Mrs.Parvesh Krishanlal Abbot, v. DCIT, Ahmednagar circle,

ITA 135/PUN/2009 | misc
Pronouncement Date: 21-01-2011 | Result: Allowed

Appeal Details

RSA Number 13524514 RSA 2009
Bench Pune
Appeal Number ITA 135/PUN/2009
Duration Of Justice 1 year(s) 11 month(s) 23 day(s)
Appellant Mrs.Parvesh Krishanlal Abbot,
Respondent DCIT, Ahmednagar circle,
Appeal Type Income Tax Appeal
Pronouncement Date 21-01-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted Not Allotted
Tribunal Order Date 21-01-2011
Assessment Year misc
Appeal Filed On 28-01-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B PUNE BEFORE SHRI I.C. SUDHIR (JM) AND SHRI D. KARUNAKARA RAO (AM) ITA NO. 1 5 5 9 /PN/200 8 ( ASSTT. YEAR : 200 5 - 0 6 ) SHRI SUNIL K. ABBOT 13 ABBOTT MARG CAMP AHMEDNAGAR PAN :ACLPA3012B .. APP ELLANT V. DY. COMMISSIONER OF INCOME TAX AHMEDNAGAR CIRCLE AHMEDNAGAR . RESPONDENT ITA NO. 1560 /PN/200 8 (ASSTT. YEAR : 200 5 - 06 ) SHRI KRISHNALAL ABBOT 13 ABBOTT MARG CAMP AHMEDNAGAR PAN :ACLPA3010D .. APPELLANT V. DY. COM MISSIONER OF INCOME TAX AHMEDNAGAR CIRCLE AHMEDNAGAR . RESPONDENT ITA NO. 1561/ PN/200 8 (ASSTT. YEAR : 200 5 - 06 ) MR. SUDHIR K. ABBOT 13 ABBOTT MARG CAMP AHMEDNAGAR PAN :AAFPA7268KA .. APPELLANT V. DY. COMMISSIONER OF INCOME TAX AHMEDNAGAR CIRCLE AHMEDNAGAR . RESPONDENT ITA NO. 135/ PN/200 9 (ASSTT. YEAR : 200 5 - 06 ) MRS. PARVESH KRISHANLAL ABBOT 13 ABBOTT MARG CAMP AHMEDNAGAR PAN :ACLPA3012B .. APPELLANT V ITA NO 1559 1560 1561 /PN/200 8 & 135/PN/2009 SUNIL K. ABBO T ETC. A.Y. 2005 - 06 PAGE OF 16 2 DY. COMMISSIONER OF INCOME TAX RESP ONDENT AHMEDNAGAR CIRCLE AHMEDNAGAR APPELLANT BY : SHRI P .P. SAGAR RESPONDENT BY : MS. VEENA RAJ ORDER PER I.C. SUDHIR J M IN ALL THESE APPEALS FOR A.Y. 2005 - 06 THE ASSESSEES HAVE QUESTIONED FIRST APPELLATE ORDER MAINLY ON THE GROUND THAT THE LD CIT(A) HAS ERRED IN UPHOLDING THE ACTION ON THE PART OF THE A.O WHEREBY LONG TERM CAPITAL GAIN MADE BY THE ASSESSEES ON THE SALE OF SHARES HAVE BEEN TREATED AND ASSESSED AS BUSINESS INCOME. SINCE AN IDENTIAL ISSUE HAS BEEN RAISED UNDER THE SIMILAR FA CTS AND CIRCUMSTANCES OF THE CASE THESE APPEALS HAVE BEEN HEARD TOGETHER AND ARE BEING DISPOSED OFF VIDE A CONSOLIDATED ORDER . 2. WE HAVE HEARD AND CONSIDERED THE ARGUMENTS ADVANCED BY THE PARTIES IN VIEW OF ORDERS OF THE AUTHORITIES BELOW MATERIAL A VAILABLE ON RECORD AND THE DECISIONS RELIED UPON. 3. THE RELEVANT FACTS ARE THAT THE ASSESSEE S CLAIMED SHORT TERM AND LONG TERM CAPITAL GAINS OUT OF THE SHARE TRANSACTIONS CLAIMING THE SAME AS INVESTMENT. THE A.O DID NOT AGREE AND HAS TREATED THE INCOME OUT OF SALE OF THE SHARES AS BUSINESS INCOME. THE ASSESSEES/APPELLANTS ARE DIRECTORS IN ABBOT HOTELS PVT. LTD. DURING