAD PAN AADCS 4013R (APPELLANT) (RESPONDENT) ITA NO. 725/HYD/2013 ASSESSMENT YEAR : 2008-09 M/S SPECTRA SHARES AND SCRIPS PVT. LTD. HYDERABAD PAN AADCS 4013R ASST. COMMISSIONER OF INCOME- TAX CIRCLE 3(2) HYDERABAD. (APPELLANT) (RESPONDENT) REVENUE BY SHRI RAJAT MITRA ASSESSEE BY SHRI VIJAY MEHTA DATE OF HEARING 10-09-2014 DATE OF PRONOUNCEMENT 05-11-2014 O R D E R PER SAKTIJIT DEY J.M.: THESE ARE BUNCH OF FIVE APPEALS FOUR BY THE DEPAR TMENT AND ONE BY THE ASSESSEE DIRECTED AGAINST SEPARATE ORDERS O F CIT(A)-IV HYDERABAD PERTAINING TO AY 2005-06 2007-08 2008-0 9 2009-10 AND 2010-11. WHILE APPEAL RELATING TO AY 2008-09 HAS BE EN FILED BY ASSESSEE REST OF THE APPEALS ARE OF THE DEPARTMENT . AS FACTS ARE IDENTICAL AND ISSUE IN DISPUTE IS COMMON ALL THESE APPEALS ARE 2 ITA NOS.1059 TO 1062/HYD/2013 AND ITA NO. 725/HYD/12 M/S SPECTRA SHARES & SCRIPS PVT. LTD. CLUBBED AND HEARD TOGETHER THEREFORE THE SAME ARE DISPOSED OF IN THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE . ITA NO. 1059/HYD/2013 BY THE DEPARTMENT FOR AY 2005 -06. 2. THE DEPARTMENT HAS RAISED THE FOLLOWING GROUNDS: 1. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE. 2. THE HONBLE CIT(A) ERRED IN HOLDING THAT THERE W AS NO TANGIBLE MATERIAL TO CONCLUDE THAT THERE WAS ESCAPE MENT OF INCOME THOUGH IT WAS RECORDED CLEARLY BY THE AO THA T THERE WAS ESCAPEMENT OF INCOME AND FAILURE ON THE PART OF THE ASSESSEE IN DISCLOSING THE MATERIAL FACTS. 3. THE HONBLE CIT(A) ERRED IN HOLDING THAT THE ASS ESSEES DEALING IN SHARES IS INVESTMENT ONLY WITHOUT IDENT IFYING THE FACT THAT THE ASSESSEE HAS BEEN BUYING AND SELLING SHARE S AND UNITS OF MUTUAL FUNDS THROUGHOUT THE YEAR CONTINUOUSLY AN D REGULARLY THROUGH AN ORGANIZED FULL TIME AND DAY-TO-DAY ACTI VITY AS ALSO THROUGH DAY TRADING TRANSACTIONS. 4. THE HONBLE CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT THE NATURE OF ACTIVITY IN PURCHASING AND SELLING OF SHARES PERTAINING TO THE AY 2005-06 IS PURELY OF BUSINESS IN NATURE. 5. THE HONBLE CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT THE ORDER OF HONBLE HIGH COURT FOR THE AY 200 6-07 IS BASED ON THE SPECIFIC FACTS AND TRANSACTIONS CORRES PONDING TO THAT PARTICULAR YEAR AND IS NOT IN TUNE WITH THAT F OR THE AY 2005- 06. 6. THE HONBLE CIT(A) ERRED IN APPLYING THE DECISIO N OF THE HONBLE HIGH COURT ORDER FOR THE AQY 2005-06 WITHOU T ANALYZING THE NATURE OF TRANSACTIONS. 7. ANY OTHER GROUND(S) THAT MAY BE URGED AT THE TIM E OF HEARING. 3. AS CAN BE SEEN GROUND NOS. 1 & 7 ARE GENERAL IN NATURE HENCE NOT REQUIRED TO BE ADJUDICATED. 4. IN GROUND NO. 2 DEPARTMENT HAS CHALLENGED THE F INDING OF THE CIT(A) THAT THE INITIATION OF PROCEEDING U/S 147 T O BE INVALID. GROUND 3 ITA NOS.1059 TO 1062/HYD/2013 AND ITA NO. 725/HYD/12 M/S SPECTRA SHARES & SCRIPS PVT. LTD. NOS. 3 TO 6 ARE ON THE ISSUE AS TO WHETHER CIT(A) W AS JUSTIFIED IN TREATING THE TRANSACTIONS IN SHARES BY ASSESSEE AS INVESTMENT ONLY AND THEREBY TREATING THE GAIN THERE FROM AS CAPITA L GAIN IN STEAD OF BUSINESS INCOME AS HELD BY AO. 5. BRIEFLY THE FACTS ARE ASSESSEE A COMPANY IS ENG AGED IN THE BUSINESS OF BUYING AND SELLING OF SHARES AND SCRIPS AND UNITS OF MUTUAL FUNDS. FOR THE AY UNDER CONSIDERATION ASSES SEE FILED ITS RETURN OF INCOME ON 30/10/05 DECLARING NIL INCOME UNDER NORMAL PROVISIONS AFTER SETTING OFF BROUGHT FORWARD LOSSES OF RS. 20 48 744. ASSESSEE ALSO DECLARED BOOK PROFIT OF RS. 2 43 153 U/S 115 JB OF THE ACT. ASSESSMENT IN CASE OF ASSESSEE WAS ORIGINALLY COMPLETED U/S 143(3) OF THE ACT VIDE ORDER DATED 08/11/07 DETERMI NING THE INCOME AT RS. 89 26 133. APPEAL FILED BY ASSESSEE AGAINST THE SAID ASSESSMENT ORDER WAS ALLOWED