Yohan Poonawalla Financials Pvt. Ltd.,, Pune v. Dy Comm of Income-tax, Pune

ITA 1091/PUN/2011 | 2005-2006
Pronouncement Date: 30-04-2014 | Result: Allowed

Appeal Details

RSA Number 109124514 RSA 2011
Assessee PAN AAACY0631Q
Bench Pune
Appeal Number ITA 1091/PUN/2011
Duration Of Justice 2 year(s) 8 month(s)
Appellant Yohan Poonawalla Financials Pvt. Ltd.,, Pune
Respondent Dy Comm of Income-tax, Pune
Appeal Type Income Tax Appeal
Pronouncement Date 30-04-2014
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 30-04-2014
Date Of Final Hearing 07-11-2013
Next Hearing Date 07-11-2013
Assessment Year 2005-2006
Appeal Filed On 29-08-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B PUNE BEFORE SHRI R.S. PADVEKAR JUDICIAL MEMBER AND SHRI R.K. PANDA ACCOUNTANT MEMBER ITA NO. 1091/PN/2011 (ASSESSMENT YEAR : 2005-06) YOHAN POONAWALLA FINANCIALS PVT. LTD. 16-B/1 SAROSH BHAVAN DR. AMBEDKAR ROAD PUNE-411001 PAN NO.AAACY0631Q .. APPELLANT VS. DY.CIT CIRCLE-7 PUNE .. RESPONDENT ITA NO. 1092/PN/2011 (ASSESSMENT YEAR : 2006-07) YOHAN POONAWALLA FINANCIALS PVT. LTD. 16-B/1 SAROSH BHAVAN DR. AMBEDKAR ROAD PUNE-411001 PAN NO.AAACY0631Q .. APPELLANT VS. ITO (TECH & JUD.)-IV PUNE .. RESPONDENT ASSESSEE BY : SHRI SUNIL PATHAK REVENUE BY : SHRI S.P. WALIMBE DATE OF HEARING : 24-04-2014 DATE OF PRONOUNCEMENT : 30-04-2014 ORDER PER R.K. PANDA AM : THE ABOVE 2 APPEALS FILED BY THE ASSESSEE ARE DIRE CTED AGAINST THE COMMON ORDER DATED 30-11-2010 OF THE CIT(A)-III REL ATING TO ASSESSMENT YEARS 2005-06 AND 2006-07 RESPECTIVELY. FOR THE SAKE OF CONVENIENCE BOTH THE APPEALS WERE HEARD TOGETHER AN D ARE BEING DISPOSED OF BY THIS COMMON ORDER. 2 ITA NO.1091/PN/2011 (A.Y. 2005-06) : 2. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESS EE IS AN INVESTMENT COMPANY DEALING IN SHARES AND SECURITIES AND FINANC E. FOR THE ASSESSMENT YEAR 2005-06 IT WAS OBSERVED BY THE ASS ESSING OFFICER THAT THE ASSESSEE HAS DISCLOSED SHORT TERM AS WELL AS LONG TERM CAPITAL GAINS ON SALE/PURCHASE OF EQUITY ORIENTED/NON-EQUIT Y ORIENTED SHARES/SECURITIES AND MUTUAL FUNDS AS UNDER : AMOUNT (RS.) NATURE OF CAPITAL GAINS TAXABILITY 91 352 SHORT TERM ON SALE OF MUTUAL FUNDS TAX PAID @35% 5 70 451 SHORT TERM ON SALE OF SHARES TAX PAID @35% 11 97 189 SHORT TERM ON SALE OF SHARES TAX PAID @ 10 % US.111A 70 89 921 LONG TERM ON SALE OF SHARES CLAIMED AS EXEM PT U/S.10(18) 2.1 THE ASSESSEE WAS ALSO FOUND TO HAVE SHOWN INCOM E UNDER THE HEAD 'INCOME FROM BUSINESS' DERIVED FROM TRADING AC TIVITY IN SHARES. THE AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE INCOME SHOWN BY IT UNDER THE HEAD 'CAPITAL GAINS' SHOULD NOT BE TREATE D AS 'INCOME FROM BUSINESS' TREATING THE TRANSACTIONS AS TRADING ACTI VITIES. IT WAS ARGUED BY THE ASSESSEE THAT THE SHARES/SECURITIES WERE ACQUIR ED BY THE ASSESSEE WITH TWO DIFFERENT OBJECTIVES I.E. FOR THE PURPOSE OF TRADING SO AS TO REALIZE THE PROFIT IN SHORT TIME DUE TO RISE IN THE VALUE AND SECONDLY WITH A VIEW POINT OF APPRECIATION IN CAPITAL VALUE. IT WAS ASSERTED THAT THE TRANSACTIONS CARRIED OUT IN THE ABOVE TWO CATEG ORIES ARE CLASSIFIED IN THE BOOKS ON DIFFERENT FOOTINGS I.E. SHARES WHICH ARE HELD FOR TRADING ARE CLASSIFIED AS 'STOCK IN TRADE' AND SHARES WHICH ARE HELD FOR CAPITAL APPRECIATION ARE CLASSIFIED AS 'INVESTMENT'. EMPHA SIS WAS ALSO GIVEN TO THE CBDT'S CIRCULAR NO.4 OF 2007 DATED 15/06/2007 W HEREIN THE BOARD ENVISAGED THE PROSPECT OF AN ASSESSEE MAINTAINING T WO DIFFERENT 3 PORTFOLIOS OF INVESTMENT AND TRADING ACTIVITY AND S ETTING-OUT CRITERIA FOR THE TWO ACTIVITIES. JUSTIFYING THE CAPITAL GAINS DISCLOSED IT WAS ALSO STRESSED UPON BY THE ASSESSEE THAT MAJORITY OF THE SHARES WHICH WERE CLASSIFIED AS INVESTMENT HAVE BEEN HELD FOR LONGER PERIOD AS COMPARED WITH THE SHARES WHICH WERE HELD AS STOCK IN TRADE. 2.2 HOWEVER THE ASSESSING OFFICER WAS NOT SATISFIE D WITH THE EXPLANATION GIVEN BY THE ASSESSEE. HE OBSERVED FRO M THE VARIOUS DETAILS FILED BY THE ASSESSEE THAT THE SHARES/SECURITIES CL ASSIFIED UNDER BOTH THE HEADS COMMONLY INCLUDED SECURITIES OF BLUE CHIP CO MPANIES MUTUAL FUNDS ETC. THERE IS NO MAJOR DIFFERENCE IN THE TY PE OF SECURITIES GROUPED IN EITHER OF THE TWO SAID CATEGORIES. HE N OTED THAT THE VOLUME VALUE AND VELOCITY OF MOVEMENTS IN SHARES HELD UNDE R THE SAID CATEGORIES ARE SUBSTANTIAL. THE ASSESSING OFFICER THEREFORE WAS OF THE OPINION THAT THERE LACKED ANY TANGIBLE REASON FOR D IFFERENT TREATMENT ASSIGNED BY THE ASSESSEE TO THE SHARE HOLDINGS AND THEREFORE THE ENTIRE ACTIVITY IN TRANSACTIONS IN SHARES/SECURITIES NEEDE D TO BE SEEN AS TRADING ACTIVITY. HE FURTHER OBSERVED THAT IN THE ABSENCE OF ANY PLAUSIBLE REASON FOR HOLDING 'CERTAIN' SECURITIES AS INVESTMENTS TH E SAME WOULD FALL IN THE NATURE OF ADVENTURE IN THE NATURE OF TRADE AND RE SULTANTLY THE GAINS OUGHT TO HAVE BEEN ASSESSED AS BUSINESS INCOME. AC CORDINGLY THE ENTIRE INCOME SHOWN UNDER THE HEAD 'SHORT TERM/LONG TERM CAPITAL GAINS' WERE TREATED BY HIM AS INCOME FROM BUSINESS AND HE TAXED THE SAME ACCORDINGLY. 3. BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE ASSE SSEE HAS ACQUIRED SHARES UNDER BOTH THE CATEGORIES I.E. INVESTMENTS AND STOCK-IN-TRADE 4 WHICH ARE CLASSIFIED AND REPORTED SEPARATELY IN THE ACCOUNTS OF THE COMPANY IN SCHEDULE-5 AND SCHEDULE-6 RESPECTIVE LY OF THE FINAL ACCOUNTS. IT WAS ARGUED THAT THE ASSESSEE IS MAINT AINING TWO DIFFERENT PORTFOLIOS FOR SHARES/SECURITIES AND THAT SUCH CATE GORISATION IS DISTINCTLY NOTICEABLE FROM THE FACTS EVIDENT FROM THE PROFIT & LOSS ACCOUNT AND SCHEDULE-12 & 13 OF THE FINAL ACCOUNTS. IT WAS A RGUED THAT : A. SECURITIES HELD FOR TRADING' ARE REPORTED SEPARA TELY ON ITS SALE IN THE PROFIT & LOSS ACCOUNT. B. SCHEDULE-13' OF THE FINAL ACCOUNTS SHOW IN A DI FFERENT MANNER THE COST OF SECURITIES SOLD WHICH WERE HELD FOR TRADING ACTIVITY. C. 'SCHEDULE-12' REPORTS PROFIT ON SALE OF INVESTME NT' (WHICH IS COMPUTED AFTER DEDUCTING FROM THE COST THE SALE CONSIDERATION). D. 'SCHEDULE-16' OF THE FINAL ACCOUNTS REPORTS 'STA TEMENT OF SIGNIFICANT ACCOUNTING POLICIES & PRACTICES' FOLLOW ED BY THE APPELLANT COMPANY. 'NOTE-7' OF SAID SCHEDULE READS AS UNDER: 'LONG-TERM INVESTMENTS' 'LONG-TERM INVESTMENTS IN SHARES & SECURITIES ARE V ALUED AT COST AND WHENEVER REQUIRED PROVISION IS MADE FOR PERMANENT DIMINUTION IN VALUE OF SUCH INVESTMENTS'. 'NOTE-9' OF SAID SCHEDULE READS AS UNDER: 'INVENTORIES' 'SHARES & SECURITIES FORMING PART OF THE INVENTORIE S OF THE COMPANY AND QUALIFYING AS CURRENT INVESTMENTS ACCOR DING TO THE NORMS PRESCRIBED BY RESERVE BANK OF INDIA AND T HE RELEVANT ACCOUNTING STANDARD BOTH BEING APPLICABLE TO THE COMPANY ARE VALUED AT LOWER OF COST AND MARKET VALU E'. IT WAS ACCORDINGLY ARGUED THAT THE ABOVE NOTES SHOW THAT DIFFERENT METHODS OF VALUATION ARE ADOPTED FOR REPORTING VALU E OF SECURITIES HELD AS 'INVESTMENT' AND 'STOCK-IN-TRADE'. 5 3.1 IT WAS ARGUED THAT THOUGH THE ASSESSEE HAD PROVIDED FOR DIMINUTION IN THE VALUE OF INVESTMENTS THE SAME IS NOT CLAIMED AS DEDUCTION WHILE COMPUTING THE TAXABLE INCOME OF THE ASSESSEE COMPANY SINCE SAME IS NOT DEDUCTIBLE WHILE COMPUTI NG THE TAXABLE INCOME. IT WAS SUBMITTED THAT SUCH PROVISION IS NOT MADE IN RESPECT OF STOCKS HELD AS STOCK-IN-TRADE WHERE ANY SUCH DIMINU TION IS ABSORBED IN THE PROFIT OF TRADING ACTIVITY. 3.2 IT WAS FURTHER ARGUED THAT ALL FACTS STATED ABO VE SUBSTANTIATE THE FACT THAT SECURITIES HELD AS 'INVESTMENTS' & AS 'ST OCK-IN-TRADE' ARE NOT ONLY SUBJECTED TO DIFFERENT TAX TREATMENT BUT DIFFE RENT ACCOUNTING TREATMENT ALSO. IT WAS ARGUED THAT THERE IS A DIFFE RENCE BETWEEN HOLDING SECURITIES AS 'INVESTMENT' AND 'STOCK-IN-TRADE' WHI CH IS NOT ARTIFICIAL BUT IT TRANSPIRES INTENTIONS OF THE ASSESSEE COMPANY. I T WAS POINTED OUT THAT THE ASSESSING OFFICER HAS NOT REJECTED THE METHOD O F ACCOUNTING FOLLOWED BY THE ASSESSEE COMPANY NOR POINTED OUT AN Y DEFECT IN THE SAME THOUGH REJECTED CONSEQUENTIAL RESULT OF CHANGE IN THE POSITION OF ACCOUNTING WHICH IS REPORTED IN THE COMPUTATION OF INCOME. IT WAS FURTHER SUBMITTED THAT IN THE ABSENCE OF ANY CLAUSE IN THE 'MEMORANDUM OF ASSOCIATION' WHICH EARNS ANY INCOME FOR THE COMP ANY DOES NOT MAKE EITHER THE COMPANY OR REVENUE AUTHORITIES TO TAX SU CH RECEIPTS. THE DECISION IN THE CASE OF GUJARAT GINNING & MANUFACTU RING CO. LTD. VS CIT 205 ITR 314 (GUJ.) AND IN THE CASE OF ORIENTAL INVESTMENT CO. LTD. VS CIT 32 ITR 664 (SC) WERE RELIED UPON TO THE PROP OSITION THAT TAXABILITY OF ANY RECEIPT/ INCOME WILL BE GOVERNED BY THE PROVISIONS OF INCOME TAX ACT AND THE 'OBJECT CLAUSE' OF THE 'MEMO RANDUM OF ASSOCIATION' IS NOT DECISIVE FOR THE SAME. 6 3.3 DEFENDING THE POSITION OF MAINTAINING TWO DIFF ERENT CATEGORIZATION OF HOLDING OF SHARES THE ASSESSEE HIGHLIGHTED THE FOLLOWING ASPECTS : 1. AS OF DATE PROVISIONS OF 'COMPANY LAW' OR INCOME TAX ACT' DON'T PROHIBIT ACQUISITION OF SECURITIES BY A COMPANY UNDER DIFFERENT PORTFOLIOS I.E. 'INVESTMENT' & 'STOCK-IN-TRADE'. HENC E THE VIEW OF THE ASSESSING OFFICER OF TREATING INVESTMENT' AS 'STOCK-IN-TR ADE' HAS NO LOCUS-STANDI AS FAR AS LEGAL PROVISIONS ARE CONCERN ED. IN FACT HOLDING OF SECURITIES UNDER TWO HEADS I.E. INVESTMENT ' OR 'STOCK-IN- TRADE' TRANSPIRES THE INTENTIONS OF THE ASSESSEE (B EHIND ACQUIRING THOSE SECURITIES). THE SALE OF 'STOCK-IN-TRADE' RES ULTS INTO BUSINESS PROFIT AND THAT OF INVESTMENTS' RESULTS INTO CAPITA L GAIN. COMPANY REPORTED ITS INCOME BASED ON SUCH CLASSIFICATION WH ICH IS ALSO IN LINE WITH PROVISIONS OF SEC. 14 OF THE INCOME TAX ACT. 2. SECURITIES OF SAME COMPANY ARE NOT HELD UNDER BO TH THE PORTFOLIOS/ HEADS I.E. INVESTMENT' & 'STOCK-IN-TRAD E' AS WILL BE FOUND FROM THE SCHEDULE OF INVESTMENTS' & 'STOCK-IN-TRADE'. HENCE THERE IS NO SCOPE FOR ANY CONTROVERSY AS FAR AS ASS ESSEE'S INTENTIONS BEHIND CLASSIFICATION IN THE BOOKS OF AC COUNTS ARE CONCERNED. 3. IN SOME CASES SECURITIES HELD AS 'STOCK-IN-TRAD E' ARE HELD FOR MORE THAN 365 DAYS AND STILL ASSESSEE COMPANY REPOR TED PROFIT/ LOSS THEREON AS 'BUSINESS INCOME' U/S.28 OF THE INC OME TAX ACT. IF NUMBER OF DAYS FOR HOLDING THE SECURITIES IS A CRIT ERION THEN THE LEARNED ASSESSING OFFICER SHOULD HAVE HELD THE RESU LT OF SUCH TRANSACTIONS AS 'CAPITAL GAIN' INSTEAD OF ASSESSING THE SAME AS BUSINESS INCOME'. THE CONCEPT OF 'OLD' SHARES AS ST ATED BY THE LEARNED ASSESSING OFFICER IN HIS ORDER IS NOT ONLY SUBJECTIVE BUT HE HAS NOT PRESCRIBED CRITERIONS (BASED ON ANY PROVISI ONS OF LAW) WHICH JUSTIFY SUCH DISTINCTION. 