THE YEAR SHRI SUNIL K. ABBOT FILED HIS RETURN OF INCOME DECLARING TOTAL INCOME AT RS. 25 50 187/ - . THE ASSESSMENT HAS HOWEVER BEEN C OMPLETED AT THE TOTAL INCOME OF RS.58 71 640/ - . DURING THE YEAR THE ASSESSEE CLAIMED TO HAVE EARNED LONG TERM CAPITAL GAIN OF RS. ITA NO 1559 1560 1561 /PN/200 8 & 135/PN/2009 SUNIL K. ABBO T ETC. A.Y. 2005 - 06 PAGE OF 16 3 33 06 500/ - ON ACCOUNT OF SALE OF SHARES WHICH WAS CLAIMED AS EXEMPT U/S. 10(38). THE ASSESSEE ALSO CLAIMED TO HAVE EARNED SHORT TERM CAPITAL GAIN OF RS. 21 60 807/ - ON SALE OF SHARES. 4. SHRI KRISHNALAL ABBOT IN ITS RETURN OF INCOME DECLARING INCOME AT RS.25 76 380/ - AGAINST WHICH ASSESSMENT HAS BEEN FRAMED ON A TOTAL INCOME OF RS.1 66 04 440/ - . DURING THE YEAR THE A SSESSEE CLAIMED TO HAVE EARNED LONG TERM CAPITAL GAIN OF RS. 1 39 77 048/ - ON ACCOUNT OF SALE OF SHARES WHICH WAS CLAIMED EXEMPTED U/S. 10(38) OF THE ACT. THE ASSESSEE ALSO CLAIMED TO HAVE EARNED SHORT TERM CAPITAL GAIN OF RS.20 75 459/ - ON SALE OF SHARE S. 5. IN THE CASE OF SHRI SUDHIR K. ABBOT THE ASSESSMENT HAS BEEN FRAMED AT THE TOTAL INCOME OF RS.52 22 490/ - AGAINST THE RETURNED INCOME OF RS.16 35 328/ - . DURING THE YEAR THE ASSESSEE CLAIMED TO HAVE EARNED LONG TERM CAPITAL GAIN OF RS. 35 47 600/ - AND SHORT TERM CAPITAL GAIN OF RS. 11 07 598/ - ON THE SALE OF SHARES. ON LONG TERM CAPITAL GAIN THE ASSESSEE CLAIMED EXEMPTION U/S. 10(38) OF THE ACT. 6. MRS. PARVESH K. ABBOT (SHE IS NOT THE DIRECTOR OF THE STATED HOTEL) RETURNED NCOME OF RS. 9 26 56 1/ - WHICH HAS BEEN ASSESSED AT RS. 52 76 460/ - . DURING THE YEAR SHE CLAIMED TO HAVE EARNED LONG TERM CAPITAL GAIN OF RS. 43 03 875/ - AND SHORT TERM CAPITAL GAIN OF RS. 8 89 782/ - ON THE SALES OF SHARES. SHE CLAIMED EXEMPTION U/S. 10(38) OF LONG TERM CAP ITAL GAIN. ITA NO 1559 1560 1561 /PN/200 8 & 135/PN/2009 SUNIL K. ABBO T ETC. A.Y. 2005 - 06 PAGE OF 16 4 7. IN ALL THE ABOVE CASES THE A.O DID NOT ACCEPT THE CLAIM OF LONG TERM CAPITAL GAIN AND SHORT TERM CAPITAL GAIN ON SALE OF SHARES AND HELD THAT THE ASSESSEE WERE TRADERS IN SHARES AND THE RESULTANT GAIN WAS TO BE TAXED AS BUSINESS INCOME. TH E A.O HAS ACCORDINGLY TAXED THE ENTIRE LONG TERM CAPITAL GAIN AND SHORT TERM CAPITAL GAIN AS BUSINESS INCOME OF THE ASSESSEE COMPANY. THE A.O HAS PRIMARILY BASED HIS CONCLUSION WITH THE REASONING THAT THE ASSESSEES HAVE ENTERED INTO FREQUENT TRANSACTIONS. HE HELD THAT THE ASSESSEES HAVE SOLD SUBSTANTIAL NUMBER OF SHARES OF VARIOUS COMPANIES DURING THE YEAR. ACCORDING TO HIM SUCH HUGE QUANTITY OF SHARES PURCHASED AND SOLD BY THE ASSESSEES INDICATE THAT IT IS A BUSINESS VENTURE. 