BY CIT(A). DEPARTMENTS APPEAL AG AINST THE ORDER OF CIT(A) WAS ALSO DISMISSED BY THE TRIBUNAL IN ITA NO. 1434/HYD/2008 DATED 23/01/2009. WHEN THE MATTER STO OD LIKE THIS AO REOPENED THE ASSESSMENT BY ISSUING A NOTICE U/S 148 OF THE ACT ON 15/02/2012. IN RESPONSE TO THE SAID NOTICE ASSESS EE REQUESTED THE AO TO TREAT THE RETURN ORIGINALLY FILED TO BE A RET URN IN PURSUANCE TO SECTION 148 OF THE ACT AND FURTHER REQUESTED THE AO TO COMMUNICATE THE REASONS FOR REOPENING. AFTER GOING THROUGH THE REASONS TO BELIEVE RECORDED BY AO THOUGH ASSESSEE OBJECTED TO THE IN ITIATION OF PROCEEDING U/S 147 HOWEVER ASSESSEE NEVERTHELESS FURNISHED DETAILS REGARDING TRADING IN SHARES AND MUTUAL FUND S. ASSESSEE ALSO FURNISHED SCRIP-WISE DETAILS OF SHARES AND UNITS PU RCHASED AND SOLD AND FILED SEPARATE TRADING ACCOUNTS FOR SHARES AND UNITS. ASSESSEE AGAIN SUBMITTED THAT GAIN FROM PURCHASE AND SALE OF SHARES AND UNITS SHOULD BE ASSESSED AS INCOME FROM CAPITAL GAINS AND NOT AS BUSINESS INCOME. AO OVERRULING THE OBJECTIONS OF THE ASSESSE E IN RESPECT OF REOPENING OF ASSESSMENT U/S 147 AND AFTER GOING THR OUGH THE DETAILS FURNISHED BY ASSESSEE OBSERVED THAT DURING THE YEAR ASSESSEE HAD 4 ITA NOS.1059 TO 1062/HYD/2013 AND ITA NO. 725/HYD/12 M/S SPECTRA SHARES & SCRIPS PVT. LTD. TURNOVER OF RS. 9.53 CRORES IN SHARES AND RS. 10.18 CRORES IN UNITS OF MUTUAL FUNDS. AFTER GOING THROUGH THE DETAILS SUBMI TTED BY ASSESSEE AO OBSERVED THAT ASSESSEE WAS INVOLVED IN REPEATED BUYING AND SELLING OF THE SAME SHARES IN RESPECT OF 62 COMPANI ES. HE ALSO OBSERVED THAT ASSESSEE PURCHASED AND SOLD UNITS OF MUTUAL FUNDS OF 82 COMPANIES. FROM THIS HE CONCLUDED THAT ASSESSEE IS REGULARLY IN THE ACTIVITY OF BUYING AND SELLING OF SHARES AND UN ITS. HE OBSERVED THAT FACTS AND FIGURES MAKE IT CLEAR THAT ASSESSEE IS NOT INVESTOR MAKING INVESTMENT WITH AN INTENTION OF DERIVING DI VIDEND AND THE SOLE MOTIVE OF ASSESSEE IN SELLING AND BUYING OF SHARES AND UNITS IS TO MAKE PROFIT. FOR COMING TO SUCH CONCLUSION HE ALSO REFERRED TO DIRECTORS REPORT WHEREIN IT WAS STATED AS UNDER: IN THE DIRECTORS REPORT WHILE REVIEWING THE OPERATI ONS OF THE COMPANY DIRECTOR WRITES THAT DURING THE YEAR THE MARKET WAS UPBEAT AND THE SENSEX WAS AT 6492.82 AND NIFTY AT 2 035.65 AS ON 31 MARCH AND AS SUCH YOUR COMPANYS INVESTMENT I N SHARES AND MUTUAL FUNDS HAVE YIELDED GOOD RESULT. THIS SHO WS THAT THE MAIN & SOLE OPERATION OF THE COMPANY IS TRACKING MO VEMENT OF SENSEX AND ACCORDINGLY BUYING AND SELLING OF SHARES . THE AO NOTED THAT ASSESSEE HAS BEEN REGULARLY BUY ING AND SELLING SHARES AND UNITS OF MUTUAL FUNDS ON A VERY HIGH VOL UME THROUGH OUT THE YEAR. HE FURTHER NOTED THAT AS THE ASSESSEE IS DOING BUYING AND SELLING OF SHARES AND UNITS ON A DAY-TODAY BASIS I T SHOWS THAT ASSESSEE IS MONITORING THE STOCK MARKETS AND BUYING AT DIPS AND SELLING AT HIGHS WITH AN INTENTION TO MAKE PROFIT F ORM THESE TRANSACTIONS. HE OBSERVED THAT ASSESSEE HAS BEEN CO NSISTENTLY INVESTING IN SHARES AND ROTATING THE FUNDS AGAIN AN D AGAIN IN VARIOUS SCRIPS TO MAKE PROFIT. HE OPINED THAT THIS INTENTIO N TO MAKE PROFIT IN THE SHARE MARKET HAS TO BE HELD AS CARRYING ON BUS INESS ACTIVITY. AO OBSERVED THAT EARNING DIVIDEND INCOME IS INCIDENTAL TO THE TRADING ACTIVITY AS STOCKS HELD BY IT THROUGH ROLLING AT AN Y GIVEN POINT OF TIME IS SO HUGE THAT ON THE RECORD DATES ASSESSEE HAS B EEN ABLE TO RECEIVE DIVIDEND INCOME ALSO. AO OBSERVED THAT THE ACTIVITY OF BUYING AND SELLING OF SHARES IN A SYSTEMATIC AND REGULAR M ANNER WITH HIGH 5 ITA NOS.1059 TO 1062/HYD/2013 AND ITA NO. 725/HYD/12 M/S SPECTRA SHARES & SCRIPS PVT. LTD. FREQUENCY AND VOLUMES REPETITIVE PURCHASES