4. ASSESSEE IS NOT A MEMBER OF STOCK EXCHANGE SO AS TO CONCLUDE THAT IT IS A DEALER IN SHARES. IN THIS CONT EXT WE RELY UPON THE DECISION OF HON. SUPREME COURT IN THE CASE OF 'B ENGAL & ASSAM INVESTORS LTD. VS. CIT - 59 ITR 547'. IT STATES THAT A N INDIVIDUAL WHO MERELY INVESTS IN SHARES DOESN'T CARRY ON A BUS INESS UNLESS SAME IS CONVERTED INTO STOCK-IN-TRADE. HON. SUPREME C OURT HAS MADE CERTAIN OBSERVATIONS IN THE CASE OF 'NARAIN SW ADESHI WEAVING MILLS VS. CEPT - 26 ITR 765' WHICH APPRISES THE CONC EPT OF BUSINESS I.E. 'SOME REAL SUBSTANTIAL & SYSTEMATIC OR ORGANISED COURSE OF ACTIVITY OR CONDUCT WITH A SET PURPOSE'. IF ONE LOOKS AT 'STOCK-IN-TRADE' PORTFOLIO OF 'SCHEDULE-6' OF THE F INAL ACCOUNTS THEN IT WILL BE NOTICED THAT THERE ARE NO NEW PURCHASES. TH IS SHOWS THE ABSENCE OF ELEMENT AND INTENTIONS OF TRADING IN SEC URITIES. 5. RETURN ON INVESTMENT CAN BE ACHIEVED BY SELLING INVESTMENT ON APPRECIATION AND NOT BY EARNING DIVIDENDS. IT IS COMMON KNOWLEDGE THAT THE YIELD BASED ON COST OF ACQUISITI ON IN TERMS OF DIVIDEND IN PRESENT CONTEXT IS HARDLY 1% OR 2% AND AT PRESENT NO ONE ACQUIRES SHARES FOR EARNING DIVIDEND. RATHER IN TODAY'S WORLD IF SHARES ARE ACQUIRED BY A PERSON OTHER THAN A DEALER/ BROKER IN SECURITIES IT IS ONLY FROM THE PERSPECTIVE OF CAPIT AL APPRECIATION. A DEALER OR TRADER WILL ALWAYS BUY THE SAME FOR BOOKI NG PROFIT ON NEXT 7 RISE IN THE MARKET PRICE OF THE SHARE OR EVEN SELL IT AT A LOSS IN SHORT TENURE IF HE GETS A SIGNAL OF NEGATIVE PRICE TREND FOR PARTICULAR INDUSTRY/COMPANY AND EARNING OF DIVIDEND IS IMMATER IAL FOR EITHER AN INVESTOR OR A TRADER (HENCE INDECISIVE FOR APPLY ING ANY TEST BASED ON DIVIDEND EARNINGS). 6. BY AND LARGE THE SHARES CLASSIFIED AS INVESTMEN TS HAVE BEEN HELD FOR A LONGER TIME. THOUGH SOME OF THESE SHARES WERE SOLD WITHIN FEW DAYS OF THE PURCHASE IT WAS BECAUSE ASSE SSEE FELT THAT THE SHARE PRICE MIGHT GO DOWN. THE CRUX & FACT REMAI NS THAT ALL SHARES ACQUIRED AND HELD AS INVESTMENT' WERE PURCHA SED FOR CAPITAL APPRECIATION AND NOT FOR BOOKING PROFIT AT THE EARLIEST POSSIBLE MOMENT. 7. THE ASSESSING OFFICER HAS ONLY GENERALLY CONSID ERED THAT ALL TRANSACTIONS IN SHARES AND UNITS OF MUTUAL FUND ARE PART OF BUSINESS TRANSACTIONS. THERE IS NO CONCEPT OF TRADIN G IN RESPECT OF UNITS OF MUTUAL FUNDS. 'UNITS' ARE ONLY REDEEMED. C ERTAIN SECURITIES WERE SOLD AFTER HOLDING FOR 330 TO 356 DAYS WHICH C OULD HAVE BEEN EASILY HELD AND SOLD AFTER FEW DAYS SO AS TO REPORT 'LONG TERM CAPITAL GAIN' (WHICH IS EXEMPT FROM TAX) IF THE ASS ESSEE WAS KEEN TO AVOID PAYMENT OF TAX ON THE RESULTING GAIN LIKE DA YS OF HOLDING OF SHARES IN THE CASE OF 1PC' PETRONET AG'. THIS SHO WS THAT DECISION TO EITHER HOLD OR SALE THE SECURITIES WERE NOT MOTIVAT ED BY TAX BREAKS BUT WITH THE INTENTIONS OF THE ASSESSEE WHICH WERE ALSO TRANSPIRED THROUGH ACCOUNTING ENTRIES BY REPORTING THE SAME AS INVESTMENTS'/ 'STOCK-IN-TRADE. ASSESSEE REPORTED 'CAPITAL GAIN' BA SED ON THE PERIOD OF HOLDING OF SECURITIES. 8. THE ASSESSING OFFICER IGNORED THAT THE CAPITAL A SSET IN THE FORM OF 'SECURITIES' IS ALSO TREATED BY INCOME TAX ACT ITSELF AS A 'CAPITAL ASSET' EVEN THOUGH SAME IS HELD FOR LESS T HAN ONE YEAR. THIS IS THE PRECISE REASON WHY STATUTE HAS RECOGNIS ED 'SHORT-TERM CAPITAL ASSET' ALSO IN SEC. 2(42A) OF THE INCOME TA X ACT. IN ORDER TO GIVE A MOMENTUM TO THE CAPITAL MARKETS SHORT-TERM C APITAL GAIN (ON SALE OF CERTAIN SECURITIES) IS TAXED AT CONCESS IONAL RATE. SEC. 111A PRESCRIBES LOWER RATE OF TAX ON 'SHORT TERM CAPITAL GAIN' W.E.F. L ST OCTOBER 2004 AND PRIOR TO THAT THERE WAS NO DIFFERE NCE BETWEEN THE RATE APPLICABLE TO 'SHORT TERM CAPITAL GAIN' AN D THAT FOR 'BUSINESS INCOME'. STILL IN PAST COMPANY WAS REPORTI NG AND OFFERING TO TAX 'SHORT-TERM CAPITAL GAIN' @ 35% WHENEVER SAM E WAS HELD AS INVESTMENT' AND FOR LESS THAN 12 MONTHS. THIS ASP ECT ITSELF SHOWS THAT ASSESSEE COMPANY HAS NOT CLASSIFIED SHAR ES AS 'INVESTMENTS' BASED ON THE TAX RATE DIFFERENCE. 3.4 VARIOUS DECISIONS WERE ALSO RELIED UPON BY THE ASSESSEE TO THE PROPOSITION THAT A TRADER CAN HAVE CERTAIN ASSETS A S INVESTMENTS WHICH ARE PUT THROUGH HIS NORMAL STOCK IN TRADE. 4. HOWEVER THE LD.CIT(A) WAS ALSO NOT CONVINCED WI TH THE ARGUMENTS ADVANCED BY THE ASSESSEE AND UPHELD THE A CTION OF THE ASSESSING OFFICER IN TREATING THE INCOME FROM CAPIT AL GAIN AS BUSINESS 8 INCOME. WHILE DOING SO HE OBSERVED THAT AFTER THE INSERTION OF SEC. 10(38) AND SEC.111A W.E.F. 01/04/2005 THE INCOME D ECLARED UNDER THE LONG TERM CAPITAL GAINS HAS SHOT UP FROM RS.(-) 28. 