8. THE CONTENTION OF TH E ASSESSEE ON THE OTHER HAND REMAINED THAT QUITE A FEW SHARES WERE PURCHASED BY THE ASSESSEE WAY BACK IN 1994 1997 AND 1998 ETC. AND HAVE SOLD THE SAME IN THIS YEAR. IF THE ASSESSEES WERE TRADERS IN SHARES IT WAS NOT POSSIBLE FOR THEM TO HOLD VARIOUS SHARES FOR SUCH A LONG TIME. THE QUANTITY OF SHARES PURCHASED AND SOLD HAS NO WEIGHTAGE AS COMPARIED TO THE FREQUENCY OF THE TRANSACTIONS. THUS A PERSON WITH LIMITED CAPITAL WOULD PURCHASE SHARES IN SMALL QUANTITY WHILE A PERSON WITH HUGE CAPITAL WOUL D PURCHASE SHARES IN LARGE QUANTITY. IT WAS ALSO SUBMITTED BY THE ASSESSEES THAT IN SPITE OF SETTLEMENTS THERE ARE NO TRANSACTIONS AT ALL. IT WAS ALSO SUBMITTED THAT THE ASSESSEES HAVE NOT TRADED IN ONE PARTICULAR SCRIPT. IT IS NOT THE CASE THAT THE AS SESSEES HAVE PURCHASED CERTAIN SHARES OF A PARTICULAR SCRIPT AND SOLD IT LATER ON AND THEREAFTER THEY HAVE AGAIN PURCHASED THE SHARES OF THE SAME SCRIPT. IT WAS SUBMITTED THAT THERE WAS NO INFRASTRUCTURE EMPLOYED BY THE ASSESSEES TO EARCH SUCH INCOME. I T WAS BASICALLY INVESTMENT OF SURPLUS FUNDS ITA NO 1559 1560 1561 /PN/200 8 & 135/PN/2009 SUNIL K. ABBO T ETC. A.Y. 2005 - 06 PAGE OF 16 5 NOT A SYSTEMATIC OR ORGANIZED ACTIVITY CONDUCTED BY THE ASSESSEE. RELIANCE WERE PLACED IN SUPPORT OF ABOVE SUBMISSIONS AND OTHERS. THE ASSESSEES HOWEVER COULD NOT SUCCEED IN THEIR FIRST APPEAL ON THE ISSUE. AGGRIEVED ASSESSEES ARE NOW IN APPEALS BEFORE THE TRIBUNAL AGAINST THE ABOVE ACTIONS OF THE AUTHORITIES BELOW. 9. REITERATING THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES THE LD. A.R. SUBMITTED THAT THE TRANSACTIONS IN SHARES BY THE ASSESSE WERE THROUGH OUT INTENDED FOR THE INVESTMENT PURPOSE. THEY DID NOT BORROW ANY MONEY TO INVEST RATHER INVESTED THEIR OWN MONEY IN SHARES. ASSESSEES ARE NOT SHARE BROKERS. HE PLACED RELIANCE ON THE FOLLOWING DECISIONS AND CBDT CIRCULAR : 1. CIT V/S. GOPAL PUROHIT INCOME TAX APPEAL NO.1121 OF 2009 DT. 6.1.2010 (BOMBAY HIGH COURT) 2. GOPAL PUROHIT V/S. JCIT (2009) 29 SOT 117 (MUM) 3. AJINKYA ELECTRONETT V/S. ACIT ITA NO. 1519/PN/2008 (A.Y.2005 - 06) ORDER DT. 30 TH JULY 2010. 4. CBDT CIRCULAR NO. 704 DT. 8.4 .95. THE LD. A.R. ALSO DREW OUR ATTENTION ON THE FOLLOWING DETAILS OF THE TRANSACTIONS IN SHARES BY THE ASSESSEES MADE AVAILABLE ON THE RECORD : A. SHRI SUNIL ABBOT T (ITA NO.1559/PN/2008) LONG TERM GAIN ON SALE OF SHARES AS ON 31.03.2005(FIFO BASIS) PERIOD OF HOLDING LONG TERM GAIN ITA NO 1559 1560 1561 /PN/200 8 & 135/PN/2009 SUNIL K. ABBO T ETC. A.Y. 2005 - 06 PAGE OF 16 6 RS. MORE THAN 1 YEAR 651 951 MORE THAN 2 YEARS 290 541 MORE THAN 3 YEARS 408 808 MORE THAN 4 YEARS 53 290 MORE THAN 5 YEARS 377 381 MORE THAN 6 YEARS 206 388 MORE THAN 7 YEARS 556 170 MORE THAN 8 YEARS 675 357 MORE THAN 9 YEARS 8 1 844 MORE THAN 10 YEARS 