AND SAL ES OF THE SAME SCRIP SHOWS THAT ASSESSEE IS TRADING IN SHARES TO E ARN PROFIT. THEREFORE SUCH AN ACTIVITY IS TO BE CONSIDERED AS BUSINESS AND THE PROFIT OR LOSS HAS TO BE ASSESSED AS BUSINESS INCOM E OR BUSINESS LOSS. IN THIS CONTEXT HE RELIED ON TWO DECISIONS OF THE ITAT MUMBAI BENCH. FURTHER AO OBSERVED THAT THE VERY NAME OF A SSESSEE IS INDICATIVE OF ITS BUSINESS ACTIVITY OF DEALING IN S HARES AND SCRIPS. AO ALSO RELIED UPON THE DECISION OF ITAT IN ASSESSEES OWN CASE FOR AY 2006-07 WHEREIN THE ITAT UPHELD THE ORDER PASSED U/ S 263 OF THE ACT DIRECTING AO TO TREAT THE INCOME FROM SHARE TRANSAC TIONS AS BUSINESS INCOME. ON THE AFORESAID BASIS AO ULTIMATELY COM PLETED THE ASSESSMENT VIDE ORDER DATED 07/11/12 BY TREATING TH E INCOME FROM SHARE TRANSACTIONS AS INCOME UNDER THE HEAD BUSINE SS OR PROFESSION. AS A RESULT OF WHICH TOTAL INCOME WAS DETERMINED AT RS. 1 56 78 513. BEING AGGRIEVED OF THE ASSESSMENT ORDER SO PASSED ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A) CHALLENGING THE ASSESSMENT ORDER BOTH ON THE VALIDITY OF THE REOPENING U/S 147 AS WE LL AS ON THE MERIT OF TREATING THE INCOME DERIVED FROM SHARE TRANSACTIONS AS BUSINESS INCOME. 6. SO FAR AS THE LEGAL ISSUE IS CONCERNED BEFORE T HE FIRST APPELLATE AUTHORITY ASSESSEE SUBMITTED THAT AO WHILE ALLEGIN G THAT ASSESSEE HAS FAILED TO DISCLOSE FULLY AND TRULY ALL MATERIA L FACTS RELATING TO ASSESSMENT HAS NOT BEEN SPECIFIED THE SPECIFIC MATE RIAL FACTS WHICH ASSESSEE HAS FAILED TO DISCLOSE. IT WAS SUBMITTED B Y ASSESSEE THAT ASSESSABILITY OR OTHERWISE OF GAIN FROM TRANSACTION S IN SHARES AND UNITS WAS DISCUSSED IN DETAIL BOTH AT THE ORIGINAL ASSESSMENT STAGE AND DURING THE CONSEQUENTIAL APPEAL PROCEEDINGS HE NCE INITIATION OF REASSESSMENT PROCEEDING THAT TOO AFTER EXPIRY OF F OUR YEARS FROM THE END OF THE RELEVANT AY ON A MERE CHANGE OF OPINION IS NOT VALID IN LAW. IT WAS ALSO SUBMITTED AT THE TIME OF REOPENIN G OF ASSESSMENT AO MUST HAVE IN HIS POSSESSION TANGIBLE MATERIAL ON THE BASIS OF 6 ITA NOS.1059 TO 1062/HYD/2013 AND ITA NO. 725/HYD/12 M/S SPECTRA SHARES & SCRIPS PVT. LTD. WHICH ESCAPEMENT OF INCOME WOULD BE ESTABLISHED. HO WEVER THE REASONS RECORDED BY AO DO NOT DISCLOSE ANY SUCH FAC T AND ONLY RELYING ON THE OBSERVATIONS OF THE CIT IN ORDER PAS SED U/S 263 FOR THE AY 2006-07 ASSESSMENT WAS REOPENED. IN COURSE OF H EARING IT WAS SUBMITTED BY ASSESSEE THAT NOT ONLY AT THE TIME OF RECORDING OF REASONS BUT IN THE ASSESSMENT ORDER ALSO AO HAS HEAVILY RELIED UPON THE FINDING OF CIT IN HIS ORDER U/S 263 FOR AY 2006-07 WHICH WAS CONFIRMED BY ITAT. HOWEVER HONBLE HIGH COURT OF AP IN JUDGMENT DATED 21/02/12 IN ITTA NO. 512 OF 2011 H AD SET ASIDE THE ORDERS OF ITAT AS WELL AS OF CIT WHILE ACCEPTING AS SESSEES CLAIM THAT INCOME DERIVED FROM SHARE TRANSACTIONS IS TO BE ASS ESSED AS CAPITAL GAIN. 7. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE AND EXAMINING THE FACTS ON RECORD FOUND THAT REOPENING OF ASSESSMENT WAS MADE AFTER A PERIOD OF FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR WHICH ATTRACTS PROVISO TO SECTION 147. SHE NOTED THAT THOUGH AO HAS STATED IN HIS ORDER THAT ASSESSE E HAS FAILED TO MAKE FULL AND TRUE DISCLOSURE OF MATERIAL FACTS BU T HE HAS NOT SPECIFIED WHAT ARE THOSE FACTS. CIT(A) OBSERVED THA T THE REASONS RECORDED BY AO DO NOT SHOW ANY SUCH FAILURE ON THE PART OF ASSESSEE IN MAKING FULL AND TRUE DISCLOSURE OF MATERIAL FACT S. SHE THEREFORE CONCLUDED THAT AS THERE IS NO FAILURE ON THE PART O F ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS THE R EQUIREMENT OF PROVISO TO SECTION 147 IS NOT MET HENCE THE PROCEEDING IN ITIATED U/S 147 BECOMES NULL AND