10 LAKHS IN THE A.Y. 2004-05 TO RS.70.86 LAKHS IN THE A.Y. 2005-06. SIMI LARLY THE SHORT TERM CAPITAL GAINS HAS GONE UP FROM RS. (-) 2.54 LA KHS IN THE A.Y. 2004- 05 TO RS.11.97 LAKHS (AT 10% TAX) IN THE A.Y. 2005- 06. HE NOTED THAT THERE WERE NO PURCHASES OF SHARES AND SECURITIES UN DER THE TRADING ACCOUNT FROM THE A.Y. 2005-06 ONWARDS. THIS CLEARLY INDICATES THAT THE PREDOMINANT INTENTION OF THE ASSESSEE WAS ONLY TO D EAL IN SHARES AND SECURITIES AS AN ADVENTURE IN THE NATURE OF TRADE A ND IT WAS ONLY FROM A.Y. 2005-06 WHEN THE PROVISIONS OF SEC. 10(38) AND 111 A WERE INTRODUCED IN THE STATUTE THERE WAS A PARADIGM SHI FT IN THE PATTERN OF ACQUISITION AND HOLDING OF SHARES AND SECURITIES FR OM STOCK-IN-TRADE TO THAT OF INVESTMENTS. HE NOTED THAT THE MAGNITUDE AND FREQUENCY OF THE TRANSACTIONS IN SHARES OF VARIOUS COMPANIES IN THE LAST THREE YEARS ARE QUITE SUBSTANTIAL. THE SALE AND PURCHASE OF SHARES OF SUCH MAGNITUDE REGULARLY INDICATES A SYSTEMATIC ACTIVITY BY THE AS SESSEE WITH A MOTIVE TO MAKE PROFITS FROM DEALING IN SHARES AND SECURITIES. THE ASSESSEE IS NOT A MERE INVESTOR IN SHARES OF A FEW COMPANIES. THE ASS ESSEE HAS DEALT IN SHARES OF SEVERAL COMPANIES AND THERE WAS A SYSTEMA TIC ORGANIZED ACTIVITY EVERY YEAR WITH A SET PURPOSE OR CONDUCT I N THE MATTER OF ACQUIRING HOLDING AND SELLING OF SHARES. HE OBSERV ED FROM THE MEMORANDUM OF ASSOCIATION THAT THE SALE AND PURCHAS E OF SHARES ARE IN THE ASSESSEE'S ORDINARY LINE OF BUSINESS AS ENUMERA TED IN THE OBJECTS OF THE COMPANY. THE SALE AND PURCHASE OF SHARES HAVE B EEN MADE ON REGULAR BASIS IN ALL THE YEARS. IF THE TRANSACTIONS ARE ADJUDGED FROM THE 9 POINT OF VIEW OF VOLUME FREQUENCY CONTINUITY AND REGULARITY IT LEADS TO AN INFERENCE THAT THE INTENTION OF THE ASSESSEE COM PANY WAS TO DEAL IN SHARES AND SECURITIES. THE CONDUCT OF THE ASSESSEE ALL ALONG AND THE PATTERN OF PURCHASES AND SALE OF SHARES OF DIFFEREN T COMPANIES CLEARLY INDICATE THAT THIS IS NOT A CASE WHERE THE ASSESSEE CONTENTED ITSELF WITH MERELY MAKING AN INVESTMENT AND LOOKING FOR DIVIDEN D AND MAXIMIZATION OF INVESTMENTS. 4.1 HE NOTED THAT IN THE CASE OF ASSESSEE IT IS AMP LY DEMONSTRATED FROM THE FREQUENCY AND MAGNITUDE OF THE TRANSACTION S AND RATIO OF PURCHASES AND SALES TO TOTAL HOLDINGS DURING THE YE AR AND EARLIER YEARS THAT THERE WAS A SYSTEMATIC CONTINUOUS AND ORGANIZ ED CARRYING ON OF BUSINESS ACTIVITY OF PURCHASE AND SALE OF SHARES N OT ONLY IN THE YEAR UNDER APPEAL BUT ALSO IN EARLIER YEARS AND SUCH ACT IVITY CONSTITUTES AN ADVENTURE IN THE NATURE OF TRADE. HE THEREFORE WAS OF THE OPINION THAT WHERE THE ASSESSES WAS CARRYING ON BUSINESS OF PURC HASE AND SALE OF SHARES WITH A MOTIVE TO EARN PROFIT EVEN IF SUCH T RANSACTIONS ARE RECORDED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE A S INVESTMENT THE ASSESSING OFFICER IS JUSTIFIED IN LAW IN COMPUTING INCOME ON SALE OF SUCH SHARES UNDER THE HEAD 'BUSINESS'. 4.2 HE REJECTED THE ARGUMENT OF THE ASSESSEE THAT T HE A.O. HAS NEITHER REJECTED NOR POINTED OUT ANY DEFECT IN THE METHOD OF ACCOUNTING BEING FOLLOWED BY THE ASSESSEE WHICH IS IN CONSONANCE WI TH THE 'ACCOUNTING STANDARDS' THAT HOLDING OF SHARES UNDER TWO HEADS I.E. 'INVESTMENTS' OR 'STOCK-IN-TRADE' TRANSPIRES THE INTENTIONS OF THE A SSESSEE AND THAT THE SECURITIES OF THE SAME COMPANY ARE NOT HELD UNDER B OTH THE PORT FOLIOS. 10 4.3 REJECTING THE VARIOUS SUBMISSIONS OF THE ASSESS EE AND RELYING ON VARIOUS DECISIONS HE HELD THAT (I) THE ASSESSEE IS ENGAGED ITSELF IN SYSTEMATIC AND CONTINUOUS ACTIVITY OF PURCHASE AND SALE OF SHARES IN FURTHERANCE TO THE OBJECT IN ITS MEMORANDUM OF ASSO CIATION (II) ASSESSEE IS RAISING SUBSTANTIAL UNSECURED LOANS AND UTILIZIN G THE SAME IN ITS BUSINESS ACTIVITY OF PURCHASE AND SALE OF SHARES ( III) THE OBJECT OF PURCHASING SHARES BEING NOT OF EARNING DIVIDENDS ( IV) HAVING SUBSTANTIAL NATURE OF TRANSACTIONS OF PURCHASE AND SALE OF SHARES AND HAVING SUBSTANTIAL TURNOVER THEREOF. HE ACCORDINGL Y HELD THAT THE ASSESSEE HELD THE SHARES AS BUSINESS ASSETS AND THE PROFITS FROM THE PURCHASES AND SALES OF SHARES SHOWN AS INVESTMENTS IN THE BALANCE SHEET OF THE ASSESSEE ARE IN THE NATURE OF BUSINESS INCOM E ASSESSABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS'. 5. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASS ESSEE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : ON FACTS CIRCUMSTANCES OF THE CASE AND IN LAW TH E LEARNED 'CIT (A) - III' ERRED IN: 1A I. ASSESSING THE 'SHORT-TERM CAPITAL GAIN' ON SALE OF UNITS OF MUTUAL FUNDS AMOUNTING TO RS.91 352/- (TAXABLE @ 35 %) AS 'BUSINESS INCOME'. II. ASSESSING 'SHORT-TERM CAPITAL GAIN' ON SALE OF SH ARES AMOUNTING TO RS.5 70 451/- (TAXABLE @ 35%) AS 'BUSI NESS INCOME'. III. ASSESSING 'SHORT-TERM CAPITAL GAIN' AMOUNTIN G TO RS.11 97 189/- (TAXABLE @10% IN VIEW OF SEC.111A) AS 'BUSINESS INCOME'. IV. ASSESSING 'LONG-TERM CAPITAL GAIN' ON SALE OF SHAR ES AMOUNTING TO RS.70 86 921/- (TAXABLE @ 'NIL' IN VIEW OF SEC. 10(38)) AS 'BUSINESS INCOME'. L.B. HOLDING THAT ALL THE SHARES WERE HELD BY THE APPELLANT AS 'STOCK-IN- TRADE' AND THUS THE INCOME ON SALE OF SHARES CONSTITUT ED BUSINESS INCOME IGNORING THE DEFINITION OF 'CAPITAL ASSET' A S PER SEC.2(14) OF THE INCOME TAX ACT. 11 L.C NOT APPRECIATING THAT THE APPELLANT HELD SH ARES AS 'STOCK-IN-TRADE' AND AS INVESTMENTS SEPARATELY AND THE CLASSIFICATION WA S FULLY JUSTIFIED ON THE FACTS OF THE CASE. 6. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY OPPOSE D THE ORDER OF THE CIT(A). REFERRING TO PAGE 12 OF THE PAPER BOOK HE DREW THE ATTENTION OF THE BENCH TO THE SALE OF SHARES BEFORE 01-10-2004 AND SUBMITTED THAT THE PROFIT HAS BEEN TAXED @35% AS AP PLICABLE FOR SHORT TERM CAPITAL GAIN U/S.112 OF THE INCOME TAX ACT. S IMILARLY SALE OF SHARES AFTER 01-10-2004 HAS BEEN TAXED AS SHORT TER M CAPITAL GAIN @10% U/S.111A OF THE INCOME TAX ACT. REFERRING TO PAGE 13 OF THE PAPER BOOK HE DREW THE ATTENTION OF THE BENCH TO THE SALE AFTER 01-10-2004 WHERE THE PROFIT IS EXEMPT FROM LONG TERM CAPITAL G AIN U/S.111A OF THE INCOME TAX ACT. REFERRING TO PAGE 33 OF THE PAPER B OOK HE DREW THE ATTENTION OF THE BENCH TO THE LONG TERM INVESTMENTS SHOWN UNDER THE HEAD TRADE INVESTMENTS AND IN OTHER SHARES. REFE RRING TO PAGE 10 OF THE PAPER BOOK HE DREW THE ATTENTION OF THE BENCH T O THE SUBSTANTIAL DIVIDEND OF RS.7 45 654/- RECEIVED FROM INDIAN COMP ANIES. REFERRING TO PAGE 83 OF THE PAPER BOOK HE DREW THE ATTENTION OF THE BENCH TO THE INVESTMENT IN PRUDENTIAL ICICI PMS. REFERRING TO P AGE 31 OF THE PAPER BOOK HE SUBMITTED THAT THE ASSESSEE HAD VERY LITTLE BORROWINGS OF RS.99 50 000/- FROM DIRECTORS AND RS.12 75 000/- AS INTER CORPORATE LOANS AND RS.13 70 004/- AS 6% 1300 FULLY CONVERTI BLE DEBENTURES OF RS.13 LAKHS AND INTEREST ACCRUED ON THE ABOVE AT RS .70 044/. HE ACCORDINGLY SUBMITTED THAT THERE IS NO INVESTMENT O UT OF BORROWED FUNDS. THE STOCK-IN-TRADE HAS BEEN VALUED AT COST OR MARKET PRICE WHICHEVER IS LESS WHEREAS THE SHARES IN INVESTMENTS HAVE BEEN VALUED AT COST. HE SUBMITTED THAT WHILE THE AO HAS TREATED T HE INCOME FROM 12 CAPITAL GAIN AS BUSINESS INCOME HE HAS NOT VALUED T HE SHARES AT COST OR MARKET PRICE WHICHEVER IS LESS. FURTHER ALL SHARE S ARE DELIVERY BASED. 6.1 REFERRING TO VARIOUS DECISIONS HE SUBMITTED THA T THE ASSESSEE CAN HAVE 2 PORTFOLIOS I.E. ONE FOR SHARE TRADING AND T HE OTHER FOR INVESTMENT OF SHARES. HE SUBMITTED THAT IN THE PAST FOR A.Y. 2001-02 THE ORDER HAS BEEN PASSED U/S.143(3) WHEREIN THE AO VIDE HIS ORD ER DATED 27-02- 2004 FOR A.Y. 2001-02 HAS ACCEPTED THE CLAIM OF BUS INESS INCOME AS WELL AS LONG TERM CAPITAL GAIN FROM SUCH SHARES. T HE BUSINESS OF INVESTMENT AND TRADING WAS ACCEPTED BY THE AO. HE SUBMITTED THAT FOR OTHER YEARS I.E. FOR A.YRS. 2002-03 2003-04 AND 2 004-05 ALTHOUGH NO ASSESSMENT U/S.143(3) HAS BEEN PASSED HOWEVER THE RETURNS WERE ACCEPTED U/S.143(1). 6.2 REFERRING TO CBDT CIRCULAR NO.04/2007 DATED 15- 06-2007 A COPY OF WHICH IS PLACED AT PAPER BOOK PAGES 58 AND 89 HE SUBMITTED THAT THE CBDT HAS HELD THAT IT IS POSSIBLE FOR A TA XPAYER TO HAVE 2 PORTFOLIOS I.E. AN INVESTMENT PORTFOLIO COMPRISING OF SECURITIES WHICH ARE TO BE TREATED AS CAPITAL ASSETS AND A TRADING P ORTFOLIO COMPRISING OF STOCK-IN-TRADE WHICH ARE TO BE TREATED AS TRADING A SSETS. IT WAS EMPHASIZED IN THE SAID CIRCULAR THAT WHERE AN ASSES SEE HAS 2 PORTFOLIOS THE ASSESSEE MAY HAVE INCOME UNDER BOTH HEADS I.E. CAPITAL GAINS AS WELL AS BUSINESS INCOME. IT WAS ACCORDINGLY ADVISE D TO THE AOS THAT THE ABOVE PRINCIPLE SHOULD GUIDE THEM IN DETERMINING WH ETHER IN A GIVEN CASE THE SHARES ARE HELD BY THE ASSESSEE AS INVESTM ENT OR AS STOCK-IN- TRADE. IN THE SAID CIRCULAR THE AOS WERE FURTHER ADVISED THAT NO SINGLE PRINCIPLE WOULD BE DECISIVE AND THE TOTAL EFFECT OF ALL THE PRINCIPLES 13 SHOULD BE CONSIDERED TO DETERMINE WHETHER IN A GIV EN CASE THE SHARES ARE HELD BY THE ASSESSEE AS INVESTMENT OR STOCK-IN- TRADE. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE CIT(A) BE SET-ASIDE AND THE CLAIM OF THE ASSESSEE REGARDING LONG TERM CAPITAL G AIN OR SHORT TERM CAPITAL GAIN DECLARED BY THE ASSESSEE SHOULD BE ALL OWED. HE ALSO RELIED ON THE FOLLOWING DECISIONS : 1. JANAK S. RANGWALLA VS. ACIT REPORTED IN 11 SOT 62 7 (MUM) 2. DCIT VS. SMK SHARES & STOCK BROKERS PVT. LTD. REPOR TED IN 8 TAXMANN.COM 120 (MUM) 3. MANAGEMENT STRUCTURE & SYSTEMS PVT. LTD. VS.DCIT-I TA NO.6966/MUM/2007 4. JCIT VS. CHHATARMAL GOKULCHAND CHHAJER-ITA NO.699 /PN/2012 5. BALDEVSINCH SATSINGH WAHI (HUF) VS. DCIT-ITA NOOS.8 0 AND 1331/PN/2011 6. HITESH SATISHCHANDRA DOSHI VS. JCIT-ITA NO.6497 & 6603/MUM/2009 7. JAWAHARLAL P. MEHTA VS. DCIT ITA NO.1463/PN/200 8 8. ARA TRADING & INVESTMENTS PVT. LTD. ITA NOS.499 &500/PN/2008 7. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A). HE SUBMITTED TH AT THE VALUATION OF STOCK AT COST OR MARKET PRICE WHICHEVER IS LESS WAS NEVER RAISED BEFORE THE AO OR THE CIT(A). HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE CIT(A) BE UPHELD. 8. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAV E ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THE ONLY IS SUE TO BE DECIDED IN THE IMPUGNED APPEAL IS REGARDING THE TREATMENT OF P ROFIT FROM SALE OF SHARES WHICH ACCORDING TO THE ASSESSEE IS SHORT TER M AND LONG TERM 14 CAPITAL GAIN AND WHICH ACCORDING TO THE REVENUE IS BUSINESS INCOME. FROM THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE WE FIND THE ASSESSEE HAS CATEGORISED ITS SHARES UNDER THE HEAD INVESTMEN T AS WELL AS STOCK- ION-TRADE WHICH ARE CLASSIFIED AND REPORTED SEPARAT ELY IN THE ACCOUNTS OF THE COMPANY IN SCHEDULE-5 AND SCHEDULE-6 RESPECTIVE LY OF THE FINAL ACCOUNTS. THE CLAIM OF MAINTAINING TWO DIFFERENT P ORTFOLIOS IS DISTINCTLY NOTICEABLE FROM THE AUDITED ACCOUNTS. THE SHARES H ELD UNDER THE HEAD STOCK-IN-TRADE ARE VALUED AT COST OR MARKET PRICE W HICHEVER IS LESS WHEREAS THE STOCKS SHOWS UNDER THE HEAD INVESTMENTS HAVE BEEN VALUED AT COST PRICE SINCE THE PROVISION FOR DIMINUTION IN THE VALUE OF INVESTMENT HAS NOT BEEN CLAIMED AS DEDUCTION WHILE COMPUTING THE TAXABLE INCOME OF THE ASSESSEE COMPANY. FURTHER WE FIND IN THE PAST IN SCRUTINY ASSESSMENT THE REVENUE HAS ACCEPTED THE PR OFIT FROM SALE OF SHARE AS INCOME FROM CAPITAL GAIN AND BUSINESS INCO ME AS DECLARED BY THE ASSESSEE. THERE IS NO BORROWED FUNDS UTILISED F OR INVESTMENT IN SHARES AND ALL THE SHARES ARE DELIVERY BASED. 8.1 IT HAS BEEN HELD IN VARIOUS JUDICIAL DECISIONS THAT A TRADER CAN HAVE CERTAIN ASSETS AS INVESTMENTS WHICH ARE DIFFER ENT FROM HIS NORMAL STOCK-IN-TRADE. FURTHER THE ASSESSEE HAS RECEIVED SUBSTANTIAL DIVIDEND OF RS.7 45 654/- WHICH SHOWS THE INTENTION OF THE A SSESSEE TO HOLD CERTAIN SHARES UNDER THE HEAD INVESTMENT. THE CDBT CIRCULAR NO.04/2007 DATED 15-06-2007 ALSO EMPHASIS THAT IT I S POSSIBLE FOR A TAXPAYER TO HAVE 2 PORTFOLIOS I.E. AN INVESTMENT P ORTFOLIO COMPRISING OF SECURITIES WHICH ARE TO BE TREATED AS CAPITAL ASSET S AND A TRADING PORTFOLIO COMPRISING OF STOCK-IN-TRADE WHICH ARE TO BE TREATE D AS TRADING ASSETS. 15 WHERE AN ASSESSEE HAS 2 PORTFOLIOS THE ASSESSEE MAY HAVE INCOME UNDER BOTH HEADS I.E. CAPITAL GAINS AS WELL AS BUSINESS INCOME. 8.2 WE FIND THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF JAWAHARLAL P. MEHTA VS. DCIT VIDE ITA NO.1463/PN/20 08 ORDER DATED 29-11-2013 FOR A.Y. 2005-06 HAS OBSERVED AS UNDER : 9. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BO TH THE SIDES PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A ) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE A LSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THERE IS NO DISPUTE T O THE FACT THAT THE ASSESSEE WHO IS A RETIRED EMPLOYEE HAS INDULGED IN PURCH ASE AND SALE OF SHARES OF A NUMBER OF SCRIPS OF VARIOUS COMPANIES. DU E TO THE VOLUME FREQUENCY REPETITIVENESS AND UTILISATION OF B ORROWED FUNDS FOR PURCHASE OF SHARES THE ASSESSING OFFICER CONSIDERED THE INC OME FROM PURCHASE AND SALE OF SHARES AS BUSINESS INCOME AS AGAINST LON G TERM AND SHORT TERM CAPITAL GAIN DECLARED BY THE ASSESSEE WHICH H AS BEEN UPHELD BY THE CIT(A). 9.1 IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE IS SHOWING THE SHARES AS INVESTMENT IN THE BALANCE SH EET HE IS NOT A TRADER IN SHARES HE WAS PAYING HIGHER TAX ON CA PITAL GAIN ON ACCOUNT OF PURCHASE AND SALE OF SHARES IN THE PAST AND T HE DEPARTMENT HAS NEVER TREATED THE ASSESSEE AS A TRADER. IT IS ALSO THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE DIVIDEND INCOM E OF RS.5 30 980/- OUT OF THE TOTAL INCOME OF RS.42 40 838 /- WHICH IS MORE THAN 10% OF THE TOTAL INCOME SHOWS THAT THE ASSESSEE IS BA SICALLY AN INVESTOR AND NOT A TRADER. 9.2 WE FIND SOME FORCE IN THE ARGUMENTS OF THE LD. CO UNSEL FOR THE ASSESSEE. IT IS NOW THE SETTLED PROPOSITION OF LAW THAT W HETHER THE ACTIVITY OF BUYING AND SELLING OF SHARES IS IN THE NATU RE OF TRADE OR INVESTMENT IS A MIXED QUESTION OF LAW AND FACT AND EVE RY CASE DEPENDS ON ITS OWN SETS OF FACTS. IN THE INSTANT CASE THERE I S NO DISPUTE TO THE FACT THAT THE ASSESSEE HAS SHOWN LONG TERM CAPITAL GAIN AND SHORT TERM CAPITAL GAIN ON ACCOUNT OF PURCHASE AND SALE OF SHARES SINCE LAST SO MANY YEARS WHICH HAS BEEN ACCEPTED BY THE DEPARTMENT. THE SUBMISSION OF THE ASSESSEE BEFORE THE LOWER AUTHORITIES THAT THE SHARES HAVE BEEN VALUED AT COST AND NOT AT COST OR MARKET VALUE WHICH EVER IS LESS HAS NOT BEEN CONTROVERTED BY THE REVENUE. IN OUR OPINION MERE MAGNITUDE OF THE TRANSACTION DOES NOT CHANGE THE NATURE OF TRANSACT ION WHICH ARE BEING ASSESSED AS INCOME FROM CAPITAL GAINS IN THE PAST SEV ERAL YEARS. 9.3 WE FIND THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF MANAGEMENT STRUCTURE AND SYSTEMS PVT. LTD. (SUPRA) HA S HELD AS UNDER : 15. WE HAVE GIVEN OUR SERIOUS CONSIDERATIONS TO THE D IFFERENT PRECEDENTS RELIED ON BY THE A.O IN THE ASSESSMENT ORDER BUT IN OUR OPINION THE PRINCIPLES LAID DOWN IN THOSE DECISIONS CA NNOT BE APPLIED TO THE ASSESSEE'S CASE TO SAY THAT THE ACTIVITY OF THE ASSESSE E BUYING AND SELLING OF THE SHARES AMOUNT TO TRADING ACTIVITY. IT IS WELL SETTLED PRINCIPLE AS HAS HELD IN THE CASE OF H. HOLSCK LARZEN (SUPRA) THAT 16 WHETHER THE ACTIVITY OF BUYING AND SELLING OF THE SHA RES IS IN THE NATURE OF TRADE AND INVESTMENT. IT IS A MIXED QUESTION OF LA W AND FACT. IN THIS CASE WE HAVE PERUSED THE BALANCE SHEET FILED BY THE ASSESSEE AND AS PER THE BOOKS OF ACCOUNT THE ASSESSEE HAS TREATED THE E NTIRE INVESTMENT IN THE SHARES AS AN INVESTMENT ONLY AND NOT AS A STOCK IN TRADE. ANOTHER