4 771 _____________________________________ G RAND TOTAL 3 306 501 1 0 . THE ASSESSEE HAS ALSO FURNISHED THE DETAILS OF PERIOD OF HOLDING IN CASE OF SHORT TERM CAPITAL GAIN OF SALE OF SHARES AS ON 3 1 MARCH 2005 (FIFO BASIS) : SHORT TERM GAIN ON SALE OF SHARES AS ON 31.03.2005(FIFO BASIS) PERIOD OF HOLDING SHORT TERM GAIN MONTHS 1 TO 3 112 845 MONTHS 4 TO 6 749 754 MONTHS 7 TO 9 597 089 MONTHS 10 TO 12 701 118 GRAND TOTAL 2 160 807 1 1 . IN THE CASE OF SHRI KRISHANLAL ABBOT THE DETAILS OF SHARE TRANSACTIONS HAVE BEEN SHOWN AS UNDER : ITA NO 1559 1560 1561 /PN/200 8 & 135/PN/2009 SUNIL K. ABBO T ETC. A.Y. 2005 - 06 PAGE OF 16 7 B. SHRI KRISHANLAL ABBOT AP PEAL NO. 1560/PN/08 FOR THE A.Y. 2005 - 06 RS. LONG TERM CAPITAL GAINS 13 977 048 SHORT TERM CAPITAL GAINS 2 075 460 TOTAL GAINS 16 052 508 ====================================== LONG TERM GAIN ON SALE OF SHARES A S ON 31.03.2005(FIFO BASIS) PERIOD OF HOLDING LONG TERM GAIN MORE THAN 1 YEAR 729 127 MORE THAN 2 YEARS 6 408 315 MORE THAN 3 YEARS 1.373 158 MORE THAN 4 YEARS 194 999 MORE THAN 5 YEARS 375 768 MORE THAN 6 YEARS 1 574 289 MORE THAN 7 YEARS 292 554 MORE THAN 8 YEARS 2 956 792 MORE THAN 9 YEARS 94 815 MORE THAN 10 YEARS (60 245) MORE THAN 11 YEARS 33 309 MORE THAN 12 YEARS 4 166 GRAND TOTAL 13 977 048 SHORT TERM GAIN ON SALE OF SHARES AS ON 31.3.2005 (FIFO BASIS ): ITA NO 1559 1560 1561 /PN/200 8 & 135/PN/2009 SUNIL K. ABBO T ETC. A.Y. 2005 - 06 PAGE OF 16 8 SHORT TERM GAIN ON SALE OF SHARES AS ON 31.03.2005(FIFO BASIS) PERIOD OF HOLDING SHORT TERM GAIN MONTHS 1 TO 3 (335 444) MONTHS 4 TO 6 1 955 229 MONTHS 7 TO 9 205 413 MONTHS 10 TO 12 250 262 GRAND TOTAL 2 075 460 1 2 . IN THE CASE OF SHRI SUDHIR K. ABBOTT THE DETAILS OF SHARE TRANSACT IONS FURNISHED ARE AS UNDER : C. SHRI SUDHIR ABBOTT APPEAL NO. 1561/PN/08 FOR THE A.Y. 2005 - 06 RS. LONG TERM CAPITAL GAINS 3 547 600 SHORT TERM CAPITAL GAINS 1 741 753 TOTAL GAINS 5 289 35 3 ====================================== SUDHIR ABBOT T LONG TERM GAIN ON SALE OF SHARES AS ON 31.03.2005(FIFO BASIS) SCRIP LONG TERM GAIN MORE THAN 1 YEAR 3 7 3 394 MORE THAN 2 YEARS 10 4 34 MORE THAN 3 YEARS 358 992 MORE THAN 4 YEARS 412 860 ITA NO 1559 1560 1561 /PN/200 8 & 135/PN/2009 SUNIL K. ABBO T ETC. A.Y. 2005 - 06 PAGE OF 16 9 MORE THAN 5 YEARS 728 942 MORE THAN 6 YEARS 1 414 047 MORE THAN 7 YEARS 171 956 MORE THAN 8 YEARS 51 325 MORE THAN 9 YEARS 39 697 MORE THAN 10 YEARS ( 31 2 63 ) MORE THAN 11 YEARS 17 217 _____________________________________ GRAND TOTAL 3 547 600 SHORT TERM GAIN ON SALE OF SHARES AS ON 31.03.2005(FIFO BASIS) SCRIP SHORT TERM GAIN MONTHS 1 TO 3 2 236 MONTHS 4 TO 6 813 546 MONTHS 7 TO 9 26 746 MONTHS 10 TO 12 265 070 GRAND TOTAL 1 