AB-INITIO VOID. IN THIS CONTEXT L EARNED AR RELIED UPON A DECISION OF BOMBAY HIGH COURT IN CASE OF HI NDUSTAN LEVERL LTD. VS. R.B. VADIKAR & OTHERS 268 ITR 332 (BOM.). FURTHER REFERRING TO THE DECISION OF HONBLE SUPREME COURT IN CASE OF CIT VS. KELVINATOR OF INDIA LTD. [2010] 320 ITR 561 LEARNE D CIT(A) OBSERVED THAT THERE MUST BE TANGIBLE MATERIAL BEFORE THE AO WHILE RECORDING REASONS FOR REOPENING OF ASSESSMENT. ON EXAMINING T HE REASONS 7 ITA NOS.1059 TO 1062/HYD/2013 AND ITA NO. 725/HYD/12 M/S SPECTRA SHARES & SCRIPS PVT. LTD. RECORDED BY AO CIT(A) HELD THAT THE REASONS RECORD ED BY AO DO NOT SHOW PRESENCE OF ANY TANGIBLE MATERIAL TO CONCLUDE THAT THERE WAS ESCAPEMENT OF INCOME. THE FINDING OF THE LEARNED CI T(A) IN THIS REGARD IS EXTRACTED HEREUNDER: 4.9 THE FIRST REASON AS LISTED ABOVE IS A GENERAL OBSERVATION OF THE AUDITOR AND CANNOT BE TERMED TO BE MATERIAL TO A CONCLUSION ON THE ASSESSABILITY OF THE INCOME EITHE R AS BUSINESS INCOME OR CAPITAL GAINS. IN ANY EVENT THE FACT THAT THIS WAS A PART OF THE RETURN FILED BY THE APPELLANT GOE S TO ESTABLISH THAT THERE WAS NO FAILURE ON THE PART OF THE APPELL ANT TO FURNISH THIS INFORMATION. THE OBSERVATIONS IN THE APPELLATE ORDER OF THE ITAT MAY ALSO BE TERMED TO BE GENERAL INTRODUCTORY OBSERVATIONS AND NOT A FINDING OF FACT PARTICULARL Y WHEN THIS WAS NOT AN ISSUE IN APPEAL FOR THE YEARS IN QUESTIO N. THE AO HAS BEEN LARGELY GUIDED IN HIS CONCLUSIONS BY THE O RDER U/S 263 OF THE CIT FOR THE AY 2006-07. HOWEVER IN VIEW OF THE FACT THAT THE ORDER OF THE CIT (AS WELL AS THE CONSEQUENTIAL ASSESSMENT) HAS BEEN SET ASIDE BY THE HIGH COURT IN ITS ORDER I N ITTA NO. 512 OF 2011 DATED 21/02/2013 THESE CONCLUSIONS OF THE AO CANNOT BE HELD TO BE VALID. THE OBSERVATION IN THE ANNUAL REPORT AS A BASIS OF CONCLUSIONS ABOUT THE NATURE O F ACTIVITIES OF THE APPELLANT HAS BEEN COMMENTED UPON BY THE HIG H COURT IN THE FOLLOWING WORDS IN THE APPELLANTS CASE FOR AY 2006-07: WE ARE UNABLE TO UNDERSTAND HOW THE RESPONDENT AT PARA 5.13 INFERS FROM THE NAME OF THE ASSESSEE I.E. SPEC TRA SHARES AND SCRIPS PVT. LTD. AND A STATEMENT IN THE DIRECTORS REPORT FOR THE YEAR 2005-06 THAT DURING THE YEAR THE MARKET IS UPBEAT AND THE DIRECTORS WERE HOPEFUL OF GOOD RESULTS INDICATES THAT IT IS ONLY DOING TRADI NG ACTIVITY AS THERE IS NOTHING IN THESE CIRCUMSTANCES TO SHOW THAT THE ASSESSEE CANNOT BE AN INVESTOR. 4.10 I THEREFORE HOLD THAT THE REASONS RECORDED B Y THE AO DO NOT SHOW PRESENCE OF ANY TANGIBLE MATERIAL TO CONCL UDE THAT THERE WAS ESCAPEMENT OF INCOME. 8. SO FAR AS THE MERITS OF THE ISSUE AS TO WHETHER THE GAIN FROM SHARE TRANSACTIONS AND UNITS OF MUTUAL FUNDS TO BE TREATED AS PROFITS AND GAINS OF BUSINESS OR INCOME FROM CAPITAL GAIN LEARNED CIT(A) OBSERVED THAT IN PARA 9 OF THE REASONS RECORDED FOR REOPENING THE ASSESSMENT AO HAS REFERRED TO THE FACT THAT FACTS IN ASSESSEES CASE FOR THE IMPUGNED ASSESSMENT YEAR ARE SIMILAR T O AY 2006-07. IN THIS CONTEXT LEARNED CIT(A) REFERRED TO THE JUDGME NT OF THE HONBLE 8 ITA NOS.1059 TO 1062/HYD/2013 AND ITA NO. 725/HYD/12 M/S SPECTRA SHARES & SCRIPS PVT. LTD. HIGH COURT IN ASSESSEES CASE FOR AY 2006-07 WHEREI N THE HONBLE HIGH COURT ACCEPTED ASSESSEES CLAIM THAT GAIN DER IVED FROM SHARE TRANSACTIONS IS TO BE ASSESSED AS INCOME FROM CAPIT AL GAINS ON THE FOLLOWING REASONS: A. THE CLOSING STOCK WAS VALUED AT COST AND NOT AT COST OR MARKET PRICE WHICHEVER IS LOWER. B. THE APPELLANT HAD EARNED SUBSTANTIAL DIVIDEND R S. 38 24 976 DURING THE YEAR. C. THE LTCG WAS 94% OF THE TOTAL GAINS. D. THE APPELLANT HAD NOT DEALT IN FUTURES DERIVATI VES AND OPTIONS. E. ALL THE TRANSACTIONS WERE DELIVERY BASED. F. THE