IMPORTANT ASPECT TO BE CONSIDERED HERE IS THE ASSESSEE IS N OT A SHARE BROKER NOR HE IS HAVING A REGISTRATION WITH ANY STOCK EXCHANGE. MOREOVER SOME SCRIPTS ARE HELD FOR MORE THAN FIVE YEA RS AND IT IS NOT A CASE OF THE A.O THAT THERE WERE ANY DERIVATIVE TRANSA CTIONS BY THE ASSESSEE NOR IS IT A CASE OF THE A.O THAT THERE WERE TRA NSACTIONS WITHOUT ANY DELIVERY. IN THE PRESENT CASE BOTH THE AUTHORITI ES HAVE NOT DISPUTED THAT THE TRANSACTIONS ARE COMPLETED WITH THE DELIVERY . THE INTENTION OF THE ASSESSEE CANNOT BE READ FROM HIS MIND BUT IT REFLECT S IN ITS CONDUCT THE WAY HE TREATS THE TRANSACTIONS. THE ASSESSEE HAS NOT BO RROWED ANY MONEY FOR INVESTING IN SHARES AND USED HIS OWN SURPLUS FUN DS AND THESE FACTS HAVE NOT BEEN DISPUTED BY THE A.O. THE PROPOSITI ON HAS BEEN ACCEPTED BY THE BOARD ALSO IN CIRCULAR NO. 4/ 2007 T HAT THE ASSESSEE IS ENTITLED TO MAINTAIN TWO PORTFOLIOS. IN THE CASE OF T HE ASSESSEE IN THE PRECEDING YEARS THE ASSESSEE IS CONSISTENTLY DECLARING THE GAIN/PROFIT ON THE SALE OF THE SHARES UNDER THE HEAD 'CAPITAL GAIN ' EITHER LONG TERM AND SHORT TERM AND THE SAME HAS BEEN ACCEPTED BY THE A.O. IT IS TRUE THAT THE RULE OF RES JUDICATA IS NOT APPLICABLE TO THE INCOME TAX PROCEEDINGS BUT AT THE SAME TIME IT IS ALSO WELL SETTL ED PRINCIPLES THAT IF THERE IS NO CHANGE IN THE FACTS THEN THERE SHOULD BE CONSISTENCY IN THE APPROACH OF THE REVENUE AUTHORITIES WHILE DECIDING T HE TAX LIABILITY OF THE ASSESSEE. 16. ANOTHER ASPECT TO BE CONSIDERED HERE IS THAT THE ASSESSEE HAS RECEIVED THE SUBSTANTIAL DIVIDEND AND THAT IS ALSO DISCL OSED. AFTER CONSIDERING THE TOTALITY OF THE FACTS WE ARE OF THE OPINION THAT THE TRANSACTIONS OF SALE AND PURCHASE OF THE SHARES BY THE A SSESSEE CANNOT BE TREATED IN THE LINE OF TRADING IN THE SHARES NOR I T CAN BE TREATED AS AN ADVENTURE IN THE NATURE OF THE TRADE. FOR THE REASON S GIVEN HEREIN- ABOVE WE HOLD THAT THE ENTIRE INCOME FROM THE SALE AND PURCHASE OF THE SHARES IS TO BE ASSESSED UNDER THE HEAD 'CAPITAL GAIN' AS R IGHTLY DECLARED BY THE ASSESSEE EITHER LONG TERM CAPITAL GAIN (LTCG) OR SHORT TERM CAPITAL GAIN (STCG) DEPENDING UPON THE PERIOD OF HO LDING WE THEREFORE DIRECT THE A.O TO ACCEPT THE CAPITAL GAI NS DECLARED BY THE ASSESSEE FROM THE SALE OF THE SHARES AND ACCORDINGLY SET A SIDE THE ORDER OF THE LD CIT(A). 9.4 WE FIND THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF JANAK S. RANGWALLA (SUPRA) AT PARA 7 OF THE ORDER HAS OBSERVE D AS UNDER : 7. IN THE FACTS OF THE PRESENT CASE THE ASSESSEE IS HOL DING THE SHARES AS INVESTMENT FROM YEAR TO YEAR. IT IS THE INTENTION O F THE ASSESSEE WHICH IS TO BE SEEN TO DETERMINE THE NATURE OF TRANSACTION CONDUCTED BY THE ASSESSEE. THOUGH THE INVESTMENT IN SHARES IS ON A LARGE MA GNITUDE BUT THE SAME SHALL NOT DECIDE THE NATURE OF TRANSACTION. S IMILAR TRANSACTIONS OF SALE AND PURCHASE OF SHARES IN THE PROCEEDING YEARS H AVE BEEN HELD TO BE INCOME FROM CAPITAL GAINS BOTH ON LONG-TERM AN D SHORT-TERM BASIS. THE TRANSACTION IN THE YEAR UNDER CONSIDERATION ON AC COUNT OF SALE AND PURCHASE OF SHARES IS SAME AS IN THE PRECEDING YEARS AND T HE SAME MERITS TO BE ACCEPTED AS SHORT-TERM CAPITAL GAINS. THER E IS NO BASIS FOR TREATING THE ASSESSEE AS A TRADER IN SHARES WHEN HIS INTEN TION WAS TO HOLD THE SHARES IN INDIAN COMPANIES AS AN INVESTMENT AND NOT AS STOCK- IN-TRADE. THE MERE MAGNITUDE OF THE TRANSACTION DOES NOT CHANGE THE NATURE OF TRANSACTION WHICH ARE BEING ASSESSED AS INCOM E FROM CAPITAL GAINS IN THE PAST SEVERAL YEARS. THE AO IS DIRECTED TO SE T OFF THE LONG- TERM CAPITAL LOSS AGAINST THE SHORT-TERM CAPITAL GAIN O F THE YEAR UNDER 17 CONSIDERATION. THE GROUNDS OF APPEAL RAISED BY THE ASSES SEE ARE ALLOWED. 9.5 WE FIND THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF GOPAL PUROHIT (SUPRA) HAS HELD AS UNDER : 2. THE TRIBUNAL HAS ENTERED A PURE FINDING OF FACT THAT THE ASSESSEE WAS ENGAGED IN TWO DIFFERENT TYPES OF TRANSACTIONS. TH E FIRST SET OF TRANSACTIONS INVOLVED INVESTMENT IN SHARES. THE SECOND S ET OF TRANSACTIONS INVOLVED DEALING IN SHARES FOR THE PURPOSES OF BUSINESS (DESCRIBED IN PARA 8.3 OF THE JUDGMENT OF THE TRIBUN AL AS TRANSACTIONS PURELY OF JOBBING WITHOUT DELIVERY). THE TRIBUNAL H AS CORRECTLY APPLIED THE PRINCIPLE OF LAW IN ACCEPTING THE POSITION THAT IT IS OPEN TO AN ASSESSEE TO MAINTAIN TWO SEPARATE PORTFOLIOS ONE RELATIN G TO INVESTMENT IN SHARES AND ANOTHER RELATING TO BUSINESS ACTIVITIES IN VOLVING DEALING IN SHARES. THE TRIBUNAL HELD THAT THE DELIVERY BASED TRAN SACTIONS IN THE PRESENT CASE SHOULD BE TREATED AS THOSE IN THE NATURE OF INVESTMENT TRANSACTIONS AND THE PROFIT RECEIVED THEREFROM SHOULD BE TREATED EITHER AS SHORT-TERM OR AS THE CASE MAY BE LONG-TERM CAPITAL GAIN DEPENDING UPON THE PERIOD OF THE HOLDING. A FINDING OF FACT H AS BEEN ARRIVED AT BY THE TRIBUNAL AS REGARDS THE EXISTENCE OF TWO DISTINCT T YPES OF TRANSACTIONS NAMELY THOSE BY WAY OF INVESTMENT ON ONE HAND AND THOSE FOR THE PURPOSES OF BUSINESS ON THE OTHER HAND. QUESTION (A) ABOVE DOES NOT RAISE ANY SUBSTANTIAL QUESTION OF LAW. 3. INSOFAR AS QUESTION (B) IS CONCERNED THE TRIBUNAL HAS OBSERVED IN PARA 8.1 OF ITS JUDGMENT THAT THE ASSESSEE HAS FOLLOWE D A CONSISTENT PRACTICE IN REGARD TO THE NATURE OF THE ACTIVITIES THE MANNER OF KEEPING RECORDS AND THE PRESENTATION OF SHARES AS INVESTMENT AT T HE END OF THE YEAR IN ALL THE YEARS. THE REVENUE SUBMITTED THAT A DIFFERENT VIEW SHOULD BE TAKEN FOR THE YEAR UNDER CONSIDERATION SIN CE THE PRINCIPLE OF RES JUDICATA IS NOT APPLICABLE TO ASSESSMENT PROCEEDINGS. THE TRIBUNAL CORRECTLY ACCEPTED THE POSITION THAT THE PRINCIPLE O F RES JUDICATA IS NOT ATTRACTED SINCE EACH ASSESSMENT YEAR IS SEPARATE IN ITSELF. THE TRIBUNAL HELD THAT THERE OUGHT TO BE UNIFORMITY IN TREATMENT AND CONSISTENCY WHEN THE FACTS AND CIRCUMSTANCES ARE IDENTICAL PARTIC ULARLY IN THE CASE OF THE ASSESSEE. THIS APPROACH OF THE TRIBUNAL CANNOT BE FAULTED. THE REVENUE DID NOT FURNISH ANY JUSTIFICATION FOR ADOPTIN G A DIVERGENT APPROACH FOR THE ASSESSMENT YEAR IN QUESTION. QUESTION (B) THEREFORE DOES NOT ALSO RAISE ANY SUBSTANTIAL QUESTION. 9.6 SINCE THE FACTS OF THE INSTANT CASE ARE IDENTICAL TO THE FACTS OF THE CASES CITED ABOVE THEREFORE RESPECTFULLY FOLLOWING T HE DECISIONS CITED (SUPRA) AND CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE WE ARE OF THE CONSIDERED OPINION THAT THE INCOME FROM PURCHASE AND SALE OF SHARES BY THE ASSESSEE HAS TO BE TREATED AS INCOME FROM SHOR T TERM CAPITAL GAIN OR LONG TERM CAPITAL GAIN AS THE CASE MA Y BE AS AGAINST BUSINESS INCOME TREATED BY THE ASSESSING OFFICER AND UPHEL D BY THE CIT(A). HOWEVER SINCE THE ASSESSEE HAS AVAILED SOME BOR ROWED FUNDS AND HAS SUBMITTED BEFORE THE ASSESSING OFFICER THAT HE HA S NO OBJECTION TO CONSIDER THE PROFITS FROM SHARE TRANSACTION OF THE SH ORTEST PERIOD TO BE INCOME FROM BUSINESS THEREFORE WE HOLD THAT THE I NCOME FROM PURCHASE AND SALE OF SHARES WITH HOLDING PERIOD OF LESS T HAN 30 DAYS AT RS.4 22 935.76 (THE DETAILS OF WHICH ARE FILED AT PAP ER BOOK 58 TO 62) SHOULD BE TREATED AS BUSINESS INCOME. THE REMAINING AMO UNT HAS TO BE TREATED AS LONG TERM CAPITAL GAIN OR SHORT TERM CAPIT AL GAIN AS THE CASE MAY BE. THE ORDER OF THE CIT(A) IS MODIFIED TO THIS EXTENT AND THE GROUNDS RAISED BY THE ASSESSEE ARE PARTLY ALLOWED. 18 8.3 IN VIEW OF THE ABOVE DECISION AND CONSIDERING T HE FACT THAT THE ASSESSEE IS MAINTAINING 2 PORTFOLIOS I.E. ONE FOR INVESTMENT AND THE OTHER FOR TRADING AND THE DEPARTMENT IN THE PAST HA D ACCEPTED THE PROFIT FROM SALE OF INVESTMENT AS CAPITAL GAIN AND PROFIT FROM SHARE TRADING AS BUSINESS INCOME THEREFORE THE CLAIM OF THE ASSESS EE FOR SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN ON ACCOUNT OF SALE OF SHARES HELD AS INVESTMENT HAS TO BE ALLOWED AS AGAINST BUSINESS INCOME TREATED BY THE AO AND UPHELD BY THE CIT(A). WE ACCORDINGLY SE T-ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE AO TO ACCEPT THE INCOM E FROM SALE OF SHARES HELD AS INVESTMENT AS LONG TERM CAPITAL GAIN OR SHORT TERM CAPITAL GAIN AS THE CASE MAY BE. THE GROUNDS RAISED BY TH E ASSESSEE ARE ACCORDINGLY ALLOWED. ITA NO.1092/PN/2011 (A.Y. 2006-07) : 9. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER : ON FACTS CIRCUMSTANCES OF THE CASE AND IN LAW TH E LEARNED 'CIT (A) - III ERRED IN: LA. DISREGARDING THAT 'INVESTMENTS' HELD BY THE APPEL LANT COMPANY ARE DISTINCT THAN 'STOCK-IN-TRADE' EVEN GOING BY THE DEFINITION OF 'CAPITAL ASSET' AS PER SEC.2(14) OF THE INCOME TAX ACT AND CONSE QUENTIALLY ASSESSING THE 'CAPITAL GAIN' U/S 45 AS 'BUSINESS PROFIT' U/S 28. IB. I. ASSESSING THE 'SHORT-TERM CAPITAL LOSS' (ASSESSABLE U/S.SEC.45) ON SALE OF UNITS OF MUTUAL FUNDS HELD AS 'INVESTMENTS' AM OUNTING TO RS.56 254/- (WHICH IS TAXABLE @ 30%) AS 'BUSINESS LOSS' (I.E. U/S.SEC.28). II. ASSESSING 'SHORT-TERM CAPITAL GAIN' ON SALE OF 'INVESTMENTS' (ASSESSABLE U/S.. 45) AMOUNTING TO RS. 1 71 382/- ( TAXABLE @ 10% IN VIEW OF SEC.111A ) AS 'BUSINESS INCOME' (I.E. U/S.28). III. ASSESSING 'LONG-TERM CAPITAL GAIN' EXEMPT U/SEC. 10(38) AS 'BUSINESS INCOME' (I.E. U/S. 28) BEING BOOK PROFIT AMOUNTING TO RS.10 12 121/ -ON SALE OF SHARES/UNITS HELD AS 'INVESTMEN TS'. IC. ASSESSING 'CAPITAL GAIN' AS 'BUSINESS INCOME' WITHOUT REJECTING THE ACCOUNTS/ ACCOUNTING ENTRIES BY SUBSTAN TIATING 19 DEFECT THEREIN WITH RESPECT TO CLASSIFICATION OF 'SECU RITIES' AS 'INVESTMENTS' AND 'STOCK-IN-TRADE'. 9.1 AFTER HEARING BOTH THE SIDES WE FIND THE GROUN DS RAISED BY THE ASSESSEE ARE IDENTICAL TO THE GROUNDS OF APPEAL IN ITA NO.1091/PN/2011. WE HAVE ALREADY DECIDED THE ISSUE AND THE GROUNDS RAISED BY THE ASSESSEE HAVE BEEN ALLOWED. FOLLOWIN G THE SAME RATIO THE ABOVE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 10. IN THE RESULT BOTH THE APPEALS FILED BY THE A SSESSEE ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON 30-04-2014. SD/- SD/- (R.S. PADVEKAR) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEM BER PUNE DATED: 30 TH APRIL 2014 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. THE CIT(A)-III PUNE 4. THE CIT-III PUNE 3. THE D.R B PUNE BENCH 4. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY ITAT PUNE BENCHES PUNE