107 598 1 3 . IN CASE OF MRS. PARVESH K. ABBOT THE DETAILS OF THE TRANSACTIONS FURNISHED ARE AS UNDER : D. MRS. PARVESH K. ABBOTT APPEAL NO. 135/PN/09 FOR THE A.Y. 2005 - 06 RS. LONG TERM CAPITAL GAINS 4 303 876 SHORT TERM CAPITAL GAINS 8 89 782 ITA NO 1559 1560 1561 /PN/200 8 & 135/PN/2009 SUNIL K. ABBO T ETC. A.Y. 2005 - 06 PAGE OF 16 10 TOTAL GAINS 5 193 658 ================================ LONG TERM GAIN GRAND TOTAL 4 303 876 MORE THAN 1 YEAR 3 296 721 MORE THAN 2 YEARS 118 008 MORE THAN 5 YEARS 1 53 344 MORE THAN 6 YEARS 245 398 MORE THAN 7 YEARS 268 255 MORE THAN 8 YEARS 232 371 MORE THAN 9 YEARS (18 881) MORE THAN 10 YEARS 4 894 MORE THAN 11 YEARS 3 765 SHOR T TERM GAIN GRAND TOTAL 889 782 1 TO 3 MONTHS 33 029 4 TO 6 MONTHS 769 187 7 TO 9 MONTHS 117 701 10 TO 12 MONTHS (30 134) 1 4 . THE ABOVE ASSESSEES HAVE AL S O FURNISHED THE DETAILS OF SCRIP WHEREIN SALE AND PURCHASE TRANSACTIONS HAVE BEEN CARRIED OUT BY THEM DURING THE PERIOD. ITA NO 1559 1560 1561 /PN/200 8 & 135/PN/2009 SUNIL K. ABBO T ETC. A.Y. 2005 - 06 PAGE OF 16 11 1 5 . THE LD D.R. ON THE OTHER HAND TRIED TO JUSTIFY THE ASSESMENT ORDER. HE PLACED RELIANCE ON THE FOLLOWING DECISIONS : 1 . SMT. SUREKHA BHAGWATI PRASAD MUNDADA V/S. ITO & OTHERS ITA NO. 1332/PN/2008 & OTHERS (A.Y. 2005 - 06) ORDER DT. 16 TH JUNE 2010. 2. SMT. SADHANA NABARA V/S. ACIT ITA NO. 2586/MUM/2009 (A.Y. 2005 - 06) ORDER DT. 26 TH MARCH 2010. 3. ACIT V/S. BLUE MOON SECU RITIES PVT. LTD. ITR 1019/N/2009 (A.Y. 2004 - 05) ORDER DT. 23 RD JULY 2010. 1 6 . IN REJOINDER THE LD. A.R. SUBMITTED THE DECISIONS RELIED UPON BY THE LD D.R. ARE HAVING DISTINGUISHABLE FACTS HENCE THEY ARE NOT HELPFUL TO THE REVENUE. 1 7 . THE ISSUE RAIS ED IN THE GROUND OF THE APPEALS IS HIGHLY DEBATABLE WHICH IS DEPENDABLE ON FACTS OF EACH CASE. THE HONBLE COURTS TIME TO TIME HAVE BEEN PLEASED TO PROPOUND SEVERAL TESTS TO ARRIVE AT A CONCLUSION AS TO WHETHER THE SHARE TRANSACTIONS UNDER CONSIDERAT ION IS INVESTMENT OR TRADE IN NATURE. IN ITS RECENT DECISION THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V/S. GOPAL PUROHIT (SUPRA) HAS UPHELD THE DECISION OF THE TRIBUNAL HOLDING THAT THE DELIVERY BASED TRANSACTIONS SHOULD BE TREATED AS IN THE NATU RE 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 HOLDING. IN THAT CASE BEFORE THE HONBLE BOMBAY HIGH COURT THE FIRST SET OF TRANSACTIONS INVOLVE D WAS HELD INVESTMENT IN SHARES. THE SECOND SET OF TRANSACTIONS INVOLVED WAS HELD AS DEALING IN SHARES FOR THE PURPOSE OF BUSINESS. THE HONBLE ITA NO 1559 1560 1561 /PN/200 8 & 135/PN/2009 SUNIL K. ABBO T ETC. A.Y. 2005 - 06 PAGE OF 16 12 HIGH COURT ALSO UPHELD THE ACTION OF THE TRIBUNAL ACCEPTING THE POSITION THAT IT IS O PEN TO AN ASSESEE TO MAINTAIN TWO SEPARATE PORTFOLIOS ONE RELATING TO INVESTMENT IN SHARES AND ANOTHER RELATING TO BUSINESS ACTIVITIES INVOLVING DEALING IN SHARES. 