APPELLANT HAD NEVER CLAIMED SET OFF OF LOSSE S FROM SALE OF INVESTMENTS AGAINST OTHER INCOMES. LEARNED CIT(A) OBSERVED THAT THE FACTORS ON WHICH T HE HONBLE HIGH COURT HELD THE TRANSACTIONS OF ASSESSEE IN A.Y. 200 6-07 TO BE IN THE NATURE OF INVESTMENT ALSO REMAIN VALID FOR THE YEA R UNDER CONSIDERATION. SHE OBSERVED THAT IN FACT THE TUR NOVER OF THE ASSESSEE IN THE IMPUGNED ASSESSMENT YEAR IS MUCH LE SS AS COMPARED TO AY 2006-07. ACCORDINGLY ON MERITS ALSO LEARNED CIT(A) HELD THAT THE INCOME DERIVED FROM TRANSACTIONS OF P URCHASE AND SALE OF SHARES AND UNITS WAS ASSESSABLE AS CAPITAL GAINS ONLY. BEING AGGRIEVED OF THE AFORESAID ORDER OF LEARNED CIT(A) DEPARTMENT IS IN APPEAL BEFORE US. 9. THE LEARNED DR THOUGH AGREED THAT THE ISSUE IN DISPUTE IS MORE OR LESS COVERED BY THE JUDGMENT OF THE HONBLE AP HIGH COURT IN ASSESSEES OWN CASE BUT HE NEVERTHELESS MADE AN A TTEMPT TO JUSTIFY THE VIEW OF THE AO IN NOT ONLY REOPENING THE ASSESS MENT BUT ALSO TREATING THE GAIN DERIVED FROM TRANSACTIONS OF SHAR ES AND UNITS AS INCOME FROM BUSINESS AND PROFESSION. 10. THE LEARNED AR ON THE OTHER HAND SUBMITTED BE FORE US THAT THE ISSUE IS SQUARELY COVERED BY THE JUDGMENT OF THE HO NBLE AP HIGH COURT IN ASSESSEES OWN CASE FOR AY 2006-07 AND IN THIS CONTEXT HE 9 ITA NOS.1059 TO 1062/HYD/2013 AND ITA NO. 725/HYD/12 M/S SPECTRA SHARES & SCRIPS PVT. LTD. SPECIFICALLY REFERRED TO THE OBSERVATIONS MADE BY T HE HONBLE HIGH COURT WHICH IS REPORTED IN 354 ITR 35. THE LEARNED AR SUBMITTED THAT AS FACTS INVOLVED IN THE PRESENT ASSESSMENT YEAR IS IDENTICAL JUDGEMENT OF THE HONBLE HIGH COURT WILL SQUARELY A PPLY TO THE FACTS OF THE PRESENT CASE. THE LEARNED AR SUBMITTED THAT DEP ARTMENT ITSELF IS ACCEPTING ASSESSEE AS AN INVESTOR IN SHARES AND UNI TS SINCE A.Y. 1998-99. THE LEARNED AR SUBMITTED EVEN IN AY 2011-1 2 ALSO DURING THE SCRUTINY ASSESSMENT PROCEEDING AO PROPOSED TO TREAT THE GAIN DERIVED FROM SHARE TRANSACTION IN SHARES AND UNITS AS BUSINESS INCOME. HOWEVER WHEN THE ASSESSEE BROUGHT RELEVANT FACTS AND EXPLAINED WHY IT IS TO BE TREATED AS INCOME FROM CA PITAL GAIN AO ACCEPTED ASSESSEES SUBMISSION AND TREATED IT AS IN COME FROM CAPITAL GAIN WHILE COMPLETING ASSESSMENT U/S 143(3). A COPY OF THE SAID ASSESSMENT ORDER WAS ALSO PRODUCED BEFORE THE BENCH . THUS IT WAS SUBMITTED BY LEARNED AR THAT WHEN THE MANNER AND MO DE OF INVESTMENT IN TRANSACTION IN SHARES AND UNITS REMAI NED CONSISTENT FROM THE DATE OF INCEPTION ITSELF AND WHICH HAS BEE N ACCEPTED BY AO TILL THE ASSESSMENT ORDER WAS REVISED FOR AY 2006-0 7 BY CIT U/S 263 AND EVEN LATEST ASSESSMENT ORDER PASSED FOR AY 2011 -12 THERE IS NO REASON TO REOPEN THE ASSESSMENT ONLY FOR THE PURPOS E OF ASSESSING THE INCOME FROM TRANSACTIONS IN SHARES AND UNITS AS INCOME FROM BUSINESS OR PROFESSION. 11. WE HAVE HEARD THE SUBMISSIONS OF THE PARTIES AN D PERUSED THE ORDERS OF REVENUE AUTHORITIES AS WELL AS OTHER MATE RIALS ON RECORD. THE UNDISPUTED FACTS ARE ASSESSEE IS TRANSACTING I N SHARES AND UNITS FROM THE INCEPTION ITSELF. INCOME SHOWN BY ASSESSEE FROM TRANSACTIONS IN SHARES AND UNITS AS CAPITAL GAIN WA S ALSO ACCEPTED BY THE AO TILL THE ASSESSMENT YEAR 2006-07. ASSESSMENT COMPLETED FOR AY 2006-07 WAS REVISED BY CIT U/S 263 BY HOLDING TH AT INCOME FROM SHARE TRANSACTIONS TO BE ASSESSED AS BUSINESS INCOM E OF ASSESSEE. ITAT ALSO DISMISSED ASSESSEES APPEAL WHILE CONFIR MING THE ORDER 10 ITA NOS.1059 TO 1062/HYD/2013 AND ITA NO. 725/HYD/12 M/S SPECTRA SHARES & SCRIPS PVT. LTD. PASSED BY CIT U/S 263. IT IS QUITE EVIDENT FROM THE FACTS ON RECORD THAT ON THE BASIS OF THE ORDER PASSED BY CIT U/S 26 3 FOR AY 2006-07 ASSESSMENTS FOR AY 2008-09 AND 2009-10 WERE COMPLET ED BY AO BY TREATING THE GAIN DERIVED FROM SHARE TRANSACTIONS A S INCOME FROM BUSINESS. ON THE VERY SAME BASIS ALSO ASSESSMENTS FOR AY 2005-06 AND 2007-08 WERE REOPENED. IT IS ALSO AN UNDISPUTED FACT THAT ASSESSMENTS FOR THE IMPUGNED AY WAS REOPENED AFTER EXPIRY OF FOUR YEARS FROM THE END OF RELEVANT AY. THEREFORE AS PE R THE PROVISO U/S 147(1) IN A CASE WHERE ASSESSMENT IS COMPLETED U/S 143(3) REOPENING OF ASSESSMENT CAN BE MADE AFTER EXPIRY OF FOUR YEARS IF THE ESCAPEMENT OF INCOME IS ON ACCOUNT OF FAILURE ON TH E PART OF ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECE SSARY FOR HIS ASSESSMENT. HOWEVER ON PERUSAL OF THE REASONS RECO RDED A COPY OF WHICH IS AT PAGE 31 OF THE PAPER BOOK AND ALSO FOR MING PART OF THE ASSESSMENT ORDER NO SUCH FAILURE IN FURNISHING MAT ERIAL FACTS TRULY AND FULLY IS EITHER VISIBLE OR EVIDENT FROM THE REA SONS RECORDED. IT IS CLEARLY EVIDENT ASSESSMENT HAS BEEN REOPENED PRIM ARILY ON THE BASIS OF THE ORDER PASSED BY CIT U/S 263 FOR AY 200 6-07 WHICH WAS UPHELD BY ITAT AND ONLY FOR THE PURPOSE OF ASSESSIN G THE GAIN DERIVED FROM SHARE TRANSACTION AS PROFITS AND GAINS OF BUSINESS OR PROFESSION IN STEAD OF CAPITAL GAIN AS CLAIMED BY A SSESSEE AND ACCEPTED IN THE ORIGINAL ASSESSMENT. IN THESE CIRC UMSTANCES AS THERE IS NO FAILURE ON THE PART OF ASSESSEE TO DISC LOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ITS ASSESSMENT TH E REOPENING OF ASSESSMENT BEYOND A PERIOD OF FOUR YEARS IS IN VIOL ATION OF STATUTORY PROVISION HENCE INVALID IN LAW. FURTHER ON A PER USAL OF THE REASONS RECORDED IT BECOMES CLEAR THAT THERE ARE NO FRESH A ND TANGIBLE MATERIAL BEFORE THE AO ON THE BASIS OF WHICH AO COU LD HAVE FORMED BELIEF THAT INCOME HAS ESCAPED ASSESSMENT. MOREOVER AFTER THE DECISION OF THE HONBLE HIGH COURT ACCEPTING ASSESS EES TRANSACTIONS IN SHARES AND UNITS AS INVESTMENTS AND NOT TRADING ACTIVITY IN A.Y. 2006-07 THE VERY FOUNDATION ON WHICH ASSESSMENT WA S REOPENED DO 11 ITA NOS.1059 TO 1062/HYD/2013 AND ITA NO. 725/HYD/12 M/S SPECTRA SHARES & SCRIPS PVT. LTD. NOT SURVIVE. THEREFORE THE FINDING OF THE LEARNED CIT(A) WITH REGARD TO THE VALIDITY OF REOPENING U/S 147 HAS TO BE SUST AINED. 12. SO FAR AS MERITS OF THE ISSUE IS CONCERNED A PERUSAL OF THE ASSESSMENT ORDER WOULD CLEARLY REVEAL THE FACT THAT AO HAS TREATED THE TRANSACTION IN SHARES AND UNITS AS A TRADING AC TIVITY ONLY ON THE CONSIDERATION THAT THEY ARE VERY HIGH IN FREQUENCY AND VOLUME. THOUGH AO HAS OBSERVED THAT ASSESSEE HAS INDULGED IN REPETITIVE PURCHASES AND SALES OF THE SAME SCRIP BUT HE HAS NOT GIVEN A SINGLE INSTANCE WHERE THE SAME SHARE PURCHASED BY ASSESSEE WAS SOLD EITHER ON THE SAME DAY OR WITHIN A SHORT DURATION. ONLY BECAUSE ASSESSEE HAD FREQUENTLY PURCHASED AND SOLD SHARES O F THE SAME COMPANY DOES NOT MEAN THAT THE SAME SHARE WAS SOLD. FURTHER THE STATEMENT MADE IN DIRECTORS REPORT IN NO WAY HELPS IN COMING TO A CONCLUSION THAT THE SHARE TRANSACTIONS ARE IN THE N ATURE OF TRADING ACTIVITY AND NOT INVESTMENT. IT IS FURTHER TO BE N OTED THAT AO HAS ALSO OBSERVED THAT THE VERY NAME OF THE ASSESSEE COMPANY INDICATES THAT THE ACTIVITY IN SHARE TRANSACTION IS IN THE NATURE OF BUSINESS ACTIVITY. IN THIS CONTEXT HE RELIED UPON THE ORDER OF THE TRIBU NAL IN ASSESSEES OWN CASE FOR AY 2006-07. THUS FROM THE AFORESAID F ACTS IT BECOMES CLEAR THAT WHILE COMING TO THE CONCLUSION THAT TRAN SACTIONS IN SHARES AND UNITS ARE IN THE NATURE OF TRADING ACTIVITY AO MORE OR LESS HAS ADOPTED THE OBSERVATION/FINDING OF CIT AND ITAT FOR AY 2006-07. HOWEVER THE AFORESAID FINDING OF BOTH CIT AND ITAT WERE FOUND TO BE DEVOID OF MERIT BY THE HONBLE AP HIGH COURT WHILE DECIDING ASSESSEES APPEAL FOR AY 2006-07. THE HONBLE AP HI GH COURT AFTER EXHAUSTIVELY DEALING WITH THE NATURE OF TRANSACTION S AND EXAMINING IN DETAIL FOUND THAT THE TRANSACTIONS CARRIED OUT BY A SSESSEE IN SHARES AND UNITS OF MUTUAL FUNDS ARE IN THE NATURE OF INV ESTMENTS ONLY FOR THE FOLLOWING REASONS: (A) INVESTMENTS ARE MADE WITH OWN FUNDS AND NOT WI TH BORROWED FUNDS. 