1 7 .1. IN ABOVE CITED CASE OF GOPAL PUROHIT THE TRIBUNAL OBSERVED THAT THE ASSESSEE HAS F OLLOWED A CONSISTENT PRACTICE IN REGARD TO THE NATURE OF THE ACTIVITIES THE MANNER OF KEEPING THE RECORDS AND THE PRESENTATION OF SHARES AS INVESTMENT AT THE END OF THE YEAR IN ALL THE YEARS. THE TRIBUNAL HELD THAT THE PRINCIPLE OF RES JUDICATA IS NO T ATTRACTED SINCE EACH ASSESSMENT YEAR IS SEPARATE ITSELF H OWEVER THERE OUGHT TO BE UNIFORMITY AND CONSISTENCY IN TREATMENT WHEN THE FACTS AND CIRCUMSTANCES ARE IDENTICAL PARTICULARLY IN THE CASE OF THE SAME ASSESSEE. THE HONBLE BOMBAY HIGH COURT HAS ALSO ACCEPTED THIS FINDING OF THE TRIBUNAL. THE HONBLE HIGH COURT ALSO AGREED WITH THE TRIBUNAL ABOUT THE BASIC PROPOSITION THAT ENTRIES IN THE BOOKS ALONE ARE NOT CONCLUSIVE IN DETERMINING THE NATURE OF INCOME. IN TH IS CASE OF GOPAL PUROHIT V/S. JCIT (SUPRA) UPHELD BY THE HONBLE BOMBAY HIGH COURT THE TRIBUNAL HAS DISCUSSED THE ISSUE IN DETAIL. THERE THE ASSESSEE WAS ENGAGED IN ACTIVITY OF SALE AND PURCHASES OF SHARES. IT ENTERED INTO TRANSACTIONS OF SALE AND PURCHASES OF SHARES IN TWO FORMS I.E. DE LIVERY BASED TRANSACTIONS AND NON - DELIVERY BASED TRANSACTIONS. NON - DELIVERY BASED TRANSACTIONS HAD BEEN TREATED AS BUSINESS ACTIVITIES AND INCOME EARNED FROM DELIVERY BASED TRANSACTIONS WAS SHOWN AS SHORT TERM CAPITAL GAIN OR LONG TERM CAPITAL GAIN DEPE NDING UPON THE PERIOD OF HOLDING OF THE SHARES AND FURTHER ASSESSEE HAS ALSO PAID SECURITY TRANSACTIONS TAX IN RESPECT OF SUCH TRANSACTIONS. ASSESSEE CLAIMED EXEMPTION U/S. 10(38) IN RESPECT OF ITA NO 1559 1560 1561 /PN/200 8 & 135/PN/2009 SUNIL K. ABBO T ETC. A.Y. 2005 - 06 PAGE OF 16 13 SUCH TRANSACTIONS IN RELEVANT ASSESSMENT YEAR. A.O. HELD T HAT ASSESSEE WAS ENGAGED IN ONLY ONE ACTIVITY I.E. ACTIVITY OF EARNING PROFIT THROUGH SALE S AND PURCHASE OF SHARES OR PURCHASE AND SALE WITHIN SHORT PERIOD AND LONG PERIOD AND EXPENSES INCURRED THEREON WAS INSEPARABLE AND HENCE ENTIRE PROFIT ARISING OUT OF SUCH TRANSACTIONS HAS TO BE ASSESSED AS INCOME FROM BUSINESS AND PROFESSION AND CONSEQUENTLY HE DISALLOWED CLAIM OF ASSESSEE. THE BOMBAY BENCH OF THE TRIBUNAL HAS DISCUSSED SEVERAL DECISIONS OF HONBLE SUPREME COURT AND HONBLE HIGH COURTS WHILE ADJ UDICATING THE ISSUE IN THAT CASE. ONE OF SUCH DECISIONS IS DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT V/S. H. HOLK LARSEN (1986) 160 ITR 67 (SC) HOLDING THAT FOR DETERMINING WHETHER A PERSON WAS DEALER OR INVESTOR IN SHARES THE REAL QUESTION W AS WHETHER THE FIRST STEP OF PURCHASE OF SHARES WAS TAKEN AS IN THE