12 ITA NOS.1059 TO 1062/HYD/2013 AND ITA NO. 725/HYD/12 M/S SPECTRA SHARES & SCRIPS PVT. LTD. (B) THE CLOSING STOCK WAS VALUED IN THE BOOKS OF ACCOUNTS CONSISTENTLY AT COST AND NOT AT COST OR MARKET PRICE WHICHEVER IS LOWER. IT HAD EARNED SUBSTANTIAL DIVIDEND INCOME. (D) MORE THAN 99% OF THE TOTAL GAINS ARE LONG TERM CAPITAL GAINS AND LESS THAN 1% IS SHORT TERM CAPITA L GAIN 40% OF THE INVESTMENTS ARE IN MUTUAL FUND. (E) THE ASSESSEE NEVER DEALT IN FUTURES DERIVATIVE S AND OPTIONS. (F) ALL THE TRANSACTIONS OF PURCHASES AND SALES WER E DELIVERY BASE EXCEPTING ONE SOLITARY INSTANCE OF RELIANCE INDUSTRIES LTD. (G) THE ASSESSEE WAS REGISTERED AS NBFC WITH RBI. (H) THE ASSESSEE NEVER CLAIMED SET OFF OF THE LOSS ES ARISING FROM SALE OF INVESTMENTS AGAINST OTHER INCOME. (I) MERELY BECAUSE OF LARGE FREQUENCY OF VOLUME OF TRANSACTION A CONCLUSION THAT AN ASSESSEE IS A TRADER CANNOT BE DRAWN WITHOUT CONSIDERING THE PERIOD OF HOLDING OF THOSE SHARES BY THE ASSESSEE. (J) A TRADER IN SHARES NORMALLY HOLDS THEM FOR A S HORT TIME ONLY AND IS UNLIKELY TO INVEST IN UNQUOTED SHARES OR IN MUTUAL FUNDS HE IS LIKELY TO BORROW FUNDS FOR HIS TRADING ACTIVITY. (K) THE FACT THAT THE ASSESSEE IS MONITORING THE ST OCK MARKET AND BUYING AT DIPS AND SELLING AT HIGHS WITH AN INTENTION TO MAKE PROFIT FROM THESE TRANSACTIONS IS NOT CONCLUSIVE OF THE FACT THAT THE ASSESSEE IS A TRADER BECAUSE EVEN AN INVESTOR WOULD NOT BUY OR SELL BLINDLY AND TAKE THE RISK OF SUFFERING LOSSES. (L) THE FACT THAT THE ASSESSEE HAS A ADMINISTRATIVE SET UP AND INCURS CONSIDERABLE ADMINISTRATIVE COSTS IS NOT A FACTOR TO HOLD THAT THE ASSESSEE IS A TRADER . (M) THE FACT THAT THE ASSESSEE IS MAKING REPETITIVE PURCHASES AND SALES OF SAME SHARES IS A FACTOR IN FAVOUR OF HOLDING THAT THE ASSESSEE IS AN INVESTOR IN VIEW OF THE AMENDMENTS TO SECTION 10(38) AND SECTION 115JB OF THE ACT. (N) THE REVENUE HAD ACCEPTED THAT THE ASSESSEE WAS AN INVESTOR WHOSE INCOME IS CHARGEABLE UNDER THE HEAD CAPITAL GAINS FOR A NUMBER OF YEARS. ACCORDINGLY THE HONBLE JURISDICTIONAL HIGH COURT SET ASIDE THE ORDER OF ITAT AS WELL AS THAT OF CIT. IT IS VERY MUCH EVI DENT FROM THE 13 ITA NOS.1059 TO 1062/HYD/2013 AND ITA NO. 725/HYD/12 M/S SPECTRA SHARES & SCRIPS PVT. LTD. REASONS RECORDED AS WELL AS ASSESSMENT ORDER THAT O NLY ON THE BASIS OF THE ORDER PASSED IN CASE OF ASSESSEE FOR AY 2006 -07 AO HAS CONCLUDED THAT INCOME DERIVED FROM TRANSACTIONS IN SHARES AND UNITS SHOULD BE ASSESSED AS INCOME FROM BUSINESS ACTIVITY . AS THE HONBLE AP HIGH COURT HAS UPHELD THE ASSESSEES CLAIM FOR A Y 2006-07 AND THE DEPARTMENT HAS FAILED TO BRING ANY MATERIAL BEF ORE US TO SHOW THAT FACTS OBTAINING IN THE IMPUGNED ASSESSMENT YEAR ARE DIFFERENT FROM THE FACTS CONSIDERED BY THE HONBLE AP HIGH COURT I N AY 2006-07 OR FOR THAT MATTER THE PARAMETERS LAID DOWN BY THE HO NBLE HIGH COURT IN 2006-07 DO NOT APPLY TO THE FACTS OF THE PRESENT CA SE WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF LEARNED C IT(A). ACCORDINGLY WE DISMISS THE GROUNDS RAISED BY DEPARTMENT. 13. IN THE RESULT APPEAL OF THE DEPARTMENT IS DISM ISSED. ITA NOS. ITA NOS. 1060 TO 1062/HYD/2012 BY THE DEP ARTMENT 14. THE FACTS AND ISSUES INVOLVED IN THESE APPEALS OF THE DEPARTMENT ARE IDENTICAL. THE ONLY DIFFERENCE BEING IN ASSESSMENT YEAR 2007-08 REOPENING MADE IS WITHIN A PERIOD OF F OUR YEARS WHEREAS AY 2009-10 AND 2010-11 ARE REGULAR ASSESSMENTS. H OWEVER THE INFERENCE DRAWN BY THE AO IN THE AFORESAID ASSESSME NT YEARS IS MORE OR LESS ON THE BASIS OF THE ORDER PASSED BY CIT U/S 263 OF THE ACT FOR AY 2006-07 AND CONFIRMED BY ITAT WHILE DISPOSING OF ASSESSEES APPEAL. AS THE ISSUE IS SQUARELY COVERED BY THE JU DGEMENT OF HONBLE AP HIGH COURT IN ASSESSEES OWN CASE REFERRED TO H EREIN BEFORE FOLLOWING OUR DETAILED OBSERVATION IN ITA NO. 1059/ HYD/12 WE DISMISS GROUNDS RAISED BY THE DEPARTMENT IN THESE APPEALS. 15. IN THE RESULT THE AFORESAID APPEALS OF THE DEP ARTMENT ARE DISMISSED. 14 ITA NOS.1059 TO 1062/HYD/2013 AND ITA NO. 725/HYD/12 M/S SPECTRA SHARES & SCRIPS PVT. LTD. ITA NO. 725/HYD/12 APPEAL BY ASSESSEE FOR AY 2008 -09. 16. THE ONLY EFFECTIVE GROUND OF ASSESSEE AS CONTA INED IN CONCISE GROUNDS OF APPEAL FILED IN COURSE OF HEARING IS AS UNDER: THE LEARNED CIT(A) ERRED IN UPHOLDING THE VIEW OF T HE AO THAT THE LONG-TERM CAPITAL GAIN ON SALE OF SHARES OF RS. 4 65 32 913 AND SHORT-TERM CAPITAL GAIN OF RS. 6 87 824 (RS. 4 99 011 + 1 88 813) IS TO BE ASSESSED AS BUSINESS INCOME. 17. WE HAVE HEARD THE PARTIES AND PERUSED THE MATER IALS ON RECORD AS WELL AS THE ORDERS OF REVENUE AUTHORITIES. AS C AN BE SEEN THE LEARNED CIT(A) HAS CONFIRMED THE ORDER OF AO IN TRE ATING THE INCOME DERIVED FROM SALE OF SHARES AND UNITS AS PROFIT AND GAINS OF BUSINESS OR PROFESSION BY RELYING UPON THE ORDER OF CIT PASS ED U/S 263 AND THAT OF ITAT CONFIRMING THE CITS ORDER U/S 263 FOR AY 2006-07. WE HAVE ALREADY DEALT WITH THE ISSUE IN DEPARTMENTS A PPEAL IN ITA NO. 1059/HYD/12 AND UPHELD THE ORDER OF CIT(A) IN TREAT ING THE INCOME DERIVED FROM SALE OF SHARES AND UNITS OF MUTUAL FUN DS AS INCOME FROM CAPITAL GAINS. AS THE FACTS INVOLVED IN THE PRESEN T APPEAL IS MATERIALLY SAME AND AS NOTHING CONTRARY HAS BEEN BROUGHT TO O UR NOTICE BY THE DEPARTMENT TO SHOW THAT THE TRANSACTIONS IN SALE O F SHARES AND UNITS OF MUTUAL FUNDS IN THE IMPUGNED ASSESSMENT YEAR IS ANY WAY DIFFERENT FROM AY 2006-07 HENCE THE PARAMETERS APPLIED BY THE HONBLE AP HIGH COURT WHILE UPHOLDING ASSESSEES CLAIM OF CAP ITAL GAIN WILL NOT APPLY WE ARE INCLINED TO RESPECTFULLY FOLLOW THE JUDGMENT OF HONBLE AP HIGH COURT IN ASSESSEES OWN CASE AND HOLD THAT INCOME DERIVED FROM SALES OF SHARES AND UNITS OF MUTUAL FUNDS HAS TO BE ASSESSED AS INCOME FROM CAPITAL GAINS AS THEY ARE IN THE NATUR E OF INVESTMENT ONLY. IN FACT IT WILL BE RELEVANT TO MENTION HERE IN THE LATEST ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2011-12 T HE AO HIMSELF WHILE COMPLETING ASSESSMENT U/S 143(3) VIDE ORDER D ATED 26/03/2014 HAS ACCEPTED ASSESSEES TRANSACTION IN SHARES AND U NITS OF MUTAL FUND AS INVESTMENT ACTIVITY AND ASSESSED THE GAIN D ERIVED THEREFROM AS CAPITAL GAIN. IN VIEW OF THE AFORESAID WE SET A SIDE THE ORDER OF 15 ITA NOS.1059 TO 1062/HYD/2013 AND ITA NO. 725/HYD/12 M/S SPECTRA SHARES & SCRIPS PVT. LTD. LEARNED CIT(A) ON THIS ISSUE AND ALLOW THE GROUND RAISED BY ASSESSEE. 18. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWE D. 19. TO SUM UP ALL THE APPEALS OF DEPARTMENT ARE DI SMISSED AND APPEAL OF ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 5 TH NOVEMBER14. SD/- SD/- (P.M. JAGTAP) (S AKTIJIT DEY) ACCOUNTANT MEMBER JU DICIAL MEMBER HYDERABAD DATED: 5 TH NOVEMBER 2014 KV COPY TO:- 1) ACIT CIRCLE 3(2) 7 TH FLOOR B BLOCK IT TOWERS AC GUARDS HYDERABAD. 2) M/S SPECTRA SHARES & SCRIPS PVT LTD. 104 & 105 PANCOM CENTRE AMEERPET HYDERABAD. 3) CIT(A)-IV HYDERABAD 4) CIT-III HYDERABAD 5)THE DEPARTMENTAL REPRESENTATIVE I.T.A.T. HYDER ABAD.