COURSE OF TRADING TRANSACTIONS IF THAT BE SO THE PROFIT THEREFROM WOULD BE BUSINESS PROFIT AND IF NOT SO THE PROFIT THEREFROM WOULD NOT BE TREATED AS EARNED BY A TRADER. THE TRIBUNAL H AS ALSO REFERRED DECISION OF HONBLE SUPREME COURT IN THE CASE OF KARANCHAND THAPER AND BROTHERS (P) LTD. V/S. CIT (1971) 82 ITR 899(SC) HOLDING THAT THE CIRCUMSTANCES THAT THE ASSESSEE HAS SHOWN CERTAIN SHARES AS INVESTMENT IN ITS BOOKS AS WELL AS IN ITS BALANCE SHEET WAS BY ITSELF MIGHT NOT BE A CONCLUSIVE CIRCUMSTANCE BUT IT WAS A RELEVANT CIRCUMSTANCE. AFTER DETAILED DISCUSSION THE TRIBUNAL HAS REFERRED THE DECISION IN THE CASE OF SARANATH INFRASTRUCTURE (P) LTD. V/S. ACIT (2009) 120 TTJ (LUCK) 21 6 WHEREIN THE LUCKNOW BENCH OF THE TRIBUNAL AFTER CONSIDERING IMPORTANT DECISIONS LAYING DO WN LEGAL PRINCIPLES TO DETERMINE THE NATURE OF TRANSAQCTIONS I.E. TRADING TRANSACTION OR INVESTMENT CONSIDERING THE ITA NO 1559 1560 1561 /PN/200 8 & 135/PN/2009 SUNIL K. ABBO T ETC. A.Y. 2005 - 06 PAGE OF 16 14 CBDT CIRCULAR NO. 4 OF 2007 HAS SUMMARIZED F OLLOWING PRINCIPLES IN PARA NO. 13 OF ITS ORDER : AFTER CONSIDERING ABOVE RULINGS WE CULL OUT FOLLOWING PRINCIPLES WHICH CAN BE APPLIED ON THE FACTS OF A CASE TO FIND OUT WHETHER TRANSACTION(S) IN QUESTION ARE IN THE NATURE OF TRADE OR ARE MERELY FOR INVESTMENT PURPOSES. (1) WHAT IS THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE OF THE SHARES (OR ANY OTHER ITEM). THIS CAN BE FOUND OUT FROM THE TREATMENT IT GIVES TO SUCH PURCHASE IN ITS BOOKS OF ACCOUNT. WHETHER IT IS TREATED AS STOCK - IN - TRADE O R INVESTMENT. WHETHER SHOWN IN OPENING/CLOSING STOCK OR SHOWN SEPARATELY AS INVESTMENT OR NON - TRADING ASSET. (2) WHETHER ASSESSEE HAS BORROWED MONEY TO PURCHASE AND PAID INTEREST THEREON? NORMALLY MONEY IS BORROWED TO PURCHASE GOODS FOR THE PURPOSES OF T RADE AND NOT FOR INVESTING IN AN ASSET FOR RETAINING. (3) WHAT IS THE FREQUENCY OF SUCH PURCHASES AND DISPOSAL IN THAT PARTICULAR ITEM? IF PURCHASE AND SALE ARE FREQUENT OR THERE ARE SUBSTANTIAL TRANSACTIONS IN THAT ITEM IT WOULD INDICATE TRADE. HABITU AL DEALING IN THAT PARTICULAR ITEM IS INDICATIVE OF INTENTION OF TRADE. SIMILARLY RATIO BETWEEN THE PURCHASES AND SALES AND THE HOLDINGS MAY SHOW WHETHER THE ASSESSEE IS TRADING OR INVESTING (HIGH TRANSACTIONS AND LOW HOLDINGS INDICATE TRADE WHEREAS LOW TRANSACTIONS AND HIGH HOLDINGS INDICATE INVESTMENT.) (4) WHETHER PURCHASE AND SALE IS FOR REALIZING PROFIT OR PURCHASES ARE MADE FOR RETENTION AND APPRECIATION IN ITS VALUE? FORMER WILL INDICATE INTENTION OF TRADE AND LATER AN INVESTMENT. IN THE CASE OF SHARES WHETHER INTENTION WAS TO ENJOY DIVIDEND AND NOT MERELY EARN PROFIT ON SALE AND PURCHASE OF SHARES. A COMMERCIAL MOTIVE IS AN ESSENTIAL INGREDIENT OF TRADE. (5) HOW THE VALUE OF THE ITEMS HAS BEEN TAKEN IN THE BALANCE SHEET? IF THE ITEMS IN QUE STION ARE VALUED AT COST IT WOULD INDICATE THAT THEY ARE INVESTMENTS OR WHERE THEY ARE VALUED AT COST OR MARKET VALUE OR NET REALIZABLE VALUE (WHICHEVER ITA NO 1559 1560 1561 /PN/200 8 & 135/PN/2009 SUNIL K. ABBO T ETC. A.Y. 2005 - 06 PAGE OF 16 15 IS LESS) IT WILL INDICATE THAT ITEMS IN QUESTION ARE TREATED AS STOCK - IN - TRADE. (6) HOW THE COMPANY ( ASSESSEE) IS AUTHORIZED IN MEMORANDUM OF ASSOCIATION/ARTICLES OF ASSOCIATION? WHETHER FOR TRADE OR FOR INVESTMENT? IF AUTHORIZED ONLY FOR TRADE THEN WHETHER THERE ARE SEPARATE RESOLUTIONS OF THE BOARD OF DIRECTORS TO CARRY OUT INVESTMENTS IN THAT COMMOD ITY? AND VICE VERSA . 1 8 THE ABOVE TESTS TO DETERMINE THE NATURE OF TRANSACTION I.E. TRADING OR INVESTMENT LAID DOWN IN THE CASE OF SARANATH INFRASTRUCTURE (P) LTD. (SUPRA) REFERRED IN THE CASE OF GOPAL PUROHIT V/S. JCIT (SUPRA) BY THE MUMBAI BENCH OF THE TRIBUNAL AND UPHELD BY THE HONBLE JURISDICTIONAL BOMBAY HIGH COURT HAS NOT BEEN DISPUTED IN ANY OF THE DECISIONS CITED BY THE LD. D.R. THAT THESE TESTS WOULD BE HELPFUL IN ARRIVING AT A CONCLUSION AS TO WHAT IS THE NATURE OF TRANSACTION IN SHARES IN A PARTICULAR CASE. DIFFERENT TESTS HAVE BEEN TAKEN IN CASES OF DIFFERENT ASSESSEES ON THE ISSUE DEPENDING UPON THEIR DIFFERENT FACTS AND CIRCUMSTANCES BUT THE RATIO LAID DOWN THEREIN IS ALMOST THE SAME I.E. CIRCUMSTANTIAL EVIDENCE IS TO BE TAKEN INTO CONSID ERATION TO DECIDE THE VERY NATURE OF SHARE TRANSACTION. WE THUS SET ASIDE THE MATTER TO THE FILE OF THE A.O TO DECIDE THE NATURE OF THE SHARE TRANSACTION IN THE PRESENT CASE AFRESH APPLYING THE BOVE TESTS LAID DOWN IN THE CASE OF SARANATH INFRASTRUCTUR E (P) LTD. (SUPRA) WHICH FIND PLACE IN THE DECISION OF BOMBAY BENCH OF THE TRIBUNAL N THE CASE OF GOPAL PUROHIT V/S. JCIT (SUPRA) NOW AFFIRMED BY THE HONBLE BOMBAY HIGH COURT. IT IS NEEDLESS TO MENTION OVER HERE THAT THE A.O. WILL AFFORD ADEQUATE OPPOR TUNITY OF BEING HEARD TO THE ASSESSEE WHILE ADJUDICATING THE ISSUE. THE GROUND IS THUS ALLOWED FOR STATISTICAL PURPOSES. 19 . IN RESULT THE APPEALS ARE ALLOWED FOR STATISTICAL PURPOSES. ITA NO 1559 1560 1561 /PN/200 8 & 135/PN/2009 SUNIL K. ABBO T ETC. A.Y. 2005 - 06 PAGE OF 16 16 THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 21ST JANUARY 201 1 . SD/ - SD/ - ( D. KARUNAKARA RAO ) ACCOUNTANT MEMBER ( I.C. SUDHIR ) JUDICIAL MEMBER PUNE DATED THE 21ST JANUARY 20 1 1 US COPY OF THE ORDER IS FORWARDED TO : 1. THE A PPELLANT 2. THE RESPONDENT 3. THE CIT I PUNE 4. TH E CIT(A) - I NASHIK 5. THE D.R. B BENCH PUNE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE